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World Stocks Down as Euro Debt Woes Multiply

January 6, 2012 by Leave a Comment

LONDON (AP) — European stocks rose on Friday as investors set aside concerns about the euro‘s debt crisis to focus on the impending release of monthly U.S. jobs data, which many hope will confirm a mild recovery in the world’s largest economy.

Asian market indexes closed lower as they reacted to poor economic and financial indicators out of Europe the previous day. That stream of poor European data continued on Friday, with new information showing a drop in retail sales and economic sentiment among consumers and businesses. Unemployment in the 17-nation eurozone, meanwhile, remained at a worrying 10.3 percent.

Traders expect 2012 to be a tough one for Europe, as it slides back toward recession, and appeared relieved to have more upbeat U.S. economic indicators to focus on Friday.

Analysts are projecting hiring gains of about 150,000 when the U.S. Labor Department issues the December jobs report. That would mark a six-month stretch in which the economy generated 100,000 jobs or more in each month. Expectations of the data rose on Thursday, when the private payrolls agency ADP said its own calculations for hiring gains were much stronger than forecast.

An improvement in the U.S. labor market is crucial for global markets because American consumer spending accounts for a fifth of the world’s economic activity. A recovery in the U.S. would also mitigate the impact of the sharp slowdown in Europe.

Britain’s FTSE 100 rose 0.4 percent to 5,644.55, while Germany’s DAX rose 0.6 percent to 6,131.25. France’s CAC-40 rose 0.8 percent to 3,170.85. Ahead of the opening bell on Wall Street, Dow Jones futures rose almost 0.1 percent to 12,334 and SP 500 futures gained 0.1 percent to 1,274.50.

Although upbeat U.S. data could push stocks higher, gains were likely to be limited by the lingering fears about Europe’s debt crisis. Italy’s benchmark 10-year bond yield edged further above 7 percent, a borrowing rate that is considered unsustainable over the longer term.

Italy, along with many other European governments, has to roll over huge amounts of debt in coming months. It is trying to restore investor confidence in its public finances to get those bond yields down and pay lower rates when it auctions its bonds to raise cash from capital markets.

Traders will watch comments from Italian Premier Mario Monti, who will hold talks in Paris with French President Nicolas Sarkozy on Friday.

Banks, meanwhile, are hurting due to fears that they will take big losses on their holdings of government debt and will struggle to raise new cash to plug those holes.

Trading in UniCredit, Italy’s largest bank, was halted on Thursday after the stock lost a quarter of its value in two days. The bank said Wednesday it would need to offer huge discounts to investors to raise money in a new share sale. The stock was down another 11 percent on Friday.

Longer-term concerns about the euro and the region’s financial system pushed the common currency to 15-month lows on Thursday. It recovered slightly on Friday, rising 0.1 percent to $1.2808.

Outside the eurozone, Hungary was sliding deeper into its own financial crisis. It had to pay a staggeringly high interest rate of 10 percent on its 12-month debt. That is far above the 7 percent level that forced Greece and Portugal to seek emergency bailouts to prevent them from defaulting on their debts.

Investor confidence in the country has deteriorated to the point that the country is considering asking the International Monetary Fund for a standby rescue loan.

Asian indexes ended mostly lower as they reacted to the previous day’s European market jitters. Japan’s Nikkei 225 Index closed 1.2 percent lower at 8,390.35. Hong Kong’s Hang Seng index fell 1.2 percent at 18,593.06 and South Korea’s Kospi fell 1.1 percent to 1,843.14. Benchmarks in Taiwan and Indonesia also fell. India and Singapore rose.

In mainland China, the benchmark Shanghai Composite Index gained 0.7 percent to 2,163.39, while the smaller Shenzhen Composite Index gained 0.5 percent to 817.78.

Japanese stocks are hurt by the yen‘s rise against the dollar, which makes exports less competitive internationally. On Friday, the dollar dropped another 0.1 percent to 77.07 yen.

Benchmark oil for February delivery rose 60 cents to $102.41 per barrel in electronic trading on the New York Mercantile Exchange. The contract fell by $1.41 to end Thursday at $101.81 in New York.

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Pamela Sampson in Bangkok contributed to this report.

Article source: http://www.nytimes.com/aponline/2012/01/05/business/AP-World-Markets.html?partner=rss&emc=rss

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Summit Meeting on Euro Debt Crisis Is Delayed

October 11, 2011 by Leave a Comment

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Niki Kitsantonis contributed reporting.

This article has been revised to reflect the following correction:

Correction: October 10, 2011

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

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Slovakia May Hold Key to Euro Debt Bailout

October 8, 2011 by Leave a Comment

The commercial has touched a nerve here in the second-poorest country in the euro currency zone, where the average worker earns just over $1,000 a month. The prospect of guaranteeing the debt of richer but more spendthrift countries like Greece, Portugal and even Italy has led to public outrage. So much so that tiny Slovakia now threatens to derail a collective European bailout fund to shore up the euro, which requires the approval of all 17 countries that use the currency.

Once among the most enthusiastic new members of the European Union, and an early adopter of the euro in Eastern Europe, Slovakia is proud of its strong growth and eager to leave behind its reputation as the “other half” of Czechoslovakia. But it has also become a stark example of the love-hate relationship that many residents of the Continent have begun to feel toward a united Europe.

Adopting the euro required hard sacrifices here that stand in sharp contrast to reports of overspending and mismanagement in Greece. The worries about the union’s future are all too real in smaller, poorer countries like Slovakia, which has about 5.5 million people, and is being asked to contribute $10 billion in debt guarantees to a $590 billion euro zone stability fund.

Not far from the new malls and hotels along the River Danube is Trhovisko Mileticova, a market dating from Communist times, where pensioners search for bargains among the barrels of pickled vegetables and cheap synthetic blouses from Asia. “It’s tough to get by with euros,” said Zuzana Kerakova, 64, who sells grapes at the market to supplement the combined 600 euros — about $804 — that she and her husband receive from a government pension every month.

Like many here on a recent morning, Ms. Kerakova said there always seemed to be enough money to help banks and foreign states but never people like her. On the other hand, she said: “The European Union has been good to us. We live more freely, move more freely.” Asked whether to side with Europe or refuse to help with the bailout fund, she said quietly, “Neviem,” Slovak for “I don’t know.”

“Neviem,” she repeated, shaking her head. “Neviem.”

The future of the euro could well be decided next week in the Slovak Parliament, which meets in a modern building that is too small to hold offices for all its members and their staff because it was originally designed to hold only occasional sessions of Czechoslovakia’s Federal Assembly, which usually met in Prague. The Parliament building overlooks not only the Danube but also the former frontier of the Iron Curtain, which cut off Bratislava from Vienna, less than an hour’s drive upriver and the cold war gateway to the free world.

The expansion of the bailout fund is in danger because the free-market Freedom and Solidarity Party, just one member of the four-party governing coalition, has held out against it. “I am not the savior of the world,” Richard Sulik, who is both the party’s leader and the speaker of Parliament, said in a recent interview here. “I was elected to defend the interests of Slovak voters.”

The opposition Smer-Social Democracy party could bridge the gap, but its leader, the leftist former Premier Robert Fico, hopes to bring down the government and win new elections, paving the way for his return to power, and is holding out for the coalition to crack.

The situation in Slovakia illustrates how ambitious young politicians, outspoken populists and struggling small parties can hinder collective action — or even derail it. Even if a compromise is found here, as it was in Finland, by the time agreement is reached among all 17 countries, investors will have long since moved on to a new batch of fears.

The vote over the expansion of the bailout fund, the European Financial Stability Facility, and its powers, is only one step. “The E.F.S.F. is not the end of the story. We will need to have other solutions,” said Slovakia’s finance minister, Ivan Miklos. “This is the dilemma. Everyone agrees that we need more flexibility.”

Slovakia’s relationship with the European Union runs far deeper than a single debt crisis or bailout. In the 18 years since independence, few countries have experienced such unusual twists of fate and fortune. From the “black hole in the heart of Europe,” as Madeleine K. Albright described the backward, isolated state in 1997, the country transformed itself into a neoliberal champion of the flat tax.

With automobile factories springing up across the country, it earned the nickname the Detroit of Europe. It is also called the Tatra Tiger, a name derived from a local mountain range, because of its rapid growth, including the 10.5 percent economic growth rate it reported in 2007, just a decade after Ms. Albright’s dire pronouncement.

But perhaps Slovakia’s greatest sense of accomplishment came from beating its former partners, the Czechs; its former rulers, the Hungarians; and its larger neighbor, Poland, into joining the euro currency zone. Many Slovaks are reluctant to be the stumbling block for the euro’s rescue after all the European Union has done for them.

“Thanks to joining the European Union and the prospect of joining the euro zone, investors were more likely to show interest here,” said Mayor Vladimir Butko of Trnava, a city about 35 miles east of the capital where a car factory produces Citroens and Peugeots.

The European Union helped to pay for improvements to the rail link to Bratislava, Mr. Butko said, and for a highway bypass. But he ranked the psychological benefits of European Union membership even higher than the economic ones. “When you can now sit in your car and go to Munich, and the same money in your pocket here can pay for a beer there, and you don’t have to stop at the borders,” said Mr. Butko, 56, “this is a very strong experience for people over 45.”

It is an experience that makes far less of an impression on the younger generation. Sebastian Petic, 18, a law student in Trnava who was spending a sunny afternoon on a bench in the town square with his Lenovo laptop, repeated a popular joke. “For 500 euro, you can adopt a Greek. He will sleep late, drink coffee, have lunch and take a siesta,” Mr. Petic said, “so that you can work.”

He opposed increasing the bailout fund, saying that debt would only snowball. “I was quite positive about the advent of the euro,” Mr. Petic said. “Now, I’m not so sure.”

Miroslava Germanova contributed reporting.

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Euro Debt Crisis Threatens to Touch Off a New Recession

October 5, 2011 by Leave a Comment

Greece, Ireland, Portugal and Spain are already in downturns or fighting to avoid them, as high unemployment and austerity belt-tightening take their toll. But in the last few weeks, even prosperous Germany and France, the Continent’s powerhouses, have started to be dragged down, hurt by the ebbing of business orders from indebted countries in the rest of Europe.

European stocks continued their latest plunge on Tuesday, as the German financial giant Deutsche Bank, buffeted by the debt crisis, reduced its profit forecast for the year. Investors were also jolted by news that the French-Belgian investment bank Dexia might be the region’s first large bank to need a government rescue as a result of the current debt crisis.

It is not just the Continent’s problem.

The United States, a major banking and trading partner with Europe, is stuck in its own rut — prompting the Federal Reserve chairman, Ben S. Bernanke, to warn Tuesday that “the recovery is close to faltering.” He told a Congressional panel that the economy could fall into a new recession unless the government took further action.

United States stocks ended up for the day, but had bounced wildly on jitters about Europe and rising fears that Greece would have to default on its sovereign — or government — debt. The Greek finance minister said Tuesday that the country could continue to pay its bills at least through mid-November, after other European finance ministers said Greece would not receive its next installment of bailout money before next month, if then.

A downturn in Europe, if it happens, could help tip America back into recession and would undoubtedly ricochet around the world. Europe’s banks are among the most interconnected in the world, and the euro is the world’s second-largest reserve currency after the dollar.

The 17 European Union nations that share the euro together account for about one-fifth of global output. And emerging markets that are important customers for European exports, like China and Brazil, are beginning to retrench.

“We are the epicenter of this global crisis,” Jean-Claude Trichet, the president of the European Central Bank, said on Tuesday at the European Parliament.

A growing chorus of analysts now predict that Europe is heading for an outright recession. “The sovereign debt crisis is like a fungus on the economy,” said Jörg Krämer, the chief economist at Commerzbank. “I thought it would be just a slowdown,” he said. “But I have changed my mind.”

Goldman Sachs predicted Tuesday that both Germany and France would slip into recession, although other forecasts are less grim.

Already, the euro zone economy has slowed to essentially zero growth. It could stay in a slump, many economists say, at least through next spring. If that happens, tax revenue is likely to fall and unemployment, already high, is expected to rise, making it even more difficult for Europe to address the sovereign debt crisis and protect its shaky banks.

In a sign of how quickly the ground is shifting, the European Central Bank might lower interest rates on Thursday — just a few months after it started raising them in what is now seen as a misguided effort to stem incipient inflation.

Distress is increasingly evident across Europe.

Philippe Leydier, a French businessman, had been feeling more upbeat until this summer, when orders for his company’s corrugated boxes suddenly began to slide. Orders fell further last month, as auto parts makers, electrical engineering firms, farmers and other industries reduced production.

“The euro crisis and the financial crisis linked to the debt of European countries is serious,” said Mr. Leydier, whose box and paper manufacturing firm, Emin Leydier, in Lyon, often provides an early signal of seismic shifts in economic activity. “European governments need to find a solution — and fast.”

In Italy, which has the euro zone’s third-largest economy, after those of Germany and France, a 45 billion euro austerity program aimed at reducing debt has many worried about a recession. On Tuesday, the ratings agency Moody’s downgraded Italian government bonds by three notches, to A2 from Aa2, and kept a negative outlook on the rating.

Paolo Bastianello, the managing director of Marly’s, an Italian clothing retailer, is increasingly discouraged.

Liz Alderman reported from Paris and Jack Ewing from Frankfurt. Raphael Minder contributed reporting from Lisbon, Gaia Pianigiani from Rome and Stephen Castle from Luxembourg.

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