Eurointelligence Daily Briefing, 30 de Setembro de 2011

carlosloures30 de Setembro de 2011Geral

Bundestag approves EFSF, but German press says this must be the last extension ever

The German parliament voted 523 to 85 to approve the EFSF, as Angela Merkel’s coalition majority holds up;

15 coalition MPs voted No, leaving an effective majority of 5;

Berthold Kohler warns that the process is alienating ordinary voters, who do not comprehend why there are different rules for over-indebted states and undercapitalized banks than for individuals;

Holger Stelzner argues that the Bundestag must block any attempt to leverage the EFSF;

FT Deutschland writes in a front page editorial that the real test for the government is still ahead in the upcoming votes;

Claus Hulverscheid says Wolfgang Schauble did not lie, but did not tell the truth either when he denied that he opposed an EFSF leveraging;

Thomas Hanke says the Bundestag plenary will vote on any proposals to leverage the EFSF, and this will be very tough;

Bild has added up the total guarantees Germany has issued so far, and its political editor says that this is now enough;

Karl de Mayer of Les Echos warns that the political majority was not in sync with popular option;

as parliaments are ratifying the second EFSF treaty, officials are saying that the real issue debate has long moved on;

Italy issues 10-year debt at 5.86%;

Greek pubic sector employs demonstrate against layoffs;

Belgium’s new prime minister designate plans to hold budget talks next Monday;

George Soros, meanwhile, offers an intriguing proposal to solve the crisis without leveraging the EFSF.

It is the nature of the eurozone crisis that it is moving at a faster speed than the political process. Yesterday’s not entirely unexpected big news was that Angela Merkel got the votes she needed to ratify the EFSF Treaty with her own coalition majority. The overall vote was 523 to 85, as the opposition also supported the package. Merkel received 315 votes from her own coalition, with 15 No votes. The coalition managers have worked hard on their eurosceptics to persuade them to accept the package. But the narrow vote also shows that her majority is too close for comfort. Further decisions – on Greece, the ESM, and in particular on a leveraging of the EFSF – cannot be taken for granted.

Italy’s 10-year bond auction was a reminder that the crisis remains in an acute phase. The Italian government yesterday raised €7,86bn at an interest rate of 5.86%, up from 5.22% in August, according to Reuters. That level is inconsistent with Italy’s continued membership in the eurozone.

No carte blanche for a rescue orgy, FAZ warns

The vote “is no carte blanche for a rescue orgy”, Frankfurter Allgemeine Zeitung’s political editor Berthold Kohler warns in a front page editorial. „The parliament insists even more on its rights. The sovereign only has a limited understanding for the circumstance that there should be a different set of rules for overly indebted states or overambitious but undercapitalized banks than for righteous people who build their houses.” Kohler also warns that the estrangement of the Europeans from Europe will not decrease if we continue to violate what the peoples of Europe consider to be right.”

In a second front page editorial economics editor Holger Steltzner says: “Finance minister Schäuble said in the Bundestag that the German guarantee framework was limited to €211bn, and the yet to be negotiated guidelines for the crisis funds needed the assent of the parliamentarians. We have to take Schäuble by his word, otherwise the Funds will use leverage, insurance elements and repackaged default probabilities until nobody knows anymore who bears how much risk.”

Yes she can, FTD writes

“She can still do it”, Financial Times Deutschland applauds Angela Merkel in an unsigned front page editorial. The biggest possible accident for the eurozone has been avoided. But trust in Merkel and the endurance of the coalition will continue to be tested in the coming weeks, the paper warns referring to the ESM vote and the discussions about leveraging the EFSF. The paper also lauds the fact that Bundestag president Norbert Lammert allowed two EFSF dissidents from Merkel’s CDU and the liberal FDP to express their dissent in personal statements, despite the fact that their respective parliamentary groups did not want to give them a time slot to speak and the heavy pressure Lammert (a member of Merkel’s CDU) was under from the chancellor and the chief whips of both parties not to allow them to speak.

The negotiations to leverage the EFSF are well under way, the SZ writes

Writing in Süddeutsche Zeitung, Claus Hulverscheidt underlines that the next step to enhance the eurozone’s defence lines are well under way. “Leading politicians of the G20, among them Francois Baroin, Timothy Geithner and Olli Rehn, have admitted for a long time that discussions for such a leverage are ongoing”, he writes. But Wolfgang Schäuble played on words at the recent IMF meeting in Washington and creates the impression in interviews and in his interventions in the Bundestag that this is not case. “It is as often: Schäuble did not lie, neither in Washington nor in the Bundestag nor in Deutschlandfunk (the radio station that interviewed him yesterday). But he has not told the truth either.”

The winner is the parliament, Handelsblatt says

“The real winner of the day is not the coalition but the parliament”, Handelsblatt’s oped editor Thomas Hanke writes. “The Bundestag has wrenched an important concession from the executive: From now on the government needs first the Bundestag’s consent – in case of an acute danger that of the budget committee – before it can give its green light to handing out EFSF money”. Hanke warns the first crash test of this new rule will come up when the EFSF guidelines that foresee the possibility to leverage the EFSF will have to be voted by Bundestag.

How many more times?, Bild asks

The mass circulation daily Bild adds up the previous rescue decisions (May 7, 2010: Germany grants €22.4bn in bilateral credits for Greece; May 21: guarantees of €123bn in the EFSF; September 29: Germany guarantees of €211bn for the enhanced EFSF) “How many more times will we increase the volume of credits, guarantees and bails?” the paper asks. In a separate editorial deputy editor Nicolas Blome says: “This time it has to be enough!” The chancellor demonstrated her power yesterday and she held the coalition tightly together, he claims. “She should not try to increase the rescue umbrella even more, to once more increase the German financial risk. Otherwise the government will break up and the Euro cannot be saved like this”.

There is a huge gap between the political class and ordinary Germans, Les Echos warns

Les Echos’ Berlin correspondent Karl de Meyer warns that yesterday’s huge parliamentary majority for the EFSF is not at all in synch with the majority view of ordinary Germans on current Euro decisions and the bailouts for Greece. “A ZDF (public TV channel) poll shows that only 19% of the Germans back extending the competences of the EFSF against 75% who are against”, he writes. “A Forsa poll for Stern (a news weekly) shows that only 18% of the Germans would be ready to ‘personally’ contribute to financial help for Greece whereas 80% say they would be opposed to do so.”

While parliaments are busy ratifying the July agreement on the EFSF treaty, officials are already negotiating the next set of changes, which is going to be significant more important – which is how to leverage the EFSF beyond its current lending capacity of $440bn. The mood was well summarised by an unnamed official, who said, according to Reuters: “There is a growing resolution, even among the more reticent, that the July 21 package is yesterday’s war, and we need to go further.”

Greek public sector protests against labour layoffs

In Greece public sector workers staged sit-ins at eight ministries and the statistical office building yesterday in protest against the planned labour standby system, impeding inspections by troika officials, Kathimerini reports. By Monday, the troika needs to complete its assessment, while the government must approve the labour standby system, as well as the new public sector salary system, the 2012 budget draft and the new midterm fiscal plan. There will be an extraordinary cabinet meeting on Sunday. Meanwhile, the government managed to withhold salaries of state employees who have outstanding tax debts, provided their monthly salary exceeds €1000.

Will Di Rupo start budget talks on Monday?

In Belgium Elio Di Rupo (PS) has informed care taker prime minister Yves Leterme (CD&V) that his team of negotiators will reach an agreement on state reform today, so that Di Rupo’s team could start the 2012 budget negotiations on Monday, according to Flanders Today. According to Leterme it must be possible to finish a budget draft in 10 to 14 days just in time for the European summit on 17 October. The reorganization of finances will be substantial and will contain both savings and new taxes. Limiting healthcare expenditure, a nuclear tax and a new banking tax, are expected to yield €3bn in extra revenue. Another €5bn will need to be raised to limit the 2013 budget deficit to 2.8% of the GDP. Le Soir reports however that state reform negotiations were stuck Thursday evening.

George Soros on how to end the crisis

George Soros makes an intriguing proposal that could solve the political impasse over extending the EFSF. His starting point is a realization that a simple leveraging is not going to work, and would ultimately not persuade financial markets. His proposal is not to leverage the EFSF at all, but to use its entire capacity to recapitalize banks. If banks do not take the money, they lose their official guarantee. With this, the authorities would have a tool to stop the deleveraging, and the credit crunch. The ECB, in turn, would set up the following rule: Member states would issue short-dated discounted bills, which the banks under the scheme would buy, and lodge with the ECB as collateral. That process would circumvent Art. 123 which prohibits the ECB from monetizing debt directly. The benefit to the member states would be a significant drop in the borrowing costs, close to levels of short-term money market rates. An additional benefit is that this would allow Greece to default without a global meltdown. He said the scheme would not solve the eurozone’s crisis, but would end the acute phase, and give the eurozone time to renegotiate the Treaties to make the system sustainable.

Spreads, Forex, and ZC Bonds

Italian yields fall, Spanish yields rise, and euro falls.

10-year spreads

Euro Bilateral Exchange Rate

ZC Inflation Swaps

Source: Reuters

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