By Tamsin McMahon - Thursday, May 16, 2013 - 0 Comments
Tamsin McMahon explains why there’s a growing chorus of opposition to the fiscal straitjacket
As head of the world’s largest bond fund, Bill Gross has the kind of voice that can move markets. For much of the last few years Gross, who runs the $2-trillion Pacific Investment Management Co., has been warning about the day of reckoning that would befall countries like the U.S. and Britain as they buried themselves under mountains of debt. In 2010, Gross declared British bonds were “sitting on a bed of nitroglycerine” and dumped his entire holdings of U.S. Treasuries with a prediction that soaring government debts would pose the greatest risk to bondholders.
This year, Gross started buying again. His flagship mutual fund is now made up of nearly a third U.S. Treasuries. These days, Gross warns that the biggest problem facing Western economies isn’t the spectre of rising government debt, but that the sweeping budget cuts countries are using to try to repair their balance sheets are killing investor confidence. Governments “have erred in terms of believing that austerity, fiscal austerity in the short-term, is the way to produce real growth,” Gross told the Financial Times last month. “It is not. You’ve got to spend money.”
Gross is part of a growing chorus of opposition to the fiscal straitjacket being imposed on many European countries in the aftermath of the financial crisis. When they were first embraced, such policies seemed like a logical solution to the reckless spending that drove half of Europe to the brink of collapse, a necessary dose of tough medicine to clear the way for future growth. But critics argue that years of tax hikes and spending cuts have instead left countries awash in unemployment, stagnant growth and mounting debt.
By macleans.ca - Wednesday, December 19, 2012 at 6:00 AM - 0 Comments
In conversation with Jonathon Gatehouse
He is Canada’s foremost rags-to-riches story: a poor Austrian immigrant who built a global auto parts empire through his sweat and determination. But even though Frank Stronach recently stepped down from the board of Magna International, the firm he founded in 1957, he is far from retired. There’s a just-released autobiography, The Magna Man. And most intriguingly, Team Stronach— a new, self-funded political party that seeks to shake up the status quo in his homeland.
Q: You’ve been politically active before—running for the Liberals in 1988, and supporting your daughter Belinda’s campaigns. But why did you want to re-enter the fray at age 80?
A: I think we all have a conscience. And if things don’t work too well we always say, ‘I wish somebody would do something.’ And now, if my grandchildren ask me if I ever tried to improve society, I can say yes. But it’s not a game for me. Before, I made a lot of money—$40 million or $50 million a year. And now this is going to cost me maybe 20 million euros [$26 million]. And you know that when you enter the political arena there’ll be a lot of poisoned arrows flying toward you.
By The Associated Press - Wednesday, December 12, 2012 at 11:29 PM - 0 Comments
BRUSSELS – European Union finance ministers reached an agreement early Thursday to create a…
BRUSSELS – European Union finance ministers reached an agreement early Thursday to create a single supervisor for their banks — one of the most significant transfers of authority from national governments to regional authorities since the creation of the euro currency.
Under the deal, banks with more than €30 billion ($39 billion) in assets supervised or those that represent a significant proportion of their national economies will be placed under the oversight of the European Central Bank.
The deal gives the ECB broad powers, including the ability to grant and withdraw banking licenses, investigate institutions, and financially sanction banks that don’t follow the rules.
But perhaps most important is that it paves the way for Europe’s rescue fund to directly rescue the continent’s troubled banks.
“It’s real progress that opens up interesting possibilities,” said French Finance Minister Pierre Moscovici, without giving a specific date for when the first banks could seek direct aid.
That step is crucial because weak banks remain at the core of Europe’s financial problems. Many are teetering on the brink of bankruptcy after the investments they made up in boom times plummeted in value. Some governments have stepped in to save their banks, only to worsen their own finances in the process.
European leaders want to shield troubled governments from the burden of supporting their banks. That would be a huge relief to countries like Spain, which are facing the prospect of taking on enormous debts — and worrying markets — in order to bail out their banks.
The magnitude of the deal was reflected in the in size of the fight: Concerns ranged from which banks would be covered to how the ECB would manage to insulate its monetary responsibilities from the new powers to how the deal would affect EU countries that chose not to submit their banks to the ECB’s oversight.
This last point was a major contention: Countries that don’t use the euro worried their voices in the body that creates banking regulation — the European Banking Authority — would be drowned out by the new euro-machine, particularly since countries with other currencies can opt into the supervision.
The EBA sets all of the rules that govern EU banking, and Britain, in particular — a non-euro country with Europe’s largest banking sector — was nervous that the new supervision would mean all the banks under the ECB would vote together at the EBA, effectively steamrolling everyone else.
Ministers reached a compromise that ensures that measures can’t pass in the EBA without at least some support from countries outside of the ECB’s supervision.
By The Associated Press - Thursday, October 18, 2012 at 10:33 PM - 0 Comments
BRUSSELS – European Union leaders announced early Friday they had agreed to create a…
BRUSSELS – European Union leaders announced early Friday they had agreed to create a single supervisor for banks in countries that use the euro — without saying when it would become fully operational.
The deal, reached at a summit of EU leaders in Brussels, represented a shaky compromise between the Germans and French, who had been tussling over how to shore up the eurozone’s stricken banking system — one of the main causes of Europe’s debt crisis.
France has been pushing to get all 6,000 banks in the 17 euro countries under the supervision of one European body by the end of this year. Leaders agreed in June that, once a supervisor is in place, struggling financial institutions would be able to tap Europe’s emergency bailout fund, the European Stability Mechanism, directly.
At the moment, money to help put banks has to go through a country’s government — placing more strain on state finances. In Ireland’s case, the government’s attempts to rescue failing banks forced it into a bailout. Some fear Spain could face that fate, too.
But Germany’s Chancellor Angela Merkel, wary of using taxpayers’ money to prop up other countries’ banks, tried to put the brakes on the plan, insisting that creating the supervisor should be done slowly and that “quality must come before speed”.
The compromise included something for both — all 6,000 banks will be included, as France had wanted. But there is no firm deadline for the single supervisor to be up and running — other than to say that the “objective” is to finish the legal framework by January 1, and that work on its operational implementation “will take place during the course of 2013.”
“It is not because you vote on a law that you have the whole logistic framework in place the day after,” said Van Rompuy.
Despite the lack of a deadline, French President Francois Hollande hailed the agreement.
“The worst is over,” he said, referring to the crisis that has shaking the European Union to its roots.
However, there are still more issues under debate at the summit, which runs until Friday.
Merkel is pushing a proposal for the European Union’s monetary affairs commissioner to become an enforcer of the bloc’s budget rules — including the power to refuse member countries’ proposed spending and tax plans and send them back for changes.
Germany hopes that having a “budget czar” — a move that’s been bandied about for months — will help keep Europe from repeating past mistakes by stopping governments from overspending and needing expensive bailouts. But some countries, like France, are wary of handing control over their finances to unelected officials in a foreign capital.
On arrival Thursday, President Francois Hollande of France — increasingly the counterpoint to Germany’s weight in the EU — brushed off the suggestion as simply not on the table at this summit.
With unemployment in the region at a record 10.5 per cent, and growth grinding to a halt around the continent, the back-and-forth is beginning to frustrate some European officials. Jose Manuel Barroso, who is president of the EU’s executive arm, the European Commission, criticized the heel-dragging ahead of the meeting.
“There is not all over Europe the same sense of urgency,” said Barroso.
In addition, with no relief in sight for beleaguered Spain, the question of whether it will ask for a bailout itself looms. The government in Madrid said this week that it would decide in the coming weeks — although it is still hoping it can avoid asking for any kind of aid.
But the political pressure on Spain is great because should investors become convinced that Madrid will not request aid, they may once again sell off the country’s bonds, causing its borrowing rates to rise. If Spain were to be locked out of bond markets because of excessively high rates, the 17 countries that make up the eurozone would have to rescue it at huge financial cost.
“It would be helpful … if Spain asked for ESM aid,” said Van Rompuy, who is president of the European Council, the body composed of the leaders of all the EU countries. “But it is up to Spain to make up its mind.”
Leaders also praised the progress it said Greece had made toward reforming its economy and balancing its budget, though, without a new report by international lenders, no decision could be taken on badly needed continued aid for country.
On Thursday, rioters in Athens pelted police with Molotov cocktails and chunks of marble on Thursday to protest the stringent budget cuts the country has had to implement to secure its rescue loans.
Greece’s bailout creditors — the EU, the International Monetary Fund and the European Central Bank — have been engaged in tough negotiations in recent weeks over more budget cuts. The group of creditors, known collectively as the troika, has said it won’t release the next batch of loans until more savings are made. Without those loans, Greece will default and probably be forced to leave the eurozone.
Budget cuts have been blamed for sinking many countries in Europe into recession and have unleashed protests around the continent.
Van Rompuy said countries were starting to see the first positive effects of austerity, with deficit levels down and borrowing costs falling. But countries “are still suffering a lot,” he said. Some 25 million people are without a job in the EU and economic growth prospects are weak.
By macleans.ca - Tuesday, September 6, 2011 at 1:01 PM - 2 Comments
Franc will be pegged to the euro
In a move that roiled European financial markets and stunned analysts, Switzerland announced plans to peg the value of the Swiss franc to the euro on Tuesday. The pledge spurred an immediate sell-off of the currency, which had climbed in recent months as investors sought safe haven amid turmoil in the EU and the U.S.