BRUSSELS (Reuters) – U.S. rating agency Standard & Poor’s cut its credit rating of the euro zone’s EFSF rescue fund on Monday, and Greece was under pressure to break a deadlock in debt swap talks if it is to avoid an unruly default.
French Finance Minister Francois Baroin said there was no need to shore up the European Financial Stability Facility after S&P downgraded it by one notch to AA+ from triple-A, echoing the view of Germany, the only major euro zone member to retain a top-notch credit rating.
S&P said in a statement the decision was all but inevitable following identical cuts three days earlier to the creditworthiness of France and Austria, two of the EFSF’s guarantors.
“We consider that credit enhancements that would offset what we view as the now-reduced creditworthiness of the EFSF’s guarantors and securities backing the EFSF’s issues are currently not in place,” the agency said in a statement.
“We have therefore lowered to AA+ the issuer credit rating of the EFSF, as well as the issue ratings on its long-term debt securities.”
Financial markets, which had fallen after the mass downgrades of euro zone members on Friday, showed little reaction to the latest blow — which had been expected — and Japan, a major buyer of EFSF bonds, said they remained an “attractive” investment.
A growing number of experts, including a Standard & Poor’s official, warned that a Greek default was on the cards, after Greece’s talks with creditors broke down on Friday.
Greece was under growing pressure to secure a last-ditch agreement with its private creditors to accept voluntary losses on their holdings of Greek bonds.
Athens risks going bankrupt when 14.5 billion euros of bond redemptions fall due in late March. Without a private sector bond swap involving a voluntary writedown, a 130 billion euro second international bailout for Greece could fall apart.
The talks with creditor banks broke down because of different views on what interest rate is acceptable, the head of the group leading private sector talks said.
Charles Dallara, managing director of the Institute of International Financial, said the banks were “very surprised” at the stance taken by some officials representing both governments and multilateral institutions, without naming them.
The EFSF was set up by the 17 governments that share the European single currency in May 2010 and has so far been used to provide emergency loans to Ireland and Portugal. It is also expected to contribute to a second bailout of Greece.
The fund has an effective lending capacity of 440 billion euros, which depends on guarantees, mainly from the euro zone’s AAA countries, only four of which now remain: Germany, Luxembourg, Finland and the Netherlands.
LENDING CAPACITY UNAFFECTED
In a statement, the EFSF said the downgrade would not affect its lending capacity, and emphasized that its short-term rating remained at S&P’s top level.
“The downgrade to ‘AA+’ by only one credit agency will not reduce EFSF’s lending capacity of 440 billion euros,” said the fund’s chief executive, Klaus Regling.
“EFSF has sufficient means to fulfill its commitments under current and potential future adjustment programs until the ESM becomes operational in July 2012,” he added.
The ESM — the European Stability Mechanism — is a permanent rescue fund that is expected to have an effective capacity of 500 billion euros, based on paid-in capital of 80 billion euros and callable capital of 620 billion euros.
French Finance Minister Francois Baroin said there was no need to shore up the EFSF despite the S&P rating downgrade.
“The EFSF has kept intact its ability to lend, with enough means and guarantees to fulfill the full range of its present and future commitments,” he said in a statement. “There is therefore no need to act on the EFSF at the moment.”
German Chancellor Angela Merkel’s spokesman, Steffen Seibert told reporters: “The government has no reason to believe that the volume of guarantees that the EFSF has now should not be sufficient to fulfill its current obligations.
“We should not forget that it has been decided to significantly move forward the ESM and to have it in place in mid-2012, one year earlier than planned.”
There was also support from Japan, with Finance Minister Jun Azumi saying Tokyo’s trust in EFSF bonds, in which it has so far invested 21 billion euros, had not been shaken.
“Japan has bought them by certain amounts and our stance will not immediately change just because of the downgrade,” Azumi told reporters after a cabinet meeting.
The euro hovered just above a 17-month trough against the dollar early in Asia on Tuesday, but reaction to the S&P downgrade was muted. Trading overnight was subdued as U.S. markets were shut for the Martin Luther King holiday.
The head of Austria’s debt office told Reuters the loss of Vienna’s AAA status had also been priced into the market already, and Austria was able to sell treasury bills on Monday at rates very close to zero.
French President Nicolas Sarkozy brushed off the historic loss of Paris’ top credit rating for the first time since 1975, a blow to his campaign for re-election in May, saying France’s policy would not be dictated by rating agencies.
Contrasting S&P’s move with a statement by rival watchdog Moody’s, which still has France on an Aaa rating, he said: “My deep belief is that it changes nothing. We must reduce the deficit, we must reduce our spending and we must improve the competitiveness of our economy to return to a path of growth.”
LOSERS TO PAY?
Italian Prime Minister Mario Monti, whose debt-laden country was downgraded by two notches along with Spain, called last week during a visit to Berlin for the EFSF to be increased to ward off attacks on his country’s bonds.
But a senior politician in Merkel’s conservative CDU party, Michael Meister, said it was the downgraded countries that should increase their guarantees for the fund.
“Germany was not downgraded so our contribution should not be changed. Countries that were affected must contribute more to the guarantees,” Meister told Reuters.
Sources familiar with Greece’s talks with its private creditors said EU paymaster Germany was pressing for new bonds to be given to banks in the planned swap to carry a low coupon of less than four percent that would increase the banks’ effective losses to 75 percent.
The IMF was also weighing on the talks by warning that the Greek economy and the euro zone’s economic outlook have worsened since the bailout package was agreed in October, raising Athens’ funding needs to make its debt sustainable by 2020, they said.
Greece put a brave face on the standoff. “There is a little pause in these discussions,” Greek Prime Minister Lucas Papademos told CNBC television. “But I am confident they will continue and we will reach an agreement that is mutually acceptable in time.”
(Additional reporting by Lefteris Papadimos in Athens, Steve Slater and Richard Hubbard in London, Jan Strupczewski in Brussels and Fiona Ortiz in Madrid; Writing by Paul Taylor; Editing by Tim Pearce and Alex Richardson)
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2012年1月17日星期二
2012年1月9日星期一
For euro zone, the heat is on again
BERLIN (Reuters) – The euro zone crisis seemed to vanish from the headlines for a brief moment as 2011 ticked over into 2012, but it is about to return with a vengeance.
The coming months will be decisive in determining whether European leaders can hold their increasingly fragile currency bloc together or will stumble in the face of a daunting set of political, economic and financial obstacles lined up in their path at the start of the new year.
In Greece, where the crisis started over two years ago, the government is in a race against time to agree a bond-swap deal with banks that is crucial to a new 130 billion euro bailout package from European partners and the International Monetary Fund (IMF).
Without that package, Athens faces the threat of a debt default in March.
But talks with the banks and investment funds that are being asked to accept 50 percent losses on their Greek bonds to help pay for the bailout have dragged on for weeks, sowing doubts about whether Athens can really deliver.
“The risk of a disorderly Greek default is once again on the rise, with the threat of contagion to Italy and others,” economists at Barclays Capital said last week.
Compounding the challenge, both Greece and France face elections within months that could complicate decision-making at the national level in two key states and thwart the broader bloc’s ability to act swiftly at a time when pressure is high to bed down agreements sealed at an EU summit last month.
A key element of the summit package was a deal to funnel 200 billion euros to the IMF, money that could be used to offer precautionary credit programmes to Italy and possibly Spain.
But the euro zone is struggling to get the 50 billion euros it needs from nations outside the currency bloc to meet its goal. A senior German official told Reuters on condition of anonymity that securing the participation of Britain, which has shown no inclination to contribute, was absolutely crucial.
Even if those funds are secured, neither Italy nor Spain have shown any willingness to accept aid — and the stigma and greater fiscal oversight that would come with it.
Italian 10-year bond yields have pushed back above the 7 percent mark over the past week, approaching record euro-era highs, and both Rome and Madrid must sell bonds this week in the first major market tests of 2012 for the euro zone’s third and fourth biggest economies.
END OF MERKOZY
The Greek election, expected by the end of March, seems unlikely to produce an outright winner, meaning coalition talks could drag out and prolong uncertainty.
In France, polls suggest there is a good chance President Nicolas Sarkozy, who has steered Europe‘s crisis response along with German Chancellor Angela Merkel, could be pushed out of office by his Socialist challenger Francois Hollande.
While Merkel and Sarkozy have polar-opposite temperaments and clashed frequently when the Frenchman first took power in 2007, they are both conservatives, born just half a year apart, and have developed an effective, even close, partnership after years of high-pressure crisis summits.
And after years of frustration with the French president’s shoot-from-the-hip style, government officials in Berlin say they are now worried about the end of “Merkozy”, the most important relationship in Europe, in the middle of the crisis.
A cut in France’s triple-A credit rating in the weeks ahead could also upset the delicate Franco-German balance, although some economists believe it could force the French to accept more far-reaching fiscal reforms, regardless of who wins the two-round election in April and May.
“It won’t be Merkozy anymore. It will be Angela Merkel and (IMF chief) Christine Lagarde dictating policy in Europe,” said French economist Jacques Delpla.
“The next French president, whether its Hollande or Sarkozy, won’t have many options. The deficit will need to be cut, taxes increased and spending cut.”
RECESSION RISK
Fittingly, Merkel and Sarkozy kick off 2012 with a Monday meeting in Berlin to prepare an EU summit scheduled for January 30 that is expected to focus on efforts to boost growth.
That is perhaps the biggest challenge of all for the bloc. After several years of fiscal consolidation to push down debts and deficits swollen by the global financial crisis of 2008/09, the euro zone is headed for recession — a factor that has pushed the euro down to 16-month lows against the dollar.
Even the bloc’s economic powerhouse Germany is at risk of recession. Greece is entering its fifth straight year of contraction, with no hope of paying down its massive debt.
But restoring market confidence in the finances of struggling euro area countries and getting their economies working again seem like contradictory goals at this point.
“In the current market environment there is no room for using a Keynesian-type expansionary fiscal policy to boost demand in countries with low growth – the markets will simply not accept such a strategy,” Deutsche Bank said in a confidential note on the crisis prepared for the German government late last year.
One bright spot is the European Central Bank (ECB), which is showing greater flexibility under its new President Mario Draghi, euro zone officials say.
The ECB’s decision last month to provide cheap long-term loans to banks has helped assuage fears about the financial sector and could support sovereign debt sales going forward.
“We’re already seeing that Draghi is more flexible than Trichet,” the senior German official said, referring to the Italian’s French predecessor Jean-Claude Trichet. “He won’t put a bazooka in the window for everyone to see but he’ll do what it takes.”
The big question is whether this buys Europe’s leaders the time they need to overcome the formidable challenges they face in the new year.
(Reporting by Noah Barkin; Editing by Rosalind Russell)
http://tourism9.com/
The coming months will be decisive in determining whether European leaders can hold their increasingly fragile currency bloc together or will stumble in the face of a daunting set of political, economic and financial obstacles lined up in their path at the start of the new year.
In Greece, where the crisis started over two years ago, the government is in a race against time to agree a bond-swap deal with banks that is crucial to a new 130 billion euro bailout package from European partners and the International Monetary Fund (IMF).
Without that package, Athens faces the threat of a debt default in March.
But talks with the banks and investment funds that are being asked to accept 50 percent losses on their Greek bonds to help pay for the bailout have dragged on for weeks, sowing doubts about whether Athens can really deliver.
“The risk of a disorderly Greek default is once again on the rise, with the threat of contagion to Italy and others,” economists at Barclays Capital said last week.
Compounding the challenge, both Greece and France face elections within months that could complicate decision-making at the national level in two key states and thwart the broader bloc’s ability to act swiftly at a time when pressure is high to bed down agreements sealed at an EU summit last month.
A key element of the summit package was a deal to funnel 200 billion euros to the IMF, money that could be used to offer precautionary credit programmes to Italy and possibly Spain.
But the euro zone is struggling to get the 50 billion euros it needs from nations outside the currency bloc to meet its goal. A senior German official told Reuters on condition of anonymity that securing the participation of Britain, which has shown no inclination to contribute, was absolutely crucial.
Even if those funds are secured, neither Italy nor Spain have shown any willingness to accept aid — and the stigma and greater fiscal oversight that would come with it.
Italian 10-year bond yields have pushed back above the 7 percent mark over the past week, approaching record euro-era highs, and both Rome and Madrid must sell bonds this week in the first major market tests of 2012 for the euro zone’s third and fourth biggest economies.
END OF MERKOZY
The Greek election, expected by the end of March, seems unlikely to produce an outright winner, meaning coalition talks could drag out and prolong uncertainty.
In France, polls suggest there is a good chance President Nicolas Sarkozy, who has steered Europe‘s crisis response along with German Chancellor Angela Merkel, could be pushed out of office by his Socialist challenger Francois Hollande.
While Merkel and Sarkozy have polar-opposite temperaments and clashed frequently when the Frenchman first took power in 2007, they are both conservatives, born just half a year apart, and have developed an effective, even close, partnership after years of high-pressure crisis summits.
And after years of frustration with the French president’s shoot-from-the-hip style, government officials in Berlin say they are now worried about the end of “Merkozy”, the most important relationship in Europe, in the middle of the crisis.
A cut in France’s triple-A credit rating in the weeks ahead could also upset the delicate Franco-German balance, although some economists believe it could force the French to accept more far-reaching fiscal reforms, regardless of who wins the two-round election in April and May.
“It won’t be Merkozy anymore. It will be Angela Merkel and (IMF chief) Christine Lagarde dictating policy in Europe,” said French economist Jacques Delpla.
“The next French president, whether its Hollande or Sarkozy, won’t have many options. The deficit will need to be cut, taxes increased and spending cut.”
RECESSION RISK
Fittingly, Merkel and Sarkozy kick off 2012 with a Monday meeting in Berlin to prepare an EU summit scheduled for January 30 that is expected to focus on efforts to boost growth.
That is perhaps the biggest challenge of all for the bloc. After several years of fiscal consolidation to push down debts and deficits swollen by the global financial crisis of 2008/09, the euro zone is headed for recession — a factor that has pushed the euro down to 16-month lows against the dollar.
Even the bloc’s economic powerhouse Germany is at risk of recession. Greece is entering its fifth straight year of contraction, with no hope of paying down its massive debt.
But restoring market confidence in the finances of struggling euro area countries and getting their economies working again seem like contradictory goals at this point.
“In the current market environment there is no room for using a Keynesian-type expansionary fiscal policy to boost demand in countries with low growth – the markets will simply not accept such a strategy,” Deutsche Bank said in a confidential note on the crisis prepared for the German government late last year.
One bright spot is the European Central Bank (ECB), which is showing greater flexibility under its new President Mario Draghi, euro zone officials say.
The ECB’s decision last month to provide cheap long-term loans to banks has helped assuage fears about the financial sector and could support sovereign debt sales going forward.
“We’re already seeing that Draghi is more flexible than Trichet,” the senior German official said, referring to the Italian’s French predecessor Jean-Claude Trichet. “He won’t put a bazooka in the window for everyone to see but he’ll do what it takes.”
The big question is whether this buys Europe’s leaders the time they need to overcome the formidable challenges they face in the new year.
(Reporting by Noah Barkin; Editing by Rosalind Russell)
http://tourism9.com/
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