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News Analysis: In Rally Over Euro Deal, Relief Mixed With Wariness

October 27, 2011 by Leave a Comment

The positive sentiment was reinforced by a report that the United States economy had grown at an annual rate of 2.5 percent in the third quarter, the best performance in a year, adding to confidence that the United States will not experience a double-dip recession and prompting investors to put some of their long-dormant cash to work.

But even amid the surge in stock markets worldwide, there were reservations in some quarters. The response in the European debt markets, the epicenter of the crisis, was muted, with little relief reflected in the interest rates that Spain, France and Italy must pay on their bonds. There has been concern, in particular, that Italy’s huge accumulated debt might be the next focus of a bailout effort.

The plan agreed to by European leaders in Brussels early Thursday, the subject of weeks of contentious bargaining, has three main planks: an effort to recapitalize weak euro-zone banks, an increase in the size and scope of Europe’s main rescue fund, and a proposal that banks take a 50 percent write-down on their Greek bonds.

It was the latest in a series of gatherings over the last year seeking to keep the sovereign debt problems of Greece and other vulnerable European nations from radiating through the financial system on the continent and beyond. Each meeting seemed to head off an immediate crisis, only to prove insufficient within months or weeks and prompt a new search for solutions.

And as always with the grandly presented European rescue plans, the devil with the latest one is in the details. Despite Thursday’s exuberance, many investors expressed caution as to how the plan would hold up in the coming days and weeks.

For one thing, while the agreement by banks to write down 50 percent of Greek debt was welcomed, the deal’s success is conditioned on investors’ agreeing to take such a large loss. If a large number of investors refuse to accept such a loss, then the plan loses its voluntary status and would thus become a default — creating more unease and panic in the markets.

Moreover, private investors are not obliged to take the write-down, and two big holders of Greek debt, the International Monetary Fund and the European Central Bank, are not granting debt relief. So it is not clear how much of Greece’s overall sovereign debt of 340 billion euros ($480 billion) is going to be forgiven.

And it remains to be seen whether the debt relief for Greece will prompt other countries — Spain, Italy, Portugal or Ireland — to seek similar treatment.

Investors have also questioned whether the answer to the euro zone’s debt crisis is taking on even more debt.

The main bailout fund, the European Financial Stability Facility, relies on the sterling credit of Germany and France for its borrowing power. Euro zone leaders have promised to use the fund to both provide insurance for investors looking to buy risky Italian and Spanish bonds and to increase its borrowing capacity to as high as 1 trillion euros.

But it has been criticized as being too small and cumbersome and too reliant on France, which may well see its AAA rating taken down a notch because of its own debt and deficit problems. Such a move would hurt the vehicle’s ability to issue bonds and attract capital from investors.

It also remains unclear if Europe, as it has promised to do, would be able to entice Asian and Middle East investors to put money into   vehicles that would be linked to the bailout fund.  

Europe’s 106 billion euro answer for its bank problem may also raise more questions than it answers. In contrast to bank rescue plans in the United States and  Britain, European governments are not injecting funds directly into the banks. Instead they are asking that banks significantly raise their capital level, to 9 percent by next year. 

But for banks that have been weakened from their exposure to dubious European debt, raising money from private investors will be difficult — especially as many of the likely sovereign fund candidates are the ones that suffered deep losses from investing in troubled American banks in 2007 and 2008.

All in all, despite the relief that an immediate crisis over Greece’s debt had been averted, it seemed clear that the continent’s tightly woven economic and financial systems remained fraught with risk.

The yield on Italy’s 10-year bond, which recently hit a high of 6 percent on concern over the country’s debt and commitment to fiscal reform, remained uncomfortably high at 5.8 percent. And the interest rates for Spanish and French bonds narrowed only slightly as well, reflecting a broader skepticism that this plan will provide a magic cure for Europe’s debt problems.

This article has been revised to reflect the following correction:

Correction: October 27, 2011

Because of an editing error, an earlier version of this article referred imprecisely to United States economic growth in the third quarter. The 2.5 percent figure represents an annual rate.

Article source: http://feeds.nytimes.com/click.phdo?i=e23087b7dbc38a8044d130ad21300ac9

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Global Markets Jump on Europe’s Greek Debt Deal

October 27, 2011 by Leave a Comment

 While the deal helped to restore confidence to the financial markets, analysts noted that questions remained about how it would be implemented. They also worried that fully fixing the problems of excessive debt and weak growth could take years.

Still, after days of anticipation, the markets put whatever uncertainties remained behind them, at least for now. Financial stocks in particular were up more than 6 percent.

The Dow Jones industrial average soared 339.51 points to close up 2.86 percent at 12,208.55, while the broader Standard Poor’s 500 index was up even more, 3.43 percent, at 1,284.56 and the Nasdaq composite index rose 3.32 percent to 2,738.63.

 The S.P. moved into positive territory for the year on Thursday, up about 2.1  percent. The Dow was up more than 5 percent and the Nasdaq more than 3 percent for the year.

Stocks closed up as much as 6 percent in Europe, after a strong showing in Asia.

It was a marked turn-around from just a few weeks ago, when anxiety over the European debt crisis helped push Wall Street to the brink of a bear market. On Oct. 3, the S.P. 500 was down 19.4 percent from its high on April 29.

The latest news from Europe came early Thursday, when officials from the European Union and the International Monetary Fund reached a deal with bankers to write down the face value of their Greek debt by 50 percent, hoping to reduce the ratio of the country’s debt to gross domestic product to 120 percent by 2020. Economists believe that is essential if Greece is not to default on its loans.

Officials also agreed that European banks would need to raise more capital and said they would increase the euro zone bailout fund to $1.4 trillion, a move that they hope will provide the capacity necessary to keep Italy and Spain from following Greece’s painful path.

“The most important outcome is it seems to remove from the table fears of an imminent bank crisis,” said David Joy, chief market strategist for Ameriprise Financial. “What this does is it buys Europe time to do the hard work of initiating structural reforms.”

But like others, he injected a note of caution: “It addresses the symptoms, but not the disease. They need to follow through, there is no question.”

Economists noted that the deal Thursday was but the latest in a series of such agreements addressing the debt crisis, which are usually followed by gains, then losses in the financial markets.

After the last deal was struck in July, for example, stocks and bonds in Europe and the United States gave it a positive reception. But the sentiment soon turned and markets failed to sustain their gains. The S.P. in the United States fell below 1,300 after about a week. and eventually sank to its lowest level for the year.

“Overall, then, while the plans represent a step forward, we suspect that they will soon be viewed in the same way as every other policy response during this crisis — as too little, too late,” Jonathan Loynes, an economist with Capital Economics, wrote in a research note.

He said he still expected a “prolonged recession in the euro zone,” further market turbulence, and continued to have doubts about the future of the euro itself “in its current form.”

The Euro Stoxx 50 index, a barometer of euro zone blue chips, closed up 6.1 percent, while the FTSE 100 index in London gained 2.9 percent. In Paris, the main index was up 6.3 percent, while Frankfurt’s was 5.35 percent higher.

Financial shares led European indexes.

The United States 10-year Treasury bond yield rose to 2.37 percent, from 2.21 percent on Wednesday.

The dollar fell against most major currencies. The euro rose to $1.42 from $1.39 late Wednesday in New York, while the British pound rose to $1.61 from $1.5975. The dollar also fell to 75.8 yen from 76.17 yen, and to 0.86 Swiss franc from 0.88 franc.

Anthony Valeri, a fixed income investment strategist for LPL Financial, said that the European deal, to an extent, removed one of the lingering risks to the market and more specifically, to the banking system.

“But the devil is in the details,” he added. “There are some implementation risks going forward.”

He said there were questions about participation in increasing the bailout fund.

“We don’t know the participation from private investors or the emerging market countries, as the case may be,” he said.

Another negative was that banks must meet a new core capital ratio of 9 percent by the middle of 2012, he added. That could mean they could either raise capital or shed assets, which would be a negative for the market because of the pressure on prices.

In Asia, shares were stronger almost across the board. The Tokyo benchmark Nikkei 225 stock average rose 2 percent, the Sydney market index S.P./ASX 200 rose 2.5 percent, and Hong Kong’s Hang Seng index rose 3.3 percent.

“Bank recapitalization, haircuts and more firepower for the rescue funds are supposed to form a euro-style bazooka,” Carsten Brzeski, an economist with ING in Brussels, said in a research note. “Even if there are still loose ends and unsolved questions, yesterday’s summit was an important step in the right direction.”

Shortly after the deal was announced, United States crude oil futures for December delivery rose 2.8 percent to $92.71 a barrel. Comex gold futures slipped were mostly unchanged, at $1,723.40 an ounce.

Bond market movements showed investors moving out of the securities considered the most secure and into riskier assets.

The Federal Reserve on Thursday is starting a bond buy-back measure that will bump up prices on long-term notes, Mr. Valeri said.

Bond prices for embattled euro zone governments rose sharply, while the yields fell. The yield on Greek 10-year bonds was 22.16 percent, down 1.17 percentage points. Spanish and Italian bond yields also fell.

David Jolly reported from Paris.

Article source: http://feeds.nytimes.com/click.phdo?i=09c7dbb3afeec1789b72a157854fbade

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DealBook: For British Ex-Bankers, Life Beyond the Bailouts

October 23, 2011 by Leave a Comment

LONDON — It has been three years since the British government bailed out Royal Bank of Scotland and the Lloyds Banking Group and nationalized the regional lender Northern Rock.

The three banks continue to be fully or partially owned by British taxpayers mainly because the government is reluctant to sell the holdings at a loss. Unlike the banks they ran three years ago, many former banking executives managed to move on in their careers. DealBook tracked down five of them to see where they are now.

Frederick A. GoodwinDavid Moir/ReutersFrederick A. Goodwin

Frederick A. Goodwin: The former chief executive of Royal Bank of Scotland is being widely blamed for the bank’s demise. Mr. Goodwin, 53, went on a costly buying spree at the height of the market that included the acquisition of ABN Amro and oversaw an expansion of the bank’s subprime loan exposure in the United States.

In 2008, the British government had to pump £45 billion, or $71 billion, into the bank to keep R.B.S. afloat. A condition of the bailout was that Mr. Goodwin would leave. The British financial regulator, the Financial Services Authority, cleared the ex-banker of any major wrongdoings last year.

Mr. Goodwin stayed at his house in the south of France for a while before returning to Scotland to join the architectural firm RMJM as an adviser on its expansion strategy at the beginning of 2010. He left the position after less than a year.

Most recently, Mr. Goodwin was in the headlines earlier this year when he sought legal action to keep British tabloids from reporting about an affair he had with a colleague at the time when the bank collapsed.

Mr. Goodwin gets a £340,000 annual pension from R.B.S., which continues to be about 80 percent owned by the government.

Thomas F.W. McKillopPeter Macdiarmid/Getty ImagesThomas F.W. McKillop

Thomas F.W. McKillop: The former chief executive of the pharmaceutical giant Astra Zeneca served as chairman of R.B.S. when the bank ran into trouble. When he resigned from R.B.S. in February 2009 after apologizing to shareholders, he was then pressured to also relinquish his board seat at the British oil company BP.

During a parliamentary committee hearing investigating the banking bailout, Mr. McKillop raised some eyebrows with his answer to a lawmaker’s question whether he was sure he understood the full complexities of the loans the bank had created. “You said ‘full complexities,’” he answered. “I would say no.”

Mr. McKillop, who has a Ph.D. in chemistry, seems to have turned his back on banking. The register of the F.S.A. lists him as “inactive.” The 68-year-old continues to be an independent director at the Barcelona-based pharmaceutical company Almirall and UCB, a Belgian bio-pharma company.

Johnny CameronRoyal Bank of Scotland, via Bloomberg NewsJohnny Cameron

Johnny Cameron: In the year when R.B.S. had to be bailed out, its investment banking operation, which was run by Mr. Cameron, had a loss of £3.6 billion because of bad credit bets. He left R.B.S. at the beginning of 2009 and wanted to continue working in the financial industry, but his plans were thwarted by Britain’s financial regulator, which had concerns about his role at R.B.S.

In April 2009, pressure from the Financial Services Authority forced Mr. Cameron to abandon talks to join the boutique investment banking firm Greenhill. A stint at the headhunting firm Odgers Berndtson was not successful either. He left after just a few days when the government-backed group that manages the taxpayer stake in R.B.S. withdrew a contract.

Mr. Cameron settled with the financial regulator in May 2010 and agreed to never again be a senior manager at a financial firm. The agreement freed the 57-year-old to take on part-time consultancy work for any financial firm.

Months later he set up Caps Advisory, a consulting firm, and joined Gleacher Shacklock, an advisory boutique in London, in October last year. He spends about two days a week at Gleacher, offering “his expertise in financing strategies” to the firm’s debt advisory clients, the company said on its Web site.

Andy HornbyRupert Hartley/Bloomberg NewsAndy Hornby

Andy Hornby: About two years into Mr. Hornby’s stint as chief executive of HBOS, Britain’s biggest mortgage lender teetered on the brink of collapse. A failure was avoided when the government brokered a takeover of HBOS by Lloyds TSB at the end of 2008. But the combined group crumbled under HBOS’s toxic loans and needed a government bailout.

The turmoil seemed to have harmed Mr. Hornby’s stamina more than his career prospects. In July 2009, Alliance Boots, a large British health and beauty product retailer, hired him as chief executive. But Mr. Hornby resigned earlier this year, saying that after “an intense last five years as C.E.O. of two major companies, I have decided to take a few months’ break.” Four months later, Mr. Hornby, 44, reappeared as chief executive of Coral, a betting company.

Adam J. ApplegarthRichard Rayner/Bloomberg NewsAdam J. Applegarth

Adam J. Applegarth: The former chief executive of Northern Rock was the first top banker in Britain to lose his job during the financial crisis. Northern Rock, the British mortgage lender, ran out of money when global credit markets froze. The news spooked customers, who quickly formed long lines at bank branches to withdraw their money. The bank had to be nationalized and Mr. Applegarth was blamed for a flawed business model that relied too much on short-term financing.

Since resigning from Northern Rock at the end of 2007 and getting a £840,000 payoff, Mr. Applegarth was spotted playing cricket for his home team in Britain’s northeast. In 2009, he landed a job as an adviser to the private equity firm Apollo Global Management with its European distressed fund.

Last year, Mr. Applegarth, 49, registered a real estate company in Britain called Beechwood Property Management with his son, Gregory.

Article source: http://dealbook.nytimes.com/2011/10/21/for-british-ex-bankers-life-beyond-the-bailouts/?partner=rss&emc=rss

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Dexia’s Collapse in Europe Points to Global Risks

October 22, 2011 by Leave a Comment

While American financial institutions have sought to limit any damage by reducing their loans and thus lowering their direct exposure to Europe’s problems, the recent rescue of the Belgian-French bank Dexia shows that there are indirect exposures that are less known and understood — and potentially worrisome.

Dexia’s problems are not entirely caused by Europe’s debt crisis, but some issues in its case are a matter of broader debate. Among them are how much of a bailout banks should get, and the size of the losses they should take on loans that governments cannot repay.

Among Dexia’s biggest trading partners are several large United States institutions, including Morgan Stanley and Goldman Sachs, according to two people with direct knowledge of the matter. To limit damage from Dexia’s collapse, the bailout fashioned by the French and Belgian governments may make these banks and other creditors whole — that is, paid in full for potentially tens of billions of euros they are owed. This would enable Dexia’s creditors and trading partners to avoid losses they might otherwise suffer without the taxpayer rescue.

Whether this sets a precedent if Europe needs to bail out other banks will be closely watched. The debate centers on how much of a burden taxpayers should bear to support banks that made ill-advised loans or trades.

Many on Wall Street and in government argue that rescues are essential, to avoid the risk of destabilizing the financial system — with one bank’s failure to pay its obligations leading to problems at other banks. But others counter that the rescue of Dexia is reminiscent of the United States’ decision to fully protect big banks that were the trading partners of the American International Group when it collapsed, a decision that was sharply questioned and examined by Congress.

Critics warn of a replay of the financial crisis in autumn 2008, when governments used taxpayer money to shore up troubled companies, then allowed them to transfer those funds to their trading partners to protect those institutions from losses. In using public money to rescue private institutions, these critics say, policy makers effectively rewarded banks that traded with companies that were in trouble, rather than penalizing them, and that encouraged risky behavior.

“The question is did the A.I.G. experience and the bailouts generally contribute to the current situation?” asked Jonathan Koppell, director of the School of Public Affairs at Arizona State University. Would the banks, he continued, “have had a different view in dealing with Greece — or with Dexia for that matter — if those who had dealt with A.I.G. hadn’t been made whole?”

Given the global and interconnected nature of the financial system, institutions around the world have other types of indirect risk to European debt problems. But the scope of these ties is not fully known, because the exposure is hidden by complex transactions that do not have to be reported in detail.

Dexia, which was bailed out by France and Belgium once before, in 2008, is just a small piece of the broader European debt and banking turmoil. But its collapse comes at a critical point, as European officials are meeting this weekend to work out how taxpayer money should be used to resolve the Continent’s debt crisis.

The most acrimonious debate has been over the amount of losses banks should suffer for lending hundreds of billions of euros to countries that may not be able to fully repay. In the case of Greece, big lenders in Europe have tentatively agreed to swallow modest losses on what they are owed, but are resisting proposals that would force them to take a much bigger hit. Even if they accept losses, they may then seek tens or hundreds of billions in capital infusions from their governments.

As the Dexia bailout deal closed last week and was approved by the French Parliament, officials overseeing the restructuring say that the bank will meet all of its obligations in full. Alexandre Joly, the head of strategy, portfolios and market activities at Dexia, said in an interview that the idea of forcing Dexia’s trading partners to accept a discount on what they are owed “is a monstrous idea.” He added, “It is not compatible with rules governing the euro zone, and it has never, ever been considered to our knowledge by any government in charge of the supervision of the banks.”

Article source: http://www.nytimes.com/2011/10/23/business/dexias-collapse-in-europe-points-to-global-risks.html?partner=rss&emc=rss

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Leaders in Europe Take Time From a Farewell to Negotiate a Bailout Deal

October 19, 2011 by Leave a Comment

An event to mark the end of Jean-Claude Trichet’s tenure as president of the European Central Bank drew most of the main players in the debt drama to a Frankfurt opera house, and inevitably raised hopes that a deal to shore up European banks and offer Greece a way out of its debt trap was near.

Angela Merkel, the chancellor of Germany, tried to play down expectations, saying that it would not be possible “to erase the mistakes of the past in just one stroke.” A European summit meeting Sunday, she said during a speech praising Mr. Trichet, will be just “one point” in “a long journey.”

But the cast of characters at the event created the opposite impression. They included Christine Lagarde, president of the International Monetary Fund and Nicolas Sarkozy, the president of France, who bustled in after the speeches in praise of Mr. Trichet were over, trailed by a large entourage and looking grave.

Mr. Sarkozy and Mrs. Merkel later left the event, in an ornate concert hall known as the Alte Oper, without making statements. A spokeswoman for Mrs. Merkel, Elke Ramlow,  said they discussed preparations for the meeting on Sunday, but had no other details.

Pressure on the leaders came not only from markets and from ratings agencies — one of which downgraded Spain — but also from Mr. Trichet. “The present calls for immediate action,” he said.

Helmut Schmidt, the 92-year-old former chancellor of Germany and a living symbol of the postwar reconstruction of Europe, delivered a blunt lecture on leadership to the officials assembled in the front row, who also included Herman Van Rompuy, president of the European Council, and José Manuel Barroso, president of the European Commission.

After being pushed onto the stage in a wheelchair and adjusting his hearing aid, Mr. Schmidt railed in a booming voice against German critics of the euro and leaders who put their parochial interests ahead of the European project. “Anyone who considers his own nation more important than common Europe damages the fundamental interests of his own country,” Mr. Schmidt said, in what could be read as a rebuke to Mrs. Merkel.

Reminding listeners that Germany received a de facto debt restructuring after World War II as well as huge economic aid, Mr. Schmidt said that “of course the strong should help the weak,” a clear reference to Greece, which was the scene of violent demonstrations again Wednesday.

Mrs. Merkel later responded that, while Germany would do everything necessary to preserve the euro, “we live in democracies and have to operate according to fundamental rules.”

Earlier, Mr. Barroso said the European Union was at a “turning point” and required decisive action from its leaders on the euro zone debt crisis. But he also tried to calm expectations ahead of a meeting of European leaders in Brussels on Sunday, warning that any agreement to end the crisis would take time to implement.

“Even if we do arrive at a political decision on everything that is on the table, which I hope we will, that doesn’t necessarily mean that there will not then have to be an implementing phase,” Mr. Barroso said. “You cannot hope that this will be the end of all our troubles, but I very much hope that important, long-term, positions, which are important for the future of the European Union and the euro, will come about.”

Numerous open questions remained, including how to increase the financial clout of the European bailout fund and find money to recapitalize weaker banks. “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 at a lunch meeting, according to Charles de Courson, one of the legislators present, Reuters reported.

Expectations are also building that Greek bondholders may have to accept a deeper cut in the value of the debt, or “haircut,” than agreed to earlier.

Adding to the urgency, Moody’s Investors Service downgraded Spain’s long-term sovereign rating by two notches and placed it on watch for further downgrades.

Article source: http://www.nytimes.com/2011/10/20/business/global/spanish-debt-downgrade-points-to-uncertainty-over-euro-crisis.html?partner=rss&emc=rss

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Easing Debt Crisis Will Take Time, E.U. Official Warns

October 19, 2011 by Leave a Comment

“We are at a turning point, a decisive point that requires clear and determined responses, comprehensive responses,” José Manuel Barroso told reporters in Brussels. “We are at a very, very sensitive point in European construction.”

His position echoes what the German government has said in recent days in preparation for a meeting of European leaders in Brussels on Sunday.

“Even if we do arrive at a political decision on everything that is on the table, which I hope we will, that doesn’t necessarily mean that there will not then have to be an implementing phase,” Mr. Barroso said. “You cannot hope that this will be the end of all our troubles, but I very much hope that important, long term, positions, which are important for the future of the European Union and the euro, will come about.”

The comments came a day after Moody’s Investors Service raised the pressure on euro-zone leaders by downgrading Spain’s long-term sovereign rating by two notches and placed it on watch for further downgrades.

Moody’s cut Spain’s rating to A1 from Aa2, a lower investment-grade rating, citing concerns over debt levels in the Spanish banking and corporate sectors, as well as broader concerns about weakening growth among countries that share the euro.

The agency also warned that a further cut for Spain was possible if the euro debt crisis intensified. Italy and other ailing euro economies have also recently received credit rating downgrades, reflecting concerns both about their own prospects and the squabbling among European leaders over what would be a viable solution to the euro debt crisis.

Mr. Barroso’s comments also reflect the fact that negotiations over plans to increase the firepower of the euro bailout fund, and to increase the contribution of banks to the Greek bailout, remain very difficult, said one European official speaking on condition of anonymity. Another sensitive issue is how to raise the funds to recapitalize European banks.

Discussions on both issues are expected to continue in Frankfurt later Wednesday at a gathering to mark the departure of the president of the European Central Bank, Jean-Claude Trichet, which is likely to be attended by many key players.

With talks intensifying, rumors continued to swirl. Germany’s finance minister, Wolfgang Schäuble, told lawmakers in Berlin that the firepower of the euro zone bailout fund, the European Financial Stability Facility, might be increased to a maximum of €1 trillion, or $1.38 trillion through an insurance model, Financial Times Deutschland reported.

Asked about plans to strengthen the facility, Olli Rehn, the European commissioner for economic and monetary affairs, said in Brussels that there was no agreement yet and that this was “very much a work in progress.”

Mr. Barroso declined to comment on the decision by Moody’s to downgrade Spain but said that the country might gain new protection if the bailout fund were expanded. Under an agreement struck in July, the fund will gain the power to extend aid to nations that do not require a full bailout; currently Greece, Ireland and Portugal have received international rescue packages.

Increasing the power of the European stability fund “is precisely so that, if necessary, we can respond to situations in countries that are not currently covered by programs,” Mr. Barroso said.

Moody’s decision to downgrade Spain followed similar ones by Standard Poor’s and Fitch Ratings. Last Thursday, S.P. lowered Spain’s long-term debt rating by one notch, to AA minus from AA, because of the country’s poor growth prospects and troubled banks.

“Spain’s large sovereign borrowing needs as well as the high external indebtedness of the Spanish banking and corporate sectors render it vulnerable to further funding stress,” Moody’s wrote in a note.

The government in Madrid has pledged to lower its public deficit to 6 percent of gross domestic product this year from 9.3 percent of G.D.P. in 2010. It has stuck to a growth forecast of 1.3 percent this year — a figure that also underpinned its 2011 budget deficit plan — even though most economists now expect Spain to post growth of about 0.7 percent this year.

Elena Salgado, the finance minister, also recently dismissed a forecast by Goldman Sachs that Spain would fall back into recession at the start of 2012.

Moody’s, meanwhile, said that it expected growth next year of “1 percent at best,” compared with earlier expectations of 1.8 percent.

“Lower economic growth in turn will make the achievement of the ambitious fiscal targets even more challenging for Spain,” Moody’s wrote. The agency added that it also had “serious concerns regarding the funding situation of the regional governments and their ability to reduce their budget deficits according to targets.”

The downgrades by major rating agencies also come ahead of a Spanish general election on Nov. 20 that is expected to return the center-right Popular Party to power with a parliamentary majority, according to opinion polls.

Moody’s said that it expected Spain’s next government to be “strongly committed to continued fiscal consolidation,” warning that “Spain’s rating would face further downward pressure if this expectation did not materialize.”

Raphael Minder reported from Madrid.

Article source: http://feeds.nytimes.com/click.phdo?i=411bfc1ef1478c3006e112e875d69923

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Dow Nears Positive Territory for Year

October 12, 2011 by Leave a Comment

Some traders say that the market is gaining momentum from its recent gains, and have begun pointing to signs that the market’s extreme volatility may be giving way to a calmer period. But with all eyes on Europe, even optimists acknowledge the fragility of the recent confidence.

The Dow Jones industrial average closed up 102.55 points, or 0.9 percent, to 11,518.85. It spent much of the day in positive territory for the year, before giving up some of its gains in the last hour of trading.

The index had been positive for most of the year before plunging in early August. Since then, stock prices have experienced a series of wrenching ups and downs, closing in positive territory for the year only once.

The index closed 0.5 percent below its level at the beginning of 2011.

The Standard and Poor’s 500-stock index, seen as a more complete barometer of the overall market, was up 11.71 points, or 1 percent, to 1,207.25. It remains down more than 3 percent for the year. The technology-heavy Nasdaq composite index rose 0.8 percent.

Banks continued to make particularly strong gains. Citigroup gained 4.96 percent, while Wells Fargo’s shares were up 3.45 percent.

The European Commission president, José Manuel Barroso, proposed that the Europe’s biggest banks be required to temporarily bolster their protection against losses, as part of a broader plan to restore confidence in the European financial system. He also called on the 17 countries that use the euro to maximize the capacity of their bailout fund, a clear hint that he favors leveraging the fund to increase its power.

Slovakia is expected to approve changes to the rescue fund, known as the European Financial Stability Facility, on Thursday or Friday.

Lawmakers there had initially rejected the bill shortly after United States markets closed on Tuesday. The vote led to the collapse of the country’s coalition government, but the parties in the outgoing government reached an accord with the main opposition party to allow the bill to pass in exchange for early elections.

The other 16 European Union countries that use the euro have already approved the measure, which requires unanimous support.

Analysts said that recent turmoil in the markets had effectively forced European leaders to show real progress in confronting problems related to sovereign debt.

“The market has screamed loud enough to make the European authorities stand up and listen,” said Andrew Wilkinson, chief economic strategist for Miller Tabak Company.

Some traders also pointed to the falling level of the VIX index which measures volatility, as a sign that markets could be stabilizing. The VIX, popularly known as the fear index, was at 31.26, its lowest level since mid-September. In addition to positive signs in Europe, the markets are adjusting to a slightly brighter picture of the domestic economy, said Michael Church, president of Addison Capital. A recent spate of economic data has eased fears among economists that a recession was imminent.

“At some point you had to question that thesis, especially when it had become exceptionally popular,” said Mr. Church.

The minutes from the most recent Federal Open Committee Meeting were also released Wednesday. It showed that several members were in favor of taking more aggressive action to ease the monetary system, essentially putting fears of a further economic slowdown ahead of concern about inflation.

European markets closed higher Wednesday. The benchmark Euro Stoxx 50 index was up 2.43 percent, while the FTSE 100 in London rose 0.85 percent. In Frankfurt, the DAX gained 2.21 percent.

The euro, which has been gaining against the dollar for over a week, rose 1.08 percent to $1.3787.

Yields on United States Treasuries also continue to rise. The yield on a 30-year note was 2.213 percent, up 2.89 percent.

Article source: http://www.nytimes.com/2011/10/13/business/daily-stock-market-activity.html?partner=rss&emc=rss

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Slovakia’s Prime Minister Vows to Resign if Euro Vote Fails

October 11, 2011 by Leave a Comment

As the deadline approached, Prime Minister Iveta Radicova told lawmakers in Bratislava in a closed negotiating session for the governing parties that she would either tie the decision on the bailout fund to a confidence vote or bring the matter to a simple vote and resign if it did not pass, a government official said.

The vote on expanding the size of the fund, known as the European Financial Stability Facility, and its powers is scheduled for Tuesday. The free-market Freedom and Solidarity Party, one of the four parties in the coalition, has refused to back it, prompting a political crisis that could bring down the government.

The coalition parties will meet one final time on Tuesday morning, before the afternoon session of Parliament, to try to reach a compromise. “The decision will be made tomorrow morning,” said the government official, speaking on the condition of anonymity about private negotiations. A confidence vote would explicitly tie the fate of the government to the fate of the bailout, putting additional pressure on holdouts to concede.

Politicians in capitals across Europe are closely watching the developments in Bratislava. An agreement to expand the fund was reached in July by the leaders of the 17 countries that use the euro. All of the countries need to approve the accord for the changes to take effect. Malta approved the plan on Monday, leaving Slovakia as the last of the 17 nations to take up the accord for formal consideration.

The resistance in Slovakia is the most significant hurdle standing in the way of the deal. The possibility that Slovakia, a small former Communist country with a population of 5.5 million, could scuttle an agreement endorsed and passed by European powers like Germany, France and Italy had seemed inconceivable.

If Slovakia’s Parliament does not approve the agreement, the future of the euro currency could be in jeopardy, along with a united Europe and quite possibly the stability of the global economy.

The leader of Freedom and Solidarity, Richard Sulik, who is also speaker of the Parliament, has steadfastly refused to support the financial stability fund. He contends that it is unfair to ask Slovakia, the second-poorest country in the euro zone, to guarantee loans for richer countries like Greece and Portugal. If the measure is approved, Slovakia will contribute roughly $10 billion in debt guarantees to a $590 billion euro zone stability fund.

“We cannot allow the Slovakian taxpayers to be massively damaged,” Mr. Sulik said in an interview last week. He vowed not to change his mind.

The opposition Smer-Social Democracy party could bridge the gap, but its leader, the former prime minister Robert Fico, will support the proposal only in exchange for new elections, which could return him to power.

Few Slovaks want to foot the bill for other countries’ overspending. But surveys show that the European Union is popular in Slovakia, and people are very proud of having adopted the currency while neighbors like Poland and their former countrymen, the Czechs, have not.

Article source: http://feeds.nytimes.com/click.phdo?i=365b065990b8dec4e0fac812c79b09a6

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Greek Workers Strike to Protest Austerity Program

October 5, 2011 by Leave a Comment

Two separate rallies — one organized by the country’s two main labor unions and the other by the Communist Party — drew roughly 13,000 protesters, police officials estimated. The organizers said at least twice as many people gathered for the two demonstrations.

Men and women shouted “traitors” and “employees of Merkel,” a reference to Chancellor Angela Merkel of Germany, at riot police in central Athens, while a crowd of younger protesters chanted “cops, pigs, murderers” — the Greek anarchists’ slogan.

By early afternoon, sporadic clashes had broken out between riot police and dozens of masked youths, some wearing gas masks, who hurled chunks of stone at police officers guarding Parliament, at Athens University and outside luxury hotels on the fringes of the capital’s central Constitution Square.

Most international travel was halted, with all scheduled flights into and out of the country canceled, the national rail service was suspended and ferries remained in their ports. Public transportation in the capital and other major cities was to run on a limited service to enable workers to attend protest rallies. Tax offices, courts and schools shut down for the day and hospitals were operating with only emergency staff.

The strike was called by the country’s two main labor unions, which represent about 2.5 million workers and have led resistance to the latest measures. These include additional taxes, further cuts to civil servants’ pay and pensions and a controversial plan to cut 30,000 jobs in the public sector which employs about 10 percent of Greek workers.

Protesters sardonically invoked Mrs. Merkel’s name in reference to the central role played by Germany in resolving Greece’s fiscal crisis. Lawmakers in Germany, Europe’s largest economy, voted last week to expand the bailout fund for heavily indebted European countries, a necessary step in approving a second bailout for Greece, a 110-billion-euro package agreed to in principle by European Union leaders in July.

The Greek finance minister, Evangelos Venizelos, who is trying to convince foreign auditors that Greece is getting its financial house in order, said on Tuesday that the government could only meet a budget deficit target for 2011, revised up to 8.5 percent of gross domestic product from 7.6 percent, if the Greek public unites behind the cutbacks.

“If state mechanisms don’t work and if we don’t have the cooperation of the public, we may have problems with the 8.5 percent target,” Mr. Venizelos said. In a nod to widespread tax evasion, he also appealed to Greeks to pay their taxes.

But national solidarity has been in short supply. Protests against the new measures have been vehement and the two main labor unions already have called a second strike for Oct. 19, ahead of planned votes on the new measures in Parliament. The votes are expected to be close as the governing Socialist Party has a majority of only four in the country’s 300-seat Parliament and some lawmakers are said to be wavering.

The strongest opposition is from the civil servants whom the government depends on to push through many of the changes such as the collection of additional taxes. Angry public sector workers have staged sit-ins this week at several government offices, including the Finance Ministry and Labor Ministry, thwarting the efforts of foreign inspectors to complete their audit.

The results of the audit by officials of the European Commission, the European Central Bank and the International Monetary Fund, known as the troika, will determine whether Greece receives the latest in a series of rescue loans. Without the release of an 8 billion euro installment — part of the 110 billion euro rescue package — Greece will run out of money to pay state salaries and pensions by mid-November, Mr. Venizelos said on Tuesday. Government officials had said last month that state coffers would run dry by mid-October.

A decision on the disbursement of the funding, originally scheduled to be made on Oct. 13 by euro zone ministers, has been put off until November, Jean-Claude Juncker, the prime minister of Luxembourg and head of the euro zone finance ministers, said late on Monday, noting that the troika needed more time to complete its report.

Article source: http://feeds.nytimes.com/click.phdo?i=d18ab2c19222f8f72242db594211f135

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News Analysis: Greece Insists It Can Pay Its Bills a Bit Longer

October 4, 2011 by Leave a Comment

In the early hours of Tuesday, euro zone finance ministers called Greece’s bluff.

After several hours of talks, Jean-Claude Juncker, the head of the Eurogroup, an organization of the euro zone’s 17 finance ministers, emerged to say that a meeting he had only recently scheduled for Oct. 13, where the group was supposed to consider releasing the cash, was now canceled.

At a news conference, he made it clear Greece would have to wait until November at the earliest, and hinted that the terms of a second Greek bailout, agreed to in July, might be reopened to require bigger write-downs by private investors.

Olli Rehn, the European Commissioner for Economic and Monetary Affairs, suggested that it was “very likely” Greece would need to push through new austerity measures as well.

Back in Athens later Tuesday, the Greek finance minister, Evangelos Venizelos, assured taxpayers that the country did, after all, have enough money to last into mid-November. Asked at a news conference what had changed, Mr. Venizelos said there had never been an official deadline. He also said that no new austerity measures would be introduced, insisting that those already announced would be adequate “as long as the state mechanism functions and we see cooperation by citizens.”

During an interview, the deputy finance minister, Pantelis Economou, said the extra breathing room might reflect a better-than-anticipated state of Greek finances. Tax collection was up 3 percent in July and August, he added.

He also rebuffed talk of brinkmanship between Greece and its international lenders as “conspiracy theories.”

This latest stand-off may be partly tactical: Greece wants the next €8 billion installment, or $10.6 billion, installment of its €110 billion loan package agreed to last year. Hawks in the euro zone, led by Germany and the Netherlands, want to keep up the pressure to make sure that Greece and other vulnerable countries carry out the difficult, unpopular changes that they have promised.

At the same time, it also reflects real concerns that Greece has failed to make necessary structural changes and that, against the background of a continuing recession, its public finances cannot be made to add up.

Negotiations are under way in Athens with the so-called troika — the European Commission, the European Central Bank and the International Monetary Fund — which so far has been unable to produce the recommendation required for the money to be released. And though the odds are that ultimately they will, this is not a certainty.

“Even if the European Commission is more political and flexible, the I.M.F have to be sure the figures work to get this through their board,” said one European official, who was not authorized to speak publicly.

On Sunday, Greece acknowledged that it would miss its deficit targets for this year, partly because the recession has been worse than feared. Greek officials say that, because the shortfall has been discovered so late in the year, it is almost impossible to recover the necessary ground in 2011, so any further changes need to be undertaken in future years.

But the hardliners see a pattern.

Bailouts do not resolve the fundamental financial issues in these overstretched countries, they argue. In fact they make them worse. As one official said, as soon as the E.C.B. intervened in the summer to relieve pressure on Italy’s bonds, the Italian government tried to soften its austerity package.

According to two E.U. diplomats, the real deadline for Greece is not November, although the Greek government might have problems paying its civil servants. Instead, they say, it is December, when around €2.9 billion in bond repayments are due.

Article source: http://www.nytimes.com/2011/10/05/business/global/greece-seeks-to-quash-fears-of-imminent-default.html?partner=rss&emc=rss

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