March 28, 2024

Hitches Signal Difficulties for the Euro Zone

Italy was obliged to pay the highest rate in more than a decade to sell a new bond issue, a sign that investors remained wary of the country’s political paralysis and a debt load equal to 120 percent of yearly economic output. If Italy’s borrowing costs become unsustainable, the country is potentially a much greater threat than Greece to Europe and the world economy.

“The current Italian government has lost the confidence of investors,” said Alessandro Giansanti, a rates strategist at ING in Amsterdam.

Elsewhere in the troubled euro zone, a big loss by an Austrian bank served as a reminder of the fragility of financial institutions, while a German supreme court decision scrambled efforts to speed up political decision making. In the meantime, the head of Europe’s bailout fund turned to China to invest in the fund.

The shift in mood Friday was sudden and stopped a rally only a day after it began.

On Thursday, major European indexes soared and bank shares rebounded after an all-night session in Brussels by European leaders that produced the boldest response yet to the debt crisis.

While major European stock indexes on Friday largely held on to their gains from the day before, investors seemed to be reflecting on the unanswered questions in the latest rescue package.

The plan, which was short on details, includes measures to bolster the resiliency of banks, to ease Greece’s crushing debt load and to turbocharge the euro area’s $623 billion rescue fund.

The benchmark indexes in Frankfurt, Paris and London were little changed at the end of trading Friday, while Italian shares fell 1.8 percent. The euro barely budged, trading at about $1.42.

The Euro Stoxx 50 index of euro zone blue chips closed down 0.6 percent, while markets in Britain and Paris were also slightly lower. Germany’s DAX was up 0.13 percent.

In the United States, the Standard Poor’s 500-stock index registered a microscopic increase of 0.04 percent, ending the week up more than 3 percent, mainly on Thursday’s lift from the summit meeting in Brussels and a report of growth in the American economy.

European technocrats are now charged with working out in the weeks ahead the specifics behind the broad outlines of Thursday’s plan. The pace is unsettling for markets, but that is the methodical way that European leaders are determined to operate. Elected officials are focused on their reluctant voters, not on investors impatient for bold initiatives.

“If you ask someone on the street, they’ll say they want the Deutsche mark back,” said Martin Lueck, an economist at UBS in Frankfurt. “This is why the politicians need to move in a piecemeal fashion. They need to keep people on board.”

Officials of the European Union and the International Monetary Fund hoped that Thursday’s deal would soothe market anxiety by easing the terms of Greece’s debt repayments enough to avoid default, as well as by building a war chest for safeguarding the larger Italian and Spanish economies against possible contagion.

But the lack of confidence in the plan was evident in the rise in interest rates on the bonds of both Italy and Spain. Benchmark yields jumped 14.4 basis points (about one-seventh of a percentage point) to 6.01 percent in Italy and 17.7 basis points to 5.49 percent in Spain.

Italy was supposed to help its own case this week by producing concrete evidence that it was streamlining its economy and cutting public debt. But Prime Minister Silvio Berlusconi’s government, weakened by internal strife, delivered only promises, handing officials in Brussels a letter of intent describing hoped-for measures.

While Italy has a relatively low annual budget deficit, the ratio of total debt to gross domestic product is second-highest in the euro zone after that of Greece.

The market’s skepticism showed in the auction results Friday. The Italian Treasury sold 3 billion euros of bonds due in 2022 at 6.06 percent, the highest rate since the creation of the euro. Italy also sold 3.1 billion euros of bonds due in 2014 to yield 4.93 percent, up from 4.68 percent at their last auction on Sept. 29.

Elisabetta Povoledo and Gaia Pianigiani contributed reporting.

Article source: http://www.nytimes.com/2011/10/29/business/global/italys-borrowing-costs-rise-amid-uncertainty-about-rescue.html?partner=rss&emc=rss

Hitches Signal Difficulties Ahead for the Euro Zone

Italy was obliged to pay the highest rate in more than a decade to sell a new bond issue, a sign that investors remained wary of the country’s political paralysis and a debt load equal to 120 percent of yearly economic output. If Italy’s borrowing costs become unsustainable, the country is potentially a much greater threat to Europe and the world economy than Greece.

“The current Italian government has lost the confidence of investors,” said Alessandro Giansanti, a rates strategist at ING in Amsterdam.

Elsewhere in the troubled euro zone, a big loss by an Austrian bank served as a reminder of the fragility of financial institutions, while a German supreme court decision scrambled efforts to speed up political decision-making.

The shift in mood was sudden and stopped a rally only a day after it began. On Thursday, major European indexes soared and bank shares rebounded following an all-nighter by European leaders that produced the boldest response yet to the debt crisis.

While major European stock indexes on Friday largely held on to their gains from the day before, investors seemed to be reflecting on the unanswered questions in the latest rescue package, which includes measures to bolster the resiliency of banks, to ease Greece’s crushing debt load and to turbocharge the euro area’s €440 billion, or $623 billion, rescue fund.

The benchmark indexes in Frankfurt, Paris and London were little changed at the end of trading Friday, while Italian shares fell 1.6 percent. The euro barely budged, trading at about $1.42.

The plan agreed to in Brussels early Thursday was short on details, which must be worked out by government technocrats in the weeks ahead. The pace is unsettling for markets, but that is the methodical way that European leaders are determined to operate. Elected officials are focused on their reluctant voters, not on investors impatient for bold initiatives.

“If you ask someone on the street, they’ll say they want the Deutsche mark back,” said Martin Lück, an economist at UBS in Frankfurt. “This is why the politicians need to move in a piecemeal fashion. They need to keep people on board.”

Germany’s Constitutional Court highlighted the complexity of European politics on Friday by issuing an injunction against a new panel in the German Parliament that is supposed to oversee the euro area rescue fund and accelerate decision making. Germany is the largest contributor to the fund.

Several dissident lawmakers complained to the court that Parliament did not have the right to delegate decision making to the panel, whose nine members were approved by a large majority on Wednesday. The court said Friday that the panel could not make decisions until judges had ruled on the merits of the complaint.

The parliamentary leader of Chancellor Angela Merkel’s conservative bloc, Peter Altmaier, said the decision meant that the entire Bundestag must decide on matters relating to the rescue fund, Reuters reported. But Mr. Altmaier insisted that the court decision would not interfere with operations of the fund, the European Financial Stability Facility.

“The German Parliament will ensure that, until the main ruling, Germany’s ability and the E.F.S.F.’s ability to act are secured,” Mr. Altmaier said, according to Reuters.

In Vienna, the Erste Group, an Austrian bank that is one of the most active institutions in Eastern Europe, reported a loss of €1.5 billion for the third quarter, caused by problems at its Hungarian and Romanian subsidiaries and a revaluation of its derivatives portfolio.

The bank, which also restated its 2010 earnings, had warned of the loss and the problems earlier in the month. Erste Group said Friday that it had sold almost all of a €5.2 billion portfolio of credit default swaps, a derivative the bank sold to customers as a form of insurance on government and corporate debt.

The disclosure about the swaps portfolio earlier this month raised questions about what other nasty surprises might be lurking in the balance sheets of European banks. Andreas Treichl, the chief executive of Erste Group, acknowledged that the bank had made mistakes. “We do have to accept the fact we caused a lot of concern,” he said during a conference call with analysts Friday.

Officials of the European Union and the International Monetary Fund hoped that the deal announced early Thursday would soothe market anxiety by easing the terms of Greece’s debt repayments enough to avoid default, as well as by building a war chest for safeguarding the larger Italian and Spanish economies against possible contagion.

Article source: http://www.nytimes.com/2011/10/29/business/global/italys-borrowing-costs-rise-amid-uncertainty-about-rescue.html?partner=rss&emc=rss

Chairman Accused of Withholding Information in Nuclear Repository Decision

The report, by the commission’s chief internal investigator, does not accused the agency’s chairman, Gregory B. Jaczko, of breaking any laws, but is likely to add to a political controversy over the Obama administration’s decision to kill the repository program.

In the 1980s, Congress picked Yucca Mountain, about 100 miles northwest of Las Vegas, as the prime candidate for a burial site for civilian and military nuclear waste, and in 2008 the Energy Department applied for a license to build the repository. But President Obama, making good on a campaign pledge, terminated the program.

The Government Accountability Office recently concluded that the administration’s decision was made on a political basis, not a technical one. Critics of the site, however, say it was chosen in the 1980s as a political decision, without thorough scientific evaluation of potential alternatives in Washington State and Texas, both of which were then more powerful in Congress.

At the moment, Harry Reid of Nevada is the Senate majority leader and a fierce opponent of the project; Mr. Jaczko is a former aide to Mr. Reid.

When Congress failed to pass a budget for the current fiscal year, it approved a series of continuing resolutions, which generally hold agencies to the same spending level they had in the previous year. There were no instructions to the Nuclear Regulatory Commission in those resolutions about Yucca Mountain, but the Energy Department stopped most work.

Mr. Jaczko instructed his staff to halt evaluating the Energy Department’s license application. But the report, dated Monday, by the Nuclear Regulatory Commission’s inspector general, Hubert T. Bell, said that Mr. Jaczko had not told the other commissioners that he planned to use the budget as a reason to stop work.

Mr. Jaczko, in an unusual move, defended himself before the report’s public release.

“The closeout of the Yucca Mountain license review has been a complicated issue, with dedicated and experienced people holding different viewpoints,” Mr. Jaczko said in a statement. “All N.R.C. chairmen have the responsibility to make difficult and sometimes controversial decisions.”

A three-judge panel appointed to hear the license application voted that the Energy Department could not withdraw its application, a decision automatically appealed to the commission. The commissioners appear deadlocked on that issue.

Article source: http://feeds.nytimes.com/click.phdo?i=00a938bf5032a9b990a70cf4e36dc272