Italy's crucial 10-year bond rate rises to 7.17%

MARKETS TODAY - Investors singled out Italy for more pain as they sent the interest rate on the all-important 10-year bond past 7% to hit 7.17%. The euro fell to €1.30 against the dollar, the lowest since January. French lenders Société Générale, BNP Paribas and Credit Agricole fell between 6.7% and 8% as rumours persisted that the extent of their bad loans to indebted eurozone countries would lead to France losing its AAA status within the next few days. Credit Agricole, which gave a second profits warning this year, said it would record a €2.5bn (£2.09bn) loss this year, chiefly due to writedowns in its investment banking unit, and it would not pay a dividend in order to retain capital. Analysts warned that Italy would be forced to turn to Brussels for bailout funds unless member states agreed a more coherent rescue package with more firepower to protect the currency union. An agreement last week to move towards greater harmonisation of fiscal rules initially pleased markets but in recent days investors have viewed the deal as weak and subject to wrangling and delay. A sense of confusion inside the eurozone was exacerbated after Angela Merkel, the German chancellor, renewed her opposition to expanding the bailout fund for the euro, insisting that €500bn was the limit. Merkel, speaking to the German parliament for the first time since the a package of measures was agreed in Brussels last week without the support of Britain, said the fund was capable of providing a firewall to protect indebted countries such as Italy, despite widespread concerns that the fund needs access to at least €2tn to reassure investors.

Let us all fervently pray for a failure to find a solution so that we can have the end of the European Union.

Where are they going to find over 2 trillion when they couldn't manage it before?... The EFSF cant manage to raise money.. The Germans are against Eurobonds and Printing because it is unconstitutional..... The IMF is not a tool to be used like this and the shareholders will not allow it....Tell us where are they are going to get the money from !!!...Torn between the need for stability and the desire for solidarity, EU leaders have to find an immediate fix for the broken euro zone and embrace a longer-term plan for fiscal union by Friday night. Portuguese premier Pedro Passos Coelho set the tone for the week in an interview on Sunday: "We have to find a response, a much stronger response than so far. If we don't, clearly that could represent the end of the European Union." Senior opposition politicians put severe pressure on French president Nicolas Sarkozy and German chancellor Angela Merkel ahead of their pre-summit talks in Paris on Monday to approve a "grand bargain" or, at least, workable plan that will gain the support of partners such as the US. Timothy Geithner, Treasury secretary, will be in Europe for talks all week. Sarkozy's main opponent in next spring's presidential election, socialist leader François Hollande, accused him of caving into German demands for a new EU treaty on budgets that was bound to fail, exacerbating French weakness in an unbalanced relationship with Berlin and ignoring the need for immediate solutions. "We cannot wait," he told Le Journal du Dimanche, setting out his stall for a "pact of governance and growth," greater scope for intervention by the European Central Bank, turning the bailout fund, the EFSF, into a bank "to help out the most vulnerable countries" and huge investment in infrastructure. At the social democrats' (SPD) congress in Hamburg, ex-chancellor Helmut Schmidt warned Merkel against a "show of strength" or leadership role for Germany that would simply isolate it. CONCLUSION : The Euro zone crisis is demonstrating what any sub A level economics student should have said when the Euro was launched - you can not have monetary union without central fiscal policy control. So events have proved. Hence the choice is clear. Either the Euro zone breaks up or Europe is ruled by Germany.

Italy again had to pay investors yields averaging above 7% at its government bond auctions Tuesday, as the euro zone's third-largest economy continues to borrow at costs that forced Greece, Portugal and Ireland to seek external bailouts. The auction of up to €8 billion in bonds over a range of maturities saw Italy paying a yield of 7.89% on three-year bonds and 7.56% on 10-year paper. Both marked new euro-era highs. That Italy had to offer higher yields on shorter-dated bonds at Tuesday's sale underscores how investors want to be compensated for the risk attached to the country's near-term fiscal outlook. Demand at the auction totaled €10.9 billion, enough to safely cover the amount on offer. But the margin was still small; the bid-to-cover ratio on the 10-year sale, for example, totaled 1.34, up marginally from a slim 1.27 last month. Yields in the secondary market initially fell on the results, but the benchmark 10-year yield remained sharply higher on the day. "Italy does not have the ability to push down its funding costs to sustainable levels," said Jeffrey Sica, president and chief investment officer of SICA Wealth Management, which has more than $1 billion in client assets, real estate and private-equity holdings.

Italian bond yields spike•Two-year bond yields soar above 8% as investors put premium on near-term risks

(Source)The Guardian - UK : Desmond Supple and Jens Sondergaard on the EMEA team at Nomura have just issued their Europe Special Report: Endgame : The eurozone financial crisis has entered a far more dangerous phase as asymmetry of risk in the market has combined with banking sector deleveraging. This is a particularly toxic combination for financial asset values and ultimately the real economy. Unless a sizable balance sheet can be brought to bear on the crisis – which we believe can now only be the ECB – a euro break-up now appears probable rather than possible. The need for an ECB policy response is immediate in our view. However, we expect the ECB to deliver only conventional easing measures next month (25bp rate cut, longer-term LTROs and dovish forward guidance to monetary policy). This would not comprise a solution to the crisis, but should enable the ECB to avert a full-force financial crisis in December. However, we would be more comfortable in making this assumption if the ECB also eased collateral rules. The risk is that the ECB is required to deliver this policy response before 8 December. However, as we enter 2012 we believe the ECB will have to go down the QE route as the economic outlook deteriorates and financial market stress intensifies. This could preserve the integrity of the euro, although the risks are sizable and over the coming weeks and months the outlook for financial markets appears bleak and downside economic risks are likely to build.

British banks need to be prepared for a disorderly break-up of the eurozone, says Andrew Bailey, the FSA's director of banks and building societies.He said that while the debt crisis in the 17-nation currency zone had not singled out the UK banks, "We must not ignore the prospect of the disorderly departure of some countries from the eurozone." Mr Bailey, who will be deputy head of the new Prudential Regulation Authority, told the Future of Retail Banking Conference in London that the regulator was keen to see banks plan for severe disruptions if the eurozone debt crisis intensifies. Looking ahead, he said weight of new banking regulations will prompt a re-think of the role of investment banking in banks. "My best guess is that we will see a sharp reduction in the scale of investment-banking activity undertaken in the banking sector," he said . He stressed the need for banks to build up longer-term funding to be used as a buffer "in times like the present". However, he cautioned against rushing through reforms: "Many banks still have excessive leverage, and there is a need for a clear path to reduce leverage, but to a timetable that does not damage the wider economy." He welcomed moves by banks to sell non-core assets as it sent an important signal to investors, regulators and the public that lenders were committed to structural changes. (sirce ; UK press)

The eurobond battle rages on

IMF managing director Christine Lagarde said: The Fund has been asked to enhance its lending toolkit to help the membership cope with crises. We have acted quickly, and the new tools will enable us to respond more rapidly and effectively for the benefit of the whole membership. The reform enhances the Fund’s ability to provide financing for crisis prevention and resolution. This is another step toward creating an effective global financial safety net to deal with increased global interconnectedness. No potential customers for the IMF's new lending facility have yet been named, but as Italy and Spain continue to struggle with their cost of borrowing they would seem like ideal candidates. The IMF has said it will work with countries that have "relatively strong policies and fundamentals", which seems likely to rule out Greece. The fund would allow a country to borrow up to five times the value of the country's IMF quota, or permanent contribution, over six months. Based on its IMF quota, Rome could potentially tap the new IMF fund for some €45.5 billion, while Spain could get €23.3 billion. More on the IMF's new lending facility, which is aimed at helping "bystander" countries protect themselves from contagion. According to a statement released this afternoon the new tool will be used to aid countries with "relatively strong policies and fundamentals" but whose economies are endangered "during periods of heightened economic or market stress"....The "idiocy" of the day : A cunning ruse from EU Commisioner Olli Rehn - to try and win round a sceptical German public, he has renamed "eurobonds" - debt which would be issued jointly by all 17 nations using the euro rather than by Greece, Germany etc individually - as ... "stability bonds"... hahaha (what an imbecile) - Catchy... And unusual for a European Commissioner to suggest the euro has become such a tainted brand that it's better off airbrushed from any financial dealings... The eurobond battle rages on today. Sarkozy, Cameron and the EC have been pushing for them hard, claiming they are the solution to the debt crisis. EC President Barroso even rebranded them "stability bonds" yesterday, not that it seemed to sway a cynical Angela Merkel. She continued her resistance to the plan, joined by Jean-Claude Juncker and Herman Van Rompuy (onother narrow minded fella'), saying: If at all, this discussion belongs at the end - so I don't find it particularly fitting that we are now once again conducting it in the middle of the crisis, as if it were the answer to this crisis. In the long term, it isn't.

The eurozone faces calamity unless Germany gives up it's expantionist behavior...

Ferdinand Foch allied commander said after the Treaty of Versailles : "This is not a peace. It is an armistice for twenty years" Well it would prove prophetic; World War II started twenty years and sixty five days later. It must be about 20 years since German reunification and they are at it again !!! ... The all-important spread between the 10-year French government bond and its German equivalent touched yet another euro-era high last week. Spain, also, despite its relative fiscal strength, just paid a crippling 6.9pc on 10-year money. Yields on paper issued by the EFSF, the bail-out fund meant to reassure eurozone creditors, are now spiraling out of control. Investors beyond Europe, deeply disturbed at the region’s economic incoherence, are even questioning German bonds. How much louder do the alarm bells need to ring before time is called on this absurd monetary experiment? There may be “no such thing as an orderly break-up”. But there is a very big difference indeed between embarking on a tough transition to a smaller eurozone with a coherent plan agreed by respective governments on the one hand, and a hugely-damaging systemic meltdown on the other, to be followed by years of pan-European loathing and mutual recrimination. Maybe Merkel will attempt to “muddle-through” - printing a bit here, a bit there, trying to keep it all under wraps. If so, she will learn that the status quo really isn’t an option. The euro in its current form is incendiary and explosive, a macro-economic weapon of mass destruction. It simply must be defused.

Eurozone bond yields show UK is right on euro - French and German politicians are becoming increasingly indignant over what they see as British lecturing about the eurozone crisis. But this is merely an attempt to distract their own voters from the real problems at home by attacking overseas. Although we stayed out of the single currency, the UK still has a legitimate voice when it comes to suggesting solutions and urging action. It is, as we know to our cost, our problem too. But the fact UK analysis of the problem is not what Angela Merkel or Nicolas Sarkozy agree with, or want to hear, doesn't mean it's wrong or any less legitimate than their own plans to solve the problem, such as they are. Who's right and who's wrong should first be tested at the ballot box. But as we know, eurozone leaders have an aversion to this as it risks removing any vestige of legitimacy for the single currency. The second judge is the market. And bond yields clearly reveal that the UK approach to both policy and its execution are what investors want.

EUROPE - The Polish finance minister appears to have dashed hopes that a big package will be decided tomorrow. Jacek Rostowski gave this indication in a letter to Eurogroup President Jean-Claude Juncker last night, according to the FT Brussels by Peter Spiegel. Since Poland holds the rotating presidency of the EU, Rostowski is charged with calling meetings of the Ecofin, comprised of finance ministers from the 17 countries that use the euro. Here's what he said: As things stand at present, I understand that the full package may not be ready by Wednesday, 26 October. Were this the case, the presidency would need to postpone the Ecofin council meeting by a day or two. Therefore I would like to ask you to keep me informed on when the remaining elements of the package will be completed by the Eurogroup so that I can convene the Ecofin meeting as promptly as possible. Stock markets have turned negative after comments from German chancellor Angela Merkel and rumours that tomorrow's meeting of eurozone finance ministers has been cancelled. The FTSE has tumbled more than 30 points to 5515, a 0.6% fall. Spain's Ibex is down 1.1%, Portugal's PSI 1.4% and Italy's FTSE MIB 1.2%. Merkel said Germany was opposed to a phrase in the draft EU summit document that calls for support for the continued use of 'non-standard measures' by the European Central Bank. EU sources told Reuters said the phrase referred to the ECB's purchase of bonds from countries like Italy and Spain. Greek prime minister George Papandreou hopes Wednesday's EU summit will draw a line under Greece's economic crisis. He appealed for unity in his Socialist party to approve the latest round of austerity measures. He said the deal, which could include a reduction of up to 60% in the face value of Greece's debt of more than €200bn, would help reduce the burden on ordinary Greeks. Papandreou told Greek president Karolos Papoulis in a televised discussion before leaving for the summit: Tomorrow we want to be able to turn the page, so that we, as Europe and as a country, can move forward. We have been fighting a great battle... for these burdens and responsibilities to be shared, so that the Greek people can breathe and move forward with the country's rebirth. It takes a sense of calmness and unity from all parties.

Last night's farewell gala in Frankfurt for ECB president Jean-Claude Trichet, who steps down at the end of the month, was a lavish affair by all accounts. The two-hour event at Frankfurt's historic Alte Oper concert hall, interspersed with musical interludes, was attended by a number of political dignitaries such as former French president Valery Giscard d'Estaing and former German chancellor Helmut Schmidt who fell over themselves to praise Trichet as a great European. Schmidt, wheeled onto the stage in a wheelchair, used the opportunity to lash out at the "dramatic inability of the EU's political bodies to curb the dangerous turbulence and uncertainty". Only the ECB directorate, under Trichet's leadership, he said, had proved effective and able to act. "The constant talk of a 'euro crisis' is mere chatter on the part of politicians and journalists," Schmidt said. "In truth, we have a crisis in the ability to act of the EU's political bodies. This inability to act is a much bigger danger for the future of Europe than the over-indebtedness of individual eurozone countries." Trichet, who turns 69 in December, will hand over to Italy's Mario Draghi on 31 October. The farewell gala began with a short film spanning the Frenchman's eight-year reign and ended with a concert by the Mozart Orchestra under its founder and chief conductor, the legendary Italian maestro Claudio Abbado.

The Spanish and French bond auctions have gone reasonably well this morning. Spain sold €3.91bn of government bonds in its first auction since Moody's cut the country's sovereign rating by two notches on Tuesday. France sold €7.49bn of fixed coupon bond and is due to sell inflation-linked debt later, only days after Moody's warned its top credit rating could be under threat.

Over the last few weeks we have had a series of anonymous "EU officials" making statements to the press that have gone on the wires about 1 hour before the New York markets close. On each occasion the effect has been to ramp the markets as brainless headline-scanning algorithms and brainless headline-scanning traders rush out to buy, buy buy. And on each occasion it has subsequently become clear that these "EU officials" were talking garbage. You financial journalist chaps need to ask yourselves one question before printing this sort of un attributed rumor: Why exactly are you being given a story that if published at 7.30pm EST will cause the New York markets to go from -100 on the day to +200 in a matter of minutes? What is the agenda? Whoever is doing this will know that you can't keep ramping the markets on late-afternoon rumours. Giving the markets its daily rush will require evolving techniques of spin and innuendo. Any market that moves so sharply on an un attributed comment is clearly hopelessly, disastrously dysfunctional.

EFSF could be leveraged to any level I suppose 2trn, 3 - 100trn etc. It would be more debt, probably owed by - us and our children. It would be surprising if France and Germany agreed a deal, though. But they will have to appear to make up something. They want to see what happens in Greece first. They play it by ear and stall for time. There is no real plan apart from that. Leaking stories of decisive action is a part of the plan, but if you think about it the kind of things they can do are not going to work in the end anyway, and they must know it. It has become farcical. If you read the Greek press it gives a more realistic picture, by necessity. " The European Commission has raided several banks, on suspicion that they may have been operating a cartel in relation to complex derivatives". Well its a start if they need any further information on who to target next I'm sure Max Keiser would be more than happy to help them out. At least there's one person we can turn to for getting the true facts about what is happening. And if you're interested in speaking out about something closer to home which is just as important in its own way, make a comment.

ATHENS—Greece was paralyzed by a massive two-day strike Wednesday as groups ranging from civil servants to pharmacists and bakers walked off the job ahead of a key parliamentary vote Thursday on new austerity measures. Across the country, public services were frozen, with central and local government offices closed, schools and courts shut, and hospitals operating at bare minimum staff levels. A couple walks by pilling garbage during the second week of a strike by municipality workers and garbage collectors in Athens on Wednesday. Transport services were disrupted as ferry operations were suspended by a dockworkers' strike, while national rail services ground to a halt, and Greece's two major airlines—Olympic Air and Aegean Airlines canceled dozens of flights owing to a 12-hour walkout by air traffic controllers. Tens of thousands of Greek retailers and small businesses joined in, shutting their shops in protest over recent tax hikes and government cuts that have pushed the country deep into recession and led to a dramatic rise in the number of businesses declaring bankruptcies. The 48-hour strike, called by private-sector umbrella union GSEE and its public-sector counterpart ADEDY, is the second time this year that the two unions have called a two-day walkout over government austerity measures. It follows weeks of almost daily strikes, demonstrations and sit-ins, as well as a two-week-long protest by municipal workers that has left uncollected garbage piling up on the streets of Athens and other cities. "We have reached the limits of our endurance and, what is worse, is that there is no ray of hope," said Stathis Anestis, spokesman for GSEE. "We want to send a message that these austerity policies have been a catastrophe for Greece." Under pressure from its international creditors, Greece's government this month submitted legislation that would further cut public-sector jobs and wages, slash pensions for high-income earners, curtail collective-bargaining rights for workers and enact a new levies on taxpayers, among other things. On Thursday, Parliament will vote on the bill just days before a Sunday summit of European leaders that is expected to produce a comprehensive solution to the bloc's debt crisis, and which will also decide whether to release badly needed aid for Greece. At stake is an €8 billion ($11.0 billion) tranche of aid from the European Union and the International Monetary Fund that Greece needs in the next few weeks. The government has said that without the funding, it will run out of money by mid-November.

Germany said European Union leaders won’t provide the complete fix to the euro-area debt crisis that global policy makers are pushing for at an Oct. 23 summit. German Chancellor Angela Merkel has made it clear that “dreams that are taking hold again now that with this package everything will be solved and everything will be over on Monday won’t be able to be fulfilled,” Steffen Seibert, Merkel’s chief spokesman, said at a briefing in Berlin today. The search for an end to the crisis “surely extends well into next year.” Group of 20 finance ministers and central bankers concluded weekend talks in Paris endorsing parts of an emerging plan to avoid a Greek default, bolster banks and curb contagion. They set the Oct. 23 summit of European leaders in Brussels as the deadline for it to be delivered. On the summit agenda is how any recapitalization of Europe’s banks “might be carried out in a coordinated way” and how to make the European Financial Stability Facility, the EU’s rescue fund for indebted states, as effective as possible, Seibert said. The leaders will also discuss ways to tighten economic and financial policy, he said. The euro retreated from a one-month high against the dollar after Seibert’s comments, following last week’s biggest gain in more than two years on speculation that European policy makers are stepping up efforts to stop the crisis. German 10-year bonds rallied and the Stoxx Europe 600 Index pared an advance of as much as 1.5 percent and was up 0.3 percent at 12:47 p.m. in Frankfurt.

Lot's of "smoke" again ...

Jose Manuel Barroso has said he will this week propose “individual criminal responsibility for financial players to be recognised in European law”. The plans for an EU-wide directive would focus on curbing high frequency trading. “We have seen abusive behaviour, and some of this caused the current crisis. We are going to clamp down on these practices,” Mr Barroso told Le Parisien. “Those who violate the rules will face criminal penalties. This will be a first in European legislation and a strong signal.” The Commission will invoke new powers under Article 83 of the Lisbon Treaty allowing the EU to impose minimum rules and sanctions on member states when needed “to ensure the effective implementation” of EU policies. The clause allows the EU to broaden the European Arrest Warrant beyond limited areas such as terrorism, drug-trafficking, and money-laundering to softer crimes if they have a “cross-border dimension”. G20 finance ministers praised Europe’s efforts to “maximise the impact” of the EU’s €440bn bail-out fund (EFSF) and ensure that the region’s banks are “adequately capitalised”, but there were heated exchanges behind closed door as the Anglo-Saxon states, and India rebuked Europe’s leaders for failing to grasp the nettle and mobilize the full lending power of the European Central Bank. “They clearly have more work to do on strategy and details,” said US Treasury Secretary Tim Geithner. “In financial crises, it is more risky to act gradually and incrementally than to act with bold force”. Diplomats say Mr Geithner’s plan to use the ECB as a guarantor of eurozone sovereign bonds was dismissed out of hand, while the EU failed to offer clear assurances that bank recapitalisation would be carried out with sufficient speed and scale to halt an incipent run on the system. Olli Rehn, the EU’s economics commissioner, said Brussels will announce a “very serious plan” over come days to beef up banks and strengthen the firewall against contagion. German foreign minister Guido Westerwelle politely told the US to mind its own business. “I cannot understand some of the comments of our American friends. You can’t solve a debt crisis with more debt,” he told Bild Zeitung. Germany's finance minister says private holders of Greek government bonds must accept bigger losses to achieve "a durable and sustainable solution" for Europe's debt crisis. Wolfgang Schaeuble told German public broadcaster ARD on Sunday that an agreement struck in July when banks and other investors agreed to renounce on 20 percent of their Greek debt must be renegotiated. He says the private sector's contribution to a reduction of Greece's debt burden "will probably have to be higher." The Institute of International Finance, a global bank lobbying group, says its managing director Charles Dallara is in talks with officials from the 17-nation eurozone about the July agreement. Spokesman Frank Vogl declined to elaborate, but the group's leadership has so far rejected accepting bigger losses.

The European Central Bank (ECB) has done all it could to halt the spread of the European debt crisis and protect the financial system, and now it's up to governments to do their part, outgoing ECB President Jean-Claude Trichet says. "I think that the ECB has done all it could to be up to its responsibilities in exceptional circumstances…The ultimate backstop is, of course, the governments. To do anything that would let governments off their responsibilities would be a recipe for failure,” Trichet tells the Financial Times. Further economic integration among eurozone countries will be needed to end the current crisis and prevent new ones, says Trichet, whose eight-year terms ends later this month. "I think that we are experiencing history in the making. My sense is that no country, no individual, no leader will take the responsibility of going backwards. That’s the reason why I am confident." Europe remains at risk of falling back into recession in wake of the debt crisis, caused by fears that Greece may default and take the continent's financial system down with it. The ECB has cut interest rates and held them at 1.5 percent and some European monetary authorities say there should be no rush to raise them, as inflation remains at bay. "I expect inflation to drop below 2 percent next year," says Jozef Makuch, Slovakia's central bank chief, according to Reuters. "Negative gross domestic product can't be ruled out if downside risks materialize."

The European Banking Authority (EBA), was conspicuous by its silence

Nicolas Sarkozy, the French president, and Angela Merkel, the German chancellor, will meet in Berlin on Sunday to debate whether a government must empty its pockets to prop up its country's struggling banks, or if the euro region's shared rescue fund can be deployed outside a full-blown emergency. one notch to A+ from AA- and cut Spain's by two rungs, to AA- from AA+, citing a worsening of the eurozone's debt crisis. "A credible and comprehensive solution ... is politically and technically complex and will take time to put in place," it warned.
A string of European banks, including the UK's Royal Bank of Scotland and Lloyds TSB, saw their credit ratings downgraded on Friday, highlighting the pressure on politicians to agree coordinated action to recapitalise the sector.
Overnight deposits at the European Central Bank (ECB) made by eurozone banks reached their highest this year for the fifth consecutive day as banks become less willing to lend to each other, a warning signal of a credit crunch.
The European Commission is expected to offer an outline of a plan to member states before the deadline of October 17, when EU leaders meet for a Brussels summit.

Fitch Ratings on Friday issued twin cuts to two of the euro zone's largest economies as it downgraded its foreign and local currency ratings on Italy and Spain. The cut on Italy—to A-plus from double-A-minus—leaves the ratings four steps down from the coveted triple-A designation. The outlook is negative. Alongside a broader debt crisis sweeping the euro zone, Fitch noted that Italy's high level of public debt and low rate of potential growth renders the regions' third-largest economy especially vulnerable to external shocks. On Tuesday, Moody's Investors Service slashed Italy's government bond ratings by three notches, citing a fragile market mood and mounting political uncertainty that could make raising debt more difficult. In a statement, the Italian government said the downgrade by Fitch was expected and "above all a reflex of an uncertain climate that is sweeping the euro zone." Pointing to Spain, Fitch lowered its foreign and local currency ratings two notches to double-A-minus from double-A-plus, pushing the ratings three steps down from triple-A. As cause for the cut, Fitch also cited an intensifying euro-zone crisis, adding that the firm expects Spain's annual economic growth to remain below 2% through 2015 and unemployment to remain high. Meanwhile, Fitch said its ratings on Portugal remain on watch for downgrade, and it intends to resolve its review in the fourth quarter, The review will look at the country's 2012 budget, risks to the banking system and its medium-term economic and fiscal prospects, among other things. Its foreign-currency rating is currently triple-B-minus, which is the lowest level of investment-grade territory.

London, 07 October 2011 -- Moody's Investors Service has today downgraded the senior debt and deposit ratings of 12 UK financial institutions and confirmed the ratings of 1 institution. This concludes its review of systemic support assumptions from the UK government for these institutions initiated on 24 May 2011. The downgrades have been caused by Moody's reassessment of the support environment in the UK which has resulted in the removal of systemic support for 7 smaller institutions and the reduction of systemic support by one to three notches for 5 larger, more systemically important financial institutions. According to Moody's, announcements made, as well as actions already taken by UK authorities have significantly reduced the predictability of support over the medium to long-term. Moody's believes that the government is likely to continue to provide some level of support to systemically important financial institutions, which continue to incorporate up to three notches of uplift. However, it is more likely now to allow smaller institutions to fail if they become financially troubled. The downgrades do not reflect a deterioration in the financial strength of the banking system or that of the government.The rating actions include a one-notch downgrade of Lloyds TSB Bank plc (to A1 from Aa3), Santander UK plc (to A1 from Aa3), Co-Operative Bank plc (to A3 from A2), a two-notch downgrade of RBS plc (to A2 from Aa3) and Nationwide Building Society (to A2 from Aa3); and downgrades of one to five notches of 7 smaller building societies. The ratings of Clydesdale Bank were confirmed at A2 (negative outlook).

As outlined in the May press release, we have reviewed the standalone ratings of all entities prior to concluding on the debt ratings. A separate announcement today covers the upgrade of the standalone rating of Co-Operative Bank to C- (mapping to Baa1 on the long-term debt scale) from D+ and earlier announcements cover the upgrades of the standalone ratings of Santander UK, Nationwide, Yorkshire, and Principality Building Societies. A detailed summary of the rating actions and the current levels of systemic support for UK financial institutions is available here http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_136526.
Separate announcements will follow on entities included in the May 24th review, but not concluded in this action: this includes certain subsidiaries of RBS and Lloyds, as well as Bank of Ireland (UK).

Germany is said to support a move by the European Banking Authority to raise minimum capitalisation levels, a change that would lead to a need for financial support for banks with exposure to Greek or other sovereign debt risk. Mrs Merkel’s comments came as European Union finance ministers asked the European Banking Authority, Europe’s leading bank regulator, to test the strength of banks based on a large writedown of Greek sovereign debt, something many investors have called for. On Tuesday, the International Monetary Fund (IMF) had urged radical changes in the way the eurozone debt crisis was being handled and called for a €100bn to €200bn recapitalisation of European banks. Germany's intervention soothed markets but will intensify pressure on France. France, with banks that are among the most exposed, including its stake in Dexia, is opposed to recapitalisation. Nicolas Sarkozy, the French president, is concerned that the huge sums he might have to pay out could threaten the French AAA sovereign debt rating ahead of elections next year. Mrs Merkel dismissed suggestions that Greece could leave the eurozone and called on the last remaining national parliaments, in Holland, Malta and Slovakia, to approve measures allowing the €440bn European Financial Stability Facility (EFSF) to recapitalise banks and to buy bonds The EU and US are infected with uncontrollable spending, which is, clearly, the only thing that supports our Nanny State governments. We cannot grow out of this mess because government is too big and consumes too much of the economic energy in any state. Germany are still playing for time. This talk is just enough to keep the gravy train for Germany's exporter going with a shaky devalued euro. Germany still enjoys its economic miracle whilst presently inflicting pain on southern europe, Merkle's talk is that, all talk, Germany will not put up any real money.
Time for Germay, Finland, Austria, Netherlands, Luxumburg and perhaps france to leave the Euro.

AUSTRIA - Austrian lawmakers have voted to expand the powers of the eurozone's bailout fund, which is designed to help Greece and other potentially struggling countries deal with their debts. Friday's passage means that Austria guarantees to provide 21.6 billion euros ($29.4 billion) to the fund, compared to 12.2 billion euros previously. If all 17 eurozone nations agree to increase their share, the fund will have 440 billion euros ($600 billion) at its disposal. Parliament's backing had been expected, with the governing center-left coalition supported by the opposition Greens in backing the measure. Only two rightist parties opposed the bill. Austria's endorsement comes a day after German parliamentarians approved beefing up the so-called European Financial Stability Facility.

"Germany neither intends nor wishes to interfere in the internal affairs of Austria, to annex Austria, or to conclude an Anschluss."
Adolf Hitler - 21st May 1935