Sexta-feira, 1 de Julho de 2011

Eurointelligence Daily Briefing - 30 de Junho de 2011

Obtivemos este briefing graças ao Júlio Marques Mota e ao Domenico Mario Nuti, que o enviaram atempadamente ontem. Por problemas organizativos nossos, só hoje o publicamos. O seu interesse é manifesto.

 

 

Due to a technical glitch, a few of yesterday's email briefings were only sent out this morning. The web version was not affected. We apologise for the confusion.

Greece votes not to default this summer

  • Greek parliament votes 155 to 138 for austerity package, and is expected to approve implementation bill today;
  • financial markets still expectGreeceto default eventually, amid doubts that the government will implement the programme;
  • the additional annual burden for an average Greek family will be in the order of one month’s salary;
  • violent protests erupted in the centre ofAthensafter the vote;
  • Michael Martens argues thatGreeceis going to remain a limited democracy for some time to come;
  • central banks extend dollar swap lines as an insurance policy in case of a Greek default;
  • Jürgen Stark tells Die Zeit that any Brady-plan element in a rollover package would contravene the Art.125 TFEU;
  • Germanymay include longer-dating Greek debt instruments in the rollover package;
  • Merkel and Ackermann clash over the pretence of a “voluntary” rollover;
  • the Italian cabinet is due to pass a €47bn four-year austerity plan, with most of the savings earmarked for the time after the next elections;
  • Nicolas Sarkozy appoints budget minister Francois Baroin asFrance’s new finance minister;
  • a French legal commission will decide on July 8 whether the Christine Lagarde will be prosecuted;
  • Le Monde calls on Lagarde to emancipate herself from Sarkozy;
  • Patrick Welter criticises the direction the IMF had taken under DSK;
  • the European Commission, meanwhile, proposes a 1% sales tax and a financial transaction levy to boost its own resources.

______________________________

 

In the end, the margin was decisive – 155 to 138 – but few people expect thatGreecewill be able to implement the package its MPs have voted on. In September, the troika will descend onAthensand investigate whether the programme is still on track. And it will demand that any shortfall will have to be covered by new austerity measures. The expectation is now that the Papandreou government will last until the of the year, and that a debt restructuring is now virtually inevitable.

 

At yesterday’s vote, all but one of Papandreou’s Socialist MPs, and one New Democracy dissenter, backed the government’s midterm economic program, Kathimerini reports. Panagiotis Kouroublis voted against the program and was ousted from the party, Elsa Papadimitriou voted for the measures, breaking ranks with her party and declaring herself an independent.

 

Parliament votes on the second bill today. Government and analysts expect it will also pass. The debate in Parliament resumes at 9.30am, the vote is not expected before 2pm, Reuters reports.

The relief about parliament’s approval was only brief and most headlines this morning reflect this. Analysts said the real challenge will come after the bill is voted on and the international money secured. There is a growing concern over whether the government will be able to implement the unpopular cuts in practice to meet a tight schedule imposed by the EU and the IMF. Bloomberg quotes Greek newspaper To Vima calculated the additional burden for an average family of four at €2795 a year, about the same as one month’s income.

 

Violence escalated in central Athensafter Parliament approved the first bill of the new austerity package, with reports of dozens of protesters and police officers being injured in running battles, Kathimerini reports. Those clashes were among the worst Athens has seen in several months, writes the WSJ.

 

Limited democracy in Greece

 

After yesterday’s endorsement of the second rescue package in the Greek parliament Frankfurter Allgemeine Zeitung’s Michael Martens takes a look at democracy in Greece and concludes that “for the foreseeable future Greece will only be a limited democracy”. According to the author the Greek government has been stripped of its sovereignty and the elected representatives can no longer take meaningful decisions. Instead they execute what the EU and the IMF tells them to do. Martens dismisses worries of economists that the rescue programs could create moral hazard and constitute an invitation to countries to be fiscally irresponsible. “No prime minister will want to pay the prize that prime minister Papandreou currently has to pay”, he writes.

 

Central banks prepare for Greek accident by extending Dollar swap lines

 

The Fed, the ECB, the Bank of England, the Bank of Canada and the Swiss National Bank extended the Dollar swap lines that would have otherwise expired August 1<sup>st</sup>, Financial Times Deutschland reports.  Those swap lines were first created at the first height of the Geek crisis in May 2010 because European banks found it increasingly impossible to get short term dollar loans on the credit markets. The Fed therefore offered other central banks the possibility to borrow unlimited amounts of dollars which they in turn lend to their local banks. Since the Fed will not meet before August 9 and an accident in Greece is not excluded the Fed decided at their last FOMC meeting to extend the dollar swap line until August 2012.

 

Did Jürgen Stark jump the gun and reject the bond rescheduling package?

 

This is from a Reuters rendition of an interview in Die Zeit, in which Jürgen Stark said an instrument like a Brady bond was explicitly “disqualified” by Art.125 of the Treaty. He was asked about schemes under which banks would exchange their Greek bonds for new paper backed by EU states. The article concludes that this would also apply to the French bond rollover agreement, as one portion of it includes an EFSF issued, or guaranteed, zero coupon bond.

 

Reuters reports that Germany may include more Greek debt instruments in the package presumably because German banks hold only a relative small amount of short-dated debt. Citing “four people familiar with the talks”, the report said bond maturing up until 2020 might be included.

 

The FT, meanwhile, has a nice snippet from an ill-tempered conversation between Angela Merkel and Joseph Ackermann. Ackermann: “I am assuming that we will lend our hand to a solution, but not because we are doing it willingly.” Merkel retorted that private creditors should do it “willingly” because they had an interest in doing so.

 

Austerity comes to Italy

 

This is budget week in Italy, as Giulio Tremonti prepares the biggest austerity programme in the country’s modern history, but the savings are back-loaded to the end of the parliamentary terms, which may throw some of these measures in doubt. The FT has a good overview of the intrigues within the government that preceded the agreement, which is due to be voted on in the cabinet today.

 

The total size of the cuts is €47bn by 2014, of which €1.8bn are due this year, €5.5bn in 2013, €20bn in each 2013 and 2014. La Repubblica notes that most of the sacrifices would come after the next elections. The measures include an increase in the retirement age for women to 65 (the same as for men), an increase in health care charges, a tax on fast cars, a tax on financial transaction.

  

Sarkozy promotes Baroin to become finance minister

 

Nicolas Sarkozy promotes budget minister Francois Baroin to become finance minister. Baroin was in competition with agriculture minister Bruno Le Maire who was considered by many to be the front runner because he is elaborating Sarkozy’s electoral platform for the presidential elections and he is a German speaker. But Baroin, a former Chirac loyalist who threatened to resign in case he did not succeed to Christine Lagarde, had the support of many UMP deputies in the National Assembly and of the influential UMP chairman Jean-Francois Copé. Education minister Valérie Pecresse will replace Baroin as education minister. Le Maire, whom Sarkozy promised to get the finance ministry as late as Tuesday, gets noting and is considered the big looser. Le Monde, Les Echos and Le Figaro have a good and complete coverage of the government reshuffle. Baroin’s debut will be this Sunday when the Euro finance ministers meet in Brussels to complete discussions about the second rescue package for Greece and the bank’s involvement in paying part of it.

 

Lagarde’s potential legal worries


Le Figaro and Le Monde explain that Christine Lagarde will take over as the IMF’s new MD on July 5, but a legal commission will only decide on July 8 if Lagarde will be prosecuted in relation to a €1m transfer to the French tycoon Bernard Tapie to settle a year long dispute as a consequence of the Crédit Lyonnais scandal of the 1990s. Should the proceedings continue, Lagarde, who will not be protected by any immunity because all of this happened before she took over the IMF job, could be interrogated as a witness. It may even take years before the French Court of the Republic, a special court for government ministers, issues a ruling. In a nutshell, Lagarde’s handling of the Tapie case is doubtful because she decided against the recommendations of her advisors at the finance ministry in favour ofan arbitration, which ruled that the government should pay more than €200m to Tapie.

 

 

Lagarde needs to emancipate herself from Sarkozy

In its unsigned front page Editorial Le Monde criticizes Nicolas Sarkozy for calling Christine Lagarde’s nomination at the IMF a “victory for France”. If Lagarde wants to be effective and gain legitimacy with the emerging countries she needs to “get rid of the influence of the Elysée (the French presidential palace)” and to think what management of the Greek crisis is in the IMF’s best interest. Frankfurter Allgemeine Zeitung’s Patrick Welter explains in a long front page editorial that Lagarde is „not the right person“ to be at the helm of the IMF. Welter considers that DSK has set the IMF on the wrong track with his ambition to make the world’s economic government and central bank. The multiplication of tasks, its huge number of reports and its huge financial means have become a problem.“ The idea to give ever more credit and to act ever more like an insurance company against all risks creates the huge risk that the fund is stumbling from one bail-out to the next”. The IMF’s agenda should be self limitation instead and Lagarde, who sees herself in the tradition of DSK, is unlikely to promote a self limiting agenda.

 

 

Commission proposes EU tax in its budget frame work

All European newspapers report on the Commission’s proposal to introduce a 1% sales tax and a levy on financial transactions as part of plans to boost its seven-year budget to almost €1 trillion. The proposed new taxes are designed to reduce the amount EU governments must pay to Brussels, the Commission said, while increasing the block's budget by about 5% to more than €970bn between 2014 and 2020. Germany and seven other net payers ask the Commission for “very substantial savings” in the expenditure on EU officials. They want the Brussels administration to see if retirement age for officials can be raised and if the supplements for working abroad can be reduced.

 

 

 

 

Spreads, Forex, and ZC Swaps.

Spreads ease after the Greek vote. Italian spreads are back below 2%, Spanish spreads down to 2.6%. Euro strengthens.

 

Previous Day Close

Yesterday’s Close

This morning

France

0.409

0.394

0.397

Italy

2.056

1.980

1.976

Spain

2.711

2.591

2.593

Portugal

9.768

9.359

9.340

Greece

13.709

13.559

13.75

Ireland

9.147

8.896

8.945

Belgium

1.227

1.163

1.172

Bund Yields

3.245

2.986

2.99

 

 

Euro bilateral exchange rates:  

 

€at last Briefing

This morning

Dollar

+1.4371

+1.4503

Yen

+116.51

+116.63

Pound

+0.8981

+0.9005

Swiss Franc

+1.1944

+1.2053

 

 

Zero Coupon Inflation Swaps

 

previous close

last close

1 yr

1.89

1.82

2 yr

1.93

1.80

5 yr

2.08

1.96

10 yr

2.12

2.15

publicado por João Machado às 09:00
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