Eurointelligence Daily Briefing. 24 de Agosto de 2011.Enviado por Domenico Mario Nuti


Zapatero and Rajoy agree balanced budget constitutional amendment

  • Spanish PM and opposition leader agree to support a constitutional balanced budget agreement, to be voted on before the dissolution of the Spanish parliament in September;
  • no details yet on the numbers, but maximum deficits are constrained at close to zero, effective from 2018;
  • France prepares an €12bn austerity package over the next two years;
  • package could include an extra tax on the rich;
  • EU consumer confidence registers sharpest fall in 20 years;
  • purchasing managers survey shows a contraction in eurozone manufacturing;
  • Finland threatens to pull out of Greek bailout if collateral deal is vetoed;
  • Greek anti-recession plan focused on employment programmes;
  • Greek finance ministers gives banks until Sep 9 to decided on their participation;
  • Reuters Breakingviews says there is a downside to transparency on emergency liquidity measures;
  • Herman van Rompuy says a Eurobond requires a balanced budget in every country;
  • Wolfgang Münchau says an additional reason for Eurobonds would be an increase in global power;
  • Romano Prodi, meanwhile, produces detailed institutional proposal of how to establish an Eurobond regime, by means of a European Finance Fund.

You have to give to the Spanish government. Throughout the crisis they have been trying to stay ahead of events. Jose Luis Zapatero yesterday dropped a bombshell, according to El Pais, when he announced that he had agreed with the opposition a constitutional balanced budget amendment, which he wants to pass before the dissolution of parliament in September. The amendment requires a very large majority in both houses of parliament, and would need to be tabled as early as this week to meet the deadline. No details have been released, except that the allowed deficit will be close to zero, that it will affect both national and regional governments, and that it will start to become effective in 2018 to allow fiscal policy to adjust to the new target.  


France prepares austerity package worth €12bn over the next two years


François Fillon is expected to unveil today his austerity plan worth €2bn-3bn of extra savings in 2011 and another €10bn in the 2012 budget, Le Figaro reports. There is not much detail leaked ahead of the press conference this afternoon, but measures are likely to include abolition of tax breaks an extraordinary levy on higher income earners, to tap the reserve funds of government ministries and concessions on the tax free overtime, once the flagship measure of Nicolas Sarkozy’s campaign pledge.


Some of France’s wealthiest individuals have called for a tax on the rich in a gesture of national solidarity as the government prepares to announce deep cuts to bring public finances under control, the FT  writes. A contribution from the rich is not likely to be a large part of the austerity package, but it could help Sarkozy to sell his austerity package to the public.


EU’s consumer confidence sees sharpest fall in 20 years


The European Commission’s consumer confidence indicator fell 5.4 points to -16.6 in August, the sharpest fall in 20 years, according to the Financial Times, while the latest purchasing managers survey for the eurozone showed the manufacturing sector is contracting, with the index falling from 50.4 in July below the critical level of 50 to 49.7. The composite level remained unchanged at 51.1. The good news is a reacceleration of private activity in France. The article says the eurozone was still a long way from a recession.


Finland threatens to withdraw from Greek bailout


Finnish PM Jyrki Katainen insisted that Finland would not retreat from its demands for collateral, as this has been decided by the Finnish parliament as a pre-condition for participating. But according to Reuters, he said there could be some changes to the agreement itself.


Greek’s anti recession plan focus on unemployment measures


The Greek government is preparing a new program to contain unemployment, as the numbers of jobless continued to rise in July, Kathimerini reports.  The program will run until August 2012, it will costs €2.7bn for 600,000 people, or €3.9bn for 700,000 people. Half of the funds are earmarked to maintain the jobs of 300,000 people, a quarter will go for the employment of some 150,000 and the rest for the training. The news came as the number of registered unemployed increased 1.82% since June.


Greek private sector participation to be decided by September 9


Greece has given private sector creditors until Sept 9 to decide on how they want to participate in a bond swap, Reuters quotes Greek bankers and finance ministry officials. By that time, banks will have to respond to a letter of inquiry from the finance ministry. A final commitment is due by mid-October.


Breakingviews warns on ECB transparancy


On August 17, a single bank borrowed $500m from the ECB as part of the dollar swap facility with the Fed.  Under the ECB’s disclosure rules, the amount was disclosed but not the borrower. The author recalls a situation in August 2007, when an unnamed  UK bank borrowed hundreds of millions. It took journalists only a relatively short time to point fingers at Barclays. In this case, it was a technical problem, but investors do not know whether emergency borrowing is due either to a technical glitch or a more fundamental problem. While it is more difficult to identify a single bank in the eurozone than in the UK, it is not impossible for an assistance-seeking banking to be outed, with extremely negative consequences.


Van Rompuy’s  World


One of the many problems of the eurozone crisis is that the current set of political leaders is a lack of knowledge of macroeconomic and financial issues – or a lack of good advice. We were dumbfounded to hear Herman van Rompuy tell a Belgian radio station (hat tip Wall Street Journal Real Time Brussels blog): “We could only have euro bonds the day when there is truly a real budgetary convergence, the day when everyone is running a balanced budget or practically a balanced budget. That’s when we could have a euro bond. But not before,” he said. (It is economically illiterate to ask any single country, let alone a group of 17 countries, to run a balanced budget every year. That silly demand was already stipulated in the stability and growth pact, and did not work. The pre-condition for a Eurobond is not budgetary balance, but a joint policy that is legally binding for everyone, and as part of which the entire zone may be in deficit, or surplus, as the economic situation requires.)


Wolfgang Münchau on the political implications of a fiscal union


Concluding a four-part series on a Eurobond and a fiscal union, Wolfgang Münchau writes in Financial Times Deutschland that the most potent argument for a Eurobond and a fiscal union is not economic, but political. A large bond market and a fiscal union with joint external representation would turn the eurozone into the world’s second largest economy, and would give it some akin to the exorbitant privilege the US has enjoyed for so long. While this is not a consideration at all in the present debate, it is possibly the most important reason beyond crisis resolution.


Prodi’s union bond proposal


Writing in Il Sole 24 ore, Romano Prodi makes a detailed implementation proposal for a Eurobond. He argues in favour of a European Financial Fund that is in charge of issuing Eurobonds. He makes some detailed proposals how to capitalise and EFF. Member states would confer capital in proportion to their stakes in the ECB. The capital would be €1000bn, and would come in the form of gold reserves, among others. Italy would contribute its 18% share, or €180bn, in the form of €101bn in gold reserves, and the rest in the form of shares of nationally owned companies that cannot be privatised. The fund would then buy national bonds up to €3000bn, and issue its own bonds. As a result, the proportional of nationally managed debt declines significantly.


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