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Markets Jump on Word of a Manufacturing Rebound

July 1, 2011 by Leave a Comment

A report that United States factories rebounded in June prolonged a weeklong rally in the stock market Friday. The Dow Jones industrial average is on track to have its best week in a year.

The Institute for Supply Management’s manufacturing index rose to 55.3 points in June from 53.5 the previous month. The June increase, the first upturn in four months, surprised economists who had been expecting, on average, a further decline to 52, according to a survey by FactSet.

On an otherwise quiet Friday before a long Fourth of July holiday weekend, the report was just enough to spur a flurry of buying.

The Dow Jones industrial average was up 127.14 points, or 1 percent, to 12,541.48. The Standard Poor’s 500-stock index rose 10.97 points, or 0.8 percent, to 1,331.61 points, while the Nasdaq was up 23.05, or 0.8 percent, to 2,796.57.

In Europe, markets also reacted to the manufacturing report. In afternoon trading the FTSE 100 index of leading British shares rose 0.8 percent to 5,991.02, and Germany’s DAX was up 0.8 percent, to 7,432 points. The CAC 40 in France gained 0.8 percent, to 4,015.48 points.

Stock indexes are on pace for their best week since July of last year. The Dow Jones industrial average gained nearly 480 points over the last four days.

Stocks have posted sizeable gains this week as investors first anticipated and then cheered the passage of austerity measures in the Greek Parliament. The planned measures to cut spending and raise taxes by 28 billion euros ($40 billion) over the coming five years were required for the European Union and the International Monetary Fund to release the next 12 billion euro installment of bailout loans that are keeping Greece afloat.

Euro zone finance ministers are expected to authorize their share of the next installment on Saturday night with the IMF following suit some time next week — the finance ministers were initially planning to meet up in Brussels on Sunday but in a surprise development have opted to discuss the disbursement by video conference a day earlier.

The funds will see Greece through September, but the country is going to need another rescue in order to service its mountain of debt. A deal on another bailout is in the works, too, though an agreement is not expected imminently.

The euro has also been a big gainer as Greece bought more time, although on Friday was trading down 0.1 percent at $1.4478.

Earlier in the day, markets had weighed data showing that China’s manufacturing sector grew at its slowest pace in more than two years in June, further evidence that the world’s second largest economy is coming off the boil. Further downbeat news emerged in an equivalent survey in Britain.

Earlier in Asia, Japan’s Nikkei 225 index rose 0.5 percent to close at 9,868, while South Korea’s Kospi index climbing 1.2 percent to 2,126. Markets in Hong Kong were closed for a public holiday.

Mainland Chinese shares were cool to the June manufacturing report, though some investors were apparently relieved to see the economy slowing since that will alleviate concerns over new monetary tightening measures to combat inflation that has dampened market sentiment for months.

The benchmark Shanghai Composite Index saw profit-taking erase earlier gains, edging 0.1 percent lower to 2,759.36, while the Shenzhen Composite Index added 0.5 percent to 1,162.07.

In the oil markets, prices were down with news that growth remains sluggish throughout the global economy. The main New York contract for crude was down $1.46 to $93.96 a barrel.

Article source: http://www.nytimes.com/2011/07/02/business/02markets.html?partner=rss&emc=rss

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Greek Banks Feel Hostage to Debt Crisis

June 21, 2011 by Leave a Comment

Unlike their government, Greek banks were seen as well managed and prudent before the crisis. But they became victims of their government’s debt woes, severed from international lines of credit and able to borrow only from the European Central Bank.

Now the banks complain that the E.C.B. is pressuring them to reduce their dependence on central bank funding, hurting not only the banks but Greek businesses and consumers who are unable to get credit.

Alexandros Manos, managing director of Piraeus Bank, argues that the E.C.B. should be doing just the opposite: lending the Greek banks more money to help the economy recover, lift tax revenue and increase the country’s ability to pay its debts.

“It is quite possible that the economy has hit bottom,” Mr. Manos said during an interview, citing data showing increased exports and tourism revenue. “If we were able to lend into the economy, it could have a substantial impact.”

There is little doubt that, though small by international standards, the Greek banks are crucial actors in the debt drama, which has flared in recent days with uncertainty over bailout payments and a reshuffled government that was facing a confidence vote Tuesday night. If the banks fail, so does the Greek economy — with dire repercussions for the euro area.

The ratings agency Moody’s Investors Service last week highlighted one way that a Greek banking crisis could ricochet around the Continent. Moody’s said it was reviewing whether to downgrade the French banks Société Générale and Crédit Agricole because both have subsidiaries in Greece.

Crédit Agricole came under scrutiny even though its subsidiary, Emporiki, has relatively modest holdings of Greek government bonds. Emporiki’s loans to the Greek private sector of €21.1 billion, or $30.3 billion, could be at risk if the government defaulted, Moody’s said.

“The secondary effects of a Greek default scenario could have a significant impact on the bank, owing to these direct exposures to the local economy,” the agency said.

Société Générale has €2.5 billion in Greek government bonds while its subsidiary, Geniki, has €3.3 billion in loans to the Greek private sector, according to the bank. The French bank has said the effects on it of a Greek default would be manageable.

Both Société Générale and Crédit Agricole supply their Greek subsidiaries with financing, putting them in a better position than the independent Greek banks. The fate of the independents depends heavily on the E.C.B., as Mr. Manos’s comments illustrate.

That dependence has become painfully clear in recent weeks, as the banks became hostages in a dispute between central bankers and political leaders. The E.C.B. implied that it might have to cut off financing to Greek banks if Germany insisted on requiring holders of Greek bonds to share the cost of the next aid package.

The E.C.B. feared that any change in repayment terms might be seen as a Greek default. Fitch Ratings said Tuesday that even if banks agreed voluntarily to buy new Greek debt when their existing bonds mature, that would be considered a “credit event,” or a default.

“All this uncertainty during the last couple of months has given the economy another kick,” said Paul Mylonas, head of strategy and chief economist at National Bank of Greece.

In an economy often derided for lack of competitiveness, the largest Greek commercial banks — like National Bank of Greece, Piraeus Bank, Alpha Bank and Eurobank — were regarded as exceptions.

Article source: http://feeds.nytimes.com/click.phdo?i=0298e849972b4f0aa4da7dbc03a0a31e

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Deutsche Bank’s Chief Casts Long Shadow in Europe

June 11, 2011 by Leave a Comment

LATE one night in September 2008, as the financial world trembled, Josef Ackermann received an urgent call from Berlin.

On the line was Angela Merkel, the German chancellor. She needed his help — now.

A big German bank was about to collapse, much the way Lehman Brothers had only days before. It was 12:45 a.m. and shaky financial markets were about to open across Asia. Fear was in the air.

Mrs. Merkel asked whether Mr. Ackermann, the head of Deutsche Bank, could help rescue the failing lender.

He could, and he did. Within minutes, he persuaded German bankers to pledge 8.5 billion euros for a bailout.

Mr. Ackermann, 63, emerged from the panic of 2008 as the most powerful banker in Europe and, depending on whom you ask, possibly the most dangerous one, too. As the chief executive of Europe’s largest bank and a symbol of German financial might, he is at the center of more concentric circles of power than any other banker on the Continent.

From this seat at the nexus of money and politics, Mr. Ackermann, for better or worse, is helping to shape Europe’s economic and financial future. He regularly advises politicians and policy makers on the most pressing economic issues of the day: the smoldering debt crises in Greece; the widening gulf between the economically strong nations of Europe, like Germany, and weaker ones like Ireland and Portugal; and the future of Europe’s economic and monetary union and that grand venture’s most manifest expression, the euro.

But it is no secret where Mr. Ackermann’s financial allegiances lie: with the banks. For instance, he has insisted that providing some sort of debt relief for Greece would be a huge mistake. Such a move — a restructuring, in banking parlance — would involve writing down Greece’s debt, which is now more than 140 percent of its gross domestic product, deferring payments and cutting interest rates.

What would be so bad about that? European banks, including German ones like Deutsche Bank, hold many billions of euros in Greek government bonds, and the banks would lose big if those debts were restructured. For the moment, Europe’s solution for Greece is, essentially, Mr. Ackermann’s: more bailout money and more austerity — an approach that some economists say only buys time without offering any hope of recovery.

Mr. Ackermann, like many of his counterparts in the United States, has also argued against tighter regulation of the post-crisis financial industry. His visibility as an industry advocate stems in part from his chairmanship of the Institute of International Finance, an association of the world’s biggest banks, including American ones like Goldman Sachs, Morgan Stanley and Citigroup. The group has released studies contending, among other things, that compelling banks to reduce their use of leverage — a move that would almost certainly reduce banks’ profits — would cause a credit crunch. That’s ridiculous, some economists counter.

“Most of the arguments made by the bankers and the I.I.F. in particular are just fallacious,” says Martin Hellwig, an economist and a director of the Bonn branch of the Max Planck Institute.

Even some of Mr. Ackermann’s peers in banking are uncomfortable with his positions. One senior European banking executive said he thought Mr. Ackermann’s zealous defense of banking interests failed to take public opinion into account. Like many ordinary Americans, many Europeans say they are paying the price for the excesses of bankers.

“As an industry, we have a reputational problem and we need to be aware of it and manage it properly,” says this banker, who did not want to be quoted by name for fear of damaging his relationship with Mr. Ackermann.

THE twin towers of Deutsche Bank punctuate the skyline in this city of bankers. They stand as a monument to a bank that was founded in Berlin in 1870 to ease trade with overseas markets, and it is now among the largest banks in the world. Deutsche Bank operates in more than 70 countries and in virtually every corner of finance.

The man who runs this giant has neither the star quality of Jamie Dimon, the head of JPMorgan Chase, nor the polarizing power of Lloyd C. Blankfein, the head of Goldman Sachs. But in Germany, Josef Ackermann is a household name. And although admired by many, he has also become a lightning rod for public hostility toward banks. His name springs to mind for protesters when they look for a banker to demonize.

So it might come as a surprise that in person, Mr. Ackermann comes across as soft-spoken and almost a bit shy. That’s all the more startling because he rose to the top of Deutsche Bank in 2002 after overseeing its investment bank, which isn’t known for shrinking violets.

Article source: http://www.nytimes.com/2011/06/12/business/12bank.html?partner=rss&emc=rss

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Greece Details New Austerity Measures

June 10, 2011 by Leave a Comment

ATHENS — Greece provided details Friday of a four-year economic plan designed to extract the country from its deepening debt hole, including new taxes as well as additional cuts to public spending and a winnowing of the civil service.

The plan, submitted in Parliament late Thursday, aims to raise €6.4 billion, or $9.2 billion, this year alone, Finance Minister George Papaconstantinou said at a news conference Friday.

“Efforts will be based chiefly on reducing spending, not on increasing revenue,” he said. He promised a vote on the measures by the end of the month even as protests by opposition parties, unions and the public mount.

“We have to continue this difficult course of fiscal adjustment until we emerge on the other side,” Mr. Papaconstantinou said. Adoption of the new measures is “a prerequisite for further emergency funding,” he added.

Although Greece succeeded in cutting its budget deficit by €12 billion last year, an upward revision of the deficit to 10.5 percent of gross domestic product, from 9.5 percent, and a deeper-than-expected recession has made new measures unavoidable if Athens is to meet its deficit-reduction targets this year.

The European Union and the International Monetary Fund promised Greece €110 billion in loans last year and are now discussing an additional bailout to save Greece from default and avert a financial crisis in the euro zone.

Few details were given about cuts in the public sector, but Mr. Papaconstantinou said that utilities and other state-owned companies, including the state broadcaster ERT, would see their operational costs cut.

Over the next few years, the civil service, which currently employs about 700,000, will be reduced by a quarter, he said. The current ratio of 1 new hire for every 5 departures would be shifted to 1 for 10, he said.

The minister also heralded cuts in Greece’s spending in the defense sector, which accounts for around 4 percent of gross domestic product.

The new taxes outlined by the minister include a graded “solidarity tax,” ranging from 1 percent to 4 percent according to income, with an additional 3 percent tax on the income of civil servants. That money is to go toward an emergency fund for the swelling ranks of the unemployed, currently at 16 percent.

Civil servants already have seen their incomes reduced up to 20 percent over the past year, but the fact that their jobs are permanent puts them in a privileged position, the minister said.

“They don’t face the same risk of unemployment as those in the private sector,” he said.

An emergency tax will also be imposed on the owners of large properties, yachts and swimming pools, the minister added.

In an apparent nod to opposition parties that have vehemently opposed new tax increases, Mr. Papaconstantinou said the government was considering submitting a new tax bill in September that would cut sales and corporate taxes.

“We invite other parties to join a debate on this,” he said.

The value-added sales tax paid by restaurants and cafes is set to go up this autumn to 23 percent from the current 13 percent.

Greece’s governing Socialist Party, known as Pasok, has a six-seat majority in the country’s 300-seat Parliament and should be able to pass the bill despite some objections to certain aspects by Pasok backbenchers.

But the government has come under increasing pressure from its creditors to secure a broader political consensus to ease the implementation of the tough new measures.

Addressing Parliament on Friday, Prime Minister George A. Papandreou suggested that Greeks had little choice and compared the country to a sick patient.

“The medicine we have to take is not pleasant, and the treatment requires devotion and commitment,” he said.

“No prime minister of any country wants to go out with a beggar’s tray and collect money from other countries,” he added. “I certainly don’t, but I do it for Greece.”

At his news conference, Mr. Papaconstantinou said he expected creditors to approve the release of the next scheduled installment of financing to Greece, valued at €12 billion, at some point this month.

The privatization program began this month with the sale of an additional 10 percent of the state telecommunications company OTE to Deutsche Telekom, which is already a major stakeholder. The minister said he believed the government could achieve the target of raising €50 billion by 2015.

Outside the ministry offices, in the city’s central Constitution Square, opposite Parliament, dozens of self-proclaimed “indignant” Greeks have set up tents and are joined by thousands more for nightly protests. Banners strung up between the trees — one reads “We owe nothing, we’ll sell nothing, we’ll pay nothing” — express their opposition to the new austerity measures.

The grass-roots movement, which has been organized without the labor unions that usually lead Greek protests, has grown slowly but surely over the past two weeks.

The two main unions, representing about three million public- and private-sector workers, have called a general strike for June 15.

This article has been revised to reflect the following correction:

Correction: June 10, 2011

An earlier version of this article incorrectly referred to the four-year plan as a three-year plan.

Article source: http://feeds.nytimes.com/click.phdo?i=6e490cb5e94d8b1e5257d4bfbff4f994

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Too Radical a Debt Plan From Greece

June 9, 2011 by Leave a Comment

Under the proposal, Greece would transfer as much as 133 billion euros — or 40 percent of its government debt, equal to about $195 billion — to the European Central Bank, which would then pay off the obligation by issuing its own euro bond.

It would be a “restructuring without a haircut,” in the view of the plan’s proponents, who enthusiastically described it to Mr. Papandreou in a series of secret meetings this year. The result, ideally, would be to ease the weight of the Greek debt on the economy, clearing the way for renewed growth while keeping the bankers and credit-rating agencies on board.

In many ways, the plan was a dreamy alternative to the grim calculus of Europe’s demands for more austerity from Greece in return for more loans. And Mr. Papandreou went so far as to ask a political ally and the plan’s two proponents, a British and a Greek economist, to lobby Europeans in its favor.

But according to economists who participated in the discussions, Greece’s finance minister, George Papaconstantinou, was opposed, arguing that Germany, to say nothing of the central bank, would never accept it. And while a number of economists contend that Europe will have to develop a plan to restructure Greece’s debt, the Greek government has shelved the notion for now as it moves toward another bailout to keep the country out of bankruptcy.

“It was a nice idea, but not defensible in current circumstances,” said Daniel Gros, the head of the Center for European Policy Studies in Brussels, who took part in one of the meetings with the prime minister to discuss the plan’s merits. “If there is one person who cannot propose something like this, it is the Greek prime minister. It would have to be a German.”

This week, Mr. Papandreou is struggling to persuade his increasingly disruptive party members that Greece must agree to another round of austerity measures to qualify for a second portion of loans from the European Union and the International Monetary Fund.

Those measures include closing down public-sector enterprises, selling more assets and increasing tax revenue. The new package will be submitted to Greece’s Parliament on Thursday and a vote is expected before the end of the month.

Signs are growing, however, that the patience of the long-suffering Greek public is wearing thin. Mr. Papandreou’s approval ratings are below 30 percent and, as uncertainty builds, Greeks continue to take money out of the banking system.

Mr. Papandreou’s interest in a plan to transfer much of the country’s debt to the rest of Europe may well have been a passing fancy. And Mr. Papandreou’s chance of persuading Jean-Claude Trichet, the president of Europe’s central bank, to take on even more debt on top of the nearly 200 billion euros ($292 billion) it already is exposed to, was always going to be a long shot.

“The prime minister is in favor of the proposal,” said Vasso Papandreou, a former top financial adviser to the prime minister and an influential member of Parliament within the governing Socialist party, known as Pasok, who has been openly critical of the government’s austerity plan. “This is not a Greek problem any more — it’s a European problem.” (Ms. Papandreou is not related to the prime minister.)

A spokesman for the prime minister said that Mr. Papandreou and other European officials had long supported a euro bond as one policy option but that his current priority was to make the Greek economy competitive again.

“In search of the best solutions to effectively and permanently exit the crisis, the prime minister will continue to exchange views with his counterparts around the world as well as leading economists and academics,” he said.

The two architects of the idea have longstanding ties to Mr. Papandreou. They have characterized their sweeping plan, with a bit of cheek, as a modest proposal.

One of the architects, Yanis Varoufakis, a political economist and blogger at the University of Athens, was a speechwriter and adviser to Mr. Papandreou from 2004 to 2006. The other, Stuart Holland, is a Europe expert and former high-ranking official in Britain’s Labour Party who was a longtime adviser to Andreas Papandreou, Mr. Papandreou’s father, who was also Greece’s prime minister.

Article source: http://feeds.nytimes.com/click.phdo?i=91566b52caadf0902f00d5d11d9acc44

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Greek Talks Pave Way for Fresh Bailout Funds

June 4, 2011 by Leave a Comment

A statement from the International Monetary Fund, the European Commission and the European Central Bank said on Friday that Greece had agreed to the measures, which include a new austerity plan and the creation of an independent fund to privatize 50 billion euros in state assets.

The next installment of international aid under the original bailout, which had been in doubt, “will become available, most likely, in early July,” it added.

Meanwhile, Jean-Claude Juncker, who heads a group of European finance ministers, said in Luxembourg that he expected his colleagues to agree on further aid for Greece. Fresh money would be provided under “strict conditionality,” Mr. Juncker said after a meeting with the Greek prime minister, George A. Papandreou.

“This conditionality will include private-sector agreements on a voluntary basis,” said Mr. Juncker, suggesting that any new European package would include a voluntary pledge by private investors to extend the maturity of Greek debt.

Mr. Juncker also highlighted “with satisfaction” the fact that Greece was willing to set up a new fund to manage privatization.

While the announcement on Friday left many details unknown, it clears the path toward a second bailout for Greece, a little more than a year after an international rescue worth 110 billion euros, or $159 billion at current exchange rates.

Officials have been considering whether to make additional loans of up to 60 billion euros to give Greece more breathing room while it struggles with a deep economic downturn.

But several euro zone countries, including the Netherlands, had made it clear that if the I.M.F did not make available its share of the next installment of original aid, worth 12 billion euros, they would not step in to make up the difference, let alone offer further help.

Under its internal rules, the I.M.F is unable to make such a payment if there is a financing gap in the Greek government’s budget plans.

A low level of economic growth has widened the hole in the Greek budget, which has in turn prompted a scramble for more cost-cutting measures.

The talks that concluded Friday addressed that issue. The Greek government is set to announce a new austerity plan that envisions raising 6.4 billion euros through spending cuts and tax increases this year. That is in addition to the plan to raise 50 billion euros by 2015 through privatizations.

The ministry said the additional measures would be discussed by the government “in the coming days” before being voted on in Parliament.

European officials view Greece’s privatization program as central to averting a default. They have been so concerned at the slow pace of asset sales that the Netherlands proposed the creation of an outside agency to manage it.

Though the announcement did not state that European officials would be involved in the process, there were suggestions that the Greek government would tap outside experts.

Olli Rehn, the European commissioner for economic and monetary affairs, said he was open “to explore possibilities for further and reinforced assistance should there be a need, for instance in taxation and privatization matters.”

The announcement came amid mounting public opposition in Greece to its austerity drive and growing rifts within the governing Socialist Party, which has failed in two attempts to secure a broad political consensus for more austerity measures.

European Union and International Monetary Fund officials have pushed the government to persuade all political parties to sign on to the measures to ease their adoption.

The Socialist government has a comfortable six-seat majority in Parliament, but several Socialist lawmakers have suggested they might vote against the new austerity proposals.

A letter sent to Mr. Papandreou on Thursday by 16 Socialist members of Parliament framed the question being posed continually in the Greek media: “A year after signing the memorandum, we are at a crucial juncture again. Why?”

Public opposition to the new measures has been clear. Thousands of Greeks, including many young people, filled the main square outside Parliament for a 10th day Friday, calling on the government to revoke the austerity measures and for foreign creditors to “go home.” The protests have been small by Greek standards but are growing in intensity, and there have been sporadic incidents of stone-throwing at politicians.

Government officials have said that some of those incidents have been orchestrated by the Communist Party and Syriza, the radical left party, which are both represented in Parliament.

On Friday, members of PAME, the Communist-affiliated labor union, stormed the Finance Ministry offices, which are opposite Parliament, and strung up a banner calling for “an organized overthrow” and strike action.

The country’s main labor union, GSEE, which represents around two million workers, has called a one-day strike for June 9 and is joining the civil servants’ union, which represents about 800,000 people, for a general strike on June 15.

Niki Kitsantonis reported from Athens and Stephen Castle from London.

Article source: http://feeds.nytimes.com/click.phdo?i=1cad3961bd3974f0f19d16a9c3d1ca99

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World Briefing | EUROPE: Belarus: A $3 Billion Bailout? Not So Fast, Says Russia

May 22, 2011 by Leave a Comment
Opinion »

Op-Ed: Can My Son Come Home?

John Walker Lindh was a scapegoat, wrongly accused of terrorism when our grieving country needed someone to blame.

Article source: http://feeds.nytimes.com/click.phdo?i=90a539ecf88fde9474d1ddeacb477208

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Pressure Builds for Greece and Portugal Despite Bailouts

May 18, 2011 by Leave a Comment

ATHENS — The International Monetary Fund warned on Wednesday that Greece’s drive to shore up its troubled finances would fail unless it sharply accelerated its economic overhaul, and the European Central Bank hit back at suggestions that a debt restructuring might be the solution.

European finance ministers broke a taboo this week and acknowledged for the first time that some form of restructuring might be required to ease Greece’s debt burden, which at 150 percent of annual output is among the highest in the world.

They have said they could ask private creditors to agree to a voluntary extension of the maturities on their Greek debt but have also made clear that the priority is to ensure an acceleration of economic measures.

“The program will not remain on track without a determined reinvigoration of structural reforms in the coming months,” Poul Thomsen, an I.M.F. envoy who is monitoring Greece’s progress, told a conference in Lagonisi, near Athens.

“Unless we see this invigoration, I think the program will run off track,” he said, in one of the strongest warnings to Greece since it sealed the rescue one year ago.

Prime Minister George Papandreou’s government has struggled to rein in rampant tax dodging and is under acute pressure to begin selling off state assets to help Greece meet fiscal targets tied to last year’s €110 billion E.U./I.M.F. bailout.

Under its rescue terms, Athens is charged with reducing its budget deficit to 7.6 percent of G.D.P. this year. Mr. Thomsen said that without further measures Athens would not be able to get it much below 10 percent.

The euro struggled to hold onto gains against the dollar and the cost of insuring Greek debt against default rose on Wednesday amid ongoing talk of a restructuring.

In another sign of the stress on the euro-zone’s weakest countries, Portugal’s borrowing costs rose at a treasury bill auction on Wednesday, two days after E.U. finance ministers approved a €78 billion bailout for that country.

The Portuguese debt agency issued €1 billion of two-month treasury bills at an average yield of 4.657 percent, up from 4.652 percent in an auction of three-month paper — the closest comparable maturity — on May 4. The yield was above market expectations.

Separately, the National Statistics Institute said unemployment jumped to 12.4 percent in the first quarter from 10.6 percent a year ago, showing the strong economic headwinds the country faces after entering recession this year.

Euro-zone ministers have not spelled out how what they refer to as a “reprofiling” of Greek debt would work. Convincing private holders of Greek bonds to voluntarily accept later repayment could be difficult and require costly guarantees to avoid a hit to banks.

Such a move would buy Greece more time but not reduce its overall debt burden. Many economists believe it would be followed by a more aggressive restructuring involving “haircuts,” or forced losses, of 50 percent or more from 2013, when policymakers have said they could opt for radical steps.

The European Central Bank, which holds up to €50 billion in Greek sovereign bonds on its own books, has warned that even a “soft restructuring” would put the stability of the euro zone at risk.

“I’m opposed to soft restructuring because I don’t know what it means. Nobody knows what it means,” Lorenzo Bini-Smaghi, a member of the bank’s executive board, said in Milan on Wednesday.

Speaking in Athens at the same conference as Mr. Thomsen, another E.C.B. board member, Jürgen Stark, said it was an “illusion” to think such a move would resolve Greece’s problems. E.C.B. vice president Vitor Constancio said it should only be done as a last resort.

European politicians, however, are under pressure from angry taxpayers to broaden out the burden of their bailouts to include the banks that have bought up Greek debt in recent years.

But they have pledged not to force any losses on private holders of Greek debt before 2013, when a new anti-crisis facility — the European Stability Mechanism — is due to take effect.

Before that, any burden-sharing must be done on a voluntary basis, they have said.

“During the crisis, it was almost exclusively European taxpayers that ultimately bore the risk of investors’ decisions. That is inadmissible,” the German Finance Minister Wolfgang Schäuble said in a speech in Brussels.

“It was right to stop financial markets from disintegrating in the past but it would be wrong to cushion their losses in the future,” he added.

Article source: http://www.nytimes.com/2011/05/19/business/global/19euro.html?partner=rss&emc=rss

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DealBook: G.M. Stock Sale Likely to Be Later Than Expected

May 12, 2011 by Leave a Comment

Already facing diminished expectations for a stock offering of the American International Group, Treasury Department officials are planning a secondary sale of General Motors shares for late summer or early fall — later than many investors expected.

In November, G.M. raised more than $20 billion selling common and preferred stock, a public offering that reduced the government’s stake in the automaker to a minority position.

At the time, the Treasury Department said it planned to sell off its remaining shares through another sale but provided no specific timetable. Many investors thought the next offering would take place shortly after the lock-up period ends, which is in late May.

Treasury officials plan to wait until at least mid-August or September, according to people with direct knowledge of the matter who were not authorized to talk publicly.

“It’s entirely up to them what they do with their shares,” said James Cain, a spokesman for General Motors. “We continue to be focused on profitability around the world and further strengthening our balance sheet.”

Shares of G.M. have taken a hit in recent months. After surging to nearly $40, the stock has dropped to around $31, below its market debut in November. The company’s initial public offering was priced at $33.

With a later stock offering, G.M. will have an additional quarter of earnings under its belt. Investors will also have a better sense of the impact of the Japanese earthquake disaster on the supply chain. All that could help lift the stock and the value of the government’s stake.

Despite the potential for improved proceeds, the government is unlikely to turn a profit on its $49.5 billion bailout of the troubled automaker, fashioned in late 2008 and early 2009. Treasury officials are currently projecting a $10.8 billion loss from investments in G.M.

“We’re going to lose money in the auto industry,” though less than originally expected, Treasury Secretary Timothy F. Geithner told the Detroit Economic Club last month. But, he added, “We didn’t do these things to maximize return. We did them to save jobs. The biggest impact of these programs was in the millions of jobs saved.”

If the Treasury is able to sell off its remaining stake later this year, it would be a major political victory for the Obama administration. Many analysts had projected that the government would be entangled with G.M. for years.

The people said the timing of the G.M. offering is not linked to the troubles with the stock sale of A.I.G.

At one point, the government had hoped to raise as much as $20 billion with a public offering of the insurer, of which taxpayers own 92 percent. But shares of the insurer have struggled. After hitting nearly $63 in January, A.I.G. stock is now trading around $30.65.

Based on the recent price, the A.I.G. offering would be closer to $9 billion. Treasury officials have said that taxpayers will break even on their investment provided A.I.G. can sell its shares for at least $28.72.

Evelyn M. Rusli and Nick Bunkley contributed reporting.

Article source: http://feeds.nytimes.com/click.phdo?i=6b89a5fbbf28458af8e753f554bd7ccf

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Greece Pushes Plan to Raise Cash With Big Sales

May 9, 2011 by Leave a Comment

ATHENS — The Greek government, under pressure from its foreign creditors to raise money by privatizing state enterprises, is facing fierce opposition to its proposed sell-offs from powerful labor unions and critics within the governing Socialist party itself.

No islands or beaches are up for sale, despite the persistent, usually snide suggestions from abroad that have riled many Greeks.

Still, the program that is expected to go before Parliament next week is ambitious. It would authorize the selling of stakes in three utilities: the Greek railway, the race track and the national lottery. Also up for sale or lease are assets including disused venues built for the 2004 Olympic Games and the site of the capital’s former airport, which the government of Qatar has expressed an interest in developing.

In all, the government hopes to raise 50 billion euros, or $72 billion, by 2015 to help avert a default on the country’s huge debt, although many analysts consider that figure to be overly optimistic. By pressing ahead, the government is seeking to demonstrate its resolve in meeting the terms of its 110 billion euro bailout, even as the rating agency Standard Poor’s issued another downgrade on Monday and as European officials discuss ways to relieve some of the debt load.

Indeed, representatives of the International Monetary Fund and the European Union are back in Athens to decide whether to release the next installment of the emergency loan package, estimated to be 12 billion euros. The fact that the Greek budget deficit for 2010 was revised upward, to 10.5 percent of gross domestic product from an estimated 9.5 percent before, suggests that inspectors will be particularly strict this time.

The government insists the privatizations will not be derailed.

“Commentators have doubted the Greek government’s resolve at every juncture of the crisis and in each case the government has proven them wrong,” George Petalotis, a spokesman for the government, said in an e-mailed statement.

The Greek labor unions, however, are determined to stop the sales, fearing that private ownership will lead to downsizing and job cuts. They are lining up a barrage of protests, starting with a one-day general strike on Wednesday.

At the front line is Genop, the union representing workers at P.P.C., the state electricity company. Genop has threatened rolling strikes that could cause lengthy power cuts across the country just as the summer tourist season kicks off.

Speaking Friday in Parliament, Prime Minister George Papandreou promised that Greece “will not give up control of P.P.C.,” even though it was seeking to reduce its stake to 34 percent from 51 percent. He also insisted that the sale would not be done at a “bargain basement price.”

But skepticism lingers at all levels of the governing Socialist party, known as Pasok, particularly about privatizing the power company. Tina Birbili, the energy minister, recently told Ta Nea, a center-left daily, that it was premature to talk about privatizing P.P.C. as its share price was undervalued. It is currently trading at around 11 euros, compared with a five-year average of more than 17 euros.

Greece can sell the race course, the lottery, and even the railway, “but not P.P.C.,” said Alexandros Athanasiadis, a Pasok deputy whose constituency is in Kozani in northern Greece, where P.P.C. has one of its biggest coal-fired plants. “It’s a profit-making company and it provides jobs for thousands,” he added.

With a six-seat majority in Greece’s 300-seat Parliament, the government is unlikely to lose the vote next week, but rebel Socialist lawmakers may push for the bill to be watered down, as has happened with other controversial measures, especially if union pressure mounts.

Indeed, many union leaders are also members of Pasok. In 2001, a previous Socialist government had to withdraw a bill proposing a pension system overhaul following weeks of mass, union-organized street protests.

Those same unions have also managed to keep foreign buyers at bay. In the past 20 years, Greece has attracted only one big strategic investor — Deutsche Telekom, which has a 30 percent stake in the telecommunications company O.T.E.

Deutsche Telekom is legally bound to buy as much as 10 percent more of O.T.E. should the Greek government sell shares by the end of this year, and has the first right of refusal beyond that.

The Greek Finance Ministry said that a French company, Pari Mutuel Urbain, was in talks about the race track, but could give no details of other potential deals. P.M.U. for its part had no immediate comment.

Article source: http://www.nytimes.com/2011/05/10/business/global/10privatize.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,
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