Archive for November, 2010

Reuters online 30 Nov 2010

“Sovereign default fears could soon extend to Japan and the United States…” (Bette: The US stock market fell today partly on fears about the Eurozone crisis.)

LISBON/DUBLIN (Reuters) – The euro zone’s debt crisis deepened on Tuesday, with investors pushing the risk premium on Spanish and Italian government bonds to euro lifetime highs amid concern weaker member states may ultimately be forced to default.

European policymakers appeared at a loss to calm markets hell-bent on testing their determination to rescue countries like Portugal and Spain after approving an 85 billion euro ($110.7 billion) bailout for Ireland at the weekend.

The borrowing costs of countries like Belgium and France also rose — and the euro hit a 2-1/2 month low versus the dollar — as investors looked beyond the so-called euro periphery and targeted core founding members of the bloc.

A Reuters survey of 55 leading fund management houses showed U.S. and UK investors had significantly cut back their exposure to euro zone bonds this month, piling into equities instead despite a weakening in global shares.

“The crisis of confidence in Europe can’t be resolved quickly,” said Rick Meckler, president of investment firm LibertyView Capital Management in New York. “No single event can put things back in order.”

Markets are already discounting an eventual rescue of Portugal although the government in Lisbon denies, as Irish leaders initially did, that the country needs outside aid.

While a Portuguese rescue would be manageable, assistance for its larger neighbor Spain would sorely test EU resources, raise deeper questions about the integrity of the 12-year old currency area, and possibly spread contagion beyond Europe.

Citigroup Chief Economist Willem Buiter described the turbulence hitting the euro zone as an “opening act” and predicted that sovereign default fears could soon extend to Japan and the United States. “There is no such thing as an absolutely safe sovereign,” he wrote in a research note.

EURO SLIDES, SPREADS WIDEN

The euro fell as low as $1.2969 and has shed nearly 8 percent of its value against the dollar this month.

The yield spreads of 10-year Spanish, Italian and Belgian bonds over German benchmarks spiked to their highest levels since the birth of the euro in January 1999 and the cost of protecting against a euro zone sovereign default surged.

Jitters also hit European banking shares, which fell 1.2 percent, led lower by French banks BNP Paribas, Societe Generale and Credit Agricole on market rumors Standard & Poor’s might cut France’s outlook.

“There is no reason for concern, no risk,” said Francois Baroin, France’s budget minister and government spokesman.

Italian officials also scrambled to play down the risks for their economy, the euro zone’s third largest, which some economists have labeled “too big to bail.”

http://reut.rs/elr387

For more on the Eurozone crisis: http://www.reuters.com/subjects/euro-zone

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What is the Eurozone? From Wikipedia:

The eurozone, officially the euro area, is an economic and monetary union (EMU) of 16 European Union (EU) member states which have adopted the euro currency as their sole legal tender. It currently consists of Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain. Eight (not including Sweden, which has a de facto opt out) other states are obliged to join the zone once they fulfill the strict entry criteria.

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Sky News online
November 16, 2010

The President of the European Union, Herman Van Rompuy, has warned that the eurozone will not survive if it does not overcome the current debt crisis. The president’s prediction comes on the back of the ongoing debate over Ireland and its economy.

Concern has been mounting over Ireland’s finances since the country’s cost of borrowing soared last week. Several ministers from Eurozone countries have appealed to Ireland to accept a bailout from the European Financial Stability Fund (EFSF).

As finance ministers from around Europe meet, Portuguese finance minister Fernanado Teixeira dos Santos urged his Irish counterpart Brian Lenihan to recognise that the problems in Ireland will affect the wider Eurozone as a whole.

Ireland’s government remains resolute in retaining the country’s sovereignty and is said to now be seeking EU bailout assistance for the country’s banks only. This route to recovery would mean that Ireland’s government keeps control of its own finances without EU interference.

Many EU counterparts hope the bailout and subsequent European involvement in Ireland’s budgetary decisions would lead to the country increasing its famously low corporation tax.

It was this low rate of tax for business which attracted international companies to open European offices in Ireland and contributed to the now defunct Celtic Tiger economy.

Irish prime minister Brian Cowen and finance minister Brian Lenihan are due to announce their budget on December 7. Reports from Ireland, however, have claimed the budget – believed to include £3.4bn worth of cuts – could be brought forward.

http://news.sky.com/skynews/Home/Business/EU-President-Warns-The-Eurozone-Will-Not-Survive-If-It-Does-Not-Over

come-The-Debt-Crisis/Article/201011315810324?f=rss

DEBKAfile Special Report November 1, 2010

Hizballah last Thursday, Oct. 28, conducted a command exercise in all parts of Lebanon to test its armed militia’s readiness for what its leaders called “zero hour;” i.e. asserting its grip on Lebanon and “cornering” Prime Minister Saad Hariri.

Debkafile’s military sources report the exercise took all day and led up to the sabre-rattling speech delivered by Hizballah leader Hassan Nasrallah that night, which was interpreted by all Lebanese factions interpreted as a declaration of war on their government and the prologue to heating up the border with Israel.

(To read our Oct. 30 report on the speech and its impact, click here: http://www.debka.com/article/9115/)

The Shiite terrorist group made no bones about the reasons for its war stance – just the opposite:

1. Hizballah found it necessary to answer the Israel Defense Forces’ recent “electronic exercise,” in keeping with a top-level Iranian-Syrian-Hizballah decision never to leave any American or Israel military step without response.

2. It was a practice for the military action planned for the hours leading up to the Special Lebanese Tribunal’s issuance of indictments against Hizballah leaders for complicity in the assassination of Lebanese ex-prime minister Rafiq Hariri five years ago.

The “zero hour” exercise demonstrated, according to Hizballah sources, “the quick implementation on the ground” of the necessary deployment. They claimed that in “less than two hours” they were able to “maintain a security and military grip of large areas of Lebanon.”

Our sources note that this is the first time Hizballah has leveled publicly about its plan for seizing control of Lebanon by force of arms – even without waiting for the STL indictments to be issued. The disclosure was made five days after the critical command exercise in order to establish a fact. It took advantage of a moment when its key opponents were otherwise engaged.

President Barack Obama has his hands full with the Democrats’ sliding rating in polls ahead of the Nov. 2 midterm elections to Congress.

Saudi King Abdullah had an eye on an ambitious initiative to convene a national conciliation conference of all Iraqi factions for breaking the long impasse over the formation of a new government in Baghdad. The Saudi king was seeking an al-Arab breakthrough that would push Iran off the board.

And in Jerusalem, political circles in Jerusalem are full engaged in the trivia of domestic scandal, such as the illegal employment of a foreign worker at Defense Minster Ehud Barak’s home or endless bickering over the stipends for yeshiva students with families.

Hizballah also feels it can safely send its gunmen out on the streets of Beirut and vent its ire on Israel without being jumped on by Western media because they are all totally absorbed in al Qaeda’s bomb package plot and its intercontinental ramifications.

http://www.debka.com/article/9118/