July 2, 2020

Inside Europe: Troika Has a Patchy Record on Bailouts

PARIS — If the troika that handles bailouts of distressed euro zone countries were a soccer team, it would probably be looking for a new manager after achieving a track record of one win, one loss and one draw.

The uneasy trio — the European Commission, the International Monetary Fund and the European Central Bank — was assembled in haste in March 2010 after Greece’s public debt and deficit exploded and it was about to lose access to market funding.

Last week’s “mea culpa” report from the I.M.F. about the failures of the Greek program blew the lid off the fiction that the three institutions saw eye-to-eye on the rescue packages they designed and are enforcing in Greece, Ireland, Portugal and now Cyprus. Behind closed doors, they clashed over whether Greece should restructure its debt, forcing investors to take losses, and whether Ireland should make bondholders in its shattered banks share the cost of a financial rescue.

They still differ over whether European governments should write off some loans to Athens to make its debt sustainable in the long term, an idea that is politically explosive before a German general election in September.

The public airing of such differences raises the question of whether the troika has reached the end of the road. The I.M.F. says it lowered its standards to support a flawed program for Greece; the European Commission says it “fundamentally disagrees” with the I.M.F.’s view that Greek debt should have been written off sooner; and the E.C.B. says the I.M.F. is applying misleading hindsight.

The Europeans contend that in the market panic of 2010, before the euro zone had begun to build a financial firewall, letting Greece default or making it restructure its debt could have caused massive contagion to other countries and perhaps swept away the euro itself.

“It would have been Europe’s Lehman moment,” said the Europe’s economic and monetary affairs commissioner, Olli Rehn, referring to the 2008 collapse of Lehman Brothers that sparked a global financial crisis. “I don’t recall the I.M.F.’s managing director, Dominique Strauss-Kahn, proposing early debt restructuring, but I do recall that Christine Lagarde was opposed to it.”

Ms. Lagarde was French finance minister at the time and replaced Mr. Strauss-Kahn as head of the I.M.F. in 2011.

The most damaging suspicion raised by the I.M.F. study of the Greek program is that the troika made overoptimistic growth forecasts and massaged the debt numbers because euro zone political leaders had exerted undue influence on the process.

Wrapped in the forensic jargon of financial analysis, the I.M.F. experts say European leaders made Greece’s economic crisis worse by delaying an inevitable debt write-off, buying time for their own banks to cut their losses at taxpayers’ expense.

“The troika is a unique set-up which has institutionalized political influence in I.M.F. decision-taking,” said Ousmène Mandeng, a former I.M.F. official. “Decisions were perceived to be taken in Berlin and Brussels rather than by the I.M.F. board. The I.M.F. should never again be a junior partner in this way.”

Mr. Mandeng argues that the fund should either pull out of the troika or take sole control of the rescue programs.

The E.C.B. president at the time, Jean-Claude Trichet, initially opposed bringing the I.M.F. on board, arguing that Europe should be able to sort out its own problems. He also rejected debt restructuring and making bank bondholders share losses, saying it would ruin the euro area’s standing in financial markets. Germany and its allies in Northern Europe insisted on I.M.F. involvement because they feared the commission would be too soft on indebted member states and too willing to commit taxpayers’ money.

But the I.M.F. is not the only body to give rise to misgivings. Some E.C.B. stakeholders, notably in Germany, are worried about potential conflicts of interest if the central bank stays in the troika while it is backstopping euro zone government debt through its bond-buying program and about to take over supervision of banks that lend to troubled sovereigns.

An E.C.B. executive board member, Jörg Asmussen, told the European Parliament that once the current crisis is over, the troika should be replaced by the euro zone’s rescue fund and the European Commission. But not now.

Many independent economic experts argued from the outset that Greece would never be able to repay its debt mountain and questioned the troika’s rosy forecasts for the Greek economy. The initial Greek program projected that gross domestic product would contract by just 3.5 percent between 2009 and 2013. In fact, it crashed by 22 percent. Troika officials repeatedly increased the amount Greece was supposed to raise by privatizing state assets, even as its economy crumbled and investors fled.

The biggest errors were in predicting unemployment. The troika foresaw a peak jobless level of 14.8 percent this year. The real figure is 27 percent.

Growth forecasts for Portugal, where the outcome of an E.U.-I.M.F. adjustment program remains uncertain, were also overoptimistic, though not to the same extent. Even in Ireland, the one “success” which returned to growth and expects to get back to market funding this year, the troika underestimated job losses and the related social damage.

Now I.M.F. members in Latin America and Asia, which endured harsh lending terms in the 1980s and 1990s, are loath to pour more money into one of the world’s richest regions.

“Operationally and financially, the I.M.F. has become much more involved in Europe than its global shareholders deem sustainable,” said Jean Pisani-Ferry, the departing director of the Bruegel economic study group in Brussels.

A person at the I.M.F., speaking on condition of anonymity because he is still involved with the bailout programs, said the real problem with the troika was that no one was in charge.

“It’s more like a soccer team with no manager and no clear definition of who plays where on the field,” he said.

Paul Taylor is a Reuters correspondent.

Article source: http://www.nytimes.com/2013/06/11/business/global/troika-has-a-patchy-record-on-bailouts.html?partner=rss&emc=rss

Hollande Creates a French Prosecutor for Fraud and Vows to End Tax Havens

As he spoke, one of those tax havens, Luxembourg, announced that it would bow to pressure from its European allies and begin forwarding the details of its foreign clients’ accounts to their home governments. Luxembourg, with only half a million people and a banking sector more than 20 times the size of its gross domestic product, is one of Europe’s largest financial centers and has been compared to Cyprus, a fellow member of the euro zone that, until recently, had a huge banking sector fueled by foreign money.

Luxembourg’s announcement came a day after five of the biggest European countries — Britain, France, Germany, Italy and Spain — agreed to exchange banking data and create their own automatic tax data exchange. That mechanism would be modeled on the Foreign Account Tax Compliance Act, passed by Congress in 2010 to track the overseas assets of Americans who might be dodging taxes.

The European governments said they hoped that the information exchange would not only help in catching and deterring tax evaders but also provide a “template” for a future, wider multilateral agreement. In a joint letter released Tuesday, they urged the European Union commissioner responsible for taxation, Algirdas Semeta, to work to get all 27 members of the European Union to sign up.

The announcements come a week after the Washington-based International Consortium of Investigative Journalists announced that it had obtained confidential information relating to tens of thousands of offshore bank accounts and shell companies. The leaked data, which centered on the Caribbean and especially the British Virgin Islands and the Cayman Islands, embarrassed European governments, including Luxembourg, by showing how wealthy citizens routinely hide assets, sometimes illegally, and avoid paying taxes by setting up offshore companies.

The report has set off a scramble by governments to calm public anger over widespread tax dodging by the rich when governments are cutting budgets and calling on citizens to pay higher taxes.

The journalist consortium, a project of the Center for Public Integrity, disclosed confidential information on more than 120,000 offshore companies and trusts and nearly 130,000 individuals and agents, including 4,000 Americans. But the consortium has refused requests by governments for access to the files, saying that it is not an arm of law enforcement. Newspapers working with the group, including Le Monde of France and Le Soir of Belgium, have said they will not hand over data to the authorities.

Britain has been especially embarrassed, because many of the accounts are in the Virgin Islands, the Cook Islands and the Cayman Islands, all British overseas territories. But British officials insist that London cannot tell the local governments what to do. The British cited new arrangements with the Isle of Man, Guernsey and Jersey to exchange financial and tax information, and said London was already “in discussions” with its various overseas territories.

Mr. Hollande’s announcement, made on national television, was prompted by a domestic political crisis over official morality in a country with weak rules for public disclosure of the assets of politicians and ministers. In addition to creating the prosecutor position, he ordered cabinet ministers to disclose their finances and asked legislators to do the same. He also promised to create an independent authority to monitor the assets and possible conflicts of interest of senior officials and legislators.

Mr. Hollande said French banks would be required to declare all their global subsidiaries, adding, “I will not hesitate to consider any country that refuses to fully cooperate with France as a tax haven.”

Mr. Hollande, a Socialist, has been in office less than a year, but his job approval ratings in opinion polls are at a record low, and there is a growing militancy in the opposition against him from both the far left and the center-right. With headlines calling him “Mr. Weak” and asking whether he is “up to the task,” Mr. Hollande and his aides see Wednesday’s announcement as a means to assert authority, change the conversation and regain momentum.

The scandal over Jérôme Cahuzac, the budget minister who lied about having undeclared bank accounts overseas, has gone to the heart of the Socialists’ claim to be a scrupulously honest and transparent alternative to the previous administration, led by Nicolas Sarkozy. Mr. Cahuzac was fired and expelled from the party, but that the minister in charge of fighting tax fraud had committed it himself has been deeply damaging.

On Wednesday, the European Union issued a report warning Spain and Slovakia about dangerous macroeconomic imbalances, but it offered serious concerns about France as well. France’s resilience to external shocks is “diminishing” and its medium-term growth prospects are “increasingly hampered by long-standing imbalances,” the report said, noting that France’s share of European Union exports declined by 11.2 percent from 2006 to 2011, while rising labor costs have damaged competitiveness.

The move by Luxembourg toward disclosure leaves Austria as the lone holdout in the European Union. It pays a 35 percent withholding tax on the interest income of accounts held by foreigners in Austrian banks to their country of residence, but refuses to disclose the account holders’ identities.

Luxembourg acknowledged that it was negotiating a bilateral information exchange with the United States as part of the 2010 Foreign Account Tax Compliance Act, which was a crucial development in its decision to come clean with Europe.

“The heart of it is that they’ll be providing account data to the United States,” said Ben Jones, a tax expert in London at Eversheds, a global law firm. “If they get to that point, they can hardly continue keeping it from Europe.”

Andrew Higgins contributed reporting from Brussels.

Article source: http://www.nytimes.com/2013/04/11/business/global/european-countries-move-to-toughen-stance-on-tax-evasion.html?partner=rss&emc=rss

European Union Moves Toward Bonus Cap for Bankers

BRUSSELS — The European Union moved a step closer Thursday to imposing strict curbs on bankers’ bonus pay, which has been blamed by many politicians for inciting the risk-taking behavior that set off the financial crisis.

A provisional agreement struck by the European Parliament, the European Commission and national representatives could mean that the coveted bonuses many bankers receive will be capped at the level of their annual salaries, starting next year.

The proposal would allow bonuses of as much as double the salary, if a sufficient number of a bank’s shareholders approved.

The agreement, which will also apply to the European units of foreign banks, is a blow to Britain, which partly relies on generous remuneration packages to ensure that the City of London remains the biggest financial center in Europe and the overseas base for banks from around the globe.

‘’We need to make sure that regulation put in place in Brussels is flexible enough to allow those banks to continue competing and succeeding while being located in the U.K.,’’ David Cameron, the British prime minister, said during a visit to Riga, the capital of Latvia.

Mr. Cameron said Britain would ‘’look carefully’’ at the final proposal before deciding how it would address the issue with other European governments.

The bonus restrictions were part of legislation enacting the Basel III bank regulations, which were also given a provisional green light during the discussions early on Thursday. The Basel rules, approved by global central bankers and the financial authorities, were meant to ensure that lenders had the resources to weather crises.

‘’We’ve achieved the most comprehensive banking reform in the European Union,’’ said Othmar Karas, an Austrian member of the European Parliament and chief negotiator of the deal.

The parliamentary vote reflects in part the global backlash against the outsized remuneration in the financial sector that has surfaced since the financial crisis and economic dislocation that followed. Voters in Switzerland, which is not an E.U. member, will go to the polls this weekend for a referendum that will decide whether shareholders gain more control over executive compensation.

The European Parliament’s bonus rules would also apply to bankers employed by E.U. banks but working outside the bloc, in New York, for example. The E.U. authorities are drafting separate rules that could restrict remuneration at private equity firms and hedge funds.

‘’This legislation was resisted tooth and nail by the industry,’’ said Philippe Lamberts, a Belgian member of the Parliament’s Green bloc.

While the battle has often been portrayed as matching Britain against the Continent, he said, the reality has been that ‘’many in Paris, as well as Frankfurt and Berlin, were not too happy’’ about what was happening in Parliament, but were glad to let Britain take the heat for leading the opposition.

The law is intended to reduce the financial incentives that led bankers to take risky bets, like those made on subprime housing debt in the United States during the credit bubble. But some critics of the legislation have warned that institutions might defeat the intent of the rules by simply raising bankers’ base pay.

Mark Boleat, the policy chairman at the City of London Corporation, which is the voice of London’s financial center, said Thursday that ‘’removing flexibility from pay arrangements in this highly cyclical industry would seem counterintuitive, especially if it leads to higher fixed salaries.’’

Some bankers said the rule posed the question of why the bonus cap would not apply to other industries where staff stand to gain large bonuses. Stephen Hester, the chief executive of Royal Bank of Scotland, told BBC radio on Thursday morning that he did not think ‘’bankers should be treated as special creatures in any way.’’

David Jolly contributed reporting from Paris.

Article source: http://www.nytimes.com/2013/03/01/business/global/european-union-agrees-on-plan-to-cap-banker-bonuses.html?partner=rss&emc=rss

DealBook: Political Haggling Thwarts Merger of Aerospace Giants

11:51 a.m. | Updated

EADS and BAE Systems ended mergers talks on Wednesday after political haggling among France, Germany and Britain killed a deal that would have created a European behemoth in aerospace and defense.

The companies’ announcement, following months of negotiations, came just hours before a deadline set by the British authorities to decide whether to proceed. The European aerospace giants aid they had been able to reach agreement on the commercial terms for the merger, but had not been able to win government support.

The breaking point was over the size of the new stakes to be held by the European governments and other political considerations,

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Under the proposed deal, France, which currently owns 15 percent of EADS, the parent of Airbus, would have had its share reduced to 9 percent. The German government had sought an equal stake in the merged company. (Spain’s stake would have been around 3 percent.)

In comments to reporters in London, Ian G. King, the chief executive of BAE, indicated that Germany was the main sticking point. “That would be an accurate representation,” he said, according to Reuters.

“We are obviously disappointed that we were unable to reach an acceptable agreement with our various government stakeholders,” he said in a statement.

One person with knowledge of the British side of the negotiations said that London and Paris had made significant progress over the last week toward bridging their differences over share ownership. But German negotiators did not seem prepared to compromise on their key concerns.

”It became clear over the last few days that there was a lack of German support for the deal overall,” said the person, who requested anonymity because the talks were confidential. ”They appeared to be struggling to see what the advantages of the deal were for Germany.”

A spokesman for the German chancellor, Angela Merkel, released a terse statement on Wednesday acknowledging the decision to abandon the merger. ‘‘For the German government, the priority is that EADS is able to continue its positive development in all its fields of business,’’ Steffen Seibert, a German government spokesman, said.

The collapse of the huge deal raises questions about future cross-border transactions in Europe.

“That government disagreements killed this deal carries a lesson for consolidation of the European defense market as a whole,” said Guy Anderson, a senior military industry analyst with the research firm IHS Jane’s. “Meshing the interests of investors and governments and bringing together state-owned, privately-owned and quasi-state owned corporations together will prove to be a Herculean task.”

By joining forces, EADS and BAE Systems had hoped to create a stronger rival to Boeing, the worlds biggest defense and aerospace company. The activities of the combined company would have been evenly split between the passenger jet market and the military market.

The passenger jet market is growing rapidly, but remains volatile. Military contracts provide more steady revenues, but large European countries and the United States have been reining in their military spending,

In September, BAE and EADS, which manufactures the Airbus passenger aircraft, said they were in discussions about a potential merger that would create an industry giant with combined market value of about $50 billion.

“It’s unlikely they will have the stomach to go through this again any time soon,” Richard Aboulafia, an aerospace analyst with the Teal Group in Washington, said on Wednesday.

In their merger considerations, EADS and BAE wanted to limit government-owned shareholdings over concerns they would jeopardize potential new defense contracts in the United States.

Under the terms of the deal, the combined company would have had a dual listings in Britain and the Netherlands, and control would have been split among France, Spain and Germany and two strategic industrial shareholders.

Germany does not currently have a stake in EADS, but a a state-owned bank had planned to buy the EADS shares held by Daimler. The position would have given Germany a smaller stake than France in the combined EADS-BAE.

Germany had also called for guarantees over long-term employment for EADS employees based in the country. It had also wanted parts of the company’s headquarters to remain in Germany.

Still, a successful merger would have put an end to a decade-old division of control between the French and German shareholders and replaced it with a more conventional governance structure.

Speaking at a press conference in Madrid, French President François Hollande, was unapologetic about his country’s desire to maintain its shareholding in a strategic aerospace and defense company. The decision to abandon the merger, he said, rested with the two companies.

”It’s not cause for me to either express regret or to rejoice,” he said.

Britain, meanwhile, had ”always been clear that it could se the commercial logic of the deal,” the office of Vince Cable, Britain’s business secretary, said in a statement. ”But it would only every work if it met the interests of all the parties involved.

The British government has a so-called golden shareholding in BAE Systems, which would allowed politicians to veto any potential deal.

While politicians may have been the stumbling block, some investors also had balked at the deal.

On Monday, the British pension fund Invesco Perpetual, the largest investor in BAE Systems, raised issues about the combined company’s ability to continue to operate in the American defense market.

“Invesco is very concerned that the level of state shareholding in the combined group will heavily impair its commercial prospects,” the firm said in a statement.

In London trading, shares of BAE closed down 1.4 percent, while EADS shares finished up 5.3 percent.

In the wake of the collapsed deal, BAE Systems, which has sought to aggressively expand in the U.S., may now become a takeover target, analysts said. Defense giants Northrop Grumman and Lockheed Martin could be potential suitors.

The British company has long-term contracts with the U.S. military to provide equipment such as the Bradley tank, but may come under financial pressure as Washington seeks to reduced defense spending.

For EADS, whose German chief executive, Tom Enders, had discussed potential acquisitions in the United States before the proposed merger with BAE Systems was announced, the failure to complete the deal will again focus attention on his company’s strategy.

Gaining access to the American market is likely to remain a priority, said Mr. Aboulafia of the Teal Group.

“EADS shareholders will want to know if the company will now pursue other acquisitions,” he added.

Article source: http://dealbook.nytimes.com/2012/10/10/eads-and-bae-systems-abandon-merger-talks/?partner=rss&emc=rss

German Vision Prevails as Leaders Agree on Fiscal Pact

Exactly 20 years to the day after European leaders signed the treaty that led to the creation of the European Union and the euro currency, Chancellor Angela Merkel of Germany persuaded every current member of the union except Britain to endorse a new agreement calling for tighter regional oversight of government spending. 

“It’s interesting to note that 20 years later we have realized — we have succeeded — in creating a more stable foundation for that economic and monetary union,” Mrs. Merkel said, adding, “and in so doing we’ve advanced political union and have attended to weaknesses that were included in the system.”

The agreement was a clear victory for Mrs. Merkel, and it prompted a sharp rally in stock markets in Europe and the United States. But it is viewed as unlikely to calm fears that Europe is unwilling to muster the financial firepower to defend the sovereign debts of big member states, including Italy and Spain, that have little or no economic growth and have big debt bills coming due soon.

At the meeting, member governments agreed to raise up to $270 billion that could be used by the International Monetary Fund to aid indebted European governments, and they moved up the date that a European rescue fund would come into operation. But the sums involved fell well short of what many investors and some Obama administration officials have argued are needed to ensure the survival of the euro. Administration officials on Friday welcomed the long-term overhaul of the euro zone’s rules, but argued that stronger measures were needed in the short run.

Germany has argued that the solution to the euro crisis is not a series of short-term bailouts but a long-term overhaul of the rules that govern European integration. Germany is using market turmoil as a cudgel to force more spendthrift European countries to adjust to their straitened circumstances by reducing spending and ushering in a period of austerity. But critics say such steps risk a deep recession.

The European Union emerged in its current form in the late 1980s and early 1990s as a French-German idea to bind the region in the aftermath of the Soviet collapse. It is now being reinvented by a united Germany that has grown disillusioned by what it considers as debt-happy neighbors and is no longer reticent about wielding its economic and political clout.

The big loser in Brussels was Britain, which had endorsed the 1991 Maastricht Treaty on European integration but opted out of the new euro common currency to preserve its economic and monetary independence.

Prime Minister David Cameron, a Conservative and self-acknowledged “euroskeptic,” was isolated in his refusal to allow the German prescription of “more Europe” — to give teeth to fiscal pledges underpinning the euro.

Mr. Cameron was perceived as having made a poor gamble in opposing the push by Mrs. Merkel and President Nicolas Sarkozy of France, embittering relations and possibly damaging his standing at home. Though some other countries, including Denmark and Hungary, initially shared Britain’s skepticism of the German-led agreement, only Britain ultimately rejected it.

The new disciplinary rules may help ensure that there will not be another euro crisis, but they may not be sufficient to fix the current crisis — to assuage market unease that Europe and the European Central Bank are not doing enough now to stand behind vulnerable nations.

While some progress was made here in increasing the size of the bailout funds to help the most heavily indebted states, it is still considered inadequate. That is largely because Germany refuses to sanction the use of the European Central Bank as a lender of last resort for the countries in the euro zone.

The leaders sent an important signal to the bond markets by scrapping a pledge to make private investors absorb losses in any future bailout for a euro nation. But they made only limited progress in increasing the financial backstop to vulnerable and core nations like Italy and Spain, which are paying unsustainable interest rates on their bonds.

What worries many is the size of the euro zone debts that must be refinanced early next year. Euro zone governments have to repay more than 1.1 trillion euros, nearly $1.5 trillion, of long- and short-term debt in 2012, with about 519 billion euros, or $695 billion, of Italian, French and German debt maturing in the first half alone, according to Bloomberg News.

But the new Italian prime minister, the economist Mario Monti, was more upbeat. He pointed to an increase in the firewall and in economic responsibility and said that the idea of collective bonds was not dead, despite continuing German and French opposition.

“Euro bonds, for which a tomb without flowers was being prepared, are not named” but will be raised again in March, he said. “There is more money, there is more discipline, it could be that this isn’t enough, but it doesn’t seem to be a failed summit.”

Mrs. Merkel said the crisis had provided important new lessons for how to restructure Europe. “We will use the crisis as a chance for a new beginning.”

In Brussels, much of the attention was on Mr. Cameron’s failure to get what he wanted or to stop other leaders from getting what they wanted.

Reporting was contributed by Jack Ewing from Frankfurt, Mark Landler and Annie Lowrey from Washington, Rachel Donadio from Rome, and James Kanter from Brussels.

This article has been revised to reflect the following correction:

Correction: December 10, 2011

An earlier version of this article incorrectly stated that an accord between European Union countries would allow the European Court of Justice to strike down a member’s laws if they violate fiscal discipline. No such term of an agreement was reached.

Article source: http://www.nytimes.com/2011/12/10/business/global/european-leaders-agree-on-fiscal-treaty.html?partner=rss&emc=rss

Stocks & Bonds: Shares Soar on Talk of a Europe Deal

The surge in equities ended a seven-day losing streak for the Standard Poor’s 500-stock index, pushing it nearly 3 percent higher. It was a welcome change of direction from last week, when Wall Street lost more than 4 percent as markets reacted to rising borrowing costs for European governments and the failure by a Congressional committee in Washington to reach an accord on ways to cut the budget deficit.

On Monday, traders reacted to the news that Germany and France have been discussing a deal to hasten European budget and financial coordination. Analysts said a deal that did not require renegotiating European Union treaties could reassure markets and bring skeptics on board to support the euro.

 “We are seeing slightly better news out of Europe,” said Kate Warne, an investment strategist for Edward Jones. With last week’s oversold conditions, she added, “not surprisingly, there are a lot of attractive opportunities.”

The Dow Jones industrial average rose 2.59 percent, or 291.23 points, to 11,523.01. The S. P. 500 jumped 2.92 percent, or 33.88 points, to 1,192.55, and the Nasdaq composite index was up 3.52 percent, or 85.83 points, to 2,527.34.

There were reasons to be guarded about the significance of one day of gains, however. Monday’s surge had not pushed any of the major indexes into positive territory for the month or year.

It could also be another sign of rising market volatility. The S. P. 500, for example, has closed up at least 4 percent in one day eight times since the beginning of 2009, as the financial crisis set in, while it has fallen by 4 percent or more 10 times in that period.

Howard Silverblatt, senior index analyst for Standard Poor’s, said a high proportion of the index’s big swings had, in fact, occurred just since 2009: of 164 times the index had moved by at least 4 percent since 1962, 26 had been in the last three years.

In Europe, the Euro Stoxx 50 index, a barometer of euro zone blue chips, rose 5.73 percent. The CAC 40 in Paris was up 5.46 percent, and the DAX, the German index, rose 4.6 percent. The FTSE 100 index in London gained 2.87 percent. The euro rose to $1.3308, from $1.3239 late Friday in New York.

In the bond market, the 10-year note fell 1/32, to 100 9/32, and the yield remained at 1.97. The comparable German bond rose 4 basis points, to yield 2.29 percent.

Bonds of countries that have been seen as more risky rose in price. Italian 10-year bonds traded to yield 7.191 percent, down four basis points. Spanish 10-year bonds were down 13 basis points at 6.50 percent.

“Talk that European countries were discussing bilateral treaties to strengthen fiscal ties across the current monetary union seems to be easing tensions somewhat this morning, and driving a sizable sell-off in the U.S. rates markets,” Guy LeBas, the chief fixed-income strategist for Janney Montgomery Scott, wrote in a research note.

Investors seemed to shrug off dire warnings from the Organization for Economic Cooperation and Development and Moody’s Investors Service, both of which warned that the euro zone problems were well on their way to becoming serious issues for noneuro countries.

Markets also took a measure of optimism from the National Retail Federation, which said on Sunday that spending in the United States during the Thanksgiving weekend surged 9.1 percent over last year — the biggest increase since 2006 — to an average of almost $400 per shopper. On Wall Street, consumer stocks were up about 3 percent, while energy stocks were up more than 3.5 percent as oil prices rose.

United States Steel rose 8.49 percent, or $1.89, to $24.16, as the materials sector over all rose 3.6 percent.

Marathon Oil was up 5.35 percent at $25.98, and consumer shares were helped by Netflix, which jumped 9.54 percent, to $69.95.

Commercial Metals Company pushed 23.76 percent higher, to $14.17, after Carl C. Icahn offered to acquire the company, a recycler based in Irving, Tex., for $15 a share.

David Jolly contributed reporting.

This article has been revised to reflect the following correction:

Correction: November 28, 2011

An earlier version of this article misstated the recent yield for the United States 10-year Treasury bond.

Article source: http://www.nytimes.com/2011/11/29/business/global/daily-stock-market-activity.html?partner=rss&emc=rss

European Central Bank Raises Rates as Expected

FRANKFURT — The European Central Bank raised its benchmark interest rate Thursday for the second time this year, as expected, continuing to nudge the cost of money back to precrisis levels, despite heightened fears about Greek debt.

The E.C.B. raised its key interest rate to 1.5 percent from 1.25 percent, where it had been since April. Jean-Claude Trichet, the E.C.B. president, had signaled last month that a rate increase was likely at the monetary policy meeting this month.

Mr. Trichet was scheduled to give a news conference later Thursday, and analysts and investors were expected to be listening closely for indications of how quickly the E.C.B. might adjust rates in the future.

Mr. Trichet was also expected to face many questions about how the E.C.B. might react to plans by European governments to get private investors to share in the cost of Greek debt relief. The rating agency Standard Poor’s warned Monday that a French plan for private sector involvement might be considered a default, an event that could shake the European banking system and impair the E.C.B.’s own substantial holdings of Greek debt.

Economists at Nomura International forecast that the E.C.B. would raise the benchmark interest rate a quarter point again in October and then about every three months next year. That would raise the rate to 2.75 percent by the end of 2012, its highest level since 2008, before the collapse of the investment bank Lehman Brothers prompted the E.C.B. and other central banks to take emergency measures to stabilize the global financial system.

However, the E.C.B., which has sworn to make price stability its main priority, could raise rates more gradually if there are signs that inflation pressures are easing or that the euro area is growing more slowly. Inflation for the past several months has been above the E.C.B. target of about 2 percent.

“We think Mr. Trichet will stick with last month’s line that the recovery is continuing, ‘albeit at a slower pace,”’ Jens Sondergaard, senior European economist at Nomura, said in a note Tuesday. “But the tone of the press conference will be carefully scrutinized for signs of less hawkish rhetoric.”

Many economists say the E.C.B. is wrong to raise rates when there are signs that European growth is slowing and the debt crisis continues to cast a shadow over the euro.

“We think that now is not the time to raise rates,” Marie Diron, an economist who advises the consulting firm Ernst Young, said Wednesday in a note. “With the specter of a disorderly restructuring of Greek debt looming over the euro zone’s future, the risks to the growth (and hence inflation) outlook are so skewed to the downside, that prudent monetary policy management would suggest waiting before raising rates.”

At the news conference, Mr. Trichet was expected to be asked about the E.C.B.’s standoff with European governments on how to deal with Greek debt. Germany and other countries are insisting that banks contribute to Greek debt relief, but the E.C.B. has refused to consider any plan that it is not voluntary.

Standard Poor’s indicated Monday that it would be difficult, if not impossible, for governments to design a plan for private sector participation that would not be considered a default.

The E.C.B. and national central banks in the euro area, which together make up the so-called Eurosystem, have become the largest holders of Greek bonds. Analysts say that the Eurosystem could absorb the losses of a Greek default but that such an event would be a blow to the E.C.B.’s prestige.

HSBC estimates the potential losses to the Eurosystem at €23 billion, or $33 billion. “The ECB’s potential reputational loss is the true issue,” Astrid Schilo, senior European economist at HSBC in London, said in a note.

In addition, even a short-lived, controlled default would raise questions about whether the E.C.B. could continue to accept Greek bonds as collateral for short-term loans. Without access to E.C.B. funding, Greek banks would probably collapse.

Mr. Trichet does not like to respond to hypothetical questions and was thought unlikely to offer much insight into how the E.C.B. would respond to such a situation.

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In Asset Sale, Greece to Give Up 10% Stake in Telecom Company

Greece exercised an agreement to sell a 10 percent stake in the Hellenic Telecommunications Organization, the state-owned telecommunications company known as O.T.E., to Deutsche Telekom of Germany for about 400 million euros, or $585 million. The German company said it would honor the agreement.

While that sum will make only a small dent in Greece’s total debt of 330 billion euros, Lorenzo Bini Smaghi, a member of the executive board of the European Central Bank, said the country had marketable assets worth 300 billion euros and was not bankrupt.

“Greece should be considered solvent and should be asked to service its debts,” Mr. Bini Smaghi said Monday, signaling that the bank remained firmly opposed to any plan to allow Greece to stretch out its debt payments or oblige investors to accept less than full repayment, a so-called haircut.

Speaking in Berlin, Mr. Bini Smaghi offered an unusually detailed and forceful rebuttal to German leaders who are pushing for investors to share the cost of a Greek bailout.

Top officials of the European Central Bank usually avoid sparring with elected officials in public, and Mr. Bini Smaghi’s comments illustrated the intensity of the debate on how to keep Greece afloat.

Restructuring of Greek debt would be costly for European taxpayers, reward speculators and discourage Greece from modernizing its economy, Mr. Bini Smaghi said.

A sovereign debt restructuring “may have severe implications, both for the debtor’s and the creditor’s economies,” Mr. Bini Smaghi said, according to a text of the speech.

“Restructuring should only be the last resort, i.e., when it is clear that the debtor country cannot repay its debts,” he said.

Many economists say they believe some kind of restructuring is inevitable, and European governments have begun warming to the idea as a way to show their taxpayers that investors will also have to help pay for Greece.

But Mr. Bini Smaghi contested the idea that “there exists such a thing as an orderly debt restructuring.”

“More often than not, restructurings have been disorderly, harmful and fraught with difficulties,” he said.

Among other catastrophic effects, he said, Greek banks would be devastated and require bailouts that the Greek government would not have the money to finance. The problems would spread to other countries exposed to the Greek economy, and ultimately taxpayers in those countries would suffer, Mr. Bini Smaghi said. Greece would also not have the resources needed to make its economy competitive again.

“Imposing haircuts on private investors can seriously disrupt the financial and real economy of both the debtor and creditor countries,” he said.

German and French banks are the biggest holders of Greek government debt, according to data released Monday by the Bank for International Settlements in Basel, Switzerland. German banks held $22.7 billion of Greek government debt at the end of December, while French banks held $15 billion.

Mr. Bini Smaghi said a default would reward speculators who had bet on Greece’s failure, while punishing investors who had supported the country.

The European Central Bank itself would suffer if Greece defaulted, because since last year it has bought the country’s debt to stabilize bond markets.

The bank owns bonds valued at 75 billion euros from Greece, Ireland, Portugal and possibly other countries.

But the bank’s exposure is greater than that because it also accepts the bonds from banks in the euro area as collateral for loans carrying an interest rate of 1.25 percent.

On Monday, a British research organization, Open Europe, estimated the European Central Bank’s total exposure to the Greek government and Greek banks at 190 billion euros.

Critics say that the bank’s credibility has suffered because its stake in Greek debt creates a conflict of interest.

“Huge risks have been transferred from struggling governments and banks onto the E.C.B.’s books, with taxpayers as the ultimate guarantor,” said Mats Persson, director of Open Europe, an organization skeptical of the monetary union, backed by British business executives.

The European Central Bank declined to comment on Open Europe’s estimate of its exposure to Greece. The bank has never disclosed what kind of bonds it has purchased.

The Greek government has begun trying to raise money by selling stakes it owns in companies like O.T.E., but the privatization drive has encountered fierce resistance from citizens already weary of austerity measures.

Deutsche Telekom already owns a 30 percent stake in O.T.E. that it bought in 2008. A Telekom spokesman, Andreas Fuchs, said that the price for the 10 percent stake was still being calculated, but would be about 400 million euros.

Article source: http://www.nytimes.com/2011/06/07/business/global/07euro.html?partner=rss&emc=rss

W.T.O. Ruling on Airbus Subsidies Upheld on Appeal

But the panel rejected claims by the United States that state financing for the Airbus A380 superjumbo jet was automatically prohibited under global trade rules, the officials said.

Appeals judges at the trade body, which is based in Geneva, concurred with the initial finding that loans extended to Airbus over the course of four decades did constitute unfair subsidies that had caused Boeing to lose aircraft sales.

But the ruling also appeared to upend what the Americans had considered one of the most crucial parts of the landmark case: namely, that the loans — known as launch aid — that Airbus received from Germany, Spain and Britain for the twin-deck A380 jets were expressly prohibited because governments expected a significant export market for the planes when they granted the support.

The W.T.O. defines two broad categories of subsidies: those that are “prohibited” and those that are “actionable” — that is, subject to legal challenge or to countervailing measures like punitive tariffs. Prohibited subsidies are those that are specifically designed to promote exports or to encourage production using domestically made components.

Under W.T.O. rules, any prohibited subsidy must be withdrawn within 90 days of the adoption of a dispute panel’s findings.

Actionable subsidies are not prohibited automatically, but they can be challenged if the complaining country shows that the subsidy caused material injury — a loss of jobs, profit or production capacity — or “adverse effects” to its industry, like a loss of export market share or sales.

The appellate ruling on Wednesday did not find European launch aid loans for the A380 to be prohibited. But it did find many of them to be actionable, which will require European governments to propose some form of remedy in the coming months to offset the benefit of any outstanding subsidies, trade lawyers said.

Proving that the loans were export subsidies was seen as critical to the United States and Boeing, which have sought to thwart European plans to finance Airbus’s coming wide-body jet, the A350-XWB, using the same type of financing mechanism. The A350 is expected to enter commercial service in 2013 and is seen as the biggest challenger to Boeing’s 787 Dreamliner, scheduled to be delivered to its first customers this year.

Dating to 2005, the United States complaint against the European Union forms the first part of the most complex and voluminous case ever to have been brought before the global trade body. The original ruling last year ran more than 1,000 pages, and the appellate body’s report is more than 600 pages.

A separate 850-page ruling by the W.T.O. in April found that Boeing had received at least $5.3 billion in improper United States government subsidies to develop the 787 and other jet models, giving it an unfair advantage over Airbus. That ruling has also been appealed.

Both sides were quick to claim victory on Wednesday.

“The U.S. central claim that Airbus received prohibited export subsidies has been dismissed in its entirety,” Karel De Gucht, the European trade commissioner, said in a statement. “I am particularly pleased with this important result.”

European officials pointed to the appellate panel’s finding that the initial panel erred in its interpretation, saying that the United States had failed to demonstrate that European governments had granted loans to the A380 program specifically because they expected the planes to be sold overseas.

The United States trade representative, Ron Kirk, asserted that the ruling affirmed Washington’s contention that European government loans — which he said totaled $18 billion over 40 years — had been used to support the development of every Airbus model ever produced and helped Airbus vault past Boeing in 2003 to become the world’s largest plane maker.

“These subsidies have greatly harmed the United States, causing Boeing to lose sales and market share in key markets throughout the world,” Mr. Kirk said in a statement.

Binyamin Appelbaum contributed reporting.

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Panel Urges Germany to Close Nuclear Plants by 2021

The recommendations, which have not been made public, will go to a panel of specialists meeting in a closed session in Berlin this weekend. Mrs. Merkel said this week that Germany would certainly end its reliance on nuclear energy, and that the only question was how long nuclear would be needed as a “bridge technology” until other forms of energy could meet the country’s needs.

Nuclear energy provides 22.6 percent of Germany’s electricity, according to the Energy Ministry. Coal supplies more than 42 percent; natural gas, 13.6 percent; and renewable sources like wind and solar, 16.5 percent. Other sources provide the rest.

Not even Japan, site of the nuclear disaster that followed an earthquake and tsunami in March, plans to abandon nuclear power. Prime Minister Naoto Kan said on Tuesday that Japan would scrap plans to build 14 more nuclear reactors while the government re-evaluated its energy policies. Nuclear energy provides 30 percent of Japan’s electricity.

Germany’s move away from nuclear energy is being closely watched by environmental groups and other European governments, particularly those in Central and Eastern Europe that plan to develop or expand nuclear power production.

“At the moment, there is really a mixed picture in responding to the Japanese disaster by countries that have nuclear power,” said Serge Gas, a spokesman for the Nuclear Energy Agency, part of the Organization for Economic Cooperation and Development.

While Russia, Britain, France and Poland have said they will leave their nuclear energy policies largely unchanged, Italy and Switzerland have stopped development of new reactors. Germany, which has a strong antinuclear movement that cuts across the political spectrum, has gone the furthest in reacting to the Fukushima accident.

According to the World Nuclear Association, an industry group, 440 nuclear reactors operate in 31 countries, producing about 15 percent of the world’s electricity. The association said more than 60 plants were being built in 15 countries, notably Russia, China and South Korea.

Germany has 17 reactors; six are boiling water reactors, which is the design used at Fukushima, and 11 use pressurized water. The United States has 104 operating reactors, of which 35 are boiling water reactors and 69 are pressurized water.

Big German energy companies, including RWE and E.ON, have warned that the rapid withdrawal of nuclear power could spell disaster for the economy, lead to electricity shortages and turn the country into a net importer of energy.

But the so-called Ethics Commission appointed by Mrs. Merkel said that rather than being damaged by the abandonment of nuclear power, the German economy could benefit from the reduction of energy use and the development of alternative power sources.

The commission is led by a conservative, Klaus Töpfer, a former environment minister and former executive director of the United Nations Environment Program, and Matthias Kleiner, president of the German Research Foundation. The 22 panel members were drawn from the energy industry and nongovernmental organizations.

“A withdrawal from nuclear power will spur growth, offer enormous technical, economic and social opportunities to position Germany even further as an exporter of sustainable products and services,” said the panel’s 28-page report, which was seen by The International Herald Tribune. “Germany could show that a withdrawal from nuclear energy is the chance to create a high-powered economy.”

But while citing the economic benefits of a withdrawal from nuclear power, the commission emphasized that Germany’s 17 nuclear plants should be closed for safety reasons. “The withdrawal is necessary to fundamentally eliminate risks,” it said.

The commission also said it would be unacceptable for Germany to ration electricity, import power from nuclear plants in other countries or increase carbon dioxide emissions. “There is an ethical responsibility to combat climate change,” it said.

The commission acknowledged that it was not possible to greatly accelerate the development of renewable energy. Instead, it recommended measures, including reducing energy use by as much as 60 percent and developing cleaner technologies for coal-fired power plants.

Only last year, Mrs. Merkel overturned a decision by a previous Social Democratic-Green government to close Germany’s nuclear plants by 2022, instead allowing the newer reactors to operate well into the 2030s.

She quickly changed her mind in March, as the damage to the Fukushima Daiichi plant became apparent. She ordered seven of Germany’s power plants to be temporarily closed, instituted a moratorium on construction of new reactors, ordered an intensive review of security and safety measures, and appointed the Ethics Commission.

She announced the decision days before regional elections in southwestern Germany, where the Greens soundly defeated the governing conservatives.

Matthew L. Wald contributed reporting from Washington.

Article source: http://www.nytimes.com/2011/05/12/business/energy-environment/12energy.html?partner=rss&emc=rss