Tuesday, August 30, 2011

Moving On From Greece?



The Wall street Journal
By RICHARD BARLEY
Will what happens in Greece, finally stay in Greece?
A host of doubts still surround the second bailout for the country. The economy is in tatters, there is doubt over the bond swap at the heart of the deal, and a spat over collateral for Finnish loans is continuing. But while Greek bond yields have surged to fresh highs, with the yield to maturity on two-year notes at 46%, the rest of the euro-zone government-bond market hasn't taken fright. That marks a step forward in the crisis.

Quietly, Germans Take On More Prominent Role at EU



The Wall Street Journal
By LAURENCE NORMAN
When Axel Weber walked away from the chance to be the next president of the European Central Bank, many in Brussels were amazed that Germany again lost out on the chance to pick up a powerful European Union post.

Eurobond Plan Would Need a Big Sweetener



The Wall Street Journal
The euro-zone crisis is solved. It took some doing, but the final pieces are in place.
First, Italian Prime Minister Silvio Berlusconi has promised to reform his nation's no-growth economy. Second, the European Central Bank has agreed to buy bonds of troubled countries, including Spain and Italy. Third, euro-zone leaders have agreed to authorize their bailout fund—a.k.a. the European Financial Stability Facility—to buy euro-zone government bonds in the secondary market. I would add a fourth but it takes irony too far: Euro-zone leaders have benefited from advisory phone calls from President Barack Obama, and Treasury SecretaryTimothy Geithner's warning that they are moving too slowly to confront their debt crisis.
Worries over and head for the beaches.

Wall Street surges 2 percent on Greek bank deal; trade thin



(Reuters) - Stocks soared more than 2 percent in a broad rally on Monday as a merger between two big Greek banks provided a rare bit of encouraging news out of debt-stricken Europe.
A rebound in consumer spending calmed fears of a new U.S. recession and also helped lift all 10 S&P sectors. Only five S&P stocks ended in negative territory while the CBOE Volatility index .VIX, a measure of investor fear, lost 9.3 percent. But volume was low, amplifying the surge in shares.

Monday, August 29, 2011

Greece seeks details of global holders of its bonds



BBC
Greece has written to finance ministers around the world to help assess global holdings of Greek government bonds.
It is part of the preparations for a debt swap, which will see private holders of Greek bonds asked to exchange them for other bonds that pay less interest over a longer time frame.
The debt swap was agreed between Greece and other eurozone nations in July so it could get a second bailout.
Eurozone finance ministers are due to discuss the bailout later.

Tax Haven's Tax Haven Pays a Price for Success



The Wall Street Journal
By DEBORAH BALL
ZUG, Switzerland—Developed nations from Japan to America are desperate for growth, but this tiny lake-filled Swiss canton is wrestling with a different problem: too much of it.
Zug's history of rock-bottom tax rates, for individuals and corporations alike, has brought it an A-list of multinational businesses. Luxury shops abound, government coffers are flush, and there are so many jobs that employers sometimes have a hard time finding people to fill them.

Eurobank, Alpha Plan Merger Amid Debt Crisis



By Christos Ziotis and Maria Petrakis - Aug 29, 2011 11:07 AM GMT+0300
The boards of EFG Eurobank Ergasias SA and Alpha Bank SA,Greece’s second- and third-biggest banks, met today to discuss a possible merger aimed at bolstering their assets and helping them ride out a deepening recession and the country’s sovereign debt crisis.
Shares in the Athens-based companies were suspended today pending news from the board meetings, the Athens exchange said in astatement posted on its website. The banks are meeting on “their merger and a planned capital boost of the new bank,” the exchange said. A joint press conference will be held at 2 p.m. today in Athens, the two banks said yesterday.

The world economy



A call to arms
The Economist
Aug 28th 2011, 4:16 by Z.M.B. | JACKSON HOLE, WY
IT IS largely a gathering of central bankers; at the outset of her speech she apologised for not being one. Yet by far the most hard-hitting words at this year’s Jackson Hole symposium came from Christine Lagarde, the former French finance minister and new managing director of the IMF. 

The world economy, she said, was entering a “dangerous new phase” driven by a sense that “policymakers do not have the conviction” to take decisions that are needed. That must change, and now. Ms Lagarde laid out a bold to-do list to support growth, including a forced capital injection into Europe’s banks, aggressive new action to deal with America’s foreclosure crisis, and a broad rebalancing of fiscal priorities.

Libya



The Economist
The birth of free Libya
After a six-month struggle, Libya’s rebels have seized power. We look at Tripoli in rebel hands and, in a second article, at the new people now in control.
WESTERN governments could hardly have hoped for a better finale. Libyans themselves finished off the regime’s reign in the capital, enabling NATO to retreat to the wings and refute the last flourish of the colonel’s spokesman, Musa Ibrahim, delivered on a crackly radio, that the conquest was the work of imperialism. Liberation came from the west, not the east, allaying Tripoli’s fears of a Benghazi takeover. The doomsday scenarios of a bloody civil war in the streets proved mercifully overblown.

Gloom Settles on Central Bankers


The Wall Street Journal
By JON HILSENRATH
JACKSON HOLE, Wyo.—After years fighting crises and pumping money into the financial system, the world's central bankers are coming to grips with the realization that the global economy is still in a very dangerous place.
Their problem is compounded by the fact that for some—notably the Federal Reserve—there isn't much more they can do to spur the economy. They have already pushed short-term interest rates to near zero and tried other, unconventional measures. In Europe, three years into crisis, the banking system is exposed to highly indebted European governments like Greece and remains short of capital, many say.
The angst was underscored in a blunt speech Saturday by the International Monetary Fund's new managing director, Christine Lagarde, at the Fed's annual retreat here.
"We risk seeing the fragile recovery derailed," the former French finance minister said. Those risks have been aggravated, she said, by the public's sense that top policy makers aren't adequately addressing the problems they face. "We are in a dangerous new phase," she said.
Ms. Lagarde, though neither a central banker nor an economist, articulated a sense of worry that representatives from many major central banks expressed, mostly behind the scenes, during the two-day conference.
The IMF chief pointedly called on leaders of major central banks to keep interest-rate policies "highly accommodative," a reference to the European Central Bank, which has begun to raise rates.
She directed sterner words at politicians. Europe needs to bolster the capital in its banks and—along with the U.S.—needs to strike the delicate balance of reducing government debt in the long run without cutting so aggressively in the short run that damage is done to tenuous economic growth.
Her remarks could presage an effort by leaders of G-20 nations meeting in Cannes, France, in November to develop more aggressive responses to fiscal crises and the weak economy.
Ms. Lagarde's comments amplified a speech made by Fed Chairman Ben Bernanke, who scolded U.S. politicians for undermining public confidence during the messy debate over raising the U.S. debt limit. He also called for fiscal belt-tightening that wasn't too aggressive at first because the economy is so weak.
Coming weeks pose important challenges for financial markets. "I'm concerned about a risk of events this autumn," said Robert Zoellick, president of the World Bank.
Officials here were especially worried about several fraught negotiations in Europe. European parliaments need to approve an expansion of the powers of the European Financial Stability Facility, which is seen as critical to stabilizing strained government finances in Greece, Portugal and elsewhere. Leaders in Finland are demanding hefty collateral in return for their support of Greece. Other creditors are contemplating a debt exchange with the Greek government that could lead to more turmoil if it fails.
ECB President Jean-Claude Trichet sought to dispel worries that European banks could be threatened by a loss of short-term funding. Banks have ample assets to use as collateral for borrowing from the ECB, he said. Worries that they will become short of cash are "just plain wrong," he said.
The Fed is also in a tough spot. Mr. Bernanke said almost nothing in a speech Friday about what the Fed might do next to support tepid U.S. growth. He did point to a Sept. 20-21 policy meeting at which officials could take new actions.
The central bank's choices aren't appealing. The Fed could restart a bond-buying program, or take smaller steps, including shifting the portfolio of bonds it already holds toward securities with longer maturities to bring down longer-term interest rates. But each step comes with costs, and the benefits aren't seen as very great.
One risk is political. "As the central banks in advanced countries continue to pursue easy monetary policy and unconventionally easy monetary policy, the political pressure on central bankers to do more to help finance budget deficits may grow," said Haruyuki Toyama, the general manager of the Bank of Japan's U.S. branch.

Friday, August 26, 2011

EU Leaders Face Busy Fall, Tight Deadlines



The Wall Street Journal
By CHARLES FORELLE
When Europe's leaders return from their summer break next week, they'll find plenty of work waiting. And, once again, little time in which to do it.
The European Central Bank held back a destabilizing rout that flickered earlier this month in Italian and Spanish government bonds, by continually buying them on the secondary market. But that, as a top ECB official said in a magazine interview this week, is "not a permanent structure."
It will be up to euro-zone politicians to build one. Their pre-vacation summit on July 21 laid a few bricks, but the rest exists just as conceptual drawings.

European banks



Chest pains
Europe’s sovereign-debt crisis is constricting the flow of money to its banks
“I’VE never seen risk aversion this intense,” says the chief executive of a large European bank. “It is unsustainable.” His anxiety is understandable given the wild gyrations that rocked bond and commodity markets in early August and continued through the slow trading days of mid-August, when gold hit new highs and the yields on government bonds touched new lows in Britain and America. Steep falls in stock prices this month have erased all the gains made over the past year.

Gold falls again after jump in dealing costs


25 August 2011 Last updated at 11:15 GMT
BBC

The price of gold has fallen again after the cost of dealing in the metal jumped sharply on two key exchanges.
Hopes the global economy will stabilise also prompted sales.
Fears about European and US debt and growth prospects had led investors to buy gold - which is seen as a safer investment - in recent months.

Thursday, August 25, 2011

Climate science (II)



Clouds in a jar
A new experiment with old apparatus reveals a flaw in models of the climate
The Economist
CLOUD chambers have an honoured place in the history of physics. These devices, which generate vapour trails that mark the passage of high-energy subatomic particles, were the first apparatus that allowed such passage to be tracked. That was in the 1920s and led, among other things, to the discovery of cosmic rays. Science has moved on since then, of course, and cloud chambers are now largely museum pieces. But the world’s leading high-energy physics laboratory, CERN, outside Geneva, is dusting the idea off and putting it into reverse. Instead of using clouds to study cosmic rays, it is using cosmic rays to study clouds. In doing so, it may have thrown a spanner into the works of the world’s computer models of the climate.

Euro-Zone Data Show Rough Path Lies Ahead



The Wall Journal
By ALEX BRITTAIN And TOM FAIRLESS
LONDON—A slump in German business confidence and an unexpected fall in euro-zone factory orders marked the latest in a string of forward-looking data to suggest the currency bloc's economy is losing momentum.

Wednesday, August 24, 2011

One giant step to EU fiscal union


BBC

Watching the French president and the German chancellor in Paris yesterday I tried to imagine myself a Dutch or Italian voter.
Here, in the middle of August, the two leaders of the eurozone's most powerful countries had interrupted their August to announce that, in future, there would be a eurozone government with an elected president.

Delivering a Franco-German Bouquet of Irony



The Wall Street Journal
By ALEN MATTICH
This week's Franco-German deal to save the euro is a collection of ironies, not least that it's likely to precipitate an early withdrawal from the single currency by some of its beleaguered member states.
French President Nicolas Sarkozy and German Chancellor Angela Merkel drew up a plan to fix the euro zone's problems by making sure member countries stick to sound fiscal policies. And by sound they mean budget deficits of no more than 3% of gross domestic product, with the aim they balance their budgets over the economic cycle, and gross-debt-to-GDP ratios of below 60%.

Euro Zone Weighs New Plan on Greek Bailout Collateral



The Wall Street Journal
By MATTHEW DALTON, RIVA FROYMOVICH and BERND RADOWITZ
BRUSSELS—Euro-zone governments are discussing a plan to have noncash Greek government assets, including real estate, offered as collateral for a new round of rescue lending to Greece, backing away from a bilateral agreement reached last week between Greece and Finland, officials said Tuesday.

Greek Cuts Erode Livelihoods



The Wall Street Journal
Households, Small Businesses Wilt Under Strain of Austerity Measures; Holiday Bonuses for Pensioners Are Cut
By COSTAS PARIS And ALKMAN GRANITSAS
ATHENS—Greek households and small businesses show growing signs of strain as knock-on effects of government cutbacks ripple through the country's fragile economy.

Tuesday, August 23, 2011

Analysis: Stocks' volatility keeps forecasters busy



(Reuters) - Nobel Laureate Paul Samuelson is famous for saying the stock market predicted nine of the last five recessions.
This joke by the first American to win the Nobel Memorial Prize in Economic Sciences is not lost on economists as they repeatedly downgrade U.S. growth forecasts in response to the exceptional turmoil in financial markets.

Monday, August 22, 2011

Global Markets Move, but Merkel Won't



The Wall Street Journal
Never say that euro-zone countries can't agree on anything. A consensus is rapidly forming: Germany should transfer to its euroland partners more of its hard-earned money, either by lending its impeccable credit to an issue of euro bonds, or contributing more to a much-enlarged European Financial Stability Facility.

Thursday, August 18, 2011

U.S. investigating S&P over mortgages: report



(Reuters) - The U.S. Justice Department is investigating whether Standard & Poor's improperly rated dozens of mortgage securities in the years before the financial crisis, The New York Times reported on Thursday, citing sources familiar with the matter.

Growth worries hobble stocks, Swiss franc slips



(Reuters) - European equities followed Asian stockslower on Thursday as investors fretting about the global growth outlook cut exposure to riskier assets, while the Swiss franc fell on talk the central bank was intervening in the forwards market.

Wednesday, August 17, 2011

Franc Gains as Switzerland Stops Short of Peg



Bloomberg
The Swiss franc strengthened after the country’s central bank announced additional liquidity measures while refraining from announcing tougher moves such as adopting a currency target or a temporary peg.

Franco-German Proposal Disappoints



Sarkozy and Merkel Propose Euro-Zone Council for Better Governance
By NATHALIE BOSCHAT, BERND RADOWITZ and GABRIELE PARUSSINI
PARIS—The plan by France and Germany to create a head of the euro zone to shore up economic governance of the monetary union stopped short of more fundamental steps toward refashioning the area into a federal entity that would issue its own debt, disappointing investors hungry for a more radical solution to the euro-zone crisis

Tuesday, August 16, 2011

Poor German data hits stocks and euro



(Reuters) - Stagnant growth in Europe's powerhouseGermany knocked stocks lower on Tuesday and hit the euro, adding to investor fears that the world economy is slowing more than expected.
Focus was also on a meeting in Paris between French President Nicolas Sarkozy and German Chancellor Angela Merkel, with investors looking for any signs of new measures to contain the spreading euro zone debt crisis.

U.K. Leader Blames Riots on 'Moral Collapse'



U.K. Prime Minister's Promise to Use Policy to Remedy Social Ills Comes Amid Debate Over His Cuts to Police
The Wall Street Journal
By ALISTAIR MACDONALD
LONDON—Prime Minister David Cameron sought to bolster his law-and-order credentials Monday with a speech promising a root and branch review of all government policy to tackle the "slow-motion moral collapse" he believes led to the U.K.'s worst rioting in decades.
Mr. Cameron faces many obstacles in turning round what he described as "broken Britain"—including his government's cuts to police forces, and divisions between the police and government that have erupted since the unrest.

Selloff raises stakes in Sarkozy-Merkel talks



(Reuters) - The leaders of France and Germany face a stark choice in talks on Tuesday over whether to begin steering the embattled euro zone toward closer fiscal union or risk watching the bloc unravel.
French President Nicolas Sarkozy and German Chancellor Angela Merkel meet in Paris to discuss what further measures they can take to contain Europe's debt crisis, which is now spreading to the continent's core.
Italy has been forced to ramp up its austerity measures and financial market jitters hit France last week with French banks' shares subject to panic selling following rumors that the country could be next to lose its prized AAA debt rating.

Sunday, August 14, 2011

Markets heading to new danger zone: Zoellick



(Reuters) - The loss of market confidence in economic leadership in key countries like the United States and Europe coupled with a fragile economic recovery have pushed markets into a new danger zone, something that policymakers have to take seriously, the head of the World Bank said on Sunday.

U.S. Shows off Carrier Amid Tensions


The Wall Street Journal
ABOARD THE USS GEORGE WASHINGTON—Less than a week after China launched its first aircraft carrier, the U.S. showed off its own big-boy supercarrier to former enemy Vietnam—one of several smaller Asian nations with jittery nerves amid Beijing's burgeoning maritime ambitions. A delegation of Vietnamese military and government officials was treated to a tour aboard the sprawling USS George Washington nuclear carrier this weekend off the country's southern coast, once home to the U.S.-backed capital of South Vietnam during the Vietnam War.
It's the second such visit to the U.S. Navy's hulking carrier in as many years and a symbol of the former foes' warming military ties. But Saturday's visit also came amid heated tensions between China and its Asian neighbors. Hanoi's relations with Beijing hit a low point this summer following weeks of squabbling over disputed territory in the South China Sea—where the U.S. carrier cruised under blue skies about 140 miles (225 kilometers) off the coast.

Greece’s economy



Keep calm and carry on
Does the government have the will to see through its ambitious bail-out plan?
Aug 13th 2011 | ATHENS | The Economist
PATROCLES, a taxi driver, had to borrow his wife’s car to ferry customers to and from Athens airport to avoid being spotted by his colleagues on strike.

Saturday, August 13, 2011

France and Greece feel economic strain


12 August 2011 Last updated at 10:38 GMT
BBC News

French economic growth was zero in the second quarter, compared with the previous three months, adding pressure for the government to curb its deficit.
But French Finance Minister Francois Baroin insisted the economy was solid.
Meanwhile, the Greek economy shrank by 6.9% in the second quarter, compared with the same period a year earlier.

Italy and UK press case for deeper euro zone fiscal ties



(Reuters) - Britain's finance minister called for some form of fiscal union to resolve the euro zone's debt crisis on Saturday, while his Italian counterpart renewed a call for the introduction of common euro zone bonds.
After more than a year of piecemeal responses to the euro zone's still-expanding debt crisis, some economists and policymakers are making the case for broader changes to how the currency bloc works.
The spread of market concerns in the crisis to France in the past week have raised the stakes further ahead of a meeting of the bloc's French and German leaders next week -- both of whom have opposed more radical moves to date.

American idiocracy


Schumpeter

The civil war in Washington, DC, is damaging American business
Aug 13th 2011 | from the print edition he Economist
THE great Calvin Coolidge reputedly said that “the business of America is business.” These days the business of America is carpet-chewing rage. American politicians are intent, not on improving their country’s competitiveness, but on gouging each other’s eyes out.

Friday, August 12, 2011

Looking for the bottom



Aug 9th 2011, 9:39 by Buttonwood

The Economist
HOW does one tell when markets are cheap? Regular readers will know that this blogger has been gloomy for a while but the trick is to have some cash available so one can follow the old rule of being greedy when others are fearful. The Vix index of volatility has reached 48, the kind of levels that indicate panic. Hedge funds say there is unusually high volume for August and that there are signs of capitulation in the financial stocks, perhaps as value investors exit the sector.

French fears



Pummelled
Markets go into a panic about France
Aug 13th 2011 | PARIS | from the print edition
The Economist
NICOLAS SARKOZY, France’s president, rushed back from his holiday on August 10th to defend the country from financial attack. In a day of rumour, panic and denials, shares in Société Générale, the country’s third-biggest bank, fell by almost a fifth before recovering some ground to close down 15%.

Central bankers to the rescue?

The Economist

They can buy a little time, but the real remedy must come from Western politicians
Aug 13th 2011 | from the print edition
FLAT on its back, feeble and growing weaker, the rich world’s economy is in a sorry state. In the past week the signs of alarm at its condition have multiplied. In Europe yields on Italian and Spanish ten-yearbonds rose above 6%. America fretted at seeing its credit downgraded by one of the big ratings agencies. Around the world, stockmarkets tumbled, with some recording their biggest one-day falls since 2008. Bank shares were hit especially hard, a sign of stress in the financial system. Then the central banks stepped in.

Surging Yuan May Signal Boost For Global Recovery



By Bloomberg News - Aug 12, 2011 5:46 AM GMT+0300
The yuan’s strongest gain in more than three years may herald a new stimulus for a flagging global recovery as Chinese importers get more firepower to buy up goods from slowing economies in the U.S. andEurope.
The currency has climbed 0.7 percent this week, more than any weekly increase since December 2007, breaking through 6.4 per dollar for the first time in 17 years. The yuan traded at 6.3953 as of 10:27 a.m. in Shanghai today.

Britain Tallies Damage and Sets Out Anti-Riot Steps



The Wall Street Journal
By Alister McDonald
As the U.K. counts the cost of four nights of rioting, Prime Minister David Cameron set out a raft of new measures it will impose or consider on crowd control, gang membership and social media designed to prevent another violent episode.

Europe Must Produce Fudge of Much Higher Quality



The Wall Street Journal
By GEOFFREY T. SMITH
This being Europe, every step toward the ultimate resolution of the debt crisis seems ungainly, unbalanced, and generally insufficient. In other words, a fudge. The markets' response to the July 21 Greek rescue package—welcome, then skepticism, then outright rejection—is now a familiar pattern.

French economy stagnates in second quarter



(Reuters) - French economic growth ground to a halt in the second quarter, raising pressure on the government to cut spending and abolish tax breaks to convince turbulent financial markets it will deliver on debt reduction targets.

U.S. stock futures slide but Europe seen firmer for now



(Reuters) - U.S. stock futures slid 1 percent on Friday, pulling Asian shares off early highs, as sentiment remained cautious on concerns over the European debt crisis, which will probably keep supporting safe havens like gold and Swiss franc.

Thursday, August 11, 2011

Why This Crisis Differs From the 2008 Version



The Wall Street Journal
It is a parallel that is seducing Wall Street bankers and investors: 2011 as a repeat of 2008, the history of financial turmoil playing in one endless loop.

As a big fund manager muttered darkly this past weekend while heading into the office to prepare for a tumultuous Monday, "The sense of déjà vu is almost sickening."

Central Bankers Race to Protect Growth in 72 Hours of Crisis



Bloomberg
Central bankers are racing to shield their economies from fiscal tightening and lopsided currency swings that threaten a new global recession.
In the 72 hours after a Group of Seven conference call on Aug. 7, the Federal Reserve pledged to keep interest rates near zero through at least mid-2013, the European Central Bank intervened in bond markets and the Bank of England indicated it’s ready to add more stimulus if needed. Japan signaled renewed concern about the yen and Switzerland yesterday stepped up its fight to curb an “overvalued” franc.

France Considers Further Austerity



The Wall Street Journal
By DAVID GAUTHIER-VILLARS
PARIS—The French government pledged Wednesday to consider fresh tax rises, spending cuts and other budget measures to ensure the country doesn't deviate from a challenging deficit-reduction trajectory as market concerns that France's top-notch creditworthiness is at risk accelerated.

Soul searching lies ahead as riots cool in Britain



(Reuters) - British Prime Minister David Cameron will face pressure Thursday to soften his austerity plans, toughen up policing and do more to help inner-city communities after days of riots and looting laid bare deep social tensions in a depressed economy.

Wednesday, August 10, 2011

Greece Feels Push Toward Euro Exit


The New York Times
By JACK EWING AND LIZ ALDERMAN
Published: August 10, 2011
FRANKFURT — If the European debt crisis were an old ocean survival movie, there would be a scene in which the passengers in the lifeboat realize that they don’t have enough food and water for everyone and that someone needs to go over the side. We’re looking at you, Greece. In fact, that is the sentiment a growing number of reputable economists and other commentators, particularly from fully liquid Germany, have been expressing lately.

U.K. Ethnic Tensions Stoked by Riots

The Wall Street Journal
By GUY CHAZAN
BIRMINGHAM—Three Birmingham men died early Wednesday as they sought to protect local businesses from rioters, showing how the violence that began four days ago in London and spread to the U.K.'s other big cities is stoking long-simmering ethnic tensions in some of the country's most racially diverse communities.
The three men who died, all Asians, were hit by a carload of suspected looters. West Midlands police arrested a man near the scene and launched a murder inquiry. Witnesses said the man, the driver of the vehicle, was black.

Greek Bond Swap May Be Extended


The Wall Street Journal
By COSTAS PARIS And ALKMAN GRANITSAS
LONDON—Greece's ambitious reform program suffered a double setback Wednesday after it emerged that talks with the country's creditors on a bond swap plan have stumbled and fresh data showed a sharp increase in the budget deficit.

Tuesday, August 9, 2011

European Stocks Swing Wildly in Volatile Trade



By ISHAQ SIDDIQI
 The Wall Street Journal
LONDON—European stock markets plunged after earlier swinging to positive territory, as worries of another recession in the U.S. and debt contagion across the euro zone hit investor confidence.

The DAX in Frankfurt was recently 4.4% lower and London's FTSE 100 had also dropped 2.5%. The CAC index in Paris had fallen 2.4%.

India’s economy



Reflections of reality
Does India have a bad-debt problem?
Aug 6th 2011 | MUMBAI | from the print edition
The Economist
A RITUAL familiar to students of the subprime and euro crises has started taking place on Indian banks’ conference calls with analysts and investors. The number-crunchers probe the lenders about their exposures to potential bad debts. Bank bosses insist that, although there are niggles, all is under control.


Some scepticism is due. With India’s economy slowing—growth could dip below 8% this year, from a peak of 9-10%—and interest rates rising (see chart), borrowers will be under more strain. India’s banks have been growing fast for years, often a sign that discipline has slipped. Total loans have almost tripled since 2005.

The Reserve Bank of India (RBI), which regulates banks and sets interest rates, has a record of running a tight ship. Gross non-performing loans have fallen from about a fifth of the total in 1995 to under 3% today. But the RBI is neither infallible nor squeaky-clean. Between 2005 and 2008 some foreign banks and several local ones got caught by a mini-boom in unsecured loans to consumers that quickly soured. And since the start of the global financial crisis the RBI has quietly given Indian lenders some get-out-of-jail cards; these may pale into insignificance compared with perks doled out by Western regulators but they suggest that the central bank prefers to fudge the recognition of losses in the system if it thinks stability is at risk.

Obama says he inherited economic problems




Mon, Aug 8 2011
By Jeff Mason
WASHINGTON (Reuters) - President Barack Obama said on Monday he inherited many of the country's problems with high debt and deficits when he entered the White House, sounding a theme likely to dominate his 2012 re-election campaign.

British riots spread on third night of violence




Mon, Aug 8 2011
By Stefano Ambrogi and Mohammad Abbas
LONDON (Reuters) - Rioting and looting spread across London on Monday as hooded youths set buildings and cars ablaze, smashed shop windows and hurled bottles and stones at police in a third night of violence in Britain's worst unrest in decades.
Prime Minister David Cameron cut short his holiday to fly home to tackle the violence, which appeared to be led by youths alienated by years of underemployment which left them feeling marginalized even before the economic downturn.

Downgrade Ignites a Global Selloff



U.S. NEWSAUGUST 9, 2011

Dow's 634.76-Point Plunge Is Worst Since '08 as Worries Rise About U.S. Economy; Asian Markets Drop at Open
By E.S. BROWNING

The downgrade of the U.S.'s credit rating sparked a global selloff on Monday, pushing the Dow Jones Industrial Average to its sharpest one-day decline since the financial crisis in 2008.

Can China afford to downgrade the U.S.?



AUG 8, 2011 10:20 EDT
Reuters

By Joseph S. Nye, Jr.
The opinions expressed are his own.

After the rating agency Standard & Poor’s downgraded America’s long-term debt, China said that Washington needed to “cure its addiction to debts” and “live within its means.” It must have been a delicious moment in Beijing, accustomed over the years to lectures from Washington about its management of the yuan.

Global Bonds Gain $132 Billion as Stock Rout Cuts $7.8 Trillion



Bloomberg
By Sarah McDonald - Aug 9, 2011
The worldwide retreat from stocks and commodities following Standard & Poor’s unprecedented cut of the U.S. AAA credit rating has driven the value of the global bond market to a record high.

Monday, August 8, 2011

To Reassure Markets, Europe Needs Bigger Bailout Fund, Says Geithner



By IAN TALLEY And ALAN ZIBEL
WASHINGTON—U.S. Treasury Secretary Timothy Geithner said Europe needs to boost the size of its emergency bailout facility to stem a sovereign-debt crisis threatening to engulf two of its largest economies and push the global economy back into a recession.

NATO investigates deadly Afghan helicopter crash



(Reuters) - NATO tried to determine on Sunday if Taliban insurgents had shot down a troop-carrying helicopter in Afghanistan, killing 38 in the largest loss of life suffered by foreign forces in a single incident in 10 years of war.

ECB Moves to Prop Up Italy, Spain



The Wall Street Journal
By BRIAN BLACKSTONE And MARCUS WALKER
FRANKFURT—The European Central Bank signaled it would purchase government bonds of Italy and Spain on a large scale, in the most dramatic and controversial escalation of its nearly two-year effort to stem Europe's unfolding debt crisis.

G-7 Seeks to Avert Collapse in World Confidence


Bloomberg
By Toru Fujioka - Aug 8, 2011
Group of Seven nations sought to head off a collapse in investor confidence after the U.S. sovereign- rating cut and a slump in Italian and Spanish debt intensified threats to the global economy.
G-7 finance ministers and central bank governors pledged in a statement to “take all necessary measures to support financial stability and growth.” Officials will inject liquidity and act against disorderly currency moves as needed, they said after a call late yesterday European time. The G-20, which includes emerging markets, issued a similar communique.

Trichet Draws ECB ‘Bazooka’ to Stem Contagion


Bloomberg
By Matthew Brockett and Jeff Black - Aug 8, 2011
European Central Bank President Jean- Claude Trichet signaled he’s ready to start buying Italian and Spanish bonds in his riskiest attempt yet to tame the sovereign debt crisis.
In a statement issued in the name of the ECB president after an emergency Governing Council conference call last night, the Frankfurt-based central bank welcomed the two nations’ efforts to reduce their budget deficits and said it will “actively implement” its bond-purchase program. It also called on all euro-area governments to follow through on the steps they agreed to July 21, including allowing the European Financial Stability Facility to purchase bonds on the secondary market.

Saturday, August 6, 2011

U.S. Loses AAA Credit Rating as S&P Slams Debt, Politics



Bloomberg
By John Detrixhe - Aug 6, 2011
Standard & Poor’s downgraded the U.S.’s AAA credit rating for the first time, slamming the nation’s political process and criticizing lawmakers for failing to cut spending enough to reduce record budget deficits.
S&P lowered the U.S. one level to AA+ while keeping the outlook at “negative” as it becomes less confident Congress will end Bush-era tax cuts or tackle entitlements. The rating may be cut to AA within two years if spending reductions are lower than agreed to, interest rates rise or “new fiscal pressures” result in higher general government debt, the New York-based firm said yesterday.

S&P Strips U.S. of Top Credit Rating



The Wall Street Journal
Unprecedented Downgrade Comes After Last-Minute Standoff; Treasury Says Decision Is 'Flawed by a $2 Trillion Error'
By DAMIAN PALETTA and MATT PHILLIPS
A cornerstone of the global financial system was shaken Friday when officials at ratings firm Standard & Poor's said U.S. Treasury debt no longer deserved to be considered among the safest investments in the world.

For Euro Zone, Firing All Guns Could Prove Costly



By STEPHEN FIDLER
Europe has dramatically scaled up its efforts to stanch its sovereign-debt crisis since the start of last year, but to no apparent avail as the turmoil threatened this week to overwhelm Spain and Italy.
Yet, governments still have some unused weapons in their armory—though the political cost of firing them will be high.

Friday, August 5, 2011

Europe’s Plan Won’t Cut Greek Debt: Allen, Eichengreen and Evans



Bloomberg
By Peter Allen, Barry Eichengreen and Gary Evans - Aug 4, 2011
Postmortems of last month’s European Union summit meeting have now turned to why the Greek debt rescue failed to restore investor confidence in the country’s finances. Many reasons are advanced: the failure to communicate clearly; the complexity of the plan; the inability to coordinate with the International Monetary Fund.

There’s a simpler explanation: The debt-reduction deal failed because it didn’t reduce the debt.

European Markets Fall



By SIMON KENNEDY
The Wall Street Journal
LONDON—European stock markets ended sharply lower in a volatile session Friday, extending a global selloff, though stronger-than-expected U.S. jobs data helped shares trade above their session lows.

Panic Hits Global Markets


08/05/2011 11:41 AM

German Stocks Fall Sharply

Markets around the world continued to tumble on Friday, responding to concerns of a double-dip recession in the United States and fears that the European debt crisis could worsen. The European Central Bank has begun purchasing government bonds again, and the European Commission is calling for an expansion of the euro rescue fund.
Global financial markets on Friday continued to be rattled over concerns of a double-dip recession in the United States and the continuing European debt crisis. Following heavy losses on Wall Street and Asia on Thursday and Friday, Germany's market opened with stock sales that bordered on panic. Shortly after the opening of trading, the blue chip German DAX index fell by more than 4 percent to 6,152 points, recovering slightly later to a level of 6,220.

EU leaders to hold crisis talks, ECB offers only



6:48am EDT
By Ben Deighton and Andreas Framke
BRUSSELS/FRANKFURT (Reuters) - The leaders of Germany, France and Spain will hold crisis talks about Europe's spiraling debt crisis on Friday after China and Japan called for global policy cooperation following a market rout.

Obama Administration Officials Are Confident Geithner to Stay at Treasury


Bloomberg
By Mike Dorning and Ian Katz - Aug 5, 2011
President Barack Obama’s senior advisers are confident Treasury Secretary Timothy F. Geithner will remain in his job even though he hasn’t made his intentions public, an administration official said.
Geithner met recently with Vice President Joe Biden and laid out his reasons for wanting to leave the post. Biden outlined why it was vital that Geithner remain, said the official, who spoke on condition of anonymity because no announcement has been made.

Europe’s Markets Open Sharply Lower



By Michele Maatouk
European stocks opened sharply lower Friday following the heavy selloff in the U.S. and Asia, amid growing concerns about euro-zone sovereign debt and the U.S. recovery, and ahead of the release of nonfarm payrolls.

Merkel, Sarkozy to Discuss Euro-Zone Situation



The Wall Street Journal
By Bernd Radowitz
German Chancellor Angela Merkel will later Friday talk to French President Nicolas Sarkozy over the telephone, with the “current situation in the euro zone” among the issues to be discussed, a spokesman for Ms. Merkel said Friday.

The euro crisis, part 394



Rearranging the deckchairs
The markets once again are calling euro-zone leaders’ bluff. Time to get ahead of things
The Economist
Aug 6th 2011 | from the print edition
WHATEVER plans European leaders had made for their holidays are being disrupted by an adversary that never takes a break: the bond markets. A fortnight after yet another summit in Brussels to resolve the euro zone’s debt saga, the pressure on Greece, Ireland and Portugal—the three minnows to have been bailed out by Europe and the IMF so far—has eased. But the strains on far-bigger Spain and Italy are rapidly worsening. The extra interest that both countries pay to borrow for ten years compared with Germany rose to euro-era records this week. Shares in Italian banks, stuffed with domestic government bonds, are being pounded on a daily basis.

Time for a double dip?

The Economist

A lousy debt deal, rising fears of a recession, the danger of longer-term stagnation: America’s outlook is grim
THIS ought to have been a good week for the American economy. The country’s leaders at last ended a ludicrously irresponsible bout of fiscal brinkmanship, removing the threat of global financial Armageddon by agreeing to raise the federal debt ceiling. Yet far from heaving a sigh of relief, investors are nervous. Stockmarkets around the world have tumbled. On August 2nd, the day the debt deal was signed, the S&P 500 index saw its biggest one-day fall in over a year, and yields on ten-year Treasury bonds dropped to 2.6%, their lowest level in nine months, as investors sought safety

Thursday, August 4, 2011

French Court Orders Investigation of Lagarde



By WILLIAM HOROBIN, NOEMIE BISSERBE and DAVID GAUTHIER-VILLARS
PARIS—A French criminal court Thursday ordered a probe into whether International Monetary Fund chief Christine Lagarde was complicit in any misuse of public funds in 2008, when she was France's finance minister.

ECB Reactivates Anticrisis Measures



The Wall Street Journal
By GEOFFREY T. SMITH
LONDON—The European Central Bank reactivated two of its most potent anticrisis measures Thursday in an attempt to stop the debt crisis from reaching Spain and Italy.

Stocks Tumble as Signs Point to Weak Global Economy


 The New York Times

The stock market fell sharply Thursday on intensifying investor fears about a slowdown in global economic growth and worries about Europe’s ongoing debt crisis, which is centered now on Italy and Spain.
As Japan intervened to weaken its currency and European stock markets turned negative across the board, United States stocks fell by around 3 percent in morning trading in New York.


Emerging vs developed economies

Power shift

Aug 4th 2011, 17:34 by The Economist online
The emerging world begins to seize the lion's share of global markets
REAL GDP in most rich economies is still below its level at the end of 2007. In contrast, emerging economies’ output has jumped by almost 20% over the same period. The rich world’s woes have clearly hastened the shift in global economic power towards the emerging markets. But exactly how big are emerging economies compared with the old developed world? This chart looks at a wide range of indicators:

Euro crisis: Barroso warns debt crisis is spreading


BBC News
European Commission President Jose Manuel Barroso has warned that the sovereign debt crisis is spreading beyond the periphery of the eurozone.
In a letter to European governments, he called on them to give their "full backing" to the euro currency zone.
He also said governments should rapidly re-assess the European Financial Stability Fund (EFSF) to reduce the risk of contagion in the eurozone.

Bond spreads in the euro zone
The single currency's medical chart
Aug 3rd 2011, 18:31 by The Economist online
THE euro zone's disease has taken a strange turn since the last summit on July 21st. The medicine that leaders prescribed immediately improved the situation of countries in the emergency room, ie, Greece, Ireland and Portugal, which have all received bail-out loans. But it worsened the condition of those outside hospital who had started to fall ill.

Euro Problems Need Fixing Before Financial Markets Lose Their Faith: View



By the Editors Aug 4, 2011 3:00 AM GMT+0300
Bloomberg
The U.S. Congress may have narrowly avoided a government-debt disaster, but financial troubles are resurging across the Atlantic. If European leaders can’t find the political will to implement the drastic measures needed to stem their crisis, markets could soon put them in an untenable position.

Italy's Woes Weigh on Europe



Prime Minister Resists Calls for New Measures, Anxiety Spreads Across Continent
By STACY MEICHTRY, CHARLES FORELLE and DAVID ENRICH
ROME—Italian Prime Minister Silvio Berlusconi resisted calls for a swift economic overhaul, heightening worries that the world's eighth-largest economy is sliding into the sort of debt distress that has laid low its smaller European neighbors.

Wednesday, August 3, 2011

World debt guide



Owe dear
Jul 28th 2011, 13:05 by The Economist online
Our interactive graphic shows how deeply in hock we all are THE headlines are all about sovereign debt at the moment. But that is only part of the problem. Debt rose across the rich world during the boom, from consumers maxing out credit cards to financial firms taking on more leverage, and the process of reducing it is still at a very early stage.

U.S. Debt-Ceiling Agreement Is an Alarming Bipartisan Mess: View



Bloomberg
The deal reached by the U.S. Congress to raise the $14.3 trillion debt ceiling has spared the nation an immediate catastrophe while potentially setting a path for longer-term disasters.
Financial markets’ initial euphoria over the deal faded quickly. The S&P 500 index of U.S. stocks declined for the sixth day in a row, losing 0.4 percent Monday to close at 1,286.94. The dollar gained against the euro and the yen but declined to a record low against the Swiss franc.

Gold Rallies to Record for Second Day as Signs of Slowdown Fire Up Demand



Bloomberg
By Pham-Duy Nguyen and Nicholas Larkin - Aug 3, 2011 5:35 PM GMT+0300
Gold rose to a record $1,675.90 an ounce in New York on signs that the U.S. economy is faltering amid debt woes, boosting demand for the precious metal as an investment haven.
Moody’s Investors Service said the U.S. credit rating may be downgraded and yesterday placed the country on negative outlook after President Barack Obama signed into law a plan to lift the nation’s borrowing limit and cut spending. Gold priced in euros also reached a record on concern that slowing growth will hamper efforts by Spain and Italy to trim debt.

EU says capacity to solve debt crisis in doubt



(Reuters) - The European Union acknowledged on Wednesday that investors now doubt whether the euro zone can overcome its debt crisis and Italy's Silvio Berlusconi called for more action to ward off market attacks.
European Commission President Jose Manuel Barroso said a surge in Italian and Spanish bond yields to 14-year highs was cause for deep concern although they did not reflect the true state of the third and fourth largest economies in the currency area.

Worsening euro crisis may force bigger rescue fund



(Reuters) - A worsening euro zone debt crisis may ultimately force the bloc to expand its 440 billion euro ($625 billion) bailout fund, despite political opposition in key contributing countries, some officials and analysts say.

Italy, Spain Bond Yields Rise Further


The Wall Street Journal
BY NEELABH CHATURVEDI AND MARK BROWN
LONDON—Italian and Spanish government bond yields rose again toward dangerously high levels early Wednesday on persistent fears that the euro-zone debt crisis is spreading to countries too big to be rescued by the existing euro-zone bailout fund.
Italian 10-year yields rose to 6.227%, a fresh euro-era high, taking the ...

The debt ceiling crisis


Tuesday morning quarterbacking
Aug 2nd 2011, 8:24 by Buttonwood
The Economist
WHAT lessons can be learned from the last minute deal on the US debt ceiling? The first may be that the markets (and some commenters on this blog) were right all along; the politicians would take things to the wire but would eventually do a deal. "It's theatre, folks" as one reader remarked. The trouble with this assumption is that it only encourages politicians to play the game of chicken on the grounds that the other side will blink; this time, the Democrats did but they may adjust their tactics next time.

That 30s feeling



Aug 2nd 2011, 15:16 by R.A. | WASHINGTON,
The Economist
PAUL KRUGMAN finds a troubling story out of Greece:
They descended by the hundreds — black-shirted, bat-wielding youths chasing down dark-skinned immigrants through the streets of Athens and beating them senseless in an unprecedented show of force by Greece’s far-right extremists.

Worries Mount Over Italy and Spain


The Wall Street Journal
By STACY MEICHTRY in Rome, JONATHAN HOUSE in Madrid and CHARLES FORELLE in Brussels
Government bonds and financial markets in Italy and Spain continued their relentless downward march Tuesday, heightening concern about the potential spread of the euro zone's debt crisis into two of the region's most vulnerable countries.

Tuesday, August 2, 2011

WRAPUP 2-Cyprus faces imminent bailout threat, biggest bank says

Reuters
Adds statements by finance ministry, European Commission)
* Cyprus would be fourth euro zone state to seek bailout
* Bond yields soar in secondary market, CDS hit record
* European Commission says bailout not being discussed
* Government says no significant funding needs til December
* Looking at local, international funding options after that
By Michele Kambas

ECB eyed for signs of growing rate hike caution



(Reuters) - Financial markets will be watching the European Central Bank on Thursday for any hints that recent signs of an economic slowdown and the unrelenting debt crisis have lowered the chances of another rate hike this year.

Germans Abetted Greek ‘Kleptocrats’ as Odious Sovereign Debt Grew: Books


Bloomberg
If you’re still wondering how an Aegean wonderland of sun, sea and sand slid into a money pit and began dragging the euro with it, pick up Jason Manolopoulos’s “Greece’s ‘Odious’ Debt.”

Monday, August 1, 2011

How much closer a union?



The Economist
01-08-2011
The euro zone is moving closer towards an uncertain fiscal union
AT THE emergency meeting of euro-zone leaders on July 21st Jean-Claude Trichet, president of the European Central Bank, circulated a set of charts showing how bond spreads had blown out after every summit over the past year. He also handed out a ranking of countries deemed by markets most likely to default: Greece, Portugal and Ireland were at the top, riskier than Venezuela and Pakistan;

Answers to the 7 big “what-ifs” of debt default



The debt negotiations are getting down to the wire. Republican and Democratic lawmakers are scrambling to broker a deal to raise the country’s $14.3 trillion debt ceiling before Tuesday, when the Treasury will no longer be able to borrow funds to meet all of its obligations. That’s why major credit rating agencies are considering a downgrade of U.S. debt.
What does that mean for consumers? Here are some answers we compiled from Reuters Moneyexperts:
Should I be worried that I won’t receive my Social Security benefit in August?