BIGCAPITAL's Blog

November 26, 2010

Conspiracy and the euro, but Soros Is ‘Confident’ in Euro ?

Filed under: Uncategorized — bigcapital @ 8:14 pm
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Conspiracy and the euro

I have reported from many countries where crises are blamed on “foreign hands”. More often than not they are unnamed. Indeed these sinister conspirators can have greater credibility if they remain in the shadows.

 

Sometimes the conspirator is identified. After the recent anti-government demonstrations in Iran, officials blamed British intelligence for stirring up the mob.

Now with the euro facing its severest test, some see conspiracy here too. The Greek Prime Minister, George Papandreou, when talking to his domestic audience, said that his country had become “a laboratory animal between Europe and the markets”. The message to the Greek people is that speculators are to blame.

The cry has been taken up by the Spanish Public Works Minister, Jose Blanco. “None of what is happening in the world,” he concludes, “including the editorials of foreign newspapers, is coincidental or innocent”.

Spanish papers report that the country’s National Intelligence Centre is looking into “speculative attacks on Spain”. Thrown into this inquiry is “the aggressiveness of some Anglo-Saxon media”.

As the conspiracy unfolds, the plotters emerge as “Anglo-Saxon” speculators. Some French commentators are drawn to this scenario. It’s the Anglo-Saxon banks and hedge funds who are behind the euro crisis, is their conclusion. Indeed, one French commentator was quoted as saying “those who played against Greece will pay dearly. The European Union states now view this as direct aggression against them.”

Even the head of the 16-nation Eurogroup, Jean-Claude Juncker, is drawn to the idea of the euro as victim. “We shouldn’t accept to be the target of financial markets,” he says. “I am concerned,” he goes on, “at the irrational way of behaving of financial markets”.

In the UK, Labour MP and former Europe Minister Denis MacShane writes that “the Anglo-Saxon club of anti-Europeans is on the rampage”.

So the plot seems to be this: that some Anglo-Saxon “hedgies” are targeting the euro, egged on by a supporting cast of anti-European scribes.

 

So what do we know?

It is true that speculators have raised their bets against the euro. It is reported that the Chicago Mercantile Exchange, which reflects hedge fund activity, has witnessed growing positions being taken on the euro falling further. It is, however, what foreign currency trading is all about. As Charles Grant of the Centre for European Reform points out, “people take bets on currencies – if they overreach themselves they go bust”.

Regardless of conspiracies, however, there are some real, fundamental problems. Firstly, the Greek accounts were exposed as fakes. When its deficit shot up, financial markets feared the huge public debt may cause it to default. That is not just a judgement by markets – senior officials in Greece believe that too. The Greek Finance Minister, George Papaconstantinou, admits his country is in “a terrible mess”. Confidence in Greek accounting has not yet returned.

There is little faith either that the Greek government can implement its austerity plans. Only today Greek customs officials walked off the job for three days in protest at the spending cuts. Fuel truck drivers may join in. The message from the meeting of European finance ministers today was that Athens “must surpass expectations (in its spending cuts), and so far they have not done so”.

Secondly, no one yet knows the details of how any bail-out would work. The uncertainty plays on market fears. Greece wants the EU to set out how any potential rescue would function. Several key countries including Germany don’t yet want to show their hands. They are giving Greece until 16 March to show it is making progress with its austerity plan. If it isn’t, they may insist on Athens taking harsher measures, including raising VAT.

It is worth noting that the IMF will have a strong and possibly growing role in monitoring and advising the Greeks on their plans.

Thirdly, Germany is willing to play the longer game because politically any bail-out would be very difficult to sell at home. The German people don’t want it. Charles Grant says, however, he is certain that in the end Germany would act to prevent Greece defaulting. After all, it has signed up to a statement to “defend the stability of the euro”. He says it is “understandable” at this stage that Germany wouldn’t want to be too “explicit” about its plans, but who exactly will do the bail-out remains unclear.

Fourthly, there are the imbalances between the countries in the eurozone. They cannot be wished away. Germany, for instance, has a tight wage policy. It relies on exports for growth and does well out of the eurozone. But Southern European countries can’t export their way out of recession when domestic demand in places like Germany remains so weak. And it is highly unlikely that Berlin will loosen its policies to save the Greeks.

Fifthly, there are widespread doubts among those who support the euro that it can survive in its present form whilst fiscal policies are decided at the level of national governments.

So as Nicolas Veron of the Bruegel Institute says “the markets are testing the limits of the single currency policy framework”.

So conspiracy? The markets are giving the euro a severe stress test because they suspect there are real flaws and uncertainties that have not been addressed.

The respected economist Paul Krugman had a take on all this today: “The real story behind Europe’s troubles lies not in the deficit but in the policy elites, who pushed the Continent into adopting a single currency well before the Continent was ready for such an experiment.”

 

Soros Is ‘Confident’ in Euro Zone ?

“I’m actually confident Greece will do whatever is necessary to meet conditions to remain a member of the euro to qualify for financing by the ECB for Greek government bonds,” Soros told reporters in Jakarta Newspaper

World stock markets rallied since yesterday as prospects for a bailout of Greece eased concern that deteriorating government finances will derail the global economic recovery

“Providing Greece meets its target, I hope the European Union, the European Central Bank, the euro zone will find a way to finance the government in a way that’s not too expensive for Greece to provide some relief,” said Soros, 79, who was in Indonesia meeting Vice President Boediono.

Billionaire investor George Soros, who made $1 billion in 1992 correctly betting against the British pound, said he expects Greece will be able to remain in the euro region.
 

 

“The Greatest Buying Opportunity for Euro ?”

“You never want a serious crisis to go to waste,” Rahm Emanuel, U.S. President Barack Obama’s chief of staff, said during the 2008 credit crunch. “It’s an opportunity to do things that you could not do before.”

The euro area and the European Central Bank are now dealing with what markets are calling the “PIGS” crisis: Portugal, Ireland, Greece and Spain. Sometimes Italy is added to the list, but its finances seem to be in slightly better shape.

The bond markets have picked on Greece, punishing the country for running up a budget deficit equal to 12.7 percent of gross domestic product. Now the focus is on other indebted countries in the euro area. Equity and currency markets are jittery as central bankers seek a lasting solution.

It’s a crisis, no doubt. But the ECB should, perhaps, see it as an opportunity.

There has been confusion about fiscal responsibility since the euro was created a decade ago. This is the chance to set the record straight. Get this crisis right, and the euro could establish itself as the dominant world currency. Get it wrong, and by 2030 the only place you’ll be able to get euro notes will be as souvenirs on EBay Inc.

The nub of the PIGS problem is very simple: For years, they have been able to incur debts in a currency that was far stronger, and had much lower borrowing costs, than the old national ones the euro replaced. Now the bill is falling due. Either they implement tough austerity measures, subjecting their economies to savage recessions. Or else they can quit the euro and introduce a new currency. Either way, the outlook is grim.

There is, however a three-step program, that would manage the crisis and strengthen the euro in the long term.

By Market Talk via News – Europe

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November 14, 2010

Irish Banks’ ECB Borrowings Rise to 130 Billion Euros

 

Irish Banks’ ECB Borrowings Rise to 130 Billion Euros

 

Bank of Ireland rose 5 percent to 40 euro cents as of 12:25 p.m. in Dublin trading, reversing earlier declines, while Allied Irish Banks Plc soared 15 percent and Irish Life & Permanent Plc gained 4.7 percent on Friday.

 

 

Nov. 12 (Bloomberg) — Irish-based lenders’ borrowings from the European Central Bank rose 7.3 percent last month as the yield investors demanded to hold the state’s debt surged on concerns about its budget deficit and mounting bank losses.

 

ECB funds used by lenders including international and domestic companies climbed to 130 billion euros ($178 billion) as of Oct. 29, from 121.1 billion euros at the end of September, according to statistics published on the central bank’s website today.

Irish government bonds gained for the first day in almost three weeks today after European finance ministers said plans for a new system to handle euro-region debt crises won’t apply to outstanding debt.

 

Ireland’s banks are becoming more dependent on the ECB after the central bank said in September a bailout of lenders may cost as much as 50 billion euros as the state sinks more funds into nationalized Anglo Irish Bank Corp. and other lenders. Finance Minister Brian Lenihan said yesterday markets didn’t “fully” believe the banking bailout figure and investors are taking a “wait and see” approach on bank losses.

 

The nation’s 10-year bond yield pared a two-day surge of more than 1 percentage point, and the difference, or spread, over German debt of similar maturity fell to 582 basis points today from 646 basis points yesterday. A basis point is 0.01 percentage point.

 

“Any new mechanism would only come into effect after mid- 2013 with no impact whatsoever on the current arrangements,” the finance ministers of Germany, France, Italy, Spain and the U.K. said in a statement distributed to reporters in Seoul today during the Group of 20 summit.

 

Ireland’s gross funding need for 2011 will be 23.5 billion euros, falling to 18.6 billion euros in 2014, the nation’s debt agency said today. Moody’s Investors Service said last month Ireland’s Aa2 rating may be cut, while Standard & Poor’s and Fitch Ratings already have reduced their rating on the country on concern about the cost of bailing out banks.

 

Bank of Ireland Plc, Ireland’s largest bank, has 20 billion euros of net borrowings from “monetary authorities,” compared with 8 billion euros at the end of June, executives at the bank said on a call with analysts today. Chief Executive Officer Richie Boucher said that its deposit base has been “broadly stable since the end of September,” following outflows after Ireland’s sovereign rating was cut in August.

 

Bank of Ireland rose 5 percent to 40 euro cents as of 12:25 p.m. in Dublin trading, reversing earlier declines, while Allied Irish Banks Plc soared 15 percent and Irish Life & Permanent Plc gained 4.7 percent.

The country’s central bank provides an update on ECB funding reliance only for domestic institutions at the end of every month.



November 12, 2010

Top News: Wht Ireland’s Finance Minister Brian Lenihan said on Friday, Nov 12

Filed under: Uncategorized — bigcapital @ 9:48 pm
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Top News: Wht Ireland’s Finance Minister Brian Lenihan said on Friday, Nov 12

* Ireland Following Correct Path On Budget – via Radio

* Digesting Irish Measures Takes Time – via Radio

* Must Build Credibility With Markets Step by Step – via Radio

* Ireland Well Funded Until June 2011 – via Radio

* Market Turbulence Not Ireland’s Fault – via Radio

Dow Jones Newswires

November 12, 2010 08:14 ET (13:14 GMT)

Brian Lenihan, ireland, euro, debt

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