A Cruel Month Unfolds in Europe
09/06/2011 2:05 pm EST
The news flow from Europe in September is full of deadlines and threats. It’s hard for me to see global financial markets finding their footing until this giant bulge of unsettling news has passed through the anaconda.
The hope is that the monthly press conference from the European Central Bank will bring assurances that the bank will continue to buy Italian and Spanish government bonds to support the price of that debt. The bank bought roughly $20 billion in bonds (mostly Italian and Spanish) last week.
However, incoming European Central Bank aPresident Mario Draghi, who takes over on November 1, has warned recently that the buying should not be taken for granted.
Sometime around the middle of the month, financial markets are looking to hear how many private sector investors are signing up for the debt-reduction portion of Greek Rescue II.
The hope is for 90% participation. Anything very far short of that will be a big setback for the package.
Italy has to redeem and then roll over about $85 billion in debt in September. If yields in this refinancing jump, it could produce a sell-off that makes the refunding more expensive, which would raise fears about Italy’s debt burden, which would produce a sell-off that drives yields higher—and so on.
European governments need to ratify the Greek Rescue II from July in order to give the European Financial Stability Facility new powers to deal with the euro debt crisis.
Already some Eurozone governments are showing signs of cold feet, with Slovakia’s appendages among the most frigid. Parliamentary speaker Richard Sulik has said that a vote scheduled for October should be postponed until December. He apparently wants to make sure that Slovakia is one of the last countries to ratify the changes.
But the most important September date is September 29 when the German Bundestag is set to vote on the deal. After a big election loss in regional voting on Sunday, it’s not clear that German Chancellor Angela Merkel will be able to deliver a “yes” vote, although publicly she remains confident.
International lenders pulled out of talks in Athens last week, warning that if the Greek government doesn’t implement austerity measures quickly, they will withhold an $11.5 billion payment due at the end of September.
Greece criticially needs this money to fund its current operations, and to continue to pay interest on its debts.
We turn the page on September.
Full disclosure: I don’t own shares of any stock mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. The fund did not own positions in any stock mentioned in this post as of the end of June. For a full list of the stocks in the fund as of the end of June, see the fund’s portfolio here.