It's 'business as usual' for EU finance chiefs at Brussels summit

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The Independent Online

Despite the extraordinary events in New York, in the conference rooms of Brussels it was a matter of business as usual – or, anyway, as close as it could be when an international economic summit finds itself in the unprecedented situation of being overshadowed by allegations of attempted rape.

The most important figure at the European finance ministers' meeting in the Belgian capital – the German finance minister Wolfgang Schäuble – said the arrest of Mr Strauss-Kahn would have little effect on proceedings. "The IMF is a large institution and able to work," he said, though heavy hints that Greece would indeed have to restructure its debts in the near future were less reassuring. That, rather than the fate of Mr Strauss-Kahn, was perhaps the real spectre at the official dinners in Brussels last night.

The reality, acknowledged by all concerned, is that a formal announcement of the €78bn joint bailout of Portugal by the International Monetary Fund (IMF) and eurozone nations has been planned days, if not weeks, in advance. The rest of the agenda of the meeting was also settled long ago by the civil servants – the "sherpas" who try to find pathways to agreement for their political masters, as is the norm. So the summit, which continues today, will see ministers agree to that Portuguese rescue (the third for a eurozone member state), a new boss for the European Central Bank (ECB) and further discussions about Greece and Ireland's difficulties, but with no formal new initiatives on those.

Despite some hopes to the contrary, Ireland's government seems to have failed to win a lower interest rate on the €85bn loan agreed last November. French objections to Ireland's ultra-low 12.5 per cent corporation tax rate are thought to have been a stumbling block there. "What I expect today is that the programme as well as the financing programme will be approved today," said Portugal's finance minister, Fernando Teixeira dos Santos, before the talks. "I believe all the issues we had to clarify were clarified."

Mr Schäuble echoed that optimism, dismissing fears that elections in Portugal might derail a deal. "There is evidently a broad political consensus in Portugal, so that the question of how Portugal can be helped doesn't hinge on the outcome of the elections," he said.

The terms of the Portuguese rescue are similar to the one for Ireland. Portugal's 16 eurozone partners will fund two-thirds and the IMF one-third of the loans. IMF loans for the first three years will come at a 3.25 per cent interest rate. The rate on the European portion will be between 5.5 per cent and 6 per cent. British officials are keen to point out that the UK will make no contribution beyond normal IMF obligations, in this case a few billion pounds. Unlike in the case of Ireland, there will be no special loan, as Portugal is judged not as crucial a trading partner.

It is Greece, though, that will cause the ministers the most angst. Officials from the "troika" of the EU, the ECB and the IMF have been in Greece to assess progress in meeting the terms of the first €110bn bailout last May. They are expected to brief ministers, unofficially, that events are not moving as fast or as well as was first hoped.

Evidence that the Greek rescue has not worked, for whatever reason, has raised expectations in the markets that Athens will still be unable to get credit next year, and may need a further €70bn in EU and IMF funding. Even then, many – especially in Berlin – are convinced that Greece will be forced to "restructure" her unmanageable debts, probably by extending the maturity date of government bonds.

But such a move, even of a modest and orderly nature, represents a potentially existential threat to the euro. It would form a dangerous precedent for other, much larger countries; it would crystallise losses for the ECB of perhaps €30bn on the bonds it has taken in as collateral for lending to private Greek banks; and it would devalue core assets held by those banks as well as French, Dutch and other institutions, including Royal Bank of Scotland, possibly triggering a second credit crunch.

Who might replace Strauss-Kahn?

John Lipsky

The IMF's acting leader, aged 67, is at the top of the janitorial premiership. Were it not for his nationality – Americans, by convention, do not head the IMF – and his declaration that he wants to stand down in the autumn, he would be a perfect candidate.



Gordon Brown

Effectively vetoed by his "home" government, the former prime minister, 60, would find it difficult to heap praise on the British Government's strategy to reduce the budget deficit, as the IMF has in recent months.



Mario Draghi

Mr Draghi, 63, who is the head of the Italian central bank and the G20's powerful panel of regulators, the Financial Stability Board, is now needed to run the European Central Bank at its Frankfurt headquarters.



Kemal Dervis

The 62-year-old helped to rescue Turkey's public finances a decade ago and served as No 3 at the United Nations as head of its development programme. He is currently in Washington as vice-president of the Brookings Institution.



Agustin Carstens

The 52-year-old has been governor of the Bank of Mexico since last year and is a former deputy managing director of the IMF. He is a familiar and well-respected figure on the global financial circuit.



Montek Singh Ahluwalia

A former Rhodes scholar at Oxford University, he worked at the IMF 10 years ago and is now deputy head of India's planning commission. Observers say the 67-year-old is the most important figure in economic policy-making there.



Stanley Fischer

Distinguished academic, author of undergraduate economics textbooks and governor of the Central Bank of Israel since 2005. Mr Fischer, 67, is the former No 2 at the IMF and the World Bank.



Trevor Manuel

A former finance minister and now head of the planning commission in South Africa. The 55-year-old would bridge the North-South divide and be a popular choice. Detained and banned from his own country under apartheid.

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