Speculation here in Brussels that draft eurozone proposals were deliberately leaked to Reuters to stop the euro plunging on the markets.However (my emphasis):
The markets wanted to hear about measures such as using the eurozone's €440bn EFSF bailout to give loans to non-programme countries (Italy and Spain) for bank recapitalisation or allowing it to "intervene on a precautionary basis".Zerohedge has his doubts this can be achieved (i.e. it's EU fudge):
All well and good except that these proposals could well require a change to the EFSF rules, the fund is supposed to be last resort for example, and changes must be agreed in parliaments.
Germany does not want that battle as German voters revolt against even more of their money flowing south. The Finns and Dutch don't like it either.
Markets have now firmed up. Will that message be passed on to Chancellor Merkel in a bid to twist her arm?
Your voters might not like it but the markets need it.
So far all the news out of Europe is based on changes to EFSF. Greece will be able to borrow for 15 years at 3.5%. French bonds with a 15 year maturity trade at 3.8%. So the EFSF will have to pay more on its debt than it receives? Interesting. Have the rating agencies signed up to rate the new EFSF as AAA? From deals I've worked on, things that always hurt ratings were:And even if the proposals are correct, then it's inevitable that Portugal and Ireland will use this Greek precedent to force better terms as well. The crisis is not over yet by a long way.
The headlines all indicate the new EFSF has all of these components. I am sure the agencies have been involved in these discussions, but I remain dubious how happy the market will be to finance the EFSF at rates that are remotely in line with the rates the EFSF plans to provide financing at.
- extending maturity,
- including banks in addition to sovereigns,
- allowing trading,
- vague rules as opposed to written rules.