Eurointelligence Daily Briefing, 23 de Setembro de 2011. Enviado por Domenico Mario Nuti


Gloom everywhere

  • Italian bond spreads rise to over 402bp this morning, as Italian banks are downgrading;
  • The Fed’s and IMF’s negative growth outlook has led to a protracted fall in global share prices;
  • the rout continued in Asia overnight;
  • copper and oil also fall;
  • German CDS reach 100bp;
  • latest indicators also point to a protracted downturn in China;
  • Paul Krugman says Fed’s programme is far too small to make even a dent;
  • EU wants to speed up recapitalisation of the banks that came close to failing the stress tests (not a single French bank among them);
  • the property tax is in trouble in the Greek parliament, as several Pasok MPs say they will not support it;
  • Slovakia’s PM ties EFSF support with a confidence vote;
  • Olli Rehn says EU won’t allow a disorderly Greek default or an exit;
  • Jürgen Stark propose the imposition of an independent body with the right to veto national budgets;
  • Angela Merkel’s aides put massive pressure on dissenting MPs ahead of next week’s vote on the EFSF;
  • Stefan Braun says coalition would lose its purpose if it does not have its own majority in the vote;
  • the four most important German business associations urge the coalition to support the EFSF;
  • the Irish economy had a brief recovery, but the global economic slowdown poses a big threat;
  • Bild, meanwhile, have applauded the Greeks this week, is now attacking Wolfgang Schäuble.

We have often wondered how bad the crisis would have to get until Europe’s  complacent policymakers are nudged into action. The latest economic data, and the continued meltdown of markets, suggest that we may soon find out. Italian bond spreads are now above 400 basis points, due also a downgrade of Italian banks. It reached the threshold briefly in intra-day trading a few weeks ago. Even German credit default swaps have gone up to 100bp – despite the fall in bund yields. After the Fed’s announcement of “Operation Twist” on Tuesday, global stocks slumped, and the slow meltdown continued in Asia overnight. This was a broad-based fall in the prices of risky assets, extending also to commodities markets, with oil and copper prices weakening significantly.



El Pais’ headline says it all: “Stock markets plummet because of the impotence of the United States and Europe”.  The FT writes that the Fed’s latest instalment of QE had failed to increase the risk appetite of global investors, who still seem shocked by the IMF’s warnings about the global economic outlook. The slowdown has now hit China, which recorded the third consecutive fall in a widely followed purchasing managers’ index.


Paul Krugman makes the point that the Fed is right in principle to think about policy to induce the purchase of risky assets. But the programme is far too small. The total of non-financial debt in the US is $36 trillion. A $400bn shift from short towards long-term assets is not going to make a dent.


Greek parliament may not support reforms


The Greek Parliament had been due to vote Thursday on the emergency property tax, just one of several measures unveiled in recent days, but the vote was off until Tuesday as at least five or six PASOK deputies said they were not prepared to support the real estate tax, Kathimerini reports. Were they to carry out their threat not to vote for it, the bill would sink as PASOK only has 154 of the 300 seats in Parliament, down from 160 when the party was elected to power two years ago. George Papandreou and Finance Minister Evangelos Venizelos on Thursday began tough talks with those PASOK MPs who are opposed to the latest austerity measures.


Slovakia to open EFSF debate next week


In Slovakia parliamentary committees are to start discussions over the extension of the EFSF next week with a final vote expected end of October, Reuters reports. The adoption is not secure as the liberal party in the ruling coalition is adamantly rejecting to support approving the plan. Prime Minister Iveta Radicova had told her coalition partners she would tie ratification of the EFSF to a vote of confidence in the government, increasing pressure on the dissenting liberal coalition partner, Freedom and Solidarity (SaS).


EU to speed up recapitalisation of banks


For what it is worth: After the latest cynical stress tests, the EU has now promised to speed up plans to recapitalise the 16 banks that came close to failing, the FT reports. The idea is to fool markets into thinking that the EU was serious about strengthening the banking sector. The paper quotes a senior French official who said the 16 banks regarded to be close to the threshold would now have to seek new funds immediately. (The problem is, of course, that not a single French bank is on this list, just as not a single Irish bank was on last year’s list.)


Rehn says EU won’t allow Greek euro exit


European policy makers seem to go round in circles once again on the question of whether or not to let Greece default. After the July 21 summit, that option seemed to be off the table, beyond the small technical default agreed at that meeting. The subject came up subsequently again, but officials are now pouring cold water on the notion of a Greek default, as they are staring down the brink, especially in the current global economic climate. Olli Rehn, speaking in Washington, told the Peterson Institute for International Economics that an uncontrolled default, or exit from the eurozone, would cause massive social and economic damage, with large spillovers to the global economy. “We won’t let that happen,” he said, according to Reuters.


Stark proposes EU consolidation dictator


Two weeks after his surprise anouncement to resign, ECB chief economist Jürgen Stark published an ECB paper in which he calls for reforms of the fiscal rules that go far beyond what is currently discussed, Frankfurter Allgemeine Zeitung reports. Stark would like to create an independent body that would be mandated to evaluate national fiscal policies and to supervise the work of the EFSF. A country in non-compliance with its programme obligation could be put under direct fiscal management of this body which would then assume the role of a consolidation czar. In the long term this institution could become a European finance ministry. Additionally, Stark and his three co-authors propose that deficits of more than 3% of GDP would have to be unanimously agreed by all euro countries, all deviations from the medium-term objective would need at least a qualified majority. Stark concedes that the current reforms of the stability and growth pact go in the right direction but fail to bring about the quantum leap that the ECB has been calling for in order to produce a sustainable fiscal framework for EMU. To see the whole 20 pages report go to


Merkels pressures deputies to vote for the enhanced EFSF next Thursday


When the coalition put up a test vote two weeks ago about the enhanced EFSF, it was 25 votes short of a proper majority. Angela Merkel and her lieutenants are busy these days “convincing” these sceptical parliamentarians they should vote for the law, Spiegel Online reports. Apparently they bring together groups and try to argue that it is in Germany’s best interest to have the EFSF and in the coalition’s best interest to get there without relying on opposition votes. Wolfgang Schäuble had created confusion on Wednesday when he was quoted in an interview as having been rather indifferent to the question whether the coalition managed to muster the votes or not.


Stefan Braun argues the coalition loses its purpose if it loses the EFSF vote


Süddeutsche Zeitung’s Stefan Braun argues that the Angela Merkel’s coalition will lose its purpose if it can’t get the necessary votes together. “Who would continue to trust a government that no longer believes in itself,” Braun asks.


German business association urges coalition to vote yes on the EFSF


The four most important German business associations have written an open letter, published by Handelsblatt, to the parliamentarians in Bundestag urging them to vote yes for the EFSF. “There is no really good and quick solution (to the European debt crisis)”, they write. “But without the expanded rescue mechanism there is a risk of incalculable consequences for the European Union and the common currency.” They further argue that the power balance in the world is redrawn and that only Europe can muster sufficient weight to be an actor in the new world. “It is for that reason that Europe remains a good and necessary investment into the future,” they say.


Bild calls Schäuble “Minister Clueless”


Mass circulation tabloid Bild launches a campaign against Wolfgang Schäuble accusing him that he has been systematically misleading the German public on Greece and the euro crisis in the 18 months. In a scathing article it presents a long list with dates and contradictory statements on the need for a rescue program for Greece and the conditions attached to it. Bild reporter Rolf Kleine adds to that a column under the title “Minister Clueless”. “Whether the billions for Greece will be sufficient to save the country from collapsing, whether the Euro will remain stable – all that is decided by the markets, not by the German finance minister. He can tell the people whatever he wants – and also the opposite”.


Brief economic recovery in Ireland 


The Irish economy put in its best performance in five years over the first six months of the year, but the worsening international crisis poses a new threat to the chances of recovery. The Irish Independent reports that the new figures show  GDP grew by 1.6% in Q2 — following a 1.9% expansion in Q1. It is the first time the economy had two consecutive quarters of growth since the downturn later 2006.


Spreads, Forex, and ZC Swaps


Italian spreads reach a new eurozone peak of over 400 basis points. The euro falls briefly to $1.34, before recovering.

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Source: Reuters






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