If there is an index that closely follows the expectations of the monetary policy of the European Central Bank (ECB) that is the twelve-month Euribor. Or was. It’s not like that. The benchmark mortgage index has just come out of the fold with a escalation to maximums of more than a year in its daily price (-0.09%). Still negative, it is on the doorstep of trading positive for the first time since February 2016. The sudden movement has been caused by the tensions in the interbank market after the disagreement within the Eurogroup to give a joint response to the Covid-19 economic crisis.
Extreme positions around the use of the ESM rescue fund have ended up blocking a deal. After the ‘misunderstanding’ of the coronabonds against the Covid-19 – its implementation would require months of work and legislative changes in some countries – the option of the ESM – which has immediate availability of 238,000 million and is expandable – has left only two sides: Italy and the Netherlands. The transalpine require the absence of any conditionality for their return and the Dutch want restrictions. Germany just ask that that money have a use only: the consequences of the current Covid-19 crisis.
In this clash, and before the crucial European meeting this Thursday, France and Germany have ended up lining up with Spain around the option of activating and expanding the MEDE. The vice president, Nadia Calvino, was very clear about it this Wednesday: “Spain has a very clear and ambitious approach. We believe that it is necessary to advance in a mechanism that facilitates short-term liquidity, but that does not mean that we work on a parallel mechanism to give a common response in the medium term, “he said in reference to the ESM and Eurobonds, respectively.
Bank sources explain to ‘The Information’ that the sector is now raising a gigantic wave of credit to give liquidity to companies and homes needed in the face of the crisis. That sudden suspicion among European banks When it comes to lending to each other, it has to do with the bank-state connection through the public bonds that they have in balance, especially in the case of Italian entities. It must be remembered that the Euribor is calculated from a panel of European banks and the average of the rates that apply to their operations each day.
In Spain, despite the ICO guarantees – which have a history of high delinquencies – this higher risk is also beginning to be reflected in interbank rates. “The pressure on Euribor has also increased. It has not been as marked as it has been on the Libor, but it reflects the same kind of pressure as in recent weeks. (…) That is why the Euribor has risen further: the implicit increase in bank financing costs. (and this in turn reflects in part and the risk of elevation in the delinquency rates) “, point out the analysts of the Dutch bank ING.
In this sense, lIn the absence of unity within the euro to respond to the crisis, credit is also being transferredor due to the lack of public guarantees to banks when it comes to extending financing or to mortgage defaults in some countries. And that increased risk comes at a price. Nerves have begun to emerge due to the blockade of the ESM, an instrument of mutual risk between European countries; moving away from a commitment to issue Eurobonds in the future; and thirdly, that the bottom of the European Investment Bank (EIB) that will finance companies.
The tension has also ended up reaching the sovereign bonds with an increase in risk premiums of the most vulnerable countries. The debt spread Spanish in front of ‘bund‘German at ten years stands at 114 points, the Portuguese it has risen to 122 points, while the Italian it touches the 200 points and the greek, the 214. The cost of ten-year debt for Spain has been above 0.8% constantly since the stoppage of the activity was decreed and, even, exceeded 1% in the middle of last month .
Not even the European Central Bank (BCE), who announced by surprise on March 18 a bazooka of 750,000 million euros against the Covid-19 crisis, has managed to lower them drastically. The monetary authority that presides Christine Lagarde more than 30,000 million euros have been spent in the first week of activity of this fund. The twelve-month Euribor, which acts as a reference for most Spanish mortgages, could thus become more expensive in the middle of the economic crisis of the Covid-19 at the worst moment for the costs of the families. In March, the average closed at -0.266% compared to -0.288% in February and -0.11% in April 2019, the figure that will act as a comparison against the upcoming Euribor quotes.