May 5, 2024

Strong Bond Sale in Spain and Russian Support Fail to Lift Euro

The offer came as Spain — one of the euro zone countries considered to be most at risk of needing outside help — held a surprisingly strong debt auction, providing a measure of relief in Madrid days before a new, conservative government is to be sworn in.

Arkady Dvorkovich, an economic aide to the Russian President Dmitri Medvedev, said that the issue was discussed by leaders at a dinner Wednesday night ahead of Thursday’s summit meeting between the European Union and Russia in Brussels.

Speaking in Brussels, Mr. Dvorkovich said that Russia would be ready immediately to allow the I.M.F. to keep $10 billion from its 2009 commitment which, he said, was due to be reimbursed. A separate loan of up to $10 billion was dependent on clearer plans emerging for the financing of a firewall for still-vulnerable euro zone nations like Italy and Spain.

“We are certainly ready to give $10 billion we are going to get back and we are ready to consider up to $10 billion on top of that,” said Mr. Dvorkovich. The additional loan “depends on the structure and size of the overall package.”

Despite the Russian announcement, and wishful talk of billions from China to aid the euro zone, Mario Draghi, the head of the European Central Bank, indicated in a speech Thursday that struggling governments in Europe would in the end have to solve their own problems.

“There is no external savior for a country that doesn’t want to save itself,” he told an audience in Berlin, The Associated Press reported.

That idea was reinforced Wednesday by Ben S. Bernanke, the Federal Reserve chief, who reportedly told senators in Washington that the Fed was not planning to ride to the rescue of the embattled euro.

Mr. Draghi also again ruled out more-aggressive bond purchases by the central bank, saying the euro zone’s “firewall” was the bailout fund set up by European governments, The A.P. reported.

Mr. Draghi spoke after the Bank of Spain announced that the Treasury had sold €6 billion, or $7.8 billion, of bonds, far above the €3.5 billion it had set as the upper limit for the auction.

The sale included €2.2 billion of 10-year bonds, priced to yield 5.24 percent, down from the 5.43 percent it paid to move similar securities on Oct. 20.

Following the auction, the yield on Spain’s 10-year government bonds fell 22 basis points to 5.39 percent.

Another beleaguered country, Italy, saw its yield drop 15 points, to 6.59 percent, even after the government called a confidence vote for Friday on a new austerity package.

“We’ve seen less stress today in the sovereign bond market,” Steven Saywell, head of global currency strategy at BNP Paribas in London, said. He said there was speculation that the European Central Bank’s new medium-term bank financing program, which started Thursday, was helping to buoy euro-zone debt.

The E.C.B. last week said it would begin giving banks loans for three years, compared with a maximum of about one year previously. It also cut its main interest rate target to 1 percent from 1.25 percent.

“But to really turn things around,” Mr. Saywell said, “we’re going to need more aggressive action from the E.C.B. I don’t think this is a turning point.”

The euro ticked back above $1.30, from $1.2980 late Wednesday in New York. European stocks were up as well.

Mr. Saywell predicted the euro would remain weak in the near term, with selling driven both by existential fears for the currency union as well as more prosaic concerns about the economic outlook, with the European economy now widely expected to make a poor showing next year. Further weighing on the euro, he noted, is the E.C.B.’s rate cut, which had the effect of narrowing the advantage money market managers gain by holding euro-based assets and making dollars relatively more attractive.

On Wednesday a European official, who spoke on condition of anonymity due to the sensitivity of the issue, said that Moscow had a direct interest in the stability of the European common currency, as around 40 percent of Russian foreign currency reserves are held in euros.

Mr. Dvorkovich said that Russia was aware that Europe was its closest trading partner, and that negative developments in the euro zone would have an impact on the Russian economy.

Mr. Medvedev — attending his last E.U.-Russia meetings before next year’s presidential elections, in which he is not running was briefed at the dinner on the outcome of discussions among European leaders last week on the euro.

“European leaders seem to be more optimistic than before about reaching a solution,” Mr. Dvorkovich said, though he added that more detail was required on how a firewall to protect countries like Spain and Italy will be constructed.

“What we would like to understand is what is the gap and how they are going to collect the whole amount,” he said. “What we need to do is make markets believe.”

Mr. Medvedev and the Russian Foreign Minister Sergei Lavrov were to hold meetings with the president of the European Council, Herman Van Rompuy, the president of the European Commission, José Manuel Barroso, and the E.U.’s foreign policy chief, Catherine Ashton.

On Monday, Vladimir Chizhov, Russia’s ambassador to the European Union, said that, following the decision by European leaders last Friday to make a new contribution to the International Monetary Fund, the government in Moscow was considering doing the same.

However he did not give any figure or say whether an announcement could be made at the E.U.-Russia summit. Russia has ruled out making any contribution directly to the euro zone’s bailout fund, Mr. Chizhov added.

David Jolly reported from Paris.

Article source: http://feeds.nytimes.com/click.phdo?i=5c7b996a7d9a21867f27eef1a2300e59