It seems the FX market is just a little edgy this morning. A few brief words from ECB member Benoit Coeure on the possibility of short-term LTRO repayment (if rates are cut to negative) appears to have reminded traders that LTRO does have a deadline and that several hundred billion in loans willinevitably be repaid from the LTRO1 and LTRO2 treasure chest. This reminder of implied deleveraging of the ECB's balance sheet triggered a drop from 1.34 to 1.33 overnight as the verbal intervention continues. The concerns over LTRO repayments has also triggered some serious "violent and quite extreme" snaps in EURIBOR yesterday as short-term refunding may become more difficult with a less large cash reserve standing around (waiting to be fungibly used as risk capital).
Over to Paris, where European Central Bank board member Benoit Coure has been speaking at an economic forum.
Banks will continue to need recourse to European Central Bank refinancing this year despite a stabilisaiton of the crisis, he said.
He also ECB decisions were not the key element in solving the crisis, but rather governments carrying out reforms.
The resolution of the eurozone crisis does not mainly depend on regulatory decisions nor decisions taken by the ECB. It depends mainly on the will and commitment of states to reform their economies, on the one hand, and on the other, to improve the functioning of the eurozone, which is to say the institutions that allow it to be more resilient to shocks like those we've seen since 2007.
Depressing news from Greece (which, RobertSchuman, I would say is worse than gloomy or miserable, but less economics-related), where reports have surfaced that a tree Plato apparently sat under has been chopped down for firewood. Christina Flora writes on the blog Greek Reporter:
Greeks, desperate to find fuel to stay warm because they can’t afford heating oil that has been hit with big tax increases, have been taking to the woods and even city parks to cut down trees and now authorities said someone has felled the olive tree under which Plato sat in ancient times.
Police said they believe at least two people cut down the famous tree because it was massive and heavy. Some residents of the area reportedly said that homeless people cut the tree, while others allege that a group of gypsies did it.
Plato’s Olive Tree, was said to be a remnant of the grove within which Plato’s Academy was situated, which would make it approximately 2,400 years old.
Italian growth forecast cut
The Bank of Italy has cut its economic forecast for the country.
It now expects a drop of 1% for 2013, compared to a previous forecast of a 0.2% decline,l made three months ago. The concensus forecast had been for a fall of 0.9%. It said the international environment had worsened and credit conditions were still restrictive.
Over to Greece, where the decision to investigate former finance minister George Papaconstantinou has been met with thinly veiled disgust, says Helena Smith our correspondent in Athens. She writes:
Far from bringing the much touted “catharsis” that Greece’s political elite had promised, parliament’s handling of the notorious Lagarde list has exacerbated the widespread distrust Greeks have in their institutions.
Hopes had been high that after three years of ruthless austerity, the “little man” would finally see the establishment assume a modicum of responsibility for the country’s economic mess. The tally of suspected tax evaders – well-heeled Greeks who had chosen to squirrel their hoards away in the Geneva branch of HSBC – highlighted the inequities of the debt crisis precisely because successive governments had failed to act on it.
For many, the so-called Lagarde list amplified, in the most egregious way, an indisputable fact: that while low-income Greeks and pensioners have paid a heavy price for the crisis, the rich have got off scot-free.
After yesterday’s marathon 16-hour debate, it is the high drama that marked the debate, and the way the vote was conducted, that has left a bitter taste. “It was pure theatre that, at this stage, society has no tolerance for,” Spyros Soumelidis, who edits the daily newspaper Greece Tomorrow, told the state-run TV channel NET. Ordinary Greeks might not have been convinced by Papaconstantinou’s line of defence – not least his claims that it would have been “idiotic” to delete the names of relatives from data.
But after last night’s parliamentary antics, many believe he is being made the fall-guy by a fragile government determined to save its own skin by orchestrating a vote that spared Papconstantinou's successor, the socialist Pasok leader, Evangelos Venizelos, from also being investigated.
Opposition saw an inquiry of Venizelos as imperative, as he also failed to act on the list. “In parliament yesterday, the government majority won [along with] the cover-up of the scandalous handling of the Lagarde list,” said Dimitris Papadimoulis, parliamentary representative of the radical left main opposition Syriza party.
“But society lost and it lost overwhelmingly,” he said. The chance to get to the bottom of tax evasion – the single biggest drain on the debt-choked Greek economy – had been lost. And with it a real catharsis, or clean-up, of Greece's corrupt political scene.
Spain brews up its own tax scandal
With the ongoing tax scandal in Greece, it seems Spain now has one brewing of its own. Our correspondent in Madrid, Giles Tremlett, writes:
Spain's prime minister Mariano Rajoy was in ebullient form in an interview with the Financial Times this week, proclaiming that: “The second half of 2013 is when we will start to see a recovery, and it will come through very clearly in 2014.”
But now he has a full-grown domestic political crisis on his hands – with El Mundo newspaper (paywall) revealing that, as recently as 2009, his party was part-paying salaries to senior officials in black money. A €22m Swiss account controlled by former party treasurer Luis Barcenas is at the centre of the scandal.
As austerity bites, taxes rise and services are cut, Spaniards will want to know – if the allegations are true – why Rajoy's party felt it did not have to pay taxes and why it was allowed to happen while the prime minister was party boss.
For the moment, party officials deny wrongdoing. But Rajoy's biggest rival in the party, Esperanza Aguire, has already come out fighting, calling it a “grave institutional crisis”. "The courts should act, interrogating whoever needs to be questioned and whoever falls must fall. And quickly.” Could she be talking about Rajoy?
A protestor carries a banner reading, "Spanish Prime Minister Mariano Rajoy, serial fraudster" during a demonstration last Sunday. Photograph: Andres Kudacki/AP
Bad loans increase in Spain
Over to Spain, where there's gloomy news out of the central bank. Bad loans in the stricken country rose to 11.4% in November – a new high – from 11.2% in October. The Bank of Spain said loans that fell into arrears rose to €191.6bn in November.
A protestor carries a banner reading, "Spanish Prime Minister Mariano Rajoy, serial fraudster" during a demonstration last Sunday. Photograph: Andres Kudacki/AP
Submitted by Tyler Durden on 01/18/2013 08:28 -0500
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