Voici un petit medley des commentaires d’économistes suite au n-ième « sommet de la dernière chance » (en attendant le prochain).
Société Générale: « EU Summit takes small steps in the right direction »
« It remains to be seen quite how significant the concessions granted at last week’s EU summit prove to be. Speaking to reporters after the Summit, German Chancellor Angela Merkel argued the broad philosophy on aid remains in place, namely that conditionality still applies to aid for bailout funds.
The commitment to use “the existing EFSF/ESM instruments in a flexible and efficient manner to stabilise markets for Member States” still requires those countries to respect “their Country Specific Recommendations and their other commitments including their respective timelines, under the European Semester, the Stability and Growth Pact and the Macroeconomic Imbalances Procedure”.
Moreover a country seeking assistance will still be required to sign a memorandum of understanding. Inevitably this will simply turn the spotlight back onto a country’s macroeconomic performance and in particular on whether or not a country is actually sticking to its fiscal targets. »
Citi: « Did Summit Avoid Nadir? »
« Summit Outcome — At the euro area (EA) and EU Summit on June 28-29, EA/EU leaders agreed on the following crisis-fighting and crisis prevention actions:-to sign the €120bn “Compact for Jobs and Growth” which includes a €10bn capital increase for the EIB, the reallocation of existing structural funds and project bonds.-to make a proposal for the ECB to have a central supervisory role for EA credit institutions by December.-for the ESM to have the possibility to recapitalise banks directly, once the ECB has assumed its central supervisory role.-that financial assistance to Spain for the recapitalisation of its banking sector will be provided by the EFSF and transferred to the ESM, without gaining seniority status.-that EFSF/ESM assistance to countries respecting their commitments under the SGP/EDP and MIP/EIP could come without additional conditionality, but would require a MoU.-to ask the European Council President to develop a specific, time-bound roadmap for the achievement of a genuine Economic and Monetary Union. An interim report is to be presented in October 2012 and a final report by the end the year.These announcements made by the Council contained some positive steps towards banking union. In our view, however, many key necessary conditions for preventing a break-up of the EA remain unfulfilled, including (among others): boosting the inadequate size of the fiscal rescue facilities; a EA-wide bank resolution regime and an associated mutually guaranteed resolution fund or bank recapitalisation fund; a mutualised EA-wide deposit guarantee scheme that would also insure against redenomination risk; providing the fiscal rescue facilities with a credible funding backstop; and enhancing the accountability and political legitimacy of the European Central Bank and the European Commission, both of which are set to gain considerable authority. »
« The statement of the Eurozone Summit,while very short of details, was better than expected.The commitment to create a single ‘supervisorymechanism’ for eurozone banks, by end-2012, is astep forward, with the possibility of direct bank recapsthrough the ESM an effective tool to act as acircuit-breaker between the sovereign and the banks.In addition, the prospect for the bailout funds to engagein bond purchases with relaxed conditionality is also apositive outcome, even though the specifics remain tobe seen. The fact that the Spanish loan will not besenior is likely to be taken positively by marketparticipants as well. Overall, we think implementationrisk is still present, as many crucial specifics will needto be clarified. Deeper fiscal integration, for now, hasnot progressed further and the near-term pro-growthmeasures are, as expected, quite limited. »
« What did the EU Summit deliver? Here is a top-level view.
- Overall, if 10 is what is needed to save EMU, and zero is where we started the week, then one could say we moved to 2 –– a meaningful step, with many more to be taken, and a risk of sliding back when the details need to be filled in.
- We argued last week that the Summit ultimately needs to be judged on whether it moves the Euro area towards fiscal and political federalism. The Van Rompuy Report on a Genuine Economic and Monetary Union spells out a vision of the federalist end point, but received no agreement, besides an invitation to try again with more concrete proposals by October. Very little progress thus, except that the issue is now at least openly on the table.
- Some progress towards federalism was made by agreeing to a single bank supervisor under the ECB, to be implemented by year-end. The still future ESM would then be allowed to help recapitalize banks –– a small move towards a much needed Euro-TARP. Also, a first step was taken towards dropping the seniority of official lending relative to the private sector in the case of the EFSF/ESM loan to Spain to recapitalize its banks. The subordination of private investors has been the main reason why official loans never stabilized the market. Northern EMU is not accepting this as a rule change, but one can argue that the cat is out of the bag.
- Equally important is that some steps are being taken towards ending the fixation with austerity as the solution to the EMU crisis. The €120bn growth compact would appear too small to pull the region out of recession. Instead we note the agreement that the ESM can buy bonds without extra conditionally – – read “austerity” –– beyond what all EMU members have to deliver already anyway. Yes, countries that have borrowed too much should cut back, but not all at the same time, please, as you then run into the Paradox of Thrift. This Paradox of Austerity, as we have renamed it, makes countries with funding problems cut spending and raise taxes, thus worsening tax revenues, their deficit and, in turn, funding access. Hence, the cry across Europe that austerity is not working. This minor change in conditionally is, by itself, not enough to reverse austerity, but, here again, a precedent is set and the cat is out of the bag.
- What is missing? The list is long, but to mention the important ones: For one, the ESM got a bigger mandate, but not more money. It will thus run out sooner. On the positive side, with a greater mandate, there is more reason than before to raise its capacity. In addition, the ECB does not yet get the signing up to fiscal union that is really needs to unleash QE and the SMP. But near term, the modest progress towards federalism provides some comfort to the ECB and should make it more willing to provide support. Finally, tensions are rising in the Euro area, with Germany feeling it has given up most, even as most economists would argue that Northern EMU’s fixation with austerity, inflation risk, and joint bond issuance could doom the EMU project. The main risks for markets in coming weeks are thus efforts by Northern EMU to regain what it perceived it lost in Brussels. »
« The main positive surprises were:
- A greater sense of urgency on elements of ‘banking union’, even if the announced plan broadly corresponded to what we had expected. The apparent strength of political commitment to break the link between banks and sovereigns impressed. In particular, the speed and clarity with which it was agreed to move forward to pan-Euro area supervision was a positive surprise, even if the practicalities and timing remain uncertain.
- The possibility to improve the terms of the Spanish bank bailout package (notably via direct recapitalisation of banks from the EFSF/ESM funds rather than via the Spanish government balance sheet) once this new pan-Euro area framework for bank supervision is implemented. It was also agreed that any ESM funding in this context would not enjoy seniority (although the German side emphasised that this was an exception for the Spanish case alone).
- A more explicit statement than we had expected that the terms of the existing adjustmentpackage for Ireland will be re-examined.
- Acceptance of greater flexibility in the use of EFSF/ESM funding to support vulnerable sovereigns, notably in the form of relaxing the level of conditionality involved in some circumstances.Against that, relative to our pre-summit expectations, we were disappointed by:
- The absence of any explicit commitment to (or indeed comment on) plans for fiscal and political integration, as anticipated in the report of the ‘Four Presidents’ submitted to the summit.
- The lack of explicit reference to pan-European deposit insurance, even if that remains part of the Four Presidents’ proposals. Admittedly, we have not seen deposit insurance as such a key element as some other observers. Note that endorsing deposit insurance now would have exposed Germany to new and potentially larger fiscal liabilities, something that the German authorities may have been unwilling to do in the face of making concessions elsewhere.To sum up, the summit delivered:
- Finalisation of the ‘growth compact’ (largely plans for infrastructure projects financed via more efficient use of EU resources), with the capacity for fiscal stimulus equivalent to about 1% of Euro area GDP.
- Announcement of a plan for ‘banking union’ (with the key elements being a significant expansion of the pan- Euro area dimension of: (a) bank regulation and supervision; (b) financing of bank recapitalisations; and (c) bank resolution mechanisms). Expectation has been created that concrete steps in that direction will be in place by year-end, even if German comments have pointed to a slower process to mid-2013.
- A request for the Four Presidents group to deliver concrete proposals on the basis of the report it submitted to the summit by year-end, with an interim update in October.
- Commitment to use the EFSF/ESM mechanisms flexibly so as to stabilise financial markets and support vulnerable sovereigns, although—as in the past—implicitly the heavy-lifting in this regard may have been left to the ECB, which will hold its next policy meeting on Thursday. »