Barroso misses opportunity to flash out eurobond proposal
Eurointeligence Comment and AnalysisEconomic Stall Speedby Satyajit Das The most likely outcome is a protracted period of low, slow growth, analogous to Japan’s Ushinawareta Jūnen – the lost decade or two. The best case is a slow decline in living standards and wealth as the excesses of the past are paid for. The risk of instability is very high; a more violent correction and a breakdown in markets like 2008 or worse are possible.
The state of the union address of the president of the European Commission is the one occasion in the year when even his critics will listen to him. This year he had raised expectations that he would launch the Commission’s proposal on eurobonds. But he did not. Instead he focused attention on a side show – a financial transaction tax. In doing so, he merely follows the lead of France and Germany, whose finance ministers are currently negotiating the details on a bilateral basis. The issue on which neither country shows any leadership are the euro bonds. Here is what he had to say. We quote in full, as it was relatively short: “Once the euro area is fully equipped with the instruments necessary to ensure both integration and discipline, the issuance of joint debt will be seen as a natural and advantageous step for all. On condition that such euro bonds will be “Stability Bonds”: bonds that are designed in a way that rewards those who play by the rules, and deters those who don’t. As I already announced to this house, the Commission will present options for such “Stability Bonds” in the coming weeks.
Some of these options can be implemented within the current Treaty, whereas fully fledged ‘euro bonds’ would require Treaty change. We can do a lot within the existing Treaty of Lisbon. And there is no excuse for not doing it, and for not doing it now. But it may be necessary to consider further changes to the Treaty.”
Merkel likely to get her own EFSF majority today
This has been act of skilful stage management, and some news organisations are still reporting this as though it was a cliff-hanger on which the future of Angela Merkel and the euro would rest. But the puppet masters of the CDU’s and FDP’s parliamentary parties in the Bundestag have skilfully quelled an internal revolution and secured enough support in today’s EFSF ratification in the Bundestag. The overall outcome was never in doubt, as the opposition indicated its support, but there was a question of whether the coalition would have its own majority. There are different definitions of what that means, for example, a coalition majority among those voting, or among the total members of the parliament. It looks as though she might even pass the higher threshold. Der Spiegel has a good account about the political manoeuvrings ahead of the vote.
Berthold Kohler sees the big majorities for Europe melting away
In a front page editorial Frankfurter Allgemeine Zeitung’s political editor Berthold Kohler argues that the nightmare of all politicians has become true since the collapse of Lehman Brothers. Since then a permanent feature of their reactions was “not to really know what they did and to have lost control over the consequences of their action”. Kohler is reasonably certain that Angela Merkel will muster her own majority in today’s decisive vote on the enhanced EFSF but he cautions not to be overwhelmed by the majority that will be impressive since the opposition SPD and Greens will also vote for the EFSF. “Nobody should be fooled by the big majority that will vote for the enlargement of the rescue umbrella on Thursday – not least out of fear of the ghosts of Lehman.
‘Yes to Europe!’
Ahead of the Bundestag vote, German trade unions and industry leaders joined forces in the fight to save the euro, Bloomberg reports. BDI president Hans-Peter Keitel warned that the end of the eurozone would cause immense damage for Germany and that it is short-sighted to look only at the costs. What is needed is political responsibility and the readiness to make sacrifices. On the same day, the DGB took out ads in several of the country’s regional newspapers with the headline: “Yes to Europe! Yes to the euro! Our mothers and fathers have built a peaceful Europe out of the ruins of World War II,” the ad read. “Today, we face the danger of retreating back into national demarcations and losing sight of what binds us together. Europe needs Germany and Germany needs Europe, which is why we’re campaigning for approval of the EFSF umbrella.”
Bavarian Prime Minister defines limits to Germany’s readiness to help the eurozone
In an interview with Süddeutsche Zeitung Bavarian Prime Minister Horst Seehofer, who is also chairman of Angela Merkel’s sister party CSU, argues that today’s vote to increase the German liability for the enhanced EFSF to €211bn must be the limit of what Germany is asked to do. “Up until here and no further”, Seehofer claims. “If there is a threat of a downgrade for Germany’s creditworthiness then there must be an end to this”, he continues. Otherwise we might end up in Europe in a situation “where the rescue medic will have to brought to the hospital”.
Spain, Italy and France to extend their short-selling ban
Spain, Italy and France have extended their ban on short-selling. This was announced by the European Securities and Markets Authority, which has assumed a co-ordinating role since its creation in January. All three countries imposed bans in mid-August when bank stocks dropped sharply. An analysis of trading volumes by the FT has shown that dealing in bank stocks across Europe almost doubled in the five days preceding the initial ban. Belgium also participated in the ban due to expire tomorrow, with no announcement yet of extending the ban. Greece has its own ban
Troika continues negotiations with Greece
Troika representatives returned to Athens yesterday, to complete their assessment for the disbursement of the next aid tranche. Kathimerini quotes sources suggesting that the gap between what the troika has asked for and what the government is delivering has been bridged for 2011 with the measures announced, while the two sides are also very close to reaching an agreement for the 2012 gap. The issue now is to identify the interventions required to cover the gap of about €3bn euros for 2013 and a similar amount for 2014.
This is what Greece is really like, according to Bild
After the impressive appearance of Greek prime minister George Papandreou in Berlin this week mass circulation daily Bild has a story today under the headline: “This is what Greece is really like”. “The prime minister promised a new Greece, but all we see is the old Greece”, the paper writes and goes on to give a detailed account of the protests and street fights of those in Greece who resist Papandreou’s reforms, austerity and new taxes. The paper also quotes from an interview Angela Merkel gave to the Greek TV channel NET. Asked by the interviewer about her reaction to the fact that “Merkel” had become a word to insult in Greece the Chancellor responded she had to live with that. “I am also being berated in Germany”, she responded nonchalantly.
French government maintains 1.75% growth forecast in its 2012 budget bill
The French government tabled its austerity bill yesterday. The package, as it was revealed last month, targets a cut in the budget deficit from 5.7% this year to 4.5% in 2012, by a combination of abolished tax exemptions and an additional 3% tax on people with incomes of more than €500,000 a year. The government maintained its growth forecasts of 1.75% for both 2011 and 2012, although it has been already criticised as too optimistic. Les Echos expects further revisions to come, like in 2008 budget after Lehman. The 2012 budget bill marks President Nicolas Sarkozy’s last major legislative battle before the presidential election next April. After the Socialists seized control of the Senate at last weekend’s election, passing the budget bill could prove more complicated than in recent years.
Frankfurter Allgemeine criticizes Sarkozy’s lack of seriousness on deficit reduction
In two separate pieces Frankfurter Allgemeine Zeitung argues that Nicolas Sarkozy has never been really serious about getting France’s public finances in order. In the paper’s political section the Paris correspondent Michaela Wiegel argues that the consolidation in France’s budget is “more symbolism than reality”. Also she criticizes that the so called “golden rule” to limit future deficits – which is unlikely to come any time soon anyway after the Senate elections last week – is a lot more flexible than the German debt break. France’s main aim was not to let Germany get into the position of being able to dictate budgetary policy to France. In a separate piece in the economic section the paper’s economic correspondent Christian Schubert points out that for the first time in France interest payments – €49bn next year – will be the biggest single item in the budget.
Boring and inconclusive second debate among the Socialist’s presidential hopefuls
The second debate among the six presidential hopefuls of the French Socialist party proved to be both boring and inconclusive, the LeMonde.fr reports. Former party chairman Francois Hollande seemed to be guarded and only started to plead his cause in his concluding remarks whereas Martine Aubry gave a confused impression in the debate. Meanwhile, Hollande seems to cement his position as the Socialist’s most likely challenger, a poll done before the debate shows, according to Le Monde.
IIF rages against further bondholder participation
The FT has the story quoting Charles Dallara from the Institute for International Finance as saying that a reopening of the bondholder participation deal agreed in July would be counterproductive. He said everybody needed to stay focused on the implementation of the current agreement. The article also quoted Josef Ackermann as saying that opening this agreement would only result in a loss of time without a higher degree of participation.
Spreads, Forex, and ZC Swaps Spreads are going up again. Euro stable.
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