Yet another rough night on the European markets, equities fluctuated quite a bit but all ended down. Italy was once again the worst performer with the FTSEMIB down another 2.6% last night. That index is now down 40% from its Feb 18 the peak.
In bonds the news wasn’t much better. The Italian and Spanish 10 yrs are fast approaching 7 again, the Belgian 10yr soared 8% to overnight to just below 5.5 , but none of them got the clobbering Germany received with its 10yr jumping 12% after a failed auction:
Germany failed to get bids for 35 percent of the 10-year bonds offered for sale today, propelling borrowing costs in Europe higher and the euro lower on concern the region’s debt crisis is driving away investors.
“This auction is nothing short of a disaster for Germany,” Mark Grant, a managing director at Southwest Securities Inc. in Fort Lauderdale,Florida, said by e-mail. “If the strongest nation in Europe has this kind of difficulty raising capital, one shudders concerning the upcoming auctions in other European nations.”
…. Total bids at the auction of securities due in January 2022 amounted to 3.889 billion euros, out of a maximum target for the sale of 6 billion euros, according to Bundesbank data.
Six of the last eight bond sales by Germany have been “technically uncovered,” with fewer bids than the maximum amount on offer, Norbert Aul, a rates strategist at RBC Capital Markets in London, said in an e-mailed note.
CDS also took a beating with everyone joining the triple digit club (as a reference the US sits at 56, Switzerland at 69):
Yesterday I asked if the collapsing Dexia deal would be the straw that breaks the camel’s back for France’s AAA. We may not be quite there yet, although I am personally not sure why, but there are growing rumblings that a downgrade is coming:
France would have limited room to absorb any new shocks to its public finances without endangering its AAA status, Fitch Ratings said on Wednesday, in the latest sign that the euro crisis could rob France of its cherished top-tier rating.
In a special report on French public finances, Fitch said France’s debt and deficit were consistent with a AAA rating but said shocks such as a further economic slowing or provisions for banking sector support could put the rating in peril.
The report kept upward pressure on French borrowing costs after Moody’s warned on Monday that a sustained rise in yields coupled with weaker growth could harm France’s ratings outlook.
“Similar to the situation of other major ‘AAA’ sovereigns, the increase in government debt has largely exhausted the fiscal space to absorb further adverse shocks without undermining their ‘AAA’ status,” Fitch said.
However, not everyone is having a hard time. The European bureaucracy seems to have viewed these events as an “opportunity” to consolidate some political power:
The European Union demanded Wednesday sweeping powers to override national budgets and proposed issuing joint eurozone bonds to help resolve and prevent a repeat of the debt crisis.
“Without stronger governance, it will be difficult if not impossible to sustain the common currency,” EU Commission chief Jose Manuel Barroso said of his latest legislative proposals.
The head of the executive EU arm, Barroso presented radical plans that would allow him and Economy Commissioner Olli Rehn to decide to intervene in national policymaking.
Each said such new powers were a pre-condition for pooling eurozone government bonds, presented as a future safeguard.
French President Nicolas Sarkozy voiced the conviction, which he said Merkel shared, that the 17 eurozone nations must “better integrate and that at the heart of that integration France and Germany must grow closer and be the base of stability in the eurozone and Europe in general.”
“There is no other choice,” he stressed.
In usual European fashion the Germans immediately denounced the plan:
Merkel said she found it “extremely worrying” and “inappropriate” that the Commission was pressing ahead with eurobonds proposals, underlining: “This will not work.”
German Finance Minister Wolfgang Schaeuble said “we won’t take that path.”
And the Dutch hinted that they weren’t too keen either:
However the Netherlands, which backs stronger budget policing, meanwhile warned that plans for fiscal convergence also face an “uphill struggle.”
Given the current political situation in the Netherlands, those comments probably aren’t too surprising.
So once again we find Europe stuck in a political quagmire without a co-ordinate plan to get out of the situation. Meanwhile the economy slowly but surely sinks further into the bog. With the EU commission now openly demanding that nations hand over fiscal sovereignty so that it can continue to demand austerity from them, you have to wonder exactly what euro nations will do next.
Meanwhile, Iceland quietly recovers:
Iceland had its credit rating outlook revised to stable from negative by Standard & Poor’s Ratings Services, which cited economic growth in the country after two years of “severe contraction.”
“Significant headway has been made in restructuring the private-sector balance sheet and we expect the process to be mostly completed by mid-2012,” S&P said. The BBB-/A-3 sovereign ratings were affirmed.