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Greece is gearing up for another tough week of negotiations on the country’s crucial second bailout as it tries to revive talks with private investors and has its economy scrutinized by a team of international debt inspectors.
“This is a critical time for the Greek economy … the negotiations are very difficult,” government spokesman Pantelis Kapsis said Monday.
“It is understood that there will be renewed pressure (from the debt inspectors) to speed up structural reforms.”
The mission heads of inspectors from the so-called “troika” _ the International Monetary Fund, European Central Bank and European Commission _ are expected to arrive in Athens on Friday, the Finance Ministry said. The technical teams, meanwhile, will begin work in Athens Tuesday, the same time Horst Reichenbach, the European Commission’s task force chief for Greece, is also due for a four-day visit.
Two top Greek negotiators, public debt management agency head Petros Christodoulou and chief economic adviser George Zanias, were heading to Washington Monday to attend the IMF board meeting on Wednesday, which would be dealing with Greece, the Finance Ministry said.
An integral part of the euro130 billion ($166 billion) second bailout is a bond swap deal with private creditors that is crucial to avoid a devastating default. But those talks appeared close to collapse Friday amid disagreements over the interest rates of the new bonds. The negotiations are expected to resume this week, probably Wednesday.
Known as the Private Sector Involvement, or PSI, the talks aim to reduce Greece’s debt by euro100 billion ($127.8 billion) by swapping private creditors’ bonds with new ones with a 50 percent lower face value. Without it, the country could suffer a catastrophic bankruptcy that would send shock waves through the global economy no teletrack payday loans.
“Despite the difficulties, there is optimism for the outcome” of the second bailout deal, Kapsis said.
Charles Dallara and Jean Lemierre of the Institute of International Finance, a global body representing the private bondholders, met in Athens last week with Prime Minister Lucas Papademos and Finance Minister Evangelos Venizelos, but the talks were suspended on Friday, with the IIF saying that despite Greek efforts, there had not been “a constructive consolidated response by all parties.”
People familiar with the talks said that while a deal appeared close last Thursday, a problem arose Thursday night over the interest rate the new bonds would have, with the International Monetary Fund and Germany seeking a coupon rate below 3 percent _ a very low rate for bonds that are paid off in 20 to 30 years’ time.
The people spoke on condition of anonymity to disclose details of the highly sensitive negotiations.
An interest rate that is that low is unlikely to be accepted by the banks and investment funds holding government bonds _ a crucial issue as the bond swap must be voluntary if the deal is not to be considered a “credit event” that could trigger the payment credit default swaps _ essentially insurance against a default.
Greece is running out of time to clinch a deal, as it faces a massive euro14.5 billion bond redemption on March 20 that it cannot afford to pay.
The second bailout comes on top of a first, euro110 billion rescue package that Greece has been relying on since May 2010, after years of overspending and waste left it facing an untenable public debt.
The European Central Bank is likely to hold interest rates at its monthly meeting after two straight months of cuts, analysts believe, with some expecting Europe’s debt crisis and a deteriorating economy to push the bank soon to take its key rate below the current 1 percent level.
President Mario Draghi’s remarks at his post-decision news conference Thursday will be scrutinized for clues about how fast the bank thinks the European economy is slowing _ and what further steps it might deploy against the crisis caused by too much debt in the 17 countries that use the euro as their currency.
The bank lowered its key rate by a quarter point at the November and December meetings, the first chaired by Draghi after he replaced Jean-Claude Trichet, in a move that was seen as a signal of a more flexible approach to fighting the crisis. It also made unlimited amounts of cheap, three-year loans available to banks to steady the banking system.
Economists point to recent stabilizing economic indicators as reasons the 23-member governing council might wait before cutting again. Also, they note that Draghi indicated last month that some members of the council wanted to postpone the December rate cut.
Surprise decisions, however, cannot be ruled out, especially given recent big changes in top ECB leadership.
In addition to Draghi replacing Trichet in November, former Germany deputy finance minister Joerg Asmussen and former deputy director general of the French Treasury Benoit Coeure took seats on the six-member executive board that runs the bank day to day. Additionally, the job of supervising the ECB’s staff economists last week was assigned to Belgian executive board member Peter Praet _ the first time a non-German has held the post since the bank was founded in 1998.
Praet’s appointment is significant because German predecessors Otmar Issing and Juergen Stark represented their country’s conservative economics tradition stressing low inflation _ and were seen as strong voices to keep rates higher.
Now economists are trying to gauge whether the bank will make more cuts in the coming months. A number think the bank could take its refinancing rate as low as 0.5 percent by the end of the first quarter. That would put it in territory now occupied by the U.S. Federal Reserve, whose key rate is 0-0.15 percent, and the Bank of England, which is also to set its rates Thursday, where the benchmark rate is 0.5 percent.
Much depends on how the bank sees the economy. Many economists predict that fourth-quarter figures will show the eurozone shrank in the last three months of the year when they are published next month. Rate cuts can spur growth by making borrowing cheaper for businesses and consumers.
Analysts at Bank of America-Merrill Lynch think sagging growth will lead the ECB to cut quickly by a quarter point both Thursday and at the February meeting to “take preventive action against economic deterioration.”
Not all agree. Marco Valli, chief eurozone economist at UniCredit, sees the refinancing rate “steady at 1 percent throughout the year.” That could change, Valli cautioned, if growth slips more sharply than expected or if market turmoil from the debt crisis increases.
The bank is not expected to change its position on one of its key anti-crisis measures _ its program to buy government bonds. That helps keep down the elevated borrowing costs for indebted governments that have been a key force in worsening the debt crisis Same day payday loans. The purchases drive down interest yields on bonds in the secondary market. That means the governments face lower borrowing costs when they sell bonds to pay off older bonds that are maturing.
Fears of a default drove borrowing costs so high for Greece, Ireland and Portugal that they could no longer afford to borrow. They needed bailout loans from other eurozone governments to avoid defaulting on their bonds.
Yet the ECB has stayed with its firm line that the program is limited in size and duration, and that it remains the job of governments to reduce their budget deficits and show the investors that buy their bonds that they are creditworthy _ and should be able to continue borrowing at affordable rates. Italy’s new Prime Minister, Mario Monti, has made new cuts and promised steps to improve growth. But the interest yield on the country’s 10-year bonds remained at an elevated 7.13 percent _ the kind of levels that led Greece, Ireland and Portugal to give up and take bailouts.
The program _ which has bought some euro211 billion ($270 billion) in bonds _ has been a key backstop in the absence of more robust eurozone bailout funds. The current funds have some euro500 billion ($640 billion) in financing available. But some of that is already committed to Greece, Ireland and Portugal, and Italy _ the recent focus of the crisis _ is too big for the fund to bail out for more than a short time. Eurozone officials are also seeking another euro150 billion ($192 billion) in funding from governments for the International Monetary Fund, which could then use it to backstop indebted governments.
Some analysts think a worsening of the crisis will eventually force the ECB to use its power to create new money and buy much larger amounts of government bonds. That, the reasoning goes, could convince markets that borrowing rates will stay down and not result in government defaults.
Jennifer McKeown, senior European economist at Capital Economics, said a deteriorating economy could push the ECB to engage in what is called quantitative easing. That means buying financial assets across the eurozone as a way of pushing newly created money into the economy and promoting growth. It is an additional tool that central banks can use when interest rates are about as low as they can go. Both the U.S. Federal Reserve and the Bank of England engaged in it but there are disputes over whether the ECB’s anti-inflation mandate permits it; Lorenzo Bini Smaghi, a former top ECB official, indicated in an interview last month before he left the bank that quantitative easing would be possible to combat deflation, or a crippling fall in prices. That would be in line with the ECB’s mandate from the EU treaty to pursue price stability as its first goal.
“They might not go below 1 percent in this cycle, in fact they might choose to do more unconventional measures, even quantitative easing, rather than cutting the interest rate below 1 percent,” McKeown said.
While further rate cuts are possible, “it’s not clear how much difference a reduction from 1 percent to 0.75 percent or even 0.5 percent would make,” she said. “If the economy really needs more support and the ECB believes that is the case, I think it would need to move into quantitative easing to really help matters.”
Friday’s stronger-than-expected December U.S. jobs growth figures drew a sharp contrast with European numbers, but staffing executives who track labor demand on both sides of the Atlantic caution Europe’s impact on jobs in the United States may yet prove deeper than it has so far.
Executives in the temporary staffing and employment services field say anxiety about a likely recession in Europe keeps cropping up in conversations with clients and, in some cases, is putting hiring plans on hold.
Faced with falling sales and profits in Europe, multinational clients may look for offsetting savings in other markets, including the United States.
Randstad Holding NV (RAND.AS: Quote, Profile, Research, Stock Buzz), the world’s second-largest temporary staffing provider by revenue, offers one anecdote to illustrate how Europe weighs on U.S. jobs.
Randstad’s recruitment outsourcing business, SourceRight Solutions, which handles large-scale hiring of as many as 500 people at a time, has a banking client that tentatively plans aggressive expansion in 2012. But the client’s plans are being held hostage by Europe.
“There’s still caution around Europe and how they could impact the U.S.,” said Joanie Ruge, Randstad senior vice president and chief employment analyst. “That is (clients’) biggest concern right now, though they seem optimistic about all the economic indicators in the U.S. moving in the right direction.”
Uncertainty persists even as the U.S. economy improves by many measures. U.S. manufacturing grew at its fastest pace in six months in December - in sharp contrast to the euro zone. Pending home sales are the highest since April 2010 and U.S. consumer confidence is at an eight-month high.
Friday’s employment report improved that picture. The U.S. economy added 200,000 non-farm jobs last month, 50,000 more than expected, and the jobless rate slipped to 8.5 percent, the lowest since February 2009.
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Non-farm payrolls graphic: link.reuters.com/qyn85s
Jobless rate graphic: link.reuters.com/vyn85s
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FEWER FINANCE JOBS
Recruitment in financial services has slowed and is likely to be “lighter” this year, said Scot Melland, Chief Executive of Dice Holdings Inc (DHX.N: Quote, Profile, Research, Stock Buzz), which runs specialized jobs websites focused on professional categories.
“We’ve seen job postings for the industry as a whole decline over the last six months,” Melland said. “It’s really caused by the uncertainty that the industry is facing (from) the European debt crisis and some regulatory uncertainty here in the United States cheapest personal loan rates.”
By contrast, technology workers remain in demand and energy markets are looking at record job growth in 2012, according to Dice.
Friday’s report showed an unexpected decline in temporary help payrolls, which are historically a strong predictor of wider labor trends. But staffing industry insiders said the dip does not square with their own business and could be an anomaly that reflects seasonal factors.
Demand for temps has been steady if unspectacular, said Joel Capperella, vice president of marketing for Yoh, a Philadelphia-area staffing company that focuses on professional categories such as finance and technology and whose clients include SAP AG (SAPG.DE: Quote, Profile, Research, Stock Buzz).
“We’re hopeful the pace will pick up a little bit,” Capperella said, adding that Europe was so far not affecting specific workforce decisions, but was a factor in overall client confidence.
“Capital is still held close to the vest, but we do see it flowing a little bit more freely,” he said.
CURTAILED SPENDING
Tig Gilliam, who heads North American operations for Adecco SA (ADEN.VX: Quote, Profile, Research, Stock Buzz), the world’s leading staffing company, said Adecco is expecting “significant pressure” in Western Europe, which may already be in recession. Even strong markets, such as Germany, are expected to slow, although developing markets in Eastern Europe are likely to grow this year.
Gilliam sees a risk in underestimating the effect of Europe’s slowdown on the U.S. economy. Large employers, instead of investing to accelerate growth, may curtail spending to boost profits in markets that are holding up relatively well, he said.
“If you go to a U.S. multinational company and they look at what they’re facing in Western Europe in the next year, it automatically translates into that much more pressure on the markets that are performing,” he said. “They’ve got to find how much more they can save because they have a hole in Europe to dig out of from a profitability perspective.”
Staffing company shares were mixed on Friday. Among the largest U.S.-listed shares, ManpowerGroup (MAN.N: Quote, Profile, Research, Stock Buzz) and Robert Half International Inc (RHI.N: Quote, Profile, Research, Stock Buzz), were both modestly lower in midday trading, while Kelly Services Inc (KELYA.O: Quote, Profile, Research, Stock Buzz) rose.
In European trading, Adecco, Randstad and London-listed Michael Page International Plc (MPI.L: Quote, Profile, Research, Stock Buzz) were up slightly.
Chinese Premier Wen Jiabao said business conditions may be
Spanish Prime Minister Mariano Rajoy announced 14.9 billion euros ($19.3 billion) of deficit cuts, with the government
A man from St. Louis County is the second person to seek damages from Schnucks after falling ill during an E. coli outbreak linked to lettuce sold at local stores, according to a lawsuit filed Thursday in circuit court.
In mid-October, Charles Meyer, 61, ate romaine lettuce and other salad bar items several times from the Schnucks in Cool Valley. Meyer later developed an E. coli bacterial infection and was treated at Mercy Hospital in Creve Coeur, where he stayed in the cardiac unit for several days.
Meyer has not regained his previous health and strength since the illness, according to the lawsuit.
Mary Kozlowski filed suit earlier this month against Schnucks after she suffered permanent kidney damage from an E. coli infection after eating salads from the Des Peres Schnucks.
Federal health officials tagged romaine lettuce as the likely culprit of the E on line pay day loans. coli outbreak that sickened 60 people across 10 states this fall. Investigators determined that romaine lettuce from salad bars at nine Schnucks locations was the most common denominator in the illnesses.
The contamination probably occurred at a farm before the lettuce reached the stores, according to a report from the federal Centers for Disease Control and Prevention.
Both lawsuits also name Vaughan Foods of Oklahoma, which supplies romaine lettuce to Schnucks. The plaintiffs are represented by the law firms Aleshire Robb in Springfield, Mo., and Marler Clark in Seattle.
Taiwan President Ma Ying-jeou said his rapprochement with China will encourage other nations to strengthen trade with the island and make it less dependent on the mainland, rebutting opposition criticism that he
With Europe trying to resolve its debt worries and the U.S. attempting to whittle down high unemployment, prudent moves are in order.
Whatever the health of the economy, average investors face the prospects of extremely low interest yields and high market volatility. Everyone’s already had some experience with this queasy scenario, so it should be manageable if not invigorating.
Keeping collective blood pressure high, presidential campaigns will constantly remind us of all the economic problems that are in need of timely solutions.
So, as we bid the past year goodbye, here are New Year’s financial resolutions for 2012:
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