Ratings agency Moody's downgrades Greece

March04, 2012

THE ratings agency Moody's has downgraded Greece to the lowest rating on its bond scale, following a deal with private investors that would see them ultimately lose 70 per cent of their holdings in Greek debt.

Moody's lowered Greece's sovereign rating to C from Ca late on Friday, arguing that the risk of default remains high even if a bond-swap deal with banks and other private investors, due to be completed this month, is successful.

It said it would "re-assess the credit risk profile" after Greece issues the new bonds.

Ratings agency Standard & Poor's took similar action on February 27.

The swap deal aims to cut 107 billion euros ($132.42 billion) from the country's debt, and would see private investors lose more than half the face value of their Greek bonds in exchange for new ones issued with more favourable repayment terms for the crisis-hit country.

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The exchange is an integral part of a second bailout package for Greece by other eurozone countries and the International Monetary Fund.

"Looking ahead, the EU program and proposed debt exchanges will reduce Greece's debt burden, but the risk of a default even after the debt exchange has been completed remains high," Moody's said.

"Moody's believes that Greece will still face medium-term solvency challenges: its stock of debt will still be well in excess of 100 per cent of gross domestic product for many years, the country is unlikely to be able to access the private market once the second assistance package runs out, and its planned fiscal and economic reforms will still face very significant implementation risks."

(sourced heraldsun.com.au)

Bulgarian coal miners end strike

Wednesday, 25 Jan 2012

Bulgarian miners are resuming work at the country's biggest coal mines, ending a weeklong strike that led to a halt in electricity exports to neighboring countries.

Union leader Konstantin Trenchev said on Sunday that a compromise deal has been struck with management that includes cash bonuses for the miners and an improvement in working conditions.

The three open pit mines of the state-owned company supply coal to four thermal power plants, whose output covers a quarter of the country's electricity needs.

Bulgaria also helps supply Greece, Turkey, Serbia and Macedonia but had to suspend exports due to the strike. The Balkan country exports more than 10 billion kilowatt hours of electricity per year.

It was not immediately clear when power exports will be restarted.

(Sourced from Associated Press)

Italy seeks bigger euro fund after tough debt sale

Fri,Dec30, 2011

MILAN/ROME (Reuters) - Italian Prime Minister Mario Monti sought reinforcement for the euro zone's bailout fund and pledged new efforts to boost the economy after a disappointing bond auction on Thursday underlined the threat to the country's shaky public finances.

Investors demanded a yield of nearly 7 percent on 10-year paper at the auction of medium- and long-term bonds, down from the record highs seen last month but still unsustainable given the 450 billion euros that Italy needs to raise through debt issuance in 2012.

An unprecedented European Central Bank injection last week of nearly half a trillion euros of cheap funding for banks eased pressure at a short-term Italian debt auction on Wednesday, but longer-dated bonds still pose a challenge.

Monti put a brave face on the auction result, which analysts described as "slightly positive" or "average" at best.

"Auctions held yesterday and today went rather well, this is encouraging but the financial turbulence absolutely isn't over," Monti said during a traditional end-year press conference.

Italy, the euro zone's third largest economy, remains at the centre of the debt crisis that began in Greece two years ago and its borrowing needs could overwhelm the bloc's financial defences if it were forced to seek an international bailout.

"A lot of work remains to be done but from this point on, this work has to be done in Europe above all," Monti said.

He said the European Financial Stability Facility, the bailout fund set up by euro zone governments, needs "significantly greater" resources but refused to quantify how much more was required.

Monti promised to outline a first package of growth measures to European partners next month and said the emphasis would be on liberalising the economy, boosting competition and overhauling the jobs market, though he did not give details.

The measures will follow a 33 billion euro package of cuts and tax hikes aimed at balancing the budget by 2013 which was passed by parliament last week but which has been criticised for weighing too heavily on Italy's already sickly growth prospects.

Monti said he was aware that the austerity package had "many disadvantages" but said budget discipline was needed to restore confidence in Italy's public finances. However he added that European policy had to focus increasingly on growth.

"All mechanisms for making the application of this discipline more secure is welcome, provided it is integrated into a comprehensive European economic policy which has more resources to get the euro zone out of its current difficulties and above all promotes growth more," he said.

RECESSION

Italy's chronically weak economy over the past two decades has been one of the main factors in creating a debt burden that now amounts to around 120 percent of gross domestic product, second only to Greece in the euro zone.

Rigid labour rules - which give some workers iron-clad guarantees while forcing increasing numbers of young people to accept short term jobs with few prospects - an inefficient public sector, low productivity and choking red tape have long weighed on the economy.

Italy is widely considered to be heading for a severe recession next year and data on Thursday showed business confidence at its lowest for two years, with orders falling and the production outlook worsening.

Although he offered no firm timetable, Monti said the government would move quickly under pressure both from international partners and the bond markets.

"The timetable will be rapid. We aren't being permitted to work calmly," he said.

Underlining the pressure he faces, yields on 10-year bonds remained locked above 7 percent on the secondary market on Thursday, near the levels which forced Greece, Ireland and Portugal to seek an international bailout.

Italy sold 7 billion euros of bonds at auction in thin holiday markets, just above the mid-point of its target range, but the yield on benchmark 10 year BTPs was 6.98 percent, not far from a euro lifetime record of 7.56 percent a month ago.

"Buying 10-year Italian bonds is a leap of faith which investors are prepared to take only at very high interest rates," said Nicholas Spiro of Spiro Sovereign Strategy. "There are simply too many risks and uncertainties surrounding Italy."

Its 3-year bonds sold more easily and their yield fell more than two percentage points at auction to 5.62 percent -- far below the euro era record of 7.89 percent that Italy paid to sell the same bond at the end of November.

(sourced Reuters)

Preventing financial crisis "true test" for G20: Zoellick

Sat, Oct29, 2011

WASHINGTON, (Xinhua) -- The true test for the G20 will be whether it can prevent a future financial crisis, World Bank Group President Robert Zoellick said Friday ahead of the upcoming G20 summit in Cannes.

"The world economy is hobbled not only by large deficits and troubled banks, but by joblessness and slow growth," Zoellick noted in an article carried on the website of the Washington Post Friday.

At the G20 summit to be held in France this coming week, the euro zone will present its new plan to recapitalize and strengthen European Union banks, using its new European Financial Stability Facility to enable Italy and Spain to roll over government debts, while assisting Greece, Portugal and Ireland, and easing the debt load on Greece to give it a chance of recovery, he added.

"Developing countries' economic growth has helped compensate for the lackluster performance of developed nations, but they are hardly immune to the shocks coming out of industrialized countries, " Zoellick noted.

He warned that all nations must at least agree "not to do dumb things" which includes a retreat to protectionism or trade wars.

The G20 also must help offset the damage to the poorest countries, which do not sit at the G20 table, Zoellick urged.

(sourced Xinhua)

Eurozone seeks bailout funds from China

Sat, 29 October 2011

The head of the eurozone's bailout fund is beginning attempts to persuade China to invest in a scheme to help rescue member countries facing debt crises.

After meeting Chinese leaders, Klaus Regling said there were no formal negotiations and would be no deal now.

It is thought China may pay about 70bn euros ($100bn) into the fund, which is expected to be boosted to 1tn euros.
Meanwhile French President Nicolas Sarkozy said debt-ridden Greece's entry to the eurozone was a mistake.
Greece was "not ready" when it joined in 2001, he said, adding that it could be rescued thanks to a new deal on the debt crisis.

European leaders worked into the early hours of Thursday in Brussels to secure an agreement aimed at preventing the crisis from spreading to larger eurozone economies.
The deal triggered a worldwide shares rally.
'Regular buyer'
Beijing has made it clear that it will demand strong guarantees on the safety of any contribution it might make.

Mr Regling, who is chief executive of the European Financial Stability Facility (EFSF), said he was not negotiating with China as a potential investor but holding consultations to decide the terms for raising the money.
"Don't expect any precise outcome of our talks," he said, quoted by AFP news agency.
"I cannot say today, and it's certainly far too early to say what kind of amounts might be envisaged."

He said China had been a regular buyer of EFSF bonds in the past.
He would present the fund's bonds as a potential commercial investment to China, he said, adding that Beijing regularly needed to find safe investments for its trade surpluses.
"I am optimistic that we will have a longer term relationship," he said.
Chinese Vice Finance Minister Zhu Guangyao said there was work still to be done.
"We need to wait for the technicalities to be clear and also to carry out serious studies before we can decide on investment," he said, quoted by AFP.
"We hope that all these technical and specialised arrangements can be thrashed out at an early date and can be implemented and feasible. That will be very important for the effectiveness" of the fund.

The President of the World Bank, Robert Zoellick, has said he believes China will invest in Europe only if there are incentives for it to do so.
"I don't think that China will just come in as a white knight to try to provide money just to bail out Europeans," he told the BBC.
But investor Jim Rogers said China was prepared to help.
"From China's point of view, it's cheap foreign aid. They'll buy goodwill. I guess they'll put up some money," he said on BBC Radio 4's Today programme.

The main provisions of Thursday's deal are:
The framework for the new EFSF bailout fund is to be put in place in November.
Germany, as the largest economy in eurozone, is expected to be the largest contributor.
Asian markets rose for a second day on Friday and bank stocks in Europe continued to rally, a day after the deal was reached.

source: HellenicShippingNews

European debt crisis to end in three years: central bank advisor

Sun, Oct16, 2011 | By xinhua

BEIJING, Oct. 16 (Xinhua) -- The European Union debt crisis will end in three years at the latest, meanwhile the euro will not fall apart and EU countries will be strengthened via reforms, said Li Daokui, a central bank advisor, on Saturday.

Greece and Portugal are sure to default on their debt repayments, and they will have to tackle long-term structural problems imbedded in their economies, Li, a member of the Monetary Policy Committee with the People's Bank of China, said in a forum held by Tsinghua University.

Germany and France are capable of bailing themselves out by pumping liquidity into banks and other financial institutions through fiscal measures, Li said.

The advisor said he is more concerned about the economic crisis in the United States, which he referred to as "long-term" and "political."

The government's deficit was relatively easy to cope with, but social problems, which have stoked the current spate of unrest in the United States, are a thornier issue and more difficult to solve, Li said.

Amid the faltering global economy, Chinese policymakers should deepen economic restructuring and should not do a complete turnaround in macro-economic policies, the advisor said.

Europe warned of systemic crisis over debt

Tue Oct 11, 2011
By Sakari Suoninen and Martin Santa

Frankfurt/Bratislava (Reuters) - Europe's top financial watchdog warned on Tuesday that the euro zone's sovereign debt crisis has become systemic and threatens global economic stability unless decisive action is taken urgently.

European Central Bank President Jean-Claude Trichet issued the dramatic warning as chairman of the European Systemic Risk Board, created to avoid a repeat of the 2008 financial crisis, amid growing fears that Greece will default on its massive debt.

"The crisis is systemic and must be tackled decisively," Trichet told a European Parliament committee in his final appearance before retiring at the end of the month.

"The high interconnectedness in the EU financial system has led to a rapidly rising risk of significant contagion. It threatens financial stability in the EU as a whole and adversely impacts the real economy in Europe and beyond."

European banking regulators meanwhile asked banks across the continent to provide updated data on their capital position and sovereign debt exposures to help reassess their need for recapitalisation.

Germany and France, the leading powers in the 17-nation euro zone, have promised to propose a comprehensive strategy to fight the debt crisis at an EU summit delayed until Oct. 23.

But they must first resolve differences over how to recapitalise banks, whether to force a Greek debt restructuring or stick to a voluntary deal with private bondholders and how to use the euro zone's rescue fund.

Trichet was speaking before international lenders were due to deliver a provisional verdict on Greece's troubled reform and austerity programme, while the fate of the euro zone's rescue fund hung in the balance in Slovakia's parliament.

Slovak Prime Minister Iveta Radicova raised the stakes in a battle to win approval for new powers for the European Financial Stability Facility by tying the decision to a vote of confidence in her centre-right government.

The small, liberal SaS party, the only member of the five-party ruling coalition which opposes the EFSF, said it would abstain, depriving the government of the votes needed to pass the motion.

EU diplomats expressed confidence that the EFSF agreement approved by the 16 other euro zone countries would eventually be ratified, noting that the Slovak parliament can hold a second vote if ratification is rejected at the first attempt. However, it may bring down the government in Bratislava.

TORTURED PROGRESS

In Athens, inspectors from the European Commission, the European Central Bank and the International Monetary Fund were due to issue a statement after completing an extended review of Greece's tortured progress on its bailout programme.

Anti-austerity protesters blocked ministries and state workers went on strike as Greeks awaited the verdict on whether international lenders will hand over a vital tranche of aid needed to stave off imminent bankruptcy.

The so-called troika is due to send a detailed report to euro zone finance ministers and the IMF board next week, and it was not clear whether Tuesday's statement would contain a clear recommendation on releasing the 8 billion euros the government needs to pay salaries and pensions in November. Its next major debt redemption is due in December.

Speaking shortly before the statement was due, Finance Minister Evangelos Venizelos told a conference: "Greece is and will always be a member of the euro zone, a member of the euro."

Europe's inability to draw a line under the crisis has caused growing international alarm, with Japan weighing in on Tuesday after the United States and Britain pressed EU leaders to take decisive action.

Japan said it would consult with the United States before it considers buying more euro zone bonds. Finance Minister Jun Azumi urged Europe to restore market confidence in the run-up to a Group of 20 finance leaders' meeting in Paris this week.

Azumi repeated that Japan stood ready to buy more euro zone bonds so long as Europe comes up with a solid scheme to solve a crisis that has resulted in financial rescues for Greece, Ireland and Portugal.

Interbank lending rates in Europe continued to rise amid growing concern over European banks' ability to handle the debt crisis, despite the prospect of massive ECB liquidity support.

Three-month Euribor rates , traditionally the main gauge of unsecured interbank euro lending and a mix of interest rate expectations and banks' appetite for lending, rose to 1.570 percent from 1.567 percent.

Some European banks voiced concern at the prospect of being forced by governments to raise additional capital some say they do not need, possibly taking public money.

Germany's banking association said Europe should look at recapitalisation on a case-by-case basis rather than taking a blanket approach apparently envisaged by Berlin and Paris.

The director of the BDB association, Michael Kemmer, also told ARD television that politicians should stick to a July agreement on voluntary private bondholder involvement in a rescue plan for Greece.

That deal envisaged a 21 percent writedown on Greek debt for banks and insurers that participate in a bond swap to reduce and stretch out Greece's debt burden.

However, German Finance Minister Wolfgang Schaeuble and the chairman of euro group finance ministers, Jean-Claude Juncker, have said that figure may no longer be sufficient and the talks may have to be reopened.

Speaking on Austrian television late on Monday, Juncker refused to rule out a mandatory debt restructuring for Greece, which many market analysts and economists say is bound to happen in the coming months.

Many analysts see the rush to recapitalise European banks as a prelude to an enforced write-down of 50 percent or more on their Greek debt holdings. (sourced Reuters)

Moody's warns Belgium it risks credit rating cut

Sat Oct 8, 2011
By Daniel Bases and Philip Blenkinsop

NEW YORK/BRUSSELS (Reuters) - Moody's warned Belgium on Friday its credit rating could fall due to the burden of bailing out Dexia, the French-Belgian financial group, and the prospect of higher funding costs and weak economic growth.

The ratings agency said it had placed Belgium's Aa1 government bond ratings, one notch below the top Aaa status, on review for possible downgrade.

Moody's joins Standard & Poor's and Fitch, which have put their AA-plus ratings for Belgium's on negative outlook in the past year. Both said Belgium's lack of a fully fledged government undermined budget efforts in one of the euro zone's most indebted states.

Moody's cited three reasons for its review: materially increased funding costs for sovereigns and banks of countries with high debt, risks to growth of Belgium's open economy, and the weight on public finances of supporting the banking sector.

Dexia is on the verge of being split up by Belgium and France, though a Dexia board meeting to discuss the group's future has been pushed back to Sunday from Saturday. Dexia, whose shares fell 42 percent this week alone, has been struck by both its heavy exposure to Greece and troubles accessing wholesale funding.

Belgium is to pay for the likely nationalization of Dexia's Belgian banking business and its share of guarantees for a "bad bank" of Dexia assets, including euro zone periphery debt.

In the course of its near-term review of Belgium's rating, Moody's said it will include a close look at the potential for additional government measures to support "the banking system, or individual banks."

"In this regard, Moody's intends to assess the potential costs and additional contingent liabilities that the government may incur in supporting the Dexia Group," Moody's said.

Belgium has found itself in the middle ground between the core triple-A-rated euro zone countries and those at the periphery of the single currency bloc whose sovereign debt has sold off sharply since the middle of 2010.

It has been without a new government since a parliamentary election in June 2010, and its public sector debt totalled 96.6 percent of annual output last year, putting it behind only Greece and Italy in the euro zone and on a par with bailout recipient Ireland.

The spread between yields on Belgian 10-year bonds and those on equivalent German bunds, a sign of the perceived risk of Belgian debt, pushed to a three-week high of 222 basis points on Wednesday; the spread fell to just below 200 on Friday.

Belgium's caretaker government plans to restrict the 2011 budget deficit to 3.3 percent of gross domestic product, comfortably below the average for the euro zone, and the chances of a new government forming have increased markedly in recent weeks.

Belgium is planning to bring the deficit down to 2.8 percent in 2012.

Belgium's debt agency has also sold 35.4 billion euros ($47.8 billion) of bonds this year, just short of its 36 billion euro target for the whole year, with two further debt auctions scheduled.

Financial markets were already unsettled on Friday after Fitch Ratings cut Italy's sovereign credit rating by one notch and Spain's by two, citing a worsening of the euro zone debt crisis and a risk of fiscal slippage in both countries.

(sourced Reuters)

Fresh fears of Greek default as Finns hold out in collateral dispute

August 26, 2011
By Riva Froymovich, The Australian

EURO-ZONE policy makers appeared no nearer to settling a dispute over Finland's collateral demands in exchange for participating in a bailout for Greece, raising concerns that Athens may default.

Markets have grown more worried about the potential for a Greek debt default amid an apparent lack of progress in resolving the collateral issue this week.

Finland, meanwhile, shows no sign of backing down.

German Chancellor Angela Merkel also unexpectedly cancelled a trip to Russia in early September to shepherd through parliament a crucial change to the euro-zone bailout fund.

The cancellation comes at a sensitive time for relations with Russia, and amid growing nervousness about dissent within the ranks of her own party over her handling of the euro-zone debt crisis.

"The date collides with the introduction of the (European Financial Stability Facility) treaty into the Bundestag," a German government official said, adding that the chancellor wants to stay in Berlin due to the significance of the issue.

Yields on Greek two-year bonds rocketed to a record of over 43 per cent, according to Tradeweb, and the cost of insuring Greek government bonds against default also rose sharply.

Greek five-year sovereign credit-default swaps were 1.37 percentage points wider at 22.75 percentage points, according to Markit.

No multi-lateral talks on the collateral issue took place Wednesday or Thursday, a person familiar with the situation said, despite an initial intention to hash out an agreement by the weekend.

However, the person didn't rule out the possibility that bilateral talks are under way.

Euro-zone governments are looking into alternative forms of collateral after a cash deal reached earlier between Greece and Finland was rejected by key member countries, including Germany and the Netherlands.

Under terms of that deal, Greece would pay Finland hundreds of millions of euros from its bailout loans as collateral for those same loans at the expense of other euro-zone countries.

Since Finland is set to contribute just 2 per cent of Greece's total rescue package, guarantees from the richer euro-zone nations would be going directly to Finland.

The collateral dispute, if not resolved soon, could derail a second bailout package for Greece agreed by euro-zone leaders on July 21.

Without support from all 17 euro-zone countries, no funds can be released, while changes to the European Financial Stability Facility, the currency bloc's bailout fund, can't go forward either.

At last month's summit, leaders agreed to expand the fund and make it more flexible, so that it could buy bonds on the secondary market and provide credit lines to countries locked out of markets.

National parliaments across the euro area must approve the changes, however, and the collateral issue must be settled before the final EFSF proposal is written.

The European Commission, the EU's executive branch, has asked that all the details for the EFSF legislation be clarified by the end of August.

German officials have said they expect to approve the new EFSF at a cabinet meeting on Wednesday.

A parliamentary vote is likely to take place September 23.

A commission spokesman said that there is no formal deadline for concluding talks.

Still, "it's good for that to be done toward the end of the month," he said.

Germany insists on a solution acceptable to all euro-zone countries.

The International Monetary Fund, which has been contributing to Greek bailout loans, opposes any deal that would threaten its preferred-creditor status, which ensures the fund is always first to be repaid.

Finland said that it continues discussions with Greece and other euro-zone countries to find a solution. Officials refrained from further comment.

"The issue has become so politicised that no one here at the Finance Ministry wants to talk about it at the moment," said Anita Sihvola, a spokeswoman for the Finnish finance ministry.

On Wednesday, Finnish Finance Minister Jutta Urpilainen reiterated that Finland would not take part in the €110 billion Greek ($150bn) bailout unless it obtained collateral.

Finland's policy is partly the result of April's general election, in which support for the True Finns Party, which opposed the Greek bailout, soared to 19 per cent from 4.1 per cent in 2007.

The True Finns finished third, and the election led to a new government coalition of six parties.

Euro-zone officials have indicated they are exploring other forms of collateral, such as state property or other non-cash assets.

But this option would be anathema in Greece, especially as many of the government's assets are already earmarked for privatisation.

The government has strongly opposed any deals that would involve putting up Greek land or real estate as collateral, viewing the step as a threat to the country's territorial sovereignty.

"It seems that a possible outcome is either collateral for all member states or no country will get it," said a second person familiar with the matter.

EUROMETAL: Germany leads the European economy

European association of steel and other metals distributors and service centers (EUROMETAL) has recently released a report on the performance of economy and global steel markets.

The data regarding the change in GDP from 2005 to 2011 in the euro area highlights significant differences among countries. The performance of Slovakia stands out above all, with a +30.1%, followed by Luxembourg (+17.2%), Malta (+14.7%) and Cyprus (+14.4%), while among the weakest countries there are Ireland (-1.2%), Italy (-1%), Greece (unchanged) and Portugal (+0.4%). Germany performed well, with a +8.6%, while the GDP of France and Spain was up 5.6% and 5.3% respectively.

In 2005-2011, the European industrial production showed a very heterogeneous picture as well. Slovakia was in the lead again (+43.3%), followed by Belgium (+14.2%), Austria (+9.4%) and Ireland (+9.3%); in the bottom of the list there are Spain (-16.6%), Greece (-16.1%), Italy (-11.4%), Luxembourg (-10.1%) and France (-7.8%). Germany did well again, with a 4.2% increase.

Focusing on 2011 only, global GDP is estimated to grow by 4.3%, but the world is growing with different intensity depending on the different macro-regions: advanced economies, held back by low consumer confidence, fiscal tightening and government debt, will grow only by 2.2% this year, while emerging countries will grow by 6.5%. In detail, the healthiest countries are China (+9%), followed by India (+8.6%), Argentina, Chile, Indonesia and Turkey (all above 6%). A second group consists of the countries of Central-Eastern Europe and North America: Germany (+3.4%), Poland (+4.2%), Russia (+4.2%), Slovakia (+3.5%), United States (+2.5%) and Canada (+2.9%). Western Europe and Japan grew within limits: -0.6% for the latter, +0.9% for Italy, +0.7% for Spain, +1.5% for the United Kingdom, +2.1% for France. The figure for the 17 European countries was up 1.9%.

Speaking of steel, in 2011 EUROMETAL expects an apparent steel consumption of 157 million mt in the EU-27, up 8% compared with last-year 145 million mt, but still behind the pre-crisis levels (the peak was reached in 2007, with 184 million mt). As for the European production of crude steel, in the first 5 months of this year it was up 4% over the same period of 2010. The figure has to be compared with the 6% increase of the CIS area and the 23% of Turkey, direct competitor of Europe in the Mediterranean.

In the report by EUROMETAL, it emerges once again that the long steel segment is struggling more than any other to come out definitively from the crisis. In the first 5 months of 2011 the output of the European construction sector has declined 1% year on year, while the sales of rebar, beams and profiles distributors were up 7%, though this progress is largely attributable to restocking activities. The situation is far better in the flat steel market: in January-May 2011, service centers' sales increased by 14% year on year, in line with the increase in orders in the mechanical, automotive, appliance, construction and equipment industries.

Ratings agencies rattle cages in U.S., Europe

By Walter Brandimarte

NEW YORK (Reuters) - The credit ratings agencies are again angering governments, but this time they are taking on the big fish of the world economy.

From Washington to Brussels, Moody's, Standard & Poor's and Fitch have added to the intense pressure on governments trying to deal with crushing sovereign debt.

Their warnings about the precarious finances of the world's top economies have also roiled investors more accustomed to seeing emerging market countries take the brunt of criticism.

Tension hit new highs on both sides of the Atlantic last week as Moody's and Standard & Poor's threatened to downgrade the United States' prized "triple-A" rating.

A few days earlier, Moody's slashed ratings in Ireland and Portugal to "junk" status, triggering an outcry from European officials.

"These opinions, they continue to give them in such a way that it worsens the crisis," Ewald Nowotny, a member of the European Central governing council, said on Tuesday, referring to the agencies. He said markets could live without them.

Now that the agencies are focusing their fire on the rich world, U.S. and European officials -- long proponents of seeing indebted nations "take their medicine" -- are crying foul.

Their complaints carry a strong sense of deja-vu.

In 1998, when Moody's pushed Brazil deeper into "junk" rating territory, the country's finance ministry called the decision a "mistake" that showed the agency needed to invest more in sovereign risk analysis.

In a sign of the turnaround of the fortunes of many emerging economies, 11 years later in its New York headquarters Moody's received a much friendlier Brazilian finance minister, Guido Mantega, to hand him Brazil's much-awaited "investment-grade" status.

The question now is whether the agencies will be able to withstand much stronger political pressures while the debt crisis rages in developed countries.

In Europe and the United States, policymakers have already promised tougher regulations for the agencies after they failed to spot the housing bubble in the middle of the last decade and stand accused of contributing to it by giving generous ratings to subprime mortgage bonds.

Rating agencies came under fire from holders of subprime-related securities because raters are paid by the firms issuing the securities. Investors argued that kind of "economic incentive" blurred the analysis.

Sovereign nations, by contrast, do not shell out any money for their ratings.

That has not lessened the political anger. On Wednesday, U.S. Congressman Dennis Kucinich said: "No nation, agency or organization has the authority to dictate terms to the United States government. Moody's and its compatriot S&P were a direct cause of the near collapse of the economy of the United States."

EUROPEAN RATING AGENCY

In Europe, where the agencies poured cold water on a plan for Greece to extend debt maturities and avoid a default, sentiment is even worse. European Commission President Jose Manuel Barroso accused them of having an anti-European bias.

Barroso and other policymakers want the creation of an European rating agency which, they argue, would be better equipped to analyse euro zone issues. That argument overlooks the fact that Fitch is majority-owned by a French company.

The intensity of Europe's reaction to the latest sovereign downgrades is proportional to the power that ratings agencies retain over financial markets -- a clout that even the ratings agencies suggest is exaggerated.

In a recent special report about proposed regulation changes, Moody's said the agencies should not be seen as "gatekeepers in the financial markets" and their ratings should not be used as substitutes for disclosure by issuers.

WRONG TIMING

Some say policy makers may have a point when they criticize the timing of the downgrades by ratings agencies.

Their failure to anticipate the severe deterioration of sovereign credit was an issue in emerging market debt crises in the past, said Claudio Loser, a former Western hemisphere director for the International Monetary Fund.

"My experience with the rating agencies in Latin America during the debt crisis of the 1980s and 1990s is that they were a destabilizing factor," said Loser, now president of the Centennial Latin America consulting firm.

"They did not warn the markets when they should have and they did actually create more noise when it was not the appropriate thing to do."

Loser believes policymakers will force the agencies to "adjust significantly," and that they will emerge stronger from this crisis.

Euro volatile on Greek aid reports

Tue May 10, 2011 5:42pm IST
By Neal Armstrong

LONDON (Reuters) - The euro was steady versus the dollar in volatile trade on Tuesday as conflicting reports emerged of a potential new aid deal for debt-laden Greece to help it meet its funding requirements in the next two years.

The euro briefly gained, hitting the day's high at $1.4379 after Dow Jones News reported that Greece could receive aid totaling 60 billion euros as soon as June, but pulled back after Greece denied the report.

However, it stayed above Monday's three-week low of $1.4254 and short-term was well supported above its 55-day moving average, now at $1.4245, but analysts said it was still vulnerable to escalating concerns about euro zone debt.

The euro was flat at $1.4361. Traders said a semi-official name was seen selling around the day's highs.

"There is a lot of uncertainty over the longer-term outlook, which is why we are seeing such volatile moves," said Lee Hardman, currency strategist at BTM-UFJ.

"There is not sufficient risk premium priced into the euro at the moment. Continued peripheral troubles, plus moderating euro zone growth could pull back European Central Bank rate hike expectations, taking away the euro's main support."

Adding to the uncertainty over the situation in Greece, a German MP questioned whether Greece had met the terms for its next aid tranche, while a source said EU and IMF inspectors have not yet concluded whether Greece is meeting its targets.

"This seems a bit early to come up with something concrete. I think we'll get more posturing before a deal can be agreed on Greece," said Gavin Friend, currency strategist at nabCapital.

On Monday, Standard and Poor's cut Greece's rating to B from BB-, saying its projections suggest that debt reductions, or haircuts, of between 50 and 70 percent of the bonds' original value could be needed to make Greece's debt burden sustainable.

Coupled with a media report last week -- later emphatically denied by European policymakers -- that Greece may be considering exiting the euro, it highlighted the dilemma of how best to extricate the country from its debt quagmire.

PROFIT TAKING

Traders said macro accounts had started to take profit on their euro short positions, with other market players also thinking selling was becoming overdone in the near term after the euro tumbled from a 17-month high of $1.4939 hit last week.

"We need a fresh trigger to go lower in the euro from here. I think we're in a $1.43/1.46 range for now," said Geoffrey Yu, currency strategist at UBS.

But Hardman at BTM-UFJ said it was "quite likely" the euro had formed a medium-term top and any move back into the high $1.40s could result in heavy selling by longer-term investors.

The euro's 55-day moving average is seen as major support as it has not traded below that measure since mid-January. But a break there could put it on course to test support around $1.4150 -- near its April 18 low of $1.4156 and a 38.2 percent retracement of the January-May rise at around $1.4145.

Recent euro weakness, initially triggered by disappointment over a lack of hints on a rate hike next month from the European Central Bank last week, accelerated as panic selling in the commodities market prompted investors to shun risk.

Because rising oil and commodities have been at the root of inflation that has pushed the ECB to tighten policy, declines in oil prices could make investors scale back their expectations of more rate hikes.

The euro was up around 0.3 percent against the yen at 115.63 yen after sliding to a 6-week low in Asian trade at 114.77 yen.

The dollar was up 0.4 percent at 80.59 yen, well above a seven-week trough of 79.57 yen hit last week. Versus a currency basket the dollar was steady at 74.713. .DXY

The Swiss franc fell to session lows against the dollar and the euro after Swiss CPI inflation rose 0.1 percent month-on-month in April, well below forecasts and denting the chance of a Swiss rate hike in June.

(Additional reporting by Jessica Mortimer; Editing by Ron Askew, sourced Reuters)

Eurozone leaders to begin crucial bail-out fund talks

Friday, 11 March 2011 15:03

he 17 leaders of eurozone nations will finally sit down together later to forge their long-touted plans to secure the future of their currency zone.They do so as government borrowing costs again hit the roof.Europe's lenders don't

like what they are hearing on the Brussels grapevine. The driving factor is the worry that the summit set up expressly to forge a firm and permanent agreement between the 17 will end with a fudge. That worry has send the interest rate on the Portuguese government's 10-year bonds back to record highs.

Italy, Spain and Greece's governments are also being hit hard by high borrowing rates.
This emergency summit has been long awaited, but the fear is that all the tricky stuff setting out the terms that will underpin any future bail-outs from 2013 will probably be put back once again to be discussed further at the next full EU summit on 24 and 25 March.
Squeezed session
The agenda arrangements themselves don't bode well.
The emergency euro summit has now been squeezed into a late afternoon session because of the Libyan emergency.

But it's not just a case of there being too little time to thrash out an agreement. Diplomats and other sources have been carefully managing down commentators' expectations.
What has been agreed in principle by finance ministers is that the new permanent bail-out fund, the European Stability Mechanism (ESM) - which is designed to replace the current European Financial Stability Facility (EFSF) - will hold a total of 500bn euros ($690bn; £430bn).
This will be topped up by the IMF, but the markets are concerned that it won't be enough should Portugal and Spain both need to be bailed out in the near future.
It is if, or when, the permanent bail-out fund starts to prove inadequate that the question of the future oversight of national economies becomes crucial.

Large members such as Germany and France may not be prepared to cough up further if they have little influence on the peripheral countries' spending habits.
So what is the mechanism for sorting all this out and how is it going down?
In two words: Not well.
Bankroller
Germany, the eurozone's biggest single rescue bankroller, got the ball rolling and managed to win French support for a pact to tighten rules on state spending all round the eurozone.
This plan was big on reforms to boost competitiveness with the best performer to be used as a benchmark for others to emulate.
Germany also wanted things like wages indexed to inflation, higher retirement ages and borrowing limits, something that would prove very hard to sell to voters.
The pact idea was taken up with enthusiasm by the European Commission - but watered down - especially when it came to the provisions relating to competition.
Now, the word is that even this version is causing disagreement.

In particular, there appears to be less emphasis on the degree of oversight member countries would allow each other. The problem here is that the more the plan moves away from Germany's original concept, the less likely Germany may be willing to sign off a deal.
Many other related issues are pressing in on the 17 eurozone members.
The Greek and Irish premiers will continue to press the rest to agree for easier terms on their bailout loans.

Fundamental flaw
The ECB President Jean-Claude Trichet will also be at the summit. He's been desperately trying to ease up on the central bank's expensive daily support buying of weak eurozone countries' debt - notably that of Portugal.
One partial solution could be to allow the future rescue fund to be more flexible, so it too could buy the likes of Portuguese bonds.
But Germany is implacably opposed to that idea.
The eurozone countries are, essentially, grappling here with the fundamental flaws in the Euro project itself.
Ultimately, only more economic discipline enforced from the centre can probably ease those troubled debt markets.
But Friday's summit may once again see the divergent interests of Germany, France and the poorer peripheral countries getting in the way of a breakthrough.

Source: BBC

EU summit to take only minor steps on debt crisis

Mar8, 2011, 10:13 PM

By Luke Baker

BRUSSELS (Reuters) - Euro zone leaders will take the next cautious steps in their year-long effort to quell the region's debt crisis at a summit on Friday, but the meeting is unlikely to produce a breakthrough.

The top item on the agenda for the 17 heads of state and government is to agree a "competitiveness pact", a deal Germany and France are pushing the rest of the euro zone to adopt to show their commitment to overhauling their economies.

The pact has been watered down since it was put forward by German Chancellor Angela Merkel and France's Nicolas Sarkozy last month, and now looks likely to win approval from the rest of the euro zone leaders, many of whom were alarmed by the initial proposals.

The more stringent elements, such as a commitment to abandon inflation-linked wage increases, are likely to be dropped, but there should be agreement on measures to limit public deficits, gradually increase retirement ages to reflect demographics, and work towards a common corporate tax base.

Any agreement is likely be hailed by EU leaders -- particularly Germany and France -- as a major step forward in the battle to stem the debt crisis, which has already led to bailouts for Greece and Ireland and still threatens Portugal.

But analysts regard competitiveness as a sideline issue that barely nudges the euro zone closer to tackling the fundamental problems underpinning the crisis -- bad banking debts and heavily-indebted sovereign nations with poor growth prospects.

"The competitiveness pact as it stands is largely meaningless, it's beside the point right now," said Simon Tilford, chief economist of the Centre for European Reform, a London-based think tank.

"The immediate issue is debt restructuring and bank recapitalisation and they're not dealing with that."

Friday's summit is only likely to lay the ground for a meeting of all 27 EU leaders in Brussels on March 24-25, when they hope to agree on a "comprehensive package" of measures they hope will draw a line under the crisis.

PORTUGAL BACK UNDER PRESSURE

Measures under discussion as part of the comprehensive package include reforms to the European Financial Stability Facility (EFSF), the 440 billion euro fund set up last May and used to bail out Ireland, and the creation of the European Stability Mechanism, a permanent fund that will replace the EFSF from mid-2013, and more banking stress tests.

Among issues to be resolved is whether the effective capacity of the EFSF will be increased to its full 440 billion euros. Because of guarantees needed for the fund to retain its triple-A credit rating, its effective capacity is currently 250 billion euros.

If Germany gets the rest of the euro zone to sign up to the competitiveness pact on Friday, there is an expectation that that will make Berlin more disposed to agree to a strengthening of the EFSF, which almost all other euro zone members want.

But Merkel's political allies at home are adamantly opposed to bolstering the EFSF, which would require more taxpayer-backed guarantees, and neither do they want the fund to be used to buy distressed euro zone debt, as many other countries favour.

Merkel's coalition lost an important regional election in Hamburg last week and is expected to lose another in Baden-Wuerttemberg on March 27, piling pressure on the chancellor to stick closely to what voters want, which is no more German taxpayer funds being used for EU bailouts.

A month ago, an enlargement of the effective lending capacity of the EFSF looked likely, as did the possibility of the fund being used to buy distressed euro zone bonds on the secondary market, or to lend money to countries such as Greece and Ireland to buy back bonds. All now look questionable.

"The wiggle room, the political room for manoeuvre on the part of the Germans, is worryingly limited," said Tilford.

"They are going to have to deliver something (on March 24-25) because the market reaction otherwise could be pretty adverse, but I fear that very little is going to be delivered."

European leaders, particularly Herman Van Rompuy, the president of the European Council, have cast the end-March summit as a defining moment, when the euro zone finally gets on top of a crisis that has wrought turmoil for more than a year.

But because of German domestic politics, persistent disagreement among member states over the best course of action, and external factors such as the likelihood that the European Central Bank will raise euro zone interest rates next month, the crisis may be about to enter another, more uncertain phase.

For months Portugal has said that it does not need EU/IMF assistance and can continue to fund itself in the market. But if there is no breakthrough on March 24-25, the likelihood of Portugal needing a bailout will increase. Already the majority of EU states believe this will happen in April.

That points to a renewed round of pressure on the debt of peripheral or highly-indebted euro zone states, with not only Portugal, but Spain, Belgium and Italy in the picture.

"Portugal will be forced into a bailout and will subsequently, like Ireland and Greece, be forced to restructure its debt," said Tilford. "Portugal looks very vulnerable."

(Editing by Stephen Nisbet,sourced:Reuters)

Economic Survey fears European debt crisis could hit Indian economy

Friday February 25, 2011

New Delhi: The continuing debt turmoil in the euro zone area could have an adverse fallout on the Indian economy, hurting its capital flows as well as exports, the Economic Survey said today.

Further, it noted that rising international oil prices could aggravate the current account deficit, which is already at high levels.

Many countries like Greece and Portugal that are part of the euro zone -- a grouping of 16 nations that share a common currency euro -- are grappling with severe debt crisis that has even threatened to derail the fragile global economic recovery.

"The continuing sovereign debt risk in peripheral euro zone countries and fears that it could spread to the financial sector, together with the high fiscal and public debt in several advanced countries, pose a risk to global recovery.

"In the event of the crisis spreading, it could have fallout for the Indian economy through reversal of capital flows and slowdown in exports," said the Survey tabled in the Parliament today.

It says the fragile global recovery and robust domestic growth have led to higher current account deficit in 2009-10 and 2010-11 (April-September), "which is a matter of some concern".

"The problem may be further aggravated by the rising international oil prices," it noted.

Current account deficit happens when the total imports of goods, services and transfers is higher than total export of goods, services and transfers.

Official preliminary estimates show that current account deficit stood at USD 27.88 billion in April-September period of the current fiscal year.

During the same period last financial year, current account deficit was at USD 13.34 billion.

Global oil prices has been climbing in recent weeks due to the political unrest in the Middle East, especially in Libya, which has one of the largest crude reserves in Africa.

The Survey said that majority of the capital inflows are in the form of FIIs, which are volatile in nature. FIIs have pumped in about USD 24 billion in the April-September 2010 period.

"Periodic surge in capital flows could lead to problem of absorptive capacity in the economy, fuelling asset price bubbles, currency appreciation and stoking inflation. The challenge is in managing such surge in capital flows," it added.

On the other hand, FDI inflows stood at just USD 19 billion till November in the current fiscal.

-PTI