Large scale treasury bill and bond issues of key eurozone nations will keep markets nervous in the first quarter. Throughout 2012 European pension funds, insurance companies and other investors will be called upon to fund indebted and recession ridden nations.
Credit Agricole Corporate & Investment Bank estimates that total issues of eurozone bonds will be lower than in 2011 because of bailouts and moves towards fiscal austerity. Amounts, however, are still huge. According to estimates of governments and Credit Agricole, total sovereign bond issues of Germany, France, Italy, Spain, Greece, Ireland and Portugal will fall to €749 billion ($975 bn) in 2012 from €757 billion in 2011. These figures are preliminary estimates and may well be adjusted early in the new Year, a Credit Agricole analyst said. Regardless, the numbers are still likely to be a massive borrowing requirement.
Eurozone Bond Issues in euro billions
| Debt as percentage of GDP | Issues in 2011 | Bond redemptions in 2012 | Estimated Bond issues in 2012 | |
| Germany | 82% | 181 | 134 | 170 |
| France | 86% | 184 | 99 | 179 |
| Italy | 121% | 215 | 193 | 220 |
| Spain | 67% | 88 | 46 | 89 |
| Greece | 165% | 46 | 33 | 50 |
| Ireland | 112% | 23 | 6 | 23 |
| Portugal | 102% | 20 | 10 | 18 |
Source Governments & Credit Agricole
Market sentiment in the first quarter will be crucial while eurozone member nations cobble together a fiscal agreement. Figures from Exchange Data International, which provides detailed information on bonds and other securities, shows that response to Greek and other Treasury bill and bond issues will be critical in the first few months of the year. In January Greece, Portugal and Spain need to replace redemptions of €9.4 billion treasury bills. Greece and Portugal each with €4 billion maturing, will be under acute pressure to succeed. In February and March Greece will have to raise a further €4 billion in T-bills, Spain €11.6 billion in February and Portugal, €3.75 billion. February is a significant month for Italy as €26 billion bonds must be redeemed, according to Exchange Data and €5 billion Portuguese government bonds and €5.5 billion of Irish bonds mature in March. If there is a buying strike for short and long term government finance Greece and perhaps Portugal may be under pressure to leave the eurozone, growing numbers of analysts believe.
European finance ministers discussed proposals for an extra €200 billion in additional funding via the International Monetary Fund. The proposed package involves about €150 billion pledged by euro-area central banks and another €50 billion from non-euro EU states. The money would, in a controversial move, be transferred to the IMF and then funnelled into states in financial crisis. There have also been hopes that the European Central Bank (ECB) would purchase more bonds to support the market. ECB President Mario Draghi, has said, however, that the bank could not go much further than the €208 billion Italian and other bonds it had already purchased to support prices. The ECB is already acting as last resort for crippled European banks. Figures in the latest monthly report of the ECB indicate that the central bank has lent banks a staggering €900 billion against mortgages and other suspect collateral.
Most European banks would be insolvent if their assets had to be marked to market value like hedge funds, according to Michael Platt, co-founder of BlueCrest Capital Management, a hedge fund that manages around $30 billion. He added in a Bloomberg TV interview that he was “radically concerned” about counterparty risk..
More details of the European Financial Stability Facility bailout fund are still to be decided. The fiscal eurozone treaty which will include some non euro states is due to be signed by the end of January.Former International Monetary Fund head Dominique Strauss-Kahn contends that the proposed €640 billion rescue fund is “in limbo” because it requires political approvals that may take months to obtain.
Strauss-Kahn maintains that Europe’s leaders had focused too heavily on the Continent’s debt problems and insufficiently on growth. Such austerity was bound to make the Continent’s economic problems worse, he said, because it would sap demand and make it harder to pay back debt. He added that China should get a larger vote in the IMF if it helps bail out Europe.