Author: Seamus Coffey

The joint statement of the German, Finnish and Dutch Ministers for Finance can be read here.  It includes this section on ESM bank recapitalisation.

Regarding longer term issues, we discussed basic principles for enabling direct ESM bank recapitalisation, which can only take place once the single supervisory mechanism is established and its effectiveness has been determined. Principles that should be incorporated in design of the instrument for direct recapitalization include:

1. direct recapitalisation decisions need to be taken by a regular decision of the ESM to be accompanied with a MoU;
2. the ESM can take direct responsibility of problems that occur under the new supervision, but legacy assets should be under the responsibility of national authorities;
3. the recapitalisation should always occur using estimated real economic values;
4. direct bank recapitalisation by the ESM should take place based on an approach that adheres to the basic order of first using private capital, then national public capital and only as a last resort the ESM.

This is not EU policy and there does appear to be some contradictions with the June 29th Euro Area Summit Statement but it does give some important interpretations about how that statement could be implemented.

The CSO have published their first estimate of the Q2 2012 National Accounts.  In line with the inherent volatility in the quarterly national accounts the overall directions from Q1 have been changed.  Seasonally adjusted real GDP was flat in the quarter after a fall of 0.7% in Q1.  The equivalent numbers for GNP are a quarterly rise 4.3% after a fall of 0.1% in Q1.

The Q1 2012 figures were also revised.  The 1.1% quarterly drop in real GDP has been revised to a drop of 0.7%, and the 1.3% drop in GNP initially reported for Q1 has been revised to a fall of just 0.1%.

The quarterly rise in GNP is largely the result of a drop in the net outflow of Net Factor Income rather than any improvement in the domestic economy.  The Balance of Payments release covers this in more detail which shows a €3.2 billion current account surplus for the quarter.

All of Consumption (-0.4%), Investment (-29.4%) and Government (-3.9%) fell in real terms in the quarter.  The large drop in Investment comes after a equally large increase in Q1.  All three are also below their 2011 levels.

Quarterly GDP rose because of an improvement in the balance of trade.  In real term quarterly seasonally adjusted exports fell 0.5%  but imports fell 5.2%.

In annual terms GDP in Q2 2012 was 1.1% lower than in the same period last year.  Constant price GDP for the first half of 2012 is just 0.3% higher than for the first half of 2011.

In nominal terms both GDP (0.5%) and GNP (4.3%) rose in the quarter.  Nominal GDP for the first half of 2012 is estimated to be €81.3 billion; for the equivalent period in 2011 it was €79.1 billion.

A draft was leaked a few weeks ago but here is the Commission’s Summer 2012 Review of the Economic Adjustment Programme for Ireland which was officially published this morning.

The latest Assessment Report from the Fiscal Advisory Council was published today.

Following this morning’s decision in Karlsruhe, Jean Claude Juncker has announced that the first meeting of the ESM’s Board of Governors will take place on October 8th.

This morning has also seen some fairly large drops in Irish government bond yields.  According to the yields calculated by Bloomberg this is most apparent for the three-year and five-year terms.  The nine-year has not been as affected.

With the one-year yield estimated at around 1.5% the T-Bill auction announced for tomorrow should be an improvement on July’s issue.

UPDATE: The auction results are here.