ESM will not have preferred creditor status

News organisations are reporting the European Stability Mechanism will not have IMF-style preferred creditor status for countries already in a bailout after all, which is a significant change from the draft treaty setting out the planned design of the fund.   Some reports here: FT; Irish Times; Reuters.

It has been apparent from the timing of spikes in bond yields, as well as from investor/rating-agency reactions, that features of the ESM’s design are considered impediments to Ireland regaining its creditworthiness.   The annoucement is therefore welcome news, though the limited initial falls in bond yields suggest it is not a panacea (see here).  Greater clarity about future debt-sustainability tests and also the form of future private sector involvement are important additional steps.   Greece-related developments are likely to be the main market movers for the time being.

The ECB Responds

After a turbulent week, RTE’s This Week programme provides a useful stocktaking with Mark Gilbert (Bloomberg), Dan O’Brien and Brian Hayes.   (You can listen here; starts min 5:19).   Part of the background is a Sunday Times front-page story on the ECB’s reaction to Michael Noonan’s Washington statements (no web link).   The paper quotes an unnamed ECB source,

“In the meantime, we may have to come to the conclusion that it doesn’t really make sense for the ECB to keep putting €100 billion into Irish banks.   What we are doing is actually illegal, but we have being doing it because we want to help Ireland.  Maybe we might come to the conclusion that we should stop,” said the ECB source.

Given the vulnerability of the funding situation facing Irish banks, this reaction from the ECB to the Minister’s comments is unhelpful in the extreme, yet quite predictable. 

Cochrane and Kashyap on Greek Debt (and Europe)

Chicago finance professors John Cochrane and Anil Kashyap give their views here.

Lorenzo Bini Smaghi

LBS’s many fans on this Blog will want to read about the controversy surrounding his continued membership of the ECB’s Executive Board. If he does not step down Nicolas Sarkozy is threatening to block Mario Draghi’s accession to the Presidency. The Financial Times account is here.

Silvio Berlusconi has called on him to step down, although no definite decision has been taken to offer him the post as head of Banca d’Italia in succession to Draghi.

According to the Corriere della Sera LBS had ‘no comment’ about the issue on leaving the palazzo Chigi. However, La Repubblica quotes him (on leaving a conference in the Vatican) to the effect that he cannot be removed before the end of his eight-year term. He underlined that ‘personal independence is one of the doctrines on which the independence of the Bank rests.’

Quarterly National Household Survey, 2011:Q1

The QNHS release is here.   Some analysis of the figures from the Irish Times here.  Overall, some modest good news.   I would say Ronnie O’Toole has it about right,

“This does not indicate that unemployment is on a downward path, and only reverses the surprise rise in the fourth quarter,” said National Irish Bank’s chief economist Dr Ronnie O’Toole.

“However, it does indicate that the labour market is very close to stabilising, with half of all industry categories showing year-on-year increases in employment. These increases, however, were not large enough to offset the continued loss of jobs in hospitality and construction.”