After revised -12.9% drop in February.

Plus ca change, plus c’est la meme chose…….

Sad, but hardly surprising

 a tad lower than median expectations of +2.5% y/y,  after +2.6% in April, but EUR/USD’s holding steady around 1.2410

ROME (MNI) – The European Central Bank must maintain its liquidity
provisions and be prepared for security market intervention in favor of
banks to combat the financial crisis enveloping the Eurozone, ECB
Governing Council member Ignazio Visco said Thursday.

“Since last summer, Europe and Italy have been in the throes of an
exceptionally serious crisis,” the governor of the Bank of Italy said in
remarks prepared for the central bank’s annual shareholders’ meeting
here.

Recent events in the Eurozone have raised investors’ concerns about
the future of the single currency amid a possible Greek exit from the
euro and a dramatic banking crisis in Spain, Visco said, calling for
“effective” financial assistance to states in difficulty and instruments
that guarantee prompt intervention in security markets and in favour of
banks to avoid the fallout from the crisis.

Visco called for “convergent manifestations of unshakable will to
preserve the single currency,” stressing that current yield spreads were
impeding the correct operation of monetary policy and putting financial
stability and growth at risk.

The likelihood of a return to economic growth in the region, which
according to estimates will not expand this year, depends on the
effectiveness of structural intervention and on European cohesion, he
said.

The ECB’s monetary policy operations can help stop spread of
financial instability and possibly avert a systemic crisis, but cannot
redress all the imbalances in the Eurozone, he said.

“The primary objective of the euro system is to ensure price
stability over the medium term,” Visco said. “Under the treaty, it
contributes to preserving the stability of the financial system. When
financial stability is jeopardized, price stability itself is put at
risk.”

In order for the single currency to survive over the long term, a
political union among member states is necessary, he argued. “A path
must be charted with political union as its ultimate goal, and each step
marked along the way.”

Italy will also face an “inevitable” recession this year due to
financial uncertainty and the drastic consolidation measures introduced
earlier this year by the government, Visco said. Europe’s third-largest
economy is expected to contract 1.5% this year, he estimated.

The measures were introduced by Prime Minister Mario Monti,
appointed in November to replace a discredited Silvio Berlusconi, who
was seen as having failed to resolve Italy’s spiraling debt crisis.
Monti’s popularity has since slumped amid the country’s year-long
economic recession and the ongoing debt concerns.

Austerity measures like tax increases and cuts in government
spending on salaries and pensions will likely further dampen spending
and aggravate the recession. Some E20 billion in austerity measures have
been introduced as the government struggles to decreased the budget
deficit and keep public debt from spiraling out of control.

Italian government debt rose to a record E1.946 trillion euros in
March, according to Bank of Italy figures released earlier this month.

The stability of Italian banks has been ensured by low exposure to
structured finance products, a relatively low level of leverage and “a
high proportion of capital instruments effectively capable of absorbing
losses,” Visco said.

“However, the credit system is feeling the repercussions of two
sharp recessions in three years and the sovereign debt strains,” he
acknowledged.

The Italian banking sector has been strengthening its tier one
capital ratios in recent years. The core tier one ratio of the largest
five lenders has risen to 10% from less than 6% percent in 2007. The
average for the banking sector is also currently 10%.

The European Commission on Wednesday singled out Italy as a country
with “serious” problems. Italian business confidence fell in May to the
lowest levels in almost three years amid a sharp drop in orders and
production outlook.

- Alina Trabattoni,

[TOPICS: M$X$$$,M$$EC$,MGX$$$,M$I$$$,MT$$$$]

–Adds Additional Draghi Comments At Bottom

BRUSSELS (MNI) – European leaders must clarify their vision of the
Eurozone’s future in order to lower risk aversion and reduce sovereign
spreads in EMU debt markets, European Central Bank President Mario
Draghi said Thursday.

“The next step is for our leaders to clarify what is the vision of
the future,” Draghi told the Economic and Monetary Affairs Committee of
the European Parliament. “This vision will contribute to lowering of
sovereign spreads and risk aversion in the system.”

Draghi said that to substantiate that vision, leaders should
outline a banking union based on three pillars: a pan-European deposit
guarantee program, a European bank resolution fund and strengthened and
more centralized European bank supervision.

He said having such a union would make it much easier for
authorities to deal with systemically important banks like the troubled
Spanish bank Bankia

Draghi said the ECB had already taken many steps to stimulate the
flow of bank credit but, overall, credit conditions have not generally
improved. “Credit has not started flowing because risk aversion is still
very high and because of the lack of capital,” Draghi said. And those
are two conditions the ECB can’t do much about, he said.

Draghi reiterated that the ECB cannot fill the vacuum left by the
failure of goverments to act on fiscal and structural reforms or by the
current weak state of euro-area governance.

He likened the current state of the Eurozone to a traveler who is
crossing a river with strong currents but who is unable to see the other
side because of fog.

“What we are asking for now is for European leaders to dispel this
fog,” he said.

–Paris newsroom, +33142715540; jduffy@marketnews.com

[TOPICS: M$$CR$,M$X$$$,M$$EC$,MGX$$$,MT$$$$]

Reuters headline.

Why would you come out and say that?

• Lack of market appreciation for Italian reforms, reflected in borrowing costs, may cause popular backlash

Is everybody happy, you bet your life we are

BRUSSELS (MNI) – The European Central Bank will keep its liquidity
lines open and active with all solvent banks and has the means to cope
with any potential bank runs, ECB President Mario Draghi said Thursday.

“We have all the means to cope with this as far as solvent banks
are concerned,” Draghi told the Economic and Monetary Affairs Committee
of the European Parliament. “The ECB will continue lending to solvent
banks and will keep the liquidity lines active.” He pledged that the
ECB would “avoid bank runs on solvent banks.”

Draghi also confirmed that four Greek banks that had been
temporarily suspended from ECB monetary policy operations for lack of
capital have now been reinstated.

He said that ECB liquidity support combined with a European deposit
guarantee program should be sufficient to protect depositors.

Regarding Europe’s bailout funds, Draghi said he was more
optimistic that the new permanent fund, the European Stability
Mechanism, would be more widely used than its predecessor, the European
Financial Stability Facility. He also appeared to leave the door open to
the possibility that the ESM could be used to recapitalize banks without
having the funds channeled through government budgets.

“We can have a big pot of money but if no one can touch it, it is
not going to work. I am more optimistic that the ESM will be used,”
Draghi said. He said Eurozone authorities were “looking at ways how the
ESM can be used to recapitalize banks.”

–Paris newsroom, +33142715540; jduffy@marketnews.com

[TOPICS: M$$CR$,M$X$$$,M$$EC$,MGX$$$]

Talk of Logica being bought for £1.7 bln by Canada’s CGI ( google – Canada’s CGI offers £1.7bn for Logica for full story from FT)

EUR/GBP’s also on the wane after running into offers above 0.8015. There’s talk of some buy stops now on a break of 0.8025

Cable’s  been up to 1.5522 just now, and a break through 1.5525 could extend up to next cluster of offers in the 1.5550′s

GBP’s sitting up around 1.5515 with the cross around 0.8802

• Discipline needed for global capital flows
• Easy money flows to the US contributed to the crisis
• Banks in ‘last ditch fight’ aginst Volcker rule
• Sees Fed  pulling ‘rabbits’ from a hat if EU crisis spreads to the US
• EU policy makers have to be more decisive
• Dimon on the board of the NYFed creates ‘appearance’ of a problem’

Headlines from an exclusive interview with Bloomberg TV in Hong Kong

What a drama queen

• Need to use ESM for sovereign bonds, aid to banks
• Current yield spreads fuel further EMU imbalances
• Current spreads impede correct single monetary policy
• EU, ECB must make “practical commitment” to markets
• ECB can fill temporary vacuums, not replace politics
• Warns of “dangerous” renationalization of financial systems
• Need for peer review of Bank RWA calculations
• Italy recovery “journey will not be short”
• Italy must “exploit to full” scope for asset sales
• Italy tax burden “incompatible with growth”
• Bank shareholders “need to realize” profit to be lower
• Italy banks must cut labour costs, executive pay
• Italian banks have 100 bln of elligible ECB collateral
• More bank credits may become elligible collateral
• Italian banks bought net 70 bln in govt bonds in Q1
• “Signs” credit supply reviving after LTRO liquidity
• Italian businesses need to boost equity
• Short-term bank loans hard to use as ECB collateral

Dow Jones reporting.

— Adds Detail To Version Transmitted At 0745BST

LONDON (MNI) – The Bank of England still has scope for further
quantitative easing if needed, a senior Bank of England policy maker has
said.

Charles Bean, the Bank’s deputy governor, said: “If things do take
a turn for the worse that we will try and do everything we can to work
against that and to try and keep the recovery going. We have the scope
to do more asset purchases,” the Norwich Evening Post’s website reports.

Bean also said that developments in the euro zone sovereign debt
crisis are creating a large degree of uncertainty in the UK.

“We don’t know what is going to happen in the next year, let alone
the next five years. There is obviously a certain degree of uncertainty
about what is going to happen in the eurozone even in the next couple of
months,” Bean said.

“There is political uncertainty there. Who is going to win the
Greek election, what is going to happen after that. Making hard and fast
predictions is foolish,” he added.

Bean also said that he hopes the UK’s economic recovery will pick
up again later this year as inflation falls closer to target.

“As a general statement it seems reasonable to suggest the UK
economic recovery, which we hope will resume as we go through this year
as inflation comes down, should help to boost the growth of real
household incomes and that should give support to consumer spending and
that might also encourage firms to do a bit more investment,” Bean said.

But Bean warned that the UK economy faces headwinds in the form of
weak bank lending and fiscal consolidation – so interest rates would not
be shooting up any time soon.

“It is reasonable to think, given the headwinds facing the economy,
tight credit conditions associated with the banking system which is
still repairing its balance sheets, fiscal consolidation which still has
some years to run, coupled with all the uncertainty in the external
environment, the recovery is going to be a slow one rather than a sharp
bounce back,” Bean warned.

“In that environment interest rates are more likely to remain low
than rocket up. But what is going to happen will depend on how events
unfold. All sorts of unexpected things not only could happen, but almost
certainly will happen,” Bean added

Bean also highlighted the construction sector as a particularly
weak part of the economy at present.

“That is obviously a part of the economy which has been pretty flat
both with residential building being quite weak and now public sector
projects starting to impact,” he said.

–London newsroom: 4420 7862 7492; email: ukeditorial@marketnews.com

[TOPICS: M$B$$$,M$$BE$]

PARIS (MNI) – European leaders must clarify their vision of the
Eurozone’s future in order to lower risk aversion and reduce sovereign
spreads in EMU debt markets, European Central Bank President Mario
Draghi said Thursday.

“The next step is for our leaders to clarify what is the vision of
the future,” Draghi told the Economic and Monetary Affairs Committee of
the European Parliament. “This vision will contribute to lowering of
sovereign spreads and risk aversion in the system.”

Draghi said that to substantiate that vision, leaders should
outline a banking union based on three pillars: a pan-European deposit
guarantee program, a European bank resolution fund and strengthened and
more centralized European bank supervision.

He said having such a union would make it much easier for
authorities to deal with systemically important banks like the troubled
Spanish bank Bankia

Draghi said the ECB had already taken many steps to stimulate the
flow of bank credit but, overall, credit conditions have not generally
improved. “Credit has not started flowing because risk aversion is still
very high and because of the lack of capital,” Draghi said. And those
are two conditions the ECB can’t do much about, he said.

MORE

–Paris newsroom, +33142715540; jduffy@marketnews.com

[TOPICS: M$$CR$,M$X$$$,M$$EC$,MGX$$$]

FRANKFURT (MNI) – The following is the second part of a verbatim
text of the introductory statement by European Systemic Risk Board Chair
Mario Draghi at his hearing before the Committee on Economic and
Monetary Affairs of the European Parliament:

With regard to the CRD/CRR, I very much welcome the recent progress
made by this Committee, as well as by the EU Council, on advancing the
proposals put forth by the Commission less than a year ago. Your work
together with the Council provides a promising basis for the
establishment of important macro-prudential instruments for addressing
systemic risks in the banking sector.

To assist you, and the Council, in your work on the CRD/CRR, the
ESRB wrote to you in March outlining a number of macro-prudential
principles. I urge you to consider these principles in order to ensure
that macro-prudential authorities, at both the EU and national level,
are fully equipped with a flexible set of policy tools and sufficient
scope to act early and effectively to prevent the build-up of systemic
risks in the future. Obviously, discretion to pursue macro-prudential
policies requires efficient coordination as a safeguard against
potential negative externalities or unintended consequences. The ESRB is
ready to play a central role in this respect, and work is under way to
establish a general framework for the coordination of national
macro-prudential policies by the ESRB, where such policies give rise to
material spillovers across borders.

The agreement on EMIR was also an important step forward in
implementing lessons from the crisis, and it includes a number of useful
elements to safeguard financial stability in the EU. The ESRB has
started preparations for performing the tasks assigned to it under EMIR.

From a macro-prudential perspective, however, I should point out
that, in the view of the ESRB, EMIR does not address the issues raised
by the possible pro-cyclical effects of either easing or tightening of
collateral eligibility and of requirements for transactions subject to
central counterparty clearing. In accordance with its responsibilities,
the ESRB continues to examine whether and how collateral requirements
could be applied as a macro-prudential tool at a later stage.

The new regulatory framework for insurance activities is currently
being finalised. Some important aspects of this framework such as
those related to the treatment of long-term guarantees are being
discussed over the next few days as part of the Omnibus II trialogue
discussions, in which this Committee is actively involved. The ESRB is
aware that several of the issues at stake are potentially relevant from
a macro-prudential point of view. In particular, the new regulatory
framework (Solvency II) may amplify the procyclicality of insurers
balance sheets and, in particular, capital levels. This has been
recognised by the legislator, which is designing several policy
instruments (including some of a macro-prudential nature) to mitigate
procyclicality and other factors. It is crucial that such instruments
are designed to deliver a clear and credible objective and that their
interaction is duly considered to ensure that the use of these
instruments has the intended effect.

3. Structural developments in the EU financial system

Finally, I would like to highlight some medium-term, structural
developments that the ESRB is currently looking at, with a view to
gaining a better understanding of their implications for systemic risk
and to identifying appropriate policy responses for delivering a more
resilient financial system.

The ESRB is devoting particular attention to structural aspects of
both the traditional banking sector and the shadow banking sector.
Before commenting on developments in these sectors, I would like to
briefly say a few words on the whole financial system, which is
currently undergoing a regulatory reform in all its segments. An
important goal of such reforms is to ensure a sustainable supply of
financial services from the system to the rest of the economy. In
Europe, the financial sector has traditionally been centred around
banks. However, some activities may shift to other maybe less
regulated parts of the system in the years to come, perhaps as a
direct consequence of the current crisis or as a result of the overhaul
of standards for regulated activities and entities. While such
developments can, in principle, be of benefit to the system, they must
be monitored closely in order to limit the emergence of new
vulnerabilities, for example those stemming from shifts driven by
regulatory arbitrage.

Turning to the banking sector, the onset of the financial crisis
revealed significant shortcomings in banks funding structures part of
the necessary adjustment I referred to earlier involves a transition to
more sustainable funding structures. However, banks ability to manage
this adjustment is being hampered by conditions in European interbank
and unsecured credit markets. As a result, there has been a rise in
banks recourse to secured funding markets and innovative funding
instruments.

The ESRB is analysing these shifts in funding behaviour carefully
from a macro-prudential perspective, to ensure that unintended
consequences or new systemic vulnerabilities associated with such
behaviour do not go undetected.

The increased reliance on secured funding raises concerns about the
extent to which banks assets become encumbered. If taken too far,
insufficient amounts of unencumbered bank assets in the future could
reduce the stability of funding within the system and, in a
self-fulfilling manner, reinforce the lack of access to private
unsecured markets today.

Furthermore, innovative sources of private funding for banks such
as liquidity swaps between banks and other parts of the financial system
could have implications for the level of interconnectedness in the
system, as well as the durability of funding during future downturns or
stress periods.

Turning to the shadow banking sector, the instabilities that can
arise from a highly interconnected system were exposed by the financial
crisis. Shadow banking activities were a major contributor to that
interconnectedness, in particular given the interlinkages between the
regular banking sector and the complex, and opaque chains of financial
intermediation that emerged within the system. They also, directly and
indirectly, helped to facilitate the substantial rises in leverage in
some economies.

As indicated in the Annual Report, the ESRB has already begun work
in this area. This has involved, for example, identifying and assessing
potential systemic risks associated with European money market funds, on
which a report is soon to be published as an ESRB Occasional Paper. The
ESRB is also finalising its reply to the consultation launched by the
European Commission through its Green Paper on Shadow Banking , which
was published earlier this year.

Looking ahead, from a policy perspective, measures to tackle
systemic risks associated with the shadow banking system will need to be
tailored to the specific risks stemming from the different activities
conducted under the shadow banking umbrella. It is important that
horizontal focus be placed on the economic nature of financial
activities, i.e. on ensuring that activities carried out within the
system, and which involve maturity and liquidity mismatches, leverage
and/or incomplete risk transfer, fulfil the appropriate prudential
requirements, irrespective of where they are carried out or by whom.

Finally, it will be important to ensure global consistency and
therefore the full and consistent transposition in the EU of policy
initiatives agreed at the international level, notably those due to be
announced by the Financial Stability Board. In this regard, the ESRB
stands ready to work together with the relevant international and EU
institutions and bodies.

[TOPICS: M$$EC$,M$X$$$,M$$CR$,MT$$$$]

FRANKFURT (MNI) – The following is the first part of a verbatim
text of the introductory statement by European Systemic Risk Board Chair
Mario Draghi at his hearing before the Committee on Economic and
Monetary Affairs of the European Parliament:

Dear Honourable Members,

I am very pleased to appear before this Committee today to present
the first annual report on the activities of the European Systemic Risk
Board (ESRB) of which you have all received a copy and which is being
published as I speak. In my remarks today, I will refrain from repeating
the content of the report and will instead focus on three key areas of
the ESRBs work over the past year, which will also keep us busy for the
foreseeable future. These are: i) the assessment of systemic risks; ii)
the establishment of a sound macro-prudential framework in the EU; and
iii) medium-term structural developments in the EU financial system. I
will then be at your disposal for questions.

1. Assessment of systemic risks in the EU financial system

It is less than a year since the ESRB cautioned that the risks to
the EU financial system had become systemic. After a period of
stabilisation on the back of actions by central banks and other
institutions earlier this year, more recently there have been renewed
bouts of volatility and uncertainty, although not at the same levels
reached in November 2011.

Fundamental challenges persist. In my view, these include: i)
limiting contagion between Member States across the EU; and ii)
promoting a macroeconomic strategy that, together with fiscal
consolidation, supports growth and furthers the competiveness
adjustments needed to tackle the economic imbalances within the EU.

Addressing these challenges in a decisive and sustainable manner is
a prerequisite for the success of measures to ensure a more resilient
financial system capable of supplying, on a sustainable basis, the
financial services necessary to support economic activity. From a
macro-prudential point of view, such measures include: i) implementing
credible mechanisms for the recapitalisation and restructuring of banks,
where needed; and ii) improving banking supervision and resolution at
the European level.

In the past, the ESRB has underlined the need for all national and
European authorities to act, and to do so in unison, with speed,
ambition and a total commitment to safeguard financial stability. Today,
I reiterate this call, while acknowledging the efforts undertaken so
far.

Within the broader economic and financial context, the financial
system continues to face the challenge of adjustment in order to address
imbalances accumulated in the past. For banks, progress has already been
made on some fronts, but more is needed. For other financial sectors, it
is important that international and EU reforms, designed to improve
their resilience, are fully implemented and adhered to an issue that I
will return to later.

The ESRB is concerned with two aspects of banks adjustment. First,
it should be carried out in an orderly way to support economic growth to
the full extent necessary, without exacerbating market fragility and the
positions of others in the financial system. Second, the degree of
adjustment planned by the EU banking sector over the coming years must
be sufficient to restore confidence in the strength of banks balance
sheets.

With regard to the first point, official data and surveys from many
countries across the EU indicate some overall stabilisation in financial
conditions in the early part of this year. However, the recent
turbulence highlights the uncertainty surrounding the outlook for these
financial conditions, given their link to the soundness of EU banks
balance sheets and, in turn, the direct or indirect connections between
those balance sheets and sovereign vulnerabilities.

Concerning the second point, close monitoring and a systemic
assessment of the feasibility and nature of the adjustment by banks, as
well as within the financial system more broadly, is crucial. In this
regard, the ESRB has called upon its partners within the European System
of Financial Supervision supervisory authorities at the national and
EU level to regularly collect detailed, ex ante information from banks
and other key players in the system, and report it to the ESRB. The
General Board will review the latest developments and their
implications at its meeting in June.

2. A sound macro-prudential framework for the EU

Let me now turn to the work undertaken to establish a framework
capable of addressing the deficiencies of the pre-crisis framework in
preventing and mitigating systemic risks in the EU.

While the launch of the ESRB was a first, and necessary, step in
this respect, it is vital to develop a sound and comprehensive
macro-prudential framework for both the EU as a whole and the individual
Member States. As indicated in the Annual Report, this has been one of
the ESRBs priorities since its inception.

First, in order to create a solid foundation for pre-emptive action
against systemic risks, it is essential to develop macro-prudential
mandates and tools. In its recommendation published in January, the ESRB
highlighted the need for well-defined macro-prudential mandates for
national authorities to act either on their own initiative, or in
response to the ESRBs advice. In accordance with the ESRBs duty to
follow up on its recommendations, the first reports from the Member
States outlining their progress thus far are expected by the end of June
under the ESRBs comply or explain mechanism.

A key lesson from the past is that financial or systemic stability
mandates must be accompanied by the means to act. Macro-prudential
authorities will need to be equipped with effective policy tools to
respond, in a pre-emptive way, to the complex and ever-changing variety
of systemic risks. The ESRB is currently working on identifying the
minimum set of tools necessary for conducting macro-prudential policies
throughout the EU.

Second, it is crucial to ensure that macro-prudential issues are
taken into consideration when developing EU legislation for the
financial sector, given the impact that such regulations could have on
incentives within the financial system. In this regard, I would like to
touch on a number of important pieces of EU legislation that the ESRB
has been following: i) a draft directive and regulation on capital
requirements for credit institutions (the CRD/CRR); ii) the proposal
for a regulation on OTC derivatives, central counterparties and trade
repositories (EMIR); and iii) the part of the proposal for the Omnibus
II directive that concerns the regulation of the insurance sector.

[TOPICS: M$$EC$,M$X$$$,M$$CR$,MT$$$$]

• Any further franc gains would pose ‘considerable risks’ to the economy
• No ‘foreseeable’ inflation risks just at the moment
• Cap can’t be implemented  at ‘any desirable level’

Anti-bailout Syriza second with 22.1%.

Reuters reporting.

Getting reports of buy stops through both 1.2420 and 1.2425.  Take your pick, what’s 5 pips between friends.

We’re presently at 1.2403.  Talk of Chinese names buying in recent trade (unfortunately for euro bulls the giant panda doesn’t appear to be among them. Well not that we’ve heard)

•  4 Greek banks now regain access to ECB liquidity following recpaitalization
• European Deposit Guarantee Fund should  protect depositors
• European depositors haven’t lost money (so far..)
• ECB will continue  to lend to solvent banks
• ESM could potentially be used to recapitalise banks  through a “memorandum of understanding”

Compared to Reuter’s median forecast of -5k.

Jobless rate down to 6.7% from 6.8% in April.

GERMANY DATA: May sa unemployment flat m/m vs MNI fcast -5.0k
– Germany May sa unemployment rate 6.7% vs April 6.8%
– Germany May sa unemployment 2.872 mln vs April 2.872 mln
– Germany May nsa unemployment rate 6.7% vs April 7.0%
– Germany May nsa unemployment 2.855 mln vs April 2.963 mln
– Germany May sa job vacancies -5.0k vs April -1.0k
– Germany April sa payroll jobs +29k vs mar +27k
– See MNI MainWire for details

• If the euro’s going to survive we  need stronger methods to contain contagion and adopt a more stable culture
• Current economic contraction is mild, but sees downside risks in the short term ecnomic outlook
• Financial market turmoil is a threat to recovery