Archive for the ‘Greece’ Category

weOctober 03 2010 7:47 AM GMT
Big Mac index gives more than a taste of true worth

By Steve Johnson

Intervention has kept some emerging market currencies artificially weak, at the same time many have raised interest rates to stem inflation. It is only a matter of time before some allow their currencies to appreciate
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Tyler Durden

Subject: Hypo Fails, All Other German, Portuguese, French Banks Pass Test

And we uncover that the German Landesbanks (the equivalent of the bankrupt
Spanish cajas) did their own stress tests. Time for the PPT to step in with
this pretext and soak up all offers. Totally pathetic BS.
Update 1: Somehow Bank of Ireland “passes” the test but needs over €2
billion in extra equity… uhm… WTF??? This is the point where the
audience rushes the stage and burns the theater down.
Update 2: 5 Spanish cajas, 1 German and 1 Greek banks are eliminated on
their quest to marry the US taxpayer. 84 other banks will soon be the
recipients of far more US taxpayer generosity. And with that the season
finale of the farce comes to a close.

View article…
Hypo Fails, All Other German, Portuguese, French Banks Pass Test | zero hedge

Greek Default-Swap Costs Only Beaten by Venezuela: Chart of the Day

The cost of insuring Greek government debt is now second only to that of Venezuela, where President Hugo Chavez has declared “economic war” against the “bourgeoisie.”
The CHART OF THE DAY shows that credit-default swaps on Greek government bonds, in red, have overtaken Argentina, which failed to pay more than $80 billion in December 2001. The Latin American nation still has more than $6 billion of defaulted securities outstanding after its second attempt to restructure.
“Greece isn’t Argentina,” said Niels Jensen, a portfolio manager at London-based investment firm Absolute Return Partners LLP, which oversees more than $300 million. “From an economist’s point of view, there’s no question that it’s much, much worse.”
Greece’s debt burden last year was equivalent to about 115 percent of gross domestic product, compared with a level of about 60 percent for Argentina when it defaulted. Credit swaps signal there’s a more than 67 percent chance the southern European nation won’t meet its commitments within the next five years.
Venezuela’s Chavez, a 55-year-old former army paratrooper who champions a socialist ideology, oversees an economy that may contract 2.5 percent this year, according to Bank of America Corp.
“You’ve declared an economic war against me, so I accept your challenge, stateless bourgeoisie,” Chavez said June 2 after business chambers criticized his handling of the economy. “I’m declaring an economic war with the help of the people and workers.”
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should an issuer fail to adhere to its debt agreements.
(To save a copy of this chart, click here.)
To contact the reporter on this story: John Glover in London at

Greek Default-Swap Costs Only Beaten by Venezuela: Chart of the Day – Bloomberg

Gold surges as investors hunt for safety

By Jack Farchy
Published: May 7 2010 12:04 | Last updated: May 7 2010 22:10
Gold surged to its highest level in five months this week as panicking investors pulled money out of risky assets and piled into the precious metal.
The largest physical gold exchange-traded fund, the SPDR Gold Trust, recorded its highest daily inflow since early 2009 on Thursday with total holdings hitting a record 1,185.78 tonnes.
Most analysts and traders believe it is only a matter of time before gold surpasses the all-time high of $1,226.10 set on December 3 last year.That sent spot gold to an intraday peak of $1,213.35 a troy ounce on Friday, its highest level in five months and up 2.9 per cent on the week.
Anne-Laure Tremblay, metals analyst at BNP Paribas, said retail investors had driven the price gains.
“There has been a strong increase in physical gold demand from retail investors on the back of growing concerns over sovereign risk,” she said.
When denominated in euros, gold hit an all-time high of €962.20 this week.
But Ms Tremblay warned that continued fears over the stability of the eurozone would boost the value of the dollar and so suppress gold prices.
Gold prices usually go down when the dollar strengthens, although that relationship has weakened slightly in recent weeks.
Other commodities’ markets suffered a harrowing week as risk aversion swept the markets.
In oil, Nymex June West Texas Intermediate fell $10 in the week to $75.11 a barrel, a 13 per cent correction. That is the lowest price for the US benchmark since February. ICE June Brent, the European benchmark, dropped $9.17, or 10.5 per cent, to $78.27.
Base metals were hard hit after the decision by the Chinese government over the weekend to tighten lending standards further.
Copper for delivery in three months’ time dropped 5.9 per cent in the week to $6,948.75 a tonne, while aluminium was down 7.1 per cent at $2,087 a tonne.
But cocoa bucked the trend. It has benefited from increased demand for chocolate as well as a disappointing crop. Liffe July cocoa hit a 33-year high of £2,430 a tonne on Friday.
Copyright The Financial Times Limited 2010. You may share using our article tools. Please don’t cut articles from and redistribute by email or post to the web.

Confidence in Greek Debt Sinks Again

April 26, 2010

BERLIN — Chancellor Angela Merkel kept up the pressure on Greece on Monday, demanding deeper cuts over three years in exchange for approval of an international bailout. At the same time, her finance minister, Wolfgang Schäuble, was preparing the ground for quick passage in the German Parliament, saying the stability of the euro was at stake.
Amid the uncertainty, investor confidence in Greek assets sank to a new low, and the euro fell as well.
On top of questions about when the aid package of up to €45 billion, or $60 billion, might be delivered, fears are increasing that even with funds in place, Greece will have to restructure its debts, with investors liable to book losses and see the duration of the assets they hold extended.
“Germany wants to help,” Mrs. Merkel said in Berlin. But she insisted that any agreement by Germany to lend its share of the package — €8.3 billion — depended on Greece’s meeting new conditions set out by the International Monetary Fund and the European Union.
Greece has to accept “hard measures,” and that does not mean adopting a program for only a year, Mrs. Merkel said. “The International Monetary Fund’s program is for three years. I think that is right and important.”
“When Greece accepts these tough measures not for one year but several, then we have a chance for a stable euro,” she added.
When the idea of a Greek bailout was first floated this year, the assumption had been that an international aid package would buy Greece the time to pay down its debt — estimated by the European Union at 115 percent of national output.
That confidence has now slipped as investors focus on the long-term debt pile, which continues to grow as the cost of refinancing mounts. Investors appear unwilling to wait the months that it would require to see an improvement in Greek budget deficit from the austerity measures being implemented.
Despite Athens’s official request for an aid package from its euro-zone partners and the International Monetary Fund on Friday, the yield on 10-year Greek bonds rose again Monday — to 9.4 percent. That is yet another record since Greece joined the euro.
“There’s an assumption that €45 billion will be inadequate,” said Robin Marshall, director of investment management at Smith & Williamson in London.
He estimates that Greece will need to refinance up to €60 billion in bonds that are maturing during the next three years in addition to meeting interest repayments.
Also, the lack of a plan for Greece to either leave the euro area, which might help the situation by allowing it to devalue its currency, and the absence of a formal mechanism for the transfer of funds inside the Union has laid open the structural weakness of the euro area.
On top of that, domestic political wrangling in Germany ahead of an important regional election next month has led to doubts about how swiftly the aid will be transferred.
“The negotiations are still going on,” Mrs. Merkel said. They might be wrapped up by early May, she added.
Mr. Schäuble said Monday that it might be possible to complete legislation granting Greece financial aid on May 7, in time to enable Athens to refinance €8.5 billion in bonds that mature May 19.
There is added danger for Germany and France in delaying financing: Banks in those two countries retain significant holdings of Greek debt so any default by Greece could have broader implications.
Politicians from across the spectrum in Germany have demanded that private lenders participate in the financial assistance package for Greece.
Mrs. Merkel had wanted to postpone any decision about the financial aid package to Greece until after the elections in North Rhine-Westphalia on May 9.
There, as at the federal level, the conservatives are in coalition with the Free Democrats. But opinion polls show that the coalition will not win enough votes to form the next government, meaning it may need the support of a third party if it wants to remain in power.
The German public has opposed any major bailout of Greece, something which Mrs. Merkel has had to accept. Still, after adopting a hard line toward Greece, the German government seems reconciled to the idea of lending Greece around €8 billion. That would make it the biggest contributor of the total loan package.
At the federal level, Mrs. Merkel’s coalition has a comfortable parliamentary majority, so it is highly likely that she will be able to push the measures through. Still, her coalition partners, the pro-business Free Democrats, said over the weekend that they would not support any “blank check” for Greece.
Mr. Schäuble spent Monday morning explaining to finance experts from all the political parties the details of the financial aid package and what legislation would be needed. Later at a news conference, he referred repeatedly to the stability of the euro.”
“Our national responsibility is connected to Europe and will be guaranteed,” said Mr. Schäuble. He even asked Germans to be “more friendly” to their European partners. “It is not about judging the individual behavior of people in individual countries. It is about the question of one currency. This common European currency must remain stable.”
On Sunday, in an interview with the German newspaper Bild am Sonntag, Mr. Schäuble had warned that Greece could lose financial aid any time it failed to meet E.U. demands on fiscal discipline.
Away from Berlin there were more conciliatory comments toward Greece on Monday.
President Nicolas Sarkozy of France released a statement after a bilateral meeting in Paris with the president of the European Commission, José Manuel Barroso, highlighting the need for “rapid and resolute action against the speculation that is targeting Greece, in order to ensure the stability of the euro zone.”
Speaking Monday in New York, the French economy minister, Christine Lagarde, said the possibility of restructuring Greek debt was “off the table,” according to Reuters.
While most European stock markets were higher in afternoon trading — the CAC 40 indicator was up 1 percent in late trading in Paris — the main benchmark index in Athens was down 2.9 percent.
The yield on Irish and Portuguese debt also climbed amid concerns that those countries would also struggle to pay down their mounting debts.

Matthew Saltmarsh reported from Paris.

Bloomberg News, sent from my iPhone.
Zapatero’s Bid to Avoid Greek Fate Hobbled by Regions
March 18 (Bloomberg) — Prime Minister Jose Luis Rodriguez Zapatero’s drive to show Spain can avoid Greece’s fate is being held hostage by the country’s regional governments.
As Zapatero tries to cut the euro area’s third-highest budget deficit, regional chiefs facing elections over the next year are refusing to trim spending. The European Commission said yesterday Spain may need deeper budget cuts to meet its deficit goals, and the regions’ performance is “an additional risk.” Zapatero’s room to maneuver is limited by the 17 regions that control 37 percent of public spending.
Zapatero is being hobbled by a 30-year shift in power to Catalonia, the Basque country and other territories that now control almost twice as much spending as the Madrid government. The risk is that Zapatero won’t be able to move fast enough on a deficit that climbed to 11.4 percent of gross domestic product last year. That may prompt investors to consider dumping Spanish bonds along with their Greek counterparts.
“The pressure is on, but I think some regions will resist,” said Angel de la Fuente, an economist at the National Research Council’s Institute of Economic Analysis in Barcelona and the author of several books on regional economics. The Greek crisis is a “useful scare” showing what may happen to Spain if it doesn’t get its finances in order.
Additional Measures
Spain may need to adopt additional budget cuts to meet its goal of bringing the shortfall back within the EU’s 3 percent limit in 2013 as the government’s economic forecasts are too optimistic, the commission said yesterday in a report.
With government forecasts showing the regions will account for more than half of Spain’s 7.5 percent deficit in 2011, Finance Minister Elena Salgado will try to forge a pact with local politicians this month after a push by Zapatero failed in December.
Zapatero’s struggle to break the stalemate is shining a spotlight on a country whose economy is four times the size of Greece and has a jobless rate of 18.8 percent, the euro region’s highest.
The extra yield investors demand to hold Spanish debt rather than German equivalents is 77 basis points. While that’s about a quarter of Greece’s spread, it’s still almost double what it was two years ago. Spain sold almost 5 billion euros ($6.9 billion) of 10- and 31-year bonds today at yields lower than those of existing securities.
‘Next Greece’
“No country wants to be the next Greece,” said Olaf Penninga, a senior portfolio manager at Robeco Group in Rotterdam, which manages 140 billion euros ($192.5 billion). It has sold most of its Spanish government bonds, replacing them with Italian equivalents. The Greek crisis “has clearly put more pressure on Spain to take credible measures to reduce the deficit.”
The government will have to contend with opponents such as Madrid President Esperanza Aguirre from the People’s Party, who called on March 10 for a “rebellion” against a proposal to raise sales tax to 18 percent from 16 percent.
Even Zapatero’s allies are showing resistance. Angel Agudo, economy chief in the northern Cantabria territory, was quoted by newswire Efe last month as saying the deficit-cutting burden needs to be shared and he won’t “pick up other people’s bill.” Fourteen regions will probably hold elections by the end of 2011.
Property Tax Slump
Regional governments, which control health and education spending, are reluctant to join the deficit-cutting drive as the recession reduces the flow of funds they receive from the central government. Taxes tied to property sales, which accounted for as much as 20 percent of some regions’ revenue in the boom, have declined to half of that, Standard & Poor’s estimates.
“The key problem is that the regions have been given power over spending without the responsibility of having to go to the taxpayer to ask for money,” said Luis Garicano, an economics professor at the London School of Economics. “They don’t have the right incentives to spend in line with their revenue capabilities.”
Spain’s atomized structure, which has evolved since the death of General Francisco Franco in 1975, contrasts with the more centralized powers of the Irish government. While Zapatero needs to curry favor with regional rulers to make sure cuts are made, his counterpart in Ireland only needed a majority in the national parliament to pass unprecedented austerity packages.
Ratings Concern
The deficit stalemate may start to weigh further on credit ratings. S&P, which cut Spain one notch to AA+ last year, says regional governments may see downgrades this year.
Spain may be “over-optimistic” on revenues, said Myriam Fernandez de Heredia, head of the company’s European local and regional government team. Catalonia is one of the lowest-rated Spanish regions on AA-, and the Madrid region is rated AA. Fitch Ratings, which has an AAA rating on Spain, is skeptical that regions can cut spending growth to 2.6 percent this year as budgeted, compared with an average of 9 percent in the five years through 2007.
Nor can Madrid claw back the power it has ceded and assert its authority. The government’s lack of control was clear on Jan. 29 when it presented a plan to save 50 billion euros by 2013 that left the section on regional finances blank.
“Everybody still remembers the initial presentation with the holes,” Penninga said.
Debt Sales
The one measure of control the government does have is that it has to sign off on regions’ debt issuance. Carlos Ocana, the deputy finance minister responsible for budgets, said on Feb. 24 that the central government would be “rigorous” this year when assessing borrowing needs.
For Zapatero, the challenge will be to cajole regions into cutting spending without losing support in the national assembly, where he lacks a majority and needs the backing of parties such as Catalonia’s Republican Left, the National Galician Block or the Nationalist Basque Party.
“Politically, it’s difficult because the government also needs the votes of certain parties to govern,” said Alfredo Pastor, a former deputy finance minister and a professor at IESE business school in Madrid. “Cutting expenditure is harder than it looks.”
To contact the reporter on this story: Emma Ross-Thomas in Madrid at
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