european-union

Video: Westpac’s Callow Says Ireland Bailout `Not Imminent’: Video

November 16, 2010

Nov. 16 (Bloomberg) — Sean Callow, a senior currency strategist at Westpac Banking Corp., talks about the outlook for a potential financial bailout for Ireland. Ireland signaled a willingness to weigh European Union measures to aid its banks, potentially abandoning a go-it-alone defense to prevent a resurgent debt crisis from destabilizing the euro. Callow also discusses his forecast for the euro. He speaks from Sydney with Linzie Janis on Bloomberg Television’s “Global Connection.” (Source: Bloomberg)

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Video: Grant Says Ireland `Going Bankrupt,’ EU Rescue a `Sham’

November 8, 2010

Nov. 8 (Bloomberg) — Mark Grant, managing director at Southwest Securities Inc., and John Brynjolfsson, chief investment officer at Armored Wolf LLC, talk about Ireland’s sovereign debt crisis. European Union Economic and Monetary Affairs Commissioner Olli Rehn said today he endorses the Irish government’s plan to cut spending and raise taxes by as much as 6 billion euros ($8.4 billion) in 2011. (Source: Bloomberg)

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Video: Merkel Makes Headway at EU With Call for Treaty Rewrite

October 29, 2010

Oct. 29 (Bloomberg) — Bloomberg’s David Tweed reports from Brussels on the European Union summit in which German Chancellor Angela Merkel won backing for a rewrite of EU treaties to create a permanent debt-crisis mechanism by 2013.

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Michael Pento: Bernanke Has Buried the Buck

October 25, 2010

It wasn’t too long ago that the parity pontificators were out in full force claiming that the European currency would trade one-to-one with the U.S. dollar. On June 7th 2010 the Euro hit a low of $1.1917. Since then, the Euro has risen over 17% against the US dollar, hitting $1.3961 as of today. That recent move, engendered courtesy of the Fed, has at least temporarily silenced the critics who questioned the viability of the European Union and its currency, while also serving to impugn the notion of the U.S. dollar’s permanent position as the world’s reserve currency. To be clear, there has never been any question in my mind that the euro is just another flawed fiat currency. However, it has since its inception deserved to maintain its status as an excellent diversification-currency for those who hold excess dollars. Now we find the question being correctly asked today more than ever before if the USD can act as a safe haven from the troubles found in international currencies. The answer to that question can be found in the data and from the lips of our Federal Reserve Chairman. The 27 countries comprising the European Union’s economy is the largest in the world. It’s GDP on a purchasing power parity basis was $16.5 trillion in 2009, which is greater than the $14.2 trillion US economy. The economies of the 16 countries in the Euro zone that use the Euro currency produced GDP of about $10.5 trillion on a PPP basis according to the CIA 2009 world fact book. That is equivalent to 74% of US total output. Therefore, the economies of the EU (27) or Euro Zone (16) are similar in size and scope to those of the US and should be viewed with the same gravitas. The size of the European economy had never been an issue. But according to the IMF, the US dollar accounts for 62% of global central bank reserves even though it represents less than 25% of global GDP. In comparison, the Euro currency represents just 26% of FX reserves. Why is it that the U.S. economy deserves to represent such a tremendous over-weighting of central bank reserves? Since their currency holdings are so vastly concentrated, it places global central banks in a tenuous and vulnerable position. Should they ever need to reduce their dollar holdings–especially in concert–it would place tremendous downward pressure on the US currency. But unlike the greenback no such over-owned condition along with its concomitant pent-up selling pressure exists for any other currency. Currently the gross national debt of the U.S. stands at 93% of GDP. The European Commission projects that their gross national debt will reach 84% of output this year and 88.2% in 2011. And In contrast, the Congressional Budget Office projects our national debt to reach over 100% of GDP in 2012, whereas the national debt of the EU will not reach 100% of output until 2014, according to the European Commission. Finally, U.S. interest rates are much lower as compared to those of the European Union. Therefore, the Euro should never have been viewed as a currency that is inferior to the USD. But What Happens the Next Time Down Investors the world over have traditionally flocked to the USD for safety. This past credit crisis caused the greenback to surge 27% on the DXY and crushed most commodity prices including gold. How do we know the next international crisis won’t cause the same global flight into the “safety” of U.S. debt and dollars and out of other currencies like the Euro? The answer can be found in our central bank’s reaction to that same crisis. Ben Bernanke’s initial response to the credit crisis was fairly muted. It may surprise investors to be reminded that the Fed left interest rates unchanged throughout the entire period from April 30th thru October 8th 2008, despite the fact that the S&P500 dropped from 1,413 to 899. And Bernanke only slightly increased the monetary base by $160 billion to just over $1 trillion during that drubbing in equities. During that time of relative inaction, global investors flocked to the dollar as they have done in Pavlovian fashion since the Bretton Woods agreement was signed. But after that, Ben sent out a fleet of helicopters to demonstrate to the world that he would not tolerate the appreciation of the USD or allow the rate of inflation to contract. Our central bank has now clearly inculcated to global investors that they will severely be punished if seeking shelter in our currency and bond market. The monetary base has now reached $2.0 trillion and the announcement of another dramatic increase is expected once again at the conclusion of the next FOMC meeting on November 3rd. The Fed has engineered robust growth rates in all the monetary aggregates and is also now on record for the first time in its history saying that the rate of inflation is too low. All this has resulted in the U.S. dollar losing nearly 13% of its value since June. I’m went on record last summer saying that selling Euros (or most any other currency) to buy dollars is sort of like exchanging your ticket on the Titanic for a ride on the Hindenburg. A viable solution cannot be to sell one sinking currency and jump on another one that is drowning as well. The only safe forms of money are those that can act as a store of wealth, that cannot be diluted by fiat and whose purchasing power cannot be corrupted by a government. The Fed has put the world on notice that the USD can no longer be viewed as a safe haven currency. During the next crisis, investors should seek the safer harbor that is derived from owning commodities and precious metals, rather than to believe the USD will once again offer them any real protection. Precisely because the position of the U.S. buck as the world’s reserve currency has been burned and buried by Ben Bernanke. Michael Pento is the Senior Economist for Euro Pacific Capital

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‘Too Big To Fail’ Plan Delayed Until 2011

October 20, 2010

(SEOUL/BRUSSELS By Rachel Armstrong and John O’Donnell) – Steps to avoid “too big to fail” banks from destabilising markets and the world economy will take longer to agree and a common global approach is beyond reach, regulators and central bankers said on Wednesday. Leaders of the Group of 20 economies (G20) meet in Seoul next month and were hoping to agree a fleshed out package for avoiding another Lehman-style bank failure that nearly brought the world’s financial system to its knees. The aim was to ensure that when another big bank with operations in many countries gets into trouble, a framework is in place that allows it to fail without global disruption or the need for taxpayer money. The Financial Stability Board is tasked by the G20 to draw up the package of “too big to fail” measures and signalled on Wednesday that next month’s summit will be another milestone rather than the end game for this issue. The FSB will not now present detailed plans on how big banks can be made less risky but instead will make broad recommendations and timelines, its chairman Mario Draghi said. Draghi ruled out a common G20 approach to so-called systemically important financial institutions (SIFIs), saying on Wednesday: “Parts will differ from country to country.” The FSB is drawing up a menu of options that includes bail-in bonds, contingent capital, capital surcharges and resolution mechanisms but each item is being hotly debated. France and Germany oppose mandatory capital add-ons. Some regulators doubt bail-in bonds and contingent capital — debt that converts into bank capital in times of trouble — would work or if investors have the appetite for them. “How can you price these instruments in the market if you don’t know how the law treats unsecured creditors to start with?” Draghi told reporters. The Basel Committee of global banking supervisors and central bankers met in Seoul on Tuesday and said its work on detailing capital surcharges, bail-in bonds and contingent capital would not be completed until the middle of next year. And there are doubts that effective resolution mechanisms can be created for big cross-border banks which dominate the sector. “Many changes in national laws would be required because without basic changes in basic laws about insolvency … it makes it very difficult to have a global resolution regime for these cross boarder institutions,” European Central Bank Vice President Vitor Constancio told reporters. “An attempt is being made of course … but because the system is very demanding I don’t know if it is really possible,” Constancio said. POLLUTER PAYS The European Union’s executive European Commission published policy ideas for a crisis management framework ahead of legislation next year. They included resolution mechanisms, tougher supervision and making creditors take a hit. EU Internal Market Commissioner Michel Barnier said he wanted to instill a “culture of prevention”. “I call this the most pressing and important reform we are involved in. Our work is in parallel to international ongoing efforts and work,” Barnier told a news conference. The “polluter” and not the public should pay for future bank rescues, Barnier said. “The shareholders and creditors will be on the front line and not the taxpayers,” Barnier said. He is already seeking consensus among EU states to set up national resolution funds from levies on banks. Britain, which has spent billions of pounds shoring up its banking sector in the crisis said it would push ahead with its permanent levy plan and publish draft legislation on Thursday. “Our aim is to extract the maximum sustainable tax revenues from financial services,” British Finance Minister George Osborne told the UK parliament. (Additional reporting by Marc Jones in Frankfurt; Writing by Huw Jones, editing by Mike Peacock) Copyright 2010 Thomson Reuters. Click for Restrictions .

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Dan Dorfman: Funeral For a European Myth

October 8, 2010

Here we go again — the death of another myth, namely the one that Europe’s worrisome sovereign debt crisis has run its course. Far more likely, the evidence shows, we’re in for a rerun. To put it in perspective, let’s turn the clock back about six months when the U.S. stock market was repeatedly getting battered on a daily basis in response to news of swelling debt woes in Europe. Adding to the market’s shellacking at the time were riots in Greece over proposed austerity measures. Then came Superman to the rescue, the European Union, with a promise of a $1 trillion bailout package to stabilize Europe and drive away the bond vigilantes who were selling the debt of the weakest European countries, causing interest rates to rise. In response, the euro, aided by Chinese purchases, proceeded to strengthen, and fears of a debt crisis in Europe greatly diminished, so much so that many market pros have eliminated this risk from their radar screens. Judging though from the recent downgrade of Ireland’s credit by the Fitch rating agency, which came on the heels of earlier downgrades of Spain’s and Portugal’s debt, it’s pretty clear that only Rip Van Winkle would dismiss the danger of a fresh outbreak of European debt problems, which has ominous implications for the world’s financial markets. That’s also the thinking of currency tracker Bryan Rich, editor of the World Currency Alert newsletter in Jupiter, Fla., who says “a higher euro may have instilled some investor confidence, but nothing has changed. Not only does a debt problem exist,” he says, “but it’s getting progressively worse and a default by a European country is only a matter of time.” Addressing the trillion-dollar rescue package, Rich describes it as “nothing more than bold shock and awe, a promise that’s a figment of someone’s imagination.” He notes that a number of the more financially muscular European countries, among them Germany, are already balking at the idea of anteing up funds to help bail out their weaker brethren. London money manager Raymond Stahler of Stahler Dearborn, Ltd., concurs. He describes the $1 trillion promise of aid to the struggling European nations, such as Portugal, Ireland, Greece and Spain, as a farce. “Handouts are wonderful,” he says, “but not if nobody is handing out.” Rich views the European financial situation as especially scary in Ireland, which he views as most vulnerable to a default. The European Union’s guidelines prohibit its member nations from having their budget deficits, as a percentage of GDP, exceeding 3%. That’s a meaningless number, though, since no one is paying any heed to it. For example, the 2010 estimates call for Ireland to top the limit by more than 10-fold at 32%, followed by Spain at 9.3%, Portugal at 8.8%, Greece at 8.1%, and Italy at 5%. The EU’s limit on total debt, as a percentage of GDP, is 60%. Here again, Ireland strikes out badly. Its 2010 projection had called for 65%; it’s now projected at 110%. Against this background, a massive amount of debt in the European nations has to be rolled over. A dilemma here is that the governments and the banks will be competing for capital, which will drive interest rates higher. That, in turn, will make it difficult for the governments to raise money at rates they can afford, which, in turn, could cripple the ailing economies. At the same time, Rich notes that the European Central Bank, which has been snapping up government debt of struggling countries to keep them solvent, has acquired a lot of crappy debt. A related problem, as he sees it, is the threat of another major wave of risk aversion. That is when capital flees riskier investments and assets. The chief implications, as Rich sees them: Stocks will go lower, the same for commodities, except gold, and it all bodes well for the dollar. What does all of this mean? Rich’s view: “We’re in a crisis period, a deleveraging phase for the world’s economy, so look for more shocks, such as government defaults, bank failures, currency devaluations and rising protectionism.” He doesn’t say it in so many words, but the word from Rich is clear: Watch out — you could get poor! What do you think? E-mail me at Dandordan@aol.com

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Video: ING’s Brzeski Says EU Must Agree on Budget Sanctions

September 16, 2010

Sept. 16 (Bloomberg) — Carsten Brzeski, a senior economist at ING Belgium SA, talks about the prospects for European Union members agreeing on sanctions for countries who break budget-deficit rules. He speaks with David Tweed on Bloomberg Television’s “Countdown.”

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EU Proposes Tougher Rules On Derivatives And Short-Selling

September 15, 2010

BRUSSELS — The European Union’s executive on Wednesday proposed tougher curbs on financial market practices seen to have contributed to the global market crisis that drove the world’s largest economies into recession. EU Services Commissioner Michel Barnier said Wednesday he wants to rein in the market for derivatives – financial instruments based on the value of other assets – and insisted regulators should have powers to restrict, and even ban, short selling. Barnier said the measures on the derivatives market would kick in in 2012 and bring Europe in line with restrictions the U.S. Congress passed over the summer to get a better grip on banks and Wall Street. “We have to limit the risks of this hyper speculation by shedding light, by forcing people to be transparent. We have to know on all of these markets, with the Americans and the other regions, who is doing what,” Barnier said. “No player, no market, no territory, must remain outside this supervision,” he said. “No financial market can afford to remain a Wild West territory,” Barnier said, arguing that lack of controls on specialized financial products compounded the global financial crisis. He said such specialized markets had been working too long as an entity unto themselves, without control or scrutiny. He said his proposals would increase transparency and make the markets safer. The proposals still need to be adopted by the EU member states and parliament before they become law. In Berlin, German Chancellor Angela Merkel renewed a call for tougher financial market regulation and welcomed a move to oblige banks to hold more capital. Merkel told parliament that Germany still believes “every product, every actor, every financial market participant must be regulated so that we have an overview of what is happening on the financial markets.” She also insisted Germany expects the EU “regulate derivatives markets properly.” Barnier said trade in the $600 trillion derivatives market will change, with over-the-counter contracts – those not traded through an exchange – reported to central databases where authorities will have access to find any potential trouble or excessively risky behavior. When it comes to short selling and credit default swaps, the proposal wants to increase transparency by forcing investors to report short positions in shares to regulators if they are above 0.2 percent in issued share capital and to the market if they are above 0.5 percent. The proposals won a mixed review from European legislators, who will have to rule on them. “These proposals should be welcomed as they will provide greater transparency which will help make the financial markets safer and more stable,” Kay Swinburne, a British legislator of the European Conservatives and Reformists group said. For the European Greens, the proposals did not go nearly far enough. “Given the central roles played by derivatives and short selling in the financial crisis, the Commission should have proposed far-reaching legislative measures that would fully address their flaws. Unfortunately, today’s proposals are not ambitious enough,” said France’s Green legislator Pascal Canfin.

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EU Proposes Tougher Rules On Derivatives And Short-Selling

September 15, 2010

BRUSSELS — The European Union’s executive on Wednesday proposed tougher curbs on financial market practices seen to have contributed to the global market crisis that drove the world’s largest economies into recession. EU Services Commissioner Michel Barnier said Wednesday he wants to rein in the market for derivatives – financial instruments based on the value of other assets – and insisted regulators should have powers to restrict, and even ban, short selling. Barnier said the measures on the derivatives market would kick in in 2012 and bring Europe in line with restrictions the U.S. Congress passed over the summer to get a better grip on banks and Wall Street. “We have to limit the risks of this hyper speculation by shedding light, by forcing people to be transparent. We have to know on all of these markets, with the Americans and the other regions, who is doing what,” Barnier said. “No player, no market, no territory, must remain outside this supervision,” he said. “No financial market can afford to remain a Wild West territory,” Barnier said, arguing that lack of controls on specialized financial products compounded the global financial crisis. He said such specialized markets had been working too long as an entity unto themselves, without control or scrutiny. He said his proposals would increase transparency and make the markets safer. The proposals still need to be adopted by the EU member states and parliament before they become law. In Berlin, German Chancellor Angela Merkel renewed a call for tougher financial market regulation and welcomed a move to oblige banks to hold more capital. Merkel told parliament that Germany still believes “every product, every actor, every financial market participant must be regulated so that we have an overview of what is happening on the financial markets.” She also insisted Germany expects the EU “regulate derivatives markets properly.” Barnier said trade in the $600 trillion derivatives market will change, with over-the-counter contracts – those not traded through an exchange – reported to central databases where authorities will have access to find any potential trouble or excessively risky behavior. When it comes to short selling and credit default swaps, the proposal wants to increase transparency by forcing investors to report short positions in shares to regulators if they are above 0.2 percent in issued share capital and to the market if they are above 0.5 percent. The proposals won a mixed review from European legislators, who will have to rule on them. “These proposals should be welcomed as they will provide greater transparency which will help make the financial markets safer and more stable,” Kay Swinburne, a British legislator of the European Conservatives and Reformists group said. For the European Greens, the proposals did not go nearly far enough. “Given the central roles played by derivatives and short selling in the financial crisis, the Commission should have proposed far-reaching legislative measures that would fully address their flaws. Unfortunately, today’s proposals are not ambitious enough,” said France’s Green legislator Pascal Canfin.

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Video: Riisgaard Says EU Biofuels Could Replace 60% of Gasoline

September 14, 2010

Sept. 14 (Bloomberg) — Steen Riisgaard, chief executive officer at Novozymes A/S, talks about a Bloomberg New Energy Finance study into the potential for biofuels from plant waste and trash to replace more than half of gasoline use in the European Union by 2020. He speaks from Brussels with Maryam Nemazee on Bloomberg Television’s “Countdown.”

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Video: Axel Merk Expects Euro to Rise as EU Addresses Problems: Video

September 7, 2010

Sept. 7 (Bloomberg) — Axel Merk, president and chief investment officer of Merk Investments LLC, talks with Bloomberg’s Julie Hyman about the outlook for the euro, Europe’s sovereign-debt crisis and the European Union’s bank stress tests and financial regulation. (Source: Bloomberg)

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Video: Rosner Says EU Stress Tests `Weak,’ Banks Need Capital: Video

July 26, 2010

July 26 (Bloomberg) — Joshua Rosner, an analyst at Graham Fisher & Co., talks with Bloomberg’s Lori Rothman about the results of the European Union’s stress tests for banks. Jean-Claude Juncker, who heads the group of euro-area finance ministers, says the tests have shown a “robust” European banking industry.(Source: Bloomberg)

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Video: Whalen Sees `No Credibility’ in European Bank Tests: Video

July 26, 2010

July 26 (Bloomberg) — Christopher Whalen, managing director of Institutional Risk Analytics, discusses the implications of the European Union bank stress tests and the outlook for consolidation in the EU financial industry. Whalen speaks with Deirdre Bolton on Bloomberg Television’s “InsideTrack.” (Source: Bloomberg)

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Video: Balatro’s Skinner Says Stress Test Methods `Pretty Weak’

July 26, 2010

July 26 (Bloomberg) — Chris Skinner, chief executive officer of Balatro Ltd., a banking industry research firm, talks about the criteria used to conduct stress tests on 91 European banks. European Union stress tests found banks need to raise 3.5 billion euros ($4.5 billion) of capital, leaving doubts about whether regulators were tough enough. Skinner speaks with Maryam Nemazee on Bloomberg Television’s “Countdown.”

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Video: Sri-Kumar Says Markets Won’t Buy EU Stress Test Results: Video

July 23, 2010

July 23 (Bloomberg) — Komal Sri-Kumar, chief global strategist at TCW Group Inc., discusses the European Union bank stress test’s and the U.S. budget deficit. Sri Kumar talks with Matt Miller on Bloomberg Television’s “Street Smart.” (Source: Bloomberg)

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Video: Spain’s Campa Sees Stress Tests Helping Boost Confidence: Video

July 23, 2010

July 23 (Bloomberg) — Spanish Deputy Finance Minister Jose Manuel Campa talks with Bloomberg’s Manus Cranny about the results of the European Union’s bank stress tests. Campa says the publication of Spain’s stress tests would help build confidence, even as he doesn’t expect a big market reaction to the data. Campa speaks on Bloomberg Television’s “Street Smart.” (Source: Bloomberg)

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Video: David Blanchflower Discusses EU Bank Stress Test Results: Video

July 23, 2010

July 23 (Bloomberg) — David Blanchflower, an economics professor at Dartmouth College, talks with Bloomberg’s Julie Hyman about the European Union banks’ stress test results. (This report is a excerpt of the full interview. Source: Bloomberg)

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Video: Callow Says Softer U.S. Economic Data Supporting Euro: Video

July 13, 2010

July 14 (Bloomberg) — Sean Callow, a currency strategist at Westpac Banking Corp, talks with Bloomberg’s Linzie Janis about European Union stress tests for banks and the outlook for the euro. The euro rose for a second day versus the yen after Greece sold Treasury bills at an interest rate below the 5 percent charged by the European Union when it rescued the nation from default. Callow speaks from Sydney. (Source: Bloomberg)

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Video: Jim Bianco Expects `Retrenchment’ of U.S. Stocks: Video

July 7, 2010

July 8 (Bloomberg) — Jim Bianco, president of Bianco Research LLC, talks with Bloomberg’s Susan Li about the outlook for U.S. stocks. Bianco, speaking from Chicago, also discusses his investment strategy, stress tests for European banks, and the U.S. housing market. European Union regulators are carrying out stress tests on 91 banks, accounting for 65 percent of the area’s banking industry, to examine whether they can withstand a shrinking economy and a drop in government bond values. (Source: Bloomberg)

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Video: EPC’s Wyles Says EU Spending Cuts Will Create Backlash

July 6, 2010

July 6 (Bloomberg) — John Wyles, chief strategy coordinator for the European Policy Centre, talks about popularity of European Union leaders in the wake of austerity policies.¶¶ Wyles speaks with Andrea Catherwood on Bloomberg Television’s “The Pulse.”

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‘The European Way’ May Be Coming To End As Debt Crisis Mounts

July 2, 2010

MADRID — In the ashes of Europe’s debt crisis, some see the seeds of long-term hope. That’s because the threat of bankruptcy is forcing governments to implement reforms that economists argue are necessary to help Europe prosper in a globalized world – but were long viewed as being politically impossible because of entrenched social attitudes. Changes such as making it easier for companies to fire workers or stare down unions were until recently dismissed as simply not being the “European way.” Similarly, many were skeptical that European governments would or could tackle bloated public payrolls, trim entitlements or force people to retire later. When it became clear earlier this year that Greece’s debt crisis was rattling markets everywhere and dragging down Europe’s common currency, it was business as usual: European governments seemed to dither, disunited. Germany came in for particular criticism, appearing to hold up a bailout of Greece because it was unpopular with German voters. But over two months of hectic activity a new narrative has started to settle in, to the surprise of many a euro-skeptic: When the chips were truly down, the countries of the European Union found a way to strike hard and fast – and together. European leaders first joined with the International Monetary Fund in May and agreed on a $1 trillion rescue fund for financially troubled countries. Then Greece announced deep budget cuts, Spain cut employer costs and France raised its retirement age. France also joined Germany and the U.K in imposing harsh budget cuts. To Marco Annunziata, the London-based chief economist for Unicredit, those are signs that Europe is finally facing the reality that it must make structural changes. “Governments are reluctantly acknowledging that reforms are needed and there is no more room for delays and excuses,” he said. “It looks like perhaps we are past the longest stage of denial, which in Europe has lasted at least 20 years.” Annunziata said governments now face a crucial test of political will: Can they implement the reforms they have announced? Already in Italy, Premier Silvio Berlusconi has suggested he will reconsider some of the austerity measures he announced last month to trim the deficit after facing opposition and seeing his popularity dip. And France will have to steel itself for strikes. Still, there are signs that Europe may muster passing grades. In Spain, employers had long moaned that laying off workers is so expensive that they were wary of hiring in the first place. Political leaders felt no urgency as the economy grew at a healthy clip, buoyed by a construction boom and cheap credit. Nor did they when the boom ended and the jobless rate soared to 20 percent. Then came the May 28 decision by the credit rating agency Fitch to downgrade Spanish debt. Facing a growing risk of a debt default, the Spanish parliament quickly passed measures that make firing cheaper and even let companies talk their way out of collective bargaining agreements if times go bad. The changes were imposed by Prime Minister Jose Luis Rodriguez Zapatero’s government almost overnight, after nearly two years of state-sponsored talks between unions and management finally collapsed a few weeks ago. Sandalio Gomez, a professor of management at IESE Business School in Madrid, noted that the government also has enacted euro15 billion ($18.7 billion) in spending cuts to slash the deficit. The cuts reduce civil servants’ wages and public investment and freeze retirement pensions. “If we were not in the midst of a sovereign debt crisis they wouldn’t be doing it,” said Stephen Lewis, chief economist at Monument Securities. “They wouldn’t be inviting the negative reaction from their own labor forces.” Spain’s workplace package was passed as a fast-track decree and is now subject to amendments by Parliament over the next month or so. Under the old law, many workers have contracts that give 45 days of severance pay per year worked. These will remain for old contracts, but for new ones the figure goes down to 33 days of severance per year of work. Also, companies in economic trouble can now negotiate with workers to lower salaries and reduce shifts or other terms of employment, and call in an arbitrator for a binding ruling if the talks hit a deadlock. That’s still generous, compared with practices in the U.S. and other less regulated economies, but a start. Spanish unions are furious and have called a general strike, but not until Sept. 29, after the sacrosanct monthlong summer vacation ends. Like Spain, Greece is shaking up its stodgy, rule-bound practices on hiring and firing. The hope is to encourage hiring and stimulate economic growth that will be needed to help pay down a swollen debt load. Last year, the newly elected government revealed that its predecessors had fudged the country’s deficit numbers. Prohibitively high interest rates soon followed, prompting Greece to accept a euro110 billion ($138 billion) EU and IMF bailout, with policed austerity as the price. Last month, Greece announced that it would allow companies to lay off more people and make lower severance payments. The maximum notice period, if Parliament approves, would be reduced from 24 months to six months. The short-term response to those moves has been a wave of strikes and riots. Demonstrations also have been held in Spain and France. In fact, such measures were called for by the European Union in its Lisbon Strategy, an ambitious blueprint adopted in 2000 whose goal was to make Europe the world’s most competitive economic bloc. Little got done. One reason: the courage to enact change can be costly. Then-Chancellor Gerhard Schroeder loosened Germany’s heavily regulated labor market as part of social spending reforms he undertook in 2003 and implemented for the most part by 2005. Economists say the changes helped get the German economy on track before the recent financial crisis. But they hurt Schroeder and his Social Democrats politically – in 2005, voters dumped him and Angela Merkel became chancellor. Not everyone has the same sense of urgency. While Italy’s debt totals 115 percent of gross domestic product, higher than Spain’s, few structural reforms are being discussed there. One reason is that its unemployment rate of 8 percent is far better than in Spain, thanks to government-sponsored jobs support programs. Interest rates on Italy’s long-term debt also haven’t spiked as they did in Spain and Greece – at least not yet. ___ AP Business Writer Barry contributed from Milan.

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Sheldon Filger: Are European Banks on the Verge of Destruction?

June 30, 2010

In February 2009, my blog referred to a story that appeared in The Daily Telegraph, a leading UK newspaper, headlined, “European bank bail-out could push EU into crisis.” The essence of the story was that The Daily Telegraph was shown a top-secret document, leaked from the European Commission, the executive body that oversees the 27-nation European Union, which warned that the EU’s banking system was contaminated by an ocean of toxic assets. Though the story was ignored by the rest of mainstream media, for the most part, I think it is timely to look again at this secret EU document in the light of the current European debt crisis and growing rumors regarding the insolvency of many leading banks across the continent. The confidential 17-page European Commission document warned that the European banking system could be holding as much as 18.6 trillion euros in toxic assets. Furthermore, in the wake of the European bank bailout that followed the collapse of Lehman Brothers, the document warned that the cost of a second Eurozone and U.K. bank bailout would exceed the financial capacity of the European Union. In other words, if Europe’s banking system enters a meltdown in the face of the sovereign debt crisis now plaguing European economies, the EU will be powerless to stop the implosion of the European banking and financial system. Reviewing what the European Commission warned about more than a year ago, it appears that the document’s authors had an impressively prescient ability to forecast the current European sovereign debt and fiscal crisis. In stark terms, the EU document warned that, “It is essential that government support through asset relief should not be on a scale that raises concern about over-indebtedness or financing problems … Such considerations are particularly important in the current context of widening budget deficits, rising public debt levels and challenges in sovereign bond issuance.” With Greece essentially insolvent, Spain in the grips of its own sovereign debt crisis and the U.K. and Italy teetering on the edge, not to mention Ireland, Portugal and Eastern Europe, it seems to me that the worst case scenario hinted at in the leaked document more than a year ago is no longer a speculative possibility, but unfortunately a chillingly realistic forecast of what may very soon be the next great global banking crisis.

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EU Caps Bankers’ Bonuses

June 30, 2010

BRUSSELS — Bankers will only be able to get part of their yearly bonuses in cash upfront under new European Union rules that will enter into force next year. A deal announced Wednesday between EU governments and EU lawmakers will require banks to limit cash bonus payouts, with most executives only getting 30 percent straight away and the rest paid out later if the company performs well. The draft rules go to the European Parliament next week, where they are almost certain to win approval after the agreement reached late Tuesday. The discussion on the caps was launched after a European outcry over payments to executives of banks that had received large state bailouts to avoid collapse during the financial crisis. Some say big bonuses skew incentives in favor of excessive risk-taking. Starting next January, cash bonuses will be capped at 30 percent of the total bonus and 20 percent for “particularly large” bonuses. The measure leaves it to individual governments to determine what “particularly large” means in their economies. While some European countries including Britain have already imposed limits on banker bonuses, the new rules set minimum caps for all 27 members of the EU. French and German governments have also effectively set caps by pressing banks to agree to limit executive pay. A large part of the bonus must be deferred, thought it is up to governments to determine for how long. The money will be held as “contingent capital” for banks to call on first if they urgently need funding. The measure also limits “exceptional pension payments” to avoid the kind of bloated severance packages for disgraced departing executives that have caused public uproar around Europe. Banks will also be required to hold a minimum amount of capital to ensure they are covering risk from their trading book and complex securitized investments – such as mortgage-backed securities – to avoid a repeat of risk-related losses like those seen during the financial meltdown. The capital requirements will take effect in 2012. Global banking regulators are also separately drafting tighter capital requirements that European banks complain could force them to put aside far more money to counter risks. They say this could hit their profits and even force them to curb lending to companies and households. ___ Associated Press writer Angela Charlton in Paris contributed to this report.

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Masked Protesters Clash With Greek Police (PHOTO)

June 29, 2010

(AP) ATHENS, Greece — Dozens of masked youths clashed with police at a union protest Tuesday in Athens during the country’s fifth general strike this year against the cash-strapped government’s planned pension and labor reforms. Riot police fired tear gas and stun grenades to disperse troublemakers who threw chunks of marble smashed off metro station entrances and set rubbish bins on fire. Running clashes continued along a major avenue – lined with shuttered shops and banks – as rioters armed with wooden clubs made repeated sallies against police. Seven policemen were injured in the clashes, and 13 demonstrators were detained, six of whom were arrested, police said. Riot police chased demonstrators into a main subway station, and an AP photographer saw police detain one young man in a subway car, spraying him with pepper spray. Demonstrators smashed bus stops and phone booths, and broke windows at three shops and two bank branches. The demonstration ended after a few hours, and rioters melted away toward the central Exarcheia district – a traditional anarchist hangout. However, Tuesday’s clashes were far more muted than the riots that erupted during a previous general strike on May 5, when three people died after becoming trapped in a bank torched by rioters. The violence came as some 10,000 people took part in a demonstration organized by the country’s two main labor unions and fringe left-wing groups. An earlier separate march by some 6,000 members of the Communist Party-backed PAME union ended peacefully. Tuesday’s strike shut down public services, disrupted transport, left hospitals operating on emergency staff and pulled all news broadcasts off the air. The country’s airports, however, remained open, and international flights were operating normally although nearly 100 domestic flights were canceled. Unions fiercely oppose draft legislation submitted to parliament last week that would increase retirement ages and make it cheaper for companies to fire workers. The measures – which include raising women’s retirement age to 65 to match those of men and require 40 years of social security contributions for a full pension – are aimed at fixing the country’s debt crisis, which has shaken the entire euro zone. “They’ve declared war on you, fight back!” PAME demonstrators chanted as they walked down a major avenue in the center of the capital. Greece is caught in a major debt and deficit crisis; it avoided bankruptcy last month only after receiving the first installment of a euro110 billion ($136 billion) emergency loan package from the European Union and the International Monetary Fund. In return, Athens passed painful austerity measures, cutting pensions and salaries and raising consumer taxes, and is now pushing through labor and social security reforms. Parliament is to start discussing the proposed reforms Tuesday, in a debate expected to last more than a week. Despite opposition from several of its own lawmakers, the center-left government – which holds a seven-seat majority in the 300-member house – is expected to win the final vote. Tension mounted once more in the country’s main port of Piraeus early Tuesday morning, where hundreds of PAME demonstrators attempted to prevent tourists and locals from boarding ferries to Aegean islands, even though a court had declared seamen’s participation in the strike illegal. “They want to put us in a straitjacket so we work for free all our lives so that some can have their wealth and get very rich at our expense,” said Sotiris Poulikogiannis, a protester in Piraeus. “We don’t accept this. Day by day we’ll grow stronger and more aware of how to overturn this situation.” The Civil Protection Ministry said all ships scheduled to leave in the morning did set sail, with about 350 passengers. However, about 50-100 people didn’t manage to board their ferries as strikers prevented them from entering the port. Authorities said their tickets would also be valid Wednesday. Another four ships that were to sail for Crete and the Cycladic islands in the early afternoon had informed passengers that they would depart at midnight, the ministry said. A similar strike by two seamen’s unions last week – which was also declared illegal – left thousands of travelers stranded in Piraeus for a day. Shipping companies and officials in Greece’s vital tourism industry strongly criticized the government for not taking action to stop the strikers. ____ Associated Press Television crews and photographers in Piraeus and Athens, and AP writer Nicholas Paphitis in Athens contributed.

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Video: Barroso Says the EU’s Economic Fundamentals `Are Good’: Video

June 25, 2010

June 25 (Bloomberg) — European Commission President Jose Barroso said the European Union’s economic “fundamentals are good.” Barroso, speaking yesterday in Toronto where leaders from the Group of 20 countries are gathering this weekend, also said China’s plan to provide more currency flexibility was a “move in the right direction.” Bloomberg’s Sara Eisen reports. (Source: Bloomberg)

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Alan Schram: The Next Thing to Go Wrong

June 20, 2010

Gold prices just hit a new all time (nominal) high of $1,257 an ounce. The Dollar lost more than 70% of its gold value since the beginning of the decade (an ounce of gold was $273 in January 2001). Because most people take note of the dollar in reference to foreign currencies, they overlook the significance of this. The European Union has bigger problems than America, and so their currency has been even weaker, making the dollar’s decline easy to ignore. But since gold prices are quoted in dollars, the meaning of gold going up is that the dollar is falling. A look at energy prices leads to a similar conclusion. For decades the prices of gold and oil closely paralleled one another. In 2003 an ounce of gold would have bought you 12 barrels of oil. Today that ounce will buy you about 16 barrels, even though the price of oil is now more than twice what it was in 2003. Thus the increase in oil prices is really a result of inflation, not energy markets’ supply and demand. Energy prices are simply not keeping pace with the rising price of gold. This erosion in the value of the dollar is effectively inflation, even if it does not yet show up in the CPI. And it is tantamount to a tax more devastating than anything Congress can come up with. Inflation consumes capital. If you receive 5% interest on your savings and pay 100% capital gains tax during a year of zero inflation, you are no worse off than a person who pays no income taxes at all during a year of 5% inflation. Either one is left with no real income. People would riot in the streets if capital gain tax of 120% was enacted, but don’t seem to mind collecting 5% interest rate on their municipal bonds with 6% inflation, even though that is exactly the same as 120% capital gains tax. So far, both inflation and long term interest rates have remained surprisingly low, despite the flagitious promiscuity in which the U.S. has increased its federal debt, from $5.5 billion to $8.6 billion in just 18 months. But Gold has historically been a reliable harbinger of both inflation and rising interest rates. Rising interest rates obviously reduce the value of all fixed income investments. And when the value of the dollar deteriorates, fixed income instruments with principal payments denominated in dollars are not going to do well. Thus, the erosion of the dollar is a threat to our economic stability. Every empire in history has shirked its liabilities by debasing the currency. Aggressive spending plans, especially in a time of war, escalate these inherent tendencies. And the further the dollar declines, the more dire the consequences. Yet investors who should be looking for safe haven are, oddly, confident in our currency and convinced that Washington will honor its long term fiscal obligations. That false sense of security is dangerous, because we are vulnerable to a crisis of confidence in the dollar. And the resulting sudden spike in interest rates will have such large impact on the economy that it will dwarf any other factor. The second Murphy law says that what actually goes wrong is not that we anticipated going wrong. But this scenario is at the top of my worry list. Alan Schram is the Managing Partner of Wellcap Partners, a Los Angeles based investment firm. Email at aschram@wellcappartners.com.

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Turkish Military Clashes With Kurdish Group, Launches Bombing Runs in Iraq

June 20, 2010

By Steve Bryant June 19 (Bloomberg) — Ten Turkish soldiers were killed in attacks by the Kurdistan Workers’ Party, or PKK, according to Turkey’s armed forces. The military said 12 PKK members had been killed in subsequent clashes. PKK gunmen attacked soldiers in the Semdinli region close to the Iraqi border, killing eight, the military said in a website statement . Additional forces were sent into the area and aircraft staged bombing runs in northern Iraq, according to the statement. Fourteen troops were wounded, the military said. Two soldiers also died in Semdinli when they stepped on a landmine laid by the PKK, the state news agency Anatolia reported. The clashes came the day after Turkish forces warned of an increase in attacks from the PKK. The organization on June 1 decided to step up attacks because Turkey is ignoring its demands for constitutionally recognized autonomy, General Fahri Kir told reporters in Ankara. The military has killed 130 PKK fighters and lost 43 soldiers since March, he said. Prime Minister Recep Tayyip Erdogan has widened Kurdish cultural rights, allowing television broadcasts in the language and increasing investment in Turkey’s mostly Kurdish southeast. The increase in PKK violence reflects the group’s “efforts to sabotage the initiative,” Erdogan said yesterday. It was the second time in a week that Turkey attacked the PKK inside northern Iraq, which the group uses as a base for attacks on Turkey. Turkey, the U.S. and the European Union classify the PKK as a terrorist group. The group has been fighting the Turkish state since 1984 in a conflict that has killed at least 40,000 people. Turkish authorities don’t negotiate with the PKK and its leader, Abdullah Ocalan , who’s serving a life sentence on an island jail in western Turkey. To contact the reporter on this story: Steve Bryant in Ankara at sbryant5@bloomberg.net

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Euro Has Biggest Weekly Gain Since May 2009 on European Debt Concern Ease

June 19, 2010

By Catarina Saraiva and Ben Levisohn June 19 (Bloomberg) — The euro rose the most this week against the greenback in more than year as an easing in concern over Europe’s debt crisis spurred traders to end bets the shared shared currency would decline. The euro appreciated for a second week versus the yen, the first back-to-back weekly gains since March, as increased demand at a Spanish bond sale and an agreement by European Union leaders to disclose how banks perform on stress tests damped investor worries about the region’s financial system. The dollar fell versus the yen as Japan’s ruling party announced a deficit- cutting plan and disappointing U.S. data increased speculation the Federal Reserve would keep interest rates at a record low. “The recent news out of Europe is reassuring,” said Camilla Sutton , a Bank of Nova Scotia currency strategist in Toronto. “Europe will release the results of stress tests and give the market the clarity it looked for. The U.S. will be on hold for longer. That helped equities and boosted risk appetite.” The euro rose 2.3 percent to $1.2388 this week, the biggest gain since the five days ended May 22, 2009, from $1.2112 on June 11. It touched $1.2417 yesterday, the highest level since May 28. Europe’s common currency rose 1.3 percent to 112.40 yen, from 111 on June 11. The dollar fell 1 percent to 90.71 yen, from 91.65 a week ago. The common currency gained as futures traders decreased their bets that the currency will decline against the U.S. dollar to the lowest level since April, figures from the Washington-based Commodity Futures Trading Commission show. Short Covering The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain — so-called net shorts — was 62,360 on June 15, after dropping 44 percent from 111,945 a week earlier. “Seventy percent of the euro’s gain was short covering,” said Brian Dolan , chief strategist at FOREX.com, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey. “The downside had become extreme, and sentiment was extreme. It’s slow going on the way up. I think we’ll see losses developing faster than recoveries.” Spain sold 3 billion euros ($3.7 billion) of 10-year debt on June 17 at an average yield of 4.864 percent, less than the 5.04 percent that the bonds traded at before the sale. Demand was 1.89 times the amount on offer. It also sold 479.2 million euros of 30-year debt at 5.908 percent, and the bid-to-cover ratio was 2.45, higher than the 1.38 at the previous sale on March 18. ‘Cloud of Suspicion’ “We had the credit markets more or less stabilize,” said Boris Schlossberg , director of research at online currency trader GFT Forex in New York. “That’s why the euro continues to perform well.” European Union leaders this week agreed to disclose how banks perform on stress tests, seeking to show investors the financial system can withstand financial shocks. French Finance Minister Christine Lagarde yesterday said a European Union decision to publish the results of stress tests will “clear a cloud of suspicion that’s out there.” She made the comments while attending the St. Petersburg Forum in Russia. The pound gained this week the most versus the greenback since the week of April 2 before of the U.K.’s announcement of budget cuts on June 22, which may help it avoid the rising bond yields afflicting Spain and Portugal. ‘Investor Enthusiasm’ Chancellor of the Exchequer George Osborne is set to outline the deepest spending cuts since at least the 1970s to tame a budget deficit of 11 percent of gross domestic product last fiscal year. U.K. government bond yields have fallen 0.339 percentage point since Prime Minister David Cameron took office six weeks ago on expectations his coalition government will step up the pace of deficit reduction. The pound climbed 1.9 percent to $1.4824 this week from $1.4552 on June 11. It fell 0.4 percent to 83.59 pence per euro. The yen posted a second weekly gain versus the dollar after Japanese Prime Minister Naoto Kan pledged to cut the world’s largest public debt. Kan said he’d consider an opposition party proposal to raise the consumption tax. BNY Mellon is “seeing net buying of the Japanese yen, not so much as a risk aversion play, but because of investor enthusiasm about Japan’s ruling party announcing a new plan to combat deflation, reduce the budget deficit and restore growth,” Samarjit Shankar , a managing director for the foreign- exchange group in Boston, wrote in a note to clients. BNY Mellon is the world’s largest custodial bank, with more than $20 trillion in assets under administration. ‘Likely to Decelerate’ The greenback fell against all 16 major currencies this week after the number of American’s filing for jobless benefits for the first time rose, increasing speculation that economic growth in the U.S. remains fragile. Initial jobless claims in the U.S. increased by 12,000 to 472,000 in the week ended June 12, according to Labor Department figures. Economists surveyed by Bloomberg News projected 450,000 claims, according to the median forecast. Futures trading on the CME Group Inc. exchange showed a 36 percent chance that the Fed will raise its target rate for overnight bank lending by at least a quarter-percentage point by its January meeting, down from 55 percent odds one month ago. The U.S. economy will stagnate in the second half of the year as households, businesses and state and local governments trim debt, according to John Herrmann of State Street Global Markets in Boston. “There is an incredible amount of deleveraging going on in the economy,” Herrmann, a senior fixed-income strategy, said in an interview June 17 on Bloomberg Radio with Tom Keene . “Organic growth in the economy is likely to decelerate” as government stimulus fades and temporary census workers complete their contracts, he said. To contact the reporter on this story: Ben Levisohn in New York at blevisohn@bloomberg.net ; Catarina Saraiva in New York at asaraiva5@bloomberg.net .

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Twenty Killed in Turkish Military, PKK Clashes Aircraft Bomb Inside Iraq

June 19, 2010

By Steve Bryant June 19 (Bloomberg) — Eight Turkish soldiers were killed in an attack by the Kurdistan Workers’ Party, or PKK, according to Turkey’s armed forces. The military said 12 PKK members had been killed in subsequent clashes. PKK gunmen attacked a company of soldiers in the Semdinli region close to the border with Iraq, the military said in a statement on their website. The military sent additional forces into the area and aircraft were bombing locations within Iraq, the statement said. Fourteen troops were wounded, it said. The clashes came the day after the Turkish Armed Forces warned of an increase in attacks from the PKK. The militants, which cross into Turkey from camps in northern Iraq, have escalated their attacks in recent weeks, killing nine Turkish soldiers and wounding more than 20 people since May 31. Turkey, the U.S. and the European Union classify the PKK as a terrorist group. The group has been fighting the Turkish state since 1984 in a conflict that has killed at least 40,000 people. To contact the reporter on this story: Steve Bryant in Ankara at sbryant5@bloomberg.net

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Video: Fitch’s Coulton Says European Stress Tests `Beneficial’

June 18, 2010

June 18 (Bloomberg) — Brian Coulton, head of sovereign debt research for Fitch Ratings, talks about the European Union’s decision to publish the results of stress tests on the region’s lenders. He speaks with Francine Lacqua on Bloomberg Television’s “The Pulse.”

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Russia Will Lead Effort to Found `New World Economic Order,’ Medvedev Says

June 18, 2010

By Lyubov Pronina and Lucian Kim June 18 (Bloomberg) — Russia will help lead efforts to recast the global economic hierarchy as the world emerges from the financial crisis, President Dmitry Medvedev said. “We really live at a unique time, and we should use it to build a modern, prosperous and strong Russia, a Russia that will be a co-founder of the new world economic order,” Medvedev said at the annual St. Petersburg International Economic Forum today. Russia will use tax incentives and other free-market economic policies to turn the country into a destination for innovators from around the world, Medvedev told an audience including Citigroup Inc. Chief Executive Officer Vikram Pandit and French Economy Minister Christine Lagarde . Medvedev, in the third year of his presidency, is promoting modernization to transform Russia from an oil-and-gas economy into a magnet for high technology. Russia’s reliance on natural resources exacerbated the steepest contraction among emerging markets last year, when the economy shrank a record 7.9 percent. Russia is on the road to recovery after the decline, Medvedev said. Sovereign debt is “minimal,” foreign reserves are growing again and inflation is at its lowest level in 20 years, according to the president. The country boasts government debt of about 10 percent of gross domestic product. “Flexibility and adaptability are words that have become much more popular than stability and predictability,” Medvedev said. Russia should become a “dream” for foreigners bringing ideas and capital, he said. Regional Ties Medvedev said he will continue to seek economic integration on a regional level with former Soviet republics such as Kazakhstan and Belarus, a development he said doesn’t conflict with Russia’s aspirations to join the World Trade Organization. In areas where it lags behind, Russia will adopt foreign practices, such as the European Union’s technical standards, according to the president. To contact the reporters on this story: Lyubov Pronina in St. Petersburg at lpronina@bloomberg.net ; Lucian Kim in St. Petersburg at lkim3@bloomberg.net

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Video: Herrmann Says Spanish Debt Auction Results `Promising’

June 18, 2010

June 18 (Bloomberg) — Thomas Herrmann, an economist at Credit Suisse, talks about the impact of yesterday’s Spanish debt auction on investor confidence and the European Union’s decision to publish the results of stress tests on the region’s lenders. He speaks with Mark Barton on Bloomberg Television’s “Start Up.”

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Spanish Bond Yields Drop as Demand at Auction Allays Refinancing Concerns

June 17, 2010

By Emma Ross-Thomas June 17 (Bloomberg) — Spain sold 3.5 billion euros ($4.3 billion) of bonds, the maximum set for the auction, easing concern that Spain will struggle to finance looming debt maturities. Spanish stocks abd bonds, and the euro rallied. Spain sold 3 billion euros of 10-year debt at an average yield of 4.864 percent, less than the 5.04 percent that the bonds traded at today before the sale. Demand was 1.89 times the amount on offer. It also sold 479.2 million euros of 30-year debt at 5.908 percent, and the bid-to-cover ratio was 2.45, higher than the 1.38 at the previous sale on March 18. Spain, which faces debt redemptions of 24.7 billion euros in July, is trying to convince investors it can cut the third- largest deficit in the euro region, while propping up the country’s savings banks and lifting the economy out of a two- year slump . Spanish bonds rose after the sale and the yield premium investors demand to buy the debt over German bunds narrowed from a euro-era high yesterday. “The strong demand for Spanish bonds should help restore confidence,” said Ciaran O’Hagan , fixed income strategist at Societe Generale in Paris. “The good demand was only possible after considerable cheapening of Spanish bonds over the past days.” Yield Premium Declines The extra interest investors demand to hold Spanish debt rather than equivalent German bonds narrowed to 206 basis point. That spread surged to 221 yesterday, the highest since before the start of the euro, on speculation in the press that Spain would need to tap a European Union financial lifeline. The gap compared with 160 basis points at the end of May. The yield on the Spanish 10-year bond fell 11 basis points to 4.761 percent at 10:45 a.m. in London. Credit-default swaps on Spanish government debt fell 5 basis points to 254, according to CMA DataVision prices. Spain’s Ibex share index rose 1.4 percent to 9,818, increasing twice as much as European shares. The euro, which has fallen almost 14 percent this year, on concern that swelling budget deficits could leave countries such as Spain struggling to finance their debts, rose to $1.2378 from $1.2311. Banking stocks also rose after Bank of Spain Governor Miguel Angel Fernandez Ordonez said yesterday the central bank will publish stress tests on lenders to “provide the markets with a perfectly clear idea of the situation of the Spanish banking system.” International capital markets are “closed” for most Spanish companies and lenders, Francisco Gonzalez, chairman of Spain’s second-largest lender Banco Bilbao Vizcaya Argentaria SA said June 14. Stress Tests “A very strong set of results,” Sean Maloney , a fixed income strategist at Nomura International Plc in London, said about the auction. “A big concession in the lead-up and news that Bank of Spain is keen to publish stress test results on banks probably shored up confidence.” Today’s auction comes as European Union leaders meet in Brussels to advance their plan to establish a 750 billion-euro financial backstop to support high-deficit nations such as Spain and defend the euro. Spain has said it doesn’t need help, and that it will have no problem facing the July redemptions, which are the heaviest for the rest of the year. Spain’s debt burden is lower as a proportion of gross domestic product than in Germany or France. Public debt amounted to 53 percent of GDP last year, compared with a euro-region average of 79 percent. The July bond redemption of 16.2 billion euros is the last until April 2011, leaving 32 billion euros of maturing treasury bills spread out over the rest of the year. To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

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Rogers Buys Euros on Weakness, Says Bailouts Will `Destroy’ the Currency

June 16, 2010

By Ben Sills June 16 (Bloomberg) — Jim Rogers , chairman of Rogers Holdings, said he is buying euros even as he predicts that bailouts for European nations will eventually destroy the single currency. “That’s not the way it’s supposed to work,” Rogers said in an interview at the Rafael Del Pino Foundation in Madrid today. “I don’t think it’s good for Europe, and I don’t think it’s good for the world to bail out people who have failed.” The euro lost 14 percent against the dollar this year as European Union nations struggled to contain budget deficits more than triple the bloc’s 3 percent limit. Last month the EU announced a 750 billion-euro ($923 billion) rescue mechanism to stem contagion from Greece as the risk premium on Spanish and Portuguese bonds surged. “Debasing what has been a strong currency and making it weaker and weaker is in the end going to destroy the euro,” Rogers said. “In the interim, I’m long the euro.” Still, Rogers said he bought euros this week and may buy more because investor sentiment has turned too negative in the short term. It will take 10 to 15 years for the currency to disappear, he said. The extra yield investors demand to hold Spanish 10-year government bonds rather than the benchmark bunds touched a euro- era record today of 2.19 percentage points after El Economista newspaper reported the International Monetary Fund is coordinating a 250 billion-euro credit line for the country. The EU and IMF denied the report. The euro fell 0.2 percent to $1.2305. “It’s time to go in and take the other side,” Rogers said. “It got beaten down so much.” To contact the reporter on this story: Ben Sills in Madrid at bsills@bloomberg.net

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UN to Deliver Aid Flotilla’s Cargo to Gaza Strip Under Accord With Israel

June 15, 2010

By Bill Varner June 15 (Bloomberg) — The United Nations will transfer humanitarian aid supplies to the Gaza Strip from a flotilla of foreign ships that Israel intercepted in international waters May 31, the world body’s top envoy to the Middle East said. “The government of Israel has agreed to release the entire cargo to the United Nations in Gaza on the understanding that it is for the United Nations to determine its appropriate humanitarian use in Gaza,” Robert Serry told the UN Security Council today. Serry said in reference to Hamas that the UN has “reason to believe that the de facto authorities in Gaza will respect the independence” of the world body’s agency to aid Palestinians in Gaza and the West Bank. The UN will begin the transfer of the supplies “as soon as possible,” he said, adding that the amount of aid was “modest in scale compared with the needs in Gaza.” The cargo includes medicine, food and clothing, the Israeli Defense Ministry said today in an e-mailed statement announcing Israel’s agreement to the UN role. Israel has faced international criticism over the raid by naval commandos on a flotilla of aid ships as well as calls for it to lift restrictions on the flow of goods into the Hamas- controlled Gaza Strip. The U.S. has declined to join in the criticism of Israel. Criticism within Israel on the flotilla operation has focused largely on the execution of the raid and not the blockade. Israeli Probe The incident, which resulted in the deaths of nine pro- Palestinian activists, has led to demands for Israel or others to investigate the raid on the ships that headed Gaza in an effort to undermine Israel’s blockade. Israel’s Cabinet yesterday approved a public probe into the raid. Israel said it issued numerous warnings to the flotilla beforehand to change course for the port of Ashdod and unload there. The violence took place on only one of six ships in the flotilla. Israel launched an operation in the Gaza Strip in December 2008 which it said was meant to stop the firing of rockets into its territory. More than 1,000 Palestinians and 13 Israelis were killed in the conflict. Since the end of the three-week operation, some 330 rockets have been fired from Gaza into Israel, killing one foreign worker last March, the Israeli army said. Israel has been blockading Gaza since Hamas seized full control there in 2007, after winning Palestinian parliamentary elections the previous year. The group is considered a terrorist organization by the U.S., the European Union and Israel. A survey of Israeli Jews published in the Maariv daily on June 2 showed 94.8 percent agreeing that it was necessary to stop the boats, with 62.7 percent saying it should have been handled in a different manner. Only 8.1 percent thought Prime Minister Benjamin Netanyahu should resign. The newspaper didn’t say how many people were surveyed or give a margin of error. To contact the reporters on this story: Bill Varner at the United Nations at wvarner@bloomberg.net

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Spain, Portugal Must Specify Steps for `Ambitious’ Budget Targets, EU Says

June 15, 2010

By Meera Louis June 15 (Bloomberg) — The European Union told Spain and Portugal their governments must spell out the budget-cutting measures they plan to implement to reach their “ambitious” deficit targets for next year. “The targets are appropriately ambitious and imply substantial fiscal consolidation,” the EU said in a report released today in Brussels. “Spain and Portugal are expected to specify measures in their 2011 budgets amounting to 1.75 percent and 1.5 percent of GDP, respectively, in order to attain the new targets.” European governments are struggling to cut their budget gaps and prevent the Greek debt crisis from spreading to other countries such as Spain and Portugal. EU officials last month agreed on an unprecedented 750 billion-euro ($922 billion) rescue package for distressed nations after a separate 110 billion-euro lifeline for Greece failed to contain the turmoil and shore up the euro. Spain is trying to cut the EU’s third-largest deficit in half over two years while at the same time restructuring the savings-bank industry, implementing wage cuts and freezing pensions. The government’s borrowing costs rose at an auction of 12- and 18-month bills in Madrid today amid investor concern the fiscal crisis may be spreading. Austerity Measures Governments across Europe are implementing austerity measures as the debt crisis undermines investor confidence and clouds the economic outlook. German investor sentiment plunged in June on concern the turmoil will undermine exports and crimp growth in the region’s biggest economy. Spain has pledged to cut its deficit to 9.3 percent of gross domestic product this year and 6 percent in 2011. Portugal said it would reduce its budget shortfall to 7.3 percent of GDP in 2010 and 4.6 percent in 2011. The two countries “need to substantiate” their deficit- cutting plans to meet the revised deficit targets for next year, EU Economic and Monetary Affairs Commissioner Olli Rehn told a press conference today in Strasbourg, France. “It is essential to substantiate these new measures.” Spanish Finance Minister Elena Salgado said on June 8 that her government will take “any measures necessary” to meet next year’s deficit target. Portugal’s Finance Ministry said in a statement today that the 2011 budget “will adopt all the necessary measures” to meet its deficit goal. Debt Ratio In today’s report, the EU told both countries that the new deficit targets “will not be enough to reverse the increasing trend in the debt ratio by next year.” Citing the “urgency of reversing debt developments,” the EU said additional budget cuts by the two governments should “be focused on expenditure cuts.” The yield premium investors demand to buy 10-year Spanish bonds over comparable German debt rose to a euro-era high of 215.6 basis points on June 8 on speculation Spain may follow Greece in needing an EU bailout to finance its debt. The spread between 10-year Portuguese securities and bunds widened 19 basis points today to 278 basis points, the most in a week, according to Bloomberg generic data. Under the EU’s Stability and Growth Pact, countries with deficits above the 3 percent limit face fines of as much as 0.5 percent of GDP unless they get the budgets back into compliance. To date, no country has been fined for flouting the rules of the pact. To contact the reporter on this story: Meera Louis in Brussels at mlouis1@bloomberg.net

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Spain, Portugal Must Specify Steps for `Ambitious’ Budget Targets, EU Says

June 15, 2010

By Meera Louis June 15 (Bloomberg) — The European Union told Spain and Portugal their governments must spell out the budget-cutting measures they plan to implement to reach their “ambitious” deficit targets for next year. “The targets are appropriately ambitious and imply substantial fiscal consolidation,” the EU said in a report released today in Brussels. “Spain and Portugal are expected to specify measures in their 2011 budgets amounting to 1.75 percent and 1.5 percent of GDP, respectively, in order to attain the new targets.” European governments are struggling to cut their budget gaps and prevent the Greek debt crisis from spreading to other countries such as Spain and Portugal. EU officials last month agreed on an unprecedented 750 billion-euro ($922 billion) rescue package for distressed nations after a separate 110 billion-euro lifeline for Greece failed to contain the turmoil and shore up the euro. Spain is trying to cut the EU’s third-largest deficit in half over two years while at the same time restructuring the savings-bank industry, implementing wage cuts and freezing pensions. The government’s borrowing costs rose at an auction of 12- and 18-month bills in Madrid today amid investor concern the fiscal crisis may be spreading. Austerity Measures Governments across Europe are implementing austerity measures as the debt crisis undermines investor confidence and clouds the economic outlook. German investor sentiment plunged in June on concern the turmoil will undermine exports and crimp growth in the region’s biggest economy. Spain has pledged to cut its deficit to 9.3 percent of gross domestic product this year and 6 percent in 2011. Portugal said it would reduce its budget shortfall to 7.3 percent of GDP in 2010 and 4.6 percent in 2011. The two countries “need to substantiate” their deficit- cutting plans to meet the revised deficit targets for next year, EU Economic and Monetary Affairs Commissioner Olli Rehn told a press conference today in Strasbourg, France. “It is essential to substantiate these new measures.” Spanish Finance Minister Elena Salgado said on June 8 that her government will take “any measures necessary” to meet next year’s deficit target. Portugal’s Finance Ministry said in a statement today that the 2011 budget “will adopt all the necessary measures” to meet its deficit goal. Debt Ratio In today’s report, the EU told both countries that the new deficit targets “will not be enough to reverse the increasing trend in the debt ratio by next year.” Citing the “urgency of reversing debt developments,” the EU said additional budget cuts by the two governments should “be focused on expenditure cuts.” The yield premium investors demand to buy 10-year Spanish bonds over comparable German debt rose to a euro-era high of 215.6 basis points on June 8 on speculation Spain may follow Greece in needing an EU bailout to finance its debt. The spread between 10-year Portuguese securities and bunds widened 19 basis points today to 278 basis points, the most in a week, according to Bloomberg generic data. Under the EU’s Stability and Growth Pact, countries with deficits above the 3 percent limit face fines of as much as 0.5 percent of GDP unless they get the budgets back into compliance. To date, no country has been fined for flouting the rules of the pact. To contact the reporter on this story: Meera Louis in Brussels at mlouis1@bloomberg.net

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Stocks in U.S. Drop on Renewed Concern Greek Debt Crisis Will Slow Growth

June 14, 2010

By Nikolaj Gammeltoft June 14 (Bloomberg) — U.S. stocks erased gains as the Standard & Poor’s 500 Index failed to remain above 1,100 and a downgrade of Greece’s credit rating reignited concern Europe’s debt crisis will derail the global economic recovery. JPMorgan Chase & Co. and Wells Fargo & Co. lost more than 1 percent as financial shares in the Standard & Poor’s 500 Index reversed an earlier 1.1 percent rally. Caterpillar Inc., United Technologies Corp. and Intel Corp. climbed more than 1.2 percent to lead gains in the Dow Jones Industrial Average The S&P 500 slipped less than 0.1 percent to 1,091.18 at 3:40 p.m. in New York. The Dow average decreased 2.04 points, or less than 0.1 percent, to 10,209.03, wiping out a 118-point advance. The S&P 500 climbed 1.3 percent to 1,105.91 earlier, the highest intraday since May 20, before turning lower. “We’ve identified the 1,105 level as the critical upside resistance level,” says Phil Orlando, the New York-based chief equity market strategist at Federated Investors, which manages about $400 billion. “The move this morning up to the 1,106 level was the run we were looking for. We’ve hit 1,105, bounced off and we’ve got to go back.” Benchmark indexes also trimmed their advance after Moody’s downgraded Greece’s credit rating by four steps to Ba1, or junk, from A3, citing economic risks. The S&P 500, the benchmark index for U.S. stocks, has fallen 10 percent from a 19-month high in April amid concern some European nations will struggle to fund budget deficits. ‘Minimal’ Impact “The actual impact should be minimal for a number of reasons,” Marc Chandler , global head of currency strategy at Brown Brothers Harriman & Co., said in an e-mailed note about Greece’s downgrade. “First, it is not the first rating agency to take away the country’s investment grade status. Second, Moody’s outlook is stable.” He added that “Greece is not expected to have to come back to the capital markets to raise funds any time soon,” and the European Central Bank “already has indicated it will accept Greek bonds as collateral no matter what rating is assigned.” The S&P 500 climbed 2.5 percent last week as China’s exports jumped the most in six years, Federal Reserve Chairman Ben S. Bernanke said the economic recovery is intact and commodity prices gained. European shares rallied after the region’s industrial production increased more than economists forecast in April, led by demand for intermediate goods such as steel and car engines. Output in the economy of the 16 nations using the euro rose 0.8 percent from March, the European Union’s statistics office said. Economists had projected a gain of 0.5 percent, according to the median of 33 estimates in a Bloomberg survey. Stocks Vs. Bonds The decline in global equities since April has left stocks at the cheapest level relative to bonds since the collapse of Lehman Brothers Holdings Inc., a sign that shares in the U.S. and Europe may rally. “We expect global markets to continue to rally this year, though at a slower pace than from March last year,” Nomura Holdings Inc.’s London-based strategist Ian Scott wrote in a report dated June 11. “Equities should continue to derive support from a number of factors, namely still-attractive valuations, positive earnings growth and asset allocations that remain skewed toward cash and continued policy support.” Analysts have lifted their average 2010 earnings growth forecasts for the S&P 500 to 32 percent from 26 percent at the end of March even as the benchmark measure of U.S. equities retreated 13 percent between April 23 and June 4, according to data compiled by Bloomberg. To contact the reporter on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net .

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Currency Collapse May Stimulate a Resumption of Economic Growth, BIS Says

June 13, 2010

By Matthew Brown June 14 (Bloomberg) — Currency collapses tend to spur a resumption of economic growth rather than fueling a decline in gross domestic product, according to the Bank for International Settlements. Currency collapses are associated with permanent output losses of about 6 percent of GDP, on average, though the drop tends to appear beforehand, the Basel, Switzerland-based BIS said in its quarterly review yesterday. “This suggests that it may not be the currency collapse that reduces output, but rather the factors that led to the depreciation,” Camilo E. Tovar wrote in the study. “To gain a full understanding of the implications of currency collapses on economic activity it is important to carefully examine the full circle of events surrounding the episode.” The positive effects of a weaker currency on GDP, including making local products cheaper than imported goods, may outweigh the negative ones, such as rising inflation. Currency collapses occur when the annual exchange rate drops by about 22 percent, according to the BIS, which identified 79 such episodes, “more commonly in Africa than in Asia or Latin America,” since 1960, Tovar said. “They also occurred under all types of currency regimes, except possible floating-exchange-rate regimes, where there are simply too few observations to obtain meaningful estimates,” the BIS said. Economic Contraction The euro tumbled about 20 percent against the dollar between Nov. 25, 2009, and last week as investor concern over record budget deficits in countries including Greece spurred speculation the 16-nation currency union may split. The European Union in May crafted a 750 billion-euro ($908 billion) rescue package to stem the crisis. Greece’s economy will contract 3.9 percent this year and 1.2 percent in 2011, after shrinking 2 percent in 2009, according to the median of eight economist estimates compiled by Bloomberg. The euro-region will expand by 1.1 percent this year and 1.5 percent in 2011, after falling 4.1 percent last year, median forecasts show. Hans-Werner Sinn , president of Germany’s Ifo economic institute, said on June 3 that it would be best for Greece to leave the euro instead of implementing an austerity program to reduce its deficit. Greek Prime Minister George Papandreou pledged budget cuts worth almost 14 percent of GDP to bring the deficit within the EU limit of 3 percent by the end of 2014. “The real solution for Greece would be to leave the euro followed by a depreciation” of the new currency, Sinn said in an interview at a conference in Interlaken, Switzerland. Growth May ‘Dominate’ European Central Bank Executive Board member Lorenzo Bini Smaghi said on May 28 that there are “no alternatives” for Greece beyond following the austerity program. “Before drawing policy conclusions we should emphasise that these results are subject to a number of caveats,” the BIS said in the report. “Most importantly, the analysis does not address the reasons why currency collapses occur in the first place. Our analysis also has little to say about the mechanisms involved after the currency collapse takes place. While we cannot disentangle the various factors, our results do suggest that expansionary mechanisms tend to dominate.” To contact the reporter on this story: Matthew Brown in London at mbrown42@bloomberg.net

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Yen Falls Versus Euro on Signs Global Economic Recovery Gaining Traction

June 13, 2010

By Ron Harui June 14 (Bloomberg) — The yen fell for a third day against the euro on signs the global economic recovery is gaining momentum, spurring demand for riskier investments. Japan’s currency weakened versus all 16 of its major counterparts after the Nikkei 225 Stock Average advanced as appetite increased for higher-yielding assets. The euro rose to its highest level in a week against the dollar before a European report that economists said will show industrial production expanded for an 11th month. “The outlook for economies worldwide to rebound is still intact,” said Tsutomu Soma , a bond and currency dealer at Okasan Securities Co. in Tokyo. “The bias is for the yen to be sold and the euro may also be bought.” The yen declined to 111.84 per euro as of 9:02 a.m. in Tokyo from 111.00 in New York on June 11. Japan’s currency traded at 91.69 per dollar from 91.65. The euro climbed to $1.2194 from $1.2112, after earlier reaching $1.2208, the strongest since June 4. The Nikkei 225 gained 1.3 percent after the MSCI World Index advanced 1.9 percent last week. European Industrial Output Europe’s currency strengthened versus all 16 of its most- traded counterparts. Industrial output in the 16-nation region grew 0.5 percent in April from March, when it increased a revised 1.6 percent, according to a Bloomberg News survey of economists before the European Union’s statistics office releases the report in Luxembourg today. European Central Bank Governing Council member Ewald Nowotny said the ECB will buy government bonds until the financial market calms down, the Nikkei newspaper reported yesterday, citing Nowotny. The euro’s current level still is within a normal range, Nikkei cited him as saying. The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain — so-called net shorts — was 111,945 on June 8, data from the Washington-based Commodity Futures Trading Commission showed. Net shorts were 93,325 a week earlier. Futures positions, when they reach an extreme, are sometimes viewed as a contrarian indicator because traders often seek to cut positions when momentum in a currency shifts. To contact the reporters on this story: Ron Harui in Singapore at rharui@bloomberg.net .

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Finnish Center Party Chooses Kiviniemi as Party Leader, New Prime Minister

June 12, 2010

By Kati Pohjanpalo June 12 (Bloomberg) — Finland’s Center Party chose Mari Kiviniemi as its leader and the country’s new prime minister as Matti Vanhanen prepares to step down from both posts. Kiviniemi, 41, who will become Finland’s second female prime minister, garnered 57 percent of the vote by Center Party representatives at the annual meeting in Lahti, Finland today. Mauri Pekkarinen came in second with 43 percent, or 1,035 votes. Kiviniemi takes the helm a year before parliamentary elections, with the economy mired in recession. She must combat the party’s falling popularity and address Finland’s biggest budget deficit in 15 years as its aging workforce shrinks. Vanhanen, who has endured a two-year scandal over campaign funding and revelations about his personal life by an ex- girlfriend, said he is stepping down June 18 to undergo an operation on his leg. The Center Party’s popularity fell 1.7 percentage points to 18.7 percent in a poll published June 9 by the newspaper Helsingin Sanomat. “The focus must be on the economy,” Vanhanen said in an interview in Lahti today before his successor was elected. “The new leader must seek sources of new growth and ways to improve productivity.” Finland’s economy slipped back into recession in the fourth quarter and contracted in the three months through March, revised figures showed this week. Lack of demand for Finnish exports could aggravate the country’s budget woes. Aging Population Spending is forecast to exceed income for a second straight year. The deficit, forecast at 4.1 percent of gross domestic product, will breach the European Union’s 3 percent rule, the Finance Ministry estimated March 30. To compound the problem, the workforce is set to shrink for the first time this year. Finland has Europe’s most rapidly aging population. Kiviniemi , a fourth-term lawmaker and an economist by training, is an avid opera-goer and piano player. She is married and has two children. Kiviniemi represents more liberal urban voters from southern Finland, while her opponents Pekkarinen and Paavo Vaeyrynen , 63, have a strong regional policy focus, said Ville Pitkaenen, a political scientist at the University of Turku. Timo Kaunisto, 47, a first-term lawmaker who also ran for the post, wasn’t considered a “viable” candidate as most Finns had never heard of him before the leadership contest, Pitkaenen said before the party vote. Kiviniemi, who follows Anneli Jaeaetteenmaeki as Finland’s second female prime minister, was elected in a closed-ticket vote of 2,399 Center Party district organization representatives. Seven votes were not counted, the party organization said. To contact the reporter on this story: Kati Pohjanpalo in Helsinki at kpohjanpalo@bloomberg.net

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Trichet Says ECB Will Keep Buying Government Bonds to Fight Market Crisis

June 10, 2010

By Gabi Thesing June 10 (Bloomberg) — European Central Bank President Jean-Claude Trichet said interest rates in the 16-nation euro region are “appropriate,” indicating he sees no immediate need to cut borrowing costs any time soon. “Monetary policy will do all that’s needed to maintain price stability over the medium term,” Trichet said at a press conference in Frankfurt today after the ECB left its benchmark rate at a record low of 1 percent. Trichet is under pressure to give details on the bond purchases that the ECB is using to fight Europe’s sovereign debt crisis and today said the policy was “by construction, temporary in nature.” Trichet’s ECB is buying sovereign debt as part of a European Union strategy to stop the euro region breaking apart. Critics say the purchases amount to bailing out indebted governments and could fuel inflation , breaching two of the ECB’s founding principles and undermining its credibility. The bond purchases also split the ECB Governing Council and failed to stem an increase in some countries’ borrowing costs . The crisis has also forced the ECB to reverse its withdrawal of emergency stimulus measures and prompted economists to push back forecasts for higher interest rates until the second quarter of next year. The euro, which has dropped 16 percent this year, was little changed at $1.2027. Separately, the Bank of England today kept its main rate unchanged at 0.5 percent and left the target for its bond holdings at 200 billion pounds ($292 billion) as it shields the U.K. economy from the biggest round of budget cuts since at least the early 1980s. Forecasts Trichet said the ECB raised its euro-region growth forecast for this year and cut it for 2011. The central bank expects the economy to expand around 1 percent this year compared with a previous forecast of around 0.8 percent. The economy will grow about 1.2 percent in 2011, lower than an earlier projection of around 1.5 percent because of weaker domestic demand, he said. The ECB raised its inflation forecasts after the euro’s slide this year, Trichet said. Consumer prices will rise around 1.5 percent in 2010 and 1.6 percent in 2011, he said. That compares with a previous projection that inflation would be around 1.2 percent in 2010 and 1.5 percent in 2011. To contact the reporter on this story: Gabi Thesing in Vienna at gthesing@bloomberg.net

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Sarkozy, Merkel Say Action Urgent on Sovereign Swaps Market, Short-Selling

June 9, 2010

By David Whitehouse June 9 (Bloomberg) — France and Germany called for European Union curbs on market speculation, saying restrictions on bets against “certain” stocks, bonds, and credit-default swaps should be considered. In a joint two-page letter, French President Nicolas Sarkozy and German Chancellor Angela Merkel sought proposals from European Commission President Jose Manuel Barroso on a ban on naked short sales of sovereign credit-default swaps as well as on some equities and government debt. “Since the international community is unanimously committed to leaving no market, no product, no actor or territory outside regulation and supervision, the return of strong volatility in the markets makes it necessary to question certain financial methods and certain products such as naked short-selling and credit default swaps,” they said. The Franco-German initiative follows a ban imposed by Germany last month on naked sovereign credit-default-swaps, a step sparking criticism that a move by a single nation would be ineffective. The move caused stocks around the world to drop and the euro traded near a four-year low against the dollar. 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. Traders in naked credit-default swaps buy insurance on bonds they don’t own. The European Commission is drafting proposals on short selling and sovereign credit-default-swaps due as early as October. For Related News and Information: Top Stories: TOP European Sovereign CDS: GCDS ESOD

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Stocks, Pound, U.S. Futures Drop on U.K. Debt Concern Gold Reaches Record

June 8, 2010

By Claudia Carpenter June 8 (Bloomberg) — European stocks fell for the third day and the pound weakened after Fitch Ratings said Britain’s deficit challenge is “formidable,” adding to concerns that the region’s fiscal crisis is spreading. U.S. futures, copper and oil erased gains, while gold climbed to a record. The Stoxx Europe 600 Index slipped 1.3 percent, dragged down by E.ON AG and Tesco Plc shares, at 10:39 a.m. in London. Futures on the Standard & Poor’s 500 Index dropped less than 0.1 percent. Sterling declined 0.4 percent to $1.4414. Copper fell 0.3 percent, and oil retreated 0.4 percent. Gold futures for August delivery rose to $1,254.50 an ounce in New York. Fitch said the U.K. needs to accelerate plans to reduce its budget deficit. The warning came one day after Prime Minister David Cameron told Britons to expect years of spending cuts, while the European Union pledged tougher sanctions on governments that break deficit rules. “This is not a pretty environment for equity investors,” Dennis Gartman , economist and editor of “The Gartman Letter” said in a Bloomberg radio interview. “Prices are going to continue to more lower. We are revising down ‘guestimates’ for earnings. It’s the start of a bear market.” Benchmark indexes in the U.K., Spain, Germany, France and Italy declined more than 1 percent. E.ON and RWE, Germany’s biggest utilities, dropped more than 2 percent in Frankfurt after Germany signaled plans for levies on the nuclear power industry. BP Plc retreated 3.3 percent in London as the commander of the U.S. response team to the leaking Gulf of Mexico well said it’s still unknown how much crude continues to spill. Tesco, the U.K.’s biggest retailer, fell 2.8 percent after saying Chief Executive Officer Terry Leahy will retire next year. Asian stocks rose for the first time in three days after Federal Reserve Chairman Ben S. Bernanke said the U.S. recovery remains intact. The MSCI Asia Pacific Index gained 0.3 percent. To contact the reporter on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net

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Hungary’s Forint Hits Year Low on Economic Outlook Bonds, Stocks Plunge

June 4, 2010

By Piotr Skolimowski and Michael Patterson June 4 (Bloomberg) — Hungary’s forint dropped to the weakest level in a year, stocks plunged the most worldwide and government bond yields had the biggest increase since November 2008 after a spokesman for Prime Minister Viktor Orban said the economy is in a “very grave situation.” The forint depreciated 2.1 percent to 287.73 per euro at 2:28 p.m. in Budapest, the weakest level since June 2009. The extra yield investors demand to own Hungary’s debt over U.S. Treasuries rose 93 basis points, the most since November 2008, to 4.12 percentage points, according to JPMorgan Chase & Co.’s EMBI Global Index . The BUX Index of equities tumbled 7 percent. Hungary’s economy is in a “very grave situation” because the previous government manipulated figures and lied about the state of the economy, Orban’s spokesman Peter Szijjarto said at a press conference in Budapest today. Talk of a default is “not an exaggeration,” Szijjarto said. European equities and U.S. stock-index futures fell after the comments. “The headlines explain it all,” Koon Chow , an emerging- market strategist at Barclays Capital, said in a phone interview from London. “The situation in Hungary is not really that bad, but if you have someone from the government say something like that it only invites people to put on shorts.” Credit-default swaps on Hungarian government bonds rose to 391.5 basis points from yesterday’s close of 308, according to CMA DataVision prices. An increase signals deterioration in investor perceptions of credit quality. Fact-Finding Panel The yield on the country’s forint-denominated bonds maturing in February 2013 rose 1.78 percentage points to 7.01 percent, the highest level since February, according to FIT Composite prices on Bloomberg. “Liquidity has disappeared, interbank-market making ceased and there’s a total selloff,” said David Palmai Pallag , a bond trader at Raiffeisen Bank in Budapest. “The situation is starting to resemble the one we saw in 2008 just before the market came to a complete halt.” Hungary secured a 20 billion-euro ($24 billion) loan from the IMF, the European Union and the World Bank in October 2008 to avoid default as the global financial crisis spurred investors to avoid the country and sent the economy into a recession. Orban, who took over May 29 after winning elections by pledging to cut taxes and stimulate the economy, yesterday failed to get EU approval for looser fiscal policy. A fact-finding panel will probably present preliminary figures on the state of the economy this weekend, Szijjarto said. The government will publish an action plan within 72 hours after the committee reports its findings, he said. “The new government needs to think a bit more clearly about communication with the market,” Timothy Ash , head of emerging-market research at Royal Bank of Scotland Group Plc, wrote in an e-mailed comment. “You simply cannot talk like this in these markets.” To contact the reporter on this story: Michael Patterson in London at mpatterson10@bloomberg.net .

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Harrah’s, Hard Rock Compete as East Europeans Put up $8 Billion for Casino

June 2, 2010

By James M. Gomez and Radoslav Tomek (Corrects to make clear developers are investing in the project from first paragraph.) June 2 (Bloomberg) — On the verdant pastureland where razor wire used to divide Europe, local developers are placing an $8 billion bet at the roulette wheel. Harrah’s Entertainment Inc. and Hard Rock International Inc. have been selected as casino operators in a competition to overcome local opposition and open the first U.S.-style casino resort in eastern Europe. The aim is to draw gamblers from London to Moscow and counter shrinking revenue at home. The complexes would stand where the borders of Slovakia and Hungary, former Soviet satellites, and Austria, once the European Union’s frontier, converge. “You just have to look at eastern Europe,” Jan Jones , senior vice president for government relations at Harrah’s, the world’s biggest casino company, said by phone from Las Vegas. “It has hundreds of millions of people, but little gambling product. Their casinos are small, so we have an opportunity.” While it’s more than two decades since the demise of communism in the region, economic output lags behind the European Union average and companies are still betting on an increase in consumer spending. Governments also are keen to promote tourism, jobs and investment to help mitigate the worst economic climate since they embraced capitalism. ‘EuroVegas’ The proposed Harrah’s-branded 1.5 billion-euro ($1.85 billion) casino resort and the planned Hard Rock-branded 5 billion-euro “ EuroVegas ” complex would be about 20 kilometers (12 miles) from each other on the highway between Bratislava and Budapest, making them reachable from the main Vienna and Bratislava airports within 20 minutes. They would have hotels, convention centers, shopping and swimming pools. The “future of the gaming sector lies in bigger multifunctional resorts,” said Indrek Jurgenson , chief executive officer of Estonia’s Olympic Entertainment Group AS , which runs a chain of 67 smaller casinos from the Baltic to the Black Sea. The addition of a U.S. presence will “benefit the gaming market in the region,” he said in an e-mail. Pavel Lupandin , who covers Olympic for Swedbank AB in Tallinn, said the company will survive the rivalry as many gamblers may still opt for smaller, more sedate gaming. “If the U.S. companies give it a hard go, Olympic will lose a bit,” said Lupandin. “But overall, for Olympic itself, it won’t be a big problem. The concept is new, and there is a reason why this thing has not gone on in the past. It is cultural.” Social Ills The U.S. companies need to overcome opposition from residents, and clear legal and political hurdles. Some locals are concerned about drugs, prostitution and traffic, while others welcome prospects of new jobs in a downtrodden area. “There is a lot of it here already,” said Sona Belajova, 65, who was taking a smoke break outside her cramped grocery store as streetwalkers lounged alongside a road 50 yards away, looking for noontime business. “Nothing is going to stop it. I’m just saying it will bring a lot of jobs.” Angry residents gathered 110,000 signatures to force a debate in the Slovak Parliament, said petition organizer Eleonora Mackova. “It will be a huge catastrophe,” said Sarka Kamocsaiova, who lives on the fourth floor of a communist-built apartment building that faces the wheat fields where the casino would stand. “It will destroy my beautiful green view. And who needs more hookers around here?” Viera Kimerlingova , the deputy mayor of Bratislava’s Petrzalka district, which lies along the southern edge of the city and is one of the capital’s poorest neighborhoods, said the Harrah’s application lacks assurances that the developer will stick to the plan. “A mega-casino doesn’t have a place in Europe,” she said. ‘Nerves and Endurance’ Gabor Zaszlos, the head of the Slovak unit of TriGranit Development Corp., the developer for Harrah’s, said he hopes local government opposition will wane. “We are not giving up on this,” said Zaszlos. “This is all about nerves and endurance.” Harrah’s and Hard Rock need to counter a two-year slump at home, said Ben Bubeck , a director at Standard & Poor’s Corporate Ratings in New York. In Las Vegas, the No. 1 U.S. gambling destination, 2009 gaming revenue dropped 9.4 percent, while in Atlantic City, New Jersey, revenue fell 13.2 percent. “Americans are certainly pulling back on discretionary spending,” said Bubeck. “It’s not a good time in the U.S. right now. So they have to look abroad.” Economic Outperformance While eastern Europe also suffered from the global crisis that crimped consumer demand, Slovakia and Hungary will outperform the U.S. and the EU next year as a whole, according to the International Monetary Fund’s April outlook . Per-capita gross domestic product, as measured by purchasing-power parity, in the EU was 29,729 euros last year, versus 21,244 euros in Slovakia and 18,566 euros in Hungary. Jones at Harrah’s said in the end, it’s up to gambling executives to win over the skeptics. “We are not trying to take from the community, but give to them” jobs and investment, she said. “They’re afraid because they don’t understand. We have a responsibility to teach them.” To contact the reporters on this story: James M. Gomez in Prague jagomez@bloomberg.net Radoslav Tomek in Bratislava at rtomek@bloomberg.net

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Harrah’s, Hard Rock Compete as East Europeans Put up $8 Billion for Casino

June 2, 2010

By James M. Gomez and Radoslav Tomek (Corrects to make clear developers are investing in the project from first paragraph.) June 2 (Bloomberg) — On the verdant pastureland where razor wire used to divide Europe, local developers are placing an $8 billion bet at the roulette wheel. Harrah’s Entertainment Inc. and Hard Rock International Inc. have been selected as casino operators in a competition to overcome local opposition and open the first U.S.-style casino resort in eastern Europe. The aim is to draw gamblers from London to Moscow and counter shrinking revenue at home. The complexes would stand where the borders of Slovakia and Hungary, former Soviet satellites, and Austria, once the European Union’s frontier, converge. “You just have to look at eastern Europe,” Jan Jones , senior vice president for government relations at Harrah’s, the world’s biggest casino company, said by phone from Las Vegas. “It has hundreds of millions of people, but little gambling product. Their casinos are small, so we have an opportunity.” While it’s more than two decades since the demise of communism in the region, economic output lags behind the European Union average and companies are still betting on an increase in consumer spending. Governments also are keen to promote tourism, jobs and investment to help mitigate the worst economic climate since they embraced capitalism. ‘EuroVegas’ The proposed Harrah’s-branded 1.5 billion-euro ($1.85 billion) casino resort and the planned Hard Rock-branded 5 billion-euro “ EuroVegas ” complex would be about 20 kilometers (12 miles) from each other on the highway between Bratislava and Budapest, making them reachable from the main Vienna and Bratislava airports within 20 minutes. They would have hotels, convention centers, shopping and swimming pools. The “future of the gaming sector lies in bigger multifunctional resorts,” said Indrek Jurgenson , chief executive officer of Estonia’s Olympic Entertainment Group AS , which runs a chain of 67 smaller casinos from the Baltic to the Black Sea. The addition of a U.S. presence will “benefit the gaming market in the region,” he said in an e-mail. Pavel Lupandin , who covers Olympic for Swedbank AB in Tallinn, said the company will survive the rivalry as many gamblers may still opt for smaller, more sedate gaming. “If the U.S. companies give it a hard go, Olympic will lose a bit,” said Lupandin. “But overall, for Olympic itself, it won’t be a big problem. The concept is new, and there is a reason why this thing has not gone on in the past. It is cultural.” Social Ills The U.S. companies need to overcome opposition from residents, and clear legal and political hurdles. Some locals are concerned about drugs, prostitution and traffic, while others welcome prospects of new jobs in a downtrodden area. “There is a lot of it here already,” said Sona Belajova, 65, who was taking a smoke break outside her cramped grocery store as streetwalkers lounged alongside a road 50 yards away, looking for noontime business. “Nothing is going to stop it. I’m just saying it will bring a lot of jobs.” Angry residents gathered 110,000 signatures to force a debate in the Slovak Parliament, said petition organizer Eleonora Mackova. “It will be a huge catastrophe,” said Sarka Kamocsaiova, who lives on the fourth floor of a communist-built apartment building that faces the wheat fields where the casino would stand. “It will destroy my beautiful green view. And who needs more hookers around here?” Viera Kimerlingova , the deputy mayor of Bratislava’s Petrzalka district, which lies along the southern edge of the city and is one of the capital’s poorest neighborhoods, said the Harrah’s application lacks assurances that the developer will stick to the plan. “A mega-casino doesn’t have a place in Europe,” she said. ‘Nerves and Endurance’ Gabor Zaszlos, the head of the Slovak unit of TriGranit Development Corp., the developer for Harrah’s, said he hopes local government opposition will wane. “We are not giving up on this,” said Zaszlos. “This is all about nerves and endurance.” Harrah’s and Hard Rock need to counter a two-year slump at home, said Ben Bubeck , a director at Standard & Poor’s Corporate Ratings in New York. In Las Vegas, the No. 1 U.S. gambling destination, 2009 gaming revenue dropped 9.4 percent, while in Atlantic City, New Jersey, revenue fell 13.2 percent. “Americans are certainly pulling back on discretionary spending,” said Bubeck. “It’s not a good time in the U.S. right now. So they have to look abroad.” Economic Outperformance While eastern Europe also suffered from the global crisis that crimped consumer demand, Slovakia and Hungary will outperform the U.S. and the EU next year as a whole, according to the International Monetary Fund’s April outlook . Per-capita gross domestic product, as measured by purchasing-power parity, in the EU was 29,729 euros last year, versus 21,244 euros in Slovakia and 18,566 euros in Hungary. Jones at Harrah’s said in the end, it’s up to gambling executives to win over the skeptics. “We are not trying to take from the community, but give to them” jobs and investment, she said. “They’re afraid because they don’t understand. We have a responsibility to teach them.” To contact the reporters on this story: James M. Gomez in Prague jagomez@bloomberg.net Radoslav Tomek in Bratislava at rtomek@bloomberg.net

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Libor for Dollars Snaps 13-Day Advance as Banks Less Wary of Lending Cash

May 28, 2010

By Keith Jenkins May 28 (Bloomberg) — The rate banks say they pay for three-month loans in dollars fell, snapping 13 days of gains, as financial institutions became less wary of lending cash. The London interbank offered rate , or Libor, for such loans slipped to 0.536 percent today, from 0.538 percent yesterday, according to data from the British Bankers’ Association. The last time if declined was on May 10. The dollar Libor-OIS spread, a gauge of banks’ reluctance to lend, also dropped. “Tensions have definitely eased and that usually indicates that Libor will come down,” said David Keeble , head of fixed- income strategy at Credit Agricole Corporate and Investment Bank in London. “The Libor-OIS spread has also narrowed, which allays some of the fears over the availability of dollars to European institutions.” Central banks are offering more cash to reduce tensions in money markets that caused Libor to more than double this year as the European sovereign debt crisis deepened. The European Union announced an almost $1 trillion backstop to aid its most indebted members on May 10. The same day, the Federal Reserve reopened dollar currency swaps with major central banks to alleviate funding pressures among euro-region lenders. “There is not a universal shortage of dollars because the Fed’s balance sheet now amounts to $2.4 trillion instead of around $930 billion in mid-2008,” Keeble said. “The blockage is due mainly to European institutions finding it hard to get dollars.” Libor-OIS Spread The dollar Libor-OIS spread narrowed to 30.6 basis points from 30.7 basis points. The spread, which compares three-month dollar Libor and the overnight indexed swap rate, surged to 364 basis points, or 3.64 percentage points, after the collapse of Lehman Brothers Holdings Inc. in September 2008. Three-month Libor is a benchmark for about $360 trillion of financial products worldwide, ranging from mortgages to student loans. Rates are determined by groups of banks in a daily survey by the BBA before 11 a.m. in London. Members provide estimates on how much it would cost to borrow in 10 currencies for periods ranging from a day to a year. Royal Bank of Scotland Group Plc contributed the highest dollar Libor rate today, at 0.60 percent. Rabobank NA and Deutsche Bank AG gave the lowest, at 0.49 percent. The BBA strips out the four highest and lowest rates received, calculating the average of the middle eight. The three-month rate for euros , or euro Libor, slipped to 0.634 percent today, from 0.635 percent yesterday. The three- month euro interbank offered rate, or Euribor, was unchanged today at 0.699 percent, according to the European Banking Federation. That matches the highest level since Jan. 5. To contact the reporter on this story: Keith Jenkins in London at kjenkins3@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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Italy Adopts $30 Billion of Budget Cuts in European Push to Tame Deficits

May 26, 2010

By Lorenzo Totaro May 26 (Bloomberg) — Prime Minister Silvio Berlusconi ’s government approved 24 billion euros ($30 billion) of budget cuts as part of a European effort to convince investors that euro nations can trim deficits and defend the single currency. The measures include a three-year wage freeze for civil servants and a crackdown on tax evasion, the government said in an e-mailed statement after a 90-minute Cabinet meeting last night in Rome. Berlusconi and Finance Minister Giulio Tremonti will hold a briefing on the plan today. “It’s absolutely necessary to do our part for Europe; to contribute to the financial stability of monetary union and to economic growth,” Italian President Giorgio Napolitano said yesterday on a visit to Washington. Italy follows Spain and Portugal’s lead in adopting additional budget cuts after European Union leaders this month set up a 750 billion-euro financial lifeline to back stop the region’s most-indebted nations. Fallout from Greece’s near default has led to a surge in borrowing costs in southern Europe and fueled investor concern about the survival of the euro, which has fallen 14 percent this year. The measures, worth 1.6 percent of gross domestic product, aim to bring Italy’s deficit within the European Union limit of 3 percent of GDP in 2012. Smaller Deficit Italy’s budget gap of 5.3 percent of GDP last year was less than half that of Greece, Ireland and Spain, which have the region’s three highest deficits. Italy also plans to reduce its shortfall to within the EU ceiling a year before Spain and Portugal, and two years before Greece. Italy has still been buffeted by the contagion because it has the region’s biggest debt at 115.8 percent of GDP. The almost 10 percentage point increase in Italy’s debt level last year “is a sober reminder that Italy’s position cannot be considered completely safe, given the country’s low growth potential and, possibly, its not-too-distant past of fiscal profligacy,” Davide Stroppa, senior economist at UniCredit SpA, wrote in a note to investors on May 24. The premium investors demand to buy Italy’s 10-year bond over German bunds, the European benchmark, rose 13 basis points to 138 basis points yesterday, almost twice the level at the start of this year. Spain’s spread against Germany reached 156.6 basis points, more than twice its average over the past year. Pain in Spain Spanish Prime Minister Jose Luis Rodriguez on May 12 announced the nation’s biggest budget cuts for 30 years, including a 5 percent reduction in wages of public workers to help tame a deficit of 11.2 percent of GDP. A day later, Portugal, with a deficit of 9.4 percent, announced a temporary increase in value-added, corporate and personal income taxes. The new Conservative-Liberal Democrat government in the U.K., which isn’t part of the euro, pledged this week to cut spending by $8.6 billion this year as it seeks to rein in a deficit of 11.1 percent. The sovereign debt crisis was triggered by Greece’s rising budget shortfall, which provoked a selloff of its bonds that left the government of Prime Minister George Papandreou unable to finance its debt in the markets. Euro-region allies cobbled together a 110 billion-euro three-year bailout with the International Monetary Fund. The rescue, instead of ending the crisis, prompted investors to focus on other high-deficit countries, necessitating the broader 750 billion-euro lifeline agreed to on May 10. To contact the reporters on this story: Lorenzo Totaro in Madrid at ltotaro@bloomberg.net

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