{"id":1020,"date":"2012-05-18T08:00:00","date_gmt":"2012-05-18T08:00:00","guid":{"rendered":"http:\/\/starthostunlimiteddmffassi-ss.stackstaging.com\/bondworld.ch\/home\/sites\/20b\/7\/760c69a11c\/public_html\/investmentworld.ch\/index.php\/2012\/05\/18\/viewpoint-the-political-crisis-in-greece-is-laying-bare-all-the-contradictions-of-the-european-crisis-manage"},"modified":"2012-05-18T08:00:00","modified_gmt":"2012-05-18T08:00:00","slug":"viewpoint-the-political-crisis-in-greece-is-laying-bare-all-the-contradictions-of-the-european-crisis-management-strategy","status":"publish","type":"post","link":"https:\/\/www.investmentworld.eu\/ch\/viewpoint-the-political-crisis-in-greece-is-laying-bare-all-the-contradictions-of-the-european-crisis-management-strategy\/","title":{"rendered":"Viewpoint:  The political crisis in Greece is laying bare all the contradictions of the European crisis management strategy."},"content":{"rendered":"<p style=\"text-align: justify;\"><span lang=\"EN-GB\"> <\/span>After two years of half-solutions, contagion risk from the Greek crisis  is forcing euro area leaders to make a final decision on firewalls and  on the most efficient trade-off between conditionality and effectiveness  of the assistance programmes. FOMC: concerns over fiscal risks..<span lang=\"EN-GB\">.<\/span><span lang=\"EN-GB\">..<\/span><strong><span lang=\"EN-GB\"> <\/span><\/strong><span lang=\"EN-GB\"> <\/span><span lang=\"en-GB\"> <\/span><\/p>\n<p>  <!--more-->  <\/p>\n<ul> <\/ul>\n<ol><\/ol>\n<ol><\/ol>\n<ol><\/ol>\n<ol><\/ol>\n<hr \/>\n<p> Sign up for our free newsletter to receive weekly news from BONDWorld<br \/> <a href=\"index.php?option=com_acymailing&#038;view=user&#038;Itemid=107\"><strong>Click  here to register for your free copy<\/strong><\/a><a href=\"index.php?option=com_acymailing&#038;view=user&#038;Itemid=1023\"><strong> <\/strong><\/a>  <\/p>\n<hr \/>\n<p style=\"text-align: center;\"><strong>For professional investors and advisers only<\/strong><\/p>\n<hr style=\"text-align: justify;\" \/>\n<p style=\"text-align: justify;\">The political crisis in Greece is laying bare all the contradictions of the European crisismanagement strategy. The recent elections saw the success of political parties convinced that the euro area will not run the risk of suspending financial aid to Greece, out of concerns tied to a possible contagion. There are no certainties that the situation will be solved by the new election scheduled on 17 June. What are the possible scenarios?<\/p>\n<p style=\"text-align: justify;\">The first scenario, the easiest to manage, implies the formation of a government that initially commits to respecting the terms of the bailout, in the meantime laying the grounds for a reformulation that would enhance its credibility. This would probably require an increase in financial aid, upturning the starkly unsuccessful logic adopted hitherto (at present, the target size of financial aid determines the intensity of fiscal correction).<\/p>\n<p style=\"text-align: justify;\">The second scenario sees the new Greek government pushing for immediate and drastic renegotiation. This would pose a dilemma for the Eurogroup: defend the principle of conditionality, accepting to face contagion risk and the scenario of a political and social collapse in Greece, or accept a drastic easing of conditionality (with the risk of the new terms also being breached). The tone of official statements has changed dramatically in the corse of the week: initially, the threat to suspend aid and reassurances on the sustainability of the consequences prevailed; then a generic preference for Greece to stay in the monetary union was voiced by many. This change is due to a combination of factors: the perception of the risk that the liquidity position of Greek is becoming critical, resulting in forced exit from the euro even in the absence of explicit political choices, and signals of the contagion spreading to other peripheral markets. An additional factor could also be the desire not to fuel an estreme polarization of local public opinion positions.<\/p>\n<p style=\"text-align: justify;\">If ultimately the decision is taken to abandon Greece to its fate, work should begin immediately on preparing a safety net capable of shielding Spain and Italy from contagion effects. Possibly, the declines observed in the share of Italian and Spanish debt held by nonresidents would already be enough to avoid catastrophic consequences. Also, as explained a few weeks ago in our analysis of financial support mechanisms, even for smaller financing needs the current architecture could only provide temporary assistance, but without being able to guarantee the liquidity of the two countries in any market condition; therefore, a confidence crisis would be hard to prevent. The only decisive measure would be a strong and determined intervention of the central bank, with an extensive purchase programme addressed to government bonds on the secondary market. This would imply the ECB taking back all the numerous statements made against the Securities Markets Programme. But would they prefer to face the risk of a disaggregation of the European Monetary Union?<\/p>\n<p style=\"text-align: justify;\">The minutes of the FOMC meeting confirmed the \u201cmoderate\u201d growth outlook, with a gradual acceleration. Although the monetary policy stance remains unchanged for the time being, \u201cseveral\u201d members indicated that \u201cadditional monetary policy accommodation could be necessary if the economic recovery lost momentum or the downside risks to the forecast became great enough \u201c. The Committee believes fiscal policy will hinder growth in the coming quarters, and pose \u201cconsiderable\u201d risks in view of potentially drastic restriction at the beginning of 2013. Also, uncertainty over fiscal prospects could result in a slowdown in the spending of enterprises, even before the actual implementation of restrictive measures. Serious uncertainty emerges over the monetary policy strategy, although the existence is confirmed of a substantial group of members still willing to intervene in support of growth and employment, in a context of increasing risks tied to fiscal policy.<\/p>\n<hr \/>\n<p> <strong>Appendix<br \/><\/strong> <\/p>\n<p style=\"text-align: justify;\"><strong>Analyst Certification<\/strong><br \/>The  financial analysts who prepared this report, and whose names and roles  appear on the first page, certify that: (1) The views expressed on  companies mentioned herein accurately reflect independent, fair and  balanced personal views; (2) No direct or indirect compensation has been  or will be received in exchange for any views expressed. Specific  disclosures: The analysts who prepared this report do not receive  bonuses, salaries, or any other form of compensation that is based upon  specific investment banking transactions.<\/p>\n<p><strong>Important Disclosures<\/strong><br \/>This  research has been prepared by Intesa Sanpaolo S.p.A. and distributed by  Banca IMI S.p.A. Milan, Banca IMI SpA-London Branch (a member of the  London Stock Exchange) and Banca IMI Securities Corp (a member of the  NYSE and NASD). Intesa Sanpaolo S.p.A. accepts full responsibility for  the contents of this report. Please also note that Intesa Sanpaolo  S.p.A. reserves the right to issue this document to its own clients.  Banca IMI S.p.A. and Intesa Sanpaolo S.p.A. are both part of the Gruppo  Intesa Sanpaolo. Intesa Sanpaolo S.p.A. and Banca IMI S.p.A. are both  authorised by the Banca d&#8217;Italia, are both regulated by the Financial  Services Authority in the conduct of designated investment business in  the UK and by the SEC for the conduct of US business.<br \/>Opinions and  estimates in this research are as at the date of this material and are  subject to change without notice to the recipient. Information and  opinions have been obtained from sources believed to be reliable, but no  representation or warranty is made as to their accuracy or correctness.  Past performance is not a guarantee of future results. The investments  and strategies discussed in this research may not be suitable for all  investors. If you are in any doubt you should consult your investment  advisor. <br \/>This report has been prepared solely for information  purposes and is not intended as an offer or solicitation with respect to  the purchase or sale of any financial products. It should not be  regarded as a substitute for the exercise of the recipient\u2019s own  judgement.<br \/>No Intesa Sanpaolo S.p.A. or Banca IMI S.p.A. entities  accept any liability whatsoever for any direct, consequential or  indirect loss arising from any use of material contained in this report.  <br \/>This document may only be reproduced or published together with the  name of Intesa Sanpaolo S.p.A. and Banca IMI S.p.A.. Intesa Sanpaolo  S.p.A. and Banca IMI S.p.A. have in place a Joint Conflicts Management  Policy for managing effectively the conflicts of interest which might  affect the impartiality of all investment research which is held out, or  where it is reasonable for the user to rely on the research, as being  an impartial assessment of the value or prospects of its subject matter.  A copy of this Policy is available to the recipient of this research  upon making a written request to the Compliance Officer, Intesa Sanpaolo  S.p.A., 90 Queen Street, London EC4N 1SA.<br \/>Intesa Sanpaolo S.p.A. has  formalised a set of principles and procedures for dealing with  conflicts of interest (\u201cResearch Policy\u201d). The Research Policy is  clearly explained in the relevant section of Banca IMI\u2019s web site  (www.bancaimi.com).<br \/>Member companies of the Intesa Sanpaolo Group, or  their directors and\/or representatives and\/or employees and\/or members  of their households, may have a long or short position in any securities  mentioned at any time, and may make a purchase and\/or sale, or offer to  make a purchase and\/or sale, of any of the securities from time to time  in the open market or otherwise. Intesa Sanpaolo S.p.A. issues and  circulates research to Qualified Institutional Investors in the USA only  through Banca IMI Securities Corp., 245 Park Avenue, 35th floor, 10167  New York, NY,USA, Tel: (1) 212 326 1230. Residents in Italy: This  document is intended for distribution only to professional investors as  defined in art.31, Consob Regulation no. 11522 of 1.07.1998 either as a  printed document and\/or in electronic form. Person and residents in the  UK: This document is not for distribution in the United Kingdom to  persons who would be defined as private customers under rules of the  FSA.<br \/>US persons: This document is intended for distribution in the  United States only to Qualified Institutional Investors as defined in  Rule 144a of the Securities Act of 1933. US Customers wishing to effect a  transaction should do so only by contacting a representative at Banca  IMI Securities Corp. in the US (see contact details above). <br \/><strong><br \/>Valuation Methodology<\/strong><br \/>Trading  Ideas are based on the market\u2019s expectations, investors\u2019 positioning  and technical, quantitative or qualitative aspects. They take into  account the key macro and market events and to what extent they have  already been discounted in yields and\/or market spreads. They are also  based on events which are expected to affect the market trend in terms  of yields and\/or spreads in the short-medium term. The Trading Ideas may  refer to both cash and derivative instruments and indicate a precise  target or yield range or a yield spread between different market curves  or different maturities on the same curve. The relative valuations may  be in terms of yield, asset swap spreads or benchmark spreads.<br \/><strong><br \/>Coverage Policy And Frequency Of Research Reports<\/strong><br \/>Intesa  Sanpaolo S.p.A. trading ideas are made in both a very short time  horizon (the current day or subsequent days) or in a horizon ranging  from one week to three months, in conjunction with any exceptional event  that affects the issuer\u2019s operations. In the case of a short note, we  advise investors to refer to the most recent report published by Intesa  Sanpaolo S.p.A\u2019s Research Department for a full analysis of valuation  methodology, earnings assumptions and risks. Research is available on  IMI\u2019s web site (www.bancaimi.com) or by contacting your sales  representative.<\/p>\n<p>Source: BONDWorld &#8211; Intesa Sanpaolo \u2013 Research Department<\/p>\n","protected":false},"excerpt":{"rendered":"<p>After two years of half-solutions, contagion risk from the Greek crisis is forcing euro area leaders to make a final decision on firewalls and on the most efficient trade-off between conditionality and effectiveness of the assistance programmes. 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