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Israeli Commandos Kill Nine People in Clash With Gaza-Bound Aid Flotilla

May 31, 2010

By Jonathan Ferziger and Calev Ben-David May 31 (Bloomberg) — Israeli commandos killed nine pro- Palestinian activists after encountering resistance while intercepting a flotilla of ships carrying humanitarian aid supplies to the Gaza Strip, the Israeli army said. Several of the dead were from Turkey, which said relations with Israel may suffer irreparable harm. French President Nicolas Sarkozy said Israel had used “disproportionate” force. German Chancellor Angela Merkel , speaking today to reporters in Berlin, said she had spoken by phone with Netanyahu and Turkish Prime Minister Recep Tayyip Erdogan and called for “a comprehensive investigation on what happened.” The six ships in the “Freedom Flotilla” came from Sweden, Greece and Turkey on a mission aimed at breaking Israel’s blockade of Gaza that organizers pledged would be non-violent. Israel had warned it wouldn’t let the ships reach Gaza and called the mission a propaganda trick aimed at making it look bad. Israel said its soldiers were attacked with knives and clubs after boarding a vessel and seven soldiers were wounded, including by gunfire after activists aboard the ship managed to grab Israeli firearms. The clash was in international waters, said the Free Gaza Movement, which organized the flotilla. Israeli Prime Minister Benjamin Netanyahu cut short a trip to Canada to return to Israel, canceling a meeting scheduled in Washington tomorrow with President Barack Obama . Emergency Meeting “What we have seen this morning is a war crime,” Saeb Erakat , the Palestinian Authority’s chief peace negotiator, said in an e-mailed statement. “The international community must take swift and appropriate action.” The United Nations Security Council will hold an emergency meeting at 1 p.m. New York time on the situation, the UN press office said. Israeli stocks fell the most in four days. The benchmark TA-25 Index lost 1.6 percent, the biggest drop since May 25, to 1,082.74 at the close in Tel Aviv. The shekel fell as much as 1.5 percent to 3.8729 to the dollar and traded at 3.8652 at 5:14 p.m. Aboard the ships today were more than 500 people, including European members of parliament and Swedish author Henning Mankell, according to the Free Gaza Movement, which organized the trip. Mary Hughes Thompson, a spokeswoman of the Free Gaza Movement, said the organization “never dreamed that Israel would ever use this type of violence.” Gaza Restrictions “The United States deeply regrets the loss of life and injuries sustained, and is currently working to understand the circumstances surrounding this tragedy,” White House spokesman Bill Burton said. Israel has restricted entry of people and goods into Gaza since the territory was taken over by Hamas in 2007, allowing in a limited range of supplies including food, clothing and medicine. Hamas is considered a terrorist organization by Israel, the U.S. and the European Union. Israeli Navy ships have intercepted three previous efforts by the Free Gaza Movement, formed in 2008 to deliver aid to the territory by sea. “Hamas is continually trying to smuggle weapons into Gaza by land and sea, which is why we told the flotilla organizers we would be willing to bring their aid into Gaza after we did a security check of their shipments,” Capt. Barak Raz of the Israeli Army Spokesman’s Office said. Rockets Israel fought a three-week war in Gaza starting in December 2008 that it said was meant to stop Hamas and other militant groups from firing rockets into its territory. Some 330 rockets have been fired from Gaza into Israel since the end of the operation, killing one foreign worker last March, the army said. Israeli bombing and ground operations during the war destroyed thousands of houses across Gaza and Israel’s restrictions on construction materials have prevented Palestinians from being able to rebuild. The army has said that Hamas has used materials such as cement and iron pipes to build rockets and bunkers. Israel has been negotiating a prisoner swap with Hamas to exchange a captive Israeli soldier, Gilad Shalit , for about 1,000 jailed Palestinians. “We are sorry about those hurt, but the responsibility lies completely with the organizers of the flotilla and those participants who initiated the violence,” Defense Minister Ehud Barak said at a press conference in Tel Aviv. “During the incident, because of danger to their lives, the soldiers were forced to use methods to disperse demonstrations as well as firearms.” He said some of the flotilla organizers had ties to terrorist organizations. ‘Inhuman’ Raid Turkey’s Foreign Ministry called the raid “inhuman” and said it “may cause damage to our relations that will be impossible to repair,” according to a statement e-mailed by the ministry in Ankara today. Hamas called on the Palestinian Authority to break off peace talks with Israel. An Israeli military official, speaking on condition of anonymity, told reporters that most of the nine dead were Turkish and 20 people were wounded, according to a pool report provided by an Associated Press reporter. Of the soldiers wounded, one was hurt seriously. The official said the soldiers boarded the ships after approaching on three military helicopters and several commando boats at about 4 a.m., according to the pool report. ‘Unfettered Access’ One of the commandos, also speaking on condition of anonymity, said after descending from one of the helicopters on a rope, he was immediately attacked by a group of passengers with metal sticks and knives, the pool report said. The commando said activists grabbed soldiers, stripped them of their helmets and equipment, and threw them from the top deck to the lower deck, the report said. Turkey’s NTV television showed footage of helicopters dropping armed soldiers onto a ship in the dark, and of bloodied passengers being treated on board. A passenger said the ships were attacked with live ammunition and tear gas. U.K. Foreign Secretary William Hague said he deplored “the loss of life during the interception of the Gaza flotilla” and called on Israel to give “unfettered access” for aid to Gaza. To contact the reporter on this story: Jonathan Ferziger in Tel Aviv at jferziger@bloomberg.net Calev Ben-David in Jerusalem at cbendavid@bloomberg.net

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Geithner: U.S., Europe Broadly Agree On Financial Reform Details

May 27, 2010

BERLIN — Treasury Secretary Timothy Geithner says the U.S. and Europe are in “broad agreement” on the need for regulatory reform of the financial system and is stressing his commitment to “a strong global framework of reforms.” Geithner spoke Thursday after meeting with German Finance Minister Wolfgang Schaeuble. European countries agreed this month on a euro750 billion (nearly $1 trillion) loan backstop for governments in danger of defaulting on debt – coupled with efforts to cut budget deficits. Geithner welcomed Germany’s “leadership role” in putting together that package. He said all countries understand the need to cut deficits and are working closely together “to make sure that we are strengthening and reinforcing (the) global recovery.” THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below. BERLIN (AP) – U.S. Treasury Secretary Timothy Geithner is expected in Berlin for talks with his German counterpart as Europe grapples with its debt crisis. Geithner meets with Finance Minister Wolfgang Schaeuble in the German capital Thursday. The talks follow a private dinner Wednesday night with European Central Bank president Jean-Claude Trichet and a stop at Germany’s central bank, the Bundesbank. European countries agreed earlier this month on a euro750 billion (nearly $1 trillion) loan backstop for governments in danger of defaulting on debt. Geithner said in London Wednesday that while the European Union has a good plan for tackling the debt crisis, it must act on it soon. He said he believes European leaders “will do what’s necessary to make it work.”

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US Treasury head in Berlin to call for concerted crisis action

May 27, 2010

US Treasury head in Berlin to call for concerted crisis action

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Geithner Shifts Focus to Global Threats as Crisis `Fires’ Subside in U.S.

May 25, 2010

By Ian Katz May 26 (Bloomberg) — Treasury Secretary Timothy F. Geithner ’s trip to Europe today shows how his focus is shifting to global economic threats as Congress puts the finishing touches on its overhaul of financial regulations and the U.S. winds down bailout programs. Geithner has two days of meetings in London, Berlin and Frankfurt with leaders including European Central Bank President Jean-Claude Trichet to discuss the nearly $1 trillion rescue package aimed at stopping the Greek debt crisis from spreading. The trips were tacked on to Geithner’s visit to China, which ended yesterday, as the euro fell to the lowest in almost nine years against the yen. “To the extent that the near-term fires in the U.S. have been put under control and progress has been made on reg reform, he can now spend the time, as he should, engaging globally with other global leaders to make sure we’re acting in a coordinated manner,” Neel Kashkari , who headed the $700 billion Troubled Asset Relief Program under Geithner’s predecessor, Henry Paulson , said in an interview. Kashkari now heads new investment initiatives at Pacific Investment Management Co., which runs the world’s biggest bond fund. Geithner’s trip comes amid warnings that fallout from the European debt crisis threatens the global economic recovery. Corporate and sovereign credit-risk indicators reached or approached their highest levels in 10 months yesterday. Geithner is stepping into the crisis just as he tries to resolve another. Along with Treasury Deputy Secretary Neal Wolin and Assistant Secretary Michael Barr , he will work with U.S. lawmakers to close the differences between the Senate bill on financial regulations approved this month and the House version passed in December. London, Berlin Meetings The Treasury secretary will meet today in London with U.K. Chancellor of the Exchequer George Osborne and Bank of England Governor Mervyn King , before traveling to Frankfurt for a working dinner with Trichet. Tomorrow, he will see German Finance Minister Wolfgang Schaeuble in Berlin. European leaders face “the difficult challenge of trying to restore sustainability to an unsustainable system,” Geithner said yesterday in Beijing, where he took part in the two-day U.S.-China Strategic and Economic Dialogue. Other officials have gone further. Federal Reserve Governor Daniel Tarullo said May 20 that Europe’s crisis may pose a threat to the U.S. and world economies as trade shrinks and banks incur losses on European investments. Former Fed Chairman Paul Volcker , an adviser to President Barack Obama , spoke May 13 of the euro’s “potential disintegration.” Euro’s Slide The euro today fell to $1.2282 at 10:59 a.m. in Tokyo from $1.2345 in New York yesterday, when it touched $1.2178, the lowest since May 19. Europe’s common currency dropped to 110.69 yen from 111.39. It fell to 108.84 yen yesterday, the least since November 2001. The London interbank offered rate, or Libor, for three month loans in dollars advanced yesterday to 0.536 percent, the highest level since July 7, according to data from the British Bankers’ Association. Geithner, 48, is returning to a familiar arena. Before serving as president of the Federal Reserve Bank of New York from 2003 to 2009, he was the International Monetary Fund’s director of policy development and review. He was undersecretary of international affairs from 1998 to 2001 under Treasury Secretaries Robert Rubin and Lawrence Summers . Geithner, whose father worked abroad for the Ford Foundation, attended high school in Thailand, has studied Japanese and Chinese, and also lived in China, Japan, India and East Africa. Resolving Differences “It’s always helpful to understand where people are coming from,” Geithner said in a Bloomberg Television interview yesterday. “It’s easier to resolve differences and challenges when you come to that appreciation.” Unlike Rubin, who dealt with emergencies in Latin America, Russia and Asia, Geithner is stepping into a developed-world crisis. “There’s always been an understanding that Third World sovereign debt is very risky, but the assumption has been that the developed countries are pretty riskless,” said Wayne Abernathy , an executive vice president at the American Bankers Association and a former Treasury assistant secretary. “Now we’re discovering that might not be correct.” The U.S., with a budget deficit forecast at $1.6 trillion for the fiscal year that began Oct. 1, may also be at risk, according to Pimco. The U.S. is among nations whose debt puts them in a “ring of fire” along with Japan, U.K., Spain, Italy, Ireland, France and Portugal, John Wilson, the head of Newport Beach, California-based Pimco’s Australia unit, said in a May 24 statement. Winding Down TARP As companies including Citigroup Inc. and Bank of America Corp. have paid back taxpayer bailouts, Geithner has been able to wind down rescue efforts and focus more on international issues. The projected cost of the TARP, which was authorized by Congress in October 2008, has fallen to $105.4 billion from an estimated $341 billion as recently as last August, the Treasury said last week. Geithner’s foreign travels will require him to be diplomatic at home, where lawmakers are wary of any U.S. role in bailouts for foreign nations. House Republicans last week introduced a resolution disapproving of U.S. participation in IMF rescues of European Union countries that don’t comply with the bloc’s debt and deficit limits. Given the role of U.S. banks in the global economic crisis that started with the collapse of Lehman Brothers Holdings Inc. in September 2008, Geithner will also need to be diplomatic in his talks with European leaders. “I don’t think he’s going to go over there and start saying, ‘Here are the answers, you must do this,’” said Kashkari, 36. “I think he’ll be much more subtle than that.” To contact the reporter on this story: Ian Katz in Washington at ikatz2@bloomberg.net .

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U.S., China Sidestep Yuan Confrontation as Europe Dominates Beijing Talks

May 24, 2010

By Bloomberg News May 25 (Bloomberg) — China and the U.S. focused their first day of talks in Beijing on joint efforts to prop up the world’s economy in the face of a European sovereign-debt crisis that pushed off a showdown on the yuan’s value. Officials “spent quite a bit of time discussing the European debt crisis,” Chinese central bank Governor Zhou Xiaochuan said at a press briefing. The nation’s currency policy is being “touched upon” at the talks, he said. President Hu Jintao said China will move gradually and independently in altering exchange-rate policy after keeping the yuan pegged to the U.S. dollar for 22 months. Treasury Secretary Timothy F. Geithner , who has delayed a report to the U.S. Congress that could name the nation a currency manipulator, said he welcomed China’s commitment to yuan changes. “Behind the scenes, U.S. officials will be concerned that Europe’s debt crisis provides a convenient justification for Beijing to delay for a few more months” in ending the peg, said Brian Jackson , an emerging markets strategist at Royal Bank of Canada in Hong Kong who previously worked at the Federal Reserve and Bank of England. Jackson sees the yuan rising 5 percent to 6.5 per dollar by year’s end. In contrast, non-deliverable yuan forwards indicate a 1.6 percent gain in the next 12 months, after the contracts strengthened 0.2 percent as of 9:30 a.m. in New York yesterday. Investors last week pared back expectations for appreciation on concern the debt crisis centered on Greece will undermine the global recovery. Stocks Jump The Shanghai Composite Index closed 3.5 percent higher yesterday, the biggest gain since October, on speculation that the government may delay economic tightening measures. China will continue to “steadily advance” currency reform “under the principles of independent decision-making, controllability and gradual progress,” said Hu, 67, echoing language in a May 10 central bank outlook for policy making. Geithner, 48, said that a more market-driven currency would help Chinese officials to sustain growth, keep inflation low and adjust the nation’s growth model. The Treasury secretary has “done quite a lot to build up expectations that a move is pretty imminent,” said Mark Williams , a London-based economist at Capital Economics Ltd. who worked at the U.K. Treasury as an adviser on China from 2005 to 2007. “That’s going to come back and bite him if China hasn’t moved by the end of June.” Zhang Xiaoqiang , vice chairman of China’s National Development and Reform Commission, said the exchange rate wasn’t mentioned in talks yesterday morning between officials including central bank governors Zhou and Fed Chairman Ben S. Bernanke . Stimulus Exits Both nations’ representatives agreed that caution is needed in exiting from crisis policies because the foundation of the world recovery isn’t solid and Europe’s sovereign-debt crisis has added to uncertainties, Zhang said. Still, Zhou told reporters that “the general analysis is the pace of the global economic recovery will be maintained.” Li Daokui , an academic adviser to the Chinese central bank, said yesterday that some progress in the nation’s currency reform “in the near future” would make political sense. He advocated widening the yuan’s trading band and a “slight” gain against the dollar. Li said the comments to Bloomberg Television in Beijing were a personal view. As the two-day Strategic and Economic Dialogue began, Geithner said that the U.S. and China shared the goals of a more balanced world economy and stronger economic ties. Wang on Europe Chinese Vice Premier Wang Qishan said that the European crisis had “impacted market confidence.” “It has brought many uncertainties to the slowly recovering world economy, and added to the difficulties of countries concerned in implementing their macro policies,” Wang said. In contrast, Geithner said the U.S. and China are well placed to withstand the European crisis, with both countries experiencing stronger-than-expected economic recoveries. “Economic growth in the U.S. and China is broader and stronger than many had anticipated, even a few months ago,” Geithner said. Even as European nations face challenges, the U.S. and China, along with India, Brazil and other emerging economies, are “in a much stronger position today to overcome the challenges ahead,” he said. China needs to reinforce its shift to relying more on domestic demand as exceptional stimulus measures are withdrawn, the Treasury secretary said. Countries need to compete on a “level playing field” and share in the “benefits and responsibilities” of global trade, he added. Growth Models “As we reform the U.S. economy to promote savings and investment, China is reforming its growth model to promote domestic demand and consumption,” he said. “Our common interests lie in building a more stable global financial system less prone to crisis.” Secretary of State Hillary Clinton is also in China for the talks. Geithner next visits London, Frankfurt and Berlin to reinforce his call for coordinated efforts to fight the region’s crisis and rein in government spending. The Treasury secretary also addressed Chinese efforts to promote technology development, which U.S. companies say may discriminate against foreign-owned businesses. “We welcome a more open China today,” Geithner said. “Innovation flourishes best when markets are open, competition is fair, and strong protections exist for ideas and inventions.” — Kevin Hamlin , Rebecca Christie , Peter Cook , Oliver Biggadike , Susan Li , Michael Forsythe , Yanping Li , Stephen Engle , Nicole Gaouette. Editors: Paul Panckhurst , Brendan Murray To contact the reporters on this story: Rebecca Christie in Beijing at rchristie4@bloomberg.net ; Nicole Gaouette in Beijing at ngaouette@bloomberg.net

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China, U.S. Sidestep Yuan Confrontation as Europe Dominates Beijing Talks

May 24, 2010

By Bloomberg News May 25 (Bloomberg) — China and the U.S. focused their first day of talks in Beijing on joint efforts to prop up the world’s economy in the face of a European sovereign-debt crisis that pushed off a showdown on the yuan’s value. Officials “spent quite a bit of time discussing the European debt crisis,” Chinese central bank Governor Zhou Xiaochuan said at a press briefing. The nation’s currency policy is being “touched upon” at the talks, he said. President Hu Jintao said China will move gradually and independently in altering exchange-rate policy after keeping the yuan pegged to the U.S. dollar for 22 months. Treasury Secretary Timothy F. Geithner , who has delayed a report to the U.S. Congress that could name the nation a currency manipulator, said he welcomed China’s commitment to yuan changes. “Behind the scenes, U.S. officials will be concerned that Europe’s debt crisis provides a convenient justification for Beijing to delay for a few more months” in ending the peg, said Brian Jackson , an emerging markets strategist at Royal Bank of Canada in Hong Kong who previously worked at the Federal Reserve and Bank of England. Jackson sees the yuan rising 5 percent to 6.5 per dollar by year’s end. In contrast, non-deliverable yuan forwards indicate a 1.6 percent gain in the next 12 months, after the contracts strengthened 0.2 percent as of 9:30 a.m. in New York yesterday. Investors last week pared back expectations for appreciation on concern the debt crisis centered on Greece will undermine the global recovery. Stocks Jump The Shanghai Composite Index closed 3.5 percent higher yesterday, the biggest gain since October, on speculation that the government may delay economic tightening measures. China will continue to “steadily advance” currency reform “under the principles of independent decision-making, controllability and gradual progress,” said Hu, 67, echoing language in a May 10 central bank outlook for policy making. Geithner, 48, said that a more market-driven currency would help Chinese officials to sustain growth, keep inflation low and adjust the nation’s growth model. The Treasury secretary has “done quite a lot to build up expectations that a move is pretty imminent,” said Mark Williams , a London-based economist at Capital Economics Ltd. who worked at the U.K. Treasury as an adviser on China from 2005 to 2007. “That’s going to come back and bite him if China hasn’t moved by the end of June.” Zhang Xiaoqiang , vice chairman of China’s National Development and Reform Commission, said the exchange rate wasn’t mentioned in talks yesterday morning between officials including central bank governors Zhou and Fed Chairman Ben S. Bernanke . Stimulus Exits Both nations’ representatives agreed that caution is needed in exiting from crisis policies because the foundation of the world recovery isn’t solid and Europe’s sovereign-debt crisis has added to uncertainties, Zhang said. Still, Zhou told reporters that “the general analysis is the pace of the global economic recovery will be maintained.” Li Daokui , an academic adviser to the Chinese central bank, said yesterday that some progress in the nation’s currency reform “in the near future” would make political sense. He advocated widening the yuan’s trading band and a “slight” gain against the dollar. Li said the comments to Bloomberg Television in Beijing were a personal view. As the two-day Strategic and Economic Dialogue began, Geithner said that the U.S. and China shared the goals of a more balanced world economy and stronger economic ties. Wang on Europe Chinese Vice Premier Wang Qishan said that the European crisis had “impacted market confidence.” “It has brought many uncertainties to the slowly recovering world economy, and added to the difficulties of countries concerned in implementing their macro policies,” Wang said. In contrast, Geithner said the U.S. and China are well placed to withstand the European crisis, with both countries experiencing stronger-than-expected economic recoveries. “Economic growth in the U.S. and China is broader and stronger than many had anticipated, even a few months ago,” Geithner said. Even as European nations face challenges, the U.S. and China, along with India, Brazil and other emerging economies, are “in a much stronger position today to overcome the challenges ahead,” he said. China needs to reinforce its shift to relying more on domestic demand as exceptional stimulus measures are withdrawn, the Treasury secretary said. Countries need to compete on a “level playing field” and share in the “benefits and responsibilities” of global trade, he added. Growth Models “As we reform the U.S. economy to promote savings and investment, China is reforming its growth model to promote domestic demand and consumption,” he said. “Our common interests lie in building a more stable global financial system less prone to crisis.” Secretary of State Hillary Clinton is also in China for the talks. Geithner next visits London, Frankfurt and Berlin to reinforce his call for coordinated efforts to fight the region’s crisis and rein in government spending. The Treasury secretary also addressed Chinese efforts to promote technology development, which U.S. companies say may discriminate against foreign-owned businesses. “We welcome a more open China today,” Geithner said. “Innovation flourishes best when markets are open, competition is fair, and strong protections exist for ideas and inventions.” — Kevin Hamlin , Rebecca Christie , Peter Cook , Oliver Biggadike , Susan Li , Michael Forsythe , Yanping Li , Stephen Engle , Nicole Gaouette. Editors: Paul Panckhurst , Brendan Murray To contact the reporters on this story: Rebecca Christie in Beijing at rchristie4@bloomberg.net ; Nicole Gaouette in Beijing at ngaouette@bloomberg.net

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China, U.S. Sidestep Yuan Confrontation as Europe Dominates Beijing Talks

May 24, 2010

By Bloomberg News May 25 (Bloomberg) — China and the U.S. focused their first day of talks in Beijing on joint efforts to prop up the world’s economy in the face of a European sovereign-debt crisis that pushed off a showdown on the yuan’s value. Officials “spent quite a bit of time discussing the European debt crisis,” Chinese central bank Governor Zhou Xiaochuan said at a press briefing. The nation’s currency policy is being “touched upon” at the talks, he said. President Hu Jintao said China will move gradually and independently in altering exchange-rate policy after keeping the yuan pegged to the U.S. dollar for 22 months. Treasury Secretary Timothy F. Geithner , who has delayed a report to the U.S. Congress that could name the nation a currency manipulator, said he welcomed China’s commitment to yuan changes. “Behind the scenes, U.S. officials will be concerned that Europe’s debt crisis provides a convenient justification for Beijing to delay for a few more months” in ending the peg, said Brian Jackson , an emerging markets strategist at Royal Bank of Canada in Hong Kong who previously worked at the Federal Reserve and Bank of England. Jackson sees the yuan rising 5 percent to 6.5 per dollar by year’s end. In contrast, non-deliverable yuan forwards indicate a 1.6 percent gain in the next 12 months, after the contracts strengthened 0.2 percent as of 9:30 a.m. in New York yesterday. Investors last week pared back expectations for appreciation on concern the debt crisis centered on Greece will undermine the global recovery. Stocks Jump The Shanghai Composite Index closed 3.5 percent higher yesterday, the biggest gain since October, on speculation that the government may delay economic tightening measures. China will continue to “steadily advance” currency reform “under the principles of independent decision-making, controllability and gradual progress,” said Hu, 67, echoing language in a May 10 central bank outlook for policy making. Geithner, 48, said that a more market-driven currency would help Chinese officials to sustain growth, keep inflation low and adjust the nation’s growth model. The Treasury secretary has “done quite a lot to build up expectations that a move is pretty imminent,” said Mark Williams , a London-based economist at Capital Economics Ltd. who worked at the U.K. Treasury as an adviser on China from 2005 to 2007. “That’s going to come back and bite him if China hasn’t moved by the end of June.” Zhang Xiaoqiang , vice chairman of China’s National Development and Reform Commission, said the exchange rate wasn’t mentioned in talks yesterday morning between officials including central bank governors Zhou and Fed Chairman Ben S. Bernanke . Stimulus Exits Both nations’ representatives agreed that caution is needed in exiting from crisis policies because the foundation of the world recovery isn’t solid and Europe’s sovereign-debt crisis has added to uncertainties, Zhang said. Still, Zhou told reporters that “the general analysis is the pace of the global economic recovery will be maintained.” Li Daokui , an academic adviser to the Chinese central bank, said yesterday that some progress in the nation’s currency reform “in the near future” would make political sense. He advocated widening the yuan’s trading band and a “slight” gain against the dollar. Li said the comments to Bloomberg Television in Beijing were a personal view. As the two-day Strategic and Economic Dialogue began, Geithner said that the U.S. and China shared the goals of a more balanced world economy and stronger economic ties. Wang on Europe Chinese Vice Premier Wang Qishan said that the European crisis had “impacted market confidence.” “It has brought many uncertainties to the slowly recovering world economy, and added to the difficulties of countries concerned in implementing their macro policies,” Wang said. In contrast, Geithner said the U.S. and China are well placed to withstand the European crisis, with both countries experiencing stronger-than-expected economic recoveries. “Economic growth in the U.S. and China is broader and stronger than many had anticipated, even a few months ago,” Geithner said. Even as European nations face challenges, the U.S. and China, along with India, Brazil and other emerging economies, are “in a much stronger position today to overcome the challenges ahead,” he said. China needs to reinforce its shift to relying more on domestic demand as exceptional stimulus measures are withdrawn, the Treasury secretary said. Countries need to compete on a “level playing field” and share in the “benefits and responsibilities” of global trade, he added. Growth Models “As we reform the U.S. economy to promote savings and investment, China is reforming its growth model to promote domestic demand and consumption,” he said. “Our common interests lie in building a more stable global financial system less prone to crisis.” Secretary of State Hillary Clinton is also in China for the talks. Geithner next visits London, Frankfurt and Berlin to reinforce his call for coordinated efforts to fight the region’s crisis and rein in government spending. The Treasury secretary also addressed Chinese efforts to promote technology development, which U.S. companies say may discriminate against foreign-owned businesses. “We welcome a more open China today,” Geithner said. “Innovation flourishes best when markets are open, competition is fair, and strong protections exist for ideas and inventions.” — Kevin Hamlin , Rebecca Christie , Peter Cook , Oliver Biggadike , Susan Li , Michael Forsythe , Yanping Li , Stephen Engle , Nicole Gaouette. Editors: Paul Panckhurst , Brendan Murray To contact the reporters on this story: Rebecca Christie in Beijing at rchristie4@bloomberg.net ; Nicole Gaouette in Beijing at ngaouette@bloomberg.net

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Hu Tells U.S. China Will Move Gradually, Independently on Changes to Yuan

May 23, 2010

By Rebecca Christie and Nicole Gaouette May 24 (Bloomberg) — President Hu Jintao said that China will move gradually and independently in making changes to the nation’s exchange-rate mechanism as talks with the U.S. opened in Beijing today. “China will continue to steadily advance the reform of the formation mechanism of the exchange rate under the principles of independent decision-making, controllability and gradual progress,” said Hu, 67, echoing language in a May 10 central bank outlook for policy making. Yuan forwards strengthened for a second day on speculation Chinese officials will indicate their intention to let the currency strengthen during the two-day Strategic and Economic Dialogue. U.S. Treasury Secretary Timothy F. Geithner said the U.S. and China have a shared goal of a more balanced world economy and stronger economic ties. “Both the U.S. and China agree on something: that is that China will switch from a peg to the dollar to a peg to a basket” of currencies, Lu Ting , Hong Kong-based economist with Bank of America-Merrill Lynch, said on Bloomberg Television. “The timing of the initial move and whether or not there will be a one-off revaluation, those will be the questions.” Twelve-month non-deliverable forwards climbed 0.2 percent to 6.7290 per dollar as of 10:24 a.m. in Hong Kong, indicating investors expect the Chinese currency to gain about 1.5 percent against the dollar in the next year. The contracts slumped last week on speculation that China may defer appreciation as Europe’s debt crisis threatens to derail the global recovery. European Crisis Chinese Vice Premier Wang Qishan said at the opening of the dialogue that the European sovereign-debt crisis has “impacted market confidence.” “It has brought many uncertainties to the slowly recovering world economy, and added to the difficulties of countries concerned in implementing their macro policies,” Wang said. In contrast, Geithner, 48, said the U.S. and China are well placed to withstand the European crisis, with both countries experiencing stronger-than-expected economic recoveries. “Economic growth in the U.S. and China is broader and stronger than many had anticipated, even a few months ago,” Geithner said. “Even with the challenges of reform and growth facing some of the nations of Europe, we are together, the United States and China, along with India, Brazil and the emerging economies of Asia and other regions, in a much stronger position today to overcome the challenges ahead.” ‘Level-Playing Field’ Geithner said he welcomed China’s stance that exchange- rate reform is “important,” adding that a market-driven currency would allow it to sustain economic growth with low inflation. Countries need to compete on a “level playing field” and share in the “benefits and responsibilities” of global trade, he said. “As we reform the U.S. economy to promote savings and investment, China is reforming its growth model to promote domestic demand and consumption,” he said. “Our common interests lie in building a more stable global financial system less prone to crisis.” Secretary of State Hillary Clinton and Federal Reserve Chairman Ben S. Bernanke are also in China for the discussions. Geithner next visits London, Frankfurt and Berlin to reinforce his call for coordinated efforts to fight the region’s crisis and rein in government spending. Geithner also addressed China’s efforts to promote technology development, which have drawn concern from U.S. companies that they might discriminate against foreign-owned businesses. More Open “We welcome a more open China today,” Geithner said. “Innovation flourishes best when markets are open, competition is fair, and strong protections exist for ideas and inventions.” Heading into this week’s meetings, David Loevinger , the Treasury’s senior coordinator for China affairs, called for China to “do everything it can” to contribute to a broad- based global recovery. This includes allowing the yuan, which has been pegged at about 6.8 to the dollar for the past 22 months, to appreciate against the U.S. currency. The yuan’s peg has seen the currency gain along with the dollar against the euro this year as the European debt crisis deepened. The euro fell against the dollar, ending a three-day gain, on concern Greece’s fiscal crisis will spread to other nations. The currency dropped to $1.2505 as of 12:43 p.m. in Tokyo from $1.2570 in New York last week. — Kevin Hamlin , Peter Cook , Susan Li , Michael Forsythe , Yanping Li . Editors: Russell Ward , Paul Panckhurst To contact the reporters on this story: Rebecca Christie in Beijing at rchristie4@bloomberg.net ; Nicole Gaouette in Beijing at ngaouette@bloomberg.net

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Geithner Says U.S. Seeks `More Open’ China, Balanced Growth as Talks Start

May 23, 2010

By Rebecca Christie May 24 (Bloomberg) — Treasury Secretary Timothy F. Geithner said the U.S. and China have a shared goal of a more balanced world economy and stronger ties between the world’s largest and third-largest economies. “As we reform the U.S. economy to promote savings and investment, China is reforming its growth model to promote domestic demand and consumption,” Geithner said in his opening statement at the Strategic and Economic Dialogue today in Beijing. “Our common interests lie in building a more stable global financial system less prone to crisis.” Geithner didn’t mention currencies, saying only that countries need to compete on a “level playing field” and share in the “benefits and responsibilities” of global trade. He also addressed China’s efforts to promote technology development, which have drawn concern from U.S. companies that they might discriminate against foreign-owned businesses. “We welcome a more open China today,” Geithner said. “Innovation flourishes best when markets are open, competition is fair, and strong protections exist for ideas and inventions.” Geithner, Secretary of State Hillary Clinton and Federal Reserve Chairman Ben S. Bernanke are in China for the two-day Strategic and Economic Dialogue, a set of annual high-level talks. Geithner will then depart for London, Frankfurt and Berlin to meet with European officials and reinforce his call for coordinated efforts to fight off the region’s crisis and rein in government spending. Europe’s Crisis A U.S. official told reporters yesterday that Europe’s sovereign-debt crisis probably won’t have much effect on the broader global economy. That assessment could be aimed at easing Chinese fears about letting the yuan rise while the European economy lags behind the U.S. and parts of Asia. Heading into this week’s meetings, David Loevinger , the Treasury’s senior coordinator for China affairs, called for China to “do everything it can” to contribute to a broad- based global recovery. This includes allowing the yuan, which has been pegged at about 6.8 to the dollar for the past 22 months, to appreciate against the U.S. currency. “At the expense of other currencies, the dollar is becoming king dollar again,” George Goncalves , New York-based head of interest-rate strategy at Nomura Holdings Inc., wrote in an e-mail today. “The yuan aside, the dollar is strengthening on its own right.” Euro Moves Europe’s common currency fell against the dollar on May 19 to its weakest level in four years, a day after Germany banned naked short sales, adding to concern the region’s leadership may not be able to contain the crisis. It rebounded on May 21 amid speculation traders who bet on its decline amid the sovereign-debt crisis had to buy back the currency as it strengthened to a one-week high. In an interview with Xinhua published two days ago, Geithner, 48, attributed the dollar’s recent rise to confidence in the U.S. economy around the world. Geithner has said it will be “China’s choice” on when and how to let the yuan rise against the dollar. While Senator Charles Schumer and other U.S. lawmakers have continued to call for increased pressure on the Chinese to revalue, Geithner has opted for a less combative approach. In April, he decided to delay a foreign exchange report in which the Treasury makes determinations about currency manipulation. To contact the reporter on this story: Rebecca Christie in Beijing at rchristie4@bloomberg.net

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U.S. Says Geithner Will Discuss Europe, Economy in China Talks

May 23, 2010

By Rebecca Christie May 24 (Bloomberg) — Treasury Secretary Timothy F. Geithner will tell his Chinese counterparts that Europe’s battle with a Greece-triggered debt crisis should have only a small effect on the broader global recovery, a U.S. official told reporters in Beijing. Geithner and Secretary of State Hillary Clinton are in China for the two-day Strategic and Economic Dialogue, a set of annual high-level talks. Geithner will then depart for London, Berlin and Frankfurt to meet with European officials and reinforce his call for coordinated efforts to fight off the crisis and rein in government spending. One-sided efforts like Germany’s ban on naked short-selling are counterproductive and unlikely to boost investor confidence, the U.S. official, who spoke on condition of anonymity, said yesterday. The official also said such measures have a poor historical track record and are unlikely to be adopted on a wider scale. Heading into this week’s meetings, David Loevinger , the Treasury’s senior coordinator for China affairs, called for China to “do everything it can” to contribute to a broad-based global recovery. This includes allowing the yuan, which has been pegged at about 6.8 to the dollar for the past 22 months, to appreciate against the U.S. currency. “Meeting at this time allows us to demonstrate what is a substantial strength of both the United States and China — a capacity to act quickly, to solve problems, to take initiative and to take a leadership role,” Geithner told reporters in Beijing yesterday. Euro’s Decline The U.S. assessment that Europe’s debt crisis won’t drag down the global economy could be aimed at easing Chinese fears about letting the yuan rise while the European economy lags behind the U.S. and parts of Asia. U.S. officials have varied opinions about the impact of Europe’s debt crisis. Federal Reserve Governor Daniel Tarullo said May 20 that Europe’s debt crisis may pose a threat to the U.S. and world economies as trade shrinks and banks incur losses on European investments. “A deeper contraction in Europe associated with sharp financial dislocations would have the potential to stall the recovery of the entire global economy, and this scenario would have far more serious consequences for U.S. trade and economic growth,” Tarullo told to House Financial Services subcommittees. Analysts say Chinese officials may be loath to relax the yuan peg while the dollar is rising against the euro and other major currencies. Dollar Europe’s common currency fell against the dollar on May 19 to its weakest level in four years a day after Germany banned naked short sales, adding to concern the region’s leadership may not be able to contain the crisis. It rebounded on May 21 amid speculation traders who bet on its decline amid the sovereign- debt crisis had to buy back the currency as it strengthened to a one-week high. “Does it make sense to have the dollar be the strongest currency of the major ones and then encourage your own currency to be even stronger than that one?” said Donald Straszheim , director of China research at International Strategy & Investment Group. “That is not going to sell in Beijing. There’s just no way.” In an interview with Xinhua published two days ago, Geithner, 48, attributed the dollar’s recent rise to confidence in the U.S. economy around the world. Geithner has said it will be “China’s choice” on when and how to let the yuan rise against the dollar. Yuan While Senator Charles Schumer and other U.S. lawmakers have continued to call for increased pressure on the Chinese to revalue, Geithner has opted for a less combative approach. In April, he decided to delay a foreign exchange report in which the Treasury makes determinations about currency manipulation. Chinese officials are likely to press Geithner on the state of the U.S. economic recovery as well as on longstanding issues like export restrictions on advanced technology products, the official said. Geithner also will update the Chinese on the Obama administration’s efforts to get a financial regulatory package through Congress, which the official said is likely to win final approval by July 4. There will also be discussion of U.S. concerns about China’s proposals for promoting domestic economic growth, including innovation from Chinese companies, and the ramifications of developments in Europe. Clinton yesterday urged China to work more cooperatively with American companies eager for a larger share of the Chinese market. “For trade to work in any economy, it needs to be a level playing field where domestic and international companies can compete freely,” she said at Shanghai’s Pudong Airport. ‘Level Playing Field’ Geithner on May 14 expressed confidence that Europe will resolve the crisis and said the U.S. economy is strong enough to withstand any fallout. “Europe has the capacity to manage through this,” Geithner said in an interview. “And I think they will.” China is the largest foreign investor in U.S. Treasuries and also the country’s second-largest trading partner. Total U.S.-China trade in goods was $94 billion for the first three months of 2010, up 19 percent from the same period in 2009. The U.S. trade deficit with China was $52 billion in the first three months of the year, up 3 percent from the first quarter of 2009. To contact the reporter on this story: Rebecca Christie in Beijing at rchristie4@bloomberg.net ;

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European Debt Crisis Won’t Derail Global Recovery, Geithner to Tell China

May 23, 2010

By Rebecca Christie May 23 (Bloomberg) — Treasury Secretary Timothy F. Geithner will tell his Chinese counterparts that Europe’s battle with a Greece-triggered debt crisis should have only a small effect on the broader global recovery, a U.S. official told reporters in Beijing today. Geithner and Secretary of State Hillary Clinton are in China for the two-day Strategic and Economic Dialogue, a set of annual high-level talks. Geithner will then depart for London, Berlin and Frankfurt to meet with European officials and reinforce his call for coordinated efforts to fight off the crisis and rein in government spending. One-sided efforts like Germany’s ban on naked short-selling are counterproductive and unlikely to boost investor confidence, said the U.S. official, who spoke on condition of anonymity. The official also said such measures have a poor historical track record and are unlikely to be adopted on a wider scale. Heading into this week’s meetings, U.S. Treasury officials called for China to “do everything it can” to contribute to a broad-based global recovery. This includes allowing the yuan, which has been pegged at about 6.8 to the dollar, to appreciate against the U.S. currency. The U.S. assessment that Europe’s debt crisis won’t drag down the global economy could be aimed at easing Chinese fears about letting the yuan rise while the European economy lags behind the U.S. and parts of Asia. Analysts say Chinese officials may be loath to relax the yuan peg while the dollar is rising against the euro and other major currencies. Strongest Currency “Does it make sense to have the dollar be the strongest currency of the major ones and then encourage your own currency to be even stronger than that one?” said Donald Straszheim , director of China research at International Strategy & Investment Group. “That is not going to sell in Beijing. There’s just no way.” In an interview with Xinhua published yesterday, Geithner attributed the dollar’s recent rise to a lot of confidence in the U.S. economy around the world. Geithner has said it will be “China’s choice” on when and how to let the yuan rise against the dollar. While Senator Charles Schumer and other U.S. lawmakers have continued to call for increased pressure on the Chinese to revalue, Geithner has opted for a less combative approach. In April, he decided to delay a foreign exchange report in which the Treasury makes determinations about currency manipulation. U.S. Recovery Chinese officials are likely to press Geithner on the state of the U.S. economic recovery as well as on longstanding issues like export restrictions on advanced technology products, the official said. Geithner also will update the Chinese on the Obama administration’s efforts to get a financial regulatory package through Congress, which the official said is likely to win final approval by July 4. There will also be discussion of U.S. concerns about China’s proposals for promoting domestic economic growth, including innovation from Chinese companies, and the ramifications of developments in Europe. Geithner on May 14 expressed confidence that Europe will resolve the crisis and said the U.S. economy is strong enough to withstand any fallout. “Europe has the capacity to manage through this,” Geithner, 48, said in an interview. “And I think they will.” China is the largest foreign investor in U.S. Treasuries and also the country’s second-largest trading partner. Total U.S.-China trade in goods was $94 billion for the first three months of 2010, up 19 percent from the same period in 2009. The U.S. trade deficit with China was $52 billion in the first three months of the year, up 3 percent from the first quarter of 2009. To contact the reporter on this story: Rebecca Christie in Beijing at rchristie4@bloomberg.net ;

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Germany’s Share of $1 Trillion Euro-Region Rescue Approved by Parliament

May 21, 2010

By Patrick Donahue and Tony Czuczka May 21 (Bloomberg) — German lawmakers approved their country’s share of a $1 trillion euro-region bailout in a vote today, allaying market concern that they would balk at approving a second emergency aid package in as many weeks. The lower house of parliament voted 319 to 73 in favor of contributing as much as 148 billion euros ($184 billion) to indebted European states to backstop the euro; 195 lawmakers abstained. The upper house, or Bundesrat, also passed the measure, sending it on to President Horst Koehler for signature. “Every other alternative is much worse and much more dangerous, so we have to do this,” Finance Minister Wolfgang Schaeuble told the lower house, or Bundestag, in Berlin before the vote. “We’re not doing this for others, we’re doing it for ourselves and for future generations.” The vote came before European finance ministers were meeting for the fifth time in as many weeks as they struggle to forge a united front to the debt crisis triggered by Greece. Today in Brussels, the officials will discuss proposals to better coordinate national budgets and may address unilateral German limits on government bond trading. Short-Selling Ban Two weeks ago lawmakers backed loans for Greece, a decision Chancellor Angela Merkel cited for an election setback two days later in Germany’s most populous state. She has since stepped up her calls for regulation to stem Europe’s debt crisis and forbid some types of short-selling this week, unsettling markets and depressing the euro. The day the trading curbs took effect the euro sank to its lowest since 2006. The single currency has lost 13 percent against the dollar this year. The euro was up 0.25 percent to $1.2518 at 2:23 p.m. in Berlin. “We shouldn’t be too relieved,” Marco Annunziata , chief economist at UniCredit SpA, said in a telephone interview from London. “The markets have moved to other concerns. Those concerns seem to be centered on the uncoordinated, disjointed momentum toward new regulation,” sparked by the German short- selling ban. The crisis is taking a toll on Merkel’s popularity, which has declined as Germans expressed concern about the economy, according to an FG Wahlen poll for ZDF television released today. Merkel scored a 1.3 approval rating on a scale of plus 5 to minus 5, compared with 1.8 last month, in the May 18-20 survey of 1,260 potential voters. Euro-Region, IMF The 750 billion-euro support package is being assembled from 500 billion euros in contributions from states in the euro area and another 250 billion from the International Monetary Fund. European Central Bank Governing Council member Axel Weber urged German lawmakers at a parliamentary hearing on May 19 to back the rescue plan, saying investors were counting on support from Europe’s biggest nation. Rejection would trigger “dramatic” market developments , Weber said. The opposition Social Democrats abstained after failing to secure a government commitment to pursue a financial transaction tax in return for their backing. The legislation cleared the lower house by only seven votes after Merkel lost the support of the Green Party, which supported the Greek measure two weeks ago. They said Merkel hadn’t been transparent about the package. President Koehler will receive the legislation immediately on his return from a trip to China late today, according to a presidential spokesman in Berlin. Koehler made a surprise two- hour stop in Afghanistan to visit German troops today on his way home, the spokesman said. The timing of any signature will depend on his assessment of the bill. Upper House While Merkel lost a majority in Berlin’s upper house in the May 9 state election in North Rhine-Westphalia , the changes don’t take effect until a new regional government is formed. Until then, she controls the upper house, where Germany’s 16 states are represented. European Union finance chiefs are considering proposals for tougher and speedier penalties for violators of budget rules and stricter monitoring of high-debt countries. Merkel said on May 19 that Germany will push for faster budget cuts and a process for orderly insolvency of euro-area states at today’s meeting. Her isolation on the trading limits this week prompted renewed commitments to seek consensus on economic policies and financial regulation. Merkel issued a statement late yesterday that she and French President Nicolas Sarkozy agreed in a phone conversation to work “closely together.” They said they would prepare jointly for a June 17 European Union summit and for the subsequent Group of 20 gathering in Canada. Merkel this week warned lawmakers to consider the gravity of the fallout of the single currency. “The euro, which along with the common market is the foundation for growth and prosperity for Germany as well, is at risk,” she said, warning of “incalculable” global consequences if lawmakers fail to back the measure. To contact the reporter on this story: Patrick Donahue in Berlin at pdonahue1@bloomberg.net ; Tony Czuczka in Berlin at aczuczka@bloomberg.net

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Germany’s Lower House of Parliament Approves $1 Trillion Euro Rescue Bill

May 21, 2010

By Patrick Donahue and Tony Czuczka May 21 (Bloomberg) — German lawmakers approved their country’s share of a $1 trillion euro-region bailout in a vote today, allaying market concern that they would balk at approving a second emergency loan package in as many weeks. The lower house of parliament voted 319 to 73 in favor of lending as much as 148 billion euros ($184 billion) to indebted European states to backstop the euro. The upper house, or Bundesrat, is set to pass the measure later today before the German president signs it into law. “Every other alternative is much worse and much more dangerous, so we have to do this,” Finance Minister Wolfgang Schaeuble told lawmakers in the lower house, or Bundestag, in Berlin before the vote. “We’re not doing this for others, we’re doing it for ourselves and for future generations.” The vote came hours before European finance ministers are scheduled to meet for the fifth time in as many weeks as they struggle to forge a united front to the debt crisis triggered by Greece. Today in Brussels, the officials will discuss proposals to better coordinate national budgets and may address unilateral German limits on government bond trading. The legislative action comes two weeks after lawmakers backed loans for Greece, a decision Chancellor Angela Merkel cited for an election setback two days later in Germany’s most populous state. She has since stepped up her calls for regulation to stem Europe’s debt crisis and forbid some types of short-selling this week, unsettling markets and depressing the euro. The day the trading curbs took effect the euro sank to its lowest since 2006. The single currency has lost 13 percent against the dollar this year. The euro was up 0.1 percent to $1.2497 at 12:40 p.m. in Berlin. ‘Greater Good’ The ban was “possibly a political decision aimed at allowing Merkel to win support ahead of Friday’s crucial German parliamentary vote,” Jim Reid , a strategist at Deutsche Bank AG in London, said in a note yesterday. “If such a move allows the approval of the package then this is one of those regulatory decisions that may be for the greater good without anyone actually realizing.” European Central Bank Governing Council member Axel Weber urged German lawmakers at a parliamentary hearing on May 19 to back the rescue plan, saying investors were counting on support from Europe’s biggest nation. Rejection would trigger “dramatic” market developments , Weber said. The opposition Social Democratic Party abstained after failing to secure a government commitment to pursue a financial transaction tax in return for its backing, floor leader Frank- Walter Steinmeier said. The Social Democrats abstained on the Greece vote as well. Upper House While Merkel lost a majority in Berlin’s upper house in the May 9 state election in North Rhine-Westphalia , the changes don’t take effect until a new regional government is formed. Until then, she controls the upper house, where Germany’s 16 states are represented. After that, European Union finance chiefs will consider proposals for tougher and speedier penalties for violators of budget rules and stricter monitoring of high-debt countries. Merkel said on May 19 that Germany will push for faster budget cuts and a process for orderly insolvency of euro-area states at the May 21 meeting. Her isolation on the trading limits this week prompted renewed commitments to seek consensus on economic policies and financial regulation. Merkel issued a statement late yesterday that she and French President Nicolas Sarkozy agreed in a phone conversation to work “closely together.” They said they would prepare jointly for a June 17 European Union summit and for the subsequent Group of 20 gathering in Canada. Merkel this week warned lawmakers to consider the gravity of the fallout of the single currency. “The euro, which along with the common market is the foundation for growth and prosperity for Germany as well, is at risk,” she said, warning of “incalculable” global consequences if lawmakers fail to back the measure. To contact the reporter on this story: Patrick Donahue in Berlin at pdonahue1@bloomberg.net ; Tony Czuczka in Berlin at aczuczka@bloomberg.net

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Geithner to Visit England, Germany Next Week to Discuss European Crisis

May 20, 2010

By Christopher Wellisz May 20 (Bloomberg) — Treasury Secretary Timothy F. Geithner will visit Germany and the U.K. next week to discuss the European debt crisis, the Treasury Department said today in a statement in Washington. Geithner “will meet with European officials to discuss the economic situation in the region and the measures being taken to restore global confidence and financial stability and to promote continued recovery,” the Treasury said. Geithner’s trip to Europe will follow his visit to Beijing for the U.S.-China Strategic and Economic Dialogue, the Treasury said. He will meet with U.K. Chancellor of the Exchequer George Osborne in London on May 26. The same day, Geithner will travel to Frankfurt to meet with European Central Bank President Jean-Claude Trichet . The next day, he will meet with German Finance Minister Wolfgang Schaeuble in Berlin, before returning to Washington. To contact the reporter on this story: Chris Wellisz in Washington at cwellisz@bloomberg.net

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Euro Reverses Loss Against Dollar on Swiss, ECB Intervention Speculation

May 20, 2010

By Ben Levisohn and Mary Childs (Corrects direction of franc in lede.) May 20 (Bloomberg) — The euro gained against the dollar, erasing an earlier loss, as speculation the Swiss National Bank sought to weaken the franc drove traders to theorize that the European Central Bank may do the same for the shared currency. The euro earlier traded near a four-year low against the greenback and slid to the lowest level since November 2001 against the yen as the euro region’s sovereign debt crisis spurred investors to seek refuge in the Japanese currency. The yen rose against all its most-traded counterparts as the Standard & Poor’s 500 Index extended its plunge from last month’s high by as much as 12 percent and crude oil fell to its lowest level since July. “There have been rumors of intervention by central banks,” said David Rolley , who helps oversee $106 billion as co-head of global fixed-income in Boston for Loomis Sayles & Co. “Most of the movement you’ve seen has been weaker commodities, weaker emerging market currencies and weaker commodity currencies, all correlated with the belief that the recovery may not be as strong as previously expected.” The euro rose 1.2 percent to $1.2565 after earlier falling as much as 1 percent to $1.2297. It touched $1.2144 yesterday, the lowest level since April 17, 2006. The shared currency dropped as much as 3.8 percent to 109.51 yen, the lowest level since November 2001, before trading at 113.20 yen at 3:02 p.m. in New York. The Swiss franc weakened against the euro, falling 1.2 percent to 1.4449. It earlier strengthened as much as 1 percent. The SNB’s press office couldn’t immediately be reached for comment. ‘Countered Pressure’ “Judging by the price action, it looks like the SNB intervened in the market,” said Jessica Hoversen, a Chicago- based analyst at the futures broker MF Global Holdings Ltd. “There is a lot of chatter that the ECB may be going into the market and people are becoming more sensitive to other central banks intervening.” SNB Vice Chairman Thomas Jordan said today that the central bank has “countered” pressure on the franc during the turmoil in the euro region. “During the financial crisis, there has been much pressure on the Swiss franc which appreciated,” Jordan said in Wettingen, Switzerland, today. “The SNB has countered that pressure so that until now we haven’t seen an excessive appreciation of the Swiss franc.” Any government intervention in the foreign-exchange market to support the euro after its recent plunge would “buy policymakers time but little else,” according to Standard Bank Plc analyst Steven Barrow . Such a move is “certainly possible” if the euro’s drop continues, Barrow, head of Group of 10 currency research in London, wrote in an e-mailed note. Intervention ‘Worthless’ “Euro zone officials believe passionately that intervention without the aid of other G7 nations, especially the U.S., is worthless,” Barrow said. “We believe that the U.S. would respond positively to any Eurogroup/ECB request for help.” The euro rallied as high as $1.2598 after breaking through stop orders near $1.2460, according to John McCarthy , director of currency trading at ING Groep NV in New York. “A lot of people who had been short for quite a while put substantial stops there and the market took those out,” McCarthy said. “The market is very nervous and people capitulate pretty quickly so I have a feeling that this was pretty much all stop driven.” A short is a bet the price of an asset will fall. Hedge funds and other large speculators on May 11 increased bets on a decline in the euro to 113,890 contracts more than those anticipating a gain, the most ever, according to Commodity Futures Trading Commission data. Crude Oil Brazil’s real dropped as much as 6.3 percent to 46.9845 yen, near the lowest this year, while the South African rand touched 11.0259 yen, the weakest in six months, on speculation that the drop in oil and commodities will encourage investors to reduce carry trades, in which they buy higher-yielding assets with amounts borrowed in nations with low borrowing costs. Japan’s target lending rate of 0.1 percent has made the yen popular for funding such transactions. Crude oil for June delivery fell as much as 8.1 percent to $64.24 the New York Mercantile Exchange, the lowest level since July 30. The S&P 500 500 declined as much as 3.8 percent. ‘Economic Convergence’ The euro slid earlier as a lack of confidence in European leaders’ ability to contain the region’s debt crisis drove investors to the Japanese currency as a refuge from risk. France Finance Minister Christine Lagarde, speaking in an interview with RTL radio, said that the nations that share the euro need greater coordination. “What we need is more economic convergence,” Lagarde said. “We can’t have models that counter each other. We must find the route to growth.” Lagarde also said that the euro is “absolutely not in danger” while German Chancellor Angela Merkel said her government will take steps to save the currency. “We’re ready to take necessary action,” Merkel said in a speech today in Berlin. Merkel said she needs “honest” advice as her government presses for tougher global regulation. The German leader, speaking at a Berlin conference on financial rules one day after enacting a unilateral ban on some types of naked short-selling, said that she has to balance voter concerns with investors’ “understandable” desire for profit. While she said she’s committed to holding the 16-nation euro area together, politicians are “no financial experts.” “It doesn’t do the euro any favors when you have discombobulated responses from policy makers,” said Brian Kim , a currency strategist at UBS AG in Stamford, Connecticut. “Politicians are not financial experts but they need to understand what they do has a great impact on the markets.” To contact the reporters on this story: Ben Levisohn in New York at blevisohn@bloomberg.net ; Mary Childs in New York at mchilds5@bloomberg.net .

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Euro Reverses Loss Against Dollar on Swiss, ECB Intervention Speculation

May 20, 2010

By Ben Levisohn and Mary Childs (Corrects direction of franc in lede.) May 20 (Bloomberg) — The euro gained against the dollar, erasing an earlier loss, as speculation the Swiss National Bank sought to weaken the franc drove traders to theorize that the European Central Bank may do the same for the shared currency. The euro earlier traded near a four-year low against the greenback and slid to the lowest level since November 2001 against the yen as the euro region’s sovereign debt crisis spurred investors to seek refuge in the Japanese currency. The yen rose against all its most-traded counterparts as the Standard & Poor’s 500 Index extended its plunge from last month’s high by as much as 12 percent and crude oil fell to its lowest level since July. “There have been rumors of intervention by central banks,” said David Rolley , who helps oversee $106 billion as co-head of global fixed-income in Boston for Loomis Sayles & Co. “Most of the movement you’ve seen has been weaker commodities, weaker emerging market currencies and weaker commodity currencies, all correlated with the belief that the recovery may not be as strong as previously expected.” The euro rose 1.2 percent to $1.2565 after earlier falling as much as 1 percent to $1.2297. It touched $1.2144 yesterday, the lowest level since April 17, 2006. The shared currency dropped as much as 3.8 percent to 109.51 yen, the lowest level since November 2001, before trading at 113.20 yen at 3:02 p.m. in New York. The Swiss franc weakened against the euro, falling 1.2 percent to 1.4449. It earlier strengthened as much as 1 percent. The SNB’s press office couldn’t immediately be reached for comment. ‘Countered Pressure’ “Judging by the price action, it looks like the SNB intervened in the market,” said Jessica Hoversen, a Chicago- based analyst at the futures broker MF Global Holdings Ltd. “There is a lot of chatter that the ECB may be going into the market and people are becoming more sensitive to other central banks intervening.” SNB Vice Chairman Thomas Jordan said today that the central bank has “countered” pressure on the franc during the turmoil in the euro region. “During the financial crisis, there has been much pressure on the Swiss franc which appreciated,” Jordan said in Wettingen, Switzerland, today. “The SNB has countered that pressure so that until now we haven’t seen an excessive appreciation of the Swiss franc.” Any government intervention in the foreign-exchange market to support the euro after its recent plunge would “buy policymakers time but little else,” according to Standard Bank Plc analyst Steven Barrow . Such a move is “certainly possible” if the euro’s drop continues, Barrow, head of Group of 10 currency research in London, wrote in an e-mailed note. Intervention ‘Worthless’ “Euro zone officials believe passionately that intervention without the aid of other G7 nations, especially the U.S., is worthless,” Barrow said. “We believe that the U.S. would respond positively to any Eurogroup/ECB request for help.” The euro rallied as high as $1.2598 after breaking through stop orders near $1.2460, according to John McCarthy , director of currency trading at ING Groep NV in New York. “A lot of people who had been short for quite a while put substantial stops there and the market took those out,” McCarthy said. “The market is very nervous and people capitulate pretty quickly so I have a feeling that this was pretty much all stop driven.” A short is a bet the price of an asset will fall. Hedge funds and other large speculators on May 11 increased bets on a decline in the euro to 113,890 contracts more than those anticipating a gain, the most ever, according to Commodity Futures Trading Commission data. Crude Oil Brazil’s real dropped as much as 6.3 percent to 46.9845 yen, near the lowest this year, while the South African rand touched 11.0259 yen, the weakest in six months, on speculation that the drop in oil and commodities will encourage investors to reduce carry trades, in which they buy higher-yielding assets with amounts borrowed in nations with low borrowing costs. Japan’s target lending rate of 0.1 percent has made the yen popular for funding such transactions. Crude oil for June delivery fell as much as 8.1 percent to $64.24 the New York Mercantile Exchange, the lowest level since July 30. The S&P 500 500 declined as much as 3.8 percent. ‘Economic Convergence’ The euro slid earlier as a lack of confidence in European leaders’ ability to contain the region’s debt crisis drove investors to the Japanese currency as a refuge from risk. France Finance Minister Christine Lagarde, speaking in an interview with RTL radio, said that the nations that share the euro need greater coordination. “What we need is more economic convergence,” Lagarde said. “We can’t have models that counter each other. We must find the route to growth.” Lagarde also said that the euro is “absolutely not in danger” while German Chancellor Angela Merkel said her government will take steps to save the currency. “We’re ready to take necessary action,” Merkel said in a speech today in Berlin. Merkel said she needs “honest” advice as her government presses for tougher global regulation. The German leader, speaking at a Berlin conference on financial rules one day after enacting a unilateral ban on some types of naked short-selling, said that she has to balance voter concerns with investors’ “understandable” desire for profit. While she said she’s committed to holding the 16-nation euro area together, politicians are “no financial experts.” “It doesn’t do the euro any favors when you have discombobulated responses from policy makers,” said Brian Kim , a currency strategist at UBS AG in Stamford, Connecticut. “Politicians are not financial experts but they need to understand what they do has a great impact on the markets.” To contact the reporters on this story: Ben Levisohn in New York at blevisohn@bloomberg.net ; Mary Childs in New York at mchilds5@bloomberg.net .

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Europe Crisis in Rescue for Greece Bringing Euro to a New Normal of $1.10

May 20, 2010

By Tony Czuczka and Anchalee Worrachate May 20 (Bloomberg) — Europe’s debt crisis will depress the euro still further after it declined to the lowest level since 2006, according to UBS AG and BNP Paribas SA. For years to come. For the 16 countries using the currency, that isn’t all bad. A drop over three to four years would benefit European exporters in countries such as Germany, where foreign sales help offset reductions in government spending and restraint by consumers concerned about inflation. U.S. exports, which President Barack Obama says he wants to double within five years, may become less competitive. “The euro depreciation is very good news for the region” because the rest of the world economy is expanding, said Charles Wyplosz , head of the International Center for Monetary and Banking Studies in Geneva. “This is going to bring a welcome boost that may save the euro zone from outright recession.” While Wyplosz puts the euro’s long-term “fair value” at between about $1.10 and $1.20, currency movements “tend to overshoot,” he said. “My bet is that the euro still has ample room to go down before it goes up.” Wyplosz’s view is shared by strategists at UBS, Danske Bank A/S, Royal Bank of Scotland Group Plc and Bank of America Merrill Lynch. They predict the euro will trade at between $1.15 and $1.26 by the end of the year, with BNP Paribas saying it may fall below parity with the dollar in the first quarter of 2011, according to 43 forecasts compiled by Bloomberg. Greek Contagion The euro fell to the lowest against the dollar in more than four years on May 17 and has lost 14 percent this year as the fiscal crisis spreading from Greece undermined confidence in the currency. Purchasing power parity, a measure of the relative cost of goods, indicates the euro remains 8.2 percent overvalued against the dollar, based on data compiled by Bloomberg. Even if Greece is unable to meet debt obligations and is forced to reschedule interest and maturity payments, it will remain within the European Monetary Union and retain the euro, said bankers in Athens requesting anonymity because they are handling the government’s finances. The currency’s value is still higher than the weekly average rate of $1.1833 since its introduction in 1999. The euro’s all-time low was $0.8272 in October 2000; the peak was $1.6038 on July 15, 2008. The euro may stick at lower levels for “three, four years” as Europe grapples with its fiscal crisis, Hans-Guenter Redeker , global head of currency strategy at BNP Paribas, said in a phone interview. ECB Strategy The euro may fall over the next three months to $1.16 as the sovereign debt crisis forces the European Central Bank to keep borrowing costs low, Credit Suisse Group AG strategists wrote in a note to clients on May 18. The decline in the euro may hurt demand for the region’s sovereign bonds at the time when governments are issuing a record amount of debt. Standard Life Investments said on May 18 the fund has cut its holdings of European government securities, including German bonds, citing fiscal challenges and the tumbling euro. “Countries in the euro region are bringing forward fiscal tightening and that reduces a chance of a swift and strong economic recovery,” said Richard Batty , a global investment strategist at the Edinburgh-based fund, which has $175 billion of assets under management. “That hurts the euro. By buying euro-denominated assets, you are simply buying into the idea that the euro will remain stable.” Three Concerns The $1 trillion lending backstop for indebted euro nations agreed to by European leaders on May 10 also won’t halt the slide because investors remain concerned about government debt, the growth outlook for Europe’s weaker economies and trade imbalances within the euro area, said Mansoor Mohi-uddin , chief currency strategist at UBS in Singapore. The Frankfurt-based ECB probably will refrain from raising interest rates to help offset declining government spending in the region, Mohi-uddin said. “The combination of tightened fiscal policy and looser monetary policy historically leads to a weaker currency,” he said. Even so, pressure on the ECB to raise rates may grow as the euro’s decline feeds inflation by making imports more expensive. European inflation accelerated to a 16-month high in April, the European Union’s statistics office said May 18. For European exporters, the euro’s biggest crisis since the monetary union’s debut is an opportunity after China overtook Germany as the biggest exporter of goods last year. Big Headache Bayerische Motoren Werke AG , the world’s largest maker of luxury vehicles, gets almost a quarter of its revenue in North America. Shares in Munich-based BMW have gained 23 percent this year. Paris and Munich-based European Aeronautics, Defense and Space Co., the maker of Airbus jets, has called the euro’s rate to the dollar one of the company’s “biggest headaches.” Munich-based Siemens AG , Europe’s largest engineering company, is also looking to benefit as it competes in 190 countries, according to Chief Financial Officer Joe Kaeser . “In general, a stronger greenback is good,” he said in a May 18 conference call. “The super-competitive export machine of Germany is going to be compensated with a very, very weak exchange rate,” said Redeker. “You have a plus-plus situation on the profitability, especially for Siemens or the car industry. They will find a very profitable situation.” Exports account for almost half of the German economy, making up 47 percent of gross domestic product in 2008, the latest year for which full data are available. Not Good The biggest losers will be U.S. exporters that face a rising dollar, Barry Eichengreen , an economics professor at the University of California, Berkeley, said in a phone interview. “A weaker European economy is not good for us.” Exports helped lead the U.S. economic recovery as the dollar declined against other major currencies last year, contributing 42 percent to the 5.6 percent growth rate in the fourth quarter of 2009, according to Commerce Department data. Since February, U.S. imports have been rising faster than exports. While a cheaper euro may lure tourists to Europe, further boosting the continent, they may think twice about going to Greece, said Alan Ruskin , head of foreign-exchange strategy at RBS Securities in Stamford, Connecticut. He wrote in a note on May 13 that the euro could “easily head through parity” with the U.S. dollar. Molotov Cocktails “A weaker euro may help tourism in Greece. But on the other hand, a lot of people will be looking at the news and seeing Molotov cocktails flying through the air,” he said in a telephone interview. “That significant distraction could offset the benefit of a weaker currency.” Concern by investors that the fiscal crisis will drag on and deficit-cutting in Europe’s biggest economies will undermine growth is keeping pressure on the euro. Another financial rescue package may be “inevitable,” former Bank of Bank of England official David Blanchflower said in a Bloomberg Television interview on May 18. Bringing down European budget deficits will take years. Greece’s government aims to lower the budget deficit from 13.6 percent of gross domestic product last year, more than four times the level allowed by the euro’s founding treaty. Spain, seeking to ward off Greek contagion, on May 12 unveiled the biggest budget cuts in at least 30 years to reduce the deficit to 6 percent of GDP in 2011 from 11.2 percent last year. Germany, where Chancellor Angela Merkel is pressing other European countries to enforce fiscal discipline, plans to meet the deficit target of 3 percent by 2013 under a constitutional amendment that dictates cuts in government borrowing. European policy makers are helping depress the euro with their strategy in the debt crisis, said Stephen Jen , a managing director at BlueGold Capital Management LLP in London. “It’s hard to say what the sufficient conditions are for me to be bullish on the euro, but a necessary condition is that Greece and Portugal reschedule their debt,” he said. “The longer the Eurocrats resist this inevitable outcome, the less credible and consistent they appear.” To contact the reporters on this story: Tony Czuczka in Berlin at aczuczka@bloomberg.net . Anchalee Worrachate in London at aworrachate@bloomberg.net

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IMF’s Lipsky Says Euro Near Equilibrium as Depreciation Boosts EU Exports

May 19, 2010

By Toru Fujioka and Keiko Ujikane May 19 (Bloomberg) — The euro’s current level is close to an “equilibrium” value and its decline to the weakest in four years against the dollar may help Europe’s exports, the International Monetary Fund’s No. 2 official said. “The current level of the euro does not appear to pose problems,” IMF First Deputy Director John Lipsky said in an interview in Tokyo today. “The euro is rather close to what we would consider equilibrium value after an extended period at which it traded above that value.” Lipsky’s comments indicate little threat to the euro- region’s economy from the currency’s 18 percent slump in the past six months. Spain’s Deputy Finance Minister Jose Manuel Campa said today that the decline will “probably” have a positive impact on his nation’s economy, while causing energy costs to increase. “It’s perhaps easy to forget the euro, when it was created, debuted at a value of $1.17,” Lipsky said. The currency is “not so far away from where it started,” he added. The currency shared by 16 European Union countries has tumbled in five of the past six weeks on concern the region is failing to contain a debt crisis that began in Greece. It traded at $1.2205 at 12:42 p.m. in London, down 24 percent from the record high it reached in July 2008. The EU set the initial exchange rate for the euro at $1.16675. Goldman Sachs & Co. Chief Economist Jim O’Neill said today that the euro’s slide has erased the currency’s “overvaluation.” ‘Incalculable’ The currency fell today after Germany banned speculators from some bets against government bonds and banks. The euro’s existence is at risk and the EU may be facing its greatest challenge with “incalculable” consequences if leaders fail to act, German Chancellor Angela Merkel told lawmakers in Berlin today. Lipsky declined to comment directly on the ban by Germany’s financial regulator, while saying that “placing barriers to market participation should be done with great caution.” The IMF official, a former chief economist at JPMorgan Chase & Co., also said that the European Central Bank’s decision last week to start buying government bonds was “highly timely” and that the purchases should be temporary. Yields for Spanish, Portuguese and Greek bonds, which surged to euro-era highs this month, have stabilized since the ECB started purchasing debt last week. The extra yield that investors demand to hold Portuguese debt over bunds, which surged to 354 basis points on May 7, was at 178 basis points today. As of May 14, the ECB’s purchases totalled 16.5 billion euros. “It strikes me that the ECB’s action was highly timely and important in helping to stabilize and calm markets at a time of great uncertainty,” said Lipsky. “At the same time, we should take the ECB at its word that it intends for these interventions to be temporary.” To contact the reporters on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net ; Keiko Ujikane in Tokyo at kujikane@bloomberg.net

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Merkel’s `Moralistic Hysteria’ Ban Unsettles Trading in Debt, Currencies

May 19, 2010

By Pierre Paulden May 19 (Bloomberg) — German Chancellor Angela Merkel ’s unilateral attempt to rein in speculators and build support for a $1 trillion bailout is backfiring in debt and currency markets. “It’s moralistic hysteria,” Charles Dumas , research director at Lombard Street Research Ltd. in London, said in an interview on Bloomberg Radio. “If she starts a heavy push to try and broaden this thing out to become a European rule it could cause a lot of trouble.” Volatility measures rose as German regulator BaFin, seeking to calm Europe’s financial markets, banned traders within the country from buying default protection on government bonds they don’t own. The move fails to address deficits and surprised markets, suggesting more “vulnerability in the eurozone than investors had anticipated,” said Christopher Garman , chief executive officer of Garman Research LLC in Orinda, California. The JPMorgan G7 Volatility Index, which measures the perception of risk in the currency market, rose for a fourth consecutive day and traded as high as 14.98 percent. It rose to 15.93 percent on May 6, the highest level since June 2009. Merrill Lynch’s MOVE Index , an options-based gauge of expectations for price swings in Treasuries, rose to 97.2 yesterday from this year’s low of 74.10 on March 17. The reading means traders expect a yield range of 92.2 basis points on an annualized basis in the coming month. A Europe-wide ban following Germany’s is “doubtful,” Eddy Wymeersch , Europe’s top market regulator, said in a telephone interview today. European Union Financial Services Commissioner Michel Barnier said the rules would have been “more efficient” if they were coordinated with the EU. ‘Counterproductive’ to Euro “This uncoordinated effort is counterproductive to the long-term survival of the euro,” Garman said. “While it may temporarily alleviate what they see as the animal imagery of locus and wolfpack, or however else they describe speculators, it adds to a climate that’s becoming more uncertain by the day.” Merkel told lawmakers in Berlin today that her country would act alone if needed, saying the national ban will last until a European solution is found. She said the ban on naked short-selling is part of her proposals to gain control over “destructive” financial markets. The euro is at risk and Europe may be facing its greatest challenge since the founding of the European Union, with “incalculable” consequences if leaders fail to act, Merkel said. The ban failed to reduce the rate banks pay for three-month loans in dollars, which has risen to the most in more than nine months. Libor Rises The London interbank offered rate, or Libor, rose for a sixth straight day, reaching 0.477 percent today, from 0.465 percent, according to data from the British Bankers’ Association. That’s the highest since July 31. The dollar Libor-OIS spread, a gauge of banks’ reluctance to lend, rose to 25 basis points from 24 basis points, the highest since Aug. 13. The spread, which compares three-month dollar Libor and the overnight indexed swap rate, ballooned to 364 basis points, or 3.64 percentage points, after the 2008 collapse of Lehman Brothers Holdings Inc. The Markit iTraxx Crossover index of swaps on 50 European companies surged 44.2 basis to a mid-price of 576.2, according to Markit Group Ltd. The Markit CDX North America Investment Grade Index Series 14 declined 3.5 basis points to a mid-price of 117.2 as of 12:54 p.m. in New York, after rising 12.2 basis points yesterday, Markit data show. The indexes typically rise as investor confidence deteriorates and fall as it improves. German Ban Credit-default swaps are derivatives that pay the buyer face value if a borrower — a country or a company — defaults. In exchange, the swap seller gets the underlying securities or the cash equivalent. A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year. To be covered by the ban, bonds must have been admitted on a German exchange for trading on the regulated market, BaFin spokeswoman Anja Engelland said in an interview today. Short selling of these securities is outlawed regardless where it is done, she said. Credit default swaps transactions are only covered if they are done within Germany, she said. ‘Act Together’ Short sellers borrow assets and sell them, betting the price will fall and they’ll be able to buy them later, return them to the lender and pocket the difference. In naked short- selling, traders never borrow the assets so betting is unlimited. France, The Netherlands, Spain and Finland have no plans to implement similar measures. “We haven’t envisioned doing it,” French Finance Minister Christine Lagarde told reporters in Paris. “It is important that member states act together and that we design a European regime to avoid regulatory arbitrage and fragmentation,” the EU’s Barnier said in an e-mailed statement. European Commission President Jose Manuel Barroso said “we agree on the need to address the issue of abusive short selling.” The ban doesn’t cover branches of German institutions outside of Germany or in the U.K., said U.K. Financial Services Authority spokesman Joseph Eyre . The FSA will assist BaFin, where appropriate, he said. “It won’t stop people sitting in Zurich or New York from shorting so it won’t make a row of a beans difference to the ultimate outcome,” said Lombard’s Dumas. “It will make markets a lot less efficient and adjustment that much more painful.” To contact the reporter on this story: Pierre Paulden in New York at ppaulden@bloomberg.net

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Stocks, Commodities Slide on German Short-Sale Restrictions; Euro Rebounds

May 19, 2010

By Michael P. Regan and David Merritt May 19 (Bloomberg) — Stocks and commodities slid and Treasury 10-year note yields neared the lowest level of the year after Germany banned some bearish bets against government bonds and banks. The euro rose from a four-year low on speculation European leaders will take steps to support the currency. The MSCI World Index of 23 developed nations’ stocks slumped 1.9 percent at 12:05 p.m. in New York for a fifth- straight decline, its longest losing streak since January. The Standard & Poor’s 500 Index fell 1.2 percent and the S&P GSCI Index of 24 commodities tumbled 2 percent, both below their lowest closing levels since February. The euro rallied 0.9 percent to $1.2311 after touching the lowest since April 2006, helping to send gold down 2.8 percent. The 10-year Treasury yield lost one basis point to 3.33 percent. The euro is at risk and the European Union may be facing its greatest challenge with “incalculable” consequences if leaders fail to act, German Chancellor Angela Merkel told lawmakers in Berlin today. U.S. equities also tumbled after the Mortgage Bankers Association said a record share of mortgages were in foreclosure in the first quarter. “Investors have to be aware that politicians will go towards more regulation in the coming months,” said Markus Steinbeis , head of equity portfolio management at the Unterfoehring, Germany-based unit of Pioneer Investments, which oversees about $221 billion globally. “Policy makers are going the easiest way and are blaming hedge funds for the crisis.” Germany will act alone if necessary in controlling “destructive” financial markets, Merkel said, a day after the BaFin regulator banned naked short sales –speculating against companies investors don’t own — for 10 banks and insurers, as well as naked credit-default swaps on euro-area government debt. German Banks The Stoxx Europe 600 Index tumbled 3 percent as all 19 industry groups fell at least 1.4 percent. Basic resources stocks led the declines, with BHP Billiton Ltd., the world’s biggest mining company, and Rio Tinto Group, the third largest, slumping at least 5.4 percent in London. Deutsche Bank AG lost 2.9 percent in Frankfurt while Banco Santander SA, Spain’s largest lender, retreated 2.6 percent in Madrid. ICAP Plc, the world’s biggest broker of transactions between banks, slipped 4.2 percent after saying profit declined. To contact the reporters on this story: David Merritt in London on dmerritt1@bloomberg.net ; Rita Nazareth in New York at rnazareth@bloomberg.net .

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Merkel Pushes Extra EU Rules for Markets, Seeks to Widen Short-Selling Ban

May 19, 2010

By Tony Czuczka May 19 (Bloomberg) — German Chancellor Angela Merkel laid out proposals to gain control over “destructive” financial markets, as her government seeks to extend a ban on naked short- selling across Europe. Merkel, opening a parliamentary debate on Germany’s contribution to a $1 trillion bailout to backstop the euro, said faster budget cuts, tougher penalties for countries that flout the rules and the orderly insolvency of euro-region states are among the measures Germany will put to European Union partners on May 21. “The lack of rules and limits can make behavior in financial markets driven purely by the profit motive destructive and lead to an existential threat to financial stability in Europe and even the world,” Merkel told lawmakers in Berlin today. “The market alone won’t correct these mistakes.” Merkel’s coalition is seeking to build momentum on market regulation amid public opposition to Germany’s share of the Greek and euro-region bailouts. Germany banned naked short- selling and speculation on European government bonds with credit-default swaps today in an effort to calm financial markets, sparking investor anxiety about increasing regulation. The euro reached the weakest level in more than four years, falling as much as 0.5 percent to $1.2144. Merkel said Germany will lobby governments to introduce a tax on financial markets, and for ratings companies to come under European supervision so governments regain “primacy” over markets. Germany will act alone where necessary, she said, citing the short-selling ban by financial regulator BaFin. “All of this will stay in effect until another solution has been found at the European level,” she said. The euro is at risk and Europe may be facing its greatest challenge since the founding of the European Union, with “incalculable” consequences if leaders fail to act, Merkel said. To contact the reporters on this story: Tony Czuczka in Berlin at aczuczka@bloomberg.net .

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Google Faces German May 26 Deadline on Street View Data on Privacy Concern

May 18, 2010

By Kristen Schweizer and Claudia Rach May 18 (Bloomberg) — Google Inc. , the owner of the world’s largest search engine, was asked by Germany to provide details by May 26 on data it erroneously gathered for the Street View mapping service, deepening its European woes. “We need to see the software used to understand what was really saved,” Johannes Caspar, the data-protection commissioner of Hamburg, said in an interview. German regulators are investigating how cars Google employed to drive around taking pictures for Street View ended up with private data from Wi-Fi networks that weren’t password- protected. Google said yesterday it deleted data mistakenly gathered from Wi-Fi networks in Ireland and was reaching out to do the same in other countries. The Mountain View, California-based company is increasingly colliding with Europe’s data regulators who say it is neglecting privacy as it introduces features such as Google Buzz and Street View. Google, which has 79 percent of the search-engine market in Europe, will likely face further scrutiny and restrictions on the continent. “I would expect market regulators to scrutinize Google more the bigger it gets and I think Google could put up a good fight,” said Alexander Wisch , a media analyst at Standard & Poor’s Equity Research in London. Officials from 30 European countries last week said they want Google to further improve blurring techniques used to disguise images in Street View and consider manually tweaking images where faces or license plates can be recognized. A Google spokeswoman based in London said the company’s priority is to delete data mistakenly collected in “the quickest and safest way.” ‘Not Acceptable’ “It is not acceptable that a company operating in the EU does not respect EU rules,” European Union Justice Commissioner Viviane Reding said in an e-mail to Bloomberg News. Reding told Google Chief Executive Larry Page in a meeting last June that “Google’s activities in the different EU member states related to Street View are subject to the control of the national data protection authorities.” Concern about Google’s data-collection is among many run- ins the company has had with authorities in Europe. In February, three Google employees were sentenced to six- month terms by an Italian court, which found them guilty of privacy violations. The case stemmed from a video clip that was uploaded to Google Video in 2006, which showed a group of school students bullying an autistic classmate. A Paris court in December found Google’s book-scanning project violated some publishers’ and authors’ copyrights. German Troubles Germany’s Caspar said he plans more meetings with Google this week, including talks about a tool on Street View that would allow users to reject pictures of their property. Caspar is leading the probe because Google’s country headquarters are in Hamburg. In a separate e-mailed statement today, he said, “The people responsible at Google have to use this case as an opportunity to once again adjust company policy toward a more transparent management of data protection.” He also asked that Google not entirely delete all the information it has inadvertently collected since that will make any legal assessment difficult. “The data should be immediately removed from the operating business and only be used for clarification,” he said. Other Conflicts In the U.S., Google Buzz, a service introduced in February that lets people share photos and comments, created an outcry after it pulled users’ contacts from Google Gmail accounts automatically and displayed them to others. Google is being sued in a California court over the service, after a letter sent to federal antitrust authorities in March by 10 members of Congress. “I tend to feel some of these things are teething problems, but still Google could end up being restricted over some of the things they do,” said Sam Hart , a media analyst at Charles Stanley in London. To contact the reporter on this story: Kristen Schweizer in London at kschweizer1@bloomberg.net . Claudia Rach in Berlin at crach1@bloomberg.net

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Germany Sets Deadline for Google to Show Street View Software, Wi-Fi Data

May 18, 2010

By Kristen Schweizer and Claudia Rach May 18 (Bloomberg) — Google Inc. , the owner of the world’s largest search engine, was asked by Germany to provide details by May 26 on data it erroneously gathered for the Street View mapping service, deepening its European woes. “We need to see the software used to understand what was really saved,” Johannes Caspar, the data-protection commissioner of Hamburg, said in an interview. German regulators are investigating how cars Google employed to drive around taking pictures for Street View ended up with private data from Wi-Fi networks that weren’t password- protected. Google said yesterday it deleted data mistakenly gathered from Wi-Fi networks in Ireland and was reaching out to do the same in other countries. The Mountain View, California-based company is increasingly colliding with Europe’s data regulators who say it is neglecting privacy as it introduces features such as Google Buzz and Street View. Google, which has 79 percent of the search-engine market in Europe, will likely face further scrutiny and restrictions on the continent. “I would expect market regulators to scrutinize Google more the bigger it gets and I think Google could put up a good fight,” said Alexander Wisch , a media analyst at Standard & Poor’s Equity Research in London. Officials from 30 European countries last week said they want Google to further improve blurring techniques used to disguise images in Street View and consider manually tweaking images where faces or license plates can be recognized. A Google spokeswoman based in London said the company’s priority is to delete data mistakenly collected in “the quickest and safest way.” ‘Not Acceptable’ “It is not acceptable that a company operating in the EU does not respect EU rules,” European Union Justice Commissioner Viviane Reding said in an e-mail to Bloomberg News. Reding told Google Chief Executive Larry Page in a meeting last June that “Google’s activities in the different EU member states related to Street View are subject to the control of the national data protection authorities.” Concern about Google’s data-collection is among many run- ins the company has had with authorities in Europe. In February, three Google employees were sentenced to six- month terms by an Italian court, which found them guilty of privacy violations. The case stemmed from a video clip that was uploaded to Google Video in 2006, which showed a group of school students bullying an autistic classmate. A Paris court in December found Google’s book-scanning project violated some publishers’ and authors’ copyrights. German Troubles Germany’s Caspar said he plans more meetings with Google this week, including talks about a tool on Street View that would allow users to reject pictures of their property. Caspar is leading the probe because Google’s country headquarters are in Hamburg. In a separate e-mailed statement today, he said, “The people responsible at Google have to use this case as an opportunity to once again adjust company policy toward a more transparent management of data protection.” He also asked that Google not entirely delete all the information it has inadvertently collected since that will make any legal assessment difficult. “The data should be immediately removed from the operating business and only be used for clarification,” he said. Other Conflicts In the U.S., Google Buzz, a service introduced in February that lets people share photos and comments, created an outcry after it pulled users’ contacts from Google Gmail accounts automatically and displayed them to others. Google is being sued in a California court over the service, after a letter sent to federal antitrust authorities in March by 10 members of Congress. “I tend to feel some of these things are teething problems, but still Google could end up being restricted over some of the things they do,” said Sam Hart , a media analyst at Charles Stanley in London. To contact the reporter on this story: Kristen Schweizer in London at kschweizer1@bloomberg.net . Claudia Rach in Berlin at crach1@bloomberg.net

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Hyperion’s Fridge-Sized Nuclear Reactors to Tap $135 Billion Power Market

May 17, 2010

By Jeremy van Loon and Alex Morales May 17 (Bloomberg) — Manufacturers of refrigerator-sized nuclear reactors will seek approval from U.S. authorities within a year to help supply the world’s growing electricity demand. John Deal , chief executive officer of Hyperion Power Generation Inc. , intends to apply for a license “within a year” for plants that would power a small factory or town too remote for traditional utility grid connections. The Santa Fe, New Mexico-based company and Japan’s Toshiba Corp. are vying for a head start over reactor makers General Electric Co. and Areva SA in downsizing nuclear technology and aim to submit license applications in the next year to U.S. regulators. They’re seeking to tap a market that has generated about $135 billion in pending orders for large nuclear plants. “We’re building iPhones when the nuclear industry has traditionally built mainframe computers,” said Deal. Hyperion has more than 150 purchase commitments from customers such as mining and telecom companies, provided its technology gets licensed for operation, he said. A generation after the Chernobyl and Three Mile Island accidents wiped reactor construction off the agenda of many governments, developers are pressing ahead with designs to satisfy demand for power that doesn’t pollute the skies. While utility-scale reactors cost about $2.3 billion apiece and produce 1.2 gigawatts of power, Hyperion’s price tag is $50 million for a 25-megawatt reactor more comparable to a diesel generators or wind farms. Sealed Boxes Transportable by truck, the units would come in a sealed box and work around the clock, requiring less maintenance than a fossil fuel plant, the developers say. They’d cost 15 percent less per megawatt of capacity than the average full-scale atomic reactors now in on the drawing board, according to World Nuclear Association data. “A 25-megawatt plant would put electricity into 20,000 homes, and it would fit inside this room,” James Kohlhaas , vice president at a Lockheed Martin Corp. unit that builds power systems for remote military bases, said in an interview. “It’s a pretty elegant micro-grid solution.” Certifying and building small reactors will require the same multi-year licensing procedure necessary for bigger plants. And since no small-scale systems are operating, there’s no track record to know how well they will work. ‘Pandora’s Box’ “Whether it’s a small or large reactor, the hoops you have to jump through are the same,” said Hans-Holger Rogner , head of economic planning at the International Atomic Energy Agency. “You open up a Pandora’s Box of intervention from society every time you try to build any kind of nuclear plant.” Environmentalists are concerned the small reactors would pose the same risk of leaking radioactive materials as their larger counterparts, said Jan Beranek, nuclear energy project leader at Greenpeace International in Amsterdam. “Terrorists could hijack a reactor and directly use it to cause a meltdown or use it to fabricate fissile materials for later use in a weapon,” Beranek said. Deal rejects those concerns, noting his units are designed to fit in the same canisters used to transport nuclear fuel for bigger plants around the world. The power-producing core of Hyperion’s reactor comes in multiple sealed chambers, which would contain any leak. The entire unit would be installed in an underground vault to protect it from tampering and natural threats, the company says. “You still have to have guards and dogs, but you have to do that with a grocery store in some countries,” Deal said. Approval Needed So far, no manufacturer has sought certification for any small reactor, according to the U.S. Nuclear Regulatory Commission . Formal approvals would probably take three to five years, the same as for bigger reactors, said Scott Burnell , a spokesman for the commission. Small reactors have been used in U.S. submarines since the USS Nautilus was commissioned in 1954. Russia’s Rosatom Corp. is using its experience on submarines and icebreakers to develop atomic plants for floating barges. Hyperion’s technology was invented at the U.S. government’s Los Alamos National Laboratory in New Mexico . Six other reactor designs are in information-sharing stages, including ones from NuScale Power Inc., Toshiba and its Westinghouse unit. Westinghouse has been developing small reactors since 1999, imagining customers in “lesser developed” countries and from small industry and utilities, Michael Anness, manager of the company’s Advanced Reactors, Research and Technology division , said in an e-mailed response to questions. ‘Safe Small and Simple’ Toshiba, based in Tokyo, is working on reactors that would produce 10 megawatts and 50 megawatts, called 4S for “super- safe, small and simple.” It will apply later this year for U.S. approval to test the unit in the village of Galena in central Alaska, said company spokesman Keisuke Ohmori . Galena has no connection to power lines and is closed to barge traffic for supplies for more than half the year when the Yukon River freezes. To provide heat and electricity, the town relies on diesel fuel, whose price has risen by about 48 percent in the past 12 months. “We aim to get 4S orders in remote areas where it is more cost-efficient to generate power on a local basis than use power grids,” Ohmori said. “A great many people are interested.” Both Toshiba and Hyperion are designing reactors that would run about five times longer without servicing than the 18 to 24 months typical at utility plants. Gates Connection Toshiba signed an agreement in November with TerraPower, controlled by Microsoft Corp. founder Bill Gates , to exchange design and engineering know-how. In February Gates said a small- scale pilot project needed “several billion” dollars. Deal, a licensed Christian minister and self-confessed “left-wing nutbag” who only began to support nuclear power four years ago, says the simplicity and scale of his reactor can overcome concerns about waste and terrorism. “Attitudes change,” said Deal, 46, who’s working at his sixth start-up company in 20 years after previous roles at spy satellite technology and wind power businesses. “There’s not a lot of people out there railing against nuclear power.” To contact the reporter on this story: Alex Morales in London at amorales2@bloomberg.net ; To contact the reporter on this story: Jeremy van Loon in Berlin at jvanloon@bloomberg.net

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VW Makes `Last Attempt’ to Save Seat as Greek Debt Crisis Spreads to Spain

May 13, 2010

By Andreas Cremer May 13 (Bloomberg) — Seat, Volkswagen AG’s most unprofitable unit, aims to stem losses within five years and halt a flight of customers to rivals by expanding its model range and growing outside the Spanish home market. “This is the last attempt for Seat as a brand, it would not be sensible to view things differently,” Chief Executive Officer James Muir said yesterday in Hamburg. “If one would want to get rid of Seat, one would have to give the other party money to take it.” VW named Muir, Mazda Motor Corp. ’s former European chief, as Seat CEO last September after predecessor Erich Schmitt failed in his three-year effort to turn it around. Concern about Spain’s economy amid contagion from Greece’s fiscal crisis may further hamper efforts to boost revenue from the unit. Martorell, Spain-based Seat’s first-quarter operating loss of 110 million euros ($139 million) was more than double VW’s two other unprofitable units, Bentley and commercial vehicles. Without a turnaround, Seat may endanger the German carmaker’s plan to become the largest automaker by 2018, analysts say. “It will be difficult to turn Seat around,” said Marc- Rene Tonn, an analyst at M.M. Warburg in Hamburg, who recommends buying VW shares. “Most of their sales stem from southern Europe where the crisis has hit small-car makers particularly hard.” Ibiza Compact Deliveries of Seat vehicles such as the Ibiza compact and Alhambra minivan fell 8.5 percent to 337,000 units last year. Spanish car sales slumped 21 percent in 2009, according to the Brussels-based European Automobile Manufacturers’ Association. Spain’s once-booming economy started contracting in the second quarter of 2008 and has taken six months longer than the 16-nation euro area as a whole to return to growth as households pay down debt. First-quarter economic expansion was 0.1 percent. Spain has the eurozone’s highest jobless rate at 20.1 percent. Standard & Poor’s cut the country’s credit rating on April 28, saying the government was underestimating its fiscal woes and overestimating growth prospects. Prime Minister Luis Rodriguez Zapatero said yesterday he will cut public wages this year amid pressure to rein in Spain’s budget deficit. “Seat is the undisputed trouble-spot in VW’s brand portfolio,” said Stefan Bratzel , director of the Center of Automotive at the University of Applied Sciences in Bergisch Gladbach, Germany. “Solving the problems there may take years and a clear-cut remedy isn’t in sight.” Surpassing Toyota Seat, which gets 56 percent of its sales from the Ibiza model, must expand its range of offerings for models such as the Leon compact and reduce its reliance on Spain, Muir told journalists during a roundtable discussion. Fixing Seat will be key to plans by VW, which also makes Skoda, Audi and the namesake VW brand cars, to surpass Toyota Motor Corp. in profitability and deliveries in 2018. As part of that target, Muir yesterday reiterated VW’s goal of more than doubling Seat’s sales to 800,000 vehicles. Wolfsburg, Germany- based VW posted record sales last year of 6.3 million units. “It seems to me that VW hasn’t fully committed itself yet to the brand image of Seat,” said Mike Tyndall , an automotive analyst at Nomura Securities in London. “At some point they wanted Seat to be the sporty brand within the VW family, but some of the model decisions don’t add up.” VW Chief Financial Officer Hans-Dieter Poetsch said March 11 that a “comprehensive program” of cost cuts was under way to return Seat to profit after the unit’s operating loss in 2009 quadrupled to 339 million euros. The goal is to trim fixed outlays by raising capacity utilization, he said. Martorell Plant To that end, VW will build Audi’s new Q3 compact SUV at Seat’s main plant in Martorell, near Barcelona, beginning next year, with a goal of making 80,000 vehicles a year. The factory, which can produce 500,0000 vehicles per year, has a capacity utilization of 60 percent currently, Muir said, adding that he needs to reach 90 percent to hit the break-even point. “Our clear focus over the next three years will be to improve utilization,” Muir said. “One cannot solely rely on cost reductions to make Seat profitable.” Muir has made his own missteps since taking over Seat, running into resistance from the German carmaker’s labor leaders after announcing plans to lay off about 300 workers. He later backed away from that plan after works council chief Bernd Osterloh criticized his efforts, saying cost reductions weren’t enough to save Seat. VW has owned Seat since 1986. Worker representatives hold half the seats on VW’s supervisory board and have played a crucial role in the past in ousting executives that tried to cut jobs, including former CEO Bernd Pischetsrieder . “I’m coming from outside the company straight into the CEO position,” Muir said. “That’s a sign that there is a certain frustration about Seat at VW.” To contact the reporter on this story: Andreas Cremer in Berlin at acremer@bloomberg.net

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VW Makes `Last Attempt’ to Save Seat as Greek Debt Crisis Spreads to Spain

May 13, 2010

By Andreas Cremer May 13 (Bloomberg) — Seat, Volkswagen AG’s most unprofitable unit, aims to stem losses within five years and halt a flight of customers to rivals by expanding its model range and growing outside the Spanish home market. “This is the last attempt for Seat as a brand, it would not be sensible to view things differently,” Chief Executive Officer James Muir said yesterday in Hamburg. “If one would want to get rid of Seat, one would have to give the other party money to take it.” VW named Muir, Mazda Motor Corp. ’s former European chief, as Seat CEO last September after predecessor Erich Schmitt failed in his three-year effort to turn it around. Concern about Spain’s economy amid contagion from Greece’s fiscal crisis may further hamper efforts to boost revenue from the unit. Martorell, Spain-based Seat’s first-quarter operating loss of 110 million euros ($139 million) was more than double VW’s two other unprofitable units, Bentley and commercial vehicles. Without a turnaround, Seat may endanger the German carmaker’s plan to become the largest automaker by 2018, analysts say. “It will be difficult to turn Seat around,” said Marc- Rene Tonn, an analyst at M.M. Warburg in Hamburg, who recommends buying VW shares. “Most of their sales stem from southern Europe where the crisis has hit small-car makers particularly hard.” Ibiza Compact Deliveries of Seat vehicles such as the Ibiza compact and Alhambra minivan fell 8.5 percent to 337,000 units last year. Spanish car sales slumped 21 percent in 2009, according to the Brussels-based European Automobile Manufacturers’ Association. Spain’s once-booming economy started contracting in the second quarter of 2008 and has taken six months longer than the 16-nation euro area as a whole to return to growth as households pay down debt. First-quarter economic expansion was 0.1 percent. Spain has the eurozone’s highest jobless rate at 20.1 percent. Standard & Poor’s cut the country’s credit rating on April 28, saying the government was underestimating its fiscal woes and overestimating growth prospects. Prime Minister Luis Rodriguez Zapatero said yesterday he will cut public wages this year amid pressure to rein in Spain’s budget deficit. “Seat is the undisputed trouble-spot in VW’s brand portfolio,” said Stefan Bratzel , director of the Center of Automotive at the University of Applied Sciences in Bergisch Gladbach, Germany. “Solving the problems there may take years and a clear-cut remedy isn’t in sight.” Surpassing Toyota Seat, which gets 56 percent of its sales from the Ibiza model, must expand its range of offerings for models such as the Leon compact and reduce its reliance on Spain, Muir told journalists during a roundtable discussion. Fixing Seat will be key to plans by VW, which also makes Skoda, Audi and the namesake VW brand cars, to surpass Toyota Motor Corp. in profitability and deliveries in 2018. As part of that target, Muir yesterday reiterated VW’s goal of more than doubling Seat’s sales to 800,000 vehicles. Wolfsburg, Germany- based VW posted record sales last year of 6.3 million units. “It seems to me that VW hasn’t fully committed itself yet to the brand image of Seat,” said Mike Tyndall , an automotive analyst at Nomura Securities in London. “At some point they wanted Seat to be the sporty brand within the VW family, but some of the model decisions don’t add up.” VW Chief Financial Officer Hans-Dieter Poetsch said March 11 that a “comprehensive program” of cost cuts was under way to return Seat to profit after the unit’s operating loss in 2009 quadrupled to 339 million euros. The goal is to trim fixed outlays by raising capacity utilization, he said. Martorell Plant To that end, VW will build Audi’s new Q3 compact SUV at Seat’s main plant in Martorell, near Barcelona, beginning next year, with a goal of making 80,000 vehicles a year. The factory, which can produce 500,0000 vehicles per year, has a capacity utilization of 60 percent currently, Muir said, adding that he needs to reach 90 percent to hit the break-even point. “Our clear focus over the next three years will be to improve utilization,” Muir said. “One cannot solely rely on cost reductions to make Seat profitable.” Muir has made his own missteps since taking over Seat, running into resistance from the German carmaker’s labor leaders after announcing plans to lay off about 300 workers. He later backed away from that plan after works council chief Bernd Osterloh criticized his efforts, saying cost reductions weren’t enough to save Seat. VW has owned Seat since 1986. Worker representatives hold half the seats on VW’s supervisory board and have played a crucial role in the past in ousting executives that tried to cut jobs, including former CEO Bernd Pischetsrieder . “I’m coming from outside the company straight into the CEO position,” Muir said. “That’s a sign that there is a certain frustration about Seat at VW.” To contact the reporter on this story: Andreas Cremer in Berlin at acremer@bloomberg.net

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Merkel’s Party Plunges in Key State Vote After Criticism on Greek Crisis

May 10, 2010

By Brian Parkin May 10 (Bloomberg) — Chancellor Angela Merkel ’s party plunged to its worst result since World War II in Germany’s most populous state, losing control of parliament’s upper house in Berlin, as voters punished her reversal on aid for Greece. The result in a regional election in North Rhine-Westphalia may cost Merkel’s Christian Democrats their hold on power in the state, and robs Merkel of her majority in the upper chamber, the Bundesrat , undermining her ability to cut taxes and extend the lifespan of nuclear-power plants. Officials in Merkel’s CDU blamed the party’s showing on German loans for Greece of as much as 22.4 billion euros ($28.8 billion) passed by parliament on May 7 in the face of public opposition. Merkel was criticized at home and abroad for first refusing to rush to aid Greece, then pressing lawmakers to back Germany’s contribution to a 110 billion-euro lifeline. “Merkel is vulnerable,” Almut Moeller, head of European policy at the German Council on Foreign Relations in Berlin, said in an interview. “After her record of dithering over help for Greece, she really needs to make a show now of strong, resolute policy in Brussels to help stem the crisis from spreading further. The last thing the euro-zone needs at this point is weak German leadership.” Preliminary Results The Chancellor’s Christian Democratic Union, or CDU, took 34.6 percent in yesterday’s election, down more than 10 percentage points from the last vote in 2005 and the party’s worst showing in North Rhine-Westphalia since the first postwar election in 1947, preliminary results show. The CDU’s Free Democratic junior coalition partner got 6.7 percent, giving the two parties a combined 80 seats in the 181-seat assembly. The opposition Social Democrats took 34.5 percent and their traditional allies in the Green Party 12.1 percent. That’s equivalent to 90 seats, one short of a majority, according to ZDF projections. The anti-capitalist Left Party got 5.6 percent, winning their first seats in the parliament. Hermann Groehe, general secretary of Merkel’s party, in a ZDF television interview, attributed the loss in North Rhine- Westphalia to “concerns over the stability of the euro and the situation in Greece.” The state’s defeated CDU prime minister, Juergen Ruettgers , also blamed Greece for the results. “This is a double blow to confidence in Merkel’s party: a rout at regional level that’s sent a huge wave to the national coalition,” Hans-Juergen Hoffmann , managing director of Berlin- based polling company Psephos, said in an interview. “Her own bedrock CDU voters are worried. The crisis is spinning out of control and confidence in her ability to tame it is evaporating.” National Clout North Rhine-Westphalia , known as NRW, which includes the western cities of Cologne and Dortmund and the Ruhr industrial area, has national clout. Home to about 18 million of Germany’s 82 million inhabitants, plus E.ON AG , the world’s largest utility, and ThyssenKrupp AG , the country’s biggest steelmaker, it’s been governed since 2005 by a coalition of CDU and Free Democrats, the same as Merkel’s federal government in Berlin. The regional government is awarded six votes in the 69-vote upper chamber, where Germany’s 16 states are represented. A change of administration would cost Merkel her two-vote Bundesrat majority, hurting her ability to pass policy. “This result definitely won’t make it easier for the coalition to push an extension of nuclear energy through the upper house,” Joachim Pfeiffer , CDU parliamentary spokesman for economy and energy, said in an interview. Andrea Nahles , Social Democratic general secretary, said on ZDF that her party will use the Bundesrat to block tax cuts for “people who don’t deserve them.” ‘Warning Shot’ Foreign Minister Guido Westerwelle , who leads the Free Democrats nationally, said the result was a “warning shot” that the party will act upon. State elections in North Rhine-Westphalia have traditionally acted as a barometer for national political trends, Nick Matthews , an economist at Royal Bank of Scotland Group Plc, said in a report on May 5. In 2005, the Christian Democratic defeat of the Social Democrats, which had ruled the state since 1966, presaged Merkel’s victory at national elections later that year. In 1995, the Social Democratic-Green coalition in the state was the forerunner of the same configuration of federal government formed by SPD Chancellor Gerhard Schroeder in 1998. This time, national politics in the shape of the Greek rescue “spilled over into the NRW vote,” said Manfred Guellner , head of Berlin-based polling company Forsa. Greece ‘Fears’ “Greece has grabbed the headlines and TV, stirring up fears and antagonisms, not least a fear that the euro may unravel,” Guellner said by phone. “Merkel’s leadership in the crisis has not been decisive, leaving an impression that she’s hesitated and failed to put out the fire.” While voters may be largely “ambivalent” toward Greece, Merkel’s handling of the crisis underscores misgivings they already have about her government, Nils Diederich , a politics professor at Berlin’s Free University, said in an interview. “Greece adds to her miserable record of controlling runaway problems, above all the incessant squawking for tax cuts by the Free Democrats,” he said. “The disappointment of the electorate with Merkel’s coalition runs deep.” To contact the reporter on this story: Brian Parkin in Berlin at bparkin@bloomberg.net .

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Merkel’s Party Loses in Key State Election After Criticism on Greek Crisis

May 9, 2010

By Brian Parkin May 9 (Bloomberg) — Chancellor Angela Merkel ’s party unexpectedly lost control of Germany’s most populous state in a regional election, television projections showed, potentially swinging the balance of power in Berlin and dealing Merkel a blow after criticism of her handling of the Greek crisis. Merkel’s Christian Democratic Union, or CDU, took 34.3 percent in today’s election in North Rhine-Westphalia, and the opposition Social Democrats 34.7 percent, latest projections showed. The Greens took 12.3 percent, the Free Democrats 6.7 percent and the Left Party 5.7 percent, enough to win seats in the state parliament in Dusseldorf for the first time. The results may give the Social Democrats and Greens a slim majority, ending the CDU-led coalition that has governed North Rhine-Westphalia, or NRW, since 2005. That would cost Merkel her majority in the upper house of parliament in Berlin, where Germany’s 16 states are represented. “This is a double blow to confidence in Merkel’s party: a rout at regional level that’s sent a huge wave to the national coalition,” Hans-Juergen Hoffmann , managing director of Berlin- based polling company Psephos, said in an interview. “Her own bedrock CDU voters are worried. The crisis is spinning out of control and confidence in her ability to tame it is evaporating.” Merkel, who was criticized at home and abroad for refusing to rush to aid Greece, welcomed lawmakers’ backing on May 7 for as much as 22.4 billion euros ($28.5 billion) in loans for the debt-laded nation. Euro, Greece Concerns Hermann Groehe, general secretary of Merkel’s party, attributed the loss in North Rhine-Westphalia to “concerns over the stability of the euro and the situation in Greece,” he said on ZDF television. The state’s CDU prime minister, Juergen Ruettgers , also cited Greece for the results. With national polls showing public opposition to the lifeline running high, Greece “spilled over into the NRW vote,” said Manfred Guellner , head of Berlin-based polling company Forsa. “Greece has grabbed the headlines and TV, stirring up fears and antagonisms, not least a fear that the euro may unravel,” Guellner said in a phone interview. “Merkel’s leadership in the crisis has not been decisive, leaving an impression that she’s dithered and failed to put out the fire.” North Rhine-Westphalia has national clout, as home to about 18 million of Germany’s 82 million inhabitants plus E.ON AG , the world’s largest utility, and ThyssenKrupp AG , the country’s biggest steelmaker. A coalition of Merkel’s Christian Democrats and the Free Democrats, the same as the national government in Berlin, has governed in the state capital Dusseldorf since 2005. Upper House Votes With NRW’s six votes in the 69-vote upper chamber at stake, Merkel’s two-vote Bundesrat majority is at risk, ensuring “a large say in federal policy making,” for whoever controls Grace Amerley Annan , a political analyst at IHS Global Insight in London, said in a May 7 note. Foreign Minister Guido Westerwelle , who leads the Free Democrats nationally, said the result was a “warning shot” that the party will act upon. State elections in North Rhine-Westphalia have traditionally acted as a barometer for national political trends, Nick Matthews , an economist at Royal Bank of Scotland Group Plc, said in a report on May 5. In 2005, the Christian Democratic defeat of the Social Democrats, which had ruled the state since 1966, presaged Merkel’s victory at national elections later that year. In 1995, the Social Democratic-Green coalition in the state was the forerunner of the same configuration of federal government formed by SPD Chancellor Gerhard Schroeder in 1998. Tax Cuts Defeat in North Rhine-Westphalia will cost Merkel the six votes the state is allocated in the upper house, the Bundesrat, threatening her ability to cut taxes, extend the lifespan of nuclear-power plants or overhaul health-care. At present, government parties control 37 of the total 69 Bundesrat votes, two more than the required majority, allowing Merkel to push through contentious legislation such as the bill on Greek aid. While voters may be largely “ambivalent” toward Greece, Merkel’s handling of the crisis underscores misgivings they already have about her government, Nils Diederich , a politics professor at Berlin’s Free University, said in an interview. “Greece adds to her miserable record of controlling runaway problems, above all the incessant squawking for tax cuts by the Free Democrats,” he said. “The disappointment of the electorate with Merkel’s coalition runs deep and any drop in support for her party in NRW can, and probably will, be placed at her door in Berlin.” To contact the reporter on this story: Brian Parkin in Berlin at bparkin@bloomberg.net .

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Hunger Feeds Philippine Rebellions as Candidates Play Food Card for Votes

May 7, 2010

By Luzi Ann Javier May 7 (Bloomberg) — Ricardo Istacion said he had the best meal of his life on April 19, feasting on fish, chicken and pork at a party thrown by Philippine presidential candidate Joseph Estrada to celebrate his 73rd birthday. “Most days, we just have rice porridge,” said Istacion, a 54-year-old widower and father of two who collects recyclable waste at the garbage mountain in the Payatas district of Manila. Estrada “really loves Payatas, and for that I will vote for him.” While filling empty bellies helps win votes, politicians have failed to keep them full once in power. Whoever wins in the May 10 election will inherit hunger and unemployment that is fueling communist and Muslim insurgencies, perpetuating the Philippines’ status as a perennial economic underachiever. “If things are really deteriorating then it’s a risk that investors will move on to more attractive destinations,” said Tim Condon , Singapore-based chief Asia economist at ING Groep NV. “Patience isn’t unlimited.” The Jakarta Composite Index has risen more than 160 percent in the past five years, while the Philippine benchmark gained less than 70 percent. Moody’s Investors Service rates Indonesia, which was bailed out by the International Monetary Fund in 1998, one level higher at Ba2 than the Philippines. Corruption, mismanagement and a threefold jump in the population have eaten away at an economy that was Southeast Asia’s biggest in the 1960s. It has now been outstripped by Indonesia, Malaysia, Thailand and Singapore. Corruption Index Corruption means money for roads and other infrastructure goes missing. An average of 20 percent to 30 percent of every contract is lost to graft or inefficiency, the World Bank said in a 2008 study . The Philippines slipped in last year’s Transparency International Corruption Perceptions Index to 139th place from 131st in 2007. Indonesia rose to 111th from 143rd, according to the Berlin-based watchdog’s website. Estrada, who was convicted of corruption in 2007 and later freed by a presidential pardon, was vying for second place with Senator Manuel Villar , 60, in a poll published today by BusinessWorld newspaper. Estrada had 20 percent and Villar 19 percent, while Benigno Aquino , son of a former president, led with 42 percent, according to the survey of 2,400 adults. It was conducted May 2 to May 3 and had a margin of error of 2 percentage points. Feeding Itself One of the biggest challenges facing the winner is the nation’s inability to feed itself. The Philippines has gone from being an occasional net exporter of rice before 1988 to become the world’s biggest importer as yields stagnated, according to U.S. Department of Agriculture data. Indonesia is now self- sufficient in rice, after importing 5.77 million tons in 1998. Philippine farmers are forecast to produce on average 3.6 tons of rice a hectare, compared with 5 tons per hectare in Indonesia, the USDA website shows. The government of outgoing President Gloria Arroyo , 63, says it spent almost all of the 12 billion pesos ($268 million) it budgeted to fix irrigation systems and boost harvests. Jimmy Tadeo, Manila-based head of a 20,000-strong farmers’ group, said he had seen no evidence of this work on recent tours of rice- growing regions. ‘Romancing the Data’ “The government is romancing the data,” Tadeo said. “If they had actually spent all that 12 billion pesos in irrigation, we would be self-sufficient in rice.” The country’s lowest rice yields are in the southern island of Mindanao, where U.S. Special Forces are helping fight Muslim and communist insurgencies. Mindanao is home to the al-Qaeda- linked Abu Sayyaf and the communist New People’s Army, both branded terror organizations by the U.S. The 2.9 tons a hectare eked out by the island’s farmers helps explain per capita income of less than $1 a day. The Philippine regions most vulnerable to armed conflict were those with the lowest incomes and poorest education, the United Nations said in a 2005 report . Failure to deliver more rapid economic growth means the country’s new president will face a growing wave of unemployment. The working-age population is forecast to jump 52 percent between 2005 and 2030, according to Jesus Felipe , principal economist at the Asian Development Bank in Manila. Jobless Rate While the official jobless rate rose to 7.3 percent in January from 7.1 percent in October, the National Statistics Office estimated that only 64.5 percent of the people of working age are actually employed. That puts even the government’s subsidized rice beyond the means of many, increasing the value of a free meal from a politician. The number of Filipino households who had nothing to eat at least one day in a quarter rose to a record 24 percent, according to a survey released Jan. 12 by Social Weather Stations , a Manila-based researcher. Demand for rice from government stockpiles jumps in the run-up to elections, data from the National Food Authority show. In the five months to May 1998, when Estrada won the presidency, rice releases from state supplies jumped almost five-fold. The 207,125 tons of rice released in March this year were the highest for that month since at least 1991. “When you have a situation where people really have nothing, they become easy prey to these kinds of tactics,” said Rey Trillana , a fellow at the Center for Civic Education and Democracy in Manila. To contact the reporter on this story: Luzi Ann Javier in Singapore at ljavier@bloomberg.net

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Stocks Drop in Europe as Banks, Mining Companies Retreat; Santander Falls

May 4, 2010

By Adria Cimino May 4 (Bloomberg) — European shares dropped as declines in mining stocks and BP Plc overshadowed higher profit at Alstom SA. Asian stocks and U.S. futures fell. BHP Billiton Ltd. and Rio Tinto Group slumped on the first trading day in London since Australia announced plans for heavier taxes on resources earnings. BP Plc tumbled to a seven- month low as costs mounted from cleaning up an oil spill in the Gulf of Mexico. National Bank of Greece SA led shares lower in Athens, falling 4.6 percent. Alstom, the world’s second-largest train maker, rose 1.2 percent after saying profit gained. The Stoxx Europe 600 Index tumbled 1 percent to 257.95 at 9:29 a.m. in London. European stocks climbed yesterday as better-than-forecast economic reports outweighed concern a 110 billion-euro ($145 billion) rescue package for Greece will fail to contain the region’s debt crisis. The Stoxx 600 slipped 1.4 percent last month as investors speculated Greece’s credit troubles would spread further. The drop has trimmed this year’s gain to 2.1 percent. “The market will remain volatile,” said Pierre-Yves Gauthier , founding partner of the independent research firm Alphavalue SAS in Paris. “We don’t know how the Greek population will react to the bitter potion proposed to them. We’re far from a moment of stability. Earnings reports that we’ve seen are earnings of recovery so it’s normal that they are progressing. We don’t see a strong element to push the market higher.” Volker Kauder , the parliamentary head of Chancellor Angela Merkel ’s Christian Democratic Union, called for the possible “orderly insolvency” of European states as “consequences” follow from the Greek crisis. The European Commission must be able to better examine the finances of member states to avoid the kind of ballooning budget deficit witnessed in Greece, Kauder told reporters in Berlin today. Gains Evaporate Asian stock gains evaporated today after an index of Chinese manufacturing fell to a six-month low. The China purchasing managers’ index released by HSBC Holdings Plc and Markit Economics declined to 55.4 from 57 in March, spurring concern demand will slow in the world’s fastest growing major economy. Australia’s central bank raised its benchmark interest rate for the sixth time in seven meetings after inflation accelerated and officials judged the nation is insulated from sovereign debt concerns. U.S. stocks surged yesterday, with the Dow Jones Industrial Average rising the most since February. The MSCI Asia Pacific Index slipped 0.5 percent, while futures on the Standard & Poor’s 500 Index lost 0.3 percent today. Mining Stocks Mining stocks slumped. BHP Billiton fell 3.9 percent to 1,947 pence, while Rio Tinto declined 4 percent to 3,243 pence. Both stocks yesterday posted their biggest one-day declines in Sydney trading since Feb. 5 after Australia announced it will impose a 40 percent tax on resource profits from 2012. London markets were closed yesterday for a holiday. BP fell 4.4 percent to 550 pence, bringing its three- session decline to 12 percent. The company is trying to install a new valve to staunch one of three leaks in an undersea Gulf of Mexico well as it works on other longer-term solutions, including building a containment dome to capture the flow and drilling a so-called relief well to plug it. So far the spill has had little impact on refining, shipping and production in the Gulf, said Tom Bentz , a broker at BNP Paribas Commodity Futures Inc. in New York. Dealers are “trading on fear” in case the situation changes, he said yesterday. Alstom Gains National Bank, Greece’s biggest lender, slumped 4.5 percent to 11.87 euros. Piraeus Bank SA fell 5 percent to 5.3 euros. Alstom gained 1.2 percent to 44.80 euros. Net income gained 10 percent to 1.22 billion euros in the year ended March 31, the company said today. Operating margin will fall to about 7 percent to 8 percent in the next two fiscal years, Chief Executive Officer Patrick Kron said in the statement. STMicroelectronics NV slipped 2 percent to 6.95 euros. Europe’s largest chipmaker was cut to “underperform” from “selected list” at Cheuvreux, which said that “the semiconductor industry is getting ahead of market fundamentals and ahead of underlying end-demand.” Linde AG slipped 3.4 percent to 88.60 euros. The world’s second-biggest maker of industrial gases said earnings and sales rose in the first quarter as demand from emerging economies recovered and cost cuts helped profitability. Net income rose 72 percent to 198 million euros as sales rose 7.4 percent to 2.89 billion euros, Linde said in a statement today. Profit matched the average of 199.4 million euros in a Bloomberg survey, while sales exceeded an estimate of 2.71 billion euros. Inmarsat, Electrolux Inmarsat Plc, the U.K. satellite provider of voice and data services to the maritime and aviation industries, jumped 5.2 percent to 803 pence. The company reported a reorganization plan for some units. Electrolux AB gained 2.7 percent to 193.9 kronor. The world’s second-biggest appliance maker was upgraded to “buy” from “neutral” at Nomura Holdings Inc. Aberdeen Asset Management Plc surged 5.7 percent to 145.8 pence. The U.K.’s largest independent money manager said fiscal first-half profit more than tripled as markets rebounded, boosting revenue from performance and management fees. Net income rose to 48.96 million pounds ($75 million) in the six months ended March 31 from 15.2 million pounds in the year-earlier period, the company said. Assets under management rose 17 percent to 170.9 billion pounds. Home Resales SSAB Svenskt Staal AB, the world’s largest supplier of high-tensile steel, gained 6.5 percent to 135.2 kronor after reporting earnings that beat analysts’ estimates. First-quarter net income fell to 143 million kronor from 163 million kronor a year earlier. Analysts had estimated net income of 28 million kronor, according to a survey compiled by Bloomberg. More Americans probably signed contracts to buy previously owned homes in March before the expiration of a tax credit, economists said before a private report. The index of pending home resales climbed 5 percent in March following an 8.2 percent jump a month earlier, according to the median forecast in a Bloomberg News survey of 38 economists. Another report may show factory orders fell in March as a slump in aircraft demand masked gains in business equipment and machinery. Both reports are scheduled for 10 a.m. in Washington. To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net .

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Merkel Says She Was Right on Greece, Winning `Unthinkable’ Cuts

May 3, 2010

By Rainer Buergin May 3 (Bloomberg) — German Chancellor Angela Merkel said she was right to demand International Monetary Fund involvement in the Greek bailout over the objections of her European peers, wringing previously “unthinkable” budget cuts from Greece. “This is an ambitious program that contains tough savings measures and on the other hand seeks to improve the efficiency of the Greek economy,” Merkel told reporters in Bonn yesterday. “Three months ago it would have been unthinkable that Greece would accept such tough conditions.” Merkel, faced with voter anger over helping Greece and a regional election on May 9 in Germany’s most populous state, was criticized at home and abroad for dragging her feet on aid as she held out for tougher conditions and IMF involvement. Markets plunged and the euro hit a one-year low against the dollar on April 28 amid concern Merkel would hold up the bailout even after Prime Minister George Papandreou sought a lifeline. “The brinkmanship delayed a solution and increased the cost of the bailout,” Marco Annunziata , chief economist at Unicredit Group in London, said April 30 in a phone interview. Merkel, by wavering on aid ahead of the state election in North Rhine-Westphalia, ensured “leadership at the international level was sacrificed to domestic political needs.” Merkel spoke after the Greek government agreed yesterday to pursue budget cuts worth 30 billion euros ($40 billion), or 13 percent of domestic product, as the terms of a European Union and IMF bailout of 110 billion euros. Trichet’s Opposition French President Nicolas Sarkozy and European Central Bank President Jean-Claude Trichet initially opposed calling in the IMF, saying it would show Europe was incapable of solving its own crises, before backing the Washington-based fund’s participation on March 25. “I think the negotiations on the program showed that it was right to involve the IMF and that through this we have the maximum credibility globally for such a program of stability and consolidation,” Merkel said in Bonn, where she held talks on climate change with Mexican President Felipe Calderon . The program, including wage cuts and a three-year pensions freeze, puts Greece on a “long drawn-out and surely arduous path, but one that is absolutely necessary.” Merkel is due to convene a special meeting of her Cabinet in Berlin today to discuss Germany’s share of the aid package, which she aims to fast-track through parliament by May 7. Germany, as the biggest contributor, will offer Greece loans of 8.4 billion euros for the first year of the program, followed by amounts yet to be specified for the subsequent two years, according to a draft circulated to lawmakers last week. Merkel ‘Catastrophic’ Merkel is guilty of “catastrophic crisis management” over Greece, Frank-Walter Steinmeier, the former foreign minister who now heads the opposition, said on ARD television yesterday. He said the support in parliament of his Social Democrats depends on banks being compelled to contribute more to the aid package. Merkel said that she “likes the fact” the IMF and the European Commission will monitor progress by Papandreou’s government in implementing the program at short intervals, “so that the credibility in the country can be restored.” The program is not only for Greece to tackle its problems at the root and rebuild its readiness for the future, “but also for all of us who have the common currency, that is for the stability of the euro in general,” she said. “I think this is the only possibility of ensuring the stability of the euro.” To contact the reporter on this story: Rainer Buergin in Berlin at rbuergin1@bloomberg.net

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Merkel Says She Was Right on Greece, Winning Previously `Unthinkable’ Cuts

May 2, 2010

By Rainer Buergin May 2 (Bloomberg) — German Chancellor Angela Merkel said she was right to demand International Monetary Fund involvement in the Greek bailout over the objections of her European peers, saying it resulted in previously “unthinkable” budget cuts by Greece. “This is an ambitious program which contains tough savings measures and on the other hand seeks to improve the efficiency of the Greek economy,” Merkel told reporters in Bonn today. “Three months ago it would have been unthinkable that Greece would accept such tough conditions.” Merkel was speaking after the Greek government accepted budget cuts worth 30 billion euros ($40 billion), or 13 percent of domestic product, as the terms for a bailout of more than 100 billion euros from the European Union and IMF to prevent default. Euro-group finance ministers are meeting in Brussels to agree on the exact bailout amount. Merkel said she’ll convene a special meeting of her Cabinet in Berlin tomorrow to discuss Germany’s share of the aid package, and will push for parliament to approve the aid by May 7. Germany, as the biggest contributor, will offer Greece loans of 8.4 billion euros for the first year of the program, followed by amounts yet to be specified for the subsequent two years, according to a draft circulated to lawmakers last week. Trichet’s Opposition Merkel, who was criticized at home and abroad for dragging her feet on aid for Greece as she held out for tougher conditions, said the package agreed showed she was correct to push for IMF involvement, a move opposed at the time by European Central Bank President Jean-Claude Trichet and Jean-Claude Juncker , who heads the euro-group of finance ministers. “I think the negotiations on the program showed that it was right to involve the IMF and that through this we have the maximum credibility globally for such a program of stability and consolidation,” Merkel said. “This is an enduring program that stretches over several years, which makes it clear that the path on which Greece has to embark will be long drawn-out and surely an arduous one, but one that is absolutely necessary in my view.” Merkel said that she “likes the fact” the International Monetary Fund and the European Commission will monitor progress by Greek Prime Minister George Papandreou’s government in implementing the program at short intervals, “so that the credibility in the country can be restored.” The program is not only for Greece to tackle its problems at the root and rebuild its readiness for the future, “but also for all of us who have the common currency, that is for the stability of the euro in general,” she said. “I think this is the only possibility of ensuring the stability of the euro.” To contact the reporter on this story: Rainer Buergin in Berlin at rbuergin1@bloomberg.net

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Merkel Vows Faster Greek Aid as Spain Downgrade Highlights Debt Contagion

April 29, 2010

By Andrew Davis and Emma Ross-Thomas April 28 (Bloomberg) — German Chancellor Angela Merkel and the International Monetary Fund pledged to step up efforts to overcome the Greek fiscal crisis as Standard & Poor’s downgraded Spain and investors sold bonds in Europe’s most indebted nations. “It’s completely clear that the negotiations between the Greek government, the European Commission and the IMF need to be speeded up now,” Merkel said in Berlin today. Flanked by IMF Managing Director Dominique Strauss-Kahn , she said the “stability of the euro zone” was at stake if a 45 billion-euro ($59 billion) loan package for Greece can’t be delivered fast. A failure by policy makers to match such talk with action has fanned concern that the crisis will spread beyond Greece. Merkel has delayed German approval of loans in the face of voters’ opposition and S&P today cut Spain’s credit rating, a day after it dropped Greece to junk status and downgraded Portugal. The euro fell to the lowest in a year. “The hesitant and haphazard reaction of euro-zone policymakers to Greece’s predicament underscores the dangers of contagion,” said Marco Annunziata , chief economist at UniCredit Group in London. “The euro-zone has taken over six months to react and is allowing uncertainty to persist. This does not bode well for their ability to react quickly should a second flashpoint burst.” Need for Action Speaking in Berlin, European Central Bank President Jean- Claude Trichet said the stability of the “euro zone is impacted” by the delays in delivering the Greek aid, “underscoring the need for action.” Strauss-Kahn told reporters that “every day that is lost is a day where a situation is getting worse and worse.” European stocks and bonds rallied earlier after a German lawmaker stoked speculation that Greece would get as much as 120 billion euros from the EU and the IMF, only for the Spanish downgrade to dash that optimism. The euro dropped 0.2 percent to $1.3143 and Spain’s IBEX 35 Index plunged 3 percent to 10,167 points, the lowest in two months. The yields on Spanish, Greek, Portuguese and Italian 10- year bonds rose. Spain had its credit rating cut one step by Standard & Poor’s to AA, putting it on a par with Slovenia. S&P said in a statement that the outlook on Spain is negative, reflecting the chance of a possible further downgrade if the “ budgetary position underperforms to a greater extent than we currently anticipate.” Spain was last cut by S&P in January 2009. Sovereign World “If you are in a situation where every single country in the peripheries is downgraded, and this is allowed to continue, then obviously the risk is that the contagion will carry on spreading,” said David Owen , chief European Financial Economist at Jefferies International Ltd. The premium on Greek bonds surpassed 8 percentage points at one point today. The extra yield that investors demand to hold Portuguese 10-year bonds over bunds rose 59 basis points to 277 points yesterday, the most since 1997, before slipping 1 point today. The spread on Spanish debt increased to the most in more than a year yesterday before dropping 2 basis points today. The German delay on approving Greek aid exacerbated the crisis this week. While Green Party lawmaker Juergen Trittin quoted Strauss-Kahn as telling German deputies it may be as much as 120 billion euros, the IMF chief later declined to publicly say how much aid Greece will require. Germany may make a final aid decision on May 7 when the upper house of parliament could approve its share of the package, German Finance Minister Wolfgang Schaeuble said at the Berlin press conference. Aid Package Contagion from the Greek crisis is “threatening the stability of the financial system,” Organization for Economic Cooperation and Development Secretary General Angel Gurria said in an interview with Bloomberg Television in Berlin today. “This is like Ebola. When you realize you have it you have to cut your leg off in order to survive.” As Greece waits for its euro-region partners to disburse funds, the European Union hasn’t announced concrete plans to help other nations should aid be needed. Negotiations on the conditions to be attached to Greece’s aid package continued today in Athens and Trichet said he expected them to be concluded by the weekend. The crisis has highlighted the absence of a common fiscal policy to cement Europe’s monetary union, frustrating Trichet’s efforts to promote a “common destiny” for its 16 members. Greece’s budget deficit amounted to 13.6 percent of gross domestic product last year, the second-highest in the euro region after Ireland and four times Germany’s shortfall. Ireland’s shortfall was 14.3 percent and Spain’s 11.2 percent. German Opposition Aid to Greece faces opposition in Germany, where state elections are due in North Rhine-Westphalia on May 9. Almost 60 percent of Germans don’t want to help Greece, Die Welt newspaper reported, citing a survey of 1,009 people. International concern is also growing. The Greek situation is “of great concern” to President Barack Obama , White House spokesman Bill Burton said today. Canadian Finance Minister Jim Flaherty told reporters in Ottawa that the crisis is a “significant concern” and that support needs to be provided “sooner rather than later.” To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

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Asian Currencies Gain, Bond Risk Drops After Fed Pledges to Keep Rates Low

April 28, 2010

By Clyde Russell and Wes Goodman April 29 (Bloomberg) — Asian currencies and metals gained and the cost to insure against bond losses declined as the Federal Reserve pledged to keep U.S. interest rates low. the yen advanced as concern Europe’s deficit crisis is widening damped demand for higher-yielding currencies. South Korea’s won rose 0.3 percent to 1,115.20 per dollar and the Malaysian ringgit advanced 0.5 percent. About 15 stocks rose fell for every 14 that fell on the MSCI Asia Pacific excluding Japan Index , which was little changed at 423.73 at 2 p.m. Hong Kong time. Standard & Poor’s 500 Index futures were 0.2 percent lower. Copper advanced 0.9 percent. The International Monetary Fund said in a report today that Asia’s economy will expand 7.1 percent this year and next on demand for manufactured goods and commodities. Fed policy makers restated their intention to keep interest rates near zero for an extended period, and European leaders met to stop Greece’s debt crisis from infecting the rest of the region. “We expect China and the other countries in emerging Asia to continue to outpace growth in the overall global economy,” fund managers including Tomoya Masanao at Pacific Investment Management Co. wrote in a report. Pimco, which runs the largest mutual fund , recommended the currencies of China, South Korea and Singapore. Japan’s currency rose against 12 of its 16 major counterparts after a credit downgrade of Spain yesterday prompted Germany to call for faster efforts to rescue Greece, whose rating was reduced to junk this week. New Zealand’s dollar fell as central bank Governor Alan Bollard indicated he may raise interest rates at a slower pace than in previous cycles. Kiwi Slumps The yen traded at 93.96 per dollar in London from 94.03 in New York yesterday. It reached 94.36 on April 26, the lowest level since April 6. Japan’s currency was at 124.37 against the euro from 124.32. The dollar fetched $1.3236 per euro from $1.3221, and climbed to $1.5166 versus the pound from $1.5209. New Zealand’s dollar weakened the most of the major currencies, sliding 0.5 percent to 71.71 U.S. cents and losing 0.6 percent to 67.37 yen. “Lingering fears of a further deterioration in the European sovereign debt crisis may weigh on risk sentiment,” said Mike Jones , a currency strategist at Bank of New Zealand Ltd. in Wellington. “Against this backdrop, ‘safe-haven’ currencies such as the dollar and the yen may extend their recent gains.” The won strengthened after a Bank of Korea survey showed manufacturers are the most upbeat they’ve been in seven years. The central bank said an index measuring expectations for the month ahead climbed to 107, the highest level since 2002. Merkel Pledge The cost of protecting Asian and Australian bonds from default declined after German Chancellor Angela Merkel pledged to step up efforts to overcome the Greek fiscal crisis, saying in Berlin yesterday that it’s “clear negotiations between the Greek government, the European Commission and the IMF need to be sped up.” The Markit iTraxx Australia index of credit-default swaps dropped 8 basis points to 90.5 basis points in Sydney, the risk benchmark’s biggest decline since Nov. 30, according to Westpac Banking Corp. The Markit iTraxx Asia index of 50 investment- grade borrowers outside Japan fell 6 basis points to 104.5, Royal Bank of Scotland Group Plc prices show. Japan’s markets are closed for a holiday. China’s Shanghai Composite Index gained 0.4 percent. South Korea’s Kospi index sank 0.3 percent and Australia’s S&P/ASX 200 Index dropped 0.8 percent. Suning Appliance Co. , China’s biggest electronics retailer by market value, climbed 2.6 percent to 11.27 yuan in Shenzhen, south China, after saying first-quarter profit increased 86 percent from a year earlier. ANZ Shares Drop China Merchants Bank Co. gained 1.7 percent to 14.05 yuan in Shanghai after first-quarter profit rose 40 percent. Australia & New Zealand Banking Group Ltd. sank 2.6 percent to A$24.21 in Sydney as its chief executive officer voiced concern over Europe’s debt. Separately, ANZ Bank said fiscal first-half profit jumped 36 percent as lending income grew and charges for bad loans fell. Smith confirmed ANZ is considering buying a 51 percent stake in Korea Exchange Bank. “Concern surrounding European sovereign debt is limiting gains,” said Tim Schroeders , who helps manage about $1.1 billion at Pengana Capital Ltd. in Melbourne. “Investors are grappling with the sustainability of improved earnings and the impact on long-term stock valuations.” Copper for three-month delivery in London traded 0.9 percent higher at $7,465 a ton on the Fed’s rate pledge. The futures climbed for the first time in three days. Jobs Improving “The labor market is beginning to improve,” the Federal Open Market Committee said in a statement yesterday in Washington, after last month saying it was “stabilizing.” Officials also said growth in household spending has “picked up recently.” “Brighter economic growth prospects and widening interest rate differentials with advanced economies are likely to attract more capital” to Asia, the IMF said in its report. “Policy makers will need to be attentive to safeguarding the macro economy and financial system against the build-up of imbalances in local asset and housing markets .” Corn gained 0.5 percent to $3.65 a bushel, rising for a second day, after China bought more than 100,000 metric tons from U.S. exporters for the first time since 2001. Crude oil traded above $83 a barrel in New York after gaining 1 percent yesterday after a government report showed U.S. refineries operating at the highest level in almost two years, bolstering optimism fuel demand will recover in the world’s largest user. To contact the reporters for this story: Clyde Russell in Beijing at crussell7@bloomberg.net ; Wes Goodman in Singapore at wgoodman@bloomberg.net .

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Merkel Vows Faster Greek Aid as Spain Shows Contagion

April 28, 2010

By Andrew Davis and Emma Ross-Thomas April 28 (Bloomberg) — German Chancellor Angela Merkel and the International Monetary Fund pledged to step up efforts to overcome the Greek fiscal crisis as Standard & Poor’s downgraded Spain and investors sold bonds in Europe’s most indebted nations. “It’s completely clear that the negotiations between the Greek government, the European Commission and the IMF need to be sped up now,” Merkel said in Berlin today. Flanked by IMF Managing Director Dominique Strauss-Kahn , she said the “stability of the euro zone” was at stake if a 45 billion-euro ($59 billion) loan package for Greece can’t be delivered fast. A failure by policy makers to match such talk with action has fanned concern that the crisis will spread beyond Greece. Merkel has delayed German approval of loans in the face of voters’ opposition and S&P today cut Spain’s credit rating, a day after it dropped Greece to junk status and downgraded Portugal. The euro fell to the lowest in a year. “The hesitant and haphazard reaction of euro-zone policymakers to Greece’s predicament underscores the dangers of contagion,” said Marco Annunziata , chief economist at UniCredit Group in London. “The euro-zone has taken over six months to react and is allowing uncertainty to persist. This does not bode well for their ability to react quickly should a second flashpoint burst.” Need for Action Speaking in Berlin, European Central Bank President Jean- Claude Trichet said the stability of the “euro zone is impacted” by the delays in delivering the Greek aid, “underscoring the need for action.” Strauss-Kahn told reporters that “every day that is lost is a day where a situation is getting worse and worse.” European stocks and bonds rallied earlier after a German lawmaker stoked speculation that Greece would get as much as 120 billion euros from the EU and the IMF, only for the Spanish downgrade to dash that optimism. The euro dropped 0.2 percent to $1.3143 and Spain’s IBEX 35 Index plunged 3 percent to 10,167 points, the lowest in two months. The yields on Spanish, Greek, Portuguese and Italian 10- year bonds rose. Spain had its credit rating cut one step by Standard & Poor’s to AA, putting it on a par with Slovenia. S&P said in a statement that the outlook on Spain is negative, reflecting the chance of a possible further downgrade if the “ budgetary position underperforms to a greater extent than we currently anticipate.” Spain was last cut by S&P in January 2009. Sovereign World “If you are in a situation where every single country in the peripheries is downgraded, and this is allowed to continue, then obviously the risk is that the contagion will carry on spreading,” said David Owen , chief European Financial Economist at Jefferies International Ltd. The premium on Greek bonds surpassed 8 percentage points at one point today. The extra yield that investors demand to hold Portuguese 10-year bonds over bunds rose 59 basis points to 277 points yesterday, the most since 1997, before slipping 1 point today. The spread on Spanish debt increased to the most in more than a year yesterday before dropping 2 basis points today. The German delay on approving Greek aid exacerbated the crisis this week. While Green Party lawmaker Juergen Trittin quoted Strauss-Kahn as telling German deputies it may be as much as 120 billion euros, the IMF chief later declined to publicly say how much aid Greece will require. Germany may make a final aid decision on May 7 when the upper house of parliament could approve its share of the package, German Finance Minister Wolfgang Schaeuble said at the Berlin press conference. Aid Package Contagion from the Greek crisis is “threatening the stability of the financial system,” Organization for Economic Cooperation and Development Secretary General Angel Gurria said in an interview with Bloomberg Television in Berlin today. “This is like Ebola. When you realize you have it you have to cut your leg off in order to survive.” As Greece waits for its euro-region partners to disburse funds, the European Union hasn’t announced concrete plans to help other nations should aid be needed. Negotiations on the conditions to be attached to Greece’s aid package continued today in Athens and Trichet said he expected them to be concluded by the weekend. The crisis has highlighted the absence of a common fiscal policy to cement Europe’s monetary union, frustrating Trichet’s efforts to promote a “common destiny” for its 16 members. Greece’s budget deficit amounted to 13.6 percent of gross domestic product last year, the second-highest in the euro region after Ireland and four times Germany’s shortfall. Ireland’s shortfall was 14.3 percent and Spain’s 11.2 percent. German Opposition Aid to Greece faces opposition in Germany, where state elections are due in North Rhine-Westphalia on May 9. Almost 60 percent of Germans don’t want to help Greece, Die Welt newspaper reported, citing a survey of 1,009 people. International concern is also growing. The Greek situation is “of great concern” to President Barack Obama , White House spokesman Bill Burton said today. Canadian Finance Minister Jim Flaherty told reporters in Ottawa that the crisis is a “significant concern” and that support needs to be provided “sooner rather than later.” To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

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Greece Turning Viral Sparks Search for EU Solutions as Aid Estimates Surge

April 28, 2010

By Simon Kennedy April 28 (Bloomberg) — European policy makers may need to stump up as much as 600 billion euros ($794 billion) in aid or buy government bonds if they are to stamp out the region’s spreading fiscal crisis, said economists at Goldman Sachs Group Inc., JPMorgan Chase & Co. and Royal Bank of Scotland Group Plc. As Greece’s budget turmoil infects markets from Rome to Dublin, economists are urging German Chancellor Angela Merkel , European Central Bank President Jean-Claude Trichet and other officials to come up with unprecedented measures. Other steps could see governments guaranteeing bonds and the ECB abandoning collateral rules or reviving unlimited lending to banks, the economists said. Bonds and stocks have plunged across Europe in the past week while Merkel’s government delayed approving a rescue plan for Greece. As OECD head Angel Gurria likens the crisis to the Ebola virus, the EU may need to come up with a plan equivalent to the $700 billion Troubled Asset Relief Program deployed by the U.S. after the collapse of Lehman Brothers Holdings Inc. “It is perhaps time to think of policy options of the last resort in the current sovereign crisis,” said David Mackie , chief European economist at JPMorgan in London. “It may now be time for the euro area to do something much more dramatic in order to prevent the stress from creating another broad-based financial crisis which pushes the region back into recession.” Virus Spread The extra yield that investors demand to hold Portuguese 10-year bonds over bunds rose 59 basis points to 277 points yesterday, the most since 1997, before slipping 3 points today. The spread on Spanish debt increased to the most in more than a year yesterday and the spread on the bonds of Italy, the euro region’s third-largest economy, was the highest since July. The premium on Greek bonds surpassed 8 percentage points. “This is like Ebola,” Organization for Economic Cooperation and Development Secretary General Gurria told Bloomberg Television today. “It’s threatening the stability of the financial system.” The World Health Organization calls Ebola “one of the most virulent viral diseases known to humankind.” The first stage of an enhanced rescue would be for the euro-area and International Monetary Fund to boost the size of the Greek lifeline package from the 45 billion euros initially discussed for the first year, said Erik Nielsen , chief European economist at Goldman Sachs. Talks between the EU, the IMF and the Greek government are likely focused on assistance in the first year of between 55 billion euros and 75 billion euros with an announcement by early next week, he said yesterday. That would ensure Greece doesn’t have to access the market for the next year or so, he said. Speed IMF Managing Director Dominique Strauss-Kahn told German lawmakers today that Greece may need a total of as much 120 billion euros, said Green Party lawmaker Juergen Trittin in a statement. Trichet emphasized the importance of quickly handing out funds if talks in Athens between Greek, EU and IMF official conclude this weekend. “The rapidity of the decision is absolutely essential,” he told reporters. A Greek agreement may not be enough to end a crisis that’s ricocheting through all euro region markets and governments may have to come up with a blanket plan for the bloc as a whole, said Mackie. He calculates that in a worst-case contagion scenario, supporting Spain, Portugal and Ireland and Greece may require aid worth 8 percent of the gross domestic product of the rest of the region. That’s equivalent to about 600 billion euros. Greek Junk “This is a big number, but the region has the fiscal capacity to backstop both banks and these countries,” said Mackie. Governments could also guarantee each other’s debt for a limited period such as three years, an “attractive form of support because no money is needed up front,” he said. The ECB may also have a role to play even if the crisis has its roots in fiscal policy. Following yesterday’s decision by Standard & Poor’s to downgrade Greek debt to junk status, the central bank may need to dilute its collateral rules again so as it can keep accepting the country’s bonds when making loans, said economists led by Juergen Michels at Citigroup Inc. Under current rules, Greek bonds will be ineligible at money-market operations if Fitch Ratings and Moody’s Investors Service cut them to junk as well. “The collateral rules may have to be changed soon again in order to maintain the eligibility of Greek bonds,” Michels’ team said in a note to clients today. ‘Nuclear Option’ The central bank could eventually start accepting all government debt regardless of its rating and revive last year’s policy of lending unlimited amounts for periods up to a year so as to support the region’s banks, said Jacques Cailloux , chief European economist at Royal Bank of Scotland Group Plc. What Cailloux calls the “nuclear option” of the ECB purchasing government bonds is also attracting attention among economists. While the central bank is prohibited from buying assets directly from authorities, it can do so on the secondary market. “We need 300 billion euros of purchases and then the problem goes away overnight,” said James Nixon , co-chief European economist at Societe Generale SA. Obstacles to a sweeping bailout package abound. The EU’s structure means no one elected politician is responsible for ensuring Greece’s survival and Trichet, the only major official solely responsible for the euro, has no authority to disburse taxpayers’ funds. In Germany, Merkel has delayed approving the release of funds for Greece in the face of voter opposition and an election in North Rhine-Westphalia in May 9. ‘Extremely Unrealistic’ German politicians and central bankers may also oppose government bond purchases by the ECB as that would run counter to the country’s tradition of fiscal conservatism since World War II. That option is ‘extremely unrealistic,” said Marco Annunziata , chief economist at UniCredit Group in London. It “would be seen, correctly, as direct monetary financing of excessive fiscal deficits. German opposition to such a move would be even stronger than to fiscal bailout operations.” European policy makers continue to play down speculation of contagion, with ECB Executive Board member Juergen Stark saying today that Greece should be seen as a “unique case.” Leaders will wait until around May 10 before meeting again to discuss Greece, EU President Herman Van Rompuy said today in Tokyo. He also said there was “no question” of Greece restructuring its debt. Strike Back Some economists are optimistic that market turmoil will eventually force politicians and central bankers to do what’s necessary to rescue the euro region. Eric Kraus , a strategist at Otkritie Financial Co. in Moscow, said he’s buying Greek bonds on the bet policy makers will eventually strike back. “Sooner or later those morons in Brussels and Berlin will realize that they are playing with fire, have already been burned, and will have to stop feeding the flames,” said Kraus, who works at a brokerage part-owned by Russia’s second-biggest bank. “Then we should see a very nice bounce.” To contact the reporters on this story: Simon Kennedy in Paris at skennedy4@bloomberg.net

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Greece’s Junk Contagion Pressures EU to Broaden Bailout After Market Rout

April 27, 2010

By Simon Kennedy and Emma Ross-Thomas April 28 (Bloomberg) — Europe’s worsening debt crisis is intensifying pressure on policy makers to widen a bailout package beyond Greece after a cut in the nation’s rating to junk drove up borrowing costs from Italy to Portugal and Ireland. As German Chancellor Angela Merkel delays approval of a 45 billion-euro ($59 billion) Greek rescue, the crisis is spreading. Portugal’s benchmark stock index yesterday fell the most since the aftermath of Lehman Brothers Holdings Inc.’s collapse, while the extra yield that investors demand to hold Italian and Irish debt over bunds rose to a 10-month high. The danger for European officials is that the fiscal turmoil which started six months ago with fudged Greek budget data will spin out of their control. As Greece waits for its euro-region partners to disperse funds, the European Union has announced no concrete plans to help other nations should aid be needed. The euro weakened to the lowest in a year. “Policy makers need to get ahead of the curve,” Eric Fine, who manages Van’s Eck’s G-175 Strategies emerging-market hedge fund. “This is no longer a problem about Greece or Portugal, but about the euro system.” Governments may hold a summit in early May to discuss Greece, officials said. The euro dropped 1.5 percent to $1.3183 yesterday, taking its decline for the year to 8 percent. The spread on the debt of Italy, the euro region’s third-largest economy, rose 30 basis points to 217 points. Portugal’s PSI-20 stock index dropped 5.4 percent, the most since October 2008. Real Risk “The biggest risk now is that the market speculates against every single indebted peripheral country, and that could lead to a sovereign debt crisis,” said Axel Botte , a fixed- income strategist at AXA Investment Managers in Paris. “The contagion risk is real.” Bonds plunged as Standard & Poor’s lowered its rating on Greece by three steps to BB+ from BBB+ and warned that investors could recover as little as 30 percent of their initial outlay if the country restructures its debt. The shift came minutes after the rating company reduced Portugal by two steps to A- from A+. The moves exacerbated concern that Portugal and other nations trying to cut budgets will be left to fend for themselves by an EU that took two months to agree on a plan for Greece. “As long as there is no Greek solution there will be continuous problems with the other peripheral economies,” said Gilles Moec , an economist at Deutsche Bank AG. “Every week we think we have clarification and then things become murkier.” Market Attack Portuguese Finance Minister Fernando Teixeira dos Santos said yesterday his country must react to “attacks by markets.” The crisis is deepening as German lawmakers debate whether to put taxpayers’ money at risk in the face of public opposition and an election in the state of North Rhine-Westphalia on May 9. Bild Zeitung , Germany’s biggest-selling tabloid, yesterday ran a front-page headline asking: “Why do we have to pay Greece’s luxury pensions?” European Central Bank President Jean-Claude Trichet, who declined to comment to reporters on yesterday’s downgrades, is in Berlin today to brief lawmakers on Greece’s deficit-cutting plans. The country is struggling to convince investors it can push its shortfall below the EU’s limit of 3 percent of gross domestic product from 13.6 percent last year. The yield on the Greek two-year note rose 505 basis points to 18.99 percent yesterday, more than 20 times the comparable German bond and 6 percentage points more than similar-maturity notes from Pakistan. Portugal’s 10-year bond yield jumped 41 basis points to 5.724 percent. Redemption Greece, which faces 8.5 billion euros in bonds coming due on May 19, must still agree on terms for its rescue package, which will be co-financed by the euro region and the International Monetary Fund. Greek Prime Minister George Papandreou last week activated the aid package and is facing fire from investors who say his budget steps need to go further and from voters who are staging strikes to protest further austerity measures. As the turbulence exposes the weakness of having a currency area without a single fiscal authority, some economists said policy makers need to create a lending mechanism that will help other euro areas members through fiscal crises. “What is missing in Europe is an authority that can back sovereigns through a crisis,” James Nixon , co-chief European economist at Societe Generale SA in London. “We desperately need this.” The ECB should consider the “nuclear option” of buying government bonds to fight the crisis, said Jacques Cailloux , chief European economist at Royal Bank of Scotland Group Plc. While the central bank is prohibited from buying assets directly from governments, it can do so on the secondary market. Shock “It sends a signal to investors that the ECB is confident member states won’t default,” said Cailloux. “It’s a powerful confidence shock.” ECB officials including Trichet have down played the risk of contagion from Greece, arguing other economies are in better shape even if they need to cut deficits. “There is no economic cause for a contagion discussion,” Governing Council member Ewald Nowotny said in an April 24 interview. Still, Ireland’s deficit was 14.3 percent of GDP last year, the highest in the EU. Spain’s was 11.2 percent and Portugal’s 9.4 percent. Marc Faber , the publisher of the Gloom, Boom & Doom report, said the time had come to eject euro members that repeatedly violated the region’s budget rules, even though no mechanism for such steps yet exists. “The best would be to kick out Greece and the countries that abuse the system,” Faber said in an interview. “They didn’t have the fiscal discipline that was essentially imposed by EU.” To contact the reporters on this story: Simon Kennedy in Paris at skennedy4@bloomberg.net Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net ;

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Greece’s Junk Contagion Pressures EU to Broaden Bailout After Market Rout

April 27, 2010

By Simon Kennedy and Emma Ross-Thomas April 28 (Bloomberg) — Europe’s worsening debt crisis is intensifying pressure on policy makers to widen a bailout package beyond Greece after a cut in the nation’s rating to junk drove up borrowing costs from Italy to Portugal and Ireland. As German Chancellor Angela Merkel delays approval of a 45 billion-euro ($59 billion) Greek rescue, the crisis is spreading. Portugal’s benchmark stock index yesterday fell the most since the aftermath of Lehman Brothers Holdings Inc.’s collapse, while the extra yield that investors demand to hold Italian and Irish debt over bunds rose to a 10-month high. The danger for European officials is that the fiscal turmoil which started six months ago with fudged Greek budget data will spin out of their control. As Greece waits for its euro-region partners to disperse funds, the European Union has announced no concrete plans to help other nations should aid be needed. The euro weakened to the lowest in a year. “Policy makers need to get ahead of the curve,” Eric Fine, who manages Van’s Eck’s G-175 Strategies emerging-market hedge fund. “This is no longer a problem about Greece or Portugal, but about the euro system.” Governments may hold a summit in early May to discuss Greece, officials said. The euro dropped 1.5 percent to $1.3183 yesterday, taking its decline for the year to 8 percent. The spread on the debt of Italy, the euro region’s third-largest economy, rose 30 basis points to 217 points. Portugal’s PSI-20 stock index dropped 5.4 percent, the most since October 2008. Real Risk “The biggest risk now is that the market speculates against every single indebted peripheral country, and that could lead to a sovereign debt crisis,” said Axel Botte , a fixed- income strategist at AXA Investment Managers in Paris. “The contagion risk is real.” Bonds plunged as Standard & Poor’s lowered its rating on Greece by three steps to BB+ from BBB+ and warned that investors could recover as little as 30 percent of their initial outlay if the country restructures its debt. The shift came minutes after the rating company reduced Portugal by two steps to A- from A+. The moves exacerbated concern that Portugal and other nations trying to cut budgets will be left to fend for themselves by an EU that took two months to agree on a plan for Greece. “As long as there is no Greek solution there will be continuous problems with the other peripheral economies,” said Gilles Moec , an economist at Deutsche Bank AG. “Every week we think we have clarification and then things become murkier.” Market Attack Portuguese Finance Minister Fernando Teixeira dos Santos said yesterday his country must react to “attacks by markets.” The crisis is deepening as German lawmakers debate whether to put taxpayers’ money at risk in the face of public opposition and an election in the state of North Rhine-Westphalia on May 9. Bild Zeitung , Germany’s biggest-selling tabloid, yesterday ran a front-page headline asking: “Why do we have to pay Greece’s luxury pensions?” European Central Bank President Jean-Claude Trichet, who declined to comment to reporters on yesterday’s downgrades, is in Berlin today to brief lawmakers on Greece’s deficit-cutting plans. The country is struggling to convince investors it can push its shortfall below the EU’s limit of 3 percent of gross domestic product from 13.6 percent last year. The yield on the Greek two-year note rose 505 basis points to 18.99 percent yesterday, more than 20 times the comparable German bond and 6 percentage points more than similar-maturity notes from Pakistan. Portugal’s 10-year bond yield jumped 41 basis points to 5.724 percent. Redemption Greece, which faces 8.5 billion euros in bonds coming due on May 19, must still agree on terms for its rescue package, which will be co-financed by the euro region and the International Monetary Fund. Greek Prime Minister George Papandreou last week activated the aid package and is facing fire from investors who say his budget steps need to go further and from voters who are staging strikes to protest further austerity measures. As the turbulence exposes the weakness of having a currency area without a single fiscal authority, some economists said policy makers need to create a lending mechanism that will help other euro areas members through fiscal crises. “What is missing in Europe is an authority that can back sovereigns through a crisis,” James Nixon , co-chief European economist at Societe Generale SA in London. “We desperately need this.” The ECB should consider the “nuclear option” of buying government bonds to fight the crisis, said Jacques Cailloux , chief European economist at Royal Bank of Scotland Group Plc. While the central bank is prohibited from buying assets directly from governments, it can do so on the secondary market. Shock “It sends a signal to investors that the ECB is confident member states won’t default,” said Cailloux. “It’s a powerful confidence shock.” ECB officials including Trichet have down played the risk of contagion from Greece, arguing other economies are in better shape even if they need to cut deficits. “There is no economic cause for a contagion discussion,” Governing Council member Ewald Nowotny said in an April 24 interview. Still, Ireland’s deficit was 14.3 percent of GDP last year, the highest in the EU. Spain’s was 11.2 percent and Portugal’s 9.4 percent. Marc Faber , the publisher of the Gloom, Boom & Doom report, said the time had come to eject euro members that repeatedly violated the region’s budget rules, even though no mechanism for such steps yet exists. “The best would be to kick out Greece and the countries that abuse the system,” Faber said in an interview. “They didn’t have the fiscal discipline that was essentially imposed by EU.” To contact the reporters on this story: Simon Kennedy in Paris at skennedy4@bloomberg.net Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net ;

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Merkel Hits Campaign Trail Warning That Greek Bailout Not Yet Guaranteed

April 26, 2010

By Tony Czuczka April 27 (Bloomberg) — German Chancellor Angela Merkel hit the campaign trail with a warning to Greece and the rest of the euro region that a bailout of the debt-stricken nation isn’t a done deal. “I’ve said for weeks that Greece must do its homework first,” Merkel said late yesterday, drawing applause from an audience in the town of Soest in North Rhine-Westphalia, where state elections are due on May 9. She said that while Germany is prepared to release funds for debt-stricken Greece, “first I want to see the program.” Greece is paying the price for Merkel’s bid to keep her coalition in control of Germany’s biggest state and ease voters’ anger about having to help fund a $60 billion bailout. Greek bonds plunged yesterday as Germany’s reluctance to guarantee funds stoked concern that a rescue package co-financed by the euro region and the International Monetary Fund could still fall apart. Greece has 8.5 billion euros ($11.3 billion) of bonds coming due 10 days after the regional election and the extra yield that investors demand to hold its 10-year bonds over German bunds jumped 93 basis points to 652 basis points yesterday. “It is extraordinary that a euro-zone member country finds itself a mere three weeks away from a potential default with a clear possibility that uncertainty will only be resolved at the last minute,” said Marco Annunziata , chief European economist at UniCredit Group in London. Defend the Euro Merkel dwelled on Greece at yesterday’s rally as her Christian Democrats defend their hold on the state, saying any rescue would have the aim of supporting the euro rather than bailing out a Greek state that lived beyond its means. “We’re not doing this because we believe Greece needs help,” she said. “We’re doing it because we’re interested in the euro’s stability. We can’t idly stand by when our currency comes under threat.” The euro has dropped 7 percent against the dollar this year and fell 0.4 percent to $1.3331 at 1:10 p.m. in New York yesterday. In Greece, Prime Minister George Papandreou will today brief lawmakers on the economic outlook at 10.30 a.m. local time. Transport workers will hold a strike and the ADEDY civil service union stages a rally at 6.30 p.m. GSEE, Greece’s biggest private-sector union, will also decide on whether to go on strike. Majority at Risk Polls in recent weeks show Merkel’s Christian Democrats and their Free Democratic allies at risk of losing their governing majority in North Rhine-Westphalia, Germany’s most populous state. The two parties, which also underpin Merkel’s national government, fell short of a majority with support of 46 percent in an April 21 Forsa poll for Stern magazine. The margin of error was plus or minus 3 percentage points. A defeat for Merkel might wipe out her coalition’s majority in the upper house of the national parliament and hamper her government’s efforts to cut taxes and extend the life of German nuclear power plants. Merkel told the rally she wants Greece to agree to several years of budget cuts before releasing any German aid. “Greece has put savings measures into effect this year, but one year won’t be enough” to restore confidence in the financial markets, she said. Negotiating Terms Greek Finance Minister George Papaconstantinou was negotiating terms of the aid during a meeting of counterparts from the world’s biggest nations in Washington. With Greece facing 8.5 billion euros of bonds maturing May 19, finance ministers yesterday sought a swift resolution of the talks amid concern any delay may trigger a further sell-off and spread to other markets. European Central Bank President Jean-Claude Trichet said he’s certain aid talks for Greece won’t drag on. “I’m confident that the negotiations” regarding the aid package “will conclude soon,” Trichet said at an event in New York yesterday. The German government will seek “fast-track” parliamentary approval for Greek aid that may begin next week once the IMF has finished its review, German Finance Minister Wolfgang Schaeuble said after briefing lawmakers in Berlin today. “First I want to see the program the IMF and Greece and the European Commission have worked out,” Merkel told the campaign rally. “Then we’ll talk about what we have to do.” To contact the reporters on this story: Tony Czuczka in Soest, Germany at aczuczka@Bloomberg.net ; Patrick Donahue in Berlin at at pdonahue1@bloomberg.net

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Internet Traffic, Video Meetings Surge as Ash Grounds Air Travel in Europe

April 20, 2010

By Matthew Campbell April 20 (Bloomberg) — Stranded flyers created a surge in demand for travel industry Web sites and remote conferencing services as a shutdown of many flights in Europe continued through a sixth day. Visits to aviation industry sites as a proportion of U.K. Internet traffic have doubled since Iceland’s Eyjafjallajökull volcano erupted April 14, according to Experian Plc.’s Hitwise Web-tracking service. U.K. visits to the Web site of the Eurostar train service, which connects London to continental Europe, rose 67 percent last week. About 81,000 European flights were canceled through yesterday, postponing events such as the World Retail Congress in Berlin and stranding business and leisure travelers all over the world. London Heathrow, Europe’s busiest hub, remains closed to traffic, while Charles de Gaulle airport near Paris is only partially open. “We’re continuing to see very high volumes of traffic to aviation and news sites,” Hitwise Research Director Robin Goad said in a phone interview. “We’ve also seen 10 times as many volcano-related searches as before.” The shutdown has forced in-person corporate meetings onto audio and video conferencing platforms, prompting a jump in demand for such services from two of the biggest European telecommunication operators. Deutsche Telekom AG , Europe’s largest phone company, has experienced a “significant increase” in demand for conferencing services from large companies, spokesman Dirk Wende said via phone. The company declined to provide figures for the size of the rise. Web Conferencing Surge BT Group Plc , the largest U.K. fixed-line phone company, has seen demand for audio and video conferencing from large companies rise an unprecedented 35 percent, a spokesman said April 19. About 80 percent of the demand is for conventional audio conferencing, with the remainder for video, he said. Operators are taking advantage of the shutdown to promote their conferencing services with special offers to corporate clients. Both Deutsche Telekom and Telefonica SA , Europe’s second-largest phone company, are offering free use of conference services, with the Spanish company’s promotion set to last until the end of the shutdown. ‘Wakeup Call’ While many companies have been open to video conferencing in principle, “the stars often weren’t aligned,” said Ofer Shapiro, chief executive officer of PC conferencing provider Vidyo Inc . “This type of event forces people to look into it,” he added. “It’s a wakeup call.” Royal KPN NV, the largest Dutch telephone company, has seen conference calls increase 5 percent and Web conferences become 20 percent more popular since airspace was closed, spokeswoman Liselore Stuut said in an e-mail. The company also offered free WiFi connections at Schiphol Airport, a hub for Air France-KLM, Europe’s biggest airline. Traffic authorities across Europe banned flights because of the spread of volcanic ash. The ash, which can cause jet engines to fail by melting and then congealing in the turbines, prompted the closure of airports from Dublin to Moscow. Scandinavian countries were some of the earliest affected by the ash cloud as it spread east and south from Iceland. In Sweden, Teliasonera AB said international fixed and mobile- phone use increased 20 percent. Videoconferencing use rose over the weekend, “when it usually is quite calm,” spokeswoman Irene Krohn said in an e-mail. Web Traffic Overall Web traffic in northern Europe is well above normal levels, according to Akamai Technologies Inc. The Web infrastructure company’s Network Traffic Overview showed the amount of data being delivered online at 12:30 p.m. London time today was 6.2 percent above normal levels in the U.K., and 5.6 percent and 5.3 percent higher in France and Germany, respectively. Advances in Internet technology have protected even the most popular Web sites from crashes due to suddenly increased traffic, Hitwise’s Goad said. “Three or four years ago this would have knocked over a few travel sites,” he said. Not all modes of communication are experiencing surges in demand. France Telecom SA has not noticed significant increases in mobile network usage, spokeswoman Vanessa Clarke said in an e-mail. Deutsche Telekom has seen “no particular increases” in mobile usage, Wende said. To contact the reporter on this story: Matthew Campbell in London at mcampbell39@bloomberg.net .

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Greek Debt Talks, Trade Shows Suffer as Flight Disruptions Strike Business

April 19, 2010

By Chiara Remondini April 19 (Bloomberg) — European business events including trade fairs in London and Milan and talks on a loan package for Greece have been diminished, delayed or canceled because of flight disruptions caused by volcanic ash from Iceland. U.S. bank Morgan Stanley told clients “stuck in London” following an analyst day for Wal-Mart Stores Inc.’s Asda unit that it can arrange desk space, analyst and management meetings, and store tours to fill their time. The Salone del Mobile in Milan, the world’s biggest furniture and design fair, had fewer visitors than expected because of travel restrictions. “About half of the clients we were expecting didn’t show up” in Milan, said Maurizio Peregalli, a designer at Zeus, which makes furniture and lighting. “Our business has been hit hard by the groundings.” Traffic authorities across Europe imposed a flight ban after Iceland’s Eyjafjallajökull volcano erupted April 14, spewing dust across Europe. The ash, which can clog plane engines, has resulted in the cancellation of as many as 63,000 flights and prompted the closure of airports from Dublin to Moscow. Air France-KLM Group , Europe’s largest airline, is among carriers pushing European governments to ease restrictions. The World Retail Congress in Berlin, set to host Burberry Group Plc Chief Executive Officer Angela Ahrendts , Kingfisher Plc CEO Ian Cheshire and WPP Plc CEO Martin Sorrell , was postponed until October. “Many speakers and delegates faced huge difficulties reaching Berlin in time for the event,” the organizers said today in a statement. The conference had been scheduled for April 21 to April 23. London Book Fair The London Book Fair , the biggest gathering of international literary agents and publishers, predicts a difficult start today, said exhibition director Alistair Burtenshaw. “The show must — and will — go on and we will provide all the help we can to ensure it runs as smoothly as possible,” Burtenshaw said in a statement on the fair’s Web site. U.K. Prime Minister Gordon Brown and opposition Conservative Party leader David Cameron canceled campaign trips to Scotland today ahead of the May 6 elections. Italian Prime Minister Silvio Berlusconi scrapped talks with German Chancellor Angela Merkel , including a dinner in Berlin. The Greek government’s talks with the European Central Bank, the International Monetary Fund and the European Commission about an emergency loan package will be delayed until April 21, the Greek Finance Ministry said yesterday. The new date assumes improved travel conditions, the ministry said. No Roubini Inrev, the European Association for Investors in Non-listed Real Estate Vehicles, said today that it canceled its annual meeting in Venice, scheduled to begin April 22. Nouriel Roubini, the New York University economist who predicted the financial crisis, was among the speakers. Riksbank Governor Stefan Ingves won’t participate in an interest rate meeting today in Stockholm because he’s abroad and won’t make it back in time, the Swedish central bank said. Volcanic ash can cause jet engines to fail by melting and then congealing in the turbines. Test flights in Europe have been successful so far, according to airline executives. The ash cloud may reach the coast of Newfoundland later today, the U.K. Met office predicted. Lost airline revenue from the restrictions is rising to as much as $300 million a day, according to the International Air Transport Association. IATA predicted that it will take as long as six days for traffic to get back to normal once a ban ends, as carriers work through a backlog of stranded passengers and reposition planes. Puma, Stadiums Puma AG , the second-largest European sporting-goods maker, postponed its “World Cup 2010 Press Day” event scheduled for today in Herzogenaurach, Germany, due to the air traffic disruptions, according to an e-mailed note. In Dublin, an awards ceremony for the global stadium industry was postponed last night. More than 150 executives from sports teams and stadiums, including Red Bull New York and Manchester United Ltd., were to attend the conference this week. “With speakers stuck in Mexico, Istanbul, the U.S. and even the U.K., it was clear that we had to reschedule,” said Ian Nuttall, CEO of event organizer Xperiology. “We’re currently in the process of fixing new dates this June. Hopefully by then the dust has settled.” The Cobalt Conference 2010 in Cape Town set to start April 21 was delayed as several speakers and many delegates were coming from or travelling through Europe. ‘Sensible’ Decision “We have reluctantly, but we think sensibly, decided to postpone the conference to later this year,” David Weight, general manager of the Cobalt Development Institute, said on the group’s Web site. Bayerische Motoren Werke AG canceled a press trip ahead of the Beijing car show to visit a factory in Shenyang, China. BMW officials and journalists were due to depart today. The 16th International Conference & Exhibition on Liquefied Natural Gas in Oran, Algeria, due to be attended by the ministers of the Gas Exporting Countries Forum, was delayed until tomorrow because of the volcano. To contact the reporter on this story: Chiara Remondini in Milan at cremondini@bloomberg.net

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Icelandic Volcano Eruption Falls Short of Weather-Changing Pinatubo Blast

April 19, 2010

By Stuart Biggs and Jeremy van Loon April 19 (Bloomberg) — The volcanic ash spewing from Iceland that’s disrupting air travel across Europe is hundreds of times less than erupted from Mount Pinatubo in the Philippines, which altered the world’s climate in 1991. The impact of Iceland’s Eyjafjallajökull volcano is likely to be “virtually non-existent” on global climate because the eruption is too small and gases are not penetrating the upper atmosphere, said Blair Trewin , a senior climatologist with the Australia’s National Climate Centre in Melbourne. “In its current form, we wouldn’t expect the eruption to have any significant global climate effects,” Trewin said today in a telephone interview. “In terms of how much material was being put up into the atmosphere, Pinatubo was several hundred times larger than this has been so far.” Major volcanic eruptions can lower the earth’s temperature for as long as three years by throwing sulfuric gases into the atmosphere that absorb the sun’s radiation, according to NASA . Mount Pinatubo disgorged about 20 million tons of sulfur dioxide into the stratosphere, causing global temperatures to drop by about 1 degree Fahrenheit (0.6 degrees Celsius) until 1993, according to the U.S. Geological Survey . The ice-covered Icelandic volcano erupted for the second time in four weeks on April 14, spewing ash across Europe’s airspace and causing cancellation of as many as 63,000 flights. The Pinatubo eruption, which killed as many as 800 people and left 100,000 homeless, had a greater impact on the environment because it lies close to the equator, Trewin said. Air flows in the upper atmosphere from the equator to the poles, meaning Pinatubo’s gases spread over the whole globe, he said. That wouldn’t be the case with Iceland because of its northern latitude, he said. ‘Much Smaller’ Iceland’s volcanic eruption is “much smaller” than Pinatubo, Michael Zemp, a glaciologist with the World Glacier Monitoring Service at the University of Zurich, said today in a telephone interview. Information from collegues in Iceland indicates “it’s a short-term thing” that is unlikely to have as profound effect as Pinatubo. Eyjafjallajökull is throwing gas, dust and other debris about 12,000 feet (3,650 meters) to 15,000 feet into the air, below the 30,000-feet threshold where ash could reduce temperatures, Elwynn Taylor, an agricultural meteorologist at Iowa State University in Ames, said in an interview last week. “Volcanic material will only have a longer term impact on the climate of it gets into the upper atmosphere above rain clouds, otherwise it just gets rained out in a few days,” Trewin said today. Around the world, 18 volcanoes are currently active including three in Russia’s Kamchatka peninsula, one in Hawaii and one in Alaska, according to the Smithsonian Institution’s Global Volcanism Program . This year, 39 volcanoes have erupted, including Yasur on the island of Vanuatu, the institute’s Web site said. To contact the reporters on this story: Stuart Biggs in Tokyo at sbiggs3@bloomberg.net Jeremy van Loon in Berlin at jvanloon@bloomberg.net

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Air France, Lufthansa Test Fly Aircraft; Some Flights May Resume Tomorrow

April 18, 2010

By Gregory Viscusi and Omar R. Valdimarsson April 18 (Bloomberg) — Air France-KLM Group and Deutsche Lufthansa AG were among carriers saying they managed to fly aircraft without suffering damage as governments across Europe extended a flight ban after Iceland’s volcanic eruption last week caused the grounding of 63,000 flights. Air France’s KLM Dutch unit operated nine test flights with only a crew after a technical inspection following one late yesterday in Dutch airspace revealed that the quality of the atmosphere is “in order.” Air France said its engineers found no visual impact on a flight from Paris to Toulouse. Lufthansa sent 10 aircraft from Munich to Frankfurt to reposition its fleet yesterday. All arrived safely. “We asked the Frankfurt crew to check any damage with the aircraft and the windows,” Wolfgang Weber, a spokesman at Lufthansa, Europe’s second-largest carrier, said in a phone interview. “There wasn’t even the smallest scratch.” About 17 percent of 24,000 flights that would cross Europe’s airspace on a Sunday will fly today as airports from Dublin to Moscow closed, according to Eurocontrol. While the Brussels -based group forecasts as much as half of the Europe’s airspace may be “risk free” tomorrow, U.K. Transport Minister Andrew Adonis said in televised comments that flights across northern Europe won’t be safe in the next 24 hours, citing advice given by the country’s Met Office. Air Berlin, British Airways Volcanic ash can cause jet engines to fail by melting and then congealing in the turbines. Test flights so far have shown no dangerous particles in European airspace following the eruption, according to airline executives. Flights were grounded after April 14 when an eruption at the 1,666-meter (5,466-foot) Eyjafjallajökull volcano spewed dust across Europe’s airspace. The disruptions are costing carriers $200 million a day, the International Air Transport Association said. Air Berlin Plc ran two test flights yesterday from Munich to Dusseldorf and from Nuremberg to Hamburg without problems, flying at the permitted 3,000 meters, the carrier said in a statement. “We’re puzzled why the results of the Lufthansa and Air Berlin test flights had no influence on safety authorities’ decision criteria,” Air Berlin CEO Joachim Hunold said. British Airways Plc , Europe’s third-largest carrier, said it operating a test flight today from Heathrow airport to assess the quality of the U.K. airspace. The carrier has canceled all flights to and from London through tomorrow. The European Commission said it will set up a group to assess the impact of the ash cloud on the travel industry and the economy. Spain called a video conference for European Union transport ministers tomorrow to discuss emergency plans. Re-Opening In Norway, the airspace north of Bergen airport until Berlevag was re-opened, air controller Avinor said on its web site. The airspace over southern Norway may be cleared in the next six to 12 hours, Avinor said. Sweden opened the air space north of Soderhamn, including Kiruna airport, according to the LFV flight controller. The rest of the air space remains shut, it said. Germany’s DFS flight safety authority eased a ban at some airports earlier today. Still, all the country’s airports will shut again by 8 p.m., with Berlin-Tegel and Berlin-Schoenefeld closing at 10 p.m., a spokeswoman at the agency said. The closings will remain until at least 2 a.m. tomorrow. France’s civil aviation authority banned flying in the previously unaffected south of the country today. French airspace and all airports in the country will remain closed until at least 8 a.m. tomorrow. Spain, Greece, Turkey Airspace in northern Spain was also shut. Rome, Madrid, Athens and Istanbul were the only major European airports still in operation. The Netherlands extended the closure of its airspace until 8 p.m. local time and Amsterdam’s Schiphol Airport is closed until at least that time. “We hope to receive permission as soon as possible after that to start up our operation and to transport our passengers to their destinations,” KLM Chief Executive Officer Peter Hartman said in a statement. Airlines in the Asia-Pacific region canceled most Europe- bound flights, with Qantas Airways Ltd. saying it won’t fly to European destinations before April 20 and can’t confirm when service on those routes will resume. Carriers including Air China Ltd., Japan Airlines Corp., Thai Airways International Pcl, Korean Air Lines Co. and Cathay Pacific Airways Ltd. shut down service to Europe, while Singapore’s Changi Airport reported cancelation of 34 arrivals and departures, including Singapore Airlines Ltd. flights to nine European destinations. Little Visibility Haraldur Eiriksson, a meteorologist at the Icelandic meteorological office , predicts little changes in the ash pattern in Europe in at least through April 23. “This could have an ongoing impact on European air travel,” he said. “The forecast hasn’t changed although the height the volcano is spewing the ash into has decreased from 5 to 6 kilometers to less than 3 kilometers and now it can’t be seen on our radars. Due to cloudy weather conditions at the site of the volcano, we can’t say what the exact height of the ash is.” Volcanic eruptions may continue for months and curtail European air traffic, said Sigrun Hreinsdottir, a geophysicist at the University of Iceland in Reykjavik. “It could erupt, pause for a few weeks, and then possibly erupt again.” The last eruption of Eyjafjallajökull in December 1821 continued until January 1823. The current blast has sent ash to as high as 7 kilometers (4.5 miles), according to Gudrun Larsen, a vulcanologist at the University of Iceland. The magma had to pierce 200 meters of ice before reaching the air, she said. Polish Funeral “We really don’t know if this eruption is going to last as long as the previous one, but we can’t say it’s not a possibility,” Larsen said by telephone. The volcanic ash cloud also led world leaders, including Barack Obama , German Chancellor Angela Merkel and French President Nicolas Sarkozy to cancel plans to attend the funeral of Polish President Lech Kaczynski , killed with 95 others in an April 10 plane crash. Russian President Dmitry Medvedev arrived in a government jet which had clearance to fly at low altitudes. Airline stocks, including British Airways, Lufthansa, and Ryanair Holdings Plc, fell April 16 as fleets were grounded. El Al Israel Airlines, which has canceled all European flights except to Madrid, Rome and Athens, fell the most in 17 months on the Tel Aviv exchange today. Italy will keep airspace in the north of the country closed until at least 8 a.m. tomorrow and may curtail flights in the south, ENAC, the nation’s civil aviation authority, said in an e-mailed statement yesterday. Italian Cheese Exports of Italian products such as mozzarella cheese, flowers, fruit and vegetables worth 10 million euros ($13.5 million) are blocked, the country’s Coldiretti agricultural group said in a statement. Deutsche Post AG ’s DHL unit has diverted air freight to southern European airports including Bergamo in Italy to maintain services. DHL has closed its Leipzig-Halle freight hub where at least 50 aircraft land each week, carrying up to 200,000 deliveries, spokesman Stefan Hess said. DHL switched to rail and road for deliveries in northern Europe April 16. Because of the wind direction, Iceland’s Keflavik airport is open, and North American flights are running on schedule. OAO Aeroflot, Russia’s largest air carrier, is flying to North America via the North Pole to avoid volcano ash over Europe, transportation Minister Igor Levitin told Prime Minister Putin at a meeting today, Interfax said. Delta, American The U.S.-based Air Transport Association said yesterday that 282 of 337, or 84 percent, of the day’s non-stop flights between the U.S. and Europe were canceled. Delta Air Lines Inc. , the world’s largest carrier, scrapped 97 flights today to and from Europe, spokesman Anthony Black said. A further 49 flights have been grounded for tomorrow. AMR Corp. ’s American Airlines canceled 30 flights to Europe so far today, according to spokeswoman Andrea Huguely . American is able to operate flights to and from Spain and Italy, she said. The Chicago’s Department of Aviation, which operates O’Hare International Airport, Midway International Airport and Gary- Chicago International Airport, said 14 flights bound for Chicago from northern Europe were canceled today. The eruption began on March 20 with a lava flow on the eastern flank of the Eyjafjallajökull volcano, according to the Institute of Earth Sciences at the University of Iceland. After a lull, it resumed early on April 14, directly under the icecap that covers most of the mountain. To contact the reporters on this story: Gregory Viscusi in Paris at gviscusi@bloomberg.net ; Omar R. Valdimarsson in Reykjavik valdimarsson@bloomberg.net

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Goldman Sachs Faces Probes in Britain, Germany After U.S. Files Fraud Suit

April 18, 2010

By Michael Patterson and Tony Czuczka April 18 (Bloomberg) — Goldman Sachs Group Inc. faces a regulatory probe in Britain and scrutiny from the German government after the U.S. Securities and Exchange Commission sued the firm for fraud tied to collateralized debt obligations. Prime Minister Gordon Brown today called for the Financial Services Authority to start an investigation, saying he was “shocked” at the “moral bankruptcy” indicated in the suit. Germany’s financial regulator, Bafin, asked the SEC for details on the suit, a spokesman for Chancellor Angela Merkel said. Politicians that were forced to bail out their banks during the financial crisis are turning on Goldman, which critics say helped caused the turmoil and profited from it. The European Union is also probing Goldman’s role in arranging swaps for Greece that may have masked the country’s budget deficit. “We will see politicians throughout the world piling on Goldman Sachs,” said Scott Moeller , a former investment banker now teaching at Cass Business School in London. “Now they have vulnerability. Everyone and anyone, especially politicians, are going to be trying to make hay with this one.” The SEC said that in early 2007, as the U.S. housing market teetered, Goldman Sachs created and sold a CDO linked to subprime mortgages without disclosing that hedge fund Paulson & Co. helped pick the underlying securities and bet against the vehicle, known as Abacus 2007-AC1. ‘People Were Misled’ The firm denies any wrongdoing. Fiona Laffan , a spokeswoman for Goldman Sachs, and Heidi Ashley , a spokeswoman for the FSA, declined to comment. “It looks as if people were misled about what happened,” Brown, who faces a national election on May 6, said on the BBC’s Andrew Marr program today. “The banks are still an issue. They are a risk to the economy.’ Royal Bank of Scotland Group Plc paid $841 million to Goldman Sachs to unwind its position in Abacus, which it inherited when it bought parts of ABN Amro in 2007, according to the SEC. The Edinburgh-based lender is now controlled by the British government after receiving a 45.5 billion-pound ($70 billion) taxpayer rescue, the world’s biggest banking bailout. Dusseldorf-based IKB Deutsche Industriebank AG was among the other buyers of the Abacus CDO, according to the SEC. IKB became Germany’s first casualty of the U.S. subprime-mortgage crisis in 2007 after its investments in asset-backed securities soured. KfW , Germany’s state-owned development bank, pumped almost 10 billion euros ($13.5 billion) into IKB in 2008 to shore up the country’s banking system. Legal Steps The German government ‘‘will ask the SEC for information,” said Ulrich Wilhelm , a spokesman for Merkel. “Then we will look at the records and consider possible legal steps.” The EU is investigating Goldman Sachs over swaps it arranged for Greece in 2002. The country entered a cross- currency swap with Goldman Sachs on about $10 billion of debt issued in dollars and yen. That was swapped into euros using a historical exchange rate, a mechanism that generated about $1 billion in an up-front payment from Goldman to Greece. Goldman has said it did nothing wrong. The probe will be “profound and thorough,” EU Monetary Affairs Commissioner Olli Rehn said at a press conference in Madrid yesterday. The New York-based firm is already under attack for its role as a trading partner to American International Group Inc. , the insurer bailed out by the U.S. government. Goldman Sachs said April 7 that AIG’s bailout in 2008 helped the bank and every other financial firm because the insurer’s collapse would have been “extremely” disruptive to financial markets. The $182.3 billion bailout ensured that Goldman Sachs and other counterparties were repaid in full. Much of the $12.9 billion Goldman Sachs received from AIG’s rescue was paid out to meet AIG-linked “obligations,” the firm said. To contact the reporter on this story: Michael Patterson in London at mpatterson10@bloomberg.net Tony Czuczka in Berlin at aczuczka@bloomberg.net ;

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Air France, Lufthansa Test Fly Jets in Ash as European Flight Ban Extended

April 18, 2010

By Gregory Viscusi and Omar R. Valdimarsson April 18 (Bloomberg) — Air France-KLM Group and Deutsche Lufthansa AG were among carriers saying they managed to fly empty aircraft without suffering damage as traffic authorities across Europe extended a flight ban after the eruption of an Icelandic volcano. Air France ’s KLM Dutch unit will operate nine more test flights today after a technical inspection following one late yesterday in Dutch airspace revealed that “the quality of the atmosphere is in order.” Air France plans to fly an empty Airbus A320 in the southwest of France this afternoon. Lufthansa sent 10 aircraft from Munich to Frankfurt to reposition its fleet yesterday. All arrived safely. “We asked the Frankfurt crew to check any damage with the aircraft and the windows,” Wolfgang Weber, a spokesman at Lufthansa, Europe’s second-largest carrier, said today in a phone interview. “There wasn’t even the smallest scratch.” Only 17 percent of 24,000 flights that cross Europe’s airspace on a Sunday will fly today as airports from Dublin to Moscow closed, according to Eurocontrol, the Brussels-based group that oversees regional air traffic. Flights were grounded after April 14 when an eruption at the 1,666-meter (5,466-foot) Eyjafjallajökull volcano spewed dust across thousands of miles of airspace. The disruptions are costing carriers $200 million a day, the International Air Transport Association estimates. Volcanic ash can cause jet engines to fail by melting and then congealing in the turbines. Test flights so far have shown no dangerous particles following the eruption in European airspace, according to airline executives. Air Berlin, British Airways Air Berlin Plc ran two test flights yesterday from Munich to Dusseldorf and from Nuremberg to Hamburg without problems, flying at the permitted 3,000 meters, the carrier said in a statement. The jets showed “no damage whatsoever,” it said. “We’re puzzled why the results of the Lufthansa and Air Berlin test flights had no influence on safety authorities’ decision criteria,” Air Berlin CEO Joachim Hunold said. British Airways Plc , Europe’s third-largest carrier, said it plans to operate a test flight today. The airline extended a cancelation of all flights to and from London through tomorrow. Phone calls to Eurocontrol in Brussels seeking comment went unanswered. The European Commission said today it will set up a group to assess the impact of the volcanic ash cloud on the air travel industry and the economy. EU transport ministers will hold a special videoconference tomorrow on the air travel crisis, Agence France-Presse reported. Ban Extension No planes will operate out of the U.K. until at least 1 a.m. London time tomorrow, the National Air Traffic Service said. German airports will remain closed until 8 p.m. Berlin time, the DFS air traffic control agency said. All French airspace is shut until 8 a.m. tomorrow. Amsterdam’s Schiphol Airport will close until at least 8 p.m. tonight. France’s civil aviation authority banned flying in the previously unaffected south of the country today. All French airports will remain closed until at least 8 a.m. tomorrow. Government ministers are scheduled to meet this afternoon at 4 p.m. to discuss further measures. Airspace in northern Spain was also shut. Rome, Madrid, Athens and Istanbul were the only major European airports still in operation. “We hope to receive permission as soon as possible after that to start up our operation and to transport our passengers to their destinations,” KLM Chief Executive Officer Peter Hartman said in a statement. Asian Routes Airlines in the Asia-Pacific region canceled most Europe- bound flights, with Qantas Airways Ltd. saying it won’t fly to European destinations before April 20 and can’t confirm when service on those routes will resume. Carriers including Air China Ltd., Japan Airlines Corp., Thai Airways International Pcl, Korean Air Lines Co. and Cathay Pacific Airways Ltd. shut down service to Europe, while Singapore’s Changi Airport reported cancelation of 34 arrivals and departures, including Singapore Airlines Ltd. flights to nine European destinations. Haraldur Eiriksson, a meteorologist at the Icelandic meteorological office , predicts little changes in the ash pattern in Europe in at least through April 23. “This could have an ongoing impact on European air travel,” he said. “The forecast hasn’t changed although the height the volcano is spewing the ash into has decreased from 5 to 6 kilometers to less than 3 kilometers and now it can’t be seen on our radars. Due to cloudy weather conditions at the site of the volcano, we can’t say what the exact height of the ash is.” 1821 Eruption Volcanic eruptions may continue for months and curtail European air traffic, said Sigrun Hreinsdottir, a geophysicist at the University of Iceland in Reykjavik. “It could erupt, pause for a few weeks, and then possibly erupt again.” The last eruption of Eyjafjallajökull in December 1821 continued until January 1823. The current blast has sent ash to as high as 7 kilometers (4.5 miles), according to Gudrun Larsen, a vulcanologist at the University of Iceland. The magma had to pierce 200 meters of ice before reaching the air, she said. “We really don’t know if this eruption is going to last as long as the previous one, but we can’t say it’s not a possibility,” Larsen said by telephone. The volcanic ash cloud also led world leaders, including Barack Obama , German Chancellor Angela Merkel and French President Nicolas Sarkozy to cancel plans to attend the funeral of Polish President Lech Kaczynski , killed with 95 others in an April 10 plane crash. Russian President Dmitry Medvedev arrived in a government jet which had clearance to fly at low altitudes. Airline Stocks Fall Airline stocks, including British Airways, Lufthansa, and Ryanair Holdings Plc, fell April 16 as fleets were grounded. El Al Israel Airlines, which has canceled all European flights except to Madrid, Rome and Athens, fell the most in 17 months on the Tel Aviv exchange today. Italy will keep airspace in the north of the country closed until at least 8 a.m. tomorrow and may curtail flights in the south, ENAC, the nation’s civil aviation authority, said in an e-mailed statement yesterday. Exports of Italian products such as mozzarella cheese, flowers, fruit and vegetables worth 10 million euros ($13.5 million) are blocked, the country’s Coldiretti agricultural group said in a statement. Freight Reroutes Deutsche Post AG ’s DHL unit has diverted air freight to southern European airports including Bergamo in Italy to maintain services. DHL has closed its Leipzig-Halle freight hub where at least 50 aircraft land each week, carrying up to 200,000 deliveries, spokesman Stefan Hess said. DHL switched to rail and road for deliveries in northern Europe on April 16. Because of the wind direction, Iceland’s Keflavik airport is open, and North American flights are running on schedule. OAO Aeroflot, Russia’s largest air carrier, is flying to North America via the North Pole to avoid volcano ash over Europe, transportation Minister Igor Levitin told Prime Minister Putin at a meeting today, Interfax said. The U.S.-based Air Transport Association said yesterday that 282 of 337, or 84 percent, of the day’s non-stop flights between the U.S. and Europe were scrubbed. Delta Air Lines Inc., the world’s largest carrier, scrubbed 91 flights yesterday to and from Europe, said spokesman Anthony Black. AMR Corp.’s American Airlines canceled 56 flights between the U.S. and Europe, according to the carrier. American was able to operate flights into and out of Spain and Italy, spokesman Tim Smith said. Karen Pride , a spokeswoman for Chicago’s Department of Aviation, which operates O’Hare International Airport, Midway International Airport and Gary-Chicago International Airport, said 22 flights bound for Chicago from Europe were canceled. The eruption began on March 20 with a lava flow on the eastern flank of the Eyjafjallajökull volcano, according to the Institute of Earth Sciences at the University of Iceland. After a lull, it resumed early on April 14, directly under the icecap that covers most of the mountain. To contact the reporters on this story: Gregory Viscusi in Paris at gviscusi@bloomberg.net ; Omar R. Valdimarsson in Reykjavik valdimarsson@bloomberg.net

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Britain, Germany Weigh Action Against Goldman

April 18, 2010

By Robert Hutton and Tony Czuczka April 18 (Bloomberg) — Britain joined Germany in calling for a probe of Goldman Sachs Group Inc . after the U.S. Securities and Exchange Commission said it was suing the company for fraud. U.K. Prime Minister Gordon Brown said he wants the Financial Services Authority to open an inquiry, declaring he was “shocked” at the “moral bankruptcy” indicated in the suit. The German financial regulator, Bafin, asked the SEC for details on the suit, a spokesman for Chancellor Angela Merkel said. “This is probably one of the worst cases we’ve seen,” Brown said on the BBC’s Andrew Marr program in London today. “It looks as if people were misled about what happened. The banks are still an issue. They are a risk to the economy.” The investigations widen the threat to the New York-based bank, which on April 16 denied wrongdoing. The U.S. regulator accused Goldman Sachs of fraud tied to collateralized debt obligations that contributed to the financial crisis. “We will see politicians throughout the world piling on Goldman Sachs,” said Scott Moeller , a former investment banker now teaching at Cass Business School in London. “Now they have vulnerability. Everyone and anyone, especially politicians are going to be try to make hay with this one.” Fiona Laffan , a spokeswoman for Goldman Sachs, and Heidi Ashley , a spokeswoman for the FSA, declined to comment. Link to U.K. Royal Bank of Scotland Group Plc, mostly owned by the U.K. government, paid $841 million to Goldman Sachs to unwind its position in the Abacus security, which it inherited when it bought ABN Amro in 2007, according to the SEC filing. The SEC also cited Dusseldorf-based IKB Deutsche Industriebank AG as a purchaser of part of the CDO at issue. In 2008, Germany’s state-owned KfW development bank pumped almost 10 billion euros ($13.5 billion) into IKB to shore up the German banking system. The German government “will ask the SEC for information,” said Ulrich Wilhelm , a spokesman for Merkel. “Then we will look at the records and consider possible legal steps.” It’s too early to say whether any legal action will relate to IKB, Wilhelm said. “First we have to ask for information,” he said. To contact the reporter on this story: Robert Hutton in London at rhutton1@bloomberg.net ; Tony Czuczka in Berlin at aczuczka@bloomberg.net

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Greek Bonds Show EU Rescue Package May Be Tapped as Borrowing Costs Rise

April 15, 2010

By Matthew Brown April 15 (Bloomberg) — Greek bonds show the nation may have to tap a 45 billion-euro ($61 billion) international bailout to convince investors it can avoid a default. The government’s two-year notes fell for a second day yesterday and the cost of insuring against default approached the record high of April 8, three days before euro-region finance ministers announced the aid package. The parliaments of Germany, France and Ireland will have to vote on whether to contribute their share of the loans, government spokesmen said yesterday. Dutch lawmakers will discuss Greek aid today. “There are concerns that the money will not be available,” said Toby Nangle , who helps oversee 46 billion euros as director of asset-allocation research at Baring Investment Services Ltd. in London. “There are people who are willing to place their own money at risk in anticipation of this thing not going through.” Finance ministers said on April 11 the EU will provide Greece with 30 billion euros of three-year loans at an interest rate of about 5 percent if the nation requests the cash. The International Monetary Fund would provide another 15 billion euros. The agreement came after earlier pledges failed to convince investors that the government is able to narrow a budget deficit that is more than four times the EU’s limit for members. Pimco Not Ready Pacific Investment Management Co., which owns the world’s largest bond fund, said this week it’s not yet ready to buy Greek bonds. BlackRock Inc., the world’s biggest asset manager, said that donor countries need to demonstrate they can withstand a backlash from their citizens. “I don’t think Greece would go as far as waiting to be seen as failing in the market,” Christopher Pryce , a director at Fitch Ratings in London, said yesterday. “They would prefer to go to the EU. It could well be a week or two. I don’t think they could leave it much longer than that.” Fitch cut Greece two levels on April 9 to BBB-, one rung above speculative grade. The yield on Greek two-year notes fell the most on record the day after the aid package was announced before paring more than half that decline the following two days. It rose to 7.83 percent on April 8, the highest since the euro’s debut in 1999, according to Bloomberg generic prices. The yield ended yesterday at 6.99 percent, up 66 basis points on the day. The cost of protecting against a default in Greek debt for five years surged 56 basis points to 436 basis points as of 5:41 p.m. in London yesterday, credit-default swaps showed. That compares with a record closing price of 443.5 on April 8. ‘Legislative Authority’ The German Finance Ministry would seek “legislative authority” on the loans should Greece call for aid, Michael Offer , a spokesman, told reporters in Berlin yesterday. The lower house of parliament “would of course have to endorse such authority,” he said, without saying how long it might take. France, which would be the second-largest aid contributor after Germany, would probably be able to obtain parliamentary approval to raise the funds within a week, Finance Minister Christine Lagarde said on April 13. Ireland will pass legislation on Greek aid within the next couple of months, Finance Minister Brian Lenihan said April 12. “If legislation fails in one parliament you may find time is running out rather quickly,” said David Schnautz , a fixed- income strategist at Commerzbank AG in London. “You don’t have that much time for trial and error.” Prime Minister George Papandreou needs to raise 11.6 billion euros by the end of May to cover maturing debt, with another 20 billion euros required by year-end to pay interest and finance this year’s deficit. The government sold 1.56 billion euros of bills on April 13, paying a yield of 4.85 percent on the one-year securities, up from 2.2 percent at a January auction. Biggest Deficit Greece’s budget deficit was 12.9 percent of gross domestic product in 2009, the government said on March 31, the biggest in the euro’s history. The EU’s limit is 3 percent. Greece must repay investors 8.2 billion euros on April 20 and 8.1 billion euros on May 19, according to data compiled by Bloomberg. It doesn’t need to raise any more money until May, Petros Christodoulou , head of the country’s Public Debt Management Office, said in a March 31 interview with Bloomberg Television. “If I was the Greek government, I would cover the next few months’ requirement with the aid facility,” said Luca Jellinek , a senior rates strategist at ANZ Banking Group Ltd. in London. “That will help compress spreads and they’ll be able to borrow in the market at cheaper rates later in the year. Why would you borrow at over 7 percent when you can borrow at 5 percent?” To contact the reporter on this story: Matthew Brown in London at mbrown42@bloomberg.net

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Germany Said to Accept EU Loan Compromise for Greece

April 11, 2010

By John Fraher and Brian Parkin April 11 (Bloomberg) — Germany is prepared to give Greece loans at below-market interest rates, dropping its opposition to subsidies as European finance ministers meet to discuss the terms of a lifeline for the debt-stricken nation, a European government official said. The loans would be priced above the rate charged by the International Monetary Fund, which would also participate in a European Union-led rescue, said the person, who spoke on condition of anonymity. Such an arrangement would satisfy German demands that Greece shouldn’t be given subsidized loans, the person said. Greece may receive loans for between 20 billion euros ($27 billion) and 25 billion euros at a rate of about 5 percent, Die Welt reported today, without citing anyone. German resistance to subsidized loans threatened to hold up efforts to agree on a rescue package for Greece, whose bonds plunged last week. With German Chancellor Angela Merkel balking at the use of taxpayers’ funds, her government has said that the EU should stick to a March 25 agreement that credit to Greece should be at “non-concessional” rates. “They have to be given some help from Europe or the IMF at concessional rates,” billionaire investors George Soros said in an April 9 interview on Bloomberg Radio in Cambridge, England. “It is a make or break time for the euro and it’s a question whether the political will to hold Europe together is there or not.” Terms of Agreement The European Commission said in an e-mailed statement that there will be a news conference today in Brussels at about 4 p.m. local time, following a teleconference of eurogroup finance ministers. The eurogroup also includes European Central Bank President Jean-Claude Trichet . Ministers may today agree to the formula for calculating the loans, the European government official said. Under the terms of the March accord, Europe would provide more than half the loans and the IMF the rest, which would be triggered if Greece runs out of fund-raising options. UBS AG economists estimate Greece will need to seek emergency funding to make bond payments and cover debt refinancing of more than 20 billion euros in the next two months. The yield on Greek 10-year bonds surged 60 basis points this past week, driving it to a record 7.364 percent on April 8. Any IMF loans to Greece may cost around 3.26 percent. The premium investors demand to buy Greek 10-year bonds instead of German bunds jumped to 442 basis points April 8, before sliding to 398 basis points a day later. The euro, which has dropped about 6 percent against the dollar this year, rose 1 percent to $1.35 on April 9 as speculation about an aid package mounted. German Resistance Overcoming German resistance to subsidized loans came amid mounting speculation that that a bailout was imminent. UBS said it could come this weekend after Fitch Ratings cut Greece’s debt rating to BBB-, just one level above junk. Greek Prime Minister George Papandreou has argued that he needed below-market borrowing costs to cut EU’s-biggest budget deficit. Greek Finance Minister George Papaconstantinou said April 9 that Greece isn’t seeking EU aid and would meet its goal of cutting the deficit from about 13 percent last year, more than 4 times the EU limit, to 8.7 percent this year. Greece needs to raise 11.6 billion euros to cover debt that is maturing before the end of May and plans to sell bonds to U.S. investors in the coming weeks. The country’s debt agency plans to offer 1.2 billion euros of six-month and one-year notes tomorrow. Confidence ‘Undermined’ Greece’s long-term foreign and local currency issuer default ratings were on April 9 cut two levels to BBB-, the same level as Bulgaria and Panama, from BBB+ by Fitch Ratings. The outlook is negative, Fitch said, citing delays in agreeing to an aid package. “The lack of clarity regarding the mechanism for timely external financial support may have hindered Greece’s access to market finance at affordable cost and hence further undermined confidence in the capacity of the government to meet its fiscal targets,” Fitch said in an e-mailed statement. The Athens benchmark stock index rose for the first day in four on April 9 amid speculation that an aid package would soon be agreed. It fell 5 percent this week. EU leaders, including French President Nicolas Sarkozy and Herman Van Rompuy , president of the 27-nation bloc, expressed their readiness to provide aid two days ago. “A support plan has been agreed and we are ready to activate at any moment to come to the aid of Greece,” Sarkozy said. To contact the reporters on this story: John Fraher in London at jfraher@bloomberg.net ; Brian Parkin in Berlin at bparkin@bloomberg.net

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Germany Said to Accept Offering Greece Loans at Below-Market Interest Rate

April 10, 2010

By John Fraher and Brian Parkin April 10 (Bloomberg) — Germany is prepared to give Greece loans at below-market interest rates, dropping its opposition to aid subsidies in a compromise over the terms of a lifeline for the debt-stricken nation, a European government official said. The loans would be priced above the rate charged by the International Monetary Fund, which would also participate in an EU-led rescue, said the person, who spoke on condition of anonymity. Such an arrangement would satisfy German demands that Greece shouldn’t be given subsidized loans, the person said. EU finance ministers may agree to the formula for calculating the loans on a teleconference tomorrow, the person said. German resistance to subsidizing loans threatened to hold up efforts to set terms on a rescue package for Greece, whose bonds plunged last week. With German Chancellor Angela Merkel balking at the use of taxpayers’ funds, her government has said that the EU should stick to a March 25 agreement that credit to Greece should be at “non-concessional” rates. Under the terms of the accord, Europe would provide more than half the loans and the IMF the rest, which would be triggered if Greece runs out of fund-raising options. UBS AG economists estimate Greece will need to seek emergency funding to make bond payments and cover debt refinancing of more than 20 billion euros ($27 billion) in the next two months. The yield on Greek 10-year bonds surged 60 basis points this past week, driving it to a record 7.364 percent on April 8. Any IMF loans to Greece may cost around 3.26 percent. The premium investors demand to buy Greek 10-year bonds instead of German bunds jumped to 442 basis points April 8, before sliding to 398 basis points yesterday. To contact the reporters on this story: John Fraher in London at jfraher@bloomberg.net ; Brian Parkin in Berlin at bparkin@bloomberg.net

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Air Berlin March passenger numbers rise 5%

April 7, 2010

Air Berlin March passenger numbers rise 5%

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