December 11 2012

Greece is buying back €31.5bn worth of bonds for around a third their face value. The debt-ridden country can now receive a new tranche of funding from the International Monetary Fund and the European Union and will lower the cost of debt…

Powered by article titled “Eurozone crisis live: Greek secures crucial debt deal” was written by Josephine Moulds and Nick Fletcher, for on Tuesday 11th December 2012 15.00 UTC


Round-up of events so far

So for a post-lunch round-up…

Greece has secured a debt deal, buying back €31.5bn worth of bonds for around a third their face value. (see 1.32pm)

Former Italian PM Silvio Berlusconi is setting out his stall for the forthcoming elections, branding Mario Monti as “too German” and saying the economy is in a worse state now than when he quit. (see 10.33am)

German investor confidence has shot up, suggesting the eurozone’s biggest economy is not heading into a recession. (see 10.17am)

Markets are rallying, with shares up across Europe and bond yields down. (see 2.14pm)

And with that I will leave you in the capable hands of my colleague Nick Fletcher.


Even the bonds of the crisis-hit countries are rallying, with Greece and Portugal huge beneficiaries of the buoyant market.

The yield on Greece’s 10-year government bond dropped 70bps to 13.4%, while the yield on Portugal’s 10-year eased 12bps to 7.4%.


Bond yields stay low as markets recover

Meanwhile, Italian bond yields are still down on the day. The yield on the 10-year government bond is 6bps lower at 4.76%.

Spanish bonds, which were hit by the turbulence surrounding Italy yesterday, have also seen their yields ease. The yield on the 10-year bond is 7bps lower at 5.5%.

In the equity markets, shares are up across Europe, boosted by a cheery investor confidence survey from Germany.

UK FTSE 100: up 0.14%, or 8 points, at 5930
Italy FTSE MIB: up 1.24%
Spain IBEX: up 0.9%
Germany DAX: up 0.6%
France CAC 40: up 0.8%


Merkel confdent Italians will make ‘the right choice’

While we’re on the topic of Angela Merkel, the German Chancellor has said she is confident that the Italian people will chose to continue reforms set in place by Mario Monti when they vote in the upcoming elections.

I support the reforms launched by Mario Monti’s government, which have led to financial investors regaining some confidence in Italy, so I am sure the Italian people will vote in such a way that Italy stays on the right path.

But, a new Harris poll for the FT suggests Berlusconi is hitting a nerve with his anti-German rhetoric. Peter Spiegel wrote this blogpost on the results:

Fully 83% of [the Italians] polled believe Germany’s influence in the EU is “too strong” – the same total as Spaniards, but a stunning jump since October 2011 when only 53% of Italians felt that way.

In addition, 74% of Italians feel that Germany is showing “not enough” solidarity with the rest of the eurozone, while 55% of Germans say they’re already showing “too much”.


Berlusconi attacks Monti again, this time on Facebook

And Berlusconi is still at it, making some feisty statements on his Facebook page (link for those who want a new friend).

The former Italian PM says the ‘spread thing’ (we’re talking about the difference in yields here, not Monti’s grandson) was made up to pressure Italy and benefit Germany. Germany sold Italian bonds so other investors would follow.

[To recap, by selling bonds, bond prices fall and yields go up. High yields suggest a country is more likely to default, i.e. investors demand higher levels of interest to hold their debt. More in the eurozone crisis glossary.]

And, in a quote that may define the upcoming elections, Berlusconi says:

Monti is a German lackey, while I always stood up to Merkel.


Monti’s grandson nicknamed ‘spread’

Now a story from Italy that sounds like a hoax, but isn’t, apparently. Prime minister Mario Monti has admitted that his youngest grandson in nicknamed ‘spread’ at school, according to Reuters.

Where Italy is concerned, the spread is the difference in yield on Italian and German government bonds, i.e. a measure of the perceived likelihood that Italy will default. Monti is reported as saying:

The sins of the grandparents are visited on their grandchildren.


US trade balance reflects weak global demand

Across the pond, the US trade balance is in and it is pretty much line with expectations at -$42.2bn in October, compared with expectations of -$42.7bn. The trade gap widened 4.9%.

Exports suffered the biggest drop in nearly four years, down 3.6%. While imports dropped 2.1% to their lowest level in one and a half years. Exports have been supporting the economy since the recession ended. Their decline reflect slowing global demand from China and Europe.

The US also posted a record trade deficit of $29.5bn with China. We’ll have reaction to that as it comes in.


Greece beats debt buyback target

And Greece has beaten its buyback target, according to NET TV. Greek bankers told Reuters that total offers in the buyback reached €31.5bn. We’ll have reaction to that from our correspondent in Athens, Helena Smith, shortly.

As expected (see 11.56am), Greek banks had to step in to make up the difference between the €26.5bn that had been reached on Friday and the €30bn target.

This operation will mean Greece can now receive a new tranche of funding from the IMF and the EU and will lower the cost of debt for the country. All in all, good news.


Greek pharmacists protest

Meanwhile, Greek pharmacists are protesting in Athens against the ministry’s threat to fully liberalize their sector and demanding the payment of debts owed by the National Organization for Healthcare Provision.

Pharmacists are refusing to give medicines on credit to insured customers with the National Organization for Healthcare Provision until all debts have been settled.


Why it is hard to buy back Greek bonds

So the deadline for Greece’s cut-price debt buyback is fast approaching and Athens is expected to have met its target of ‘retiring’ €30bn worth of bonds.

Greece plans to buy back the debt for €10bn, at about a third of face value, paying with money the country has borrowed from Europe’s bailout fund.

To recap, Reuters reported last night that a total of €26.5bn was tendered at an average price of 33.4% of face value by the close of play on Friday, citing a senior eurozone official.

Senior banking executives told the agency that Greek banks, who had only tendered about 60% percent of their roughly €17bn in sovereign debt holdings by Friday, are expected to offer more to ensure the buyback hits its targets. One banker at a major Greek bank said:

All banks will support the buyback, topping up their offers. The target of 30 billion euros will be reached and may be exceeded.

But Ben Vickers at Bloomberg suggests some of the biggest winners could be investors who hold onto their Greek bonds. He writes:

At each step it looks increasingly likely that Greece will remain in the euro and eventually pay off its debts — so, although not all agree, those who hang on may get a much higher proportion of the bonds’ face value back.

Hans Humes, president of the New York-based Greylock Capital Management LLC, said his hedge fund would be tendering only part of its Greek debt because it’s “going to be a very good investment.” The yield on Greek debt holdings, he said, “is extremely high and exceeds anything else in Europe.”

“The rational investor will hold out,” Nomura Holdings Inc.’s Dimitris Drakopoulos and Lefteris Farmakis wrote in a report on Nov. 30.

The Greek government never explained why it had to extend the deadline for the buyback to today. It would be ironic that the extension was due to foreign investors’ reluctance to sell Greek bonds, believing greater returns are to be had in coming years — therefore forcing Greek banks and pension funds to tender more of their own holdings.


Capital Economics downplays ZEW survey

Taking another look at the much better than expected German investor confidence survey (see 10.17am) Capital Economics rather downplays the numbers. Jennifer McKeown writes:

December’s rise in ZEW investor sentiment provides only limited hope for the German economy given clear signs of a downturn in the recent hard data and the latest developments in Greece and Italy.

The fact that the index is in positive territory means that the majority of respondents expects German economic conditions to improve in the next six months. This seems particularly encouraging given that, unlike most of the euro-zone, Germany has so far achieved positive growth in every quarter this year.

But note that the ZEW has never been a reliable predictor of GDP growth. (See Chart.) October’s hard data on trade and industrial production suggest that the economy is very likely to contract in Q4 and the business surveys also paint a gloomy picture.


France faces decade-long slump – Ifo

In France, president Francois Hollande said yesterday that the crisis is “behind us”. Hans-Werner Sinn, a German economist and president of the Ifo Institute for Economic Research would disagree, arguing that France faces a 10-year downturn.

According to calculations by Goldman Sachs, France today is just as overpriced as Spain. Both countries must be around 20% cheaper to make their economies competitive and to achieve debt sustainability. But to be 20% cheaper, the real devaluation process won’t be easy.

This is why France must undergo a slump of a decade in which its inflation rate would be lagging by 2% behind the average of the remaining eurozone. In spite of all that, France has not come yet under a bailout program.

He says things are not so bad that the markets are expecting France to go bankrupt.

I don’t agree that France will go through this path given that in a way or another, it is already under the euro rescue package since the German capital largely flowed over France through Southern Europe. The exposure of French banks before the rescue measures computed relative to the size of the country was twice as large as the German. The Greek aid deal last week didn’t only bailout Greece but also France.


Over to Greece, again, where our correspondent Helena Smith says the crisis in Italy has sparked widespread fears about the debt-stricken country’s plight. Helena writes:

Greek officials have been watching the ructions in Italy anxiously. With the country yet to receive a euro from the €44.6bn bumper packet of rescue loans put on hold since June, the prospect of trouble in the eurozone’s third biggest economy has been met with barely concealed fright.

“If Italy were to be forced to ask for money from the ESM it would be very difficult for institutions of the European Union to cope with the crisis,” said the former government spokesman and prominent political commentator Pandelis Kapsis. “It is creating uncertainty and if there isn’t a political solution, the possibility of Italy being forced to ask for rescue funds [as a result of market pressure] will become very real.”

With Europe’s €500bn new bailout mechanism widely regarded as being far from adequate to cope with propping up Italy and Spain in addition to Greece, Portugal and Ireland, officials worry that competition for the funds will rise dramatically. “That will undoubtedly be very difficult for us,” Kapsis told me.

Using the occasion of the Nobel peace prize ceremony, the Greek prime minister, Antonis Samaras, highlighted growing fears that without an urgent injection of liquidity, the country’s cash-strapped market could see unemployment (already at a European record of 26%) skyrocket. “And that could trigger extremist phenomena, politically, that would impact the rest of Europe,” the conservative leader told fellow EU heads of state at last night’s celebratory dinner in Oslo.

Anxiety is being driven not only by the prospect of the potential aid pool drying up. Officials also worry that the turmoil in Italy
could be the death knell for potential investors just as the debt-stricken nation launches its ambitious privatisation programme.

“The uncertainty could put off investors being lured to Europe’s entire southern periphery,” said political analyst Dimitris Tsiodras.


We’ve got some analyst reaction to those perky German investor confidence numbers. Christian Schulz of Berenberg Bank writes:

Signs of an economic turn-around in Germany get stronger as the November downturn in German investor confidence turns out to have been a blip. In December, the important expectations component of the ZEW index resumed the uptrend which began in September, jumping to positive territory to 6.9 from -15.7 for the first time since May 2012. Financial analysts now expect the economy to improve over the next months, in line with our expectation that the German economy can return to expansion in spring. Investors interpret the current state of the economy as stagnation rather than contraction.

ZEW is certainly optimistic. It says the world economy will gather strength next year; the US labour market is surprisingly strong and there is some hope regarding China. Also, that the ECB and Bundesbank forecasts are pessimistic.


More news from Italy and Silvio Berlusconi’s fiery interview this morning. Our correspondent Tom Kington reports from Rome:

A day after Silvio Berlusconi claimed any criticism of his comeback concealed a hidden attack on Italian companies (including his own, presumably), the former prime minister stepped up his anti-markets rhetoric on Tuesday, suggesting he plans a fiery election campaign, with international finance cast as the enemy of honest Italians.
Speaking to one of his TV stations this morning, Berlusconi said, “What does the spread matter to us?” referring to the measurement of the difference between Italian and German bonds which is used to indicate market confidence in the Italian economy.
The spread, he added, was “a trick,” which had been used to “bring down” the government he led until November 2011.
Since Berlusconi threw his hat back in the ring the spread has shot up from 323 to around 350, revealing alarm at his return and at the decision by Mario Monti to resign.
This came in addition to his comments that Monti’s market pleasing austerity measures have “pushed Italy into recession”, and were “German-centric.”
Also speaking on Italian TV this morning, Monti warned Italians not to be fooled by “magic solutions” as the country gears up for February elections, a clear reference to Berlusconi.
Yesterday Monti said: “I believe that Italians are mature and will not believe in unrealistic promises, and I believe this maturity has grown in time, hence the understanding they have shown of sacrifices in the last year.”


German investor confidence improves

Good news from Germany where investor confidence is up, contrary to all expectations.

There was a big improvement in the German ZEW investor confidence survey, which rose to 6.9 in December, compared with expectations of -11.5, and way higher than November’s reading of -15.7. It is the first positive reading since May.

A ZEW economist says the picture demonstrates Germany is not heading into a recession.


Ireland won’t pay €3bn IOUs to Anglo Irish – minister

Meanwhile, back in Ireland, Irish communications minister Pat Rabitte has stood by his assertion that the government will not pay back the €3bn of IOUs to Anglo Irish Bank, which is due in March. Our Ireland correspondent Henry McDonald reports:

Rabbitte has said he stands by remarks made this weekend that the Irish government would not pay the IOU’s owned on the now nationalised Anglo Irish Bank.

The Labour Party minister said the coalition would not pay the next instalment of the so-called promissory notes to investors and bond holders.

Rabbitte said: “[The Government] didn’t pay the promissory note this year and as far as I’m concerned we’re not going to pay it next year. It’s as simple as that,” he said.

“We can’t pay. This was an IOU entered into by the previous government when the Anglo Irish Bank collapsed and the notion of us paying it next March doesn’t arise.”

But Taoiseach Enda Kenny struck a much more cautious tone when asked about Rabitte’s remarks.

The next payment is due in March next year. Our focus is on having a deal done before then — on re-engineering and restructuring before then so it won’t have to be paid.

I assume he is referring to the politics of this, and this is where our focus has been — with the Department of Finance, the ECB, and officials at European level — to have a decision on restructuring and reengineering the promissory notes before March.

We’ll have more on that story, as it happens. Thanks to KhakiSuit for the query.


Back in the debt markets, Spain has sold some short-term government treasury bills at lower yields than in November.

It sold €1.5bn 18-month bills with a yield of 2.78% compared with 3.03% in November. It sold €2.39bn 12-month bills at a yield of 2.56% compared with 2.8% previously.


Irish joblessness double European average

Gloomy news from Ireland, where a fifth of all households are jobless. Henry McDonald, Ireland correspondent, reports:

A fifth of all households in Ireland are jobless with the rate double the average across Europe, a new report released in Dublin reveals today.

The Republic’s Economic and Social Research Institute has found that 22% of Irish citizens are living in a jobless household.

It reports that there has been a huge leap in jobless households from 15% in 2007 to 22% in 2010 as the recession began to bite in Ireland. It says the high rate was partly due to the level of unemployment, but jobless adults in Ireland were more likely to live with children.

And the risk of living in a jobless household was higher for people with low levels of education, in lone-parent households and in households where an adult had a disability.

Commenting on the findings, Ireland’s minister for social protection Joan Burton said: “I am particularly concerned about the situation of children living in jobless households.

“There are grave social and economic risks in letting almost a quarter of Irish children grow up in jobless households.

“These risks include child poverty, limited educational achievements and ultimately, the intergenerational transmission of unemployment and poverty.


Italian markets improve

Italian markets are certainly looking up, with the main share index, the FTSE MIB, now up by 0.6%, or 92 points at 15443.

The yield (effectively the interest rate) on 10-year government bonds has also started coming down, down 13bps at 4.8%.


With the impending political instability in Italy, it is surprising markets haven’t reacted more dramatically. Kit Juckes of Societe Generale explains that it’s all to do with Father Christmas.

For the sake of clarity, and before my children read this, of course Father Christmas is ‘real’. But for some strange reason, there are lots of people who just don’t “Get It” and believe that Father Christmas is make-believe. Strangely, a lot of these people also think Italian politics are a mess, and the Euro Zone is deeply flawed, set to remain so until there’s a growth strategy and an awful lot more political union. Bah Humbug, I say to them all.

But just suppose there were evidence of the non-existence of Father Christmas. The non-believers would charge around screaming ‘I told you so’ at the top of their voices and the press would scatter headlines around saying “Father Christmas is a myth” and the children would cry. But the rest of us, who know father Christmas is real but magic – and therefore impossible to disprove, would shrug our shoulders and have another mince pie.

And so it is with the Great Italian Political Crisis. Berlusconi returns. Monti announces he will resign and hold (slightly) early elections and the cynics jump up and down. The newspapers fret about a return to full-blown crisis.

But, he says, the euro hasn’t crashed, and the difference (spread) between the yield on German and Italian bonds hasn’t risen above 3.5%…

Because all the doomsayers were short anyway, and the rest of us, who by some mysterious magical process just know it’ll all be all right (because the other Mario [Draghi] says it will be, for starters) are busy hunting yield.

There’s a 3yr auction in Italy tomorrow (and 2s, 5s and longs in Spain ) so hurdles remain in our way, but this morning, markets are optimistic about BOJ easing (no hard news, just a mood thing) and about a Fiscal Cliff deal (likewise, no hard news, just a hope thing). Chinese tax receipts were strong, Manpower surveys were OK across Asia, economic recovery signs emerging.

There’s ZEW in Germany, Trade data in the US, and
too much money chasing yield for comfort. As for the Euro, sell it in a few months, not today.


Eurozone finance ministers to discuss Greek debt buyback

Over in Greece there are reports that the group of eurozone finance ministers – known as the Eurogroup – are set to hold a teleconference this afternoon, after the debt buyback deadline. ekathimerini reports:

Euro area finance ministers will be discussing later on Tuesday a scheme launched by Greece to buy back sovereign bonds that’s crucial to unlocking aid from the International Monetary Fund and the European Union.

The Eurogroup will be holding a teleconference «in the late afternoon,» according to sources, after the close of the extended deadline for investors.


Monti wants to influence ideas in whatever role

Some quotes from Monti’s interview on state television RAI.

Politics is above all a question of culture, that is, trying to give direction to people’s ideas. I think I did it when I was a professor, I’m trying to do it in this brief period when I’m prime minister, I’m sure that whatever hat I’m wearing in future, I will continue to do it. As for the rest…

He leaves the sentence unfinished. He also said the government has made very great progress in a short time in tackling the crisis. He says Italy has to continue with economic reforms.


Meanwhile, Monti’s given another opaque response to questions about whether he will run.


Italian shares yoyo, bonds go north

Italian shares have been yoyoing up and down this morning, with the FTSE MIB dropping -0.5% at one point and then back to neutral. It is now down by 0.2%.

Yields (effectively the interest rate) on 10-year government bonds are heading north, currently around 5bps higher at 4.88%. 


Berlusconi slams Monti for being

More news from Italy, where Silvio Berlusconi has accused Mario Monti of being “too German”, as he gears up for a bitter election campaign.

Speaking on his own Canale 5 television, the former prime minister criticised Monti for pursuing economic policies dictated by Germany that had dragged Italy into recession.

The Monti government has followed the Germano-centric poliicies which Europe has tried to impose on other states and it has created a crisis situation which is much worse than where we were when we were in government.


Europe must stick with austerity – Olli Rehn

Elsewhere in the FT, vice-president of the European Commission Olli Rehn writes that Europe must stay the austerity course.

He notes that so far the correction of current account imbalances has happened mainly in the deficit countries “but this is no surprise given the scale of the challenges they face”. However, he says, surplus countries must also do their bit. 

The European Commission has said surplus countries should implement reforms to strengthen domestic demand. Germany could do this by opening up its services market and by encouraging wages to rise in line with productivity.

He goes on to insist that the growth and stability pact takes account of evolving economic conditions, citing the changes made to bailout programmes in Greece, Portugal and Spain. But, he says, the eurozone must stay the course and rebalance its books.

In order to overcome the crisis and restore confidence, we must continue to remove structural obstacles to sustainable growth and employment; pursue prudent fiscal consolidation; and turn bold thoughts into convincing actions when redesigning and rebuilding our economic and monetary union. In short, we need to stay the course and pursue decisive reforms in our member states and deeper integration in the eurozone.


Monti in talks to run for Italian PM (FT)

First a look at the papers and the FT is reporting that Mario Monti is in talks with centrist groups urging him to stand in Italy’s elections early next year. Guy Dinmore, Richard Milne and Giulia Segreti write:

Amid revived concern in Brussels and among investors that Italy could forsake its recent reforms, centrist politicians were in talks with him encouraging him to stand as a candidate. He was said to be in discussions with Luca Cordero di Montezemolo, the head of Ferrari who launched a political movement last month, and Pier Ferdinando Casini, leader of the centrist Catholic UDC party.

Centrist politicians said they expected Mr Monti to give his answer within a week. If he decided to run as their candidate he would make a formal declaration after parliament approves the 2013 budget law, possibly in the week before Christmas.

As my colleague Graeme Wearden reported yesterday, Monti ducked a question on whether he might run as a candidate. He told reporters he was “not considering this particular issue at this stage”, which is a very political answer for a man supposed to be an economist rather than a politician.


Today’s agenda

Elsewhere, there’s a key economic confidence survey out of Germany and the Italian finance minister is speaking in parliament.

  • France non-farm payrolls for Q3: 6.30am
  • UK OBR officials testify on Osborne’s autumn statement: 9.30am
  • Italian finance minister Grilli speaks in parliament: 9.30am
  • German ZEW economic sentiment survey for December: 10am
  • Eurozone ZEW survey for December: 10am
  • EU’s Barroso takes qustions: 11am
  • US trade balance for October: 1.30pm

In the debt markets, Austria is selling government bonds; Belgium is selling 3 and 12-month treasury certificates; Spain will sell 12 and 18-month bills; and the USA is selling 4 and 52-week bills and 3-year notes.


Good morning and welcome to our rolling coverage of the eurozone crisis. Greece will be hoping to meet its target to retire €30bn worth of bonds by midday today, having extended the deadline from last Friday.

It was getting close yesterday, having bought back a total of €26.5bn, on average at a third of their face value. We’ll be reporting on how it gets on.

There will doubtless be more news out of Italy, after prime minister Mario Monti promised over the weekend to resign as soon as next year’s budget has been approved by parliament. © Guardian News & Media Limited 2010

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