Tag Archives: Bundestag

EU: Summit, Summa, Samarium

The top EU leaders are now dressing up for another countless crisis summit in Brussels. Over the next two days the elected representatives are going to try to agree on….on something. The single most important issue however – how the new bailout fund, EFSF is going to work – is most likely to be postponed, due to a slightly difference of opinion between Angela Merkel and Nicolas Sarkozy.

“It is hopeless in terms of what it reveals a lot about the policy process in the euro zone.”


Ms Christine LAGARDE, Managing Director of the International Monetary Fund, Mr Evangelos VENIZELOS, Greek Minister for Finance

I believe I agree with the analyst at www.eurointelligence.com when they characterize the already pronounced postponement of the EFSF issue as “hopeless but not serious.” There are too many loose threads in that ball, and it would probably not be safe to put it in play. But during the two-day extraordinary meeting is expected that the EU leaders comes up with something – at least some credible statements with a bit of substance.

On Thursday, France and Germany decided that they will not able to bridge their difference over the role of the EFSF by Sunday, and need more time to work out a deal.

It is not serious in the sense that there will be an agreement a few days later – in any case before the G20 summit, the Eurointelligence points out.

Adding: “But it is hopeless in terms of what it reveals a lot about the policy process in the euro zone.”

The postponement  is due to a combination of two factors: Nicolas Sarkozy’s diplomacy, and the German Bundestag’s insistence that it needs to give a mandate to the chancellor ahead of the summit.

Merkel would not have had a mandate to negotiate anything beyond the minimalist insurance solution that was recently under discussion.

She now has to crawl back to the Bundestag each time where she gets on a plane.

Merkel and Sarkozy will hold another bilateral summit on Saturday night, and will discuss the issue on Sunday. However no decisions will be taken.

In their joint communiqué, Thursday, they pretends that everything is fine.

But it did not persuade financial markets, which reacted with an increase in bond spreads.

Italy’s spread is now back at 4%, a level as we keep on point out is not consistent Italy’s sustained membership of the euro zone.

“From a market point of view, there is too much disappointment and disunity coming out of the EU right now. A further example has been the dispute between the IMF and the EU about Greece, as the IMF challenges the EU’s optimistic projections for Greek growth,” www.eorointelligence writes.

Mr François BAROIN, French Minister for Finance and Economic Affairs - Ms Elena SALGADO, Spanish Vice-President of the Government and Minister for Economic Affairs and Finance.

It also emerged that the bank recapitalization programme will fall in the too little, too late category of responses – now likely to be below €100 billion.

If you think that undercapitalized are the core of the problem, then this will not help. If you think that recapitalization will damage growth, a weak recapitalization may very well be better than a strong one –  but it will still be negative for growth.

When it comes to the EFSF, the debate is circling around the method of leveraging.

The Germans want to continue down the route the discussions had been going until Wednesday, by using a primary market insurance scheme that would allow the EFSF to insure up to €1 trillion in new debt issuance.

On the other side: The French say this is not sufficient, favoring a banking license for the EFSF.

Reuters reports that bond market experts are severely critical of the insurance schemes because it creates a two tier bond market.

If an Italian government bond was issued under this scheme, investors would no longer classify it as a sovereign bond, but as a structured product.

Another Summit on Wednesday

A follow-up summit is now scheduled for next Wednesday, according to  Frankfurter Allgemeine Zeitung.

Since there was no political agreement, chancellor Merkel was unable to deliver her speech in front of Bundestag today and to seek a negotiating mandate by the deputies as is now required after the constitutional court rulings and the legislation about the parliament’s involvement in EU decisions with budgetary implication.

So Merkel intends now to go to parliament in the beginning of next week to deliver what she could not bring to the deputies today.

Meanwhile, Wolfgang Schäuble have explicitly ruled out that the EFSF will be refinanced via the ECB as Sarkozy wants.

Damn! I would love to see some surprises for a change!

Green Light for More Money To Greece

The first thing to come out of the summit on Friday evening, was the statement about approval of the sixth trace of financial aid for Greece.

“Ministers of the euro area, meeting in Brussels on 21 October, agreed to endorse the disbursement of the sixth tranche of financial assistance to Greece. The disbursement is foreseen for the first half of November, following approval by the Board of International Monetary Fund (IMF),” the statement says.

The Eurogroup took the decision having examined the results of the fifth review of the economic adjustment programme for Greece, on the basis of a compliance report by the European Commission and a recent analysis of the sustainability of the Greek debt by the “Troika” (European Commission, IMF and European Central Bank).

The ministers also noted that the macroeconomic situation in Greece has become worse since the fourth review , but they welcomed Greece’s “substantial fiscal consolidation efforts”, especially the austerity package that the Greek parliament approved on 20 October.

Full text of the Eurogroup Communiqué,

The Eurogroup invites the Greek authorities to continue implementing structural reforms and their privatisation programme.

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Filed under International Econnomic Politics, National Economic Politics

Europe's Crisis; Out Of Control

They have been meeting almost daily since the crisis, at technical level, at the Ecofin, and several times even at the top level. And yet the German top leaders forget to mention to their European friends that they are planning an important headline grabbing regulatory move. Now things are really getting out of control.

“I was young, I was foolish, I was angry, I was vain, I was charming, I was lucky, Tell me how have I changed.  Now I’m out, Oh out of control.”

The Rolling Stones

The French are outraged. Christine Lagarde not only criticized the German decision, saying that a short-sale ban kills market liquidity, and added that France will not follow suit. EU‘s financial market commissioner Michel Barnier also criticized the decision, emphasizing the need for a common response. Angela Merkel is getting more and more isolated.

All effort to display European unity have once again by defeated in full public limelight.

“Merkel is either criminally incompetent, or driving Europe off the cliff on purpose. We suspect it is the former,” the eurointelligence.com writes.

The reaction to Germany’s unilateral decision was one of shock and disbelief. Global stock markets plunged. European markets were down by 3%.

The euro plunged, but later recovered. Criticism focused both on the decision itself (somewhat strange since most CDS activity is in London, not Frankfurt), but more important on the the unilateral way it was decided.

The Financial Times writes that the German decision was a quid-pro-quo to appease the Bundestag, where an increasing number of MPs want to link their approval of the EU rescue fund to progress on regulatory reform.

Only on Sunday did Merkel rule out a financial transaction tax as unworkable, as she saw no chance of getting the US and the UK to participate.

Within the space of a few days, this has become Germany’s official policy. As we have observed during the entire financial crisis, the German chancellor is driven by events, and thus entirely predictable.

El Pais quotes a Commerzbank analyst as saying that the German decision was seen as a desperate move, that signaled to the market that the debt crisis is going to get worse.

Katinka Barysh of the Centre for European Reform says: “Germany feels isolated and misunderstood… The rift, if badly handled, could make Germany’s stance towards the EU more hard-nosed and inward-looking.”


German Chancellor Angela Merkel’s curbs on government-bond trading proved a step too far for European allies, leaving her isolated as she pushes for a crackdown on euro-area states that flout budget-deficit rules, Bloomberg reports.

Merkel’s unilateral effort to control what she called “destructive” markets came 10 days after voters angry at aid for Greece dealt her a regional election setback that cost her control of the federal upper house of parliament.

She’s now trying to win support for another loan package that’s due to go to a parliamentary vote tomorrow, this time on Germany’s share of a $1 trillion bailout to backstop the euro.

The political trials of the leader of Europe’s biggest economy and her flip-flop last month on extending help to Greece have fanned investor concerns as the 16-nation currency bloc struggles to counter the region’s debt crisis. They contributed to the euro’s decline to its lowest since 2006,  Carsten Brzeski, an economist at ING Group NV, says.

“Germany is simply not able to come up with a clear line,” Brzeski, who is based in Brussels, says in an interview. That makes investors “start to think, ‘I don’t understand this anymore, I’m going to sell my euros.”

Out Of Control

“The lack of rules and limits can make behavior in financial markets driven purely by the profit motive destructive and lead to an existential threat to financial stability in Europe and even the world,” Merkel told lawmakers in Berlin yesterday.

“The market alone won’t correct these mistakes,” she said.

In an interview with the Financial Times, German finance minister Wolfgang Schauble’s says the financial markets are out of control.

But everyone else seems to think that the German government is out of control.

Market Snap Shots

The euro is still holding on, trading between 1,23 and 1,24 against the dollar in a very volatile market.





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Merkel: The Euro Is At Risk, Could Have Global Consequences

Europe: The War Is On

E.U. Ministers Fail To Agree On Bailout Details; Run On Euro?

Euro: $1,22 – Panic In Brussels

The Euro Is Going Down; Now Trading Below $ 1,24 (Update)

Killing My CDS Softly

Breeding New Watchdogs

Banks Protesters Storm Irish Parliament

ECB Announces Bailout Program

Europe Is Cracking Up

Bailout Euphoria Is Evaporating

Scandinavian Reactions To E.U. Measures: “We Are Not Safe”

Bank Funding Crunch Deepens as Swap Rates Soar

E.U. Prepared To Set Up Own Rating Agency

Europe To Fight Speculators With “Secret Plan”

Fitch Warns Of New Speculative Oil Spike

European Banks Loaded With Greek Debt

Gerald Celente: “The Great Crash Has Occurred”


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Filed under International Econnomic Politics, National Economic Politics