NEWS,04.08.2012

Spain creeping towards full bailout

Spanish Prime Minister Mariano Rajoy inched closer today to asking for an EU bailout for his country, but said he needed first to know what conditions would be attached and what form the rescue would take.His comments, at his first post-cabinet meeting news conference since taking office last December, came a day after the European Central Bank signalled it was preparing to buy Spanish and Italian bonds but only after EU bailout funds were triggered and countries had asked for help.A source said separately that Spain would not decide whether to apply for several weeks.Buying bonds and providing aid would all be designed to bring down what have been prohibitive borrowing costs in the indebted countries.Rajoy said he was ready to do what is best for Spain, going far further than he did on Thursday when, during a press appearance with Italian Prime Minister Mario Monti, Rajoy three times declined to say whether he would seek the aid."I will do, as I always do, what I believe to be in the best interest of the Spanish people," Rajoy said yesterday."We still don't know what these measures are," he said, reference to a comment by ECB President Mario Draghi that the bank was examining non-conventional measures to defend the euro."What I want to know is what these measures are, what they mean and whether they are appropriate and, in light of the circumstances, we will make a decision, but I have still not taken any decision," he said.A source familiar with Rajoy's thinking confirmed this possibility was actively looked at and that Rajoy was ready to bear the political cost of a request.In a letter to Herman Van Rompuy on Friday, Rajoy urged the president of the European Council to work towards creating a euro zone-wide banking and fiscal union as soon as possible.He said he believed that the outline for a single supervisory system for the banking sector should be ready before the end of this year.Rajoy added he believed granting the European Stability Mechanism (ESM), the permanent bailout fund, a banking licence that would allow it to tap almost unlimited funds from the European Central Bank (ECB)ECB President Mario Draghi on Thursday said the fund was barred by European law from tapping the central bank for funding."In any case, whatever mechanism is put into place should be an umbrella mechanism, one that is applied equally to all the countries that meet its requirements," Rajoy said in the letter.Spain has already asked for aid for its stricken banks."People have said the main reason why he is not seeking help is because he is too proud. But this is not true. He requested an assistance for the banks because it was the adequate instrument to solve a specific problem. There is no opposition to do it again," the source said.An aid request would entail negotiating a memorandum of understanding with other euro zone countries and would likely bear strong conditionality, something Rajoy wants to discuss in detail before moving forward.Although Spain already complies with stringent EU and International Monetary Fund demands to reform its economy and has announced a package of 65 billion euros of tax hikes and spending cuts in July, the government fears it could now be asked to reform further the pension system.The measure is the last campaign pledge Rajoy has not been forced to break so far and could undermine even more the support for the government after it already fell sharply in recent weeks as hundreds of thousands of Spaniards took the streets to protests against austerity steps.A euro zone official told Reuters last week Spain had for the first time conceded at a meeting between Economy Minister Luis de Guindos and his German counterpart Wolfgang Schaeuble it might need a full bailout worth 300 billion euros if it's borrowing costs remain unsustainably high.Rajoy's office however denied that talks on this issue had taken place.People who discussed the question with Rajoy explain that he may still hope to avoid making the request because he thinks by just knowing that the EU rescue funds and the ECB are geared up would be enough to shield Spain from market pressures."The thinking is that the instruments need to be in place and possibly the risk premium will go down so much that there will be no need to go any further," said one senior politician.

Euro Crisis 2012: Greece Reportedly Saved From Bankruptcy By European Central Bank

 

The European Central Bank (ECB) has saved Greece from bankruptcy for the time being by securing it interim financing in the form of additional emergency loans from the Bank of Greece, German newspaper Die Welt said on Saturday.The ECB's Governing Council agreed at its meeting on Thursday to increase the upper limit for the amount of Greek short-term loans the Bank of Greece can accept in exchange for emergency loans, the newspaper said in an advance copy of the article due to appear in its Saturday edition.Until now the Bank of Greece could only accept T-Bills up to a limit of 3 billion euros ($3.70 billion) as collateral for emergency liquidity assistance (ELA) but it has applied to have this limit increased to 7 billion euros, the daily said, citing central bank sources.The ECB Governing Council gave this wish the green light, the paper said.The move should enable the Greek government to access up to an extra 4 billion euros of funds, the paper said, adding that this should ensure the country keeps its head above water until the "troika" of the European Union, the European Central Bank and the International Monetary Fund decide on the disbursement of the next tranche of money from its aid program in September.The ECB declined to comment, the paper said.

NEWS,14.05.2012.

How Will the French and Greek Elections Change the Direction of Europe?

 

 

As French and Greek voters make their feeling about spending cuts loud and clear, we ask ourselves: why has there been such a strong swing to anti-austerity/pro-growth, how does this threaten the survival of the euro and is a Greek default still possible? The deepening slump has dampened deficit reduction, the fiscal treaty hangs in the balance and patience is wearing thin. Crucially, according to voters and investors, time is running out.Growth vs. Austerity: Deepening Slump Dampening Deficit ReductionFrancois Hollande's victory in the French elections marks a significant change of focus in European politics. In contrast to the rhetoric delivered up to this point, Hollande wants emphasis of policy to be on growth instead of austerity. Why does he want this? Because the situation is deteriorating. Unless a country grows, their debt burden, as a percentage of a decreasing national output, grows and is therefore harder to manage. As iterated by French Socialist lawmaker Arnaud Montebourg, in an interview with BFMTV, "Austerity is everywhere and it's a complete shipwreck".Portugal and Spain are prime examples. While the Portuguese economy is expected to contract by 3.3% this year, the deepening slump is dampening deficit reduction. In fact, the deficit almost tripled in the first couple of months of this year alone. Spain, similarly, is struggling with a deteriorating debt situation. As almost 1 in 4 are without jobs, unemployment is boosting defaults. Bad loan ratios have reached a 17-year high. Survival of the Euro Threatened However, such a drastic change of attitude could damage the Franco-German Alliance, political progress and the very survival of the euro. This is because for Hollande to promote growth, he is threatening the fiscal treaty, perceived as crucial for keeping the euro together in its current form. The Treaty would create closer consolidation within the European union. Handing over authority for National Budgets to a Supra-National entity could ensure the various moving parts of the region interact better as a whole. However, Hollande disagrees with the primary focus on debt and deficit limits, without any pro-growth measures. Whilst the German Finance Minister Wolfgang Schaeuble is ready to discuss initiatives to boost economic growth, Merkel has said she will not renegotiate the pact. As her spokesperson asserted, it "has already been signed by 25 out of 27 EU countries." Instead the likelihood may be a growth pact attached to the fiscal pact. Nevertheless, the problems don't end there. Firstly, Hollande will have his work cut out for him in an economy that is barely growing, with jobless claims at their highest in 12 years and a rising debt load that keeps France vulnerable. Secondly, can both sides agree what they mean by growth?Growth by any other name... France and Germany disagree strongly on how to achieve growth. Merkel maintains it is through structural reforms -- making it easier to fire workers, which would encourage employers to hire, certainly a key aim for the Italian government. However, Hollande is hesitant and instead wants growth via infrastructure spending. But Germany won't agree to spending funded by borrowing -- exactly opposite to their deficit reduction targets. Therefore, again although rhetoric can be applauded, practical plans remain elusive. A Greece Default Still PossibleUncertainty continues to be a key challenge for Greece as voters in a similar move to the French, overwhelmingly rejected mainstream candidates supporting spending cuts. Crucially, these cuts were aimed at securing bailouts and avoiding a default. Instead, 70% of voterssupported parties that promised to tear up the bailout and attempts may be made to negotiate a gradual ''disengagement'' from the harshest austerity measures of Greece's €130 billion ($168 billion) bailout. This keeps the possibility of a Greek default firmly in the picture and until a coalition is formed, a new election next month is possible.Is time running out?Will there be enough time for political leaders to regain credibility and encourage Eurozone growth? As confidence wanes, borrowing costs rise and debt burdens risk becoming unsustainable. Worryingly, therefore, patience is running thin. Echoing Margaret Thatcher's thoughts on a unified Europe as "the vanity of intellectuals, an inevitable failure: only the scale of final damage is in doubt," the German paper Die Welt wrote after the French and Greek elections: "In the end the results are proof that Europe doesn't work."