Eurointelligence Daily Briefing – 17 de Fevereiro de 2012 – enviado por Domenico Mario Nuti

 

 A deal that would turn Greece in a eurozone colony

 

• An outline plan for a Greek package has now been drawn up, but political agreement will not be reached until Monday;

• the new loan package will be dependent on 24 prior actions Greece has to fulfill before the end of the month;

• agreement is likely to include an escrow account to protect bondholders;

• a permanent representation of the troika is also likely;

• no agreement yet on additional measures needed to hit the 120% target, but various options remain under consideration;

• Wolfgang Schäuble and Angela Merkel disagree on whether to force Greece into default, with the finance minister taking a harder line;

• the Netherlands, Finland and Austria support Schäuble’s position; • through a procedural trick, the ECB and the NCBs have protected their holding against the effects of collective action clauses;

• the Bundesbank has opposed this move; • ECB is ready to offer the foregoing of profits as a contribution to the Greek programme;

• Germany’s Bild wants the Greeks to be thrown out of the euro;

• Lorenzo Bini-Smaghi argues that only the IMF can help now, and might consider using its poverty reduction programme to help Greece; • one out of ten young people have lost their jobs in Q4, as recession gets much worse in Portugal;

• Angela Merkel is to meet an increasingly assertive Mario Monti today;

• Francois Hollande, meanwhile, has signalled that he will cooperate with Angela Merkel gif elected.

 

Eurointeligence Comment and Analysis

 

How to deal with Europe’s debt challenge by Guntram B. Wolff It was the Troika’s biggest mistake to delay the necessary wage adjustment in Greece. Ultimately, growth can only come from exports, and that requires a steep fall in Greek wages.

 

 An outline plan for a Greek package has now been agreed at technical level Greece would have to complete a list of 24 „prior actions“, the Financial Times reports, before it can get access to the funds. There will be an escrow fund that holds debt payments for nine-to-twelves months, and the troika will have a permanent representation. The problem is that with the latest austerity measures, the debt sustainability calculations suggest that Greece is headed for a debt of 128% of GDP by 2020, missing the 120% target. In order to get to the 120%, the bailout total would have to go up to €136bn. Reuters says ideas also include the euro zone cutting the interest rate on its existing bilateral loans to Greece, and asking private investors to agree to bigger losses. A further option is for the ECB to forego profits on Greek bonds it holds in its portfolio and to re-sell them to the EFSF. The FT’s article also said that there is pressure on Athens to form a grand coalition after the elections.

 

Schäuble and Merkel disagree

 

According to the leading front page story of Süddeutsche Zeitung there are deep divergences between Wolfgang Schäuble and Angela Merkel on what strategy to adopt for Greece. According to the paper, the finance minister has come to the conclusion that the current strategy leads nowhere and only Greece’s formal default whitin the currency union a debt reduction radically lower than what is foreseen so far will yield results. The chancellor agrees with Schäuble’s diagnosis that Greece is hopeless but she fears a default will lead to contagion for Italy and Spain with the potential to blow up EMU.

 

So Merkel insists on sticking to the current strategy. The paper explains that the dispute makes coherent discussions with Germany difficult because the finance ministry and the chancellor’s office are negotiating with contradictory messages in Brussels. According to Süddeutsche, Finland and Austria are supporting Schäuble’s default strategy while the Netherlands internally even plead for a more radical solution that would result in Greece’s euro exit.

 

Also Luxemburg’s Luc Frieden toys with an exit of the country from EMU. In its coverage of the political fall, Reuters quotes a senior Italian official as saying: “Are the Germans going to break down Europe for the third time in a century?” Another observer is quoted as saying that Germany is hedging its bets: give Greece a slim chance to stay in the eurozone while preparing for an exit.

 

Eurosystem central banks escape haircut by exchanging Greek bonds

 

 The Eurosystem central banks escape a haircut on the Greek bonds they have acquired through the SMP by exchanging them into new bonds with different serial numbers, Frankfurter Allgemeine Zeitung, Handelsblatt and Financial Times Deutschland report. The new serial numbers will allow the Greek government to legislate and introduce collective action clauses (CAC’s) that will concern bonds with the old serial numbers but not the ones the central banks will have exchanged. By doing so the central banks will have protected their holdings that according to estimate are worth roughly €50bn to €55bn of nominal value that the central banks bought at €40bn. According to Handelsblatt the Bundesbank opposed this move in the ECB Governing Council because it fears negative effects for Portugal and Ireland, the two other program countries. Initial reports by Die Welt, which claimed the operation would lead to sizeable profits fort he central bank, were not confirmed. According to FTD the eurosystem central banks have calculated the interest rate profits they will make over the next three years – the time the second Greek rescue package will run – and they have told the governments they can expect that money to be transferred to them in the central bank’s regular annual profit handover to governments. The governments can then use that money to finance the second Greek rescue package.

 

Bild asks for Greece to be „thrown out of the euro“

 

As a result of the insults against Germany and the comparisons of today’s debt negotiations with the Nazi occupation of Greece, Bild has a big story with the headline: „High time to throw those Greek out of the Euro!“. The story is illustrated with two pictures taken out of the Greek press where you can see Wolfgang Schäuble wearing a SS uniform and Angela Merkel whearing a military uniform with a swastika on her arm. The mass circulation daily quotes Greek politicians who say that Schäuble today plays the some role as the German tanks in World War II. The article concludes with quotes from parliamentarians from all three coalition parties who raise doubts about the strategy in Greece and say an exit should be considered. „Greece, time has come to say farewell to the euro …“, the story ends.

 

Bini-Smaghi advocates uses of IMF’s poverty reduction facility for Greece

 

 Lorenzo Bini-Smaghi, the man who warned loudest against the strategy of a private sector participation, said a Greek euro exit would have catastrophic consequences for exit and the eurozone itself. He writes in the Financial Times:

„Greece does not suffer from a typical balance of payment problem that can be dealt with short to medium-term adjustment and financing. It has a major structural problem that can be resolved only through a combination of macroeconomic, structural and social measures. It also needs prolonged technical assistance to be consistently implemented over the next decade….What is required is much more similar to the kind of programme that the International Monetary Fund applies to low-income countries, under the Poverty Reduction and Growth Facility… with official financing provided for several years, at concessional terms to ensure debt sustainability.“

 

Portugal: One out of ten young people became unemployed in Q4 last year

 

In Portugal the latest figures suggest a unexpectedly large jump in unemployment from 12.4% to 14% in the last quarter of 2011. The biggest jump in unemployment was among the 25- to 34-year-old group, followed by those aged between 15 and 24. One out of ten young people lost their job, Jornal de Negocios reports. Fears are also growing that the economy could contract in 2012 by more than the 3% estimated by the government. Over the weekend, more than 100,000 people rallied in one of Lisbon’s largest squares, calling for a halt to the austerity measures. Wall Street Journal also quotes a poll conducted showing that the majority of Portuguese don’t believe fiscal tightening will lead the country out of the crisis (48.4% say it won’t, 40.3% say it will).

 

Merkel will meet a selfconfident and confrontational

 

Monti today According to Handelsblatt Angela Merkel will meet a self confident Mario Monti in Rome today. The paper points out that the prime minister of Italy’s technocrat government enjoys widespread support at home despite the painful reforms he has launched, he is backed by US president Barack Obama and he was applauded in the European Parliament yesterday. His decision that Rome will not apply for the Olympic games in 2020 is an illustration how serious Monti is to get Italy’s public finances on a sound track, the paper points out. According to Handelsblatt, the relation between Merkel and Monti is friendly but the Italian is critical of the German stance that consolidation must trump growth enhancement. Also Monti thinks that Germany’s ultrastrict stance on Greece has become self defeating and will tell Merkel so.

 

Hollande’s top economic advisor prepares entente with Merkel

 

In a display of pragmatism Francois Hollande ignores Angela Merkel’s support for Nicolas Sarkozy and asks his top economic policy advisor to underline the common ground between the French Socialists and Germany’s current government. In an interview with Frankfurter Allgemeine Zeitung, Michel Sapin, a former Socialist finance minister, stressed that Germany was right to insist on budgetary consolidation and that Hollande would be serious about solid public finances. But Sapin stressed growth was needed to achieve that pointing out that you cannot get a country’s finances back on track with a growth rate of 0.5% for five years. Sapin also stressed that Hollande would not seek a change of mandate for the ECB because under Mario Draghi the central bank was doing excellent work. This point is noteworthy because the Socialist’s programm foresees that the inflation fighting mandate is extendet to growth enhancement.

 

10-Y Spreads, Forex, ZC Swaps and Euribor-Ois

 

 

10-year spreads
	Previous day	Yesterday	This Morning
France	1.250	1.200	#VALUE!
Italy	3.883	3.974	3.953
Spain	3.599	3.480	3.546
Portugal	10.124	10.376	10.877
Greece	32.817	33.655	41.45
Ireland	5.227	5.222	5.354
Belgium	1.680	1.668	1.726
Bund Yield	1.864	1.889	1.91
Euro Bilateral Exchange Rate
	Previous	This morning
Dollar	1.301	1.3129
Yen	102.060	103.81
Pound	0.830	0.8305
Swiss Franc	1.206	1.2069
ZC Inflation Swaps
	previous	last close
1 yr	1.86	1.93
2 yr	1.77	1.82
5 yr	1.97	1.95
10 yr	2.28	2.25
Euribor-OIS Spread
	previous	last close
1 Week	-7.157	-6.157
1 Month
3 Months
1 Year

 

 

Sidesways, mostly. 10-year spreads Previous day Yesterday This Morning France 1.250 1.200 #VALUE! Italy 3.883 3.974 3.953 Spain 3.599 3.480 3.546 Portugal 10.124 10.376 10.877 Greece 32.817 33.655 41.45 Ireland 5.227 5.222 5.354 Belgium 1.680 1.668 1.726 Bund Yield 1.864 1.889 1.91 Euro Bilateral Exchange Rate Previous This morning Dollar 1.301 1.3129 Yen 102.060 103.81 Pound 0.830 0.8305 Swiss Franc 1.206 1.2069 ZC Inflation Swaps previous last close 1 yr 1.86 1.93 2 yr 1.77 1.82 5 yr 1.97 1.95 10 yr 2.28 2.25 Euribor-OIS Spread previous last close 1 Week -7.157 -6.157 1 Month 3 Months 1 Year Source: Reuters — Website: http://sites.google.com/site/dmarionuti/ Blog “Transition”: http://dmarionuti.blogspot.com/