October 27, 2020

G-20 Leaders Agree to Continue Stimulus Plans

MOSCOW — The leaders of the world’s 20 largest economies issued a joint statement on Friday saying it was too early to ease off government stimulus spending, in spite of recent positive economic news.

The opening lines of the statement, which was issued at the end of the Group of 20 meeting hosted by Russia, said that “strengthening growth and creating jobs is our top priority” with no mention of tackling deficits.

The leaders also approved a plan to crack down on multinational corporations that had been able to legally avoid taxes by shuffling profits and costs between various jurisdictions. The overhaul should, over time, shift some of the global tax burden away from individuals and small businesses to large, global companies. But the first step, a plan to share tax information, would only be implemented at the end of 2015, the statement said.

The economic tone of the statement was little changed from a draft issued in July after a summit meeting of finance ministers, suggesting that the world’s most influential leaders are still nervous about growth prospects despite a recent spate of positive economic news. Governments in the Group of 20 countries collectively account for about 90 percent of the world’s economic output.

“We agreed that it remains critical for the G-20 countries to focus all our joint efforts on engineering a durable exit from the longest and most protracted crisis in modern history,” the statement said.

Although not openly critical of austerity measures like the across-the-board federal budget cuts in the United States or the diminished state spending lenders have insisted on in Greece, the statement suggested that most governments considered the recovery too weak to risk reducing spending on unemployment benefits, job training or infrastructure.

The statement comes as the United States Federal Reserve considers pulling back from its stimulus efforts, which have helped keep interest rates low and spurred growth.

The expectation of a change in Fed policy is sending tremors through the global economy. Currencies like the rupee in India to the ruble in Russia have lost value. Emerging market bonds, too, have suffered.

The G-20 statement offered little consolation. It said central banks would better “communicate” their intentions but made no promises of easing the sell-off in countries with poorer investment climates.

The statement seemed in part a concession by developing countries like India, where the rupee has lost 17 percent of its value against the dollar this year, that they would have to fend for themselves. It referred vaguely to “collective and country specific measures” to improve the investment climates in such nations.

The statement, a senior United States Treasury official said in a telephone interview, was “a recognition that certain emerging markets that are seeing weakened investor appetite need to look at their policy reform agenda” and help themselves.

Article source: http://www.nytimes.com/2013/09/07/business/global/g-20-leaders-agree-to-continue-stimulus-plans.html?partner=rss&emc=rss

New Concerns From Germany Over European Banking Supervisor

DUBLIN — Germany has raised new concerns about a proposal to create a single banking supervisor for the European Union that could delay plans to help troubled lenders that finance ministers were to discuss here on Friday.

Last December, after weeks of bitter wrangling, euro zone finance ministers agreed to put about 150 large banks under the direct supervision of the European Central Bank and to give it powers to intervene to oversee smaller lenders.

The policy is meant to break the vicious circle between indebted sovereign governments and shaky banks. The creation of the single supervisor also is a precondition for nations to tap the Union’s bailout fund, the European Stability Mechanism, to recapitalize struggling lenders directly.

But in recent days, German diplomats made clear at E.U. headquarters in Brussels that they had some reservations about giving the central bank such powers, partly because of the fear that it might alter decisions on monetary policy to make supervision easier.

Wolfgang Schäuble, the German finance minister, was expected to present those concerns at the gathering Friday, according to officials from Ireland, which is hosting the meeting in its role as holder of the E.U.’s rotating presidency

Mr. Schäuble was expected to ask for more scope for national parliaments to hold the E.C.B. accountable, and to ask for an eventual change in the E.U. treaties to ensure that the central bank’s supervisory and monetary roles are clearly separated, according to the officials, who spoke on condition of anonymity as is customary ahead of such meetings.

Ireland and Spain are among the nations lobbying strongly to speed the direct aid, because pumping bailout money to banks avoids putting the loans on national balance sheets and helps keep a lid on borrowing costs.

Irish officials said late Thursday that the German demands could probably be accommodated, and that governments could still reach a final agreement on the single supervisor in coming days.

But German concerns still could hold-up that approval if other governments regard the concerns as little more than a delaying tactic.

Analysts said the German demands were a sign that Berlin did not want to be seen opening the way for further financial commitments, like bailing out banks in weaker parts of the euro area, before national elections in September.

“This instrument will never see the light of day in a German election year, ” said Mujtaba Rahman, Europe director at Eurasia Group, referring to the plans for the direct aid to banks. “Agreement on the E.C.B. supervisor will certainly be a precondition for its use.”

Euro zone finance ministers were meeting here to discuss the situation, as well as aid for Cyprus, Ireland and Portugal, on Friday, before finance ministers from the rest of the Union arrive later for meetings ending Saturday.

Article source: http://www.nytimes.com/2013/04/12/business/global/new-concerns-from-germany-over-eu-banking-supervisor.html?partner=rss&emc=rss

Cyprus Makes Fitful Progress on Bank Bailout Deal

Yet, with so many obstacles in the negotiations, the prospect of a default, and even a possible exit from the euro currency union, could not be ruled out.

After passing a portion of a revamped bailout agreement late Friday, the Cypriot Parliament on Saturday was still considering the rest of the package, including a tax of up to 25 percent on large, uninsured bank deposits. It was searching for an agreement before Sunday night, when euro zone finance ministers are scheduled to meet in Brussels.

Cyprus’s president, Nicos Anastasiades, was scheduled to fly to Brussels on Sunday.

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

A crowd, estimated at around 2,000 people, marched toward Parliament in the early evening, far more than the hundreds who had gathered there to protest in recent days. Many were demonstrating against the imminent closure of Laiki Bank, which will cost thousands of jobs, as well as the government’s proposal to nationalize state-run pensions.

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

The central bank, the European Commission and the International Monetary Fund — the so-called troika of lenders — agreed last weekend to arrange a 10 billion euro loan, or $12.9 billion, for Cyprus if the country could come up with 5.8 billion euros of its own money. But the source of Cyprus’s contribution remains elusive. The original proposal, to impose a one-time tax on all bank deposits in the country, met with domestic outrage and international criticism, and Parliament rejected it on Tuesday.

Asked on Saturday whether Cyprus had a backup plan if a deal is not reached, a government spokesman, Christos Stylianides, said, “We are doomed to find a solution, or else everything is ruined.”

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

In a sign of how chaotic the process has become, even the timing of the meeting of the euro zone’s 17 finance ministers, known as the Eurogroup, was uncertain until Saturday afternoon, when the Dutch finance minister, Jeroen Dijsselbloem, who leads the group, said on his Twitter account that it would be held on Sunday at 6 p.m. in Brussels.

In Friday’s voting, members of the Cypriot Parliament agreed to restructure the nation’s largest and most troubled bank, Laiki Bank, by splitting off its troubled assets into a so-called bad bank. Accounts with no problems would be transferred to the nation’s largest financial institution, the Bank of Cyprus. Lawmakers also voted to require that any bank on the verge of bankruptcy be split in the same way.

They agreed to come up with a portion of the bailout money by nationalizing the pensions of state-owned Cypriot companies, even though Germany, whose political and financial clout dominates euro zone policy, has already indicated it opposes the move.

Parliament was still deciding whether to vote on Saturday or Sunday, ahead of the Eurogroup meeting, on a crucial new proposal that would skim 22 to 25 percent of bank deposits above 100,000 euros through a new tax on Laiki Bank account holders.

Another idea floated was to take at least 10 percent from uninsured deposits above 100,000 euros at all Cypriot banks.

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

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

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

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

Earlier in the week, lawmakers rejected a previous deal brokered last weekend by President Anastasiades, the Eurogroup and the troika. “If it had been up to Anastasiades, then we’d already have an agreement,” said one European Union official, who spoke on the condition of anonymity because there may be talks with the Cypriot leader in Brussels this weekend.

The situation is “becoming critical,” the official warned, and “could end with an exit from the euro zone.”

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

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

News Analysis: Effect of Cyprus Exit From Euro Seen as Limited

But for the broader financial system in Europe, the losses resulting from a Cypriot banking collapse and the country’s return to its former currency would be minimal compared with the havoc that Greece would have created had it not been bailed out.

And that, economists and investors contend, is why Germany and its Dutch stalking horse, Jeroen Dijsselbloem, the president of the Eurogroup of finance ministers, were so adamant that depositors — large and small, Cypriot and Russian — contribute 5.8 billion euros ($7.5 billion) toward the 10 billion euro bailout of Cyprus’s largest banks.

Greece may well have been too big to fail last year, but Cyprus, which creates less than one-half percent of the euro zone’s gross domestic product, is certainly not.

From a financial standpoint, what is most noteworthy is that the combined debt of the Cypriot people, companies and government is 2.6 times the size of the country’s gross domestic product. Only Ireland, still struggling to recover from the banking collapse that required an international bailout in 2010, has a higher debt-to-G.D.P. ratio among euro zone countries.

As debts in Europe mount in inverse proportion to the ability of its citizens, companies and governments to make good on them, the view is forming in Berlin and Brussels that a signal must be sent that citizens and investors must start accepting losses for the euro zone to survive in the long run.

“There have been too many bailouts in Europe; it’s time to remove the air bags,” said Stephen Jen, a former economist at the International Monetary Fund who runs a hedge fund in London. “This is not a Lehman,” he said, referring to the disastrous chain reaction touched off by the collapse of Lehman Brothers in 2008.

Eric Dor is a French economist who has studied the mechanics of how a country might remove itself from the monetary union. By his calculations, the euro zone — through its central banking system and its national banks — has just 27 billion euros in outstanding credit exposure to Cyprus. That is a mere rounding error compared with the euro zone G.D.P. of 9.4 trillion euros.

Estimates of the potential cost if Greece had been forced into a disorderly euro exit have ranged from 200 billion euros to 800 billion euros, given the larger exposure that the European Central Bank and European banks had to the country.

“This explains why Germany and others are putting so much pressure on Cyprus,” said Mr. Dor, head of research at the Iéseg School of Management in Lille, France. “They are saying we can take the risk of pushing Cyprus out of the euro zone, and that Europe can take the losses without going broke.”

Mr. Dor notes that the current euro zonewide system of insuring bank deposits up to 100,000 euros was put in place after the financial panic that followed the Lehman collapse. Those deposits are supposed to be insured by national governments.

So when the president of Cyprus admitted this week that his country did not have the money to backstop the 30 billion euros of guaranteed bank deposits — a figure greater than the Cypriot economy itself — a crucial bond of trust between a government and its citizens was snapped.

“It is the first time ever that the leader of a euro zone country has admitted that he could not afford to pay the guarantee,” Mr. Dor said.

A hasty expulsion from the euro zone would make the savings of the Cypriot people all the more evanescent, once they are converted back into Cypriot pounds, the currency Cyprus used before adopting the euro in 2007.

Article source: http://www.nytimes.com/2013/03/22/business/global/a-cyprexit-might-not-hurt-euro-zone-much.html?partner=rss&emc=rss

Britain Isolated as European Colleagues Support Bonus Caps

The rules, which would apply to bankers working in the 27-nation bloc and those working for E.U.-based banks worldwide, are an acute concern for the Britain’s chancellor of the Exchequer, George Osborne, who is seeking to keep London, Europe’s main financial hub, competitive with other centers of finance like New York, Singapore and Hong Kong.

But finance ministers arriving at a monthly meeting in Brussels suggested that there was little scope to assuage Mr. Osborne.

“The British authorities have problems with the banker bonus issue,” but “now there is very little further we can do for them,” said Michael Noonan, the finance minister of Ireland.

Ireland holds the rotating presidency of the Union and helped to broker talks last week with legislators on the draft law. “We pushed the negotiations to quite a degree and we got the best possible compromise,” Mr. Noonan said.

Jeroen Dijsselbloem, the Dutch finance minister, said Tuesday his country was aiming to impose even tighter rules than those under discussion at the European level and that the measures were politically important.

“I think the banking sector needs to be in a strong relation with the real economy, and with real people, and real people are very worried about the way things are running in the financial sector,” said Mr. Dijsselbloem, who also is the president of the Eurogroup of finance ministers from countries using the single currency.

Pierre Moscovici, the French finance minister, said late Monday that his country was opposed to any modifications to accommodate Britain. “I don’t think at all that it’s necessary to adapt the arrangement that’s on the table today to try and keep this or that country on board,” Mr. Moscovici said during a news conference.

The bonus legislation cleared an important hurdle last week when representatives of E.U. governments and the European Parliament agreed that the coveted bonuses many bankers receive would be capped at no more than their annual salaries, starting next year. Only if a bank’s shareholders approved could a bonus be higher — and even then it would be limited to no more than double the salary.

The rules are drafted so that a banker working in New York for a British bank like Barclays would be subject to the rules, as would a banker in London working for a U.S. bank like Citigroup.

Britain does not wield a veto because the legislation is expected to pass as long as a majority of member states approve. The E.U. finance minsters could decide on Tuesday to give the rules their political approval. But Britain may still have additional weeks, or even months, to press for concessions because important details still need to be nailed down.

“There’s room for technical amendments to be put in place,” Mr. Noonan, the Irish finance minister, said. “We’ll leave scope for that.”

Yet Mr. Osborne faces a dilemma over how strongly to argue for changes.

He faces acute pressure from members of Britain’s ruling Conservative party who favor taking a tough line against European rules that dent British interests. The party faces a growing challenge from the UK Independence Party, which wants to pull Britain out of the Union.

But supporting high pay for bankers is politically toxic among the significant sections of the British electorate who resent the outsized remuneration. Many voters also resent the banking industry for receiving a series of giant bailouts paid for by taxpayers.

Mr. Osborne also may rein in his criticism because the rules are part of a legislative package that includes something his government favors: tougher rules about how much capital European banks most hold in reserve to protect against losses.

“I hear he’s worried,” said Mr. Dijsselbloem, the Dutch finance minister, on Tuesday morning, referring to Mr. Osborne. “We’ll see how it goes today.”

Article source: http://www.nytimes.com/2013/03/06/business/global/britain-isolated-as-european-colleagues-support-bonus-caps.html?partner=rss&emc=rss

Euro’s Strength on Agenda for Finance Ministers

As confidence has grown that the Union will be able to manage its sovereign debt crisis, the euro has made significant gains against the dollar and other foreign currencies. That is making Europe’s exports more expensive, a factor that could hamper growth.

On Monday, France, which traditionally favors market intervention, renewed its calls for remedial steps that could include establishing a target level for the euro’s value.

Exchange rates need “to reflect the economic fundamentals of our economies of the euro zone,” said Pierre Moscovici, the French finance minister. “Exchange rates should not become subjected to moods or speculation.”

Mr. Moscovici made the case to other members of the so-called Eurogroup of finance ministers, asking for coordinated action to keep a lid on the value of the euro currency. Before the meeting, Mr. Moscovici said he wanted the Europeans to present a common plan later this week during a meeting of finance ministers and central bankers of the Group of 20 nations to be held in Moscow.

In a news conference after Monday’s meeting, Jeroen Dijsselbloem, the president of the Eurogroup, who oversees the agenda for the monthly meetings, said the euro exhange rate had been discussed. But like some German officials, he appeared to give the matter short shrift, saying that the forum for further discussion should be the G-20 meeting in Moscow.

“That’s where exchange rates, if anywhere, should be addressed,” Mr. Dijsselbloem said.

Mario Draghi, the president of the European Central Bank, warned last week that the strength of the euro could weigh on the ability of Europe to pull out of its economic doldrums. Those comments were enough to send the euro down sharply against the dollar — to $1.36 from $1.34 — and the yen.

The euro was trading at $1.339 on Monday after falling to the low $1.20s last year.

The renewed French push for greater scope to control the levers of the European economy immediately met stiff resistance from a senior German official, who decried the initiative as a poor substitute for policy overhauls.

Jens Weidmann, the president of the German central bank, the Bundesbank, suggested Monday that countries like France were simply diverting attention from the need to make their economies more competitive.

“Only governments can solve these problems, the central banks cannot,” he added. “In this respect, the discussion about a supposed overvaluation of the euro’s exchange rate simply deviates from the real challenges.”

Mr. Weidmann also warned that an exchange rate policy aimed at weakening the euro would “in the end result in higher inflation.”

A number of ministers agreed Monday that intervention would be wrongheaded.

“This is mainly decided by the market,” Maria Fekter, the Austrian finance minister, said in response to a question on the strong euro as she arrived at the meeting. “I find an artificial weakening unnecessary.”

The strong euro means some European exports, like cars and wine, become more expensive abroad, putting European producers at a disadvantage against foreign competitors. But there are also positive effects. Imports, particularly oil, become less expensive for Europeans, which helps stimulate the economy.

The push for intervention by the French is unlikely to make much real headway. Instead, it may be an illustration of the way that economic policies in the euro area are a result of a back-and-forth between states like France and Germany.

“The French have always believed the single currency should be put to the service of exports,” said Mujtaba Rahman, an analyst with the Eurasia Group, a political risk research and consulting firm. “But it’s not a debate they can win, so they are most likely using this to win concessions on other baby projects, from the pace of its own fiscal consolidation, to a fiscal capacity to a short-term mutualized debt instrument.”

Article source: http://www.nytimes.com/2013/02/12/business/global/euros-strength-on-agenda-for-finance-ministers.html?partner=rss&emc=rss

E.U. States Get Blessing for Financial Trading Tax

European Union finance ministers gave their approval at a meeting in Brussels, allowing the states – Germany and France plus Italy, Spain, Austria, Portugal, Belgium, Estonia, Greece, Slovakia and Slovenia – to pursue the contested scheme.

The levy, based on an idea proposed by U.S. economist James Tobin more than 40 years ago but little considered since, is symbolically important in showing that politicians, who have fumbled their way through five years of financial crisis, are getting to grips with the banks often blamed for causing it.

“This is a major milestone in tax history,” Algirdas Semeta, the European commissioner in charge of tax policy, told reporters, saying the levy could be imposed from January next year if governments agree on its design quickly.

Under EU rules, a minimum of nine countries can cooperate on legislation using a process called enhanced cooperation as long as a majority of the EU’s 27 countries give their permission.

Britain, which has its own duty on the trading of shares, registered its protest by abstaining in the vote, along with Luxembourg, the Czech Republic and Malta, EU officials said.

Following Tuesday’s decision, Semeta said the European Commission would likely put forward a blueprint for the tax in February. Other EU countries could still join the scheme.

Even if Britain and others are out, however, they could still be affected, which is a major concern for London, Europe’s biggest financial centre. If either the buyer or seller is based in one of the countries imposing the tax, the levy can be imposed regardless of where the transaction takes place.

Although critics say such a tax cannot work properly unless applied worldwide or at least Europe-wide, some countries are already banking on the extra income from next year, which one EU official said could be as much as 35 billion euros annually.

Economy Minister Vittorio Grilli said Italy expects revenues of 1 billion euros a year at the national level, while French finance ministry official Benoit Hamon said Paris was among those keen to have the levy in place quickly and hoped other countries would eventually join up.

The Netherlands has expressed an interest in joining the 11, German and French officials said, and non-euro zone countries have also registered interest in signing up.


Germany and France decided to push ahead with a smaller group after efforts to impose a tax across the whole EU and later among just the 17 euro zone states failed.

Sweden, which experimented with and then abandoned its own transactions tax, has repeatedly cautioned that the levy would push trading elsewhere and found some support for its reservations from Denmark, Portugal, Hungary and Romania on Tuesday, although they did not block the process.

Germany has argued that banks, hedge funds and high-frequency traders should pay for a financial crisis that began in mid-2007 and spread across the world, forcing euro zone countries to bail out peers such as Portugal and Greece.

“The financial sector should share the burden of costs of the financial crisis in an appropriate way,” said German Finance Minister Wolfgang Schaeuble, who was attending a celebration in Berlin marking half a century of post-war partnership between France and Germany. “We have come a good way closer to this goal.

But critics say the levy could open another rift in Europe, where the 17 states using the euro are deepening ties in order to underpin the currency, and there is the growing risk that Britain could even leave the European Union.

Powerful lobby group AFME, which represents some of the world’s largest banks, says the tax will undermine economic growth and the jobs market at a time when Europe is struggling with record unemployment.

Nicolas Veron, a financial market expert at Brussels-based think-tank Bruegel, also believes the scheme, which is likely to see stock and bond trades taxed at a rate of 0.1 percent and derivatives trades at 0.01 percent, is misguided.

“Using a tax on financial transactions to tackle the ills of finance such as high-frequency trading could turn out to the equivalent to a 17th-century course of leeches.”

(Additional reporting by Leigh Thomas, Annika Breidthardt and Francesco Guarascio; Editing by Catherine Evans)

Article source: http://www.nytimes.com/reuters/2013/01/22/business/22reuters-eu-transactionstax.html?partner=rss&emc=rss

Cyprus Rises on Agenda of Overseers of the Euro

BRUSSELS — Finance ministers who oversee the euro are planning to meet here Monday and are expected to choose a new president for their group, as concerns mount about how to rescue Cyprus, which is the fourth country in the euro area to need a bailout.

The gathering of the Eurogroup, as it is known, will be its first monthly meeting this year. And though problems in Cyprus loom large, the ministers are expected to meet in an atmosphere of relative calm.

E.U. officials said Friday that the ministers could decide to hold a vote as soon as Monday night to elect Jeroen Dijsselbloem, 46, the Dutch finance minister as the Eurogroup’s next president. He is the only official candidate to replace the current office holder, Jean-Claude Juncker, the prime minister of Luxembourg.

As president, Mr. Dijsselbloem would play a coordinating role among finance ministers when they make critical decisions like giving political approval for bailouts and pressing governments to shore up their finances to preserve the stability of the euro.

Assuming he is elected, Mr. Dijsselbloem will have Cyprus at the top of his agenda as it seeks to recover from a crisis partly triggered by its banking sector’s heavy exposure to Greek debt. Cypriot lenders took a body blow when those holdings were written down to help Greece manage its debt.

The amount needed to rescue Cyprus is about €16 billion, or $21 billion, which is small compared with the needs of Greece, which has been given or promised about €240 billion in bailout money so far. And yet, to Cyprus, it is a huge amount. Cyprus has a gross domestic product of only about €18 billion raising questions about how Cyprus could ever pay the money back.

But for the Eurogroup, it is a relatively manageable matter, compared with the turmoil of late last year, when the Eurogroup was forced to hold a series of emergency sessions to overcome a series of problems — most notably, sharp differences between Germany and the International Monetary Fund on restarting aid to Greece.

Another sign that a period of acute crisis has passed — for now, at least — will be the absence of Christine Lagarde, the managing director of the I.M.F., which with the European Commission and the European Central Bank makes up the so-called troika that has already overseen bailouts for Greece, Ireland and Portugal.

Ms. Lagarde, who is not a member of the group, regularly sat in on meetings last year, partly to push creditor nations like Germany to do more to keep financial problems in countries like Greece from festering and jeopardizing the stability of the broader European economy.

Mr. Dijsselbloem, in informally campaigning for the Eurogroup presidency, has already made his case to governments during a tour of capitals this month and has been endorsed by Mr. Juncker and other leaders.

But the French government has insisted that Mr. Dijsselbloem explain to the other 16 finance ministers in the Eurogroup how he intends to carry out the job before a vote is held on Monday.

A chief concern for the French is that the Dutch are among those Europeans who have made the toughest demands for fiscal rigor by countries in the euro currency union. The French president, François Hollande, has questioned continued austerity as a solution to the crisis.

The negotiations over Cyprus have been complicated by President Dimitris Christofias, who is the only communist leader in the European Union and is an opponent of raising money through the kinds of privatization of government assets that would be demanded by the troika. European officials also harbor concerns about the extent to which the island country, with its low taxes and lax bank regulation, has become a hub for Russian influence and for money laundering.

“The Cypriot case has all the ingredients to raise questions about the consistency of the euro project again,” Martin Lueck, an economist at UBS, wrote in a briefing note on Friday.

No agreement with the Cypriot government in Nicosia is expected until after the departure of Mr. Christofias, who will not be running in elections scheduled for Feb. 17. If necessary, a second round of voting in Cyprus will be held Feb. 24. International creditors want to wait to negotiate a rescue program with the winner, who is likely to be Nicos Anastasiades of the Democratic Rally, a center-right party.

But even then there would be numerous hurdles to overcome before Cyprus could secure a rescue package.

Chancellor Angela Merkel of Germany and some other European leaders face pressure to shield taxpayers from paying the bill for further bailouts during an election year. Meanwhile, the I.M.F. will probably need to be satisfied that the terms of any deal with Cyprus give the country a reasonable chance of paying back its loans.

One of the most potentially explosive issues is whether to force depositors in Cyprus including wealthy Russians to take haircuts, or losses, on their holdings, to help reduce the burden of recapitalizing and restructuring Cypriot banks.

Holders of Greek sovereign bonds were forced to take losses on their holdings, under the most recent terms of Greece’s bailout. But any move to penalize bank depositors, as is under discussion in the case of Cyprus, would be a new twist in the euro bailout narrative. The measure would be sure to unleash opposition from authorities in Cyprus and in other countries with vulnerable banking systems, who would fear a flight of bank deposits to more secure jurisdictions.

But imposing haircuts “would fit nicely into the populist political discussion that has been gaining momentum in creditor countries, especially Germany,” Mujtaba Rahman, an analyst with the Eurasia Group, wrote in a briefing note last week. “This populism reflects concerns about the very integrity of the Cypriot banking system, the nature of the business it has been involved in, and the government and financial system’s proximity to Russia,” he wrote.

Article source: http://www.nytimes.com/2013/01/21/business/global/21iht-euro21.html?partner=rss&emc=rss

For Greece, Oligarchs Are an Obstacle to Recovery

But as Greece’s economy soured in recent years, his fortunes sagged and he began embezzling money from a bank he controlled, prosecutors say. With charges looming, it looked as if his rapid rise would be followed by an equally precipitous fall. Thanks to a law passed quietly by the Greek Parliament, however, he avoided prosecution, at least for a time, simply by paying the money back.

Now 40, Mr. Lavrentiadis is back in the spotlight as one of the names on the so-called Lagarde list of more than 2,000 Greeks said to have accounts in a Geneva branch of the bank HSBC and who are suspected of tax evasion. Given to Greek officials two years ago by Christine Lagarde, then the French finance minister and now head of the International Monetary Fund, the list was expected to cast a damning light on the shady practices of the rich.

Instead, it was swept under the rug, and now two former finance ministers and Greece’s top tax officials are under investigation for having failed to act.

Greece’s economic troubles are often attributed to a public sector packed full of redundant workers, a lavish pension system and uncompetitive industries hampered by overpaid workers with lifetime employment guarantees. Often overlooked, however, is the role played by a handful of wealthy families, politicians and the news media — often owned by the magnates — that make up the Greek power structure.

In a country crushed by years of austerity and 25 percent unemployment, average Greeks are growing increasingly resentful of an oligarchy that, critics say, presides over an opaque, closed economy that is at the root of many of the country’s problems and operates with virtual impunity. Several dozen powerful families control critical sectors, including banking, shipping and construction, and can usually count on the political class to look out for their interests, sometimes by passing legislation tailored to their specific needs.

The result, analysts say, is a lack of competition that undermines the economy by allowing the magnates to run cartels and enrich themselves through crony capitalism. “That makes it rational for them to form a close, incestuous relationship with politicians and the media, which is then highly vulnerable to corruption,” said Kevin Featherstone, a professor of European Politics at the London School of Economics.

This week the anticorruption watchdog Transparency International ranked Greece as the most corrupt nation in Europe, behind former Soviet states like Bulgaria, Romania and Slovakia. Under the pressure of the financial crisis, Greece is being pressed by Germany and its international lenders to make fundamental changes to its economic system in exchange for the money it needs to avoid bankruptcy.

But it remains an open question whether Greece’s leaders will be able to engineer such a transformation. In the past year, despite numerous promises to increase transparency, the country actually dropped 14 places from the previous corruption survey.

Mr. Lavrentiadis is still facing a host of accusations stemming from hundreds of millions of dollars in loans made by his Proton bank to dormant companies — sometimes, investigators say, ordering an employee to withdraw the money in bags of cash. But with Greece scrambling to complete a critical bank recapitalization and restructuring, his case is emblematic of a larger battle between Greece’s famously weak institutions and fledgling regulatory structures against these entrenched interests.

Many say that the system has to change in order for Greece to emerge from the crisis. “Keeping the status quo will simply prolong the disaster in Greece,” Mr. Featherstone said. While the case of Mr. Lavrentiadis suggests that the status quo is at least under scrutiny, he added, “It’s not under sufficient attack.”

In a nearly two-hour interview, Mr. Lavrentiadis denied accusations of wrongdoing and said that he held “a few accounts” at HSBC in Geneva that totaled only about $65,000, all of it legitimate, taxed income. He also sidestepped questions about his political ties and declined to comment on any details of the continuing investigation into Proton Bank.

Article source: http://www.nytimes.com/2012/12/06/world/europe/oligarchs-play-a-role-in-greeces-economic-troubles.html?partner=rss&emc=rss

Cyprus Bailout Seen as Near, but Not Yet a Done Deal

Seeking to stave off financial collapse, Cyprus said Friday that it had negotiated a multibillion-euro bailout with international lenders, only to have the claim contradicted later by a formal statement from those creditors.

The European Commission, European Central Bank and International Monetary Fund, collectively known as the troika, said there had been “good progress toward agreement on key policies to strengthen public finances, restore the health of the financial system, and strengthen competitiveness.”

It added that “preliminary results of a bank due-diligence exercise, expected in the next few weeks, will inform discussions between official lenders and Cyprus” on the details of a bailout.

Those comments suggest that Cyprus has agreed to the austerity measures that will accompany the loans. But a lack of clarity over how much capital the country’s stricken banks may need is holding up a final agreement.

Cyprus is expected to receive about 16 billion to 17 billion euros ($20.6 billion to $22 billion), a small amount by comparison with other European rescues but a sum roughly equal to the country’s annual gross domestic product.

Talks are continuing on how to unlock a 31.5 billion euro installment of loans for Greece from its international bailout program, money it needs to stave off bankruptcy. Euro zone finance ministers, who failed to reach a deal earlier this week, will resume discussions Monday.

The deterioration of Greece’s finances in the midst of a recession has made the deal elusive; the economic slowdown is preventing the country from hitting its financial targets.

Greece’s finance minister, Yannis Stournaras, said Friday that a compromise was near in which the I.M.F. would agree that Greece’s debt could fall to 124 percent of G.D.P. by 2020 as opposed to a previous target of 120 percent.

Euro zone finance ministers have already agreed on measures that would reduce Greece’s debt to 130 percent of G.D.P. by 2020, Mr. Stournaras said. He said that a further 10 billion euros of savings would need to be found to bring debt down to the level desired by the I.M.F. by 2020.

The austerity measures Greece has undertaken in exchange for its bailouts have pushed Cyprus to seek alternative forms of financial assistance from outside the European Union, including from Russia.

Before the lenders issued their statement Friday contradicting Cyprus, Cypriot officials said that a deadline set by the European Central Bank to recapitalize the country’s banks had forced them to agree to a bailout.

“The bailout deal includes unpleasant measures,” the government spokesman, Stefanos Stefanou, said without elaborating.

The conditions of the bailout have caused friction between government officials and international lenders in recent weeks, though financial markets have been relatively relaxed about the negotiations.

“In other circumstances this issue might have garnered more attention from markets, but it has been swamped by events elsewhere, including in Spain and Greece in particular,” said Kenneth Wattret, co-head of European economics in London for BNP Paribas.

Mr. Wattret said that one reason for the lack of market reaction was that Cyprus seemed to be heading toward an agreement. A failure by politicians to reach a deal would have worried investors more than a bailout, he said, as it would have called into question the effectiveness of Europe’s crisis response.

“Still, once a deal has been struck, one potential source of event risk is removed,” he added.

Fitch Ratings said Friday that it was cutting its credit ratings on three of the island’s banks — Bank of Cyprus, Cyprus Popular Bank and Hellenic Bank — which together have assets of 77.2 billion euros, equal to about 430 percent of G.D.P. The ratings agency said it thought that the failure of Bank of Cyprus and Cyprus Popular Bank was “imminent” and that the two would require “sizable” injections of capital.

The agency pointed out that the precedents set in other euro zone bailouts meant that the investments of senior bank creditors were likely to be protected.

On Wednesday, Fitch downgraded Cyprus’s rating for its long-term sovereign debt to BB- from BB+, adding that the outlook was negative.

If Cyprus does reach a bailout agreement, it will follow in the footsteps of Greece, Ireland and Portugal, all of which had to be rescued by Europe and the International Monetary Fund. In addition, Spain has been offered up to 100 billion euros in aid for its crippled banking sector and may seek more help.

The economic crisis in Greece has spilled over to Cyprus. Cyprus’s economy, particularly its banking sector, is heavily exposed to Greece and Greek institutions.

David Jolly contributed reporting.

Article source: http://www.nytimes.com/2012/11/24/business/global/cyprus-bailout-seen-as-near-but-not-yet-a-done-deal.html?partner=rss&emc=rss