January 23, 2020

Markets Rise on Optimism About Greek Vote

PARIS — Asset prices were mostly higher in Europe on Wednesday as investors bet that the Greek Parliament would support an austerity plan demanded by international lenders as a condition for providing more funds and preventing a default.

Around midday in Europe, the broad Stoxx Europe 600 Index advanced 1.4 percent and the DAX index in Frankfurt gained 1.5 percent. National Bank of Greece climbed 5.5 percent. Futures on the Standard Poor’s 500 Index expiring in September were slightly higher suggested a modest rise on Wall St at the open. In Tokyo, the Nikkei-225 closed 1.5 percent higher.

Yields on benchmark 10-year Spanish, Portuguese and Greek bonds declined, while safer equivalents issued by Germany and France rose, suggesting investors were switching into riskier securities.

“The rally across markets suggests investors are going into today’s vote expecting a positive outcome,” currency and interest rate analysts at Bank of America Merrill Lynch said in a research note. “This seems justified.”

The main reason for the optimism was that only one member of the governing Greek Socialist Party, Alexandros Athanassiadis, has signaled opposition the package. Another, Thomas Robopoulos, who had previously said he would oppose the measures, declared that he had changed his mind.

Local media, meanwhile, reported that the positions of two or three other party skeptics had softened.

The vote is on approval of a medium-term fiscal strategy for the struggling Greek economy, specifically tax increases, wage cuts and the privatization of more state assets. A second vote is scheduled for Thursday on enabling legislation, for example the timing of the privatizations, especially of the state electric utility.

The votes are critical to unlocking near-term funding, specifically the disbursement of fifth installment of the original €110 billion, or $140 billion, bailout for Athens agreed last year. That instalment would be worth €12 billion and would enable Greece to meet obligations like bond coupon payments in July, while paving the way for a new international lending program to provide financing through 2014. Details of that program would probably be provided by euro area ministers on July 3.

Still, regardless of the votes, some analysts cautioned that the problems for Greece and the euro zone remained far from resolved. Private creditors are still discussing their involvement in a second bailout and many investors think Greece will still have to default.

“Despite the aid package, eventual Greek haircuts may be inevitable, with estimated private sector haircuts of 65 to 77 percent,” Citigroup said in a research report released Tuesday, referring to the writedowns that bond holders will be required to accept.

“In other words, a bailout package addresses the liquidity issue much more than the solvency issue,” Citigroup said.

And two Commerzbank analysts, Benjamin Schröder and Peggy Jäger, said Wednesday that “even if the bills are passed, worries could still linger on for longer, if no broader consensus across Greek political parties forms.”

Article source: http://feeds.nytimes.com/click.phdo?i=e87656d09a002edd4e1dc496c875f276

Argentina’s Default Offers a Cautionary Tale for Greece

“Thieves!” some yelled, banging hammers.

It was a low moment for Argentina as it abandoned an experiment to peg the peso to the dollar, froze bank accounts and defaulted on $100 billion in mostly foreign debt.

Today, the sheet metal is gone. But the debilitating effects of Argentina’s 2001 default and currency devaluation still linger. And now, as Greece edges toward a possible default, the Argentine lessons could be instructive.

For one thing, a decade later, Argentina has still not been able to re-enter the global credit market.

“A default is not free,” said Jaime Abut, a business consultant in Rosario, a city north of Buenos Aires. “You have to pay the consequences, and for a long time. Argentina is no longer considered a serious country.”

If anything, economists say, Greece’s prospects could prove worse. Argentina was, and is, a big exporter of agricultural products, and it runs a foreign trade surplus. The bulk of the Greek economy is services, particularly tourism, and Greece perennially runs a trade deficit.

Moreover, at the time of its default Argentina had a fiscal deficit of 3.2 percent of gross domestic product. Greece’s deficit was 10.5 percent of G.D.P. last year, according to the European Commission — well above the European Union’s limit of 3 percent.

And as a percentage of G.D.P., Greece’s debt of 150 percent is far worse than the 54 percent Argentina had when it defaulted.

But perhaps the biggest bind for Greece is that it shares a common currency with the other European nations that use the euro. And so, unless it takes the imponderable and unprecedented step of breaking from the euro zone, Greece does not have access to one big tool — devaluing its sovereign currency — that has helped Argentina weather its economic storm.

“The big problem for Greece is that they have a strong currency, much stronger in relation to their productivity,” said Eric Ritondale, a senior economist at Econviews, an economic consulting firm here.

During the 1990s, seeking to tame hyperinflation, Argentina had tied the value of its peso to the American dollar — a “convertibility” strategy that proved unsustainable because of rising global interest rates. The country privatized many industries, which led to high unemployment but also made Argentina’s economy more efficient. (Greece, whose public sector accounted for about 40 percent of its economy before the debt crisis began last year, is now under heavy privatization pressure.)

By 1999, however, it was clear to most economists that Argentina was marching inexorably toward a default and devaluation. The number of people under the poverty line was growing — it peaked at more than 50 percent of the population in 2002 — and unemployment was soaring. The government coalition of President Fernando de la Rúa began to fall apart.

As with Greece now, social tensions rose. There were eight general strikes in Argentina in 2001, with looting and thousands of roadblocks. Huge lines formed outside many European embassies as waves of Argentines fled their country.

“People sold everything and moved to Spain, and took jobs doing anything, because they felt this country had no hope,” recalled Daniel Kerner, an analyst with the Eurasia Group, a political risk consultancy.

Mr. de la Rúa resigned on Dec. 21, 2001, fleeing the government house by helicopter as a riot raged below. Over the next 10 days, four presidents assumed power and then quickly resigned before a fifth, Eduardo Duhalde, declared the currency devaluation. A short time later, Congress formally approved the debt default that was already a de facto reality.

In 2003 Nestor Kirchner was elected to replace the interim president, Mr. Duhalde. Mr. Kirchner embarked on a new economic model — one that his wife, Argentina’s current president, Cristina Fernández de Kirchner, continues to follow today. Its pillars are sustaining a weak currency to foster exports and discourage imports, and maintaining fiscal and trade surpluses that can be tapped for financing government and paying down debt.

Aiding this strategy has been the rising global prices of agricultural commodities. For Argentina, a major soybean producer, the commodity wave has been a godsend. Soybean prices have risen from $200 a ton in 2003 to about $500 a ton today.

Greece, with few agricultural exports, cannot expect a similar windfall. But economists say it can benefit from Argentina’s example on debt restructuring — mainly by seeking to avoid repeating it.

Charles Newbery reported from Buenos Aires and Alexei Barrionuevo from São Paulo, Brazil, and New York.

Article source: http://www.nytimes.com/2011/06/24/business/global/24peso.html?partner=rss&emc=rss

Greek Banks Feel Hostage to Debt Crisis

Unlike their government, Greek banks were seen as well managed and prudent before the crisis. But they became victims of their government’s debt woes, severed from international lines of credit and able to borrow only from the European Central Bank.

Now the banks complain that the E.C.B. is pressuring them to reduce their dependence on central bank funding, hurting not only the banks but Greek businesses and consumers who are unable to get credit.

Alexandros Manos, managing director of Piraeus Bank, argues that the E.C.B. should be doing just the opposite: lending the Greek banks more money to help the economy recover, lift tax revenue and increase the country’s ability to pay its debts.

“It is quite possible that the economy has hit bottom,” Mr. Manos said during an interview, citing data showing increased exports and tourism revenue. “If we were able to lend into the economy, it could have a substantial impact.”

There is little doubt that, though small by international standards, the Greek banks are crucial actors in the debt drama, which has flared in recent days with uncertainty over bailout payments and a reshuffled government that was facing a confidence vote Tuesday night. If the banks fail, so does the Greek economy — with dire repercussions for the euro area.

The ratings agency Moody’s Investors Service last week highlighted one way that a Greek banking crisis could ricochet around the Continent. Moody’s said it was reviewing whether to downgrade the French banks Société Générale and Crédit Agricole because both have subsidiaries in Greece.

Crédit Agricole came under scrutiny even though its subsidiary, Emporiki, has relatively modest holdings of Greek government bonds. Emporiki’s loans to the Greek private sector of €21.1 billion, or $30.3 billion, could be at risk if the government defaulted, Moody’s said.

“The secondary effects of a Greek default scenario could have a significant impact on the bank, owing to these direct exposures to the local economy,” the agency said.

Société Générale has €2.5 billion in Greek government bonds while its subsidiary, Geniki, has €3.3 billion in loans to the Greek private sector, according to the bank. The French bank has said the effects on it of a Greek default would be manageable.

Both Société Générale and Crédit Agricole supply their Greek subsidiaries with financing, putting them in a better position than the independent Greek banks. The fate of the independents depends heavily on the E.C.B., as Mr. Manos’s comments illustrate.

That dependence has become painfully clear in recent weeks, as the banks became hostages in a dispute between central bankers and political leaders. The E.C.B. implied that it might have to cut off financing to Greek banks if Germany insisted on requiring holders of Greek bonds to share the cost of the next aid package.

The E.C.B. feared that any change in repayment terms might be seen as a Greek default. Fitch Ratings said Tuesday that even if banks agreed voluntarily to buy new Greek debt when their existing bonds mature, that would be considered a “credit event,” or a default.

“All this uncertainty during the last couple of months has given the economy another kick,” said Paul Mylonas, head of strategy and chief economist at National Bank of Greece.

In an economy often derided for lack of competitiveness, the largest Greek commercial banks — like National Bank of Greece, Piraeus Bank, Alpha Bank and Eurobank — were regarded as exceptions.

Article source: http://feeds.nytimes.com/click.phdo?i=0298e849972b4f0aa4da7dbc03a0a31e

Moody’s to Review French Banks Over Greece Exposure

PARIS — French banks were punished Wednesday for their exposure to Greek debt after Moody’s Investors Service placed three of the largest on review for a possible downgrade.

Moody’s cited “concerns” about the exposure of BNP Paribas, Société Générale and Crédit Agricole to the Greek economy, either through holdings of government bonds or loans to the private sector there, directly or through subsidiaries operating in Greece.

It said the reviews would also examine “the potential for inconsistency between the impact of a possible Greek default or restructuring and current rating levels.”

After the announcement, shares in BNP Paribas and Société Générale were both down 1.6 percent, and Crédit Agricole shed 1.3 percent. The CAC 40 index in Paris was relatively flat at midday. The euro stood at $1.4354 from $1.4441 late Tuesday.

According to data from the Bank for International Settlements, French banks could potentially lose more from a collapse of Greek banks and a sovereign default than other countries, including Germany, the United States and Britain.

The French government has consistently opposed plans to expose private investors to any restructuring of Greek debt, despite a strong push led by Germany. Although it has never said as much publicly, the assumption is that Paris has taken that stance to protect its banks.

Crédit Agricole controls Emporiki Bank of Greece and Société Générale owns a majority of the Greek lender Geniki Bank. BNP Paribas does not have a local unit in Greece, but is at risk from direct holdings of Greek government debt, Moody’s said.

The French economy minister Christine Lagarde did not refer to the Moody’s announcement in a statement Wednesday following the conclusion of a regular International Monetary Fund assessment of France’s economy.

But she said that the fund had given a “positive” assessment of the domestic economy and the financial system, including moves to impose international capital adequacy standards. She added that French lenders needed to remain “vigilant” and continue applying supervisory standards.

In its statement, Moody’s stressed that there were “potential mitigants” to the concerns about Greece, including the French banks’ strong overall financial profiles, substantial scale and earnings diversification.

It added that the examinations of Crédit Agricole and BNP were unlikely to lead to downgrades of more than one notch. Société Générale’s debt and deposit ratings could be cut by as much as two levels because it has been more reliant on government support than the other lenders, Moody’s said.

A meeting of euro area finance ministers broke up Tuesday night without reaching a deal for the second financial rescue package for Greece. The ministers are expected to meet again Sunday, but before that, the French president, Nicolas Sarkozy, will visit the German chancellor, Angela Merkel, in Berlin on Friday.

Paris is currently backing the position of the European Central Bank, arguing that a rescheduling must be avoided at all costs and that a voluntary private-sector “rollover” of maturing debt should instead be considered. Berlin is pushing a more stringent approach in which old debt would be swapped into new 7-year bonds — something that credit agencies are more likely to interpret as a “credit event,” or default.

“We are closely monitoring the risks that would likely result from a Greek default scenario,” Moody’s said, including “the potential impact on weaker countries, the capital markets, and funding conditions, and are taking those risks into consideration in our ratings of banks across the euro zone.”

Moody’s also said that exposure to Greece would also be included in an ongoing review for possible downgrade of Dexia, a French-Belgian lender.

In a study released last month, another agency, Fitch Ratings, said that Crédit Agricole was the most vulnerable French bank, with around €25 billion in private and public sector liabilities Greece. Both BNP and Société Générale had exposure of around €6 billion to €8 billion, it said.

“At this stage Fitch does not envisage any rating action on French banks purely as a direct result of their exposure to Greek risk,” it said at the time. “French banks also have very limited direct exposure to Portuguese and Irish risk.”

Article source: http://www.nytimes.com/2011/06/16/business/global/16banks.html?partner=rss&emc=rss

A Fragile Moment for the I.M.F. as It Manages Europe’s Debt Crisis

Sinking under a mountain of debt, Greece is on the verge of requesting more help from the European Union and the international fund. Ireland’s economic recovery from its banking crisis remains a distant prospect at best. And once an international aid deal is concluded for Portugal, the question shifts to whether Spain’s much larger and increasingly stagnant economy may need a financial lifeline.

Indeed, the most bitter twist for Dominique Strauss-Kahn is that his personal crisis comes at a time that the I.M.F.’s influence globally is at a many-decades peak, especially within Europe, his own stomping ground.

During his tenure as managing director of the fund, Mr. Strauss-Kahn is widely credited with expanding the fund’s resources after the financial crisis, improving its governance and essentially restoring its relevance by replacing orthodoxy with pragmatism.

Before being taken into custody in New York on Saturday afternoon on charges related to sexual assault, Mr. Strauss-Kahn had boarded a flight to Europe to meet the German chancellor, Angela Merkel, to discuss in detail how Europe and the I.M.F. would respond to the deteriorating economic situation in Greece.

Mr. Strauss-Kahn was known to be a powerful voice arguing that continuing austerity measures in Greece would only make the situation worse. The Greek economy has shrunk by as much as 4 percent this year from a year ago, after the international community laid out guidelines for reducing its debt, raising taxes and reining in spending.

Mr. Strauss-Kahn’s view contrasts with a harder line in northern Europe, where voters are opposed to another bailout package for Greece. Northern politicians, as a result, have pushed to exact a higher price from Greece if more money were extended.

“The Greek government is concerned that a headless I.M.F. translates into a diminished bargaining power for the Greek side,” said Yanis Varoufakis, an economics professor and blogger at the University of Athens. “Despite the official unity between the I.M.F. and the E.U. on the Greek crisis, Dominique Strauss-Kahn has consistently showed greater sympathy for the plight of George Papandreou and a better grasp than the E.U. of the importance of not putting more pressure on Greece than the country can bear.”

Trailing after Hungary, Latvia and Iceland, Greece was one of the first euro zone countries to seek outside financial aid after the worldwide financial crisis. It proved to be a grand stage on which Mr. Strauss-Kahn would prove that the fund, after more than a decade of not doing much, could reinvent itself as a powerful global actor.

Former I.M.F. employees described Mr. Strauss-Kahn as a micromanager on European matters, especially on the three European bailouts that he oversaw — Ireland, Greece and Portugal.

Greek newspapers have reported recently that for many months before the Greek bailout last May, Prime Minister George Papandreou sought the counsel of Mr. Strauss-Kahn.

Mr. Strauss-Kahn, a French economist who was often cited for his deft political touch, also worked closely with Europe’s top leaders on the rescue plans, leveraging his relationships with leaders like Jean-Claude Trichet at the European Central Bank and France’s president, Nicolas Sarkozy — despite their political differences.

In restoring stature to the I.M.F., Mr. Strauss-Kahn managed to push his personal missteps into the background, including a 2008 affair with a co-worker at the fund, after which he acknowledged he had shown bad judgment. His success also allowed people to look past some inherent contradictions: a French socialist dedicated to solving global economic problems even as he favored the high life of elegant homes in Paris and Washington, fancy cars and lavish hotel rooms.

Simon Johnson, the former chief economist of the I.M.F., who is now a professor at M.I.T., said Mr. Strauss-Kahn had been revived by the global financial crisis. “The Europeans had been late in waking up to the economic problems,” he said. “But he coaxed rather than bullied them into action. In so doing, he used the crisis as an opportunity to rehabilitate the I.M.F.’s reputation, and put it front and center in a way that it had not been before.”

Indeed, finding someone with the kind of boardroom muscle in Europe that Mr. Strauss-Kahn displayed will be challenging.

Graham Bowley and Dan Bilefsky contributed reporting from New York.

Article source: http://feeds.nytimes.com/click.phdo?i=9d62da283d6b074d613891a4fbab090d

With Europe in Crisis, Fragile Time for I.M.F.

Sinking under a mountain of debt, Greece is on the verge of requesting more help from the European Union and the international fund. Ireland’s economic recovery from its banking crisis remains a distant prospect at best. And once an international aid deal is concluded for Portugal, the question shifts to whether Spain’s much larger and increasingly stagnant economy may need a financial lifeline.

Indeed, the most bitter twist for Dominique Strauss-Kahn is that his personal crisis comes at a time that the I.M.F.’s influence globally is at a many-decades peak, especially within Europe, his own stomping ground.

During his tenure as managing director of the fund, Mr. Strauss-Kahn is widely credited with expanding the fund’s resources after the financial crisis, improving its governance and essentially restoring its relevance by replacing orthodoxy with pragmatism.

Before being taken into custody in New York on Saturday afternoon on charges related to sexual assault, Mr. Strauss-Kahn had boarded a flight to Europe to meet the German chancellor, Angela Merkel, to discuss in detail how Europe and the I.M.F. would respond to the deteriorating economic situation in Greece.

Mr. Strauss-Kahn was known to be a powerful voice arguing that continuing austerity measures in Greece would only make the situation worse. The Greek economy has shrunk by as much as 4 percent this year from a year ago, after the international community laid out guidelines for reducing its debt, raising taxes and reining in spending.

Mr. Strauss-Kahn’s view contrasts with a harder line in northern Europe, where voters are opposed to another bailout package for Greece. Northern politicians, as a result, have pushed to exact a higher price from Greece if more money were extended.

“The Greek government is concerned that a headless I.M.F. translates into a diminished bargaining power for the Greek side,” said Yanis Varoufakis, an economics professor and blogger at the University of Athens. “Despite the official unity between the I.M.F. and the E.U. on the Greek crisis, Dominique Strauss-Kahn has consistently showed greater sympathy for the plight of George Papandreou and a better grasp than the E.U. of the importance of not putting more pressure on Greece than the country can bear.”

Trailing after Hungary, Latvia and Iceland, Greece was one of the first euro zone countries to seek outside financial aid after the worldwide financial crisis. It proved to be a grand stage on which Mr. Strauss-Kahn would prove that the fund, after more than a decade of not doing much, could reinvent itself as a powerful global actor.

Former I.M.F. employees described Mr. Strauss-Kahn as a micromanager on European matters, especially on the three European bailouts that he oversaw — Ireland, Greece and Portugal.

Greek newspapers have reported recently that for many months before the Greek bailout last May, Prime Minister George Papandreou sought the counsel of Mr. Strauss-Kahn.

Mr. Strauss-Kahn, a French economist who was often cited for his deft political touch, also worked closely with Europe’s top leaders on the rescue plans, leveraging his relationships with leaders like Jean-Claude Trichet at the European Central Bank and France’s president, Nicolas Sarkozy — despite their political differences.

In restoring stature to the I.M.F., Mr. Strauss-Kahn managed to push his personal missteps into the background, including a 2008 affair with a co-worker at the fund, after which he acknowledged he had shown bad judgment. His success also allowed people to look past some inherent contradictions: a French socialist dedicated to solving global economic problems even as he favored the high life of elegant homes in Paris and Washington, fancy cars and lavish hotel rooms.

Simon Johnson, the former chief economist of the I.M.F., who is now a professor at M.I.T., said Mr. Strauss-Kahn had been revived by the global financial crisis. “The Europeans had been late in waking up to the economic problems,” he said. “But he coaxed rather than bullied them into action. In so doing, he used the crisis as an opportunity to rehabilitate the I.M.F.’s reputation, and put it front and center in a way that it had not been before.”

Indeed, finding someone with the kind of boardroom muscle in Europe that Mr. Strauss-Kahn displayed will be challenging.

Graham Bowley and Dan Bilefsky contributed reporting from New York.

Article source: http://www.nytimes.com/2011/05/16/business/16fund.html?partner=rss&emc=rss