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European Leaders Reach Budget Deal

February 8, 2013 by Leave a Comment

BRUSSELS — European Union leaders on Friday agreed to a budget worth nearly €1 trillion to support farming, transportation and other infrastructure, as well as big research projects for the 27-nation bloc.

After two days of marathon negotiations, the Union’s 27 leaders agreed to a slightly smaller communal budget for the next seven years — the first decrease in its history — that reflects the climate of austerity in a region still struggling to emerge from a crippling debt crisis.

“Deal done,” Herman Van Rompuy, the president of the European Council, which organizes summit meetings, said in a message sent on Twitter.

The deal would cover the cost of project for “the rest of the decade” and was “worth waiting for,” wrote Mr. Van Rompuy.

The budget is negotiated every seven years and involves furious horse-trading as leaders focus on getting the best deal for their own countries’ citizens, rather than emphasizing pan-European considerations.

The marathon session was the second attempt to reach a deal on the funding package, which will run from 2014 to 2020; the first attempt collapsed in November.

Another failure to strike a deal on a sum of money that represents only about 1 percent of the Union’s gross domestic product would have been a severe embarrassment for the leaders, who already have spent the past few years bickering over how to save the euro.

The European Commission, the bloc’s policy-making arm, had sought an increase in the overall budget of around 5 percent to more than €1 trillion, or $1.35 trillion.

Mr. Van Rompuy pared that sum to about €973 billion at the previous summit meeting in November.

On Friday morning, Mr. Van Rompuy presented further revisions lowering the amount to about €960 billion but holding down the amount of cash governments contribute up front.

That formula was designed, in part, to satisfy countries like Britain and the Netherlands that pay more into the budget than they receive, while also accommodating the demands of countries like France and Italy that want to maintain generous payments for agriculture and infrastructure.

The deal faces still more hurdles before it is enacted by the European Parliament, which has the power to veto the budget.

Some of the most influential figures in Parliament have already signaled that they are prepared to reject a budget that foresees spending less on Europe in the years ahead.

Guy Verhofstadt, the head of the alliance of liberals in the Parliament, called on Thursday for a full-revision clause to be inserted into the budget, so that it could be increased after three years if economic conditions improved.

Martin Schulz, the president of the Parliament, said Thursday that he would not approve a budget that widened the overall gap between the amount of cash paid upfront by governments and the somewhat higher amounts, known as commitments, which make up the overall budget.

Article source: http://www.nytimes.com/2013/02/09/business/global/european-union-budget-talks.html?partner=rss&emc=rss

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Markets in Europe Little Moved by French Downgrade

January 16, 2012 by Leave a Comment

Analysts said that markets were watching a flurry of activity in the coming days ahead of the European Union’s next big summit meeting, which is to be held Jan. 30 in Brussels. Much of the attention is focused on Greece, where talks on the amount by which private-sector lenders would write down the value of their Greek bond-holdings broke down last Friday.

Greek officials were traveling to Washington on Monday for debt talks, according to Reuters, while the so-called troika of international lenders — officials from the E.U., the International Monetary Fund and the European Central Bank — was due to return to Athens on Tuesday. The Institute of International Finance, which was negotiating on behalf of private holders of Greek debt, was to resume talks by midweek.

The Greek prime minister, Lucas Papademos, told CNBC television in an interview
broadcast Monday that “the next few weeks are particularly challenging.” Officials must both conclude discussions with private investors while formulating “a new economic adjustment program for the period 2012-2015” in light of Greece’s worsening budget figures, so as to meet conditions set by the troika for new bailout loans.

Mr. Papademos said the goal was to have both worked out “over the next two to three weeks.”

“The progress or otherwise of these negotiations will probably dictate how the market trades over the next few weeks,” said Gary Jenkins, a director of Swordfish Research, according to The Associated Press.

Also Monday, the French president, Nicolas Sarkozy, was in Madrid for talks with the Spanish government, while Herman Van Rompuy, the president of the European Council, was meeting with Prime Minister Mario Monti of Italy in Rome.

The decision by Standard Poor’s late Friday to cut France’s AAA credit rating by one notch had been widely expected. The agency cited a deteriorating economic situation and disappointment with leaders’ efforts to address the euro crisis. S.P. also cut Austria, Italy and six other European countries.

Moody’s Investors Service, a rival to S.P., on Monday said it was maintaining its own rating of France at AAA for the time being, with the results of a review that is currently under way to be announced before April.

In afternoon trading, the Euro Stoxx 50 index, a barometer of euro zone blue chips, and the FTSE 100 index in London were little changed.

French 10-year bonds were unchanged at 3.05 percent. Italian 10 year bonds were yielding 6.65 percent, up 5 basis points, while Spanish 10-years were yielding 5.16 percent, up 1 basis points. A basis point is one-hundredth of a percent.

Reuters cited unidentified traders as saying the European Central Bank had intervened in the secondary bond market again, buying Italian and Spanish securities to relieve some pressure on yield.

German 10-year bonds, the European benchmark, were unchanged, trading to yield 1.76 percent.

U.S. equity index futures fell modestly. Wall Street markets were closed Monday for the Martin Luther King Jr. holiday. The Dow Jones industrial average fell 0.4 percent on Friday.

The dollar was mixed against other major currencies. The euro ticked up to $1.2658 from $1.2656 late Friday in New York, while the British pound fell to $1.5303 from $1.5317. The dollar fell to 76.80 yen from 76.97 yen, but gained to 0.9535 Swiss francs from 0.9524 francs.

Asian shares were broadly lower. The Tokyo benchmark Nikkei 225 stock average fell 1.4 percent. The Sydney market index S.P./ASX 200 fell 1.2 percent. In Hong Kong, the Hang Seng index fell 1 percent and in Shanghai the composite index declined by 1.7 percent.

Article source: http://www.nytimes.com/2012/01/17/business/global/daily-stock-market-activity.html?partner=rss&emc=rss

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On Eve of European Union Summit Meeting, New Rifts on Euro Emerge

December 8, 2011 by Leave a Comment

French officials promised not to leave Brussels until a “powerful” deal was reached to save the euro. But senior German officials expressed more pessimism, saying that Berlin opposed a “quick fix” agreement. Instead, they insisted on full treaty changes and disagreed with the idea of combining two bailout funds, one temporary and one permanent, to create a larger pot of money to protect Italy and Spain.

Britain said that it would ask for special protections if there were any treaty changes, raising the possibility that changes would be limited to the 17 nations of the euro zone and those who want to join, and not to all 27 members of the European Union.

Still, Wednesday was a day of some posturing and public negotiating by national officials who demanded anonymity, with different nations staking out their positions before the meeting begins in earnest late Thursday afternoon.

“It’s internal politics,” said a senior European official. “This is macho-style, old politics.”

German officials sounded the toughest, seeing this summit meeting as a chance to achieve permanent changes to the way the euro is managed, an important goal for them. The Germans want firmer debt limits and sanctions for violators written into the treaty. They prefer a treaty of all countries in the European Union, even though the changes would apply only to countries in the euro zone.

But treaty changes can take two years and could involve a referendum in Ireland and other nations, so European Union officials, wanting to move quickly, have been exploring other options. In a paper that emerged on Wednesday, the president of the European Council and of the euro zone, Herman Van Rompuy, suggested a fast-track route to a “fiscal compact” that would avoid the problems and delays of a full treaty change.

The idea laid out by Mr. Van Rompuy, who organizes the European summit meetings, would avoid a full treaty change, which could involve a convention, referendums or parliamentary ratification, but it would still achieve much of what Germany wants.

This would mean amending a protocol of the treaty; leaders would simply have to consult with the European Central Bank and the European Parliament. Under this plan, also supported by the president of the European Commission, José Manuel Barroso, leaders could ensure that countries write into their own law an obligation “to reach and maintain a balanced budget over the economic cycle.” This could be complemented with pledges of “automatic reductions in expenditures, increases in taxes or a combination of both” if the rule was broken.

Britain insisted that such an amendment would still require at least parliamentary ratification, and a senior German official, briefing reporters, decried the quick fix as “a typical Brussels bag of tricks” and a “rotten compromise.”

More fundamental changes that would assure fully automatic sanctions against budget sinners, and give European institutions the power to overrule national budgets, would require full treaty change.

The German official said he was “more pessimistic than last week about reaching an overall deal,” adding, “A lot of the protagonists still have not understood how serious the situation is.” Berlin’s idea appeared to be to increase the pressure on partners to come to terms that Germany favored.

The American Treasury secretary, Timothy F. Geithner, was building the pressure in a softer way on Wednesday. He continued his public tour of meetings with German, French and Italian leaders to underscore how important reaching a deal this week was to the Obama administration. The administration says it believes that the euro zone crisis is dragging down the global and the American economy and could cause another full-fledged banking crisis.

But one senior European official said that an answer might be a “two-phase solution,” with a quick change to the protocol followed by work on treaty change.

European officials say that a less ambitious but faster strengthening of euro zone discipline will be more credible with investors and the European Central Bank than the promise to make larger reforms that could take two years to put into place.

As one French official said Wednesday, “The E.C.B. is not going to commit suicide” and oversee the destruction of the euro currency it is charged with keeping stable.

But Austria, like Germany, also tried to play down expectations for a “quick fix” solution to the euro crisis. The summit meeting “will not meet the goal of creating a comprehensive firewall for the euro zone for the next three to five years,” Austria’s chancellor, Werner Faymann, told lawmakers in Vienna, speaking of the effort to create a large “wall of money” in bailout funds to protect vulnerable euro zone states.

What was achievable, however, he said, was a “massive increase in voluntary coordination,” including measures to encourage greater budgetary discipline and to sanction countries running excessively high deficits.

The Americans have regularly counseled using ready bailout money as a firewall in the crisis. But it has not been easy for the Europeans, as they have tried to leverage a temporary, 440-billion-euro European Financial Stability Facility upward. One French-German idea is to move forward, to 2012, the establishment of the larger, permanent 500-billion-euro European Stability Mechanism. But Berlin is rejecting the idea of running the two in parallel.

The Europeans are also talking to the International Monetary Fund, where Washington has the largest voice, about helping to enlarge the firewall with money that the European central banks could loan to the fund.

An announcement is also expected late Thursday on how European banks would comply with the tougher capital requirements.

Steven Erlanger reported from Paris, and Stephen Castle from Brussels.

Article source: http://feeds.nytimes.com/click.phdo?i=afb5f26a57393c694c8b6259a02ab0f7

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Obama Meets With European Union Leaders on Debt Crisis

November 29, 2011 by Leave a Comment

Again, he urged an immediate resolution to the debt crisis, saying the issue is “hugely important” for the United States but stressing that the answer to Europe’s problems lies in Europe.

The White House press secretary, Jay Carney, told reporters, “We continue to believe that this is a European issue, that Europe has the resources and capacity to deal with it, and that they need to act decisively and conclusively to resolve this problem.”

Mr. Obama met Monday with José Manuel Barroso, president of the European Commission; Herman Van Rompuy, president of the European Council; and Catherine Ashton, the European foreign policy chief.

The summit meeting came as the United States received a reminder of its own debt woes. Fitch Ratings lowered the country’s ratings outlook to negative from stable, though it maintained its sterling AAA grade for United States debt.

Fitch had said in August that a failure by the special bipartisan committee in Congress on deficit reduction would probably result in a negative rating.

Senior Obama administration officials describe a two-pronged policy response, expected to last for months, to the European crisis. First, in numerous private conversations and increasingly forceful public statements, policy makers are urging their European counterparts to take big steps and move fast to reassure markets. Second, Washington is increasing efforts to shelter American institutions from European turbulence.

President Obama and his policy team have said that there is no greater threat to the fragile American recovery than a contracting and destabilized Europe — a belief repeated on Monday.

“I communicated to them that the United States stands ready to do our part to help them resolve this issue,” Mr. Obama said. “If Europe is contracting, or if Europe is having difficulties, then it’s much more difficult for us to create good jobs here at home.”

On Monday, the Organization for Economic Cooperation and Development warned that the euro crisis was a drag on global economic growth. “Decisive policies must be urgently put in place to stop the euro area sovereign debt crisis from spreading and to put weakening global activity back on track,” it said.

In light of the continuing troubles, Mr. Obama and Mr. Carney repeated the administration’s belief that Europe needed to quiet debt markets immediately. In past weeks, Treasury officials including Secretary Timothy F. Geithner and Lael Brainard, under secretary for international affairs, have made the same call.

“It is crucial that Europe move quickly to put in place a strong plan to restore financial stability,” Mr. Geithner said at the Asia-Pacific Economic Cooperation meeting in Hawaii this month.

Mr. Obama said Monday that the United States stood “ready to do its part.” The administration has held scores of private conversations, with everyone from Mr. Obama to Treasury aides involved, to help ease the crisis in the past months.

Treasury officials say that European policy makers need to build a “fire wall” to stabilize borrowing costs for afflicted euro zone members. Then, they need to begin to repair individual countries’ balance sheets. They describe their talks with Europe as advisory, often repeating that the solution must be European.

Administration officials say that they frequently refer to Washington’s experience in thawing the credit squeeze and backstopping financial markets after the failure of Lehman Brothers in September 2008.

“It is unbelievably hard to create new mechanisms during a crisis,” a senior administration official said. “They are facing legitimately difficult political and institutional constraints.”

The administration officials have provided European officials with background on the construction of American emergency programs to ease credit markets, like the Troubled Asset Relief Program and the Term Asset-Backed Securities Loan Facility. They have also discussed Washington’s efforts to stabilize and recapitalize banks.

Given the United States’ own recent financial crisis, the Obama administration is also watching closely for signs of contagion and urging banking institutions to cut their exposure to Europe.

The Financial Stability Oversight Council, established by the Dodd-Frank financial law, has held repeated calls on the European situation. The discussions have included top financial regulators, like Mr. Geithner and the Federal Reserve chairman, Ben S. Bernanke, as well as lower-level aides.

“The continued rise in sovereign-debt spreads for some countries, more generalized market volatility, and political turmoil that we have seen in recent days speak to the need for forceful action,” Janet L. Yellen, vice chairwoman of the Federal Reserve, said in a speech this month discussing the government’s oversight policies.

The Fed, she said, is “actively engaged in ensuring that U.S. financial institutions are appropriately managing their credit and liquidity risks.”

The Federal Reserve last week ordered the biggest American banks to perform rigorous stress tests of their portfolios, to ensure they have enough capital to cover losses in a significant economic deterioration.

To address the euro zone crisis, the Federal Reserve also said the six largest firms would test the impact of a “global market shock” incorporating “potential sharp market price movements in European sovereign and financial sectors.”

Article source: http://feeds.nytimes.com/click.phdo?i=eba48757e54f64062683b9542b52ccc8

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Leaders in Europe Take Time From a Farewell to Negotiate a Bailout Deal

October 19, 2011 by Leave a Comment

An event to mark the end of Jean-Claude Trichet’s tenure as president of the European Central Bank drew most of the main players in the debt drama to a Frankfurt opera house, and inevitably raised hopes that a deal to shore up European banks and offer Greece a way out of its debt trap was near.

Angela Merkel, the chancellor of Germany, tried to play down expectations, saying that it would not be possible “to erase the mistakes of the past in just one stroke.” A European summit meeting Sunday, she said during a speech praising Mr. Trichet, will be just “one point” in “a long journey.”

But the cast of characters at the event created the opposite impression. They included Christine Lagarde, president of the International Monetary Fund and Nicolas Sarkozy, the president of France, who bustled in after the speeches in praise of Mr. Trichet were over, trailed by a large entourage and looking grave.

Mr. Sarkozy and Mrs. Merkel later left the event, in an ornate concert hall known as the Alte Oper, without making statements. A spokeswoman for Mrs. Merkel, Elke Ramlow,  said they discussed preparations for the meeting on Sunday, but had no other details.

Pressure on the leaders came not only from markets and from ratings agencies — one of which downgraded Spain — but also from Mr. Trichet. “The present calls for immediate action,” he said.

Helmut Schmidt, the 92-year-old former chancellor of Germany and a living symbol of the postwar reconstruction of Europe, delivered a blunt lecture on leadership to the officials assembled in the front row, who also included Herman Van Rompuy, president of the European Council, and José Manuel Barroso, president of the European Commission.

After being pushed onto the stage in a wheelchair and adjusting his hearing aid, Mr. Schmidt railed in a booming voice against German critics of the euro and leaders who put their parochial interests ahead of the European project. “Anyone who considers his own nation more important than common Europe damages the fundamental interests of his own country,” Mr. Schmidt said, in what could be read as a rebuke to Mrs. Merkel.

Reminding listeners that Germany received a de facto debt restructuring after World War II as well as huge economic aid, Mr. Schmidt said that “of course the strong should help the weak,” a clear reference to Greece, which was the scene of violent demonstrations again Wednesday.

Mrs. Merkel later responded that, while Germany would do everything necessary to preserve the euro, “we live in democracies and have to operate according to fundamental rules.”

Earlier, Mr. Barroso said the European Union was at a “turning point” and required decisive action from its leaders on the euro zone debt crisis. But he also tried to calm expectations ahead of a meeting of European leaders in Brussels on Sunday, warning that any agreement to end the crisis would take time to implement.

“Even if we do arrive at a political decision on everything that is on the table, which I hope we will, that doesn’t necessarily mean that there will not then have to be an implementing phase,” Mr. Barroso said. “You cannot hope that this will be the end of all our troubles, but I very much hope that important, long-term, positions, which are important for the future of the European Union and the euro, will come about.”

Numerous open questions remained, including how to increase the financial clout of the European bailout fund and find money to recapitalize weaker banks. “In Germany, the coalition is divided on this issue. It is not just Angela Merkel who we need to convince,” Mr. Sarkozy told French lawmakers at a lunch meeting, according to Charles de Courson, one of the legislators present, Reuters reported.

Expectations are also building that Greek bondholders may have to accept a deeper cut in the value of the debt, or “haircut,” than agreed to earlier.

Adding to the urgency, Moody’s Investors Service downgraded Spain’s long-term sovereign rating by two notches and placed it on watch for further downgrades.

Article source: http://www.nytimes.com/2011/10/20/business/global/spanish-debt-downgrade-points-to-uncertainty-over-euro-crisis.html?partner=rss&emc=rss

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