Asian Stocks Decline on Record Spanish Borrowing Costs (Source: Bloomberg)
Asian stocks fell, with the regional benchmark index retreating from a one-month high, as Spain’s borrowing costs climbed to a euro-area record and optimism faded that Greece’s election will calm the debt crisis. Canon Inc. (7751), a camera maker that depends on Europe for about a third of its sales, slid 1.7 percent in Tokyo. Asahi Co. dropped 1.3 percent after the bicycle retailer said profit fell. Woodside Petroleum Ltd., Australia’s second-largest oil producer, fell 1.4 percent as crude futures declined. The MSCI Asia Pacific Index (MXAP) slipped 0.2 percent to 115.52 as of 9:27 a.m. in Tokyo, with about three shares falling for every two that rose. Over $5 trillion has been erased from global equities since March amid concern growth is slowing in the U.S. and China, and as Europe’s debt crisis intensified.
“We see Europe escalating rather than solving its problems,” said Tim Riordan, of Parker Asset Management Ltd., a hedge fund in Sydney that has about $200 million under management. “The focus is rolling on to Spain, and with bond yields going over 7 percent, this has been a red flag in the past. You’re in a bit of a downward spiral and this leads us to be fairly cautious.”
Asia Stocks, Oil Fall as Spanish Yields Soar; Aussie Halts Gains (Source: Bloomberg)
Asian stocks and oil fell as borrowing costs in Spain climbed to a euro-era record, fueling concern the debt crisis is deepening. The Australian dollar halted a three-day advance. The MSCI Asia Pacific Index fell 0.2 percent at 9:20 a.m. in Tokyo as the Nikkei 225 Stock Average slid 0.3 percent. Oil in New York fell 0.1 percent to $83.17 a barrel. The so-called Aussie dropped 0.1 percent to $1.0111, before the Reserve Bank releases minutes of its June meeting at which it cut interest rates for a second straight month. Standard & Poor’s 500 Index futures were little changed. Spain, which has asked euro-region governments for as much as 100 billion euros to help shore up its banks, reported yesterday that bad loans jumped in April to 8.72 percent of total lending, the highest since 1994. The 10-year Spanish yield surged above 7 percent.
Group of 20 nations are discussing a mix of measures, including deficit reduction for some countries and pledges for additional stimulus by others with sounder finances, a Canadian official said as leaders prepare for a two-day summit in Mexico. “We are positioned quite negatively,” said Tim Riordan, of Parker Asset Management Ltd., a hedge fund in Sydney that has about $200 million under management. “We see Europe escalating rather than solving its problems. The focus is rolling on to Spain, and with bond yields going over 7 percent, this has been a red flag in the past. You’re in a bit of a downward spiral and this leads us to be fairly cautious.”
Japan Stocks Fall on Record Spain Yields, Greek Election (Source: Bloomberg)
June 19 (Bloomberg) -- Japanese stocks fell from a one- month high after borrowing costs in Spain surged to a euro-era record and Greece’s election failed to assure investors that European officials will contain the region’s debt crisis. Canon Inc. (7751), the world’s biggest camera maker that gets 31 percent of its revenue in Europe, declined 1.7 percent. Tokyo Steel Manufacturing Co. fell 4.2 percent after cutting prices. Shizuoka Bank Co. gained 2 percent on a share buyback plan. The Nikkei 225 Stock Average (NKY) dropped 0.3 percent to 8,693.78 as of 9:23 a.m. in Tokyo after yesterday rising to the highest since May 22. The broader Topix Index slid 0.3 percent to 736.94. Stocks fell even as leaders at the Group of 20 nations meeting in Mexico plan to urge euro-area governments to protect the currency union.
“We see Europe escalating rather than solving its problems,” said Tim Riordan, of Parker Asset Management Ltd., a hedge fund in Sydney that has about $200 million under management. “ The focus is rolling on to Spain, and with bond yields going over 7 percent, this has been a red flag in the past. You’re in a bit of a downward spiral and this leads us to be fairly cautious.”
Most U.S. Stocks Rise as Greece Tempers Spain Concern (Source: Bloomberg)
Most U.S. stocks advanced, sending the Standard & Poor’s 500 Index higher for a third day, as optimism about Greece’s attempts to form a coalition government tempered concern about a surge in Spanish bond yields. Apple Inc. (AAPL), the world’s most valuable company, added 2 percent to pace gains in technology shares. D.R. Horton Inc. and Lennar Corp. (LEN) climbed at least 3.9 percent as confidence among homebuilders rose to a five-year high. Facebook Inc. (FB) rallied 4.7 percent in the one-month anniversary of its initial public offering. Energy and financial shares in the S&P 500 declined. Ten stocks gained for every nine falling on U.S. exchanges at 4 p.m. New York time. The S&P 500 rose 0.1 percent to 1,344.78, after dropping 0.6 percent. The Dow Jones Industrial Average lost 25.35 points, or 0.2 percent, to 12,741.82. The Nasdaq Composite Index added 0.8 percent to 2,895.33. Trading volume for exchange-listed stocks in the U.S. was about 5.8 billion shares, 13 percent below the three-month average.
“We managed not to drive off the cliff in Greece, but we still got flat tires,” said Alan Gayle, a senior strategist at RidgeWorth Capital Management in Richmond, Virginia, which oversees about $47 billion. “The challenges in Spain are very much in front of us. There’s not a lot of conviction.”
European Stocks Little Changed on Spain’s Borrowing Costs (Source: Bloomberg)
European stocks were little changed as the yield on Spain’s benchmark 10-year bond climbed above 7 percent, amid fading optimism that Greece’s election will calm the euro area’s sovereign-debt crisis. Cable & Wireless Worldwide Plc jumped 7.8 percent after its largest investor said it will accept Vodafone Group Plc’s takeover offer. Banco Santander SA (SAN) sank 4.6 percent, contributing the most to a retreat by a gauge of bank shares. The Stoxx Europe 600 Index added 0.1 percent to 244.36 at the close after earlier rallying as much as 1.1 percent and sliding as much as 0.4 percent. The benchmark measure has dropped 10 percent from its peak on March 16 on concern that the euro area’s sovereign-debt crisis has triggered a slowdown in global economic growth.
“The Greek election hasn’t changed many things,” said Stanislas de Bailliencourt, a fund manager at Sycomore Asset Management in Paris, which oversees $2.4 billion. “Difficulties remain and it’s going to be a long process. Spanish bond yields continue to rise. There isn’t a lot of investor appetite for this type of risk. The market remains nervous.”
Stocks in Greece Rally to One-Month High After Election (Source: Bloomberg)
Greek stocks rallied to a one-month high after pro-bailout parties obtained more than half the seats in national elections, easing concern the country will leave the euro currency union. National Bank of Greece SA (ETE), the country’s largest lender, and EFG Eurobank (EUROB) Ergasias SA, jumped at least 11 percent. Hellenic Telecommunications Organization SA, Greece’s largest telephone company, gained 11 percent. The ASE Index (ASE) advanced 3.6 percent to 580.67 at the close of trading in Athens, after earlier rising as much as 7.2 percent. The gauge surged 10 percent on June 14, the second- biggest rally since 1990, amid speculation that the New Democracy party would lead the next government. The measure has climbed 22 percent since tumbling to a 22-year low on June 5.
The election outcome “makes the formation of a pro- European government more likely, removing political uncertainty in the short-run,” Panagiotis Kladis, an analyst at National Securities SA in Athens, wrote in a note today. “Banks could move further upwards this week, although this has been discounted to some extent towards the end of last week.”
Emerging Stocks Rise to 5-Week High After Greek Elections (Source: Bloomberg)
Emerging-market stocks rose, driving the benchmark index (SENSEX) to a five-week high, as concern that Greece may be forced out of the euro eased. The MSCI Emerging Markets Index advanced 1 percent to 934.06 by 4:31 p.m. in New York, the highest level on a closing basis since May 15. Redecard SA, Brazil’s second-biggest card- payment company, led technology shares higher after posting the sharpest increase in four months. The Bovespa rose to the highest since May 21 as Tam SA surged to a five-year high. The BSE India Sensitive Index lost 1.4 percent as policy makers left rates unchanged. Most developing nations’ benchmark gauges advanced after Greece’s New Democracy and Pasok parties won enough seats in parliament to forge a majority government, reducing concern the country was headed toward an exit from the euro. Concern Europe’s debt crisis is deepening curtailed exports and foreign investments to emerging markets.
“Investors are feeling relieved that the worst case scenario in Greece is avoided,” said Chu Moon Sung, a Seoul- based fund manager at Shinhan BNP Paribas Asset Management Co., which oversees about $28 billion. “Problems of Europe’s debt crisis and a slowing global economy are still there, and I think investors will keenly watch for governments’ stimulus measures as well as policy cooperation.”
Biggest Stocks Beat S&P 500 Most in 13 Years as P/Es Fall (Source: Bloomberg)
The largest U.S. companies are beating the average stock in the Standard & Poor’s 500 Index by the most in more than a decade, fueled by rising dividends, valuations 31 percent below the historical average and fear. Companies in the S&P 100 from Apple Inc. to Bank of America Corp. (BAC) have gained 7.7 percent in 2012, compared with 5.1 percent for a version of the S&P 500 that strips out weightings for market value, the widest margin since 1999, data compiled by Bloomberg show. With price-earnings ratios down 6.6 percent this quarter to 12.7 and payouts at 2.2 percent of share prices, analysts raised buy recommendations for the group to the highest level since 2007.
The biggest stocks are showing corporate America’s resilience even though Mitt Romney, the presumptive Republican candidate in this year’s national election, criticized President Barack Obama earlier this month for saying the private sector is “doing fine.” A second year of record profits is helping the S&P 100 (OEX) beat every developed market index in the world as investors seek the relative safety of the U.S. after $5.1 trillion was erased from global equities since March 27. “The mega-caps are just cheap compared to other segments of the stock market,” Russ Koesterich, the San Francisco-based global chief investment strategist for the IShares unit of BlackRock Inc., said in a June 14 phone interview. His firm oversees $3.68 trillion. “There are a lot of things that are wrong in the economy, to state the obvious, and these are companies that have the wherewithal to survive.”
U.S. 30-Year Yields Are Near Two-Week Low Before Spain Bill Sale (Source: Bloomberg)
Treasury 30-year yields were one basis point from an almost two-week low before Spain sells bills today amid concern Europe’s debt crisis is spreading to the region’s fourth-biggest economy. Rates remained lower following a decline yesterday after Spain’s 10-year yields climbed to more than 7 percent for the first time in the euro era. The Federal Reserve opens a two-day policy meeting today as speculation lingers that the central bank will take further steps to boost economic growth. “The bond market reflects both the weak U.S. recovery and demand for dollar assets as a haven from Europe’s turmoil,” said Makoto Suzuki, a senior bond strategist in Tokyo at Okasan Securities Co. “That’s why yields are staying low.” The 30-year yield was little changed at 2.66 percent at 9:20 a.m. in Tokyo after touching 2.65 percent yesterday, the least since June 6. The yield dropped to a record low 2.51 percent on June 1. The 3 percent security due in May 2042 traded at 107, according to Bloomberg Bond Trader data.
FOREX-Euro falls, Spanish woes overshadow Greek poll
LONDON, June 18 (Reuters) - The euro fell from a one-month high against the dollar with the election win for pro-bailout parties in Greece overshadowed by Spanish bond yields surging back above the 7 percent level which traders view as unsustainable.
"The euro is already off the day's highs, displaying that while we have a decent result in the Greek election, everybody knows it's going to be a long, rocky road and we are nowhere near the end of Greece's problems," said Jane Foley, senior FX strategist at Rabobank.
Dollar Shortage Seen in $2 Trillion Gap Says Morgan Stanley (Source: Bloomberg)
Central banks rebuilding foreign- exchange reserves at the fastest pace since 2004 are crowding out private investors seeking U.S. dollars, boosting demand even as the Federal Reserve considers printing more currency. After falling to an all-time low of 60.5 percent in the second quarter of last year, the dollar’s share of global reserves rose 1.6 percentage points to 62.1 percent in December, the latest International Monetary Fund figures show. The buying has left the private sector with $2 trillion less than it needs, according to investment-flow data by Morgan Stanley, which sees the dollar gaining 8.2 percent in 2012, the most in seven years.
While the Fed has created more than $2 trillion under its stimulus programs since 2008, the flows signal that there may actually be a shortage of dollars to meet demand as Europe’s debt crisis deepens and the global economy slows. The dollar has risen 3.5 percent since the end of April against a basket of the most-widely traded currencies even amid speculation that the Fed, which meets this week, may undertake the type of stimulus measures that weakened it in the past. “The market often assumes that people are long dollars, but many of those dollars are held by central banks, which are unlikely to move out,” Ian Stannard, head of European currency strategy at Morgan Stanley in London, said in a June 13 interview. “That leaves us with the private sector, which is short,” meaning they don’t have enough of them, he said. “In an environment where we see a global slowdown, the dollar will be well supported.”
Fed Seen Twisting to Risk Management to Spur U.S. Growth (Source: Bloomberg)
Federal Reserve officials must choose this week between their best estimates and their worst fears of what will happen to the U.S. economy. Policy makers will bring new forecasts to their June 19-20 meeting and probably will mark down their April central-tendency estimate for growth of 2.4 percent to 2.9 percent this year. Lurking in the background is the risk of increasing financial stress in Europe and stubbornly high U.S. unemployment that has remained above 8 percent for 40 consecutive months. All this could prompt them to move away from their outlook for moderate growth and tilt toward a “risk-management” strategy pioneered by former Fed Chairman Alan Greenspan, which puts more emphasis on tracking and containing high-cost threats. Both Janet Yellen, the Fed’s vice chairman, and William C. Dudley, head of the Federal Reserve Bank of New York, used the phrase in the past month.
“What we are hearing from Vice Chairman Yellen and President Dudley, and the minutes of the last meeting, is that there are more risks on the downside,” said Donald Kohn, the former Fed vice chairman who is now a senior fellow at the Brookings Institution. “The ability to combat weakness with interest rates at the zero lower-bound is limited and uncertain. In a situation like this, their reasoning is you might want to buy some insurance.”
Obama in Mexico Grabs Sideline Meetings on European Debt (Source: Bloomberg)
President Barack Obama, working to help contain Europe’s sovereign debt crisis, pressed leaders of the world’s largest economies today, including Germany’s Angela Merkel, to find a consensus plan as financial markets escalated pressure on Spain. Chiefs of the Group of 20 nations are in Los Cabos, Mexico, for two days of meetings as Spanish borrowing costs soared to a euro-era record and elections in Greece failed to damp the threat of contagion that threatens the global and U.S. economies as well as Obama’s re-election prospects. “We are going to be very busy,” Obama said as he left a morning meeting with the summit’s host, Mexican President Felipe Calderon. “We are confident that this will be a productive summit.” European leaders, including German representatives, have come to the summit with a “notable shift” in outlook, persuaded by a slowing global economy of the need to place greater Treasury Undersecretary for International Affairs.
Fiscal Cliff Road Paved by Those Who Took U.S. to Brink (Source: Bloomberg)
The people responsible for averting the end-of-year fiscal cliff are the same ones who almost caused a U.S. debt default, let airline ticket taxes lapse for two weeks and came within two hours of shutting down the government. The 112th Congress, paralyzed by ideological divides and deadlocked on routine issues, may approach the brink again. Lawmakers are nowhere near an agreement on what to do about $607 billion of tax increases and spending cuts slated to kick in at the beginning of 2013. “If people wanted to resolve these problems, we’d have them resolved,” said Representative Henry Waxman, a California Democrat first elected in 1974. “People used to work out compromises for the good of the country.” Instead, Waxman and lawmakers in both parties said they don’t expect much from Congress until after the Nov. 6 election. That delay will force a compressed legislative session with the economy and the role of government in the balance.
China Medical Slumps After Bondholders Ask for Liquidation (Source: Bloomberg)
China Medical Technologies Inc. (CMEDY) posted the biggest two-day drop since April in New York after Stroock & Stroock & Lavan LLP said bondholders of the Beijing- based medical device company filed a petition for liquidation. American depositary receipts of China Medical traded on the U.S. over-the-counter market dropped 8.6 percent to $4.65 in New York yesterday, after tumbling 14 percent on June 15. Debt holders of China Medical directed Wilmington Trust to file a so-called winding-up petition with the Grand Court of the Cayman Islands on June 15, Jayme Goldstein, a lawyer at Stroock & Stroock & Lavan said by phone yesterday, adding his firm represents individual bond holders in the case. He declined to name his clients or give further details, citing the firm’s policy.
Eric Schaffer, a New York-based partner at Reed Smith LLP, confirmed that he was the U.S. counselor for Wilmington Trust, which acts under the direction of bond holders, while declining to provide more information before getting consent from his client. China Medical, a Cayman Islands-registered company, raised $110 million in its U.S. initial public offering in August 2005. The Nasdaq stock exchange said March 14 it was delisting the company’s ADRs, according to a statement from the bourse.
Hong Kong’s Wealth Gap Widens Amid Aging Population, Inflation (Source: Bloomberg)
Hong Kong’s wealth gap widened in the decade to 2011 as the city’s population aged and employers demanded more high-skilled workers. The city’s Gini coefficient, an index of the income gap, rose to 0.537 in 2011, from 0.525 in 2001, the Census and Statistics Department said yesterday in a report. The gap is wider than in Canada, the U.K., the U.S., Australia and Singapore, according to the report. The report highlights the challenges that incoming Chief Executive Leung Chun-ying faces when he takes office July 1 after pledging to aid low-income earners and increase housing supply. Thousands of workers took to the streets on the Labor Day holiday, demanding that Leung address the wealth gap. “Restructuring of the economy leading to a shift in demand from the traditional low-skilled workers to high-skilled high- income workers was one of the key factors behind the widening income disparity,” the report said.
India Unexpectedly Holds Rate as Inflation Curbs Easing: Economy (Source: Bloomberg)
India unexpectedly left interest rates unchanged as the fastest inflation among the biggest emerging markets narrows scope to bolster an economy struggling with trade and budget deficits and Europe’s debt turmoil. Governor Duvvuri Subbarao left the benchmark repurchase rate at 8 percent, the Reserve Bank of India said in a statement in Mumbai today. Only four of 25 economists in a Bloomberg News survey predicted the outcome, with 19 expecting a 0.25 percentage-point cut and the remainder a half-point reduction. Hours after the decision, Fitch Ratings cut India’s sovereign credit outlook to negative, joining Standard & Poor’s in signaling the country is at risk of losing its investment grade rating on concern growth will deteriorate. Subbarao’s room to counter the weakest Indian economic expansion in almost a decade is being limited in part by a plunge in the rupee, which has stoked an inflation rate already above 7 percent.
“Re-accelerating inflation, a still fragile rupee and the continued lack of action from New Delhi are limiting the RBI’s room for easing,” said Richard Iley, the Hong Kong-based chief economist for Asia at BNP Paribas SA. “Reform, not stimulus, is required to reboot India’s disappointing macro-economic performance.”
Australian Bonds Gain, Currency Drops on Europe Crisis (Source: Bloomberg)
Australia’s bonds advanced and its currency halted a three-day gain as surging borrowing costs for Spain reignited speculation that European leaders are struggling to contain their debt crisis. The so-called Aussie fell against most of its 16 major peers before a Spanish bill sale today as Group of 20 nations prepare to urge euro-area governments to take all steps necessary to protect the currency union. The local dollar slid before the Reserve Bank of Australia releases minutes of its June meeting, when it lowered interest rates. New Zealand’s currency failed to extend a three-day gain versus the greenback as Asian stocks fell, curbing demand for riskier assets. “Spain’s got some fairly material structural issues that can’t be solved overnight, and markets are reluctant to lend at the moment,” said Michael Turner, a Sydney-based strategist at RBC Capital Markets. “I could see the Aussie trade a little bit lower.”
Australian bonds rose, pushing the 10-year yield down by 10 basis points, or 0.1 percentage point, to 2.98 percent as of 10:36 a.m. in Sydney. The Australian dollar lost 0.1 percent to $1.0117 after advancing 1.9 percent in the past three days. It fell 0.2 percent to 79.95 yen.
Australia Has Scope to Respond to Europe Turmoil, Parkinson Says (Source: Bloomberg)
Australia has scope to respond to an economic shock emanating from Europe, where “the absence of political will” is a key barrier to fixing the region’s fiscal problems, Treasury Secretary Martin Parkinson said. “The euro-zone crisis is unlikely to be resolved for some considerable time to come,” Parkinson, the Treasury’s top bureaucrat, said in a speech late yesterday in Canberra. “While the Greek election has been grabbing headlines and attention, we should not over-dramatize these events, but nor should we believe the election eliminates the risks emanating from Greece or from the euro zone more broadly.” Concern that Greece, in a fifth year of recession, will reject austerity measures needed to qualify for international aid and risk the turmoil of exiting the 17-nation euro currency is easing after pro-bailout parties won enough seats to form government in weekend elections.
Turmoil in Europe contrasts with Australia, where the economy under Prime Minister Julia Gillard’s government has delivered low unemployment and moderate inflation. In May her government forecast it will end four years of deficits with an A$1.54 billion ($1.5 billion) surplus for the year starting July 1. “Australia is well-placed to cope with whatever emanates from Europe,” Parkinson said. “We have significant flexibility and capacity at our disposal to cope with a range of different global scenarios.”
Europe Imperils U.S. Sales From Chemicals to PCs: Economy (Source: Bloomberg)
American exporters from Dow Chemical Co. (DOW) to Hewlett-Packard Co. are preparing for a further decline in demand from Europe as the region’s deepening debt crisis threatens to derail a source of strength for the U.S. economy. JPMorgan Chase & Co. cut its forecast for second-quarter growth to 2 percent from 2.5 percent last week, in part because of a deteriorating trade balance. Earlier this month, it lowered its third-quarter estimate to 2 percent from 3 percent, “with much of the downward revision accounted for by an expectation that the pace of export growth will slow,” chief U.S. economist Michael Feroli said in a June 1 research note. U.S. exports to the 27-nation European Union dropped 4.8 percent in the year ended April, the worst 12-month performance since November 2009, Commerce Department figures show. By comparison, total U.S. exports were up 3 percent in April from the same time last year.
The slump in Europe coincides with slowing growth in other major markets for U.S. goods, such as China and Brazil. “The decline in Europe will weaken our exports over the long term,” said Michelle Meyer, a senior U.S. economist at Bank of America Corp. in New York. “We look for the trade deficit to widen not only to the euro zone but developing economies as well,” she said, consistent with their forecast that the U.S. economy will slow to just 1 percent growth by year-end from the 1.9 percent annual pace in the first quarter.
Europe Muddle Thickens as Doubts Persist Leaders Can Stem Crisis (Source: Bloomberg)
“To put it bluntly: we’re not going to pay,” the German chancellor said. That threat didn’t come from Angela Merkel, besieged from all sides to save Europe from an avalanche of debt. It was a rare outburst from her pro-European predecessor, Helmut Kohl, against calls that Germany plow more into the common European budget in 1998. Germany ended up paying, illustrating the contortions it has gone through for the sake of European unity. Today, Merkel faces mounting pressure to make even greater concessions, by putting Germany’s financial muscle behind an integrated banking and borrowing system to keep the euro intact. The question is whether, after two years of muddling through, Europe’s pre- eminent power can act quickly and decisively.
“I think she will remain an incrementalist: we have not yet reached the point where it is obvious that we are hanging over the precipice,” said Paul de Grauwe, a professor at the London School of Economics and two-time Belgian candidate for a European Central Bank post. “It looks again that what is going to come out is going to temporarily pacify markets until it is clear that it is not going to be sufficient.”
Greek Coalition Talks Enter Second Day Amid Merkel Aid Warning (Source: Bloomberg)
Greek election winner Antonis Samaras begins a second day of talks to form a coalition after holding “constructive” meetings with two party leaders, racing to forge a government that keeps bailout aid flowing. Samaras secured initial agreement yesterday from Socialist Pasok leader Evangelos Venizelos, the former finance minister who negotiated the second rescue, and said he’d hold further talks today with Fotis Kouvelis, the leader of the Democratic Left party. If those three team up, they will hold a majority of 179 seats in the 300-member Greek parliament. With German Chancellor Angela Merkel offering little flexibility on emergency loans needed to keep Greece in the euro and avert economic collapse, leaders in Athens are scrambling to forge a government that can negotiate changes to some of the austerity measures linked to the 240 billion euros ($303 billion) pledged by international lenders.
“With Mr Venizelos we remain in agreement that we must have, at all cost, and within the deadline of my mandate, a government of national salvation,” Samaras said in Athens yesterday after receiving the three-day mandate to form a government. “We will, of course, have new meetings.”
Samaras Races to Form Greek Government as EU Warns on Timing (Source: Bloomberg)
Greek election winner Antonis Samaras raced to build a coalition to keep bailout aid flowing after the anti-bailout party Syriza rejected his offer to join a government, with talks set to continue a second day. With German Chancellor Angela Merkel offering no flexibility on emergency loans, Socialist Pasok leader Evangelos Venizelos, the former finance minister who negotiated the second rescue, proposed President Karolos Papoulias host a meeting of party leaders tomorrow to get a coalition with the widest possible support. “With Mr Venizelos we remain in agreement that we must have, at all cost, and within the deadline of my mandate, a government of national salvation,” Samaras said in Athens after receiving the three-day mandate to form a government. “We will, of course, have new meetings.”
Yesterday’s vote forced Greeks, in a fifth year of recession, to choose open-ended austerity to stay in the euro or reject the terms of a bailout and risk the turmoil of exiting the union. With the 17-nation currency’s future on the line, finance ministers pledged to assist Greece in its struggle with the cycle of austerity and recession that has trapped the country since it became the first victim of the debt crisis in 2010.
Europe’s Mistakes a Lesson for Latin America, Chile Says (Source: Bloomberg)
Latin America must avoid the costly welfare policies plunging Europe into crisis and should adhere to a market-friendly course to preserve gains made over the past decade’s economic boom, Chilean President Sebastian Pinera said. Countries in the region like Chile that have maintained open economies and fiscal discipline will fare better during a global slowdown than those pursuing “a different model” like Cuba, Venezuela and Bolivia, Pinera said in an interview yesterday in Mexico, where he’s attending a Group of 20 summit. “We don’t want to put at risk everything we’ve done up to now,” said Pinera, a 62-year-old billionaire businessman who was elected in 2010 on a pledge to make Chile the first developed country in Latin America. “Take a look at European countries, that’s the path that we do not want to follow.”
Chile’s recent economic resilience should serve as a lesson for a region increasingly adopting protectionist policies, Pinera said. Even in the face of weaker demand from China, the world’s top copper producer will grow 4.9 percent this year, surpassing the 3.7 percent average for Latin America, according to a forecast this month by the United Nations’ economic unit for the region.
Euro Crisis Shifts to Spain as Merkel Faces G-20 Pressure (Source: Bloomberg)
Group of 20 leaders focused their response to Europe’s financial crisis on stabilizing the region’s banks, raising pressure on German Chancellor Angela Merkel to expand rescue measures as contagion engulfed Spain. As U.S. President Barack Obama called after-dinner talks with euro-area leaders at the G-20 summit in Mexico, the Treasury department’s top international negotiator, Lael Brainard, said Europe is making an effort to “break the feedback loop” between banks and government debt, the link that is worsening Spain’s woes. “We’re seeing a notable shift in European discussion” toward spurring economic growth and “laying out a path to financial union,” Brainard told reporters as the two-day summit began at the resort of Los Cabos.
G-20 chiefs met as Spain’s borrowing costs soared to a euro-era record and elections in Greece failed to damp the threat of contagion. Merkel, who heads Europe’s largest economy and rejects pooling euro-area debt or boosting deficit spending, said she’ll defend her policies with “good arguments” as world leaders press Europe to stamp out the debt crisis now in its third year. Obama has blamed the crisis for slowing U.S. employment growth.
Austerity Doesn’t Pay as Debt Markets Ignore Rating Cuts (Source: Bloomberg)
Britain is forcing Stephen Jobling and his stroke patients to defend the nation’s AAA credit rating. Staffing at the National Health Service hospital ward where Jobling works was reduced by about half in the U.K.’s deepest drive since World War II to shrink its deficit. The goal was to avoid losing the top credit score, which might risk higher interest expenses, according to the government of Conservative Prime Minister David Cameron. “If they could see these people suffering while we have two members of nursing staff running round trying to wash, dress and feed 20 patients, they would think twice,” says Jobling, 27, a nurse at Lincoln County Hospital in eastern England. “You should be looking after your people. You shouldn’t be bothering about some credit agency from somewhere else.”
The bond market says he’s right. After Moody’s Investors Service issued a “negative” outlook for U.K. debt on Feb. 13, yields on government securities relative to benchmark U.S. Treasury debt fell over the next month, instead of rising.
Greek Coalition Talks Enter Second Day Amid Merkel Aid Warning (Source: Bloomberg)
Greek election winner Antonis Samaras begins a second day of talks to form a coalition after holding “constructive” meetings with two party leaders, racing to forge a government that keeps bailout aid flowing. Samaras secured initial agreement yesterday from Socialist Pasok leader Evangelos Venizelos, the former finance minister who negotiated the second rescue, and said he’d hold further talks today with Fotis Kouvelis, the leader of the Democratic Left party. If those three team up, they will hold a majority of 179 seats in the 300-member Greek parliament. With German Chancellor Angela Merkel offering little flexibility on emergency loans needed to keep Greece in the euro and avert economic collapse, leaders in Athens are scrambling to forge a government that can negotiate changes to some of the austerity measures linked to the 240 billion euros ($303 billion) pledged by international lenders.
“With Mr Venizelos we remain in agreement that we must have, at all cost, and within the deadline of my mandate, a government of national salvation,” Samaras said in Athens yesterday after receiving the three-day mandate to form a government. “We will, of course, have new meetings.”
