October 21, 2020

‘Robin Hood’ Trading Tax Nudged Forward in Europe

BRUSSELS — A hotly contested tax on financial trades took a major step forward on Tuesday when European Union finance ministers allowed a vanguard of member states to proceed with the plan.

The so-called Robin Hood tax would apply a levy to trading in stocks, bonds and derivatives, complex financial products tied to underlying assets like oil prices or interest rates. Although the tax would probably be small — one-tenth of a percentage point or less on the value of a trade — it could earn billions of euros for cash-strapped European governments.

Algirdas Semeta, the European commissioner in charge of tax policy, called the decision “a major milestone in tax history” and said the levy could be imposed from next year. But deep concerns about how the initiative would work in practice still could mean delays.

The European Commission, the Union’s policy-making arm, will still need to draft the final legislation and the states in favor of the law will have to give their unanimous approval before it becomes law in the eleven countries that have agreed to send the proposal forward — two more than the minimum required for legislation to be drafted.

A significant complication is stiff opposition to the tax by Britain, which has the largest trading hub in Europe in the City of London. But because Britain has decided to stay outside the group of states applying the tax, its resistance probably would not stop the plan from moving ahead.

The session Tuesday was the second day of a meeting that began here Monday with a session by the Eurogroup of ministers from the 17 members of the euro zone. On Monday evening, in a nearly unanimous vote, the Eurogroup elected Jeroen Dijsselbloem, the Dutch finance minister, to be its new president.

Mr. Dijsselbloem, 46, a social democrat, has been finance minister of the Netherlands for only three months. In the Eurogroup, he succeeded Jean-Claude Juncker, the prime minister of Luxembourg, who had held the post since 2005 and announced his intention to step down last year.

The only formal opposition came from Luis de Guindos, the Spanish finance minister, who said his country and others with comparatively vulnerable economies — compared with those like Germany and the Netherlands — did not hold enough top jobs in the Union’s institutions.

At a news conference late Monday, Mr. Dijsselbloem emphasized the need to ease mistrust between Southern and Northern European countries over austerity policies, which many experts say have worsened economic pain in countries like Spain but have done too little to resolve the euro zone’s problems.

As for the proposed tax on financial transactions, among the 27 members of the full European Union it has firm backing from Germany, France and nine other countries. Others might still eventually support the proposal, which is an idea closely associated with James Tobin, a U.S. economist and Nobel laureate who suggested a version of it in the 1970s.

Britain, as well as Malta, Luxembourg and the Czech Republic, abstained from the vote on Tuesday.

Although Britain would not be required to assess the tax because of a special European procedure allowing it to opt-out, the law still could have an effect on its financial sector by raising the costs of transactions that also involve institutions based inside the tax zone.

The decision to move forward with the tax was “regrettable and likely to serve as another brake on economic growth,” Richard Middleton, a managing director at the Association for Financial Markets in Europe, an industry group based in London, said on Tuesday.

Backers of the tax originally expected the proceeds to go to humanitarian and environmental causes. But the debt crisis that exploded three years ago and the meltdown in the banking sector have adjusted priorities. Nowadays governments are keener to use the revenue to help prop up shaky banks and help finance the budget for running the Union.

The initiative could generate about €57 billion annually, or about 0.5 percent of E.U. output, if it were applied across the entire bloc, according to the European Commission. But that amount is likely to be significantly less without Britain’s participation.

The next stage is for Mr. Semeta, the European tax commissioner, to propose legislation. He has already suggested a levy of 0.1 percent of the value of stocks and bonds traded, and of 0.01 percent of the value of derivatives trades.

One challenge is formulating the law so it does not prompt traders to move to non-taxed jurisdictions.

Another is deciding who pays the tax when traders in cities like Frankfurt and Paris, where the tax would apply, conduct business with traders in cities like London or New York, where it would not.

Article source: http://www.nytimes.com/2013/01/23/business/global/robin-hood-trading-tax-nudged-forward-by-europe.html?partner=rss&emc=rss

Permanent Rescue Fund Seems Nearer in Europe

The ministers backed efforts by Greece to keep the interest rate on newly issued bonds below 4 percent, Jean-Claude Juncker, who represents the 17 nations using the euro currency, told a news conference. That is below the level offered by bondholders in exchange for their current holdings of Greek debt.

“The negotiations will have to be resumed on that point as we don’t have a final picture,” said Mr. Juncker, referring to the interest rate on Greek debt.

At stake is the need to pare Greek debt to levels where the country can conclude a bailout with the European Union and the I.M.F. that would give it the cash it needs to repay loans coming due in March and, officials hope, allow Athens to finance its needs through 2013. Without such a package, Greece could be faced with a chaotic default that would further destabilize the rest of the euro zone.

Efforts to address another aspect of the region’s debt crisis took a step forward late Monday, as ministers made progress toward establishing a permanent rescue fund, the European Stability Mechanism.

Olli Rehn, the European Union’s commissioner for economic and monetary affairs, said the ministers were able to complete most of the details of the permanent fund, which should be “in place and operational” by July after member states ratify the agreement.

Setting up a permanent fund and giving it adequate financial firepower is a priority for European leaders including Chancellor Angela Merkel of Germany and for officials like Christine Lagarde, the head of the I.M.F.

An obstacle to establishing the fund was cleared on Monday night when ministers found a way to ease concerns in Finland, one of the contributing nations, that it would not incur additional liabilities without prior consent.

Earlier Monday, Ms. Lagarde suggested that the 440 billion-euro European Financial Stability Facility, a temporary bailout fund established in 2010, could be rolled into the 500 billion-euro permanent fund.

The fund is expected to be less exposed to downgrades by ratings agencies than the existing European Financial Stability Facility.

“I am convinced that we must step up the fund’s lending capacity,” to help defend “innocent bystanders” elsewhere in the world who are hurt by the euro contagion, Ms. Lagarde said. “A global world needs global firewalls.”

Mrs. Merkel said that she wanted to see the new fund put into operation quickly. She also said Germany was willing to speed up its share of payments.

Despite continuing concerns about Greek debt, the euro strengthened to an almost three-week high against the dollar after the French finance minister, François Baroin, said in Paris that negotiations with Athens were making “tangible progress.”

Evangelos Venizelos, the Greek finance minister, said as he arrived in Brussels that Greece was ready to complete a private sector debt swap “on time.”

Private sector bondholders are seeking yields of nearly 4 percent, but Greece, as well as Germany and the I.M.F., argue that a yield closer to 3 percent is necessary to give the restructuring a serious hope of success. With the talks at an impasse, the pressure is now mounting on finance ministers to push for a solution.

Reinforcing the need for a deal, Mrs. Merkel said she wanted an agreement “soon enough that no new bridge loan whatsoever will be needed” for Greece.

Even as ministers prodded financiers to do their part to ease the crisis in the euro zone, the I.M.F. pressed European governments to bolster the bailout funds available for euro zone countries so that the region’s problems could be contained.

Ms. Lagarde called on European leaders to complement the “fiscal compact” they agreed to last month with some form of financial risk-sharing. She mentioned bonds backed by debt securities issued by the euro zone or a debt-redemption fund as possible options.

While the sense of crisis has ebbed and markets have calmed since the European Central Bank last month announced longer-term refinancing operations to inject nearly 490 billion euros of liquidity into the banking system, analysts say the central bank has only bought time for leaders to put the 17-country currency bloc on firmer footing.

Without more such actions from governments and the central bank to reassure financial markets, Ms. Lagarde said, “countries like Italy and Spain, that are fundamentally able to repay their debts, could potentially be forced into a solvency crisis by abnormal financing costs.”

Ms. Lagarde also called for more fiscal integration among euro members, saying, “it is not tenable for 17 completely independent fiscal policies to sit alongside one monetary policy.” She called for new measures to increase the sharing of risk, including possibly jointly issued euro area debt instruments, or, as Germany has proposed, a debt redemption fund.

The monthly meeting of the ministers in Brussels came at a time of widespread gloom about the broad European economy. Austerity budgets in the euro zone are reducing demand and weighing on growth.

Even Germany, where factories are bustling, is feeling the effects. The Federal Statistical Office said last month that the German economy probably contracted by about 0.25 percent in the fourth quarter of 2011 from the previous three months.

The economy of Spain, which is struggling with an unemployment rate of more than 20 percent, may contract about 1.5 percent this year, the Bank of Spain estimated.

James Kanter reported from Brussels and David Jolly from Paris. Reporting was contributed by Melissa Eddy in Berlin and Landon Thomas Jr. in London.

Article source: http://feeds.nytimes.com/click.phdo?i=7c394878aef5de3e4e76a8874494edde

Worries Over Italy’s Debt Drag Down Markets

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

Euro Zone Ministers to Sign Off on Loan Installment for Greece

BRUSSELS (AP) — Eurozone finance ministers have canceled a crisis meeting planned for Sunday because they need more time — as much as two more months — to nail down the details of a second bailout for Greece, officials said Friday.

They will, however, hold a video conference on Saturday to sign off on a new loan installment that will keep Greece from bankruptcy over the summer.

Whereas the payout of the next loan installment from Greece’s first bailout was a near certainty after Athens voted through new austerity measures this week, talks were still ongoing over a second rescue package that would support Greece over the longer-term.

“It would have been too ambitious to get the deal (on a second package of rescue loans) done by Sunday,” said a eurozone official. Several key aspects of a new bailout, such as the contribution of banks and other investment funds, are still up in the air — although eurozone leaders said last week that there will be new financing for the struggling country.

The ministers will continue their discussions on the new program at their next scheduled meeting on July 11, but getting everything done by then may also also prove difficult, the official said. He was speaking on condition of anonymity because of the sensitivity of the talks on Greece.

A second eurozone official said that while the cornerstones of the new program have to be drawn up soon, it may not be finalized until the next Greek loan installment is due in September. The official was also speaking on condition of anonymity.

A spokesman for Jean-Claude Juncker, the prime minister of Luxembourg and chairman of the Eurogroup, said earlier that a video conference had been scheduled for Saturday evening, but didn’t provide a reason for the change in the plan. He said he didn’t know whether a statement would be released after the call.

The ministers have to sign of on a euro12 billion ($17 billion) loan installment of Greece’s existing bailout, without which the debt-ridden country would default in July. Greece this week fulfilled the preconditions for getting the money by passing unpopular austerity and privatization programs through parliament.

“It is good that the Eurogroup procedure is being speeded up,” said a Greek finance ministry official. “The voting of the midterm program and the implementation bill is acting internationally in favor of the country’s credibility and is the basis for tomorrow’s discussion at the Eurogroup.”

The official declined to be named in line with department policy.

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Elena Becatoros in Athens contributed to this story.

Article source: http://www.nytimes.com/aponline/2011/07/01/business/AP-EU-Europe-Financial-Crisis.html?partner=rss&emc=rss

A Downgrade by Fitch Leads to a Decline in Greek Bonds

Greek bonds led declines among euro area nations on Friday on concern a restructuring of its debt would reignite Europe’s sovereign debt crisis.

The spread, or yield difference, between benchmark Greek debt and German bunds widened to the most on record.

Fitch Ratings said that it downgraded Greece’s credit ratings by three levels, to B+ from BB+, four notches below investment grade.

German bonds rallied as Jens Weidmann, the president of the Deutsche Bundesbank and a member of the European Central Bank’s governing council, said the bank might no longer be able to accept Greek bonds as collateral if maturities were extended, stoking demand for the relative safety of Europe’s benchmark debt.

“I see the downgrade as a response to the continued deterioration of Greece’s fiscals and the need for further significant austerity measures,” said Peter Chatwell, a fixed-income strategist at Crédit Agricole in London. “The decision is not a great shock, although I’m sure the timing is unhelpful for many as the market has already slid quite strongly today.”

The prime minister of Luxembourg, Jean-Claude Juncker, this week proposed “reprofiling” Greek debt maturities as a way of limiting the losses of private bondholders.

European Central Bank officials opposed the idea, with an executive board member, Jürgen Stark, saying any form of restructuring would be a catastrophe for the banking system. Another board member, Lorenzo Bini Smaghi, said a solution for reducing debt “but not paying for it will not work.”

Ioannis Sokos, an interest-rate strategist at BNP Paribas in London, said a reprofiling of the debt appeared to be inevitable. “It’s not a matter of if there’s a reprofiling. It’s a matter of when and how significant it is.”

Meanwhile, the International Monetary Fund said Ireland’s ability to sell sovereign bonds remains “elusive” and its situation may worsen unless the European Union develops a more comprehensive plan to deal with the region’s debt crisis.

Ireland’s plan to stabilize its banks and reduce its deficit is “off to a strong start,” the fund said in a review on Friday of its aid agreement with Ireland. “This decisive approach to program implementation, which should be supported by a more comprehensive European plan, offers the best prospect to overcome market doubts.”

Ireland received an 85 billion euro ($121 billon) bailout in November, led by the European Union and I.M.F., as bank rescue costs related to a real estate collapse led to a mounting fiscal deficit. It was the second euro region nation to get aid after Greece last May, and bond yields have jumped since Portugal sought aid last month.

“Notwithstanding the strong policy implementation, risks to the program have risen in some respect,” said Ajai Chopra, deputy director of the I.M.F.’s European department. “Financial market conditions are more adverse, with spreads at unsustainable levels. This is due to external developments.”

He said there was a need for an “upgrade” to the European Financial Stability Facility to deal more comprehensively with problems, and that fixing Ireland’s banks would be assisted by a medium-term European Central Bank funding plan.

“We hope that such financing will be available” as Ireland sticks to bank-deleveraging targets, he said.

Irish bond yields have jumped in the last month. The spread between Irish 10-year yields and German bunds was at 741 basis points Friday. That compares with 594 basis points on April 6, the day Portugal said it would seek aid. The Greek premium was at 1,344 points.

“Deepening financial stress for other euro area periphery countries presents a critical yet largely exogenous risk that needs to be addressed through a more comprehensive European plan,” the I.M.F. said.

The fund also said Ireland’s 2011 growth outlook was “moderately weaker” than when the aid package was approved. Exports will be the main driver of growth as domestic demand “will continue to face headwinds,” it said.

“A continued inability to regain market access for the sovereign, and hence for the banks, would impede growth,” the I.M.F. said.

Article source: http://feeds.nytimes.com/click.phdo?i=0975703da83aa19cb7378851a35af0d0

Finance Ministers Discuss Next Step for Greece

After the private gathering, the prime minister of Luxembourg, Jean-Claude Juncker, who heads the group of euro-area finance ministers, said that Greece’s financial assistance program “does need a further adjustment” and that it would be discussed at the group’s next meeting on May 16.

Mr. Juncker told reporters that E.U. officials are “excluding the restructuring option which is discussed heavily in certain quarters of the financial markets,” according to Bloomberg News.

France, Germany, Italy and Spain were represented at the meeting in Luxembourg, which also included the president of the European Central Bank, Jean-Claude Trichet, and Olli Rehn, the European commissioner for economic and monetary affairs, Mr. Juncker said.

A spokesman for the Greek finance ministry did not respond to questions about the nature of the talks.

But after an evening of intense speculation, Athens confirmed in a statement that its finance minister, George Papaconstantinou, attended the meeting and discussed the country’s economic predicament. “The minister was invited to exchange views” including economic developments in Greece, the statement said, denying an online report by Germany’s Spiegel that Greece might leave the euro zone. That report caused a sharp drop in the euro, which fell to $1.4337 in New York from $1.4530 late Thursday.

“It is clear that during this meeting it was never discussed or posed as an issue whether Greece would remain in the euro zone,” the statement said, according to Reuters.

That Mr. Papaconstantinou traveled to Luxembourg for these discussions suggests that Greece may finally be prepared to concede what analysts have been arguing for more than a year: that Greece’s debt, which is expected to exceed 150 percent of gross domestic product in the coming years, is unsustainable.

So far, Greek and European officials have said consistently that a debt restructuring that would cause bondholders to suffer a haircut, or a loss on their holdings, was out of the question. But that stance may not preclude a softer option in which bondholders might be persuaded to exchange their shorter maturity debt for securities with longer maturities and perhaps even a lower interest rate.

The majority of the bondholders are French, German and Greek banks, as well as the European Central Bank.

Referred to as a reprofiling, this softer approach was used successfully in Uruguay in 2003 and for weeks now has been a hot topic for discussion among policy makers in Europe as well as economists and analysts at investment banks.

A reprofiling would allow bondholders to avoid the stark losses they would face under a restructuring and would also give breathing space to Greece to generate enough cash to begin paying its debts.

Detractors say that such a solution, while appropriate for Uruguay, which suffered from a liquidity crisis, does not go far enough in the case of Greece, which is confronting a different problem, namely its huge debt burden.

Top policy makers at the E.C.B. are convinced that a Greek default would quickly undermine confidence elsewhere in the euro area and raise borrowing cost for other countries like Portugal and Ireland. It is also not clear what Greece would gain from such a move because its banks would fail and it would be years before the country could borrow internationally again.

Asked about default speculation at a news conference on Thursday, Mr. Trichet, the E.C.B. president, said, “It is not in the cards.”

The meeting in Luxembourg, made up of just a few ministers and senior officials, prompted some annoyance among the euro zone nations not invited.

Without the status of a formal meeting, the gathering could not make any decisions, but smaller euro zone nations are sensitive about suggestions that the bigger nations are effectively deciding policy.

Article source: http://feeds.nytimes.com/click.phdo?i=e440f684bb50f73754536c03ac759bae

European Union Sees Bailout Deal for Portugal by Mid-May

After a meeting in Godollo, Hungary, ministers from the 17-nation euro zone said they hope to reach a cross-party agreement in Lisbon on a new austerity plan for the country as part of the bailout, equal to about $115 billion.

Following a crisis which led to the fall of the government, Portugal finds itself with a political vacuum and is led by a lame-duck administration ahead of elections on June 5.

After refusing for months to countenance the idea of an international rescue, the country’s caretaker Prime Minister José Sócrates sent a formal request for help to Brussels on Thursday.

Officials from the European Commission, which is the executive of the European Union, as well as officials from the European Central Bank and the International Monetary fund will assess the financing gap in Portugal and make proposals. They are certain to include additional, far-reaching cuts as well as “an ambitious privatization program,” Olli Rehn, the European Commissioner for Economic and Monetary Affairs, said at a news conference.

Mr. Rehn said that he was “confident that Portugal will match its refinancing needs in April and May, while June will be more challenging.”

For that reason he hoped to have agreement on the new bailout package in time for E.U. finance ministers to consider it at their next regular meeting, on May 16.

The starting point will be the austerity measures on which Mr. Socrates failed to secure an agreement in the Portuguese Parliament before he was forced to ask for a bailout. “It is essential that we will also talk with the parties of opposition,” Mr. Rehn added.

Prime Minister Jean-Claude Juncker of Luxembourg, who chairs the group of euro-zone finance ministers, said there were assurances from the caretaker government and the main opposition party that they remain committed to agreed deficit reduction targets. These would cut the Portuguese budget deficit — which hit 8.6 percent of gross domestic product last year — to 4.6 percent in 2011, 3 percent in 2012 and 2 percent in 2013.

While Mr. Rehn said that the total finance that will be made available by the E.U. and the I.M.F. would be “in the magnitude of around €80 billion,” he said it was too early to specify how much of that would be set aside for repairing Portugual’s financial sector.

If confirmed at €80 billion, the aid would be smaller on a per capita basis than the total size of similar packages negotiated with Ireland and Greece.

Klaus Regling, who heads the eurozone’s €440 billion rescue fund, the European Financial Stability Facility, said that the Portuguese bailout request had helped to reduce the risk of contagion to other countries, most notably Spain, by ring-fencing the euro’s three weaker economies.

“In general the markets today understand much better the economic fundamentals in the different member states in the euro area and that is the reason why the risk of contagion is much less than six or nine months ago,” he said at the news conference with Mr. Rehn.

The Dutch finance minister Jan Kees de Jager said at the meeting that the assistance for Portugal would represent the last bailout in the region. “The other countries are on the safe side,” he said, according to Bloomberg News.

News of the bailout this week helped Portuguese banking stocks, but has done nothing to lower Portugal’s borrowing costs. Yields on Portuguese bonds pushed higher, with the benchmark 10-year yield up 5 basis points at 8.43 percent on Friday, although yields on equivalent German bonds rose by a similar amount.

The euro pushed higher Friday. It was quoted at $1.4435 in late London trading, from $1.4308 late Thursday. The currency has benefited from the European Central Bank’s decision Thursday to lift interest rates in the region.

Article source: http://feeds.nytimes.com/click.phdo?i=566129e48319b81f98a31b33d9bf88ee