S&P may downgrade the French ratings outlook before the European summit
The French business daily La Tribune reports on its website this morning that S&P may announce a negative outlook for its French rating within a week or at most 10 days. The paper writes that this had been confirmed by several sources. It continues that this event would massive pressure on an ECB-led bailout, especially since the EFSF will not be lever up 4 or 5 times. At today’s eurogroup meeting, Klaus Regling is expected to present a much less ambitious leverage scheme, which will be insufficient to stabilise Italy and Spain. Reuters reports that there will be only a political agreement reached today, while the leveraged EFSF will not become operational until January. Moody’s said it would downgrade the subordinated debt of 87 banks in 15 EU countries, where governments may not be in a position to bail them out.
Italian and Belgian bond sales pay record high yields Italy and Belgium fared better in debt sales on Monday than had been feared, Wall Street Journal reports. Belgium sold the maximum targeted €2bn in four government bonds though a record high yields in the first trading session after the S&P downgrade. It paid an average yield of 5.659% on 10y-bonds and an average yield of 5.784% on 30y-bonds. The auction was considered a positive sign, and the extra yield over German bunds narrowed slightly after having climbed to a euro-era high of 3.72pp on Friday. The Italian Treasury yesterday sold €567m (against €500m-€750m targeted) of 2023 inflation-linked notes to yield 7.3%, according to Bloomberg. But the bigger test for Italian bonds is today, with planned auction of €8bn in bonds.
Italy may bet the first country to ask for a preventive EFSF loan In order to prevent bankruptcy and to gain time for the necessary reforms Italy may be the first country to ask for a preventive EFFS loan, Süddeutsche Zeitung reports. According to eurozone sources quoted by the paper, several other euro member will push Mario Monti in this direction. Olli Rehn’s spokesman yesterday confirmed that the euro finance ministers will hear the Italian case tonight but he stressed so far there was no Italian request for help. Italy had to pay more than 7% interest rate for a 12 year bond yesterday. Süddeutsche Zeitung also reports that Italy and France are pushing for changing the draft ESM treaty, which foresees collective action clauses on government bonds. Both countries think the buyers’ strike on European government bonds has a strong link with that provision and it should be dropped. Germany, however, which insisted on the clauses for domestic political reasons, is so far not prepared to drop them.
Head of Greek statistical office accused of betraying national interest The head of the new Hellenic Statistical Authority ELSTAT Andreas Georgiou faces allegations that he and the agency betrayed the country’s national interest by cooking Greece’s debt figures in order to justify government austerity measures and to satisfy European Union officials. In 2010, Greece appointed Georgiou, an IMF statistics veteran, to the helm of the new independent statistical office. But according to Reuters, the trouble started in September when a former ELSTAT board member said shortly after she was dismissed that 2009 deficit data had been artificially inflated. Another former director complained that Georgiou kowtowed to EU officials and refused to listen to any dissenting views. Then an Elstat vice-president, Nikos Logothetis, outlined similar allegations in a memo to prosecutors who started an investigation. The revision of Greece’s 2009 budget deficit to 15.4% from 13.6% of GDP in November 2010 showed the country’s fiscal woes were even worse than previously thought and sped up the debt crisis which is still rocking the euro zone.
OECD warns about eurozone breakup The OECD produced a clear warning yesterday that the eurozone could face a breakup, and that the world economy could tumble into a recession. To prevent this, Pier Carlo Padoan, deputy general secretary and chief economist, says the eurozone needed to use all its available firepower – the EFSF and the ECB – to stem the crisis. With each week of inaction the costs of crisis resolution would rise, he said. On the basis that policy makers do everything they recommend, economic growth in 2012 would slow down from 1.6% this year to 0.2% next year. But Padoan said he was concerned that policy makers would not be acting in time.
OECD forecasts Greek recession to deepen The OECD expects the Greek economy to shrink by 6.1% of GDP this year and 3% of GDP next year- more rapidly than expected by IMF or the EU, – and has warned of that Athens needs to stick to the terms of its loan agreement; otherwise it increases the risk of a default, Kathimerini reports. The OECD estimates that Greece’s budget deficit this year will reach 9% of GDP–in line with the government’s own forecast. For 2012, the OECD sees the deficit at 7% of GDP, higher than the 6.7% projected by the government. Neither of those forecasts for next year take into account a planned 50%.
Portuguese judges consider 2012 budget as unconstitutional In Portugal, the trade union of judges ASJP sent an open letter to the lawmakers, reminding them to uphold the constitution in the next budget vote, Jornal de Negocios reports, themselves considering the 2012 budget to be unconstitutional. The ASJP has been very critical of the major cost-cutting measures in the proposed budget, including cuts in subsidies to government employees and pensioners, warning that unjust and discriminatory measures “ultimately, may even lead to a crisis in our democratic system”.
Genscher launches a dramatic appeal to FDP members not to turn eurosceptic Writing a guest comment in Bild FDP honorary party chairman Bild Hans-Dietrich Genscher called the party members to support the party leadership in the party referendum on the permanent euro rescue mechanism ESM. “Live up to your responsibility”, the former foreign minister wrote. “Decide at this party referendum as if it was your vote alone that would define the position of the Federal Republic of Germany. Don’t stab your chancellor and our FDP ministers in the back while they try to make Europe and our currency fit for the future!”. This dramatic appeal reflects the fear that the referendum, which is ongoing and will end December 13, may be won by the initiator, Bundestag deputy Frank Schäffler, who champions an FDP no vote in Bundestag to the ESM. Should a majority of party members back Schäffler’s rejection, many observers believe the liberal FDP will have to leave the coalition with Angela Merkel’s CDU and the CSU and the current coalition will collapse.
Law professor asks the Bundesbank to refuse bond purchases and to take the ECB to court As calls for the ECB to step up its bond buying program or to act as a lender of last resort, Financial Times Deutschland looks at the legal aspects of the ECB current and potential future action in fighting the crisis. The ECB is of the view that its current action is perfectly legal because it portrays it as a monetary policy measure, it sees no contradiction with the interdiction of monetary financing and it was taken in full independence. In the ECB’s logic a further increase in its bond purchasing program or even intervention with the explicit aim of targeting euro government bond’s interest rates may be viewed as legal. The problem, however, is the Bundesbank’s public criticism that undermines the credibility and legitimacy of the bond purchases. Additionally, there is an increasingly vocal criticism from law professors. Markus C. Kerber, a law professor from the Technische Universität in Berlin, has already sued the ECB at the ECJ. Now Helmut Siekmann, a professor specializing on central bank law at the Goethe-Universität in Frankfurt suggests that the Bundesbank should refuse to execute the bond purchases and take the ECB to court.
French unemployment on the rise Yesterday’s official figures confirmed that French unemployment continues to rise strongly to 2 814 900 in France, Les Echos reports. That is the highest figure since 1999 and corresponds to an unemployment rate of 9.1%. By comparison, only 2 736 926 Germans are out of work which correspondents to an unemployment rate of 6.5%. The OECD yesterday dashed all hopes that the French figure will go down any time soon and even predicted that unemployment may rise above 10%. Francois Hollande, the Socialist presidential candidate, called these figures “a symbol of the political failure of the outgoing president”.
Hugo Dixon tries, and fails, to accept the German logic In his Reuters Breakingviews comment, Hugo Dixon writes that Germany is still trying to stick to plan A – waiting for the leveraged EFSF to be ready. He concludes that events will play out as Germany hopes, but they will find that plan A is not working. They will possibly be able to contain an explosion, but in the best case, a nasty recession is likely to be the consequence. In the meantime, the risk remains high that a panic could trigger a chain reaction that even a plan B could not contain.
Spreads, Forex, and ZC Swaps French down a little, euro up a little. This is what a good day in the eurozone looks like.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||