Greece threatens again

The world’s focus has been shooting around the European continent over the last few weeks, slowing moving towards ‘core Europe’. After the news yesterday that the Belgium government was collapsing and there was no credible plan in place to lower public debt, it was their turn in the spotlight:

The news for Spain wasn’t any better:

The Spanish Treasury was forced to pay a euro-era record 5.11% yield on three-month Treasury bills at auction, more than double the rate paid at last month’s auction. By way of comparison, to access the short-term debt market Spain now must pay more than Greece paid at its last three-month auction a week ago.

Spain also paid an average yield of 5.227% for the new six-month Spanish T-bills, up from 3.302% and now higher than what Belgium currently pays on its 30-year government bonds.

France also continues also be under the hot lamps after analysts at Credit Suisse released a report that they expect the French 10-year bond yields to move above 5 percent:

Investors aren’t waiting for Standard & Poor’s or Moody’s Investors Service to strip France, Europe’s second-biggest economy, of its top credit rating.

The extra yield demanded to lend to AAA rated France for 10 years was 158 basis points more than the German rate at 11:51 a.m. today. The gap was 200 basis points on Nov. 17, the widest spread since 1990, up from 28 in April. The French 10-year yield was at 3.5 percent, about midway between top-rated Holland and Belgium, which is graded one level lower at Aa1 by Moody’s. French borrowing costs are more than a percentage point above the AAA rated U.K.

“France isn’t trading like a AAA,” said Bill Blain, a strategist at Newedge Group in London, who recommends buying U.K. government debt. “The market has made its judgment already.”

The French 10yr was up nearly 2% overnight and now sits at 3.53%.

I think it would be fair to describe European bonds as a ‘slow moving train wreck’, but if you are looking for something that has the potential to come to a dead stop in a split second then you need to go back to Greece. The temporary PM, Lucas Papademos, has been in Brussels attempting to negotiate the sixth tranche of Greece’s bailout. The negotiations have hit a road block because the leader of the main opposition party, Antonis Samaras, refuses to sign a pledge stating that he will not reverse the bailout if he wins the next election:

The prime minister said on Monday that he will push party leaders for the written guarantees that eurozone leaders have requested that they agree to implement the decisions of October 27.
“This letter by the leaders of the parties supporting the government, as has been requested by the Eurogroup and the IMF … is necessary in order to eliminate uncertainties and ambiguities concerning actions to be taken in the future, by parties that may be in power,” Lucas Papademos said in Brussels on Monday.
Party leaders must send the requested written confirmations because the country’s creditors need reassurance that the government will stick to reforms after the next elections, he added.
“But it’s up to the leaders of the relevant parties to decide how this confirmation of the commitment will be made,”
Papademos added. Papademos was speaking after a meeting with European Commission President Jose Manuel Barroso and before a meeting with European Council leader Herman Van Rompuy.

A number of EU officials, including Barosso, have stated that the pledge is a pre-requisite for the next tranche, that statement was backed up again overnight by the Dutch Finance Minister:

The Dutch Finance Minister Jan Kees de Jager explicitly called on Samaras to commit in writing that he supports the implementation of the EU deal.
“It has to be clear that there is also commitment from the largest opposition leader to implement the package of reforms. Saying that words are enough – we have passed that stage. We want a signature from this mister Samaras,” de Jager, a member of Christian Democratic Appeal, a junior coalition partner in the Dutch government, said.
“Otherwise they won’t get money, absolutely not.”

However, according to Greek media, Samaras is unmoved and has released a letter written by party leader to the President of the European People’s party outlining his position:

Mr Wilfried Martens
President of the European People’s Party
Athens, November 13, 2011
Dear Mr President,
As I have already indicated to you, I find it necessary to inform my EPP colleagues on the current situation in Greece. Recent developments have put at great risk the European Council’s decisions of October 26th regarding the sustainability of the Greek debt.
Nea Demokratia [New Democracy] actively intervened to neutralize all imminent dangers: the “referendum” was scrapped, Mr. G. Papandreou was asked to resign as Prime Minister and a new interim Government was formed with the participation of Nea Demokratia and the party of LAOS.
This Government will push forward for the ratification of the October 26th decisions and call for general elections on February 19th 2012.
We believe that the new Prime Minister, Mr. L. Papademos, – Vice President of the ECB until last year – and the broad party base of the new Government, will help rebuild the credibility of Greece in Europe. The new Government enjoys strong parliamentary support in the Hellenic Parliament with the exception of the MPs from the parties of the left.
We also believe that the general elections will have a soothing effect on the Greek society, relieving political pressures and averting major social turmoil.
In fact, as stated in the meeting of the three Party Leaders under the auspices of the President of the Hellenic Republic C. Papoulias: “it has been agreed upon that the task of the new Government will be to materialize the decisions taken at the European Council of October 26th 2011 and to implement the economic policies linked to those decisions”.
The new Prime Minister has already pledged to fulfill this task.
Nea Demokratia is committed to support the new Prime Minister. Nea Demokratia is strongly committed to the success of fiscal consolidation and structural reforms, rebuilding market confidence and fostering economic growth.
Nea Demokratia fully supports the targets of fiscal adjustment, regarding all issues on eliminating the deficit and reversing the debt dynamics; it also supports “tools” already implemented (albeit poorly); namely, public expenditure cutting, fighting tax evasion, structural reforms, privatization programs and capitalizing on idle real estate public property.
On the evidence of the budget execution so far, we believe that certain policies have to be modified, so as to guarantee the Program’s success. This is more so, since according to the latest European Economic forecasts, Greece in 2012 will be the only European country with 5 consecutive years in recession!
We intend to bring these issues to discussion, along with viable policy alternatives, strictly within the framework outlined by the Program. We give great emphasis to allowing for prompt recovery, so that public revenues generated will help us achieve the targets set. We also attribute special emphasis to the implementation procedures which have to be streamlined and upgraded.
The commitment of the Greek people and of Nea Demokratia to the European Union and the Euro is strong and irrevocable.
Nea Demokratia believes that Greece can get out of the crisis and safeguard its social cohesion.
We are committed to make that happen.
Antonis C. Samaras
President of Nea Demokratia

While Greece continues to battle with the European Commission, the Commission continues to battle with Germany:

The European Commission will soon present options on how the euro zone might issue bonds jointly, its President Jose Manuel Barroso said on Wednesday, but warned there was no simple solution to a debt crisis that threatens Europe’s economic and political future.

Speaking to the European Parliament, Barroso said Europe faced its most serious challenge in a generation.

“This is a fight for the jobs and prosperity of families in all our member states. This is a fight for the economic and political future of Europe. This is a fight for what Europe represents in the world,” Barroso said.

Barosso has begun calling the instruments ‘stability bonds’ ( reminds me of ‘freedom fries’ for some reason ) and there is an obvious focus on attempting to manoveur around Germany. Merkel once again rejected the idea:

German Chancellor Angela Merkel rejected a new push by the European Commission for bonds issued jointly by the 17 euro nations, saying Tuesday they wouldn’t resolve the debt crisis and now is the wrong time to discuss them.

She appeared to be joined in her resistance to immediate talk of so-called “eurobonds” by eurozone chief Jean-Claude Juncker and Herman Van Rompuy, president of the European Council, which is made up of the 27 European Union heads of government.

In other news, the IMF has ‘revamped‘ its credit line program in order in order to provide easier access to liquidity for stronger nations, Germany’s 2nd largest bank, Commerzbank, saw its stock price drop 15% overnight due to capital issues, Denmark’s mortgage market is having a squabble over the risks of short term debt, Ireland has a drug problem , and finally some good news for a change, Finland’s unemployment rate fell.

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  1. Yep that Ireland link will be a major drag on GDP. Exports are the main reason Ireland is being held up as a poster child for austerity.

    Despite doing everything asked of them by the EU/IMF unlike the Greeks, it is Greece who gets the 50% haircut. Go figure.

    Austerity fatigue is very prevalent in Ireland and it is only a matter of time before the inability to pay morphs into an unwillingness to pay. Especially with the lack of incentives as illustrated by the Greek haircut.

  2. The European position is fast becoming irretrievable. Soon we get some more readings on the real economy which will most likely be negative, and will intensify pressure in credit markets.

    I think attention will soon switch to the ECB itself, which is becoming ever-more over-geared.

  3. What about Iceland? No reports on how they are doing, I guess no-one in Europe would like the rest of the world to know that defaulting and sticking it to the banks is the only thing that actually works in the situations they are all in!