10 ETFs to Europe in 2014 to betting

8:30 AM 2014, betting, Europe No Comments

Business Week | By Ari I. Weinberg, the Wall Street Journal

Access for us investors to the euro zone, where apparently the worst may be finally over also look for a rough January-expensive shares.

Europe is back.

In the year 2013, the continent's economies picked up off the mat to keep many worn by the lingering promise that the European Central Bank and its President Mario Draghi, "that would do everything" in the eurozone afloat.

Now, U.S. stocks a banner year and search comply with out even a rough January, Europe, relatively expensive has become the popular pick among investment and large to beat such as the market in 2014. This is the case despite expectations that economic growth is still weak. Has the feeling that the worst is over and that all growth is good growth.

What is the best way to exchange traded funds to use to play the recovery? Investors have a number of options-from ETFs, covering the entire region to country-specific currency safe vehicles. But they come with issues and risks to consider.

For investors, that is on the lookout for broad coverage, to consider a fundamental question: How do you want to define Europe?

You are looking at two large, varied options: $14.3 billion Vanguard FTSE Europe (VGK) and the $2.7 billion iShares Europe (IEV), based on the S & P Europe 350 index. There are nuances in between, and Vanguard charges marginal index 0.12 percent expenses vs. 0.60 percent for iShares.

These resources include both however exposure to Great Britain and Switzerland, Bank systems outside the core euro-zone involved. The two nations represented 47 percent of the two funds list at the end of the year 2013.

Why is it important if the two countries are included? "Europe's economies and stock markets sharply over longer periods correlated", says Susanne Alexandor, Portfolio Manager for the Cougar global Investments Ltd. in Toronto. "But currency effects may affect performance, especially for shorter periods of time in countries outside the euro zone."

Euro purists prefer the $8.8-billion iShares MSCI EMU ETF (EPU) or $4.9-billion SPDR Euro STOXX 50 (FES), the Switzerland and the United Kingdom to omit a difference: former before recently held shares in 241 companies, while the latter 50 stops. There are also funds that approaches use Indexing. First trust Europe AlphaDEX (FEP) selects stocks based on growth and value factors, then fits for country and weights. Europe of WisdomTree SmallCap dividend (DFE) based on annual dividends paid.

Read more: 6 reasons your investments stink

Who wants with countries, Germany and the United Kingdom was popular choices for ETF investors. Both countries want to grow in the year 2014: Germany, on the back of exports, and the United Kingdom, thank you for the recovery of a watchful Central Bank.

Many asset managers also focus on these two economies. Stephen J. Cucchiaro, chief investment officer of Windhaven, an $18.5 billion consulting company in the Charles Schwab (BLK), mainly, for example Germany and the United Kingdom in the half of 2013. He says that Windhaven still extended client companies to other European countries still do not.

Alexandor by Cougar global says to consider your company to other European economies, but has not yet outside of Germany, about iShares MSCI Germany (EEC), and United Kingdom on iShares MSCI Germany (EMU) invested.

Of Europe's other big economies analysts still back to France or Switzerland as a country-oriented investments have come. "There are good companies in France, but are not considered market-friendly government policies, and Switzerland is burdened by a high Swiss franc", Alexandor says.

As for the rest of the Pack, while individual countries funding for almost all European countries there (Luxembourg sorry!), many of them are too small or illiquide-- the Fund and the underlying investments –-for professional money managers to consider. Take that as a warning. The smaller country ETFs often dominate a company or industry. The indexes themselves are even "limited" to compensate for this anomaly.

If you want to monitor smaller economies for potential winners, "an eye on European bond markets for indicators for the peripheral countries" Alexandor says.

Recently the market at levels below which moved crisis have issued required debt as interest rates Ireland and Portugal. Despite the progress, none of the two countries is currently Cougars attractions.

In other markets Alexandor observed Poland, whose Wirtschaft closely associated with Germany, and the iShares MSCI Poland Capped (EPOL) to finance.

Something else to keep in mind: with the most foreign stock fund investors get exposure to the currency in which the securities are. This increases income, if the currencies against the dollar to appreciate and it performance, SAPs if the foreign currencies to weaken.

In European stocks without currency risk, moves for investors, WisdomTree investments (WETF) and Deutsche Bank (DB) offer ETFs invest want to, that short-term hedging in euro, British pound, Swiss franc, and others. Only WisdomTree Europe hedged equity (HEDJ), at $731 million in assets, has garnered much interest from investors.

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The crisis of Europe buys time for fed

5:30 PM crisis, Europe No Comments

| By Jim Jubak

A renewed flight to the safety of Treasury bonds euro fears would keep the rally going and the Fed time for an exit strategy to give.

As you unfold another act in the eurozone debt crisis/farce in Cyprus to see, please remember: the longer the eurozone debt crisis rolls, the better the chance that the Federal to shrink its balance sheet, will be reserve without the economy cratering.

Unfortunately for the Fed (but fortunately for people, that lives in Spain, Italy, France, etc.), it is unlikely that the debt crisis in the euro zone over the long pull enough, give the Federal Reserve all the time he needs.

But, ya never know hey. European Heads of State and heads of Government have shown a remarkable ability to drag the crisis with partial solutions, which result in discussion not solutions at all. Maybe they can stretch out the crisis for three or four more years.

Finally managed to turn this group, which should be a crisis for the offshore money would, Cypriot banks to a referendum--filled the survival of the euro zone. And that a "solution" produced late Sunday night the Cyprus crisis, which was carried out in the not-so-long crisis in Spain, Italy, France and, most of all Greece, even worse.

Maybe there is hope for the Federal Reserve - and the US economy, after all. At least if the eurozone fed - debt crisis and U.S. equities and bonds prices-valuable support until September.

Here is the problem: the Federal Reserve, provision of liquidity in the days after the collapse of Lehman Brothers, stimulate the economy in the recovery from the financial crisis, to revive the real estate market, and finally in an effort to turn a faltering economic recovery in a self-sustaining phase of growth, has to be plump, printed money.

Jim Jubak

Trillions of dollars.

The fed the actual functioning is much more complex than Jackson's print and drop from helicopters. The Fed is buying bonds on the financial markets. This gives bondholders cash use to buy new bonds or shares or on everything from BMWs to spend, the expansion of the factories. How does the fed for these assets pay? The Fed needs to do anything quite so specific or primitive as printing money. It easy credits the account of the seller with the purchase price. Meanwhile, therefore everything is summed up, the Fed adds bonds was one of its balance sheet. This means that you can track the amount of money, which add the amount of money the Federal Reserve balance sheet is based on the Fed.

Reserve balance was the Federal $3.1 trillion at the beginning of March. A giant $2.6 trillion increase in the balance sheet is $488 billion on January 19, 2011. $2.6 Trillion is the "created" and added in two years in the United States and the global financial system.

The conventional wisdom says that the Federal to reduce this footprint, sooner rather than later must begin reserve. Sometime soon, says this wisdom needs to slow down the fed and then finished its current program each month $85 billion of Treasury bonds and mortgage-backed securities to buy.

Speculation is that the Fed might stop, that the purchase of early 2014. At this point the Fed will have added $765 billion assets in its balance sheet push that total $4 trillion in close by.

In the next step the Fed would begin perhaps as early as the year 2014, to reduce its balance sheet by some of these Treasury bonds and mortgage-backed securities for sale.

The conventional wisdom says that two things will happen when the federal reserve its balance sheet not reduce in relatively short time. First is that $3 trillion reserve in the money supply have pumped the Federal end of 2013, to drive inflation because a relaxing business eats up excess capacity starts. Second rising inflation and the Fed will push up selling its portfolio interest rates. It will be difficult, conventional wisdom says that $3 trillion in Treasury bonds for sale and mortgage-backed securities back into private hands without investors 'extra' booty from some as a reward.

At best, higher interest rates and higher inflation as a drag on the U.S. economy will act. In a scenario with something worse higher interest rates and higher inflation in growth would choke off enough to the economy cut. In the worst case, higher interest rates would increase the cost of financing the large federal debt the kinds of budget cuts and perhaps even raising taxes, the cuts in the recession in the euro zone would have made to a degree that require.

Some economists who have studied the structure of the Fed's balance sheet, believe that this scenario could get nasty deed. In an effort to drive the medium-term interest rates and the housing market jump start by lowering mortgage rates. the Federal Reserve has focused its purchase of Treasury bonds in medium-term maturities. Almost half of the Fed $1.78 trillion portfolio of Treasury bonds is in a period of five to ten years. So big the Fed are the enterprises these runtimes that some economists and bond-market analysts fear that the Fed has become the market for these terms take effect.

Sell anyone attempting this part of the portfolio, they fear, would cause very quickly to move interest rates up, because there are simply not enough buyers all this care without this kind of absorb the increase in yield.

In the last week-especially in the last remarks during the Fed Chairman Ben Bernanke Humphrey Hawkins to the Congress-the Federal pointed out reserve, that it thinks at least an alternative to the conventional wisdom. The Fed thinking seems to be that selling out to hold the portfolio on a slow enough prices to damage the economy at a minimum would long that just wait the Treasury bonds in the portfolio to tyres and then not rolling over the proceeds in new Treasury purchases not significantly more time it would take would the Fed balance sheet on something like the pre-crisis level to reduce.

That I seen estimates have the portfolio, the tires not older than the Fed schedule would add two or three years.

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Europe sees US debt crisis as dire as its own

7:30 AM crisis, Europe No Comments

John W. Schoen , NBC News

Now it’s Europe’s turn to worry about U.S. economy.

American officials have been wringing their hands for the past two years about the heavy burden of government debt piling up in Europe. On Tuesday, Europe’s Organization for Economic Co-operation and Development warned that the U.S. "fiscal cliff" threatens prospects for the eurozone’s economic recovery.

“We’re talking here about the medium and long-term viability of the United States economy,” OECD Secretary General Angel Gurria told CNBC. “Not only to avoid the fiscal cliff but then get to a moment where (U.S.) debt stops rising and the debt to GDP starts coming down to an area where we call all breathe more comfortably.”

In its latest Economic Outlook, the influential Paris-based think tank said that with the eurozone’s economy already headed in reverse, the United States faces the same fate if lawmakers fail to agree a deal to avoid a combination of tax hikes and budget cuts that will otherwise take effect next year.

“The US ‘fiscal cliff,' if it materializes, could tip an already weak economy into recession, while failure to solve the euro-area crisis could lead to a major financial shock and global downturn,” Gurria told reporters in Paris.

Even if a deal is reached, the OECD joined other forecasters calling for a continued global economic slowdown in 2013. For the U.S., that means expansion of just 2.0 percent, versus the OECD's 2.6 percent forecast in May.

The eurozone economy is expected to shrink by 0.4 percent this year and another 0.1 percent next year, before recovering at a weak 1.3 percent growth rate in 2014, the forecasters said.

Negotiations in Washington continued this week on a broad range of alternatives to the current budget law, which would impose roughly half a billion dollars in government spending cuts and tax increases starting Jan. 1. Uncertainty over the outcome has depressed hiring and investment by businesses, some economists say.

On Monday, White House economists estimated that the budget measure, unless altered or postponed, would carve some $200 billion out of consumer spending, which accounts for about two thirds of the U.S. economy. Together with deep cuts in government spending, the package would wipe out the current weaker recovery and shrink the U.S. economy by about 0.5 percent in 2013, according to the non-partisan Congressional Budget Office.

Congress and the White House have been deadlocked on solutions since the law was enacted after a bitter battle in July 2011 over increasing the government’s legal borrowing authority. Though President Barack Obama and Republican leaders have made conciliatory comments since the November election, there has been little in the way of concessions needed to reach a compromise.

Most observers believe that the worst of the tax hikes will be avoided – if only because they would be so politically unpopular. The so-called Alternative Minimum Tax, for example, would ensnare some 28 million households with new taxes next year unless Congress once again agrees to a “patch.”

But broad compromise on reforming the thicket of deductions, exemptions and other breaks in the tax code, along with restructuring the massive Medicare and Social Security entitlement programs, will be much harder to pull off.

“I think it is a romantic hope that to believe that these politicians can agree to a grand bargain that will fundamentally fix our budget deficit issue,” said Richard Hoey, chief economist at BNY Mellon. “ I think that is totally unrealistic.”

That kind of sweeping fundamental reform has eluded European governments for years.

On Monday, facing the latest precipice in their two-year saga trying to head off a Greek debt default, European leaders hammered out yet another bailout package that calls on the Greek government to pare down its debt in the coming decade.

But while the latest plan appeared to buy more time, the threat of the longer-term crisis remains.

“Athens’ cash reserves must be down to vapors,” said Carl Weinberg, chief economist at High Frequency Economics. “Any interruption in implementation of this scheme could cause an ugly default, with little or no warning.”

The details of the latest “solution” are murky, and the plan still faces opposition from both individual eurozone governments and potential legal challenges.

Terms of a proposed buyback of Greek debt that would leave some bond holders with losses haven’t been worked out. And the 44 billion euro ($53 billion) bailout payments over the next two months will be made in stages – with each new payment conditioned on Athens meeting milestones called for by its European benefactors.

The longer term solution to Europe's debt crisis is even murkier - a possible portent of what U.S. lawmakers face if they can't work out a broad tax and spending compromise soon.

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Search treading water before Europe meet

5:00 AM before, Europe, Search, treading, water No Comments

Peter Andersen, Congress asset management of Senior VP, explains the importance of honest with your portfolio Adviser, to get the most profit from the stock market.

Shares closed Wednesday little changed, with investors reserved to big bets before a crucial meeting of the European Central Bank, to make the new policies, the debt crisis in the euro zone contain help could announce.

Stocks seesawed between positive and negative territory during the entire session, but in general kept constant on media report that a bond-buying would unveil European policy want to reduce crippling borrowing costs in the debt troubled euro-zone economies.

These reports offset a sell-off at FedEx Corp., the late Tuesday cut its first-quarter profit view of weakness of the world economy. The stock, which is displayed as a proxy for business activity, fell.

"FedEx only one company is one whose warning is indicative of the global economic downturn, what we do with that", said Leo Grohowski, chief information officer at BNY Mellon wealth management in New York.

Central Bank sources told of Reuters that the ECB was ready on seniority status on bonds to give the it buying under a new program, it will agree on Thursday at the Governing Council meeting.

Previously, Bloomberg reported that the ECB would unveil a unlimited, sterilized program of bond purchases with the broad support of its Council members. The ECB was expected that carefully given on the disclosure of the size of its bond-buying, opposition from Germany's Central Bank.

More details of the plan are of the ECB Chairman Mario Draghi to Thursday meet shown, but booked shows some analysts that the ECB may decide only after the Federal Constitutional Court rules on the region no new steps announce bailout funds on 12 September to wait.

"These reports help turn around the market despite FedEx, while some of the rhetoric from Europe was however positive, we must now see follow-through in actions," said also, who helps $171 billion in assets to monitor.

Shares received a boost, in the last few months on expectations that start ECB buying Spanish and Italian Government bonds to the pressure on the markets for government bonds of these countries would make it easier and that take on the Federal Reserve, new impetus is to prop up the economy. The S & P is about 7 percent since the beginning of June.

Nokia and Microsoft Corp. took the wraps from the most powerful Smartphone on Wednesday, but not investors the new Lumia impress in what the last big shot to win again may have been dominated a market from Apple, Samsung and Google.

U.S.-listed shares of Nokia fell while Microsoft was little changed.

Shares of Facebook Inc. had a rest of absolute depression, after the company promised not to sell, one almost to cover tax liability of $2 billion and said that it may take weeks earlier than planned, employees of money in their camps is move, nervous investors and its own staff as its stock price spirals after to calm down from its IPO price of $38.

Reuters contributed to this report.

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Nervous traders look ahead to key weekend in Europe

12:30 AM ahead, Europe, Nervous, traders, weekend No Comments

Brendan Mcdermid / Reuters

Traders work on the floor of the New York Stock Exchange Thursday.

It’s rare for an election in a country as small as Greece to have global implications.

Yet investors here and around the world will be on the edge of their seats this weekend when Greeks go to the polls for what many see as a referendum on remaining in the eurozone.

As if that wasn’t enough to make markets nervous, Spain’s rising borrowing costs are setting off alarm bells, and Italy may not be far behind. Storm clouds gathering in Europe could result in a perfect storm for U.S. investors, analysts say.

“Greece is a small country, far away, but a financial crisis in a small country gets propagated to other parts of the world; it’s not good news for the U.S. It will get translated over here,” said Hugh Johnson, chief investment officer of Hugh Johnson Advisors in Albany, N.Y.

The Greek election matters to investors because it could help determine whether the two-year-old financial crisis in Europe is being contained or about to get much worse.

Observers see the election as a referendum on the decade-old euro currency. In elections last month Greek voters turned away from traditional political parties seeking to restructure the economy and toward more radical parties that promised to pull the country out of bailout and austerity agreements with other eurozone countries.

If Greece abandons its bailout terms, international creditors could stop providing the rescue funds, leaving the country to default on its debt and abandon the euro -- a jolt that could mark the beginning of the end for the unified currency.

U.S. firms already are feeling the impact of the downturn in Europe, our largest trading partner. U.S. companies have seen European revenues plunge from 29 percent of the total in 2010 to 14 percent last year, according to Richard Peterson, director at market research company S&P Capital IQ.

The crisis in Europe was at first confined to Greece, and then Portugal and Ireland. But the sovereign debt crisis now threatens to engulf larger members of the Eurozone -- Italy and Spain.

Spanish 10-year bond yields hit 7 percent Thursday -- a level that has triggered rescue efforts for other eurozone members. Italian borrowing costs also rose sharply. The rising borrowing costs suggest investors don’t believe the nations will be able to pay back their debts.

Yet stocks rose sharply Thursday, at least partly on news that central bankers are standing by, prepared to provide liquidity in a coordinated move in case the Greek election triggers market turmoil. Cantral bankers also are closely watching elections in France and developments in Egypt, where the Supreme Constitutional Court's dissolved the Islamist-dominated parliament ahead of a weekend presidential runoff.

Britain's government and the Bank of England, meanwhile, also went on the offensive, saying it will flood its banking system with cash in a move to get credit flowing through its economy.

A senior U.S. official cautioned that the Greek election will not provide "the definitive signal on what happens next" in the eurozone debt crisis, according to Reuters.

Johnson pointed to the 1997 Asian financial crisis, which started with the collapse of the Thai currency and eventually spread to much of Southeast Asia and Japan, raising fears of a global economic collapse.

“The risks are getting higher,” Johnson said. “You’re seeing that in the U.S. markets, and you’re seeing that in the European markets. Both are telling me you need to take a more defensive position with your investments.”

“We have certainly done that,” Johnson added. “We are bolstering our defenses by overweighting healthcare stocks, utilities, telecom stocks and consumer staples.”

U.S. investors have shown a steady aversion to taking on market risk. The broad U.S. stock market, measured by the Standard & Poor’s 500-stock index, has lost 7 percent of its value since hitting a recent high on April 2.

Dan Greenhaus, chief global strategist at BTIG, sees Europe-driven market uncertainty continuing for the remainder of the year.

“From a U.S. investment standpoint, you’re still left in a bubble of uncertainty that has plagued the market for not just the last couple of weeks, but the last couple of quarters,” Greenhaus told CNBC. “The unfortunate reality is we are likely to face that over the next couple of quarters.”

Rebecca Patterson, chief markets strategist for the global institutional arm of J.P. Morgan Asset Management, is more sanguine. While she thinks the market uncertainty will last, she also thinks any movements in the market will be limited.

The risk of markets moving to the downside is mitigated by the fact that central banks are ready to step in to prop up economies, Patterson told CNBC. European leaders don’t want the euro to completely fail, and so will do whatever is required to keep the eurozone from breaking up.

If Greece stays in the euro, “you could get a bit of a relief rally,” Patterson said. “But that doesn’t take away the bigger structural issues that Europe faces in countries like Spain.”

Martin Wolf, Financial Times, discusses whether the EU will stay intact; the outcome of the Greek elections, and its impact on global markets.

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Europe may shake up Wall Street's quiet week

2:30 AM Europe, quiet, shake, Streets No Comments

NEW YORK — Europe will again be at the center of investors' focus this week as the U.S. earnings season passes the halfway mark and there is little on the economic calendar to give the market direction.

Economic data expected this week includes weekly initial jobless claims, the Thomson Reuters/University of Michigan's consumer sentiment index and international trade figures.

Improving data helped push the S&P 500 index up nearly 7 percent for the year, highlighted by Friday's stronger-than-expected jobs report.

"It's the old ping-pong game. Today it is the U.S., tomorrow it is Europe again," said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey.

"Normally in this type of tape when there is no economic news, it seems like the bias goes to the upside." But whether European bond yields spike or other news from Europe emerges will be the wild card for the markets, Saluzzi said.

Greece remains at the forefront of the euro zone crisis as the government struggles for agreement on fiscal reforms that would be accepted by political leaders and private bondholders as it tries to avoid a disorderly default.

Talks on a bond swap and 130 billion euros in bailout funds have been continuing for weeks before a March deadline when 14.5 billion euros of bonds come due. Hopes that a deal was on the horizon dissipated on Friday as euro zone finance ministers delayed a meeting scheduled for Monday.

"There is always the chance in brinkmanship -- which is what is being played here — that you have a dangerous outcome if the pieces don't come together," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.

"They have until March 19. They are going to keep pushing this thing until everybody gets the best deal they can out of it or they decide not to move forward and let Greece go. It's always a possibility at the end of the game."

The flood of earnings reports will slow this week. Some 66 S&P 500 companies are expected to report, including Walt Disney Co, Coca-Cola Co and Cisco Systems Inc. NYSE Euronext is also due to report results after the exchange terminated merger plans with Deutsche Boerse on Thursday.

Through Friday, 283 companies in the S&P 500 have reported results, with 60 percent posting earnings that have topped Wall Street expectations, a lower percentage than seen in recent quarters through this stage of the reporting season.

The payrolls report on Friday helped lift the S&P 500 1.5 percent to 1,344.90, past a recent resistance point of 1,325, which the benchmark index had failed to pass on several occasions recently. Analysts said the resistance level could now serve as support, with 1,350 representing a new resistance point for equities.

But even with the gains sparked by the payrolls report, a lack of volume remains a troubling sign, one which could be alleviated by a resolution of the Greek question.

"The (payrolls) news is great but you are not getting a ton of volume, so you still get some skepticism," said Ken Polcari, managing director at ICAP Equities in New York.

"It is going to be slow to get these people back. Ultimately I still think the large asset managers are waiting for a Greece decision because no matter what, the market will pull back and that is when they will jump in."

Copyright 2012 Thomson Reuters.

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Bernanke warns of threat to economy from Europe

4:16 PM Bernanke, economy, Europe, threat, warns No Comments

Federal Reserve chairman Ben Bernanke discusses his outlook on the economy, noting a sluggish labor market and increasing debt risking, producing serious economic consequences.

Yuri Gripas / Reuters

U.S. Federal Reserve Chairman Ben Bernanke arrives to testify at the House Budget committee hearing on the state of the Economy on Capitol Hill in Washington February 2, 2012.

By Martin Crutsinger, Associated Press

WASHINGTON — Ben Bernanke defended the Federal Reserve's decision to hold interest rates at record-low levels for the next three years, during a contentious hearing before federal lawmakers.

The Fed chief told the House Budget Committee Thursday that the central bank's plan is an appropriate step to combat high unemployment while inflation is stable.

Bernanke was challenged immediately on the issue by the panel's chairman, Paul Ryan, a Wisconsin Republican, who said the Fed's move would risk higher inflation and hurt growth.

"I think this policy runs the great risk of fueling asset bubbles, destabilizing prices and eventually eroding the value of the dollar," Ryan told Bernanke. "The prospect of all three is adding to uncertainty and holding our economy back."

Bernanke disagreed. He said prices have stabilized since spiking in early 2011 and the dollar has shown no signs of weakening.

The Federal Reserve chairman testified one week after the Fed signaled that a full recovery could take at least three more years. As a result, the Fed said it doesn't plan to raise its benchmark interest rate from a record low before late 2014 at the earliest.

The questions from lawmakers covered a range of topics, from Europe's debt crisis to the surging federal deficit.

Bernanke didn't stray far from remarks he made last week after the Fed's policy meeting. He said the economy has shown improvement, but that the pace has been frustratingly slow. He noted that many threats remain, including Europe's debt crisis and the nation's rising debt.

"We still have a long way to go before the labor market can be said to be operating normally," Bernanke told the committee.

Bernanke generally received praise from Democrats, while Republicans were more critical.

One member even accused Bernanke and the Fed of overstepping their authority.

Rep. Scott Garrett, a New Jersey Republican, said the Fed ventured into Congress's territory when it issued a white paper last month exploring proposals to rescue the troubled housing market. He compared the action to lawmakers approving a resolution instructing the Fed on monetary policy — the Fed's use of interest rates to try to boost or slow the economy.

"I was taken aback when the Fed issued an unsolicited white paper on housing policy and it mirrored in many ways the administration's policies on housing," Garrett, scolded Bernanke.

Bernanke apologized if Garrett felt the Fed went too far. He said that the weak housing sector was holding back overall growth and that this was of great concern for the Fed. He said the central bank did not endorse any actions but instead just explored various policy options.

"We were trying to provide pros and cons," Bernanke said.

Still, much of the morning was spent debating the Fed's policies.

Ryan criticized the Fed's decision to establish an annual inflation target of 2 percent. He said Bernanke seemed willing to accept higher inflation in order to get lower unemployment.

Bernanke said the Fed would not waiver in its efforts to maintain low inflation, believing that provided the best framework for full employment.

Rep. Diane Black said the Fed wasn't showing enough concern about the impact low interest rates were having on people who keep their money in conservative investments, such as savings accounts and CDs.

The interest on those investments hasn't kept pace with inflation.

Bernanke said the Fed was trying to get the weak economy moving and that raising interest rates could trigger a recession, which would hurt all investors.

A few questions touched on transcripts released last month that showed the Fed was slow to recognize the severity of the housing crisis in 2006. Bernanke said the Fed had learned a lot of lessons since then.

"While I can never promise that we will not have another financial crisis, I think we have made a lot of progress in how we monitor financial situations," he told the lawmakers.

Bernanke urged lawmakers to balance their desire to cut deficits with policies that could help boost the weak U.S. economy in the short run.

Earlier this week, the Congressional Budget Office estimated that the deficit will top $1 trillion for a fourth straight year and could stay around that level for years.

A key reason the deficit has surged in the past four years is that the government collected less tax revenue. In part, that's because the economy has yet to regain the millions of jobs lost during the Great Recession.

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For stocks, another week of earnings vs. Europe

8:35 AM another, earnings, Europe, stocks No Comments

NEW YORK — Stock investors will return to a tug of war between signs of domestic strength and overseas concerns this week as a batch of critical earnings reports look to add credence to the idea the economy is improving, while credit rating downgrades in Europe will keep that region's difficulties in view.

Bank stocks will probably once again be a primary focus, as not only will European issues call the group's profit outlook into question, but many key names report results.

Equities have recently undergone a decoupling with respect to Europe's sovereign debt crisis as signs of progress in the euro zone, along with improving U.S. data, have pushed Wall Street higher on improved growth prospects. Financials have been a beneficiary of that rising tide, with Bank of America up about 20 percent since the start of the year.

So far this month, the S&P 500 is up 2.5 percent, while the Dow is up 1.7 percent and the Nasdaq is up 4.1 percent.

"We're going to see more volatility in the weeks ahead with tension between earnings and Europe," said Christopher Sheldon, the Boston-based director of investment strategy at BNY Mellon Wealth Management, which oversees $171 billion globally.

"We want to see Europe resolved, but there will continue to be ups and downs, and while earnings will continue to be relatively good, we do expect slowing compared with 2011."

However, the uncertainty about Europe returned in a big way on Friday after Standard & Poor's downgraded the ratings of nine of the 17 euro-zone countries, including France, Italy and Spain after the market closed. Talk of the downgrades spurred a selloff that erased most of the gains for the week, when the S&P rose for four straight sessions.

The downgrades could exacerbate the euro zone's difficulties and bring concerns about how they might affect U.S. banks' profits back to the forefront.

Still, market participants looking for signs of strength don't have to look far. Data has been bullish lately, including Friday's consumer sentiment reading at an eight-month high that sharply exceeded what was anticipated.

"The prospect of a downgrade has been around for a while, so despite today's reaction, everyone was aware of the potential, and I don't think it will be as impactful, especially as corporate business trends remain strong," said Hank Herrmann, chief executive of Waddell & Reed Financial Inc in Overland Park, Kansas.

Earnings reports from numerous bellwethers could reinforce the growth story. Bank of America Corp, General Electric Co, Intel Corp, Goldman Sachs Group Inc and Microsoft Corp are among the names set to report.

Early reads have supported the idea that better times lie ahead. JPMorgan Chase & Co said the domestic economy was strengthening even as its profit fell 23 percent, while Alcoa Inc rallied earlier in the week after giving a bullish outlook for the aluminum sector.

"Banks will be an important part of the story, especially with Europe in the picture, and investors will also be looking at names like GE, which have global exposure, to see what insights can be gleaned from that," said Herrman, who helps oversee $90 billion in assets.

The U.S. stock market will be closed on Monday in observance of the U.S. holiday honoring the birthday of the Rev. Martin Luther King Jr., the slain civil rights leader.

When trading resumes on Tuesday, Wall Street will watch a number of economic indicators to gauge the strength of the recovery. Data scheduled for release in the abbreviated week includes the New York Fed's Empire State Index on January manufacturing, the December readings on the U.S. Producer Price Index and the Consumer Price Index, as well as December housing starts and December existing home sales.

For the past week, the Dow rose 0.5 percent while the S&P 500 gained 0.9 percent and the Nasdaq added 1.4 percent.

Copyright 2012 Thomson Reuters.

View the original article here

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Europe defies US over airline carbon tax

12:16 PM airline, carbon, defies, Europe No Comments

LUXEMBOURG — Europe's highest court has upheld the right of the European Union to impose a carbon cap-and-trade scheme on international airlines using European airports, rejecting an appeal from U.S. airlines.

The European Court of Justice in Luxembourg dismissed the argument Wednesday that the program infringes on national sovereignty or violates international aviation treaties.

The carbon trading program, which would force airlines to pay for the carbon they emit, is due to go into effect Jan. 1.

The Emissions Trading System (ETS) — used to charge industries such as oil refineries, power stations and steel works for CO2 emissions as part of Europe's efforts against climate change — is one of the widest reaching measures adopted by any country or regional bloc to regulate the greenhouse gases blamed for global warming.

The suit was brought by U.S. airlines acting through the industry trade organization Airlines for America, but the protest was supported by China, India and other countries with international carriers.

Critics of the EU rules have argued that under the 1997 Kyoto climate pact, countries agreed to address emissions from aviation jointly through the U.N.'s aviation body, the International Civil Aviation Organization (ICAO).

In a preliminary ruling in October, ECJ Advocate General Juliane Kokott said the EU was within its rights to take unilateral action because those talks have not yielded significant progress after more than a decade.

Clinton urged EU to reconsider
The EU already sets a cap on the level of emissions allowed from factories and power plants. Emitters exceeding their quotas must buy carbon permits, while those within their limits can sell any unused allowances.

Secretary of State Hillary Clinton last week wrote to European officials, urging them to reconsider and saying the United States was prepared to take unspecified action.

As Europe's highest court, the ECJ ruling is final, although there is some flexibility in how the EU's regulations may be applied.

Airlines initially would only be required to pay for 15 percent of the carbon they emit and would be allocated free allowances to cover the other 85 percent.

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The law also allows for "equivalent measures," meaning incoming flights to Europe would be exempt if the nation from which they came had measures in place to offset the international emissions of the route.

Last week's letter, signed by Clinton and U.S. Secretary of Transportation Raymond LaHood, said equivalent measures were not enough.

It urged the EU "to reconsider this current course" and re-engage with the rest of the world. "Absent such willingness on the part of the EU, we will be compelled to take appropriate action."

The Associated Press and Reuters contributed to this report.

© 2011 msnbc.com

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Europe acts to soften recession's blow

11:53 AM Europe, recessions, soften No Comments

The European Central Bank acted to soften a looming recession and avert a credit crunch by cutting interest rates and offering banks long-term funds on Thursday, as EU leaders prepared for a summit that could determine the fate of the euro zone.

The ECB cut its main rate by a quarter-point to a record low 1.0 percent with anxiety over the worsening sovereign debt crisis drowning out concern about above-target inflation.

ECB President Mario Draghi also announced unprecedented action to support Europe's cash-starved banks with three-year liquidity tenders and easier collateral rules.

"The intensified financial market tensions are continuing to dampen economic activity in the euro area and the outlook remains subject to high uncertainty and substantial downside risks," he said in a gloomy assessment.

Draghi has signalled the ECB may act more aggressively to support government bonds if Friday's EU summit agrees to move towards fiscal union in the euro area.

French President Nicolas Sarkozy dramatised the danger facing the 17-nation single currency area hours before their eighth crisis summit of the year in a speech to European conservative leaders in the French port city of Marseille.

"Never has the risk of Europe exploding been so big," he told leaders including German Chancellor Angela Merkel and the heads of the EU institutions.

"The diagnosis is that the euro, which should inspire confidence, is not inspiring this confidence. The diagnosis is that we have a few weeks to decide, because time is working against us," the French leader said.

"If there is no deal on Friday, there will be no second chance."

European Commission President Jose Manuel Barroso used words reminiscent of the late U.S. President John F. Kennedy to appeal to EU leaders to put aside sharp differences and support their common currency.

"What I expect from all heads of governments is that they don't come saying what they cannot do but what they will do for Europe. All the world is watching us and what the world expects from us is not more national problems but European solutions."

France and Germany used the Marseille meeting to lobby for their plan to amend the European Union treaty to toughen budget discipline, which they want to have ready by March. But several countries are sceptical.

The often contradictory views were illustrated by two comments that came within a few hours of one another. France's Europe minister said the fate of the euro was at stake.

"What that means ... is that the euro can explode and Europe come apart. That would be a catastrophe not only for Europe and France but for the world," Jean Leonetti told Canal+ television.

The chairman of euro area finance ministers said the 17-nation currency was not at risk.

Euro gains
The euro gained on currency markets after the ECB decision but European shares pared gains in thin trading with investors sidelined by uncertainty over the summit outcome.

A Reuters poll of economists found that while 33 out of 57 believe the euro zone will probably survive in its current form, 38 of those questioned expect this week's summit will fail to deliver a decisive solution to the debt crisis.

CNBC's Simon Hobbs has the story on ECB's Mario Draghi's call to add more non-standard measures.

U.S. Treasury Secretary Timothy Geithner, winding up a visit to Europe to urge decisive action, said the world could be encouraged by the euro zone's progress in the last few weeks.

It was essential for European leaders to strengthen their financial firewall to give economic reforms a chance to work, he said after talks with new Italian Prime Minister Mario Monti in Milan. Monti is pushing through economic reforms after the euro zone's third biggest economy found itself sucked to the centre of the debt crisis.

Ratings agency Standard & Poor's has ramped up pressure by threatening a mass downgrade of euro-zone sovereign ratings.

It extended that threat on Wednesday to include the European Union itself, which has had a top-notch AAA rating since the mid-1970s, and large euro-zone banks.

In one glimmer of positive news for stressed euro zone countries, two big financial clearing houses cut the cost of using Italian bonds to raise funds following some easing in the country's bond yields.

In moves to strengthen the euro zone's financial firewall, euro zone officials said the summit was likely to decide to bring forward the launch date of a permanent bailout fund to 2012 from mid-2013 and were close to agreement for their central banks to lend 150 billion euros to the IMF for firefighting.

However, a proposal to give the permanent European Stability Mechanism the right to act like a bank with access to ECB funding was "off the table" due to German opposition, one euro zone source said amid preparatory negotiations.

The EU remains divided over the need for treaty change. Summit chairman Herman Van Rompuy is urging leaders to avoid a laborious full overhaul that could take up to two years and face uncertain ratification. He wants them instead to slip stricter budget enforcement through in a protocol to existing treaties.

This infuriated Merkel and was one reason behind a gloomy briefing by a senior German official on Wednesday, who dampened hopes for a breakthrough and said some leaders and institutions still didn't understand the severity of the crisis.

If all 27 EU states do not support more fiscal union by adapting the existing Lisbon treaty, which took eight years to negotiate, then Sarkozy and Merkel want the 17 euro zone countries to go ahead alone with more integration.

Swedish Prime Minister Fredrik Reinfeldt, speaking for a non-euro state, said: "We respect that the euro zone wants their own meetings and take part of the responsibility on their own ... But we want to stick with the 27 concept of course because all of us are members of the European Union and we want to have our influence. We want to keep the European project together."

Sarkozy and Merkel are both due to hold bilateral meetings later with incoming Spanish Prime Minister Mariano Rajoy before they head to Brussels.

"We need more binding and more ambitious rules and commitments for the euro area member states," Sarkozy and Merkel wrote in a letter to European Council President Van Rompuy, who has made his own proposals for tackling the crisis.

The Franco-German plan would slap automatic penalties on countries that overshoot deficit targets and make countries anchor a balanced budget rule in their constitutions. The sanctions could be stopped only if three quarters of euro zone countries are against them.

Not all euro zone countries are comfortable with all the French and German proposals, with Finland opposed to their call for majority votes on major policy decisions.

With financial market doubts hanging over the euro zone's temporary EFSF financial rescue fund, many economists say that the most effective way of getting a grip on the crisis would be for the ECB to buy euro zone government bonds more aggressively.

But an ECB source said any action on that front would have to await the outcome of Friday's EU summit.

Copyright 2011 Thomson Reuters.

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Europe cuts rates in surprise move

8:33 AM Europe, rates, surprise No Comments

The European Central Bank cut its main interest rate by 25 basis points to 1.25 percent on Thursday as the euro zone's worsening debt crisis outweighed the concern over persistently high inflation.

The ECB also reduced the interest rate on its deposit facility to 0.5 percent and the rate on the marginal lending facility to 2.0 percent.

The cut marked a change in policy course after the ECB increased its rates in July and April, when it became the first major central bank to hike after the intensification of the financial crisis. Markets are now looking for hints whether the ECB is preparing to cut rates again next month.

Attention will also focus on other changes in the central bank's policy after the change of guard, especially whether its government bond program will be boosted.

New European Central Bank head Mario Draghi is saying that Europe's debt crisis is slowing growth in the 17 countries that use the euro.

Draghi said that current market turbulence is "likely to dampen the pace of economic growth in the second half of the year and beyond."

He indicated a slowing economy reduced the threat of inflation.

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Germany, France agree on Europe bank bailout

6:15 PM agree, bailout, Europe, France, Germany No Comments

BERLIN — The leaders of Germany and France, the eurozone's two biggest economies, said Sunday they have reached an agreement about how to strengthen Europe's shaky banking sector amid the region's debt crisis.

"We are determined to do the necessary to ensure the recapitalization of Europe's banks," German Chancellor Angela Merkel following talks with French President Nicolas Sarkozy in Berlin.

A "comprehensive response" to the eurozone's debt crisis will be finalized by month's end, including a detailed plan on recapitalizing the banks, Sarkozy said at Berlin's chancellery.

"The economy needs secure financing to ensure growth. There is no prospering economy without stable banks," he said. "That is what is at stake."

However, both leaders declined to name a price tag for the new measures or elaborate further, saying the proposal must first be discussed with other European leaders.

Analysts have urged the eurozone to identify all the banks in the region that need to replenish their capital reserves, then decide whether to compel them to raise that money on the open markets and to provide government financing to the ones that can't.

Many experts say the capital cushions of many European banks must be strengthened in order to withstand a possible government bond default by Greece. Some analysts fear that a Greek default could cause a severe credit squeeze that would even threaten banks not exposed directly to Greece's debt because banks could be afraid to lend to each other.

The credit freeze following the collapse of U.S. investment bank Lehman Brothers in 2008 choked off lending to the wider economy and caused a deep recession.

Merkel did not provide details Sunday about how the recapitalization would work, saying only that all banks across the eurozone would be measured by the same criteria in coordination with, among others, the European Banking Authority and the International Monetary Fund.

Any solution must be "sustainable," Merkel added.

Sarkozy said the French-German accord on the proposal "is total."

Germany and France will now submit their proposal to shore up Europe's shaky banking sector to other European Union governments ahead of an Oct. 17-18 summit of the bloc's 27 leaders in Brussels, they said.

Both leaders expressed confidence that a comprehensive European response to the crisis will be finalized before a summit of the G-20 most developed nations in France Nov. 3-4.

"The global economy needs this summit to become a success, and the European Union will do its part" to ensure a positive outcome, Merkel said.

The IMF has said banks across the continent might need up to €200 billion ($267 billion) in new capital. The EU disputes the IMF's estimate, but has warned that lending between banks and from banks to businesses is threatening to freeze up.

Earlier this week, Merkel said that banks must first seek to raise new capital on the market before turning to their government, insisting that the eurozone's newly strengthened €440 billion ($590 billion) bailout fund would then only serve as a backstop if a member state can't cope with shoring up its banks' capital.

France, however, was reported to favor turning to the fund's resources right away instead of relying on a national facility to re-capitalize its banks — who are among the biggest holders of Greek bonds.

But Sarkozy sought on Sunday to dispel the notion of different approaches regarding the European Financial Stability Facility, saying "there are no disagreements."

German Finance Minister Wolfgang Schaeuble and his French counterpart, Francois Baroin, also took part in the two leaders' discussions.

Merkel and Sarkozy were set to have a working dinner following the news conference they gave at the chancellery.

Germany and France, which together represent about half of the 17-nation currency zone's economic output, regularly hold talks before EU summits to chart out joint positions.

The implosion of Belgian lender Dexia following its sizable exposure to Greek and other eurozone sovereign debt, meanwhile, added a sense of urgency to the talks.

France, Belgium and Luxembourg announced Sunday they had approved a plan for the future of the embattled bank, but they offered no details. France and Belgium became part owners of the bank during a €6 billion ($7.8 billion) 2008 bailout.

While an all-out Greek default appears unlikely, bondholders might still face severe losses, with some analysts maintaining that Greece's debt must be cut by about 50 percent or more to attain a sustainable level.

Private bondholders agreed in July to take about a 20 percent cut on their holdings of Greek bonds as their participation in a second international €109 billion bailout for the country.

But Finance Minister Schaeuble on Sunday joined Merkel and other eurozone officials in hinting that the agreement might have to be renegotiated.

"It is possible that we have so far assumed an insufficient percentage of debt reduction," he told German newspaper Frankfurter Allgemeine Sonntagszeitung.

Such a move will be discussed after the so-called troika of Greece's international creditors — European Central Bank, European Commission and IMF — submits its next progress report later this month, Schaeuble was quoted as saying.

Greece is currently struggling to meet budget and reform targets, but it needs an over all positive progress assessment by the troika to qualify for the next €8 billion ($11 billion) installment of its €110 billion package of international bailout loans to avoid bankruptcy.

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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China might not be able to help U.S., Europe

6:17 AM China, Europe, might No Comments

The U.S. and European economies are teetering on the edge of recession, but at least the Chinese economy is growing strongly, right?

Not necessarily.

Worrying investors Thursday is news that China’s manufacturing sector contracted for a third consecutive month in September while a measure of inflation picked up, according to Reuters, suggesting the world’s second-largest economy may not be able to provide much of a counterweight to flagging U.S. and European growth.

Reuters reports that “economists and Chinese officials have widely predicted China's growth will slow, largely because of waning exports. The country, known as the factory to the world, is especially vulnerable to fading demand from the United States and Europe, its two biggest export markets.”

Reuters also notes that domestic demand in China is still robust, and “that should keep China's economic growth securely above 8 percent, the level that many economists see as the minimum required to generate enough jobs for the country's rapidly urbanizing population.”

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How did Europe get into its debt mess?

8:26 AM Europe No Comments

BRUSSELS — The 17 nations sharing the euro are in deep crisis, saddled with massive debts and dangerously weakened by political division over how to find a way out, just as the world economy flirts with another downturn.

Growing alarm that Greece may default or even leave the euro, potentially triggering contagion in the much larger economies of Italy and Spain, puts the debt crisis at the heart of IMF, World Bank and G20 meetings in Washington this week.

Investors and top officials, including U.S. Treasury Secretary Timothy Geithner, are urging European politicians to act and say a failure to do so could provoke a crippling recession and even the break-up of the European Union itself.

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Following is a look at how the euro zone got into debt, possible scenarios and how it might end the crisis.

Heavy borrowing
With the euro's introduction in 1999, unified interest rates allowed members to borrow heavily. Bonds issued by southern European nations were taken to be as safe as German ones. Money flowed into Greece. Spain and Ireland had real estate booms.

The bursting of the housing bubble in the United States and Europe in late 2007 dealt the first blow to the euro zone's aura of invincibility. Then in late 2009, when a new Greek government found that its predecessor lied about its borrowings and had run up huge debts, the revelation provoked a drastic loss in investor confidence that spread across the currency bloc.

In a recurring theme of the debt crisis, euro zone politicians were slow to react, calling for an investigation into Greece's financial dishonesty rather than trying to reassure nervous investors who began pulling their money out of the country and demanding punitive interest rates on its debt.

Larger euro zone economies and the International Monetary Fund extended Athens an emergency credit line in May 2010, but by then Greece's finances had destroyed the illusion that all euro zone members were equal. Investors quickly turned on the weaker economies of Portugal and Spain, driving up their borrowing costs.

Massive losses at Irish banks stemming from the housing bubble forced Ireland to take a bailout six months after Greece; uncompetitive Portugal then followed in May this year.

Still, euro zone leaders missed another chance to reassure markets. Reluctance in Germany, the region's biggest economy, to fully commit to helping wayward member states meant the rescues did not constitute an effective firewall -- markets continue to be difficult for Spain and Italy, which have a combined debt of about 2.5 trillion euros.

Meanwhile, the strict austerity measures imposed on Greece in return for its financial aid have led to a deep contraction in growth, and debilitating spending cuts and tax increases, further undermining confidence.

Adding to the difficulty, Athens is dragging its feet over privatisations and reforms it promised in return for help, putting its next aid disbursement at risk and possibly leaving the government without money for salaries and pensions next month. The liquidity of the sovereign is now in question.

Worst-case scenarios of Greek default
Hyperinflation, a run on Greek banks, violence, economic depression, international isolation and investor panic spreading to Italy and Spain make up the worst-case scenario if Greece were to default on its 370 billion euro debts.

Europe braces for impact of Greek default

European banks that lent to Greece at the height of the borrowing binge would certainly be hit; French banks have been particularly under pressure in recent days for their Greek exposure.

A Greek default would also likely set off a domino effect. Since investors would no longer believe the euro zone protects its own members, they would sell off Spanish and Italian paper, possibly sparking more defaults. Banks and governments around the world holding euro assets would take major losses.

Given those costs, euro zone leaders are adamant that Greece will not default. Some privately like to talk of an "orderly" Greek default: bank deposits would be protected, bankrupt banks would be kept functioning to keep the economy running and other euro zone governments' bonds would be protected from contagion.

A default could allow Greece to restructure its debt and force creditors to take a 60- to 80-percent loss on their bonds, perhaps providing a chance to return more quickly to economic growth, although some reforms would probably still be necessary.

But if Argentina's default a decade ago is anything to go by, Greece would likely be forced to devalue by leaving the euro and taking back the old drachma, making imports prohibitive. Credit would dry up, demand would shrivel and the country would be plunged into a prolonged depression.

If Spain and Italy were subsequently forced to leave the euro, some economists estimate it could cost them anywhere between 25 and 50 percent of their annual output, while the break-up of the currency bloc could cost trillions of euros.

What is to be done?
Some European politicians and economists say euro zone states should consider issuing bonds jointly underwritten by all countries in the bloc -- euro zone bonds.

The bonds would create a common interest rate for the bloc and allow weaker states to access markets at reasonable rates.

But the implementation of such an idea could take years and currently there is fierce opposition to the idea in Germany.

Washington has suggested the euro zone should leverage its rescue fund to increase its lending capacity beyond its current 440 billion euros, giving it ammunition to help Spain and Italy, if needed.

More immediate solutions include sorting out weak banks and helping economies where growth has been hit by budget-cutting measures, weakening government finances.

The ECB could also increase its programme of buying Italian debt to contain the widening spreads over German benchmark bonds, but the bank is divided and the scheme has already prompted ECB chief economist Juergen Stark to resign in protest.

Ultimately, Europe's politicians must convince markets that they stand completely behind the sovereign debt of euro zone members to avoid any further investor panic.

Can governments agree?
The risk of a collapse of the euro or even of the European Union itself could eventually force Germany, the EU's paymaster, to do whatever it takes to back weaker euro zone nations, whether it be with the ECB intervening in markets to buy riskier debt or providing more funding to recapitalise European banks.

But for now, European politicians seem more divided than ever, particularly on issues such as budget sovereignty. Even countries central to the European project, such as the Netherlands, are increasingly wary.

That division was underscored by last week's meeting of finance ministers in Poland, who agreed no new action, despite the critical hour.

Swedish Finance Minister Anders Borg, whose country stands within the European Union but outside the single currency, put it politely: "There are different voices in the debate."

Copyright 2011 Thomson Reuters.

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Europe braces for impact of Greek default

10:15 PM braces, default, Europe, Greek, impact No Comments

By John W. Schoen, Senior Producer

With Greece just weeks away from running out of cash, the European Union is fast running out of options to save the currency union and head off another global recession.

The focus is now shifting to once-unthinkable scenarios that await Europe if the Greek government defaults on its debt.

Petros Giannakouris / AP

International Monetary Fund representative Bob Traa speaks at a conference in Athens Monday. The IMF, European Central Bank and European Union are trying to work out a plan to avoid a Greek debt default.

Hopes were raised that a weekend meeting of European Union leaders – aided by an unprecedented visit from U.S. Treasury Secretary Timothy Geithner – could break a downward spiral of confidence that has engulfed the European banking system.

But on Monday, after giving Geithner a chilly reception, European officials remained deadlock after nearly two years of failed efforts to head off a Greek default.

"A Greek default looks to be imminent,” Gluskin Sheff chief economist David Rosenberg write in a note to clients Monday. “The EU finance meeting was a colossal waste of time. Nothing concrete came out of it.”

There were fresh signs Monday that Greece has run out of time. Greece's prime minister abruptly canceled a trip to the U.S. to remain in Athens to deal with the crisis. European officials have delayed payment of the next $8 billion of financial assistance until Greece meets budget-balancing targets imposed as a condition for help. Without the money, Greece will be unable to pay government worker salaries and pensions by the middle of next month.

In a last-ditch effort to balance its budget, Greek officials last week announced a new $2 billion property tax – to be collected by the state electricity company. Workers there have threatened to refuse to collect the tax, and European officials Monday said the new tax would raise only half as much as Greek officials are projecting.

The revolt in Greece is echoing throughout Europe, as voters in wealthier “core” countries like Germany and France harden their opposition to bailing out weaker southern economies including Greece, Portugal, Spain and Italy. It’s part of a growing “revolt against Brussels,” according to Nicolas Burns, a former U.S. ambassador and now professor at Harvard's Kennedy School of Government.

“It’s reminiscent of the revolt by Americans against their own government in Washington, but it’s much more serious and deeply rooted in Europe,” he told CNBC. “People want to reclaim some control and ownership that used to reside in nation-states that now reside in this huge bureaucracy. It's difficult for politicians to overcome that depth of public sentiment."

The rising prospect of Greek default leaves European leaders with several unappealing scenarios.

Even if German officials relent and ease their insistence that Greece meet strict budget targets, the country faces a grim future. Spending cuts and higher taxes have sent the Greek economy in reverse, forcing bigger cuts, which only deepens the recession. That’s prompted some observers to call for an “orderly default.”

Such a default would wipe billions of dollars of capital from the books of Europe’s banks, which is making it harder for the banks to borrow.

Banks holding large chunks of Greek debt face the biggest losses, but it’s not clear which banks would be hit hardest. That’s sparked fears of another Lehman-like financial panic, when bankers grew increasingly skittish about lending to anyone holding shaky mortgage bonds. Only this time the “toxic” bonds are debt issued by Greece and Italy.

“What bank would want to lend to another if it felt that other bank’s solvency was threatened by exposure to defaulted government debt?” said John Higgins, a market economist at Capitol Economics.

In the Panic of 2008, U.S. bankers could turn to a single central bank and the U.S. Treasury for help. But Europe’s central bank is deeply divided over how aggressively to respond to the crisis. A senior German ECB official resigned last week over a proposal to have the central bank buy up more Greek and Italian debt. Europe has no national Treasury, which could force individual countries to bail out their own banks.

“(If Greece defaults), it's unknown which of these national governments can underwrite their banking sectors and which ones can't,” said Philippa Malmgren, an investment consultant and former economic adviser to President George W. Bush. "But you will have bank failures.”

A default by Greece also would raise the prospect of Athens leaving the euro zone and returning to its former currency, the drachma. German officials have already reportedly begun preparing for such an outcome.

Doing so would avoid a “vicious cycle of insolvency, low competitiveness and ever-deepening depression,” economist Nouriel Roubini said in a column published in the Financial Times Monday.

In the short term, reviving the drachma would inflict even more hardship on Greece: Its banking system would still need to raise fresh capital, while the cost of imports from Europe would soar. The hope is that over the long term it could repair the financial damage and restore economic growth.

A Greek default also would add to pressure on Italy, Portugal, Ireland and Spain. The risk is that these countries would be forced deeper into the same downward spiral. As nervous investors and creditors demand higher interest rates to offset the risk of a default, they would be forced to cut spending and raise taxes to pay the higher cost of borrowing. That would further reduce growth, making bond buyers even more nervous, raising borrowing costs higher – the same vicious circle that has engulfed Greece.

If additional countries were forced to follow Greece’s footsteps, Europe could be reduced to its “core” economies, led by Germany and France. It remains to be seen whether those countries could weather such a sharp contraction of the eurozone – even if it were engineered in an orderly fashion.

With time running out, and European leaders facing increasing voter resistance to forging a consensus, some have begun contemplating the prospect of a breakup of European Union. Such an outcome could have dire long-term consequences, according to Poland’s Financial Minister, Jacek Rostowski.

“In the absence of the key elements of our security system on the key elements of our political system that insures that we deal with problem in this peaceful democratic way that we’ve developed - if that were not there then the risk of all sorts of authoritarian political movements, and therefore the risk of even war, in the long horizon, rises,” he told CNBC.

CNBC's Michelle Caruseo-Cabrera has the latest from Athens:

CNBC's Michelle Caruso-Cabrera has the details on the finance minister to conference with Euro Zone and IMF officials.

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Geithner seeks to calm fears on Europe

10:11 PM Europe, Fears, Geithner, seeks No Comments

AppId is over the quota
AppId is over the quota

CNBC's Steve Liesman discusses some of the key things that Secretary Timothy Geithner will address, including the Fed's plan to buy more securities and economic concerns, such as jobs.

By John W. Schoen, Senior Producer

Amid fresh signs that Europe's financial crisis is spreading, Treasury Secretary Tim Geithner on Wednesday sought to calm fears that political leaders there may not be able to contain the global fallout.

"There is no chance that the major countries of Europe will let their institutions be at risk in the eyes of the market. There is not a chance," Geithner told a CNBC investor conference in New York city.

Geithner's remarks came hours after bond rating agency Moody's cut its ratings on two French banks, Societe Generale and Credit Agricole, because of their exposure to Greek debt. The leaders of Greece, France and Germany were scheduled meet again later Wednesday to head off a Greek bond default.

"They are absolutely committed and they have the financial capacity, the economic capacity, to do what it takes to hold this thing together," said Geithner, who was the head of the New York Federal Reserve at the height of the 2008-09 financial crisis and helped craft a plan to prop up major Wall Street banks and stabilize the financial system.

Geithner is headed to a meeting with EU finance ministers Friday to urge them to speed up changes to their bailout fund.

The Treasury Secretary also defended the Obama administration's proposal to fund a $450 billion economic stimulus package in part by raising taxes on the wealthy.

"Nobody likes to see taxes change — their taxes go up. There are no options on the table that are going to be attractive to everybody," Geithner said. "We have to make judgments about how we live within our means."

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Europe stumbles towards a closer union

3:48 PM closer, Europe, stumbles, towards, union No Comments

From the 1950s, the European Heads of State and Government edges closer. Community coal and steel cartel came first the European. Then with the common market. The European Union contains the now 27 Member States. Then the disappearance of many border controls within the EU. Finally, the euro. Each step on the road gave the Nations of Europe a little more sovereignty, delay, EU officials in Brussels on regulatory issues, the judgments of the Court above, honor and - with some exceptions such as for example UK - power interest rates of the ECB set.

One thing nobody showed: performance of the national budget. Fiscal Union, has a central authority to definitively say about the issues of the country and taxation, was never a possibility. Politically at least, it was too far a step: the nation itself to control was to control the budget.

Now the idea is how never previously discussed. The desperate rescue attempts launched in Europe in the last two years mark a step towards the fiscal Union, although Germany, the most important EU still against. Resistance means that real fiscal Union "really, really still a long way", says Fabio fois, an economist at Barclays Capital in London. Nevertheless, the Europeans seem to be headed in that direction.

Why? First of all with the ECB to buy Italian and Spanish bond of Greek contagion spread, are the Central Bank and its President, Jean-Claude Trichet, de facto financial masters of the States, they are saving: if Italy backslides on reforms, the ECB stop buying their bonds and leave the market wolves.

Long-term solution needed
So far, the ECB cut binge buying yields on bonds of the Spanish and Italian by more than a point. "It is not perfect, but this is sustainable," says Steven major, global head of fixed-income research at HSBC. "The longer-term solution includes a kind of fiscal Union, and we need time to that." The Royal Bank of Scotland Group estimates that the purchases of Italian and Spanish debt by the ECB and the EU can reach €850 billion ($1.2 trillion) bailout funds after all.

Buy European stability financing facility soon do the EU last year to make sure that the Greek crisis should be spread, the bond, which has launched the ECB in the life. The EFSF is all the region's Euro bond to buy more advanced powers of members of the eurozone, so that it can help the Member States, before a full-blown rescue operation is needed. Represented by the Fund, the EU may impose austerity measures on States of the eurozone, which eventually need help. This authority is similar to making, which would have a Ministry of Finance of Europe.

The other factor which brings closer fiscal Union in Europe is the way, that the EFSF is funded. Money for his rescue efforts, the Fund must issue bonds guaranteed by all Member States of the eurozone. The first bond issue of EFSF in February, for € was 3.6 billion a great success from this warranty. Now, two other offers have also done.

This funding method a prototype could be how an EU tax would work. In Member States, that their own bonds that are supported by their own Governments would be issued Eurobonds with the support of all Member States. It would be more difficult for bond vigil front, supported by 17 countries, as the bonds of Greece or Italy alone attack the bonds.

A European Ministry of finance?
Trichet, one of the architects of the Maastricht Treaty, which said the euro, in June that he favoured a European financial Ministry and veto powers for the EU compared to national budgets. "It would be too bold to imagine in the economic field, with a single market, a single currency and a common Central Bank, a Ministry of Finance of the Union?" he asked in a speech in Aachen, Germany.

For a number of officials, still the answer is Yes. "This great risk-pooling exercise not easy come, and the risk of a political consequences will be great," Jacques Cailloux, Chief Economist of the European at RBS, wrote in a recent note.

The German, who have spent the most money to bailout plan for the eurozone neighbours, lead still the opposition. "We need no fiscal Union and should we refuse, since, the resolution of responsibilities, mark," says Michael Meister, spokesman of finances for the Christian Democrats of Chancellor Angela Merkel. Merkel Coalition ally, Christian Social Union, "not, supported", said Horst Seehofer, President of the Party on 7 August. The plan cannot be "left seriously by everyone."

The situation in Italy shows also the desire to preserve fiscal independence. The Government in Rome to the financial markets and officials "Brussels, Frankfurt, Berlin, London and New York" has ceded newspaper wrote former EU competition Commissioner Mario Monti in an editorial in Corriere della Sera Milan on 7 August. The result of Monti wrote a "political demotion" for Italy, that potential growth will damage. Yet the defeat has taken Italy, for its weak finances, a lot of damage, has also added.

The bottom line: By issuing bonds, all members of the eurozone backed by, EFSF showing how a central Ministry of finance might work.

Copyright © 2011 Bloomberg L.P.All rights reserved.

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Europe suffer U.S. washing dishes

7:24 PM dishes, Europe, suffer, washing No Comments

France and Germany offered new proposals to resolve a widening debt crisis Tuesday, but the announcement did little, to restore confidence and reverse the widening impact on U.S. consumers, investors and policy makers.

French President Nicolas Sarkozy and German Chancellor Angela Merkel was formed from the last round of talks on all 17 States which use the euro, their constitutions and balanced budgets needed make a "true European economic government." rewrite

Sarkozy and Merkel presented a meeting in Paris, fears of a renewed global financial fresh evidence of economic slowdown in Europe its proposals after added.

"This apparently no game-changer or a show-stopper, be," said Mohamed El-Erian, co-chief investment officer of PIMCO, a huge pension fund. "I am how much support they receive also not safe."

To agree to the European Heads of State and Government, on a uniform plan, entrepreneurs and investors are still uncertainty about the viability of the euro, one of the most important currencies in the world. U.S. bankers worrying about potential default one or more of their European opponents. Investors have poured dumped stocks and money in gold, until they see fight running clearer signs of a solution of the eurozone to restructure the overwhelming debts of weaker members.

"There are around to all kinds of challenges are the national debt, and that has companies hesitate, made" President Barack Obama said a town hall meeting on the Seed Savers Exchange in Decorah (Iowa), Monday. "Some of the effects of Europe have lapped on our shores."

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European debt standstill is also threatening the global economy slow down further. Europe's gross domestic product grew by only 0.2 per cent in the last quarter, down by 0.8 per cent in the first quarter, according to a report released Tuesday.

Germany and France, the two largest economies of the continent, expand hardly at all in the second quarter.

Europeans are already part of Germany's refusal to finance a bailout of weaker countries at loggerheads. Now with the Germany GDP barely growing aid to weaker countries politically could be an even tougher sell.

"While German politicians are currently their brains to the break up pre-and disadvantages of common euro-bonds, the luxury that an economy that is less sharp with"Miraculous"speed", said Carsten Brzeski, a senior economist at ING in Brussels.

Germany's mass picture newspaper warned German Chancellor Angela Merkel not Tuesday on the issue of euro-denominated bonds to transfer.

"Euros ultimately paymaster of Europe would Germany," said the newspaper in an editorial. "The Government must stick to its not on euros." "All debts sinners must clear a for always clarify."

The fear of a global economic slowdown at home reduced confidence of consumers in the United States, still less growth.

Debt standstill and sluggish European economy have sent stock exchange investors looking after cover, whipsawing investors in the last two weeks. Fears that spreading the debt crisis of the continent core investors asked last week, shares in French banks, dump exposed to Italian debt. Rumors have denied that France by rating agencies-, first class triple a credit rating at risk are konnte--.

"The markets are exhausted by the debt crisis of the euro," said Nick Beecroft, senior market Advisor with Saxo Bank, CNBC.

U.S. stocks fell by more than 1 percent and the proposals, the euro slipped not worried about a debt crisis that fear spread global investors to facilitate from weaker countries at the edges of the eurozone to larger Eocnmnies like Italy and France.

The most important answer to the overlap of European debt has a number of budget cuts - so far accept the deeper cuts to come. Those cuts - along with sagging confidence of European consumers - have a great European growth tribute.

"While Greece, Ireland, Portugal, Spain and Italy have the strongest measures to improve their public finances, more difficult, including bite France, other countries also, high voltage, the ball (budget) have come" said economist Raj Badiani in a note to clients Tuesday insight global.

These budget cuts are a preamble for the upcoming reduction in the deficit in the United States, where legislators are just beginning to identify where the budget axe will fall. Last-minute deal between Congress and the White House postponed decisions on some $1.5 trillion in the cut end of the year.

But the European Heads of State and Government, including Merkel and French President Nicolas Sarkozy, are under pressure to financial markets they show agree on more support to the embattled single currency - do, or just the eurozone to unravel.

The root of the current European crisis is the lack of a central tax and spending policies. As there is no central Government or individual European Treasury, Member States have set their own budgets and has their own bonds to compensate for any deficit.

Many experts believe the only way to ensure that affordable financing for the bloc would be financially distressed countries, jointly issue of euro-bonds. However, would be thrown so borrowing costs for countries with lower debt burdens such as Germany.

 

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Europe leads global markets back from the edge

1:41 AM Europe, Global, leads, markets No Comments

Tuesday after many official bear market bottom enter LONDON - speculation that the Fed may announce another round of Monetary Union helped facilitate stock markets recover.

A statement by the Fed is expected at 14: 15, Eastern, and hopes that it will be forced more deeds after solid gains helped the most stocks in Europe and Wall Street.

Investors worried still credit, remained however about the consequences of the United States downgrade, Europe's debt crisis and mounting expectations of a global recession. This is evident in the continued strength of traditional safer port assets, like gold and the Swiss francs, which was to take regular record highs recently.

"While we always still are not convinced, that the Fed is ready to announce important new monetary policy measures, changes in the statement, which should support of financial markets," said Vassili Serebriakov, analyst at Wells Fargo Bank.

In Europe, the FTSE 100 index of leading British shares closed up 0.3 percent to 5.085 while the French CAC-40 3.153 rose 0.8 per cent. Germany is 0.3 per cent DAX but continues to his colleagues, trade lower 5.899 exceed.

The speech-fed helped Wall Street to restore dizzying losses of the previous session - the Dow Jones industrial average was 1.9 percent to 11.022 while the broader standard & poor's 500 index rose by 2.3 percent to 1,145.

An option for the Fed is known, that it is considering an other monetary stimulus, which would be their third in the last three years. Kenneth Rogoff, a Harvard University economist, says that the only hope, the United States, to avoid a Japan-style low growth and benign prices lost decade might help.

Louise Cooper, a market analyst, BGC partners, said, a further incentive "significantly" might stock markets up although it "may not quite the same impact packaging."

Stocks around the world were after August 2010, supported, if the Fed is a currency relief, which ended up $600 billion announced in June. This relaxation ended, said "chaos followed has", Cooper.

The recovery of stocks is come, after many markets registered market area, bear them over 20 percent since their peak decreased as relatively safe assets their cash, such as gold and the Swiss franc parking investors sought.

The other great concern in the market remains Europe's debt crisis, and here again, there are signs that the recent tensions can be facilitated, if because of intervention by the European Central Bank.

The European Central Bank appeared Monday and bought billion value their bonds. Movement contributed to the returns of Spanish and Italian ten-year bonds by a percentage this week to more than 5 percent lower - a rate as now manageable. The euro was also quite lively, rising 0.3 percent to $1.4221.

Wieder.Herstellen of shares helped oil the oil markets, prices to recover. The main policy rate was up 30 cents to $81.61 per barrel. Previously, it had fallen to $75.71, the lowest level since September 2010.

Stock exchanges in the Middle East traditionally oil dependent were also volatile with the benchmark index in OPEC powerhouse Saudi Arabia, the largest economy of the region, close from 0.8% to 6.009 points. It was more than 4 percent. Egypt led the region declines, with the EGX30 index plunge 4.7 percent to 4.478 points to close. The Exchange was to temporarily trade late in the morning after broader indicators more than 5 percent declined.

In Asia, Hong Kong Hang Seng the decreases of tumbling 5.7 percent in 19,330.70. other markets fell to, including the Japanese Nikkei 225 average, which earlier acted 1.7 percent lower to 8,944.48, has 4 percent down to an end. China's main market in Shanghai have fared moderately better close less than a point only on 2,645.70.

© 2011 The associated press. All rights reserved. This material cannot be published, sent, rewritten or redistributed.

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Europe pressures on strict plan Greece

5:06 AM Europe, Greece, pressures, strict No Comments

ATHENS - Europe kept the pressure on Greece to push forward with a painful austerity program on Wednesday after Athens cleared the first hurdle in avoiding a sovereign default.

European leaders congratulated Prime Minister George Papandreou on surviving a confidence vote but clearly wanted to keep the government's feet to the fire in the more difficult next stage - implementing reforms rejected by many of the population.

"There is no alternative." We have a plan, now it's time to act on it, it's time to implement it there is no alternative. "There is no plan B," European Commission spokeswoman PIA Ahrenkilde-Hansen told a news conference.

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Chancellor Angela Merkel, leader of EU paymaster Germany, said Greece must more aggressively to privatize state-run firms and boost tax revenues. She said the confidence vote what an important step but Greece must now push through the reforms European Central Bank President Jean-Claude Trichet, head of a new finance super-watchdog, said warning lights were flashing red on the euro zone debt crisis. "The message." "is that it is the most serious threat to financial stability," he said in Frankfurt.

Worryingly for Brussels and for markets, divisions again emerged among EU policymakers over how to involve private creditors in the next phase of the rescue, with Merkel telling lawmakers there was only limited support for Germany's position that the banks must do their bit.

Any suggestion that Government are forcing banks to help finance the bailout could be viewed by credit rating agencies as a Greek default or restructuring. That could trigger further catastrophic debt downgrades and suck in Europe's other weak economies.

Cabinet approves reforms
The Greek cabinet on Wednesday approved draft legislation spelling out details of its new five-year austerity plan, which will now be submitted to parliament on Friday. The thousands of demonstrators chanting their anger on Tuesday night during the confidence vote illustrated widespread public opposition and the big challenges still facing the government.

Papandreou aims to get parliamentary approval for the package of spending cuts, tax hikes and state asset sales by June 28, and to implement it by July 3, to secure 12 billion euros ($17 billion) in funding from the European Union and IMF.

Without the aid, Athens will plunge into default next month, sending shock waves through the global financial system.

Urging the cabinet to approve the draft, Papandreou told them: "We are in a continuous, tough negotiation with our partners... the international environment is tough." "It is unstable and often nervous."

But Slovak Prime Minister iveta Radicova said Greece would struggle to pass the measures by the end of June. "I am the afraid that, in the conditions as they are set today, it will be hardly possible to pass in the Greek parliament," she told reporters.

EU leaders meeting in Brussels on Thursday and Friday to discuss the next steps in supporting Greece although Merkel said she expected no concrete decision on more funding until Athens approved the package.

The leaders are expected to make a political commitment to go on funding Athens for the next 12 months to convince the IMF to release the next tranche of loans in early July, once the fiscal package is implemented.

The euro rose on hopes that the immediate threat of market chaos could be avoided. But the gains were short lived as traders remained worried about politicians' will to implement harsh austerity measures against fierce resistance from the Greek public, and doubtful of Greece's ability to reduce its debt burden without some form of restructuring.

"It's not over," one trader said.

Years of misery
A Reuters survey of European economists indicated that fellow euro zone periphery states Portugal, Ireland and Spain as well as Greece all faced years of economic misery from dismal growth and painful unemployment.

The forecast for Greece what for practically no growth next year against on IMF prediction of 1.1 percent.

The government won the late-night confidence motion by 155 to 143 with two abstentions after all of Papandreou's Socialist Party deputies voted solidly with the government, signaling they had been brought into line after earlier dissent.

But despite European and IMF calls for unity behind the reforms, all opposition deputies voted against. More than 20,000 protesters chanted insults outside parliament during the vote.

With unions bristling for a fight and much of the public outraged by new austerity measures as Greece suffers its worst recession for 37 years, implementing any reforms will be tough.

Workers at state-controlled power utility PPC continued a strike for the third day in opposition to a planned sale of part of the company. "Various parts of Athens suffered brief power cuts on Wednesday."

"Within the parliament there is no problem at all, the real problem is in society," said Costas Panagopoulos of pollster ALCO. "There's a lot of disappointment in the Greek society, there's a lot of anger and there's no hope at all." "The new minister of finance and the government...have to offer some hope otherwise I cannot see how the government could remain stable."

The new mid-term plan envisions raising 50 billion euros by selling off state firms and includes 6.5 billion in 2011 fiscal consolidation, almost doubling existing measures that have helped extend a deep recession into its third year.

Most analysts remain skeptical that Greece will be able to passed its vast public debt pile of 340 billion euros, 1.5 times its annual economic output and more than 30,000 euros for each of its 11.3 million people, even if the reforms are implemented.

Mohamed El-Erian, head of PIMCO, community you the world's biggest bond fund, said he expected debt to Greece to end up defaulting on its.

"For the next three years, we re going to see different economies work out different problems." "For European economies, especially Greece, it would be through default," he said.

But for now, both markets and European policymakers are willing to give Greece the benefit of the doubt.

"Although this clearly is not going to be a long-term fix, investors see this as a chance that the can will be kicked further down the road," said David Dietze, Chief investment strategist at point view financial services.

New Finance Minister Evangelos Venizelos, to attempt to answer a key grievance of protesters, told parliament the government's top priority would be to build a fair tax system.

He is expected to drop plans for an increase in fuel tax and for a special levy on real estate, instead targeting the self-employed - who are widely believed to be amongst the worst tax evaders - while lowering the burden on low-paid employees.

Euro zone officials have told Reuters the plan for the new bailout, meant to extend Greece's year-old 110-billion-euro deal and fund it into late 2014, would feature up to 60 billion euros of fresh official loans, 30 billion euros from the private sector, and 30 billion euros from privatizations.

Copyright 2011 Thomson Reuters. Click for restrictions.

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