We should probably view Ireland’s decision to exit its bailout sans precautionary credit line more like a scarf dance than a total strip show…
Ireland has evidently decided that the cost of not having a pre-arranged ECCL exceeds the cost of negotiating an ECCL under duress. The characterisation of ECCL/no ECCL = OMT/no OMT is too simplistic. The reality is a matter of degree. Not having an ECCL does not rule out OMT, it merely slows the ECB response down as an ECCL would have to be negotiated and approved first.
It’s bad enough having the most expensive bank bailout around. But not getting official recognition for it? Unbearable!
Luckily for Ireland, there’s a concerted effort underway to right that wrong… (h/t Nama Wine Lake) Read more
So, we’re going to the wire once again in the now traditional dance between Greece and the troika. As the FT reported on Thursday:
Eurozone leaders face a new round of brinkmanship over Greece’s €174bn bailout after international lenders failed to bridge differences on how to reduce Athens’ burgeoning debt levels, pushing the country perilously close to defaulting on a €5bn debt payment due next week.
First a reminder about this coming Monday, October 29th.
Andy Haldane, the Bank of England’s executive director for financial stability, will be giving a talk at Friends House, right across the road from Euston station. FT Alphaville is very happy to be chairing. Kickoff is 6pm.
While the event is free, you do have to reserve a seat. Click here to do so. Read more
Spotted on Tuesday — a market getting itself in a lather as soon as the Spanish prime minister denies that a bailout is ‘inminente’. (Via Google Finance)
The trauma and cost of a public rescue must surely teach the bank management concerned to behave in a more prudent manner, right?
Wrong, according to a recent Bank of International Settlements paper. Read more
Then and now the key to the door of the eurozone’s
success survival, especially given the currency union’s propensity for contagion.
There may be a relief rally because of utterances by European Central Bank President Mario Draghi, but speaking on behalf of investors: it’s hard not to feel a bit let down lately (understatement). Read more
Spanish prime minister Mariano Rajoy on Wednesday:
We can’t finance at current prices for too long. There are many institutions and financial entities that have no market access. It’s happening in Spain, it’s happening in Italy and in other countries, that’s why this is a crucial issue. Read more
Spain on the left and Cyprus on the right. Click the images for the full documents:
This had been a long while coming… Flashes from Reuters at pixel time:
16:57 – CYPRUS APPLIES FOR EU BAILOUT - GOVERNMENT STATEMENT Read more
(Alternate title: Fitch junks incoming EU president.)
Fitch has cut Cyprus’ credit rating to ‘BB+’ from ‘BBB-’. That’s a junking and, shockingly, it’s down to the banks. From Fitch (with our emphasis): Read more
This has been widely pre-announced on Twitter. But, according to Trade Web figures, Spain’s borrowing costs on10 year paper spiked up through 7 per cent at 9.55, London time…
Was this part of the plan? Italian 10 year at 6.20 per cent on Tuesday, and rising?
ECB data published on Monday showed that it once again resisted intervening in government bond markets last week, taking its non-interventionist run to 13 weeks. Read more
On Monday morning, a relief rally took place in markets around the open-half of the globe as investors digested the bailout of Spain’s banks, as announced by the Eurogroup.
The move was, of course, recognition of what was known for a long time — that Spain could not backstop its ailing bank sector alone. It would seem, however, that Monday’s rally might already be losing steam. Read more
*Reverse Can Kick*
Go on, give us your best label for this: Read more
Or, up to €100bn in EFSF and/or ESM loans channelled to the bank recap fund (with conditions on structural and bank reforms but without specific fiscal demands), while Spain itself carries on issuing in the market.
Click image for full Eurogroup statement:
Trending, rápidamente in Spain on Saturday…
It means “Not a rescue, it’s a looting.” H/T @pdacosta Read more
“Oh, Bankia” has become a common refrain around these parts and this morning Joseph pointed out a few of the oddities surrounding Spain’s incipient bailout and a similarity or two with Ireland’s.
(What’s Spanish for GUBU again? H/T Conor Cruise O’Brien and Nomura’s Daragh Quinn). Read more
This delightful misstep was pointed out by Ralph Atkins over at FT Money Supply. Apparently in the rush to distance Belgium from any suspicion of Emergency Liquidity Assistance, Luc Coene, Belgium’s central bank governor may have turned snitch on Portugal.
As Ralph notes, we know ELA, which is essentially a bank bailout by national authorities when things get really, really bad, has been heavily used in Greece and Ireland. Read more
FT Alphaville has been very curious about the €18bn of mystery Emergency Liquidity Assistance which showed up in the ECB’s financial report at the end of April, but until now we weren’t sure where the cash had ended up.
We had a few guesses of course, but no proof. ELA is essentially a bank bailout by national authorities when things get really, really bad and it is typically lending (or a repo) against collateral the ECB itself won’t accept. Read more
The Spanish government may be bailing out Bankia by injecting cash in return for contingent convertibles to the tune of some €7-10bn, but many analysts have reacted with something along the lines of: “Haha! That’s cute! They are like ever so slightly less delusional about the trouble their banking sector is in! Adorable!”
Bankia is no canary in a coalmine. It’s more like the first sign that the inevitable support of the banking sector is finally materialising. Indeed, prime minister Mariano Rajoy was quoted saying: ”If it was necessary to reactivate credit, to save the Spanish financial system, I wouldn’t rule out injecting public funds, like all European countries have done,” in an interview with radio station Onda Cero, as reported by the WSJ. Finally playing catch up, are we? Read more
Cyprus is apparently preparing a bailout for its second biggest bank which could come in at near 10 per cent of GDP.
This is from the Cypriot press (poorly Google-translated – sorry – and now apparently removed and replaced by a much blander article; although Reuters looks like it saw the same thing so we are not going mad): Read more