Eurointelligence Daily Briefing, 12 de Setembro de 2011. Enviado por Domenico Mario Nuti


After Stark

  • Jürgen Stark resigns from the ECB in protest at the bond purchases programme;
  • resignation throws Angela Merkel’s eurozone crisis strategy into disarray;
  • FT Deutschland reports that Stark’s resignation was aimed at Jean-Claude Trichet personally;
  • Germany proposes Jörg Asmussen as Stark’s successor, but it is not clear that he could take over as chief economist, given his lack of qualifications;
  • Luigi Zingales says Stark’s resignation was a symbol of the alienation of the German economics establishment, and predicts a breakup of the eurozone into a northern and a southern zone;
  • Holgner Stelzner sees the formation of national factions within the ECB’s governing council;
  • Le Monde argues that governments left the ECB no choice but to purchase bonds;
  • Germany is preparing for a Greek default, either within or outside the eurozone;
  • Greece plans a temporary property tax to be collected through the electricity bills;
  • the Greek government also decided to expedite the vote on its 2012 budget;
  • pressure is growing within the FDP for a referendum on the ESM – which would be severe strain on the coalition;
  • Wolfgang Münchau says the verdict of the Constitutional Court is a disaster for the eurozone, as it rules out eurobonds;
  • UBS calculates that the cost of leaving the euro exceeds the cost of rescue operations;
  • Moody’s is likely to downgrade three French banks today;
  • the euro, meanwhile, fell to a ten-year low against the Japanese yen.

As if this crisis was not bad enough, the resignation of Jürgen Stark has made the resolution of the crisis a lot more difficult. Apart from the immediate market reactions on Friday afternoon, the long-term impact may be more serious because it threatens to derail Angela Merkel’s crisis resolution strategy. Merkel has come under attack over the weekend for failing to support Stark’s line at the ECB, and there are signs that the FDP may not dare to rebel more openly. In addition, there are reports over the weekend that Germany is now preparing for a Greek default. The strategy seems to be to pay the next tranche and wait until the EFSF receives its new powers before forcing Greece into a default. The EFSF would then be in a position to stabilise European banks.


Stark’s resignation from the ECB was aimed at Trichet personally

Stark’s resignation was explicitly aimed at the central bank’s president Jean-Claude Trichet, Financial Times Deutschland reports in a full page account of last Friday’s event. “Stark insisted on resigning during Trichet’s tenure and not to wait until the mandate of his successor Mario Draghi started”, the paper quotes people familiar with Stark’s thinking. Stark is deeply disappointed personally with Trichet who pushed for the ECB to start buying Italian and Spanish government bonds in early August after having abstained from purchasing any euro government bonds for over four months.


Luigi Zingales says Stark’s resignation is the beginning of the end of the euro

To us, the most pertinent comment on the crisis over the weekend came from Luigi Zingales in an Oped in Il Sole 24 ore, in which he writes that September 9, 2011, might be remembered as the beginning of the end of the eurozone. This was not only a signal of discord within the ECB, but more importantly a symbol of the alienation of the German economic establishment. He believes that the most likely outcome of the crisis would be dual monetary union, a northern and southern union. Without the south, the North might even agree to move towards a fiscal union.


Stark’s nominated successor Jörg Asmussen is not sure to become ECB’s chief economist

Wolfgang Schäuble swiftly nominated Jörg Asmussen, his state secretary at the finance ministry in charge of the financial crisis management, to succeed to Jürgen Stark at the ECB. However Financial Times Deutschland quotes members of the EU parliament’s committee for economic and monetary affairs who say that while Asmussen has a good reputation he may end up with another portfolio at the ECB because he may not have the most convincing profile for a chief economist. Euro sources quotes by the paper also point out that the ECB’s president designate may have his own ideas and hesitate to nominate a third German in a row for the powerful position.


Holger Steltzner sees formation of national fractions within the ECB



Commenting on Jürgen Stark’s resignation, Frankfurter Allgemeine’s economics editor Holger Steltzner says that rule breaking and a loss of all principles was not compatible with the ECB’s price stability mandate, according to Stark and the Bundesbank. “By buying debt from Italy, Spain, Portugal, Ireland and Greece, the ECB is pushing the transformation of the currency union to de debt community without limited liability”, Steltzner claims. “Stark no longer wants to be part of this. He is worn out also because national fractions have emerged within the ECB’s governing council.”


Le Monde argues the governments have forced the ECB to buy the debt of crisis countries



In its front page editorial Le Monde argues that the euro governments didn’t leave the ECB any other option than to buy the debt of the crisis countries. “Without any doubt the ECB did not have a choice”, the paper writes. “It came to help those countries in order to avoid an explosion of the eurozone.” But the paper points out that “with or without reason the Germans are afraid of an ECB that spends billions without counting.” But it is not the ECB’s fault, Le Monde argues, but rather that of the member states which “have let their debt grow and that of the others who have never grasped the existential nature of the crisis that affects the euro.”


German government is preparing for a Greek default



The German vice chancellor and economics minister of the liberal FDP, Philipp Rösler openly considers a Greek default, according to an op-ed he wrote for Die Welt. “In the short term there must no longer be any interdiction of thought”, he writes. That “must also include in the worst case an orderly bankruptcy of Greece as long as the sufficient instruments are in place”. The story is in line with a report from Der Spiegel according to which Wolfgang Schäuble of Angela Merkel’s CDU has ordered his finance ministry to calculate the consequences of a Greek bankruptcy. The calculation used two scenarios: In the first one Greece stays in the eurozone, in the second one the country exits the currency union, the magazine reports. The report was angrily denied by the Greek government.


Greece plans new property tax to cover budget shortfall



The Greek finance minister Evangelos Venizelos announced a new round of austerity measures over the weekend including a new property tax, Kathimerini reports. The new tax will range from 50c to €10 per square meter depending on the value of the property and will apply for two years, Venizelos said, noting that the tax would be added to electricity bills to reduce the likelihood of tax evasion. The government had no option but to do “everything necessary” to cover a budget shortfall, estimated at €2bn, following a deeper-than-expected recession, he added. Greece is expected to contract by 5.3% this year, worse than initial forecast of 3.9%.


The government also decided to expedite the parliamentary vote on its 2012 budget, according to the Dow Jones Wires.  The draft budget will be submitted to parliament on the first Monday in October–as foreseen by the Greek constitution–and will be voted on by the end of October. Under normal procedures, Greece’s parliament usually votes on a new budget at the end of December. Concurrently, parliament will also vote on a plan to overhaul Greece’s tax system, Venizelos said. The troika is to resume talks this week over whether Greece has done enough to qualify for the next bailout instalment.  Without the aid, Greece is expected to run out of money within weeks, according to senior Greek officials. 


FDP eurosceptics want to organize party referendum on the ESM



Philipp Rösler’s tough talk on Greece may be in response to an initiative led by the eurosceptic Bundestag member Frank Schäffler, who wants to hold a referendum among FDP members on the parliament’s vote to create the ESM in December, Handelsblatt reports. Although such a vote would not have a formal binding power, it seems politically impossible for the FDP deputies to vote for the ESM if the majority of its membes rejected it. Given the deep unpopularity of the euro rescues especially within the coalition’s party supporter, a no-vote is not excluded.


Wolfgang Münchau says Constitutional Court a disaster for the eurozone



In his column in the Financial Times, Wolfgang Munchau says there are only two solutions to the eurozone crisis – a debt monetisation, or a Eurobond. The first is illegal under European law, the second is now illegal under German constitutional law. The Constitutional Court’s decision delineates what is legal and what is not. A temporary mechanism in which the Bundestag retains ultimate control, such as the EFSF, is legal. The permanent mechanism is clearly a borderline case, according to the judgement, as a result of which the ESM is likely to give rise to another, and possibly more serious challenge. A eurobond is clearly beyond what the constitution permits, because it involves a permanent transfer of fiscal sovereignty.


Downgrade of French banks is likely to shake markets


Moody’s is likely to downgrade BNP Paribas and Crédit Agricole by one notch and Société Générale by two notches today, Le Figaro reports. The reasons the paper quotes are the bank’s exposure to Greek debt and their shares’ massive loss of value. One reason of nervousness is also that politicians in Germany and the Netherlands now openly talk about Greece exiting the eurozone.


UBS: Euro exit costs higher than bailout



The cost of leaving the euro is more expensive than the current bailout, according to research report for clients of Swiss investment bank UBS, the Irish Independent reports. UBS estimates that it would cost every German man, woman or child up to €8,000 in the first year if the country left the eurozone and up to €4,500 per year after that.  The cost of bailing out Ireland, Greece and Portugal entirely in the wake of a default would be just over €1,000 per German as a one-off hit. For weaker eurozone countries the cost of leaving the euro would be around €9,500 to €11,500 per person in the exiting country during the first year. That would then probably amount to €3,000 to €4,000 per person per year over subsequent years.


Spreads, Forex and ZC Bonds



Euro down at $1.3565, and to Y105.80, a ten year low. Italian 10-year spreads up at 3.736%, and the Bund yield down to 1.774%. The data tell us that the crisis has reached another peak moment.


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