 Back to 2008
Before anybody gets too excited about possible plans for bank recapitalisation, it is worth recalling an important line from the FT’s article according to which Jose Manuel Barroso will propose a bank recapitalisation plan. He did so, after Angela Merkel told him to do so at their last meeting. Merkel insisted that any such strategy must be based on subsidiarity. That means governments are first and foremost responsible for the refinancing of their banks. Only if that is not possible, should the EFSF etc, step in. In other words, the policy remains unchanged from 2008, when exactly that approach led to the financial crisis. The article also has a reference to Jyrki Katainen, who explicitly advocates a return to the “chacun pour soi” spirit of 2008.
(This is bad news, because it will put severe limits on the overall size of bank recaps. The Germans believe that their banking system needs hardly any new money, which is why Angela Merkel is so keen to propose the solution. It looks as though they are preparing for a Greek default.)
ECB fails to cut rates, but extends liquidity As expected, the interest rate cut has been postponed, but the ECB took a number of important decisions to stabilise liquidity in the eurozone for the next two years. In his last press conference before his retirement, Jean-Claude Trichet announced extended its liquidity programme with a decision to provide another 12-month loan this month, and a 13 month loan from December, according to the FT. The unlimited 3 month tenders will continue until June 2012. He also announced a new €40bn programme of covered bonds to start in November, last for one year. The announcement is more than what was expected, and there seemed to be splits in the ECB’s governing boards, both on the wisdom of another large liquidity programme, and about interest rate policy. Interest rates are now most likely to be cut in November or December. Trichet gave a clear warning that the downside economic risks currently prevailed. The European Central Bank announced a further extension of its policy of providing unlimited liquidity to eurozone banks on Thursday, saying it would include 12-month loans this month and 13-month loans from December that will bridge two crucial year-end periods when banks are keen to show strong financial figures. It also unveiled a €40bn programme to buy so-called covered bonds – ultra safe investments issued by banks.
Stefan Ruhkamp worries about the split in the ECB Frankfurter Allgemeine Zeitung’s Stefan Ruhkamp thinks it is worrisome that the ECB’s governing council seems to be split on the speed of an interest rate cut and on the non-conventional liquidity measures it decided yesterday. “The fact of diverging opinions by itself would not be alarming, were it not about fundamentally decisive issues”, he warns. “Additionally there are indications that the antagonisms in the council are determined by national interests.” He argues that Jean-Claude Trichet’s hints at disagreement about the interest rates leaves his successor Mario Draghi little choice but to lower policy rates on his first ECB meeting November 3rd. Also Ruhkamp disapproves that the central bank has used its entire arsenal in the fight against the crisis by restarting 12 months tenders and the purchase program for covered bonds. “Should the crisis escalate it would have been useful if the ECB had had some more stabilizing instruments in store”, he writes.
FTD applauds the ECB’s “urgency measures for the economy” In a non-signed front page editorial Financial Times Deutschland applauds the ECB’s “urgency measures for the economy”. The central bank does not shy away from its responsibility for the entire economy by using instruments that are more effective that policy rate cuts, the paper argues. “Those cuts could come in addition in November when Trichet’s successor Mario Draghi comes to the top of the ECB”, the paper argues. With the decisions, the FTD says, the ghosts of credit shortages are banned for the moment which should further stimulate the economy.
Jean-Claude Trichet’s exit or: Je ne regrette rien FT Deutschland describes Jean-Claude Trichet’s last press conference after a governing council meeting and how the ECB president seems to have no regrets on his way out. Asked twice what his regrets were after 8 years at the helm of the Frankfurt based institution Trichet refused to reply. Instead he mildly thanked his colleagues (even Jürgen Stark, for whom he confessed to have “immense esteem and immense friendship) and the journalists present.
Disagreements emerge between France and Germany over use of EFSF Handelsblatt (hat tip Reuters) reports this morning that Germany and France disagree over the rules of engagement of the EFSF. Germany wants guidelines, limiting bond purchases per country, while France does not want to impose any constraints on the EFSF in this regards. The reason for this difference is obvious. Germany does not want to be in a position where the EFSF reaches its lending ceiling through bond purchases.
Commission will scrap structural funds for deficit countries The Commission wants to scrap money from the structural funds for countries repeatedly not respecting the deficit rules of the stability and growth pact, Frankfurter Allgemeine Zeitung reports. In a first step the commission will give the country guidance how to use the money in order to best enhance growth. In the case of Greece this would have been the development of the reneweable energy sector. Should the deficit persist the Commission could scrap them altogether. The measure should apply to all 27 EU countries not only the 17 euro members.
Polls show slide for PASOK but no clear majority for New Democracy The latest poll for Kathimerini indicated that support for PASOK has slipped almost 4% since last month following the introduction of an emergency property tax and several other austerity measures. Socialists received 22.5% and New Democracy 31.5%, well short of a majority if it were reproduced in an election. PASOK’s slide has benefited the Communist Party (KKE) and the Coalition of the Radical Left (SYRIZA), as well as the smaller Democratic Left, which was formed last year.
Bild points at the “Greek hatred” against Germans On the occasion of FDP chairman Philipp Rösler’s trip to Greece mass circulation daily Bild has a story pointing at the “Greek hatred” against Germans. The story is illustrated with a heart in which Adolf Hitler embraces Angela Merkel who is wearing swastika earrings. The Paper quotes the TV station “Mega” where Rösler was insulted a German-Japanese (he is the child of Vietnamese refugees) remindung their readers that the Germans and the Japanese where the axis powers in WWII. Bild has another quote from a radio commercial that one trade union ran: “The Nazis from Germany are coming. Join our trade union so that we can protect you.”
Former deputy of Dutch national bank says PSI was a big mistake Privately, policy makers are already beginning to admit that their insistence on private sector participation in the case of Greece was a big mistake in the crisis management. Lex Hoogduin, the former deputy governor of the Dutch National Bank, and now a professor of monetary finance at Amsterdam University, said in a long TV interview on Dutch television that he had advised the Dutch finance minister strongly against PSI. There was no comment from the Dutch finance ministry.
Gillian Tett on the lessons of TARP for Europe Gillian Tett has a very interesting comment in the FT this morning on the lesson of the US Tarp programme for Europe, focusing on the specific circumstances of that the programme that led to its success (and that have no parallel in the EU). The first was that the size exceeded initial market expectations. Perceptions changed later, but the financial markets were impressed for a sufficiently long time;the other points were: central co-ordination; lack of consultation;flexibility in terms of the usage of the funds (asset purchase programme that turned in a recap programme); stress tests were imperfect, but focused on aspect that matter to investors. She concludes that it will be hard for Europe to repeat this trick.
Spreads, Forex, and ZC Swaps Spreads ease across the board, and euro rises following ECB decision on liquidity
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