BRUSSELS/MADRID - Euro zone finance ministers agreed on Saturday to lend Spain up to 100 billion euros ($125 billion) to shore up its teetering banks and Madrid said it would specify precisely how much it needs once independent audits report in just over a week.
After a 2 1/2-hour conference call of the 17 finance ministers, which several sources described as heated, the Eurogroup and Madrid said the amount of the bailout would be sufficiently large to banish any doubts.
“The loan amount must cover estimated capital requirements with an additional safety margin, estimated as summing up to 100 billion euros in total,” a Eurogroup statement said.
Spain said it wanted aid for its banks but would not specify the precise amount until two independent consultancies - Oliver Wyman and Roland Berger - deliver their assessment of the banking sector’s capital needs some time before June 21.
“The Spanish government declares its intention to request European financing for the recapitalisation of the Spanish banks that need it,” Economy Minister Luis de Guindos said at a news conference in Madrid.
He said the amounts needed would be manageable and that the funds requested would amply cover any needs.
A bailout for Spain’s banks, beset by bad debts since a property bubble burst, would make it the fourth country to seek assistance since Europe’s debt crisis began.
With the rescue of Greece, Ireland, Portugal and now Spain, the EU and IMF have now committed around 500 billion euros to finance European bailouts.
Washington, which is worried the euro zone crisis could drag the U.S. economy down in an election year, welcomed the announcement.
“These are important for the health of Spain’s economy and as concrete steps on the path to financial union, which is vital to the resilience of the euro area,” U.S. Treasury Secretary Timothy Geithner said.
Likewise, the Group of Seven developed nations - the United States, Germany, France, Britain, Italy, Japan and Canada - heralded the move as a milestone as the euro zone moves toward tighter financial and budgetary ties.
HEATED DEBATE
Officials said there had been a heated debate over the International Monetary Fund’s role in Spain’s bank rescue, which Madrid wanted kept to a minimum. The IMF will not provide any of the money.
In the end it was agreed that the IMF would help monitor reforms in Spain’s banking sector, while EU institutions would ensure Spain stuck to its broader economic commitments.
IMF Managing Director Christine Lagarde said the euro zone’s plan was consistent with the IMF’s estimate of the capital needs of Spain’s banks and should provide “assurance that the financing needs of Spain’s banking system will be fully met.”
Sources involved in the talks said there had been pressure on Madrid to make a precise request right away, but Spain had resisted.
Euro zone policymakers are eager to shore up Spain’s position before June 17 elections in Greece which could push Athens closer to a euro zone exit and unleash a wave of contagion. Spain’s auditors could report back after that date.
Nonetheless, analysts said financial markets may be calmed by the announcement when they reopen on Monday.
“The figure of up to 100 billion is more encouraging and pretty realistic; it’s an attempt to cap the problem,” said Edmund Shing, European head of equity strategy at Barclays.
“The issue, however, is there is still a lack of detail about where the money’s coming from, which is crucial. The market will treat it with some caution until they see how it will be funded.”
The Eurogroup said the funds could come from either from the euro zone’s temporary rescue fund, the EFSF, or the permanent mechanism, the ESM, which is due to start next month. Finland said that if money came from the EFSF, it would want collateral.
EU sources said there was a preference to channel money to Spain through the ESM, rather than the EFSF. Under the ESM, an approval rate of 90 percent or less is needed to trigger aid, and the fund also has more flexibility in how it operates.
“That’s why it’s so important that the ESM ... be ratified quickly,” German Finance Minister Wolfgang Schaeuble said.
The Spanish government has already spent 15 billion euros bailing out small regional savings banks that lent recklessly to property developers. Spain’s biggest failed bank, Bankia , will cost 23.5 billion euros to rescue and its shareholders have been wiped out.
“Whatever the formula being used, we need to say two things: first the innocent should not suffer for the guilty, second public money should come back to public coffers,” said Socialist opposition chief Alfredo Perez Rubalcaba after speaking with Prime Minister Mariano Rajoy on Saturday morning.
LIGHT CONDITIONS
The race to resolve the banks’ troubles comes after Fitch Ratings cut Madrid’s sovereign credit rating by three notches to BBB, highlighting the Spanish banking sector’s exposure to bad property loans and to contagion from Greece’s debt crisis.
It said the cost to the Spanish state of recapitalising banks stricken by the bursting of a real estate bubble, recession and mass unemployment could be between 60-100 billion euros ($75-$125 billion).
Italy could yet get dragged in too. Its industry minister, Corrado Passera, said the economic situation in Italy had improved since the end of 2011, but remained critical.
“Europe was more disappointing than we had expected, it was less capable of tackling a relatively minor problem such as Greece,” Passera told a conference on Saturday.
While Spain would join Greece, Ireland and Portugal in receiving a European financial rescue, officials said the aid would be focused only on its banking sector, without taking the Spanish state out of credit markets.
That would be crucial to avoid overstraining the euro zone’s rescue funds, which would struggle to cover Spanish government borrowing needs for the next three years plus possible additional assistance for Portugal and Ireland.
Conditions in the plan did not appear to add to the austerity measures and structural economic reforms which Rajoy’s government has already put in place.
“Since the funds being asked for are to attend to financial sector needs, the conditionality, as agreed in the Eurogroup meeting, will be specifically for the financial sector,” de Guindos said.
EU and German officials have cited national pride in the euro zone’s fourth largest economy as a barrier to requesting a full assistance programme.
The European Commission and Germany both agreed in principle last week that Spain should be given an extra year to bring its budget deficit down below the EU limit of 3 percent of gross domestic product because of a deep recession.
The Eurogroup also said money could be funnelled to Spain’s FROB bank fund although the government would “retain the full responsibility of the financial assistance”.
Irish Finance Minister Michael Noonan said the funds would be provided through the EFSF or ESM at the same interest rates that apply to funds provided to other bailout countries.
FOREX-Euro gains in volatile trade as risk aversion abates - Reuters
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Scottish independence: SNP denies financial plan U-turn - BBC News
The Scottish government has denied performing a policy U-turn by asking UK regulators to oversee Scots banks in an independent Scotland.
The opposition said the move came following the SNP's previous criticism of UK industry controls on Scotland.
But a spokesman for First Minister Alex Salmond said the policy had now simply been "defined".
Scottish Finance Secretary John Swinney laid out his position during a speech in Glasgow on Monday evening.
He underlined a plan to keep a "sterling zone" and the UK regulatory framework, if the Scottish electorate voted for independence in the referendum, expected to take place in autumn 2014.
Addressing a business audience, Mr Swinney said a sterling zone would provide businesses in Scotland and the rest of the UK with the "certainty and stability for trade, investment and growth".
He added: "As the Bank of England takes on the role of regulator for UK financial services - a very sensible and long overdue position - retaining the pound will preserve the highly integrated UK financial services market.
"That framework is solid and substantial and I know that understanding our proposal is important to many of you in making your decisions about Scotland's future."
This is difficult stuff for SNP ministers.
Their rhetoric about the financial crisis has been about failed regulation from London being more significant than the failings of bankers in Scotland.
And even if John Swinney thinks the coalition government's reforms are welcome, it still looks like regulation from London.
And from London, it looks a bit presumptions that a Scottish government can assume the protection of institutions based in London.
But the nationalist view is that the Bank of England, being a central bank for the whole of the United Kingdom, is not the creature of Whitehall or of the rest of the UK, but of Scotland as well.
Likewise, the pound sterling is "as much Scotland's currency as it is the currency of England and Wales".
SNP policy favours an independent Scotland joining the Euro, pending a referendum, but the current economic conditions means the option is not currently attractive.
Ministers also said the Bank of England would continue to oversee monetary policy and set interest rates, but an independent Scotland could have a seat on its Monetary Policy Committee, or have a role in appointments.
Labour said the SNP had previously talked about an independent Scotland having its own financial watchdog and had pledged "light-touch regulation".
Scottish Labour leader Johann Lamont, said: "The SNP are making this up as they go along.
"The bank regulators they blamed for the collapse of the banking system are now the people they want to be in charge of the banking system. They reject the UK but want to keep George Osborne in charge of the banks?
"The truth is they know the people of Scotland reject leaving the UK, so they are now performing contortions on policy to make leaving the UK seem like remaining in it."
When asked what the point of independence would be if the SNP favoured keeping the pound and subscribe to London-based financial regulation, the spokesman for Mr Salmond said there was a "fundamental distinction" between monetary policy and fiscal policy.
He explained: "What fiscal policy provides you with is the levers of economic power in order to boost economic growth and increase employment in Scotland.
"No Westminster government has control over interest rates and has not done so since 1997, so, in that sense, it would be exactly the same as for successive Westminster governments."
The spokesman said independence would provide Scotland with a "strong voice" in Europe, adding: "Independence is the only constitutional policy which can ensure that we have the ability to remove trident nuclear weapons from the river Clyde - devo max doesn't provide that power.
“Start Quote
End Quote Sir Howard DaviesI don't quite know how you can be a servant of two masters, in terms of two separate treasuries and one central bank”
"Independence is the only constitutional option which can ensure that Scotland decides which military activities we are involved in in order that never again can Scotland be dragged into an illegal war such as Iraq."
The comments came as Sir Howard Davies, a former head of the Financial Services Authority, told BBC Radio's Good Morning Scotland programme that the SNP position to keep a central Bank of England and the pound was unclear.
He said: "It's not obvious quite how a system with two separate finance ministries and one central bank would work.
"Supposing the Bank of England looked again at a Scottish bank and said, 'it's really in trouble, people would want it to be rescued, but we're not going to rescue it unless we're indemnified', where would they look for that indemnity?
"It wouldn't be the UK Treasury, presumably the English Treasury - it would have to be the Scottish Treasury.
"I don't quite know how you can be a servant of two masters, in terms of two separate treasuries and one central bank. I can't think of an analogy where that's the case."
The Scottish government said it supported a key recommendation of the Vickers report into banking reform to remove the taxpayer from having to bail out troubled institutions in future.
Responding to Sir Howard's point, Scotland's deputy first minister, Nicola Sturgeon, said in the event of a Scottish bailout being needed: "The Scottish government, in that scenario, would pay the Bank of England to provide lender of last resort facilities for Scottish banks.
"The Scottish government has made clear, the SNP's made clear, that an independent Scotland would remain within sterling."
A Treasury spokesman said the Scottish government's proposals remained "totally unclear".
The spokesman said: "If they are proposing a full monetary union with Sterling, then the Eurozone crisis shows that strong control of monetary policy, fiscal policy and borrowing would have to be agreed with the UK government and exercised centrally.
"This includes the role of the Bank of England and the conduct of macro-prudential regulation.
"If they are proposing an independent Scotland using the pound but without a formal monetary union, the presumption is that the Bank of England would not be required to act as lender of last resort or take account of the Scottish economy when setting monetary policy."
Forex bureaus in Sudan hike exchange rate to curb black market - Sudan Tribune
June 11, 2012 (KHARTOUM) – Forex Bureaus in Sudan on Monday started using higher exchange rates for the US dollar in a bid to match its value in the black market and prevent further depreciation of the local currency.
Last month the Central Bank of Sudan (CBS) made a bold effort to curb the thriving black market by allowing Forex bureaus to buy and sell currencies using their own exchange rates as opposed to the official one.
The effort is hoped to bridge the huge gap between the official exchange rate and that used in the black market, where the US dollar continues to trade for twice the official rate of 2.7 Sudanese pounds despite multiple interventions by the central bank to inject hard currency.
Last week the Sudanese pound hit an all-time low of 5.55 in the black market as the central bank failed to supply Forex bureaus with enough hard currency to meet demands.
The secretary-general of the Forex Bureaus Union (FBU), Abdel Al-Moniem Nur Al-Deen, on Monday said that Forex bureaus had decided to hike their exchange rate to 5.53 pounds in the hope of greater proximity to the black market rate.
Nur Al-Deen justified their decision by saying that they had realized that the daily fixed quota of 3,500 USD allocated to Forex Bureaus by the central bank had been leaking to the black market through some traders who present fake travel documents in order to get dollars at the official rate then sell them back in the black market.
The FBU previously announced that some citizens applying for hard currency on travelling justifications have had their requests turned down after it was discovered that they were put up to it by black market traders who buy their dollars to sell them later at a higher rate.
Sudan has been struggling to contain the deteriorating value of its own currency as the flow of hard currency was sharply curtailed following the secession of the oil-rich South Sudan last year.
(ST)
How does M&S Bank stack up against its rivals? - Daily Telegraph
M&S Bank pledges to be open "twice as long" as other high street banks, matching its retail stores opening times, and even opening on Sundays. Customers will be able to access 24 hour online banking, and call centres will be UK based.
Austrian minister says Italy too may need bailout - ibtimes.co.uk
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The market reaction suggests that ministers have failed to break the so-called doom loop between rising government debt, economic recession and teetering banks that previously drove Greece, Ireland and Portugal into EU/IMF bailouts.
Analysts cited uncertainty about the mechanics of the Spanish rescue package and fears that private bondholders could be subordinated to official lenders, risking losses in any debt restructuring, as they suffered in Greece.
"Is this the next stage of a slippery slope in subordinating existing government bondholders?" asked Deutsche Bank strategist Jim Reid in a note to clients.
Investors are also worrying about the outcome of a Greek general election next Sunday which may determine whether the country stays in the euro zone.
European Commission President Jose Manuel Barroso, European Central Bank policymaker Christian Noyer and French Finance Minister Pierre Moscovici all called on Tuesday for swift moves to create a euro zone banking union.
BANKING UNION
Barroso told the Financial Times that a cross-border banking supervisor, a deposit guarantee scheme and a bank resolution fund could be put in place in 2013 without changing EU treaties. EU paymaster Germany has so far rejected a deposit guarantee or a resolution fund, saying they would require treaty change.
Britain, which is home to the euro zone's biggest financial centre but is not in the single currency and opposes closer EU integration, should be allowed to opt out of such a union if it agreed not to block it, he said.
Fekter's typically outspoken comments came after Italy's industry minister dismissed the idea that Rome may need external help, saying reforms adopted by his government so far had put the Italian economy on a sound footing.
Her concerns are shared by one of the German government's council of economic advisers, Lars Feld, who told Reuters that Italy could be next in line.
"Overcoming the troubles in Spain will bring calm to the markets for a while, but the chances are not so small that Italy may also come under fire, in particular as the promised labour market reform has turned out to be less ambitious," Feld said.
OUTSPOKEN
The Austrian minister has a track record of speaking out of turn or undiplomatically. She angered EU paymaster Germany last month by suggesting Greece might be forced out of the European Union over its economic problems.
She infuriated Euro group chairman Jean-Claude Juncker in March by rushing out to brief the media on a deal to increase the euro zone's financial firewall before he could make the official announcement, forcing her to apologise.
And when U.S. Treasury Secretary Timothy Geithner was invited to a euro zone finance ministers' meeting in Poland last year to plead for a more robust rescue fund, Fekter said bluntly that Washington should look after its own worse fiscal mess first.
In Brussels, EU officials privately voiced exasperation at her latest comments on Italy.
"The problem is that this is market sensitive," said a euro zone official, whose position does not authorise him to speak on the record. "It's one thing if journalists write this but quite another if a euro zone minister says it. Verbal discipline is very important but she doesn't seem to get that."
Italy's leading economic newspaper, Il Sole 24, appealed to Germany on Tuesday to act to save the single currency before it is too late.
"Schnell Frau Merkel! (Hurry Up Mrs Merkel!)," the usually sober business daily said in a banner headline in German.
An editorial urged Chancellor Angela Merkel "to make three choices quickly to save the euro and build a politically united Europe".
She should back guarantees for European bank deposits, allow direct access for banks to euro zone rescue funds and accept a mutualisation of European public debts, with each country paying a different interest rates. Italy has the euro zone's second highest debt-to-GDP ratio after Greece.
Merkel has opposed issuing joint euro zone bonds and says euro zone member states must agree to transfer more budget sovereignty to European institutions, including the EU's Court of Justice, as part of a political union before she would consider such idea.
(Additional reporting by John O'Donnell in Brussels, Philip Pullella in Rome, Emilie Sithole-Matarise, John Stonestreet and Swaha Pattanaik in London; Writing by Paul Taylor; editing by Janet McBride)
WORLD FOREX: Euro Edges Up, But Italy and Spain Get No Relief - NASDAQ
-- Euro recovers some of Monday's losses
-- Italian, Spanish 10-year yields still trading at elevated levels
By Eva Szalay
A run of euro-bashing took a pause Tuesday in European trading, though pressure on Spanish and Italian government debt yields provided a stark reminder that investors are nonplussed with plans announced over the weekend to recapitalize Spain's banks.
The single currency fell in early Asian trading hours, in a continuation of the drubbing it received Monday as investors questioned the details of the 100 billion euro ($125 billion) deal aimed at strengthening the Spanish banking system. The move by Fitch Ratings to downgrade two large Spanish lenders, Banco Bilbao Vizcaya Argentaria and Banco Santander, by two notches to triple-B-plus late Monday further dented sentiment.
As European trading go underway, the euro recovered to climb back above $1.25 against the dollar, with traders pointing to strong euro-buying from the Middle East, but the pickup mostly reflected some exhaustion in momentum for negative bets, rather than a positive turn of events in the increasingly pressing euro crisis.
"The spotlight is slowly beginning to turn onto Italy," said Simon Derrick, a currency analyst at BNY Mellon in a note to clients. "The benchmark Italian 10-year yield is currently just 8 basis points below where the equivalent Spanish paper stood last Thursday."
Yields on 10-year Italian bonds traded at a high of 6.11% Tuesday, while Spanish yields hit a high of 6.63%. Bond yields rise when their prices fall; a higher yield indicates an increased perception of risk.
Raising tensions further, a spat was developing between Rome and Vienna, after Austria's finance minister Maria Fekter questioned whether Italy's high borrowing costs could prompt a financial rescue.
A raft of government debt auctions also kept investors cautious. The Netherlands kicked off the session with an anemic sale of 2033 bonds. The country sold a total of EUR1.65 billion of bonds, despite the intention to sell up to EUR2.5 billion.
The U.K. sold GBP4.75 billion of 1% September 2017 gilts Tuesday but the sale was barely covered as investors began to baulk at the skinny yields on offer.
Sterling took a brief hit after dismal manufacturing output and industrial production numbers in the UK. Manufacturing output contracted 0.7% on the month in April, despite expectations for 0.1% growth. Industrial production was flat on the month, against expectations for a 0.3% rise.
"[This] may fuel expectations for more quantitative easing from the Bank of England," said Credit Suisse in a client note. The effect on the currency was fleeting, however.
Separately, the yen weakened after David Lipton, the International Monetary Fund's First Deputy Managing Director said overnight Monday that Japan's intervention efforts were "understandable." The comments raised expectations that the Bank of Japan would yet again step into the market to weaken the haven yen and spooked traders who sold the currency against both the dollar and the euro.
Emerging market currencies were under slight pressure, in line with the single currency.
At 1040 GMT, the euro was at $1.2520 against the dollar, up from the $1.2475 area late in New York Monday. It was at Y99.58 against the yen, up from Y99.10.
The dollar was at Y79.52 from Y79.45. The pound was at $1.5535 from $1.5485.
A summary of levels for chart-watching technical strategists is below:
Forex spot: EUR/USD USD/JPY GBP/USD USD/CHF Spot 1036 GMT 1.2525 79.54 1.5536 0.9589 3 Day Trend Bearish Bearish Range Bullish Weekly Trend Bearish Range Bearish Bullish 200 day ma 1.3214 79.64 1.5834 0.9182 3rd Resistance 1.2620 80.15 1.5684 0.9700 2nd Resistance 1.2589 79.92 1.5599 0.9657 1st Resistance 1.2567 79.75 1.5580 0.9649 Pivot* 1.2545 79.57 1.5517 0.9573 1st Support 1.2469 79.44 1.5455 0.9558 2nd Support 1.2435 79.32 1.5405 0.9520 3rd Support 1.2381 79.17 1.5385 0.9475 Forex spot: EUR/GBP Spot 1036 GMT 0.8061 3 Day Trend Bullish Weekly Trend Bearish 200 day ma 0.8343 3rd Resistance 0.8123 2nd Resistance 0.8105 1st Resistance 0.8079 Pivot* 0.8091 1st Support 0.8051 2nd Support 0.7972 3rd Support 0.7950
Write to Eva Szalay at eva.szalay@dowjones.com
(END) Dow Jones Newswires 06-12-120749ET Copyright (c) 2012 Dow Jones & Company, Inc.
Forex Flash: Hollande between deficit target and growth pledges – ING Bank - NASDAQ
FXstreet.com (Barcelona) - The French President Hollande is the favorite candidate to win the 17 June second round of Parliamentary elections. The socialists could obtain a clear majority of between 305 and 350 seats (of a total of 577 seats), which would ease the President's work to implement his measures in France and his views in Europe.
However, with falling manufacturing output by -1.4% in April and business confidence to 93, ING Bank analysts see hard times ahead with low chances of reaching 0.5% GDP growth in 2012. Hollande will face a dilemma between promoting his growth strategy, increasing spending and hire more public workers, while targeting the 3% line of public deficit in 2013. One must give in.
"It may be very difficult for France to reach a public deficit of 3% in 2013 without new austerity measures and a cut in public expenditures, which is contrary to François Hollande's election pledges", wrote Manuel Maleki, analyst at ING Bank.
Forex: GBP/USD prints fresh highs - FXStreet.com
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