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Euro Watch: Asian Markets Drop on Latest Euro Concerns

March 18, 2013 by Leave a Comment

HONG KONG — The euro slumped Monday, and Asian stock markets sagged, amid nervousness over the euro zone debt crisis and a controversial bailout plan for Cyprus, one of the region’s smallest economies.

The plan, which would tap ordinary savers in Cyprus to share in the cost of the bailout, prompted anxious depositors to drain cash from automated teller machines in the country over the weekend, and raised concerns that bank runs could be set off elsewhere in the euro zone.

The euro reacted with a sharp fall against the dollar in Asian trading on Monday, sagging to $1.2904, down from $1.3074 at the close of play on Friday. The drop took the single European currency to its weakest level since late last year.

The Japanese yen, which tends to rise in times of uncertainly as it is seen as a relative safe haven, firmed to ¥94.66 per U.S. dollar, from about ¥96 on Friday.

Stock markets also fell sharply, with the Nikkei 225 in Tokyo and the Hang Seng in Hong Kong both down 2.1 percent by late morning.

In Australia, the S.P./ASX 200 index sagged 1.5 percent, and the Straits Times index in Singapore declined 0.8 percent.

Jeroen Dijsselbloem, the president of the group of euro area ministers, declined Saturday to rule out taxes on depositors in countries beyond Cyprus, although he said such a measure was not currently being considered.

A scheduled parliamentary vote on the plan at an emergency meeting Sunday was postponed until Monday, to give the newly elected Cypriot president, Nicos Anastasiades, a chance to brief lawmakers.

Unfortunately, the issue is not as simple as whether the Cypriot government supports the bailout, analysts at DBS in Singapore commented in a research note on Monday.

The markets, they added, are worried that the plans to force ordinary depositors to share the cost of the bailout “may send the wrong message on the safety of bank deposits in other E.U. nations, just when light appeared to be emerging at the end of the long tunnel for the peripheral nations.”

Article source: http://www.nytimes.com/2013/03/19/business/global/asian-markets-drop-on-latest-euro-concerns.html?partner=rss&emc=rss

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European Banks Are Hard-Selling Greek Bailout Plan

September 2, 2011 by Leave a Comment

But in the case of the proposed second bailout for Greece — the one that is supposed to make private investors feel the financial pain along with taxpayers — the biggest banks in Europe are on the road now promoting the plan.

It’s not that the banks are suddenly masochists. It’s that this first major bond restructuring in Europe’s long-festering debt crisis is shaping up as a much better deal for the banks than for the Greeks it is supposed to be helping.

Holders of the Greek bonds would get much better value than they could in the open market, while Greece would still owe a lot of money. What’s more, Greece would be surrendering a lot of its negotiating clout if, in the future, it needed to go back to the bailout bargaining table.

This week, bankers representing the Greek government — Deutsche Bank, BNP Paribas and HSBC — have been explaining to investors why it is in their interest to trade in their decimated Greek bonds, take a 21 percent loss and accept a new package of longer-dated securities with AAA backing. Those bondholders include big European banks, smaller fund managers and insurance companies.

The bond exchange is a crucial component of the more than 200 billion euro ($286 billion) in rescue packages that Europe and the International Monetary Fund have put together to support the near-bankrupt Greek economy through 2014. The German chancellor, Angela Merkel, and others insisted that banks make such a contribution to give them some political cover at home.

The part of the rescue announced in July is subject to the approval of Germany and the governments of the 16 other member nations of the euro union in coming weeks. If investors balk at the 21 percent write-down that is the price for getting a deal done, the whole package could collapse. European governments would be hard-pressed to come up with those extra funds themselves.

But with the price of Greek debt trading in some cases at 50 cents on the dollar — even lower than when the bailout deal was announced in July — the 21 percent haircut seems to be quite a bargain.

As a bonus, the new bonds would be governed by international law, rather than Greek law. That is a significant alteration of lending terms that would strengthen the negotiating hand of the bondholders if Greece eventually concluded it had no alternative but to default — even after this latest bailout.

The International Institute for Finance, the advocacy group for global banks that is also the chief architect of the deal, says that 60 to 70 percent of the financial institutions holding Greek bonds have agreed to the swap so far. That comes close to the 90 percent threshold that the Greek government has stipulated, although it is too early to predict the final outcome because Greece will not formally make the swap offer until October.

“This is an attractive offer,” said Hung Tran, a senior executive at the institute. “We are making the case that if this deal is implemented it will restore stability to Greece.”

The question remains, however, whether the banks that financed the country’s debt by buying its bonds would get off too easy — and whether the Greek government should have pushed for a larger write-down to ease its debt load.

Analysts also note Greece’s diminished bargaining power in any future debt negotiations with its bankers.

In past debt negotiations involving countries like Argentina, Uruguay and Russia, the bulk of the debt was governed by either United States or British law. That gave the biggest bondholders the upper hand in negotiating terms; they could either hold out for a better deal or challenge the governments in foreign courts.

In the case of Greece’s debt, more than 90 percent of it was issued and is governed under Greek law, as a holdover of the era preceding Greece’s entry into the European monetary union in 2001. That, legal experts say, currently gives the Athens government the flexibility, if it so chooses, to alter bond contracts and secure a more beneficial restructuring deal over the objections of its foreign creditors.

Article source: http://feeds.nytimes.com/click.phdo?i=541e4a62077588bda472ee0befa3a4df

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Players in a Greek Drama

July 23, 2011 by Leave a Comment

Not only does he have the power to effectively put a “sell” on Uncle Sam, but on Friday he roiled global markets after he said the Greek rescue package would constitute a limited default on the country’s debt.

The analyst, who is based in London, oversees the 30-person government bonds team inside Fitch Ratings, which could soon downgrade the debt of the United States government from its historical, gold-plated, triple-A rating if politicians in Washington cannot agree to raise the debt limit.

And after two days of whirlwind conference calls with colleagues in London and New York to weigh what the Greek restructuring proposals might look like and how Fitch would respond, Mr. Riley and his team stamped a “restricted default” on Greece Friday morning. The details of the $157 billion bailout plan were announced Thursday by European leaders.

The reverberations of a downgrade by Fitch or its competitors, Standard Poor’s and Moody’s Investors Service, often send borrowing costs soaring for the affected governments while typically putting equity and debt markets into a tailspin as investors run for cover.

That power and responsibility has made Mr. Riley and his team figures — and often targets for critics — in the debt drama sweeping the globe this year.

“People don’t know who is selling Italian bonds or who is going short Spanish securities or who is betting on a Greek default,” Mr. Riley said in an interview. “But a headline that says ‘Greece downgraded’ is a simple one to understand and you can point the finger at who did it very easily.”

His team recently received hostile e-mails labeling them “idiots” or blaming them for the harsh austerity measures many European countries have adopted. He is on the speed dial of European policy makers and United States Treasury Department officials who are eager to convince him that their belt-tightening plans are sufficient to avoid a negative report. His days are filled with calls from managers of pension funds, sovereign wealth funds, insurance companies and other asset managers trying to gauge what might spur a downgrade or a default and how that would affect their holdings of that country’s bonds.

All the while, Mr. Riley and his staff are running internal “war games,” exploring what might happen to money market funds, financial institutions and even individual state finances if the United States were to default on its debt.

Some of the agencies’ harshest critics, however, wonder why the rating agencies still wield so much power. Are they acting like disinterested parties in the American debt-ceiling talks or driving the discussions and their own agendas through their demands, they ask. Standard Poor’s, for instance, has said that if any debt-ceiling deal did not include an agreement to reduce the nation’s deficit by $4 trillion over the next decade, the United States was still at risk of losing its triple-A rating.

“No nation, agency or organization has the authority to dictate terms to the United States government,” Representative Dennis J. Kucinich, Democrat of Ohio, said in mid-July after Moody’s placed the United States on review for possible downgrade. “Moody’s and its compatriot S. P. were the direct cause of the near-collapse of the economy of the United States.”

Mr. Kucinich and others place significant blame on the rating agencies and their conflict-ridden business models — they are paid by the issuers they rate — for much of the financial crisis around mortgage-related securities. The agencies put gold-standard ratings on mortgage-related securities that held increasingly risky home loans while raking in fees from Wall Street banks. Investors bought those securities on the belief that the triple-A rating made them as safe as United States Treasuries.

Others, however, say the agencies may simply be forcing governments, including the United States, to take some strong medicine.

“They do see their job as looking down the road” in asking that whatever debt deal is struck that it addresses the huge United States deficit, said Cornelius Hurley, director of the Boston University Center for Finance, Law and Policy.

Mr. Riley, a 45-year-old Briton and father of two, has spent the last decade inside Fitch evaluating governments around the world. He worked as a senior economist at UBS Warburg and, before that was an adviser inside Britain’s Treasury department.

To relieve some of the pressure, Mr. Riley says he tries to play with Fitch’s soccer team at lunchtime on Tuesdays and that he occasionally plays PlayStation games with his 17-year-old son.

He says he and his team at Fitch have developed thick skins to deal with the pressure.

Article source: http://feeds.nytimes.com/click.phdo?i=7c405b9823b3cd6f08a8f1683559db9a

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Greek Leader Reshuffles Cabinet, Asks for Vote

June 15, 2011 by Leave a Comment

Earlier in the day, as thousands took to the streets to protest austerity measures, Mr. Papandreou had offered to step aside so that his Socialist party could form a coalition government with the center-right opposition, but only if it would support a new bailout plan for the debt-ridden country. Greece needs to pass a new round of austerity measures by the end of the month in return for fresh loans from the International Monetary Fund and the European Union.

 News of the political instability here rattled world financial markets, which fear that Greece’s failure to agree on an austerity package could lead to a default that could ignite a series of crises in other heavily indebted euro zone countries, like Portugal, Ireland and Spain. That, in turn, could threaten Europe’s banks.

Greece instituted a round of painful budget cuts last year in exchange for international financial assistance that staved off default. With the country now seeking a new round of financing, Greek leaders face the nearly impossible task of balancing the demands of their hard-pressed citizens with those of the I.M.F. and the European Union.

Mr. Papandreou’s support is plummeting, even within his party, and the Socialists in turn appear to be lagging behind the center-right opposition for the first time since the current government was elected in 2009. With a five-seat majority in Parliament, Mr. Papandreou has been struggling to get his government fully behind the measures amid growing rifts within his party.

Antonis Samaras, the leader of the center-right New Democracy party, has opposed spending cuts, calling instead for tax breaks and a renegotiation of the terms of Greece’s agreement with its foreign creditors.

After hours of speculation, Mr. Papandreou went on national television just before 10 p.m. local time and announced the cabinet reshuffle. He criticized the opposition for playing politics with the country’s future.

“I have asked for this effort to be a common one, I made constant appeals for consensus to the opposition,” he said. “Today, I repeated those appeals,” he said.

The prime minister also accused the opposition of leaking details of a highly sensitive preliminary conversation to the news media. Before the two leaders could discuss possible terms, he said, “Certain conditions were made public, which would not be acceptable because they would keep the country in a prolonged state of instability and introversion.”

Mr. Samaras defended his actions in a televised speech later on Wednesday, saying it was impossible to participate with the Socialists in a coalition government because “they have lost the trust of both the Greek citizens and the markets.” Speaking of Mr. Papandreou, he said, “If he can govern, he shouldn’t have asked us for support. If he can’t, he should call elections.”

On Wednesday, thousands joined a nationwide strike as Parliament prepared to debate a second round of sharp cuts to government spending. The measures are highly unpopular with Greeks, who have already suffered deep salary and pension cuts.

“We had the first set of measures, that’s over, now they want a second,” said Angeliki Kolandretsou, 63, a retired private nurse who was one of thousands of Greeks who joined the nationwide strike Wednesday. “But what will we see from this? Nothing at all. It will just go to the banks.”

On Wednesday, the police fired tear gas and scuffled with protesters in the central Syntagma Square here. Some in the crowd smashed the windows of a luxury hotel and tried to prevent legislators from entering Parliament. Police officials said they had detained more than 20 people.

Violent and often theatrical protests have long been a mainstay in Greece, even before the financial crisis hit. But in a more telling sign of the depth of the anger, for three weeks, peaceful demonstrators have gathered daily in Syntagma Square, some sleeping in tents, to protest the austerity measures.

Wednesday’s protest drew 25,000 largely peaceful demonstrators from across Greek society.

Article source: http://feeds.nytimes.com/click.phdo?i=4d9ad81a4a50cdd740dc4cec1886eb47

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