THE CHRISTMAS wind-down began in Brussels amid fresh warnings about the debt crisis and anticipation that a new European Central Bank safety net for banks will take some of the pressure off Europe’s leaders.
A small measure of respite from the emergency may be in prospect as political activity wraps up for the holiday season, but few officials are under any illusion that a definitive solution is to hand after two years of woe.
Scarcely a fortnight since the last EU summit, European Council president Herman van Rompuy is already preparing to recall political leaders to Brussels next month.
While their next scheduled engagement does not take place until March, a well-placed official source said moves were in train to call another summit on January 30th.
With many questions left unanswered in a deal two weeks ago to develop an intergovernmental treaty to toughen the EU’s budget rules, preparations for an informal meeting reflect concern that the leaders’ latest initiative has not instilled confidence in markets.
Concerned about the emergence of a new credit crunch and a threatened recession next year, the ECB will today offer banks cheap emergency loans over a three-year term in a bid to stabilise the situation.
While officials expect banks to use the proceeds to lessen their indebtedness by buying back their own debt from the market investors, at least some of the money may be used to purchase sovereign bonds.
As national diplomats began the laborious process yesterday of negotiating the new treaty, little substantive progress was anticipated until the new year.
Meanwhile, the steady drumbeat of alerts about Europe’s all-important credit ratings continued apace.
Days after the Fitch credit rating agency issued a threat to the triple-A rating of France, the head of that country’s securities regulator said a “miracle” might be required to preserve the top rating.
“Keeping it would need a miracle, but I want to believe it can happen,” said Jean-Pierre Jouyet of AMF.
Rival agency Standard Poor’s has had the French triple-A rating on watch for weeks, threatening a downgrade which would in turn compromise the top rating of Europe’s bailout fund.
This rating enables the European Financial Stability Facility fund to borrow money at advantageous rates which it then lends on to Ireland and other bailout recipients at a much lower rate than the open market demands for their sovereign debt.
In a note yesterday, Fitch underlined the vulnerability of the EFSF’s position. “The AAA-rating on debt issues of the EFSF largely depends on France and Germany retaining their AAA status.
“The revision of the rating outlook on France to negative last Friday implies that the risk of a downgrade of EFSF debt has increased,” it said.
“We affirmed France’s AAA status, but warned that there is a slightly greater than 50 per cent chance of a downgrade within the next year or two.
“This is therefore also the case for the AAA-ratings assigned to the EFSF’s debt issues, unless additional credit enhancement mechanisms are introduced.”