EUROINTELLIGENCE DAILY BRIEFING, 2 de Novembro de 2012. Enviado por Domenico Mario Nuti.


Spanish foreclosure crisis coming to a head

  • In Spain, the wave of foreclosures of residential homes is coming to a head;
  • the Spanish government is considering help to the poorest families, but wants to avoid passing legislation to control the process;
  • opposition leader Alfredo Pérez Rubalcaba says Spanish banks should pass on the cheap and ample ECB funds to their struggling mortgage customers;
  • Spanish judges and prosecutors are accusing banks of swamping the legal system with foreclosure cases;
  • the latest data show that a quarter of a trillion euros had left the Spanish banking system before the OMT announcement;
  • Greek parliament to vote on reforms next Wednesday and the austerity package Sunday, Nov 11;
  • Six Greek Socialists threaten to vote against reforms;
  • this would leave the government coalition with a majority of only 153 votes in the 300 seat Parliament;
  • Greek editor cleared of charges over publishing Lagarde list of alleged tax evaders after 10 hours high profile trial;
  • Financial prosecutors now want to know whether any politicians should face criminal charges for not using the so-called Lagarde list;
  •  ahead the Financial Stability Board says Commerzbank and Dexia are no longer systemically relevant from a global perspective;
  • the four most dangerous banks are Deutsche, HSBC, Citigroup and J.P.Morgan Chase;
  • Italian unions are kicking off a season of big strikes in protest against the 2013 budget;
  • Pierluigi Battista says parties are the root cause of political indifference in Italy;
  • Alberto Orioli says the three key issues for Italy’s competitiveness are the labour tax wedge, policy to tackle payment delays, and anti-corruption measures;
  • the Swiss Central Bank must have engaged in a firesale of euros, as it managed to reduce the euro’s share in official reserves from 60% to 48% in just three months;
  • Mark Schieritz does the math on bond repurchases and finds the effect will be peanuts – even under a benign set of circumstances;
  • Dawn Holland and Jonathan Portes, meanwhile, have run their own multiplier simulation, and find that they are very, very large.

This is long bank holiday weekend in large parts of the eurozone, so the news is relevantly slim. But we have a few interesting comments.

The wave of foreclosures as a result of the burst housing bubble in Spain seems to be coming to a head. El Pais reports that the government is considering an extension of the existing voluntary ‘good practice’ agreement with financial institutions to offer some relief to the poorest families at risk of eviction. The government is still trying to avoid a legal reform, which is now being demanded by several political parties including the majority opposition PSOE. Among the proposed legal reforms would be one preventing a repossessed property being valued at a lower value than when the mortgage was given. At the recent government control session, PSOE leader Alfredo Pérez Rubalcaba asked Prime Minister Mariano Rajoy

“banks are receiving money from the ECB at 0% and with a 3-year grace period. Do you think it impossible to convince banks to extend this treatment to those who have a hard time paying their mortgage?”

(This is confusing the 0.75% main refinancing rate paid by banks with the 0% deposit rate paid by the ECB on reserves, and a peculiar interpretation of the 3-year LTRO as an interest-only grace period on a loan, but that appears to be the public understanding.)

Judges and prosecutors advocate legal reforms

Earlier this week we mentioned a report by the Judges’ governing body CGPJ had issues a report criticizing the foreclosure laws and advocating reforms. Today, El Pais reports that professional associations of judges and prosecutors are accusing banks of collapsing the court system with foreclosure and eviction cases, and “using the courts as collections offices”. In particular, the Magistrates Professional Association APM advocates making mortgages into non-recourse loans. The APM also expects that the creation of the ‘bad bank’ will act as an incentive for banks to foreclose on properties to be able to transfer them to the bad bank for cash.

A quarter trillion euros left Spain this year before the banking rescue

Deia reports on the capital flight out of Spain since the crisis intensified earlier this year. In the eight months to August, nearly a quarter trillion euros left Spain, according to the Bank of Spain. This compares with 400 million a year earlier, or a 600-fold increase. The figures include direct investment, stock and bond portfolios, and other investment. The failure of Bankia last May was a major factor in the loss of confidence in the Spanish financial system, which underlies these capital movements. In August, as a result of the banking rescue agreement with the EU, net capital outflows were 1/3 lower than in August 2011. Foreign direct investment into Spain is also said to have increased 4-fold from the first 8-months of 2011.

Crumbling PASOK support ahead of vote on reforms and austerity budget

There are two decisive votes in the Greek parliament next week, but rising dissent in PASOK risks that there are not enough lawmakers to pass the legislation, writes Kathimerini. The vote on structural reforms is on Wednesday and the ballot on the 2013 budget will be held at midnight on Sunday, November 11. Democratic Left said it will oppose the reforms unless the changes to labour regulations proposed by the troika are withdrawn. PASOK, meanwhile, lost one lawmaker on Friday and up to six others have threatened to reject the measures. This could leave the government with as few as 153 votes in the 300 seat parliament, so the article.

Editor cleared of charges over publishing ‘Lagarde’ list

The Greek journalist Costas Vaxevanis, who was accused of privacy violation over publishing the names of over 2000 alleged tax evaders with bank accounts in Switzerland, was acquitted on Thursday. His arrest and trial had aroused international concern and intense interest among Greeks hit by the crisis and angry at the privileges of the elite. After a 10 hour trial the courtroom – packed with journalists, rights advocates and Greek citizens – erupted in cheers when the judge pronounced Vaxevanis not guilty, Reuters reports.

Financial prosecutors, meanwhile, sent the case to Parliament, asking the House to investigate whether any politicians should face criminal charges for not using the so-called Lagarde list, Kathimerini reports. The move could lead to former Finance Minister Giorgos Papaconstantinou, who received the list in 2010 from his then French counterpart Christine Lagarde, and his successor Evangelos Venizelos, who also handled the list, facing prosecution.

Commerzbank and Dexia no longer systemically relevant

Frankfurter Allgemeine carries the story that the FSB no longer considers Commerzbank to be systemically relevant. Dexia and Lloyds have also fallen out of the list, while Standard Chartered and BBVA have entered the list, which now comprises 28 banks. Deutsche Bank is among the four global banks considered most dangerous to the global financial system. As a result, it must increase its capital buffer by 2.5pp to reach a core capital ratio of 9.5%. The other three are HSBC, Citigroup and J.P.Morgan Chase.

Italian unions begin the season of massive strikes

Italy prepares to another period of strikes, as Il Messaggero reports in protest at the 2013 budget. Affected will be transport, education, communications, banking, industrial, manufacturing and the credit sector. Italy’s largest trade union CGIL says the country cannot sustain more austerity measures during the next years. CGIL has called for a 4-hour general strike on November 14. Meanwhile, COBAS unionists are also calling for a 24-hour strike on the same day. In addition, another 24-hour strike is to be held by public transport workers on Friday 16. According to the Interior Ministry, Italy is facing concrete risks of social unrest.

Battista says parties are the root cause of political indifference

After the vote in Siciliy, the Italian parties are themselves becoming the real source of the national indifference Pierluigi Battista writes in Il Corriere della Sera. Despite a complete disaffection from active politics, Italians are forcing themselves to take an interest in the 2013 elections, but it seems they do not want to. Battista remarks that Italian parties are incapable of drawing the lessons of a poor election result. Everyone claims to have to have won in the recent elections. The parties lack of a sense of emergency.

The three elements to restore competitiveness in Italy

There are three key factors that could boost competitiveness in Italy, Alberto Orioli argues on Il Sole 24 Ore. The labor tax wedge, a European directive on payments and the anti-corruption law are now the most important topics for Italy. The labor tax wedge remains the main reason behind the difference between net salary and labor costs. In Italy case, it is record 53%, above the 35.4% OECD average. According to Orioli, Italy’ situation could be improved by the adoption of a EU directive on payments: mandatory deadlines (exceptions will amount to just 60 days) for public-sector bureaucracy and non-mandatory deadlines for private businesses. (We think the tax wedge is important, more so than the other stuff.)

Swiss central bank sells euros

The Wall Street Journal reports (hat tip Die Welt) that the Swiss central bank has cashed in on the recent appreciation of the euro. The SNB has reduced the euro shares of its official reserves from 60% as of end-June to 48%. The article concludes that the SNB must have aggressively sold euros for sterling and dollars. But given the size of the forex markets, these sales did not register on the Richter scale.

Mark Schieritz does the math on bond repurchases

This is a very useful article by Mark Schieritz in his blog Herdentrieb. He has done the math on the proposal for Greek bond repurchases, and finds it is not worth it. He makes the following perfectly reasonable assumptions. No ECB participation, leaving €67-71bn;

money comes from ESM, thereby increasing total Greek debt;

debt trajectory based on latest Greek government forecasts;

4% pa nominal growth from 2015-2020. He then works through three scenarios where Greece buys back debt at 25% of par (unlikely), 50% and 75%. The effect is peanuts, no matter which scenario.

Holland and Portes on fiscal authority

This is an interesting contribution to the multiplier debate. Dawn Holland and Jonathan Portes (hat tip John McHale at the Irish economy blog, who has commented on it, see  below), argue that the problem in the eurozone is the co-ordination of fiscal austerity. They have run a series of simulations, and conclude that policy is self-defeating:

“The direct implication is that the policies pursued by EU countries over the recent past have had perverse and damaging effects. Our simulations suggest that coordinated fiscal consolidation has not only had substantially larger negative impacts on growth than expected, but has actually had the effect of raising rather than lowering debt-GDP ratios, precisely as some critics have argued. Not only would growth have been higher if such policies had not been pursued, but debt-GDP ratios would have been lower.

It is particularly ironic that, given that the EU was set up in part to avoid precisely such ‘prisoner’s dilemma’ type problems in economic policy coordination, it should currently be delivering the exact opposite. Current policy looks less like optimal coordination – and more like a suicide pact.”

John McHale argues that even if multipliers are large and if debt/GDP rises initially, austerity works in the long run, as the negative effect evaporates over time, while the change in the primary deficit is permanent.

(This is not really a theoretical argument, as it all depends on the size of the multiplier, and various other variables. The question reduces to: over which time horizon would austerity reduce debt/GDP.  If you add nominal deficit targets into the mix, and policies to make up for missed targets immediately, the effect could be even more negative, as government keep on piling austerity measures on top of previous measures, thus landing in a permanent debt trap, so that the long run never arrives. If multipliers are as high as Holland and Portes claim, that their conclusion is right: austerity causes a debt explosion.)


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

10-year spreads
Previous day Yesterday This Morning
France 0.786 0.771 0.767
Italy 3.501 3.611 3.593
Spain 4.169 4.141 4.197
Portugal 6.673 6.735 6.900
Greece 16.227 16.694 -1.48
Ireland 3.329 3.283 3.454
Belgium 0.982 0.969 0.979
Bund Yield 1.458 1.463 1.481
Euro Bilateral Exchange Rate
  Previous This morning
Dollar 1.293 1.2906
Yen 103.460 103.61
Pound 0.800 0.8018
Swiss Franc 1.207 1.2067
ZC Inflation Swaps
  previous last close
1 yr 1.92 1.72
2 yr 1.76 1.68
5 yr 1.88 1.78
10 yr 2.01 2.01
Euribor-OIS Spread
previous last close
1 Week -7.229 0
1 Month -4.086 -4.086
3 Months 3.714 3.714
1 Year 47.357 46.357
Source: Reuters

About joaompmachado

Nome completo: João Manuel Pacheco Machado

Deixe uma Resposta

Preencha os seus detalhes abaixo ou clique num ícone para iniciar sessão:

Logótipo da

Está a comentar usando a sua conta Terminar Sessão /  Alterar )

Google photo

Está a comentar usando a sua conta Google Terminar Sessão /  Alterar )

Imagem do Twitter

Está a comentar usando a sua conta Twitter Terminar Sessão /  Alterar )

Facebook photo

Está a comentar usando a sua conta Facebook Terminar Sessão /  Alterar )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: