"Over the next few months, the Euro-Zone faces a number of challenges including: the implementation of the new arrangements, possible further downgrading of a number of nations, refinancing maturing debt and meeting required economic targets. There will also be complex political and social pressures.
Implementation of the new fiscal compact may not be a fait accompli. The lack of agreement by Britain makes the change more complex. A number of treaties and protocols need to be amended. There are also doubts as to whether the “work around” will be legally effective.
At least four governments have indicated that agreement to the changes is contingent on the precise legal text. One key area of concern is the precise form and extent of powers granted to the EU to police national budgets. Another relates to the structure of the ESM, where a qualified majority of 85% will have the power to make emergency decisions. Finland is currently opposed to the ESM act by super majority instead of unanimity. Others are also reluctant to pay in capital, which can be placed at risk without the right to a veto.
Given issues of national sovereignty, it is possible that there will delays in implementation. Changes cannot also be ruled out.
In the background, negotiations on the Greek package of July 2011 have also stalled. There is a risk that a significant number of banks will refuse to participate in the complex debt restructuring, entailing a writedown of 50% of private debt.
Following a review, S&P have downgraded France and Austria from AAA to AA+. The rating agencies may follow. The risk of further downgrades exists. The European bailout fund is under threat of being downgraded As the number of AAA rate guarantors backing it has fallen from Euro 451 billion to Euro 271 billion (a fall on 40%). This weakens its already compromised ability to raise funds to meet existing commitments to Greece, Ireland and Portugal and to support the funding of other countries.
Wall of Debt…
A crucial issue is the ability of European sovereigns to meet maturing debt commitments and to keep borrowing costs at a sustainable level.
European sovereigns and banks need to find Euro 1.9 trillion to refinance maturing debt in 2012, equivalent to around Euro 7.5 billion each business day.
Italy requires Euro 113 billion in the first quarter and around Euro 300 billion over the full year, equivalent to around Euro 1.5 billion per business day. Italy, Spain, France, and Germany together will need to issue in excess of Euro 4.5 billion every working day of 2012.
European banks, whose fates are intertwined with the sovereigns, need Euro 500 billion in the first half of 2012 and Euro 275 billion in the second half. They need to raise Euro 230 billion per quarter in 2012 compared to Euro 132 billion per quarter in 2011. Since June 2011, European banks have been only able to raise Euro 17 billion compared to Euro 120 billion for the same period in 2010..."
at http://www.nakedcapitalism.com/2012/01/satyajit-das-europe%e2%80%99s-the-road-to-nowhere-part-ii-%e2%80%93-roadblocks-ahead.html
Implementation of the new fiscal compact may not be a fait accompli. The lack of agreement by Britain makes the change more complex. A number of treaties and protocols need to be amended. There are also doubts as to whether the “work around” will be legally effective.
At least four governments have indicated that agreement to the changes is contingent on the precise legal text. One key area of concern is the precise form and extent of powers granted to the EU to police national budgets. Another relates to the structure of the ESM, where a qualified majority of 85% will have the power to make emergency decisions. Finland is currently opposed to the ESM act by super majority instead of unanimity. Others are also reluctant to pay in capital, which can be placed at risk without the right to a veto.
Given issues of national sovereignty, it is possible that there will delays in implementation. Changes cannot also be ruled out.
In the background, negotiations on the Greek package of July 2011 have also stalled. There is a risk that a significant number of banks will refuse to participate in the complex debt restructuring, entailing a writedown of 50% of private debt.
Following a review, S&P have downgraded France and Austria from AAA to AA+. The rating agencies may follow. The risk of further downgrades exists. The European bailout fund is under threat of being downgraded As the number of AAA rate guarantors backing it has fallen from Euro 451 billion to Euro 271 billion (a fall on 40%). This weakens its already compromised ability to raise funds to meet existing commitments to Greece, Ireland and Portugal and to support the funding of other countries.
Wall of Debt…
A crucial issue is the ability of European sovereigns to meet maturing debt commitments and to keep borrowing costs at a sustainable level.
European sovereigns and banks need to find Euro 1.9 trillion to refinance maturing debt in 2012, equivalent to around Euro 7.5 billion each business day.
Italy requires Euro 113 billion in the first quarter and around Euro 300 billion over the full year, equivalent to around Euro 1.5 billion per business day. Italy, Spain, France, and Germany together will need to issue in excess of Euro 4.5 billion every working day of 2012.
European banks, whose fates are intertwined with the sovereigns, need Euro 500 billion in the first half of 2012 and Euro 275 billion in the second half. They need to raise Euro 230 billion per quarter in 2012 compared to Euro 132 billion per quarter in 2011. Since June 2011, European banks have been only able to raise Euro 17 billion compared to Euro 120 billion for the same period in 2010..."
at http://www.nakedcapitalism.com/2012/01/satyajit-das-europe%e2%80%99s-the-road-to-nowhere-part-ii-%e2%80%93-roadblocks-ahead.html