Eurointelligence Daily Briefing, 8 de Junho de 2012. Enviado por Domenico Mario Nuti

After Greece came Spain, and now Italy. Mario Monti is politically imploding, as Italy’s establishment is ganging up on him. Writing on the front page of Corriere della Sera, Francesco Giavazzi and Alberto Alesina put the boot in against the man, whom they had supported, saying that his reforms were on the brink of failure – focusing on physical infrastructure as opposed to structural reforms. Monti reacted angrily yesterday, according to another article in Corriere, acknowledging that his government has hit a rough patch: “My government and I – Monti said – we have certainly lost support in recent times that observers attributed to us and we do not meet the favor of a great newspaper, considered authoritative voice of the great powers, and we do not meet the favour of Confidustria.”

 

 

Monti reiterated his support for austerity both in Italy and in Europe. Opinion polls have shown a gradual decline in the premier’s popularity. There is now increasingly pressure – mostly in the centre-right – for early elections this autumn.

 

Merkel wants to gradually transfer sovereignty to political union in Europe

 

 

It was a very significant statement by Angela Merkel that went largely underreported in the German press. In the morning talk show Morgenmagazin of ARD public talk show the Chancellor Angela Merkel yesterday said she supports a two-speed EU, with the faster group seeking deeper integration such as a fiscal union to complement monetary union. “We need more Europe, we need not only a monetary union, but we also need a so-called fiscal union, in other words more joint budget policy,” Merkel said according to Bloomberg. “And we need most of all a political union – that means we need to gradually give competencies to Europe and give Europe control.” Europe is already moving at different speeds, Merkel said, citing the Schengen agreement that abolished border controls between some European countries and the monetary union that excludes the U.K. and Denmark. “This will be intensified,” she said. “Those in a monetary union will have to move closer together. We have to be open. We always have to make it possible for everyone” to join, “but we mustn’t stop because one or the other doesn’t want to come along just yet.”

  

German coalition agrees on stock market tax paving the way for an agreement with the opposition on the fiscal pact

 

Angela Merkel’s liberal coalition partner FDP yesterday agreed to the introduction of a stockmarket tax thus paving the way for a rapid agreement with the opposition SPD and Greens on the fiscal pact, Süddeutsche Zeitung reports. According to the agreement all financial products shall by taxed with between 0.1% for stocks and bonds and 0.01% for speculative derivatives, which is more than the British stamp duty. The coalition also agreed to introduce the tax with other like-minded countries in the context of the so called reinforced cooperation in the EU. Now the leaders of the coalition and the opposition will meet on June 13 to discuss the fiscal pact, which requires a two-thirds majority and thus the opposition votes in Bundestag.

 

Les Echos sees “a counterattack of Merkel against Paris”

 

Les Echos picks up Angela Merkel’s appeal for transfers of sovereignty to a political union in Europa and the agreement on the stock market tax and most likely the fiscal pact in its leading front page story and talks about “a counterattack of Merkel against Paris”. Referring to Merkel’s plans for a political union the paper writes: “One could think that this is about a long term engagement which allows her (Merkel) to push back more easily the most urgent demands of the French in respect of growth and eurobonds. But the German initiative is taken very seriously in Paris. The two countries will engage under the force of the events but also on their own free will into a new phase of the eurozone’s construction”.

 

Germany rejects the French growth agenda

 

According to Le Monde’s leading front page story Germany rejected the French growth agenda. The paper refers to a text of eight pages circulated by the German economic ministry which insists that the basis of growth must be the reduction of public debt. The document goes on to stress the importance of privatizations and liberalization, for example of train traffic, and to underline that the prime responsibility for growth enhancement lies with the member states. Le Monde points out that it is no coincidence that the text was made public the day before Francois Hollande’s two most senior advisor on European and economic affairs, Philippe Leglise Costa and Emmanuel Macron, come to Berlin to discuss Hollande’s growth agenda with their counterparts at the chancellor’s office.

  

Opposition gains in polls but not enough for a majority

 

According ARD Deutschlandtrend, a poll done for the German public TV channel the opposition SPD and Greens would have 30% and 13% respectively if federal elections were held on Sunday. This would be more than Angela Merkel’s coalition of CDU, CSU (34%) and FDP (5%) but not enough to form a majority in Bundestag.

 

Almost half of the Germans want to return to the D-Mark

 

49% of the Germans would like to trade their euros back against the D-Mark, a poll done for Bildshows. This is an increase compared with 6 months ago when they were only 46%. 78% think the worst of the crisis is still to come and 56% worry about their savings. But 70% think that the euro will survive. 83% are in favour for a Greek exit of the eurozone if the country does not fulfil its reform and consolidation obligations.

 

Handelsblatt worries about the cost of Europe to Germany

 

Under the headline “What does Europe cost” Handelsblatt worries about the huge cost Germany will have to shoulder to safe the euro and European integration. “The Americans say Germany has to supply money to Europe”, the paper writes in its leading front page story. “The French request that Germany has to share the advantage it gets because of its low interest rate. Only Germany has the financial power to safe the euro, Brussels says.” The paper goes on to add up the sums that Germany is already paying for the euro rescue: €280bn for the EFSF, €57bn as the share for the ECB’s SMP, €79bn as Germany’s net contribution to the European budget since the year 2000. But all of that was not enough, Handelsblatt writes. “Now the crisis managers develop new ideas on a daily basis: there is the banking union, an attempt to use the German savings for bankrupt banks in the South and there are Eurobonds in which the South would profit from the good German creditworthiness.” In an editorial Gabor Steingart, the paper’s editor in chief, notes: “It is not the European idea that has failed. It is the belief that one country can live on the expense of the other.”

 

Spanish government appoints new central bank governor

 

El Pais has the report that the Spanish government has appointed Luis Maria Linde as successor to Miguel Fernandez Ordonez as governor of the Bank of Spain. He will only have a three-year term, which will then allow the governing PP to appoint another governor for another seven-year term. Linde occupied a number of economic posts in government, including in the ministry of economy, and he was also an international director at the Bank of Spain, and executive manager of the InterAmerican Development Bank. It appears that this was consensual appointment between government and opposition.

 

Papademos said Greek exit would bring inflation of 30-50%

 

Speaking at the IIF’s annual conference in Copenhagen, Lucas Papademos spelt out the disastrous economic consequences of a Greek exit. He predicted an inflation rate of 30-50%, and a contraction of real GDP by 20%. “Real income would likely decrease substantially rather than increase for a number of reasons including the stress that would be experienced by the banking sector and the exclusion of firms from the international capital markets,” the FT quotes him as saying.

 

At the conference, there was a consensus among bankers that a banking union would be at least 20 years (in other words just in time for Europe’s next monetary union).

 

Some bad advice

 

We are printing this as an example of some of the bad advice eurozone leaders are getting, this time from abroad. The comment by Jin Liquin and Keyu Jin in the FT sounds all very pragmatic, and we clearly don’t disagree with the view that the eurozone should stop austerity, and ringfence Greece. But the idea to settle for a suboptimal solution – as opposed to trying the right solution – is very odd since the search for a real for a real solution has only recently started. The problem with the eurozone crisis is that EU leaders have not been striving for a solution to the crisis at all, and it is not clear at all whether the latest effort is going anywhere. The article suggests that the eurozone could be saved with a simple dose of pragmatism.

 

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

Further improvement after Spain’s auction went well.
10-year spreads
	Previous day	Yesterday	This Morning
France	1.075	1.187	1.202
Italy	4.340	4.407	4.430
Spain	4.970	4.728	4.801
Portugal	10.377	10.055	10.139
Greece	27.279	27.376	#VALUE!
Ireland	6.063	6.043	6.084
Belgium	1.652	1.751	1.824
Bund Yield	1.331	1.384	1.361
Euro Bilateral Exchange Rate
	Previous	This morning
Dollar	1.255	1.2525
Yen	99.630	99.27
Pound	0.812	0.8084
Swiss Franc	1.201	1.2006
ZC Inflation Swaps
	previous	last close
1 yr	1.37	1.53
2 yr	1.3	1.47
5 yr	1.39	1.54
10 yr	1.73	1.91
Euribor-OIS Spread
	previous	last close
1 Week	-5.357	-5.257
1 Month
3 Months
1 Year
Source: Reuters