Eurointelligence Daily Briefing, 13 de Junho de 2012. Enviado por Domenico Mario Nuti.

Spain en route to a full ESM programme

  • Spanish 10-year yields rise to over 6.8%, as the country is nearing a full ESM programme;
  • German yields were also rising sharply;
  • Spanish and Italian yields are approaching a level at which the two countries will no longer be able to refinance themselves;
  • in the midst of the fire in the bond markets, European policymakers offered their usual cacophony;
  • Merkel reiterates her opposition to eurobonds;
  • France is not keen on a political union;
  • Britain’s chancellor George Osborne ruminates whether Germany needs to see a Greek exit as a wake-up call to act;
  • El Pais says markets have lost confidence in Europe’s political leadership;
  • the FTD reports that the EU is willing, after all, to renegotiate the Greek programme;
  • a troika report is expected to conclude that Greece failed to meet the conditionality;
  • IMF is likely to withdraw from the Greek programme in the case of a renegotiation;
  • Francois Hollande will today meet the leadership of the SPD to work out a strategy for the change of the fiscal pact;
  • the German chancellor’s office is nervous about the meeting, and has asked Hollande not to stage a joint press conference;
  • the European Commission says a financial transactions tax might be agreed using the procedure of enhanced cooperation;
  • Deutsche Bank’s Anshu Jain says he supports Angela Merkel’s policy;
  • the Bundesbank rejects the ECB’s proposals for a banking union;
  • Martin Wolf, meanwhile, says the minimum necessary infrastructure for a monetary union is an insurance union and an adjustment union.

We are back to a situation in the eurozone crisis where everybody is talking at the same time, and where the external situation is dramatically worsening. Over the last 24 hours, we not only witnessed a further deterioration in Spanish and Italian spreads, but also in German 10-year yields, which are now close to 1.5% (versus 6.8% for Spain, a record since the beginning of the euro). At that level, Spain is at most a few weeks away from a full EFSF/ESM programme, a request likely to overburden the European rescue mechanism, which are not designed to handle a request from a large country – that is also an important guarantor to the system itself.



Angela Merkel reiterated yesterday that she wants to prioritise a long-term strategy towards a political union, but she continues to oppose eurobonds. The Bundesbank said a fiscal union must come before a banking union. The French say a banking union must come before a fiscal union. Everybody spoke at the same time, giving the impression of a highly uncoordinated process.


The warnings of non-eurozone politicians are becoming shriller. The British chancellor George Osborne wondered aloud whether Germany needed a catastrophic Greek exit as a political precondition to act, according to the FT.



The events also put into context the extraordinary inept comments by Mariano Rajoy over the weekend, who had called Spain’s rescue a victory, and who said that he could now safely take off to watch the football because he had saved the Spanish banking system.



El Pais wrote this morning that the problems were not only confined to Spain. Investors had lost the confidence in Europe’s leadership. El Pais is also castigating the talk about capital controls (which is surely one of the reasons for the extraordinary market movements, as such talk amounts to an open invitation to citizens in the peripheral countries to close their bank accounts and shift their funds to a safe haven.)


The EU is willing to renegotiate the Greek program after the elections


The EU is willing to renegotiate the Greek program irrespective of the outcome of this Sunday’s elections in Greece, Financial Times Deutschland reports. According to the paper EU sources said that one could not refuse a renegotiation if the aim was to keep Greece in the eurozone. FTD quotes a member of the troika who says that the program is “off track” anyway. Wolfgang Schäuble told members of the CDU/CSU parliamentary group that the next troika visit to Athens after the constitution of a new government would officially proclaim that the program’s conditions had not been fulfilled. Also Jean-Claude Juncker is in favour of renegotiating the time table for deficit reduction in Greece as long as the substance of the program remains untouched. EU sources fear however that the readiness to renegotiate the Greek program might lead to the IMF’s withdrawal from the Greek program.


Hollande receives SPD leadership at the Elysée palace to negotiate the fiscal pact


Francois Hollande will today meet with the SPD leadership troika Sigmar Gabriel, Frank-Walter Steinmeier and Peer Steinbrück to negotiate the fiscal pact, Le Monde reports. The paper sees this encounter which it qualifies as “unheard of” as an attempt by the French president to put the German chancellor under pressure two weeks ahead of the EU summit. The SPD is currently engaged with Merkel in negotiations on the fiscal pact because ratification of the pact requires a two-thirds-majority in Bundestag. According to Le Monde the chancellor’s office has let it be known to the president’s advisors that there should be no common press conference after the meeting. Hollande’s entourage defended the meeting by saying the purpose was to explain the French position and Hollande’s determination to emphasize growth much more strongly than in the past. The meeting is seen as revenge by the president who was snubbed by the chancellor during the election campaign and thus unable to meet with her and most other conservative political leaders because they supported his conservative opponent Nicolas Sarkozy.


Commission thinks the financial transaction tax could be agreed in 2012


According to Süddeutsche Zeitung, a financial transaction tax could be agreed in the context of a reinforced cooperation of at least 9 member states in 2012. This information directly contradicts claims by Angela Merkel’s coalition that claimed it was impossible to introduce the tax before the end of the current government’s legislative term in September 2013. The SPD and the Greens condition their support for the fiscal pact on the introduction of a financial transaction tax. The coalition agrees in principle with the opposition demands but cautions that this cannot be done rapidly. Advisors to the EU tax commissioner Algirdas Semeta said that for the tax to be introduced this year the EU finance ministers would have to discuss it at their meeting next week and 9 member states would have to formally apply in July.


Anshu Jain supports Merkel’s Europe policy


In his first public appearance as the new co-head of Deutsche Bank in front of the German political establishment Anshu Jain strongly supported Angela Merkel’s focus on sustainable public finances in the eurozone, Handelsblatt reports. Speaking to the CDU economic council, a gathering of business people close the Merkel’s Christian democrats Jain said: “Deficit financing is in my point of view not the right way for Europe”, he told an audience of 2300 in Berlin. “To support a policy of consolidation very simply means to face reality.” Jain went on to laud the fiscal pact and the ESM.


Bundesbank contradicts the ECB on banking union


The Bundesbank yesterday came out forcefully against a rapid implementation of a banking union and asked for the implantation of a fiscal union as a first step, Financial Times Deutschland reports. Speaking in London Bundesbank board member Andreas Dombret called the idea championed by Mario Draghi and Jörg Asmussen “premature”. Simultaneously, Bundesbank vice president Sabine Lautenschläger said in Frankfurt: “A banking union would mutualise national risks of the banking system. The result would be a community of liability through the back door – without the possibility of influencing and controlling and the protection of a fiscal union.” The comments came as a reaction to the fact that the ECB says that a key remedy to the financial crisis was a banking union. Presenting the financial stability review, ECB vice president Vitor Constancio yesterday urged for the implementation of a banking union that would comprise a euro area banking supervision for the 25 systematically important banks. Constancio said that the ECB should be given this supervisory role. Also there should be euro area resolution authority with its own funds and a deposit guarantee fund that should be established by merging the existing national deposit guarantee funds.


Martin Wolf on alternatives to a fiscal union


In his FT column, Martin Wolf looks at the minimum necessary infrastructure needed for a monetary union to work, and concludes that what is needed are an “insurance union”  and an “adjustment union”. He admits these are rather theoretical concepts, and might not be possible to create during a crisis. An insurance union would insure member states against large adverse shocks, and the adjustment union would produce symmetrical adjustment. (The problem is that you need strong central powers to set the rules of the insurance, and force adjustment on all sides. It is hard to conceive such powers outside a political union. We agree him that a pure transfer union is not going to be politically acceptable, nor sustainable. But it is hard to conceive of any structure that would work without a much stronger degree of centralised decision-making powers.)


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



The abyss comes closer. Look at the increase in the German bund yields, which is masking yesterday’s deterioration in spreads.









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Source: Reuters

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