LTRO’s and bank liquidity not withstanding, Spanish rates reversed and began moving higher immediately after they thumbed their noses at the markets and announced they had decided not to take additional austerity measures to meet their immediate deficit targets.
Not being the issuer of the euro, like all the euro member nations, they are fully exposed to a Greek like liquidity crisis, as they can not spend without prior funding, much like the US states.
Click here for larger version
From Morgan Stanley
Note the talk of a PSI (bond tax):
5. Portugal: Portugal’s five-year bonds are trading at ~16%, right around the level where Greek bonds traded last April when Eurozone officials began to turn their attention to forcing losses on private sector creditors. The key area of concern in the market is a €9.7B bond maturing in September 2013 that is not covered by the country’s €78B bailout. Portugal needs ~€25B-€30B to fund itself through 2015. Portuguese officials hope that a pickup in market confidence will allow it to return to the bond market in time to refinance the 2013 bond. The Portuguese funding concerns have been widely discussed in the press. While there has been speculation that the country could be next in line for a debt restructuring, this outcome has been disputed by both Portuguese and troika officials.
Spend in euro denominated tax credits.
Central banks pay ecb rates on said deposits charged to issuer.
Eurachma
Esceuro
Passeuro
Punteuro
Leuro
All perfectly legal under current institutional arrangements
‘Must’ is a good choice of words because if they fail the consequences are financially catastrophic.
*BINI SMAGHI: EU MUST RECOGNIZE PORTUGAL MAY NEED MORE AID
*BINI SMAGHI SAYS EU MUST ACT TO SHOW GREEK PSI AN EXCEPTION
*FORMER ECB OFFICIAL BINI SMAGHI COMMENTS IN FT OPINION ARTICLE
*BINI SMAGHI SAYS PORTUGAL MAY NEED EU100 BILLION *BINI SMAGHI SAYS IRELAND MAY NEED ADDITIONAL EU80 BILLION
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> (email exchange)
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> One prominent Irish minister said explicitly that we should use Greece as a bargaining chip > to renegotiate the promissory note. The whole government and press went crazy saying that > she was completely out of line etc.
>
that’s how it starts?
;)
Lots of ‘restructuring talk’ going on- looking like another ‘bondholder tax’ of sorts?
From Reuters:
Analysts are divided as to whether Ireland’s national debt, which is forecast to peak at 119 percent of GDP in 2013, is sustainable. A policy paper by Ireland’s European partners and the IMF is being drawn up on a possible deal to refinance the promissory notes, IOUs used to recapitalise failed lenders Irish Nationwide Building Society and Anglo Irish Bank, Noonan said. Ireland would then seek the political support of its European partners. “I would like to see a situation where the repayment schedule on the Anglo Irish debt was more affordable and that would mean, in very simple terms, re-engineering the repayment schedule so we would have a longer time to repay at lower interest rates,” Noonan said. There was no prospect of a writedown of part of the principle, Noonan said. “It will have to be repaid,” he said, while warning that the talks on refinancing the promissory notes were unlikely to reach a conclusion soon. “It is a project where, if we’re successful, it will be in the medium term rather than immediately.”
Kenny cautions on delay in €3.1bn bank debt repayment
By Arthur Beesley and Kilian Doyle
March 13 (Irish Times) — Taoiseach Enda Kenny has rejected calls for Ireland to follow Spain’s lead on demanding concessions from Europe, insisting the two countries were in completely different positions.
With no breakthrough imminent in the Government’s long campaign with Europe to restructure Ireland’s banking debt, Irish officials have privately raised the possibility of delaying a postpone a €3.1 billion bank debt repayment which falls due at the end of this month.
Minister for Finance Michael Noonan left open that possibility as he arrived in Brussels yesterday for talks with his EU counterparts, saying it was a long way to the end of the month and that nothing was ruled in or out.
Speaking in the Dáil today, the Taoiseach said he did not wish to give the public false hope the promissory note due to be paid on March 31st will be scrapped.
“This country is in a bailout programme, Spain is not,” said Mr Kenny. “So the money to pay the salaries of the gardaí, the teachers, the nurses and all of the other people in the country here comes from Europe.”
Euro zone finance ministers agreed last night to give Spain more leeway in cutting its deficit after the Madrid government said it would not meet its deficit target. Spain’s deficit target for 2012 will now be 5.3 per cent of GDP instead of the original 4.4 per cent agreed under new EU regulations.
Sinn Féin president Gerry Adams urged Mr Kenny to follow Spain’s lead. “I can’t,” the Taoiseach replied. “Spain is not in a bailout situation. It’s got excessive deficit and it’s got challenges itself. It’s got to get its deficit down by the end of 2013. Ireland is in a programme and has to get our debt down by 3 per cent by 2015.”
Mr Kenny insisted negotiations are under way to restructure the terms of Ireland’s European debt. However he said they were difficult, complex and very technical. “When you speak of the €3.1 billion in respect of the promissory notes, I’ve made it perfectly clear we are not going to raise any undue expectations here,” Mr Kenny added.
In Brussels today, however, EU economics commissioner Olli Rehn indicated in unambiguous terms that a delay in repayment of the debt would not be acceptable. His stance mirrors that of the European Central Bank, which is also resisting any delay.
“I actually wonder why this has to be asked at all because the principle in the European Union and in the long European legal and historical tradition is – in Latin – pacta sunt servanda, respect your commitments and obligations,” the commissioner said.
“The European Union is a community of law and that assumes by definition that each and every member state respects the commitments it has undertaken and this is valid in the case of Ireland as well. Any possible negotiation on the medium- to long-term solution is a separate issue.”
Dublin has been trying for months to renegotiate an EU-approved arrangement under which it is recapitalising the former Anglo Irish Bank and the former Irish Nationwide Building Society with expensive IOUs known as promissory notes.
A key consideration in this debate, a senior European official said yesterday, is whether any deal would help Ireland realise fiscal targets set under its EU-IMF bailout in a scenario in which economic growth is forecast to slow down.
Also in question is whether loss-incurring tracker-mortgages issued by other Irish banks could be moved as part of any restructuring deal to Irish Bank Resolution Corporation, as the former Anglo and Irish Nationwide are now known.
Been moving up steadily all day and since they announced they were ok missing their deficit targets a few days ago.
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> (email exchange)
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> On Tue, Mar 13, 2012 at 1:48 PM, wrote:
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> But that’s OK. I’m sure they’ll make good next year!
>
Give me a euro loan today for deficit reduction tomorrow?
Says it all:
Schaeuble Says Deficit Spending Backers Have ’Learned Nothing’
(Bloomberg) German Finance Minister Wolfgang Schaeuble said that deficit spending is the wrong way to bolster economic growth.
People who believe you can generate growth without pursuing budget consolidation have “learned nothing from the experience of the crisis,” Schaeuble said in a speech in Berlin today.
Germany Turns Up Pressure on ECB
(WSJ) “I hope that the ECB acknowledges its limits and quickly rakes in the money later,” said Volker Kauder, the head of parliamentary group of Ms. Merkel’s conservative alliance of Christian Democrats and its sister party, the Bavarian Christian Social Union, in a Wirtschaftswoche interview on Saturday. Responding to warnings by Brazil about a “tsunami of cheap money” flooding global markets, Ms. Merkel, at the most recent summit of European leaders on March 2, said that she was certain that the ECB had now ended its program of issuing cheap 3-year loans to banks. Merkel also reassured critics that the ECB would not repeat such measures again.
ECB calls for tougher rules on budgets
(FT) The ECB has sharpened its hardline stance on eurozone fiscal policy by urging the still-tougher policing of member states’ public finances. In a report on proposed European Union regulations to monitor budgets better and strengthen the surveillance of countries in difficulties, the ECB makes clear it sees significant scope for further improvement. Among the proposals in the report dated March 7, the ECB suggests the surveillance of countries that run into difficulties in the future should be strengthened by public warnings for the most recalcitrant. Where a country under surveillance is threatening the eurozone’s financial stability, there should be an automatic recommendation that it seeks financial assistance, the ECB says.
From David Zervos:
(BN) *ISDA SAYS CREDIT EVENT HAS OCCURRED WITH RESPECT TO GREECE
(BN) *GREECE CREDIT SWAPS AUCTION TO BE `EXPEDITED,’ ISDA SAYS
“I’ve always said publicly that default is out of the question,” – Trichet
“There will be no default.” – Rehn
“People fail to see the costs to both Greece and the eurozone of a restructuring: the cost to its citizens, the cost to its access to markets. If Greece restructures, why on earth would people invest in other peripheral economies? It would be a fundamental break to the unity of the eurozone.” – Papaconstantinou
Its been a great 2 years watching this thing unfold and listening to lie after lie from European officials. While it has been a calm response in global markets today, there is some justice in the world. Those folks who bought Greek bonds lost their shirts – both accrual and mark to market folks. This is a clear victory for the Euroskeptics and I have no doubt that we will see the letters “PSI” in the European headlines once again.
In regard to the euro zone officials insisting there will be no further haircuts:
‘The lady doth protest too much, me thinks.’
Mr. Dallara and the rest of the euro mob have as yet not come up with any reason any one nation wouldn’t be better off, as evidenced by Greece, with a whopping big tax on bond holders vs the usual tax hikes and spending cuts otherwise demanded.
Rest of Europe Shouldn’t Follow Greek Bailout: Dallara
By Margo D. Beller
Mar 9 (CNBC) — Charles Dallara, who represented bond holders in the Greek debt talks, told CNBC Friday he doesn’t expect other troubled EU countries such as Italy, Portugal and Ireland to need a similar bond swap.
“I would strongly discourage other governments, other peoples of Europe from going this route,” he said, adding the Greek situation “cast a cloud over the entire euro zone.”
None of these other countries “have the same extraordinary high levels of debt and deficits and none of them have quite the same distortions in the economic system. They are on the right path and should maintain the path of reform.”
Greece’s problems were unique, he said, and the resulting financial crisis was “extremely painful for the citizens of Greece” and “prevented the building of confidence” throughout the euro zone.
Dallara, managing director of the U.S.-based Institute of International Finance, was the chief negotiator representing private-sector holders of Greek debt in the largest bond restructuring in history.
He said he was “quite pleased” that 83.5 percent of the bond holders voluntarily accepted losses of some 74 percent on the value of their investments in a deal that will cut more than 100 billion euros from Greece’s crippling public debt.
“To see so many bondholders voluntarily deliver their bonds into this exchange is remarkable” and speaks to the desire for Europe and investors to “turn the page” on the whole European sovereign debt problem, he added.
Athens had said it would enforce the deal on all its bondholders, activating collective action clauses on the 177 billion euros worth of bonds regulated under Greek law.
That would potentially trigger payouts on the credit default swaps that some investors held on the bonds, an event which would have unknown consequences for the market.
Dallara said activating the collective action clauses was “one of the unfortunate dimensions” of the debt swap, but stressed it shouldn’t stop foreign investment in European sovereign debt.
“The issue is not just one of legal risk in investing in sovereign debt, it’s better credit analysis,” he said. “You have to understand the underlying credit risks.”
