Schäuble’s duplicity on ESM enlargement: He says Yes in private, No in public
This is how Wolfgang Schäuble has been running the eurozone crisis all along. He proceeds with conflicting messages. The German public seems under the impression that Angela Merkel’s rejection of an increase in the ESM would hold, but there are already signs that the German resistance to an enlarged ESM is weakening. The key message from the G20 meeting in Mexico City was that the IMF would only help after the eurozone increased its share of the rescue operations first.
Schäuble hinted at German readiness to reconsider its tough stance on the euro rescue funds, Frankfurter Allgemeine Zeitung and Financial Times Deutschland report. The finance minister said that the heads of state and government had agreed to review the ESM currently foreseen size of €500bn which G20 participants took as an expression of acceptance that the ESM’s €500bn could be combined with the roughly €250bn remaining funds from the EFSF. This would then in turn open the door for other G20 countries to commit additional ressources to the IMF at the Fund’s spring meeting in April. Last Wednesday, government spokesperson Steffen Seibert categorically excluded any increase of the ESM’s lending volume. Schäuble said in Mexico City that this was a statement from February that would not preempt the result of the reexamination of fund’s size in March. FTD quotes Olli Rehn who said that he was confident that the German government would agree to combine the ESM and the EFSF to bring it to a total to €750bn. The paper also quotes unnamend G20 sources who say Germany did not want to commit to any increases prior to today’s crucial vote on the second rescue package for Greece but that she would most likely support an increase in March. Germany was under huge pressure from practically all other G20 participants to agree to an increase in size and Schäuble’s remarks were first taken with relief. However the chancellor’s office later told Reuters that Germany’s position had not changed: „For the federal government there is no change: We don’t see any neccessity at this time to increase the ESM’s upper limit.“
In its coverage from Mexico City, the FT writes any extra money to be agreed in April would come in the form of bilateral loans to the fund, rather than a general capital increase to bypass the need for negotiatoins on quotes and votes. The idea of a special purpose vehicle has been put on ice.
(This is more of a cliffhanger than it appears from today’s news coverage. Germany may be prepared to talk about letting the EFSF and the ESM run concurrently, but this is not the same as handing over the unused funds of the EFSF to the ESM, since the EFSF runs out next year. It is not at all clear whether this would suffice as a condition for further IMF funding. We suspect not.)
German government split on Greece ahead of today’s vote on the second rescue package
Ahead of today’s vote on the second rescue package the government is deeply split as to whether the current strategy on Greece still has any chances of success, Süddeutsche Zeitung reports. Interior minister Hans-Peter Friedrich of Angela Merkel’s Bavarian coalition partner CSU told Der Spiegel he favoured instead giving incentives to Greece to voluntarily leave the eurozone. According to Süddeutsche Wolfgang Schäuble also thinks that the current strategy bears no chance of success, but he would favour a managed default within the eurozone. Also economy minister Philipp Rösler of the the liberal FDP thinks the eurozone’s strategy with Greece has gotten into a dead end roard. Merkel however fears uncalculable consequences and insists on staying course. The chancellor is not sure to have an absolute majority from her coalition today. BDI industry lobby president Hans-Peter Keitel told Tagesspiegel he understands any deputy who would vote against the program. The package will pass anyway because the opposition SPD and the Greens have announced they will vote for it.
Bild appeals to all Bundestag deputies to say „No“ to more money for Greece
„Billions for Greece – Stop!“ is the headline of mass market daily Bild today. The paper with 10m daily readers appeals to all parliamentarians to vote no today in the vote on the second Greek rescue package. „Two years ago Bild was almost alone in its warning. Now an increasing number of economic experts is becoming sceptical“, the paper says and cites 10 economists who say Greece will not make it without a bankruptcy and within the EMU.
Greece launched bond swap offer and tabled law for bank restructuring
Greece formally launched the bond swap offer to private holders of its bonds on Friday, launching the largest bond restructuring ever. Greece set March 8 as deadline for investors to participate, though the document also says that deadline could be extended if needed, Reuters reports. The government has said earlier that it wants to conclude the transaction by March 12.
Greek banks to be restructured through common shares with restricted rights
After the bond swap Greece plans to recapitalise its banks largely through common shares with restricted voting rights and convertible bonds, according to a draft law submitted to parliament over the weekend. About €50bn have been set aside to recapitalise Greek banks after the bond exchange through the Greek bailout fund, the Hellenic Financial Stability Fund (HFSF). The HFSF will give incentives to private investors to cover at least 10% of the rights issue, in which case they would be entitled to buy shares of the bailout fund at a ratio based in their participation in the capital increase. The bailout fund can maintain its stakes in the banks for up to five years, the law said. Each bank that seeks funding from the HFSF will have to present a three-year restructuring plan. The law also says that Greek government would appoint managers for the HFSF along with the EU. The European Commission and the ECB will each have one non-voting representative on its board. The law is to be voted in parliament on Tuesday.
Venizelos wants to publish names of parliamentarians who transferred large sums out of Greece
Frankfurter Allgemeine Zeitung has a front page story on Evangelos Venizelos’ threat to publish the names of „a significant number“ of Greek deputies who have transferred €100.000 or more outside of Greece the UK or Switzerland last year. Venizelos pointed out that while many of these transfers may have been legal, there was a question whether they were appropriate. Many transfers had happened exactly at the time when Greek politicians asked their citizens not to take their money out of their banks in order not to endanger their stability. The conservative Nea Democratia party asked one of its members in parliament to disclose himself voluntarily because he had transferred €1m out of Greece.
German tax collectors to descend on Greece
This is an interesting story from the FT this morning. 160 German tax collectors will descend on Greece to help the country set up an efficient system of tax collections. While the Greek government welcomed the technical assistence, the FT writes that the arrival of the German officials in Athens could reawaken anti-German sentiment, and quotes a front-page headline in a Greek tabloid talking about “an assault force of German tax collectors”.
Wolfgang Munchau says Greece needs to prepare for a total external default
In his FT column, Wolfgang Munchau says the best strategy for the next Greek government would be to follow the programme until the country achieves a primary balance, probably next year, and then default on all its foreign debt. In order to be able to default, Greece will also need to implement the reforms, to ensure that a devaluation is not immediately counteracted by wage increases. So in order to escape the clutches of a futile programme, Greece has no choice but to follow that programme, at least for a while. At the end, the choice is between default outside the eurozone, or inside. The first is more probable, the second more desirable, Munchau concludes.
Weidmann announces significantly lower Bundesbank profits
Talking to Der Spiegel Jens Weidmann announced that the Bundesbank’s profits „will be significantly lower than last year“. The reason for this are risks stemming from the ECB’s engagement in the debt crisis. „In coordination with our auditors we will increase our provisions“, Weidmann explained. 2010 the Bundesbank had a profit of €2.2bn and it put aside provisions of €1.6bn. The German central bank president cautioned the other eurosystem’s central banks should not expect to able hand over huge benefits to their governments in the next years. „On the contrary: The risks in the central banks balance sheets have increased. That doesn’t only concern Greek bonds but all the nonstandard monetary policy measures taken throughout the crisis.“
Belgium agrees with France on new guarantees for Dexia bank
L’Echo and De Tijd reported on Friday that Belgium and France agreed to provide extra guarantees of €17bn for the troubled Dexia bank, which is facing bankruptcy after a reported net loss of €11.6bn for 2011, hit by its break-up and exposure to Greek debt and other toxic assets. L‘Echo has more details on the deal, concluding that this takes away risks from Dexia only to increase risk for the state. The guarantees are subject to approval from the European Commission.
Rehn clashed with Finnish Nationalist Soini
EU Commission Vice-President Olli Rehn and True Finns’ Party chairman Timo Soini last week clashed over remarks made by Soini in a YLE TV broadcast . Soini compared Rehn to Nikolai Bobrikov – a Russian Governor-General of Finland who was given dictatorial powers by the Tsar, and who was assassinated by a Finnish nationalist in 1904. According to Soini, the EU Commission, the IMF and the ECB are dictating to Greece what to do, regardless of the results of elections in that country. Rehn took offense at the remark and issued a statement calling it a “dangerous hate speech” and demanded an apology, which Soini refused to give. Prime Minister Jyrki Katainen said over the weekend that such name-calling was irresponsible but he did not agree with Rehn’s allegation that Soini’s comments constituted hate speech. Katainen called for the political debate to focus on the issues at hand.
10-Y Spreads, Forex, ZC Swaps and Euribor-Ois
Euro strengthens furthre, but no further letup on spreads