Eurointelligence Daily Briefing, 28 de Setembro de 2011. Enviado pelo Domenico Mario Nuti.




Germany wants to reopen the July deal on Greece

  • Germany and some other member states want to reopen the July agreement on the second Greek loan programme, according to the Financial Times;
  • move is rejected by France and the ECB, which fear that this would severely damage the European banking sector;
  • Berlin says a higher PSI contribution would be less painful than a full bankruptcy;
  • Berlin will, however, back the disbursement of the next loan tranche in October;
  • Bild reports that the German government believes that Greece will default in December;
  • George Papandreou won parliamentary support for his austerity programme;
  • a test vote shows that Angela Merkel will have her own majority for the EFSF after all, though it might still be close;
  • Italy and Spain are forced to pay higher interest rates in short-term debt auction;
  • Merkel and Wolfgang Schäuble both rejected a leveraging of the EFSF;
  • after the loss of the Senate, the French right is engulfed by panic;
  • Martin Wolf, meanwhile, concludes that the only available option for the eurozone in the very short term is a bailout by the ECB – distasteful as this may be.

The FT reports this morning that Germany, Netherlands and a few other countries want to reopen the July agreement on the second Greek programme, and force a large participation of private banks. France and the ECB resist a change, fear a knock-on effect on banks, especially French banks that have large holdings of Greek debt. The paper says there were significant differences between member states, and also within the German government. Much will now depend on the troika’s assessment of the revised financing needs. The article says Berlin will back the disbursement of the next loan tranche, but may insist on a greater participation of banks. The Germans are saying that the deal had too bank-friendly. Bank shares had rallied in recent days on reports that the EFSF would be leveraged. The news that Germany is pushing for a large PSI may reverse the markets’ optimism.

There were more details on this story from Germany. Financial Times Deutschland reports that the German and the Dutch governments were unimpressed with the banks’ resistance against reopening the painful discussions about the private sector involvement (PSI) because a bankruptcy would be even more expansive for banks that a higher PSI participation.

Apparently, the German government concluded that Greece will be bankrupt by December, mass circulation daily Bild writes. “We try to avoid a Greek insolvency but I cannot exclude it”, Angela Merkel told her Bundestag deputies yesterday in a confidential session according to the paper. Minister, state secretaries and leading deputies have been briefing for the past days that additional financial help for Greece will soon be pointless because the country does not manage to get its deficit down. But a bankruptcy cannot be allowed to happen before the EFSF with its enhanced effective lending capacity of €440bn is operational, Bild writes. Also Financial Times Deutschland reports on speculations that the troika will say the EU/IMF programm in Greece is off track once all parliaments have ratified the EFSF.

There was some good news from Athens. George Papandreou won the parliamentary vote on the property tax late yesterday by 155 to 142.


Test vote shows that Merkel may have her own majority for the new EFSF

In a new test vote of the CDU and CSU deputies there were 11 votes against the law for the new EFSF, within the parliamentary group of the liberal FDP there are at least 2 dissenters, Frankfurter Allgemeine Zeitung writes. So there is a chance that Merkel will have the 311 votes she needs to have the so called “chancellor’s majority” which she needs in order to make it clear that she has been able to get the law through Bundestag without the opposition’s votes. However within CDU/CSU a few potential No voters were absent in the test vote including the influential Wolfgang Bosbach.


Italy and Spain face higher interest rates at debt auction

Italy and Spain held bond auctions yesterday. Reuters reports that Italy paid 3.071% to sell €8bn for six-month Treasury bills, while Spain also issued six-month bills at 2.665%. Spain also sold three-month bills to raise €3.2bn. Interest rates have been rising throughout the maturity spectrum. The yield on two-year zero-coupon bonds for Italy have risen to 4.511%, the highest level since 2008.


Schäuble and Merkel pretend they don’t want to leverage the EFSF

Wolfgang Schäuble started speculations about leveraging the EFSF during the IMF meeting in Washington. Back in Berlin he calls these ideas “nonsense”. Angela Merkel is also against all ideas of leveraging, Handelsblatt reports. The reason is simple. The news from Washington have outraged the coalition deputies who will vote on the issues this Thursday and who feel that Germany’s real liabilities will be much higher than the currently envisaged €211bn if the EFSF is leveraged.


Fragmentation and panic in Sarkozy’s camp after the Senate election defeat

Sunday’s historic loss of the majority in the Senate has led to fragmentation and panic among the right-wing supporters of Nicolas Sarkozy, Le Monde reports. There are about 40 deputies in the National Assembly who so far grouped together informally in the so called “Popular Right”, who want to open up to their group to citizens to become a political movement. Sarkozy however wants to stay on his course. Against the advice of prominent right wing figures such as former Prime Minister Jean-Pierre Raffarin, he rules out declaring his candidacy at the end the year. Instead he wants to continue to be seen as the guarantor of France’s safe course through the crisis. Sarkozy’s advisors are convinced that the crisis will create conditions that will favour right-wing populism and may even allow the candidate of the extreme right Front National to be in the second round of the presidential elections.


Martin Wolf gets really, really gloomy

Based on the IMF’s Financial Stability Report, Martin Wolf concludes that the combined refinancing needs of eurozone banks and sovereigns could be €1 trillion, “and quite plausibly, several times that number”, enough to make a cautious German head spin. Wolf says the crisis had reached a stage in which there are no palatable options left.  His main point is that the leveraging of the EFSF, if and when it is agreed, may come too late. In the meantime there is only a single alternative left – the ECB. This is also problematic for a number of reasons, not least Mario Draghi’s pending accession to the ECB’s presidency, and the cross-country transfers this would imply. He concludes that no good choices remain. But the alternative to an ECB-led bailout would be vastly worse for the global economy.


Spreads, Forex, and ZC Bonds

Some short-term reprieve for Italian bonds, but renewed talks about PSI will go down well.

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Source: Reuters




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