Euro area agrees bond support for Italy, Spain

[dipsydoodle]

Source: Reuters

(Reuters) - Euro zone leaders agreed on Friday to take emergency action to bring down Italy's and Spain's spiralling borrowing costs and to create a single supervisory body for euro zone banks by the end of this year, a first step towards a European banking union.

Responding to pleas from Spanish and Italian leaders, a midnight summit of the 17-nation currency area agreed that euro area rescue funds could be used to stabilise bond markets without forcing countries that comply with EU budget rules to adopt extra austerity measures or economic reforms.

After hours of argument, they also agreed that the bloc's future permanent bailout fund, the European Stability Mechanism, would be able to lend directly to recapitalise banks without increasing a country's budget deficit, and without preferential seniority status.

"The process was tough, the outcome was good," Italian Prime Minister Mario Monti told reporters, adding that Italy did not intend "at this time" to apply for the emergency support.

Read more: http://uk.reuters.com/article/2012/06/29/uk-eurozone-idUKBRE85R19G20120629

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European leaders agree to closer long-term union.

BRUSSELS (AP) -- After tough all-night bargaining, European leaders appeared to salvage what had seemed to be a summit teetering toward failure by agreeing early Friday to funnel money directly to struggling banks, and in the longer term to form a tighter union.

The agreements at a European Union summit in Brussels suggested Germany had yielded a bit on its insistence on forcing tough reforms in exchange for rescue money. That was a victory for Italy and Spain, who have argued they have done a lot to clean up their economies yet are facing rising borrowing costs.

http://hosted.ap.org/dynamic/stories/E/EU_EUROPE_FINANCIAL_CRISIS?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT&CTIME=2012-06-29-04-00-06

[Ghost Dog]

1. "Responding to pleas", says Reuters. "Italy and Spain forced leaders...," says the FT:

... The dramatic change in the bailout rules came after Italy and Spain forced leaders to remain at the summit overnight, blocking agreement on all other agenda items before getting a deal on short-term rescue measures...

... Investors welcomed the breakthrough, sending the euro 1.3 per cent higher against the dollar to $1.2598, its biggest daily gain in eight months.

Strains in the European government bond market also eased, with yields on Italian and Spanish bonds falling sharply. In early European trade Italian yields, which move in the opposite direction to the underlying price, fell 39 basis points to 5.81 per cent and Spanish yields fell 49bp to 6.45 per cent.

Banks also made big gains as investors reacted to the decision by European leaders to allow the rescue funds to invest directly in the continent’s biggest lenders.

Under revised rules demanded by Italy, countries that want the eurozone bailout fund to purchase their bonds – an essential way of lowering their borrowing costs – will no longer be subject to Greek-style monitoring programmes. Instead, they would simply have to maintain their EU debt and deficit commitments, though EU authorities could mandate tighter deadlines and timetables.

/... http://www.ft.com/intl/cms/s/0/5513d3d4-c19f-11e1-8eca-00144feabdc0.html#axzz1zB8If45F


European stocks rallied after policy makers eased repayment rules for Spanish banks, relaxed conditions for possible aid to Italy and unveiled a $149 billion growth plan for the region’s economy. U.S. index futures and Asian shares also rose.

Banco Santander SA paced banks higher, jumping 2.9 percent, after euro-area leaders at a summit in Brussels dropped a requirement that their governments get preferred-creditor status on crisis loans to Spain’s lenders. Actelion Ltd. climbed 1.9 percent after getting U.S. approval for its Veletri drug.

The Stoxx Europe 600 Index (SXXP) advanced 1.5 percent to 248.42 at 11:05 a.m. in London, heading for a weekly increase of 0.7 percent. The benchmark gauge has gained 3.6 percent this month as Greece formed a coalition government after its second election in six months, easing concern the nation will leave the euro. Standard & Poor’s 500 Index futures added 1.3 percent, while the MSCI Asia Pacific Index rose 2 percent.

“The European summit has given a very precious chance to Italy and Spain,” said Theodore Krintas, managing director of Attica Wealth Management, which manages 100 million euros ($126 million). “They’re addressing directly the needs of both countries to reduce their funding costs. They will be addressing all other banking unification issues in a very short period of time. By European standards, this is a quick move.”

/... http://www.bloomberg.com/news/2012-06-29/european-stock-futures-surge-after-eu-leaders-ease-rules.html

... Make that 3.9% at the moment, in Santander's case.

[Ghost Dog]

2. Der Spiegel: How Italy and Spain Defeated Merkel at EU Summit

Angela Merkel took a tough stance ahead of the EU summit, insisting she would not make concessions. But Italy and Spain broke the will of the iron chancellor by out-negotiating her in the early hours of Friday morning. Germany caved in to demands for less stringent bailouts and direct aid to banks.

/... http://www.spiegel.de/international/europe/merkel-makes-concessions-at-eu-summit-a-841663.html

[dipsydoodle]

3. Yep

They need loans at lower than market rates , currently c. 7%, with no indication the loans won't be repaid whereas Greece has already demonstrated an unwillingness to repay under agreed terms even at lower rates.

[Ghost Dog]

4. Yup. Lower than the currently profoundly corrupt manipulated market rates.

The entire 'financial system' is a human invention, machination. I see they're openly calling it "plumbing" now...

Monkey-wrenches, to work.