Sexta-feira, 1 de Julho de 2011

Eurointelligence Daily Briefing - 1 de Julho de 2011

Second vote passed, and now what?

  • The Greek parliament approves the implementation bill by 155 to 138;
  • Evangelos Venizeles promises to set up a privatisation fund to sell off €50bn in state assets;
  • life on Syntagma Square in Athens returns to normal after Wednesday’s riots;
  • former EU Commission Vasso Papandreou accuses Germany of preparing the ground for a Greek bankruptcy;
  • German private banks will contribute a pathetic €2bn to the rollover package;
  • Mark Schieritz says the French rollover proposal is deeply flawed, and will make it harder for Greece to return to the market;
  • Italy’s cabinet passed the multi-annual budget – we have the details of the main measures;
  • Guido Westerwelle claims a majority of member states oppose the idea of an EU tax;
  • Bild says Britain takes a free ride by not participating in Greek rescue;
  • Jean Quatremer notes that France now its fifth European affairs minister in four years;
  • Arnaud Leparmentier writes how Nicolas Sarkozy was pushed by into the appointment of Francois Baroin by the young Turks of his party;
  • the French president’s popularity has begun to a recover a little – but he still remains deeply unpopular;
  • Eric Le Boucher writes that the next president will have to take tough deficits on budget cuts;
  • the case against DSK, meanwhile, appears on the verge of collapse, according to the New York Times.

A Make or Break Moment for Greece

By: Jens Bastian


What we are currently witnessing on the streets and squares across Greece is the next stage of the country’s two-year long crisis. It now involves the collapse in trust between citizens and Greek-style parliamentary democracy.



The Greek government got the parliamentary approval for the implementation of austerity measures in the second vote on Thursday, now set to secure emergency payment and avoid immediate default. The bill was passed with 155 against 138 votes. Even after the successful passage of the main austerity measures, financial market nervousness over Greece’s future will remain high amid ambitious privatisation and consolidation targets. Finance minister Evangelos Venizelos told parliament his priorities were to complete an overhaul of the tax administration and press ahead with the privatisation programme by setting up a national wealth fund to handle €50bn of disposals by 2015, the FT reports.


The main protest site Syntagma square went back to normal. Athens began cleaning up after Wednesday riots, while the government defended the police from accusations by opposition parties of heavy-handedness, Kathimerini reports. The City of Athens said it will cost €55000 to repair the 176 dumpsters vandalized on Wednesday. Businesses will have to pay €520000 to repair the damage caused by rioters.


Reuters has an illuminating quote from Vasso Papandreou, the former European Commissioner and member of Pasok. She said voted in favour as a patriotic duty, but she believed the economy would deteriorate as a result. And then this: "Germany is preparing the ground for our official bankruptcy as soon as this can happen without cost to the German banks."


Ms Papandreou will probably not be enchanted by this news, and the analysis by Mark Schieritz (one further down).


German banks participate in Greek rescue, but only a little bit


German newspapers are full of critical comments for the €2bn the banks in Germany will share in the efforts to finance the second rescue package for Greece. There are another €1.2bn but they come out of the bad banks of WestLB and Hypo Real estate which are semi public vehicles. “The banks avoid giving substantial aid”, Süddeutsche Zeitung writes. “The German banks have merited to be applauded”, Financial Times Deutschland says in an unsigned editorial.  


Mark Schieritz on the rollover vehicle


Writing in the Herdentrieb blog, Mark Schieritz argues that the rollover vehicle is flawed. After analysing the various cash flows inherent in the model, he concludes that the new bond is effective a secured bond, but unlikely a Brady bond it is not secured by the Treasury or the IMF, but by Greece itself. His two conclusions are that this scheme will not lead to any meaningful reduction in NPV, and that Greece will find it harder to return to capital markets.



Italy budget in full


Reuters has a very useful summary of the Italian budget measures, adopted by the cabintet yesterday. Here is our summary of the summary

Spending cuts:

  • Central government spending cuts: €5-6bn over 2013/14
  • Funding to local governments reduced by €9.6bn 2013/14. 
  • One-year extension of freeze on public sector salaries and hiring to 2014. 
  • introduction of automatic increases to the retirement age to be brought forward one year to 2014.

Revenue measures:

  • reduction of tax breaks for firms and low income families: €16bn between 2011/14.
  • Increased fees for hospital visits from 2012: €1bn
  • Income from banks' proprietary trading to be taxed at 35%
  • tax of 0.15% on financial transactions. 
  • An increase in road tax for large cars. 

Majority of member states oppose EU tax, Westerwelle claims


Germany’s liberal foreign minister Guido Westerwelle says Berin and the majority of the member states oppose Commission proposals for an EU tax, according to Frankfurter Allgemeine Zeitung. The Commission plans to divert one or two percentage points of the VAT levied in the member states to the EU-budget. Also it plans to introduce a financial transaction tax that it wants to go in parts to the community budget.“ There is no need for such a tax since the EU does not face any financing problems”, Westerwelle said.


Why don’t the British participate on the Greek rescue, Bild asks

The day after the second parliamentary backing in Greece for the EU’s and the IMF’s reform program, mass circulation daily Bild asks why the British don’t participate in the rescue effort. “The banks and the insurance companies (the ‘City of London’) profit massively of Greece’s rescue”, the daily writes and reminds readers of Margaret Thatcher’s famous “I want my money back” claim. The Paper quotes a Berlin government source saying: “The British are a bit of a free rider at the moment.”


Five French European affairs ministers in four years


Writing in his Coulisses de Bruxelles blog Libération correspondent Jean Quatremer points out that Nicolas Sarkozy has changed his European affairs minister for the fifth time in only four years. The move is a collateral damage of the musical chairs caused by Christine Lagarde’s nomination to the IMF. The new European affairs minister is Jean Léonetti, a person hardly anybody has ever heard of and who has not updated his online bio in the past four years. He replaces Laurent Wauquiez who stayed for seven month’s only. Léonetti’s main merit seems to be that he is a centrist and he has not abandoned the UMP when the centrist’s champion Jean-Louis Borloo did so. Sarkozy is now doing his best to convince the other centrists not to defect him before the presidential elections next year. Quatremer suggests simply to scrap the post because in France, European matters are decided at Elysée presidential palace or the Sécretariat des Affaires Européenne (SGAE) attached to the prime minister’s office anyway.


Sarkozy outmaneuvered by his own young turks



Le Monde’s correspondent Arnaud Leparmentier has an excellent piece explaining how the young turks in Nicolas Sarkozy’s UMP party outmaneuvered the president in the battle on who would succeed Christine Lagarde at the finance ministry. In this drama the president was left in the role of the hesitating bystander surpassed by events. Tuesday Sarkozy promised agriculture minister Bruno Le Maire, a young germanophone careerist, he would get the job. But budget minister Francois Baroin, a former Chirac protégé with excellent connections to the UMP big whigs, threatened to resign and mobilised IMP party chief Jean-Francois Cope and parliamentary group chairman Christian Jacob in his favour. “Baroin has acted like Sarkozy did in his younger years. I went into a conflict and he was the only one able to do so because of his political weight”, a presidential advisor is quoted.  So Sarkozy had to renegate on his promise to Le Maire and promote Baroin to the finance ministry, otherwise he would have risked revolt among his most powerful men. The article also quotes a Sarkozy ally who describes the esteem in which the future IMF MD Lagarde is held at the presidential palace: “For the past three years the real finance minister was Xavier Musca, the secretary general at the Elysee. Christine Lagarde was only the spokeswoman.”


Sarkozy starts to catch up in the polls


For the first time since the autumn of 2008 Nicolas Sarkozy’s popularity ratings have risen in two consecutive months, Le Figaro reports. According to TNS Sofres, 25 % of the polled French trust their president, compared to only 22 % in June and 20 % in May, his historic low in this poll. The paper says the president was given credit for the nomination of Christine Lagarde at the IMF and the government reshuffle with young faces in key positions (finance minister Francois Baroin, budget minster Valérie Pécresse and education minister Laurent Wauquiez). Nevertheless Sarkozy still has a long way to go as the poll shows that 73 % of the French don’t trust him.


Eric Le Boucher argues the next French president must promise blood and tears


Writing in Les Echos columnist Eric Le Boucher argues that no matter who will win the French presidential election he or she will only be able to promise blood and tears to the country. Reminding of the court of auditors recent warning that “the threat of a runaway debt development is a major risk” Le Boucher argues the Nicolas Sarkozy or the person who will beat him in 2012 will have no choice but to cut deeply into the French budget. “Cuts in social benefits and rising taxes, that is what the French can expect”, he concludes.


DSK’s case in jeopardy, the New York Times says


The arrest of IMF MD Dominique Strauss-Kahn for attempted rape shook the world’s financial community, the eurozone and the French domestic politics. Are we about to witness a spectacular turnaround in the affair? The New York Times writes the case against the French socialist politician is on the verge of collapse as investigators have uncovered holes in the credibility of the hotel maid who charged that he attacked her in his Manhattan hotel suite in May.


Spreads, Forex, and ZC Swaps.


No further relaxation of spreads. All sideways, including the euro. Zero coupons up again, but remember this is a highly volatile series.



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publicado por João Machado às 13:30
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