Moody’s cuts Spain by 2 notches, sees funding risks
Moody’s Investors Service on Tuesday cut Spain’s sovereign ratings by two notches, saying high levels of debt in the banking and corporate sectors leave the country vulnerable to funding stress.
Worsening growth prospects for the euro zone will also make it more challenging for Spain to reach its ambitious fiscal targets, the ratings agency added.
In particular, Moody’s said it continues to have serious concerns regarding the funding situation of the regional governments.
Spain has said it will deflate its public deficit to 6 percent of GDP this year from 9.3 percent of GDP in 2010, though many economists are concerned this could be derailed by a lack of fiscal discipline at regional level.
The government’s regional deficit target is 1.3 percent of GDP for this year.
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EU regulators raid banks in interest-rate probe: report
The European Commission seized documents from several major banks on Tuesday, marking the intensification of a world-wide law-enforcement probe into how key interest rates are set, the Wall Street Journal said, citing people familiar with the situation.
European officials are investigating an interest rate called the Euro Interbank Offered Rate, or Euribor, the newspaper said, citing the people.
WSJ said the European regulators are delving into the possibility that financial companies tried to manipulate the Euribor rate. It said the full list of financial firms raided on Tuesday wasn’t clear.
Euribor rates are traditionally the main gauge of unsecured interbank euro lending and a mix of interest rate expectations and banks’ appetite for lending.
S&P downgrades 24 Italian banks
Standard & Poor’s has downgraded the credit ratings of 24 Italian banks and financial institutions.
“Renewed market tensions in the eurozone’s periphery, particularly in Italy, and dimming growth prospects have led to further deterioration in the operating environment for Italian banks,” S&P said in a statement.
It predicted Italy’s banks would have to pay more to borrow money for years. Last month S&P downgraded seven other Italian banks and the whole country.
The banks involved include Banca Monte dei Paschi di Siena, Banco Popolare Societa Cooperativa, Banca Popolare dell’Emilia Romagna, Banca Popolare di Milano, Banca Popolare di Vicenza and Banca di Bologna.
S&P warned that it did not think the the current “difficult operating climate is transitory or that it will be easily reversed”.
Moody’s warns on France’s credit rating
France has been given a warning over its top AAA credit rating by Moody’s, one of the main rating agencies. Moody’s warned that it may change its “stable” outlook on the rating to “negative” in the coming months, saying that the government’s financial strength
“has weakened”.
If Moody’s does make the change, it stops short of a downgrade. France’s finance minister said the government would do “everything in our power not to be downgraded”.
Francois Baroin told the France 2 television station: “We will be there to preserve our triple-A rating.”
Greece faces general strike over spending cuts
Greece is expected to grind to a halt, with a general strike that could ground flights, halt most public services and shut offices and shops.
The 48-hour strike comes as parliament prepares to vote on the latest round of austerity measures, including more tax hikes, pay cuts and job losses. Greece is struggling to reduce a huge government deficit amid fears it may default and set off a eurozone crisis.
The EU and IMF have demanded tough cuts in return for two bailouts. The BBC’s Chris Morris in Athens says the pace of protests in Greece has been increasing for several weeks.
There have been lightning strikes across virtually every sector of the economy with rubbish not collected and government ministries blockaded by their own workers. Into this scene comes the strike over Wednesday and Thursday called by Greece’s two big unions covering public and private sector workers.
General strike plans for Portugal as unions object to more austerity
The date for a general strike by two of Portugal’s largest unions will be set on Wednesday. The organisations have decided to take action in the face of more austerity measures revealed by the government in the budget for next year.
Both groups have 1,250,000 members combined, which is 90 per cent of unionised workers. They last held a general strike in November 2010. Joao Proenca, the head of the UGT union, said the government is making the economic situation worse: “The government was elected to get the country out of the crisis, but these measures aren’t taking the country out of the crisis. The measures this government is taking clearly increase social conflict.”
Portugal’s economy is struggling and the country’s finance minister has predicted the economy will contract by five per cent over 2011 and 2012. However, the tough measures including spending cuts and tax increases are as part of a 78 billion euro bailout plan agreed with the EU and IMF.
German Economic Expectations Worsen
German economic expectations deteriorated to approach a three-year low in October as analysts fear that the European-debt crisis will put a brake on the country’s economy and may drive it into a slight recession in the next six months, the Center for European Economic Research, also known as ZEW, said Tuesday.
The widely watched ZEW index fell for the eighth consecutive month to minus 48.3 from September’s reading of minus 43.3. The level was last this low in November 2008, after collapse of Lehman Brothers amplified the global financial crisis.
Fears the debt crisis will cause governments and households to rein in spending and companies to postpone investments drove the index lower this month, ZEW expert Michael Schröder said. But he said confidence could improve fast “if we see a
solution to the euro zone’s problems.”
European leaders are working on new crisis-fighting measures they hope to present at a summit on Sunday. But Germany has cautioned against expecting a “definitive solution” this weekend. Experts polled by ZEW expect Germany’s economy to contract slightly in the fourth quarter of this year and the first quarter of next year.
“October’s decline in the German ZEW index provides further evidence that Germany is being hit hard by deteriorating export prospects and the euro-zone debt crisis,” said European economist Ben May at Capital Economics in London. Other recent data also supports that the “German recovery is all but over,” he said.
