A group of around 20 protesters opposed to austerity gathered outside parliament yesterday (Christos Thoedorides)
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LEGISLATORs will on Tuesday take a crunch vote to ratify – or not – a loan agreement between international creditors and Cyprus.
The Financial Assistance Facility Agreement (FAFA) between the European Stability Mechanism on the one hand, and the Republic of Cyprus and the Cyprus Central Bank on the other, was approved by the cabinet on Wednesday. According to a legal opinion of the Attorney-general, the agreement is tantamount to an international treaty and must therefore be sanctioned by parliament.
It’s understood the FAFA and the Memorandum of Understanding on Specific Economic Policy Conditionality concluded with international lenders will be bundled into a single document as a ratification law.
The FAFA was yesterday forwarded to the House finance and foreign affairs committees, giving MPs a few days to study it before it goes before an extraordinary House plenary on Tuesday.
In an accompanying letter to the FAFA, the finance minister yesterday stressed to lawmakers that passage of the MoU is highly urgent, as on April 29 a Eurogroup working group will discuss in Brussels the implementation of the financing programme for Cyprus.
Next the Board of Governors of the European Stability Mechanism (ESM) convenes on May 3 to officially approve the loan agreement and to green-light the disbursement of the first tranche. This is more or less routine, as the ESM board decided earlier this week to grant, in principle, financial assistance to the island.
Cyprus will receive aid of up to €10 billion over the next three years. The FAFA designates March 31, 2016 as the “availability period termination date.”
Repayment of the loan will begin in ten years time and have a maximum maturity of 20 years and an average of 15 years while the interest paid will be calculated based on the funding costs of the ESM, likely to be between 2 and 3 per cent.
Cyprus will be subject to quarterly reviews of its needs and implementation of an extensive programme of policy reforms including restoring the soundness of the Cypriot banking sector, continuing the process of fiscal consolidation, and implementing structural reforms to foster competitiveness and sustainable growth.
Cyprus is expected to receive around half of the full bailout money within 2013.
The vote in the House is likely to be a close one. Together, coalition partners DISY and DIKO have 28 out of the 56 seats, not enough to secure the required simple majority. Even assuming zero defections or no-shows from these two parties, they will need at least another vote to bring the number up to 29.
The extra vote could come from European Party head MP Demetris Syllouris; his colleague Nikos Koutsou is understood to be of the anti-troika school of thought.
AKEL’s stance is key to the outcome; matters could be complicated should they cast a ‘nay’ vote. But the communist party might opt to abstain, in which case their votes would not factor into the final count.
Under the worst-case scenario, the anti-troika camp could muster 27 votes.
Tuesday’s plenary will be an all-day session; in addition to the loan agreement, the House will be voting on the last batch of bills which Cyprus must enact into law to qualify for the rescue package.
These include an interim Immovable Property Tax, a bill on additional scaled pay cuts for the broader public sector and an item further restricting access to free health care.
As one ex-politician put it: “It would be insane for the House to have okayed all the memorandum bills but then throw out the actual memorandum and the loan deal.”
Officials have stressed that passage of the IPT in particular is a precondition set by international lenders for the first disbursement of aid money.
Yesterday’s scheduled House plenary approved the budgets of a number of semi-governmental organisations; although the operational costs of the Ports Authority and the Electricity Authority were slashed by 10 per cent and 20 per cent, respectively.
http://hat4uk.wordpress.com/2013/04/25/euroblown-as-the-clubmed-rebellion-spreads-keep-your-eye-on-alavanos-in-greece/
Why Alekos Alavanos could play a pivotal role in destroying the euro
Alavanos….rich Communist with a keen sense of timing
The new Party formed three weeks ago by Alekos Alavanos represents a fascinating encapsulation of the Europe-wide movement against the idea of both a single currency, and German rigidity in applying fiscal discipline.
On April 4th this year, Alekos Alavanos launched his new ‘Plan B’ Party. Advocating that Greece should quit the euro and return to the drachma, in Greek political terms Mr Alavanos was ahead of the curve in doing this…but then over time, he has been exceptional in his ability to use foresight to advantage. Alth0ugh he led SYRIZA – the Leftist Party now headed by Alexis Tsipras – between 2004 and 2008, the self-confessed millionaire Communist had been almost dormant until recently. However, this year he has criticised the Party he used to lead, arguing that its goal of rejecting the terms of the EU-IMF bailout but remaining in the single currency was not credible. (See my post of April 18th).
Most of the West European MSM have given this mercurial politician a low profile, but he isn’t just another schismatic nutter. Although a man of the Left, Alavanos also has a commercial perspective: this has allegedly driven him to seek a patriotic alliance with other forces not just within Greek politics, but also within influential Athenians who know perfectly well that Brussels-am-Berlin’s rigid austerity is killing the Greek patient.
“His move at this time shows that Alekos has impeccable timing,” an Athens source told me last week, “and already people here are saying that he has skillfully out-maneouvred Tsipras. The rising trend here now is towards rejection of the euro, and Alekos Alavanos has the connections and the support to ride this wave credibly. Alexis [Tsipras] is now in danger of being isolated as somehow a supporter of the euro but also of EU reform. This no longer presents a believable platform to informed Greeks. After all, you cannot reform fanatics”.
That opinion has since been confirmed by other reguLAr and reliable Slog sources in Greece.
In particular, Alavanos has been savvy enough to work with political and media consultancies who in turn have access to the money and organisation probably necessary to make a swift impact on Greek politics.
In a broader sense, his nose has sensed a growing Europe-wide movement against the inflexible single currency. Indeed, the malaise is wider even than that: data from Eurobarometer, the EU’s own polling organisation, show a steep decline in support for the Union per se – even in countries such as Spain, Germany and Italy that have been, historically, huge fans of the European Project.
Beyond that study, however, there are now other glaring signs that the days of B-am-B dictation in the eurozone are numbered. Although Beppo Grillo in Italy has been vituperative about the nature of Enrico Letta’s appointment as Prime Minister, the new Italian leader (left) has been quick to warn both Sprouts and Krauts that the austerity policy is dead and requires a new ‘Plan B’ along the lines being suggested by Alavanos. Deputy leader of the centre-left Democratic Party since 2009, Letta told the media almost immediately that “The EU’s austerity policies no longer represent an economic model sufficient to address this deep crisis.” Much nervous blinking in the Chancellery, I’m told.
On top of the Cyprus dilemma revealed earlier at The Slog today, this growing rebellion may well signal the EU’s arrival at what one might call the Demolition Moment: that time when the Fall of the Wall cannot be resisted.
Stay tuned.
http://www.zerohedge.com/news/2013-04-26/spain-slashes-growth-outlook-projects-higher-deficit-delays-deficit-reduction
Spain Slashes "Growth" Outlook, Projects Higher Deficit, Delays Deficit Reduction
Submitted by Tyler Durden on 04/26/2013 08:05 -0400
It took about one week from R&R's excel error until the first European country rebelled against "austerity" (which it never implemented in the first place, but that's a different story). Moments ago Spain officially said to hell with Germany's austerity, and announced it would delay achieving Europe's deficit target by two years, pushing it back by 2 years to 2016. Oh, and it slashed growth forecasts confirming what everyone else had known: it's economy is a total disaster, and the country can finally stop pretending there is any hope for "growth" in the near, mid or long-term future.
- SPAIN REVISES DOWN 2013 GROWTH FORECAST TO -1.3 PCT OF GDP VS -0.5 PCT PREVIOUSLY
- SEES DEFICITS OF 6.3% vs. 4.5% EU 2013 TARGET, 5.5% vs. 2.8% EU 2014, TARGET; 4.1% vs. 1.9% EU 2015 TARGET
- SPAIN TO DELAY DEFICIT REDUCTION 2 YEARS AS UNEMPLOYMENT RISES.
- SPAIN REVISES DOWN DEFICIT FORECAST TO 6.3 PCT OF GDP IN 2013
- SPAIN DELAYS REACHING EU BUDGET DEFICIT TARGET 2 YEARS TIL 2016
- SPAIN SEES UNEMPLOYMENT AT 27.1% IN 2013, 26.7% IN 2014
Luckily, this is not a surprise: the collapse in the Spanish economy is just as bad as had been expected, so this should be good for 10-20 points this morning in the Stalingrad & Poorski 500 stock index.
Full deficit breakdown:
Overnight news and views...
http://www.zerohedge.com/news/2013-04-26/overnight-sentiment-sours-bank-japan-does-just-expected-and-nothing-more
Overnight Sentiment Sours As Bank Of Japan Does Just As Expected And Nothing More
Submitted by Tyler Durden on 04/26/2013 06:58 -0400
While the main, if completely irrelevant, macroeconomic news of the day will be the first estimate of US Q1 GDP due out later today, perhaps the best testament of just how meaningless fundamental data has become was the scheduled BOJ announcement overnight in which Kuroda's merry men simply stated what was expected by everyone: the Japanese central bank merely repeated its pledge to double the monetary base in two years. The lack of anyincremental easing, is what pushed both the USDJPY as low as 98.20 overnight (98.60 at last check), over 100 pips from the highs, and has pressured the Nikkei into its first red close in days, and shows just how habituated with the constant cranking up of the liqudity spigot the G-7 market has truly become.
"We didn’t get anything new from the BOJ and that’s exactly what was expected,” said Ichiro Yamada, who helps oversee about 300 billion yen ($3 billion) in stocks as general manager at Fukoku Mutual Life Insurance in Tokyo. “Earnings so far haven’t been quite as good as share prices would warrant because best-case scenarios have been built in.”
What added insult to injury was the previously reported Japanese CPI number which tumbled to the lowest Y/Y reading in the past three years, confirming that at least so far, Abenomics has been stellar at spurring... deflation if mostly for core items. As has been reported previously, prices of non-core items such as food and energy are soaring, meaning consumers have no choice but to spend less on "core" purchases, thus leading to core deflation. And yes, before all is said and done, the BOJ will need to at least once more double the estimate for doubling its monetary base, something the market is starting to anticipate as shown the latest overnight gold surge.
Another development to keep an eye on is the growing popularity of Berlusconi's PDL, as its lead over rival PD has exploded. This is important in the ongoing race to form a government around Napolitano proposed PD deputy Letta, which may be Italy's last chance to form a government and avoid elections: an outcome the market has widely priced in. Not so fast. From Reuters:
Italy's prime minister-designate Enrico Letta started "encouraging" talks on Thursday for a new government to end two months of political deadlock, but said significant differences with the centre-right would take more time to iron out.
Letta, the 46-year-old deputy head of the centre-left Democratic Party (PD), said he would use Friday as a "day to reflect" on his chances of piecing together a broad coalition to govern the euro zone's third-largest economy.
"I think we'll need many more hours because we're coming from a period of deep mutual opposition and the differences that still remain are very significant," he told reporters after a day of talks that included a two-hour meeting with officials from Silvio Berlusconi's People of Freedom (PDL) party.
"I was encouraged by everyone but that does not resolve the problems," he said.
President Giorgio Napolitano, who appointed Letta on Wednesday, is eager for him to form a broad coalition before financial markets open on Monday and seek confidence votes from parliament's two houses early next week, political sources say.
The PDL delegation told Letta he had to agree to economic priorities on growth and tax cuts to win their support.
"We are satisfied by how the meeting went but we are cautious because there are still issues that have to be resolved," PDL secretary Angelino Alfano said.
Alfano said the PDL was seeking Letta's backing for eight points on how to revive the economy, including tax breaks for companies that hire young people, cutting red tape and the abolition of a much-hated tax on primary residences.
And this is how according to early speculation, the horse trading in government would play out:
Italian media have already begun speculating on how the posts might be carved up among politicians and technocrats. The economy ministry could go either to Fabrizio Saccomanni, the Bank of Italy's director general, or Carlo Padoan, chief economist at the Organisation for Economic Cooperation and Development (OECD), according to Italian media.
Alfano has been tipped by some to become deputy prime minister, a choice that would placate Berlusconi but upset some on the left of the PD.
The industry and labour ministries could go to politicians and the foreign affairs portfolio to Monti or former Prime Minister Massimo D'Alema of the PD, local media speculated.
But first, let the Trilateral commission-affiliated psuedo-technocra get the support he needs. For now it is not working quite as planned even if Italian bonds have alrady priced in a stable Italian government well into 2014.
* * *
Some of the other overnight bulletin highlights from Bloomberg
- Japan CPI (excluding fresh food) slid 0.5% in March from a year ago; median est. in Bloomberg survey was for 0.4% decline; overall prices fell 0.9%
- U.S. GDP rose at 3% annualized rate in 1Q on increased consumer spending, according to the median estimate in a Bloomberg survey; report follows this month’s lower-than-forecast durable goods, ISM Manufacturing, Michigan Confidence, Empire Manufacturing and Philly Fed reports
- Britain’s new banking regulator has rattled lenders by holding off disclosing how much capital each firm will have to raise after ordering the industry to plug a GBP25b shortfall by the end of the year, three people with knowledge of the discussions said
- The U.S. Senate revived and passed a measure to end air- traffic controller furloughs as most members were flying home on recess, after four days of flight delays blamed on staffing shortages from budget cuts
- BofAML Corporate Master Index OAS holds at 147bps; $6.975b priced yesterday. Markit IG narrows to 79bps from 80bps, YTD low 78bps. High Yield Master II OAS narrows to 461bps, tightest since April 2011, from 466bps; $1.66m priced. CDX High Yield rises to 105.18, highest since March 2011, from 104.89
- Global sovereign yields mixed, with U.K., Netherlands, Australian, German yields lower. EU sovereign spreads to Germany widen
- Nikkei -0.3%; other Asian stock markets lower, with Shanghai down 0.9%. European equity markets fall, U.S. index futures decline. Energy futures, gold, copper fall
Finally, a summary of key macro events of the day from SocGen:
Today's first look at Q1 GDP data from the US should in theory not be a game changer for the currency and bond markets, and by extension the beleaguered commodities, unless we get an annualised growth number seriously short of 3%. The market is bulled up for a strong bounce in Q1 growth from a meagre 0.4% in the previous quarter, boosted by a gain in inflation-adjusted consumer spending and residential investment. Domestic demand is forecast to have accelerated to 2.6%, the fastest rate since late 2010. No one is expecting a surprise of any major kind but the positive outcome of UK Q1 GDP yesterday (putting to rest 'triple-dip' demons) and the resulting spike in GBP was an illustration of how markets can get badly caught out. In the case of the US, we are off course talking being caught out long (USD) and short/neutral US Treasuries, i.e. a disappointing number would see USD/JPY and UST yields and swaps retreat. More importantly, do the data impact the Fed debate? In the sense that some Fed officials, and hence markets, are not ruling out that no tapering will come into effect this year (SG call Q3), the backward looking Q1 data should not make a huge difference to policy expectations and markets beyond today, simply because incoming data for Q2 has already started to turn. The proverbial proof of that being in the pudding in next week's payrolls report is really what markets want to see before backtracking on a hawkish Fed turn in the autumn.
Leaving out the JPY, the SEK has been the worst performer month-to-date and a data inspired sell-off could follow the Riksbank-inspired walloping last week. For USD/SEK, short-term bulls will be targeting a move up to 6.80 after successfully defending 6.5735 yesterday (200d ma). As the suspense for the ECB continues to build, EUR/SEK too should benefit reversing the profit taking of the last 48 hours. Other releases today include eurozone M3 and final Michigan confidence. Weekly ECB LTRO repayment data are also due and at the average rate of refunding observed in recent weeks, this could bring the central bank's balance sheet below E2.6tn for the first time since Dec-11.
If Cyprus breaks its deal with international lenders about to put up a 10 billion euros ($13 billion) bailout, the government will have to pay a 100 million euros ($130 million) fine, according to its memorandum of agreement.
