Eurointelligence Daily Briefing, 20 de Fevereiro de 2012. Enviado por Domenico Mario Nuti.


Second bailout for Greece expected to be approved today

  • Eurozone finance ministers will meet in Brussels today to decide on second bailout for Greece;
  • There is a momentum building up for approval according to Reuters;
  • Over the weekend the Austrian finance minister gave an upbeat assessment;
  • Greece seemed to have approved the setup of an escrow account;
  • An IMF analysis suggests that Greek debt would reach 129% in 2020;
  • Greek parliament set to approve the pension cuts to save the €325m required by the lenders;
  • Dimitris Kontogiannis warns that an esrow account could trigger an internal default;
  • Wolfgang Munchau argues that Wolfgang Schauble’s call to postpone elections violates Kant’s categoric imperative;
  • Joachim Gauck is nominated to become the new German president after Christian Wulff had to resign over expenses scandals;
  • Merkel had to give up her resistance against Gauck to save her coalition government;
  • In his first interview as ECB board member Joerg Assmussen said ECB supports to the EFSF alongside the ESM;
  • Peter Praet repeated the ECB was not participating in the rescheduling of debt;
  • Praet also said any ECB profits on Greek bond holdings would be transfered to national central banks, which transfer it to the governments, which would lend then to Greece;
  • There are protests in Greece and Spain. Hundreds of thousands took to the streets in Madrid in protest against the new labour market reform with cuts in severence payments;
  • Wolfgang Schäuble aims for a balance budget by 2014 instead of 2016;
  • In Germany, meanwhile, there is a debate going on about Hans Werner Sinn’s claim  that Germany’s Target 2 balances present a counterparty risk in the case of a breakdown of the euro. 


Reuters reports that Eurozone finance ministers are set to approve the second bailout for Greece today.  While there is still scepticism in Germany and other countries that Greece will be able to live up to its commitments, Reuters quotes officials saying momentum was building for approval of the deal.  Senior officials from euro zone finance ministries and the ECB held a conference call on Sunday to go over the final details of the €130bn programme.  Austrian Finance Minister Maria Fekter said  later in an TV interview that it looks like the package is going to be approved. Reuters also quotes an official saying that at this point nobody wants to pull the trigger at this late stage. One of the open issues on Sunday were the control mechanisms. Der Standard reports that Greece apparently accepted the setup of an escrow account. 


An IMF analysis suggested that Greek debt would reach 129% of GDP in 2020, which is higher than previously expected.  This creates a financing gap which has to be filled by concessions from the official sector in order to bring down the ratio to the targeted 120% of GDP in 2020. There are several options under discussion, including to reduce interest rates, increase bailout funds.


Pension cuts to be voted in Greek Parliament ahead of eurogroup meeting



The Greek Parliament is due to vote Monday on an extra round of pension cuts ahead of a meeting of eurozone finance minister in Brussels. On Saturday, the cabinet agreed on how to save another €325m as requested by Greece’s lenders. The measures included further cuts to basic, as well as supplementary pensions, according toKathimerini. Some €70m will come from cuts to pensions above €1300 per month. Supplementary pensions will also be cut between 10% and 20% for pensions above €200 per month, the threshold set by New Democracy.


Kontogiannis: The risks of the escrow account



Writing for Kathimerini Dimitris Kontogiannis argues that the escrow account has its own risks. One risk is that once Greece is running a primary surplus, Greece would be less dependent on bailout funds and the escrow account would be reduced to pay back the bond holders. An even worse risk is that the escrow account could trigger a default, as the Greek economy heads deeper and deeper into recession partly due to the withholding of bailout funds. Finally there is the political risk that the escrow account provokes a populist backlash and social unrest in Greece.


Wolfgang Munchau on the ethics of the Greek programme



In his FT column, Wolfgang Munchau writes that the eurozone is in the process of turning Greece into its first colony. The comment by Wolfgang Schauble that Greece should postpone its elections, or rather to suspend democracy, violates Immanuel Kant’s categorical imperative, as such action would be unconstitutional in Germany itself – according to the constitutional court’s recent rulings, which upheld the absolute sovereignty of the parliament. Schauble’s demands reflect the deep mistrust towards Greece, and this mistrust limits the extent to which governments can ultimately support each other. Munchau concludes that if you want to increase the rescue umbrella the only realistic way of doing this is through a joint and several system, rather than through intra-governmental transfers as is the case now.


Germany’s major political parties agree on Joachim Gauck as the new president



After the resignation of president Christian Wulff over expenses scandals, Angela Merkel late yesterday evening accepted Joachim Gauck as his successor, Spiegel Online reports. The chancellor’s coalition had been on the brink of collapse during the day because the liberal FDP had sided with the opposition social democrrats and the Greens in their proposal to renominate Gauck who had already been the opposition’s candidate in 2010 when Wulff was elected. Gauck is a left-leaning pastor from East-Germany who had been the first boss of the Stasi archives and who commands huge popularity and moral authority among Germans. By accepting Gauck, Merkel saved the coalition while at the same time admitting a major political defeat since she had done everything to avoid him in 2010 and she had done everything to keep Wulff in office despite mounting evidence that he had behaved improperly. Gauck will now have to be elected formerly by the Bundesversammlung, an assembly comprised of Bundestag parliamentarians and Länder representatives whose only function is to elect Germany’s largely ceremonial head of state.


ECB supports boosting the eurozone’s firewalls up to €750bn



The ECB supports the eurozone boosting its firewall by combining what remains in its temporary bailout facility EFSF with its permanent ESM, board member Jörg Asmussen told Financial Times Deutschland in his first newspaper interview since his taking office. His comments echo those of other top policymakers, such as Eurogroup President Jean-Claude Juncker, have already called for the currency bloc to combine what remains in the EFSF with the €500bn earmarked for the ESM. „In this way, we could reach €750 bn,“ Asmussen said noting the ECB would support this approach. The German board member echoed the pessimism of Mexico’s Finance Minister Jose Antonio Meade about the likelihood of the Group of 20 finance ministers reaching a deal in Mexico City later this month to boost IMGF. „Many non-European G20 states expect the Europeans to first build their own firewall and raise it, rather than other funds flowing into it again from outside Europe,“ Asmussen said. „Maybe we can decide on additional IMF funds at the IMF spring meeting in April,“ he added. Asmussen also criticized emerging economies for hoarding foreign reserves. The former deputy finance minister said the world was moving toward a multipolar currency system, with the dollar remaining the most important currency for transactions, followed by the euro in the medium term, and, in a timeframe up to 2030, the Chinese currency.


Peter Praet explains how the ECB can forgo profits on the Greek loans



In an interview with NRC Handelsblad and de Tijd, Peter Praet, ECB chief economist, says the ECB would not directly forego the profits on its Greek bond holding, but would transfer the profits to the national central banks, which in turn would give it to their governents, who would loan the money to Greece. Praet says the ECB was thus not participating in the rescheduling of debt and was not sending any money to Greece. (Since the ECB always sends profits to national central banks, who always send on profits to their goverments, this whole operation is really only a smokescreen for a hidden increase in government lending to Greece.)


ECB legal council explains how the eurosystem could help to indirectly contribute to the second Greek rescue package



Talking to Handelsblatt the ECB’s legal council Antonio Sainz de Vicuna explains how the central bank’s profits from its holding of Greek government bonds might contribute to financing the second Greek rescue package. „There are possibilities to earmark such profits according to which the shareholders of the national central banks (the governments) will use the profits for example for debt consolidation via the EFSF“, Sainz de Vicuna said. However he cautioned that future profits that may arise until maturity of the bonds in several years could not be distributed prematurely. The ECB had proceeded past Friday to protect the Greek bonds it has bought in the framework of the SMP from haircuts with the possible introduction of collective action clauses by formally exchanging them with the Athens government into new bonds with new serial numbers. Sainz de Vicuna is currently competing with Luxemburg’s central bank governor Yves Mersch to succeed to the Spanish board member José Manuel González-Paramo in June.


Spanish unions confident that massive protests would lead to changes in labour reforms



El Pais reports that hundreds of thousands of protesters took to the street in the large Spanish cities with half a million in Madrid alone, in protest against the new government’s labour market reforms, which seeks to cut the amounts of severance pay. The article quotes union leaders as saying that the extent of the protests had surprised them, and they are now expecting the government to make concessions. The article quotes the Spanish labour minister attacking the trade unions for failing to represent the country’s 5.3m unemployment who have no access to the primary labour market.


Schäuble wants to present an almost balanced budget by 2014



Wolfgang Schäuble is planning to advance the last stage of the debt break by introducing a close to balance budget by 2014 instead of 2016, Spiegel reports. By 2014 finance minister wants to have reduced Germany’s structural deficit to 0.35%, the level required by the constitutional debt rule as of 2016 only. Currently the structural deficit is at 1.1%. In order to attain that goal Schäuble is looking at a consolidation package in the magnitude of €10bn. Among other things he is considering permanent cuts in the federal contribution to health insurance fund, the retirement insurance schemes and to the unemployment insurance. FDP party chairman Philipp Rösler said the liberal coalition partner supported Schäuble’s plan.


Mark Schieritz on Target 2



The debate on the meaning of Germany’s Target 2 balances has been going on for some time, and was recently rekindled by a long interview with Hans-Werner Sinn in Frankfurter Allgemeine. Mark Schieritz, writing in Herdentrieb, looks at Sinn‘s central argument that Germany’s Target 2 balances present a counterparty risk in the case of a breakdown of the euro. Schieritz says the counterfactual would be a breakdown of the euro where Germany’s claims would be against foreign commercial banks. In this case they would be just as worthless. The whole point of the rescue operations is to prop up the solvency of Germany’s export clients.


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



Mostly sideways except for Greek spreads which have been raising. Speculators last week bet on a breakdown of a Greek agreement and a full repayment of the debt due in March. Those delusions have now been frustrated by the likelihood of a deal.











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Source: Reuters





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