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26 Mar 2013
Forex Flash: Dijsselbloem post mortem - Nomura
FXstreet.com (Barcelona) - In the aftermath of Dijsselbloem´s comments yesterday, Nomura economist Jacques Cailloux believes that there is nothing in what he said that is shocking, especially coming from the Dutch Finance Minister as it summarises well the long standing view of the Nordic countries.
However, he thinks that Mr Dijsselbloem is acting as a “beginner” is by 1) his lack of clarity under which capacity he made those comments. He feels that it is obvious to us that he was talking more with his Dutch Finance Minister hat than as representative of the Euro group, as it is inconceivable that the whole Euro group would have backed this message at such a delicate time. Further, Cailloux adds that he should have specified that he is speaking in his capacity of finance Minister, and far more importantly by 2) Mr Dijsselbloem refers to calm in the market several times as a rationale to move towards bail ins from bailouts, and this is where we believe he may be most wrong.
In his view, Mr Dijsselbloem should have at least waited a few weeks to make a thorough assessment so that he could have made an informed determination that the Cyprus situation was indeed resolved and there were no repercussions on the rest of the system. he adds, “Indeed, (I) believe that his read on the apparent stability of the market is completely mistaken. Markets are not stable because they believe Cyprus is not systemic; rather, markets have been stable because of the Draghi put, which led to markets wrongly assuming that bail outs and solidarity are the new equilibrium.”
Again, he comments that it is not the position that Dijsselbloem took that surprised him, as he have
always thought that there was less solidarity in the system than was priced in by the market, and that the ESM would never play a significant role in the recapitalisation of banks, especially with respect to legacy assets where the burden of adjustment is more likely to be concentrated between the local tax payer and private sector creditors. He was surprised by Dijsselbloem´s belief that this was the right time to make such a statement, only because markets have been relatively stable during the Cyprus situation. He finishes by writing, “We expect further repricing of the risk premia for bank debt and sovereign debt to take place over the coming weeks as markets reassess the amount of solidarity in the system.”
However, he thinks that Mr Dijsselbloem is acting as a “beginner” is by 1) his lack of clarity under which capacity he made those comments. He feels that it is obvious to us that he was talking more with his Dutch Finance Minister hat than as representative of the Euro group, as it is inconceivable that the whole Euro group would have backed this message at such a delicate time. Further, Cailloux adds that he should have specified that he is speaking in his capacity of finance Minister, and far more importantly by 2) Mr Dijsselbloem refers to calm in the market several times as a rationale to move towards bail ins from bailouts, and this is where we believe he may be most wrong.
In his view, Mr Dijsselbloem should have at least waited a few weeks to make a thorough assessment so that he could have made an informed determination that the Cyprus situation was indeed resolved and there were no repercussions on the rest of the system. he adds, “Indeed, (I) believe that his read on the apparent stability of the market is completely mistaken. Markets are not stable because they believe Cyprus is not systemic; rather, markets have been stable because of the Draghi put, which led to markets wrongly assuming that bail outs and solidarity are the new equilibrium.”
Again, he comments that it is not the position that Dijsselbloem took that surprised him, as he have
always thought that there was less solidarity in the system than was priced in by the market, and that the ESM would never play a significant role in the recapitalisation of banks, especially with respect to legacy assets where the burden of adjustment is more likely to be concentrated between the local tax payer and private sector creditors. He was surprised by Dijsselbloem´s belief that this was the right time to make such a statement, only because markets have been relatively stable during the Cyprus situation. He finishes by writing, “We expect further repricing of the risk premia for bank debt and sovereign debt to take place over the coming weeks as markets reassess the amount of solidarity in the system.”