Europeans Discuss Aid for Greek Debt /Stocks Rally on Hopes of Greek Bailout

Europeans Discuss Aid for Greek Debt
By JACK EWING and DAVID JOLLY
Copyright by The New York Times
Published: February 9, 2010
http://www.nytimes.com/2010/02/10/business/global/10iht-portugal.html?hpwb


European nations are discussing various ways to help troubled Greece cope with its mountain of government debt, officials indicated Tuesday, as conflicting reports sent markets on a roller coaster ride, bolstering the faltering euro and contributing to a stock market rally that later pulled back from its heights.

The specifics of any bailout remained unclear and officials played down reports that Germany and France had already agreed on a rescue plan for Greece.

“This will be further discussed in the coming days,” Olli Rehn, who is about to take over as European economic affairs commissioner, said in an interview in Strasbourg. “We are talking about support in the broad sense of the word. I cannot specify it now. Solidarity goes both ways.”

A strong rally on Wall Street faltered when a spokesman for Angela Merkel, Germany’s chancellor, said it was “wrong” that Berlin had already decided to provide financial assistance to Greece.

At the same time, governments in Greece and Portugal, seeking to regain the confidence of bond market investors, vowed to carry out their planned austerity measures despite threats of strikes and political turmoil at home.

In an interview in his residence on Tuesday, Portugal’s prime minister, José Sócrates, said he was committed to bringing the deficit within 3 percent of the nation’s annual economic output by 2013. “This government, as we have shown in the past, is determined, one, to bet on economic recovery, and two, to put the public finances in order.”

The prime minister said Portugal did not need help from the European Union. “We don’t need anything from Brussels,” he said. “We know exactly what we will do. We don’t need any help; we will solve our problems.”

As for Greece, a person in the German government with knowledge of the continuing negotiations, who did not have permission to comment publicly on them, confirmed that Germany was involved in direct consultations with the other 15 countries that use the euro over possible ways to help the Greek government. But he said any actions would take place “within a European framework.”

“It's just about finding a way to potentially give Greece a little breathing room,” he said. He dismissed reports that Germany was considering a unilateral aid package for Greece. “The idea that we would go it alone is completely nuts.”

Jean-Claude Trichet, the European Central Bank president, also fueled optimism among investors that Brussels was preparing some sort of concerted action when the news emerged that he was cutting short attendance at a conference in Australia to attend the planned summit meeting of European leaders on Thursday.

Mr. Trichet will attend the meeting of the European Council called by Herman Van Rompuy, the European Union president, an E.C.B. spokesman said.

Regina Schüller, a spokeswoman in Frankfurt for the E.C.B., said Mr. Trichet had been planning to attend the council meeting Thursday even before he left for Australia.

“In order to make it back in time for the meeting he had to leave Sydney a day early,” she said. “It was pure logistics.”

She had no comment on the reports that Europe was moving closer to a bailout of Greece.

The E.C.B. president often participates in such summit meetings, which bring together the leaders of the 27 E.U. member states and the head of the European Commission, José Manuel Barroso, a former prime minister of Portugal. But this one is being held at an especially difficult time for the euro.

Investors have grown wary of the feeble public finances of a number of countries that use the euro — particularly Greece, Portugal, Spain and, to a lesser extent, Italy — raising the fear that the entire currency system could come under attack. The currency has fallen by more than 9 percent against the dollar from a late November peak.



Stephen Castle, Judy Dempsey, Rachel Donadio and Nicholas Kulish contributed reporting.











Stocks Rally on Hopes of Greek Bailout
By JAVIER C. HERNANDEZ
Copyright by The New York Times
Published: February 9, 2010
http://www.nytimes.com/2010/02/10/business/10markets.html?ref=global-home


Wall Street emerge from a spell of uncertainty on Tuesday as investors grew more hopeful that Greece would be saved from its debt troubles, helping quell fears of a turbulent global recovery.

Stocks rallied broadly amid reports that European leaders would meet to discuss how to contain a brewing debt crisis in Europe, where swelling deficits in Greece, Spain, and Portugal have stoked fears that those countries may be vulnerable to default.

In recent days, the concerns about Europe have ricocheted through global markets as investors question whether other nations, including the United States, will face similar debt burdens after spending huge sums to stimulate their economies. But on Tuesday, investors seemed reassured by reports that Jean-Claude Trichet, the European Central Bank president, would leave a conference in Australia early to take part in the meeting.

Amid the optimism, the major indexes on Wall Street were on track for some of their biggest gains in three months. At the close, the Dow rose 1.52 percent, or 150.25 points, to 1,0058.64. The broader Standard & Poor’s 500-stock index climbed 1.3 percent, or 13.78 points, to 1,070.52. The technology-dominated Nasdaq rose 1.17 percent, or 24.82 points, to 2,150.87.

A winning day for Wall Street would be a welcome reprieve for many investors, who have grown anxious in the last few weeks. On Monday, the Dow Jones industrial average tumbled below the 10,000 threshold, delivering a psychological setback for those who had hoped for steady rebound.

Since Greece’s troubles reached a flashpoint last week, all attention has been on the stability of the European financial system. Investors have tried to gauge how severely American financial institutions would be affected by foreign defaults. They remained concerned about the potential ripple effect for international credit markets, with memories of the havoc wreaked by the collapse of the United States housing market still fresh.

Philip J. Orlando, chief equity strategist at Federated Investors, said a bailout plan for Greece would provide a blueprint for rescue if other countries began to teeter on the brink of default.

“Some of the overarching fears of global contagion will then begin to recede,” Mr. Orlando said. “Greece is first and foremost the touchstone.”

In Europe, stocks initially rallied broadly but lost some of their energy after Fitch, a ratings agency, said that Greece’s medium-term outlook was cloudy and that Britain needed to impose additional austerity measures to rein in its deficit. The FTSE 100 in London closed 0.38 percent higher, the CAC-40 in Paris rose 0.15 percent , and the DAX in Frankfurt increased 0.24 percent.

Traders in the United States seemed hesitant about a report on business inventories. The Commerce Department said businesses reduced their inventories by 0.8 percent in December, raising concern on Wall Street that employers were too slowly restocking their shelves — a critical driver of growth for the manufacturing sector.

Analysts said that investors were using the downturn in the market as an opportunity to buy shares on the cheap. The Dow remains about 6 percent off of its highs in late January, and the last several weeks have been marked by significant volatility.

“Uncertainty breeds opportunity,” said Jeffrey D. Saut, chief investment strategist at Raymond James. “The market is pretty oversold.”

Wall Street is in the midst of earnings season, when companies report fourth-quarter results; most companies have topped expectations. That has prompted a round of buying as investors seek to snap up shares of companies that have the potential to garner large revenues as the recovery takes hold.

Some of the Dow’s 30 components posted significant gains on Tuesday, including Coca-Cola, which rose more than 3 percent after reporting better-than-expected earnings, and Caterpillar, which surged nearly 6 percent.

The video game maker, Electronic Arts, fell more than 9 percent after a lukewarm earnings forecast.

The euro also made gains as investors grew more confident in the ability of several European countries — Spain and Portugal among them—to emerge from mountains of debt. The euro strengthened nearly 1 percent against the dollar, hovering at $1.37.

Bilal Hafeez, global head of currency strategy at Deutsche Bank in London, noted Tuesday that net short positions had reached a record 43,741 on Feb. 2 on the Chicago Mercantile Exchange, up from a week earlier, when there were 39,539 net short contracts outstanding — meaning, in effect, that investors have made more than $7.5 billion in bets against the European currency.

“Everyone’s positioned for the euro to fall further,” Mr. Hafeez said. “But if there’s good news out of Europe, watch out for the euro to swing back up quite sharply on short covering,” he added, referring to the practice where traders who had sold, or shorted, the currency are forced to repurchase it to cover their positions.

The euro rose 0.7 percent versus the dollar to trade at $1.3739. At one stage on Monday, the euro had hit a fresh eight-month low below $1.36. The euro also recovered 0.9 percent against the yen.

While the meeting in Brussels was called to address a number of issues, including Europe’s longer-term economic competitiveness, Haiti and climate change, the E.C.B. spokesman said “economic problems in Greece and probably some other countries will be an important issue.”

Meanwhile, Greece’s Socialist government, on the eve of the first nationwide strike against new austerity measures, insisted that it would move ahead as planned.

Prime Minister George A. Papandreou told a cabinet meeting that the reforms “must go ahead now.”

“Our primary duty now is to save the economy and reduce the debt, aiming to do so through the fairest possible solutions,” said Mr. Papandreou, who is to meet in Paris with French President Nicolas Sarkozy on Wednesday ahead of Thursday’s summit in Brussels.

The Greek government announced that it was studying proposals to raise the average retirement age to 63 from 61 by 2015. A new pension law would forbid any voluntary exit from the system and establish a new fund to manage its reserves of €30 billion, or $41 billion.

“These reforms are not just tinkering,” Labor Minister Andreas Loverdos told the parliamentary committee in charge of drafting the changes. “They constitute a major overhaul to make the system viable in the coming decades.”

Under intense pressure from European Union partners and market speculation — which sharply hiked Greece’s borrowing costs — Mr. Papandreou’s center-left government has committed to a four-year austerity plan meant to tame a gaping budget deficit and soaring debt.

The budget deficit for 2009 represents 12.7 percent of Greece’s annual economic output, more than four times the limit supposedly allowed by the E.U., while the public debt has exceeded 113 percent of its annual G.D.P.

The measures announced so far have angered powerful labor unions, and civil servants have called a nationwide strike Wednesday. The walkout will affect state schools, hospitals, tax offices and local government offices, while all Greek airports will be closed to international and domestic flights. Private sector workers plan to walk off their jobs on Feb. 24 in a separate strike.

The cost of insuring Greek debt using credit default swaps fell 19 percent, according to Markit, a data provider.

The cost to insure Spanish, Portuguese and Italian debt fell by similar percentages, reflecting greater investor confidence the nations will be able to overcome their debt problems.

At the same time, yields on Greek, Portuguese and Spanish sovereign debt dropped sharply. The yield on Greek 10-year debt fell to 6.3 percent, narrowing the spread with the benchmark German Bund.

In Lisbon, Prime Minister Sócrates faces growing controversy over allegations that his government tried to meddle with the news media. Portugal's opposition on Tuesday voted to start hearings in Parliament on whether the government tried to remove troublesome journalists.

Under normal circumstances, such a brouhaha would hardly attract notice outside of Portugal. But the controversy comes as Mr. Sócrates’s government is seeking to pass a 2010 budget that is crucial to controlling a deficit equal to 9.3 percent of the country’s G.D.P. The budget is also crucial to Mr. Sócrates’s party remaining in power.

As in Greece, Portugal’s debt problems go hand in hand with a weak central government that has been unable or unwilling to impose financial discipline. Mr. Sócrates is trying to run Portugal with less than a majority in Parliament.

Some economists argue that it is unfair to lump Portugal and Spain with Greece.

“Spain and Portugal are in a different ballpark than Greece,” Erik F. Nielson, a top economist at Goldman Sachs, wrote in a note to investors. While Portugal needs to attack its deficit “in a much more aggressive manner,” the country is in a better position than Greece because it has less long-term debt coming due.