27.01.2011 SPAIN TIGHTENS CAPITAL RATIOS FOR SAVINGS BANKS EVEN FURTHER Another big announcement from Spain. Elena Salgado yesterday followed up on her announcement of Monday that all banks will require a core capital of 8% from September. Unlisted entities, and those  banks with wholesale market exposure of 20% of assets or more, will require an even higher core capital rate, of 9-10%, she said yesterday, according to El Pais. The article said this new stipulation would raise the hurdle further for those Cajas that have difficulty even meeting the 8% threshold. The announcement met with an outcry among Caja chief about discriminatory regulation. The article says the economics ministry accepts that the new system was severe, but such severity was needed to restore global confidence in the Spanish banking system. So far, five Cajas (see El Pais for details) have changed to bank status. Pressure for Greek debt restructuring is growing We are hearing more and more people advocating a restructuring of Greek debt. Reuters has an interview with Beatrice Weder di Mauro, a member of German’s Council of Economic Advisers, who said that crisis resolution would have to include restructuring of Greek debt.  She said a negotiation about a lengthening of maturities and lower interest rates would help. A similar comment was made by Wolf Klinz, the chairman of the crisis-response committee in the European Parliament, who said that "Greece will not make it without a restructuring." he told Reuters in Brussels. Irish opposition seeks lower interest rates The FT has an interview with Michael Noonan, finance spokesman of the main Irish opposition party Fine Gael, who said that he wants to negotiate a cut in the interest rates if his party wins the elections (which it will). He also seeks a haircut for senior bank bondholders. (We think it unlikely that the EU will accept both requests, but there is a good chance of a cut in the EFSF interest rates. At 6% Ireland is effectively insolvent.) Noonan put it quite bluntly:   "We're pointing out to our colleagues in Europe that if you keep forcing such an expensive solution on to Ireland, despite our best efforts, we may not be able to make it." New Fianna Fail leader says “sorry” for taxing too little and spending too much Fianna Fail got a new leader Micheal Martin, as predicted, after a spectacular power showdown which brought down Brian Cowen and his government. Martin wanted to turn the page and rebuild his party's tattered reputation by saying "sorry" for the economic mistakes that have brought the country to its knees, the Irish Independentreports. Martin said governments led by his predecessors Brian Cowen and Bertie Ahern had taxed too little and spent too much. His party faces devastating losses in the elections in February. Germany still holding out on EFSF, but signals compromise The German position on the EFSF is slowly becoming clear. Germany is not yet officially ready to signal support, but Merkel and other are saying that an increase is possible as part of a broader package. Frankfurter Allgemeine quotes deputy finance minister Jörg Asmussen as saying that a decision by member states to include balanced budget clauses into their constitutions would provide some room for manoeuvre on the EFSF. FT Deutschland has a story on the Merkel-Barroso dinner two days ago, which the German spokesman described as “lively” (and we all know what that means). Merkel officially maintained the position that Germany is not ready to discuss an increase in the size of the EFSF for as long as the EFSF can function (though behind the scenes German officials are among those who are working out a package for an increased EFSF. We think Merkel will accept an increase, but is playing to a sceptical audience, inside her party and the FDP.)  The article says that Barroso is no longer pushing for a deal on the EFSF in early February. A big package will be negotiated in March (at which Germany will accept an increase in the EFSF in return for a serious of measure to limit future German liability). Another failed opportunity to get a Belgian government Belgium's political crisis is set to continue after the mediator Johan Vande Lanotte resigned yesterday, after another failure to jump-start negotiation talks with the seven parties. King Albert, who this time accepted his resignation, will continue the talks with the parties today himself. Le Soir summed up the reactions of the Belgian editorialists: the Francophone editorialists blames the politicians for playing petty games, while the Flemish editorialists ruminate about new elections. De Standaardlooks at four possible scenarios of how to proceed and concludes that new elections seem more and more likely.  One scenario would involve empowering the caretaker government, exclusion of the separatist NV-A and inclusion of the liberals. Bloomberg writes that Belgium now faces the wrath of financial markets and the prospect of a credit-rating cut. About Sarkozy and the G20 Lutz Meier, FT Deutschland’s Paris correspondent made an interesting observation about Nicolas Sarkozy’s  G20 presidency. He listed a whole serious of worthwhile goals at a time when the G20 has not even been able to implement its current agenda. But Sarkozy lacks a political strategy to implement the goals, and has no ability to work out compromises. Italy’s recovery is weak La Repubblica has an article this morning on Italy’s week economic recovery. It quotes from the latest Confidustria economic analysis, according to which Italy is not participating in an otherwise vigorous global economic recovery. Italy struggles to surpass 1% of annual GDP growth, and what there is comes mostly from exports. Industrial production, as of end-December, was still 17.8% before the pre-crisis level. The domestic economy, including domestic private consumption, are essentially flat. Highest unemployment level in France since 1999 French unemployment statistics for 2010, released yesterday, show an ongoing increase of the number of unemployed, now more than 2.275 million people, an unemployment rate of 8%. In today’s print edition, Le Monde has an in-depth coverage of how the various categories of unemployed are regularly changed in order to keep people out of the official statistics, or how administrative mistakes are used as a pretext to remove persons looking for jobs from the lists. A broader measure of unemployment, counting under-employment or people employed in government-subsidised schemes (and hence vulnerable to the announced austerity plans) puts their number at well over 4.5 million, or 16%. Bonds spreads and Forex The euro still moving up, but so are bond spreads. The FT notes in a comment that Portuguese 10-year yields are back up over 7%, which is unsustainable. 10-year sovereign spreads (against 10 year German bunds) Previous Day Close Yesterday’s Close This morning France 0.339 0.347 0.347 Italy 1.602 1.622 1.619 Spain 2.084 2.121 2.152 Portugal 3.808 3.836 3.860 Greece 8.307 8.333 8.37 Ireland 5.777 5.741 5.951 Belgium 0.965 0.984 1.001 Euro bilateral exchange rates:   € at last Briefing This morning Dollar +1.3685 +1.3706 Yen +112.30 +112.61 Pound +0.8650 +0.8617 Swiss Franc +1.2884 +1.2931 Source: Thomson Reuters <- Back to: Eurointelligence