High Noon in Athens
Greek coalition parties face a noon deadline after they failed to sign off the terms of the second rescue package on Sunday. Comments by conservative New Democracy leader Antonis Samaras and by the Pasok spokesman suggested that major controversial points remained. Kathimerini quotes Samaras saying “They are asking for more recession than the country can take,’’ he said, referring to the country’s foreign creditors. “I am fighting against this.’’ Reuters reports that Greece has to give its response in principle by noon today, to be taken to the Euro Working Group in Brussels. The sense of exasperation in the EU is high. Earlier eurozone finance ministers told Greece it could not go ahead with an agreed deal to restructure privately held debt until it guaranteed to implement reforms to secure a second financing package from the euro zone and the IMF, according to Reuters.
Juncker for the first time threatens with a default for Greece The possibility of a sovereign default by Greece cannot be ruled out, Jean-Claude Juncker told Der Spiegel in an interview. Greece could no longer expect solidarity from other euro zone members if it cannot implement reforms it has agreed, the Luxemburg prime minister said. „If we were to establish that everything has gone wrong in Greece, there would be no new programme, and that would mean that in March they have to declare bankruptcy,“ he said. The very possibility of bankruptcy should encourage Athens to „get muscles“ when it comes to implementing reforms, he added.
Merkel gets deeply involved in campaign for Sarkozy’s reelection Angela Merkel and the whole party apparatus of the CDU is getting more deeply involved in the French presidential elections than in any foreign election ever before, Der Spiegel reports. The chancellor’s aim is to assure Nicolas Sarkozy’s re-election because she sees him as her strategic partner in advancing a rules-based EMU, which has the fiscal pact as one of its cornerstones. Should the Socialist challenger Francois Hollande win, Merkel fears that all the efforts she undertook in the past two years to safe the eurozone will be undone in favour of an old style Socialist redistribution policy on a European level. „The coaching of the French sister party (of the CDU) is similarly intensive as that of a CDU regional section that is heading for an important election“, Der Spiegel writes. Merkel will today be in Paris for a Franco-German summit, and she will do a common TV interview with Sarkozy tonight. Other common appearances are on the agenda.
At the same time the chancellor’s office has so far refused to grant Holland an appointment with Merkel. But getting so deeply involved in Sarkozy’s reelection is controversial within the German government. Foreign minister Guido Westerwelle asked for restraint and said: „The federal government is no party in the French elections“.
Also many people are not sure if Merkel’s presence in France is really a smart move that will help Sarkozy. Many French start to be upset about the German influence in internal French affairs. The satiric daily news show „Les Guignols des info“, where dolls make fun of politics in France, has now a Merkel doll who is called „The President of the French Republic“ and who lectures the French with a German accent and who always finishes her speeches by exclaiming „Arbeit!“.
Merkel and Sarkozy to receive white book on taxation At the Franco-German summit in Paris today, Nicolas Sarkozy and Angela Merkel will be presented a white book that outlines possibilies to make French and German taxation converge, Les Echos reports. The authors of this higly technical report have identified five topics in which they think greater convergence makes sense. They insist the aim is not to increase taxes on companies. However there is great uncertainty about the implementation given that Sarkozy’s reelection chances are highly uncertain and that Merkel will have to stand for reelection in Septemer 2013. So there are few chances that anything concrete will come out of this unless both leaders manage to get reelected.
Sarkozy’s reelection chances improve dramatically if Marine Le Pen cannot run A poll done by Journal de Dimanche showed that Nicolas Sarkozy’s chances for a second term would improve dramatically if Marine Le Pen, the leader of the extreme right Front National, was not allowed to run. The scenario is realistic to the extent that any candidate has to present 500 signatures of elected officials in support of the candidacy and Le Pen so far only has 350. Should Le Pen not run, Sarkozy would be sure to make it into the second round because he would get 33 Percent in the first round, just as much as the his Socialist challenger Francois Hollande, the poll shows.
Bank economist believe the ECB will hold rates on Thursday A majority of bank economists believe that the ECB will not change its policy rate of 1.0% on ist interest rate setting meeting this Thursday, Financial Times Deutschland’s monthly interest rate survey shows. Out of the 39 polled economists, 35 believed the euro central bank would remain in a wait and see mode until the second 3 year LTRO will be done on February 29. But a majority of 25 of the 39 are convinced that the ECB will lower ist rates subsequently to 0.75% or to 0.5%. In a different poll done, by Handelsblatt 10 out of 15 economists urged the ECB to already cut rates at this Thursday’s meeting.
In an additional question to its monthly rate survey, FTD asked who of the three candidates fort he ECB’s executive board they would favour. Out of the 23 economists who replied, 16 backed Yves Mersch, one supported Antonio Sainz de Vicuna.
The US economic recovery Not sure what it means for the eurozone, but there are signs that the US economy is recovering. James Hamilton has a good analysis of the much better than expected US recovery, pointing to the latest purchasing managers survey reading of 54.1 and a fall in the rate of unemployment to 8.3% that would normally only have happened in the presence of much stronger GDP growth. (There also signs of a much brisker recovery in Germany, though not elsewhere in the eurozone yet.)
Is Italy’s debt sustainable? Writing in Lavoce, Nicola Borri, Gianfranco Di Vaio and Giuseppe Ragusa report on a simulation exercise for Italian debt sustainablity on different assumptions of debt, nominal GDP growth, and find that even at a nominal growth rate of 2.4% Italy would still be sustainable, if the country can achieve a balanced budget by 2014. (We take issue with this approach. First, a 2.4% nominal growth is not really a credible worst case scenario, in view of an unbelievely optimistic best-case scearnio. Given that Italy’s need to undercut eurzone inflation, and the impact of austerity on growth, one could have constructed a more credible worst-case scenario, which, in turn, would also have an impact on the interest rate.)
Germany’s future as a bric? In his FT column, Wolfgang Munchau discussed the notion, popular among the German business elites, that Germany should detach itself from the eurozone, and become a Bric. He says there is a yearning within the elites for a euro exit, as the country’s trade pattern shifts more and more towards the east. Munchau concludes that this is not a viable strategy. Germany always prospered within fixed exchange rate systems, but usually finds it much harder to achieve the same degree of success within a free-floating exchange rate. And structurally, Germany is the very opposite of Bric.
10-Y Spreads, Forex, ZC Swaps and Euribor-Ois Greek spreads shoot up as markets contemplate default; others bond spreads are mixed (down for France and Portugal, up for Italy and Spain).
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||