Van Rompuy Comment on Second Greek Vote

President Herman Van Rompuy have issued the following statement after the second Greek vote on new austerity measures:

• “I welcome this second positive vote of the Greek Parliament on this programme of – I know – though but indispensable measures.”
• “We – the EU- have to show our solidarity now, in a package of financial assistance.”
• “Mr Papandreou is a Prime Minister who took his responsibilities. We all support that kind of political courage.”

VIDEO BY THE EU COUNCIL PRESS CENTER:

Van Rompuy Comment on Second Greek Vote, posted with vodpod

Goodbye Democracy – Hello Austerity!

I believe Michael Martens at Frankfurter Allgemeine puts the pin where it belongs in a commentary in today’s online edition of the German paper. He concludes that the Greek government has been stripped of its sovereignty and the elected representatives can no longer take meaningful decisions.

“The people of Greece can vote all they want, but they can’t really change anything.”

Michael Martens

“For the foreseeable future Greece will only be a limited democracy,” the German commentator writes. According to Mr. Martens, the Greek government has been stripped of its sovereignty and the elected representatives can no longer take meaningful decisions. Instead they execute what the EU and the IMF tells them to do.

Mr. Martens writes specific about Greece, but the point he is making may soon be valid for several other EU nations.

Portugal and Ireland is already in the danger zone, Spain and Italy is due to follow.

And – in a worst case scenario – the whole European Union.

Here’s a few more quotes from Frankfurter Allgemeine:

“Greece will be for the foreseeable future only be a limited democracy. The people of Greece can vote all they want, but they can’t really change anything. But it is not only the elected politicians who are to blame.”

“Greece’s Deputy Prime Minister Pangalos, had the courage recently to issue a taboo statement… He pointed to the complicity in a political system in which citizens in exchange for votes were to be public servants. The voters would have sold their votes, and are therefore partly responsible, Pangalos dared to say. The consequences of this example should actually be a deterrent for potential imitators  – if  one believe that democracies can be learned in time.”

Michael Martens also challenge the common view amongst economists that the bailouts may lead to moral hazard and irresponsible lending by other governments, knowing that they will be bailed out if they fail to pay back their loans.

“In fact, the Greek example may already have developed the opposite effect,” he points out.

“No prime minister will want to pay the prize that prime minister Papandreou currently has to pay.”

“The Greek government has, to a far greater extent than a member of the common European Union, and necessary, give up sovereignty.”

“For months, the elected representatives of the Greeks can not make more or less crucial independent decisions.”

And here we are: At the essence of a Greek tragedy.

(Google translation in English).

Related by the EconoTwist’s:

• Financial Monsters Threaten Democracy, Former Portuguese President Says
• British MEP To Parliament: “Just Who The Hell Do You Think You Are? You Are Very Dangerous People!”
• Political Incorrect About Europe’s Political Union
• EU to Greece: No More Solidarity If You Vote No
• EU: Drifting Towards Default, Destabilization And Disaster
• Greece Ends Week In Absurdum
• People’s Confidence In The EU Drops To Record Low

Credits Rally Without Credibility

The CDS spreads tightened significantly, Tuesday, and the rally gained momentum through the afternoon as investors placed their bets on a Greek “yes” to more austerity measures. Banks also rallied in spite of rumors that as many as 15 institutions will fail the upcoming stress test.

“The markets are aware that the banking books aren’t being tested for sovereign defaults, leaving a sizable credibility deficit.“

Gavan Nolan

Well, here at the Econotwist’s we are just as skeptical to this rally, as we are to the stress test. Even if the Greek should accept another round of crippling austerity, the market participants are still pricing an 80% chance of a national default. And the banks? Hahaha…suckers!

I guess most of you are familiar with terms like “suckers rally” and “pump&dump.”

However , I won’t stretch that any longer – we’ll just have to wait and see, okay.

Now; according to Markit Financial Information,  the so-called “French proposal” for private sector participation in Greece’s bailout appears to be gaining traction, with reports that the German banking association sees the French model as a potential solution.

Fitch Ratings have declared that the proposal would still be regarded as a default by the agency but  the market didn’t seem to give a damn.

The Greek parliament have been debating the austerity bill while the country is paralyzed by a two-day general strike and protesters are raging in the streets of Athens.

Inevitably, the protests have turned violent again and ought to serve as a reminder that the government will find it difficult to implement these measures,  even if they get the votes they need tomorrow and Thursday.

“Nonetheless, the markets were content to ignore the unrest and rally,” credit analyst Gavan Nolan at Markit Credit Research writes in his Intraday Alert.

Adding: “Participants might be looking to add risk ahead of the vote in expectation of a relief rally if the government wins.”

The Markit iTraxx SovX Western Europe index was about 9 bp’s tighter, at 233,5 basis points, driven by the peripheral EU countries.

Spreads in Spain – perhaps the most important gauge of contagion – tightened significantly,  and closed at 288 bp’s.

Italy also rallied. The sovereign sold EUR7,885 billion of government bonds this morning, close to the upper end of the target range.

“Demand for the debt was solid and higher than the previous auctions, though the 1.32 bid-to-cover ratio for the 10-year BTP was relatively weak,” Gavan Nolan points out.

The tightening in the peripherals seemed to fuel a broader market rally.

The Markit iTraxx Europe closed about 2,5 bp’s tighter, at 113,25, and it was companies based in the EU periphery that drove the rally, like Gas Natural and  Telecom Italia.

A considerable skew has opened up in the index in recent days, the largest since the roll in March, according to Markit.

“The history of the index suggests that this will narrow relatively quickly,” Mr. Nolan writes.

That means that the iTraxx Europe most likely will widen again over the next days.

In another seemingly outburst of irrational exuberance banks also rallied, in spite of news reports claiming that between 10 and 15 of the 91 institutions who are subject to the stress tests are set to fail.

“If true, it could give the tests some much-needed credibility,” Nolan writes.

“But the markets are aware that the banking books aren’t being tested for sovereign defaults, leaving a sizable credibility deficit,” the Markit analyst concludes.

And that’s a nice and polite way of putting it.

• Markit iTraxx Europe S15 113.25bp (-2.5), Markit iTraxx Crossover S15 425bp (-10)
• Markit iTraxx SovX Western Europe S5 233bp (-9.5)
• Markit iTraxx Senior Financials S15 175bp (-4.5)
• Markit iTraxx Subordinated Financials S15 298bp (-10)
• Sovereigns – Greece 2025bp (-40), Spain 288bp (-18), Portugal 795bp (-24), Italy 191bp (-14), Ireland 775bp (-38)

Related articles:

• (BN) Stocks, Euro Advance as Treasuries Decline Amid Greek Optimism (momentrixreport.com)