Friday, September 23, 2011
Turkish PM calls for 'pressure' on Israel to make peace
Turkey's Prime Minister Recep Tayyip Erdoğan called Thursday for international "pressure" on Israel to make peace with the Palestinians.
In a speech to the UN General Assembly, Erdoğan blamed Israel's Prime Minister Benjamin Netanyahu for the Middle East crisis and poor relations with Turkey. He gave strong backing to the Palestinian bid for full UN membership.
The Turkish prime minister, who is embroiled in a bitter diplomatic dispute with Israel over a 2010 deadly raid on an aid convoy to Gaza, called the Israel-Palestinian conflict a "bleeding wound" that the international community must heal.
"Those who govern Israel must see that real security is only possible by building real peace."
Erdoğan said Israel must understand that it cannot continue "in an environment of continuous strife and conflict."
The international community must understand that "it is necessary to put pressure on Israel to achieve peace, despite what those who govern this country do, and show them that they are not above the law."
Erdoğan made a new demand that Israel apologize for its deadly raid on a Turkish-led aid flotilla to Gaza in May 2010.
He also criticized neighboring Syria's deadly crackdown on anti-government protests. "We have many times warned the Syrian leadership" over the crackdown since mid-March," he said.
"We have said that one cannot prosper through oppression and it is important to listen to the demands of the people and not point the gun at the people," Erdoğan said.
"Turkey will continue to support the democratic demands of the people" in Syria where the UN says more than 2,700 people have been killed in the crackdown.
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Erdoğan said Israel must understand that it cannot continue "in an environment of continuous strife and conflict."
The international community must understand that "it is necessary to put pressure on Israel to achieve peace, despite what those who govern this country do, and show them that they are not above the law."
Erdoğan made a new demand that Israel apologize for its deadly raid on a Turkish-led aid flotilla to Gaza in May 2010.
He also criticized neighboring Syria's deadly crackdown on anti-government protests. "We have many times warned the Syrian leadership" over the crackdown since mid-March," he said.
"We have said that one cannot prosper through oppression and it is important to listen to the demands of the people and not point the gun at the people," Erdoğan said.
"Turkey will continue to support the democratic demands of the people" in Syria where the UN says more than 2,700 people have been killed in the crackdown.
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Iran 'steals surface-to-air missiles from Libya'
The weapons were seized by units attached to the Guards' elite Quds Force, which travelled to Libya from their base in southern Sudan.
Acting on orders received from Revolutionary Guards commanders inIran, they took advantage of the chaos that engulfed Libya following the collapse of the regime of former dictator Colonel Muammar Gaddafi to seize "significant quantities" of advanced weaponry, according to military intelligence officers in Libya.
They say the weapons stolen by Iran include sophisticated Russian-made SA-24 missiles that were sold to Libya in 2004. The missile can shoot down aircraft flying at 11,000 feet, and is regarded as the Russian equivalent of the American "stinger" missiles that were used by the US-backed mujahideen to defeat Soviet forces in Afghanistan in the 1980s. It is similar to the weapon used by al-Qaeda in the failed attempt to shoot down an Israeli passenger jet taking off from Kenya's Mombasa airport in 2002.
Intelligence officials believe the missiles and other weapons seized from Gaddafi's abandoned arsenals were smuggled across the Libyan border to southern Sudan earlier this month where they are now believed to be held at a secret storage facility run by the Revolutionary Guards at al-Fashir, the capital of North Darfur. Some of the missiles are also reported to have been smuggled into Egypt.
The governments of Iran and Sudan recently signed a defence cooperation pact, and hundreds of Revolutionary Guards are based in Sudan where they help to train the Sudanese military and help to support the Sudanese government's campaign against rebel groups. The Guards also have a number of training camps that are used to train Islamist terror groups.
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Report: Turkey closes airspace to military cargo flights to Syria
Turkey has closed its airspace to planes carrying military equipment to neighboring Syria, a news report said on Thursday.
The report, published in the mass-circulation daily Hürriyet, said the ban was imposed after Prime Minister Recep Tayyip Erdoğan announced on Tuesday that Turkey was considering imposing sanctions on Syria in coordination with the US. Erdoğan was speaking in New York after a meeting with US President Barack Obama on the sidelines of the UN General Assembly.
Turkey, once a close ally of Syrian President Bashar al-Assad, has gradually toughened its criticism against the Syrian regime over its brutal crackdown on anti-regime protests. Erdoğan said in New York that Turkey has already prepared for sanctions against Syria and added that the Turkish foreign minister and the US secretary of state will jointly work on what those Turkish sanctions may entail.
Erdoğan also said he has ended all contact with the Syrian government, lamenting that the actions of the Syrian regime have forced Turkey to take such a decision. Speaking on Wednesday, a senior White House official said Erdoğan and Obama agreed during their meeting to build up pressure on Assad to produce a result that would meet the demands of the Syrian people.
Elizabeth Sherwood-Randall, senior director for European affairs at the National Security Council (NSC) at the White House, told reporters that Turkish and US assessments over the need to intensify pressure on the Assad regime overlap, which she said is very important. She added that the two leaders shared the view that Assad's regime is doing the Syrian people harm as well as agreeing on the need to build up pressure on Assad.
Sherwood-Randall added that Erdoğan and Obama have had close consultations about Syria over the past few months.
Ben Rhodes, Obama's deputy national security adviser, meanwhile, told reporters on Wednesday that the important thing is that the two leaders shared a view that the Assad regime is doing the Syrian people harm and their similar view to build up pressure on Assad.
Rhodes said Turkey remains an important partner for the US to relay to the Syrian leadership the message that it should halt violence against its own people.
“Turkey sent clear messages over the past few days. Erdoğan delivered very strong messages during his North African tour,” Rhodes said, expressing the belief that he is ready to devise ways to build up pressure on the Assad regime.
Sherwood-Randall noted that Turkey's relations with Israel came up during the meeting between Obama and Erdoğan and that Obama voiced his wish for a settlement of the tensions between the two countries.
Rhodes said both countries are important allies for the US and their relations are crucial to the stability of the region, and expressed the belief that it is important that steps be taken to ease tensions in the region.
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At Least In 2008 The Governments Could Bail Us Out...
At least in 2008 there was the possibility that the governments could bail us out. Now, of course, the governments have gotten deep, deep, deep into debt themselves. Everybody is in much worse shape. - in CNBC.comhostgator coupon 2011
Stocks, commodities dive on recession fears
(Reuters) - World stocks fell to 13-month lows and commodities tumbled on Thursday as weak data from China crystallized investor fears of a global recession one day after a grim economic outlook from the Federal Reserve.
The U.S. dollar climbed to a seven-month high against major currencies.DXY as investors fled risky assets and sought safety in Treasuries, where benchmark yields again touched lows not seen in 60 years.
Data showing contraction in China's manufacturing sector for a third straight month helped drive down oil prices by more than 4 percent and sent the price of copper to a one-year low. Weak euro zone data added to the gloom.
Even gold, a traditional safe haven, dropped nearly 5 percent to its lowest level in nearly one month as the dollar strengthened. The slump raised questions about the precious metal's validity as a safe haven.
Thursday's market meltdown came after weeks of worries that Europe's debt crisis could freeze the global financial system, and a day after the Federal Reserve disappointed markets with its latest effort to boost the economy by lowering long-term borrowing costs. The Fed also spooked investors with a particularly stark assessment of the U.S. economic outlook.
"Global growth worries today are even more prominent than the sovereign crisis, and that's not because sovereign crisis risk has diminished, it's because global growth worries have clearly increased," said Patrick Moonen, equity strategist at ING Investment Management.
The MSCI World equity index .MIWD00000PUS fell 4.5 percent, bringing the year-to-date loss to 16 percent.
U.S. stocks fell sharply for a fourth straight day. The Dow Jones industrial average .DJI ended down 391.01 points, or 3.51 percent, at 10,733.83. The Standard & Poor's 500 Index .SPX was down 37.20 points, or 3.19 percent, at 1,129.56. The Nasdaq Composite Index .IXIC was down 82.52 points, or 3.25 percent, at 2,455.67.
Volume was heavy, a signal investors are selling in anticipation of more losses.
Energy and materials shares were among the hardest hit areas on worries of slowing worldwide demand, fed by signs of a slowdown in China.
"It's tough to find anything that is a positive catalyst for the market, either domestically or internationally," said J.J. Kinahan, chief derivatives strategist for TD Ameritrade.
European shares slumped to a 26-month closing low, with the FTSEurofirst 300 .FTEU3 down 4.7 percent. Emerging markets stocks .MSCIEF slid 6.5 percent.
SAFETY FIRST
The Fed's statement that the U.S. economy faces "significant downside risks" and worry that the U.S. central bank's $400 billion program would be insufficient to jump-start growth brought fears of another global recession to the forefront.
Investors, already worried about a possible Greek debt default and the euro zone's intractable debt crisis, see governments unable to respond to the problems.
That prompted a stampede into safe-haven assets, sparking a rally in the U.S. currency and government bonds.
The dollar .DXY rose 1.3 percent to 78.363 in its largest one-day gain since early August. The euro fell as low as $1.3384, its lowest since January, and last traded down 0.6 percent at $1.3474.
The gains in the dollar sparked a broad retreat in the commodities sector. Spot gold was last around $1,737. The spike in volatility again has led to renewed debate about whether the precious metal was a haven at all.
"Gold is never a safe haven," said Dennis Gartman, an independent investor in Virginia. "When something can move 3, or 5 or 6 percent in the course of two days, that's not a safe haven. Safe havens should be quiet and stable...not violent."
U.S. crude oil fell $5.41 to settle at $80.51 a barrel. Brent crude lost $4.87 to end at $105.49.
The Reuters-Jefferies CRB index, a 19-commodity global benchmark for the asset class, hit its lowest point since early December.
Benchmark 10-year notes rose 1-9/32, their yields falling to 1.73 percent from 1.87 percent late on Wednesday. The 30-year bond climbed 4-21/32, its yield falling to 2.79 percent - the lowest since January 2009.
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G20 fail to ease tensions in markets
PARIS (AP) -- A pledge to stabilize markets from the world's leading economies failed to reassure investors Friday, and stocks were falling sharply again, a day after fears over the global economy had sent them skidding.
Finance ministers from the G20 countries meeting in the U.S. capital pledged Thursday to "take all necessary actions to preserve the stability of the banking systems and financial markets" and to make sure banks have the cash they need to pay their day-to-day expenses.
The G20 statement wasn't much -- it mostly reiterated pledges made earlier -- but the show of solidarity was enough to stem the losses in Europe ahead of an expected modest advance in the U.S. Asian shares, however, continued to fall sharply, with South Korea's Kospi index posting a whopping 5.7 percent decline.
"The selling pressure in Europe had eased overnight but stocks are pushing deeper into the red as the morning progresses and markets remain heavily depressed on the year suggesting policymakers have their work cut out for them," said Carl Campus, an analyst at BMO Capital Markets.
In Europe, France's CAC-40 was down 2.6 percent at 2,710 while the DAX in Germany was 3 percent lower at 5,010. The FTSE index of leading British shares was 1.7 percent lower at 4,955.
Wall Street was set for further falls at the open following Thursday's slide. Dow futures were down 0.7 percent at 10,572 while the broader Standard & Poor's 500 futures fell 0.8 percent to 1,114.
While worrying about the global economy following the U.S. Federal Reserve's warning earlier this week that the U.S. economy faced sizable downside risks and a raft of downbeat European and Asian economic indicators, investors continue to keep a close watch on developments in Greece.
"The markets are eagerly awaiting a resolution or at the minimum, a more rigid strategy to reduce Greeces debt liabilities," said Giles Watts, head of equities at City Index.
Bank stocks have led the way down in recent days as investors fret over their potential exposure to the debts of Greece. Those fears have become more acute as the markets increasingly price in the likelihood of a Greek default.
Athens has had a series of meetings with its creditors this week to try to avoid that, but it's unclear whether it will be able to dig itself out of its debt hole, even with the help of billions from the European Union and the International Monetary Fund.
Those concerns have knocked confidence in the euro over the past week or two. After Thursday's plunge it was trading a little bit steadier, down 0.1 percent at $1.3458.
Several analysts think the current respite in the markets was unlikely to last since recent economic data from Europe -- and even powerhouse China -- has been weak and could indicate that some major economies are headed back into recession.
Jean-Pierre Jouyet, the head of the French market authority, the AMF, told France Inter radio that "the situation is very, very worrying. We are in a worldwide situation of crisis," pointing to debt in Japan, "imbalances" in the United States, and Europe's sovereign debt troubles.
"We must take urgent measures on the international level," he said.
Joaquin Almunia, who runs the department in the EU's executive Commission that has to clear bank bailouts, suggested earlier this week that one of those measures may be to extend crisis rules that make it easier for governments to rescue failing lenders. He also said that even banks that passed stress tests this summer may need to raise more money.
Earlier in Asia, Hong Kong's Hang Seng fell 1.4 percent to 17,668.83 after losing nearly 5 percent the day before. Australia's S&P/ASX 200 index fell 1.6 percent to 3,903.20.
South Korean shares took a large hit, with the Kospi tumbling 5.7 percent to 1,697.44. Mainland China's Shanghai Composite Index lost 0.4 percent to 2,433.16. Japan's market was closed for a holiday.
Oil prices were down again alongside equities -- benchmark crude fell $2.10 to $78.41.
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Lloyd’s of London Pulls Deposits From Banks on Debt Crisis
Sept. 21 (Bloomberg) -- Lloyd’s of London, concerned European governments may be unable to support lenders in a worsening debt crisis, has pulled deposits in some peripheral economies as the European Central Bank provided dollars to one euro-area institution.
“There are a lot of banks who, because of the uncertainty around Europe, the market has stopped using to place deposits with,” Luke Savage, finance director of the world’s oldest insurance market, said today in a phone interview. “If you’re worried the government itself might be at risk, then you’re certainly worried the banks could be taken down with them.”
European banks and their regulators are trying to reassure investors and customers that lenders have enough capital to withstand a default by Greece and slowing economic growth caused by governments’ austerity measures. Siemens AG, European’s biggest engineering company, withdrew short-term deposits from Societe Generale SA, France’s second-largest bank, in July, a person with knowledge of the matter said yesterday.
Lloyd’s, which holds about a third of its 2.5 billion pounds ($3.9 billion) of central assets in cash, has stopped depositing money with some banks in Europe’s peripheral economies, Savage said, declining to name the countries or institutions.
ECB Lending
“We have a very conservatively positioned balance sheet,” Savage said. Lloyd’s also holds about a third of its assets in mainly U.S. and U.K. government bonds and a third in corporate bonds, he said.
The ECB today allotted $500 million to one bidder in a regular seven-day liquidity-providing operation at a fixed rate of 1.07 percent. Last week, the Frankfurt-based ECB loaned $575 million to two euro-area banks, the first time financial institutions had requested the currency since Aug. 17. The ECB doesn’t identify the banks it lends to.
Today’s loan “is the rolling-over of previous lending of dollars and isn’t very significant,” said Christoph Rieger, head of fixed-income strategy at Commerzbank AG in Frankfurt. “The three-month dollar lending offered by the central banks is taking the edge off this problem to some degree.”
The premium European banks pay to borrow in dollars through the swaps market is close to the highest level in almost three years. The cost of converting euro-based payments into dollars, as measured by the one-year cross-currency basis swap, was 95.6 basis points below the euro interbank offered rate, or Euribor, at 11:13 a.m. in Frankfurt, indicating a premium to buy the dollar. It widened to as much as 112.5 basis points earlier this month, the most since Dec. 2, 2008, according to data compiled by Bloomberg.
First-Half Loss
Lloyd’s, founded in a London coffee house in 1688, swung to a 697 million-pound pretax loss in the six months to June 30 after the most expensive first half for natural disasters on record. The market made a profit of 628 million pounds in the same period a year earlier, the London-based market said in a statement today.
“These are tough times for the insurance industry, but we are well positioned to handle them,” Chief Executive Officer Richard Ward said in the statement. “While interest rates are low and equity markets are volatile, we can’t rely on investment income to subsidize our underwriting. We must decline under- priced risks.”
Insurers’ profits have been hurt by natural catastrophes, including the earthquake and tsunami that struck Japan in March, causing record insured losses of $70 billion in the first half of the year, according to broker Guy Carpenter & Co. At the same time, record low interest rates are crimping investment returns.
Investment Income Falls
The insurance markets made 548 million pounds on its investments in the period, 8.2 percent lower than in the first half of 2010 as interest rates in the U.K., U.S. and the euro zone neared record lows.
“I cannot see any reasonable prospect of making decent investment income in the medium term,” Savage said.
Lloyd’s had a combined ratio of 113.3 percent in the first half, meaning for every pound it took in premiums, it paid out 1.13 pounds in claims. That worsened from 98.7 percent in the first half of 2010.
The loss was “much better than our peer group exposed to the same catastrophes,” Savage said. Bermuda insurers’ combined ratio was 117 percent for the period and U.S. reinsurers posted a ratio of 116 percent, Lloyd’s said.
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Moody's downgrades 8 Greek banks
ATHENS, Greece (AP) -- Moody's downgraded eight Greek banks Friday, citing their exposure to their government's bonds and the deteriorating economic situation in the country as it struggles to convince creditors it's doing enough to get more bailout cash.
Moody's Investors Service downgraded National Bank of Greece, EFG Eurobank Ergasias, Alpha Bank, Piraeus Bank, Agricultural Bank of Greece and Attica Bank by two notches from B3 to CAA2.
Though downgrading Emporiki Bank of Greece and General Bank of Greece, which are majority-owned by France's Credit Agricole and Societe Generale respectively, to B3 from B1, Moody's said their parents continue to provide strong support. As a result, their ratings are three notches higher than the others.
The agency also warned that further downgrades were possible by slapping a negative outlook on their ratings.
Shares on the Athens Stock Exchange plunged by more than other indexes in Europe, trading 4.3 percent lower in afternoon trading at 794.5 points. Bank shares led the rout, with declines of more than 8 percent.
Greece has been kept solvent by a euro110 billion ($149 billion) bailout in 2010 from other eurozone countries and the International Monetary Fund. But it needed another massive bailout this summer, and has angered international creditors by lagging behind in commitments to implementing reforms.
European officials are speaking openly of the possibility of a Greek default, and the fears have roiled international markets. A default could send shockwaves through the banking system and the global economy, leading to losses for banks holding Greek government bonds and dragging down other eurozone countries with shaky finances.
Dutch central bank president Klaas Knot said he could no longer rule out the possibility that Greece will be unable to pay back its debts.
"I won't say that Greece cannot default," Knot said in an interview with Dutch newspaper Het Financieel Dagblad, published Friday. Knot, who recently became president of De Nederlandsche Bank, is also a European Central Bank governing council member. The ECB has insisted Greece must stick with its bailout plan and has opposed default as a solution.
"I have long been convinced that a default is not necessary," Knot said. "But the news from Athens is sometimes not encouraging. All efforts are aimed at preventing this, but I am now less positive in ruling out a default than I was a few months ago."
Greek bondholders have already agreed to take a 21 percent loss on the value of their investments in a swap for new bonds. That loss is relatively mild by the standard of government defaults, which often inflict losses of 50 percent or more. But some economists say the current swap arrangement does not give Greece enough debt relief.
Greece needs an euro8 billion ($11 billion) bailout installment by mid-October to keep from defaulting on its massive debts as it moves into a fourth year of recession. Debt inspectors from the IMF, ECB and European Commission, collectively known as the troika, are due back in Athens next week to complete their review of Greece's progress and make a recommendation on whether it should receive the next loan installment.
"The implicit contract between Greece and the rest of the euro area -- official support in exchange for a good faith effort -- is breaking down," said David Mackie of J.P. Morgan in London.
Greece, he said, was failing to deliver on structural reforms as the public finances fail to improve as hoped, while the stance of creditors was hardening.
To secure its next bailout installment, the government this week announced another round of tax hikes and pension cuts, angering an already austerity-weary public.
Metro, tram and train workers in Athens went on strike Friday, while all public transport workers and taxi drivers are to hold a 48-hour strike next week. A nationwide general strike is set for Oct. 19.
After more than a year and a half of repeated rounds of austerity measures that have included salary and pension cuts in the public sector and waves of tax hikes, Greece has found itself in the grip of a major recession, with its chances of returning to growth next year all but out of reach -- the IMF predicted that the Greek economy would contract another 2 percent next year after this year's 5 percent.
The government insists it hopes to post a primary surplus -- spending less than it earns before taking interest rates on outstanding debt into account -- next year.
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European banks head towards another meltdown
Shares in some of Europe's largest banks fell by 10pc as the cost of insuring European lenders' senior bonds rose to record levels, according to credit default swap prices. The Markit iTraxx Financial Index of contracts on the senior debt of 25 banks and insurers climbed to an all-time high 315.5 basis points.
The last banking crisis was regarded by most eurozone members as an Anglo-Saxon phenomenon caused by lax lending controls that resulted in major UK and US institutions either collapsing or having to take costly state-funded bail-outs.
To offset the threat of another crisis spreading across the eurozone, European regulators ordered their banks to increase their liquidity buffers. Government bonds were generally viewed as the most liquid and least risky assets to hold. However, this policy has come back to haunt them, leaving many lenders across the region seriously exposed to the eurozone sovereign debt crisis.
French banking giants BNP Paribas and Société Générale are among the hardest hit. Recent estimates suggest BNP has eurozone sovereign debt exposure of about €75bn (£65bn), amounting to roughly 6pc of total assets, including €14bn of Greek debt and €21bn of Italian government bonds. The other two major French banks, SocGen and Credit Agricole, each have exposures of a similar size.
Between them, France's banks have about €56bn of Greek sovereign bonds alone, and have so far taken 20pc writedowns on this.
On Wednesday, the International Monetary Fund (IMF) warned that Europe's debt crisis had exposed the region's banks to €300bn of potential losses. The Washington-based fund said certain European banks needed to "urgently" bolster their capital buffers to protect themselves – although its staff insisted the €300bn estimate did not represent the amount of capital banks must raise.
If banks cannot raise capital in the credit markets which are currently all but closed to them, then taxpayers must pay, the IMF added; first at a national level and ultimately through the use of the European Financial Stability Facility, the eurozone's €440bn rescue fund.
The problem is only likely to intensify following Monday's downgrade of Italy's credit rating by Standard & Poor's and discouraging signals from the US economy throughout the week.
In the UK, minutes from the Bank of England's Monetary Policy Committee (MPC) meeting in September showit is not just the continental Europeans who are concerned by the problem.
"In financial markets there had been a generalised fall in prices of risky assets and deterioration in bank funding conditions," the MPC said. "If recent conditions in capital markets persisted, European banks could face difficulties obtaining sufficient funding to continue current levels of lending. These conditions could affect UK banks even though they had increased their capital and liquidity levels over the past two years and had already met a significant proportion of their funding needs for the year as a whole."
In this age of uncertainty, one thing does seem certain: Europe's banking sector stands on the precipice of a new crisis.
Meanwhile, Goldman Sachs is on course to report its second ever quarterly loss, said analysts at Barclays Capital. The bank, whose only other losing quarter followed the collapse of Lehman Brothers, has been hit particularly hard by falling world stock markets, according to the report, with the volatility in prices making trading revenues harder to generate. Goldman releases its results on October 18.
European bank share price falls on September 22, 2011
Lloyds Banking Group -10.09pc
Société Générale -9.57pc
Credit Agricole -9.49pc
Deutsche Bank -1.38pc
BNP Paribus -5.7pc
Royal Bank of Scotland -5.69 pc
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BRIC nations helping eurozone overcome debt crisis is impossible, says Russian deputy finance minister Sergei Storchak
“It’s impossible, I’m certain of that,” Storchak told reporters, according to Bloomberg. “If the BRICS are going to act to overcome the eurozone’s financial problems, then it will be based on the possibilities presented by working through the International Monetary Fund.”
Finance ministry and central bank officials from Brazil, Russia, India, China and South Africa met before this week’s IMF annual meeting to discuss coordinating policy as Europe reels from a sovereign debt crisis and growth slows in the US. There is a “high” danger that Greece will not fulfill all of its debt obligations, Storchak said.
“But whether that means creditors, Greek debt holders, will declare them in default is still a question,” he said. “They might not.”
Declaring Greece in default with the idea of triggering covenants in the country’s debt would be a serious step for creditors, he said. “That would mean, at a minimum, a haircut and then maybe even cutting off part of the body.”
Neither Brazil nor other members of BRIC, which began including South Africa in its meetings earlier this year, proposed a joint effort to help Europe going into Thursday’s meeting, Storchak said. Russia would not want to provide individual help to a country like Greece without seeing a debt stability analysis like those required of Paris Club borrowers, Storchak said.
Different government procedures among the countries make joint action such as a loan or buying bonds impossible, Storchak said.
“Sovereigns aren’t banks, they aren’t able to provide a syndicated loan,” he said. “Methodologically, that would be a fairly difficult thing to do.”
Working through the IMF remains the “most practical and pragmatic path”, he added.
Finance Minister Alexei Kudrin said on Monday that countries with “major reserves” might consider options to help ease Europe’s sovereign debt crisis.
The countries said in a statement after their meeting that they would provide support “if necessary” through the IMF or other global financial bodies. The BRICS are also “concerned with the slow pace of quota and governance reforms in the IMF”.
With work lagging on implementing changes agreed in 2010, BRICS are more likely to contribute to the new agreement on borrowing as a way to help through the IMF than trying to further boost their sway by raising their shareholding, Storchak said.
The Telegraph
Recession inevitable without drastic global deficit cuts: Harper
OTTAWA — Prime Minister Stephen Harper and his British counterpart, David Cameron, issued gloomy warnings Thursday that the world could be on the cusp of another recession unless key nations adopt some necessary economic measures.
They made their blunt assessments in separate speeches to the Canadian Parliament Thursday evening.
“Without key countries taking systemically appropriate and coordinated economic measures, without resistance to protectionism and acceptance of more flexible exchange rates, without fiscal consolidation [and] without a commitment by governments to cut rising deficits and reduce what are, in some cases, dangerous levels of national indebtedness – without things such as these, we will not avoid a recession,” Mr. Harper said in his speech in the House of Commons.
Both men used stark language to describe the economic consequences that will occur unless world leaders take decisive, but tough action to deal with the debt crisis that threatens to turn economic recovery back into full-scale recession.
“It’s important that we are clear about the facts,” Cameron told MPs and senators packed into the House of Commons.
“We’re not quite staring down the barrel. But the pattern is clear. The recovery out of the recession for the advanced economies will be difficult. Growth in Europe has stalled. Growth in America has stalled.
“The effects of the Japanese earthquake, high oil and food prices have created a drag on growth, but fundamentally, we are still suffering from the aftershocks of the world financial bust and economic collapse in 2008.
“That means families in Britain and Canada are facing a tough time.”
Cameron said that he and Harper share the same analysis about the root cause of the current economic problems and the best way to fix them.
“The world is recovering from a once-in-70-years financial crisis and is suffering from debts not seen in decades. This is not a traditional, cyclical recession. It’s a debt crisis.”
Cameron said using the “usual economic prescriptions — fiscal and monetary levels to stimulate the economy — won’t necessarily work now.
“The economic situation is much more dangerous and the solution for most countries cannot be simply to borrow more.
“A long-term solution must tackle the fundamental problem. We must address the problem of excessive debt. Let me say again, it’s a debt crisis.”
Cameron said countries in the Eurozone — of which Britain is not a member — must move swiftly to show they have the political will to get their debt under control.
Harper’s assessment was just as blunt in a speech he delivered to introduce Cameron to parliamentarians. Harper praised Cameron for showing global leadership on the need to reduce deficits and debt levels — a practice that he said others must embrace or the consequences will be severe.
“Neither of us will be accused of exaggeration if we acknowledge that the most immediate test confronting all of us is to avoid the devastating consequences of a return to global recession,” Harper told the chamber, as Cameron sat nearby.
Unless countries resist trade protectionism, accept more flexible exchange rates, commit to slashing deficits and reduce “dangerous and unsustainable levels of national indebtedness,” the results will be painful, warned Harper.
Harper’s remarks were delivered in the evening after a day during which world stock markets — including the Canada’s benchmark stock index — plunged sharply.
On Thursday, Harper and the leaders of Britain, Australia, Indonesia, Mexico, and the Republic of Korea sent an open letter to French President Nicolas Sarkozy, the current chair of the G20.
They called for strong co-ordinated action at an early-November meeting of G20 leaders in Cannes, France to ensure global economic stability — specifically by reducing debt levels in the Eurozone that are identified in the letter as a significant threat to the world economy.
“For many advanced economies, the path out of the deep and prolonged recession will be difficult,” said the letter.
“We need decisive action to support growth, confidence, and credibility.
“We have not yet mastered the challenges of the crisis. Global imbalances are rising again. External risks to the stability of our banks and our economies are reaching pre-crisis levels. And volatile and high energy prices are hurting our citizens and acting as a drain on world growth.”
In the House of Commons Thursday evening, Cameron was greeted with strong applause from the hundreds of MPs and senators. They had come to the special gathering to hear an address from Cameron — the first of its kind from a British leader to Canada’s Parliament in a decade.
It was Cameron’s second speech of the day — he delivered an address earlier at the United Nations General Assembly in New York before flying to Ottawa.
Once in the nation’s capital, accompanied by Harper, Cameron participated in a wreath-laying ceremony at the National War Memorial.
He also had a private meeting with Harper, during which the two leaders were expected to discuss the military situation in Libya, as well as the troubling signs of global economic turmoil and the European debt crisis.
Cameron was led into the House of Commons by Harper, a close ally of Cameron on the international stage.
Harper’s introductory remarks were both extensive and effusive.
He spoke of how economy and security issues have brought him and Cameron together seven times in the last 16 months — usually at gatherings of world leaders.
Throughout, Cameron’s leadership has been “decisive” and will continue to demand his “firmness of purpose” in the months ahead, said Harper.
On the economy, Cameron sees eye to eye with his fellow Conservative, Harper, who has long been calling on other world leaders to reduce their deficits and debt loads — a commitment they made at the G20 Summit last year in Toronto, which was chaired by Harper.
Cameron’s government, which came to power in May 2010, has launched sweeping austerity measures to get Britain’s burgeoning debt under control.
Harper praised Cameron for making the “difficult fiscal choices confronting the British economy” and for offering “strong guidance” to other G20 nations on how they should follow suit.
“Truly, among our G20 partners, he has been a leader by example,” Harper said of Cameron.
“Prime Minister, here in Canada, we have followed your progress carefully, and I can safely say that where it matters most, your thinking parallels that of our own government.
“To be precise, while deficit reduction is not an end in itself, the G20 fiscal targets agreed in Toronto last year nevertheless remain an essential element for rebuilding the economic health of industrialized nations.”
Earlier in the day, before Cameron’s arrival, interim Liberal leader Bob Rae rejected the notion that an austerity program such as Britain’s is the only key to success.
“I think there’s a growing consensus that austerity on its own is not going to solve this problem,” said Rae, who stressed that fiscal discipline, economic growth, and “healthy revenues” are all important to an economy.
“The problem that some of the European economies are facing, particularly at the moment Greece, is that the size of their debt is so big that it’s very hard to know what austerity measures would actually get them to a point of being able to be in balance.”
NDP foreign affairs critic Paul Dewar said it won’t help Harper if he uses Cameron’s austerity campaign as proof for why his own government should make major cuts.
“Canadians understand the importance of public services,” said Dewar.
“I think Mr. Harper shouldn’t be using Mr. Cameron as a foil to, you know, do his work. And I don’t think that would be accountable, responsible. And I think people would see through it.”
Harper also lauded Cameron for how Britain showed fundamental conviction in recent months as it worked with other NATO allies, such as Canada, to mount a military mission to help Libyan rebels oust that country’s dictator, Moammar Gadhafi.
Harper quoted former British prime minister Harold Macmillan who once said that “the state is made for man, and not man for the state.”
“We also believe that when we help others to be free, it is our own liberty that we also secure,” said Harper.
“Those ancient rights of democracy and the rule of law that our two countries share that are the common aspiration of millions of people around the world. They are, clearly, the aspiration of Libyans themselves.
“Our mutual hope is that they will someday enjoy them in all their fullness.”
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Fear gauge enters the red zone
Key indicators of credit stress have reached the danger levels seen before the Lehman Brothers failure three years ago, with Markit's iTraxx Crossover index – or "fear gauge" – of corporate bonds surging 56 basis points to 857 on Thursday
Societe Generale led a further rout of bank shares, crashing 9pc in Paris on concern that it might need recapitalisation to cope with losses on Italian and Spanish debt.
The yield spread between Italian 10-year bonds and Bunds reached a fresh record of 408 basis points before the European Central Bank (ECB) intervened in late trading. It is near the level at which LCH.Clearnet raises margin requirements, the trigger that forced Greece, Portugal and Ireland to request bail-outs.
Global investors appear shaken by the refusal of the US Federal Reserve to come to the rescue yet again with quantitative easing (QE3) even though it was never likely the bank would launch fresh stimulus with core inflation running near 2pc or in the face of protests from Capitol Hill.
The global flight from risk has hit Europe hardest. Peter Possing Andersen from Danske Bank said Europe’s authorities are running out of time. “The financial markets have lost faith in the current policies and the economy is on the verge of a recession. Radical action is needed to short-circuit the negative spiral,” he said.
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“Segments of the financial markets are dysfunctional and access to credit is being shut down. European policymakers must take imminent and bold measures. Until this happens, the market will grind slowly but surely towards disaster. The current policy of austerity risks killing the already-fragile recovery and is making a bad situation worse in terms of debt dynamics,” he said.
Mr Andersen said Greece needs greater debt relief to break the “vicious circle”, while the ECB should step in with “unlimited” bond purchases from countries such as Italy that are essentially solvent.
Andrew Roberts, credit chief at RBS, said recent weeks’ grim economic data have rendered Europe’s “muddle through” policy unworkable, pushing weaker states towards the brink. The latest PMI data show that export orders for manufacturing tumbled to 44.8 in September, the lowest since mid-2009.
Ominously, the PMI data for China is flashing contraction warnings for the third month, dropping further than it did during the depths of the Great Contraction, suggesting the loan curbs are starting to bite.
“We are in a fresh cyclical downturn within a structural slump/depression. We need global co-ordinated monetary action and the ECB must cut rates by 50 points. It made a terrible mistake by raising rates in July,” Mr Roberts said.
The IMF has slashed its growth forecast for Italy to a stall speed of just 0.3pc in 2012, a level that risks havoc with debt dynamics. The country must raise €260bn by late next year. Each 100-point rise in borrowing costs increases the budget deficit by €2.5bn.
The IMF warned that emerging markets are nearing the buffers of credit growth and are losing their fiscal room for manoeuvre. It said China’s domestic loans have risen to 173pc of GDP, “well above” the safety level.
The IMF fears “significant” losses on $1.7 trillion of local government debt, raising the risk Beijing may need to rescue the system. “The consequences could be a substantial worsening of China’s public debt metrics and a narrower scope for future fiscal stimulus,” it said. China cannot safely respond to a second global shock by opening the floodgates of cheap credit again.
Professor Giuseppe Ragusa from Luiss Guido University in Rome said the ECB has the power to halt the eurozone’s escalating crisis by pledging to buy up €2 trillion of bonds. “They would not have to buy the debt. The promise would be enough,” he said.
Such bold action appears unlikely. The ECB has intervened hesitantly over the past six weeks, without the overwhelming force needed to convince markets that it will back-stop Italy’s €1.8 trillion debt – the world’s third largest.
The bank is constrained since the policy is vehemently opposed by the Bundesbank and by German president Christian Wulff, who has accused the ECB of breaching the EU treaty law.
David Owen from Jefferies Fixed Income said the Bundesbank increased its balance sheet by €50bn in August alone to help shore up the Eurosystem. It has lifted its liquidity provision eightfold to €421bn since the crisis began, almost as much as the ECB itself.
On Thursday IMF managing director Christine Lagarde said the ECB must continue to provide “solid, reliable” funding for euro-area banks and economies as parliaments in the region pass measures into law to fight the region’s debt crisis.
The ECB “plays and can play and I hope will continue to play a critical role,” she said.
There are clearly limits to how far this policy can be pushed without a treaty change. Otherwise it amounts to fiscal union by the back door. The task of purchasing bonds and recapitalising banks must fall to the EU’s bail-out fund, but it will not be ready until ratified by all national parliaments later this year. Europe faces a tense Autumn.
The Telegraph
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