El Economista details Mariano Rajoy’s diplomatic offensive to “avoid or soften” a rescue of Spain, though it writes that “the markets discount a Spanish rescue” possibly as early as September. Rajoy will meet van Rompuy today (Tuesday) and Hollande on Thursday. Then on the 6th of September Merkel will be in Madrid with a delegation of German business, and on the 11th Rajoy will host Finland’s Sauli Niinistö. Finally, Rajoy will meet Monti in Rome on September 20-21.
One indication that Spain may not request assistance as early as September is the speculation reported by Europa Press that Rajoy advised Galician regional president Alberto Núñez Feijóo to bring forward the Galician regional elections from next year to October 21.
Last Sunday PSOE General Secretary Óscar López asked Rajoy to avoid a rescue because “Spain is a strong country” and a rescue would be disastrous, writes Europa Press.
Also, in a speech yesterday, François Hollande said that it is not time to use the EFSF and ESM. He spoke as if the agreement for the ESM and ECB to cooperate on reducing government debt yields were already in place. He said he hoped everything would be ratified by the European Council on October 18, Expansion writes.
Everyone weighs in on Spain’s impending ‘rescue’
In an interview with the International Herald Tribune on Monday, Luis de Guindos claimed that Spain expects to use only €60bn of the available €100bn for the banking rescue, El Pais (English edition)reports. He also addressed the debate on ECB bond purchases by reassuring that the Spanish government would “meet its commitments” and “not relax fiscal consolidation” should the ECB intervene in the bond markets. Meanwhile, El Mundo reminds its readers that the ECB has not bought government bonds for the past 6 months.
Europa Press reports an exchange between MEP Angelika Werthmann (Austria, non-attached) and Economic and Monetary Affairs Commissioner Olli Rehn. Rehn said it was “probable” that troubled countries might retain market access at sustainable rates provided they continue with reforms and the ECB continues to be supportive.
Troika report on Greece ready only early October
According to a report in Germany’s Rheinische Post, the much-awaited report on Greece’s economic reform progress will be out in “early October” due to delays in moving forward with privatizations. Kathimerini also quotes a European spokesman effectively saying that the report would be ready in early October.
Asmussen details further aspects of the bond purchase programme
In another story, Expansion reports that Jörg Asmussen confirmed in a speech in Hamburg yesterday (ECB transcript, in German) that the ECB would discuss all technical and operational details of its revamped bond purchase program at it next Council meeting. Asmussen took care to reassure that the program would not constitute monetary financing of government, and that “last year’s mistake” where the ECB bought Italian bonds and the Italian government did not follow through with reforms would not happen again. He also advocated an EU-level deposit guarantee fund as well as accepting a banking supervisory role for the ECB, but only if the ECB is given the necessary tools and supervision is kept separate from monetary policy.
ECB seeks right to close down a bank
This is the ultimate test of any resolution powers. Frankfurter Allgemeine writes that the ECB is seeking the power to close down banks, as part of the new resolution regime. Quoting from Asmussen’s speech, the ECB wants all the powers to make a resolution regime feasible. Without it, the ECB is not prepared to take on this new role. The article says it was the first time the ECB has publically described its role in the new bank supervisory architecture. The article mentioned that its position was supported by the German government but not by the Bundesbank.
That famous ECB letter – to publish or not
There is a famous letter from November 2010 in which the ECB raised the prospect of a then future Irish bailout. There is now a controversy whether the Irish government publish it or not. The letter is said to have contained at least an implicit threat that ECB support for Ireland’s banks would be at risk if the Fianna Fáil-Green coalition did not immediately seek an EU-IMF rescue. The then government claims that this letter narrowed down its options considerably. The ECB is opposed to the publication. The Irish finance minister Michael Noonan now said it will be for a forthcoming parliamentary inquiry into the financial crisis to decide, the Irish Times reports. An inquiry will be initiated this autumn.
Germany and France set up a working group to make joint proposals
It happened before, was subsequently abandoned, and is now resurrected. Germany and France are setting up an inter-governmental working group. This particular group will make proposals for the banking union, for the strengthening of fiscal coordination and economic growth. The announcement was made yesterday by Wolfgang Schauble and Pierre Moscovici at a meeting in Berlin. Der Spiegel quotes Moscovici as saying that the proposal of the joint working group should be ready by October. The working group will also coordinate the Franco-German position on Greece.
Some more bad economic news
Spain
There was more evidence yesterday that the recession is worse than thought. Reuters reports that data from Spain show that GDP in 2010 performed far worse than believed. The economy shrank by 0.3% in 2010 and grew 0.4% in 2011, according to revised data from INE. The previous figures were minus 0.1% in 2010, and plus 0.6% in 2011.
Germany
Meanwhile, Germany’s Ifo index fell to 102.6, the lowest level in two years, driven down by fears over exports. And for the first time in three years, a majority of firms is becoming pessimistic. The euro crisis has finally reached the German economy, Reuters writes in another article.
France
In France, Jean-Marc Ayrault acknowledged that his government’s economic growth forecast of 1.2% in 2013 may have to be revised downward slightly. Economists expect France to grow more likely between 0.5% and 1% in 2013. The French central bank said this month the economy was likely to shrink slightly in the third quarter of 2012, dashing hopes of a robust recovery Bad news also from the labour ministry with latest data showing the number of people out of work in France rose for the 15th month in a row in July to the highest level in more than 13 years. More job losses are expected in September. Unions say companies are preparing to unveil mass layoffs which they held off announcing during elections in May and June, Reuters reports.
An Ipsos poll showed Hollande’s approval rating had tumbled to 44% in August from the previous month – a drop of 11pp, unlikely to improve when the budget 2013 is unveiled in September.
The fiscal pact to be voted early October – Hollande still to convince sceptics in own ranks
Francois Hollande said on Monday that legislation to ratify the European Union’s budget responsibility pact would be submitted to parliament in early October. Le Monde writes that it will be Hollande ‘s next crucial challenge to convince the critics in his majority to vote for the pact, as the pact divides the French left. Le Monde cites estimates according to which around 15 MPs of the majority are likely to vote against the treaty and another 30 MPs have doubts but could be won over.
Italy wants to tax sugar drinks
Italy is considering the introduction of a new tax on unhealthy drinks, such as sugar drinks and alcoholic beverage, La Repubblica reports. The Italian Health Minister Renato Balduzzi proposes the new tax of €0.03 a bottle to raise revenues of €250m and improve the health and lifestyles of Italians. The measure is contained into a spending bill called “Decretone” (big decree) that will be discuss by Italian cabinet on next days. “It is a nudge to mothers and fathers towards a more suitable diet,” Balduzzi told to La Repubblica to justify the new excise. “The revenues could be used to reduce public health costs,” the Italian Minister added. In 2011 France has introduced a similar tax to fight against obesity, with an expectation of €280mln in revenues this year. Several lawmakers from the centre-right and the centre-left disagree with Balduzzi proposal, which is expected to pass.
Holger Stelzner gets really gloomy
Frankfurter Allgemeine’s eurosceptic economics editor Holger Stelzner writes in an editorial that the politicians are so frustrated by the failure of their own eurozone crisis policies that they are now hiding behind the ECB. The ECB will ultimately fail, too, and will then receive the blame for accepting a policy to buy time, but without changing some of the underlying structures. He writes the position of the Bundesbank is particularly difficult, as it is no longer supported by the German government, which supports Draghi.
Landesbanken to reduce foreign exposures
The FT writes that Germany’s two largest Landesbanken have cut back their foreign lending, retrenching to domestic markets. Landesbank Baden-Württemberg and BayernLB reduced exposure in North America at an accelerated rate in the first six months of the year, according to first-half reports. They also cut their non-domestic commitments in western Europe, including in so-called “peripheral” eurozone states considered most at risk from the continent’s debt crisis.
Mayer and Gros call for eurozone sovereign wealth fund
Writing in the FT, Thomas Mayer and Daniel Gros says that the inability by German savers to invest their surpluses is becoming a real problem. As the savings are intermediate through the banking sector, and the banks are now reducing their peripheral risks – and unable to take on exchange rate risk – Germany’s Target 2 surpluses are exploding. They write that the situation is not all that abnormal, since there are few countries were large external surpluses are intermediated purely by the private sector. Saudi Arabia and Norway are examples where the public sector created sovereign wealth funds, while Switzerland and Japan rely on the central bank. They advocate the setup of a German sovereign wealth fund which would invest in a diversified portfolio, including assets outside the eurozone. They acknowledge that this proposal will be seen as a resurgent German mercantilism, which transfers the burden of adjustment to the rest of the world. But under the current circumstances, this is the lesser evil, as it reduces the overall tensions in the system.
10-Y Spreads, Forex, ZC Swaps and Euribor-Ois
Getting progressively worse.
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| 10-year spreads |
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|
Previous day |
Yesterday |
This Morning |
| France |
0.700 |
0.712 |
0.735 |
| Italy |
4.370 |
4.482 |
4.479 |
| Spain |
5.096 |
5.040 |
5.136 |
| Portugal |
7.988 |
7.908 |
8.092 |
| Greece |
22.730 |
22.774 |
-1.36 |
| Ireland |
4.591 |
4.577 |
4.970 |
| Belgium |
1.158 |
1.168 |
1.155 |
| Bund Yield |
1.355 |
1.354 |
1.357 |
|
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|
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|
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| Euro Bilateral Exchange Rate |
|
|
|
|
|
|
| |
Previous |
This morning |
|
| Dollar |
1.251 |
1.2483 |
|
| Yen |
98.410 |
97.98 |
|
| Pound |
0.791 |
0.7906 |
|
| Swiss Franc |
1.201 |
1.2008 |
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| ZC Inflation Swaps |
|
|
|
|
|
|
| |
previous |
last close |
|
| 1 yr |
1.8 |
1.75 |
|
| 2 yr |
1.73 |
1.69 |
|
| 5 yr |
1.73 |
1.73 |
|
| 10 yr |
2.09 |
2.04 |
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| Euribor-OIS Spread |
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|
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|
|
|
previous |
last close |
|
| 1 Week |
-8.357 |
0 |
|
| 1 Month |
-3.000 |
-2.5 |
|
| 3 Months |
10.314 |
9.043 |
|
| 1 Year |
71.200 |
69.314 |
|
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|
|
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Source: Reuters
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