Eurointelligence Daily Briefing, 1 de Junho de 2012. Enviado por Domenico Mario Nuti.

Draghi comes out in support for a big banking union

  • ECB President is fiercely critical of how member states have been handling domestic banking crises;
  • he said the supervision of banks should be done centrally in the eurozone;
  • Jörg Asmussen said 25 systemically relevant banks should be subject to eurozone supervision;
  • Draghi and Ignazio Visco say ESM should be able to recapitalise banks directly – and thus act as a resolution trust company;
  • Visco in addition wants ESM capacity to interview directly in markets;
  • the latest data from the Bank of Spain show that the bank run has already gathered pace in March;
  • analysts fear that withdrawals could have increased much more during April and May;
  • El Pais has an article about how the EU’s patience with the Spanish crisis management is wearing thinner;
  • Luis de Guindos says eurozone crisis to be decided one way or another in the next few weeks;
  • Quentin Peel writes from Berlin that Germany is much more open in the search for solutions than it appears;
  • says Merkel wants full fiscal union, but not eurobonds on their own;
  • southern Germany now is at full employment, according to Germany’s federal employment agency;
  • youth unemployment dropped to the lowest level since unification;
  • VW grants its workers a 4.3% wage increase;
  • Moscovici supports the Juncker-Tremonti version of the eurobond;
  • Sylvie Goulard proposes a multi-stage Delors-committtee style route to a eurobond;
  • the Irish voted in the referendum, with results due out today, and an extremely low turnout;
  • the latest Greek polls show New Democracy ahead;
  • in the Netherlands, meanwhile, the Far Right under Geert Wilders has made huge advances in the polls, as his anti-euro stance is paying off.

Eurointeligence Comment and Analysis

A self-inflicted crisis

by Paul de Grauwe



Systematic mismanagement by the European leaders are at the roots of this continued Euro-crisis. It is time to correct the course.


When it comes to a discussion about a banking union, it is of critical importance that one goes right into the detail of what that should contain. Mario Draghi did so yesterday, in a hearing at the European Parliament, and has proposed a far-ranging version. He said national government have been making repeated mistakes in their handling of big bank rescues, pointing at Dexia and Bankia. “There is a first assessment, then a second, a third, a fourth…This is the worst possible way of doing things. Everyone ends up doing the right thing, but at the highest cost,” he was quoted by the Financial Times. He said that the supervision of banks should carried out centrally by a single authority, and not national supervisors.



In a closed door conference ECB board member Jörg Asmussen yesterday said “25 or so” large systemically important banks in the currency union should be subject to this euro area supervision,FTD reports in a separate story. (Question is: would Dexia and Bankia be among them? what about Landesbanken?)



Regarding bank recapitalisation, both Mario Draghi and Ignazio Visco said the ESM should be enabled to recapitalize troubled banks directly, Financial Times Deutschland reports. Draghi said the search was on for ways how the how the ESM could be used to recapitalise banks. “The issue is not so much if ESM money could be used to recapitalise banks, but whether this could be done directly without having to go through governments.” The Banca d’Italia governor was more direct. “There must be the possibility of intervening promptly in the securities markets and directly in favour of banks”, Visco said at the annual meeting of the Banca d’Italia. Direct recapitalization of troubled banks is also supported by the Spain, Ireland and the Commission. Germany together with Finland and the Netherlands oppose this and insist that all ESM loans must be granted to governments only in return for strict conditionality.


Spain’s bank run is gathering pace


These are the latest data on bank withdrawals in Spain, showing a massive increase during March, and it almost certainly got worse since. According to data from the Bank of Spain, the balance of deposits and withdrawals was a negative €66.2bn in March, almost double the value of a year earlier. El Pais reports that the trends in Spanish stock prices and bond yields, the trend towards further withdrawals is likely to have continued in April and May. The article also said a closer analysis of the data reveal growing distrust in the Spanish inter-bank market.



Speaking at the Circolo d’Economia economics conference, economy finance Luis de Guindos said the eurozone crisis will be decided one way or the other in the next few weeks,according to another article in El Pais. He said the eurozone had reached a crossroad, and now had to take the decision whether to opt for a deposit insurance scheme.


Patience with Spain is wearing thin in Brussels



There is more criticism of Spanish policy from the European Commission. El Pais reports that its evaluation of the current administration’s anti-crisis policies constitutes a blow-by-blow account of serial errors, going far beyond the now obvious mismanagement of Bankia. The paper quotes from an annexe of the report, which criticises some of the government’s more abrupt decisions. The rise in income tax was the opposite of what Brussels had demanded. Some of the “reforms” to deal with delayed payments to suppliers may vialote a European directive. The labour reforms may breach the Spanish constitution; and the controversial tax amnesty is not going to work.


(The catastrophic handling of each stage of the Bankia rescue, including the silly attempt to get the ECB to fund it adds to this picture. It is becoming clearer by the day that the Rajoy administration is by far the most incompetent government in the eurozone.)


Behind closed doors…



Quentin Peel of the Financial Times writes this morning that there is quite a bit of activity going on behind the scenes, as Germany may be preparing for a big leap. He writes there are four reasons why the German government is not saying anything in public right now: the Irish referendum; the Greek elections; parliamentary elections in France; and the financial markets. But Peel writes that Merkel does not simply want to say No to the eurobond or the banking union, but that she is in fact searching for an even bigger solution, a fully integrated fiscal union – and that is what Germany is bring to the negotiating table. He says Merkel will stay tough in her insistence that eurobonds require a treaty change.

(We agree with that but it would also mean that Germany supports the banking union, which on its own would be a big step towards economic integration. We think the sentiments expressed in this story are all true. Our fear, however, is that the expectations in the German media and the public have wondered off in a completely different direction a while ago, that it will be hard to change course.)


German youth unemployment at historic low, full employment in Southern Germany


Despite the eurozone crisis and high unemployment levels in many other countries of the eurozone German unemployment continues to fall, Frankfurter Allgemeine Zeitung reports. In May the jobless number dropped by 108.000 to 2.86m bringing unemployment down to 6.7%. Frank-Jürgen Weise, the head of the federal employment agency said the development had slowed but unemployment continued to fall. Especially youth unemployment has dropped and is now with 254.000 Germans under the age of 25 and an unemployment level of 5.4% at the lowest level since reunification. In the Southern German states Baden-Württemberg and Bavaria there is now full unemployment with levels varying from 3.0 to 4.0%.


VW grants its workers a 4.3% pay increase


Volkswagen will grant workers at its German factories a 4.3% pay increase despite difficulties in core western European markets amid the euro zone debt crisis, Reuters reported yesterday evening. The 97.000 workers at VW’s six western German plants and 5.000 employees at the financial services division will receive the additional pay over 13 months, starting June 1, Europe’s largest carmaker. Under the new contract, as many as 3.000 temporary workers will be hired permanently.  Earlier this month IG Metall, Germany’s largest labour union, agreed with employers to increase wages across the country’s metal and engineering industry by 4.3%. The increase will benefit 3.6m workers at companies including Daimler and BMW. The pay deal is equivalent to slightly less than 4% when VW’s terms of duration are applied. The pay rise is in line with that in other areas such as the public sector, chemistry and other metal workers.


Moscovici supports the Juncker-Tremonti Eurobond version


After his meeting with Jean-Claude Juncker on Wednesday Pierre Moscovici yesterday explained that he supported the Eurobond version Juncker and Giulio Tremonti had proposed in 2010, Les Echos reports. “Everybody thinks it is about mutualising the debt, however this cannot be the case”, the French finance minister said. Juncker and Tremonti had proposed to create a European debt agency and to issue Eurobonds for every euro member state up to the Maastricht level of 60% of GDP. Levels beyond that threshold would have to be financed by the individual state most likely with higher market interest rates which according to Juncker/Tremonti would create an incentive to stay beneath that level. In a separate story Les Echos explains that the liberal French MdEP Sylvie Goulard is currently preparing a report on Eurobonds in which she will outline three versions of these bonds. Goulard will propose to use the multi-stage method employed by the Delors Committee in the 1980s.


Low turnout as only half voted in Irish referendum


There was a low turnout in Ireland, just about half of the electorate voted in the referendum on the fiscal treaty according to the Irish Times. The turnout in Dublin was reported to be lower than in the last comparable referendum, on the Lisbon treaty in October 2009. Political parties reported that older people appeared to be voting Yes by a substantial majority, although the vote was more evenly split among younger voters. The results of the Irish referendum will only be formally announced this evening.


Polls suggest lead for pro-bailout New Democracy


New Democracy is leading in the polls by more than two points over SYRIZA, two polls suggest on Friday. The polls by Rass and Kapa showed that New Democracy is ahead of SYRIZA by 2.3pp and 2.5pp respectively, Reuters reports. The surveys are among the last before the ban on polls publication enters into force on Saturday, ahead of the June 17 elections.


Far-right ahead of conservatives in the Netherlands



In the Netherlands, polls show that the far-right Freedom Party is ahead of the conservative VVD in the latest poll. If there were an election now, Geert Wilders party would win 25 seats in parliament, with caretaker Prime Minister Mark Rutte’s VVD right behind them with 24 seats. Geert Wilders’ move to bring down the coalition government  to boost his chances seem to pay out. In the Netherlands the Socialist Party is currently leading the polls with 30 seats. SP leader Emile Roemer says he wants to be prime minister if his party is the biggest in the parliamentary elections on 12 September, according to Radio Netherlands. Today a court in the Hague will rule on a lawsuit brought by Geert Wilders with the aim to stop Dutch participation in the European Stability Mechanism.


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



After freefall, euro stabilises at a little over $1.23. Italian spreads reach 5% yesterday. No reprief for Spain.









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