Commentary on the economic , geopolitical and simply fascinating things going on. Served occasionally with a side of snark.
Friday, April 19, 2013
Overnight news - Asia and Europe in focus . Weak IBM earnings , bond and currency movements , macro events and analysis ..... G- 20 Fin Min meeting set to conclude - no major announcements expected. Greek and Cyprus updates - Highlights from The Guardian liveblog....
Italy presidential election up in the air as Prodi fails
Italy's presidential election was still up in the air on Friday, as the centre-left failed to secure enough support in parliament for its latest candidate, former premier and European Commission president Romano Prodi.
Rome (dpa) - Having been endorsed by all centre-left parties, Prodi should have been able to count on almost 500 votes, but secured less than 400 in the fourth round of voting, where a 504-threshold was needed to win the race.
Former Italian prime minister and president of the EU commission Romano Prodi
"It is clear that we are going nowhere with these numbers," Francesco Boccia from the Democratic Party (PD), the biggest centre-left force, told the SkyTG24 broadcaster.
"Prodi‘s candidacy is over," Florence Mayor and leading PD figure Matteo Renzi said.
Just over 1,000 national and regional lawmakers are eligible to elect the president. Voting is secret, giving cover to deputies who want to defy their party line.
PD leader Pier Luigi Bersani had backed Prodi after his previous choice for the presidency, former trade unionist and Senate speaker Franco Marini, was shot down by his party because it had been agreed with the rival conservative coalition of Silvio Berlusconi.
Possible alternatives Following Prodi‘s defeat, it was unclear whether Bersani would change candidate once again ahead of a fifth round of voting due Saturday. Former prime minister and foreign minister Massimo D‘Alema, also from the PD, was seen as a possible alternative.
Berlusconi said he was "dismayed" by the PD‘s decision to give up on choosing a national unity figure to act as the country‘s figurehead for the next seven years. In protest, his lawmakers walked out of the fourth round of voting.
The PD failed to convince two other blocs to support its candidate: the protest Five Star Movement (M5S) and centrists led by outgoing premier Mario Monti.
"Nobody in the Five Star Movement has ever dreamt of voting Prodi ... and nobody will in the future," M5S leader Beppe Grillo said, confirming his party‘s support for Stefano Rodota, a former leftist lawmaker and law professor with historical links to the PD.
Rodota received 213 votes in parliament, a larger-than-expected score.
Monti said Prodi had a "brilliant" curriculum but was too much of a divisive figure. Instead, his group sponsored Interior Minister Anna Maria Cancellieri, a non-partisan figure who would be Italy‘s first female president, who ended third in the vote with 78.
Alessandra Mussolini of The People of Freedom (PdL) wears a T-shirt which reads The Devil wears Prodi (Il Diavolo veste Prodi) as she arrives in the Chamber of Deputies on the second day of the election of the new Italian President, Rome, Italy, 19 April 2013.
Mussolini"s T-Shirt: "Il diavolo veste Prodi" - "The Devil Wears Prodi" Amid chaotic scenes in and outside parliament, two pro-Berlusconi lawmakers, including Alessandra Mussolini, grand-daughter of Italy‘s dictator, were expelled from the parliamentary chamber after wearing a t-shirt with the sign "The Devil Wears Prodi."
In the streets, rival protests took place outside parliament between supporters of Stefano Rodota, the presidential candidate of the protest Five Star Movement, and hard-right and neo-fascist groups opposed to Prodi.
Electing a new president is seen as crucial to ending political gridlock that has gripped the eurozone‘s third-largest economy since inconclusive elections in February. The new head of state will be able to appoint a new prime minister or dissolve parliament.
Bersani‘s coalition is the key player on the political scene, having won the biggest number of seats in parliament. However, it is short of a majority, so it needs to ally with others both to form a government and elect a head of state.
Italian power brokers Antagonizing the centre-right, a Prodi presidency would reduce the chances of a grand coalition government and increase the possibility of early elections, in which Berlusconi would prevail, according to latest polls.
However, the centre-left might have a chance of winning if it replaced Bersani with Renzi as its prime ministerial candidate. A poll broadcast by RAI state television indicated that Renzi was by far the most popular political figure.
In Italy, presidents have no governing powers but act as power brokers. The incumbent, Giorgio Napolitano, played a key role in late 2011, when Berlusconi was ousted from power and replaced by Monti‘s technocratic government.
Reports from Italy say centre-left leader Pier Luigi Bersani is to step down following politicians’ failure to elect a new president at the fourth attempt.
He told deputies from his Democratic Party (PD) that he would resign as soon as a president was chosen.
The centre-left’s preferred choice, the former EU Commission President and ex-Italian Prime Minister Romano Prodi, came top but was more than 100 votes short of the winning target. He later withdrew his candidacy.
The head of state’s election is seen as a vital step towards breaking the stalemate after February’s general election.
Bersani’s attempts to form a coalition failed and his inability to get a president elected show the extent of divisions even on his own side.
On the right, Prodi’s nomination was bitterly opposed by Silvio Berlusconi and Alessandra Mussolini’s far-right group.
There will be another attempt to choose a new president on Saturday.
Over next few weeks, 16 bln in loans to reach Greece
By Nikos Chrysoloras
Brussels - Greece is to receive 16 billion euros of loans from the troika during the next month, officials in Brussels told Kathimerini Friday.
Having reached an agreement on imminent structural reforms with the troika last week, the money that Greece is due to receive will come from a number of sources and for several purposes.
Before the end of April, the executive board of the European Stability Mechanism is due to meet to approve the release of 2.8 billion euros, which is the delayed March sub-tranche. The approval will be given if Greece has legislated the “prior actions” agreed with the troika, which include civil service dismissals.
If Greek banks have completed their attempts to increase share capital by the end of the month, another 7.2 billion euros in bonds will be disbursed by the country’s lenders to conclude the recapitalization process.
Then, a meeting of eurozone finance ministers on May 13 is expected to give the green light for another 4.2 billion euros to be transferred to Greece. This will happen without another review from troika inspectors.
The International Monetary Fund’s executive board is due to meet before May 20, which is when Greece has to pay out 5.6 billion euros to cover a maturing bond, to give the go-ahead for Athens to receive another 1.8 billion euros in loans from the Washington-based organization.
Greece has received about 200 billion euros in rescue loans since its first bailout in May in 2010. Beyond the disbursements this month and next, Athens is due to receive another 14.6 billion euros from its eurozone partners as part of its second bailout.
Officials in Brussels said there is no precise timeline for how this funding will be disbursed and that it will depend on Greece’s fiscal requirements. Any further disbursements, though, will be after the next troika review at the end of June. There is a possibility that this inspection will be delayed.
Energy Ministry rejects PPC demand for big power rate hike
The Environment and Energy Ministry is making plans to raise electricity rates by 1.5 percent as of May 1, even though the Public Power Corporation had requested an average increase of 21 percent.
The reasoning behind the ministry and the government’s decision is for the lowest possible burden on consumers, while the current circumstances also favor a lower rate hike than that requested.
The government cites the issue of pollutants, whose cost has diminished considerably.
Even PPC accepts that it has reduced it power production costs, which is why it had asked for a rate increase of 21 percent and not 25 percent.
The revised memorandum of understanding between Athens and its international creditors, which Kathimerini reveals, allows for one hiring for each layoff in the public sector, but only if there are no digressions from the agreed program for departures from the state mechanism.
The agreement also includes a commitment for the review of the demand for the reduction of the value-added tax in food catering, but only in case there is a better-than-expected performance in public finances.
As is already known, the deal includes the maintenance for one more year (2013) of the special property tax paid via electricity bills as well as the creation of a new property tax as of 2014 that will fetch the same amount of state revenues, as dictated by the midterm fiscal plan. The reform of the special property tax for this year constitutes a “prior action” for the next bailout tranche, so the government will have to pass legislation to that end. There is also a reference to the reduction in the tax’s rates.
There are significant changes planned for the Finance Ministry’s new General Secretariat for Revenues, as the new memorandum clearly states that it should be semi-autonomous, that inspections will intensify and political interventions in the work of the tax monitoring mechanism will stop.
Special reference is made to the creation of a program that will secure the supply of elementary medical services to 100,000 people who have not had social security coverage for a long time, securing them access to primary healthcare. The plan is for the use of money from the European Social Fund for the program to be extended to more people. There is also a provision for a series of other actions to strengthen the social fabric that has been damaged by the crisis, in the context of the government’s commitment to support vulnerable social groups.
The government further commits itself to implementing all measures agreed or replacing them with interventions which will have the same fiscal result if that is deemed necessary. It also pledges to go ahead with the full restructuring of the public sector in the context of supporting its medium-term fiscal targets and upgrading the quality of public services.
On the thorny issue of the reduction of public sector employees, the memorandum accepts the ratio of one hiring per layoff, but states clearly that “if in our opinion at any point it appears that we are not on our way to reaching the overall target [for reducing staff], the ratio will be altered.” In all other cases the rule of one hiring for every five layoffs will apply. The plan is for the issue to be discussed at the end of June so that the government can present the details of its program for hirings this year.
Besides the departure of thousands of civil servants, the government will also have to prepare a specific task plan for 275,000 public sector employees, rising to 450,000 employees by end-June. Eventually by the end of the year the organizational charts for the whole of the general government will have to be completed, along with the evaluation of all civil servants.
All this means that the government has two very busy months ahead of it to fulfill the majority of all those commitments before the next visit of the international creditors’ representatives.
Fitch has just downgraded the UK from AAA to AA+ - now lower than France's.
FITCH REVISED DOWN U.K.'S ECONOMIC GROWTH IN 2013 TO 0.8%
FITCH REVISED DOWN U.K.'S ECONOMIC GROWTH IN 2014 TO 1.8%
FITCH CITES WEAKER ECONOMIC, FISCAL OUTLOOK ON U.K.
Fitch doesn't see the UK economy reaching 2007 highs until 2014 - so there's hope?As for debt: Fitch now forecasts that general government gross debt (GGGD) will peak at 101% of GDP in 2015-16 (equivalent to 86% of GDP for public sector net debt, PSND) and will only gradually decline from 2017-18. This compares with Fitch's previous projection for GGGD peaking at 97% and declining from 2016-17 and the 'AAA' median of around 50%.
Of course, no market cares (apart from Cable) yet... though it does seem by GBP's slump all day that this was umm, telegraphed?
FITCH DOWNGRADES UNITED KINGDOM TO 'AA+'; OUTLOOK STABLE
Fitch Ratings-London-19 April 2013: Fitch Ratings has downgraded the United Kingdom's Long-term foreign and local currency Issuer Default Ratings (IDR) to 'AA+' from 'AAA'. The Outlook is Stable. At the same time, the agency has affirmed the UK's Short-term foreign currency rating at 'F1+' and the Country Ceiling at 'AAA'.
The rating actions follow the conclusion of the review of the UK's sovereign ratings initiated on 22 March and resolve the Rating Watch Negative. The previous Negative Outlook on the UK's sovereign ratings had been in place since 14 March 2012.
KEY RATING DRIVERS
The downgrade of the UK's sovereign ratings primarily reflects a weaker economic and fiscal outlook and hence the upward revision to Fitch's medium-term projections for UK budget deficits and government debt. Despite the loss of its 'AAA' status, the UK's extremely strong credit profile is reflected in its 'AA+' rating and the Stable Outlook.
- Fitch now forecasts that general government gross debt (GGGD) will peak at 101% of GDP in 2015-16 (equivalent to 86% of GDP for public sector net debt, PSND) and will only gradually decline from 2017-18. This compares with Fitch's previous projection for GGGD peaking at 97% and declining from 2016-17 and the 'AAA' median of around 50%.
- Fitch previously commented that failure to stabilise debt below 100% of GDP and place it on a firm downward path towards 90% of GDP over the medium term would likely trigger a rating downgrade. Despite the UK's strong fiscal financing flexibility underpinned by its own currency with reserve currency status and the long average maturity of public debt, the fiscal space to absorb further adverse economic and financial shocks is no longer consistent with a 'AAA' rating.
- Higher than previously projected budget deficits and debt primarily reflects the weak growth performance of the UK economy in recent years, partly due to headwinds of private and public sector deleveraging and the eurozone crisis. Fitch has revised down its forecast economic growth in 2013 and 2014 to 0.8% and 1.8%, respectively, from 1.5% and 2.0% at the time of the last review of the UK's sovereign ratings in September 2012. The UK economy is not expected to reach its 2007 level of real GDP until 2014, underscoring the weakness of the economic recovery.
- Despite significant progress in reducing public sector net borrowing (PSNB from a peak of 11.2% of GDP (GBP159bn) in 2009-10, the budget deficit remains 7.4% of GDP (excluding the effect of the transfer of Royal Mail pensions) and is not expected to fall below 6% of GDP and GBP100bn until the end of the current parliament term. The slower pace of deficit reduction means that the next government will be required to implement substantial spending reductions (and/or tax increases) if public debt is to be stabilised and reduced over the medium term.
The Stable Outlook on the UK's sovereign ratings reflects the following factors.
- Under Fitch's baseline economic and fiscal scenario, which assumes a continued policy commitment to reducing the underlying budget deficit and medium-term annual growth potential of 2%-2.25%, government debt gradually falls as a share of national income in the latter half of the decade.
- The long average maturity of public debt (15 years) - the longest of any high-grade sovereign -exclusively denominated in local currency and low interest service burden implies a higher level of debt tolerance than many high-grade peers.
- The international reserve currency status of sterling and the ability and willingness of the Bank of England to intervene in the UK government debt market largely eliminates the risk of a self-fulfilling fiscal financing crisis.
- The gradual improvement in the UK banking sector's capital and liquidity position has further reduced contingent liabilities arising from this sector.
The UK's 'AA+' rating is underpinned by its high-income, diversified and flexible economy as well as a high degree of political and social stability. The monetary policy framework as well as sterling's international reserve currency status afford the UK a high degree of financial and economic policy flexibility. Strong civil and policy institutions and a high degree of transparency enhance the predictability of the business and economic policy environment that compares favourably with peers in the 'AA' category.
Weak economic performance and growth prospects, relatively high levels of private and foreign as well as public debt, along with sizeable twin fiscal and current account deficits, are weaknesses relative to rating peers.
If you don't have the money, and cannot borrow the money, and cannot print the money, what can you do? The easy to understand answer is "you do not pay the bills" at least on time. This has been happening all over Spain, but particularly Madrid.
Note: Alberto Ruiz-Gallardón is a Spanish politician and former mayor of Madrid.
Local authorities accumulated a total debt of €41.9642 billion euros at the end of last year, €6.545 billion more than in 2011, representing an increase of 18.4% yoy, according to data released Wednesday by the Ministry of Finance.
But the most striking is, once again, that of Madrid. Madrid owes a total of €7.4296 billion in 2012, the most municipal debt Spain. This amount is equivalent to almost 18% of total debt of local authorities, 21% of all municipal debt, nearly half (46.5%) of the debt accumulated provincial capitals, and 63.5% of the debt of the big cities. In fact, Madrid's debt is six times that of Barcelona (€1.780 billion) and nearly eight of Valencia (€975.7 million euros).
What is most relevant, however, is that Madrid's debt soared by €1.082 billion in 2012 alone, representing an increase of 17% yoy. This is the largest increase registered by the council since 2006, when it grew by €1.700 billion.
The reason lies in the payment of overdue invoices from suppliers. Alberto Ruiz Gallardón left a legacy to new mayor Ana Botella.
Gallardón was the mayor who accumulated the largest debt to suppliers throughout Spain. Close to €1 billion extra debt was the culmination of financial management of Gallardón, following years of waste and the red in front of City Hall. When Gallardón came into office in 2003, debt amounted to €1.455 billion euros, but when he left office in 2011, debt grew to €6.348, nearly four times more.
End Translation
Not to worry, the ECB, Brussels, and Prime Minister Rajoy have everything under control. If you have a hard time accepting that, please take another blue pill.
With the entire world's attention focused on Boston, the FX carry pair traders knew they had a wide berth to push futures, courtesy of some EURUSD and USDJPY levitation overnight, which started following news out of Japan that the G-20 would have no objection to its big monetary stimulus - of course they don't: they encourage it: just look at the levitation in the global wealth effect stock markets since it started. The Friday humor started early: "Japan explained that its monetary policy is aimed at achieving price stability and economic recovery, and therefore is in line with the G20 agreement in February," Aso told reporters. "There was no objection to that at the meeting." "We explained (at the G20 meeting) that we're convinced that the measures we're taking will be good for the global economy as they will help revive Japanese growth," Aso said. And by global economy he of course means stocks. Shortly thereafter, when Europe opened, the real levitation started as someone, somewhere had to offset what would otherwise be a 100 point plunge in the DJIA just on IBM's miserable results alone. Sure enough what better way to do that than with a wholesale market "tide" offsetting one or two founder boats.
A bulletin summary of the remaining news from Bloomberg, as irrelevant as it may be, in a world in which two currency pairs are set by the G-7 central banks, determine the level of all global risk assets.
Democratic Party leader Bersani turned to former Prime Minister Prodi as a candidate for the Italian presidency after members of his party rejected his first choice, rupturing a rapprochement with Berlusconi; Bersani May Quit as PD Head After President Vote: Repubblica
Kim Jong Un, “firmly in control” of the North Korean regime, isn’t ready to negotiate about ending his nuclear and missile programs, according to the top U.S. military intelligence official
Global sovereign yields higher, led by Finland, Germany and Denmark. EU sovereign spreads to Germany tighter
Nikkei +0.7%; other Asian stock markets decline. European equity markets, U.S. index futures rise. Energy futures, precious metals higher
European Market summary:
Spanish 10Y yield down 5bps to 4.62%
Italian 10Y yield down 5bps to 4.21%
U.K. 10Y yield up 3bps to 1.69%
German 10Y yield up 3bps to 1.25%
Bund future down 0.18% to 146
BTP future up 0.29% to 113.07
EUR/USD up 0.31% to $1.3091
Dollar Index down 0.13% to 82.45
Sterling spot up 0.43% to $1.5345
1Y euro cross currency basis swap up 1bp to -21bps
Stoxx 600 up 0.73% to 285.8
FX:
JPY underperforms all G10 counterparts after Japan seen avoiding G20 criticism over recent yen weakening; -1.9% vs NZD, -1.6% vs SEK, -1.4% vs EUR, -1.0% vs USD
USD underperforms 9 of its G-10 peers, -0.8% vs NZD, -0.3% vs EUR; DXY -0.1% at 82.45
USD/JPY has been most significantly correlated with 2Y JGB in past month, with JPY weakening versus USD when yields have fallen, according to correlation studies
EUR/USD has been significantly correlated with S&P500 index and 10Y UST yield, with EUR falling as 10Y yields have declined, according to correlation studies
“The comments from Finance Minister Aso that the plans are seen as unopposed, clearly was a trigger point” for yen selling, said Jeremy Stretch, head of currency strategy at CIBC in London
Key macro events to look for today via SocGen:
Emerging market currencies have been under pressure all week, suffering pretty heavy losses with commodity- and thus growth-linked currencies in particular doing badly. The chart of the day shows weekly losses ranging from 1% for the MXN to 3% for the ZAR. At the other end of the spectrum, the THB and INR have gained 1%, and the CNY is also up modestly after the fixing reached a new high vs the USD at 6.1699. There has been speculation (aimed to coincide with the G20 and IMF spring meetings?) that the PBoC may widen the trading band over the weekend which could slow the appreciation of the CNY, a desirable policy objective to counter the ongoing slowdown in the economy (Q1 GDP growth dropped to 7.8% yoy). This policy step would be validated by the benign inflation backdrop. As our EM colleague Wee-Khoon Chong writes on p.6 in the FX weekly, there is a case to be made to keep the CNY stable in a time of uncertainty.
The G20 finmin meeting is set to conclude today, but we should not expect major announcements or implicit condemnations of members pursuing strategies of competitive devaluations to gain an unfair trade advantage.The draft report indicates that the G20 will withhold direct criticism of Japan. ECB's Weidmann will speak before or after the meeting, and another veiled statement on the direction of euro interest rates could be seen as bolstering the case for more policy stimulus in the months ahead. His dovish comment earlier this week did not pull the rug out from under the euro and in fact put it in the top three best performing G10 currencies this week. The rankings should not change materially today, with the release of Canadian CPI perhaps bringing another opportunity for the EUR/CAD to push for a test of the March 1.3539 high..
* * *
The full overnight summary from DB's Jim Reid:
The big question in markets at the moment is whether this will be a fourth year of markets facing a setback around this time of the year. In 2010, the S&P500 fell 16% in a slide that began in April and ended three months later in July. In 2011, the S&P500 peaked again in April and then lost 19% before bottoming in September of that year. Finally in 2012, we saw a fall of 10% that began in early April and ended in early June. So since 2010, we’ve had what feels like a mini cycle that starts in April and has delivered an average 15% downward move in the S&P500. Our view continues to be that market will see a more negative Q2 as softer data disappoints. We do think the abundant Central Bank liquidity will limit the downside though.
Such softer data has helped to take its toll on markets this week and in addition its been a mixed start to Q1 earnings. We're about 20% of the way through for the S&P500, and although three-quarters of companies have so far beaten EPS expectations, under half have delivered better than expected top line performance.
Its still very early days in the European reporting season with only a handful of Stoxx600 companies having reported thus far, but initial results suggest a similar trend to that of the US. About two-thirds of companies have exceeded consensus EPS expectations but less than half have done the same on the top line. We’ll include our usual earnings season tracker data in Monday’s EMR. For the record yesterday saw a continuation of the earnings pattern that we’ve seen thus far. Of the 29 S&P500 companies which reported yesterday, an impressive 24 companies beat earnings estimates but more than half missed revenue expectations.
Back to markets, risk assets closed weaker for the second straight day after yet another round of disappointing US data. This time it was the Philly Fed which came in weaker both in the headline (1.3 vs +3.0 expected) and in the detail. It follows the below-expectation Empire manufacturing survey on Monday. In other data, jobless claims ticked up a touch to 352k (vs 350k expected and 348k previous week). European equities initially traded stronger at the open, buoyed by a solid Spanish auction and news that the German parliament had approved Cyprus’ bailout programme. But markets turned later in the day on the weight of some mixed results from Morgan Stanley, who recorded a 20% drop in FICC trading revenue, and after it became clear that the Italian parliament had failed to elect a new president thanks to a split in Bersani’s coalition.
The Eurostoxx managed to cling onto a gain of +0.08% but the S&P500 fell by 0.67%. Outside of equities credit markets showed some resilience in the face of the weakness in equities, with solid activity in the primary markets and secondary markets only closing a touch wider. 10yr UST yields were broadly unchanged at 1.68% and gold (+1%) rallied for the third straight day.
Periphery bond yields initially traded lower early in the session after a solid Spanish bond auction, but sold off later to finish largely unchanged on the day. After the recent tumble in Apple’s share price, including a 2.7% drop yesterday, the tech giant has now well and truly lost its title as the largest company by market cap to Exxon Mobil. Exxon owes that crown more to Apple’s 44% drop since its September peak, than to its own share price performance which has been mostly range bound during that same period. More broadly, we’ve seen a sizeable underperformance in US tech stocks this year with the tech sector virtually flat YTD against an 8%+ gain in the broader S&P500. We should note however, that most of underperformance has come in recent weeks probably driven by news of poor demand for smartphones/PCs and disappointing earnings updates from the likes of Yahoo! and eBay. Nevertheless, it will be interesting to see whether this divergence continues throughout the remainder of the reporting season.
Turning to the overnight session, markets are showing improved risk appetite with the most Asian bourses up around 1% led by gains in the Hang Seng (+0.9%) and Shanghai Composite (+1.4%). S&P500 futures bottomed towards the close of the US session and are trading 7pts better during the Asian timezone. USDJPY jumped 0.3% after Japanese finance minister Aso said that no one opposed Japan’s policies at the G20. BoJ Governor Kuroda said he intends to explain to fellow members of the G20 that the central bank’s monetary policy isn't aimed at cheapening the yen. Brent and gold continue to rally overnight, but copper is 2.5% weaker.
In other headlines, the US 10yr TIPS breakeven rate had its largest daily fall since November 2011 (-9bp to 2.27%) as fears of inflation wane in light of the recent weaker economic data and drop in commodity prices. The 10-yr breakeven rate is hovering at a near eight month low. Bloomberg reported that yesterday’s 5yr TIPS auction attracted the lowest bid-cover ratio (2.2x) since October 2008, although the article noted that a record $18bn of notes were auctioned.
Looking at the day ahead, Spanish trade numbers and industrial orders for Italy are the main highlights on an otherwise thin data docket. The presidential election in Italy and the G20/IMF/World Bank meeting in Washington are the key events to watch for today. McDonalds and General Electric report before the US market opens.
Question mark over whether parliament will sanction bailout
ALTHOUGH the House yesterday passed more tax bills deemed key for Cyprus to qualify for a foreign aid package, a question mark still hung over whether a fractious parliament would sanction the actual loan agreement to be concluded soon between the government and international lenders.
The plenum last night gave the nod to a series of government bills designed to raise state revenues: a corporate tax rate hike by 2.5 points to 12.5 per cent; doubling the tax rate on interest and dividend income (capital gains tax) to 30 per cent, via the defence contribution tax; and an increase in the bank levy on deposits raised by banks and credit institutions from 0.11 per cent to 0.15 per cent with 25/60 of the revenue earmarked for a special account for a Financial Stability Fund, applying retroactively as of January 1 of this year.
A revised tax on immovable property – aiming to ensure additional revenues from property taxation of at least €70m by updating 1980 prices through application of the CPI index for the period 1980 to 2012 – was not brought to the plenum yesterday but is expected next week.
Implementation of the IPT is one of the preconditions set by international lenders for the release of €10bn loan.
Parliament postponed a vote on a bill for additional scaled pay cuts (from 0.8 per cent to 2 per cent) in the broader public sector.
Also delayed was an item containing further restrictions to those entitled to free public healthcare. Under the bill, to be eligible a person must have made contributions to the relevant fund for at least three years, and must have submitted a tax declaration prior to applying for free care. It also provides for a 1.5 per cent contribution to the fund by civil servants.
The House meanwhile passed an amending law whereby any future changes to excise duties would need parliament’s approval; so far this required only a decree issued by the finance minister.
And a legislative proposal by DISY freezing all promotions in the public sector during 2013 passed by a majority vote, with AKEL abstaining.
Cyprus this month struck a memorandum of understanding with the troika of international lenders – European Commission, European Central Bank and International Monetary Fund.
The MoU is not the same as the actual loan agreement, which is akin to an international treaty between the Republic and foreign governments.
Under the constitution, the treaty is subject to parliament’s approval. Once the loan agreement is drafted, it will be reviewed by the cabinet, which will then forward it to parliament for discussion and the vote. It’s understood the MoU and the loan agreement would be bundled into a single document as a ratification law.
But a shadow has been cast over whether the loan deal will muster enough votes in the House: so far only ruling DISY and junior coalition partners DIKO have come out openly in support of the loan agreement. Combined, the two parties do not have the required majority in the House. The rhetoric from AKEL and socialists EDEK has been hostile to the troika. It’s been suggested, however, that the two parties could abstain rather than vote against.
The loan still has to be approved by the national parliaments of some eurozone nations, with Germany’s Bundestag taking the lead by backing the bailout yesterday.
Reports yesterday suggested the loan agreement could be brought before Cyprus’ parliament late next week, for tactical reasons.
“It’s probably a wise move…should our parliament do the unthinkable and reject it first, why should the foreigners then bother with it at all?” commented one MP belonging to the government camp.
At a news conference yesterday, new DISY leader Averof Neophytou sent out a warning shot to dissenting quarters. The choice before Cyprus is clear, he said: either accept the bailout or face bankruptcy.
He added: “Those who want to get rid of the troika should tell us how we can come up with €30bn; if they do that, we will be the first to kick the troika out.”
Asked to clarify, Neophytou said the cost of leaving the euro would be €30bn, because in addition to its €23bn financing needs, Cyprus would also need to pay back the some €10bn its banks have borrowed from the Emergency Liquidity Assistance. The ELA is underwritten by the government.
Disposable income in Greece fell 8.3 pct in Q4 of 2012, consumption down 11.2 pct
The disposable income of Greek households decreased by 8.3 percent in the final quarter of 2012 compared to a year earlier, according to figures published by the Hellenic Statistical Authority (ELSTAT).
Household final consumption also fell 11.2 percent in Q4 of 2012, to 30.2 billion euros from 33.9 billion in the same quarter in 2011, ELSTAT said.
Disposable income fell from 35.4 billion euros in the fourth quarter of 2011 to 32.3 billion euros in the same quarter last year.
ELSTAT attributed this decline to a reduction of 13 percent in employees’ compensation and an 8 percent rise in tax on household income and property. Social benefits also fell by 5 percent during the period in question.
Yves here. When high level bank and government dealings start resembling a John Grisham novel, it’s a sign that the rule of law is breaking down in a serious way. Given that the Troika’s plan for Greece is to break it on the rack, this sort of criminality isn’t a surprise. But the troubling bit is that if you reset this story in the US, I doubt anyone would find it implausible.
By Yanis Varoufakis, professor of economics at the University of Athens. Cross posted from his blog
Last November I posted a piece entitled A Small Victory for Press Freedom in Greece’s Struggle against Cleptocracy. That story concerned the courageous decision of Kostas Vaxevanis, one of Greece’s few, valiant investigative reporters, to publish the so-called Lagarde List; the list of Swiss bank account holders that Greece’s political class did its utmost to keep hidden, to pretend that either it never existed or that it had been ‘misplaced’. Since then, Vaxevanis has been arrested by Special Branch officers, was tried in the Greek Courts, was acquitted triumphantly, and, more recently, awarded one of international journalism’s top awards.
In an earlier piece, last July, (entitled Bankruptocracy in the Greek Sector of Bailoutistan) I had drawn my readers’ attention to the remarkable revelations of Reuters’ Stephen Grey regarding the ponzi scheme put together by Greek bankers for the purposes of usurping Europe’s bank recapitalisation rules, pretending that they managed to draw private capital into their insolvent banks which never really existed. My piece castigated the Greek media for maintaining a veil of silence on these corrupt and criminal practices, while highlighting the troika’s curious lack of interest in the shenanigans of bankers who are receiving billions of European taxpayers’ money (in the process of the so-called ‘recapitalisation’ process).
Today’s post links these two stories together in a manner that you, dear reader, will find startling, worrying, enraging, disconcerting. It comprises, mainly, the summary of a letter that Kostas Vaxevanis sent to a London based journalist last week (the translation and summarising from the Greek original is mine). With this letter Vaxevanis sought support, advice and an opportunity of spreading the news of the dire situation faced by Greeks (citizens and journalists) who refuse to keep silent in the face of deep seated, criminal corruption. I urge you to read on.
In May 2012, I investigated the functioning of Greek banks, with special emphasis on a certain Greek Bank (The Bank henceforth) and its Chairman (The Chairman). I found that The Chairman’s family members were the secret owners of a number of offshore companies that would receive loans from the bank without any real collateral. These loans would then: (a) be written off as unserviceable, or (b) be used to buy office space that would immediately be resold to other parties which would then lease them to The Bank or sell them to The Bank at inflated prices. In addition, other offshore companies were used by The Chairman to borrow substantial amounts from two other Greek banks, again with no collateral, for the purposes of buying shares The Bank (thus helping the bank demonstrate its capacity to draw in private capital). Since then the owner of one of these two other banks has been imprisoned (on different charges) while the second bank involved has played a central role in bringing down the Cypriot banking system (after its merger with one of the island’s now collapsed banks and the transfer of its headquarters from Greece to Cyprus).
After the publication of these two investigative pieces, photographs of Stephen Grey (the Reuters investigative reporter who broke a part of this story to an international audience), were published in various websites with the caption: “The man who came to destroy Greece”. Worse still, the same blogs circulated a ‘document’ which ‘showed’ that I was on the payroll of the Greek state’s intelligence services. I managed to defuse this campaign of defamation by writing extensively about it in the press.
On 11th September 2012, late at night, a group of 4 or 5 people staked out my home. It was only accidentally that I avoided being ambushed (my motorcycle had a flat tire and I thus returned home in a friend’s car). Upon noticing the stalkers I called the police and asked them to come quietly. The police arrived noisily and went to a nearby house first, thus giving the men plenty of time to make their escape. For days, the police refused to investigate properly or to call eyewitnesses to make a statement (later, after I published the story, they did). Since then, I have been denied police protection (unlike most other journalists) and have had to resort to private security.
Soon after the failed ambush, a woman visited my office insisting that I should see her to discuss “the bankers’ designs” on me. I decided to meet with her. She was a frightened woman who claimed to be in grave personal danger. She said that she had been, and was, part of a group comprising former agents and salaried members of the Greek intelligence services, connected to business interests who worked on, at first, wrecking my public image and, later on, planning my physical demise. She added that it was her who, following specific orders, had forged the document ‘proving’ that I was on the payroll of the secret service – a document which her group then circulated to the various blogs that used it.
According to her testimony to me, a group stationed in Skopja was engaged to “see me off”. Part of the same plot concerned the defamation of another woman, a former bank manager with The Bank, who had been fired on false charges of embezzlement because, in truth, she possessed damning evidence concerning The Chairman’s family’s activities. Their plan, vis-a-vis this former bank manager was to plant narcotics in a restaurant that she owned on the island of Zakynthos and to orchestrate a very public arrest so that, in the future, if she ever revealed her evidence against The Chairman’s family, the press could dismiss her as a ‘drug dealer’. To prove her story, my interlocutor handed over a sequence of photographs that were the result of the surveillance of the former bank manager taken by «her group». The woman further claimed that she had not dared distance herself from that group but she was afraid that she would be killed upon completing her ‘tasks’.
On our part, we immediately investigated her claims. We subjected her to an accredited graphologist’s test who comfirmed that the forged document showing that I was, supposedly, on the secret agents’ payroll (as published in various blogs) was in her handwriting. We also confirmed with the ferry company that the car in which that team of operatives was supposed to have travelled to Zakynthos (to plant drugs in order to frame The Bank’s former employee) had indeed travelled there. We also established that the car was registered to former intelligence agents who had been prosecuted for an number of misdeeds – and whose court case is pending.
I met with this woman a number of times in an attempt further to establish the truth of her allegations. In one of these meetings, she said that the headquarters of her group was close to our magazine’s (HOT DOC) but also that the group had abandoned those quarters fearing that we had worked out they were conducting surveillance on us from there (after I had written in HOT DOC that I know I am being followed). Furthermore, the woman handed to us audio records from her group’s meetings in which they were discussing their plans. We went to the address she gave us to find abandoned offices that were for lease and to see if they featured hidden crypts (where the woman had told her group kept weapons). We found these hidden crevices and photographed them.
To protect myself, I wrote a report on the above which I sealed and delivered to a notary to be released on the event of my death or disappearance. I also visited a district attorney whose incorruptibility I trust. The woman left Athens and is in hiding, even though I remain in contact with her.
Following the above events, I was contacted by the group of people that I consider to have planned to assassin me. I alerted the police and met with them under police surveillance. In the meeting, they denied everything and pretended they had nothing to do with any of these plans. I left that meeting and then refused to take their repeated calls. A few days ago the case files were transferred again from the police to the district attorney. I know nothing further about the law agencies’ activities in this regard.”
Kostas Vaxevanis’ letter then moves on to another, related, issue: The Lagarde List which he and HOT DOC published causing a major political storm, that echoed around the world, and leading to his arrest (for endangering the privacy of those on the list) – not to mention to worldwide acclaim at least within the international community of investigative journalists. Vaxevanis was then acquitted in a short and triumphant trial but the prosecution appealed with the result that a second trial will take place next June.
Meanwhile, following the publication of the Lagarde List, and under enormous pressure from public opinion, the Greek Parliament set up an investigative committee (made up of parliamentarians from each party, in proportion to their strength in Parliament – as per the Constitution) to investigate only one person: the former Minister of Finance, Mr George Papakonstantinou under whose watch the Lagarde List got ‘lost’ within the Greek government and was never utilised by the authorities. The said Committee has a remit to rule on whether there is sufficient evidence to try Mr Papakonstantinou. In the context of its investigation, the Committee calls witnesses who are then examined by members of the Committee. In his letter, Vaxevanis says that, even though no one disputes that the list he and HOT DOC published was the original Lagarde List – as given to him by an anonymous person – certain members of the Committee subjected him to aggressive examination (something that I can vouch for having read the official transcripts as produced by the Greek Parliament) the purpose of which was, clearly, not to establish the truth about the Lagarde List but to discredit Vaxevanis and HOT DOC. Vaxevanis notes in his letter that the members of the Committee that were most aggressive happened to be the ones that ought to have stood down from the Committee on the basis of a clear conflict of interest. In particular, Vaxevanis writes in his letter:
“The mother of one member of the Committee was on the Lagarde List. The wife of another member of the Committee appears to have power of attorney for an account on the Lagarde List. The third member, who happens to Chair the Committee, is the lawyer of a tax office employee who has been convicted for having embezzled millions of euros of tax payers’ money. He has also been the subject of two parliamentary investigations but escaped prosecution shielded by legislation that gives investigators/prosecutors a mere two years before the case is considered to fall under the statute of limitations.
Vaxevanis’ letter finishes thus:
I thought it important to relate to you these events. I am in need for your assistance and advice. Every day that goes by, a new piece of a conspiracy is put together and I fear that the jigsaw may be completed by the time my second trial takes place in June. I feel they are keen to convict me while giving me the option to pay a fine instead of serving time in prison. Of course if convicted I shall refuse to do so, opting for prison in order to publicise in that manner what is going on in this country. I could ask for assistance from opposition parties but I revile the idea of becoming part of the party political game. Thank you for your attention and apologies for tiring you with my long-winded story. Alas, you are our only allies. Greece is sinking not only in an economic crisis but also in filth.
Epilogue
You may wonder what happened to The Chairman and to The Bank. The Chairman is doing fine, thank you. His insolvent bank has now turned into a (by Greek standards) Too-Big-Too-Fail monster, having been handed on a silver platter the good chunks of banks that the Greek taxpayer has paid through the nose to carve out of failed operations. Those in the know expect that he, amongst all Greek bankers, will probably manage to retain control of ‘his’ bank after ESM-funded recapitalisation (though no one seems to know why he can attract private capital when healthier banks, like the National Bank of Greece, are failing to do so). His close connections with people high up in the Central Bank of Greece and in the political establishment (that the average Greek refers to as the Cleptocracy) have ensured that his power to extract rents from the rest of a crumbling society is inversely proportional to ‘his’ bank’s performance. Being a major ‘sponsor’ of the bankrupt (both financially and morally) Greek media has certainly not done him any harm.
Bankruptocracy in the Greek Sector of Bailoutistan is, thus, progressing in leaps and bounds. With European taxpayers’ loan guarantees providing the capital and a bonfire of the Greek people’s hopes for the future supplying the energy.
Finland's parliament has given its approval to the Cyprus bailout, at two vote in Helsinki this lunchtime.
A total of 86 MPs backed Prime Minister Jyrki Katainen’s six-party coalition, with 65 against and 48 MPs absent (figures via Bloomberg).
The country's Grand Committee (which oversees EU policy) then voted 16 to 9 to back the aid package.
As we wrote yesterday, Cyprus's government is planning to hold its own vote to approve (or potentially reject) the programme agreed with Brussels, the ECB and the IMF.
German constitutional court to hear complaint against euro rescue funds
From July 2012, when the German Constitutional Court held a hearing on the European Stability Mechanism (ESM) and the fiscal pact. Photograph: ALEX DOMANSKI/REUTERS
Heads-up: Germany's constitutional court has announced that it will hear a wide-ranging complaint into Europe's rescue packages in June.
The two-day hearing, set for June 11-12, will examine whether the European Central Bank's new bond-buying scheme or OMT (Outright Monetary Transactions) violates the German constitution.
Germany's top judges will also consider the ECB's earlier SMP bond-buying programme (used to stabilise the borrowing costs of Spain and Italy in 2011), and its Emergency Liquidity Assistance (which propped up banks in Cyprus). as well.
The court, in Karlsruhe, ruled seven months ago that the European Stability Mechanism (the €700bn rescue fund set aside for bailouts) did not infringe budget sovereignty of the German parliament. This new case will also see it consider the ESM again.
Italian industrial orders down 7.9%
Italy's industrial sector has suffered another slump in demand. Industrial orders tumbled by 7.9% in February, compared to a year ago, a sharper fall than analysts had expected.
On a seasonally adjusted basis, orders were down 2.5% month-on-month in February, on top of a 1.4% decline in January. That adds to fears that the eurozone economy weakened towards the end of December.
Yen falls back...
The G20 will not rebuke Japan over its new aggressive monetary easing policies, according to its finance minister, Taro Aso.
The Yen fell by over 1% against other currencies this morning after Aso told reporters that finance ministers will not make any official complaint over "Abenomics".
In response, the yen has fallen to over ¥99 to the US dollar.
Emerging economies warn over liquidity surge
The world's leading emerging and developing countries have sounded the alarm this morning over dangers of huge monetary stimulus programmes.
In a joint communique, the group of 24 emerging and developing countries warned central banks in 'advanced' economies that their unconventional economic policies would cause huge damage:
The G24, which includes Brazil, India and South Africa, said:
We remain concerned about the fragility and pace of the global recovery because of the protracted difficulties and uncertainties in many advanced economies, including the euro area and the United States.
We call on advanced economies to take into account the negative spillover effects on the emerging and developing countries of prolonged unconventional monetary policies.
The quantitative easing programmes launched by America since the crisis began have long concerned the G24, who saw 'hot money' flow into their economies after the Federal Reserve boosted liquidity.
The Bank of Japan's bold new scheme to double its monetary base and finally slay deflation is a new worry -- the IMF warned this week that the seeds of the next crisis could be being sown now...
Olli Rehn: we could slow austerity down
Good morning, and welcome to our rolling coverage of the latest events in the eurozone crisis and across the world economy.
The battle between growth and austerity is centre-stage today as the world's most powerful finance ministers and central bank governors gather in Washington for the G20 talks.
Overnight, European commissioner Olli Rehn signalled that the eurozone may finally be prepared to biow to pressure and relax its fiscal consolidation programme in some countries - where the belt-tightening is clearly doing more harm than good.
In the early phase of the crisis it was essential to restore the credibility of fiscal policy in Europe because that was fundamentally questioned by market forces...
There was no choice. Decisive action was taken.
Now, as we have restored the credibility in the short-term, that gives us the possibility of having a smoother path of fiscal adjustment in the medium-term.
It could be an important shift in Brussels's position, as the G20 are expected to discuss whether to agree on a collective "coordinated debt reduction plan" for the coming years.
Rehn's comments also come as the International Monetary Fundappears to shift its position on the balance between fiscal consolidation and stimulus. Some journalists are talking of a 'power battle' within theFund, with more Keynesian elements perhaps taking the upper hand.
But talk of more stimulus measures in the world's biggest economies may be alarming the developing world - who have issued a warning about the push for ever-more liquidity (more to follow).
In Europe, the Finnish parliament is due to debate the Cyprus bailout. The news yesterday that Cypriot MPs will hold their own vote is causing some jitters.
And Italian MPs will continue to vote on their next president, after two failed ballots yesterday....
Submitted by Tyler Durden on 04/19/2013 07:14 -0400
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