Euro crisis creeps into France
Yesterday was the day when the euro crisis crept into France – where the banking sector has now become so vulnerable that even the French government is no longer in a position to rescue it without itself being drawn into the abyss.
The best coverage on this story this morning came from Les Echos, which leads with the headline “The French banks in infernal spiral”. The three large French banks BNP Paribas, Société Générale et Crédit Agricole lost more than 10% of the market value each yesterday, with the CAC market index down 4%, to the lowest level in the middle of the crisis 2009. The trigger for this meltdown was Moody’s announcement of a downgrade, but the paper quotes an analyst as saying that underlying reason is the expectation of a Greek default coupled with an absence of the G7. The French government tried to calm markets with soothing statements. S&P also gave a positive statement, saying they considered them solvent even under the worst assumptions, though they did express concern about the liquidity ratios.
US money funds reduce holdings in French banks
US money-market funds have cut their lending to French banks at a pace that may force the banks to raise capital by selling assets, Bloomberg reports quoting from a report from Deutsche Bank. Prime money funds reduced their holdings in certificates of deposits issued by French banks by about 40% in three months through August. Holdings of CDs from banks across Europe fell about 31%.
Berlin thinks Greece may leave the euro by 2012
Angela Merkel is upset at Philipp Rösler, economics minister, vice-chancellor and chairman of her liberal coalition partner FDP because he started a debate about an orderly bankruptcy of Greece, mass circulation daily Bild reports. “One should not talk countries into a default”, Hermann Gröhe, Merkel’s general secretary for her CDU, said yesterday. But according to the paper, if worst comes to worst, the German government thinks a decision by Greece to leave the eurozone is on the cards. “People in Berlin say: If the situation does not get any better, this might happen in 2012”, Bild writes.
Alexander Hagelüken denounces the government irresponsible populism on Greece
Commenting in Süddeutsche Zeitung, Alexander Hagelüken denounces the irresponsible populism of FDP chairman Philipp Rösler and CSU chairman Horst Seehofer and their calls for an orderly bankruptcy and an exit of Greece from the eurozone. The only aim of these economically illiterate proposals is to get their author’s names into the papers, he writes. Hagelüken says American and Chinese investors will be dissuaded from putting their money into a currency zone in which the biggest economy has such irresponsible politicians in top positions. The only option for the eurozone is to save Greece and for Greece itself is to finally get serious on reforming the country.
The Greek government partially freezes payments
The Greek government adopted a partial payment freeze excluding salaries and pensions as the central government is projected to run out of cash by mid-October, Kathimerini reports. Overdue payments by various government entities (hospitals, social insurance funds and local government) were estimated at €6.5bn in July and are now obviously increasing further. The troika notified the Greek government on Saturday that its representatives will not return to Athens if the new austerity measures including pay cuts are not adopted by the Cabinet and the ruling party’s parliamentary group.
The week before Jürgen Stark’s resignation the ECB purchased bonds worth €14bn
According to yesterday’s weekly figure on the ECB’s controversial bond purchasing program the bank bought €14bn worth of papers from euro crisis countries, Börsenzeitung reports. That brings the total sum of the so called Securities Market Program (SMP) to €143bn.
France’s finance minister cautiously endorses Eurobonds
Speaking at a conference yesterday France’s finance minister Francois Baroin cautiously endorsed Eurobonds, Libération correspondent Jean Quatremer reports on his blog Coulisses de Bruxelles. Eurobonds “can be a final goal, not a starting point”, the minister said. Quatremer sees nevertheless an important step because “the expression has been used and that is what is important”.
Only four eurozone countries will have deficits of less than 3% in 2012
According to the Commission’s annual report on the public finances in the EU only four eurozone countries will have deficits below the stability pact threshold of 3% of GDP, Les Echos reports. Those countries will be Germany, Finland, Luxemburg and Estonia. Additionally there are four non eurozone countries in this category: Denmark, Sweden, Bulgaria and Hungary.
IMF releases €3.98bn to Portugal
The IMF unlocked yesterday €3.98bn bailout loan to Portugal, as it completed its first assessment of Portugal’s performance under the three years bailout programme, Jornal de Negocios reports. It is the second instalment of the €27.27bn IMF part in the €78bn rescue fund with the EU.
Wolfgang Proissl calls on the Bundesbank to give up its dissident role in the eurozone
In a commentary in Financial Times Deutschland, Wolfgang Proissl calls on the Bundesbank to give up its dissident role if it wants to regain relevance within the Eurosystem. The German central bank must realize that it is isolated with its rejection of the ECB’s bond purchasing program and that it has failed to leave its mark on important eurozone decisions throughout the crisis. The Bundesbank will only be able to regain influence if it re-engages with the other central banks, financial market actors and politicians in order to form coalitions. Bundesbank president Jens Weidmann and Jörg Asmussen, the designated successor for the ECB chief economist Jürgen Stark, are both experienced political dealmakers and should be in good position give the Bundesbank an new start.
EFSF guidelines to be finalised this week
Reuters reports that eurozone finance ministers, at their informal meeting in Poland on Friday, will finalise the guidelines for the EFSF, deciding on the instruments and procedures. The guideline would also stipulate how market intervention works, and how it is coordinated with the ECB. The ruling of the German constitutional courts complicates the process, as the German parliament now has to be involved.
Tremonti talks to China about bond investment s
The FT reports that Giulio Tremonti had talks with Lou Jiwei, chairman of China Investment Corp, who had led a delegation to Rome last week, to discuss strategic investments by China in Italy. This followed a number of high level meeting with the Chinese in the previous month. There is no deal yet, the two sides remain in discussion. The article says the possibility of Chinese investment came at a critical moment for Italy.
German rates fall, Spain’s rise
Financial Times Deutschland reports that the German debt agency auctioned €3.9bn worth of six months government bonds at an interest rate of 0.18% compared to 0.695% six weeks ago. Meanwhile, Reuters has a report that Spain will on Thursday auction three bonds, hoping to raise €3-4bn, at a time when yields have once again jumped to historically high levels – with ten-year yields at 5.417% this morning. The last auction on Sept 1 saw relatively modest appetite, and there is some nervousness ahead of this week’s auction. Reuters reports that the lack of action from G7 finance ministers coupled with a fear of a Greek default had a negative effect on market sentiment.
Spreads, Forex, and ZC Coupon Bonds
Italian spreads rise towards 4%, euro strengthens by nearly 1 cent, having briefly fallen below $1.35. Note also the renewed rise in French spreads. The absolute level is not serious (yet), but that might change abruptly.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||