Hollande and Monti to propose eurobonds this week
- Francois Hollande and Mario Monti are proposing a variety of schemes to help economic growth, including eurobonds;
- both put have pressure on Angela Merkel at the G8 summit in Camp David, but Merkel did not relent;
- Monti also proposed a eurozone-wide deposit insurance scheme;
- the German press took almost no notice of the G8 meeting;
- official hope to make progress at this week’s summit on allowing the ESM to directly fund banks, but officials say eurobonds remain difficult;
- Der Spiegel reports that eurozone finance ministers have threatened Greece with expulsion from the eurozone;
- Wolfgang Schäuble proposed the idea that Greece should hold a referendum on euro membership and the austerity programme in parallel with the elections;
- Jean-Marc Ayrault wants the ECB to lend to governments directly;
- Syriza has once again taken a lead in the opinion polls;
- Alexis Tsipras is visit France and Germany, where he is meeting with leaders of the far left;
- the finance ministers of Ireland and Portugal have criticised Greece for triggering the latest crisis;
- Hollande is opposed to Schäuble as euro group chairman on the grounds that there is a conflict of interest;
- Jean-Luc Mélénchon mounts a direct electoral challenge to Marine Le Pen, which if successful could increase his influence over Hollande;
- Spain revises deficit target up from 8.5% to 8.9%;
- Thilo Sarrazin launches his anti-euro book to great fanfare in the German media;
- Jacek Rostowski says the eurozone needs a much bigger firewall in the form of an unlimited commitment by the ECB to purchase bonds;
- Wolfgang Munchau, meanwhile, says the most dangerous element of the eurozone crisis right now is a bank run, which is on verge of getting out of control.
They are really getting worried about a Greek exit. Francois Hollande and Mario Monti lined up and rounded on Angela Merkel at Camp David, and they have now joined forced to present the idea of a eurobond at the informal eurozone summit this Wednesday, El Pais reports. Hollande said he had the support of Mr Monti, who himself said that Europe needs to agree on a list of 23 concrete measures, including the changes to the EIB, the launch of project bonds, and a timetable for eurobonds.
Corriere della Sera reported on Saturday that Mario Monti has brought a European-wide bank deposit scheme to the G8 in Camp David to bring an end to the slow motion bank run that has now gripped large parts of southern Europe. The scheme would be jointly funded by governments. Corriere writes that Monti has sought, and received support from President Obama, the Bank of Italy and the ECB.
Angela Merkel came under pressure to do more, but nothing was resolved at the meeting.
Interestingly also, the German press hardly covered the meeting, which was crowded out by football, the Italian earthquake, the launch of anti-euro book, and the subsequent Nato summit in Chicago. More important in terms of concrete policy measures will be this week’s informal eurozone summit where, according to the FT, Merkel will be facing demands for a direct bank recapitalisation facility within the ESM, for an ESM banking licence. The article quoted officials as saying that eurobonds remain difficult, but that there was a chance for progress on bank recapitalisation.
In France, the new prime minister Jean-Marc Ayrault wants put the topic of the ECB’s direct lending to euro member states on the table. “This will be part of the discussion”, the new French prime minister told Libération with regard to the special EU and Eurozone summit on Wednesday. “There will be no taboo topics. The aim is to open a way out of the crisis without strangulating the people. Francois Hollande was right during his campaign. Since then he has moved the discussion.” Ayrault did not elaborate further but Hollande and his advisors had made it clear during the campaign that talking about the ECB’s mandate, which explicitly prohibits all monetary financing by the central bank, was part of his plans.
Euro finance ministers threatened Greece with exclusion from the eurozone
Contrary to the official line the eurozone finance ministers did discuss a Greek exit from the eurozone and even threatened the country with exclusion, Der Spiegel reports. “If we had a secret vote on Greece’s membership in the eurozone, there would be an overwhelming majority against it”, Jean-Claude Juncker warned the Greek finance minister Filippos Sachinidis. Particularly the other program countries Portugal and Ireland were enraged with Greece’s continued violation of the rescue program’s terms which according to them produces contagious effects to the rest of the eurozone. Juncker told the Greek finance minister that the elections on June 17 were Greece’s “last chance”. Should there be no government willing to implement the troika program, “it will be over”, Juncker said. According to the magazine Wolfgang Schäuble proposed the idea of holding a referendum on the euro membership and accepting the rescue program’s terms in parallel to the elections. This proposal was later mentioned by Angela Merkel in a conversation with the Greek president Karolos Papoulias which created an uproar in Greece and a wave of anti-German comments by leading politicians and in the press.
SYRIZA ahead in the polls again
It is going to be a tight race between SYRIZA and New Democracy: The latest opinion poll from Kathimerini showed SYRIZA leading with 28% of intended votes while at least one other poll put ND ahead of SYRIZA. New Democracy would only get 24% according to this poll carried out last week. PASOK would come in third with 15%, followed by the Independent Greeks with 8% and the Democratic Left with 7%, while the Communist Party would only reach 5%, half a percentage point ahead of Chrysi Avgi. Other opinion polls in the last 14 days produced the following results quoted from Reuters:
Agency Date ND SYRIZA PASOK I.G. KKE D.L. G.D.
Kathimerini May 20 24 28 15 8 5 7 4.5
Metron May 19 23.8 25.1 17.4 7.8 5.8 6.3 4.8
MARC May 17 26.1 23.7 14.9 8.1 5.8 6.3 4.8
Pulse May 17 21.5 24.5 15.5 8.0 6.0 6.0 6.0
VPRC May 16 14.5 20.3 10.9 3.7 4.4 6.1 2.2
Kapa May 13 18.1 20.5 12.2 8.4 6.5 5.0 5.8
Metron May 12 21.7 25.5 14.6 10.5 5.3 5.4 4.7
Marc May 10 20.3 27.7 12.6 10.2 7.0 4.9 5.7
Election May 6 18.9 16.8 13.2 10.6 8.5 6.1 7.0
Tsirpas on Europe tour to get ”his message out”
In an interview with Reuters Alexis Tsirpas stressed that he wants negotiations to keep Greece in the euro. “We are not at all an anti-European force. We are fighting to save social cohesion in Europe. We are maybe the most pro-European force in Europe, because its dominant powers will lead the union into instability and the euro zone to collapse if they insist on austerity,” he said. On his visit to France and Germany he will not be meeting government officials, but fellow leftists, including former French presidential candidate Jean-Luc Melenchon and Klaus Ernst and Gregor Gysi of Germany’s The Left. He will hold news conferences in both capitals to get his message to a wider audience. Tsipras has been denied a meeting with Francois Hollande, but clearly sees Hollande as an ally in persuading Europe to abandon its austerity prescriptions. Among measures he said he wanted to discuss would be funding from the ECB for state budgets – a proposal seen as anathema in Germany – and joint European bonds to fund a “Marshall plan” of investment in sectors like renewable energy.
Ireland and Portugal attacked Greece
Ireland and Portugal have attacked Greece for “stoking up the fire” in the euro zone with its consistent failure to adhere to austerity measures. Minister for Finance Michael Noonan and his Portuguese counterpart Vitor Gaspar attacked Greece at last week’s Eurogroup meeting, according to Der Spiegel (via Irish Times). They said it was “unacceptable” that they made huge efforts to fulfill budget programmes while Greece “unerringly breaks its reform commitments”. Eurogroup chairman Jean-Claude Juncker told the meeting: “If we had a secret ballot over keeping Greece in the euro zone, a huge majority would be against.”
Hollande is opposed to Schäuble as eurogroup chairman
François Hollande is opposed to naming Wolfgang Schäuble as Jean-Claude Juncker’s successor in chairing the eurogroup, Der Spiegel reports. According to the news magazine the French president has let it be known in Brussels that he would find it next to impossible to accept the German finance minister. The only condition under which he would consider Schäuble’s nomination would be if he agreed to relinquish his post of German finance minister and became full-time eurogroup chairman. Schäuble had already ruled out giving up his national post.
Mélénchon will be Hollande’s headache after the parliamentary elections
According to Les Echos Jean-Luc Mélénchon will become one Francois Hollande’s of the biggest headaches after the parliamentary elections of June 10 and 17. The former extreme left candidate for the presidential elections will oppose extreme right leader Marine Le Pen in Hénin-Beaumont in Northern France. According to an Ifop poll published by Le Journal de Dimanche, Mélénchon will beat Le Pen and that would give him huge credibility and moral authority that goes far beyond his extreme left constituency. According to Les Echos Hollande got a first impression of what to expect from Mélénchon when the French extreme left leader received his Greek counterpart Alexis Tsirpas on his visit to Paris and they jointly denounced the EU/IMF rescue plan for Greece that Hollande now defends.
That Greek feeling: Spain’s 2011 deficit revised upward from 8.5% to 8.9%
It was already a bad week for Spain, and it ended with a shock. El Pais writes that following the close of markets on Friday, the Spanish government announced the upward revision of the 2011 deficit numbers from 8.5% to 8.9%, which makes the achievement of this year’s target of 5.3% look impossible. The overshoot came from the autonomous regions, which are now subject to more central control.
Launch of Thilo Sarrazin’s anti euro bestseller in Germany
Former Bundesbank board member and SPD finance minister of Berlin Thilo Sarrazin will launch a new book this week, with the title “Europe does not need the euro”. The euro sceptic part of the German press has a huge coverage of the author and his book. Last night Sarrazin debated with former SPD finance minister Peer Steinbrück in Germany’s most watched talk show “Günther Jauch” and Sarrazin severely criticized the social democrats and the greens because of their endorsement of Eurobonds, Bild reports. According to Sarrazin this was a “reflex according to which repentance for the holocaust and the world war was only definitively done once we have laid all our interests, including our money in European hands”. Sarrazin also has a long interview in Frankfurter Allgemeine Zeitung where he predicts that he sees “a 20% chance” that the agreement between France and Germany on the euro will break which would eventually lead to the euro’s demise. Sarrazin is also on the cover page of Focus with the magazine running excerpts of his new book. Sarrazin was briefly part of the Bundesbank’s board but he had to resign in 2010 after xenophobic interview remarks. Then he published a highly controversial book on immigration and demography in Germany which became the best-selling non-fiction book in more than a decade.
Jacek Rostowski says a stronger firewall is needed now
Writing in the FT, Jacek Rostowski writes that the eurozone could face an imminent catastrophe, unless the EU strengthens the firewall, which can only be centred on the ECB. “It should immediately announce that in the event of a Greek exit from the eurozone it will stand ready to buy unlimited amounts of the sovereign bonds of countries remaining in the euro for a limited period of time – say a year or 18 months.” He says this power should only be used in the extreme event of a country leaving the eurozone to prevent moral hazard.
Wolfgang Munchau on a slow motion bank run
The one thing that can cause the eurozone to explode is not the gap in competitiveness, but a bank run, Wolfgang Munchau argues in his FT column. In Greece, Spain and some other south European countries, a slow motion bank run is currently under way – and it is perfectly rational to boot. What makes the bank-run so lethal in the eurozone is the legal framework, as the eurozone does not have the instruments to deal with a bank run effectively. The only way to stop this bank run is to provide eurozone bank deposit insurance, and a eurozone-wide bank resolution regime.
10-Y Spreads, Forex, ZC Swaps and Euribor-Ois
Some slight recovery in the exchange rate. Spreads remain elevated.
10-year spreads
Previous day
Yesterday
This Morning
France
1.450
1.427
1.437
Italy
4.557
4.645
4.626
Spain
4.921
4.847
4.886
Portugal
10.412
10.833
11.095
Greece
27.765
27.837
#VALUE!
Ireland
5.952
5.969
6.157
Belgium
2.028
2.035
2.071
Bund Yield
1.423
1.426
1.445
Euro Bilateral Exchange Rate
Previous
This morning
Dollar
1.267
1.2784
Yen
100.370
101.25
Pound
0.804
0.8077
Swiss Franc
1.201
1.201
ZC Inflation Swaps
previous
last close
1 yr
1.68
1.68
2 yr
1.64
1.64
5 yr
1.72
1.72
10 yr
2
2
Euribor-OIS Spread
previous
last close
1 Week
-6.971
-8.271
1 Month
-1.293
-1.293
3 Months
28.271
28.571
1 Year
95.607
94.907
Source: Reuters
