Bersani will lead the centre-left in Italian general elections
- Pier Luigi Bersani has won the run-off in the Partito Democratico’s primaries, putting him in the pole position to succeed Mario Monti as prime minister;
- Bersani won with a huge vote of over 60% against Metteo Renzi, the mayor of Florence;
- the latest polls put the PD at 30%, ahead of the anti-euro Moviemento 5 Stelle at 20%;
- polls put the support for a hypothetical Berlusconi-led breakaway party at 9zona euro%;
- Il Foglio writes that PD had lost an opportunity to renew itself;
- Paolo Manasse writes the primaries end the chance of another term for Mario Monti;
- Christian Noyer says the eurozone must repatriate financial business from off-shore London markets;
- the Greek government will present the bond buyback scheme to the eurogroup today;
- reluctant Greek banks will participate after all in the ‘voluntary’ buy-back scheme;
- there will be a reshuffle in the Greek cabinet before Christmas with anti-reform ministers headed for the chop;
- Angela Merkel says she does not in principle rule out a haircut, but not before Greece reaches a primary surplus;
- the Bundestag approves the Greek aid package with a large majority, but Angela Merkel’s coalition no longer carries its own majority on this issue;
- Wolfgang Munchau writes the SPD’s inability to oppose the government on its eurozone policy is the result of a lazy narrative;
- the Irish government signed off on an austerity budget for 2013 after a long row over measures to increase social charges for higher incomes;
- Arnaud Montebourg threatens to resign over Arcelor-Mittal, but then fails to pull it off;
- the trend towards capital outflows from Spain has been arrested through Draghi’s intervention in the summer;
- Spain’s promise of residency for property investors has raised fears in Morocco over capital outflows;
- Catalonia’s president Artur Mas is ready to accept heading a minority government with the support from the left-nationalist ERC;
- Mariano Rajoy breaks his last promise;
- eurozone unemployment rises, while inflation falls;
- syndicated lending falls to new lows amid a trend towards capital market funding;
- eurozone banks are withdrawing from trade finance for emerging economies;
- Paul de Grauwe says the eurozone crisis insoluble as long as it is portrayed as a morality play;
- Luigi Zingales writes that Italy should apply for OMT;
- Nouriel Roubini, meanwhile, says the worst is over for Italy, but recession will be worse than forecast.
Pier Luigi Bersani has won the run-off of centre-left primary against Matteo Renzi, the 37-year-old mayor of Florence. As Il Corriere della Sera reports, Bersani has gained 60.8% of votes and now will lead the Partito Democratico at 2013 general elections. Renzi said he will continue to be the mayor of Florence and conceded quickly to Bersani. The veteran PD secretary remarks Italy has argued that what Italy needs is his experience. In latest polls, the PD has over 30%, while the Movimento 5 Stelle, the Beppe Grillo’ party, is close to 20%.
Poll puts Berlusconi’s break-away party at 9%
A poll conducted by statistics institute SWG suggested that a breakaway party by Silvio Berlusconi – Forza Italia 2.0- would only reach 9.3% in 2013 according to RAI 1. The Italian centre-right is in a complete mess.
Meanwhile, the Northern League’s party secretary Roberto Maroni said he wants to pull the plug to Monti’ government, La Repubblica reports. Maroni said German-imposed austerity measures had ruined Italy. Once again, he is seeking an alliance with Berlusconi’ party Popolo della Libertà.
The missing opportunity of Partito Democratico
The Partito Democratico has lost the possibility to renew itself, according to an editorial on Il Foglio. The biggest centre-left party could be the first one to lead Italy out of the Seconda Repubblica, the period after the huge scandal called Tangentopoli, in 1992, through which Silvio Berlusconi has emerged as a political figure. Unfortunately, the old guard of Partito Democratico did not want the new way of politics of Matteo Renzi – liberalism, privatizations, flexsecurity, more EU integration – because of vested interests. Bersani won thanks to primary’s strange rules, including a public registry of voters.
Manasse says another term for Monto is unlikely after Bersani victory
The probability of a second term in office for Mario Monti falls after centre-left run-off between Pier Luigi Bersani and Matteo Renzi, according to Paolo Manasse. On his blog, Manasse says that Bersani puts the Partito Democratico in a strong position for next elections, thanks to majority in polls. In addition, Silvio Berlusconi seems to be ready to come back for run, with current electoral law. Manasse remarks that the moderate components, which could lead to a Monti II type Grand Coalition, are almost finished. In fact, the probabilities of another term for Monti are bigger without a clear division between parties.
Noyer says eurozone must not allow London to be its main financial centre
The really surprising bit about this story is the surprise it has caused. Christian Noyer, a rarely outspoken man, told the Financial Times that it makes no sense for the eurozone to have its main financial centre off-shore. He used a financial stability argument, as the central bank needs to control the liquidity of the banking system. “We’re not against some business being done in London, but the bulk of the business should be under our control. That’s the consequence of the choice by the UK to remain outside the euro area.”
(This is, of course, related to the discussion about the SSM and its relationship with the EBA, and on the relationship between a banking union of the eurozone with a single market for finance at EU level. The eurozone essentially wants to regain control over financial flows – something it found difficult under the present system.)
Greece will present buyback scheme to eurogroup today
The Greek finance minister will unveil details of a bond buy-back at the eurogroup meeting today. There is hardly any more information about it in the press this morning. The question is still out there whether the scheme will tempt enough bondholders to cut Greek debt by a net €20bn. Under the current plan, Greece is to use €10bn from its rescue package to buy back about €30bn of bonds. Reuters had reported last week that the prices may vary according to bond issues. Pension funds are not likely to participate, as they are considered as part of the state itself, Reuters quotes Antonis Samaras.
Greek banks are expected to participate after all
Kathimerini speculates that despite the expressed reluctance of Greek banks to participate in the buyback , they are expected to join the scheme as they cannot afford to miss out on recapitalization funds earmarked for them in the next €34.4bn tranche of rescue loans. The draft tax code – which abolishes breaks for large families, self-employed professionals and farmers and is part of the “prior actions” demanded by the troika – must be submitted in Parliament soon. The bill faces opposition not just from the junior partners in the coalition – socialist PASOK and Democratic Left – but also from several conservative lawmakers, meaning its passage through Parliament is unlikely to be smooth.
A cabinet reshuffle expected before Christmas
Also a cabinet reshuffle is expected before Christmas with PASOK and Democratic Left expected to appoint several officials to key posts. Certain ministers who are resisting reforms – such as Administrative Reform Minister Antonis Manitakis, who opposes a fast-track redundancy scheme for civil servants – are likely to go.
Merkel says haircut not ruled out
Angela Merkel told Bild am Sontag that a write-down on Greek debt is not ruled out and that it could be considered if Greece manages to produce primary surpluses, which is not expected before 2014/2015. It is also after the current bailout programme, which Wolfgang Schaeuble insisted to be incompatible with a haircut.
As expected, an overwhelming majority in the Bundestag for the Greek package
Angela Merkel lost her own majority with 23 rebels among the ranks of CDU/CSU and FDP, but the Bundestag voted with an overwhelming majority in favour of the latest Greek aid package – 473 against 100. Both the SPD and the Greens supported the move, while the Left party is now the only party that openly and consistently rejects Merkel’s eurozone policies. Peer Steinbruck, the party’s candidate for the job of chancellor, said in his speech to the Bundestag that the SPD supported the package because it did not want to be seen as unreliable.
(Politically, the SPD has never found a role as an opposition party, after eleven years in power. They are still behaving as though they are in government. Hence this obsession with credibility. It has not helped them in the opinion polls.)
Munchau on the SPD
In his FT column, Wolfgang Munchau talks about the SPD’s euro dilemma, which consists of an inability to reject any of Angela Merkel’s euro policies, despite the fact that she has already lost her majority. Munchau argues that this is the result of a lazy narrative, which is that Angela Merkel’s policies are too expensive. The SPD is afraid as being seen as softer on Europe, so they have been seeking refuge in technicalities, while supporting the chancellor’s overall policies – for fear of an electoral backlash. Munchau’s overall conclusion is that the outcome of the German election is ultimately irrelevant for the future of eurozone policies.
Irish government signed off budget despite last minute rows
Ireland’s government has agreed most details of its 2013 budget to be delivered on Wednesday, comprising €3.5bin cuts and taxes. Key elements according to the Irish Times include a property tax of 0.2% of house value, with a higher rate or “mansion tax” for residences valued above €1m;
a child benefit rate cut of €10;
a motor tax increase of 15%;
and a reduction from 12 months to nine for payment of non-means-tested jobseeker’s allowance. Government sources said tensions between the Coalition parties were running high last week over Labour’s proposed increase of social charges on higher incomes, which Fine Gael was only prepared to accept it in return for a cut in all social welfare rates. The fact that no further meeting is planned until Wednesday morning is being cited as evidence the parties have reached agreement on most details of the budget.
For those who like personal drama, the French press has much to offer this morning
Arnaud Montebourg was hitting the front pages this morning again because he threatened to resign after the prime minister announced that there is a deal with Mittal, which included €180m of extra- investment but no social plans. After much boohoo and some concessions, Montebourg decided to stay, after all. Les Echos has the full story, while Le Monde titles “the day when Montebourg failed to resign.”
Also the endless dispute about the leadership election in the conservative UMP party continues to dominate the news. Screening through news magazines coverage as compiled by RFI, the whole story looks like a bad soap opera portraying the three protagonists, Sarkozy, Cope and Fillon in an ambience between hatred and ridicule.
The ‘Draghi effect’ ends capital flows out of Spain
El Pais (English edition) on Friday reported on Bank of Spain figures showing that the capital flight out of Spain reversed in September, with a net inflow of €31bn after 14 months of net capital outflows totalling €312bn. This is attributed to the ‘Draghi effect’, referring to Mario Draghi’s announcement in early August that the ECB would do “whatever it takes” to save the Euro, followed by the definition of the OMT bond purchasing program at the start of September.
Morocco fears large capital flows into Spain
If the Spanish government was hoping to attract capital inflows by offering residence permits to foreign buyers of real estate, El Pais reports on Moroccan government worries that the policy may lead to a large capital flow from Morocco to Spain. The Moroccan government has been quick to remind its citizens that taking money out of Morocco to buy property requires prior authorization from the country’s Exchange Autrhority (Occife des Changes).
Catalan political impasse close to a resolution
On Friday, Publico reported that Catalan Premier Artur Mas has resigned himself to forming a minority government with outside support by left nationalist ERC, which made it clear it was not available to join a government. Mas admitted that austerity measures such as those adopted by his government over the past two years take a toll on ruling parties, but congratulated himself on beating the second largest party (ERC) by a factor of nearly two and a half in the elections, and on the “clear bet for self-determination”. He said that if ERC “rises to the occasion” he can form a stable government.
Mariano Rajoy breaks his ‘last’ promise (or keeps it, depending on how you look at it)
Spanish Prime Minister Mariano Rajoy famously said last September that public pensions would be “the last thing he’d touch”. On Friday he did touch them, as the Spanish government approved a revision of pensions for next year below the official inflation figure. Pensions below €1,000 will rise by 2%, and those above by 1%, while headline inflation was reported at 2.9%. Reuters had the story in English on Friday.
Eurozone unemployment rises
Last Friday’s data were not good. Unemployment rose from 11.6% in October to 11.7% in November, a new euro-era record. HICP inflation dropped from 2.5% to 2.2% in November – the result of a fall in consumer demand.
Eurozone syndicated loans at 10-year low
The FT reports that syndicated bank lending in the eurozone is down 45% so far this year, compared to same period in 2011, and has now reached the lowest absolute levels in a decade. The reason, according to the FT, is a structural shift towards capital market funding. In contrast, corporate bond issuance has increased 42% to $316bn, according to data from Dealogic.
Europe’s bank are cutting off emerging markets
This is an interesting story in FT Deutschland about the externalities of the eurozone crisis. Eurozone banks are withdrawing from trade finance for emerging economies. The World Bank says European banks accounted for 80% of global trade finance, and expressed concern that this trend could lead to shortages of food and energy in certain countries. The countries most effected are sub-Saharan Africa and the weaker economies of Eastern Europe. During the first quarter 2012, the volume of trade finance was down 18% compared to the previous year, the lowest volume since Q3 2009.
De Grauwe on the Eurozone’s morality play
El Pais reported Friday on a lecture by Paul de Grauwe in Spain, on the Euro crisis as a morality play, delivered in acceptance of an honorary doctorate by the University of Valencia. The reported content is very close to this Editorial by de Grauwe on Intereconomics, the journal of the Centre for European Policy Studies. De Grauwe’s central argument is that the Euro crisis cannot be solved as long as it is narrated in the surplus countries as a ‘morality play’ as this leads to the misdiagnosis that the crisis stems from ‘irresponsible’ behaviour by the deficit countries, and thus to the misguided prescription that ‘punishment’ is necessary so that the deficit countries learn to not ‘sin’ again.
Luigi Zingales on the desirability of an Italian OMT application
Writing on Project Syndicate, Luigi Zingales explores the Draghi effect. He argues that, despite funding tensions having eased, it would still be beneficial for Spain or Italy to ‘pull the OMT trigger’ by applying for EU funding. In his view, it is only politicians’ perception that asking for an OMT program would be seen as a sign of weakness, and he likens it to the way in which 1930s European leaders delayed an exit from the Gold Standard for fear of being perceived as politically weak. Zingales ends by saying that Italian PM Mario Monti, not being an elected politician, should be free from such constraints and thus ‘should trigger the OMT before it is too late’.
Roubini says the worst is over for Italy, but recession will be deeper than forecast
Nouriel Roubini says the worst is over for Italy, thanks to ECB. In an interview with La Repubblica, Roubini says the ECB has helped Italy to avoid the worst case scenario of one year ago, a debt restructuring. Mario Draghi’ bazooka and the technical government of Mario Monti had permitted to Italy to regain the lost confidence of international investors. Despite this, the recession will be deeper than estimates. However, Roubini says he can see the light at the end of tunnel: in 2014 Italy will be out of recession.
10-Y Spreads, Forex, ZC Swaps and Euribor-Ois
| 10-year spreads | |||
| Previous day | Yesterday | This Morning | |
| France | 0.723 | 0.691 | 0.691 |
| Italy | 3.336 | 3.320 | 3.324 |
| Spain | 4.209 | 4.108 | 4.169 |
| Portugal | 6.682 | 6.323 | 6.608 |
| Greece | 15.086 | 14.778 | -1.43 |
| Ireland | 3.051 | 3.097 | 3.215 |
| Belgium | 0.865 | 0.821 | 0.831 |
| Bund Yield | 1.421 | 1.437 | 1.433 |
| Euro Bilateral Exchange Rate | |||
| Previous | This morning | ||
| Dollar | 1.297 | 1.2925 | |
| Yen | 106.680 | 105.72 | |
| Pound | 0.809 | 0.8076 | |
| Swiss Franc | 1.204 | 1.2034 | |
| ZC Inflation Swaps | |||
| previous | last close | ||
| 1 yr | 1.64 | 1.75 | |
| 2 yr | 1.68 | 1.78 | |
| 5 yr | 1.87 | 1.75 | |
| 10 yr | 2.11 | 1.98 | |
| Euribor-OIS Spread | |||
| previous | last close | ||
| 1 Week | -5.400 | -5.6 | |
| 1 Month | -3.000 | -2.5 | |
| 3 Months | 5.643 | 5.643 | |
| 1 Year | 41.229 | 43.129 | |
Source: Reuters |
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