Eurointelligence Daily Briefing, 20 de Abril de 2012. Enviado por Domenico Mario Nuti.

IMF says Spanish GDP will reach 2008 levels only by 2017

  • The fund’s latest forecast says it will take Spain until 2017 for GDP to recover to 2008 levels;
  • the loss of Spanish jobs is unlikely to be reversed before 2022 or 2023;
  • the Bank of Spain is discussing a proposal to set a quasi-bad bank that hives off property-related activities in a separate company;
  • Luis de Guindos tells Germans that Spain needs no EFSF programme;
  • the Spanish and French bond auctions went well, but Spanish yields rose after the auction;
  • Nicolas Sarkozy is showing signs of frustration over his failure to close the polling gap with Francois Hollande;
  • president complains that all candidates get the same air time on French TV;
  • Hollande wants to tap the savings of French households to fund the French sovereign debt;
  • Greek banks get funding pledge but recapitalization terms delayed;
  • Evangelos Venizelos wants EU and IMF to give Greece another year to meet fiscal targets;
  • Peter Spiegel says that Portugal has two months to prove it needs no second bailout;
  • the Dutch finance minister wants hedge funds to be more closely monitored;
  • economists expect the Ifo index to decline;
  • German economics institutes disagree on debt redemption fund;
  • meanwhile, we have an illustration by the IMF, showing how contagion in the eurozone might work.

Eurointeligence Comment and Analysis

An ECB debt redemption bond, a programme to address investment and internal imbalances, and the creation of a genuine single banking market is all that it takes to solve the eurozone crisis. And it is doable without Treaty changes.

This is a sobering forecasting from the IMF, according to which it will take until 2017 for Spain to reach the 2008 level of GDP – six years later than France and Germany. The 2.5m jobs lost since the onset of the crisis will not be recovered until 2022 or 2023 at best, El Pais quotes a Spanish economist. (And we assume that more jobs will get loss as the country goes through the next cycle of deleveraging and austerity.) The IMF projections assume that Spain will growth barely in 2013, and maintain a growth of under 2% until 2017. (We think this is hugely optimistic, as the deleveraging process is unlikely to be completed quickly. The article also quotes an IMF official as saying one should treat the long-term forecasts with caution.)


Bank of Spain is considering a quasi bad bank

El Pais has a short article on a presentation given by José María Roldán, director of regulation at the Bank of Spain, who proposed a scheme whereby banks would separate the property-related out of the balance sheet and hand it over to a property company, which would manage the assets. This is a kind of a bad bank, though Roldán disagreed with the term. This company would manage most of direct property assets and a majority of construction development assets that are currently weighing down the balance sheets of Spanish banks. The idea, as with a bad bank, is to provide transparency. The problem, as the paper states, is who pays for the losses if they become large?


(We like the idea because it creates a resolution mechanism, and force the sale of properties, which in turn will lead to a further significant fall in Spanish house price. It is only after this backlog is cleared that we will a proper idea of the scale of the problem.)


De Guindos tells Germans he needs no EFSF money

On a roadshow in Germany, the Spanish economics minister Luis de Guindos denied that Spain needed to tap the EFSF to recapitalize its banks, Handelsblatt reports. „We will not need money from the EFSF in order to refinance our banks“, he told the paper. There are strong doubts in Europe and at the IMF that government’s estimate, according to which only €50bn are neccessary, is accurate. The ECB and several euro member states suggest that the EFSF should be allowed to give its money directly to the banks instead of channelling it through governments first. This is vehemently opposed by Germany.

(Judging by the frequency of official denials, one would have thought that such a programme must now be imminent. We don’t think that is the case, but we believe that a programme is very likely to be necessary.)


Spanish and French bond auctions went well, but at a cost

The Spanish and French bond auctions went well yesterday, according to Reuters. The Spanish treasury sold €2.5bn, taking the issuance to over half the annual target. The bid to cover ratio was 3.3 on the shorter end of the bonds, and 2.4 at the longer end. The yield on the two year bond was 3.46%, and 5.74% for a ten-year bond. Most of the buyers seem to be Spanish banks. The article noted that Spanish yields had risen in the secondary market after the auction. France sold near €8bn of medium-to-long term bonds, with a bid-to-cover ratio of close to 3.


Sarkozy loses his nerves

Ahead of the presidential election’s first round on Sunday Nicolas Sarkozy showed his frustration over the fact that he did not manage to close the distance to Francois Hollande in the polls, Le Monde’s Arnaud Leparmentier reports on his blog L’Elysée Coté Jardin. According to the blog post, Sarkozy attacked the rules for TV and radio according to which each of the ten presidential candidates gets exactly the same air time regardless of his or her chances of making it to the second round, including four candidates whose polls are in the region of 0.5%.


The polls have recently moved back in favour of Hollande, with one poll giving him a lead in the first round. For the second, decisive round, all polls give Hollande a comfortable margin of victory.


Hollande wants to tap the citizens’ savings to finance France’s debt

If elected Francois Hollande wants to tap the savings of the French to finance the country’s debt, according to Les Echos. He said French household savings at 17% of income was very high. „The more we borrow from the French the less we have to borrow on the markets,“ he said. Hollande also explained that it would be cheaper to borrow from the French than from international investors on the markets. By the end 2011 roughly 65% of all French debt was held by international investors, the rest by French. In 2009 Nicolas Sarkozy had the same idea. He later renounced the idea because it turned out the French debt agency warned that it would be a lot more expansive to raise significant amount of debt with small private French savers than with professional international investors.


Greek banks get funding pledge but recapitalization terms delayed

Due to difficulties in reaching an agreement on the recapitalisation terms for Greek banks, the announcement of the details is likely to be postponed today. On Thursday Lucas Papademos met with Central Bank Governor Giorgos Provopoulos, but their meeting proved inconclusive regarding the details of the process. The main issue is how the private character of the lenders can be retained. But commercial lenders will receive a formal assurance from the Hellenic Financial Stability Fund (HFSF) that they are to receive €23bn if they stick to the capital enhancement plans they have submitted to the Bank of Greece, Kathimerini reports. To strengthen their Core Tier I index up to the 10 percent threshold, National Bank will need €6.6bn, Eurobank must get €4.6bn, Alpha needs €2.6bn and Piraeus should draw €4.6bn.


Venizelos wants EU and IMF to give Greece an extra year to meet fiscal targets

On the campaign trail Evangelos Venizelos said that he would push for the EU and IMF to grant the country an extra year to meet its fiscal targets moments after Christine Lagarde stressed the importance of Greece implementing the fiscal adjustment program it had agreed , reportsKathimerini. Venizelos told PASOK supporters: “In June, Greece has to decide which measures it will implement to reduce spending by €11bn by the end of the adjustment period….It falls upon us to decide this and we propose that the country push for something it can achieve easily: adjustment not over two years until 2014 but over three years, until 2015. The adjustment should be softer, more friendly for citizens and more friendly on growth.”


Portugal has two months to prove it needs no second bailout

On the Brussels blog of the FT Peter Spiegel argues that Portugal has de facto two months to convince that it does not need a second bailout. The argument is as follows:


“In September 2013, Portugal must find €9.7bn to pay off a bond that comes due. The current three-year programme calls for that money to raised by Portugal itself in medium- and long-term bond auctions, as this chart from the European Commission’s recently-released report on the Portugal bailout shows. So if Portugal needs to go back to the financial markets in September 2013, that means it must be able to show the IMF such a plan is realistic 12 months in advance – or September 2012. And if a second bailout is to be organised, negotiations over what that package will look like will probably have to begin two or three months before that. Which means Portugal has until about June – just two months from now – to convince the financial markets it is worthy.”


Dutch finance minister wants hedge funds to be closer monitored

The Dutch finance minister Jan Kees de Jager wants hedge funds and stock market speculators under the supervision of De Nederlandsche Bank (DNB) and the Financial Markets Authority (AFM), the Volkskrant reports. The proposal means that the DNB will monitor the funds, whether they are financially sound and what risks could arise. The AFM will monitor the behaviour of the funds and speculators and the products they offer.


Economists expect Ifo index to decline

Economists surveyed by Bloomberg expect the Ifo German business confidence index to decline for the first time in six months as the resurgent sovereign debt crisis threatens to curb growth. The Ifo institute’s business climate index, based on a survey of 7,000 executives, is expected to drop to 109.5 from 109.8 in March, according to the median forecast of 40 economists in a Bloomberg News survey. Ifo releases the report at 10am in Munich today.


German economic institutes disagree over debt of the crisis countries

While presenting their report on the German economy, the economic research institutes demonstrated that they profoundly disagree on how to deal with the debt of the crisis countries, Frankfurter Allgemeine Zeitung reports. Two institutes plead in favour of a European debt redemption fund. They fear the old debt creates a vicious circle of rising risk premiums, increasing servicing costs and the necessity to sustain a high primary surplus over an extended time. In order to escape from that circle the countries should be able to refinance the part above 60% with money from the redemption fund. But the Ifo Institute and the Kieler Institute für Weltwirtschaft (IfW) are strictly opposed. They argue that guaranteeing the fund would lower Germany’s rating. Also they say the pressure of the markets is necessary for those countries to reform.


How eurozone contagion might work.


This is from the IMF’s GFSR, hat tip FT Alphaville. It shows the mechanisms of how the eurozone financial crisis affects the rest of the world.









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Source: Reuters




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