Global stock markets bounced back on Friday after European Union leaders reached agreement on a €120bn (£105bn) bailout for Greece. Most Asian markets were up, with the Nikkei in Tokyo gaining 0.85% to 9678.71 and Hong Kong's Hang Seng rising 1.6% to 22,115.24. The FTSE 100 index in London opened 75 points higher. On Thursday, it closed down 98.61 points at 5674.38 after downbeat comments on the state of the economy from the US Federal Reserve chairman, Ben Bernanke. European leaders agreed on Thursday night to launch a fresh bailout of Greece, assuming the country passes an austerity package next week. Britain is to be spared from taking part in the rescue after leaders accepted David Cameron's argument that the bailout should be borne by the eurozone. The rescue will be provided by Greece's "euro partners and the International Monetary Fund", meaning that Britain is exempt from the European part of the package. Germany had been insisting that the bailout should be partly funded by all 27 EU members, but backed off. Without the final tranche of last year's €110bn bailout – €12bn from the eurozone and the IMF – Greece would be broke by mid-July. Brent crude oil rebounded by more than a dollar to $108.70 a barrel on Friday morning, after tumbling 6% on Thursday when the International Energy Agency announced the release of 60m barrels of emergency oil supplies on the market in an attempt to stem soaring petrol and other energy prices. US crude climbed to $92.34 a barrel. It is only the third time in the 37-year history of the IEA that oil has been released in this way and follows repeated calls on Opec to turn on the taps and bring down the price of oil.
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Friday, June 24, 2011
Global stock markets bounced back on Friday after European Union leaders reached agreement on a €120bn (£105bn) bailout for Greece. Most Asian markets were up, with the Nikkei in Tokyo gaining 0.85% to 9678.71 and Hong Kong's Hang Seng rising 1.6% to 22,115.24. The FTSE 100 index in London opened 75 points higher. On Thursday, it closed down 98.61 points at 5674.38 after downbeat comments on the state of the economy from the US Federal Reserve chairman, Ben Bernanke. European leaders agreed on Thursday night to launch a fresh bailout of Greece, assuming the country passes an austerity package next week. Britain is to be spared from taking part in the rescue after leaders accepted David Cameron's argument that the bailout should be borne by the eurozone. The rescue will be provided by Greece's "euro partners and the International Monetary Fund", meaning that Britain is exempt from the European part of the package. Germany had been insisting that the bailout should be partly funded by all 27 EU members, but backed off. Without the final tranche of last year's €110bn bailout – €12bn from the eurozone and the IMF – Greece would be broke by mid-July. Brent crude oil rebounded by more than a dollar to $108.70 a barrel on Friday morning, after tumbling 6% on Thursday when the International Energy Agency announced the release of 60m barrels of emergency oil supplies on the market in an attempt to stem soaring petrol and other energy prices. US crude climbed to $92.34 a barrel. It is only the third time in the 37-year history of the IEA that oil has been released in this way and follows repeated calls on Opec to turn on the taps and bring down the price of oil.
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The crisis enveloping the eurozone is a "mess" that poses the "most serious and immediate" risk to the UK banking system, Sir Mervyn King warned on Friday as he called for banks to provide more information on their exposures in the region.
In his new role of chairman of the financial policy committee (FPC), the new "guardian of the resilience of the UK financial system", King also warned that banks may be providing a "misleading picture of their financial health" if they were not making big enough provisions for borrowers having difficulty repaying loans. So-called forbearance has taken place in up to 12% of mortgages, including 30-80% in the commercial property sector.
Bank shares led the FTSE 100 index lower amid fears of new bad debt losses in the sector, and after King called on banks to build up more capital when financial conditions allowed rather than pay out dividends to shareholders or bonuses to staff.
"In good times, banks should retain more of those earnings rather than distribute them to shareholders or as compensation," King said.
King was asked whether the crisis gripping the markets – caused by fears that Greece may default – could spark a meltdown on the scale of the one caused by the Lehman Brothers collapse. He replied: "I am not sure that the sovereign crisis now and what happened in the case of Lehman Brothers have much in common, other than the fact that it is a mess."
UK banks' exposure to Greece directly was "remarkably small", he said, but he warned that the bigger risk was a "crisis of confidence".
"There is always uncertainty about the scale of exposures... which counter-parties out there are the ones which are heavily exposed," he said. "That uncertainty can lead at various points for funders of banks... to draw back, and there can be a crisis of confidence in sentiment."
He said more data was needed about exposures to allay any unnecessary concerns.
As governor of the Bank of England, he is automatically handed the chairmanship of the FPC, a key part of the coalition's response to the financial crisis. When legislation grants it new powers next year, the FPC is expected to be able to stop bubbles being created by, for example, forcing banks to hold more capital.
Brown said' Once upon a time in America...'.
I expect Cameron laying the foundations for the future with ' There is a country called Greece...'.
Dear Tory trolls and bashers, we live in a global financial web where a single thread could burn all. It is not the fault of a single person or government but all leaders and governments worldwide. I am not suggesting for a moment that we should turn to Socialism etc. rather a system that works for you and me, the 'little people'.
It is time maybe to reconstruct radically financial, political and social agendas because what we are facing is the death of Capitalism!
Maybe it is time to end the plutocratic social structure we have right now and replace it with true Democracy, not the one you are fooled about right now.
The biggest lie ever told nowadays is the we, the public, are in charge. Well we are not!
David Cameron may have won his battle to keep Britain out of a second EU bail-out for Greece – but that doesn’t alter the long-term inevitability of Greece’s departure from the eurozone.
There are two claims I hear repeated about Greece that I’d like to take this opportunity to knock down. The first myth is that Greece would gain nothing from leaving the euro because its debts are denominated in euros. But that claim misses the point. Leaving the euro would take the form of the government passing a law to redenominate all Greek debts (at least all government and banking sector debt, but quite possibly all private sector debts) into “New Drachmas” (or whatever the new currency would be called). Such a redenomination of debts is, of course, a default. Indeed, it is one of the classical forms of sovereign default.
The second myth is that defaulting would gain the Greeks nothing because they’d have to balance their budgets immediately, which would be even more unpopular than the austerity programme planned. This is wrong at a number of levels. Let’s start with two relatively unimportant ones, before moving to the main reason it’s wrong. First it’s wrong because it ignores the fact that part of the deficit is the interest payments on debts, and after default these interest payments will be smaller because the stock of debt will be smaller. It is also wrong because it isn’t true that Greece wouldn’t be able to borrow after a default. If the default were large enough (say 70 per cent plus), Greece would be unlikely to default for the next couple of years. So it would be able to borrow very short-term (say, up to two years) provided it were willing to pay interest of 12 per cent or so.
But these aren’t the main reason our second myth is wrong. The main reason is that a country with its own currency can pay for a budget deficit by printing money. That was, for example, how the UK used to fund much of its deficits in the mid-1970s. Now there would be an inflationary cost to doing that on too large a scale over the longer-term. But as a short-term expedient that would be by no means an unattractive option for Greece at the moment. The Greek money supply has actually been falling at about 10 per cent a year. So a monetary injection, delivered by the government printing money to fund its budget deficit, could even be a positively useful policy response. And politically, of course, it would allow a smoother reduction in the budget deficit.
Thus it’s perfectly feasible – as well as, of course, ultimately inevitable – for Greece to redenominate and default. Indeed, given that it is bound to do so eventually (if not of its own choosing, by 2013 when it gets ejected from the euro anyway), from the Greek point of view it would be better to act quickly. Delay might arguably (under some, albeit misguided, policy concepts) be to the benefit of the eurozone. But the question remains why the Greek people should feel much obligation to a eurozone that is going to eject it in the end anyway – or do they still believe that a decades-long transferunion might yet be on the cards
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