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Greek Aid Decision Due

admin — Wed, 28 Apr 2010 17:44:44 +0000

IMF Chief Says Greece May Need More Aid

International Monetary Fund chief Dominique Strauss-Kahn held talks in Berlin and said that Greece may need 120 billion Euros to resolve its debt crisis. Strauss-Kahn said it is too soon to release details of the bailout package. The lack of details about the EU, ECB and IMF agreement has made investors wary sending the euro lower in currency markets. The Greek/German bond spread was at 792 basis points after rising above 1,000 basis points. Strauss-Kahn stated, “If all this goes together rapidly, I’m really confident that the problem will be fixed. But if we don’t fix it in Greece it may have a lot of consequences on the rest of the European Union.”

German Finance Minister Says Aid Package Will Be Approved Quickly

Germany has been slow in addressing the Greek aid package and feels that Greece misled the EU about the state of the nation’s finances and at present it is not clear how the EU will raise the additional money. The approval for the Greek aid package has put Chancellor Merkel in a difficult political position because most Germans oppose any aid for Greece and some newspapers have called for Greece to leave the EU. Some political observers say that the approval of the aid package could cost Merkel’s center-right party votes in the upcoming elections. German Finance Minister Wolfgang Schaeuble said that the aid package will be swiftly approved as soon as all parties agree on the details. Schaeuble stated, “The stability of the euro is the question, the last resort question. We’re seeking backing in the parliamentary groups to for a speedy process, by Friday. And then we’ll pass a corresponding law next Monday.” EU leaders said that they will protect Greece and dismissed fears that the crisis could spread to Portugal. Addressing the French Parliament French Prime Minister Francois Fillon stated, “The European Union, the euro zone states are going to assume their full responsibility regarding Greece” and added “What might seem as hesitation on the part of the German government will vanish today.”

Greece and Portugal Downgraded

Standard and Poor’s downgraded Greece and Portugal slashing Greece’s rating to junk status and Portugal’s to A-. ECB Executive Board member Juergen Stark said that EU governments need to put national finances in order and that current fiscal and monetary policies are not sustainable. Stark stated, “The onus is now on governments to ensure that the crisis that initially affected the financial sector, and subsequently the real economy, does not lead to a full-blown sovereign debt crisis. Averting it will require very ambitious and credible fiscal consolidation efforts. In fact, substantially stronger consolidation efforts than those conceived so far.”

Germany Pressures Greece for More Budget Cuts

admin — Mon, 26 Apr 2010 17:09:32 +0000

No Official Word on Greek Aid Plan

The euro fell against most major currencies on concerns that the Greek bailout may face difficulties as euro zone nations ratify the $60 million Greek bailout package. The euro suffered its biggest decline this month after German Chancellor Angela Merkel said that she will not release finds until Greece shows a ‘sustainable’ plan to address the nation’s massive deficit. Brian Kim of UBS AG stated, “There are more political headlines back and forth out of Europe. There’s no official word on the aid for Greece, and that’s weighing on the euro.” Merkel said that Germany would make no decision on the aid package until the IMF works out budget cuts with the Athens government. Merkel told reporters in Berlin, “We need a positive development in Greece together with further savings measures,” Merkel told reporters. Germany will help if the appropriate conditions are met. Germany feels an enormous obligation towards the stability of the euro. “If Greece is ready accept tough measures, not just in one year but over several years, then we have a good chance to secure the stability of the euro for us all.”

EU Members Ready to Act on Aid Plan

After Merkel’s comments the euro fell 0.5% to $1.3316. EU Economic and Monetary Affairs Commissioner Olli Rehn said that aiding Greece is a matter of economic stability for the euro zone. He also said that EU countries are ready to act on the bailout agreement. Rehn stated, “All euro area members are doing what is needed to be ready on time. “And I am confident that all euro area member states and other actors involved including the ECB, IMF and commission will be ready on time according to this agreement which was reached in the European Council in March and then detailed in the eurogroup agreement. It is not only a matter of Greece, but of financial stability in Europe as a whole — and that is the reason why we are ready to secure financial stability … over the euro area.”

Portuguese Foreign Minister Addresses Concerns

Investors have been concerned that Greece’s crisis could spread to other EU members. Portuguese Foreign Minister Luis Amado said on Monday addressed those concerns and said that Portugal is doing taking every measure possible to avoid a similar debt crisis. He also said that financial market pressures are making it difficult for Portugal to address deficit problems. Amado stated, “Obviously, we are worried about the situation on the financial markets but as we have underlined many times, the Portuguese situation is not quite comparable with the Greek situation. We are not in such a critical situation as Greece. We didn’t cheat with our statistics. They are reliable for a long time, and our imbalances at the macro level are not so deep.”

Greece Asks For Aid

admin — Fri, 23 Apr 2010 23:26:41 +0000

High Borrowing Costs Not Sustainable

Greece has finally done the inevitable and asked that the loan mechanism be activated. The move has been widely expected despite repeated statements from Greek officials that Greece would not request outside aid. The request for help from the EU and the IMF follows a rise in borrowing costs for the debt stricken nation. Greek Prime Minister George Papandreou said borrowing costs for Greece are at unsustainable levels and partially blamed speculators. Papandreou told listeners on a live broadcast from the island of Kastellorizo , “It is a national and imperative need to officially ask our partners in the EU for the activation of the support mechanism we jointly created . The time that was not granted to us by the markets will be given to us by the support of the euro zone.” Markets have been skeptical about Greek debt and bond spreads are at record levels. Papandreou stated, “There was no response from the markets, either because they didn’t believe in the political will of the EU or because they decided to go on with speculation. The situation threatens to demolish not only the sacrifices of the people but also the regular course of the economy. All the efforts by the Greek people are in danger of being in vain.”

Moody’s Downgrade

Greece now has a national debt of about 300 billion euros. The aid request came one day after Moody’s Investor Service downgraded Greece’s rating from A2 to A3 and Moody’s is considering further cuts. The request now needs approval from all 15 euro zone nations including Germany where opposition to the aid package is widespread. Curtis Arledge of Blackrock, the world’s biggest money manager stated, “We want to see the EU countries really get behind it and see that they’ve gelled around the idea of providing this support at the government level, at the senior policy maker level. If you see the backlash, they need to get their people on board.”

Loan Package Will Be Activated Quickly

The emergency loan package will be activated as quickly as possible said EU and IMF officials. European Commission spokesman Amadeu Altafaj stated, “Everything is going to be done in such a way that the mechanism can be triggered as soon as (necessary) and as is necessary for Greece.”He also said the interest rate on the loans would be calculated according to the formula agreed on by EU finance ministers earlier in the month. The euro posted a modest 0.1% gain but the rally lost momentum later in the day.

Greece Downgraded-Again!

admin — Thu, 22 Apr 2010 23:39:32 +0000

Moody’s Downgrades Greece

The euro fell to a twelve month low against the dollar after Moody’s cut Greece’s rating for the second time this year. After the downgrade the euro fell to $1.3260 the lowest since May 2009. Moody’s cut Greece’s rating to A3 and indicated further downgrades are possible unless Greece manages to calm markets. Moody’s also said that Greece’s debt figures will likely be higher than previously thought. Moody’s Senior Analyst for Greece Sarah Carlson stated, “It is unlikely that the rating will remain at A3, unless the government’s actions can restore confidence in the markets and counteract the prevailing headwinds of high interest rates and low growth that could ultimately undermine the government’s ability to sustainably cut debt levels.” Prime Minister George Papandreou has spent seven hours in talks with finance ministers on how to address the escalating crisis. Nick Kounis of Fortis stated, “It looks like a terrible situation just got worse.” The austerity measures have caused social unrest throughout Greece. Tens of thousands of Greek public workers including nurses and teachers staged a one day strike to protest the austerity measures. Over 10,000 government workers and students protested to Parliament saying that the Athens government should resist pressure for more spending cuts.

EU Officials Revising Original Debt to GDP Figures

The Athens government posted debts of 32.34 billion euros which equals 13.6% of GDP, higher than the 12.7% posted earlier. The government also said that the deficit may have to be revised again due to concerns about Greece’s accounting procedures and uncertainty about the quality of data from the government. Earlier in the year EU and Greek government officials set a target of 8.7% of GDP but now officials on both sides appear to be backing away from the original target. European Commission spokesman Amadeu Altafaj stated, “The target for 2010 is a four percentage point reduction of the deficit. We did not refer to the starting point or the arrival figure, only the reduction effort. Greece is on track to meet the target for 2010; that is what counts.”

Inaccuracies in Greek Data

Financial markets were hit by the new target revision because of inaccuracies in Greek data and many believe that the inaccuracies were deliberate and politically motivated. The inaccuracies have prompted anger among investors and other EU partners. Giada Giani, a Citigroup economist, stated, “What concerns me is the general uncertainty about the Greek official figures. This affects market perception about Greece …that one can’t rely on the Greek statistics and that the deficit is revised up and up and up.”

Euro Surrenders Earlier Gains

admin — Wed, 21 Apr 2010 23:57:31 +0000

Markets Nervous Over Record Spreads

The euro surrendered earlier gains on Wednesday as Greek bond spreads reached record levels. The euro hit a twelve day low against the US dollar and bond spreads rose to over 500 basis points. Most economists believe that Greece will ask the EU and the IMF for aid in the near future. Germany’s economy minister said that IMF aid could total 12 billion euros but added that the EU and the IMF should wait to see if recently imposed austerity measures are effective. Paul Robson of RBS stated, “The FX market is nervous about widening sovereign spreads. The German minister’s comments on Greece look to be driving it.” Many economists now say that the European Central Bank will not start to raise rates until next year as debt ridden nations including Greece, Portugal and Spain struggle to contain massive debt. Euro Zone debt problems could also limit growth for the region. Many now believe that the US Federal Reserve will begin to raise rates as early as November. Chris Loong of State Street in Sydney stated, “This year, the market will focus on the different growth rates between Europe and the rest of the world, particularly North America and Asia, and that will weigh on the euro. Austerity packages and commitments by Greece and other European nations to tighten their belts could mean lower growth prospects.”

Greece’s Austerity Measures Fail to Convince Investors

So far this year the euro has fallen 6.3% against the dollar and last traded at $1.3422. A survey of 42 financial institutions by Bloomberg predicts that the euro will trade at $1.35 by June and will fall to $1.32 by the end of the year. The euro has fallen against most major currencies as Greece struggles to finance its debt. The government of Prime Minister George Papandreou has cut spending and wages and has raised taxes but these efforts have failed to convince investors as borrowing costs continue to hamper efforts to get the nation’s debt under control. The International Monetary Fund has warned that rising public debt has replaced financial industry stress as the biggest threat to global recovery and puts the world economy at risk.

Loonie Above Parity With US Dollar

The news was not all bad-The Canadian dollar rose above parity with the US dollar and traded at C$0.9931 to the U.S. dollar. The Loonie extended gains after the Bank of Canada signaled that a rate hike may take place in June. Adam Cole of RBC Capital Markets stated, “The Canadian dollar is rallying after the BoC dropped its conditional commitment not to move on rates. We have a near-term target versus the U.S. dollar of C$0.9800 and expect that to be reached pretty quickly.”

Yen Falls, Chinese Sahres Vulnerable

admin — Tue, 20 Apr 2010 23:31:32 +0000

Chinese Shares Post Biggest Percentage Loss Since 2009

The yen fell against most major currencies as positive US earnings data and a selloff in growth currencies slowed. The Aussie dollar gained after Australian central bank minutes raised expectations for more rate hikes. The euro gained on the dollar after Germany’s ZEW economic report exceeded expectations. Shares on Wall Street rose despite concerns about recent fraud charges against Goldman Sachs. The fraud charges prompted concerns about more and stricter regulation of Wall Street. High yielding currencies recent gains were pared after Chinese shares were hit with the biggest percentage loss since August 2009. An unnamed forex trader at a UK bank said, “There seems to be a pause in yen buy-backs for now on Wall Street and good earnings results, but I am not sure whether the yen’s rise on risk-off moves is over yet.” The greenback gained 0.3% vs. the yen trading at 92.64 yen. The euro extended recent gains against the yen and rose 0.3% to 124.94 yen. The Reserve Bank of Australia’s April policy meeting said that given an expected boom in Australia’s terms of trade it would not be prudent to delay a rate hike.

ECB Member Weber Says Greece May Need 80 Billion Euros

There was more bad news for the euro after European Central Bank Governing Council member Axel Weber told German legislators that Greece may require loans of up to 80 billion euros ($111.8 billion USD) to prevent default. Weber also told the lawmakers that the Greek situation is worsening and that “the numbers are changing all the time.” The German newspaper Bild reported that Weber said that the amount of aid required by Greece may not be known until much later. Earlier EU leaders agreed to a 30 billion euro loan program for Greece but the loan agreement did not calm market fears about Greece’s economic situation. The premium investors are demanding to hold Greek debt vs. German benchmarks rose to a record 482 basis points on Monday. Germany’s deputy finance minister, Joerg Asmussen said that the EU will provide pooled loans and that buying Greek bonds is out of the question. Asmussen stated, “If it comes to financial aid for Greece, then the path will be a pooled credit, which in the case of Germany would be done via (state bank) KfW. The solution of buying Greek bonds is off the table.”

Ash Cloud Hammers Travel Industry

To add to the euro zone’s woes the ash cloud from an Icelandic volcano eruption has disrupted air travel and is affecting the euro zone economy. It has been estimated that airlines are losing about $200 million dollars per day. Travel disruptions forced the Athens government to reschedule talks with EU, ECB and IMF officials.

EU/IMF Talks With Greece Rescheduled

admin — Mon, 19 Apr 2010 18:35:18 +0000

Dollar, Yen Gain on Risk Aversion

On Monday the US dollar and the yen advanced as investors sought the safety of the dollar and yen. Investors remain concerned about the delayed Greek talks with the EU and the IMF and fraud charges brought against Goldman Sachs. Greek officials were supposed to meet with representatives of the European Union, the European Central Bank and the International Monetary fund but the talks have been delayed by grounded flights due to the volcanic eruption in Iceland which has disrupted air traffic across Europe. Last Friday the U.S. Securities and Exchange Commission charged Goldman Sachs with fraud related to a debt product tied to subprime mortgages. Omer Esiner of Travelex Global Business Payments stated, “This is clearly a risk-averse market, with investors in a flight to dollar and yen assets. The main triggers are still the SEC’s bombshell on Goldman Sachs and the continued uncertainty about the Greek debt situation, specifically as to how any aid package would be applied or whether Germany would veto the package.”

Spreads at Record Levels

The premium investors are demanding to hold Greek debt rose to record levels due to uncertainties about details of the EU/IMF loan mechanism agreed upon earlier in the month. On Monday the euro was down 0.3% vs. the dollar trading at $1.3456 in New York and against the yen fell 0.3% to 124.10 yen. Analysts see risk aversion as dominant. Boris Schlossberg of GFT stated, “It seems like we are reversing some of the risk aversion trades from this morning as people get more comfortable with the Goldman news. Clearly, there is a higher degree of caution. But there has been no additional bad news on Goldman. So for now, investors are in a ’see-no-evil, hear-no-evil’ kind of mode.”

Iceland Volcano Disrupts European Business Events

The volcanic eruption in Iceland has crippled European air travel and is has disrupted several European business events. Talks between Greece and the EU and IMF have been delayed further adding to investor concerns about Greece’s debt crisis. The talks have been rescheduled for April 21st in Athens. Lost airline revenues are now estimated at about $300 million per day. Bundesbank President Axel Weber told German legislators that Greece may need more than the 30 billion euros ($40 billionUSD) promised by the EU. The IMF has pledged another 15 billion Euros to aid Greece.

IMF Aid Conditions May be Tough

admin — Sat, 17 Apr 2010 23:54:41 +0000

Greece Calls For EU/IMF Talks

On Thursday Greek Prime Minister George Papandreou asked for talks with the European Union, the International Monetary Fund and the European Central Bank EU Economic and Monetary Affairs Commissioner Olli Rehn stated, “It’s a matter of preparing a joint program of conditionality and financing if needed and if required.” German Finance Minister Wolfgang Schaeuble said that the EU and the IMF need to cooperate to “restructure these deficits” in Greece. The IMF may require Greece to cut spending on public employees and cut pension payments. Many believe that further austerity will cause unrest in Greece where earlier measures sparked riots and demonstrations throughout the country. Giada Giani of Citigroup said that the Athens meeting “is an important step as it links the availability of external financing to Greece implementing a set of structural reforms. These probably will go well beyond the tightening measures that Greece has put in place up to now, which may help to reduce the deficit for 2010 but do little to tackle Greece’s long-term solvency issues.”

Austerity Measures Unpopular

According to a recent poll two thirds of Greeks disapprove of the way the government has handled the crisis and Greece’s largest union promised “dynamic” resistance to pension cuts. Papandreou told Parliament that the austerity measures “will hurt, but think what would have happened with bankruptcy.” The Athens government has cut spending, raised taxes and has cut wages in an attempt to reduce the nation’s deficit from 12.9% of GDP to 8.7% this year. German Minister of Finance Wolfgang Schaeuble said in a radio interview, “We agree Greece should now also undertake the required preparations with the International Monetary Fund.” Schaeuble also said that while the Greek restructuring plan “isn’t really on track, you will always have new speculation in the financial markets.” Political opposition to any aid package for Greece is widespread in Germany. The EU is attempting to prevent the first default of an EU nation which would damage the credibility of the Euro Zone and its multi nation currency.

Finance Ministers to Address EU Problems

At this weekend’s meeting of European finance ministers and central bank governors from the 27 EU member nations taking place in Madrid the Euro Zone leaders will try to close budget gaps in member states which have been hard hit by the worst recession since the Great Depression of the 1930’s. ECB executive board member Juergen Stark said in Washington, “I am particularly concerned about the dramatic deterioration in public finances, which will require very ambitious fiscal consolidation efforts in the years to come.”

ECB Official Says Controls on Financial Industry Needed

admin — Thu, 15 Apr 2010 21:45:50 +0000

ECB Official says Greek Aid Package ‘Vital Step’

In Japan European Central Bank Executive Board member Lorenzo Bini Smaghi said that the recent loan EU/IMF loan agreement is a vital step in addressing Greece’s debt crisis. He also dismissed speculation that the deal may prompt a euro zone breakup or that Greece would default. Smaghi stated, “This announcement makes it clear what the euro area authorities have said since many months, i.e. that a scenario of default and exit from the euro area, which some market participants and observers had toyed with, was simply absurd.” He also addressed market concerns saying, “Vague statements that some event, such as a default, will not occur, are not sufficient to calm the markets. Concrete actions are needed. This was not fully understood over the last few months. This experience should now be used to create a more efficient decision making process within the euro area aimed in particular at preventing similar situations from occurring in the future and eventually at solving them more efficiently.”

Financial Industry Controls Needed

He also said that high borrowing costs and the premium demanded by speculators will increase the chance of a default. Smaghi also called for controls on the financial industry and said, “Given the obvious negative impact of an excessively large financial industry, we keep asking ourselves whether limits should be imposed on the size of the financial sector itself … The answer to this question is yes. A financial sector which goes beyond a certain threshold (or breaking point) can harm the economy and society as a whole.”

Greece Calls For Talks

Recent news reports indicate that Greece has called for talks with the EU, ECB and the IMF which many believe is a first step in asking for outside help. Greek Finance Minister George Papaconstantinou called for talks on “a multi-year program of economic policies.” The IMF said it will send representatives to Athens on Monday and will be joined by representatives from the ECB and the European Commission. Officials from Greece and the IMF said that Greece has not yet decided whether to activate a loan mechanism agreed upon last Sunday by EU finance ministers. Under the agreement the EU would loan Greece 30 billion Euros and the IMF would provide more money. Many believe that the talks are a first step in activating the loan mechanism. Ben May of Capital Economics stated, “The fact that they are asking for clarification on various issues about the mechanism suggests that they are seriously considering activating the package.”

Bernanke Says Expansion Will be ‘Moderate’

admin — Wed, 14 Apr 2010 23:52:07 +0000

No Indication of Fed Rate Hike

The US dollar pulled back from earlier gains vs. the yen and the euro U.S. Federal Reserve Chairman Ben Bernanke gave no indication that the Fed would raise rates anytime soon. Bernanke testified before the Joint Economic Committee on Wednesday. Bernanke made no direct references to the Fed’s interest rate outlook which was disappointing to investors. Ten year treasury notes took a hit after Bernanke said that US economic expansion would remain moderate and a Fed survey showed that the US economy grew ‘somewhat’ during March. Bernanke told congress “The Federal Open Market Committee has stated clearly that they currently anticipate that very low, extremely low rates will be needed for an extended period. If those conditions cease to hold and we anticipate changes in the outlook then of course we will respond to that.” Bernanke also told congress that inflation remains subdued and that long term inflation expectations are contained. Bernanke warned that the risk of economic contraction was “not negligible” and that growth is hampered by construction sector weakness and strained state and city budgets.

Bernanke Addresses Chinese Yuan

Bernanke said that layoffs are slowing and that employment ‘has turned up’ and many believe Bernanke’s remarks expressed caution about economic recovery in the world’s largest economy. Bernanke was asked whether the Chinese Yuan, which many believe is undervalued, helped spark the global recession and Bernanke said it was one of many causative factors. Regarding the Yuan Bernanke stated, “I think it would be good for the Chinese to allow more flexibility in their exchange rate. It would give them more autonomy in their monetary policy so they could address inflation and bubbles within their own economy.” Some legislators focused on consumer protection issues and while Bernanke admitted some mistakes he said that he is not in favor of the Fed having those added duties. Bernanke stated, “I can understand why some advocates would want to have a purely independent agency. While we have acknowledged being late on these issues, I do believe we should receive credit for a much better performance in recent years.”

Recovery ‘Broadening but Slow’ Says Fed

Fed presidents and officials will meet April 27-28 and have been debating how and when to withdraw various stimulus measures put in place to address the worst recession since the Great Depression. A rise in Fed rates is widely seen as positive for the dollar. The Fed’s Beige Book business survey says that the economic recovery is broadening but slow. The Fed report states, “Overall economic activity increased somewhat since the last report across all Federal Reserve Districts except St. Louis, which reported ’softened’ economic conditions.”