Credit default swaps on European banks widen even as share prices rise

[llanlad2]

Re: Credit default swaps on European banks widen even as share prices rise

How many Germans do you know? ;-)

How many German politicians do you know? ;-)

[astonas]

Re: Credit default swaps on European banks widen even as share prices rise

Are you aware if the FDP/SDP are publically opposed to bailouts along a party line no matter what the circumstance? My reading thus far is if certain conditions are met then the FDP will relent to agreeing to bond buying/common bond especially if it places Germans at the centre of European decision making. How many FDP members would have to vote with the CDU to pass it and would all CDU vote in favour anyway?

My take is that both FDP and SDP would actually have been FAR LESS resistant to a bailout than the currently dominant CDU. Both parties are explicitly pro-European integration (FDP for business reasons, SPD for social equity reasons). It is Merkel's CDU that tends to oppose Euro-integration. So if Merkel had a plan she thought she could sell to even some of her party, there really wasn't a reason to suppose that the other parties would try all that hard to block it. But now that there is a political need to separate themselves from shady dealings, they may not be ABLE to vote along with the same plan that could have been palatable earlier.

[astonas]

Re: Credit default swaps on European banks widen even as share prices rise

How many German politicians do you know? ;-)

The father of one of my friends is a minister in SPD.

[astonas]

Re: Credit default swaps on European banks widen even as share prices rise

I should probably clarify that the opinions I'm expressing are my own, however. I haven't spoken with the father in several years.

[astonas]

Re: Credit default swaps on European banks widen even as share prices rise

Just to provide an update on this.

My take is that both FDP and SDP would actually have been FAR LESS resistant to a bailout than the currently dominant CDU. Both parties are explicitly pro-European integration (FDP for business reasons, SPD for social equity reasons). It is Merkel's CDU that tends to oppose Euro-integration. So if Merkel had a plan she thought she could sell to even some of her party, there really wasn't a reason to suppose that the other parties would try all that hard to block it. But now that there is a political need to separate themselves from shady dealings, they may not be ABLE to vote along with the same plan that could have been palatable earlier.

It looks like the cracks in the FDP/CDU coalition are beginning to show:

from Handelsblatt:
http://www.handelsblatt.com/politik/...k/4540720.html

FDP-Fraktionschef Rainer Brüderle besteht auf mehr Kontrollrechten für den Bundestag. „Der Parlamentsvorbehalt ist für die FDP unabdingbar. Das Haushaltsrecht ist das Königsrecht des Parlaments, das lassen wir nicht aushebeln“, sagte Brüderle Focus Online“.

My Translation:

FDP party leader Rainer Bruederle insisted on the Bundestag having more more control. "Parliamentary approval is essential for the FDP. The right to create budgetary law is the sovereign right of parliament, which we will not permit to be sidestepped" said Brüderle in Focus Online.

Worst case scenario (for stability, anyway): Germany eeks out a contentious passage of a limited bill, or no bill at all.

Best case? Dissolution of the FDP / CDU parliamentary coalition, with FDP/SDP likely taking the reigns, and passing something stronger. (The constitution does not permit a leaderless government in Germany)

My two cents.

[llanlad2]

Re: Credit default swaps on European banks widen even as share prices rise

Thanks for this Astonas it's good to have someone with closer cultural ties and understanding of the language provide insight.

However it still seems to me that everything is still positioned for the German parliament to vote to support bond purchases and or a common Eurobond especially as the parliamentary minority parties are pro-Europe. The approval in law would help seal the deal for them. Are any CDU likely to rebel and vote against their leaders? would Merkel get support from opposition party members in the event some in her party rebelled?

Has your dad's friend got an insight into this? Or would that be considered insider trading? ;)

I also don't think it is a coincidence that Italy, Spain and France have all recently announced emergency budget cuts/tax increases that magicallly lead to balanced budgets and outlaw them constitutionally. All of these announcements help make political support for the Euro within Germany more palatable. Merkel has also publicly praised all of these budgets. The below are headlines from the last week.

eg Italy Unveils Measures to Balance Budget by 2013 (from WSJ)

France’s rich to bear brunt of austerity budget (from FT)

Spain to unveil more austerity moves on Friday (reuters)

Please keep us updated on the political mood within Germany as I am sure many are interested to know. (or me at least!)

[astonas]

Re: Credit default swaps on European banks widen even as share prices rise

It's always a pleasure to learn and share, and there's much opportunity to both here. I certainly expect to continue.

However it still seems to me that everything is still positioned for the German parliament to vote to support bond purchases and or a common Eurobond especially as the parliamentary minority parties are pro-Europe. The approval in law would help seal the deal for them. Are any CDU likely to rebel and vote against their leaders? would Merkel get support from opposition party members in the event some in her party rebelled?

Prior to the leak, the question (in my mind, at least) was one of money vs. control. I thought that it was much more straightforward to make the call, conditional on legal approval. Since the leak, I think everything the Bundestag will do is going to depend heavily on where the focus of the electorate's outrage winds up. Will people focus entirely on the democratic end-run? Then new elections, possibly ending with a more Euro-friendly FDP/SPD coalition could be in the cards. Will the focus be on the original "workability" issues? Then the CDU will likely retain power, the response will come sooner, but perhaps be weaker than before. If sufficiently weakened, but not ousted, then there might be no deal at all.

Either way, the leak has taken the wind out of the sales of an immediate strong response to the crisis, and complicated the path to a more complete solution. And the market news is full of what THAT means for investors.

At this point, it's hard to say much for sure. What I can say is that it would be extremely unwise for my friend's dad to share any information, and just as unwise for me to ask him to. I suppose I owe my friend a call, and could see if he's dropped a hint in passing. I rather doubt that though, since the friend is a physicist in the U.S., and doesn't really talk politics with his parents.

Regarding what other nations are doing, their actions make perfect sense; they are no doubt fulfilling their part of the deal they made with Merkel and Sarkozy. And I thought Merkel could have done the same with her side. Up until a few days ago.

Now? *shrug* I'll keep checking the windsock. But since I'm on another continent, sudden shifts in mood are hard to ascertain. My family and friends provide only a small sampling, and may not be representative in any case.

I'll do my best.