Germany, Netherlands and Finland announce U-turn on banking union
This is how Reuters interpreted this news, and this is how we see it as well. The finance ministers of Germany, the Netherlands and Finland yesterday issued a joint statement “that appeared to unravel much of what was agreed at the last European summit in June”, as Reuters put it. In a statement the three agreed on a strict separation between legacy issues – which they want to be dealt with inside the ESM only – and healthy banks, which should come into the banking union. The article says this reversal will “frustrate Spain and Ireland in particular, as both had interpreted the June summit as implying that a way would be found to break the debilitating link between their indebted banks and the debts of the government.” German position on Spain hardensNot for the first time, Angela Merkel put up Spain as a poster child for bad banking supervision, writes El Pais (English edition), as part of the German diplomatic offensive against EU-level banking supervision. Speaking to German business people, she said “I am in favour of creating a supervisory authority for the euro zone, but we have seen how the EBA was incapable of seeing the problems the Spanish financial system was suffering from in the bank stress tests”, which to her implies the pan-European banking supervision should not be undertaken ‘in haste’. Following the current German government line, she then argued that the absence of EU-level banking supervision precludes direct bank recapitalization from EU funds. Finally, she advocated painful structural reforms as the only cure to Europe’s woes, and lend credence to ‘lack of confidence in the markets’ that ‘some countries’ will be able to pay their debts. Schauble’s position, too, seems to be hardening from ‘Spain does not need a rescue’ last week, to ‘a rescue wouldn’t help’. (Mariano Rajoy has insisted repeatedly that he would not seek a bailout against the opinion of other eurozone states, implicitly Germany. It is widely believed that Rajoy has been trying to score points with Angela Merkel by ‘doing his homework’ so as to secure political support at the Eurogroup. However, that plan seems not to have panned out. ) Germany’s delaying tacticsNot only is Mariano Rajoy apparently delaying a rescue application, but Germany appears to be actively pushing back any bailouts. The Wall Street Journal writes that the German government is wary of having to bring further eurozone bailouts in front of an increasingly reluctant Bundestag, for fear of fracturing the ruling coalition even more. According to ‘two French officials’ (unnamed), the German government has “alerted France to their need to bundle” together any additional aid to Greece or Spain, as well as a possible bailout of Cyprus (Portugal and Slovenia are also mentioned as potential candidates for new bailouts). According to the story “some German officials concede” that these delaying tactics carry the risk that market tensions could flare up again around Spain or Italy. The WSJ quotes Schauble as saying “Spain needs no program because it is doing the right things and will be successful”. Anti-austerity demonstration turns violent around Spain’s parliamentAn anti-austerity demonstration around the Spanish parliament in Madrid last night made international headlines. The BBC quotes Spanish media reports of at least 20 arrests and a dozen injured in clashes between police and demonstrators. Government estimated put demonstrators at 6,000 while at least 1,300 riot police were deployed since the previous night to guard the Parliament. The protest was by and large peaceful, but after the initial clashes there was a tense standoff as the police broke up the crowd and demonstrators sat down or stood with their hands in the air. Some of the demonstrators later regrouped at the Puerta del Sol for an assembly. There were also demonstrations around some of the regional parliaments elsewhere in Spain, including in Catalonia, Andalusia and Murcia. (This is not the first time anti-austerity demonstrators have clashed with police around a parliament, for example in mid-June 2011 around the Catalan regional parliament, see El Pais, or a week earlier at the Valencian parliament, see La Vanguardia) Catalonia to go to early electionsOn Tuesday, as had been anticipated for over a week, Catalan Premier Artur Mas announced in the regional parliament that there will be early elections on November 25, writes El Pais (English edition). The Spanish edition gives the background. This week is the ‘general policy’ or ‘state of the region’ debate. The ‘fiscal pact’ rejected by Mariano Rajoy last week was Mas’ main plank for his term in office, and having given up on it he’ll be shifting to an separatist stance and calling new elections. The Catalan parliament will vote on a resolution on the Catalan people’s ‘right to decide’ on their way to statehood. El Pais has a draft of the resolution, which is ambiguous on whether the ‘consultation’ will be a referendum. Also there is no definite calendar for independence. (The new elections will be two years almost to the day after the previous elections. For his two years in office Artur Mas carried out austerity policies which sparked protests, but he has also objected to encroaching on regional fiscal autonomy by Mariano Rajoy’s government. After being forced to apply for help from Spain’s regional liquidity fund, Mas hopes to be able to ride nationalist sentiment over opposition to his austerity policies.) Greece seeks ECB debt rollover, but ECB says NoReuters has the story that Greece may seek a rollover of €28bn ECB-held bonds, quoting deputy finance minister Christos Staikouras, who listed this as an option if tax and privatisation revenues fell short of the target. He said that any possible extension of the bonds held by the ECB would be done within the framework and legal restrictions of the EU’s Lisbon Treaty. The ECB has now rejected this possibility. Joerg Asmussen told Die Welt that the ECB could not take part in any such restructuring because that would constitute state financing. Finance Minister Yannis Stournaras told Reuters on Tuesday that Greece would need an extra €13bn-€15bn to finance a two-year extension to its bailout but is confident of bridging that gap without burdening European taxpayers, either through the issue of short-term debt or a debt rollover. First major anti-austerity strike tests Samaras coalition, due to agree on measures before FridayGreek workers will today hold their first major anti-austerity strike since the coalition took power in June, grounding flights, disrupting local transport and shutting public service offices. Called by the country’s two biggest unions that represent half the workforce, the walkout is expected to bring out thousands of Greeks to the streets to protest at a new round of austerity measures. “This strike is only the beginning in our fight.” said Despoina Spanou of the ADEDY labour group. “What people want to tell Samaras is that they are hurt and Samaras could use this to demand concessions from the troika,” MRB polling director Dimitris Mavros told Reuters. Ahead of today’s 24-hour general strike, government sources expressed concern about industrial action particularly by public sector employees, slowing down the collection of tax revenue. Greek government officials, meanwhile, resumed talks on austerity measures to get a package agreed by the two junior coalition partners before a eurogroup meeting on Friday, Kathimerini reports. When they meet, the leaders are also expected to discuss when and in what form the package of measures is to be submitted to Parliament. In Ireland four out of ten would dump pension if tax relief reducedA survey conducted by Ireland’s largest pensions provider among its customers has found that four out of 10 people would give up funding a pension or sharply cut back on their contributions if the Government lowers the tax reliefs, the Irish Independent reports. They expect rules to be changed so workers will no longer be able to claim tax relief at 41%, but 20% instead. Head of the company Gerry Hassett said capping the tax relief for higher earners would be preferable to paring back existing tax reliefs. Ireland contemplates selling dollar denominated bondsIreland is considering selling a US dollar-denominated bond to open another funding avenue in its return to international markets, according to Bloomberg. The National Treasury Management Agency may issue the securities within the next two months, subject to Irish debt maintaining recent gains, according to a source who asked not to be named. The bond may have a maturity of at least five years and will be sold through a syndicate of banks, an unnamed source said. The NTMA declined to comment. The yield on Ireland’s 5% security due in October 2020 rose 2 basis points to 5.04% yesterday, compared with 7.11% on June 28, and in excess of 14 % in July 2011. Portugal plans partial sale of savings banks to reduce debtThe Portuguese government decided to put on the table the partial privatisation of the savings banks CGD to halt the rise of public debt, forecasted by the Troika to reach 123.7% of GDP next year, Jornal de Negocios reports. The Bank of Brazil informed the government of their interest in participating in a partial privatization of the state-owned bank with a 20% stake. Economicoremarks that such a partial privatization of CGD (CGD) could imply an increase in the share of Portuguese banks owned by foreign investors to almost 40%. The Northern League wants a new macroregion, fiscally independent from ItalyThe Northern League formalised plans to create a “macroregion” in the north of Italy, according toLibero Quotidiano. The separatist party, ally of Silvio Berlusconi, presented a motion in all the regional councils (Piemonte, Lombardia, Veneto) where the party is represented. “We are inspired by the Spanish model,” general secretary Roberto Maroni remarks. Under the proposal, 75% of tax revenue would remain within the macroregion, a federation of two or more regions with an independent tax system from Italy. The constitutional laws establishing it would also be subject to a referendum “in order to legitimise the clear will of the people concerning this important political and institutional project”. Federalism is one of the main interest of the Northern League since its beginnings. And now, Maroni’s party also wants a referendum on the eurozone. Berlusconi attacks Monti over taxes, sovereignty and austeritySilvio Berlusconi is back and attacks Mario Monti in an interview published by the newly Italian edition of The Huffington Post. The former Prime Minister said austerity measures and reforms imposed by Monti’s government had created an atmosphere in which Italians risk feeling like ‘prisoners of the State.’ According to Berlusconi, he would not have increased fiscal pressure or introduced property taxes. Berlusconi told The Huffington Post that Italian taxes were too high and that the country had no growth perspectives with that model of government. In a clear reference to Germany, he said he “would have been less loyal” to eurozone partners whose “hegemony dictates the rule of austerity and rigor to the other European countries.” That’s why, according to Berlusconi, Monti’s government needs more courage to stand up to Angela Merkel. The money comes back to Italy after the ECB’s decisionsItaly’s asset management industry posted net inflows in August, as Milano/Finanza claims. It is the first positive result since March. Citing a paper published by Assogestioni, the Italian AM lobby, net inflows in August totaled €1.75bn, compared to outflows of €1.28bn in July. The improvement, remarks Milano/Finanza, follows the latest ECB efforts to stabilise the euro. The crisis changes Italians food habitsThe economic crisis hurts food habits of Italians, consumer association Codacons said. In an analysis published on Il Messaggero, Codacons argues that spending on food had returned to 1979 levels. The drop in food consumption began in 2007. The fall seems unstoppable, Codacons remarks. Only discount supermarkets are holding up in terms of 2011 turnover. Italians are in dire financial straits and are obliged to abandon the major brands of the Italian food sector in favour of cheaper products, Codacons said. One week ago, the Italian trade association Confcommercio announced that consumer spending would fall by over 3% in 2012, the sharpest drop since the Italian Republic was founded in 1946. 10-Y Spreads, Forex, ZC Swaps and Euribor-Ois
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