http://www.businessinsider.com/an-amazing-exchange-between-mario-draghi-and-silvia-wadhwa-today-2012-10
There Was An Amazing Exchange Between Mario Draghi And CNBC's Silvia Wadhwa Today
The ECB's press conference Thursday was declared a snooze by some who felt there was nothing new – and just plain frustrating for others who felt it introduced more new questions than it answered.
There was one exchange in the Q&A that deserves attention, though, because it reveals quite a bit about the thinking of the European leaders who are driving this crisis right now.
The exchange was between CNBC's veteran ECB watcher, Silvia Wadhwa, and ECB president Mario Draghi.
Wadhwa has been writing about how the notion of conditionality – the requirement that euro area member states must submit to austerity policies designed by supranational agencies before receiving ECB aid – seems to go way outside the mandate of the ECB.
Here is part of her response to the ECB's historic OMT bond-buying plan revealed in August – which features conditionality as its hallmark – and the apparent contradiction it poses:
It's really that simple: either bond purchases of euro countries where yields are blowing up in a fashion that threaten the functioning of the markets are within the ECB mandate. Then the ECB should embark upon them whenever it sees fit. Or they are not within the mandate; then it should jolly well stay away from them, because it would be illegal. Period. End of argument.
But to say "we are acting within our mandate"; but we shall only do so, if you (the country in question) deliver on certain political conditions; then — I am sorry — the ECB is taking on a role it was never designed for and that is certainly outside its mandate. The ECB was designed for supporting "the general economic policies in the Community with a view to contributing to the achievement of the objectives of the Community" (in as far as it doesn't infringe upon the primary mandate of safeguarding price stability). Supporting policy, not setting conditions for it or setting an agenda for which economic of financial policies a given country embarks upon.
In other words, the ECB now theoretically wields incredible power over the sovereign states that form the eurozone – especially those who desperately require help – even though it is simply intended as an apparatus of the euro area to provide support for its member states.
Silvia Wadhwa was in the press corps today at the ECB presser, and for the first time since the ECB announced its OMT program, conditionality and all, Wadhwa got to put the criticism to Mario Draghi directly.
Below is the exchange.
Wadhwa asked Draghi:
If the OMT is a purely monetary measure to help repairing dysfunctional fragmented markets, how can you say, how can you set political preconditions to it? Is that not a little bit like my local fire brigade telling me I can only turn on the water if you show me you've got a roof improvement program?
This actually stirred what developed into an impassioned response from Mario Draghi.
Draghi told Wadhwa that he totally disagreed, but he revealed an important fact:
The second point is really…I think it's just the other way around. I think I did say something about this last time we had this press conference. We started thinking – when the OMT was designed, we had the perception and the evidence that there were tail risks in the area; namely, that there was a bad equilibrium for certain countries in certain markets.
It means that expectations were self-feeding and would create, in the end, disruptive scenarios.
So, that's the case for the policymaker – which in this case is the ECB – to step in with the program.
But, at the same time, we shouldn't forget how these countries got into a bad equilibrium to begin with. Namely, bad policies – or in some cases, no policies at all for a long period of time, while the rest of the world was changing, completely.
So, the first conclusion was that any monetary policy would have no effect if the other policies wouldn't change. That's why conditionality is so important.
It's actually – as I said at the beginning – what makes the monetary policy effective, and it's what protects the independence of the ECB.
So, it's not really – I wouldn't, buy the example, the example you made, I think it's, it's really an integral part of this. The second quest–well, this was the second question, really. Thank you.
In other words, Draghi basically acknowledged the concern Wadhwa raised about political leverage by saying that it was justified in pursuit of the repair of monetary policy. And the monetary transmission mechanism is, of course, an ongoing concern.
The upshot is that it should be perfectly clear now that if the ECB's intent is to repair the mechanism, it is more than willing to discard notions of popular sovereignty to do it.
http://www.zerohedge.com/news/2012-10-04/draghi-again-confirms-ecb-pari-passu-status-pipe-dream
Draghi Again Confirms ECB Pari Passu Status Is A Pipe Dream
Draghi has said lots of things in today's conference, most of them regurgitated. So far the most notable item is what ha already been implied on several occasions, namely that the ECB will not restructure its holdings of Greek bonds (something restructuring professionals call debt for equity in other circumstances) for one reason:
- DRAGHI: RESCHEDULING GREEK BONDS WOULD BE MONETARY FINANCING
And there goes any hope that the Greek bonds currently in the market will soar due to an OSI restructuring. It also means that the ECB was merely, well, lying when it said that any future bond purchases under the OMT will be Pari Passu. The won't be, as this would imply, as Draghi said, a monetary financing should a PSI/OSI restructuring ever take place in Spain. Which it will.
Other things Draghi has said in brief:
- DRAGHI SAYS CONDITIONALITY WILL PROTECT ECB INDEPENDENCE - by this he means the ECB will take over any country that applies for aid.
- DRAGHI SAYS ECB IS READY WITH OMT `TODAY'
- DRAGHI SAYS ECB HAS FULL-EFFECTIVE BACKSTOP MECHANISM IN PLACE - just need conditionality. see above
- DRAGHI SAYS IT WAS UNANIMOUS DECISION ON RATES
- DRAGHI SAYS ECB DIDN'T DISCUSS INTEREST-RATE CUT TODAY
- DRAGHI SAYS CRISIS COUNTRIES MADE PROGRESS ON UNIT LABOR COSTS - even better progress on unit slavery costs.
- DRAGHI SAYS CRISIS COUNTRIES HAVE MADE `NOTICEABLE PROGRESS' - to further accelerate their collapse?
and...
http://www.zerohedge.com/news/2012-10-04/european-bailout-rumor-du-jour-comes-early
European Bailout Rumor Du Jour Comes In Early
- Bond
- Capital Markets
- China
- European Central Bank
- fixed
- Germany
- Greece
- Ireland
- Italy
- Portugal
- Primary Market
- Reuters
At least it is not the China bails out Europe one: thankfully that one is now finished. Instead it is something almost as stupid from Reuters:
- EURO ZONE CONSIDERING FIRST LOSS INSURANCE FOR SPANISH BONDS UNDER ASISSTANCE PROGRAMME - EU SOURCES
- SCHEME COULD COST EU RESCUE FUND ABOUT 50 BLN EUROS FOR ONE YEAR, ENABLE SPAIN TO MEET FULL BORROWING NEEDS -SOURCES
- NO DECISION TAKEN YET ON BOND INSURANCE SCHEME, MAY BE SEVERAL WEEKS AWAY -SOURCES
Considering the source, Reuters, was pretty much 100% wrong on Monday when it said the Spanish bailout was imminent and Germany contingent, something Germany refuted shortly thereafter, we give this rumors about the same "likelihood" of being credible as every other one that Europe is fixed. But at least it managed to get the EURUSD higher by 20 pips.
More from Reuters Julian Toyer, the same guy who penned the Reuters exclusive "Spain ready for bailout, Germany signals "wait"- sources" which was, er, wrong.
The euro zone is considering aiding Spain by providing insurance for investors who buy government bonds in a move designed to maintain Spanish access to capital markets and minimize the cost to European taxpayers, European sources said.
One senior European source said the plan could cost about 50 billion euros ($64.5 billion) for a year. It would enable Spain to cover its full funding needs and trigger European Central bank buying of Spanish bonds in the secondary market.
If the gamble succeeds, it would achieve two important aims. Spain would be rescued without draining Europe's entire bailout fund and there would be no contagion to Italy.
Under the scheme, which officials say is under consideration in Madrid, Paris, Berlin and Rome, the euro zone's new permanent rescue fund (ESM) would guarantee the first 20 to 30 percent of each new bond issued by Spain.
Finnish Prime Minister Jyrki Katainen aired the idea after meeting French President Francois Hollande on Tuesday: "To safeguard our public money, we could study the possibility of the ESM intervening on the primary market with a leverage effect which guarantees just a part of the debt issued by Spain."
It would be the first time the euro zone had used this first loss insurance scheme, created last year to support vulnerable countries before they lose market access, unlike the full bailouts granted to Greece, Ireland and Portugal.
Another option would be for the ESM to buy Spanish bonds outright at auction, but that might be more expensive and not achieve the same degree of leverage. The rescue fund's rules allow it to buy up to half of any bond emission as part of an assistance programme....The sources spoke on condition of anonymity because they were not authorised to talk about the discussions.
... but were certainly authorized to make stuff up and test market responses to half-backed schemes. Anyone remember the EFSF/ESM 3-4x leverage plan? Whatever happened there?
and....
http://www.zerohedge.com/news/2012-10-04/overnight-sentiment-spain-sells-bonds-redemptions-loom
Overnight Sentiment: Spain Sells Bonds As Redemptions Loom
- Australia
- Bad Bank
- Bank of England
- BOE
- Bond
- Capital Markets
- Citigroup
- European Central Bank
- Eurozone
- fixed
- Germany
- Greece
- Initial Jobless Claims
- International Monetary Fund
- Jim Reid
- LTRO
- New Normal
- Nikkei
- Portugal
- recovery
- Reuters
- Trade Deficit
- Volatility
For the third day in a row, there is little to write home about from the overnight action. The EURUSD has been choppy following an MNI report about comments from EU officials that suggested Germany wants to delay the Troika decision on a €31.5 billion payment to Greece until after the November 12 Eurozone finmin meeting, no doubt predicated by the already discussed willingness by Europe to not rock the boat before Obama is reelected, still leaving the question hanging: just why is an entire insolvent continent so hung up on a US presidential decision. The main FX market focus is on the European Central Bank rate decision, due at 1145GMT. The ECB is widely expected to leave rates on hold just as the BOE did moments ago (it needs to hurry up if it wants to win the race to debase) although in the New Normal one can't be sure of anything. In other news Spain auctioned off a much needed €3.99 billion in various short-term bonds, the bulk of which fell under the LTRO maturity umbrella, but which was successful nonetheless if with modestly weaker short-end results, and an overall bitter aftertaste as seen by the resumption in Spanish 10 year widening, as the entire market, not to mention Draghi, is starting to get very impatient with Rajoy, who is now even getting urged by Catalonia's Arturo Mas to finally bite the bullet and demand a bailout (and resign shortly thereafter): "A bailout is inevitable; therefore the best thing to do is to make the decision without delay,” Mas said. “Spain has the potential to overcome the situation, but it will need assistance for some time." Recall that Spain's cash needs in October surge so every single successful euro raised is more than critical.
On the moves of the EURUSD via MNI:
Opened in early Europe at $1.2923. Recovery attempts around the NY close continued into Asia, extending to $1.2924 before getting knocked back to $1.2910, but the dip quickly attracted fresh demand that saw rate edging toward resistance in the $1.2930/40 area. The move up seen driven via the crosses, demand in euro-Aussie and euro-yen the main pairs noted. The move up in the euro seen despite reports that the Troika is demanding that Greece increases the amount of spending cuts in its austerity program. Euro cross demand lifted the rate to $1.2954 in early Europe as the risk rally continued with a break of $1.3000 the target. Comments from EU officials that suggested Germany wants to delay the decision on a Greek payment until November weighed on markets and the rate slipped to $1.2930. Spanish/French auctions that didn't disappoint gave the pair a brief lift, before settling around $1.2935 ahead of NY. Focus today on the ECB rate decision at 1145GMT ahead of the press conference at 1230GMT. No change in rates is widely expected.
More details on the Spanish Auction via Reuters:
Spain sold 4 billion euros of shorter-dated government bonds on Thursday, paying slightly more to borrow over three years than last month but drawing strong interest from investors. Investors bid for 2.0 times the amount on offer of a three-year bond, compared with 1.6 times at the previous auction but well down from a 2012 average at three-year bond sales of 2.9 times.
The average yield on the paper was 3.956 percent versus an average this year of 3.825 percent.
A five-year bond drew bids for 2.5 times the amount sold, compared with 2.1 times when the bond was last opened in July. Yields fell to 4.766 percent from 6.46 percent at that sale.
COMMENTARY:
ANNALISA PIAZZA, MARKET ECONOMIST, NEWEDGE, LONDON
"Some concession has been given both in the past few days and earlier this morning, supporting demand for all lines at today's auction. In particular, the 2015 (bond) offered a very attractive yield pick-up versus the Spanish curve as it is just at the beginning of its tapping cycle."
ELISABETH AFSETH, FIXED INCOME ANALYST, INVESTEC
"One thing with the Spanish auction is that the two shorter ones fall within the ECB maturity limit if Spain does apply for support and the bulk of the issuance has been done in those maturities.
"They (sold) at the top-end of what they were looking to sell away which I think is a good thing at the moment. It's a bit of a concern the focus of issuance in the front-end, you will have massive roll-over in a couple of years time.
"I don't think there is anything in those numbers that would make me preclude a bailout in the relatively short-term."
RICHARD MCGUIRE, STRATEGIST, RABOBANK, LONDON
"A positive result in terms of the amount taken down and the reasonable cover ratios seen here. The 2.5 cover on the five-year provides some reassurance given this is only bond here that will not currently be eligible for the ECB's OMT.
"Unsurprisingly, yields are much lower relative to the taps preceding Draghi's pledge to do whatever is necessary at end-July. The modest increase in accepted yields on the three-year, tapped more recently on Sept. 20, perhaps hints at a slow grind higher in yields as Spain's ongoing prevarication on the bailout front erodes the 'Draghi put'.
"All in all, in line with expectations given the prospect of ECB support was always going to provide a conducive backdrop to this short-dated issuance."
NICK STAMENKOVIC, BOND STRATEGIST, RIA CAPITAL MARKETS, EDINBURGH
"They managed to sell just shy of the 4 billion euros targeted, demand was pretty decent, yields were a tad higher than a month ago, but overall it was pretty well received, which is not a surprise given the backstop provided by the ECB."
"There is a natural demand given the expectation that at some point Spain will request a sovereign bailout and the ECB ... will buy short-dated bonds. The test going forward is going to be the next 10-year auction."
MARC OSTWALD, STRATEGIST, MONUMENT SECURITIES, LONDON
"When you look at the cut-off rate relative to the average price, you can see that the bidding has been pretty scrappy.
"But they have got it away. There was a big concession made ahead of the sale and it basically has been sold at the sort of levels which the market got to just before 9:30. I don't think there's going to be a very large rally... as a result because it's an OK auction but it's missing a lot in translation."
ALESSANDRO GIANSANTI, STRATEGIST, ING, AMSTERDAM
"The bonds cheapened before the auction and that helped the outcome. The fact that they sold the maximum amount with strong bid/covers and at a better price to what was prevailing in the secondary market makes this a strong auction... The 3-year especially was supported because of expectations of ECB bond buying. There's a huge redemption at the end of October and that could have some positive impact, assuming domestic rollover."
PETER CHATWELL, RATE STRATEGIST, CREDIT AGRICOLE, LONDON
"The quantity of the bids was OK, decent even, but it is the level of the bids on the off-the-run paper which has left the market a bit disappointed. Given the uncertainty surrounding the timing of Spain asking for aid, this should not be too much of a surprise."
JOSE LUIS MARTINEZ, STRATEGIST, CITIGROUP, MADRID
"It wasn't bad at all. There was strong demand and immediately afterwards the spread fell slightly to 438 basis points from 440 basis points."
NICOLAS LOPEZ, DIRECTOR OF ANALYSIS, M&G VALORES, MADRID
"The only thing that turned out a bit worse than expected were the yields, as they were higher for the Treasury than on the secondary market. However, the level of demand was good."
"It's true that the market has some doubts over the timing of the Spanish rescue."
In other media news:
EUROPE: Spain has been warned by officials that "AAA" state governments will demand stringent conditions for any bailout, the Telegraph warns, as both parliaments and electorates become more skeptical over bailout deals. The paper says Spain PM Rajoy is delaying asking for a bailout until any such terms are clearer.
GREECE: The Troika is set to ask the Greek government to find an additional E1 bn in spending cuts for 2013 before agreeing to the next round of fund disbursement, eKathimerini reports.
And a comprehensive overview of overnight developments via DB's Jim Reid:
Yesterday’s commentary on Spain was as inconclusive as ever. In an interview with the Nikkei, Schauble hinted that Germany was open to a Spanish request for a bailout, in contrast to reports earlier in the week that Merkel was hesitant to put a bailout to the Bundestag. Catalonian President Artur Mas, went even further suggesting that a Spanish bailout is "inevitable", while Finnish PM Katainen was quoted as saying that a full bailout was "unlikely" (AFP). The IMF's Christine Lagarde said that "If Spain wants (a bailout), we could help in diverse ways, for example by simply auditing and monitoring reforms negotiated with its European partners without the IMF participating in financing…But we could also play a role in financing". Staying in Spain, the economy minister divulged further details on Spain’s bad bank. The bad bank will be 90% financed with senior debt from the government's bank bailout fund, FROB. Equity funding of 10% will be majority provided by private investors who will own 55% of the bad bank. The government will hold the balance (45%) of equity, probably in an effort to avoid consolidating the bad bank's debts (Reuters). De Guindos added that a detailed bank recap plan will be presented in October and the bad bank will be operational by the start of December. According to Reuters, the economy minister will meet with private investors in London today to promote investments in the bad bank.
On the topic of bank recaps, EC President Barroso commented that leaders at the EU summit in June had clearly agreed that the ESM should be allowed to recapitalise banks directly. Importantly however, he remained uncommitted on whether the June agreement also included “legacy assets” saying that he did not want to discuss “semantics about the interpretation” of the agreement (Irish Times).
While Spain continues to mull the pros and cons of a bailout, Cypriot' President Christofias was somewhat more unambiguous, stating that he cannot accept Troika draft recommendations on Cyprus’ bailout terms. In particular he opposed the sell-off of stateowned enterprises and the freezing of wages (presently inflation-linked). In Portugal, the largest umbrella union announced a general strike for November 14th to protest against the government’s recent tax hike proposals. Though on a more positive note, the Portuguese debt agency IGCP bought EUR3.76bn of bonds due next year in exchange for securities due in 2015 as the country accelerates plans to return to international credit markets (Bloomberg).
European Council President Van Rompuy outlined an ambitious agenda for the EU leaders summit on Oct 18-19th which includes central banking supervision, a centralised euro zone budget, a single bank resolution fund, direct recapitalisation of banks from rescue funds and stricter fiscal oversight. Finally, a poll showed that Francois Hollande’s rating has fallen to 41% (from 50% in September) in the first gauge of opinion following last week’s 2013 French budget bill.
Overnight markets are trading firmer with the Hang Seng and KOSPI up 0.3% and 0.1% respectively as we type. Following yesterday’s surprisingly large trade deficit, data flow in Australia continues to be on the softer side. Australian retail sales were +0.2% mom in August (vs +0.4% expected) with our Australian economists noting a return to its previous soft trend following volatility in the preceding two months. The AUDUSD cross sold off 0.4% following the data, but has managed to recover all of its losses. For the record, we expect the RBA to follow up this month’s rate cut with an additional 25bps this year and 50bps of easing next year. The Nikkei is 1.2% higher this morning, with both sides of Japanese politics calling for further easing ahead of the BoJ’s policy announcement tomorrow.
Turning to the day ahead, the BoE’s rate decision is due at midday with a Bloomberg poll showing that economists unanimously expect the BoE to keep current policy settings unchanged. Data flow in Europe will remain fairly light. In the US, the focus will be on the Fed minutes. In terms of data, we get initial jobless claims and factory orders for August. However, Draghi’s press conference at 1:30pm will be the main focus.
and from Greece....
Cyprus said to seek $14 billion in fifth European bailout
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The country’s banks, which lost more than 4 billion euros in Greece’s debt restructuring earlier this year, need 5 billion euros of fresh capital, according to Finance Minister Vassos Shiarly, the people said. The so-called troika that oversees euro-area rescues puts Cypriot banks’ recapitalization needs at about 10 billion euros, the people cited Shiarly as saying.
“As we are in continual discussions with troika team, you appreciate that, as we have maintained throughout the discussion period, we are unable to comment on the recapitalization figures,” Shiarly said today in an e-mailed reply to questions. “However, regarding to the government’s overall financing and refinancing until January 2016, we confirm that the said figure is approximately correct.”
Cyprus on June 25 became the fifth country in the euro area to seek external aid. No amount was specified for the rescue, which will encompass the public sector as well as banks. Cyprus has also sought a 5 billion-euro loan from Russia. Igor Shuvalov, a first deputy prime minister, said Sept. 8 that Russia may make a decision on the request within a month.
The Cypriot government also needs 6 billion euros to redeem debt and close a budget gap through 2015, Shiarly has said, according to the people who declined to be identified because the information hasn’t been made public. Cyprus faces 4.7 billion euros of bond redemptions in the period, according to data compiled by Bloomberg.
The Cypriot government, which had 492.4 million euros in the bank at the end of August, faces 751 million euros of maturing debt through the end of November, according to the Finance Ministry. The government also has monthly outlays for salaries, subsidies and social programs, with a larger year-end wage payment due in December.
Striking a bailout deal with the troika, consisting of officials from the European Commission, European Central Bank and the IMF, is essential for the government to pay its bills through the end of the year, the people cited Shiarly as saying.
| The Cabinet yesterday approved a counter-proposal to the troika that it plans to discuss with political parties, unions and business groups before bailout talks resume, government spokesman Stefanos Stefanou said without elaborating. Shiarly told reporters that Cyprus may receive the first instalment of aid at the end of December if the terms of the bailout are approved by euro-area finance chiefs by mid- November. No date has been set for reopening talks with the troika, he said. Cyprus has been shut out of markets since May 2011. [Bloomberg]
Venizelos faces PASOK MPs in 'Lagarde list' furor
PASOK party lawmakers will meet at 1:30 p.m., according to an e-mailed statement from the Athens-based organization Wednesday. PASOK is a member of the governing coalition led by Prime Minister Antonis Samaras, bringing 33 seats to his 178- seat majority in parliament. Venizelos called the meeting after he was criticized over his handling of what’s been dubbed the “Lagarde list,” an electronic file given to Greece in 2010 by then-French Finance Minister Christine Lagarde of about 2,000 Greeks with deposits in a Swiss bank. After days of media speculation about the list’s location, Venizelos revealed he had a copy and handed it over to the government, which passed it on to the country’s financial-crimes squad, SDOE. Venizelos, a former finance minister, said on Oct. 2 that he had received the list in August 2011 from Finance Ministry officials and deemed it couldn’t be legally used. The data were obtained by Herve Falciani, a former software technician in Geneva, who stole details on 24,000 accounts at HSBC Holdings Plc’s Swiss private bank. The French government has used the data to search for tax dodgers and shared the information with Italian, Spanish and British prosecutors. George Papaconstantinou, who preceded Venizelos as finance minister, said he received the list from Lagarde, now head of the International Monetary Fund, which is providing funds to Greece. SDOE officials have also been criticized for failing to follow up on the list. Parliament began a probe into the matter yesterday. The “Lagarde list” has drawn criticism from both opposition parties as well as lawmakers within the governing coalition, with most comments tying the failure to track down possible tax evasion by those on the list to the government preparing new austerity measures to secure international aid. Former Interior Minister Yiannis Ragousis quit PASOK Wednesday, citing the handling of the list as his reason.
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and......
http://www.zerohedge.com/contributed/2012-10-03/capitalist-revolt-socialist-france
A Capitalist Revolt in Socialist France
Wolf Richter www.testosteronepit.com
The French government is trying to reign in its deficit by jacking up taxes, including the capital gains tax, which it wants to bring to the same level as the tax on income earned by the sweat of your brow—an old philosophical pillar of the French left. But an explosive essay published last Friday hit a nerve with entrepreneurs, venture capital investors, artisans, and mom-and-pop business owners. And their anger, which spread across the social media, the papers, and finally TV news, turned into an open revolt.
The trigger was an editorial in La Tribune by John-David Chamboredon, Executive President of ISAI, an internet startup fund. After the Finance Law 2013 was proposed during the presidential elections, he wrote, “la France du business stopped breathing.” Investments and hiring were put on hold. The cause: the capital-gains tax provisions. An entrepreneur, for example, who risked his savings, spent 10 years growing his business, created perhaps hundreds of jobs, survived all the challenges, and then wanted to cash out, would have to pay two layers of taxes on the capital gains, totaling, according to his calculations, 60.5%. And so would investors.
It would kill entrepreneurship. Funding for startups would dry up. And growth in the private sector would wither. “If the fiscal maelstrom is confirmed, the sequence of events is quite clear,” he wrote. “Instead of hiring people and developing the business, owners threatened by this confiscation would spend the rest of 2012 imagining ways to escape it.”
There are legal ways, he said, for example by creating a holding company in Luxembourg that would retain the shares of the startup, or by relocating top management to London (which is rolling out the red carpet). Startups funded by large funds could do this. Small operations would be stuck in France. For them, it’s going to be tough. And it would put a damper on job creation in France, he said.
Articles in La Tribune are normally tweeted a few times and liked on Facebook a few more times. But this one was tweeted 1,576 times and liked 5,601 times. Over the weekend, it gave rise to the movement of the Pigeons—which in French also means “sucker.” The revolt of the bosses was born.
“We are the result of the anti-economic policy of the government that has decided to take the thousands of entrepreneurs in this country for suckers (pigeons) and annihilate entrepreneurship,” their manifesto explains. And a demonstration of the bosses in front of the National Assembly was organized on Facebook for October 7.
Anger against the “fiscal overkill” continues to grow. Entrepreneurs and those who invest in them see this law “as an act of vengeance by those who run the government or who live off it!” said Philippe Villin, an investment banker close to the entrepreneurs. “The France that is taking risks and is investing their own money in the jobs of tomorrow, and might lose everything, has the feeling of being rejected by the France that is more protected,” added Agnes Verdier-Molini, Director of iFRAP, a public policy think tank.
Money is already drying up. “We had three deals going. Since Friday, everything is suspended, because with taxes this confiscatory, it doesn’t work anymore for the business leaders,” said Bertrand Rambaud, President of Siparex, an investment fund.
“La France du business stopped breathing,” as Chamboredon wrote, has already occurred. The Services Activity Index dropped to an 11-month low. Orders plunged, and companies responded by cutting their work force at the fastest rate since December 2009. The Draghi-Bernanke effect kicked them in the teeth with higher input costs that they couldn’t pass on. And the Composite Index, which combines the service and manufacturing indices, plunged to 43.2, the lowest since March 2009—the depth of the financial crisis.
It couldn’t have come at a worse time for President François Hollande. Since his election in May, according to the latest poll, voter confidence in his ability to handle the crisis dropped from 55% to 41%. And those who were “not confident” shot up to 56%. He has become unpopular in less than six month—which in France has never happened before.
He can’t afford an open revolt by small business owners—or the label “anti-startup,” when unemployment is at a 13-year high, and when every job counts. So the government decided to do some fence-mending. It has offered to listen to the “Pigeons” andapparently is studying “solutions” to the capital-gains tax debacle to “return to the situation as it was before.” And unnamed members of the government might perhaps negotiate with the Pigeons—who in return cancelled the demonstration.
The Paris auto show, which took place at the same time, should have been exciting. Over 100 new models. Chicks next to some of them. Nausea-inducing colors, downsized motors. Something for everyone. But it had been preceded by supplier events loaded with the dire verbiage of an industry on a death march. Particularly in France, whose private sector is veering into economic fiasco. And now it became official. Read..... Worse Than The Infamous Lehman September: France’s Private Sector Gets Kicked Off A Cliff.
And here is Chriss Street’s Global Militarization Follows “9/11 Squared.” On 9-11, the US’s role to provide peace in the Western World was challenged for the first time since the collapse of the Soviet Union, he writes. But with the assassination of America’s Ambassador to Libya, that role was terminated. Read the article here.
As for me, it all started in France ... with a Japanese girl—a “funny as hell nonfiction book about wanderlust and traveling abroad,” a reader tweeted. Read the first few chapters for free on Amazon, where it’s one of the bestsellers under Japan.... BIG LIKE: CASCADE INTO AN ODYSSEY.
and....
http://www.telegraph.co.uk/finance/debt-crisis-live/9586007/Debt-crisis-live.html
12.51 As expected, the ECB has held interest rates at 0.75pc.
12.42 Both Frankfurter Allgemeine Zeitung and euobserver.com have this tale on how European Union leaders are considering a eurozone budget.
Speaking about the possibility of a eurozone budget, one EU official told euobserver.com:
There seems to be more impetus behind it, but the most we can expect is for member states to say they are willing to explore it.
Euobserver.com continues:
French finance minister Pierre Moscovici has already floated the possibility of a eurozone budget being used for unemployment benefits in countries under particular pressure, such as Spain where over a quarter of the workforce is out of a job.
But, said the EU source, the budget would rather needed to be 'new money' on top of the common EU budget for 2014-2020 currently being negotiated. Otherwise these negotiations risked being completely derailed.
A unanimous decision among all 27 members would be needed to allow for any non-standard use or splitting of the EU budget.
Meanwhile, the EU commission is planning to come up with its own blueprint on how eurozone budget could be achieved
One idea is to have loan guarantees on the back of the EU budget used for eurozone states only. This could be in the form of what is now the nearly exhausted European Financial Stability Mechanism (EFSM) - a €60 billion fund used for the Irish and Portuguese bailouts.
Another idea is to have "own resources" - such as a financial transactions tax - fund this eurozone-only pot.
12.00 The Bank of England has maintained the interest rate at 0.5pc, as expected.
11.55 The head of Fitch's sovereign ratings team has been speaking to Reuters Insider television. He said that an intensification of Spain's recession poses the biggest risk to the country's investment grade:
The biggest threat from our perspective to Spain's investment grade status is actually that the recession there intensifies and that spills into greater concerns about bank asset quality as well as the solvency of the Spanish state.
11.23 Portugal's prime minister has defended his austerity programme, saying the country has to stay the course of austerity or risk wasting the credibility that the bailed-out country has regained.
Passos Coelho also said Wednesday's tentative return to bond markets by Portugal via a swap operation (that swapped short for longer-dated debt) showed government policies were working and credible.
His comments come after Portugal yesterday announced a raft of new cuts designed to reduce the country's debt load and unveiled sweeping changed that will see the average income tax rate rise by 2pc.
11.02 There are suggestions that Spain's borrowing costs fell at that auction (see 10.06) thanks to expectations the country will eventually ask for a bailout.
Nick Stamenkovic, bond strategist at Ria Capital Markets, said:
There is a natural demand given the expectation that at some point Spain will request a sovereign bailout and the ECB ... will buy short-dated bonds. The test going forward is going to be the next 10-year auction.
Yields on Spain's 10-year bonds are currently ticking higher, rising 6.3 basis points to 5.82pc.
10.39 Cyprus could be next in line for a bailout, according to Bloomberg. The newswire reports that the Cypriot government will seek an €11bn bailout to prop up its banks and pay its bills.
The country's banks, which lost more than €4bn in Greece's debt restructuring earlier this year, are said to need €5bn of fresh capital. The 'troika' puts Cypriot banks' recapitalisation needs at about €10bn, according to Bloomberg.
10.30 At France's bond auction, the country sold €7.97 of bonds due between 2018 and 2041. Borrowing costs fell, with yields on bonds due in 2022 decreasing three basis points to 2.17pc.
Annalisa Piazza at Newedge Strategy said there was "super strong demand" at the auction.
10.06 Spain's borrowing costs have eased in its latest bond auction, where it comfortably sold just shy of €4bn of three different bonds.
The country's treasury sold:
€1.3bn of bonds maturing in October 2014 at a yield of 3.282pc, down from 5.204pc when it was last sold.
€2bn of a bond maturing in October 2015 at a yield of 3.956pc, compared with 3.845pc when it was last sold on September 20.
€710m of a five-year bond at a yield of 4.766pc, compared with 6.459pc when it was sold in July.
09.49 Unrest continues to rumble in Greece. Ekathimerini reports that riot police clashed with about 350 shipyard workers, using tear gas to get protestors awawy from the entrance to the country's defence ministry.
The protesters are demanding to see Minister Panos Panayiotopoulos and say they haven’t been paid for six months, Ekathimerini reports.
09.45 IMF chief, Christine Lagarde, has given an interview to French newspaper, Le Figaro. A translation courtesy of Reuters says she told the paper that the IMF is ready to help Spain in multiple ways if Madrid seeks its aid:
If Spain wants it, we could help in diverse ways, for example by simply auditing and monitoring reforms negotiated with its European partners without the IMF participating in financing. But we could also play a role in financing.
09.25 Italy's prime minister, Mario Monti, is to meet his French and Spanish counterparts to discuss the debt crisis on the sidelines of a summit in Malta. They will meet at 4pm tomorrow and Mr Monti will then give a short press conference to outline the issues discussed.
The leaders will be in Malta for a summit of Maghreb and European countries aimed at strengthening cross-Mediterranean ties in the wake of the Arab Spring uprisings.
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