EUROPE - Eurozone ministers, taking part in a conference call, approved a memorandum of
understanding with Spain, which will be signed in the coming days. The aid will
be fully disbursed by the end of 2013. "We have formalized what we discussed in
the past two Eurogroup meetings," Luxembourg's Finance Minister Luc Frieden said
after the conference call. "We have formally approved the memorandum that lays
out the conditions under which Spain can be lent money for the
overcapitalization of its banks. "The approval of all 17 ministers is there, and
that means that the program can continue. Money will not flow immediately,
because work on the analysis of the specific banks is ongoing." Also on Friday,
Spanish Treasury Minister Cristobal Montoro said the country's recession would
drag on into 2013, although the economy would not perform as badly this year as
previously thought. The government now expects the economy to contract by 1.5%
in 2012 and by 0.5% in 2013. It had previously forecast contraction of 1.7% this
year and growth of 0.2% next year. An audit of Spanish banks by consultancy
firms Oliver Wyman and Roland Berger, published last month, showed the banking
sector needed up to 62bn euros in aid. A second audit and new stress tests, to
be published in mid-September, will help determine how much money each bank
needs. Spain's three biggest banks, Banco Santander, BBVA and Caixabank, are
not thought to need money, but some 10 others may do. Shares in leading Spanish
banks were all down around 7%, although Caixabank fared relatively better,
falling by 3.6%, and Bankia did worse, falling more than 10%. The worsening
position of many lenders was underlined this week when Spain's central bank
disclosed that they had 155.84bn euros of loans on their books in May that are
at risk of not being repaid in full. The figure is the highest since 1994, and
represents about 8.95% of total lending extended by Spanish banks. Worries about
the economy were compounded on Friday when Valencia's vice president, Jose
Ciscar, confirmed that the eastern coastal region was asking Madrid for aid. He
and Spanish Treasury Minister Cristobal Montoro refused to call it a bailout,
however."Just as other regions are, Valencia is suffering from the consequences
of liquidity restrictions in the markets as a result of the current economic
crisis," Mr Ciscar told reporters.(source BBC news)
Access Investments-Building Awareness - European Union-ROMANIA
Monday, July 23, 2012
EUROPE - Eurozone ministers, taking part in a conference call, approved a memorandum of
understanding with Spain, which will be signed in the coming days. The aid will
be fully disbursed by the end of 2013. "We have formalized what we discussed in
the past two Eurogroup meetings," Luxembourg's Finance Minister Luc Frieden said
after the conference call. "We have formally approved the memorandum that lays
out the conditions under which Spain can be lent money for the
overcapitalization of its banks. "The approval of all 17 ministers is there, and
that means that the program can continue. Money will not flow immediately,
because work on the analysis of the specific banks is ongoing." Also on Friday,
Spanish Treasury Minister Cristobal Montoro said the country's recession would
drag on into 2013, although the economy would not perform as badly this year as
previously thought. The government now expects the economy to contract by 1.5%
in 2012 and by 0.5% in 2013. It had previously forecast contraction of 1.7% this
year and growth of 0.2% next year. An audit of Spanish banks by consultancy
firms Oliver Wyman and Roland Berger, published last month, showed the banking
sector needed up to 62bn euros in aid. A second audit and new stress tests, to
be published in mid-September, will help determine how much money each bank
needs. Spain's three biggest banks, Banco Santander, BBVA and Caixabank, are
not thought to need money, but some 10 others may do. Shares in leading Spanish
banks were all down around 7%, although Caixabank fared relatively better,
falling by 3.6%, and Bankia did worse, falling more than 10%. The worsening
position of many lenders was underlined this week when Spain's central bank
disclosed that they had 155.84bn euros of loans on their books in May that are
at risk of not being repaid in full. The figure is the highest since 1994, and
represents about 8.95% of total lending extended by Spanish banks. Worries about
the economy were compounded on Friday when Valencia's vice president, Jose
Ciscar, confirmed that the eastern coastal region was asking Madrid for aid. He
and Spanish Treasury Minister Cristobal Montoro refused to call it a bailout,
however."Just as other regions are, Valencia is suffering from the consequences
of liquidity restrictions in the markets as a result of the current economic
crisis," Mr Ciscar told reporters.(source BBC news)
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Spanish government bonds have fallen to their lowest levels since the euro was created. This pushed the yield (effectively the interest rate) on its 10-year bonds to a new record high of 7.513% – further into the zone where borrowing costs are unsustainable.
The selloff was triggered by fears that Spain's autonomous regions are in deep trouble and need financial help, threatening prime minister Mariano Rajoy's efforts to battle the Spanish economic crisis.
Meanwhile, over in Greece, the government is still struggling to meet the demands of its international lenders. The Troika return tomorrow, and will want evidence that Athens is meeting its targets. But with the Greek government pleading for more time, the talk this morning is that a Grexit is back on the agenda.
As Bloomberg puts it –
Greece retakes its position at the heart of the European dent crisis this week as its creditors assess how far off course the country is from bailout targets, raising again the specter of its exit from the euro.
City traders are predicting that stock markets will fall this morning, with the FTSE 100 being called down around 50 points.
Germany saves about 10 billion euros ($12.5 billion) this year alone thanks to the low interest rates," the economist Jens Boysen-Hogrefe of Germany's Kiel Institute for the World Economy told The Associated Press recently. Some analysts argue that the eurozone debt crisis has already secured Germany a windfall of about 100 billion euros, which has allowed the government to reduce its debt burden while other countries in the eurozone struggle. Germany's savings from its bond sales are not mentioned much because money that is not spent is harder to keep track of, but the government's past financial outlooks shows the sums that Germany is probably saving. In 2009, the government forecast that it would have to spend 52 billion euros to service its debt in 2013, but now it expects that cost to total only 20 billion euros. Should the crisis in the eurozone worsen though, Germany's savings are in danger of being eroded. Roland Doehrn, the RWI economic think tank's chief expert on growth and economic cycles, says that gains from the eurozone's problems should not be viewed in isolation: the first phase of the region's financial crisis - set off by the bankruptcy of U.S. investment bank Lehman Brothers in 2008 - cost Germany a lot, forcing it to take on more debt to rescue banks and stimulate the economy. Because Germany's overall debt rose steeply since 2008, he argues, it is not that easy to say how much Germany is saving because of the eurozone crisis alone, but as a ballpark figure an interest rate lower by 1 percent on a debt pile of 2 trillion euros would mean annual savings of about 20 billion euros.
It looks like the collapse of Lehman and losses from that period may have led to a policy by Germany to ensure that its debts become cheaper while (as a consequence, relatively) others become dearer which would mean it could recoup or ameliorate such debts. In this sense it is another way to explain the total intransigence of German politicians on the austerity measures. That these measures 'do not work' for the nation on the receiving end does not mean they do not work for other nations, who get a better deal from the markets on their debts the more the suffering nation fails to improve their situation. Schaeuble has already acknowledged that "some of our partners in Europe suffer from the burden of too high interest rates caused by the irritations in financial markets," but he still insisted that those countries must 'reform' their economies so as to regain market confidence. "One does not have to apologize that the trust in the Federal Republic of Germany (...) is high in financial markets," he said. [AP] See:
http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_22/07/2012_453253
And he is right; Germany should not need to apologize, because this is normal capitalist competition. But, that Germany says these reforms are best for other nations (in the eurozone) while seeing at the same time that these nations only seem to get more into debt while Germany's debts ease, is disingenuous if he is also claiming that this is the way out of the crisis for those nations, given, it is evidently a help for Germany, but not evidently a help for Greece or Spain, whose debts get bigger while Germany's get smaller.
The main stories in the german press regarding the crisis are on Greece.
State Bankruptcy Threatens Greece (SZ, German)
reporting government sources, that they're not planning to even try to get a 3rd greek bailout through. Costs of delaying the existing plans are put at up to €50bn.
IMF wants to top greek aid (spiegel, german)
Citing briefings by IMF officals to officals at the European Commission. The plan is apparently, some kind of bridging loan to get the greek state through until early september, and then a refusal of further money in early september, when the Troika presents its report, is seen as likely. The hope is that the ESM will be on-stream by then (the last hurdle is the german constitutional court, which will give its judgement on september 12th).
Economy Minister Rösler (FDP, Vice-Chancellor) also said that "an exit by Greece long ago lost any terror for me" (spiegel, german), but said a decision should wait for the Troika report.
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