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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publicado por Luis Moreira às 18:00
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Quarta-feira, 6 de Julho de 2011

Eurointelligence Daily Briefing - 6 de Julho de 2011. Nuvens negras sobre a Europa. Obrigado a Domenico Mario Nuti e Júlio Marques Mota.





Moody’s cites EU’s appalling crisis management as reason for Portugal downgrade

  • Moody’s downgrades Portugal to junk status Ba2, citing the politics of eurozone rescue as the main reason for its pessimistic outlook;
  •  warns of the need for another loan programme for Portugal;
  • Merkel reacts furiously to the rating agencies, saying she will not listen to them anymore;
  • Italian and Spanish spreads rise again;
  • the French banks are meeting again today to sweeten their rollover offer with a reduced interest rate;
  • Evengelos Venizelos want more time to privatise state assets, and will ask Wolfgang Schäuble whether he has a plan B if the rollover programme were to fail;
  • the new Finnish finance minister wants Greek state property as collateral for a loan;
  • the Irish finance minister attacks the IMF and the EU as profiteering from the Irish loan;
  • Martin Wolf says the eurozone’s moment of truth is approaching;
  • the Spanish unsold housing stock remained unchanged at 700,000 in 2010 – a sign that prices have to fall a lot further;
  • Germany’s Constitutional Court has a hearing on the EFSF, with justices appearing to be unimpressed by the plaintiffs’ arguments;
  • Wolfgang Münchau says the issue is not so much whether the EFSF contravenes Art. 125 TFEU, but whether Art. 125 is consistent with Art. 3 TEU;
  • domestic political tensions are growing between Merkel and the Länder;
  • Martine Aubry hinted that DSK had told her that he would not run in the presidential elections;
  • Christine Lagarde’s new labour contract at the IMF, meanwhile, includes a new paragraphs about ethical behaviour.


Moody’s cut Portugal’s credit rating to junk grade on concern that the country will need a second international bailout, the FT reports. The long-term government bond ratings were lowered to Ba2, by four notches from Baa1. The agency warned that Portugal will not be able to tap the markets at sustainable rates for some time after 2013 and that Portugal’s new government would struggle to meet its budget deficit reduction targets. Moody’s cited the tortuous negotiations over Greece in its note, warning that although the likelihood of a restructuring in Portugal was lower than in Greece, the European Union’s “evolving” approach to providing further support “implies a rising risk that private sector participation could become a precondition for additional rounds of official lending to Portugal in the future as well.”






publicado por João Machado às 16:00
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Terça-feira, 5 de Julho de 2011

Eurointelligence Daily Briefing - 5 de Julho de 2011.

Greek vote hangs in the balance

  • Four Pasok members are considering to vote against the austerity programme;
  • debate starts today, with two votes expected Wednesday and Thursday;
  • Greek opposition leader Antonis Samaras insists on lower taxes as necessary for a return to growth;
  • a poll says 75% of Greeks are opposed to the latest austerity measures;
  • demonstrators are gatheringin Syntagma square ahead of the debate;
  • Wolfgang Münchau criticises EU policy towards Greece, and says the argument about austerity was now too finely balanced for comfort;
  • FT Deutschland reports that the EU was preparing a plan B for Greece to ring-fence the problem;
  • the European Council formally appoints Mario Draghi as president of the ECB;
  • the French government and banks have a reached an agreement on a Greek debt rollover;
  • 71% of Germans say they have lost confidence in the euro;
  • Roland Berger wants to set up a European rating agency in Frankfurt;
  • Sarkozy targets his economic plan specifically at Socialist voters;
  • Wolfgang Proissl argues that the appointment of Christine Lagarde to the IMF is not in Europe’s best interest;
  • Spanish and Italian bonds spreads, meanwhile, are approaching crisis records.

Four PASOK members are now actively considering not to vote for the €28bn austerity programme, Kathimerini reports.  If all four MPs oppose the government, PASOK would be left with a one-seat majority unless it received support from another smaller party, such as the centrist Democratic Alliance. The Parliament started the debate on the measures today with two votes scheduled for this week, a general on vote on tax and spending targets plus the creation of a privatisation agency expected on Wednesday, and a vote on the enabling legislation on individual budget measures and privatisation of specific state assets on Thursday, Reuters reports. Deputy prime minister Theodor Pangalos was optimistic about winning the first round of votes despite discontent within his PASOK party but was more cautious about whether the government could push through the second bill.


Samaras insists on lower tax burden as a way to return to growth


Antonis Samaras on Sunday singled out taxation as his main point of disagreement on the austerity package, insisting that lower taxes are needed to help Greece return to growth and to restore some hope among Greeks, according to Kathimerini. He said that Greeks were “over-taxed” and that the new hikes included in the scheme were “too much of a burden to carry.”  Germany’s Süddeutsche Zeitung newspaper suggested that the European People’s Party, the group of  EU’s center-right parties, should consider either ousting ND or cutting its subsidies. El Pais did an approving comment on Samarras as a man who dared to say No to Angela Merkel.


Polls suggest that75% of the Greek oppose measures



publicado por João Machado às 16:00

editado por Luis Moreira às 16:24
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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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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.




publicado por João Machado às 13:30
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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.


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