Euro crisis biggest test - Merkel

Euro crisis biggest test - Merkel
May 20, 2010 - 7:03AM

Germany rocks world markets

Germany's ban on risky trading sent ripples of shock through the markets, stunning investors and sending the euro back down to a four-year low.

Chancellor Angela Merkel has called for a radical overhaul of Europe's fiscal rules along German lines, warning of "incalculable consequences" for the European Union if the euro were to fail.

Defending Germany's part in a near trillion US dollar package to prevent the troubles of debt-ridden Greece spreading to the rest of Europe, she said the single currency was facing an "existential test" as it plunges on the markets.

"The current crisis facing the euro is the biggest test Europe has faced in decades, even since the Treaty of Rome was signed in 1957," she said in a speech in parliament on Wednesday, referring to the treaty that created the European Union.

"This test is existential and it must be overcome ... if the euro fails, then Europe fails," she said, facing frequent heckling and jeers from opposition parties.

"The euro is in danger. If we do not avert this danger, then the consequences are incalculable and the consequences for the whole of Europe are also incalculable," she cautioned.

To overcome the turmoil that has battered the euro, the German chancellor proposed a "new stability culture" in Europe.

"We need a comprehensive overhaul of the Stability and Growth Pact," the rules stating that EU countries should keep budget deficits below three per cent of gross domestic product (GDP) and debt below 60 per cent of GDP.

"The rules must be geared to the strongest, not to the weakest ... our (German) stability culture is tried and tested."

German Finance Minister Wolfgang Schaeuble will on Friday propose a raft of measures to tighten the rules at a meeting with EU president Herman Van Rompuy.

Merkel said that European funds could be withheld from fiscal sinners and voting rights withdrawn. She also said that an "ordered sovereign insolvency procedure" needed to be established in Europe.

She confirmed a decision made on Tuesday by Germany's securities market regulator to ban so-called naked short-selling in the shares of 10 financial institutions and eurozone government bonds.

Naked short-selling is when investors sell securities they do not own and have not even borrowed, hoping to be able to buy them back later at a lower price, thereby earning a profit.

She said the ban would be in place until Europe-wide regulations were agreed, prompting scorn from market players.

Saying that Merkel had "thrown her toys from the pram" in a fit of pique, Howard Wheeldon from BGC partners in London said she appeared "determined to undermine the euro and the euro economy at this particularly difficult time.

"It seems to me that all the German chancellor has managed to do by this affront to market integrity is succeed in fuelling more fears that the European sovereign debt crisis may just be even worse than it looks," he said.

The euro hit a new four-year low against the dollar after the move was announced.

Merkel also reiterated that she would campaign at the Group of 20 leading industrial powers for an international tax on the financial markets.

Schaeuble later told a parliamentary committee: "If we can get that through on the global level, then good. That would be ideal. If that does not work, then we must look to the Europe (European Union)."

"And if we have a problem with Britain, then I think we should try it with the eurozone," he added.

Frank-Walter Steinmeier, parliamentary head of the opposition Social Democrats, attacked Merkel for her conduct in the crisis, branding her "powerless and helpless."

Germany's parliament is expected to vote Friday on the country's share of the 750 billion euros ($A1.06 trillion) eurozone bailout package, which could be as much as 150 billion euros ($A211.83 billion).

Merkel's party has a clear majority in the parliament, meaning the package is certain to pass.

AFP

Stocks fall, euro at 4-yr low, oil dips

AP, May 18, 2010, 12.32am IST


NEW YORK: Stocks fell for a third day on Monday on growing concerns that Europe's debt problems will hamper a global rebound. The Dow Jones industrial average fell about 80 points in late morning trading. The Dow fell 81.4 points, or 0.8%, to 10,538.6. It has fallen seven of the last nine days.

Stocks fell after the euro, which is used by 16 countries in Europe, fell to a four-year low. Investors are questioning whether steep budget cuts in countries including Greece, Spain and Portugal will hinder an economic recovery in Europe and in turn, the US traders are also concerned that loan defaults could ripple through to banks in stronger countries like Germany and France.

The austerity measures are required under a nearly $1 trillion bailout programme the European Union and International Monetary Fund agreed to last week. The rescue package provides access to cheap loans for European countries facing mounting debt problems.

The euro fell to as low as $1.223 early Monday before moving higher. The plunging euro has been driving trading around the globe in recent days. The weakness in the euro has helped boost the value of safe-haven investments like the dollar, Treasuries and gold. It has also driven commodities like oil lower.

Oil fell below $70 a barrel for the first time since February. Oil is priced in dollars so a stronger dollar deters investment in oil. Crude oil fell $1.76 to $69.8 per barrel on the New York Mercantile Exchange. That hit shares of energy companies.

A disappointing report on regional manufacturing from the New York Federal Reserve weighed on sentiment. A forecast from home-improvement retailer Lowe's Cos also fell short of expectations. The questions about Europe overshadowed other news and dominated trading. Investors in the US who had been growing more confident about a rebound in this country now are questioning whether the problems in Europe will disrupt a recovery.


http://timesofindia.indiatimes.com/Biz/International-Business/Stocks-fall-euro-at-4-yr-low-oil-dips/articleshow/5942500.cms

Time to let the euro die

Time to let the euro die
May 18, 2010 - 7:10PM

The time for tough decisions is here. In the next few months, the members of the euro area will have to make a choice: create a genuine fiscal and political union or let the euro die a slow death.

The European Union now realizes the Greek crisis has revealed some major flaws in the common currency. There's no point trying to fudge it. The euro can only be rescued by a sweeping centralization of control over tax and spending.

There's just one snag: A single economic government for the euro area isn't going to work. The surrender of national sovereignty is too great. The timing is all wrong. And there is still no realistic mechanism for enforcing whatever new rules are made in Frankfurt or Brussels.

With every step that this crisis takes, the euro moves closer and closer to falling apart. In a few years, we'll be talking again about the deutsche mark, the franc and the peseta.

After dithering for too long, policy makers now recognize that the foundations of the euro weren't strong enough.

The Stability and Growth Pact, which limited budget deficits to 3 per cent of gross domestic product, didn't work. Greece was running fiscal gaps far larger than those during the good years, and plenty of other nations were as well once the global economy turned down. It became a massive free lunch.

Countries could spend like crazy and get their neighbors to bail them out. It was hard to see how the system could survive for long if those were the rules. Everyone had an incentive to do the spending. No one had any incentive to do the bailouts.

EU response

''The Commission proposes to reinforce decisively the economic governance in the European Union,'' the EU said in a statement last week. Member states will have to submit their national budgets to the EU for approval.

It isn't hard to see the implications of that.

''The sovereign-debt crisis could be acting as a catalyst for an ever closer union of European countries,'' Morgan Stanley said in a May 11 note to investors. ''The decisions taken this weekend first by European leaders and then by finance ministers mark a big leap towards a fiscal union in the euro area.''

A fiscal union - in which budgets and taxes are decided centrally - would fix the problem. Member states wouldn't be able to run up unaffordable deficits. When they ran into trouble, money could be diverted from the more successful states to the ones that needed help. That's how it works within countries. It is how the euro should work, too. But here's why it probably won't.

Three reasons

First, the surrender of sovereignty is too great. Countries signed up to a single currency. They didn't sign up for a single government. Once you lose control of fiscal policy, you stop being a nation, and you become a district. It is hard to believe that will ever survive referenda or national elections. It is hard enough to persuade taxpayers to subsidize regions in the same country. Persuading electorates to send their taxes to a central authority, without having any control over where it is spent, will prove impossible.

''The budget law is a matter of national parliaments,'' Guido Westerwelle, Germany's foreign minister, said last week. ''The European Commission doesn't determine the budget. That is the job of the German Bundestag, the national parliament.''

Second, the timing is wrong. For the next five years, the only thing governments will be serving up is pain. Deficits are out of control. Spending has to be cut. Creating any kind of fiscal union was going to be tough enough even in the boom years, when you could hand out lots of cash to build new schools and roads. It will be much tougher when spending is being cut. The EU will take control of national budgets at precisely the moment they get slashed. Does that sound popular? Not really.

Third, there still isn't an enforcement mechanism. The latest proposal is that all the national budgets get submitted to Brussels in advance. The EU will approve them, or it won't.

So what happens if a budget is rejected, and local politicians tell the EU to go take a hike? Euro police aren't about to storm member parliaments and cart politicians away in handcuffs. So far, all that has been proposed is a rewrite of the stability pact, but with some more forms to fill in, and a bit of snarling if you break the rules. It didn't work last time, so why should it work now?

The EU has come up with the only realistic solution to the crisis presented by Greece's mountain of debt. But it's still not going to work. And once that becomes clear, there will be only one option left: let the euro die.

(Matthew Lynn is a Bloomberg News columnist. The opinions expressed are his own.)

Bloomberg News

German short-sell ban shocks markets

German short-sell ban shocks markets
May 19, 2010 - 6:59AM

Germany will temporarily ban naked short selling and naked credit-default swaps of euro-area government bonds at midnight after politicians blamed the practice for exacerbating the European debt crisis.

The ban will also apply to naked short selling in shares of 10 banks and insurers that will last until March 31, 2011, German financial regulator BaFin said today in an e-mailed statement. The step was needed because of "exceptional volatility" in euro-area bonds, the regulator said.

The move came as Chancellor Angela Merkel's coalition seeks to build momentum on financial-market regulation with lower- house lawmakers due to begin debating a bill tomorrow authorizing Germany's contribution to a $US1 trillion bailout plan to backstop the euro. US stocks fell and the euro dropped to $US1.2231, the lowest level since April 18, 2006, after the announcement.

"You cannot imagine what broke lose here after BaFin's announcement," Johan Kindermann, a capital markets lawyer at Simmons & Simmons in Frankfurt, said in an interview. "This will lead to an uproar in the markets tomorrow. Short-sellers will now, even tonight, try to close their positions at markets where they can still do so - if they find any possibilities left at all now."

Merkel, Sarkozy

Merkel and French President Nicolas Sarkozy have called for curbs on speculating with sovereign credit-default swaps. European Union Financial Services Commissioner Michel Barnier this week called for stricter disclosure requirements on the transactions.

Allianz SE, Deutsche Bank AG, Commerzbank AG, Deutsche Boerse AG, Deutsche Postbank AG, Muenchener Rueckversicherungs AG, Hannover Rueckversicherungs AG, Generali Deutschland Holding AG, MLP AG and Aareal Bank AG are covered by the short-selling ban.

"Massive" short-selling was leading to excessive price movements which "could endanger the stability of the entire financial system," BaFin said in the statement.

The European Union last month proposed that the Financial Stability Board, the group set up by the Group of 20 nations to monitor global financial trends, should "closely examine the role" of CDS on sovereign bond spreads. Merkel said earlier today that she will press the Group of 20 to bring in a financial transactions tax.

Merkel's 'Battle'

"In some ways, it's a battle of the politicians against the markets" and "I'm determined to win," Merkel said May 6. "The speculators are our adversaries."

Germany, along with the US and other EU nations, banned short selling of banks and insurance company shares at the height of the global financial crisis in 2008. The country still has rules requiring disclosure of net short positions of 0.2 per cent or more of outstanding shares of 10 separate companies.

The disclosure of the rules drew criticism from lawyers who said that they should have been announced well ahead of time.

"The way it's been announced is very irresponsible, and it's sent many market participants into panic mode," said Darren Fox, a regulator lawyer who advises hedge funds at Simmons & Simmons in London. "We thought regulators had learned their lessons from September 2008. Where is the market emergency that necessitates the introduction of an overnight ban?"

Short-selling is when hedge funds and other investors borrow shares they don't own and sell them in the hope their price will go down. If it does, they buy back the shares at the lower price, return them to their owner and pocket the difference.

Credit-default swaps are derivatives that pay the buyer face value if a borrower -- a country or a company -- defaults. In exchange, the swap seller gets the underlying securities or the cash equivalent. Traders in naked credit-default swaps buy insurance on bonds they don't own.

A basis point on a credit-default swap contract protecting $US10 million of debt from default for five years is equivalent to $US1000 a year.

Bloomberg

Defend your investments from the eurocrisis

Defend your investments from the eurocrisis
Most investors couldn't be blamed for feeling nervous. We consult the experts on where they should turn.

By Emma Wall
Published: 12:30PM BST 14 May 2010


Investors needed nerves of steel over the past week. Uncertainty over who would take over at No 10 and a euro crisis have given the British and global stock markets the jitters.

The FTSE 100 lost more than 10pc of its value, down to 5,123 last Friday, only to pile the points back on again on Monday morning, even though many expected shares to fall in value.

Markets continued to hold steady, but fund managers are warning investors not to be complacent in light of the coalition Government – uncertainty prevails in Europe and a sovereignty crisis looms, and that's where danger lies.

The European Central Bank is steadying itself for further contagion effects of the Greek crash, Italy's banks are looking unstable and Germany is suffering a crisis of confidence as a recent regional vote undermined Angela Merkel's government.

"Eurozone uncertainty is having a much greater impact on the markets than British politics," said Tom Ewing, manager of Fidelity's UK Growth fund.

To avoid the ramifications of the Eurozone difficulties you do not have to flee the country for opportunities overseas – simply pick domestic stocks or British funds with global exposure.

"The UK market is a global market," Mr Ewing said. "Two thirds of the FTSE 100's earnings come from outside of the UK and the 20 biggest companies, the megacaps, have the minority of their business here.

"Very few of these larger-cap companies are UK focused, Tesco and Centrica remain Britain-centric but the FTSE is not UK plc"

Public perception may be influenced by the businesses that we are aware of in our everyday lives, such as Punch Taverns and M & S, but many British businesses generate the lion's share of their earnings from outside the country.

What's more, the prospect for dividend growth on British companies is looking brighter. According to Capita Registrars, more companies are paying out. Some 186 companies paid a dividend between January and March, up from 161 a year ago. Furthermore, the number of companies increasing payouts outnumbered those who cut. While 56 companies cut or cancelled their dividends, 30 held them unchanged and 102 increased or reinstated their payments.

Cash is doing nothing and gilts are paying 1pc or 2pc, but traditionally defensive stocks, such as Vodafone, Imperial Tobacco and BP are paying at least 5pc.

As you can see from our graphic, only 13pc of Vodafone's 2009 revenue came from Britain. British American Tobacco gained 23pc of its earnings from the Asia-Pacific region, nearly half of AstraZeneca's earnings are from North America and 100pc of Antofagasta's revenue is from three mines in Chile.

The FTSE megacaps seem to offer the best of both worlds. Mr Ewing said: "I am bearish on the UK, but UK stocks offer better corporate governance, better accounting and I can more easily engage with the management. At the same time I can easily tilt my UK stock picks to get exposure to China, India and the rest of Asia."

The British market has shown significant recovery from the low of 3,460 in March last year. Despite setbacks recently and in February this year, we are now nearly 2,000 points higher a year on.

Nigel Thomas, the UK Select Opportunities manager at AXA Framlington, believes this has been an industrial recovery, rather than a consumer one.

"The recovery in the market is due to urbanisation, the introduction of infrastructure and developments in the transport and energy sectors. The VAT increase was helped too, but I don't think consumers are spending over here."

In emerging markets, however, both phenomenons are occurring. As the middle classes expand, consumers are buying more – white goods, electricals and branded food and drinks. GlaxoSmithKline, for example, has moved its focus from the Western world to the developing one, selling toothbrushes, vaccines and Lucozade to India, China and Brazil.

Mr Thomas cites Andrew Whittington, at Glaxo, as prominent in this move and also notes competitor Unilever is doing the same.

There are some areas to avoid when picking megacap stocks. Commodities, in particular, draw criticism from Mr Ewing. "I would stay out of commodities, they are very volatile," he said.

Utilities come under scrutiny from Mr Thomas – he fears that Bank Rate might soon start to tick up and is concerned about the consequences.

"If interest rates go up, utilities, which are linked to gilts, will be hit," he said. "The sector is heavily regulated and, apart from National Grid and maybe some water companies, I would give them a wide berth for a while."

Of course, individual stock picking is always tricky unless you are a hardened day trader. Rather than building up a portfolio of megacaps yourself, why not leave it to the experts? There are plenty of funds that specialise in this sector – both for British and US companies that draw earnings from less-developed economies, and they spread the risk within their holdings, so you don't have to.

Brian Dennehy, of independent advisers DWC, said: "The UK economy and most developed economies have some years of pain ahead as sovereign debt and persistent deficits are tackled. The obvious call to avoid this is to focus on funds invested into UK companies with the bulk of earnings overseas, Newton Higher Income and Psigma Income both have this kind of focus."

Mick Gilligan, of Killik & Co, tips Invesco Perpetual Income, which holds Tesco, Imperial Tobacco, and AstraZeneca, among others. He also highlights Mr Thomas's Axa Framlington UK Select Opportunities fund and Artemis Income, which has stakes in HSBC, Vodafone and GlaxoSmithKline. BlackRock UK Dynamic is also on his list, with holdings in Compass Group, British American Tobacco, and Rio Tinto.
If there are particular stocks you want exposure to, check funds' holdings lists. A fund's fact sheet showing its 10 largest holdings is available from websites such as www.trustnet.co.uk and www.citywire.co.uk

http://www.telegraph.co.uk/finance/personalfinance/investing/shares-and-stock-tips/7722489/Defend-your-investments-from

Can you profit from the political turmoil?

Can you profit from the political turmoil?
We explain what our hung parliament and the euro crisis mean for savers and investors.

By Emma Simon and Rosie Murray-West
Published: 9:52AM BST 11 May 2010


Economic turmoil in Europe and political uncertainty at home are conspiring to send stock markets, bond markets and currency markets into overdrive. Share prices may have been buoyed by the Greek bail-out, but Gordon Brown's resignation announcement yesterday caused the pound to lose about 1½ cents against the dollar. These events are having a huge effect on the personal finances of many worried readers. Below, we give answers to the financial questions that are troubling many ordinary households hit by problems at home and abroad.

IS THE GREEK BAIL-OUT GOOD NEWS FOR UK INVESTORS?
Both the size and the scope of this bail-out have helped to stabilise jittery stock markets around the globe. European finance ministers have also unveiled a financial plan that effectively guarantees the debt of any country that uses the euro. It is hoped that this will stop the Greek debt crisis affecting other EU countries – in particular Spain and Portugal – and prevent a run on the euro.

In the short-term, at least, the plan appears to have worked, with the FTSE100 rising by 5 per cent yesterday, and the euro strengthening against the dollar after hitting a 14-month low the previous week. This can only benefit those with pensions, Isas and other investment portfolios that are largely invested in UK and European shares.

However, this rescue package has to be backed by action from various European countries to reduce budget deficits. If this does not happen it is likely to weaken the euro again, which could have a negative effect on stock markets both in Europe and the UK.

WHY HASN'T THE UK'S HUNG PARLIAMENT SENT SHARE PRICES TUMBLING?
There had been speculation that political uncertainty in the UK would cause stock markets to wobble – potentially wiping millions off people's pensions and investments. In fact, the reverse happened, and share prices rose yesterday. This was because the more immediate situation in Europe is, for now, taking precedence. However, it remains to be seen how stock markets react today to Brown's announcement, as this creates further uncertainty.

SHOULD I HOLD OFF INVESTING IN THE STOCK MARKET?
Markets look set to be volatile for some time. During such periods of volatility, investors are advised to drip-feed money into markets, to reduce the chance of investing a lump sum just before a sharp drop in share prices. Investment experts, such as Darius McDermott of Chelsea Financial Services, says that those with money to invest should use any volatility in the market to their advantage and drip-feed money in on days when the FTSE has fallen. Investing a sum of money on a regular basis – such as making monthly contributions to a pension or Isa – can smooth out these ups and downs and prove beneficial in the long run. This is known as pound cost averaging.

HOW DOES THIS AFFECT UK GILTS AND BONDS?
The guarantees only underpin the debt issued by countries in the eurozone. There is no guarantee given to the debt, or loans, issued by the UK Government. These bonds, known as gilts, will, however, be adversely affected if the ratings agencies, such as Standard &Poor's, decide to "downgrade" the UK's credit rating. This could happen if there are more delays in forming a new government, or disagreements about how the deficit should be reduced. A bigger threat to the bond and gilt markets is inflation. If this does not reduce this year it is likely to cause interest rates to rise, which will have a negative impact on gilt and bond yields.

I AM DUE TO BUY AN ANNUITY WITH MY PENSION POT. SHOULD I DO IT NOW OR HOLD OFF UNTIL LATER?
On the surface, uncertainty surrounding the hung parliament should be good news for your annuity, with gilt yields rising and pushing up annuity rates. However, Laith Khalaf, a pensions expert at Hargreaves Lansdown, says: "There is no certainty about what will happen to annuity rates." He said companies were using other investments, such as corporate bonds and equities, to back annuities, and that the annuity marketplace was not currently that competitive.

He said anyone considering buying an annuity should get a quote now, which could be valid for between 18 and 45 days. These quotes are available from providers such as annuitysupermarket.com, annuity-bureau.co.uk and h-l.co.uk

ARE INTEREST RATES LIKELY TO GO UP NOW?
Some people may be concerned that during the last recession, under the Conservatives, interest rates shot up to 15pc, but a rise of this magnitude looks unlikely. The Bank of England will be forced to raise rates if inflation increases, but even the most hawkish economists are predicting only modest rises.

WHAT ABOUT FIXED-RATE MORTGAGES? ARE THESE LIKELY TO INCREASE?
The cost of fixed-rate mortgages has actually fallen slightly over the past week, despite some sharp fluctuations in the money markets, which determine the price of these deals. David Hollingworth, of London & Country mortgage brokers, says there was a spike in these markets after the last set of inflation figures, but this has not fed through to higher mortgage prices. Earlier this week, both Northern Rock and Nationwide reduced the cost of their fixed-rate deals. "There is now more 'fat' built into the pricing of these deals, so lenders can ride out such short-term fluctuations," he says.

I WAS HOPING TO BUY MY FIRST HOUSE THIS YEAR. WILL I NOW HAVE TO PAY STAMP DUTY?
In the last Labour budget, Alistair Darling announced that first-time buyers would not have to pay stamp duty on properties priced less than £250,000. Neither the Conservatives nor the Liberal Democrats will want to repeal this. Other changes could see the abolition of Hips (Home-buyers Information Packs), which both other parties say are an expensive brake on the property market.

WHAT WILL HAPPEN TO MY CHILD'S CHILD TRUST FUND IF THE SAVINGS SCHEME IS SCRAPPED?
The Tories have suggested that the Child Trust Fund (CTF), which was one of the pioneering savings schemes of the Labour government, will be scrapped for all but the most deprived families. Doing so is likely to require primary legislation, according to Martin Shaw, chief executive of the Association of Financial Mutuals, since the current legislation suggests the trust funds are universal.

He said that although it is not yet clear what would happen if the funds were scrapped, indications are that accounts that are already in place would run until their recipients' 18th birthdays, when they would become Isa-type accounts. Children who are currently below the age of seven would be unlikely to get Government top-ups to their accounts unless they have parents on very low incomes.

He suggested that legislation scrapping the accounts could come into force as early as July if it was included in a finance bill, and urged those who had not yet invested their CTF vouchers to act quickly. The voucher is sent when a child is registered for child benefit.

I AM HOPING TO GO ON HOLIDAY ABROAD THIS SUMMER. WHAT WILL HAPPEN TO MY SPENDING MONEY?
The currency market is hard to call at the moment, with the pound's position against the euro confused by events in Greece. It has already strengthened this week, and Duncan Higgins, market analyst at the currency group Caxton FX, expects it to strengthen further if details of any Tory and Lib Dem pact are fleshed out.
He said that those choosing between the eurozone and the US as destinations should bear in mind that the US recovery is outstripping ours, and this will cause continued weakness against the dollar. "Against the euro our position is better, as the bail-out is really treating a symptom rather than a cause and there will be ongoing problems," he says. However, he also warns that if a coalition government is announced and then does not work, or there are further shocks, the pound will fall further.

If you see an attractive rate against the euro you can lock into it by using a prepay currency card for your travel money with either Caxton FX or FairFX. If you require more money, for example if you have a second property in the eurozone, you could take out a forward contract with your broker now to hedge yourself against any losses.

http://www.telegraph.co.uk/finance/personalfinance/investing/7709528/Can-you-profit-from-the-political-turmoil.html

Greek Debt Woes Ripple Outward, From Asia to U.S.

The fear that began in Athens, raced through Europe and finally shook the stock market in the United States is now affecting the broader global economy, from the ability of Asian corporations to raise money to the outlook for money-market funds where American savers park their cash.

“Greece may just be an early warning signal,” said Byron Wien, a Wall Street strategist. Above, the Acropolis in Athens.

What was once a local worry about the debt burden of one of Europe’s smallest economies has quickly gone global. Already, jittery investors have forced Brazil to scale back bond sales as interest rates soared and caused currencies in Asia like the Korean won to weaken. Ten companies around the world that had planned to issue stock delayed their offerings, the most in a single week since October 2008.

The increased global anxiety threatens to slow the recovery in the United States, where job growth has finally picked up after the deepest recession since the Great Depression. It could also inhibit consumer spending as stock portfolios shrink and loans are harder to come by.

“It’s not just a European problem, it’s the U.S., Japan and the U.K. right now,” said Ian Kelson, a bond fund manager in London with T. Rowe Price. “It’s across the board.”

The crisis is so perilous for Europe that the leaders of the 16 countries that use the euro worked into the early morning Saturday on a proposal to create a so-called stabilization mechanism intended to reassure the markets. On Sunday, finance ministers from all 27 European Union states are expected to gather in Brussels to discuss and possibly approve the proposal.

The mechanism would probably be a way for the states to guarantee loans taken out by the European Commission, the bloc’s executive body, to support ailing economies. European leaders including the French president, Nicolas Sarkozy, said Saturday morning that the union should be ready to activate the mechanism by Monday morning if needed.

In Spain Saturday, Vice President Joseph R. Biden Jr. underscored the importance of the issue after meeting with Prime Minister José Luis Rodríguez Zapatero. “We agreed on the importance of a resolute European action to strengthen the European economy and to build confidence in the markets,” Mr. Biden said. “And I conveyed the support of the United States of America toward those efforts.”

Beyond Europe, the crisis has sent waves of fear through global stock exchanges.

A decade ago, it took more than a year for the chain reaction that began with the devaluation of the Thai currency to spread beyond Asia to Russia, which defaulted on its debt, and eventually caused the near-collapse of a giant American hedge fund, Long-Term Capital Management.

This crisis, by contrast, seemed to ricochet from country to country in seconds, as traders simultaneously abandoned everything from Portuguese bonds to American blue chips. On Wall Street on Thursday afternoon, televised images of rioting in Athens to protest austerity measures only amplified the anxiety as the stock market briefly plunged nearly 1,000 points.

“Up until last week there was this confidence that nothing could upset the apple cart as long as the economy and jobs growth was positive,” said William H. Gross, managing director of Pimco, the bond manager. “Now, fear is back in play.”

While the immediate causes for worry are Greece’s ballooning budget deficit and the risk that other fragile countries like Spain and Portugal might default, the turmoil also exposed deeper fears that government borrowing in bigger nations like Britain, Germany and even the United States is unsustainable.

“Greece may just be an early warning signal,” said Byron Wien, a prominent Wall Street strategist who is vice chairman of Blackstone Advisory Partners. “The U.S. is a long way from being where Greece is, but the developed world has been living beyond its means and is now being called to account.”

If the anxiety spreads, American banks could return to the posture they adopted after the collapse of Lehman Brothers in the fall of 2008, when they cut back sharply on mortgages, auto financing, credit card lending and small business loans. That could stymie job growth and halt the recovery now gaining traction.

Some American companies are facing higher costs to finance their debt, while big exporters are seeing their edge over European rivals shrink as the dollar strengthens. Riskier assets, like stocks, are suddenly out of favor, while cash has streamed into the safest of all investments, gold.

Just as Greece is being forced to pay more to borrow, more risky American companies are being forced to pay up, too. Some issuers of new junk bonds in the consumer sector are likely to have to pay roughly 9 percent on new bonds, up from about 8.5 percent before this week’s volatility, said Kevin Cassidy, senior credit officer with Moody’s.

To be sure, not all of the consequences are negative. Though the situation is perilous for Europe, the United States economy does still enjoy some favorable tailwinds. Interest rates have dropped, benefiting homebuyers seeking mortgages and other borrowers. New data released Friday showed the economy added 290,000 jobs in April, the best monthly showing in four years.

Further, crude oil prices fell last week on fears of a slowdown, which should bring lower prices at the pump within weeks. Meanwhile, the dollar gained ground against the euro, reaching its highest level in 14 months.

While that makes European vacations more affordable for American tourists and could improve the fortunes of European companies, it could hurt profits at their American rivals. A stronger dollar makes American goods less affordable for buyers overseas, a one-two punch for American exporters if Europe falls back into recession. Excluding oil, the 16 countries that make up the euro zone buy about 14 percent of American exports.

For the largest American companies, which have benefited from the weak dollar in recent years, the pain could be more acute. More than a quarter of the profits of companies in the Standard & Poor’s 500-stock index come from abroad, with Europe forming the largest component, according to Tobias Levkovich, Citigroup’s chief United States equity strategist. All this could mean the difference between an economy that grows fast enough to bring down unemployment, and one that is more stagnant.

The direct exposure of American banks to Greece is small, but below the surface, there are signs of other fissures. Even the strongest banks in Germany and France have heavy exposure to more troubled economies on the periphery of the Continent, and these big banks in turn are closely intertwined with their American counterparts.

Over all, United States banks have $3.6 trillion in exposure to European banks, according to the Bank for International Settlements. That includes more than a trillion dollars in loans to France and Germany, and nearly $200 billion to Spain.

What is more, American money-market investors are already feeling nervous about hundreds of billions of dollars in short-term loans to big European banks and other financial institutions. “Apparently systemic risk is still alive and well,” wrote Alex Roever, a J.P. Morgan credit analyst in a research note published Friday. With so much uncertainty about Europe and the euro, managers of these ultra-safe investment vehicles are demanding that European borrowers pay higher rates.

These funds provide the lifeblood of the international banking system. If worries about the safety of European banks intensify, they could push up their borrowing costs and push down the value of more than $500 billion in short-term debt held by American money-market funds.

Uncertainty about the stability of assets in money market funds signaled a tipping point that accelerated the downward spiral of the credit crisis in 2008, and ultimately prompted banks to briefly halt lending to one other.

Now, as Europe teeters, the dangers to the American economy — and the broader financial system — are becoming increasingly evident. “It seems like only yesterday that European policy makers were gleefully watching the U.S. get its economic comeuppance, not appreciating the massive tidal wave coming at them across the Atlantic,” said Kenneth Rogoff, a Harvard professor of international finance who also served as the chief economist of the International Monetary Fund. “We should not make the same mistake.”

James Kanter contributed from Brussels.

http://www.nytimes.com/2010/05/09/business/global/09ripple.html?src=me&ref=business

Wall Street Indexes Close Down More Than 2%

May 4, 2010
Wall Street Indexes Close Down More Than 2%

By CHRISTINE HAUSER



The euro fell sharply on Tuesday and major indexes in Europe and the United States tumbled as the sovereign debt crisis in Europe and the risk of contagion continued to hang over the market.

At the close, the Dow Jones industrial average was 225.06 points, or 2.02 percent, lower at 10,926.77. The Standard & Poor’s 500-stock index fell 28.66 points, or 2.38 percent, to 1,173.60, while the Nasdaq dropped 74.49 points, or 2.98 percent, to 2,424.25.

The last time the Dow closed lower than that was on April 7, when it fell 72.47 points to 10,897.52

In London, the FTSE 100 declined 2.56 percent or 142.18 points, while the DAX in Frankfurt fell 160.06 points to 2.6 percent. In Paris, the CAC-40 dropped 139.17 points or 3.64 percent.

Although the 15 other countries in the euro zone and the International Monetary Fund had agreed to give Greece 110 billion euros ($144 billion) in aid over three years, traders said the austerity plan remained a hard sell. Hundreds of Greek demonstrators took to the streets on Tuesday to rail against tough new austerity measures aimed at helping the debt-ridden country stave off economic disaster.

One lingering question is whether the $144 billion is enough to settle Greece’s problems and keep them from spreading.

Investors were also watching Spain and Portugal, which have both had their debt downgraded in the last week. Greek government debt fell Tuesday, with the yield on the 10-year benchmark bond rising 36 basis points to 8.8 percent. In a sign of spreading nervousness, Portuguese and Spain bond yields also rose Tuesday.

“If there are real sovereign debt risks in Spain that is an issue for all multinational banks,” said Uri Landesman, president of Platinum Partners.

“What is going on in Europe is eventually going to result in defaults,” said Jeffrey Saut, the chief investment strategist for Raymond James. “They Band-Aided over the situation, and I think it is going to be very bad for the European banking complex.”

All of that has hurt the euro, which slipped 1.35 percent on Tuesday against dollar, trading at $1.3019. At one point, the euro slipped below $1.30.

“The impact of the potential contagion will continue to weigh on the euro in the near term,” Moody’s chief international economist, Ruth Stroppiana, said. “If the Greece situation does spread to Portugal, Spain and elsewhere in the euro zone then the euro would continue to fall. But the situation is still a very serious one.”

 Kevin Chau, a currency analyst with IDEAglobal, said the euro could go to $1.25 by the end of the summer, and that others have put it at $1.20.

“I think that it will continue to go down because the problems over in Europe and the structure of the euro is being questioned,” Mr. Chau said. “The European members’ will to make the euro work and this whole unity work, is being questioned because of what is going on with Greece.”

The European debt crisis dominated Wall Street. Traders paid little attention to the latest economic reports, which both topped expectations. The Commerce Department said that orders to factories rose 1.3 percent in March, and the National Association of Realtors said its index of sales agreements for previously occupied homes rose a stronger-than-expected 5.3 percent in March.

M. Jake Dollarhide, chief executive of Longbow Asset Management, said the economy was one part of a “three-pronged monster” stirring up concern; the others being the unresolved Greek debt issue and a fear of terrorism that stemmed from the discovery over the weekend of a car bomb in Times Square.

“The third prong is just the fact that we have not achieved economic resurgence up to a level that makes people feel comfortable,” Mr. Dollarhide said. “There are a lot of pressures, a lot of anxiety.”

In the past several market days, the declines in the market have been followed by recoveries. But investors were not seeing today’s lows as buying opportunities so far, he said.

Traders have also moved beyond the earnings season,which was highlighted by a string of stronger-than-expected results.

“Earnings season is pretty much in the rearview mirror,” Mr. Saut said, “so you haven’t got that to prop you up right now.”

Materials, industrials and information technology sectors were lower. FMC Corp. ended down less than 1 percent at $64.02. The Dow Chemical Co. closed $2.11 lower at $29.31.

Financials were going to remain a concern, Mr. Landesman said, given the prospect of financial regulation and the accusations of trading fraud against Goldman Sachs. Shares of Goldman Sachs and most other major banks were lower Tuesday. Goldman Sachs closed 5 cents down at $149.45 and Citigroup Inc was lower by 15 cents at $4.26.

Information technology stocks were among the most actively traded. Intel ended 70 cents down at $22.56 and Microsoft was down 73 cents at $30.13.

“Technology has had such a big run-up with Apple, and Nasdaq is under a lot of pressure today,” Mr. Dollarhide said. Shares of Apple closed at $258.68, down 2.8 percent, while Dell Inc. was down 4.4 percent at $15.66 and Google ended 4.57 percent lower at $506.37.

And energy shares slipped. Britain’s main index was dragged down by BP and concerns about the costs that the oil company will face from the spill in the Gulf of Mexico. BP shares closed down 2.95 percent in London.

“The worst thing is when you can’t really size a risk or a problem,” Mr. Landesman said.

On Wall Street, Exxon Mobil declined $1.37 to $66.47 and Chevron dropped about $2.07 to $80.76.

Mr. Saut said that he believed Wall Street was predisposed to the declines.

“We are set up for a correction,” he said. “We are into a buying stampede.”

http://www.nytimes.com/2010/05/05/business/05markets.html?src=me&ref=business

The euro also tumbled to a one-year low

The euro also tumbled to a one-year low as concerns about the sovereign debt crisis in Europe dominated the markets.




May 3, 2010
In Greek Debt Crisis, a Window to the German Psyche
By KATRIN BENNHOLD

PARIS — A few weeks after Lehman Brothers went bankrupt and the world plunged into a financial crisis, Chancellor Angela Merkel of Germany offered some common-sense advice to reckless bankers, indebted consumers and profligate governments.

“One should simply have asked a Swabian housewife,” Mrs. Merkel said during an address to fellow Christian Democrats in December 2008 in the southwest German region of Swabia, hub of the Protestant work ethic. “She would have told us her worldly wisdom: in the long run, you can’t live beyond your means.”

Now, as Europe struggles to avoid its own Lehman experience — saving Greece and thus the euro — the episode says much about the Germans.

Led by France, European neighbors have been pressing for months for Germany, which has the Continent’s biggest economy, to throw its financial weight behind a bailout package and a new system of economic governance for the euro zone. In the process, a reluctant Berlin has been called irresponsible, selfish and even un-European.

But if France wants Germany to be more European, Germany wants Europe to be more Swabian. To bring Europe to a compromise required a deal between Mrs. Merkel and a Frenchman, Dominique Strauss-Kahn of the International Monetary Fund, who met in Berlin last week to pull Greece and the euro zone back from the brink.

The Greek episode has heated up the long culture clash between the European Union’s traditional drivers: federal Germany with its Prussian attachment to rules and an instinctive frugality rooted in past economic traumas, and republican France with its tradition of state intervention and a more Mediterranean attitude toward public debt.

Paris and Berlin have had many disagreements in the postwar world, but few are as deep-rooted as those on economic governance, said John C. Kornblum, a former United States ambassador to Germany.

“This comes from the gut, it’s emotional,” said Mr. Kornblum, who as assistant secretary of state for Europe in the 1990s watched successive French and German leaders spar over how to govern the future single currency.

If there is no political structure in place to safeguard the euro — a weakness exposed in the current debt crisis — Mr. Kornblum said it was because Germany and France could never agree on one. “There are profound philosophical differences between the two sides,” he said.

These differences are in many ways personified by Mrs. Merkel, daughter of a Lutheran pastor, and two flamboyant Frenchmen: President Nicolas Sarkozy, a conservative, and Mr. Strauss-Kahn, a Socialist.

Mr. Sarkozy and Mr. Strauss-Kahn are rivals and may even run against each other in the 2012 presidential election. But they share a belief in state intervention that unites most of the French political elite.

Mr. Sarkozy, a Gaullist whose millionaire friends and taste for expensive brands have not gone unnoticed across the Rhine, first roused German suspicions as finance minister in 2004 when he prevented a takeover by Siemens of Alstom, the French maker of trains.

As president, he allowed the budget deficit to rise above the 3 percent euro zone limit even before the economic crisis erupted, and he repeatedly criticized the European Central Bank’s interest rate policy.

Mr. Strauss-Kahn, a native of Alsace who speaks German, has been called “Mr. Euro” in France and is credited with steering his country into the euro zone as finance minister in 1997. In Germany, he is also remembered for serving under President Jacques Chirac, a staunch advocate of a political counterweight to the European Central Bank.

So when the two men independently revived calls for an “economic government” of the 16 countries that share the euro, resistance in Germany was instinctive.

In a country where many lost their savings twice in the 20th century — once to hyperinflation in 1923 and again to currency reform after World War II — central bank independence and budgetary discipline have become part of the German narrative.

Fear of inflation and broad-based aversion to debt also help to explain a striking divergence in the perception of Germany’s wealth at home and abroad. At 3.3 percent of gross domestic product, Germany’s budget deficit is low by crisis standards and frequently cited as a justification to appeal to Berlin for solidarity with poorer countries.

In contrast, the French budget deficit has widened to 7.5 percent of G.D.P. But Germans, who have absorbed East Germany and face a declining population, do not feel rich.

“Germans fear going bankrupt themselves,” said Mr. Kornblum, now a consultant in Berlin.

Jean-Pierre Jouyet, a former minister of European affairs who now leads the French stock market regulator, said: “The fundamental difference between France and Germany is that, for the French, budgetary, financial and currency stability is a means to an end. For the Germans it is an end in itself.”

Mrs. Merkel, a physicist raised in communist East Germany, has a hard-working, parsimonious lifestyle and an analytical, somewhat bland personality that in many ways reflect the national value system, said Gerd Langguth, author of a 2005 biography of her.

While Mr. Sarkozy resides in the majestic Élysée Palace and has an army of staff members, Mrs. Merkel still lives in the central Berlin apartment she occupied before her election in 2005 and has been seen doing her own shopping.

There are limits to national stereotyping. Mrs. Merkel’s more outgoing predecessor, Gerhard Schröder, made common cause with the French in breaking the euro zone’s budgetary limit.

And no German could have defended the legacy of the Bundesbank more vigorously than the president of the European Central Bank, Jean-Claude Trichet, referred to by some in Paris as “that Frenchman in Frankfurt.”

But understanding the radically different contexts in which German and French positions are honed is crucial as Europe’s two foremost powers grapple with the crisis, said Jean Pisani-Ferry, director of Bruegel, a research institute based in Brussels.

“Ultimately this is about whether Germany is ready to lead,” he said. “And leading means compromising, rather than only insisting on red lines.”

http://www.nytimes.com/2010/05/04/business/global/04iht-euro.html?src=me&ref=business

Eurozone could risk 'sovereign debt explosion'

Europe's governments are at increasing risk of an interest rate shock this year as the lingering effects of the Great Recession drive debt issuance to record levels and saturate bond markets, according to Standard & Poor's.

By Ambrose Evans-Pritchard, International Business Editor
Published: 6:30AM GMT 12 Mar 2010

Comments 23 | Comment on this article

Italy has to refinance 20pc of its entire debt, tapping the bond markets for a total ?259bn this year

"Debt-related sovereign vulnerabilities have increased, particularly in the Eurozone, where we expect government borrowing will rise to further new peaks," said Kai Stukenbrock, the ratings agency's European credit analyst. "The resulting fiscal pressure from a sustained increase in financing cost could be significant in our view."

The warning comes as bond giant PIMCO spoke of a "sovereign debt explosion" that has taken the world into uncharted waters and poses a major threat to economic stability. "Our sense is that the importance of the shock to public finances in advanced economies is not yet sufficiently appreciated and understood," said Mohamed El-Erian, the group's chief executive.

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Mr El-Erian said most analysts are still using "backward-looking models" that fail to grasp the full magnitude of what has taken place in world affairs since the crisis. Some 40pc of the global economy is in countries where governments are running deficits above 10pc of GDP, with no easy way out.

Standard & Poor's said Europe's states need to raise €1,446bn (£1,313bn) this year as the full damage inflicted by the credit collapse – masked last year by emergency stimulus measures – becomes ever clearer. This will become harder to fund cheaply as central banks start to tighten. "We believe that benchmark yields have benefited from liquidity injections into the financial sector and quantitative easing measures by the Bank of England and the Federal Reserve. As that support could eventually be withdrawn from 2010, excess supply in government bond markets could start driving benchmark yields back up. Such a development could add to fiscal pressure in a number of sovereigns with high deficits," it said.

Several states have come to rely on cheap short-term funding, storing up "roll-over risk" that will come to a head in coming months. Italy has to refinance 20pc of its entire debt – the world's third largest after Japan and the US – tapping the bond markets for a total €259bn this year. Belgium has to roll over 22pc of its substantial debt.

"This implies dependence on more or less constant access to financial markets," said the report.

Weaker states risk a double effect of rising yields on benchmark bonds as well as higher spreads as investors demand a greater risk premium in the harsher climate now facing heavily-indebted countries.

Greece has already seen a surge of 300 basis points in its long-term funding costs since the new Pasok government of George Papandreou revealed that the country's true budget deficit was 12.7pc, double the previous estimate.

The agency estimates that a sustained rise in yields of 300 basis points would raise the burden of interest costs each year by 3.9pc of GDP for Greece, 2.6pc for Portugal, and 2.5pc for Italy and Britain by the middle of the decade.

A jump of this kind would amount to an extra £35bn or so in annual interest costs, roughly equal to the UK defence budget. This would play havoc with UK public finances and force the Government to squeeze fiscal policy even further. S&P's warning clearly underscores the risk of waiting too long before restoring the deficit to a sustainable path.

The report said there had been a notable increase in "alternative channels of borrowing" that "embellish" the true debt picture. France's Société de Financement de l'Economie (SFEF) has issued €77bn of state-backed bonds since 2008 and the Caisse d'Amortissement de la Dette Sociale has amassed liabilities of €103bn. Austria's infrastructure financing companies, used to buttress state stimulus programmes, have €23bn in debts.

This hidden iceberg of debt kept off balance sheet is likely to be the next focus of bond vigilantes.


http://www.telegraph.co.uk/finance/economics/7424555/Eurozone-could-risk-sovereign-debt-explosion.html

Spanish-style catastrophe

Staying out of the euro has spared us a Spanish-style catastrophe
Half-built flats and soaring unemployment show that the boom has turned to gloom on the Costa del Sol. And it's a fate that could easily have befallen Britain.

By Jeff RandallLast Updated: 5:43AM GMT 09 Jan 2009
Comments 227 Comment on this article
Marbella
For a place that's called the Sunshine Coast, Spain's Costa del Sol was unusually wet and cold last week. Friday and Saturday were particularly miserable in Marbella, as the rain lashed across the main promenade, forcing restaurants to bring in tables and pull down shutters.
It was as though the weather gods had decided to reflect the country's economic outlook – which is becoming darker by the day. What many in Spain had regarded (foolishly) as an eternal summer of expansion, driven by a breakneck construction boom, has turned into a winter of plunging property prices, failing businesses and an epidemic of redundancies.
Spain's traditional new year greeting is próspero año nuevo. But even in this part of Andalucia, a favourite playground of wealthy sunseekers and golf fanatics, it is hard to find locals who are expecting prosperity in 2009. For a growing number of workers and small-business owners, anything better than a sharp decline in income will be greeted as a triumph.
Like the toros bravos that die in the corrida, Spain's bull market began with impressive vigour but ended up being dragged off through the dirt. Unemployment hit three million yesterday, about 13 per cent of the workforce (double the rate in the UK), the worst it has been for 12 years. Nearly one million of those without jobs have lost them during the past 12 months.
The speed of descent, from fiesta into crisis, has shocked the country's political class and commentariat. Inflation has dropped from 5.3 per cent to 1.5 per cent since the summer. According to the newspaper El Pais: "This situation was impensable [unthinkable] in July".
As historians begin to assess damage from the credit crunch, Spain will surely be singled out as a classic study for what can go wrong inside a monetary union when the policy requirements of its members become hopelessly misaligned. It is simply not possible to pursue the best interests of every participant when some nations are running trade and fiscal surpluses while others clock up huge deficits.
Ten years after it was launched, the euro is propelling Spain towards disaster. In giving up control of domestic interest rates to the European Central Bank, Madrid handed over a vital instrument of macroeconomic management. It is learning to regret that.
For the early part of this millennium, that loss of power seemed not to matter: Spain's outrageous (and in some cases illegal) construction frenzy hid a multitude of sins. At the peak, about 800,000 homes were being built annually on the basis that demand from foreign buyers was limitless.
That dream has vanished, along with the over-supply of cheap money that funded it. Drive down the E-15, the main motorway link between Malaga and Gibraltar, and you will see block after block of half-built apartments, connected neither to essential utilities nor to financial reality. They stand as temples to a religion that ceased to exist when the bubble popped.
The Spanish economy is weak; it needs lower interest rates and a softer currency. Such a prospect, however, doesn't suit Germany, the eurozone's dominant force, so Madrid has to sit and suffer while its people cry for help.
Discomfort is palpable in tourist centres where the purchasing power of British visitors and second-home owners has played a pivotal role in boosting local enterprise. Germans and Swedes have been important, also, but it is on the British that the leisure sector in southern Spain has depended most.
A quick scan of the exchange-rate charts explains why. In the summer of 2000, about 18 months after it was launched, the euro was out of fashion on the world's currency markets. At that time, £1 bought €1.75, making British travellers feel especially wealthy when holidaying in Spain.
Today, however, as the British economy sinks into recession, prompting the Bank of England to slash interest rates to 1.5 per cent (the lowest level in the central bank's 315-year history), it is sterling that looks like a six-stone weakling.
Many in the queue at Gatwick airport's Travelex desk last weekend were shocked to discover that the pound had fallen to below parity against the euro. For them, Spain has become an expensive experience. Old jokes about Costa Notta Lotta are no longer relevant, much less funny.
I was treated by a friend to a round of golf at Rio Real, a middle-ranking course, that is by no means among the priciest. He was charged £172 for two (no buggy). Dinner for three in a modest pizza joint came to £75. One must assume that hoteliers from Morecambe to Margate are cheering wildly.
Competing currencies invariably fluctuate on a daily basis, but not all in the City are expecting a swift recovery of sterling against the euro (even though it has picked up in the past few days). HSBC believes: "In the UK… a weaker currency seems desirable to policy makers… in our eyes all roads lead to a stronger euro."
If that analysis proves correct, parts of Spain will face devastation, and social policies that seemed generous during the go-go years will quickly become unaffordable. For example, in some instances the state pays 70 per cent of salary for up to two years when a worker is made unemployed. How will that be funded if, as some are predicting, Spain's jobless total reaches four million in 2010?
Adding to Madrid's woes is the extraordinary influx of five million immigrants, who boosted the population by about 15 per cent between 1998 and last year. It was always assumed that in tough times many would return home. But for penniless fruit pickers from Africa, life in Spain, even in the harshest economic climate, is often better than what they left behind. The number of foreigners claiming dole payments has doubled and there are mounting tensions as native job-seekers slip down the food chain.
Marbella is not used to life on a budget. Shopkeepers, newspaper vendors and bar staff seem baffled by the downturn in their fortunes. On Sunday, my family and I had dinner in a seafront bodega and were the only customers all night. "What has happened to los Ingleses?" asked the waiter.
The answer is that the United Kingdom never joined the euro. As a result, our government and monetary authorities are free to adopt policies that suit our needs. In today's circumstances, that means the freedom to live with a devaluing currency. This hurts those of us who can still afford to visit Spain, and is unfortunate for British pensioners living abroad, but is a small price to pay for the revival of our domestic industries.
Had Britain been locked into Europe's single currency, at an exchange rate far higher than today's, there is good reason to believe that we, too, would be suffering double-digit unemployment. You won't read this very often under my byline, but Gordon Brown played a blinder in keeping us out.

http://www.telegraph.co.uk/finance/comment/jeffrandall/4177828/Staying-out-of-the-euro-has-spared-us-a-Spanish-style-catastrophe.html