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22.02.2011 Axel Weber – the Last Man Standing If you French reactions to competitiveness pact: bizarre endorsements and some criticism The reaction for the German competitiveness pact among French commentators has been mostly positive so far, but with rather bizarre arguments. An example of this can be found in today’s Les Echos, whereJean-Marc Vittori supports the competitiveness pact on the ground that it would in effect create the seed of a transfer union. His bottom line is an explicit reference to the Versailles Treaty of 1919: “This time, Germany will pay”. With friends like these…, Meanwhile, blogger Alexandre Delaigue relays the argument that the narrative underpinning the competitiveness pact is misguided. It is wrong to portray excessive public deficits as the cause of the crisis. They are the consequence. He notes that this narrative had two advantages, from the current government’s point of view: it totally exonerates Germany from its responsibility, and helps shifting attention away from the banks’ problems. Portugal already procured two thirds of funding needs Portugal’s finance minister Fernando Teixeira dos Santos said in an interview with the Nikkei newspaper (via Reuters) that Portugal had already secured two-thirds of total funds needed for bond redemptions in April and June, of which 70% comes from foreign investors. In April, €4.3bn come due, and another €4.9bn in June. After a three week break the ECB is back in the markets, presumably purchasing Portuguese debt, to stabilise spreads at below 4.5pp. Portugal’s government deficit dropped in January, as tax revenues rose by 15% compared to last year, Jornal de Negocios reports. Spending rose 0.9% with increases in all components of expenditure, except for current transfers and subsidies. The government said this rise was due to last year’s budget only taking effect in April. Without that effect, spending would have dropped 2.6%. Interest charges increased by 23%. How DSK campaigns without seeming to In an interview in Le Parisien, Dominique Strauss-Kahn tackles several European and French topics that still fall under his mandate of IMF head. Calling for a more coordinated approach at a European level, involving more sovereignty transfers, he also had hard words about the latest bonuses schemes at banks. On French issues, he reiterated his (qualified) support for the 35-hours week and opposition to maintaining retirement age at 60. Meanwhile, his wife Anne Sinclair continues in her role as DSK’s unofficial spokesperson, accusing Sarkozy of pandering to the far right. Irish voters set to give a mandate for EU/IMF deal and further austerity measures This Friday the Irish will go to the polls and vote for a new government. Polls show a comfortable majority for Fine Gael, enough to rule without Labour as a coalition partner. The Irish Times comments that unless all the polls are completely askew, the elections will give a popular mandate for the bank bailout, the EU-IMF deal and the cuts, which has not been the case until now. The article goes on saying that behind all the excitement of a historic changing of the guard, this is the real big event. Signs of an overheating economy The composite purchasing managers index in the eurozone, including manufacturing and services, expanded strongly during February to a level of 58.4, the highest since July 2006. The German sub-index rose to 62.6, the highest level since the beginning of the series in 1996. Germany’s Ifo index rose to the dizzy heights of 111.2, the highest level since German unification. Frankfurter Allgemeine quotes Chris Williamson, chief economist of Markit, as saying that the eurozone periphery was also growing, which would reduce the growth gap. The FT writes that inflation is very likely to have risen further in February. Stark says don’t panic about overnight borrowing spike Jürgen Stark plays down the importance of the rise in the emergency funding, saying this was due to special factors, notably an increase in the borrowing of two Irish banks. He said the rise in the use of the marginal lending facility, which shot up to €16bn last week, would not have an impact on the ECB’s monetary policy, or on its policy to phase out special liquidity support, according to Reuters. Emergency borrowing remained elevated on Monday, at €14.1bn. The end of the world as we know it Lorenzo Bini Smaghi has been the ECB’s front man in the campaign against debt restructuring from the outset. He is now upping his rhetoric as the hour of truth is getting closer. In a speech yesterday, as reported by Reuters, he said that restructuring would bring a major breakdown of financial, economic and social structure of our societies. He called it a “huge leap into the unknown”. Bonds spreads, forex and inflation expectations Pressure on Portuguese bonds continued yesterday. The euro/dollar remains volatile. 10-year sovereign spreads (against 10 year German bunds)
Euro bilateral exchange rates:
Zero Coupon Inflation Swaps
Source: Reuters |  |
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