there is still uncertainty about the actual
questions asked: A Greek government spokesman said it will about the
package, not about euro membership as such;

the eurozone’ s inept crisis management derails
Sarkozy’s well staged G20 summit;

Antonis Samaras says he favours Greek euro
membership, but rejects austerity;

Alexis Papachelas says Papandreou is irresponsible
and Samaras is hypocritical;

Ralf Schuller of Bild calls on Merkel to stop all
payments for Greece;

Martin Winter argues that the crisis shows that the
eurozone has no effective political leadership;

the “euro war cabinet” has been meeting repeatedly
since their first impromptu meeting in Frankfurt;

the troika starts its second quarterly assessment
for Portugal next week;

Belgium’s government negotiating parties agreed
€11.3bn in budget cuts;

the Canadian central bank chief Mark Carney will
succeed Mario Draghi as head of the FSB;

Wolfgang Proissl urges Mario Draghi to ignore the
Germans and step up the SMP;

the EFSF delays its 10-year bond issue;

Juan Crespo draws comparisons with Francois
Mitterrand’s referendum in 1992;

Stathis Kalyvas, meanwhile, says Papandreou is
taking a big gamble, but may yet win.

Eurointeligence Comment and Analysis

Italy’s historic responsibility

by Stefan Collignon

Italy is part of Europe. It has always been. Today, it
risks destroying it unless a fundamental change occurs in Italian political
life.

Last night’s pre-G20 summit brought a little more
clarity following George Papandreou’s announcement of a referendum. It will
be held no later than Dec 4, and the question will be(directly, or
indirectly) about Greek membership of the eurozone. Angela Merkel and Nicolas
Sarkozy said last night that there will be no more aid Greece until that
question is settled. Christine Lagarde also said Greece will not receive its
next loan tranche from the IMF until the result of a planned referendum on
the country’s euro membership has taken place, Kathimerini reports.The FT reports that both the timing and
the wording of the referendum were demands by Merkel and Sarkozy. FT Deutschland quotes Merkel as saying
that her priority now was to preserve the euro as a stable currency (as
opposed to Greek membership of the euro).

Merkel and Sarkozy appeared irritated, according a
report of Spiegel Online. After meeting
Papandreou last night Merkel said in a common midnight press conference with
Sarkozy that the Greek prime minster’s uncoordinated decision “has changed
the psychological situation massively”. A presidential advisor called
Papandreou’s decision “totally crazy”. According to Le Monde another Sarkozy aide said: “We
cannot stop the Greek to commit suicide, it is better they do it themselves
than have Angela Merkel do it.”

One concern in Berlin and Paris is that Papandreou might
want to use the referendum as a lever to renegotiate the deal. Merkel and
Sarkozy made it clear they were not prepared to open the discussions on the
summit package again and that no EU/IMF money would be sent until Greece
agreed to the package.

According to Lemonde.fr there will be meeting of the
G20 euro members Germany, France, Italy and Spain (which is not a G20 member
but manages to be invited each time). According to the website, they will
have “a clear but brutal message” for George Papandreou. “They can hold a
referendum, but it has to be before Christmas and it must only ask the
question about belonging to the eurozone”, an advisor to Sarkozy said. “If
they say no, they should leave (the eurozone)”. But a government spokesman
reiterated last night that the question would be about the summit package and
not euro membership. According to Lefigaro.fr, however, Papandreou confirmed
that behind the referendum question is the decision “whether or not the Greek
want to stay in the eurozone”.

The euro crisis management also forced Nicolas Sarkozy
to change his summit agenda and to threaten his bilateral encounters with the
Chinese and the American president. Sarkozy is particularly upset with
Papandreou because he wanted to use the G20 summit to portray himself as the
European crisis manager. Now he is being seen by Obama and Hu as just a
another member of the quarrelling euro states who are unable to get their act
together.

(What a mess. It looks to us that Papandreou had no
alternative. Of course, no matter how you frame the question, it is
ultimately about Greece’s future membership in the eurozone. Without
financial assistance, Greece would default, and its banks would lose access
the ECB. It is impossible to predict the outcome of such a vote. What is
certain, however, isthat the referendum will produce a month of uncertainty
that is already spreading to other parts of the periphery. Note the increase
in Portuguese spreads, and the persistently Italian spreads. The real danger
now would be a failure to ringfence the others if something goes wrong in
Greece.)

Opposition lashes out at Papandreou

New Democracy leader Antonis Samaras said on Wednesday
that his party does not question Greece being part of the euro but rejects
the austerity program attached to the loans, according to Kathimerini. The party spokesman told
the press that the only problem is Papandreou as prime minister, “he is
dangerous and has to go”.

(We doubt that Samaras could have negotiated a different
deal. If the question were about the euro exit Yes or No, Samaras could
support the Yes vote, but still blame Papandreou for negotiating a bad deal.
)

Papachelas: call reveals hypocrisy of government

opponents

Alexis Papachelas writes that George
Papandreou was irresponsible to put his country at risk of a disorderly
default. But at the same time, it shows the hypocrisy of opposition parties
among others. “Those who had called for more democracy are suddenly
angry at the prospect of referendum. The same people who were certain
that Greece would never be kicked out of the eurozone, were now shaking. The
same people who unreservedly proposed the haircut later said it was a
disaster but yesterday were afraid that it may not happen at all.”

Bild urges to suspend all payments until referendum

In an emotional column, Bild’s Ralf Schuller argues that all
payments to Greece must be suspended unless the Greek vote yes in the
referendum. “Until the decision about the consolidation program not a single
cent must be transferred to the bankrupt country”, Schuller writes. “And if a
majority rejects the consolidation program Greece has not merited to a member
of the euro any longer.” (The advice was, of course, immediately followed.)

Für Süddeutsche Zeitung the real losers of the
referendum decision are Merkel and Sarkozy

In a comment in Süddeutsche Zeitung, Martin Winter
argues that George Papandreou has created a virus of distrust against the
entire EU and particularly against Angela Merkel and Nicolas Sarkozy. “If the
Greek prime minister does not even think it is necessary to inform Berlin and
Paris, who shoulder the main burden of the rescue package, about his
referendum plans in advance, one must ask who really is in a position to lead
the European Union,” Winter writes.

The recent crisis has provoked the emergence of a euro

war cabinet

Financial Times Deutschland points out that since the ad
hoc meeting of a select group of euro leaders at the margins of the farewell
ceremony for Jean-Claude Trichet in Frankfurt a sort of eurozone war cabinet
has emerged as the currency union’s real power centre. That evening in
Frankfurt Angela Merkel, Nicolas Sarkozy, Jean-Claude Trichet and Mario
Draghi, Christine Lagarde, Herman Van Rompuy, José Manuel Barroso and
Jean-Claude Juncker sat down for a non-scheduled crisis meeting prior to the
two emergency summits. Since then this group has met repeatedly, the last
time last night in Cannes. Compared to the euro heads of finance ministers it
has the advantage of being small, informal while yet comprising the most
powerful actors (Merkel, Sarkozy, Draghi, Lagarde) while associating the
institutions and the smaller euro states (Van Rompuy, Barroso, Juncker).

Troika starts second assessment in Portugal next week

The Troika’s second quarterly assessment of Portugal’s
progress begins on Monday for two weeks, Jornal de Negocios reports. The first
assessment was concluded on 12 August. To date, the troika’s main
recommendation remains unfulfilled. In August, it suggested the
reduction of the Single Social Tax (TSU, the business contribution to Social
Security ) by six percentage points. However, in preparing the State Budget
for 2012, the Portuguese government opted instead for other measures to
stimulate economic activity – such as increasing working hours in the private
sector by half an hour a day.

Belgian negotiating parties agreed on €11.3bn in savings

In Belgium, the six parties associated with the
government formation talks agreed to raise €11.3bn savings for the federal
government and social security to bring down the state deficit to 2.8% in
2012, Le Soir reports. This figure is more
than the High Council of Finances suggested in its report and is based on a
0.8% growth forecast. The details will be hammered out in ensuing
negotiations.

Mark Carney succeeds to Mario Draghi at the helm of the
FSB

According to Financial Times Deutschland a telephone
conference by members of the Financial Stability Board yesterday decided that
Canada’s central bank governor Mark Carney will succeed Mario Draghi as head
of the Financial Stability Board (FSB). The news will be officially announced
at the G20 meeting in Cannes on Friday. Carney’s deputy will be Philipp
Hildebrand, the president of the Swiss National Bank.

Wolfgang Proissl encourages Draghi to ignore the Germans

In a comment in Financial Times Deutschland, Wolfgang
Proissl compares Mario Draghi with a captain whithout a map and compass. In
inventing a new doctrine for the ECB, Draghi should ignore German calls to
end the bank’s bond purchasing program. Proissl argues that it is likely that
the ECB will have to extend the program and to act as the lender of last
resort. But he insists that Draghi should ask for a quid pro quo. The ECB
should assume the role of the euro rescuer only if governments commit to
creating a fiscal union with a powerful euro budgetary authority. Under those
conditions, Draghi may find more German support in the ECB’s governing
council than most would assume, Proissl argues. Jörg Asmussen will be more
pragmatic than his predecessor. And Jens Weidmann explained that a fiscal
union with a strong central authority was a viable option for the eurozone’s
future.

EFSF delays bond issue

Reuters reports that the EFSF yesterday delayed
its €3bn 10-year bond issue, due to unfavourable market conditions. The
Greek referendum had increased general risk aversion and cast doubts over
whether last week’s agreed measures could be implemented. The decision will
have no effect on Ireland’s ability to redeem a bond falling due Nov 11. In
another development, according to Reuters, the Chinese deputy PM said he had
not enough details about the EFSF leveraging proposals that would allow China
to make a decision to raise its stake in the EFSF.

Juan Crespo on Papandreou’s gamble

Writing in El Pais, Juan Crespo compares George Papandreou’s
political troubles with Perseus’ fight against the sea monsters. He recalls
Francois Mitterrand’s decision to call a referendum on the Maastricht Treaty
in 1992, which seemed a clever decision at the time, but produced
uncertainty, and an extremely thin majority. He said the problem for Greece
is that it had no real prospects either inside, or outside the eurozone.

Stathis Kalyvas on Papadreou’s gamble

Writing in the FT, Stathis Kalyvas says George Papandreou
is indeed a big gamble, but says he had no other choice. The choice was
between slow death, immediate death and a gamble for resurrection. And the
gamble may even pay off – if the people are faced with the stark choice
between austerity within the eurozone, or bankruptcy outside it. The problem
is that he may face a backbench revolt, that the implementation of reforms
will come to an abrupt halt, that the eurozone will face paralysis until the
referendum, and how he will implement the austerity plan even if the votes is
a Yes.

Spreads,
Forex, and ZC Bonds

Italian
spreads move sideways, but French spreads are a close to 1.3%.

10-year spreads

Previous day

Yesterday

This Morning

France

1.190

1.267

Italy

4.440

4.393

4.415

Spain

3.774

3.653

3.716

Portugal

11.714

11.608

12.088

Greece

24.774

25.010

28.49

Ireland

6.563

6.490

6.535

Belgium

2.643

2.562

2.606

Bund Yield

1.773

1.838

1.816

Euro Bilateral Exchange Rate

This morning

Dollar

1.373

1.3694

Yen

107.240

106.85

Pound

0.859

0.8609

Swiss Franc

1.214

1.2131

ZC Inflation Swaps

last close

1 yr

1.72

1.8

2 yr

1.58

1.78

5 yr

1.63

1.87

10 yr

1.74

1.8

Source: Reuters

10-year spreads

1.773

1.838

1.816

Euro Bilateral Exchange Rate

Eurointelligence Daily Briefing, 3 de Novembro de 2011

Greek referendum to be held by December 4

Eurointeligence Comment and Analysis

Italy’s historic responsibility

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Greek referendum to be held by December 4

Eurointeligence Comment and Analysis

Italy’s historic responsibility

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