"We are in a precarious situation," International Monetary and Financial committee chair Tharman Shanmugaratnam. "We face a confluence of sovereign debt and banking risk with the epicentre of that being in the euro area, but it is underpinned and complicated by the fact that we also face a weakening global economy." Greece is at the forefront of the crisis that has struck a number of countries on the 17-nation euro zone's periphery. Debt-laden Italy, the third-biggest euro zone economy, has also been struggling to retain investor confidence. Mr Shanmugaratnam said IMF leaders "will do what it takes" to prevent an escalation of the financial crisis and to avoid the possibility of a prolonged period of stagnation in larger economies, which would in turn affect overall growth of the global economy. IMF head Christine Lagarde confirmed the fund's consensus on the causes of the crisis, and the steps that need to be taken to solve it. "There was no denial, there was no finger-pointing," said Ms Lagarde. Although the meetings of top finance officials were dominated by worry about a possible debt default by Greece, which might cause a domino effect in other highly indebted euro zone countries, Ms Lagarde said steps were already being taken. "If you look at financial regulation, if you look at crisis management, if you look at improved governance, for instance, in the euro zone, if you look at strengthening the capital of the banks, a lot has already happened," she added.
Access Investments-Building Awareness - European Union-ROMANIA
Monday, September 26, 2011
£1.7 trillion 'firewall' fund readied to save euro - I think this is a lot of "Hot Air" !
"We are in a precarious situation," International Monetary and Financial committee chair Tharman Shanmugaratnam. "We face a confluence of sovereign debt and banking risk with the epicentre of that being in the euro area, but it is underpinned and complicated by the fact that we also face a weakening global economy." Greece is at the forefront of the crisis that has struck a number of countries on the 17-nation euro zone's periphery. Debt-laden Italy, the third-biggest euro zone economy, has also been struggling to retain investor confidence. Mr Shanmugaratnam said IMF leaders "will do what it takes" to prevent an escalation of the financial crisis and to avoid the possibility of a prolonged period of stagnation in larger economies, which would in turn affect overall growth of the global economy. IMF head Christine Lagarde confirmed the fund's consensus on the causes of the crisis, and the steps that need to be taken to solve it. "There was no denial, there was no finger-pointing," said Ms Lagarde. Although the meetings of top finance officials were dominated by worry about a possible debt default by Greece, which might cause a domino effect in other highly indebted euro zone countries, Ms Lagarde said steps were already being taken. "If you look at financial regulation, if you look at crisis management, if you look at improved governance, for instance, in the euro zone, if you look at strengthening the capital of the banks, a lot has already happened," she added.
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The head of the IMF has warned that its $384bn (£248bn) war chest designed as an emergency bail-out fund is inadequate to deliver the scale of the support required by troubled states.
In a document distributed to the IMF steering committee at the weekend, Ms Lagarde said: "The fund's credibility, and hence effectiveness, rests on its perceived capacity to cope with worst-casescenarios. Our lending capacity of almost $400bn looks comfortable today, but pales in comparison with the potential financing needs of vulnerable countries and crisis bystanders."
The suggestion came after European officials revealed they were working on a radical plan to boost their own bail-out fund, the European Financial Stability Facility (EFSF), from €440bn (£384bn) to around €3 trillion.
The plan to increase the EFSF firepower is the crucial part of a three-pronged strategy being designed by German and French authorities to stop the eurozone's debt crisis spiralling out of control. It also includes a large-scale recapitalisation of European banks and a plan for an "orderly" Greek default.
Although Britain is not involved in the large-scale eurozone bail-out projects, it is liable for 4.5pc of IMF funding.
Economists at Royal Bank of Scotland said in a note they had revised down their economic forecasts for the region and "now expect a full blown recession".
They said that weak manufacturing and services sectors, deteriorating job prospects, heightening financial market intentions, and elevated chances of a disorderly Greek default would contribute to a 0.2pc fall in gross domestic product in the final quarter of 2011, and a 0.4pc fall in the first quarter of 2012.
"We expect any recovery thereafter to remain extremely modest (0.1-0.2pc q/q), as the need for fiscal austerity weighs on growth," they wrote.
The RBS economists left their 2011 full-year growth forecast unchanged at 1.6pc, but revised down its 2012 forecast to -0.2pc from 1.1pc.
"The downward revision to our forecast also reflects our assumption that major export markets will also slow very significantly over the coming months."
The French newspaper Le Journal du Dimanche fuelled expectations by reporting that French officials were ready to put up to €15bn in a special contingency plan if recapitalisation was needed. But Noyer was adamant this was not necessary. "They are very solid," he said. "They have a solid capital base comparable to other European banks and they are profitable … none of them is hiding any toxic assets".
Despite his protestations – and those of the bosses of BNP Paribas and Société Générale – markets are gripped by speculation that the banks will seek fresh funds. BNP Paribas has been linked with Qatar but denied any talks and avoided a downgrade by ratings agencies after announcing plans to cut the value of its balance sheet. SocGen insists its exposure to Greece is manageable.
While the French banks have become of the major focus of the markets' concern about the impact of a default by Greece on its debt pile, other banks are not immune.
Schmitz, who is also the head of the Düsseldorf-based private bank HSBC Trinkaushaus, said: "German banks could cope with an isolated insolvency of Greece. Such a scenario would not endanger their survival. But if a wave of bankruptcies sweeps through Europe, the situation looks different; many banks would get into trouble – and not just in Europe."
This is one of the reasons why there is talk of the authorities trying to put a firewall around Greece.
Banks are already expected to take a loss of 21% on their holdings of Greek debt – as agreed under the terms of the bailout – but after speculation this weekend, the loss is expected to rise to at least 50%.
Policy tinkering seems to be a way for economists of the centre right and centre left to avoid confronting the bigger issues,[ as Matthew Parris puts it "Freudian displacement activities"].
Economic growth of the past is over.Debts cannot be repaid and the value of fiat currencies will fall.
Global oil supply is flat and has been since 2005.Goodbye cheap energy and cheap food.
Everything else is addressing symptoms not the illness itself
La victoire de la gauche au Sénat, dimanche 25 septembre, bouleverse le paysage politique. Les conséquences pratiques de ce changement sont encore difficiles à déterminer. La gauche pourrait être tentée de profiter du Sénat pour donner corps à son opposition et émettre des propositions de loi, mais aussi amender les textes gouvernementaux, même si l'Assemblée nationale garde le dernier mot. Le président du Sénat aura aussi des pouvoirs en matière de nominations au Conseil supérieur de la magistrature (CSM) ou au Conseil constitutionnel, et sera présent, en tant que deuxième personnage de l'Etat, aux côtés du chef de l'Etat, Nicolas Sarkozy, dans les cérémonies officielles.
Christine Lagarde said the money available to the organisation “pales in comparison to the potential financing needs of vulnerable countries”.
In the wake of the global credit crisis, the funding of the IMF tripled and Britain’s exposure to it rose to £20 billion. This figure is poised to rise again if financial troubles engulf bigger economies such as Italy and Spain.
Yesterday, Alistair Darling, the former Labour chancellor who was in office during the previous crisis in 2008, warned that the problems facing the global economy were worse than three years ago.
“There are lessons to be learnt, and they are not being learnt by those responsible at the moment,” he said. “Lehmans [the investment bank that collapsed in September 2008] taught us one thing which is if you know there is a problem, take action, sort it out [in a way] that is more decisive than people expect if you are going to stop it.
“The problem with the Greek crisis is that it has been allowed to run on and on and on.”
This week could prove crucial in the attempts by European leaders to get a grip on the Greek economic crisis, and financial markets are braced for another turbulent few days. Germany and Greece will have detailed negotiations over an emergency rescue package for the Mediterranean country before a German vote on Thursday to approve a new eurozone bail-out plan. There is growing German anger at helping southern Europe, which will effectively involve taxpayers underwriting other countries’ debts unless they agree to sweeping reforms.
Greece may be allowed to go bankrupt and write off some of its debts with other loans restructured and guaranteed by a eurozone bail-out fund. Banks in several countries, including France, may also be recapitalised, although the French central bank chief insisted yesterday that taxpayers’ money would not be used.
In total, the scheme could cost up to £2 trillion, and the IMF is also expected to be involved. During talks in Washington, Mrs Lagarde warned that the IMF may need to extend it $400 billion war chest.
“The fund’s credibility, and hence effectiveness, rests on its perceived capacity to cope with worst-case scenarios,” Mrs Lagarde said in an “action plan” circulated to IMF executives. She added that lending capacity “looks comfortable today but pales in comparison with the potential financing needs of vulnerable countries and crisis bystanders”.
George Osborne, the Chancellor, has managed to keep Britain from contributing to future eurozone bail-outs, but the Government is likely to agree to any request to increase IMF funds.
The Chancellor returned from Washington over the weekend after setting a six-week deadline for European leaders to tackle the crisis.
In an interview yesterday with the American ABC television network, David Cameron said that public spending cuts would not be watered down.
“The British economy has grown this year,” the Prime Minister said. “If we hadn’t got on top of our deficit and shown the world we have a plan to make our economy pay properly for itself, then we would have seen interest rates go up and confidence sapped out of our economy.
“We have to understand this is a debt crisis, it’s not a traditional cyclical recession where you can just turn on the money tap. We’ve got to deal with the debts, we’ve got to show the world we can pay for our debts.”
Pacific Investment Management Co., which runs the world’s biggest bond fund, expects advanced economies to stall over the next year, with Europe sliding into recession, underscoring mounting investor concern about the global economic outlook. There will be little to no economic growth in industrial nations during the coming 12 months as Europe’s economy shrinks by 1 percent to 2 percent and the U.S. stagnates, said Mohamed El-Erian, chief executive officer of Newport Beach, California-based Pimco. That will leave worldwide expansion at about 2.5 percent, less than the 4 percent forecast by the International Monetary Fund this year and next. Such gloomy sentiment dominated weekend talks of policy makers, investors and bankers in Washington, where the International Monetary Fund and World Bank held their annual meetings. The Dow Jones Industrial Average suffered its biggest loss since 2008 last week as the U.S. Federal Reserve said risks to its economy had increased and Europe’s debt crisis went unresolved.
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