Received wisdom has it that the implementation of new financial regulation in the wake of the crisis has been held back, or watered down, by furious behind-the-scenes lobbying by the investment industry.
But it’s pretty clear, in Europe at least, that the technocrats, be they in Paris or Brussels, have their own particular ways of making sure that nothing much actually gets done. Read more
Yep, another euro acronym that may or may not take real form.
Notwithstanding resistance in Berlin, President Barroso and his team in Brussels have published details of the Single Resolution Mechanism which the European Commission wants to see as part of an eventual banking union across Europe. Read more
With the EC set to outline its proposals for a European banking union in less than a month’s time, leaked documents detailing the initial discussions indicate differences of opinion remain as wide as ever.
A key area of contention seems to be delegation of banking oversight tasks. From Bloomberg (our emphasis): Read more
It went on so long even the translators gave up – there was sure some mud-slinging going on in Brussels on Wednesday as European finance ministers met to try to agree legislation to implement Basel III rules on bank capital.
One could be forgiven for wondering how this is even still a debate at all. Read more
Don’t laugh. European politicians mean it this time. True, the Stability and Growth Pact turned out to be a bit useless and toothless. The lessons of the past have been learned and now there are newer, shinier, summarisier statistics on macroeconomically imbalanced countries within the European Union. As agreed by the European Parliament and Council last November, there’s also a new procedure that comes with the statistics. The aim is to catch nations before they get too far off the path of
righteousness being more like Germany economic harmony.
The first slew of statistics under the procedure, or “Alert Mechanism Report” (AMR), was released in the middle of February. Read more
The European Commission has published a short paper outlining three options for the eurozone rescue programme, ahead of eurozone and EU finance ministers’ meetings next week. Click on the image for the PDF:
The European Central Bank has made key concessions over its holdings of Greek government bonds, says the WSJ, citing people briefed on the country’s debt restructuring talks. The ECB has agreed to exchange the government bonds it purchased in the secondary market last year at a price below face value, provided the debt-restructuring talks have a successful outcome. The central bank won’t take a loss on the transaction, but it isn’t clear whether it will exchange the bonds at the below-par price at which it purchased them or whether it will make a profit, the newspaper says. The concession could reduce Greece’s debt by up to €11bn — difference between the price at which the ECB bought the bonds in the secondary market and their face value. The sources said that another option was discussed for eurozone national central banks to also take part in the debt reduction exercise had been rejected. Greece missed another deadline to approve conditions for a second €130bn bail-out on Tuesday night, the FT reports, after a meeting between the country’s political leaders was postponed until Wednesday because of last-minute haggling with international lenders over emergency spending cuts. In Brussels, José Manuel Barroso, president of the European Commission, insisted that eurozone leaders would continue to strive to keep Greece in the euro, an apparent rebuke to Neelie Kroes, the Dutch member of his commission who was quoted in her country’s press as saying a Greek exit would not cause significant shockwaves.
In a further twist in the global legal battle waged by technology giants around the use of patents, Samsung Electronics is to be investigated by the European Union to assess whether it breached antitrust rules by refusing to provide rivals access to its technology at reasonable prices. Brussels will be looking into whether the South Korean technology giant, the world’s biggest smartphone manufacturer but also a key supplier to rivals such as Apple, had distorted the market by withholding “standard essential patent rights”, reports the FT. The European Commission, acting as the EU’s antitrust enforcer, said its investigation stems from Samsung’s lawsuits against competing groups, notably Apple, launched in several EU member states in 2011.
The EU may exempt bank debt issued before 2013 from proposals forcing investors to take losses, Bloomberg says, citing a person familiar with the plan. The exemption could be extended if banks struggle to raise funds, but it would require approval from national governments and the European parliament. A draft proposal contains provisions for holders of senior, unsecured long-term debt – defined as maturities longer than a year – to bear losses before short-term bondholders, says the news agency, as well as powers for regulators to forcibly convert a bank’s bonds into ordinary shares. A European Commission spokeswoman declined to comment.
The European arms of the four biggest accountants are being threatened with a break-up under sweeping European Commission reforms to be unveiled on Wednesday, the FT says. Michel Barnier, the EU internal market commissioner, wants to split the profession’s “Big Four” – PwC, Deloitte, Ernst & Young and KPMG – into separate audit and consulting arms in Europe as part of a package of measures designed to improve the vetting of accounts. A plan to force those groups to share work with their smaller rivals through “joint audits” has been dropped, but Mr Barnier won support for rules compelling companies to rotate auditors at least every six years. The Commission is also proposing stricter limits on “non-audit” work than are currently in force in the US, but the proposals could be altered before they become law, the newspaper adds.
Several “major” European banks were raided by European Commission officials on Tuesday over interbank lending rates, the WSJ says, citing people familiar with the matter. The Euribor probe is an offshoot of a broader investigation under way for more than a year by prosecutors and regulators in the US, Europe and Japan into whether banks colluded to manipulate the London interbank offered rate. The says a list of the companies was not available, but the unnamed sources said they included a large French bank and a large German bank, and the coordinated raids took place in London and other European cities. Cedric Quemener, the manager of Euribor EBF, the group in Brussels that manages the Euribor interest rate, said he isn’t worried about the investigation because Euribor is based on information collected from more than 40 banks and was therefore harder to manipulate than Libor, which is set by 15 banks.
European regulators are to crack down on automated trading because they believe high frequency traders tend to pull out of markets at signs of stress, contributing to a sudden loss of liquidity. The FT reports the high frequency firms would be forced to post prices in key markets “on a regular and ongoing basis” even in times of extreme volatility, under draft proposals to be unveiled by the European Commission next week. There are large market-making firms that make markets and use algorithms to do so, such as Getco of the US and Optiver of the Netherlands. But they are unlikely to be affected by the proposals as they already post bids and offers throughout the day. The proposals are likely to provoke an outcry from some traders. They make no distinction between marketmakers, such as Getco, which routinely use algorithms to post prices continuously, and certain firms that use algorithms to carry out sophisticated trading strategies, or even asset managers that use algorithms to carry out trades over specific periods.
The business model of the Big Four accounting firms is under attack from the European Commission, which is pushing for tough rules that would force the firms to abandon their consultancy businesses and share audit work with smaller rivals. The FT says a draft regulation it viewed would force companies with balance sheets greater than €1bn to hire two auditors, including at least one firm outside the Big Four of Deloitte, PwC, Ernst & Young, and KPMG. It would also prohibit auditors from working for the same company for more than nine years. aims to transform the accounting sector in the wake of the financial crisis and restore “trust” in financial reporting. It has the backing of Michel Barnier, internal market commissioner.
Greece will seek to persuade its lenders that it deserves another €8bn loan payment in a pivotal conference call on Monday as the government battles to head off a looming cash crunch, the FT reports. The call will pit Evangelos Venizelos, the Greek finance minister, against representatives from the so-called troika that crafted the €109bn rescue package granted to Athens last year. The onus will be on the Greeks to prove they are delivering the budget cuts and fiscal reforms mandated by that emergency loan – a task that has grown more arduous as a deeper-than-expected recession has cut into tax receipts. In addition, eurozone ministers at the weekend lowered revenue estimates for a proposed property tax, which the Greek government had hoped could raise about €2bn a year in 2011 and 2012. Greek officials estimate they have enough cash for the remainder of this month, and perhaps the first 10 days of October. An emergency cabinet meeting on Sunday showed signs of renewed brinkmanship between Greece and its rescuers, says the WSJ, as the country’s finance minister, Evangelos Venizelos, pledged new cuts but also lashed out at eurozone countries that are funding the bailout.
The average cost of using smartphones and tablets when travelling in the European Union will be more than halved under new plans from Brussels that will delight customers but deliver a big blow to mobile operators, the FT reports. The strict regime of price caps on mobile phone roaming within the EU is to be extended by four years to 2016, the European Commission will announce this week. It wants eventually to abolish premium charges for roaming data and voice services. In a setback to mobile operators, which had lobbied to stave off further regulation of what remains a lucrative segment, new price caps will from next year be imposed on data downloads as well as on voice calls and SMS messages.
The European Union has warned that Greece will stay in recession for the rest of this year, upending forecasts of a return to growth in the third quarter. The economy is set to shrink 3.75 per cent in 2011 and will show only marginal growth in 2012, according to the European Commission’s quarterly report on the debt-stricken country’s reform effort, the FT reports. Weaker activity this year on the back of the extra measures “implies a smaller growth rate – 0.6 per cent – in 2012”, the report says. Also in the FT, talks between eurozone governments and private holders of Greek bonds could last several more weeks as European leaders try to carve out terms for a new €120bn bail-out of Greece with “significant” private sector involvement.
Reports that Greece is in line to secure a new €60bn aid package, possibly reducing the chance of a default, on Tuesday provided support to the euro, the FT reports. However the FT reports separately that Olli Rehn, Europe’s economics commissioner, said it was too soon to determine whether Athens would require more loans for next year, as he aired new details of Portugal’s planned bail-out. A team from the European Commission, the ECB and the IMF is set to conclude a review of Greece’s debt situation next week, which Rehn said would help determine “the next steps”. He urged critics to withhold judgment of that bail-out – and of similar ones for Ireland and Portugal – noting that Greece’s three-year programme has two years to run. Rehn said the interest rate for the European portion of Portugal’s €78bn ($112bn) bail-out would be above 5.5% but “clearly below” 6%, in line with rates for Ireland. The plan, to be discussed by EU finance ministers next Monday, envisages Portugal returning to the market before its conclusion.
A timely piece of research, this.
Presented without comment, the European Union’s official – though unpublished – account on the nature of the sovereign CDS market, its impact upon bond spreads, both theoretical and empirical, with specific regard to Greece, 2008-10 in full. Read more
Last month Europe’s carbon trading industry was rocked by a series of cyber thefts — including the stealing of €10m worth of European Union emissions allowances (EUAs), which took place in Prague. Daniel Butler, a broker for a Czech-based carbon trader, was instrumental in breaking the story. Here, Butler gives his view of the nascent carbon trading industry.
In what is believed to have been the worst cyber attack on a national carbon permit registry yet, allowances worth about €7m were swiped from an account in the Czech Republic on Wednesday, the FT reports. The European Commission reacted by suspending trading for at least a week, or possibly longer. The extent of the delay will depend, in part, on how long it takes the Commission and EU member states, which control the registries, to agree security fixes. The suspension comes after the recent disclosure of abuse in Germany, where the scheme was exploited to avoid value-added taxes and news of a mishap in Hungary, in which used allowances were reissued. Even if trading resumes quickly, the episode is likely to undermine further a system that has long struggled to live up to policymakers’ visions.
A new type of derivatives trading platform would allow pension funds and industrial companies to transact off-exchange derivatives between themselves, cutting out banks that have long acted as intermediaries in such deals, reports the FT. The move breaks new ground in the push to regulate the vast over-the-counter derivatives markets. Reforms stemming from the Dodd-Frank act in the US and similar proposals by the European Commission require many OTC derivatives to be traded on exchanges and other types of platforms, and processed through clearing houses. The aim is also to reduce the role of big Wall Street and European banks that have controlled dealing in, and pricing of, OTC derivatives and to boost transparency.
Or adventures in unintended consequences, bank burdensharing edition.
Last week’s bail-in proposal for bank debt, from the European Commission, marks a step-change for capital markets — so it’s no wonder there could be plenty of those known unknowns (or even unknown unknowns) to go along with it. Read more
From Wednesday’s FT:
In parallel, we must ensure that the financial support mechanisms put in place last May are fit for purpose. The effective lending capacity of the current European financial stability facility should be reinforced and the scope of its activity widened. Here we need to review all options for the size and scope of our financial backstops – not only for the current ones, but also for the permanent European stability mechanism too. Read more
EUofficials have called for an overhaul of the eurozone’s two-month-old bail-out fund, the €440bn European Financial Stability Facility so that it can respond more flexibly to the fast-moving crisis, reports the FT. Such proposals have been debated mainly behind closed doors. But the European Commission, the EU’s executive branch, is considering publicly endorsing the idea in a report to be issued on Wednesday, and the Commission’s influential economic chief, Olli Rehn, has backed it in an article published in Wednesday’s FT. A key proposal under consideration is to use the fund to buy the bonds of struggling countries.
Because it looks like it might be time to fire up the Securities Markets Programme again.
RTRS-PORTUGUESE/GERMAN 10-YEAR GOVERNMENT BOND YIELD SPREAD WIDENS FURTHER TO 414 BPS, 26 BPS WIDER ON DAY Read more
Here’s the action in European financial CDS as the market waits for the European Commission to release a consultation paper outlining its plans to haircut senior bank (not sovereign) bondholders. According to Ambrose Evans-Pritchard of the Telegraph this will happen today, Thursday, which means we’re seeing this:
Markit iTraxx Senior Financials 186.5bp (+7)
Markit iTraxx Subordinated Financials 350bp (+10) Read more
The European Commission will on Thursday proceed with plans to spread the burden of EU bank failures to senior bondholders, marking the start of harsher times for Europe’s creditors, reports the Telegraph. Michel Barnier, the single market commissioner, will publish a “consultation paper” outlining ways to shield taxpayers from banking crises, in the first stage of what will almost certainly become a binding law. Proposals include debt write-downs or conversions to help stabilise failing banks, one EU source told the newspaper. Fears that this could evolve into a crusade against bondholders set off fresh jitters in eurozone debt markets, pushing yields on 10-year Greek bonds to a record 12.59% on Wednesday.