December 8, 2011
By Ian Traynor
The European commission could be empowered to impose austerity measures on eurozone countries that are being bailed out, usurping the functions of government in countries such as Greece, Ireland, or Portugal.
Bailed-out countries could also be stripped of their voting rights in the European Union, under radical proposals that have been circulating at the highest level in Brussels before this week’s crucial EU summit on the sovereign debt crisis.
A confidential paper for EU leaders by the EU council president, Herman Van Rompuy, who will chair the summit on Thursday and Friday, said eurobonds or the pooling of eurozone debt would be a powerful tool in resolving the crisis, despite fierce German resistance to the idea.
It called for “more intrusive control of national budgetary policies by the EU” and laid out various options for enforcing fiscal discipline supra-nationally.
The two-page paper, obtained by the Guardian, formed the basis for discussions on an interim report tabled by Van Rompuy, the European commission and the Eurogroup of countries that have adopted the euro, which is to be debated on Wednesday among senior officials in an attempt to build a consensus ahead of the summit.
December 6, 2011
By John Waggoner
Standard & Poor’s threat to downgrade 15 eurozone countries, including Germany, as well as Europe’s bailout fund has added pressure on the region’s leaders to find a lasting solution to their crisis at a summit this week.
German Chancellor Angela Merkel on Tuesday downplayed S&P’s warning, but the possibility that a downgrade of eurozone countries could also weaken the creditworthiness of Europe’s bailout fund complicates the region’s fight against the crisis.
The first warning on Monday came just hours after Merkel and French President Nicolas Sarkozy urged changes to the European Union treaty that would centralize decision-making on spending and borrowing for the 17 countries that use the euro. Tighter political and economic coordination among euro countries is seen as a precursor to further financial aid from the European Central Bank, the International Monetary Fund, or some combination.
December 2, 2011
By Sky News
Britain’s biggest banks have been urged by the City regulator to prepare for a break-up of the eurozone.
The head of the Financial Services Authority (FSA), Hector Sants, has told financial institutions to accelerate plans for a separation of the single currency area, Sky’s City editor Mark Kleinman has learned.
Senior excutives from Barclays, HSBC, Lloyds Banking Group, RBS, Santander UK and Standard Chartered were given the warning at a private meeting with the FSA boss.
Although the meeting was not specifically set to issue the warning, Mr Sants said the banks should run a wide range of stress tests as part of their contingency planning.
However, he stopped short of prescribing specific instructions or scenarios.
People close to the FSA told Kleinman that Sants’ warning was “the kind of contingency planning expected in a situation like this”.
The impact on different banks of a eurozone break-up would vary, depending on their exposures to sovereign debt of member countries.
Where as Barclays holds billions of pounds worth of European government bonds, Santander UK and Standard Chartered have little direct exposure.
Speaking on Jeff Randall Live with Joel Hills, Standard Chartered chief economist Dr Gerard Lyons warned that he does not forsee the single currency being able to survive the crisis in its current format.
He said: “It’s possible for the euro to survive if Greece has an orderly exit, which I think is possible in the second half of next year.
“But it’s like most things, one needs to have a vision as to what follows.
November 21, 2011
By Stephen Foley
“Bankers now control Europe. It seems 2012 is becoming more of a reality every day.” –KTRN
The ascension of Mario Monti to the Italian prime ministership is remarkable for more reasons than it is possible to count. By replacing the scandal-surfing Silvio Berlusconi, Italy has dislodged the undislodgeable. By imposing rule by unelected technocrats, it has suspended the normal rules of democracy, and maybe democracy itself. And by putting a senior adviser at Goldman Sachs in charge of a Western nation, it has taken to new heights the political power of an investment bank that you might have thought was prohibitively politically toxic.
This is the most remarkable thing of all: a giant leap forward for, or perhaps even the successful culmination of, the Goldman Sachs Project.
It is not just Mr Monti. The European Central Bank, another crucial player in the sovereign debt drama, is under ex-Goldman management, and the investment bank’s alumni hold sway in the corridors of power in almost every European nation, as they have done in the US throughout the financial crisis. Until Wednesday, the International Monetary Fund’s European division was also run by a Goldman man, Antonio Borges, who just resigned for personal reasons.
Even before the upheaval in Italy, there was no sign of Goldman Sachs living down its nickname as “the Vampire Squid”, and now that its tentacles reach to the top of the eurozone, sceptical voices are raising questions over its influence. The political decisions taken in the coming weeks will determine if the eurozone can and will pay its debts – and Goldman’s interests are intricately tied up with the answer to that question.
Simon Johnson, the former International Monetary Fund economist, in his book 13 Bankers, argued that Goldman Sachs and the other large banks had become so close to government in the run-up to the financial crisis that the US was effectively an oligarchy. At least European politicians aren’t “bought and paid for” by corporations, as in the US, he says. “Instead what you have in Europe is a shared world-view among the policy elite and the bankers, a shared set of goals and mutual reinforcement of illusions.”
September 15, 2011
By: Will Longbottom
The EU Commission today warned that economic growth in the eurozone will come to a near standstill by the end of the year due to the European debt crisis and turmoil in the financial markets.
In its latest economic forecast, the commission said the financial gloom is likely to persist until spring next year, but it would not result in a double dip recession.
Economic growth in the 17 euro countries will be only 0.1 per cent in the fourth quarter – down from 0.2 per cent in the third.
For the second half as a whole, the commission said it had revised down its prediction from its spring forecast by half a percentage point.
The worsening debt crisis and financial market volatility has dampened economic activity says the forecast.
Olli Rehn, the EU’s economic and monetary affairs commissioner, said: ‘The outlook for the European economy has deteriorated.
September 14, 2011
The Raw Story
By: Agence France-Presse
The eurozone debt crisis now threatening banks could destroy six decades of post-war European integration, top EU officials warned on Wednesday.
The dire warning that post World War II Europe risks disaster came shortly after Moody’s credit rating agency downgraded two French banks and as financial markets increasingly calculate the domino damage if Greece defaults.
“Europe is in danger,” Polish Finance Minister Jacek Rostowski, whose country currently chairs EU meetings, told the European Parliament in Strasbourg ahead of emergency talks between leaders from Germany, France and debt-hit Greece.
“If the eurozone breaks up, the European Union will not be able to survive,” Rostowski said of the currency bloc that comprises 17 of the 27 EU countries, a day before European finance ministers gather in Poland alongside US Treasury Secretary Timothy Geithner.
EU officials have warned repeatedly that Athens will not receive the next slice of aid, worth eight billion euros ($11.0 billion), unless it can persuade EU and IMF auditors, about to resume work, that it can overcome its deficit crisis.
At his most dramatic, Rostowski even warned that “war” could return to Europe if the crisis weakens fatally the EU, founded amid the rubble of World War II.
But his underlying message that the ties binding the EU are under intense strain was backed up European Commission head Jose Manuel Barroso.
The head of the EU executive described the crisis as “the most serious challenge of a generation. This is a fight… for the economic and political future of Europe.”
German Chancellor Angela Merkel, French President Nicolas Sarkozy and Greek Prime Minister George Papandreou are to discuss the Greek emergency at a teleconference scheduled for 1600 GMT on Wednesday.
Sarkozy will “do everything to save Greece,” government spokeswoman Valerie Pecresse said.
Analysts say that decision makers on financial markets are broadly working on an assumption that Greece will default to a substantial degree.
That would hit government creditors as well as private banks and other investors which accepted a partial loss on their investments in July under a yet-to-be completed second rescue for Greece.
“The question of whether or not Greece will default is pretty much solved for the financial markets,” said analysts at German lender Commerzbank, terming a “short-term” default “more or less unavoidable.”
However, EU economic affairs commissioner Olli Rehn maintained that “a default or exit of Greece from the eurozone would carry dramatic social, economic and political costs.”
He added: “Not only for Greece, but also for euro area member states, other EU states, as well as global partners.”
The stakes are rising by the day: after US President Barack Obama called for greater efforts in Europe, the BRICS grouping — Brazil, Russia, India, China and South Africa — said they would discuss possible aid to Europe over Greece next week.
The BRICS are meeting on September 22 in Washington on the sidelines of the annual meetings of the International Monetary Fund and World Bank.
IMF managing director Christine Lagarde described their plans as “an interesting development,” and added that she hoped bond-buying interventions from these emerging powers would be “large and not limited to certain states.”
Moody’s ratings agency downgraded two top French banks on Wednesday — Credit Agricole and Societe Generale — over their exposure to Greek sovereign debt. It left French banking major BNP Paribas on negative watch.
Shares in all three banks have plummeted in recent weeks, although stocks were mixed and the euro steadied in volatile trading on Wednesday.
Merkel fought on Tuesday to soothe alarm on markets over Greece, saying everything would be done to avoid an “uncontrolled insolvency” and stressing that the eurozone would remain intact.
That followed Obama saying the Greek conundrum would be a “significant topic” for the next G20 meeting in France.
Geithner is to attend exceptionally Friday’s meeting of EU finance ministers and central bankers.
Many analysts are concerned that Italy could be the next eurozone domino to fall, with enormous debt which stands at 120 percent of gross domestic product.
Its foreign minister, Franco Frattini, insists Rome is willing to give over control to a more federal Europe.
“Italy is ready to give up all sovereignty needed for a genuine European central government,” Frattini said.
Battling to prevent a debt crisis that has already claimed Greece, Portugal and Ireland, Silvio Berlusconi’s government hopes deputies will on Wednesday pass an austerity package to balance the books by 2013.
September 12, 2011
By: Barbara Zigah
According to the former head of the U.S. Federal Reserve Bank, Alan Greenspan, “the Euro is breaking down,” and in so doing is “creating very serious difficulties.” The breakdown is due, in part, to the variations between and among the various Eurozone economies. He points out that certain of the Eurozone’s northern countries, such as Finland and Germany, are highly disciplined in financial and budgetary matters, whereas their southerly counterparts, such as Greece, have built up tremendous debt burdens because they are primarily a consumption-oriented economy.
He questions the wisdom of a 17-member block of such diversity and believes that, in its present form, it “cannot go on.” “This,” he says, is the “lull before the storm.” It is also because of the integration of the worlds’ economies (and with 20% of all U.S. exports destined for the Eurozone), the fiscal crisis there matters.
And, he says, that poses trouble for the Eurozone’s banking sector which has tremendous exposure to sovereign debt; he specifically cited Greece as a country which is close to default. He pointed out that previously, Eurozone sovereign debt had been considered “ideal” collateral, now it’s on the verge of highly questionable.
He further commented during the question and answer portion of a symposium held in Washington, D.C. yesterday that the potentiality of a Euro break-up also poses trouble for the U.S. economy, which can’t recover with that degree of uncertainty. He noted that that uncertainty is restraining spending by consumers and hiring and investment by U.S. companies. While he doesn’t believe a U.S. recession is imminent, neither is he writing off that possibility.
In spite of earlier news of eroding business sentiment in Germany, the EUR/USD pair is trading higher at 1.4460 and eToro trader sentiment is predominantly bearish, with 47 sellers to 5 buyers.
July, 19 2010
Putting a bottle of olive oil into your shopping trolley is about to become more expensive because of Europe’s financial crisis.
In an unexpected spin-off from the Eurozone contagion hitting Mediterranean countries, Greek producers uncertain about the future of the debt-laden state are hoarding stocks of olive oil rather than selling them on the open market.
As a result, and because of growing demand for olive oil worldwide, prices have risen 20 per cent in a year, according to Britain’s biggest olive oil brand, Filippo Berio. Its managing director, Walter Zanre, warned there would be further increases in the cost of the oil, widely used by Britons for frying and as a salad dressing. Greece is the world’s third-largest olive oil producer, after Spain and Italy. “Greek growers consider stocks of olive oil in tanks to be a safer bet than cash in a Greek bank,” Mr Zanre told The Grocer magazine.
“Greece is a source of high quality extra virgin oil and this is putting additional pressure on prices. At some point the oil will have to be sold but in the short term it could cause a spike in prices.”
A spokeswoman for Filippo Berio’s distributors, RH Amar, said: “The economic climate in Spain is unstable and if the growers decide they can afford to use their oil as cash in the bank, prices are likely to spike as a result.”
Olive oil is already much more expensive than vegetable and seed oils, which have fallen in price this year following large rises last year. At Britain’s biggest supermarket, Tesco, yesterday a litre of Napolina extra-virgin olive oil cost £6.49 and a litre of Filippo Berio olive oil was £3.20, against £1.20 for a litre of rapeseed oil.
Even before the latest rises, there were concerns that some olive oils did not represent good value. In a taste test last year, the consumer group Which? found Tesco, Sainsbury’s and Felippo Berio and Bertolli Original merited an ordinary three stars out of five, while Asda and Napolini were “below average” with two stars.
Marks & Spencer’s and Morrison’s oils were given the withering tag “leave on the shelf”. By contrast, Which? gave Aldi and Lidl’s budget extra-virgin oils four stars, branding them exceptional value at £3.30 a litre.
This week laboratory analysis suggested that many “extra virgin” olive oils sold in the United States were not the top-grade extra-oils their labels purported.
Researchers at the University of California analysed popular brands and found 69 per cent of imported oils did not meet the international standards that define pure, cold-pressed olive oils that deserve the term extra-virgin.
Dan Flynn, executive director of its Olive Oil Centre, which conducted the study in partnership with the Australian Oils Research Laboratory, said: “Consumers, retailers and regulators should really start asking questions.”
The North American Olive Oil Association, which represents most olive oil importers, questioned the objectivity of a study financed in part by California olive oil producers.
Speaking about the US market, Mr Flynn said there have long been questions about the quality of some of the olive oil being sold as extra virgin.
Production of extra-virgin oil is time-consuming and expensive and there are suspicions that some unscrupulous companies blend extra-virgin olive oil with cheaper, refined olive oil, or with seed or nut oils.
May 24, 2010
by Douglas McIntyre
Treasury Secretary Tim Geithner put on a brave face trying to convince the global capital markets that Europe’s economic situation will have little impact on America’s or the world’s recovery from deep recession. His case was thin, and he offered almost no rational support.
Geithner told the Xinhua news agency of China: “You see some of the challenges in Europe now. But I think we’re in a much stronger position to manage those challenges.” He also said renewed GDP gains in the U.S. and an acceleration of growth in China were essential to the ongoing improvement of the global economic environment.
Many Troubling Issues
Geithner failed to address several issues that could do a great deal of damage to both the U.S. and China. The rise of the U.S. dollar against the euro will raise the price of U.S. exports to Europe. Many financial experts believe the euro’s value could fall to parity with the dollar from the current ratio of $1.24 This will make American goods much less attractive than European products, which could cut into the sales of a large number of U.S. companies. China faces the same issue.
Many experts fear that budget cuts and higher taxes in eurozone nations, starting in Greece, Spain, and Portugal, are likely to be regressive. Extremely high taxes tend to slow GDP, especially when they’re significant and levied quickly. That means these new taxes could actually slow growth, undermine demand for imports and raise unemployment as businesses send more money to their governments.
The problem of potential sovereign-debt defaults has not been entirely addressed by the nearly $1 trillion aid facility put together by the eurozone nations and the International Monetary Fund. In Greece, the aid it’s receiving now still only covers a modest portion of its national debt. The country’s race to cut its deficit will almost certainly be undermined by resistance from powerful unions. The same threat exists in Spain and Portugal. Some economist believe that the sovereign-debt issue could spread to Italy and Ireland.
Bank Exposure to Europe’s Debt
Chinese and U.S. banks hold European government paper. None of the financial firms have disclosed the size of their holdings and which banks have the greatest exposure. JPMorgan Chase’s (JPM) exposure is estimated to be as high as $36 billion. Other large U.S. money-center banks probably have billions if not tens of billions of dollars of European sovereign paper. Any default would damage the balance sheets of large American banks, which are only just now recovering from the credit crisis of 2008.
Geithner is underestimating the extent of the Europe problem — at least in public.