Eurointelligence Daily Briefing, 16 de Setembro de 2011. Enviado por Domenico Mario Nuti.


ECB intervenes to stop funding squeeze for banks

  • ECB will hold three fixed-rate dollar operations in Q4 to plug  an acute funding gap of European banks;
  • decisions comes as part of a coordinated action among the largest central banks, and triggered a rise in share prices and the euro;
  • Sebastian Mallaby criticises German central bankers over failing to take account of the political economy of austerity;
  • FDP is to launch “red lines” over Europe and taxes, which may trigger an end to the Merkel coalition;
  • Heribert Prantl expresses outrage by the anti-Europeanism of the FDP and the CSU;
  • two influential CDU MEPs criticise Merkel’s approach to crisis resolution;
  • Germany has delayed the vote on the ESM until 2012;
  • Bild has roadmap of how Greece might exit the euro;
  • ECB launches a PR offensive to defend the SMP – without Jürgen Stark;
  • Belgium’s political parties reach an important breakthrough in the negotiations on an electoral district at the heart of the political crisis;
  • the first TV discussion among Socialist presidential contenders in France had an inconclusive outcome;
  • the latest Spanish bond auction went well;
  • Spain is to re-introduce a wealth tax;
  • Olli Rehn, meanwhile, says that Greek private sector wages must fall to match the pay cuts in the public sector.

Reuters reports that the ECB will hold three fixed-rate operations on Oct. 12, Nov 9, and Dec 7 to supply the eurozone’s banks with dollar liquidity to ease the funding crunch at the end of the year. This comes as part of a coordinated action with the Fed, the BoE, the SNB and the BoJ. The problem arose after US money market funds had withdrawn liquidity from the European banking sector, as the probability of a Greek default was rising. At present, the ECB offers seven-day operations each week – a facility tapped by two unidentified banks on Wednesday, the second time this has happened this month. The announcement triggered a sharp boost in European bank shares and the euro, which jumped to well over $1.38 after the lows of recent days.

(This is welcome news, but not a permanent solution as the interest rates on those facilities are significantly above market rates, unless of course the ECB changes the direction of its monetary policy very soon.)


Sebastian Mallaby on the ECB

Sebastian Mallaby of the CFR has a vicious attack on German central bankers in the FT today, which contains an important argument beside the rhetoric. He refers to a study by US academic William Easterly a decade ago, showing the futility of conditionality in World Bank programmes. Mallaby argues the same logic applies to ECB-enforced fiscal consolidation when youth unemployment in Spain is 44%. The imposition of Draconian austerity is politically indefensible. Liquidity with strings attached is not liquidity.


FDP paves the way to exit the coalition after Sunday’s elections in Berlin

After Sunday’s regional election in Berlin, Angela Merkel’s liberal junior partner FDP plans to issue a position paper the mass circulation daily Bild dubs “a second Lambsdorff paper”. The Lambsdorff paper of 1982 paved the way for Hans-Dietrich Genscher’s FDP to leave the coalition with Helmut Schmidt’s SPD. The paper, of which Bild has seen the draft, will draw “red lines” on Europe, taxes, and the reduction of subsidies.  FDP will make its continued presence in Merkel’s government conditional on those policis. On Europe the paper states: “It must be possible as an ultima ratio that a country that cannot cope with its debt on a long term basis should be able to or be forced to leave the currency union”. The paper says this position paper will rock the coalition and might even lead to the downfall of Merkel’s government. The Berlin election will most likely be the seventh consecutive länder election this year where the FDP will score poorly, and this has led to panic within the party.


Heribert Prantl is horrified by the FDP’s and the CSU’s stances on Europe

Süddeutsche Zeitung’s deputy editor Heribert Prantl expresses horror at the “irresponsible loose talk” of FDP and Angela Merkel’s Bavarian sister party CSU on European policy. Prantl says with parties and politicians like these he wishes Edmund Stoiber would come back. The former Bavarian prime minister made life miserable for Helmut Kohl because of his scepticism against the euro but in the end he proved to be responsible and did not sabotage the whole undertaking.


Influential CDU MEP’s criticize Merkel for her crisis management

The two most influential MEP’s of Angela Merkel’s CDU, parliamentary group leader Werner Langen and veteran parliamentarian Elmar Brok, have criticised her euro crisis management, Frankfurter Allgemeine Zeitung writes. Brok said that Merkel’s insistence on having the eurozone’s heads of state and governments deal personally with the crisis makes them “untrustworthy and ridiculous”. Merkel’s insistence on unanimity has the consequence that Finland and Slovakia lead the way in the eurozone. Langen and Brok think Merkel’s idea of having an “economic government” by the 17 heads of the eurozone is stupid because it will split the EU.


Germany will vote only in 2012 on the ESM

While the vote on the enhanced EFSF is still scheduled for September 29, the vote on the ESM will be delayed until early 2012, Frankfurter Allgemeine Zeitung reports. The delay is the result of lacking documents from the EU, the government explains. However the delay will also allow the FDP to first hold its party referendum on the ESM which was initiated by the MP and Euro dissident Frank Schäffler. The party leadership still hopes that Schäffler will fail to gather a majority that would force the FDP parliamentarians to vote against it thus depriving Merkel of her own majority on the topic.


The roadmap of a Greek euro exit

Mass circulation daily Bild has a detailed roadmap of a Greek euro exit as the paper imagines it. After the closing of the stockmarket on a Friday evening, the Greek government would declare bankruptcy and say that it only honours 50% of its outstanding debt, thus halving it from 350bn € to 175bn €. To contain the shock the Greek stock market would have to stay closed for a few days. The Greek banks and the ECB would have to be recapitalized. There would have to be capital controls. The government would reintroduce the Drachma by stamping the existing euro bills. The new currency would drop in relationship to the euro and the dollar thus making domestic goods competitive and allow Greece to achieve surpluses to honour its debt. The remaining Euro coins would have to collected by the central banks and acquire the status of a collector’s item, Bild explains.


The ECB launches a PR offensive for the SMP – without Jürgen Stark

The ECB yesterday launched a PR offensive for its Securities Market Program. The bank had a detailed explanation in its monthly report published yesterday. The report states that market conditions in early August were comparable to those in May 2010 and by launching the program it prevented a meltdown while assuring the continued functioning of monetary policy and guaranteeing price stability. Board member Lorenzo Bini Smaghi made the same arguments in a speech in Rome blaming the program’s critics to suffer from a lack economic and factual understanding of the situation. However Financial Times Deutschland points out that the ECB’s chief economist Jürgen Stark, who announced his resignation in protest against the SMP a week ago, also spoke on the crisis in Vienna. While speaking exclusively on the ECB’s reaction to the crisis, Stark managed not to mention the SMP even once.


Belgian breakthrough in state reform negotiations

A major breakthrough on state reform negotiations was reached in Belgium Wednesday night, as the eight parties finally found a compromise in a crucial dispute over the organisation of the electoral district BHV, in the outskirts of Brussels. The event marks a turnaround after a series of negotiation breakdowns. There are still many issues to settle such as the constitutional reform and the budget, and the process can still derail, but it was a first important step. Belgium hasn’t had a federal government for 459 days. Budget talks started yesterday. 


Inconclusive first round of the Socialist’s presidential debate

The six candidates for the Socialist’s primaries to designate the party’s challenger to Nicolas Sarkozy ended inconclusively last night, Le Monde and Le Figaro report. However the TV debate confirmed the front runner status of Francois Hollande and Martine Aubry.


Latest Spanish bond auction went well

El Pais has the news that yesterday’s large bond auction in Spain went relatively well. The government managed to roll over €3.95bn in debt, close to the €4bn target it had set, covering three types of bonds, maturing between 2019 and 2020, with a bid to cover ratio of just over 2. The interest rates on those securities ranged from 4.99% to 5.19%.


Spain reintroduces wealth tax

Spain will reintroduce a wealth tax on Friday as a temporary measure to make the rich pay more to help end an economic crisis, Reuters reports. Economic minister Elena Salgado said the tax will affect around 160,000 people, raising up to €1.08bn per year in 2011 and 2012, affecting the budgets in 2012 and 2013.  


Rehn says Greek private sector wages need to fall further

Labor cost cuts in the Greek private sector should be more pronounced to match salary cuts in the public sector, Kathimerini cites Olli Rehn. The 6.8% fall in labour costs recorded in the first quarter of the year “is not sufficient to cover the loss of competitiveness”, Rehn said. According to Eurostat data, Greek labour costs rose 20% more in the 2000-09 period than in the rest of the eurozone. Greek labour costs have fallen by nearly 4% in the 2009-11 period, more than the average in the eurozone.



Spreads, Forex, and ZC Bonds

Spreads down further from the dizzy levels earlier this week, and euro crawls back to over $1.38.



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Source: Reuters



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