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
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
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.
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
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 Treaty: Read more
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.
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
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. Read more
We missed this on Tuesday — the ESM’s answer to a fairly important ESM legal question.
(KR = Klaus Regling, ESM chief) Read more
Well, see if you can make out what they’re saying here.
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
From the wires: Read more
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
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.
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
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
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… Read more
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. Read more
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
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
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
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
Fresh from being debated in an extraordinary session of the Finnish parliament…
A little bit of confusion about this one on Thursday.
ERVV: n marginaali on nykyisin 0 korkopistettä
Which roughly translates from the Finnish as: Read more
Lend at low rates, for a long term.
It’s one way Spain’s official creditors could believably renounce seniority in the bailout. Concessional loans would make it easier for Spain to refinance its debt stock as a whole, improving bondholder recovery, while recapitalising its banks. Arguably. Read more
Admittedly the words Karlsruhe and German and constitutional court lack any sex factor, but the relative lack of attention the case is getting seems a bit odd to us given what’s at stake. We’d expect the markets to be just a bit more het up about it.
So would Martin Lueck, an economist at UBS, who argues in his latest note that too many investors don’t understand the situation and are just assuming that the court will yield to the markets’/politicians’ pressure and let ratification of the ESM and fiscal compact pass: Read more