EUROINTELLIGENCE DAILY BRIEFING, 26 de Novembro de 2012. Enviado por Domenico Mario Nuti.

Catalan separatists have two-thirds majority after elections

  • Regional elections in Catalonia produced a two thirds majority for parties supporting self-determination (after one quarter last time);
  • Artus Mas is certain to reappointed premier, but loses absolute majority;
  • he is now forced to find a coalition both for the upcoming referendum, and to govern;
  • likely to include parties on the left in his coalition, but this will make it harder for him to impose austerity;
  • the country is now headed for a showdown as the central government considers a referendum illegal;
  • eurogroup is expected to agree a Greek package today – made up of a hotch-potch of measures including EFSF-funded bond-buybacks, central bank profits and lower interest rates on loans;
  • programme will keep Greek debt-to-GDP at above 120% (even on the optimistic forecast assumptions);
  • German newspapers report that a haircut is still discussed, but Jorg Asmussen is quoted as saying that it is now definitely off the table;
  • another report says Wolfgang Schauble was ready to concede more, but was subsequently held back by his coalition;
  • Kathimerini has the details of what the bailout money will be used for – almost all it is earmarked to cover current obligations;
  • the final terms of the Spanish bank recapitalisation programme include severe job cuts in the Spanish banking system, and branch closures;
  • Cajas are also told to go back to their roots, getting out of their non-regional business;
  • preferred shareholders will receive common equity with a loss of 45-60%;
  • Barclays Capital speculates that Spain may apply for a bailout today;
  • the media are celebrating Spain’s regained competitiveness;
  •  Michel Barnier warns finance minister not to delay banking union or risk the wrath of financial markets;
  • Germany’s Ifo index improves in November;
  • Pierluigi Bersani wins first round in the PD primaries, but faces run-off with Florence mayor Matteo Renzi;
  • Bersani enters the final lap of the race as the front-runner, after receiving the support of the third-placed candidate;
  • Silvio Berlusconi is pondering to set up his own breakaway party;
  • Mario Monti says there may be a role for him in government after the elections;
  • Eugenio Scalfari sees Monti either as PM or as a minister in the next government;
  • Mario Deaglio says Italy should reconnect with the reformist mindset of the early 20th century;
  • a survey shows that Italians take fewer holidays as a result of the crisis;
  • Wolfgang Munchau, meanwhile, says a frozen budget in real terms is consistent with an EU that has no further ambitions.

The Catalan regional elections on Sunday returned a more fragmented parliament with, on paper, less clear-cut majorities than two years ago. However, the recent shift of the dominant nationalist party CiU from a federalist, centrist or ambiguous position to an explicit pro-independence position means that, even though the parliament is not too different from 2 or 6 years ago, now there is a clear (2/3) majority for “self-determination” where before at most 1/4 of the Catalan parliament favoured this option. One difficulty for regional premier Artur Mas is that, though he’s almost certain to be returned to the Premiership, the rest of the separatist parties are left-leaning and are unlikely to support him on austerity policies. In fact, in the past two years he has had outside support from the regional People’s Party, while CiU supported austerity policies in the national Parliament.

Taking a longer view, over the past 10 years the only clear trend is the Socialist party’s loss of 50% of its seats, though the party is happy to have done better than the pre-election polls predicted.

                ’12          ’10          ’06          ’03

CiU         50          62          48          46

ERC        21          10          21          23

PSC        20          28          37          42

PP           19          18          14          15

ICV         13          10          12            9

C               9              3              3              –

CUP         3              –              –              –

SI              –              4              –              –

The People’s Party is on a steady growth trajectory in Catalonia, and its leader Alicia Sánchez-Camacho attacked Artur Mas, calling him the big loser of the night.

Now for a survey of the Catalan newspapers:

* Avui (in Catalan) speaks of a “complex scenario to manage”. Catalan regional Premier Artur Mas had attempted to get a clear majority for his party but “can’t go it alone”. with just 30% of the vote and 50 out of 135 seats, he will need support from other parties both to hold his promised independence referendum, and to form a government.

* El Periodico (dual Catalan and Spanish editions) quotes Mas’ admission that he’s “fallen short of the majority we wanted”. The two parties that grow the most are ERC (Republican Left, independentist) and C (Citizens, which originated as a Catalan party opposed to CiU’s nationalism). They doubled and tripled their seats, respectively, both presumably at the expense of the Socialist PSC.

* La Vanguardia (in Spanish) does not count ICV (Catalan Green Left) among the “nationalist majority”, but alongside the PSC as “federalist”, and gives the following breakdown: nationalist 74(-2) and “unionist” 28(+7) out of 135, leaving 33(-5) “federalist”.

Clearly, austerity is not on the radar. Artur Mas is personally weakened but he will be returned to office with a mandate to hold an independence referendum that Spain’ government is warning him is illegal.

Eurogroup to agree a la carte solution for Greece today

Today’s eurogroup meeting is likely to agree on an “a la carte” financing solution to resolve a deal over the next bailout instalment for Greece.  The FT Deutschland quotes insiders saying that the most likely agreement would allow each member state to decide on its financing measure most likely to pass domestically.  A teleconference on Saturday ministers agreed on a mix of measures, buyback of Greek debt with EFSF money, tapping ECB and national central banks profits on Greek bond purchases and lowering interest rates on bilateral loans to Athens. FT Deutschland wrote that the sum of measures they came up with still left Greece’s debt level well above 120% of GDP in 2020 (the article did not say how much it was above the 124%, a level that the IMF might be ready to accept at least according to Greek ministerial sources). One difficulty with this “a la carte” approach will be that the contributions of the member states are hardly comparable. Germany prefers to increase the EFSF guarantees up to €10bn, but is less keen on reducing the interest rates below the costs for the KfW Bank.  So how much more Germany has to put up its EFSF guarantees to make up for not cutting interest rates as much as the Netherlands?

There were reports in the German press (see “ Die Welt am Sonntag “ or “Spiegel”) that the haircut is still at the table and actively pursued by the ECB and the IMF. But Joerg Asmussen told Germany’s Bild newspaper in a draft Monday edition (via Reuters) that a write-down on Greek debt should not be part of the country’s next rescue package.

And if you wonder why last week’s eurogroup meeting failed, here is one explanation put forward by the press: Wolfgang Schäuble had signalled significant concessions on reducing the interest rates on bilateral loans and the extension of their maturities at a small gathering of ministers in Paris on Monday. But during the eurogroup meeting Schäuble had to take this back, after the German government’s coalition partners, the CSU and FDP, advised Chancellor Merkel that such an initiative would not have their support and would not pass through the German parliament.

According to Kathimerini the whole €44bn Greece is expecting from the bailout programme next month will cover immediate obligations: Some €24bn will be used to complete the bank recapitalization programme, €9bn to finance the buyback scheme, €4.5bn to cover the primary deficit, €3.5bn to reduce state arrears, €3.4bn to cover four-week T-bills that mature next month and €500m will go toward covering a bond that matures on December 21.

EU Commission forces heavy restructuring of nationalized Spanish banks

On Sunday, El Pais reported on the final set of conditions attached to the long-anticipated disbursement of EU aid to Spain’s banks. The FROB bank restructuring fund will receive €35bn in mid-December. An additional €9bn will be made up by the transfer of assets to the bad bank, and haircuts for preferred-share and subordinated-debt holders. Quoting unnamed executives in Spain’s nationalised banks, El Pais claims that the Spanish government and the European Commission’s competition authorities have agreed a severe restructuring of the affected financial institutions. Bankia and Novagalicia will shed 6,000 (of 20,000) and 2,000 (of 6,000) jobs respectively, and Catalunya Caixa may lay off 1,000 people unless it finds a buyer. In addition, in order to safeguard other institutions from unfair competition by recipients of state aid, the nationalized cajas will be forced to go ‘back to their roots’, divesting from their business outside their regions of origin, and forced to give up wholesale banking and concentrate on SMEs and ‘family banking’. Preferred shareholders will receive common equity, with a small valuation premium but still resulting on a notional loss of 45% to 60%. Reuters has an English-language summary of the El Pais story.

BarCap sees Spanish ESM application

And, in other Spanish rescue news, eFXnews quotes a Barclays Capital analysis speculating that Spain may apply for ESM financial assistance as early as this Monday. The argument is that the Eurogroup cannot delay an agreement on Greece any further, and that the German government will prefer to get Spain’s rescue through the Bundestag in a bundle with Greece’s.

(This could also be a brazen application of the principle of ‘delay controversial decisions until after the elections’ as with the Catalan elections out of the way there won’t be any new elections in Spain until 2014.)

Spain’s internal devaluation proceeds according to plan

In a celebratory tone, ABC on Saturday reviewed positive economic press coverage of Spain from Britain and France. On the one hand, The Economist praised the financial sector reform, while Le Monde and Le Figaro worried that Spain’s labour market reforms are increasing its competitiveness vis-a-vis France, claiming a 15% reduction of Spanish unit labour costs relative to the French. The recent decision by Renault to increase the fraction of its car production made in Spain is also a cause for French worry according to Le Figaro.

Meanwhile, El Pais writes that Spain’s labour market reform has led to a reduction in Spain’s wage bill, through both lower employment and lower wages, without reducing the ratio of temporary to permanent contracts. It is possible that Spain’s trade balance will be slightly positive in 2012.

Barnier warns finance ministers not to delay and reduce banking union

In an interview with the FT, Michel Barnier says finance ministers must dispel doubts over their political will to create a banking union, and take a decision right now. He said they had received “loud and clear” instructions from two EU summits to stick to the December deadline – which he now sees in danger. “The markets are not complacent;
they remain vigilant and watchful . . . We need to deliver now,” he said.

Germany’s IFO index shoots upwards

This came as a positive surprise – though it is not yet clear whether this is a one-off blip, or a new trend. Germany’s Ifo business climate index increased 1.4 points to 101.4 during November, while economists had forecast a further fall in the index. The current business conditions have been considered as better than during October, and the pessimism about the future is also reduced. Hans Werner Sinn is reported as saying that the German conjunctural cycle is stemming itself again the euro crisis, as Borsenzeitung reports. The paper reports that wholesalers, in particular, reported a significant improvement in their situation, as does the construction sector. The paper says German economic experts now see the chance that Germany would fall into a recession as significantly reduced.

(The global economy is recovering slowly, and as usual in such situations, Germany is benefitting. But we are wondering to which extent a survey-based method such as the Ifo can reliably pick up a trend change during in the aftermath of a financial crisis.)

Bersani is set to win Italian centre-left primary, but will face a crucial run-off with Renzi

The PD primary vote finished with a victory of Pier Luigi Bersani, the party’s general secretary. As Il Corriere della Sera reports, Bersani has won with 44%, while the Florence mayor Matteo Renzi, also know as “The Scrapper” for his proposal to renew the old guard of PD, has gained 37%. This vote is crucial because the PD has a relevant lead in the polls, with over 30% according to latest IPSOS data. If these results are confirmed, Bersani and Renzi will face will face a run-off vote on December 2. Nichi Vendola, the governor of Region of Puglia, received 15% in the primary, and has decided to support Bersani in December run-off. Bersani is therefore the favourite to win the run-off with Renzi.

Berlusconi to return, maybe with a new party

Silvio Berlusconi is mulling to run in spring elections and form his own breakaway party. As Il Messaggero reports, he is unsure about whether to hold a primary vote in his own chaos ridden party, Popolo della Libertà. PDL secretary Angelino Alfano is ready to run for the party leadership through primaries, but said it would not make to do so if Berlusconi decides to stand himself. During the last six months PDL has slumped in polls to 12% after 25% of 2008 elections.

Monti reiterates he will consider an involvement in future governments after 2013 vote

Mario Monti will consider whether to contribute to a future government if the 2013 elections failed to produce a clear majority, he said in an interview on Italian tv Rai 3, as Il Sole 24 Ore reports. Monti says his main achievements were the introduction of a golden rule in the Constitution and many reforms that will show concrete effects over the next years, Monti told to Rai 3. Despite good results, the exit from the crisis is not complete – which is why he makes himself available if the political parties cannot reach a coalition.

Monti may emerge as Italian PM or minister in the 2013 elections, Scalfari argues

Eugenio Scalfari writes in La Repubblica that Mario Monti had managed to regain international credibility that had been totally lost. President Giorgio Napolitano had said Monti cannot campaign for parliament, as he is already a life senator. Scalfari says Monti has taken political decisions that Italy will not go back on. He also ponders the possibility that the emerging majority at the election may offer Monti the premiership, or an important ministry.

Italy needs a shock, Deaglio writes

Mario Deaglio writes in La Stampa that Italy needs to rediscover a less conservative mindset. He remembers the Italy of the early twentieth century that accepted deepest changes and enormous reforms with enthusiasm, including labour reform. Today, companies are afraid to invest in Italy due a political system that fails to secure that country’s international competitiveness. He is pessimistic that the primaries can change this state of affairs.

8 Italians on 10 will stay at home during Christmas holiday due the crisis, survey reveals

The vast majority of Italians are expected to stay at home between Christmas and Epiphany due the crisis, tourism associations said, RaiNews24 reports. According to a study conducted by the research institute SWG, 79% of Italians will not be taking a single day of holiday over the festive period. According to survey only 5% will be going away for Christmas and 9% for New Year Eve, with the remaining Italians taking some time off between December 22 and January 6. Only 23% of Italians said they did not intend to cut back on holiday spending. In addition, 46% said they would be taking less holiday and spending less than one year ago.

Wolfgang Munchau on the irrelevance of the EU budget

In his FT column, Wolfgang Munchau says the EU has now only two material functions left: The first an most important is that it serves as a legal and institutional framework for the eurozone, and the second is that it serves as a waiting hall for future members.  The size of its budget is thus irrelevant. The disputed sum is about 0.03% of EU GDP and thus economically irrelevant.  The more important political point is that by freezing the EU budget in real terms – more or less -, all the action in European integration is shifting from the EU to the eurozone level. And this seals the permanent divisions between the eurozone and pre-ins on the one side, and the outs on the other. He concludes that David Cameron has ultimately done the eurozone a big favour.

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

Euro back close to $1.30.

10-year spreads
Previous day Yesterday This Morning
France 0.750 0.729 0.726
Italy 3.354 3.355 3.355
Spain 4.234 4.195 4.263
Portugal 6.442 6.543 6.802
Greece 14.922 15.011 -1.44
Ireland 3.037 3.050 3.207
Belgium 0.903 0.859 0.875
Bund Yield 1.434 1.442 1.442

Euro Bilateral Exchange Rate

Previous This morning
Dollar 1.290 1.2958
Yen 106.120 106.66
Pound 0.810 0.8088
Swiss Franc 1.205 1.2039
ZC Inflation Swaps
previous last close
1 yr 1.77 1.78
2 yr 1.79 1.81
5 yr 1.88 1.89
10 yr 2.11 2.12
Euribor-OIS Spread
previous last close
1 Week 0.000 -5.6
1 Month -4.000 -2
3 Months 3.400 5.6
1 Year 42.357 43.357
Source: Reuters

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