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| Eurozone crisis faces crunch month | |
| (about 9 hours later) | |
| The eurozone is entering one of the most nail-biting weeks since the debt crisis began almost three years ago. | The eurozone is entering one of the most nail-biting weeks since the debt crisis began almost three years ago. |
| In Athens, Frankfurt and Paris, political and economic battles are looming that will help determine the future of the single currency. In the Netherlands, the euro will dominate a general election campaign that could see another incumbent leader unseated. And in Karlsruhe, Germany's top judges will rule on whether Europe's new bailout mechanism, a key plank in the region's response to the crisis, is legal. | In Athens, Frankfurt and Paris, political and economic battles are looming that will help determine the future of the single currency. In the Netherlands, the euro will dominate a general election campaign that could see another incumbent leader unseated. And in Karlsruhe, Germany's top judges will rule on whether Europe's new bailout mechanism, a key plank in the region's response to the crisis, is legal. |
| Europe's leaders cannot win the battle to save the euro in September, but they can certainly lose it. | Europe's leaders cannot win the battle to save the euro in September, but they can certainly lose it. |
| Around 5 September: Troika returns to Athens | Around 5 September: Troika returns to Athens |
| The debt inspectors return to Greece next week to finish their assessment of the country's long-term growth and debt reduction. The troika's verdict will determine whether Greece receives the next slice of bailout aid, worth €31.2bn (£24.8bn). Greece's pleas for its austerity programme to be delayed by two years also hang on the report. Back in July, officials from the International Monetary Fund, the ECB and the European commission warned Athens that it was set to miss 210 out of 300 targets, a figure described as "staggering" by Martin Koehring at the Economist Intelligence Unit. He fears that a poor report could lead to Greece being ejected from the euro, triggering "severe contagion" within the eurozone. | The debt inspectors return to Greece next week to finish their assessment of the country's long-term growth and debt reduction. The troika's verdict will determine whether Greece receives the next slice of bailout aid, worth €31.2bn (£24.8bn). Greece's pleas for its austerity programme to be delayed by two years also hang on the report. Back in July, officials from the International Monetary Fund, the ECB and the European commission warned Athens that it was set to miss 210 out of 300 targets, a figure described as "staggering" by Martin Koehring at the Economist Intelligence Unit. He fears that a poor report could lead to Greece being ejected from the euro, triggering "severe contagion" within the eurozone. |
| "The Greek bank recapitalisation scheme depends on Greece receiving this €31.2bn tranche; hence, further delays would create uncertainty about Greek financial stability, and could eventually trigger a Greek disorderly default and euro exit," said Koehring. | "The Greek bank recapitalisation scheme depends on Greece receiving this €31.2bn tranche; hence, further delays would create uncertainty about Greek financial stability, and could eventually trigger a Greek disorderly default and euro exit," said Koehring. |
| He also fears that some German politicians have concluded, wrongly in his view, that the eurozone could now survive if Greece tumbled out. | He also fears that some German politicians have concluded, wrongly in his view, that the eurozone could now survive if Greece tumbled out. |
| "In our view, at a time when the euro area's mechanisms to prevent major contagion are not yet in place (the ECB is not yet a lender of last resort and the euro area's permanent rescue fund has not even been ratified yet), a 'Grexit' could undermine German chancellor Angela Merkel's euro rescue strategy fundamentally … A 'Grexit' before the firewall around Spain and Italy is sufficiently strong could thus herald the end of the euro area as a whole." | "In our view, at a time when the euro area's mechanisms to prevent major contagion are not yet in place (the ECB is not yet a lender of last resort and the euro area's permanent rescue fund has not even been ratified yet), a 'Grexit' could undermine German chancellor Angela Merkel's euro rescue strategy fundamentally … A 'Grexit' before the firewall around Spain and Italy is sufficiently strong could thus herald the end of the euro area as a whole." |
| The report was scheduled for mid-September, but could drag into October (as they say in the City, bad numbers take longer to add up…). | The report was scheduled for mid-September, but could drag into October (as they say in the City, bad numbers take longer to add up…). |
| 6 September: ECB governing council meeting | 6 September: ECB governing council meeting |
| It is not often that a monthly meeting of the ECB's governing council is described as eagerly awaited. Expectations are high for a major new bond-buying programme to drive down Spain and Italy's borrowing costs, but there are also fears that the Bundesbank will refuse to allow it. After ECB president Mario Draghi pledged last month to do everything within his mandate to protect the eurozone, City experts fear a rout if he fails to deliver. "Prices are only where they are now because there is a very material expectation priced in that the ECB will intervene. If September's meeting gives those expectations a knockback, we're really in trouble, and could see a level of crisis not seen before," said Paul McNamara at investment management firm GAM. McNamara believes it is crucial that the ECB puts its balance sheet into play to calm the crisis. | It is not often that a monthly meeting of the ECB's governing council is described as eagerly awaited. Expectations are high for a major new bond-buying programme to drive down Spain and Italy's borrowing costs, but there are also fears that the Bundesbank will refuse to allow it. After ECB president Mario Draghi pledged last month to do everything within his mandate to protect the eurozone, City experts fear a rout if he fails to deliver. "Prices are only where they are now because there is a very material expectation priced in that the ECB will intervene. If September's meeting gives those expectations a knockback, we're really in trouble, and could see a level of crisis not seen before," said Paul McNamara at investment management firm GAM. McNamara believes it is crucial that the ECB puts its balance sheet into play to calm the crisis. |
| There were rumours last week that the ECB might announce new caps on Spain and Italy's borrowing costs. This appears unlikely, though. McNamara predicts Draghi will "keep Italy and Spain's feet to the fire" by pledging to make unlimited interventions, but not at a set price. That would maintain the pressure on both countries to keep reforming their economies. | There were rumours last week that the ECB might announce new caps on Spain and Italy's borrowing costs. This appears unlikely, though. McNamara predicts Draghi will "keep Italy and Spain's feet to the fire" by pledging to make unlimited interventions, but not at a set price. That would maintain the pressure on both countries to keep reforming their economies. |
| "The balance of probability is very strong that we will not seen an explicit yield target," said McNamara. It is also likely that the ECB will only agree to start mopping up sovereign debt in the 'secondary market' if the eurozone's bailout funds have already begun buying bonds at auction, following a formal request for help from a sovereign. | "The balance of probability is very strong that we will not seen an explicit yield target," said McNamara. It is also likely that the ECB will only agree to start mopping up sovereign debt in the 'secondary market' if the eurozone's bailout funds have already begun buying bonds at auction, following a formal request for help from a sovereign. |
| 12 September: German constitutional court ruling | 12 September: German constitutional court ruling |
| Germany's highest court is considering whether the European stability mechanism, the new permanent bailout fund for struggling eurozone countries, is legal. Opponents of the fund claim it violates the "no bailout" clause written in the Maastricht treaty, and could leave Germany facing immense losses. The court could insist on certain amendments, or qualifications, in return for Germany's backing. Mike van Dulken, head of research at Accendo Markets, fears that anything short of full approval would "leave that spanner in the works", as questions over the fund would drag on into the autumn. Confusion would also undermine any decisions taken by the ECB on 6 September. | Germany's highest court is considering whether the European stability mechanism, the new permanent bailout fund for struggling eurozone countries, is legal. Opponents of the fund claim it violates the "no bailout" clause written in the Maastricht treaty, and could leave Germany facing immense losses. The court could insist on certain amendments, or qualifications, in return for Germany's backing. Mike van Dulken, head of research at Accendo Markets, fears that anything short of full approval would "leave that spanner in the works", as questions over the fund would drag on into the autumn. Confusion would also undermine any decisions taken by the ECB on 6 September. |
| 12 September: Netherlands general election | 12 September: Netherlands general election |
| The Dutch government collapsed in April 2012 after far-right leader Geert Wilders refused to back its emergency budget. Four months on, it is left-wing leader Emile Roemer, not Wilders, who is on track for major gains at the ballot box. Latest polls put Roemer's Socialist party ahead of the incumbent Liberals. This matters because if Roemer wins he is likely to push for a less austere approach to the crisis, potentially shaking the northern European consensus. Political analysts warn, though, that the Socialists may struggle to form a coalition. | The Dutch government collapsed in April 2012 after far-right leader Geert Wilders refused to back its emergency budget. Four months on, it is left-wing leader Emile Roemer, not Wilders, who is on track for major gains at the ballot box. Latest polls put Roemer's Socialist party ahead of the incumbent Liberals. This matters because if Roemer wins he is likely to push for a less austere approach to the crisis, potentially shaking the northern European consensus. Political analysts warn, though, that the Socialists may struggle to form a coalition. |
| Late September: French budget for 2013 | Late September: French budget for 2013 |
| With public support already sliding, François Hollande's government could face a backlash when it presents its budget for 2013. It is likely to cut its growth forecasts, which would mean new spending cuts or higher taxes to keep France's deficit reduction plans on target. | With public support already sliding, François Hollande's government could face a backlash when it presents its budget for 2013. It is likely to cut its growth forecasts, which would mean new spending cuts or higher taxes to keep France's deficit reduction plans on target. |