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Greek Debt Poses a Danger to Common Currency
Wolfgang Reuter, Spiegel
As economic indicators have improved, concern about the financial crisis has abated. But the next big problem could be approaching. Greece’s public deficit is skyrocketing and the country may become insolvent. The effect on Europe’s common currency could be dire.
Josef Ackermann, the CEO of Deutsche Bank, has given the all-clear signal many times in the past. He has repeatedly said that the worst was over, only to see the financial crisis strengthen its grip on the world economy.
Last week, however, Ackermann was singing a completely different tune. Although many indicators are once again pointing skyward, he said at a Berlin summit on the economy, Chancellor Angela Merkel, the assembled cabinet ministers, corporate CEOs and union leaders should not to be deluded. He warned emphatically that the financial situation could deteriorate once again. “A few time bombs” are still ticking, Ackermann told his audience, noting that the growing problems of highly leveraged small countries could lead to new tremors. And then, almost casually, Ackermann mentioned the problem child of the European financial world by name: Greece.
Ackermann isn’t alone in his opinion. Practically unnoticed by the public, an issue has returned to the forefront in recent weeks — one that was a cause for great concern at the height of the financial crisis but then, as optimism about the economy began to grow, was eventually forgotten: the fear of a national bankruptcy in the euro zone. And the question as to whether such a bankruptcy, should it come about, could destroy the common European currency…
(8 Dec 2009)
Gross, Roubini Weigh Dueling Chinese Bubbles: William Pesek
William Pesek, bloomberg.com
That loud hissing noise you hear is coming from Dubai, where reality is catching up with an economy built on sand — literally and figuratively.
Just don’t let it drown out another one that’s slowly, but steadily increasing in volume: China.
The reference is to an imbalance of global significance: not the bubble in Chinese asset prices, which the world obsessed about in 2009, but the belief that the world’s third-largest economy can grow close to 10 percent indefinitely, no matter what. That’s feeding a dangerous sense of complacency in Asia.
The focus has been on China’s stimulus efforts and low interest rates adding froth to stock and real-estate markets. The real bubble is the expectations China is creating — ones that will be devilishly hard to meet in 2010.
China’s plan was to tide the economy over until U.S. consumers begin spending again. Yet a stark reality awaits central planners in Beijing: the global demand its all-important export markets need to thrive won’t turn up as planned.
Here, think more Bill Gross than Nouriel Roubini. Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., has been doing the media rounds warning about the absence of demand from China’s trading partners.
“It’s gearing up for export that doesn’t find an end consumer — that’s the real problem in China,” Gross told Bloomberg Television recently…
(7 Dec 2009)
Greece downgraded over high debt
David Oakley in London and Kerin Hope in Athens, Financial Times
Greece saw its credit ratings downgraded to the lowest level in the eurozone on Tuesday as fears mounted over its deteriorating public finances.
Heavy selling of Greek stocks and bonds came amid fears that the country was heading for financial disaster unless politicians tackled dangerously high debt levels. Shares on the Athens stock exchange fell more than 6 per cent.
Fitch cut ratings on Greek debt to BBB plus with a negative outlook. It is the first time in 10 years a leading ratings agency has given Greece a rating of below A grade.
George Papaconstantinou, Greek finance minister, said the country would do “whatever is required” to reduce a record budget deficit and achieve its medium-term fiscal targets.
He said the downgrade reflected Greece’s “mounting credibility gap in recent years and an exceptionally difficult fiscal situation” faced by the new Socialist government, which took over in October.
Fitch said the downgrade “reflects concerns over the medium-term outlook for public finances, given the weak credibility of fiscal institutions and the policy framework in Greece, exacerbated by uncertainty over the prospects for a balanced and sustained economic recovery”.
(8 Dec 2009)
Credit Agencies Downgrade Debt Linked to Greece and Dubai
Matthew Saltmarsh, New York Times
Fresh downgrades by credit rating agencies of Greek government debt and Dubai state-linked companies served as a reminder Tuesday that the effects of the credit crisis were far from over.
Stock markets fell sharply across Europe and were in decline in afternoon trading in the United States as investors sought shelter in trusted assets, pushing up the price of German government bonds.
“Markets are clearly jittery in light of what’s happening in Dubai and Greece, but it’s not evidence of systemic problems,” said Nick Stamenkovic, a fixed-income strategist in Edinburgh at RIA Capital Markets. “A year ago we were looking at severe financial distress. There are still problems, but they are more isolated and idiosyncratic.”
In London, the FTSE 100 closed down 1.6 percent, after paring steeper losses. The DAX ended off 1.7 percent in Frankfurt. On Wall Street, the Dow Jones industrial average and the Standard & Poor’s 500-stock index both were about 0.9 percent lower in afternoon trading Tuesday.
The troubles facing Greece also weighed on the euro, which declined to $1.4712 in afternoon trading in America after crossing over the $1.51 mark in late November…
(8 Dec 2009)
Market jitters as Spain joins Dubai on danger list
David Teather, The Guardian
Worries about corporate and sovereign debt continued to overshadow world markets as Spain became the latest country to come under the spotlight and there was more evidence of Dubai’s troubles.
A day after Greece’s credit rating was cut amid rising concern about the state of its finances, the ratings agency Standard & Poor’s revised its outlook on Spain to negative and warned that the country faced a risk of a debt downgrade in two years if the government did not take tough action. Spanish bank shares fell on the news adding to existing market nervousness about the ability of Greece to pay its debts.
As Greek financial markets took a pounding Greece’s prime minister George Papandreou vowed to do whatever it took to check the country’s huge deficit. “We must close the credibility gap to survive as a sovereign and cohesive nation,” he told a televised cabinet meeting.
In Dubai, Nakheel, the property developer behind the palm-shaped islands that have come to symbolise the country’s excess, reported a 13.43bn dirham (£2.25bn) loss for the first half of the year. Dubai markets fell sharply for the third successive day on the news.
The business, part of Dubai World, which is attempting to restructure $26bn (£15.9bn) of debt, wrote down the value of its assets during the first half, from 155.5bn dirhams to 147bn dirhams, reflecting the deep fall in property values over the past year. Property prices have plunged by about 50% since the global economy started to slip into recession…
(X Nov 2009)
Optimism on economy fading, poll shows (video)
CNN.com
Two years into the recession, Americans don’t see economic conditions getting better any time soon, and the steady growth in optimism that previous surveys measured throughout the year appears to have stalled, according to a new national poll.
A CNN/Opinion Research Corp. survey released Tuesday indicates that 34 percent of those questioned say that things are going well in the country today. That finding is 14 percentage points higher than a year ago but a dip of 3 points since November.
“This the first time in Barack Obama’s presidency that this number has gone down,” said Keating Holland, CNN’s polling director.
According to the survey, 39 percent of the respondents said the country is still in a downturn, up 6 percentage points from last month. Nearly half of those questioned said the economy has stabilized and a small minority, 15 percent, think the country is starting to recover.
(8 Dec 2009)
