Chillin' out till it needs to be funded
And much like the Deutsche Borse bid from a decade ago, the German climb-down on the penultimate hour of doomsday worked out fine for Europe. With France and Germany agreed to rollovers, The ECB’s role in the Eur 112 billion bailout of Greece tabled in 2011 is well underway,whatever be the other design of the Financial rescue package. The voluntary rollovers cover Euro 30 bln worth contribution from Private creditors’ role in the second bailout program that transfers the tragedy out of Greece finally as austerity measures already impossible have now become politically chicane to drop.. Greece can now concentrate on rebuilding with big brother Germany that much close to bankruptcy but still playing the role of big brother to the hilt. After July’s Euro 12 billion, another Euro 6.6 bln is due for rollover in August and Greek politicians had been looking to restructure over Euro 270 bln out of their Eur 350 bln sovereign debt
Will last minute intervention last the course?
Apart from the 56% vote for the developed world which is now with Lagarde as IMF’s candidate, The ECB also now has that many more wannabes who are just signing the bailout of each peripheral hoping they are not next. Mario Draghii too takes over from Jean Claude Trichet and has his work cut out for him as the ECB holds only $3 bln in Tier I capital for all the restructuring it can do.
France itself sits on a debt equalling 115% of GDP, thence the risk is transferred to european banks holding credit for each of the member nations as debtors and creditors. EU has also agreed to deposit guarantees for banks in the region in a measure that still amounts to a little bit of brinksmanship, waiting for the storm to tear apart the ship, before putting on the sails and there this discipline centric approach may suffer some vertical stresses aka McSwans that could change the turf in the next 3 months itself.
Derivatives trading rules, being mulled for both OTC and exchange traded derivatives, looking for limits and standardization for commodities contracts as Europe has finished the Basel 3 agenda. However arguments between France and Germany on each topic leave the scope for reform tenuously frail and firefighting signs refuse to subside in the 25 nation Euro and signs of likely losses to the Euro territories because of regulatory arbitrage continue to be strong.
European approach to regulation is losing a lot of custom for Europe even as Germany gets a reprieve in terms of a growing Export basket in the Common Market countries but reduces global trade elsewhere. Japan’s tsunami troubles could have been a good opportunity for Germany to rebound back in global trade as its machinery exports are probably good for the gander too.
Will the Contagion spread?
The Vienna intiative of 2009 and the European Financial Stability funds amounts show an interest in intervention that precludes any default event for sovereigns and also ensures the euro can live further. However, on hand right now is a liquidity crisis for the banks and Spain, Italy and Ireland continue to be theaters of interest, shifting global investor attention to Europe, even as Oil is falling and the inflation breach has been crossed for may at least. However the amounts in the EFSF are less than the required amount by estimates varying between Euro 1 Trillion and 3 Trillion
Italy in the meantime is likely up for a downgrade by Moody’s from AA2. Greece is rated CCC by S&P. IMF’s spillover report warning of Euro instability is due tomorrow even as banks stay prime candidates to spread the contagion even as Germany’s agreement takes care of the disbursements for July
Contagion is the big fear. French banks have €49bn of exposure to Greek sovereign debt, German banks €30bn, and UK banks €14bn, according to Fathom Consulting’s analysis of Bank for International Settlements’ data.(Telegraph)