Merkel wants private investors in Greece to take a 75% hit
The troika is pushing the private sector to accept bigger losses than so far agreed, Financial Times Deutschland reports. Referring to troika sources the paper reports that the negotiators want to pressure banks, insurance companies und investment funds further to accept an even bigger hit that envisaged so far. Angela Merkel had already hinted at that strategy at her post-summit press conference Monday night when she said she expected „more action from the Greek government and more participation from the private creditors“. So far the private creditors have agreed to a net write off of roughly 70%. Should Merkel get her way and the troika succeed in pushing the private creditors to further losses, this could rise to 75%. Further lines of thought are a reduction of the interest rates on the EFSF credits so that they merely pay their cost and the ECB’s readiness for forego gains from Greek bonds it owns.
Reuters reports that a deal might be ready as early as today, as the negotiations with private-sector creditors are almost complete. The final deal, however, hinges on how to involve the ECB. The article also quotes sources as saying that a reduction of Greek to 120% of GDP is unlikely to be sufficient.
To sweeten the PSI+ deal, private investors might get a so-called gross domestic product warrant — which would pay bondholders more if the Greek economy rebounds – and would trim the loss in net present value terms by an estimated 0.5 to 3 percentage points, Bloomberg reports. Creditors lowered their demands for an average coupon on the new 30-year securities to as little as 3.6%, which would lead to an estimated loss of 70 % or more for investors.
Venizelos now clear favourite for PASOK leadership
The PASOK leadership contest took a new turn on Tuesday when Health Minister Andreas Loverdos declaring his backing for Finance Minister Evangelos Venizelos, Kathimerini reports. The alliance between the two men has made Venizelos the clear favorite to succeed George Papandreou. Papandreou has called a leadership election in March but there is growing unrest within the party. Some MPs have indicated that they might call a vote of no confidence on Thursday in a bid to force Papandreou to stand aside. There is a need to clarify the party’s position on key issues of the reform negotiations. PASOK has adopted the most inflexible stance of all three coalition parties on issues such as private sector wage cuts, reductions to supplementary pensions and the recapitalization of Greek banks.
IMF on the cut of 13th and 14th salary
In an interview with Kathimerini, Poul Thomsen, the head of the Greek delegation of the IMF indicated that the 13th and 14th salaries in the private sector need not be cut if authorities lower the minimum wage and move ahead with closing down state-backed entities, leading to job cuts in the broader civil service. “If there is bold structural reform that convinces us that wages will adjust without direct intervention then this will not be necessary,” Thomsen said when asked about the possible abolition of the 13th and 14th salaries.
Merkel goes on a roadshow to China
Merkel is on her fifth trip to China in order to convince Beijing that the eurozone is getting on top of its difficulties with the conclusion of the fiscal pact and the agreement on the ESM, Spiegel Online reports. The timing right after the euro summit on Monday is „very fortunate“, the chancellor’s advisors briefed the Berlin press yesterday adding that she would explain to the Chinese political and economic establishment that the eurozone is well under way to becoming a successful „stability union“. Also the chancellor wants to promote Chinese investments in Europe. „Chinese investments are very welcome“, her advisors said. The Chinese English language Global Times had last week shown a cartoon with Merkel and a euro sign in rags knocking on Chinese doors.
(This story goes to show that Europeans chronically underestimate the Chinese understanding of the problems in the eurozone, which is much more detailed than people over here think. Remember Klaus Regling’s pathetic attempt to peddle his leverage scheme to the Chinese?)
Most significant drop in French consumption since 1997
The consumption of manufactured goods, energy and food dropped by 0.5% on average in France last year, the biggest drop since 1997, Les Echos reports. Even during the recession in 2008 and 2009 the drop was less marked, the paper explains. Thanks to services, the total value may be slightly above zero. But since consumption traditionally is the engine of the French economy the government fears that the effects of the slowdown will soon be severely felt by the unemployment figures. The government hopes that the announced VAT increases will incite French consumers to rush to consume before the increases are implemented.
Econ committee accuses ECB of misogyny
Sharon Bowles, head of the EP’s Economic and monetary affairs committee (Econ) hits out at the ECB its tendency to „systematically fail to select female candidates“ for its executive board, Financial Times Deutschland reports. Also there is not a single woman in the governing council or the General Council where all the heads of EU central banks are represented. The reason for Bowles’ anger is the selection of the successor to the Spanish board member José Manuel Gonzélez- Páramo where all three candidates are male. „The ECB is one of the EU institutions where gender balance is most blatantly diregarded“, she said. „There are increasing voices in the European Parliament calling for a radical reversal of this situation.“ The successful candidate will have to go to the Econ committee for an audition before his formal nomination by the heads of state and government.
Eurozone imbalances watch
Spanish inflation falls below eurozone average
One of the most important measures of rebalancing inside the eurozone economy is the member states’ relative inflation rates. For twelve years, Spanish inflation has exceeded the eurozone average. In December, the rate fell to 2%, below the eurozone average of 2.7%, El Pais reports this morning. (What we find is astonishing is the extraordinary degree of price stickiness in Spain. Here is the country in the middle of a recession, and still producing an inflation rate of 2%, only barely below the average. Rebalancing will require two or three decade at that speed.)
Unemployment reaches new upper record in Italy, and lower record in Germany, as intra-eurozone divergences grow
While German unemployment has hit post-unification lows, it is rising to new records in southern Europe. Il sole 24 ore reports that Italy’s unemployment rate hit 8.9% in December, compared to 8.1% a year earlier. Youth unemployment (15-24 years) is 31% – with a marginal improvement from November. For the eurozone as a whole, the average unemployment rate has been 10.4%, the highest level since June 1998. In its coverage of the latest Eurostat unemployment data, Frankfurter Allgemeine Zeitung takes note of the growing imbalances: Germany is placed fourth with a rate of 5.5% behind Austria (4.1%), the Netherlands and Luxemburg (both 4.9%). The highest overall rates were recorded in Spain (22.9%) and Greece (19.2%).
Poland seems to heading for a delay in eurozone membership
FT Alphaville has picked up on a research note by Nomura, according to which Poland seems to be heading for an entry into the eurozone after 2015, the originally envisaged date. In order to make it by 2015, Poland would need to join the ERMII by Q2 this year, which is very unlikely. Opinion polls suggest that there is no majority for an immediate membership, but still a small majority for an eventual membership. The note says the government was implicitly preparing for an entry sometime in 2016.
Lorenzo Bini-Smaghi questions the Fed’s new policy setting
Writing in the FT, Lorenzo Bini-Smaghi poses three fundamental questions about the Fed’s new policy framework. He says the definition of price stability in the long term raises a lot of complicated questions, given that monetary policy can only affect the economy with a lag of one to three years. Second, the publication of interest rate expectations could give rise to confusion for as long as there is no transparency about the forecasting model; third, the public could easily misunderstand conditional interest rate forecasts. He uses the example of a house buyer, who premises his decision on the basis of a forecast, which the Fed would subsequently alter in the light of changing economic circumstances.
Martin Wolf on the eurozone crisis
In his FT column, Martin Wolf makes the point that the fiscal compact “lacks the necessary understanding of the dependence of output in one member country on demand in others, of the role of payments imbalances and of the fact that competitiveness is always relative.” He also said that a combination of simultaneous deleveraging in both the private and the public sector requires a structural current account surplus for the eurozone as a whole. (European economic policy has a tendency to fail to recognise the interdependence of policy decisions. The reason why this approach worked in the past was the externalities of these policies were absorbed by the global economy. That is not the case now.)
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