Tagged: Debt crisis

Ireland Lacks Sufficient Collateral for Bailout Loan

The European Central Bank expressed concerns that Irish bail out would affect Ireland’s ability to provide further funding to Eurozone members. The ECB is of the view that Ireland lacks quality collateral for bail out loans in case Ireland fails to pay back those loans.

On Friday, credit rating agency Moody’s cut sharply the Republic’s debt rating reducing it by five notches. Last week, the International Monetary Fund (IMF) approved a three-year loan of 22.5bn euros for the Republic. The funds form the first part of the IMF’s contribution to the EU and IMF rescue package. The Irish government has passed a series of spending cuts and tax rises totalling 15bn euros as a condition of the bailout.

France President Woos India Against the United States

Article first published as French President Woos India Against the United States on Blogcritics.

France President Nikolas Sarkozy is now on India tour along with his wife Carla Bruni for fourSarkozy days from November 4 to November 7. The US president Barack Obama began his India visit with India’s business hub Mumbai. Sarkozy chose India’s technology hub to start his India tour. He brought 50 member business community and top cabinet officials including Economy minister Christine Lagarde along with him. Sarkozy seems to have come on a top mission along with signing some business contracts.

Strategic and Business Goals

During his speeches on November 4 and his interview to Times of India newspaper, Sarkozy outlined his top political and trade related priorities on global arena of his India tour. Very important offers extended to and requirements sought from India are as follows:

  • Supporting France’s G20 agenda to reform global monetary system during its G20 presidency in 2011
  • Improvements in global governance
  • Help maintain greater stability in commodity prices

In return, to the help in achieving the above-mentioned France’s goals, Sarkozy offered following package.

  • Helping Rupee to become one of the major currencies in the world
  • Support India’s long standing demand of securing permanent seat in UN Security Council

Some business contracts will be concluded during Sarkozy’s visit. Major one is a memorandum of understanding signed between a French nuclear group Areva and India’s Nuclear Power Corporation of India Limited (NPCIL) to supply at least two water-pressurised reactors worth 7 billion euros ($9.4 billion or Rs 43,240 Cr). France is competing with the US company Boeing to supply 126 fighter jets. France’s defence electronics group Thales is hoping to gain a contract to modernise 51 mirage 2000 planes.

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ECB Continues Bond Buying to Help Troubled Eurozone

ECB president Jean-Claude Trichet confirmed on Thursday that the European Central Bank would continue to buy government bonds of Eurozone countries. The ECB already bought governmentTrichet bonds of Eurozone countries worth 67 billion Euros. He did not offer any details as per BBC news.

Trichet said the ECB would continue to support troubled banks in Eurozone area. After Trichet’s announcement, the Euro rose to $1.3145 from $1.3059 on Thursday. ECB decided to maintain bank rate at 1%, as expected.

On Thursday (December 2), Spain government carried a bond auction to raise 2.47 billion Euros. Spain had to offer increased yield on its 3-year bonds, 3.7% instead of previous rate of 2.5% in October. Yesterday, Portugal also increased its yield on 1-year bonds from 4.8% to 5.3%. Markets are still nervous on public finances of Portugal and Spain.

Elsewhere, official figures confirmed Q3 growth rate of 0.4% for Eurozone, a slow growth compared with Q2 growth rate of 1%.

European Debt Crisis Deepens, Crisis Spreads to More Countries

Article first published as European Debt Crisis Deepens, Spreads to More Countries on Blogcritics.

Ireland bailout worth 85 billion Euros could not convince the markets that the crisis would not spread to other indebted Eurozone countries. On Tuesday, debt costs of Portugal, Spain and Belgium have touched life time high levels in euro’s 12-year history. Late on Tuesday ratings agency placed Portugal on credit watch over its huge debts, signalling the next country to ask for joint aid from the EU and IMF would be Portugal as per BBC News.

Bond Yields

Portugal’s central bank warned about the risks being faced by its banks. Failure of the PortugalEurozone debt and bond prices - tn government in consolidating public finances may lead to Portugal banks to face intolerable risks, the central bank warns. France already came forward saying it will support to help Portugal and Spain if such a need arises. Financial officials in France and Germany accused investors for acting irrationally on the threat of financial contagion.

The yield on Spain’s 10-year bonds reached to 5.7% on Tuesday, a record difference of 3.05% compared with Germany’s 10-year bond. Bond spread for Italy’s 10-year bond was at 2.1 percent over Germany’s bonds and Irish bond yield stood at 9.53% while Portuguese bond yield stood at 7.05% for 10-year bonds. However, the yields for governments bonds of these countries are reportedly lowered on Wednesday on speculation that the European Central Bank would take extra measures to save Euro from falling, Reuters reported.

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Portuguese Expensive Bond Sale Hints Bailout Need

Article first published as Portuguese Expensive Bond Sale Hints Bailout Need on Technorati.

Portugal’s latest bond auction was successful on Wednesday, but the yield offered for 1-year bonds has risen sharply, indicating that market is losing confidence in Portugal economy. The sale of 500 million euros worth 1-year bonds was oversubscribed by two and half times. The yield rose to 5.3%, which is too expensive for 1-year bonds. The previous sale of 1-year Portugal bonds yielded 4.8%. Moreover, some of these bonds might have been bought by Portuguese banks, funded by European Central Bank.

As usual, Portugal’s Prime Minister Jose Socrates reiterated that his country did not need outsidePortugal PM Jose Socratese help. What his country needed was confidence in its economy, he added. S&P rating agency placed Portugal on credit watch citing its huge debt. S&P said Portugal had not done enough to increase its labour flexibility and productivity, which means, Portugal has to decrease wages of the workers.

The yield for 10-year Portuguese bonds fell slightly on Wednesday, but remained at historically high level of 6.85%. However, the yield on German bunds that are considered the safest among the Eurozone countries remained at 2.67%. The difference between yield of German bonds and the yield on any particular country’s bonds is called bond spread of that particular bond of that country. This bond spread is widening day by day for the most indebted countries of the Eurozone despite huge bailouts offered to those countries.

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Irish People Protest against Austerity Cuts

Article first published as Irish People Protest against Austerity Cuts on Technorati.

Irish Congress of Trade Unions (ICTU) has called for protests against what he called as harshest budget ever since the state was established. Irish Police are expecting at least 50,000 people may participate in the protests. BBC News has reported that thousands of protesters are already gathering on Dublin streets.

The protests come a day after a humiliating defeat for the ruling coalition in a by-poll. TheIrish protests majority for the ruling coalition has been reduced to just two from six seats after the by-election on Friday, November 26. As a result, the Irish Prime Minister is facing pressures to resign as he lost mandate to take any important decisions on Ireland’s future.

The proposed bailout package of 85 billion euros ($114 billion) is coming with costly austerity measures. The government has already delivered a set of austerity cuts for coming four years that include 5% reduction in minimum wages, pension freeze and public sector job cuts of more than 25,000.

Most depressingly, the media reports suggest that Ireland might be charged with 6.7 percent interest on bailout loans to prop up crisis hit Irish banks. This is well above the interest rate 5.2 percent charged to Greece bailout. This suggests that even more interest rate may be charged for other countries like Portugal and Spain that may claim for bailout in future. There is only 6

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Italian Students Protest against Education Cuts

Italian students are on war path protesting against education reforms planned as part of wider austerity measures. Tens of thousands of students marched in cities all over Italy on November 24. Students were organised in more than 50 cities. They occupied premises of 44 universities out of 66 government funded universities. Their protests included picketing, suspending classes and climbing on top of faculty buildings, administrative buildings and buildings of tourist attractions.

In Rome, the student protestors formed a human chain around the ancient Leaning Tower of PisaStudent protests in Florence, Italy and the Colosseum. About 2,000 students marched through the city surrounding the Pisa tower to prevent tourists from visiting the tower, BBC reported. They climbed to the top tire of the tower to hang a banner. They even tried to enter Parliament building. Teachers and Researchers also joined protests extending their support.

Hundreds of student chanted slogans and with banners and red smoking flares nearby the Parliament where the discussions were taking place on education reforms. Students pledged they would not allow passing the educations cuts in the Parliament. They threw stones and eggs on official buildings and riot police who blocked them. Some students were arrested and complaints were filed. Protests took place in several cities including Padova, Siena, Florence, Turin, Naples, Pavia, Perugia, Palemo and Saierno.

The proposed educations reforms are called Geimini Reforms named after Maria Stella Geimini, Minister of Education. The reforms aimed to decrease funds allocated to public education drastically. The reductions in funds allocation would lead to massive layoffs and reduced education programmes. Around nine billion euro cuts are proposed in the reforms bill. Nearly, 130,000 jobs will be lost from the educations system.

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Portugal Workers Observe 24 hour Strike against 2011 Austerity Budget

Article first published as Portugal Workers Observe 24-hour Strike against 2011 Austerity Budget on Technorati.

Portugal’s two main two workers’ unions’ joint call for 24 hour strike is going successful as per government and unions’ data. Rail services are paralysed from north to south of the country, with 80% of the rail services not running. Majority of the flight services are cancelled according to government sources. The Joint strike call is said to be the first in 22 years.

The unions are critical of the proposed budget cuts saying it is quite unfair that only the workersPortugal crisis have to sacrifice. They say they oppose the government’s top most priorities are only deficit, deficit and deficit. BBC news quoted the unions as saying, all of the country’s ports are closed; air traffic controllers and ground staff of airports are observing strike; bus and ferry links are disrupted; fewer than 10% of the workforce at Volkswagen’s Auto Europa plant have turned up for work.

Unfair Media Criticism

As usual, various media of the western countries from EU to the US have written negative analyses on Portugal strikes. They continued to support austerity measures and to oppose workers’ anger towards austerity measures. They failed to acknowledge the hardships to which the workers across the Europe and the North America were subjected to, even though they are not part of the problem of debt crisis and financial crises. Such an outlook can be gauzed to the ownership of all media by a few multinational media companies.

These MNCs are beneficiaries are the austerity measures imposed by the EU countries in the name of maintaining fiscal discipline, as if the workers’ salaries and pensions are the main sources of fiscal indiscipline. These media companies never acknowledge the indiscipline of the

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Bailout Pushes Ireland into Politico-Economic Instability

Article first published as Bailout Pushes Ireland into Politico-Economic Instability on Blogcritics.

Ireland formally placed request for aid from the EU and IMF. Ireland people are quite against to this. They are not able to believe that their country needed bailout. They are angry with the U-turn taken by the government, which said initially that Ireland could solve itself its crisis. Earlier, Ireland prime minister Brian Cowen and finance minister Brian Lenihan angrily rebutted the claims that Ireland was on the verge of asking for aid from the EU and IMF even as the preliminary talks for aid began with the European authorities by then.

It is said that Irish people were confident about their capacity to overcome any obstacles thatAnglo Irish Bank came in their path of development. They had a history of fighting for independence from the England’s colonial rule. They believed that Ireland once saved the European Monetary Union by joining it while it was recording more than 30% of GDP growth rate. They believed in the same vein their country had a capacity to overcome the latest crisis. It seems they could not bear a fact that their country is in a position to beg for aid from other European countries.

Political Opportunity

Political opportunists always will be there to cash in such situations. They stepped in to cash in the people’s anger. Green party, the junior partner of the ruling Fianna Fail party announced on November 22 that they wanted the parliament dissolved for an early election in January next year. The ruling coalition is on political tight rope walk with just three seats majority in the parliament, where Green party holds six seats. Without GP’s support, the ruling coalition will collapse. So, Green party holds the capacity to force the country to seek early election. But, GP’s announcement to seek an early election might be a mere political exercise to extract more benefits for it.

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Irish Bailout Fails to Satisfy Markets

Irish bailout, still not known how much is planned, failed to alley market worries as debt costs for Ireland, Spain and Portugal continued at high levels. However, most of the European share indices along with that of the US were up, with positive news from the US data.

Jobless claims in the US came down slightly comparing with the previous week. Yesterday, the US revised up its third quarter growth rate from 2% to 2.5%.

Bond Yields

The yield on Irish government’s 10 year bond was 8.92%, a record level reached before the bailout talks began. Though Irish government is not going for debt sale as it is fully funded up to the first half of next year with EDB funding, it is still a matter to worry. Because, it denotes that the markets are losing confidence on Ireland’s capacity of repayment of its debt.

The yield on 10 year Portuguese bond was 7.8%, which means the bond spread relative to the German bund was 4.8%. The Spanish-German 10 year bond spread recorded at 2.6% a life time high for Spain.

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Ireland Plans Tough Austerity

As expected, Ireland has unveiled tough austerity measures for next four years. These measures are part of convincing EU and IMF that it is committed to deliver tough measures.

Ireland’s four year plan aims to save 15 billion euros ($20 billion). BBC and Reuters have said the joint bailout package from EU and IMF is expected to be worth 85 billion Euros ($114 billion).

The austerity plan also aim to cut 24,750 public sector jobs, to save 2.8 billion euros through welfare spending cuts, to raise additional 1.9 billion euros by increasing income tax. Minimum wage for workers will be reduced and new property tax will be launched. Value Added Tax will be raised to 23% in 2013 from 21% and to 24% in 2014.

Korea’s Fire Exchange, EU Debt Worries Pulls down Shares around the World

Article first published as Korea’s Fire Exchange, EU Debt Worries Pull Down Shares Around the World on Technorati.

Share markets around the world tumbled with the news of Koreas’ exchange of fire, and Spain deciding to shrink its debt sale due to rise in debt cost. Dow Jones tumbled by 1.33% to 11,029 points as at 6:00 pm GMT and FTSE, HANGSENG and Shanghai indices were down by 1.43, 2.67 and 1.94 percentages respectively. India’s SENSEX index was down by 1.33% and the broader Nifty index was down by 1.25%.

Q3 Growth Revised Up

Meanwhile, the US revised up its third quarter growth from annual rate of 2 percent to 2.5 percent, as exports as well as consumer and government spending were stronger than expectedkoreas fire as per the commerce department. This positive news was offset by the news of rising tension in Korean peninsula and increased debt costs of Portugal and Spain. Existing home sales in the US fell more than forecast in October as per MSNBC news.

Q4 growth rate expected on the same line, but well below the 3.5% mark to bring down the high unemployment rate of 9.6 percent as per Reuters report.

Koreas’ Tension

North and South Koreas exchanged artillery shells after South Korea test fired a few shots as part of usual military drill on November 23. North Korea fired dozens of shells on a South Korean island, Yeonpyeong, one of the disputed islands along the western maritime border. The western maritime border is one of the contentious issues between the two Koreas. North Korea declines to recognise the border line saying that it was unilaterally imposed by the UN at the end of 1950-53 Korea war. The two Koreas are technically still at war, as the war ended with a truce but not with a ceasefire agreement.

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Portugal, Spain Worry Contagion from Ireland

Article first published as Portugal, Spain Worry Contagion from Ireland on Technorati.

A country, which once recorded more than 30 percent GDP growth, is now threatening European Union for its liquidity problem and soaring debt costs. Though the Ireland authorities are repeatedly telling that they do not need any bailout from the European emergency fund, markets Euro bond yieldare not in a position to believe. It seems they recall the same type of confident announcements by Greece Prime Minister George Papandreou that his country only needed assurances from the EU but not monetary aid. Then, ultimately Greece had to claim the financial aid from the EU and the IMF worth 110 billion euros.

Worries of Portugal and Spain

Finance ministers of Portugal and Spain are worried that Ireland crisis will spread to their countries if the Ireland does not move fast to assure the markets. Portugal’s debt costs are already going up. Spain is also almost ready to follow suit.

Portugal finance minister Fernando Teixeira dos Santos is quoted by BBC as urging Ireland to do the right thing for the Euro and accept bail out. Spain’s Treasury Secretary has also reportedly asked Ireland to act quickly to cool down the market’s worries about uncertainties prevailing on Ireland’s capacity of debt repayment.

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Wave of Parcel Bombs Target Embassies in Greece Capital

Article first published as No Yemeni Connection to Parcel Bomb Sent to German Chancellor on Technorati.

Security officials at the German Chancellery detected a parcel bomb received at the office of the Chancellor Angela Merkel, who was in Belgium. The parcel addressed to Angela Merkel. French president’s office missed the parcel as it was intercepted in Athens itself.

Security Detection

Security men became suspicious of the parcel as the sender was given as the Economic Ministry of Greece. Bomb disposal squads were alerted and the bomb was deactivated. The bomb was discovered at noon on October 2, mailed from Greece capital Athens three days ago. The device was contained in a parcel with books in it.

Germany’s Interior Minister Thomas de Maiziere was quoted by Bloomberg as saying “ThisAthens suspects was a functional explosive device.” He said the detected bomb was similar to the parcel bomb exploded at the Swiss embassy in Athens.

Targeting Embassies

Besides the Swiss embassy, Russian embassy was also hit by a parcel bomb on the same day. Greek authorities intercepted similar parcel bombs sent to Chile, Dutch, Belgian, German and Bulgarian embassies. They also seized on October 1 a parcel bomb addressed to French President Nicolas Sarkozy. Another parcel bomb sent to Mexican embassy exploded at a courier firm injuring one person.

By Tuesday evening, 11 mail bombs had been detected in the Greek capital. Two more were destroyed in controlled explosions at Athens’ international airport — one addressed to the European Union’s highest court in Luxembourg and the other to law enforcement agency Europol in the Netherlands.

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EU bank stress tests face their own test in markets

Reuters | Sun Jul 25, 2010 | 8:12pm IST

European banks stress tests EU tests of banks’ ability to withstand financial shocks, criticised as too easy after only 7 out of 91 failed, face their own stress test in the markets on Monday with early signs pointing to a more positive response. European Union policymakers and regulators voiced relief at Friday’s results but some market analysts and many media commentators derided an exercise in which all listed banks passed as lacking in credibility. "I see nothing stressful about this test. It’s like sending the banks away for a weekend of R&R," said Stephen Pope, chief global equity strategist at brokers Cantor Fitzgerald. There was scepticism about EU regulators’ conclusion that banks need only a total of 3.5 billion euros ($4.5 billion) in extra capital. Market expectations had ranged from 30 to 100 billion euros, although many European banks have already raised capital during the financial crisis.

Only five small Spanish banks, Germany’s state-rescued Hypo Real Estate and Greece’s Atebank failed outright. More than a dozen others scraped through with just over the required 6 percent of Tier 1 capital in the most stressful scenario and are likely to come under market scrutiny. However, the wealth of data disclosed by banks representing 65 percent of assets, and the commitment of banks, regulators and governments to follow-up action may well outweigh doubts about the stringency of the tests. In a first market reaction in New York late on Friday, the cost of insuring the debt of large European banks fell further and the euro rose against the dollar despite worries about the tests’ credibility. Better-than-expected economic data and business confidence surveys suggesting the euro zone will avoid a double-dip recession despite fiscal austerity measures are also helping revive investor confidence in Europe.


Given the haggling among EU governments and regulators about the stress tests right up to the last moment, the degree of transparency was greater than had been expected a few weeks ago. Sources familiar with the discussions said Germany fought hard behind closed doors to limit the extent of disclosure. In the end, most banks — except Deutsche — issued a detailed breakdown of their exposure to the sovereign debt of EU countries, enabling investors to run their own risk simulations to gauge counterparty’s solidity. "We have all the sovereign exposure data, and we can go ahead and do our own tests," said Nial O’Connor, a banking analyst at Credit Suisse. That should help reopen the interbank lending market, which partially froze at the height of the euro zone debt crisis in May and has remained tight due to fears that banks have been hiding big exposures.

It also responds to one of the major criticisms of the exercise — that the scenario assumed a "haircut" on sovereign debt of countries such as Greece held in banks’ trading books, but not on a longer-term basis in their banking books. The EU authorities were chastised for refusing to test the impact of a default by Greece. But European Central Bank governing council member Christian Noyer said euro zone states "have put several hundreds of billions of euros on the table with the support of the IMF to make this hypothesis completely excluded".


Spain, which spearheaded the drive for transparency, tested a larger part of its banking system and disclosed more data than any other country, hoping to clear away lingering market suspicion of its smaller banks’ solvency. However economist Nicolas Veron of the Bruegel think-tank said Madrid had underplayed the recapitalisation needs of the cajas, regional savings banks, although its bank resolution fund (FROBE) is well on the way to meeting those needs. "The Spanish wanted to be seen as the most transparent and deserve praise for the catalyst role they played, but in the end they clearly understated what the cajas need," he said in a telephone interview. Veron said follow-up actions by governments and regulators should include pressing weaker banks to recapitalise, if necessary with state help and facilitating cross-border takeovers of weaker banks.

Even before the results were published, National Bank of Greece, Slovenia’s NLB and Civica in Spain announced plans to raise capital. Italy said it would reopen an offer of government-backed bonds to support its banks, although none failed. Monte dei Paschi di Siena squeaked through with 6.2 percent of Tier 1 capital under the most stressful scenario, and UBI Banca with 6.8 percent. Veron said the success of the exercise would depend partly on whether European regulators adopt a more cooperative approach after the stress tests than they did before them. "If this is the start of a beautiful friendship among EU supervisors, then that’s not the same as if the united front crumbles next week and they start criticising each other again," he said.