Euro zone, IMF to seek Greece deal, debt write-off main problem

Πηγή: Reuters
By Jan Strupczewski
Nov 26 2012

* IMF, euro zone ministers at odds over forgiving official loans to Greece

* Greek debt could come down to 125 pct/GDP in 2020 under latest analysis

* International lenders close to a deal

BRUSSELS - Euro zone finance ministers and the International Monetary Fund will seek to unfreeze the second bailout package for Greece on Monday, but they first need to agree if some of the official loans to Athens might eventually be forgiven to cut Greek debt.

Euro zone ministers and their deputies have held numerous meetings andconference calls over the last two weeks to decide how Greek debt, seen at almost 190 percent of GDP next year, could be cut to a more sustainable 120 percent in 8-10 years.

Without agreement on how to reduce the debt, euro zone ministers and the IMF do not want to resume payments of loan tranches to Athens -- even though Greece has met all the conditions -- because they have no guarantee on whether the need for emergency financing will ever end.

The key question is: Can Greek debt become sustainable without the euro zone writing off some of the loans to Athens?

So far, the options for debt reduction under consideration include reducing interest on already extended bilateral loans to Greece from the current 150 basis points above financing costs.

How much lower is not yet decided -- France and Italy would like to reduce the rate to 30 basis points (bps), while Germany and some other countries insist on a 90 bps margin.

Another option, which could cut Greek debt by almost 17 percent of GDP, is to defer interest payments on loans to Greece from the EFSF, a temporary bailout fund, by 10 years.

The European Central Bank could forego profits on its Greek bond portfolio, bought at a deep discount, cutting the debt pile by a further 4.6 percent by 2020, a document prepared for the ministers' talks last week showed.

Not all euro zone central banks are prepared to forego their profits, however, the German Bundesbank among them.

Greece could also buy back its privately-held bonds on the market at a deep discount, with gains from the operation depending on the scope and price.

But the preparatory document from last week said that the 120 percent target could not be reached in 2020, only two years later, unless the ministers accept losses on their loans to Athens, provide additional financing or force private creditors into selling Greek debt at a discount.

The latest analysis for the ministers showed the debt could come down to 125 percent of GDP in 2020, one euro zone official with insight into the talks said.



FORGIVING OFFICIAL LOANS?

To cut the debt more boldly, the IMF wants the euro zone to forgive Greece some of the official loans, in what is called Official Sector Involvement (OSI) in EU jargon.

This is an idea that several countries, including Germany, the Netherlands, Finland and Slovakia, firmly reject.

On Monday, the biggest battle is likely to be over just that.

"OSI is at the core of the problems with reaching a deal," one euro zone official with insight into the talks said.

German central bank governor Jens Weidmann has suggested that Greece could "earn" a reduction in debt it owes to euro zone governments in a few years if it diligently implements all the agreed reforms. The European Commission backs that view.

German paper Welt am Sonntag said on Sunday that euro zone ministers were considering a write-down of official loans for Greece from 2015, but gave no sources and a euro zone official said such an option was never seriously discussed.

European Central Bank executive board member Joerg Asmussen told the German Bild paper on Sunday that a write-down on Greek debt should not be part of the deal, echoing repeated statements from German Finance Minister Wolfgang Schaeuble who said it would be illegal.

"It will be touch-and-go if we get a deal on Greece on Monday," a senior euro zone official said. "Euro zone countries have made concessions worth a lot of money already, so it is difficult to see how this can move even further."

French Finance Minister Pierre Moscovici said on Sunday evening that euro zone ministers made big progress to reach a common position during at a conference call on Saturday in preparation for their talks with the IMF on Monday.

"I will go with a firm determination, with a mandate from the president and prime minister, to reach a conclusion," Moscovici said. "We are very close to a solution."

Moscovici mentioned the reduction of interest on bilateral loans, foregoing ECB profits on Greek bonds and the debt buy-back as the options that would need to be applied for a deal as well as additional financing for Athens to keep it funded until 2016, rather than only until 2014.

Germany approves new eurozone bailout fund

Πηγή: DW
Sept 12 2012

Germany's top court has conditionally cleared the way for the eurozone's new bailout fund to be signed into law. The introduction of the European Stability Mechanism was delayed by thousands of legal challenges.

The Constitutional Court in Karlsruhe rejected objections to the legality of Germany's contribution to the long-anticipated European Stability Mechanism (ESM) and separate budget pact in a landmark ruling on Wednesday. The ruling paves the way for German President Joachim Gauck to sign the legislation into law in a move tipped as a possible turning point in the eurozone debt crisis.

"The Second Senate of the Federal Constitutional Court has rejected the injunctions with the stipulation that a ratification of the ESM Treaty is only admissible if [certain conditions] can be guaranteed under international law," Chief Justice Andreas Vosskukle said.

The ESM will provide the eurozone with the flexibility to deploy 500 billion euros ($630 billion) in emergency funds to support its weakest members. As the strongest economy in Europe, Germany will be the main contributor.

But the court specified that any financial burdens for Germany arising from the ESM must be limited to its 190-billion-euro share, currently set out in the ESM treaty. The Bundestag (Germany's lower house of parliament) must be called upon to sanction any burdens that exceed this figure.

It also ruled that the Bundestag and Bundesrat (the upper house) remain informed on ESM activities, despite a clause in the ESM treaty which seeks to keep decisions of the fund confidential.

Merkel, markets hail ruling

German Chancellor Angela Merkel welcomed the court's decision in a speech to parliament on Wednesday, describing it as a "good day for Germany and a good day for Europe."

"Germany is once again sending a strong message to Europe and beyond," she said. "Germany is decisively living up to its responsibilities as Europe's biggest economy and a reliable partner."

Germany's top court upholds euro bailout

But the court's verdict will not be universally welcomed. Despite receiving overwhelming parliamentary approval for the measures back in June, Germany was forced to delay the formal ratification of the law after some 37,000 objections were filed.

Key among the opponents is Peter Gauweiler, a eurosceptic backbench lawmaker in Chancellor Merkel's conservative bloc. He had argued that the ESM violated Germany's constitution, warning it would result in Berlin no longer having complete control over budgetary decisions. A last-minute legal challenge from Gauweiler was rejected by the Karlsruhe court on Tuesday.

Germany was the only country within the 17-nation eurozone block yet to ratify the ESM and fiscal pact, which had been due to come into force in July. It will replace the temporary European Financial Stability Facility (EFSF).

Three steps to put Greece on the road to sustainability

Πηγή: ekathimerini
By Richard Deitz
August 22 2012

Greek Prime Minister Antonis Samaras will travel to Berlin on August 24 for potentially decisive discussions with German Chancellor Angela Merkel about Greece’s rescue program. All options—presumably including a German veto over further disbursements to Greece which would trigger a Greek exit from the euro—are said to be on the table. In this high stakes game, Mrs. Merkel will need to decide whether to take a leap into the unknown—with the unquantifiable potential for a Lehman-style meltdown—or attempt to find a way to bring Greece onto a sustainable path. As a hedge fund manager with more than fifteen years of experience in sovereign defaults and restructurings (and a track record of finding investment opportunities in these events), including Greece, I believe that Greek solvency could be re-established with minimal cost to its European partners if the official sector embraces a constructive and creative three-step approach. The journey back will not be easy. Greece’s poor implementation of prior commitments, coupled with a deep recession and a massive deposit outflow have created a dire situation. BNP Paribas estimates Greece’s public debt will reach €335bn by the end of 2012 (assuming continued program disbursements from the “troika”). Meanwhile, GDP will likely fall this year by at least 6% to around €202bn, putting debt-to-GDP at an eye-watering 166%. This debt level should be especially alarming to Greece’s official sector creditors. Unlike in the “Private Sector Involvement” debt restructuring earlier this year in which non-private creditors provided no debt relief, the burden of a future Greek restructuring will necessarily be borne primarily by official lenders who now hold over seventy percent of outstanding claims on Greece. If the official sector is to avoid a painful “OSI” to match the private sector’s “PSI”, it will need to find a way to engineer Greece back to solvency. The three core elements of such an effort (if accompanied by strict adherence by the Greek state to its adjustment program), could reduce Greece’s debt-to-GDP ratio by as much as 40% of GDP from projected levels. First, the European Central Bank should sell at cost to the European Financial Stability Facility (or its successor, European Stability Mechanism) the €50bn of Greek government bonds it purchased under the Securities Market Program. Controversially, the ECB wrote itself out of Greece’s PSI debt restructuring exercise and never suffered the large haircut that private sector creditors were forced to swallow on identical securities. The ECB could sell its holdings at 70 cents on the euro without incurring any losses. The EFSF, in turn, could exchange these bonds at cost for a new, longer term loan with Greece. This step could achieve a reduction of €15bn (7.4% of GDP) in Greece’s overall indebtedness while providing Greece breathing room in terms of repayment schedule. Next, the eurozone could sponsor, via an EFSF or ESM loan, a buyback by Greece of its €63bn principal amount of bonds created as a result of PSI. Given Greece’s high credit risk and the persistent rumors of an imminent ”Grexit”, these bonds trade in the market at a tiny fraction of their face value. A tender offer at a price of 25 cents on the euro would represent a significant premium to current market prices and, crucially, would correspond to the losses generally recognized by bank holders through the PSI exercise. Such an offer might garner participation by as much as eighty percent of Greek bondholders. In that case, €50bn of public debt might be replaced by €12.5bn of a loan from the EFSF, implying €37.5bn (18.6% of GDP) in debt reduction. While a buyback would require fresh lending by the official sector, Greece could collateralize this loan with assets designated for privatization. The proceeds from privatization sales could be used to cancel this debt and lenders would have little risk as to ultimate repayment. In effect, this approach would create a “force multiplier” for privatization sales—every euro raised from privatization would be able to cancel four euros of national debt. Finally, Greece should be provided the same opportunity as Spain and other bailout recipients to transfer loans used to rescue solvent banks from the Greek state (via the Hellenic Financial Stability Fund) to the ESM once a viable eurozone-wide banking regulation framework is established. In Greece’s case, its four pillar banks have received €18.5bn from the HFSF to date and private estimates suggest an incremental €12bn may be required upon completion of the Blackrock Solutions loan provisioning exercise commissioned by the Bank of Greece. Combined, these three steps could slice €83bn (41.1% of GDP) from Greece’s sovereign debt pile. A reduction of this magnitude would move Greece close to the 120% debt-to-GDP level that has been considered the threshold of sustainability in Europe. Crucially, it could be achieved without official sector creditors realizing any losses. Faced with a very large exposure to a troubled borrower and broader challenges to the future of the euro, official sector lenders have some difficult choices to make. They could start by making some easier ones. *Richard Deitz is the founder and president of VR Capital Group Ltd., an alternative asset manager specializing in distressed sovereign and corporate debt in emerging and developed markets with $1.5bn of assets under management.

Cyprus requests eurozone bailout

Πηγή: FT
By James Wilson, Daniel Dombey and Peter Spiegel,
June 25 2012

Cyprus has become the fifth eurozone country to seek an international bailout amid mounting economic problems and fresh challenges for its banks after a credit-rating agency downgrade.

Bowing to eurozone pressure, the cash-strapped government of President Demetris Christofias said it had asked for help, just days before a deadline to recapitalise one of the country’s largest banks.

“The purpose of the required assistance is to contain the risks to the Cypriot economy, notably those arising from the negative spillover effects through its financial sector, due to its large exposure in the Greek economy,” the government said in a statement on Monday.

Cyprus has been locked out of capital markets for more than a year and had been seeking further help from Russia which has already lent the island €2.5bn.

The close relationship between Moscow and Nicosia, which takes over the EU’s rotating presidency on July 1, has prompted some concern elsewhere in the EU.

Britain had considered making a bilateral loan to Cyprus because of its close ties to Cyprus and in view of the strategically important British military base on the island, but decided against it.

Some Cypriot economists say the country could need as much as €10bn to cover the banking sector’s exposure to Greek private sector debt and other needs as well as the capitalisation requirements of Cyprus Popular Bank, the country’s second-biggest lender. The government has more than €2bn in debt coming due next year.

“This is long overdue” said Stelios Platis, a prominent Cypriot economist. “The delay going to the EFSF (the eurozone rescue fund) was damaging for Cyprus and the banking sector … We have to contain the spillover effect from Greece.”

Fitch’s decision to cut Cyprus’ sovereign rating to “junk” status on Monday meant the country lost its investment grade status with all three of the largest rating agencies, highlighting the narrowing options for Mr Christofias’ government.

Eurozone officials have made clear that a Cypriot request for assistance would almost certainly have to mean the Christofias government agreeing to a wide-ranging package of reforms for the economy.

Cyprus had wanted aid solely to recapitalise the country’s troubled banks, with fewer structural reform conditions – akin to the aid being sought by Spain, which on Monday formally requested up to €100bn for its financial sector. However, officials in Brussels are said to be less impressed with Cypriot reforms than with Madrid’s fiscal consolidation efforts and the government’s statement requesting help suggested Cyprus was reconciled to a full bailout.

Cyprus’ banks have been hobbled by their extensive exposure to the Greek economy and the need to writedown holdings of Greek sovereign bonds. Cyprus Popular Bank, the island’s second-biggest lender, needs a €1.8bn recapitalisation by June 30 to meet EU bank capital rules.

Aggravating Cypriot banks’ challenges, the Fitch downgrade forces the European Central Bank to stop accepting Cypriot government bonds as collateral. Any banks that have borrowed from the ECB using such collateral will now have to find alternative assets to pledge or, in the case of Cypriot banks, seek temporary aid – so-called “emergency liquidity assistance” – from the country’s own central bank. Cypriot banks are already thought to be getting several billions euros of ELA.

The ECB can still accept government bonds as collateral as long as they are rated as investment grade by at least one agency, but this is not the case with Cyprus.Once Cyprus formally negotiates a eurozone bailout it is likely the ECB’s governing council would agree to waive these collateral rules, as has already happened for Greece, Ireland and Portugal, which have already sought eurozone financial help.

Fitch said Cyprus’s banks could still need up to €4bn in fresh capital on top of the amount needed for Popular Bank. That was a sum equivalent to about 23 per cent of Cyprus’ gross domestic product, the agency said, and was likely to have to come from the government.

China May ‘Move Shortly’ on Aid for Europe, Academic Says

Πηγή: Bloomberg
Feb 8 2012

Feb. 8 (Bloomberg) -- China may “move shortly” to help Europe resolve its debt crisis by providing an investment of as much as 100 billion euros ($132 billion), said Yuan Gangming, an economist at the Chinese Academy of Social Sciences.

The money would probably go to the European Financial Stability Facility, the euro bailout fund, said Yuan, adding that the forecasts are his own and don’t necessarily represent government plans. Economists from the academy provide policy advice without direct involvement in decisions.

Helping Europe is like “hitting two birds with one stone,” Yuan said in an interview in Beijing Feb. 6. The action would have many benefits and few drawbacks, Yuan said.

China, sitting on the world’s largest foreign-exchange reserves at more than $3 trillion, has signaled a stronger willingness to aid Europe, which is the largest market for its exports. Chinese Premier Wen Jiabao traveled with German Chancellor Angela Merkel last week to Guangdong province, a hub for factories making electronics, shoes and toys for export, and said there that helping Europe would be helping China itself.

China may initially invest tens of billions of euros and later increase the amount to 100 billion euros or even more, said Yuan, who is also a researcher at Tsinghua University’s Center for China in the World Economy. Another option is for funds to go toward the International Monetary Fund’s bailout program, he said.

Benefits for China

Providing funds will help stabilize the crisis while allowing China to reap investment returns, improve its image and have a greater say in European and global financial talks, he said. Greek Prime Minister Lucas Papademos is currently negotiating terms for a rescue package for his nation as European leaders seek to limit contagion.

China’s investment will be “meaningful” to the market as it will ease concerns about debt default and shore up confidence, Yuan said. “It will also be a safe investment because European nations remain rich. They’ve just borrowed too much and run into temporary funding difficulties.”

Yuan said he read Wen’s comments from Merkel’s visit as showing a Chinese government that was more willing to participate in aiding Europe. Wen didn’t, as he had in the past, link the desire for Europe to recognize China as a full market economy with the nation’s willingness to help, Yuan said.

Merkel’s visit “broke a deadlock,” he said.

Wen Remarks

In September, Wen said at the World Economic Forum’s session in the Chinese city of Dalian that the nation was willing to help and added that Europe should recognize China’s market economy status before the 2016 deadline set by the World Trade Organization. “To show one’s sincerity on this issue a few years ahead of that time is the way a friend treats another friend,” Wen said at the forum.

Later in November, Vice Finance Minister Zhu Guangyao told reporters at a meeting of Group of 20 nations’ finance ministers that it’s “too soon” for China to discuss further bond purchases from Europe’s revamped rescue fund.

Speaking beside Merkel at a press briefing on Feb. 2 in Beijing, Wen said solving the European debt crisis was “urgent” and called for greater international cooperation. China is investigating how it can “be more deeply involved” in help solve the crisis, he said.

Yuan was quoted by China Daily in March 2009 as saying China may offer $100 billion in additional funding to the IMF to help fight the financial turmoil at the time. China signed an agreement with the IMF later in the year under which the nation would buy up to $50 billion of bonds that the fund would issue to member countries.

Debt. This is Your Brain on Debt.

Πηγή: foxbusiness
By Elizabeth MacDonald

Nov 10 21011

The worldwide bond market continues to be an increasingly tight financial pressure cooker, with yields on Italian and Greece bonds spiking higher into technical default territory.

Meanwhile, Europe continues to meet to discuss rescues of previous rescues of prior rescues, indicating the magnitude of the problems in Italy, Greece and elsewhere in the Euro zone are now greater than their leaders’ ability to respond to it.

Debt. This is your brain on debt. Any questions?

Citigroup’s top economist says the European bailout fund needs $3.5 trillion in firepower for the eurozone to get out of its debt mess, backed by the half dozen remaining 'AAA' countries, including France and Germany.

Meanwhile, France, hasn't balanced its budget in the last three decades. The U.S. has balanced its budget just five times in the last half a century. Greece has 12 million people, more than $320 billion in debt and virtually no growth over the last two decades. Italy has 65 million people, $2.6 trillion in debt and virtually no growth over the last decade. The U.S. has 311.8 million people, $14 trillion in debt, not counting unfunded liabilities for Social Security and Medicare, totting up at an estimated $57 trillion. U.S. GDP growth now struggles to stay above an annualized rate of 2% .

Let’s sit back for a second. What happens when a country defaults and devalues its way out of their crises? There have been 74 defaults between 1981 and 1990. The one that parallels what’s happening in Greece is the subprime sovereign debt crisis of Argentina in 1998 to 2002.

Like Greece, Argentina had mostly a tourist industry, it welshed on $81 billion in debt, its currency crashed, it got locked out of credit markets for about a decade, and creditors are still chasing money in litigation. Argentina though went through a brutal restructuring. Argentina gave investors a take it or leave it offer of 35 cents on the dollar. Greece says 50 cents, which will still keep it at 120% debt to GDP. That fifty cent haircut is a gift to bondholders. Other countries that have crashed, burned, then even retrieved their Triple A ratings include Canada and Finland.

But now there’s pressure on the inflation wary central bankers of Germany and the European Central Bank to print money, but these bankers are adverse to that, as they have memories of the hyperinflationary Weimar Republic era still fresh in their memories. Throughout, Germany’s Angela Merkel in the Middle is fighting to keep the 17-member zone intact.

It’s likely instead that this bond debt will become warehoused in off-balance sheet vehicles at emergency rescue facilities, including those overseen by the ECB. Already, an estimated one third of Greece’s debt is held by government institutions. That means taxpayers take the haircut here.

Meanwhile, the Euro zone is hoping China will step in and use its massive foreign reserves to buy junk bonds from Greece and Italy, as investors continue to give Euro zone bonds the cold shoulder—but why should China buy Euro bonds if no one else wants them? At the least, Euro bonds should now come with their own health warnings.

There’s more curious news. The European Commission clearly leaked to the Financial Times a draft of proposals to more tightly-regulate credit ratings companies. European regulators are now moving to approve rating methods, and even ban sovereign credit ratings in “exceptional situations,” such as when a country is getting bailed out. Ed Yardeni, a U.S. economist, doesn’t like the smell of this one.

A day after the last euro rescue was announced, which would use the European Financial Stability Facility, “S&P rushed to confirm its AAA rating for the EFSF,” Yardeni notes, even though the EFSF would be leveraged to the hilt to provide guarantees for distressed countries.

What’s with the timing and the dubious rating reaffirmation here?

Watch whether any U.S. money goes toward rescuing Europe too—the International Monetary Fund has reportedly committed to a euro bailout of about 250 billion Euros. But Americans foot the bill for 17% of the contributions to IMF, which means now the U.S. is paying in $54 billion towards helping Europe. Also, the Administration has already buried expanded U.S. funding for the IMF of about $108 billion, which the IMF could use for a European bailout, in a U.S. troop funding bill.

Italy struggles to replace Berlusconi

Πηγή: tvnz
By Reuters
Nov 10 2011

Italian politicians are scrambling to find a replacement for departing Prime Minister Silvio Berlusconi and head off the risk the country could become the next and biggest euro zone casualty.

President Giorgio Napolitano tried in vain to calm markets after Italy's borrowing costs reached levels that could close its access to market funding, a development which would threaten the future of the euro zone.

Napolitano gave assurances the controversial Berlusconi would honour his pledge to step down after parliament approved reforms geared to placate markets. He would then waste no time in either appointing a new government or calling new elections, he said.

It may already be too late to turn the markets around as the borrowing costs of the euro zone's third biggest economy has risen for days to run past levels which forced Ireland and Greece to seek bailouts.

"What matters most to investors is not who replaces Berlusconi or the next government's commitment to reforms, but whether euro zone policy-makers will finally put in place a credible and durable backstop to Italian debt," said head of debt consultancy Spiro Sovereign Strategy Nicholas Spriro.

Napolitano appointed former European Commissioner Mario Monti as a senator for life, a move which many Italian commentators interpreted as a sign he would ask Monti to try to form a government of technocrats as soon as Berlusconi goes.

Italy's main business and banking associations called for a "government of national unity, with broad, cross-party support".

Monti, a respected economist, has long been cited as the most likely leader of this kind of unelected executive, which has been tried with success in Italy in the past and would aim to pass the vital, market-friendly reforms.

Lower House Speaker Gianfranco Fini said parliament would pass the reforms by Sunday aimed at boosting growth and shoring up public finances in a so-called "maxi amendment" to the 2012 budget currently before parliament.

Those reforms, which Berlusconi promised to Italy's increasingly worried partners last month, will be the government's last piece of business before the prime minister tenders his resignation.
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The secretary of Berlusconi's People of Freedom party, Angelino Alfano, said on television that Berlusconi would resign "between Saturday and Monday".

Despite being the subject of intense political haggling for weeks, the details of the maxi-amendment remain sketchy.

Economy Minister Giulio Tremonti denied on Wednesday that the package would include steps to ease firing restrictions, a move which would be welcomed by markets but would be fiercely contested by trade unions and the leftist opposition.

Measures that will feature will aim to open up the professions, reduce bureaucracy and sell off public real estate, government officials have said.

The European Commission has called on Italy to adopt more steps to ensure that its promise to balanced its budget by 2013 will be achieved.

Frustration

Policymakers outside the euro area kept up pressure for more decisive action to stop the crisis spreading.

Christine Lagarde, head of the International Monetary Fund, told a financial forum in Beijing that Europe's debt crisis risked plunging the global economy into a Japan-style "lost decade".

"If we do not act boldly and if we do not act together, the economy around the world runs the risk of downward spiral of uncertainty, financial instability and potential collapse of global demand."

Berlusconi has reluctantly conceded that the IMF can oversee Italian reform efforts.

Euro zone finance ministers agreed on Monday on a road map for leveraging the 17-nation currency bloc's 440-billion-euro ($US600 billion) rescue fund to shield larger economies like Italy and Spain from a possible Greek default.

But there are doubts about the efficacy of those complex plans, and with Italy's debt totalling around 1.9 trillion euros even a larger bailout fund could struggle to cope.

Lagarde said she was hopeful the technical details on boosting the European Financial Stability Fund (EFSF) to around 1 trillion euros would be ready by December.

Many outside Europe are calling on the ECB to take a more active role as other major central banks do in acting as lender of last resort. German opposition to that remains implacable, seeing it as a threat to the central bank's independence.

"The ECB will be drawn like everyone else by the weight of gravity (to act)," one euro zone official said.

Euro fund head: no quick China deal; Italy costs up

Klaus Regling, CEO of the European Financial Stability Facility (EFSF), speaks during a conference about the future of the Euro in Lisbon October 13, 2011.

Πηγή: Reuters
By Aileen Wang and Koh Gui Qing
Oct 28 2011

The head of Europe's bailout fund sought financial support from China on Friday to help resolve the bloc's debt crisis, saying that while no quick deal was in sight he was still confident Beijing would keep buying bonds issued by his fund.

Klaus Regling, chief executive of the European Financial Stability Facility (EFSF), was in Beijing for talks with Chinese officials a day after euro zone leaders struck a hard-fought accord on the two-year crisis that nonetheless left major economies Italy and Spain under financial market pressure.

After the European summit in Brussels reached agreement in the early hours of Thursday, French President Nicolas Sarkozy immediately got on the phone to China to seek financial help, saying Beijing had "a major role to play".

But despite a characteristically bullish sales pitch, the French leader did not appear to have received any specific commitments.

European governments had announced an agreement under which private banks and insurers would accept 50 percent losses on their Greek debt holdings in the latest bid to cut Athens' debt load to sustainable levels.

European leaders are now under pressure to finalize the details of the plan if they expect China and others to support it and Regling said he expected Beijing to continue buying bonds issued by the EFSF.

"We all know China has a particular need to invest surpluses," Regling told a Beijing news conference, referring to the country's $3.2 trillion of foreign exchange reserves, the world's biggest.

Regling said the bailout deal with Greece was an exceptional case that he did not believe would have to be repeated for other nations.

Many in financial markets are concerned that the fund is not big enough to cope if Italy and Spain are drawn deeper into the crisis.

Italy's borrowing costs hit new euro-era highs at a bond auction on Friday. Prime Minister Silvio Berlusconi was forced to promise new reforms and counter speculation that his coalition government was about to collapse.

Despite Berlusconi's assertion that his center right alliance remains solid, critics contend that his reform promises do not go far enough and the country will face early elections next year with no significant progress to show.

France said investment by China would inspire confidence in the euro zone.

"The reality is that China is the third largest shareholder in the International Monetary Fund, and if China via the IMF wants to participate - not by saving Greece or the euro - but by participating in investment, that is a gesture of confidence," French Finance Minister Francois Baroin said.

"What is happening in Europe and creating instability is that public and private investors are pulling out," he told RMC radio.

Global stocks were heading for their best week in over two years on Friday, bolstered by the Brussels deal, while the euro hit a seven-week high at one stage before falling back, shrugging off the lack of detail in Thursday's anti-crisis plan.

Switzerland said it was looking at participating in the EU bailout fund via a special investment vehicle, although the idea could run into domestic opposition given the country's euro skeptical tradition.

Norway, however, whose $572 billion oil fund is Europe's biggest investor in equities, said it had less than 100 million euros in EFSF investments and would not invest in any euro zone rescue schemes that had elements of aid in them.

Key aspects of the euro zone deal, including the mechanics of boosting the EFSF and providing Greek debt relief, have yet to be finalized. It is proving difficult to explain in the meantime and European officials were jeered by journalists at one briefing as they struggled to outline it clearly.

There are fears that the latest deal will fall apart like the last one, three months ago, that was also meant to draw a line under the troubles of the 12-year-old currency bloc.

Within weeks it was clear that deal was inadequate given the scale of Greece's problems and the vulnerability of European banks. The new deal aims to plug these holes.

"ABSOLUTELY SUSTAINABLE"

Under it, the private sector agreed to voluntarily accept a nominal 50 percent cut in its bond investments to reduce Greece's debt burden by 100 billion euros, cutting its debts to 120 percent of gross domestic product by 2020, from 160 percent now.

The euro zone will offer 30 billion euros in "credit enhancements" or sweeteners to the private sector to get them on board. The aim is to complete these negotiations by year end, so Greece has a full, second financial aid program in place before 2012.

The value of that package, EU sources said, would be 130 billion euros -- up from 109 billion euros in the July deal.

"The debt is absolutely sustainable now," Greek Prime Minister George Papandreou said.

In a bid to convince markets that they can defend larger countries like Italy and Spain, euro zone leaders also agreed to scale up the EFSF, the 440 billion euro bailout fund they created in May 2010 and have already used to provide aid to Ireland, Portugal and Greece.

Around 250 billion euros remaining in the fund will be leveraged 4-5 times, producing a headline figure of around 1.0 trillion euros.

The EFSF will be leveraged in two ways, either by offering insurance, or first-loss guarantees, to purchasers of euro zone debt in the primary market, or via a special purpose investment vehicle that will be set up in the coming weeks and which is aimed at attracting investment from countries such as China and Brazil.

The methods could be combined, giving the EFSF greater flexibility, the euro zone leaders said.

But EU finance ministers are not expected to define the plan until some time in November, with the exact date not fixed.

Another question mark is Berlusconi's commitment to shoring up his country's debt-laden economy. Dogged by scandals, Berlusconi has promised to raise the retirement age to 67 by 2026 and attempt other reforms, but the EU is reserving judgment after repeated backsliding from Rome in recent months.

SARKOZY TALKS TO HU

Sarkozy said he had spoken to Chinese President Hu Jintao by telephone after the summit on Thursday and that Hu was relieved Europe had announced a deal to tackle a crisis that could otherwise have taken down the entire world economy.

Sarkozy also donned the hat of euro salesman.

"China has a major role to play. China must deploy more resources to stimulate the world economy: If they decide to invest in the euro rather than the dollar, why reject that? "

"Why not accept that the Chinese place their trust in the euro zone?" the French president said.

"China hopes all these measures will help stabilize the European financial market and conquer the current difficulties and promote the economic recovery and development," Hu said, according to China's state television. ($1 = 0.724 Euros)

European leaders reach agreement on plan to stem debt crisis

Πηγή: Washington Post

By Howard Schneider and Michael Birnbaum

Oct 26 2011

ATHENS — European leaders moved early Thursday to stem the debt crisis gripping the continent by agreeing to a plan that imposes steep losses on investors holding troubled Greek bonds and boosts the firepower of the region’s bailout fund to at least a trillion dollars.

After marathon negotiations that continued well past midnight, European leaders said banks and other major investors in Greek bonds agreed to take losses of up to 50 percent. This concession was meant to help prevent the Greek government from defaulting on bills it cannot pay and avoid an even costlier shock to the European financial system.

The question of how to structure a new refinancing plan for Greece and divide the costs of rescuing it has been at the center of negotiations. Other elements of the plan were dependant on European officials reaching an agreement with negotiators for major banks, which had been balking at taking bigger losses.

Under the deal, the bailout fund, known as the new European Financial Stability Facility, would help cash-strapped countries such as Italy and Spain borrow at least a trillion dollars by providing a kind of insurance that would make their bonds more attractive to investors.

The breakthrough at a summit meeting in Brussels came hours after leaders announced they had agreed on measures to shore up the region’s banking system. The 27-member European Union said banks would be asked to raise perhaps $150 billion in new capital as a buffer against possible losses on their holdings of European government bonds that have declined in value.

Once the bank capital plan was announced late Wednesday, the smaller group of 17 European nations that share the euro continued talks over the remaining issues that threatened to scotch an overall deal. Those included how to put Greece’s troubled government finances back on a stable footing and how to best use the limited resources of the bailout fund set up by the euro-zone countries.

Failure to reach an agreement on a new Greek bailout would have seriously set back hopes that Europe’s leaders were finally poised to produce an ambitious plan for addressing the continent’s crisis. U.S. officials, among others, had been pressing them to take strong steps before the crisis spread further.

Speaking early Thursday, European Commission President Jose Manuel Barroso said the set of interrelated measures proves that “Europe will do what it takes to safeguard financial stability.”

The package, he said, makes good on promises top European leaders made to officials from the United States and elsewhere to address Europe’s financial problems more forcefully before a meeting of the Group of 20 top economic powers early next month in France.

Efforts to increase the clout of the bailout fund got a boost earlier Wednesday whenGerman Chancellor Angela Merkel won a strong endorsement from that country’s lawmakers for her plan to re­inforce the fund.

Italian Prime Minister Silvio Berlusconi, meanwhile, came to Brussels with plans to change the country’s pension system and take other steps to balance the budget. Other European leaders had pressed him to accelerate those steps to help build confidence that his nation can manage its large levels of public debt.


Because the plan to shore up the banks applies to European economies inside and outside the euro area, the initiative was the subject of deliberations by the full European Union.

Along with increasing bank capital, the plan calls for a new effort by governments to ensure that banks have the funds they need to operate. European banks rely heavily on short-term loans to conduct their business, and the vulnerability of that funding played a role in the recent collapse of the French-Belgian Dexia bank.

Concerns about the European economy have caused many investors, including U.S.-based money-market funds, to pull out of European banks. That development has raised bank operating costs and generated fear that Dexia will be just the first in a series of casualties.

The new plan asks the European Central Bank, the European Investment Bank and other agencies to “urgently explore” a guarantee system so that banks could wean themselves from short-term loans, which often must be renewed weekly or even daily.

Under the plan, banks would have to set aside capital equal to 9 percent of their assets. That represents a significant increase from the 5 percent level used as a standard by the European Banking Authority when it recently analyzed whether the region’s financial firms could weather a new economic downturn.

One concern about increasing relative capital levels is that banks could reach the 9 percent threshold by decreasing their total assets — in other words, reducing how much money they lend to businesses, consumers and governments. Such a pullback could stymie economic growth at a time when it is already slowing in much of Europe.

To head off this prospect, the bank capital plan calls for heightened oversight by regulators to ensure that banks do not achieve the new targets by selling off assets or restricting new loans. Regulators “must ensure that banks’ plans to strengthen capital do not lead to excessive deleveraging, including maintaining the credit flow to the real economy,” the E.U. statement read.

Banks will have until June 30 to meet the new requirement. Some analysts criticized that time frame, saying a quick and broad infusion of money was needed across the European financial system. Banks that cannot raise the money on their own may seek government loans or support.

In winning the endorsement of German lawmakers for her bailout proposal earlier Wednesday, Merkel warned that Europe could be headed for financial disaster if its common currency fails.

“The world is watching Germany and Europe to see if we are ready and able to take responsibility,” Merkel told a packed Parliament before the vote. “If the euro fails, Europe fails.”

Speaking ahead of the emergency E.U. summit in Brussels, Merkel said it should not be taken for granted that “there will be peace and affluence in Europe in the next half-century.” Saying that Europe is facing its toughest period since the end of World War II, she called on the Bundestag, the lower house of the German Parliament, to meet its “historic duty” and back her plan.

After she spoke, lawmakers voted 503 to 89, with four abstentions, in favor of her outline for increasing the power of the European bailout fund.

In her speech to Parliament, Merkel said deep changes must be made to Europe’s economy if the euro is to hold together as a currency. But she offered few concrete details about the steps she would take to protect it.

“We need to act together jointly,” Merkel said Wednesday. “It’s not possible to have a simple solution. We will have to deal with this situation for years. . . . We have a historical obligation to fulfill.”
----
Birnbaum reported from Berlin. Staff writer William Branigin in Washington contributed to this report.

George Soros: 'My seven-point plan to save the eurozone'

Πηγή: FT
Oct 24 2011

1) Member states of the eurozone agree on the need for a new treaty creating a common treasury in due course. They appeal to European Central Bank to co-operate with the European financial stability facility in dealing with the financial crisis in the interim – the ECB to provide liquidity; the EFSF to accept the solvency risks.

2) Accordingly, the EFSF takes over the Greek bonds held by the ECB and the International Monetary Fund. This will re-establish co-operation between the ECB and eurozone governments and allow a meaningful voluntary reduction in the Greek debt with EFSF participation.

3) The EFSF is then used to guarantee the banking system, not government bonds. Recapitalisation is postponed but it will still be on a national basis when it occurs. This is in accordance with the German position and more helpful to France than immediate recapitalisation.

4) In return for the guarantee big banks agree to take instructions from the ECB acting on behalf of governments. Those who refuse are denied access to the discount window of the ECB.

5) The ECB instructs banks to maintain credit lines and loan portfolios while installing inspectors to control risks banks take for their own account. This removes one of the main sources of the current credit crunch and reassures financial markets.

6) To deal with the other major problem – the inability of some governments to borrow at reasonable interest rates – the ECB lowers the discount rate, encourages these governments to issue treasury bills and encourages the banks to keep their liquidity in the form of these bills instead of deposits at the ECB. Any ECB purchases are sterilised by the ECB issuing its own bills. The solvency risk is guaranteed by the EFSF. The ECB stops open market purchases. All this enables countries such as Italy to borrow short-term at very low cost while the ECB is not lending to the governments and not printing money. The creditor countries can indirectly impose discipline on Italy by controlling how much Rome can borrow in this way.

7) Markets will be impressed by the fact that the authorities are united and have sufficient funds at their disposal. Soon Italy will be able to borrow in the market at reasonable rates. Banks can be recapitalised and the eurozone member states can agree on a common fiscal policy in a calmer atmosphere.

The writer is chairman of Soros Fund Management and a philanthropist. He is author of ‘The Crash of 2008′ and ‘What it Means’

Europe is now leveraging for a catastrophe

Πηγή: FT
By Wolfgang Münchau

Oct 23 2011

It is time to prepare for the unthinkable: there is now a significant probability the euro will not survive in its current form. This is not because I am predicting the failure by European leaders to agree a deal. In fact, I believe they will. My concern is not about failure to agree, but the consequences of an agreement. I am writing this column before the results of Sunday’s European summit were known. It appeared that a final agreement would not be reached until Wednesday. Under consideration has been a leveraged European financial stability facility, perhaps accompanied by new instruments from the International Monetary Fund.

A leveraged EFSF is attractive to politicians for the same reason that subprime mortgages once appeared attractive to borrowers. Leverage can have different economic functions, but in these cases it simply disguises a lack of money. The idea is to turn the EFSF into a monoline insurer for sovereign bonds. It is worth recalling that the role of those monolines during the bubble was to insure toxic credit products. They ended up as a crisis amplifier.

Technically, the EFSF monoline insurer would provide a first-loss tranche insurance for government bonds up to an agreed percentage. It sounds like a neat idea, until the recipients of the insurance realise their sovereign bonds have turned into hard-to-value structured products. One of the factors that will make them hard to value is the incalculable probability that France might lose its triple A rating. In that case, the EFSF would automatically lose its own triple A rating – which is derived from that of its guarantors. The EFSF’s yields would then rise, and the value of the insurance would be greatly reduced. The construction could ultimately collapse.

Leveraging also massively increases the probability of a loss for the triple A-rated member states, who ultimately provide the insurance. If a recipient of the guarantee were to impose a relatively small haircut – say 20 per cent – the EFSF and its guarantors would take the entire hit. Under current arrangements, they would only lose their share of the haircut.

The simple reason why there can be no technical quick fix is that the crisis is, at its heart, political. The triple A-rated countries have left no doubt that they are willing to support the system, but only up to a certain point. And we are well beyond that point now. If Germany continued to reject an increase in its own liabilities, debt monetisation through the European Central Bank and eurobonds, the crisis would logically end in a break-up. There is no way the member states of the eurozone’s periphery can sustainably service their private and public debts, and adjust their economies at the same time.

Each of Germany’s red lines has some justification on its own. But together they are toxic for the eurozone. The politics is not getting any easier. The behaviour of the Bundestag underlines the political nature of the crisis. Last month’s ruling of the Germany’s constitutional court strengthened the role of parliament. But it also reduced the autonomy of the German chancellor, who now has to seek prior approval by the Bundestag’s budget committee before negotiating in Brussels. This power shift will not prevent agreements, such as the one currently negotiated, but it will make it harder to co-ordinate policy in the European Council on an ongoing basis.

The way eurozone leaders have been handling the crisis ultimately vindicates the German constitutional court’s conservatism in its definition of what constitutes a functioning democracy. Policy co-ordination among heads of state is both undemocratic and ineffective. A monetary union may require more than just a eurobond and a small fiscal union. It may require a formal, if partial, transfer of sovereignty to the centre – that includes the rights to levy certain taxes, impose regulation in product, labour and financial markets, and to set fiscal rules for member states.

Under normal circumstances, European electorates would not accept such a massive transfer of sovereignty. I would not completely exclude the possibility that they might accept it if the alternative was a breakdown of the euro. Even then, I would not bet on such an outcome. Current policy is leading us straight towards this bifurcation point, which may only be a few weeks or months away.

The biggest danger now is the large number of politicians drawing red lines in the sand, and the lack of even a single EU authority willing and capable of cutting through them. Given the multiple uncertainties, there is no way to attach any precise probabilities to any scenarios. But clearly, the chance of a catastrophic accident is bigger than merely non-trivial. The main consequences of leverage will be to increase that probability.

Bondholders demand Greek growth plan

Πηγή: FT
By Peter Spiegel, Quentin Peel and Alex Barker
Oct 22 2011

Charles Dallara, chief negotiator for the largest holders of Greek debt, said Saturday that while

Bondholders are prepared to take higher losses on their Greek debt, but they are far from a deal with European governments.

“Talks over Greek debt are continuing, but we are nowhere near an agreement,” Charles Dallara, chief negotiator for the Institute of International Finance, the largest holders of Greek debt, said on Saturday.

The Institute of International Finance, is only prepared to strike a deal only if it is accompanied by a credible plan to return the economy to growth “in order to reduce Greek dependence on European taxpayers and on private sector [losses].”

Mr Dallara’s hardline stance comes a day after government lenders said Greece’s economy had deteriorated so severely that bondholders must accept a 60 per cent cut in the value of their holdings in order to bring the second Greek bail-out back to the €109bn agreed in July. The report made clear European leaders would push Mr Dallara to accept losses far beyond the 21 per cent “haircut” agreed in July.

“It has got to increase massively,” Jean-Claude Juncker, the Luxembourg prime minister who chairs the group of eurozone finance ministers, told the FT.

Eurozone finance ministers met in Brussels on Saturday to give their lead negotiator, Italian treasury chief Vittorio Grilli, a mandate on Greek bonds to take to Mr Dallara, but the IIF’s resistance threatens to derail hopes of a reaching agreement on a second bail-out by Wednesday.

The possibility of stalemate came as European leaders struggled to agree on a range of issues aimed at solving the debt crisis.

There were signs of stalemate on tough new thresholds for European bank capital and a new, competing plan to increase the firepower of the eurozone’s €440bn rescue fund was thrown into the deliberations.

According to European officials, the new plan to enhance the European financial stability facility would include creating a special fund to attract private investors, that could be used to purchase Italian and Spanish bonds.

The new fund, which would be set up as a special-purpose vehicle, would use seed money from the EFSF and give private investors incentives to add cash by insuring them against losses. By adding private money, the EFSF would be able to leverage its assets to purchase more bonds than if it were to buy them directly.

“The principle that we leverage the EFSF with private money is being subscribed by everyone but the level of success is uncertain,” said Jan Kees de Jager, the Dutch finance minister. “How much can we raise, that is being looked at.”

The SPV option is being considered alongside a scheme that has long been viewed as the frontrunner, using the EFSF to guarantee bondholders against 20 per cent of their losses. One person familiar with the talks said the two options were not mutually exclusive and could be used in parallel.

Finance ministers from all 27 European Union countries met in between sessions of their eurozone counterparts on plans to recapitalise Europe’s banks. A deal was expected to be wrapped up on Saturday, but there were increasing signs of difficulties as negotiations stretched into the evening. George Osborne, UK chancellor, cancelled his afternoon flight home to stay for the talks.

According to European officials, several struggling countries – including Spain, Italy and Portugal – were resisting stringent new capital thresholds proposed by the European Banking Authority, the EU’s bank regulator.

The EBA proposal would require banks to temporarily raise their core tier one capital levels – the key measure of financial strength – to 9 per cent and mark down their holdings in sovereign debt to current market levels.

Because Spanish and Italian sovereign bonds have been under attack since August, and are mostly held by Spanish and Italian banks, Madrid and Rome have resisted since their banks would be required to raise the most capital.

Several European officials said the 27 finance ministers may be called back into session early next week to resolve the standoff.

Deliberations over all eurozone issues were expected to move to heads of government by Saturday night, when presidents and prime ministers from across the EU begin arriving ahead of a much-anticipated summit on Sunday.

George Papandreou, the Greek prime minister, was scheduled to meet José Manuel Barroso, European Commission president, on Saturday evening before Mr Barroso headed to a pre-summit gathering of centre-right leaders, including France’s Nicolas Sarkozy and Germany’s Angela Merkel.

Mr Barroso, Mr Sarkozy and Ms Merkel were then planning a pre-summit crisis meeting over dinner later in the evening with IMF chief Christine Lagarde, ECB president Jean-Claude Trichet, and European Council president Herman Van Rompuy.

Summit won't solve crisis, Germany says

German Finance Minister Wolfgang Schaeuble

Πηγή: azcentral
By By David Rising

Oct 17 2011

BERLIN - German finance chief Wolfgang Schaeuble dampened expectations of an upcoming EU summit, saying Monday that it would not provide a comprehensive solution to the eurozone debt crisis that threatens to cause another global recession.

Markets have rallied for days on hopes for the plan, which is widely expected to focus on lightening Greece's debt load, making banks raise more money and boosting the scope of the eurozone bailout fund's lending capacities.

Schaeuble said leaders expected to adopt a five-point plan to address instability within the eurozone but that more work would still needed to be done.

"We will not . . . have the definitive solution on the weekend," the finance minister said in Duesseldorf, according to the news agency dapd. "But we want to get rid of the market uncertainty with the five elements."

Stocks and the euro fell after the comments as investors reigned in their expectations that the Oct. 23 meeting in Brussels would mark a turning point for the beleaguered 17-nation currency zone.

Optimism had grown earlier this month when German Chancellor Angela Merkel and French President Nicolas Sarkozy said the EU meeting would yield a "comprehensive response" of measures to counter the debt crisis.

One of the key sticking points is getting banks to take sharper losses on the Greek government debt they hold without causing a messy default that could roil markets and plunge the global economy back into recession.

A second bailout for Greece tentatively agreed in July calls for a 21 percent writedown on the debt, but European officials say Greece needs to an even bigger discount, possibly 50 percent. Talks with representatives of the banks are still ongoing.

To protect the banks from such losses, the EU plan is expected to call for them to have stronger capital buffers.

Schaeuble endorsed the EU Commission's proposal to force key lenders to raise the financial pad they maintain to absorb losses to about 9 percent of their loans, investments and other risky assets.

"I assume that in Europe we will agree on the 9 percent," he said Monday.

Analysts have estimated that such new core capital rules might require the biggest banks to raise several billion euro each. If they fail to raise it from investors, they would have to turn to their government.

Forcing banks within months to raise their capital buffer to 9 percent would effectively mean advancing new international rules on bank capital, the so-called Basel III rules, which were meant to be binding only in 2019. To pass this summer's stress tests, European banks only needed to have capital cushions of 5 percent to 6 percent.

Finally, the EU's plan would seek ways to maximize the impact of the 440 billion euros ($600 billion) bailout fund, or European Financial Stability Facility. Some have suggested that the fund guarantee a part of government bonds issued, to boost their appeal to investors.

Details on all these plans are scant, however, only days ahead of the weekend's meeting.

Merkel's spokesman Steffen Seibert downplayed suggestions the plan would spell the end of the crisis.

"The chancellor has said that the dreams that are taking hold again, that with this package everything will be solved and everything will be over on Monday, will again not be fulfilled," he told reporters in Berlin.

"These are important steps on a long path, and that is a path that will continue far into next year where other steps must follow," he said.

Seibert would not give any more details about the ongoing discussions between European countries, saying "the debates will be held internally and made public on the weekend."

Meanwhile, the debt crisis is weighing on the real economy. Germany's central bank, the Bundesbank, said Monday that Europe's biggest economy would likely slow in the coming months amid "clearly weakened" demand for its industrial goods.

It said in its monthly report that following strong growth in the third quarter, prospects for the final quarter of 2011 and the first quarter of 2012 had "further darkened."

US rejects plan to strengthen IMF in euro zone crisis

Πηγή: Business Standard
By Reuters
Oct 15 2011

Proposals to double the size of the IMF as part of a broader international response to Europe's debt crisis ran into resistance from the United States and others, burying the idea for now and putting the onus firmly back on Europe.

The outlines of the plan, that had the backing of several developing economies, emerged as G20 finance ministers and central bankers met in Paris to discuss a world economy under threat from European nations mired in debt.

A second day of talks on Saturday may produce more robust language on the urgency of tackling the euro zone debt crisis but little of substance is likely to be inked in with an EU summit in nine day's time the make-or-break moment.

A communique and round of closing news conferences are expected around 1500 GMT with other decisions set up for a G20 leaders' summit in Cannes on November 3-4.

One G20 source said emerging market policymakers backed injecting some $350 billion into the International Monetary Fund.

US Treasury Secretary Timothy Geithner and his Canadian and Australian counterparts poured cold water on the idea. The IMF's dominant shareholders, including the United States, Japan, Germany and China, are content that the fund's $380 billion worth of resources is enough.

"They (the IMF) have very substantial resources that are uncommitted," Geithner said.

German Finance Minister Wolfgang Schaeuble agreed the euro zone debt crisis was for Europe to solve, and expressed confidence that EU leaders would produce a plan at the Oct. 23 summit that would be convincing for financial markets.

The United States is among countries keen to keep pressure on the Europeans to act more decisively to end the two-year-old debt crisis that began in Greece but has since spread to Ireland and Portugal and is lapping at Spain and Italy.

"The first priority here is for Europeans to put their own house in order," Australian Finance Minister Wayne Swan said.

Canadian Finance Minister Jim Flaherty also said the G20 should keep up pressure on the euro zone on its "arduous" journey towards a solution and not focus on IMF resources.

If minds needed concentrating further, Standard and Poor's cut Spain's long-term credit rating, citing the country's high unemployment, tightening credit and high private sector debt,

highlighting the risk of a much larger economy than Greece coming under threat.

French and German officials are trying to put flesh on the bones of a crisis resolution plan in time for the European Union summit.

Fears about the damage a default by Greece -- and possibly others -- could inflict on the financial system have driven a confidence-sapping bout of market volatility since late July, with global stocks falling 17% from their 2011 high in May.

DIVISION

Unlike in 2009 when the G20 launched coordinated stimulus to pull the world out of crisis, the rest of the world is chafing at Europe's slow response while Washington and Beijing are sparring over the yuan currency.

The Franco-German crisis plan is likely to ask banks to accept bigger losses on their Greek debt than the 21% spelled out in a July plan for a second bailout of Athens, which now looks insufficient.

"It will be more, that's more or less certain," French Finance Minister Francois Baroin said.

It should also lay out a system for recapitalising banks and plans to leverage the euro zone's 440 billion euros European Financial Stability Facility to give it more punch.

Schaeuble said European banks should be helped, if necessary, with state means to strengthen their capital.

Whilst the EFSF has the resources to cope with bailouts for Greece, Portugal and Ireland, it would be overwhelmed by the need to rescue a bigger economy such as Italy or Spain.

The most effective method would be to turn the EFSF into a bank so it could draw on European Central Bank resources. Both Germany and the ECB are opposed to that. Attention has turned to the idea of making the fund more like an insurer.

For example, if the EFSF covered the first 20% of losses a bank could suffer in case of a default -- it could multiply its firepower fivefold to over 2 trillion euros.

ROLE OF IMF

G20 sources said most BRICS economies were in favour of bolstering the IMF's capital as a crisis-fighting tool.

"We have said this before and have conveyed this again, that if emerging economies and the BRICS are called upon to contribute, we can do it via the International Monetary Fund," one of the sources said. "India is open to it, China and Brazil are also okay with the idea."

Another G20 source said the IMF would present a plan which had broad support to its executive board to make short-term credit lines available to fundamentally healthy countries hit by liquidity crises. It could aid euro zone countries hit by the current crisis of confidence in the bloc's sovereign debt.

Any real progress on bigger goals such as setting parameters to measure global imbalances and reining in speculative capital flows is unlikely to come before a Nov. 3-4 summit in Cannes, where France passes the G20 baton to Mexico.

A French finance ministry source said that for Cannes, France hoped to have two or three measures agreed for countries showing imbalances: consolidation measures for those with high deficits and stimulus measures for those with surpluses.

"We are going to try to make some progress and obtain, perhaps not tomorrow or Saturday but by Cannes, a list of measures country by country," he said. "These must be measures which will have an impact on the real economy."

A separate G20 source said after preparatory talks late on Thursday that China would commit to boost its consumption through a five-year plan, via households and companies as well as infrastructure.

The G20 countries make up 85% of global output.

An April G20 meeting placed seven large economies under review -- the debt-burdened United States, export driven China and the economies of France, Britain, Germany, Japan and India. Officials have said privately the aim was to get Beijing to discuss the yuan, and China's cooperation is essential to the success of the process.

A G20 official said China would not commit to a quick liberalisation of its yuan currency to help rebalance global growth, but would offer to use expansionary fiscal policy to fuel domestic demand.

"No, they were pretty firm on that -- there will be no progress," the official said.

After ‘no’ vote in parliament, Slovakian politicians begin talks on quick approval of measure

European leaders are at a crossroads: They must pull closer together or risk the euro currency project falling apart.

Πηγή: Washington Post
By AP
11 Oct 2011


BRATISLAVA, Slovakia — Slovakia’s outgoing prime minister and the leader of the main opposition party have agreed to talks aimed at quickly approving an expanded rescue fund that is aimed at shoring up confidence in the ability of euro members to survive the financial crisis.

The agreement to work toward approval came after Parliament voted against the expanded fund, bringing down the government, because Prime Minister Iveta Radicova had tied the vote to a confidence measure.

“We decided that we have to do it as soon as possible,” Radicova said

Opposition leader Robert Fico took the same line.

“Slovakia has to approve the fund,” he said.

Malta's parliament set to give go-ahead to eurozone bailout fund

Alfred Sant had campaigned heavily against Malta's European Union membership.

Πηγή: M&C
Oct 10 2011


Valletta, Malta - Malta's parliament was Monday set to vote on whether to approve extending the European Financial Stability Facility (EFSF) - a rescue fund for the eurozone's 17-member nations.

The vote was expected at around 8 pm (1800 GMT).

Last week, a scheduled debate and vote was postponed due to an objection by a former Maltese prime minister and current opposition centre-left Labour Party backbencher, Alfred Sant.

Sant, who campaigned against Malta's joining of the European Union in 2004, said the centre-right National Party government had not followed proper procedure in presenting legislation to extend the EFSF.

However, the government's proposal which would authorize the island nation to contribute 704 million euros (930 million dollars) to the fund, is also backed by the majority of Labour lawmakers and is expected to win final approval.

Malta and Slovakia remain the only eurozone countries which have yet to ratify extending the EFSF's lending capacity to 440 billion euros (594 billion dollars).

Extending the EFSF requires the approval of all the eurozone states. The move is deemed necessary by the EU to save financially-troubled Greece from default.