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Posts Tagged ‘debt’

Thousands of tons dead fish force farmers into debt

In Uncategorized on June 28, 2010 at 12:51 pm

Thousands of tons of fish raised by farmers in cages in southern province of Dong Nai have died, causing losses of tens of billion VND for dozens of fish breeders. However, the cause of death of the fish has yet to be determined.

A first wave of fish deaths occurred in the beginning of June.

Dead fish have forced many fish breeders to liquidate because their property was used to secure loans.

Masses of dead fish float densely on the water’s surface in a cage on the Dong Nai River. (Photo:SGGP)

At present, farmers of the Thong Nhat Ward are worrying about their livelihoods because total losses are too great to overcome, said a breeder.

According to a report from the local authorities, the amount of dead fish totals 56,000 tons so far, causing the farmers to lose tens of billion VND.

A somber, anxious atmosphere covers fishing households in the ward, Sai Gon Giai Phong Newspaper’s reporters recorded. Moreover, farmers’ anxiousness increases whenever their harvest comes near.

Vu Thanh Tuyen, a fish breeder said in nearly two weeks her family lost nearly two tons of fish while harvest was approaching. She said her family expended a great deal of money and effort in order to generate those fish.

Tuyen said her family has just been watching the fish die off and their dead bodies seem pile up in the cages.

The same situation occurred with other families in the ward, Tuyen said, adding, they do not know what to do.

The situation is forcing farmers to accumulate debt upon debt, said Tuyen.

Breeder Nguyen Duc Thang said his family has lost four tons of fish with total losses estimated around VND200 million (US$10,500). If fish continue to die in droves, his family would not be able to pay their debts, he said.

Thang’s wife remembers massive fish deaths of 2007, when her family had to sell land to pay debts. The same situation occurred again this year she has no more land to sell, she added.

Among fish breeders in the ward, Tran Duc Can’s family has suffered the greatest losses, estimated at VND1 billion ($53,000).

With surly face, Can said his family invested VND3 billion ($155,000) into dieu hong fish, breeding them over a total area of 5,000 square meters. However, from June 23-24, six tons of fish died, creating losses estimated at VND300 million ($15,700), not including the amount of fish that died from June 6-8.

With the situation of masses of fish dying, workers do not have anything to do, but many families still pay salaries. This has caused Can’s family and other families to face numerous difficulties, especially unpaid debts, he said.

According to Dong Nai Province’s Environmental Protection Department, the large amount of dead fish could adversely affect the quality of the local ecology and the lives of residents in adjacent areas.

According to people who feed and manage the fish farm, the main cause of fish die-off may be pollutants discharged from factories affecting the quality of water in the Dong Nai River.

Residents hope that the local authorities will resolve the issue as soon as possible in order to help famers continue breeding fish.

The Dong Nai river system plays an extremely important role in the development of 12 provinces and cities, including HCM City, Dong Nai, Binh Duong, Binh Phuoc, Ba Ria – Vung Tau, Long An, Tay Ninh, Lam Dong, Dak Lak, Dak Nong, Ninh Thuan and Binh Thuan.
Approximately 60 industrial and export processing zones are located along the Dong Nai river basin, but just one-third of them have waste water treatment systems. The remaining discharge waste water goes into the river, causing serious pollution.

Source: SGGP

Greece will tame debt with reforms: IMF official

In Uncategorized on June 27, 2010 at 12:46 pm

Greece will overcome its huge debt crisis with its austerity plan, an IMF official said Sunday as a poll showed a majority of Greeks fear that unpopular pension reforms will be in vain.

A group of demonstrators gather in front of the Greek parliament on June 25 in Athens during a cabinet meeting to finalise changes in a controversial pension reform.

Poul Thomsen, the head of the International Monetary Fund mission dealing with Greece, told To Vima daily that Athens is making progress on its “ambitious” programme of cuts.

The cutbacks have caused labour turmoil and a series of protests across Greece, with a new general strike, the fifth since February, due to be held on Tuesday.

“Such an adjustment is not easy and often causes discontent,” Thomsen said. “This is understandable as people see things getting worse before they improve.”

But he added: “The effort has begun vigorously and I firmly believe that Greece will succeed.”

Thomsen also applauded the Greek government’s decision not to restructure its debt as this “which would entail a huge cost.”

After decades of unrestrained state spending, Greece faced bankruptcy this year with a national debt of nearly 300 billion euros (371 billion dollars).

It was rescued by a bailout loan from the European Union and the IMF for which it had to pledge a spate of deep spending cuts.

Among the measures is an overhaul of the pensions system which has eaten up vast amounts of state funds.

The government this week finalised reforms which progressively raise by 2015 the age of retirement for both men and women to 65 years for a full pension, equating the sexes for the first time.

It also increases the mandatory workforce period from 37 years to 40 years.

The new system will see an average reduction in pensions of seven percent and bonus retirement dues which pensioners used to receive for Christmas, Easter and summer vacations will be slashed.

Parliament is expected to begin debate on the reforms next week.

A poll in Proto Thema daily on Sunday showed that 64.8 percent of Greeks believe their sacrifices will not save the crumbling pensions system, which currently consumes 12 percent of national output.

The Alco poll also found that 51.1 percent of 800 respondents believe Prime Minister George Papandreou is “too submissive” towards Brussels.

Source: SGGP

Europe clamps down on debt in bid to banish Spanish blues

In Uncategorized on June 18, 2010 at 4:27 am

 Europe clamped down on debt on Thursday with decisions to sanction countries that overspend, to publish banks’ solvency levels and introduce a new bank levy in a bid to banish dark clouds over Spain.

The 27 leaders laid foundations for cross-border EU economic governance, especially across the troubled eurozone, as Spanish Prime Minister Jose Luis Rodriguez Zapatero slammed “unfounded rumours” about bailouts and bust balance sheets.

European Union president Herman Van Rompuy said that “stricter supervision of budgets and competitiveness,” with both “preventive and corrective” measures, “may seem a small step, but will prove a leap forward”.

From L: Spain’s President Jose Luis Rodriguez Zapatero, European Council president Herman Van Rompuy and European Commission president Jose Manuel Barroso give the closing press conference of an European Council gathering EU’s heads of state in Brussels.

He added that a move to police the “overall sustainability” of debt, widening the focus of surveillance, covered “a lot of parameters including private debt”, meaning banks and household borrowings as well as public deficits.

But differences remained on how far to go in the creation of new penalties, intended for application after Van Rompuy produces a definitive report on economic governance in October.

These will apply only to those countries that share the euro currency, and are likely to steer clear of withdrawing voting rights from the worst offenders for fear of opening a Pandora’s box in treaty change negotiations.

“We already have the solutions and the measures needed,” said Swedish Prime Minister Fredrik Reinfeldt, pointing out that existing sanctions have never been used.

The decisions were taken after Madrid successfully auctioned off a major tranche of its sovereign debt, at only moderately higher interest rates.

“There is nothing better than transparency to demonstrate solvency,” Zapatero said in order to “leave all these unfounded rumours behind”.

International Monetary Fund chief Dominque Strauss-Kahn will visit Zapatero in Madrid on Friday, with French President Nicolas Sarkozy leading widespread expressions of support by insisting there was “no problem” with Spain’s finances, after strong demand for government bonds at auction.

Spain led the way with a decision on Wednesday to publish the results of “stress tests” on its banks that fellow leaders followed.

The assembled leaders also agreed to introduce a system of bank levies, although London insisted it would only ever function as a collection of coordinated national taxes, and not to prop up ailing eurozone banks.

New British Prime Minister David Cameron, at his first EU summit, said Downing Street would announce its own bank levy in an emergency budget due on Tuesday.

“We don’t want to have some sort of European-determined bank levy with a specific use of the funds,” he said.

By the time specific changes come in next year, Estonia will have become the 17th country to switch to the euro, after a green light was also given to their entry on January 1.

Ballooning debt levels in countries such as Greece, which recently required a 110-billion euro bailout from the EU and the IMF, have pushed leaders to think more of the effect of their decisions on their neighbours.

Berlin and Paris also wanted to see a tax on financial transactions proposed at a G20 summit in Toronto, but unlike the bank levies, which the EU will put to G20 leaders as a bloc-wide proposal in Canada next weekend, this idea will only be taken forward for discussion.

As a senior EU official said, a transaction tax is “in the pipeline, but I wouldn’t be able to answer where exactly it is in the pipeline”.

Put bluntly by one diplomat, London simply “doesn’t want it”, for fear of banishing its lucrative finance industry to Switzerland or other non-EU offshore centres.

Deals were also cut to allow Brussels to vet the grand lines in member state budgets and open EU entry negotiations with Iceland despite anger in both countries over withheld compensation to savers with a collapsed Icelandic bank.

Source: SGGP

Eurozone debt could squeeze banks: experts

In Uncategorized on June 6, 2010 at 10:18 am

FRANKFURT, June 6 (AFP) – Eurozone banks could face a credit crunch as they compete with governments for funds in coming years, analysts and the European Central Bank say.

The ECB’s Financial Stability Review said last week that banks must renew about 800 billion euros (950 billion dollars) in debt by the end of 2012, and that they would be competing head-on with governments in bond markets.

“In view of the considerable near-term funding needs of euro area governments, a particular concern is the risk of bank bond issuance being crowded out, making it challenging to roll over a sizeable amount of maturing bonds by the end of 2012,” the central bank said.

That would in turn crimp bank lending to businesses and households, which has begun to recover and is needed to keep economies growing to replenish state finances.

Deficits and debt in many countries have shot up because of spending to overcome the global economic crisis to levels causing strains on bond markets.

Government debt in the 16-nation zone is forecast to reach 88.5 percent of gross domestic product in 2011, or roughly 8.3 trillion euros (10.0 trillion dollars).

Countries borrowed more than 800 billion euros in 2009 alone, partly to bail out banks, which in turn then bought public debt that had been driven up by the bail-outs.

“We should really take this seriously,” ING senior economist Carsten Brzeski told AFP in a reference to the risk of public debt crowding out bank borrowing.

Asked if the process of banks buying public debt after being bailed out with state funds resembled the shady practice of using multiple bank accounts to cover rotating overdrafts, he said: “I think the parallel holds very well in terms of the inner eurozone circle.”

Brzeski said that “pushing it from one to another and back is kind of a multiplier effect”, but noted that governments held underlying assets and their economies generated value that underpinned the process.

“It only works if the underlying fundamentals are healthy,” the economist said.

“Otherwise it just goes up in smoke.”

With the ECB now buying public debt from banks, IHS Global Insight economist Timo Klein added: “I don’t think there is now at least any acute danger of some kind of market failure or seizure.

“The risks at the moment are moving away from the banks and towards the ECB.”

Barclays Capital economist Thorsten Polleit told AFP: “One can imagine that central banks will not only provide bank refinancing in the money market but also for longer maturities (that is maturities beyond one year) in the future.”

The ECB had hoped to withdraw from interbank markets as financing conditions normalised, but that plan was upset by raised concern that banks were exposed to big losses on debt from Greece, Ireland, Italy, Portugal and Spain.

Commercial banks must now “adapt to the new environment, reduce their dependence on wholesale finance and put aside significant reserves for loan losses,” said economics professor Moritz Schularick from Berlin’s Free University.

The ECB has warned that banks might have to write off 195 billion euros this year and next to reflect the lessened chances of full reimbursement on loans, and US and British officials are pressing eurozone leaders for rigorous stress tests of banks.

Such tests aim to determine how a bank would fare if hit by a major event like a steep economic downturn or default by a major debtor.

In October, EU finance ministers unveiled test results of 22 eurozone banks but “they came out with very vague results,” Brzeski said, in contrast with detailed US tests credited with restoring confidence in big banks there.

On Wednesday, British Financial Secretary to the Treasury Mark Hoban said: “A genuine, rigorous stress testing exercise is urgently needed to answer questions around solvency in severe market conditions.”

UniCredit chief economist Marco Annunziata noted that “lack of information is again playing a major role in undermining market sentiment, at least in Europe.”

Source: SGGP

US debt tops 13 trillion dollars for first time

In Uncategorized on June 3, 2010 at 10:11 am

US debt has reached 13 trillion dollars for the first time in history, the Treasury Department has said, stoking a political furor over government spending.

Amid vast government outlays designed to end the economic crisis, the debt reached a record 13,050,826,460,886.97 dollars on June 1, according to official figures.

The debt has more than doubled in the last 10 years and now stands at just under 90 percent of annual gross domestic product.

Against this backdrop, steaming the flow of red ink has become a contentious political issue in Washington, with Democrats and Republicans trading barbs about who is to blame.

Earlier on Wednesday President Obama assailed Republicans for leaving him with the type of spiraling short-term deficits that fuel longer-term debt.

The US Treasury building in Washington, DC. US debt has reached 13 trillion dollars for the first time in history, the Treasury Department has said.

The US government suffered its 19th consecutive month of budget deficit in April.

“By the time I took office, we had a one-year deficit of over one trillion dollars and projected deficits of eight trillion dollars over the next decade. Most of this was the result of not paying for two major tax cuts skewed to the wealthy, and a worthy but expensive prescription drug program that wasn’t paid for,” Obama told an audience in Pittsburgh, Pennsylvania.

“I always find it interesting that the same people who participated in these decisions are the ones who now charge our administration with fiscal irresponsibility.

“Despite all their current moralizing about the need to curb spending, this is the same crowd who took the record 237 billion dollar surplus that president Clinton left them and turned it into a record 1.3 trillion dollar deficit.”

But Republicans have lambasted Obama for expanding government spending since he came to office through a massive reform of healthcare.

The debt has risen by around 2.4 trillion dollars since Obama took office in January 2009 and rose 4.9 trillion dollars in the eight years George W. Bush spent in office.

“Thirteen is certainly an unlucky number, especially for our children and grandchildren who will be left to dig out of trillions of dollars worth of debt,” said Republican Senator Judd Gregg, a frequent critic of Obama’s budget policies.

“This dangerous and unsustainable level of debt cannot continue without bankrupting our country, and I urge the majority to slow its explosion of spending and borrowing before it is too late.”

But economists are sharply divided over how quickly the US should move to rein in spending.

Some believe that a rapid tightening of government expenditure, or an increase in taxes could remove the one support that is keeping the United States from falling deeper into recession.

But as debt-contagion fears grip Europe others have warned that the United States has limited time to forge a credible plan to end its own fiscal woes.

Even the normally cautious Federal Reserve Chairman Ben Bernanke has warned that politically painful tax hikes or spending cuts could be needed to balance the budget.

Obama has launched a bipartisan debt commission to investigate ways of tackling the problem. It is expected to produce its findings by the end of the year.

Source: SGGP

EU loan arrives to save Greece from debt default

In Uncategorized on May 19, 2010 at 5:02 am

Greece on Tuesday received a badly-needed slice of European Union loan support to help it meet an imminent debt deadline as it braced for new strikes against austerity measures this week.

“The sum of 14.5 billion euros has been released by the European Commission,” the finance ministry said in a statement.

“These funds cover Greece’s immediate and short-term loan requirements and obligations,” the ministry said, adding that 10 eurozone members had contributed bilateral loans.

The money from mainly Germany and France arrived just a day before Greece needs to pay nine billion euros on a maturing 10-year government bond.

The ancient temple of Parthenon atop the Acropolis hill is illuminated by late evening sunlight in Athens

The funds are part of a 110-billion-euro bailout recently agreed with the EU and the International Monetary Fund in return for deep austerity cuts.

“All (EU) states which had to mobilise so that Greece can meet its debt deadline on May 19 have met their obligations,” French Finance Minister Christine Lagarde told a news conference in Brussels.

But as the government got relief on the economic front, it suffered a humiliating blow with the resignation of secretary of state for tourism Angela Gerekou late Monday after a newspaper article revealed her husband’s unpaid taxes.

The finance ministry confirmed that Tolis Voskopoulos, a singing star of the 1970s and 1980s, owed 5.5 million euros (6.9 million dollars) in unpaid taxes and late payment fines.

Prime Minister George Papandreou’s Socialist government has ordered a major campaign against tax cheats as part of the new drive to put the public finances in order.

“Typhoon Angela hits government,” the pro-administration To Vima daily said Tuesday. Ta Nea, which also supports the ruling party, said the minister had been sacrificed “as a message” to other officials.

Aside from a political embarrassment to Papandreou as he labours to enforce unpopular spending cuts, Gerekou’s resignation also leaves the travel sector leaderless at the start of a tourism season which debt-hit Athens badly needs for revenue.

The outgoing junior minister had been “an asset” to the sector, the head of the Greek chamber of hotels (XEE) told a news conference on Tuesday.

XEE chairman George Tsakiris and other leading hoteliers called on the government to rapidly appoint a successor to Gerekou, warning of a 10 percent drop in tourist arrivals this year because of the debt crisis and unrest.

They also noted that the greater Athens region — which draws 15 percent of arrivals — suffered 27,000 night cancellations after a violence-marred protest on May 5 when three people died in a firebombed bank.

Greece is trying to rein in a public deficit of over 30 billion euros to keep a debt mountain of nearly 300 billion euros from a default that could cause a European crisis and even threaten the world economy.

Athens will receive another nine billion euros in September, including 6.5 billion from eurozone members and 2.5 billion euros from the IMF.

A third nine-billion-euro installment will be made in December, the finance ministry said, adding that a first review of Greece’s austerity programme is due in the third quarter of 2010.

To clinch the EU-IMF bailout which helps its economy stay afloat in a growing recession, the Greek government has had to enforce a barrage of deeply unpopular tax hikes and wage and pension cuts.

The measures are opposed by unions which have called a wave of street protests and three general strikes in the last three months.

Visitors and Greeks alike face fresh hardship as a new general strike against the austerity measures on Thursday will shut down state offices, public services, banks and confine ferries to port.

“We are striking because we do not want to work for 40 years without rights, with hunger wages and leave the workforce at the age of 70 with a mendicant’s pension of 300 euros (370 dollars),” said the Communist-affiliated All-Workers Militant Front (PAME) which has held several protests at top-line hotels.

Fitch Ratings warned it might still cut Greece’s credit rating to junk status even though Athens had secured a bailout from the EU and IMF because of the daunting task of getting its strained finances into shape.

“The downside risks are high and Fitch has accordingly judged that negative outlooks on Greece’s sovereign ratings remain appropriate,” the agency said in a statement.

Source: SGGP

Euro plunges to four-year low as debt fears weigh

In Uncategorized on May 17, 2010 at 8:59 am

TOKYO (AFP) – The euro plunged to a four-year low in volatile Tokyo trade Monday as fears about eurozone debt continued to hammer the single currency and regional stock markets.

Sentiment remained fragile despite an EU-IMF rescue package worth almost a trillion dollars designed to prevent the Greek crisis from spreading, as fears grew that the single currency is at risk of collapse.

People pass in front of an electric price index in Tokyo. AFP photo

The euro fell to as low as 1.2243 dollars in Tokyo trade — its lowest since April 2006 — from 1.2358 in New York Friday. It later recovered slightly to 1.2277 in afternoon trade.

Tokyo shares dived 2.17 percent, or 226.75 points, to close at 10,235.76, while Shanghai closed down 5.07 percent, or 136.70 points, at 2,559.93 and Sydney plunged 3.12 percent, or 143.9 points, to 4,467.2. Hong Kong dived 2.48 percent by the break.

The eurozone rescue package was initially greeted with optimism but has since failed to reassure sliding markets, with Europe’s growth prospects stymied by belt-tightening measures announced by Spain, Portugal, Italy, and France.

“Concerns that severe fiscal austerity in the eurozone will crush growth in the region continue to weigh” on the euro, said John Kyriakopoulos of National Australia Bank in Sydney.

“Investors are questioning if tightening fiscal spending really is the right thing to do because it would have a negative impact on the economy,” said Hideaki Inoue, chief forex manager at Mitsubishi UFJ Trust and Banking Corp.

“The entire economic outlook is becoming increasingly grim.”

There was some support from figures showing Japanese machinery orders, considered a leading indicator of corporate Japan’s appetite for spending, rose a better-than-expected 5.4 percent in March from the month before.

Regional markets followed European and Wall Street stocks lower. On Friday the Dow dropped 1.51 percent on escalating fears for the health of the eurozone.

“While a financial safety net is in place (in the eurozone), that doesn’t remove the considerable economic concerns that burden that region,” Jamie Spiteri, head of trading at Shaw Stockbroking in Sydney told Dow Jones Newswires.

Stocks in Japanese exporters extended losses, with their overseas profits threatened by the euro’s weakness. Sony was down 4.50 percent and Kyocera lost 2.87 percent.

“The market has no confidence in the euro,” Mizuho Corporate Bank market economist Daisuke Karakama said, noting the single currency was lower even though there was no fresh news to drive it down.

Gold has soared to record peaks as investors exit the single currency in favour of safe haven investments, with the precious metal opening at 1,237.00 US dollars in Hong Kong, down from Friday’s record high of 1,249.40 dollars.

The debt crisis began as Greece teetered towards default, triggering fears that other weak economies such as Portugal, Spain and Italy may be next.

Worries that a possible debt default by Greece could hit the world’s financial system in the same way the collapse of Lehman Brothers did two years ago have sent shares and the euro plunging.

IMF chief Dominique Strauss-Kahn said Sunday that European nations had taken too long to respond to the Greek crisis.

Athens is now paying a painful price for its past overspending with the government forced to slash civil servant pay and pensions while raising taxes as a condition for the 110-billion-euro EU-IMF bailout.

The IMF and EU agreed the Greek bailout only at the beginning of May, and a week later were forced to put together the trillion-dollar euro rescue plan as investors continued to dump the currency and European shares.

Greek Prime Minister George Papandreou Sunday raised the possibility of taking legal action against US banks, saying they bear “great responsibility” for Greece’s debt crisis, according to a transcript of an interview provided by CNN.

Thai shares were 2.5 percent lower as political violence continued to paralyse the capital with almost 30 people killed as authorities clashed with “Red Shirt” protesters.

Oil was lower. New York’s main contract, light sweet crude for delivery in June, tumbled 1.45 dollars to 70.16 dollars a barrel while Brent North Sea crude for July delivery slid 1.36 dollars to 76.57 dollars.

In other markets:

— Seoul closed 2.60 percent, or 44.12 points, lower at 1,651.51.

— Taipei ended 2.23 percent, or 173.41 points, lower at 7,598.72.

PC maker Acer dived 6.9 percent to a eight-and-a-half-month low of 75.20 Taiwan dollars, while Taiwan Semiconductor Manufacturing Company was off 3.3 percent at 59.20.

— Manila closed 1.23 percent, or 41.11 points lower, at 3,289.31.

Philippine Long Distance Telephone Co. fell 0.19 percent to 2,500 pesos while First Gen Corp. dropped 2.17 percent to 11.25 pesos.

But Metropolitan Bank and Trust Co. gained 1.77 percent to 57.50 pesos.

— New Zealand fell 0.64 percent, or 20.27 points, to 3,170.74.

Telecom shed 1.4 percent to 2.07 New Zealand dollars and construction company Fletcher Building ended down 0.2 percent at 8.16.

Source: SGGP

Portugal orders ‘fiscal shock’ as Europe tackles debt

In Uncategorized on May 14, 2010 at 8:52 am

 Portugal ordered deep wage and spending cuts along with higher taxes to slash the public deficit by more than half, as Spanish unions called strikes against public sector wage cuts.

As governments stepped up their war on debt, German Chancellor Angela Merkel warned that the whole European Union would be under threat if the euro was allowed to fail in the debt crisis.

The European single currency slumped to a new 14-month low at 1.2517 dollars on Thursday amid persistent concerns over the debt crisis. Global stock markets were mixed as more eurozone countries slashed spending.

A late sell-off inflicted heavy losses on US stock markets, with investors spooked by news of a blast outside a prison in Greece and the specter of criminal charges against nine banks.

The blue-chip Dow Jones Industrial Average fell 113.96 points (1.05 percent) to 10,782.95.

A homeless sleeps on the doorway of a shop in downtown Lisbon on April 29, 2010

Just hours later, in Tokyo Friday, Japanese share prices opened lower, with the benchmark Nikkei-225 index losing 167.15 points, or 1.57 percent, to 10,453.40 in the first minutes of trading.

After Greece’s financial turmoil and debt downgrade to junk status, international attention has turned to Portugal and Spain, which have also had their debt ratings lowered.

Portugal’s Socialist Prime Minister Jose Socrates cut the wages of civil servants and public officials, including ministers, brought in a new profits tax and increased value added tax by one percentage point to 21 percent.

He vowed to reduce the national deficit from 9.4 percent in 2009 to 4.6 percent by the end of 2011 and said a new income tax surcharge of between one and 1.5 percent would be levied on higher earners.

“All these measures will remain in place until the end of 2011,” Socrates told reporters.

The government is also to freeze major public works such as a new Lisbon airport. Portuguese media called the government programme a “fiscal shock” and anticipated protests.

As a eurozone member, Portugal must keep its annual public deficit under 3.0 percent of output. Its public debt, 76.6 percent of GDP last year, is projected to widen to 86 percent in 2010, beyond the 60 percent eurozone rule.

Spain’s Socialist Prime Minister Jose Luis Rodriguez Zapatero on Wednesday ordered a five percent pay cut for public workers, a partial freeze on pensions and the scrapping of a 2,500-euro-payout for new births as he seeks to save an extra 15 billion euros over two years.

Spain announced a 50-billion-euro (63-billion-dollar) austerity package in January designed to slash the deficit to three percent by 2013 from 11.2 percent last year.

But the move infuriated unions and the UGT union called a civil service strike for June 2. The CCOO union has also threatened a strike. The UGT called for demonstrations May 20 when Zapatero’s measures go before parliament.

The Italian government is now considering a freeze on public sector salaries and new hiring, Il Sole 24 Ore newspaper reported. The government this week renewed a pledge to reduce Italy’s public deficit from 5.3 percent last year to 2.7 percent in 2012.

Britain’s new centre-right coalition also started discussing the economy on Thursday. The government has promised an emergency budget in 50 days that will aim to start slashing public spending.

New measures have been announced by governments on top of the 750-billion-euro (one-trillion-dollar) fund set up by the EU and International Monetary Fund to help debt-stricken eurozone countries.

Many analysts say the euro remained under pressure, however, because of Greece’s problems raising money and fears this could spread. Germany’s Merkel warned that this was a threat to the whole of the EU.

“If the euro fails, it’s not only the currency that fails but much more, it’s Europe that fails and with it the idea of the European Union,” Merkel said.

Merkel called the crisis “the biggest test” for the EU, possibly since the founding Rome Treaty in 1957, but that it should strengthen the bloc.

“We have a common currency but we don’t have economic and political union,” she said, adding that one day “all European Union member states will have the euro as means of payment.”

Australia’s central bank warned that Europe’s financial turmoil could pose a risk to Asian growth.

Assistant governor of the Reserve Bank of Australia Phillip Lowe said: “Despite the recent announcements having stabilised confidence in Europe, concerns about public finances could build again.”

Source: SGGP

Spain successfully sells debt despite credit downgrade

In Uncategorized on May 6, 2010 at 4:37 pm

Spain successfully raised 2.345 billion euros on Thursday in the country’s first debt sale since its credit rating was cut last week, easing investors’ immediate fears of contagion from Greece’s fiscal woes.

People hold flags and banners during a demonstration called by trade unions against austerity plans announced last month by the government of Prime Minister Jose Luis Rodriguez Zapatero.

But the yield on the notes due April 2015 rose to an average of 3.532 percent compared to 2.81 percent the last time such bonds were issued in March, a spokesman for Spain’s secretary of state for the economy told AFP.

The five-year bond was 2.3 times oversubscribed, the highest ratio so far this year for a government debt sale, with demand coming from both foreign and domestic investors, he said.

“It is a sign that while we have to pay higher interest rates, interest in Spanish debt has not diminished,” the spokesman said.

Spain had said it expected to raise between two and three billion euros.

“We did not expect that it would go this well,” a market source told AFP.

It was the first time that Spain returned to the bond market since ratings agency Standard & Poor’s cut the country’s long-term credit rating to “AA” from “AA+” on April 28 on fears the country’s poor growth prospects could further weaken its public finances.

Spain’s economy, which is more than four times the size of Greece, has been contracting since the second quarter of 2008 following the collapse of a property bubble.

The public deficit reached 11.2 percent of gross domestic product last year, almost four times the limit of 3.0 percent imposed on the 16 nations that use the euro single currency, compared with 13.6 percent for Greece.

The government announced a 50 billion euro (66.5 billion dollar) austerity package earlier this year as part of its drive to cut its deficit to within the 3.0 percent eurozone limit by 2013.

The plan includes cuts in government spending, a virtual freeze in the hiring of civil servants and some tax rises.

It has also proposed raising the legal retirement age from 65 to 67 and wants to cut the cost of firing workers as part of efforts to revive the economy and slash the unemployment rate, which is just over 20 percent.

Economy Minister Elena Salgado said Wednesday that Spain would not be announcing extra austerity measures in response to the loss of confidence among investors but would instead concentrate on implementing the programme it has already approved.

“Rather than announcing new measures, what we have to do is enact what we have already announced,” she told news radio Cadena Ser, adding the most recent economic indicators show Spain was starting to emerge from recession.

“We are having a complicated time on financial markets but, in terms of the economic data, we are recovering, we have positive data and we are far better off than a year ago,” she said.

Spanish industrial production rose in March on a 12-month basis for the first time since April 2008, the national statistics institute said Wednesday.

Spain, which has the eurozone’s third-largest deficit after Ireland and Greece, was last cut by S&P in January 2009 when its credit rating was lowered one notch from AAA, the highest possible rating.

S&P’s move on Spain came one day after it cut Portugal’s long-term credit rating by two notches and reduced Greece’s rating the junk status, the first eurozone country rated less than investment grade since the launch of the euro.


Source: SGGP

IMF says European debt crisis a boon for emerging markets

In Uncategorized on April 21, 2010 at 8:33 am

Europe’s debt crisis is sending investors flocking to the emerging markets of Brazil, China and India, the IMF said Tuesday, as analysts asked if the crisis is changing the world economic order.

In a report on the state of the global economy, the International Monetary Fund said the debt crisis in Greece and other eurozone nations had caused investors to look to emerging nations for profit.

“The crisis has altered perceptions about risk and return in mature (markets) relative to emerging markets,” the IMF report said.

The global crisis has undoubtedly laid bare the fragile state of government finances in swathes of once-safe Europe, prompting austere spending cuts and questions about the future of the euro itself.

The so-called PIIGS of Portugal, Italy, Ireland, Greece and Spain, have seen their public debt soar, leaving jittery investors to worry about previously unthinkable government defaults.

Greece has been worst hit. As efforts by eurozone members to create a safety net have spluttered, investors have demanded greater risk premiums to lend Greece fresh cash, deepening the debt crisis further.

According to the IMF the impact of that crisis in confidence is now being felt in the choices of everyone from the smallest individual investors to multi-billion-dollar funds.

“The favorable performance of emerging market assets relative to mature market assets has prompted growing interest by global investors in raising their asset allocations to emerging markets and other advanced economies.

“Retail investors and hedge funds are adding to their emerging market portfolios in the near term,” the report said.

“Capital is flowing to Asia (excluding Japan) and Latin America, attracted by strong growth prospects, appreciating currencies, and rising asset prices, and pushed by low interest rates in major advanced economies, as risk appetite continues to recover,” the IMF said.

Interest in emerging markets is long-standing. But as investors look to ever more exotic “frontier markets” for high returns, investments in countries like Brazil, China and India have become the mainstream.

According to the IMF the trend has been spurred by the sale of emerging market stocks in bundles called exchange-traded funds, or ETFs, which spread risk over several countries and sectors.

The lure of emerging market investments is obvious according to the Vanguard Group, a US-based investment firm that runs emerging and developed market ETFs.

The firm said one widely-used emerging market index shows returns on investment averaging 15 percent in the five years to 2009. Investments in a similar US index gave returns of under one percent.

And in contrast to sclerotic growth rates in Europe and North America, some Asian countries, like China, are forecast to see double-digit growth.

Although Vanguard cautions that high growth rates should not be equated with bumper investment returns, emerging market investments are being transformed from an exotic backstop for more traditional investments, to an investment like any other.

“(With the) economic out-performance of emerging economies, some investors are reassessing the primary role of emerging markets in their global portfolio from one of diversifying their equity holdings to one of generating higher expected returns relative to developed markets.”

The shift is so great that in a report on Tuesday, ratings agency Standard & Poor’s asked if there might now be a “changing of the guard,” and whether emerging market countries might “surpass their high income counterparts in creditworthiness?”

S&P concluded there was no changing of the guard just yet, but that poising the question — unthinkable before the crisis — may be a sign of how much the world is changing.

Meanwhile the International Monetary Fund has proposed two new global taxes on banks and other financial institutions to cover the cost of future bailouts, the BBC reported.

The measures would see all institutions pay a bank levy as well as a further tax on profits and pay, which would aim to protect against future financial meltdown, said the broadcaster Tuesday, citing a leaked IMF report.


Source: SGGP