BRUSSELS |
BRUSSELS (Reuters) - Euro zone finance ministers are scheduled to hold a teleconference on Sunday evening to discuss the outcome of Greek elections, two euro zone officials said on Thursday.
Greece holds a parliamentary election on Sunday and polls show that the leftist SYRIZA party, that rejects the terms of the euro zone bailout for Athens, is neck-and-neck with the pro-bailout New Democracy party.
If STRIZA won the election and Greece were to tear up the terms of the bailout, France and other euro zone countries have warned that Greece could face leaving the euro zone and returning to the drachma currency.
One euro zone official said that the main concern, if SYRIZA overwhelmingly won the election, was the risk of large capital outflows from Greece if depositors worry their savings in euros could later be frozen or converted into drachmas.
"It is not even about a bank run on Monday morning after the elections. People can now log on to internet banking and make transfers on Sunday evening as well," a third euro zone official said, explaining the rationale of the ministerial call.
If a SYRIZA victory sparked panic about a return of the drachma, the immediate action would come from the country's central bank, backed by the European Central Bank.
The Greek central bank has the ability to directly inject cash into the country's banks, if savers rush for their money, in the form of Emergency Liquidity Assistance, which although provided by the ECB, would be underwritten solely by Greece.
Top ECB officials and staff would also keep a close watch from Frankfurt and keep in touch with other euro zone central banks, in case there were signs that people in other countries such as Spain were starting to pull their cash from banks.
Among the euro zone contingency plans for a possible Greek exit from the euro are the suspension of the Schengen passport-free zone and imposing capital controls and limiting ATM withdrawals.
(Reporting By Jan Strupczewski in Brussels and Andreas Framke in Berlin, editing by Diana Abdallah)
FOREX-Euro advances on possible central bank action - Reuters UK
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No finance limit forces Obama into fame game - Sydney Morning Herald
Illustration: Simon Letch
This morning, Australian time, the US President, Barack Obama, is due to attend a fund-raising dinner party at the New York home of movie stars Sarah Jessica Parker and Matthew Broderick. Co-hosted by the editor-in-chief of Vogue, Anna Wintour, the price of a ticket was a reported $80,000 a head. Not a good look for the President in the week the US Federal Reserve reported that average American wealth had plummeted to $77,300 in 2010 - down from $126,400 in 2007.
As the US economy is underperforming, unemployment is officially 8.2 per cent and confidence is, at best, wavering, this would not seem to be the time to be hanging out with high-wattage wealthy celebrities. But the President needs the money.
Obama and the now certain-to-be-anointed Republican candidate, Mitt Romney, have opted to not accept public financing for the 2012 presidential election campaign. Previously, candidates would raise money to boost their electoral fortunes before the party conventions, but after that would accept the benefits - and constraints - of public funding.
Now, after a Supreme Court decision that effectively deregulated campaign financing (undoing all those decades of hard work to reform what had arguably been a pretty corrupt system), the bar has been raised significantly.
More money is going to be needed. And there are now virtually no limits on how it is raised or spent.
This presidential election is, according to Obama's senior campaign strategist, David Axelrod, going ''to test the limits of what money can do in politics, because there's gonna be so much of it concentrated in so few states'', as he told New York magazine's John Heilemann earlier this month.
And Obama is now falling behind in the fund-raising stakes. Although at the end of March, when he had raised about US$197 million, he was way ahead of the then-frontrunner Republican contender Romney, who had just $87.5 million, the other Republicans have since coalesced behind Romney - and so have their donors.
Just this week, billionaire Nevada casino owner Sheldon Adelson, who had been backing Newt Gingrich, kicked in $10 million to Romney's Restore Our Future super-PAC (political action committee) and Forbes magazine reports he may well follow that with the $100 million he had promised Gingrich.
Last month, Romney raised $76.8 million to Obama's $60 million, and he is pulling ahead with the very wealthy.
Wall Street has spurned Obama, so far giving Romney $37.1 million and Obama only $4.8 million. Ominously, these sums include donations from 19 people who gave to Obama in 2008 but not this time. Forbes says 32 billionaires, or 8 per cent of their 400 rich list, have donated to Romney and more will follow.
So while Obama continues to pursue the grassroots online fund-raising that was so successful in 2008, for the really big bucks he is being forced to take his begging bowl to three different and potentially risky sources of funds: Hollywood, Silicon Valley and rich gays. No one in the know doubts that the President's decision to support gay marriage was made with an eye to the pink dollar. A few days after the decision, a Hollywood fund-raiser hosted by George Clooney and including high profile gay supporters, raised $15 million.
This strategy is risky because it requires Obama to be hanging out with the mega-rich at a time when his political message is directed to economically distressed Americans, who are striving to return to being middle class. It could easily backfire on him.
The now pretty much united Republicans are trying to portray Obama as more focused on fund-raising than on governing. Given he has done 160 events so far (compared with George Bush's 74 at this time in the 2004 race), including six in just six hours in Maryland last Tuesday, this will not be a hard case to make.
A few weeks ago it was unimaginable that America's first black president may be in danger of not winning a second term but that prospect is now causing apprehension and even panic among Democrats.
The failed recall of the Republican governor Scott Walker in the highly unionised and overwhelmingly Democratic state of Wisconsin is being seen as a huge wake-up call that the party cannot assume that it will win in the presidential election in November.
Consolidated polling is showing just a two-point difference between Obama and Romney. Even among the three key demographics Obama felt confident of holding - women, young people and Latinos - the numbers are starting to close.
If Romney chooses Latino Florida senator Marco Rubio as his running mate, as a straw poll among party conservatives advocated this week, they could be a formidable team able to make significant inroads into the much-needed Latino vote in states such as Florida and Arizona.
Obama shows no signs of improving his ticket would he ditch the Vice-President, Joe Biden, although refreshing his team would seem to be a no-brainer in a tight electoral race. If this is not the time to place the extremely popular Hillary Clinton on the ticket, when is?
Obama's team foolishly set the bar high by leaking their expectation that their guy would be the first in presidential election history to raise $US1 billion and that Priorities USA Action, his super-PAC, would rake in another $100 million. Instead, Obama is struggling to reach the revised target of $750 million and his PAC, according to New York magazine, has just an embarrassing $10 million.
So we will be seeing a lot more of Obama with movie stars and the super-rich in coming months. The only question is whether the money raised will be at the expense of his political credibility - and his electoral prospects.
Twitter: @SummersAnne
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FOREX-Euro firm on hopes of central bank action, soft US data - Reuters UK
* Cenbanks' liquidity pledge triggers short-covering
* Soft US data keeps hopes of Fed easing alive
* Euro looking better on charts, rises above Ichimoku kijun line
* Dlr/yen trapped in range, BOJ seen on hold
TOKYO, June 15 (Reuters) - The euro held firm against the U.S. dollar on Friday, reflecting hopes of central bank action to counter potential fallout from Sunday's crucial election in Greece, and after disappointing U.S. economic data.
G20 officials told Reuters that central banks from major economies stand ready to take steps to stabilize financial markets by providing liquidity and preventing a credit squeeze if the Greek election result roils markets.
New claims for U.S. state jobless benefits rose for the fifth time in six weeks and consumer prices fell in May, opening the door wider for the U.S. Federal Reserve to further ease monetary policy.
These factors prompted unwinding of market players' massively short positions on the euro, though worries about Spain's troubles in financing its debt remained in place.
The euro traded at $1.2628, maintaining Thursday's 0.6 percent gains and edging near a high of $1.2672 hit right at the beginning of the week in a knee-jerk reaction to the announcement of a plan to support Spanish banks.
While the outcome of the Greek election on Sunday is seen as holding the key in the near-term, the euro's technical outlook is improving, analysts said.
On daily Ichimoku charts the euro rose above major resistance from the kijun line, which stands at $1.2623 on Friday, for the first time since it began declining in May.(The kijun line is the mid-point between the highest high and lowest low of a particular instrument.)
"I'm a bit impressed by the euro's charts today. We may be approaching the time when we have to judge whether the euro's recovery from its bottom on June 1 may become more solid," said Teppei Ino, currency analyst at the Bank of Tokyo-Mitsubishi UFJ.
Analysts at RBC Capital Markets said in report that a close above resistance around $1.2625, its January low, is needed to sustain the euro's corrective rebound.
Traders agree that the euro has scope for further gains if Greece's pro-bailout parties manage to win a majority in Sunday's election.
But as speculators' net short positioning in the euro hit a record high last week, some analysts say even if the leftist coalition, which opposes the bailout, wins, the euro could be resilient.
"The initial reaction would be negative (for the euro.) But what's likely to happen after that is a new government will keep its commitment to the euro and start negotiating with creditors," said Junya Tanase, chief currency strategist at JPMorgan Chase.
"In that case, those euro short positions that have been stemming from fear of Greece's exit will have to be wound back," he added.
Against the yen, the euro stood at 100.27 yen, staying above the 100 yen mark, above which Japanese exporters offers are lined up.
The dollar traded at 79.42 yen, trapped between selling pressure from Japanese exporters above 80 yen and support from the Ichimoku kijun line at 79.10 yen for more than a week.
Participants expect no market impact from the Bank of Japan's two-day policy meeting ending on Friday, from which no policy change is expected.
Commodity-linked currencies also held firm on hopes of more policy support for the global economy, with the Australian dollar staying near a one-month high of $1.0034 hit on Thursday. It last stood at $1.0013. (Editing by Eric meijer)
Fed repaid on Bear and AIG rescue loans - Financial Times
June 15, 2012 12:24 am
Debt crisis: ECB last hope as dam breaks in Spain - Daily Telegraph
Spain is caught in a vicious downward spiral as the property crash accelerates, further undermining the banks and state finances. This in turn is drawing Italy into the fire and threatens to overwhelm the EU's rescue machinery.
"We must have a real circuit breaker," said Sondergaard. "The question is whether the ECB will now blink and go down the route of quantitative easing (QE)".
He said the ECB should slash interest rates by half a point to 0.5pc and "pre-commit" to half a trillion euros of QE over coming months, blanketing the Spanish and Italian bond markets.
Nomura said the ECB must act with overwhelming force rather than engaging in piecemeal bond purchases that fail to restore confidence and have the toxic side-effects of pushing existing bondholders down the credit ladder -- the dreaded effect of "subordination".
"The eurozone has the wrong policy mix across the board. Fiscal policy is too tight; monetary policy is too tight; and the tough regulation of the banks is coming at the wrong time. Together it is all pushing the eurozone to breaking point," he said.
Spanish premier Mariano Rajoy said in a private letter to EU leaders last week that the ECB is the only body with firepower and nimbleness able to contain the crisis at this point.
The pleas have so far fallen on deaf ears in Frankfurt where ECB hawks insist that any such intervention to help EMU's struggling debtors would reduce the pressure for root-and-branch reforms.
The bank said in its June report on Thursday that Spain must make further draconian cuts to meet its deficit target of 3pc of GDP next year. It enraged monetarists by denying yet again that the eurozone faces a serious monetary slowdown or "an abrupt and disorderly adjustment" for banks -- or a credit crunch in layman's language.
"It shows fantastic complacency. They are not complying with their own mandate," said Professor Tim Congdon from International Monetary Research. Critics say that all key measures of the eurozone money supply are now contracting, pushing the whole region into deeper slump. The ECB has missed its 4.5pc growth target for M3 `broad money" by a wide margin.
Mr Spiro said the fast-escalating crisis in Italy may force the ECB to act. Foreigners own half Italy's €2 trillion public debt and they are increasingly shocked by the failure of the EU authorities to halt contagion. "Foreigners haven't been buying Italian bonds, but most have not been selling either. The risk is that they will now start selling en masse," he said.
"Italian banks are under massive financial repression to buy the debt but they are running out of money. The ECB will have to act but it has lost so much credbility already that it will have to buy on a massive scale to make a scrap of difference."
The ECB has already bought over €200bn of Italian, Spanish, Greek, Irish, and Portuguese bonds, justifying it as necessary to ensure the proper "transmission" of monetary policy. The move caused a storm in Germany, prompting the resignation to both German members of the ECB board last year. A chorus of economists have exhorted the ECB to cap Spanish and Italian yields at 5pc or so by pledging unlimited intervention. Yet such a naked rescue of insolvent states would trigger legal challenges in the courts for breach of the EU's no-bailout clause.
Professor Paul De Graue from the London School of Economics said the bank should go ahead anyway and "let the lawyers argue about it for the next ten years."
There are no such constraints on outright QE or money printing by the ECB, in extremis. Monetarists say the bank should buy the bonds of all EMU states to lift the entire region and prevent debt-deflation taking hold in the South.
Fresh data yesterday shows how desperate the crisis is becoming in Spain. The property crash is accelerating. House prices fell at a 12.6pc rate in the first quarter of this year, compared to 11.2pc the quarter before, and 7.4pc in the quarter before that. Prices have fallen 26pc from their peak.
"Fundamentals point to a further 25pc decline," said Standard & Poor's in a report on Thursday. It may take another four years to clear a glut of one million homes left from the building boom.
Mrs Merkel chided the country gently yesterday for letting a "property bubble" spin out of control in the boom years. Her words prompted a furious reaction from Madrid.
Foreign minister Jose Manuel Garcia-Margallo said Spain itself was the victim, flooded with cheap capital from northern European banks. "It is true that Spain and some other countries lived beyond their means but that was because banks from the core made lots of money investing here," he said.
FOREX-Rising Spanish and Italian yields pulls euro lower - Reuters
* Euro cuts gains as Spanish borrowing costs rise
* Italy sells three-year debt at 6-mth high of 5.3 pct
* Investors wary ahead of Greek election on Sunday
By Anirban Nag
LONDON, June 14 (Reuters) - The euro pared gains against the dollar on Thursday as Spanish and Italian bond yields surged, highlighting the risk of euro zone contagion ahead of Sunday's elections in Greece that could lead to the country being pushed out of the common currency.
The euro's outlook may stay bearish after benchmark 10-year Spanish government bond yields hitting 7 percent on Thursday - a level where fellow euro zone members such as Greece and Ireland had to seek international bailouts as it is seen as too expensive in the long term.
The aid deal put together for Spanish banks at the weekend has signally failed to calm the markets, with Italian three-year borrowing costs spiking to 5.30 percent at an auction on Thursday.
The common currency fell to a session low $1.2542 on trading platform EBS, turning lower on the day and off the day's high of $1.25894. It was last trading at $1.2565 with large option expiries cited at $1.2500 which could curtail losses for the time being.
"Spanish yields are creeping up, which clearly indicates that the bank bailout deal will not change anything and they are dragging Italian yields higher," said Stuart Frost, head of Absolute Returns and Currency at fund manager RWC Partners.
"For the euro/dollar, all this means it is on a slippery slope down."
Earlier, the common currency took Moody's downgrade of Spanish government debt to one notch above junk status in its stride.
Many analysts said the euro was likely to trade between $1.24 and $1.27 ahead of Sunday's Greek vote, with investors either reluctant to initiate fresh bearish bets or squaring positions given uncertainty over the election outcome.
Speculators have added to very large bearish bets against the euro in the past few weeks, leaving scope to the euro to stage a short-covering rally if parties supporting austerity and reforms in Greece win at the weekend.
Right now, it is too close to call and a victory for the far-left SYRIZA, which opposes the austerity measures on which Greece's bailout deals are based, would intensify fears of a potential euro zone break-up, and likely push the currency towards recent two-year lows around $1.2280.
A sharp rise in yields on German Bunds, viewed as the euro zone's safest asset, has also raised concerns that the cost of the debt crisis is growing for Germany, the bloc's paymaster. A further rise in German yields would weigh further on the euro, traders said.
SNB REITERATES FRANC CAP
The Swiss franc rose against the euro after the SNB said it was prepared to buy unlimited amounts to defend the 1.20 level. The euro fell to 1.2008 francs on trading platform EBS, from around 1.20196 before the announcement.
Traders said the SNB has been buying lots of euros in recent weeks, stepping up its defence of the cap ahead of the Greek election, which could fuel demand for the safe-haven franc. SNB President Thomas Jordan hinted that capital controls could be introduced if the situation in the euro zone deteriorates and puts more upward pressure on the franc.
"Clearly the SNB is trying to downplay the franc's attractiveness and buy more time. We expect further pressure on the euro/Swiss franc 'floor' in the coming days, especially considering the Greek elections," said Peter Rosenstreich, chief FX analyst at Swissquote Bank, in a note.
Against the yen, the euro eased 0.1 percent to 99.60 , off a session high of 100 yen, with Japanese exporters' bids lined up above that level. The dollar fetched 79.26 yen, off Monday's high of 79.92 yen with expectations of more easing by the Federal Reserve weighing on the greenback.
The New Zealand dollar was up 0.5 percent on the day at US$0.7778, paring gains from Wednesday, when it hit a one-month high of $0.7808.
The kiwi eased after the Reserve Bank of New Zealand said a weak economy and an uncertain global outlook meant rates need to stay at record lows. As expected, the RBNZ kept rates unchanged at 2.5 percent for a 10th straight meeting.
Forex focus: European unity may lie ahead – but for how many? - Daily Telegraph
As HiFX’s Chris Towner says: “Germany is being forced into a corner where it is they who will need to start to give up if they would like Europe to become more unified. The Spanish finance minister is right to say that the battle for the euro will be waged in Spain, but it will be decided in Germany.”
Eurosceptics suspect Germany will use the crisis to usher in a United States of Europe.
“Is there a hidden German agenda? Probably not,” answers Charles Purdy of Smart Currency Exchange. “They have always thought and made clear that greater fiscal unity is a must for the euro – ensuring that each country adopts their fiscal discipline. Up to now the political will has been lacking but if the euro is to survive and the 'weaker’ countries are to benefit from Germany’s strong credit rating then fiscal union will be what Germany expects.”
World First’s chief economist Jeremy Cook believes greater unification will take decades, saying: “Fiscal union is the endgame for the eurozone – a United States of Europe that has centralised fiscal and monetary policy and leadership based from one location. This will take years to set up and will only follow a huge upheaval of the European political landscape.”
However, while the consensus view is that the eurozone will bind closer together, this doesn’t mean that all 17 members will remain in the club.
“It is becoming increasingly clear that some nations can’t remain in the eurozone,” says Richard Driver of Caxton FX. “A stronger eurozone with a fiscal union is the only way the eurozone can survive but this won’t come soon enough for Greece.”
Stephen Hughes of Currencies.co.uk is sceptical, saying, “As a growing number of voices call for greater fiscal union across the eurozone, it’s still by no means a given that this is an achievable path – don’t forget that even the German people have yet to ratify the fiscal compact.
“But, given the depth of the current euro crisis, we are likely to see a more accommodating stance from policymakers in the coming months. What is clear is that any move to greater unity will take time to implement, something Greece certainly doesn’t have. As for Spain, Portugal and Ireland, the jury’s out for them...”
German minister rejects plans to pool eurozone debt - BBC News
The German deputy finance minister Steffen Kampeter has ruled out eurobonds, saying "debt is a national responsibility"
Germany's deputy finance minister has ruled out "eurobond-lite" plans to pool part of eurozone countries' debt.
Speaking exclusively to the BBC, Secretary of State Steffen Kampeter said "debt is a national responsibility".
"I don't see any strategies where we socialise and redistribute the bad political decisions made by some who are over-indebted."
The German government has already ruled out full "eurobonds" for now.
That may disappoint investors on international markets whose hopes had been raised by reports that the Germany might be inching toward the compromise mutualisation plan.
The plan, from Germany's so-called "wise men" group of private economic experts, would let countries with debt above 60% of GDP such as Greece issue eurobonds for debt above that level, which would then be paid down over a maximum of 25 years.
In effect, indebted governments struggling to borrow at affordable rates in the commercial markets would be able to take advantage of lower borrowing costs offered to countries within this joint bond, such as Germany.
It was put forward as an alternative to full eurobonds, which would involve eurozone economies clubbing together to issue bonds representing all 17 member nations.
Merkel warningEarlier, Chancellor Angela Merkel said world leaders should not "overestimate" Germany's ability to resolve the eurozone debt crisis.
She told Germany's parliament that the country's options for rescuing the eurozone were "not unlimited".
Mrs Merkel called for more regulatory powers for the European Central Bank, and repeated that growth should not be financed by more debt.
Her speech came ahead of a meeting of G20 nations in Mexico this weekend.
Germany has been central in driving changes within the eurozone and backing the financial support given to debt-laden nations.
But, referring to the G20 meeting, she said: "I say to them Germany is strong, Germany is an engine of economic growth and a stability anchor in Europe... but Germany's powers are not unlimited."
She expected the debt crisis to be the main issue at the summit. "Our country will be the centre of attention. It's a fact, all eyes are on Germany because we are the biggest European economy and a major exporter," Mrs Merkel said.
But Europe would only find a way out of the crisis with a strong "political union" that mandated greater fiscal co-ordination and oversight to put member countries on a "solid foundation", she said.
Mrs Merkel has resisted calls that austerity measures in the eurozone should be relaxed in the hope that it would boost growth. "We must all resist the temptation to finance growth again through new debt," she said.
She also called for the European Central Bank to play a "bigger role" in overseeing banks to avert further turmoil in the industry.
'Misguided'"We need a more independent supervisory authority," she said in an apparent criticism of the European Banking Authority.
Berlin has said the current system is too dependent on national regulators and, in particular, under-estimated Spain's banking problems.
"The EBA conducted stress tests on all European banks a year ago, and the national oversight bodies were very involved," Mrs Merkel said.
"We are now seeing the result. Spanish banks are in quite a different situation than the tests appeared to show."
She said that national banking authorities, on which the EBA relied for its information, had provided results that were as positive as possible "out of misguided national pride".
Mrs Merkel has long argued against what she called "miracle solutions" to the debt crisis, saying that only closer political and fiscal union can solve the problems - something she accepted was a "Herculean task".
Worries in the financial markets that there is still no clear roadmap towards a solution for the eurozone were underlined on Thursday when Spain's borrowing costs hit at a new euro-era high, just days after the country agreed a bailout of its bank sector.
Italy's borrowing costs also jumped sharply amid fears that the country's debt woes were deepening.
Meanwhile, the Prime Minister of Slovakia has said that Greece should quit the euro bloc if it fails to honour its commitments.
Robert Fico said Europe should do all it could to keep Greece within the bloc, but that the country had to adhere to the terms of its bailout package.
With anti-austerity political parties expected to do well in Greece's general election on Sunday, Mr Fico told a news conference: "If the Greeks do not meet the commitments they have made, do not meet their financial commitments, do not repay loans, Slovakia will demand that Greece leaves the eurozone."
The remarks echo similar comments made by the European Council President, Herman Van Rompuy. "We will do our utmost to keep Greece in the eurozone while it is respecting its commitments," he said.
A strong showing for Greece's increasingly popular left-wing and anti-austerity party Syriza is likely to strengthen expectations that the country will leave the eurozone.
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