“Greek crisis over”

 

Greece received €25bn in orders and sold already €8bn of its fixed-rate 5y bond for a 6.2% yield, reports Bloomberg.  But this comes at a high price, a yield that is 30bp more than on the nation’s existing debt with similar maturities. But the success of this first auction since the downgrade was crucial to dispel doubts in the markets about the country’s ability to raise finance . Yields on existing 5y bonds declined 7bp to 5.88%, narrowing the difference with German benchmark to 358bp, down from 365bp last week.  Credit default Swaps on Greek government debt dropped 9bp to 329bp, after reaching all time high of 350bp last week. Market participants now talk about a turnaround in market sentiment that could help Greece  throughout the year as it needs to sell €53bn of debt, the equivalent of about 20% of GDP.

 

 

Nowotny warns about bubbles

In an interview with FT Deutschland, Austria’s central bank chief Ewald Nowotny warned about the danger of purely speculative money flows into emerging markets. He said this a problem central banks should be taking seriously. He also worries about a combination of speculative flows into commodities, combined with real demand from Asia, which could also produce dangerous bubbles. He called for much higher capital ratios for the proprietary trading of banks, which has been one of the major sources of capital flows.

 

 

Socrates’ to present budget today

The Portuguese prime minister Jose Socrates is to reveal his Budget 2010 today, reports Le Monde. The minority government had been under increasing pressure from the Commission and the IMF as well as the conservative opposition to present an austerity programme.  Today’s budget is  expected  to include  a freeze of civil servants salaries and a renouncement of some deer investment projects,  Sokrates has been campaigning on. Privatisations are also no longer excluded. For this, Sokrates seeked the agreement with the conservative opposition in the name of the national interest.

 

European governments to borrow €2.2 trillion this year

The FT reports that European governments will need to borrow a record €2200bn from capital markets this year to finance budget deficits. This is an increase of 3.7% over last year. The article quotes Fitch Ratings as saying that France would be the biggest issuer this year, raising an estimated €454bn, followed by Italy, Germany and the UK at €279bn. As a percentage of GDP, the ranking is topped by Italy, followed by Belgium, France and Ireland – all about 25%.

 

German business confidence rises

German business confidence rose to 95.1, the highest level since July 2008. As usual, Germany relies on exports, fueled by Asian demand, to offset a slide in domestic spending and ensure Germany’s economy continues to expand. Investors and consumers confidence declined this month.

 

Sarkozy promises fall in unemployment

Nicolas Sarkozy went on French TV1, French most watched channel, to explain his policy agenda and to ensure the French that unemployment is to fall from this year on. Just weeks ahead of key regional elections this intervention is seen as a litmus test. More about it in The Telegraph.  According to Le Figaro, latest polls suggest that unemployment is the subject Nr 1 for the voters.

 

Charlemagne on euro area

Writing in his blog, Charlemagne says the EU Commission’s report on the euro area caused a lot of stir in Brussels, but should come as no surprise. He says the EU would risk to become very unpopular if it assume the role of the IMF within the euro area, by focusing on internal imbalances, and forcing governments to change policy. He concludes that any big changes in the EU are unlikely, both in the direction of closer union and disintegration, and that the future is one of a slow accumulation of misery.

 

Goodhart’s Solution for the euro area:  a national quasi-currency

This is, as far as we can tell, a genuinely new proposal. Goodhart and Tsomocos says leaving the euro area is not option for Greece, Portugal and other southern European countries, nor is a Latvian-style policy of wages cuts. They propose the introduction of IOS, a quasi parallel currency through which all domestic transactions, minus taxes are paid. For Portugal they call those IOUs escudos. The escudo exchange rate to the euro would be flexible, but controlled by the national central bank. Here is how it would work:

“Note that the government, whose taxes remain paid in euro, would be long in euro, whereas the Portuguese private sector would be long escudo, short euro. So, the government transfers its net long to the central bank and asks the central bank to manage the escudo/euro exchange rate, so that it is stabilised, say at a level that represents a 25 per cent internal devaluation, (the choice of number would need careful calculation). If the central bank does not want to do this, and under the Maastricht Treaty it could refuse, the Treasury could do this on its own.”

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