EC PRESIDENT CALLS URGENT MEETING FOR TOMORROW #2

anuary 13, 2012, 12:14 pm Investment Banking | Legal/Regulatory
Talks on Greek Debt Are Halted

By LANDON THOMAS JR.Petros Giannakouris/Associated PressCharles Dallara, the head of the Institute of International Finance, represents Greece’s private bondholders.
LONDON — Talks between Greece and private sector creditors over a restructuring of the country’s crushing debt paused on Friday amid a continuing disagreement over how much of a loss banks and investors should take on their holdings.
In a statement, Charles Dallara of the Institute for International Finance, the bank lobby that represents private sector bond holders, said that discussions had “not produced a constructive consolidated response by all parties, consistent with a voluntary exchange of Greek sovereign debt.”
The statement came at the conclusion of talks between Mr. Dallara and the Greek finance minister, Evangelos Venizelos, in Athens on Friday.






While people involved in the talks described it as a negotiating tactic, the disagreement is a reminder of how wide the gap remains between the two sides, even after months of discussions, and underscores how close Greece is to defaulting on its debt.
At issue, bankers and government officials say, is less the 50 percent haircut that investors would absorb with their new bonds and more the coupon or interest these new instruments would carry.
Petros Giannakouris/Associated PressEvangelos Venizelos, the Greek finance minister.
Investors are pushing for a higher interest payout to mitigate both their loss and the fact that their exposure to Greece will be lengthened considerable with the new bonds.
The International Monetary Fund and Germany, both of whom have become increasingly worried about Greece’s ability to service its debts as its economy continues to plummet, are pushing for a lower rate, which would ease Greece’s debt payments and force investors to take a bigger loss on their holdings.
As foreseen, the deal is expected to lower Greece’s debt to 120 percent of its gross domestic product by 2020 from about 150 percent currently. But the I.M.F. in particular has become pessimistic about Greece’s ability to recover economically and believes its debt burden must decrease at a faster rate.
Within the fund, as well as in Europe, there is a view that the private sector needs to pay a larger share. Europe’s sickly banks counter that they are in no position to take on more losses.
In its statement, the bank lobby said that “discussions with Greece and the official sector are paused for reflection on the benefits of a voluntary approach.”
The not-so-subtle message is that if Europe pushes too hard on this point, then the creditors can no longer accept the agreement as a voluntary one. This is important as an involuntary restructuring would be seen by creditors as a default and would trigger credit default swaps — a step Europe and Greece are trying hard to avoid.
One person involved in the discussions said that the move should be seen more as a negotiating tactic than a sign than a sign that Greece was going to default. The person, who spoke on condition of anonymity, said that the talks would resume Wednesday.
That may be so, but for every day’s delay, the stakes increase as Europe and the I.M.F. have said repeatedly that without a private sector deal, Greece will not get the 30 billion euros in bailout money that it needs to avoid bankruptcy.
Greece faces a critical 14 billion euro bond payment on March 20. A delegation from the I.M.F is due in Athens next week to start talks with the government on the progress or lack thereof in enacting major reforms and raising money via state asset sales.
The negotiations on the debt have been complicated by the increased influence of a bloc of investors, largely hedge funds, who have bought billions of euros of discounted Greek debt and have said they will not participate in a restructuring. They are betting that Europe will blink and give Greece its money, and because the deal would be voluntary, these holdouts would get their pay day.
With the breakup of the talks, and the increased threat of a default, these investors may well choose to participate in the deal — in the hopes of getting something as opposed to the very little they would get if Greece went bankrupt.

Friday 13th Nightmare For The Eurozone

• 0 Comments
  
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The eurozone had been looking slightly healthier but new developments put it back in trouble





7:54pm UK, Friday January 13, 2012



Ed Conway, economics editor






You can say a lot of things about Standard & Poor's, but the one thing you cannot question is their sense of timing.


Last month, they could have chosen almost any day to warn that they
were placing the entire eurozone on watch for a possible downgrade; but
they elected to make the announcement just hours after Nicolas Sarkozy
and Angela Merkel used an emergency summit to promise to safeguard the
euro.


And
now they have chosen Friday the 13th to confirm that the majority of
those 15 nations put on negative watch have now been downgraded.


And, as if to twist the knife, it also emerged on Friday that talks
between Athens and private sector investors aimed at voluntarily
reducing the total amount of Greek debt had fallen through.










Investors may ignore the credit ratings



And, to top it all off, clearing house LCH Clearnet raised its
margin requirement for those using it to buy Italian debt from 8.15% to
8.3%.


It is not just the date that is ironic. Against all expectations, the
eurozone had been looking tentatively more healthy in the past few
weeks.


The past seven days have seen successful debt auctions by two of the most troubled euro members - Spain and Italy.


The European Central Bank's emergency lending operations seemed to have calmed nerves significantly.


Now, it looks quite conceivable that eurozone policymakers will spend
the rest of the month firefighting the next round in the single
currency's crisis until they gather at the end of January for their
latest Brussels summit.


Although it clearly has more of the wow factor, there is good reason
to suspect that the S&P downgrade (which includes France, Austria
and Italy, but not Germany, the Netherlands, Finland and Luxembourg,
which get to keep their AAA) will not be a hammer blow for the euro.


As I wrote when S&P
first announced that they were putting the euro area on creditwatch
negative, there are growing signs that investors are choosing to ignore
official credit ratings.










A downgrade could affect Mr Sarkozy's presidential campaign





To put it another way, the fact that France will be AA rather than
AAA is unlikely to change investors' minds when it comes to buying (or
selling) French debt.


Nonetheless, a French downgrade (and for that matter a downgrade of
other major euro members) will trigger a downgrade of the EFSF - the
continent-wide rescue fund which was supposed to bolster the currency.


Moreover, it represents a serious political blow for Nicolas Sarkozy as he fights for re-election this year.


But it may well be the breakdown of the Greek talks that prove the more serious of the two stories.


If, as the statement from the Institute for International Finance
suggests, it will be impossible for the investors and the Greeks to
reduce the country's debt voluntarily, it means the country will have to
go through a messy default.


That implies a wave of stress spreading through the financial system -
precisely the eventuality European policymakers were trying desperately
to avoid through these negotiations.


Over the course of Friday, the cost of borrowing for the affected
euro members rose sharply, although it dropped for Germany as well as
the UK - both of which will be among the few AAA countries remaining.


Either way, both of these pieces of news are deeply worrying for the single currency - and bring forward its moment of truth.


Can its leaders unite and create a proper political and fiscal union,
or does this mean the beginning of the end for the world's biggest ever
economic project?

Ménage à trois



13 January 2012
Presseurop




Changes are afoot in Europe. If the initial signs are anything
to go by, the “Merkozy” duo, which took de facto control of the
eurozone when the debt crisis became a threat to the survival of the
single currency, has been shaken up by the arrival a third musketeer.

Appointed at the last minute, when Italy was on the brink of default
and threatening to sink the euro, Mario Monti appears to be determined
to restore Rome’s position – neglected during the reign of his
predecessor, Silvio Berlusconi, who had neither the credibility or the
desire to represent the interests of the eurozone’s third largest
economy – in the vanguard of Europe.

Feted
by the Italian press, the entrance of the former European
commissioner, who, unlike Silvio Berlusconi, benefits from remarkable
prestige abroad, has been good news in many respects. First and
foremost, it is good news because the entente between Berlin and Paris
has been prompted by the need for a response to the crisis rather than
by any elective affinity between Angela Merkel and Nicolas Sarkozy. The
German Chancellor and the French President have never presented any
collective vision for the future of the euro or Europe likely to
inspire the rank and file of their European partners. On the contrary,
they have always given the impression that they are playing by ear.

Secondly, because a further addition to Euroland’s “executive board”
will make it more representative by increasing its albeit limited
legitimacy. Finally, it will help to establish a balance: as economist Jean-Paul Fitoussi noted on the occasion of the recent Sarkozy-Monti meeting in Paris, France will now have an ally
in its dealings with Germany, which to date, whether it be voluntary
or not, has continued to predominate and to impose its preferred
solution to the crisis – discipline and austerity – on its
European partners.

And with regard to austerity, Mario Monti, like Nicolas Sarkozy, is
insisting that his country has suffered enough, and that growth should
now be the priority. Through the European Financial Stability Facility
and the European Central Bank, the EU is supposed to be the driving
force behind this growth, and Germany has been asked not to stand in the
way. This is a vision that is shared the countries of Southern Europe
– and in particular by Spain – for which “Il Professore” has become
something of a spokesman, notably on the occasion of his warning to Germany about the resentment that could be provoked by an excessive rigidity on the part of Berlin.

However, the trio that is now emerging still remains fragile:
Sarkozy will have to fight for a new mandate in April, while Merkel
must justify her policies to an increasingly weak coalition, and Monti,
who is unelected, depends on an eclectic majority whose members
(notably the Berlusconians and the Northern League) could “pull out” if
there is any prospect that they might regain control. So, regardless
of its abilities, the new trio will have little time rescue Europe from
the ongoing crisis. And perhaps this is a blessing, because measures
to ensure the survival of the euro are now a matter of urgency.







Author





Gian Paolo Accardo (b. 1969) is an Italo-Dutch journalist. He
worked as an editor at Internazionale, Courrier international and as a
correspondent for Italy's ApCom press agency before becoming assistant
editor in chief of presseurop.eu.

The ECB has done more than Governments to try to deal with the crisis say analysts.

Draghi says he thought it was a mistake for the ECB to buy Bonds. The remit of the ECB is to maintain a steady EURO.....the Euro is down to E1.26.

Jacques Couillard of RBS says downgrade will not be welcome in France but it's not the end of the World but the Euro crisis will stay for some time.

The German CDU party weighs in on the possible Greek default asking where the E150 million needed now is coming from.

Standard and Poors has downgraded 2 AAA rated Countries France and Austria to AA+ which means it will be more expensive for these Countries to
borrow. For France it is more significant because of the EFSF account to help bailouts. France has a E9 billion debt to be repaid soon.

Other Countries losing their rating:- Portugal (reduced to junk Bond status) Italy, Spain, Slovenia, Malta, Belgium

14 January 2012
Last updated at 07:44











EU criticises Standard & Poor's ratings downgrade






Comments (268)






Stocks fell on Friday as downgrade rumours reached trading floors


Continue reading the main story













Global Economy

• 
  What caused the eurozone crisis?
  
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  How will the euro crisis end?
  
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  Crisis jargon buster
  
• 
  Europe's four big dilemmas
  

The
EU's top economic official has criticised a decision by Standard and
Poor's to downgrade the credit ratings of nine eurozone countries.

Economic affairs commissioner Olli Rehn said the move was
"inconsistent" as the eurozone was taking "decisive action" to end the
debt crisis.

Other senior European officials have also hit out the move.

The downgrade - which included stripping France of its top AAA rating - was announced on Friday.

Italy, Spain, Cyprus and Portugal were cut two notches, with the latter two given "junk" ratings. Germany kept its AAA rating.

Austria, Slovakia, Slovenia and Malta were the other countries downgraded.

Standard and Poor's criticised the bloc's response to the crisis, saying austerity and budget discipline alone were not sufficient to fight it, and risked becoming self-defeating.

'Keep your cool'
Mr Rehn said he "regrets'" the decision taken by S&P's,
saying the euro area has taken "decisive action in all fronts of its
crisis response'' and was making progress in calming financial markets.


Continue reading the main story Analysis





Gavin Hewitt
BBC Europe editor




Standard and Poor's say that austerity alone risks becoming
self-defeating. For several countries like Portugal, Italy, Spain, the
danger is that spending cuts will throw already weak economies into
recession. The ratings agency judgement seems based on the fear that
some countries risk being drawn into a cycle of decline.

Italy - with debts of 120% of GDP - is now on the same level as Kazakhstan. Portugal has been relegated to junk status.

Eurozone finance ministers responded jointly by saying in a
statement they had taken "far-reaching measures" in response to the
sovereign debt crisis and were accelerating reforms towards stronger
economic union.

It was a bad day for the eurozone made worse by a near
breakdown of crucial talks in Greece. The country is negotiating over a
second bail-out package. Without it the country will default in March.

• The downgrading of Europe
  

"It is now important to finalise
as soon as possible the features and practicalities of the European
Stability Mechanism and... to advance its entry into force to July," he
said.

The European Stability Mechanism is the eurozone's permanent rescue fund.

French Finance Minister Francois Baroin said the loss of the
triple-A rating was "not a catastrophe'' and stressed that France still
had a solid AA+ rating.

"The United States, the world's largest economy, was
downgraded over the summer,'' he said on France-2 television. "You have
to be relative, you have keep your cool. It's necessary not to frighten
the French people about it.''

Eurogroup President Jean-Claude Juncker said eurozone countries are determined to do "whatever it takes'' to return to growth.

Meanwhile, talks aimed at negotiating a restructuring of
Greece's debts broke down on Friday, raising fears once again of a
possible default.

Stocks fell on Friday as downgrade rumours reached trading floors in Europe and the US.


Continue reading the main story
“Start Quote

The downgrades increase the
dependence of the big banks on finance from the ECB - and for the
economic recovery of the eurozone, that's a very bad thing”

Robert Peston
Business editor, BBC News

• Read Robert's blog
  

The Dow Jones industrial average in New York was down 0.5%. Stocks fell 0.6% in Germany, 0.5% in Britain and 0.1 in France.

Earlier on Friday, the euro hit a new 16-month low against the dollar amid speculation ahead of the move, before rebounding.

Bailout fund
On Friday, S&P's said France was being downgraded one
notch, to AA+. The country still has a top AAA rating from the other two
main ratings agencies, Moody's and Fitch.

Austria, like France has lost its top AAA rating, and been
downgraded to AA+. Its economy exports a lot to recession-struck Italy,
while its banks are facing losses on subsidiaries they own in
financially troubled Hungary.

S&P's rating of Italy - currently at the epicentre of the crisis - has been cut two notches from A to BBB+.

Continue reading the main story



Crisis jargon buster


Use the dropdown for easy-to-understand explanations of key financial terms:


Credit rating









Credit rating

The assessment given to debts and
borrowers by a ratings agency according to their safety from an
investment standpoint - based on their creditworthiness, or the ability
of the company or government that is borrowing to repay. Ratings range
from AAA, the safest, down to D, a company that has already defaulted.
Ratings of BBB- or higher are considered "investment grade". Below that
level, they are considered "speculative grade" or more colloquially as
junk.





Glossary in full




Spain was also cut two notches from AA-
to A, as was Portugal, whose rating fell from BBB- to a "junk" rating of
BB - indicating a very high level of risk for lenders.

Apart from Germany and lower-rated Slovakia, all the other
countries being reviewed were given a "negative outlook", meaning there
is a 30% chance of a further downgrade.

Credit ratings are used by banks and investors to decide how much money to lend to particular borrowers.

The cut in the so-called sovereign ratings of governments is
likely to lead to most other borrowers domiciled in the same countries -
including banks and companies - being downgraded.

Although the move has been widely expected, it is still
likely to make it somewhat more difficult and expensive for borrowers
from those countries to raise money, including for the governments
themselves.







Country Old Rating New Rating Cut

Austria	AAA	AA+	One notch, loses top rating
Belgium	AA	AA	None
Cyprus	BBB	BB+	Two notches to junk
Estonia	AA-	AA-	None
Finland	AAA	AAA	None
France	AAA	AA+	One notch, loses top rating
Germany	AAA	AAA	None
Ireland	BBB+	BBB+	None
Italy	A	BBB+	Two notches
Luxembourg	AAA	AAA	None
Malta	A	A-	One notch
Netherlands	AAA	AAA	None
Portugal	BBB-	BB	Two notches to junk
Slovakia	A+	A	One notch
Slovenia	AA-	A+	One notch
Spain	AA-	A	Two notches

Your comments (268)

Austerity



Careful what you plan for



13 January 2012










The austerity orthodoxy is working all too well
when it comes to driving down living standards, says Simon McGarr,
and European leaders need to stop inducing economic depression.


Remember when Ireland nearly went bust because we couldn’t afford to
pay the interest on the loans we were being offered? You remember it
happened because the entities who loan money are run by, basically,
sociopathic lemmings and they suddenly realised that we’d promised to
cough up enough money to pay off the loans of any banks that went bust.
(Well, the then government had promised it on our behalf, but apparently
it’s one of those one-way decisions you can’t change once you’ve done
it, like drunkenly texting your boss what you think of them in the small
hours.)

Anyway, these sociopath lemmings all realised that if that bank
collapse actually happened (and they collectively suddenly thought that
it would) Ireland wouldn’t actually be good for the cash. That meant
that the country would go officially bust – or "default" – not
paying its debts as they fall due. All of which takes us to the 2010
bailout, which was basically just us turning to the last set of people
who’d give us money and dropping to our knees, wailing “Please save us!”

Ironically, they had to save us, because their banks were the ones
who’d loaned our banks all the money they couldn’t pay back: if we sank,
their banks would sink with us. It is possible that, if we had a better
set of representatives, we might have made something of that fact, but
it’s hard to negotiate from a position of strength when your negotiating
team metaphorically can’t see for weeping and periodically break off to
scream at invisible enemies. And are on their knees.

Still, here we are now. But where is this exactly? Well, we’re in a
state which is pursuing a policy of internal devaluation. Yes, you know
what that is. You told me you did. I believe you. But you might meet
someone who hasn’t entirely got their heads around it yet. What harm if
we just run through the basics we’ll be effortlessly conveying in a
superior tone to our less informed fellow-citizen?

Let’s start with a definition of internal devaluation:

Internal Devaluation – where a country seeks to regain
competitiveness through lowering wage costs and increasing productivity
and not reducing value of exchange rate. (From economicshelp.org)

Normally, you devalue by decreeing suddenly that your currency is now
worth less against all other currencies. Outsiders can suddenly afford
more of the stuff you sell, so you get a bit of a boost.

But Ireland can’t decree that the euro is now worth less. So, the
alternative is to force everyone in the country to just charge less –
for everything: lower wages, less fees, lower prices – the works.

The thing is, our government can’t actually decree that the private
companies of Ireland make their stuff cheaper. And they can’t make
private workers agree to be paid less.

So, they’ve been doing what they can to depress what they can reach:
whipping up media attacks on the people whose incomes they do control –
public workers, people subsisting on social welfare and so on – and
then cutting the money going to them.

Of course, this makes these people’s lives very difficult, (Irish
suicides are up 13 percent since the crisis began, according to the
respected medical journal the Lancet)
but the government hoped-for result is to reduce domestic demand enough
that price and wage deflation will be forced into the private sector.

Regrettably, deflation is seen as the worst possible thing that can
happen to a country. Even more regrettably, the experience of Latvia
suggests that trying to devalue your own economy through an induced
depression is both socially devastating and economically wrongheaded.
The Centre for Economic and Policy Research reported that despite a fall
in national production in excess of the US Great Depression of the
1930s, Latvia had only managed to achieve a fall in its effective
exchange rate of 5.8 percent from peak. That was with 22 percent
unemployment. Ireland has only managed to achieve 14 percent
unemployment so far.

Shotgun-wedded to this austerity dream, the new government has
brought in a new cycle of measures to try to force private sector labour
costs down. They even introduced an ‘internship’ scheme where social
welfare recipients are supplied for free to employers for 6 months at a
time for training in skills such as stacking shelves in Tescos.
JobBridge, as it is called, is, in effect if not by design, a method of forcing wages in the private sector down by introducing an alternative subsidised workforce into the labour market.

The orthodoxy of austerity states that Latvia and Ireland will reap
the benefits of a collapsing economy and society. And, since the now
infamous summit of the damned, all the lucky citizens of Europe can look
forward to joining us. Historically, removing political choices by
attempting to bake one set of orthodoxies into political structures has
not resulted in the perpetual success of those orthodoxies. Instead
people have had a tendency to decide they’ll just abandon the
compromised structures.

European leaders should worry about the consequences of failure. But they should fear the consequences of their success.

PERHAPS IRISH PEOPLE SHOULD BOYCOTT THE COMPANIES LOOKING FOR SLAVE CHEAP LABOUR.

Badboy wrote:PERHAPS IRISH PEOPLE SHOULD BOYCOTT THE COMPANIES LOOKING FOR SLAVE CHEAP LABOUR.

I"m sure they would like to Badboy but they can"t , if a Company was forced to close down because of boycotts, that would be more people out of work.

It"s such a shame because Ireland was doing very well but got caught up in the contagion.

HOW ABOUT SHOPPING AT SHOPS THAT TREAT THEIR STAFF ETHICALLY.

Badboy wrote:HOW ABOUT SHOPPING AT SHOPS THAT TREAT THEIR STAFF ETHICALLY.

Badboy, Unfortunately, ethics don"t apply now. Wiith so many out of work people will take whatever they can find.

I TELL WHAT I WOULD LIKE TO DO, DO A STOCK CLEARANCE.
I WONDER IF SUCH A THING COULD BOOST THE ECONOMY ESPECIALLY IF PEOPLE `CLUB ' TOGHETHER TO DO SUCH A THING.

Good article I thought. Money seems to be all virtual, no one actually has any. It just keeps whizzing around in it's virtual state. Countries living on money that is not real. I wonder where the actual "real buck" will stop in the end ?

It certainly is food for thought lol

Yes Fuzeta.....if Italy"s ratio is 120% of GDP, how can it be reduced without growth.? I think it is inevitable that Greece defaults , had Merkel and Sarkozy
agreed two years ago maybe this crisis could have been averted.

fuzeta wrote:Good article I thought. Money seems to be all virtual, no one actually has any. It just keeps whizzing around in it's virtual state. Countries living on money that is not real. I wonder where the actual "real buck" will stop in the end ?

It certainly is food for thought lol

THAT WHAT I HEARD ONCE ON A TV PROGRAMME THAT ONE PROBLEM IN A CAPALIST SYSTEM IS VIRTUAL/IMINAGINY(SP?) MONEY.
TAKE THE PRICE OF A HOUSE,ITS IMINAGARY(SP?)IN THE SENSE THAT ITS ONLY WHEN YOU ACTUALLY SELL THE HOUSE THAT YOU RECEIVE ANY MONEY,ITS ALSO WHAT SOMEONE THINKS IT IS WORTH.
SAME WITH STOCKS AND SHARES,THEY ARE WORTH WHAT SOMEONE IMAGINES THEY ARE WORTH.
ACTUALLY ALL MONEY APART FROM HARD CASH IS IMINAGARY(SP?)

Badboy wrote:

fuzeta wrote:Good article I thought. Money seems to be all virtual, no one actually has any. It just keeps whizzing around in it's virtual state. Countries living on money that is not real. I wonder where the actual "real buck" will stop in the end ?

It certainly is food for thought lol

THAT WHAT I HEARD ONCE ON A TV PROGRAMME THAT ONE PROBLEM IN A CAPALIST SYSTEM IS VIRTUAL/IMINAGINY(SP?) MONEY.
TAKE THE PRICE OF A HOUSE,ITS IMINAGARY(SP?)IN THE SENSE THAT ITS ONLY WHEN YOU ACTUALLY SELL THE HOUSE THAT YOU RECEIVE ANY MONEY,ITS ALSO WHAT SOMEONE THINKS IT IS WORTH.
SAME WITH STOCKS AND SHARES,THEY ARE WORTH WHAT SOMEONE IMAGINES THEY ARE WORTH.
ACTUALLY ALL MONEY APART FROM HARD CASH IS IMINAGARY(SP?)

Well said Badboy. You are so right. When you think about it the money we earn goes straight into the bank and we never see it. Or very little. Bring back the old pay packet so we can at least have a look at it before it goes

Rather Long but educational.

Financial glossary




















What's the difference between a bull and a bear?


The current financial
crisis has thrown terminology from the business pages onto the front
pages of newspapers, with jargon now abounding everywhere from the
coffee bar to the back of a taxi.

Here is a guide to many of the business terms currently
cropping up regularly, as well as some of the more exotic words coined
to describe some of the social effects of the financial crisis.

A


AAA-rating The best credit rating that can be given to a borrower's debts, indicating that the risk of a borrower defaulting is minuscule.

Administration A rescue mechanism for UK
companies in severe trouble. It allows them to continue as a going
concern, under supervision, giving them the opportunity to try to work
their way out of difficulty. A firm in administration cannot be wound up
without permission from a court.

AGM An annual general meeting, which
companies hold each year for shareholders to vote on important issues
such as dividend payments and appointments to the company's board of
directors. If an emergency decision is needed - for example in the case
of a takeover - a company may also call an exceptional general meeting
of shareholders or EGM.

Assets Things that provide income or some other value to their owner.

• Fixed assets (also known as long-term assets) are things that
  have a useful life of more than one year, for example buildings and
  machinery; there are also intangible fixed assets, like the good
  reputation of a company or brand.
  

• Current assets are the things that can easily be turned into cash and are expected to be sold or used up in the near future.
  

Austerity Economic policy aimed at
reducing a government's deficit (or borrowing). Austerity can be
achieved through increases in government revenues - primarily via tax
rises - and/or a reduction in government spending or future spending
commitments.


B


Bailout The financial rescue of a struggling borrower. A bailout can be achieved in various ways:

• providing loans to a borrower that markets will no longer lend to
  
• guaranteeing a borrower's debts
  
• guaranteeing the value of a borrower's risky assets
  
• providing help to absorb potential losses, such as in a bank recapitalisation
  

Bankruptcy A legal process in which the
assets of a borrower who cannot repay its debts - which can be an
individual, a company or a bank - are valued, and possibly sold off
(liquidated), in order to repay debts.

Where the borrower's assets are insufficient to repay its
debts, the debts have to be written off. This means the lenders must
accept that some of their loans will never be repaid, and the borrower
is freed of its debts. Bankruptcy varies greatly from one country to
another, some countries have laws that are very friendly to borrowers,
while others are much more friendly to lenders.

Base rate The key interest rate set by the
Bank of England. It is the overnight interest rate that it charges to
banks for lending to them. The base rate - and expectations about how
the base rate will change in the future - directly affect the interest
rates at which banks are willing to lend money in sterling.

Basel accords The Basel Accords refer to a
set of agreements by the Basel Committee on Bank Supervision (BCBS),
which provide recommendations on banking regulations. The purpose of the
accords is to ensure that financial institutions have enough capital to
meet obligations and absorb unexpected losses.

Basis point One hundred basis points make up
a percentage point, so an interest rate cut of 25 basis points might
take the rate, for example, from 3% to 2.75%.

BBA The British Bankers' Association is an
organisation representing the major banks in the UK - including foreign
banks with a major presence in London. It is responsible for the daily
Liborinterest rate which determines the rate at which banks lend to each
other.

Bear market In a bear market, prices are
falling and investors, fearing losses, tend to sell. This can create a
self-sustaining downward spiral.

Bill A debt security- or more simply an IOU.
It is very similar to a bond, but has a maturity of less than one year
when first issued.

BIS The Bank for International Settlements
is an international association of central banks based in Basel,
Switzerland. Crucially, it agrees international standards for the
capital adequacyof banks - that is, the minimum buffer banks must have
to withstand any losses. In response to the financial crisis, the BIS
has agreed a much stricter set of rules. As these are the third such
set of regulations, they are known as "Basel III".

Bond A debt security, or more simply, an
IOU. The bond states when a loan must be repaid and what interest the
borrower (issuer) must pay to the holder. They can be issued by
companies, banks or governments to raise money. Banks and investors buy
and trade bonds.

BRIC An acronym used to describe the fast-growing economies of Brazil, Russia, India and China.

Bull market A bull market is one in which prices are generally rising and investor confidence is high.


C


Capital For investors, it refers to their
stock of wealth, which can be put to work in order to earn income. For
companies, it typically refers to sources of financing such as newly
issued shares.

For banks, it refers to their ability to absorb losses in
their accounts. Banks normally obtain capital either by issuing new
shares, or by keeping hold of profits instead of paying them out as
dividends. If a bank writes off a loss on one of its assets - for
example, if it makes a loan that is not repaid - then the bank must also
write off a corresponding amount of its capital. If a bank runs out of
capital, then it is insolvent, meaning it does not have enough assets to
repay its debts.

Capital adequacy ratio A measure of a bank's
ability to absorb losses. It is defined as the value of its capital
divided by the value of risk-weighted assets (ie taking into account how
risky they are). A low capital adequacy ratio suggests that a bank has a
limited ability to absorb losses, given the amount and the riskiness of
the loans it has made.

A banking regulator - typically the central bank - sets a
minimum capital adequacy ratio for the banks in each country, and an
international minimum standard is set by the BIS. A bank that fails to
meet this minimum standard must be recapitalised, for example by issuing
new shares.

Capitulation (market). The point when a flurry of panic selling induces a final collapse - and ultimately a bottoming out - of prices.

Carry trade Typically, the borrowing of
currency with a low interest rate, converting it into currency with a
high interest rate and then lending it. The most common carry trade
currency used to be the yen, with traders seeking to benefit from
Japan's low interest rates. Now the dollar, euro and pound can also
serve the same purpose. The element of risk is in the fluctuations in
the currency market.

Chapter 11 The term for bankruptcy
protection in the US. It postpones a company's obligations to its
creditors, giving it time to reorganise its debts or sell parts of the
business, for example.

Collateralised debt obligations (CDOs) A
financial structure that groups individual loans, bonds or other assets
in a portfolio, which can then be traded. In theory, CDOs attract a
stronger credit rating than individual assets due to the risk being more
diversified. But as the performance of many assets fell during the
financial crisis, the value of many CDOs was also reduced.

Commercial paper Unsecured, short-term loans
taken out by companies. The funds are typically used for working
capital, rather than fixed assets such as a new building. The loans take
the form of IOUs that can be bought and traded by banks and investors,
similar to bonds.

Commodities Commodities are products that,
in their basic form, are all the same so it makes little difference from
whom you buy them. That means that they can have a common market price.
You would be unlikely to pay more for iron ore just because it came
from a particular mine, for example.

Contracts to buy and sell commodities usually specify minimum
common standards, such as the form and purity of the product, and where
and when it must be delivered.

The commodities markets range from soft commodities such as
sugar, cotton and pork bellies to industrial metals such as iron and
zinc.

Core inflation A measure of CPI inflation
that strips out more volatile items (typically food and energy prices).
The core inflation rate is watched closely by central bankers, as it
tends to give a clearer indication of long-term inflation trends.

Correction (market) A short-term drop in
stock market prices. The term comes from the notion that, when this
happens, overpriced or underpriced stocks are returning to their
"correct" values.

CPI The Consumer Prices Index is a measure
of the price of a bundle of goods and services from across the economy.
It is the most common measure used to identify inflation in a country.
CPI is used as the target measure of inflation by the Bank of England
and the ECB.

Credit crunch A situation where banks and
other lenders all cut back their lending at the same time, because of
widespread fears about the ability of borrowers to repay.

If heavily-indebted borrowers are cut off from new lending,
they may find it impossible to repay existing debts. Reduced lending
also slows down economic growth, which also makes it harder for all
businesses to repay their debts.

Credit default swap (CDS) A financial
contract that provides insurance-like protection against the risk of a
third-party borrower defaulting on its debts. For example, a bank that
has made a loan to Greece may choose to hedge the loan by buying CDS
protection on Greece. The bank makes periodic payments to the CDS
seller. If Greece defaultson its debts, the CDS seller must buy the
loans from the bank at their full face value. CDSs are not just used for
hedging - they are used by investors to speculate on whether a borrower
such as Greece will default.

Credit rating The assessment given to debts and borrowers by a ratings agency
according to their safety from an investment standpoint - based on
their creditworthiness, or the ability of the company or government that
is borrowing to repay. Ratings range from AAA, the safest,
down to D, a company that has already defaulted. Ratings of BBB- or
higher are considered "investment grade". Below that level, they are
considered "speculative grade" or more colloquially as junk.

Currency peg A commitment by a government to
maintain its currency at a fixed value in relation to another currency.
Sometimes pegs are used to keep a currency strong, in order to help
reduce inflation. In this case, a central bank may have to sell its
reserves of foreign currency and buy up domestic currency in order to
defend the peg. If the central bank runs out of foreign currency
reserves, then the peg will collapse.

Pegs can also be used to help keep a currency weak in order
to gain a competitive advantage in trade and boost exports. China has
been accused of doing this. The People's Bank of China has accumulated
trillions of dollars in US government bonds, because of its policy of
selling yuan and buying dollars - a policy that has the effect of
keeping the yuan weak.

Golden Rule” doesn’t glitter anymore


13 January 2012






"'Golden Rule' is no longer obligatory in national constitutions",” writes Público.
According to the Lisbon daily, the enforcement of the principle of
balanced budgets in the EU member state constitutions is about to be
abandoned "although Germany is not yet totally convinced".

In spite of Berlin`s intentions, many countries – like Ireland,
Denmark or France – have invoked legal or political difficulties in
modifying their constitutions, putting ratification of the EU’s new
stability pact in doubt. The new draft treaty, the subject of
discussion among national officials in Brussels this January 12, is to
grant each country the right to decide how to proceed.

According to the Lisbon daily, new rules will be implemented on 1
January 2013. Eurozone states will not only be obliged to have
eliminated current budget deficits, but also to ensure that budgets are
balanced from then on.

We are "closer to a European consensus", writes Público in its editorial, adding that the new treaty should be approved before the end of January by all EU members, except the UK:

Things will not go exactly as the Germans wanted. A concession… was
made for the sake of the main goal, which is to have the new budget
agreement signed as soon as possible. The roadmap for the German plan
to combat the euro crisis requires speed and the new rules will be
included in permanent legislation of the member states.

Hungary
Brussels launches “Operation Dump Orbán”









By threatening Budapest with
financial sanctions and infringement proceedings if the Hungarian
government fails to change its policies on the economy and the
judiciary, the EU seems to have begun a process that would allow it to
get rid of Hungary’s Prime Minister, as it got rid of Berlusconi and
Papandreou. But it won’t be that easy.




12 January 2012
Népszabadság
Budapest

Economy









Debt


Will no-one rid us of the rating agencies?


7 July 2011
Público
Lisbon

• 
  

Chauzy (Libération)







Quick to denounce the ‘oligopoly’ of the rating
agencies, European leaders have so far failed to take concrete steps to
counter their baleful influence, writes Portugal’s Público daily.









A chorus of politicians from the European Union and beyond arrived
here yesterday, July 6, to publicly denounce the “oligopoly" (the word
used by German Finance Minister Wolfgang Schäuble) of the rating
agencies.

Now that Portugal's debt has been downgraded to "junk bond" status,
the incomprehension, outrage and criticism have been joined by the
promise from Wolfgang Schäuble that the EU will “take steps" to put an
end to the devastating power of these agencies across the eurozone.

The threat would be beautiful if it were not so worn out. Since 2008,
European leaders have been multiplying their bombast against the
absurd actions of the agencies, but they haven’t actually done anything
concrete to punish them.

While the United States have amended their banking regulations to
reduce their power and China, rather simply, has set up a national
agency, Europe has never gone beyond pious hopes, reinforcing the
impression that fresh ideas and real power have gone off on holiday from
Brussels, Paris and Berlin.

Given this vacuum, it’s normal for agencies to thrust out their
chests and go looking for ways to kick sand all over the vulnerable
euro. What’s in play today are not just the difficulties that Portugal
(not to mention Greece) is having in meeting its commitments: it’s also
the agencies' tendency to a kind of necrophilia that makes them
behave like vultures hovering over the fragile single currency
languishing under the southern sun.

Unable to stand up to them, offering new evidence of its confusion to
the world every day, Europe responds only when she finds herself on
the ropes. For their part, noting the tender fragility of those who
swore to fight them, and who also recognise at the same time the losses
for private investors looming from any restructuring of the Greek
debt, the agencies are responding in the way most natural to them: by
piling on the pressure and intensifying their offensive. When politics
bow to the organised onslaught of financial capital, there is not much
to hope for.








Counterpoint

Don't shoot the messenger








"Not surprisingly, politicians have responded with fury to
the downgrading of Portugal's credit rating by Moody’s rating agency.
Just about anything at hand, it seems, can be wielded to deflect
attention from one’s own foibles. One might say European nerves have
sunk to junk level.

"Even Angela Merkel, the German Chancellor, got involved in the fray,
stating that she prefers to trust the European Commission, the European
Central Bank and the IMF. Her message: don’t take the rating agencies
at all seriously. One can’t help but suspect that the politicians prefer
to greet the bearer of bad news with the call: “Off with his head!"

"No question, the rating agencies had their stumbles before the
financial crisis. They overvalued toxic assets and were complicit in the
crisis. Now they are giving the impression that they want to win back
their good names with a few critical studies.

"But were the agencies not scolded not long ago for failing to
recognise bankruptcies like that of the Lehman Brothers, or for seeing
them coming too late? They were caught sleeping – and now they’re
rushing in, with too great haste. Something’s not right. But one thing
is unarguable: so far, all the downgrades have proven to be justified.

"In addition, Merkel’s demand for emancipation from the ratings
agencies is a step down a dangerous and mistaken path. There is a lot of
talk of conflicts of interest among the credit rating agencies, because
the issuers of debt instruments pay for their own ratings. But no one
is talking about a conflict of interest among the institutions that
Merkel puts her faith in. The EU and the IMF have thrust hundreds of
billions of euros at the fire in Greece alone, even if these loans are
backed by state guarantees. Poor pre-conditions indeed for an unbiased
opinion on the solvency of states or the need to restructure the debt."

Extracts from the Financial Times Deutschland

As French Vote Nears, Sarkozy Is Haunted by Grim Economy

By STEVEN ERLANGER

Published: January 15, 2012

ow @nytimesworld for international breaking news and headlines.


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Radmila Zakovic, 59, went for benefits at the local unemployment office for herself and her two sons, both jobless. She had told them that if they finished school, they would find careers. “I feel like I’ve lied to my children,” she said.
As President Nicolas Sarkozy contemplates his race for re-election, with the first round of voting 100 days away, he is confronted with an economy reeling from the euro crisis and nearly zero growth. France has just lost its AAA credit rating and must cut government spending. The unemployment rate is 9.9 percent, a 12-year high, and rising.
The loss of the treasured AAA rating, while expected, was a blow to France’s status in Europe, making it seem less like a power than a problem. The downgrade makes it harder for France to pretend to be Germany’s equal in leading the European Union, which the Franco-German partnership has traditionally dominated. That, in turn, will make it harder for France, Italy and Spain to challenge the German recipe of austerity and to press harder for more liberal, pro-growth policies from the European Central Bank.
The downgrade was also a major political blow to Mr. Sarkozy and his prospects in the coming election. Polls show the main concerns of voters are clear: the size of the French debt, the cost of living, unemployment and general economic insecurity. Mr. Sarkozy’s rivals, fairly or not, leave little doubt where to place the blame.
“It is Sarkozy’s politics that have been downgraded, not France,” said François Hollande, the Socialist candidate who leads in the polls. Mr. Sarkozy’s presidency, with higher debt and higher unemployment, has been a disaster, Mr. Hollande said, but he has provided few details about his own plans.
It is hard to see how France can quickly extricate itself from its economic morass. It is Europe’s most centralized, state-dominated economy, and is deeply invested in its opposition to what the French call the Anglo-Saxon economies of Britain and the United States, whose laissez-faire approach they blame for the 2008 financial crisis.
Yet, like Europe’s lagging Mediterranean countries, though to a lesser extent, France is having trouble competing with the larger German economy, which is more flexible, less confrontational in its relations with employees and more solidly built on industry and exports.
While Mr. Sarkozy blames France’s woes on the 2008 global financial shock, the real problem, said Nicolas Baverez, an economist and historian, “is the unsustainable economic and social model of the last three decades.” France, like other European countries, benefited from cheap credit, leading to a society in which nearly two-thirds of the economic growth depended on consumption, partly financed by social transfers. Those, in turn, were financed by public debt that has ballooned to 86 percent of the gross domestic product in 2011 from 20 percent in 1980.
The main criticism of Mr. Sarkozy is that while he promised “a rupture” with the past to modernize France’s heavily state-dominated economy — liberalizing the tax system, eliminating the 35-hour workweek, reducing bureaucracy and improving purchasing power — he has accomplished little in the face of political and union opposition, save for an important delay in the retirement age. The Socialists, if they win, are unlikely to be much braver, altering the edges of tax and social policy, but not the core.
For Mr. Sarkozy and other European leaders, the euro crisis and the heavy sovereign debts that led to it have created a kind of political prison. Normally, faced with high unemployment and stagnant growth, leaders would spend to stimulate the economy, investing in infrastructure, education and job training. Instead, pressed by the markets and his own promises to limit deficits, Mr. Sarkozy has had to cut government spending and raise taxes in an election year.
But France’s efforts to repair its figures — as with the rest of the countries in the euro zone — are “too little, too late,” said François Heisbourg of the Foundation for Strategic Research in Paris.

CNN) –
The ratings downgrade of France by Standard & Poor's is
embarrassing, but its economic impact will be limited – and the
country will embark on a full court press to pretend it doesn't matter.
Let's not forget the U.S. lost its triple A rating; the dollar is
still being printed and economy is doing better. But this will
pile pressure on the eurozone: S&P has a history of jumping first,
and other agencies could follow.

The risk is in its downstream hit on Europe's bailout fund, the
European Financial Stability Facility. The fund only holds its top
rating by virtue of the countries whose cash it is backed by, and France
is one of the major players.

Eurozone nations slapped with downgrades

The French downgrade could hit the bailout fund's triple A rating,
which will make it harder to raise sufficient funds from investors to
feed the bloc's needs for cash. That could cause hiccups for the bailout
programs already in place.

But of far more importance Friday was news that creditors have failed
to reach a deal with the Greek government on haircuts to the country's
debt.

Greek talks break down

According to a statement from Greece's creditors, plans to slash the
value of the debt in half, as part of the country's negotiations to get
its second bailout, have stumbled. This could prove a ticking time bomb
if it is not defused. The news means Greece is once again the big
crisis.

The eurozone rescue plan is falling to bits but it's Greece we need to watch, not France.

Posted by: Richard Quest Filed under: Business • Financial crisis • Financial markets • Quest Means Business

---

Germany needs Greece to survive and benefits from a weaker EURO, although most of their exports are to European Countries



Money is pouring into the U.K. which doesn"t have a credit risk.


EU Countries do have a risk because they have no Sovereinty now nor a Central Banking System

European Bank dividends set to tumble.

Ernst & Young say Europe is in recession

Stocks around the World tumble on news of the S & P downgrades.

Austria downgrade is largely due to it's trading with Italy and Hungary but PM still believes in Euro

Greek 10yr Bond sale yielded 34.99% ......how on earth can the Country repay all it"s debt with an interest rate like that.

The current write down of Bonds between Greece and the Holders has stalled and a meeting will be arranged for later this week. Greece wants 3% , the
Holders want 5% so it is expected the rate will be 4%.

A very good discussion earlier with a young Audience with two famous Investment Company owners who between them ownover $ 6 Billion Investments
say Germany is playing a very dangerous game clinging to the fiscal policy , particularly with Italy and Spain under pressure.

There is a huge risk to the U.S. if the Euro collapses. The U.S. and U.K. could write checques to help the EU but refuse to do so because they see the
constant borrowing by the Euro Countries making the situation worse. The U.S. itself has a $145 trillion debt and it will take years to bring this down
because the recession will laat for years.

The Investment Manager/Owners said a huge change of thinking by the US Political Leaders will have to take place and sees Obama and Romney as two sides of the same face. As in the U.K. people are living much longer and there is no provision for this and the result is the next generation will pay for this
which is unfair and continues the cycle. The answer is for people to live within their means NOW, stop the culture of Credit Card Debt, looking for profit in Housing which is affecting the stability of House prices plan to pay health Insurance until you are 90 .

Euro

Eurozone crisis
France relegated to 2nd division

16 January 2012
Le Monde
Paris

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Fatal Friday 13th for Sarkozy
Cécile Bertrand

Standard & Poor's 13 January downgrade of France’s credit rating is a double blow: Nicolas Sarkozy and his presidential election rivals will come under even greater pressure from the markets while the North-South divide in Europe has grown significantly wider.
Erik Izraelewicz
S&P’s decision to downgrade France, announced on Friday 13, is both a financial non-event and a political bombshell. It is a non-event because for quite some time, institutional investors, who are the real target audience for these ratings, have shown that they do not believe that France and a number of other major European sovereign states should be ranked among the world’s most reliable countries. And this has been reflected by the price that Paris has paid to borrow on international markets, which for several long months, has been significantly higher than the one demanded from Berlin.
The loss of the AAA rating, which had already been anticipated by the markets, is not in itself an economic catastrophe.
First and foremost, only one of the three international ratings agencies has decided to relegate France to the 2nd division. Secondly, the loss of the best possible grade does not necessarily or immediately pave the way for financial apocalypse. The United States, which lost its AAA status in August, is still able to borrow very cheaply. Although having said that, it is true that the dollar confers on the world’s largest economic power a number of advantages that France does not have.
Nonetheless, Standard & Poor's decision will have an impact on the cost of funding in France – the state, its executive agencies, and local authorities will now have to pay more for loans. As a result, the macro-economic management of the country will be more difficult. France had 20 out of 20, and now it will only have 19 out of 20. However, in spite of everything it will remain, as the government has been quick to point out, a very safe investment.
Hardly a reason for rejoicing on the French left

The decision, which was expected, nonetheless amounts to a political bombshell: an unflinching punishment of French economic policy in recent years, and in particular of the policy pursued by the head of state, who had made the conservation of AAA status the main goal of his strategy. However, Nicolas Sarkozy’s realisation of the need to cut spending and to tackle the level of debt came too late.
But the most serious aspect of the S&P decision is the manner in which it has highlighted a faultline in Europe. The eurozone is now divided into two Europes: one composed of disciplined northern countries with balanced books and a real potential for growth, grouped around Germany which managed to avoid the downgrade; and another made up of southern states with very limited growth prospects that are currently facing serious financial difficulties. Downgraded along with Spain and Italy, France is now part of this second-tier Europe.
As a result, Paris will have to defend a weaker position in future negotiations with Berlin. The ratings agencies did not care for the outspoken attacks directed against them by Nicolas Sarkozy during the subprimes crisis, and perhaps they are now getting their revenge. But this is hardly a reason for rejoicing on the French left. These are difficult times, and they will remain difficult for whoever wins the day on 6 May [the second round of French presidential elections]. In all of this, it is the euro which runs the risk of being the main victim.
Translated from the French by Mark McGovern

Press review











Eurozone crisis



For S&P, the Emperor has no clothes


16 January 2012








AFP








For the European press, the ratings downgrade for nine
eurozone countries by Standard & Poor's merely confirms what
markets and leaders have known for a long time: that the difficulties of
the eurozone are primarily due to rifts between the member countries.







For La Stampa,
“Friday’s multiple downgrading is the delayed effect of the
disappointing European summit in December. It had been expected, though,
so the damage it has caused is, for now, limited…. A greater
responsibility now falls on Germany.” The Turin daily adds:

If
it were only about paying the debts of other countries, the Germans
would have every reason to refuse. But they’re discovering that the
markets, just as they were doling out credit too cheaply to big-spending
countries before the crisis, are now rewarding the excessive
selfishness of the most thrifty of countries. The deeper the crisis, the
more billions of euros Germany is saving by paying excessively low
interest rates. Responsibility also means refusing excessive largesse.

Diário de Notícias of Lisbon believes that the first consequence of the cut in France’s rating is that-

...
on January 13, the Paris-Berlin axis broke. The Rhine will continue to
flow stubbornly on. The struggle for a change in European Central Bank
policy will intensify. We can expect nothing good from a desperate
Sarkozy and a fearful Merkel on her island, which is sinking under the
weight of savings of Europeans in search of a refuge. Europe could have a
future: federalism, with prosperity. Political union, with confidence.
Instead, it is close to imploding, to poverty, to bayonets. The enemy is
not the markets. It is the stupidity of politicians.

In Prague, Hospodářské Noviny writes
that S&P has concluded only that “the Emperor has no clothes” –
after all, the cut in the ratings of nine eurozone countries had been
expected. “The downgrade merely reveals what investors have long known:
that Europe as a whole does not work too well. [...] If it is to
survive, it must change.” Another consequence of this series of
downgrades: the European Financial Stability Fund (EFSF) “is losing its
fire power… In essence, the sum of money in the fund that may be used to
bail out troubled countries has shrunken from €440 billion to just €
290 billion.”

According
to experts, S & P’s announcement will increase the pressure on the
European Stability Mechanism (ESM), which in any case was to replace the
EFSF [on July 1], to come into effect right away. The advantage of the
ESM is that it does not depend on country ratings, because it has its
own capital. [...] The cut in France’s rating will strengthen Germany’s
role in the operation to rescue the eurozone. Sarkozy is growing weaker.
The rescue of the eurozone will be led by Merkel.

In Austria, the press is not kind to the government, which called the downgrade “surprising” and “incomprehensible”. Vienna’s Die Presse wonders where
the "surprise" was, noting that Standard & Poor's had given a
thumbs-down in December, when it stated that a decision would come in 90
days. The Vienna daily invites the government to-

...
change course before it suffers Italy’s fate. [...] In calling the
downgrade "incomprehensible", the government is failing to take it into
account and is pressing even harder on the accelerator in our race to a
new ratings cut.

The same feeling seems to prevail in Slovakia, where Hospodárske Noviny notes that Friday 13 brought bad luck to the eurozone: