Eurointelligence Daily Briefing, 16 de Fevereiro de 2012


Delays are threatening to derail the package – chances of a successful bond swap are already reduced

  • Yesterday’s telephone conference agreed to postpone a decision on Greece until Monday;
  • Germany, Finland and the Netherland seek more letters of assurance from smaller Greek parties;
  • Jean-Claude Juncker said that some issues remained open until a final agreement can be reached;
  • Antonis Samaras has written a letter confirming his commitment to the programme, but said that modification may be necessary if the Greek economy does not recover;
  • Juncker also insisted that the troika would need a permanent representation in Greece;
  • reiterated insistence that the money be disbursed into an escrow account;
  • Wolfgang Schäuble enrages the Greeks with a suggestion that they should postpone the elections;
  • a senior German official said there was now a massive problem of trust;
  • Greek president Karolos Papoulias said he cannot accept Mr Schäuble’s insults;
  • Greek finance minister Evangelos Venizelos said there are forces trying to push Greece out of the eurozone;
  • Peter Spiegel has more details of the letters of the financial and legal advisers to the euro working group, in which they warn about the serious consequences of delaying the agreement;
  • the Greek privatisation agency said that they could raise at most €4.7bn in revenues this year, as political obstacles remain;
  • Portugal had a successful auction of Treasury Bills;
  • Mario Monti says there shall be no additional austerity even if economy hits recession;
  • also criticises stereotypes of core and periphery;
  • Nicolas Sarkozy declares his candidacy for the French presidency;
  • French Q4 growth stronger than previously estimated;
  • Erkki Liikanen, meanwhile, warns about the consequences of the ECB’s liquidity policies and says an exit strategy is urgently needed.


We are in extra time here, and the penalty shootout is fast approaching. Yesterday’s conference call of European finance ministers produced another delay – until Monday. The FT reports that Germany, Finland and the Netherlands suggested they may want additional letters from other smaller Greek parties, and even discussed the possibility of postponing Greek elections. EU sources told Reuters that euro zone officials had considered whether it was possible to delay part or all of the rescue deal while still avoiding a disorderly default.

After the three-hour conference call among the 17 euro zone ministers, Jean Claude Juncker issued a statement saying progress had been made, but provided few details. However, he made clear some matters remained open on making sure the bailout plan is carried out in full. 

The statement also said that Greece had met the three conditions it had been set, including the provision of written commitments from PASOK’s George Papandreou and New Democracy’s Antonis Samaras, who had provided his written undertaking to the EU and IMF on Wednesday shortly before the Eurogroup conference call. The reception of Samaras’ letter was unenthusiastic, as in the two page letter he reiterated his stance that “modifications might be required” to the programme if the Greek economy does not recover.  

Juncker also hinted at the troika maintaining a permanent presence in Athens to “strengthen the surveillance of the programme,” as well as the creation of an escrow account, Kathimerini reports. Under this scheme, Greece would only receive any money to cover public spending after all debts had been paid.


Schäuble suggested delaying Greek elections, President Papoulias hits back

Ahead of the conference call, Wolfgang Schäuble, the German finance minister, said in a SWR2 radio interview Greece might delay its polls and install a technocratic government that does not include politicians like Evangelos Venizelos and Antonis Samaras, similar to the model currently in place in Italy.   “When you look at the internal political discussions in Greece and the opinion polls, then you have to ask who will really guarantee after the elections … that Greece will stand by what we are now agreeing with Greece,”  Schäuble asked according to Reuters.


The deputy leader of Angela Merkel’s Christian Democrat’s parliamentary group, Johannes Singhammer, was even more explicit and said: „The Greek should ask themselves if new elections in this financially and politically difficult situation really make sense.“ Handelsblatt quotes an unnamed German government official as saying there „is a massive problem of trust with politics in Greece“.

Karolos Papoulias, the Greek president, fired back during a visit to military chiefs at the defence ministry: “We are all obliged to work hard to get through this crisis, but we cannot accept insults from Mr Schäuble. Who is Mr Schäuble to insult Greece? “Who are these Dutchmen, who are these Finns? We have always defended not only the freedom of our own country, but the freedom of Europe,” Mr Papoulias added. 


Evangelos Venizelos suggested that some “powers in Europe” want to push Greece out of the single currency.


The importance of the deadline

Peter Spiegel has more details on the leaked memo by the advisers to the euro working group, which goes into the nuts and bolts of the bond swaps and the importance of the timetable. Spiegel writes:

“If the bond swap offer went forward on Friday, as was originally planned, national parliaments were not expected to finish their approvals until next Thursday, six days later. And all government officials involved would not have finalised the funding until the following Monday. In other words, funding would not be fully in place until two days before the bond swap offer was due to close, on February 29. Talk about your tight deadlines.”

As Spiegel reported in yesterday’s FT, Lazard said the launch of the bond swap without the financing in place would reduce the success chances of the swap. Here is more. Lazard says that investors would lose the opportunity to make gains in secondary markets, or even risk being shut off from the secondary market. By far the best outcome would be for the money to be in place, before the offer is made.

Spiegel notes that time has already run out for that. The upfront cash consists of four components all vital to the deal. First, investors are swapping €200bn in bonds for €100bn in new bonds, including €30bn EFSF bonds – which need to be approved. Second, €5.5bn in interest payments needs to be traded in. And third, as the deal would wipe out the Greek banking sector €23.5bn needs to be committed for that. And forth, credit enhancement worth €30bn need to be approved. That makes a total of €93.5bn. And that money needs to be in place.


Obstacles in the Greek privatisation programme

Last spring Greek creditors demanded €50bn through sales in state assets through 2015. Nine months later, the plan has hit a setback, writes Kathimerini, and instead of generating €5bn in revenues in 2011, the privatizations and licensing program only brought €1.8bn into the state coffers. For 2013, the redrafted privatization program foresaw revenues of €9.3bn, although the new entity managing the process, the Hellenic Republic Asset Development Fund (TAIPED), estimates that at best, only €4.7bn will be raised over the course of the year. Partly this can be explained by investors’ reluctance to enter the Greek market, but the biggest problem, according to the article, is that the state simply is not — and never was — prepared for privatizations.  Ownership and legal status remains hazy, and politicians lack determination to put the privatization process on the right track, and to break with the taboo of selling state assets.


A successful bond auction for Portugal

The FT reports from Lisbon that a successful auction of €3bn of Treasury Bills raised hope that Portugal could escape contagion from the Greek crisis. The success of the auction led to falling yields of Treasury bills of all maturities, and 10-year bond spreads have also come down from a peak a couple of weeks ago. The Portuguese government is also implementing a series of radical structural reforms, including a labour market reforms that cuts the dismissal costs from three times the European average to below average.


Monti says no more austerity

Reuters reports on Mario Monti’s speech at the European Parliament in Strasbourg yesterday, where he said that worse-than-expected economic performance was no reason to adopt more austerity. He said Italy had already adopted three deficit cutting measures last year. He also made the point that recent declines in borrowing worse were not accounted for in the government’s finance estimates and that this would contribute to compensate the decline in output. (except that the recent decline in borrowing is now fast reversing, as the eurozone crisis is intensifying again). Monti also warns against stereotyping, such as the separation of the eurozone into the periphery and the core, as this was fuelling divisions and resentment.


Nicolas Sarkozy declares himself presidential candidate

It didn’t really come as a surprise. Last night in an interview on the TF1 TV channel Nicolas Sarkozy said: „Yes, I am a candidate for the presidential elections“, Le Figaro reports. „Given the situation in France, Europe and the world, which have been undergoing a crisis without precedent for three years, not asking for new confidence from the French would have been like abondonning my post.“ The president went on to confirm his intention to overcome internal blockages in France with referendums if he is re-elected. The first question he intends to put to the people is about unemployment benefits. Sarkozy will today visit a cheese factory in Haute-Savoie and hold his first public electoral meeting. 10 weeks before the first round of the elections the president clearly lags behind his Socialist challenger Francois Hollande in polls. In an online poll of Le Figaro 56% of the participants thought that Sarkozy’s official announcement was unlikely to fundamentally alter the race. Hollande meanwhile stated yesterday that the past 5 years under president Sarkozy had been a „fiasco“.


French growth surprises with its relative strength

Eurostat’s Q4 growth figures for France showed 0.2% growth and contradicted the French statistical offices December estimate of -0.2% for the last three months of 2011, Les Echos reports. Frances Eurostat figures are also in contradiction with the other major EU economies such as Germany, Italy, Spain or the UK which all had a negative growth rate. The French Q4 figures now bring the 2011 growth rate to 1.7% on average. „The growth expectations of at least 0.5% for 2012 is now a certainty“, Francois Fillon said. But independent economists quoted by the paper like Amélie de Montachalin of Exane-BNP Paribas cautioned the good French figures were partially due to technical factors like Airbus exports at the end of last year.


ECB council member Liikanen warns of the risks of abundant liquidity

The ECB must be careful that the billions of euros in liquidity it has pumped into the banking system does not have negative consequences in the future, Finland’s central bank governor and ECB Governing Council member Erkki Liikanen told Financial Times Deutschland. „We must be careful that today’s ample provision of liquidity does not lead to problems in the future“, he said. Liikanen went on to say that the ECB, which will on February 29 offer banks another chance to tap ultra-cheap three-year loans, must think about how to discontinue such extraordinary measures, which it has used to help fight the euro zone debt crisis. „We must think about how we could discontinue them“, Liikanen said. „We must get ready to shift back to normality, as soon as circumstances allow.“ The Finnish governor also said ECB interest rates are near levels at which cutting them further would achieve little. The ECB cut its main interest rate to the record low of 1.0% in December and has held it there since. „Of course, we are getting closer to the point at which standard monetary policy cannot achieve much, the more one goes below 1%“, Liikanen said, adding that the ECB would then need to consider other policy measures if it wanted to act. „If the ECB Governing Council comes to the conclusion that we should go further, there are no technical hurdles to doing that. But that is not on the agenda at the moment“, the ECB Governing Council member said.


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