Eurointelligence Daily Briefing, 11 de Maio de 2012. Enviado por Domenico Mario Nuti.

Venizelos may just pull it off

  • Pasok leader is in a desperate last-ditch attempt to form a government of national unity with New Democracy and the small Democratic Left;
  • that would establish Fotis Kouvelis, leader of the pro-euro, anti-austerity DL, as the kingmaker in Greek politics;
  • Kouvelis wants a government that stays in office until 2014;
  • the push for a unity government comes as the latest polls give the hard-left Syriza party a large lead over all the other parties;
  • but platform of a new unity government would still include “disengagement” from the EU-IMF memorandum;
  • Alexis Tsipras, Syriza leader, toned down his demands from rejection to re-examination of the memorandum;
  • Bankia’s auditors discovered another black hole, relating to tax credits of €2.5bn, which may need to be charged against equity;
  • the governing PP has embarked on a blame game campaign to deflect attention from its own role in the collapse of Bankia;
  • among those under attack from the government is the chief of Spain’s central bank;
  • the European Commission is ready to grant Spain an extra year to meet the deficit target,  but demands a number of quid-pro-quos, including an external supervision of the bank restructuring process;
  • the German government is expected the highest tax revenues in the country history, due to falling unemployment and rising wages;
  • Angela Merkel categorically rules out any debt financed growth measures;
  • Francois Hollande wants to impose his tax on the rich as of June;
  • Daniel Cohn-Bendid warns of a return of military dictatorship in Greece;
  • Germany’s Bild is freaking out over the Bundesbank’s acknowledgement that German inflation may temporarily exceed the eurozone average;
  • Samuel Brittan, meanwhile, proposes a nominal GDP target (for the umpteenth time), this time as an alternative to austerity.

Evangelis Venizelos is in talks with SYRIZA and ND today, after he gained the support on Thursday from Democratic Left leader Fotis Kouvelis – a pro-European critical of the bailout, Kathimerinireports. Kouvelis, who strongly favours Greece remaining within the euro, won 6.1% of the vote, and his 19 parliamentary seats make him a king-maker for a coalition government. Kouvelis said “I propose the formation of an ecumenical government made up of trustworthy political figures that will reflect and respect the message from the elections. This government’s mission, which will have a specific program and time frame that will last until the European elections of 2014, will be twofold: firstly, to keep the country in the European Union and euro and, secondly, to gradually disengage from the [EU-IMF] memorandum.”



A PASOK-ND-Democratic Left administration would have a total of 168 seats, but there are fears that SYRIZA’s growing popularity, along with opposition from the other parliamentary parties, all opposed to the EU-IMF memorandum, would make governing difficult. SYRIZA’s initial reaction suggests that it is unlikely to join a unity government. If new elections were held, SYRIZA is likely to win more votes.  An opinion poll conducted by Marc for Alpha TV indicated on Thursday suggests that SYRIZA would come in first. It put SYRIZA in first place on 23.8%, followed by ND on 17.4, PASOK on 10.8, Independent Greeks on 8.7, KKE on 6, Chrysi Avgi on 4.9 and Democratic Left on 4.2.



SYRIZA leader Alexis Tsipras also seem to have softened his stance when he wrote to EU officials on Thursday arguing that the election result had taken away political legitimacy from the memorandum and that the terms of the agreement should be “re-examined”, rather than rejected.


Another black hole for Bankia



Ooops, they found another hole of €2.5bn in the accounts of Bankia. As El Pais reports this morning, Bankia’s auditors noted that Bankia booked estimated future tax credits  as a real assets to the tune of €2.5bn. But to save these taxes, Bankia would need to achieve a certain level of savings, which the auditors do not think as realistic. The auditor said without these savings, the money will have to be charged against equity of BFA, Bankia’s holding company. The meaning of all of this is that Bankia will need more equity capital on top what is being pledged by the Spanish government. The new CEO said he would present a restructuring plan for the bank by the end of June.


The blame game starts in Spain



The Spanish government spent most of the day yesterday trying to blame somebody else for failure of Bankia, according to El Pais. Not a word of criticism of Rodrigo Rato, the former IMF chief who led Bankia into a state of near-bankruptcy, but instead the PP criticises Miguel Angel Ferandez Ordonez, the central bank chief, for having forced Caja Madrid to merge with Bancaja and several other smaller cajas in 2010. (The situation is, of course, very different. Bankia was essentially controlled by the PP, who has been appointing most of its council members. Passing the blame onto other is absurd in this case, and it shows the mindset of what has turned out to be one of the most incompetent governments in the eurozone. In a few months, Rayoy managed to mess up an ECB nomination, trigger a bond market attack because he postponed his budget until after the Andalusia election, and now mismanages the Bankia situation.)


Spain is playing hard to get



We cited an El Pais story yesterday, according to which the EU Commission was ready to grant Spain an extra year to get the deficit down to 3%. The FT has more details of this story this morning. The offer includes a quid-pro-quo,  an independent audit of the restructuring plan for its banks. The Commission also wants to strengthen fiscal control of the autonomous regions. The article says the Spanish government was divided, as some members feared that such a delay would be perceived in markets as evidence of creeping fiscal indiscipline.  The FT quoted an EU official as saying: “I do not understand the Spanish government as wanting an additional year.” The paper said it was likely that Spain would accept the key demand of external supervision of the restructuring of the banking sector.



This Friday, the Spanish government will also announce another bank restructuring plan to force banks to write off another €30bn in property losses. That will bring total provisions to €120bn, about 40% of the entire portfolio of real estate assets. The Bank of Spain classified €184bn as problematic at the end of last year.


Record tax revenues for the German government



The German government’s tax revnues will be higher in 2012 and 2013 than ever before, Süddeutsche Zeitung reports. According to independent tax estimates the revenues in 2013 will above €618bn. Compared with the past projection from last fall the municipalities, länder and the federal government will have additional tax revenue of around €30bn. The reasons are the good economy, low unemployment and wage rises. For Wolfgang Schäuble, the good figures are a mixed blessing, as SZ points out. Because of the elections next year many members of his coalition, especially within the FDP, will want tax breaks.


Merkel says categorically no to debt financed growth measures



In her government address ahead of her first meeting with Francois Hollande next Monday and of next week’s G8 summit, Angela Merkel categorically ruled out all debt financed growth measures, Frankfurter Allgemeine Zeitung writes. “Growth financed by debt would bring us back to the beginnings of the crisis”, the chancellor said. Merkel said that debt reduction and enhancing growth and jobs were part of the strategy to overcome the sovereign debt crisis. But growth measures only made sense if they were based on structural reforms. The opposition SPD and the Greens said they would only vote for the fiscal pact if more was done for growth.


Hollande prepares his stand-off with Merkel by meeting Van Rompuy and Juncker



Le Monde reports on how Francois Hollande is already in the middle of the euro crisis management before even having taken over his office by meeting with Herman Van Rompuy and Jean-Claude Juncker ahead of his crucial encounter with Angela Merkel next Monday. The paper points out that by meeting Van Rompuy and Juncker, Hollande wants to drive home the point that he wants to end the impression the eurozone is run by a Franco-German directorate and give more weight to the Euro institutions and their representatives. The report also stresses that Hollande met with the European Council president and the eurogroup chairman before even scheduling a meeting with José Manuel Barroso, who is seen by the French socialists as having been very close to Nicolas Sarkozy. Meanwhile in an interview the former French prime minister Michel Rocard warned Hollande against provoking “a clash” with Merkel on the fiscal pact, writes. He urged the incoming president instead to engage into patient negotiations with the German chancellor.


Hollande wants to tax the rich as of June



In a symbolic measure destined to convince the left leaning voters that he is their man, Hollande wants to raise taxes of great fortunes as of June, Les Echos reports. The additional tax is supposed to give the government additional revenues in the magnitude of €2.3bn, the report says. The paper also writes that the Banque de France foresees a 0% growth rate in France for Q2 in 2012.


Cohn-Bendit warns of a return of military dictatorship in Greece



In an interview with Le Monde, Daniel Cohn-Bendit warned that if things deteriorated as they were in the past months in Greece, there would be a return of military dictatorship. “The political process has broken down there”, the European parliamentarian said. “If we leave the Greek to themselves we risk a military coup”.


Bild stirs fears of runaway inflation in Germany



Reacting to the Bundesbank’s announcement on Wednesday that the German inflation would be above the eurozone average mass circulation daily Bild runs a story this morning under the headline: “Inflation alarm – Bundesbank softens the euro – How quickly our money will be eaten away?” The story is illustrated with the photography of a 1bn mark bill of the Weimar Republic in the 1920s when much of Germany’s private wealth was destroyed by runaway inflation. The story has a reassuring quote from Jens Weidmann who says that eurozone price stability target of just below 2% remained valid but that German inflation “could temporarily be above the (eurozone) average.” But the paper has a separate editorial comment by deputy editor Nikolaus Blome who accuses the Bundesbank of “cowardly” behaviour because it lets inflation re-emerge in Germany because inflation steals the citizens “optimism for the future”.



Samuel Brittan on nominal GDP target


People have been known to bet on when Samuel Brittan would write his next column on nominal GDP targeting, a demand he has persistently upheld in many columns over many decades. We feel the time may have arrived for this idea, especially as an alternative to austerity (which is likely to fail anyway). The idea is for policymakers to adopt a nominal GDP target of, say, 5%, which would allow for growth, while keeping an upper bound on inflationary expectations. He acknowledges the main criticism – which is the quality and frequency of the data – but this problem would be easily fixed, once such targets are adopted.




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Source: Reuters






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