 He said: „monitor closely“: Does it mean Trichet will cut rates before leaving office?
Eurointeligence Comment and AnalysisSustainability will require a grand compact, involving a eurozone bond in exchange for a partial transfer of sovereignty.Unfortunately, there is no prospect of either in the short-term.
For the eurozone crisis, this was a relatively quiet day. The two most important stories were a cryptic hint by Jean-Claude Trichet that the ECB might reverse policy sooner than the experts thought. Jean-Claude Juncker, meanwhile, is ready to give up the hot seat and to focus on the important job of running Luxembourg.
In Frankfurt yesterday, at his penultimate press conference, Jean-Claude Trichet said in his statement: “We expect the euro area economy to grow moderately, subject to particularly high uncertainty and intensified downside risks.” He said the policy was accommodative, but noted that some finance conditions had tightened. “A very thorough analysis of all incoming data and developments over the period ahead is warranted. We will continue to monitor very closely all developments.” The ECB downgraded its growth forecast from 1.9% to 1.6% for 2012, and to 1.3% for 2012. The FT writes that a gloomy Trichet was paving the way for rate cut, which happens as early as next month (possibly to save Mario Draghi from having to start his tenure with a rate cut in his first month. He will have to cut rates again shortly afterwards.)
El Pais reports that Trichet yesterday lost his temper in his response to a German journalist whose question reflected criticism of the ECB’s bond purchasing programme. The paper said his voice was indignant when he said “I would very much like to hear congratulations for an institution which has delivered price stability in Germany over 13 years at 1.55% per cent approximately, which is better than has been obtained in this country over the last 50 years.” El Pais wondered what the tone of conversion would be between Trichet and Jens Weidmann of the Bundesbank.
Juncker will retire from the eurogroup chairmanship and propose a full time successor
Jean-Claude Juncker plans to retire from his chair as head of the eurogroup and will propose successor, who should be a former finance minister and work full time, according to Financial Times Deutschland. There are two further possibilities how to reorganize the euro finance ministers work more efficiently. The Dutch want to give the EU economics commissioner the right to withdraw EU funds from the deficit countries and to impose sanctions. Also, he or she should be able to decide independently of the commission as does the competition commissioner. The third option pushed by Angela Merkel and Nicolas Sarkozy is to make Herman Van Rompuy the president of the eurogroup at the level of heads of state and government. There could also be combination of the three. FTD says the choice of candidates for Juncker’s proposal may cause problems. Obvious candidates like Peer Steinbrück and Dominique Strauss-Kahn seem to be unavailable. Steinbrück is mulling running for chancellor in Germany whereas Strauss-Kahn looks may be politically unacceptable even for this job.
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The implications of the July summit on the ESM treaty
Quentin Peel has an interesting article in the FT, according to which the promise at the July extraordinary EU summit that the private sector bail-in decision only applied to Greece and not to others would require changes to the ESM treaty, which of course contains a general bail-in provision. He referred to sources saying that the latest council resolution took precedence over the previous council resolution on the ESM treaty (presumably because it was later). That would mean that there would no longer be a certain presumption of an investor-bail-in as a quid pro quo for help from the ESM. (It is hard to tell whether this fly in the German parliament, after all these promises Merkel has made.)
Greek government may not be able to pay wages in October
The Greek government might not be able to pay wages and salaries in October if its international creditors do not approve the pending €8bn sixth instalment immediately, Kathimerini reports. The payment freeze became more likely after Greek commercial banks failed to cover the sum of €300m of supplementary, non-competitive bids for Tuesday’s auction of T-bills, providing only €155m. The shortfall is interpreted as a clear message by banks to the government that they are unwilling to fund future issues of T-bills. The Greek government has frozen all disbursements apart from salaries and pensions.
Germany increases pressure on Greece
During the Bundestag’s debate on the law in order to enhance the EFSF, government top representatives increased pressure on Greece to stick to the consolidation and reform road map agreed with the EU Commission, the ECB and the IMF, Frankfurter Allgemeine Zeitung writes. Wolfgang Schäuble threatened there would be no additional money as long as the troika could not continue their mission. Troika representatives last week left Athens when it was clear that the demands on Greece had not been met and that there was no draft budget to discuss. The liberal FDP’s parliamentary group chief Rainer Brüderle said: “Whoever is not playing according to the rules will be taken off the football field”. Was that perhaps a hint of a forced exit, we wonder?
EU energy commissioner Oettinger wants to put Greek flags at halfmast
The German EU commissioner for energy Günther Oettinger wants to do administrative nation building in Greece. Talking to mass circulation daily Bild he suggests that officials from all other member states go Greece and help form a modern administration. Lamenting the incompetent bureaucracy and tax administration he suggests that “qualified officials from the EU states go to Greece for an extended period to counsel and implement administration in Greece”. For cases like over-indebted Greece he pleads for a forced handover of their budgetory authority to the EU. “One could also think about less conventional ideas”, he says. “There is also the proposal that the flags of debt sinners should be put at halfmast in front of all EU buildings. That would only be a symbol but it would have a highly dissuasive effect.” (The German Commissioner is certifiably mad.)
Le Monde criticizes Sarkozy’s cowardice in terms of budgetary consolidation
In a front page editorial, Le Monde criticized Nicolas Sarkozy’s cowardice in terms of budgetary consolidation. The paper underlines the contradiction between the president’s repeated warning of economic “tsunamis” taking away the French AAA rating and his record of caving in to special interests when it comes to burden them with additional taxes. Le Monde cites the abandoned plan to increase taxes on theme parks because former prime minister Jean-Pierre Raffarin comes from Poitiers, the home of the Futuroscope theme park. Other examples are the planned taxes on real estate gains on holiday homes because the concerned lobby complained; or abandoning a vote for the debt break. France’s EU partners do not show so much cowardice, the paper notes.”If you want to be credible in the eyes of the markets and the French people, the government would be well advised to synchronize its acts and its words”.
France becomes the first euro country to adopt the enhanced EFSF
While the debates in the other euro member states are sill ongoing (and may continue to do so until the end of the year in the case of Slovakia) France last night became the first country to adopt the enhanced EFSF, Le Figaro reports. The Dutch parliament yesterday postpone a discussion on the renewed EFSF, with a vote now expected late September, Reuters reports.
Spreads, Forex, and ZC spreads
Euro below $1.40 is Trichet as relatively dovish, and Bernanke relatively hawkish (relative the market participatants’ expectations, of course. Nothing has really changed.) Note that Italian and Spanish spreads are drifting upwards again.
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