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Stocks Slide as Greek Talks Drag On


The New York Times, September 19, 2011

Investors shed risky assets in the United States and Europe on Monday in a sign of increasing pessimism over the lack of a resolution to the Greek debt crisis.

In Europe, market indexes fell 3 percent, the euro declined and the price of safe assets like German bonds rose as investors continued to fret about the possibility of a Greek default.

The mood carried over to the United States, where bond prices rose and stocks on Wall Street declined about 2 percent in early trading. By noon, the Standard & Poor’s index of 500 stocks was down 1.4 percent, while the Dow Jones industrial average was down 1.5 percent and the Nasdaq composite index was 0.7 percent lower.

Investors were retreating from what was a strong end to the previous week. The New York indexes had all gained in the five-day trading period, with the broader market up more than 5 percent, after leaders in the euro zone said they were working together to address the sovereign debt crisis.

But on Monday, investors were rowing back some of that optimism, analysts said.

“The market got ahead of itself,” said Alan B. Lancz, the president of Alan B. Lancz & Associates. “They were expecting some news this weekend, and there was absolutely no progress at all. Investors are bailing out now and realizing maybe they made a mistake.”

Meetings of European finance ministers at the end of last week and an emergency meeting of the Greek cabinet on Sunday failed to produce any specific commitments on whether the next tranche of 8 billion euros, or $11 billion, in financial aid would be released in time to help Athens meet obligations coming due in mid-October.

On Monday, the market’s attention was focused in part on the results of a conference call between Greek officials and the so-called troika of foreign creditors — the International Monetary Fund, the European Commission and the European Central Bank — as well as further meetings among senior officials in Athens struggling to close a gaping budget gap.

Amid the crisis atmosphere, Prime Minister George Papandreou of Greece canceled a visit to the United States, saying he needed to be at home to work on the rescue package.

Some analysts now fear that given the legal complications in some euro zone countries, and the apparent reluctance of Greece to push ahead on the kind of commitments on spending, wages and privatizations being sought by its partners, Greece might soon default, triggering a domino effect on other countries like Portugal, Italy or Spain.

Those fears were compounded after the party of Chancellor Angela Merkel of Germany lost ground in a regional election in Berlin on Sunday, amid voter anger over her handling of the debt crisis.

“The background noise of the Greek debt crisis resembles a continuous alarm tone,” Rainer Guntermann and Peggy Jäger, Commerzbank analysts, said in a research note. “With few tangible results coming from the finance ministers’ meeting over the weekend and still little official indication that the Greek debt swap may go through, speculation remains high and Bunds remain in demand.”

In Europe, stocks also eased their declines as the trading day wore on. In late trading, the Euro Stoxx 50 index retreated 2.9 percent. The FTSE 100 shed 2 percent in London, and the DAX dropped 2.8 percent in Frankfurt.

Banking stocks were once again hard hit. Barclays, the British bank, shed 6.5 percent and BNP Paribas of France was down around 5.5 percent.

The euro weakened 0.4 percent to $1.364 and also declined against the yen.

The economic outlook was also downbeat after the secretary-general of OPEC, Abdalla Salem el-Badri, said Monday that global demand for oil was rising less than expected, Bloomberg News reported.

“We have risk aversion, profit taking and a stronger dollar on the back of the ongoing concerns both in Europe and domestically,” said Peter Cardillo, chief market economist for Rockwell Global Capital.

The price of German government bonds rose. For German 10-year bonds, the yield, which moves in the opposite direction of price, declined seven basis points to 1.80 percent. Spanish and Italian bond prices declined even as the European Central Bank was reported to be buying those securities by traders. The United States 10-year bond yield fell to 1.96 percent from 2.0 percent on Friday, and the 30-year yield was down to 3.2 percent.

The decline in yields comes before a Federal Reserve meeting Tuesday and Wednesday, when investors believe policymakers may announce new measures to promote economic growth.

Anthony Valeri, the fixed-income investment strategist for LPL Financial, said he believed investors have already priced in the expected action, making Monday’s movements in bonds “exclusively risk aversion” because of the lack of progress in Europe.

“I think the bond market priced it in last week and probably toward the end of the prior week,” Mr. Valeri said, referring to the expectation that the Fed would sell its short-term securities and buy long-term securities to further reduce rates.

Matthew Saltmarsh reported from London.


Greeks Discuss Drastic Moves to Receive Aid


The New York Times, September 18, 2011

Kostas Tsironis/Bloomberg News

Evangelos Venizelos, Greece’s finance minister, shown at a conference in Athens on Monday, was to participate in a teleconference with foreign lenders.

Reflecting the urgency of the situation, the prime minister of Greece, George A. Papandreou, canceled a planned trip to Washington this week and held talks with his cabinet on Sunday.

But European stock markets on Monday morning registered their pessimism, with the main indexes of the German and French exchanges down more than 2 percent. The Greek stock market index slid 2.7 percent.

The Greeks face an October deadline to qualify for 8 billion euros, or $11 billion, in aid, without which Greece will certainly default on its growing debt. Over the weekend, European finance ministers issued stern warnings at a meeting in Poland that failure to meet financial targets would imperil the release of the payment.

The payment is just one installment in a larger package of 110 billion euros, or $152.6 billion, in aid agreed to by euro zone members in spring 2010; a second bailout fund, for 109 billion euros, or $150.2 billion, was agreed to in July, though that has yet to be ratified.

To reach the financial targets, Greek leaders discussed a range of draconian layoffs and pay reductions among public sector workers. While these measures have long been planned, but never carried out, to the frustration of foreign lenders, the discussion of these cuts represented a marked change in approach for the Greek government, with the emphasis on reductions over revenue increases.

“Everyone wants a smaller state,” the finance minister, Evangelos Venizelos, said on Sunday.

After the meeting, the Greek government reaffirmed its commitment to hit budget targets for 2011 and 2012, to avoid generating new debt and to revamp the dysfunctional economy. The measures are “in order to avoid bankruptcy and remain in the euro zone but also to stop the country being blackmailed and humiliated,” Mr. Venizelos said.

Mr. Venizelos also appealed to Greeks to take responsibility for the challenges they face.

“What is being disputed on a global level is not the ability of the government but the ability of the country to do what is necessary,” he said, in an apparent reference to strong labor union resistance to reforms and persistent tax evasion.

More specifically, Greece officials are being pressed to put thousands of civil servants deemed to be “surplus” on a standby status at a reduced wage. The government has not yet pushed ahead with this measure, which is very unpopular in a country where nearly one million people out of a population of 11 million work for the government.

Several Greek news media outlets, including the influential center-left newspaper To Vima, on Sunday cited an internal government e-mail that set out priorities by Greece’s foreign creditors aimed at raising much-needed revenue quickly. These include cuts in the pensions of Greek sailors and employees of the state telecommunication company OTE, the immediate merger or abolition of 65 state agencies and the freezing of state workers’ pensions through 2015.

Adding to the Greeks’ dilemma is that the proposed cuts come as the Greek economy is contracting faster than expected. Last week, Mr. Venizelos warned that the economy would shrink much more sharply this year than anticipated — by 5.3 percent instead of the 3.8 percent originally forecast in May. The budget deficit is on track to reach 8.2 percent of gross domestic product this year, well ahead of the original estimate of 7.4 percent.

The original aid package requires Greece to reduce its deficit to 7.5 percent of gross domestic product this year, and below 3 percent by 2014, according to the International Monetary Fund.

The reduced number of workers employed in the public sector would only add to the difficulty of meeting these targets as payroll tax collections shrink.

Despite the dire circumstances, Mr. Venizelos denied rampant speculation that the country was on the brink of default.

Acknowledging that the mood in both Greece and the euro zone is “fluid and nervous,” he said the country was committed to taming its widening budget deficit and carrying out reforms, one of which is a new levy intended to ensure that property owners pay taxes.

Mr. Venizelos also lashed out at “those intent on speculating against the euro and carrying out organized attacks on the heart of the euro zone.”

Greece, he said, risks “becoming a scapegoat and an easy alibi for institutions that are unable to curb the crisis and to respond to attacks on the euro.”

On Monday, Mr. Venizelos will have a chance to make his country’s case in a conference call with representatives of the foreign lenders known as the troika: the European Commission, the European Central Bank and the International Monetary Fund.

Public sector workers in Greece have shown little appetite for the cuts that have already been made, let alone those being proposed. Over the summer, protests have turned violent as workers have bristled at the new austerity measures.

In Germany, the mood seemed to be turning increasingly in favor of letting Greece fail rather than to bear the growing cost.

Wolfgang Schäuble, the German finance minister, repeated warnings that Greece would not receive any more aid unless it kept promises it had made to the I.M.F., the European Commission and the European Central Bank to cut government spending and improve the economy.

“The payments on Greece are contingent on clear conditions,” Mr. Schäuble told the newspaper Bild am Sonntag.

As the largest country in the euro area, which has 17 European Union members, Germany is the biggest contributor to a bailout fund meant to help Greece as well as Portugal and Ireland continue to pay their debts while their economies recover.

Voters in Berlin, at least, did not punish Chancellor Angela Merkel for her handling of the debt crisis. Her Christian Democratic Union gained two percentage points in regional elections on Sunday compared with the last election five years ago, winning 23.4 percent of the vote. The Social Democrats, who have generally been supportive of aid to Greece, remained in power with 28.3 percent.

Support for the Free Democrats, whose leaders have been among the most vocal critics of Greek aid, plunged to 1.8 percent from 7.6 percent in 2006. That is below the 5 percent needed to seat representatives in the state Parliament.

In the end, when political leaders do the math, they may find it cheaper to save Greece than engineer a bank rescue, analysts said.

“There is no political advocacy for such a prospect in Greece or in Europe as it would signal the beginning of the unraveling of the euro zone,” said George Pagoulatos, a professor at the Athens University of Economics and Business. “The markets would start attacking Portugal and Ireland, and the domino would stop somewhere around France.”

Jack Ewing reported from Frankfurt, and Niki Kitsantonis from Athens. Stephen Castle contributed from Wroclaw, Poland.

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