German finance minister says worst of eurozone debt crisis seems over

By The Associated Press - Thursday, December 27, 2012 at 8:11 AM - 0 Comments

BERLIN – Germany’s finance minister says the worst of euro area’s debt crisis appears to be over after three years of worries over Greece and other members of the group of 17 European Union countries that use the single currency.

Finance Minister Wolfgang Schaeuble was quoted Thursday as telling the Bild newspaper: “I think we have the worst behind us.”

Schaeuble says Greece and others have recognized that they can only overcome the crisis by implementing reforms and that the Greek government — which has received two bailouts — “knows that it cannot financially overburden the other euro states”.

Some in Germany have expressed concern about the economy of neighbouring France. But Schaeuble says the government there “knows very well that every country must constantly conduct reforms to remain competitive.”

German Parliament approves deal to trim Greece’s debt load

By Geir Moulson - Friday, November 30, 2012 at 8:01 AM - 0 Comments

ERLIN – German lawmakers overwhelmingly backed a deal aimed at trimming Greece’s debt load and keeping the country financially afloat but the country’s finance minister insisted it would be irresponsible to raise hopes of more radical debt forgiveness soon.

Parliament voted 473-100 Friday to back the complex deal reached by European finance ministers on Tuesday after a marathon of negotiations. There were 11 abstentions.

The agreement paves the way for Greece to receive €44 billion ($57 billion) in critical rescue loans, without which the country would face bankruptcy and a possible exit from the euro.

It also contains measures including a debt buyback program and an interest rate cut on loans. Those are aimed at cutting back Greece’s debts and giving it more time to push through economic reforms and trim its budget deficit. Continue…

Budget clash leaves EU summit close to failure

By The Associated Press - Friday, November 23, 2012 at 7:54 AM - 0 Comments

BRUSSELS – The prospect of failure loomed over a European Union leaders’ summit intended to lay out the 27-country bloc’s long-term spending plans.

While heavyweights like Britain and France are pulling in opposite directions, smaller members, too, are threatening to veto a deal to make themselves heard.

Negotiators will try to navigate the myriad demands on the second day of the meeting Friday. A tense first day left many observers predicting leaders will need more time to bridge their differences over the bloc’s spending priorities for the years to come.

“I have my doubts that we will come to an agreement,” German Chancellor Angela Merkel said early Friday as she left the first day of the talks, which could stretch into Saturday.

The EU budget primarily funds programs to help farming and spur growth in the bloc’s less developed countries. In financial terms, it amounts to only about 1 per cent of the EU’s gross domestic product, but the real significance of the budget is that it lays bare the balance of power between the bloc’s members. Continue…

Budget clash leaves EU summit close to failure

By The Associated Press - Friday, November 23, 2012 at 3:00 AM - 0 Comments

BRUSSELS – The prospect of failure hangs over a European Union leaders’ summit intended to lay out the 27-country bloc’s long-term spending plans.

While heavyweights like Britain and France are pulling in opposite directions, smaller members are threatening to veto a deal to make themselves heard.

Negotiators will try to navigate the myriad demands on the second day of the meeting Friday. A tense first session left many observers predicting leaders will need more time to bridge their differences over the bloc’s spending priorities for the years to come.

Continue…

The danger of a Greek exit and why it matters to Canada

By Erica Alini - Thursday, November 22, 2012 at 2:57 PM - 0 Comments

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Greece celebrates bailout extension, but EU says no deal yet

By The Canadian Press - Wednesday, October 24, 2012 at 12:59 PM - 0 Comments

ATHENS, Greece – Greece’s Finance Minister said the country has been granted a long-sought extension to meet the terms of its bailout program — but the claim was swiftly shot down as “speculation” by the European Central Bank and lead lender Germany.

Finance Minister Yannis Stournaras said the deal was struck as part of weeks-long negotiations with its international creditors over a €13.5 billion ($17.56 billion) package of new austerity measures for the next two years, required for continued emergency loan payments.

“What have we achieved today? We have achieved the extension,” the minister told parliament. “If we had not been granted that extension, today we not only have needed to take measures worth €13.5 billion euros, but €18.5 billion ($24 billion).”

He added: “We have not gone bankrupt because we still have funds remaining from the previous installment.”

One of the conditions of Greece’s current €240 billion bailout program is that it reforms the economy so the country can eventually return to the bond markets to raise money.

Greece has asked for a two-year extension on its adjustment program, till the end of 2016, so that it ease the impact of further austerity measures and labour market reforms.

In Berlin, German Finance Minister Wolfgang Schaeuble bluntly dismissed Stournaras’ statement as “speculation”

“I can’t confirm this,” he told reporters.

“As far as the Federal Finance Ministry and the German government are concerned, there are no new developments.”

Schaeuble said creditors were still awaiting a report on Greece’s progress by the so-called troika of debt inspectors, from the European Union, the ECB and International Monetary Fund, before any decisions would be made.

ECB President Mario Draghi also poured cold water on the Greek statements.

“The review is not finished yet,” he said. “I understand progress has been made but that some parts need to be defined, and I don’t know anything more than that. I cannot comment on these rumours.”

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Elena Becatoros and Derek Gatopoulos contributed from Athens while Frank Jordans, Geir Moulson and Juergen Baetz contributed from Berlin.

Clashes break out at anti-austerity demonstration during Greek general strike

By The Associated Press - Thursday, October 18, 2012 at 7:10 AM - 0 Comments

ATHENS, Greece – Hundreds of youths pelted riot police with petrol bombs, bottles and chunks of marble Thursday as yet another Greek anti-austerity demonstration descended into violence.

Tens of thousands of people took to the street during the country’s second general strike in a month as workers across the country walked off the job to protest new austerity measures the government is negotiating with Greece’s international creditors.

The measures for 2013-14, worth €13.5 billion ($17.7 billion), aim to prevent the country from going bankrupt and potentially having to leave the 17-nation eurozone.

Riot police responded with volleys of tear gas and stun grenades as protesters ran from the area of clashes in the capital’s Syntagma Square outside Parliament, splitting the demonstration in two.

Hundreds of police were deployed in the Greek capital ahead of the demonstration, as such protests often turn violent.

However, a protest march by about 17,000 people in the northern city of Thessaloniki ended peacefully.

Thursday’s strike was timed to coincide with a European Union summit in Brussels later in the day, at which Greece’s economic fate will likely feature large.

The strike grounded flights, shut down public services, closed schools, hospitals and shops and hampered public transport in the capital. Taxi drivers joined in for nine hours, while a three-hour work stoppage by air traffic controllers led to flight cancellations. Islands were left cut off as ferries stayed in ports.

Athens has seen hundreds of anti-austerity protests over the past three years, since Greece revealed it had been misreporting its public finance figures. With confidence ravaged and austerity demanded, the country has sunk into a deep economic recession that has many of the same hallmarks of the Great Depression of the 1930s.

“We are sinking in a swamp of recession and it’s getting worse,” said Dimitris Asimakopoulos, head of the GSEVEE small business and industry association. “180,000 businesses are on the brink and 70,000 of them are expected to close in the next few months.”

Higher taxes expected to be levied in the new austerity program will destroy many of the struggling businesses that have managed to weather three years of the crisis so far, he said.

“In 2011, only 20 per cent of businesses were profitable. So these new tax measures present small businesses with a choice: Dodge taxes or close your shop.”

The country is surviving with the help of two massive international bailouts worth a total €240 billion ($315 billion). To secure them, it has committed to drastic spending cuts, tax hikes and reforms, all with the aim of getting the state coffers back under some sort of control.

But while significantly reducing the country’s annual borrowing, the measures have made the recession worse. By the end of next year, the Greek economy is expected to be around a quarter of the size it was in 2008. And with one in four workers out of a job, Greece has, along with Spain, the highest unemployment rate in the 27-nation European Union.

The country’s four-month-old coalition government is negotiating a new austerity package with debt inspectors from the EU, International Monetary Fund and European Central Bank. The idea is to save €11 billion ($14.4 billion) in spending — largely on pensions and health care — and raise an extra €2.5 billion ($3.3 billion) through taxes.

After more than a month and a half of arguing, a deal seems close. On Wednesday, representatives from the EU, International Monetary Fund and European Central Bank, said there was agreement on “most of the core measures needed to restore the momentum of reform” and that the rest of the issues should be resolved in coming days.

Greece is also seeking a two-year extension to its economic recovery program, due to end in 2014. Without the extension, it would need to take €18 billion worth of measures instead of the €13.5 it is currently negotiating.

Athens hopes to get the next loan installment around mid-November. Prime Minister Antonis Samaras has said the country will run out of cash by the end of that month, meaning Greece would most likely have to default on its debt and potentially end its membership of the euro currency.

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Elena Becatoros and Nicholas Paphitis in Athens contributed.

Merkel backs calls for EU intervention in budgets, suggests new European fund

By The Associated Press - Thursday, October 18, 2012 at 6:04 AM - 0 Comments

BERLIN – German Chancellor Angela Merkel endorsed a proposal for a top European Union official to be given the power to veto member governments’ budgets, and suggested Thursday that the bloc could set up a new fund to finance projects in struggling countries.

Merkel addressed Germany’s Parliament ahead of an EU summit starting later Thursday where leaders will debate tightening financial integration, creating a banking union and how to deal with the financial needs of Greece and Spain.

In a bid to keep European countries from overspending again in the future, Germany’s finance minister argues that the EU’s monetary affairs commissioner should have the power to veto budgets if they violate deficit rules.

Merkel acknowledged many nations don’t want to concede to Brussels the power to intervene in budgets. However, she said her government will “continue to push for it.”

“I am astonished that, no sooner does someone make a progressive proposal … the cry immediately comes that this won’t work, Germany is isolated, we can’t do it,” she said. “This is not how we build a credible Europe.”

Merkel again rejected the pooling of countries’ debts, an idea favoured by struggling countries that hope to regain investor confidence to lower their borrowing costs.

But she suggested countries could make binding pledges to conduct reforms and be granted money for a limited period and for specific projects from a new fund, possibly paid for by a tax on financial transactions that Germany and 10 other countries have agreed to introduce.

Long-term proposals for overhauling the EU appear likely to play a leading role at this week’s summit, with firm decisions not expected on more immediate matters.

Merkel again insisted Thursday that “quality must come before speed” as Europe works on setting up a continentwide bank supervision system — something that many countries would like to have in place in January. Berlin says that’s unrealistic.

“There are a lot of very complicated legal questions, and I am not making the issue more difficult than it actually is,” Merkel said.

The German leader pointed to last week’s award of the Nobel Peace Prize to the EU as a further incentive to ensure the euro’s long-term future.

“This decision is so significant precisely because it comes now,” she said. “It should be understood as an admonition, even more as an inducement and obligation for all of us in Europe to separate the important from the unimportant and focus on the core of the test in which we find ourselves.”

Braving protests, Merkel on lightning visit to Greece

By Derek Gatopoulos, Nicholas Paphitis, The Associated Press - Tuesday, October 9, 2012 at 5:28 AM - 0 Comments

ATHENS, Greece – German Chancellor Angela Merkel makes her first visit to Greece since the eurozone crisis began here three years ago. Her five-hour stop is seen by the government as a historic boost for the country’s future in Europe’s shared currency, but by protesters as a harbinger of more austerity and hardship.

Continue…

German finance minister keeps pressure on Greece

By The Associated Press - Monday, October 8, 2012 at 7:45 AM - 0 Comments

BERLIN – Germany’s finance minister is keeping the pressure on Greece to implement reforms and spending cuts before a visit by Chancellor Angela Merkel.

Merkel travels to Athens on Tuesday. Finance Minister Wolfgang Schaeuble rejected on ZDF television Sunday suggestions that the trip signals Greece will definitely get further bailout money from its creditors.

Greece’s debt inspectors are currently assessing whether Athens has made enough progress to secure the next €31 billion ($40 billion) tranche of its bailout. Schaeuble stressed that “Greece must fulfil its obligations, so that the next tranche can be paid out.”

He also underlined the need for Greece to regain competitiveness and said: “Those in Greece who tell people that Europe or even the German chancellor are to blame for their problems are lying to people in Greece.”

Germany ratifies permanent eurozone bailout fund

By The Associated Press - Thursday, September 27, 2012 at 2:43 PM - 0 Comments

BERLIN – Germany’s president has signed off on the ratification of the eurozone’s permanent €500 billion ($645 billion) rescue fund, clearing its last legal hurdle in Germany.

Joachim Gauck’s office said the head of state signed the European Stability Mechanism treaty Thursday.

The ratification in Germany, Europe’s biggest economy, had been delayed by a court case, but the Federal constitutional Court cleared the way for it to be signed two weeks ago, adding provisions that were agreed to by other eurozone countries last week.

The bailout fund is key to solving Europe’s crisis. The European Central Bank unveiled a plan to buy unlimited amounts of government bonds issued by troubled countries if they first apply for help from the ESM. Its board of governors will hold its first meeting Oct. 8.

Spain to push more austerity as markets await possible bailout request

By The Associated Press - Thursday, September 27, 2012 at 5:18 AM - 0 Comments

MADRID – The Spanish government met Thursday to put the final touches to a new round of austerity measures amid mounting concerns over the country’s economic future.

Many think the measures, which are expected to include higher taxes and changes to pensions, will be a precursor to a request for help from the European Central Bank.

Recession-hit Spain has come under pressure to tap an ECB bond-buying program, designed to keep a lid on the country’s borrowing costs. Throughout the summer, Spain has been hit with high interest rates on its bonds, raising speculation that the country might soon be forced to ask for an international bailout to help it manage its debts.

The ECB’s program comes with the condition that Spain has to first ask for assistance from the other 16 countries that use the euro before the central bank will step in and buy its bonds. So far, the government has been reluctant to ask for help for fear of the conditions the eurozone will attach to its aid.

Analysts say the government, led by Prime Minister Mariano Rajoy, hopes Thursday’s budget measures will be enough to stop the eurozone imposing further spending and deficit controls when Spain eventually does make a request for assistance.

The country is battling to fulfil an EU commitment to reduce its deficit from 8.9 per cent last year to 6.3 per cent in 2012, 4.5 per cent next year and to 2.8 per cent by the end of 2014.

Spain is at the centre of the euro currency crisis — its €1.4 trillion ($1.8 trillion) economy is the third largest in the eurozone and any request for a full bailout would stretch the region’s finances. The country is struggling in a recession to prop up its shaky banking sector burdened with toxic assets and support its heavily indebted regional governments.

Thursday’s budget package comes in the wake of anti-austerity protests in Madrid over the past two nights, big falls in Spanish stocks and increased borrowing rates.

Just hours before the government unveiled the new measures, the interest rate on Spain’s 10-year bond edged back over 6 per cent — the level it was at when the ECB announced its bond-buying plan.

“Markets have lost patience and now the government will have to ask for help,” said Rafael Pampillon, an economist at IE Business school in Madrid, adding that the government had thought it could survive without seeking the rescue.

“This country can’t go on with rates this high,” said Pampillon, adding, “Spain’s only solution is for the ECB to intervene.”

The 2013 budget is expected to save some €40 billion ($51 billion), with a 12 per cent cut in ministry spending.

The government also is expected to raise pensions by 1 per cent but stop indexing them to much higher cost of living rate increases. Other special taxes could be increased but no details have been forwarded. A new body to oversee regional government’s adherence to deficit reduction targets is also expected to be set up.

Beside huge regional government deficits, the country also has a major problem with banks hit hard by the collapse of a real estate sector. On Friday, an auditor will release the results of bank stress tests and the government will then judge how much of a €100 billion rescue loan it will tap to help bail them out. Initial estimates say the banks will need some €60 billion.

Rocking the eurozone today: Catalonia and Greece

By Scaachi Koul - Wednesday, September 26, 2012 at 2:08 PM - 0 Comments

The government of Catalonia, one of Spain’s autonomous regions, has called a snap election for Nov. 25 on the topic of self-determination. Voters will decide whether they want Calanonia’s status to stay as it is, or whether the region should take on more powers to handle its own assets (read: take more control over taxes). The election will, in effect, be a referendum on the future of Catalonia.

The news is rattling financial markets, as traders wonder whether Catalonia, Spain’s economic powerhouse, will default on its substantial share of its country’s debt.

Meanwhile in Greece, workers have walked off the job for the first strike since the current coalition government was formed in June. On Wednesday, around 50,000 people joined the union-organized anti-austerity march in Athens. The protest quickly turned violent. Trees in the capital’s National Gardens were set on fire and strikers smashed paving stones and marble panels with hammers to use them as weapons against the police.

The strike, though, hasn’t prevented Greece’s coalition government from agreeing on a proposed $14.87 billion worth of spending cuts, which they hope will satisfy the country’s creditors. The European Central Bank, the European Community and the International Monetary Fund have asked for more fiscal reforms from Greece as a precondition for the country accessing a further $39 in further bailout funds.

Bank of Spain warns of deep recession

By Ciaran Giles, The Associated Press - Wednesday, September 26, 2012 at 5:45 AM - 0 Comments

MADRID – The Bank of Spain warned Wednesday that the country is in a deep recession, a day after clashes in Madrid between protesters and the police led to 38 people arrested and 64 injured.

The demonstrations on Tuesday evening against the government’s austerity drive at a time of mass unemployment put in sharp relief the scale of discontent that’s brewing in a country suffering its second recession in three years and an unemployment rate of nearly 25 per cent.

In the wake of the clashes and a warning from the central bank’s that the country’s economy continues to shrink “significantly,” financial markets have grown increasingly nervous. The main IBEX index in Madrid was down a hefty 2.3 per cent, while Spain’s ten-year yield edged back up toward 6 per cent.

On Tuesday, several thousand people — 6,000 according to authorities — converged on the national Parliament building in central Madrid. More than 1,000 riot police blocked off access to the building, forcing protesters to crowd nearby avenues. Police baton-charged protesters at the front of the march and some demonstrators broke down barricades and threw rocks and bottles.

Smaller demonstrations Tuesday attracted hundreds of protesters in Barcelona and Seville.

The protesters are calling for fresh elections, claiming the government’s hard-hitting austerity measures are proof the ruling Popular Party misled voters when it won power last November.

Leaders of the protests said on their website that they would stage a fresh rally later Wednesday.

A National Police spokeswoman said Wednesday that 27 of the injured were police officers. She spoke on condition of anonymity because of police rules.

The government praised the police, saying the protest was an attack on democracy.

“I congratulate the police,” said Interior Minister Jorge Fernandez Diaz. “They did their duty.”

Opposition Socialist party spokesman Eduardo Madina said the government should take note of the popular discontent, adding that some images of the police charges displayed “pure brutality.”

The government is expected to present a new batch of economically painful reforms on Thursday when it unveils a draft budget for 2013. Even before enacting the new measures, the government was predicting a 1.5 per cent economic contraction this year. The Bank of Spain’s warning Wednesday suggests it may be more.

On Friday, an auditor will release the results of stress tests on Spanish banks hit hard by the collapse of the country’s real estate sector, which drove economic growth until the 2008 financial crisis hit. The government will then judge how much of a €100 billion loan it will tap to help bail out the banks. Initial estimates say the banks will need some €60 billion.

But Spain is also under pressure from investors to apply for European Central Bank assistance in order to keep its borrowing costs down. Spanish Prime Minister Mariano Rajoy has yet to say whether Madrid will apply for the aid, knowing that such assistance comes with conditions.

Merkel: Germany can’t compromise in face of pressure to increase labour costs

By The Canadian Press - Tuesday, September 25, 2012 at 8:51 AM - 0 Comments

BERLIN – Chancellor Angela Merkel insisted Tuesday that Germany must keep its labour costs competitive, insisting that to ease up would do nothing to help Europe as less economically successful countries struggle with the debt crisis.

Germany enacted labour market reforms over the past decade and, in recent years, employers and employees have agreed on relatively restrained wage increases.

That’s helped Germany’s success on export markets, but some economists and officials outside Germany worry that that success comes at the cost of other, less competitive, countries in the 17-nation eurozone. The cap on wage increases has also limited German consumer spending on European goods.

Merkel has consistently pinpointed differences in competitiveness as a central problem in Europe and said much more needs to be done despite recent reforms in countries like Italy and Spain. Those reforms have led to “greater coherence,” Merkel said at an industry conference, but “we are still a fair way apart in Europe.”

“People say: you need uniform unit labour costs and so you Germans — we are often advised — must increase your unit labour costs faster so that you come closer more quickly to those who have to decrease (them),” Merkel said.

She insisted it was a point on which “we can make no compromises.”

“That may be a possibility if you have an eye only on the question of solving the euro crisis in the short term, but anyone who really has the long-term well-being of Europe at heart must not fall for it,” she said.

Growth, Merkel insisted, can only be generated if European economies are able to make products that can be sold even in emerging markets, where low-cost labour makes competition stiff.

Germany remains economically solid, although experts are predicting a slight decline in output in the current quarter. The economic strength has helped government finances; Merkel said Tuesday that the budget deficit should be 0.9 per cent of gross domestic product this year, well short of the 3 per cent limit eurozone countries are supposed to adhere to.

But the outlook is darkening, even for Germany, as Europe’s economic uncertainty weighs on the continent.

Credit ratings agency Standard & Poor’s on Tuesday lowered its growth forecasts for the eurozone. It expects a 0.8 per cent contraction this year and no growth in 2013. In July, it was estimating a 0.7 per cent contraction and 0.3 per cent growth.

It noted that the recessions in Spain and Italy are deepening and the so-called core countries like Germany and France are feeling the pinch as well.

Merkel reiterated her long-held stance that overcoming the crisis will be a long process, and noted that markets still question whether some countries can service their debts.

European Central Bank President Mario Draghi was due to speak at the same conference later. The ECB recently unveiled a plan to buy unlimited amounts of government bonds to help lower borrowing costs for struggling countries — but only if those nations first apply for aid from Europe’s bailout funds, which comes with strings attached.

Hundreds of police seal off Spanish Parliament

By Ciaran Giles, The Associated Press - Tuesday, September 25, 2012 at 5:28 AM - 0 Comments

MADRID – Spain’s Parliament took on the appearance of a heavily guarded fortress Tuesday, hours ahead of a protest against the conservative government’s handling of the economic crisis.

The demonstration, organized behind the slogan ‘Occupy Congress,’ is expected to draw thousands of people from around Spain and was due to start around 1730 GMT.

Madrid’s regional Interior Ministry delegation said some 1,300 police would be deployed though protesters say they have no intention of storming the chamber, only of marching around it.

They are calling for fresh elections, claiming the government’s austerity measures show the ruling Popular Party misled voters to get elected last November.

The protest comes as Spain struggles in its second recession in three years and with unemployment near 25 per cent.

Spain has introduced austerity measures and economic reforms in a bid to convince its euro partners and investors that it is serious about reducing its bloated deficit to 6.3 per cent of gross domestic product in 2012 and 4.5 per cent next year.

Concerns over the country’s public finances was evident earlier when the Treasury sold €3.98 billion ($5.14 billion) in short-term debt but at a higher cost.

It sold €1.39 billion in three-month bills at an average interest rate of 1.2 per cent, up from 0.95 per cent in the last such auction Aug. 28, and €2.58 billion in six-month bills on a yield of 2.21 per cent, up from 2.03 per cent.

The government is expected to present a new batch of reforms Thursday as it unveils a draft budget for 2013. A day later the results of bank stress tests carried out by an international auditing company are to be released.

Spain has already been granted a €100 billion loan by its 16 partner nations using the euro currency to help bail out those of its banks worst hit by the collapse of the country’s real estate sector in 2008.

Spain has yet to tap the fund and initial estimates say the banks will need some €60 billion.

A compulsory happiness survey?

By Lyndsie Bourgon - Thursday, August 16, 2012 at 2:37 PM - 0 Comments

Oli Scarff/Getty Images

Even in the best of times, Britons’ feelings for the European Union were lukewarm at most. In the worst of times — and things are looking remarkably bleak on both side of the English Channel – the treaty-sanctioned ties that link Britain to Brussels, it seems, are beginning to feel like a straight jacket.

And as in many strained relationships, even the little things can set off a scene. That’s what just happened last week. The most recent outburst of British frustration at the ways of the Continent wasn’t about Greece’s fiscal profligacy or Germany’s inertia. It was about a piece of labour legislation in Brussels.

“New EU employment ruling could stifle British business” warned the Telegraph last week about a new proposal that would require businesses to measure employee happiness before and after a layoff. The rules, drafted by Spanish MEP Alejandro Cercas, would make it mandatory for workplaces across the Union to assess mental health after redundancy. The results of such tests would then be used to determine if an employer should provide retraining, interview coaching and general job-seeking counsel to former employees.

Never mind that the directive is still moving through the legislative process and may never see the light of day, British businesses are up in arms. The idea is “burdensome” and “ridiculous,” a rep for manufacturers’ organization EEF told the Telegraph. It is “the last thing the British economy needs,” Tory MP David Nuttall echoed on the Daily Mail.

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Britain and the EU: Should they stay or should they go?

By Michael Petrou - Friday, July 13, 2012 at 1:51 PM - 0 Comments

Oli Scarff/Getty Images

Britain’s heart has never really been in its marriage to the European Union. Public buildings in small towns don’t fly the European Union flag alongside the Union Jack. Prime Minister David Cameron doesn’t often flank himself with the banner at press conferences. And of those Britons who could rouse themselves to vote in the last European Parliament election—and most didn’t—more than 20 per cent chose parties that want Britain out of the union.

This isn’t to say Britons despise the Continent. Tens of thousands work and study there. Others have vacation homes in France and Spain, or go often enough not to bother converting their euros back to pounds when they get home. They know they’ll be back. But in no other country in the union does the expression “going to Europe” mean quite the same thing. Britons visit Europe; Germans are already there.

So when it comes to the EU, even the most enthusiastically Europhilic Britons must make arguments for its merits soberly and pragmatically. Passionate appeals to European solidarity don’t wash. But with large chunks of the eurozone—made up of those countries sharing a common currency—in financial disarray, the merits of continued membership are not so obvious. In the U.K., public opinion is “hostile” to the union, says Charles Grant, director of the Centre for European Reform, a pro-EU think tank in London. Its leaders, he says, “appear to be incompetent people who aren’t capable of solving its problems.”

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EU moves to shore up Spain’s banks

By macleans.ca - Tuesday, July 10, 2012 at 9:55 AM - 0 Comments

Finance ministers from the European Union reached preliminary terms for a bailout of Spain’s debt-ridden banks this morning. 

The Associated Press reports the country will receive 30 billion euros after at the end of the month, and up to 100 billion after the country’s financial institutions have been further scrutinized. Finance ministers will finalize the agreement on July 20th.  

Although the plan was approved in Brussels, some countries, including Germany, the Netherlands and Finland will need to receive parliamentary approval from their national governments to move forward with the terms, according to CBC. 

The Spanish government was also given until 2014 to reach a budget deficit of three per cent, a year-long extension from the previous plan. 

The final terms of the bailout will not be known until September, after Spain’s banks have been properly inspected.  

Last month, the eurozone’s finance ministers agreed to offer Spain up to €100 billion to prop up its stricken banking sector, which has been weakened by toxic loans and assets from a collapsed property market.

Spain’s banks, Greece’s election increase euro tensions

By Gabriela Perdomo - Thursday, June 14, 2012 at 10:40 AM - 0 Comments

Spain woke up today with a dark cloud over its fiscal situation, Reuters reports. Following a downgrade of its credit rating by Moody’s Investors to just above “junk” status, 10-year government bond yields rose up to a record high of 7.02 percent. This compares to “the 7 percent mark that drove Greece, Ireland and Portugal to seek international bailouts.”

The rise in bond yields is also attributed to a statement made by the German chancellor:

Germany, Europe’s most powerful economy, rebuffed calls from other European leaders to help underwrite the region’s debt or guarantee deposits in euro zone banks. Chancellor Angela Merkel, addressing parliament in Berlin, labeled ideas such as issuing joint euro bonds or creating a Europe-wide bank deposit guarantee scheme as “miracle solutions”, and said they were “counterproductive” and would violate the German constitution.

Meanwhile, Greeks are preparing for an election this weekend by withdrawing massive amounts of money from their bank accounts and hoarding non-perishable foods from supermarkets.

Reuters reports that the results of Sunday’s vote is anyone’s guess:

The last published opinion polls showed the conservative New Democracy party, which backs the 130 billion euro ($160 billion) bailout that is keeping Greece afloat, running neck and neck with the leftist SYRIZA party, which wants to cancel the rescue deal.

Spain got the bailout, but some warn money always comes with strings attached

By Gustavo Vieira - Monday, June 11, 2012 at 11:28 AM - 0 Comments

Markets were trading on a positive note this morning after Spain announced on Saturday a $129-billion deal to refinance its ailing banking sector. That optimism, though, seems to be fading already as investors ponder the details of the deal and start fretting about the Greek election next Sunday.

On Sunday, Spanish Prime Minister Mariano Rajoy insisted financial aid for his country was unlike the bailout packages given to Portugal, Greece and Ireland, saying that it would require Madrid to reform its banks, but not dictate harsh austerity measures.

European Union Competition Commissioner Joaquin Almunia, however, had a word of advice for Spain: “Whoever gives money, never gives it for free,” he said. “There’re people coming here [to Spain] to make sure the money will be properly used,” Almunia said on Spanish radio Cadena Ser, as quoted in the Wall Street Journal.

According to Reuters, German Finance Minister Wolfgang Schaeuble said the International Monetary Fund, the European Central Bank and the European Commission would oversee the process of restructuring Spain’s faltering banks, as the European Commission combs through Spanish state finances.

From Reuters:

The bank rescue package will add up to 10 percentage points to Spain’s debt-to-gross-domestic-product level, taking it close to 90 percent, while the country faces a grinding recession, with nearly one worker in four unemployed.

Some economists believe Spain will eventually need a full state bailout, and that Italy may be next in line because of a similar combination of high debt and no economic growth, despite reforms initiated by Prime Minister Mario Monti.

Flaherty tells of eurozone talks, surprising some G7 counterparts

By Erica Alini - Wednesday, June 6, 2012 at 8:45 AM - 0 Comments

Ottawa disclosed that the finance ministers and central bankers of the G7 group of advance economies held emergency eurozone talks on Tuesday, even though it would have been up to the U.S. to make such an announcement, the Financial Times reports:

“Although there was no official announcement of the call, it was disclosed by Jim Flaherty, Canada’s finance minister, in Toronto.

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In Germany, an official said it was up to the US – as G7 chairman – to make any formal announcement. Government sources cautioned against exaggerating the importance of such a call, however, saying that it was normal for the G7 ministers to consult each other in the run-up to a G20 summit.”

Flaherty warned that some European banks are “undercapitalized” and European leaders have so far failed to build an “adequate firewall” to protect against such weaknesses. Prime Minister Stephen Harper urged action against troubles in the Eurozone on Tuesday, during an interview with CBC’s The National.

After Greece’s inconclusive elections last month, attention in Europe has shifted to Spain, whose banks are seeing a dearth of funds as some investors are moving their assets to safer institutions. The trouble started during the financial crisis, when some of the country’s lenders found themselves in dire straits after a housing bubble there went bust. By some estimates, it would take as much as $155 billion in fresh capital to restore the stability of the country’s financial system.

Jittery financial markets are asking an ever-higher premium on Spanish government bonds, close to seven per cent, the level that triggered bailouts in Greece, Ireland and Portugal.

Spain, Italy and France favour forming a banking union among eurozone economies, which they say would defuse the crisis. Berlin, however, has so far opposed the idea, fearing that German savers would end up financing the profligacy of Southern European countries.

NATO: Death by a thousand little spending cuts?

By Luiza Ch. Savage - Tuesday, May 29, 2012 at 2:36 PM - 0 Comments

Patrick Baz/AFP/Getty Images

The sobering reality became clear before the NATO summit even began. For a day and a half, the leaders of the world’s biggest economies hunkered down at the woodsy presidential retreat of Camp David, huddled around circular tables sharing frank details of the fragile state of the global economy and how in Europe, the situation could get much, much worse.

There, Prime Minister Stephen Harper slept in a small rustic cabin named Rosebud, where Soviet security guards were housed when Nikita Khrushchev met with Dwight D. Eisenhower in 1958. (Harper’s aides bunked in a nearby firehouse.) But the threat hovering over this meeting was economic. Ahead of a conference to decide how to keep the security alliance of Western democracies relevant two decades after the end of the Cold War, it was clear the piggy bank was empty.

When the security summit itself got rolling, NATO’s members agreed to an endgame to the war in Afghanistan. (Harper confirmed that Canadian troops would leave by March 2014, and pledged $110 million annually for three years to help pay the $4.1-billion annual bill allowing the Afghans to maintain their “own” military.) But the allies did not agree to spend more on their own defence budgets, something Washington has been asking them to do for years. Going forward, that is the issue facing the winner of the 2012 presidential election. In a world that looks likely to deliver more humanitarian crises like Libya—and at a time of fiscal tightening in Europe—can the debt-ridden U.S. still afford to pick up the cheque?

Continue…

Goldman Sachs moves in to advise Spain on its banks, as the EU contemplates a Greek exit

By Alex Ballingall - Friday, May 18, 2012 at 9:56 AM - 0 Comments

News out of Europe continues to paint a bleak picture of the Spanish economy, suggesting the country may be the next in line for a bailout.

On Thursday, credit rating agency Moody’s downgraded the rating of 16 Spanish banks, including Banco Santander, the largest lender in the eurozone, Reuters reports. The agency cited the weak economy and the government’s reduced ability to support troubled banks in the country as reasons for the downgrade.

There has also been widespread speculation that Bankia, the savings bank partially nationalized by the Spanish government last week, has seen a run of withdrawals. On Friday, Madrid enlisted American investment bank Goldman Sachs to advise it on the recapitalization of Bankia, the Financial Times is reporting. Analysts are predicting Bankia will need around $20 billion in new equity.

Meanwhile, the European Commission and European Central Bank are drafting contingency plans to be used in the event that Greece leaves the eurozone, Reuters reports, quoting EU trade commissioner Karel De Gucht. The news agency says it is the first time an EU official has openly acknowledged plans for a potential Greek exit, an event that some predict could spell the end of the eurozone altogether.