Tag Archives: ESM

WHEN WE’RE NOT MOVING FORWARDS WE’RE GOING BACKWARDS…, by François Leclerc

Guest post. Translated from the French by Tim Gupwell

The European Finance Ministers managed during the course of the night to finalize a minimal agreement, which needs, as usual, to be examined in detail due to its grey areas. They put together a set of nominations to the ECB and the ESM based upon the provisional re-appointment of Jean-Claude Juncker at its head, in the absence of any other solution. Then they reached a “tentative agreement” (another way of saying a broad outline) with regard to the particular case of Spain which needs to be wrapped up for adoption on the 20th July.

An additional year will be given to Spain to reduce its deficit and get back on track, which confirms that things are in the process of getting out of hand, and which depends on the new austerity measures that Mariano Rajoy is going to announce this week. These are said to include an increase in VAT, reduced social security payments, reductions in unemployment benefits and a revision of the methods used to calculate retirement benefits. A preview of the program has already been presented by the Spanish Finance Minister, Luis de Guindos.

Continue reading WHEN WE’RE NOT MOVING FORWARDS WE’RE GOING BACKWARDS…, by François Leclerc

0Shares

STICKING TO ONE’S PRINCIPLES…, by François Leclerc

Guest post. Translated from the French by Tim Gupwell

What was the plan being drawn up last week in Rome which Merkel refused to sign up to? The other three participants, Mario Monti, Mariano Rajoy and François Hollande advocated using the EFSF, and in the near future the ESM, directly, to bail-out the banks without adding further to the public deficit (thus breaking the link between these two types of debt), as well as using them to purchase sovereign bonds in order to ease market tensions.  Spain and Italy would be the principal beneficiaries of these measures.

But there is a ‘catch’ to these dispositions, which are supposed to rapidly resolve the stark problems. The combined means which the two funds would dispose of would be quickly used up, meaning either that they would need to be boosted by appealing to the states which finance them, or that a banking license would need to be granted to the ESM to enable it to access the ECB’s liquidity… The two taboos that the Bundesbank refuse to break are a pooling of debt which has not been thought through and which is at Germany’s expense, and an ECB intervention to relieve the rolling over of public debt.

Continue reading STICKING TO ONE’S PRINCIPLES…, by François Leclerc

0Shares

BACK FROM LOS CABOS, by François Leclerc

Guest post. Translated from the French by Tim Gupwell

Given that the G20 has confined itself to mere generalities and that the European Summit on the 28th and 29th June is dangerously close, what can be expected of the meeting in Rome on the 22nd June between Angela Merkel, Mario Monti, Mariano Rajoy and François Hollande, intended to serve as preparation for it?

Two projects are being examined in parallel by the European institutions, which are being assembled together and presented as if they were one of Great Wonders of the World. Firstly, by issuing Eurobonds with a short maturity- and thus with limited risk – and secondly by the creation of a fund intended to bring together and finance over a period of 20 to 25 years the stock of debt which exceeds the threshold of 60% each country’s GDP – these countries will have to demonstrate their credentials beforehand with regard to their budgetary commitments. Thanks to these virtuous arrangements, we will all be saved and the chaotic debt-reduction strategy will finally work as it should!

Intended to ease the pressure on the debt-reduction strategy, this wonderful arrangement will not, however, get Europe out of the recession which is the main cause of the investors’ lack of confidence. Due to its global dimension, this prospect was at the heart of the discussions at the G20. In order to help private sector debt-reduction, these two complementary measures will be coupled with a ‘Banking Union’ based on the doubtful premise that the banks will be able to finance their own rescue-packages without any external intervention.

Continue reading BACK FROM LOS CABOS, by François Leclerc

0Shares

THE RAMIFICATIONS OF THE SPANISH BANKING BAIL-OUT, by François Leclerc

Guest post. Translated from the French by Tim Gupwell.

Some important details are still lacking with regard to the Spanish banking bailout plan: its final amount, which is going to depend on the results of the audit commissioned by the government; its rate, which we will be coming back to; and the stabilizing measures for the banks which will be associated with it. These will include massive lay-offs in the banking sector and will further worsen the unemployment situation.

One other aspect has, however, not been highlighted enough. The funds will have to be paid out – at least initially – by the EFSF, which itself will borrow them on the financial markets using the guarantees of its members (which include that of Spain itself). It remains to be seen under these conditions, at what rate the EFSF will be able to borrow in order to then lend on to Spain. The whole of the edifice will be further weakened, with the guarantees relying de facto on an increasingly limited number of countries.

Continue reading THE RAMIFICATIONS OF THE SPANISH BANKING BAIL-OUT, by François Leclerc

0Shares

DIFFERING DELUSIONS, by François Leclerc

Guest post. Translated from the French by Tim Gupwell.

Worried by the sight of the Europeans entrenched in their respective positions, Barack Obama reached for his telephone. The day after the G7 videoconference between the Finance ministers and the central bankers, of which nothing came, he successively called David Cameron, Angela Merkel and Mario Monti. With this latter, the strengthening of the discussions centered on the Euro zone and growth. With David Cameron, who is going to meet Angela Merkel in Berlin, it was about the need for an “immediate plan”. Of the conversation with Angela Merkel no details have emerged. All promised to keep in contact with Barack Obama over the coming days, before meeting up on the 18th and 19th June at the G20 in Mexico, a sign that there is still plenty of work to be done before an agreement is found between them.

Expecting nothing from the governments, tensions on the stock and bond markets eased off all the same, bearing witness to their hopes of a renewal of central bank interventions. A meeting of the Bank of England is due on Thursday, as well as the expected appearance of Ben Bernanke, the chairman of the Fed. While the ECB, which met today, is keeping its cards close to its chest in order to force European leaders to assume their responsibilities, the Bank of England may well reactivate its debt purchasing programme, which has only been temporarily suspended. Looking further ahead, the possibility of a reduction in the key ECB interest rate, and an eventual third wave of massive loans to banks, continue to raise hopes, though Mario Draghi clearly stated that they are not ready to take these steps at the current time. By opting to not renew his purchases of Spanish debt on the secondary market, he sent a clear signal that the ball is in the court of the governments.

Continue reading DIFFERING DELUSIONS, by François Leclerc

0Shares