Amplify’d from www.ft.com

Trichet hints at bond purchase rethink

Jean-Claude Trichet, European Central Bank president, has left open the possibility of the bank significantly expanding its government bond purchases and warned markets not to underestimate Europe’s determination to resolve the escalating eurozone crisis.

The hint that the ECB could recalibrate its response to the unfolding crisis came as the premiums that Italy and Spain pay over Germany benchmark interest rates hit fresh highs since the launch of the euro. The euro’s monetary guardian had already stepped up purchases of Portuguese bonds, traders reported.

But the pace at which the crisis has spread has altered the debate within the ECB, which could justify stepping up its intervention by arguing governments’ borrowing costs were far out of line with fundamentals, signalling dysfunctioning markets.

Speaking in the European parliament on Tuesday, Mr Trichet would not comment “at this stage” on the bond programme “in the light of the current situation”. But the programme was “on-going” and decisions on its future would be taken by the 22-strong governing council, which next meets on Thursday. He also refused to rule out the possibility of eurozone governments issuing joint bonds, although the ECB was not endorsing such a step.

Since May, the ECB has spent just €67bn under its bond purchase programme. Financial markets, however, see the ECB increasingly as the only institution with pockets deep enough pockets to ease the crisis.

Mr Trichet said that “pundits are under-estimating the determination of governments”. Eurozone growth was proving surprisingly strong, and Ireland’s bail-out at the weekend had shown the EU was capable of responding to crisis

Gary Jenkins, head of fixed income at Evolution Securities, argued the ECB could try “real quantitative easing” through purchases of €1,000bn-€2,000bn of bonds. “It might be politically unpalatable. But it would be an immediate way of creating a firebreak.” Read more at www.ft.com

 

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Belgium faces an important test Monday, when it aims to sell between 1.5 billion euros ($1.9 billion) and 2.5 bn

Amplify’d from www.cnbc.com

Think BIIGS: There's One Euro Country Under the Radar

Belgium faces an important test Monday, when it aims to sell between 1.5 billion euros ($1.9 billion) and 2.5 billion euros worth of bonds in an auction that will indicate the level of investor confidence in the nation plagued by political turmoil and high levels of debt.

The auction of 2014, 2020 and 2035-dated bonds comes as bond vigilantes are increasingly targeting the country of 11 million people amid concerns over its high level of debt and political instability.

Belgium could be caught up in the same web as the peripheral euro zone nations of Portugal, Ireland, Italy, Greece and Spain - the so-called PIIGS - if it does not succeed in forming a government soon to reduce the budget deficit through fiscal austerity and bring down its debt, some analysts say.

Against the backdrop of the euro zone debt crisis, credit default swaps linked to Belgian debt – indicating the cost of insuring Belgian debt against default - rose to a record high this week.

In its latest report on Belgium, rating agency Standard & Poor’s wrote that its AA+ rating on the country’s long-term debt – the second-highest rating at the agency – could come under downward pressure if a continued political stalemate were to diminish the authorities' capacity to address the “outstanding challenges”.

Public debt is just under 100 percent of gross domestic product, the third-highest in the European Union, with only Italy and Greece preceding it, EU data showed.

“There is a political risk, and it is taking very long (to form a government), but there is no chance of default right now,” Vanneste said.

“This is of course a problem," Ledent said. "But the 2010 budget deficit will probably be around 4 percent next year…And contrary to the peripherals we are fully benefiting from German growth.”

Vanneste agreed there was no real risk in the short term, as Belgium would be able to meet 2010 and 2011 commitments to cut its budget deficit.

See more at www.cnbc.com

 

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I should warn those investors who are short selling Spain that they are going to be wrong

Amplify’d from www.ft.com

Spain issues defiant warning to markets

Spain has warned financial traders betting against its debt that they will lose money, in a defiant challenge to the markets which are driving Madrid’s cost of borrowing sharply higher.

José Luis Rodríguez Zapatero, Spanish prime minister, on Friday ruled out any rescue package for the country even as the premiums demanded by investors to hold Spanish sovereign debt over that of Germany’s rose to euro-era highs.

This week’s sharp rise in Spanish 10-year bond yields to 5.2 per cent is an indication of growing concern in eurozone bond markets that the fiscal crisis in Ireland could spread to other debt-laden countries including Portugal and Spain.

I should warn those investors who are short selling Spain that they are going to be wrong and will go against their own interests,

Portugal rejected as “totally false” reports it was under pressure to accept an international bail-out.

The eurozone’s peripheral bond markets came under further pressure amid increasing worries that the debt crisis was spreading. Irish yields rose 3 basis points to 9.071 per cent and Portuguese yields rose 3 basis points to 7.038 per cent.

The euro tumbled further in morning trading, to below $1.32 against the dollar, 3.5 per cent lower on the week and a fresh nine-week low.

On Thursday, Irish, Portuguese and Spanish bond yields surged to their highest points since the launch of the euro, as traders said even some of the bigger eurozone countries could soon be affected. Matt King, global head of credit strategy at Citigroup, said the danger was the selling could develop a momentum of its own.

“The moment you have even a flicker of a doubt about default risk, it becomes rational to reduce positions in a larger country like Spain purely on grounds of diversification,” he said.

The renewed volatility came as Germany rejected any suggestion of an increase in the size of the €440bn ($588bn) European financial stability facility – the eurozone rescue fund established by European Union finance ministers in May to help debt-laden members of the common currency zone.

Media reports said the German government had been approached by the European Commission to double the size of the rescue fund, to ensure funds were available in the event of Spain and Portugal seeking assistance. Read more at www.ft.com

 

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Amplify’d from uk.reuters.com

EU denies pushing Portugal towards bailout

European officials denied "absolutely false" reports Portugal was under pressure to seek a bailout and Spain ruled out on Friday needing help to manage its finances, despite fears of a spreading euro debt crisis.

The Financial Times Deutschland quoted unidentified sources as saying some euro zone states wanted Portugal to seek aid in order to avoid Spain, the fifth largest EU economy, from having to follow suit.

If Portugal were to use the fund, it would be good for Spain, because the country is heavily exposed to Portugal," the paper quoted a source in Germany's finance ministry as saying.

EU Commission President Jose Manuel Barroso dismissed the FT report, echoing a vehement denial by Portugal.

I can tell you that it's absolutely false, completely false," Barroso said, adding that an aid plan for Portugal had neither been requested nor suggested.

German government spokesman said Berlin was not pressuring anyone to request financial help and said it expected Portugal's austerity measures -- due to be passed later on Friday -- to work

The rapid public denials of the FT report suggested some alarm among euro area leaders at the prospect of the debt crisis engulfing ever more of its members.

The cost of borrowing rose again on Friday for Ireland, Portugal and Spain as markets demanded a premium for holding their debt.

Spain has already passed its own austerity budget and Spanish Prime Minister Jose Luis Rodriguez Zapatero "absolutely" ruled out that Madrid would have to follow Ireland and Greece and seek financial assistance

Those who are taking short positions against Spain are going to be mistaken," he told RAC1 radio.

A rescue aimed at meeting Spain's financing needs for 2-1/2 years would cost 420 billion euros ($557 billion) according to a Capital Economics estimate, the lion's share of the 440 billion euro European Financial Stability Facility (EFSF) reserve set up by the euro zone after the Greece bailout. Read more at uk.reuters.com

 

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Amplify’d from www.ft.com

Eurozone borrowing costs hit record

The cost of borrowing for the eurozone’s peripheral economies rose to record highs on Thursday amid signs the debt crisis that forced Ireland into a multibillion-euro bail-out was spreading.

Irish, Portuguese and Spanish bond yields surged to their highest points since the launch of the euro, as traders said even some of the bigger eurozone countries could soon be affected. Matt King, global head of credit strategy at Citi, said the danger was the selling could develop a momentum of its own.

“The moment you have even a flicker of a doubt about default risk, it becomes rational to reduce positions in a larger country like Spain purely on grounds of diversification,” he said.

“Wildfire can be very difficult to put out. The contagion could eventually spread all the way to France. The markets are very nervous.”

You can’t do trades in any size in the stressed peripherals like Ireland or Spain, so people are looking for what else might work.”

Irish 10-year bond yields rose above 9 per cent, Portuguese yields jumped further above 7 per cent – a level Lisbon says is not sustainable – while Spanish yields rose further above 5 per cent. The euro dipped towards two-month lows, falling for the fourth day in a row.

The renewed volatility came as Germany rejected any suggestion of an increase in the size of the €440bn ($588bn) European financial stability facility – the eurozone rescue fund established by European Union finance ministers in May to help debt-laden members of the common currency zone.

Elsewhere, EU officials said they wanted to include liquidity ratios in a fresh round of bank stress tests, which could get under way as early as the first quarter of next year.

The move follows criticism of the last stress test exercise, conducted by the Committee of European Banking Supervisors, which focused heavily on capital ratios. When the results were published in July, 84 of the 91 European banks scrutinised had passed.

That, however, failed to insulate Ireland’s two biggest lenders from a commercial funding squeeze which, in turn, was the catalyst for the current Irish crisis.

LCH.Clearnet is used by banks and financial institutions in so-called repurchase transactions, where bonds are exchanged for cash. It shares the burden in a potential bond default and allows banks to reduce their counterparty risk.

The Irish markets were also undermined by LCH.Clearnet, one of Europe’s biggest clearing houses, again increasing charges for trading Irish bonds because of the jump in the country’s cost of borrowing. It is the third increase in as many weeks. Read more at www.ft.com

 

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From Henri Coanda to Avram Iancu and then back to Decebal

Amplify’d from www.economist.com

From Nikola to Alexander

Less than a month before Kosovo's general election, the government has decided to rename the airport Adem Jashari, after the Kosovo Albanian fighter hero, whose death, in March 1998, along with that of dozens of his extended family at the hands of Serbian security forces, was one of the triggers for the uprising against Serbian rule

The government's proposal is the rough equivalent of northern Kosovo's Serbs renaming their airport "Slobodan Milosevic", their wartime leader, who ethnically cleansed the Kosovo Albanians. (This is probably exactly what they would do, if only they had an airport.)

Sarajevo airport is particularly important to Bosniaks; during the war the city only survived the siege thanks to humanitarian supplies flown in there by the UN, and by arms which were delivered through a tunnel that the Bosnians dug under the runway connecting the city with territory they held on the other side of it.

Less than half an hour’s flight away, Belgrade airport (pictured) was renamed Nikola Tesla in 2006. A rather less divisive figure, Tesla was a Serb-turned-American whose work was crucial in the discovery and development of commercial electricity. He was born in 1856 in what is now Croatia; happily, both Serbs and Croats can agree that he is a figure worth celebrating.

Annoyingly, flights between Zagreb and Belgrade never resumed after the war. There are only 230 miles between the cities; not enough, perhaps, to make commercial flights viable. You can, however, fly from Belgrade to Ljubljana, the Slovene capital, whose airport was renamed Joze Pucnik in 2007, after a famous dissident widely regarded as one of the fathers of Slovene independence.

Down south the Albanians have renamed Rinas, or Tirana airport, after Mother Teresa of Calcutta. Although she was an ethnic Albanian she actually came from neighbouring Macedonia, having been born in 1910 in Skopje.

Most controversial of all has been the renaming of Skopje airport after Alexander the Great, in 2007.

friends of Macedonia thought this must be some sort of one-off joke designed to gain a rise out of the Greeks, who believe that the Macedonians are trying to expropriate symbols of Hellenism. It was not. The Macedonians proceeded to rename a motorway that runs towards Greece after Alexander too.

I know there have been no moves to rename the airport, which is sometimes known as Golubovci after its location.

Podgorica was actually the first of all the region’s airports to change its name, by virtue of the fact that in 1992 the city itself reverted to its original name after being known in communist times as Titograd. Read more at www.economist.com

 

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The Cost of Strategic Patience

Amplify’d from www.economist.com

Ignore us at your peril

A 65-minute-long artillery barrage on November 23rd rained down upon the tiny South Korean island of Yeonpyeong, marking the first time since the war of 1950-53 that the North has fired shells at civilian targets on land.

Four South Koreans—two civilians and two marines—were killed in the onslaught that left houses and hillsides in flames, and about 20 injured.

The barrage came only days after North Korea revealed a new uranium-enrichment facility to American scientists. Its operators told the visitors that its purpose was to generate nuclear fuel—but no one missed the message that its output could just as well be used to make warheads.

The first is that the regime is reverting to familiar gangland tactics to bully its way back to international negotiations under the framework of the stalled six-party talks, chaired by China and including America, Japan and Russia. South Korea and its main allies, America and Japan, have since last year engaged in a process that Barack Obama’s administration calls “strategic patience”: offering to renew talks only when the North makes a meaningful commitment to scrap its nuclear arsenal.

Victor Cha of the Centre for Strategic and International Studies, and a Bush administration negotiator with North Korea, says the regime has been trying hard to prove its mettle as it enters an unstable era of new leadership.

America’s state department insists it will not “buy into this reaction-reward cycle that North Korea seeks to perpetuate”.

This leaves China alone in a position to break the stalemate, by applying quiet pressure on its unruly ally. But China’s public reaction, as after the Cheonan’s sinking, was to urge calm and to condemn no one. And when China is a milquetoast, it only emboldens the Kim family—making life worse for everyone else. Read more at www.economist.com

 

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Angela Merkel called Ireland's crisis "very worrying" for the euro zone

Amplify’d from professional.wsj.com

Contagion once again emerged in Europe as investors turned from Ireland's debt crisis and set their sights on Portugal and Spain.

Both Spanish and Portuguese bond prices fell sharply Tuesday, and the yields above German bunds rose to records. The euro slid below $1.34 for the first time in two months, though part of the weakness came as investors turned to the safe-haven status of the U.S. dollar after North Korean artillery attacks on South Korea.

People that are betting on contagion are probably making the right bet here

There's not really anything to stop the markets from pushing the next domino over

Highlighting the concerns about European financial markets, German Chancellor Angela Merkel called Ireland's crisis "very worrying" for the region.

Ireland's request for a bailout from the European Union and the International Monetary Fund followed government capital injections to prop up banks that suffered big loan losses. This has turned the spotlight to banks in Spain and Portugal.

Portugal reported on Monday that its 10-month budget deficit widened from a year ago.

these are systemic problems that are going to need a systemic solution," said Brian Yelvington, fixed-income strategist at Knight Capital. "This is not a one-off problem with an individual country."

While Portugal doesn't have banking problems of the scale of Ireland's or a budget deficit as big as Greece's, it does have a combination of budget deficits, high government debt and low growth that worries some investors.

the gap between German and Spanish bonds rose 0.30 percentage point overnight, to 2.36 percentage points, the highest since the euro was introduced in 1999

But should Spain fall into a death spiral, where its interest payments rise so much that the country can't afford to borrow, a bailout is seen by many in the markets as impractical and more likely to require a restructuring of debt that would inflict losses on bondholders, many of whom happen to be European banks.

The sudden turn in Europe has caught many traders off guard. The focus in recent weeks has been on the impact of the Federal Reserve's easing measures. And at the tail end of last week, many investors had assumed the Irish situation was on its way to being resolved. But with the unraveling of Ireland's coalition government Monday, contagion is back on the minds of investors. Ireland's request for a bailout from the European Union and the International Monetary Fund followed government capital injections to prop up banks that suffered big loan losses. This has turned the spotlight to banks in Spain and Portugal. Meanwhile, Portugal reported on Monday that its 10-month budget deficit widened from a year ago. Tuesday, Spain issued short-term debt at a significantly higher cost than a month ago. "I think that's the market's realization; that these are systemic problems that are going to need a systemic solution," said Brian Yelvington, fixed-income strategist at Knight Capital. "This is not a one-off problem with an individual country." Rising spreads have hit one country after the other, moving from Greece to Ireland and now to Portugal and Spain. The worry is that those rising borrowing costs eventually may prove prohibitive, forcing countries to seek some sort of bailout. Contagion, broadly defined as when a loss of market confidence in one economy transmits to others, can occur through trade connections, economic similarities or financial linkages. An economic downturn in one country can hit its trading partner's exports or reduce tourism revenue. A collapse in value of financial assets in one country can hit confidence about banks in another if those banks hold a lot of those assets. A second source of contagion is where investors look across from a troubled economy and see similar problems elsewhere. While Portugal doesn't have banking problems of the scale of Ireland's or a budget deficit as big as Greece's, it does have a combination of budget deficits, high government debt and low growth that worries some investors. A third transmission mechanism for contagion is through investor portfolios, in which price declines in one asset class cause investors to sell other assets. View Full Image European Pressphoto Agency A broker reads the hard news at Frankfurt's stock exchange on Tuesday. The DAX fell 1.7% but remains up nearly 13% on the year. Particularly noteworthy is the focus on Spain. Tuesday, the gap between German and Spanish bonds rose 0.30 percentage point overnight, to 2.36 percentage points, the highest since the euro was introduced in 1999, well above the previous record of 2.21 percentage points set in May, according to RBC Capital Markets. That selloff is notable because while Greece, Portugal and Ireland are facing significant fiscal and economic woes, those economies are relatively small. Bailouts of all three are seen as manageable. But should Spain fall into a death spiral, where its interest payments rise so much that the country can't afford to borrow, a bailout is seen by many in the markets as impractical and more likely to require a restructuring of debt that would inflict losses on bondholders, many of whom happen to be European banks. Traders said those banks likely were among those selling either Spanish, Portuguese and even Italian bonds Tuesday, as well as buying insurance against default by those countries as a hedge. For hedge funds and other money managers, figuring out how best to trade in the turmoil has been complicated by several factors. Some they are hesitant to make big speculative bets through the market for credit-default swaps, because trading in Portuguese and Spanish swaps is relatively infrequent. That makes buying and selling much more difficult. Credit-default swaps act like insurance, protecting bondholders in the event of a default. There also is a concern among hedge funds that there could be government bailouts, which could affect how CDS trade. Instead, some managers are looking to trade the debt of financial companies in countries such as Ireland and Portugal by betting that some of that debt will fall in price. It also is harder to place bets against the euro, now that the Federal Reserve is pumping the financial system with money. In fact, rather than betting on a decline in the euro, many traders had been leaning the opposite direction leading up to the recent turmoil, holding short positions in the dollar and owning euros. —Cassell Bryan-Low contributed to this article. Write to Stephen Fidler at stephen.fidler@wsj.com

many traders had been leaning the opposite direction leading up to the recent turmoil, holding short positions in the dollar and owning euros.Read more at professional.wsj.com

 

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America is fearing of North Korea’s ability to proliferate detonate a primitive weapon

Amplify’d from www.ft.com

North Korea’s aggression thus threatens not only South Korea but Japan, too. Its leadership is as much national-fascist as communist, and has manifested deep hostility to the Japanese, who occupied the Korean Peninsula from 1910 to 1945. In short, Japan is getting real-life experience of what maritime Asia would be like without unipolar America power.

They are obsessed with short-term survival, most clearly expressed by their nuclear programme. Precisely because economic liberalisation could destabilise the fragile police state, the Kim family knows there is no way to guarantee survival except through a nuclear deterrent.

America’s fear of North Korea’s ability to proliferate – let alone to detonate – a primitive weapon in the face of an invasion is what brings Washington to the bargaining table.

America’s fear of North Korea’s ability to proliferate – let alone to detonate – a primitive weapon in the face of an invasion is what brings Washington to the bargaining table. The North Koreans know that if Saddam Hussein had nuclear capability in 2003, he and his sons would be in power today. Consequently they have invested much in their programme. They risk relations with neighbours South Korea and China precisely because of the programme’s centrality to regime survival.

A sudden implosion could unleash the mother of all humanitarian problems, with massive refugee flows toward the Chinese border and a semi-starving population of 23m becoming the ward of the international community – in effect the ward of the

US, Chinese and South Korean armies.Read more at www.ft.com

 

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Amplify’d from www.ft.com

America and China’s first big test

The origin of Tuesday’s attack is identified beyond a shadow of doubt. It is an outrageous action that could qualify even as an act of war.

the North Korean regime has reached a point of insanity.

the regime is out of control.

Different elements in Pyongyang, including parts of the military, are capable of taking actions on their own perhaps, without central co-ordination. That is an even more ominous possibility.

He should call President Lee Myung-bak of South Korea to reassure him personally and directly of US support. Then he should call President Hu Jintao of China and express serious concern. He should call Prime Minister Naoto Kan of Japan, as America’s prime ally in the Pacific and given its proximity to the Korean conundrum. He should also call President Dmitry Medvedev of Russia. Hillary Clinton, US secretary of state, should then follow up on these calls and set in motion convening the United Nations Security Council.

he Iranians are maintaining, maybe mendaciously, that they are not seeking nuclear weapons. That is a different kind of challenge in which our response has to be the insistence that they prove their case. The North Koreans, however, are defiant, boasting their nuclear prowess and now openly provocativ

A call from Mr Obama to Mr Hu should be a call between leaders who share a concern. It should not be an American demand, nor an admonition. It should be an affirmation that our respective interests are endangered and so we have a common stake in an effective response. Read more at www.ft.com

 

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Is this the beginning of new Korean War ?

Amplify’d from www.ft.com

Bombardment increases Korea tension

Smoke rises from South Korea’s Yeonpyeong Island after the assault by North Korea

Pyongyang bombarded a South Korean island, killing two servicemen and seriously injuring more than a dozen people, including civilians.

the North’s bloodiest assault on civilian targets since it planted a bomb on a South Korean airliner in 1987, killing 115 people

200-shell attack on Yeonpyeong island in the Yellow Sea on Tuesday as unforgivable.

It comes days after North Korea revealed the existence of a modern and extensive uranium enrichment plant, which can produce both nuclear fuel and fissile material for a bomb.

Sergei Lavrov, Russian foreign minister, called for an immediate end to all strikes, saying that there was a “colossal danger” of an escalation in fighting.

US stood “shoulder to shoulder” with Seoul. “We are in close and continuing contact with our Korean allies,” it added.

South Korea returned artillery fire, scrambled F-16 fighter jets and lifted the state of military readiness to its highest level short of war.

The office of Ban Ki-moon, UN secretary-general and a former South Korean foreign minister, described the assault “one of the gravest incidents since the end of the Korean War”.

“We consider that that was a violation of UN Security Council resolution[s],” he said.

South Korean state television showed photographs of several plumes of thick black smoke billowing from houses on the island of Yeonpyeong, just off North Korea’s west coast.

North Korea had no immediate comment on its motives. The Yellow Sea lies on a disputed maritime border where Pyongyang often expresses anger at South Korean naval exercises.

North Korea is flexing its muscles to smooth the succession of Kim Jong-eun, the third son of Kim Jong-il, the country’s ailing dictator.

North Korea launched the attack because Kim Jong-il had died.

North Korea said it would “launch merciless military retaliatory strikes” if South Korea crossed the disputed maritime border “even 0.001 millimetre”.

News of the attack came after South Korea’s foreign exchange market and stock market had closed. However, the one-month dollar/won non-deliverable forward fell as much as 3.5 per cent after the artillery strike. Before the shelling, the won closed down 1 per cent to 1,137.5 per dollar. The Kospi stock index ended 0.79 per cent lower. Read more at www.ft.com

 

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Is the worst of the crisis in Europe behind us ??

Amplify’d from www.ft.com

The worst of the crisis in Europe is behind us

Ireland’s decision to apply for an emergency aid package from its partners means that two of the eurozone’s 16 member states – the other being Greece – have required rescue in the space of seven months.

The first is whether the Irish bail-out will ease pressure in the bond markets on Portugal, the eurozone’s next weakest link, and obviate the need for a third rescue operation.

The Greek rescue package ended up costing eurozone governments and the International Monetary Fund €110bn, a sum that Lorenzo Bini Smaghi, the Italian member of the European Central Bank’s governing council, says could have been lower if only Europe’s political leaders had shown greater decisiveness.

The writing was probably on the wall at the end of September, when the government in Dublin revised up its exposure to domestic banks and said the cost of recapitalisation would be €46bn, or 28 per cent of GDP, instead of €33bn as first estimated.

But the final nail in Ireland’s coffin was hammered in by Ms Merkel and Nicolas Sarkozy, France’s president, when they announced at a meeting in the French seaside resort of Deauville on October 18 that future rescues of eurozone states should involve losses for private bondholders.

Portugal is not Greece, and it is not Ireland either: its banks are in better condition, and it has not excelled in the Greek fashion at the publication of grossly misleading financial data and spectacularly incompetent management of the public finances. But these are distinctions that financial markets may not be in the mood to keep in mind as the crisis of the euro enters its next phase. Read more at www.ft.com

 

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The debt crisis gripping the eurozone claimed its second victim in six months on Sunday night when European finan

Amplify’d from www.ft.com

Europe agrees €80bn-€90bn Irish aid

The debt crisis gripping the eurozone claimed its second victim in six months on Sunday night when European finance ministers agreed to a request from Ireland for a multibillion-euro emergency rescue.

But the deal may not be concluded until the end of November because the parties are still negotiating the conditions attached to the aid.

But it put paid to Europe’s hopes that a “shock-and-awe” €750bn backstop, arranged after a bail-out of Greece in May, would impress financial markets so much that it would never need to be used.

Ireland will have to cut fast and deep.”

The package would include a fiscal package on the national budget that would see increased taxes and reduced spending.

Mr Cowen insisted that the country’s corporation tax, a bone of contention with other Eurozone members, had not arisen as part of the negotiations.

Acute tensions in bond markets are also affecting Portugal, whose government fears succumbing to the backwash of the Greek and Irish turmoil.

European officials have emphasised inherent differences in the Greek and Irish crises, with the problems in Athens centred on fiscal irresponsibility, unreliable statistics and public sector corruption rather than the recklessness of the banking sector as in Ireland.

Yet as Ireland wobbled last week, EU officials were mindful of the slow and fractious response to Greece’s slide before a bail-out was finally cobbled together in early May. Analysts and diplomats broadly agree that the delay further unsettled markets and drove up the cost of the eventual rescue.

Speaking on Irish radio, he declined to disclose the interest rate the country would have to pay on any EU-IMF loans, but said it would be “a lot less than what we have to borrow at if we went to the world markets”.

The Irish government’s beleaguered position was underlined by a poll in the Sunday Business Post by Red C that put Fianna Fáil on 17 per cent of first preference votes, less than half the level it achieved at the last general election in 2007. Read more at www.ft.com

 

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Spain and Portugal have hurried to disassociate themselves from Ireland’s debt crisis

Amplify’d from www.ft.com

mooted

Spain and Portugal have hurried to disassociate themselves from Ireland’s debt crisis, saying their own fiscal problems can be solved without the kind of rescue package mooted for Ireland by the European Union and the International Monetary Fund.

“The commitment to cut the deficit is one which must be fulfilled exactly as promised, because on it depends the confidence in our economy that will pave the way for economic recovery and the growth of employment,” he said.

In a clear comparison with Ireland, he said Portugal had not suffered a housing market collapse and had a banking sector that was “resilient, solid and well capitalised”.

Lisbon-based economists said the biggest test of Portugal’s borrowing capacity would come early next year, when the government needs to raise a large part of an annual borrowing requirement estimated at about €20bn.

Some are insisting on ever harsher austerity programmes. “The agenda needs to be clear and decisive, accepting that Spain needs to restore fiscal discipline aggressively,” said Raj Badiani, economist at IHS Global Insight, in a note on Spain on Thursday.

“In a world of structurally deficient demand, the governments of ‘core’ Europe are pursuing fiscal austerity with feckless abandon,” said Jamie Dannhauser of Lombard Street Research. “This means an unnecessarily painful adjustment for the periphery countries.” Read more at www.ft.com

 

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French and German officials are pressing Ireland to increase its low corporate tax rate

Is Ireland going to revise the magic corporate income tax of 12.5%?

I wonder what will happen with the Romania 's 16% flat tax rate and the Hungarian's government plans to follow the same policy, given the fact that both nations are currently financially assisted by the same guys, as the ones currently stretching Irish republic sovereignity.

Amplify’d from www.ft.com

French and German officials are pressing Ireland to increase its low corporate tax rate in return for an aid package, setting the stage for a showdown over a policy long resented by Dublin’s European partners.

Ireland views the corporate tax rate, set at 12.5 per cent, as the cornerstone of its industrial policy. On Thursday Irish officials reiterated their determination to protect it. “It’s non-negotiable,” Mary Coughlan, the deputy prime minister, told parliament.

Dublin’s strident objections could well keep it out of any final package.

“Without an increase in tax intake, the deficit can’t be reined in,” added a German government official, though he added that the size of any corporate tax increase had yet to be discussed. “That depends on [Ireland’s] financing needs, which are still unclear.”

Olli Rehn, the EU’s top economic official, has implied that he backs a corporate tax rise, saying Ireland should no longer consider itself a low-tax nation.

“The IMF, ECB and European Commission must realise that any increase in our corporation tax rate would ultimately make us more economically dependent, not less so on our European Union partners,” said Peter Keegan, Ireland country head for Bank of America Merrill Lynch. Read more at www.ft.com

 

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The Economist Commodity - Price Index

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The charge-sheet against commodity speculators is flimsy

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drivel

The charge-sheet against commodity speculators is flimsy

ONIONS are an important ingredient in the history of commodity speculation.

see-sawing

In 1958, after American growers moaned that speculators were behind

prices, legislation banned trading in onion futures.

the turmoil speculators are believed to cause that Nicolas Sarkozy may use France’s presidency of the G20 to push for rules to curb their activities

around $320 billion of institutional and retail money is now devoted to commodities, compared with just $6 billion a decade ago. That sum does not include hedge funds, whose involvement is significant but difficult to quantify.

Commodities diversify portfolios: in theory, at least, price moves are uncorrelated to shares and bonds.

They act as a hedge against a depreciating greenback.

Wheat prices spiked this August after a drought and fires in Russia, an important supplier, prompted an export ban. The recent surge in sugar prices comes after a bad harvest, that of corn after official warnings of a lower-than-expected crop.

Research published in June by the OECD shows no difference in volatility between agricultural commodities traded on exchanges and those (like onions) that are not. Indeed, the OECD found a “consistent tendency” for greater volumes of index-fund trading to sit alongside declining volatility

Sceptics point to the behaviour of copper prices in the latter part of last year. Normally prices and inventories should not rise at the same time, since higher stocks ought to bring down prices. The fact that both were rising simultaneously in the copper market had many worried that speculators were buying and hoarding the metal. Speculators were indeed at work but there is no evidence of hoarding.

American regulators are on the verge of approving physically backed copper exchange-traded funds, listed investment vehicles that have become hugely popular. Several institutions are planning to offer them. ETFs for other base metals could follow.

Almost all current investor activity is in futures markets. It is rare for investors to take physical delivery of commodities, so no raw materials are removed from the supply chain (another reason why investors are unlikely to affect spot prices).

But it has the potential to cause price swings that would make the row over onions look like small potatoes.Read more at www.economist.com

 

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The suggestion that speculators deliberately manipulate markets to earn profits through bubbles and busts simply

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Commodity speculators do more good than harm

Nicolas Sarkozy, who is taking over the presidency of the G20, is set to use the role to champion measures to bring commodity investors to heel.

And American regulatory reforms include the introduction of mandatory position limits on trading in energy, metals and agricultural commodities early next year.

Those naturally inclined to dismiss any French efforts to regulate financial markets should note that Angela Merkel, Germany’s chancellor, is on his side too. And American regulatory reforms include the introduction of mandatory position limits on trading in energy, metals and agricultural commodities early next year.

There is almost no evidence to connect speculators to the commodity-price spikes that they are routinely blamed for creating

In particular, they supply liquidity and price information that makes futures markets more efficient

The suggestion that speculators deliberately manipulate markets to earn profits through bubbles and busts simply does not hold water

The explanation for the sudden spikes in the prices of many commodities in recent years lies in nothing more sinister than the laws of supply and demand.

When supply is tight, a small increase in demand can have a disproportionately large effect on price

that investors almost exclusively trade futures contracts. They rarely take physical delivery of raw materials and have no effect on the actual production and consumption of metal, grain or oil.

An OECD report suggests that there is little difference in volatility between exchange-traded agricultural commodities (such as wheat and corn) and non-exchange-traded ones (such as apples and onions).

It is the politicians, not the investors, who risk becoming the real villains in this affair.Read more at www.economist.com

 

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