Segunda-feira, 11 de Julho de 2011

Eurointelligence Daily Briefing

enviado por Julio Marques Mota

White flag over Frankfurt

  • European Central Bank suspends minimum credit rating threshold for collateral eligibility for Portugal;
  • decision effectively implies that the ECB will do whatever it takes to maintain liquidity in Greece as well;
  • governing council said it judges the Portuguese government’s policies to be sufficient;
  • but Trichet yesterday firmly ruled out a medium-term Irish financing facility;
  • ECB also raises interest rates to 1.5% as expected;
  • decision came under fierce criticism from Ireland’s opposition leader, who called it foolish;
  • no further increases in interest rates expected for now;
  • Jan Kees de Jager says EU should force a Greek default;
  • Trichet hardens the ECB’s line against a private-sector participation;
  • bankers are hopelessly stuck in their debate on modifying the French rollover proposal;
  • Jean-Claude Juncker says rating agencies have anti-European bias, and should not downgrade countries that were currently undertaking reforms;
  • in the latest escalation of Belgium’s political crisis, NV-A rejects di Rupo’s coalition offer;
  • Giulio Tremonti warns of a breakdown of civil society in Italy;
  • Anshu Jain, meanwhile, looks to be the favourite to succeed Joseph Ackermann at Deutsche Bank.


The European Central Bank suspended the minimum credit rating threshold for collateral eligibility in the case of Portugal. The ECB’s governing council said it supported the Portuguese adjustment programme, and judged that progress to far had been appropriate. Given the Portuguese government’s commitment to implement the programme in full, the governing council decided to suspend the rules “also from a risk management perspective”. Market participants immediately interpreted the news as signifying that the ECB will continue to supply liquidity irrespective of what the rating agencies do – and this will almost certainly apply to Greece as well.


Trichet also ruled out that the ECB will agree a medium-term Irish finance facility. Mr Trichet said this was not a possibility.


Oh, and the ECB also raised the refinance rate to 1.5%, as expected. Jean-Claude Trichet did not signal any further rate rises. Micheál Martin, leader of Ireland’s Fianna Fáil, called the decision foolish, and said the ECB was now actively contributing to the crisis. Mr Trichet said the governing council had not decided on a series of further interest rate increases, which suggests that this is the last rise for now. The recent economic data, and sentiment indicators, suggest that economic growth was heading down again.



Dutch finance minister advocates Greek default

Jan Kees de Jager, the Dutch finance minister who recently advocated that more Scandinavians should join the ECB’s governing council, has now had another brilliant idea. He wants to throw caution to the wind, and force participation of private bondholders, irrespective of what the rating agencies say. This is what he told Financieele Dagblad (hat tip FT): “I think we have to accept that a voluntary contribution is unrealistic... If a mandatory contribution from the banks leads to a short-term and isolated rating event, that is not so bad, because Greece cannot go to the credit markets anyway now or in the near future.”


Despite the decision to relax collateral requirements for Portugal, Mr Trichet hardened the ECB’s line on defaults during his press conference. He said one should not presume that private sector involvement was normal.


(We should not be surprised that rating agencies start to lower ratings of eurozone member states pre-emptively, if European finance ministers talk so loosely about default. Of course, a default rating would not affect Greece’ access to capital markets right now, but as we have seen in the last few days, fear of a default spreads like wildfire.)



No progress on a new bank rollover proposal

Reuters has all the details of the latest futile attempt by bankers to agree a new rollover package. Finance chiefs, meeting under the auspices of the IFC, failed to make any progress at a meeting yesterday. It was the latest in a series of meetings in recent weeks, but there was little sign of a deal, according to Reuters, which said that Thursday's meeting broke up after four hours with no conclusion. The article quoted an Italian source as saying that the meeting discussed issues beyond the French rollover plan.



Europe’s confusion over ratings agencies

Europe’s muddled thinking on rating agencies was well reflected by a statement of Jean-Claude Juncker, who like so many other politicians was convoluting two issues when he  said yesterday, first, it was wrong for a rating agency to downgrade countries that were in the process to undertake reforms, and, second, that Europe needs its own agency.


(It looks like he does not understand how rating agencies work. If Europe had its own independent credit rating agency, chances are that it would probably come to very similar conclusions as S&P, Moody’s and Fitch if it operated under a similar business model. Or does Juncker want the eurogroup to control the rating agency directly? In that case, the eurogroup or the ECB might as well produce their own ratings. But this is precisely what they have avoided in the past for political reasons. The European position on rating agencies has always been duplicitous. Also, the purpose of ratings is to signal a default probability to investors, not to reward government reform efforts. The rating agencies have simply lost confidence in the political process. So have other observers, like us.)



N-VA rejected di Rupo’s government bid

The Flemish separatist N-VA rejected the note from Elio Di Rupo, saying that it does not form a basis for successful negotiations and that the Flemish will have to foot the bill. It is not clear what happens next. All French-speaking parties and a number of Dutch-speaking parties had already agreed on the note as the basis to restart coalition talks. In theory they could press ahead with discussions, but they are reluctant to do so without the N-VA. De Morgen writes that the tenor of most comments in Flemish newspapers today is that new elections are now inevitable, though De Standaard notes that there is not a sufficient majority to dissolve parliament for this. The Belgian king Albert II had ruled out new elections so far. Consternation on the Flemish side, despair on the francophone side. Le Soir titles “ceci n’est plus un pays” (this is no longer one country).



Italy on the verge of a nervous breakdown

The crisis has hit Italy full force. Speaking at a meeting of the country’s agricultural industry association, Giulio Tremonti pained the future of Italy in dramatic terms: either the country manages to balance the budget, or the country’s civic society ceases to function. "If we don't get the budget into balance, there will be a disaster," he said. Yesterday the yield spread to German bunds reached its highest level since the start of the euro, with Italian 10 year yields reaching 5.2%. The country’s recent economic data have been disappointing, which has heightened alarm about the sustainability of the country’s debt, which now stands at 120% of GDP.



Anshu Jain likely to succeed Ackermann at Deutsche Bank

After Axel Weber’s decided to work for UBS, Deutsche Bank came under pressure to settle the succession of Josef Ackermann. According to Frankfurter Allgemeine Zeitung it will be Anshu Jain, the Indian born investment banker who is heading the bank’s London investment bank operations. But given the huge political role of Deutsche in Germany (it was Ackermann who effectively designed the bailouts for HRE during the financial crisis) und his nonexistent German language capabilities Jain will have a co-head. The most likely candidate is Jürgen Fitchen, currently responsible for the bank’s business in Germany. There had been speculation that Ackermann will become president of the supervisory board, as Spiegel Online reported, but FAZ reports that those speculations were premature.



Spreads, Forex, and ZC Swaps.

Those bad numbers are sticky. Italian, Spanish and Portuguese spreads unchanged, euro down.



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