mercoledì 16 novembre 2011

Bye bye eurozona?

Martin Essex sul Wall Street Journal descrive la brutta giornata di ieri:

In the European debt markets on Tuesday, French, Spanish and Belgian 10-year bond yield spreads over German bunds hit new euro-era highs, meaning the extra yield demanded by investors to buy those countries’ bonds rather than safe-haven Germany’s hit the highest levels in modern times. Italian 10-year bond yields also popped back above the 7% crisis level, despite buying by the euro-zone’s bailout fund.
On the other side of the coin, 10-year U.K. gilts, seen as a safe haven alongside German bunds, fell to a new record low yield of just 2.13%.
Over in the market for credit default swaps, the cost of insuring Italian, Spanish, French and Belgian debt against default shot to fresh record highs while Italian CDS hit the 600 basis points level for the first time. But worrying as all this is, it’s nothing to the signs that even triple-A rated countries such as the Netherlands, Finland and Austria are not immune from contagion.
Concerns about Austria can perhaps be explained by that country’s historic ties to Hungary, (...)
But why the Netherlands, where Dutch CDS closed in on February 2009’s record high? “The focus on France has been high in the last couple of weeks but the aggressive widening in Dutch and Finnish paper could potentially mean that the crisis is about to escalate to a new, more dangerous level,” interest rate strategists at the Royal Bank of Scotland said in a note to clients.
Sul Financial Times oggi Martin Wolf commenta il lavoro che aspetta il governo Monti: sarebbe bene che i sacrifici che ci attendono non fossero inutili, ma questo non dipende dalle decisioni prese a Roma.
Yet what Mr Monti must do is enormously tough. As Gavyn Davies argues, Italy might need to tighten fiscal policy by more than 5 per cent of gross domestic product, to reverse the widening spreads and start bringing gross public debt down from its exalted level of over 120 per cent of GDP. Given the inevitable adverse effects on output, the attempted tightening would have to be greater than this. Yet investors are unlikely to regain confidence in Italian debt if its economy does not recover. Austerity is not enough.
The social and political unrest triggered by the envisaged structural reforms, particularly those affecting the labour market, will also shake confidence.(...)
The chances that this is going to work smoothly are not high. The turnround period is going to be many years. (...).
Mr Monti is going to need a great deal of luck. He is also going to need an enormous amount of help, of three kinds: first, at least backstop financing for the rollover of sovereign debt, to the tune of nearly €1,000bn ($1,400bn); second, profitable and dynamic external markets; and, finally, a credible strengthening of the political underpinnings of the union, sufficient to make a break-up inconceivable. All of these are going to depend on bold German decisions. They are also going to depend on the ECB. If it allows slow growth, let alone an outright recession, to grip the eurozone, the chances for big peripheral members are grim. Italy is not little Ireland. That should be obvious to everybody.
The eurozone has fiddled until Rome itself started to burn. With the new government, it has what may turn out to be a last chance to put out the fire. Yes, it is conceivable that Italy would remain in the eurozone even after a default. But that cannot be likely. In any case, an Italian default would batter bond markets across the continent and banks across the world. The time for too little too late has passed. What is needed, instead, is “too much, right now”. Power brings responsibility. Germany alone has the power. It is up to it to exercise the responsibility.

Sulle responsabilità della BCE vi segnalo anche questo commento sul NYTimes di ieri

Is it time for the European Central Bank to be as generous to countries as it is to banks?
Since the beginning of the financial crisis, the central bank has been lending euro area banks as much money as they want, trying to maintain the liquidity — or continual flow of money — that is the lifeblood of the global financial system.
But because the central bank has refused to offer the same easy lending service to countries like Italy and Spain, it is not confronting the euro area’s most fundamental problem — a sell-off of debt from the troubled countries that is pushing their borrowing costs to dangerous levels.
Secondo il NYTimes 
Italy, unlike Greece, is solvent, in that it has the economic resources to manage its debts. That is why many economists say it makes sense to protect Italy from a temporary inability to meet its cash-flow obligations. And with marketplace trust being a top component of getting access to money, the reassurance that the central bank stood ready to step in as a lender to governments might be enough to keep the central bank from having to actually take that action.
But as long as worry continues that Italy may not be able to service its debt, Italian bonds are losing value as interbank currency — a big disadvantage for banks in Italy or France that own tens of billions in Italian debt. Last Tuesday, LCH Clearnet, a company that acts as an intermediary in bond and other trading, said it would impose a steeper discount on Italian bonds used as collateral.
As a central bank, the E.C.B. could theoretically use its ability to print money to buy huge amounts of debt from Italy and other countries. That would drive down their borrowing costs and ensure that they could continue to service their debts — that they would remain liquid, in other words.
The central bank’s charter does not allow it to buy bonds directly from national treasuries. And yet, the central bank can and does do essentially the same thing, by buying government bonds on the open market.
Since last year, the bank has spent 187 billion euros intervening in bond markets. But the relatively modest sums, less than 10 percent of the central bank’s total balance sheet, have not been enough to prevent yields on Italian bonds from rising.
If the interest rates that Italy must pay to borrow remain at their current levels, the government could eventually go bankrupt.
The only limit to the central bank’s ability to create money is a psychological one — the fear of setting off too much inflation. Mainstream economists, though, do not see any risk of significant inflation under current circumstances. The euro area is headed for recession, unemployment is rising and factories are not producing as much as they could. That is why economists tend to encourage the bank to put more money into circulation.
Mr. Draghi seems to be in agreement on at least the point that inflation is not a big threat right now, which is why his first act as the bank’s president was to announce a cut in short-term interest rates.
But if the central bank were to step up its bond buying, it would continue to encounter the shrill opposition of Germany, which has a fear of inflation steeped in history. And Berlin’s voice on such matters is hard for Mr. Draghi to ignore, as German financial support is essential to the survival of the euro area.

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