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European Stocks Drop on Greek Impasse; Spanish Banks Fall

European stocks dropped for a second day, to the lowest level in almost four months, as investors awaited a resolution to the political impasse in Greece and as Spanish credit risk surged.

Bankia SA led a selloff in Spanish banks. Kloeckner & Co. and Mediaset SpA (MS) both plunged more than 8 percent after reporting first-quarter results. ING (INGA) Groep NV and Carlsberg A/S (CARLA) paced advancing shares.

The Stoxx Europe 600 Index (SXXP) lost 0.3 percent to 249.73 at the close of trading, the lowest since Jan. 13, as the euro weakened for an eighth day. The Stoxx 600 has tumbled 8.3 percent from this year’s high on March 16, trimming this year’s advance to 2.1 percent.

“The real concern isn’t about Greece, it’s about the euro and whether it breaks up — that is key,” Mark Tinker, a fund manager at AXA Framlington Investment Management said on Bloomberg Television in London. “We don’t make a big economic scenario after a couple of days of moves, but I think there is a lot of anxious market repositioning going on right now.”

The benchmark Stoxx 600 yesterday dropped 1.7 percent after Antonis Samaras, the leader of Greece’s biggest political party, failed to reach an agreement on a new government and the mandate passed to left-wing leader Alexis Tsipras, who opposes austerity measures required for the nation’s financial rescue.

The euro fell to 1.2948 against the dollar at 4:25 p.m., for its longest losing streak in 3 1/2 years, as Tsipras meets with leaders of New Democracy and Pasok, the two Greek parties that supported austerity.

Political Stand-off

Tsipras yesterday squared off with political leaders before talks on forming a coalition, handing them an ultimatum to renounce support for the European Union-led rescue if they wanted to enter government.

The stand-off since the inconclusive May 6 election has reignited concerns over Greece’s ability to comply with the terms of its two bailouts negotiated since May 2010. The country is again facing the risk of an exit from the euro.

National benchmark indexes fell in 14 of the 18 western- European markets. France’s CAC 40 lost 0.2 percent and the U.K.’s FTSE 100 declined 0.4 percent, while Germany’s DAX added 0.5 percent. Spain’s IBEX 35 Index sank 2.8 percent, its lowest close since October, 2003.

The cost of insuring against a Spanish default surged to a record on concern a bailout of Bankia (BKIA) won’t fend of a banking crisis triggered by bad real-estate loans. Credit-default swaps insuring Spanish government debt rose 13 basis points to 512 basis points a 10:55 a.m. in London, according to data compiled by Bloomberg.

‘Zombie Bank’

Bankia tumbled 5.8 percent to 2.13 euros, the lowest since it listed its shares in July 2011, as JPMorgan Chase & Co. downgraded the Spanish lender to underweight, the equivalent of a sell recommendation.

“While there is no danger of an imminent collapse at Bankia, there is a risk that it becomes a zombie bank, which has to rely on the European Central Bank to fund it over the long term,” said Roger Francis, an analyst at Mizuho International Plc in London.

Spanish 10-year government bonds extended a decline, pushing the yield on the securities above 6 percent for the first time since April 27. The yield climbed 20 basis points, or 0.17 percentage points, to 6.04 percent.

Banco Santander SA (SAN), Spain’s largest lender, dropped 4.5 percent to 4.64 euros and Banco Bilbao Vizcaya Argentaria SA (BBVA) retreated 4.7 percent to 5.01 euros.

Kloeckner, Mediaset

Kloeckner tumbled 8.2 percent to 8.33 euros after Europe’s largest independent steel trader reported a first-quarter loss of 10 million euros ($13 million), wider than the average analyst estimate for a 900,000 euro-loss. The company said its 2012 earnings will improve only if Europe’s economy recovers.

Mediaset lost 11 percent to 1.45 euros, the lowest since it sold shares to the public in July 1996. The broadcaster reported an 85 percent slump in first-quarter net income to 10.3 million euros after the close of trading yesterday on lower advertising sales. Analysts estimated net income of 6.5 million euros on sales of 984 million euros, according to a Bloomberg survey.

Mapfre SA (MAP) retreated 6.3 percent to 1.94 euros, the most since April 2010. The Spanish insurer reported a 13 percent drop in first-quarter net income to 271.4 million euros. That still beat the average analyst estimate of 250.3 million euros in a Bloomberg Survey.

ING, Carlsberg

ING paced advancing shares, climbing 1.7 percent to 5.08 euros. The biggest Dutch financial-services company reported earnings excluding one-time gains and losses of 705 million euros, surpassing the 632 million-euro estimate of analysts.

Net income sank 51 percent after a charge for a potential settlement of a U.S. probe offset a gain from the sale of its U.S. online bank.

Carlsberg jumped 3.8 percent to 490 kroner as the world’s fourth-biggest brewer confirmed its full-year outlook. The company reported a 43 percent drop in first-quarter operating profit, excluding some items, to 574 million kroner ($100 million) as it sold less beer in Russia. That missed the average analyst projection for 845 million kroner.

Lanxess AG (LXS) advanced 6.4 percent to 61.83 euros after the maker of synthetic rubber said growth in earnings may touch 10 percent this year, outstripping analysts’ estimates, as demand surges in emerging markets and the U.S. recovers.

For 2012, profit will probably grow 5 percent to 10 percent from last year’s 1.1 billion euros. Analysts estimated growth of about 6 percent.

ITV Plc (ITV) rose 2.2 percent to 82.50 pence. The U.K.’s biggest commercial broadcaster said it expects to outperform the TV advertising market in the first half and forecast ad revenue to increase by about 3 percent in the first half.

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Europe risk has eased – Bernanke

Washington – Federal Reserve Chairman Ben Bernanke says the threats from Europe’s debt crisis have eased in recent weeks, but US money market funds remain exposed to risky European assets.

In testimony prepared for a congressional hearing on Wednesday, Bernanke noted developments that have minimised the danger. He pointed to bailout support that European leaders provided in exchange for deep budget cuts by the Greek government and he highlighted the agreement by private creditors to reduce Greece’s debt.

But he said Europe must take further steps, including strengthening its banking system still more and making “a significant expansion of financial backstops” to guard against troubles in one country spilling over to other nations.

“Europe’s financial and economic situation remains difficult, and it is critical that the European leaders follow through on their policy commitments to ensure a lasting stabilisation,” Bernanke said in remarks prepared for the House Committee on Oversight and Government Reform.

While US financial institutions have reduced their exposure to Europe, Bernanke said roughly 35 percent of assets in US prime money market funds are European holdings.

“US financial firms and money market funds have had time to adjust their exposures and hedge their risks to some degree… but the risks of contagion remain a concern both for these institutions and their supervisors and regulators,” Bernanke said.

Bernanke said that if Europe took a severe turn for the worse, the US financial sector would have to contend not only with problems stemming from its direct exposure to European loans and investments but also with broader market movements including declines in global stock prices, increased credit costs and reduce availability of funding.

To address those broader risks, Bernanke noted, the Fed conducted a stress test of 19 of the largest US financial institutions. Those tests, results of which were released last week, found that all but four of the 19 were strong enough to sustain a major economic downturn worse than the 2007-2009 Great Recession.

Bernanke said in his testimony that those results showed that a “significant majority” of the largest US banks would have adequate capital to withstand large loan losses from an extremely adverse situation. He said the tests were designed to capture both direct and indirect exposures of US banks “to the economic and financial stresses that might arise from a severe crisis in Europe”.

Bernanke and Treasury Secretary Timothy Geithner are both scheduled to appear before the House panel on Wednesday.

In his prepared testimony, Geithner said that the Obama administration was encouraged by the steps that Europe has taken to address the debt crisis.

“We hope European leaders will build on that progress with additional actions to calm the financial tensions that have been so damaging to global economic growth,” Geithner said.

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Greek socialists vote for new leader

Greek socialists vote for new leaderGreek supporters and members of the socialist Pasok party were set to ratify the election of Finance Minister Evangelos Venizelos (pictured) as new party leader on Sunday, ahead of a general election expected late April or early May.
Greece’s socialists were set on Sunday to choose Finance Minister Evangelos Venizelos as their new leader in a bid to avert a disaster in upcoming elections after two years in power marked by austerity pain.

A French-educated law professor from the northern metropolis of Thessaloniki, Venizelos stands unopposed to take over the historic Pasok party which has ruled Greece for a combined two decades since democracy was restored in 1974 after a seven-year army dictatorship.

The 55-year-old told reporters last week that the election provided a good opportunity to energise the party ahead of legislative elections which are expected to take place in upcoming months.

“It will be a useful opportunity to rally the party, to mobilise and activate its reflexes,” he said.

Venizelos is hoping to capitalise on a record deal with private investors last week to erase more than 100 billion euros ($130 billion) of near and midterm debt to give Greece time to enact additional reforms needed for future loans.

But the International Monetary Fund reminded Athens on Friday that the pressure remains very much in place.

Greece has “little if any margin” for slippage on reforms under its new bailout program, according to IMF documentation for its loan to Athens.

The International Monetary Fund, which decided a new 28 billion euro loan for Greece on Thursday said Greece could reach its debt reduction targets if it adheres to the tough austerity measures — including slashing minimum wages, trimming pensions and cutting 15,000 public jobs this year.

But if implementation moves too slowly or falls short, or if the economy does not respond to reforms as fast as expected, “a deeper recession and a much higher debt trajectory would be the likely result.”

“Political risks linked to the electoral calendar create additional uncertainty about policy implementation,” the IMF added.

Venizelos insists that his goal is to win the next legislative election, which has not been officially announced but is expected in late April or early May.

“The goal can only be victory,” the bullish minister said last week. “We have a crisis in progress ahead of us, one that we must manage.”

Around 390,000 card-carrying party members and millions of supporters have been called to participate in Sunday’s nationwide procedure which will give an early indication of Venizelos’ chances of turning around the party.

After two years in power before a coalition government was formed with the conservative New Democracy in November 2011, Pasok has been identified with an unpopular EU-IMF economic rescue plan and faces the lowest ratings in its 37-year history.

Appointed to the finance ministry in June, one of Venizelos’ first acts was to push through an austerity law worth 28 billion euros ($37 billion), including 50 billion euros in privatisation measures, in the teeth of violent street protests.

The party’s outgoing leader George Papandreou, son of Pasok founder Andreas Papandreou, was forced to step down as prime minister a few months later to avert a backbencher revolt in parliament.

A poll in Kathimerini daily on Friday, which incorporated a large absentee expectation of 25.5 percent, put Pasok back in fifth place with 11 percent, far behind the conservatives who were given a 14-point lead.

The poll gives the new Pasok leader an approval rate of only 30 percent.

Greece’s current coalition government, headed by former European Central Bank deputy chief Lucas Papademos, must still ratify in parliament a new eurozone bailout worth 130 billion euros designed to save Athens from default.

And the next government must pursue the unpopular economic overhaul on top of past tax hikes and wage and salary cuts that have plunged Greece into the worst recession in decades, with more than a million people officially out of work.

A gifted orator, Venizelos had previously campaigned to take over the party in 2007 after a previous Pasok electoral defeat but handily lost to Papandreou.

A decade ago, he was the minister in charge of Greece’s hectic preparations for the 2004 Olympic Games that eventually ran massively over budget.

Ballots opened at 0700 GMT at around 1,000 locations nationwide.

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Greek finance minister takes charge of socialist party

 

With general elections due to take place as early as 29 April, Venizelos’s selection as leader of what has traditionally been the country’s biggest leftist force is seen as key to political stability.

Newly elected president of Pasok socialist party Evangelos Venizelos

The newly elected president of the Pasok socialist party, Evangelos Venizelos, arrives at the party’s headquarters in Athens.

Barely a week after negotiating the largest sovereign debt restructuring in history, the Greek finance minister, Evangelos Venizelos, has been elevated to the helm of Pasok, the country’s embattled socialist party.

As thousands of Pasok members filed into polling stations to endorse the bullish politician – who was the sole candidate – Venizelos pronounced the start of a “new era” for a party whose popularity has plummeted as it has navigated Greece’s financial crisis.

“This is the beginning of Pasok’s quest to find its soul again,” said the 55-year-old law professor, who replaces the former prime minister George Papandreou.

With general elections due to take place as early as 29 April, Venizelos’s selection as leader of what has traditionally been the country’s biggest leftist force is seen as key to political stability. In an economic climate that has become increasingly explosive, polls have shown other leftist groups and extremists gaining ground.

The finance minister, who is expected to resign from the post on Monday, is among Athens’s most talented politicians, and his handling of the €206bn (£171bn) bond swap – the success of which surprised even the cynics – has won widespread plaudits.

“It’s astonishing that a French-trained law professor who was not a typical expert in economics did so well negotiating what is one of the biggest financial experiments in modern global history,” said Theodore Pelagidis, professor of economic analysis at the University of Piraeus.

“Because he is so mentally sharp he was able in record time to familiarise himself with exotic financial tools and procedures.”

The deal, a precondition of further aid from Brussels, the European Central Bank and the International Monetary Fund (IMF), was closed after eight months of highly complex negotiations between Greece and private sector bondholders at the Washington-based Institute of International Finance.

Athens receives a first tranche of aid on Monday, exactly one day before it must repay €14.5bn in maturing debt.

The groundbreaking agreement, which slices €107bn from Greece’s debt pile, appears to have eased fears of an imminent Greek exit from the eurozone, a scenario likened at the weekend to “opening the gates of hell” by the country’s central bank governor, Giorgos Provopoulos.

“Fortunately the decisions by the Eurogroup and successful completion of PSI [bond swap] are making this scenario distant and give Greece the chance to enter, with hard work, a virtuous circle,” he said.

Rebuilding Pasok

Pasok has an estimated 400,000 card-carrying members. Aides say if Venizelos’s candidacy is endorsed by 100,000 it will have been a success, given the collapse in support for a party identified almost exclusively with the biting austerity demanded in exchange for aid.

Elected to power with a landslide victory in October 2009, the socialists’ ratings have crashed to around 10%, levels not seen since the party, founded out of an anti-junta resistance movement by George Papandreou’s father, Andreas, was first voted to parliament in 1974.

“Venizelos has earned the respect of everyone, even his fiercest enemies, with the stamina he showed handling the PSI,” said a government official referring to the debt restructuring. “But the one-million-dollar question now is will he be able to rebuild Pasok?”

Capitalising on the agreement is unlikely to be enough. Under extraordinary pressure to deliver on their promise to modernise the economy by enacting unpopular reforms, Greek politicians must walk the tightrope of pleasing creditors while placating an increasingly angry populace.

Speaking to Sunday’s To Vima, Poul Thomsen, the IMF mission chief to Greece, said that while the debt swap provided a necessary breathing space to enforce change, “continued international support depended on stable progress.”

It was, he said, the country’s last chance. A third rescue package – already being discussed in view of the austerity-driven economic death spiral gripping Greece – was “off-limits”.

“If that happens there will be a problem,” he told a local radio station, adding that public utilities that had “outlived” their purpose had to be closed immediately.

No one is more aware of the demands now being made of Greece than Venizelos. Insiders say the finance minister had “three frank discussions” with his German counterpart, Wolfgang Schauble, in which he was told, bluntly, that Athens either enact growth-enhancing structural reforms or “be left out of the eurozone”.

As the man most associated with painful fiscal policies, his first act as finance minister last July was to push through a €28bn package of austerity cuts that included a deeply unpopular privatisation drive – measures that prompted an orgy of violent street protests.

With recession set to further erode Greece’s economic output – GDP has fallen by a cumulative 20% since 2008 – and an army of international “supervisors” about to descend on Athens permanently, resentment over policies that are also seen to impinge on the nation’s sovereignty have far from abated.

Instead, Venizelos, who becomes Pasok’s fourth president, takes over a party that is not just floundering but fighting for its life.

 

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World economies ‘need more reform’

Speaking at a conference in Beijing to an audience of Chinese and foreign officials and business executives, Christine Lagarde said developed countries needed to strengthen their financial systems and cope with high debt.

She said developing countries had to improve their defences against external shocks.

“The world economy has stepped back from the brink and we have causes to be a little bit more optimistic,” she said. “But optimism should not give us a sense of comfort and certainly should not lull us into a false sense of security.”

Ms. Lagarde said the global economic recovery would be “a marathon, not a sprint”.

She said European leaders needed to stay vigilant about debt, focus on “steady, rigorous implementation” of financial measures, and careful

ly watch the economic situation in Greece.

On Thursday the IMF approved 28 billion euros (£23.3 billion) in funding for crisis-hit Greece over the next four years, as dizzily high borrowing rates have blocked its ability to raise money on the international bond markets.

Greece is having to enact harsh austerity measures in return for the rescue loans.

The bailout comes as European governments try to slash deficits that ballooned in the aftermath of the financial turmoil of 2008 and this year signed off on a new set of rules that would punish countries that overspend.

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EU’s Rehn says Portugal on track with bailout plan

Portugal is on track to meet the terms of its 78-billion-euro bailout and must stick to fiscal goals agreed under the plan, European Union Economic and Monetary Affairs Commissioner Ollie Rehn said on Wednesday.

“Portugal is on track to reverse its fiscal situation, to regain confidence in its economy from international partners and from the market and to set the foundation for more sustainable growth,” Rehn told reporters during a visit to Lisbon.
Rehn met with Prime Minister Pedro Passos Coelho and Finance Minister Vitor Gaspar on the first day of a two-day visit to Portugal.
Rehn made clear Portugal must stick to tough budget deficit goals despite a deep recession due to austerity.
Neighbouring Spain has said it will relax budget goals this year, defying the European Commission.
“It is now essential that this solid performance continues in order to reinforce confidence further and in particular that Portugal sticks to its (deficit) target of 4.5 percent this year in order to achieve the 3 percent target next year,” he said.
Portugal only met last year’s budget deficit goal of 5.9 percent of gross domestic product thanks to a one-off transfer of banks’ pension assets to the state. Some economists say Portugal may struggle to meet this year’s goal of 4.5 percent, especially if the recession deepens further.
Rehn said Portugal was different from Greece, which was forced to seek a second, 130-billion-euro bailout and to restructure its debt.
“The Portuguese situation is very different from the Greece situation for several reasons,” he said when asked if he thinks Portugal will need more bailout money.
“First of all the debt burden is not at all in the same scale. Second, there is strong and broad political consensus (in Portugal) backing the programme from the start,” he said.
Portugal’s total debts reached just over 100 percent of GDP last year. Greece’s was at 160 percent before its debt restructuring.
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Greece, economy worries hit Wall Street

Heightening tensions over Greece come a day after China cut its growth forecast and data showed the European Union is unlikely to avoid a recession.

Wall Street fell on Tuesday on renewed concerns that Greece and private bondholders may not meet a looming deadline to complete a debt swap and as caution grew over the global economic outlook after recent weak data.

A group representing bondholders warned a default could cause more than 1 trillion euros ($1,3 trillion) of damage to the region. Creditors have until Thursday night to accept a bond swap in which they would lose almost three-quarters of the value of their bonds.

Heightening tensions over Greece come a day after China cut its growth forecast and data showed the European Union is unlikely to avoid a recession. The data was a worry for the market, which has rallied largely on hopes of a strengthening economic picture.

“What is driving the market now is the outlook for economic growth elsewhere and, pretty importantly, the US and China,” said Jack de Gan, chief investment officer at Harbor Advisory Corp in Portsmouth, New Hampshire.

Banks and materials shares, sensitive to flare-ups in Europe’s debt crisis, fell. Bank of America Corp lost nearly 3% to $7,74, while aluminum producer Alcoa Inc was off 2,7% to $9,60.

De Gan said the market was struggling at the top end of a S&P 500 trading range, at about 1 370. The index is up 23% since reaching closing lows in October. “You’re at the top end of the range and investors will use any excuse to lock in a profit,” said De Gan.

The Dow Jones industrial average dropped 139,41 points, or 1,08%, to 12 823,40. The Standard & Poor’s 500 Index dropped 14,33 points, or 1,05%, to 1350,00.

The Nasdaq Composite Index dropped 31,38 points, or 1,06%, to 2 919,10.

“Markets have been supported over the past few months by the concomitant strengthening in global data and easing in worries about the European crisis,” Goldman Sachs said in a research note. “With the data a bit muddier recently, we are happier on the sidelines for now.”

Greece has no plans to extend the March 8 deadline on its bond swap offer to private creditors, Greek officials said, dismissing market rumors the date may be changed to increase participation in the offer.

European shares hit a 1-week low, with the FTSEurofirst 300 index of top European shares down 2%. Hong Kong shares suffered their biggest slump in nearly three months as the Hang Seng index lost 2,2%.

Oil dropped on concerns over global economic growth despite the continued risk to supplies due to Iran’s nuclear program.

Brent crude fell 1,6%, while US crude was off nearly 2%.

Shares in Exxon Mobil Corp fell 0,7% to $86,41. The Select Sector SPDR energy exchange-traded fund lost 1,6% to $73,07.

Copper fell for a third straight day, pulled lower by a stronger dollar and fears of reduced demand from China, the world’s biggest consumer of the industrial metal.

Shares in miner Freeport-McMoRan Copper & Gold Inc fell 3,6% to $38,97.

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