FT Alphaville began writing in detail about emergency liquidity assistance in the eurozone — that is, national central banks lending to stricken, but supposedly solvent banks on highly secretive terms, against collateral not accepted at the ECB — some two and a half years ago.
Throughout that period, the ECB’s precise oversight of this liquidity assistance remained in the dark. Despite the risk being taken by taxpayers, and despite the fact ELA effectively stopped the Greek, Irish and Cypriot banking systems from going under at various points. And despite procedures having been in place since 1999 for the ECB to restrict ELA by a national central bank if it endangers the rules of the euro (as used in Cyprus). Read more
There are a few ways to greet the news that eurozone banks are more exposed to their sovereigns than ever. One’s to note that this just means more human shields to deal with (somehow) in a restructuring… Read more
Something funny happened to the eurozone over summer. Things… began to look better.
Of course, there are plenty of difficulties lying in wait. As the FT’s Peter Spiegel and Alex Barker write, once a new German government is in place after this weekend’s election, fraught negotiations about Greece, Portugal, Ireland and the banking union will quickly return to the fore. Read more
An interesting pair of charts to juxtapose on a Monday morning, and a PMI day… courtesy of Societe Generale. They point out that the eurozone is straggling to recovery, though apparently in spite of the ECB failing to shore up money growth: Read more
Ok, we’ve been slow to get this up. That’s because…
But here, belatedly, is a paper from Achim Dübel of Finpolconsult: Creditor Participation in Banking Crisis in the Eurozone – A Corner Turned? Read more
Olli Rehn (left) and Valdis Dombrovskis, the Latvian prime minster, (right) regrettably seem to have got lost in a Powerpoint presentation. Read more
Yes, it’s time for a trip back into those Cypriot debt contracts.
Cyprus announced the results of its sovereign debt restructuring on some €1bn of domestic-law bonds earlier this week. The one the Troika wanted for — OH. Oopsy-daisy. Did FT Alphaville say sovereign restructuring. We meant “debt management operation”. Read more
So, a plurality of the Finnish public may just agree with FT Alphaville.
Click to enlarge. That’s a Gallup poll by Helsingin Sanomat on the Finnish government’s Greek ‘collateral’. Read more
The International Monetary Fund’s “ex post evaluation” of its involvement in the Greek bailout continues to generate debate over the weaknesses revealed. Gabriel Sterne, a senior economist at Exotix with two decades of public sector experience including at the IMF, argues that the issues for the fund go much deeper.
____________________________________________________ Read more
Like other Europe-focused strategists, William Porter at Credit Suisse has had some fun scrolling through the IMF’s mea culpa on Greece.
He notes that the IMF now admits that its actions were affected by a fear of market contagion, a misunderstanding of how to do a restructuring within a currency union and, most importantly perhaps, a dysfunctional dynamic within the Troika itself. Read more
The short answer, when it comes to eurozone adjustment post-crisis, is No. David Mackie and team at JP Morgan reckon we are maybe halfway there.
The bank has a fresh tome out presenting the progress so far as a set of journeys for each EZ member — covering sovereign deleveraging, competitiveness adjustments, household deleveraging, bank deleveraging, structural reform, and national-level political reform. Read more
Is it only going to get worse before it gets better?
Societe Generale think so: as the chart says, they’re expecting it to reach 30 per cent in 2015 (from an already-awful and record-breaking 27.2 per cent, at last count). Read more
Quite a lot to ponder really. Members of the IMF’s executive board were set to meet on Wednesday to discuss whether to approve lending to Cyprus, more or less behind closed doors.
But maybe not so much this time. It looks like Stockwatch in Cyprus has obtained a copy of the members’ comments on the Cypriot bailout — a rather high-level internal document to find its way to the public… and it makes for fascinating reading. Read more
A telling chart (which you can click to enlarge) from BNP Paribas’ Ricardo Santos and Michelle Lam. As they note — after a break particularly in the second half of 2012, there’s recently been a marked increase in banks’ holdings of sovereign debt… especially in Italy, France, Portugal and Spain. Read more
Some stagnant stats out of Eurostat on Tuesday….
Euro area unemployment rate at 12.1%
EU27 at 10.9%
Here’s the damage, broken down… Read more
Hans-Werner Sinn — he of Target2 imbalance fame — had a piece on Project Syndicate last week in which he stood firm against George Soros and his demands for Germany to leave the euro if it continues to block the introduction of Eurobonds.
Though not because he thinks Germany is wrong to oppose Eurobonds, but rather because he believes there is no legal basis for such demands. Article 125 of the Treaty on the Functioning of the European Union, he says, expressly forbids the mutualization of debt. Read more
There’s been some thought-provoking revisionism floating around about Cyprus lately.
The gist seems to be this: Why not push bank bail-in policy in the eurozone much harder, right into uninsured depositors if need be, if Cyprus has not (yet?) budged most gauges of bank funding from their current calm. And more importantly, when there is a vicious circle to resolve. Read more
(Chart from El Pais with thanks… though please label the axes in the future. It drove us a little crazy.) Read more
In the euro area the government debt to GDP ratio increased from 87.3% at the end of 2011 to 90.6% at the end of 2012, and in the EU27 from 82.5% to 85.3%.
Full eurostat stats here. Read more
The figures provided in this report incorporate the best judgement available at this time. Nonetheless, caveats remain. The data for Cyprus appear not to be comparable with those for other euro area countries in a number of dimensions and should therefore be interpreted with caution. However, once the above mentioned factors are accounted for, the net wealth figures for Cyprus appear less of an outlier…
Yes, we can imagine why the ECB’s first Household Finance and Consumption Survey might have wanted to make that clear at the outset. (Survey methodology here.)
Possibly because of headlines like this, landing after the German-financed bailout of Cyprus: Read more
As the pari passu saga in New York rattles towards its end… (or is it?)
The contest of wills and/or highly-paid lawyers between Elliott and Argentina goes on elsewhere, of course. Read more
Kinda strange that markets should get all a-jitter just as the Cyprus crisis is moving towards a resolution.
Simon Derrick of BNY Mellon asked on Friday: “The red pill or the blue pill.” The answer — choose reality — seems pretty obvious, but let’s first run through Derrick’s handy re-cap…
What’s the problem?
That’s the result of Cypriot MPs’ vote on the current version of the bank deposit levy, rejecting it as a condition of the island’s bailout. Note that the ruling party abstained. Still, that is the first no, after all these years and the bailouts, to the Troika. Read more
To be perfectly honest, trying to second-guess Cyprus isn’t gonnna get us anywhere. The situation at pixel time was moving too fast at too great a distance. While we wait for a tiny bit of clarity — whether this evening’s vote on the bailout will go ahead is till unclear, let alone what the outcome will be — a question being asked by Credit Suisse’s William Porter and team seems apropos: What if they’re not “stupid”? Read more
The Cyprus bail-in is qualified good news, in the eyes of Citi’s chief economist Willem Buiter.
Sure, it would be better if insured depositors on the island had been spared and it would have been nice if losses of uninsured depositors had reflected the recapitalisation needs of each individual bank. But first and foremost Buiter sees this as a decisive step in restructuring excessive debt across Europe, which is a necessity if the euro area wants to grow again. Read more
Famous last words and all, but it is hard to see the fear flowing from Cyprus to the average depositor in a Spanish or Italian bank. Not in the short term. As for Lehman II, well, come off it.
After all, that’s probably partly why this inequitable tax on small depositors across Cypriot banks could be put on the Eurogroup negotiating table on Friday. The systemic danger is absent. Read more
A couple of years back, when Carmen Reinhart and Belen Sbrancia updated the concept whereby governments might deal with a problematic mountain of debt by confiscating the savings of their subjects, the discussion was all about the subtle, sleight of hand solutions that might be employed.
Artificially cheap rates of interest might be forced on the embattled sovereign’s debt, local banks might be obliged to buy mis-priced government paper, exchange controls may be erected, and so on. Ordinary people, it seemed, could be financially repressed without realising they were in fact the victims.
There was no discussion back then of outright expropriation or a “tax”, as insured (and uninsured) depositors at Cypriot banks are now being forced to bear. Read more
A “one-off” often isn’t. Calling something after “stability” isn’t very stable. Saying that something is not a precedent usually makes it one.
Presenting the Cyprus bailout’s “upfront one-off stability levy” for depositors in Cypriot banks: Read more
Mario’s presentation to EU leaders from Thursday night. Msg: ‘Mind the gap’…