EUROINTELLIGENCE DAILY BRIEFING, 29 de Outubro de 2012. Enviado por Domenico Mario Nuti.


Berlusconi on a rampage, Grillo likely to win in Sicily


  • After his conviction of tax fraud, Silvio Berlusconi bounces back with a full-frontal attack against Angela Merkel and Mario Monti;
  • while the Italian media are writing him off as a future political force, he is still considered as sufficiently destructive to cause instability;
  • Il Sole writes that Berlusconi is finished, but this is no reason to rejoice as he gives way to even more extreme populists;
  • the latest exit polls suggest that Beppe Grillo’s Five Star Movement has won the regional elections in Sicily;
  • his party is now second place in national polls;
  • Italian demonstrators staged a large “No Monti Day” anti-austerity rally in Rome;
  • Greece’s foreign lenders have refused to make any concessions on the labour market reforms;
  • there is still no agreement in the Greek coalition government;
  • the austerity package could still pass without the support of the Democratic Left, but this would be seen as a blow to the stability of the coalition;
  • Wolfgang Schauble rejects an OSI for Greece;
  • Ewald Nowottny says Greece should be given more time;
  • also says that Spain does not need a programme right now;
  • Spiegel Online says that Merkel also rejects OSI, but may accept a third Greek loan programme;
  • Cerstin Gammelin says please stop the hypocrisy about OSI;
  • a Greek editor is arrested for publishing a list of suspected tax evaders, which reads like a Who’s Who of Greek commerce;
  • Germany backs a promissory note deal for Ireland, but remains hard on legacy debt;
  • a Banque de France research note finds that austerity does not work for debt reduction, only growth or inflation can do the trick;
  • Spanish judge urge mortgage reform;
  • there are reports of suicides and attempted suicides by people facing eviction;
  • the IMF advocates the closure of non-viable Spanish banks;
  • Spain’s unemployment exceeds 25% for the first time;
  • Spain’s employment minister says public sector unemployed are “people too”;
  • Wolfgang Munchau, meanwhile, says there is something he does not understand.

After his conviction of tax evasion in a criminal trial, Silvio Berlusconi staged an extraordinary outburst in which he attacked pretty much everybody, including Mario Monti and Angela Merkel. Together with the likely victory of Beppe Grillo’s Five Star Movement, this is a reminder that Italian politics remains essentially unpredictable until next April’s elections.

Il Corriere della Sera reports on Berlusconi’s remarks according to which Germany forced the European Council to take decisions he never agreed with. He also said Merkel and Nicolas Sarkozy had destroyed his credibility in Europe. In addition, the media mogul said Germany had a hegemonic and selfish behaviour toward the EU. He also said Monti’s premiership marked a suspension of democracy in Italy, and this was triggered by German banks which had pulled the plug on Italian sovereign debt. Berlusconi said he will decide in the next few days whether he continue to support the Monti government. Berlusconi said he is obliged to run in the next elections due to latest legal decisions. Berlusconi has been sentenced to 4 years for fiscal fraud in a trial brought against Mediaset. Berlusconi has also been forbidden from holding public office for 3 years and fined €10m.

Berlusconi’s political life over, according to Il Sole 24 Ore, but don’t rejoice

Despite his latest speech, the time of Silvio Berlusconi is over, Il Sole 24 Ore writes in an editorial. Italians have become more critical of political institutions and disaffected from politics in general. The austerity imposed by the eurozone crisis is bringing down political participation, and making life difficult for the established political parties. A new political era in Italy is possibly, but only other sacrifices, but the outlook is negative for now. According to Il Sole, now it’s time for the populists like Grillo.

Grillo is set to win in Sicily elections

The latest exit polls suggest that Beppe Grillo’s Movimento 5 Stelle (M5S) is going to win in Sicily regional elections, according to La Stampa. Nationwide, it is now the second largest party in the polls. As La Stampa remarks, the current regional election in Sicily is an opportunity for M5S to prove that it can turn the support indicated in the polls to votes in elections. Sicily is a key region: it was one of the strongholds of Berlusconi. But now everything has changed. Only 47% have voted at the elections, a figure that indicates how people may vote in the general election next year, according to La Stampa.

The huge protest march’ season is coming in Italy

It was “No-Monti Day” in Italy yesterday, Il Messaggero reports. A rally in Rome against austerity, organized by leftist unions and parties, attracted over 70,000 protestors in Rome. According to Il Fatto Quotidiano, a radical left newspaper, the Italian people are waking up at last, along with fellow Europeans from Greece, Spain and France.

No agreement on the Greek austerity package

Greece’s foreign lenders have refused to make any further concessions on changes to labour laws contested by a junior coalition partner, finance minister Yannis Stournaras said on Sunday.  Final agreement on the austerity package has been held up by the Democratic Left party’s refusal to back the new wage laws, saying it will vote against the measures when they are put to a parliamentary vote next week. With 16 deputies in the 300-seat parliament and the government and a 176-seat majority the package could be passed without its support.  But a vote against the package by the coalition party would undermine the already fragile coalition and perhaps tempt other lawmakers to defect and vote against unpopular measures, according to Kathimerini.

Ahead of the next eurozone meeting this Wednesday which will examine under what conditions Greece should get two extra years Wolfgang Schäuble rejected another debt restructuring for Greece, saying it’s unrealistic to expect public or private bondholders to take losses on their Greek holdings, according to Bloomberg.  Schäuble’s comments, made in an interview with German radio Deutschlandfunk on Sunday, poured cold water on a report in Der Spiegel magazine that Greece’s international creditors recommend a haircut in their latest report.

Ewald Nowotny called for Greece to be given more time to sort out its finances, AFP reports. Nowotny noted that Greece has “a long-term problem that is not solvable in two years and without outside help…Either we are ready to help over the long-term or there is a risk of collapse, with all of its consequences,” he said, adding that decisions have to be made quickly.

Spiegel reports Merkel rejects OSI, but ready for a third Greek programme

With two weeks to go before the EU has to decide on how to fund Greece, Spiegel Online reports that Angela Merkel is ready to accept a third Greek programme, though no OSI ahead of the 2013 elections. The article says the chancellor cannot sell OSI to the Bundestag in an election year, while bankers fear a return of market chaos, as such a process would invariably coincide with a messy political process.

(Delaying OSI for another year, while possible, would significantly increase the risk of a major political backlash, as the Greek debt will have increased, and GDP decreased, by then. We continue to see that Greece will end up defaulting on all its debt – except that of the IMF, the ECB, and domestic residents. The political delay of OSI ensures that the eurozone crisis will continue for much longer than necessary. The purpose of a debt buyback programme is merely to signal action when there is none. Debt buybacks don’t work, as market prices adjust quickly.)

Please end the hypocrisis now, writes Cerstin Gammelin

Cerstin Gammelin has a comment in Suddeutsche Zeitung in which she complains about the hypocrisis of the German government, which has been hiding behind the non-yet published troika report. When the government proclaims publically that it will not accept OSI and that Greece will have to repay its entire debt, the reality is that Greece will not be in a position to do so. It is high time to acknowledge the inevitable.

Greek editor arrested over publishing list of alleged tax evaders

The editor of a Greek weekly magazine was arrested on Sunday on charges of violating data protection laws after publishing the names of about 2,000 Greeks – including a former government minister and members of leading business families – said to hold accounts at an HSBC branch in Switzerland.  Costas Vaxevanis said he acted in the public interest by publishing the list because “politicians have shrugged off their responsibilities on this issue for almost three years, while the justice system looked the other way”, cites the Financial Times.  The reluctance of politicians and officials to name and shame possible tax evaders has infuriated the country’s international creditors, left wing politicians and, increasingly, ordinary Greeks.

The Wall Street Journal summarises the story about the so-called Lagarde list passed on by then French finance minister Christine Lagarde to her Greek counterpart Papaconstantinou, then handed over to Evangelos Venizelos, who first denied knowledge of the list but turned over a copy to the prime minister’s office last month. Venizelos explained he did not act on it because legal advisers told him the information was obtained illegally and therefore cannot be used. Yannis Stournaras has now requested an original version of the list from French authorities at the request of Greek prosecutors.

The FT writes a separate investigation of 54,000 Greeks who transferred a total of about €22bn to accounts abroad as the country’s financial crisis deepened between 2009 and 2011 is making progress, citing a finance ministry official. The official said that so far 10,000 taxpayers with accounts outside Greece had been asked to make supplementary declarations as the amounts sent abroad exceeded their previously declared income by a wide margin.

Germany signals backing Ireland on promissory note deal, no on legacy debt

Ahead of today’s visit to Dublin by German finance minister Wolfgang Schäuble, German officials said retooling the emergency loans, the promissory notes, to the defunct bank was more politically palatable than transferring Irish legacy bank debt to the ESM fund, the Irish Times reports. Both sides played down expectations of substantial progress today, ahead of Thursday’s talks in Berlin between Enda Kenny and Angela Merkel. The promissory note obligations, an IOU issued to stabilise Anglo Irish Bank, have been the subject of on-going discussions with the ECB. To date, ECB president Mario Draghi has been cautious about the ECB’s options.

French history lessons: Austerity policy won’t work without growth or inflation

In Les Echos Jean Marc Vittori picks up on a research paper from the Banque de France written by Gilles Dufrénot et Karim Triki, which looks back at the French history of public debt reduction since the 19th century. The paper concludes that austerity policy hardly played any role for debt reduction, that there is no success without strong economic growth, that inflation helped as well as political repression to keep interest rates down. Vittori also cites other papers concluding that austerity policy can never bring down public debt levels sufficiently when there is neither economic growth nor inflation.

Spanish judges advocate mortgage reform

A report commissioned by Spain’s General Council of the Judiciary (CGPJ) criticizes in harsh terms the legal and procedural situation around mortgage loans and repossessions for non-payment, El Pais reports. The report criticises the  aggressive debt collection process, which is regulated by a law dating back to 1909;

and also bad banking praxis where loans were extended lightly without assessing the real possibilities of the debtor;

and suggests that state aid to banks should be extended to over-indebted mortgagees, proposing to define a class of “good-faith mortgagee”. As Spanish mortgages are full-recourse loans, the report proposes reforms aiming to prevent banks from repossessing property at a lower value than initially assessed. The report also says that the voluntary good practice code introduced earlier this year to help families at risk of social exclusion as a result of repossessions has been applied in only a handful of cases due to the low income and property value limits for mortgagees to qualify.

Last Thursday, the Spanish Socialists introduced legislation aiming to protect people facing eviction for failing to pay their mortgages, reports El Pais English edition. The bill would require banks having received state aid to accept reduced payments on the mortgage or to accept the property in lieu of payment, without further recourse.

Spanish public opinion has been shocked by reports of suicide by people facing eviction. El Pais (English edition) has reports about a man who hanged himself on Thursday, the day he was to be evicted;

and another one who survived after jumping off his balcony to avoid being served eviction papers.

IMF advocates winding down “non-viable” Spanish banks

El Pais (English edition) reported Friday on the Troika’s visit to Spain to evaluate the government’s banking reforms. The IMF released a statement that “non-viable banks [need to be] promptly wound-down”. The paper mentions that the amounts to be injected into the four nationalised banks (out of the €100bn banking rescue authorised by the EU) will be announced in the coming weeks. Also on Friday, the paper reported on Bankia‘s third quarter results. The nationalized bank had looses of €7bn this year to September, and loss of 1/8 of its deposits, just over €14bn. On Thursday the paper was reported that former Bankia Chairman and IMF Managing Director Rodrigo Rato has been summoned to court next December 20 in connection with a judicial investigation of Bankia’s failure.

Nowotny says no need for an immediate bailout for Spain

Reuters reports on an interview of Jan Nowotny by Austrian TV station ORF in which he said Spain had covered its 2012 refinancing needs and was thus not in need of an immediate bailout. A summary at ORF, in German, makes no mention of Spain. Instead, ORF focuses on Nowotny’s assurances that inflation is under control. Nowotny also said that of €4.5bn euros in aid to the Austrian banking system, 2bn have been recovered in interest payments so far. There are also €15bn to €20bn in guarantees. And Nowotny said the failed bank Hypo Alpe Adria would need more capital, and that the eventual (but “not easy”) goal would be to sell the bank.

(The failure of Hypo Alpe Adria plays a role in the ongoing trial of former Croatian Prime Minister Ivo Sanader for corruption.)

Spain’s unemployment rate exceeds 25%

For the first time on record, Spain’s unemployment rate exceeds 25%, with 5.7 million people unemployed according to the INE National Statistics Institute’s third quarter figures, reports El Pais (English edition). 800 thousand jobs were lost in since a year earlier. Youth unemployment is at 52.5%. In an editorial, the paper reacts to the unemployment figures, which in some regions exceed 35% and include the figure of 1.7 million families with no employed family members, by saying the figures should shock Europe into instituting job-creating stimulus measures.

Unemployed public sector workers “are people too”

ABC has some curious quotations by Employment Minister Fátima Báñez. After highlighting that the increase in unemployed public sector workers was larger than the increase in private sector unemployment, she said “for the government, those going to unemployment in the public sector are people, too, and they worry us equally”.

(Did she mean “equally little”?)

There is something Wolfgang Munchau does not understand

In his FT column, Wolfgang Munchau asks the following questions. If you always treated the eurozone crisis as a pure liquidity crisis, as official policy has done, then you might as be optimistic, and you should always have been optimistic six months ago. But if you treat this as a solvency crisis, as he does, why would liquidity support by the ECB make a fundamental difference? It means that we still kick down can, except that the can is now much bigger. So if you were pessimistic six months ago, why then would you be optimistic now? Please help!

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

Spanish spreads trended upwards.


10-year spreads
Previous day Yesterday This Morning
France 0.570 0.620 0.626
Italy 3.286 3.447 3.448
Spain 4.038 4.075 4.132
Portugal 6.239 6.540 6.576
Greece 15.520 15.716 15.62
Ireland 3.189 3.240 3.245
Belgium 0.900 0.936 0.945
Bund Yield 1.582 1.522 1.521
Euro Bilateral Exchange Rate  
  Previous This morning
Dollar 1.293 1.2915
Yen 103.010 102.83
Pound 0.803 0.8034
Swiss Franc 1.210 1.2088
ZC Inflation Swaps
  previous last close
1 yr 1.79 1.79
2 yr 1.65 1.65
5 yr 1.78 1.78
10 yr 2.01 2.01
Euribor-OIS Spread
previous last close
1 Week -7.129 -7.729
1 Month -3.643 -3.643
3 Months 1.886 4.286
1 Year 47.386 47.286
Source: Reuters


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