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Entries in Eurozone (20)

Monday
Oct152012

Nobel Prize Winners: Eurozone Award Controversy

iStockphoto/Thinkstock(NEW YORK) -- Two Americans were awarded the Nobel Memorial Prize in Economic Sciences on Monday, each earning about $1.2 million.

Alvin Roth of the Harvard Business School and Lloyd Shapley, professor emeritus at the University of California, Los Angeles, were awarded for “the theory of stable allocations and the practice of market design.”

Monday’s award was the last of the 2012 Nobel awards announced.

On Friday, the 27-nation European Union received the Nobel Peace prize for six decades of contributions “to the advancement of peace and reconciliation, democracy and human rights in Europe.”

The $1.2 million, or 930,000 euros, awarded prize comes as the union is currently facing "grave economic difficulties and considerable social unrest," according to the Norwegian Nobel Committee.

Unfortunately, the prize money is a drop in the bucket for Europe’s indebted nations like Greece, Spain and Portugal.

The award announcement precedes an EU Summit scheduled for Oct. 18-19, by which time a deal may be reached detailing austerity measures for Greece, which is still working out the terms of a $224 billion (173 billion euros) bailout package.

What will the EU, which is reportedly going to split the prize money, do with $1.2 million?

Past winners, including President Barack Obama from 2009, have donated the money to charities.

When asked what the EU should do with the prize money, Guy LeBas, chief fixed income strategist with the brokerage, Janney Capital Markets, said “all tongue firmly in cheek” that the EU may want to apply the money toward improving its economy, such as building a better quantitative model for bank stress tests, which only failed 9 of 91 European banks tested under eurozone regulators in July.

LeBas said the EU may be better off taking analysts from credit ratings firms Moody’s, S&P and Fitch “out to a five star dinner in Paris and lobby against downgrades.”  Otherwise, the EU could enlist the help of former German chancellor, Helmut Kohl, who oversaw his country’s reunification in the 90s, and former French president, Francois Mitterrand, “as a consultant team to get other EU leaders on the same page with one another.”

Peter Morici, professor at University of Maryland’s Robert H. Smith School of Business, suggested the EU, “donate it for food relief to those struggling in Greece, Portugal and Spain.”

Martin Baily, senior fellow in the Brookings Institution’s Economic Studies Program said he would buy a copy of Ron Chernow’s biography, Alexander Hamilton for all policymakers in Europe, perhaps with the section on Hamilton’s decision to assume the debts of the states after the revolution underlined.

“Strongly opposed by many, including Madison and Jefferson, Hamilton was able to work out a deal that created federal debt and reserved important taxing power to the federal government.  This policy saved the union,” Baily continued.

Copyright 2012 ABC News Radio

Wednesday
Oct102012

Standard & Poor's Downgrades Spain's Sovereign Credit

Scott Eells/Bloomberg via Getty Images(NEW YORK) – Standard and Poor’s downgraded its rating on Spain’s debt Wednesday. In a statement, S&P cited rising unemployment, spending constraints, social discontent among regional and national governments, and doubts over the Eurozone’s commitment to backing Spain’s recapitalization as reasons for the downgrade.

As a result, the country’s short- and long-term sovereign credit ratings now stand at “BBB-/A-3” -- down from “BBB+/A-2,” which is just above junk status.

It was a move anticipated by industry experts, after Moody’s downgraded Spain’s sovereign credit as well.

Global markets, including markets in the U.S., traded lower Wednesday.  The downgrade announcement may impact Spain’s borrowing costs, which could alarm stock markets in trading on Thursday.

Copyright 2012 ABC News Radio

Tuesday
Jul102012

Stock Markets Up on News of Spanish Bailout Agreement

Comstock/Thinkstock(NEW YORK) -- Global stock markets are mostly higher Tuesday morning after European finance ministers made progress on easing Spain's banking crisis.

They agreed to make as much as $30 billion available to Spanish banks by the end of this month.  The rescue had been called for after the banks were weakened by toxic loans from a collapsed property market.

After the agreement was announced, yields on 10-year Spanish government bonds fell below 7 percent.  The news also pushed European markets and U.S. stock futures up.

The finance ministers will need the approval of their respective governments before they can finalize the agreement on July 20, when they return to Brussels.

Copyright 2012 ABC News Radio

Monday
Jun112012

Spain's Bank Bailout Could Ease Europe's Debt Crisis

Hemera/Thinkstock(MADRID) -- Deep worries about Europe's financial crisis are expected to ease somewhat following the announcement last weekend that Spain's banks would receive a multi-billion dollar bailout.

Similar to what happened in the U.S. four years ago, the Spanish banking sector was in a deep hole because the bottom had dropped out of that country's housing market.

Luis de Guindos, Spain's finance minister, insisted that the bailout from Europe, figuring to be around $125 billion, would not come with any austerity measures.

The move comes just a week before crucial elections in Greece that will decide whether the country exits from the euro, the troubled single currency shared by 17 nations.

Spain is the fourth EU nation after Portugal, Ireland and Greece getting bailed out by the continent. World markets are expected to act favorably upon the news of the monetary boost to Spanish banks.

Copyright 2012 ABC News Radio

Thursday
Feb232012

Greek Bailout Depends on Monster To-Do List

Hemera/Thinkstock(NEW YORK) -- Nine days is all the time that Greece's creditors have given it to enact reforms, which, say nationalists, amount to nothing less than a forfeiture of sovereignty.

Yet if Greece does not comply, it will fail to qualify for its next infusion of bailout money ($172 billion) and will almost certainly default on its loans.

Here's a small sampling of what Greece has on its to-do list between now and March 1:

-- Rewrite its constitution to give priority to debt service.
-- Establish an escrow account that can be tapped only by holders of Greek debt.
-- Accept financial oversight from foreign "inspectors."
-- Fire a legion of under-performing tax collectors.
-- Enact legislation liberalizing the country's closed professions.
-- Tighten rules against bribery.
-- Prepare at least two large state-controlled companies for sale.

Add to this that some lenders reportedly feel it may be necessary to postpone Greece's national elections, now set for April, if the nation slips any further into violence and social chaos.

"That's a lot," says Mark Weisbrot of what Greece has on its plate. Weisbrot, co-director of the Center for Economic and Policy Research in Washington, D.C., on Thursday is releasing a report titled "What Are They Doing to Greece?" that says a Greek default and Greece's exit from the European Union are outcomes that should be taken seriously.

"The European authorities are really pushing Greece to the limit, not just in an economic sense but politically," he says. "It will invite a nationalist backlash.  It could help push Greece out of the Euro Zone as well."

While Weisbrot thinks Greece will somehow find a way to mollify its creditors by the March 1 deadline, his confidence has less to do with Greece's ability to accomplish reforms than with other EU nations' willingness to overlook its failure.

"They have more to lose than Greece does," he says. "Nobody knows what the consequences would be for Europe of a Greek default.  You hear all this bluster from the Netherlands and from Germany, but that's just bluff.  I'm not saying there wouldn't be a meltdown.  I'm saying there's enough uncertainty that the rest of Europe doesn't want to find out what would happen."

Copyright 2012 ABC News Radio

Tuesday
Feb212012

Default Averted: Second Bailout for Greece Approved

Hemera/Thinkstock(BRUSSELS) -- Greece is on track to avoid defaulting on its mountain of debt next month, after finance ministers in the single currency euro zone approved a $170 billion bailout on Tuesday.

The meeting in Brussels lasted nearly 13 hours, and agreement only came after overnight haggling by European governments.

Any relief in Greece is offset by a grim reality that it faces years of sacrifice. Income reductions and tax increases are part of the proposal to reduce the Greek deficit and help it deal with past debts that have not been repaid. 

Copyright 2012 ABC News radio

Monday
Feb202012

Eurozone's Effort to Save Greece Could Weaken US Dollar

Michele Tantussi/Bloomberg via Getty Images(WASHINGTON) -- As euro-zone finance ministers continue to deliberate about a second big bailout for Greece, many investors seem optimistic about the progress of the talks.

But any measures to save Greece from the verge of default could lift financial markets but weaken the U.S. dollar, possibly affecting U.S. travelers.

Nick Bennenbroek, head of currency strategy at Wells Fargo, said the outlook for the U.S. dollar is mixed. Getting closer to a deal would lead to a boost in emerging currencies and some of the major currencies, such as the Canadian dollar.

On Monday morning, the euro rose to a one-week high and by mid-afternoon it was $1.32 to the  U.S. dollar.

Euro-zone finance ministers are still deliberating in Brussels over whether to agree to a second, €130 billion, or $171.5 billion, bailout plan for Greece. Martin Koehring, economist for the Economist Intelligence Unit, said talks are unlikely to conclude before the early hours of Tuesday. Without the bailout, Greece faces the prospect of defaulting on a €14.5 billion, or $19.1 billion, bond redemption due by March 20.

“The fact that we’ve got zero to negative growth in Europe and the European Central Bank  will be potentially easing its monetary policy stance further” — by lowering interest rates or adding funds to their banking system — “does mean the euro will probably fall in the coming weeks or months against the dollar,” Bennenbroek said.

Also, U.S. economic numbers in the past few months, such as the falling unemployment rate, have boosted the U.S. dollar against the euro.

Travelers could also see marginal changes in exchange rates.

“I wouldn’t completely dismiss the relevance for those considering international travel,” Bennenbroek said, considering an estimated 5 cent increase in the Canadian dollar relative to the U.S. dollar in the next several months.

He said if U.S. stock markets continue to strengthen, the dollar would probably fall against the other currencies, such as the Mexican peso.

John Bowler, economist at the Economist Intelligence Unit, said he expects the U.S. dollar to weaken further.

He said the dollar had weakened against the euro since the start of the year as investors have regained their taste for risk, triggered by the injection of €500 billion by the European Central Bank into euro zone banks in late December.

“As long as risk appetite remains strong, the dollar is likely to weaken further,” Bowler said. But “any shock, such as a disorderly default by Greece, would interrupt this trend and send investors back into the safe haven of the dollar.”

Koehring said allowing Greece to default would cause major losses among European banks and could raise fears among investors that Portugal or Cyprus — or both — could be next, potentially raising the need for further bailouts of other highly indebted countries.

Copyright 2012 ABC News Radio

Friday
Dec162011

Fitch Places Six Eurozone Countries on Ratings Watch

Photo by David Ramos/Getty Images(PARIS) -- On Friday, the credit ratings agency Fitch put six European countries on a downgrade watch list, causing further threat to the Eurozone which has been facing a debt crisis.

Despite affirming France's triple A rating, Fitch downgraded the country's outlook from stable to negative which could mean a ratings downgrade in two years.

Belgium, Spain, Slovenia, Italy, Ireland and Cyprus were placed under Rating Watch Negative with the probability of a downgrade at the end of a review in Jan. 2012.

Fitch said the region's crisis has been on a negative decline since July causing concern about the financial stability of member nations.

"In the absence of a 'comprehensive solution', the Eurozone crisis will persist and likely be punctuated by episodes of severe financial market volatility," said the agency in a statement.

Copyright 2011 ABC News Radio

Friday
Dec092011

All Eyes on Europe: US Futures Up as EU Leaders Continue Talks

Hemera/Thinkstock(NEW YORK) -- U.S. stock futures are up Friday as investors await the latest developments out of Brussels, where European leaders are holding a summit to discuss how to handle the debt crisis plaguing the region.

The day before, the stock market closed lower following discouraging words from the head of the European Central Bank, who said there was no plan for large scale government bond purchases.  The Dow Jones Industrial Average sank 199 points on Thursday, while the Nasdaq lost 53 and the S&P 500 dropped 27.

Asian stocks followed in Wall Street's footsteps on Friday, ending the day with losses.  Hong Kong’s Hang Seng plummeted 2.73 percent, South Korea’s Kospi fell 1.97 percent, Australia’s S&P/ASX 200 tumbled 1.82 percent, Japan's Nikkei index lost 1.48 percent, and China's Shanghai Composite slipped 0.62 percent.

Meanwhile, European stocks are up on Friday as leaders there continue to debate on a rescue plan for the region.  Overnight, all 17 members of the euro zone, plus six other nations in the European Union, agreed on changes to the European Union treaty.  But the four remaining E.U. nations, including Britain, shot down the idea.

The 23 nations that agreed to the changes will take part in a new inter-governmental treaty aimed at enforcing tighter budget discipline.

Copyright 2011 ABC News Radio

Thursday
Nov172011

Europe Debt Crisis Could Hit US Banks, Fitch Warns

Hemera/Thinkstock(NEW YORK) -- Fitch Ratings is warning that U.S. banks could be “greatly affected” if Europe’s sovereign debt woes continue to widen.  The report caused U.S. stocks to drop 200 points on the Dow Jones industrial average late Wednesday.

Stocks stabilized at the open Thursday morning after the government reported new claims for unemployment benefits last week dropped to a seven-month low, and another report showed that housing starts fell less than expected in October. But the Europe concerns weighed on the markets, with the Dow off 170 points, or 1.5 percent, by early afternoon in a sell-off that included gold down $55 an ounce to $1,719, and crude oil down $3.88 a barrel.

Fitch said that exposure by U.S. banks to the stressed European markets of Greece, Ireland, Italy, Portugal, and Spain were manageable but there’s concern that the debt woes are spreading to the larger economies of the region.

The ratings agency said the six largest U.S. banks hold about $50 billion in debt from the stressed nations. But exposure to the major economies of Europe is much larger.  The top five U.S. banks have $188 billion in exposure to French banks alone and $225 billion in exposure to the U.K.

“Fitch believes that, unless the eurozone debt crisis is resolved in a timely and orderly manner, the broad outlook for U.S. banks will darken,” the agency said in its report. “Currently, Fitch’s rating outlook for the U.S. banking industry is stable, reflecting improved fundamentals at most banks, coupled with generally lower ratings versus pre-crisis levels.”

Another worry is exposure to possible sovereign debt losses by money market funds affiliated with major U.S. banks.  

“Any prolonged turmoil could negatively affect capital market-related revenues well into the future, not to mention the possible effects on loan portfolios and other revenue opportunities,” Fitch said.

Copyright 2011 ABC News Radio







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