EUROINTELLIGENCE DAILY BRIEFING, 19 de Novembro de 2012. Enviado por Domenico Mario Nuti.


Eurogroup and IMF seek staggered compromise on Greece

  • Eurogroup will meet Tuesday for extraordinary meeting on Greece;
  • Jean-Claude Juncker expects definite decision this Tuesday;
  • Christine Lagarde cut short her travels to assist the meeting;
  • This week’s focus is on finding a compromise on how to finance the two-year extension;
  • IMF still favours some sort of haircut, opposed by Germany and others;
  • compromise on debt target spat to be resolved later;
  • Joerg Assmussen warns that Greece will probably need another aid package after 2014;
  • Jens Weidmann says Geece may need write-off after reforms;
  • Jyrki Katainen rejected any further funding for Greece;
  • Antonio Samarras plans to bring in more ministers from coalition partners to strengthen coalition;
  • La Repubblica reports that Mario Monti is going to make a big push for eurobonds at a forthcoming eurozone summit;
  • Monti eyes a first eurobond issue in 2015;
  • President Giorgio Napolitano is considering early national elections in March to coincide with regional elections;
  • a political movement set up by Ferrari’s chairman will support Monti as PM, or president;
  • Gianfranco Fini, speaker of the Italian chamber of deputies, says there is a lot of cross-party support for Monti;
  • FT Deutschland reports that the ECB will sharpen collateral rules, and possibly get rid of a hitherto unpublished list of exemptions;
  • Spain has asked Latin American countries for help at the Latin American/Iberian summit;
  • Latin American leaders have expressed irritation that the eurozone is repeating all the mistakes made by Latin Americans countries in their own financial crises;
  • Mariano Rajoy calls Herman van Rompuy’s budget proposals unacceptable, as they include cuts to Spanish structural funds;
  • the opposition Socialist refuse to sign up to the Spanish government legislative proposals for reforms to the eviction laws;
  • an association of Spanish judges says the reform is a patchwork, and hardly make no difference to most people facing eviction;
  • Alessandro Penati warns about an austerity-recession death spiral, and calls for a Marshall-plan led by Germany;
  • the German council of economic advisers advocates a full banking union, a resolution system separate from the ECB, and a euro-wide insurance only as a final step;
  • Wolfgang Münchau, meanwhile, says there is a lot of things to worry about in the eurozone crisis – but France is not one of them.

The Eurogroup is meeting on Tuesday for an extraordinary meeting on Greece while the EU-IMF spat is not yet resolved.  Jean-Claude Juncker said they work hard to find a compromise to ensure the IMF stays on board. He expects a “definite decision” this Tuesday and a formal adoption end November, according to Bloomberg, though Kathimerini is quoting unnamed sources  saying it is unlikely to be taken until the end of this month.  They have not only to solve the dispute between the IMF and the eurogroup over softening Greece’s debt targets to 2022, but also to come up with a solution on how to finance the two-year extension of the current bailout without asking taxpayers for more money.  Der Standard reports this Tuesday ministers will focus on finding a solution for the financing gap 2014, while a compromise for the 2020/2022 debt target dispute is to be dealt with later.

The IMF continues to favour some kind of new haircut to Greek debt according to Kathimerini, a prospect opposed by German government (though endorsed by several German economists). ECB Board Member Joerg Asmussen said in an interview with German broadcaster ZDF yesterday that Greece will probably need another aid package for the period after 2014.  Jens Weidmann said at an event in Berlin on Nov. 16 that Greece may need another write-off, but only after the government enacts economic reforms. Finnish Premier Jyrki Katainen, speaking on YLE Radio Suomi at the weekend, again rejected further funds to Greece.

Christine Lagarde cut short a visit to Asia to attend the Eurogroup meeting. She said her objective is to get a deal on Greece and to maintain the integrity and credibility of the IMF, to “lend that to the Europeans because that is what they are interested in,” she said late on Saturday according to Reuters.

In the meantime Antonio Samaras wants his ministers to proceed with “prior actions” as demanded by the troika, including an overhaul of the tax system, the creation of a committee to oversee the budget execution and the acceleration of privatizations.

A government reshuffle is expected in coming weeks. Samaras is said to be keen to draw in new ministers from his junior partners, PASOK and Democratic Left, in order to bolster a sense of coalition unity and ward off the specter of snap elections next spring.

Monti ready to push for eurobonds

According to La Repubblica, Mario Monti is considering a big push for eurobonds at a forthcoming eurozone summit before the end of his mandate. During last week, Monti said the Eurozone needed  to talk about eurobonds to achieve greater stability. According to Repubblica, at a recent meeting with Angela Merkel, Monti talked a lot about eurobonds and sovereign debt mutualisation in Eurozone. The Monti target is finalizing the first issue of eurozone bonds before 2015, according to sources.

Italian President Napolitano does not rule out early elections

President Giorgio Napolitano is considering early elections in March, about one month before the expiry Monti’s term, Il Corriere della Sera reports. Regional elections are set for March 10, 2013. According to reports, the date of Italian general elections should be the same for cost reasons. Unfortunately, the final decision depends on political parties in their effort to find a compromise over the new electoral law, which grants the winner extra seats to have a better chance of forming a stable government.

Italia Futura to support Monti as PM or President

A civic movement launched and led by Ferrari chairman Luca Cordero di Montezemolo has been widely seen as a possible future platform for Mario Monti as the next Italy’s PM. As La Stampa reports, the Italia Futura movement is now ready to support Monti for a second term in office – or for the presidency. Yesterday Monti repeated that he would be willing to serve again only if the elections failed to produce a government. He also has said he does not intend to run for election.

Monti  II is in the air, everywhere

The Italian political establishment is preparing itself for a second term in office of Mario Monti. In an interview with Il Piccolo newspaper, the speaker of the Chamber of Deputies, Gianfranco Fini, said the decision whether Monti would remain prime minister depends on the electoral law, but only up to a certain point. Fini remarks that in the current electoral system there is an obligation to stipulate the candidate for prime minister. But if the political forces that back Monti win sufficient support, then Monti may be able to stay in office as PM. Following Fini, several politicians have remarked that  Monti could stay in office for another mandate. Now, according to an IPSOS poll, over 55% of Italians back Monti as PM (if he were to run), but only 23% agree with his economic policies.

ECB to sharpen collateral rules

As a result of the collateral mini-scandal – with the Bank of Spain having used too generous collateral rules in its refinancing operations with Spanish banks – the ECB is considering a tightening of its collateral policies, the FT Deutschland reports. The freedom of manoeuvre currently enjoyed by national central banks in its valuation of collateral securities will be constrained. The article says several variants are under discussion, including the abolition of a hitherto unknown catalogue of exceptions.

(Which raises the question why such a catalogue exists in the first place, and if it does, why it is not a public document. It seems right to us to tighten the rules, but there is still not enough clarity on what actually happened.)

As a way out of Europe’s crisis, Spain turns to Latin America

At a summit of Latin American and Iberian countries in Spain on Friday and Saturday, Spanish Prime Minister Mariano Rajoy and King Juan Carlos both asked for investment from Latin American countries to help Spain overcome the crisis, the Washington Post reported. Latin American leaders criticized the European austerity policies as a repeat of the mistakes made by Latin America a decade earlier.

At a press conference at the close of the Latin American and Iberian summit, Mariano Rajoy called Hermann van Rompuy’s proposal for the EU’s 2014-2020 budget “unacceptable”, as Spain could lose €20bn in agricultural and cohesion funds over the 7-year period, Publico wrote

Spanish eviction moratorium meets criticism

The Spanish government’s attempt to tackle the foreclosure crisis, brought to a head by two suicides, has been criticized from a number of quarters. In the first place, the government failed to secure the agreement of the leading opposition party PSOE, although the reform will still go through as the PP enjoys an absolute majority in the Parliament. In addition, El Pais reports that the progressive judges’ association Jueces para la Democracia said the reform turns the expectations raised by the government over the past week into “misleading advertising”. Conservative judges’ association Francisco de Vitoria called the decree ‘a patch’. Points criticized by judges include:

the moratorium only affects evictions resulting from an auction of a property foreclosed by a bank

penalty interest charges for late payment continue to accrue for the two years of the stay of evictions, after which the debt remains and the eviction can proceed

the decree includes arbitrary limits, such as families with three children, single parents with two children, or families with children under 3

pensioners are not included among the protected demographics

Penati warns about an austerity-recession death spiral

Austerity will drive Eurozone into an abyss, Alessandro Penati writes on La Repubblica. He says Monti should persuade Angela Merkel of the negative consequences of austerity for growth. Italy is in great danger. Despite a primary surplus, Italy’s debt will rise to near 130% of GDP next year because of an austerity-recession death spiral, Penati said. Italy, and other countries as well, should use the crisis to restructure its industrial sector, cutting the unproductive firms and launching a Marshall Plan lead by Germany to boost competitiveness and innovation in the country.

Germany’s Council of Economic Advisers on banking union

The German Council of Economic Experts published a note about its vision for a banking union on VoxEU. The five German economic experts see the Euro crisis as the result of “flaws in the design of the internal market” in the context of monetary union, and the banking union as a necessary step to fix these internal market flaws.

The German experts advocate European supervision of all banks in all of the EU, with an opt-out for non-Euro countries. To protect monetary policy independence from interference by the supervisory function and by the member states, they also advocate a European-level banking resolution authority separate from the ECB, as well as functional and personal separation of monetary and supervisory roles within the ECB. Finally the five experts are against EU-level deposit insurance until after a common resolution authority is established.

Wolfgang Munchau on the five things not to worry about in the eurozone

In his FT column, Wolfgang Munchau list five things not to worry about in the eurozone crisis. The first on his list is France. He says the Economist is simply wrong in its French bashing, which he says is politically motivated, not much to do with the economic prospects of the country – which are not great, but not significant worse than that of Germany – as the last GDP data show. The second is competitiveness. The third is the rise of extremist political parties. The fourth is the German constitutional court. And the last is the next tranche for Greece, which he says he is confident the technocrats are going to work out somehow. The three things to worry about is the impact of austerity on growth, the fundamental insolvency of several entities, and the political reluctance to accept it, and finally the delays and lack of ambition of the banking union.

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


10-year spreads
Previous day Yesterday This Morning
France 0.754 0.751 0.753
Italy 3.561 3.635 3.611
Spain 4.578 4.553 4.622
Portugal 7.598 7.419 7.604
Greece 16.306 16.139 -1.35
Ireland 3.387 3.340 3.496
Belgium 0.925 0.941 0.950
Bund Yield 1.331 1.324 1.348
Euro Bilateral Exchange Rate
  Previous This morning
Dollar 1.274 1.2758
Yen 103.310 103.56
Pound 0.803 0.8015
Swiss Franc 1.204 1.2052
ZC Inflation Swaps
  previous last close
1 yr 1.58 1.7
2 yr 1.61 1.71
5 yr 1.72 1.72
10 yr 1.95 1.96
Euribor-OIS Spread
previous last close
1 Week 0.000 0
1 Month -4.500 0
3 Months 3.543 3.343
1 Year 45.357 0
Source: Reuters


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