bailout

Russian Bailout Talk Helps Buoy European Markets

December 16, 2011 by NewsMaker Leave a Comment

Spain, which along with Italy is a euro zone member whose debt problems reverberate across the region, provided a measure of relief by raising $7.8 billion in a debt auction in Madrid at a lower-than-expected interest rate. Demand was brisk, perhaps on optimism for the new, conservative government that is about to be sworn in, and also because it was one of the last big bond auctions in Europe before the year-end holiday lull.

The yield on Italy’s debt was also modestly lower in trading Thursday, as the government in Rome called a confidence vote for Friday on a new austerity package.

Meanwhile, the euro currency regained some of its recent losses against the dollar. Stocks in Europe and the United States were also broadly higher.

Helping to buoy the markets, Russia said Thursday that it might pledge up to $20 billion via the International Monetary Fund to lend support to the euro zone’s financial markets and economy.

After meeting with European Union leaders here, the Russian president, Dmitri A. Medvedev, said his country was “interested in the European Union’s preservation as a dynamic economic and political force” and would consider assistance via the I.M.F. Though Russian leaders and officials face criticism for the conduct of recent elections, they arrived at the meeting in a strong position, knowing that Europe was seeking help from Moscow as well as courting other countries, like China and Brazil.

Mr. Medvedev’s economic aide, Arkady V. Dvorkovich, said Russia would be ready immediately to let the I.M.F. keep $10 billion from a commitment made in 2009 that, he said, was due to be reimbursed.

A possible second loan from Russia of up to $10 billion was dependent on clearer plans emerging for the financing of a firewall for still-vulnerable euro zone nations like Italy and Spain, Mr. Dvorkovich added.

Although such amounts would be relatively modest compared with the hundreds of billions of dollars of rescue reserves that many economists say might be necessary to maintain investor confidence in the euro zone, analysts saw at least symbolic significance in the Russian offer.

“There has been a sort of strategic inversion in relations between Russia and the E.U.,” said Thomas Gomart of the Institute for International Relations in Paris. “In 1998, Russia defaulted, and around 14 years later, Russia is in a position to finance Europe. Psychologically, that is a very big change.”

While Russia might be willing to pitch in, the head of the European Central Bank on Thursday repeated his recent assertions that the central bank would not respond to widespread calls that it provide a financial firewall for the region’s debt crisis by more aggressively buying government bonds.

In a Berlin speech, the bank’s president, Mario Draghi, said that the euro zone’s “firewall” was supposed to be the bailout fund set up by European governments.

And yet plans to increase the financial firepower of that bailout fund, the European Financial Stability Facility, to 1 trillion euros ($1.3 trillion) — the target set by European Union leaders — have fallen short. The I.M.F. is expected to help make up some of the shortfall, but the fund is still waiting to hear the details of how the euro zone will put together a new contribution of up to 200 billion euros to the I.M.F.

Another European Union summit meeting on the crisis has been tentatively scheduled for the end of January or beginning of February.

Where some analysts see the European Central Bank as being more effective lately is in the new medium-term lending program for commercial banks that it announced last week. In the program, which goes into effect next week, the central bank will start providing banks loans for three years, compared with a previous maximum of about one year.

The central bank last week also cut its benchmark interest rate target to 1 percent from 1.25 percent.

Those moves, more than any new-found confidence in Spain, might help explain the success of Thursday’s Spanish bond auction. Charles Diebel, head of market strategy at Lloyds Banking Group in London, said demand was probably driven in part by banks’ taking advantage of low borrowing costs.

Stephen Castle reported from Brussels and David Jolly from Paris.

This article has been revised to reflect the following correction:

Correction: December 15, 2011

An earlier version of this article gave a wrong date for when the European Central Bank’s new medium-term bank financing program, announced last week, goes into effect. It is next week, not Thursday.

Article source: http://feeds.nytimes.com/click.phdo?i=5c7b996a7d9a21867f27eef1a2300e59

Filed Under: Business News Tagged With: austerity, bailout, conservative government

Daily Stock Market Activity

December 9, 2011 by NewsMaker Leave a Comment

Stocks rose on Friday in the United States and Europe after euro zone leaders reached agreement to tighten fiscal discipline to combat the sovereign debt crisis.

But while stock traders appeared to give a positive response to the announcement, at least for a day, the reaction in the bond market was tepid as many analysts weighed the longer-term prospects for the agreement and whether it would address the fundamental issues in the crisis.

Stocks on Wall Street reversed Thursday’s declines of more than 2 percentand finished the week in positive territory. At 4 p.m., the Dow Jones industrial average was up 1.5 percent, and the Standard Poor’s 500-stock index rose 1.7 percent. The Nasdaq composite index was 1.9 percent higher.

The Dow ended the week about 1.4 percent higher, and the S.P. 500 and the Nasdaq each climbed about 0.8 percent in the period.

Officials from the 17 European Union nations that use the euro agreed to sign a treaty that would require them to enforce stricter financial discipline; they also agreed on Friday to bolster their bailout funds.Guy LeBas,the chief fixed-income strategist at Janney Montgomery Scott, said that the accord simply addressed the underlying tensions among the European Union members rather than the fact that, for example, bond yields were too high in Italy for the country to fund itself.

“My concern about the E.U. treaty pact is it does not provide much short-term relief for the markets,” he said. “In my view, it is more important to staunch the bleeding.”

Still, he added, the accord “provides a little bit of confidence that policy makers are addressing the issues facing the E.U. But it is not as if there is suddenly some great demand in Italian bonds” in the agreement’s wake.

On Thursday, the European Central Bank reiterated its opposition to increasing its purchases of euro zone government bonds, but cut its main interest rate target to 1 percent, down a quarter-point, to smooth credit market stress.

On Friday, the president of the E.C.B., Mario Draghi, gave his blessing to the euro zone’s arrangement, saying: “It is a very good outcome for euro area members and it’s going to be the basis for a good fiscal compact and more disciplined economic policy in euro area countries.”

But Britain, concerned about the impact on the London financial center, refused to sign on to any treaty changes, meaning the deal’s legal basis is uncertain among the broader, 27-nation European Union. A few other nations also refrained from signing on at first.

The Euro Stoxx 50 index, a barometer of euro zone blue chips, gained 2.4 percent by the end of trading, while the FTSE 100 index in London was up 0.8 percent. The French CAC 40 index rose 2.4 percent and the German DAX was up nearly 2 percent.

On Friday, bond yields rose early for some euro zone nations that were seen as most vulnerable. Late in the day the trend reversed. Italy’s 10-year yield fell 13 basis points to 6.299 percent, while Spain’s fell 7 basis points to 5.680 percent. German 10-year bonds added 13 basis points to 2.142 percent. A basis point is one-hundredth of a percent.

United States 10-year Treasury notes rose 9 basis points to 2.061 percent, but one analyst, Anthony Valeri of LPL Financial, said that the bonds were responding to reports on improved consumer sentiment released on Friday that exceeded forecasts.

Quincy Krosby, a market strategist for Prudential Financial, agreed that the accord was a short-term remedy, considering the euro zone’s growth problems, that have placated the markets at least for one day.

“They have clearly bought time with the market reaction this morning,” she said. “The question is, as always, how much time.

“The long term is that it is clear that the evolution of the euro zone is ongoing and will be dictated by the economic prospects of the weaker members,” she said.

Analysts also noted that throughout the crisis, leaders and officials have offered a number of plans that have come and gone but failed to stabilize the markets or solve the root of the debt problems.

Article source: http://www.nytimes.com/2011/12/10/business/global/daily-stock-market-activity.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: bailout, dow jones industrial average, european union members

After Rate Cut, Gloom as Europe Leaders Meet

December 9, 2011 by NewsMaker Leave a Comment

The optimism of recent weeks swung decidedly back to pessimism, with stocks falling and the cost of borrowing for several major European countries rising sharply.

In Frankfurt, the European Central Bank lowered interest rates for the second time in a little more than a month, signaling that it wants to help slowing economies. But the bank dashed hopes that it might ramp up its bond-buying program to contain the sovereign debt crisis, as many have urged it to do to relieve intense market pressure on countries like Italy.

Late Thursday, European leaders here were circulating the draft of a new “fiscal compact” for the currency union, including tighter control of public finances. Disagreement persisted about whether any deal would cover all 27 European Union member states or just the 17-member euro zone, and about whether it would involve amendments to the euro treaty. Leaders were also discussing whether a permanent bailout fund, set to begin operation as early as July, should function as a licensed banker.

Earlier in the day in Washington, President Obama voiced frustration that Chancellor Angela Merkel of Germany and other European leaders were focusing on the wrong problem by negotiating long-term changes to the euro treaty, rather than reassuring the markets and staving off a recession by taking bold short-term action.

“If we see Europe tank, that obviously could have a big impact on our ability to generate the jobs that we need here in the United States,” Mr. Obama told reporters.

“Europe is wealthy enough that there’s no reason why they can’t solve this problem,” he said. “If they muster the political will, they have the capacity to settle markets down, make sure that they are acting responsibly and that governments like Italy are able to finance their debt.”

Adding to the anxiety, European regulators said on Thursday that many of the region’s biggest banks, including the German giants Deutsche Bank and Commerzbank, needed to raise more money as reserves against potential losses.

The amounts to be set aside are much higher than regulators had estimated as recently as October, and the inclusion of German banks in the roundup was a reminder that even the region’s richest nation was not immune from the debt crisis contagion.

President Nicolas Sarkozy of France, in Marseille on Thursday before heading here, said, “If we don’t have an agreement Friday, there won’t be a second chance.”

Mrs. Merkel promised there would be an agreement, but warned that it would take years to overcome the crisis, as Europe built more centralized oversight and discipline.

Mr. Obama said the European leaders’ efforts to reach a long-term “fiscal compact where everybody’s playing by the same rules” were “all for the good.” Yet he added, “But there’s a short-term crisis that has to be resolved to make sure that markets have confidence that Europe stands behind the euro.”

The best hope for providing that shot of confidence has been seen as the European Central Bank. But the bank’s president, Mario Draghi, at a news conference in Frankfurt on Thursday, seemed to back away from signals he sent last week that a grand bailout bargain might be in the works — a big infusion from the central bank in exchange for a commitment to greater fiscal discipline from the European heads of state.

On Thursday, Mr. Draghi said that he was “surprised” that a speech he made last week had been widely interpreted as meaning the central bank stood ready to shore up weak European Union members like Italy and Spain by buying many more of their bonds — or to possibly work in concert with the International Monetary Fund. He played down the I.M.F. idea Thursday as too “legally complicated” and said it might violate the spirit of the euro treaty.

Many analysts were stunned by what appeared to be Mr. Draghi’s turnaround, which they said would make it even more crucial for the European heads of state to forge a market-calming master plan at their summit meeting — as unlikely as such an outcome is starting to look.

Stocks in Europe and the United States fell on the gloomy signals. The euro currency fell against the dollar, and the borrowing costs of the euro region’s two most closely watched convalescents, Italy and Spain, shot higher in bond trading.

“While Draghi had opened the door for more E.C.B. support last week, he closed it again today,” Carsten Brzeski, an economist at the Dutch bank ING, wrote in a note to clients. “According to Draghi, it was up to politicians to solve the debt crisis.”

For now, Mr. Draghi appears to be leaving any government bailouts to the heads of state, while focusing the European Central Bank’s efforts on the less controversial business of keeping money flowing through commercial banks.

Steven Erlanger reported from Brussels and Jack Ewing from Frankfurt. Stephen Castle contributed reporting from Brussels, and Mark Landler from Washington.

Article source: http://feeds.nytimes.com/click.phdo?i=fc0c5fd823ed87e454cca43e94b94136

Filed Under: Business News Tagged With: bailout, euro zone, europe leaders

Economix Blog: Sarkozy and Merkel’s Delicate Dance

December 6, 2011 by NewsMaker Leave a Comment

Ian Langsdon/European Pressphoto AgencyPresident Nicolas Sarkozy of France greeting Chancellor Angela Merkel of Germany on Monday.

For weeks, attitudes toward Europe’s debt crisis have gone through a recurring cycle: markets flail, spurring leaders to gather and confer; grim-faced, they issue statements of guarded optimism and determination. Rinse. Repeat.

Below is a look back at statements from President Nicolas Sarkozy of France and Chancellor Angela Merkel of Germany over the last two months:

Oct. 7: As Germany and France try to forge a comprehensive response to Europe’s debt crisis, the two nations clash on a fundamental question. France wants to draw on the European bailout fund, the European Financial Stability Facility, to rebuild bank capital. German leaders think national governments should take the lead.

“Only if a country can’t do it on its own should the E.F.S.F. be used,” Mrs. Merkel said.

Oct. 9: Mrs. Merkel and Mr. Sarkozy met in Berlin, and said they reached a general agreement on a plan.

“It’s not the moment to go into details of all questions,” said Mr. Sarkozy.

“We are determined to do everything necessary to ensure the recapitalization of Europe’s banks,” Mrs. Merkel said.

Oct. 19: Mr. Sarkozy and Mrs. Merkel met in Frankfurt, ahead of a European summit meeting, but emphasized that a comprehensive deal was not imminent.

In a speech, Mrs. Merkel noted that the meeting would be just “one point” in “a long journey.”

“In Germany, the coalition is divided on this issue. It is not just Angela Merkel who we need to convince,” Mr. Sarkozy told French lawmakers.

Oct. 23: As concerns over high debt spread to Italy, Mr. Sarkozy and Mrs. Merkel met with the leaders of the European Union in Brussels. Tensions ran high, but little new progress was made.

Mr. Sarkozy reacted sharply to criticism from Prime Minister David Cameron of Britain, which does not use the euro. “You say you hate the euro, and now you want to interfere in our meetings,” Mr. Sarkozy said.

Mrs. Merkel reiterated her call for a comprehensive solution. “Trust will not be achieved alone through a high firewall,” she said. “Trust will not happen from a new package for Greece. Trust will only happen when everyone does their homework.”

Oct. 27: In negotiations lasting into the early morning hours, Mrs. Merkel and Mr. Sarkozy secured an agreement from banks holding Greek debt to accept a 50 percent loss on its face value.

“If there was no accord yesterday, it’s not just Europe that would face catastrophe, but the whole world,” Mr. Sarkozy said.

Mrs. Merkel said, “I believe we were able to live up to expectations, that we did the right thing for the euro zone, and this brings us one step farther along the road to a good and sensible solution.”

Nov. 10: Fears of contagion continued to grow, as Italy’s cost of borrowing continues to rise rapidly.

Mr. Sarkozy suggested that a two-tiered model for Europe was likely in the future. “There are 27 of us,” Mr. Sarkozy told French students in Strasbourg. “Clearly, down the line, we will have to include the Balkans. There will be 32, 33, 34 of us. No one thinks that federalism, total integration, will be possible with 33, 34 or 35 states,” he said.

Mrs. Merkel renewed her call for fiscal discipline and central oversight of euro member states. “It is time for a breakthrough to a new Europe,” she said. “A community that says, regardless of what happens in the rest of the world, that it can never again change its ground rules, that community simply can’t survive.”

Nov. 18: Bond yields spiked in France and Spain, raising fears that the debt crisis could freeze credit markets throughout Europe.

Mrs. Merkel’s government again said it would oppose the creation of euro zone bonds or an expanded role for the European Central Bank. “I’m convinced that none of these approaches, if applied right now, would bring about a solution of this crisis,” Bloomberg News quoted Mrs. Merkel as saying in a speech.

Nov. 24: Meeting in Strasbourg, France, with Mr. Sarkozy and Prime Minister Mario Monti of Italy, Mrs. Merkel once again rejected calls for joint euro zone bonds or more activity by the E.C.B.

“I am trying to understand Germany’s red lines,” Mr. Sarkozy said.

“Nothing has changed in my position,” said Mrs. Merkel.

Dec. 1: In an address to French citizens, Mr. Sarkozy warned that Europe could be “swept away” by the euro crisis if it does not change.

“If Europe does not change quickly enough, global history will be written without Europe,” he said. “Europe needs more solidarity and that means more discipline.”

Dec. 2: In a speech to Germany’s Parliament, Mrs. Merkel called for changing European treaties to address the underlying causes of the debt crisis.

“The future of the euro is inseparable from European unity,” she said. “The journey before us is long and will be anything but easy. But I am convinced that we are on the right path. It is the right path to take to reach our common goal: a strong Germany in a strong European Union that will benefit the people in Germany, in Europe.”

Dec. 5: Meeting in Paris, the two leaders issued a joint call for Europe’s governing treaties to be amended to bring the 17 countries of the euro zone into greater fiscal harmony.

““We want to make sure that the imbalances that led to the situation in the euro zone today cannot happen again,” Mr. Sarkozy said.

“We are absolutely determined to keep the euro as a stable currency and as an important contributor to European stability,” Ms. Merkel said.

Article source: http://feeds.nytimes.com/click.phdo?i=546949a156f652560bfc84297bc0aa72

Filed Under: Economy News Tagged With: bailout, german leaders, recapitalization

daily-stock-market-activity

December 5, 2011 by NewsMaker Leave a Comment

Stocks and the euro rose on Monday, although they lost some of their gains after a media report said Standard Poor’s Corp. was about to warn Germany and other euro zone nations that their credit ratings were being assessed for a possible downgrade.

The markets were generally higher earlier in the day when an agreement between leaders of France and Germany boosted optimism that European leaders would reach a credible solution to their debt crisis.

At the close of trading, the Standard Poor’s 500-stock index was up 1 percent, the Dow Jones industrial average rose 0.7 percent and the Nasdaq gained 1.1 percent.

S.P. would not confirm the report, which said that the rating agency would place the credit of all 17 euro zone nations on a watch list for possible downgrade.

French President Nicolas Sarkozy and German Chancellor Angela Merkel agreed on a master plan for imposing budget discipline across the region, saying the European Union treaty needs to be changed. The leaders said their proposal included automatic penalties for governments that fail to keep their deficits under control and an early launch of a permanent bailout fund for euro states in distress.

The proposal will be sent to E.U. officials on Wednesday, ahead of a key summit on Friday.

Even so, analysts were wary that the optimism would prove overdone.

“We are far from an easy consensus that it’s a done deal,” said Marc Pado, United States market strategist at Cantor Fitzgerald Co. in San Francisco. “But we are further along in the negotiations than we’ve been and we are focused on the right things now.”

An agreement could pave the way for an accelerated implementation of the euro zone’s rescue plan to help ensure debt-ridden countries have a vehicle to tap for funds, while encouraging bondholders to buy euro zone bonds.

The euro was up versus the dollar at $1.3399, holding above last week’s low of around $1.3230.

European stocks rose, with the FTSE 100 up 0.3 percent, building on last week’s biggest weekly gain since late 2008. Euro zone stocks as measured by the Euro Stoxx 50 were up 1.2 percent.

Market sentiment also got an early boost after Italy unveiled a 30-billion-euro package of austerity steps and the Irish government said it would do something similar in a new budget to be announced later in the day.

The positive mood drove Italian bond yields further below the worrying 7 percent level at which they are seen as unsustainable, and the cost of insuring Italian debt against default also fell.

But global data highlighted the precarious economic situation. Purchasing manager surveys for November showed the euro zone’s economy may be shrinking more quickly than previously thought, while growth in China’s services sector sagged to a 3-month low.

While the United States economy is expected to avoid another recession, growth in the services sector slowed in November, and new orders declined in October for a second straight month.

“This is the first disappointing indicator we’ve seen in the last couple of weeks,” said Cary Leahey, managing director at Decision Economics in New York. “The economy has improved — it is still not growing very quickly.”

The week ahead features a series of high-profile meetings among European leaders seen as crucial to the future of the 17-nation euro zone.

On Tuesday, Treasury Secretary Timothy Geithner kicks off a visit to the region in Germany, where he will meet European Central Bank President Mario Draghi and government officials.

Article source: http://feeds.nytimes.com/click.phdo?i=e34698b77c217c55154ada0bc650968c

Filed Under: Economy News Tagged With: bailout, european leaders, stock market activity

S.&P. Cuts Belgium’s Rating to AA

November 26, 2011 by NewsMaker Leave a Comment

PARIS — Standard Poor’s lowered its rating on Belgium’s sovereign debt on Friday, the latest in a string of downgrades issued this week on European countries and banks that have been hit by the European debt crisis.

The downgrade, to AA from AA-plus, came just days after ratings agencies also signaled that France’s triple-A credit rating could eventually be at risk as the crisis spreads to the euro zone’s largest countries.

Belgium has been without an elected government for the last 19 months, and the government recently agreed to split a multibillion-euro bill with France for the bailout of Dexia, a French-Belgian bank that last month became the first European bank to be partly nationalized in the euro crisis.

S. P. said it was concerned about the ability of Belgian authorities to respond to potential economic pressures from inside and outside the country. A caretaker government has tried to improve the nation’s finances, but the lack of solid leadership may make it harder for Belgium to undertake deeper fiscal and structural reforms, the agency said.

“The announcement by Standard Poor’s reinforces further the necessity to finalize the 2012 budget in a very brief period,” Didier Reynders, Belgium’s finance minister, said in a statement.

The leader of Belgium’s French-speaking socialist party, Elio Di Rupo, tendered his resignation to King Albert II of Belgium on Monday after talks for a 2012 budget ground to a halt.

The government may also have to put up more money to support its financial sector as Belgium’s banks find it more difficult to obtain credit in the open market, S. P. said. In particular, Belgium may find itself facing a taxpayer bill for Dexia of about 90 billion euros, or around 24.5 percent of the nation’s gross domestic product, at the end of 2011, S. P. said.

On Thursday, agencies lowered the ratings of Portugal and Hungary to junk.

Article source: http://feeds.nytimes.com/click.phdo?i=abde5d37e2a8fa5444613de22edf2510

Filed Under: Economy News Tagged With: bailout, euro bill, largest countries

Shares Drop on Renewed Concerns About Growth and Debt

November 23, 2011 by NewsMaker Leave a Comment

Stocks declined and the dollar rose sharply on Wednesday after a German bond auction disappointed investors and new data pointed to continued uncertainty in the global economy.

Germany, which was seeking to raise as much as 6 billion euros, or $8.1 billion, in an auction of 10-year bonds, met demand for only 3.9 billion euros worth, leaving the state with twice as many leftovers as normal, the Bundesbank reported. The bonds, considered the safest government securities in the euro zone, were priced at an average yield of 1.98 percent, slightly above the prevailing market price.

Charles Diebel, head of market strategy at Lloyds Banking in London, described the auction flop as “a pretty significant buyers’ strike.”

“Seeing as these are supposedly the safe-haven asset of choice, people are concluding that the risk is becoming systemic,” Mr. Diebel said. The low demand, he said, may indicate that investors increasingly expect Germany and the European Central Bank, which together would bear a large portion of a major euro-zone bailout, “to go all in and support the euro.”

Their not doing so would mean that “the risk of a euro breakup increases,” he said.

The German debt management agency blamed “the highly nervous market environment,” and said it would not cause the country any financing problems, as the remainder of the securities would be sold onto the secondary market.

At the close of trading, the Standard Poor’s 500-stock index was down 2.21 percent. The Dow Jones industrial average fell 236.09 points, or 2.05 percent, to 11,257.55, and the Nasdaq was off 2.43 percent.

Light trading volume on Wall Street ahead of the Thanksgiving holiday on Thursday exacerbated the market trend, said Jason D. Pride, the director of investment strategy at Glenmede.

“Beyond that, this situation in Europe is definitely very worrying for a lot of investors,” he said. “The reality is they have yet to put together a plan that makes sense, and that leaves open this gaping hole of potential downside effects.”

The weak demand in the German bond offering suggested more that investors did not want to invest in Europe as a whole, Mr. Pride said, rather than signaling fears of a German default.

Elsewhere in the bond market, the yield on the United States 10-year government bond fell 2 basis points to 1.93 percent, while the comparable German bond was up 16 basis points at 2.08 percent. A basis point is one-hundredth of a percent.

The yield on the Italian 10-year bond rose 15 basis points to 6.94 percent, while the yield on the Spanish 10-year rose 5 basis points to 6.585 percent.

French 10-years were trading to yield 3.669 percent, up 16 basis points, hurt by a report on Dexia, the failed French-Belgian lender, in the Belgian newspaper De Standaard.

In European equities, the Euro Stoxx 50 index, a barometer of euro zone blue chips, fell 1.9 percent, while the FTSE 100 index in London fell 1.3 percent. German shares were down 1.4 percent and in Paris the CAC 40 was 1.7 percent lower.

The dollar gained against other major currencies. The euro fell 1 percent to $1.3356 from $1.3505 late Tuesday in New York.

A weakening of manufacturing activity in China and the euro zone also weighed on sentiment, while data in the United States continued to show a slower recovery.

A European index based on a survey of euro zone purchasing managers showed manufacturing output in the 17-nation bloc falling for a fourth straight month, dropping at the steepest rate since June 2009, Markit, a data services provider said. A separate index tracking services activity fell a third month, Markit said.

In the United States, the Commerce Department said new orders for durable goods in the United States fell 0.7 percent in October, compared with 0.8 percent the previous month. Non-military capital goods orders fell 1.8 percent, the department said, after a 2.4 percent increase the month before.

“Capital goods order activity in October was disappointing and the up and down movement reflects the uncertainty that exists in the economy,” said Daniel J. Meckstroth, chief economist for the Manufacturers Alliance.

In addition, initial filings for jobless benefits rose by the end of last week, to 393,000, the Labor Department said, or slightly higher than the 390,000 forecast. Consumer spending also continued to show weakness.

Asian shares were lower across the board. The Sydney market index S.P./ASX 200 fell 2 percent. In Hong Kong, the Hang Seng index dropped 2.1 percent and in Shanghai the composite index fell 0.7 percent. The Tokyo market was closed for a holiday.

Bettina Wassener contributed reporting from Hong Kong.

Article source: http://www.nytimes.com/2011/11/24/business/global/daily-stock-market-activity.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: bailout, global economy, investment strategy

Europe’s Banks, Squeezed for Credit, Borrow From E.C.B.

November 23, 2011 by NewsMaker Leave a Comment

Indebted governments among the 17 members of the European Union that use the euro are also finding it harder to borrow at affordable rates as investors lose confidence in their creditworthiness.

In a Tuesday auction, the Spanish treasury, for example, was forced to sell three-month bills at a price to yield 5.11 percent, more than double the 2.29 percent interest rate investors demanded at a sale of similar Spanish securities on Oct. 25. Spain also sold six-month debt at 5.23 percent Tuesday, up from 3.30 percent in October.

Italy’s 10-year bond yield, meanwhile, edged up once again — to nearly 6.8 percent Tuesday — as foreign investors withdrew their money from that debt-staggered country.

Together, the commercial banks’ heavy reliance on the central bank to finance their everyday business needs, along with the growing borrowing burden for Spain and Italy, raise the risk of failure for some banks within the countries that use the euro and the danger that nations much larger than Greece could eventually seek a bailout or be forced to leave the euro currency union.

European stocks were down broadly on Tuesday’s gloomy news. In the United States, stocks closed lower, too, but were not down as much as they had been before the International Monetary Fund announced at midday that it would extend a six-month lending lifeline to nations that might seek it in response to the euro zone crisis.

At the same time, though, the central bank continued to resist calls that it stretch its mandate and expand the money supply, as the United States Federal Reserve and the Bank of England have done.

The European debt crisis has crimped the flow of funds to banks by raising doubts about the solvency of institutions with a large exposure to European government debt. In particular, American money market funds have severely cut back their lending to European banks in recent months, leading many institutions to turn to Europe’s central bank.

Compounding the problem, many banks using the euro have also had trouble selling bonds to raise money that they can lend to customers. That raises the specter of a credit squeeze that could amplify an impending economic slowdown. In addition, some banks may fail if they are unable to raise short-term cash.

The central bank said Tuesday that commercial banks had taken out 247 billion euros, ($333 billion), in one-week loans, the largest amount since April 2009. And the 178 banks borrowing from the central bank on Tuesday compared with the 161 banks that borrowed 230 billion euros ($310 billion) last week.

Since 2008, the central bank has been allowing lenders to borrow as much as they want at the benchmark interest rate, which is now 1.25 percent. Banks must provide collateral. But the central bank is not supposed to prop up banks that are insolvent, only those that have a temporary liquidity problem.

And while the central bank has been buying bonds from countries like Spain and Italy to try to hold down their borrowing costs, the amount —195 billion euros ($263 billion) so far — is modest compared with the quantitative easing employed by other central banks like the Fed.

A growing number of commentators say the European Central Bank should be authorized to buy government bonds at levels sufficient to stimulate the economy.

“It is essential to have a central bank free to use all the levers, including variants of quantitative easing,” Adair Turner, chairman of Britain’s bank regulator, the Financial Services Authority, told an audience in Frankfurt late Monday. The audience included Vítor Constâncio, vice president of the central bank.

Richard Koo, chief economist at the Nomura Research Institute, wrote in a note Tuesday that “the E.C.B. should embark on a quantitative easing program similar in scale to those undertaken by Japan, the U.S. and the U.K.”

“Doubling the current supply of liquidity,” Mr. Koo said, “would not trigger inflation and would enable the E.C.B. to buy that much more euro zone government debt.”

But there has been no sign the central bank will budge from its position that it is barred from financing governments, and that purchases of government bonds are justified only as a way of keeping control over interest rates and fulfilling the bank’s main task to keep prices stable.

“By assuming the role of lender of last resort for highly indebted member states, the bank would overextend its mandate and shed doubt on the legitimacy of its independence,” Jens Weidmann, president of the German Bundesbank and a member of the central bank’s governing council, said Tuesday in Berlin.

“To follow this path would be like drinking seawater to quench a thirst,” he said.

Lucas D. Papademos, the new prime minister of Greece and a former vice president of the central bank, met with Mario Draghi, the central bank’s president, when he visited the bank on Monday. The bank did not disclose details of their discussions, but Greece’s fate is to a large extent in the central bank’s hands. Because of its bond purchases, the central bank is the Greek government’s largest creditor, and the bank is one of the institutions that determines whether Greece will continue to receive aid from the 17 European Union members that use the euro.

Article source: http://www.nytimes.com/2011/11/23/business/global/banks-seek-emergency-funds-from-ecb.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: bailout, international monetary fund, united states federal reserve

Greek Anger on Debt Agreement Is Focused Especially on Germany

October 29, 2011 by NewsMaker Leave a Comment

Here in Greece, anger is running so high — especially toward Germany, whose Nazi occupation still leaves deep scars here and which now dominates the European Union’s bailout of debt-ridden Greece — that National Day celebrations were called off on Friday in the northern city of Thessaloniki for the first time ever after a group shouted “traitor” to the Greek president, Karolos Papoulias.

“I was the one fighting the Germans,” Mr. Papoulias, 82, said on national television. “I am sorry for those who cursed at me. They should be ashamed of themselves. We fought for Greece. I was an insurgent from the age of 15. I fought the Nazis and the Germans, and now they call me a traitor?”

Beyond populist talk, which ranges from euro-skepticism to anti-German demagoguery, experts say the concessions that Greece has made in exchange for the foreign aid it needs to stave off default — including allowing European Union officials to monitor Greek state affairs closely — are unprecedented for a member nation, making Greece a bellwether for the future of European integration.

The European superpowers Germany and France are trying to translate the new deal, to accept a loss on part of Greece’s debt, into changing European Union treaties to give the union greater oversight of national budgets and to create tougher, more easily enforceable rules for countries that go astray.

After years of pay cuts and tax increases that have pushed the Greek middle class to the breaking point, Greeks are not inclined to feel grateful to the so-called troika of foreign lenders — the European Union, European Central Bank and International Monetary Fund — that demanded austerity in exchange for loans. Instead, they increasingly feel they have become a de facto European Union protectorate.

“If we weren’t under the E.U., which is the only reason this loss of sovereignty may be justified, I’d have to say that Greece is an occupied country,” said Nikos Alivizatos, a constitutional lawyer in Athens.

Such feelings run so deep that after reaching a deal in Brussels this week for banks to accept a 50 percent loss on the face value of their Greek bonds, Prime Minister George Papandreou took great pains to explain that a new agreement — a troika presence until 2020 — would only offer technical assistance and that it was not tantamount to Greece’s relinquishing control of its fate.

“Nothing in this deal sacrifices our right to take our own decision. On the contrary, it will pave the way for us to freedom from dependency,” Mr. Papandreou said in a televised address.

But few Greeks agree. “Our politicians are just employees, simple employees,” said Margarita Tripolia, 17, a high school student who marched in the National Day parade. She, like other students, turned her face away from representatives of the government, church and military outside Parliament in a silent protest against the austerity measures and the direction the country was going.

But the sovereignty question goes far beyond street protest.

One highly delicate, unresolved question, in negotiations between the European Union and banks over the Greek debt deal, is whether future Greek bonds will be governed by international law, not Greek law, which currently governs 90 percent of Greek bonds. Such a change — aimed at preventing Greece from changing its laws to the detriment of creditors — would be unprecedented for a European Union member country.

Some argue that greater oversight is needed for Greece to push through the structural changes it promised in exchange for foreign aid. They say some loss of Greek sovereignty is a small price to pay considering that the new debt deal and eventual recapitalization of some banks comes at the expense of taxpayers from other European countries.

Dimitris Bounias contributed reporting.

Article source: http://www.nytimes.com/2011/10/29/world/europe/greeks-direct-anger-at-germany-and-european-union.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: bailout, national day celebrations, national television

Greeks Direct Anger at Germany and European Union

October 28, 2011 by NewsMaker Leave a Comment

Here in Greece, anger is running so high — especially toward Germany, whose Nazi occupation still leaves deep scars here and who now dominates the European Union’s bailout of debt-ridden Greece — that National Day celebrations were called off on Friday in the northern city of Thessaloniki for the first time ever after crowds shouted “traitor” to the Greek president, Karolos Papoulias.

Beyond populist talk, which ranges from euro-skepticism to anti-German demagoguery, experts say the concessions that Greece has made in exchange for the foreign aid it needs to stave off default — including allowing European Union officials to monitor Greek state affairs closely — are unprecedented for an member nation, making Greece a bellwether for the future of European integration.

After years of pay cuts and tax hikes that have pushed the Greek middle class to the breaking point, Greeks are not inclined to feel grateful to the so-called troika of foreign lenders — the European Union, European Central Bank and International Monetary Fund — that demanded austerity in exchange for loans. Instead, they increasingly feel they have become a de facto European Union protectorate.

Such feelings run so deep that after reaching a deal in Brussels this week for banks to accept a 50 percent loss on the face value of their Greek bonds, Prime Minister George Papandreou took great pains to explain that a new agreement — a troika presence until 2020 — would only offer technical assistance and was not tantamount to Greece relinquishing control of its fate.