Eurointelligence Daily Briefing, 29 de Fevereiro de 2012. Enviado por Domenico Mario Nuti.


Another Irish referendum beckons


  • The Irish cabinet decided to hold a referendum on the ESM Treaty after receiving legal advice from the attorney general;
  • the argument is that the treaty is outside the legal architecture of the EU;
  • referendum is expected to take place in May or June;
  • a No vote might mean that Ireland might not be eligible to receive funds under the ESM;
  • polls show that a narrow majority favour to support the treaty;
  • Ireland’s main opposition party Fianna Fail says it will support the government in the Yes campaign;
  • the German constitutional court strikes down a secret parliamentary committee to monitor the ESM;
  • committee can only be used for secondary market bond purchases;
  • the Bundestag must now set up a structures that is more transparent and representative;
  •  the Dutch parliament approved the second Greek loan programme;
  • the Greek parliament approved cuts in defence, investment and pensions;
  • the Greek cabinet also agrees to a 22% cut in the standard minimum wage to €751 per month;
  • Jean-Claude Juncker says he wants a EU Commissioner with the special task of co-ordinating the Greek reconstruction efforts;
  • the troika has completed a positive report on Portugal, paving the way for the next loan tranche;
  • Vitor Gaspar says that he can reach the 4.5% deficit target for this year without further measures;
  • ECB says Greek bonds are no longer acceptable as collateral for now;
  • EFSF collateral scheme is not yet in place, as a result of which the gap is covered through recourse to the central banks’ emergency liquidity assistance;
  • Fitch gives an extreme sceptical assessment of the impact of the ECB’s liquidity operations;
  • the Dutch finance minister says an agreement to extend the ESM and the EFSF is likely by March or April;
  • French opinion polls show Nicolas Sarkozy closing the polling in the first round, but Francois Hollande has a 10 point lead in the second round;
  • Wolfgang Munchau, meanwhile, says that Spain would fall into a black hole if it tried to follow the EU’s deficit target of 4.4% for this year.

Ireland will hold a referendum on the European Stability Treaty, creating more uncertainty for the eurozone over months. The Irish Times reports that the cabinet decision had been taken following the advice of Attorney General Máire Whelan that, “as the treaty was outside the EU architecture, on balance a referendum should be held”. No date has been set for the referendum but it is expected to take place in May or June. Kenny said that he intended to sign the treaty at a meeting with the other EU heads of Government in Brussels on Friday.



A no vote would mean Ireland would not be eligible for funds from the ESM, writes the FT. The pact can enter into force with the support of 12 of the 17 countries that use the euro, effectively removing any single nation’s veto over the accord.



Ireland aims to resume issuing debt on bond markets later this year as a first step toward ending the bailout on schedule. However, with about €20bn of borrowing costs to cover in 2014, most analysts believe it will need more official funding to meet some of its commitments, Reuters reports.



A recent opinion poll found 40% of the 1,000 Irish people questioned said they would support the treaty, with 36% against and 24% undecided.



Ireland’s main opposition party Fianna Fail has said it will join the governing Fine Gael and Labor parties in campaigning for a ‘Yes’ vote. Sinn Fein leader Gerry Adams, whose party forms the second largest opposition bloc in the lower house and has seen its popularity surge over its anti-austerity stance, said his deputies would campaign against the treaty.


German constitutional court rejects secret committee



The German constitutional court has given a ruling that is going to make the day-to-day operation of the European Stability Mechanism more difficult. In its original ruling on the EFSF, the court demanded that the parliament must be consulted for each discussion with a budgetary implication. In response, the parliamentary majority took a decision to set up a secret nine-person committee, drawn from the 41-MP strong budget committee, to would monitor and approve the government’s ESM-related activities. The court yesterday upheld most of the complaints against the setup of a secret committee. The case was brought  by two SPD MPs.



Frankfurter Allgemeine quoted the parliament’s president as saying that the parliament will find a solution consistent with the court’s ruling shortly. The court said the committee could only be invoked for the purchase of government bonds through the ESM. The court says this was an exceptional circumstance, given the confidentially requirements. But the court said it any reduction in the ordinary rights of MPs would have to be well founded, and would have to be proportionate. It said the establishment of a permanent mini-committee for ESM affairs failed that test. The argument that it would be less bureaucratic and faster to convoke nine MPs is insufficient. If there is time pressure, the budget committee itself is suitable enough for that purpose. (That means even the argument of an emergency is not sufficient.) The court also accepted a number of procedural complaints, for example relating to the questions what if only a minority of the nine MPs turn up, as there is no system of deputies in place.  Furthermore, the committee does not reflect the majority in the Bundestag.


Dutch Parliament approved new Greek bailout



The Dutch parliament gave grudging backing to Greece’s second rescue package on Tuesday saying it was needed to stabilize the currency bloc. During a debate in The Hague, a parliamentary majority voiced its support for the package, making a formal vote–which could have taken place Wednesday—unnecessary, according to Dow Jones. As expected, the Dutch minority government secured a majority through the backing of the opposition Labor Party. The government relied on the Labor Party because its key ally in parliament, the populist Freedom Party, is staunchly opposed to bailing out fellow euro-zone member states.


Greek parliament approved cuts in defense, investment and pensions



Greece’s parliament Tuesday approved a law implementing steep budget and pension cuts on the first day of a two-day legislative sprint ahead of the European Council meeting, the Greek portalCapital reports. The legislation aims for budget savings worth some €3.2bn, including a €400m reduction in defence spending along with a €400m cutback in the public investment program. Other cuts reduce the operating expenses of ministries by 15% and implement a 12% reduction in pensions over €1300 per month. The bill was approved by 202 lawmakers with 80 deputies opposing them.


Greek cabinet agreed cuts on minimum wage



Earlier on Tuesday the Greek cabinet also approved measures to lower labour costs, approving a steep reduction to the minimum wage, Reuters reports. This includes a 22% cut on the standard minimum monthly wage of €751. For those under the age of 25, the cut will be 32%. In addition, there will be wage freezes on certain categories until the unemployment rate, currently 21%, falls below 10%. The reduction was one of several measures included in a new debt deal for Greece that was voted through Parliament earlier this month.


Juncker want a reconstruction commissioner for Greece



In an interview with Die Welt, Jean-Claude Juncker revived the German idea of a Kommissar for Greece, but with some important modifications. He said the eurozone would have to strengthen the Greek infrastructure through a much better use of structural funds. The same applied to improvements in competitiveness. This job requires political coordination, and should be entrusted to a European Commissioner, with a specific responsibility for the reconstruction of the Greek economy. Juncker make clear he does not want a commissioner to enforce savings, but to aid in reconstruction. It was insufficient that finance ministers deal with this matter on a monthly basis.


Troika has positive report on Portugal



The FT reports from Lisbon that the troika has produced a positive report on Portugal’s reform efforts, saying it was on track to meet the conditions of the programme, while demanding further steps. The troika’s third quarterly review paves the way for the disbursement of the third tranche, of €14.9bn, of the country’s loan programme, due in April. That would bring the total of funds received to €48.8bn, 62% of total programme. The articles quotes finance minister Vítor Gaspar as saying that the country would not ask for any increase in bail-out funds, more time to meet fiscal targets or repay loans, or any other revision in the terms of the agreement. (though the cameras showed him and Wolfgang Schauble taking about a new programme at a recent Ecofin). Gaspar said the 2011 budget deficit would be close to 4% of GDP, below the official 5.9% target, but this was achieved through a partial transfer of bank pension funds to the state, which accounted for about 3.5pp of last year’s adjustment. Gaspar the structural adjustment last year was nevertheless still above the eurozone average, at about 4pp. This year’s target is 4.5%, which Gaspar said would be met without additional consolidation measures.


The very slow path towards adjusting the Spanish deficit



El Pais writes about the incredibly slow process of getting Spain’s insane 4.4% deficit target for this year adjusted. There are fierce negotiations under way, at the Ecofin level, and with the Commission. Mariano Rajoy will raise the issue over dinner with his EU colleagues on Thursday, in the hope that the negoatiations are settled by then. The government is current preparing a budget for this week, which still sticks to 4.4% deficit target, though El Pais writes, the decision will rest with Rajoy, and is as usual likely to be made at the last minute. If there is no deal with the EU by this week, the government could publish a budget, focusing solely on the macroeconomic forecast, with all the budgetary details postponed until next week. The article says the calendar of the Spanish administration does not match that of the Commission. Olli Rehn says it might takes weeks.


ECB says Greek bond no longer acceptable as collateral



The news is unsurprising given the equally unsurprising downgrade of Greek bonds to selective default. The ECB will no longer accept Greek bonds as collateral until the debt exchange offer is complete. But there is a twist. It was previously thought that the gap would be plugged through EFSF-collateral, but this is apparently not the case. The ECB said any ensuing liquidity needs would have to be met through emergency liquidity assistance by national central banks. The FT writes that this highlights “eurozone authorities’ slowness to put in place measures agreed to support the Greek debt exchange”, as the promised support through the EFSF is not yet in place.


Fitch gives an extremely sceptical assessment of the long-term effects of the ECB’s liquidity support operations



FT Deutschland has an article on Fitch’s analysis of the impact of the European Central Bank’s liquidity operations, which came to a rather downbeat assessment. The ECB can at most delay the collapse of weak banks, but it cannot change the situation fundamentally. The rating agency said that the life support operations for weak banks would only postpone their death. The agency said it did not expect a big push of credit flows into the economy, and it saw only limited effects on the prices of government bonds.


ESM agreement likely by March or April, say the Dutch



Reuters quotes the Dutch finance minister Jan Kees de Jager as saying that an agreement to extend the ESM would be in place by March or April. He said that Germany was the only country with reservations on this matter, but his understanding was that the Germans would be ready to make a decision by then.


Sarkozy makes modest gains in French opinion polls



We still consider this to be an open race, despite the consistent polling lead of Francois Hollande.France Soir reports on the latest Ifop poll for Paris-Match, published Tuesday night, showing that the wide polling gap is closing. François Hollande leads with 28% for the first round, followed by Nicolas Sarkozy at 27%, Marine Le Pen at 18%, François Bayrou  at 12% and Jean-Luc Mélenchon at 9%. For a second round run-off Hollande still leads with a 10 point gap at 55% against Sarkozy 45% (though down from an 11 point in the previous poll.) Interestingly, the respondents are saying that Sarkozy is running the better campaign so far.


Wolfgang Munchau on Spain



In his FT Deutschland column, Wolfgang Munchau takes a closer look at Spain and concludes that the pursuit of the 4.4% deficit would be pure madness, pull the country into a depression, and would result in an inescapable debt trap for the private sector. Munchau says the problem for Spain is the relative lack of deleveraging in the private sector so far, a process that is only now beginning in earnest, and which will take several years to complete. During that time, the Spanish government can ill-afford to consolidate as well. The degree of consolidation required under the EU adjustment programmes is so extreme that it is bound to destabilise the Spanish economy. Munchau concludes that Spain, not Greece, was the biggest threat to the eurozone’s cohesion.


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



Euro-dollar stable though the e/r wobbled yesterday as the news of the Irish referendum gave out.









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Source: Reuters




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