“We are going to lie, but not just yet” – Cyprus edition
As the news flows thins out, this will be our last Newsbriefing for 2012. We will be back, Thursday, January 3. We at Eurointelligence wish all of our readers a Merry Christmas and a Happy New Year.
- Jorg Asmussen says there is no question of a haircut for Cyrpus now;
- the current issue at stake is only the preliminary financing for the banks;
- only once all the data are in, will there be any assessment of possible further measures;
- Jean-Claude Juncker said the promise not to extend the haircuts beyond Greece related to Greece-only, not Greek-speaking countries;
- Pier Luigi Bersani said he does not expect Monti to run for PM;
- both Bersani and Silvio Berlusconi said they are happy to face each other, and Monti, in a TV discussion;
- Berlusconi went back on attack against Monti, saying his only regret is not having pulled the plug on the Monti government much earlier;
- says Monti does not stand a chance because the people are suffering under austerity;
- Monti said Italy will take more time to exit from the crisis;
- Italian petrol consumption is back to the 1969 level;
- the Italian banking association predicts further increases in bad loans, and says this would constrain credit;
- the Greek government is now beginning to pay its arrears;
- Portugal has shelved the privatisation of TAP;
- having gone through hell to adjust under a fixed exchange rate, the Latvians are becoming more sceptical on euro membership, says Latvia’s PM;
- Kemal Dervis says the ECB, too, should adopt an employment target (we know this would come, but not quite this fast);
- Rodrigo Rato appears in court over Bankia, and lashes out against the Spanish government and the Bank of Spain;
- after an increase in the formation of new Spanish companies during H1, 2012, the trend reversed in the second half;
- Artur Mas, meanwhile, says Catalonia could join the EU next year.
Ok, the quotes are wrong. But this is essentially the message you can read into the combined comments from Jorg Asmussen and Jean-Claude Juncker on Cyprus yesterday. Reuters quotes Asmussen as saying that there was no question about “a haircut for Cyprus now” because they are only talking about the preliminary financing for banks. Only once all the data are in and if the financing need of Cyprus ends up higher, it is worthwhile looking at other measures, he said. Reuters quotes Juncker as saying that the EU had promised that there won’t be any more haircuts outside Greece. “We didn’t say all Greek-speaking countries, we said Greece. It is part of the credibility to stick to the signals you have sent.”
(That would indeed be the case if you had any credibility left.)
No recovery for French economy; government forecast too optimistic
Latest figures from the French statistical office INSEE show the French economy contracted towards the end of 2012 and will barely grow in the first half of next year, compromising the government’s budget forecast, according to Les Echos. After expanding 0.2% qoq in Q3, the French economy contracted by 0.2% in Q4 and is expected to only grow 0.1% in the first and second quarter of 2013. If INSEE is right, the French economy would have to accelerate abruptly in the second half of next year, growing 1% qoq for two straight quarters, to meet the government’s forecast of 0.8% GDP growth for the whole year. The government has no plans to revise its forecasts “for the moment” and excludes another austerity programme, in line with the recommendations of the IMF and the OECD.
Bersani vs Berlusconi (vs Monti)
Pier Luigi Bersani says said he is not expecting Mario Monti to run for PM, as La Stampa reports, and add that he opposes another technical government something that should remain an isolated experience. He said during an interview on Sky TV that is he ready to face his real opponent, Silvio Berlusconi, in TV interview, but also Monti. Berlusconi said he would agree to such a debate.
Having supported him yesterday, Berlusconi has return to true form with yet another attack on Monti – the fifth this week on our count. As Il Messaggero reports, Berlusconi said Monti would be a ”small player” in the political fray if he decides to run in the upcoming general elections. According to his personal polls, Berlusconi says a party lead by Monti could reach only 12%. The reason is the economic situation of Italians: Berlusconi said the fiscal burden on citizens has increased by 2pp since Monti took leadership of Italy in November last year. In any case, Berlusconi said that it may have been a mistake for his PdL not to have brought down Monti’s government much earlier.
Italy needs more to exit from crisis, Monti says
Monti claimed yesterday that Italy was beginning to see the light at the end of the crisis tunnel, but the tunnel would be long. As Il Corriere della Sera reports, Monti said Italy has only made a start on the structural economic reforms it needed to revive its economic fortunes. According to Monti, there is a concrete danger the sacrifices Italy has endured over the last year would be wasted. What is likely to remain is the new fiscal regime, after yesterday’s passage of the Golden Rule law.
The crisis hits the petrol consumption in Italy
Italian petrol consumption has this year plunged to 1960s levels, as Il Sole 24 Ore reports. According to figures released by the Unione Petrolifera (UP) body, this year oil consumption dropped 11.4% to 63 million tonnes. The association said it’s the worst performance since 1969, when Italy was still facing a period of economic growth and led to the mass ownership of cars. High fuel prices, massive unemployment and recession are the reasons for the drop. The forecasts for 2013 see a drop of 12% versus 2012.
Italian banking association sees bad loans rising through 2014
Reuters reports on an estimate by the Italian banking association according to which bad loans will keep on rising in Italy until 2014. The forecast is for 7.3% of total credit in 2014, the highest ratio seen since 1998. ABI went on to day that the rise in credit risk will act as a major break on loans.”
Greek government to boost economy with arrear payments
The Greek government will disburse €1bn arrears by the end of the year, Kathimerini reports. €40m will be used to pay the one-off retirement packages of more than 1,200 civil servants, €255m will be allocated to the 42 municipalities for their arrears to pay, and another €700m will go toward paying tax returns. They will also have to decide on settling the Healthcare bill, where €100m is owed to hospitals and €80m to pharmacists. With some € 9bn of arrears payments still to be paid and the bank recapitalization process the government hopes to improve liquidity and give the economy a boost.
Portugal puts privatisation of airline on hold
The Portuguese government has for now shelved the privatisation of state-owned flag carrier TAP Air Portugal after the Brazilian investor, with whom they were locked in exclusive talks didn’t meet financial conditions set for a deal, according to Dow Jones Wires. TAP’s sale is part of a €5bn privatization programme Portugal must undergo as part of its €78bn bailout programme. Unlike Greece, which has resisted sales of state assets under its bailout, Portugal has been quick to make disposals.
Latvia’s enthusiasm to enter the Eurozone cooled down
They went through this masochistic fixed-exchange type adjustment, now they say they don’t want the euro anymore. In an interview with the FT, Latvia’s prime minister Valdis Dombrovskis warned that his citizens are turning against the single currency, and he faces a struggle to get the Baltic republic into the single currency by the 2014 target. “Five years ago before the eurozone crisis everyone wanted to enter the euro, but we weren’t economically ready. Now that we are ready to enter, many have become sceptical”. The article observed similar trends in Bulgaria and Poland.
Kemal Derviş suggests ECB adopt Fed-style employment target.
Writing in Project Syndicate, Kemal Derviş argues that the ECB should follow the US Fed’s lead and set an explicit employment target. Although criteria other than inflation are usually listed as central bank mandates or even in the ECB’s case as qualifiers of the single price stability mandate, none have set a numerical employment target. Derviş argues that this “should change as the size of the employment challenge facing advanced economies” becomes harder to ignore. Specifically, Derviş suggests an ECB inflation target at 3%, German wage growth at 6% and German inflation at 4% as a way to ease the eurozone adjustment process, both politically and economically.
(Oh, and by the way, this would require a treaty change. We agree, of course, with Dervis economic analysis. The trouble is when you write your central bank policies into a treaty, there is not much you can do about it later if the situation changes. Ideological legal capture is, and remains, the biggest single structural rigidity of the eurozone.)
Former CEO Rodrigo Rato in court for Bankia fraud case
Associated Press (via the Washington Post) reports on Rodrigo Rato’s appearance in court in the case being investigated for alleged fraud in the failure of Bankia, nationalized this past Spring when Rato was its CEO. Rato was heckled by dozens of protesters on his arrival.
In his deposition, Rato blamed the Bank of Spain, former PM Jose Luis Rodriguez Zapatero and current PM Mariano Rajoy for the failure of Bankia, writes ABC. Rato argues that the Bank of Spain forced the creation of Bankia (as a merger of 7 cajas), that Zapatero forced Bankia’s stock exchange listing, and that Rajoy forced the revaluing of the bank’s account with a decree intended to clean up the financial sector’s real estate assets.
Artur Mas outlines his plans for Catalan statehood
In the first day of the debate that will see him voted back as Catalan Premier, Artur Mas described his program for “configuring a state in Catalonia”: a reform of tax collection;
the creation of a public bank;
reforming the regional police into a full-blown police force;a territorial restructuring recovering the seven traditional (pre-1716) vegueries, in preference to the 4 spanish provinces dating from the mid-19th century;
a reform of public servants;
and a number of additional structures. El Confidencial headlines his claim that Catalonia will be the 28th EU state “next year”. In a possible reference to leaked plans by Spain’s government to bring the full force of the Spanish Constitution to bear against the legality of an independence referendum, Mas also said he would hold a consultation “under a legal framework that allows it”, writes Europa Press.
Gloomy perceptions of the state of Spain’s economy
El Confidencial writes that the positive tendency of new firm registration in Spain in the first half of 2012 reversed in the second half, with the closure of nearly 41,000 firms. Over half of these are firms with 5 or fewer workers, and 80% had 9 of fewer. The paper also quotes an estimate by FUNCAS (a federation of the charitable foundations of the former cajas) that the GDP will contract an annualized 3% in the 4th quarter of the year. Meanwhile, Europa Press reports that 98% of Spaniards believe the Spanish economic situation is “bad”, quoting the latest Eurostat Eurobarometer.
10-Y Spreads, Forex, ZC Swaps and Euribor-Ois
It’s the merry season.
| 10-year spreads | |||
| Previous day | Yesterday | This Morning | |
| France | 0.606 | 0.586 | 0.580 |
| Italy | 2.974 | 3.055 | 3.059 |
| Spain | 3.854 | 3.828 | 3.898 |
| Portugal | 5.464 | 5.444 | 5.734 |
| Greece | 9.993 | 10.242 | -1.41 |
| Ireland | 3.138 | 3.110 | 3.234 |
| Belgium | 0.679 | 0.638 | 0.654 |
| Bund Yield | 1.429 | 1.411 | 1.407 |
| Euro Bilateral Exchange Rate | |||
| Previous | This morning | ||
| Dollar | 1.323 | 1.3209 | |
| Yen | 111.030 | 111.06 | |
| Pound | 0.813 | 0.8126 | |
| Swiss Franc | 1.208 | 1.2068 | |
| ZC Inflation Swaps | |||
| previous | last close | ||
| 1 yr | 1.57 | 1.59 | |
| 2 yr | 1.6 | 1.62 | |
| 5 yr | 1.79 | 1.82 | |
| 10 yr | 2.05 | 2.07 | |
| Euribor-OIS Spread | |||
| previous | last close | ||
| 1 Week | -6.200 | -9.6 | |
| 1 Month | -4.786 | -4.186 | |
| 3 Months | 5.514 | 3.614 | |
| 1 Year | 37.157 | 38.457 | |
Source: Reuters |
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