Follow Us

Follow us on Twitter  Follow us on LinkedIn
 

29 June 2012

Graham Bishop's blogs on the European Council 28/29 June 2012


Default: Change to:


This article contains Graham's thoughts, in blog form, on the events of each of the days of the recent euro area summit.


Day 2 of the European Council, 29 June 2012

Dear Vigilante,

At the end of day 2 of the Summit, have we got much more than at the end of Day 1?

Just in case anyone had forgotten “We reaffirm our commitment to preserve the EMU and put it on a more solid basis for the future”. But of more direct impact in this high-stakes poker game ….”We also endorsed the country-specific recommendations to guide Member States' policies and budgets”. But did we get what we were really after: collective, binding agreement in advance on the number of bonds they are going to stuff down our throats? The short answer is No.

But HvR is becoming quite a bondie himself… the buyer of a 10-year bond is likely to want to know what the EU will look like in 10 years when it is redeemed! Just so… And the HOSGs did set a handy precedent with banks: when “we” have complete control of bank supervison (probably enacted some time in 2013) then “we” will collectively pay - via the ESM – if we make a hash of it. So responsibility for oversight is followed in sequence by accepting collective responsibility for the results. Does that remind you of Mrs Merkel’s recent speeches?

By the December Summit, HvR is tasked with producing a “specific and time-bound road map for the achievement of a genuine Economic and Monetary Union”. The two-pack should be in force by then. All of this gives a collective control of euro area economies and thus budget deficits. So it is just an arithmetical calculation (rather than the sovereignty stuff as that has already been sold off) as to what that means for bond issuance. Given the clear implications for collective payment if things go wrong, perhaps a rather juicy Christmas present is brewing?

Yours ever,

Graham, 29th June 2012


 

First comments on Day 1 of the European Council, 29 June 2012

Dear Bond Market Vigilante,

After Day 1 of the European Council meeting, we seem to be winning – but we will have to wait for the Eurogroup lunch today to be certain. The EU-27 Summit agreed the usual stuff about pro-growth policies and spending worth about 1 per cent of GDP, but no-one cares about that group anymore.

We want to know what the real players are agreeing and the first bit of red meat to us is that the ECB will take on bank supervision (how much ? of which banks? When? - Answers by end-2012). But once the euro area has control of the key levers of bank supervison, they will allow ESM to recapitalise banks directly – subject to normal state aid rules… (are there buried messages to Landesbanken in there?) The same principles will be applied to Irish banks – so that could be a major boost to Ireland (though not to some bank bondholders…).

Spanish banks to get funding from EFSF soon and then it shifts to ESM when it exists… note the cunning move not to claim seniority for these loans – but no statement about any future loans! So nice of them not to pop €100 billion in ahead of us in Spain … for the moment, and just for Spain as they did not take this claim out of the ESM Treaty as that would be a bit late now that it is nearly ratified. So mind your eye on that one later!

The serious red meat is in the third paragraph – they re-affirmed their commitment to do whatever is necessary --- and are even showing signs of actually doing it! So EFSF/ESM will be able to “ensure financial stability” for members – and here is the catch – respecting their Country Specific Recommendations. You will ask what the hell are they?? And I think I saw a newspaper saying that meant these States would be getting condition-free money. Well, clean your glasses and have a good read – where necessary, the recommendations are drastic. That’s why Cyprus is asking that nice Mr Putin for money instead of Uncle Barroso. This bit at least to be done by next Friday.

And now off to lunch – should be quite a bit more red meat there as they have finally recognised that all this six pack/two pack European Semester stuff really gives a lot of power to Uncle Barroso. I think this may be the first time some of the Summiteers have actually read what their Finance Ministers have signed up to over the last year – probably because they just read the newspapers instead of all that interminable economic claptrap in the documents! Anyway, agreeing cash borrowing limits for bond issuance should now be a doddle – and that’s what we want. Then Mutti Merkel can agree to pro rata Treasury Bills (same guarantee structure as ECB/ESM) so that she keeps a permanent whip hand over all the backsliding Italians and Spaniards. None of these mutual liability bond things that give the whip away for a decade!

Yours ever,

Graham, 29th June 2012



© Graham Bishop


< Next Previous >
Key
 Hover over the blue highlighted text to view the acronym meaning
Hover over these icons for more information



Add new comment