In an unprecedented move, the American rating agency Standard & Poor’s said last week that it will cut even further the creditworthiness of Greece, if the European Financial Stabilisation Mechanism (EFSM) is going to favour the public bond holders in relation to private. Obviously this is a clear sign that the agency will show the same attitude for bonds issued by other member states of Eurozone. It is the first time that what we call “the markets” in general, takes a concrete shape having as its “champions” the rating agencies.
The EU authorities idea is that public holders of sovereign Eurozone bonds, like pension funds and the ECB have not plaid any games with their investments and have placed their reserves in these sovereign bonds in good faith. Eventually the EU authorities will probably make a clear distinction between bond holders that have used their wealth to attack the credibility of the Eurozone and the regular investors. Naturally this will be a quite un-market attitude by the European authorities, but the way things stand now, there is no other way for the Eurozone to protect itself from those aiming at making money out of destruction.
The EU authorities idea is that public holders of sovereign Eurozone bonds, like pension funds and the ECB have not plaid any games with their investments and have placed their reserves in these sovereign bonds in good faith. Eventually the EU authorities will probably make a clear distinction between bond holders that have used their wealth to attack the credibility of the Eurozone and the regular investors. Naturally this will be a quite un-market attitude by the European authorities, but the way things stand now, there is no other way for the Eurozone to protect itself from those aiming at making money out of destruction.
Millions of people in the Eurozone could suffer and social unrest may reign for months in Greece, Ireland, Portugal, Spain and probably elsewhere just for those “investors” to gain billions. On top of this one cannot overlook the possibility that those private holders of Eurozone sovereign bonds may have vested interest in supporting the dollar and the British pound.
The ECBThis is actually an all out war. The reception by some English language media to the Thursday’s press conference held by the governor of theECB was very characteristic. Jean Cloud Trichet said that the governing council of the central banking institution of the Eurozone had agreed on two very important issues, apart of course the fact that, as expected, it held unchanged the basic interest rate at 1% and clarified that the monetary policy is “appropriate”.
Let’s take one thing at a time. Those who follow closely the international markets were aware that some quarters were creating ambiguity over the intentions of the ECB vis-à-vis the refinancing of the Eurozone’s commercial banks. As everybody knows ECB is now financing the Eurozone banking system with €70 billion. In view of that Trichet was forced to repeat twice during the Thursday’s press conference, that ECB will keep up this support going, “AT LEAST” until the beginning of April. The emphasis that he used in this “at least” clarification could easily be translated as, “as long as it is absolutely necessary”. By the same token ECB is to continue buying sovereign Eurozone bonds thus shutting down the holes some are trying to create by free offering for sale of European debt paper. The second major step forward that Trichet took this past week was his quite “political” loud call to Eurozone governments, to drastically increase their own rescue fund in its two relevant facets, the European Financial Stabilisation Mechanism and the European Financial Stability Facility.
In short the European Central Bank, this past week, has opened the way for a new thinking over the Eurozone. In any case, he made clear that the ECB will go on helping the weak member states by continuing to buy their debt paper on sale. Trichet also said that the ECB is ready to do what it takes to support the euro. But as he left it to be understood that the ball is now in the politician’s court, meaning that the political deepening of Eurozone is the only way to secure the long term future of the single European money.
Let’s take one thing at a time. Those who follow closely the international markets were aware that some quarters were creating ambiguity over the intentions of the ECB vis-à-vis the refinancing of the Eurozone’s commercial banks. As everybody knows ECB is now financing the Eurozone banking system with €70 billion. In view of that Trichet was forced to repeat twice during the Thursday’s press conference, that ECB will keep up this support going, “AT LEAST” until the beginning of April. The emphasis that he used in this “at least” clarification could easily be translated as, “as long as it is absolutely necessary”. By the same token ECB is to continue buying sovereign Eurozone bonds thus shutting down the holes some are trying to create by free offering for sale of European debt paper. The second major step forward that Trichet took this past week was his quite “political” loud call to Eurozone governments, to drastically increase their own rescue fund in its two relevant facets, the European Financial Stabilisation Mechanism and the European Financial Stability Facility.
In short the European Central Bank, this past week, has opened the way for a new thinking over the Eurozone. In any case, he made clear that the ECB will go on helping the weak member states by continuing to buy their debt paper on sale. Trichet also said that the ECB is ready to do what it takes to support the euro. But as he left it to be understood that the ball is now in the politician’s court, meaning that the political deepening of Eurozone is the only way to secure the long term future of the single European money.
Greek Finance Minister George Papakonstantinou (C) chats with European Central Bank (ECB) President Jean-Claude Trichet (L) and Olli Rehn (R), the European Monetary Affairs Commissioner at the start of a Eurogroup finance ministers meeting of 15 March 2010. At that time the Finance ministers had a fierce debate with some members calling for an EU bail-out and others resisting the call. The second view has now dissapeared and thre are only those who support deeper political union in Eurozone and those who support such a move more strongly. |EPA/OLIVIER HOSLET
The real economy In the real economy front however things are much more favorable. Eurozone is growing with an annual rate of 1.9% of the GPD, a real attainment which has to be accredited mainly to Germany and less to France. Acording to the first estimates by Eurostat for the third quarter of 2010 Euro area GDP up by 0.4% and EU27 GDP up by 0.5% or +1.9% and +2.2% respectively compared with the third quarter of 2009 (annual base). In the second quarter of 2010, growth rates were +1.0% in both zones. During the third quarter of 2010, household final consumption expenditure increased by 0.3% in both the euro area and the EU27 (after +0.2% and +0.3% respectively in the previous quarter). Gross fixed capital formation was stable in the euro area and rose by 0.2% in the EU27 (after +1.7% and +2.1%). Exports grew by 1.9% in the euro area and by 1.8% in the EU27 (after +4.3% and +4.0%). Imports increased by 1.7% in the euro area and by 1.6% in the EU27 (after +4.2% and +3.9%).
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