European economy

Sanchez Conte

The Opposition For Eurobond Remains Strong

Lidia Treiber (Wisdom Tree) | As the impact of Covid-19 lockdowns begin to more deeply unveil the economic impact that these severe measures have had on different European countries, the cost of funding has started to rise sharply for hard hit countries such as Italy and Spain. The spread of peripheral sovereign bonds over German sovereign bonds has begun to widen as investors become concerned about the rising debt to gross domestic product (GDP) levels for countries with already weaker fundamentals.

ECB stimulus package

ECB Takes The Highway To High Yields

Bank of America Global Research | On 22 April 2020, the ECB announced temporary measures to mitigate the impact of possible rating downgrades on collateral availability. This includes the acceptance of certain non-investment grade rated assets as collateral for its credit operations. In the collateral easing measures announced on 7 April, the central bank announced plans to temporarily mitigate effects from rating downgrades.

cash clunkers

Germany Could Propose Another “Cash For Clunkers” Programme To Alleviate The Damage To The Auto Sector

Santander Credit Research | The scrapping programme to remove older vehicles and replace them with new ones helped Germany’s economy to emerge quickly from the consequences of the financial crisis a decade ago. Senior managers in the automotive industry, as well as trade unions, are due to meet with the German chancellery in Berlin on May 5 to discuss ways of overcoming the economic crisis. And this programme may be on the table. 

Nadia Lagarde

Spain Proposes A Fund Linked To The European Budget As An Alternative To Coronabonds

The European Council will discuss the European Recovery Fund at its meeting on Thursday 23 April. If last week France was talking about a fund of 500 billion euros, while Italy continues to insist on coronabonds, now Spain is proposing an up to 1.5 trillion euros fund, financed by perpetual debt issued by the EU. The intention is for this funding to be available on 1 January 2021. 

Eurozone growth for 2018

Anti‑Crisis Euro Package: Not Good Enough

Nicola Mai (PIMCO) | With euro area output expected to drop by almost 10% this year, and unemployment and fiscal deficits to rise, an ample, blunt and well-coordinated response from European ministers was warranted. However, the new measures announced by finance ministers last week disappointed – again.

Financing costs for European banks will increase after TLTROs

Credit Investors Take Heed: A Different Landscape Will Emerge For European Banks

Sam Theodore (Scope Insights) | The pandemic is fast pushing the European banking sector into a new and different stage; one that none of us could have anticipated. At this time there is no reason for credit investors to fear outright bank failuressincethis is not a copycat of the last financial crisis.(Even so and rather surprisingly, the risk of default for European banks is high in several credit-strategy models). There is, however, a clear need to reassess some of the underpinning rationales for investing in the debt of European banks.The dynamics of the landscape a rechanging and a return to the past is not likely anytime soon.

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The Euro-bazooka Lacks Enough Ammunition

J.P. Marín Arrese | The Eurogroup painfully struck a middle of the road deal in its second meeting, once Italy and Holland agreed to compromise. At face value, the funding facilities amounting to half a trillion euros look rather impressive. Yet, a closer glance at them shows they lack the necessary ambition.


The Bank of England Will Finance The Budget

J.P.Marín Arrese | The Bank of England will provide direct cash to cover public expenses. Under the Ways and Means Facility, it already offers short-term liquidity to the Treasury. But, from now on, it will finance all budgetary commitments monetising the massive deficit the coronavirus crisis will bring about. Governor Andrew Bailey openly rejected this step a few days ago. Now, faced with the appalling evidence that a sharp increase in spending coupled with plummeting tax revenues will lead to substantial public imbalances, he has changed his mind.

Eurogroup Mario Centeno

Eurogroup Hits That Northern Wall Again: Eurobonds Are Neither There Nor Expected

After 16 hours of telematic meetings, the Eurogroup came close to reaching an agreement, but once again, that did not happen. Once again, it is postponing the decision until tomorrow, Thursday. Once again, it has failed. The Eurozone finance and economy ministers remain divided over the debt mechanism which will help the countries most affected by the pandemic to finance themselves. This division between North and South has a very clear figure: 500 billion euros are up in the air. 

Sanchez Conte

Who Will Pay The Bill?

JP Marin-Arrese |It seems obvious the current crisis will hammer public finances everywhere. As economic activity plummets, unemployment indemnities and a sharp and prolonged fall in revenues will shatter the Treasury coffers. All the more so should governments implement substantial spending plans and salvage operations. We are heading towards a towering deficit-laden aftermath