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France’s Hollande Seeks Formation of Single European Government

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Photo Credit: APFrench President Francois Hollande called on Thursday for an economic government in the eurozone that would have its own budget, the right to issue debt, a harmonized tax system, and a full-time president.

Speaking at a news conference marking his first year in office, a day after economic data showed France had slipped back into recession, the Socialist leader said he sought to create a full political European Union (EU) within two years.

His proposals seemed likely to encounter stiff resistance from Germany, Europe’s leading power, which opposes mutualizing debt among European states and is reluctant to give the eurozone its own secretariat or create new divisions in the EU, of which 10 countries are not in the 17-nation single currency.

It also comes as Britain’s government faces growing domestic pressure to hold a referendum on leaving the bloc.

“My initiative has four points that I am putting to our partners. The first is to create an economic government with the eurozone countries which would meet every month with a real president appointed for a long period and who would be devoted to this task,” Hollande said.

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Confirmed: Bank Deposits To Be Seized In Cyprus, Many Cypriots Have No Cash (+video)

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Photo Credit: Getty Images

Cyprus has agreed to shrink its bloated financial industry and tap big depositors at its two leading banks for billions of euros, clearing the way for a €10 billion European Union bailout the island nation needs to avoid collapse.

The deal with the EU was struck early Monday after days of frantic negotiations that followed the rejection by Cypriot lawmakers of Plan A. That proposal, unveiled little over a week ago, would have imposed a tax on all account holders to raise funds to recapitalize the failing banks.

Now the new bailout plan will protect all deposits of less than €100,000 euros but is likely to mean much bigger losses for account holders with more than €100,000 at the two biggest banks — the Bank of Cyprus and Popular Bank of Cyprus.

Popular Bank will be broken up immediately. Its viable assets will be integrated into the Bank of Cyprus, and its non-performing loans will be moved into a “bad bank” to be wound down.

The “haircut” for Popular Bank depositors will raise about €4.2 billion, while shareholders and bondholders are likely to be wiped out. The scale of depositors’ contribution to the restructuring of Bank of Cyprus has yet to be fixed.

Watch video here:

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Cyprus Rejects Bailout Deal Leaving Eurozone Facing Fresh Crisis

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Photo Credit: Filip Singer

The Cypriot parliament has thrown out a controversial plan to skim €5.8bn (£5bn) from savers’ bank accounts, in a move that risks plunging the eurozone into a fresh crisis and heightens expectations that the cash-strapped country will seek a funding lifeline from Russia.

Cyprus has just 24 hours to find a solution to its funding gap before its banks are due to reopen following the dramatic no vote on Tuesday night, which failed to support a hastily renegotiated change to the original deal.

Late on Tuesday night the eurozone governments said that despite the vote Cyprus would still need to raise the €5.8 bn – a third of the €17bn bailout.

With the crisis escalating, an RAF flight carrying €1m in low-denomination notes landed in Cyprus to provide cash for 3,000 British service personnel based on the Mediterranean island. The banks have been shut since Friday and electronic transactions halted, although cash machines are still working and the Ministry of Defence said the euros were being flown in as “contingency measure”.

About 2,000 of the military staff, typically posted to the island for 18 or 24 months, have their salaries paid into local accounts. The MoD said it was “approaching personnel to ask if they want their March, and future months’ salaries paid into UK bank accounts, rather than Cypriot accounts”.

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Controversial Cyprus Proposal Brings Euro Crisis Back Into Focus

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Photo Credit: Images_of_Money

A controversial bailout proposal and bank depositor levy for Cyprus brought the euro-zone’s debt crisis back into focus Monday, causing bond yields to leap, the euro to initially sink against the dollar and Europe’s bank shares to plunge.

News over the weekend spooked the market, after a 10 billion euro ($13 billion) bailout for Cyprus included an unpopular levy on all deposits in the island’s banks.

If the proposal is passed by parliament–Cypriot lawmakers are expected to vote today–this would mark the first time such a strategy has been implemented during the five-year euro-zone crisis.

The European currency was initially hit hard, falling to a three-month low of $1.2882 and the yen resumed its role as a safe-haven asset as it strengthened against the dollar. However the euro started to pare losses one hour into the European session as did other areas of the financial spectrum.

Italian and Spanish bond yields at first climbed sharply and then eased; by 0900 GMT Italy’s 10-year government bond yield was 0.08 percentage points higher at 4.68% and Spain’s bond yielded 5.03% up by 0.13 percentage points, its highest level in 10 days. The Cypriot bailout deal could put the spotlight on Spain’s bond auction, due later in the week.

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Deutsche Bank: Only Jesus Can Save The Eurozone

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Photo Credit: Getty Images

Deutsche Bank‘s global head of FX strategy, Bilal Hafeez, recently gave a speech at the annual Deutsche Bank Mittelstand (small and medium-sized enterprises) FX conference in Hamburg, Germany.

The bank’s research department transcribed Hafeez’s speech and sent it out to clients in a note.

The speech focuses on the euro area’s economic woes and the need for the currency bloc to move forward with further integration in order to be economically successful.

Hafeez opens the speech with a reflection on parenting and a child’s years as a “terrible teen.” Then, he makes an interesting comparison to the euro area, complete with a religious allegory.

Hafeez said the euro area needs a role model that people across Europe can respect. “I can only think of one figure that is respected by most Europeans and has never sinned, Jesus!” said Hafeez.

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In Surprise Move, Standard & Poor’s Cuts Spain’s Debt Rating to One Step Beyond Junk Status

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Spain’s debt rating was cut to one level above junk by Standard & Poor’s, which cited euro-region peers’ backtracking on a pledge to severe the link between the sovereign and its banks as it considers a second bailout.

The country was lowered two levels to BBB- from BBB+, New York-based S&P said in a statement yesterday. S&P assigned a negative outlook to the nation’s long-term rating and lowered the short-term sovereign level to A-3 from A-2.

The downgrade comes after Spain announced a fifth austerity package in less than a year and published details about stress tests of its banks. Creditworthiness concerns have grown since the government requested as much as 100 billion euros ($129 billion) in European Union aid in June to shore up its lenders and amid signals that the deficit target is in jeopardy.

S&P said the government’s action will probably be constrained by “a policy-setting framework among the euro-zone governments that still lacks predictability.” Recent statements on the European Stability Mechanism’s involvement in bank recapitalizations put into question the mutualization of loans to Spanish banks among euro-region nations, it said.

That possibility was a key factor in S&P’s decision to affirm ratings on Spain on Aug. 1 as it would enable Spanish net general government debt to remain under 80 percent of gross domestic product beyond 2015, it said.

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Eurozone Unemployment Hits Record High While, At the Same Time, One Eurozone Country Has Record Low Unemployment

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The eurozone unemployment rate was 11.4% in August, up from 10.2% last year. Data from the EU statistics agency Eurostat estimated that 25.5 million men and women were out of work over the period, 18.2 million of whom were in the eurozone.

Compared with the previous month the number of unemployed people in the EU rose by 49,000 and in the eurozone by 34,000.

The overall unemployment rate in Spain has reached 25.1%, while the latest data from Greece for June shows a figure of 24.4%. The outlook is far more optimistic in Germany, however, where just 5.5% of people are out of work.

The EU announced on Monday that it will reallocate an extra €2.7bn of structural funds to tackle youth unemployment, on top of the €7.3bn already identified.

The reallocation is part of the EU’s “Youth Opportunities Initiative” which saw pilot programmes set up in the eight EU member states with the highest levels of youth joblessness: Greece, Spain, Portugal, Italy, Lithuania, Slovakia, Ireland and Latvia.

Once confident China, “rattled” by Europe’s debt crisis; Chinese exports plunge

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Premier Wen Jiabao told German Chancellor Angela Merkel that Europe must “strike a balance” between fiscal tightening and measures to promote growth. “Europe’s debt crisis has continued to worsen, giving rise to serious concerns in the international community. Frankly, I am also worried,” he said.

His comments mark a shift in Chinese policy. Beijing has until now backed austerity across Euroland, but the severity of China’s own downturn has begun to rattle policymakers.

Exports of electronic goods to Italy crashed 43pc in July from a year earlier, and sales to Germany fell 11pc. Caixin reported that processing trade to Europe fell 21pc.

The country’s two largest shipping groups COSCO and China Shipping both reported a drastic losses today. The Shanghai composite index of stocks threatened to break below 2000 today, the lowest since the Lehman crisis.

Mr Wen asked for clarification over whether Italy and Spain would adopt “comprehensive rescue measures” needed to unlock the EU bail-out machinery – and open the door to bond purchases by the European Central Bank.

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