Moody’s ends Greek sucker’s rally
It was a good day on financial markets, with stocks, bonds, and the euro all up, as investors welcomed the approval by the Greek parliament of the austerity package. The mood shifted after Moody’s announced downgrades for Italy, Spain, Portugal, Slovakia, Slovenia and Malta, while it maintain the triple-AAA for France and Austria (and the UK for that matter), but attached a negative outlook. This means that a downgrade is probable within the next 12 to 18 months.
Reuters reported that investors also shifted their mood on Greece during the day, amid concerns whether the government could actually implement the reforms. The euro lost against the dollar after a strong short-lived rally. The story quoted an analyst as saying that there was a knee-jerk positive reaction that ultimately started to fade.
Moody’s cut Spanish rating by two notches, the others one notch. Fitch lowered its ratings on four big Spanish banks while Standard & Poor’s cut its rating for the industry as a whole on Monday following recent sovereign downgrades and on concerns of funding difficulties and a weak economy.
Greek party leader must sign implementation pledge today
Greek political party leaders have until today to give written commitments to implement the austerity measures, government spokesman Pantelis Kapsis was quoted by Reuters. European leaders want a guarantee that the package of pay, pension and job cuts will be continue to be implemented whoever forms the next government after the April elections. They also want details on how Greece will fill is €325m gap in savings this year, before they meet in Brussels.
Sources told Kathimerini that Finance Minister Evangelos Venizelos has supplied the two leaders with the letters that they need to sign.
Should the Eurogroup give the green light for a new bailout, the PSI deal with private investors will be announced by the end of the week and bondholders will be given roughly two weeks to accept the offer made by Athens. Venizelos has said that a deal needs to be concluded by February 17.
This week the troika is also due to produce a report on Greece’s debt sustainability, which European policymakers will use to decide whether they need to increase the loans to Greece or whether other measures need to be taken. A final decision is expected at the European Union leaders’ summit on March 1 and 2.
Cautious welcome of Greek approval, but doubts remain
European officials welcomed Greece’s approval of a new debt deal on Monday but they also struck a cautious tone, warning that Greek authorities still had a long way to go before clinching the country’s second bailout.
German newspapers express doubts whether the deal for Greece can be pulled off. According to Handelsblatt anonymous central bankers don’t think the necessary quorum of 70% of the holders of Greek bonds will be met for a voluntary haircut. Bundestag president Norbert Lammert, a member of Angela Merkel’s CDU, expressed doubts if the tight schedule until the Bundestag’s debate about the second Greek rescue package on February 27 will allow for the necessary preparatory work. „We will we see if the time foreseen for debates will be sufficient“, Lammert told Financial Times Deutschland.
Luc Frieden, finance minister of Luxembourg, was quoted by Reuters effectively saying that failure by Greece to meet all the conditions of new bailout deal would lead to its exit from the euro zone. “I still think that we should do our best to keep the euro zone with all its members. But again, the key lies with Greece today,.. “And therefore if the Greek people or the Greek political elite do not apply all of these conditions — I think they exclude themselves from the euro zone and the impact on other countries now will be less important than a year ago.” Frieden told the Atlantic Council after meeting with the U.S. Treasury.
China says No to Merkel’s plea to purchase European bonds
Reuters quotes the head of the China Investment Corporation as saying that it would not take up Angela Merkel’s request to buy more European bonds, saying such investments were “difficult” for long-term investors. Lou Jiwei said any fresh injection of funds into Europe would be in industrial and other real assets, not government bonds. Lou said Merkel had asked CIC and other long-term investors to buy European government debt when she visited Beijing earlier this month. He implied that the stabilisation of the European bond market was a matter for the ECB. The article also quoted a central bank adviser echoing Lou’s hard line. “We may be poor, but we aren’t stupid,” Xia Bin is quoted as saying.
Fitch says investors expect crisis to last another year
The fixed income investor survey by Fitch Ratings shows that most survey participants think the eurozone crisis will persist through 2012. 48% of survey respondents expect the sovereign debt crisis to continue largely as is. A quarter are more pessimistic, expecting the situation to worsen, while 24% think it will get better. A very small minority of 3% optimistically anticipate the crisis will be solved during the year. Fitch said it also expects that the crisis would persist with episodes of severe financial volatility, There would be no resolution without a broad-based economic recovery. The response to the ECB’s LTRO was also cautious. 37% saw it as the “big bazooka”. 54% said there would only be limited take-up by banks for the purpose of buying sovereign debt.
The first annual report on imbalances, without surplus countries
Economic affairs commissioner Olli Rehn will today for the first time present his new annual report on macroeconomic imbalances in the EU, Le Monde reports. 12 out of 27 countries will be warned of worrying developments, among them France, Italy and Spain. Rehn will underline that the most „urgent“ cases are Italy, Spain, Cyprus and Hungary. They will have to „reduce their hight debt level and regain competetivness“, according to the report cited by the paper. The Commission is worried about France, Belgium and the UK and their loss in world market shares with -19.4%, -15.4% and -23.3 respectively. The three program countries Grece, Ireland and Portugal are not examined. Also Germany is not mentioned because the Berlin government had persisted with its view that surplusses are not considered to be a worrying phenomenon and are thus not to be addressed in Rehn’s report.
New Socialist EP parliamentary group leader wants ECB mandate to include inflation and macroeconomic balances
Talking to Financial Times Deutschland the new head of the EP’s Socialist group, Hannes Swoboda, asked that the ECB’s mandate be complemented. „Fighting inflation remains an important goal, but avoiding macroeconomic imbalances must become a part of the mandate of equal importance“, he said. Had the ECB been obliged to draw attention more forcefully to developments like the deficit in Greece or the housing bubble in Spain,markets would have punished those countries earlier and the current crisis might have been avoided, Swoboda argued on the margins of a visit at the ECB’s headquarters to see Mario Draghi and the two board members Peter Praet and Jörg Asmussen.
Finance commission rejects Sarkozy’s plan for a „social VAT“
In a surprise move the National Assembly’s finance commission rejected Nicolas Sarkozy’s plan to raise VAT in order to finance lower social contributions on salaries, the so called „social VAT“, Lemonde.fr reports. The reason for this is that the opposition Socialist’s deputies were more numerous in the commission meeting than the parliamentarians of Sarkozy’s UMP. Since the commission’s vote can be returned in the majority’s favour in the plenary session and the plan can thus still be adopted finance minister Francois Baroin spoke about „much noise about nothing“. But other commentators said the lack of support shown by the UMP deputies showed how deeply unpopular raising taxes just ahead of the elections was and how Sarkozy was loosing his grip of his own parliamentarians. UMP parliamentarian Lionnel Luca, who is part of the right wing „droite populaire“ wing within the UMP, labelled Sarkozy’s plan „a political suicide“.
For Francois Fillon the euro is the most important topic of the presidential election campaign
For Francois Fillon the most important question of the presidential election campaign in France is the future of the euro. „The most important is the future of the euro“, the prime minister told Le Monde. „It is fashionable to say that to return to a balanced budget is a technical issue not worthy of a presidential project. That is not the topic. Can we save the European currency and give Europe a new push?“ For the prime minister the euro can only be saved if all presidential candidates bind themselves to return to balaned budgets. In this regard Fillon thinks Francois Hollande’s stance to do so until 2017 only be increasing taxes without cuts in public expenditure is not credible.
Willem Buiter says Greek programme is not realistic, and predicts more volatility
Writing in the Financial Times, Willem Buiter called the austerity package a minor milestone for Greece. Even if disorderly Greek default is avoided on March 20, Greece is far from home safe. He said the assumption contained in the programme for fiscal deficits and economic growth were extremely optimistic. By the end of the decade, Greece will be in the same position as Italy, but without Italy’s high level of private wealth. Buiter questions whether the programme will be implemented, given the past record. He says after the brief period of euphoria following the LTRO, Greece is a reminder that the eurozone’s crisis remains essentially unresolved. Fiscal deficits were at best slowly declining; sovereign debt continued to rise in most euro area countries; the EU banking system remains undercapitalised; a euro-wide recapitalisation facility for banks is still missing. And the ECB is still not a lender of last resort. The good news is that the ECB’s policies have bought some time. But volatility will persist.
10-Y Spreads, Forex, ZC Swaps and Euribor-Ois
All up after Greece approved the austerity package, all down on Moody’s, except Germany.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||