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Sunday, December 02, 2018
Pope Francis’ efforts to clean up Vatican finances rewarded by the E.U.
Gerard O’Connell
In a decision that is seen as a recognition of the Vatican’s achievements at financial transparency under Pope Francis, the Board of the European Payments Council last week “approved the extension of the geographical scope of the Single Euro Payments Area to Vatican City State and the Holy See.”
The Vatican today announced the approval of its application to join S.E.P.A., which is a payment-integration initiative of the European Union for simplification of bank transfers in the euro currency that came into effect in 2014.
The Vatican statement explained that “S.E.P.A. harmonizes the way electronic euro payments are made across Europe. It allows European consumers, businesses and public administrations to make and receive credit transfers as well as direct debit under the same basic conditions and makes all cross-border payments in euro as easy as domestic payments.”
Participation in S.E.P.A. means that the Holy See and the Vatican City State will be able to move money using an IBAN code. This will first benefit the Institute for the Works of Religion, commonly referred to as the Vatican Bank, and the administration that manages Vatican real estate, but in due course, the Vatican’s other financial institutions will also benefit.
Ever since his election as pope on March 13, 2013, Francis has sought to reform the Roman Curia, starting with Vatican finances.
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The Vatican said “it is foreseen that as of 1 March 2019, the S.E.P.A. schemes are open to the financial institutions of the Vatican City State/Holy See, once they have joined.” On that date, the following 36 countries will form part of S.E.P.A.: the 28 European Union Member States plus Iceland, Norway, Liechtenstein, Switzerland, Monaco, San Marino, the Principality of Andorra and the Vatican City State/Holy See.
“The successful application to S.E.P.A. is a very positive sign. It helps to facilitate payments and harmonizes such services. Furthermore, it demonstrates the Holy See’s efforts to enhance financial transparency,” according to René Bruelhart, a Swiss lawyer, whom Pope Francis appointed as the president of the board of directors of the Vatican’s Financial Information Authority, its anti-money laundering agency. He is the first layman to hold that position.
Monday, February 08, 2016
Iran No Longer Accepting Dollars For Oil; Demanding Euros Instead
TOPICS:Brandon TurbevilleIranOil
FEBRUARY 8, 2016
Even with a number of U.S. sanctions against Iran coming to an end, the Iranian government has recently made a very important decision in regards to its oil payment system and it could spell bad news for the United States. This is because Iran has apparently decided to no longer accept U.S. dollars for payment on both its new and outstanding oil sales. Instead it will receive its payment in euros.
Reuters has cited an official from the National Iranian Oil Company (NIOC) as stating that the new plan will apply to “newly signed deals” with France’s Total, Russia’s Lukoil, and Spain’s Cepsa.
Reuters quotes the official as saying that “In our invoices we mention a clause that buyers of our oil will have to pay in euros, considering the exchange rate versus the dollar around the time of delivery.”
In addition, Iran is also informing its trading partners, including India, that owe billions of dollars that it now prefers to be paid in euros instead of dollars.
“Iran shifted to the euro and cancelled trade in dollars because of political reasons,” the official source said, pointing out that this policy was concocted during the time of the sanctions.
Hossein Yaqoubi-Miab, the director for international affairs department of the Central Bank of Iran (CBI), has stated that plans have already been made to receive the euro payments from India which total about $6.5 billion.
Reuters also mentioned that India is currently working on a system that would involve the United Commercial Bank (UCO) and the IDBI Bank handling the payments to Iran.
The new Iranian policy of receiving payments in euros as opposed to dollars is one that is likely to upset the United States who has maintained relative dominance as the world reserve currency for decades, a position that has gradually begun to erode as free trade and global empire have caught up with the dwindling superpower.
Thus, the Iranian currency policy will be yet one more blow to the dollar as the world reserve currency and might possibly be a catalyst for further antagonism toward Iran on the part of the United States.
Saturday, December 06, 2014
Hundreds of millions found tucked away in the Vatican
Dean Gray
PUBLISHED
In an article for Britain's 'Catholic Herald Magazine', Australian Cardinal George Pell wrote that the discovery meant overall Vatican finances were in better shape than previously believed.
"In fact, we have discovered that the situation is much healthier than it seemed, because some hundreds of millions of euro were tucked away in particular sectional accounts and did not appear on the balance sheet," he wrote.
Assets
"It is important to point out that the Vatican is not broke . . . the Holy See is paying its way, while possessing substantial assets and investments," Cardinal Pell said, according to an advance text made available yesterday.
Cardinal Pell did not suggest any wrongdoing but said Vatican departments had long had "an almost free hand" with their finances and followed "long-established patterns" in managing their affairs.
"Very few were tempted to tell the outside world what was happening, except when they needed extra help," he said, singling out the once-powerful Secretariat of State as one department that had especially jealously guarded its independence.
"It was impossible for anyone to know accurately what was going on overall," said Cardinal Pell, head of the new Secretariat for the Economy that is independent of the now downgraded Secretariat of State.
Cardinal Pell is an outsider from the English-speaking world, who was transferred by Pope Francis from Sydney to Rome to oversee the Vatican's often muddled finances after decades of control by Italians. Cardinal Pell's office sent a letter to all Vatican departments last month about changes in economic ethics and accountability.
As of January 1, each department will have to enact "sound and efficient financial management policies" and prepare financial information and reports that meet international accounting standards.
Each department's financial statements will be reviewed by a major international auditing firm, the letter said.
Since the Pope's election in March, 2013, the Vatican has enacted major reforms to adhere to international financial standards and prevent money laundering.
It has closed many suspicious accounts at its scandal-rocked bank.
In his article, Cardinal Pell said the reforms were "well under way and already past the point where the Vatican could return to the 'bad old days'.
Irish Independent
Monday, May 12, 2014
Martin Feldstein: A weaker euro for a stronger Europe
Europe's policymakers must intervene to weaken their currency
Martin Feldstein
May 12, 2014 Last Updated at 21:50 IST
Don't Invest in the Euro
The Dollar And Euro Are Doomed. These 3 Currencies Will Take Over. wallstreetdaily.com/Free-
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The Greek budget myth
Despite the recent upturn in some of its member countries, the euro zone's economy remains in the doldrums, with the overall rate of annual gross domestic product (GDP) growth this year likely to be only slightly higher than one per cent. Even Germany's growth rate is below two per cent, while GDP is still declining in France, Italy and Spain. And this slow rate of growth has kept the euro zone's total unemployment rate at a painfully high 12 per cent.
Slow growth and high unemployment are not the euro zone's only problems. The annual inflation rate, at just 0.5 per cent, is now so close to zero that even a minor shock could push it into negative territory and trigger a downward price spiral. Deflation would weaken aggregate demand by raising the real (inflation-adjusted) value of household and corporate debt, and by increasing real interest rates. Lower demand could, in turn, cause the fall in prices to accelerate, sending prices into a dangerous tailspin.
There are few if any panaceas in economics. But a sharp decline in the euro's exchange rate - say, by 15 per cent - would remedy many of the euro zone's current economic problems. A weaker euro would raise the cost of imports and the potential prices of exports, thus pushing up the euro zone's overall inflation rate. Devaluation would also boost average euro zone GDP growth by stimulating exports and encouraging Europeans to substitute domestically produced goods and services for imported items. Although competitiveness within the euro zone would be unaffected, a weaker euro would significantly improve the external balance with the rest of the world, which accounts for about half of euro zone trade.
European Central Bank (ECB) President Mario Draghi has emphasised his concern that the euro's rise over the past three years has increased the risk of deflation. But it was his famous declaration in July 2012 that the ECB would do "whatever it takes" to preserve the euro that, while successful in reducing interest rates in the distressed countries of the euro zone periphery, also contributed to the euro's current strength.
Today, neither Mr Draghi's recent statements nor the prospect of an American-style programme of large-scale asset purchases (also known as quantitative easing) has caused the euro to weaken or the inflation rate to move back towards the target level of two per cent. So the operative question is how to reduce the euro's relative value while maintaining the perception of stability that Mr Draghi helped to establish in 2012.
Because quantitative easing by the ECB has been advocated as a way to weaken the euro, it is worthwhile to examine the impact of its use by the Federal Reserve on the value of the dollar and the inflation rate in the United States.
The short answer is that it did very little to affect either. The real trade-weighted value of the dollar is now at the same level that it was in 2007, before the onset of the Great Recession. It rose briefly during the peak crisis year of 2008, as global investors sought the safe haven of dollar-denominated assets, but retreated during 2009 to its previous level. The dollar's value then remained relatively stable during more than three years of quantitative easing - and actually rose during 2013, when the Fed's asset purchases reached a high of more than $1 trillion.
Of course, other factors influenced the dollar's value during this period as well. Nonetheless, the behaviour of the dollar's exchange rate during the period of quantitative easing offers no support for the proposed use of large-scale asset purchases by the ECB as a way to bring about euro depreciation.
The Fed's quantitative easing also did not cause an increase in the rate of inflation. The consumer price index rose by 1.6 per cent in 2010, when quantitative easing began, then increased somewhat faster in 2011 and 2012, before dropping back to a gain of just 1.5 per cent in 2013, the peak year for asset purchases.
If the ECB wants to reduce the value of the euro and increase the euro zone's near-term inflation rate, the only reliable way to do so may be by direct intervention in the currency market - that is, selling euros and buying a basket of other currencies. While direct intervention to weaken the euro would create challenges in other parts of the world, policymakers in the US and elsewhere should recognise the importance of a more competitive euro to the future of the European economy.
The writer is professor of economics at Harvard University.
Project Syndicate, 2014
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Monday, May 20, 2013
Alarm at Spain's economic woes
Latest News
15 May 2013
The General Secretary of the Commission of European Bishops' Conferences (Comece) this week said he "broadly agreed" with the Archbishop of Toledo, who called for a change of direction in the Spanish economy to avoid a collapse of the political system. "The situation in Europe has become deeply worrying," Fr Patrick Daly told The Tablet. "There are some huge tensions in the European Union family now."
Archbishop Braulio Rodriguez had told The Telegraph: "Unemployment has reached tremendous levels and austerity cuts don't seem to be producing results. There is deep unease across the whole society, and it is not just in Spain. We have to give people some hope or this is going to foment conflict and mutual hatred."
However, Fr Daly emphasised that Comece remains deeply committed to Europe and does not take a position on whether any particular country would be better off outside the euro.
Above: Men in Valencia receive hand-outs of soup. According to Caritas Spain 22 per cent of Spanish households are living in poverty. Photo: CNS/Heino Kalis, Reuters
Tuesday, February 19, 2013
Mario Draghi at the hearing of the Committee on Economic and Monetary Affairs of the European Parliament
Introductory statement at the hearing of the Committee on Economic and Monetary Affairs of the European Parliament
Speech by Mario Draghi, President of the ECB, Brussels, 18 February 2013
Madam Chair,
Honourable members of the Committee on Economic and Monetary Affairs,
It is a pleasure to be back here in Parliament and in front of your Committee for our regular exchange of views.
We enter 2013 in a more stable financial environment than in recent years. This has been achieved through concerted reforms by governments and parliaments and decisive actions by European institutions. But considerable further efforts are needed to ensure that Europe continues emerging from the crisis, re-creates confidence among investors and citizens, and re-establishes stability and growth.
This house has a key role to play in the reform agenda. I am thinking in particular of the adoption of the legislation for the Single Supervisory Mechanism. This is of crucial importance for progress towards financial union.
Today, I will first review economic and monetary developments in the euro area since December. I will then address the two topics that you have selected for our discussion: the impact of a low interest rate environment; and the establishment of a Single Resolution Mechanism.
Economic and monetary developments
Since our last meeting, the Governing Council has left key ECB rates unchanged: the main refinancing rate currently stands at 0.75%; the rate on the deposit facility stands at 0%; and the rate on the marginal lending facility stands at 1.50%.
Economic activity contracted for a third consecutive quarter in the fourth quarter of 2012. Available indicators signal further weakness at the beginning of 2013, with domestic demand remaining dampened. This is due to weak consumer and investor sentiment and to the necessary balance sheet adjustments in both the public and private sectors. Foreign demand also remains subdued.
Economic weakness in the early part of 2013 is expected to be followed by a very gradual recovery later in the year. Strengthening global demand, our accommodative monetary policy stance and the improvement in financial market confidence across euro area countries should all work their way through to spending and investment decisions and support the recovery.
Even though we have yet to see sustained improvement in the real economy, survey indicators have confirmed earlier evidence of a stabilisation of business and consumer confidence, albeit at low levels. Taking a somewhat longer view, the improvement in financial market confidence since last summer has been significant. As regards the exchange rate, let me be clear that the exchange rate is not a policy target, but it is important for growth and price stability.
Another sign of improved confidence is the larger than expected early repayment by counterparties in the first of our two three-year longer-term refinancing operations settled in December 2011 and March 2012. This indicates that banks are less uncertain about their funding prospects than a year ago. We will closely monitor conditions in the money market and their potential impact on the stance of monetary policy, which will remain accommodative with the full allotment mode of liquidity provision.
The risks surrounding the economic outlook for the euro area continue to be on the downside. They relate to the possibility of weaker than expected domestic demand and exports, slow implementation of structural reforms in the euro area, as well as geopolitical issues and imbalances in major industrialised countries which could both have an impact on developments in global commodities and financial markets. These factors have the potential to dampen the ongoing improvement in confidence and thereby delay the recovery.
Annual inflation in the euro area has continued to moderate, falling from 2.5% in October to 2.2% in November and December and 2.0% in January, as we had foreseen. Inflation is expected to decline to below 2% in the near term.
Risks to the outlook for price developments continue to be seen as broadly balanced over the medium term, with upside risks relating to higher administered prices and indirect taxes, as well as higher oil prices, and downside risks stemming from weaker economic activity and, more recently, the appreciation of the euro exchange rate. Inflation expectations for the euro area remain firmly in line with the Governing Council’s aim of maintaining annual inflation rates below, but close to, 2%.
Our monetary analysis is consistent with price stability. The underlying pace of monetary expansion and loan dynamics remain subdued. The annual growth rate of loans to the private sector remains negative. To a large extent, subdued loan dynamics reflect the current stage of the business cycle, heightened credit risk and the continuing process of deleveraging.
Overall, inflationary pressures should remain contained over the policy-relevant horizon. Taking the evidence together, this allows our monetary policy stance to remain accommodative.
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Let me turn to the first topic that you have chosen for our meeting today, namely the implications of a low interest rate environment.
The impact of the global financial crisis on the economy and, potentially, on price developments has been unprecedented. We have taken unprecedented measures in response, aiming pre-emptively and forcefully to avert risks to price stability, in accordance with our primary mandate.
First, we have reduced our key interest rate to 0.75%, a level previously unseen in virtually all euro area countries. The interest rate in the overnight interbank market is now even lower, close to zero.
Second, we have acted to prevent an abrupt reduction in the supply of credit to the real economy. We have given banks unrestricted access to central bank funding in all our refinancing operations. We have extended significantly the average maturity of these operations. We have broadened the set of eligible collateral. This assurance of funding to banks has prevented disorderly deleveraging in the financial sector and averted a collapse in money and credit, with potentially severe implications for price stability, and thereby employment and growth.
All these decisions have ensured price stability and stabilised inflation expectations during an exceptional period.
Naturally, the ECB is aware of the challenges arising from a protracted period of low policy rates and ample liquidity. Let me elaborate on the three main challenges.
The first is that low interest rates may affect the ability of savers and investors to generate returns. This is especially the case for institutions targeting nominal returns, such as insurance companies and pension funds. Yet, by ensuring price stability throughout the crisis, monetary policy has contributed to more stable financial conditions. This is central to the interests of savers and investors: there can only be sustainable returns in a stable environment.
The second challenge relates to incentives. A protracted period of low interest rates and ample liquidity facilitates rolling-over loans at very low costs. Banks may therefore have less incentive to monitor credit risk properly and may provide too many loans to non-profitable business. Over time, such misallocation of financial resources would undermine overall productivity and depress growth and employment.
The third challenge is that protracted monetary accommodation may fuel bubbles in house prices and other asset markets. As the crisis has painfully demonstrated, the bursting of such bubbles inflicts large costs for the real economy.
In this context, a natural question is whether monetary policy should be used actively to contain asset price booms and bubbles – a response known as ‘leaning against the wind’. Thanks to our monetary policy strategy, implicitly we do this to some extent. We focus on the medium-term horizon and take account of monetary developments in assessing risks to price stability.
Having said that, let us be clear that changes in policy interest rates are normally not the first best instrument for addressing financial imbalances. They should be considered only under very special circumstances, for example when a widespread rise in asset prices threatens price stability in the euro area as a whole. In the absence of such imbalances relevant from a euro area perspective, the appropriate tools to counter imbalances in the financial sector and possible asset price misalignments are at the country level. To avoid the build-up of excessive risks in the financial system or housing markets, national authorities have appropriate tax and supervisory instruments at their disposal.
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Let me turn to your second chosen topic, the establishment of a Single Resolution Mechanism.
The Single Resolution Mechanism should be centred in a Single Resolution Authority with a European Resolution Fund at its disposal. I welcome the European Council’s December statement that during the course of 2013, the Commission will submit a proposal for such a mechanism for Member States that are participating in the Single Supervisory Mechanism.
The ECB shares the European Council’s view on timing for the Single Resolution Mechanism, namely that it will be required once bank supervision is effectively moved to the Single Supervisory Mechanism. We therefore welcome the European Council urging the co-legislators to examine the proposal as a matter of priority with the intention of adopting it during the current parliamentary cycle.
There are four main reasons for a Single Resolution Mechanism, with a Single Resolution Authority at its centre.
The first reason is that only a Single Resolution Authority will ensure timely and impartial decision-making focused on the European dimension. In a situation where a cross-border resolution is required, the Single Resolution Authority would avoid national focus and pursue the optimal resolution strategy, thus mitigating coordination problems.
The second reason is that the Single Resolution Authority would credibly pursue the least cost resolution strategy, assessing possible cross-border spillover effects and systemic concerns, and ensuring that resolution costs are first and foremost borne by the private sector. It would thereby minimise resolution costs without recourse to taxpayer money.
The third reason is that the Single Resolution Authority is an essential complement to the Single Supervisory Mechanism. The Single Supervisory Mechanism will provide a timely and unbiased assessment of the need for resolution, while the Single Resolution Authority will ensure prompt and efficient action once the trigger is reached. This will avoid misaligned incentives that could arise with supervision moved to the European level while resolution responsibility remained national.
The fourth reason is that a Single Resolution Authority would help to break the vicious bank-sovereign nexus.
The Single Resolution Authority naturally needs to be strong and effective to deliver what is needed. This requires three features to be fulfilled:
First, the Single Resolution Authority needs to dispose of a robust resolution framework, one that provides it with enforceable resolution tools and powers. In this respect, the proposed bank recovery and resolution directive is key. Adoption of the directive, ideally by June, is an urgently needed step towards a strong European resolution framework.
Second, the Single Resolution Authority needs access to resolution financing. It should therefore have a European Resolution Fund at its disposal, which should be financed by the private sector via risk-based ex ante levies. The European Resolution Fund should be backed by a public backstop mechanism, the support of which would need to be recouped via special ex post levies on the private sector. This means that it would be fiscally neutral over the medium term.
Third, the Single Resolution Authority should have an institutional set-up that allows for independence, sufficient operational capacity and a robust accountability framework with effective judicial protection against resolution decisions ex post.
The Commission is currently assessing the options for the institutional anchoring of the Single Resolution Authority. I am looking forward to its proposal, which will need to ensure these three essential features.
Thank you for your attention. I am now at your disposal for questions.
European Central Bank
Directorate General Communications and Language Services
Press and Information Division
Kaiserstrasse 29, D-60311 Frankfurt am Main
Tel.: +49 69 1344 7455, Fax: +49 69 1344 7404
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Reproduction is permitted provided that the source is acknowledged.
Tuesday, May 29, 2012
Game Over: Spanish Collapse Can Bring Down the Trans-Atlantic System
Published on May 27, 2012 by WikiIntelNews
Abruptly, but lawfully, the Spanish debt crisis has erupted over the past 48 hours into a systemic rupture in the entire trans-Atlantic financial and monetary facade, posing the immediate question: Will the European Monetary Union and the entire trans-Atlantic financial system survive to the end of this holiday weekend?
Late on Friday afternoon, the Spanish government revealed that the cost of bailing out the Bankia bank, which was nationalized on May 9, will now cost Spanish taxpayers nearly 24 billion euro—and rising. Many other Spanish banks are facing imminent collapse or bailout; the autonomous Spanish regions, with gigantic debts of their own, are all now bankrupt and desperate for their own bailout. Over the last week, Spanish and foreign depositors have been pulling their money out of the weakest Spanish banks in a panic, in a repeat of the capital flight out of the Greek banks months ago.
The situations in Greece, Italy, Portugal, and Ireland are equally on the edge of total disintegration—and the exposure of the big Wall Street banks to this European disintegration is so enormous that there is no portion of the trans-Atlantic system that is exempt from the sudden, crushing reality of this collapse.
Whether or not the system holds together for a few days or weeks more, or whether it literally goes into total meltdown in the coming hours, the moment of truth has arrived, when all options to hold the current system together have run out.
...read more at http://larouchepac.com/2012/05/26/larouche-glass-steagall-moment
WikiIntelNews
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Monday, May 28, 2012
Lloyd’s Of London Preparing For Euro Collapse As Greece Is Warned Of Possible Public Finances Collapse
05/27/2012 ICA
By Andrew Cave, The Telegraph – “Richard Ward said the London market had put in place a contingency plan to switch euro underwriting to multi-currency settlement if Greece abandoned the euro.
In an interview with The Sunday Telegraph he also revealed that Lloyd’s could have to take writedowns on its £58.9bn investment portfolio if the eurozone collapses.
Europe accounts for 18pc of Lloyd’s £23.5bn of gross written premiums, mostly in France, Germany, Spain and Italy. The market also has a fledgling operation in Poland.
Lloyd’s move comes as a major Franco-German provider of credit insurance for eurozone trade, Euler Hermes, said it was considering reducing cover for trade with Greece because of the risk the country might leave the eurozone.
When a company goes bust, it is often sparked by withdrawal of credit insurance for suppliers wanting to trade with it.
A spokesman for Euler Hermes, Bettina Sattler, told Bloomberg: ‘The outcome of the new elections in June remains highly uncertain. Consequently, the situation is further deteriorating. The risk of Greece exiting the eurozone has been revived.
‘In light of the recent developments, Euler Hermes will most probably have to switch to a more prudent approach. [We have] maintained a high level of cover for [our] customers until today. But now we are confronted with a changing situation.’
Lloyd’s fears are likely to be shared by a number of European businesses, which are watching developments in Greece.” Read more.
Greece warned of public finances collapse – “Greece’s public finances could collapse as early as next month, leaving salaries and pensions unpaid unless a stable government emerges from the June 17 election, according to Lucas Papademos, the technocrat prime minister who left office after this month’s inconclusive vote. Mr Papademos warned that conditions were deteriorating faster than expected with cash flow likely to turn negative in early June amid a sharp fall in tax revenues and a loosening of spending controls during two back-to-back election campaigns.” Read more.
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Sunday, May 27, 2012
Lloyd's 'ready for euro collapse'
The boss of insurance market Lloyd's of London is prepared for a collapse of the euro, it has been reported, and has reduced its exposure to the troubled single-currency region.
Chief executive Richard Ward told the Sunday Telegraph that the London market has put in place a contingency plan to switch euro underwriting to multi-currency settlement if Greece abandons the euro.
Mr Ward has warned that the Lloyd's market, which is made up of around 80 insurance syndicates, could have to take writedowns on its £58.9 billion investment portfolio if the eurozone collapses.
Europe accounts for 18% of Lloyd's £23.5 billion of gross written premiums, mostly in France, Germany, Spain and Italy. The market also has a fledgling operation in Poland.
Mr Ward told the Sunday Telegraph: "I'm quite worried about Europe. With all the concerns around the eurozone at the moment, we've got to be careful doing business in Europe and there are a lot of question marks over writing business in the future in euros."
Mr Ward said Lloyd's had been working hard on contingency planning and had the capability to switch settlement of European underwriting from euros to other currencies.
The contingency planning comes as German politicians piled the pressure on Greece ahead of elections on June 17.
The country's crisis deepened earlier this month after leaders failed to form a coalition government.
If an anti-austerity party is elected in June, many fear Greece will be denied further tranches of bailout cash and the country will have to exit the euro.
Wednesday, January 18, 2012
IMF Seeks $500B Boost to Lending Resources
Christine Lagarde, managing director of the International Monetary Fund (IMF). Photographer: Michele Tantussi/Bloomberg
The International Monetary Fund is proposing to raise its lending capacity by as much as $500 billion to insulate the global economy against any worsening of Europe’s debt crisis.
The Washington-based lender is aiming to increase its resources after identifying a potential need for $1 trillion in financing in coming years, an IMF spokesman said in a statement. The IMF is studying options and will not comment further until it has consulted its members, the fund said. To incorporate a cash buffer, the lender is seeking a total $600 billion.
IMF Managing Director Christine Lagarde said yesterday her staff are looking at ways to expand the fund’s war-chest, which currently has about $385 billion available. While euro-region nations have already pledged to contribute 150 billion euros ($192 billion), the U.S. has said it has no plans to make new bilateral loans and leaders of Group of 20 nations ended last year at odds over the issue.
“The biggest challenge is to respond to the crisis in an adequate manner and many executive directors stressed the necessity and urgency of collective efforts to contain the debt crisis in the euro area and protect economies around the world,” Lagarde said yesterday in an e-mailed statement following a discussion among her institution’s board of directors.
Mexico Meeting
The IMF is pushing China, Brazil, Russia, India, Japan and oil-exporting nations to be the top contributors, according to a G-20 official, who spoke on condition of anonymity because the talks are private. The fund wants a deal struck at the Feb. 25- 26 meeting of G-20 finance ministers and central bankers in Mexico City, the official said.
The push for more money by the IMF may extend this month’s rally in investor sentiment toward European debt markets on speculation the region is enjoying a respite from its two-year debt turmoil and that any euro-area recession may be shallow.
The euro rose 0.8 percent to $1.2833 as of 2:50 p.m. in London.
In a sign the crisis may have longer to run, the World Bank cut its global growth forecast yesterday by the most in three years to 2.5 percent this year and said the euro area may contract 0.3 percent. Euro-area countries also need to repay 157 billion euros of maturing debt this quarter, according to UBS AG calculations.
Talks This Week
Lagarde’s proposal is set to be discussed by G-20 deputy finance officials, scheduled to meet this week in Mexico. At a November summit in the French resort of Cannes, G-20 leaders balked at writing fresh checks for the IMF, demanding that Europe’s governments do more to fix their crisis while saying they would ensure the IMF “continues to have resources to play its systemic role.”
A U.S. official reiterated that stance last month, saying President Barack Obama’s administration won’t stump up more cash for the IMF and that a solution to the turmoil must be led by Europe.
Russia’s government won’t decide on any contribution before March presidential elections, First Deputy Prime Minister Igor Shuvalov said in an interview in Moscow today.
Greater support for the IMF also attracted controversy within Europe. Germany’s Bundesbank coupled its 41.5 billion- euro input to a promise that the aid not be earmarked for Europe. Such recycling would violate euro rules that bar central banks from financing government deficits. As a result, the euro area will lend to the IMF’s general resources, not to a special crisis fund.
Options for raising the IMF’s resources include opening a trust fund or not rolling back a 2009 increase. Officials have also discussed increasing the amount of the fund’s Special Drawing Rights.
Emerging-market countries may try to twin the call for help with a push to increase their clout at the IMF. Such nations, which are growing twice as fast as their developed counterparts, say that their voting power doesn’t reflect their weight in the global economy and they want to end the tradition of selecting a European to head the institution.
To contact the reporter on this story: Simon Kennedy in London at skennedy4@bloomberg.net
To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net
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Monday, December 12, 2011
GLOBAL MARKETS-Europe back under pressure after summit
* Markets unconvinced over EU deal
* Moody's says euro area sovereigns under pressure
* Italian bond yields jump
LONDON, Dec 12 (Reuters) - Financial markets gave the thumbs down on Monday to a landmark EU deal to deepen economic integration, pushing European stocks and the euro lower as investors judged its debt crisis would continue to deepen.
All EU countries except Britain agreed at a summit on Friday to pursue stricter budget rules and a stronger fiscal union, and to give up to 200 billion euros in bilateral loans to the International Monetary Fund to help tackle the crisis.
But the capacity of the euro zone's bailout fund was capped and it was not granted a banking licence. There was no sign the European Central Bank was ready to take the stronger action analysts say is needed to quell the crisis - even if the ECB was reportedly back in buying Italian bonds on Monday.
"Yes, we have a plan in place to tackle the longer term problems but...it doesn't tackle the shorter term problems," said Peter Dixon, economist at Commerzbank.
"I'll be very surprised if it actually generates the results many EU leaders are currently hoping for."
The euro was down 0.5 percent on the day at $1.3300, finding some support ahead of Friday's low of $1.3280. It is now almost 6 percent below its October peak and 10 percent off its 2011 high of just under $1.50, struck in early May.
"There is a deflated feeling for the euro this morning after the EU summit. People were looking for a greater response and more importantly the ECB refused to significantly step up their bond buying," said Beat Siegenthaler, currency strategist at UBS.
PRONE TO SHOCKS
Moody's Investors Service said it would look again at the ratings of European nations in the first quarter of 2012, judging the summit did not produce decisive initiatives and left the euro area prone to further shocks.
"The absence of measures to stabilise credit markets over the short term means that the euro area, and the wider EU, remain prone to further shocks and the cohesion of the euro area under continued threat," it said in a report.
The agency said the crisis remained in a critical and volatile stage, with sovereign and bank debt markets prone to acute dislocation which policymakers will find increasingly hard to contain.
Bund futures were about 30 ticks higher at 135.83, after opening lower. German 10-year yields were 4 basis points down at 2.062 percent.
However, 10-year Italian government bond yields jumped 22 basis points to 6.6 percent, pushing its premium versus German Bunds 18 basis points wider to 447 basis points.
The 10-year Spanish government bond yield rose 15 basis points to 5.95 percent.
An early test of sentiment toward European government assets will come later on Monday whenFrance, the Netherlands and Italy issue new Treasury bills.
The International Monetary Fund's chief economist Olivier Blanchard said on Sunday the agreement reached by European countries was a step in the right direction but not a complete solution for the euro zone's debt crisis.
"What happened last week is important: it's part of the solution, but it's not the solution," Blanchard told the Globes business conference in Tel Aviv.
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Call for radical steps to save the euro
A group of senior European politicians has appealed to EU leaders to take radical steps to tackle the crisis of confidence in the euro.
The Spinelli group, which includes former prime ministers of Belgium, Italy and Greece, called on EU leaders today to take urgent action to address the euro crisis, including launching common eurozone bonds and expanding the role of the European Central Bank.
The call came as EU leaders were about to meet in Brussels to discuss changes to the EU's treaties to restore stability for the euro over the medium-term. Germany and France are pushing strongly for treaty changes, arguing that this is the only way to convince financial markets that eurozone governments are serious about tackling excessive debts and deficits.
Guy Verhofstadt, the leader of the ALDE group in the European Parliament and a former prime minister of Belgium said plans for limited treaty change would do little to solve financial aspects of the crisis.
Verhofstadt said that treaty change “was not the way forward” to ease concerns of financial markets. “We need decisive action to stop the euro crisis,” he said,
He said EU leaders should instead focus their attention on implementing five priority measures to stabilise the euro, leaving treaty change for a later date. Verhofstadt called for full implementation of reinforced economic governance rules, the creation of a European Monetary Fund, project bonds and Eurobonds, and allowing the European Central Bank to take a more active role in fighting the crisis.
Treaty change should be carried out later with the full involvement of national parliaments and the European Parliament, Verhofstadt said.
Herman Van Rompuy, the European Council president, outlined a number of options for boosting economic discipline in the eurozone in a paper sent to EU leaders on 7 December.
The options include changing a protocol attached to the treaty to tighten rules on reducing debt levels and public deficits. This method would not require ratification by national parliaments and so could be done quickly.
Verhofstadt said that changing a protocol would be a blow to the democratic process within the EU as it would exclude a role for MEPs and national parliaments. He said that treaty change should be agreed by a convention bringing together national MPs, MEPs and national governments.
Verhofstadt said the long-term solution to the crisis was political. A convention should aim “to create a federal union”, he said.
Verhofstadt was speaking after the meeting of the Spinelli group, an association of former ministers and current MEPs calling for greater European unity and a less inter-governmentalist approach to tackling the EU's problems. The group includes Giuliano Amato, a former prime minister of Italy, Costas Simitis, a former prime minister of Greece, and Joschka Fischer, a former foreign minister of Germany. Dany Cohn-Bendit, the joint leader of the Green MEPs, is also a member of the group.
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Tuesday, November 29, 2011
Britain draws up emergency plans for collapse of Euro after warnings Italy needs £500bn bailout
By James Chapman
Last updated at 8:44 AM on 28th November 2011
Britain is drawing up emergency plans for the collapse of the ‘creaking’ Eurozone amid warnings debt-stricken Italy will need a £500 billion bailout involving billions of pounds of UK taxpayers’ money.
Chancellor George Osborne said the Treasury had ‘stepped up’ contingency planning and aimed to be ready for ‘whatever the Eurozone throws at us’.
It emerged yesterday that the International Monetary Fund, in which Britain is a major shareholder, could be forced to offer Italy a €600 billion (£514bn) rescue package to give its unelected new prime minister Mario Monti 12 to 18 months’ breathing room to implement big tax rises and spending cuts.
Chancellor George Osborne, left, has ‘stepped up’ contingency planning while unelected Italian prime minister Mario Monti, right, could be given breathing room to implement big tax rises and spending cuts
And in another move, German Chancellor Angela Merkel and French President Nicolas Sarkozy were revealed to be plotting a new pact on economic union without consulting Britain or other countries outside of the EU.
They are determined not to give Britain the chance of insisting on powers being handed back from Brussels by negotiating a major new EU treaty.
Germany's original plan was to try to secure agreement among all 27 EU countries for a limited change to the Lisbon Treaty by the end of 2012, making it possible to impose much tighter budget controls over the 17-member Eurozone.
Countries will be forced to submit their budgets for EU approval before they go to national parliaments, will have to sign up to strict new rules on the size of debts and deficits and will be sued for any breach in the European Court of Justice.
The Franco-German plan will effectively mean an end to national sovereignty over budgets for countries remaining in the euro.
Source said it had become clear to Mrs Merkel and Mr Sarkozy in recent weeks that it appears impossible to get all 27 EU countries on board for the plan.
It could take years to secure the necessary changes, while a rapid loss of market faith in Italy, Spain and even France suggests urgent measures are required within weeks.
EU sources said French and German civil servants have been exploring other ways of achieving the goal, either via an agreement among just the Eurozone countries.
Alternatively, they could strike a separate agreement outside the EU treaty that could involve a core of around just eight to ten Eurozone countries, officials say.
The move will infuriate British Eurosceptics, who have been urging David Cameron to insist on a repatriation of powers for the UK from Brussels in exchange for agreeing to let the Eurozone countries move towards fiscal and political union.
In a sign of the deepening turmoil in the Eurozone, IMF officials were quoted by the Italian newspaper La Stampa as saying a bailout would be needed to give the country a window of 12 to 18 months to implement urgent budget cuts and growth-boosting reforms.
The IMF would guarantee rates of 4.0 per cent or 5.0 perc ent on the loan -- far better than the borrowing costs on commercial debt markets, where the rate on two-year and five-year Italian government bonds has risen above 7.0 per cent.
The size of the loan would make it difficult for the IMF to use its current resources so different options are being explored, including possible joint action with the European Central Bank in which the IMF would act as guarantor. As a major shareholder in the IMF, billions of pounds of British cash would be put on the line under any deal, though it is not clear how much.
Italy’s vast £1.6 trillion national debt and its low growth rate have caused deepening alarm on the international markets in recent weeks, and even a Brussels-inspired ‘coup’ which saw Silvio Berlusconi removed and a government without a single elected politician in it installed failed to stop the rot.
Mr Osborne confirmed yesterday that Britain is preparing for a break-up of the Eurozone that would have cataclysmic effects for the British economy.
‘Well, of course countries like Germany and France have now openly asked the question whether countries like Greece can stay in the Euro. It is a very, very difficult and dangerous situation,’ the Chancellor said.
‘It is having a hugely chilling effect on the British economy at the moment. We have contingency plans for all situations. We have obviously stepped up that contingency planning in recent months. You would expect us to do that as the British government. But that doesn’t mean we are predicting any particular outcome.
‘We’re just ready for whatever the world, whatever the Eurozone throws at us. Adisorderly collapse of the Eurozone would have a massive impact on the UK. I mean, for example, one in seven pounds we export goes to Ireland, Italy, Portugal, Spain and Greece - just those countries.
‘So in other words, it’s a very important part of our economic strategy that we get the Eurozone moving as well.’
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