Showing posts with label european. Show all posts
Showing posts with label european. Show all posts
Saturday, March 1, 2014
European Update
We are pleased to introduce another recurring column, the European Update. The column will provide a look back at major European events from the previous week as well as provide a road map of the week ahead.
Greece Passes Austerity Measures
After a week of negotiations Greek political leaders finally agreed on a set of measures to cut €3.3 billion which was approved by Greek Parliament on Sunday. The measure is designed to appease official creditors in order to secure their most recent bailout package.
European Finance Ministers will meet on Wednesday to determine whether the measures are sufficient. Without the bailout funds Greece will likely be unable to pay €14.5 billion of bonds maturing on March 20th. European Finance Ministers have warned that a deal must be done by this Wednesday in order for Greece to have the funds by March 20th. The ministers will likely want to know specifically where the pledged cuts will occur, as well as endorsements of the terms of the bailout from all Greek party leaders.
As Greek parliament passed the austerity measures, riots grew in Athens; with police reporting 130 stores looted and 34 buildings set ablaze. Prime Minister Papademos has warned that, without the bailout, a hard default would drag the country “into a spiral of recession, instability, unemployment and misery.” Papademos continued to note that any politician who votes against the measure does not belong in government.
ECB Approved Broadening Collateral
On Tuesday the ECB approved measures to widen the collateral acceptable to post against its unlimited offering of three-year loans. The broadening of collateral means that the uptake for the LTRO could be much greater. The original LTRO saw banks take €489bn in three-year loans from the ECB at a low 1.00% rate. The Financial Times estimates that broadening the acceptable collateral could boost uptake by €200bn. The total pool of eligible collateral is near €14 tn.
One central bank noted that, in effect the provision means that they will accept BB- credit rating as collateral when previously they would only accept BBB-.
S&P Downgraded Italian Banks
On Friday S&P downgraded 34 Italian banks, including the nation’s largest three, Unicredit, Intensa and Monte dei Paschi. UniCredit and Intensa both saw their ratings fall from A to BBB+ with a negative outlook. Italy’s credit rating was cut two levels on Jan 13 to BBB+. S&P cited the effect of the debt crisis limiting the banks’ ability to roll over debt in wholesale market.
IMF Warns About China’s Vulnerability to Europe
An IMF report released yesterday indicated financial volatility from Europe could drag China’s growth down by as much as 4 percent below the baseline scenario. The contagion would be felt primarily through trade, with knock-on effects to domestic demand. This scenario would see global growth fall by 1.75%. The report notes that the effect could be mitigated with a stimulus amounting to 3% of GDP in 2012-13, which would lessen the impact to 1% slowing of GDP from the baseline.
See Page 6 of the IMF’s China Economic Outlook
Ahead this Week
Monday: The Greek Government is likely to reshuffle on Monday, replacing those who defected and voted against the austerity package.
Tuesday: Italian BTP auction and Greek Spanish T-bill auctions.
Wednesday: Eurozone finance ministers will meet to determine Greece’s eligibility for the most recent bailout package.
EU 4Q GDP released.
Portugal T-bill auction.
Thursday: Greece expects to finalize the “private sector involvement” in its bailout, involving private creditors to take a write-down amounting to nearly 70% loss in NPV. The formal offer is expected to be made Friday.
French and Spanish bond auctions.
Spain 4Q GDP released.
Friday: €1.6bn Greek bonds mature.
ReadThe RestEntry..
Greece Passes Austerity Measures
After a week of negotiations Greek political leaders finally agreed on a set of measures to cut €3.3 billion which was approved by Greek Parliament on Sunday. The measure is designed to appease official creditors in order to secure their most recent bailout package.
European Finance Ministers will meet on Wednesday to determine whether the measures are sufficient. Without the bailout funds Greece will likely be unable to pay €14.5 billion of bonds maturing on March 20th. European Finance Ministers have warned that a deal must be done by this Wednesday in order for Greece to have the funds by March 20th. The ministers will likely want to know specifically where the pledged cuts will occur, as well as endorsements of the terms of the bailout from all Greek party leaders.
As Greek parliament passed the austerity measures, riots grew in Athens; with police reporting 130 stores looted and 34 buildings set ablaze. Prime Minister Papademos has warned that, without the bailout, a hard default would drag the country “into a spiral of recession, instability, unemployment and misery.” Papademos continued to note that any politician who votes against the measure does not belong in government.
ECB Approved Broadening Collateral
On Tuesday the ECB approved measures to widen the collateral acceptable to post against its unlimited offering of three-year loans. The broadening of collateral means that the uptake for the LTRO could be much greater. The original LTRO saw banks take €489bn in three-year loans from the ECB at a low 1.00% rate. The Financial Times estimates that broadening the acceptable collateral could boost uptake by €200bn. The total pool of eligible collateral is near €14 tn.
One central bank noted that, in effect the provision means that they will accept BB- credit rating as collateral when previously they would only accept BBB-.
S&P Downgraded Italian Banks
On Friday S&P downgraded 34 Italian banks, including the nation’s largest three, Unicredit, Intensa and Monte dei Paschi. UniCredit and Intensa both saw their ratings fall from A to BBB+ with a negative outlook. Italy’s credit rating was cut two levels on Jan 13 to BBB+. S&P cited the effect of the debt crisis limiting the banks’ ability to roll over debt in wholesale market.
IMF Warns About China’s Vulnerability to Europe
An IMF report released yesterday indicated financial volatility from Europe could drag China’s growth down by as much as 4 percent below the baseline scenario. The contagion would be felt primarily through trade, with knock-on effects to domestic demand. This scenario would see global growth fall by 1.75%. The report notes that the effect could be mitigated with a stimulus amounting to 3% of GDP in 2012-13, which would lessen the impact to 1% slowing of GDP from the baseline.
See Page 6 of the IMF’s China Economic Outlook
Ahead this Week
Monday: The Greek Government is likely to reshuffle on Monday, replacing those who defected and voted against the austerity package.
Tuesday: Italian BTP auction and Greek Spanish T-bill auctions.
Wednesday: Eurozone finance ministers will meet to determine Greece’s eligibility for the most recent bailout package.
EU 4Q GDP released.
Portugal T-bill auction.
Thursday: Greece expects to finalize the “private sector involvement” in its bailout, involving private creditors to take a write-down amounting to nearly 70% loss in NPV. The formal offer is expected to be made Friday.
French and Spanish bond auctions.
Spain 4Q GDP released.
Friday: €1.6bn Greek bonds mature.
Sunday, August 4, 2013
European Update
Greece Receives Second Bailout
Late Monday Eurozone finance ministers approved the second, €130 billion, bailout for Greece. The bailout includes a larger-than-expected haircut on privately held debt. Greece must also still meet a list of "prior actions" before aid will be disbursed or the IMF will participate in the program.
The largest surprise included in the deal was the increased private sector involvement. Bondholders will be offered a deal with a 53.3% cut in the face value of their bonds, up from the 50% they agreed to in October. Interest rates on the new notes will be significantly lower than initially agreed upon at 2% for the first three years and 3% for the following five years, after which the bonds will yield 4.2%.
The bailout includes tough terms which would require a permanent team of monitors in Greece to ensure Athens abides by the bailout terms. Greece would be required to temporarily hold three months worth of bond payments in an escrow account. Finally, Greek leaders have agreed to change the constitution to make debt repayment a top priority of government spending.
Official lenders have also increased their share in the bailout in order to get projected debt to GDP down to 120% of GDP by 2020. They have cut interest rates on bailout loans to 0.5% for the next 5 years and 1.5% from thereon. This is expected to cut an additional €1.4 billion (2.2% of GDP) from Greeces debt burden.
Read the eurogroup statement.
ECB Exempt From Losses on Greek Debt
The ECB is set to exchange its Greek bonds, purchased for about €40 billion, for new bonds that are exempt from any legal action by Athens to impose losses. This is a step the ECB has deemed crucial in its potential plan to put profits on the holdings towards the Greek bailout.
The ECB cannot take losses on investments, as this would be directly funding governments which is against its legal charter. It will instead redistribute profits it would earn on those bonds toward a Greek bailout. In effect, the ECB will writedown its holdings to the discounted value at which it purchased the bonds. As per the final bailout deal the ECB will redistribute profits from the bonds to various central banks in exchange for substantially lowering the interest rates on Greek bailout loans.
France to Forge Ahead on Tobin Tax
France will move ahead with implementing a financial transactions tax despite not seeing Eurozone-wide support for the measure. French finance minister, François Baroin, has said the tax will charge 0.1% and raise €1 billion per year. France hopes that by leading on the tax it will pressure the rest of Europe to follow.
Many are dismissing the move as “election politics,” designed to win French President Nicolas Sarkozy votes in the upcoming elections. The French Banking Federation has noted that the tax will be “ineffective and counterproductive for the French economy,” as it is easily bypassed if unilaterally implemented. Mr. Baroin has dismissed this criticism, noting that France is prepared to implement the tax alone, but is confident others will follow suit.
China to Aid European Bailout
China has pledged to invest in Europe’s bailout funds and maintain its holdings of European sovereign debt. People’s Bank of China Governor, Zhou Xiaochuan said “China will always adhere to the principle of holding assets of EU sovereign debt,” adding further that China “would participate in resolving the euro debt crisis.” There is hope that the aid from China could bring other countries such as Japan, Russia, and even the United States to contribute as well.
Eurozone Economy Shrunk in 4Q
Europes economy shrunk by 0.3% in the fourth quarter of 2011, the first contraction in two and a half years. The decline was slightly milder than the forecast of a 0.4% decline. Year total growth for the eurozone was 0.7%.
Ahead this Week
Tuesday – Spanish T bill Auction
Wednesday – German Bond Auction
Thursday - Greek Parliament expected to vote on introducing collective action clause to bonds
Friday – Italian Bond Auction
Saturday - Group of 20 finance ministers and central bank governors meet
ReadThe RestEntry..
Late Monday Eurozone finance ministers approved the second, €130 billion, bailout for Greece. The bailout includes a larger-than-expected haircut on privately held debt. Greece must also still meet a list of "prior actions" before aid will be disbursed or the IMF will participate in the program.
The largest surprise included in the deal was the increased private sector involvement. Bondholders will be offered a deal with a 53.3% cut in the face value of their bonds, up from the 50% they agreed to in October. Interest rates on the new notes will be significantly lower than initially agreed upon at 2% for the first three years and 3% for the following five years, after which the bonds will yield 4.2%.
The bailout includes tough terms which would require a permanent team of monitors in Greece to ensure Athens abides by the bailout terms. Greece would be required to temporarily hold three months worth of bond payments in an escrow account. Finally, Greek leaders have agreed to change the constitution to make debt repayment a top priority of government spending.
Official lenders have also increased their share in the bailout in order to get projected debt to GDP down to 120% of GDP by 2020. They have cut interest rates on bailout loans to 0.5% for the next 5 years and 1.5% from thereon. This is expected to cut an additional €1.4 billion (2.2% of GDP) from Greeces debt burden.
Read the eurogroup statement.
ECB Exempt From Losses on Greek Debt
The ECB is set to exchange its Greek bonds, purchased for about €40 billion, for new bonds that are exempt from any legal action by Athens to impose losses. This is a step the ECB has deemed crucial in its potential plan to put profits on the holdings towards the Greek bailout.
The ECB cannot take losses on investments, as this would be directly funding governments which is against its legal charter. It will instead redistribute profits it would earn on those bonds toward a Greek bailout. In effect, the ECB will writedown its holdings to the discounted value at which it purchased the bonds. As per the final bailout deal the ECB will redistribute profits from the bonds to various central banks in exchange for substantially lowering the interest rates on Greek bailout loans.
France to Forge Ahead on Tobin Tax
France will move ahead with implementing a financial transactions tax despite not seeing Eurozone-wide support for the measure. French finance minister, François Baroin, has said the tax will charge 0.1% and raise €1 billion per year. France hopes that by leading on the tax it will pressure the rest of Europe to follow.
Many are dismissing the move as “election politics,” designed to win French President Nicolas Sarkozy votes in the upcoming elections. The French Banking Federation has noted that the tax will be “ineffective and counterproductive for the French economy,” as it is easily bypassed if unilaterally implemented. Mr. Baroin has dismissed this criticism, noting that France is prepared to implement the tax alone, but is confident others will follow suit.
China to Aid European Bailout
China has pledged to invest in Europe’s bailout funds and maintain its holdings of European sovereign debt. People’s Bank of China Governor, Zhou Xiaochuan said “China will always adhere to the principle of holding assets of EU sovereign debt,” adding further that China “would participate in resolving the euro debt crisis.” There is hope that the aid from China could bring other countries such as Japan, Russia, and even the United States to contribute as well.
Eurozone Economy Shrunk in 4Q
Europes economy shrunk by 0.3% in the fourth quarter of 2011, the first contraction in two and a half years. The decline was slightly milder than the forecast of a 0.4% decline. Year total growth for the eurozone was 0.7%.
Ahead this Week
Tuesday – Spanish T bill Auction
Wednesday – German Bond Auction
Thursday - Greek Parliament expected to vote on introducing collective action clause to bonds
Friday – Italian Bond Auction
Saturday - Group of 20 finance ministers and central bank governors meet
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