Bar chart of the Stoxx 600 index, percent change for the month, with European stocks heading for the best month ever

Debt Relief Culture and the ECB

Christine Lagarde slammed the door on the idea that the European Central Bank could drive to bail out over-indebted eurozone governments by canceling the huge stacks of their purchased bonds.

“I don’t even ask myself the question, it’s that simple because anything in that direction would simply be in breach of the Treaty,” replied the ECB President to a question from a member of the European Parliament.

Ms. Lagarde was repeatedly asked by MPs about the idea of ​​debt relief when she spent more than three hours answering questions at one of her regular appearances in front of Parliament that was held online because of coronavirus.

What triggered this new fixation? David Sassoli, President of the EP, told La Repubblica a few days ago that debt relief is “an interesting working hypothesis that can be reconciled with the fundamental principle of debt sustainability”.

This was immediately taken up by Matteo Salvini, leader of the Italian party against migration, who stated on Twitter: “After months of resistance, the European establishment recognizes the validity of our proposals.”

Mrs. Lagarde was clearly unimpressed by all this. “The ECB works according to the treaty. There is Article 123 of the treaty that prohibits such an approach and I respect the treaty. Period.”

Undeterred, Marco Zanni, a MEP from Mr Salvini’s party, tried a different type of questioning. Wasn’t there a risk that the ECB might suffer losses if the bonds it bought for more than EUR 3.5 billion lose value? He asked. Could the ECB burn its capital and go bust as a result?

Ms. Lagarde, whose patience is waning, read a statement: “As the only issuer of money denominated in euros, the euro system will always be able to generate additional liquidity if necessary, so that by definition it will neither go bankrupt nor run out of money Has. ”

The debt burden problem is preoccupying EU policymakers after the European Commission this week urged several countries – Belgium, France, Greece, Italy, Portugal and Spain – to be careful about building unsustainable debt positions after it signed its 2021 budget have plans.

The commission said the draft budgets indicated that eurozone governments would run headline deficits of 8.6 percent of GDP this year, followed by a deficit of 5.9 percent next year. Overall, the two-year deficits are likely to increase the eurozone’s national debt by over EUR 1.5 billion.

Italy’s national debt is expected to exceed 160 percent of gross domestic product due to additional spending. This would make it the second highest debt level in the euro area after Greece, whose debt is almost twice as high as GDP.

Chart du jour: European equities roller coaster

The European stock markets were only interested in one topic this year: the coronavirus. After encouraging news about vaccines, the Europe-wide Stoxx 600 index is said to have risen 14 percent on Wednesday in November. This is the highest month-on-month increase in at least thirty years. By Thursday, however, the index had fallen 0.8 percent as new restrictive measures to combat the second virus wave were announced in European countries. (Diagram over FT)

Summary of Europa News

The heads of state and government of the EU were able to avoid a significant confrontation with Poland and Hungary over the bloc’s 1.8 billion euro budget on Thursday. © POOL / AFP via Getty Images

  • The heads of state and government of the EU held a superficial 16-minute discussion on their budget crisis via video conference on Thursday evening. The heads of state and government such as Angela Merkel and Ursula von der Leyen called on the bloc to remain calm and negotiate in the face of the vetoes from Poland and Hungary. Thursday evening’s summit was described by a diplomat as a “staged” attempt to avoid any bankruptcy with Warsaw and Budapest, which earlier this week vetoed the ratification of the bloc’s 1.8 billion euro budget and Covid-19 -Inserted recovery package. Ms. Merkel said the talks to solve the Spat have begun: “It is a serious problem that we have to solve, and we will work hard and seriously on it.” (FT)

  • The Brexit trade talks switched to a virtual format after a member of the EU team signed Covid-19. The sides had been in intensive talks in Brussels since Sunday looking for a deal. With time running out to ratify a treaty, countries like France and Spain have asked the Commission to update contingency plans for a no-deal scenario. (FT / Reuters)

  • The former managing director of Wirecard, Markus Braun, appeared on Thursday before an investigation by German MPs into the collapse of the company. Wirecard executives, including Mr. Braun, are accused of defrauding EUR 3.2 billion from creditors. The former boss’s statement released regulators and auditors from guilt – but he refused to answer any questions, which enraged MPs. (FT)

  • The EU should not bend to Poland and Hungary under the rule of law, writes George Soros. The Hungarian philanthropist argues that the EU “cannot afford to compromise” and that there is a way to circumvent the country’s veto, but it would be a question of whether the EU “can muster the political will”. Mr Soros also suggested sending EU funds to the local authorities in Hungary to cut Budapest out of the process. (Project syndicate)

  • FT’s Chief Foreign Policy Commentator Gideon Rachman delves into the Macron Doctrine in the latest installment of the Rachman Review podcast. Topics include how the French President’s plan for a more independent Europe was sustained by the pandemic and the controversy surrounding his anti-radicalization policies.

  • While policymakers might be delighted that Covid-19 vaccines could get approved by the end of the year, they may have to worry about how many people actually want the shocks. According to the French research company Elabe, only 4 out of 10 French people plan to have a vaccination. The numbers suggest women are slightly more likely to reject the push. The reasoning focuses on the lack of control in the approval process.

Come up

Commissioner Ursula von der Leyen and Charles Michel from the Council will take part in the virtual G20 summit this weekend. EU ambassadors will be informed of the status of the Brexit talks on Friday by a member of Michel Barnier’s team.

[email protected]; @ MAmdorsky
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