Financial Communique » EC

The market uncertainty limited the leverage of the European Rescue Fund

Viliyana Filipova — Fri, 11 Nov 2011 10:31:08 +0000

The market turmoil in Europe last week impede the expansion of the Eurozone bailout fund (EFSF) from 440 billion to 1 trillion EUR states Klaus Regling, the CEO of the Fund. The investors shun bonds massive debt difficulties examiners countries. So it will probably be more expensive for borrowers to be lured back by insurance against potential losses, which are a key element of the agreed on 26 October in Brussels plan, said Regling. The fears of the head of EFSF illustrate the difficulties that Europe is suffering from tackling the debt crisis.
“The political turmoil in which we have witnessed in recent days may have reduced the potential of our leverage”, said Regling. “It has always been ambitious to reach 1 trillion EUR. But nevertheless, I do not exclude”. The European Commission (EC) sharply lowered its forecast for Eurozone growth next year to 0.5% from 1.8%. Slowing the growth of Chinese exports to Europe in October and sales of Asian stock markets illustrate the global impact of European crisis. The programme of the European rescue fund to ensure the objectives of government bonds in the fund with the remaining 250 billion USD to underwrite bonds for 4-5 times the amount. Thus the effect of the fund will grow fold option monies to be used for direct purchase of securities.
Regling indicates that panic gripped markets means that guarantees investors will need to be higher and the fund will likely be extended until 3 to 4 times. Using the drying up of resources for EFSF bond insurance is a key element of the plan to build a “firewall” to protect the European banking sector and countries like Italy by storm in Greece. One of the two options discussed – a plan that in the words of officials from Brussels has received the widest support – is the owners of Italian government bonds to be insured against any part of their losses. Brussels is hoping the new investors are attracted by guaranteeing 20% of potential losses. Now, markets are likely to seek up to 30%, which limits the size of the fund to 800 billion.
Regling said he believed the credibility of European bond markets will return, especially since the political situation in Greece and Italy are calm. He hopes that the fund will nevertheless be able to generate 1 billion USD.
“For the moment, the potential leverage of the fund is less than 3 weeks ago we hoped”, he said. “My expectations are that the situation will improve as we have a new government in Greece and this certainly helps”. The next character for the Italian bond market auction is scheduled for November 14 (Monday). Regling, however indicating that it is willing to use the resources of the fund for direct intervention now, before the project to increase the leverage of EFSF be completed next month. The problem, he says, lies in the fact that such a move would bridge the remaining 250 billion USD.
“Most analysts agree that you must increase your leverage to enable the firewall, which is trying to build a convincing look”, he said. “We are not inclined to intervene next week because we do not have the necessary leverage”.

In European Comission should be more thrifty

Viliyana Filipova — Sun, 16 May 2010 11:31:38 +0000

The European governments, which have recently been placed under intense pressure from Brussels to reduce national commitments have, in turn, the very European Commission (EC) to restrict their spending. It turns out that the Commission now considers not only to use the savings, but even increased their administrative costs for next year, according to the draft prepared for 2011 these costs increased by 4.5 per cent compared to 2010. Discussion of a draft will begin on Tuesday by finance ministers in Europe, the debate appears to be heavy, said AFP. “We agree to spend better, but not to spend more, told the agency unnamed European diplomat. “However, the European Commission is one that asks all States to make efforts to reduce budget deficits, it should do the same in their own finances,” he added. “You can not proceed as if no economic crisis.” Another condition of anonymity, a diplomat said eagerly waiting to learn why it is necessary budget committee to increase, provided that calls made to the Member States economies.
“We will not require any special skills to explain the logic of this situation.”

EC against the credit rating agencies

Viliyana Filipova — Mon, 03 May 2010 02:19:01 +0000

Michel Barnier, EU Commissioner for Internal Markets, has warned that it may require additional regulations on the role of credit agencies in the markets, Air Force forward. He told Parliament that he was surprised by the rapid decrease in the rating of Greece. In December, will come into effect new rules for agencies under which they will have to explain how they decided to change a rating. According to Barnier, however, may require further tightening of regulations for agencies. He said he is considering creating a new agency to evaluate government ratings. Barnier stressed that the impact of the agencies is very important not only to companies but also for individual countries. At the end of April, Standard & Poor’s lowered its rating on Greece to “junk” (high-risk securities). Critics of the rating agencies indicate that they have so much power that their assessments are becoming self-realization is prophecy. Rating downgrades could lead to sales of government bonds or lack of interest in new issues. This lowered the price of bonds and increase their profitability, which in turn further limited government finances and theoretically can cause further decreases in ratings. In recent months, Greece has sought unsuccessfully to combat precisely this vicious circle.
Last year the three major agencies, – Standard & Poor’s, Fitch and Moody’s, acknowledged that their estimates of securities secured by subprime mortgage, have proved inaccurate. The agencies were accused failed to assess the amount of risk and risk bonds, which led to the crisis.

Moody’s may decrease the Portugal’s credit rating with 2 stages

Viliyana Filipova — Sun, 02 May 2010 11:28:42 +0000

The International rating agency Moody’s will review over the next three months the credit rating of Portugal with a possible decrease in the direction of one or two degrees, said in a statement the agency, quoted by RIA Novosti. Now Portugal’s credit rating is “Aa2″. The intention of Moody’s is continuing to assess the situation to deteriorate to government debt. In the view of analysts from the rating agency, taking into account the small size of the economy of Portugal and its poor growth performance of these public debt may not fully reflect the rating of “Aa2″. At the end of April ratings agency Standard & Poor’s lowered the long-term credit rating of Portugal with two degrees – from “A +” to “A-” to “negative” outlook. At the end of 2009 government debt of Portugal was up nearly 77 percent of gross domestic product (GDP) of the country, for comparison, the external debt of Greece has 120% of GDP. Meanwhile, analysts note that in Portugal the threat can come from many large private sector debt, which exceeded the indicator for Greece. According to forecasts by the European Commission (EC) GDP growth this year Portugal will be 0.5 percent and for 2011 – 0.7%.
At the same time, public debt will continue to increase, says the EC, at the end of 2010 will be approximately 86% of GDP at the end of 2011 will reach 91 percent of GDP.

Hungary refused a new foreign aid

Viliyana Filipova — Fri, 19 Feb 2010 04:04:34 +0000

Hungary gave the receipt of a new tranche of aid from the European Union, said European Commission (EC). From Brussels, however, specify that the money will remain available to the country in case of need. “Given the sustainable improvement of their external finance Hungary wants unblock international aid, said in a statement the European Commission, which notes that the country has dropped from its financing and in November. In Budapest the Minister of Finance Peter Osko confirmed the news to journalists, noting that it will be used the next tranche down – or the Commission or the International Monetary Fund (IMF). The reason is that “the country’s financing was provided by the markets,” AFP reported. Encounter serious difficulties from the effects of the global financial crisis in Hungary get a loan from a total of around EUR 20 billion from the IMF, EU and World Bank to deal with the effects of international capital leaking. This was the first country in the EU, which resort to emergency measures. EU promised to allocate aid to 6,5 billion euros, far Hungary has benefited from three tranches: a $ 2 billion euros in December 2008 and March 2009 and 1,5 billion euros in July 2009
The remaining one billion euros is available and can be unlock if you feel the need for it, “states the EC. In exchange for international aid to Hungary is committed to implement a series of measures to drastically reduce public spending.