Trader Talk

This Weekend: Lagarde vs. the Germans

Christine Lagarde, managing director of the International Monetary Fund (IMF)
Bloomberg | Getty Images

Plenty of events in the next few days in euro-land:

1) This weekend: A Group of 20 nations (G20) meeting of finance ministers and central bank governors in Mexico City. The debate will be simple: Should there be additional capital contributions to the International Monetary Fund ?

This is going to be contentious. IMF head Christine Lagarde wants more money to help backstop the European bailout fund (the European Financial Stability Facility and the European Stability Mechanism). Lagarde wants nearly $500 billion more, to bring the IMF’s own fund close to $1 trillion. She is already in open conflict with the Germans over this.

The Germans don’t want it, the U.S. is reluctant, France and southern Europe want it, China might be dragged reluctantly into it; Japan seems neutral.

Treasury Secretary Timothy Geithner, in a CNBC interview, said if Europe takes necessary steps for a firewall, than he is “fully prepared” to see the IMF play a larger role in Europe.

2) The Greeks will be implementing the terms of the private sector debt deal, and the betting is that it will fail to get a sufficient number of bondholders — two-thirds of the 206 billion euros ($276 billion) value of the bonds — to go along with the terms, will be forced to activate the Collective Action Clause, and that Greece will then be in default for the purposes of the credit default swaps .

3) The German Parliament will vote on the Greek rescue package next week; expect a lot of pushback against any more money for a Greek bailout.

4) Feb. 29: Lots of debate about next week’s European Central Bank long-term refinancing operation (LTRO), where they will again be offering three-year money at 1 percent. The issue is, how to judge if it is successful or not? In the first LTRO in December, 523 banks borrowed 489 billion euros ($656 billion). Most are expecting an uptake of 400 billion to 500 billion euros ($537 billion to $671 billion) during this second offer, but there are many who think there could be as much as 1 trillion euros ($1.3 trillion) borrowed. Is it good if more or less is borrowed?

You could argue that a low takeup would indicate that the banks don’t need the money, and that’s good news. But you could also argue that a strong bid would send a signal that banks will be well-funded into at least the second quarter; that should be a positive. It would also imply that at least some of the money might be used to buy European bonds; that would be positive for bonds and the euro.


1) J.C. Penney shares rise slightly pre-open after the retailer reported fourth-quarter earnings that beat analysts’ estimates and wasn’t as bad as the company previously warned. Excluding items, J.C. Penney earned $0.74 per share in the fourth quarter, compared to the Street’s $0.68 estimate. Not all is rosy though as J.C. Penney’s Internet sales fell 3.1 percent and gross margins sank 7.4 percentage points, with half of the slump attributed to markdowns and the company’s overall weak sales. The retailer said 2012 earnings per share will meet or exceed analysts’ $2.16 estimate.

2) Telecom Italia up 5 percent in Europe; it cut its dividend 25 percent to reduce its 30 billion euro ($40 billion) debt. No growth in italy, but growth in Brazil remains strong.

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