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Posts Tagged ‘Greece’

Fitch: Euro Governments Borrowing To Drop by 9% in 2011

In Financial Markets, Health and Environment, International Econnomic Politics, National Economic Politics, Quantitative Finance, Views, commentaries and opinions on 19.01.11 at 13:36

Fitch Ratings says in a statement that gross government borrowing for the EU15 countries will fall by 9.2% this year, to EUR 1.866 billion versus EUR 2.050 billion in 2010. Fitch expects that the run-off of government-guaranteed bank debt will start to eliminate a source of competition for sovereign debt, potentially easing sovereign financing conditions.

“Fitch expects net borrowing by central governments across Europe to fall sharply in 2011 as governments implement budget cuts.”

Douglas Renwick


In 2010 European governments had the largest borrowing requirement for decades. In a new report, Fitch notes that 2011 euro area gross borrowing is down 13% year-on-year to EUR 1.607 billion, or 16.5% of GDP.

In absolute terms, it is largest in France (EUR 386 bn), Italy (EUR 381 bn) and Germany (EUR 292 bn).

As a share of GDP, it is largest in Greece (25%), Italy (23%), Portugal (23%) Belgium (21%), France (18%) and Ireland (17%).

Overall, gross borrowing has fallen y-o-y for most European governments.

Denmark, Greece, and Portugal are the exceptions.

“Fitch expects net borrowing by central governments across Europe to fall sharply in 2011 as governments implement budget cuts,” Douglas Renwick, Director of Fitch’s Sovereign team, says in a statement.

“The dramatic rise in short-term debt issuance by EU15 countries seen in 2009 has also started to unwind, with short-term debt falling 11.2% year-on-year as of December 2010. As a result, medium and long-term debt maturities are up 13% year-on-year in 2011, partly reflecting higher public debt stocks,” Robert Shearman adds.  Shearman is co-author of the report and member of Fitch’s Sovereign team.

Although the marginal cost of funding increased for ‘peripheral’ euro area governments (Greece, Ireland, Italy, Portugal and Spain), yields declined for the EU15 as a whole, on an annual average y-o-y basis, to 3.5% in 2010 from 3.7% in 2009.

The report notes that by maintaining the average duration of their debt, peripheral countries are slowing the feed-through of higher yields to their effective rate of interest.

Fitch expects that the run-off of government-guaranteed bank debt (EUR 242 billion in 2011) will start to eliminate a source of competition for sovereign debt, potentially easing sovereign financing conditions.

(Note: Fitch defines gross borrowing as net borrowing plus redemptions on medium and long-term debt plus the stock of short-term debt at the end of the previous year, which will need to be rolled over at least once during the current year).

Here’s a copy of the report, entitled “European Government Borrowing: Steps in the Right Direction”

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Belgium Joins The PIIGS: And Then They Were Six

In Financial Markets, International Econnomic Politics, Law & Regulations, Quantitative Finance, Views, commentaries and opinions on 30.11.10 at 03:34

Those hoping for a euphoric reaction to the weekend bailout of Ireland must have been disappointed today. Even Italy, which many had started to regard as no longer a PIIG, matched its record wide. Contagion fears have certainly not been assuaged; if anything, they have become more heightened.

“And the rate at which Belgium is widening means that we may have to find a new derogatory acronym.”

Gavan Nolan


The Markit iTraxx SovX Western Europe index surged to another record wide and the two Iberian sovereigns broke the record levels that they hit last week.

Ireland’s funding needs for the next two years seem to have been settled by the bailout, albeit at a less than generous average rate of 5.8%.

And the fact that bank senior bondholders won’t be sharing the burden before 2013 has been welcomed by the markets, if not by the Irish people.

But the political risk remains ahead of the December 7 budget, Gavan Nolan at Markit Credit Research points out.

“The consensus seems to be that the coalition government will manage to get it through, but there is no guarantee that the incoming government early next year will not want to renegotiate the terms of the bailout.”

The rescue of Ireland by the EU/IMF was more or less priced into Irish spreads, so the widening was concentrated in the other peripherals (bar Greece).

“Speculation that Portugal is next in line has intensified and has now spilled over into sovereigns – such as Belgium – that were perceived as relatively safe a few months ago,” Nolan Writes.

Core euro zone countries have also widened significantly.

Banks lost the gains they made this morning, the sovereign debt concerns outweighing the relief from the lack of “burden sharing” for Irish bank senior bondholders.

AIB and Bank of Ireland senior CDS, unsurprisingly, outperformed the rest of the sector, though liquidity remains poor on these names.

(Markit Liquidity Scores of 3 and 4 respectively).

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  • Markit iTraxx Europe 115bp (+5), Markit iTraxx Crossover 515.5bp (+21.5)
  • Markit iTraxx SovX Western Europe 198bp (+10.5)
  • Markit iTraxx Senior Financials 166bp (+1.5)
  • Sovereigns – Greece 960bp (-4), Spain 353p (+28), Portugal 545bp (+43), Italy 249bp (+34), Ireland 615bp (+15), Belgium 188bp (+29)

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Spanish CDS Spreads Surpass Iceland

In Financial Markets, Health and Environment, International Econnomic Politics, Law & Regulations, National Economic Politics, Views, commentaries and opinions on 27.11.10 at 04:53

This was unthinkable only a year ago: Iceland‘s sovereign CDS spread being closer to the German benchmark than the Spanish. This means that the credit market believes that it’s safer to lend money to a bankrupt little community out in the North Sea rather than to the ninth largest economy in the world.

“The problem is that Greece, Ireland and Iceland all said the same thing shortly before they were forced to receive help.”

Gavan Nolan

This is an apple!

The Markit iTraxx SovX Western Europe hit 190 basis points for the first time, Friday. Spain and Portugal hit record wide of 325 and 515 bp’s respectively. Ireland’s bailout last weekend has caused the credit markets to hone in on the other likely candidates for financial distress; Portugal and Spain.

“Ireland and Iceland have been compared often in the last two years. The two island nations in the North Atlantic are emblematic of the excessive financial debt that precipitated the global recession,” credit analyst Gavan Nolan points out in Markit Credit Wrap.

A recent blog post by Paul Krugman highlights Iceland’s strong performance relative to Ireland since 2009, which he attributed to the Nordic country’s “heterodox” economic policies: capital controls, a large devaluation and considerable debt restructuring.

“The CDS market reflects this view – Iceland’s spreads are trading at half Ireland’s level. Even Spain is now wider than Iceland, a scenario that would have seemed far-fetched at the beginning of this year,” Nolan writes.

Adding: “The dire fiscal state of the eurozone’s peripheral economies is well-established. But the last week has seen the situation deteriorate, with sovereign spreads reaching unprecedented levels today.”


Both Portugal and Spain were forced to issue denials that they needed external support today.

Portuguese government spokesman says that reports of fellow EU members pressurizing Portugal into accepting a bailout are “totally false”, Financial Times report, The passing of the government’s austerity budget – a major point of contention with the opposition parties – did little to relieve the pressure on the sovereign’s spreads.

Meanwhile, Spain did also issuing robust denials of bailout rumours. The country’s prime minister Jose Zapatero says  there is “absolutely” no need for a rescue.

“The problem for both countries is that Greece, Ireland and Iceland all said the same thing shortly before they were forced to receive help. Investors are all too aware of the credibility issue, and this is reflected in sovereign spreads,” Gavan Nolan writes.

More details of a bailout that is definitely happening, that of Ireland, are expected over the weekend.

A report in the Irish Times today that revealed the timetable caused bank spreads to widen sharply.

The report indicated that the EU-IMF mission in Dublin is looking at ways of making senior debt holders share the burden of the bailout, i.e. taking haircuts.

“A fear of such a measure has been bubbling under in the markets for some time now, particularly after the Anglo-Irish Bank debt exchange “offer” was first announced. If does come to fruition then it will be a significant moment in the recent history of financial market,” Nolan notes.

“Senior bondholders will no longer be considered untouchable, and this will inevitably have an effect on bank borrowing costs. On the other hand, if there is no mention of such a measure then it could cause spreads to snap back,” he concludes.

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In other words – it’s gonna be another interesting Monday…

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Quiet Before The Credit (Card) Storm?

In Financial Engeneering, Financial Markets, High Frequency Trading, International Econnomic Politics, Law & Regulations, National Economic Politics, Quantitative Finance, Views, commentaries and opinions on 18.11.10 at 03:08

The european credit market seem to be holding its breath as intensive negotiations about possible financial aid to Ireland are ongoing in Brussels, with sovereign CDS spreads still at record high levels. The uncertainty surrounding Ireland may last for another week. And Greece?… However, there’s always a reason to rally.

“Some traders are suggesting that this could result in a split contract and a succession event.”

Gavan Nolan


The expected fireworks in the sovereign market failed to materialise today as spreads in the most vulnerable peripherals were range-bound. Ireland’s spreads recovered from early widening to finish the day unchanged. Finance minister Brian Lenihan said that no “formal application” had been made for aid but the government were in “intensive discussions” with its EU partners.

“We know that an EU-IMF delegation is been sent to Dublin immediately but what form the bailout will take, if it occurs at all, is uncertain. It has become clear in recent days that the assistance will be directed towards Ireland’s banks, which are dependent on the ECB for funding,” credit analyst Gavan Nolan writes in Wednesday’s Markit Intraday Alert.

Adding: “It is likely that this will have to be directed through the government rather than directly, and could take the form of guarantees rather than funds. The UK might also provide direct loans. There doesn’t appear to be any great urgency, so the market might not get clarity this week.”

Ireland didn’t need any more bad news but it received some this morning nonetheless:

LCH Clearnet announced that its margin requirement for Irish sovereign debt had increased to 30%, just a week after it had hiked it to 15%.

The news caused some widening in spreads this morning but this was reversed in the afternoon.

Elsewhere in sovereigns Greece confirmed that the next instalment of emergency loans from the EU and IMF would be delayed until January.

“Austria’s finance minister stated yesterday that the payment would be withheld because of Greece’s failure to meet pre-specified fiscal targets. But Greek and EU officials fought back today and claimed that the delay was due to administration issues and doesn’t create any cash problems “whatsoever”, Gavan Nolan points out.

Sure.

Greece’s spreads are still well over 900 bp’s.

Portugal outperformed its peripheral peers following a bill auction this morning. But the debt sale wasn’t a resounding vote of confidence from the markets – the yield of 4.813% was up sharply from the previous auction and the bid-to-cover ratio was a lacklustre 1.8.

Cadbury Holdings was the surprise worst performer among the Markit iTraxx Europe constituents today.

“The significant widening appears to have been driven by news that sterling bonds at the Cadbury level will be transferred to Kraft Foods, Cadbury’s parent. Some traders are suggesting that this could result in a split contract and a succession event,” Nolan writes.

Okay, Santa! – We’re Ready!

An important sign of things yet to come, may be reflected in the spreads of the 5-year CDS on retailer giant Target Corp.

CDS and equity on Target rallied Wednesday on earnings results: 3Q profit jump of 23%, revenue growth. Strong signs of improvement in the company’s credit card business: bad debt expenses down 64%,
drop in 90-day delinquency rate to 3.5%.

Recent credit card promotion offers shoppers a 5% discount on all purchases using a Target credit/debit card may also help boost the chain’s holiday results.

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Credits: Remember Me?

In Financial Engeneering, Financial Markets, Health and Environment, International Econnomic Politics, Law & Regulations, National Economic Politics, Quantitative Finance, Views, commentaries and opinions on 17.11.10 at 13:08

Most eyes were on Ireland soverigns in the European credit market, Tuesday. However, that’s not were the biggest action was… Another familiar nation saw their CDS spread blow out almost 100 basis points and took the investors completly by surprise.

“It is ironic that Austria is blocking the aid considering it was one of the most vocal in criticising Slovakia’s refusal.”

Gavan Nolan


It was already in the cards; yesterday the IMF revised its estimate for the Greek debt-to-GDP ratio, and not in a positive direction. But the real kicker came when Austria‘s finance minister Josef Proll indicated that his government is considering withholding its EUR190 million December tranche of assistance, citing Greece’s failure to meet its tax revenue targets.

Greece’s spreads, already underperforming before the news, widened out over 100bps after the announcement. Without the disbursement of funds from the EU, Greece would struggle to fund itself, according to Markit Intraday Alert.

The IMF could possibly step in if Austria stood fast in its refusal to participate, Markit analyst Gavan Nolan notes.

Adding: “It is ironic that Austria is blocking the aid considering it was one of the most vocal in criticising Slovakia’s refusal to bail out Greece.”

Nolan also says the Greece’s volatility had a “knock-on effect” on the other peripheral names, which were only slightly wider prior to the Austria news.

Ireland was expected to get the undivided attention of the markets today ahead of the crucial meeting of euro zone finance ministers later this afternoon.

But they didn’t count on Greece widening dramatically as its solvency again came into question.

The Irish government by Prime Minister Brian Gowen made a statement in the Irish Parliament Tuesday afternoon, underlining the need to restore confidence in the country’s economy and repeating the fact that no bailout agreement have been signed – yet.

Here’s the statement.

“It seems that the onus is now firmly on the Irish banking sector and the need for recapitalisation,” Nolan comments.

EU commissioner Olli Rehn says that Ireland’s problem is its banks, and the sovereign had no immediate funding needs.

This, of course, is not news to the markets.

“The bigger questions are whether bank senior debt holders should be made whole, the conditions of the bailout and what consequences this would have politically for the current coalition government,” Gavan Nolan points out.

The widening in the peripherals caused the Markit SovX Western Europe to blow out 9bp to 171bp.

  • Markit iTraxx Europe 104.5bp (+3), Markit iTraxx Crossover 469.5bp (+13.5)
  • Markit iTraxx SovX Western Europe 171bp (+9)
  • Markit iTraxx Senior Financials 138.5bp (+5)
  • Markit CDX IG 95.5bp (+2)
  • Sovereigns – Greece 950bp (+97), Spain 265bp (+15), Portugal 430bp (+17), Italy 191bp (+8), Ireland 530bp (+33), Belgium 140bp (+3)

The Cover Story In Credits

In Financial Markets, High Frequency Trading, International Econnomic Politics, Philosophy, Quantitative Finance, Views, commentaries and opinions on 16.11.10 at 03:47

The European credit market tumbled into another turbulent week on Monday,  rolling over the volatility from last week.  The delicate situation in the euro zone continued to grip the markets. Ireland’s government offered a public show of resistance, stating that it will stand alone and had no intention of renouncing its hard-won economic sovereignty. However, reports today suggest that a decision could be reached at a meeting of EU finance ministers, Tuesday.

“The expectation of a bailout for Ireland helped its spreads to recover from last week’s capitulation. It should also be noted that dealers are thought to be short and are likely covering their positions, thereby accentuating the rally.”

Gavan Nolan


The bailout for Ireland that many expected to be announced over the weekend didn’t materialise, though it was acknowledged for the first time that talks had taken place. Investors are now taking positions in case of an Irish bailout announcement on Tuesday.

ECB Vice-President Vitor Constancio says that Ireland could use the bailout funds to recapitalize its banks, an implicit recognition that the country’s problem is one of solvency as well as liquidity.

The remark naturally sparked a sharp rally in Irish bank spreads, albeit on usual low liquidity, according to the Intraday Alert from www.markit.com.

“Nonetheless, the expectation of a bailout for Ireland helped its spreads to recover from last week’s capitulation. It should also be noted that dealers are thought to be short and are likely covering their positions, thereby accentuating the rally,” credit analyst Gavan Nolan writes.

Elsewhere in the sovereign world; Greece – the front-runner in the current crisis – served up another reminder of the scale of the problems facing the country.

Eurostat revised upwards Greece’s budget deficit to 15.4% of GDP compared to the previous estimate of 13.6%.

The revision means that Greece will miss the target set by the IMF and the EU as a condition of its May bailout.

“Greece’s Prime Minister George Papandreou reiterated his commitment to austerity but the failure to meet the target will inevitably raise the prospect of a debt restructuring further down the line,” Nolan points out.

M&A activity in the US helped the market shrug off mixed economic data.

Caterpillar announced that it had agreed to acquire Bucyrus International, a maker of mining equipment, for $8.6 billion.

The news triggered speculation that more deals in the industrial and mining sectors could be in the offing. It wasn’t all good news for manufacturing, though.

The Empire State survey for November dropped sharply to -11, confound expectations of a slight fall.

US retail sales provided some optimism, rising by a better than expected 1.2%.

“But the sales excluding autos were up by a lacklustre 0.2%, in line with consensus estimates,” Markit notes.

BHP Billiton formally withdrew its offer for Potash Corp today, conceding defeat in the face of the Canadian government’s opposition to the deal.

The government announced that it was blocking the deal earlier this month, leaving BHP with little room for manoeuvre.

BHP’s spreads tightened further today, reflecting credit investors’ relief that the $40 billion deal wouldn’t be completed.

The company announced a share buyback after the deal fell through, reminding credit investors that the board will be under pressure to push through additional shareholder-friendly actions.

  • Markit iTraxx Europe 102bp (-1.5), Markit iTraxx Crossover 455bp (-5)
  • Markit iTraxx SovX Western Europe 162bp (-6.5)
  • Markit iTraxx Senior Financials 134bp (-5)
  • Markit CDX IG 91.75bp (-2)
  • Sovereigns – Greece 860bp (0), Spain 250bp (-11), Portugal 420bp (-20), Italy 182bp (-8), Ireland 495bp (-45), Belgium 137bp (-3)

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A Bailout Invitation Worth Considering?

In Financial Markets, Health and Environment, International Econnomic Politics, National Economic Politics, Quantitative Finance, Views, commentaries and opinions on 15.11.10 at 20:36

Not all bailouts are created equal, Irish born professor of economics, John McHale, points out in a blog post at the website www.theirisheconomy.ie, Monday. Here at Swapper we’re not sure if that’s a good thing or a bad thing. But McHale, however, thinks it might be a good thing for Ireland. He urge the Irish government to stop fooling around and get things fixed. John McHale provides important insight to what is going on in Ireland. It’s not just a matter of national finances, it’s also a matter of national pride.

“All bailouts are not created equal. An invited bailout – on the right terms, and in line with our own chosen strategy – might well be worth accepting.”

John McHale


“The increasing reliance of our banks on the ECB means we are heavily dependent on their willingness to provide extraordinary support.   But if the right deal is on offer, I worry that the government would be too inclined to resist for fear of a political backlash,” McHale writes.

After graduating at University College Cork in Ireland, John McHale earned his MBA at the same prestigious institution as FED chairman Ben BernankeHarvard University.

Today, McHale is a recognized expert on international economics, author of several books and a popular lecturer on seminars and workshops for business leaders all over the world.

He’s currently occupied as an associate professor and Toller Family Research Fellow in Managerial Economics at Queen’s University in Ontario, Canada.

Still, this blog is sceptical to the idea of developing different bailout solutions for different countries. Europe is diversified enough as it is, and to start handing out special invites to selected member states can easily spark more anger and frustration among the citizens of other troubled nations

On the other hand; whatever works….

Anyway here’s the rest of the interesting commentary by professor McHale:


Even though it’s hard to separate fact from fiction in the fast-moving bailout story, reports that the Commission and ECB are pushing for Ireland to avail of the EFSF for broader European stability reasons could change the calculation in an important way.

I still believe that Ireland’s best bet is to regain creditworthiness through a demonstration of political capacity with the budget and the four-year plan.

The alternative of being forced to seek a bailout would involve at least as much austerity as our own adjustment and would do long-term reputational damage.

But acceding to a request to avail of the facility is potentially a different proposition.   I don’t think our European partners could simply expect us to pursue a less nationally advantageous path in the interest of broader euro zone stability.   The terms would have to be mutually advantageous relative to the next best options for both sides.

One reasonable agreement that could meet this requirement is for our European partners to support our four-year plan with a credit line from the EFSF at a reasonable rate of interest (say the 5 percent rate provided to Greece).

Access to the funds would be conditional on meeting the targets under the plan, which after all is being developed with input from the Commission and the ECB.

The intention would still be to return to markets for funding rather than the use the facility, but the backstop of a dependable credit line on reasonable terms would give us a substantially greater chance of actually being able to access market funding both for the state and the banks.

Of course, it would be a mistake to exaggerate our bargaining power.

The increasing reliance of our banks on the ECB means we are heavily dependent on their willingness to provide extraordinary support.   But if the right deal is on offer, I worry that the government would be too inclined to resist for fear of a political backlash.

All bailouts are not created equal.

An invited bailout – on the right terms, and in line with our own chosen strategy – might well be worth accepting.

John McHale

 

From Greece With Anger

In Financial Markets, Health and Environment, International Econnomic Politics, Law & Regulations, National Economic Politics, Philosophy on 04.11.10 at 02:42

Greek police says all international air mail and parcel services to end from the country will be suspended for two days after at least 11 other letter bombs were detected in Athens, Tuesday. One was addressed to French President Nicolas Sarkozy, two others to the Greek parliament and eight to the embassies of Bulgaria, Russia, Germany, Switzerland, Mexico, Chile, the Netherlands and Belgium. In addition were one bombs destined for the Europol office in the Netherlands, and one for the European Court of Justice in Luxembourg.

“Both packages contained explosive devices.”

Greek Police Officials


In Berlin, the German chancellery was on high alert after police destroyed a bomb addressed to Angela Merkel. The parcel was sent from Greece by air mail and UPS delivery and was similar to the Athens letter bombs, according to the German interior ministry. The package, with the Greek ministry of economy listed as the sender, contained explosives hidden in the covers of a book.

It was detonated by security forces in a building adjacent to the chancellor’s office. Ms Merkel herself was not in Berlin at the time, Reuters reports.

Also Italian Prime Minister Silvio Berlusconi had explosives sent to his address.

A suspicious parcel was detected at the Bologna airport in northern Italy and caught fire when it was searched, AFP reports. Nobody was hurt, but the airport was temporarily closed down and several flights got re-routed to other Italian airports.

Greek Prime Minister George Papandreou condemned the bombing attempts, which are attributed by the police to anarchists. The perpetrators were trying to “disturb the social peace in the country through criminal acts,” he says.

A parcel bomb exploded at the Swiss embassy in Athens after an explosive device was thrown into the courtyard of the building. However,  there has been no reports of injuries or deaths.

It happened in spite of  heightened security in the Greek capital, after a mail bomb exploded at a delivery company on Monday. A suspicious package was also found at the Bulgarian and Chilean embassies.

Russia Today reports:

Two Men Arrested

Two men, aged 25 and 22, has been arrested in connection with the plot.

One of them is a chemistry student who was seized wearing a wig and a bulletproof vest, the Irish Times reports.

He is believed to be linked to the radical group “Conspiracy of Cells of Fire,” which has claimed responsibility for numerous attacks against Greek government buildings and banks.

The group is believed to be linked to the urban guerrillas who have killed police officers, a prominent journalist, and now vows to turn Greece into a “war zone.”

The anarchist movements are fuelled by popular anger over harsh austerity measures passed by the Papandreou government in return for an EU-IMF bailout earlier this year.

A government spokesman called the bombing campaign a deliberate attempt to “terrorise” public opinion ahead of Sunday local elections, according to the EUobserver.com.

Powerful Explosives

The air mail bombs come only a few days after two powerful explosive devices hidden in ink cartridges were detected on-board passenger planes in packages shipped from Yemen to the US.

One bomb travelled on two passenger planes before being seized in Dubai, while the other passed through Germany and almost slipped through Britain before being discovered on a plane at East Midlands Airport.

On Monday Germany introduced a ban on all passenger and cargo flights from Yemen. The move has been criticised by the Yemeni government as unfairly hitting tourists, business people and anti-terrorism fighters in the country.

In what now seems as a prediction of these events last month, the US government issued a blanket travel alert for its citizens visiting Europe, urging them to be cautious when in tourist hotspots, as fresh terrorist attacks may be under way.

The governments of EU responded differently to the alert. Germany notably being the most sanguine, without raising its threat level or issuing travel alerts to its own citizens.

Anyway – the social unrest in Europe have reached a new and higher level.

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