Commentary on the economic , geopolitical and simply fascinating things going on. Served occasionally with a side of snark.
Wednesday, March 13, 2013
European news and data for March 13 , 2013 - More violence in Greece as Troika talks flounder.... Portugal extension to budget talsk floated .... Commerzbank announces rights offering....European Parliament set to reject EU Budget which contains EU Budget cuts - no austerity for them ! Eurozone Production data falls sharply as Italian debt auction is essentially a failed auction as target amount to be sold was missed - weak demand for long dated italian paper not a good sign ! .....
Here we go again. As we reported yesterday, Greece was due to present to the Troika "how to cut a massive 150,000 public sector jobs: a move which will result in an immediate surge in public unrest, and an exponential jump in strike activity.... Greece is locked in talks with international creditors in Athens about shrinking the government workforce by enough to keep bailout payments flowing. Identifying redundant positions and putting in place a system that will lead to mandatory exits for about 150,000 civil servants by 2015 is a so-called milestone that will determine whether the country gets a 2.8 billion-euro ($3.6 billion) aid installment due this month. More than a week of talks on that has so far failed to clinch an agreement." Fast forward to today when we learn that any hopes a last minute solution would materialize, allowing the monetary spice to flow and the €2.4 billion loan to be paid, were just dashed following a breakdown in talks between Greece and the Troika. Deja vu all over again.
Troika representatives are due to leave Athens on Thursday with no final agreement having been reached with the coalition on a range of structural reforms but with the Greek side insisting that the pause in the talks will not lead to complications in the disbursal of its next loan tranche from the eurozone and International Monetary Fund.
Talks between Prime Minister Antonis Samaras and officials from the IMF, European Commission and European Central Bank lasted for a couple of hours on Wednesday night but there no conclusion was reached on matters including the reduction of civil servant numbers and a payment plan for firms and individuals who owe social security contributions.
Who can forget the perpetual Greek optimism, which spun every development, no matter how bad, as very good. For those who have, here is a reminder:
Despite the apparent impasse in the discussions, Finance Minister Yannis Stournaras insisted that the two sides were edging toward a deal and that Greece’s next loan tranche of 2.8 billion euros was not in danger.
“There has been significant progress in the talks with the troika,” Stournaras told journalists after leaving the talks at the Maximos Mansion, in which he also took part.
“The negotiations will continue when the troika representatives return. There is no issue with the loan tranche,” he added.
The finance minister indicated that the troika team would return to Athens at the end of the month or at the beginning of April, which means that Greece will not receive its bailout installment this month, as had been originally planned.
Stournaras said that just “technical issues” remained to be resolved between the two sides but the indications were that there are still substantial differences on a range of concerns.
Technical issues: such as justifying to some 150,000 public servants why they will have no job in under two years.
The minister did not specify which matters are still the subject of negotiations but over the past few days negotiations focused on civil service firings, the continuation of the emergency property tax introduced in 2011 and how to recover unpaid taxes and social security contributions.
This is eerily reminiscent of events from early 2012, when Greece was repeatedly "fixed", only for the EURUSD adrenaline to peak with the summer elections when Syriza almost received enough votes to renegotiate the very unpopular memorandum under whose auspices Greece has seen the youth unemployment percentage approach triple digits with every passing month. In the process peripheral bonds exploded leading to numerous Eurogroup and Finmin summits, leading up to the ECB's OMT, penned under Buba duress but at least arresting the complete collapse, if only briefly, in the sovereign bond market and the raging bank runs across the PIIGS.
It was also Greece that cratered the fragile 'recovery' that the US (and Europe) was undergoing in early 2012, not to mention 2011 and 2010.
It is only fitting for Greece to ruin the party for everyone once more.
"The air is thick with denial in this chamber," is how UKIP's Nigel Farage begins his truthiness rant at the most recent European Council meeting. Reflecting on the Italian election and overwhelming success of 'Eurosceptic' political parties, Farage barks that it "is absolutely clear that Eurozone membership is completely incompatible with nation-state democracy." The complete denial (and "unutterable drivel") about the Eurozone crisis incenses him as he says "you'd think listening to everyone this morning that it's over." The real problem, he explains, is that they won't face up to the reality that "You are not facing up to the consequences for what you've done," as he tries to make the technocrats comprehend,"the Eurozone has been a complete economic disaster," because of the Euro - and the disaster is still coming down the tracks.
In a preview of an interview he will conduct today with German's Handelsblatt, the surprise winner of last month's Italian elections Beppe Grillo said that Italy is“already de facto” outside the euro and runs the risk of being “dropped” by the region’s wealthiest members as soon as their banks recoup what they invested in the nation’s bonds. His suggestion - the same that got Greece's G-Pap promptly sacked in late 2011 - a popular referendum to decide if Italy should remain in the Eurozone. Grillo's best line, however, was saved for Mario Monti: "he is a bankruptcy trustee on behalf of the banks" which is perhaps the most astute description we have read of the former Goldman operative ever. Still think Grillo is just a simple-minded comic with a penchant for anarchy?
The Italian politician and surprise winner of the last general election, Beppe Grillo, does not believe the fate of Italy is to remain in the Euro-zone. "In fact, Italy's already out of the euro,"said the leader of the party "five stars" in an interview with the Handelsblatt. He believes that the Nordic countries would keep Italy only so long, "until they have taken the pure investment banks in their Italian bonds again. Then they will drop us like a hot potato."
Grillo sketched a popular decision on the euro. It has to pass an exit from the euro but "not alone" but would "make an online referendum on the euro." Just as on the Lisbon Treaty. These are "all issues on which our Constitution was ignored".
Interview Grillo expected sharply with the current Italian Prime Minister Mario Monti. This was "a bankruptcy trustee on behalf of the banks. Held up at the top earners and cut the state system, he has the people below paying higher taxes. "
Grillo sees itself not as anti-European. "Europe must not be afraid," he told Reuters in an interview. He asked, however, a strong reversal and "more democracy." For his party, he takes to claim. "We are the French Revolution - without guillotine" Europe needs a "Plan B," says the Italian politicians.
"We must still ask: What happened to Europe? Why do we have no common information policy, no joint tax policy, no common policy of immigration?Why has only Germany been enriched?"
All very good questions which Italy's population will be increasingly seeking to get answers for.
The government deficit in terms of national accounts in January reached 12.729 billion euros, equivalent to 1.2% of GDP, representing an increase of 35.4% over January 2012.
According to the budget execution data published in January by the Ministry of Finance website, the cash deficit in January came to 15,252,000, which are the result of a fall in net income of 37% (5.789 billion) and a expenses increased by 15.4% (21.041 billion).
Tax revenues fell 20% to 10.608 billion, among other causes by the accumulation of returns earlier this year, says Finance.
Negative Indirect Tax Collection
In fact, the state's revenue from indirect taxes (VAT and special) was negative at EUR 1.647 billion as a result of increased returns, but maintaining the territorial government had total revenues of 1.530 billion, 29.1% less.
The corporate tax revenue has also resulted in negative returns by 1.131 billion. Revenue from direct taxes (income and companies) fell by 18.2% to 9.078 billion.
In the item of expenditure, there was notable increase of 23.3% from the payment of the interest on the debt, which rose from 6.250 billion in January 2012 to 7.709 billion euros in January 2013. There was also a 10.4% increase in payments by current transfers to 9.474 billion.
Within these transfers, Social Security payments grew by 40.2% (2.334 billion), mainly due to the state budget for 2013 makes a greater contribution to the minimum pension supplements.
In the first month of the year, the central government deficit reached 0.89%. The state deficit target for 2013 is 3.8% of GDP, while the target for the total deficit of Public Administration is 4.5% from 6.7% in 2012, as recently reported by the Ministry of Finance.
Spain must cut its budget deficit to 2.8% in 2014, but it is expected that the European Commission extended the deadline for compliance with this commitment.
Summary
Spain's budget deficit for the month of January was 0.89% not counting regional deficits.
The target for the entire year is 3.8% of GDP.
On that basis, Spain went through 23.42% of its annual budget in a single month.
Spain's deficit target including regions and transfer payment is 4.5% of GDP.
The deficit including regions and transfer payments was 1.2% of GDP.
On that basis, Spain blew 26.67 % of its budget in a single month.
Territorial government revenues declined 29.1%
Income Tax revenue (corporate + personal) fell 18.2%
Social Security payments grew by 40.2%
Overall transfer payments increased 23.3%
Odds of Success Zero Percent
Odds Spain hits its budget target of 4.5% in 2013 is precisely 0.00%.
European commission chief Jose Manuel Barroso said the commission will propose giving an extra year to Portugal to meet its budget deficit targets linked to the bailout it received from the EU and IMF.
He said:
Portugal has been making a notable effort. For that reason, I can reiterate that the Commission will propose to the European Council the extension, by one more year, of the time frame to meet the budget deficit.
Commerzbank reaction
With Commerzbank announcing a rights issue (see 11.15am), the German government who bailed it out in 2009 has given its reaction.
A spokeswoman said:
It is pleasing that Commerzbank is getting... core capital on the capital market given the expected Basel III requirements [to increase the amount of capital reserves]. In this way the bank continues to strengthen its capital structure significantly.
This repayment and the lower equity stake of the government following the capital measures mark... a market-friendly start to the exit.
The market seems not to fully agree... shares are currently down 8%, although they had fallen 14% during the morning.
European parliament to vote against EU budget
As reported earlier (see 9.56am) the MEPs are expected to vote down the new EU budget which would include the first ever cut to the budget.
Over at Open Europe, they explain the politicians decision in a little more detail:
While most MEPs have accepted the headline limits on payments and commitments, they will insist on reviewing the deal at its midway point on the basis of qualified majority voting, the ability to reallocate funds to different spending areas, and an agreement on direct EU taxes.
However, the word “reject” has split the political groups along national lines, with MEPs from member states including Germany, Spain, Poland and the UK not wanting to go against the positions of their national and/or party leaders.
MEPs are not expected to vote on the budget deal itself – which they have a veto over - until negotiations with member states have been completed, which is likely to be in the summer.
Greece/Troika talks update
Back to Greece again where our correspondent Helena Smith says tension are running high ahead of tonight’s crunch talks.
She writes:
Feverish negotiations are underway ahead of prime minister Antonis Samaras’ 7pm meeting with Troika mission chiefs.
Indicative of the diifficulties that lie ahead, the Greek finance minister Yannis Stournaras, the pointman in the talks between the governing coalition and EU and IMF officials, was unusually hesitant about headway being made.
“There are quite a few outstanding issues,” he said late Tuesday, adding “we hope some can [be solved].”
The biggest thorn remains public sector lay-offs. Civil servants will be protesting in Athens later today.
Italy bond auction sees yields rise
As expected, the Italian bond sale has seen yields pushed higher.
The government sold:
€2bn 15-year bonds at a yield of 4.9%
€3.32bn 3-year bonds at a yield of 2.48%
The 3-year yield is the highest since December 2012, rising to 2.48% from 2.3% and bid-to-cover fell 1.28 from 1.37 compared with last auction in February.
The 15-year yield is up from 4.805% in January.
They also didn't hit the maximum amount they hoped to sell, reaching €6.99bn vs €7.25bn.
Eurozone production output falls harder than expected
Industrial production fell by 0.4% in January compared with December, more than the 0.1% fall expected.
Factory output, two-thirds of which is generated by Germany, France and Italy, was also down 1.3% year-on-year in January.
Production of machinery used to make other goods - an indicator of future business - also fell 1.2% month-on-month in January, and durable consumer goods such as cars and furniture was down 1.4%.
Ireland re-enters the bond market
Meanwhile, over in Ireland, the government is issuing a new 10-year bond – the first since it took an EU-IMF bailout.
Aiming to raise between €2bn and €3bn, the yield is likely to be between 4.25% and 4.3% according to analysts.
Yields on current 10-year bonds have settled from highs of 14% to lows of 3.7% in July 2011 and a successful auction should have an impact on Ireland's credit rating.
Greek violence
Taking you straight to Greece, where the Troika are meeting with officials.
They had hoped to hold its meetings with PM Antonis Samaras yesterday, but wanted longer to go over the numbers.
Finance minster Yannis Stournaras said last night
We decided to have an additional day of discussions with the troika's team of technical experts.
They are hoping the Troika agree to the release of €2.8bn of funds.
However, overnight, gas canisters exploded in three separate attacks at Greek politicians' offices, including its deputy environment minister.
No one was injured, but there were evacuations as firemen took over the buildings.
A government spokesman said
The government will not be discouraged by acts of terrorism.
However, this is the latest in a long line of attacks on politicians and businesses since the deeply unpopular austerity measures were implemented.
In January, gunmen opened fire at one of PM Samaras offices.
A building in which the private office of the deputy environment minister Stavros Kalafatis is located is surrounded by firefighters and paramedics after an explosion. Photograph: Nikolas Giakoumidis/APFirefighters outside the office of Greek deputy Environment Minister, Stavros Kalafatis after an explosion in Thessaloniki, northern Greece. Photograph: EPAThe entrance to the office of New Democracy Party MP Giorgos Orfanos after it was attacked Photograph: Giannis Papanikos/Demotix/Corbis
Submitted by Tyler Durden on 03/13/2013 18:46 -0400
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