Category Archives: Regions – Blocs

S&P warning puts damper on Eurogroup plans

Deutsche Wellle, 5 July 2011

Standard & Poor’s is critical of
the banks’ plans
The Standard & Poor’s rating agency says a debt rollover plan pushed by French banks would amount to a default, putting a damper on European efforts to solve the Greek debt crisis.
French banks last week thought up what they figured was a really good plan: a debt rollover plan under which some of the Greek bonds would be voluntarily renewed when they become due, but on different terms, giving Greece some breathing space without actually reducing the amount owed to creditors.
German banks, which together with French banks and insurance companies are among the major holders of Greek debt, agreed to the plan – and so did the German finance ministry.
But the ratings agency Standard & Poor’s warned on Monday that this option “would likely amount to a default under our criteria.” The other two major rating agencies, Fitch and Moody’s, did not react immediately, but it was expected that they could well come to a similar assessment.
S&P warning calls into question second bailout package
Since German banks have made it clear that any solution to the Greek debt crisis which rating agencies viewed as a default was not viable, that would call into question the voluntary contribution of banks and insurance companies to a second bailout package designed to help Greece through to 2014.
Eurozone finance ministers put off
deciding on a second bailout package
to help Greece
At the weekend, the finance ministers of the 17 eurozone countries put off a decision about such a bailout, which is expected to amount to 80 to 90 billion euros ($116 to 131 billion) because of conflicts over the extent of private sector involvement in the effort.
The eurozone ministers did sign off an 8.7 billion euros loan to Greece which is part of an 110 billion euros package agreed upon last year. Without this loan, the Greek government would have faced insolvency within weeks. But without a second bailout deal, a funding shortfall is imminent between 2012 and 2014.
Criticism grows louder of rating agencies’ power
With the controversy surrounding a second bailout package due to the assessment of Standard & Poor’s, criticism of the big rating agencies’ power is growing louder.
ECB member Ewald Nowotny is
one of the rating agencies’ critics
European Central Bank policymaker Ewald Nowotny told Austrian public radio that the rating agencies were placing obstacles in the way of those banks willing to contribute to Greece’s financial stabilization.
The Bavarian finance minister, Georg Fahrenschon of the conservative Christian Social Union party, or CSU, told the German newspaper Passauer Neue Presse that the warning issued by S&P was “inappropriate.” And Joachim Poss, finance expert for the Social Democrats in the German Parliament, told Deutsche Welle that the game the US rating agencies were playing had to make one “uneasy.”
The three major rating agencies hold a collective market share of roughly 95 percent. Their special status has been cemented by law – at first only in the US, but then in Europe as well.
“The ratings from the big three were declared mandatory for European firms active in the US market,” Thomas Straubhaar, the director of the Hamburg Institute of International Economics told Deutsche Welle.
The agencies rate the creditworthiness of companies and countries, as well as the quality of funds and stocks. Their assessment determines the conditions under which firms, banks or countries may borrow money on the capital markets.
“We can’t have private companies, whose primary goal is maximizing profit, behaving like sovereign judges passing down opinions that are binding for disinterested third parties,” Straubhaar said.
EU makes efforts to curb the influence of the three big players
Over a year ago, the heads of the state and governments of the 27 European member states called upon the Union’s executive body, the European Commission, to come forward with proposals on how to supervise credit rating agencies. The Commission then proposed to set up a a new European supervisory authority, the European Security Markets Authority (ESMA).

The European Commission set up a new supervisory body for
rating agencies.

ESMA started work on January 1, promising to compel rating agencies to disclose the methodology of their ratings. But so far, the power of the big rating agencies appears unfettered.
Apart from calling for closer supervision of the big rating agencies, many European politicians have supported the creation of a European ratings agency. An independent European rating agency was indispensable, Bavarian finance minister Georg Fahrenschon said.
But economists are not so sure such a European agency would change much. “We don’t need rating agencies to tell us that Greece is on the verge of bankruptcy,” said Thomas Straubhaar. “A European agency would not be able change anything about this fact, nor could it correct it.”
And Torsten Hinrichs of Standard and Poor’s told Deutsche Welle investors were already free to place their trust in a whole range of agencies.
So even if a European ratings agency was to come into existence, it would still have to establish itself on the market and gain investors’ trust.
Author: Andrea Rönsberg
Editor: Nicole Goebel

President: EU can be ASEAN strong partner to develop together

Antara News, Thu, May 5 2011

Related News

Jakarta (ANTARA News) - President Susilo Bambang Yudhoyono in his opening speech at the First ASEAN-EU Business Summit here Thursday said the European Union (EU) can be a strong partner with ASEAN to develop together.

"Europe has a much longer experience in economic integration and community building. ASEAN has and will continue to learn from the European experience," President Yudhoyono, as the ASEAN Chair, said in the Business Summit attended by around 400 businessmen from European and Southeast Asian counties.

According to Yudhoyono, ASEAN and EU clearly are important to each other, as EU is the second largest trading partner for ASEAN, and the largest investor, while ASEAN is EU`s fifth largest trading partner.

He also said that the ASEAN-EU Summit should also be used as a chance to play a role in changing the paradigm on which economic policies are made, to turn the tide of events in favour of both regions.

"This Business Summit is timely for ASEAN, as we make a final sprint to achieve a true ASEAN Community by 2015. But, in realizing this objective, we are not without challenges," he said.

The world recovery is gaining strength, but output gaps and unemployment remain high in advanced economies, while new challenges are building in emerging economies, according to the Indonesian head of state.

Much has also been gained in achieving an ASEAN economic community, he said.

"When leaders agreed on the vision of an ASEAN Community in 2003, the size of the ASEAN economies was $700 billion, and now it becomes $2.9 trillion. If we include ASEAN and the six partners which it already has trade agreements - China, Japan, Korea, India, Australia and New Zealand - then the size is amount to $15 trillion, or the same economic size as EU and US," the president stated.

Editor: Bambang

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