The draft euro fiscal pact: not great news for the eurozone either...

We’ve already reviewed what the latest draft version of the fiscal compact means for the UK (not much good) being the first in the UK to publish the draft of the compact (beating the Telegraph by a hair). But let’s not forget what the treaty is supposed to be about – saving the eurozone. There are still those out there, not least the ECB and the IMF, who believe that this treaty can form an integral part of the solution to the eurozone crisis (along with an increased firewall and structural reforms).

Looking at the latest version of the treaty it seems that not much has changed in the fiscal rules department. As always the 60% debt limit and 3% deficit limit provide the framework, while the 0.5% limit on ‘structural deficit’ is included as with the previous draft. There is no further detail provided on what exactly the ‘structural deficit’ is envisaged to be, although there are some qualifying statements which suggest such stringent rules could be waived in the case of “exceptional economic circumstances”. Still very vague with some key ideas not clearly defined. This doesn’t fill us with confidence. Remember this compact is meant to provide the original stability & growth pact with some teeth, by actually establishing some tools to enforce the fiscal rules.

Article 5 of the new draft suggests that the budgets of countries under excessive deficit procedure will be submitted to the European Commission and Council for “endorsement”. This isn’t much, if at all, different to the new six pack rules, while it again remains unclear what they mean by “endorsement” – will the Commission and/or Council retain a binding vote on national budget plans?

In terms of the overall debt level, the commitment for countries which exceed the 60% debt to GDP ratio to reduce their debt by one twentieth every year remains. However, this still raises lots of questions over implementation. Will this rule apply as soon as the treaty comes into force? Take Italy for example: if it was applied from this year, the government would have to potentially find a €108bn in savings or a 7% of GDP swing in the budget, in order to cut the debt by the required amount. This is more illustrative than anything, but the key point is the tension it represents. Realistically the rules cannot be enforced next year or possibly even the year after, otherwise too many countries would be sanctioned and be forced into ever greater austerity. However, to convince markets, there needs to be a clear plan for implementation and some signs that the immediate problems will be tackled. This latest version of the draft simply does not tackle these issues, nor do any of the wider discussions relating to the fiscal compact.

As we pointed out with our post on the draft’s impact on the UK, there is a widely increased role for the EU institutions. In particular, countries which are seen to have broken the fiscal rules can be taken to the ECJ by other members or the Commission. This gives the proposals significantly more teeth, but given the UK’s position it is far from a foregone conclusion that EU institutions will be able to play this role under the finalised new treaty. It also seems that much of the stuff in the compact can be done within the existing treaties anyway, begging the question why this, new over-lapping deal is necessary in the first place (and yes, we do appreciate German domestic concern).

Until the significant amount of uncertainty is removed from the fiscal compact – in terms of implementation, use of institutions, timeline, severity of sanctions and exceptions it is likely that markets will continue to be underwhelmed by it. Unfortunately, while these short comings persist eurozone leaders continue to meet and talk up their negotiations, which only seems to add to the eventual let-down.

ECB sterilisation fail

The ECB yesterday failed to fully sterilise its purchases of government bonds under the Securities Markets Programme (SMP).

A quick recap - the sterilisation is designed to remove the same amount of liquidity from the financial system as the ECB introduces from its purchases. This stops the ECB from engaging in Quantitative Easing (QE) and allows it to stay in within its mandate by avoiding financing member states directly. This is done by taking on one week fixed term deposits.

This is definitely a strange occurrence and may have some important follow on impacts, especially if it happens again in the near future. Here are a few of our key thoughts:

- ECB failed to absorb the necessary liquidity to sterilise its purchases of sovereign debt. Its target was €203.5bn but it only succeeded in taking on deposits of €194.2bn.

- The shortfall of €9.3bn is not huge but is large enough to be worrying, especially since it basically amounts to the level of bond purchased over the past week.

- This is not the first time the sterilisation has failed. It did so previously (and to a larger extent) but was able to get back on track. At that time the failure was likely due to banks preference to place liquidity/deposits elsewhere to gain higher returns.

- This failure is more surprising, since in times of uncertainty banks are keen to stash funds within the safety of the ECB.

- So why might it have failed? It could be that liquidity is so short and times so uncertain that banks prefer to keep the funds on hand than commit them to a fixed term deposit of one week. This makes sense given the eurogroup and ecofin meetings today and tomorrow as the situation could change with the outcome of those meetings.

- It is also concerning that given the amount of liquidity that banks are draining from the ECB lending operations, there is still not enough demand for the one week fixed term deposits.

- This all raises questions over whether the ECB is reaching some technical limit for sterilisation. It has long been rumoured that there is a limit to the amount of liquidity which the ECB can suck out of the system at reasonable rates. There could come a point where the banks simply do not have the liquidity at hand to fill such huge need for deposits, especially given that their funding is already spread so thinly during the crisis.

- Future sterilisations will be interesting, since previously the ECB has always rebounded quickly and managed to meet its target.

So, in itself this is not a huge event but it definitely raises some interesting questions. Not least on the debate surrounding the role of the ECB. If some technical limit is reached (from the failure of sterilisations) it will force the issue of whether the ECB can engage in unsterilised bond purchases, essentially QE. At that point, as we have pointed out before, it is likely that the ECB and Germany will have to make a fundamental decision over whether to either continue the bond purchases, abandoning their core monetary principles, or stick to their guns and wind down the purchase programme altogether.

Just another small indication that the endgame for the eurozone may be approaching, as if we didn't have enough already...

Inverting Italy

Things have gotten very bad, very quickly for Italy this morning. Italy’s 10 year borrowing costs opened at 6.8%, already very high but many expected some quick ECB bond buying to help bring it down substantially. However, with the ECB nowhere in sight the yield has shot up to 7.45% at pixel time. It’s not clear exactly why this has happened, with markets looking slightly confused as to how to respond to the events in Italy last night.

Berlusconi said that he will resign once the economic reforms, which he promised to EU leaders, were put in place. Talk of his resignation has previously lifted markets, however, given the tentative nature and uncertainty surrounding yesterday’s announcement markets are not certain on how to take it (equities have responded well, while bond markets are all over the place).

Across the board (for all maturities) the borrowing costs for Italian debt have been increasing, but importantly the rates for shorter term debt have now overtaken those on longer term debt (aka. the yield curve has become inverted). This is worrying as it signifies that investors are seeing an increasing default risk in the short term resulting from huge levels of uncertainty. This phenomenon was seen in Greece, Ireland and Portugal before they requested bailouts and is often a sign of the situation approaching a self-fulfilling spiral, where borrowing costs skyrocket into unsustainable territory.

In purely technical terms the costs are not quite unsustainable yet. Italy has a large amount of debt to rollover in the coming months and years, but it could stomach these rates for a few months if they were to come down eventually. Ominously however, Greece and Ireland lasted 13 and 15 days respectively, with 10yr rates above 7% before asking for a bailout and while Portugal managed to drag it out to 49 days - once the 7% threshold is breached it is rare for a country to drop below it again without outside intervention.

The best thing to do now would be for Berlusconi to go as soon as possible, once a plan for a unity government to take over from him is in place. These negotiations need to happen quickly, with a clear timeline and plan of action for the new government outlined publicly. The market is yearning for some certainty in this situation, Italy and eurozone leaders must step in to offer some.

ECB easing…

No, not the quantitative kind (not yet anyway), it is in fact the easing of the ECB’s collateral requirements, possibly substantially. The ECB has today released a few updated rules for its general documentation on collateral requirements (to come into force at the start of 2012).
The most important change is as follows (emphasis ours):

“The Eurosystem has abolished the eligibility requirement (Sections 6.2.1.5 and 6.2.1.6) that debt instruments issued by credit institutions, other than covered bank bonds, are only eligible if they are admitted to trading on a regulated market. At the same time, the Eurosystem risk control measures for marketable assets (Section 6.4.2) have been amended. Specifically, the Eurosystem has reduced the limit for the use of unsecured debt instruments issued by a credit institution or by any other entity with which the credit institution has close links. Such assets may only be used as collateral to the extent that the value assigned does not exceed 5% of the total value of collateral submitted (instead of 10%, as previously stipulated).”

Essentially, the ECB has said it will accept debt instruments as collateral (in return for loans) even if there is no clearly regulated market for these instruments. It’s not initially clear exactly what instruments the ECB has in mind, but we have a few ideas, some of which would mark this as a substantial move by the ECB.

First off, the obvious ones are certain types of asset-backed-securities which banks have been holding onto since the financial crisis due to lack of market or demand for them. Secondly, it could be that this would allow the ECB to accept defaulted Greek debt, although this seems like a long shot since it would run counter to other direct provisions in the ECB’s collateral guidelines – this debate is likely to heat up over the next few days so we’ll keep you posted. There’s also the issue of some €30bn in Greek state backed bank bonds which the ECB had previously been wary of accepting as collateral, by some accounts – these would now likely be eligible (although given that Greek banks are now tapping the ELA, this is probably far less relevant).

In any case it will probably allow the ECB to accept further unmarketable assets and assign them a fairly arbitrary value based on its own determination. This will further add to the opacity and risk of the ECB’s balance sheet and allow for a transfer of risk away from the private sector onto the taxpayer-backed books of the ECB.

It's also interesting that the ECB saw the need to ease collateral requirements, since ECB President Jean-Claude Trichet has recently reiterated numerous times that he believes there is an abundance of collateral in the eurozone available for ECB liquidity operations.

The fallout from this ECB decision is far from clear as of yet, but it has the potential to be an important change and we’re sure it’s not the last we’ll hear about it.

A very different kind of tea party

Angela Merkel and Nicolas Sarkozy’s pledge on Monday to save the euro, with the help of some cosmetic distractions, called economic policies, certainly haven’t won over the markets this week, nor Europe’s people nor their fellow EU leaders.

Last night, on Polish TV channel Polsat, Poland’s Finance Minister Jan Vincent-Rostowski, who also holds the rotating chair of the EU’s council of finance ministers, expressed his feelings about one of the proposals to come out of the meeting (for the eurogroup to meet separately under the lead of Council President Herman Van Rompuy):

“They’ll meet twice a year, have a little coffee and call this an economic government”

A vote of confidence then?

Could the ECB actually perform QE even if it wanted to?

Given the stock market free fall and bond market turbulence we’re seeing, the question over whether the ECB could actually embark on an effective round of Quantitative Easing (QE) has become a pertinent one. We’re not so sure it could (leaving aside the broader questions over how effective QE would be in any case [see US economy for details]).

First off, any increase in the monetary base of the eurozone requires the approval of the ECB Governing Council (GC), whether it is in hard currency (directly printing money) or electronically creating money (how QE is usually done). The GC is made up of the ECB executive board and the heads of each eurozone national central bank (NCB). The vote would be decided under QMV votes are weighted according to the level of capital shares each country has in the ECB. A majority is defined as two thirds of capital and at least half the members of the GC. So it would be a close run thing, but there could easily be enough opposition to halt any QE plan.

Secondly, even if any QE were approved, it would need to go through NCBs. The usual QE process is to deposit the funds directly into the reserve accounts which banks hold with a central bank or to purchase assets (probably government bonds) they hold via these accounts. Since these accounts do not exist directly with the ECB it would need to go through the NCBs (as per usual for monetary policy). So, all NCBs would need to enact the QE and to maintain the stability of the euro (so that new money is not just being created in excess in one area) the amounts would have to match up to the defined shares of the eurozone monetary base.

This means that Germany would actually have to enact a large percentage of the QE, in an economy which is growing solidly and is already becoming worried about inflationary pressures (particularly at current interest rates). Although, German domestic demand could do with a boost there is likely to be some inflationary effect of the QE if the transmission is effective. Even with the heavily interconnected banking sector in Europe it is unlikely that, given the current market pressures, money would easily flow around Europe to where it is most needed. Many banks continue to remain undercapitalised and are seeing profits squeezed by rising non-performing loans and the sovereign debt crisis. These are general problems with QE admittedly but are exacerbated by the structure of the eurozone making QE an ineffective tool in the eurozone.

As of right now, we still might be some way from an ECB bout of QE (although it’s closer than a few days ago). But, the ECB’s inability to perform what can be seen as a key tool in a central bank’s armoury highlights the structural problems for the ECB within the eurozone. In the longer term this could easily feed into market fears as we have been seeing with the heavily linked issue of lender of last resort.

Everybody's lining up to comment on the euro now...

Just thought we’d highlight some interesting comments on various aspects of the eurozone crisis, given the sheer volume of pieces out there.

Leading economist Kenneth Rogoff talking about Greece on BBC Hardtalk:

“I don't think there is any question that if you look at it narrowly from Greece's point of view, it would be better to default now, clean it up and move on. Yes, it is painful to default, but countries grow afterwards and many countries have done it and done very well. The problem here is that Europe can't handle it so easily because Portugal is weak, Ireland is weak, the banking system is weak. And in essence what's happening is that Europe is bribing Greece not to default. They are giving them lots of money. Greeks aren't paying now, they are getting new money”.

Ambrose Evans-Pritchard (back with a vengeance) writing in the Telegraph on the EU and credit rating agencies:

“The EU authorities are attempting to muzzle free opinion, first by threatening Fitch, Moody’s, and S&P with vague retribution, and then by drafting restrictive laws to prevent them from publishing unwelcome messages.”

“Now, if the EU institutions wish to avoid being held hostage by the robber agencies they should stop using the ratings as a basis for lending collateral at the ECB. They should create their own more rigorous method of assessing credit-worthiness, ignore the agencies altogether, and make their case directly to global investors…What the EU should not do is try to muzzle free opinion, or free speech. We are on a slippery slope.”

Nick Malkoutzis in Greek paper Kathimerini highlights the coming pain for Greece under the second bailout agreement:

“Like a Hollywood sequel which follows a dire original, Memorandum II is likely to make us want to look away in horror.”

“But as we move from Memorandum I to its potentially scarier successor, it still doesn’t appear to have sunk in either at home or in Brussels, Frankfurt and Washington, where the decision makers of the European Commission, European Central Bank and the International Monetary Fund reside, that all the slashing of public expenditure and hiking of taxes is not going to solve Greece’s problems."

Just snippets of some good pieces, we recommend reading/listening to them all in their entirety.

The Great EU debt write off?

Over on Conservative Home Steve Baker highlights a new paper from two professors at ESCP Europe Business School, which demonstrates the huge level of interconnectivity between the debt problems of different EU economies. The paper suggests that countries should cancel out or write off debt which they owe each other.

Before:

After:


Clearly the diagrams above highlight the huge interconnectivity between EU countries and highlights why a long term solution needs to be found as soon as possible. In reality, as the authors of the paper admit, a pure debt write off is not really a viable option. Although these exposures are amalgamated to the country to country level, in actual fact much of the exposure will be through financial sectors and private enterprise, meaning trying to impose a massive write off would cause havoc in these areas. It is still an interesting exercise which should help drive home what is at stake in eurozone debt crisis.

The Self Preservation Society

AKA the ECB...

There’s been a lot of handbags between the ECB and EU leaders this week, after some leading EU politicians admitted that there could be some form of debt restructuring of Greek debt. Both Olli Rehn, EU Economics Commissioner, and Jean-Claude Juncker , Prime Minister of Luxembourg, suggested that there could be an extension of loans given to Greece (although its not clear whether this would just involve the official loans or private sector loans as well).

Needless to say, this did not sit well with the ECB, particularly ECB board member Jurgen Stark. After suggesting that any form of restructuring would be a catastrophe, Stark also accused “vested interests in the US and the UK” of undermining the economic adjustment programme in Greece. He also issued what seemed somewhat like a veiled threat, saying that the ECB may not accept Greek bonds as collateral for ECB lending to banks after a restructuring – a move which would probably push Greek banks into bankruptcy.

At first glance it is surprising just how removed the ECB is from the views of the rest of Europe (as we've argued for some time, restructuring is probably inevitable - an increaing number of people are coming around to this view). But ultimately, the ECB's posturing simply comes down to self interest. The ECB is holding masses of Greek bonds (we’d reckon around €60bn in nominal value) in addition to €140bn in state related collateral it has accepted from Greek banks. This €200bn exposure to Greece then presents the potential for large losses for the ECB under a Greek restructuring.

You may ask: why does the ECB care? It’s backed by eurozone governments, and therefore taxpayers, so they will ultimately foot the bill.

True – and another unfortunate potential hidden cost for eurozone taxpayers – but going cap in hand to eurozone governments to ask to be recapitalised after these losses would be incredibly humiliating for the ECB. It would also give eurozone leaders huge leverage over the ECB on future economic decisions and policy. The only other choice for the ECB is even worse though - printing money to cover its losses. This would mean abandoning its raison d’être (price stability) instead going down a path that could lead to pretty scary levels of inflation.

Arguing anything other than staying the course would therefore probably have dire consequences for the ECB, highlighting the impossible situation it’s managed to get itself into.

Up, up and away…

That’s been the story with Greece’s debt and deficit figures for some time, particularly since it’s become almost customary for the figures to receive at least one upward revision on their original estimates. However, Eurostat’s latest figures suggest the problem (of missing targets) looks to be spreading to other peripheral eurozone countries (not that the spotlight isn’t still firmly on Greece).

Eurostat yesterday released its debt and deficit data for 2010 and it included some interesting revisions – upwards as always. Starting with Greece, we see that the government missed its deficit target by 1.1% of GDP (all % are of GDP from now on), coming in at 10.5% instead of the 9.4% which the Greek government proudly predicted in January. To be fair, this still means the deficit fell by around 5% last year, but the figures show that less than 2% of the decrease came from increased revenue. Things continue to look bad for Greece, as we, amongst others, struggle to see where the government will find the money it needs. The programme of spending cuts is already pushing austerity to its limit and the government just doesn’t seem to be able to increase revenue (tax evasion is still massive but the ongoing recession, which is worsened by the austerity, just makes tackling it all the more difficult).

Meanwhile, Portugal also saw its deficit revised upward for the second time in a matter of months. It now stands at 9.1%, way above the government’s estimate of 7.3%. The government still put the difference down to changes in accounting rules enforced by the EU, although it is strange that it seems to affect Portugal so much more than anyone else…in any case Portugal now needs to cut the deficit by close to 5% to meet its target for 2011. Its debt burden was also increased, putting it at 93% in 2010.

Ireland fortunately didn't see its deficit or debt estimate revised, although with the deficit coming in at a whopping 32.4% this isn't much of a consolation (most of the deficit is down to the bank bailouts, but even excluding them the deficit was around 12% - the highest in the eurozone).

All in all the figures weren’t exactly expected to be encouraging but the continuing string of upward revisions and missed targets doesn’t exactly inspire confidence.

Is the ECB becoming a bad bank?

Its common knowledge that the ECB has been providing massive amounts of liquidity to eurozone governments both directly (through the purchase of government bonds) and indirectly (by taking on large amount of government debt as collateral for lending to banks). The extent of this – and therefore also the implications – are less clear, mostly thanks to the ECB’s reluctance to publish any data on its holdings of collateral or government debt.

FT Alphaville highlights a note from JP Morgan, which suggests that the indirect exposure of the ECB to the Greek state is massive - and then we mean massive. JPM estimates that Greek banks have posted almost €140bn in state related collateral with the ECB (€85bn of state guaranteed bank paper, €45bn of Greek government bonds owned by Greek banks and €8bn of zero-coupon bonds which the Greek government had lent to Greek banks in 2008). Combining this with the direct holdings of government debt (thought to be around €60bn, as we noted in our paper on Greece) you get total exposure of the ECB to the Greek state of around €200bn.

That is a phenomenal amount.

Though these amounts are slightly speculative at the moment, there are some interesting and possibly disturbing implications here, particularly for those of us who believe that Greece will need to restructure its debt at some point soon (not that we’re alone, this group includes nearly all investors and apparently the IMF). This exposure to the Greek state is in the direct firing line if a restructuring occurs. First, there are likely to be large write downs on the direct holdings of Greek government bonds (at least 35% to have any significant impact on the debt burden) and secondly, the state backed paper could become close to worthless. Potential losses are still hard to quantify but would easily be upwards of €40bn.

Comparing this loss to the capital and reserves which the ECB holds, around €79bn, shows the potentially difficult situation which the ECB could find itself in following a Greek restructuring. Essentially the ECB would either have to ask eurozone governments for an injection of capital or or try to print their way back to an acceptable level of capital and reserves.

Therefore, following a Greek restructuring the ECB may have may face a difficult choice: completely ignore its primary mission (i.e. price stability) and print money or go hand in cap to governments - like the bad banks in the financial crisis - and ask for cash (almost like a bail-out).

Two questions: how in the world did the ECB allow itself to get so deep into this mess? And do German politicans/economists/opinion formers understand how incredibly exposed the ECB - once dubbed the world's strongest central bank - actually is?

Emerald Isle stress tests get a gold star (for now)

Yesterday afternoon Ireland announced the results of its recent round of banking stress tests. They showed that the banks need €24bn to recapitalise; that is undoubtedly a huge number for an economy the size of Ireland’s. So why are investors not running for the hills?

Well, from our perspective at least, the Irish stress tests seem to do something that none of the ones that have gone before have – make a genuine attempt to fully estimate the potential losses which banks could face.

This is a good start and the stress tests should be commended, but more important is how the banks and the government respond to the results. Unfortunately, that has been less commendable.

The government was expected to announce a series of measures to raise the necessary capital and set the banks on a sustainable course. However, there was only talk of ‘some’ capital being raised by investors and private lenders, with the main chunk expected to still come from the €35bn allotted to the banks by the original Irish bailout. There was also no mention of bondholders taking losses or of the widely reported new ECB medium term liquidity mechanism. So what we have is some more clarity of the state of Irish banks - which is good - but we're still missing a solid, revised plan to to address the mess.

The response of the banks was also slightly worrisome. Both AIB and Irish L&P suggested that their losses will not be as high as estimated due to the nature of the Irish mortgage market and real estate sector. This is essentially a reference to forbearance – when a lender allows a borrower extra time to repay a mortgage rather than foreclosing on the property. This allows the lenders to delay the realisation of losses, while giving the impression that the extra time given is designed to give a break to struggling taxpayers. Whatever the motivation, this is only a short term policy and, unless the Irish economy has a miraculous turnaround, most borrowers will be unable to repay these loans despite an extension in maturity.

Lastly there is the issue of the deleveraging – the sale of assets to bring the deposit-to-loan ratio back to a sustainable level – or as some people are terming it, the ‘fire sale’. Irish banks will need to shed €72bn of assets by 2013, which is a massive amount to dump into fragile financial markets. The losses on these assets will, in many cases, be substantial although the stress tests claimed to have accounted for this. Whether or not they were fully able to accurately predict the market value of some of these assets, especially since they will be sold over time, remains to be seen.

So a gold star for the stress tests (relatively at least) but they’re only a start. How the government and banks respond will deter whether Irish banks can recover quickly or whether markets will lose faith in them completely - meaning that an Irish restructering and/or another bail-out could be around the corner.

Socrates needs to get philosophical

Looks like Portugal could be asking for a bailout by the end of the week.

Pedro Passos Coelho, Leader of the main opposition party, said on Saturday:

“We need external aid. The Prime Minister does not want to admit that, but the whole country has already understood it.”

He also said he will continue to oppose the new austerity measures, which are due to be voted on by the Parliament tomorrow or Wednesday.

Portuguese Prime Minister, Jose Socrates, announced that:

“Should the Parliament vote against, then the government would no longer have the means to act.”

With massive public protests against austerity in Portugal over the weekend, there seems less and less political incentive for the opposition to cave in and support the new measures. The only thing that everyone seems to agree on is that if the new austerity measures are voted down, Portugal will be forced to ask for a bailout.

However, given Socrates stance the government may fall if he fails to garner the support he needs.

That does not bode well given the EU summit at the end of the week. Socrates needs to get his thinking cap on…as going into summit negotiations without a government cannot be a good strategy.

German Parliament flexes its muscles

As we've highlighted before, a bust-up in Germany over the fate of the eurozone's bail-out schemes could be imminent, both on the EFSF and its permanent successor.

As if Merkel didn't have enough on her hands, the Bundestag yesterday approved a motion that explicitly demands that the German government bans the EFSF from buying government bonds from troubled eurozone countries. In effect, the Bundestag is asking Merkel to backtrack on last weekend's agreement between eurozone leaders which would have given the EFSF the mandate to buy bonds directly. That's a pretty big set-back for the Chancellor.

The motion isn't binding for the government, but still hugely problematic since the Bundestag needs to approve any deal to increase the scope and size of the EFSF.

The vote illustrates the growing gaps between Angela Merkel and parliamentarians belonging to all three coalition parties (CDU, CSU and the FDP). If this happend in the UK it would be labelled an outright "rebellion" against the government.

According to Märkische Allgemeine, the Bundestag gave its consent to a permanent eurozone bail-out fund, a European Stability Mechanism (ESM), which would take over from the EFSF in 2013. However, it attached a number of strings, including:

- strengthened stability and growth pact
- guarantees for the independence of the ECB
- safeguards that the ESM would only be activated in emergency cases
- a mechanism which would involve private creditors in the rescue fund (unclear how this would work)
- a restructuring procedure which would include private creditors
- a guarantee that the eurozone would not turn into a transfer union.

If you think about it, those are not small thing to ask for in the current climate. This one could be interesting.