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Europe midday: Germany says shared sovereignty must come first

Date: Wednesday 27 Jun 2012

Europe midday: Germany says shared sovereignty must come first

-Germany says other nations must share control of budgets
-Chancellor Merkel and President Hollande to meet today
-EZ finmins to hold conference call on Spanish/Cypriot aid requests
-EZ authorities may show flexibility on ESM debt seniority
-China to study proactive policies
-Egan Jones cuts Germany to A+ from AA-

FTSE-100:0.71%
Dax-30: 0.55%
Cac-40: 0.60%
Stoxx 600: 0.68%
FTSE-Mibtel: 1.25%

European equities are now registering only moderate advances; drifting up as markets opt to keep to a “holding pattern” ahead of the start, tomorrow, of the European Union summit.

Acting as a backdrop, there is quite a heavy flow of news and commentary –sometimes apparently also a tad conflicting- regarding what investors can expect from that meeting. In any case, it would seem that the differences between Germany and the other AAA countries, on the one hand, and the other major economies –Spain, Italy and France- are now more pronounced. This as the sense of urgency in markets builds given the growing pressure on Eurozone periphery interest rates.

Total debt liability?



Acting as a backdrop, we have the remarks attributed to Chancellor Merkel last night criticizing the proposals for an overhaul of the Eurozone´s institutional framework as putting too much emphasis on shared liability and not enough on control of wayward budgets, according to a party official who was in the room. The 57-year-old leader told them she expects no total debt liability in her lifetime, persons who attended the meeting said.

Of possible interest in that regard nonetheless, today Michael Meister, the deputy leader in parliament of Merkel´s party, said euro-area nations must agree to share control over their budgets before there can be joint liability for debts.

Other reports, however, hold that “Eurozone authorities” may be willing to show flexibility as regards the seniority of debt issued by the European Stability Mechanism (ESM), while Chancellor Merkel and Finance Minister Schaeuble are said not to have expressed an opinion on this issue.

On the other hand, and as regards German calls for greater European integration, French European Affairs Minister Bernard Cazeneuve told his country´s press yesterday that, “we have no reason to reject this debate, but it’s not the core of the subject. The crisis response is needed now. This will make possible the necessary institutional evolution.”

Lastly, Spain´s Prime Minister, Mariano Rajoy, has made a renewed plea for decisive action by European authorities as the country´s financing costs are not sustainable for long at current levels.

Financials lead gains



German steel–maker Salzgitter has said that profits will fall sharply this year, forecasting losses at its steel division.

Portugal Telecom is climbing after announcing a €200m ($250m) share buyback program.

Renault expects to sell more than 50% of its vehicles outside Europe by next year, up from 48%.

From a sector stand-point the best performance now on the DJ Stoxx 600 can be seen in the following industrial groups: banks (1.41%), insurance (1.37%) and utilities (1.24%).

Italian yields climb at auction, demand holds



German import prices fell by 0.7% month-on-month in May (Consensus: -0.6%).

German consumer prices rose at a 1.7% year-on-year rate in June (Consensus: 1.8%).

Italy sold €9bn in bills this morning. Demand remained solid although yields, at 2.957%, climbed back up to levels seen last December.

Single currency steady ahead of EU summit



Front month Brent crude futures are now off by 0.065 dollars to the 92.96 dollar mark on the ICE.

The euro/dollar is still flat at 1.2490.

AB

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