Eurointelligence Daily Briefing, 16 de Julho de 2012. Enviado por Domenico Mario Nuti.

This is a remarkable story form the Wall Street Journal, which reports that the European Central Bank is now in favour of bail in senior bondholders participations in Spain, having rejected them for Ireland before. The Spanish memorandum only includes a reference to shareholders and junior bondholders. Mario Draghi made the ECB’s new position known at an Ecofin meeting on July 9, according to the article, but ministers rejected this on the grounds that a reversal of policy would affect Ireland as well, and because of a likely negative market reaction. The article says the ECB’s change of position may be a sign of a fundamental shift in crisis resolution policy in respect of bank rescues. WSJ says the story was confirmed by three independent but unnamed sources. Specifically, Draghi recommended that senior bondholders should only bleed in case of a liquidation, but not in a downsizing.

 

Italy plans to sell €120bn in assets by 2017 and hopes to cut debt by 20%

 

 

Italy plans to sell public assets valued at as much as €20bn annually in order to cut its debt by 20% from 2012 to 2017, Italian Finance Minister Vittorio Grilli told Il Corriere della Sera in an interview published Saturday. After the spending review, €26bn of cuts from public sector, Italy is trying to boost its growth. “We would sell assets each year worth as much as 1% of GDP,” Grilli said. Unfortunately, the Italian economy will contract less than 2% this year, according to latest Italian Ministry of Finance data. Italian public debt rose to 120.1% of GDP in 2011 and is projected to reach 123.4% this year, according to Italy’s government, or 126.8%, according to IMF. Today there will be first talks between government and sovereign wealth funds, Il Corriere reports.

 

Paolo Guerrieri says Italy may be facing a Greek scenario

 

 

Italy is facing several risks of Greek scenario, Paolo Guerrieri said to Repubblica. According to La Sapienza University professor of Economics, Italy is vulnerable to external shocks and should ask access to EU bailout funds EFSF/ESM to avoid a “death spiral” on government bond market. “August will be very hot for Rome,” Guerreri said. The Italian 10y-bond yields are over 6% and the spread between 10y BTP and 10Y Bund close to 500bps. Last week Mario Monti said he thinks Italy does not need a bailout. 

 

The cumulative total of austerity plans is €330bn according to Il Sole 24 Ore

 

The Italian austerity plans over last year have reached €330bn, Il Sole 24 Ore claims. With over €180bn in new taxes and €150bn in public spending cuts, Italy is still waiting for a real growth plan. “Rome wasn’t built in a day,” Il Sole 24 Ore wrote. The latest growth plan includes the sale of state assets and a significant reduction in public spending, government staff cuts and the abolition of some state agencies. In addition, incentives would be offered to construction companies, as well as companies that hire young people. “But it’s not enough,” Il Sole wrote in an editorial comment.

  

Who is liable for Spanish rescue aid?

 

 

There is an argument within Germany on whether the Spanish government is liable for the rescue loans to save Spain’s banks after the ESM switches from country programme to direct capital injections into banks. According to Reuters, CSU chief Horst Seehofer told ARD public television: „I advise to vote yes (for the Spanish rescue) once the federal government has made it clear that it it is the Spanish state which is liable for this aid.“ Merkel said whether the EFSF and later the ESM or recipient states would be liable for future aid payments to banks had not been worked out so far. “We have not yet adopted a final position on how to solve the liability issue if a (pan-European) banking supervisor can intervene in national banks, if it can restructure them and if it can set conditions for them,” she told ZDF.

 

 

However both were contradicted by Klaus Regling. “Once there is a real bank supervision by the ECB then there is the possibility that we give credits directly to banks and we will not have to channel them through the governments”, he told Welt am Sonntag. “In that case the country is no longer liable.” In his interview with Börsenzeitung Jens Weidmann encouraged Spain to apply for a full rescue program, not only for bank aid. “The bank’s balance sheets are always also a mirror of the entire economy”, the Bundesbank president said. The entire Spanish economy faced huge challenges, he continued. “It would have positive effects on the bond markets if investors saw that the conditions of the rescue program went further than just the banking sector.”

 

Merkel likely to miss her coalition majority in vote on Spanish rescue

 

 

The FT reports from Berlin that Angela Merkel may miss the so called “chancellor majority”, an absolute majority of her own coalition MPs in the vote on the Spanish rescue. The package is not in doubt as the SPD and the Greens support it, but it is a sign of the divisions with the present coalition.

  

Spanish unemployed losses their unemployment benefit if they go abroad – even if they go for a one day interview

 

 

This is a from a correspondent who sent in the following extraordinary story about the Royal Decree signed and published on Friday, which implements the latest Spanish austerity measures. It says that the unemployed lose their jobless entitlements if they leave the country for any reason, even for as little as a day (and yes that would include a job interview abroad).  This is from the Spanish Official Journal:

“The Royal Decree 1369/2006, of 24 november, regulating the programme of “active reinsertion income” for unemployed persons with special economic needs and difficulties to find work, will be modified in the following terms:
1. Two paragraphs are added to letter b) of section 1 of article 2 which are written in the following terms:
«During the registration as jobseeker referred to in the previous paragraph, employment must be actively sought, without rejecting an adequate job offer or refusing to participate, except by justified causes, in activities for the professional promotion, training or reorientation or others to improve employability. Going abroad, for any reason or duration, interrupts the registration as a jobseeker to these effects. In the cases when the jobseeker registration is interrupted, an uninterrupted 12-month period will be required after the new registration.”

We wonder is this legal under EU law?

 

Enria wants to make capital ratio increase permanent

 

 

In an interview with the Financial Times, EBA chairman Andrea Enria says he wants to make permanent the 9% capital requirement for banks introduced during the crisis. The 9% rule was originally known as a temporary buffer. Enria said this would help in the six-year phase-in of Basel III. He said banks that had raised the capital should not release it but conserve it. The only exception relates to banks that have lost money, and as a result fell below 9%. They will not have to reach the 9% immediately, but must submit a plan. The FT writes that these proposals will be fiercely resisted by several member states.

 

Portugal’s bonus payment might also be challenged for this year

 

We already reported that Portugal’s constitutional court had declared as illegal the cuts of the Christmas/summer bonus payments to civil servants. According to the ruling it only takes effect from 2013 onwards. But there is now a likelihood that the Portuguese government might have to return the Christmas bonus also this year, Jornal de Negocios reports. The article now argues that faced with the challenge of a specific victim, the courts could give reason already for this year.

 

Ed Hugh says the original deficit target will not be met even with cut

 

 

In Economonitor Ed Hugh posted a solid analysis about Portugal and why the original deficit targets will not be met, even with this year’s public sector Christmas pay cut. Among the challenges are insufficient competitiveness improvements, a construction sector boom-and-bust threatening the banks’ balance sheets and a deficit forecast that is highly sensitive to changes in growth or interest rates. The long term forecast is also worsened by the fact that young educated people are leaving the country to find their chances abroad, more likely to Brazil than towards the Euro area.

  

7 out of 10 Greeks want their government to insist on renegotiation

 

 

The latest opinion poll shows that seven in 10 Greeks want the government to insist on a renegotiation of the terms of the country’s debt deal. Only 15.5% said the government should accept the existing terms.

 

 

The Greek government, meanwhile, is under pressure to find €11.6bn in savings for the next two years this week. It is expected that the savings will come from cuts in three areas — pensions, social benefits and the public sector, where several bodies are to be abolished or merged. Top troika officials, who are to return to Athens on July 24, have said that they can be flexible on the measures as long as they achieve the required revenue, according to Kathimerini.

 

Weidmann thinks Italy does not need an ESM rescue

 

 

Talking to Börsenzeitung Jens Weidmann rejected the idea that Italy would need a rescue by the ESM. “Obviously I understand that a country tries to lower its refinancing costs”, the Bundesbank president told the paper. “But for the currency union this cannot be a justification for granting aid because because of the ultima ratio character of the financial aid”, he said referring to the German constitutional court’s ruling that the eurozone’s rescue aid for troubled countries were in line with the constitution only if they were required as an ultima ratio solution to maintain the stability of the single currency. “I think it is indispensable to maintain strict conditionality on all aid”, Weidmann added. Turning to the ECB’s recent decision to lower its policy rates, the Bundebank president hinted that he disagreed. It was doubtful as if the rate cut “had any effect via the monetary transmission mechanism in the current situation”, Weidmann said. After the rate cut Mario Draghi had stressed that the decision had been taken with a unanimous vote.

 

Merkel wants to transform the Bundestag election in 2013 into a referendum on Europe

 

 

In her traditional summer interview with ZDF television, Angela Merkel said she wanted the Bundestag elections in September 2013 to a vote on Europe. The chancellor reiterated she would be a candidate for a third term. Merkel also said she was sure she would obtain a majority in Thursday’s special Bundestag vote on the Spanish bank rescue. “We always get the majority we need”, she said. However she said it was irrelevant whether or not she succeeded in getting an absolute majority with her own coalition and without the votes of the opposition SPD and Greens.

 

Wolfgang Munchau on why the eurosceptics are winning, again

 

 

In his FT column, Wolfgang Munchau compares the euro debate in Germany with the euro debate in the UK during the 1990s, and detects some eerie parallels. He says in the UK, the pro-euro forces were never able to sell the euro, and misrepresented the case by play down the implications. That is now happening again. Munchau specifically looks at the debate in Germany where Hans-Werner Sinn organised a highly effective anti-rescue appeal, which was immediately followed by a pro-euro appeal. On closer inspection, Munchau writes, the two are not all that dissimilar because they both reject eurobonds, transfers, and joint liability for the banking system. He concludes: with pro-Europeans like that, who needs eurosceptics?”

 

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

 

 

Moody’s downgrade of Italy on Friday morning is clearly visible.

10-year spreads
	Previous day	Yesterday	This Morning
France	0.997	0.976	0.988
Italy	4.661	4.902	4.899
Spain	5.387	5.403	5.366
Portugal	9.411	9.313	9.670
Greece	23.972	23.656	#VALUE!
Ireland	5.002	4.967	6.076
Belgium	1.452	1.410	1.441
Bund Yield	1.249	1.256	1.259
Euro Bilateral Exchange Rate
	Previous	This morning
Dollar	1.221	1.2235
Yen	96.750	96.77
Pound	0.791	0.7858
Swiss Franc	1.201	1.2006
ZC Inflation Swaps
	previous	last close
1 yr	1.36	1.36
2 yr	1.33	1.39
5 yr	1.54	1.55
10 yr	1.88	1.9
Euribor-OIS Spread
	previous	last close
1 Week	-3.871	-4.571
1 Month	0.743	2.043
3 Months	24.064	25.064
1 Year	88.921	90.221
Source: Reuters