Monday, May 21, 2012
Spain will ask for bailout soon, top financier warns
Spain's banking system will have to be bailed out in the coming months, with lenders jettisoning overseas assets to survive, according to one of Europe's leading fund managers.
Dominic Rossi, chief investment officer for equities at Fidelity Worldwide Investment, likened the ensuing collapse, which will include the exit of Greece from the euro, to the 1990s Latin American meltdown.
"I don't think it will be long before Spain will need to seek official assistance in the recapitalisation of its banks from both the European Central Bank and the International Monetary Fund." he said.
"Spain has a lot of assets outside of the country which can be sold and certainly I suspect some of those assets will come on to the market in order to recapitalise the banks before this is all over."
Mr Rossi, who oversees £155bn of assets at Fidelity, believes that the Greek exit could provide the impetus for greater debt reduction in other struggling eurozone nations.
"The key for me, in the event that Greece does come out, is what is the popular reaction in both Spain and Italy towards austerity?" he said. "We have seen support for austerity shrink over the course of the last few months. What I would hope and expect to see is once Greece leaves the euro that the impact it has is visible to all, and that will engender far more support in Spain and Italy for the current programme."
It will also point to a further period of turmoil for Europe's banks which are sat on billions of pounds of exposure to sovereign debt.
"I think the first issue with the banks is how sound are their book values? We are now in a second downturn and that will have implications for non-performing loans and provisioning.
"Everything is pointing to the banks continuing to shrink and continuing to have to provide more regulatory capital, which means that the overall return profile of the banking sector in Europe is going to be very low. The returns now resemble rather poorly run utilities."
However, Mr Rossi believes that British banks are in better shape because they have already taken steps to boost their capital positions and have a smaller exposure to sovereign debt.
He criticised politicians for failing to take control of the situation months ago. "I still don't understand why there was from the very start this perception that it's impossible for a nation state within the eurozone to go bust. But once you get on to the slippery slope of support then it's very difficult to get off that."
Andrew Wells, chief investment officer for fixed income at Fidelity, said that markets have suddenly realised that you cannot negotiate long-term refinancing with a government that changes on a constant basis.
"What is driving Greece away from Europe is a lack of political long-term stability, which means that it is impossible to deliver a long-term financial solution. This means there has to be a resolution around Greece before any sort of confidence comes back to the markets."
Mr Wells said that high-quality companies or high-quality bonds are the place to be until the political roadmap is more certain. "This is not the time to be jumping into high-risk assets because the political uncertainty remains," the fixed-income specialist said.
The Independent
"Ring of Fire" solar eclipse May 21
An annular solar eclipse is seen in the sky over Tokyo Monday, May 21, 2012. Millions of Asians watched as a rare "ring of fire" eclipse crossed their skies early Monday. The annular eclipse, in which the moon passes in front of the sun leaving only a golden ring around its edges, was visible to wide areas across the continent.
CBS
Greece Crisis Threatens To 'Open Door To Hell'
Greece's former finance minister has told Sky News that if Greece reneges on its bailout deal with the EU and the IMF it will "open the door to hell".
Sky News last interviewed George Papaconstantinou two-and-a-half years ago.
In December 2009 he told how Greece could survive independently and Greece's creditors had nothing to fear - they would get back every euro they were owed.
A lot has changed since then.
Greece is in the process of borrowing 240bn euros of emergency loans from the EU and the IMF (in return for pledges to raise taxes, cut spending and balance the books) and investors holding Greek debt have been forced write off up to 50% of their money.
Even now Greece remains heavily in debt, deep in recession (now in its fifth year) and without a functioning elected government.
Mr Papaconstantinou lost his position as finance minister last summer, shortly after the second bailout package was agreed.
In the general election, two weeks ago, he also lost his seat as an MP. He was not alone as support for his Pasok party collapsed.
The result of the election was inconclusive and, ultimately, no party was able to form a coalition government. In four weeks' time Greece will vote again.
The opinion polls suggest that were an election to be held tomorrow the result would, once again be inconclusive, but the Syriza party, which is promising to "tear up" the bailout agreement with the EU and the IMF, continues to attract support.
Mr Papaconstantinou is the man who negotiated Greece's participation in the bailout deal and he says understands that the people of Greece are angry.
There are no easy solutions. Either we stay within the framework we have all agree or we tear it up in which case we have a complete and utter catastrophe.Former Greek finance minister George Papaconstantinou
"People have had wage cuts, pension cuts, tax rises... and unemployment has gone through the roof - we need to respond to this," he told Sky News.
Interestingly, he admits there are elements of the bailout deal that he would seek to renegotiate but he says if Greece were to do what Syriza's leader, Alexis Tsipras, is proposing and fail to honour the promises the country has made in return for emergency funding then the results would be disastrous.
"The extremist parties are lying to the Greek people because they are not telling them that reneging on the agreement means that you have opened the door to hell," he said.
Syriza is promising voters it will not only reject the austerity measures it says are keeping Greece in recession but will also keep Greece in the eurozone.
Mr Papaconstantinou is clear that Syriza cannot deliver on both.
"The first thing that happens is the money (from the EU and IMF) stops flowing to Greece, the second thing that happens is people start worrying about their deposits in the banks, the third thing that happens is the banking system is in danger of collapsing and then you have to defend it even by sending in the army and the police on to the streets to avoid a bank run," he said.
"There are no easy solutions. Either we stay within the framework we have all agreed or we tear it up, in which case we have a complete and utter catastrophe."
In the general election in 2009 Syriza attracted barely 5% of the vote. Two weeks ago it managed 17%.
Some of the most recent opinion polls suggest Syriza is now Greece's most popular party and that 25% of the population say they will vote for the party on June 17.
That is not quite enough support for Syriza to form a government but it does suggest that the party's aggressive, defiant message is increasingly capturing the public mood.
It is also more than enough support to unsettle the financial markets and give the leaders of other eurozone countries a few sleepless nights.
Sky News
6.2-magnitude earthquake hit seas off northeastern Japan
A 6.2-magnitude earthquake hit seas off northeastern Japan on Sunday afternoon, said the Japan Meteorological Agency (JMA).
The focus of the quake, which occurred at 16:20 p.m. local time (0720 GMT) , was located some 10 km under the sea off the northeastern Sanriku region on the Honshu Island, according to the agency.
The tremor was most felt in prefectures of Iwate and Miyagi, and parts of Yamagata.
There were no immediate reports of casualties or damage to properties, and no tsunami warning was issued.
"Although there may be slight sea-level changes in coastal regions, this earthquake has caused no damage to Japan," the JMA said.
CRI
NATO activates missile shield, reaches out to Russia
NATO leaders launched Sunday the first phase of a US-led missile shield for Europe and sought to appease Russian anger over the system by renewing an invitation to cooperate.
President Barack Obama and his allies declared an "interim capability" at a Chicago summit, putting a US warship carrying interceptors in the Mediterranean and a Turkey-based radar system under NATO command in a German base.
The alliance insists that the shield is not aimed at Russia and aims to knock out missiles that could be launched by enemies such as Iran, but Moscow fears the system will also serve to neutralize its nuclear deterrent.
"We have invited Russia to cooperate on missile defense and this invitation still stands," NATO Secretary General Anders Fogh Rasmussen told a news conference.
"We will continue our dialogue with Russia and I hope that at a certain stage Russia will realize that it is in our common interest to cooperate on missile defense," he said.
Stressing that NATO must be able to defend itself against missile threats, Rasmussen said the move "cannot be blocked by Russia, it's a NATO decision."
In a threat reminiscent of the Cold War, Russia has warned it may respond to the NATO system by stationing short-range Iskander missiles in its Kaliningrad exclave near Poland, a European Union and NATO member state.
The standoff has tested Russian-US relations for much of the past decade and been one of the primary issues addressed by Obama when he launched a diplomatic "reset" with Moscow in 2009.
NATO had hoped that Russian President Vladimir Putin would come to Chicago, but instead he sent a lower level delegation to represent Moscow during the summit's discussion on Afghanistan.
Putin, who returned to power after succeeding his protege Dmitry Medvedev this month, was often at odds with the previous US administration over missile defense in his first two terms of office.
"Russia is sensitive about its nuclear capability because that's what makes it a superpower," said Nick Witney, a London-based defense expert at the European Council on Foreign Relations.
In a bid to appease its former Cold War foe, the Western military alliance offered to cooperate with Russian on missile defense at the last summit in November 2010 in Lisbon, but the two sides have struggled to find common ground.
"This is not a project targeted against Russia, but a project we want to push forward with Russia in the interest of Europe's security," said German Foreign Minister Guido Westerwelle. "And therefore the door for Russia will stay open."
NATO leaders, in a declaration on its nuclear Deterrence and Defense Posture Review, reaffirmed that missile defense "is not oriented against Russia nor does it have the capability to undermine Russia's strategic deterrent."
The first phase will only give the alliance a very limited defense against rogue missiles. The system is being rolled out in four phases and will become fully operational by 2018.
Spain will host four US Aegis ships at its port in Rota while Poland and Romania have agreed to host US land-based SM-3 missiles in the coming years.
Moscow has called for joint control over the system and for NATO to sign a legally-binding guarantee that it is not aimed at Russia.
But NATO has balked at both demands, insisting on keeping two separate systems and refusing to sign a legally-binding document. Instead, the alliance has offered to share sensitive data with Russia.
The US election also appears to have affected the pace of negotiations.
An open microphone famously caught Obama telling then president Medvedev in March that he could negotiate some concessions on the system if Russia gave him "space" until after the election this year.
Spacedaily
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