European banks have non-performing loans of €1.05 trillion
A study by PwC puts the non-performing credits of European banks at €1.05 trillion, nearly double the volume of 2008;
volumes increased strongly in Greece, Spain and Italy, but remained unchanged in Germany and the UK;
German politicians have been calling for new voting weights in the ECB;
the SPD’s budget spokesman has put Germany’s total exposure to all eurozone crisis policies at around €1 trillion, more than three times the government’s official estimate;
Borsenzeitung and other German newspapers have reacted with extreme hostility to the Greek proposal to extend the austerity timetable;
according to Bloomberg, Spain is about to receive an emergency tranche of its programme, after the ECB imposed restrictions on bank borrowing;
Mariano Rajoy announced another policy U-turn, this time on the extension of long-term unemployment benefit;
Spanish firefighters are blaming budget cuts for the inadequate response to the wild fires;
Breakingviews says the Spanish request to exempt retail investors from being wiped out might lead to an avalanche of claims by other investors groups in the eurozone;
the head of the Dutch Socialists, meanwhile, says the Netherlands should not pursue austerity next year.
Yesterday was another very quiet summer day, as a result of which the briefing is shorter than usual.
Der Standard (Link: http://derstandard.at/1343744867492/Studie-Ueber-eine-Billion-faule-Kredite-bei-Europas-Banken) cites a PriceWaterhouse study according to which European banks suffered record of non-performing credits, reaching €1.05bn end of 2011, nearly double the volume of 2008. Compared with 2010 the nominal value of outstanding credits increased by 50% in Greece (€40bn), 23% in Spain (€136bn) and 37% in Italy (€107bn) while the volume remained unchanged for Germany (€196bn) and the UK (€172bn). The increase is less pronounced as in the years before.
German politicians demand new voting weights in the ECB
Handelsblatt (Link: http://www.handelsblatt.com/politik/deutschland/zukunft-der-zentralbank-politiker-fordern-radikalumbau-der-ezb/7004434.html) has the story this morning that several politicians, from both ends of the political spectrum, are seeking changes at how the ECB is governed, as it takes on the role of fund national governments. The article quotes a CDU parliamentarian as saying that Germany should insist on a veto right on the ECB’s governing council, as the ECB is moving away from a primary mandate to secure price stability towards a bad bank. FTD Eurosceptic Frank Schaeffler is quoted as saying that it was a scandal that Cyprus and Malta had the same vote as Germany. But also the Social Democrats are expressing concern. The article quotes SPD budget spokesman Carsten Schneider as calling on the ECB to renew its focus on price stability, and to refrain from funding governments. As Frankfurter Allgemeine reports, Mr Schneider also puts Germany’s total risk for the eurozone at about €1 trillion, three times more than the figure officially admitted by the government. The gap results mostly from the ECB.
(We think that the ECB’s bond purchasing programme is going to be hugely unpopular in Germany. Angela Merkel is content to let the ECB come to the rescue, but only to the extent that this does not cause further political difficulties. This is the reason we believe that the ECB’s ultimate programme is likely to end up more modest than some market participants seem to think.)
Hostile German reaction to Greek proposal of an austerity programme extension
Borsenzeitung (Link: http://www.boersen-zeitung.de/index.php?li=1&artid=2012157014) is fuming at the Greek proposal to extend the austerity programme by another two years. In an editorial the paper says Greece has so far gotten all it wanted. When the ECB clamped down on collateral, the Greeks were still able to borrow through the ELA, a programme which is now being misused to fund the budget deficit. This sentiment was reflected in numerous other editorials in German newspapers.
Spain said to accelerate EU bank bailout amid collateral limits
Bloomberg (Link: http://www.bloomberg.com/news/2012-08-15/spain-said-to-accelerate-eu-bank-bailout-after-collateral-limits.html) said that Spain is about to receive an emergency disbursement from the €100bn bailout of its financial system because of restrictions the ECB imposed on bank borrowing. The ECB last month imposed limits on how much it will lend banks against government-guaranteed bonds. The rule change meant Spain had to ditch a plan for nationalized lender Bankia group to get a ECB loan. Officials declined to comment on this story except for saying that Spain hasn’t requested even the initial €30bn payment to be mobilized.
Another U-turn by Rajoy
After a traditional mid-summer dispatch at the King’s summer residence, Rajoy announced his decision to extend the €400 subsidy that the long-term unemployed receive for another six months, which is a major U-turn following great controversy and public pressure, according to El Pais (Link: http://elpais.com/elpais/2012/08/14/inenglish/1344955981_882560.html).
(Link: http://www.cincodias.com/articulo/economia/empleo-busca-formula-magica-reinsercion-laboral/20120816cdscdieco_3), in an editorial, summarizes that the so-called ‘plan Prepara’ which was introduced by Zapatero’s government in February 2011 as a way to support the long-term unemployed has only been able to find employment for 6% of its roughly 200,000 participants in the last six months, against 20% in the first six months. The government therefore couches its U-turn on the policy announcing its intention to “reform” the programme to make it “more effective” in its goal of helping the long-term unemployed find a job. Ironically, as reported two months ago by ABC (Link: http://www.abc.es/agencias/noticia.asp?noticia=1186034 ), the government was already in the process of laying off “employment promoters-orientators” at public employment officers in charge of “active employment policies” and associated to the ‘plan Prepara’. Meantime, the president of a regional employers’ association suggested earlier this week that beneficiaries of the Plan should be put to work cleaning brush on the mountains or sweeping roadsides according to ABC (Link: http://www.abc.es/agencias/noticia.asp?noticia=1231633 )).
Austerity hinders the fight against wildfires
When countries embark on austerity, they usually cut nurses or fire-fighters, as such cuts are easiest to implement. El Pais (Link: http://elpais.com/elpais/2012/08/14/inenglish/1344971745_697825.html ) now writes that the Catalan budget cuts have hampered fire-fighter’s efforts to stamp out what has turned into one of the worst fires in a decade, ravaging some 132,299 hectares of land across the country, three times more than in 2011. In February, Catalan fire-fighters warned at a public hearing of “an imminent problem” with regard to this year’s high-risk season. Budget cuts meant that there weren’t enough funds to cover the cost of uniforms this year. “There were some people who couldn’t help extinguish the flames because they had no boots or gloves,” one firefighter is quoted as saying.
Breakingviews on Spanish preference shares
The Spanish preference share scam is probably one of the big scandals of the eurozone crisis, as Spanish savers were lured into putting their lifesavings into bank preference shares, and are now facing a total wipeout. Neil Unmack of Reuters Breakingviews writes that the European Commission is likely to insist on a burden sharing deal, similar to what happened in Ireland. And that means that the savers have to take real losses. The FT reported yesterday that the Spanish government is proposing a deal, under which the preference shareholders would face an initial haircut, but would be fully reimbursed over a longer time period. The article says the likely model to be pursued is Ireland, where junior creditors of banks had to take losses of as much as 80%. Giving Spanish savers a sweetheart deal would cause all sorts of problems with other types of investors in other countries. The article says this was another example that risky products and retail clients do not mix.
Roemer says the Netherlands should not pursue the 3% target next year
Emile Roemer, leader of the Dutch Socialists and frontrunner ahead of September elections, said that the Netherlands should not pay a penalty for exceeding the 3% deficit limit, according to NRC Handelsblad. Roemer argues that the Netherlands is one of the largest net contributors. “Spain will also get more time, that should apply to everyone.” Roemer says the Netherlands should invest.
10-Y Spreads, Forex, ZC Swaps and Euribor-Ois
Still getting better, all fuelled by hopes of Draghi’s bailout.
Previous day Yesterday This Morning
France 0.643 0.605 0.618
Italy 4.367 4.346 4.317
Spain 5.290 5.134 5.189
Portugal 8.453 8.439 8.715
Greece 22.979 22.926 #VALUE!
Ireland 4.604 4.529 4.859
Belgium 1.115 1.060 1.105
Bund Yield 1.469 1.56 1.589
Euro Bilateral Exchange Rate
Previous This morning
Dollar 1.234 1.2278
Yen 97.370 97.39
Pound 0.787 0.7837
Swiss Franc 1.201 1.2009
ZC Inflation Swaps
previous last close
1 yr 1.91 1.9
2 yr 1.81 1.79
5 yr 1.81 1.82
10 yr 2.14 2.14
previous last close
1 Week -8.800
1 Month -4.671 -3.071
3 Months 13.093 12.993
1 Year 74.893 75.693