angela merkel

Northern Allies Feel Pinch of Germany’s Policy on the Euro

November 17, 2011 by NewsMaker Leave a Comment

As long as the patients were South European countries like Greece and Italy, seen as victims of an unhealthy lifestyle, northern-tier nations like France, Austria and the Netherlands have been willing to go along with Germany’s prescriptions for reducing debt in the name of economic health. And they were willing to support Germany’s insistence that the European Central Bank should not be a lender of last resort to indebted governments, by actively buying their bonds.

But suddenly, as investors’ fears mount that many euro area nations are about to tip into recession, even countries like credit-worthy France are finding it much more expensive to borrow money in the open market, compared with Germany. And with that development comes a dawning realization: that austerity, rather than making it easier for them to pay down their higher debts, could make it harder — and more expensive.

As France’s borrowing costs become increasingly divergent from Germany’s, so might its attitude toward E.C.B. lending.

On Wednesday, Chancellor Angela Merkel of Germany continued to speak out against E.C.B. bond buying, while the French finance minister, François Baroin, was arguing just the opposite.

Mr. Baroin called for the support of all European institutions, including the E.C.B., to respond to the crisis. “But Germany, for historic reasons, has closed the door to the direct involvement of the E.C.B.,” Mr. Baroin said in an interview with the French business newspaper Les Échos.

On Wednesday, the so-called yield gap — the premium that investors demand for holding French 10-year government bonds, rather than German ones — rose to a new euro-era high of nearly two percentage points. It later eased back somewhat, to 1.9 percentage points.

That is still not close to the yield gap of nearly 5.2 percentage points that beleagured Italy has with Germany, but it is a disturbing new trend for France. Austria and Netherlands are also experiencing widening yield gaps with Germany.

Mr. Baroin’s remark was a reference to Germany’s deep-seated fears over the inflation that could result from the E.C.B.’s pumping more money into the region’s economies.

Italy continues to be a major source of bond-market jitters, despite the announcement Wednesday by its new prime minister, Mario Monti, of a new cabinet in which he named himself finance minister and brought in a number of academics and people from the banking industry and the upper reaches of the civil service.

Italian 10-year yields were back to nearly 7 percent Wednesday, the level at which analysts say financing the country’s €1.8 trillion, or $2.4 trillion, debt mountain becomes unsustainable.

But the market anxiety has moved well beyond Italy, as the specter of a regionwide recession is making investors realize that if every country is tightening its belt at the same time, few will be able to grow their way out of the problems any time soon.

So far, France, the Netherlands and Austria have been among Germany’s allies in the crisis. France, eager to show that the French-German axis is thriving, has even backed Germany’s stance on E.C.B. lending. The question now, though, is whether other countries will start to resist Germany’s policy prescriptions.

“The Germans have been able to rely on the French, the Dutch and the Austrians,” said Simon Tilford, the chief economist at the Center for European Reform in London. “But if they get dragged into this and their borrowing costs continue to rise, that could influence whether they continue to back Germany and the line taken on the euro zone crisis.”

On Wednesday, the French government showed a clear sign of divergence. It called on the E.C.B. to help calm the crisis by buying the bonds of Italy, Greece and other governments whose borrowing costs are surging. The E.C.B., in fact, has already been doing that, but at modest levels that seem to be having little impact.

“The E.C.B.’s role is to ensure the stability of the euro, but also the financial stability of Europe,” Valérie Pécresse, the French budget minister, said Wednesday. “We trust that the E.C.B. will take the necessary measures to ensure financial stability in Europe.”

Article source: http://www.nytimes.com/2011/11/17/business/global/germanys-bitter-recipe-tests-euro-zones-solidarity.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: angela merkel, percentage points, unhealthy lifestyle

DealBook: Deutsche Bank’s Ackermann Won’t Take Chairman Role

November 14, 2011 by NewsMaker Leave a Comment

Hannelore Foerster/Bloomberg NewsJosef Ackermann, chief of Deutsche Bank.

FRANKFURT — Josef Ackermann unexpectedly canceled plans to assume the chairmanship of Deutsche Bank when he retires as chief executive in May, possibly heralding his departure from the public stage after a decade as one of the most powerful and controversial figures in European banking.

The surprise announcement Monday came on the same day as reports that Munich prosecutors had searched executive offices of Deutsche Bank on suspicion that Mr. Ackermann and other top executives had given false testimony in a long-running civil lawsuit. Deutsche Bank denied any wrongdoing. The timing of Mr. Ackermann’s announcement appeared to be a coincidence.

Paul Achleitner, chief financial officer of German insurer Allianz and also a figure of considerable stature in financial circles, will be nominated as chairman of the supervisory board at Deutsche Bank’s annual shareholders meeting, the bank said in a statement.

At Deutsche Bank and other German corporations, the supervisory board approves major decisions and appoints top executives, while the chief executive is in charge of day-to-day operations.

Mr. Ackermann, 63, became chief executive of Deutsche Bank in 2002, and oversaw a rise of the bank’s stature in global investment banking. He may be equally well known as a political operator. In recent months, he played a key role in negotiations to reduce Greece’s debt load and has been an informal adviser to Chancellor Angela Merkel of Germany. Mr. Ackermann is president of the Institute of International Finance, an industry group that has tried to blunt the effect of new regulations designed to make banks less crisis-prone.

Deutsche Bank has struggled this year to settle on a leadership structure that would follow Mr. Ackermann’s departure as chief executive. In July, the bank’s supervisory board agreed to split chief executive duties between Anshu Jain, head of the investment bank, and Jürgen Fitschen, head of the German unit. As part of the compromise solution, Mr. Ackermann was supposed to become chief of the supervisory board, replacing Clemens Börsig, with whom he had an acrimonious relationship.

Mr. Ackermann said he decided not to seek the post of supervisory board chairman because he was too busy to campaign for the post, which would require him to win support of major shareholders.

‘‘The extremely challenging conditions on the international financial markets and in the political-regulatory environment demand my full attention as the chairman of the bank’s management board,’’ he said in a statement.

Mr. Achleitner, 55, worked more than a decade at Goldman Sachs, becoming a partner and head of the investment bank’s German unit, before joining Allianz as chief financial officer in 1999.

Though not quite as well known as Mr. Ackermann, Mr. Achleitner also has influence beyond his company duties and was involved in frantic efforts in late 2008 by U.S. authorities and investment bankers to prevent a financial meltdown following the collapse of Lehman Brothers.

Mr. Achleitner said in a statement that he would resign his post at Allianz if chosen as chairman of the Deutsche Bank supervisory board.

The search of Deutsche Bank offices was related to a long-running civil suit by Kirch Group, a media company that was once one of Germany’s largest broadcasters. Kirch Group accuses Mr. Ackermann’s predecessor, Rolf Breuer, of precipitating the company’s bankruptcy in 2002 by publicly questioning its creditworthiness.

German media reported that prosecutors were investigating whether Mr. Ackermann and several other executives had given false evidence in the suit.

Detlev Rahmsdorf, a Deutsche Bank spokesman, called the investigation ‘‘groundless and completely out of proportion.’’

Barbara Stockinger, a Munich prosecutor who serves as spokeswoman for the state’s attorneys office there, confirmed that investigators had searched the offices of a company in connection with a civil suit, but would not give the name of the company.

Article source: http://feeds.nytimes.com/click.phdo?i=5a758577d22e16943f75d02b394b8f56

Filed Under: Business News Tagged With: angela merkel, chancellor angela merkel, leadership structure

Italy Agrees to Allow I.M.F. to Monitor Its Progress on Debt

November 4, 2011 by NewsMaker Leave a Comment

In an extraordinary move, Italy said it had invited the fund to scrutinize its books every three months to make sure a $75 billion dollar austerity package is carried out according to plan. A team from the European Commission will also travel to Rome next week to start monitoring Rome’s efforts, the president of the group, Jose Manuel Barroso said.

Should Italy get swept up in the debt contagion, it would threaten to overwhelm even the latest bailout vehicle being assembled, the $1.4 trillion European Financial Stability Facility, taking Europe’s debt crisis to a new level and potentially weighing on the global economy.

Italy is struggling with a whopping $2.5 trillion debt load, second only to Greece. Even that backstop seemed to be in doubt on Friday after the summit meeting of the Group of 20 nations broke up with little apparent progress on resolving Europe’s debt crisis, aside from the decision to have the I.M.F. monitor Italy’s fiscal progress. Germany’s chancellor, Angela Merkel, admitted that Europe’s leaders had so far failed to interest any of the Group of 20 nations to invest in the new facility — a major goal of European leaders.

Mrs. Merkel said cash-rich countries like China and Russia wanted to see more guarantees that they would not be throwing good money after bad before making any commitments. They are particularly keen to have the I.M.F. oversee any such fund to guard against losses on their investments.

A separate effort to bring more I.M.F. money to the table has also failed to get off the ground, at least for now, though officials are said to be looking to raise money through a sort of trust fund. Separately, the group has discussed setting up lines of credit to help small countries hurt by the crisis.

Fears that European leaders still have not nailed down the details of a grand plan designed to contain the euro crisis have caused Italy’s borrowing rates to spike higher in recent days to levels approaching those that forced Greece, Portugal and Ireland to ask for bailout packages from their European partners.

Yet, Prime Minister Silvio Berlusconi’s shaky coalition government is having trouble implementing a number of painful austerity measures passed recently to reduce the nation’s deficit and its mountain of debt, which is the second highest in the euro zone after Greece.

Further complicating matters, his government is hanging by a thread, and faces challenges from his main coalition party, the Northern League, which has already said it does not agree with all the structural changes adopted by Rome to bring the nation’s finances under control.

President Nicolas Sarkozy of France and Chancellor Angela Merkel of Germany have been pressuring on Mr. Berlusconi to fulfill Italy’s financial commitments, but to date the Italian prime minister has been able to muster only a letter outlining his government’s intentions.

Publicly, European officials are presenting Italy’s decision to bring in the I.M.F. as purely voluntary. “We didn’t put Italy in a corner,” Herman van Rompuy, the European Commission president, said. “They themselves decided to invite the I.M.F..”

But few countries in the world are eager to surrender their sovereignty to the fund, and Italy appears to be no exception. Behind closed doors, said one European Union official, leaders encouraged Mr. Berlusconi to bring in the group’s auditors to demonstrate to world markets that Italy is making a credible effort to cut its deficits and make changes designed to restore growth, which is currently close to non-existent.

It is an extraordinary step for the fund, which typically only monitors countries that are recipients of bailouts. But the I.M.F. appears to be increasing its clout and presence in Europe as the crisis grows. Among other things, its managing director, Christine Lagarde, wants the group to oversee a part of the proposed European bailout fund, which is seeking to lure financial contributions from Japan, China, Russia and other cash-rich countries.

The I.M.F. is already overseeing the bailouts of three Western European countries, Ireland, Portugal and Greece, a scenario that would have been all but unthinkable just a few years ago.

The announcement of the I.M.F.’s surveillance in Italy comes just two days after the Greek prime minister, George A. Papandreou, called for a referendum on a bailout deal for Greece, throwing financial markets into a tailspin and sowing panic among leaders of the Group of 20 industrial nations who have been searching for ways to stem the contagion.

Steven Erlanger contributed reporting.

Article source: http://feeds.nytimes.com/click.phdo?i=4a2b2f205404f1f72779464c37062dae

Filed Under: Business News Tagged With: angela merkel, summit meeting, trust fund

Economix Blog: Uwe E. Reinhardt: What Does ‘Recapitalizing Banks’ Actually Mean?

October 28, 2011 by NewsMaker Leave a Comment

Uwe E. Reinhardt is an economics professor at Princeton.

In a recent lead editorial, “Will Mrs. Merkel Wake Up This Time?” The New York Times lectured Chancellor Angela Merkel of Germany on her and her citizens’ duties toward nations that have lived for years beyond their means and now need financial aid, and toward European banks that through their lax and myopic loan policies aided and abetted the living beyond means.

Today’s Economist

Perspectives from expert contributors.

These banks, the editorial said, need “European-financed recapitalization,” which apparently Chancellor Merkel opposes, fearing that German taxpayers would have to contribute directly and heavily to a “bank recapitalization.”

I doubt that German citizens are quite as ignorant as the editorial suggests. One can at least sympathize with their reluctance to run what looks like a giant charity for improvident fellow Europeans. After all, I do not see the rest of America rushing to bail out California or sundry municipalities whose governments lived much beyond their means in years past. And did not President Ford tell his fellow Americans in New York City that he would not support a bailout of the city from its financial straits – an event that The Daily News captured with the memorable headline “Ford to City: Drop Dead”?

Leaving that issue aside, I wish the editorial writers had explicated precisely what form their recommended “recapitalization” of the banks would take. In the agreement hammered out in Brussels on Thursday morning, European leaders “invite” the banks to join in a “voluntary” write-down of 50 percent of the face value of Greek debt owed to them, forcing them to book a loss of the other 50 percent, making recapitalization even more urgent.

As part of their agreement, European governments therefore will force their banks to “raise new capital,” presumably from private investors. If the latter do not show up, then whose money would do the “European recapitalization,” and on what terms?

Citizens of any country have reasons to smell a rat when the country’s elite speaks to them of “recapitalizing” banks. In this regard, for example, the United States bailout of its troubled banks, and Ireland’s bailout of its banks, are hardly reassuring. The Occupy Wall Street movement appears to be fed in part by this suspicion.

Recapitalization is a generic term. It can be done in different ways, some more unseemly than others. My inquiry among a nonrandom sample of educated adults suggests that many people do not actually know exactly what recapitalization means. Can we blame them, given that financial experts speak mainly to one another in opaque jargon, and government shuns transparency in these matters?

To see clearly what is involved, it is helpful to start with a simple accounting identity that describes a business company’s financial position, at market values, at any moment in time as “t.” It is

A_t – L_t = E_t

Here A_t denotes the total, realistically realizable dollar value of assets to which the firm has legal title; L_t denotes the total dollar value of the company’s liabilities, if it paid off all of that debt at time t; and E_t denotes the company’s net worth or “owners’ equity” – all as of the point in time t.

A business is solvent as long as the realizable value of its assets exceeds its debt (A_t L_t). Even such a company, however, may find itself illiquid if it does not have on hand enough cash or liquid assets that can quickly be converted to cash to meet short-term debt coming due within the next month or year. An illiquid but solvent business can easily be helped through a short-term bridge loan secured by other assets or an open credit line at a commercial bank that can be tapped in such cases. For solvent banks the central bank is a short-term lender of last resort.

Prudent executives manage the balance sheet of their enterprises so that, at any time t, the realizable dollar value of the company’s assets are enough, under most foreseeable future contingencies, to repay all of the company’s debts and, it is to be hoped, leave some positive net worth for the owners. They and their companies’ owners get nervous when the leverage ratio, L_t/A_t, rises north of 50 percent, or when cash earnings do not cover interest due by some multiple.

Unfortunately, the leaders of our and Europe’s banking sector either never knew this or, if they did, forgot it when they lapsed into what the economists George Akerlof and Robert Shiller call “animal spirits” in their book of that title, employing a term first used by John Maynard Keynes. The banks’ directors, ostensibly elected to advise and supervise these managers, seem to have been caught up in the euphoria, as were the banks’ owners.

In that cerebral mode, American bankers calmly let the leverage ratios of the enterprises entrusted to them rise above 95 percent, in spite of the fact that the realizable value of a bank’s assets tend to be sensitive to economic conditions.

These assets consist mainly of the right to cash flows inscribed in financial contracts – Treasury and corporate bonds, short-term commercial loans to businesses. In the United States, the banks’ assets also included so-called “structured loans” secured by mortgages (increasingly subprime mortgages) and other derivative securities, including rights to cash flows implied by in bond-insurance contracts (credit default swaps).

European bankers, too, invested in such risky securities – often sold to them by their American colleagues. In addition, they loaded up on loans to governments living way beyond their means (Greece) or loans to real estate developers thriving in a real-estate bubble (Ireland, Spain).

I have described this sorry saga in a tongue-in-cheek after-dinner speech, “Why the French Are to Blame for the Banking Crisis.”

Toward 2007, the statement for A_t-L_t=E_t — also called the balance sheet – of a typical bank looked like the sketch in Figure 1 below. The growth of the banks’ assets side was wholly financed with debt from many sources, much of it very short term.

For a real example, see Figure 2, taken directly from a paper by Tobias Adrian and Hyun Song Shin. That graph shows the composition of the liabilities and equity side of the balance sheet of the British bank Northern Rock, whose failure heralded the banking crisis in Europe. (For similar charts of other European banks, see slides 33, 36, 39 and 42 from a recent presentation by Professor Shin, “Global Banking Glut and Its Consequences.”

By mid-2007, news had penetrated all the way to the banks’ executive suites that a good many of the structured securities on the asset side of their balance sheets were secured by dodgy mom-and- pop mortgages that had been extended to people unlikely ever to earn enough to be able to make their monthly mortgage payments on time. The market value of these securities began to shrink.

In Europe, on the other hand, it became clear that some governments – especially that of Greece — would not be able to pay debt service on the sovereign bonds they had sold as investments to European bankers.

Eventually, then, it dawned on everyone, even bankers, that, realistically, the balance sheets of the typical bank looked more like Figure 3. The banks were not just illiquid, which could easily have been fixed by central banks. Many of the banks were effectively insolvent, if all assets were realistically marked to realizable values.

We can think of the generic term “recapitalizing the banks” simply as “restoring the balance sheets of the banks to financial health.” It requires that somehow the banks’ debt-to-asset ratio L_t/A_t be reduced to more prudent levels, which is the same thing as saying that its complement, the equity-to-asset ratio, E_t/A_t, also known as the “capital ratio,” provide a robust enough cushion for possible future declines in asset values (L_t/A_t and E_t/A_t add up to 1, of course).

In calculating these balance-sheet ratios, not all assets are treated equally. Cash on hand, for example, does not have a risk of declining on dollar value (not to be confused with declining in real value through deflation). There is no need to hold an equity cushion for cash. Similarly, high-grade bonds like United States Treasuries or German government bonds (bunds) face only a low risk of declines in dollar values and, realistically, might require at most a very small equity cushion. On the other hand, dodgy sovereign bonds, derivatives and structured securities – e.g., mortgage-backed securities – may very well decline in value and require a higher equity cushion. In short, the sum of the dollar value of assets (A_t) used to calculate the balance-sheet ratios is risk adjusted.

As noted earlier, part of the agreement hammered out by European leaders is to force or coax continental banks to increase their equity cushions, i.e., their E_t/A_t ratios. Ideally those new equity funds — about $150 billion — are to come from private investors. But with two-thirds of the total needed by banks in Greece, Italy and Spain, private investors may not step up to the plate. Then what?

I know some approaches that would do the trick. My colleagues in Princeton’s Bendheim Center for Finance, who specialize in banking and financial markets, know even more of them. I will pursue these approaches in my next post, hoping that some readers will now describe how they would would like the task accomplished.

Article source: http://feeds.nytimes.com/click.phdo?i=f5d802d1b03f7026933ce8024c8c45bd

Filed Under: Economy News Tagged With: angela merkel, editorial writers, loan policies

European Finance Ministers Near Deal on Aid to Banks

October 22, 2011 by NewsMaker Leave a Comment

On the second day of talks here, the ministers also said that holders of Greek bonds would have to take much bigger losses than the 21 percent originally agreed to in July, though one bank official said that despite the ministers’ consensus, no agreement was near on write-offs that could reach as high as 60 percent.

The ministers also reported that France and Germany had made progress on a third issue, how to increase the firepower of a rescue fund for the euro zone. Germany’s chancellor, Angela Merkel, and the French president, Nicolas Sarkozy, along with other European leaders, continued negotiating later Saturday.

“I believe that now we have reached a more realistic view of the situation in Greece and that we will provide the necessary means to be able to protect the euro,” Mrs. Merkel said as she arrived at a gathering of European center-right leaders outside Brussels. The Sunday meeting would not bring final decisions, she said, adding that the leaders would take definitive steps at another scheduled meeting on Wednesday.

Despite resistance from Spain and Italy, agreement seemed close on a plan worth around 100 billion euros, or $138 billion, to recapitalize European banks. The measure is intended to help banks better withstand turmoil in the markets.

“We have laid down foundations for an agreement on the banking side,” said Anders Borg, Sweden’s finance minister.

The talks on Saturday established an improved tone over the past week, when differences between Mrs. Merkel and Mr. Sarkozy burst into the open.

But the challenge remains for leaders to construct a comprehensive and credible package of measures by Wednesday’s meeting.

Ministers were on track to ask bankers to write off around half of the value of their Greek bond holdings after a report by international lenders suggested that the economy in Greece had deteriorated so significantly that the 60 percent haircut was needed.

“We have agreed yesterday that we have to have a significant increase in the banks’ contribution,” Jean-Claude Juncker of Luxembourg, who is the head of the euro group of finance ministers, said on Saturday. He did not offer a specific figure.

But Charles Dallara, the managing director of the Institute of International Finance, which has been negotiating on behalf of the banks, said the two sides were “nowhere near a deal,” The Associated Press reported.

One remaining worry is that Greece shows few signs of returning to economic growth and, though he declined to say how much in losses banks would be willing to accept, Mr. Dallara added, “We would be open to an approach that involves additional efforts from everyone.”

Greece’s deteriorating economic outlook was the subject of intense discussions among the ministers with Germany and the Netherlands pressing their case that private investors needed to take bigger losses.

According to the international lenders’ report, a 60 percent loss for bondholders would be needed to bring Greece’s debt below 110 percent of gross domestic product by 2020. That represents a huge increase from the 21 percent losses private investors agreed to accept only three months ago.

Without action, Greece’s financing needs could amount to roughly 252 billion euros through 2020, the document said, while under a worse outlook, the needs, including rollover of existing debt, could approach 450 billion euros. The emerging comprehensive package is highly complex and involves painstaking negotiations around issues that are often linked. For example, the deal to strengthen European banks is seen as vital to protect the banks from the fallout from write-downs on Greek bonds.

The ministers agreed on Friday to release the majority of loans worth 8 billion euros to prevent Greece from defaulting. The International Monetary Fund could contribute about 2 billion euros to that fund.

The biggest area of difference between France and Germany seemed to be narrowing after France appeared to be giving ground on how to bolster the euro rescue fund.

Mrs. Merkel had firmly opposed the French suggestion that the fund, the European Financial Stability Facility, should get a banking license, which would enable it to borrow from the European Central Bank.

France’s finance minister, François Baroin, said on Friday that the issue was “not a definitive point of discussion for us,” adding that “what matters is what works.”

On Saturday, the Dutch finance minister, Jan Kees de Jager, said that use of the central bank was “no longer an option” but that two options were under consideration.

Both options involve plans to insure against a portion of losses on Italian or Spanish bonds. Under one version this insurance would be offered by the bailout fund.

The other would form an agency to buy bonds, perhaps attracting new investors like sovereign wealth funds. This would buy bonds on the primary and secondary markets using insurance offered by the bailout fund, said one official briefed on discussions but not authorized to speak publicly.

One advantage of this plan might be that it could force clearer conditions for reform on countries whose bonds are bought.

Article source: http://www.nytimes.com/2011/10/23/business/global/european-finance-ministers-shaping-greek-rescue-and-effort-to-aid-banks.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: angela merkel, final decisions, greek bonds

Debt Plan Is Delayed in Europe

October 21, 2011 by NewsMaker Leave a Comment

Germany and France, still at odds over a more forceful response to the sovereign debt crisis, postponed a decision-making summit meeting for several days amid signs that the complexities of European politics may block an all-encompassing resolution.

The meeting planned for this weekend will still be used to examine proposals to strengthen Europe’s banks, increase the clout of the euro bailout fund, and better coordinate euro area economic policy, a spokesman for Chancellor Angela Merkel of Germany said.

But a comprehensive plan will not be decided until a second summit meeting, set for no later than Wednesday, the spokesman, Steffen Seibert, said in a statement. The French government issued a nearly identical statement.

The last-minute delay reinforced fears that European leaders were still far from containing a crisis that threatens the world economy.

“The politicians have been trying to solve the crisis, but a consistent effort has been missing,” Andreas Dombret, a member of the executive board of Bundesbank, the German central bank, told an audience in Berlin on Thursday. It was an unusually sharp criticism for an official to make about his political counterparts.

Market reaction to the postponement, which was announced after trading in Europe closed, was muted. The Standard Poor’s 500-stock index ended up nearly half a percent, to 1,215.39. The seesaw day in United States markets suggested investors were trying to interpret the mixed signals from Europe.

European leaders are committing to take major steps and have set themselves a deadline. But suddenly calling a second meeting is highly unusual, and a more pessimistic interpretation would be that divisions among leaders may mean even further delays.

Analysts agree that a comprehensive crisis package would include more debt relief for Greece, a stronger bailout fund for the overly indebted countries, and some means of removing doubts about the creditworthiness of Italy and Spain.

It would also include a plan to address the underlying cause of the crisis — the lack of any effective means of enforcing enforce budgetary discipline among euro members — and a plan to restore growth in countries like Greece and Portugal that have lost international competitiveness.

After all the face-to-face interaction among political leaders this week, and plans for more to start Friday evening, the signs of disarray are unsettling. The French president, Nicolas Sarkozy, stoked expectations for progress when he flew to Frankfurt on Wednesday for a brief meeting with Mrs. Merkel as his wife, Carla Bruni-Sarkozy, was giving birth to a daughter in Paris.

The talks this weekend will begin Friday evening with a meeting of euro area finance ministers. On Saturday, finance ministers from the European Union will meet. Mrs. Merkel and Mr. Sarkozy will also meet. On Sunday, heads of state or government from the European Union, the European Council, will gather in the morning. Then just the 17 euro area leaders will meet.

By saying they need more meetings next week, the leaders prolonged the suspense and created the impression that they were having trouble agreeing on details, including ways to maximize the firepower of the 440 billion euro, or $607 billion, bailout fund.

Agreement is broad on the need to restock capital cushions at European banks so they could withstand a default by Greece. But agreeing on how much money banks should raise, and where the money should come from, is another matter.

Goldman Sachs estimated the amount at 300 billion euros, or $412 billion, which would have to come from capital markets, or as a last resort, taxpayers. Other estimates range from 100 billion euros to 400 billion euros, depending on assumptions about how deep a loss banks must absorb on their holdings of Greek and other government debt.

European officials, according to people involved in the discussions, are leaning toward the low estimates, which would be easier to raise but might not be enough to rebuild faith in European banks and restore their access to international money markets.

Banks are fiercely resisting attempts to make them raise more capital, which would reduce profits and expose them to government control if they cannot raise enough from private investors. Whether governments have the legal authority to require recapitalization is in question.

Meanwhile, negotiations to get banks to take bigger losses on their investments in Greek debt “are making very little progress,” said a banker with knowledge of the discussions, who spoke on condition of anonymity because the talks were continuing.

Jack Ewing reported from Frankfurt, Stephen Castle from Brussels and Liz Alderman from Paris.

Article source: http://www.nytimes.com/2011/10/21/business/global/eu-postpones-decision-on-how-to-deal-with-crisis.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: angela merkel, france, postponement

Summit Meeting on Euro Debt Crisis Is Delayed

October 11, 2011 by NewsMaker Leave a Comment

The delay was announced by the president of the European Council, Herman Van Rompuy, a day after largely inconclusive talks between the German chancellor, Angela Merkel, and the French president, Nicolas Sarkozy. They promised to act but provided no details.

An agreement to expand the bailout fund for the euro zone, agreed to by leaders in July, requires unanimous approval from member state parliaments. Malta, with a population of just over 400,000, approved the plan on Monday, leaving Slovakia as the last of the 17 nations that use the euro to take up the accord for formal consideration.

The governing coalition in Slovakia on Monday failed to reach a compromise on an endorsement. A vote on the matter in the Slovakian Parliament was scheduled for Tuesday.

The failure to reach a deal underlines the extent of political deadlock in Slovakia that could threaten final approval of the expanded 440 billion euro, or $600 billion, bailout fund. One European official said there was growing concern about the Slovakian vote in Brussels, but also hope that the measure would be approved.

In Athens, there were signs that international lenders were close to agreeing with the Greek government on the terms by which 8 billion euros in aid could be released. Without the loans, Greece will default within weeks.

But European officials also acknowledged that they needed more time than anticipated to put together a coordinated plan.

In a statement, Mr. Van Rompuy said a summit meeting, originally scheduled for Oct. 17 and 18, had been delayed until Oct. 23 to give the bloc time “to finalize our comprehensive strategy on the euro area sovereign debt crisis covering a number of interrelated issues.”

The declaration suggested that the extra time was needed to address some of the questions that Mrs. Merkel and Mr. Sarkozy discussed on Sunday in Berlin.

Though the two leaders announced that they were in agreement that European banks needed recapitalization, they declined to give any details on the plan that they would propose by the end of October.

That was enough to buoy investors. The euro soared against the dollar, and stock markets in the United States and Europe rose sharply.

But it seemed to have done less to satisfy officials tasked with drawing up the agenda for the summit meeting. “They don’t appear to have agreed on anything substantial,” said a European Union official who would speak only on the condition of anonymity.

The official added, however, that the additional time “could point to the fact that they are preparing something big.”

Paris and Berlin were believed to remain at odds over how to recapitalize European banks, with France favoring using the bailout fund, the European Financial Stability Facility. French banks have worrying levels of exposure to bonds from southern Europe. But, with presidential elections looming next year, Mr. Sarkozy is resisting any recapitalization plan that would risk his country’s AAA credit rating.

Germany, on the other hand, favors action by national governments, confident that it can handle its own banks’ exposure to sovereign debt.

With no obvious consensus emerging from the Berlin meeting, the European Commission, the bloc’s executive arm, may find it difficult to produce a blueprint acceptable to both sides.

Another central question facing the European Commission is whether to propose an increase in the scope of the 440 billion euro bailout fund by allowing it to leverage its financial resources.

Both these issues appeared to be identified in Mr. Van Rompuy’s statement as requiring “further elements” in discussions — as was the plight of Greece.

In Athens, the Greek finance minister, Evangelos Venizelos, told a parliamentary committee on Monday that talks with visiting auditors from the European Commission, European Central Bank and International Monetary Fund, known collectively as the troika, had concluded and that only “certain technical issues” remained to be addressed.

The minister also suggested that any disputes regarding the government’s agreement with the troika would be quickly resolved, noting that if necessary he would “personally ensure that conclusive political solutions are found.”

Last week, euro zone finance ministers delayed a decision on whether to release the latest installment of aid because of the standoff between the troika and the Greek government.

Speaking outside Greece’s Parliament on Monday, Mr. Venizelos said he expected improvements in a second bailout package for the country with regard to private sector involvement.

Niki Kitsantonis contributed reporting.

This article has been revised to reflect the following correction:

Correction: October 10, 2011

Because of an editing error, an earlier version of this article referred imprecisely to a measure before the parliaments of Slovakia and Malta. At issue is the expansion of the euro bailout fund, not a second bailout package for Greece.

Article source: http://feeds.nytimes.com/click.phdo?i=6088d49dc3366f1f8db7f9680b99d35d

Filed Under: Business News Tagged With: angela merkel, euro debt, euro zone

E.U. Delays High-Level Meeting

October 10, 2011 by NewsMaker Leave a Comment

The delay, announced by the president of the European Council, Herman Van Rompuy, came a day after largely inconclusive talks between the German chancellor, Angela Merkel, and the French president, Nicolas Sarkozy, who promised to act but provided no details.

An agreement to expand the bailout fund for the euro zone, agreed to by leaders in July, requires unanimous approval from member state parliaments. But in Slovakia, which along with Malta are the only ones yet to approve it, the governing coalition on Monday failed to reach a compromise on an endorsement, The Associated Press reported. A vote on the matter in the Slovakian parliament was scheduled for Tuesday.

The failure to reach a deal underlines the extent of political deadlock in Slovakia that could threaten final approval of the euro’s expanded 440 billion euro, or $600 billion, bailout fund. One E.U. official said there was growing concern about the Slovakian vote in Brussels, but also hope that the measure would be approved.

But E.U. officials also acknowledged that they needed more time than anticipated to put together a coordinated plan.

In a statement, Mr. Van Rompuy said a summit meeting of E.U. leaders, originally scheduled for Oct. 17 and 18, had been delayed until Oct. 23 to give the bloc time “to finalize our comprehensive strategy on the euro area sovereign debt crisis covering a number of interrelated issues.”

The declaration suggested that the extra time was needed to address some of the questions that Mrs. Merkel and Mr. Sarkozy discussed in Berlin on Sunday.

Though the two leaders announced that they were in agreement that European banks need recapitalization, they declined to give any details on the plan that they would propose by the end of October.

That was enough to buoy investors. The euro soared against the dollar, and stock markets in the United States and Europe were up sharply.

But it seemed to have done less to satisfy officials tasked with drawing up the agenda for the forthcoming summit meeting. “They don’t appear to have agreed on anything substantial,” said an E.U. official speaking on condition of anonymity because of the sensitivity of the issue.

The official added, however, that the additional time “could point to the fact that they are preparing something big.”

Germany, on the other hand, favors action by national governments, confident that it can handle its own banks’ exposure to sovereign debt.

With no obvious consensus emerging from the Berlin meeting, the European Commission, the bloc’s executive arm, may find it difficult to produce a blueprint acceptable to both sides.

Another central question facing the European Commission is whether to propose an increase in the scope of the 440 billion euro bailout fund by allowing it to leverage its financial resources.

Both these issues appeared to be identified in Mr. Van Rompuy’s statement as requiring “further elements” in discussions — as was the plight of Greece.

In Athens, the Greek finance minister, Evangelos Venizelos, told a parliamentary committee Monday that talks with visiting auditors from the European Commission, European Central Bank and International Monetary Fund, known collectively as the troika, had concluded and that only “certain technical issues” remained to be addressed.

Last week, euro zone finance ministers delayed a decision on whether to release the latest installment of aid because of the standoff between the troika and the Greek government.

Speaking outside Greece’s Parliament on Monday, Mr. Venizelos said he expected improvements in a second bailout package for the country with regard to private-sector involvement.

Niki Kitsantonis contributed reporting from Athens.

This article has been revised to reflect the following correction:

Correction: October 10, 2011

An earlier version of this article referred incorrectly to a measure still pending for approval by the parliaments of Slovakia and Malta. At issue is the expansion of the euro bailout fund, not a second bailout package for Greece.

Article source: http://www.nytimes.com/2011/10/11/business/global/eu-delays-high-level-meeting.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: angela merkel, growing concern, political deadlock

Austria Passes Expansion of Euro Bailout Fund

October 1, 2011 by NewsMaker Leave a Comment

Despite sustained heckling from far-right legislators that compelled parliamentary leaders to call a temporary recess, the measure was approved by a healthy 117-to-53 margin. The vote meant that Austria agreed to raise its share of the bailout to 21.6 billion euros, or roughly $29.4 billion, from 12.2 billion euros.

The decision in Vienna left just 3 of 17 countries still waiting to approve the measure, which expands not only the size but also the powers of the bailout fund. With Malta and the Netherlands set to vote next week, pressure mounted on Slovakia, viewed by many as the last holdout.

One day after Germany’s Bundestag, or lower house, passed the same measure with a wide majority, Chancellor Angela Merkel was in Warsaw, where she met with Slovakia’s prime minister, Iveta Radicova, on the sidelines of a European Union summit meeting. Ms. Radicova told reporters that she expected Parliament to ratify the fund no later than Oct. 14, Reuters reported.

But the Slovak government’s majority in Parliament rests on four parties with divergent views, and many Slovaks feel that asking poorer Central Europeans to pay for the mistakes of the richer Greeks is unfair. One of the junior parties in Ms. Radicova’s coalition, the Freedom and Solidarity Party, abbreviated in Slovak as SaS, opposes the bailout, but in recent days it has signaled some willingness to compromise.

With Germany’s weight behind the fund, known as the European Financial Stability Facility, political commentators say it is only a matter of time before Slovakia bows under the pressure and approves its own version of the bill.

The need to ratify the July agreement to expand the facility is all the more important in light of the fact that markets have already indicated that even a 440 billion euro fund, or roughly $600 billion, was nowhere close to enough money to fend off speculative attacks against heavily indebted countries, especially if larger countries like Spain and Italy are forced to turn to it for assistance.

Even as national parliaments have moved ahead with ratifying the agreement, Greece’s prime minister, George A. Papandreou, has pressed his case that his country will live up to its commitments to its European partners. Mr. Papandreou visited France’s president, Nicolas Sarkozy, in Paris on Friday.

Greece’s ability to stick to the difficult program of budget austerity has been viewed as crucial if it is to continue receiving aid. Mr. Papandreou also visited Berlin to meet with Mrs. Merkel Tuesday night.

But the euro crisis will never be resolved if debtor countries cannot take credible steps to reduce their national debts, said Norbert Irsch, chief economist at KfW Group in Frankfurt.

But he dismissed calls for Greece to leave the euro. Such a suggestion, he said, “does not sufficiently take into account the fact that the country would be plunged into an even more serious and long-lasting crisis.”

As the debate in Austria indicated, feelings run high on the subject of bailing out neighbors. Members of the far-right Alliance for Austria’s Future unfurled a banner on the floor of the chamber demanding a referendum.

Peter Filzmaier, a professor of political science at the Danube University Krems, said that the far-right parties saw the rescue fund more as an opportunity to score political points than a chance to alter the outcome.

“It was a very emotional debate,” Mr. Filzmaier said. “Austria has an extremely large number of people disinterested in the E.U., and when you’re talking about large sums of money and you don’t understand what is going on you get scared.”

The German news media declared Thursday’s vote a victory for Mrs. Merkel, while asking how far she could push her intransigent coalition for further steps to rescue the currency. Germany’s upper house, the Bundesrat, where delegations from the country’s states must approve legislation, signed off on Thursday’s vote in the Bundestag. But Bavaria’s state premier, Horst Seehofer, said Friday that his state would not support “additional increases or greater risks.”

Mrs. Merkel has faced criticism of her leadership almost from the beginning of the crisis, from the right and the left, domestically and from foreign leaders, including President Obama. She has been attacked in particular for being slow and reactive in dealing with market turmoil and with speculative attacks on fellow members of the euro zone.

The muddling-through approach is criticized by academics, who find that it “does not fit into the worlds of models and textbooks,” said Mr. Irsch, but the German government and the European Central Bank “have acted in a pragmatic way and, in my opinion, also in a fitting manner.”

Article source: http://www.nytimes.com/2011/10/01/world/europe/austria-approves-euro-bailout-fund.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: angela merkel, european union summit, reuters

Wall Street Manages a Gain

September 29, 2011 by NewsMaker Leave a Comment

News that the United States economy grew by more than previously thought in the second quarter of the year and an unexpectedly large drop in the number of weekly jobless claims drove stocks higher for much of the day.

But after a 2 percent gain at the start of trading, Wall Street lost steam in the afternoon. A half-hour before the close of trading, the Dow Jones industrial average was dead-even with Wednesday’s close — and then rallied again to close up 1.3 percent, or about 143 points, to 11,153.98.

The Standard Poor’s 500-stock index also eked out a gain in the last half-hour, rising 0.8 percent for the day, or 9.34, to 1,160.40. The Nasdaq composite index, weighed down by a 1.8 percent drop in Apple stock, fell 0.4 percent, or 10.82 points to 2,480.76.

The Commerce Department said the economy grew at an annual rate of 1.3 percent in the April-June quarter, up from an estimate of 1 percent made a month ago. The improvement reflected more consumer spending and more exports.

“The quality of the improvement far outweighs the scale of improvement with the U.S. consumer key to future growth,” said Michael Woolfolk, an analyst at the Bank of New York Mellon. “The risk for the third quarter is to the upside, with the outside possibility that it could well come in at the upper end of the 2.0 to 3.0 percent range.”

Further good news emerged from the Labor Department, which found that jobless claims last week dropped 37,000 to a seasonally adjusted 391,000, the lowest level since April 2. It is the first time applications have fallen below 400,000 since Aug. 6.

The mood in stock markets had been largely positive after a clear victory for Chancellor Angela Merkel in a vote on beefing up Europe’s bailout fund. More encouraging for the markets, perhaps, was the fact that Mrs. Merkel did not have to rely on support from opposition parties.

In the short term, the vote in favor of an expanded rescue fund indicated that Germany was fully behind efforts to shore up Europe’s defenses against a crisis that has already required three countries to be bailed out and stoked talk that Greece would default.

“The overwhelming majority in the Bundestag is a good sign and will hopefully mark a step change in German commitment to bringing the spiraling crisis under control,” said Sony Kapoor, managing director of Re-Define, an economic research group.

In Europe, the DAX in Germany closed up 1.1 percent, as did the CAC 40 in France. The FTSE 100 index of leading British shares was off 0.4 percent.

The improved appetite for risk on Thursday also helped the euro brush off another survey showing that Europe’s economy was grinding to a halt. When risk appetite is high, the euro usually garners support against the dollar. Following the German vote, it was trading 0.8 percent higher at $1.3629.

Earlier in Asia, the Nikkei 225 index in Japan swung between gains and losses before finishing up 1 percent. The Kospi in South Korea index shot up 2.7 percent. The Shanghai Composite Index in China dropped 1.1 percent. Markets in Hong Kong were closed due to severe weather.

Oil prices tracked equities higher too. Benchmark crude for November delivery rose $1.88 to $83.09 a barrel on the New York Mercantile Exchange.

Article source: http://www.nytimes.com/2011/09/30/business/daily-stock-market-activity.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: angela merkel, chancellor angela merkel, nasdaq composite index