MADRID | The Corner | The liquidity net increase of the new measures by the ECB may be substantially less than expected, because of two main reasons: as a consequence of the 3-year LTRO maturity next December and February, and due to the improvement in the workings of the money markets.
MADRID | The Corner | The much-awaited German Ifo Business Climate Index for industry and trade fell to a seasonally adjusted 109.7 points this month, below forecasts for 110.2 and down from 110.4 in May. Although the country’s firms still make positive assessments of the current business situation, the Munich-based institution explained in a press release on Tuesday, they feel less optimistic about the future. And fear the potential impact of the crises in the Ukraine and Iraq.
NEW YORK | By Dickson Buchanan Jr. via Truman Factor | The European Central Bank’s (ECB) decision to charge a negative interest on overnight deposits is not going to lead to a higher targeted inflation rate, despite ECB President Mario Draghi’s insistence that it will. Like all cases of central planning, this decision will have unintended and costly consequences – some of which are already starting to play out.
MADRID | By Francisco López | Both the UE and independent fiscal experts have the same understanding about the fiscal reform the Spanish government passed last Friday. Authorities insist collection increases will make up for losses due to tax cuts. Experts are not sold on it.
BERLIN | By Alberto Lozano | Although when speaking of reforms nobody is pointing to Germany, international organizations are pushing for it in the country, especially in the services sector. The goals are boosting consumption and rebalancing the euro monetary union, and higher productivity in services sector becomes a challenge with large potential gains for both Germany and the whole Eurozone. But some voices insist this won’t easily happen.
MADRID | The Corner | The European banking industry has already increased capital for €25.7 bn this year. According to an Ernst&Young’s poll they could continue doing it after next October’s stress tests. Of those 294 European financial entities surveyed, 30% say they can not rule out a capital increase at all- mainly Spanish and Austrian-, while 8% affirm they will probably need to do it.
MADRID | By The Corner | It was a tax loophole worth billions of euros. And finally the EU-28 finance ministers came to a political agreement on Friday to tighten it up. From now on, European tax rules will be tougher on those multinationals trying to avoid taxation. The compromise was possible after Malta dropped its objections to a deal on hybrid loan arrangements. “That is good news for public budgets, good news for honest businesses and good news for those who seek fair taxation in the EU,” Commissioner Algirdas Šemeta said.
LONDON | Cagdas Aksy at Barclays | A model framework, which takes into account economic/fiscal fundamentals and risk aversion factors, indicates a fair value level of about 200bp for 10y Italy and Spain vs Germany. The high debt problem for most peripheral countries is something that will take many years to reverse and the ECB’s commitment through OMT and potential QE can contain these concerns to a large extent, as long as it maintains its credibility. Under this more optimistic scenario, fair value moves down to 90-100bp. After 350-400bp of tightening over the past two years, 10y core periphery spreads are 30-40bp away from stretched levels.
ATHENS | Via Macropolis | Greece hopes to sign agreements for investments worth 6-7 billion dollars during the three-day visit of the Chinese Prime Minister Li Keqiang. This is the first visit to Greece by a top Chinese official for four years. Two thirds of the plannned investments relate to the shipping sector and mainly involve financing from from the China Development Bank for the building of Greek ships in Chinese shipyards. The remainder is mainly related to investments in the energy and real estate sectors.
MADRID | By The Corner | Deputy Governor of Spanish central bank Fernando Restoy said on Friday that the country’s economy will register year-on-year growth rates near 2% at the end of year 2015, according to their last estimates. However, he suggested that “restoring the pre-crisis welfare levels will still take several years.”