Eurointelligence Daily Briefing, 4 de Abril de 2012. Enviado por Domenico Mario Nuti.

Francois Hollande tones down his treaty revision

  • The Socialists’ presidential candidate no longer talks about treaty revision, but instead focuses on add-ons;
  • Hollande also no longer insists on eurobonds, but instead wants to push project bonds;
  • Spain and Portugal both have a big bond auctions today, as the interest rates in secondary markets are rising again;
  • swap offer for Greek international bond holders ends today – with the likely outcome of a default;
  • Greek debt to external suppliers continues to rise;
  • Greek MPs defy Lucas Papademos’ call for restraint over seeking legislative amendments to austerity plan;
  • 425 economists have submitted proposals for the Wolfson prize over how to dismember the eurozone;
  • the Czechs promise to abide by the rules of the fiscal pact – without signing it;
  • the Pirate Party has jumped to 12% in national polls in Germany;
  • the Irish fiscal watchdog says the country’s debt sustainability would be endangered even by the slightest shortfall in economic growth;
  • Wolfgang Proissl, meanwhile, warns against talk of a premature exit by the ECB.

As the news flow fizzles out, this will be our last briefing before the Easter break. The next briefing will be Tuesday, April 10.


Reuters has the story that Francois Hollande has toned down proposals for a revision of the fiscal treaty, and now accepts the principle of balanced budgets, but instead wants to supplement the treaty by adding new instruments to stimulate growth. Clarifying his position on eurobonds, Hollande is quoted as saying that he wants to add “the capacity for Europe as a whole to issue bonds, not to mutualise sovereign debt but to finance new development projects”.  The article said it would now be possible to seek a compromise with Germany, and would be consistent with European Commission proposals for “project bonds”, due to be reviewed at the June European Council. The article said that officials in Berlin were increasingly relaxed about Hollande’s plan.


(This development tells us that the Hollande camp clearly expects to win the elections, since this will be the first important issue they have to deal with.)


Another big Spanish auction today, but interest rates are rising



There are bond auctions in Spain and Portugal this week, with Reuters predicting that interest rates are likely to rise as the Spanish austerity budget fail to calm investors’ nerves. The Spanish Treasury will sell up to €3.5bn, while Portugal will offer 18-month T-bills for the first time since the start of the EFSF programme. The article says the Spanish Treasury accelerated issuance plans in Q1, taking advantage of the LTRO. Demand for today’s auction should remain strong, but borrowing costs had already risen on the secondary markets, as investors remain concerned about the country’s future. As for Portugal, investors are doubtful whether the country can return to the bond market next year, as scheduled on under its programme.


Swap offer for Greek foreign law bonds ends today



Greece is unlikely to pay off investors of foreign law bonds due on May 15, an event likely to trigger CDS, according to Dow Jones. Greece is expected to refuse to pay bondholders who did not tender their bonds as part of the €206bn debt restructuring plan, with the backing of the euro-zone partners. The deal has already achieved a 97% participation rate.  But holders of slightly over €6bn of Greek bonds under foreign law have not yet subscribed to the deal. The swap offer is ending today at 1900 GMT.  The main industry body for CDS–the International Swaps and Derivatives Association—said on Tuesday that Greece’s CDS could be triggered for a second time, this time for failure to pay.


New Greek bonds are trading at depressed levels and some investors may not be keen on buying new Greek bonds, ensuring market access for Greece stays shut for longer. Standard and Poor’s Corp. said last week that Greece will likely have to restructure its new bonds as well.


Outstanding debt towards suppliers continues to rise



The outstanding debt that the state has to third parties (suppliers, construction companies etc) climbed to €6.3bn at the end of February, from €5.7bn at end-December, the Greek Finance Ministry announced on Tuesday according to Kathimerini.


Political rent-seeking continued despite PM’s call for restraint



Greek lawmakers have submitted more than 90 proposed amendments by Tuesday night, despite the newly imposed clearing requirement from the PM’s office.   Dozens of deputies, chiefly from socialist PASOK and conservative New Democracy, have submitted a raft of proposed amendments, ranging from exemptions from public sector wage cuts to the granting of fishing licenses to all small boats. Government sources told Kathimerini that all proposed changes were likely to be rejected. The same sources said that after having strong words with his ministers, Papademos was determined to put a stop to attempts by MPs trying to secure preferential treatment for supporters. The draft bills from the ministries of Interior, Development, Transport and Labour need to be voted through Parliament by next Wednesday if snap polls are to be held on May 6, as expected.


425 economists submit plans for orderly exit from the eurozone



In an attempt to win the £250000 of the „Wolfson Economics Prize“, 425 economists from all over the world submitted long and detailed plans for the orderly exit of a eurozone member, Financial Times Deutschland and Frankfurter Allgemeine Zeitung say. A jury composed of five economists – Charles Goodhart, Francesco Giavazzi and Manfred Neumann, Derek Scott, and Jean-Jacques Rosa –  has selected five finalists of which the winner will be announced on July 5. The prize’s sponsor Lord Wolfson, a member of the Conservative party and head of UK clothing retailer Next, said he wanted to make sure that the likely exit of a euro member would happen in an orderly and structured way without causing any panic on the financial markets. The youngest participant is a 10 year old boy from the Netherlands.


Czech Republic promises to respect rules of the fiscal pact



Receiving Angela Merkel in Prague, the Czech prime minister Petr Necas promised his country would respect the rules of the fiscal pact get its deficit below 3.0% despite the fact that it had not signed the treaty, Süddeutsche Zeitung reports. Merkel stressed in Prague that she had not put any pressure on Necas to respect the pact.


„Pirates“ would get 12% in German national elections



According to the most recent polls, the „Pirates“ would get up to 12% if there was a national election in Germany now, Spiegel Online writes. With such a result they would dispose of 70 deputies in Bundestag and thereby probably undermine any chances of the non-communist left (SPD and Greens) to form a coalition. But the success is also making members of the party ill at ease. The „Pirates“ have so far succeeded to enter the parliaments in state elections in Berlin and Saarland. However there is little programmatic content besides internet freedom, no party organization or leadership to speak of and members of the party fear they will be unable to fulfill the huge expectations some people have in them. Analysts say the astonishing results of the „Pirates“ reflects a general mistrust of the German public with the countries established parties.


Ireland remains highly vulnerable to economic girations


The report by Ireland’s fiscal council is out now. One of its more interesting findings rests on a simulation that shows thethe sensitivity of budgetary forecasts to changes in the macroeconomic

outlook. The reports says that in the event that a shortfall of nominal GDP growth by just 1% over 2012-2015, “the debt to GDP ratio would not stabilise by 2015 without additional discretionary measures. In any event, debt levels will remain high over the medium-term and vulnerable to negative growth shocks.”


Wolfgang Proissl asks central bankers not undermine the LTRO’s effectiveness now with loose talk about exit strategies



In a comment for Financial Times Deutschland Wolfgang Proissl warns central bankers not to undermine the effectiveness of the 3y LTROs with premature loose talk about an ECB’s exit. Proissl argues that the ECB is right to start preparing for an exit internally since the operation will be highly complicated and risky contrary to what Mario Draghi claims publicly. But right now is the wrong moment to undermine market confidence because of the still highly fragile situation in the eurozone’s crisis countries, particularly in Italy and Spain.


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



Italian and Spanish spreads are rising, but note that the 1yr Euribor-Ois is now below 100 – a sign that the stress in the banking sector is dimishing.











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Source: Reuters




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