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Debt crisis as it Happened

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European Sovereign Debt Crisis, as its happening.

European Sovereign Debt Crisis, as its happening.


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  • 1. Original Article at http://www.telegraph.co.uk/finance/debt-crisis-live/9355749/Debt-crisis-as-it-happened-June-26-2012.htmlCreated and Submitted by www.investmentcontrarians.comDebt crisis: as it happened - June 26, 2012New proposals for a “banking union” pose a threat toLondon, proposals prepared for Fridays EU summitshow, while Angela Merkel says there wont be shareddebt in Europe "as long as I live".Latest19.05 Thats where we leave our live coverage for today. Well be back first thing in themorning to pick up where we left off. Have a good night.18.43 Our own Jeremy Warner has looked long and hard at the new EU Grand Plan anddecided: it wont work.Ambitious plans to be put before this weeks EU summit – yes indeed, yet another crisissummit – to turn the eurozone into something much closer to a fiscal union make for easyanalysis. On almost any level you care to take, they wont work.As for the immediate crisis, it does nothing to address that. Wriggle and squirm asEurope might, it still remains hard to see how this crisis can end in anything other thanan almighty pile up. www.investmentcontrarians.com
  • 2. 18.11 A lawmaker from Germanys governing coalition says Angela Merkel told a partymeeting that there wont be a full shared debt liability in Europe "as long as I live". Thatrules out Yanis Varoufakiss second point in the post below...18.09 Greek economist Yanis Varoufakis has published an interesting interview inwhich he says his countrys economy is "finished":They cannot fix the Greek economy. The Greek economy is finished. The Greek economyis in a great, great depression. The growing social economy is in its long, long winter ofdiscontent. There is no power, no force within the Greek economy, with Greek societythat can avert – it’s like – imagine if we were in Ohio in 1931 and we were to ask: whatcan Ohio politicians do to get Ohio out of the Great Depression? The answer is nothing. www.investmentcontrarians.com
  • 3. He adds that there are three steps to saving the eurozone:• Unify the banking system, to have it being funded directly, not through nationalgovernments.• Common European debt - eurobonds.• An investment policy which runs throughout the single currency area.17.53 Reuters reports that eurozone governments are discussing removing the preferredcreditor status from the ESM.17.30 Ladbrokes has slashed the odds on a country announcing it will leave the euro atthis weeks summit to 6/1 from 10/1.It also has odds of 25/1 that Greek ministers will "set an example to the nation" anddecide to camp during the summit, which starts on Thursday, or stay at a low-cost hotel. www.investmentcontrarians.com
  • 4. 17.01 European markets are closed for the day. Spanish and Italian stock markets havecontinued to fall.The IBEX 35 in Madrid finished the day down 1.4pc, while the FTSE Mib in Milanended 1.1pc lower. The FTSE 100 in London finished flat, at 5,446.96.16.50 Eurozone finance ministers will discuss formal requests for financial assistancefrom Spain and Cyprus this afternoon in a hastily-arranged teleconference.According to AFP, the Eurogroup will "rapidly examine the requests from Spain andCyprus".16.40 Some good news (finally)! The Dutch economy managed to crawl out of recessionin the first three months of the year, according to revised figures from the governmentsstatistics office.Previous estimates showed the economy had contracted by 0.2pc in the first quarter. Thishas been revised to show growth of 0.3pc. This was mainly due to revised consumerspending figures, which were not as weak as previously thought.16.29 Chris Beauchamp at IG Index comments on todays market movers ahead of theclose:Despite several valiant tries, markets remain stuck in a downbeat mode for a secondconsecutive day. Weaker figures from the US, in the shape of consumer confidence andthe Richmond Fed index, combined with a lingering sense of nervousness ahead of thisweek’s eurozone summit. This week’s summit is the nineteenth meeting of Europeanleaders, but it seems to be doomed to the same inglorious failure as all its predecessors.Germany once again stuck to its familiar line on the pooling of debt, saying this would www.investmentcontrarians.com
  • 5. require greater oversight from Brussels. After more than two years of crisis we are leftwith the same problem, namely that Germany won’t take on everyone else’s liabilities,while the other countries remain opposed to a reduction in their sovereignty. Onewonders how long the eurozone can carry on in this fashion.15.41 Italys prime minister, Mario Monti, says that Europe needs a mechanism to limitbond spreads widening for countries that respect public finance rules. Hes also said thathell send a letter to European leaders tomorrow explaining the progress that Italy hasmade with reforms.15.23 US consumers grew more pessimistic about the economy for the fourth consecutivemonth in June. The Conference Board said its consumer confidence index fell to 62, itsweakest level since January. The research firm revised the May reading a half-pointlower to 64.4. www.investmentcontrarians.com
  • 6. 14.57 Away from bond auctions and eurozone grand plans, George Osborne is to halt thefuel duty rise in August and freeze it for the rest of the year. The Telegraphs JamesKirkup tweets:<noframe>Twitter: James Kirkup - Osborne: We will stop any rise in fuel duty thisAugust, and freeze it for the rest of the year.</noframe>14.54 We reported earlier (13.42) that Italys government said it will give strugglingBanca Monte dei Paschi di Siena, founded in 1472, financial aid of up to €2bn. In honourof that, weve put together a picture gallery of the worlds oldest banks.14.44 Jeremy Warner, the Telegraphs assistant editor, has blogged on how thismornings public finance figures threaten the Chancellors fiscal mandate: www.investmentcontrarians.com
  • 7. The run of decent economic news came to an abrupt end this morning with theannouncement of an exceptionally poor set of numbers on the public finances. So muchfor austerity. Central government spending and the deficit are continuing to rise, bothyear on year and year to date.If this carries on, then there is a real danger of the Office for Budget Responsibilityfinding the Government in breach of its fiscal mandate when it does its next update at thetime of the autumn statement.The fiscal mandate requires both that the national debt is falling as a proportion of GDPby the end of the parliament and that the structural deficit is eliminated within five years.The first of these targets is fixed, the second is adjudicated on a rolling basis.This makes the mandate pretty flexible, for it allows for use of the automatic stabilisers ifgrowth stalls, as it has, and therefore for the holy grail of balanced budgets to be movedever further into the future. But is it flexible enough to save George Osborne theembarrassment of having to admit he may be in breach? Perhaps not.14.26 The Financial Times is running a story this afternoon that Herman van Rompuyscaled back his plan for the eurozone (see 10.47) with the document on fiscal union lessambitious than previous drafts. The Telegraphs Bruno Waterfield tweets:Twitter: Bruno Waterfield - gang of 4 EMU report as published heavily scaled backcompared to draft reported by @SpiegelPeter - the influence of France?14.10 Some news from the other side of the Atlantic. In America, home prices have risenfor a third month on the trot, suggesting the recovery in the housing market is gainingtraction.The S&P/Case Shiller composite index of 20 metropolitan areas gained 0.7pc on aseasonally adjusted basis, topping economists expectations of 0.4pc.On a non-seasonally adjusted basis, prices fared even better, rising 1.3pc.13.54 A brief survey of the markets shows that the FTSE 100 is just about keeping itshead above water, rising 8 points to 5459. But, Spains IBEX is down 25 points to 6599and Italys MIB is down 32 points to 13081.Spains 10-year yield is up 10.4 basis points to 6.7pc while Italys is up 5.5 basis points to6.04pc.The euro is trading at €1.2468.13.42 The worlds oldest bank is in need of a pick-me-up. Italys government said it willgive struggling Banca Monte dei Paschi di Siena, founded in 1472, financial aid of upto €2bn. www.investmentcontrarians.com
  • 8. On top of the aid, the government is to substitute a loan it gave the bank in 2009 with anew loan, bringing the total amount of aid channelled into BMPS to a maximum of€3.9bn.13.30 We are learning a little more about the man in charge of Greeces finances. YannisStournaras, the 55-year-old economist appointed today as Greeces new financeminister, is known in Greece as "Mr Euro"."Mr euro," aka Yannis Stournaras (Photo: AFP)Reuters reports that he is seen as a liberal economist and an ardent supporter of structuralreforms to open up the economy and make it more competitive - ideas that are likely towin him favour with Greeces exasperated foreign lenders. www.investmentcontrarians.com
  • 9. He was chief economic adviser and aide to former Prime Minister Costas Simitis whenGreece was negotiating entry to the euro, which it joined in 2001.It was unclear whether Stournaras would be ready to go to a European summit onThursday and Friday. Prime minister Antonis Samaras, who emerged from hospital onMonday with a bandage over one eye following surgery, will miss the meeting.13.05 Citigroups Willem Buiter reckons that after Spains bailout, it could soon be atroika programme:After Spain’s still-to-be-finalised euro area bank bail-out, we expect it to be in a troikaprogramme with sovereign conditionality, quite possibly soon.After Spain’s bank bail-out, Cyprus or Italy will be the next euro area countries to applyfor a troika bail-out, in our view. We believe the need for a sovereign bail-out for Spainand Italy will be driven by a lack of affordable access to market funding and a lack ofcredibility of the respective sovereigns’ commitments to engage in sufficient fiscal andstructural reform.These sovereign bail-outs are highly likely to involve fiscal and structural reformconditionality for the sovereign. They are also likely to aim to retain partial marketaccess for Italy and Spain, relying on a mix of ECB-subsidised funding and financialrepression to ensure take-up of the residual government funding needs by domestic banksand other financial institutions.Spain or Italy may be able to access one of the precautionary EFSF/ESM programmes,but those programmes would still likely come with sovereign conditionality. Primary orsecondary market purchases by EFSF/ESM could be part of either a precautionary or a www.investmentcontrarians.com
  • 10. normal EFSF/ESM programme. Any programme would require a request from Spain orItaly and unanimous non-objection by the Eurogroup.12.41 Ian Dey, deputy business editor at The Sunday Times, gleans this lesson fromGreece:<noframe>Twitter: Iain Dey - New lesson from <ahref="http://search.twitter.com/search?q=Greece" target="_blank">#Greece</a>...finance ministers should be appointed on same basis as ageing footballers: subject tomedical.</noframe>12.35 Its official. Yannis Stournaras is Greeces new finance minister. The office ofAntonis Samaras, prime minister, said:Prime Minister Antonis Samaras has decided to name Athens University economicsprofessor and Director of (economic think-tank) IOBE Yannis Stournaras as FinanceMinister12.24 Spains finance minister, Luis de Guindos, has been talking today about the rescuepackage for the countrys banks. Spain made a formal request for a package worth up to€100bn on Monday.Scuppering hopes for a quick rescue of the countrys ailing lenders, Mr de Guindos said:"This is a very complex package, the negotiation will take time."He added that talks with EU authorities would focus on four areas: conditions of thecredit line; restructuring conditions for banks that receive aid; conditions for the wholesector; and other measures such as setting up "bad banks" for parking and selling offtoxic real estate assets. www.investmentcontrarians.com
  • 11. 12.09 A midday round-up of developments so far today:- Spain saw its short-term debt costs almost triple in an auction this morning as its requestfor a €100bn rescue package for the countrys banks failed to stem market fears.- A report compiled by Barroso, Van Rompuy, Draghi and Juncker ahead of this weekseurozone summit presents a plan for rescuing the eurozone including creating a closerfiscal and banking union that would turn Brussels into a finance ministry for all eurozonemembers. Under the plan, the European Union could be handed powers to changecountries budgets if they breach debt and deficit rules.- Finance chiefs of the eurozones four biggest economies - France, Germany, Italy andSpain - will hold last-minute talks in Paris on Tuesday evening to try to narrowdifferences on the currency areas future- Mervyn King has warned that the outlook for the UK economy has worsened duringrecent weeks due to the eurozone turmoil; that came as public sector net borrowing rosemuch more than expected12.01 Some more chatter on who could get the post of Greek finance minister followingthe resignation of Vassilis Rapanos on Monday due to ill health. According to Reuters,four officials have suggested that Yannis Stournaras, a respected economist who was partof the team that negotiated the countrys entry into the euro, could get the job.11.49 Mervyn King has warned that the outlook for the UK economy has worsenedover the past few weeks due to the turmoil in the eurozone:In the last six weeks... I am very struck by how much has changed since we produced ourMay Inflation Report. I am pessimistic [about the eurozone outlook]. I am particularlyconcerned because over two years now we have seen the situation in the euro area getworse and the problem being pushed down the road. www.investmentcontrarians.com
  • 12. 11.41 European Commission president, Jose Manuel Barroso, has also been speakingthis morning. Lorcan Roche Kelly, chief Europe strategist at Trend Macrolytics, tweets:<noframe>Twitter: Lorcan Roche Kelly - Journalist at Barroso press conference askshow easily negotiations will proceed with new Greek government "When they are out ofhospital"</noframe>11.14 Italy and Spain are not the only ones to have been auctioning debt this morning -the UK has also been selling index-linked bonds. Ed Conway, economics editor of SkyNews, tweets:<noframe>Twitter: Ed Conway - Wow. Uk govt sells &#163;1.25bn of 17yr index-linked(eg inflation proof) bonds at a NEGATIVE yield: -0.108%. And covered healthy 1.83times</noframe><noframe>Twitter: Ed Conway - Obviously that -0.108% on those uk govt bonds is a realyield - eg after inflation. Nonetheless shows how deep into the twilight zone weare</noframe>10.50 Following Spains debt auction earlier, the results are now in from Italys auction.The country paid 4.7pc to sell two-year paper, a new high since December. That reflectsincreasing investor doubts over whether the summit later this week will deliver a decisiveanswer to the single currencys crisis.Italy sold a total of €3.9bn in zero-coupon and inflation-linked bonds - near the top of itsplanned range - ahead of a six-month bill sale on Wednesday and a more challengingoffer of five- and 10-year debt for up to €5.5bn on Thursday. www.investmentcontrarians.com
  • 13. 10.47 The European master plan that we embedded earlier (10.32) does not seem to bedisplaying correctly for everyone, so heres a link to the report presented by Herman vanRompuy, European Council president, in case you cant read it on our blog.The Telegraphs Bruno Waterfield has also penned a dispatch on the plan:It seems to be curtains for the London based European Banking Authority – the new europlan for "an integrated financial framework" does not even mention it.The text says:"An integrated financial framework should cover all EU Member States, whilst allowingfor specific differentiations between euro and non-euro area member states on certainparts of the new framework that are preponderantly linked to the functioning of themonetary union and the stability of the euro area rather than to the single market."It goes on to stress the importance of "a single European banking supervision system"without mentioning the EBA and highlighting a new role for the ECB.There are also chilling words for the government with the strong emphasis of putting EUsupervisory structures above national bodies. Germany will take no prisoners on thisdemand and is not inclined to give the City of London "safeguards" after repeated callsby Britain for members of the single currency to backstop banks."The current architecture should evolve as soon as possible towards a single Europeanbanking supervision system with a European and a national level. The European levelwould have ultimate responsibility," the text says.A senior eurozone official told me: "If we want to protect our currency we need tighterstructures, this view is shared by David Cameron because the UK also suffers when theeurozone is weak. Why should we pay a price to make safeguards to do what others askus to do?"Britains only leverage, which could lead to a major summit row is a veto over the use ofthe ECB as a banking regulator, which requires unanimity.Germany and France support putting the European Central Bank in charge of eurozonebank regulation. This means gutting the current London-based EBA, which wouldbecome a glorified single market watchdog, and shifting power to Frankfurt."Such a system would ensure that the supervision of banks in all EU Member States isequally effective in reducing the probability of bank failures and preventing the need forintervention by joint deposit guarantees or resolution funds. To this end, the Europeanlevel would be given supervisory authority and pre-emptive intervention powersapplicable to all banks. Its direct involvement would vary depending on the size andnature of banks. The possibilities foreseen under Article 127(6) TFEU regarding the www.investmentcontrarians.com
  • 14. conferral upon the European Central Bank of powers of supervision over banks in theeuro area would be fully explored."Many countries blame the EBA for failing to act on the Spanish banking crisis leading anEU bailout that is expected to cost the eurozone €100 billion."A credible EU banking supervisor is the right demand, the EBA in its present form is notcredible,” said a EU official.10.41 The Bank of England governor has also commented on the computer glitch atRBS. He says that the problems were not related to liquidity at all, but are operational andthere is no risk to the general payment system. Jeremy Warner of the Telegraph alsotweets:<noframe>Twitter: jeremy warner - <a href="http://search.twitter.com/search?q=BofE"target="_blank">#BofE</a>s King promises "very detailed" investigation of what wentwrong at RBS. Shows how banking should focus on basic services.</noframe>10.38 A couple of highlights of what Merv has said so far:Monetary policy still does work by injecting more money into the economy.Theyve (British banks) all been pre-positioning large amounts of collateral under thediscount window facility and we welcome that.10.35 Mervyn King is speaking this morning in front of the Treasury Select Committee.Our economics editor, Philip Aldrick, is there and tweets that its rather busy...<noframe>Twitter: Philip Aldrick - Huge queues at Portcullis House. Even BoEs DavidMiles turned way and told: Everyones giving evidence today. Get in line.</noframe>10.32 In case you fancy reading the whole thing, heres a copy of that Euro master planthat we mentioned earlier:10.17 Some more comment on this mornings public finances data. Olan Kerrison, headof product management at Moneycorp, described the Chancellors Plan A as "kaput".The spike in public sector borrowing, to £17.9bn in May, is a body blow to theChancellor and the coalition governments handling of the economy.There is often a dip in tax revenues in May, following the end of the tax year, but thisdoesnt hide the fact that borrowing is significantly higher than in May 2011 when it wasjust £15.2bn. www.investmentcontrarians.com
  • 15. The simple fact of the matter is that tax revenues are down — and borrowing up —because the economy is weak. Unfortunately, there is every chance the economy willweaken further in the months ahead as the Eurozone unravels.10.03 Howard Archer, chief UK and European economist at IHS Global Insight,says that the public finances in May make bleak reading for Chancellor George Osborne.The May public finances make pretty bleak reading for the Chancellor. Only two monthsinto the fiscal year, it is evident that Mr. Osborne is facing a major battle to meat hisfiscal targets for 2012/13 and is in grave danger of losing it. The current weakness of theeconomy is clearly taking a serious toll on tax receipts while spending is currently risingat a well above target rate. And just to rub it in for the Chancellor, the Public Sector NetBorrowing Requirement in 2011/12 was revised up to £127.6 billion from the previouslyreported £124.4 billion.He adds:Of course it is early days in the fiscal year, and much can yet happen. But the Chancellordesperately needs the economy to quickly return to growth, or else he faces suffering asignificant shortfall on his public finance targets. And a growing threat to the UK’s AAAcredit rating which is so prized by the government.09.54 The scores on the doors from Spains auction are in and they are not particularlypretty, with Spain having to pay more to borrow. Spain has sold both 3-month and 6-month treasury bills; the yield on the 3-month has leapt to 2.4pc from 0.8pc previouslywhile the yield on the 6-month has climbed to 3.2pc from 1.7pc. Demand has alsodropped off, with the bid-to-cover ratio on the 3-month dropping to 2.6 against 3.9 lasttime and falling to 2.8 versus 4.3 last time on the 6-month. www.investmentcontrarians.com
  • 16. 09.43 Some more details and reaction on the borrowing figures. The Office forNational Statistics said that public sector debt as a percentage of GDP (excludingfinancial interventions) was 65pc - a record for the month of May and the third-higheston record.Ross Walker, an economist at RBS, said: "Todays figures arent so bad but it still lookslike a sizeable underlying deterioration."09.37 Public sector net borrowing in the UK was higher than expected in May afterincome tax receipts fell, while spending rose. Borrowing, excluding financialinterventions, came in at almost £18bn compared to a forecast of £14.8bn.09.20 A quick scoot round the markets: the FTSE 100 is up 12 points to 5462; FrancesCAC is up 7 points at 3028; Germanys DAX is 19 points higher at 6151. Spains IBEX isup 44 points to 6668 and Italys MIB is up 48 points to 13163.Italys 10-year bond yield is hovering just below 6pc, rising 1.5 basis points to 5.998pc.Spains is up 3.6 basis points to 6.6pc.Meanwhile, the euro is trading at $1.2520, having touched $1.2471 yesterday.Clear Currency said that the euro is ignoring bad news, remaining "suprisingly resilient inthe face of an every deteriorating environment".09.04 Reuters has now got hold of the document prepared for this weeks eurozonesummit. The report was compiled by European Commission President Jose ManuelBarroso, European Council President Herman Van Rompuy, European Central BankPresident Mario Draghi and President of the Eurogroup Jean-Claude Juncker (picturedbelow with Draghi). www.investmentcontrarians.com
  • 17. According to the newswire, it suggests the eurozone could create a treasury for the singlecurrency and issue eurobonds in the medium term as the final stage of a fiscal union.Here are some other snatches from the report:In a medium-term perspective, the issuance of common debt could be explored as anelement of such a fiscal union and subject to progress on fiscal integrationSteps towards the introduction of joint and several sovereign liabilities could beconsidered, as long as a robust framework for budgetary discipline and competitivenessis in place to avoid moral hazard and foster responsibility and complianceThe process towards the issuance of common debt should be criteria-based and phased,whereby progress in the pooling of decisions on budgets would be accompanied withcommensurate steps towards the pooling of risksSeveral options for partial common debt issuance have been proposed, such as thepooling of some short-term funding instruments on a limited and conditional basis, or thegradual roll-over into a redemption fund08.49 Jim Reid at Deutsche Bank points out that the markets are not expecting muchfrom this weeks summit: "After 3-4 days of lower markets it seems that expectations forthis weeks EU summit have been scaled back. Simultaneously the market has moved onto be worrying about global growth." He adds:Ahead of this summit it doesnt seem from Mrs Merkels comments yesterday that she issoftening her rhetoric. She said yesterday in Berlin that "I say quite openly: when I thinkof the summit on Thursday Im concerned that once again the discussion will be far toomuch about all kinds of ideas for joint liability and far too little about improved oversight www.investmentcontrarians.com
  • 18. and structural measures". She also added that "euro bonds, euro bills and Europeandeposit insurance with joint liability and much more" are "economically wrong andcounterproductive". So the summit is likely to be one where several ideas are put on thetable but that agreement on anything meaningful is likely to be low. It seems like thecrisis needs to take another turn for the worse to focus the minds on a more radicalagenda.08.38 Ian Traynor, the Guardians Europe editor, has got his mitts on a copy of themaster plan for the future of Europe and the single currency. Hes written a few tweets onthis grand plan:<noframe>Twitter: Ian Traynor - <a href="http://search.twitter.com/search?q=europe"target="_blank">#europe</a>sgrandplan "a coherent complete architecture to be put inplace over next decade, possible changes to EU treaties at some point."</noframe><noframe>Twitter: Ian Traynor - <a href="http://search.twitter.com/search?q=europe"target="_blank">#europe</a>sgrandplan - warning to cameron. "integrated financialframework (bank union) should cover all, whilst allowing differentiations"</noframe><noframe>Twitter: Ian Traynor - <a href="http://search.twitter.com/search?q=europe"target="_blank">#europe</a>sgrandplan "possibilities under treaty on conferral on ECBof powers of supervision over banks in euro area to be fully explored."</noframe>08.24 With Greeces new finance chief resigning yesterday, having spent the last fewdays in hospital, thoughts are turning to who will take up the mantle. Greek newspaper,Kathimerini, tweets:<noframe>Twitter: Kathimerini English - Caretaker Development Minister YiannisStournaras is being pegged as most likely finance chief <ahref="http://search.twitter.com/search?q=greece"target="_blank">#greece</a></noframe>08.09 The FTSE 100 had made modest gains at the open, rising almost 17 points to 5467.07.56 Another chinwag is in the offing. French finance minister, Pierre Moscovici, hastold France Info radio that he will meet with the finance ministers of Germany, Italy andSpain in Paris this evening ahead of the EU summit at the end of the week."We want to work with Germany," Moscovici said, asked about the pressure on PresidentFrancois Hollande and German Chancellor Angela Merkel to reach an agreement onways to curb the spiralling euro zone crisis. He added:Tomorrow there is a meeting, which will be very important, between Francois Hollandeand Angela Merkel and this evening I will receive the finance ministers: Mr. Schaeublefrom Germany, Mr. Monti or Mr. Grilli of Italy and Mr. de Guindos of Spain along withthe European Commissioner. We are in an active phase of preparation of this summit. www.investmentcontrarians.com
  • 19. 07.40 There are a couple of auctions today which traders will be keeping a close eye on.Spain is set to auction three-month and six-month bills, while Italy will sell up to€3bn in debt. The auction comes Spain and Italys bond yields pushed higher on Mondayamid fading hopes that this weeks EU summit will come up with any decisive action totackle the festering crisis.Michael Hewson of CMC Markets commented:With bond yields rising in Spain, Italy’s yields have also been dragged higher as fearsremain as to whether Italian PM will be able to continue along with his current reformprogram. Today’s Italian bond auction of up to €3bn is likely to be another key test ofdemand with 10 year yields once again back above 6%, while Spain is also looking to sellthree and six-month T-bills, just a week after selling one year paper at over 5%.07.30 Figures this morning show that consumer morale in Germany unexpectedlyedged up going into July, rising to 5.8 from 5.7 in June. Sentiment was boosted byimproving income expectations, although worries over the eurozone crisis risk hurtingconsumption in the months ahead, a survey by GfK found.07.27 Cyprus has become the fifth eurozone country to seek emergency funding fromBrussels and with the country not specifying how much money it actually needs,speculation is rife in the Cypriot media as to what the amount will be.Reuters writes that Cypriot newspapers reported that the Mediterranean island, whosebanking sector is heavily exposed to debt-crippled Greece, may need a bailout amountworth up to half the size of its economy. Cyprus €17.3bn econom y is the third-smallestin the eurozone and there was speculation that its bailout could be worth up to €10bn. www.investmentcontrarians.com
  • 20. Cyprus finance minister, Vassos Shiarly, has told Reuters that Cyprus needs to plug a€1.8bn - or 10pc of its GDP - regulatory capital shortfall in its second largest lender byJune 30 and that potential aid could be more comprehensive to cover fiscal requirements.07.25 And in another tale from the Pink Un, the FT has a story that the European Unioncould gain far-reaching powers to rewrite national budgets for eurozone countries thatbreach debt and deficit rules under proposals likely to be discussed at this weeks summit.The proposals are part of an ambitious plan to turn the eurozone into a closer fiscalunion, giving Brussels more powers to serve like a finance ministry for all 17 members ofthe currency union. They are contained in a report to be presented at the summit, whichwill also outline plans for a banking union and political union.07.20 US billionaire, George Soros, has penned a comment for the Financial Times(£). He argues that Germany must change its "cant do" policy against immediatelyforging a consolidated European fiscal and banking union, or risk becoming "the centreof an empire" responsible for the eurozones collapse.The Hungarian-born US financier said there was a need to establish a European fiscalauthority that, in partnership with the European Central Bank, could establish a debtreduction fund, that would acquire and hold a significant portion of the outstanding stockof debt of Italy and Spain.Heres a taster of what he had to say:At a meeting in Rome last Thursday, the heads of state of Germany, France, Spain andItaly agreed on steps towards a banking union and a modest stimulus package tocomplement the fiscal compact. But Angela Merkel resisted all proposals to provide reliefto Spain and Italy from the excessive risk premiums prevailing in the market. Thisthreatens to turn the EU summit this week into a fiasco that may well prove fatal becauseit will leave the rest of the eurozone without a strong enough firewall to protect it againstthe possibility of a Greek exit. www.investmentcontrarians.com
  • 21. 07.17 What do you think? Vote in our poll:Would Britain leaving the EU harm the economy? (Poll Closed)Yes. Britain is stronger within the EU 30.07% (2,702 votes)No. The positives would outstrip the negatives. 69.93% (6,285 votes)Total Votes: 8,98707.10 Would Britain be better off within the EU, or outside? One of Britains topbankers thinks theres safety in numbers, and has warned David Cameron of the Citysfears over a British exit. Robert Winnett and Louise Armitstead report:Peter Sands, the chief executive of Standard Chartered, had a breakfast meeting with thePrime Minister on Monday during which he is understood to have raised concerns over aBritish breakaway.The warning was sounded amid growing calls from Conservative MPs for Britain to havean “in-out” referendum on the country’s ongoing membership of the European Union.George Osborne, the Chancellor and Mr Cameron’s key election strategist, is understoodto be considering offering the pledge of a referendum as the centrepiece of the nextConservative manifesto. Labour is also considering a similar pledge. www.investmentcontrarians.com
  • 22. Peter Sands is pictured yesterday leaving Downing Street (Photo: Steve Back)07.07 The downgrades came on a day when two countries got out their begging bowls toask for bail-outs.Spain was first. It wants access to a €100bn pot for the countrys ailing bankingsector. However, it did not specify either the required amount or any conditions.Then came Cyprus. It wants cash to shore up its own fragile banking sector, which isheavily exposed to Greece. It also wants a billion or two for other "fiscal requirements",as the countrys finance minister highlighted yesterday. Vassos Shiarly told Reuters:The amount will be as much as it may be needed to cover the recapitalisation and fiscalrequirements [...]These will be established after careful review during the next fewweeks.07.00 Rating agency Moodys downgraded 28 Spanish lenders last night, includingBanco Santander, owner of the UK namesake. Louise Armitstead reports:All of Spain’s major banks were hit with cuts of one to four notches – worse thanexpected and sending several deeper into junk status.The move followed Moody’s decision this month to slash the sovereign rating from A3 toBaa3, but also reflected the mounting risk of real estate losses, the agency said.Comparing Spain’s property crisis to Ireland’s, where values have fallen almost twice asmuch, Moody’s said: “The banks’ exposures to commercial real estate will likely causehigher losses, which might increase the likelihood that these banks will require externalsupport.” www.investmentcontrarians.com
  • 23. Rival rating agency Standard & Poors said this month that house prices in Spain couldfall another 25pc before the market levels out.06.45 Good morning and welcome back to our live coverage of the European debt crisis. www.investmentcontrarians.com www.investmentcontrarians.com

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