Eurointelligence Daily Briefing, 21 de Setembro de 2011. Enviado pelo Domenico Mario Nuti.


Bundesbank to form a coalition of Euro central bankers against the SMP

  • Jens Weidmann convenes a (not so) secret meeting of like-minded fellow central bankers to build a front of opposition to ECB bond purchases;
  • Luxembourg and Dutch central bankers are among the invitees;
  • the IMF gets gloomy in its latest Global Economic Outlook, and calls on the ECB to cut rates;
  • Ewald Nowotny says the central bank’s room for manoeuvre is rather limited;
  • after yesterday’s downgrade by S&P, the Italian government tries to calm international investors with the pre-announcement of a yet unspecified programme of structural reforms;
  • Italian bond spreads deteriorated significantly yesterday close to their eurozone  peak;
  • the talks between the troika and the Greek government continued, with reports that an agreement is coming closer;
  • Portugal’s PM says he will not follow IMF’s advice to cut social security costs for companies, saying his country was not a testing ground for economic radicalism;
  • Angela Merkel faces increases opposition to her policies from her party’s regions;
  • the German coalition parties agree on the specifics of how the Bundestag will be involved in decisions taken by the EFSF;
  • France has to find an additional €12bn in budget cuts;
  • Wolfgang Münchau, meanwhile, argues that the crisis has moved beyond the point at which a positive outcome is still possible.

Bundesbank president Jens Weidmann invited potential allies to an informal meeting to win over allies against the ECB Securities Market Programe, Frankfurter Allgemeine Zeitung reports. Weidmann invited potentially like-minded members of the ECB governing council to the beautiful Rheingau village of Eltville to discuss an alliance within the ECB against the controversial bond buying program. Among the invitees are Yves Mersch, Luxemburg’s central bank governor and apparently the only central banker who has consistently voted with Weidmann and ECB chief economist Jürgen Stark against reactivating the SMP. Another guest is the Dutch central bank president Klaas Knot. The story is short of further detail but the take is that Weidmann – as opposed to his predecessor Stark and Stark – has the reflex to actually do something against a measure he believes to be wrong instead of just dramatically slamming the door.


(This group is not a blocking majority, but it is a quite dangerous precedent for the central bankers of the AAA-rated countries to unite against the SMP. This is a development whose significance can hardly be overstated. Germany is in open revolt against the eurozone crisis resolution policies.)



IMF gets gloomy, ECB remains cautious


The IMF yesterday called on the ECB to cut interest rates, but a senior central banker warned that its room for manoeuvre was rather small. In its World Economic Outlook, the IMF warned that the global economy had entered a marked slowdown, according to news reports in Financial Times Deutschland and Börsenzeitung, with the global growth forecast now down to 4% for 2011 and 2012 each. The ECB should cut the main refinance rate, and step up bond purchase to reduce long-term interest rates (i.e. undertake QE, which is not the declared objective of the securities markets programme at the moment).


Reuters reports, meanwhile, that Ewald Nowotny, the Austrian central bank governor, rejected the notion that the eurozone was confront an outright recession. He says he noted, and was concerned, about weaker growth prospects for Germany.  “I do not think there are many possibilities for further specific actions, but of course the ECB has to look at the general picture particularly with regard to the stability of the financial sector.”



Italy plans reforms, but don’t get exited

We are back in this game where Italy faces a threat, and tries to allay concerns through hasty pre-announcements that do not seem to add up to much. After yesterday’s downgrade by S&P, Giulio Tremonti has led it be known that he is now planning a programme of structural reforms. The FT has the story – which is notably absent in Italian newspapers this morning – that the government was planning a series of measures by decree (a kind of a jump start, something to be ratified ex-post by parliament). The measures to be announced next month include a new motorway along the Adriatic coast. Following this, there will be measures to liberalise services and speed up privatisations of utilities.  


(There are no details to suggest that the Italian government is about to take measures that could lead to a sustained improvement in economic growth, which is what it will take to ensure solvency. After the downgrading, Italy is obviously keen to get out a positive spin to international investors, but this is not a crisis of communication. Nobody will change their on Italy until they see the implementation of a coherent programme.)



No decision on Greece yet – Some positive spin

Greece will have to wait until later this month or even next month to find out whether it has done enough to qualify for the €8bn loan instalment or face default, writes Kathimerini. After a second teleconference between the Greek finance minister and the troika yesterday a brief statement said that the two sides had reached an agreement that paves the way for the troika officials to come to Athens next week. George Papandreou is due to chair a cabinet meeting this morning to discuss the steps that were set out during the two teleconferences. These included public sector sackings, reductions to pensions, civil servants’ salary cuts and some tax hikes.



Coelho: Portugal is not a laboratory for radical measures

Passos Coelho said yesterday that Portugal will not follow the IMF recommendation to cut social charges for companies by 8pp saying that his country is not a laboratory for radical measures, Jornal de Negocios reports. It would require a significant effort to make up for the revenue loss. A cabinet decision is scheduled for the end of the month. Two scenarios are under discussion: a smaller percentage reduction in social charges for all or a higher percentage reduction for some companies only.



The decline of Merkel in Germany’s regions

This is not a news story, but a rather well observed reportage on Angela Merkel’s attempt to sway local supporters to accept her policies. She is taking part in various regional CDU conferences, but as FT Deutschland reports, her message is not getting through to the party’s arch-conservative party base, who are already reeling about her U-turn on nuclear energy, on schools (the abolition of the three-legged school system), and on the ending of military subscription. And as ever she cannot get herself to say anything inspiring on the euro.



CDU, CSU and FDP agree on Bundestag’s involvement in EFSF decisions

Angela Merkel’s CDU, the Bavarian CSU and the liberal FDP yesterday agreed on how the Bundestag should be involved in all decisions of the EFSF, Frankfurter Allgemeine Zeitung and mass circulation daily Bild report. As a general rule the German representative may only vote for or abstain on all decisions that touch the parliament’s budgetary rights if there is an explicit decision by the Bundestag. In cases of particular urgency or confidentiality this decision may be taken by a small group of members of the parliament’s budget committee, which must comprise at least one representative from each parliamentary group. In these cases the group presumably convenes via telephone or video-conference and is empowered to take decisisions on the Bundestag’s behalf. Without an explicit decision the German EFSF representative has to veto EFSF decisions as soon as they engage budgetary rights of the German parliament. The deputies of Merkel’s coalition think they have even gone further than the recent constitutional court ruling required them to go.



Bad growth prospect may force France to find an additional €12bn in its 2012 budget

The forecasters of the French finance minister Francois Baroin fear that growth in 2012 will only be at 1.2% making which may lead to budgetary shortfalls in the magnitude of €12bn, Le Monde reports. So the ministry is trying to bring together a collection of small measures to overcome the shortfall while not angering potential voters too much given the presidential elections. But there is a consensus that everything has to be undertaken so that France honours its pledge to bring down the deficit from 5.7% to 4.6% of GDP.



Wolfgang Münchau on a pending catastrophe

Wolfgang Münchau argues in his column in FT Deutschland that the eurozone crisis has now dragged on for so long, and has become so toxic that is now very unlikely to be resolved. Once the crisis hit Italy, followed by an absolutely inadequate policy response of the Italian government, the crisis has reached a point of No return. Italy is too big to save with the current set of instruments, including ECB bond purchases, and in the absence of a credible programme of eurobonds, he concludes that a breakup of the eurozone must now be considered as a probable scenario. The question is now whether and how the EU can survive such a cataclysmic event.



Spreads, Forex and ZC Bonds

Italian spreads now a whisker under 4%, deterioration all around, except bunds of course.


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Source: Reuters



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