Angela Mekel Gives Speech
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Chancellor Angela Merkel has described the stabilisation of the euro as critical for the fate of Europe. What is at stake is, "more than a currency. We are called on to preserve the European vision," said Angela Merkel in her government statement.
"If the euro fails, then Europe too will fail. But if we manage to avert the danger, the euro and Europe will emerge stronger than before," the Chancellor stressed, speaking in the German Bundestag to justify the 750 billion euro rescue package for the common currency.
Culture of stability for Europe – not a union for transfer payments
The Chancellor roundly rejected the vision of a union for transfer payments as a model for the financial future of the European Union. That would, she said be "politically irresponsible". She outlined what is needed now in the form of three goals – a new culture of stability with stable budgets, rigorous measures to regulate financial markets and the ruthless identification and remedying of all structural weaknesses.
The German government will be pushing tenaciously for a sustainable solution to stabilise the euro. She countered rash criticism. "The German government is perfectly willing to be thought hesitant it that means that at the end of the day the right decisions are made."
Aid with strings attached – no automatic entitlement to assistance
As she explained the 750 billion euro package, Angela Merkel underscored that the assistance would only be made available provided certain conditions are met. These include the recipient countries making their own savings, and also accepting strict monitoring by the International Monetary Fund (IMF).
The Chancellor declared that there is no automatic entitlement to loans. "No cash will be transferred before the purpose is clearly stipulated and agreed," she said. Parliamentary control will remain unaffected. "The right of the German Bundestag to accept or reject the budget has been taken into account in full." The independent role of the European Central Bank (ECB) too, as custodian of the common currency and price stability, remains untouched.
A return to sound budgets
In her impassioned call for sound budget policy, and criticism of mounting public debts the Chancellor did not shy away from a look at her own house. We Germans too have incurred "debts". "We too are living on credit," she pointed out.
That makes the German provisions to limit the total permissible level of new indebtedness indispensable. Germany too must make savings, "intelligently, so as to generate growth at the same time”.
Tough penalties for notorious deficit states if necessary
At European level the Chancellor qualified the watering down of the 2004 Stability and Growth Pact as a "major mistake". This must now be remedied. She made a number of proposals in order to guarantee savings and consolidation measures in the euro-zone states.
If necessary, she stated, it ought to be possible to impose penalties on states that fail to tackle their budget deficit. These could mean that the states lose their voting rights in Europe for a period of time. Properly organised insolvency proceedings for states should also be an option. Although the path to recovery might be long and hard, "this cannot be taken as a reason for failing to do the right thing".
2020 strategy for growth
The 2020 strategy for growth is enormously important for the EU. It is important to push ahead with economic union, stated Angela Merkel. Currency union and economic union must be better dovetailed. Brussels should concentrate on key strategic aspects of future economic policy.
Rigorous monitoring of markets
On the international financial markets the "primacy of politics" must be restored. The laws of the market alone are not in a position to correct the faults on the money markets. Equally though, it would be wrong to attribute the entire blame for the crisis to the financial markets, she said. The markets had, however, blown up the problems.
In her calls for stricter regulation of the financial markets, the Chancellor was once again unwilling to accept any compromises. Germany demands effective measures, within the scope of the G20 or within Europe, she declared.
If necessary, she said, Germany could go it alone with regulation, provided the country was not thus disadvantaged. She gave the example of the ban issued by the Federal Financial Supervisory Authority BaFin on naked short selling for certain financial products, government bonds and credit default swaps (CDS).
The costs of the crisis must be spread equitably
The German government continues to defend the principles of the social market economy. At international level it will be pushing for an international financial activities tax or a financial market transaction tax. The financial markets must bear their share of the costs of weathering the crisis. The people are, she said, entitled to expect an equitable distribution of the follow-on costs.
The German government believes that there is no alternative to the course taken to ensure the sustainable stabilisation of the euro. "The option of pulling out of Europe is no option in this era of globalisation," underscored the Chancellor.
In an unprecedented move, the European Union, the European Central Bank and the IMF have put together a package to stabilise the euro. The package will cost the European side 500 billion euros. This sum will be supplemented by a contribution of the IMF. Of the 500 billion euros, 60 billion will be provided by an EU emergency fund, while the other 440 billion euros will take the form of loan guarantees issued by member states through a special purpose society. Germany's share will be 28 percent. The IMF contribution will bring the value of the package to a total of 750 billion euros.
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Angela Mekel Gives Speech
[Report Abuse]
Reason
Posted by:
moneysolutionsonline
Chancellor Angela Merkel has described the stabilisation of the euro as critical for the fate of Europe. What is at stake is, "more than a currency. We are called on to preserve the European vision," said Angela Merkel in her government statement.
"If the euro fails, then Europe too will fail. But if we manage to avert the danger, the euro and Europe will emerge stronger than before," the Chancellor stressed, speaking in the German Bundestag to justify the 750 billion euro rescue package for the common currency.
Culture of stability for Europe – not a union for transfer payments
The Chancellor roundly rejected the vision of a union for transfer payments as a model for the financial future of the European Union. That would, she said be "politically irresponsible". She outlined what is needed now in the form of three goals – a new culture of stability with stable budgets, rigorous measures to regulate financial markets and the ruthless identification and remedying of all structural weaknesses.
The German government will be pushing tenaciously for a sustainable solution to stabilise the euro. She countered rash criticism. "The German government is perfectly willing to be thought hesitant it that means that at the end of the day the right decisions are made."
Aid with strings attached – no automatic entitlement to assistance
As she explained the 750 billion euro package, Angela Merkel underscored that the assistance would only be made available provided certain conditions are met. These include the recipient countries making their own savings, and also accepting strict monitoring by the International Monetary Fund (IMF).
The Chancellor declared that there is no automatic entitlement to loans. "No cash will be transferred before the purpose is clearly stipulated and agreed," she said. Parliamentary control will remain unaffected. "The right of the German Bundestag to accept or reject the budget has been taken into account in full." The independent role of the European Central Bank (ECB) too, as custodian of the common currency and price stability, remains untouched.
A return to sound budgets
In her impassioned call for sound budget policy, and criticism of mounting public debts the Chancellor did not shy away from a look at her own house. We Germans too have incurred "debts". "We too are living on credit," she pointed out.
That makes the German provisions to limit the total permissible level of new indebtedness indispensable. Germany too must make savings, "intelligently, so as to generate growth at the same time”.
Tough penalties for notorious deficit states if necessary
At European level the Chancellor qualified the watering down of the 2004 Stability and Growth Pact as a "major mistake". This must now be remedied. She made a number of proposals in order to guarantee savings and consolidation measures in the euro-zone states.
If necessary, she stated, it ought to be possible to impose penalties on states that fail to tackle their budget deficit. These could mean that the states lose their voting rights in Europe for a period of time. Properly organised insolvency proceedings for states should also be an option. Although the path to recovery might be long and hard, "this cannot be taken as a reason for failing to do the right thing".
2020 strategy for growth
The 2020 strategy for growth is enormously important for the EU. It is important to push ahead with economic union, stated Angela Merkel. Currency union and economic union must be better dovetailed. Brussels should concentrate on key strategic aspects of future economic policy.
Rigorous monitoring of markets
On the international financial markets the "primacy of politics" must be restored. The laws of the market alone are not in a position to correct the faults on the money markets. Equally though, it would be wrong to attribute the entire blame for the crisis to the financial markets, she said. The markets had, however, blown up the problems.
In her calls for stricter regulation of the financial markets, the Chancellor was once again unwilling to accept any compromises. Germany demands effective measures, within the scope of the G20 or within Europe, she declared.
If necessary, she said, Germany could go it alone with regulation, provided the country was not thus disadvantaged. She gave the example of the ban issued by the Federal Financial Supervisory Authority BaFin on naked short selling for certain financial products, government bonds and credit default swaps (CDS).
The costs of the crisis must be spread equitably
The German government continues to defend the principles of the social market economy. At international level it will be pushing for an international financial activities tax or a financial market transaction tax. The financial markets must bear their share of the costs of weathering the crisis. The people are, she said, entitled to expect an equitable distribution of the follow-on costs.
The German government believes that there is no alternative to the course taken to ensure the sustainable stabilisation of the euro. "The option of pulling out of Europe is no option in this era of globalisation," underscored the Chancellor.
In an unprecedented move, the European Union, the European Central Bank and the IMF have put together a package to stabilise the euro. The package will cost the European side 500 billion euros. This sum will be supplemented by a contribution of the IMF. Of the 500 billion euros, 60 billion will be provided by an EU emergency fund, while the other 440 billion euros will take the form of loan guarantees issued by member states through a special purpose society. Germany's share will be 28 percent. The IMF contribution will bring the value of the package to a total of 750 billion euros.
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Angela Mekel Gives Speech
[Report Abuse]
Reason
Posted by:
moneysolutionsonline
Chancellor Angela Merkel has described the stabilisation of the euro as critical for the fate of Europe. What is at stake is, "more than a currency. We are called on to preserve the European vision," said Angela Merkel in her government statement.
"If the euro fails, then Europe too will fail. But if we manage to avert the danger, the euro and Europe will emerge stronger than before," the Chancellor stressed, speaking in the German Bundestag to justify the 750 billion euro rescue package for the common currency.
Culture of stability for Europe – not a union for transfer payments
The Chancellor roundly rejected the vision of a union for transfer payments as a model for the financial future of the European Union. That would, she said be "politically irresponsible". She outlined what is needed now in the form of three goals – a new culture of stability with stable budgets, rigorous measures to regulate financial markets and the ruthless identification and remedying of all structural weaknesses.
The German government will be pushing tenaciously for a sustainable solution to stabilise the euro. She countered rash criticism. "The German government is perfectly willing to be thought hesitant it that means that at the end of the day the right decisions are made."
Aid with strings attached – no automatic entitlement to assistance
As she explained the 750 billion euro package, Angela Merkel underscored that the assistance would only be made available provided certain conditions are met. These include the recipient countries making their own savings, and also accepting strict monitoring by the International Monetary Fund (IMF).
The Chancellor declared that there is no automatic entitlement to loans. "No cash will be transferred before the purpose is clearly stipulated and agreed," she said. Parliamentary control will remain unaffected. "The right of the German Bundestag to accept or reject the budget has been taken into account in full." The independent role of the European Central Bank (ECB) too, as custodian of the common currency and price stability, remains untouched.
A return to sound budgets
In her impassioned call for sound budget policy, and criticism of mounting public debts the Chancellor did not shy away from a look at her own house. We Germans too have incurred "debts". "We too are living on credit," she pointed out.
That makes the German provisions to limit the total permissible level of new indebtedness indispensable. Germany too must make savings, "intelligently, so as to generate growth at the same time”.
Tough penalties for notorious deficit states if necessary
At European level the Chancellor qualified the watering down of the 2004 Stability and Growth Pact as a "major mistake". This must now be remedied. She made a number of proposals in order to guarantee savings and consolidation measures in the euro-zone states.
If necessary, she stated, it ought to be possible to impose penalties on states that fail to tackle their budget deficit. These could mean that the states lose their voting rights in Europe for a period of time. Properly organised insolvency proceedings for states should also be an option. Although the path to recovery might be long and hard, "this cannot be taken as a reason for failing to do the right thing".
2020 strategy for growth
The 2020 strategy for growth is enormously important for the EU. It is important to push ahead with economic union, stated Angela Merkel. Currency union and economic union must be better dovetailed. Brussels should concentrate on key strategic aspects of future economic policy.
Rigorous monitoring of markets
On the international financial markets the "primacy of politics" must be restored. The laws of the market alone are not in a position to correct the faults on the money markets. Equally though, it would be wrong to attribute the entire blame for the crisis to the financial markets, she said. The markets had, however, blown up the problems.
In her calls for stricter regulation of the financial markets, the Chancellor was once again unwilling to accept any compromises. Germany demands effective measures, within the scope of the G20 or within Europe, she declared.
If necessary, she said, Germany could go it alone with regulation, provided the country was not thus disadvantaged. She gave the example of the ban issued by the Federal Financial Supervisory Authority BaFin on naked short selling for certain financial products, government bonds and credit default swaps (CDS).
The costs of the crisis must be spread equitably
The German government continues to defend the principles of the social market economy. At international level it will be pushing for an international financial activities tax or a financial market transaction tax. The financial markets must bear their share of the costs of weathering the crisis. The people are, she said, entitled to expect an equitable distribution of the follow-on costs.
The German government believes that there is no alternative to the course taken to ensure the sustainable stabilisation of the euro. "The option of pulling out of Europe is no option in this era of globalisation," underscored the Chancellor.
In an unprecedented move, the European Union, the European Central Bank and the IMF have put together a package to stabilise the euro. The package will cost the European side 500 billion euros. This sum will be supplemented by a contribution of the IMF. Of the 500 billion euros, 60 billion will be provided by an EU emergency fund, while the other 440 billion euros will take the form of loan guarantees issued by member states through a special purpose society. Germany's share will be 28 percent. The IMF contribution will bring the value of the package to a total of 750 billion euros.
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Tags: Merkel, Speech
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Dubai Debt Agreement
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Dubai World, the state-owned holding company, agreed “in principle” with a group of creditor banks on terms to restructure $14.4 billion of loans.
Dubai World will pay $4.4 billion in five years and the remaining $10 billion in eight years, the company said in an e- mailed statement today. Banks will have the option to choose from combinations of loan maturities in dollar or dirhams that carry different interest rates. Including the Dubai government's debt the total liabilities being restructured is $23.5 billion.
Banks will be paid 1 percent interest on $4.4 billion of the loans maturing in five years. The lenders have three options in the eight-year maturities covering about $10 billion of debt with at least 1 percent interest and varying additional rates between 1.5 percent and 2.5 percent at maturity. Two of these options also have a shortfall guarantee.
“The final proposal has not changed in its fundamentals from the terms announced on March 25. In particular, there is no additional financial support from the Government of Dubai,” it said. “The restructuring proposal requires the agreement of the rest of Dubai World's financial creditors.” Dubai World's coordination committee, which is negotiating with the company on behalf of more than 90 lenders, represents about 60 percent of its total bank loans, it said. The committee comprises Emirates NBD PJSC, Abu Dhabi Commercial Bank PJSC, Royal Bank of Scotland Group Plc, HSBC Holdings Plc, Lloyds Banking Group Plc, Standard Chartered Plc and Bank of Tokyo- Mitsubishi UFJ Ltd.
“The proposal puts the company on a sound financial footing and reflects the continued support of the government of Dubai and its lenders,” Dubai World's chief restructuring officer Aidan Birkett said in the statement. “It offers the company the ability to maximize the value of its assets over the medium to long term.”
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Tags: Dubai, Debt, Creditors, Repayment
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Investigation Into ISAs Requested
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A watchdog has requested an Office of Fair Trading investigation into savings account providers offering temporarily high headline interest rates as a method of attracting savers to cash ISAs. The best ISA rates are traditionally offered close to the so-called 'ISA season' which falls around the end of the current tax year and the beginning of the new (5 – 6 April).
Individual Savings Accounts (ISAs) were introduced in the UK 11 years ago, offering people a tax-free incentive to encourage them to save.
The average interest rate on a cash ISA stands at just 0.41%, according to Consumer Focus, with several banks and building societies "baiting" new customers through short-term higher rates.
The watchdog's approach was criticised by the British Bankers' Association (BBA)
Consumer Focus made a super-complaint to the trading regulator regarding the £158bn cash ISA market.
The statutory consumer organisation believes that people are missing out on interest returns of up to £3bn every year, partly due to the difficulty of switching ISA providers.
The Office of Fair Trading (OFT) is now required to consider the complaint then provide a response within 90 days.
A BBA spokesman said Consumer Focus chose to launch its complaint "without any discussions with the banking sector".
"If we had been given the chance, we could have explained the work we are already doing with the regulator to help ISA customers," he added.
Around 37% of households in the UK currently have money deposited in a cash ISA. A significant proportion of those use up their full annual ISA allowance.
In the new tax year beginning 6 April, the limit people can save in ISAs each year will increase from £7,200 to £10,200, half of which can be put into a cash ISA,. plus half, or the full allowance, into stocks and shares ISAs.
As one might expect at this time of year, there are several high paying cash ISAs, with even more attractive returns for those that are willing to lock their cash away into a fixed rate ISA. For example, the RBS ISA pays 4% on its 3-year plan, with the option to transfer cash from previous years' ISAs.
If you would prefer to earn tax-free interest on an instant access ISA, consider either the Alliance & Leicester ISA or Santander ISA both offering 2% on balances of £1-£9K and 2.75% on anything above. Alternatively the Lloyds ISA pays 2.50% with instant access.
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Tags: ISA, Finance, Bank, Savings, Money, Watchdog, Cal...
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Moody's Warns The UK Of Risks To 'AAA' Rating
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Britain's top notch triple-A credit rating depends primarily on investor confidence that "resolute action" will be taken to bring debts under control, rather than when exactly such steps will begin, credit rating agency Moody's said today. In a report, Moody's also warned if British government bond yields move significantly higher, it "would not be consistent" with a AAA rating over time, and noted the suspension of the Bank of England's bond-buying scheme poses an upside risk in this regard.
UK Chancellor of the Exchequer Alistair Darling will announce his budget plans on March 24, the last budget before an election due by June 3. Prime Minister Gordon Brown has said there will be no change in the government's plan to halve the deficit over the next four years.
Against a background of stretched debt affordability, Moody's said the AAA rating depended on "a strong ability on the part of the government to restore its debt to more affordable levels through resolute action".
"The question here is less when fiscal retrenchment ought to start, but rather how credible it is that sufficient retrenchment will eventually take place," Moody's said.
The UK government is expected to run a deficit of around 12.6 per cent of gross domestic product this year.
Moody's warned that while Britain forecasts gross public debt to stabilise at around 90 per cent of GDP in the coming years, it could rise even further if the recovery was muted and tax receipts didn’t recover quickly enough.
The UK economy grew marginally in the final quarter of last year, ending a six quarter-long contraction, but latest economic data have underscored concerns about the sustainability of that pick-up.
"The risk of a double-dip recession seems low, although the risk remains that growth continues to be modest for some time," Moody's said, adding that the UK's recovery from the deepest slump in more than 50 years remained "fragile".
While public debt started the crisis at a relatively low level, "this fiscal space is currently being used to the full and public debt is rising rapidly," it cautioned. It said it believed there was room to hike taxes and cut spending to a greater degree than was planned.
The rating agency also highlighted the risks of rising borrowing costs, pointing out that last month's suspension of the BOE's £200 billion ($331bn) quantitative easing program "creates upside risk to yields" and "exposes the government more directly to market scrutiny".
Moody's warned "a rise in gilt yields may -- despite the long average life to maturity of public debt in the UK -- quickly stretch debt affordability to a level that, if it were maintained over time, would not be consistent with a (AAA) rating."
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Tags: Moody’s, AAA, UK, Economy, Alistair, Darling
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Banking News
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Virgin Money, who will launch as a high street bank later in the year, intend to charge a monthly fee for current account customers. Richard Branson's latest Virgin project expects the fee to be low and that the intention is to replace hidden costs and high overdraft charges. Virgin commented that the purpose of a current account charge is to instill the Virgin ethos of making sure people are not ripped off and that they know what they're paying for with no hidden extras.
Any buyer of Royal Bank of Scotland, ex-Williams & Glyn branch network would have to stump up 4bn according to a report in the Times today. The European Commission insisted that the branches be sold off after RBS accepted state aid last year. Any buyer of the Williams & Glyn's branch network would need to pay approximately £1bn for the asset but an extra £3bn to replace emergency funding provided by the Bank of England, who currently continue to support the business.
Santander, who already owns Abbey, Alliance & Leicester as well as Bradford & Bingley's saving unit are seen as favorites to acquire the assets although the new Virgin Money could also be buyers. Spain's second largest bank BBVA is also thought to be a potential bidder, but any buyer would also need to find a further £2bn in capital to support the existing £24bn loan book.
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Tags: Banking, News, Money, Santander, Virgin, RBS
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Money News Today
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G10 Currencies
EUR-USD: It became clear once again yesterday that markets react immediately to weak macro data from the Eurozone. The euro was unable to recover from the disappointing German ifo business sentiment all day, with EUR-USD even testing the 1.35 mark in the evening, despite the fact that in the morning the pair had traded almost at 1.37. Any more obvious manifestations of the negative euro sentiment would be difficult to imagine. The USD on the other hand seems to be able to deal with weaker data such as yesterday's consumer confidence. After all sentiment data returned to levels last seen in April 2009 without EUR-USD being able to appreciate notably. News regarding additional pressure for the US deposit insurance fund due to further banks going bankrupt was similarly unable to turn sentiment in favour of the euro. Even though the 1.35 mark was not breached on a sustainable basis we expect the level to be tested soon.
In his semi-annual monetary policy report before the House Financial Services Committee Fed chairman Ben Bernanke is likely to clarify once again today that raising the discount rate should not be interpreted as the first step towards the rise of the Fed Funds Target Rate. So not good news for USD. It seems unlikely though that the news will put the dollar under pressure as this point of view has already been stressed repeatedly by Fed officials. Moreover rate rise expectations measured against Fed Funds Futures have fallen further over the past days without EUR-USD being able to benefit.
Only second tier data is due for publication today in the Eurozone (industrial new orders) as well as in the US (new home sales). So on the data front at least all is likely to remain quiet for the euro. The start of the 24 hour general strike in Greece on the other hand might put further pressure on the single currency, should it create the impression that the population might seriously endanger the government's savings programme. There is still no concrete Eurozone aid plan in case a bailout of Greece should become necessary.
JPY: The Vice governor of the Bank of Japan, Hirohide Yamaguchi, once again pointed out last night that the BoJ's choices for fighting deflation are limited as interest rates are already close to zero. Why did he refer to this fairly obvious fact? The comment was caused by the government's pressure on the central bank to extend the bond purchasing programme. So far the central bankers have been dismissive of these plans – and rightly so. After all the blame for the deflationary tendencies cannot be put at the door of the central bank. Yamaguchi once again referred to this fact by blaming falling prices on weak demand. This underlines the government's real dilemma. Due to the desperate state of the national finances the government of Prime Minister Yukio Hatoyama simply cannot afford to introduce any economic aid programmes, despite the fact that elections are due in July. The fact that the government is now increasingly putting pressure on the central bank does not only underline how helpless the government is but it also goes to prove its lack of understanding of economic policy. Both are facts that will affect the yen once the Fed starts reducing its expansionary monetary policy measures.
SEK: And the Swedish krona keeps on rising – at least against the euro. Financial market sentiment obviously remains a key driver for SEK, but economic data and the rate outlook are gaining significance. Moreover markets remain sceptical towards the euro due to the Greece issue, which has enabled the krona to retrace the probably exaggerated losses recorded during the crisis particularly quickly. Over the past few months SEK outperformed the stock markets. That means that the correlation between the performance of the stock markets on one hand and the risk perception as well as krona on the other hand, which was so reliable during the crisis (strong stock markets and rising risk appetite resulted in a strong krona and vice versa), is crumbling, a fact that is probably related to market concerns about Greece. Greece is obviously considered to be a problem specific to the Eurozone. Let us remind you that prior to the crisis in the summer of 2008 EUR-SEK was trading below 9.50, at the peak of the crisis above 11.00 and in early March 2009 when the stock markets collapsed it even rose to just below 11.80. In times of crisis the krona always used to be vulnerable, but obviously not this time. It also means though that the krona gains cannot be interpreted solely as the relative strength of the krona but also as the relative weakness of the euro and are therefore possibly not built on as solid a foundation as some might think. This constellation is unlikely to change much over the course of the week. The euro is likely to remain under pressure while the krona is likely to benefit from relatively positive economic data (consumer and business sentiment on Thursday, retail sales and foreign trade on Friday). The publication of the Q4 GDP next Monday will however provide some excitement. Until then EUR-SEK will remain under pressure though and we might see a test of the 9.70 area. Corrections in EUR-SEK are likely to meet tough resistance in the area around 9.90-9.95.
Emerging Market Currencies
ZAR: The South African CPI data for January is on the agenda today. From our point of view the development of inflation and the central bank's approach towards it are of particular significance for the development of the rand. The rate of inflation remains above 6% (consensus estimates for January are 6.4%), despite the fact that the South African economy was in recession last year. A further rise in the rate of inflation in particular would be problematical as it would force the South African Reserve Bank (SARB) to raise rates. So far the bank has tried to support the economic recovery by raising rates. A rate rise required from a monetary policy point of view would certainly meet strong resistance from the government. It would then have to be seen whether the new head of the SARB, Gill Marcus, remains as steadfast as her predecessor Mboweni. FX markets will watch this decision very carefully.
PLN: The Polish central bank will leave key rates unchanged at 3.50% today. This step will leave FX markets unimpressed as none of the analysts polled expected a rate change. Also the National Bank of Poland's statement is unlikely to provide any new momentum for the zloty. Even though the rate of inflation has been rising again recently, the NBP is likely to still expect that base effects will be positive over the coming months (i.e. that they will dampen prices). As a result the central bank will maintain its neutral monetary policy bias. The zloty will therefore continue to be driven by general market sentiment. Negative developments on the US and Asian markets could therefore lead to profit taking for the zloty today.
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Tags: Money, Forex, EUR, JPY, USD, SEK, ZAR
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Greece Market Frenzy:
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EU Leaders set to meet
As Europe's leaders prepare to meet informally in Brussels today, hopes of a solid plan to tackle Greece's woes are mounting but conflicting statements and reports have muddied the picture and threatened to exacerbate the strains on financial markets.
Finance ministers from the 16 countries that share the euro participated Wednesday afternoon in a conference call chaired by the group's chairman, Luxembourg Premier Jean-Claude Juncker. They were expected to discuss a way forward ahead of Thursday's summit.
Greece's mounting debt woes have become a focus for the market, which worries that the country could default on its repayments. EU leaders and financial officials worry in turn that the market backlash could spread to other peripheral EMU countries with high deficits.
The Greek government has committed to a strict and ambitious austerity plan in the hope of restoring confidence, but markets remain skeptical over whether Greece can achieve the goals laid out in the plan.
Since Monday a mix of rumour, speculation, information and multiple announcements from Europe's various government and policymakers has exacerbated the situation in the financial markets, with Greek spreads narrowing over the German bund and then widening again multiple times. On balance, however, the general sentiment that EU leaders are now committed to saving Greece has left those spreads more than a 100 basis points lower than last week's levels.
"There are so many voices in the mix it is difficult to know what or who to believe at the moment," Mark Wall, an economist at Deutsche Bank.
While EU diplomats said leaders are working on a Plan B to aid Greece, a German government official said Thursday that no decision was in the offing and reiterated that success hinges on Greece getting its own house in order. The source said policymakers were discussing a plan B, "just in case."
Market expectations of a bailout or backup plan for Greece were stoked after it was reported late Monday that European Central Bank President Jean-Claude Trichet had left a conference in Australia early in order to attend the summit.
European Union diplomats said that while Greece's problems and the risk of contagion will certainly be discussed at the leaders' meeting Thursday and a communication on the topic issued, traders could be setting the bar too high by expecting a firm plan with specific details. Offers of "confidence" and "support" could be the most Greece gets, insiders said.
"Europe is working to support Greece, providing it keeps its commitments," an EU diplomat told Market News International on Wednesday.
What kind of form this support would take and when it will be announced remains unclear, with the bulk of the work going on at individual government level rather than at the EU level.
Thursday's summit, called by newly installed European Council President Herman Van Rompuy of Belgium, has an official agenda which focuses on jobs, growth and agreeing the terms of a ten-year economic plan for Europe, known as EU2020.
"The purpose of this meeting is primarily to discuss the direction of our economic policies for the years to come, in the form of a renewed strategy for jobs and growth," Van Rompuy said in a letter to the EU leaders and heads of state.
"This is even more important in the light of recent developments inside and outside the eurozone," he wrote.
The 2020 strategy - which is also backed by European Commission President Jose Manuel Barroso - has been criticised by many observers, including business lobby group, BusinessEurope, who say that 2020 is too far in the future and a focused strategy for the medium term is needed.
And critics say that more needs to be done to outline a backup plan for Greece should the country fail to implement its tough budget consolidation plan, which many analysts think is too ambitious to be achievable.
"I'd like the leaders of Europe to say that in return for the efforts that Greece is making, you are going to get support from us," Almunia told members of the European Parliament in Strasbourg Tuesday.
He didn't say what form that "support" would take, but said it was necessary to drive home the message that "you can't get support for free."
"We don't need to call in the IMF," Almunia added. "We have more than enough instruments in the treaty to tackle a situation like the one we're faced with at the moment in Greece."
Most likely, EU sources said, is an IMF-style solution of loans with strict conditions attached, formulated within the European Union.
"We need to build a firewall for the Eurozone," the EU diplomatic source said. "There will be a solution like what the IMF can do but within the EU."
But even that plan has come under fire from some policymakers, with sources from the UK and Swedish governments saying it is too early to rule out IMF help all together.
In the meantime, Europe's key players are sticking to the same rhetoric: Greece must get its own house in order.
"We all have the confidence that Greece will deliver under the program," France's finance minister Christine Lagarde said in Paris on Tuesday, noting that after its public declarations the Greek government is now working with parliament to implement its Stability Program. "We are watching the program very carefully," she said.
Her comments were echoed Wednesday in Paris by the Greek Prime Minister George Papandreou, who said his government is absolutely committed to implementing its stability plan.
What's clear is that European Union leaders will issue a statement - including some reference to Greece - after their meeting on Thursday, Council officials said.
An official from the Spanish presidency of the European Union said the statement could include a "strong European message of faith in European governments, including in the Greek government."
But jittery markets are looking for more than that - and could be disappointed if nothing materialises.
"As for the next 24 hours, I will not comment on that," a source close to Van Rompuy said on Wednesday. "As you can see it will be like the weather - between now and tomorrow things can change."
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Tags: Greece, Euro, Leaders, EU, Markets
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Warning over sell-off in bond market
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The threat to the economy from a sell-off in the bond markets has moved to a more dangerous phase after the Bank of England this week ended its government debt buy-back programme.
Robert Stheeman, chief executive of the Debt Management Office, on Wednesday warned that the final purchases of the Bank's quantitative easing project created uncertainty in the bond markets, which could lead to rising government yields, or interest rates.
QE has involved printing new money to buy £200bn of bonds, mainly gilts, in an effort to revive the economy.
In an interview with the Financial Times, the man responsible for raising record amounts of bonds to pay for the country's rising debt said: “If the Bank of England decides not to continue with the purchases, then you could, in theory, see yields rising because of the changing supply and demand dynamic.”
At the monthly meeting of the monetary policy committee next week the Bank is expected to put QE on hold. The programme began last March at the height of the financial crisis to help reverse the most severe downturn in decades.
Without such a big buyer in the Bank, which now holds more than a fifth of the entire stock of gilts, the Debt Management Office faces a much tougher task in selling government bonds.
Mr Stheeman concedes this could lead to disruption in the market as investors are no longer assured of a guaranteed buyer of gilts. Until now, investors have been confident of buying gilts, knowing they can easily sell them back to the Bank, which has underpinned prices.
The UK's debt levels have soared since the collapse of Lehman Brothers in September 2008 as the government has borrowed heavily to reverse the downturn and bail out the banks, writes David Oakley.
This financial year £225.1bn will be borrowed from the capital markets with the ratio of public sector net debt to gross domestic product rising to 55.6 per cent, levels last seen in the early 1970s, according to Treasury figures.
This vast amount of borrowing, which is carried out by the Debt Management Office on behalf of the government, dwarfs the amount raised in previous years.
In the first year of the DMO's creation in the 1998-99 financial year,
only £8.2bn was borrowed from the markets in issuance of gilts, or government bonds.
In fact, only £224.9bn of government bonds were issued in the first eight years of the DMO's existence up to 2005-06 – a fraction less than this year on its own.
The large amount of debt explains why the DMO suffered a rare bond auction failure last March as not enough investors turned up to buy debt on offer.
Although this was the only bond auction failure last year, high bond issuance, forecast at £166bn annually up to 2014-15, will keep the DMO on its toes as the task of attracting investors remains one of the government's biggest challenges.
The problems for the UK are compounded by the fact that other governments are also raising record amounts of debt.
The stakes were raised this week by Bill Gross, the head of Pimco, one of the world's biggest bond managers, who said: “Gilts are resting on a bed of nitroglycerine” because of high debt levels that could lead to a run on the pound.
Mr Stheeman dismisses the views of Mr Gross, but admits: “We are in a transitional phase in as much as nobody in the market knows what the next step of the Bank of England will be. That transitional phase is always going to be a pivotal moment for the market. We are moving from one state to another and that could increase the short-term uncertainty un-til it is clear what the MPC has decided on as their next course of action. It could mean we move into a different pricing environment.”
This uncertainty has also fuelled speculation that the UK could lose its prized triple A credit rating, vital to attract investment flows. A downgrade would raise borrowing costs and damage the public finances, with the potential for a collapse in the markets as international investors took flight.
But Mr Stheeman says: “I don’t know what the rating agencies will do. That is a decision for them. I would just note that the necessity for fiscal consolidation appears to be widely accepted. This is a factor that the rating agencies have acknowledged. So any downgrade really should be discounted as a possible outcome.”
S&P threatened to downgrade the UK, which has held triple A status since many governments were first assessed by ratings agencies in the 1970s, because its net government debt risked approaching 100 per cent of national income and staying at that level. Treasury forecasts say net government debt will rise to 77 per cent by 2013.
Mr Stheeman says the debt mountain is a problem for the economy. The UK has borrowed £193bn in the capital markets this financial year, more than the total of £172bn borrowed by the Debt Management Office in its first seven years following its launch in April 1998.
However, he adds: “We have to remember that gilt yields are close to historic lows. Average government interest rate costs are much lower now than they have ever been at about 3.5 per cent. They were about 5 per cent when the DMO was created in April 1998.”
Tags: Warning, Bond, Market, Sell-off, BoE, Debt
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