European Government seizing cash from private bank accounts in Cyprus

The move is part of the so-called rescue plan to get the country out of its financial crisis

REUTERS | MARCH 18, 2013

The surprise decision by euro zone leaders to part-fund a bailout of Cyprus by taxing bank deposits sent shockwaves through financial markets on Monday, with shares and the bonds of struggling euro zone governments tumbling.

The bloc struck a deal on Saturday to hand Cyprus rescue loans worth 10 billion euros ($13 billion), but defied warnings – including from the European Central Bank – and imposed a levy that would see those with cash in the island’s banks lose between 6.75 and 9.9 percent of their money.

Parliament in Cyprus put off a vote on the measure – which has shaken depositors’ confidence in banks across the continent – until Tuesday, however, and with public anger at the deal widespread the government said it was already looking to ease the pain for small savers.

Without the rescue, Cyprus would have be unable to avoid a default. That would have undermined the promise that Greece’s debt writedown last year was a one-off, but the unprecedented move to hit depositors adds a radical new dimension to the crisis across the euro zone.

The initial response of investors was unambiguous. Shares lurched lower, the euro fell to a new three-month low, while safe-haven assets such as gold and German government bonds jumped.

The cost of insuring the debt of even high-quality European banks against default also rose sharply with analysts citing fears the decision could spark contagion across peripheral regions with the potential for widespread outflows of deposits.

“If I were a saver, certainly in Spain or maybe Italy, I think I’d be looking askance at these measures and think this could yet happen to me,” Peter Dixon, global financial economist at Commerzbank said.

The European Markit iTraxx senior financials index, which tracks the most important European bank credit default swap (CDS) rates, widened by 17 basis points.

Some credit default swaps in Spanish, Italian and Portuguese banks widened more sharply with the five-year CDS for Spain’s Santander 30 basis points higher, while for Italy’s UniCredit it was 23.5 basis points wider.

However, some in the markets were drawing support from a view that the safety measures put in place at the European Central Bank should contain the fallout.

“Clearly this is a negative development for European assets but in the terms of contagion we think it is quite limited,” said Guillermo Felices, head euro asset allocation at Barclays in London.

“There are tools – such as the ECB’s OMT (bond buying program) and the option of more 3-year LTROs (ECB loans to banks) that can provide liquidity if needed – that the market will feel comfortable about when assessing the longer-term implications.”

Three of the world’s biggest central banks are also expected to signal their fresh commitment to loose monetary policies this week.

The Bank of Japan welcomes a new governor on Wednesday who is likely to begin pumping huge amounts of yen into the recession-hit economy. On the same day the Bank of England may get a new pro-growth mandate in the British government’s annual budget, while the Federal Reserve is expected to reaffirm its commitment to the current aggressive U.S. bond-buying program.

Equity markets were underscoring the more immediate worries, however, that the Cyprus deal could see savers and firms in other highly indebted countries like Italy and Spain rush to pull money out of their own banks.

By 1115 GMT the pan-European FTSEurofirst 300 (.FTEU3) had clawed back around half of its initial losses but was still down 0.8 percent in its worst morning since last month’s inconclusive Italian election.

London’s FTSE 100 (.FTSE), Frankfurt’s DAX (.GDAXI) and Paris’s CAC-40 (.FCHI) were down 0.8, 1 and 1.4 percent respectively, leaving MSCI’s global share index <.MIWD00000PUS> down 0.85 percent.

CENTRAL BANK SUPPORT

In the currency market, the euro staged a slight recovery after having dropped as low as $1.2882 in the Asian trade, to session be up 0.1 percent on the day $1.2950.

The dollar (.DXY) itself, which investors often head for when tensions in Europe rise, gained 0.45 percent.

“Euro zone politicians will be at pains today to manage down the danger of contagion to other markets. The euro will find a little bit of support from that but markets will remain jittery,” said Jane Foley, senior currency strategist at Rabobank.

Italian and Spanish bond yields both jumped sharply as the two countries remain at the centre of concern in the euro zone due to the size of their economies which some economists warn would be too big to rescue.

If savers and firms did pull their money en masse from already strained banks it could tip the region back into full-blown crisis, although the ECB’s backstop measures are designed to prevent such problems.

The widespread anxiety drove up German government bonds, the traditional favorite of risk-adverse European investors, and indiscriminately pushed up the cost of insuring against a sovereign default in the euro zone’s southern rim.

German Bund futures were up 49 basis points at 144.09 by late-morning in Europe, while gold, another safe-haven asset, rising to a 2-1/2-week high of $1,608.30 an ounce before settling at $1,601.60, up 0.6 percent. (GOL/)

U.S. crude and Brent oil both tumbled, with Brent futures $1.70 a barrel lower at $108.12 before recovering a little to trade around $108.20 by 1030 GMT. U.S. oil declined $1.10 to $92.35. (O/R)

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U.K. in First Double-Dip Recession since 1970s

The first double-dip recession since the 1970s forced Prime Minister David Cameron to defend his spending cuts in Parliament.

By JENNIFER RYAN | BLOOMBERG | APRIL 2012

Gross domestic product fell 0.2 percent from the fourth quarter of 2011, when it declined 0.3 percent, the Office for National Statistics said today in London. The median of 40 estimates in a Bloomberg News survey was for an increase of 0.1 percent. A technical recession is defined as two straight quarters of contraction.

As an anti-austerity backlash gains ground in Europe, Cameron described the data as “disappointing” and pledged to support growth without backtracking on the U.K.’s biggest fiscal squeeze since World War II. The Bank of England is in the final month of its latest round of economic stimulus and the drop in output comes as prospects dim in the euro region, Britain’s biggest export market.

“This isn’t supportive of the fiscal consolidation program, so the government is likely to be concerned about that,” said Philip Rush, an economist at Nomura International in London. “The data were bad, and that supports the view that the Bank of England will do a final 25 billion pounds of quantitative easing in May.”

Bank of England policy maker David Miles had signaled yesterday that today’s result was possible, saying in an interview with Bloomberg News that a negative number “wouldn’t be a great surprise.”

U.K. 10-year gilts advanced immediately after the data were published before easing again. The yield rose 3 basis points to 2.123 percent as of 1:12 p.m. in London. The pound fell as much as 0.4 percent, then pared its decline to $1.6116.

Construction Slump

From a year earlier, the economy was unchanged in the first quarter. The median estimate in a Bloomberg survey of 31 economists was for 0.3 percent growth from a year earlier.

The quarterly drop in GDP was due to a 3 percent slump in construction, the most since the first quarter of 2009, and a 0.4 decline in industrial production. Manufacturing contracted 0.1 percent and services, the largest part of the economy, expanded by 0.1 percent, boosted by transport, storage and communication.

The data contrasts with a report today showing confidence among manufacturers rose to the highest level in two years this month. The Confederation of British Industry’s quarterly gauge of factory optimism surged to 22 from minus 25 in January.

Separate surveys this month showed that growth in services, manufacturing and construction accelerated in March. The British Chambers of Commerce said the GDP data is likely to be revised higher by the statistics office.

‘Underlying Trend’

Surveys “have shown a more positive picture, and we believe these give a more accurate indication of the underlying trends,” Chief Economist David Kern said in a statement today. “We think it is likely that the preliminary estimate will be revised upwards when more information is available.”

The FTSE 100 index rose 0.1 percent today. Still, its 2.6 percent advance this year trails the 4.9 percent increase by Europe’s Stoxx 600 Index.

Rising energy prices, government spending cuts and anemic wage growth are squeezing U.K. consumers, creating a drag on the recovery. Pay growth slowed to 1.1 percent in the three months through February, less than a third of the inflation rate. An extra public holiday in June to mark Queen Elizabeth II’s 60 years on the throne may also depress economic output in the second quarter.

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More money for Banks as BoE keeps interest rates at 0.5%

AGENCE FRANCE PRESSE | APRIL 18, 2012

Bank of England policymakers all voted in favour of holding interest rates at a record low earlier in April, while one member called for more stimulus cash, the BoE said on Wednesday.

Minutes from the central bank’s Monetary Policy Committee (MPC) meeting on April 4-5 showed that the nine policymakers voted to keep the key lending rate at 0.50 percent, where it has stood since March 2009.

The policymaking panel meanwhile voted 8-1 at the same meeting in favour of maintaining the size of the bank’s asset purchasing programme at £325 billion (388 billion euros, $514 billion).

One member, David Miles, voted for the second month to increase the so-called quantitative easing (QE) programme by an additional £25 billion.

Under QE, the central bank creates new cash that is used to purchase assets such as government and corporate bonds in the aim of giving a boost to lending and economic activity.

“For most members, there was no sufficient reason to change either bank rate or the quantity of asset purchases,” the minutes read.

“Moreover, for them, it seemed sensible to let the current programme of asset purchases run its course while coming to a view on medium-term prospects in the context of the May forecast round.

“For one member, the balance of risks continued to warrant an expansion of the asset purchase programme this month, although the decision was finely balanced.”

Markets ‘Artificially’ Rally after FED and ECB Refill Bankers’ Pockets

By Scott Lanman
Bloomberg
November 30, 2011

The Federal Reserve cut the cost of emergency dollar funding for European banks as part of a globally coordinated central-bank response to the continent’s sovereign-debt crisis.

The interest rate has been reduced to the dollar overnight index swap rate plus 50 basis points, or half a percentage point, from 100 basis points, and the program was extended to Feb. 1, 2013, the Fed said in a statement in Washington. The Fed will coordinate with the European Central Bank in the program, which was also joined by the Bank of Canada, Bank of England, Bank of Japan (8301), and Swiss National Bank. (SNBN)

The move is aimed at easing strains in markets and boosting the central banks’ capacity to support the global financial system, the statement said. The cost for European banks to fund in dollars rose to the highest levels in three years today as concerns about a possible breakup of the euro area increased after leaders said they’d failed to boost the region’s bailout fund as much as planned.

“When there’s concerted action by central banks, it’s definitely good,” said Jens Sondergaard, senior European economist at Nomura International Plc in London. “But are liquidity injections a game changer when the heart of the problem is in European sovereign debt markets?”

The six central banks also agreed to create temporary bilateral swap programs so funding can be provided in any of the currencies “should market conditions so warrant.” Those swap lines were also authorized through Feb. 1, 2013.

The dollar swap lines were previously set to expire Aug. 1, 2012. The new pricing will be applied to operations starting on Dec. 5.

Stocks Climb

European stocks extended their gains, the euro advanced against the dollar and Treasuries fell after the announcement. The Stoxx Europe 600 Index increased 2.2 percent to 236.66 at 1:19 p.m. in London. The euro rose to $1.3450 from $1.3317 late yesterday. The yield on the 10-year Treasury note climbed to 2.06 percent from 1.99 percent.

Separately, China two hours earlier cut the amount of cash that banks must set aside as reserves for the first time since 2008. The level for the biggest lenders falls to 21 percent from a record 21.5 percent, based on past statements.

The Frankfurt-based ECB, which says it is up to governments to stem the two-year-old debt crisis, unexpectedly cut its benchmark interest rate Nov. 3 as the turmoil threatens to drag the euro area into recession.

Refinancing Operation

Yesterday the ECB allotted the most to banks in its regular seven-day refinancing operation in more than two years, lending 265.5 billion euros. The ECB offers unlimited funding to euro- area banks against eligible collateral.

“The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity,” the statement said.

Under the dollar liquidity-swap program, the Fed lends dollars to the ECB and other central banks in exchange for currencies including euros. The central banks lend dollars to commercial banks in their jurisdictions through an auction process.

The swap arrangements were revived in May 2010 when the debt crisis in Europe worsened. The Fed three months earlier had closed all swap lines opened during the financial crisis triggered by the subprime-mortgage meltdown in 2007.

Why the euro bailout is the biggest Ponzi scheme in history

By Norman Lamont
Mail Online
October 12, 2011

The recent decision by the Bank of England to pump another £75billion into the economy shows that Britain, far from recovering, remains on the edge of another dip.

But what happens to the British and world economy is, to a large extent, out of our hands. The greatest threat to our economic future is what is happening in the euro zone.

The scale of the euro crisis has made one thing abundantly plain: Europe, Britain and the rest of the world would be better off if the euro had never happened. It would be preferable if it were now dismantled in an orderly manner.

Yet leaders of euro zone countries appear determined to keep the show on the road, however much voters and their parliaments object to the project.
At the end of last month, Germany’s Chancellor Angela Merkel had to see off a rebellion from German MPs to win a vital vote in the German parliament to support the expanded €440  billion European bailout fund.

Last night, the parliament of Slovakia, one of the poorest of the euro zone countries, cast still more doubt on the bailout project by voting against paying its share of the rescue fund.

Dubious

Never mind that the €440 billion fund is already considered too little too late — or that the European Commission President Jose Manuel Barroso resorted yesterday to demanding Britain helps bail out Greece even though we’re not a member of the euro zone.

It is clear that euro zone leaders are already drawing up contingency plans to get round their national parliaments to increase funding if necessary.

At the weekend, Mrs Merkel and France’s President Nicolas Sarkozy claimed to have reached ‘total accord’ on a recapitalisation programme of hundreds of billions of euros to rescue ailing euro zone banks.

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