Forexopportunity » Forex Market

Other EU Nations May Need Bailouts

admin — Mon, 26 Apr 2010 19:56:07 +0000

Harvard Professor says More EU Nations Will Need Bailouts

Former IMF economist and Harvard professor Kenneth Rogoff said that Greece will in all likelihood not be the last EU member to need a bailout. Rogoff said that Ireland, Spain and Portugal are “conspicuously vulnerable.” Rogoff told Bloomberg, “It’s more likely than not that we’ll need an IMF program in at least one more country in the euro area over the next two to three year. The budget cuts needed in Europe in many countries are profound.” Irish, Spanish and Portuguese bond yields rose and investors remained concerned about massive deficits in the three EU member nations. Last Friday Greece requested the activation of a 45 billion-euro ($60 billion) EU/IMF rescue package. All three EU countries have the highest debt to GDP ratios in the euro zone. Ireland’s deficit was 14.3% of GDP followed by Spain at 11.2% and Portugal at 9.4%. Currently Greece’s debt to GDP is 13.6%, the second highest in the euro zone. Rogoff said that the chances of other EU members needing a bailout is, “better than 50-50” and expects Greece to need more money than the original aid package provides.

Greece Needs More Austerity Measures says German Chancellor

The euro fell against most major currencies on investor concerns that the Greek bailout will not prevent Greece from defaulting. The euro fell to its lowest level since January after German Chancellor Angela Merkel said that Greece will have to adopt even more austerity measures to obtain German approval for the EU aid package. Alan Ruskin of Royal Bank of Scotland Group Plc stated, “The market doesn’t like the way the Germans are talking. There’s a complete lack of confidence in Greece. Worse and more worrisome from a euro standpoint is that contagion is continuing afoot.” Greek bonds were hammered and the premium investors are demanding to hold Greek debt exceeded 12%. The dollar advanced on the yen as investors speculate that the US Federal Reserve will withdraw stimulus measures as US recovery gathers steam.

Euro May Fall Below $1.30

According to some analysts the euro will fall below $1.30 this year if the Federal Reserve raises interest rates sooner than European policymakers. Mansoor Mohi-uddin, a Singapore currency strategist stated, “If the Fed does hike before the European Central Bank and the banks of Japan and England, the dollar will become a growth currency again rather than a safe haven. This suggests euro-dollar and pound-dollar remain at risk in 2010 of falling well below our three-month targets of $1.30 and $1.48, respectively.”

Greece May Need Further Austerity Measures

admin — Tue, 20 Apr 2010 23:47:32 +0000

Juncker Says Greek Austerity Measures ‘Ambitious and Credible’

Greece could face pressure to implement even more austerity measures when representatives of the EU, ECB and the IMF meet with the Athens government on Wednesday. The meeting was rescheduled due to disruptions in air travel caused by the massive ash cloud from an Icelandic volcano eruption. Eurogroup Chairman Jean-Claude Juncker told the Greek financial website Euro2day that 2010’s austerity measures are “pretty ambitious and look credible.” Juncker further stated, “During our talks with the troika (European Central Bank/European Commission/International Monetary Fund) on the Greek package, the possibility of new measures will be discussed.” The head of Greece’s employers’ association said he expects more cuts and newspapers predicted that tens of thousands of state contractors will find themselves without work. Most experts say that the IMF will demand further austerity measures as a condition for aid. Vassilis Korkidis, president of Greek Confederation of Trade, stated, “The IMF will certainly demand new measures for 2010, effectively proving that the current stability plan is not sufficient. The strategy of domestic deflation will plunge us further into recession.”

Greek Bond Spreads at Record Levels

Should the ash cloud continue to disrupt air travel a spokesman for the European Commission said that participants may hold a video conference. The IMF said the talks should last about fifteen days and any agreement reached would be finalized in a matter of days. On Monday Greek Finance Minister George Papaconstantinou said, “These talks are very important because they will make it possible for us to move very fast if the Greek government decides on the activation of the mechanism.” Juncker said the aid package provided by the EU and IMF would be on common terms. Juncker stated, “In no way will there be different terms from the euro zone and other ones from the IMF.” High borrowing costs are hampering Greece’s ability to finance its debt in a sustainable manner. On Monday the premium investors are demanding to hold Greek debt instead of German Bunds hit a record 482 basis points, up 40 points from Friday’s close. Juncker tried to reassure investors and stated, “What I must say is that the euro zone will assume its responsibilities. We have said it many times, there is European money when it becomes necessary.”

Borrowing Costs Driven by Speculation

Billionaire investor George Soros said that Greece’s high borrowing costs are being driven by speculation. On a news show Soros said that it will probably be necessary for Greece to tap the loan package. Soros stated, “I think it is necessary because the market interest rate is really far too high to make it possible for Greece to meet the conditions that are required of it.”

Greece to Decide on EU/IMF Aid Soon

admin — Sun, 18 Apr 2010 00:07:34 +0000

Most Believe Greece Will Seek Aid

Greece will decide sometime during the next few weeks whether to activate the loan mechanism agreed on by EU finance ministers last Sunday. On Monday the Athens government will begin talks with EU, ECB and IMF officials to clarify details of the agreement. Greek Prime Minister Papandreou told reporters, “We will have to make a decision about whether we activate this mechanism in the next few weeks.” Most investors believe Greece will seek outside aid as high borrowing costs are hampering Greek efforts to solve its fiscal crisis. The ambiguity surrounding the loan mechanism has caused investor concern and some are worried that the parliamentary approval required in some euro zone nations could prompt delays in the implementation of the loan mechanism. Some are worried that Germany, where political opposition to the aid package is widespread, could delay approval unnecessarily. Greek Finance Minister George Papaconstantinou indicated that it would take “one week, two weeks maximum” for the implementation of the loan mechanism. Papaconstantinou stated, “We are quite comfortable that once the framework is in place, meaning the program together with the financing elements, we will be able to move very fast.”

Loan Package Not a ‘Bailout’ Says Papandreou

In March the Athens government cut the pay of about 600,000 public sector workers raised taxes and cut pensions. The austerity moves prompted widespread unrest throughout Greece complete with strikes, protests and demonstrations. The European Commission said that Greece should not need to implement more austerity measures if the country taps the aid package. Greece’s central bank governor said the country should speed up deficit cuts by closing several “loss-making and spendthrift” government agencies. Bank of Greece Governor George Provopoulos told reporters, “This is how we will manage to positively please the markets by ourselves, by reducing the deficit by 5 percent (of GDP), instead of the 4 percent we have pledged for in the Stability and Growth Plan.”Prime Minister Papandreou said the loan package was not a bailout and but would give Greece time to solve its problems. Papandreou stated, “It gives us the room to maneuver to make the necessary changes to make our economy a viable one.”

Risk Aversion Pushes Dollar Higher

Concerns about how Greece will resolve its debt crisis has pressured the euro since late last year. The crisis has prompted a rise in risk aversion which has benefitted the US dollar and the yen. On Friday the euro fell 0.3% vs. the US dollar to $1.3533 and the euro fell 0.8% against the yen. Markets are closely watching this weekend’s EU conference in Madrid and will be monitoring Monday’s talks between Greece and EU/IMF officials.

Greece Calls For Talks, May Seek Aid

admin — Thu, 15 Apr 2010 21:39:43 +0000

Markets Not Convinced by Aid Package

The euro fell on Thursday (April 15th) as Greece’s borrowing costs rose prompting concerns that Greece will have trouble servicing its debt. The Greek/German bond spread widened to near record levels putting the troubled euro on track for the largest fall vs. the US dollar in three weeks. EU finance ministers agreed last Sunday on a loan package of 30 billion Euros from the EU and an additional 15 billion Euros from the IMF. Boris Schlossberg of GFT in New York stated, “Markets are not pacified by the bailout package agreed upon last weekend and still consider Greece to be a high default risk.” Recent news reports state that Greece has asked for talks with the EU and the IMF. In a letter sent to the European Union, the European Central Bank and the IMF, Greek Finance Minister George Papaconstantinou asked for talks on “a multi-year program of economic policies.” Papaconstantinou also said that the multi year program “could be supported with financial assistance from the euro-area member states and the IMF, if the Greek authorities were to decide to request such assistance.”

IMF, European Central Bank, European Commission to Meet in Athens

The International Monetary Fund said it will send representatives to Athens on Monday and would be joined by representatives from the European Commission and the European Central Bank. Representatives of the Athens government and IMF officials said that Greece has not decided whether to ask for emergency loans. IMF spokeswoman Caroline Atkinson said that the IMF will focus on Greek policies that could prompt a request for outside aid. Atkinson stated, “When we’re discussing with them the policies that could form the basis, at a certain point that could mutate into a discussion for the (financial) arrangement.”Some analysts say that borrowing costs faced by Greece are unsustainable and that Greece may have no choice but to seek outside aid. Ben May of Capital Economics stated, “The fact that they are asking for clarification on various issues about the mechanism suggests that they are seriously considering activating the package.”

Loans at Below Market Rates

Greek Prime Minister George Papandreou told his cabinet that the nation’s debt crisis, “has created psychological terrorism in our economy and among Greek citizens and we have to deal with that. We must ensure safety and confidence.”EU governments have said that they would provide Greece with three year emergency loans at a rate of 5% which is less than the 7% demanded by investors to hold Greek debt. The EU decision to provide loans would have to be a unanimous decision by all 16 EU nations and markets are concerned that Germany may block or delay the loans.

Greek Aid Package Short Term Solution Say Economists

admin — Tue, 13 Apr 2010 23:53:33 +0000

EU Remains Divided Over Greek Debt Solution

Some economists believe that the EU/IMF aid package for Greece only offers a short term solution for Greece’s massive debt problems. Financial markets had a positive reaction to last Sunday’s teleconference of EU finance ministers and the euro gained slightly on Monday. The agreement has reduced investor fears of a Greek default which would put the euro under even more pressure and could easily undermine the credibility of the multi nation currency. Some economists say the euro zone remains divided and point out that Sunday’s conference was the third attempt by the EU to boost investor confidence in Greece but that the conference did not address slow European growth and other economic problems in the euro zone. Simon Tilford of the Center for European Reform stated, “This is not a defining moment for the euro zone. What is concerning is that at every stage in recent weeks the EU has been resisting the inevitable and has been forced into action by financial markets. The immediate danger is averted but very little has been done to address longer-term problems. This is not a blueprint for additional crises. It might work for another small country like Portugal but not a big country like Italy or Spain.”

Euro Zone Image Damaged

Should Greece request aid the EU has agreed to a 30-billion-euro ($41 billion USD) three year loan package at 5% interest and the International Monetary Fund would provide 15 billion Euros during the first year. The credibility of the euro zone has already been damaged say several economists by the EU disagreement on how to solve Greece’s debt problems. Some economists fear the debt crisis could spread to other vulnerable EU members. Cinzia Alcidi of the Brussels based European Policy Studies think tank stated, “The image of the monetary union is weakening. The way the Greek crisis is managed and resolved will be crucial to the future of the euro zone and, if the euro survives, to the EU’s future.”

Germany Drops Opposition

The result of Sunday’s conference was a compromise by EU members that Germany would drop objections to Greece receiving loans at below market rates. Previously German Chancellor Angela Merkel had voiced strong objections to any bailout for Greece due to widespread opposition to any Greek bailout by the German public. Merkel is wary of offering any loans in advance of German elections on May 9th. Of Merkel’s previous objections Ulrike Guerot of the European Council on Foreign Relations stated, “I don’t see how she could do a U-turn on what she has been saying until now and release aid before the May 9 election.” In addition to massive deficits Greece also faces falling tax revenues and growth contraction which may make it difficult for Greece to rely solely on market based solutions.

EU Teleconference to Hammer Out Greek Aid Details

admin — Sat, 10 Apr 2010 23:50:30 +0000

EU Finance Ministers to Clarify EU/IMF Agreement

Sunday European finance ministers will hold a teleconference to detail how the rescue mechanism for Greece will work. The Finance ministers will be joined by the European Central Bank and the European Commission. At the present time Greek leaders have not asked the EU to activate the rescue mechanism but consider Sunday’s teleconference important. Greek spokesman George Petalotis said, “Greece has not asked (for) the activation of the mechanism. “ He added” It is an important step to detail the terms of the mechanism.” Markets have viewed the EU/IMF agreement as opaque and short on details. Although Greece has not asked for aid and has said repeatedly that it prefers a market based solution the teleconference is meant to insure the safety net will be ready if needed. A spokesman for Eurogroup President Jean-Claude Juncker stated, “There will be a teleconference on Sunday on Greece in the usual Eurogroup composition. Greece has not asked for help, but you have to be ready if they do”.

High Borrowing Costs Hammer Greece

Markets have hammered Greek bonds and bank stocks during the past week driving the heavily indebted nation’s borrowing costs higher. High borrowing costs could easily push Greece to ask for aid. Greek Prime Minister George Papandreou said in a newspaper interview that the Athens government may be forced to ask for a bailout if markets remain skeptical. Papandreou told reporters, “The question remains whether this mechanism will convince markets just as a gun on the table. If it does not convince them, it is a mechanism that is there to be used.” Greek Finance Minister George Papaconstantinou told reporters that clarification about the details of the EU/IMF agreement is needed. Papaconstantinou said, “The aid mechanism is a very important safety net. We have repeatedly said that it was crucial to create and detail it, but we hope and believe that Greece will not use it.”

Greek T Bill Auction Tuesday

EU members have promised to implement a loan package to Greece should market based solutions fail. On Tuesday Greece will auction 1.2 billion Euros ($1.6 billion USD) of 6 and 12 month T Bills but EU officials would not comment on the timing of Sunday’s teleconference. On Friday Papaconstantinou told reporters, “Until now all (bond) issues have been oversubscribed, that shows that despite the turbulence in bond markets there is interest and trust from investors. Our target remains to have better rates and borrowing terms.” To add to Greece’s troubles Fitch ratings agency downgraded Greece’s rating to BBB- , just above ‘junk’ status.

Dollar Gains in Advance of Jobs Report

admin — Tue, 30 Mar 2010 23:18:49 +0000

Investors Remain Nervous Over Greece’s Debt Crisis

The US dollar was mixed against most major currencies in advance of Friday’s upcoming jobs report and continuing euro jitters. Investors see Greece’s high borrowing costs as evidence that the beleaguered nation’s debt troubles are far from over. Greece was able to raise money from bind sales but financial markets demanded higher interest rates for Greece’s debts despite last week’s agreement between the EU and the International Monetary Fund. The EU has agreed to provide two thirds of funding should Greece need it and the IMF has agreed to provide the other third. The Athens government has repeatedly said that it does not need outside financing and has implemented austerity including tax hikes and a cut in pensions. Investors are waiting to see if the EU IMF agreement can restore euro confidence and erase concerns about Greece’s massive debt crisis. The euro has fallen more than 6.5% so far this year and investors are starting to question the sustainability of the multi nation currency that combines economically disciplined countries in northern Europe with free spending southern European nations. In addition to Greece’s woes Portugal’s rating was downgraded by three major ratings agencies. Michael O’Sullivan of Credit Suisse stated, “The issue of country indebtedness is going to be with us all year and next year on a kind of revolving basis.”

Bond Issue Fails to Meet Expectations

Greece’s recent bond sale gave the troubled nation little respite due to less demand than previous bond issues. The 7 year, 5 billion euro ($6.72 billion USD) Greek bond issue was the first test of market confidence after last week’s announcement of an EU IMF rescue plan. The Greek bonds carried a coupon of 5.9% twice what Germany pays on 7 year bonds. Fitch ratings agency said in a statement, “The (euro zone) statement was positive for Greece’ credit profile by enhancing its near-term financing options and flexibility as well as reaffirming the support of euro area member states for economic and fiscal reform in Greece.” Fitch continues its negative outlook for Greece and referring to last week’s agreement and cited a “lack of clarity over the fiscal financing strategy”.

No Indications Greece Will Ask For Aid

The head of the International Monetary Fund has not had much to say since the agency was assigned a subordinate role in the Greek rescue plan. Managing Director Dominique Strauss-Kahn said that there are no immediate indications that Greece would need the agency’s help. Strauss-Kahn also said, “We will move and we will say something only when Greece asks us.”

EU and IMF Aid For Greece Likely

admin — Thu, 25 Mar 2010 21:42:06 +0000

Euro Gains in Early Trading

The euro pulled back from a ten month low against the US dollar in advance of the EU summit where European leaders are expected to discuss aid for Greece. The euro gained after Luxembourg Prime Minister Jean- Claude Juncker said that aid for Greece will consist of a combination of IMF “instruments and bilateral loans” designed to aid Greece. Differences in the EU still exist over whether to offer EU aid to Greece and what role the IMF will play. Some experts believe that turning to the IMF could hurt the credibility of the euro zone and create the impression that the EU is incapable of dealing with its own internal problems. Matthew Strauss of RBC Capital Markets in Toronto stated, “The uncertainty is hurting the euro. Turning to the IMF could complicate the situation because IMF assistance comes with a number of strict conditions, both on the fiscal and monetary sides. Net-net, it’s negative for the euro if the euro zone cannot solve the problem on its own.”

Investors Hesitant

In early New York trading the euro gained 0.3% trading at $1.3350. Investors remain hesitant in advance of the EU summit. Niels Christensen of Nordea in Copenhagen said, “There have been some very rapid moves in the last 48 hours and everyone is a bit hesitant now. People want to get the EU meeting out of the way before trying to push euro/dollar lower again.” On Wednesday ratings agency Fitch downgraded Portugal’s sovereign debt rating reminding investors that Greece’s problems could spread to other Euro Zone nations.

DisagreementAmong EU Leaders

As head of Europe’s largest economy German Chancellor Angela Merkel is pushing for an IMF solution for Greece’s debt crisis. Some EU leaders disagree saying that the EU should handle its own problems. Spain’s Jose Luis Rodriguez Zapatero believes that an internal solution will lend credibility to the EU and its multi nation currency. Most observers believe that any solution to Greece’s problems will involve a combination of EU loans and IMF aid. Speaking to reporters Greek Prime Minister George Papandreou stated, “We will move ahead whatever decisions are taken. Greece is determined to deal with its own problems,” he said, adding that “we are on the right track.” The Athens government has implemented tax hikes and wage cuts in an attempt to reduce Greece’s deficit to 8.7% of GDP this year. Greece’s 2009 deficit amounted to 12.7% the highest in the euro’s history.

Proposed Greek Aid Package Causes EU Rift

admin — Thu, 18 Mar 2010 23:57:12 +0000

Greece May Turn to IMF For Help

Global stocks fell on Thursday and the euro fell vs. the US dollar as concerns over Greece’s debt crisis persist. Dow Jones Newswire reported that an unnamed Greek official said that Greece is increasingly pessimistic about receiving aid from the European Union and may turn to the International Monetary Fund for help in solving the nation’s massive deficits. Greek Finance Minister George Papaconstantinou described the report as “ridiculous” and said that most options are still open. Ashraf Laidi of CMC Markets in London stated, “Three months have elapsed since the last credit downgrade of Greece and (there is) still no credible solution on how it will obtain 56 billion euros to meet its short-term debt obligations.” On Thursday Greek Prime Minister George Papandreou told the European Parliament that if Greece has to continue to borrow at high rates the recent budget cuts will not be sustainable. Papandreou also said that Greece will not default.

Germany Supports IMF Solution

Greece is counting on EU leaders to come up with some kind of mechanism to aid the indebted nation at the upcoming EU summit next week. Some EU countries, most notable Germany, are skittish about making any promises regarding aid to Greece. The chief financial spokesman for German Chancellor Angela Merkel’s party, the Christian Democratic Union, said that Greece should seek aid from the IMF. German lawmaker Michael Meister stated, “We have to think about who has the instruments to push for Greece to restore its capital-markets access. Nobody apart from the IMF has these instruments.” Although Greece would prefer an EU based solution the Athens government said it is keeping “all options open” as long as Greece is forced to borrow “at an unreasonably high interest rate.” Antje Praefcke of Commerzbank stated, “This just highlights the uncertainty surrounding the Greece issue. There seems to be no consensus in the euro zone, which is undermining confidence and that is what is weighing on the euro today.” A clear majority in the Dutch Parliament opposed EU aid to Greece and also thinks Greece should turn to the IMF for a solution to their debt problems.

Germany’s Hardball Stance

Some experts believe Germany will eventually soften its stance. Paul Hofheinz of the Lisbon Council, a Brussels research group, stated, “The Germans see the same thing that all of us see: that at the end of the day, they’re going to be part of the solution and it’s going to cost them something. When push comes to shove, I don’t think anyone doubts that the Germans will be part of this settlement. But why should they play easy?”

Dollar Falls On Fed Statements

admin — Tue, 16 Mar 2010 23:45:32 +0000

Fed to Leave Rates at Historic Lows

The US dollar fell against most major currencies after the Federal Reserve repeated their pledge to keep interest rates ‘exceptionally low’ for an ‘extended period.’ The Fed did say that emergency measures to support the troubled housing market will end this month as planned. The Fed also said that the US economy has “continued to strengthen” but that “housing starts have been flat at depressed levels” and “employers remain reluctant to add to payrolls.” Fed Chairman Ben Bernanke is trying to decide how long to hold interest rates down to generate a solid recovery. Diane Swonk of Mesirow Financial in Chicago stated, “The recovery continues and remains on track to be subpar, at best. Businesses are finally stepping up to the plate and spending their cash flow, but the housing market and prospects for a broader-based recovery remain dim.” A recent report by the Commerce Department showed that housing starts were down 5.9% in February and the Obama administration told congress that unemployment is likely to “remain elevated for an extended period.” Many are starting to believe the phrase ‘extended period’ is political speak for ‘we don’t really know. ‘Speaking about the ‘extended period’ language David Tien of Fischer Francis Trees & Watts said, “The ‘extended period’ language means about three to four meetings of no change. This supports emerging market and peripheral currencies.”

EU Will Aid Greece

The euro gained on the greenback and the yen after EU finance ministers devised strategies for loans to Greece which has been a drag on the euro. Greece’s Prime Minister George Papandreou’s government is attempting to close budget deficits which are four times the 3% that EU rules allow. An unnamed EU official said that any aid to Greece would probably come from EU governments pooling funds for direct loans to Greece.

Commodity Linked Currencies Gain

Rising risk sentiment pushed the Canadian dollar also known as the ‘loonie’ to a two year high vs. the US dollar. Rising oil and gold prices helped to push the Loonie, the S African Rand and the Aussie dollar higher in currency markets. Almost half of all Canadian exports are raw materials including substantial quantities of oil. Precious metals account for about one fourth of S Africa’s exports. Recent reports showing a rise in Chinese exports benefitted the Aussie dollar. Australia is one of China’s chief suppliers of raw materials. So far this year the loonie has gained 3.9% vs the US dollar. Many experts say the Fed’s statement prompted investors to seek higher yielding assets and currencies. Jack Spitz of National Bank of Canada stated, “The statement’s likely to put a bid to commodities and by extension commodity currencies, most notably the Canadian and Australian dollars. Ultimately, by continuing to maintain interest rates low it will continue to promote growth and what we get with that is seen through rising equities.”