The Irish Suffer Austerity in Silence

Ireland is pounded by budget cuts that will amount to 20 percent of GDP, but protests are rare and with none of the violence seen in Greece or Italy.

In a village in County Cork in southern Ireland, about 50 farmers and business people meet after Mass on Sundays to protest against taxpayer bailouts of bankers. They hold up a banner, wait for the traffic to stop, and set off on their march 200 yards up the road and back to bemoan the collapse of the economy. 

As the first anniversary of Ireland’s €67.5 billion ($91.1 billion) bailout by the European Union and International Monetary Fund approaches, organizer Diarmuid O’Flynn says the group has struggled to break the 70-person mark ever since it started in March. “Where we’ve gone we’ve met with almost universal support, but nobody will fall in,” he says. 

“It’s what is called the bystander theory. The more people who witness a crime, the less likely somebody is to intervene.”

Not all protests are tiny. Irish police say 15,000 students in Dublin protested the government’s reintroduction of college fees on Nov. 16. A version of Occupy Wall Street has also sprung up there. 

Yet the protests haven’t approached the violence and chaos in the streets of Athens and Rome. In Ireland there was only one strike in the third quarter, and it involved about 17 people, according to a statement by the Irish Central Statistics Office. 

Greek unions have fought the government’s spending cuts by grounding airplanes, halting public transport, and allowing garbage to pile up on Athens streets. 

Portugal is set to face a general strike on Nov. 24, its second in a year. The peaceful, often subdued nature of Ireland’s protests supports the government’s insistence that the nation shouldn’t be lumped in the same category as the Mediterranean states.

“It is very clear that it sets Ireland apart from some other countries,” Istvan Szekely, a European Commission official overseeing the country’s bailout, said in Dublin recently.

Ireland was a relatively poor state until the 1980s, when the government intensified efforts to lure multinationals in cutting-edge industries such as software and pharmaceuticals with low taxes and a well-educated labor force willing to work for modest wages.

While Ireland boomed for years, the banks financed a real estate bubble that burst in 2008. Unemployment has tripled, most of the financial system has been nationalized, and government austerity measures from 2008 to 2015 will amount to more than €30 billion, or about 20 percent of gross domestic product.

The coalition government of Prime Minister Enda Kenny, who defeated his opponent in a general election on Feb. 25, has largely followed the austerity policies of his predecessor. Polls indicate he remains popular. “While the Irish are angry, they haven’t moved to active opposition,” says Eugene McCartan, who is part of a group that wants Ireland to leave the euro.

Analysts suggest a mix of reasons for the Irish willingness to accept austerity. Austin Hughes, chief economist at KBC Bank Ireland, says it’s partly because many Irish realize they fueled the boom and bust by pushing up property prices and seeking pay hikes that led to a loss of competitiveness. “There is a sense that everyone was at a party that went a little too wild,” he says.

Other analysts point to unions’ decision to work with the government. Finally, many of those who might have taken to the streets have left the country to find work. “This history of migration from Ireland is one of the reasons why we haven’t had more revolt and social protest,” says Chris Curtin, professor of political science and sociology at NUI Galway. “The protest is a walk-out.”

The markets have rewarded the Irish with yields of 8 percent on Irish bonds maturing in 2020. Comparable Greek bonds are yielding more than 25 percent. Yet there’s no end in sight for the austerity the Irish must endure. 

“The new government really doesn’t have any fixes or policy options that will better people’s lives in any kind of near-term future,” says Sean Kay, a professor of politics and government at Ohio Wesleyan University in Delaware, Ohio.

In Cork, the protester count in the village has dwindled to fewer than 50 as sports and farm work draw locals away. Says organizer O’Flynn: “Everybody is waiting for somebody else to protest.”

The bottom line: Ireland’s austerity measures from 2008 to 2015 will equal 20 percent of GDP. So far the Irish are taking them in stride.

 

Royal Alliance Capital Currency Review

Berlusconi exits as debts spiral

The 17-year political career of Silvio Berlusconi came to an end on Saturday, whilst Italy attempts to contain its current debt levels from spiraling out of control.

Berlusconi’s departure came after the country's lower house of parliament approved an urgently needed package of economic reforms designed to tackle the country's €1.9 trillion debt, revive its sluggish economy and prevent it from going the way of Greece. Sunday saw the appointment of Mario Monti. His task is to form a new government in an effort to shore up Italy’s government bond market; the third largest in the world.  

Euro fears escalated on Thursday as Italian bond yields went through the critical 7% level, prompting concerns a bailout will be needed. Sterling reached intra-week highs of €1.1784, taking the exchange rate to its highest level since March.

Euro zone economic data offered little support to the single currency. Investor confidence data weakened to a two-year low, whilst there was a 0.7% decline in European retail sales for October. There was also a 2.7% slide in German industrial production, whilst the EU Commission cut the 2012 growth outlook sharply to 0.5% from 1.8% previously.

Sterling fell to lows of $1.5864 versus the US dollar, before reversing losses on Friday to finish the week at $1.6080.  As widely expected, the Bank of England (BoE) left both interest rates and quantitative easing (QE) on hold in Thursday’s meeting. Markets will await the release of the meeting’s minutes on 23 November to find out the voting pattern of the Bank’s policymakers. Industrial production remained flat in September, whilst manufacturing rose 0.2%; its first rise since May this year. However, the UK’s trade deficit widened from £8.6bn to £9.8bn, increasing the risk of a downward revision to UK economic growth in the third quarter of 2011.

In a sparse week for economic announcements, the US dollar found itself tracking investor sentiment and the performance of global stock markets. With mid-week developments in Italy taking a turn for the worse, the US dollar added over three cents versus the euro. However, the dollar’s gains were short lived. Rumors of Berlusconi’s departure buoyed global markets, as the dollar pared gains made earlier in the week.

The Chinese yuan was unable to make any headway during the week as consumer inflation showed a decline in September. The Swiss franc continued its recent decline against both the pound and euro as Swiss consumer inflation data proved weaker-than-expected. Global commodity prices remained fragile, hindering the performances of both the Australian and New Zealand dollars. An increase in the number of new homes being built in Canada helped the Canadian dollar gain over half a cent versus sterling.

FTSE rebound stalls as Italy debt jitters flare again

Other stock indices in Europe also pull back, after markets send Spain, France and Austria’s borrowing costs higher. 

A tentative rally in Britain’s FTSE 100 stalled on Monday after Italy was forced to pay a high price to sell five-year bonds, amid mounting uncertainty over the ability of the country’s new government to resolve its debt woes.

The UK index of blue-chip shares eased 0.47%, or 26 points, to 5,519 and the All Share index gave up 0.44%, or 13 points, to 2,844.

Markets had earlier welcomed the resignation of former prime minister Silvio Berlusconi, and were also cheered by news that former EU commissioner Mario Monti had been given the task of forming an emergency government in Italy.

But Angus Campbell at Capital Spreads said that despite political changes in both Italy and Greece, investors remained sceptical that the eurozone debt crisis ‘could actually be resolved’.

‘The sombre mood was caused primarily by uncertainty that a new Italian administration would find itself with enough support in order to push through badly needed reforms,’ he said. Gains for equities would remain ‘hard to come by’ until there is more detail on how Monti would manage to achieve that, Campbell added.

Italy paid 6.29% in its €3 billion (£2.6 billion) auction, a euro-era high, up from 5.32%. However, the sale was covered 1.47 times, reflecting slightly better demand than at the earlier sale.

The yield, or interest rate, on benchmark Italian 10-year government bonds subsequently climbed 20 basis points to 6.72% – close to levels seen as ruinous in the long-term – after earlier retreating as low as 6.34%.

‘The unelected Mr Monti may well regret taking on this job and I don't expect him to last terribly long (like most Italian governments),’ warned Louise Cooper, markets analyst at BGC Partners. ‘I will be cutting and pasting scary Italian bond yield charts in the months, if not years, to come.’

Other stock indices in Europe also pulled back, as markets sent Spain, France and Austria’s borrowing costs higher in a sign that the crisis is continuing to spread. Germany’s DAX index fell 1.2% to 5,985, France's CAC 40 index slipped 1.28% to 3,109, and the FTSEurofirst 300 index of top European shares was 0.86% lower at 976.

Resources stocks were among the biggest fallers, amid the concerns over global demand and as commodities prices dropped. Vedanta Resources (VED.L) dropped 42p to £11.20 and Glencore International (GLEN.L) slid 12p to 429p.

Financials also suffered: Standard Chartered (STAN.L) weakened 46p to £13.56, Barclays (BARC.L) was off 5p at 174p and Royal Bank of Scotland (RBS.L) slipped 0.5p to 21.9p.

ITV (ITV.L) topped the leader board on the FTSE 100, taking on 2p to 67p, after a bullish third-quarter trading update from the broadcaster. Burberry (BRBY.L) claimed second place, taking on 44p to £14.21, ahead of interim results from the luxury goods maker.

Wall Street halted a two-session rally, tracking losses in Europe. The Dow Jones Industrial Average eased 0.17% to 12,133, the Standard & Poor's 500 index lost 0.58% to 1,257, and the Nasdaq Composite index shed 0.19% to 2,674.

Elsewhere, sterling sank 1.13% versus the dollar to $1.59 ahead of UK inflation data on Tuesday, and strengthened 0.14% against the euro to €1.166.

 

Overnight Markets: Wall Street rebounds on positive corporate news

The Dow Jones was up 113 points amid strong corporate earnings report and positive economic data. 

US stocks rebounded sharply on Thursday from the previous session's losses as positive corporate and economic news overshadowed gloom over worsening eurozone debt crisis.

The Dow Jones industrial average was up 113 points, or 0.96%, at 11,894. The Standard & Poor's 500 Index was up 11 points, or 0.86%, at 1,240. The Nasdaq Composite Index was up four points, or 0.13%, at 2,625. 

US companies released positive results, with Merck raising its dividend and Cisco reporting strong earnings, reinforcing the view that corporate America is showing strength.

Italy paid sharply higher rates for its one-year borrowing, but not as much as some had feared. French bond yields surged amid concerns over the country's credit rating. Standard & Poor's later blamed a technical error for the distribution of a message suggesting it had downgraded France's credit rating. 

Adding to the positive sentiment, Thursday's economic data showed new US weekly jobless claims declined to the lowest level since April, while the trade deficit unexpectedly decreased in September to its narrowest level since December.

In Greece, former European Central Bank vice-president Lucas Papademos was appointed to head the country's new crisis coalition.

Merck gained 3.5% after the drugmaker raised its quarterly dividend by 11%, its first increase since 2004. 

Cisco Systems jumped 5.7% after the network equipment maker's earnings beat estimates.

Energy shares rose after US crude oil gained 2.1%. Hess Corp added 4%.

Elsewhere, United Technologies rose 1.3%, while 3M added 1.7%. After the market closed, Walt Disney gained 2.9% in extended trading after reporting fourth-quarter revenue that beat expectations. 

On the negative side, Nordstrom sank 4.1% after the retailer didn't raise the upper end of its full-year profit forecast.

In Asia, equities bounced back on Friday in the afternoon session after positive US jobless data and the selection of a new Greek premier tempered concern Europe’s debt crisis won’t be contained.

The MSCI Asia Pacific Index gained 0.9% to 117, as of 1:52 p.m. in Tokyo. Australia’s S&P/ASX 200 rose 1% and South Korea’s Kospi Index jumped 2.5%. Hong Kong’s Hang Seng Index advanced 1.1%, while China’s Shanghai Composite Index added 0.6%. Japan’s Nikkei 225 Stock Average added 0.4%.

In company news, Sony climbed 2.9%, Hynix Semiconductor advanced 1.9% in Seoul and Genting Singapore slumped 4.8%.

 

Bank of England injects further £75bn into economy

The Bank of England has said it will inject a further £75bn into the economy through quantitative easing (QE).

The Bank has already pumped £200bn into the economy by buying assets such as government bonds, in an attempt to boost lending by commercial banks.

But this is the first time it has added to its QE programme since 2009. There have been recent calls for it to step in again to aid the fragile recovery.

The Bank also held interest rates at the record low of 0.5%.

On Wednesday, data showed the UK economy grew by 0.1% between April and June, which was less than previously thought.

"In the United Kingdom, the path of output has been affected by a number of temporary factors, but the available indicators suggest that the underlying rate of growth has also moderated," the Bank said in a statement.

"The deterioration in the outlook has made it more likely that inflation will undershoot the 2% target in the medium term. 

"In the light of that shift in the balance of risks, and in order to keep inflation on track to meet the target over the medium term, the committee judged that it was necessary to inject further monetary stimulus into the economy."

Sterling fell by almost two cents after the announcement to $1.5280, its lowest since late July 2010.

'Warranted'

The CBI and the British Chambers of Commerce (BCC) business groups welcomed the Bank's move to expand the QE programme to £275bn, but said that on its own, its impact would be limited.

"This measure will help support confidence, but we need to recognise that its impact on near term growth prospects is likely to be relatively modest," said Ian McCafferty, the CBI's chief economic adviser.

"Only once the turmoil in the eurozone is resolved will confidence be fully restored."

David Kern, chief economist at the BCC, said: "Higher QE on its own is not enough and we urge the MPC [Monetary Policy Committee] to look at other radical methods.

"There is a strong case for the MPC to help boost bank lending to businesses by immediately raising its purchases of private sector assets."

The manufacturers' organisation, the EEF, said that the Bank's decision to act now, before the third-quarter estimates of GDP and its latest inflation forecast were released, "would indicate that members believed immediate action was warranted in order to head off a deteriorating growth outlook".

However, the National Association of Pension Funds (NAPF) is calling for an urgent meeting with the pensions regulator to discuss ways of protecting UK pension funds from the negative effects of QE. 

QE tends to push down long-term bond yields, therefore reducing the return on the investments made by pension schemes.

"Quantitative easing makes it more expensive for employers to provide pensions and will weaken the funding of schemes as their deficits increase," said Joanne Segars, chief executive of the NAPF.

"All this will put additional pressure on employers at a time when they are facing a bleak economic situation."

Complementary actions

The governor of the Bank of England, Mervyn King, wrote to the chancellor earlier on Thursday, setting out the MPC's case for expanding the asset purchasing programme.

In his letter of response, in which he authorised the move, Chancellor George Osborne said: "I agree that an increase in the ceiling would provide the MPC with scope to vary the stance of monetary policy to meet the inflation target."

In his speech to the Conservative Party conference earlier in the week, Mr Osborne said that the Treasury would look into "credit easing" - a way to underwrite loans to small businesses who are struggling to get credit now.

He confirmed this in his letter to Mr King: "Given evidence of continued impairment in the flow of credit to some parts of the real economy, notably small and medium-sized businesses, the Treasury is exploring further policy actions. Such interventions should complement the MPC's asset purchases."

Germany, France reach agreement on Europe's banks

French President Nicolas Sarkozy, right, reacts to
German Chancellor Angela Merkel after a meeting on
the financial crisis in Berlin, Germany, Sunday,
Oct. 9, 2011. The two leaders of the eurozone's two
biggest economies, say they have reached agreement
on strengthening Europe's shaky banking sector.

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 euro200 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 euro440 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 euro6 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 euro109 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 euro8 billion ($11 billion) installment of its euro110 billion package of international bailout loans to avoid bankruptcy.

'Rogue trader' losses climb to £1.5bn

UBS equities trader Kweku Adoboli has been
remanded in custody

UBS lost £191m more than it initially thought after falling victim to what may be the largest rogue trading scandal ever to hit the City. 

The Swiss banking giant had estimated the losses at £1.3bn when confirming the unauthorised trades last week, but after unwinding the positions of alleged rogue trader Kweku Adoboli, it announced yesterday that the sum was closer to £1.5bn. 

UBS also said they had approached Mr Adoboli with questions after reviewing some of his positions. All of the losses relate to trades made in the past three months, it said, and the bank has set up a special committee to investigate how it failed to pick up on the unauthorised trading. 

Mr Adoboli was arrested last week after it emerged that huge losses had been run up from a series of unauthorised trades. He has been remanded in custody until a hearing later this month. 

The trader wept in the dock of City of London magistrates court on Friday as he was charged over offences dating back to 2008. Yet as these did not lose UBS any money, the bank's special committee will not investigate them. 

UBS yesterday also lifted the lid on the nature of the trades carried out. "The loss resulted from unauthorised trading in various S&P500, DAX and EuroStoxx index futures over the past three months," the statement said. 

It added that the true magnitude of the risk exposure had been distorted because the positions had been hedged with "fictitious trades", obscuring the fact that they violated the bank's risk limits. 

It emerged over the weekend that bets totalling £6.4bn had been made at UBS last week. Mr Adoboli's boss John Hughes is understood to have left the bank after the news emerged on Thursday morning. 

UBS brought together a team dubbed Project Bronze to unwind existing trading positions, preventing it from further losses. 

Mr Adoboli's lawyers Kingsley Napley, who also represented the UK's most notorious rogue trader Nick Leeson following the scandal that brought down Barings, are yet to release a comment on Mr Adoboli's behalf. 

In Switzerland, the management team has come under increasing pressure since the incident. Chief Executive Oswald Gruebel, who was brought in two years ago as the bank struggled to cope during the credit crunch, said he would not step down in light of the scandal. 

He told one domestic newspaper: "If you ask me whether I feel guilty, I say no," adding: "I am not thinking of stepping down." It is understood that significant shareholders including the Singapore sovereign wealth fund and the Government of Singapore Investment Corporation were backing the embattled chief executive. 

Just three weeks before, the bank announced a major cost-cutting drive with as many as 3,500 employees facing the sack. Rumours have been rife that not only will most of the bank's staff not receive bonuses but there may be more cuts in the wake of the losses. 

There has also been focus on the bank's risk systems. Peter Norris, Mr Leeson's boss at the time of the Barings collapse, called for reform of such protocol. In an interview with The Independent on Sunday, he said the fallout for UBS and Mr Adoboli's colleagues "will be huge".

Cameron says UK will 'play its part' as Libya rebuilds

David Cameron has said the UK will "play its part" in helping Libya to rebuild itself as he praised the "courage and resilience" of its people. 

David Cameron: "The Libyan people deserve our support"

Speaking in Paris after he chaired a summit on Libya with France's Nicolas Sarkozy, he said early signs for its future were "incredibly impressive".

But he said Nato military operations would continue "as long as needed".

And he said those that had committed "unspeakable crimes" during the conflict must be brought to justice.

The 60-nation conference has been considering what assistance the international community can provide to the country after months of fighting and the overthrow of Colonel Muammar Gaddafi.

Those present included UN secretary general Ban Ki-Moon, German Chancellor Angela Merkel and US Secretary of State Hilary Clinton as well as senior figures from Libya's interim political authority, the National Transitional Council.

'Seizing the future'

Mr Cameron has said the international community stands ready to give advice and assistance to the country's new leaders as they embark on the path of building a free, democratic and inclusive Libya.

He has insisted the transition from years of dictatorship must be a "Liyban-led" process.

At a press conference after the summit, he said the Libyan people "had taken their country back" and he gave his backing to the country's new leaders.

He praised their success in reopening hospitals and restoring power supplies and said those who predicted chaos on the streets after the collapse of Col Gaddafi's rule had been proved wrong.

"Every time the National Transitional Council has been challenged, it has come up to the mark."

"What we are seeing is the Libyan people want to seize this new future. You are seeing the Libyan people coming together because they want to rebuild their country."

Nevertheless, after Col Gaddafi pledged to continue the fight, the prime minister said the "struggle was not yet over" and Nato would continue its military mission as long as needed to protect civilians.

The international community had been right to intervene in Libya, he added, as this had prevented far greater bloodshed but he acknowledged "unspeakable crimes" had been committed.

"We must be clear that those crimes must be investigated and the guilty brought to justice."

Assets unfrozen

The UK has said the immediate focus of international assistance should be on providing urgent medical and humanitarian aid as well as diplomatic support as the NTC assumes power. 

The government delivered £140m in cash to the Libyan central bank on Wednesday - assets which were frozen in March after the UN approved sanctions against Col Gaddafi and his family.

Mr Cameron said the UK would push for a wider UN resolution to release other funds and assets around the world belonging to the Libyan people.

French President Nicolas Sarkozy said about $15bn (£9bn) had been released in recent days.

Amid reports that French companies are already seeking talks with Libyan officials about helping to rebuild the country's shattered infrastructure, Foreign Secretary William Hague said UK companies would not be "left behind" when it comes to competing for contracts.

All those present wanted "good economic and commercial links with a prosperous Libya," he said.

The NTC has given forces remaining loyal to Col Gaddafi an extra week to lay down their arms but the former Libyan leader has vowed to fight on as uncertainty about his whereabouts continues.