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Higher VAT raises fear of cross-border fraud

Increases in value added tax will come into force across Europe next month as governments turn to indirect tax to shore up public finances, sparking concerns about the region’s susceptibility to cross-border fraud that has already cost tens of billions of euros.

The number and scale of the VAT increases due to take place next year are unparalleled, said Richard Asquith at TMF Group, an accounting services company. “This is unprecedented and a real symptom of the economic climate as governments squeeze the consumer to keep business taxes low.”

At least half a dozen countries have ratified tax increases for the beginning of 2011. Within the European Union, these include the UK – 17.5 per cent to 20 per cent; Portugal – 21 per cent to 23 per cent; Poland – 22 per cent to 23 per cent; Latvia – 21 per cent to 22 per cent; and Slovakia – 19 per cent to 20 per cent.

The higher rates are set to boost the incentive for criminal gangs to pursue so-called missing trader or carousel fraud. This is a complex scam which involves taking advantage of the zero-rating of cross-border trade within the EU to make fraudulent claims for VAT refunds.

For example, a trader may import a van load of mobile phones from France, free of VAT, then add the VAT when selling them on in Britain. Instead of handing the VAT to the tax authorities, the trader pockets the money.

Such “missing trader intra-community” (MTIC) fraud historically revolved around buying and selling mobile phones and computer chips. However, fraudsters have migrated into other areas, targeting gas and power trading, the UK’s Serious Organised Crime Agency said recently.

This type of fraud was a big contributor to the €90bn-€113bn a year VAT “gap”, according to a European Commission report last year. This gap is the difference between the tax governments believe they ought to collect and the tax actually paid. It also includes legal avoidance and unpaid bills due to insolvencies.

Jason Collins, a partner at the law firm McGrigors, said higher VAT rates would increase the scale of the thefts and influence criminals’ choice of country to pursue this type of fraud.

The fraud has been on the wane recently in the UK, partly because much of the criminal activity has moved to continental Europe to take advantage of their higher VAT rates. But the UK risks a resurgence once its VAT rate is higher than other countries such as Germany and the Netherlands, where VAT is 19 per cent.

Improving the European VAT system’s resistance to fraud was one of the drivers behind the launch of a European Commission green paper this month that proposes radical reforms to the way the tax is collected.

It highlights the growing importance of VAT in Europe, which accounts for 21.4 per cent of the national tax revenues of EU member states, a rise of 12 per cent since 1995. It says reliance on VAT has increased, given the slump in direct and property-related taxes since the recession.

The indirect tax hikes are not just an EU phenomenon. For example, Switzerland is also proposing a VAT increase (7.6 per cent to 8 per cent), while Malaysia’s service tax rate will increase from 5 per cent to 6 per cent.

More increases are scheduled. Shortly before Christmas, Finland’s finance ministry suggested that VAT rates there should go up by two percentage points in order to finance a €2bn ($2.7bn) cut in income taxes and encourage people to work more. Read more at www.ft.com

 

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Big Gas Find Sparks a Frenzy in Israel

TEL AVIV—Two years ago, Ratio Oil Exploration LP, an energy firm here, employed five people and was worth about half a million dollars.

Today it sits at the center of a gas bonanza that has investors, international oil companies, Israeli politicians and even Hezbollah, Israel's sworn enemy, clamoring for a piece of the action.

Ratio's market capitalization now approaches $1 billion. The rally at Ratio is thanks to the company's 15% stake in a giant offshore gas field called Leviathan, operated by Houston-based Noble Energy Inc.

On Wednesday, the frenzy got fresh fuel: Noble confirmed its earlier estimates that the field contains 16 trillion cubic feet of gas—making it the world's biggest deepwater gas find in a decade, with enough reserves to supply Israel's gas needs for 100 years.

It's still early days, and getting all that gas out of the seabed may be more difficult than it seems today. But Noble and its partners think the field could hold enough gas to transform Israel, a country precariously dependent on others for energy, into a net-energy exporter.

Such a transformation could potentially alter the geopolitical balance of the Mideast, giving Israel a new economic advantage over its enemies.

Even before Wednesday's announcement confirming the size of Leviathan, the big field was causing a ruckus in Israel and the region.

Leviathan, named after the Biblical sea monster, and two smaller gas fields nearby have kicked up a broad speculative craze.

The energy index of the Tel Aviv Stock Exchange rose 1,700% in the past year. In recent months, energy stocks accounted for about a quarter of trading activity on the exchange, once mostly the domain of real-estate companies.

It's also shaken regional relations. Lebanese politicians are trying to lure companies to explore their nearby waters, while the two countries—still technically at war—have threatened each other over offshore resources.

Leviathan sits some 84 miles off Israel's northern coast and more than three miles beneath the Mediterranean's seabed. Noble began drilling its first exploratory well in the field in October.

In March, the U.S. Geological Survey released its first assessment of the zone, estimating it contained 1.7 billion barrels of oil and 122 trillion cubic feet of gas. That's equal to half the proven gas reserves of the U.S.

The finds also exposed a grittier underside to Israel's financial sector. A string of criminal investigations launched by Israeli authorities into share-price movements and company disclosures have dogged some of the bonanza's highest flyers.

"We saw new players, and these skeleton entities that had nothing to do with oil, had no experience or know-how, buying and trading leases, making baseless claims," said Industry, Trade and Labor Minister Uzi Landau. "We decided we had to stop this crazy atmosphere engulfing the market." He wouldn't discuss specific companies.

Officials at the Israeli Securities Authority declined to comment on specific cases, but said they were concerned about an ongoing pattern in which small energy companies publish vague or misleading reports that cause their share prices to skyrocket, and often to plummet later.

Finance Minister Steinitz has so far ignored the pressure. Last month, he said a government-appointed committee had made preliminary recommendations to abolish tax breaks for energy firms and impose steep tax increases of 20% to 60% on windfall profits. Any tax changes are subject to approval by Israel's cabinet. Read more at professional.wsj.com

 

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2010 in 9 diagrame

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A year in nine pictures

THE global property bust that pulled the world into recession in 2008 began to lift in 2010. House prices turned up in Britain and stabilised in America (chart 1) but slid further in Spain. The process of deleveraging kept rich-world inflation subdued (chart 2).

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European carmakers hit by China licence curb

European stocks fell sharply as concerns global growth may be slowed as China moves to rein in inflation and slow its powerful economy.

Trade in European equity markets was thin, however, as key players in the UK – due to public holidays – were missing. This left the markets prone to volatile moves and the FTSE Eurofirst 300 index was down 0.9 per cent to 1,137.49 in late morning trade.

In Germany, the biggest faller was BMW. The luxury car group was down 6.2 per cent to €59.32, while Porsche lost 4.9 per cent to €59.40, Volkswagen slid 4.7 per cent to €122.10 and Daimler shed 4.7 per cent to €51.55.

These heavyweight losses ensured a negative session on the Xetra Dax, which fell 1.2 per cent to 6,970.73.

In France, Peugeot lost 2.1 per cent to €28.84, while rival carmaker Renault lost 0.7 per cent to €43.44.

Carmakers fell after China also moved to limit the number of new vehicle licenses it issues in Beijing next year to 240,000 – about a third of last year’s total – as it strives to reduce the effects of relentless traffic in what has been ranked as the world’s most congested city.

December has, however, been a good month for equity markets, with the Eurofirst 300 up 7.5 per cent in the month to date, as investors put faith in efforts to rescue economies at the periphery of the eurozone. Banks have been among the stocks to benefit from the rally, but were down on Monday as the China rate hike prompted investors to take profits.

Spain, which is fast becoming the focus of investor suspicion after multiple credit downgrades for Ireland and Portugal in recent weeks, was the worst performing of the eurozone’s market indices, down 2.1 per cent to 9,899. Read more at www.ft.com

 

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Oh, No! Germany More Competitive

Earlier this month, European Central Bank President Jean-Claude Trichet said that euro-zone inflation risks were “broadly balanced.” Maybe a glance at last week’s data on the currency bloc’s hourly labor costs will change his mind (…okay, probably not).

Eurostat reported that hourly labor costs in the euro zone rose 0.8%, the lowest rate of increase on record since the agency started keeping track in 2000. What’s the importance of hourly labor costs?

Headline inflation numbers tend to be relatively noisy, bouncing around with surges and dips in the price of commodities. But wages and salaries change slowly. Many economists believe they more accurately determine whether inflationary pressures are becoming embedded in prices.

From this perspective, the current meager increases in labor costs suggest that inflation is very far from being a problem; instead, outright deflation may be the clear and present danger.

The ECB, it’s true, appears to give unusual weight to commodity prices when setting interest rates. In fact, soaring commodity prices were behind what has been regarded as one of the ECB’s more ill-timed monetary-policy decisions: its move in July 2008 to raise interest rates 0.25%, just months before the financial crisis exploded.

You might argue that falling labor costs show the EU economy is adjusting to the shock of the financial crisis. Weaker euro-zone economies and those countries that peg their currencies to the euro need to see their labor costs fall, after enjoying a decade of wage growth fueled by easy credit. Without the ability or desire to devalue their currencies, lower wages are essential to erasing competitiveness gaps with the core euro-zone economies: Germany, France, the Netherlands, Austria and Finland.

But here there’s also reason to worry. Latvia, a country that desperately needs to become more competitive, saw its hourly labor costs fall just 0.5%, while the Netherlands registered a 1.3% drop in labor costs. Finland’s labor costs fell 0.7%. And Germany’s labor costs rose just 0.5%. Greece was the only weak euro-zone that saw labor costs fall significantly (-6.6%). Read more at blogs.wsj.com

 

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Tosca

Premiera operei a avut loc pe 14 ianuarie 1900, la „Teatro Costanzi” din Roma.

În octombrie 1899, după trei ani de colaborare dificilă, opera era gata. Fiindcă era o poveste despre Roma, s-a decis ca premiera să fie în cetatea eternă, la Teatrul Constanzi. O curiozitate notabilă a plutit în jurul acestei opere a cărei pregătire a fost atât de lungă şi problematică. Tosca a fost soprana Hariclea Darclée, Cavaradossi a fost tenorul Emilio De Marchi iar Scarpia a fost baritonul Eugenio Giraldoni. Dirijorul a fost Leopoldo Mugnone. În public s-au aflat şi Regina Margherita, prim-ministrul Pelloux şi mulţi compozitori, printre care Pietro Mascagni, Francesco Cilea, Franchetti şi Sgambati.

Succesul a fost răsunător, chiar dacă diferenţa dintre atmosfera din Tosca şi Boema a fost una surprinzătoare.

[modifică] Roluri

Premiera din 14 ianuarie 1900 (Leopoldo Mugnone) Floria Tosca, o cântăreaţă celebră soprană Hariclea Darclée Mario Cavaradossi, un pictor tenor Emilio de Marchi Baron Scarpia, şeful poliţiei bariton Eugenio Giraldoni Cesare Angelotti, fostul consul al Republicii Romane bas Ruggero Galli Un sacristan bas Ettore Borelli Spoletta, un agent de poliţie tenor Enrico Giordano Sciarrone, un jandarm bas Aristide Parassani Un gardian bas Un băiat de cioban alto Angelo Righi Soldaţi, agenţi de poliţie, nobili şi femei, orăşeni, artizani Read more at ro.wikipedia.org

 

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Jamie Oliver on what we will eat

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Jamie Oliver on what we will eat

I’m also aware that global food production is having a huge impact on the environment. There will be many more people on the planet by 2036, and—let’s face it—not enough food to go around if we continue consuming and wasting food the way we have been. And when you add over-farming, over-fishing and climate change to the mix, you have to wonder if many of today’s ingredients will even be available 25 years from now.

Because I like to stay positive, I believe the future of food could be good so long as governments, retailers and consumers work together to put more emphasis on food education for both kids and adults. If we put the hard work in now, we’ll be better equipped to face the future—whatever it looks like. Read more at www.economist.com

 

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Hungary May Introduce Constitutional Ban on Abortion

Life must be protected from the moment of conception, Hungary’s ruling party said in a draft of the country’s new constitution that would effectively introduce a complete ban on abortion after several decades of liberal laws.

Pope Benedict XVI earlier in December told the Hungarian ambassador it was “desirable that the new constitution be inspired by Christian values, particularly in what concerns the position of marriage and the family in society and the protection of life.” The pontiff’s wishes are reflected well in the governing Fidesz party’s proposal, which — in additional to mirroring papal teaching on abortion — says marriage is “the most natural community of man and woman.”

Hungary’s new constitution — even though irritating for those who believe in women’s freedom of choice or fail to see any danger in gay marriage — could be interpreted as a response to the country’s population decline, which strains the pension system.

Hungary in November went back to a pay-as-you-go state pension scheme, into which current employees contribute cash paid out to current pensioners. Like elsewhere in the developed world, Hungary’s population is aging, which puts a question mark over who will pay pensions in several decades to those who are young now.

After the EU refused to allow Hungary to deduct the costs of the 1997 pension system change from its deficits, the country decided to fill the gap by eradicating the cost altogether and scrapping the mandatory funded system, managed by private firms.

The governing party might be hoping for a repeat of a surge in new births in 1950-1956 under Health Minister Anna Ratko, when abortion was banned and the childless taxed. The generation of the so-called Ratko-children was born. They and their children — the “Ratko-grandchildren” — have so far kept Hungary’s pension system running.

Poland’s constitution, adopted in 1997, mentions marriage as the opposite-sex union and states that life is protected from conception to natural death.

The Hungarian government’s pension system overhaul didn’t spark many protests in the society, which seems to agree the ruling party, with a two-thirds majority in parliament, has the right to choose the tools for reaching its economic goals. The new constitution will test if the society has a similar view on ethics. Read more at blogs.wsj.com

 

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The China Treat #in

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The China “Threat”

Everywhere you look, reporters, commentators, and policy wonks are examining the threats posed by the resurgent Middle Kingdom.

China has been busy modernizing its weapons systems.

These efforts include the deployment of cruise missiles similar to the ones that the United States uses in Pakistan, Yemen

John Gapper has an insightful column on the Chinese economic model, and how many of its state-owned companies are appropriating other countries’ intellectual capital.

CSR acquired much of its technological know-how from one of its former partners, Kawasaki Heavy Industries—the firm that constructed many of the original bullet trains in Japan. China is “determined to gain technological ascendancy by any means possible,” Gapper writes, “including taking western technology and reworking it just enough to claim it as its own

In acquiring know-how from abroad, protecting its infant industries, and using the levers of the state to hasten development, it is following a blueprint that most other developed countries used at some point—from Britain, to the United States, to Japan, to Taiwan and South Korea, to India. Indeed, as I argued in an essay in this week’s magazine, the Chinese mode of development—“state capitalism” is the phrase often used to describe it—rather than being something radical and new, can be seen as the country’s greatest knock-off. To quote myself: “Far from subverting the Western way of doing business, the developing world is, at last, stealing some of its tricks.”

Q: Who or what built the Internet? A: It wasn’t anybody who worked in the private sector.

This is a country that, in the nineteenth century, the West attacked and subjugated purely for commercial reasons. American school kids (and American adults) don’t know much, if anything, about the two Opium Wars, but in China they are an ever-present reminder of national humiliation. In the twentieth century, China suffered a devastating civil war and eventually adopted a particularly disastrous type of Communist ideology that, for five decades, impoverished the country while turning it into an international pariah.

rom its vast purchases of Treasury bonds to its central role in lowering the cost of many consumer goods, China is an invaluable trade partner of the United States, and should be treated as such rather than as a potential enemy. This is an issue where fairness and self-interest come together. In its leader this week, the Economist says: “The best way to turn China into an opponent is to treat it as one.” Amen to that! Read more at www.newyorker.com

 

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Fierce Competition for a fine ceramic sculpture of Lenin in Hungary

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An Auction for Budapest's Bourgeoisie Puts Lenin on the Communist Block

BUDAPEST—Competition was fierce for Lot No. 38, a fine ceramic sculpture of Vladimir Lenin.

The winning bidder was 22-year-old Timea Szabo, who offered nearly $1,000 for the small likeness of the communist hero. Ms. Szabo, too young to remember Hungary's socialist past, is firmly engaged with its capitalist present.

More than 20 years after the collapse of communism here, Hungary's government is holding a vast rummage sale, auctioning off socialist-era paintings, sculptures and photographs that have been gathering dust in storage.

The proceeds will be used to help clean up after another reminder of central planning: an industrial accident that in October left villages in western Hungary flooded with caustic red sludge—waste from a once state-owned aluminum factory.

On Monday night, hundreds of people joined the bidding at an art gallery that formerly served as a warehouse for Hungary's secret police.

Hungary's current political leadership views the purge in part as a symbolic exorcism of the ghosts of socialism—and a reminder of past suffering.

"It's an important gesture. Almost every Hungarian family was somehow a victim in the communist period," says Gergely Boszormenyi Nagy, an official of the Ministry of Public Administration and Justice, which organized the auction. "This is the end of the line. We won't keep this stuff anymore."

But the event also comes at a time of rising nostalgia for the socialist years —at least in some quarters of Hungarian society.

The country's economy has been upended by the global financial crisis. Unemployment soared as the country sank into its worst recession since the transition to capitalism in 1989.

Many older people thrown out of work now say that at least under the communist regime everyone had a job and something to eat.

"When I was young, I didn't really look deeply into the faults of the system," says Mr. Torok, a real-estate entrepreneur who says that his business is struggling amid the economic downturn. "I lived a calm, secure life where bread cost 3.5 forints and everyone had a job."

At Monday's auction, the Wende Museum of Culver City, Calif., purchased 25 pieces that it termed "significant works" of communist-era Hungarian art.

Sales reached $63,000 on Monday, the first day of the auction. Wednesday's session, which also included non-socialist pieces, raised roughly $96,000, organizers say. The auction concludes Thursday.

Peter Pinter, the owner of the gallery that is handling the auctions for the Hungarian government, believes that many of the items on the block are those that apparatchiks didn't deem good enough to pilfer when the communist system fell apart.

Two decades after the collapse of communism, nostalgic Hungarians and collectors of communist kitsch are snapping up Soviet-era artwork at a government-run auction. WSJ's Gordon Fairclough reports from Budapest.

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Euro zone at risk of losing everything

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Draghi warns on bond purchases

European Central Bank action to calm tensions in eurozone bond markets must remain firmly controlled, otherwise the euro’s monetary guardian risks “losing everything we have”, one of its most ­senior policymakers has warned.

Mario Draghi, Italy’s central bank governor, says in an interview with the Financial Times that large-scale purchases of government bonds could threaten the ECB’s freedom to act without political interference and break European Union rules.

“I’m only too aware that we could easily cross the line and lose everything we have, lose independence, and basically violate the [EU] treaty,” Mr Draghi warns.

His comments highlight the ECB’s determination not to embark on quantitative easing in the style of the US Federal Reserve, but instead increase pressure on eurozone governments to shore up their credibility with financial markets by embarking on credible programmes to keep public finances under control.

“The primary response to a crisis should be a national response – credible fiscal action and structural reforms that relaunch growth,” Mr Draghi says. He insists that “the euro is not in question”.

In his interview, Mr Draghi also reveals that the ECB is discussing “concrete proposals” for dealing with banks that are so weak that they have become dependent on ECB offers of unlimited liquidity. Such steps should form part of the “exit strategy” the ECB is executing to unwind emergency measures introduced after the collapse of Lehman Brothers in 2008.

Published figures show the ECB has spent €69bn ($91bn) on government bonds since the launch of the programme in May, but the total has almost certainly risen in recent days following a decision to step up purchases. Read more at www.ft.com

 

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Oil above 89 dollars in Asia, fuelled by Europe freeze

Freezing temperatures in Europe helped push oil prices above 89 dollars in Asian trade on Thursday, with sharp US crude inventory falls providing further cheer to the markets, analysts said.

New York's main contract, light sweet crude for January delivery, was up 79 cents to 89.07 dollars a barrel.

Oil prices rose as Europe experienced a renewed deep freeze, analysts said.

"With temperatures remaining frigid across Europe, oil prices have received a further boost supplementing a market where fundamentals were already in a tightening mode," Barclays Capital said in a report.

Travel chaos erupted in France and Scotland yet again after similar woes earlier in the week as renewed sub-zero temperatures forced the closure of airports, motorways and even the Eiffel Tower.

Oil fundamentals were also seen to be improving, with latest data released by the US Department of Energy late Wednesday showing a sharper-than-expected decline in the crude reserves of the world's biggest oil consumer. Read more at professional.wsj.com

 

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Bullish analysts estimate the oil price could soar above $100 (GBP64) a barrel

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Financial Adviser: Not all that glitters is gold.

Commodities play a key part in the global economy and investors need to identify trends of supply and demand

Before 1870 China and India were key drivers of world gross domestic product, accounting for more than 40 per cent for a sustained periods of time. Our expectation is that the current level from China and India of close to 20 per cent is likely to rebound strongly in the long term as these economies grow. This is important for commodity investors as long-term trends and demographics will drive demand.

China is currently the largest consumer of all commodities, excluding oil, and consensus forecasts expect its economic growth to remain at between 8 per cent and 10 per cent in 2011. The content and tone of China's next five-year plan will be an important short-term driver of commodities markets and its long-term influence will be substantial. As the global recovery continues into next year, we expect to see improving economic activity and commodity demand from both the developed and emerging world.

The sustained pick-up in industrial activity has led to significant increases in silver and copper prices, with gains of 41 per cent and 12 per cent respectively. Since the financial crisis, some metals have been able to increase supply as demand has recovered.

Structural challenges, such as the trend towards more underground mining, the prospect of mining lower-grade deposits - where there is a lower percentage of copper in the ore - and political instabilities in some production regions, such as the Democratic Republic of the Congo, are all constraining supply.

Oil has been a notable laggard within the commodities rally this year, broadly remaining range bound between $60 to $80 (GBP38 to GBP51) a barrel. Oil demand fell during the financial crisis and the gradual pick-up has been absorbed by high inventory levels and spare capacity from the Organisation of Petroleum Exporting Countries. At times the price has broken out of the range shown above largely due to weakness of the US dollar.

Bullish analysts estimate the price could soar above $100 (GBP64) a barrel

The trend of rising energy prices highlights the need for secure energy sources by governments. This is likely to refocus investor interest on the new energy market as alternative energy and energy efficiency will be instrumental in providing energy security in the long term.

the gold price had further to appreciate from current levels. We should note that a strengthening US dollar, higher real interest rates or an above consensus global recovery could negatively impact this view.

Emerging market governments, such as India, are adding to demand in their drive to diversify reserves from the US dollar alongside many other countries such as Russia, Saudi Arabia, Mauritius and Sri Lanka, who have all announced increases to their gold holdings in foreign exchange reserves this year.

Combined with the mining industry's inability to incrementally increase supply - mining production peaked in 2001 - and a lack of supply from central banks, we expect these factors to be supportive of a higher gold price in the long term.

While demand fundamentals for many commodities remain uncertain, I have a positive outlook for those commodities which are experiencing supply constraints. I believe this will offer exciting opportunities for investors in 2011, where commodity and stock selection will be integral to successful investment in this sector. Read more at professional.wsj.com

 

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‘Hacktivists’ take revenge for WikiLeaks

A group of “hacktivists” known as Anonymous spearheaded the attacks and dubbed them “Operation Payback”.

Automated barrages by WikiLeaks’ defenders also temporarily shut down web pages controlled by other companies that have cut connections with WikiLeaks, including credit card network Visa, whose public home page was down for less than an hour. In a statement, Visa said its regular payment processing was unaffected.

MasterCard initially blamed problems with its website on heavy traffic but later said some SecureCode services had been disrupted. It reassured customers that core processing capabilities have not been compromised and cardholder account data has not been placed at risk”.

Some technology experts said the disruption of core commerical services by a few thousand individuals could prompt calls for internet service providers to take a more active role in policing their networks and blocking connections from computers identitifed as participating in what are known as denial-of-service attacks.

The attack comes just a day after Julian Assange, WikiLeaks’ founder, was remanded in custody by a London court until December 14 after Stockholm issued an arrest warrant in connection with alleged sexual offences in Sweden. Mr Assange denies the charges.

The hacking free-for-all knocked offline a website of Swedish prosecutors, in retribution for the sex charges that led to Mr Assange’s arrest.

The official blog at PayPal, which the internet payments processor had used to explain its decision to stop handling donations to WikiLeaks, was shut by denial-of-service attacks for more than eight hours.

WikiLeaks has seen its own site come under attack from hackers and has also been forced to shift its main website to a Swiss domain after Amazon threw it off its web host. Last week EveryDNS.net, the company administering its domain name system, terminated its services. Read more at www.ft.com

 

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Merkel rejects debt crisis proposals

Angela Merkel, the German chancellor, has ruled out two of the most widely-backed ideas for combating the eurozone debt crisis, saying she saw no need to increase the size of the European Union’s €440bn rescue fund and that the bloc’s treaties did not allow for the creation of a Europe-wide bond.

The German rejection leaves the European Central Bank’s aggressive purchase of eurozone sovereign debt as the main weapon for the EU in fighting to keep the two most vulnerable countries, Portugal and Spain, from being forced into a bail-out.

Proposals to increase the size of the bail-out fund gained momentum over the weekend when Didier Reynders, the Belgian finance minister who chairs the EU’s economic affairs council, backed the move and said it had support from the International Monetary Fund. ECB officials have also signalled their support for the increase.

Mr Rehn said he found the idea of a Europe-wide bond to be “intellectually attractive”, but noted that a similar proposal was rejected by member states at the height of the Greek debt crisis in May.

Since the ECB began stepping up its round of bond purchases late last week, the borrowing costs for countries such as Portugal and Spain have begun to ease, but the market remained unsettled on Monday amid low trading volumes. Read more at www.ft.com

 

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