Eurointelligence Daily Briefing, 2 de Setembro de 2011. Enviado por Domenico Mario Nuti.



Papandreou’s gamble and the consequences

  • Papandreou’s proposal for a referendum triggered a panic attack among investors;
  • Italian spreads are now at 4.4% as crisis spins out of control;
  • Greek cabinet approves George Papandreou’s proposal for a referendum, but he faces two further tests with yet uncertain outcome: a confidence vote on Friday, and a parliament vote on the referendum itself;
  • IMF is quoted as saying that the referendum announcement has already caused damage, putting at risk the sixth tranche of the current programme;
  • Michael Dolan writes that the Greek referendum will lead to a global investment freeze and raises the prospect of a recession;
  • the eurozone’s political leaders were taken by surprise – they have now agreed to hold another impromptu summit on the sidelines of the G20 in Cannes;
  • Nicolas Sarkozy fears that the eurozone turns into a protectorate of the US and China;
  • Wolfgang Schäuble pledges that Germany will continue to support Greece for as long as Greece fulfils its side of the deal;
  • Wolfgang Münchau argues that debt monetisation through the ECB is now the only policy option left – but this cannot work without a Eurobond on the distant horizon;
  • Paul Krugman says the eurozone’s end game has started, and it will proceed through a series of bank runs;
  • Marin Wolf argues that the creditor countries appear strong, but are ultimately not running the world;
  • Horst Kohler says Germans, too, should have a referendum on the Greek loans;
  • Holger Stelzner argues that there is no alternative to a Greek exit from the eurozone;
  • Frank Schirrmacher says the referendum idea was a betrayal of the summit decisions;
  • a majority of bank economists favour an interest rate cut, but don’t expect it;
  • Le Monde is once again bringing up the issue of how much Mario Draghi’s knew about the Greek currency swaps while he was at Goldman Sachs;
  • Le Figaro, meanwhile, has a report that the Greek government had replaced its four most senior military chiefs for fear of a coup d’etat.

We always said the eurozone’s crisis resolution strategy is accident-prone. The Greek referendum is clearly the big political accident of this crisis. No matter what happens now, George Papandreou’s announcement has brought in a new period of extreme uncertainty, which was evident in yesterday’s violent market reaction. Investors fled into the security of German bonds, as a result of which Italian spreads hit new eurozone-era record at over 4.4%. While the world stares at Athens, the existential crisis of the eurozone is playing out in Rome. The two most important decisions of last Wednesday’s summit – the Greek package and the EFSF leverage – have now manifested themselves as woefully inadequate to deal with this dual problem.


Confidence vote might bring down referendum idea

George Papandreou came under intense pressure from within his own party and from opposition politicians to ditch the idea of a referendum and call snap elections or form a coalition, Kathimerini reports. Papandreou won approval by his cabinet for the decision to hold a referendum, but it is far from clear whether the position prevails in the subsequent parliamentary process. Socialist deputy Milena Apostolaki threatened to quit PASOK’s parliamentary group calling the referendum proposal “wrong and divisive.” Her decision reduced the government’s presence in the 300-seat parliament to just 152. Four other MPs indicated that they would not support the referendum. Opposition parties call for snap elections. But even if the government were to survive the confidence vote, scheduled for Friday, Papandreou’s referendum proposal will have to be put to another vote in Parliament. And for this it looks like Papandreou may not get the simple majority required.


Sixth tranche of IMF bailout in doubt

Calling a referendum on the EU bailout deal was a risky political strategy, and could have severe economic consequences, according to the IMF. It says the the new climate of prolonged uncertainty will render Greek debt unsustainable, according to sources quoted in Kathimerini. The sixth tranche of Greece’s bailout from the IMF is in doubt. It looks like this will happen irrespective of how the EU decides (The deal hammered out last week seems dead already. It looks like the 50% haircut is not enough after all.)

Michael Dolan writes for Reuters that the uncertainty created by the referendum would produce a “deep freeze for global investment”, enough to tip the global economy back into recession. This would even be the case if he were to win the referendum in the end.


Sarkozy fears the G20 will transform the eurozone into a protectorate of the US and China

Nicolas Sarkozy and Angela Merkel were taken totally off guard when George Papandreou announced the Greek referendum. According to Le Monde and Le Figaro Sarkozy learned about the Greek prime minister’s decision like everybody else – from the news wires. The president then tried to phone Papandreou, without success. After a series of internal crisis meetings, today’s meeting of the “Frankfurt round” (Sarkozy, Merkel, Mario Draghi, Herman Van Rompuy, José Manuel Barroso, Jean-Claude Juncker) with the Greek prime minister was convened in Cannes prior to the G20. Sarkozy’s nightmare is that the G20 will turn into a rescue operation of the eurozone by the other G20 powers under the leadership of the US and China. Frankfurter Allgemeine Zeitung and Bild recount the past two days from a Berlin perspective. Instead of a calm dinner Monday, the chancellor spent the night and yesterday in frantic telephone diplomacy once the news hit the German capital.


Despite the referendum Schäuble wants to keep the assistance for Greece

Wolfgang Schäuble wants the Europeans and the IMF to maintain their assistance for Greece. “I have always said: If Greece is taking upon itself the burden of the assistance program and reforms, if Greece wants to stay within the eurozone, then we will support her”, he said in an interview with Financial Times Deutschland. Schäuble also voiced optimism that the Greeks would support the consolidation and reform policies of the current government. According to the finance minister the current program offers the best possible chance to get back on her feet but it was crucial that Greece “respects her promises and agreements”.


Wolfgang Münchau on the rapidly shrinking number of policy options

In his FT Deutschland column, Wolfgang Münchau argues that there is only one short-term solution left to avoid a meltdown of the eurozone – and that is large-scale debt monetisation through the ECB. That itself cannot – and should not – happen without a clear timetable towards joint and several liability, because the ECB would otherwise have to continue to monetise debt indefinitely. The two measures logically depend on each other. All the other policy options currently pursued are falling apart.


Paul Krugman on the eurozone end-game

Thinking ahead, Paul Krugman is looking at scenarios of how the eurozone’s collapse might actually come about. His is answer is: through a bank run.

“The question I’m trying to answer right now is how the final act will be played. At this point I’d guess soaring rates on Italian debt leading to a gigantic bank run, both because of solvency fears about Italian banks given a default and because of fear that Italy will end up leaving the euro. This then leads to emergency bank closing, and once that happens, a decision to drop the euro and install the new lira. Next stop, France.”


Martin Wolf on the power of the creditor countries

Returning to his theme that the action of the global creditors – China, Japan and Germany – are unsustainable, Martin Wolf argues in his latest Financial Times that the seemingly powerful position of countries like Germany is likely to crumble as we go through this crisis. Germany may now be dictating terms to the other eurozone member states, but ultimately Germany does not call the shots because its addiction to surpluses requires deficits elsewhere.


FAZ’s editors disagree about the Greek referendum

The shock of the Greek decision was illustrated by the fact that Frankfurter Allgemeine Zeitung’s political, economic and cultural editors Berthold Kohler, Holger Steltzner and Frank Schirrmacher, commented the referendum in separate and contradicting editorials. If the Greek can decide by a popular vote whether or not they want to be saved with a multi-billion bail-out, why should the Germans not decide by referendum whether or not they want themselves and their children to be burdened with the corresponding multi-billion guarantees, Kohler asks. Steltzer argues that the eurozone must not let itself be manoeuvred into a position where it can be blackmailed by Greece. “In order not be dependent on Greece any longer, a plan be must be decided now: Greece’s exit from the euro”. Schirrmacher laments that Papandreou’s decision is portrayed as a betrayal of the summit decisions. He calls it incoherent for Germany to insist on a Bundestag vote on each bail-out-decision while criticizing the Greek prime minister for consulting his people. Papandreou is doing the right thing, Schirrmacher argues, and the criticism of his decision is a loss of republican values.


Speculation about an aborted military coup in Greece

According to a communiqué of the defence minister, the Greek government has replaced its four highest commanders (head of the joint chiefs, heads of the army, navy and air force), Le Figaro reports. According to analysts quoted by the paper, this often happens when governments fear they will fall soon in order to leave their imprint on the military. The time coincidence with the referendum and the internal protests against George Papandreou’s crisis policies however lead to speculation that there may be more to it.

In his Le Monde blog “Démystifier la finance” Georges Ugeux speculates that Papandreou acted to avoid a military coup. “All of that is nothing but my speculation but it has a horrible taste of déjà vu”, he writes. “It is the will to extract the Greek people from the claws of a ‘colonel’s regime’ that has already been at the origins of Greece’s overly speedy entrance into the European Union.”


Majority of chief economists hope for rate cut but don’t expect it

The majority of the 31 chief economists polled in Financial Times Deutschland’s monthly survey prior tomorrow’s first ECB meeting under the chairmanship of Mario Draghi hope for a rate cut, but more than 80% don’t expect it.


Mario Draghi is haunted by his past at Goldman Sachs

According to Le Monde, Mario Draghi’s role at Goldman Sachs from 2002 to 2005 may yet create problems for the new ECB president. The paper questions Draghi’s assertion at his EP audition this summer where he claimed he was neither involved nor had he had any knowledge of the currency swap deal that Goldman organized for the Greek government at the time with the aim of reducing its debt level. Le Monde refers to a recent article in the New York Times in which an anonymous source says that while at Goldman Sachs Draghi was indeed involved in the sale of such financial products.


Spreads, Forex, and ZC Bonds

Those numbers are the worst we ever recorded.


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Source: Reuters




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