Dec 1 (Bloomberg) — Investors’ no-confidence vote in the aid package for Ireland may force European policy makers to expand their arsenal to fight the debt crisis threatening to tear the euro apart.
Options outlined by economists at Societe Generale SA and Barclays Capital include: Boosting the 750 billion-euro ($975 billion) temporary rescue fund or turning it into an asset- buying program; cutting interest rates on bailout loans; issuing joint bonds for the 16 euro nations or flooding the economy with cash from the European Central Bank.
All would be unprecedented, and none of Europe’s political leaders — dominated by German Chancellor Angela Merkel — has indicated the steps are being considered. Earlier this year, they struggled to cobble together the measures that investors and economists now say are proving inadequate to safeguard the euro and keep speculators at bay.
“You’ve had repeated interventions, but the markets are still selling in response,” said Andrew Balls, London-based head of European portfolio management at Pacific Investment Management Co., which runs the world’s biggest bond fund. “Policy makers have to move beyond a country-by-country approach and think about the system-wide challenges.”
“It’s unprecedented in Europe that a government is threatening to kick its own citizens out of the state pension system,”Zoltan Torok, a Budapest-based economist at Raiffeisen Bank International AG.
“This is open blackmail,” Julianna Baba, president of the Stabilitas Penztarszovetseg, which groups private pension funds, said in a phone interview today. “It’s a rigged deal.”
George Carlin would say: “They are coming for your f$$$ing retirement money!”
Hungary Follows Argentina in Pension-Fund Ultimatum, `Nightmare’ for Some
Hungary is giving its citizens an ultimatum: move your private-pension fund assets to the state or lose your state pension.
Economy Minister Gyorgy Matolcsy announced the policy yesterday, escalating a government drive to bring 3 trillion forint ($14.6 billion) of privately managed pension assets under state control to reduce the budget deficit and public debt. Workers who opt against returning to the state system stand to lose 70 percent of their pension claim.
“This is effectively a nationalization of private pension funds,” David Nemeth, an economist at ING Groep NV in Budapest, said in a phone interview. “It’s the nightmare scenario.”
Hungary is rolling back pension changes implemented more than a decade ago as countries from Poland to Lithuania find themselves squeezed by policies designed to limit long-term liabilities by shifting workers into private funds. Now the cost is swelling debt and deficit levels at a time when the European Union is demanding greater fiscal discipline.
Hungary, the most indebted eastern member of the EU, is following the example of Argentina, which in 2001 confiscated about $3.2 billion of pension savings before the country stopped servicing its debt. The government in Buenos Aires nationalized the $24 billion industry two years ago to compensate for falling tax revenue after a 2005 debt restructuring.
Britain used to have 80 per cent of European fish stocks (Photo: PA)
If you think that leaving the EU would be catastrophic, take a look at Greenland. By rights its people ought to be poor. Their island is isolated, suffers from freezing weather, has a workforce of only 28,000 and relies on fish for 82 per cent of its exports. But it turns out that since leaving the EU, Greenland has been so freed of EU red tape and of the destruction of the Common Fisheries Policy, that the average income of the islanders today is higher than those living in Britain, Germany and France.
Greenland’s politicians realised that the fisheries policy was ruining their fishing industry. They had the guts to stand up against the all the prophets of doom and let their people vote in a referendum on leaving the European Community, as the EU was then called. On January 1, 1985, it became independent of Brussels – the only country ever to do so.
Greenland was, with Britain, one of only two EU countries to be heavily dependent on fishing. In fact, Britain had, in some estimates, 80 per cent of Europe’s fish stocks when it entered the EU, because our fishermen had carefully managed them, while the fisherman of Spain, France and Italy had destroyed most of the Mediterranean stocks.
Nouriel Roubini, the US economist, said Portugal should consider asking for a bailout before its financial plight worsens as the euro fell after the €85bn Ireland bailout failed to ease eurozone debt fears.
Mr Roubini, the economist who predicted the financial crisis, told daily paper Diario Economico it is “increasingly likely” Portugal will require international assistance.
He said the country is approaching “a critical point” due to it high debt load and weak growth and there were ample funds to shore up Portugal, one of the eurozone’s smaller countries which contributes less than 2pc to the 16-nation bloc’s gross domestic product.
However, he said neighboring Spain, Europe’s fourth-largest economy, is “too big to bail out.”
• FTSE 100 down 2%; Dow loses 1%
• Euro slides to two-month low against US dollar
• Cost of insuring Spanish and Portuguese debt hits record high
Irish prime minister Brian Cowen speaking to the media in Dublin yesterday after the EU approved the €85bn bailout. Photograph: Peter Muhly/AFP/Getty Images
Stocks fell on both sides of the Atlantic, the euro tumbled, and the cost of borrowing for Ireland, Spain and Portugal jumped today, as details of the republic’s €85bn (£72bn) bailout failed to quell anxiety that the crisis in the eurozone was deepening.
Amid speculation that the European authorities may be left with little option but to embark on large-scale quantitative easing to try to bolster sentiment, Ireland’s borrowing costs shot as high as 9.6% as the terms of its bailout by the International Monetary Fund and European Union were digested by investors.
“The bottom line is that the financial markets are unimpressed, and that’s the most generous description,” Neil MacKinnon, global macro strategist at VTB Capital told Associated Press. “The crisis rumbles on.”
Speaker: Nigel Farage MEP, UKIP, Co-President of the EFD group
European Parliament, Strasbourg – 24 November 2010
EVEN GERMANS LOVE EU ATTACK
Nigel Farage (pictured) EU President Herman van Rompuy: “You should be the pin-up boy of the eurosceptic movement.”
UK Independence Party leader Nigel Farage has become a Europe-wide internet sensation again with his latest attack on Brussels bureaucrats.
His speech to the European Parliament last week has been viewed 200,000 times on YouTube and has been translated into German.
Addressing EU President Herman van Rompuy Mr Farage said: “You’ve been in office for one year and in that time the whole edifice is beginning to crumble, there’s chaos and the money’s running out. I should thank you. You should be the pin-up boy of the eurosceptic movement.
“Your fanaticism is out in the open. You talked about the fact that it was a lie to say the nation state could exist in the 21st century globalised world.
“Well, that may well be true in the case of Belgium, which hasn’t had a government for six months, but for the rest of us, people are saying we don’t want that flag, we don’t want the anthem, we don’t want this political class – we want the whole thing consigned to the dustbin of history.”
The Ukip leader then turned on Economic Commissioner Olli Rehn for suggesting that Ireland delay any general election until its budget had approved.
“Who the hell do you think you people are?” he said. “You are very, very dangerous people. Your obsession with creating this Euro state means you are happy to destroy democracy.”
Mr Farage’s previous outburst last February attracted almost 600,000 views on YouTube and resulted in an official reprimand.
UP to €15 billion from the National Pensions Reserve Fund, set aside when the Celtic Tiger was still roaring, is likely to be used to recapitalise three of the country’s banks.
Amid speculation last night that the rate of interest to be charged on the EU/IMF bailout could be as much as 6.7%, Fine Gael’s finance spokesman Michael Noonan said that kind of rate was “far too high” and unaffordable on any reasonable projection of growth.
The Department of Finance said the interest rate had still not been finalised, but given that much of the loan would be repayable over nine years the rate could be higher than the 5.2% charged to Greece but would not be as high as the 6.7% being quoted by some brokers.
Meanwhile, Anglo Irish Bank, which was downgraded to junk status yesterday evening, is expected to be closed swiftly, together with the Irish Nationwide Building Society, under the EU/IMF loan plan.
Officials hope to finalise the details of the €85bn package later today and have EU finance ministers approve it tomorrow.
The emphasis in the plan is to avoid drawing down money from the bailout and rely in the first place on money from the Pension Reserve Fund for the banks, and on the €20bn the state borrowed earlier this year to part-fund next year’s national budget.
Economist at the Economic and Social Research Institute, John FitzGerald, said he believed it would be a good idea to use the money in the pensions fund to recapitalise the banks, and keep the EU/IMF funds in reserve in case they needed further money later.
BERLIN—European leaders sparred over whether to commit more funds to rescue struggling euro-zone countries, as financial-market pressure on the region’s weakest economies intensified.
The European Union’s executive arm, the Brussels-based EU Commission, floated a proposal on Wednesday to double the size of Europe’s €440 billion ($588 billion) bailout fund for euro-zone governments, but the idea was dismissed by Germany, according to people familiar with the situation.
The disagreement between Brussels and Berlin comes amid growing fears that the crisis of investor confidence in euro-zone governments, which has already forced Greece and Ireland to seek international bailouts, could expand sooner or later to Portugal and Spain.
Many investors and analysts doubt whether the EU has agreed to supply enough financing to rescue Spain if the country were to lose access to bond markets. Support from Germany, Europe’s largest economy and biggest contributor to the EU’s main bailout fund, would be essential for any funding increase.
Following Greece’s €110 billion bailout in May, the EU set up a €750 billion rescue program together with the International Monetary Fund. The centerpiece of that effort is the European Financial Stability Facility, or EFSF, which euro-zone countries agreed to support with up to €440 billion in credit guarantees. The remaining contributions would come from the IMF and the EU Commission.
The escalating debt crisis on the eurozone periphery is starting to contaminate the creditworthiness of Germany and the core states of monetary union.
Chancellor Angela Merkel would risk popular fury if she had to raise fresh funds for eurozone debtors at a time of welfare cuts in Germany.
Credit default swaps (CDS) measuring risk on German, French and Dutch bonds have surged over recent days, rising significantly above the levels of non-EMU states in Scandinavia.
“Germany cannot keep paying for bail-outs without going bankrupt itself,” said Professor Wilhelm Hankel, of Frankfurt University. “This is frightening people. You cannot find a bank safe deposit box in Germany because every single one has already been taken and stuffed with gold and silver. It is like an underground Switzerland within our borders. People have terrible memories of 1948 and 1923 when they lost their savings.”
The refrain was picked up this week by German finance minister Wolfgang Schäuble. “We’re not swimming in money, we’re drowning in debts,” he told the Bundestag.
While Germany’s public and private debt is not extreme, it is very high for a country on the cusp of an acute ageing crisis. Adjusted for demographics, Germany is already one of the most indebted nations in the world.
Reports that EU officials are hatching plans to double the size of EU’s €440bn (£373bn) rescue mechanism have inevitably caused outrage in Germany. Brussels has denied the claims, but the story has refused to die precisely because markets know the European Financial Stability Facility (EFSF) cannot cope with the all too possible event of a triple bail-out for Ireland, Portugal and Spain.
A HUGE groundswell of support was last night gathering behind the Daily Express crusade for Britain to quit the European Union.
Senior MPs, peers and campaign groups acclaimed this newspaper’s stand against the sprawling Brussels super-state as a turning point in the battle to win back Britain’s independence.
And Eurosceptic critics of UK membership said the growing financial crisis among the euro nations this week – threatening to cost British taxpayers billions of pounds – has overwhelmingly confirmed the case for British withdrawal.
Philip Davies, Conservative MP for Shipley and a founding member of the Better Off Out group of MPs and peers, led the praise for our crusade last night.
He said: “I think it’s fantastic that the Daily Express sees such a positive future for our country. Britain should be developing trade with China, India, South American and emerging countries in Africa rather than being part of an inward-looking, backward-looking protection racket designed to prop up inefficient European businesses and French farmers.
“As a nation built on trade, we should be ashamed to be members of the EU. It is a major breakthrough for a national newspaper to support the case for British withdrawal.
“The Daily Express and the rest of public opinion are way ahead of a lot of politicians.”
The spiralling cost of Britain’s EU membership – expected to exceed £6billion in net contributions alone next year – was last night being cited as a clear-cut reason for Britain to walk away from the discredited European club.