William Hague warns Iran it faces 'serious consequences' for British embassy attack in Tehran

Following Iran's decision to downgrade diplomatic ties with the UK after the imposition of fresh sanctions, Iranian protesters broke into the grounds of the British Embassy in Tehran.

Protesters threw petrol bombs and climbed over the gates of the embassy to loot the building.

William Hague said Iran had "committed a grave breach" of the Vienna Convention, which demands protection of diplomats and diplomatic premises under all circumstances.

The Foreign Secretary said that all embassy staff had been accounted for and played down suggestions of a hostage situation, saying there had been "confusing" reports coming out of the country

He revealed that Prime Minister David Cameron had chaired a meeting of the Government's Cobra security committee this afternoon and the Iranian charge d'affaires had been summoned to the Foreign Office.

Mr Hague added: "We hold the Iranian government responsible for its failure to take adequate measures to protect our embassy as it is required to do.

"I spoke to the Iranian Foreign Minister this afternoon to protest in the strongest terms about these events and to demand immediate steps to ensure the safety of our staff in both embassy compounds.

"Clearly there will be other, further, and serious consequences. I will make a statement updating Parliament on this tomorrow," Mr Hague added.

Around 24 embassy staff and their dependants are based at the office and residential compounds in Tehra

The Telegraph

Former MI chief: Iran has enough material for 4 or 5 nuclear bombs

Former Military Intelligence chief Maj.-Gen. (res.) Amos Yadlin said Tuesday that Iran had enough material to develop "four or five" nuclear bombs, adding that it was imperative for Israel to maintain good relations with members of the international community capable of dealing with that threat.

"Once Iran decides finally to move forward in developing a nuclear weapon, a whole new range of opportunities will open up for a fight which the international community will fight," Yadlin said in an address at the Institute for National Security Studies, where he is beginning a term as director.

"Israel is not alone in the game," Yadlin said. "When the Iranians publicly reveal that they are pushing toward a nuclear weapon, Israel will no longer be the central player in the game."

"This situation requires us to maintain good channels of dialogue and understanding with those who have better operational abilities than us," Yadlin added.
The former MI chief said there was a good chance that sources within Western intelligence bodies would know in advance should the Iranian spiritual leader, Ayatollah Khamenei, order the country to advance toward a nuclear weapon.

A general in Iran's Revolutionary Guard, Yadollah Javani, over the weekend threatened retaliation against Israel if any of its nuclear or security sites are attacked.

"If Israeli missiles hit one of our nuclear facilities or other vital centers, then they should know that any part of Israeli territory would be target of our missiles, including their nuclear sites," told ISNA news agency."They [Israel] know that we have the capability to do so."

Javani, the former head of the military's political department, was referring to mounting speculation that Israel would strike Iran's nuclear facilities after the International Atomic Energy Agency said Iran had tested designs used to make nuclear warheads.

Iranian political and military officials have warned Israel that it would face retaliation from Shahab-3 missiles that can reach any part of Israel.

Iranian volunteers affiliated with the Revolutionary Guards have held several gatherings in recent days and vowed a harsh reply to any military attacks on nuclear sites.


Haaretz

Larger, revamped version of euro-zone bailout fund unveiled

Faced with an unrelenting debt crisis that has reached the heart of Europe, eurozone finance ministers unveiled a larger, revamped version of the bailout fund they hope will buy them enough time to salvage their battered currency union.

The Europeans also signalled they will seek more help from the International Monetary Fund in an effort to thwart bond-market attacks that have driven the cost of government financing to unmanageable levels across much of the region. Italy’s borrowing costs soared to nearly 8 per cent on Tuesday, well above the 7 per cent considered sustainable and a record for its dozen years in the euro.

The bailout fund would be boosted through new investment structures involving public and private money. The ministers also agreed to guarantee up to 30 per cent of new debt issued by troubled governments.

But European officials could not say how much more firepower the bailout fund, known as the European Financial Stability Facility, would be able to deploy. The IMF has warned that more resources to tackle the debt crisis would have to come from Europe. And skeptical analysts doubt the changes will be enough to stem the speculative attacks in the market that have driven the most fiscally troubled governments to the brink of collapse.

“It’s impossible to give one number, it’s a process,” EFSF chief executive Klaus Regling said, refusing to be pinned down to an earlier stated goal of €1-trillion. “We will need money if countries make a request, and market conditions change over time.”

Luxembourg Prime Minister Jean-Claude Juncker, who heads the eurozone ministers’ group, said: “We haven’t lowered our ambitions, but the conditions have changed, so it will probably not be €1-trillion but less.”

Early reaction in the markets was muted. The euro was largely unchanged, reflecting a view that the Europeans repeatedly talk a better game than they have delivered throughout the course of the two-year-old crisis.

“Juncker came out and stated what analysts have known for a long time, which is that if you start with nothing, and you multiply it by a gazillion, you still come up with nothing,” said Carl Weinberg, chief economist at High Frequency Economics in Valhalla, N.Y.

The worry is that even the new larger, leveraged version of the bailout fund and an accompanying bond-insurance scheme simply will not be big enough to stop the speculative attacks in the bond market that have raised the spectre of debt restructurings or defaults that could spell the death knell for the common currency.

“We’re no further forward because we don’t know who is going to invest [in the bailout fund] and how much the IMF will be involved,” said Michael Hewson, a market analyst in London at CMC Markets. Officials “were deliberately short on detail on this point. As such, the credibility gap remains and wasn’t helped by German Finance Minister Wolfgang Schauble admitting that it [the EFSF] wouldn’t be able to contain the debt crisis.”

Economists have repeatedly argued that the solution lies in turning the European Central Bank into a lender of last resort with unlimited capacity to buy euro-zone sovereign debt and in replacing the unloved debt of various governments with eurobonds guaranteed by the strongest countries in the union. Germany flatly rejects both avenues.

The Globe and mail

Italy's borrowing costs hit a lifetime high of 7.89%

Italy's borrowing costs hit a euro lifetime peak of nearly eight per cent Tuesday as pressure on eurozone finance ministers intensified to staunch a two-year-old debt crisis that is blighting the world economy.

Rome had to offer a record 7.89 per cent yield to sell 3-year bonds, a huge leap from the 4.93 per cent it paid in late October, and 7.56 per cent for 10-year bonds, compared with 6.06 per cent at that time.

The borrowing costs were above the levels at which Greece, Ireland and Portugal applied for international bailouts, but European stocks and bonds rallied in apparent relief at the strong demand, with the maximum 7.5 billion euros sold.

"In an ideal world, these yields, and the fact that the 3-year was above 8 per cent in the grey market this morning, would serve to give the Ecofin/Eurogroup a sense of added urgency, but this is a far from ideal world," said Peter Chatwell, rate strategist at Credit Agricole in London.

The euro and European markets had earlier dipped on a report in business daily La Tribune that ratings agency Standard & Poor's would downgrade France's AAA credit rating within 10 days, dealing a body blow to the eurozone's ability to rescue heavily indebted countries.

New Italian Prime Minister Mario Monti is due to outline his fiscal and economic reform plans to finance ministers of the 17-nation currency area later Tuesday amid reports, denied in Washington and Rome, of a possible approach to the IMF.

Italy, with a 1.9 trillion euro debt pile -- equivalent to 120 per cent of economic output -- needs to refinance some 340 billion euros of maturing debt next year with big redemptions starting in late January. It has promised to balance its budget in 2013 but Tuesday's auction suggested it will struggle to keep borrowing costs under control without international help.

Italian daily La Repubblica said EU Economic and Monetary Affairs Commissioner Olli Rehn would tell eurozone ministers that Italy needs to introduce fiscal measures worth 11 billion euros immediately to meet its target.

In Brussels, Eurogroup ministers are expected to approve detailed plans to bolster their bailout fund to help prevent contagion in bond markets, under pressure from the United States and ratings agencies to stop the crisis spreading.

The newspaper report about France's credit rating came at a delicate time. France is the second largest guarantor of the EFSF bailout fund, and one of only six AAA states in the eurozone. S&P declined comment. French Finance Minister Francois Baroin, asked about the report, said the focus should not be solely on France.

The eurozone ministers are also set to release a long-delayed 8 billion euro loan instalment for Greece, vital to stave off bankruptcy in December and buy time for negotiations on an uncertain second bailout program for Athens.





Read more: http://www.vancouversun.com/business/Italy+borrowing+costs+lifetime+high/5783181/story.html#ixzz1fCDVdqra

Dr. Jerome Corsi: World War 3 is About to Begin....

Senate Passes Bill Allowing Indefinite Detention of Americans ... Considers Bill Authorizing More Torture

The Senate passed a bill today allowing indefinite detention of American citizens living within the U.S.

While some have claimed that this is incorrect, and that American citizens would be exempted from the indefinite detention within U.S. borders authorized by the Act, the Committee chairman who co-sponsored the bill – Carl Levin – stated today in Senate debate that it could apply to American citizens.

Levin cited the Supreme Court case of Hamdi which ruled that American citizens can be treated as enemy combatants:


“The Supreme Court has recently ruled there is no bar to the United States holding one of its own citizens as an enemy combatant,” said Levin. “This is the Supreme Court speaking.“

Under questioning from Rand Paul, co-sponsor John McCain said that Americans suspected of terrorism could be sent to Guantanamo.

You can hear the statements from Levin and McCain on today’s broadcast of KFPA’s Letters and Politics.

As Raw Story notes:

The provision would authorize the military to indefinitely detain individuals — including U.S. citizens — without charge or trial.

“If these provisions pass, we could see American citizens being sent to Guantanamo Bay,” Rand said in the video. “This should be alarming to everyone watching this proceeding today. Because it puts every single American citizen at risk.”

“There is one thing and one thing only protecting innocent Americans from being detained at will at the hands of a too-powerful state — our Constitution, and the checks we put on government power,” he continued. “Should we err today and remove some of the most important checks on state power in the name of fighting terrorism, well, then the terrorists have won.”



“Detaining citizens without a court trial is not American. In fact, this alarming arbitrary power is reminiscent of Egypt’s ‘permanent’ Emergency Law authorizing preventive indefinite detention, a law that provoked ordinary Egyptians to tear their country apart last spring and risk their lives to fight.”

The debate is also being streamed live on CSpan-2.

While passage of the bill would make the Founding Fathers roll in their grave, it might not change that much. As former constitutional lawyer Glenn Greenwald notes:


With very few exceptions, the McCain-Levin bill, awful though it is, doesn’t create any powers beyond what the O Admin thinks it now has.

Indeed, the U.S. has been a de facto police state for many years.“A MIDDLE EAST DICTATORSHIP HAS MORE DEMOCRATIC ACCOUNTABILITY FOR ABUSE OF POWER, INCLUDING TORTURE, THAN THE US UNDER OBAMA”

The same Senate is now considering a bill to repeal the prohibitions against torture:

The ACLU and over 30 other organizations sent a letter to the Senate asking them to oppose an effort in Congress that threatens to revive the use of torture and other inhumane interrogation techniques. If passed, an amendment introduced by Sen. Kelly Ayotte (R-N.H.) to the Defense Authorization bill would roll back torture prevention measures that Congress overwhelmingly approved in the 2005 McCain Anti-Torture Amendment, as well as a 2009 Executive Order on ensuring lawful interrogations. It would also require the administration to create a secret list of approved interrogation techniques in a classified annex to the existing interrogation field manual.

In a related development, republican presidential candidate Michele Bachmann renewed her attack on the prohibition of waterboarding and other forms of torture 

Glenn Greenwald pointed out last week:

Andrew Sullivan … today noted that the U.S. under Obama imposes even less accountability for abuse of power and war crimes than does Bahrain:

Bahrain’s Sunni government promised “no immunity” for anyone suspected of abuses and said it would propose creating a permanent human rights watchdog commission. “All those who have broken the law or ignored lawful orders and instructions will be held accountable,” said a government statement, which says the report acknowledges that the “systematic practice of mistreatment” ended shortly after martial law was repealed on June 1.



As Andrew put it: “So a Middle East dictatorship has more democratic accountability for abuse of power, including torture, than the US under Obama.” Beyond things like this and the facts set forth in the last paragraph here, perhaps Andrew could use today’s post of his to help clear up the towering mystery he raised yesterday of liberal disenchantment with Obama. That American war criminals are being aggressively shielded from any and all accountability is not an ancillary matter but one of enduring historical significance.

Zero Hedge

Eye witnesses claim ‘unusual’ movement of Israeli missiles

JERUSALEM — Multiple eyewitnesses reported seeing Israeli military trucks in recent days transport and station large missiles at the periphery of Jerusalem and in locations inside the West Bank.
The descriptions of the projectiles are consistent with the Jewish state’s mid-to-long range Jericho ballistic missiles.

The missile movement, if confirmed, would be considered unusual.

One of the eyewitnesses was a member of the Palestinian Authority security services. He claimed to me that a large missile was stationed five days ago near Neve Yaacov, a Jewish neighborhood in northeast Jerusalem. That neighborhood is adjacent to several Palestinian-inhabited towns.

Four other eyewitnesses, Israeli and Palestinian, reported seeing similar sights during the past week – large missiles being transported by the Israeli military at the periphery of Jerusalem and in the West Bank.

Reached for comment, the spokesperson’s unit of the Israel Defense Forces could not confirm the information, referring me instead to Israel’s national police.

Mickey Rosenfeld, the national police spokesperson here, told me today he has no information on any such movements.

Apparently, I’m not the only reporter to receive such reports.

Rosenfeld said another foreign correspondent contacted him earlier today for comment on the same matter.

The PA security member, speaking on condition of anonymity, speculated the missiles were related to a possible Israeli offensive against Iran. He commented that such missiles were offensive in nature, and usually not meant to serve as defensive posture.

While the possibility of an attack on Iran cannot be immediately discounted, there are several other scenarios that make some sense:

1) It’s possible such missile transport is part of an internal military drill or to test various locations for the future deployment of projectiles.

The drill, however, would not include test firings. Such testing is almost always conducted at a military base and usually involves one missile fired from one location. Any such test is difficult to keep under wraps.

Earlier this month, the IDF did test fire a long-range ballistic missile, believed to be a Jericho III, at the country’s Palmachim Air & Space test center. Israel’s Ministry of Defense confirmed the test was successful, indicating the purpose of the launch was the testing of a new advanced propulsion system.

Jericho III’s are believed to be guided by radar and reportedly give Israel nuclear strike capabilities within the entire Middle East, Africa, Europe, Asia and almost all parts of North America, as well as within large parts of South America and North Oceania.

2) Any missile placement could be related to the unstable situation in Syria, including fears of a future NATO military campaign there that could have ramifications for Israel, such as firing of missiles into the Jewish state by Syria or Hezbollah in Lebanon.

Just yesterday, in an unprecedented move against a fellow Arab nation, the Arab League approved economic sanctions on Syria to pressure Damascus to end its suppression of an 8-month-old uprising against Assad’s regime.

Arab League diplomats, speaking last week to the Associated Press on condition of anonymity, said that if Syria does not adhere to its demands for immediate reform, the organization will work to unify Syrian opposition groups into a coalition similar to that of Libya’s National Transitional Council.

A next step, the diplomats said, would be to recognize the opposition as the sole representative of the Syrian people in a move that would symbolically isolate the Assad’s regime.

The moves mimic the diplomatic initiatives taken to isolate Muammar Gadhafi’s regime before the NATO campaign in Libya.

Syrian President Bashar al-Assad warned in an interview with a U.K. newspaper earlier this month that foreign intervention in Syria would cause an “earthquake” across the region and create another Afghanistan, while directly threatening the Jewish state.

Assad reportedly made similar comments in a meeting in early October with Turkish Foreign Minister Ahmad Davutoglu.

He was quoted stating, “If a crazy measure is taken against Damascus, I will need not more than six hours to transfer hundreds of rockets and missiles to the Golan Heights to fire them at Tel Aviv.”

Assad also reportedly warned that “all these events will happen in three hours, but in the second three hours, Iran will attack the U.S. warships in the Persian Gulf and the U.S. and European interests will be targeted simultaneously.”

Klein Online

U.S. Outlook Cut to Negative by Fitch After Committee Fails

The U.S. lost its last stable outlook from the three biggest credit-ranking companies after Fitch Ratings lowered the nation to negative following a congressional committee’s failure to agree on deficit cuts.

Fitch’s outlook on the U.S., which it still assigns its top AAA grade, reflects “declining confidence that timely fiscal measures necessary to place U.S. public finances on a sustainable path will be forthcoming,” making the probability of a downgrade greater than 50 percent over two years, the company said yesterday in a statement. Standard & Poor’s and Moody’s Investors Service said Nov. 21 that the so-called supercommittee’s inability to reach an agreement didn’t merit downgrades because the inaction will trigger $1.2 trillion in automatic spending cuts.

U.S. government debt rallied the most since the end of 2008 during the third quarter after Standard & Poor’s stripped the U.S. of its AAA ranking on Aug. 5, while global equities lost $9.7 trillion in market value during that period. Even with lawmakers reluctant to embrace the automatic cutbacks that helped prevent downgrades, President Barack Obama has pledged to veto any efforts to undermine the spending reductions.

“There’s a much broader recognition out there that you can’t just cut discretionary spending, you have to actually cut into the meat and bone of the programs driving the deficit,” Noel Hebert, a credit strategist at Mitsubishi UFJ Securities USA Inc. in New York, said yesterday in a telephone interview. Fitch is “catching up to the dysfunction that’s been widely perceived by the American electorate for the last decade.”
Treasuries Outperform

Treasuries have returned 3.8 percent through yesterday since S&P made its rating cut, according to Bank of America Merrill Lynch indexes. German bunds gained 1.9 percent, Japanese bonds rose 0.1 percent, and U.S. corporate debt handed investors a 0.4 percent loss, the indexes show.

The MSCI All Country World Index dropped 6 percent, and the Standard & Poor’s GSCI Total Return Index (MXWD) of commodities was little changed.

Treasuries due in 10 years and more have returned almost 28 percent in 2011, the most among 144 bond indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies after accounting for changes in currency rates.

Bloomberg

Public sector strike set to be largest for a generation

Up to two million public sector workers are staging a strike over pensions in what is set to be the biggest walkout for a generation.

Schools, hospitals, airports, ports and government offices will be among sites disrupted, as more than 1,000 demonstrations are due across the UK.

It would "achieve nothing", Downing Street said, calling for more talks.

Unions object to government plans to make their members pay more and work longer to earn their pensions.

Cabinet Office Minister Francis Maude branded the action "indefensible and wrong".

"While discussions are continuing, I would urge public sector workers to look at the offer for themselves rather than listening to the rhetoric of their union leaders," he said.

"These are the sort of pensions that few in the private sector can enjoy."

Shadow chief secretary of the treasury, Rachel Reeves, told BBC's Newsnight that Labour did not support the industrial action.

"We do not support the strike because a strike is a sign of failure," she said.

"But we think the government needs to give something more to low-paid public sector workers. They've just seen their pay is going to be frozen effectively for another two years.

"We understand why they are striking, because [there is] effectively a tax increase on public sector workers."

Earlier, union leaders reacted angrily to Chancellor George Osborne's Autumn Statement announcements of a public sector pay cap of 1% for two years, as well as bringing forward to 2026 the rise in the state pension age to 67.'Failure to negotiate'

GMB union leader Paul Kenny said: "As well as the shameful unfairness of further pay restraint on already hard-pressed public sector workers, the chancellor's announcements will push the possibility of a pensions deal further away.

"The [pension] contribution rises government want are plainly unjustified and unaffordable, while moving the goalposts on retirement age mid-negotiation smacks of deliberate deception. No doubt this will boost the strike turnout tomorrow."


Paul Noon, leader of civil service union Prospect, said members felt the chancellor was "aiming yet another punch at them".

The 24-hour strike is expected to disrupt courts, job centres, driving tests and council services, such as libraries, community centres and refuse collections. Highways Agency staff will be on strike, as will many Police Community Support Officers (PCSOs).

It is feared as many as 90% of England's schools could be forced to close by striking teachers.

Education Secretary Michael Gove has said it is "unfair and unrealistic" to expect taxpayers to foot the growing public sector pensions bill.

General secretary of the National Association of Head Teachers Russell Hobby responded that "blame for any rise in union militancy - particularly among moderate unions - belongs fairly and squarely at the government's door: A failure to negotiate in any meaningful sense until the last minute".

BBC

Insight: In euro zone crisis, companies plan for the unthinkable

(Reuters) - When Novo Nordisk's chief financial officer met marketing colleagues last Friday the conversation moved far beyond the usual discussion of sales and performance. Jesper Brandgaard asked a simple, far-reaching question: how would the firm set prices for two pivotal new insulin products if the euro collapsed?

The Danish firm, the world's biggest maker of insulin for the treatment of diabetes, sits outside the euro zone but sells into it. It's a question that is being echoed - in various forms - in the boardrooms of banks, brokerages, trading houses, law firms and the world's leading manufacturers.

"It's hard to make detailed plans but we need to think through how our pricing strategy would fare if there were suddenly a dismantling of the euro," Brandgaard told Reuters. "How do we avoid falling into a trap? This is the first time I've asked such a question. It's a topic that is increasingly on the radar."

In the case of the products in question - Degludec and DegludecPlus, two ultra-long-acting insulins - Novo Nordisk has time on its side. The new drugs are still working their way through the regulatory approval process and probably will not reach the market until late 2012.

Planning for a breakdown of Europe's 17-nation single currency is not easy. Like many business leaders, Brandgaard views a break-up of the euro as possible though not yet probable -- but the odds are increasing. In a Nov 23 Reuters poll 14 out of 20 economists said the single currency would not survive in its current form - and companies are starting to plan for a worst case scenario.

Their trepidation is best summed up by Martin Sorrell, the head of the world's biggest advertising agency WPP. "The complexity fills everybody with such appalling fear and is so complicated that the last thing in the world you want to happen is that," Sorrell told Reuters on Monday. "But the honest answer is that, like everybody else, you try and contingency plan for any break-up of the euro zone."

Drawing on interviews with company officials, bankers and lawyers in Europe, the United States and Asia and companies' regulatory filings, Reuters has pieced together a picture of patchy preparedness for the possible demise of the 12-year-old euro currency, an event that would be unparalleled in recent history.

"These days, it's a part of almost every risk management conversation that comes up," said a senior player in London's insurance market, speaking like many in this story on condition of anonymity because of the sensitivity to their business.

Some of the most active contingency planning is happening in European countries outside the euro zone that have strong trading links with the currency bloc - Denmark and Britain being leading examples. Of the 33 companies with the biggest exposures to the euro zone in sales terms, five are British, according to Thomson Reuters data. Health care, energy and consumer goods are among the most exposed industries.

A number of British firms, including the world's biggest caterer Compass Group, have said they have discussed or put in place contingency plans to deal with a euro collapse but most are reluctant to give details.

"Most business people have given up waiting for the political Godots. You just can't run your business on the basis that something will turn up, so you have to plan on the basis that it doesn't turn up. So you think about what legally and contractually it is going to mean. You also say 'I'm going to run my balance sheet as conservatively as possible'," WPP's Sorrell said.

TESTING THE SYSTEM

Banks, brokers and exchanges are in the front line.

ICAP, the world's top broker for foreign exchange and government bonds, said on Monday it has tested its trading system to handle the collapse of the euro zone and re-emergence of nationalcurrencies.

It is not alone in carrying out 'war games'. A senior banker at a large investment bank said he had a team of 20 people globally running all kinds of scenarios all the time. That team was now spending a lot of its time on the possible break-up of the euro. They had simulated a weekend crisis by running through the different stages of Friday night, Saturday and Sunday in one full working day. In addition, they had looked whether they would have enough people (and the right ones) available and made sure they knew where to reach them.

"It's my job to assume the worst. You can test all kinds of benign scenarios, but if something really bad - let's say a sudden overnight default of Italy - were to happen and we hadn't tested that, I wouldn't be doing my job properly. If that latter scenario were to occur, things would look very ugly indeed. There simply wouldn't be enough time to sort out all the various trading positions and look at all the paperwork," the banker said.

In his estimation, a return to the drachma in euro zone minnow Greece was the least of his concerns. He likened Greece to bankrupt U.S. broker-dealer MF Global - annoying but not a real issue - and Italy to Lehman, whose collapse marked the start of the 2008 financial crisis.

Britain's regulator, the Financial Services Authority, has told Britain's banks to draw up contingency plans in case there is a disorderly break-up of the euro zone or exit of some countries. "We cannot be, and are not, complacent on this front," Andrew Bailey, deputy head of the FSA's Prudential Business Unit, said on November 24.

U.S. firms are testing their systems too. A.M. Best Co, the main ratings agency for the insurance industry, said on November 22 it is doing additional stress testing on insurers given deteriorating conditions in Europe. The agency, which just conducted a similar review two months ago, said it is looking at underwriters' exposures on a case-by-case basis to see if any have additional risk from the weakening euro zone.

SAFEGUARDING THE CASH

For non-financial firms, a key focus of efforts for firms worried about a euro collapse is in trying to safeguard their cash. Corporate balance sheets currently are very strong with upwards of $1 trillion net sitting on them, a reflection of companies' reluctance to invest in adding capacity or in buying other firms.

The chief executive of a European company with annual revenues of more than $10 billion a year told Reuters during a recent visit to London that his board had discussed how to handle a euro zone collapse but that it had proved a very short meeting. Other than ensuring their cash deposits were in the safest possible banks and relying on the broad international nature of their business, executives quickly concluded there was little more they could do.

Treasury department teams are shifting money to safe havens and rehearsing rapid-action scenarios. Budgets for 2012 are being looked at again. And outside consultants are being brought in to advise on exposure to peripheral Europe - Greece, Ireland, Spain, Portugal and Italy.

Central bank data shows a decline in deposits from banks in weaker euro zone countries. Separating data on corporate deposits from personal bank accounts data is nigh on impossible, but anecdotal evidence points to corporations moving euro accounts to safe havens. Some big firms such as engineering group Siemens and carmakers BMW, Daimler and Volkswagen, are licensed to deposit funds with the European Central Bank, the safest of all safe havens in the euro zone.

Siemens finance chief Joe Kaeser said in a November 10 media call on the group's quarterly results that a considerable proportion but less than half of its 12 billion euros in liquidity had been parked with the ECB. About a year ago, Siemens -- a maker of fast trains and gas turbines -- acquired a banking license to be able to deal directly with the ECB.

BMW said on Monday its approach to handling excess liquidity had not changed and that it continued to use a number of international commercial banks as well as the ECB's deposit facility. Daimler said it used surplus cash mainly internally. Volkswagen did not immediately respond to calls seeking comment.

Similar caution emanated from companies in other industry sectors.

Simon Henry, chief financial officer of oil company Royal Dutch Shell, said as a consequence of Europe's debt crisis it was taking extra care in investing its $20 billion cash pile. "It's with secure counterparties and its short term," Henry said.

Drugs firm AstraZeneca told Reuters it was carefully monitoring its exposure to the banking sector in light of the debt crisis and had increased its holdings of U.S. government Treasury bills.

The chairman of another company in Britain's FTSE 100 index of leading firms said the shortage of AAA rated banks was complicating life. British firms don't have access to the ECB because Britain is outside the euro zone.

Different industries also have differing abilities to reduce exposure to risky markets.

Pharmaceuticals is one sector where firms have limited wiggle room, since companies have an ethical obligation to supply life-saving medicines, even when payments are uncertain. In fact, drug makers have already been through something of a "dry run" in Greece, after being forced to accept government bonds instead of cash for some outstanding debts. Those bonds were either sold immediately at a discount to face value or are still sitting on their books at even lower value today. Greece accounts for only around 1 percent of the global pharmaceuticals market, so the impact on major international companies has been minimal. Italy and Spain, however, are much bigger markets.

COMPANY FILINGS

A significant number of U.S. companies in a wide range of industries, including one in three members of the widely watched Dow Jones industrial average, warned investors of their rising concerns about Europe in quarterly regulatory filings.

"Western Europe appears to be experiencing increasing challenges given the uncertainty around fiscal and monetary policy direction, which likely impacts consumer confidence," diversified manufacturer 3M Co said in a filing with the U.S. Securities and Exchange Commission.

Bank of America Corp added the European debt crisis into its regular list of risk factors it advises investors to be aware of: "There remains considerable uncertainty as to future developments in the European debt crisis and the impact on financial markets."

And drugmaker Merck warned shareholders that cutbacks in spending by cash-strapped European governments could take a toll on how much it can charge for its medicines.

Other companies that called attention to the crisis in their filings included American Express Co, Boeing Co and Cisco Systems Inc.

U.S. companies that do business in Europe are expecting exchange rates on European currencies to be more volatile in the coming months, and have stepped up their efforts to hedge against these risks, experts said. Beyond financial hedges, though, which become pricier at times of vulnerability, manufacturers should think about "natural hedging" -- localizing supply chains within the euro region, suggested Stefano Aversa, co-president of Alix Partners LP, a global consulting company.

"One of the things that companies have to think about is natural hedging, which is the only real protection, having production as much as possible balanced with where you sell and where you buy. This is the No. 1, because you might see swings literally of two or three points on the bottom line due to this here," Aversa said in a phone interview.

Other companies are rewriting sales contracts to allow them to adjust prices if currencies experience large swings, Aversa said.

U.S. companies may be more prepared for a European meltdown simply because the credit crunch of late 2008 was felt more sharply in the United States, Aversa said. The downside to the resulting conservatism, though, is that companies are already having a harder time getting access to credit as banks tighten lending standards.

"All of the banks are doing the stress tests and frankly are becoming much more prudent," Aversa said. "One of the consequences of it for the industrial companies, particularly the not-big ones, is a restriction on refinancing and credit in general, which is now pretty apparent."

WORK FOR INSURERS, LAWYERS

The prospect of a euro break-up raises a mountain of legal and financial questions. Lawyers and bankers have begun combing through loan agreements, leases and other financial contracts to see how they would survive any serious euro disruption.

Most contracts failed to foresee a collapse or partial disintegration of the euro and the stroke of a lawyer's pen a decade ago could have heavy repercussions today, stemming from the choice of jurisdiction or the laws governing individual contracts. Some banks have already started thinking about how to revise the standard documentation used in future loan agreements to anticipate a break-up of the single currency.

"From the late 1990s onwards, commercial contracts were written to include express provisions to deal with the transition to the euro but I am not aware of any being written so far that contemplate any country exiting the euro," said Jamie Wiseman-Clarke, a senior associate at London law firm Berwin Leighton Paisner, specializing in aviation, rail and shipping. "The euro was assumed to be stable," he added.

It is a high-risk process.

Ill-judged wording might result in a creditor having to recover its money in the currency prevailing on the day in a country departing the euro area rather than the euro. There are also concerns that a euro exit would tip some companies into default on their loans. The redenomination of their local currency could trigger a drop in revenues that would in turn prevent them meeting their obligations on euro-denominated debt or force them to break loan covenants.

A rash of technical payment defaults on all the loan borrowers from a departing country is a Doomsday scenario that would keep the lawyers busy as they fix documentation that failed to envisage such an outcome, bankers said.

More likely than a mass technical default is that some companies would simply be unable to pay or meet loan conditions because of the dire economic conditions and drop in demand that some economists are predicting from a break-up of the euro.

Worse still, UK law firm Clifford Chance has warned there might be practical difficulties in recovering payments since any decision to quit the euro would probably go hand in hand with exchange controls. Depending on how courts read the background to the decision that could lead to a stand-off between the laws of different states.

Planning is not made any easier by the fact that many continental European companies tend to be more politicized than their counterparts in the United States, so the question of a break-up is virtually taboo. Franco-German-led aerospace giant EADS, for example, is often described as the industrial counterpart to the euro. Its stakeholders include the French government and, soon, the German state. During much of its 11-year history it was a conduit for Franco-German tensions.

"If people learned that a big CAC40 (French blue-chip) company was preparing a worst-case scenario it would spread anxiety and would be interpreted as a very damaging blow to the euro," said a communications adviser to a number of top French companies, asking not to be identified.

As for a complete collapse of the currency, the consequences are so unpredictable - and unthinkable to a post-war generation immersed in European integration -- that many say there is little point in running models. What counts more, they say, is a nose for survival.

"We are not running contingency plans like that. We want the euro to survive but we make tangible things. We would not die without the euro," said the chief executive of one of Europe's largest manufacturing companies.

Jim Rogers on Bloomberg

S&P downgrades Goldman, BoA and Citi

Bank of America Corp., Goldman Sachs Group Inc. and Citigroup Inc. had long-term credit grades reduced to A- from A by Standard & Poor’s after the ratings firm revised criteria for dozens of the largest global lenders.

Standard & Poor’s made the same cut to Morgan Stanley and Bank of America’s Merrill Lynch unit. JPMorgan Chase & Co. was reduced one level to A from A+. S&P upgraded Bank of China Ltd. and China Construction Bank Corp. to A from A- and maintained the A rating on Industrial and Commercial Bank of China Ltd., giving all three lenders higher grades than most big U.S. banks.

The moves may increase pressure on firms bracing for Europe’s mounting sovereign debt crisis and navigating economic weakness. Bank of America, which has plunged 62 percent this year in New York trading, said in a regulatory filing this month that it may have to post billions of dollars of additional collateral and termination payments on its trades if it were to be downgraded one level by rating companies.

“It’s evident that stress from the European banking system is taking its worldwide toll,” Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, said in an e-mail.

S&P, a unit of New York-based McGraw-Hill Cos., has been changing the way it looks at debt after its faulty grades contributed to the credit-market seizure that brought down Lehman Brothers Holdings Inc. and Bear Stearns Cos. It started to review the methodology in December 2008, months after the collapse of those two firms.

Downgrades “could likely have a material adverse effect on our liquidity, potential loss of access to credit markets, the related cost of funds, our businesses and on certain trading revenues, particularly in those businesses where counterparty creditworthiness is critical,” Charlotte, North Carolina-based Bank of America said in this month’s filing.

The company, which noted the risk of downgrades from S&P and Fitch Ratings in its third-quarter filing, previously said it has prepared by lining up funding for a year.

The following table shows firms that were downgraded by S&P, followed by a list of banks that were upgraded.

Downgraded:

•Banco Bilbao Vizcaya Argentaria S.A.

•Bank of America Corp.

•Bank of New York Mellon Corp.

•Barclays Plc

•Citigroup Inc.

•Rabobank Nederland

•Goldman Sachs Group Inc.

•HSBC Holdings Plc

•JPMorgan Chase & Co.

•Lloyds Banking Group Plc

•Morgan Stanley

•Royal Bank of Scotland Plc

•UBS AG

•Wells Fargo & Co.

Upgraded:

•Bank of China Ltd.

•China Construction Bank Corp.

Financial Post

Iran fears cyber wars and sabotage...UK embassy burn

King Says U.K. Economy ‘Increasingly Threatened’ by Euro-Area Debt Crisis

Bank of England Governor Mervyn King said the U.K. is being “increasingly threatened” by the euro- area crisis, and authorities must be ready to act if it continues to escalate.

“What we have to do is to be ready and prepared with contingency plans and to make sure that as far as possible our banking system is as robust as possible to withstand whatever shocks that come from the eurozone,” King told lawmakers at a Parliament committee in London yesterday. There are “early signs” of a credit crunch emerging in euro area in the difficulties banks have in accessing funding, he said.

The central bank restarted bond purchases in October for the first time in almost two years, citing risks from the crisis in the euro area, and some policy makers have said more may be needed. As the region’s leaders struggle to prevent turmoil spreading to core countries such as Germany and France, King has said the bank can’t quantify the possible impact of the “most extreme events” in the region.

“There are many things that could happen if developments in the eurozone get worse, but I honestly don’t think it makes much sense to pretend we can precisely know how this will play out,” he said.
Euro Meeting

Finance ministers from the 17-member monetary union meeting in Brussels today are under increasing pressure to step up their response to the sovereign debt crisis. They will debate using their bailout fund, the European Financial Stability Facility, to insure sovereign debt with guarantees.

UBS AG cut its 2012 and 2013 forecasts for the U.K. economy this week. It sees a contraction of 0.1 percent next year and growth of 1.1 percent in 2013, having previously forecast expansion of 0.7 percent and 1.3 percent respectively.

“Perhaps we are nearing a crescendo point in the sovereign debt crisis and a solution may emerge soon,” said Amit Kara, an economist at UBS in London. “We think that’s unlikely, but regardless, the damage has been done with U.K. exports likely to stop dead in its tracks in 2012.”

At a bond auction today, Italy was again forced to pay above the 7 percent threshold that ledGreece, Portugal and Ireland to seek bailouts. The yield on its 10-year debt rose 13 basis points to 7.36 percent as of 11:41 a.m. in London. Similar-maturity Spanish yields fell five basis points to 6.52 percent, reversing an earlier increase.

“I don’t think it’s possible to continue indefinitely, with this degree of fragility” King said. “One way or another, something will happen.”
No Complacency

King also said that while British banks are better capitalized than before the financial crisis, “there is certainly no room for complacency.”

“The deleveraging in the euro area is leading to early signs of a credit crunch and it could get worse,” he said. “Undoubtedly there are real problems. You can see that even for banks in this country, and even U.S. banks, the funding problems have worsened since August.”

Financial stocks have suffered as Europe’s debt crisis worsens. The Bloomberg Europe Banks Index (BEBANKS) has fallen 36 percent this year, compared with a 16 percent decline by the Stoxx Europe 600 Index.
QE Debate

The Bank of England cut its 2012 growth projection to 0.9 percent from 2.2 percent this month, and King said today the revision was largely due to the impact of the euro-area debt crisis. It expanded its bond-purchase program by 75 billion pounds ($117 billion) to 275 billion pounds in October.

The Organization for Economic Cooperation and Development forecast yesterday that the central bank will increase the target for bond purchases by 125 billion pounds by early next year. Minutes of policy makers’ November meeting showed some officials said an increase in QE “might well become warranted in due course.”

While policy maker Martin Weale said in an interview on Nov. 25 that there may be a “strong case” for more stimulus, he added that there isn’t a need to announce such a move until the current round of bond purchases ends in February.

Speaking alongside King yesterday, policy maker Paul Fisher said that 75 billion pounds was the “minimum” the central bank needed to do when it expanded its stimulus in October.

“I don’t know yet the amount of QE we will actually do,” he said. “If we feel the need to do more, we will do more.”Bloomberg

Federal Reserve buying $545 bn mortgage bonds

NEW YORK: The biggest bond dealers in the US say the Federal Reserve is poised to start a new round of stimulus, injecting more money into the economy by purchasing mortgage securities instead of Treasuries.

Fed chairman Ben S Bernanke and his fellow policy makers, who bought $2.3 trillion of Treasury and mortgage-related bonds between 2008 and June, will start another programme next quarter, 16 of the 21 primary dealers of US government securities that trade with the central bank said in a Bloomberg survey. The Fed may buy about $545 billion in homeloan debt.

While mortgage rates are already at about record lows, housing continues to constrain the economy, with the National Association of Realtors saying in Washington last week that the median price of US existing homes dropped 4.7% in October from a year ago. Borrowers with a 30-year conventional mortgage would save $40 billion to $50 billion annually in aggregate if they could all refinance into a new loan with a 3.75% rate, according to JPMorgan Chase & Co.

"We need to see a bottom in home prices," said Shyam Rajan, an interest-rate strategist in New York at Bank of America Corp., a primary dealer. "These are not numbers that are going to get down your unemployment rate," which has held at or above 9% every month except two since May 2009, he said.

The company forecasts the Fed will buy $800 billion of securities, which may include Treasuries. Efforts to bolster the economy are taking on new urgency with $1.2 trillion in automatic government spending cuts slated to begin in 2013.

The US commerce department said last week that GDP expanded at a 2% annual rate in the third quarter, less than the 2.5% it originally projected, and Europe's worsening debt crisis threatens to further curb global growth. The Fed is taking the view that "even if US fundamentals look to be relatively okay, we've got to keep our eye on any contagion from the European stresses," Dominic Konstam, head of interest-rate strategy at primary dealer Deutsche Bank, said. "It's in that context that they're willing to do more."

Treasuries rose last week on those concerns, with the 10- year yield falling five basis points, or 0.05%age point, to 1.97%, according to Bloomberg .

The rate rose six basis points to 2.03% on Mondayas of 8:52 a.m. in London. The 2% security due November 2021 fell 17/32, or $5.31 per $1,000 face amount, to 99 3/4. Policy makers have scope to print more money to buy bonds in a third round of quantitative easing, or QE, as the outlook for inflation eases.

A measure of traders' inflation expectations that the Fed uses to help determine monetary policy ended last week at 2.25%, down from this year's high 3.23% on August 1.

The so-called five-year, fiveyear forward break-even rate, which projects what the pace of consumer-price increases will be for the five-year period starting in 2016, is below the 2.83% average since August 2000. "There is a significant chance that QE3 will be deployed, especially in the form of MBS purchases, if inflation expectations fall enough," Srini Ramaswamy and other debt strategists at JPMorgan wrote in a Nov. 25 report.

The Economic Times