Eurointelligence Daily Briefing, 12 de Abril de 2012. Enviado por Domenico Mario Nuti.

Rajoy tells Monti to stop blaming Spain

  • Tensions are mounting in the eurozone, as a frustrated Mariano Rajoy hits back at Mario Monti’s increasingly frequent protestations that Spain is the real troublespot in the eurozone;
  • he said he expect more support from the EU;
  • Benoit Coeure says ECB is ready to intervene, a statement that temporarily helped to calm markets yesterday, as the euro rose, and Spanish yields softened;
  • the European Commission said yesterday that Spain will not need an ESM programme;
  • Wolfgang Munchau says crisis returned because investors have lost confidence in crisis resolution policies in Spain, and because the fallacies of the LTRO are becoming apparent;
  • Martin Wolf says the Bundesbank is wrong in claiming that the adjustment in the eurozone must come from deficit countries alone;
  • he warns against a beggar-thy-neighbour policy the contours of which are already emerging;
  • Spain seeks to calm investor nerves with quarterly reports on the fiscal position of the autonomous regions;
  • Fitch says the troubles of the Spanish banking sector are likely to persist;
  • Pierre Briancon writes that the eurozone obsession with austerity is the main driver of the crisis right now;
  • a former German justice ministers says she will launch a constitutional complaint against the ESM and the fiscal pact;
  • Assmussen backs IMF call to look at debt relief for homeowners;
  • New Democracy is losing political support to far-right parties;
  • Le Monde, meanwhile, has interesting comparison between the campaigns of Giscard d’Estaing in 1981 and Nicolas Sarkozy today.

A frustrated Mariano Rajoy, Spanish prime minister, has urged European leaders to stop pointing the finger of blame at crisis-stricken Spain and to work together to strengthen the eurozone, the FT reports. “We in Spain are working to solve ours and help the eurozone, and we expect others to do the same and be cautious in what they say.”  Mario Monti has blamed Spain for the latest falls in eurozone sovereign bond prices, while the conservative Mr Sarkozy has used Spain, run by Socialists until December, as an example of leftwing mismanagement in his presidential re-election campaign.


Benoit Coeuré intervenes – verbally



The ECB intervened again, verbally, with Benoit Coeuré raising the prospect of a reuptake of ECB bond purchases, in response to the recent rise in Spanish and Italian bond yields. This had some marginal effects on the forex market, with the euro recovering against the dollar and the yen. Coeuré said the pressure on Spain was not justified, and then continued to say that the ECB would keep its options open. Spanish yields soften a little, but remained close to 6%.



The European Commission, too, tried to calm nervousness with the statement that Spain did not need an ESM Programme. (Was it not Joaquin Almunia who told a group of Spanish journalists recently that such a programme would be desirable? He is right, of course, but the Commission’s official position is to remain in denial.)


Wolfgang Munchau on why the crisis has returned



In his Spiegel Online column, Wolfgang Munchau writes that the LTRO has bought only about three months time. The honeymoon has come to end because investors have made two realisations. The first is that the problems of Spain are essentially insoluble given the present set of policies. The choices are now either an exit from the eurozone, or an ESM programme that will ultimately culminate in a debt write-off for the banking sector. In that case, the current ESM is hopelessly underfunded. In other words, the parameters of crisis resolution are still not in place. The second realization is that the LTRO has not fundamentally changed the nature of the crisis – the weak banks and a toxic interaction between the financial and the public sector. The LTRO may have even worsened the crisis by postponing necessary government action to recapitalize the banking sector.


Martin Wolf on why the Bundesbank is wrong



In his FT column, Martin Wolf writes that the Bundesbank’s position, according which all the adjustment should be done by the deficit countries, is wrong because it confuses productivity and competitiveness. He also warns against a beggar-thy-neighbour solution.



“…today’s austerity-blighted eurozone would end up with a prolonged period of weak demand. It might, as a result, generate a large shift in its net exports. For the rest of the world, that would be a beggar-my-neighbour policy, impossible to tolerate in hard times. For the eurozone to pursue such a policy, while asking outsiders to increase their finance of its members in difficulty, via additional resources for the International Monetary Fund, would add insult to injury. The outsiders should just say no. They should insist, instead, that additional support must be predicated on two-sided adjustment inside the zone.”


Spain tries to calm investors with quarterly reports on the fiscal position of autonomous regions


The Spanish government yesterday pledged to provide quarterly regional breakdowns of the fiscal position, hoping that this would help persuade investors that Spain is meeting its 2012 fiscal target of 5.3%, Reuters reports.

(They are getting more desperate in their attempt to persuade investors, but the story shows that the narratives behind the crisis remains irreconcilable. Do they really believe that investors are nervous that Spain might miss the target? To us it seems that investors are afraid that Spain may hit the target – afraid of the economic consequences of such action.)


Fitch says funding pressure on Spanish banks likely to persist



Fitch said in a statement yesterday that the underlying problem for Spain was “the link between sovereign and bank funding costs”. Fitch said the problem is likely to persist, and funding costs are unlikely to return to their pre-crisis levels. This, in turn, “will keep pressure on banks’ net interest margins and  limit their ability to expand their loan books at a time when the domestic  economy is struggling and the banks are also having to juggle new real estate  impairment rules and tougher capital requirements.”



The rating agency says that the numerous reforms announced by the Spanish government had little effect on investor sentiment.


Breakingviews criticises austerity madness



Pierre Briançon of Reuters Breakingviews says the renewed tensions were a helpful reminder that trust is something indebted governments must earn every day. But it would be better if the eurozone abandoned the “never enough” approach to austerity. He writes: “…fiscal discipline coupled with serious reforms would become self-defeating when austerity ayatollahs rule the day, under the auspices of Germany and the European Central Bank”. He also makes the point that eurozone governments may erroneously believe that they understand the markets’ signals. He makes the point that Italy’s four austerity plans in 18 months had provided €230bn of deficit reduction over four years, of which two-thirds came from tax increases. “The euro zone will not grow if its only economic policy is to cut health care spending, fire teachers, curtail public investment and depress real wages while taxing everything in sight – just because that’s the best way to meet Brussels’ targets.”


Former German justice minister launches Constitutional Court case against ESM and fiscal pact



This is a potentially serious challenge. Herta Daubler-Gmehlin, a former German justice minister under Gerhard Schroder, announce a constitutional court challenge against the ESM and the fiscal pact, Spiegel Online reports. The argument against the fiscal pact is that it is permanent and that it reduces the sovereignty of national parliaments – arguments the court is likely to take very seriously. She says the ESM violated the parliamentary sovereign of the German parliament. She says is in favour of further European integration, but she is against a Europe that is dominated by governing elites. MPs from the left and the right have also announced that they will raise a complaint against ESM and fiscal pact at the court.


Assmussen backs IMF call to look at debt relief for homeowners



ECB board member Joerg Assmussen backed calls from the IMF to consider targeted debt relief for homeowners in financial trouble, the Irish Independent reports, saying that recent IMF research, which claimed such relief would boost the economy should be looked at “carefully”. The IMF report, published earlier this week, outlined evidence concluding: “Bold household debt restructuring programmes can significantly reduce the number of mortgage defaults and foreclosures and substantially reduce debt repayment burdens.”  However, it said a strong banking sector and government support was “crucial” to the success of such scheme.


Greek conservatives loose support to nationalist party



Latest polls suggest a continued drop in support for conservative New Democracy as some of the party’s supporters drift toward the new formed ‘Independent Greeks’. The Public Issue survey for Kathimerini suggests ND’s backing has dropped 3.5% to 19% over the last two weeks. The steady drop in the ND’s popularity has been matched by a rise in support for Independent Greeks, a right-wing nationalist party launched by ND outcast Panos Kammenos in March, rising to 11% from 8.5% two weeks ago and 6.5% in early March. Socialist PASOK  had a 1% drop over the last two weeks to 14.5%. The combined support for PASOK and New Democracy only reaches 33.5%, which is short of what the two parties would need to form a coalition government. The poll date is set to May 6.


The comparison between Giscard and Sarkozy



Le Monde has an interesting article about the comparison of the campaigns by Giscard d’Estaing in 1981 and Nicolas Sarkozy today. Then, as now, the sitting president was demanding two televised debates – one on socio-economic issues, and one security and foreign policy. Francois Mitterrand and Francois Hollande both rejected the proposals. The article also quotes Hollande as saying that Sarkozy has only one argument left in his defence, which was also used by Giscard, that the incumbent president was more experienced.


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



Slight reprieve, but pressure persists.










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Source: Reuters






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