http://online.wsj.com/article/SB10001424127887324784404578145141812874944.html?mod=googlenews_wsj
Greece Readies Plan To But Back Debt
By ALKMAN GRANITSAS And COSTAS PARIS
ATHENS—Greece's government is due to launch within days the multibillion-euro debt-buyback demanded by its international creditors despite widespread doubts about whether the plan would work and worries that it could hurt the country's struggling banks and comes despite widespread doubts whether the plan would work or do much to lower Greece's towering debts.
Details of the plan could be announced as early as next Monday, according to bankers familiar with government policy. The debt buyback is a precondition to unlocking some €44 billion euros ($57.08 billion) that euro-zone finance ministers agreed to lend to Greece at marathon negotiations that ended in Brussels early Tuesday.
The buyback plan, which aims to shave €25 billion off Greece's total stock of debt, prompted a sharp selloff in Greek banking stocks, which had plunged 9.8% by Tuesday's close. Shares in Greece's big four lenders—National Bank of Greece SA,ETE.AT -9.41% Eurobank Ergasias SA, EUROB.AT -12.64% Alpha Bank AS andPiraeus Bank SA TPEIR.AT -11.78% —all fell.
Many investors fear the government may strong-arm Greek banks into cashing out their Greek government bonds at a low price, forcing them to forego any future profits. That was the case in a supposedly voluntary €200 billion sovereign-debt restructuring earlier this year.
"There is an anxiousness in the market because potential future gains could be lost as a result of the buyback," said Natasha Roumantzi, an analyst at Piraeus Securities. "However, the terms and details of the plan still remain to be announced."
Many questions remain, such as how the bond tender will be structured, whether it will be voluntary and how it will be paid for. But there are already clues that the buyback—which must be completed by Dec. 12 and could involve a loan from Europe's temporary bailout facility—may offer little upside to Greek bond investors.
According to a statement issued by euro-zone finance ministers, the bonds would be bought back at a price no higher than where they traded last Friday, which was around an average price of between 28 and 34 euro cents depending on the maturity of the bond.
Most Greek banks now carry those bonds at a few pennies below those levels, implying they would see a small profit. But many had also hoped that as fears of a Greek default receded and the country's recession-ravaged economy—now in its fifth year of a crushing downturn—recovered, they would be able to sell those bonds in the future at a significantly higher price.
Although a debt buyback isn't expected to weigh on the capital needs of the Greek banks, the foregone profits—and a renewed slump in their share prices—could make it more difficult for the Greek banks to attract private investors to rights issue they're planning early next year.
And there is the question of whether the plan will work. Private investors hold a combined €61.8 billion worth of Greek government debt. Of that, €15.2 billion is held by the banks and €8.6 billion is held by Greece's nominally private pension funds. The rest is held by foreign investors, mainly hedge funds.
With a price likely to be at only a slight premium to the market, it is unclear whether many of those foreign investors will be induced to participate. Greek bonds extended recent gains on Tuesday as some investors bet that Greece will have to offer higher prices than Friday's closing levels to entice bondholders. The Greek 2023 bond currently trades at 35.3 cents, up from a closing price of 34.8 cents on Friday.
"There is a growing view in the market that politicians will have to raise the offer price at the buyback to get enough demand," said a London trader. One hedge fund manager, also based in London, criticized the indicative price given by the eurogroup saying that "it shows the official sector continues to misunderstand the markets. If you announce a buyback the price goes up, and if you try and buy paper at the old price you won't get any."
Valentijn van Nieuwenhuijzen, head of tactical asset allocation at ING Investment Management, which holds a small amount of Greek bonds in its portfolio, said the firm hasn't decided yet on whether to participate in the buyback. "My initial feeling is participation will be a bit disappointing," he said. "But they will be a bit flexible on what they consider a success."
http://www.zerohedge.com/news/2012-11-27/fairy-tale
The Fairy Tale
From Mark Grant, author of Out Of The Box
The Fairy Tale
Eurogroup Statement on Greece
The Eurogroup recalls that a full staff-level agreement has been reached between Greece and the Troika on updated programme conditionality and that, according to the Troika, Greece has implemented all agreed prior actions.
The Eurogroup in particular welcomes the updated assessment of the Troika that Greece has implemented in a satisfactory manner a wide ranging set of reforms, as well as the budget for 2013 and an ambitious medium term fiscal strategy 2013-16.The Eurogroup noted with satisfaction that the updated programme conditionality includes the adoption by Greece of new instruments to enhance the implementation of the programme, notably by means of correction mechanisms to safeguard the achievement of both fiscal and privatisation targets, and by stronger budgeting and monitoring rules. Greece has also significantly strengthened the segregated account for debt servicing. Greece will transfer all privatizations revenues, the targeted primary surpluses as well as 30% of the excess primary surplus to this account, to meet debt service payment on a quarterly forward-looking basis. Greece will also increase transparency and provide full ex ante and ex post information to the EFSF/ESM on transactions on the segregated account.
The Eurogroup recalls that a full staff-level agreement has been reached between Greece and the Troika on updated programme conditionality and that, according to the Troika, Greece has implemented all agreed prior actions.
The Eurogroup in particular welcomes the updated assessment of the Troika that Greece has implemented in a satisfactory manner a wide ranging set of reforms, as well as the budget for 2013 and an ambitious medium term fiscal strategy 2013-16.The Eurogroup noted with satisfaction that the updated programme conditionality includes the adoption by Greece of new instruments to enhance the implementation of the programme, notably by means of correction mechanisms to safeguard the achievement of both fiscal and privatisation targets, and by stronger budgeting and monitoring rules. Greece has also significantly strengthened the segregated account for debt servicing. Greece will transfer all privatizations revenues, the targeted primary surpluses as well as 30% of the excess primary surplus to this account, to meet debt service payment on a quarterly forward-looking basis. Greece will also increase transparency and provide full ex ante and ex post information to the EFSF/ESM on transactions on the segregated account.
The Eurogroup again commended the authorities for their demonstrated strong commitment to the adjustment programme and reiterated its appreciation for the efforts made by the Greek citizens. The Eurogroup noted that the outlook for the sustainability of Greek government debt has worsened compared to March 2012 when the second programme was concluded, mainly on account of a deteriorated macro-economic situation and delays in programme implementation.The Eurogroup considered that the necessary revision in the fiscal targets and the implied postponement of a primary surplus target of 4.5% of GDP from 2014 to 2016 calls for a broader concept of debt sustainability encompassing lower debt levels in the medium term, smoothing of the current financing hump after 2020 and easing of its financing.
The Eurogroup was informed that Greece is considering certain debt reduction measures in the near future, which may involve public debt tender purchases of the various categories of sovereign obligations. If this is the route chosen, any tender or exchange prices are expected to be no higher than those at the close on Friday, 23 November 2012.
The Eurogroup considers that, in recapitalising Greek banks, liability management exercises should be conducted in respect of remaining subordinated debt holders so as to ensure a fair burden sharing. Against this background and after having been reassured of the authorities' resolve to carry the fiscal and structural reform momentum forward and with a positive outcome of the possible debt buy-back operation, the euro area Member States would be prepared to consider the following initiatives:• A lowering by 100 bps of the interest rate charged to Greece on the loans provided in the context of the Greek Loan Facility. Member States under a full financial assistance programme are not required to participate in the lowering of the GLF interest rates for the period in which they receive themselves financial assistance.
• A lowering by 10 bps of the guarantee fee costs paid by Greece on the EFSF loans.
• An extension of the maturities of the bilateral and EFSF loans by 15 years and a deferral of interest payments of Greece on EFSF loans by 10 years. These measures will not affect the creditworthiness of EFSF, which is fully backed by the guarantees from Member States.
• A commitment by Member States to pass on to Greece's segregated account, an amount equivalent to the income on the SMP portfolio accruing to their national central bank as from budget year 2013. Member States under a full financial assistance programme are not required to participate in this scheme for the period in which they receive themselves financial assistance.The Eurogroup stresses, however, that the above-mentioned benefits of initiatives by euro area Member States would accrue to Greece in a phased manner and conditional upon a strong implementation by the country of the agreed reform measures in the programme period as well as in the post-programme surveillance period. The Eurogroup is confident that, jointly, the above-mentioned initiatives by Greece and the other euro area Member States would bring Greece's public debt back on a sustainable path throughout this and the next decade and will facilitate a gradual return to market financing. Euro area Member States will consider further measures and assistance, including inter alia lower co-financing in structural funds and/or further interest rate reduction of the Greek Loan Facility, if necessary, for achieving a further credible and sustainable reduction of Greek debt-to-GDP ratio, when Greece reaches an annual primary surplus, as envisaged in the current MoU, conditional on full implementation of all conditions contained in the programme, in order to ensure that by the end of the IMF programme in 2016, Greece can reach a debt-to-GDP ratio in that year of 175% and in 2020 of 124% of GDP, and in 2022 a debt-to-GDP ratio substantially lower than 110%.
As was stated by the Eurogroup on 21 February 2012, we are committed to providing adequate support to Greece during the life of the programme and beyond until it has regained market access, provided that Greece fully complies with the requirements and objectives of the adjustment programme.
The Eurogroup concludes that the necessary elements are now in place for Member States to launch the relevant national procedures required for the approval of the next EFSF disbursement, which amounts to EUR 43.7 bn. EUR 10.6 bn for budgetary financing and EUR 23.8 bn in EFSF bonds earmarked for bank recapitalisation will be paid out in December. The disbursement of the remaining amount will be made in three sub-tranches during the first quarter of 2013, linked to the implementation of the MoU milestones (including the implementation of the agreed tax reform by January) to be agreed by the Troika.
The Eurogroup expects to be in a position to formally decide on the disbursement by 13 December, subject to the completion of these national procedures and following a review of the outcome of a possible debt buy-back operation by Greece.
The Eurogroup concludes that the necessary elements are now in place for Member States to launch the relevant national procedures required for the approval of the next EFSF disbursement, which amounts to EUR 43.7 bn. EUR 10.6 bn for budgetary financing and EUR 23.8 bn in EFSF bonds earmarked for bank recapitalisation will be paid out in December. The disbursement of the remaining amount will be made in three sub-tranches during the first quarter of 2013, linked to the implementation of the MoU milestones (including the implementation of the agreed tax reform by January) to be agreed by the Troika.
The Eurogroup expects to be in a position to formally decide on the disbursement by 13 December, subject to the completion of these national procedures and following a review of the outcome of a possible debt buy-back operation by Greece.
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There is no deal here. There is a fantasy of projections and some wishful thinking but no deal. There is not even an agreement on disbursement as codified in the last paragraph. The odds on Greece reaching a primary surplus in the next several years are about 1 degree off of Kelvin's Absolute Zero. The deferral of interest payments and the extension of the loans have some meaning but are nowhere close to bridging the deficit gap. All of this of course has to go back to the nations' Parliaments and it may not be as readily accepted as some hope. There is not even a definitive agreement yet to give Greece more money. The debt buy-back is governed under British law and while they are once again going after the private sector bondholders there is no CAC to enforce any action though there is the obvious falsification of prior claims that "it will never happen again." What we have here are more promises, a concocted ruse and an agreement on a concept that is actually no deal at all. I would also say that Mr. Draghi lost a good deal of credibility tonight touting this statement as an agreement that would "reduce uncertainty." Ms. Lagarde's statement: “The initiatives include Greek debt buybacks, return of Securities Market Programme (SMP) profits to Greece, reduction of Greek Loan Facility (GLF) interest rates, significant extension of GLF and European Financial Stability Facility (EFSF) maturities, and the deferral of EFSF interest rate payments." is also factually incorrect as these are "maybe" proposals for the most part as stated in the EU official pronouncement. What we have here is one more "huff and puff" and no agreement by any definition that I would find acceptable. [Written and published on 11/26 at 19:59]
Let us do some further examination this morning. Here is the statement upon which the foundation of the projections rest and upon which disbursements will be made:
“Greece will transfer all privatizations revenues, the targeted primary surpluses as well as 30% of the excess primary surplus to this account, to meet debt service payment on a quarterly forward-looking basis.”
To date there have been almost no privatization revenues even though they have been promised for three years. Why will the next year be any different; it won’t. Next they speak of primary surpluses as if they were something that might be attained. None have been attained in the last three years, the economy of Greece has been doing nothing and will do nothing except to deteriorate further and yet the Eurogroup is telling children’s fairy tales and expecting us to believe in them that primary surpluses are to be forthcoming. Then they go past the fairy tale and enter the land of make-believe where they depend upon “30% of the excess primary surplus” to make a budget upon which the EU and the IMF will fund. Frankly, it is insulting that they think we are that stupid and devoid of common sense that we will accept this sort of delusional argument. Perhaps it is a throwback to the German playbook of the 1940’s where propaganda was a mainstay of the State but it is an insulting tactic for any person with half a brain.The Rip-Off
“Greece will transfer all privatizations revenues, the targeted primary surpluses as well as 30% of the excess primary surplus to this account, to meet debt service payment on a quarterly forward-looking basis.”
To date there have been almost no privatization revenues even though they have been promised for three years. Why will the next year be any different; it won’t. Next they speak of primary surpluses as if they were something that might be attained. None have been attained in the last three years, the economy of Greece has been doing nothing and will do nothing except to deteriorate further and yet the Eurogroup is telling children’s fairy tales and expecting us to believe in them that primary surpluses are to be forthcoming. Then they go past the fairy tale and enter the land of make-believe where they depend upon “30% of the excess primary surplus” to make a budget upon which the EU and the IMF will fund. Frankly, it is insulting that they think we are that stupid and devoid of common sense that we will accept this sort of delusional argument. Perhaps it is a throwback to the German playbook of the 1940’s where propaganda was a mainstay of the State but it is an insulting tactic for any person with half a brain.The Rip-Off
“The Eurogroup was informed that Greece is considering certain debt reduction measures in the near future, which may involve public debt tender purchases of the various categories of sovereign obligations. If this is the route chosen, any tender or exchange prices are expected to be no higher than those at the close on Friday, 23 November 2012.”
We were told, we were assured, we were given solemn oaths by virtually every politician in Europe that the first write down of Greek sovereign debt by private investors was a one-time event and a one-off event that would only apply to Greece. So much for the solemn oaths of Europe! Europe is now back trying to coerce private owners of Greek debt to sell their debt back to the country so that the Greek debt load can be decreased. This is exactly the reason why, beyond a trade or a hedge fund foray that the European Union cannot be trusted and why I am so negative about European credits. If the EU’s word is no good here why will it be good for any other country or any other situation? If the rules can be changed along with the political climate then the legal basis for the sovereign debt in Europe is grounded in in political expediency and not the Rule of Law and so the obvious should be recognized. Subordinated Debt Holders
“The Eurogroup considers that, in recapitalising Greek banks, liability management exercises should be conducted in respect of remaining subordinated debt holders so as to ensure a fair burden sharing. Against this background and after having been reassured of the authorities' resolve to carry the fiscal and structural reform momentum forward and with a positive outcome of the possible debt buy-back operation, the euro area Member States would be prepared to consider the following initiatives:”
Here it is obvious that subordinated holders of Greek bank debt are to be punished. The EU “may” recapitalize the Greek banks but only “after” the sub debt bond holders take a loss. Here is one more example of the disdain that private bond holders are held by the European Union. What may be worse is that other banks, even American banks with stand-by letters of credit or derivative contracts or repo agreements may be forced to take losses prior to recapitalization.Maybe and Maybe Not
• A lowering by 10 bps of the guarantee fee costs paid by Greece on the EFSF loans.
• An extension of the maturities of the bilateral and EFSF loans by 15 years and a deferral of interest payments of Greece on EFSF loans by 10 years. These measures will not affect the creditworthiness of EFSF, which is fully backed by the guarantees from Member States.
• A commitment by Member States to pass on to Greece's segregated account, an amount equivalent to the income on the SMP portfolio accruing to their national central bank as from budget year 2013. Member States under a full financial assistance programme are not required to participate in this scheme for the period in which they receive themselves financial assistance.”
Here is monetary transference where some nations such as Spain and Italy will lend money to Greece at a cost less than their borrowing cost in the open markets. Also take into account the preceding paragraph where the EU agreement states: “the euro area Member States would be prepared to consider the following initiatives:” This is not a deal or a real commitment but a conditional notion that is squarely based in “maybe” and so it could also be “maybe not.”Further Assistance Based Upon Dreams
“Euro area Member States will consider further measures and assistance, including inter alia lower co-financing in structural funds and/or further interest rate reduction of the Greek Loan Facility, if necessary, for achieving a further credible and sustainable reduction of Greek debt-to-GDP ratio, when Greece reaches an annual primary surplus, as envisaged in the current MoU, conditional on full implementation of all conditions contained in the programme, in order to ensure that by the end of the IMF programme in 2016, Greece can reach a debt-to-GDP ratio in that year of 175% and in 2020 of 124% of GDP, and in 2022 a debt-to-GDP ratio substantially lower than 110%.”
This is touted like it is attainable and possible. This is nothing short of a fantasy and yet is presented as if it might happen. The European numbers do not include $90 billion in derivatives, bank debt guaranteed by the nation, corporate debt guaranteed by the country, obligations to the EU and the ECB and a host of other obligations to the private sector that have to be paid whether Greece and the EU counts them or not. The IMF has not had one, not one, realistic projection for Greece during the last three years and they continue on with their record for accuracy today. In fact Europe is going to hand Greece more money in December but it is one more loan, the addition of debt and so, once again, Europe has folded because no one will take the hit and because everyone is frightened of what happens if Greece faces up to reality and so the Greek problems worsens and the eventuality of a collapse increases.The IMF
No funds are going to be distributed now. Perhaps some of you missed this but this is exactly what Ms. Lagarde stated. Before any distribution the Eurozone has to “fulfill its commitments” and the Private Sector bond buyback plan must be completed. Consider this; Europe is putting up all of the money currently and the IMF has declined to participate. Oh yes, it is couched in political mishmash and tucked neatly under the rug but there it is; no money from the IMF for now.
Sustainable Solution: None
IMF Current Participation: None
Upfront Money Provided by Europe: Yes
Conditionality for More Money: YesRealistic Assumptions: None
IMF Current Participation: None
Upfront Money Provided by Europe: Yes
Conditionality for More Money: YesRealistic Assumptions: None
http://www.zerohedge.com/news/2012-11-27/europes-latest-can-kicking-euphoria-fading-quick
Europe's Latest Can-Kicking Euphoria Fading Quick
- Bank of England
- Ben Bernanke
- BOE
- Bond
- Budget Deficit
- Case-Shiller
- Central Banks
- Consumer Confidence
- European Central Bank
- Federal Reserve
- fixed
- Greece
- Gross Domestic Product
- headlines
- Jim Reid
- None
- Reality
It wouldn't be Europe if the insolvent continent did not announce, to much pomp and circumstance, another final rescue for a broke country which was nothing but a short-termist can kicking exercise. It also wouldn't be Europe if the leaders did not do much if any math when coming up with said "rescue", and it certainly wouldn't be Europe if the initial EURphoria following such an announcement was not promptly faded. Sure enough, all three have now occurred with the EURUSD soaring to over 1.3000 in the moments after last night's soon to be obsolete announcement, only to see a gradual and consistent sell off over the next several hours, dropping to a week low of just under 1.2940 as details emerged that... there were not details. To wit, as Market News reported:
- EU COMMISSION: FUNDING FOR GREECE DEBT BUYBACK NOT WORKED OUT YET
In other words, the use of funds for the third Greek bailout has been more than detailed. The only tiny outstanding issue - the source of funds.
But don't worry: Europe's magic money tree is second to none when it comes to fruiting "confidence", "hope" and other such European synonyms to BS.
Not helping things is the accelerating selloff in Greek banks, which were down as much as 10%, on the realization that a bond write down from par to 35% implies a major balance sheet hit, and an impairment of repo-eligible collateral, which also means said Greek banks will need to raise even more capital, which in turn means that of the EUR44 billion or so coming Greece's way, even more will have to be diverted to bailing out its insolvent banking system.
Of course, who in their right mind could conceive that you can't fix "more debt" with "more debt."
Finally, reminding everyone of what we have long been warning, namely that without the incentives to fix money destroying behavior, said behavior will continue. And with the market effectively shut out as a motivating force (and the ECB its replacement as a motivating farce), countries such as Spain have no reason to fix their broken houses. Sure enough:
- Spain’s central govt budget deficit swelled to 4.13% of GDP in Jan-Oct vs 3.74% a year ago, Budget Ministry says.
End result: this.
And so, Europe goes from fixed to unfixed... again... in the span of hours.
And back to square minus one.
A more comprehensive recap of the major overnight events from Jim Reid:
We finally have the latest in the series of new deals for Greece overnight. The Troika measures agreed are based around three main elements: a) a restructuring of maturities and interest rates on existing loans, b) returning of SMP profits, and c) a debt buyback. In terms of the first element, interest rates on Greece’s first bailout loan will be reduced by 100bp, to 50bp above interbank rates (meaning some lenders will be funding at a loss). Meanwhile loans under Greece’s second programme will have interest payments deferred by 10 years and maturities delayed by 15 years. The second element will see the ECB pass to the Greek government profits on Greek bonds that the central bank bought through the SMP.
The final element of the measures is a debt buyback where headlines suggest that officials have agreed to buyback debt at 35cents on the euro. Other than this, officials gave little away in terms of buyback details saying that they feared thatfurther disclosure would cause a run-up in Greek bond prices (although buyback prices have been capped at last Friday’s closing levels). The combined measures are designed such that Greece can reach a target debt-to-GDP ratio of 124% by 2020 and Ms Lagarde even confidently said that a target of “substantially below” 110% by 2022 can be reached. This is certainly not the first time that Greece needed an overhaul to its bailout programme. While further debt relief is designed to create a more sustainable fiscal path for Greece the reality is that a lack of growth (or inflation?) may cause further fiscal slippages down the road.
The agreement means that Greece will receive EUR34.3bn in December once national parliaments approve the changes to the bailout package – broken down into a EUR10.6bn payment for budgetary financing and EUR 23.8bn earmarked for bank recapitalisation. Eurogroup President Juncker said that the Troika is aiming to finalise the payment by Dec 13th, or just one day before Greece’s next major debt redemption of EUR5.4bn which is due on Dec14th. In addition to the above disbursement, a further EUR9.3bn will be paid in three tranches over the first quarter of 2013, linked to “the implementation of the MoU milestones (including the implementation of the agreed tax reform by January) to be agreed by the Troika”.
The reaction from overnight markets has been generally positive, although earlier gains following the Greek headlines have been pared as the initial excitement wears off a little. In equities the Hang Seng (+0.26%) and KOSPI (+1.1%) are higher while the Shanghai Composite (-0.95%) is underperforming. The EURUSD initially rallied 0.3% to break through the 1.300 level but has since trimmed earlier gains to settle around the 1.298 level as we type (or up just 0.1% overnight).
Back to yesterday, apologies to any readers if they saw me in lycra on TV last night. On the way home I cycled past a TV reporter's piece to camera outside the Bank of England and couldn't resist slowing down as I passed. Hopefully it didn't put Mark Carney off his new job as BoE governor - effective from the middle of next year. 2013 is shaping up to be an interesting year for Central Banks with this BoE change announced yesterday, a possible new beginning for the BoJ post the elections in 3 weeks, building speculation as to who will eventually replace Bernanke by January 2014, the ongoing shape of the US's QE infinity purchases, the operation of the ECB's new OMT program and perhaps interestingly a buildingreflection of 100 years of the FED.
The Federal Reserve was formed in 1913 so we may get lots of attention in 2013 as to how it has changed finance for better or for worse in the century since inception.
Talking of 2013, we are currently over mid-way through writing our 2013 Outlook. Every year I always think the one I'm working on is the toughest yet but with hindsight some of the previous ones have been fairly simple relative to predicting the next 12 months! Any last minute thoughts and advice from our readers would be more than welcome!!
Briefly recapping yesterday’s markets, the S&P500 (-0.2%) broke a five-day winning streak that saw the index gain 4.1% since the middle of the month. The index was down -0.8% at one stage yesterday, before reports that Obama and Boehner had spoken over the phone on Saturday helped drive a late +0.6% rally into the close. That such a headline could cause the market to turn is continued evidence of the hyper-sensitivity of markets to fiscal cliff negotiations. While we’re on the subject, the WSJ is reporting that Obama is planning his second meeting in as many weeks with CEOs and business leaders on Wednesday as part of a very public push to gather support for his position on taxes. So we can expect more soundbites in coming days. Sector performance wise yesterday’s rally was driven by IT (+0.68%) and Utilities (+1.19%) with the latter reversing some of its recent underperformance (utilities were down -0.9% during the S&P 500’s five-day streak of gains).
Returning to Europe, DB’s Gilles Moec wrote that the Catalan election results make the potential for any Spanish MoU more difficult given the uncertainty it creates on the distribution of the austerity drive between Madrid and the regions. A coalition between the incumbent party CiU and Esquerra Republicana, which supported CiU's motion for a referendum on sovereignty, is most probable at this stage. However its likely that the CiU will need to clarify its exact view and timing of a referendum. Despite the uncertainty, Spain's 10yr yield closed little changed at 5.584%. The Spanish IBEX index closed 0.44% lower yesterday, in line with the Stoxx600’s move (-0.49%).
Turning to the day ahead, the focus should shift back to the dataflow. In the US, the data releases of note include durable goods orders, consumer confidence, as well as an update on Q3 house prices from the FHFA and Case-Shiller. Ahead of that, France’s consumer confidence and jobless data are due.
and.....
http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_27/11/2012_471797
Germany will back Greek aid but wary of hints at haircut
  |
Chancellor Angela Merkel's center-right coalition and the opposition Social Democrats (SPD) said on Tuesday that the Greek deal agreed overnight would be put to the vote in the Bundestag lower house on Thursday or Friday.
With both sides voicing support, approval is guaranteed but the question will be whether the chancellor can rely on her coalition or needs the votes of the SPD and Greens.
They want to help Greece but will exploit any chance to embarrass Merkel ahead of September 2013's elections, when she will seek a third term in office.
SPD parliamentary leader Frank-Walter Steinmeier said his party would not do anything «that could lead to Greece becoming unable to make its payments in the short term or could force it to leave the eurozone."
But he accused German Finance Minister Wolfgang Schaeuble of pulling the wool over the eyes of the public, which might accept granting already-agreed aid tranches but would not easily support a second write-down of Greek public debt.
"Mr Schaeuble brags to his own bloc that a debt haircut has been avoided but I tell you it has just been postponed to after the Bundestag elections,» he told German TV, adding that eurozone ministers had made «cryptic hints» to this effect.
Greece's international lenders finally reached a deal on a package of measures to reduce Greek debt by 40 billion euros, cutting it to 124 percent of gross domestic product by 2020.
They also committed to taking further steps to lower Greece's debt to «significantly below 110 percent» in 2022, the most explicit recognition so far that some write-off of loans may be necessary from 2016, the point when Greece is forecast to reach a primary budget surplus.
The SPD is not against writing off Greek debt but Steinmeier said Schaeuble should be honest about it. He was also worried that the International Monetary Fund appeared cautious in its support of the Greek debt deal.
| Greece will get up to 43.7 billion euros in stages as it fulfills the conditions set by Europe and by the IMF -- whose share will only be paid out once a Greek debt buy-back has been carried out. Steinmeier said this added uncertainty. Merkel's conservatives and their Free Democrat (FDP) junior partners include a small band who routinely rebel against eurozone bailouts in the Bundestag. Nowhere near numerous enough to defeat Merkel, they can however cause her embarrassment. "The chancellor does not technically need her own majority but it is an important signal,» said a senior lawmaker from her Christian Democrats (CDU). «However, the number of rebels has not grown in the past six months." FDP whip Rainer Bruederle backed the Greek package, saying: «There is a danger with all these measures that they set a precedent. But Greece is an extreme special case." German indignation at continued demands for Greek aid has abated since Merkel's visit to Athens in October, when she was impressed by Prime Minister Antonis Samaras's determination to tackle his country's structural spending problems. But the conservative media is always quick to tap into the underlying vein of resentment among German taxpayers at having to bail out eurozone countries less frugal than themselves. "Greeks Get 44 Million euros,» was the headline of the top-selling Bild daily. It asked online readers what they thought of more Greek aid: «NO and once again NO!» responded a reader identifying himself as Frank Mergner. "Athens can breathe again,» said Spiegel magazine, adding that eurozone ministers' ambitious Greek debt-reduction targets «will clearly lead to a debt haircut in the medium term -- even if such a step was rejected on Monday." Gerda Hasselfeldt, parliamentary chief of the CDU's Bavarian sister party, the CSU, said German budget law meant such a step could be ruled out in future too. The CSU has recently softened its tone on Greek aid but would probably block a debt haircut. [Reuters]
and.....
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Italian bond auction relief
Italy continues to avoid the heat from the eurocrisis - this morning it sold two-year bonds at the lowest borrowing costs since October 2010.
The auction of €3.5bn-worth of two-year bonds saw investors pay average yields (or interest rates) of 1.923% – sharply down from 2.397%last month.
The sale shows that bond traders are not, yet, alarmed by the political situation in Italy (with Silvio Berlusconi considering a comeback).
Nick Spiro of Spiro Sovereign Strategy pointed out that 12 months ago, Italy's bond market looked "broken". Now, though...
The fairly modest size of the sale, coupled with the favourable sentiment towards peripheral eurozone paper, ensured that today's auction was pretty much a walk in the park for the Treasury. Although the cover was not particularly impressive, the yield was at pre-crisis levels, auguring well for Thursday's sale of longer-dated debt.
OECD: Greece might need to miss its targets
The OECD has also suggested that Greece should deviate from its fiscal reform plans if its recession proves even deeper than feared.
In an apparent challenge to the country's creditors, the OECD said today:
The agreed consolidation measures should be put in place, but if growth proves lower than assumed in the government's fiscal plans, then the automatic stabilisers should be allowed to operate, even if this means missing the set targets.
"Automatic stabilisers" is the term for allowing welfare spending to rise, and tax receipts to fall, during the low points of the economic cycle.
OECD explains why it slashed its growth forecasts
The OECD secretary general, José Ángel Gurría, presents the OECD Economic Outlook. Photograph: ERIC PIERMONT/AFP/Getty Images
Over in Paris, the OECD has been presenting its latest Economic Outlook - explaining why it has slashed its growth forecasts (see 10.12am).
The OECD secretary-general, José Ángel Gurría, said:
The world economy is far from being out of the woodsThe US ‘fiscal cliff’, if it materialises, could tip an already weak economy into recession, while failure to solve the euro area crisis could lead to a major financial shock and global downturn.Governments must act decisively, using all the tools at their disposal to turn confidence around and boost growth and jobs, in the United States, in Europe, and elsewhere.
The OECD now expects the world economy to grow by just 2.9% this year and 3.4% in 2013, down from previous forecasts of 3.4% and 4.2%.
José Ángel Gurría (right) with chief economist, Pier Carlo Padoan. Photograph: ERIC PIERMONT/AFP/Getty ImagesDeal sparks joy and criticism in Greece
Few green shoots on show in Greece, as a couple walks in front of the Parthenon temple today. Photograph: JOHN KOLESIDIS/REUTERS
Over to Greece where our correspondent Helena Smith says amid all the jubilation triggered by the deal there are already loud voices of discontent in a country that will have to pay a heavy price for the deal.
Helena writes:
In what will surely go down as a defining point in the euro debt drama, the deal reached in Brussels has been quick to elicit euphoria in Athens. In all three parties backing prime minister Antonis Samaras’s fragile coalition, there is broad consensus that the agreement has finally hit the mark of effectively dealing not only with Greece’s empty coffers but its perilous mountain of debt.
Speaking to the state-run TV channel NET, interior minister Evripides Sylianides described the deal as “guaranteeing Greece’s place not only in the euro but in ”the hard core of Europe"”
The minister, a senior cadre in Samaras’s centre-right New Democracy party, added:
“We got the installment [of aid], we got the [two-year] extension [to achieve fiscal targets], we got the maximum that we could have won."
But despite the sense of hard-won triumphalism for a government that has been in power for barely five months, ambivalence also reigns supreme – and not just within the ranks of the main opposition party, Syriza, whose leader, Alexis Tsipras, has just slammed the agreement saying:
It does not include a viable plan for Greece and that’s why it’s not a deal. A real solution will only happen when there is big political change.
Syriza MP Dimitris Papadoumilis had earlier described the agreement as a “Band-aid". “It will barely last two months,” he said.
Economics professors and analysts are also questioning the efficacy of a rescue that, once again, precludes growth and development in a country that must endure yet more recession as the result of internationally mandated austerity measures, the price of the aid.
“Growth cannot be sustained through recession and a program that has constantly been off target,” said the analyst Stavros Lygeros.
“The [package] is undoubtedly good but I’m afraid it is far from being enough.”
Reducing the country’s debt-GDP ratio to 124% by 2020 would not be enough either.
“We all know that to be viable a debt load should not be more than 90% of GDP,” Athens University economics professor George Pagoulatos told NET TV as news of the breakthrough came through.
Farmers keep protesting in Brussels
People walk past a tractor with a sign reading: ''No future without farmer'' in front of the EU parliament at Place du Luxembourg. Photograph: OLIVIER VIN/AFP/Getty Images
I mentioned yesterday that angry EU farmers were demonstrating in Brussels yesterday. Well, the eurogroup may have gone – but the protesters have returned, using tractors to block roads in the centre of the capital.
They are protesting about UK milk quotas and prices – another sign of rising tension in the EU.
About that debt buyback...
The murkier part of the deal relates to the plan to buy back billions of euros of Greek debt from investors at a discount to the face value -- thus cutting Greece's total national debt.
Rumours of this plan have been circulating for weeks - driving up the value of Greek bonds in the market (and thus diluting the potential benefits).
Christine Lagarde was notably reluctant to discuss the plan at the post-midnight press conference - presumably to avoid getting bond traders even more excited.
But the bottom line is that there's no guarantee that this debt buyback will be a big success.
The FT has a good explanation on this issue:
The key to a debt buyback is to purchase outstanding bonds at heavily distressed prices, allowing Greece to retire the debt far more cheaply than if they had to pay the bonds off when they reached maturity.But in a statement, finance ministers said the buyback price for bonds could be no higher than prices at Friday’s market close – meaning there will be little if any premium offered to private debtholders, raising questions about how many will participate.
And if the debt buyback flops, the IMF might not hand over its share of Greece's aid tranche - worth around €10bn.
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