EUROINTELLIGENCE DAILY BRIEFING, 14 de Dezembro de 2012. Enviado por Domenico Mario Nuti. joaompmachado14 de Dezembro de 201214 de Dezembro de 2012Economia Navegação de artigos PreviousNext Fiscal shock absorber has been dropped, not just postponed Angela Merkel puts her foot down, as the idea of a fiscal shock absorber fund is now completely off the table; what remains is a tiny common budget – order of magnitude some €10-15bn – to act as a reward mechanism for countries that implement economic reforms; Suddeutsche Zeitung writes that never before has a European balloon deflated so fast and so massively; paper says there will be no discussions on further fiscal union until crisis is well and truly resolved; leaders have asked the European Commission to come up with a proposal for banking resolution 2013; Holger Stelzner goes ballistic over banking, and says the ECB may have a conflict of interest in preventing the resolution of a bank; Mario Draghi said he hopes that resolution would be in pact in early 2014, but says the system would function without resolution; also said that he did not coordinate with anyone when he made his “whatever it takes” pledge; Silvio Berlusconi said the euro will break up within three years; an Italian news agency says Angela Merkel had put pressure on Mario Monti to stand at the next Italian elections; the latest polls put a hypothetical Monti party at 18%; Il Foglio says Monti is Italy’s only hope; Anatole Kaletsky says Italy needs more reforms, less austerity, and Monti is the best politician to deliver this; Italy is about to introduce a tax on high frequency trades; the latest Bank of Italy data show an alarming rise of inequality in Italy; a report by Intermon-Oxfam says austerity will drive 40% of the Spanish population below the poverty line in a decade, a situation from which it will take 25 years to recover; eurozone finance ministers formally agreed the loan disbursement to Greece; Antonis Samaras says that Grexit is no longer an issue; but ministers have to reconvene to discuss measures to reduce Greek debt levels to reach agreed targets; eurogroup fails to reach agreement on a loan to Cyprus; Karl Whelan applauds the Fed for announcing an explicit unemployment target; so does Brad DeLong, who says that, while it is too little too late, it will reduce the lost decade to seven years; an Italian shopkeeper, meanwhile, summarises Italy’s disappointment with Monti: “We were awaiting a miracle. And the miracle did not come.” After the agreement by finance minister to create a banking union for between 1 and 2% of eurozone banks, the European Council yesterday formally dropped the most important element of a fiscal union – the idea of a common budget to act as an economic shock absorber. Other decisions relating to further fiscal integration have been put on ice until June, The FT writes. Herman van Rompuy said at the post-summit press conference that he would develop a proposal by June for an embryonic eurozone budget that could be used to reward governments that had adhered to pre-agreed reform programmes. But what is complete off that table is the idea of a shock-absorber mechanism. “We are not tasked to work on it,” the FT quotes Mr Van Rompuy as saying. Suddeutsche Zeitung writes this morning that rarely before has a European balloon deflated as fast as van Rompuy designs for a fiscal union. Merkel said bluntly there was no point in dealing with issue in the “distant future”, saying she rejected outright any form of debt mutualisation, or a hidden permanent transfer. The article says there is unlikely to be another push in this direction until the crisis is well resolved. Also, the FT article quoted Merkel as saying that the solidarity mechanism van Rompuy is tasked upon to work on until June would be small: “It wouldn’t be in three-figure billions, but maybe €10bn or €15bn.” (So the bottom line that the fiscal union will have no macroeconomic function whatsoever. In other words, there won’t be a fiscal union. The issue is now formally off the table.) On the follow-up to the banking union – resolution in particular –van Rompuy somewhat misleadingly said, as quoted by Reuters, “This evening we decided to put in place a single resolution mechanism.” What is going to happen is that the European Commission will present a proposal during 2013. Frankfurter Allgemeine goes ballistic over banking union When we read Holger Stelzner on banking union this morning, our question was whether he would mere hate the whole idea, or go completely beserk. He did not disappoint. But beneath all his fury, which we are not going to summarise, he made one interesting point on a possible of conflict of interest for the ECB. Considering that the ECB would incur losses if a large bank were to be resolved – given the dubious quality of its collateral – the ECB has an intrinsic interest in preventing or delaying resolution. Mario Draghi contemplates life without resolution In the FT’s interview with Mario Draghi, we discovered two bits that were new. The first was that Mario Draghi allowed himself to be drawn on the question what would happen if there is no resolution. He said the SSM would still be worthwhile in that case, as it would countries under pressure to resolve a bank if the SSM told them to. We conclude from this statement that Draghi considers it possible that there may no agreement on resolution. (The main headline of the FT was that Draghi wants resolution to be in place by early 2014. Our point is that one would not answer a hypothetical question in this way if you thought agreement was certain. It clearly is not – also in view of Germany’s clear rejection of hidden transfers and debt mutualisation, which we do not see changing during the course of 2013.). The second piece of news related to the circumstances of his “whatever it takes pledge” in the summer. He said there was no coordination with the European Council, not even within the ECB. Only 3 years for the euro, Berlusconi says Helpful as ever, Silvio Berlusconi has again attacked the euro. As La Repubblica writes, he does not wish to be considered eurosceptic, but added that the euro may only last 3 more years before nations return to their own currencies. Berlusconi stated that if steps are not taken with the ECB printing money to lower the cost of borrowing and reduce imbalances between the eurozone member states, the breakup of the eurozone becomes inevitable. Merkel invites Monti to stay in office Mario Monti received much support when he made a surprise appearance at the EPP summit in Brussels, with Angela Merkel asking him to run for premiership in Italian general elections. Several sources at the summit told ANSA that Merkel has invited Monti to run at elections likely to take place in mid-to-late February. Berlusconi said he may support a centre-right coalition led by Monti in next elections. According to latest polls, a Monti’ party could reach almost 18%. The only way to restore Italy is Monti, Il Foglio says Mario Monti should run in the general election, Il Foglio argues in an editorial because he is the candidate capable of restoring market confidence in Italy’s efforts and avoid the ECB’ OMTs trigger in 2013. Only Monti can deliver this. According to Il Foglio, Monti could run in a centre-right coalition, supported also by centrist and the moderate centre-left supporters. The announcement could arrive during the weekend. Anatole Kaletsky says Italy needs a new deal – more reforms less austerity In his Reuters column, Anatole Kaletsky makes the point that Italy needs a new deal – more reforms, less austerity – and only an enlightened leader of the centre can delivers – like Monti. “Next year will be the ideal time for a sensible Italian leader to ease Europe’s austerity bias by uniting with France and Spain, something Berlusconi could never manage with his farcical anti-German antics. If overtaxed Italian voters feel that austerity has gone too far, they should elect a leader who simply says ‘basta’. There is no need for ‘bunga-bunga’.” (We agree with him on the economics, but disagree on the politics. Pier Luigi Bersani is more likely to deliver further austerity than reform.) Italy is set to introduce a new HFT tax Italy is about to introduce a tax on high-frequency financial trades starting March 2013. As Il Sole 24 Ore writes, if a government decree, already approved by the lower house of Parliament yesterday, is also approved by the Senate, the new tax will become law. The Senate will also need to approve the law, which sees the taxes being introduced on share transactions from March and on derivatives trading from July. Inequality on the rise in Italy… The richest 10% of Italy’s families control 45.9% of the national wealth, according to the Bank of Italy. As Il Sole 24 Ore reports, the crisis has revealed a divided country. The poorer half own 9.4% of national wealth.The Gini index is rising. According to the Bank of Italy, Italian families’ total wealth dropped 5.8% since 2007, the year in which it peaked in real terms. and in Spain Publico writes that NGO Intermon-Oxfam issued a report on _Crisis, Inequality and Poverty_ claiming that, if austerity and social cuts are maintained, Spain could see 40% of its population below poverty level in a decade, and take 25 years to recover the lost ground. The forecast is based on an analysis of recent Latin American and Asian crises, where 15 to 25 years were needed for poverty rates to drop to pre-crisis levels. Inequality has increased with the crisis in Spain, and the country leads the EU by one measure of inequality. The report forecasts a spectacular increase in income inequality if austerity policies continue for another decade. Eurogroup agreed on loan disbursement for Greece Eurozone finance ministers agreed to release €49.1bn of loans to Greece, with €34.3bn to be disbursed immediately, possibly as early as next week, while another €14.8bn will be transferred to Athens in tranches during the first quarter of next year. About €7.2bn will be paid in January for bank recapitalisation. The remaining €7.6bn will be broken up into three monthly tranches as long as reform “milestones” are met. From next week’s disbursement, €16bn will go toward bank recapitalization, €7bn for budgetary financing and €11.3bn to finance Greece’s bond buyback programme, Kathimerini reports. If the IMF approves its payment of €3.4bn as part of the programme, the total loan Greece stands to receive is €52.5bn. The mood was upbeat in Brussels: “We are convinced that the program is back on a sound track,” said Jean-Claude Juncker, Antonis Samaras said “Solidarity in our union is alive. Grexit is dead.” The eurogroup might still have to reconvene to discuss how to reduce Greece’s debt by about 1.5% of GDP until 2020, the gap resulting from the bond buyback falling short of its targets. Juncker said one of several possibilities to close the gap was to lower the co-financing rate that Greece must pay in order to gain access to its allotment of EU development funds, according to the FT. Commissioner Olli Rehn said such a change could yield “close to €5bn”, or about 2.5% of Greek GDP. No agreement on Cyprus The eurogroup was less successful in dealing with a bailout for Cyprus, the FT reports. The parties have been negotiating over a bailout for months and are likely to continue into January. Cyprus’s banks are believed to require about €10bn, which is more than half the country’s annual output. A clearer picture should emerge in mid-January, when a review of the banking system is due to be completed. The government would also require billions more to cover its own financing needs. The talks have also been shadowed by a growing political concern in Germany and other member states about the potential backlash if they are seen using taxpayer money to rescue banks filled with deposits from wealthy Russians and others drawn to Cyprus as an offshore financial centre. Central banks renew currency swaps The Fed extended the dollar swaps with the ECB, BoC, BoE and SNB for another year, Reuters reports. Use of the swap lines peaked at $583billion in Dec 2008 but has since steadily declined to $12 billion earlier this month. The Fed said the central banks had also renewed until Feb. 1, 2014, bilateral currency swap arrangements that would also provide liquidity “should market conditions so warrant.” Karl Whelan applauds Fed – so does Brad DeLong, with qualifications Writing in Forbes, Karl Whelan applauds the Fed’s ‘bravery’ – no rate increases until unemployment drops below 6.5% – in contrast to the ECB’s conservatism. Whelan argues that the difference cannot be attributed solely to differences in the respective legal mandates, since the ECB is required to support “the broader economic policies of the EU” if they don’t conflict with price stability. Brad de Long, meanwhile, blogs about the significance of the Fed’s decision for the US economy, in the context of his and other economists’ calls for more expansionary fiscal and monetary policy. While arguing that the Fed’s announcement falls 1/3 short of the required size of Quantitative Easing and comes three years late, de Long argues that the stated policy makes it unreasonable to expect the US economy to remain stagnant for another 3 years. In that case, he says, one should see investors gradually shifting from holding cash and Treasuries to equities, and “the lost decade will be over in seven years”. The alternative is that the Fed’s policy fails to reactivate the economy, which de Long then says will force “believers in the potency of monetary policy even at the zero lower bound” to consider fiscal policy. No Miracle A Reuters story on Monti’s year in power capture the sense of frustration by ordinary Italians very well. We thought a shopkeeper summarised the hopes and disappointments succinctly: “We were awaiting a miracle. And the miracle did not come.” 10-Y Spreads, Forex, ZC Swaps and Euribor-Ois 10-year spreads Previous day Yesterday This Morning France 0.623 0.646 0.630 Italy 3.272 3.347 3.321 Spain 4.002 4.075 4.123 Portugal 5.908 5.787 6.092 Greece 11.852 11.641 -1.37 Ireland 3.293 3.302 3.437 Belgium 0.779 0.794 0.801 Bund Yield 1.35 1.339 1.365 Euro Bilateral Exchange Rate Previous This morning Dollar 1.306 1.3092 Yen 108.950 109.86 Pound 0.810 0.8119 Swiss Franc 1.209 1.2087 ZC Inflation Swaps previous last close 1 yr 1.44 1.44 2 yr 1.51 1.61 5 yr 1.66 1.65 10 yr 1.91 1.91 Euribor-OIS Spread previous last close 1 Week -5.600 0 1 Month -2.871 -2.871 3 Months 5.514 5.514 1 Year 39.343 41.143 Source: Reuters Share this: Share on Facebook (Opens in new window) Facebook Share on X (Opens in new window) X Share on LinkedIn (Opens in new window) LinkedIn Share on WhatsApp (Opens in new window) WhatsApp Email a link to a friend (Opens in new window) Email More Print (Opens in new window) Print Like this:Like Loading...
