 High noon, postponed
Close but not there yet: After all-night talks with leaders of the three parties in the Greek coalition and with officials from the EU and IMF, Evangelos Venizelos emerged shortly before dawn to say that one issue remained unresolved, Reuters reports. A spokesman for the Pasok party said disagreement over pension reform had been the stumbling block. Kathimerini writes that the troika has given Greece 15 days to find €300m of savings in order to avoid 15% cuts to supplementary pensions and another 15% to basic pensions for former employees at public enterprises. The troika had projected €635m of savings from reductions in state-backed pensions. Government sources told Greek media that €325m would be cut from elsewhere, probably defence spending, but Athens is still looking for another €300m in savings. The same sources said that the troika had agreed to give a grace period of 15 days for the savings to be found.
Despite the failure to agree, Jean-Claude Juncker called a eurogroup meeting for tonight.
The tussle in Athens threatens to hold up the debt swap of privately-held debt, Bloomberg reports. Private creditors plan to meet in Paris today to discuss the deal, which is contingent on the country agreeing to the aid package from European and international officials.
The timetable and obstacles to a Greek bond deal
The FT has some details of the timetable and risks ahead in the Greek bond swap negotiations. It was originally hoped that an agreement with bondholders could be struck on Monday. An offer to bondholder would be open for three weeks, with settlement after three days, getting to March 8. There is some wiggle room, with a final deadline of March 20. But the article points to a number of remaining difficulties. Many bondholders have not followed the talks because they have dragged on for too long. Greece also needs to enact legislation to enable retroactive CACs, which would impose a supermajority on any holdouts. There is a risk that participation falls below the supermajority trigger.
ECB to sell its Greek bonds to the EFSF
Stephen Fidler of the The Wall Street Journal reports that the ECB has agreed to exchange the government bonds it purchased as part of the SMP at below face value, provided the debt-restructuring talks have a successful outcome. The article says the ECB would in effect exchange its Greek bonds for bonds of the EFSF, which won’t hold the bonds on its balance sheet, but will return them to Greece. Greece will then agree to repay the EFSF for the price at which the fund bought the bonds from the ECB. FT Alphaville reports, it is not clear, however, that such an agreement has been reached. That article also contains an indepth discussion of the technical issues involved for the ECB.
Mark Schieritz writes in Herdentrieb that he also has doubts whether the report is accurate. He also questions the benefits that would arise for Greece.
Ireland says it would consider ECB participation in Greece as a precedent
The Irish finance minister said any ECB contribution to the restructuring of Greek debt would be regarded as a precedent that would also apply to the promissory note to Ireland, according to Reuters. The Irish government wants to reduce the costs of the bank bailout,which was financed through promissory notes, which carry an interest bill of €17bn.
ECB declares „mission accomplished“
Francesco Papadia, head of ECB market operations, said yesterday that the ECB had virtually accomplished its mission. He spoke at a London conference of the Association for Financial Markets in Europe, which we also attended as co-panellists. “I am tempted, against my inbuilt caution as a veteran central banker, to declare in this case ‘mission accomplished. These moves have substantially eliminated the risks that a solvent bank would become insolvent because of liquidity problems.”
German trade surplus narrows
German exports posted their steepest fall in nearly three years in December, Reuters reports. Data from the Federal Statistics Office showed seasonally-adjusted exports fell 4.3%, the steepest decline since the height of the financial crisis in January 2009. The trade surplus narrowed to €13.9bn from a revised €14.9bn in November. The German newspapers, as ever, get excited by nominal headline numbers. For 2011, the total size of German exports was above €1000bn, Süddeutsche Zeitung reports. The most interesting aspect is, however, not the number, but the composition. Exports to newly industrialised economies, including the Brics and eastern Europe, increased by 14%, while exports to the eurozone developped only by 9%. Economy minister Philipp Rösler cautioned the eurocrisis could slow German exports in 2012 as 40% of them still go to other eurozone countries.
Le Monde worries about France’s decline as Germany’s economic partner
Le Monde uses the exports figures to look at France’s declining importance as Germany’s privileged economic partner. The paper points out that Germany’s surplus of €158.1bn is higher than the Hungarian GDP. Le Monde points out that France still is Germany’s first trade partner but China will this year be second or third but in two or three years China will have taken over France’s place. The paper also points out that Germany and China intensify their relationship by holding regular governmental meetings, Merkels regular visits with delegations of German CEO’s to China or the fact that China will this year be the partner country at the industrial fair of Hannover. „In terms of international trade France and Germany no longer play in the same division“, the article concludes. „According to the International Monetary Fund France’s share in international trade is 6.2% while Germany’s share is 16.2%.“
The French court of auditors warns of a debt spiral in France
In its annual report the French court of auditors warns that France urgently needs to reduce its debt level if it wants to avoid a dangerous debt spiral, Les Echos reports. The report is severe both to Nicolas Sarkozy because it basically says that the president has not done much to address the problem during his presidential term and to Francois Hollande because it implicitly criticizes the Socialist challenger’s plan to solve the debt problem by raising taxes only and not by reducing expenditure. The court warns that the French debt level could reach 90% in 2012 while the German level was at about 80%. „Such a difference has never been seen before“, the court warns. If France does not reduce its structural deficit the debt level could reach 100% by 2015 or 2015, the report predicts. The court says a marked decrease of public expenditure such as the non-replacement of 1 out 2 public officials, a disindexation of pensions and a less generous public health system are required in order to get public finances back under control.
The report also criticizes that potential risks in the Banque de France are not properly being taken care of. The court sees several increased risks. First, the French central bank lends more to fragile banks with collateral of lesser quality which can lead to losses. Also the share of government bonds from fragile euro states in the Banque de France’s investment portfolio is 44%. Nevertheless the central bank has not so far put aside provisions for potential provisions (as opposed to other central banks such as the Bundesbank). Lastly the court points out that the Banque de France seems to be overstaffed as it still employs 13.000 staff compared to less than 10.000 for the Bundesbank and the Bank of England less than 2000.
ECB is likely to extend collateral framework and lower quality requirements for Eurosystem central banks today
The ECB is likely to announce an extension of its collateral pool while at the same time lowering quality requirements for certain assets at its council meeting today, Financial Times Deutschland reports. The decision will allow national central banks (NCBs) to more widely use non-marketable credit claims if they wish so. Also the NCB’s can define the quality requirements nationally. However as opposed to the common rule the risks and potential losses will not be shared within the euroystem but will stay on the NCB’s balance sheets. However certain common minimum standards have to be decided by the ECB council. Prior to the council meeting there was an argument between some central banks eager to significantly lower the quality threshold (with a default probability of 1.5% over a year which roughly corresponds to a BB rating) and the Bundesbank, which wanted the threshold to be no more risky than 0.4% (corresponding to BBB-). The idea behind all this is to give banks in the euro crisis countries more eligible collateral so they can get sufficient liquidity at the ECB. According to central banker’s estimates cited by the paper the extension of the collateral pool and the lowering of quality requirements could allow the participating NCB’s to post additional collateral at the next 3 year LTRO on February 29 in the magnitude of about €200bn with roughly €90bn for Italy alone.
Wolfgang Proissl defends Mario Draghi’s „morphine shot strategy“
In a comment for Financial Times Deutschland Wolfgang Proissl applauds Mario Draghi’s „morphine shot strategy“ which consists of stabilizing the eurozone via the ultra-generous 3 year LTRO’s for the currency union’s banks. Proissl argues that this strategy was the only approach that was likely to produce results (lower risk premiums in the crisis countries temporarily, improve general sentiment for a limited amount of time) while being clearly in line with the ECB’s mandate and thus avoiding divisive arguments as was the case with the SMP. Draghi’s agenda is that of a doctor giving a pain patient a morphine shot. The central bank president’s liquidity shots buy some time (until the end of 2012 perhaps) for Italy and Spain to put itself back on a sustainable and competitive path. Clearly Draghi’s strategy implies considerably increased risks for the eurosystem, Proissl concedes. But there is no realistic alternative to it if one thinks maintaining EMU is a worthwhile goal.
Wolfgang Munchau on the eurozone’s four ticking time bombs
In his Spiegel Online column, Wolfgang Munchau says the eurozone faces four specific risks as we go along. The first of four time bombs, an imminent liquidity crisis and a credit crunch, has been defused by the ECB. The second would be a disorderly Greek default, a risk that may yet also be defused. No.3 and 4, however, are much more difficult. The third bomb is self-perpetuating austerity crisis in Spain – that would proceed on similar lines as in Greece. The fourth is a failure for imbalances to adjust, of which there is plenty of evidence. The latter two problems are both more serious, and much harder for policy to rectify.
10-Y Spreads, Forex, ZC Swaps and Euribor-Ois Spreads are mixed, but note the increase in the euro/dollar exchange rate.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||