The EU’s Supranational Solution Snub

As EU members gathered to chart new regimes for the fiscal convergence Stability and Growth Pact and post-EFSF sovereign debt crisis resolution after Greece and Ireland operations, support for future bond issuance through a pan-European agency which would join the ECB as a main supranational actor floundered on German AAA rating endangerment claims and technical objections. The group however endorsed the 2020 Project Bond Initiative which will provide subordinated guarantees for infrastructure-related private sector placement either separately or through the European Investment Bank, which has now been tasked additionally with fast-tracking up to EUR 6 billion in loans to the Mediterranean and Middle East after upheavals there. Libya is not currently a signatory, although Italy which is its largest trade partner as supplier of one-third of oil needs could push for an eventual agreement after late February’s abrogation of the bilateral friendship and cooperation treaty in protest over Gaddafi government attacks against opponents after a long record of reported human rights violations. The sovereign wealth fund also has a prominent stake in Unicredit which has recently undergone a management shakeup and unveiled a recapitalization strategy to preserve its far-flung emerging Europe network. The German challenge came as 2010 last quarter 3 percent GDP growth put it above neighbors in “multi-speed” recovery cited by Brussels, central bank representative Weber resigned as a likely Trichet successor with a diatribe against the bond-buying program, and the courts and parliament consider motions against existing bailout and potential buyback and other enhanced schemes.

The original Maastrichtcriteria will be reinstituted and revised for Euro entry, with structural reform and prudential supervision elements included alongside public finance and inflation indicators. Unlike the chronic pre-crisis breaches without penalty, they will be subject to close peer reporting and surveillance and a sanctions process. A related competitiveness agenda seeks to align labor market and tax standards and offer shared formulas for social security overhaul. On debt restructuring, aid after 2013 will be contingent on a positive sustainability assessment, and mandatory collective action clauses in bond contracts intend to facilitate commercial burden-sharing that could bring maturity extension and interest and principal reductions thus far summarily rejected. The stabilization mechanism then would have senior creditor status, and emergency liquidity rates and terms could be less onerous than in the ongoing Greek and Irish cases and prospective request from Portugal, where 10-year yields have not budged from 7 percent. Hungary, which was first in line in 2008 and now spurns further IMF-EU assistance may in turn need to summon the sustainability study after heavy criticism of its vague plan to cut sovereign debt from the present 80 percent of GDP in a blunted “attack.”