 IMF has given up on Greek programme
The IMF believes the ongoing free fall of the Greek economy has made the troika’s plan the save Greece obsolete and thus threatens further the debt sustainability of the embattled euro member state, Der Spiegel report. The IMF now believes that the economy will shrink by 6% of GDP instead of 3% as initially forecast. As a consequence an internal note of the Washington based institution concludes that either the Greek either will have to increase their savings and the private creditors will have to bear much larger haircuts than the 50% currently envisaged or the Euro states will have to significantly increase their credits. Greek government plans to abolish 14th salary The Greek government plans to lower wages in the private sector through legislative measures, Kathimerini reports. Under consideration are the legal obligations for companies to increase salaries, and regulations on holiday or bonus payments, implying in practice the abolition of the 14th salary. With this move, bypassing the House and without need of consent from social actors, the Greek government hopes to satisfy one of the main conditions set out by the troika in a letter to the Ministry of Labour and Social Security. Regling considers lower leverage ratio Reuters has picked up on this story from Bild am Sonntag, which had reported that Klaus Regling was to increase the guarantees to foreign investors in the EFSF to 30%, which would effectively reduce the desired leverage ratio from 4-5 to about 3. Investors are demanding a much higher Eurozone guarantee as a precondition for their participation. The article also talked about a discussion within the German government whether the EFSF’s capital should be provided in a single step, rather than through five tranches. Banks can go below minimum liquidity levels during crisis Banks will be allowed go below minimum liquidity levels set by global regulators during a financial crisis so that they can avoid cash-flow difficulties, Bloomberg reports. Regulators must still clarify which assets banks should be allowed to count towards liquidity buffers and how much funding lenders should expect to lose in a crisis, the group said. Work on the main elements of the liquidity rule should be completed by the end of 2012. The Basel committee on Banking Supervision will provide further guidance on when lenders will be allowed to breach the minimum rule, and on how make sure the standard doesn’t interfere with central-bank policies. Debate on PSI+ Athanasios Orphanides, member of the ECB governing council, argued in the FT last Friday to abandon “private sector involvement” to restore trust in government debt and replace it by “a 30-year low interest-rate loan to Greece. But Thomas Meyer writes in a letter to the FT that “such a loan can only come from EU institutions backed by the creditworthiness of the stronger European monetary union member states. Hence, like others, Mr Orphanides in effect calls for the joint liability for government debt by EMU member states, which is explicitly ruled out in the EU treaty.” UK to consider a changed position on IMF funding The FT has the story this morning that David Cameron may be reconsidering his position on IMF funding. No decision has been taken, but the UK was open to an increase in funding if other countries, notably Japan and Brazil, also moved along. We see this not so much as a change in policy than an attempt to avoid another diplomatic accident. Merkel weakened by the ongoing scandal about the president Angela Merkel looks increasingly weakened by the ongoing scandal about the federal president Christian Wulff and his half-truths and contradictions surrounding a doubtful real estate credit, Frankfurter Allgemeine Zeitung writes. SPD chairman Sigmar Gabriel told the paper that he would cooperate with the chancellor to find a replacement of the embattled head of state. But according to Süddeutsche Zeitung, leading coalition politicians deny that Merkel will engage into negotiations to replace Wulff, whose office is largely ceremonial. The president himself hopes that ordinary people will forget the scandal and forgive him. FAZ’s Günter Bannas, one Germany’sof the leading domestic policy commentators, warns that Merkel’s coalition is under so much strain that it might well collapse should the pressure on Wulff really lead him to resign. Sarkozy wants to impose the Tobin tax unilaterally in France Nicolas Sarkozy seems determined to impose the financial transaction tax unilaterally in France should the EU or the euro member states not agree to do so quickly, Les Echos reports. France „will not wait until all others agree to implement a financial transaction tax“, the president said on Friday. Sarkozy will today try to convince Angela Merkel at the two leaders’ bilateral meeting but the German government has made it clear that it is prepared to implement the controversial tax only on a Euroepan or eurozone level. The French government wants to decide the draft law in February and implement the tax before the presidential election. Electorally Sarkozy’s strategy seems to pay off. According to a poll done for Journal de Dimanche the difference between Sarkozy and his Socialist rival Francois Hollande has shrunk to a mere 2 points. Ifo president Sinn warns of Germany’s declining influence in the ECB Talking to Der Spiegel, Ifo president Hans-Werner Sinn warned that Germany’s influence within the ECB was in constant decline. „All those nice words that the ECB works according to the Bundesbank model and that Germany as the biggest country keeps a special role are empty and hallow“, Sinn said pointing to the fact that Germany had neither managed to get the ECB presidency nor to keep ECB’s chief economist job. Last week the board redistributed portfolio’s and the Belgian board member inherited the chief economist post from Jürgen Stark. The new German board member Jörg Asmussen will be responsible for international affairs and the euro crisis management while the new French board member Benoit Coeuré will oversee the markets department and thus be responsible for the controversial bonds purchasing program. Polled economists say the ECB will lower rates to 0.5% in 2012 A majority of economists believes the ECB will lower its interest rates from currently 1% to 0.5% in 2012, Financial Times Deutschland’s monthly interest rate poll shows. More than half of the 37 polled economists believe it will lower the key interest rate and a significant majority even thinks this will happen in the first six months. However nobody believes Mario Draghi and his colleagues will already lower rates at this Thursday’s meeting. Commission tells Belgium to cut spending The FT reports that the new Belgian government has frozen €1bn in spending after the European Commission demanded budget cuts of 0.3-0.5%. The cuts will be made by delaying necessary maintenance work for the Belgian rail system, and by postponing defence procurement decisions. More cuts will follow in February. The article says this was the first such call under the newly agreed semi-automatic sanctions regime. 10-Y Spreads, Forex, ZC Swaps and Ois-Libor The main change from two weeks ago is a weaker euro, and a rise in some spreads. The Euribor-OIS spread has come down marginally, but remains elevated. The crisis continues. |