 Moody’s downgrades Slovenia for second time in three monthsThis will be our last briefing for this year. We will be taking a short holiday, and return on Monday, January 9. We wish all readers of Eurointelligence a Happy Christmas, and all the best for the New Year.
Eurointeligence Comment and AnalysisThe eurozone has enough savings. The problem is the distribution of the savings. The nothern European savers do not want to finance the southern European countries.
Slovenia had its credit rating lowered one step to A1 by Moody’s on the potential need for the government to support its banking system, Bloomberg reports. Slovenia’s banking industry has assets that are about 136% of GDP, which is relatively large compared to other Eastern European countries, according to Moody’s. Slovenia was downgraded at Moody’s for the second time in three months. On December 4, Slovenians elected the centre-left Positive Slovenia party of Ljubljana Mayor Zoran Jankovic in snap elections after the previous government collapsed in Septembe
Southern European Banks are main users of the ECB’s 3 year LTRO
Banks from Italy and Spain are the main users of the ECB’s unprecedented 3 years LTRO, Frankfurter Allgemeine Zeitung writes. Referring to figures published by Reuters based on banking sources Italian banks borrowed €116bn. One of the reasons for their run on the ECB offer was that Italian banks had been short on collateral they could offer the ECB up until recently. FAZ says that altogether 523 banks used the ECB offer, among them many Spanish, but also German and French banks. The net liquidity injected into the system by the ECB is not €489bn but rather €210bn, the paper states. The reason for the lower figure is the end of an open market operation of €234bn and that €45bn where shifted from a previous 1 year tender to the new 3 years tender.
Bini-Smaghi’s parting shot
Lorenzo Bini Smaghi’s tells the FT that quantitative easing can and should be part of the ECB’s policy arsenal. If a central bank feared deflation, as is, for example, the case in the UK and the US, it would be fairly normal for a central bank to use this among other tools. The ECB had not done so because it is not in that situation. He said he did not understand the “quasi-religious” debate about the subject.
Thomas Wieser elected first permanent chairman of the Eurogroup Working Group
The Austrian finance state secretary Thomas Wieser was elected the first permanent chairman of the Euro Working Group (EWG), the powerful committee of European finance officials, Frankfurter Allgemeine Zeitung reports. During the crisis the EWG, which is comprised of state secretaries of the euro member states, the ECB and the Commission has become de facto the steering committee for the currency union’s crisis response. As a result of the crisis the member states decided to create a full time position to steer the EWG. Wieser who also led the EFC until 2010 will also lead the working group that has been charged with negotiating the new intergovernmental treaty for the 17+ EU countries.
Italian Senate backs Monti
Italy’s Senate passed a vote of confidence in Mario Monti’s government, a final seal on the emergency austerity budget rushed through to restore market confidence. The upper house voted 257 to 41 for the government, Reuters reports, following a similar easy win in the lower house last week.
Austerity measures create “new poor” in Portugal
The FT cites a new study by the UK’s Institute for Social and Economic Research for the European Commission, which says that the austerity measures implemented in Portugal in 2010 were “clearly regressive”, causing the poorest families to give up a bigger share of their disposable income than wealthier households. The restrictions on benefits create a “new poor” and increase the inequality in Portugal the article argues. A new proposal is to cut the eligibility and value of unemployment benefits is currently discussed with unions and employers and is set to enter into force in the first quarter of 2012, Jornal de Negocios reports.
Immigration into Germany on the rise
As a result of the financial crisis and the relative economic health of the country Germany is becoming an increasingly attractive goal for immigration, Die Welt reports. According to the Federal Statistical Office in the first half of 2011 there were 135.000 more people immigrating into Germany than people leaving the country. Two thirds of these people come from countries within the EU hit by the crisis such as Spain or Portugal, the figures show. This is a reversal of trends since 2009 and 2008 there had been more people leaving Germany than people who come there. On a recent visit to Spain Angela Merkel had explicitely encouraged young Spaniards to come and work in Germany. But immigration specialists warned that the recent immigration was likely to be temporary only that the immigrants were likely to return to their countries of origin once the situation there improved.
Do Western central banks face an existential crisis?
An interesting discussion on FT Alphaville is about whether central banks have an existential crisis. The argument is that world economy is running out of super-safe financial assets, and that this is doing untold damage to central banks’ abilities to control interest rates. Central banks, even the Fed, may have given away much of their power to foreign institutions whose holdings of Treasury securities surpassed their own. The blog writes: “If you have no domestic assets, you can’t raise rates effectively. Lowering rates, on the other hand, is much easier, since all it takes is hoarding of domestic assets at the central bank. Unless you happen to be the ECB — in which case hoarding is ineffective for as long as investors have a better alternative to flock to (German bunds).”
10-Y Spreads, Forex, ZC Swaps and Ois-Libor
Mostly sideways.
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