BILD has an interview with Mariano Rajoy in which he dismissed the conditionality for bond purchases as not a problem as Spain already fulfills all conditions set by the EU summit in June.
(It looks like Rajoy and the ECB have a different definition of conditionality. The ECB means a full application to the EFSF/ESM with troika supervision. Spain’s partial EFSF programme includes conditions, but we doubt this is going to be enough for the ECB. It looks to us we may be heading for a confrontation on this one.)
Rajoy also laid out Spain’s proposals to van Rompuy on the banking and fiscal union. On fiscal union, there should be tree stages. The first, until 2014, would see all economic and fiscal convergence criteria and the conditions of the European Council satisfied by all Eurozone states. The second, until 2016, would establish a European institution overseeing national budgets, and medium and long-term Eurobonds. And in the third, until 2018, the Eurozone would have joint budget goals and issue Union bonds.
ABC clarifies that Rajoy gave interviews with four European newspapers simultaneously. The other two were Italy’s Corriere della Sera and France’s Journal du Dimanche. Rajoy’s interview with ABC was almost entirely about internal Spanish politics, with nothing of import on the crisis and reforms other than the effect they are having on popular support for his government. Rajoy argued that it’s a good thing his government has an absolute majority guaranteeing a full 4-year term in office. He also claimed that only “reality” prevented him from fulfilling his election promises. In reaction to the ABC interview, PSOE general secretary Óscar López criticized that Rajoy “is thinking of the 2015 elections when many citizens are suffering in 2012”, writes Europa Press. Also, journalist Ignacio Escolar links back to his blog from November 2011 where he detailed “Rajoy’s secret program”, most of which has come to pass.
Il Corriere della Sera and Journal du Dimanche have their own versions of the interview. Reuters has an English summary.
Rajoy’s Autumn
Writing in the Financial Times, Peter Spiegel argues that Draghi’s insistence that the ECB will only intervene in government debt markets in exchange for “sweeping and painful reforms” shifts the focus from himself onto Mariano Rajoy. Spiegel says EU and German officials praise Rajoy’s “forcing through risky austerity measures” at the same time being surprised by Rajoy’s “tin ear” for EU diplomacy. Also that Rajoy seems to be avoiding a rescue because of the bad image a troika mission would give him at home, but that such missions will be a necessity.
An editorial in El Pais (English edition) sets the stage for “Rajoy’s Autumn”, in which he will face the regional elections in Galicia and the Basque Country, a possibly simultaneous negotiation of the conditions of the widely anticipated ‘rescue’ of Spain, and the drafting of the budget for next year.
The director of El Mundo, Pedro J Ramírez, dusts off an article from 2008 in which PP member of parliament Gabriel Elorriaga wrote that Rajoy couldn’t offer the kind of leadership that the PP needed. Under the title “what if Gabriel Elorriaga was right?”, Ramírez launches into a scathing criticism of Rajoy, culminating with the suggestion that if after another year Spain’s “calamitous trend” hasn’t been corrected, the PP should replace Rajoy at the helm, arguing that neither a coalition nor new elections would be required.
Confusion and delays on Spain’s banking rescue
El Pais (English edition) has the story that bank bailout funds have been withheld by the ECB and the European Commission because “they believe more detail is needed first about the needs of Spain’s banks”. According to El Pais, Spain’s economy ministry faces the “huge disappointment” of not having the money available until November despite having announced that €30bn would be available in August already. On Friday, the FROB restructuring fund announced it would inject €4.5bn “temporarily”.
Expansion wirtes that the four nationalized banks lost €7.5bn in the first half of the year, while El Pais reported Saturday that, according to language in the final banking reform decree approved on Friday, the FROB would not have seniority in the institutions it recapitalises but it would be just another shareholder. This means it could lose the money already given to nationalized banks in case these are liquidated due to mounting losses.
Weidmann won’t resign, but his threat may reduce scope of the programme
Suddeutsche has nice report on Weidmann’s resignation threat – which seems more a cry of help than anything calculated, or thought through. Weidmann is not going to resign, not for now at least. A resignation would not help him. A successor would either face the same isolation, or he would support Draghi. The article says that Weidmann and Jorg Asmussen disagree mainly on tactics. Asmussen accepts bond purchases, given the majority on the ECB’s council, but wants to tie them to strict conditions. Weidmann’s No is principled.
(A clarification. We agree that Weidmann is not resigning. In our briefing on Friday, our message was garbled. We meant to say that there is “no way” that he will resign instead of “no question” .)
At Jackson Hole, Weidmann refused any comment on his resignation threat. Reuters quotes Holger Schmieding of Berenberg Bank as saying that Weidmann’s opposition would have the effect that bond purchases would be highly conditional and focus on the short end, and would thus not bring yields down quite as much as Italy and Spain would like to see.
Reuters also quotes Jorg Asmussen as saying that the Bundesbank’s position should give pause for reflection. Asmussen said the new programme was better conceived that the previous one, as the ECB’s won’t have senior creditor status.
French state guarantee for small mortgage lender may reach €20bn
The French government rushed to bail out a small, liquidity-starved lender, the Caisse Centrale du Crédit Immobilier de France, or CCCIF, guaranteeing €20bn according to Les Echos . The bank, which specializes in loans to low income households, sought emergency assistance on Friday, faced with a liquidity gap of €4.7bn. The bank needs the cash to pay down bonds falling due on Monday, but was effectively unable to raise the funds on its own after Moody’s Investors Service downgraded its debt rating last week, write the WSJ. The Finance Ministry said it would seek approvals from both the European Union and the French Parliament to extend state guarantees to the bank. A report by Le Figaro newspaper (hat tip FT), whose online edition broke the news of the government rescue, said a winding down of the group, which has about 300 branches, was the most likely outcome.
Hollande speeds launch of state investment bank
Francois Hollande is speeding up some of his phare measures in an effort to fight an economic downturn, Reuters reports. A public investment bank is to be created within the coming days, to help cash-strapped companies obtain financing. The bank, originally due to be launched in January of next year, is designed to support small- and medium-sized firms which are struggling to obtain financing from private lenders amid tight credit conditions. France is also fast-tracking the launch of a scheme to create 150,000 state-sponsored jobs for youths, in a move to tackle rising unemployment
Greek coalition partners meet again on Wednesday
Antonis Samaras and his coalition partners are to meet again in the middle of this week in a bid to finalize the €11.5bn package in austerity measures ahead of the scheduled return of the troika to Athens on Friday, Kathimerini reports. Samaras’ two coalition partners – PASOK leader Evangelos Venizelos and Democratic Left chief Fotis Kouvelis – are said to have serious doubts about some of the proposed cuts including cuts to the so-called special salaries of certain categories of civil servants, the abolition of additional holiday payments for pensioners and the bottom level of pension cuts. Plans for cuts to the holiday payments of civil servants are also unpopular. A Reuterscomment asks whether Evangelos Venizelos is to sabotage Samaras efforts to deliver an unpopular austerity package, the same way Samaras did block the first austerity package of the Socialist government.
Wellink: Dutch parties don’t tell the truth about the euro zone
In the Dutch news this morning is Nout Wellink, former President of the Dutch central bank, accusing politicians of not saying the truth about Europe in the run-up towards the general elections on September 12. According Wellink is inevitable that powers are transferred to Brussels to the financial crisis to be resolved. Party leaders who say there is no more powers to Brussels are transferred, do not tell the honest story says Wellink. “If you started with a monetary union, then you have to finish the story. It requires a second pillar with more political integration. And the way back is not even there, said Wellink on television. Wellink also considers likely that additional funding to the ailing Greece needs.
An FT poll says only a quarter of Germans want to keep Greece in eurozone
An FT/Harris poll of 1,000 adults in Germany, Italy, Spain, France and Britain showed that 26% Germans believed Greece “will ever repay its bailout loans”, compared with 77% of Italians and 57% of Spaniards. Similarly, nearly half of Germans did not think Greece would ever be able to reform its economy sufficiently.
Only 32% of French respondents thought Greece should leave the eurozone, against 54% of Germans, but they were just as reluctant to provide Athens with extra assistance.
China is worried by Italy, Spain
Chinese premier Wen Jiabao is “worried” by the future of Eurozone countries, especially Italy, Spain and Greece, Il Corriere della Sera reports. Talking with the German Chancellor Angela Merkel, Wen reiterates his fear about the Eurozone situation. “The European debt crisis has continued to deteriorate, causing serious concerns in the international community,” Wen said. The fiscal consolidation is too slow and countries as Italy and Spain should be more compliant with the commitments taken with EU Commission in the last months. “Frankly, I am worried,” he added during the press conference. In the last days, German Merkel said that the Chinese trip is a way to promote Eurozone and its efforts to solve the worst crisis of its history. Unfortunately, the main Wen’ worry is whether Greece will leave the eurozone. But that’s not the only one. “The second is whether Italy and Spain will take comprehensive rescue measures,” Wen said. “Resolving these two problems rests with whether Greece, Spain, Italy, and other countries have the determination for reform,” he added. No comment from Wen about the possibility of Chinese bond-buying targeting the Eurozone members.
Soros “very, very pessimistic” on the Euro
El Pais has an interview with George Soros. In it, Soros argues that Keynes wouldn’t have advocated debt-financed demand stimulus today because governments entered the crisis with high debt burdens already, and stimulus needs to avoid propping up “unsustainable consumption levels or an unsustainable welfare state”. For Soros, Germany is repeating the errors of the Great Depression by insisting on reducing debt by contracting the economy, which “is not understanding how the economy works”. He also says the Eurozone is a miniature version of the Bretton Woods system, but one in which Germany is unwilling to take the US’ erstwhile role because it is unconcerned with the welfare of the periphery. Soros also enumerates political and market errors responsible for the crisis: first, Eurozone member states gave up monetary sovereignty which allowed national insolvency which is impossible in one’s own currency;
then, markets first underestimated the risk of European government bonds, and finally after Lehman Brothers risk premiums emerged again.
Munchau on banking union
In his FT column, Wolfgang Munchau says only a proper making union makes sense for the eurozone, one that includes final oversights by the ECB for all 6000 eurozone banks, not just the 25 largest ones. He said the issue is not competition policy, but financial stability, as a result of which the case for a eurozone banking regulator has nothing to do with cross-border activities. Most of the risks to financial stability have come from small and medium sized banks, notably in Germany and Spain. He says the final agreement will no doubt be a compromise, but the test of this compromise is the answer to the question who will have ultimate responsibility for closing down a bank. Only if this is the ECB, would we be at the right side of the compromise. His one piece of advice to Mario Draghi is to tie the bond purchasing programme to a proper agreement on banking union.
10-Y Spreads, Forex, ZC Swaps and Euribor-Ois
Spreads getting much worse again. Euro has been gyrating at $1.25/1.26. Inflation swaps remain firmly pinned at below the ECB’s target .
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| 10-year spreads |
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Previous day |
Yesterday |
This Morning |
| France |
0.829 |
0.815 |
0.834 |
| Italy |
4.489 |
4.602 |
4.609 |
| Spain |
5.290 |
5.523 |
5.625 |
| Portugal |
8.118 |
7.869 |
8.046 |
| Greece |
22.539 |
21.946 |
-1.34 |
| Ireland |
4.627 |
4.555 |
5.007 |
| Belgium |
1.261 |
1.223 |
1.260 |
| Bund Yield |
1.324 |
1.344 |
1.337 |
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| Euro Bilateral Exchange Rate |
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|
|
|
Previous |
This morning |
|
| Dollar |
1.261 |
1.2582 |
|
| Yen |
98.810 |
98.54 |
|
| Pound |
0.794 |
0.7928 |
|
| Swiss Franc |
1.201 |
1.2008 |
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| ZC Inflation Swaps |
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previous |
last close |
|
| 1 yr |
1.75 |
1.88 |
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| 2 yr |
1.66 |
1.7 |
|
| 5 yr |
1.72 |
1.74 |
|
| 10 yr |
1.99 |
2 |
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| Euribor-OIS Spread |
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previous |
last close |
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| 1 Week |
-8.000 |
0 |
|
| 1 Month |
-4.843 |
-2.943 |
|
| 3 Months |
7.386 |
9.186 |
|
| 1 Year |
67.157 |
68.357 |
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Source: Reuters
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