French Presidential Elections: First round and why it does matter

1. Results

For the first time under the V^th Republic, the incumbent President is behind his main challenger.

The official results are as follows (I do not provide the meaningless result from Jacques Cheminade):

2. Consequences

One of the central conclusions of the campaign is the rejection of the EU as it currently works and calls for increasing protectionism: even Sarkozy demands modifications to the Shengen accord and Hollande a renegotiation of the Lisbon Treaty. A quick analysis of the results show that, in one way or the other, the vast majority campaigned on a platform that will lead to a frontal shock with Germany: budget balance and austerity vs. social welfare and deficits, southern Europe vs. Northern Europe, domestic demand oriented growth vs. export oriented growth.

In addition, both Sarkozy and Hollande built their programs on an over-optimistic GDP growth forecast to cut borrowing at 0.7% in 2012, 1.75% in 2013 and 2% until 2016, well above consensus (most politicians do overstate future growth to buy votes). and neither is addressing the key issues holding back growth. For example, last week the IMF revised down 2013 French growth to 1.0%.

Whoever is elected President on May 6, he will not be able to hold by his promises. This will have a number of consequences:

• Spread between OAT and Bund will widen
• The eurozone will again come under strain and attack from markets (i.e. investors)
• France will loose it AA+ and be downgraded (over a 18 months period, one notch if Sarkozy is elected, two notches if it is Hollande)
• Expect social unrest within 12-18 months, particulalry if Sarkozy is elected

Then, the Parliamentary elections will come in June and there is no chance whatsoever that the current ruling party wins, even if Sarkozy is re-elected. The antagonism with the Front National is too entrenched and the possibility for the Front National candidates to have enough votes to remain in 1/3 of constituencies for the second round.

If Sarkozy is not elected (the likely outcome as of today since over 1/3 of Bayrou and 40% of Le Pen voters will abstain for the second round, the rest will go +/- 50/50 for each remaining candidate), I also expect the current ruling party to fall in shambles with infighting between Coppée (current Head of the ruling party - UMP) and Fillion (current Prime Minister – a senior member of UMP) each preparing for the next Presidential race in 2017 (Fillion will present himself at the mayoral election for Paris).

I then forecast the Front National to try its utmost to organize the opposition to the the socialists around its platform, with some with the right wing of the UMP joining forces with the National Front, and possibly Dupont-Aignan.

Source:

Ministère de l’Intérieur: Presidential elections 2012

http://elections.interieur.gouv.fr/PR2012/FE.html

Ministère des Finances: Stratégie Pluriannuelle de Finances Publiques

http://www.budget.gouv.fr/files/mise-a-jour-rapport-economique-social-financier.pdf

Capital Economics: French election won’t tackle key issues

www.capitaleconomics.com

Stop Press: Markit Eurozone Manufacturing PMI – It’s really bad

Stop Press: Markit Eurozone Manufacturing PMI – It’s really bad

Stop Press: Markit Eurozone Manufacturing PMI – It’s really bad

I usually do not post this kind of economic data, since there are so many published every week. I am doing so since the numbers are striking, France in particular is a real disaster. As I indicated many time, forget about Portugal, Spain (well not really, do not forget Spain!) and Italy, France is the sick man.

Greece: 3 month high but still in contraction territory @ 41.3

France: 33 month low (yes, you read it right!) @ 46.7 (I heard on the French radio that the 2 French auto-manufacturers – Renault and Peugeot – had sales 30% down in March; the French auto industry, Peugeot in particular, is entering the danger zone for its survival).

The roots of the problem have not been addressed, and politicians are still in denial territory: the construction of Europe for the past 20 years is a failure due to a dogmatic approach.

Source:

Markit:  Markit Eurozone Manufacturing PMI® – final data

http://www.markiteconomics.com/MarkitFiles/Pages/ViewPressRelease.aspx?ID=9330

French capitalism = socialist cronyism

French capitalism = socialist cronyism

Greece, Europe and the rule of Law

On 23^rd February 2012, the Greek parliament passed a Law which at the time went mostly unnoticed in one of its provisios: the retroactivity of the CAC (Collective Action Clause) for Greek Law bonds. Greek bonds holders who do not accept the debt swap will be forced to do so.

EUR 205 bn were eligible for the debt swap:

Investors (well, banks) holding EUR 152 bn Greek law bonds accepted the offer (85.9%)

and EUR 20 bn of non-Greek law (69.9%), i.e. 83.7% for the aggregate.

The invitation period (to the public offer) for each series of PSI-eligible foreign-law bonds and of bonds issued by state enterprises and guaranteed by the Hellenic Republic has been extended until 9:00 p.m. (C.E.T.) on March 23, 2012. Note that not only content to renege on past contractual agreements on Greek-Law bonds, Greece is threatening to default on bonds held under foreign (Brtiish) Law if bondholders do not accept the terms of the bond swap agreed (read forced) on March 8.

I thought retroactivity of laws was the benchmark of totalitarian regimes, but no, it is happening in 2012 within Europe, in the birthplace of democracy. All European leaders are applauding to something they should utterly reject, but for futile self-political interest. There is one basic principle of democracies: the non-retroactivity of laws.

I feel that any investor would successfully challenge this before the European Court of Human Rights.

Source:

Hellenic Republic – Ministry of Finance: Press release PSI

http://www.minfin.gr/portal/en/resource/contentObject/id/baba4f3e-da88-491c-9c61-ce1fd030edf6

Eurobank EFG: Greece Macro-Monitor

http://www.eurobank.gr/Uploads/Reports/FOCUS%20GREECEPSI%20March%209%202012.pdf

ISDA: Unofficial translation of the Act of the Governor – Bank of Greece

http://www.isda.org/uploadfiles/_docs/Act_of_the_Bank_of_Greece_9_March_2012.pdf

French capitalism = socialist cronyism

On February 20 the French financial newspaper, Les Echos, announced that Mr Proglio, former CEO of Veolia, the world leading environment company, now CEO of EDF (one of the world largest electricity companies), designed a plot to oust the current CEO, Mr Frerot who has been trying to sort out the mess left by Mr Proglio, still a Director of Veolia. His replacement was meant to be Mr Borloo, former Minister in the Sarkozy Government until last summer (when he was not nominated Prime Minister), and candidate for the Presidency who unexpectedly dropped out of the race a few weeks ago to support President Sarkozy… Please note that Mr Poglio was strongly promoted by Sarkozy to arrive at the helm of EDF.

This is typical of political cronyism which looks more like what is witnessed in banana republics than in a so called developed democratic country.

France has never ever been economically liberal despite what is said on media, in political circles or with outdated unions (few remember that during the early 70’s the French Stalinist communist party was gathering around 23% of votes!). France has always been a centralized country since the affirmation of the absolute monarchy with Louis the XIV during the 17^th Century; such centralization might work when the ruler at the helm is able, otherwise you run to disaster: unfortunately for France, since General de Gaule (i.e. for the past 40 years), France has never been ruled by a statesman but by politicians of varying quality (generally average to low), always with a socialistic agenda. Since the Mid-90s, cronyism has developed at a fast pace which has been detrimental to French citizens well-being.
Mr Proglio is unfortunately not due to renewal as a Director of Veolia until 2014. I invite all shareholders of this company to draw a line in their agenda for 2014 and vote against his re-appointment (if he is a candidate indeed).

Please note that EDF share price lost 50% since Mr Proglio took over EDF as CEO.

Source:

Bloomberg: Veolia Falls After Les Echos Says CEO Frerot May Be Replaced: Paris Mover

http://www.bloomberg.com/news/2012-02-20/veolia-falls-after-les-echos-says-ceo-frerot-may-be-replaced-paris-mover.html

Greece 2011 Budget execution and the (bleak) future

A year ago, European politicians were hailing the progress made by Greece stating that the nadir of the crisis was behind and difficulties ahead would be dealt with forcefully. As my readers may recollect, I did warn that the plan will fail and the Greek situation would worsen, the country being bankrupt.

Let’s see what happened in 2011 in the Greek Budget:

Note that the last column was the planned 2011 budget as of December 2010, whilst the column (5) contains the budget post-revisions.

A few remarks:

• Compared to the original plan, the budget implementation failed miserably with a EUR 5.5 bn wider borrowing requirement, i.e. a staggering +23%.
• A much larger gap would have been registered (EUR -3.3 bn) without deep cuts in military spending (EUR -1.3 bn.) and the Public Investment Program (EUR -2 bn) during the course of the year compared to the initial budget.
• Revenues were lower than in 2010 and EUR 5.5 bn less than in the initial budget, EUR 6.7 bn if it was not for a new line of revenues that “miraculously” appeared in November and December, registering EUR 1bn (“special revenues from licensing public rights”). Primary expenditures were contained but did not decrease enough to compensate.
• Interest payments were marginally higher than in the initial budget, but EUR 3 bn more compared to 2010.

As I forecasted early 2011 (and also in 2010) the situation has worsened, not improved. Greece is insolvent with a 155% debt/GDP, a 10% budget deficit/GDP (there are rumors that it would finally be closer to the 9.1-9.4% mark thanks to an emergency property tax representing a good EUR 1 bn –looks like a desperate trick to “improve” the picture of a desperate situation) and EUR 350 bn debt (not talking about high unemployment, dismay current accounts and trade balances, insolvent banking system, deposits going abroad, weak productivity, antiquated social welfare state, continued weak tax collection – whilst improving -, etc.). 

As of this Saturday morning, discussions with the financial sector are ongoing regarding the level of write-downs, or more exactly the strength of guarantees on the new bonds to be swapped with the existing ones.

The schedule of T-bills maturing during the next 5 months is:

26wk	09-Aug-11	10-Feb-12	1,000
13wk	15-Nov-11	17-Feb-12	1,600
26wk	06-Sep-11	09-Mar-12	1,455
13wk	20-Dec-11	23-Mar-12	1,600
26wk	11-Oct-11	17-Apr-12	1,600
13wk	20-Jan-12	20-Apr-12	2,000
26wk	08-Nov-11	11-May-12	1,600
26wk	13-Dec-11	11-Jun-12	2,000
26wk	13-Jan-12	13-Jul-12	2,000

In March, add two 5 years bonds due for redemption:

5 yr	07-Feb-09	20-Mar-12	7,000
	05-May-09	20-Mar-12	7,433

Therefore, Greece will need to auction T-Bills next week and the following one to refinance maturing ones (which should go fine if nothing dramatic occurs with the discussions between banks and Greece on existing debt) and find EUR 16.5 bn in March, i.e. EU and IMF money.

To regain solvency, the discussions are centered around how much the financial sector would forgo, and the latest discussions are 70% of their current debt holdings, beyond EU/IMF rescue packages and drastic austerity measures. Would this be sufficient? No: Europe is at best growing flat, debts continue to go north and trade imbalances between countries are not reduced, and these imbalances are one of the reasons of the current crisis, themselves a result of the widening competitiveness gap between countries, with no currency adjustment possible within the euro.

This crisis cannot be solved by only reducing the stock of debt but also by improving cash flows, i.e. growth. Whether the financial sector forgoes 70% of its Greek debt pile (estimated at EUR 200 bn with themajority of it held by Greek banks and, in my view, a substantial chunk of thebalance with the ECB), this is just kicking the can down the road as it has been done for the past 2 years (well, really for the past 10 years). Let’s see the simple equation below:

GDP = private sector consumption + public sector consumption + (exports – imports). This is a very important equation largely overlooked by commentators.

For Greece all of theses items are negative yoy, according to the latest official statistics, and in many countries at least two items are negative: in the current economic environment there is no way that Greece (and others) can get out the over-indebtedness black hole. Greece and Club Med countries (France included) need to improve competitiveness to gain/regain a positive trade balance.

Growth based on retail demand in southern Europe was unsustainable with negative trade balances, and the potion to remedy to this situation will be very bitter indeed: a sharp fall in the standard of living. This is compound by the fact that within a state welfare, redistribution represents a substantial chunk of revenues for individuals, which these countries will drastically reduce to get their finance in order. To regain competitiveness, salaries/social transfers are to decrease by 15-35% - depending on countries - multiplied by the productivity differential with the main exporting countries. The euro is indeed a kind of gold standard where individual countries can no longer devalue their currency to adjust their lack of competitiveness and boost exports.

None of the European political sphere is addressing what is at the core of a flawed eurozone construction.

The table below provides the effort required to get Greece’s finances back under control: this is unsustainable since I do not believe official figures of a EUR 50 bn privatization plan, and will lead to social unrest to a scale not seen so far, the more so that the OCDE announced that the situation is worse in the tune of EUR 15 bn and the EFSF/ESM is not large enough:

“The current EFSF/ESM resources of € 500bn are not enough. Furthermore, the EFSF/ESM has not found it easy to raise funds at low yields even with guarantees.”…

Source:

Hellenic Republic - Ministry of Finance: various publications

http://www.minfin.gr/portal/en

The Telegraph: Eurozone bail-out funds not enough, warns OECD

http://www.telegraph.co.uk/finance/financialcrisis/9057597/Eurozone-bail-out-funds-not-enough-warns-OECD.html

OECD: Solving the Financial and Sovereign Debt Crisis in Europe

http://www.oecd.org/dataoecd/14/25/49481502.pdf
Markets & Beyond: European rescue package: truth and fallacy
http://marketsandbeyond.blogspot.com/2011/11/v-behaviorurldefaultvmlo.html

The magnificent 7 and equity markets - Review 11

Since I last wrote about the magnificent 7 in February 2011, a lot has happened and it is rather appropriate to review where do we stand at the beginning of 2012.

Despite all discussions about recession/double dip in the US for most of 2011, it did not occur and growth looks to carry on, whilst at a moderate pace; this is strikingly different from what we have been witnessing in Europe since the summer and the inability of European policy makers to put the eurozone (“EZ”) house in order.

In 2011, the DJ increased 5.5% (the S&P 500 was flat) which is not so bad given what happened in the world, and in Europe in particular. If one picked up dividend aristocrats it was a reasonable year in the US.

 In Februray 2011 I wrote: “Economic news from the US continue to point towards a continued GDP growth and a (slowly) improving situation in unemployment; Commercial and Industrial Loans at All Commercial Banks in the US have definitely passed the trough and now seems to be well entrenched in an upward move”.  . The latter indicator has displayed the 12^th positive number in a row for a total of USD +114 bn (USD -411 bn during the 25 months starting in November 2008) and this points towards a continued growth in the US 6 months ahead.

Friday’s employment numbers were rather positive at +200k bringing the unemployment rate down to 8.5%.

Things indeed went in the right direction and 2012 starts under the same auspice bearing that:

• The FED continues with its low interest rate policy along the yield curve, which is most likely during a Presidential election year and in the current economic environment.
• International investors continue to buy the US debt, which they should in my opinion by the lack of other choice, continuing to believe that the US will tackle one for all its deficit and inflation will be kept in check. 

In Europe, the picture is getting worse by the month, even the German engine is slowing down markedly. There are more and more voices calling for custom tariffs to fend off imports from low costs producing countries and added regulation: Europe has been naïve with its strong euro policy (well, it was Germany’s call to get the euro) and is battling the last war with increasing regulation, taxation and bureaucracy. Until the EZ sorts out its mess (both banks and over indebted countries) growth will be sub-par. This being said, like in the US, there are world class companies, which are more affected by what happens in the fast developing world, and very profitable niche players that we like to find at P&C.

Fast growing economies in the rest of the world keeps up forging ahead whilst inflation continues to be a real issue (food prices remain very high in China and India, albeit going down recently). However, this is more a consequence of a growing population and a faster developing middle class: a strong engine to growth. In addition, some countries like India are going 2 steps forward and one backwards in terms of liberalization of their markets (for example opening up the country to foreign supermarket companies). 

The graph below is self-explaining…

S&P 500 Banks index: for over two years, the index has traded range bound and has yet to decisively to breach the 165 level; there is no sign this happening any time soon and, conversely, there is no sign of a deterioration either, US banks continuing to recapitalize thanks to an unabated FED QE. In my opinion, the level comes from a continuing reappraisal of the future profitability of banks (less leverage + more controls = lower ROE) versus their ability to pass on additional costs to customers. Neutral.

Global 1200 financial index: The index broke its 200 MA in May 2011 and several support levels, reflecting the deepening crisis in the EZ and the need to recapitalize European banks beyond the official numbers (not talking about OTC derivatives where nobody knows what the global risk is, even banks on an individual basis probably do not know their real risk); the solid 800 floor was penetrated without a whisper and now represents a resistance. The outlook for a number of Europeans banks is bleak and the introduction of Basle III rules ahead of the 2019 deadline is adding pressure. Negative.

TED spread (LIBOR USD 3 mth - US 3 mth T-bills): since July, the spread has deteriorated but in an orderly manner (the OIS displays the same pattern) and is nowhere near the 2008 crisis levels, with central banks reacting very quickly by opening USD swap lines and the ECB offering 3 years lines of credit (LTRO) in the tune of EUR 426 bn. Neutral

USD bank BBB 10 yr - US 10 yr yield: In July the spread started to widen markedly, whilst well below the extraordinary stress of 2008-2009, to pause for the past 2 months. Neutral.

OEX volatility: OEX volatility had a spike during the summer but did not break the high of 2010 and has since come back to the low 20s. Positive.

S&P Case Shiller house price index: The latest data for US home values (October) published 27^th December have continued to go down for the 5^th consecutive month, only two cities showing positive numbers.

The unadjusted data are negative (-4% since July, the recent high); adjusted data display the same pattern:

Composite-10: Oct 2011: m/m -1.1%; y/y -3.0%

Composite-20: Oct 2011: m/m -1.2%; y/y -3.4%

As the report comments:

“Some of the other housing statistics posted relatively healthy figures for November, but it seems that most of the good news was confined to the multi-family sector. Existing home sales rose in November, but are still at a low annual rate of about 4.0 million. Single family housing starts also rose, but remain close to record lows and are still down about 1.5% versus October 2010.”

The recovery did not materialize. Negative.

Oil price: The WTI oil reached a peak of $115 to settle down in a $80 - $110 range. In 2011, the story was he spread between the WTI and Brent which reached $25 in August reflecting the glut of crude at refineries in the US and the Arab world revolutions with oil disruptions in Libya. In the US, unconventional oil & gas recovery is a game changer which explains low prices for natural gas at below $4/btu: Neutral.

Conclusion: The indicators on the banking situation deteriorated, whilst other indicators are mostly neutral. The macro-economic situation between Europe and the US is diverging to the advantage of the latter, even if in both cases public finances are in disarray. The magnificent 7 are telling us that nibbling equity markets will provide an interesting return.

2011 was bumpy and 2012 will be no less hectic.

Continue investing in high yielding equities / net cash companies with a strong franchise and look at strong brands in fast growing economies.

09/01/2011

 

Sources:

Markets & Beyond: The magnificent 7 and equity markets - Review 10

http://marketsandbeyond.blogspot.com/2011/02/magnificent-7-and-equity-markets-review.html

US Department of the Treasury: Monitoring the economy

http://www.treasury.gov/resource-center/data-chart-center/monitoring-the-economy/Documents/monthly%20ECONOMIC%20DATA%20TABLES.pdf

S&P/Case-Shiller Home Price Indices

http://www.standardandpoors.com/servlet/BlobServer?blobheadername3=MDT-Type&blobcol=urldocumentfile&blobtable=SPComSecureDocument&blobheadervalue2=inline%3B+filename%3Ddownload.pdf&blobheadername2=Content-Disposition&blobheadervalue1=application%2Fpdf&blobkey=id&blobheadername1=content-type&blobwhere=1245326665736&blobheadervalue3=abinary%3B+charset%3DUTF-8&blobnocache=true

Markit (via Business Insiders): Manufacturing PMI indices by country

http://www.businessinsider.com/chart-of-the-day-manufacturing-pmis-january-2011-vs-december-2011-2012-1?nr_email_referer=1&utm_source=Triggermail&utm_medium=email&utm_term=Money%20Game%20Chart%20Of%20The%20Day&utm_campaign=Moneygame_COTD_010312

A week in Europe – 20 years after the Maastricht Treaty

Last week’s Brussels’ summit delivered what has been hailed in most media and the usual politician consensus as being THE grand plan that will save, the euro and Europe, nothing less. Let’s reviews what was announced:

• A new concept of fiscal rule (“fiscal compact”) is introduced whereby the budget deficit cannot exceed 0.5% of GDP and this rule will be enshrined in national constitutions. An automatic correction mechanism will be triggered if the ratio is deviating from this level.
• Sanctions will be automatic when a country breaches the Maastricht Treaty criteria of fiscal discipline (maximum 3% GDP/budget deficit and 60% debt/GDP), but for a qualified majority of EZ members, and will be monitored by the Commission and the Council.
• The private sector (read banks and insurance companies) will no longer participate in the cost of bailing out European countries beyond Greece.
• The ESM will be brought forward to July 2012 and in case of emergency a qualified majority is set at 85% (subject to Finland Parliament approval). Together with the EFSF, it will amount to EUR 500 bn to be reviewed in March 2012.
• Up to EUR 200 bn will be provided by EU members to the IMF via bi-lateral loans to reinforce its intervention means (to be confirmed within 10 days of this agreement), including EUR 1500 bn from EZ countries.

This plan, like all the other ones designed over the past 19 months, will fail:

• The text, like the previous ones, contains a lot of waffle: many words but nothing immediately concrete whilst the liquidity crisis is hurting right now and the solvency one is round the corner, all final decisions and details being pushed back to March 2012. The objective was once more to kick the can down the road…
• The fiscal compact falls short of a true fiscal integration. And without it, the ECB (the Bundesbank) will not finance European sovereign debt until the very last minute if any, i.e. when the cost will be horrendous for European citizens.
• Rules are tightened to curb future debt but nothing is done to resolve the current insolvency of banks and over-indebted countries. The crisis is now, not next year or in two years time.
• EUR 500 bn is nowhere near what is required: EUR 1-2 tr (Euro-area governments have to refinance more than EUR 1.1 tr of debt in 2012 plus aprox 300 bn of new debt without the potential bailout of a few banks).
• The private financial sector is lo longer accountable for its mistakes increasing moral hazard.
• There is no guarantee that the sanctions to be imposed on deficit countries will have any effect since they know that it is doubtful the would be thrown out of the EZ (otherwise Greece should have been kicked out over a long time ago); the only efficient threat of sanction is for countries to loose their voting and vetoing powers with the EU institutions and put such countries under tutelage. Politicians do not care about other (financial) sanctions.

The three main roots of the crisis are not addressed:

• Unbalanced financing of sovereign debt deficit: The EU does not lack savings but Northern investors are rightly reluctant to finance Southern Europe. Domestic retail investors should be called upon with attractive enough terms.
• Unbalanced trade: the competitive north increases its competitiveness vis-à-vis the south which has a growth model based on consumption, which is not viable long term and showed its limits.
• Lack of growth, itself a result of the absence of fundamental social and economic reforms in Southern Europe.

The ECB is the only institution with the means to backstop European sovereign debt and provide unlimited liquidity to banks. This must be accompanied by deep structural reforms including pushing back the age of retirement (at least 65 years and probably beyond if no sharp improvement in the fecundity rate of Europeans), lengthening the weekly working hours to at least 40h and probably 42h without a commensurate salary increase and drastically reducing the functioning cost of government and local authorities by reducing the number of civil servants or their salaries (its increase rate should be limited to a maximum of 50% of the GDP growth rate).

The alternative is debt restructuring or outright default.

As it stands today, the grand plan lacks credibility.

Markets also seem very skeptical…

Source:

European Council: Statement by the Euro area Heads of State or Government

http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/126658.pdf

European Commission: Economic Governance in graphs

http://ec.europa.eu/europe2020/priorities/economic-governance/graph/index_en.htm

Bloomberg: Euro Leaders Push Budget Rigor 20 Years After Maastricht With Onus on ECB

http://www.bloomberg.com/news/2011-12-09/euro-states-to-shift-267-billion-to-imf-as-focus-shifts-to-deficit-deal.html

European rescue package: truth and fallacy

It occurred to me that the EUR100 bn private sector participation to the latest Greek rescue might no be as large as trumpeted by European leaders on 27^th October. 

The statement:

“…we invite Greece, private investors and all parties concerned to develop a voluntary bond exchange with a nominal discount of 50% on notional Greek debt held by private investors.”

The facts:

1. Greek’s sovereign debt holders split:
 

• Commercial banks: EUR81 bn
• ECB: EUR45 bn
• EU/IMF: EUR65 bn
• Others (SWFs, asset managers, central banks, public sector funds): EUR159 bn

2. As per EBA data published in July stress test, Greek banks shared 59% of the total held by commercial banks, i.e. EUR48 bn. The reduction in Greek debt will be at least partly compensated by a bank recapitalization (I estimate it at around EUR30 bn – same as the EBA): the net effect on the Geek sovereign debt reduction is therefore rather minimal at approximately EUR18 bn (assuming that Greece and not the EFSF recapitalizes). 

3. According to a research published by Barclay’s Bank in July, EUR11.3 bn are held by EZ Insurance companies: 50% is EUR5.7 bn.
 

4. Non-Greek European banks will take a EUR16.5 bn loss.

5. Remains private assets managers and smaller holders of Greek bonds which I believe are not significant: say EUR 30bn to be generous or a EUR15 bn loss.

The total losses realized by the private sector would therefore amount to EUR55 bn, far from the EUR100 bn trumpeted.

Conclusion

If non-Greek European private sector banks would write-down +/- EUR16.5 bn, one may wonder why the EBA requires them to raise EUR76 bn whilst they are profitable enough (but for a few exceptions) to absorb losses on Greece and reach the 9.5% Basle III capital requirements.

Because, there is more to come; then EUR106 bn will not be enough; watch non-performing private sector loans in Greece and elsewhere as well as Italy, France, Portugal, Belgium, etc. sovereign debt… Italy’s interest rates on its debt are close to unsustainable at 6.6% and France together with Belgium are rapidly going the same way: any 1% increase translates into +/- EUR19 bn additional interest payment in a full year for Italy and EUR17 bn for France.

The EUR1 tr EFSF will not be enough, nor the EUR200 bn recapitalization recommended by the IMF: but for a euro split/collapse, the only remaining solution would be for the ECB to monetize sovereign debt for BIGSPIF. Germany has already started to eat its hat; when enough will be enough for Germans?…

BIGSPIF: Belgium, Ireland, Greece, Spain, Portugal, Italy, France 

07 November 2011

Source:

European Banking Authority: The EBA details the EU measures to restore confidence in the banking sector

http://www.eba.europa.eu/News--Communications/Year/2011/The-EBA-details-the-EU-measures-to-restore-confide.aspx

The Institute of International Finance: Press Statement on Euro Area Stablization Measures

http://www.iif.com/

European Commission: Euro Summit Statement

http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/125644.pdf