From a report by Germany’s spy agency in early November arguing that the main beneficiaries of aid to Cypriot banks would be rich Russians who have invested illegal money there, through to a very public bailout veto threat. All in just two months! Speedy work indeed by Germany’s opposition.
From Eurointelligence on Wednesday:
Suddeutsche Zeitung is reporting this morning that the SPD [Social Democratic Party] is considering blocking a Cyprus deal on the grounds that it won’t support tax dumping and money laundering.
Angela Merkel visited Portugal on Monday to give a message of “tough love”, as the FT put it:
The German chancellor praised Lisbon for the “courageous way” it had implemented deficit-reduction measures, saying there was “at the moment no reason to renegotiate” the adjustment programme… Read more
Listening to the comments of the various European leaders this morning, you’d be forgiven for thinking that they were attending different summits yesterday.
Francois Hollande, as quoted by the FT (emphasis ours):
The topic of this summit is not the fiscal union but the banking union, so the only decision that will be taken is to set up a banking union by the end of the year and especially the banking supervision.
We just had to highlight this excellent cut-out-and-keep guide, from today’s print FT, to the tussle over banking union, fiscal union, and debt mutualisation:
Here’s the running order for Angela Merkel’s
last? visit to Athens. Graphic courtesy of Bild.
If you think Germany’s response to the crisis has been less than lightning swift so far…
JP Morgan’s Alex White argues that the German policy motor may be about to properly slow down, and with it the response to the eurozone crisis which usually moves at Germany’s speed: Read more
The Greeks have to stand by their commitments, but we should give them more time.
That’s Peer Steinbrück, the man who would unseat Angela Merkel as German chancellor, telling Die Welt that anyone pushing for a Grexit doesn’t know what they’re talking about: ”The political and economic shocks would be devastating.” Read more
There are two fairly important bits to this story in Der Spiegel.
One, that Merkel wants to avoid a Grexit for the time being and two, that the upcoming Troika report might be massaged to make that a reality. Read more
How Charles Dumas of Lombard Street Research gets from this poor performance in Dutch retail sales recently…
This way to the Grexit, sir…
Tuesday is a big day for France-German relations. Francois Hollande will be inaugurated president, and announce his choice of prime minister. Just hours later he’ll meet Angela Merkel, marking the genesis of a new portmanteau. Goodbye Merkozy! Hello Merd*!
While the relationship has had an inauspicious start, the signs are that it will go well, at least initially. Both leaders find themselves under pressure at home, but they need each other. Read more
Kinda obvious, but we knew Merkel would go for option 2!
That would be the one which combines the full EFSF and ESM lending capacities to get a total lending capacity of €940bn. Of which:
a) €200bn is already allocated to the Greece/Portugal/Ireland, and can’t be re-used when it is repaid, and
b) the EFSF part expires in mid-2013. Read more
There’s an interesting article in Der Spiegel on Tuesday about how Germany has failed to reach its own austerity goals in 2011.
Naturally, this news comes across as a tad hypocritical given Angela Merkel’s own track-record lecturing to the periphery about the importance of austerity. Read more
Angela Merkel, the German chancellor, flies to China on Wednesday to explain Europe’s crisis management in the eurozone, and woo Beijing and Chinese financial institutions to invest in Germany and the wider common currency area, the FT reports. “The chancellor will be seeking to gain the confidence of financial investors,” a senior German official said on the eve of her departure for an official visit to Beijing and Guangzhou. “China also has an interest in seeing confidence growing in the European economy.” At talks with both Hu Jintao, the Chinese president and Communist party leader, and Wen Jiabao, the prime minister, Ms Merkel will seek Beijing’s support for boosting the resources of the International Monetary Fund to cope with the global financial crisis and invest in eurozone government bonds and bloc rescue funds, Berlin officials said. Read more
Maybe not so triumphant, then?
Twenty-five of the EU’s 27 countries have signed up to a German-inspired treaty enshrining tougher fiscal rules to help underpin the euro, with the Czech Republic announcing it would join the UK by not agreeing to the pact. Reuters says Ms Merkel “cemented her political ascendency” with the treaty. But the FT reports Berlin was warned that there were limits to how much sovereignty governments could be expected to surrender for the sake of fiscal discipline. Nicolas Sarkozy, the French president, said the German proposal for the EU to control Greece’s budget decision-making “would not be reasonable, not be democratic nor would it be effective”. He said that he had confronted Angela Merkel, his German counterpart, with his views and insisted she had agreed. “The recovery process in Greece can only be enacted by the Greeks themselves, democratically,” Mr Sarkozy said. “There can be no question of putting any country under tutelage. Having spoken to the chancellor, I can tell you this is exactly her position.” However, Ms Merkel said she still believed that Greece required stricter monitoring to stick to its bail-out targets, saying Athens’ repeated failure to implement agreed reforms warranted more intensive intervention. Read more
Bild, the German tabloid, covers all the angles. Here is a (slightly odd — we don’t think it’s sarcastic…) debt crisis panegyric to German chancellor Angela Merkel:
In a forthright opening speech to the World Economic Forum in Davos, Angela Merkel said that Europe could only recover the confidence of global markets if the weaker European economies boosted their growth and competitiveness with structural reforms, as well as ensuring their debts were sustainable. The FT reports Germany was prepared to show its solidarity, she said, but “what we don’t want is to promise something we will not be able to fulfil”. Germany was prepared to show its solidarity, she said, but “what we don’t want is to promise something we will not be able to fulfil”. In response to calls from the International Monetary Fund this week for much bigger firewalls to protect European sovereign debt from speculative attacks, Ms Merkel questioned whether demands to double or even triple the eurozone rescue funds would be credible. “If Germany promises something that cannot be delivered if the markets attack it hard, then Europe would be left with a wide open flank,” she declared.
Angela Merkel is prepared to let the existing EFSF, which has about €250bn in unused funds, run in parallel with its successor, the €500bn ESM, says the FT, citing unnamed German and eurozone officials. In return, the German chancellor wants eurozone heads of government to sign up to rules to cut budget deficits and public debt that are much tougher than those currently foreseen by eurozone governments. The German offer emerged as Christine Lagarde, the IMF head who met Ms Merkel on Sunday, pressed Berlin for “a clear and credible timetable” to fold the existing EFSF into the ESM to increase its size. Without a larger bail-out fund, fundamentally solvent countries like Italy and Spain could be forced into a financing crisis, Ms Lagarde said in a speech in Berlin. “This would have disastrous implications for systemic stability,” she said. Read more
Greece’s international creditors are considering an appeal to the French and German leaders to break a deadlock in negotiations over the size of the losses to be taken by banks and other bondholders as part of a €100bn deal seen as crucial to bringing the country’s debt under control, says the FT. This follows a breakdown in talks between banks and official investors on Friday. Citing people close to the negotiations, the newspaper said much of the agreement had been in place for several weeks, but that a final deal had stalled over the coupon payment for new 30-year bonds to be issued by the Greek state. Greek debt managers had agreed with bondholders on a coupon just below 5 per cent but creditors last week proposed a much lower interest rate. Germany has proposed a 2-3 per cent coupon that would increase bondholders’ losses from 60 per cent to more than 80 per cent in net present value terms. Charles Dallara, the IIF’s managing director, told the FT on Sunday that he believed an agreement in principle needed to be completed by the end of this week if the restructuring deal was to be finalised in time for a €14.4bn Greek bond redemption due on March 20. “[Ms Merkel and Mr Sarkozy] and all the European heads of state said they wanted a deal with a 50 per cent [haircut] and a voluntary agreement,” Mr Dallara said. “Some of their own collaborators are not following that decision.” Greece’s finance minister, Evangelos Venizelos, says talks with the IIF will recommence on Wednesday, reports the WSJ. Read more
Negotiations on a new European treaty to reinforce budget discipline in the eurozone are making rapid progress and there is “a good chance” of reaching agreement by the end of January, according to Angela Merkel, Germany’s chancellor. The FT reports her confidence was mirrored by Nicolas Sarkozy, French president, speaking after a bilateral Franco-German summit in Berlin on Monday. He said the new treaty, including a requirement for all 17 eurozone members to agree constitutional amendments to balance their budgets, should be signed by March 1. At the same time, the two leaders called for a new push to revive economic growth and job creation in the eurozone, as the “second pillar” of a strategy to stabilise the European currency union. Differences have yet to be resolved on how to involve the main EU institutions – including the European Commission and the European Court of Justice – in enforcing a treaty signed by some but not all EU members. Mr Sarkozy also defended his plan to introduce a financial transaction tax in France, even if it were not agreed for the wider EU or eurozone. Ms Merkel said she supported French President Nicolas Sarkozy’s demand to introduce the controversial tax but that her government was split, the Telegraph reports. Read more
President Nicolas Sarkozy’s centre-right government, pushing hard to accelerate the adoption of a financial transaction tax in Europe, is aiming to introduce legislation in France as early as next month, ahead of other countries and before presidential elections in April. The FT says so-called Tobin tax is among the issues Mr Sarkozy will discuss with German chancellor Angela Merkel at a bilateral meeting in Berlin on Monday, before a EU summit at the end of the month. A plan put forward by the European Commission in September envisaged a pan-EU tax taking effect in 2014. France and Germany are currently working on joint proposals for its introduction in 2013, due to be unveiled at another bilateral meeting later this month. Read more
Asian shares fell into bear market territory for the year and commodities and the euro nursed stinging losses on Thursday, after fears that Europe’s debt crisis is still worsening prompted investors to dump riskier assets and huddle in the safety of the dollar and Treasuries, says Reuters. The euro fell as low as $1.2944, its weakest level since January 11, and was later steady around $1.2990. The gloomy mood was not improved by the HSBC Flash PMIs indicating China’s factory output shrinking again in December, with a reading of 49. The number was slightly high than that for November, when the HSBC survey showed 47.7. Official PMIs fell into negative territory in November, also giving a reading of 49. Japan’s Nikkei fell 1.3 per cent and MSCI’s broadest index of Asia Pacific shares outside Japan was down 1.8 per cent, following losses of about 1 per cent on Wall Street and a steeper sell-off in Europe. The MSCI Asia ex-Japan is down 20 per cent for 2011 — the rule-of-thumb definition of a bear market — while the Nikkei has lost about 17.5 per cent. Asian airlines and shipping companies are turning to the bond market and government export agencies and seeking out new banks to fill the lending gap opening as European lenders pull back, says the WSJ. The industries are already suffering a slowdown in demand. Separately, the WSJ reports that Crédit Agricole said it will exit 21 of the 53 countries in which it operates and Commerzbank, struggling to avoid accepting a bailout by the German government, is in negotiations to transfer suspect assets to a government-owned “bad bank.” On Wednesday, German chancellor Angela Merkel defended the results of last week’s European Union summit, the FT reports, declaring that the eurozone states had already begun to create a fiscal union. She was speaking as doubts about the Franco-German plan for such an intergovernmental treaty emerged in several eurozone and non-eurozone member states. European equities dropped on Wednesday as investors continued to question the viability of the summit package. Read more
There’s a certain Italian elegance to this intraday chart of Iti 10 year sovereign debt, no?
Technical analysts might spot an upside down head with a shoulder-shrug. Maybe. Read more
The president of the European Council said Friday that a new intergovernmental treaty meant to save the single currency will include the 17 eurozone states plus six other EU countries – but not all 27 EU members, reports AP, and the bloc’s permanent bail-out fund was capped at €500bn, after talks in Brussels that went well into Friday morning. German Chancellor Angela Merkel praised the plan, saying ”I have always said, the 17 states of the eurogroup have to regain credibility,” she said. “And I believe with today’s decisions this can and will be achieved.” Herman Van Rompuy, president of the European Council, said the countries would provide up to €200bn in extra resources to the IMF. French President Nicolas Sarkozy said early Friday he would have preferred a treaty among all EU members, but that was not possible because the British proposed that they be exempted from certain financial regulations. “What is on offer isn’t in Britain’s interest so I didn’t agree,” said British prime minister David Cameron, according to the BBC on Twitter. Reuters says the EU leaders decided that the currency bloc’s future permanent bailout fund, the ESM, would be capped at €500bn at Germany’s insistence. It will also not get a banking license, which would have allowed it to draw on ECB funds to increase its firepower, another move Germany objected to. However AP also reports Mr Sarkozy also said two bailout funds would be managed by the ECB, though the details still need to be worked out. Read more
Danger, danger: Merkozy tape bombs exploding on Monday afternoon.
They have a deal! Read more
French president Nicolas Sarkozy and German chancellor Angela Merkel meet in Paris on Monday under pressure to align their positions on eurozone budget co-ordination, reports Reuters, ahead of an EU leaders’ summit in Brussels on Thursday and Friday. The two leaders will meet over lunch at 1:30pm and are expected to hold a news conference afterwards. However no substantive announcements are expected, says the FT, because in spite of repeated discussions, Germany and France remain divided. Germany is demanding changes to the European treaties that would concentrate unprecedented power in Brussels to scrutinise national budgets and sanction profligate governments. France wants to limit any treaty changes to the eurozone members, and retain more budget authority in national capitals. Reuters points out that Mr Sarkozy remains under pressure at home on the question of handing more control of national finances over to the EU, with Socialist presidential hopeful Francois Hollande and far-right leader Marine Le Pen both criticising such a move on Sunday. Read more
Angela Merkel has called for European Union treaty change to introduce as quickly as possible a legally-binding set of rules for the eurozone’s fiscal union, the FT reports. Looking very sombre in a black suit and not deviating from her written text, the German Chancellor said in a speech to the Bundestag, the German parliament, the eurozone was not facing a debt crisis, but a crisis of confidence that would take years to resolve. Ms Merkel confirmed that she and Nicolas Sarkozy, the French president, would present a reform plan together in Paris on Monday which would be aimed at creating a “stability union” of the 17 eurozone countries, with stricter budget discipline rules, and tougher sanctions, with stricter surveillance of national budgets. Ms Merkel stressed it was vital to have those rules made legally binding and as automatic as possible. “We are not just talking about a stability union,” she said. “We are beginning to create one.” Ms Merkel’s call for greater fiscal union echoed a speech by Mr Sakozy on Thursday night. He said that eurozone countries must be subject to tougher central control over their budgets to stem the sovereign debt crisis. Read more