finance minister

Europe Seeks Chinese Investment in Euro Rescue

October 29, 2011 by NewsMaker Leave a Comment

China is expected to demand significant concessions, including financial guarantees and limits on what Beijing sees as discriminatory trade policies, in exchange for any investment in Europe’s emergency stability fund. The head of the rescue fund, Klaus Regling, got a cautious reply from Chinese officials Friday during a visit to Beijing, where he said he did not expect to reach an investment deal with China anytime soon.

A senior Chinese official, Vice Finance Minister Zhu Guangyao, said China — like the rest of the world — was still waiting for the Europeans to deliver crucial details on how the rescue fund, the European Financial Stability Facility, would operate and be profitable before deciding on whether to participate.

That Europe would turn so openly to China to help stabilize the debt crisis shows how quickly the Chinese economic juggernaut has risen on the world stage. Indeed, if China comes to Europe’s aid, it will signal a new international order, with China beginning to rival the role long played by the United States as the world’s pivotal financial power.

“This would be a tectonic shift,” said Pieter P. Bottelier, an expert on China who teaches at the School of Advanced International Studies at Johns Hopkins University. “It would be so important economically and politically.”

Arvind Subramanian, a senior fellow at the Peterson Institute for International Economics in Washington, said Europe’s appeal was another sign that China was already a dominant global power.

“China’s power is more imminent, broader in scope and greater in magnitude than anyone imagines,” he said. “For instance, China’s currency is already having a negative effect not just on the U.S. and Europe, but on everyone else, too. And the rest of the world can’t do anything about it. If that’s not dominance, what is?”

Europe has turned to Beijing and a handful of other emerging market economies to consider investing in the fund to supplement contributions by the 17 countries that use the euro. Outside investment was presented as critical for the Europeans to create a financial firewall of up to $1.4 trillion to prevent the debt crisis that started in Greece from ravaging larger countries, including Italy and Spain.

In a sign that the crisis was far from over and that investors were still wary of Italy’s political paralysis and its huge debt, it was obliged on Friday to pay the highest rate in more than a decade to sell a new bond issue.

The fear is that a failure to contain the crisis would lead to contagion in global financial markets on par with the Lehman Brothers debacle, and deliver a blow not only to the economies of Europe, but also to the United States and other major trading partners.

Such a deterioration would certainly be bad news for China, which could hardly afford to see two of its biggest markets hobbled at the same time.

China has a $3.2 trillion nest egg in foreign reserves, by far the largest hoard of foreign currency in the world, and it needs to find places to park those reserves rather than convert them all to Chinese renminbi, a step that could set off domestic inflation and lead to sharp appreciation in the currency’s value. Europeans know that China is eager to move some of the money out of its vast pile of United States Treasury securities, and they are pushing the Continent’s crisis as a good opportunity to invest on the cheap.

Hours after European leaders unveiled their grand plan, President Nicolas Sarkozy of France called President Hu Jintao to say that Europe was still looking for some cash, and lobbied Beijing to play a “major role” in helping Europe get its house in order.

Since the Europe crisis worsened two years ago, regional leaders once wary of China’s influence have rolled out the red carpet in hopes that China might be a savior for their ailing economies. China has already made deals to expand its footprint into choice Western European countries like Italy and Spain. Now, Chinese-owned companies run the biggest shipping port in Greece. They own highways and other crucial infrastructure, and are working to snap up other strategic businesses to anchor their presence on European soil.

Liz Alderman reported from Paris, and David Barboza from Beijing. Keith Bradsher contributed reporting from Hong Kong.

Article source: http://www.nytimes.com/2011/10/29/world/asia/europe-seeks-chinese-investment-in-euro-rescue.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: finance minister, financial guarantees, global power

France Defends Its Credit Rating After Moody’s Warning

October 18, 2011 by NewsMaker Leave a Comment

“We will do everything to avoid being downgraded,” Finance Minister François Baroin said on French television Tuesday.

Hours earlier, Moody’s said it might put France’s triple-A rating on watch for a possible downgrade within the next three months if slowing growth and the tab for supporting crisis-hit French and European banks strained the budget.

Moody’s said late Monday that the global financial and economic turmoil was making it more difficult for France to keep its government debt from growing, compared with other triple-A-rated countries. France’s debt was 82.3 percent of gross domestic product last year, a shade less than Germany’s.

The price that France pays to borrow on international financial markets compared with Germany rose to its highest level Tuesday since the euro was introduced in 1999. Rising borrowing costs are what pushed weaker countries, including Greece, Ireland and Portugal, to seek bailouts.

European leaders are scrambling to come up with a plan to ensure that the same does not happen to Spain or Italy. More financial problems in either of these economies would stretch the finances of big countries like France and Germany even further.

France’s top-notch rating has been under scrutiny since August, when another rating agency, Standard Poor’s, downgraded America’s t credit rating. S.P. said at the time that France, like the United States, needed to stoke growth and cut its debt.

While France’s accounts are still in better shape than those of many of its neighbors, they could deteriorate if the government provides significant financing to other European countries or to its own banking system in a bid to keep the euro crisis from spiraling. Such moves could give rise to significant new liabilities for the government’s balance sheet, Moody’s warned.

In fact, France, along with Germany, will wind up footing a large part of the bill for a €440 billion, or $605 billion, bailout fund, known as the European Financial Stability Facility. French banks may also wind up taking larger-than-expected losses on their investments in Greece. Investor nervousness about the health of BNP Paribas — which was downgraded late last week — and other French banks has prompted the government to declare it would pump taxpayer money into the banks if need be.

Concerns about the cost that banks might impose on France rose after Paris and Brussels agreed last week to backstop Dexia, a Belgian-French bank that had to be partly nationalized just three years after both governments gave it a multibillion-euro bailout following the collapse of Lehman Brothers.

President Nicolas Sarkozy has made it a priority to keep France’s top rating intact, especially headed into a heated campaign for the French presidency against his freshly crowned Socialist opponent, François Hollande — who, like Mr. Sarkozy, has vowed to cut France’s deficit to 3 percent of gross domestic product by 2013.

Mr. Baroin said France’s AAA rating was “not in danger” because the government was ahead of schedule in passing a spate of measures to reduce the deficit. However, he acknowledged that economic growth — which ground to a halt in the second quarter — would probably not meet the 1.75 percent target the government had set for 2012.

“It’s probably too high compared to the development of the economic situation,” Mr. Baroin said on French television.

The French prime minister, François Fillon, said Tuesday that a European leaders’ summit being held this coming weekend in Brussels would be pivotal to re-establishing confidence in the euro monetary union.

France’s economy will continue to grow next year “if we are capable of putting together measures in the next two weeks that are strong enough to stop the speculation,” Mr. Fillon said on French television. “If we fail, it will be serious because the whole world would risk entering a recession, and we would have to take new measures.”

Article source: http://feeds.nytimes.com/click.phdo?i=84370cdcc051229515f8da6f8fa88c2c

Filed Under: Business News Tagged With: baroin, finance minister, french television

DealBook: Qatar Bets on Hobbled European Banks Dexia and KBC Group

October 12, 2011 by NewsMaker Leave a Comment

Yves Herman/ReutersPrecision Capital, a Qatari-backed firm based in Luxembourg, agreed to buy KBL European Private Bankers for $1.4 billion.

Qatari investors are on the hunt for deals across Europe after agreeing to buy the private bank operations of the troubled European firms Dexia and KBC Group.

The deals mirror similar moves in 2008, when banking heavyweights like Barclays and UBS turned to Mideast sovereign wealth funds for huge infusions of cash to recapitalize their operations after Lehman Brothers collapsed.

On Monday, Precision Capital, a Qatari-backed firm based in Luxembourg, agreed to buy KBL European Private Bankers for $1.4 billion. The figure is $400 million less than a previous offer from the Hinduja Group of India, which fell through in March for regulatory reasons.

Euro Debt Crisis Threatens to Touch Off a New Recession

October 5, 2011 by NewsMaker Leave a Comment

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

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

It is not just the Continent’s problem.

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

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

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

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

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

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

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

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

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

Distress is increasingly evident across Europe.

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

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

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

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

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

Article source: http://feeds.nytimes.com/click.phdo?i=d72b58ce395b32cadc9abbf72384c9f2

Filed Under: Business News Tagged With: austerity, euro debt, finance minister

Greek Government Tries to Sell New Belt-Tightening Measures

September 21, 2011 by NewsMaker Leave a Comment

Inspectors from the International Monetary Fund, the European Central Bank and the European Commission were to return to Greece next week after two teleconferences this week with the Greek government. The commission said that “progress was made” in the calls for an agreement to pave the way for the release of the next portion of aid, totaling €8 billion, or $10.9 billion.

On Wednesday, Finance Minister Evangelos Venizelos of Greece told Parliament before a cabinet meeting that extra measures would be needed to meet the targets set by the lenders. But he did not specify what they were and did not elaborate on a new property tax, proposed this month, or Greek media reports indicating there would be sharp wage and job cuts in the civil service.

“We are trying to find a solution that causes as little pain as possible,” he said. The government will do everything possible to keep the country “out of danger,” he added.

“We will not put the country’s very existence at risk over matters that account for half or 1 percent of G.D.P.,” he said. “The markets are blackmailing us and the circumstances are humiliating us.”

Other possible measures reportedly being discussed include raising taxes on heating oil tax and reducing the tax-free threshold for incomes.

Charles Jenkins, an analyst in London covering European Union for the Economist Intelligence Unit, said that word of progress being made in the negotiations “provides some short-term relief that an agreement will be reached” to enable Greece to meet its bills for the next two months.

“But even if this proves correct, further crises are likely as further tranches are required every two months,” he said.

Mr. Jenkins said it was far from clear whether the Greek government had the “capacity to enforce expenditure cuts or to increase its collection of taxes.”

The Greek prime minister, George A. Papandreou, was to meet his German counterpart, Chancellor Angela Merkel, for dinner and talks in Berlin on Tuesday, the German government announced.

Mrs. Merkel has been under pressure from skeptical lawmakers within her own coalition over the proposed enhancements to the E.U. bailout fund, the European Financial Stability Facility, which include powers allowing it to buy sovereign debt and support banks.

In Berlin, however, the lower house of Parliament’s finance committee backed the proposals Wednesday with a “big majority,” the deputy finance minister, Hartmut Koschyk, told Bloomberg News. The bill won support from the opposition but the coalition was able to pass it without their help, he said.

The budget committee was also due to deliberate the proposed changes to the E.U. bailout fund, before the bill goes to a full vote on Sept. 29.

Frank Engels, an analyst at Barclays Capital, said even if the rescue fund bill is passed by a very healthy majority in the Parliament, “German politics are likely to become even more volatile than before in the wake of the growing divergence” between Mrs. Merkel’s conservatives and her junior partner, the pro-business Free Democrats, “on matters related to the euro.”

The leader of the Free Democrats, who have suffered a series of stinging local election defeats recently, has been at odds with Mrs. Merkel over whether the possibility of a Greek default should be considered.

So far, Spain, France, Belgium, Italy and Luxembourg have ratified the July 21 deal on expanding the rescue fund. The rest are supposed to do so by early October, but there are indications from several countries, including Austria, Finland and Slovakia, that approval is likely to be delayed.

Austria’s parliamentary finance committee is scheduled to discuss the bill on Tuesday before a vote in Parliament on Sept. 30.

In Finland, Parliament is expected to vote on the bill next Wednesday. The government has been insisting on sticking to a provision in the July agreement under which it would receive collateral for its contribution — a clause that has proved divisive.

In Slovakia, Finance Minister Ivan Miklos said Monday that Parliament would vote on the plan by Oct. 11, Bloomberg News reported. But the government still lacks majority support for the overhaul within the ruling coalition parties.

The fall of the government in Slovenia on Tuesday threatens another delay.

The Dutch Parliament is scheduled to approve a supplementary budget, which includes the proposed rescue fund changes, in first week of October, a Finance Ministry spokesman, said Monday, according to Reuters.

Niki Kitsantonis contributed reporting from Athens.

Article source: http://feeds.nytimes.com/click.phdo?i=9a499df56845b7104b95a4e2114abee1

Filed Under: Business News Tagged With: finance minister, greek media, tax free threshold

Fresh Worries About Europe Shake Global Stock Markets

September 12, 2011 by NewsMaker Leave a Comment

The FTSE 100 in Britain sank 2.9 percent and the Euro Stoxx 50 index of euro-zone blue chips was off 4.7 percent. The DAX in Germany dropped over 4 percent, and the CAC 40 in France tumbled 5 percent by early afternoon despite a fresh volley of efforts by the French government and one of the hardest-hit banks, Société Générale, to calm nerves.

Stocks on Wall Street were expected to open lower. Dow futures were down 2 percent while Standard Poor’s 500 futures fell 2.3 percent. Asian markets also slumped. The Nikkei 225 index closed down 2.3 percent, and the Hang Seng in Hong Kong fell 4.2 percent.

The euro also continued to decline rapidly against the dollar, dipping below $1.35 from $1.41 just over a week ago. Rapid swings like this in currencies are worrisome because they make it hard for businesses to calculate their costs and re-price goods and services quickly in response.

Exporters in the United States especially can hardly afford to see the dollar strengthen sharply at a time when the economy is in danger of slipping back into recession.

Previewing the week, Carl Weinberg, the chief economist at High Frequency Economics in Valhalla, N.Y., declared markets to be “in destabilized mode.”

“What has to happen this week to make it better, we don’t know, because we’ve never seen this before,” he added.

Worries about the health of Europe’s banks have taken on outsized dimensions in recent weeks, contributing to significant volatility in stock markets worldwide. Investors have grown increasingly suspicious that Europe’s efforts to contain the crisis that began in Greece are unraveling.

The Greek finance minister, Evangelos Venizelos, warned over the weekend that the Greek economy would be likely to shrink 5.3 percent this year — a sharp downward revision from the previous forecast of a contraction of 3.8 percent. This would make it even more challenging for Greece, which has been at the center of the continent’s debt woes, to pay its debts.

The stock price of Société Générale and BNP Paribas, both globally interconnected French banks considered too big to fail, plunged up to 12 percent in early trading Monday as investors braced for a possible downgrade to their credit ratings. Moody’s Investor Services had recently warned about their exposure to Greek sovereign debt.

While any downgrade was expected to be small, it would likely fan further turmoil in financial markets, just as the Standard and Poor’s downgrade of the United States by one notch stoked greater volatility than originally anticipated.

Société Générale attempted to head off trouble Monday with a statement before markets opened, saying that it holds relatively little in the way of troubled government bonds from Greece, Ireland, Italy, Portugal or Spain.

The bank said that it was stepping up efforts to reduce costs and strengthen its balance sheet, and that it planned to free up €4 billion, or $5.4 billion, of capital by 2013 through the sale of assets.

The governor of France’s central bank, Christian Noyer, also sought to put out the flames on Monday. “No matter what the Greek scenario, and whatever measures must be passed, French banks have the means to face up to it,” he said in a statement.

That did little to placate the concerns. After trading at €40 in early July, the shares had slid to just above €15 Monday — a level that is considered a key psychological threshold. In what may be a self-fulfilling spiral, investors have been questioning why the shares would be trading so low if the bank is as healthy as its executives and the French government say it is.

The biggest banks in Europe, especially in France, hold billions of euros’ worth of Greek bonds, and investors fear that even a partial default by Greece would sharply diminish the value of those assets, eroding what are perceived to be already weak capital positions.

The latest slide in the currency and stock markets had been set off by the resignation of Jürgen Stark, a key German official at the European Central Bank, on Friday, which highlighted policy discord within the E.C.B.

A much-anticipated jobs program speech by President Barack Obama, meanwhile, had done little to lift the global malaise about the prospects for U.S. economic growth. The Dow Jones industrial average and the Standard and Poor’s 500 index both slumped 2.7 percent on Friday.

China, however, remains one of the world’s main engines of growth, although the pace is moderating, data released Monday showed.

Exports from China in August were up 24.5 percent from a year earlier and imports climbed 30.2 percent. Local banks extended nearly 580 billion renminbi, or $90.8 billion, in loans, in the same month, which was more than analysts had expected.

Bettina Wassener contributed reporting from Hong Kong.

Article source: http://feeds.nytimes.com/click.phdo?i=ad1c5e6ec2496f55786062b96a02f76d

Filed Under: Business News Tagged With: blue chips, early afternoon, finance minister

Financial Crisis in Europe Is Flaring Again

September 12, 2011 by NewsMaker Leave a Comment

In Greece, the epicenter of the Continent’s financial disarray, government officials announced new austerity measures on Sunday, even as the country’s finance minister, Evangelos Venizelos, warned that the Greek economy was expected to shrink much more sharply this year than previously anticipated. In a revision, a contraction of 5.3 percent in 2011 was predicted, rather than the 3.8 percent forecast in May.

Slower growth could make it harder for Greece to pay its debts, even as it tries to reduce them by cutting government spending and raising taxes.

While the Greek drama has been running for more than a year, only recently has it threatened French and German banks, unnerving investors around the world and sending stocks tumbling in Europe and the United States.

More than anything else, political and business leaders want to avoid the phenomenon of contagion, in which fears in one country spread to others, causing severe stress throughout the financial system, as happened in the fall of 2008. To be sure, Europe could still draw away from the precipice. That is especially true if policy makers come up with a plan to keep Greece afloat while also preventing anxiety from infecting other countries like Spain and Italy, whose huge debts and weak economies have fed worries that their borrowing has become unsustainable.

On Sunday, French government officials braced for possible ratings downgrades by Moody’s Investors Service of France’s three largest banks, BNP Paribas, Société Générale and Crédit Agricole, whose shares were among the biggest losers last week. The biggest banks in Europe, especially in France, hold billions of euros’ worth of Greek bonds, and investors fear even a partial default by Greece would sharply diminish the value of those assets, eroding already weak capital positions.

American financial institutions, typically heavy lenders to their French counterparts, have begun to pull back on these loans, but United States banks’ exposure to France remains substantial.

Still, if the French banks are indeed downgraded, it would underscore how European officials have been unable to contain the effect of the financial crisis in Greece, despite two bailout packages totaling more than 200 billion euros ($272 billion).

Frustration elsewhere in Europe has been mounting over whether Greece is sticking with the austerity goals it agreed to follow in order to qualify for the aid, and German voters in particular are wary of more handouts.

Despite repeated pledges by Chancellor Angela Merkel to keep Europe together, the cacophony of dissent within Germany has been rising. That is creating fresh doubt — justified or not — about the nation’s commitment to the euro.

“The German electorate is not in the mind-set to undertake actions it sees as subsidizing less worthy nations,” said Carl B. Weinberg, chief economist of High Frequency Economics in Valhalla, N.Y. “As a result, the government is moving in a very isolationist way to try to establish a fortress Germany that’s economically secure despite the risks in its European Union partners.”

On Friday, a stalwart German member of the European Central Bank, Jürgen Stark, abruptly resigned — news that would have barely merited more than a few lines in the financial pages just a few years ago. Today, it is considered a sign of frustration within Germany about the extraordinary measures being pursued to maintain stability in the euro zone, adding to the volatility in global financial markets.

“Mr. Stark’s departure could be seen by financial markets as another indication of growing disenchantment in Germany towards the euro,” Julian Callow, chief European economist at Barclays, wrote in a note to clients.

Last week, Mrs. Merkel’s finance minister, Wolfgang Schäuble, warned that Greece’s European Union partners would withhold new financial aid that is needed to help Athens pay its bills through Christmas unless the Greek government fulfilled the conditions of its first bailout.

All this has generated severe discomfort in Washington, which has watched the fallout from the European debt crisis with growing alarm.

Treasury Secretary Timothy F. Geithner has been in regular contact with his European counterparts, repeatedly advising them to speak with a single voice to help reduce confusion in financial markets. After a series of discussions on Friday at a meeting of the Group of 8 finance ministers in Marseille, he declared that “European officials fully understand the gravity of the situation there.”

Athens is expecting to receive the next allotment of 8 billion euros of aid from the 110 billion euro rescue package that Greece was awarded last year. That aid is to be supplemented by a second bailout of 109 billion euros that European leaders agreed to in July. But the second package is threatened by demands from a handful of euro zone countries, including Finland and the Netherlands, that Greece provide collateral to secure further loans.

Mr. Venizelos said the government would do everything needed to close the budget shortfall. “If we can prove wrong those who are betting on Greece to fail, we will see the crisis recede,” he said.

Among the measures Mr. Venizelos announced on Sunday was a temporary property tax, ranging from 50 cents to 10 euros a square meter, depending on the value of the property, which would be collected for two years. The levy will be added to electricity bills to thwart tax evasion.

Mr. Venizelos also warned that the government would make further cuts to public spending. In a largely symbolic move, the government said it would withhold a month’s pay from all elected officials.

“This is a battle for the country’s survival,” Prime Minister George A. Papandreou told a news conference in the northern port city of Salonika on Sunday. “These measures are the supplies we need to fight.”

Niki Kitsantonis and Ben Protess contributed reporting.

Article source: http://www.nytimes.com/2011/09/12/business/global/german-dissent-magnifies-uncertainty.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: finance minister, german banks, venizelos

Japan’s Credit Rating Cut by Moody’s

August 25, 2011 by NewsMaker Leave a Comment

TOKYO — Moody’s, the credit ratings agency, lowered Japan’s credit rating by one notch on Wednesday, warning that frequent changes in administration, weak prospects for economic growth and its recent natural and nuclear disasters made it difficult for the government to pare down its huge debt.

Hours after the downgrade, the government announced a $100 billion credit facility to help the Japanese economy ride out a spike in the yen in recent weeks amid the global market turmoil, which has battered Japan’s export-led economy.

“Taking into account that there is a lopsided rise in the yen, I felt that swift measures were needed,” Yoshihiko Noda, the finance minister, told reporters.

Moody’s Investors Service lowered Japan’s grade by one step to Aa3, the fourth-highest rating, the company said in a statement.

The downgrade brings Moody’s rating for Japan in line with Standard Poor’s, which lowered the country’s grade by one notch to AA-minus in January, the fourth highest on its scale. Moody’s had put Japan on review for a downgrade in May.

The action comes after a round of downgrades by major ratings agencies of sovereign debt, and amid concern that the debt crisis in Europe could escalate. On Aug. 5, S. P. cut the sovereign debt rating of the United States for the first time in the country’s history.

Markets in Tokyo largely shrugged off the downgrade, the latest in a line of many.

Trust in Japanese government debt “remains unwavering,” Japan’s finance minister, Yoshihiko Noda, told reporters after the downgrade.

Still, the move, a week before the country’s ruling party is to select a new prime minister, could put additional pressure on the incoming administration to balance budgets. The government financing of the recovery from the March 11 earthquake, tsunami and subsequent nuclear crisis is expected to reach as high as 10 trillion yen ($130 billion).

Even before the disasters, Japan’s debt was expected to soar to almost 220 percent of its gross domestic product next year, according to the Organization for Economic Cooperation and Development, which would rank it as the largest debt-to-G.D.P. ratio in the world. Japan, however, has long been able to borrow at low nominal rates because of unwavering appetite by domestic investors for government debt.

Moody’s said that it was worried by large budget deficits and the buildup of government debt. Frequent change in leadership had prevented the government from pursuing long-term fiscal reform, the agency said, while the recent disasters had delayed recovery. Meanwhile, weak prospects for economic growth were also hampering efforts to curb the country’s debt burden, the agency said.

Deflation and sluggish growth has long weighed on Japan’s economy, eroding the country’s tax base and forcing the government to issue debt to finance its budget. Meanwhile, spending on pensions and social welfare has soared as the country’s population ages.

The global economic crisis further darkened Japan’s economic outlook, as has the recent tsunami and nuclear accident. Global market turmoil in recent weeks has also wreaked havoc with the Japanese economy, driving up the value of the yen and hurting its export-led economy.

The credit facility unveiled on Wednesday aims to spur Japanese spending on corporate acquisitions and resources overseas, according to a statement released by the Finance Ministry.

By spending yen for dollars and other currencies, the ministry hopes that the currency will weaken somewhat. A strong yen hurts Japanese exporters because it makes their goods less competitive and erodes the value of their overseas earnings when repatriated into yen.

The ministry also said it would step up monitoring of currency markets by asking financial institutions to report on positions held by their currency dealers.

Prime Minister Naoto Kan, meanwhile, is expected to step down by the end of the month amid criticism of his handling of the response to the disasters, making way for Japan’s fifth prime minister in six years.

Mr. Noda, the finance minister, is among a field of candidates to replace Mr. Kan. He has supported more aggressive steps, including raising taxes, to tackle the country’s debt. Debate over Japan’s finances has been sidelined by the country’s recovery and reconstruction needs, however.

This article has been revised to reflect the following correction:

Correction: August 25, 2011

An article on Wednesday about a downgrade of Japan’s credit rating by the ratings agency Moody’s Investors Service misstated Japan’s grade from another agency, Standard Poor’s. It is AA–, not AA. (A grade of AA– is S. P.’s fourth-highest, equivalent to the AA3 rating announced by Moody’s.)

Article source: http://feeds.nytimes.com/click.phdo?i=f82d2f89526d1948621eae07564946ad

Filed Under: Economy News Tagged With: finance minister, japanese government, noda

I.M.F. Chief to Face French Investigation

August 4, 2011 by NewsMaker Leave a Comment

The ruling by the Court of Justice of the Republic, which oversees the actions of French ministers, means that Ms. Lagarde may have to gird for a possibly lengthy legal process to defend against the criminal charge.

But legal experts said it was unlikely to interfere with her management of the fund, which was aware before her appointment that an investigation could be called.

“She should be able to continue her duties with no problem because the I.M.F. was made aware of this potential investigation when she submitted her candidature, and they voted for her nonetheless,” said Christopher Mesnooh, a partner specializing in international business law at Field Fisher Waterhouse in Paris.

The International Monetary Fund’s board said in a statement it was “confident” that Ms. Lagarde “will be able to effectively carry out her duties.”

Ms. Lagarde ushered in a new era at the I.M.F. in June, becoming the first woman to take on one of the world’s top positions in finance after Dominique Strauss-Kahn stepped down to deal with allegations that he sexually assaulted a hotel maid in New York.

Her contract contains a section on conduct and ethics that requires her to “strive to avoid even the appearance of impropriety.” Given that she was up front about the matter when applying for the I.M.F. job, “no one could come back and say now you have to take leave or resign — that would be indefensible,” Mr. Mesnooh said.

At issue in the French court case is whether Ms. Lagarde abused her authority as finance minister in a long-running legal soap opera.

In 2007, she ordered that a dispute between Bernard Tapie, a flamboyant French businessman and a friend of President Nicolas Sarkozy, and Crédit Lyonnais, a state-owned bank, be referred to an arbitration panel. The panel ultimately awarded Mr. Tapie a settlement of about $580 million, including interest.

Mr. Tapie, a former head of the Adidas sports empire and a former Socialist minister who changed political loyalties to support Mr. Sarkozy’s 2007 presidential campaign, accused Crédit Lyonnais in 1993 of bilking him when it oversaw the sale of his stake in Adidas.

The scandal-ridden bank was effectively put into state hands, and when Mr. Strauss-Kahn was finance minister in 1999, he ruled that the state was responsible for dealing with Mr. Tapie’s claim.

But it was Mr. Sarkozy who later suggested that the finance ministry, which by then was headed by Ms. Lagarde, move the case to arbitration.

Ms. Lagarde has defended her role numerous times in the case, at one point declaring the allegations to be a smear campaign and vowing that she acted with “rigor and transparency” to keep the dispute from increasing costs to taxpayers.

The case could drag on for months if not years, legal experts said, as investigators pore through documents. The charge comes with a theoretical penalty of 75,000 euros and five years in prison.

Article source: http://feeds.nytimes.com/click.phdo?i=70e49b02a9dbbe95f2d43080c6bf4d1e

Filed Under: Business News Tagged With: finance minister, french court, nicolas sarkozy

Italy Bond Sale Succeeds, Despite Market Concerns

July 14, 2011 by NewsMaker Leave a Comment

LONDON — Italy managed to sell five-year bonds in an auction on Thursday, but yields were at their highest level in three years — a sign that some investors remain nervous about the risk of the sovereign debt crisis spreading from Europe’s vulnerable periphery to its core economies.

The sale came just before an informal meeting in Rome by officials from the European Central Bank, the European Commission and private lenders to discuss a second Greek rescue plan that leaders hope to announce next week.

Investor worries about the deadlock among European leaders over a solution for the Greek debt crisis have pushed up borrowing costs in recent days for the much bigger European economies of Italy and Spain.

Earlier doubts about whether the Italian prime minister, Silvio Berlusconi, and his finance minister, Giulio Tremonti, would agree on new austerity measures compounded the uncertainty. The Italian Senate on Thursday approved a €70 billion, or $99 billion, austerity plan; the lower house of Parliament is scheduled to vote on Friday.

The Italian Treasury said it had priced €1.25 billion of five-year bonds, the maximum it had earmarked for the sale, with a gross yield of 4.93 percent, up from 3.9 percent at a previous auction in June. It also sold a combined €3.7 billion of bonds with maturities of up to 15 years.

With Italy able to place the bonds, albeit at a higher cost, some analysts said the focus was shifting back to whether European policy makers would be able to agree on a Greek bailout.

“The Italians got away with what they intended to do and it did initially help to stabilize the markets,” said Eric Wand, a fixed-income strategist at Lloyds Bank Corporate Markets in London. “But the situation now is reverting back to European politics — and as politicians don’t seem to be in a desperate rush to get something out, the markets is starting to really get nervous.”

That message was echoed by the International Monetary Fund, whose mission chief in Ireland, Ajai Chopra, said European leaders needed to act decisively to handle the crisis.

“What is critical now is for Europe to dispel the uncertainty of what is perceived by the markets as an insufficient response,” he said at a news conference in Dublin.

Ireland, whose credit rating was recently lowered to junk status, received a positive report from the I.M.F., the European Commission and the European Central Bank.

“What we need and what is lacking so far,” Mr. Chopra said, “is a European solution to a European problem.”

Mr. Chopra called for a speedy end to the debate that has held up the construction of the new package: the extent to which private investors will have to make sacrifices as part of the new bailout of Greece.

With the E.C.B resisting any solution that involves a selective default, but the German government pressing for private investors to share the pain, policy-makers have been unable to construct a second bailout for Greece.

“We need to come to closure on this debate,” Mr. Chopra said, adding that it would be important to avoid the impression that any solution to the Greek case that involved private investors would be the template for other rescue packages.

The Institute of International Finance, which represents financial services companies, said Charles Dallara, its managing director, arrived in Rome on Thursday for discussions with Vittorio Grilli, an Italian Treasury official who is also the chairman of a high-level European committee on economic policy.

An Italian Treasury official, speaking on the customary condition of anonymity, said that the meeting would focus on the involvement of private investors, like banks and insurance companies, in a new Greek package and would give officials the chance to exchange opinions. No statement was expected after the meeting, the official said.

Article source: http://www.nytimes.com/2011/07/15/business/global/italy-borrowing-costs-hit-3-year-high-in-bond-sale.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: finance minister, italian senate, maturities