 Eurogroup is sceptical about the agreement – another High Noon next weekWe are sorry about the technical glitch yesterday morning. The problem has since been fixed.
No more high noon headlines this week, we promise, but they may return next week as the celebrate deal is not yet complete. After the compromise was announced, the eurogroup dismissed the deal, and made a series of demands that have to be met by next Wednesday.
The eurozone finance ministers insist a formal agreement by the coalition parties and full approval by parliament. Without this, they said they will not move forward. The Greek government will also have to set out precisely how it will find €325m of savings this year to compensate for not cutting pensions beyond the limit set by Samaras. These are likely to come from extra cuts in military expenditure and the moving forward of reductions in some public sector wages, according to Kathimerini. Also, all the members of the coalition government would have to give a clear commitment that they would stick to the agreement even after general elections. Evangelos Venizelos indicated that these would have to be written commitments. He told Greece’s political parties that they will have to take a clear decision on whether they want the country to remain in the euro or not by the time the Eurogroup meets again next week, Kathimerini reports.
The coalition government has 252 of 300 seats in Parliament and it is expected that the loan deal will pass through the House comfortably. But some coalition MPs already said they will vote against the agreement and it is also not clear what position the right-wing Popular Orthodox Rally (LAOS) will take. Yannis Koutsoukos, deputy labour minister from Pasok, resigned in protest. Trade unions said they would start a 48-hour general strike, the second this week, on Friday. Greece’s two main labour unions, meanwhile, called a 48-hour strike on Thursday to protest the austerity measures in the loan agreement.
Draghi explains ECB’s position At his post-council meeting press conference Mario Draghi said he was willing to forgo profits on his Greek bonds, which would reduce the Greek debt payment by some €15bn. Without this concession, the deal could not have come together. Teurohe Wall Street Journal’s story yesterday (which was doubted by several other news organisation) was confirmed as correct, as it has been confirmed that the ECB is now considering to sell or swap its bonds to the EFSF. Mr Draghi said the bank could not accept losses on its Greek holdings because this would amount to the central bank directly financing the Greek government, the FT writes.
Stephen Fidler on how the deal will affect PSI Stephen Fidler, who broke the story on the ECB/EFSF deal, had some other interesting observations about the consequences of the agreement. Writing in the Wall Street’s Journal Real Times Brussels blog, he said with the ECB out of the picture, the incentive for bondholders to accept the PSI is much increased. Even the escrow fund idea is not going to help holders of old GGBs. He quotes an analyst who explains that the holdouts would be at the mercy of the Greeks, while the others would enjoy some partial protection.
Mohamed El-Erian explain why this deal is not going to work Writing in the FT, Mohamed El-Erian writes that as courageous and ambitious this budget deal may be, it will unravel within a few months. He said the problem is that it is always hard to solve a problem if the participants disagree about the causes and the solutions. And second nobody in this process has overall responsibility. The result is a very low chance that this will bring Greece on a path of higher growth, high employment, and lower debt.
Camera catches Schauble making promises of more help for Portugal In a private conversation Wolfgang Schaeuble told Vitor Gaspar on the sidelines of Thursday’s Eurogroup meeting that the German government was prepared to adjust Portugal’s bailout programme once key decisions about Greece’s situation are made. The comments were caught on camera and broadcast on YouTube and in the Portugese media. Schaeuble tells him “If then there would be a necessity for an adjustment of the Portugal” programme, “we would be ready to do that.” After the meeting Gaspar in a press briefing reacted and lowered expectations, saying that the assurance was not different from official statements before, that an easing of the programme is not a concrete hypothesis but an insurance mechanism for unforeseen developments, Jornal de Negocios reports.
German government ponders scrapping the additional solidarity tax The German coalition is encountering resistance by the SPD with its plans to lower taxes by €2bn in 2012 and by €4bn in 2013. Since the government needs the opposition’s vote in the Bundesrat, parliament’s second chamber, it now ponders scrapping the additional solidarity tax that introduced after German unity in order to finance rebuilding the eastern part of the country, Handelsblatt reports. This solidarity tax, which due to the dynamic growth last year generated €13bn last year, is considered to be no longer really neccessary and the coalition can change it without the consent of Bundesrat.
Sarkozy proposes a referendum on changes in the unemployment benefits and the legal situation of foreigners in France Talking to Figaro Magazine, Nicolas Sarkozy will propose to hold a referendum on reforming and making unemployment benefits less attractive and on the legal situation of foreigners in France, Le Figaro reports. According to the interview Sarkozy thinks those two very divisive issues in France would be best decided by directly asking the people. Sarkozy’s Socialist challenger Francois Hollande who enjoys a clear lead in the polls responded by saying that the next referendum in France were the presidential elections and that all these questions should be duly debated during the election campaign, Le Figaro reports in a separate story. Meanwhile Le Monde reports that Sarkozy could officially announce his candidacy on February 16.
German banks regret not having participated more massively in the ECB’s December 3 year LTRO German bankers regret today that they have not participated more massively in the ECB’s first 3 years LTRO in December, Financial Times Deutschland reports. The paper quotes several senior bankers and analysts from Deutsche Bank, Bayern LB, Nord/LB and anonymous bankers who say they now regret their decision and hint they will participate at the ECB’s next 3 years LTRO on February 29. Meanwhile Mario Draghi, without mentioning Deutsche Bank CEO Josef Ackermann, hit out at him by criticizing and ridiculing the statements of „virility“ and „manhood“ he had made when he said he would consider participating in the LRTO’s as a shame. Draghi also said, without mentioning names, that some banks who had publicly said they would abstain had later participated in the LTRO’s.
ECB will balance increased risks in their loosened collateral framework with steep haircuts In his press conference yesterday, Mario Draghi reacted to fears that the loosened collateral framework with non-marketable credit claims and lower quality requirements would put incalculable risks on the eurosystem central banks’ balance sheets. According to Financial Times Deutschland Draghi stressed that a haircut of roughly two thirds will be applied to the newly eligible collateral. The ECB’s decision to loosen the collateral framework makes an additional €600bn or so collateral eligible to be posted at the national central banks (NCB’s). But given the haircut banks of the seven countries participating in the new option (the NCB’s of France, Italy, Spain, Austria, Ireland, Cyprus and Portugal) will only be able to get about €200bn worth of additional liquidity at the ECB’s next 3 year LTRO on February 29. Also potential losses will not be shared in the eurosystem but will be at the burden of the NCB’s balance sheets.
Börsenzeitung calls the loosened collateral framework „the end of the eurosystem“ „The eurosystem is coming to an end“ and this was „a fundamental change of paradigm“, Börsenzeitung’s Stefan Balling comments the ECB’s decision to loosen the collateral framework and to leave it the national central banks to define the quality requirements. „The ECB council yesterday decided that from now on there is no longer a common security framework for the currency area any longer. With that, monetary policy has been renationalized to a certain extent.“
10-Y Spreads, Forex, ZC Swaps and Euribor-Ois The markets are a lot more euphoric than the politicians.
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