Eurointelligence Daily Briefing, 17 de Abril de 2012

From acute to chronic back to acute

  • Investors concern sent Spanish risk premiums above 6% on Monday, German bund yields reached record low of 1.63%;
  • this morning Spanish spreads reached 4.6%, Italian spreads at 4.1%;
  • ECB bond purchases could turn out to be counterproductive if perceived as sign of increased probability of default;
  • Market rally started after Spanish government announcing further spending cuts;
  • Italian government cut growth forecast down to 0.4% contraction for 2012, still better than Commission forecast;
  • Eurozone exports were up 11% in February, with a surplus of €2.8bn;
  • Angela Merkel’s spokesman rebuffed Nicolas Sarkozy’s call for a debate about the ECB;
  • Socialist candidate Francois Hollande said that ECB should have intervened “massively” by lending directly to eurozone countries;
  • Jean-Francois Copé says that all Europeans interested in a reform oriented France cannot but support the outgoing president;
  • If Hollande wins Martine Aubry would be the front runner for becoming prime minister;
  • Amid hostile reactions from MPs and the press, Angela Merkel stops attempts to prevent dissenters to speak in Bundestag;
  • Robert Zoellick says EU preoccupied with firewall debate, but EU should better focus on how to support reform efforts in Spain and Italy;
  • Poverty levels in Greece, meanwhile, have increased sharply, with volunteer organisations becoming critical to prevent  malnutrition.

Spanish government bond reached the highest levels of the year, breaking through 6%. The crisis is not only back, it is back in its acute version. Reuters went so far as to report that investors expect yields to rise towards 7%, unless the ECB stopped the trend through large-scale bond purchases. The bond markets yesterday experienced massive risk aversion, with German yields falling to an all-time record low of 1.628%, though opening slightly higher this morning.


Spain also announced yesterday that it will be raising between €3.5-5.5bn in 12 and 18 month treasury bills, and two-year and ten-year bonds.


Expectations that Spain requires a bailout are now rampant in the markets, but continue to be officially denied. The latest jitters followed data showing record borrowing by Spanish banks from the ECB.


This morning, Spanish spreads reached 4.6%, while Italian spreads were at 4.1%. Reuters quoted an analyst as saying that ECB bond purchases could prove counterproductive: “The problem … is that the bigger the position the ECB builds in a sovereign’s debt, the greater the private sector holders are likely to perceive their probability of default.”


A further problem was yesterday’s report that the G20 may not raise significant amounts of new funds for the IMF.


Spain responds to crisis with more austerity



When in a hole, one should stop digging. Spain, did just the opposite when its government responded to market jitters with the announcement that it will seek more spending curbs. The latest story in this respect is that the Spanish government wants to bring forward to next month the imposition of budget cuts on the autonomous regions.


Italian government to revise 2012 forecast



Italian 10-year yields also rose, with spreads at 4.1% this morning. Not as bad as Spain, but going in the same direction. Reuters reports from Rome that the Italian cabinet had been due to meet yesterday to agree on a downward revision on the 2012 growth forecast. Gianfranco Polillo, under-secretary in the economy ministry, said the government would lower the previous forecast of an 0.4% contraction, but the forecast would be better than the European Commission’s forecast of a 1.3% contraction.


Eurozone exports grow



Eurozone exports were up 11% in February, to reach a surplus of €2.8bn, driven by French and German exports of cars and machinery. Imports rose 7%, mainly due to demand for oil and gas during the cold days of February. On a seasonally-adjusted basis, the trade surplus was €3.7bn.


Germany rebuffs Sarkozy’s demand for a debate on the ECB, while Hollande joins in



Nicolas Sarkozy’s demand to have a debate on the ECB’s role in promoting growth in the eurozone was rebuffed yesterday in Berlin, Les Echos reports. „It is the core belief of the federal government that the role and office of the ECB be independent of encouragement and assistance from politics. And that’s well known in Paris”, Angela Merkel’s spokesman Steffen Seibert said. According to Le Monde Sarkozy’s demand represents a victory for Henri Guiano, the president’s eurosceptic speechwriter who in the past had been overruled by Sarkozy in order to be seen as close to Germany.


Papers point out that by starting to draw the ECB into the election campaign Sarkozy breaks the agreement he struck with Merkel and Mario Monti according to which the three leaders would refrain from any public advice to the ECB. Sarkozy`s advisors insisted that this was not about asking for changing the treaty but rather for a debate on monetary and exchange rate policy and how the two could be at the service of growth. According to Le Monde Francois Hollande ridiculed Sarkozy’s demands by saying that he had been in charge for five years and that it was a bit late now to put forward these proposals. Hollande joined the debate by saying on Monday the ECB should have intervened “massively” by lending directly to eurozone countries to save Greece and counter the sovereign debt crisis, according to the FT.


UMP chairman Copé says all pro reform Europeans must support Sarkozy



Jean-Francois Copé, chairman of Nicolas Sarkozy’s conservative UMP, says that all Europeans interested in a reform oriented France cannot but support the outgoing president. „Europe must hope for a victory of Nicolas Sarkozy“, Copé told Financial Times Deutschland. The president was „a guarantor“ of economic reforms that would be endangered by a victory of Francois Hollande. „France will de facto change because we will reduce public expendit ure. Public money has to be concentrated on those who really need it“, the UMP chairman who is tipped as a presidential candidate for 2017 said. Copé also warned that in case of a victory Sarkozy would become a more difficult EU partner than in the past. Copé gave no details but he did not rule out that in very controversial and crucial issues for France Sarkozy would return to Charles de Gaulles obstructionist policy of an empty chair in the sixties. „Everything is possible, but that is not our goal. Our goal is to succeed by having dialogue.“


Martine Aubry mentioned as Hollande’s prime minister



Since a victory of Francois Hollande currently appears to be the most likely scenario the French press is full of speculation about who would get what post in a Socialist government. According to Le Monde and Les Echos Martine Aubry would be the front runner for becoming prime minister if Hollande wins with a clear margin in the second round on May 6 and if the extreme left candidate Jean-Luc Mélenchon has done well in the first round next Sunday. The reason fort hat choice would be her strong leftish credentials since she is seen as the architect of the 35 hours week when she was labour minister in the government of Lionel Jospin from 1997 to 2002. Should Hollande win by a narrow margin only more consensual candidates like Jean-Marc Ayrault, the Socialist’s chief whip in parliament who is also perfectly fluent in German might make it. Others mentioned in this category are Michel Sapin, a veteran socialist and former finance minister under Francois Mitterrand.


Moody’s replies to Francois Hollande



Moody’s yesterday took the highly unusual decision to get involved in the French election campaign by contradicting Francois Hollande, Le Figaro reports. The Socialist candidate had said on Sunday that he expected Moody’s follow up his election victory on May 6 by lowering its Triple-A-rating that the rating agency had put under negative watch in February. Hollande insisted that by doing so Moody’s would not sanction him or his programme but the bad management under his predecessor Sarkozy. In a statement yesterday afternoon Moody’s said its February decision to put France’s rating on a negative watch did not at all imply that any decision was imminent. Le Figaro explains that rather Moody’s will decide whether to keep or change the country’s rating within 18 months starting in February.


Merkel stops attempts to prevent dissenters to speak in Bundestag



Reacting to the hostile reactions of many parliamentarians and the press Angela Merkel told her party’s chief whips Volker Kauder and Peter Altmaier to scrap the planned rules according to which only parliamentarians nominated by the party would have been able to speak in Bundestag, Bildreports. The plan was a reaction to the fact that in several discussions on euro rescue decisions dissidents from Merkel’s coalition had taken the floor to express their dissent which embarassed and angered the leadership of the three coalition partners. Commenting in Bild Ralf Schuler lauded the decision that would prevent the creation of „block parties“ in Bundestag, a term used for parties in the „Volkskammer“, the parliament of the German Democratic Republic.


Zoellick: EU preoccupied with firewall debate, focus better on support for reform efforts




In the FT Robert Zoellick writes that Europe’s fixation on the firewall debate is distracting from the fundamental issue on what the EU should do to help Italy and Spain retain political support for their reforms.  

Zoelick suggests: “Instead of quarrelling over firewalls, Europeans should add just a fraction – say €10bn – to the capital of the European Investment Bank. Under current conditions, the EIB may actually have to reduce lending. Instead, the EIB could use more capital to borrow and then invest to support structural reforms, showing Spaniards and Italians that their sacrifices will draw productive investments.”


Poverty soaring in Greece



Poverty levels have increased sharply in Greece since the crisis expanded. In 2010, before the latest series of government cutbacks, almost 28% of Greeks faced poverty and social exclusion, and is estimated to hit 40% if unemployment continues to rise this year. Family support networks, a mainstay for many Greeks, are under increasing strain, with one in five workers unemployed, pensions cut by around 30% and savings steadily eroding.



To prevent malnutrition among the most vulnerable – children, pensioners and the homeless – volunteer organisations have become critical. As the scale of the crisis mounts, Greek anti-poverty groups are expanding their activities, as featured by the FT.



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Source: Reuters




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