CDS, spreads etc, it is all getting worse again

[Joanne98]

So much for rescue. Compared to the Friday, May 7, when EU leaders met to work out the mother of all rescue packages, the CDS spreads are back to where they were. Jean Quatremer took a close at the spreads in his blog this morning, noting that the markets are nowadays just as sceptical about the eurozone as they were right before that fateful summit. CDS prices are over 721bp for Greek five-year bonds, Portugal 345bp, Ireland 260bp, Spain 247bp, and Italy 234bp. The reasons for the return of mistrust are doubts about the package itself, doubts about the future governance of the eurozone, the cacophony of European governments, the persistent criticisms of Axel Weber. Germany insists that the SPV does not borrow at average eurozone market rates, but at the market rates of the recipient country (which would rendered the whole project ad absurdum).





As Spanish spreads reach a record, Zapatero sets date for labour reforms

On June 18, the Spanish government will impose a labour reform package, irrespective of whether or not the social partners reached agreement in their current negotiations, or not. El Pais says it is significant that Zapatero announced the deal with a view to the financial markets, on a day when the spread on Spanish sovereign bonds reached 176bp. Also yesterday, it was announced that Spanish consumer confidence fell 13 points in May because of the instability of the markets and the expected effects of the austerity package plan on the economy. The timing is also relevant in respect of the EU summit June 17/18. The unions complained yesterday that the deadline would discourage negotiation – as the employers will always get a better deal from Zapatero than from the unions. (But then again, they have been negotiating for months, without result. One of the expected changed to be imposed by the government is a cut in the compulsory dismissal pay from 45 to 33 days per year worked (which is still extremely high by EU standards.) This will apply to new contracts only, and only for men between 30 and 45 years, as well as for conversions from temporary to permanent contracts. El Pais also said there will probably not much progress on making it easier for companies to redefine the reasons for dismissal.



The Unpleasant Arithmetic of Fiscal Adjustment

The Spanish blog Nada es gratis has done the math on fiscal adjustment. It is a very long post, we cannot conceivably do justice to the calculations, but the overall result is that the adjustment is going to be brutal. Starting off, here are some budgetary of the recession:

1. Indirect taxes: 11.73% of GDP in 2007, 8.73% in 2009. Difference: -3.00%.

2. Direct taxes: 12.90% of GDP in 2007, 9.61% in 2009. Difference: -3.29%.

3. Social contributions: 12.99% of GDP in 2007, 13.35% in 2009. Difference: +0.36%

Do the maths on the austerity programme, and taking into account shortfalls of tax revenue, Spain will still have a deficit of 5.54% after the recently announced austerity programme. In other words, don’t be too optimistic that austerity is going to do the job.



Use of ECB’s deposit facility rise

The FT writes that the high use of the deposit facility highlighted the excess liquidity demanded by banks in recent weeks, which they have nowhere else to place. The ECB data underscore the still-difficult financial market conditions the ECB faces as it ponders when and how to resume its “exit strategy”, to dismantle the emergency measure in place since the end of 2008. Demand for liquidity in recent ECB open market operations has also crept higher in recent weeks, suggesting banks are building up liquidity on a precautionary basis.

There are also concerns that the amounts of liquidity in the financial system could alter dramatically when early next month banks have to repay €442bn in one-year loans, which they borrowed a year ago. The ECB will, however, smooth the transition with a special operation to bridge the gap before the next offer of weekly liquidity.





Germany’s taxes are about to rise again

FTD Deutschland reports of a press conference given by Wolfgang Schauble, who open talked about a whole range of tax increases. He is considering raising the lower VAT rate, as well as tobacco taxes, and levy a new carbon tax on nuclear power, and a special tax on airline tickets. But the big plan is an increase in the solidarity surcharge from 5.5% of a person’s tax bill to 8%, to finance health reform. The junior coalition partners FDP and CSU are extremely hostile to the idea, since they had campaigned for tax cuts. The solidary tax, which was used to finance the transfers from west to east is particular unpopular in west Germany – and a sure vote loser.



Greece sells state-owned companies

Greece announced a firesale of state assets to raise sufficient funds to finance its deficit reduction plan. The government hope to raise €1bn annually from 2011 to 2013 through the sale of a 49% stake in the train company, a share of the Athens water company, and the post office. Kathimerini reports that PM Papandreou called for solidarity within his cabinet, criticising ministers’ for regarding their portfolios as fiefdoms. The paper also says that the economics team also expects substantial revenue from concessionary fees from airports, ports and roads. The opposition criticised the plan on the grounds that it would not raise sufficient income.

http://www.eurointelligence.com//index.php?id=581&tx_ttnews%5Btt_news%5D=2810&tx_ttnews%5BbackPid%5D=901&cHash=18566b7848

[glitch]

1. Fucking retar...

I mean (insert a politically correct yet devastating insult here).

At what point do we defend ourselves from these constant raids? Just asking.

[Kringle]

2. Greece produces nothing. nt