May 5, 2024

You are here: Home / Archives for euro zone

Cyprus Makes Plan to Seize Portion of High-Level Deposits

March 23, 2013 by Leave a Comment

A one-time levy of 20 percent would be placed on uninsured deposits at one of the nation’s biggest banks, the Bank of Cyprus, to help raise 5.8 billion euros demanded by the lenders to secure a 10 billion euro, or $12.9 billion, lifeline. A separate tax of 4 percent would be assessed on uninsured deposits at all other banks, including the 26 foreign banks that operate in Cyprus.

An agreement was still far off, though, as Cyprus’s lenders left for the night without reaching an accord. The proposal still requires approval by the Cypriot Parliament and by the European Central Bank, International Monetary Fund and European Union leaders. Finance ministers from the 17 euro zone countries have scheduled an emergency meeting at 6 p.m. Sunday in Brussels.

Under the plan, savings under 100,000 euros would not be touched — a rollback after a controversial plan last week to tax insured deposits was rejected by Cyprus’s Parliament, amid outrage among ordinary savers and widespread concern that a precedent had been set for governments anywhere to tap insured bank savings in times of a national emergency.

Cypriot officials on Saturday also pulled back on a plan to raise billions of additional euros by nationalizing state-owned pension funds, after Germany, whose political and financial clout dominates euro zone policy, had indicated it opposes the move.

Cyprus’s president, Nicos Anastasiades, was meeting Saturday night with political parties to explain the plan. He was scheduled to fly to Brussels on Sunday.

Cyprus’s finance minister, Michalis Sarris, said on Saturday that there had been “significant progress toward reaching an agreement” with European officials on raising money for a bailout.

All parties were working against a deadline imposed by the European Central Bank, which has said it will cut off crucial short-term financing to Cyprus’s teetering commercial banks on Monday if a bailout deal is not reached by then.

Facing what he has called the worst crisis for Cyprus since the 1974 Turkish invasion, Mr. Anastasiades said on Saturday on his Twitter account: “We are undertaking great efforts. I hope we will have a resolution soon.”

A noisy crowd, estimated at around 2,000 people, gathered outside the presidential palace in the early evening, far more than the hundreds who had gathered there in recent days. With flanks of riot police standing guard, many demonstrators chanted, “Resign! Resign!” as they inveighed against the imminent consolidation of the Laiki Bank, one of Cyprus’s biggest and most troubled lenders. In a move demanded by the I.M.F., which will cost thousands of jobs, the toxic assets of Laiki will be hived off into a so-called bad bank, while healthy assets and accounts will be moved to the Bank of Cyprus. There, accounts over 100,000 euros would be subject to the 20 percent tax.

A cutoff of central bank financing and the absence of a bailout agreement could cause Cypriot banks to collapse. It could also lead to a disorderly default on the government’s debt, with unpredictable repercussions for the euro monetary union, despite the country’s tiny economy.

Asked on Saturday whether Cyprus had a backup plan if a deal is not reached, a government spokesman, Christos Stylianides, said, “We are doomed” if a solution is not found.

Olli Rehn, the European Union commissioner for economic and monetary affairs, said in a statement on Saturday evening that it was “essential that an agreement is reached by the Eurogroup on Sunday evening in Brussels.”

But Mr. Rehn also suggested that opportunities had been squandered to find a less painful way out of the crisis. In a thinly veiled reference to the Cypriot Parliament’s rejection of an earlier deal, Mr. Rehn that “the events of recent days have led to a situation where there are no longer any optimal solutions available” and that, “Today, there are only hard choices left.”

European Union leaders “may conclude that it is best to let Cyprus default, impose capital controls and leave the euro zone,” Nicolas Véron, a senior fellow at Bruegel in Brussels and a visiting fellow at the Peterson Institute for International Economics, said in a recent assessment. “But such a move would violate the promise of European leaders to ensure the integrity of the euro zone no matter what and potentially set off a chain reaction, including possible bank runs in other euro zone member states, starting with the most fragile ones, such as Slovenia and, of course, Greece.”

Parliament was still deciding when to vote on the new proposal to tax uninsured bank deposits.

The finance ministers and the troika on Saturday were still calculating how much money those deposit-tax alternatives would raise for the government.

“The good news is that banks were shut last week, and so depositors couldn’t cut up their money into smaller accounts to avoid any tax,” said one European Union official, who spoke on the condition of anonymity. “But it’s sure that depositors did do this before, so this needs to be assessed.”

At the insistence of the central bank, lawmakers also voted on Friday to impose capital controls to limit withdrawals and bank account closings once Cyprus’s banks reopen. The current plan is to reopen them on Tuesday morning, after a nine-day emergency holiday meant to prevent a classic run on the banks.

But without a bailout, the banks would probably be unable to open.

Liz Alderman reported from Nicosia, Cyprus, and James Kanter from Brussels. Andreas Riris contributed reporting from Nicosia.

Article source: http://www.nytimes.com/2013/03/24/business/global/cyprus-makes-fitful-progress-on-bank-bailout-deal.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Euro Watch: Euro Zone Economy’s Slide Accelerates, Data Show

March 21, 2013 by Leave a Comment

An index of euro zone purchasing managers by Markit Economics fell in March to 46.5 from 47.9 in February, with the rate of decline worsening for the second month in a row.

The purchasing managers composite index has fallen in every month but one since September 2011. An index above 50.0 suggests economic expansion, while a level below that suggests contraction.

The economy of the 17-nation euro zone, which accounts for nearly three-quarters of the overall E.U. gross domestic product, shrank for a fifth straight quarter at the end of 2012, and indications suggest that trend will continue in January through March period.

A record jobless rate of 11.9 percent and government budget-balancing measures have hurt household spending across most of Europe, even as the United States continues to grow modestly.

Separate Markit reports showed both the German and French economies, the two largest in the euro zone, losing steam. The German composite index came in Thursday at 51.0 for March, down from 53.3 in February. The French composite index was worse, falling to 42.1 for March from 43.1 in February, as service and manufacturing activity declined.

Martin van Vliet, an economist at ING Bank in Amsterdam, said the report Thursday “pours cold water on hopes of an imminent end to the euro zone recession,” as it showed domestic demand remaining weak across Europe.

Mr. van Vliet said he had “penciled in a return to growth” for the euro zone in the second quarter, led by a German rebound, after a small January-March contraction. But with Germany now apparently slowing and Cyprus struggling to work out a bailout, he said, both the first and second quarters may now disappoint expectations. Mr. van Vliet said it was also looking increasingly likely that his forecast for a 0.3 percent contraction of the euro zone this year would turn out to be too optimistic.

The data contrast with a continuing uptick in euro zone economic sentiment. The European Commission said in February that its economic and business confidence indicator in the 17 countries using the euro had improved for the fourth straight month last month, as industrial orders rose.

Article source: http://www.nytimes.com/2013/03/22/business/global/daily-euro-zone-watch.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

With No Deal on Horizon, Cyprus Keeps Banks Closed

March 20, 2013 by Leave a Comment

The proposals are meant to sharply reduce the amount of money that would be raised by a controversial tax on bank deposits, as originally planned in an international bailout package totaling €10 billion, or about $13 billion, that the Cypriot Parliament rejected the night before.

But even the revised plan contains a bank tax that, while much smaller than originally proposed, might still not be palatable to Parliament. Under the new plan, all Cypriot bank deposits of up to €100,000 would be hit by a one-time tax of 2 percent. Deposits above that threshold would be subject to a 5 percent levy.

The fallback was being cobbled together as Cyprus’s finance minister pressed his case in Moscow on Wednesday in hopes of securing additional aid from Russia, many of whose wealthiest citizens have big deposits in Cypriot banks.

At the same time the Cypriot government extended through next Tuesday a bank holiday meant to prevent a run on Cyprus’s financial institutions. Banks have frozen all accounts in a financial crisis here that risks tipping the country into default and sowing turmoil across the euro zone.

Banks have been closed since Saturday, and the authorities have ordered banks to keep automated bank machines filled with cash as long as their doors remain shut. But that has been of little help to the thousands of international companies who do banking in Cyprus, which cannot transfer money in and out of those accounts to conduct business.

The extended bank holiday is designed to buy time for the Cypriot authorities to reach an agreement with the so-called troika of rescuers — the International Monetary Fund, the European Central Bank and the European Commission — whose representatives were in Nicosia on Wednesday but were not certain to sign off on Cyprus’s latest plan.

Three banks dominate the economy, and each is edging close to collapse. The government was also making tentative plans to merge at least two of them — Cyprus Popular Bank and Bank of Cyprus — and place the healthy assets into a one entity, while moving troubled assets into a so-called bad bank.

With all sides fearing that a crisis is imminent, even the Church of Cyprus, one of this Mediterranean island’s biggest investors, was offering to throw its considerable wealth behind the rescue effort.

European officials, and especially the European Central Bank, are watching the situation with alarm, said a person close to the discussions who was not authorized to speak publicly. Right now, Cypriot banks, crippled by their heavy exposure to Greece’s collapsed economy, are heavily dependent on low-interest financing from the E.C.B., which could be cut off if the banks do not remain solvent.

If Cyprus does not soon receive a financial lifeline, European officials fear that “the damage would be enormous, and the country itself would be at risk of collapse,” the person close to the discussions said. Officials are concerned about the risk that Cyprus might need to leave the euro currency union, creating “a painful situation that would spur chaos,” this person said.

On Wednesday morning, the finance minister of Cyprus, Michalis Sarris, met with his Russian counterpart, Anton G. Siluanov, at the Russian Finance Ministry. In the afternoon Mr. Sarris met for about 90 minutes with a deputy prime minister, Igor I. Shuvalov, at the main government offices in the Russian White House.

Cypriot banks racked up huge losses in the past several years by issuing loans to businesses in Greece that are now virtually worthless as that country grapples with the fourth year of a severe recession. The banks also took huge financial losses on large holdings of Greek government debt, which they bought when times were good in order to profit from attractive interest rates. The bailout crisis has outraged average Cypriots, many of whom oppose the government’s skimming their accounts to pay for the banks’ mistakes.

Article source: http://www.nytimes.com/2013/03/21/business/global/after-deal-is-rejected-cyprus-scrambles-to-find-funds.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Rejection of Deposit Tax Kills Bailout for Cyprus

March 20, 2013 by Leave a Comment

The bailout package, which would have set an extraordinary precedent by taxing ordinary bank depositors to pay part of the bill, led to street protests in this tiny Mediterranean country and set off a wave of anxiety across Europe.

As hundreds of demonstrators gathered outside Parliament chanting antigovernment slogans, lawmakers voted 36 against with 19 abstaining, arguing that it would be unacceptable to take money from account holders. One member who was out of the country did not vote.

Protesters angry at what they saw as a dictate by Germany to enforce harsh bailout terms wielded unflattering posters of Chancellor Angela Merkel, a day after one climbed to the roof of German Embassy and threw down the German flag.

The German finance minister, Wolfgang Schäuble, said Germany “regretted” the vote in Cyprus, but insisted the public outcry “cannot lead us to make an irrational, unsustainable decision.” He said the euro zone as a whole was “very stable,” but cautioned that the situation in Cyprus should not be underestimated. “It is a very serious situation,” he said.

Analysts raised the possibility of a bank run in Cyprus and a cutoff of financing to Cypriot banks from the European Central Bank if the measure did not pass. It is still possible banks might not be able to open on Thursday, when a bank holiday is scheduled to end.

Michael Olympios, chairman of the Cyprus Investor Association, said Parliament’s rejection of the bailout deal “will buy us some time to see if we can come up with a better agreement.”

At issue was a plan for a one-time tax of 6.75 percent on deposits of less than 100,000 euros, or about $129,000 — even though deposits are guaranteed up to that amount in Cyprus and in most other European countries. President Nicos Anastasiades proposed an exemption for depositors with less than 20,000 euros, but that did not calm fears.

A 9.9 percent tax would be levied on Cyprus bank accounts with more than 100,000 euros — many of which contain Russian money that Germany has contended may be of questionable origin. The taxes were meant to raise 5.8 billion euros of the total bailout cost of 10 billion euros, or $13 billion.

Marios Karoyian, the head of the Democratic Party in Mr. Anastasiades’s coalition government, called the bailout terms an “attack” against Cyprus.

“The decision for a haircut is unethical and erodes the foundation of the E.U.,” he said, referring to the European Union. “We’re dealing with raw blackmail that could lead to the collapse of the euro zone.”

Averoff Neofytou, head of the governing Democratic Rally party, added: “We must admit that this will create an economic suicide. We are sending a message to Brussels, Berlin, Frankfurt and Washington: Don’t force us out of the euro.”

The failed vote intensified a showdown between the Cypriot government and its European partners. Mr. Anastasiades has accused them of pressing him to accept an unpalatable deal that hits ordinary savers and pensioners. Officials in Germany and at the International Monetary Fund say they did not tell Cyprus to tax insured deposits but that one way or another, the country must come up with the 5.8 billion euros to secure the bailout.

The managing director of the International Monetary Fund, Christine Lagarde, said earlier Tuesday that she was in favor of modifying the agreement to lower the burden on ordinary depositors.

“We are extremely supportive of the Cypriot intentions to introduce more progressive rates,” she said in Frankfurt.

She had urged leaders in Cyprus to quickly approve the plan reached by European leaders in Brussels last weekend, and complained that critics had not recognized the value of the agreement, in that it would force banks in Cyprus to restructure and become healthier.

Cypriot officials immediately reached for an alternative plan, which included testing whether Russia would be willing to help with a rescue.

Russian officials had reacted furiously to the proposed bank deposit tax, which they said had caught them by surprise, and they were hardly disappointed to see it shot down by the Cypriot Parliament. But it remained unclear on Tuesday night the extent to which Russia might be willing to provide assistance, which some analysts said might be the island’s last hope.

Cyprus officials made clear that they wanted the lines of communication with Moscow open. Soon after the vote in Parliament, Mr. Anastasiades called President Vladimir V. Putin of Russia to inform him of the results.

Mr. Putin’s spokesman, Dmitri S. Peskov, said that the Russian president had expressed concern about the possibility of any measures being adopted that could harm the interests of Russian citizens or businesses, according to the Interfax news agency. The two leaders agreed to stay in contact, and Mr. Putin invited Mr. Anastasiades to visit Moscow at any time.

Russian officials were preparing for talks in Moscow on Wednesday with the Cypriot finance minister, Michalis Sarris, who was expected to request that Russia postpone the maturity date on a 2.5 billion euro loan that it extended to Cyprus in 2011.

After the parliamentary vote, the European Central Bank indicated that it would not immediately cut off emergency cash — without which Cypriot banks probably could not survive. In a terse statement, the central bank said it was consulting with the International Monetary Fund and the European Commission, its partners in the so-called troika of international lenders.

But in a tacit warning that it would not provide assistance forever, the central bank said it would stick to rules that allow lending only to solvent banks. The Cyprus banks, while wobbly, are not yet insolvent.

“The E.C.B. reaffirms its commitment to provide liquidity as needed within the existing rules,” the central bank said.

Contributing reporting were David Herszenhorn from Moscow, Andreas Riris from Nicosia, James Kanter from Brussels, Jack Ewing from Frankfurt and Melissa Eddy from Berlin.

This article has been revised to reflect the following correction:

Correction: March 19, 2013

An earlier version of this article misstated the vote totals in Parliament. The vote was 36 against and 19 abstaining, not 36 against and 19 in favor.

This article has been revised to reflect the following correction:

Correction: March 20, 2013

An earlier version of this article misspelled the surname of president of Cyprus. He is Nicos Anastasiades, not Anastasiadis.

Article source: http://www.nytimes.com/2013/03/20/business/global/cyprus-rejects-tax-on-bank-deposits.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Cyprus Bailout Backlash Promises Crucial Test for Germany

March 19, 2013 by Leave a Comment

The backlash in Cyprus and, indeed, around the world has prompted fresh concerns about solidarity in Europe and the ability of the currency union to hold together in the long run with such divergent economies and public interests.

If, despite the controversy, the bailout deal for Cyprus remains contained to the small Mediterranean island, with no significant implications for the rest of the euro zone, it could prove a validation of the German approach. However, a further fracturing of euro zone unity could show once and for all that Germany and its disciplinarian allies have overplayed their hand.

Chancellor Angela Merkel of Germany has thus far set the tone in Europe, wielding the country’s overwhelming economic strength and influence to ensure that austerity and budget consolidation dominate as the solution to a debt crisis now three years old. Recently, Italian voters sent a stiff rejoinder, rejecting the technocratic government of Prime Minister Mario Monti and giving more votes to the protest party of a comedian and even to the party of Ms. Merkel’s bête noire, former Prime Minister Silvio Berlusconi.

The struggles of ordinary savers in Cyprus strike a chord that resonates not only in Southern Europe but also here in Germany. The image of Cyprus within Europe and worldwide has quickly flipped from that of a shadowy refuge for Russian money launderers to the home of honest pensioners whose accounts are being raided to pay for banks’ missteps.

“It’s difficult to see how Germany comes out of this one strengthened,” said Jacques Cailloux, chief European economist at Nomura, the global investment bank, in London. “There is a point at which the conditionality they impose is so stretched that the other countries are not going to sign up for it anymore.”

Even after the Cypriot president, Nicos Anastasiades, revised the terms on Tuesday morning to exempt depositors with less than $26,000 in their accounts, Parliament rejected the bailout deal on Tuesday night, as Cypriot protesters demonstrated in the streets with anti-German banners. But German officials have not backed down, saying essentially that Cyprus has no choice but to come up with billions to cover its side of the deal.

“As long as there is no program, the liquidity assistance for the Cypriot banks is endangered,” said a German government official, speaking on condition of anonymity on Tuesday because the negotiations had not been completed. “That’s difficult,” the official added, “but that’s the situation.”

Many in Germany still advocate the hard line on bailouts that the government has taken, with the support of allies like the Netherlands, Finland and Slovakia. “We can’t go on the way we have been,” said Tilman Mayer, a professor of political science at the University of Bonn. “We have to set an example or this could know no bounds.”

The cynical reading is that Ms. Merkel has stayed tough out of concern for her re-election chances in September’s parliamentary elections. “The rescue package for Cyprus is written in the handwriting of German domestic politics,” said Thomas Poguntke, professor of comparative politics at the Heinrich Heine University in Düsseldorf. “But taking the savings breaks a taboo.”

Along with the International Monetary Fund and the European Central Bank, the Germans are sticking to the principle that countries that mismanage their banks and government finances must endure pain as the price of financial help — even if ordinary citizens are the ones who suffer.

Christine Lagarde, the managing director of the International Monetary Fund and one of the officials who worked out the Cyprus plan in Brussels last week, said Tuesday in Frankfurt that she was in favor of changing the plan to burden ordinary depositors less. But she quickly added that Cyprus would still need to contribute $7.5 billion to the bank rescue, as promised.

“Now is the time for the authorities to deliver on what they have committed,” Ms. Lagarde said.

Nicholas Kulish reported from Berlin, and Jack Ewing from Frankfurt. James Kanter contributed reporting from Brussels.

Article source: http://www.nytimes.com/2013/03/20/world/europe/cyprus-bailout-backlash-promises-crucial-test-for-germany.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Wall Street Moves Up

March 19, 2013 by Leave a Comment

Wall Street stocks fell on Tuesday as a planned tax on bank accounts to help pay for Cyprus’s bailout appeared doomed in parliament, fueling caution among traders about the euro zone crisis.

The Standard Poor’s 500-stock index fell 0.6 percent in afternoon trading, the Dow Jones industrial average lost 0.3 percent and the Nasdaq composite index dropped 0.6 percent.

A vote on the plan, which European officials proposed over the weekend, may not even take place on Tuesday as planned after a government spokesman said it was unlikely to pass. The Cypriot government proposed to spare small savers from the tax.

Investors took advantage of the unease in Europe to cash in some recent gains.

“The market is not acting as if there is a reason to panic, but it is another thing people need to look at,” Doreen Mogavero, chief executive of Mogavero, Lee Co., said about Cyprus from the floor of the New York Stock Exchange. “It’s enough reason to be cautious.”

The overhanging concern was that account holders in other parts of Europe could make a run on their banks on concerns they will also be taxed to help their struggling economies. No sign of a bank run or any proposal to tax accounts outside Cyprus appeared.

European bank shares extended their decline on Monday, as the sector’s index fell 2.2 percent. Market indexes overall were down from 0.3 percent to 2.2 percent in Europe.

In the United States, data showed housing starts rose in February and new permits for construction rose to their highest level since 2008.

“The data was good, but at the same time we need to think about, now that the housing market is getting better, will the Fed have to wait longer to get their foot off the gas pedal?” said Joe Saluzzi, co-head of trading at Themis Trading.

Among individual stocks experiencing large moves on Tuesday, shares of Citigroup — which agreed on Monday to pay $730 million to settle a class-action lawsuit on behalf of investors who said they were misled by the company’s disclosures — were up 0.6 percent.

The drug maker Affymax said it was considering selling itself or filing for bankruptcy protection among a range of alternatives, as it struggled to stay afloat after the recent recall of its sole commercial product, the anemia drug Omontys. The stock plunged 57.5 percent on Tuesday.

Article source: http://www.nytimes.com/2013/03/20/business/daily-stock-market-activity.html?partner=rss&emc=rss

Filed Under: Economy News Tagged With: , ,

Shares Dip on Cyprus News

March 18, 2013 by Leave a Comment

The stock market lost ground Monday as investors worried that a proposal to seize money from bank depositors in Cyprus could cause more anxiety over the fate of the euro, Europe’s shared currency.

The Dow Jones industrial average fell 62.05 points, or 0.4 percent, to close at 14,452.06 Monday. It plunged as much as 110 points early, briefly turned positive in the afternoon, then fell again in the last hour of trading.

The Standard Poor’s 500-stock index fell 8.60 points, or 0.6 percent, to 1,552.10, moving further from its high of 1,565.15, set in 2007. The Nasdaq composite index dropped 11.48 points, or 0.4 percent, to 3,237.59.

European markets recovered most of an early decline and closed with modest losses. Yields on government bonds issued by Spain and Italy edged up, and the euro fell to a three-month low against the dollar.

The market rally that has pushed the Dow to record levels this year has been punctuated by concerns about the euro zone’s lingering debt crisis.

“Europe has got problems,” said Uri Landesman, president of the hedge fund Platinum Partners. “You could get more stuff like this, and the market isn’t priced to handle that.”

Cyprus reached an agreement last weekend with its European partners for its government to raid bank accounts as part of a 15.8 billion-euro ($20.7 billion) financial bailout, the first time in the euro zone crisis that the prospect of seizing individuals’ savings has been raised. The measures are stoking fears of bank runs in the other 16 nations that use the euro.

Cypriot authorities, facing an uproar, delayed a parliamentary vote on the seizure and ordered the country’s banks to remain closed until Thursday while they try to modify the deal to lessen its impact on small depositors.

Markets in Europe and Asia also fell during early trading, before retracing some of their losses later in the day. Germany’s DAX index dropped 0.4 percent and Spain’s main stock index shed 1.3 percent. Indexes in Britain and France each lost 0.5 percent.

The American stock market’s reaction to euro zone developments has eased over time.

The Dow slumped more than 8 percent last year from May 1 to June 1 on concerns that Spain and Italy would be dragged into Europe’s debt crisis. While the Dow initially dropped last month in reaction to the unsettled Italian election results, which threw the country into political paralysis, it has since gained 4.6 percent. Likewise the market recovered much of the early loss on Monday prompted by the Cyprus bailout deal.

Even with the stock market’s pullback Friday and Monday, the Dow is still up 10.3 percent this year, while the S. P. 500 is up 8.8 percent.

The stock market’s resilience suggests that traders consider the Cyprus situation to be contained for now, said Quincy Krosby, a market strategist for Prudential. The threat of rising volatility may also deter the Fed from thinking about ending its economic stimulus program. The central bank starts its second two-day policy meeting of the year Tuesday.

“Absent the Cyprus flare-up, the markets were slowing a bit and it looked as if investors were digesting the gains and waiting for the next catalyst,” Ms. Krosby said.

Financial stocks were among the biggest decliners in the S. P. 500. Morgan Stanley fell 60 cents, or 2.5 percent, to $22.99. Citigroup dropped $1.02, or 2.2 percent, to $46.24.

Goldman Sachs said Monday that it had lifted its year-end target for the S. P. 500 to 1,625 from 1,575. The investment bank is forecasting that the United States economy will grow 2 percent this year and 2.9 percent next year. It also is predicting increases in corporate deals and dividend payments.

Deutsche Bank also said Monday that it was lifting its year-end prediction for the S. P. 500 to 1,625 from 1,600, forecasting an upturn in business spending.

In the bond market in the United States, interest rates slipped. The price of the Treasury’s 10-year note rose 10/32, to 100 13/32, while its yield fell to 1.96 percent from 1.99 percent as investors moved into low-risk investments.

Article source: http://www.nytimes.com/2013/03/19/business/daily-stock-market-activity.html?partner=rss&emc=rss

Filed Under: Economy News Tagged With: , ,

Inside Europe: Young People Left Out as European Social Fabric Tears

March 18, 2013 by Leave a Comment

PARIS — Grigoris Lemonis, a 73-year-old retiree in Athens, uses his monthly state pension of €580 to support his wife and the family of his son, an unemployed cook with two small children and a wife who works occasionally as a cleaner.

Three-generation families surviving on a single income are increasingly common across Southern Europe as mass unemployment tears at the fabric of closely knit societies.

“Daily life has become pure misery,” said Mr. Lemonis, a former painter in the construction industry who owns his home. “We are up to here with bills, and once all that is paid, there’s nothing left to live a decent life,” he said, adding that with the pension — the equivalent of about $750 — the family can afford meat only once or twice a month.

With more than 26 million unemployed in the 27 nations of the European Union, including nearly six million young people, the system is struggling, and in some places failing, to cope. Many of the jobless have exhausted their benefit entitlements.

“In many countries, the poor are getting poorer,” said Laszlo Andor, the E.U. commissioner for employment and social affairs, pointing to a growing North-South divergence. “Europe’s social fabric is clearly under pressure and a stronger response at E.U. and national level is needed.”

Social spending rose across the Continent in the first phase of a prolonged economic crisis that began in 2008, and engulfed the euro zone in a sovereign debt crisis beginning in 2010. But the states that have been hit hardest — Greece, Ireland, Italy, Portugal and Spain — have now had to cut outlays on pensions, health care, education and unemployment benefits.

Countries that direct social spending toward providing services like child care, vocational training, job-search assistance and accessible health care have better results than those that spend most on cash payments to retirees and the unemployed, Mr. Andor said.

Countries like Italy and Poland, which spend a higher share of their social budgets on pensions, tend to be less effective in alleviating poverty because the working-age population most severely hit by the crisis is less well covered, he said.

Political leaders are fretting about the affordability of the European social model in an era of high public debt, low growth and aging populations.

“If Europe today accounts for just over 7 percent of the world’s population, produces around 25 percent of global G.D.P. and has to finance 50 percent of global social spending, then it’s obvious that it will have to work very hard to maintain its prosperity and way of life,” Chancellor Angela Merkel of Germany told The Financial Times last December, referring to gross domestic product.

Social spending as a proportion of output is, on average, at least 6 percent higher than in 2007 in the 34 countries of the Organization for Economic Cooperation and Development, an association of free market democracies of which 21 are E.U. members. Moreover, aging populations are set to drive up the costs of pensions and health care in coming years, the O.E.C.D said.

The majority of E.U. governments have used the crisis as a reason to raise the retirement age, bringing it more into line with increasing life expectancy, said Willem Adema, an O.E.C.D. expert on employment, labor and social affairs.

Social scientists distinguish three broad welfare models: Nordic, Continental European and Anglo-Saxon.

Nordic countries offer a high level of “cradle to grave” welfare with an emphasis on preschool child care and education, which is designed to keep women and older people in the labor market.

The Continental model features contributory social insurance systems that offer strong protection to insiders with protected jobs, while continuing to regulate employment and the labor market.

The Anglo-Saxon model tends to make welfare payments smaller and more selective and encourages private provision of health care, education and pensions for the better off.

The Nordic model seems to have proved the most effective at reducing poverty without discouraging people from work, although it comes with the highest taxes.

Britain and Ireland pay cash allowances to stay-at-home single mothers, contrary to the O.E.C.D. and E.U. view that such money is better spent on providing public child care.

“It makes more sense to get people into work” than to focus on benefit to stay home, said Mr. Adema of the O.E.C.D. “Yet amazingly, some countries are cutting preschool child care.”

European governments have found it easier to trim welfare systems at the edges than to change them radically. It is politically difficult to spend less on the elderly and more on young children and to teach skills and promote employment among those who leave school. Older people vote more than the young.

“In many countries, it is the middle class who are the direct beneficiaries of social security entitlements,” the analysts Patrick Diamond and Guy Lodge wrote in a paper for the Policy Network, a British research group. “This makes pensions and welfare payments to older cohorts practically untouchable.”

The Netherlands, where retirees enjoy the highest purchasing power in Europe, provides an example. The recently created 50PLUS Party, which campaigns on behalf of pensioners, won two seats in the 150-member Dutch Parliament last year.

Support for the gray movement has soared since the coalition government of the center-right Liberals and the center-left Labor Party agreed to raise the retirement age to 67 from 65 by 2021. A poll this month showed that 50PLUS would win 18 seats if an election were held now, making it the third-biggest party.

Older voters may fight for their interests, but they also should grasp the need to leave resources for social spending for the young. Just ask Mr. Lemonis, the Athens retiree supporting two younger generations on his dwindling monthly allowance.

“At least we pensioners are old and we’ve lived our lives,” he said. “I’m worried about our children. What will they do when we can no longer help them?”

Paul Taylor is a Reuters correspondent. Karolina Tagaris contributed reporting from Athens and Sara Webb from Amsterdam.

Article source: http://www.nytimes.com/2013/03/19/business/global/young-people-left-out-as-european-social-fabric-tears.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Cyprus Delays Vote on Bailout Plan

March 18, 2013 by Leave a Comment

President Nicos Anastasiades was trying to compel policy makers in Brussels to soften demands for a tax to be assessed on Cypriot bank deposits, saying European Union leaders used “blackmail” to get him to agree to those conditions early Saturday in order to receive a bailout package worth 10 billion euros, or $13 billion.

Cyprus, whose banking system is verging on collapse, is now the fifth nation in the 17-member euro union to seek financial assistance since the crisis broke out three years ago.

As anger in this country swelled against the measure, Mr. Anastasiades delayed an emergency vote parliamentary vote on the bailout plan until Tuesday, the second step in as many days. Faced with a lack of support from lawmakers, the vote could be delayed until as late as Friday.

The government also said it would keep Cypriot banks shuttered until at least Friday, well beyond a bank holiday that was supposed to end Monday, a move aimed at staving off a possible bank run.

For the first time since the onset of the euro zone sovereign debt crisis and the bailouts of Greece, Portugal and Ireland, ordinary depositors — including those with insured accounts — were being called on to bear part of the cost, €5.8 billion.

The previous bailouts have been financed by taxpayers, and the new direction raised fears that depositors in Spain or Italy, two countries that have struggled economically of late, might also take flight.

A crowd of protesters gathered in front of the presidential palace, shouting angrily at Mr. Anastasiades and inveighing against Germany and European leaders as he entered the building to meet with his cabinet. “Merkel, U stole our life savings,” read one banner tied to a bus stop. “EU, who is next, Spain or Italy?” read another.

The group of finance ministers from the 17 countries using the euro were on standby Monday for a possible conference call later in the day to assess the outcome of discussions among party leaders in Cyprus. Jeroen Dijsselbloem, the president of the group, had declined Saturday to rule out taxes on depositors in countries beyond Cyprus, although he said such a measure was not being actively considered.

A key question for the finance ministers was expected to be whether any revised formula for the tax on deposits could still deliver the 5.8 billion euros agreed to in the bailout deal. The plan, a so-called bail-in, also includes junior bondholders in Cypriot banks, and that component of the deal still was expected to bring in about 1.4 billion euros.

Russia’s support of the plan was also essential because of the large amount of Russian funds held by Cypriot banks. But President Vladimir Putin on Monday described the bailout plan as “unfair, unprofessional and dangerous,” the Interfax news agency quoted a Kremlin spokesman, Dmitry Peskov, as saying.

Foreign deposits made up 26.8 billion euros in deposits out of a total of 64.8 billion as of December, 15.4 billion euros of which were deposits from Russians in Cyprus, according to the Regional Banking Association of Russia.

As financial markets absorbed the implications of the news, finger-pointing quickly ensued. In Berlin, the German finance minister, Wolfgang Schäuble, sought to deflect criticism for the damage to depositors, saying the “levy on deposits below 100,000 euros was not the creation of the German government,” according to Reuters. “If one reached another solution, we would not have the slightest problem.”

But Mr. Anastasiades denied that he refused the proposal to exempt deposits under 100,000 euros from the levy, according to the government spokesman, Christos Stylianides.

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

Filed Under: Global Business Tagged With: , ,

Cyprus Agrees to Euro Zone Bailout Package

March 16, 2013 by Leave a Comment

BRUSSELS — Cyprus reached a long-awaited bailout agreement early Saturday worth $13 billion, or 10 billion euros, that puts some of the burden for shoring up the island’s beleaguered economy on its bank depositors.

The most contentious issue in months of negotiations was whether to force Cypriot depositors to take losses in order to make the country’s debt more manageable. The Cypriot authorities had sought to head off any such initiatives on the grounds that they would do lasting damage to their financial services sector.

In the early hours of Saturday morning, after 10 hours of talks, finance ministers from euro area countries, the International Monetary Fund and the European Central Bank agreed on terms that include a one-time tax of 9.9 percent on Cypriot bank deposits of more than $130,000, or 100,000 euros, and a tax of 6.75 percent on smaller deposits, European Union officials said.

“It’s not a pleasant outcome especially for the people involved,” Michalis Sarris, the Cypriot finance minister, told reporters. “But we believe it is something that, compared with other possible outcomes, is the least onerous,” he said.

“This is a once and for all levy,” Mr. Sarris added, saying it should ensure no further flight of depositors from Cypriot banks. The measure should “remove any doubt about the future” for Cypriot depositors, he said.

Cypriot authorities had begun to monitor deposit outflows from Cypriot lenders to watch for signs of a bank run ahead of Tuesday when the levy is expected to be imposed, E.U. officials said.

Jeroen Dijsselbloem, the president of the group of euro area ministers, told a separate news conference that lenders had reached “a political agreement” to aid Cyprus. The challenges to reaching a deal were “of an exceptional nature,” he said.

The latest bailout for the euro zone broke new ground by requiring haircuts, or losses for all Cypriot bank depositors. A previous bailout for Greece required a significant haircut for holders of Greek bonds in early 2012 – something that European Union officials said at the time would be a one-of-a-kind measure.

Mr. Dijsselbloem declined to rule out taxes on depositors in other countries besides Cyprus in the future, but he insisted that such a measure was not being considered.

Going into the meeting, finance ministers sought to limit the overall costs of the rescue plan while Christine Lagarde, the managing director of the I.M.F., pushed for a deal that is generous enough to enable Cyprus eventually to pay the money back.

The Cypriot authorities wanted a plan that ensures that the island remains attractive to investors, who include many Russians with large deposits in the country’s banks.

Under the deal, depositors would be compensated with shares in the banks, giving some “upside potential” to the measure, Mr. Sarris said.

Ahead of the meeting, Ms. Lagarde was blunt about the need for ministers to agree to a realistic package of measures. “All I know is that we don’t want a Band-Aid,” she said. “We want something that lasts, something that is durable and that will be sustainable.”

Ms. Lagarde told the news conference after the meeting that she would recommend that the I.M.F. make a contribution to the package for Cyprus. She said the size of that contribution still needed to be determined.

The key to a breakthrough was finding a way to bring down the bailout package, originally estimated at 17 billion euros ($22.2 billion), which represents almost as much as Cyprus’s gross domestic product, which is about $23 billion, or 18 billion euros.

The deal that emerged on Saturday morning was for a bailout of up to 10 billion euros, Mr. Dijsselbloem said.

Cyprus asked for the bailout in June last year. But talks faltered when the former president Demetris Christofias, a Communist, balked at measures like privatizations. The talks sped up after the election last month of Nicos Anastasiades of the Democratic Rally, a center-right party, to the presidency.

Some of the other elements of the deal involved Cyprus raising its low corporate tax rate to 12.5 percent from 10 percent, privatizing state assets and overhauling its banks to ensure that they are not havens for money laundering.

Russia also was expected to contribute to the arrangement, perhaps by agreeing to lower the interest rate on a loan worth 2.5 billion euros it has already made to Cyprus.

Article source: http://www.nytimes.com/2013/03/17/business/global/cyprus-agrees-to-euro-zone-bailout-package.html?partner=rss&emc=rss

Filed Under: Economy News Tagged With: , ,
« Previous Page
Next Page »