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Week Ahead (8 July)

Monday 8 July, Eurogroup to discuss Italy’s Excessive Deficit Procedure as well as Croatia’s euro accession bid

At today’s Eurogroup, Eurozone Finance Ministers hear will Pierre Moscovici’s reasoning for last week’s decision by the College of Commissioners not to launch an excessive deficit procedure against Italy – the second time it has declined to do so in seven months. We understand the decision was motivated by a reluctance to give succour to Eurosceptic elements within Italy, rather than newfound confidence in Italy’s budgetary projections.

Also on the agenda for discussion will be Croatia’s 4 July letter of intent to join the euro. Croatia hopes to join the EU’s Exchange Rate Mechanism by summer 2020 which would put the ECB in charge of the its monetary and exchange rate policy for a two-year period in the hope of formally adopting the euro in 2022. The letter also highlighted six areas of reform to have completed by summer 2020 as part of this effort.

w/c 8 July, Talks set to intensify on another plan to save Carige

The Italian Inter-Bank Fund for Safeguarding Savings (FITD) is the latest player to come forward with a plan to save Carige. It is now estimated that around €800 million is needed to save the bank, significantly higher than the €630 million estimated in February 2019. The FITD appears willing to take a leading role through a double intervention: first through its Voluntary Scheme, which is open to converting its €300 million in Carige bonds into capital, and second through its Obligation Fund, from which it could inject around €200 million into Carige.

The remaining €300 million needed to save the bank would come from a combination of public and private investors. MedioCredito Centrale, an Italian bank which is a subsidiary of the national postal service, has surfaced potentially putting in an additional €200 million. Talks between the FITD and the bank’s shareholders, who may also need to stump up additional cash to save Carige, will likely continue into next week.

Tuesday 9 July, New Greek cabinet to be named following outright majority for New Democracy

Kyriakos Mitsotakis was today sworn in as Prime Minister after his party secured 39.85% of the vote, giving New Democracy (ND) 158 seats in the 300-seat parliament. Amid positive sentiment in advance of an expected ND win, investors will carefully examine the composition of Mitsotakis’ cabinet to determine whether meaningful reform will be implemented or if those that favour the same statist policies will continue to have a say. Tomorrow will also see the visit to Greece of the head of the ECB’s Single Supervisory Mechanism Andrea Enria. Under discussion will be the need to issue more subordinated debt instruments as well as the parameters for stress testing the banks in 2020.

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