Eurointelligence Daily Briefing, 18 de Maio de 2012. Enviado por Domenico Mario Nuti.


Ceci n’est pas un bank run

  • Reports that Bankia depositors have withdrawn €1bn in a week have rattled the Spanish financial sector;
  • Bankia’s share price dropped 29% on the reports, but recovered after the government tried to calm markets;
  • the story was never denied, but the reported withdrawals are small relative to Bankia’s deposit base;
  • Moody’s downgraded 16 Spanish banks;
  • in Greece, New Democracy has taken the lead once again in the latest poll;
  • a technocratic caretaker government was sworn in yesterday in Athens;
  • Fitch cuts Greece’s credit rating citing risk of eurozone exit;
  • the German government says the risk of a Greek exit are containable;
  • finance ministry study puts the total cost to Germany at €80bn;
  • Bundesbank says German banks are strong enough to withstand a Greek exit;
  • Le Monde says that Laurent Fabius may still be a good choice for foreign minister despite his campaign against the Constitutional Treaty;
  • the French government is forecasting a strong rise in unemployment to over 10% over the next two years;
  • an Irish government minister hinted that the country might vote a second time if the referendum rejects the Treaty;
  • Philip Stephens says time for the eurozone is running out;
  • Jean-Claude Trichet proposes a bankruptcy scheme for states, whereby the eurozone usurps a defaulter’s fiscal policy;
  • Martin Wolf says the main problem with a Greek exit would be that the eurozone will no longer be regarded as a monetary union;
  • Kevin O’Rourke, meanwhile, argues that it is perfectly rational for Greeks to vote for Syriza.

We have no idea whether the euro survives, but we know the mechanism through which it would collapse: a bank run. The run on the Greek banks should come as no surprise, given the extreme uncertainty about the country’s future. After the Spanish government’s botched up nationalisation of Bankia, El Mundo reported that Bankia’ depositors had withdrawn €1bn in the last few days (still less than 1% of the banks’ total deposit base). That figure was also confirmed by Pedro Schwartz, a Spanish academic, whom we heard quoting an unnamed official at the Bank of Spain as confirming to him the magnitude of the deposit withdrawal.

Bankia’s share price yesterday dropped 29%, but recovered after the government tried to calm the markets. Bankia itself said that business had been close to normal during those turbulent days, but did not confirm or deny the number. The Spanish government also came out with the statement that there is no bank run. (We think the number is accurate. It does not constitute a bank run in itself, but it is big to trigger one.)

To add insult to injury, Moody’s downgraded 16 Spanish banks overnight. Santander, BBVA, Bankinter and Caixabank were all downgraded by three notches, with two banks downgraded to junk status. El Pais quotes Moody’s as giving four reasons: the recession; the inability of the government to support the banking sector;

the deterioration of asset quality; and the lack of wholesale funding (What’s new here?)


A pro-bailout government is in the cards again


Greece’s conservative New Democracy party has retaken the lead from the anti-bailout SYRIZA, according to the latest poll cited by Reuters. It is the first poll published since a new election was called for June 17.  If elections were held now, New Democracy would win 26.1% of the vote compared with SYRIZA’s 23.7%, according to the MARC/Alpha survey conducted on May 15-17.Based on this result, New Democracy would win 123 seats, the pollsters said. Combined with the 41 seats projected to be won by the Socialist PASOK, Greece’s two major pro-bailout parties would command a 14-seat majority in the country’s 300-strong parliament.  Support for SYRIZA appears to have declined after the party refused to join a national unity government with all the other major parties, the MARC poll showed. In the previous survey by the same agency before the coalition talks collapsed, SYRIZA led with 27.7%, up seven points on New Democracy.


Greek care-taker government and parliament sworn in


The care-taker government was sworn in yesterday. The government is mostly made up of university professors, former ministers and diplomats, Kathimerini reports. Economist and university professor Giorgos Zannias was given the Finance Ministry. In his previous position, Zannias was deeply involved in negotiations for Greece’s two separate bailouts. At the request of the political parties the new care-taker government will only have an administrative role. The new cabinet has agreed to forgo their government salaries for the duration of the tenure. In a separate ceremony Thursday, Greece’s new parliament–made up of the seven parties that were elected to the legislature in inconclusive May 6 polls–was also sworn in. The new parliament is expected to be dissolved again Saturday and the date of new elections formally announced.


Fitch cuts Greece’s credit rating amid rising risks of eurozone exit

Fitch Ratings Agency downgraded Greece’s credit rating to CCC from B-minus on Thursday, Reutersreports, citing the heightened risk that the country might have to leave the euro zone.  The failure by Greek politicians to form a government underscores a lack of public and political support for an austerity program, Fitch said in a statement.   Should elections fail to result in a mandate for a new government to continue austerity measures, a Greek exit from the monetary union would be “probable,” which would result in widespread default on private sector as well as sovereign euro-denominated obligations.


German government says Greek euro exit will be costly, but manageable


The German government says a Greek euro exit would be expensive, but could be handled, Handelsblatt reports. “Two years ago this would have been like jumping off the 10th floor and the outcome would have been deadly”, the paper quotes an unnamed government source. “Now it would be like jumping off the 2nd floor – a couple of broken bones, but not deadly.” Rainer Brüderle, the FDP’s chief whip in Bundestag, told Handelsblatt that an exit “would cost a lot, but it would be manageable”. According to the paper the government has prepared an exit scenario and a Greek return to the Drachma in confidential meetings. Wolfgang Schäuble’s experts consider the cost would be in the magnitude of €80bn for Germany including €32bn of write-offs for the credits Germany has granted bilaterally and additional means to reinforce the ESM. The three parties of Angela Merkel’s coalition prepare for a scenario in which the extremist parties will win a majority in the Greek elections on June 17 which will lead to cutting off the international credits for the country and provoke Greece’s uncontrolled bankruptcy.


German and most European banks ready to weather Greek bankruptcy, Bundesbank says


Eurozone banks are in better shape than before the financial crisis began and those in Germany are equipped to cope with Greece taking a turn for the worse, a Bundesbank board member said. Andreas Dombret, in charge of financial stability said banks had raised their capital buffers significantly and the resilience of the European banking system had improved since the start of the crisis. “I am convinced that the resilience of most European banks is by now clearly stronger than before the financial crisis. German banks have already prepared for larger problems in Greece,” Dombret told Reuters. “I will not speculate about a default of Greece or Greek banks. But you can assume that all bank supervisors in all countries are in close, continuous contact.”


Le Monde says France’s foreign minister Laurent Fabius may be a convinced European despite his no-vote in 2005

In its front page editorial, Le Monde comes back to Laurent Fabius’ nomination as France’s foreign minister despite his no-vote on the European constitution in 2005. “One should not be angry with the partners of Paris to be a bit astonished about those French who always pretend to act rationally … but they should not wrongly interpret these nominations”, the paper writes. “It’s a political reality no one can ignore: the French distrust Europe. They are in a eurosceptical mood, inclined to shut themselves off as if they thought that the European integration had brought about all the bad consequences of economic liberalism. Europe certainly a big market: that is one of its forces, the secret of its attraction, the engine of its competetivness. But it also needs to be a political project, a project of civilization. Mr. Fabius may not be the worst placed person to be the spokesman of this kind of Europe.”


French unemployment will strongly rise in the next two years

According to projections of the French unemployment insurance the number of unemployed in France will rise 178.500 in 2012 and by another 128.300 in 2013 bringing the figure up by 10.6% compared with today, Le Figaro reports. “It would be a catastrophe for the head of state who has pledged during the campaign to invert the unemployment curve one year after his election at the latest”, the paper writes. However those projections are based on pessimistic growth projections and could more benign if growth is stronger.


Faux-pas and blame games ahead of Fiscal Treaty Referendum

The Irish government last night scrambled to deny that there would be a second fiscal treaty referendum if Ireland voted no, after a gaffe by Labour Minister Richard Bruton, who had raised the prospect of a referendum rerun in the event of a No vote during a radio debate on the treaty. TheIrish Independent reports that despite five official denials, No campaigners were quick to pounce on the remarks, with Declan Ganley’s Libertas claiming it meant people can vote No and ask the Government to get a better deal on banking debt. Meanwhile, division erupted in the Yes camp last night with Labour getting the blame for the huge number of undecided voters. The poll cited in the press briefing yesterday showed that just 59% of Labour voters are for the treaty, with 41% against.


Philip Stephens says the eurozone has one last chance

Among FT columnists, Philip Stephens has been among the most sanguine about the eurozone, but even he is now becoming more sceptical. In his latest column, he writes that the eurozone has one last chance, which would require a grand bargain by Germany and France, under which Germany accepted a strategy for growth, and France accepted structural reforms. Once you have this basic agreement, the rest would be easier to fix, including a larger firewall, debt mutualisation or even a fiscal union. (We are not entirely sure to which extent this would help the two most pressing problems right now – the southern European bank run, and the threat of a Greek state bankruptcy.)


Jean-Claude Trichet proposes “federation by exception”

This is from Reuters, and it must be one of the wackiest ideas we have encountered during the crisis, certain not to be adopted, and if so, most likely to lead to violence. Jean-Claude Trichet has proposed a state bankruptcy procedure, where the eurozone can declare one of its members bankrupt, and then take over the country’s fiscal policy. Translated, that means, that the bankruptcy procedure suspends democracy in that country. Trichet called it “federation by exception”. He says a full fiscal union was “politically unpalatable”, according to Reuters.  (A transfer of fiscal authority would be more palatable if everyone did it at the same time. This asymmetric rule would make it extreme unpalatable in the country concerned. It will be construed as an act of imperialism. Fortunately it won’t happen, but if it did, we would expect extreme violence.)


Martin Wolf on why a Greek exit is dangerous

Martin Wolf put his finger on why a Greek exit is dangerous. Because it destroys the very idea of a currency union.

“The long-run danger is more subtle. But the eurozone either is an irrevocable currency union or it is not. If countries in difficulty leave, it is not. It is then an exceptionally rigid fixed-currency system. That would have two dire results: people would not trust in its survival and the economic benefits of the single currency would largely disappear.”


Kevin O’Rourke on irrationality

In a commentary on the Irish Economy BlogKevin O’Rourke disputes whether it is really irrational for the Greek to vote for Syriza, as Lorenzo Bini Smaghi and other commentators have suggested. He starts off by saying that the Greeks are perfectly rational in their preference to remain in the eurozone, but to reject an austerity programme that has not worked. Even consider the possibility that a Syriza led government could trigger a eurozone exit, it might still be rational to throw the dice, rather than accept the certainty of a failed policy. After all, the Europeans might blink first, or Syriza produces an acceptable compromise.


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

The slide of the euro continues. Now at under $1.27.










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Source: Reuters






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