Eurointelligence Daily Briefing, 8 de Maio de 2012

Samaras and Venizelos want Greek debt deal to be renegotiated

  • The Greek elections have already changed the politics of the eurozone crisis strategy: the two pro-austerity parties are now saying the Greek debt deal must be renegotiated;
  • Venizelos wants the cuts to be phased in over three years, as opposed to two;
  • Samaras handed back his mandate to form a government, a task that has now passed to Syriza, the left-wing anti-reform party;
  • chances of forming a new government are slim, as a result of which new elections are now considered the most likely outcome;
  • Francois Hollande wants either eurobonds or ECB primary market participation to be explicitly included in the fiscal treaty;
  • the economics spokesman of Italy’s PDL has made exactly the same request, criticizing Monti’s cosy relationship with Angela Merkel;
  • Hollande wants to open up the Franco-German relationship, and make it less exclusive;
  • Merkel reminds Hollande that agreed pacts have to be honoured;
  • Holger Steltzner says pressure on Merkel to open her wallet will become unbearable;
  • Mariano Rajoy has forced out Rodrigo Rato as head of Bankia ahead of a state capital injection;
  • Spanish PM yields to pressure to restructuring the worst parts of the Spanish banking system;
  • Brussels is currently considering whether to give Spain an extra year to comply with the fiscal target;
  • arrears of Portuguese creditors have been rising strongly this year;
  • Bundesbank criticizes the trend towards risk sharing in the monetary union;
  • Sebastian Dullien and Mark Schieritz, meanwhile, argue that Germany’s rising Target 2 balances constitute a significant protection of private sector creditors.

It looks like we are up for new elections in Greece, after Antonio Samaras failed his attempt to form a government and the chances of SYRIZA to form a left wing coalition are slim. But the really interesting development yesterday is the change of positioning among the two pro-austerity parties: Samaras said ND had been the first party to call for a renegotiation of Greece’s debt deal with creditors. “We’re glad others have understood the importance of renegotiating the deal,” Samaras was cited by Kathimerini. But even PASOK leader Evangelos Venizelos, who as finance minister arranged Greece’s second bailout, said according to Reuters that the deal should be renegotiated to lessen the burden on Greeks by spreading the cuts over three years instead of two. And SYRIZA is to talk to smaller leftist parties that didn’t make it into Parliament in a bid to bolster SYRIZA’s chances in the next polls.



After Samaras declared his efforts to form a government as failed, the task to form a government was passed on to the leader of the Coalition of the Radical Left (SYRIZA), Alexis Tsipras. Kathimeriniwrites that Tsipras looks for a leftist government with other small left groups. “We want to create a government of leftist forces in order to escape the bailout leading us to bankruptcy,” said Tsipras. But his chances are slim. Tsipras’s key goal is to win round the Communist Party (KKE) and Democratic Left, a moderate, pro-Europe grouping. If this fails – which is likely as KKE has already ruled out any cooperations – Tsipras will reach out to other parties. But without the KKE, the other anti-bailout parties of the left cannot bring enough parliamentary seats to produce a majority. If Tsipras fails to cobble together a coalition, Socialist PASOK party is next in line to give it a go with zero chances of success. New elections are thus looming, we can expect a different campaign this time.


Hollande wants either Eurobonds of direct ECB bond purchases on the primary market



Talking to the Francois Hollande replied to a question about Germany’s opposition to Eurobonds: “On this question we will have discussions with our partners and in particular with our German friends, but they cannot put into place two deadlocks at once: one on the Eurobonds and the other on the direct financing of debt by the ECB”. On his demands to stimulate growth the French president elect said that he did not aim at a Keynesian deficit spending program as he is committed to reducing the French deficit. Rather he was aiming at “putting into place instruments at the European level, which means increasing the capital of the European Investment Bank, mobilising structural funds and the financial transaction tax which would allow financing of infrastructure works. Also Europe could at last decide to borrow which is all what the Eurobonds or the project bonds are about”.


Italy’s PDL also wants ECB bond purchases and eurobonds inserted into the fiscal pact



This is a potentially interesting development. Italy’s PDL (Berlusconi’s party) wants ECB bond purchases firmly integrated into the fiscal pact. The Financial Times has the story from Rome that Renato Brunetta, a former minister under Silvio Berlusconi, and now PDL economics spokesman, said he wanted the possibility of eurobonds and participation of the ECB in primary debt auctions to be explicitly included into the fiscal pact. Mr Brunetta said this was the party’s agreed line. He also expressed deep frustration over Mario Monti’s decision to allow himself to be co-opted into Merkozy alliance.



Hollande wants to end the “Franco-German duopoly”


In a further reply to Francois Hollande said that he wanted to reorient France away from her tight relationship to Germany. “While I do believe in the Franco-German motor, I do contest the idea of a duopoly”, the president elect said. Citing former French presidents and German chancellors Hollande said that they had always been careful to combine “an intergovernmental approach with a community process which was the best way to avoid that our partners felt being locked out or even worse to be subordinated”. According to the incoming president this equilibrium has been modified in the last few years. “The Franco-German relation was exclusive. The European authorities have been neglected and certain countries, especially the most fragile ones had the unpleasant impression to be faced with a directorate.”


Merkel shrugs off Hollande’s demand to renegotiate the fiscal pact



Angela Merkel politely said she would receive Francois Hollande “with open arms” when he comes to Berlin on May 15, the day of his inauguration, Süddeutsche Zeitung writes. But the chancellor warned the president elect that she was not prepared to renegotiate the fiscal pact as he had requested during the election campaign. It was “a basic approach in Europe that after elections, be it in big or small countries, we don’t put everything into question that we have decided previously”, Merkel said. The chancellor referred to her acceptance of the decision taken by her predecessor Gerhard Schröder to engage into accession negotiations with Turkey which she stuck to despite the fact that she had opposed Turkey’s EU membership during her election campaign in 2005. However Merkel is prepared to allow Hollande to score a public victory on his request to do more on growth. Advisors said that there were about €80bn of money from EU funds that were available. Also they said Germany would support making it easier for poor countries to get money from the EU’s structural funds by lowering the co-financing requirement from currently 50% to 5 to 10%. Also Berlin would support increasing the EIB’s capital by €10bn with to €2bn to €3bn provided Bundestag agrees.


Holger Steltzner says pressure on Merkel will become unbearable



“The pressure on the chancellor will increase to finally completely open up her wallet”, Frankfurter Allgemeine Zeitung’s economic editor Holger Steltzner writes. “After the growth pact the banking licence for the crisis fund or the communitarization of all debt via Eurobonds will be on the summit agenda. The same will be the case the forbidden monetary financing by the ECB, perhaps even its prize stability mandate because the Germans will have to surmount their fear of inflation which most others think is exaggerated.”


Rajoy forces Rato out of Bankia in return for a recapitalisation



El Pais has the story this morning that Mariano Rajoy has forced Rodrigo Rato to resign as chairman of Bankia to pave the way for a state injection of funds into Spain’s most troubled caja. Bankia is said to have toxic assets of more than €30bn. Bankia is one of the cajas most closely associated with the ruling Popular Party, and Rajoy felt it was necessary to force a change in the chairmanship of the bank if public money is injected into the bank. El Pais talks about a range of €7-10bn. The paper said it was not an easy decision to take, given the importance of Rato to the party. The article also said that one of the reasons was the public pressure mounted by the IMF, which had cited Bankia by name in its recent stability report as a bank in dire need of restructuring.



(This is a tiny amount of what will be needed to save the sector, or even Bankia itself, and much more in recapitalisation will ultimately be required, and it most likely to come from the ESM, as the Spanish does not have the resources to do this.)


Brussels considers giving Spain an extra year to meet the 3% target



El Pais has the story from Brussels that the European Commission is considering given Spain an extra year to meet the 3% deficit target target. The target was always an exercise in delusion, and a failure to recognise the economic dynamics of a country following such a severe financial shock. The article quoted unnamed sources as saying that it would be premature to conclude that an extra year would be granted, but added that economists in the Commission were already working on various scenarios. The article also seems to suggest that the election of Francois Hollande had an impact on the decision.


Credits in arrears are rising rapidly in Portugal



The number of Portuguese with their loans in arrears is increasing more rapidly since the beginning of the year, Jornal de Negocios reports. Over 27,800 individuals have been delaying payments during the first quarter, equivalent of 100 individuals per day,. This is three times more than the average of last year. Most are unpaid mortgage payments.  End of March there are 700.000 Portuguese who have their credits in arrears.


Bundesbank criticizes fiscal pact and ESM



In an opinion for yesterday’s public hearing of Bundestag’s budget committee on the fiscal pact and the ESM the Bundesbank harshly criticized the trend towards European risk sharing without any European control over national budgets, Financial Times Deutschland reports. “All in all the trend towards a an increasing communtarization of risks continues”, the German central bank warned. The Bundesbank contradicted the IMF and others who had argued that the fiscal pact provided for sufficient common control over the eurozone’s national budgets to justify the progressive introduction of Eurobonds. “The fiscal pact does not lay out the basis for a ‘fiscal union’ and it does by no means justify common liability as would be the case for example with Eurobonds”, the central bank said. Also the Bundesbank warned that the ESM while potentially beneficial in a situation of existential crisis also weakened the sense of responsibility of individual euro governments for their national public finances.


Why Germany’s Target 2 surplus may be good news for savers



In a column in VoxSebastian Dullien and Mark Schieritz argue that there is a highly welcome side effect to Germany’s large Target 2 surplus. A significant share of the changes in the Target 2 balances is effectively a transfer of risk from the balance sheets of the private sector to the Bundesbank. The assumption by Hans-Werner Sinn had been that in case of a euro exit the private sector would honour its liabilities, while the public sector would not. That is against the experience in other financial crises. Without this protection, large parts of the private sector in the core of the eurozone would be bankrupted by a member state’s euro exit overnight.


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

Markets remain nervous.











10-year spreads








Previous day


This Morning





























Bund Yield












Euro Bilateral Exchange Rate









This morning














Swiss Franc












ZC Inflation Swaps









last close


1 yr




2 yr




5 yr




10 yr












Euribor-OIS Spread









last close


1 Week




1 Month




3 Months




1 Year
















Source: Reuters




Leave a Reply