Tagged: EU debt crisis

Ireland slams IMF rumours; tension looms over budget

Reuters | Sep 17, 2010 | 10:22pm IST

Ireland’s finance ministry and the International Monetary Fund sought to calm markets on Friday after a newspaper report on the possibility of an IMF bailout sent investors running for cover. The cost of insuring Irish sovereign debt against default hit a record high and the Irish/German spread reached a euro lifetime peak after the Irish Independent newspaper said Ireland was "perilously close" to calling in the IMF and the EU. The IMF told Reuters it did not foresee its financial assistance would be needed for Ireland and praised Ireland Central Bank Dublin’s efforts at propping up its banking system. Ireland’s Department of Finance slammed the Irish Independent article. "There is absolutely no truth to a rumour concerning external assistance. It is based on a local misinterpretation of a research report," a spokesman said in a statement.

The newspaper used a report from Barclays Capital as the basis for the article. Barclays said Ireland’s liquidity position was comfortable but if unexpected banking losses emerged or economic conditions deterioriated outside help may be needed. "The report is a lot more measured than what has been reflected in the newspaper," said Geraldine Concagh, a senior economist in Allied Irish Banks. "The market is very nervous at the moment." A combination of costly bank bailouts, anaemic growth and the worst budget deficit in the EU have stoked fears of a full-blown debt crisis and Finance Minister Brian Lenihan is under pressure to ramp up efforts to get the finances in order.

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EU under Pressure to Spell out Stress Tests

Bloomberg | Jul 12, 2010 | 19:35 IST

The European Commission told government officials that failure to publish individual banks’ exposure to sovereign debt could damage investor confidence. “There is considerable opposition to the publication of individual exposures to sovereign debt,” the European Union’s executive arm said in a confidential letter dated July 9 that was obtained by Bloomberg News. “Stepping back” from planned publication of this information “would give the impression that we have something to hide.” EU regulators are examining the strength of 91 banks to determine if they can survive potential losses on sovereign-bond holdings. They are counting on the tests to reassure investors about the health of financial institutions from Germany’s WestLB AG and Bayerische Landesbank to Spanish savings banks as the debt crisis pummels the bonds of Greece, Spain and Portugal. EU finance officials are currently debating how much detail from the tests to disclose. The results are scheduled to be released on July 23. “We are increasingly worried to note an apparent weakening of the commitment to transparency,” the commission said in the letter to the EU’s Economic and Financial Committee, which comprises senior officials from member states, the commission and the European Central Bank. If the tests aren’t “credible and transparent,” there is a “high risk that it will disappoint the markets.”

‘Important Step’

The EFC prepares the agenda for monthly meetings of euro- region finance ministers, who are gathering in Brussels today to discuss the publication of the tests. German Finance Minister Wolfgang Schaeuble told reporters before the meeting that the tests will be an “important step” toward easing investors’ concerns about the strength of the region’s banks. The commission also said in the letter that regulators should publish data on banks’ Tier 1 capital ratio that excludes government aid. “Some national supervisors have suggested that banks’ Tier 1 ratios without government support should not be published,” it said. “We believe that these data should be published because it constitutes important information for the markets.”  

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Europe Stress Tests May Underestimate Probable Losses

Bloomberg | Jul 8, 2010

Angel Merkel European stress tests on 91 of the region’s biggest banks drew criticism from analysts who said regulators are underestimating probable losses on Greek and Spanish government bonds. The tests are designed to assess how banks will be able to absorb losses on loans and government bonds, the Committee of European Banking Supervisors said yesterday. Regulators have told lenders the tests may assume a loss of about 17 percent on Greek government debt, 3 percent on Spanish bonds and none on German debt, said two people briefed on the talks who declined to be identified because the details are private. “This isn’t a stress test,” said Jaap Meijer, a London- based analyst at Evolution Securities Ltd. It’s “merely the current valuation of government bonds.” Credit markets are pricing in losses of about 60 percent on Greek bonds should the government default, more than three times the level said to be assumed by CEBS. Derivatives known as recovery swaps are trading at rates that imply investors would get back about 40 percent in a Greek default or restructuring. “I wonder how much these stress tests are reverse- engineered to inspire confidence in the market” and banks, said Bruce Packard, an analyst at Seymour Pierce Ltd. in London. “If they are too aggressive, everyone fails.”

Stocks Rally

The 54-member Bloomberg Europe Banks and Financial Services Index increased 1.5 percent today, bringing this week’s gain to 8.4 percent. Royal Bank of Scotland Group Plc rose 3.7 percent to 44.42 pence as of 8:44 a.m. in London trading. Paris-based BNP Paribas SA climbed 3 percent to 49.43 euros and Dexia SA, the largest lender to local government in France and Belgium, rose 3.5 percent to 3.17 euros. Lenders that account for 65 percent of the EU banking industry will be tested, including 14 German banks, 27 Spanish savings banks, 6 Greek banks, 5 Italian banks, 4 French banks and 4 British banks, CEBS said in a statement. EU regulators are relying on the stress tests to restore public confidence in banks amid concern that some lenders don’t have enough capital to 

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IMF says Spain taking right steps towards stability

BBC News | Friday, 18 June 2010 | 22:24 GMT

Spain is taking the right measures for economic stability, the head of the International Monetary Fund has said. Dominique Strauss-Kahn said he was "confident" Spain’s economy would recover and called on all Spaniards to back the government’s austerity work. He was speaking after a meeting in Madrid with Spanish Prime Minister Jose Luis Rodriguez Zapatero. Mr Zapatero had earlier denied his government was seeking an IMF bailout, but markets have been nervous. Mr Zapatero said on Thursday that Spain’s economy was solid and solvent, and the visit by Dominique Strauss-Kahn was a scheduled one.

‘Determination’

Mr Strauss-Kahn said all the measures being put in place by the Spanish government were "clearly being done for the benefit of the economy". "I am really confident in the medium and long-term prospects for the Spanish economy, providing the efforts that have to be made will be made," he added. He specifically praised continuing efforts to liberalise the Spanish labour market, saying they went in "the right direction". Mr Zapatero said that during the meeting he had conveyed to Mr Strauss-Kahn "the determination of the Spanish government to implement and to make effective every single one of these reforms that we have launched".  

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