Eurointelligence Daily Briefing, 31 de Agosto de 2011. Enviado por Domenico Mario Nuti

 

BoI says Italy cannot afford a 300bp spreads to bunds forever

  • Bank of Italy chief economist Ignacio Visco said the current level of spreads was unsustainable;
  • he also criticised the Italian budget for failing to include any growth enhancing measures;
  • but says the overall drift of a consolidating budget was right, as there is no alternative;
  • a €7.73bn bond auction met with weak investor demand, prompting the ECB to step up purchases of Italian bonds;
  • Italian spreads rose to 3.164%;
  • Frankfurter Allgemeine says Italy is not worthy of German solidarity;
  • the Spanish parliament yesterday approved the timetable for the vote on the Constitutional deficit ceiling, which is now considered as very likely to be approved;
  • the opposition from the left resorts to calling for a boycott of the implementation of the new rule, which sets the maximum structural deficit at 0.4% of GDP;
  • the Bundestag gains substantial new powers on the EFSF, and secures an effective operational veto right;
  • Klaus Regling proposes that Greek bank shares could be offered as collateral;
  • the Greek finance minister says he will publish the names of all tax dodgers;
  • the eurozone’s business confidence index dropped from 103.0 in July to 98.3 in August, as the economic outlook weakens;
  • France will have a higher 2011 budget deficit than expected;
  • Martin Wolf gets very gloomy about the global economic outlook;
  • Alan Juppé, meanwhile, argues that resolving the euro crisis amounted to a question of war and peace in Europe.

In a deposition to the Italian Senate, Ignacio Visco gave a very detailed account of the Bank of Italy’s view of the economic situation, which contained two interesting statements. The first is that the country’s is not in a position to maintain a 300bp spreads to German bunds forever, according to a news story by Il Sole 24 ore. (This, in our view, is equivalent to the statement that the eurozone needs to introduce Eurobonds, or Italy will not be able to remain in the eurozone forever. We see little chance that Italy will be able extricate itself from this mess without external help). Second, he said the Italian budget proposals did not contain any growth measures, and would therefore risk throwing the country back into recession. He did, however, defend the principle of a restrictive budget. He said there were no alternatives at the moment.


It was another bad day for the Italian bond market, as the ECB stepped up purchases of Italian bonds, after a €7.73bn debt auction met with weak demand, as evidenced by a bid-to-cover ratio of only 1.269. This morning the 10 year spreads was 3.164%, not nearly at the peak it reached just before the ECB started to intervene a couple of weeks ago, but rising steadily as the outlook for the country deteriorate.

 

Tobias Piller argues Italy is not worthy of German solidarity


Frankfurter Allgemeine Zeitung’s economic Italy correspondent Tobial Piller condemns the Silvio Berlusconi’s government for watering down its reform and spending cuts package. He says Italy is asking Germany to take courageous steps and to accept Eurobonds and to underwrite the Italian debt. But according to Piller their own reform package is nothing but a incoherent collection of small reform that do not tackle Italy’s real problems. “Whoever asks his European partners to show courage must first start by showing courage himself”, he concludes.

 

Spanish parliament takes big step towards Constitutional debt ceiling


Spain takes big step towards a constitutional debt ceiling when the Socialists and the People’s Party reached agreement to schedule a debate this Friday on an amendment that would put a maximum ceiling for the structural deficit to be 0.4% of GDP, according to Reuters. The chamber of deputies will vote on the measure this Friday, while the Senate will vote on Sept. 7. It is only the second constitutional amendment since the beginning of democracy. El Pais has further details on yesterday’s debate in the Spanish parliament. The article said the atmosphere felt like 2000, when José Maria Aznar won a landslide majority, and when the Spanish parliament was able to anything it wanted. The only dissent now comes from the Left, but it will not get the necessary 35 votes that would force a referendum. The Catalan left has essentially already given up on the parliamentary fight, and is now calling on boycotting the implementation of the debt break.

 

Bundestag gains additional controlling powers on EFSF decisions


The Bundestag is likely to increase significantly its say over all important decisions the EFSF will take the future, according to Süddeutsche Zeitung. The government will today decide the draft law for the enhanced EFSF and it will table suggestions how to involve Bundestag. Crucially it is foreseen that the German parliament will have to consent to all important decisions of the euro rescue fund such as which country is granted help and which instrument the EFSF deploys in granting its aid. So far the government was only bound to try to get an agreement with the Bundestag’s budget committee without being bound to a positive vote of the whole assembly.

 

Regling suggests Greek bank shares as collateral


Klaus Regling suggested to use Greek bank shares as collateral for Finland and other creditor countries, Handelsblatt has learned from diplomatic sources. Senior officials of the finance ministries will discuss this proposal beginning next week. In return for the €109bn bailout, of which €20bn is designated for Greek banks, the EU could ask Greece to partially nationalise Greek banks and pass over the shares to creditor countries as collateral for their loans.

 

Greece will publish the identities of tax dodgers


The Greek finance minister Evangelos Venizelos yesterday announced in parliament that he will publish the names of big tax dodgers in Greece, mass circulation daily Bild reports. Venizelos first wants to publish the names of companies that don’t pay taxes but later also the names of individuals. According to the paper the Greek debt problem could be solved within 10 years if an acceptable amount of Greek tax payers started to pay the taxes they owe.

 

Sharp drop business and consumer confidence in the eurozone


Business and consumer confidence dropped sharply in August according to the economic sentiment index of the European Commission, published on Tuesday. It is the sixth consecutive fall and more than expected by analysts. The index declined from 103.0 in July to 98.3, driven by falls in industrial, service sector and consumer sentiment, with the latter registering its sharpest drop in more than 20 years the FT reports. A particular worry was Germany’s poor performance in the survey, with business confidence in the eurozone’s largest economy plummeting from 112.7 to 107 points. Confidence surveys from German businesses, households and financial analysts last week already signalled a sharp drop in sentiment in the euro zone’s biggest economy.

 

The French government deficit will be higher than expected


The French government deficit in 2011 will be €3.4bn higher than expected, according to Le Figaro. The finance ministry estimates that the deficit will be €95.7bn by the end of the year. The slippage is explained to a large extend by an economy that grew less well in spring than initially expected. But because of a better than expected development of the French social security points out that the global deficit (government deficit, social security, municipalities) will nevertheless be at 5.7% of GDP, the figure France wanted to achieve for 2011. And for the rating agencies it is the global deficit that counts, the finance ministry pointed out yesterday.

 

Martin Wolf is very, very gloomy about the economic outlook


This is a particularly gloomy column from Martin Wolf in the FT on the post-crisis economy because the only salvation he offers is unlikely to be implemented – fiscal policy stimulus in the US and the eurozone, QE3 at the Fed, and lower interest rate in the eurozone. He gives three reasons for the downturn: the economies of the debt-laden western economies are too fragile after the crisis; investors have no confidence in the ability of policymakers to solve problems; investors are becoming extremely, and irrationally, risk-averse.

 

Juppé warns rescuing the euro is a question of war and peace in Europe


Talking to Frankfurter Allgemeine Zeitung the French foreign minister Alain Juppé warned rescuing the Euro was a question of war and peace for Europe. “Young people seem to think that peace is secured for all times”, he said referring to the current euro crisis. “But if we look around in Europe there is new populism and nationalism. We must not play with that.”

 

Spreads, Forex and ZC Bonds

Italian spreads continue to widen.

 

 

 

 

 

 

 

 

 

 

10-year spreads

 

 

 

 

 

 

 

Previous day

Yesterday

This Morning

France

0.700

0.714

0.716

Italy

2.895

3.169

3.164

Spain

2.822

2.925

2.988

Portugal

10.069

9.511

9.445

Greece

16.413

16.111

16.44

Ireland

6.778

6.577

6.763

Belgium

1.790

1.856

1.869

Bund Yield

2.198

2.121

2.126

 

 

 

 

 

 

 

 

Euro Bilateral Exchange Rate

 

 

 

 

 

 

 

at last Briefing

This morning

 

Dollar

1.449

1.443

 

Yen

111.060

110.45

 

Pound

0.885

0.8844

 

Swiss Franc

1.179

1.1794

 

 

 

 

 

 

 

 

 

ZC Inflation Swaps

 

 

 

 

 

 

 

previous close

last close

 

1 yr

1.46

1.35

 

2 yr

1.6

1.6

 

5 yr

1.89

1.74

 

10 yr

1.98

1.98

 

 

 

 

 

Source: Reuters

 

 

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