NEWS,22.07.2012

Spaniards protest as crisis outlook darkens

Thousands of jobless Spaniards marched through Madrid Saturday in the latest angry demonstrations against economic crisis cuts, as fears rose for the country's financial stability.Young people thrown out of work by the recession converged on the capital, many of them having hiked hundreds of miles from around Spain, and walked through the city's central avenues, waving banners and whistling."Hands up, this is a robbery!" they yelled, their regular refrain over recent days of protests."Everyone get up and fight!"It was the latest in a string of protests that have erupted since Prime Minister Mariano Rajoy announced 65 billion euros ($80 billion) in fresh austerity measures on July 11, including cuts to pay and unemployment benefits."I am very disappointed and angry," said Alba Sanchez, 25, who had come by car from the northeastern region of Catalonia to join the demonstration."People cannot allow all these cuts by this government that hates us."The crowd marched peacefully to the sound of drums and trumpets and stopped at the Puerta del Sol square, the symbolic hub of numerous social protests, where demonstrators sat down and held a popular assembly.On Thursday hundreds of thousands of demonstrators massed there after a mostly peaceful protest march that ended with police firing rubber bullets to disperse small groups of protestors.Protestors say the efforts to cut Spain's deficit target the poor unfairly and will depress the recession-hit economy further."They pee on us and tell us it's raining," read one yellow sign waved by the jobless protestors on Saturday."I can't tighten my belt and drop my trousers at the same time," read another.Rajoy's measures raise sales tax (VAT) and cut benefits for the newly unemployed after six months from 70 percent of basic salary to 50 percent. Previously, the reduction had been to 60 percent."That's the final blow. They're cutting benefits to those who aren't working and raising VAT, which affects people who work," said protestor Rafel Ledo, who had walked 500 kilometres (310 miles) from the northern Asturias region.Saturday's protests came as Spain's economic and financial outlook darkened. The government cut its economic growth forecast for 2013 from 0.2 percent growth to a contraction of 0.5 percent.Stricken by the bursting of a construction bubble in 2008, Spain is struggling in its second recession in four years. Unemployment is running at more than 24 percent.Also on Friday Valencia, one of Spain's indebted regional authorities, reached out for emergency aid from a fund of 18 billion euros set up by the central government for struggling regions.In response, the Madrid stock exchange plunged by 5.8 percent.A eurozone rescue deal for Spanish banks finalised by finance ministers on Friday provided no relief.The return on Spanish 10-year bonds jumped above the 7.0 percent danger level and another key measure, the difference between the yields on Spanish and safe haven German bonds, moved dangerously high, topping 600 points.The indicators revived warnings that the banking bailout may not be enough to stabilise Spain's finances, a key concern for the future of the eurozone.

 

Ministers: Bank to pump €1.4bn into Greece

The European Investment Bank will pump around €1.4bn ($1.7bn) by 2015 to fund infrastructure projects in crisis-hit Greece, the ministers of finance and development said on Saturday."I believe the accords will be signed in the coming days. We aim to restart, to re-activate the EIB in the private sector as soon as possible," said Finance Minister Yannis Stournaras after talks with EIB chairman Werner Hoyer.Greece's private sector has been starved of funds as the country grinds through a five-year recession that has cut off bank loans and even state contract payments.EIB loans this year had been limited to just 10 million euros, Stournaras said, as Greece plunged into political uncertainty in May, requiring two elections before a coalition government could be formed to continue EU and IMF-mandated reforms."The agreement is a vote of confidence in Greece. Besides infrastructure projects and support for small and medium companies, the cooperation will be expanded to facilitate foreign investment and privatisation," said Development Minister Costis Hatzidakis, according to the state-run Athens News Agency.There was speculation in April that the EIB would seek to insert drachma clauses into its contracts with Greek firms to ward against a possible Greek euro exit.But Stournaras insisted on Saturday that repayment will be in euros.

European Central Bank's Head: Euro 'Absolutely Not' In Danger

 

Worries about the 17-nation eurozone's future health have been fueled lately by Greece's persistent troubles and by the financial woes of Spain, the bloc's fourth-biggest economy. European ministers this week signed a rescue package worth up to (EURO)100 billion ($122 billion) for its ailing banks, but concern flared about Spain's prolonged recession and the debts of its regions, and the country's borrowing costs rose.Asked in an interview with French daily Le Monde whether the euro is in danger, ECB President Mario Draghi replied: "No, absolutely not."When outside analysts draw up scenarios for an "explosion" of the eurozone, "that underestimates the political capital that our leaders have invested in this union, as well as the support of European citizens," Draghi said in the interview, which was posted on the ECB's website."The euro is irrevocable," he added.The ECB this month cut its benchmark interest rate to a record-low 0.75 percent but gave little sign of further action soon to ease the crisis. It already has made two rounds of three-year emergency loans to banks, but has shown little appetite to reactivate its government bond-buying program."Our mandate is not to resolve the financial problems of countries, but to ensure price stability and to contribute to the stability of the financial system in full independence," Draghi said in the interview with Le Monde, conducted Wednesday  emphasizing the ECB's primary task of fighting inflation.Asked whether the ECB should do more to ease the economy, Draghi replied: "We are very open. We do not have any taboos."He said the ECB decided to cut interest rates in July because it forecast that inflation would be at its target level – close to or below 2 percent – at the start of 2013."It now seems likely that it will fall sooner than expected, at the end of 2012," he said. "Our mandate is to maintain price stability in order to prevent both higher inflation and a generalized, broadly based fall in prices. If we see such risks of deflation, we will act."As for the eurozone economy, Draghi said that the situation "has gradually worsened, but not to the point of plunging the whole of the monetary union into recession.""We still expect a very gradual improvement in the situation by the end of this year or the beginning of next year," he said.

NEWS,04.07.2012

Monti: Italy does not need a bailout

• German Chancellor Angela Merkel and Italian Premier Mario Monti arrive for a bilateral meeting at Villa Madama in Rome, Wednesday, July 4, 2012. Merkel is traveling to Rome for a regular meeting of the senior officials from the two countries along with several of her top ministers, including the economy and finance ministers

Italian Premier Mario Monti insisted Wednesday the country doesn't need a European bailout because its public finances will improve, but acknowledges work still needs to be done to cut government spending, boost economic growth and create jobs.Monti spoke at a press conference with German Chancellor Angela Merkel after meeting about Europe's debt crisis. It was their first encounter since European leaders in Brussels last week agreed to use the continent's bailout fund to funnel money directly to struggling banks and let countries following budget rules apply for financial aid without stringent conditions attached.Monti, who had pressed for such a deal, insisted Italy didn't need a bailout to help it pay its government debt because its budget deficit was low compared with many other European countries and forecast to improve.As of the end of 2011, official European statistics put Italy's deficit at 3.9 percent, just above the EU limit of 3 percent. Spain's, by contrast, was much higher at 8.5 percent.Italy's big problem is the economy is in recession and it has a high public debt load equivalent to 120 percent of GDP. Investors fearing Italy may have trouble repaying that debt have been asking for high interest rates to lend to the country.The measures announced by European leaders last week have helped relieve the fear that Italy may default. In particular, making it easier for countries to access European bailout funds has convinced investors that Italy has a credible financial backstop should it run into trouble financing itself.Agreeing to loosen the conditions for bailouts was not easy, however, and was the source of heated debated between Monti and Merkel in recent weeks and at the summit.Going into the summit, Monti had issued a thinly-veiled jab at Merkel over her opposition to allowing European governments to share debt obligations. Sharing debt is another way to spread individual countries' debt risk across Europe, but Merkel continued to oppose them at the summit.With debt-sharing ruled out, Monti pushed for the European leaders at the summit to agree to other measures that might increase confidence in Italy's finances. Easing conditions for countries to take bailouts was one of them.Monti has lamented that Italians have endured the effects of government spending cuts and tax hikes, but that Italy's government borrowing rates remained high in financial markets.By Wednesday, the two leaders were downright chummy, with Monti calling Merkel by her first name and emphasizing their "excellent" relations.Merkel, for her part, praised the speed with which Monti's government has pushed through structural reforms and insisted that it was in Germany's interest to keep Italy from failing."If our neighbors in Europe aren't well, eventually we Germans won't be in good shape," she said.Monti nevertheless acknowledged a rough road ahead: the government is embarking on a program of public spending cuts after having pushed divisive labor market reforms through parliament last week.And new unemployment figures have made clear that the recession and the impact of austerity measures are hitting home: Monti termed "unacceptable" that youth unemployment had now hit 36 percent."Reducing the weight of the public sector in the markets, including the financial markets, will give us greater possibilities for productivity and work for young people," he said when asked how much more austerity Italians can take before growth measures kick in.Both leaders stressed the need for Italian and German companies to collaborate more, particularly in manufacturing, to boost economic growth.

 

Big Banks Release 'Living Wills,' Say They Can Be Broken Up Without Bailouts

Nine of the largest global banks on Tuesday expressed confidence they can be salvaged or dismantled without taxpayer bailouts if they became insolvent, as U.S. regulators released public portions of these banks' "living wills".The documents, required by the 2010 Dodd-Frank financial reform law, aim to end too-big-to-fail bailouts by mapping out ways that, in theory, mortally-wounded banks could go out of business without wrecking the financial system.If regulators find that the resolution plans are not credible, they could force the banks to sell off business lines and restructure to become less complex.But some experts doubt how hard regulators will push the banks for changes or how useful hypothetical resolution plans will be in major financial crisis.The public portions released on Tuesday and are a few dozen pages per bank summarizing thousands of pages submitted confidentially to regulators.The banks argued in the public documents that their resolution plans will work, with no cost to taxpayers or great consequence to the financial system. They used technical generalities in their conclusions without specifically addressing the unpredictable and vicious nature of a credit crisis.Bank of America Corp, for example, said in its plan that "certain assets and liabilities would be transferred to a bridge bank that would, subject to certain assumptions, emerge from resolution as a viable going concern."JPMorgan Chase & Co concluded that its plan "would not require extraordinary government support, and would not result in losses being borne by the US government." And, Goldman Sachs Group Inc said it would find a broad range of potential buyers for its assets, including global financial institutions, private equity funds, insurance companies or sovereign wealth funds.The other banks which submitted wills were Barclays , Citigroup, Credit Suisse, Deutsche Bank, Morgan Stanley and UBS.The Federal Reserve and Federal Deposit Insurance Corp released the plans without commenting on them.Other large banks will have until July and December of next year to hand in their plans, according to the FDIC. Eventually about 125 banks are expected to submit plans.The first plans come almost four years after the financial crisis unleashed a panic in which no institution seemed safe from a bank run and markets withdrew credit in what appeared to be inexplicable fashion. The U.S. government, in quick order, arranged a fire sale of investment bank Bear Stearns to JPMorgan and then allowed Lehman Brothers to fail, touching off a global market meltdown. Blanket government guarantees for the financial system and a $700 billion taxpayer bailout followed to ease the panic.The disclosures on Tuesday give a glimpse of the kind of the kind of interconnections and complicated corporate structures that could still make governments fear letting big banks fail.JPMorgan named 25 "material" legal entities and 30 "core business lines," as required by Dodd-Frank and listed 18 clearing or financial settlement systems in which it is a member or participant, half of which are outside of the United States.The full-length plans are believed to include the most comprehensive maps of the insides of bank holding companies ever created. They are intended to give regulators confidence that they understand enough of the consequences of bank failures to allow more to happen.WOULD PLANS WORK?Bert Ely, a banking consultant in Alexandria, Virginia, said he is skeptical that the overall process could work because there would likely be a lot of turmoil in the markets when the plans were needed, raising doubt about who might buy any assets."The presumption of a one-off event is not realistically valid," he said. "You can have one company blow itself up, but more often than not there are systemic problems."Banks emphasized that they did not believe the resolution plans would ever have to be used. Morgan Stanley said that its "hypothetical failure" would have to be caused by "an idiosyncratic stress" that might occur while the economy and financial markets are under severe stress.Guggenheim Partners financial policy analyst Jaret Seiberg said he doubts regulators will use their reviews of the plans to force big changes on the institutions."Our initial review suggests there is little real risk that regulators could reject one of these plans," Seiberg said in a note. "That is important because regulators could break up a financial firm that fails to submit a credible plan."The regulators plan to give feedback to the banks on the initial plans by September.Congress called for the plans in Dodd-Frank to ease concerns that some banks are so big and interconnected that taxpayers will inevitably bail them out to avoid a threat to global markets.The FDIC gained new powers in Dodd-Frank to use the plans to dismantle failing financial giants if the bankruptcy process would not work.Citigroup found a special reason to argue that its resolution planning would work: its wrenching experience in the 2007-2009 financial crisis.To recover from the crisis, Citigroup separated businesses to be sold or gradually liquidated from those it is keeping as its "core" pursuits. The company said that process meant its "personnel would be well equipped to assist regulators" if the company had to be divided up into pieces to be sold or closed."Citi is today a fundamentally different institution than it was before the crisis: smaller, leaner, safer, sounder, and completely focused on our core mission," it said in the summary of its resolution plan.Bank of America, used its 42-page public document to emphasize steps it has taken in recent years to streamline the company, build capital and improve risk management."Bank of America has strengthened its risk culture as evidenced by improvements in consumer and commercial credit quality and decreases in market and counterparty risk," it said.Bank of America has lagged its rivals in recovering from the financial crisis, largely due to mortgage losses tied to its 2008 Countrywide Financial purchase.INTERNATIONAL FRAMEWORKSome of the foreign banks outlined resolution strategies for both home and U.S.-based regulators.Deutsche Bank imagined high levels of international cooperation, noting it could be dismantled "in an orderly manner with minimal systemic disruptions, and that any cross-border issues arising from financial, operational or other interconnections could be adequately addressed without significant difficulties," it said.Barclays said effective resolution plans are "an integral component of eradicating 'too big to fail' for the largest global financial institutions."It also noted how critical cooperation will be among international regulators.Barclays submission, dated July 2012, was already out of date. It listed Marcus Agius as chairman and Robert Diamond as CEO. Both have resigned in response to a Libor interest rate rigging scandal.Mitchell Glassman, a director at Deloitte Consulting who has worked with big banks on the living will issue, said he was impressed how much senior executives and directors were involved in preparing the plans. Still, he said, the question remains whether the plans on paper would work effectively in real-life."Will this help Main Street? Will we be better off with this approach than we were in the last crisis?" Glassman said.

 

NEWS,23.06.2012

EU ministers focus on banking unioN

European finance ministers examined ways to strengthen their banking sectors and break the link between troubled banks and indebted countries on Friday, with concerns about Spain’s stricken banking system top of their minds. IMF managing director Christine Lagarde has urged the eurozone to channel aid directly to struggling banks rather than via governments, but Germany and others are opposed to such direct lending, which is not possible under current rules. The discussion is part of a broader debate about how the European Union can move towards a so-called banking union, including a Pan-EU deposit guarantee scheme and a fund to resolve bad banks, to try to get on top of the two-and-a-half year sovereign debt crisis. Lagarde said on Thursday that allowing the eurozone’s rescue scheme - the European Stability Mechanism (ESM) - to aid stricken lenders directly rather than using a programme of aid to a government would stop bank problems from exacerbating the difficulties of countries. Arriving at Friday’s meeting Spain’s Economy Minister Luis de Guindos said such a possibility may be open to Spain, which is set to receive up to €100bn of aid from the eurozone for its troubled banks. “I think (direct bank recapitalisation) is a possibility,” he told reporters. “It is one of the fundamental elements to break the link between bank risk and sovereign risk.” “This possibility is absolutely open to Spain if there is progress in the next few months (on the issue). The process of recapitalisation is not instantaneous,” he said. Throughout the crisis, countries in the eurozone have been left to resolve problems at their banks themselves. For those for whom the burden was too great, such as Ireland, the government received aid from the IMF and the EU to do it. But after years in crisis, the problems in banks show no sign of abating and Europe’s leaders are under pressure to form a united front to shield struggling lenders rather than leave countries to cope with such problems alone. At a summit in Brussels next week, EU leaders will examine establishing a banking union that envisages a single supervisor for big banks, a fund to wind down cross-border lenders in trouble and the deposit guarantee scheme to protect savers. "Poisonous link" Central to this is the idea is that stronger countries in the eurozone such as Germany ultimately stand behind the lenders of countries too weak to manage alone, although Berlin does not want any such step in the short term because it is opposed to bearing any liability for other countries. “We need to break the poisonous link between sovereigns and banks,” said one EU diplomat close to discussions. “It’s about solidarity. It can’t happen overnight. It is difficult stuff." A banking union is also contentious because it will likely shift power from national regulators to a higher authority, such as the European Central Bank (ECB). France and Germany want the ECB to take charge of major systemic banks, rather than leaving oversight with the European Banking Authority. One of the biggest divisions in the debate about such a union is whether it will apply only to countries in the eurozone, or to all 27 member states in the European Union. Britain has said it will not join such a scheme, which it believes should be limited to the single currency area. The European Commission, the EU's executive, wants the union to apply to all countries, because of concerns that scaling it back would undermine the bloc's borderless single market. Michel Barnier, the EU commissioner in charge of financial regulation, will attend Friday’s meeting to appeal again for all countries to join. In Luxembourg, ministers will also discuss warnings issued to countries by the European Commission to countries on improving the management of their economies to reach spending goals laid down in EU law. Spain may receive more time to reach the goal of cutting its budget deficit to 3% of economic output, although one senior diplomat said this would only be discussed next week at an EU leaders' summit in Brussels. Germany will also push for the introduction of a tax on financial transactions, a move demanded by the country’s opposition socialists in order to secure their backing in parliament to sign off on the ESM.

NEWS,23.05.2012.

Euro zone to prepare for Greek exit scenario say sources

 

Each euro zone country will have to prepare a contingency plan for the eventuality of Greece leaving the single currency, euro zone sources said today.Officials reached the consensus on Monday afternoon during an hour-long teleconference of the Eurogroup Working Group (EWG).As well as confirmation from three euro zone officials, Reuters has seen a memo drawn up by one member state detailing some of the elements that euro zone countries should consider.The EWG consists of officials who prepare meetings of finance ministers and also form the board of the temporary bailout fund, the European Financial Stability Facility (EFSF).It consists mostly of deputy finance ministers and senior treasury officials."The EWG agreed that each euro zone country should prepare a contingency plan, individually, for the potential consequences of a Greek exit from the euro," said one euro zone official familiar with what was discussed on the call."Nothing was prepared so far on the euro zone level for now, for fear of leaks," the official said.A second official confirmed the EWG agreement. The situation in Greece, which faces elections on June 17, seems certain to be discussed at an EU summit later today.The Greek finance ministry denied in a statement that there was agreement to prepare contingency plans."The Ministry of Finance categorically denies the reports stating that during the teleconference of the Euro Working Group on May 21st 2012, it was agreed that each eurozone country should prepare contingency plans for the potential consequences of a departure of the Hellenic Republic from the single currency area," the statement said.But Belgian Finance Minister Steven Vanackere, asked by reporters ahead of the EU summit, said:"All the contingency plans (for Greece) come back to the same thing: to be responsible as a Government is to foresee even what you hope to avoid.""We must insist on efforts to avoid an exit scenario but that doesn't mean we are not preparing for eventualities. I believe many countries have their contingency plans for the things they want to avoid at all cost, like terrorist attacks, and to say that we don't have a contingency plan would be irresponsible," Vanackere said.The Greek election, the second in two months, is widely seen as a referendum on whether the debt-laden country should stay in the euro zone and undertake painful reforms and austerity, or leave and try its luck with its own currency.Polls suggest the vote could go either way.50-billion-euro goodbye? The document detailed the potential costs to individual member states of a Greek exit and said that if it came about, an "amiable divorce" should be sought.It also said that if Greece were to decide to leave, the EU/IMF could give it up to 50 billion euros to ease its path.The document said Athens would bear huge costs if it decided to abandon the currency, while other euro zone countries would have more limited costs.But the paper said that the risk of knock-on effects that could hit other euro zone countries under market scrutiny now was underestimated."The markets will definitively distrust the euro," the paper said.Germany's Bundesbank said yesterday a Greek exit from the euro would be "manageable".The German central bank also said euro zone states should have a say on further payments of aid to Greece under its 130 billion euro bailout programme.So far the euro zone has disbursed 38.4 billion euros from the second bailout programme to Greece.The emergency lending is linked to conditions of tough reforms, which most Greeks oppose.The euro zone also lent Greece 34.5 billion euros to help Athens complete a debt restructuring in which private investors had to write off almost three quarters of what Greece owed them."Greece is threatening not to implement the reform and consolidation measures that were agreed in return for the large-scale aid programmes," the Bundesbank said."This jeopardises the continued provision of assistance. Greece would have to bear the consequences of such a scenario."

NEWS,13.03.2012.

EUROPE FINANCE ministers several NEW conditions fOR Spain

Eurozone finance ministers gave their final approval to a second bailout for Greece yesterday (12 March) and turned their attention on Spain, demanding that it adopt tougher deficit targets this year in order to get back on track in 2013.Greece, the main source of the currency bloc's debt crisis, swapped its privately held bonds  last week for new, longer maturity paper with less than half the nominal value, a move that cut its debt by more than  €100 billion. The exchange paved the way for eurozone ministers to give the final political go-ahead to a €130 billion package that aims to finance Athens until 2014. The decision will be formalised on Wednesday.” As agreed, new official financing of €130 billion will be committed by the euro area and the IMF for the period 2012-2014," Jean-Claude Juncker, who chairs the Eurogroup of finance ministers, told a news conference. Thanks to a high acceptance of the bond swap offer, Greece's debt would fall below a target of 120% of GDP in 2020, reaching 117%, from 160% now, he said.As Greece's financial problems have lost some urgency, Spain has raised a new challenge. After announcing the previous government had missed its 2011 budget deficit target by a significant margin, the new administration said it would not meet the EU-agreed deficit goal for this year either. Spain was supposed to cut its deficit to 4.4% of gross domestic product this year, but said it would only aim for 5.8% as it heads into recession. Its deficit in 2011 was 8.5%, far above a 6% goal. In a statement, the Eurogroup said Spain should strive for a 5.3% deficit target this year, cutting it some slack from the initial goal but keeping the pressure on.

” The Spanish government expressed its readiness to consider this in the further budgetary process," it said. The eurozone is keen that Spain, a far bigger economy than Greece which has so far avoided the need for a bailout, gives the financial markets no whiff of backsliding after Athens has been taken off the critical list, at least for now.” It will be the responsibility of the Spanish authorities to choose the initiatives that will have to be taken in order to bring down the budgetary deficit in 2012, what is most important is what is the target for 2013," Juncker said.” What is less important, but nevertheless important, are the avenues chosen in 2012."Madrid pledged it would cut the deficit to 3% of GDP next year, in line with the agreed final deadline, but wanted the higher starting point and slower economic growth to be taken into account in determining the path in 2012."Spain's position is that two things have changed. The first: last year there was a deviation of 2.5% in the public deficit and the second: that the circumstances in terms of economic growth have changed significantly," Spanish Economy Minister Luis de Guindos said.” Spain’s commitment to the fiscal rules is absolute.” The European Commission expects Spain's economy to contract 1% this year after growth of 0.7% in 2011, a sharp downward revision from the last forecast for 0.7% growth. Several other eurozone countries have committed themselves to meeting budget targets. Belgium said at the weekend it was sticking to its deficit goals and came up with nearly €2 billion of extra spending cuts to make the target - a move that could add to pressure on Spain to stick to its agreed plan. Portugal and the Netherlands are also fixed on meeting their targets. A stricter EU Stability and Growth Pact, which came into force in December, envisages fines for eurozone countries like Spain which are already running deficits above the 3% of GDP ceiling and missing their deficit reduction targets.