Italy, Spain, Portugal Among Six Cut by Moody's

Tue, Feb. 14, 2012

(Bloomberg) -- Moody's Investors Service cut the debt ratings of six European countries including Italy, Spain, Portugal, Slovakia, Slovenia and Malta, and said it may strip France and the U.K. of their top Aaa ratings, citing Europe's debt crisis. Caroline Hyde and Mark Barton report on Bloomberg Television's "First Look." (source: Bloomberg)

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)

Rio Tinto may invest EUR 1 billion in Portuguese iron ore mines -Report

Monday, 24 Oct 2011

Portuguese news agency Agencia Lusa reported citing an unidentified person close to the negotiations that mining giant Rio Tinto PLC may invest about EUR1 billion in northern Portugal Torre De Moncorvo mines which are considered to be among Europe largest iron ore deposits.

According to the report ortugal Economy Ministry confirmed it is negotiating a big investment in the country's mining sector with one of the world's largest mining companies, but didn't name it.

(Sourced from Agencia Lusa)

Rio Tinto negotiates Portugal iron ore deal -sources

Fri Oct 21, 2011

LISBON Oct 21 (Reuters) - Mining giant Rio Tinto is negotiating with Portugal's government for a concession to mine iron ore in the north of the country in an investment worth more than 1 billion euros, sources close to the talks said on Friday.

The investment in the mines of Torre de Moncorvo would represent a big boost for the country, which sorely needs foreign investment at a time of deep recession, as it cuts spending to meet budget goals under a 78 billion euro ($107 billion) bailout.

Two sources with knowledge of the negotiations said an agreement should be reached by year-end.

The mines in Torre de Moncorvo were deactivated in the 1980s as they were not economically viable at the time. But Portugal has rich mineral deposits, including copper in the south of the country.

The economy ministry would not say if it was in talks with Rio Tinto, but a spokeswoman said "we are developing contacts and negotiations with various companies, some of them from the mining sector, to attract big investments to Portugal".

Rio Tinto would not comment.

(source Reuters)

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.

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)

GLOBAL MARKETS-Euro, crude ease on Portugal debt worries

Thu Mar 24, 2011 6:50am GMT

* Portugal bailout appears likely after PM resigns

* Nikkei down 0.2 percent, MSCI Asia ex-Japan up 0.9 percent

* U.S. stocks rise modestly on back of base metals gains

* Euro falls below $1.41, yen sits around 81 per dollar

* Oil eases 0.2-0.3 percent, gold steady near record (Fixes format of bullet point)

By Alex Richardson

SINGAPORE, March 24 (Reuters) - The euro fell and oil eased on Thursday after Portugal's prime minister resigned following parliament's rejection of his minority government's austerity programme, renewing worries about the scale of the euro zone's sovereign debt crisis.

Asian stocks outside Japan rose as higher commodities prices lifted materials shares, but Tokyo shares weakened as concerns over radiation leaks from an earthquake-damaged nuclear power plant continued to sap investor confidence.

European shares were expected to open little changed as uncertainty over Portugal, Japan and the Middle East gave investors little incentive to stake out fresh positions, while U.S. S&P 500 futures barely budged, pointing to a cautious start on Wall Street as well.

The resignation of Prime Minister Jose Socrates was seen as increasing the likelihood that Portugal will join Greece and Ireland in requiring a bailout from the European Union.

An official euro zone source estimated in January that if Portugal asked for international aid, it might need between 60 billion to 80 billion euros (up to $113 billion).

"Whether there will be a bailout for Portugal or not has some consequences on how things will pan out in Europe. Risks in the euro-zone seem to be increasing," said Serene Lim, a Singapore-based oil analyst at ANZ Bank.

Tokyo's Nikkei fell 0.2 percent. It remains 8 percent below its close on March 11, when a 9.0 magnitude earthquake and tsunami hit northeastern Japan, leaving around 25,600 people dead or missing and cutting power to millions of homes as well as factories, many of which are still struggling to come back online.

The estimated $300 billion in damage makes it the costliest natural disaster in history, and Japan is still grappling with the worst nuclear crisis since Chernobyl after the quake and tsunami crippled a power plant 240 km (150 miles) north of Tokyo.

"We are unlikely to see further gains in the near future, unless there's an end to the nuclear crisis in sight," said Takashi Hiroki, chief strategist at Monex Securities.

Disruptions in the global supply chain after the Japan quake continue to be felt around the world, most notably for auto makers and electronics firms. Toyota Motor said overnight it will slow some North American production because of parts shortages.

MSCI's measure of Asia Pacific shares outside Japan rose 0.9 percent, with Australia's resources-heavy index gaining 1 percent after a rally in prices of base metals such as copper the previous day.

Gains for materials shares lifted Wall Street on Wednesday, with the Dow Jones industrial average rising 0.6 percent and the broader S&P 500 gaining 0.3 percent.

DEBT CRISIS

The political upheaval in Portugal, along with looming elections elsewhere, was expected to deter European leaders from taking tough decisions to address the region's sovereign debt crisis when they meet at a summit this week.

They are unlikely to come up with a plan to strengthen the euro zone's bailout fund until June, which may also undermine the single currency.

"If the EU leaders fail to come up with measures to enhance the safety net that markets have wanted in their summit meeting, the euro could face further pressure down the road," said Sumino Kamei, senior currency analyst at Bank of Tokyo-Mitsubishi UFJ.

The euro bought around $1.4085 , having dropped as far as $1.4075 on electronic trading platform EBS in late New York trade on Wednesday.

The yen sat near 81 per dollar, a level it has hugged tightly in recent days with markets still wary of further central bank intervention to curb the Japanese currency if it strengthens past 80.50.

Leading central banks launched the first coordinated market intervention in more than a decade last week to reverse a run that had seen the yen hit a record 76.25 on expectations Japan -- a net creditor to the rest of the world -- would see a wave of funds being repatriated to pay for earthquake reconstruction.

Japanese government bonds rose, with benchmark 10-year futures up 0.19 point, while the 10-year yield eased 1.5 basis points to 1.2 percent.

Oil eased as the euro zone concerns rekindled worries about economic growth -- and hence energy demand -- in the bloc, although traders said continued political unrest in parts of the Middle East would prevent it from falling far.

U.S. crude fell 0.3 percent to $105.48 a barrel and Brent crude was off 0.2 percent at $115.35.

Spot gold traded around $1,437.90 an ounce, in sight of its record $1,444.40 set earlier in the month. ($1 = 0.707 Euros) (Editing by Kim Coghill,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