![]() Wall Street Journal | German Court Approves Rescue Fund Wall Street Journal By HARRIET TORRY and GEOFFREY T. SMITH Germany's highest court cleared the way for the euro zone's permanent bailout mechanism to go ahead. Dow Jones's Jenny Paris and Martin Essex discuss what the court ruling means and how markets reacted to the ... Euro hits highest since Mid-May on German ruling Stocks, euro gain on German ruling; Fed in focus Euro rises to 4-month high on German ruling |
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Thursday, September 13, 2012
German Court Approves Rescue Fund
Friday, July 20, 2012
Euro crisis deepens as time starts to run out for Spain's banks and regions
Spain drags the eurozone closer to the edge of collapse despite winning the backing of finance ministers from the single currency's major economies for a €100bn bank rescue fund
Spain dragged the eurozone closer to the edge of collapse despite winning the backing of finance ministers from the single currency's major economies for a €100bn (£77.8bn) bank rescue fund.
Concerns that Madrid is running out of options to bring down the debts of its ailing banks and bankrupt regions sent the country's borrowing costs soaring above 7.2% – a rate seen as unsustainable for a country that cannot devalue its own currency and is suffering a lengthy double-dip recession.
The bank bailout had been supposed to push down the country's borrowing rates, but the country's problems continue to mount. On Friday the region of Valencia was forced to turn to the Spanish central government for cash help.
That move, together with a downgrade of Spanish bonds to junk status by the credit ratings agency Egan Jones, saw the Madrid stock market suffer its biggest one day fall for two years.
Markets in London, Paris and Frankfurt followed suit with the FTSE 100 falling 1% to 5651. The euro crashed to historic lows against several currencies. Against the pound it fell to 77.72 pence, marking its lowest since the aftermath of the Lehman Brothers collapse in October 2008.
The prospect of Spain standing near the exit to the eurozone with Greece and Portugal had seemed outlandish only a few weeks ago, after eurozone leaders agreed to press ahead with more co-operation and a rescue for Madrid that targeted its banks.
Stock markets climbed and solvency fears eased after the summit, which many saw as provided a lengthy breathing space for politicians to work out a broader rescue package. But the shortcomings of the agreement have once again undermined renewed confidence in the eurozone and sent the bond yields of several countries higher, including Spain and Italy.
Comments by German officials added to the febrile atmosphere with hardliners questioning the eurozone's ability to carry on while southern European countries wrestled with major reforms and public spending cuts.
The Spanish government said a predicted rise in GDP next year of 0.4% had proved optimistic, and the economy would suffer another year of recession. The new forecast that the economy will contract by 0.5% shocked analysts, who said a raft of austerity measures would delay a recovery for several years.
Mariano Rajoy, the leader of Spain's right-wing government, has pushed through €65bn (£50.6bn) of spending cuts and tax rises to meet deficit targets set by Brussels, which are widely blamed for pushing the economy back into recession for another year.
Shortly before the bank bailout was agreed by eurozone ministers on Friday, the Valencia regional government admitted it could no longer fund itself on the markets and requested what is, in effect, a bailout by the Spanish government. Regional governments deliver the key parts of the welfare state, including health, education and social services.
Eastern Valencia said it was asking for central government help as it could not refinance loans that must be paid off this year. Regional vice president José Ciscar did not say how much was needed. "Like other regions, Valencia is suffering the consequences of liquidity restrictions in the markets," he said.
It will become the first of Spain's 17 semi-autonomous regions to tap a new, week-old €18bn (£14bn) fund designed to provide them with liquidity. The fund is part-financed with a loan from the state-owned lottery company.
Valencia, which has long been run by Rajoy's PP, is emblematic of Spain's current crisis. A property crash has hit both regional government income and the region's banks, with its three main banks having to be rescued. Local politicians, meanwhile, have a growing reputation for corruption and frivolous spending.
Valencia mopped up a quarter of the €17bn (£13.2bn) of extra money made available by central government in April to pay a backlog of regional government bills.
Just as Rajoy's government refuses to call the European rescue fund money a bailout, so Valencia's government insisted its request for special funding should not be described as one. "Valencia is signing up to a financing mechanism which other regions will also need in the coming days, without any further measures," Ciscar said.
Last year the regions not only failed to meet government-set deficit reduction targets, but actually increased their joint deficit. Rajoy's government has passed legislation allowing it to take direct control of the finances of regions that stray too far off target.
Analysts believe most regions will miss this year's 1.5 percent deficit target. The government last week asked at least eight of them to revise their 2012 budgets, threatening to take over the finances of some of them.
Analysts at Capital Economics said Spain had suffered a debilitating exodus of funds from its banks and a sharp detioration in its own funding position. As the reliance of the Spanish government on its own banks for funding grows (while the banks themselves are relying on the ECB), so the likelihood of Spain requiring a full-blown sovereign bailout grows too.
European leaders pleaded for calm after signing the final agreement to lend Spain €100bn of funds to underpin its banks.
European Central Bank executive Benoît Cœuré said at a conference in Mexico that it was startling to see international investors fearful of getting their money back from members of the single currency.
However, he said the fundamental measures of economic success were stronger in the eurozone than other developed areas. The eurozone's annual deficit in 2012, he pointed out, is expected to be 3% compared to 8% in the US, and 10% in Japan. He said the eurozone's total public sector debt will reach 90% at the end of the year compared to 106% in the US and 235% in Japan.But his comments were largely ignored as Mariano Rajoy's right wing government went back into crisis mode.
Monday, July 2, 2012
Mitigating Merkel's Mischief
![]() Telegraph.co.uk | Mitigating Merkel's Mischief Huffington Post (blog) Europe was actually on the road to a slow recovery in 2009, until hedge funds began attacking Greek government bonds and Greece's neighbors did nothing. This process followed the disclosure by the newly elected Greek socialist government in October ... Euro deal leaves deep divisions, lingering questions |
Robert Kuttner: Mitigating Merkel's Mischief
Wednesday, June 27, 2012
Merkel rebuffs pleas for debt action on summit eve
BERLIN/MADRID (Reuters) - On the eve of a crucial summit that could determine the future of the euro zone, German Chancellor Angela Merkel brushed aside increasingly shrill calls from Spain and Italy on Wednesday for emergency action to lower their soaring borrowing costs. European Union leaders go into the two-day meeting beginning on Thursday evening more openly divided than at any time since a still-widening debt crisis erupted in early 2010 after Greece revealed its deficit and debt were far higher than reported. ...
Sunday, June 24, 2012
Hollande's pro-growth rhetoric won over France. But what about Merkel? | Jonathan Fenby
François Hollande must now find if his rhetoric can translate into a left-leaning, pro-growth agenda for the eurozone
François Hollande has been a busy man since he won the French presidency on 6 May. But he still has all to play for on the most important field – Europe – particularly after the lack of progress at his summit with the leaders of Germany, Italy and Spain in Rome on Friday.
In the past six weeks "Mr Normal" has constituted a new government, seen his Socialist party win an overall majority in legislative elections to add to its already formidable grasp on regional decision-making, journeyed to the United States to meet President Obama and join a Nato summit, gone to Mexico for the G20 meeting, and met an array of European leaders to discuss the euro crisis. All the while he has been putting through the first planks of his campaign promises, including the lowering of the pension age to 60 for some workers, a cap on earnings of bosses of state companies, and the reduction of ministerial salaries as he tries to make the fifth republic a more down-to-earth ruling system to which ordinary people can relate.
But all this is mere preamble to the new president's main task – the effort to combine renewed growth with cuts in the government deficit as the spearhead of a new European approach that will stress economic expansion rather than austerity. This week, starting with the German-French-Italian-Spanish summit in Rome, will test whether his rhetoric can be translated into a left-leaning, pro-growth agenda for the eurozone to pull it out of its seemingly endless crisis.
The new Socialist administration in Paris believes that Hollande's policies will muster a sufficient head of steam to overcome German reservations at the European summit in Brussels at the end of this month. It hails any mention of the word "growth" by leaders in other EU countries as a sign that Paris has the wind in its sails. At last, a government of the left claims to have come up with an answer to the drawn-out eurozone crisis that goes beyond belt tightening.
That sounds very attractive, especially given the way that the austerity preached from Berlin offers a bleak future for many European nations. But the room for hope looks considerably less than optimists in Paris might believe. We are not back in the heady opening months of the previous Socialist president, François Mitterrand, who declared in 1981 that there was nothing wrong with dreaming. But, as with Mitterrand, reality has a nasty way of intruding on even the most pleasant of reveries.
The decision at the Rome summit to launch a €130bn growth package consisted largely of the re-bottling of old funds in supposedly new bottles, including use of unspent budget structural funds. The post-summit press conference showed up once more the divergence between Hollande and Angela Merkel. Financial markets will not be impressed given the continuing tide of bad news.
Though coming off the heights reached last week, Spain's medium-term borrowing reached its highest level since the euro was introduced at the beginning of this century, and an audit showed that the country's banks would need up to €62bn in additional capital to meet adverse conditions. The unelected domestic political honeymoon of Mario Monti, the Italian prime minister, is over as tax increases and reductions in pensions fuel recession, and both trade unions and business are unhappy at his labour sector reforms. This makes it harder for him to push through changes while calls mount for more positive European policies to help Italy through its difficulties; and Silvio Berlusconi lobbed in a political grenade by saying that an Italian exit from the eurozone was "not blasphemy" and might not hurt the country's economy.
Above all, Merkel is resisting the growing chorus of calls for her to relax her resistance to measures that could ease the pressure on other countries to reduce their debts, and her limitation of Germany's readiness to commit itself further to bailout packages. She and Hollande have avoided an outright confrontation so far but it is difficult to see a collision being put off much further unless one or other cedes ground. Facing a federal election next year, Merkel will not wish to be seen by a suspicious German electorate as a lady ready for turning; Wolfgang Schäuble, the finance minister, took the occasion of the Rome summit to warn Greece that it must fulfil the conditions of its aid programme with no room for manoeuvre on the target of reducing debt to 120% of GDP by 2020.
As Simon Tilford notes in a report for the Centre for European Reform, Germany seems to have a sense of invulnerability amid the storms around it. "For many Germans, including many senior policymakers, the crisis seems to be someone else's problem," Tilford writes. "Merkel's obduracy is widely credited with striking a blow for Germany's national interests … This is puzzling, because Germany is much more vulnerable than German policymakers appear to believe. And Germany's strategy for dealing with the crisis is maximising, not minimising, the risks to the country's economic and political interests."
He is right, but national psychologies are difficult to shake even if Merkel was persuaded of the need to do so. Equally, with the wind of his double election victories behind him, the French leader is unlikely to be the first to blink. He knows that he courts domestic disillusion if he does so. He is the first president of the fifth republic who has inherited a political party rather than forming one in his own image, and that comes with a price in a country where many on the left (not to mention the Front National) are wary of a Europe they see as run by market-friendly bureaucrats ready to act in contravention of the democratic verdict of voters.
The trouble is that more papering over of the euro-cracks is not going to pass muster, not only with markets but also with jaundiced citizens who are realising the extent to which their leaders have failed to get to grips with the ongoing crisis. Hollande's big pro-growth story may have appeared a panacea but his policy of fiscal pumping rather than structural reform will not please the Germans and offers no longer-term solution to France's lack of competitiveness – highlighted by news that Air France-KLM (in which the state has a 16% stake) is to cut 5,000 jobs in France after losing €597m in the first quarter of this year, a harbinger of more bad tidings in a country with a 10% unemployment rate. French unions warn that 45,000 jobs in all may go in all in sectors such as steel, telecoms and automobiles.
Hollande may have won office as the prophet of expansion but his promises involve apparently irreconcilable aims. Adding to the 56% of GDP already accounted for by state spending, his pledges in areas such as education will unbalance the economy further. Hitting this year's state deficit target of 4.5% of GDP will need additional savings of €10bn, while achieving the 3% goal for 2013 will require an extra €25bn, and at a time of weak growth. Simply soaking the rich through higher taxes will not be enough. Something else will have to give.
On the European front, the Franco-German entente on which the present European framework – and the euro – was built has changed in nature as Berlin has become a political power as well as the continent's economic motor. The heritage of leadership from Paris handed down by Charles de Gaulle has evaporated. But the election of Hollande was, in part, a refusal by France's voters to submit to policies dictated from across the Rhine – even if German funding will be needed for the eurozone public works programme the new president wants, and even if the strong nationalist vote in both France's elections bodes ill for the sovereignty-surrendering fiscal union the eurozone needs to function efficiently.
Germany's policies may be what Europe should need for its long-term health, but the crisis management on offer is far more short-term. Mr Normal has to play with the hand he dealt himself, and the backing he has been receiving may end up by making Germany all the more determined to stick to its guns; the more isolated Merkel is, the more she may need to prove her determination to the electorate. The Hollande saga is, indeed, only just beginning, and its outcome is far less certain than the impressive electoral margin of victory he and his party racked up might suggest.
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Friday, June 22, 2012
Press Watch, June 22
Most papers focused on the appointment of the former National Bank of Greece governor – and president of the Hellenic Banking Association – to head the crucial finance (...)
Eurozone agrees to move quickly on Spain, Greece
Troubled eurozone nations agreed to act quickly to save Spain's banks, and to send international creditors to Greece for an update from the new government.
The IMF meanwhile called on Thursday for the euro area to establish full banking union, and for the European Central Bank to adopt more demand-generating stimulus policies to help tackle the crisis.
Adding to the sense of urgency, ratings agency Moody's downgraded the credit ratings of 15 of the world's largest financial institutions, citing exposure risk and Europe's economic woes.
Greeks Face German Nemesis as Bailout Battle Moves to Soccer
Greeks Face German Nemesis as Bailout Battle Moves to Soccer San Francisco Chronicle Updates with comments from Merkel in 17th paragraph. See CHAMP for Euro 2012 coverage.) June 21 (Bloomberg) -- Chancellor Angela Merkel will be ... |
Wednesday, June 20, 2012
EU Leaders Urged to Set Timetable for Action (Again)
![]() Moneycontrol.com | EU Leaders Urged to Set Timetable for Action (Again) CNBC.com Ahead of two key European policymaker meetings on the credit crisis Friday, politicians are yet again being urged to set out a clear timetable for action to avoid further market turbulence. On the same day, four of the most important leaders in the ... Chancellor Merkel to attend Germany-Greece quarterfinal at Euro 2012, hopes ... Euro firm vs. dollar ahead of Fed decision German Chancellor Merkel to travel to Greece match |
Monday, June 18, 2012
G20 summit: Barroso blames eurozone crisis on US banks
EC president says European leaders have not come to Mexico to receive lessons on how to handle the economy
The opening day of the G20 summit was threatening to deteriorate into a fractious row between eurozone countries and other non-European members of the G20, notably the US, as EU commission president José Manuel Barroso insisted the origins of the eurozone crisis lay in the unorthodox policies of American capitalism.
As Europe's leaders came under intense pressure to act decisively to cure the euro's ills, and a campaign gathered pace to relax some of the austerity programmes laying waste to countries burdened with unsustainable debt levels, Barroso insisted that Europe had not come to the G20 summit in Mexico to receive lessons on how to handle the economy.
When asked by a Canadian journalist "why should North Americans risk their assets to help Europe?" he replied: "Frankly, we are not here to receive lessons in terms of democracy or in terms of how to handle the economy.
"By the way this crisis was not originated in Europe … seeing as you mention North America, this crisis originated in North America and much of our financial sector was contaminated by, how can I put it, unorthodox practices, from some sectors of the financial market."
After the Greek election at the weekend, which may have shifted the terms of the debate over how to shore up the euro, world leaders meeting in Mexico focused on the European crisis amid strong signs of big trouble brewing in Spain.
Madrid's 10-year cost of borrowing went through the 7% barrier on the bond markets for the first time in the single currency era, the level at which borrowing becomes unaffordable. The Spanish government demanded intervention from the European Central Bank.
Spain's prime minister, Mariano Rajoy, is expected to ask for up to €100bn in eurozone bailout funds for Spain's stricken banks at a meeting of eurozone finance ministers in Luxembourg on Thursday, senior Eurogroup sources said. Voicing exasperation with the European response to the debt crisis, Robert Zoellick, the outgoing American head of the World Bank, warned the G20 summit in Mexico of a growing rift between the Europeans in charge of the bailouts and the IMF.
"The world's waiting for the Europeans to say what they want to do," said Zoellick. He predicted a showdown between the IMF and Europe by the end of the summer in the absence of any decisive action.
Barack Obama was expected to press Germany's chancellor, Angela Merkel, in Mexico on Monday night on the issue of eurobonds – the pooling of liability for single currency countries' debt. But there is no chance of Merkel agreeing to underwrite the debt of other European countries for the foreseeable future.
Fresh from his victory in the Greek election, the centre-right leader, Antonis Samaras, promptly tabled demands for a softening of the draconian austerity programme that Greece has to implement for the eurozone bailout.
Samaras, the prime minister-designate pledged to stick broadly to the Greek bailout terms but added: "We will simultaneously have to make some necessary amendments to the bailout agreement, in order to relieve the people of crippling unemployment and huge hardships."
Politicians and officials in Brussels and Germany appeared to suggest that the new Greek leader's demands could be at least partly satisfied by extending the repayment schedule on the bailout loans or lengthening the target deadlines for cutting the budget deficit.
There were also reports that the terms underpinning Ireland's bailout could also be relaxed, giving Dublin a much longer repayment schedule on the loans. The talk of rescheduling the Greek bailout terms surfaced quickly on Sunday night, with the German foreign minister, Guido Westerwelle, suggesting the Europeans could alter the timings. That triggered a row in Germany among the political class over the pros and cons of going easier on Greece.
In Brussels, the respected Bruegel thinktank said: "It is now increasingly clear that the [Greek] programme is severely off track. The [Samaras] victory doesn't change this fact and it has become unavoidable to open a discussion about the shape and form of a new Greek programme. This is a fact now broadly acknowledged by policymakers and in particular by German officials who have openly discussed the possibility of stretching fiscal targets."
Martin Schulz, the German social democrat who presides over the European parliament, added: "The new Greek government will be able to count on our constructive cooperation in possible fine-tuning of its reform strategy and economic targets. If Greece sticks to its commitments, the EU can examine what could be done further to solve the crisis."
From Mexico, however, Merkel appeared to dismiss any easing of the Greek conditions. "The new Greek government has to implement the commitments entered into by the country. The programme framework has to be kept."
The eurogroup source said that Samaras was expected to show up in Luxembourg on Thursday for the meeting of eurozone finance ministers which will grapple with Spain and how to respond to the Greek election results.
G20's relief at Greek pro-bailout vote is short-lived
![]() Globe and Mail | G20's relief at Greek pro-bailout vote is short-lived San Jose Mercury News LOS CABOS, Mexico -- World leaders relief at Greek voters rejection of an anti-bailout government that could have forced the country s exit from the European ... Greek election result spares leaders real-time fiscal firefighting Obama calls Greek elections 'positive' Sigh of relief at G20 summit over Greek election |
Sigh of relief at G20 summit turns to angst
Greek elections 2012: Greece bailout back on as hopes rise for future of the euro
Greek election boosts markets but worries remain
World stock markets move higher on relief that pro-bailout parties in Greece had secured a narrow victory
World stock markets were propelled higher on Monday morning on relief that pro-bailout parties in Greece had secured a narrow victory in the election re-run over the weekend.
But there was concern that the rally would prove shortlived, amid continued fears that debt-laden Greece will ultimately be forced out of the eurozone.
"The challenges facing the Greek economy remain mountainous and the general feeling remains predominantly that the day of reckoning has merely been delayed," said Michael Hewson, senior market analyst at CMC Markets UK.
"The outcome of the Greece election could prove to be one of those results that could end up being potentially toxic to the winner, given that the next government could well preside over Greece's eventual exit from the euro."
The euro hit a one-month high against the dollar, rising to $1.2748, and European stock markets all moved higher. The FTSE 100 index in London leapt nearly 75 points to 5551, a 1.3% gain, with mining and banking shares the biggest gainers. Spain's Ibex jumped 1.7% and Italy's FTSE MiB rose 1%, while Germany's Dax climbed 1.3% and France's CAC was 1.1% ahead.
In Asia, Japan's Nikkei closed 1.8% higher while Hong Kong's Hang Seng and Singapore's Straits Times both added about 1%. The leaders of Spain and Italy welcomed the election result.
Arriving for the G20 summit in Mexico, Italian prime minister Mario Monti said: "This allows us to have a more serene vision for the future of the European Union and for the eurozone," he told reporters.
"We hope that a strong government can be formed which confirms the commitments made with the EU."
Spanish prime minister Mariano Rajoy hailed the result as "good news for Greece, very good news for the European Union, for the euro and also for Spain".
"The [Greek election] results appear close to what the markets had been expecting," said analysts at Barclays Capital. "The fact that the centre-right New Democracy has won the most votes will be viewed as market friendly because it reduces the likelihood of a near-term Greek exit from the euro area, and will be viewed as making successful negotiations with the troika somewhat more likely.
"Already on Sunday night euro area officials and the IMF have expressed their willingness to look at adjusting some elements of the programme, in particular its timing. Overall, however, we expect the effect on the euro and risky currencies and assets to be muted."
On bond markets, Italian 10-year government bond yields have fallen back below 6%, trading at 5.9% this morning. The Spanish equivalent, which entered danger territory above 7% last week, also dropped, falling 4 basis points to 6.88%.
On Sunday night the Eurogroup of finance ministers said it looked forward to the swift formation of a new government and reiterated its commitment "to assist Greece in its adjustment effort in order to address the many challenges the economy is facing."
It acknowledged the "considerable efforts" already made by the Greek citizens and said it remained convinced that continued fiscal and structural reforms are Greece's best guarantee to overcome the current economic and social challenges.
"The Eurogroup expects the Troika institutions to return to Athens as soon as a new government is in place to exchange views with the new government on the way forward and prepare the first review under the second adjustment programme.
European leaders had postponed their departure for a two-day G20 summit in Mexico in order to be able to digest the outcome of the ballot in Greece, which posed the most severe challenge to the EU and the euro.
The fallout from the Greek election and the broader issue of how to avert a renewed European banking crisis and stabilise the currency will dominate the Mexico negotiations, with the US and the UK pressing the leaders of Germany, France, Italy and Spain to ward off the risk of collapse by coming up with persuasive action by the end of the month.
The G20 talks will be promptly followed by a flurry of EU summitry climaxing in a European Council of heads of government in Brussels at the end of next week.
"European leaders are expected to come under increasing pressure to deal more decisively with the financial crisis as many nations outside Europe like China and the US are being negatively impacted ever more by the ongoing turmoil in financial markets," said Mark Huber at ETX Capital.
Euro Leaders Signal Softening on Greek Austerity as Summit Looms
![]() The Guardian | Euro Leaders Signal Softening on Greek Austerity as Summit Looms Bloomberg European governments signaled a willingness to relent on Greece's austerity measures as leaders turn from an election victory by Greek bailout proponents to focus on safeguarding the other 98 percent of the euro economy. Greece's new government must ... 'Enough is enough, and could you finally say danke?' Eurozone: Greek chaos casts long shadow again Greek Election: Either Way, Greece Will Eventually Default – GeoStrat |
Sunday, June 17, 2012
Make-or-Break Summit Looms as EU Gears for Greek Aftermath
![]() Telegraph.co.uk | Make-or-Break Summit Looms as EU Gears for Greek Aftermath San Francisco Chronicle Updates with first exit poll in second, conference call in 10th paragraphs. Click on TOP CRIS for more on the euro crisis.) June 17 (Bloomberg) -- Faced with ... Merkel: hope new Greek govt will keep promises |
Make-or-Break Summit Looms as EU Preps for Greek Fallout
![]() CTV.ca | Make-or-Break Summit Looms as EU Preps for Greek Fallout Bloomberg Faced with Greek elections that threaten to result in only more disarray, European leaders are set to turn their attention to safeguarding the other 98 percent of the euro-area economy. With investors and policy makers clamoring for clarity amidst what ... Germany's Merkel urges Greek commitment to austerity Hollande, Merkel hold phone talks over Greece German Rectitude Has Its Risks |
Greek front-runners vow to stay in euro
![]() Telegraph.co.uk | Greek front-runners vow to stay in euro Telegraph.co.uk Angela Merkel will have to “invent a way” to kick Greece out of the eurozone, a leading Greek politician has claimed, as all political parties promise to renegotiate the country's €130bn (£105bn) bailout agreement after tomorrow's pivotal elections. Greek election: what could happen Greeks Are Going to Polls, Afraid No One Will Win Greek vote may determine if global economy makes or comeback or descends into ... |









