Eurointelligence Daily Briefing, 30 de Agosto de 2011. Enviado por Domenico Mario Nuti


More pressure on European banks to come clean on their Greek debt

  • The International Accounting Standards Boards wrote a letter to the European stock market regulator, saying that several banks have made inadequate provisions for their Greek exposures;
  • no names mentioned in the letter, but sources point to a French bank and a French insurer;
  • European officials continued to express dismay at Christine Lagarde’s call for a recapitalisation of European banks;
  • there was more pressure on governments yesterday, after the head of the EBA wrote a letter to governments, urging them to recapitalise their banking system;
  • the German representative on the EBA’s board strongly opposed the letter;
  • Italian government coalition tones austerity plan: solidarity tax has been scrapped, and abolition of municipal authorities is reversed;
  • Finland wants Greece to set up an independent Luxembourg holding company to hold the collateral;
  • Leterme says Eurobonds are the only way to end the crisis, but their introduction require a high degree of fiscal convergence;
  • the CSU, the sister party of Angela Merkel’s Christian Democrats, said it will support EFSF legislation;
  • Nikolaus Blome warns against a United States of Europe;
  • Jean-Claude Trichet signals pause in ECB rate hikes;
  • speaking to the European Parliament, he rebuffs German president Christian Wulff’s criticism of the bond purchasing programme;
  • Italian 10-year spreads, meanwhile, are now firmly above 3%, an unsustainable level.

After Christine Lagarde called on European governments to force a recapitalisation of banks, now the International Accounting Standards Board criticised the inconsistent way in which banks and insurers have been writing down their Greek assets, the FT reports.  IASB expressed concern in a letter to the European Securities and Markets Authority. The letter did not single out particular countries or banks, but the FT quotes a “person familiar with the correspondence” that the concern was directed at the approach of two financial institutions, BNP Paribas and CNP Assurances, which used a mark-to-model approach to determine the size of the writedown.

The official response to Christine Lagarde’s dramatic intervention at the Jackson Hole conference was expected. The European Commission, and national governments feigned surprise at the criticism, arguing that Europe’s banks are well capitalised.


EBA presses for rapid recapitalization of European banks

The European Banking Authority (EBA) will today or tomorrow send a letter to the 27 EU governments urging them to rapidly recapitalize ailing European banks, Financial Times Deutschland reports. In his letter EBA president Andrea Enria will argue that the EFSF should be able to lend directly to banks as opposed to only being able to lend to countries. Enria aims to calm the markets which are worried  by the state of European banks because many of them still hold sizeable volumes of government bonds from the eurozone’s crisis countries. But Enria’s letter will enrage Germany, a few other governments, the ECB and the EU institutions that have rebuffed calls from IMF MD Christine Lagarde at Jackson Hole to recapitalize European banks in order to avoid a liquidity crisis. Not surprisingly Enria’s letter is vehemently opposed by the German representative in the EBA board.


Italian governing coalition revamps its €45bn austerity plan

In Italy, the governing coalition under Silvio Berlusconi agreed to revamp the €45.5bn austerity package, in an attempt to overcome tensions inside the coalition over the original package.  The Wall Street Journal quotes a coalition statement saying that the amount in cost-savings will remain unchanged.  But it will scrap a government plan to introduce a solidarity tax on people with more than €90,000 a year. Members of parliament, however, will still be required to pay the solidarity tax, The billions in revenue that would have been raised by the scrapped tax plan will be offset by an unspecified mix of tougher tax-collection measures, and reduced tax breaks for cooperatives.  No VAT increase.  The pension rules will change, so that Italians shall retire after 40 years of “actual work”, with no possibility to count time in college or military service in calculating their retirement ages.  The original plan also intended to abolish municipalities below 300,000 inhabitants. This plan has been scraped and small towns now have to merge functions across municipalities, Il Sole 24 Ore reports. The new structural reform still includes plans to cut the number of deputies by half.  Cuts in funding to regional and local governments, worth € 9bn in the original two-year plan, will be scaled back by €2bn, Bloomberg reports.


Finland wants a Luxembourg vehicle to hold Greek collateral

Reuters has the story that Finland wants Greece to form a Luxembourg-based vehicle that holds the collateral. The proposal was already drafted in June, but remains a central plank of Finnish demands. In the proposal, Finnish officials set out how the Greek authorities would authorise the transfer of assets to a holding company based in Luxembourg, whose shares would be fully owned by the Greek privatisation agency, but held in custody by a third party. The holding company would operate under Luxembourg law.  (The structure essentially suggests that Finland completely mistrusts Greece.)


Leterme says Eurobonds must wait

It is interesting to note that an increasing number of economists and politicians now accept that Eurobonds are the only way to solve this crisis, yet they are resigned to accepting that that will not happen for quite some time. The latest is Yves Leterme, who told La Stampa (hat tip Reuters) that joint issuance was the only way to exit the crisis, and it was only a matter of time until it was adopted. But this step requires a high degree of fiscal convergence. Until then, the idea would have to rest in a drawer.


CSU will back Merkel in Bundestag for an enhanced EFSF

Horst Seehofer, the Bavarian prime minister and president of Angela Merkel’s coalition partner CSU, will back Angela Merkel in her fight for a majority backing the proposals for a beefed up EFSF, Frankfurter Allgemeine Zeitung reports. His only condition is a strong controlling right and continued involvement in all relevant decisions of the German parliament. The remaining question is if the 23 coalition deputies that have indicated an intention to vote No, some of which come from the CSU, will feel bound by Seehofer’s support for Merkel.


Nikolaus Blome warns against the United States of Europe

Nikolaus Blome, deputy editor in chief of the mass circulation daily Bild, warns of the United States of Europe that influential government ministers like social affairs minister Ursula von der Leyen has been calling for as a quid pro quo for more intra Euro solidarity. “Nobody wants the United States of Europe, especially not if introduced through the back door”, he argues. The Euro crisis has been created by the government in their respective capitals and it is up to the governments in their respective capitals to solve them. It would be wrong to hand over new competencies in fiscal and economic policies to Brussels. “Just as a German diktat will not work in Europe a Brussels diktat will not work either”, Blome concludes.


Trichet signals pause in ECB’s interest rate hikes

Speaking at an EP session dedicated to the recent market turbulences Jean-Claude Trichet said the ECB would reappraise its inflation expectations for 2012 in its staff projections due at the start of September, Financial Times Deutschland reports. While Trichet said inflation would remain above the ECB’s target of below but close to 2% he did not mention “upside risks” for the price developments as he had done after the ECB’s last press conference in the beginning of August. So the assumption seems reasonable, writes the paper, that Trichet ratified the market expectations that there will be no more rate hikes for the remainder of this year.


Trichet rebuffs German president’s criticism over ECB’s bond purchasing program

Jean-Claude Trichet used his appearance at the EP to rebuff last week’s criticism of German president Christian Wulf, who had raised doubts about the legality of the ECB’s bond purchasing program. “We are very cautious not to go over and above our own responsibilities”, he stressed, according to Financial Times Deutschland. The weekly figures of the program released yesterday showed that the ECB purchased bonds of a bit less than €6.7bn, significantly less that the €14.3bn the central bank spent the week before of the €22bn it spent in the beginning of August when it reactivated the program in the midst of speculative attacks against Italy and Spain. All in all the ECB has so far spent €115bn on its controversial bond purchasing program.



Spreads, Forex, and ZC swaps

Note that Italian 10-years are firmly back above 3%, over 15bp higher than Spain’s, a reflection in part that the Italian consolidation efforts lack credibility. This is not a level that is consistent with permanent Italian membership of the eurozone. The euro is strong, and inflation expectations are in line with the ECB target.











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Source: Reuters



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