From Deutsche on capital outflow (lots of very crucial capital outflow) from Greece vs the periphery, 2012 vs now:
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Banco Espirito Santo, the Portugese lender which had a few problems earlier this week to do with its complicated corporate structure and then saw its shares temporarily suspended on Thursday, has become this week’s goat on which all scapes may be laid.
Perhaps it is the summer quiet, but a sample of our inbox detects some caprine hitching. Read more
Are you a Russian company with deposits in Cypriot banks?
Do you feel safe?
Do you read newspapers? Read more
One of the reasons that the eurozone’s peripherals should be willing to put up with austerity is that it’s helping address internal balances and address falls in competitiveness. That’s the story being sold by the politicians at least. But now that the crisis is coming into its fifth year, there is a decent amount of data that allows us to see if those imbalances are indeed being corrected and that lost competitiveness regained.
James Nixon at SocGen has has done some clever number crunching with unit labour costs in the most crisis-hit eurozone countries since 2000, and found that any apparent improvements in competitiveness are likely to be fleeting. Read more
Compétitivité is a big deal in France right now.
The country’s loss of competitiveness is a serious issue, especially as its crisis-struck neighbours push on with wage cuts and labour reform.
On Monday, Louis Gallois, former head of EADS, is going to publish his report on the issue, and he’s expected to call for a “competitiveness shock”. He’s already said that he wants to see somewhere between €30bn-€50bn of taxes from the payrolls transferred to broader-based taxes, such as VAT, much to the delight of business leaders. Read more
Another day, and another confirmation that the eurozone economy is struggling to gain traction. And it’s not just the small peripheral economies that are seeing factory activity slowing.
Markit’s Eurozone Manufacturing Purchasing Managers’ Index (PMI) fell to 45.4 in October from September’s 46.1. The October figure was just up from an earlier reported flash reading of 45.3. The index has been below the 50 mark that divides growth from contraction since August 2011.
Herman van Rompuy has quite a proposal to kick off discussions to get some kind of eurozone economic union concept bedded down by the end of the year. The FT’s Alex Barker and Peter Spiegel had the scoop, and FT AV can reveal a bit more of the detail of what is essentially another step towards fiscal union.
Here’s a call from Sober Look on Tuesday — Germany’s growth might be on the cusp of going negative:
So much for the hopes and dreams of German decoupling from the Eurozone’s economic troubles. How things have changed in just six months… Germany’s growth trajectory is now converging with the rest of the euro area’s weakened economic conditions. Read more
So Germany’s Spiegel magazine gave markets some froth earlier this morning via this story. It said, without citing any sources, that the the European Central Bank is considering placing a cap on peripheral bond spreads over German Bunds. Read more
The de-euroisation continues and is, in Italy at least, getting faster… these charts show foreigners running away from Italian liabilities in March at their fastest pace ever, and illustrate just how quickly the LTRO sheen has faded.
Italy’s March balance of payments, out on Monday, showed its biggest ever decline in portfolio liabilities and while Italian repatriation flows show no consistent sign of slowing they are not keeping up with the foreign pull-out from Italian portfolio instruments. Read more
Unemployment figures have highlighted the widening gap between Germany and many fellow eurozone members, a day after Angela Merkel secured a new treaty enshrining Berlin’s vision for tough fiscal discipline, the FT reports. Unemployment in the 17 euro countries climbed to 10.4 per cent in December, with the November rate revised upwards to the same rate, setting a fresh record since the introduction of the single currency in 1999. So-called “peripheral” members such as Spain and Greece recorded the highest rates, of 22.9 per cent and 19.2 per cent. On the other side of the Atlantic, worries over the job market and higher petrol prices dragged US consumer confidence lower this month, while house prices across the country fell as foreclosures continued to forestall a recovery in residential property, reports the FT. Confidence unexpectedly declined in January to 61.1 from 64.8 in December, the Conference Board said on Tuesday, missing economists’ expectations of a rise to 68. The index is measured on a scale of 100 pegged to the level of confidence in 1985.
*This* is a bazooka.
Not a €2,000bn bazooka… a €5,000bn bazooka to repair the eurozone, according to Peter Boone and Simon Johnson, writing for the Peterson Institute where they are both fellows. In fact, somewhere between €2,000bn and €2,500bn is a good scenario, they argue; their base scenario is €2,800bn. Read more
Nervousness is growing in Whitehall that the government might have to inject further capital into RBS as part of a European effort to recapitalise the continent’s banking system, the FT reports, quoting an unnamed government official who said: “[RBS’s] sovereign exposure is not fundamentally worrying but if there is a broader European drive to recapitalise the banks it’s conceivable they may need more government money.” RBS received the world’s biggest bail-out during the financial crisis, at a cost of £45bn to the UK taxpayer. In the EBA’s July stress tests, which applied virtually no writedowns for eurozone peripheral bond holdings, RBS, Commerzbank, Deutsche Bank, Société Générale and UniCredit had stress test results in a grey area above the minimum but below 7 per cent. Once sovereign haircuts – likely to range from 20 per cent on Spain up to 65 per cent on Greece – are applied, those numbers will fall, in some cases sharply.
The ECB is considering having another go at supporting the $1.58tr eurozone covered bond market.
Now, the last time the ECB entered this market, things didn’t go exactly to plan, as the graph below from Barclays Capital demonstrates.
European leaders are looking at ways to keep Greek banks afloat as part of a new €115bn bail-out plan for Athens, the FT says. The plans could add as much as €20bn to an increasingly costly bail-out plan, according to estimates by the European Commission, but the size would likely depend on how long Greek banks were cut off from ECB financing. Under one proposal, eurozone governments would set up a “cash buffer” to assist Greek banks. Other proposals are “emergency liquidity assistance” similar to a facility used extensively in Ireland, while there is rising support for a tax on banks to help pay for rescues. The NYT says some sources saw the bank tax proposal, which was introduced at a late stage in the talks, as a sign of confusion about the architecture of a bailout.
Trading volumes in eurozone government bonds issued by Greece, Ireland and Portugal have fallen to record lows as disagreements over another international bail-out for Greece revive fears of a default, reports the FT. The volume traded in Greek, Irish and Portuguese sovereign debt fell to €1.1bn in May, a sixfold drop from November and the lowest since 2001, when data were first collected, says Tradeweb, the electronic trading platform. Even eurozone pension funds and insurance groups, which have until now traded these bonds, have backed off recently amid fresh doubts, say fund managers. However, Norway’s $570bn sovereign wealth fund voiced a “very positive” view on the long-term outlook for Europe, despite shifting more assets into emerging markets.
Unleash the rescue dogs.
In a live TV address on Wednesday Portugal’s interim PM José Sócrates announced it was was requesting EU assistance: Read more
The cost of borrowing for Portugal, Ireland and Greece has hit euro-era highs, amid concern in the market that European leaders will fail to take concerted action to dispel fears of sovereign defaults, reports the FT. The long-term market interest rate for Spain has come close to setting a record and Italy’s borrowing cost rose above 5 per cent for the first time since November 2008. The moves came as Portugal was forced to pay a sharply higher premium in a debt auction on Wednesday, raising renewed fears that it will be forced to seek an international bail-out.
In case you missed this on Monday afternoon — here’s the FT’s report on Spain’s bank recapitalisation:
Elena Salgado, finance minister, said the additional capital needed by the Spanish banking system would not exceed €20bn ($27bn) – at the lower end of estimates made by analysts and economists – and would ideally come from the private sector rather than the state. Read more
Did ya know?
The European Central Bank — via its Securities Markets Programme — now owns almost 20 per cent of the outstanding government bonds of Greece, Ireland and Portugal. Read more
Markit credit analyst Lisa Pollack discusses the evolution of the sovereign CDS market, and the growing importance of the ‘Quanto spread’ in eurozone CDS.
Are these the same credits I used to know? Read more
Eurozone peripheral government bonds rallied after successful debt auctions and a reported intervention by the European Central Bank, but investors remained edgy ahead of the key test of the week, reports the FT. Fears that today’s Portuguese bond auction could lead to an escalation of the eurozone crisis failed to undermine demand for Greek, Italian and Dutch bonds on Tuesday. Greece’s first debt sales of the year saw it raise €1.95bn ($2.5bn) in 26-week Treasury bills at yields of 4.9 per cent – only marginally higher than the last sale of similar debt in November. Foreign investors bought 40 per cent in a positive sign for Athens, which has previously relied heavily on domestic institutions to buy its debt. “It is a relief that the yield did not go up much given the volatility and the rise in bond yields in the peripheral bond markets of the eurozone in the last few weeks,” said a senior dealer at a medium-sized bank in Athens, who expected a yield of 5-5.5 per cent. Italy, which has seen its cost of borrowing rise in recent weeks because of the crisis, sold €7bn in 12-month bills with strong demand as order books rose to €11.4bn. The yield was 2.06 per cent, in line with market expectations, and the auction was covered 1.6 times. The Netherlands sold €3.25bn of three-year bonds at an average yield of 1.29 per cent, which was again in line with market expectations amid strong demand.
Wednesday is 3-month LTRO day.
This, of course, is otherwise known as the ECB’s Long-Term Refinancing Operation, in which banks get to bid for an unlimited funds for a three-month duration. Read more
2011 promises to be an interesting year for Spain.
Market focus is shifting southwards following the de facto nationalisation of Ireland’s banking sector. Cue some impeccable timing from Nomura, who predict serious headwinds swooshing across Iberia in the next 12 months. Read more
Want an interesting estimate for the cost of fixing peripheral Europe?
Credit Suisse’s Andrew Garthwaite & Co. are here to serve. Read more
There were rumours that the European Central Bank had returned to the bond market last week, to snap-up those ailing Irish bonds. And now we know it’s true.
The ECB announced on Monday that it bought €711m worth of eurozone bonds last week — its first bond-purchase since early October. That’s a whole three weeks without the ECB propping up the peripheral market. Err, amazing. Read more
… And not in a good way either.
On Wednesday, Portugal managed to sell all €1bn worth of its planned auction of three-month and 12-month bills. Yields, however, continued their inexorable rise. Read more
The European Central Bank wants out. That much is clear.
In recent months the ECB has been funding eurozone banks to the tune of squillions, with financials using government bonds, asset-backed securities and the like, as collateral. What happens to the banks though, as the ECB moves for the exit? Read more