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LOTS OF FROTH, by François Leclerc
Guest post. Translated from the French by Tim Gupwell
A brand new development in the history of the ECB has occurred: leaks yesterday revealed the broad outlines of its new sovereign debt securities’ purchase programme. One cannot help thinking that it was necessary to prepare the ground in advance, with the ECB decisions falling well short of some of the mounting speculation.
According to Mario Draghi, there will be no limit to the amount of bond purchases on the secondary market – but the scope of the announcement needs to be put into perspective. They will in fact be decided … Read the rest
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SURRENDER, YOU ARE SURROUNDED!, by François Leclerc
Guest post. Translated from the French by Tim Gupwell
It is not just Italy and Spain causing problems, after the decisions taken during the last summit suffered a setback, in view of the spectacle of great confusion and nervousness we have witnessed with regard to the joint press release – which wasn’t one – from Spain, Italy and France demanding immediate implementation. Simultaneously, Greece is providing an example of the strategic retreat of the European authorities and of the IMF.
It is now the ECB and the Eurosystem which hold the vast majority of the Greek debt, a fact which … Read the rest
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SPAIN : THE MARKETS ARE EXPECTING NEW DEVELOPMENTS SOON
Translated from the French by Tim Gupwell
Exceeding 6% on 10 year debt is already dangerous. According to the terms of the balanced budget rule, this signifies that a nation will require growth of around the same amount, whereas in fact Spain has registered a negative growth since the beginning of the year! So, 7.567% at 10.15 this morning! As the German 10 year Bund stands at 1.255%, this means that for Spain over 10 years there is a risk premium (for the possibility of the debt not being repaid) which can be reckoned at 6.312%.
© Bloomberg… Read the rest
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QUIET ON THE SET, AND… INACTION!, by François Leclerc
Guest post. Translated from the French by Tim Gupwell
Events are moving fast. We were expecting it of Greece, but Spain is overtaking it. Yesterday evening, a human tidal wave invaded Spanish town streets, which these days have become virtually permanent places of mini-demonstrations at midday or after work. Today, at the very moment when the Eurogroup ministers were adopting the bail-out plan for the Spanish banks, the bond rate had edged up to 7.20% and the Madrid Stock Market plunged more than 5%. Instead of falling as had been predicted, the government has announced that the official unemployment rate … Read the rest
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FIRST IT WAS THE AGENCIES, NOW ITS THE FORECASTERS’ FAULT, by François Leclerc
Guest post. Translated from the French by Tim Gupwell
“I can’t see any time soon when…the pressure will be off” replied David Cameron, the British Prime-Minister, in an interview with The Daily Telegraph. He continued, “this is a period for all countries, not just in Europe but I think you will see it in America too, where we have to deal with our deficits and we have to have sustainable debts”. In conclusion, his austerity policies are likely to continue beyond 2020, as the situation is “a lot tougher than the forecasters were expecting”. Georges Osborne, the Chancellor of … Read the rest
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THE RESULT OF UNRAVELLING A BALL OF WOOL… FROM THE WRONG END, by François Leclerc
Guest post. Translated from the French by Tim Gupwell
François Hollande has confirmed that the Government is going to propose for adoption an organic law (which a simple law cannot undo) in order to have the balanced budget rule adopted, on the advantageous pretext that it is provisional. There have been many occasions in recent French history when special measures have been adopted for their presumed importance, without ever leaving good memories behind.
At the same time, the debate in Europe continues to move on, focusing once again on the reduction of the banks’ debts. Thanks to the Wall Street … Read the rest
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WELL SPOTTED, BRAVO!, by François Leclerc
Guest post. Translated from the French by Tim Gupwell
As already highlighted the Spanish government is already benefitting from a de facto rescue plan under another name. To save appearances, the new austerity measures put forward for vote in parliament have not been the object of a memorandum jointly signed with those providing the funds, as had previously been the case for other countries. In fact, the announcement of these measures came the day before that of the banking bail-out!
One major difference with the preceding rescue plans can be observed: the entirety of the 100 billion Euros loans provided … Read the rest
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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 … Read the rest
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GUILTY PARTIES WANTED !, by François Leclerc
Guest post. Translated from the French by Tim Gupwell
In accordance with the predictable script, the bond market is under pressure again. The cost of servicing Spanish and Italian debt has continued to increase as their financing plans move forward in little measured steps. The effect of all this is to place an additional burden on the budgets, undermining those measures which are intended to reduce the deficits.
The statistical institutes INSEE (France), IFO (Germany) and ISTAT (Italy) all agree: Europe is sinking into a recession which they describe as ‘technical” in an attempt to make it sound innocuous, but … Read the rest
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TREASURE HUNT, by François Leclerc
Guest post. Translated from the French by Tim Gupwell
Following the clues for the next bail-out of the Spanish banks is proving to be a veritable treasure hunt. To participate, follow the guide!
Initially, the EFSF (European Financial Stability Facility) is going to borrow funds on the markets, using the member states guarantees, in order to lend them to the Spanish Government, which will subsequently lend them to the banks for the bail-out. The result of this haywire approach will be a transfer of debt from the private sector into the public sector.
But in the meantime the banks … Read the rest
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SPAIN: BOND MARKET THIS THURSDAY 21St JUNE
Spain managed to borrow 2.22 billion Euros this morning. It was hoping to raise 7.7 billion. The Wall Street Journal pointed out that this was “thanks to demand seen overwhelmingly coming from domestic banks”.
The coupon obtained by lenders for 2 years was 4.706% (compared with 2.069% on the 1st March); over 3 years it was 5.547% (compared to 4.876% on the 17th May) and over 5 years it was 6.072% (compared to 4.960% on the 3rd May).
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THE SPANISH RISK PREMIUM
There were two bond issues today, one in Spain, the other in Denmark, which allow us to carry out an interesting little calculation of the risk premium required of Spain when it borrows on the capital markets.
A short while ago the Spanish Treasury department issued more than 3 billion Euros of debt for 12- 18 month securities.
Because we must always look on the bright side of life, it was pointed out that for an offer of only 3 billion there was a demand up to 8 billion – which is always nice to know, … Read the rest
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Le Vif/L’Express, « There is ALWAYS an alternative », June 22, 2012
This is an exclusive preview – in English! – of my column which will be published in the Belgian weekly Le Vif/L’Express this coming Thursday
The phenomenon is the way in which things manifest themselves to us, and this can be real – either with things appearing as they really are; or it can be deceptive – with things appearing other than they really are – such is the case for optical illusions for example which suggest a false reality. Where the Greek language said phainomenon, latin said apparentia, appearance, with the same two nuances as for phenomenon … Read the rest
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FRANCE AND THE FUTURE OF EUROPE
France and the future of Europe
The fact that Spain seems to have lost all access to the capital markets for the foreseeable future, seeming thus, at first glance, to condemn the entire existence of the Eurozone, was headline news on Paul Jorion’s blog yesterday. Firstly, as discussed in the article ironically entitled “The Greeks have made the right choice”, where I drew attention to the fact that the victory of the right-wing party New Democracy in the elections didn’t seem to have any positive or negative effect on the international markets since the coupon for 10 year … Read the rest
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A BIG BANG, OR NOTHING , by François Leclerc
Guest post. Translated from the French by Tim Gupwell
With the G20 meeting being held in Mexico at the start of the week, our perspective will find itself altered, falsely accustomed as we are to only seeing the debt crisis from a European angle. On the 18th and 19th June, the greats of this world are going to gather in Los Cabos, a tourist resort in Southern Lower California, under the double auspices of debt and global recovery.
To avoid standing idly by whilst confronted by a disaster of its own making, the British Government has just announced a plan … Read the rest
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AND NOW?
14 juin 2012 par Paul Jorion
And now? What are we going to do? Now that Spain has lost access to capital markets for its debt?
True, the downgrading yesterday evening of Spain’s rating by three notches by Moody’s, from an A3 to Baa3 has not helped matters. But after all, it hasn’t taught us anything that we didn’t already know last weekend: with a 10 year sovereign debt rate stuck around the level of 6.75% (*), the game was up anyway when it comes to financing its debt on the capital markets.
The cause of all this? … Read the rest
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SPAIN IN STORMY WATERS
12 juin 2012 par Paul Jorion
The 10 year rate for Spanish debt has just reached a historic high. On the 25th November of last year, the rate had beaten a record when it reached 6.72%. Yesterday early in the morning, when the European markets were in ecstasy about the news of an 100 billion euro aid package for the Spanish banks via the Spanish state, the rate had dropped back down to 6.02%. It has just reached 6.809% (at 16:27 Paris time).
Of course the danger of this type of progression is that an … Read the rest
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HOW CREDIT DEFAULT SWAPS WILL HAVE DESTROYED THE EURO
How credit default swaps will have destroyed the Euro
12 juin 2012 par Paul Jorion
And what of the CDS (credit-default swap) speculators who don’t pay taxes? Why don’t we hear anything about them? We hear a lot about the Greeks not paying their taxes, and at the moment, due to the tactlessness of some, we hear a lot about international civil servants (more precisely those of the International Monetary Fund) who don’t pay taxes, but, in the case of CDS speculators who pay no taxes, goodness knows why – not a word!
It has to be said that it … Read the rest
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WHEN THE WISE MAN POINTS AT THE MOON… (I), by François Leclerc
Guest post. Translated from the French by Tim Gupwell.
The chaotic ups and downs of the deleveraging process continue inexorably, affecting not only the debt of the member states but also a European banking system which is now in the same mess. What it had been concealing has now been revealed: it is in a very sick and feeble state.
In order to subdue and contain this gradual process, new bail-out instruments have had to be put in place – which are the subject of much debate; their effectiveness is limited since they are part of a debt-reduction strategy which … Read the rest