December 16, 2019

European Markets Slump on Political Crises

PARIS — Global stocks fell and oil rose above $100 a barrel on Wednesday, as concern about the political crises in Egypt and Portugal added to traders’ growing grab-bag of anxieties.

Egypt was at the center of geopolitical concern after President Mohamed Morsi on Tuesday night defied an army ultimatum that he resign, raising the risk that the country would descend into bloodshed and chaos.

“Egypt’s not a major oil producer compared with Libya next door,” said Damian Kennaby, director of research for oil market services at IHS Cambridge Energy Research Associates in London. “But there’s a whole lot of ‘what if’ going on right now, and that’s being built into the oil price.” Egypt produced 728,000 barrels of oil a day on average last year, while Libya produced about 1.5 million, according to figures from BP.

In afternoon trading, American crude oil for August delivery was trading at $100.93 a barrel in Europe, up 1.3 percent, its first time above $100 in nine months.

The Euro Stoxx 50 of euro zone blue chips was down 1.8 percent. In London, the FTSE 100 index fell 1.6 percent. On Wall Street, the Standard Poor’s 500-stock index was down 0.3 percent at the start of trading.

In a worrying reminder that the euro zone crisis is not over, Portuguese stocks slumped 5 percent, and the price of Portuguese 10-year government bonds also fell, pushing the yield past 8 percent, its first time at that level since last November, before easing.

In Lisbon, Prime Minister Passos Coelho was struggling to overcome the turmoil in his government that has led both his finance minister and foreign minister to resign within a matter of days amid opposition to crushing austerity policies.

Portugal’s tottering coalition government could collapse amid calls for new elections, potentially ushering in a long period of uncertainty about economic policy in a country that is still under the tutelage of the International Monetary Fund and European Union following its bailout in 2011.

“The situation in Portugal is worrying,” Reuters quoted Jeroen Dijsselbloem, the Dutch finance minister and leader of the Eurogroup of euro zone finance ministers, as saying Wednesday. “I assume the political situation in Portugal will stabilize and that Portugal will stay committed to the undertakings that are part of its program.”

European banking stocks fell after Standard Poor’s cut credit ratings on some of the biggest lenders in the sector. Barclays, which was cut to A from A+, fell 2.9 percent. Deutsche Bank, also cut to A from A+, fell 2.8 percent. Credit Suisse, cut to A- from A, fell 3.8 percent.

Market volatility has returned after a period of calm amid signs of slowing in the Chinese economy, an engine of global growth. A government survey of purchasing managers Wednesday showed activity in the services sector slipping to a 53.9 in June from 54.3 in May, the lowest in nine months. A separate report from Markit Economics and HSBC showed activity firming slightly in June at 51.3, up from 51.2 in May.

Indications from the Federal Reserve in Washington that it might soon begin tapering down its quantitative easing policy has also unsettled investors, setting off a rout in bonds that has erased tens of billions of dollars of value.

Earlier on Wednesday, Asian stock markets closed down moderately.

Stanley Reed contributed reporting from London.

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Egypt Needs Structural Help From I.M.F., Not Loans, Minister Says

CAIRO — Egypt needs broad structural measures, not stopgap financing, as part of a package from the International Monetary Fund to address its budget deficit, a cabinet member said Sunday.

“The help we are requesting from the I.M.F. is not quick fixes,” the cabinet member, Ashraf al-Araby, the minister for planning and international cooperation, said at a news conference.

With President Mohamed Morsi struggling to contain violent protests, new figures released Sunday showed a jump in inflation, which will hurt the poor hardest and is likely to stir yet more social unrest.

Cairo says it wants to reopen talks with the I.M.F. on a $4.8 billion loan that was put on hold during rioting last December.

The fund has yet to respond publicly to the invitation.

Some analysts have said that the fund seems reluctant to negotiate on a full deal during the current political upheaval and that it might offer short-term financing that would be modest in size but without many of the conditions demanding painful reforms that would come with a full program.

“It is not suggested that we obtain a bridging loan,” Mr. Araby said. “This is offered by the I.M.F. in its negotiations with many countries. In our case, we do not need bridging loans.”

Mr. Araby did not say explicitly whether the fund had offered Egypt such short-term financing.

Last month, Mr. Morsi called for elections between April and June, but a court later canceled his decree, throwing the electoral process into limbo.

Cairo’s problems are daunting. Foreign currency reserves have fallen to about a third of their levels before the 2011 revolution, forcing the central bank to ration dollars.

This is crippling many smaller and midsize firms, which often turn to the black market because banks make them wait months to get currency at the official rate.

On top of that, the government’s budget deficit is climbing to unaffordable levels and the Egyptian pound is sliding.

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Egypt’s Hamdeen Sabahi vs. Islamists and Free Markets

Do not listen to your allies in the Muslim Brotherhood, Mr. Sabahi said he warned President Mohamed Morsi, of the Brotherhood’s political arm, in a private meeting a few weeks ago. “Because the Brotherhood’s economic and social thought is the same as Mubarak’s: the law of the markets,” Mr. Sabahi said he had told Mr. Morsi, referring to Hosni Mubarak, the former president. “You will just make the poor poorer, and they will be angry with you just as they were with Mubarak.”

Mr. Sabahi, 58, a leftist in the style of another former president, Gamal Abdel Nasser, frightens most economists. He is an outspoken opponent of free-market economic moves in general as well as of a pending $4.5 billion loan from the International Monetary Fund that economists say is urgently needed to avert a catastrophic currency collapse.

But to the dismay of some Western diplomats, Mr. Sabahi is emerging as an increasingly salient voice in Egyptian politics, in part because of the bruising race to ratify the Islamist-backed charter. Both sides now expect the anti-Islamist opposition to reap big gains in the coming parliamentary vote, set to be held in two months against the backdrop of a simultaneous debate over the I.M.F. loan.

Among Egypt’s opposition figures, Mr. Sabahi has the biggest base of support in the streets. After campaigning as a dark horse in the spring’s presidential election, he missed the runoff by fewer than a million votes, finishing the first round almost neck and neck with Mr. Morsi.

Economic overhaul now poses a critical test of Egypt’s fragile democracy. Without enough trust in government, the changes to the systems of taxes or subsidies needed to reduce the deficit could easily stir new unrest in the streets, just as such moves have in the past. But if Mr. Morsi expects his opponents to hold their fire just because economists say the need is dire, Mr. Sabahi said, the president should think again.

“Why support him, for what?” Mr. Sabahi said in an interview in the borrowed offices of an Egyptian film director, decorated with pictures of President Nasser but also of Che Guevara. “Is he a democratic ruler, is he a revolutionary? Is he a model of a president, so I want him to succeed?”

Mr. Sabahi, 58, known for writing poetry and quoting Arab literature and for his blow-dried hair, was one of the few non-Islamist politicians willing to endure imprisonment alongside the members of the Muslim Brotherhood in the struggle against Egypt’s autocracy, giving him a unique credibility among more secular leaders.

But after missing the presidential runoff this year, Mr. Sabahi declined to endorse either Mr. Morsi or his opponent, Ahmed Shafik, a former Mubarak prime minister. It was a choice between “tyranny in the name of the state” and “tyranny in the name of religion,” Mr. Sabahi said at the time in a television interview.

Mr. Sabahi argued in the interview that although Mr. Morsi won election democratically, he has failed to govern as a democrat. “He is kicking away the ladder he climbed,” Mr. Sabahi said, arguing that Mr. Morsi’s decree setting his authority above the courts, if only for a month, ended his credibility as a democrat.

The resulting discord between the Islamists and their opponents has postponed the I.M.F. loan and helped bring Egypt closer than ever to economic collapse. State media on Tuesday described a “dollarization frenzy” gripping the country as people raced to sell Egyptian pounds. The currency is at its lowest level in the past eight years.

Since Mr. Mubarak’s ouster, Egypt’s hard currency reserves have fallen to $15 billion from $43 billion as it has struggled to prop up the pound, and economists say the government now urgently needs a cash infusion of about $14 billion in order to stay afloat. The $4.5 billion I.M.F. loan is expected to act as a seal of approval for others, after the I.M.F. concludes Egypt is at least on a path to greater balance.

If that loan does not come through soon, “the risk is a disaster,” said Heba Handoussa of the Economic Research Forum. “We can’t afford to wait.”

There are other more Western-friendly faces of the opposition, like Mohamed ElBaradei, the former United Nations diplomat, and Amr Moussa, the former foreign minister. But neither has Mr. Sabahi’s following at the grass roots, and he speaks for a segment of the Egyptian public deeply suspicious of free markets and, especially, the I.M.F. A popular singer, El Manawahly, has even recorded a song and music video opposing the loan. “Oh monetary fund / Show me how to industrialize, plant and kneel.”

Mayy El Sheikh contributed reporting.

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