EU Commission proposes better financial terms for EU loans to Ireland and Portugal

What can you say other than great news.

Discounts on 45bn of the 67.5bn we are borrowing all but secured it seems.

I am still looking forward to seeing the reduction being outlined in the forecasts in the upcoming 4-yr plan.

The can has been given an almighty kick this time! Let’s just hope that it doesn’t bounce back off the wall of future events.

Hang on Guys ….Commission proposes…..
They are also proposing Eurobonds which the real boss objects to.

So can we run a stimulus yet, or will all we hear about jobs still be talk talk?

@All

On a full year with all elements of the €67.5bn drawn down (bilaterals etc) the annual cost of funds is 3.55% taking these reductions into consideration.

@Stephen Kinsella
It looks like a big power play is taking place over in Strasbourg..

“Addressing the European parliament in Strasbourg, Barroso sounded desperate and thoroughly exasperated by European leaders’ failure to deliver fast enough on their rescue pledges.”

Not to spoil the party, but this proposal has all the looks of a rushed agenda which may be very difficult to get approved by the hardliners such as the Finns, Austrians and Dutch.

It also seems peculiar that no such initiative was flagged.

Good news for Ireland. I wonder how Italy and Spain feel about a “bailed-out” country getting funds at 3.55% as per Yields or Bust above. Incentives and all that.

You’d best concern yourself with how the lenders and the banks feel about it. There doesn’t seem to be a lot of incentivisation to rein in imprudent lending. The banks will be off on the tear again the minute this all dies down.

The Eurozone could do well to observe the efforts being made by the EU-27 to try and fix the problem.

It’s reached a stage where we have to identify countries that can recover from this and those that can’t. A Greek default is inevitable, partly because of the size of their problems, but mostly because of the inability of the Greek authorities to deliver reform.

@ stephen kinsella

We are being thrown another lifebelt but our spreads are going up. Hmmm. Should be going down. Could it be that the new lipstick is wearing off the this little PIIG ?

Maybe the EC decision is a response is just one more attempt to stop our yields from resuming their remoresless upward trajectory.

The only reason we are being thrown this life jacket is because the contagion has spread to Spain, Italy, France and even Germany itself.

The best thing for Ireland was the Germans and French getting impaled on their own fantasy about austerity being a cure for all ills while blatantly screwing us through their support for bondholder are sacred cows strategy.

“The proposals, which are expected to be approved by the council in the coming weeks, also apply to Portugal.”

Does this mean all 27 or 17 or is a majority sufficient?

@ All

Before we get collectively carried away, it should be recalled, if I understand the situation correctly, that what is at issue is the European Financial Stability Mechanism, the element of the bailout that is carried on the budget of the EU not an erstaz inter-state construction based in Luxembourg, and Luxembourg law, which is the EFSF.

The UK was initially opposed to its extension to Portugal because of the fact that the UK has to contribute to the EU budget but relented. The fact remains, however, that it has been agreed that it will not be used further, the reason being that the EU budget has other demands upon it and its capacity to raise money cannot be over-estimated.

The new members states, in particular, are anxious about the use of the EU budget because of the legitimate calls they have on it. However, it must be assumed that there will be the necessary majority in the Council to agree the Commission’s proposal.

What we will get instead of the EFSM/EFSF is the ESM which will have the status of an international treaty, under international law, where matters will be decided by unanimity (i.e. everyone will have a veto, it being difficult to give such a power to only some members, the EU not yet being the Security Council of the UN although some of the larger countries would clearly like to see it run that way).

The ESM can only be adopted once the change to Article 136, insisted upon by Germany to give it protection, apparently, from her own constitutional court, is put in place. This change will require ratification in all 27 member states. The ESM will, of course, bind only the countries that are party to it.

The interview with Delors is well worth watching. However, instead of describing the blackmail actions of the Finns and the Slovaks as a scandal, as Delors does, we should be calling collectively for a vote of thanks as their action illustrates in a manner that cannot be eluded the stupidity of going the route of unanimity and the inter-governmental approach and jettisoning half a century of the successful use of the Community method (the democratic procedure at the heart of the EU where the Commission proposes, and the Council, usually acting together with the European Parliament, disposes).

Delors crosses all the T’s and dots all the I’s and shows up what a collection of political mediocraties are now in charge of Europe’s destiny.

Sans tarrif this is the same thing as Eurobonds…as such, given the term, it appears to be committing the Euro area to a radical change in direction

As an aside, I wonder re the bilateral loans…will they be reduced to cost ?

@All

The rules according to Geithner in a crisis are that you do what it takes to get to the other side – saw an interview with him on CNBC and it’s interesting to listen what his view on matters European.

He doesn’t believe a Greek default is going to be allowed to happen nor does he believe a larger Euroepan bank will be allowed to fail – Lehman like. (I suppose the latter would likely only happen if the former did) but he is of the view that there is more than enough resources in Europe to deal with the crisis. Resources and will are sadly not compatible.

Todays announcement suggests the penny is possibly beginning to drop. A Greek/Irish/Portuguese default, if allowed to happen would be a disaster that would have Black Swans up in arms due to its fallout. I’m still of the view that a default of some sort is likely but any fallout I believe could be significantly nastier than the ‘in the price’ brigade currently believe.

By the way my view is that this concession has nothing to with the negotiation stance by the Govt – Noonan may believe that he engineered this concession but we’re a very small fish in the wider scheme of the Euro problem pond.

@DOCM

So this is the EFSM portion of our loans only. What does it require for approval by the Council. Ant idea what these (EFSM) bonds trade at?

@Seafoid
Sean O’Rourke interviewed Wolfgang Novak now with Deutsche Bank and formerly adviser to Schroeder on the lunchtime news and he was adamant that there will not be Eurobonds. The reason he gave is that Merkel would lose her fragile majority and interestingly, she is conscious that Nicky has to get elected next year. So Nicky will be pushing this evening for more money for Greece to avoid a French bank meltdown.
I take it that Novak has plenty of relevant information.

@ ceterisparibus

On your last question, I have no idea. I presume that they are listed like other bonds but in terms of what they were raised for. The EU (and the EIB) enjoy the highest credit rating (and will continue to do so as long as the markets do not view EU credit as an open spigot; the worry keeping Germans awake).

I’m with Eoin Bond. Is this “news”. When ministers talked about €800m per annum savings after the Jul 2011 summit, they included the EFSF, the EFSM and the bilaterals from the UK, Denmark and Sweden in the assumption that rates charged would fall to 3.5% (or the Balance of Payment Facility).

I suppose it is good news to have that confirmed and it would have been dreadful if the EU controlling the EFSM had told us to feck off, and it wouldn’t agree the reduction that had taken place with the EFSF (which was the subject of the summit communique in July).

So another small tick for Ireland.

I find it quite amusing to hear the plans suggested by Jamie Diamond Citigroup, Mohamed EL-Erian PIMCO, George Soros, Ackerman from Danske and many many other investors and financial industry leaders on platforms such as bloomberg, CNBC and the Financial times.
Basically all I hear when I read their plans are ‘We are protecting our clients money and investments, that is what is most important to us and is what we are being paid to do. We don’t want too much inflation which would decrease the value of our clients investments so the ECB engaging in monetary easing is not a solution. We simply want taxpayers and the general public to foot the bill for our mistaken investments. The best way to do that is to have Europe put all their debt under one umbrella.” I suppose they are just doing their job.
The worlds leading financial institutions and funds have enormous power made even larger by a common purpose and they are getting what they want.

@Bond and Jagdip

It most certainly is news, expected or otherwise. It is nice to have an assumption we have been relying on for two months approved.

@Rob S

It really is a no news story although RTE reporting it as additional savings. More bullsh1t.
The reason I asked about the approval mechanism for EFSM is, simply, I think Barroso is trying to regain some control and could face the wrath of Angela. He is proposing Eurobonds again when Angela has firmly said nein.
The interview I referred to above with Wolfgang Novak was interesting and he said something to the effect that the best thing Barroso could do for Europe was to keep his mouth shut.
nuff said!

RTE now claiming 1.5b saving?????
Is this correct.

@Jadgip
I think you are right. During the bulletin they reduced it to 1.1 to 1.2b saving.

sure whats a few hundred million..

This is good news but I am sure everyone of us is wondering how hard the “can has been kicked” this time.

Personally I suspect Ireland will be way down the “hit list” if Greece leaves the Euro.

IMHO Germany and France need to think very carefully before they let Greece depart and if they do it is imperative that both countries do everything possible to keep Greece within the European Union.

I doubt David Cameron has “popped over” to Moscow just to recall old stories about KGB experiences (apparently Gorbachevś KGB tried to make friends with young David in the 1980´s) with the Russian President who is around the same age as Mr Cameron.

At the same time, I suspect wily old Sylvio Berlusconi (who is old enough to remember the WWII and the reasons why the EEC/EU was formed) has not started to chat and cosy up with Chinese leaders just because he would like to keep up OAP membership of his “Bunga Bunga” circle now that the Libyan Colonel has vanished.

@ Chris,
Welcome to the cynics club, no doubt you were always a member, I didn’t notice before…

The wall street crew have got to be horrified that the Germans are prepared to let a country go….and this news on Ireland and Portugal has all the hallmarks of safeguarding the injured before you leave the mortally wounded to their fate….Greece is very close to on it’s own now…

By that I mean serve the wall street crew right….must read before posting

@ Bkyln,
Like most people here I have been following the crisis with a couple of major sources.
1. Impartial, experienced, regonised, educated people mostly with Masters or Doctor degrees in the area of economics and finance, from forums like VOX.eu this one, project syndacite, baselinescenario.com and othert media outlets when they get into them.
2. Professionals who work in international finance on a daily basis and run investment banks or funds. Seen on Bloomberg, CNN, FT, Project Syndacite.
3. Politicans and central bankers, IMF, EU comission etc.

Without doubt the group 1 have mainly come up with intelligent and fair proposals which consistentantly prove to be have been more correct in hindsight. Example Barry Eichergreen on Brady type Bonds and monetary easing. Simon Johnston on breaking up the too big to fail wall street banks. Kevin O’Rourke Karl Whelan and others here have also made reasonable proposals I encourage more.
The group 2 have come up with self-serving, unfair moral hazard proposals which have proven to be incorrect in hindshight. Example taxpayers bailing out subordinate bondholders in bankrupt banks.
Group 3 have been ‘captured’ by group 2 in their home countries and have eventually ended up doing what they want. Will this trend continue? Most likely. In fact I have been able to predict what will happen quite well by reading what group 2 wants to happen. I suppose groups 2s job is to shape the future.
The media in general are not reporting from group 1, always reporting from group 2
The fact that Washington has been practically ‘captured’ by wall street is common knowledge in the States. There are so many former Wall streeters in positions of power there.
Perhaps I am a cynic or perhaps I am just observing the information available.

3 starting solutions to this.
1. Ban corporate donations from elections and make all candidates post their manifestos etc on a free ‘social network’ type platform.
2. Reform central banks to have economists from NGO’s, workers Unions etc and people from outside countries sit on the boards with guys with financial experience.
3. Hopefully websites such as these continue to gain in popularity as an alternitive to media with information controlled by moguls/governments.

The futile smile of the unjustly condemned

Joe Citizen was charged with a €90 billion debt which was not his. It was a set up, but he was sentenced to hang and the ECB and Emperor Nikki sent over their Pierrepoint who calculated a drop of 5.8 feet to be sufficient for the poor innocent sod. No appeal was allowed … and all poor Joan Citizen had to comfort her was that his demise would be swift ….

Then The Commission’s Constitutional Court ruled that 5.8 was too swift and that a haircut on the rope to 3.5 feet would be sufficient ….

Poor Joe did not die quick … but slowly strangled over the following years while his lifeblood dropped into the bertie_bowl while Joan and her offspring worked in the slave_mines to make the pittances required to pay the hangman (who then paid the ECB and Nikki) and to pay for the rope.

And no_one thought about simply cuttin the bleed1n rope, freeing Joe, and setting FIRE to the scaffold.

@Seafoid

re FUBR

The question is why did Weber and Stark both leave the ECB. In simple terms the answer is that they were there to implement Germany’s wishes and did so as far as they were able. But Germany’s policy while it was good for Germany was disastrous for Europe as a whole and no doubt Weber and Stark were aware of this fact every day at the ECB.
Caught between doing what was best for Europe and what was seemingly good for Germany (in the short term) at the expense of Europe, they opted to back the Fatherland and left the Europeans to whatever fate would become them.

It was a simple case of: If we can’t run the ECB on behalf of Germany, then, aufwiedersehen.

@ ceterisparibus

You will note that I said that there was no diminution in the “importance” of the traffic under the Community method. In other words, it is not the weight of the countries that is at issue but the context within which we collectively agree to them using it (including prohibition of its arbitrary use).

Herewith, the agenda for Wroclaw (formerly the Prussian town of Breslau and the last to surrender at the end of WWII).

http://pl2011.eu/sites/default/files/users/shared/spotkania_i_wydarzenia/ecofin_agenda_en.pdf

For reference also the text of the 21 July agreement.

http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/123978.pdf

Paragraphs 6 and 8 (third indent) would appear to be the key ones as far as Ireland is concerned. With regard to 6, if Greece is sui generis, how does this tie in with the text that has been agreed for the ESM in relation to the treatment of creditors for countries “in a programme”? Interesting question!

On recapitalisation, the European Banking Authority (cf. interview with its head in Sunday Business Post last weekend) argues for the issuing of collective guarantees. This raises the knotty question of several and joint liability. But we are talking private banks here, not sovereign debt. Can Berlin find another blocking excuse on this momentous occasion? More than an interesting question!

cf. also an added intriguing ingredient.

http://www.ft.com/intl/cms/s/0/146a256e-dee1-11e0-9130-00144feabdc0.html#axzz1Y0s4Ckdh

P.S. I would reiterate the point that the Commission, no more than other of the institutions, cannot, and should not, be viewed as a monolith. There should be no confusion between its “services” and the College of Commissioners, which is an essential element of the political process but which takes its decisions in conformity with the treaties. That the quality of the incumbents varies hardly needs underlining nor the the insouciance with which some countries – notably Germany most recently – put forward candidates for appointment.

@ ceterisparibus

Herewith a snippet from the FT article.

“Britain is to sue the European Central Bank for setting rules that allegedly handicap the City of London and would force one of the world’s largest clearing houses to decamp operations to the euro area.

The unprecedented legal action underlines the depth of ministerial concern over the ECB policy, which comes as the UK engages in a turf war with France and Germany over Europe’s financial markets infrastructure.

An ECB policy paper, released in the summer, requires clearing houses to be based in the eurozone if they handle more than 5 per cent of the market in a euro-denominated financial product”.

On the other issues, although not an expert in the matter, it seems entirely logical to me that the German Bunds should have a lower yield because of their liquidity and the safe haven that they represent.

As regards the EFSF, the question is how recapitalisation might work. The 21 July agreement says that it can be done through loans to governments including in non-programme countries. But this is hardly adequate because the EFSF is itself based on the individual not the collective solvency of the governments involved. The issue boils down to several liability versus joint or joint and several liability. An S & P representative got into hot water by stating if eurobonds were based on the first, they would be rated CCC. This is the case with the EFSF which gets the credit rating AAA because of the various “credit enhancements” associated with it, which I do not claim to understand. What the Finns are looking for would fit into that category.

The EFSF would also get considerably more bang for its buck were it able to guarantee DIRECTLY fund raising by banks themselves. I suspect that this is what the US is after as it corresponds to what their own government did post Lehmans. But probably too big a morsel for Merkel to swallow.

Herewith a link to an investor presentation by the Commission from december 2010 which I happened upon on the Web. The distinction between the EFSM and the EFSF is very clear.

http://ec.europa.eu/economy_finance/publications/publication14403_en.pdf

BoE, SNB, ECB Fed etc to flood the market with dollars for all those euro banks suffering from liquidity problems.

http://www.Ft.com down again

they should buy a few hamsters.

@ All

The Central Banks have shown their mettle, and seem to have put obstinate, dithering and incompetent politicians – with a special place of honour reserved for Germany – in their place, by coming to the rescue with a common approach.

This evening could be described as that of the “duelling ECB speeches”.

LBS

http://www.ecb.int/press/key/date/2011/html/sp110915.en.html

Stark

http://www.ecb.int/press/key/date/2011/html/sp110915_1.de.html

Trichet

http://www.ecb.int/press/key/date/2011/html/sp110915_2.en.html

@ All

Apologies for the duplication.

Stark

http://www.ecb.int/press/key/date/2011/html/sp110915_1.de.html

@DOCM/JR
I still think a bond of the EU with joint and several guarantees should be priced lower than Bunds. At 90bp over bunds they must be attractive but perhaps the liquidity issue may be the problem.

@ Ceterisparibus

Now who could LBS have had in mind? There is a wide gallery in the German governing establishment, apart from Stark. A special irresponsibility prize should also, of course, go in that direction.

@ All

In case anyone missed it, the following is the key extract from the speech by LBS.

“The second reason that may explain the assessment of excessive credit risk of the euro area countries is the own goal that European countries scored when they embraced the concept of private sector involvement in October 2010. I won’t go into detail, but in essence European countries have sought to deviate from the practice followed so far and, inspired by some academics and commentators, have tried to define an arrangement according to which a country must renegotiate with its creditors the conditions under which public debt securities were issued. This is another case in which the theory can deviate greatly from the practice and – especially in a context of general instability on the markets – intensify the crisis. The fact is that since last autumn euro area countries have been paying a specific risk premium which effectively penalises them.

Charts 1 and 2 seem to suggest that the concept of private sector involvement has introduced a sovereign risk premium specific to the euro area. On 21 July this year, the heads of state and government recognised that the case of Greece is special and that the modalitities to resolve the crisis will not be repeated. The fact the markets do not seem to believe it should induce the euro area authorities to be more convincing about such a statement”.

Also Reuters “scoop” on the “Geithner proposal” which Alphaville rubbishes but on the basis of a misunderstanding, it seems to me, of what is intended. One wonders if Merkel might not at least refrain from doing the same.

http://uk.reuters.com/article/2011/09/15/uk-eurozone-geithner-efsf-idUKTRE78E3DY20110915

@ All

It seems appropriate not to allow this thread to fade away without a link to this report in today’s IT.

http://www.irishtimes.com/newspaper/breaking/2011/0917/breaking14.html

Is it about to hit the fan?

(Reuters) – Greek Prime Minister George Papandreou canceled a planned visit to the United States on Saturday to deal with a deepening crisis at home, days before international inspectors arrive to go over fiscal shortfalls.

Papandreou was in London, en-route to attend United Nations and IMF meetings, when he decided to turn back after discussing developments with Finance Minister Evangelos Venizelos, government officials said.