Posts Tagged ‘European Central Bank’

The : Greek debt restructuring would be a “recipe for catastrophe” …

ECB official blasts ‘vested interests’ in US, UK
May 18, 2011, 10:24 a.m. EDT
Associated Press

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LAGONISI, Greece (AP) — The European Central Bank‘s chief economist said a Greek debt restructuring would be a “recipe for catastrophe” and blamed “vested interests” in Britain and the United States for fueling market pressure on the country.

As Greece announced deeper cuts, Juergen Stark said Wednesday that the struggling eurozone country’s “debt sustainability is insured” as long as it fully complies with its internationally monitored austerity program.

Asked about the markets’ hostility to Greek efforts, Stark said: “This is not the view of all market participants, to be very clear. This is a discussion triggered from London and New York. I don’t know what is behind it — vested interests, people topping their books and so on. So it’s more complicated than just (saying) what markets expect.”

Stark made the comments during a financial conference at a resort near Athens.

Greece’s Socialist government was told by the European Union this week to take urgent measures to keep its austerity program on target, as part of its commitments for the €110 billion ($156 billion) package of bailout loans it is receiving from EU countries and the International Monetary Fund.

Finance Minister George Papaconstantinou heeded the latest EU warning, and confirmed that additional austerity measures worth €6 billion ($8.5 billion) for 2011 would be announced in the coming days.

Greece on Tuesday vowed to slash its bloated civil service by 150,000 people by 2015 and effectively ended government jobs for life.

Papaconstantinou insisted that the latest measures would not include more across-the-board salary and pension cuts that have sparked numerous labor protests.

In Athens, police scuffled with striking municipal workers outside parliament and used pepper spray to disperse protesters.

Greece remains frozen out of bond markets by sky-high interest rates as investors fret that the country may eventually have to restructure its debt, which is set to top 150 percent of gross domestic product this year.

Stark said the restructuring option had not been properly thought through.

“Debt restructuring would wipe out part or all capital of Greek banks,” he said. “So it would be a recipe for catastrophe.”

He urged Greece to “double its effort” on structural reforms that critics say have been stagnating and insisted that the austerity measures would be enough to bring the country back on its feet.

“Greece is solvent,” he said. “This is an important message.”

Stark’s comments underlined the split among European officials over whether Greece should consider delaying repayment of its crushing debt load. Jean-Claude Juncker, head of the eurozone finance ministers group, held the door open Tuesday to what he called a “reprofiling” of Greece debt — a voluntary extension of bond maturities.

Another top ECB official, Lorenzo Bini Smaghi, backed up Stark, saying even a “soft” or voluntary stretching out of repayment would be “devastating for overall financial stability,” according to the Ansa news agency.

“Time has been wasted these past months in the search for a way out, for an easy solution, like restructuring the debt,” Bini Smaghi was quoted as saying. He said government failure to pay all its debts would have “an immediate impact on the banking system.”

Officials are concerned Greece’s troubles could harm Europe’s economic recovery by inflicting losses on banks elsewhere in Europe that hold Greek bonds.

European officials are weighing whether to give Greece another bailout. Last year’s rescue loans were aimed at giving the country breathing space so it could return to borrowing from bond markets next year.

But it remains unable to borrow from private investors as its economy deteriorates and it struggles to meet the terms of the first bailout.

International debt monitors are currently in Greece to inspect the progress of cost-cutting reforms, and again warned that Greece needed to do more work to avoid sliding off target.

“We are in a situation where if we do not get this acceleration of structural reforms, the (budget) deficit will get entrenched at where it is now, around 10 percent,” IMF monitor Poul Thomsen told the conference.

Thomsen acknowledged pain was unavoidable given the country’s massive fiscal adjustment.

“It’s impossible to deal with a deficit of 15.5 percent of GDP without having a recession,” he said. “People are dreaming if they think you can do this kind of adjustment without having a recession.”

Thomsen, dismissing skepticism from analysts, urged Greece to speed up its ambitious privatization program worth €50 billion ($71 billion) through 2015.

“Privatization makes a real difference. If the targets can be realized it would change very substantially the debt sustainability discussions,” Thomsen said.

The government announced it had chosen a series of advisers for privatization projects — included Deutsche Bank and the National Bank of Greece as advisers for the sale of the state stake in the OPAP gambling monopoly; Credit Suisse and EFG Eurobank Equities for the privatization of the state lottery tickets company, and Credit Agricole and Emporiki Bank for the sale of its stake in the horse racing company.


Theodora Tongas in Lagonisi, Elena Becatoros in Athens, and David McHugh in Frankfurt contributed to this report.


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Forecast-busting economic growth in Germany and a surprise rebound in Greece helped the 17-nation eurozone start …

Germany powers eurozone economic surge in Q1
May 13, 2011, 8:56 a.m. EDT
Associated Press

Journal By Calvin Lee Ledsome Sr.,

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LONDON (AP) — Forecast-busting economic growth in Germany and a surprise rebound in Greece helped the 17-nation eurozone start the new year with a bang, with the region growing twice as fast as the U.S. despite constant fears about debt.

The eurozone’s economy expanded by a quarterly rate of 0.8 percent in the first three months of the year, according to Eurostat, the EU’s statistics office on Friday.

That was more than double the 0.3 percent growth posted in the previous three-month period, ahead of analysts’ expectations for a 0.6 percent increase and twice U.S. growth.

“The eurozone is therefore significantly outperforming all other major developed economies at the moment,” said Chris Williamson, chief economist at Markit.

The figures have cemented expectations that the European Central Bank, which has to look at the whole eurozone as it seeks to tame inflation, will follow up April’s interest rate increase — the first in nearly three years — with another, possibly in July, despite some countries’ debt troubles.

In year-on-year terms, the eurozone economy grew 2.5 percent, roughly in line with what many say should be its long-term average.

Unsurprisingly, given its sheer size, Germany was the main reason the eurozone grew so fast. Its 1.5 percent growth during the quarter means the EU’s largest economy has now made up all the output lost during the recession. It was driven by a healthy balance of exports and household spending.

“Germany is the engine of growth among industrial countries — and not just in Europe,” German Economy Minister Philipp Roesler said.

France’s economy, the eurozone’s second-biggest, expanded by a robust 1 percent on higher consumer spending and business investment. Northern economies like the Netherlands grew strongly, while Italy and Spain lagged behind.

Perhaps more surprisingly, given the debt quagmire it is in, Greece posted solid growth of 0.8 percent, its first economic expansion since the fourth quarter of 2009. However, the increase is unlikely a sign of a sustained rebound as the previous quarter’s contraction was doubled to a colossal 2.8 percent.

Manos Chatzidakis, head of investment strategy at Pegasus Securities, said the Greek figures were disappointing because of the revision.

“The economy still has a considerable way to go before recovery,” said Chatzidakis. “We remain in a very unfavorable situation.”

Portugal, another bailout recipient, returned to recession. Its 0.7 percent quarterly decline follows the 0.6 percent drop recorded in the previous three-month period — a recession is classified as two consecutive quarters of negative growth.

Portugal is the third eurozone country to agree to a bailout, following Greece and Ireland.

Those countries’ problems are likely to be protracted as they struggle to reduce their mountains of debt.

The European Commission, the EU’s executive, on Friday raised its debt forecasts for all three of them.

That will likely spice up discussions among eurozone governments on whether Greece will need a second bailout.

It will also fuel calls from many economists who say Greece needs to restructure its debts — to delay or lower its bond repayments.

Eurozone ministers will start discussing how to help Greece at a meeting on Monday.

The Commission said it expects the eurozone economy to grow 1.6 percent in 2011, while the wider 27-country EU, which includes non-euro members like Britain and Poland, is anticipated to grow by 1.8 percent for the second year running.

Germany is expected to grow 2.6 percent this year but Greece is anticipated to shrink another 3.5 percent.

Olli Rehn, the commissioner in charge of monetary and economic affairs, said the EU will surpass the pre-crisis (pre-2008) growth levels next year.

That’s far sooner than most predicted in 2008,when the global economy sank into its deepest and longest recession after the collapse of U.S. investment bank Lehman Brothers brought the financial system to its knees.

“The main message in our forecast is that the economic recovery in Europe is solid and continues, despite recent external turbulence and tensions in the sovereign debt market,” Rehn said.

The series of figures helped the euro, which had lost about 8 cents to the dollar this week as investors scaled back expectations of interest rate increases in Europe and worried about Greece’s debt troubles.

By mid afternoon London time, the euro was up 0.2 percent at $1.4262, having traded as high as $1.4338 earlier. Last week, it was near 18-month highs above $1.49.

“The solid growth performance of the EU’s core economies puts the European Central Bank in an increasingly uncomfortable situation,” said Tim Ohlenburg, senior economist at the Centre for Economic and Business Research.

“Higher interest rates would make sense for the large, central eurozone countries in which unemployment has fallen and output is making a comeback, but this would further undermine weaker economies faced with high debt levels and fragile banking sectors,” Ohlenburg added.


Gabriele Steinhauser in Brussels, Geir Moulson in Berlin and Nicholas Paphitis in Athens contributed to this story.


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German business confidence slips as outlook clouds

German business confidence slips as outlook clouds
Associated Press
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BERLIN (AP) — German business confidence has slipped off a two-decade high as managers’ outlook for the next six months was tempered by a slight decline in optimism on exports, a closely watched survey showed Friday.

The Ifo institute said its confidence index was down slightly to 111.1 points for March from 111.3 in February. The slip followed nine consecutive months of increases, and Ifo stressed that the “traffic lights still signal ‘green.'”

Managers’ assessment of the current situation improved and the overall decline was due entirely to a less optimistic six-month outlook. The subindex measuring expectations sank to 106.5 points from 107.9 in February.

Ifo said that manufacturing firms plan to increase staff numbers even though “future export business is no longer assessed quite so optimistically.” Friday’s survey showed that retailers, wholesalers and construction firms also were less optimistic for the next half-year.

Export strength has been central to Germany‘s powerful economic recovery over the past year, although it has been accompanied by signs of improving domestic demand.

Slightly less than half of this month’s Ifo survey responses arrived after problems started at Japan’s earthquake-damaged Fukushima Dai-ichi nuclear complex.

There was little evidence, however, that events in Japan pose a direct, immediate economic threat to Germany. Problems with delivery of Japanese products to German carmakers, for example, “could only delay but not stop production,” ING economist Carsten Brzeski said.

“The only serious and substantial threat for the German economy from recent global developments is linked to energy prices,” which could rise on spreading political unrest in the Arab world or as a results of consequences of the Japanese nuclear plant accident, he added.

The Ifo decline “is no reason to get petrified,” Brzeski said. “The economy is slipping on oil but is not tumbling. The fundamentals of the German economy are strong enough to withstand some setbacks.”

IHS Global Insight economist Timo Klein noted that “Germany’s increasing domestic strength continues to be boosted by interest rates that are much too low for its own economic conditions” — even though the European Central Bank is expected to raise rates from a record-low 1 percent next month.

“The German economy will stay very robust during 2011,” assuming global growth isn’t hobbled by much wider Middle East troubles, a major escalation of Japan’s nuclear crisis or fast-growing China slamming on the brakes to combat inflation, he added.

The monthly Ifo survey is based on responses from about 7,000 companies.


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