Segunda-feira, 4 de Julho de 2011

Eurointelligence Daily Briefing - 4 de Julho de 2011.


O Eurointelligence chega-nos graças a Domenico Mario Nuti e a Júlio Marques Mota. 




Finns draw line in the sand of Greek collateral requirement

  • A Finnish position paper says Finland must insist on a collateral promise as a precondition for accepting a new Greek loan programme;
  • eurozone officials are wary about allowing Finland to opt out of the programme, fearing a knock-on effect;
  • helpful as ever, Wolfgang Schäuble says  that he is preparing for a Greek default;
  • also helpful as ever, Hans-Werner Sinn says the Greek rescue will directly lead to a cut in German pensions;
  • Jean-Claude Juncker sees massive limitations to Greek sovereignty;
  • a survey reveals that economists expect a slower pace of ECB interest hikes;
  • Germany raises borrowing targets to fund its contributions to ESM capital requirements;
  • Berlin coalition agrees timing, but not details of income tax cuts;
  • Alain Minc says a Socialist victory would jeopardise Franc’s AAA-rating;
  • a surprising 49% of the French want DSK to return to French politics;
  • Socialists are now under pressure to modify their primary timetable;
  • the True Finns’ popularity has increased since the Finnish elections;
  • the FT calls for a Greek Brady bond, guaranteed by the issue of EFSF zero-coupons;
  • Giuliano Amato and Guy Verhofstadt call for a eurozone bond issued by the EIB, requiring no Treaty change;
  • Wolfgang Münchau, meanwhile, argues that the French debt rollover plan is not a bank participation scheme, but a bank bailout.



Reuters has seen the Finnish position document on the new package, and it is not looking good. It looks like another big obstacle will need to be surmounted. The Finnish parliament, whose powers reign above those of the government in eurozone crisis resolution management, decided to attach a collateral requirement to all future loans to Greece. The document said that a collateral requirement was not a Finnish wish, but a rare case of a Finnish line drawn in the sand. But given the political situation in Greece, a collateral requirement, as part of which creditors would end up with a sizeable chunk of Greek assets, is hardly acceptable. The snag is that under the rules of the EFSF, any decision to disburse new aid requires unanimous support of all member states. It is possible, technically, for Finland to opt out of the scheme, leaving others to foot its relatively small share of the programme. But official are extremely nervous about this, as this may send a dangerous political signal.



Schäuble is preparing for a Greek default

Wolfgang Schäuble has developed a habit of saying what he thinks the second he is thinking it – a habit that is not making crisis resolution any easier. While a lot of these comments are designed for domestic consumption, they are immediately picked up by foreign newspapers, such as this Spiegel interview, in which he said that Germany was making concrete preparations for a Greek default. He also mentioned that it was contrary to all expectations, but then said that as a responsible government one has to make sure that a default would not cause financial contagion. Schäuble’s comments jar with those of other officials, like Olli Rehn and Christian Noyer, who both maintained there is no plan B. Apparently there is now.



Juncker sees “massiv limitations” of Greece’s sovereignty

Jean-Claude Juncker argues in an interview with the weekly Focus magazine that Greece’s sovereignty will be “massively limited” due to the austerity measures. He reminded the Greeks that the crisis was to a large extend “self inflicted”. As an example he cited the public sector wage growth in Greece by 106.6% between 1999 and 2010 while the economy grew significantly less during that time. He called on the Greeks and other Europeans for a “maximum amount of solidarity”.



President of Ifo institute warns German pensions will be cut as a result of Greek rescue

It is Hans-Werner Sinn again. After his eccentric Target 2 contribution, he now warns, in an interview with Bild, that German pensioners will be the first to foot the bill for the Greek rescue packages. “The euro rescue schemes are threatening the financial stability of the German federal republic. They are the beginning of a long series of rescue schemes and aid measures that Germany has to provide to crisis countries. The state can spend its money only once”. And he added: “The financial flows to Greece and Portugal are at the expense of the German’s living standards. The German pensioners will be among the first victims of the rescue packages.”


Economists expect slower pace of ECB interest rate hikes

According to Financial Times Deutschland’s July interest rate survey bank economists expect the ECB to raise interest rates on Thursday by 25bp to 1.50%. But as a result of an expectedly lower growth in euro core countries they expect the speed of the interest rate cycle to be slower than initially thought. They expect rates by July 2012 between 2.0 and 2.25% so that the ECB would not raise rates every three months.


Also the majority of the economists agree with the statement by Bundesbank president Jens Weidmann that a Greek default could be managed and would not mean the end of the euro or jeopardize the single currency’s stability.



German coalition agrees on the date but not volume of tax cuts

The German coalition parties agreed to introduce the controversial tax cuts in the beginning of 2013, just in time for the next general elections, according to Spiegel Online. However they are unclear about the volume of the cuts. Wolfgang Schäuble is doing his best to undermine the whole project. Talking to Der Spiegel he reminded his cabinet colleagues that the constitutional debt break eliminated virtually all margin of manoeuvre in the budget.



Germany raises borrowing targets citing ESM contributions

The German government raised borrowing targets by more than 10% for the three years through 2015, because of the capital contributions to the ESM, Bloomberg reports. Borrowing will amount to €24.9bn in 2013 according to the 2013-2015 budget plan drafted by the finance ministry, more than the €22.3bn the Cabinet endorsed in March. The government aims to borrow €18.7bn in 2014 and €14.7bn in 2015, up from €15.3bn and €13.3bn, respectively. The outline leaves Germany on track to adhere to the constitutional debt brake from 2016 on, according to the finance ministry.



Alain Minc sees danger for France’s AAA rating in case of a socialist victory

Alain Minc, one of the most high profile public thinkers and informal advisor to Nicolas Sarkozy and numerous previous presidents, warns France’s current AAA rating would be in jeopardy in case a socialist wins the presidential election in May 2012. Their electoral platform (lowering retirement age, raising minimum wage, introducing special youth employment schemes, etc.) would have been modern in 1981 but it is “totally inappropriate” for today’s world, the told Aujourd’hui/Le Parisien (hat tip Le Figaro).

 (We agree that a Socialist victory would jeopardise the French AAA. But so would anyone else’s victory.)



Spectacular turn in events in DSK case disrupts socialist’s election preparations

The spectacular turn of events in the case against Dominique Strauss-Kahn proves highly disruptive to the French socialist’s presidential nomination procedure. According to a poll of Aujourd’hui/Le Parisien 49 % of the French hope for DSK’s return to French politics. That complicates the organisation of the socialist’s primaries for which candidacies have to be filed by mid July and which are planned to take place in October since nobody knows if and when DSK will be released of the current rape charges against him. Meanwhile the case is getting ever more bizarre. Several of DSK’s allies have accused Accor, the hotel chain that owns the Manhattan Sofitel, to be part of a conspiracy against DSK, according to Le Figaro and Le Monde.



True Finns popularity rises according to poll

A poll suggests that the opposition True Finns party increased its popularity since the general elections, now backed by about 23% of the public, up by 2.4pp from a similar poll carried out last month, Newsroom Finland reports. The ruling National Coalition party came in second in the poll with a rating of 21.2%, and the Social Democrats third with 18.1%, losing slightly compared to the last poll.



Axel Weber joins UBS and Deutsche Bank wants Ackermann succession settled by September

After Axel Weber’s surprise announcement to join UBS in May 2012, Josef Ackermann announced internally that he wants his succession to be decided by September, Financial Times Deutschland reports. Former Bundesbank president Weber was Ackermann’s favourite to succeed him at the helm of Germany’s biggest bank but the CEO was at loggerheads with Clemens Börsig, head of the supervisory board. Meanwhile the Bundesbank is expected to approve Weber’s new job because UBS is not a German bank and it is outside the eurozone, so there is no potential conflict with Weber’s former role as a co-supervisor of the German banking system.



The FT endorses a Brady plan for the eurozone

In an editorial the FT endorses the idea of a Brady plan for the eurozone with the following construction. “The eurozone ends its rescue loans, instead providing collateral for Greek bonds. The easiest way is for the European financial stability facility to issue zero-coupon bonds and lend them to Athens, which posts them as collateral for Brady bonds of similar maturities.” (Note there are many constructions, this one is forward looking, while the rollover scheme focuses on existing bank hodling of Greek debt. It is possible to combine a Brady bond plan with direct lending.)



A European “New Deal” progamme

Giuliano Amato, Guy Verhofstadt and a large group of other former prime ministers, writing in the FT, have made an intriguing proposal for a solution of the eurozone crisis that relies heavily on the European Investment Bank. The proposals starts where Juncker/Tremonti left off. First, the idea of a European bond need not be unanimous, but could be decided on the basis of enhanced cooperation. Second, they go further than Juncker/Tremonti by delisting national bonds from trading, and have them ringfenced by the EFSF. Furthermore, the bonds could easily be issued by the European Investment Bank, an existing institution, and backed by the participating member states. This would then not involve a fiscal transfer. The money raised should be used for a US style "New Deal" economic stimulus program to finance Eurozone recovery rather than austerity.



Wolfgang Münchau on the eurozone’s toxic CDOs

Wolfgang Münchau gave an angry indictment of the French rollover proposal, saying it was not a participation of banks, but a bailout of banks that could massively backfire. The complex structure is designed to limited to liability of banks, reducing their haircut potential to a small amount relative to current valuations. In the meantime, Greece will have to pay interest rates on a new 30-year bond of 5.5% to 8%, something Greece will never be able to do, even if growth were to return next year. It is also astonishing that Germany itself would only be able to contribute €2bn to the scheme, leaving one wonder why the Bundestag would now approve the second Greek credit programme, when it previously did not.






Spreads, Forex, and ZC Swaps.

Spreads relaxing further, but remain elevated; another hot phase of the crisis ends, euro stable.



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publicado por João Machado às 10:15
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