Eurointelligence, 29 de Agosto de 2011. Enviado pelo Domenico Mario Nuti.


Madame Lagarde and her critics

  • IMF managing director calls on Europeans to recapitalise their banks;
  • she also warns about a recession, calls for greater policy coordination, and further help for US houseowners;
  • European bankers and regulators criticised her for sending out a confused message, as she seems to ignore that the real problem of Europe’s banks was funding, not capital;
  • Heike Göbel says that Lagarde’s was trying to solve a debt by forcing people to take on more debt;
  • the Finnish finance minister rejected suggestions that the collateral deal was off the table;
  • so far, 23 German coalition deputies announced they would vote against the EFSF package, depriving Angela Merkel of her majority;
  • a deal was struck to enhance the Bundestag’s supervisory powers of the EFSF through the establishment of a super-committee;
  • the German finance ministry predicts 2% growth this year, driven by a rebound in private consumption;
  • the president of the French industry lobby denounces what she believes to be US conspiracy against the eurozone;
  • Francois Hollande emerged as the clear front-runner of the Socialists after the party’s summer conference;
  • Cyprus announces an austerity programme;
  • troika discusses Greek civil servant pay structure;
  • two of the largest Greek banks get ready to merge;
  • Greece may reject the debt swap if the take-up is lower than the promised 90%;
  • Jean Quatremer returns deeply disillusioned from Greece;
  • Angelo Baglioni explains the difference between a Eurobond and a EuroUnionBond;
  • Wolfgang Münchau, meanwhile, argues that only a Eurobond can solve the crisis now, but the politics and legal aspects are extremely difficult.

The Europeans have forever been in denial over the state of their banking sector, and the reaction to Christine Lagarde’s assertion that the eurozone needs to recapitalise its banking system, and to cut the link between sovereigns and banks, has been predictably furious. Ms Lagarde said strengthening the banking sector would help stop the contagion in the eurozone, particularly in southern Europe. She made the suggestion that the EFSF should play a role in the recapitalisation of the banking sector. The FT collected some furious comments from central bankers and regulators, who pretend that the real problem in Europe was funding, not capital.  


They accused Lagarde of giving a confused message. (That accusation is in our view ludicrous. National central bankers in the eurozone are probably the most untrustworthy sources about the health of their own banking systems. They hate being subjected to stress tests, and they had been criticised by officials in Washington. But she is, of course, right that a still undercapitalised banking systems is at the heart of this crisis.)


Speaking at the Jackson Hole conference over the weekend, Ms Lagarde also issued a warning about the state of the global economy, and called for action to abandon austerity in favour of growth in the short term, to bolster the declining US housing markets, and to coordinate global economic policy.


Heike Göbel on Lagarde in FAZ

In an editorial in Frankfurter Allgemeine Zeitung, Heike Göbelsays Lagarde has now taken on the role of the global finance minister. Her proposals amount to get the banks to lend more, for US house owners to be bailed out, for governments to take on more debt, and to postpone consolidation until same unspecified day in the future. Taking on more debt was not a way to deal with a debt crisis.


Urpilainen rejects reports of Finland’s retreat from collateral deal


Finland’s finance miniser Jutta Urpilainen rebuffed news reports that Finland is starting to withdraw from the agreement over Greek guarantees, saying that Finland has not given up on its demands for Greek guarantees, Newsroom Finland reports. Helsingin Sanomat reports that small Euro countries had no knowledge of the terms of the deal between Finland and Greece. The Dutch prime minister Mark Rutte expressed his surprise, saying that he thought the deal was about fixed collateral not cash.



Doubts about a majority in Merkel’s coalition for the enhanced EFSF


Angela Merkel is upbeat that she will be able to get a majority in Bundestag with the votes of her government coalition. She is optimistic that she will be able to convince Christian-Democrats and Liberals “of the necessity of the legislative proposal in order to strengthen the stability of the Euro together”, she told Bild am Sonntag. But according to Focus magazine there is a list of 23 coalition deputies who have already announced they will vote against the law. If they maintain their no vote Merkel, would be short of the 311 votes she needs to pass the law with her coalition and thus need the votes of the opposition SPD or Greens who will vote in favour. Merkel’s inability to get the law through by her own means would severely weaken her and potentially lead to the implosion of the coalition and her downfall. The parliamentary groups of the CDU, CSU and FDP will discuss the legislative proposal on Wednesday, the day the government will table it in its cabinet meeting.



Meanwhile the Bundestag’s supervisory powers will be beefed up by a super committee


There are signs that a deal will be struck between Bundestag and the German government on parliamentary control of the enhanced EFSF. According to the Saturday’s Süddeutsche Zeitung, Bundestag president Norbert Lammert, a member of Angela Merkel’s CDU, wants the Bundestag to vote on any new EFSF assistance for a euro country. Questions of lesser relevance could then be dealt with by the Bundestag’s budget committee. Implementation measures such as paying out the agreed sum or buying government bonds would be decisions the EFSF could take on its own right according to Lammert’s thinking. Meanwhile, Spiegel reports that there are plans to create a new super committee to which the Bundestag could delegate some of the parliamentary controlling rights over the EFSF. This new committee would be composed of the heads of the parliamentary groups and some members of the present committees for European affairs, budget and finance.


Schäuble’s officials believe in 2% GDP growth in Germany in 2012


Wolfgang Schäuble’s finance ministry officials believe that despite the ongoing crisis and the disappointing Q2 growth rate Germany will grow at 2% rate in 2012, Spiegel reports citing an internal estimate. Interestingly they believe that domestic consumption will be one of the drivers for this development. “Especially private consumption will contribute to economic growth”, the magazine cites from the ministry paper.


French industry lobby president denounces US conspiracy against the eurozone


Laurence Parisot, head of the French industry lobby Medef, thinks the eurozone has been victim of an American conspiracy in the past few weeks. Speaking to Le Figaro, Parisot talked about an “orchestration on the other side of the Atlantic of Europe’s difficulties”. She cited the rumours about the fragility of the French banks, reports in the US press about an imminent collapse of the Eurozone and attacks against Spain, Italy, France and even reports about a downgrade of Germany. “When American publications that are very much read by investors and analyst run headlines about false announcements, there are questions to be asked”, Parisot said.


Francois Hollande is the French Socialist’s front runner after party meeting


The French Socialist’s former chairman Francois Hollande clearly emerges as the front runner for the party’s primaries on October 9 after this weekend’s “summer university”, according to Les Echos. A poll in Journal de Dimanche gave him a 10 points lead over Martine Aubry, the current chairwoman and mayor of Lille.


Jean Quatremer returns deeply disillusioned from Greece


Libération correspondent and Coulisses de Bruxelles blogger Jean Quatremer spent his summer holiday in Greece and returns deeply disillusioned from the motherland of the euro crisis. After having attempted in vain to obtain official receipts for his holiday visits to hotels, bars and restaurants around the country he comes to the conclusion that the country is run “by a real mafia”, that tax fraud is “a national sport” and that “30 to 40%” of the Greek GDP are being generated by the black economy. Quatremer says EU subsidies that should have helped to build highways, bridges or a land registry in Greece were channelled into consumption. “During my holiday I have never seen, apart from Germany, as many Porsche, Audi, Mercedes and BMWs”, he writes and he points out that there are more cars per inhabitant than in France. Quatremer finishes his blog by lauding the fact that EU structural funds will now be managed by a European body headed by a German and that privatization receipts will also be controlled by an independent body. “But the resistance capacity of the Greek no longer needs to be proven”, he concludes. “The Europeans may still have to pay for a long time their Greek error.”


Cyprus approves emergency austerity measures


yprus’ parliament approved emergency austerity package amid fears that Cyprus could be next in line to seek an EFSF bailout, the Washington Post reports. Under the package public sector workers salary will be cut by 1.5%-3.5%, and for the first time a social contribution of 3% will be raised on their salaries to finance the pension fund.  The package also includes tax increases for high income earners and property, and a €350 annual levy on all companies registered on the island.  But lawmakers deferred a bill that would have raised the nation’s sales tax from 15% to 17%. That bill may be incorporated in a second batch of austerity measures worth around €360m that finance minister Kikis Kazamias pledged to unveil when the House reconvenes Sept. 15.  It was not clear whether the watered-down package would be enough to avert another downgrade of Cyprus’s sovereign rating, the FT quotes analysts. Cyprus is heading for a deficit of above 6% of GDP and the country’s banks are heavily exposed to Greece.



Troika to discuss civil service pay structure in Greece this week


Plans to introduce a new pay structure in the civil service will top the agenda of discussions between the Greek government and the troika this week, amid concerns that Greece is dragging its feet over the reform, Kathimerini reports.  Last week, Finance Minister Evangelos Venizelos and Administrative Reform Minister Dimitris Reppas suggested that the new pay policy would be phased in over seven rather than three years as previously agreed. The troika is also pressuring the government over the slow pace of its scheme to merge and shut down public bodies, and its privatization program.


Two of the biggest Greek banks get ready to merge


Two of Greece’s three biggest lenders, Eurobank EFG and Alpha Bank have reached an agreement to merge, with significant participation of the Quatar Investment Authority.  The deal will put the new bank among the top 25 in Europe. Both boards will meet today to approve the terms of the merger, Kathimerini reports.



Greece may spurn debt swap if take-up is lower than 90%




The FT writes that the Greek finance minister warned that unless the take up of the “voluntary” debt swap was 90%, the Greek government reserved the right to cancel the entire deal. While the take-up rate in Belgium, for example, is 96% according to its finance minister, there is a fear that the overall target might not be hit, given the dispersion of Greek bond holdings. The paper quotes from a letter, saying the government would then not be under an obligation to accept the offer, but said that a final decision would be made in co-operation with the official creditors to ascertain whether a lower take up would still meet the conditions for a substantial private-sector contribution.


What’s the difference between a Eurobond and a EuroUnionbond?


Angelo Baglioni has an illuminative article in Lavoce, in which he looks at the difference between various Eurobond proposals, including the Eurobond proposal by Jean-Claude Juncker/Giulio Tremonti – and also Mario Monti – and an alternative proposal by Romano Prodi. The first is a classic Eurobond, which replaces a proportion of national debt. The Prodi proposal is for a EuroUnionBond, which is different because it is issued by a new funding agency, with €1tr in paid in capital, and a total ceiling of €3tr, which spends some €700bn on infrastructure investments, and the rest on purchasing national debt. (Interim institutional arrangemens will undoubted be needed, but if this is going to work, it will have to mutate into a genuine Eurobond eventually.)



Wolfgang Münchau on the wretched politics of eurobonds

In his FT column, Wolfgang Münchau writes that we are already well into the phase whether the delay in crisis resolution is becoming very expensive. The extension of the crisis to Italy and the economic downturn have created a situation where Eurobonds are the only solution to this crisis – since the ECB will not be able to maintain its bond purchases for many years, and since Italy is very likely to fall into a recession and potentially register rising deficits. But eurozone bonds cannot be introduced overnight for legal reasons, and politically the debate has been going in the wrong direction among the northern states. Angela Merkel has been so explicit in ruling out Eurobonds most recently that it is hard to imagine that she would accept them soon – and sacrifice her coalition and her own position in the process. Yet waiting for another two is not a realistic option either.


Spreads, Forex, and ZC Swaps

Italy’s spreads are back over 3%










10-year spreads








Previous day


This Morning





























Bund Yield












Euro Bilateral Exchange Rate








at last Briefing

This morning














Swiss Franc












ZC Inflation Swaps








previous close

last close


1 yr




2 yr




5 yr




10 yr








Source: Reuters




Leave a Reply