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Greece Approves Property Tax in Bid for Rescue Aid

September 28, 2011 by Leave a Comment

The property tax, the first of its type in Greece, would raise 2 billion euros, or $2.7 billion, this year alone, according to government calculations. The question is whether enough Greek people can or will pay the tax to meet those forecasts.

“I know that a lot is being asked of the Greek people,” the German chancellor, Angela Merkel, said on Tuesday in Berlin during a joint news conference with the Greek prime minister, George A. Papandreou.

Mr. Papandreou was in Berlin for talks with Mrs. Merkel, who sought to sway public opinion ahead of a vote Thursday in the German Parliament on a bill that would bolster the main European bailout fund, known as the European Financial Stability Facility.

“Through the euro we are closely bound together and the weakness of one affects us all,” she said during the joint news conference.

Meanwhile, lawmakers in Slovenia voted Tuesday to approve their share of the rescue fund’s guarantees. Finland’s Parliament is expected to reluctantly approve the fund measure in a vote on Wednesday, despite formidable domestic opposition. All 17 members of the euro zone must ratify the expanded fund, a process that has delayed its adoption.

The Greek vote on the property tax was widely seen as a crash test for Mr. Papandreou’s embattled Socialist Party, which must in coming weeks pass bills for similarly controversial measures, like a plan to place 30,000 public workers on reserve status with reduced wages for the next 12 months. Greek opposition parties say the reserve-status plan is a prelude to layoffs.

The vote indicated that Mr. Papandreou had managed to rally Socialist lawmakers despite enduring party rifts over the government’s austerity drive.

But public opposition to the new tax was clear Tuesday as a small but vehement group of demonstrators clashed with police outside Parliament as lawmakers voted. In addition, thousands of public transport workers walked off the job in the latest in a series of 24-hour strikes protesting salary cuts and feared layoffs as state bodies are merged and abolished.

The tax, which will apply to 5.5 million homeowners — or about 80 percent of Greek households — will cost the average family 800 to 1,500 euros (about $1,045 to $2,041) a year, depending on the location and size of their property. With unemployment at 16 percent, and average income only about 26,000 euros, it is unclear how many households will be willing or able to pay.

Greek leaders, though, moved to assure their foreign creditors that they would keep promises to address the economic and political shortcomings that are the underlying reason the country cannot pay its debts without help.

The Greek finance minister, Evangelos Venizelos, said that auditors from the European Union and the International Monetary Fund were due to return to Athens this week. Earlier this month, they left the country in what was viewed as a display of dissatisfaction with Greece’s progress on cutting the size of government and removing barriers to economic growth.

Mr. Venizelos confirmed that the I.M.F.’s managing director, Christine Lagarde, whom he met with in Washington last weekend, had requested written guarantees from the government on the timetable for the new measures and projected revenue. The measures include additional wage and pension cuts.

Speaking to the European Parliament in Strasbourg on Tuesday, Jean-Claude Juncker, president of the group of euro zone finance ministers, said talks had broken off this month because of difficulties “in finding common ground between what the Greek government was expected to do and what it was able to do.”

Since then, the situation had improved, Mr. Juncker added, though he said it was too soon to determine whether Greece had met the conditions for its next round of emergency financing.

Mrs. Merkel, meanwhile, said she was confident Greece would fulfill conditions set by international lenders, and promised that Germany would be supportive.

But she tempered her remarks by insisting that Germany was “not available” for further steps like jointly issued bonds guaranteed by all euro zone members — an idea that Germany has staunchly resisted. And the German finance minister, Wolfgang Schäuble, ruled out an increase in the size of the euro zone bailout fund, though not necessarily an increase in its ability to borrow.

The fund will have the power to buy European government bonds and recapitalize struggling banks. But some analysts have said the fund needs to be two or three times bigger to remove any doubts about its impregnability.

Mr. Schäuble also said Tuesday that it was likely that the rescue mechanism would be further “enhanced,” though he would not give details. He said that any improvements to the fund would have to be done in an “efficient way” that did not overburden Germany and the six other countries with top credit ratings that are essential to giving the rescue fund a credit rating of AAA.

Lorenzo Bini Smaghi, a member of the executive board of the European Central Bank, also seemed to offer cautious support for increasing the fund’s ability to borrow on open markets.

“Markets want more,” Mr. Bini Smaghi said at a conference in New York. “We need to look at possible leverage.”

In Tokyo, the Japanese finance minister, Jun Azumi, suggested that his government might contribute toward a bailout effort for Greece if European leaders were able to devise a reasonable plan to calm market fears.

Mr. Azumi said that he would “not rule out the possibility that Japan would bear some of the burden” in a bailout, provided there was a plan “that involves a steady process and a reasonable amount of funds that would bring markets a sense of security over the Greek bailout.” He did not comment on how big a possible Japanese contribution might be.

The German Confederation of Trade Unions took out advertisements in several big newspapers urging lawmakers to vote yes on the rescue package. “Our mothers and fathers built a peaceful Europe from the rubble of the second world war,” the unions wrote. “It is our responsibility that we maintain a united Europe for our children and our grandchildren.”

Reporting was contributed by Matthew Saltmarsh, Judy Dempsey, Landon Thomas Jr., Stephen Castle and Hiroko Tabuchi.

Article source: http://feeds.nytimes.com/click.phdo?i=520658342b7120bc91b8459822fe5143

Filed Under: Business News Tagged With: , ,

Stock Rally Continues on Wall Street

September 27, 2011 by Leave a Comment

European officials said Monday that they were working on a plan to increase the borrowing power of the European Financial Stability Facility, the euro zone bailout fund, in a response to fears that it could be swamped by the crisis.

While noting there is “nothing concrete so far,” Jeremy Gaudichon, a fund manager at K.B.L. Richelieu, said, “There is hope that we’ll have European collaboration to help solve the crisis.”

After a 2.5 percent gain on Monday, the Dow Jones industrial average was up an additional 2.4 percent early Tuesday, adding 262.17 points to 11,306.03. The broader Standard Poor’s 500-stock index gained 2.3 percent in early trading and the Nasdaq composite index rose 2 percent.

In late afternoon trading in Europe, the Euro Stoxx 50 index, a barometer of euro zone blue chips, was up 4.2 percent, while the FTSE 100 index in London was up 3.1 percent and the DAX in Frankfurt rose 4.6 percent. Financial shares were leading the charge, with BNP Paribas gaining 10 percent, Société Générale gaining 8.8 percent and Deutsche Bank adding 10.3 percent.

Speaking to German business leaders in Berlin on Monday, George Papandreou, the Greek prime minister, said financial markets were looking for “stronger political leadership to restore confidence.”

The crisis “offers a unique chance to bring in important reforms,” he added, expressing optimism that Greece could overcome its difficulties. “We are not a poor country, we’re a country that has been governed badly,” he said.

Speaking at the same conference, the German chancellor, Angela Merkel, said Germany would provide all the help it could to stabilize Greece.

Markets have also been lifted by the Federal Reserve’s Operation Twist, announced last week, under which the central bank is buying longer-dated Treasuries while selling shorter-maturity securities to drive down long-term borrowing costs. The Fed will also reinvest maturing mortgage debt it holds into mortgage-backed securities in an effort to restart the feeble American housing market.

“Valuations of banks and cyclical stocks had gotten very depressed by last Friday, so it seemed like a good time to invest,” Mr. Gaudichon said. “But on the political side, it is still very uncertain.”

Among European leaders, he said, it is clear that there is a consensus that action needs to be taken to save the euro zone.

“The will is there, but the implementation is going to be very difficult,” Mr. Gaudichon said, especially considering that France and other countries are headed toward elections and taxpayers are becoming increasingly uneasy about extending further aid to Greece.

Asian shares surged across the board. The Kospi index in South Korea broke a three-day losing streak, gaining 5 percent. The Nikkei 225 stock average in Tokyo rose 2.8 percent. In Sydney, the Standard Poor’s/ASX 200 index gained 3.6 percent. In Hong Kong, the Hang Seng index closed up 4.2 percent and in Shanghai the composite index added 0.9 percent.

Prices for government bonds considered the most stable assets fell as investors sought more risk, with the yield on the benchmark U.S. 10-year Treasury at 1.98 percent, up eight basis points.

American crude oil futures for November delivery rose 3.1 percent a barrel, to $82.75. Comex gold was up 3.9 percent to $1,653.80 an ounce.

The dollar was mixed against other major currencies. The euro was at $1.3582, up from $1.3533 late Monday in New York, while the British pound rose to $1.5618 from $1.5565. The dollar rose to 76.41 yen from 76.36 yen, but fell to 0.9001 Swiss francs from 0.9015 francs.

David Jolly reported from Paris. Sei Chong contributed reporting from Hong Kong.

Article source: http://feeds.nytimes.com/click.phdo?i=bd62772a11b062080fbc6b08416eec84

Filed Under: Business News Tagged With: , ,

Worries Over Italy’s Debt Drag Down Markets

July 12, 2011 by Leave a Comment

As investors fretted about a new wave of financial instability, the euro slumped to its lowest level since March and borrowing costs rose again for Europe’s weaker economies.

At the opening, the Dow Jones industrial average shed just a handful of points, off 9.38 to 12,496.38. The Standard Poor’s 500-stock index lost 2.26 points to 1,317.23.

European indexes, after declining sharply in morning trading, regained some ground in the afternoon. The Euro Stoxx 50 index, a barometer of euro zone blue chips, was down 1.20 percent. The FTSE 100 index in London slid 1.16 percent.

In the day’s most dramatic action, the main Italian stock market index slid more than 4 percent in morning trading, before bouncing most of the way back, after Economy Minister Giulio Tremonti returned to Rome early from a meeting of euro zone officials to take charge of discussions on new austerity measures and the government successfully sold one-year debt.

Mr. Tremonti is held up by many investors as being instrumental to Italy’s bid for market credibility. Silvio Berlusconi, the embattled prime minister, led investors to ditch Italian debt last week when he suggested Mr. Tremonti might be forced out of the government.

Italy has begun moving into the front of investors’ consciousness, but the question of how to aid Greece remains unsolved. In a letter to Jean-Claude Juncker, the Eurogroup president, the Greek Prime Minister George Papandreou complained that market turmoil was undermining his government’s efforts at economic reform, and called for “collective forceful decisions” from his European partners.

European finance officials met for six hours Monday in Brussels but failed to resolve a long-running dispute over private sector involvement in a second bailout for Greece.

“If Europe does not make the right, collective, forceful decisions now, we risk new, and possibly global, market calamities due to a contagion of doubt that could engulf our common union,” Mr. Papandreou wrote.

Holger Schmieding, chief economist at Berenberg Bank in London, wrote in a research note that Greece was not the euro zone’s main problem. “Instead, the massive contagion from the small periphery to the big bond markets of Italy and Spain in the last four trading days has turned into the real problem,” he said.

Asian shares were down across the board. The Tokyo benchmark Nikkei 225 stock average fell 1.4 percent. The main Sydney market index, the SP/ASX 200, fell 1.9 percent, In Hong Kong, the Hang Seng index fell 3.1, and in Shanghai the composite index fell 1.7 percent.

Data released Tuesday showed that bank lending in China had remained more buoyant than expected in June, fanning expectations that Beijing may tighten lending requirements or raise interest rates again in its battle to contain inflation.

The Bank of Japan Governor Masaaki Shirakawa said that global economic growth was “slowing somewhat,” Reuters reported from Tokyo. “The U.S. economy faces severe balance sheet adjustments, and sovereign problems pose a risk to Europe,” he said.

Also on Tuesday, Moody’s issued a list of Chinese companies that raised “red flags” at the ratings agency because of possible governance or accounting risks, causing the shares of those companies to tumble.

New York crude oil futures fell 1.2 percent to $94.02 a barrel.

The euro slumped, falling to $1.3918 from $1.4029 late Monday. The dollar fell to 79.59 yen from 80.26 yen, signaling that Japanese investors were becoming more risk averse and repatriating overseas funds.

The worries about Italy have further shaken already fragile global market sentiment. Even though Italy retains solid debt ratings, a sound banking system and a relatively small budget deficit compared to the size of its economy, it is plagued with high debt, feeble growth and political paralysis.

The jitters prompted the Italian stock market regulator on Monday to impose emergency rules against short selling after shares in Italian banks slumped for a fifth straight session.

The cost of insuring Italy’s sovereign debt against default surged to an all-time high, and the interest on its 10-year bond leaped to 5.8 percent before falling back.

“The current escalation of the euro area periphery crisis is the third period in which the problems facing Greece, Ireland and Portugal have seriously threatened more serious contagion in the euro area,” Paul Robinson, an analyst at Barclays Capital, wrote in a note.

As grave as the situation is, however, he added, “the previous episodes during which Spain and Italy were significantly affected proved temporary, and the situation facing both economies is far less serious than in Greece’s case.”

Bettina Wassener reported from Hong Kong. Niki Kitsantonis contributed reporting from Athens.

Article source: http://feeds.nytimes.com/click.phdo?i=c33a79c8e1de589fa9ecc91fff453f3a

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Bank of England Urges Clarity in Sovereign Debt Exposure

June 24, 2011 by Leave a Comment

LONDON — The Bank of England governor, Mervyn A. King, said Friday that the worsening debt crisis in Greece and other European countries is currently the biggest threat to Britain’s financial system.

Mr. King urged British banks to be especially diligent and clear in disclosing their exposure to European sovereign debt, to avoid a collapse of confidence among investors. He also called on banks to set aside more capital when earnings are strong instead of distributing it to shareholders or employees.

“The most serious and immediate risk to the U.K. financial system stems from the worsening sovereign debt crisis in several euro-area countries,” Mr. King said during a briefing on financial stability by the interim Financial Policy Committee, which he chairs.

The newly created committee, which includes executives from the Bank of England and the Financial Services Authority, is a result of Prime Minister David Cameron’s revamp of the country’s financial regulation following the banking crisis.

Mr. King’s comments came as European Union leaders met in Brussels to discuss an aid program for Greece and ways to stabilize the area that shares the euro as a single currency. Greece has until the end of the month to meet conditions for its next financial aid payment of €12 billion, or $17 billion, ahead of a finance ministers’ meeting on July 3.

Some investors remain concerned that the Greek prime minister, George A. Papandreou, could struggle to gather enough support to push through the necessary budget cuts, which has pushed down the euro and weighed on European stock markets in recent days. Jean-Claude Trichet, the president of the European Central Bank, warned earlier this week that the sovereign debt crisis posed a serious threat to the financial stability of Europe.

“Any escalation of stresses could also be transmitted via interconnected global markets, including via the United States, leading to a tightening of bank funding conditions,” the Financial Policy Committee said. “Such contagion could be amplified if bank creditors were unsure about the resilience of their counterparties.”

Mr. King said he was less worried about British banks’ direct exposure to Greek debt, which he said was “very small,” but that a lack of transparency and increased risk-awareness could paralyze financial markets.

“If there’s uncertainty about exposures and a lack of transparency, there’s always the risk that people may feel it’s just not worth continuing the rollover funding to institutions,” Mr. King said. “Greater clarity about the extent of these exposures would help to limit the transmission of problems to U.K. banks.”

The European Banking Authority said Friday that it had adjusted its stress tests of European banks to better account for potential trading losses on sovereign debt from troubled economies, including Greece. The results are due next month.

“It’s necessary that stress tests are credible,” Mr. King said. The hope is that detailed data on the banks’ capital and government debt exposure would calm those investors who fear a Greek default.

The Financial Policy Committee also warned that British banks should improve their provisioning for real estate loans that are in arrears or had breached some covenants. The committee implied that some banks were not diligent enough in setting aside money to cover such loans, which were mainly for commercial real estate.

The committee also said it was increasingly mindful of risks linked to exchange-traded funds, which are now worth $300 billion in Europe, and asked the Financial Services Authority to monitor the industry more closely.

Article source: http://www.nytimes.com/2011/06/25/business/global/25iht-ukbanks25.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,