THESSALONIKI, Greece (Reuters) – Greek Prime Minister George Papandreou said on Saturday he would do whatever it takes to rescue his country from bankruptcy and stay in the euro zone, as doubts in Europe grew over its membership in the bloc.

Sending a message to international lenders increasingly frustrated with delays in reforms and missed fiscal targets, Papandreou said his government was determined to take the difficult decisions and make the sacrifices needed.

“We decided to fight the battle to avoid a disaster for the country and its people and to stay in the euro,” he said in his annual economic speech at a trade fair in the northern city of Thessaloniki. “Any delay and wavering is dangerous for the country.”

Anger at the country’s failure to meet fiscal targets under its EU/IMF bailout has reached boiling point, prompting senior euro zone policymakers to cast doubt on its ability to avoid default or even its membership in the single currency.

The embattled premier, who was heckled by angry labor unions on Friday, said he would redouble efforts to fight endemic tax evasion, a main hurdle in achieving fiscal targets.

His Finance Minister Evangelos Venizelos said earlier Greece may even take additional fiscal measures in 2011 to make up for budget deficit slippage that threatens the disbursement of an 8 billion euro EU/IMF loan tranche.

Venizelos pledged to further cut the civil service payroll, push privatizations and deepen labor market reforms.

Civil servants, who have seen about a fifth of their wages slashed, will suffer more after the government decided to put thousands of them in a so-called “Labor Reserve,” in which they will draw 60 percent of their salary and possibly face dismissal if they find no other public sector job within a year.

But austerity measures are throwing the economy into an ever deeper recession. GDP will shrink by more than 5 percent this year, Venizelos said, topping earlier projections in its third straight year of contraction.

PUBLIC DISCONTENT

More than 20,000 protesters gathered in the northern city to mark Papandreou’s speech. Police fired tear gas at youths smashing shop windows and setting fires on the main shopping streets. Police said 106 people were detained.

Demonstrations were organized by civil servants, students, taxi drivers and even football fans. Some restaurants in the city shut down to protest a VAT hike that took effect earlier this month.

“We are suffering an unprecedented tax raid … we deeply worry about tomorrow,” George Kasimatis, chairman of Greece’s Chamber of Commerce Federation, told Venizelos during the conference.

About 7,000 police were patrolling the city’s streets, cordoning off the fairgrounds. Ministers canceled plans for their usual walkabouts in the city and Papandreou avoided touring the fair in the morning, as prime ministers traditionally do on the event’s first day.

While vowing to keep its side of the bargain, the Greek government sharply criticized its EU partners for delaying ratification of a second, 109-billion-euro bailout for the country, agreed by euro zone leaders on July 21.

“Europe must rise to the challenge and move toward implementing the July 21 decisions, to put an end to the Sisyphean ordeal the Greek people is going through,” said Development Minister Mihalis Chrysohoidis.

“Doing nothing is disastrous for all of us,” he added.

A G7 source said the troika (EU/IMF/ECB), which suspended talks with Athens last week in frustration at Greece’s struggle to stick to its deficit reduction plan, would probably come up with a form of words in its next report to allow the next tranche of bailout funds to be paid.

But the working assumption is that Greece will not avoid default indefinitely.

However, a bond swap plan for private bondholders, which is part of the second bailout plan and is supposed to ease Greece’s debt payments was progressing well, Venizelos said.

“The private sector is responding very well to the PSI (private sector involvement),” he said, without elaborating, one day after an initial deadline for banks to express interest in the scheme expired.

(Additional reporting by George Georgiopoulos and Yannis Behrakis; Writing by Dina Kyriakidou; Editing by Janet Lawrence)

feeds.reuters.com

PARIS (Reuters) – The resignation of the top German official at the European Central Bank could hardly have come at a worse time for euro zone policymakers as they grope for a way out of the deepest crisis in the single currency’s 12-year history.

The ECB is the one institution that has kept the euro zone afloat in the sovereign debt crisis and prevented a bond market meltdown. The European Union has no federal government or common fiscal authority and speaks with many dissonant voices.

Juergen Stark’s departure from the ECB’s Executive Board in despair at the policy of buying government bonds to prevent the crisis spreading comes as policymakers in Berlin and beyond are preparing for the growing possibility of a Greek default.

It seems bound to complicate the next round of crisis management because it has injected the poison of inter-state politics as well as ideological division into the independent central bank.

“It’s the ECB that is holding the show together, so anything that weakens the ECB is bad news,” said an EU official involved in financial crisis management.

Stark’s walkout will further sap the ECB’s credibility with Germany’s conservative financial establishment, which saw the bond-buying as an improper means of financing government debt, and among voters in Europe’s largest economy.

That could make greater fiscal integration in the euro zone politically harder to achieve at a time when Chancellor Angela Merkel is coming to realize that a big leap forward in economic governance is needed to preserve the single currency.

It risks importing a north-south divide, between self-styled virtuous creditor countries and peripheral states seen as profligate and feckless, into the central bank.

At worst, Stark’s departure may constrain the ECB’s ability to act decisively in the coming months when the debt crisis enters an even more dangerous phase.

HAMSTRUNG

“This comes at a very, very bad time and it’s certainly serious,” said Jean Pisani-Ferry, director of the Bruegel economic think-tank in Brussels.

“If the ECB is shackled in its ability to buy Italian and Spanish bonds and at the same time we have to do a real restructuring of Greece’s debts, with a proper haircut, we risk a contagion shock spreading to other countries. If the ECB is hamstrung by a lack of consensus, that is the risk.”

A growing number of policymakers, as well as market economists, are convinced it is only a matter of time before Greece, which keeps falling behind on its fiscal targets, will have to default.

A source at this weekend’s G7 finance chiefs’ meeting in Marseille said the troika of EU, ECB and IMF inspectors, who suspended talks with Athens last week, would probably find a formula in its progress report to allow the next 8 billion euro ($11 million) tranche of bailout funds to be paid in October.

That would keep Greece going for a couple more months until European parliaments approve new powers for the EFSF rescue fund to give preventive credit lines to euro zone member states, buy bonds in the secondary market and lend money to recapitalize banks.

The source said the German Finance Ministry was increasingly convinced that Greece will not be able to avoid default for much longer, so ring-fencing the euro zone’s weakest debtor and limiting contagion will be crucial.

Even when the EFSF has its new powers, it will require the unanimous agreement of the 17 euro zone member states to use them, with the German parliament having just gained a bigger oversight role on those decisions. Political hurdles abound.

Markets may bid up euro zone bond yields again in anticipation of the ECB pulling out of bond-buying and handing over to the inexperienced EFSF, traders say.

The ECB has bought a total of 135 billion euros’ worth of Italian, Spanish, Greece, Irish and Portuguese bonds so far.

The rescue fund may find itself short of firepower in a crisis. It will have about 380 billion euros in uncommitted funds. Italy alone has 1.9 billion euros of outstanding government bonds, of which 45 percent are held by foreigners.

HARDER LINE

The replacement of Stark on the ECB board by the more pragmatic German junior finance minister Joerg Asmussen, the seasoned crisis manager proposed by Berlin on Saturday, may reduce ideological tensions at the central bank.

But it could also force incoming ECB President Mario Draghi, who succeeds Jean-Claude Trichet on November 1, to take a harder line on ending bond purchases and sticking to the bank’s core mandate of fighting inflation.

Draghi has already warned governments, including his native Italy, that continued bond-buying cannot be taken for granted.

“The next step will be increased pressure on the ECB to keep its hands clean. Stark is from the German school that sees this kind of intervention as bad in principle,” said Josef Janning, director of research at the European Policy Center in Brussels.

“His likely successor will be less orthodox and more of a political crisis manager. But Stark may use his new freedom to speak out. That could make things more complicated for Merkel and for Draghi,” the German political scientist said.

Stark’s resignation could also affect international confidence in the ECB and the euro zone at a crucial moment.

“Politics has never been completely absent from the ECB but this has now been reinforced. This awakens the idea that the ECB is still a structure that amalgamates national institutions and views, not primarily individuals belonging to its board,” Pisani-Ferry said.

“You have to think about how this looks from New York. It looks as if these people can’t even sit around the same table and work things out.”

($1 = 0.729 Euros)

(Additional reporting by Annika Breidthardt in Marseille and Luke Baker in Brussels; Editing by Kevin Liffey)

feeds.reuters.com

LONDON (Reuters) – The euro and growth-linked currencies may fall on Monday, hit by a lack of concrete measures from Group of Seven finance chiefs to address either faltering growth, the escalating euro zone debt crisis, or exchange rate volatility.

The dollar, yen and, to a lesser extent, Swiss franc are set to advance with more investors seeking safe-haven currencies on the back of rising financial market stress.

That will raise the risk of more solo intervention from Japanese and Swiss authorities.

The flight to safety should drive core government bonds like German Bunds and British gilts higher, leading to wider spreads over euro zone peripheral debt, while European banking shares may ease on mounting worries about contagion engulfing bigger economies like Italy and Spain.

Finance ministers and central bankers from the Group of Seven industrialized nations pledged to respond in a concerted matter to a global slowdown. However, they offered no specific steps and differed in emphasis on Europe’s debt crisis.

That will likely offer little solace to investors who had expected some sort of coordinated policy response from G7 policymakers at a time when stock markets have been falling and global growth in showing increasing signs of stalling.

“As this falls short of any commitment to undertake co-ordinated action in currency markets, investors are likely to react with disappointment when trading resumes on Monday,” said Mansoor Mohi-uddin, head of foreign exchange strategy at UBS.

He expected Japan to stay on intervention watch.

Japan’s finance minister, Jun Azumi, said he met with little resistance to further intervention at the G7 meeting. Japan last intervened in the currency market on August 4 to topple the yen from a record high against the dollar.

“We expect Japan’s authorities will act again unilaterally if dollar/yen tests its post-war lows of 75.95 yen. As a result we think investors should instead keep favoring the dollar now when they seek safe-haven currencies,” UBS’s Mohi-uddin said.

The dollar index, which measures its performance against a basket of six currencies which includes the euro, yen and sterling, rose to its highest in six months at 77.276 on Friday.

In a bullish signal, it closed above its 55-week moving average at 77.01. Resistance was seen at the base of the weekly Ichimoku cloud around 78.05, while strong resistance was at the 38.2 percent retracement of the index’s fall from a high of 88.71 on June 7, 2010 to a low of 72.696 on May 4, 2011 which comes in at 78.80.

The dollar is set to make strong gains against the euro, which last week fell to its lowest in six months, at around $1.3627. The euro posted its biggest weekly fall since mid-August last year, with many looking for it to test $1.35 in the near term.

EURO ON THE WAY DOWN

The euro also fell sharply against the safe-haven Japanese yen on Friday, dropping to its lowest in nearly a decade. It ended the week at 105.85 yen, and a break below the psychologically key 105.00 level could see it drop toward 100 yen in coming weeks, analysts said.

Howard Wheeldon, a strategist at BCG Capital Partners, said the weekend’s developments provided little confidence to investors in the euro zone, and the coming week will see increased volatility in stock markets.

That could hurt the euro more in coming days.

The euro was sold off last week after European Central Bank President Jean-Claude Trichet shifted the monetary stance from a hawkish bias to a more neutral one.

The shock resignation of ECB board member Juergen Stark, which highlighted sharp divisions within the central bank over purchases of government bonds in the secondary market and concerns that Greece may not secure its latest aid tranche from the IMF/European Union, also added to the euro’s woes.

Investors will also likely be unsettled by a weekend report from Der Speigel magazine that the German finance ministry was looking at scenarios that included Greece abandoning the euro.

Indeed, latest data from the Commodity Futures Trading Commission showed speculators added to their bearish bets against the euro in the week to September 6.

“With $1.40 going last week, I think the euro could fall to $1.35 in the next few days,” said Michael Derks, chief strategist at FXPRO. “The dollar be will the currency that will gain from safe-haven inflows given the risk of intervention in the yen and the line in the sand that has been drawn on the Swiss franc by the Swiss National Bank.”

On the charts, near term support was seen at $1.3426, a low hit on February 14 and from where the euro started its move to a 17-month high at $1.4939 struck on May 4.

(Reporting by Anirban Nag; Editing by Dan Lalor)

feeds.reuters.com

BERLIN (Reuters) – Anger at Greece’s failure to meet fiscal targets that are a condition for its international bailout is nearing breaking point in Berlin and other European capitals, with senior politicians now talking openly about the possibility of Athens exiting the euro zone.

Horst Seehofer, the head of the Bavarian Christian Social Union (CSU), was the first prominent figure in Germany to suggest publicly that Greece might eventually be forced to leave the 17-nation single currency bloc in an interview in the Bild newspaper on Wednesday.

But he was expressing what many lawmakers and ministers in the German capital have been whispering behind closed doors for weeks, according to well-informed sources.

German Finance Minister Wolfgang Schaeuble has ramped up his rhetoric since “troika” inspectors from the European Union, International Monetary Fund and European Central Bank suspended talks on payment of a new aid tranche to Greece last week due to backsliding on its deficit targets.

And the Dutch prime minister said in a proposal published on Wednesday that fiscal violators who refused to give up sovereignty over their budgets to a new European “discipline” czar should leave the bloc.

“Countries which are not prepared to be placed under administratorship can choose to use the possibility to leave the euro zone,” Mark Rutte said in the proposal which was sent to parliament.

The troika inspectors are due to return to Athens next week, but their abrupt departure has reinforced the feeling in northern Europe that Greece’s government is simply unwilling to take the draconian steps required to meet the conditions of the 110 billion euro bailout they sealed in May 2010.

In July, European leaders were forced to come up with a second package of roughly equal size for Greece because the first one proved too small. But that second package, due to be ratified by national parliaments in the coming months, is now in danger.

“A debate about a second program for Greece is, in view of the difficulties in the current program for Greece — paying out the next tranche – very premature,” Schaeuble told parliament in a speech on Thursday.

Earlier he called the situation “serious” and said it was “up to Greece as to whether it can fulfill the conditions that are necessary for membership in the common currency.”

German Chancellor Angela Merkel rebuffed talk of a Greek exit earlier this week, warning of a dangerous “domino effect” were the bloc’s weakest member to leave.

HOTEL CALIFORNIA

There is no legal framework for a country leaving the currency zone and the costs of an exit could far outweigh the pain of staying in.

“As things stand, secession is highly costly and very difficult, and expulsion is impossible,” UBS economist Stephane Deo wrote in a note this week.

He likened the euro zone to the “Hotel California” in the hit 1977 song by rock band The Eagles, which includes the line: “You can check out any time you like, but you can never leave.”

UBS said the consequences of a weak country exiting would include sovereign default, corporate default, the collapse of the banking system and of international trade.

It estimated the costs per person in an exiting country at 9,500 to 11,500 euros in the first year — or 40 to 50 percent of gross domestic product (GDP).

A senior EU official told Reuters that a euro zone exit was inconceivable, because of the turmoil that would ensue.

“No, because if you get 17 minus one, you’ll end up with 17 minus four, five, six or eight,” the official said. “The euro zone is not a cafe where you go in and you go out. The financial and monetary interdependence is so big, so strong.. that the fate of one member creates problems for all of the others.”

He added: “I can assure you that Germany is as convinced as I am that leaving the euro zone is no option at all for anybody.”

But Greece’s failure to meet its targets has raised serious questions about whether weak euro zone countries have sufficient incentive to reform and is an acute, growing source of concern in Berlin.

What incentive does a country like Greece have to meet incredibly tough targets in the face of fierce domestic public anger if it knows that its partners in the euro zone can’t afford to let it collapse financially and allow it to leave?

“If sovereigns in the Euro area believe that they are either too large or too interconnected to be allowed to fail, then there is a significant moral hazard problem,” David Mackie, an economist at J.P. Morgan, wrote in a note on Thursday.

“This has clearly been an issue with the ongoing under performance in Greece, and it became apparent in Italy in August regarding ECB bond purchases. But the music for this dance may be about to stop. The departure of the troika from Athens last week suggests a high level of frustration about what Greece is delivering, and there are now serious doubts about the disbursement of the sixth tranche of the original bailout package.”

(Reporting By Madeline Chambers; Editing by Patrick Graham)

feeds.reuters.com

Financial Times said the Irish budget deficit for 2010 will be higher than the latest estimates, while Nobel Prize-winning economist Joseph Stiglitz said European common currency future is under risk.

Pressure increase on the euro ahead of the Greek plans to outweigh sluggish revenue growth when the Greek Finance Minister announces the 2011 budget later on today.

However, the relative improvement in European fundamentals may help the euro to advance again, especially with the expected pumping of money by central banks, which aim to bolster recovery.

The dollar rebounded from eight-month low to a high of 78.43 from the day’s opening at 78.00, as depicted by the dollar index, which tracks the performance of the dollar versus a basket of major currencies.

The greenback managed to do an upside correction after being overbought, where it may change its direction after the release of US pending home sales for August which are expected to show decline to 3.5% from 5.2% and factory orders which are predicted to drop to -0.4% in August from 0.1%.

Worries in markets enhanced demand on refuges such as dollar and yen at the expense of risky assets such as stocks where European shares failed to follow the suit of its Asian peers as it dropped during early trading.

Concerning the euro-dollar pair, it plunged on the daily charts as the pair is currently trading at 1.3685 after touching a high of 1.3805 and a low of 1.3664, whereas the trading range for today is among the key support at 1.3570 and the key resistance at 1.4000.

Moving to the sterling-dollar pair, it opened on a gap today then it touched a high of 1.5825 before it slipped to a low of 1.5747 after Osborne has said that delaying the cuts may affect UK top credit rating, while the it pared some of the losses as PMI construction unexpectedly rose to 53.8 in September from 52.1.

Meanwhile, the pair is trading at 1.5794, whereas the trading range for today is among the key support at 1.5620 and the key resistance at 1.6260.

With regard to the dollar-yen pair, it climbed to a high of 83.86 but slipped in an attempt to do an upside correction after being oversold, but the pair failed to continue as it retreated to 83.26.

BoJ policy makers in their two-day meeting are expected to increase the 30-trillion yen credit program for lenders to encourage bank lending.

The dollar may rebound as it seems that the BoJ will not tolerate another fall to 83 where they may intervene in market again as what happened on September 15.

The trading range for today is among the key support at 81.60 and the key resistance at 85.40.

Published on Mon, Oct 4 2010, 11:09 GMT

fxstreet.com

European banks have to repay 442 billion euros this month, but the ECB mentioned yesterday that it would fund banks worth 131.9 billion euros for three months which was lower than analyst’s projections, thus worries that European banks are relying on ECB loans to restructure their impaired imbalances eased.

Conversely, the dollar fell against a basket of major currencies as seen by the dollar index which reversed its earlier gains as it fell to 85.84 after the breach of strong support at 85.96. The dollar is showing decline for the second day ahead of the release of important U.S. data, where ISM manufacturing is predicted to drop to 59.0 in June from 59.7.

With regard to the euro-dollar pair, it rebounded on the daily and 4-hour charts after approaching support at 1.2123 which helped the pair to surge to 1.2294, where the pair is currently trading. Earlier today, the pair recorded a high of 1.2310 and a low of 1.2191, whereas for the rest of the day the pair is predicted to move between support and resistance at 1.2150 and 1.2335 respectively.

The 16-nation currency dropped earlier today after Moody’s said it may downgrade Spain’s credit rating, and as China’s manufacturing eased expansion in May. Today, euro zone’ manufacturing halted at 55.6 in June but German manufacturing sector unexpectedly rose to 58.4 from 58.1 In May.

As for the sterling-dollar pair, it is moving to the downside for the third day after closing below 1.50 psychological level yesterday. The pair is doing a downside correction to the upside trend that started since mid May and was spurred by the drop in PMI manufacturing which slipped to 57.5 in June from 58.0. The pair is currently trading at 1.4912, recording a high of 1.4973 and a low of 1.4870, while it is expected to move between support at 1.49850 and resistance at 1.5070.

Relative to the dollar-yen pair, it is continuing its fall on the daily charts today but the pair is unable to remain below strong support at 88.20. Meanwhile, the pair is trading at 88.30, recording a high of 88.55 and a low of 88.06, whereas support is seen at 88.00 while resistance is at 89.55 then 89.30.

Published on Thu, Jul 1 2010, 10:27 GMT

fxstreet.com

Once again risk aversion pushed higher yielding currencies lower with AUD/USD suffering a 100pip decline. The move was exacerbated by weaker Australian retail sales, and a disastrous decline by -6.6% in building approvals. The data demonstrates that the RBA’s interest rate cycle has reduced demand for property buyers. With the Australian economy softening and the real threat of a slowdown in China, trader’s expectation for further interest rate hikes have been lowered. AUD/USD hit a low of 0.83126 during Asian trade but has since recovered slightly and is once again testing the 0.84000 handle.

Surprisingly, and in contrast with Asia, news out of Europe has surpassed expectation inducing a Euro rally against the dollar back above 1.23000. Sentiment towards the region seems to have improved for the time being after Spain’s successful bond auction and an interest rate hike by Sweden’s Riksbank eased fears of the on-going debt crisis. Today’s good news from the region has comes after the ECB’s tender drew less demand indicating a healthier European banking system.

Key data out of the U.S is the ISM Manufacturing PMI, Unemployment Claims and Pending Home Sales. If these disappoint we could see the Euro gains reversed as traders seek safety in the U.S dollar.

Published on Thu, Jul 1 2010, 10:42 GMT

fxstreet.com

• The longer term solvency problems remains unsolved.
• The macro economic consequences of the crisis and of the fiscal tightening.
• Implementation risks. Will the measures be approved in parliaments and will governments deliver the needed tightening of fiscal policy?

• 

  Download full Monitor with charts

Published on Wed, May 12 2010, 09:22 GMT

fxstreet.com

European Markets Snap 3-Day Loss- Euro Strengthens

Asia Pacific markets were mostly weaker across the board with Japan’s Nekkei 225 closed for holiday. US equities rebounded yesterday from the losses sustained on news of downgrades in sovereign credit ratings around Europe. Modest gains came on the heels of the Fed’s continued commitment to keeping rates exceptionally low for “an extended period.” The statement highlighted improvements in business and household spending, while also noting lags in employment and commercial real-estate. The news calmed nervous investors, after global equity bourses fell on fears regarding sovereign debt contagion. The dollar was softer early in European trade as risk appetite crept back into the markets on better than expected unemployment data from Germany, and strong business climate and confidence figures from the Eurozone. Commodity prices were stronger with gold sitting just under $1170 and crude oil rising to $83.81- off yesterday’s weekly low of $81.50.

The Greek Reality

The sovereign debt crisis in Greece has brought to light the deficiencies in the nation’s economy. With the cost of the proposed 3-year aid package estimated to be as much as 120 billion euros, questions arise as to how the country will cope with the unprecedented austerity measures needed to regain control of government spending. With no significant economic growth drivers, the nation’s deficit will continue to climb unless major social reforms are implemented. Although Greece has the support of the EU, there is uncertainty as to the resolve of the Greek people as protests continue to persist in response to recent cuts in deficit spending. As a part of the rescue plan, Greece will need to adopt even harsher austerity measures. The risk of contagion still remains very real after S&P lowered Spain’s rating only one day after downgrading both Portugal and Greece. With German Chancellor Angela Merkel now urging for a quick resolution to the debt crisis, it is likely there will be a package ready for Greece by sometime next week. The euro received a respite from the heavy sell off in recent days on renewed hopes that the IMF backed UE plan will be enacted in time for the May 19th deadline, when some 9 billion euros of Greek debt mature. Although profit taking could provide some support for the euro, the medium-long term outlook remains negative. The single currency held gains past the 1.32 figure with interim resistance seen at 1.3260, backed by 1.3280 and 1.33. Subsequent ceilings are eyed at 1.3340, followed by 1.3370 and the 1.34 handle. Support starts at the figure, with additional targets eyed at 1.3180, followed by 1.3130, 1.31, and 1.3020. Past the 1.30 figure, stronger demand rests at the long-term 100% Fibonacci extension taken from the Dec 18th 08′ and Nov 26th 09′ crests, at 1.2880.

Today at 8:30am in New York, the US reports on weekly jobless claims, with 445k initial claims expected. Continuing claims are also seen lower to 4.618 million from 4.646 million. At the same time, the Chicago fed national activity index is released, with the figure expected at -.20. European markets were firmer with US equity futures also pointing to a stronger open mid-day in London trade.

Published on Thu, Apr 29 2010, 22:21 GMT

fxstreet.com