Sarkozy, Merkel agree to stop sniping on ECB crisis
ReutersReuters – 2 hours 56 minutes ago
France’s President Nicolas Sarkozy (R) and Germany’s Chancellor Angela Merkel attend a joint press conference after crisis talks with Greece’s Prime Minister on the eve of a G20 summit of major world economies in Cannes, November 2, 2011. REUTERS/Charles Platiau
By Daniel Flynn and Emmanuel Jarry
STRASBOURG, France (Reuters) – France and Germany agreed on Thursday to stop arguing in public over whether the European Central Bank should do more to rescue the euro zone from a deepening sovereign debt crisis.
President Nicolas Sarkozy and Chancellor Angela Merkel said after talks with Italian Prime Minister Mario Monti that they trusted the independent central bank and would not touch its inflation-fighting mandate when they propose changes of the European Union’s treaty to achieve closer fiscal union.
They also demonstrated their backing for Monti, an unelected technocrat, to surmount Italy’s daunting economic challenges, in contrast to the barely concealed disdain they showed for his predecessor, media billionaire Silvio Berlusconi.
“We all stated our confidence in the ECB and its leaders and stated that in respect of the independence of this essential institution we must refrain from making positive or negative demands of it,” Sarkozy told a joint news conference in the eastern French city of Strasbourg.
French ministers have called for the central bank to intervene massively to counter a market stampede out of euro zone government bonds, while Merkel and her ministers have said the EU treaty bars it from acting as a lender of last resort.
The Netherlands however moved closer to endorsing the ECB as lender of last resort, apparently breaking ranks with Germany.
Finance Minister Jan Kees de Jager said he would prefer that the European Financial Stability Facility, the euro zone bailout fund, should be strengthened. But if the EFSF did not succeed, other measures would have to be considered.
“In a crisis one should never exclude anything beforehand. In the end, something has to happen,” he said.
Sarkozy said Paris and Berlin would circulate joint proposals before a December 9 EU summit for treaty amendments to entrench tougher budget discipline in the 17-nation euro area.
Merkel said the proposals for more intrusive powers to enforce EU budget rules, including the right to take delinquent governments to the European Court of Justice, were a first step toward deeper fiscal union.
But she said they would not modify the statute and mission of the central bank, nor soften her opposition to issuing joint euro zone bonds, except perhaps at the end of a long process of fiscal integration.
Some French and EU officials hoped Berlin would soften its resistance to a bigger crisis-fighting role for the ECB after Germany itself suffered a failed bond auction on Wednesday, showing how investors are wary even of Europe’s safest haven.
“There is urgency (for ECB intervention),” Foreign Minister Alain Juppe told France Inter radio before the meeting.
Sarkozy took a step toward Merkel this week by agreeing to amend the treaty to insert powers to override national budgets in euro area states that go off the rails. But there was no sign of a German concession on euro zone bonds or the ECB’s role.
“This is not about give and take,” Merkel said. Only when European countries reformed their economies and cut their deficits would borrowing costs converge. “To try to achieve this by compulsion would weaken us all.”
With contagion spreading fast, a majority of 20 leading economists polled by Reuters predicted that the euro zone was unlikely to survive the crisis in its current form, with some envisaging a “core” group that would exclude Greece.
Analysts believe that sense of crisis will in the end force dramatic action. “I think we are moving closer to a policy response probably, which could be either more aggressive ECB action or the idea of euro bonds could gain some traction,” said Rainer Guntermann, strategist at Commerzbank.
In signs of public resistance to austerity in two southern states under EU/IMF bailout programs, riot police clashed with workers at Greece’s biggest power producer protesting against a new property tax, and Portuguese workers staged a 24-hour general strike.
Credit ratings agency Fitch downgraded Portugal’s rating to junk status, saying a deepening recession made it “much more challenging” for the government to cut the budget deficit, highlighting a vicious circle facing Europe’s debtors.
German bonds fell to their lowest level in nearly a month after Wednesday’s auction, in which the German debt agency found no buyers for half of a 6 billion euro 10-year bond offering at a record low 2.0 percent interest rate.
The shortage of bids drove Germany’s cost of borrowing over 10 years to 2.2 percent, above the 1.88 percent markets charge the United States and the 2.18 percent that heavily indebted Britain has to pay.
Bond investors are effectively on strike in the euro zone, interbank lending to euro area banks is freezing up, ever more banks are dependent on the ECB for funding, and depositors are withdrawing increasing amounts from southern European banks.
“It’s quite telling that there has been upward pressure on yields in Germany – it might begin to change perceptions in Germany,” Standard and Poor’s head of sovereign ratings, David Beers, told an economic conference in Dublin.
In one possible response, people familiar with the matter said the ECB is looking at extending the term of loans it offers banks to two or even three years to try to prevent a credit crunch that chokes the bloc’s economy.
Monti repeated Italy’s goal of achieving a balanced budget by 2013 but said there was room for a broader discussion about how fiscal targets could be adjusted in a worse-than-expected recession.
Italian bond yields’ jumped this month to levels above 7 percent widely seen as unbearable in the long term, despite stop-go intervention by the ECB to buy limited quantities, triggering Berlusconi’s fall.
Keeping Italy solvent and able to borrow on capital markets is vital to the sustainability of the euro zone. Key Italian bond auctions early next week will test market confidence.
German officials said the failed auction did not mean the government had refinancing problems and several analysts said Berlin just needed to offer a more attractive yield.
But it was a sign that, as the bloc’s paymaster, Germany may face creeping pressure as the crisis deepens that may cause it to re-examine its refusal to embrace a broader solution.
Economy Minister Philipp Roesler of the Free Democratic junior coalition partner called for parliament to reject euro zone bonds “because we don’t want German interest rates to rise dramatically.”
But some market analysts are convinced joint debt issuance will eventually have to be part of a political solution to hold the euro zone together.
“Although it is not easy to see how the region will get to a fiscal union with Eurobonds, we believe that this is the path that will be chosen,” JP Morgan economist David Mackie said in a research note.
With time running out for politicians to forge a crisis plan that is seen as credible by the markets, the European Commission presented a study on Wednesday of joint euro zone bonds as a medium-term way to stabilize debt markets alongside tougher fiscal rules for member states.
The borrowing costs of almost all euro zone states, even those previously seen as safe such as France, Austria and the Netherlands, have spiked in the last two weeks as panicky investors dumped paper no longer seen as risk-free.
(Reporting by Stephen Brown, Noah Barkin, Natalia Drozdiak, Veronica Ek, Eva Kuehnen, Ana Nicolaci da Costa, Giselda Vagnoni, Padraic Halpin; Writing by Paul Taylor, editing by Mike Peacock/Janet McBride/Giles Elgood)
December to Remember? The Case for a Year-End Market Rally
By Jeff Macke | Breakout – 6 hours ago
Russell Investments’ Steve Wood has a 1,300 year-end target for the S&P 500 and he’s sticking to it. From current levels that means Mr. Wood needs about a 9% rally between now and the market close on December 30th. Markets certainly have the volatility to pull off a move of that size but it’s going to require a sharp u-turn in sentiment. With the “headwinds” blowing like a gale, the onus is on Mr. Wood to explain how we get there from here.
Wood starts by acknowledging the concerns. “You’ve got a huge question mark which is ‘how badly can politicians screw things up this week?'” He’s talking about Europe, but clearly the question applies to the entire Western world at this point. Despite domestic bungling Wood insists “the source of risk causing volatility is coming from Europe.”
Wood says getting the Eurozone off our front page is the first step for his rally. “When those European dark clouds pull aside and earnings and economic strength in the U.S. show through you’re getting close to that 1,275 – 1,300 on the S&P,” he says.
An improvement would seem impossible at the moment but Wood says they already have the playbook. “Europe is clearly in a Bear Stearns environment,” he says. That’s a good and a bad thing. The bad is a seizure of the financial markets as interbank lending comes to a terrifying halt. The good part is America dealt with the real Bear Stearns and came up with a solution, stop gap and flawed though it was.
In addition to “Les TARP” Wood says the Eurozone needs to rid itself of Greece and create enough liquidity to stop the run on the banks, thereby eliminating the contagion risk making investors so tweaky. Do that, says Wood, and investors will finally see an improving economic picture in the U.S., a resumption of growth in China, and improved emerging markets.
Plug those into the mix and Wood sees 1,275 to 1,300 on the S&P 500 as a conservative target, if not for year end then certainly during the first quarter of 2012.
There are a lot of “ifs” in Wood’s thesis, not the least of which being the idea that Europe can deal with the amputation of Greece and what he says is the end of Europe as we know it without triggering a global market crash. The jury is out on whether or not a plan that could save Europe would be possible with a unified Europe, let alone what we have now.
IF such Europe stops fighting long enough to put together a coherent centralized banking arm, THEN 1,300 is a realistic level. Until then even Wood realizes his target is on hold, at best.
Doing business in Greece
by (KT) 13 Nov 2011
IT STILL isn’t easy doing business in Greece – though not as hard as last year, according to the World Bank’s recent report titled Doing Business 2012. Greece ranked 100th for 2012 in the international “ease of doing business” survey. The country was in 149th position last year.
The report, which was released on October 20, assessed regulations affecting businesses in 183 countries and ranked them in 10 areas, such as starting a business, resolving insolvency and trading across borders.
According to the report, Greece is making it “easier” to start a business by implementing an electronic platform that connects several state agencies. The government’s recent decision to reduce the corporate income tax rate was also highlighted.
Nevertheless, it’s easier doing business in countries like Guatemala (ranked 97th), Vietnam (98) and Yemen (99).
In Greece, it still takes more than 10 days to start a business, about two months to get electricity, 18 days to register a property, and as many as 800 days to enforce a contract.
But in the country that leads on the ease of doing business, Singapore, it takes three days to set up a business and only 180 days to enforce a contract. Singapore is followed by Hong Kong, New Zealand, the United States and Denmark. The United Kingdom ranks 7th and Ireland is in 10th position.