Posts tagged 'ESM'

A radical idea to bypass the Greek government

Citi’s Willem Buiter-headed team of economists provides an interesting external solution for the Greek debt crisis in an opinion piece late on Monday: bail out Greek banks but not the Greek government.

Remember, the problem for eurozone banks is part of their core capital is supposed to be made up of liquid instruments like government bonds, but in the case of Greece these bonds are as toxic as subprime securities and depreciating quickly.

Even if the ECB continues accepting Greek bonds as collateral for Emergency Liquidity Assistance, the terms would no doubt involve much larger haircuts, bringing us back to a 2011 capital hole scenario very quickly. So, it actually makes more sense for Greek banks to start swapping government bonds into different types of assets. Read more

Portuguese turmoil

Here’s Portugal’s 10 year benchmark punching through 8 per cent to start your morning. We’d note it was sitting at 6.4 per cent on the 1st of this month…

To lose one cabinet minister is bad luck, to lose two in two days… means… time for another eurozone peripheral crisis? The resignation of Portugal’s foreign minister Paulo Portas yesterday has everyone worried, because of his role as leader of the CDS-PP, the junior partner in the governing coalition. If CDS-PP withdrew their support, the government would be left with 108 seats in a 230-seat parliament and uncertain prospects for scraping together a majority.

And all this less than two weeks before a troika delegation is due to start their next review of the economy as the lenders consider whether Portugal will get an easing of terms on its 2011 €78bn bailout, and receive the next €2bn instalment. Read more

Was that promise of ratable payment wrong? Should Italy not have done that?

File under: Argentina’s battle with its holdouts and the effects thereof on pari passu clauses in sovereign bond contracts elsewhere in the world — with a special crossover to the changing legal status of official lenders in the eurozone crisis.

Spot the difference edition. Read more

A eurozone safe against, or is it safe for, sovereign holdouts? Part two

So, do you believe that “exceptional and unique” story about sovereign debt restructuring in the eurozone?

Then, as advised in a recent paper by Lee Buchheit, Mitu Gulati, and Ignacio Tirado — which we’re revisiting as Cyprus bailout talks heat up — stop reading here. Read more

Germany won’t stand in Cyprus’ way, apparently

Cyprus, the small economy with the relatively massive bank recapitalisation problem, may have some kind of good news in its quest for a bailout: Germany might not be so wedded to blocking or delaying said bailout after all.

Schauble Cyprus screenshot - SZ  Read more

About that sovereign-bank link we said we’d break…

Wow. So it looks like the EU maybe won’t be breaking the sovereign/bank doom-loop after all!

The FT’s Peter Spiegel has seen a proposal from the European Commission that throws yet more doubt, if such a thing is even possible, on the seriousness of the June 29 eurozone statement that recognised “the imperative to break the vicious circle between banks and sovereigns”. Read more

The ESM loses an Aaa

Moody’s has cut the eurozone bailout fund’s credit rating to Aa1, and maintained a negative outlook. It also removed provisional Aaa ratings from debt issued by the EFSF.

In a statement, the ratings agency blamed… France, whose own Aaa rating it cut last week: Read more

Why the ESM rules OK (says the ECJ)

It’s the clause that makes German officials’ faces look like they’re struggling to keep their lunches down when someone mentions the prospect of write-downs on Greece’s official loans. The no bailouts clause! Article 125 of the EU TreatyRead more

A Cypriot seniority quirk?

S&P has downgraded (to B from BB) Cyprus, the little island which is facing a great big bank recapitalisation bill from the fallout in Greece. It could well be the biggest ever such bill in history, relative to GDP.* Read more

Tantalising glimpses that Spain might be ready to jump through well-positioned hoop

This, for Draghi’s (and everyone else’s) eyes only, from Tuesday’s FT:

A senior official within the Spanish ministry of economy said Spain did not require any money from the European Stability Mechanism, the eurozone’s state rescue fund, but would be comfortable making a request for a credit line only in order to satisfy the conditions of the ECB to begin buying bonds.

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A week of Spain-related excitement is not over just yet

Spain has been grabbing the headlines all this week and while it may be Friday afternoon, the excitement isn’t over just yet. Moody’s is widely expected to announce whether it’s going to downgrade Spain’s Baa3 credit rating (possibly to junk) Friday after the European markets close. Oliver Wyman’s second audit of the country’s banking system should come out around the same time.

Ahead of all that we wanted to talk you through a quick recap of the latest developments because, as UBS strategist Justin Knight rightly points out, “the areas of concern are now becoming numerous” and it’s making the question of when Spain might request aid increasingly complex. Read more

A European fudge, now in focus

While Athens burns and Spaniards march, catching all the headlines in the process, Alex White of JP Morgan would seem to have identified the real reason market nerves across Europe are a-jangle once more…

The divisions over whether the ESM should shoulder the burden of existing impaired bank assets is a serious one, and could get worse. It reflects the problems of the key European Summit in June, which set the parameters for the progress the region has since made. The Summit communiqué bridged disagreement about whether burden sharing should happen – but it achieved this largely by being incoherent. The periphery (Ireland in particular) went away convinced that they could socialise the debt burden they had incurred by supporting their domestic banking systems, that bank recapitalization payments could take effect in the near-term and be applied to existing troubled assets. The core countries went away thinking that they had committed to no such thing, but that work should be done to disentangle sovereign-banking sector feedback loops in the future institutional design of the region. This misunderstanding reflects the danger of mixing the discussion of tactical issues – how to deal with the current Irish or Spanish debt burden – from strategic issues, like Germany’s desire to build a new permanent architecture for EMU. It also reflects the dangers of trying to reach complex agreements at 4.00am.

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Recaps and the ESM treaty

We missed this on Tuesday — the ESM’s answer to a fairly important ESM legal question.

(KR = Klaus Regling, ESM chief) Read more

Taking responsibility, the ESM way

Well, see if you can make out what they’re saying here.

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Burying a banking licence

Would you like three long, dense paragraphs of German legal rumination on a idea that’s already DOA? That’d be the ESM funding itself through European Central Bank liquidity.

Of course you would (and if not, you can always skip to the analysis below): Read more

Live from Karlsruhe… It’s a ja with some buts


From the wires: Read more

No delay from Karlsruhe

From Reuters earlier on Tuesday:

Germany’s constitutional court said on Tuesday it would not postpone its long-awaited ruling on the legality of the euro zone’s bailout fund despite a new legal challenge by a eurosceptic lawmaker. Read more

Breaking a sovereign-bank loop

Chart du jour from the IMF staff’s Article IV report for Ireland — forecasting the path for Irish debt to GDP if a deal is reached with the ECB to reschedule those promissory notes, and if direct ESM equity replaced bank recaps under the bailout.

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Ireland’s similar case for banking treatment

After taking a look at Spain’s yearning for some debt relief we thought a look at Ireland was only fair.

For reference, the numerous capital injections made into Ireland’s banks now come to 41 per cent of GDP. That looks like this: Read more

The ECB’s possible Portugese gambit

Draghi-day is just around the corner and JPM’s Malcom Barr is of the opinion that the ECB might just kick off its move by purchasing short-dated Portuguese sovereign debt.

Heck, why not? The arguments to intervene are simple enough. Read more

Spain’s funding costs post a Draghi-ing

So, we are days from finding out what the ECB is planning to do… or at least, days away from knowing more than we do now.

But immediate largesse in the bond market isn’t the only bit of help that should be concentrated on. There is still Spain’s bank-bailout to consider and where its costs should ultimately lieRead more

When ECB bond-buying meets collateral

Click to enlarge.

A word of caution in advance: the optimal structure is deeply complex, which itself should raise concern in the minds of investors…

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In ECB-time, “the coming weeks” might be more than 4

If only the ECB had a shared Google Calendar with Germany’s constitutional court, this would be so much easier. From Bloomberg on Friday:

European Central Bank President Mario Draghi may wait until Germany’s Constitutional Court rules on the legality of Europe’s permanent bailout fund before unveiling full details of his plan to buy government bonds, two central bank officials said.

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In praise of debt mutualisation

Steven Major, fixed income strategist at HSBC, has a remarkably sunny note out on the prospect of unlimited bond market intervention by the ECB, driving short term sovereign yields significantly lower.

Here are his seven steps to a definitive crisis solution… Read more

ESM, not yet of this world, dodges another curveball

On Monday, FT Alphaville wrote about the case in front of the German constitutional court concerning Europe’s fiscal pact and permanent bailout fund, the European Stability Mechanism. An interim ruling scheduled for September 12 could give a greenlight for the ESM to be brought online. The wait was already unnerving for markets.

By late Monday afternoon, news hit that the court had received a fresh challenge. The WSJ reports that a spokeswoman for the constitutional court has stated that the September 12 date for the interim ruling will not be affected by this latest challenge. More detail on this below. Read more

Bundesverfassungsgericht risk strikes again

A Swiss bank asks a German professor for advice to clients on the prospects for a European bailout fund.

It must be Karlsruhe and ESM ratification! Read more

What’s the ECB going to do next?

Recent comments from Mario Draghi and Ewald Nowotny have got the markets all aflutter and struggling to understand how policymakers are going to keep the eurozone together in the next weeks and months.

JPM’s David Mackie has complied a list of possible actions, in descending order of likelihood as he sees it: Read more

Finland’s Spanish swap

Fresh from being debated in an extraordinary session of the Finnish parliament…

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Spain, a bailout master doc

A little bit of confusion about this one on Thursday.

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It’s that margin-less EFSF again

ERVV: n marginaali on nykyisin 0 korkopistettä

Which roughly translates from the Finnish as: Read more