25 of 27 EU countries approve the Fiscal Compact; Merkel delays greek deal

The Fiscal Compact has been ratified by 25 of 27 countries across the European Union in the first economic summit of the year Monday in Brussels. The United Kingdom and the Czech Republic haven ratified the agreement according to sources.

“25 member states join and will sign the fiscal compact treaty,” said Herman Van Rompuy, President of the European Council in his Twitter account.

The fiscal treaty will enforce countries to don’t have a bigger debt ratio than 60% of GDP and to fix their budget balance. German official say they are satisfied since Europe is going to a higher tax integration. The pact will come into force from the first day of 2013 and include the “Golden Rule” that allow The EU Court of Justice to impose penalties of 0.1% to countries to fail into 3% GDP debt ratio.

Countries that do not ratify the Treaty won’t have access to the bailout fund.

On the other hand, Angela Merkel commented that Greece deal will delay since the Troika hasn’t have enough time to review the results of the latest Greek measures. “We won’t have a thorough discussion of Greece because the troika is in Greece and we don’t have a result of the talks with the banks,” Chancellor Merkel said.”

The talks will center on the situation in Greece, where a PSI deal is expected to be finalized in the upcoming days. The next tranche of aid for the country cannot be released until an agreement in this respect is reached. EU officials will also discuss the fiscal pact, the permanent rescue fund as well as the stimulation of growth and employment in the Eurozone.

Greek PSI deal nears; Merkel denies greater Greece budget oversight

The long-awaited agreement on a debt swap between Greece and its private creditors may come into fruition shortly according to representatives dealing with the negotiations. Despite some minor loose ends still to be put together, parties have been closing in differences for a debt swap that would chop 100 bln EUR off Greece’s debt burden.

According to AP: “Private investors would receive new bonds whose face value is half of the existing bonds, a longer maturity and pay an average interest rate of slightly less than 4%. The final deal will be announced next week in tandem with a new 130 bln EUR loan program for Greece being put together by the “Troika” that is hoped to cover Greece’s borrowing needs through 2015. The interest rate or coupon on the new bonds was a major stumbling block in the negotiations with private creditors – who were until Saturday insisting it should be above 4.0%.”

Some of German Chancellor Merkel’s government partners commented earlier on the day the time had come for Greece to surrender control of its budget policy to outside institutions if it cannot implement reforms attached to euro zone rescue by themselves. However, Merkel said she did not back demands for greater oversight. French President Sarkozy affirmed this view, saying he is opposed to placing Greece under budgetary control.

Banks set to ask the ECB for twice as much in February

Major European banks are gearing up to exceed by far the amounts of cheap money to be borrowed from the European Central Bank’s emergency funding scheme. According to the FT, it could be “up to twice as much as the ECB supplied in its debut €489bn auction last month, providing further evidence of the sector’s liquidity squeeze.”

As read in the FT: “Several of the eurozone’s biggest banks told the Financial Times that they could well double or triple their request for funds in the ECB’s three-year money auction on February 29. “Banks are not going to be as shy second time round,” said the head of one eurozone bank at last week’s World Economic Forum in Davos. “We should have done more first time.”

Spanish regions downgraded by S&P

Spain’s aggregate fiscal position had another hit on Monday, after S&P cut the ratingson several Spanish regions. As explained by the UBS team, “the ratings agency attributed the moves to recent action on the sovereign, in addition to the wider economic issues facing the country. Spain is due to issue bonds on Thursday, having aggressively front-loaded its funding so far this year, taking advantage of more preferable market conditions.”

The following were the regions affected by the downgrade: Andalucia downgraded to A, still on negative watch, Galicia cut to A, still on negative watch, Canary Islands downgraded to A, still on negative watch, Madrid region cut to A, still on negative watch, Province of Barcelona cut to A, outlook remains negative.

Yields fall at Italian debt sale

At the first debt auction held after Italy had been downgraded by Fitch to A- last Friday, the country sold 7.48 billion euros worth of various bonds on Monday, out of a 8 billion target.

Italy auctioned 10-year papers at a yield of 6.08%, in comparison with nearly 7% it had to pay at the previous auction in December. Notes maturing in May 2017 were sold at an average yield of 5.39 %, down from the previous 6.5.


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