Greece crisis: Greece exit from euro possible: France, Germany

Thu, 3 Nov, 2011

CANNES, France: European leaders' long-delayed admission that a break-up of their cherished common currency was a distinct possibility is overshadowing a two-day meeting of the world's largest and fastest growing economies beginning Thursday in this Cote d'Azur resort.

French President Nicolas Sarkozy will welcome Barack Obama of the US, Hu Jintao of China as well as the leaders of India, Brazil, Russia and the other members of the Group of 20 leading world economies in the city made famous by its annual film festival, but the event is far from the star turn the unpopular French leader had hoped to make six months before he faces a tough re-election vote.

Sarkozy and other top EU officials have long held that it was unthinkable for Greece to quit the euro because it would be, Sarkozy has said, ``a failure of Europe.''

But in a late-night press conference with German chancellor Angela Merkel Wednesday, the leaders signalled for the first time that Greece's exit from the euro was indeed possible.

Saying that Europe had ``done everything we could'' to keep Greece in the eurozone, Sarkozy said ``now it is up to them to decide if they want to stay in the euro with us.''

That shift was prompted by the shock decision of Greek Prime Minister George Papandreou to call a controversial referendum on his country's $130 billion European bailout plan in early December that caught European leaders completely off guard and scrambling for a response.

Papandreou's stunning announcement Monday that he would stage a referendum roiled world financial markets and threw into question an ambitious and costly European deal worked out in torturous negotiations a week ago.

Merkel confirmed that Greece did not inform the rest of the eurozone about the referendum. ``This did not happen in a coordinated fashion,'' she said.

She and Sarkozy summoned Papandreou to Cannes for talks Wednesday at which European leaders expressed their anger and pressed him to hold the referendum as soon as possible.

A ``no'' vote in the referendum would have enormous consequences not just for Greece but for the rest of Europe. It could lead to a disorderly Greek default, force Greece out of the 17-nation eurozone, topple many fragile European banks and send the global economy spinning back into recession.

Sarkozy's office announced yet another round of discussions about Greece for Thursday morning, with Germany, Italy, Spain, the IMF and the European Union. The talks will notably not include Greece itself.

Playing hardball, eurozone officials said an (euro) 8 billion ($11 billion) loan that Greece needs within weeks to avoid bankruptcy was conditional on Greece backing the latest rescue deal.

Sarkozy had hoped the meeting of leaders of the Group of 20 leading world economies, in Cannes on Thursday and Friday, would be Europe's chance to assure the rest of the world that a comprehensive plan to deal with its debt crisis had finally been reached after nearly two years of half-measures and procrastination.

Papandreou's gambit ended that lofty ambition and likely derailed Sarkozy's hopes of transforming a successful summit into a boost to his own re-election chances.

The G-20 leaders are slated to discuss food security, reform of the international monetary system and the volatility of commodity prices _ none of which is expected to get much attention or produce any solid conclusions at a summit so dominated by the European quagmire.

Anti-capitalist protesters have not been cowed by the European debt drama, and have staged demonstrations demanding a tax on all financial transactions, an end to tax havens and more aid for development.

(sourced EconomicTimes)

Steam Coal prices at RBCT dip on Greek decision

Wednesday, 02 Nov 2011

Reuters reported that European prompt physical coal prices fell by around USD 2.00 percent on Tuesday after the Greek decision to call a referendum over its debt bailout revived concerns about the euro zone, pummeling equities, the euro, copper and oil prices.

TRADES

A November loading South African cargo traded at USD 104.75 a tonne FOB Richards Bay, down USD 1.25 from Monday.

Another November South African cargo traded at USD 107.00 for the latter half of the month.

PRICES

A South Africa November Panamax cargo was bid at USD 105.00 and offered at USD 105.00 but could not trade, down USD 1.00.

A December South African cargo was bid at USD 106.50 and offered at USD 108.50, down over USD 2.50 on the bid.

A December DES ARA South African Capesize cargo was bid at USD 117.50 and offered at USD 118.50, down nearly USD 2.00 on the bid.

A November DES ARA Russian cargo was offered at USD 120, having been offered at USD 123.00 and USD 122.00 in the past few days.

Coal as a dollar denominated commodity is sensitive to currency moves. The euro fell against the dollar for a third straight day on Tuesday, as investors rushed to put their money into safer assets.

The fallout from the collapse of broker MF Global Holdings Ltd had little impact on the coal market because MF Global's problems had been flagged a week or more ago and companies with exposure had time to get rid of i.

However, the failure of a large broker, the highest profile victim of the euro debt crisis, is making the coal market, particularly in swaps, even more risk averse than it has been for most of this year.

(Sourced from Reuters)

Violent anti-austerity protests grip Greek capital

Wed, Oct 19, 2011
By Lefteris Papadimas and Yannis Behrakis

ATHENS (Reuters) - Greek police cleared the square in front of parliament on Wednesday after clashing with black-clad demonstrators during a mass anti-austerity rally called to coincide with a vote on a bitterly resented new round of belt-tightening.

The view of the ancient Acropolis was obscured by smoke from burning piles of rubbish and a bank building was evacuated after being set on fire by molotov cocktails as a strike called by Greece's two main unions degenerated into violence.

Much of the country was shut down by the 48-hour general strike, the largest since the outbreak of the crisis two years ago with government departments, offices and shops closed and at least 100,000 people taking to the streets of Athens.

Prime Minister George Papandreou, trailing badly in opinion polls, has appealed for support from Greeks before parliament votes on the latest measures which include tax hikes, wage cuts and public sector layoffs.

But the mood was furious among demonstrators, fed up after repeated doses of austerity and increasingly hostile to both their own political leaders and international lenders demanding ever tougher measures to cut Greece's towering public debt.

"Who are they trying to fool? They won't save us. With these measures the poor become poorer and the rich richer. Well I say: 'No, thank you. I don't want your rescue'," said 50-year public sector worker Akis Papadopoulos.

The boom of tear gas canisters fired by police rang out, and black clouds of smoke from petrol bombs hung over Syntagma Square, scene of violent clashes between police and demonstrators at anti-austerity protests in June.

The latest outbreak of violence overshadowed the start of a 48-hour strike which shut down government departments, shops and public buildings across the country and which unions said was one of the biggest stoppages in years.

A huge crowd gathered in front of parliament earlier in the day but after hours of confrontation with a hardcore group of mainly younger demonstrators, police cleared the square. Groups of hooded youths continued to clash with police on side streets.

At least seven people were hospitalized, and there were several other injuries reported mainly from breathing problems, minor burns and cuts to the head. There were also serious clashes on major avenues away from the scene of the main rally.

More than 7,000 police had been assigned to Athens to deal with anticipated trouble with hundreds deployed in riot gear near parliament.

RECESSION

Wednesday's action came as European Union leaders were scrambling to settle a new rescue package in time for a summit on Sunday that hopes to agree measures to protect the region's financial system from a potential Greek debt default.

"We are in an agonizing but necessary struggle to avoid the final and harshest point of the crisis," Finance Minister Evangelos Venizelos told parliament. "From now and until Sunday were are fighting the battle of all battles."

Trapped in the third year of deep recession and strangled by a public debt amounting to 162 percent of gross domestic product which few now believe can be paid back, Greece has sunk ever deeper into crisis.

Papandreou's narrow four-seat majority is expected to be enough to ensure the austerity bill goes through, especially given possible support from a smaller opposition group.

But his ruling Socialist party's discipline is increasingly strained with one deputy resigning his seat in protest and at least two others threatening to vote against part of the package dealing with collective wage bargaining agreements.

"It is obvious that society has reached the limits of what it can bear," said PASOK deputy Elpida Tsouri.

After repeated rounds of austerity measures, which have hit middle class Greeks hard, protesters said new cuts would only drive the stricken economy deeper into the ground. Unions urged deputies not to pass the law.

"If they have any humanity, decency, sense of pride and Greek soul left, they must reject the bill," Nikos Kioutsoukis, a top official in private sector union GSEE which is leading the strike with its public sector counterpart ADEDY.

"DEBT MONSTER"

Speaking in parliament on Wednesday, Dimitris Reppas, minister for Administrative Reform, reflected the increasing sense of isolation among many in the ruling party, complaining he felt as though he had been thrown to the lions.

"In government, we often feel like ... we are in the Colosseum, fighting the debt monster while everybody else is just sitting in the stands, watching and commenting," he said.

A first vote takes place late on Wednesday on the overall bill, which mixes deep cuts to public sector pay and pensions, tax hikes, a suspension of sectoral pay accords and an end to the constitutional taboo against laying off civil servants.

A second vote on specific articles is expected some time on Thursday and only after that the bill becomes law.

International lenders, who are providing the funds Athens needs to stay afloat after it was shut out of bond markets last year, have expressed impatience at the slow pace of reform as Greece has slipped behind on its budget targets.

There has been growing talk that Athens should be placed under tighter supervision by EU authorities to ensure it meets its reform obligations.

(sourced Reuters)

Life after the U.S. rating downgrade

Aug 12, 2011

By Nipun Mehta, Reuters

The unthinkable (for some) happened last week when the U.S. economy was downgraded from ‘AAA’ to ‘AA+’ with a negative outlook by Standard & Poor’s, one of the three large global rating agencies.

That led to an interesting situation where European economies like France and the UK are rated higher than the U.S., despite huge concerns about their financial condition. The event would undoubtedly have hurt the American ego, particularly since S&P announced that there could be more downgrades in the offing.

That this was an event that was imminent is accepted by many, but what is in store for the global economy and the Indian economy going forward?

There are several concerns that will keep haunting the central banks, the equity markets and governments around the world. These include:

- What if the UK and France are downgraded too?

- Will the other two rating agencies also downgrade U.S. in a few weeks’ time?

- How long before some U.S. companies and state and local governments get downgraded?

- Why is Spain still rated AA, Italy A+ and Ireland BBB+, when India and Brazil are rated ‘BBB-‘, by Standard & Poor’s? Will these European economies be downgraded soon?

- At ‘BBB-‘, why are India and Brazil rated the same as Portugal which has serious economic issues?

While a downgrade of one or more of the European economies is waiting to happen, one can rest assured that any such event can and will have a severe contagion effect on the other EU economies due to their linkage. Several European banks would undergo a rating change too under such circumstances.

The fact remains that even as far as the EU is concerned, the situation is delicate and we continue to tread on thin ice. Amidst all this is the bigger question of how long the U.S., being the world’s largest economy, will take to come out of the recessionary condition. One could just see another round of QE3 in the U.S. or a round of bank funding that we witnessed by France and the UK in 2008.

The other issue is of fiscal discipline by these countries which are facing a deep financial crisis. The easiest thing to reduce deficits is to raise taxes. What is always difficult for governments is to reduce expenditure as this could further lead to potentially slowing down the economy. It’s always a fine balance that needs to be created between inflationary pressures (that events like quantitative easing measures create) and recessionary conditions (which reduced expenditure can potentially create).

Given the global concerns, world equity and commodity markets will be affected even if they may not be directly impacted by the downgrade. Global currency and bond markets have already seen considerable volatile movements due to movement of large funds into and out of them.

While crude and commodity prices have eased post the event, how long they continue to fall, or sustain at lower levels will determine the inflation levels in several economies, as well as profitability of several companies in the manufacturing sector.

Select Asian economies on the other hand presently face the opposite task of inflationary pressures due to fast paced growth. It is due to this that equity markets in select Asian economies will possibly stabilise faster than the European or U.S. markets.

Risk aversion has ensured that funds move to safer asset classes like gold. One should not be surprised if part of these funds move to emerging economies once there are signs of stability in the global markets.

As far as Indian markets are concerned, once the global negative news subsides, it will be a choice between fundamentals, liquidity and valuations. While interest rate concerns, domestic scams and lack of decision making by the government continue to pull down sentiment, fundamentals remain strong and valuations are becoming increasingly attractive.

What is missing is the FII liquidity which can drive the markets upwards. In a situation where both the U.S. and EU face deep concerns over their fiscal policies, it may not be too long before emerging markets and India start attracting flows. We do need to closely watch policy action by the RBI.

Nibble into the equity markets if you have the risk taking ability to see some more volatility arising out of possible announcements from the U.S./ EU economies. If not, wait till there is greater stability in the global markets.

Britain, other eurozone countries face ratings cut: Jim Rogers

By Kevin Lim and Harry Suhartono, Reuters

8 Aug, 2011

SINGAPORE (Reuters) - Britain and several euro zone countries are likely to have their credit ratings cut in coming months as debt problems worsen, and Western policymakers are bound to embark on more quantitive easing to get their economies moving, American investor Jim Rogers said on Monday.

He also said Standard & Poor's acted too slowly in stripping the United States of its AAA rating on Friday, and that he remained bullish on commodities as investors turn to real assets amid fears of further quantitative easing by the U.S. and European central banks.

"The idea that the U.S. is downgraded and the UK is not is lunacy. There are many countries, Belgium, Spain, lots of countries in Europe, that should be downgraded just as the U.S. has been downgraded," Rogers said in an interview with Reuters Insider.

Rogers, who co-founded the Quantum Fund with George Soros in the 1970s, is a well-known investor and public speaker known for his bullish views on commodities and China. He now lives in Singapore.

Rogers said he has long positions on agriculture, gold and other commodities and is short on emerging market equities, government bonds and large U.S. financial institutions.

Despite the recent falls in commodity prices and U.S. Treasury yields, he said his positions remained healthy as the losses were offset by gains on his short positions.

Rogers predicted Western governments will embark on a new round of quantitative easing to help spur their moribund economies, as politicians and other policymakers were not prepared to go through the pains of bankruptcy.

"They'll try to disguise it. They'll call it cupcakes or who knows what. It'll cause a big rally in raw materials and commodities because more and more people will realise they are printing money, they are debasing the currency."

CHINA, EUROPE

In contrast, Rogers said China was doing the right thing in trying to cool its economy and combat inflation.

"Is it going to be fun? No, some real estate investors are going to go broke in Shanghai and other parts of China. But that's not the end of the world, that's not the end of the Chinese economy. Things may slow down but China's not going to fall off the face of the world."

Rogers called on European politicians and bureaucrats to face reality and let weak eurozone governments default, and "the people who made the bad loans lose money."

"The idea of printing more money and buying up worthless bonds instead of forcing people to go bankrupt is ludicrous."

"In America, we had states and cities go bankrupt, many times. It didn't end the United States, it didn't end the U.S. dollar. It caused some pain, some terrible pain. But that's how you solve problems."

"You start over from a stronger base, after you acknowledge your mistakes... That's what capitalism is all about."

Moody's warns Greek default almost certain

Mon Jul 25, 2011
By Ingrid Melander and George Georgiopoulos

ATHENS (Reuters) - Moody's cut Greece's credit rating further into junk territory on Monday and said it was almost certain to slap a default tag on its debt as a result of a new EU rescue package.

It was the second rating agency to warn of a default after euro zone leaders and banks agreed last week that the private sector would shoulder part of the burden of a rescue deal that offers Greece more cash and easier loan terms to keep it afloat and avoid further contagion.

"The announced EU programme along with the Institute of International Finance's statement implies that the probability of a distressed exchange, and hence a default, on Greek government bonds is virtually 100 percent," Moody's said in a statement. Bank lobby IIF, which led private sector negotiations, aims to attract 90 percent investor participation in the bond exchange plan which comes on top of the EU's new 109 billion euro bailout.

Moody's cut Greece's rating by three notches to Ca, just one notch above default, to reflect the expected loss implied by the proposed debt exchanges.

Greece now has the lowest rating of any country in the world covered by Moody's, which, like Fitch last week, said it would review Greece's rating after the debt swap is completed.

"Once the distressed exchange has been completed, Moody's will reassess Greece's rating to ensure that it reflects the risk associated with the country's new credit profile, including the potential for further debt restructurings," it said.

However, whereas Fitch pledged to quickly give Greece a higher, "low speculative grade" after its bonds had been exchanged, Moody's said it could not forecast when the rating would change or how.

"It all depends how quickly the debt exchange takes place," said Alastair Wilson, Moody's Managing Director for EMEA Credit Policy. "Once we have greater visibility over that, we will reassess the credit profile quite quickly. Whether the rating will change, that's a different question," he told Reuters.

A senior EU official said on Saturday that the aim was to start a voluntary swap of privately-held Greek bonds in late August and conclude it in early September.

Greek bank shares and the broader stock market were unfazed by Moody's action. Analysts said the downgrade and the default warning were priced in and less worrying following assurances provided by the EU deal.

"The EU Council last week effectively secured Greek banks' continued access to ECB liquidity, even in the case that PSI (private sector involvement) triggers a selective default," said Platon Monokroussos, an economist at EFG Eurobank.

The government has repeatedly criticised ratings firms for their downgrades and its spokesman threatened on Monday to end its subscriptions to these agencies as the new rescue package means Greece will not issue new bonds for years.

"All governments pay a subscription to these agencies. We, I think, do not need the reviews anymore. They have no practical value," Elias Mosialos told Radio 9. "Perhaps the finance ministry should end its subscription."

CONTAGION CONTAINED ... FOR NOW

Moody's said it would take into account the possibility of a second default while reassessing Greece's rating.

"Our experience is that relatively small restructurings have often been followed by deeper defaults," Wilson said, adding that he could not say if this would be the case for Greece.

The rescue package for Greece benefits other euro zone countries by containing near-term contagion risks but it was not necessarily positive in the longer run as it set a precedent for private sector involvement in rescue deals, Moody's said.

"The support package sets a precedent for future restructurings should the finances of another euro area sovereign become as problematic as those of Greece. The impact of Thursday's announcement for creditors of Ireland and Portugal is therefore likely to be credit-neutral," it said.

The cost of insuring most peripheral euro zone government debt against default rose on Monday on market doubts that the fresh aid package for Greece agreed last week will protect bigger economies from contagion.

Standard & Poor's and Fitch rate Greece CCC, broadly in line with Moody's rating. S&P has not yet said how the EU summit deal will affect Greece's rating.

(sourced Reuters)

New, dangerous phase for Europe - Summers

Mon Jul 18, 2011

(The views expressed here are Lawrence Summers' own)

By Lawrence Summers

CAMBRIDGE, Mass. (Reuters) - With last week's tumult in Italian markets, the European financial crisis has entered a new and far more dangerous phase. Where the crisis had been existential for small economies on the periphery of Europe but not systemically threatening to either the idea of European monetary union or to the functioning of the global financial system, it now threatens both European integration and the global recovery.

Last week's drama surrounding bond auctions in Europe's third leading economy should convince even the most hardened bureaucrat that the world can no longer let policy responses be shaped by dogma, bureaucratic agenda and expediency. It is to be hoped that European officials can engineer a decisive change in direction but if not, the world can no longer afford the deference that the IMF and non-European G20 officials have shown toward European policy makers over the last 15 months.

Three realities must be recognized if there is to be a chance of success.

First, the maintenance of systemic confidence is essential in a financial crisis. Teaching investors a lesson is a wish, not a policy. U.S. policymakers were applauded for about 12 hours for their willingness to let Lehman go bankrupt. The adverse consequences of the shattering effect that had on confidence are still being felt now. The European Central Bank (ECB) is right in its concern that punishing creditors for the sake of teaching lessons or building political support is reckless in a system that depends on confidence. Those who let Lehman go believed because time had passed since the Bear Stearns bailout that the market had learned lessons and so was prepared. In fact, the main lessons learned had to do with how to best find the exits, and so uncontrolled bankruptcies had systemic consequences that far exceeded their expectations.

Second, no country can be expected to generate huge primary surpluses for long periods for the benefit of foreign creditors. Meeting debt burdens at rates currently charged by the official sector for credit -- let alone the private sector -- would involve burdens on Greece, Ireland and Portugal comparable to the reparations burdens Keynes warned about in his book "The Economic Consequences of the Peace."

Third, whether or not a country is solvent depends not just on its debt burdens and its commitment to strong domestic policies but on the broader economic context. Liquidity problems left unattended become confidence problems. Debtors who are credibly highly solvent at interest rates close to or below their nominal growth rates become likely insolvent at higher interest rates, putting further pressure on rates and exacerbating solvency worries in a vicious cycle. This has already happened in Greece, Portugal and Ireland and is in danger of happening in Italy and Spain.

Debtor countries can only reduce their debts by running surpluses vis-a-vis the rest of the world. If traditional debtor countries are going to start running surpluses, traditional surplus countries must be willing to reduce their surpluses or move toward deficits.

In short, the approach of lending more and more from the official sector to countries that cannot access the market at premium rates of interest is unsustainable. The debts incurred will in large part never be repaid, even as their size discourages private capital flows and indeed any growth-creating initiative. Assertions that the most indebted countries can service their debts in full at current interest rates only undermine the credibility of policymakers when they go on to assert that the fundamentals are relatively sound in Spain and Italy. Further lending at premium interest rates only increases the scale of the necessary restructuring. It is reasonable to argue that the recognition of debt unsustainability in Greece has been excessively deferred. It is not reasonable to argue that Greek reprofiling or restructuring taken alone will address a growing general confidence crisis.

A fundamental shift of tack is required toward an approach that is focused on avoiding systemic risk, restarting growth, and restoring arithmetic credibility, rather than simply staving off imminent disaster. The twin realities that Greece, Italy and Ireland need debt relief and that the creditors have only limited capacity to take immediate losses means that all approaches require increased efforts from the European centre. Fortunately, the likely consequence of doing more up front is lower cost in the long run.

The precise details are less relevant than having an appropriate broad approach, and of course will need to be aligned with European political reality. But the crucial elements in any viable strategy will include:

European authorities must restate their commitment to solidarity as embodied in a common currency, and the recognition that the failure of any European economy marks the failure of the European economy and is unacceptable. Toward that end they then should make these further commitments.

First, for program countries. Interest rates on official sector debt will be reduced to a European borrowing rate defined as the rate at which common European entities backed with joint and several liabilities by all the countries of Europe can borrow. A default to the official sector will not be tolerated, so there is no reason to charge a risk premium, since charging a risk premium needlessly puts the success of the whole enterprise at risk.

Second, countries whose borrowing rate exceeds some threshold -- perhaps 200 basis points over the lowest national borrowing rate in the Euro system -- should be exempted from contribution requirements for bailout funds. The last thing the marginal need is to be pulled down by the weak.

Third, there must be a clear and unambiguous commitment that whatever else happens, the failure of major financial institutions in any country will not be permitted. The most serious financial breakdowns-in Indonesia in 1997, Russia in 1998, and the United States in 2008 -- come when authorities allow there to be doubt about the basic functioning of the financial system. This responsibility should rest with the ECB with the requisite political support and cover provided.

Fourth, countries judged to be pursuing sound policies will be permitted to buy EU guarantees on new debt issuances at a reasonable price payable on a deferred basis.

These measures would do much to contain the storm. They would lead to a reduction in payments for debtor nations, protect states at risk from participation in rescue efforts or from shortfalls in market confidence, and assure that the ECB is able to continue backstopping the stability of European banks.

This leaves the question of what is to be done with sovereign private debt. Creditors gain nothing from breakdown. They have signalled that they will support an approach based on a menu of options. Some will want to sell out of their exposures at prices marginally above their current market value. Others who still regard sovereign European debts as worth par should be provided with appropriate reduced interest rate, longer-maturity options. Debt repurchases are a possibility if the private sector accepts sufficiently large present value debt reductions. The key standard by which any approach should be judged is the genuine sustainability of program country debt repayments on realistic assumptions.

Much of this will seem unrealistic given the terms of Europe's debate. It seemed highly unrealistic even 10 days ago that Italy's solvency would come into substantial doubt. If the political will can be found, the technical economics are not that difficult. But it will require a shift from politically driven arithmetic to arithmetically driven politics. The alternative to forthright action today is much more expensive action -- to much less benefit -- in the not-too-distant future. The next few weeks may well be among the most consequential in the history of the European Union.

(Lawrence H. Summers is the Charles W. Eliot University Professor at Harvard University and a former U.S. Treasury secretary. He speaks and consults widely on economic and financial issues.)

(sourced Reuters)

Irish, Portuguese Downgrade to Spark Rally

Thu, Jul 7, 2011 4:31
By Kevin Crowley & Anchalee Worrachate

Europe’s best-performing sovereign debt fund manager over the last decade, Sandor Steverink, correctly predicted Portugal’s downgrade this week and says Ireland will soon follow. Then it’s time to buy, he says.

Steverink, who is co-head of a team managing 26 billion euros ($37.3 billion) at Dutch insurer Delta Lloyd NV (DL), plans to buy Irish bonds once the ratings companies cut the debt to junk as Moody’s Investors Service did with Portugal on July 5. The extra yield investors demand for holding 10-year Portuguese bonds instead of the equivalent German bund surged yesterday to 10.13 percentage points, the most since at least 1997.

“What we’ve learned from emerging markets is that you get only a full recovery after a proper restructuring,” Steverink, 40, said in a telephone interview. “We think that’s necessary for Greece and, in the end, probably for Ireland and Portugal, too. We prefer Ireland above Portugal.”

Holders of Greek debt reaped the best returns of any sovereign-debt market in the two weeks after the government approved austerity policies and secured more European Union aid to pay creditors. Steverink’s Delta Lloyd Instl Obligatie LT fund has returned 5.8 percent a year since 2001, making it Europe’s best-performing euro-denominated government bond fund with more than 500 million euros of assets over the past three, five and 10 years, according to Morningstar Inc. Competitors at Aegon NV and Natixis SA say there are less risky ways to profit from Europe’s sovereign debt crisis.
Greek Rebound

Greek bonds returned 12 percent in a month after Standard & Poor’s slashed the country’s rating three steps to BB+, the top non-investment grade, on April 27, 2010, according to indexes compiled by the European Federation of Financial Analysts Societies and Bloomberg. Greek debt is today rated CCC, the lowest rating of any government in Europe. To read more article visit Bloomberg

Moody's cuts Portugal to junk, warns of 2nd bailout

Wed, Jul 6, 2011
By Andrei Khalip and Walter Brandimarte

LISBON/NEW YORK (Reuters) - Moody's became the first ratings agency to cut Portugal's credit standing to junk, warning the country may need a second round of rescue funds before it can return to capital markets.

The downgrade on Tuesday was not entirely unexpected and served as a reminder that Europe's debt troubles extend beyond Greece, which has dominated news headlines over its second financial bailout.

Some economists think Ireland may also need additional support, and investors worry Spain and Italy could be next in line for aid.

"It goes to show that this whole crisis isn't over just yet," said Jay Bryson, global economist for Wells Fargo Securities in Cape Hatteras, North Carolina. "Even if they cough up some more money for Greece, and that looks like it's a done deal, it's not over."

The protracted sovereign debt struggle has darkened the global economic outlook, cooling demand for Asia's exports and leaving financial markets on edge.

Mohamed El-Erian, co-chief investment officer for bond fund PIMCO, said it was unlikely that Europe's troubles would constitute a "Lehman moment" that paralyses the U.S. economy, but it was a drag on an already disappointing recovery.

The debt troubles add another wrinkle to the European Central Bank's interest rate decision on Thursday. Economists widely expect the ECB to raise its benchmark rate, which would be the second hike this year, to try to cool inflation.

But the move could raise already high borrowing costs for Portugal and other so-called "peripheral" European countries. Yields on long-term Portuguese government bonds are well above 10 percent, more than three times higher than those of Germany.

MISSING TARGETS

Moody's Investors Service slashed Portugal's credit rating by four levels, to Ba2, causing the debt-laden Iberian country to follow Greece into junk territory below investment grade. Greece is rated much lower, at Caa1.

Portugal in April became the third euro zone country to request a bailout, after Greece and Ireland.

Moody's cited heightened concerns that Portugal will not be able to fully meet deficit reduction and debt stabilization targets set out in its loan agreement with the European Union and International Monetary Fund.

Portugal is receiving funds from a three-year, 78-billion-euro EU/IMF bailout programme and does not need to issue long-term debt in the market until 2013.

But Moody's said there is an increasing probability Portugal will not be able to borrow at sustainable rates in capital markets in the second half of 2013 and for some time thereafter.

There was a "growing risk that Portugal will require a second round of official financing before it can return to the private market, and the increasing possibility that private sector creditor participation will be required as a pre-condition," Moody's said.

Of the three major ratings agencies, Standard & Poor's and Fitch Ratings both have Portugal at BBB-minus, the bottom of the investment grade range.

The first repercussions of the downgrade could come as early as Wednesday, when Portugal is due to place up to 1 billion euros in a 3-month Treasury bills auction. It may have to pay a higher premium to entice buyers.

Portugal's new centre-right government said in a statement that Moody's did not take into account strong political backing for austerity after a June 5 election, and an extraordinary tax announced last week.

"BIT EXTREME"

Unlike the previous minority Socialist government, the new ruling coalition has a comfortable majority in parliament to pass austerity measures and reforms. It did acknowledge, though, that the rating cut "shows the vulnerability of the country's economy amid a debt crisis."

It also reaffirmed commitment to deepening and speeding up austerity measures that the country vowed to implement under its bailout pact, saying a strong macroeconomic adjustment was "the only way to reverse the course and restore confidence."

The country has to slash its budget deficit to 5.9 percent of gross domestic product this year after overshooting its target last year, when the gap was 9.2 percent, and then reduce it to 3 percent by the end of 2013.

Anthony Thomas, Moody's analyst for Portugal, told Reuters "evidence that Portugal is meeting or indeed exceeding its deficit reduction targets" could be a positive that may lead the agency to change its outlook on the country's credit rating to stable from negative.

But he also said the outlook depends a great deal on whether euro zone officials will require private-sector participation when extending new financing to the region's troubled countries. Right now, such participation is planned to be only voluntary so as not to cause ratings agencies declaring it a "credit event."

Filipe Garcia, head of Informacao de Mercados Financeiros consultants in Porto, said Moody's move was "a bit extreme" and was likely to exacerbate concerns over Portugal's debt.

"The capacity to return to the markets after a while depends on a more global, structural solution by Europe rather than on what each troubled country does. I think it's too early to think of a second bailout for Portugal right now, not this year at least," he said.

Garcia said the ratings agencies were not taking into account the European Union's political determination to avoid a euro zone member's default, despite the union's strong support for Greece, which is in a far worse shape than Portugal.

"Either they don't believe in the power of the political will by the European Union to avoid default, or they are underestimating this political union," he said. (Reuters)

GLOBAL MARKETS-Euro firms as Greek drama grinds on; stocks dip

Mon Jun 13, 2011 3:19am GMT

* Shares extend a seven-week losing streak
* Euro's bounce seen short-lived after falling nearly 2% last week
* Banks warming to Greek debt rescue, EU and Berlin at odds
* China stocks lead laggards on policy tightening worries
By Saikat Chatterjee

HONG KONG, June 13 (Reuters) - The euro bounced on Monday, though its gains appeared short-lived as major European powers continue to haggle over a fresh rescue package for Greece, while Asian stocks extended a seven-week losing streak on fears the global recovery is losing steam.

Asian stocks outside Japan fell 0.6 percent to a 2-1/2 month low as weak global economic data and fresh worries about Greece weighed on investor confidence.

With the Federal Reserve's $600 billion bond purchase program set to expire by the end of June, investors have sought refuge in safe-haven assets like U.S. Treasuries even as politicians in Washington wrangle over extending its debt ceiling and the world's biggest economy lurches towards a technical default.

That kept the dollar near a one-week high against a basket of currencies and supported around 80 versus the yen , a day before a Bank of Japan meeting where it will consider expanding a loan program aimed at supporting certain industries, according to sources.

The euro edged higher after falling by nearly 2 percent last week, its worst weekly performance since mid-May, but its gains are expected to be limited by disputes among policymakers ahead of a meeting next week at which euro zone leaders are due to finalise a new rescue package for Greece.

It was up slightly at $1.4347 after dropping as far as $1.4285 on EBS in very early Asia trade and down from a one-month peak of $1.46966. Traders cited broad short-covering kicking in after players failed to chase the euro's early drop.

Ironically, the single currency's latest bout of weakness comes after ECB President Jean-Claude Trichet last week signaled a July rate hike, an indication that market players are expecting fewer rate increases after that.

BEYOND QE2

As the Fed's bond purchase plan winds down to a close with its last purchase of $50 billion of Treasuries this week, investors expect stocks, bonds, gold and the euro to weaken subsequently, according to a Reuters poll of 64 analysts and fund managers last month.

The end of "Quantitative Easing 2", or "QE2" as it is more popularly known, could reduce the flood of money that has travelled to Asia in recent months searching for higher yields and forcing the region's central banks to tighten monetary policy.

Data from fund tracker EPFR Global showed emerging market bond funds received new weekly money totaling $1.4 billion up to June 8, an eight-month high. Hard currency bond funds attracted $726 million, the highest in over three years.

Anticipating a slowdown in incremental flows, credit spreads widened slightly on Monday and Asian stocks traded on a weaker note though volume is expected to be subdued with holidays in Australia and before a slew of U.S. economic data this week.

The end of the final series of government bond purchases that marks the last phase of the U.S. plan launched in November 2010 does not mean the stimulus will come to a complete stop.

The Fed will reinvest maturing securities, mainly mortgage-related debt, which analysts predict will run at $12 billion to $16 billion per month.

Shares in Tokyo fell 0.8 percent, hurt by weak machinery data for April in a sign that reconstruction-related demand after Japan's massive March 11 earthquake has been slow to materialise.

Among the principal laggards on Monday were Chinese shares , which fell by more than 1 percent on concerns over the restructuring of local government debt and fears of further policy tightening to curb inflation.

The MSCI index of Asia Pacific shares outside Japan extended losses by 0.6 percent after falling for seven consecutive weeks.

The weakness in stocks helped bonds with yields on U.S. 10-year notes holding below 3 percent.

U.S. crude's front month futures was steady around $99 a barrel CLc1 and Brent was near $119 per barrel LCOc1.

Spot gold steadied around $1,530 per ounce after slipping almost 1 percent in the previous session while silver was held above the $36 line. (sourced Thomson Reuters)

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)

Greece ‘may still need help’

Britain’s Finance Minister believes Greece will need more help to recover from financial crises.

Monday09, 2011

GREECE may need more help to get through its debt crisis but Britain will argue it should not be part of any further rescue package, Finance Minister George Osborne said yesterday .

Ministers from the eurozone’s biggest economies met on Friday to discuss Greece’s debt situation and Mr Osborne indicated talks were continuing.

He said Greece’s lack of access to international debt markets was problematic but denied the country would necessarily be forced to default. "I certainly don’t think it’s inevitable that Greece is going to default," he told the BBC.

"I think it’s inevitable we are going to look at the Greek package and see what they can do to get through next year but that might involve additional assistance from, for example, the eurozone."

Mr Osborne admitted markets were sceptical about Greece’s ability to refinance maturing debt, something that had been assumed when international lenders first agreed to help Greece last year.

"The market is quite sceptical about that happening and I suspect a lot of my time over the next few weeks is going to be with other European finance ministers talking about how we try to help the Greeks get through this situation."

Mr Osborne said he did not want Britain to be part of any further bail-out of Greece, and was a "reluctant participant" in the European Union-International Monetary Fund bail-out of Portugal.

"I didn’t sign up to that approach. It was something signed up to by my predecessor. We certainly don’t want to be part of any bail-out of Greece, a second bailout of Greece."

The global economic environment remained a tough one, but it would be disastrous for Britain to abandon its deficit-cutting plan, he said. (sourced Reuters)

Euro zone crisis escalates on Greek debt fears

By Matthias Sobolewski and George Georgiopoulos

Mon Apr 18, 2011 8:03pm IST

BERLIN/ATHENS (Reuters) - Rising expectations that Greece will have to restructure its mountain of debt, possibly as early as the summer, sent the euro and the bonds of weak euro zone members tumbling on Monday in a dramatic escalation of the bloc's debt crisis.

German government sources told Reuters in Berlin that they did not believe Greece, which sealed a 110 billion euro ($157.7 billion) bailout from the EU and IMF last year, would make it through the summer without restructuring.

That development, combined with a new threat to Portugal's pending bailout from the success of an anti-euro party in Finnish elections, hammered market faith in the bloc's ability to avert a new wave of contagion to bigger countries like Spain.

After a brief lull in the crisis at the start of 2011, it has blown up again with full force and some analysts are now openly speculating that Greece and possibly other countries could eventually be forced to exit the bloc.

"You may see some countries deciding to leave the euro because they can't deal with the fiscal straitjacket that it imposes on them," Andrew Lynch, a fund manager at Schroders, told Reuters Insider.

A restructuring of Greek debt would be the first by a west European nation in over half a century and represents a challenge of epic proportions for EU policymakers struggling to reconcile the interests of their citizens with the costly steps needed to preserve the integrity of the 17-nation currency area.

The Greek government, saddled with a debt burden that is expected to swell to 160 percent of gross domestic product by 2013, has denied repeatedly that it plans to restructure and a government spokesman in Athens reiterated that stance on Monday, saying "we fully rule out" such a step.

"It would have catastrophic consequences," Bank of Greece Governor George Provopoulos said.

But government sources in Berlin told Reuters that this now looked unavoidable and suggested Greece should move fast, rather than wait until its funding situation gets critical next year.

"Decisive voices within the federal government expect that Greece will not make it through the summer without a restructuring," a high-ranking German coalition source told Reuters.

The euro , which has remained strong through the latest bout of turbulence, fell to its lowest level against the dollar in 11 days and the cost of insuring Greek debt against default shot higher.

Pressure on other so-called peripheral countries mounted as well, with Spanish 10-year bond yields pushing towards record highs near 5.6 percent and Portuguese yields at a new peak above 9.3 percent.

European officials have been at pains to stress that Spain can avoid the contagion that has forced Greece, Ireland and Portugal to seek rescues. Its much larger economy could strain the bloc's resources to breaking point if it did succumb.

But data on Monday showing an accelerated drop in Spanish housing prices in the first quarter and a treasury bill auction which saw yields spike higher will ring alarm bells across the currency area.

In neighbouring Portugal, representatives of the European Commission, European Central Bank and International Monetary Fund were meeting government officials to set the terms for the bloc's third rescue in a year following multi-billion euro deals for Greece and Ireland.

After an election in Finland, however, that bailout could come under threat.

The anti-euro True Finns party scored big gains in the Sunday vote and vowed immediately to push for changes to a Portuguese rescue that is expected to total 80 billion euros when it is finalised by a mid-May deadline.

It may take weeks to find out whether True Finns will become part of a new government in Helsinki and be able to deliver on that threat.

The party that won the most votes in Finland is pro-European and seems unlikely to compromise its stance even if it does end up in a coalition with True Finns.

But the result underscored the extent of public anger in northern Europe at the seemingly unrelenting series of new aid deals for stricken euro zone countries that mismanaged their economies and finances.

Any delay in approving the bailout deal for Portugal beyond May could leave the country scrambling for new sources of funding. It faces an election on June 5 and has warned it will run out of money around the same time.

"It is extremely difficult for politicians in Europe to ignore the strong signal from Finland," said Steen Jakobsen, chief economist at Saxo Bank.

"Ultimately this could mean a move away from bailouts with no burden sharing by private investors and banks," he added, saying the risks of a Greek restructuring before 2013 had increased sharply.

LEHMAN SPECTRE

Greece's debt load of 325 billion euros is nearly double the level most economists see as sustainable and far bigger than that of Argentina when it defaulted in late 2001.

In order to return the country to a sustainable path, most economists agree that it needs to wipe away roughly half the value of its outstanding debt, hitting private creditors with significant "haircuts" on their holdings.

But EU leaders have promised not to make private debt holders pay before 2013.

Doing so in the near-term, when the bloc remains vulnerable, could set off a contagion tsunami that engulfs Greek, German and French banks, raises pressure on Portugal and Ireland to restructure, and infects bigger euro zone members like Spain.

ECB Executive Board member Lorenzo Bini-Smaghi has likened the potential impact to the Lehman Brothers bankruptcy in 2008.

Winning creditor agreement for a milder form of restructuring, like a voluntary extension of debt maturities, will be difficult.

And even if it is achieved, it is unlikely to make enough of a dent in Greece's debt burden to ensure sustainability over the longer-term. Markets may view the "restructuring lite" option as merely the first step in a two-stage restructuring, with the real pain yet to come.

(Reporting and writing by Noah Barkin, editing by Mike Peacock, sourced Reuters)

EU finance ministers discuss crisis measures

Tuesday 15 March 2011, 13:31

BRUSSELS (Reuters) - European Union officials and finance ministers met on Tuesday to discuss details of an agreement on strengthening the euro zone bailout fund and resolving a year-long debt crisis.

Following are some comments from their meeting.

GREEK FINANCE MINISTER GEORGE PAPACONSTANTINOU

ON EUROPEAN STABILITY MECHANISM (ESM):

"The issue of seniority is one that is being discussed at the moment to clarify issues, and to make sure that it does not penalise countries such as Greece which are in a programme and want to re-enter the market."

EU ECONOMIC AND MONETARY AFFAIRS COMMISSIONER OLLI REHN

ON IRISH BAILOUT LOANS AND APPROACH TO TAXATION:

"Changing the corporate tax rate was not part of the programme agreed between the EU, IMF (Berlin: MXG1.BE - news) and the Republic of Ireland (Berlin: IIK.BE - news) ."

"We are both aware that it was a subject of discussion, and one can even say controversy, in the euro zone summit, and there was some relation made between this and the reduction of the interest rate."

"I see that it is very important that the European Union moves further on tax coordination on the basis of the current treaty, and therefore my colleague (EU tax commissioner) Algirdas Semeta is tomorrow presenting a proposal of the Commission on the Common Consolidated Corporate Tax Base (CCCTB), which is a very reasonable and gradual way forward in terms of rationalising the tax systems in the euro zone and more probably in the European Union."

"Therefore I would only encourage a constructive approach by Ireland on policies related to taxation, especially on the Commission proposal on a Common Consolidated Corporate Tax Base -- the CCCTB -- which will be presented tomorrow."

ON PORTUGUESE ECONOMIC REFORMS:

"These measures are intended to ensure fiscal sustainability of Portugal and to stimulate economic growth and job-creation through structural reforms ... It is not going to be easy."

ON THE EUROPEAN STABILITY MECHANISM (ESM):

"Concrete details are still being discussed in the Eurogroup. There is going to be a case-by-case assessment of any country and a programme is required to qualify for this kind of flexibility."

GERMAN FINANCE MINISTER WOLFGANG SCHAEUBLE

ON THE EUROPEAN STABILITY MECHANISM (ESM):

"We will pay in a part in capital, a part in callable capital and use guarantees. Particulars still have to be cleared up with the rating agencies so we have AAA."

ON THE EUROPEAN FINANCIAL STABILITY FACILITY (EFSF):

"Nobody doubts anymore that the 440 billion euros (381.8 billion pounds) will be made available and they will be available as long as the EFSF exists. Largely, we will have to increase the guarantees.

"Whether we will also add other elements ... remains to be seen."

"Even a temporary exit of one country would be a failure and would be connected to unpredictable consequences for Germany."

"To say there will be problems in the Bundestag is a premature judgement. I have not heard much criticism, not even from the opposition."

ON CHANGING TERMS OF IRISH EU BAILOUT LOANS:

"Therefore we had to tell the new Irish colleague, with all due respect, maybe you need more time, but if Ireland wants to renegotiate, the problems in the banking sector also emerged due to the corporate tax rate. If the Irish want additional concessions from us, we say maybe you do want to change something about your tax rate."

IRISH FINANCE MINISTER MICHAEL NOONAN

"When you add the requirements of the banks onto sovereign debt, you can reach an unsustainable position."

AUSTRIAN FINANCE MINISTER JOSEF PROELL

ON CHANGING TERMS OF IRISH EU BAILOUT LOANS:

"If Ireland wants anything, it has to deliver something. Greece showed that.

"Ireland must say now what it wants and ... what it can give."

ON FINALISING CHANGES TO THE EUROPEAN FINANCIAL STABILITY

FACILITY (EFSF) AND EUROPEAN STABILITY MECHANISM (ESM):

"I am very, very optimistic we will close a deal with the heads of government."

SPANISH ECONOMY MINISTER ELENA SALGADO

ON SANCTIONS FOR BUDGET SINNERS:

"The application of reverse majorities will be used for all fiscal issues."

"With regard to macroeconomic imbalances, as we have always said in Spain, they have diverse causes, which are not always easy for nations to avoid, so the responsibility of states is not the same as with fiscal imbalances."

ON TARGETS FOR SURPLUSES AND DEFICITS:

"Disequilibriums in both senses are contemplated, including macroeconomic disequilibriums."

"'Penalise' is not the right word, because what we are trying to achieve is the competitiveness of the European Union, but what is certain is that it is contemplated that disequilibriums can have different signs." (Reporting by Charlie Dunmore, Annika Breidthardt, Daniel Flynn, John O'Donnell, courtsey news by Reuters)