The second day of the EU summit ended on Friday with European leaders pledging to continue working next year on economic reforms aimed at leading the area out of the crisis. One of the main achievements was the agreement on a single banking supervisor, which is an important step towards attaining the Economic and Monetary Union. A roadmap for the completion of the EMU has been drawn up.
The final conclusions of the summit list other important issues which were discussed such as the common security and defence policy.
European Council President Herman Van Rompuy commented on the matter at a press conference following the meeting: “We want to see a stronger defence industry in Europe which will contribute to more innovation and competitiveness and to more growth and employment across our Union.” The president was generally optimistic about the outcome of the summit saying that it was ¨very positive¨and that "the European Union has covered a lot of ground and which mapped out the way forward for next year.”
German Chancellor Angela Merkel, who spoke to reporters after the meeting, was a bit more gloomy and warned that the crisis was far from over and there was still a lot to be done.
"On the one hand we have accomplished a lot. But we also have tough times ahead of us that can't be solved with one big step. There has been lots of talk about the one step, whether it be a debt haircut, euro bonds or some other measure that will solve everything. That won't be the case," she said.
Fitch keeps France's top AAA rating
Fitch rating agency announced on Friday that it affirms France's rating at AAA, adding however that the outlook remains negative.
In the official statement the rating agency acknowledges that France has a “wealthy and diversified economy.” It adds that “moderate household indebtedness and a relatively high savings rate render the French economy less exposed to private sector deleveraging than several high-grade peers, notably the U.K. ('AAA'/Negative) and the U.S. ('AAA'/Negative). Moreover, with net foreign debt equivalent to 23.1% of GDP (at end-2011), broadly in line with the 'AAA' median, and a current account deficit below 2% of GDP, relative to eurozone peers France is not especially exposed to an external financing shock.”
It is expected that the country’s debt-to-GDP ratio will rise to 94% by 2014, exceeding those of other countries with the top rating except for the US and the UK, although “this is at the limit of the level of indebtedness consistent with France retaining its 'AAA' status assuming the government debt is firmly placed on a sustainable downward path from 2014.”
Leaders debate EMU consolidation after bank supervision deal
In order to achieve the completion of EMU, the 27-countries bloc made further progress on the roadmap to achieve such goals, after the agreement for a Euro bank supervisor by the ECB earlier on the week, which will police north of 200 flagship banks.
Today's European leaders meeting, which again concluded over 2 hours past midnight Brussels time, showed some understandable differences on how to go about the next critical steps, such as a banking resolution, measure to reduce country's deficit and a budget for the whole bloc.
One of the notorious opposed members to see mutualisation of the debts after the ECB bank's oversight role, was German Chancellor Angela Merkel, who continues to play it safely against passing new liabilities for German taxpayers ahead of next year's national elections.
As Reuters notes, "a German delegation source said that in the summit room, she opposed a joint resolution fund for banks at this stage and rejected any big "fiscal capacity" to help euro zone states cope with economic shocks or reward them for structural reforms. Instead, she said EU countries should concentrate on consolidating their own budgets, according to notes of the meeting and an account provided by one participant."
Merkel, once out of the official meeting, told reporters that the bank union deal was a 'very important' decision taken by the EZ leaders, and that such agreement paves the way for future positive developments of a currency union. On the transaction tax, she suspects a solidarity fund for Euro zone states with limits 10 to 20 billion Euros
Also understandable was the reported approach by Spain and Italy's prime ministers, countries that continue sunk in a harsh austeritarian path while battling against an undesirable 5-6% yield on their 10-yr paper; both Mr. Rajoy and Mr. Monti tried to gain their counterparts's support in order to beef up funding in exchange for the discipline in economic reforms so far.
French president Mr. Hollande said once the summit came to an end that direct bank recapitalization in 1H 2013 would come under conditions, although reassuring that the bank supervisor will be up and running by March 2014, a somewhat contrarian two lines. Hollande added that the ECB regulation will most likely cover 95% of the French banking sector, while is expected to oversight as much as 82% of German banking.
EU's Juncker, during a brief speech in the conference room, mentioned that EU leaders were divided over the 'solidarity mechanism' with 'controversial' issues having to be resolved during the morning. Meanwhile, ECB's Draghi said progress was made on resolution mechanism.
S&P cuts UK outlook to negative
The Rating agency Standard and Poor's decided on Thursday to put UK's AAA rating on negative outlook from stable.
S&P expects the government debt/GDP ratio to rise in 2015 before declining. The agency also said the employment or growth shocks could pressure further the government finances.
This confirms a negative view that Moody's and Fitch have already announced on the UK, putting the country's AAA rating in jeopardy
