VIDEO: Eurozone troubles worry Australia

AppId is over the quota
AppId is over the quota
4 October 2011 Last updated at 01:21 GMT Help

View the original article here

Eurozone delays Greek loan choice

AppId is over the quota
AppId is over the quota
4 October 2011 Last updated at 00:06 GMT Continue reading the main story Last Updated at 05:00 GMT

Market indexCurrent valueTrendVariation% variationEurozone finance ministers have delayed a decision on giving Greece the next instalment of bailout cash.

It came after Greece said it would not meet this year's deficit cutting target, sparking a sharp sell-off in stock markets.

However Eurogroup chairman Jean-Claude Juncker said Greece would not be allowed to default on its debts.

The next 8bn-euro (￡6.9bn; $10.9bn) tranche of cash needs to be released by mid-November.

The finance ministers, meeting in Luxembourg, also appeared to have reached a deal to let Finland receive collateral as security for its contribution towards the eurozone bailout fund - the European Financial Stability Fund.

The Finns had threatened to block further bailouts to Greece unless it received this special arrangement.

'No default'

Athens announced that the 2011 deficit was projected to be 8.5% of GDP, down from 10.5% in 2010 but short of the 7.6% target set by the EU and IMF.

The government, which on Sunday adopted its 2012 draft austerity budget, blamed the shortfall on deepening recession.

Continue reading the main story

Equity and debt markets haven't imploded today, but my goodness bankers are feeling jumpy.”

End Quote Robert Peston Business editor, BBC News Inspectors from the International Monetary Fund (IMF), European Union (EU) and European Central Bank are currently in Athens to examine Greece's financial position.

A further eurozone meeting on 13 October will make a decision on whether additional steps by Greece to balance its budget are sufficient.

That would then lead to a "definite and final decision in the course of October", according to Eurogroup chairman Jean-Claude Juncker.

Mr Juncker also ruled out the possibility of a debt default by Greece - denying rumours that some countries, including Germany, had been pushing for this.

However, without the further bailout money, Greece may have little choice but to stop repaying its debts - something that would put severe pressure on the eurozone, damage European bank finances and possibly have a serious knock-on effect on the world economy.

Continue reading the main story Use the dropdown for easy-to-understand explanations of key financial terms:AAA-rating GO The best credit rating that can be given to a borrower's debts, indicating that the risk of borrowing defaulting is miniscule.Meanwhile, emergency talks over the future of Franco-Belgian bank Dexia added to market fears that a Greek default could spark a banking crisis.

The bank's board called an emergency meeting late on Monday as rating agency Moody's announced it was reviewing the bank's credit rating for a downgrade because of its exposure to Greek debt.

After the meeting, the bank said it would 'resolve the structural problems' that are exacerbating concerns over how it will deal with any type of default by Greece.

The Belgian finance minister Didier Reynders said Belgium and France would 'step in if necessary' to support Dexia.

Bank stocks

The UK's FTSE 100 lost 1% by the close of trading on Monday, French shares fell 1.9%, and German stocks shed 2.3%.

The sell-off continued into New York trading hours, with the Dow Jones Industrial Average ending the day 2.4% lower.

US markets are now right at the bottom of the 10% range within which they have swung violently up and down for the last two months.

Banking stocks were also among the biggest fallers on both sides of the Atlantic.

Continue reading the main story

Until we get a bigger and better package coming through [from eurozone leaders] trading will remain volatile”

End Quote Alec Letchfield HSBC Asset Management In Europe, Dexia initially fell as much as 14%, but recovered to be only 10.1% down by the close of European trading, while France's Societe Generale was down 5.2%, and Germany's Commerzbank fell 7.3%.

In the US, the banks seen as most at risk from a renewed global financial crisis fell sharply, with Citigroup down 9.8%, Bank of America 9.6% and Morgan Stanley 7.7%.

Industrial stocks - which are most exposed to any renewed economic downturn - were also among the worst hit.

Analyst Alec Letchfield, chief investment officer at HSBC Asset Management, said markets would remain turbulent until eurozone leaders tackled the debt problem.

"Until we get a bigger and better package coming through trading will remain volatile," he said.

In the currency markets, the euro fell sharply, down 1.4% against the dollar in late trading, and dropping 2% to a decade low of 101 yen against the safe-haven Japanese currency.

'Unanimously approved'

The Greek finance ministry said on Sunday that its unpopular austerity measures would have to be adhered to.

It said: "Three critical months remain to finish 2011, and the final estimate of 8.5% of GDP deficit can be achieved if the state mechanism and citizens respond accordingly."

Continue reading the main story 3 Oct: Original deadline for Greece to receive next 8bn-euro tranche of bailout funds;Next few days: Troika decides whether to recommend that Greece gets the next tranche;9 Oct: Leaders of Germany and France to hold talks;13 Oct: European authorities due to decide whether to release bailout money to Greece;14-15 Oct: G20 finance ministers meet in Paris;17 Oct: Slovakia votes on whether to expand the European Financial Stability Facility. Members of the coalition government have vowed to block expansion;17-18 Oct: European Union summit in Brussels;End of Oct: Greece to get next bailout money - assuming no more hurdles;3-4 Nov: G20 summit in Cannes, France. World leaders, including Barack Obama, want evidence that Europe have got control of debt crisis.It released figures for 2012's projected deficit, putting it at 6.8% of GDP, also short of the 6.5% target.

The data came as the government met to approve Greece's draft budget for next year.

It blamed an economic contraction this year of 5.5% - rather than May's 3.8% estimate - for the failure to meet deficit targets.

The cabinet meeting also approved a measure to put 30,000 civil service staff on "labour reserve" by the end of the year.

This places them on partial pay with possible dismissal after a year.

"The labour reserve measure was approved unanimously," one deputy minister told Reuters.

This measure, along with other wage cuts and tax rises, have been part of a package intended to persuade the so called "troika" of the EU, IMF and ECB to continue with the bailouts.

The Greek austerity measures are hugely unpopular at home and have led to a wave of strikes and protests.

Many Greeks believe the austerity measures are strangling any chance of growth.

Send your pictures and videos to yourpics@bbc.co.uk or text them to 61124 (UK) or +44 7624 800 100 (International). If you have a large file you can upload here.

Read the terms and conditions

View the original article here

VIDEO: Youth unemployment rise in Eurozone

AppId is over the quota
AppId is over the quota
4 October 2011 Last updated at 21:07 GMT Help

View the original article here

VIDEO: Eurozone crisis sparks fears for Dexia

AppId is over the quota
AppId is over the quota
4 October 2011 Last updated at 22:15 GMT Help

View the original article here

Ask the experts: Eurozone crisis

AppId is over the quota
AppId is over the quota
27 September 2011 Last updated at 22:54 GMT By Laurence Knight & Ian Pollock Business reporters, BBC News Our experts answer your eurozone crisis questions Last month, the BBC asked viewers what questions they had about their finances, particularly given fears about a renewed financial crisis and recession.

Here, BBC journalists Laurence Knight and Ian Pollock answer your questions about how the eurozone debt crisis might affect you.

Why, with the eurozone in crisis, is the pound still so weak against the euro? - Roy Waite, Carentoir, France

Put simply, the UK is in no better shape than the eurozone.

Both currency blocs (and the US for that matter) face the same economic malaise. Debts are too high, particularly household debts, so nobody wants to spend - not consumers, not businesses, not even governments.

That means interest rates in the UK and the eurozone are likely to remain very low for many years, making both currencies an unattractive place for investors to park their cash.

But thanks to the hawkish European Central Bank, eurozone interest rates have actually been somewhat higher than in the UK - and were even rising until recently - helping to push the euro's value up.

High interest rates and a strong euro have of course made things even harder for Greece and other heavily-indebted governments, and markets view their debts as very risky.

But the euro is also home to German government debt - considered an ultra-safe investment by markets.

Even if the more distressed eurozone governments defaulted on their debts, the consequences would be felt well beyond the eurozone's borders, much as the collapse of Lehman Brothers in 2008 was felt outside the US.

And if these countries left the euro, the value of the remaining, more German-dominated euro might actually go up.

How prepared are we, the Bank of England, etc, for a Greek default? - Robert W Warne, Cardiff

Use the dropdown for easy-to-understand explanations of key financial terms:AAA-rating GO The best credit rating that can be given to a borrower's debts, indicating that the risk of borrowing defaulting is miniscule.

Bank of England governor Mervyn King revealed in response to MPs' questions in June that the Bank was working with the Treasury to draw up contingency plans for a Greek default.

He did not give any details of what those plans are, nor have any emerged since.

The direct exposure of UK banks to Greece is fairly limited, but - as with the bankruptcy of Lehman Brothers - a Greek default could have a number of knock-on effects that affect the UK far more severely.

For example, it could lead to the failure of one or more European banks because of their exposure to Greece, or to a general loss of confidence in global banks, in the euro or in the debts of other over-stretched eurozone governments.

The plan may consider actions such as:

emergency cash loans from the Bank of England to the UK banks, if there is a collapse of market confidence in theminterventions to support other short-term cash markets, such as commercial paper markets, which are used by companies to fund themselvesthe government injecting new loss-absorbing capital into the banks, if they suffer heavy losses because of the failure of a European bank or losses on other eurozone government debtsthe Bank publishing details of an audit currently under way of the UK banks' exposures to the eurozone, in order to reduce uncertainty and restore confidencemonetary stimulus - such as cutting rates to zero and buying up more UK government debt - in order to head off a broader economic downturnemergency tax cuts and/or spending increases by the government for the same purpose, with some of the resulting borrowing to be funded by the Bank of England's debt purchasescurrency interventions if the euro were to drop significantly against the pound.What would happen to euros in bank accounts in non-eurozone countries when/if the eurozone breaks up and turns into two or more different currencies? - Robert, Bath

You should check the terms of your bank account.

So long as the euro continues to exist - minus some members - your account should be unaffected.

If, for example, Greece left the euro, its government would probably pass a law overriding its existing euro contracts, as well as those of Greek banks, companies and individuals, redenominating them all into new drachmas.

Some legal experts have warned of a huge mess in these circumstances, with litigation brought by anyone who lost out on the conversion.

However, most financial contracts specify the law of a particular country as its "governing law". For a bank account in Athens or a Greek government bond, the governing law is Greece. So it would be hard for anyone to argue in court that these contracts should not be redenominated, if the Greek parliament says so.

But an account held in a non-eurozone country is likely to apply the law in that country, or the law of a popular jurisdiction such as England, New York or Germany. So it should be unaffected by a Greek redenomination law, unless your account is with a Greek bank.

If the euro ceased to exist altogether - with even Germany exiting - then what happens depends primarily on your account terms, assuming that they are not governed by the laws of one of the eurozone countries.

Your bank probably would have reserved the right to choose which national currency to use as a successor to the euro. Its choice would then be a commercial decision, based on how much it values its reputation and client relations over its own short-term financial gain.

Where does the European Central Bank get the money from to buy Spanish and Italian bonds? How much do they have available and what will they do if they use it all? - Peter Gray, Hitchin, Herts

Essentially the ECB, together with the "eurosystem" of 17 national central banks, can itself create the money that it uses to buy government debts.

There is therefore no theoretical limit to how much it can buy up.

When the ECB buys an Italian bond, it can pay for it by providing to the bond seller with a newly-created euro deposit at the seller's national central bank.

The seller can then use this deposit as "money" to buy other financial instruments, or it can redeem the deposit for newly-printed euro cash.

Practically, however, there are three limits on how much the ECB can do this.

The central bank's first priority is price stability. Creating new money is typically viewed as inflationary.

The ECB may try to reduce the impact of this money creation by borrowing the newly-created money back from the market, or by selling other assets it owns - German government bonds perhaps.

However, in the current heavily-depressed economy, many economists argue that money creation is not inflationary at all, at least in the medium-term, as banks are simply hoarding the money.

Secondly, the ECB may make losses on the bonds if Italy defaulted on its debts, or if it sold them back to the market at a lower price than it bought them.

The eurosystem has "capital" - money given to it by the eurozone governments when it was set up, plus profits it has made on its operations - of about 80bn euros that can absorb these losses.

But if the losses are too big, the ECB would need to be given new capital by the eurozone governments - something they are not legally obliged to do.

So the ECB may be concerned that any such bail-out could damage its cherished political independence.

Thirdly, the ECB is concerned not to distort markets too much, and in particular, not to discourage fiscal discipline by the Italian or Spanish governments by making it too easy for them to borrow.

I have three Spanish buy-to-let mortgages. I am saving sterling in the hope that the euro will collapse in value, to help pay off one of the mortgages. If a euro member leaves, is this likely to happen? If I default on the other two mortgages, can the bank take the one that I have just paid off? - Michael Sands, Northern Ireland

There are too many missing pieces of information to give you a sensible answer. Are the three properties in Spain or the UK? Is your lender in the UK or Spain? Were the loans in pounds or euros?

Whatever the facts, you appear to be in a hole, and as the former Labour Chancellor Denis Healey once said, in that situation, you should stop digging.

Let's assume the properties are in Spain and you borrowed euros from a UK lender to buy them.

Your suggested strategy is complex and hinges on several different things going your way, which they may not.

Firstly, devaluation of the euro. That might happen if one or more countries left the euro, but equally the euro might in fact strengthen if just the weakest countries such as Greece and the Irish Republic leave.

If Spain left the euro and, presumably, readopted the peseta as the national currency, you might think you would benefit from a probable devaluation of the newly adopted peseta.

But you might still be legally obliged to repay your debts in euros, regardless of the new local currency in Spain. And again, the euro might not devalue but appreciate if Spain left.

So, your guess that economic upheaval will inevitably reduce the value of your euro-denominated debts may not be accurate.

Your ambition to default on two mortgages after paying off just the third is also off beam.

Firstly, it is arguably dishonest.

Secondly, if you borrowed from a UK lender, then unless they were asleep when they lent you the money, they will have a charge over all three properties.

They will be able to chase you for any outstanding debts, once they have seized the two defaulted properties and sold them.

The same applies if you borrowed from a lender in Spain. If you still owe them money after they have seized your two mortgaged homes and sold them, they can still pursue you for the debt, there and here.

If your finances are too distressed, default may be inevitable. But it will not be an easy escape route from the debts you took on.

View the original article here