NEWS,19.11.2012

Global shadow banking hits $67 trillion

The system of so-called shadow banking blamed for aggravating the global financial crisis grew to $67 trillion globally last year, a new high, amid calls from the world's top policymakers for greater control of the sector.A report by the Financial Stability Board (FSB) on Sunday appeared to confirm fears among policy makers that shadow banking is set to thrive, beyond the reach of a regulatory net tightening around traditional banks and their activities.Officials at the European Commission in Brussels see closer control of the sector as important in preventing a repeat of the financial crisis that toppled banks over the past five years and rocked the euro zone.The study by the FSB, set up by the world's top economies (G20) to police global finance, said shadow banking around the world more than doubled to £62 trillion in the five years to 2007 before the crisis struck.But the size of the total system had risen to $67 trillion in 2011, more than the total economic output of all the countries in the study.The multi-trillion dollar activities of hedge funds and private equity companies are often cited as examples of shadow banking.But the term also covers investment funds, money-market funds and even cash-rich firms that lend government bonds to banks, and which in turn use them as security when taking credit from the European Central Bank Even the man credited with coining the term, former investment executive Paul McCulley, gave a catch-all definition.McCulley said he understood shadow banking to mean "the whole alphabet soup of levered up non-bank investment conduits, vehicles and structures", such as the special investment vehicles that many blamed for the financial crisis.The United States had the largest shadow banking system, said the FSB, with assets of $23 trillion in 2011, followed by the euro area with $22 trillion and the United Kingdom at $9 trillion.The US share of the global shadow banking system has declined in recent years, the FSB said, while the shares of the United Kingdom and the euro area have increased.The FSB warned that tighter rules that force banks to hoard more capital reserves to cover losses could bolster shadow banking.It advocates better controls, although cautions that shadow banking reforms should be dealt with carefully because the sector can also be a source of credit for business and consumers.Forms of shadow banking can include securitisation, which can transform bank loans into a tradeable instrument that can then be used to refinance credit, making it easier to lend.In the run-up to the crisis, however, banks such as Germany's IKB stored billions of euros of such instruments in off-balance sheet vehicles, which later unravelled. Another example is a repurchasing agreement, or repo, where a player such as a hedge fund could sell government bonds it owns to a bank, agreeing to repurchase them later.The bank may then lend those bonds onto another hedge fund, taking a position on the government debt. Such agreements are used by banks to lend and borrow. A risk could arise if one of the parties in the chain collapses.The European Commission is expected to propose EU-wide rules for shadow banking next year.

 

Stocks, commodities rise on fiscal cliff hopes

World share markets and commodities surged yesterday as traders focused on politicians' indications that they are ready to compromise to avoid the US "fiscal cliff".Wall Street stocks climbed more than 1%, extending a rally that began on Friday, while crude oil was up more than 2%.US lawmakers indicated compromises were possible in negotiations to avert US$600 billion in tax increases and spending cuts due to start in January - the "fiscal cliff" that threatens to send the US economy back into recession.Democratic Senator Dick Durbin said on CNN: "What I hear is a perceptible change in rhetoric from the other side."Also appearing on CNN, Republican Representative Tom Price said: "Every member of our caucus appreciates that this fiscal crisis, this challenge that we have, is ever closer."Opinion polls show that Republicans would shoulder more of the blame if the country goes over the fiscal cliff.MSCI's world equity index jumped 1.8%, in one session erasing the 1.8% drop it posted last week. Monday was the best day for the index since September 14."Stocks could rise substantially if US policymakers can negotiate a 'grand bargain' that credibly addresses long-term tax, spending, and entitlement reforms," said Jonathan Golub, strategist at UBS in New York.The Dow Jones industrial average was up 160.54 points, or 1.28% , at 12,748.85. The Standard and Poor's 500 Index was up 21.22 points, or 1.56%, at 1,381.10. The Nasdaq Composite Index was up 46.39 points, or 1.63%, at 2,899.52.Optimism in Europe over the prospects of a deal this week to release much-needed aid for Greece also lent support.European officials are expected to discuss a two-year funding plan for Athens at a meeting on Tuesday, which would postpone any longer-term solution until after a September 2013 German general election.European Central Bank policymaker Joerg Asmussen said last weekend that the ministers were likely to agree to the deal and leave resolution of a longer-term debt stabilisation plan for Greece, at the heart of a disagreement with the IMF, until later.The euro rose 0.56% to $1.281, well above the two-month low of $1.2661 hit last week and near the top end of its recent range, suggesting the foreign exchange market expects an agreement on Greece."This message from the ECB would tell me that, yes, what we are heading to this week is an agreement that would keep Greece out of trouble for the next year or so," said Gilles Moec, senior European economist at Deutsche Bank.European share markets rebounded from last week's lows, mainly on the growing optimism over the US political negotiations.The FTSE Eurofirst 300 index of top European shares closed 2.3% higher, led by sectors tied to the pace of economic growth. Banks climbed 3.6% , with US shares of Barclays up 5.6% to $15.82.In the region's main centres, London's FTSE 100, was up 2.4%, while Frankfurt's DAX and Paris' CAC-40 rose more than 2%.Safe-haven bond markets reflected the stronger risk appetite, with the 10-year US Treasury down 10/32 to yield 1.6165%.The 10-year German government bond fell and its yield rose to 1.362% from 1.326% on Friday. Traders said there was room for yields to rise if euro zone policymakers reached an agreement at their meeting on Tuesday.In the currency markets, the dollar briefly extended its gains against the yen on expectations a new Japanese government will push the central bank to taking aggressive monetary stimulus measures to boost growth after next month's elections.The greenback was slightly lower against the yen at 81.24. Earlier, it rose to its highest level since April 25.The Bank of Japan began a two-day meeting on Monday but was not expected to take any new policy steps before the December 16 vote.The rising hopes of a deal on closing the US budget gap, which has clouded the outlook for global growth, spread through commodity markets, lifting oil, copper and gold.Copper rallied 2.6% to $7,803.5 a ton on the London Metal Exchange, and gold rose $19.52 to $1,733.2 an ounce.A 0.5% drop in the dollar index, which had eased from a two-month high hit on Friday, added to demand by making commodities priced in the greenback more affordable for buyers holding other currencies.Brent crude rose above $110 a barrel as the escalating violence between Israel and the Palestinians fuelled concern about supplies from the Middle East.Investors fear the conflict may draw in other countries and possibly disrupt energy exports from the region, which supplies more than a third of the world's crude.Brent crude for January delivery was up 2.5% and U.S. crude futures added 2.8%.

 

European stocks make biggest rebound in 10 weeks

European equities have rebounded from multi-month lows to post their biggest daily gain in 10 weeks, thanks to signs of progress in US talks to avoid a budget crisis.Leading Democratic and Republican lawmakers voiced confidence over the weekend that a deal would be reached to avoid the so-called "fiscal cliff" of some US$600 billion of tax hikes and spending cuts which threatens to plunge the United States into recession in 2013.An unexpected rise in US existing home sales for October added to the brighter sentiment towards the world's biggest economy on Monday, which has become a significant source of growth for European companies as their domestic region stagnates."The news about the fiscal cliff over the past few days has been much more positive," said Donald Huber, portfolio manager at Franklin Templeton Investments, which has about US$750 billion in assets under management.The FTSEurofirst 300 index provisionally closed up 2.3% to 1,091.50 points, while the EuroSTOXX 50 rose 2.8% to 2,495.19 points -- both posting their biggest one-day gain since early September and rebounding from multi-month lows.The rebound comes after EuroSTOXX 50 dipped into technically oversold territory on the seven-day relative strength index (RSI) on Friday for the first time in nearly two months.Then, a big rally followed but ran out of steam after two sessions, and this time too analysts were doubtful about the sustainability of the gains unless the fiscal cliff problem is actually resolved rather than just postponed."We had the lows and the market is oversold... so it is just short-covering," said Vincent Guenzi, chief strategist at Cholet Dupont."That [progress in negotiations] was the catalyst for the short-term gain of the market. That could help the market maybe gain 1% or 2% more, but to really have the end of the downtrend of the last weeks we need something real."Monday's broad-based rally took all the STOXX 600 sector indexes into positive territory, led by economically sensitive ones like autos, banks, construction, technology and basic resources.Healthcare, which is less dependent on economic cycles for demand, lagged with a rise of 1%.Nokia was a top gainer among individual stocks, with reports of its Lumia 920 selling out in Germany fuelling hopes of strong demand for the new smartphone.Shares in the Finnish cellphone maker added 9% on Monday, but are still down 39% since the start of 2012.Nokia is the most shorted company in EuroSTOXX 50, with 19.7% of outstanding shares on loan according to data from Markit, potentially making it vulnerable to sharp short-covering rallies on any sentiment improvement or positive news.That gives Nokia a utilisation rate - shares borrowed versus the total number available for loan - of 93.5%, against just 6.2% for EuroSTOXX 50 as a whole.

NEWS,04.08.2012

Spain creeping towards full bailout

Spanish Prime Minister Mariano Rajoy inched closer today to asking for an EU bailout for his country, but said he needed first to know what conditions would be attached and what form the rescue would take.His comments, at his first post-cabinet meeting news conference since taking office last December, came a day after the European Central Bank signalled it was preparing to buy Spanish and Italian bonds but only after EU bailout funds were triggered and countries had asked for help.A source said separately that Spain would not decide whether to apply for several weeks.Buying bonds and providing aid would all be designed to bring down what have been prohibitive borrowing costs in the indebted countries.Rajoy said he was ready to do what is best for Spain, going far further than he did on Thursday when, during a press appearance with Italian Prime Minister Mario Monti, Rajoy three times declined to say whether he would seek the aid."I will do, as I always do, what I believe to be in the best interest of the Spanish people," Rajoy said yesterday."We still don't know what these measures are," he said, reference to a comment by ECB President Mario Draghi that the bank was examining non-conventional measures to defend the euro."What I want to know is what these measures are, what they mean and whether they are appropriate and, in light of the circumstances, we will make a decision, but I have still not taken any decision," he said.A source familiar with Rajoy's thinking confirmed this possibility was actively looked at and that Rajoy was ready to bear the political cost of a request.In a letter to Herman Van Rompuy on Friday, Rajoy urged the president of the European Council to work towards creating a euro zone-wide banking and fiscal union as soon as possible.He said he believed that the outline for a single supervisory system for the banking sector should be ready before the end of this year.Rajoy added he believed granting the European Stability Mechanism (ESM), the permanent bailout fund, a banking licence that would allow it to tap almost unlimited funds from the European Central Bank (ECB)ECB President Mario Draghi on Thursday said the fund was barred by European law from tapping the central bank for funding."In any case, whatever mechanism is put into place should be an umbrella mechanism, one that is applied equally to all the countries that meet its requirements," Rajoy said in the letter.Spain has already asked for aid for its stricken banks."People have said the main reason why he is not seeking help is because he is too proud. But this is not true. He requested an assistance for the banks because it was the adequate instrument to solve a specific problem. There is no opposition to do it again," the source said.An aid request would entail negotiating a memorandum of understanding with other euro zone countries and would likely bear strong conditionality, something Rajoy wants to discuss in detail before moving forward.Although Spain already complies with stringent EU and International Monetary Fund demands to reform its economy and has announced a package of 65 billion euros of tax hikes and spending cuts in July, the government fears it could now be asked to reform further the pension system.The measure is the last campaign pledge Rajoy has not been forced to break so far and could undermine even more the support for the government after it already fell sharply in recent weeks as hundreds of thousands of Spaniards took the streets to protests against austerity steps.A euro zone official told Reuters last week Spain had for the first time conceded at a meeting between Economy Minister Luis de Guindos and his German counterpart Wolfgang Schaeuble it might need a full bailout worth 300 billion euros if it's borrowing costs remain unsustainably high.Rajoy's office however denied that talks on this issue had taken place.People who discussed the question with Rajoy explain that he may still hope to avoid making the request because he thinks by just knowing that the EU rescue funds and the ECB are geared up would be enough to shield Spain from market pressures."The thinking is that the instruments need to be in place and possibly the risk premium will go down so much that there will be no need to go any further," said one senior politician.

Euro Crisis 2012: Greece Reportedly Saved From Bankruptcy By European Central Bank

 

The European Central Bank (ECB) has saved Greece from bankruptcy for the time being by securing it interim financing in the form of additional emergency loans from the Bank of Greece, German newspaper Die Welt said on Saturday.The ECB's Governing Council agreed at its meeting on Thursday to increase the upper limit for the amount of Greek short-term loans the Bank of Greece can accept in exchange for emergency loans, the newspaper said in an advance copy of the article due to appear in its Saturday edition.Until now the Bank of Greece could only accept T-Bills up to a limit of 3 billion euros ($3.70 billion) as collateral for emergency liquidity assistance (ELA) but it has applied to have this limit increased to 7 billion euros, the daily said, citing central bank sources.The ECB Governing Council gave this wish the green light, the paper said.The move should enable the Greek government to access up to an extra 4 billion euros of funds, the paper said, adding that this should ensure the country keeps its head above water until the "troika" of the European Union, the European Central Bank and the International Monetary Fund decide on the disbursement of the next tranche of money from its aid program in September.The ECB declined to comment, the paper said.

NEWS,10.07.2012

Russia to ratify agreement to join WTO

 

Russia's parliament is expected to ratify on Tuesday an agreement to join the World Trade Organisation (WTO) in a move that will push Moscow to open up its economy.Russia, the largest economy outside the global trade organisation, has spent 18 years trying to negotiate its entry into the body. Now that the talks are over, the Russian government, which has strongly advocated the entry, is facing criticism from many businesses and opposition politicians that the WTO membership would hurt domestic producers by flooding the market with cheaper imports.Activists including several dozen Communist Party deputies staged a protest outside the State Duma (lower house of the Russian parliament) on Tuesday morning to protest Russia's accession, which is considered a done deal since the Duma is controlled by President Vladimir Putin's party."The WTO is death to Russia!” one of the posters held by a protester.Thousands of Russian businesses are wary that the low import duties and caps on subsidies that are a condition of joining the WTO will hurt their businesses. The government, however, insists that the WTO rules will help weed out inefficient players from the market and make Russian companies and their products more competitive abroad.Russia's Economic Development Minister Andrei Belousov sought to play down those fears in a debate with lawmakers on Tuesday.He said that the government would still be able to prop up agriculture and machinery companies with subsidies and businesses would have five to seven years before Russia cuts down duties and subsidies to WTO-assigned levels."Who would want to invest in a country which wouldn't play by international rules?" Belousov said at the Duma hearing. "The WTO is a guarantee that Russian business will have the same rules to go by at home and abroad."

Eurozone offers Spain €30bn for banks

 

Eurozone finance ministers agreed on Tuesday to offer Spain €30bn this month to help its distressed banks as they raced to stay ahead of market scepticism.After nine hours of talks, Jean-Claude Juncker, the Luxembourg premier who also heads the Eurogroup, said a memorandum of understanding for Spain would be formally signed "in the second half of July," with €30bn available by the end of the month.Juncker, who has been in the job since 2005, was reappointed by the 17 ministers during talks Monday which ended well after midnight.Spain, under increasing pressure as sceptial markets pushed its borrowing costs dangerously high again, had called for up to €100bn in direct aid at a June 28-29 "breakthrough" EU summit.Aiming to keep the momentum going, ministers also agreed to extend a deadline for Spain to cut its public deficit to the EU 3.0% limit by one year to 2014 because of the difficult economic conditions Spain faces.At the same time, however, Juncker stressed that Madrid must implement measures needed to bring its public finances into line with EU norms.EU economic affairs commissioner Olli Rehn said Spain's public deficit - the shortfall of revenue to spending - was now expected at 6.3% of Gross Domestic Product this year, 4.5% in 2013 and then 2.8% in 2014.Spain in May revised its 2011 public deficit figure, saying that it stood at 8.9%, up from 8.51% reported earlier and way above the original 6.0% target for the year.Spanish Prime Minister Mariano Rajoy announced on Saturday that he would take additional steps soon to cut the public deficit and said "Europe must fulfil the accords as swiftly as possible."Juncker, widely seen as one of the founding fathers of the euro, confirmed he would stay on as head of the Eurogroup but would not serve a full two-and-a-half year term, expecting to step down early next year.In another key appointment, Germany's Klaus Regling, head of the eurozone's temporary EFSF bailout fund, was named to run its permanent successor, the European Stability Mechanism.The June summit agreed that the ESM will be able to inject funds directly into needy banks, conditional on a new European bank regulator being put in place, so as to avoid adding to the debt burden of the affected state.Asked if such a state would have to provide guarantees on such bank funding, Juncker answered with a simple "No."Rehn confirmed that position, a key issue for nervous investors, but also highlighted the importance of getting the new regulator - to be built around the European Central Bank - in place quickly.The European Financial Stability Facility (EFSF) was set up in 2010 after a first Greek bailout but it became clear after Ireland and Portugal also had to be rescued that a more powerful backstop was needed.The ESM has funds of €500bn and was supposed to be operational from this month but it has been delayed, with final ratification still pending in several member states.French Finance Minister Pierre Moscovici said the meeting had been able to make progress on several fronts and had established a heavy timetable through to the end of the year.ESM direct funding for struggling banks will "allow us to tackle the roots (of the debt crisis) by breaking the link between the banking crisis and the sovereign debt crisis," Moscovici added.The Spanish bank accord should be concluded by end-July and ultimately run up to €100bn, he said, also highlighting the need for Madrid to implement tough reforms of the sector.Juncker and Rehn said the meeting had also discussed the situation in Greece, taking note of what its newly elected government has planned, and had also reviewed the position in Cyprus, which has just asked for EU aid.Cyprus, current holder of the EU's rotating presidency, blames its problems on its banks' heavy exposure to Greece, and its aid programme is expected to be completed by September.The finance ministers' conclusions will be submitted later Tuesday to a meeting of all 27 EU finance ministers who will have initial market reaction to help focus their minds.The June summit pledges to help Spain's banks, set up a new banking regulator and ease the way for the ESM to play a greater role, were hailed as a "breakthrough" which sparked sharp market gains.But in the past week, sentiment has turned negative again, with analysts dismissive and expecting little follow-up to sustain the summit momentum.

Eurozone in freefall?

Signs are growing that Europe's economic and monetary union may be fragmenting faster than policymakers can repair it. Eurozone leaders agreed in principle on June 29 to establish a joint banking supervisor for the 17-nation single currency area, based on the European Central Bank (ECB), although most of the crucial details remain to be worked out. The proposal was a tentative first step towards a European banking union that could eventually feature a joint deposit guarantee and a bank resolution fund, to prevent bank runs or collapses sending shock waves around the continent. The leaders agreed that the eurozone's permanent bailout fund, the €500bn European Stability Mechanism, would be able to inject capital directly into banks on strict conditions once the joint supervisor is established. But the rush to put first elements of such a system in place by next year may come too late. Deposit flight from Spanish banks has been gaining pace and it is not clear a eurozone agreement to lend Madrid up to €100bns in rescue funds will reverse the flows if investors fear Spain may face a full sovereign bailout. Many banks are reorganising, or being forced to reorganise, along national lines, accentuating a deepening north-south divide within the currency bloc. An invisible financial wall, potentially as dangerous as the Iron Curtain that once divided eastern and western Europe, is slowly going up inside the euro area. The interest rate gap between north European creditor countries such as Germany and the Netherlands, whose borrowing costs are at an all-time low, and southern debtor countries like Spain and Italy, where bond yields have risen to near pre-euro levels, threatens to entrench a lasting divergence. Since government credit ratings and bond yields effectively set a floor for the borrowing costs of banks and businesses in their jurisdiction, the best-managed Spanish or Italian banks or companies have to pay far more for loans, if they can get them, than their worst-managed German or Dutch peers. The longer that situation goes on, the less chance there is of a recovery in southern Europe and the bigger will grow the wealth gap between north and south. With ever-higher unemployment and poverty levels in southern countries, a political backlash, already fierce in Greece and seething in Spain and Italy, seems inexorable. ECB president Mario Draghi acknowledged as he cut interest rates last week that the north-south disconnect was making it more difficult to un a single monetary policy. Two huge injections of cheap three-year loans into the eurozone banking system this year, amounting to €1 trillion, bought only a few months' respite. "It is not clear that there are measures that can be effective in a highly fragmented area," Draghi told journalists. Conservative German economists led by Hans-Werner Sinn, head of the Ifo institute, are warning of dire consequences for Germany from ballooning claims via the ECB's system for settling payments among national central banks, known as TARGET2. If a southern country were to default or leave the euro, they contend, Germany would be left with an astronomical bill, far beyond its theoretical limit of €211bn liability for eurozone bailout funds. As long as European monetary union is permanent and irreversible, such cross-border claims and capital flows within the currency area should not matter any more than money moving between Texas and California does. But even the faintest prospect of a Day of Reckoning changes that calculus radically. In that case, money would flood into German assets considered "safe" and out of securities and deposits in countries seen as at risk of leaving the monetary union. Some pessimists reckon we are already witnessing the early signs of such a process. Any event that makes a euro exit by Greece - the most heavily indebted member state, which is off track on its second bailout programme and in the fifth year of a recession - look more likely seems bound to accelerate those flows, despite repeated statements by EU leaders that Greece is a unique case. "If it does occur, a crisis will propagate itself through the TARGET payments system of the European System of Central Banks," US economist Peter Garber, now a global strategist with Deutsche Bank, wrote in a prophetic 1999 research paper. Either member governments would always be willing to let their national central banks give unlimited credit to each other, in which case a collapse would beimpossible, or they might be unwilling to provide boundless credit, "and this will set the parameters for the dynamics of collapse", Garber warned. "The problem is that at the time of a sovereign debt crisis, large portions of a national balance sheet may suddenly flee to the ECB's books, possibly overwhelming the capacity of a bailout fund to absorb the entire hit," he wrote in 2010, after the start of the Greek crisis, in a report for Deutsche Bank. European officials tend to roll their eyes at such theories, insisting the euro is forever, so the issue does not arise. In practice, national regulators in some EU countries are moving quietly to try to reduce their home banks' exposure to such an eventuality. The ECB itself last week set a limit on the amount of state-backed bank bonds that banks could use as collateral in its lending operations. In one high-profile case, Germany's financial regulator Bafin ordered HypoVereinsbank (HVB), the German subsidiary of UniCredit, to curb transfers to its parent bank in Italy last year, people familiar with the case said. Such restrictions are legal, since bank supervision is at national level, but they run counter to the principle of the free movement of capital in the EU's single market and to an integrated currency union. Whether a single eurozone banking supervisor would be able to overrule those curbs is one of the many uncertainties left by the summit deal. In any case, common supervision without joint deposit insurance may be insufficient to reverse capital flight. German Chancellor Angela Merkel, keen to shield her grumpy taxpayers, has so far rejected any sharing of liability for guaranteeing bank deposits or winding up failed banks. Veteran EU watchers say political determination to make the single currency irreversible will drive eurozone leaders to give birth to a full banking union, and the decision to create a joint supervisor effectively got them pregnant. But for now, Europe's financial disintegration seems to be moving faster than the forces of financial integration.

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, 04.06.2012.

Spain puts on the pressure for financial rescue

 

Prime Minister Mariano Rajoy is pressing for a direct European rescue for Spain's banks with moral support from the European Commission, but Germany appeared to rule out such a "bailout lite" for the euro zone's fourth biggest member.A source with knowledge of the matter said Madrid is working along with European institutions to find a way to directly refinance banks using rescue funds without the government having to come under a full EU/IMF adjustment programme."Right now the most urgent issue is the banks, and there are negotiations to refinance the banks directly without it being an intervention. It's a mechanism for all (European) banks, not just for Spanish banks," the source said.Spain's borrowing costs have jumped in recent weeks, largely due to doubts over whether the government can raise enough funds for the rising bill to strengthen its banks, left with big holes after the 2008 crash of the housing and construction market.Under current rules Spain can get a loan from the European rescue fund, or EFSF, but it would come with tough conditions and intrusive supervision, with a high political cost for Rajoy. The new permanent European rescue fund, the European Stability Mechanism (ESM), due to enter into force in July, can lend to banks but the request still has to be made by the state.The source with knowledge of the matter said Spain believed the European Union's executive could take a plan for bank aid to a summit of the bloc's leaders on June 28-29.EU Economic and Monetary Affairs Commissioner Olli Rehn said Brussels was considering direct bank recapitalisation by the ESM to break the link between weak sovereigns and ailing banks, but it was not possible under the treaty currently being ratified by member states."This is not part of the ESM treaty for the moment, in its present form, but we see that it is important to consider this alternative of direct bank recapitalisation as we are now moving on in the discussion on the possible ways and means to create a banking union," Rehn said.Germany, the main contributor to the bailout fund, opposes changing the ESM treaty to allow direct bank recapitalisation and has veto power. Berlin contends that only a formal programme approved by national parliaments permits proper international supervision of how aid funds are spent."It is only for a national government to decide whether it draws on the rescue mechanism and the requirements that are linked to it. That of course is also true for Spain," government spokesman Steffen Seibert told a news conference when asked about media reports that Berlin was pushing Madrid to apply.Seibert also said Spain first needed to figure out how much money it needs to recapitalise its banks.After pressing in vain for the European Central Bank to ride to Spain's rescue by buying government bonds, Rajoy took a different line on Saturday, calling in a speech for a euro zone fiscal authority with powers to manage member states' budget policies, to show markets the euro project is irreversible.Some analysts saw the call as a way of preparing Spaniards for the need for a European rescue for their country. Others saw it as a goodwill gesture towards the Germans.Gary Jenkins, director at Swordfish Research, said the fact Rajoy was pushing for greater transfers of fiscal sovereignty was a sign of how urgent the situation was in Spain."Spain is heading towards requiring significant intervention in order to avoid a disaster scenario," he wrote.Spain meets criteria for aid Spain already complies with the terms for the state to tap the temporary European Financial Stability Facility (EFSF) under its "guidelines on recapitalisation of financial institutions".Those conditions are: it needs the money as a last resort to recapitalise systemic lenders, such as Bankia, and it has also started an independent audit of its banks in two stages.The ECB and key EU partners such as Berlin are keen to avoid a repeat of last year's events when they had to push Portugal to seek aid after former Prime Minister Jose Socrates resisted for months owing to the stigma attached to an "IMF bailout".The ECB stopped buying Portuguese bonds in the secondary market and Portuguese banks took the unprecedented step of warning the government that they too might stop buying its debt -- a move that probably tipped Socrates into seeking help.The head of Portugal's banking association, Antonio de Sousa, told Reuters in an interview at the time that the ECB had told the country's banks to cut exposure to government debt.German Finance Minister Wolfgang Schaeuble insisted then that aid could only be granted in the framework of a reform programme, the same stance Berlin is now taking towards Madrid.Bank audits Spain rescued its fourth biggest bank, Bankia, in May, in a bailout that will cost some 23.5 billion euros, much higher than anticipated, raising doubts over whether other Spanish banks have yet to recognise bigger losses.Independent auditors contracted by the government are due to report in mid-June on the state of the banks, and a detailed International Monetary Fund report on the financial system is due on June 11.Both studies should shed light on the scale of the final bill for plugging the holes in the banks, which have some 184 billion euros in exposure to repossessed property and sour loans to real estate developers.The government and the biggest banks hope the reports will show Bankia was an exception, that most of the banking system is solvent and that the rest has been addressed by regulations that have forced lenders to recognise more than 80 billion euros in losses.Still, after confusion over how Bankia's rescue would work damaged Madrid's market credibility, it's hard to imagine a bank rescue figure that will automatically restore confidence."What is not clear is whether it will be enough to recover the market confidence, that is not going to make things worse," said a senior Spanish banker, regarding the audits.Spain has said it will borrow money on the markets to recapitalise Bankia.Even with 10-year bond yields at 6.5 percent, the government says it does not face trouble tapping the markets because its average borrowing costs are lower, at 4.07 percent, and only 2 percent of public expenditures go to service debt.Political risk consultancy Eurasia Group said Europe would do its best to ease the pain for Rajoy, who has spread much of the blame for mismanaging the banking sector on his Socialist predecessors and the outgoing Bank of Spain governor."At this stage, EU political and policy elites are open to design a programme that would emphasize banks and would be light on conditionality to facilitate Rajoy's ability to manage internal constraints," it said in a report.But Eurasia Group said Rajoy would delay as long as possible to avoid the stigma that could affect his party in subsequent elections and because it will look as if his austerity programme and economic reforms had merely set the country up for a banking bailout instead of putting it back on track.One high-level government source argued that there is little motivation for Rajoy to take some 70 billion euros in aid for the banks if there are no guarantees it will actually bring down borrowing costs.

NEWS.04.03.2012.

Putin always wins

Vladimir Putin has won a resounding victory in Russia's presidential election, exit polls show. He has secured a new six-year term in the Kremlin and a mandate to deal with opposition protests after a vote that opponents said was marred by fraud. Two television exit polls, released after voting ended on Sunday, forecast the former KGB spy would win 59.3% and 58.3% of the votes, enough to make a runoff against the second-placed candidate unnecessary. His nearest rival, communist Gennady Zyuganov, fell short of 20% in both polls.Putin's opponents said voting in many parts of the vast country was skewed to help him return to the presidency after four years as prime minister and vowed to step up the biggest protests since he rose to power 12 years ago. But although they portray him as an authoritarian ruler who is out of touch, his victory had not been in any doubt. The main challenge for Putin, credited by many Russians credit with rebuilding the country's image and overseeing an economic boom, was to win outright in the first round.” I think the elections will be legitimate, fair, and Putin will win in the first round, unless the court rules otherwise," Putin's spokesman, Dmitry Peskov, was shown saying on internet and cable television channel TV Dozhd before voting ended.Putin was likely to portray the victory as strong backing against the opposition protesters, although he has promised not to crack down on them. He is also expected to return to the Kremlin with tough fighting talk against the West, a trademark of his first presidency and election campaign. Some voters expressed anger at being offered no real choice in a vote pitting Putin against four others - communist Zyuganov, nationalist Vladimir Zhirinovsky, ex-parliamentary speaker Sergei Mironov and billionaire Mikhail Prokhorov.Others said Putin, 59, who has portrayed himself as a man of action and guardian of stability, was the tough national leader the world's biggest country and energy producer needed.” I voted for Putin because he was a good president and our children were looked after and that's all. That's how I feel," said Maria Fedotova, a 92-year-old grandmother wrapped up in fur coat and hat, flanked by relatives.

 Putin has remained Russia's dominant leader and its most popular politician since stepping aside in 2008 to make way for his ally, Dmitry Medvedev, because he was barred from a third straight term by the constitution. But some voters are tired of his macho antics, such as horse riding bare chested, and a system that concentrates power in his hands. They fear he could win two more terms, ruling until 2024 - almost as long as Soviet dictator Josef Stalin. Vote monitors from the opposition and bloggers posted allegations of election rigging across the country of 143 million. Golos, an independent monitoring group, said it had registered at least 2,283 reports of violations nationwide. An Interior Ministry spokesman denied there had been any major violations. Election officials also dismissed reports of widespread fraud in a parliamentary election on December 4 which triggered the opposition protests. Thousands of opposition activists as well as an international observer mission were also monitoring the polls. The opposition protests were sparked by the disputed Dec. 4 election, but anger was focused at Putin, who bungled the September 24 announcement of his presidential bid by appearing simply to inform Russians that he would rule for another six years..