Link: http://www.eurointelligence.com/eurointelligence-news/home/singleview restricted/article/the-german-constitutional-court-will-take-more-time.html
The German constitutional court will take more time
At yesterday’s hearing, the president of Germany’s constitutional court hinted that he may not run this case under the emergency procedure – and this implies that Germany won’t be able to ratify the ESM for some time yet;
Andreas Voßkuhle says court may need to undertake an in-depth analysis;
Wolfgang Schauble warns that a negative rule would have considerable implications for the financial markets;
plaintiffs argue that the ESM and the fiscal pact deprive the Bundestag of its effective budgetary control;
Jens Weidmann used the opportunity to criticise the ESM in front of the constitutional court;he said the ESM challenges the autonomy of central banks;
also said it was not clear whether the costs may not have to rise again;
he said court would have to weigh the risks of a negative short-term market reaction against the long-term negative consequences of transfers;
Bild applauds the court’s decision to delay, but remains concerned about the dominance of southern Europeans;
we have the full list of the ESM programme agreed by Spain: a highly invasive action plan to reform the Spanish financial sector;
it includes provisions for the bail-in of shareholders, preferred shareholders and subordinated bondholders, i.e. including a lot of small savers;
also includes provision for a strengthening of the role of the Bank of Spain, and for a bad bank;
El País says that EU has taken Spain under guardianship;
Vitor Constâncio says the ECB will not help fund bank restructuring funds and deposit insurance schemes because this was against the spirit of the treaty;
the Bundestag interrupts its summer break to decide on the Spanish rescue;
Joaquín Almunia estimates the costs of the bank rescues at 4-5%;
Greece must find €2.6bn to plug budget gap until August 20;
IMF forecasts higher deficit and debt levels for Italy, and warns that structural reforms won’t have any short-term impact;
the Bank of Italy approves the business plan of Banca Monte dei Paschi di Siena;
Mario Monti, meanwhile, says he will quit in 2013, and Silvio Berlusconi says he may run again.
At the opening day of its hearings on the ESM and the fiscal pact, the German constitutional court made it clear that it may take more than a few weeks to take a decision, Financial Times Deutschland (Link: http://www.ftd.de/politik/europa/:esm-vor-verfassungsgericht-karlsruhe-laesst-euro-zone-bis-herbst-zappeln/70061716.html ) reports.
Under a normal emergency procedure, a preliminary ruling would have been possible within a few weeks. But the court’s president Andreas Voßkuhle suggested that the court may want to do an in-depth-analysis before issuing its ruling. During the day Wolfgang Schäuble had warned that a negative ruling would have considerable consequences on the market. The three plaintiffs, the parliamentary group of the Left party in Bundestag, the CSU parliamentarian Peter Gauweiler and an NGO called “Daring more democracy” argue that the ESM transfers budgetary powers that the Bundestag can only relinquish after a referendum. Voßkulhe acknowledged the market implications of the ruling but stressed that “the constitution remains valid even during the crisis”.
Weidmann criticizes ESM during the court hearing
Jens Weidmann criticized central elements of the ESM during his hearing at the constitutional court yesterday, Frankfurter Allgemeine Zeitung (Link: http://www.faz.net/aktuell/wirtschaft/verhandlung-vor-bundesverfassungsgericht-derbundesbankpraesident-zweifelt-an-den-esm-regeln-11816452.html) reports. The Bundesbank president stressed that the ESM was in a position to change central elements of its working autonomously. Also it was not quite clear how much say the euro member states had if it proved necessary to prop up the ESM with additional means. Also Weidmann said that the ESM weakened the incentives for potential receivers of rescue aid to be responsible by themselves for solid public finances and for adapting their economies. He added that the fiscal pact did not add a sustainable framework for EMU. The Bundesbank president stressed that a rejection of the German ESM law could provoke major market turbulences but he added that unconditional transfers also contained dangers. A rapid ratification of the ESM was no guarantee against further turbulences, Weidmann cautioned.
Bild applauds the court’s in-depth-analysis of the ESM but worries about Germany overburdening itself
Mass circulation daily Bild (Link: http://www.bild.de/geld/wirtschaft/rettungsschirm/hallo-euro-wie-geht-es-dir-heute-25095194.bild.html) applauded the court’s judges for their decision not to let themselves be rushed into taking a quick decision on the constitutionality of the ESM. “It is totally right that the constitutional judges take more time – after all, the question is whether Germany is overburdening itself financially. That would be a lot worse than short term turbulences on the financial markets”, the paper tells its 10m daily readers. Also Bild applauds the nomination of Klaus Regling as the ESM’s chairman. “In any case it is very good that a German occupies this important position. But it is unclear whether he will prevail in the long run against the predominance of Southern Europe”. But the article finishes with worries for the future. The Spanish bank rescue increases the liabilities for Germany, the paper notes. “Should Italy also request aid the burden would almost become unbearable”, Bild concludes.
That Spanish rescue in full
El Pais
(Link: http://www.eurointelligence.comfile:///C:/Users/Wolfgang/Documents/Morning%20Briefing/elpais.com) has a carpet-bombing style news coverage of the Spanish EU programme that feels a bit like as though the country was invaded. The paper’s main headline says “EU places Spain under guardianship”. The inside headlines talks about “shock therapy”. We presented a few of the measures highlights in yesterday’s briefing. El Pais has the full list (Link: http://economia.elpais.com/economia/2012/07/10/actualidad/1341942198_770173.html) of the concrete 32 measures agreed. There can be no doubt that, once implemented, the Spanish banking sector is going to be very different – except of course that all risks remain inside the country. Note especially point number five – which will affect a lot of small savers. This is probably the most important conditions, and may have implications for other countries, including Ireland.
Here is the full list, abridged of course.
1. Provide data necessary to monitor the entire banking sector, including weekly data of deposits and liquidity positions.
2. Prepare with the European Commission plans to restructure a first group of banks; July, mid-August.
3. Finalize proposals for disclosure requirements; late July.
4. Have consultants provide information required for stress tests, including results of the review of asset quality, by mid August 2012.
5. Introduce legislation to apportion losses to several classes of shareholders and subordinated bondholders. Late August 2012.
6. Update the bank resolution framework , ie, strengthen the powers of settlement with the FROB and the deposit insurance fund. Late August 2012.
7. Prepare plans for a bad bank. End of August.
8. Complete stress tests for all banks. Second half of September.
9. Finish proposed regulation to improve transparency of banks. End of September.
10. Banks with capital shortages to apportion losses to shareholders, preferred shareholders and holders of subordinated debt. Between October and December.
11. Banks develop recapitalization plans. Early October.
12. Plan to restructure or liquidate banks in a second group; October 2012.
13. Improve Bank of Spain’s guidelines or binding rulings, but short of full regulatory powers. Late October 2012.
14. Internal review of processes and decision making. Late October 2012.
15. Legislation for a bad bank. Fall 2012.
16. Improvements in credit reports. End of October.
17. Develop proposals for the strengthening of non-bank financial intermediaries. Mid-November.
18. Propose measures to strengthen the governing bodies of savings banks. End of November.
19. Provide a road map for an eventual stock exchange listing of banks that have received state aid. End of November.
20. Prepare legislation to clarify the role of savings banks in their capacity as shareholders of credit institutions to reduce their holdings to levels that do not involve control.
21. Banks should provide standardized estimates of quarterly balance sheets. As of December 1
22. Present a policy paper on what to do after the expiry of the royal decrees 2/2012 and 18/2012, applying to the restructuring of the banking sector. Mid December 2012.
23. Issue Cocos for a third group of banks. End-December 2012.
24. Transferring the powers of enforcement and bank licensing from the finance ministry to the Bank of Spain. Late December.
25. Require lenders to review strategies to address impair assets. Late December.
26. Require that all Spanish credit institutions have at least 9% tier-one quality at least until late 2014. January 1, 2013.
27. To review the rules governing the FROB and deal with conflicts of interests. January 1, 2013.
28. Review the problems of credit accumulation in certain parts of the economy. Mid January 2013
29. Propose specific legislation to limit the sale by the banks of subordinated debt securities to retail customers. Late February 2013
30. Amend legislation to improve the credit registry. End of March 2013
31. Raising capital requirements for banks planning to increase equity. Late June 2013
32. Banks in the third Group with Cocos must submit restructuring plans. Late June 2013
Constâncio says No ECB help for bank resolution funds and deposit insurance
EFX News (Link: http://www.efxnews.com/story/13489/ecb-constancio-see-need-revise-eu-failed-banks-plan) reports that Vitor Constancio has ruled out any ECB help to refinance banks. He said a provision in legislative proposal now being discussed by EU governments that would allow national bank resolution funds to borrow from central banks could not be applied in the euro area. “It goes against the spirit of the treaty, with respect to the independence of central banks from the financing tasks of the government,” he said. The ECB’s vice president also said he believed there needed to be “financial backstops at the national level in place in order to avoid any doubts by the citizens on the capacity of deposit guarantee schemes to fulfill their commitments.”
Bundestag interrupts summer break to decide on Spanish bank rescue
The Bundestag will interrupt its summer break for a special session on July 19 to take a decision on the EU rescue loans for Spanish banks, Börsenzeitung reports (Link: http://www.boersen-zeitung.de/index.php?li=300&page_number=2 ). The parliament’s budget committee will already hold a session the day before. Since Wolfgang Schäuble and the euro crisis managers of the finance ministry were all at the constitutional court hearing in Karlsruhe the chief whips of the different parties were yesterday informed via telephone conference on the decisions taken during the eurogroup meeting the previous night.
Almunia estimates the bank rescues cost as equivalent to 4 to 5% of the EU’s GDP
Talking to Les Echos (Link: http://www.lesechos.fr/economie-politique/monde/actu/0202165236208-le-sauvetage-des-banques-represente-entre-4-et-5du pib-de-l-europe-342892.php), Joaquín Almunia estimated the total cost of all of the EU’s bank rescues so far as equivalent to 4 to 5% of the EU’s GDP. “The European banking situation is serious but it is not as catastrophic as I sometimes read”, the competition commissioner told the paper. “My calculation is that the European Union has at the most injected capital into banks that represent 4% to 5% at the most its GDP and the sum of the guarantees is the equivalent of about 10% of the 27 (EU member states). This is enormous but much of it has not been used and will never be used while in most countries the help starts to be reimbursed with important gains for the public finances. So the guarantees constitute a risk but also important sources of potential revenues once the banks have been put back into shape.”
Greece under pressure to get reforms back on track and to fill €3bn budget hole
For 2012, Greece must find ways in the coming weeks to fill a €3bn budget hole resulting from the failure to enact measures approved in March. Finance minister Yannis Stournaras said his immediate concern is to seek “intermediate financing” to make debt payments in August. Greece must repay at least €2.6bn of debt on Aug. 20, according to Bloomberg (Link: http://www.bloomberg.com/news/2012-07-10/greece-expects-euro-region-help-for-august funding-needs.html) data. At the eurogroup meeting, the Greek finance minister did not request an extension to the country’s fiscal adjustment period, which is said to have irked Venizelos according to Kathimerini (Link: http://ekathimerini.com/4dcgi/_w_articles_wsite1_1_10/07/2012_451505). “When the time comes, the issue of an extension will be raised persistently because it is only fair,” Stournaras said, adding that a report by creditors into the cost of an extension and its repercussions on debt sustainability was in the pipeline.
The IMF forecasts higher Italian deficit and debt
According to last IMF report, Italy remains vulnerable to external shocks despite Monti’s efforts, according to ANSA. In particular, the IMF has raised its forecasts on unemployment to 11.1% in 2013. It also revised its forecasts for the 20012 deficit from 2.4% in April to 2.6% and debt-to-GDP to 125.8% in 2012 and 126.4% in 2013 (previous April forecast 123.4% in 2012 and 123.8% in 2013). Unchanged are the forecasts on growth: Italy’s GDP will contract by 1.9% in 2012 and a further 0.3% in 2013. According to Arrigo Sadun, IMF Executive Director for Italy, “The structural reforms introduced in the past few months and those planned will produce tangible benefits in the years ahead,” but in the short-term “could hardly be expected to spur aggregate demand.”
Bank of Italy approves the new business plan of MPS
The Bank of Italy has approved the restructuring plan of Banca Monte dei Paschi di Siena (MPS), the third largest Italian bank. In last year MPS has been hit very hard by the eurozone crisis because of its €25bn exposure to Italian government bonds. Alessandro Profumo, its new chairman, has asked for the access to state-backed bonds, aka Tremonti bonds. The EBA is requiring that Monte dei Paschi raises €3.3bn in extra capital to avoid the worst scenario. “It’s a good business plan,” Luigi Federico Signorini, Managing Director for Banking and Financial Supervision at Bank of Italy. At the end of June, Italy offered up to €2bn in Tremonti bonds to plug a capital gap in MPS.
Monti says he will quit in 2013, and Berlusconi says he might run again
Mario Monti has ruled out the possibility of staying in power beyond 2013 when the mandate for his government expires, Il Corriere della Sera reports. “I can categorically exclude as of now that my experience in government will continue beyond the next elections,” Monti said at the Ecofin in Brussels. He will remain in the parliament as a senator for life. Meanwhile, Silvio Berlusconi said he wants to be a candidate in 2013. Monti also refused to rule out the prospect of Italy using EU bailout funds EFSF/ESM. “Among the new developments that will be worked on is (the possibility) that from September there will be the direct intervention of the ESM in the recapitalisation of the banks,” said Monti. The refinancing needs for Italy between 2013 and 2017 is €764bn, according to Italian Treasury data. The net combined EFSF/ESM size is actually less than €700bn, after EFSF disbursements for Greece, Ireland and Portugal.
10-Y Spreads, Forex, ZC Swaps and Euribor-Ois
Spreads are marginally better, but euro falls to $1.2258. Note how inflation expectations are undershooting the ECB’s target.
10-year spreads
Previous day Yesterday This Morning
France 1.108 1.072 1.097
Italy 4.773 4.762 4.764
Spain 5.739 5.585 5.590
Portugal 8.940 9.574 9.576
Greece 24.47124.447 #VALUE!
Ireland 4.921 5.353 5.356
Belgium 1.553 1.486 1.569
Bund Yield 1.324 1.321 1.319
Euro Bilateral
Exchange Rate
Previous This morning
Dollar 1.229 1.2258
Yen 97.360 97.2
Pound 0.792 0.7899
Swiss Franc 1.201 1.2009
ZC Inflation Swaps
previous last close
1 yr 1.3 1.29
2 yr 1.38 1.28
5 yr 1.5 1.44
10 yr 1.85 1.78
Euribor-OIS Spread
previous last close
1 Week -3.614 -2.714
1 Month 4.129 4.129
3 Months 27.693 28.593
1 Year 90.393 92.593
Source: Reuters