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.
And we have some very small bits of progress. And, naturally, plenty of kinks. Here’s a handy run down from JP Morgan’s Alex White: Read more
The market is moving up on the back of a quite substantive eurozone deal but, as our inboxes suggest, this is seen as more sticking-plaster than panacea. Essentially, it’s a case of low expectations being surpassed.
The main change is that Spain’s bailout loans won’t have (explicit) seniority status and that bailout funds will (eventually) be injected directly into teetering Spanish financial institutions, meaning Madrid can sweep the burden of the bailouts off its sovereign books. It also looks like rescue funds will also be used to stabilise bond markets. Read more
From the FT’s Peter Spiegel and Joshua Chaffin in Brussels:
Eurozone leaders agreed to radically restructure Spain’s €100bn bank recapitalisation plan, allowing EU bailout funds to eventually be injected directly into teetering Spanish financial institutions, meaning Madrid can sweep the burden of the bailouts off its sovereign books. Read more
Click the image for the full document:
Stocks, eurozone government bonds and the euro started the week under pressure while US Treasuries rose, as investors awaited details of Greece’s debt restructuring and European Union leaders met in Brussels. In addition, a full return to action for Asian markets, after the lunar new year holiday, delivered a downbeat tone, with investors disappointed that the Chinese authorities have not eased monetary policy in the manner some had expected, and as the region got its first chance to price in softer than forecast US fourth-quarter GDP data, according to the FT’s Global Markets Overview. The FTSE All-World equity index is down 0.7 per cent and the FTSE Eurofirst 300 is enduring a loss of almost 1 per cent as traders shift some funds away from growth-focused bets, after their recent good run, and into perceived havens. Wall Street’s S&P 500 retreated 0.3 per cent to 1,312.78, paring losses after bouncing off the 1,300 mark. The FT separately reports that a jump in Portugal’s borrowing costs also shook markets as the country’s bond yields reached new euro-era highs as many investors priced in a Lisbon default amid fears its debt holders could suffer heavy losses once a restructuring deal with Greece is agreed. Bloomberg reports that Greece faced criticism at the summit in Brussels for not implementing reforms and austerity plans promptly enough.
The euro moved off a seven-week high against the dollar on Monday as investors grew nervous about the lack of an outcome on talks between Greece and its creditors to restructure the nation’s debt, the FT reports. The single currency slid 0.9 per cent to $1.3111, while the dollar gained ground against other significant currencies amid the lower risk appetite. The retreat in the euro’s value came as European Union leaders met in Brussels for a summit to finalise a treaty that would impose tighter fiscal rules on eurozone nations. Separately, the FT reports that a general strike brought widespread disruption to Belgium on Monday, just as European Union leaders converged on the country’s capital for the summit. Trains, shipping, air travel and public transport were all hit by the trade union action, called in response to reforms enacted hastily by the new government of Elio Di Rupo. Union leaders said the strike was not explicitly targeted at the EU summit, though they decry the bloc’sausterity policies which they see as harmful to workers. The FT also notes that Greece will struggle to meet its target for assets sales even by the already delayed deadline of 2017, the country’s privatisation adviser has said, highlighting the country’s struggle to return to solvency amid a wilting domestic and European economy. As part of its first bail-out package, Greece promised to sell €50bn of real estate and other assets by 2015, subsequently renegotiated to 2017.
David Cameron on Monday defended his use of the British veto at last week’s EU summit as in the “national interest”, but the strains placed on his coalition government were laid bare when his deputy, Nick Clegg, refused to sit alongside him in the House of Commons, the FT reports. Mr Cameron’s refusal to agree an EU treaty change to reinforce eurozone fiscal discipline in the absence of safeguards for the City of London continues to cause anger across Europe. That could be further inflamed by Britain’s refusal to take part in an urgent €200bn funding boost for the IMF to tackle the crisis. The WSJ meanwhile says there is concern in the City that a loss of goodwill with Brussels could weaken the UK’s negotiating position on regulations, and there are fears a revamped financial tax transactions proposal that would use a loophole to bypass a UK veto.
The International Monetary Fund could hand Greece up to €20bn via an 18-month aid programme, according to Goldman Sachs’s Chief European Economist Erik Nielsen. Bloomberg cited Nielsen saying the cash-strapped nation was “very likely” to ask the Washington-based lender for support within the next few months if not weeks, as it struggled to cut the biggest budget deficit in the European Union. The e-mail statement added that a decision on Greece had most likely already been reached and that an announcement could come ahead of the EU summit on Thursday.