Eurointelligence Daily Briefing, 29 de Maio de 2012. Enviado por Domenico Mario Nuti.

A run on Spain

  • Mariano Rajoy goes on television and denies, once again, that the Spanish banking sector needs a bailout;
  • his statement unsurprisingly failed to calm nervous markets, as 10-year yields and spreads reach a new record;
  • Rajoy denies that there was a link between Bankia and the current state of the financial markets;
  • Spanish analysts say that the situation either requires direct support from the ECB, or an application to the EFSF;
  • New Democracy takes a poll lead, once again; Lagarde’s comments provoke fury in Athens;
  • Syriza accuses opponents of scare mongering:
  • Greek banks receive €18bn transfer;
  • Greek government spots unused bailout funds to make up for  tax revenue fall;
  • an anti-euro party will run in Germany for the 2013 elections;
  • 79% of Germans are against eurobonds; one of them is Jens Weidmann;
  • the German government is proposing a six-point growth plan, based on its own model, of course;
  • the SPD’s party base is getting impatient with its leadership, Jean-Marc Ayrault launches the social dialogue with the trade union;
  • Wolfgang Proissl calls on the World Bank to engage in nation building in Greece;
  • Wolfgang Munchau is marginally more optimistic as the European Council has for the first time ever began to discussion crisis resolution policies;

Mohamed El-Erian, meanwhile, warns that the Greek bank jog may be about to turn into a eurozone-wide bank run, and requires urgent policy action.


Like the Bourbons, European leaders forget nothing, and learn nothing. Surely one of the lessons of this crisis is that when under attack you don’t go out and keep on denying, on a daily basis, that you will absolutely not make an application under the rescue fund. The financial markets know, by now, that the Spanish financial sector – as a whole – is bankrupt, and that it is beyond the capacity of the Spanish state to save it. Through repeated denials, the Spanish government signals to the markets that it will continue to mismanage the banking system, just as they messed up Bankia.


El Pais talked about Black Monday, and said Mariano Rajoy failed to calm investors’ nerves. Spanish 10-year yields rose to a new eurozone record of 6.5%, with spreads of around 5.1%. Rajoy told a midday press conference that there will be no rescue of Spanish banks. Bankia’s shares fell 26% after being suspended on Thursday, but clawed back a part of those losses in later trading. The paper quoted analysts as saying that the Spanish banking sector needed another €50bn to €60bn (but after what happened at Bankia, that seems to us to be a wildly optimistic estimate).


El Pais also reports that the Spanish government had closely consulted with the ECB on the Bankia rescue – something that was denied by Rajoy. The prime minister also yesterday claimed that Bankia and the rise in spreads had “absolutely” nothing to do with each other. The paper quoted an analyst as saying that there were only two solutions now. Either the ECB buys up Spanish public debt directly, or Spain has to go to the EFSF.


In another article El Pais writes about what it calls the “the pernicious link” between Spanish banks and sovereign debt: the financial system cannot bring down the inflated value of their loan assets without public capital injections. But this in turn complicates the state’s ability to overcome its budget problems. The method to recapitalise the banking system through a state-owned fund has been tried in Germany and Ireland (with rather different outcomes in both countries).

 

Greek Conservatives slightly ahead in polls


New Democracy party has regained a small lead in the opinion polls according to five separate polls, published in major Sunday newspapers. The polls gave Antonis Samaras’s New Democracy an average advantage of 2.5 points over SYRIZA. New Democracy’s support ranged from 23.3-25.8%, compared to 20.1-24% for SYRIZA. Excluding undecided voters, that figure could be as high as 27.7% for the former and 25.6% for the latter, the Irish Times reports. Two of the polls showed that New Democracy and PASOK could form a pro-bailout coalition, with a combined 159-165 MPs in the 300-member parliament, up from the 149 seats they took in the May 6th election. All polls were conducted before Lagarde’s remarks in the Guardian.

 

Lagarde and the Greek fury


Very unhelpful were the remarks of IMF director Christine Lagarde. She said in an interview with the Guardian that because of tax evasion she had little sympathy for Greeks struggling under austerity. Lagarde received more than 10,000 negative comments on her Facebook page and generated furious political reactions, Kathimerini reports. After that Lagarde issued another news statement clarifying that she meant only the most privileged ones. SYRIZA leader Alexis Tsipras was unimpressed by Lagarde’s attempt to quell the controversy over her remarks and used the opportunity to chide rival parties. “The last thing that we are asking for in Greece is Mrs Lagarde’s sympathy,” he said. “Greek workers pay their taxes, which are unbearable. For tax evaders, she should speak to PASOK and New Democracy so they can explain why they have not touched big capital and have been chasing normal workers for the last two years.”

 

SYRIZA accuses political opponents of scaremongering


The head of leftist SYRIZA, Alexis Tsipras was on Sunday accusing PASOK and New Democracy of scaremongering about Greece’s future in the euro. Antonis Samaras and Evangelos Venizelos warned earlier that SYRIZA’s intention to repudiate Greece’s loan agreement, or memorandum, with the European Union and IMF would lead the country out of the euro. To Vima newspaper suggested that ex-Prime Minister Lucas Papademos warned party leaders that Greece will run out of money in the next few weeks. This prompted Tsipras to accuse “domestic political forces” of “blackmail, threats and lies.” 

 

Greek banks get €18bn transfer


The four largest banks in Greece received a €18bn transfer on Monday from the Hellinistic Financial Stability Fund, a vehicle set up by the EU and the IMF to deal with the recapitalization. It is the first installment of a recapitalisation plan, agreed under the second bailout programme. The HFSF fund received €25bn from the EFSF to strengthen Greek banks more than two weeks ago but its disbursement was delayed by a legal dispute between the government and lenders over future control of the sector, the FT reports. The remaining €7bn would serve as a capital buffer, a fund official said.

 

Greek government spots unused bailout funds to make up for  tax revenue fall


The news came as two government officials told Reuters that near-bankrupt Greece could access €3bn, left from its first bailout programme, to cover basic state payments if efforts to revive falling tax revenue fail.  “Our finance ministry efforts at this time are focused on boosting revenue,» one official told Reuters. But he added that if those efforts failed they would «examine all alternatives, including the €3bn from the first bailout».  Greek state coffers are on track for a more than 10% fall in revenue this month, a senior finance ministry official said last week. Officials had warned the state could run out of cash to pay pensions and salaries by end-June.

 

German anti-Euro-party will run 2013 for national elections

 

In its lead front page story Handelsblatt reports that for the first time an anti-Euro-party will run for national elections in 2013. The Freie Wähler (Free Voters), a party so far present in municipalities and state parliaments in the German south, will present candidates for the elections for Bundestag, the party’s chairman Hubert Aiwanger confirmed. The party is supported by Hans-Olaf Henkel, former president of the industry lobby BDI and now one of the most vocal euro critics in Germany. “15 to 20% of the German conservative electorate would potentially be interested in this party”, the paper quotes Helmut Jung of the pollster GMS.

 

79% of the Germans are against Eurobonds


According to the Politikbarometer poll of the ZDF public TV 79% of the Germans are opposed to Eurobonds, only 14% are in favour. Only 27% of the Germans think that currently enough is being done to enhance growth. 27% believe that this is possible without more debt while 67% believe more debt needs to be taken on to stimulate growth.

 

Weidmann dismisses Eurobonds


Jens Weidmann dismissed French-backed calls for the use of euro bonds to boost economic growth in Europe, saying in an interview in Le Monde that “this debate irritates me a bit”.  The Bundesbank president said: “It’s an illusion to think euro bonds will solve the current crisis,” the Bundesbank chief said. Spurring economic growth in a debt-burdened region required structural reforms and not more public spending when it was not even sure that expenditure on infrastructure was what was missing, he said. “You cannot give someone your credit card without having the means to control the spending,” he said. 

 

Government proposes 6-points-plan for growth in Europe


The German government proposes a 6-points-plan for growth in Europe, Der Spiegel reports. Part of the plan are special economic zones for the euro crisis countries that would attract investors with tax holidays and less regulation. The peripheral countries are supposed to set up privatization funds according to the Treuhandanstalt in former East-Germany. Also the crisis states should imitate the German professional training scheme which combines practical and theoretical training. The plan also proposes to adapt German-style labour market reforms which would make it easier to fire workers and to introduce labour contracts with decreased tax burden.

 

SPD is getting impatient with its troika for chancellorship


According to Der Spiegel the SPD’s party basis is growing impatient about its leadership and its inability to nominate a challenger to Angela Merkel in 2013. There is also dissatisfaction that the so-called troika (chairman Sigmar Gabriel, chief whip Frank-Walter Steinmeier and former finance minister Peer Steinbrück) all continue to present themselves as potential candidates. The magazine quotes several members of Bundestag who plead to pull forward the decision. Since the election victory of Hannelore Kraft in Northrhine-Westphalia, an increasing number of people say that she should take on Merkel next year.

 

Ayrault gets social dialog going


Jean-Marc Ayrault will today receive the big French unions in an attempt to get the social dialog going, Le Figaro reports. The prime minister will talk with the unions about the minimum wage, competetivness and unemployment. The communist GCT union will present the prime minister with a “black list” of 47 companies in France which according to the organization plan to shed 47.000 jobs.

 

Wolfgang Proissl argues that the World Bank should engage into nation and institution building in Greece


In his column for Financial Times Deutschland Wolfgang Proissl argues that the eurozone and Greece should overcome misled pride and ask the World Bank to lead an effort of nation and institution building and in fighting corruption. Proissl argues that despite the rescue loans Greece is running the danger of becoming a failed state and that only an organization with the experience and the outside authority like to World Bank lead an international effort to rebuild a functioning state and to avoid further decline. In the past international economic policy makers, like Mexico’s central bank governor Agustín Carstens, have called on  the World Bank to become active in Greece but this has so far been rejected by the eurozone and the World Bank.

 

A glimmer of hope


Wolfgang Münchau writes in his FT column that the European Council, perhaps for the first time, has actively discussed various crisis resolution methods, such as a banking union, or eurobonds. It was not a proper discussion, more a series of statements, but at least they have switched from a mode where they stopped thinking to one where they stopped to think. Munchau says four steps will ultimately have to be taken, and phased in over time: a eurozone-wide deposit insurance; a bank recapitalisation fund; a eurobond that deals with both the existing stock of debt and new debt; and a change in the mandate of the ECB to recognise explicitly that financial stability is part of its mandate, and to state explicitly that the ECB is allowed to use secondary market bond purchases in the pursuit of that objective. The European Council has left it very late, and possibly too late. But it is mildly encouraging that some of the elements of a resolution framework are being discussed.

 

The extreme danger of Greece’s unfolding bank run


In an ft.com column, Mohamed El-Erian picked up on the idea of a leisurely bank run, a bank jog. The normal critical safeguards against this happening are a combination of central bank emergency liquidity, and a well-function deposit insurance system. These kick in once the first line of defence, the capital cushion, is exhausted. Unfortunately, the linkage between banks and their sovereign has complicated the credibility of the deposit insurance system, which relies on the credibility of the sovereigns that stand behind them. And since banks have to pledge good collateral to obtain emergency funding, the power of this option is also undermined. In Greece, the bank jog needs to be immediately stopped if it is not to evolve into a fully-fledged run. That requires even more support from the eurozone. He said the eurozone urgently needs common deposit insurance for that purpose, along with direct capital injections into the banks. He ends with a warning that this is much worse than just another stage in the crisis.

 

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


Two things seem to be happening. Spreads are rising, and inflation expectations are falling to well below the ECB target across all maturity. This is a really bad combination.

 

 

 

 

 

 

 

 

 

10-year spreads

 

 

 

 

 

 

 

Previous day

Yesterday

This Morning

France

1.155

1.147

1.169

Italy

4.324

4.503

4.506

Spain

4.785

4.969

5.109

Portugal

11.197

11.022

10.963

Greece

28.535

28.397

28.16

Ireland

6.028

6.063

6.042

Belgium

1.816

1.824

1.853

Bund Yield

1.392

1.372

1.369

 

 

 

 

 

 

 

 

Euro Bilateral Exchange Rate

 

 

 

 

 

 

 

Previous

This morning

 

Dollar

1.251

1.2535

 

Yen

99.650

99.61

 

Pound

0.800

0.7988

 

Swiss Franc

1.201

1.2017

 

 

 

 

 

 

 

 

 

ZC Inflation Swaps

 

 

 

 

 

 

 

previous

last close

 

1 yr

1.72

1.58

 

2 yr

1.64

1.54

 

5 yr

1.6

1.59

 

10 yr

1.87

1.87

 

 

 

 

 

 

 

 

 

Euribor-OIS Spread

 

 

 

 

 

 

 

previous

last close

 

1 Week

-7.857

-7.529

 

1 Month

-0.043

1.121

 

3 Months

30.264

30.993

 

1 Year

97.407

96.457

 

 

 

 

 

 

 

 

 

 

 

 

 

Source: Reuters

 

 

 

 

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

 

 

 

 

 

 

 

 

10-year spreads

 

 

 

 

 

 

 

Previous day

Yesterday

This Morning

France

1.155

1.147

1.169

Italy

4.324

4.503

4.506

Spain

4.785

4.969

5.109

Portugal

11.197

11.022

10.963

Greece

28.535

28.397

28.16

Ireland

6.028

6.063

6.042

Belgium

1.816

1.824

1.853

Bund Yield

1.392

1.372

1.369

 

 

 

 

 

 

 

 

Euro Bilateral Exchange Rate

 

 

 

 

 

 

 

Previous

This morning

 

Dollar

1.251

1.2535

 

Yen

99.650

99.61

 

Pound

0.800

0.7988

 

Swiss Franc

1.201

1.2017

 

 

 

 

 

 

 

 

 

ZC Inflation Swaps

 

 

 

 

 

 

 

previous

last close

 

1 yr

1.72

1.58

 

2 yr

1.64

1.54

 

5 yr

1.6

1.59

 

10 yr

1.87

1.87

 

 

 

 

 

 

 

 

 

Euribor-OIS Spread

 

 

 

 

 

 

 

previous

last close

 

1 Week

-7.857

-7.529

 

1 Month

-0.043

1.121

 

3 Months

30.264

30.993

 

1 Year

97.407

96.457

 

 

 

 

 

 

 

 

 

 

 

 

 

Source: Reuters

 

 

 

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