The ABC’s of FHA condo requirements
By Pamela Dittmer McKuen
Copyright © 2010, Chicago Tribune
11:46 a.m. CDT, April 29, 2010
http://www.chicagotribune.com/news/ct-home-0430-condo-living-fha-regulations20100429,0,1737349,full.story
Condominium associations now have to prove they are worthy investments, according to new regulations from the Federal Housing Administration.
As of Feb. 1, associations with two or more units must be FHA-certified before the agency will back a mortgage. The previous policy of allowing one-time, or "spot approval," for individual units was rescinded.
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FHA loans have grown extremely popular in recent years. The country's economic meltdown prompted conventional lenders to require higher downpayments and credit scores, but qualified FHA buyers can own a home for as little as 3.5 percent down. The agency insured 2 percent of home mortgages in 2007 and 30 percent in 2009. The numbers are rising.
"There aren't a lot of people with a lot of money to put down these days," said Steve Stenger, president of Condo Approval Professionals LLC in Lake in the Hills.
What this means for associations is if they aren't certified, their owners lose out on a large pool of prospective buyers, said Michael Thomas, a real estate broker with @Properties in Evanston.
"The more buyers, the more competition, and competition is what keeps prices at a higher level," he said.
Certified associations stand out in the market, said Joe Langley, a real estate broker with ReMax In The Village in Oak Park.
"There is no other rating system for condo associations," he said. "FHA approval separates the well-run associations from those that aren't."
Among the certification criteria:
--All units and common elements must be completely built.
--No single entity can own more than 10 percent or more than one of the units, whichever is greater.
--At least 50 percent of the units must be owner-occupied.
--No more than 15 percent of the units can be more than 30 days delinquent on assessments.
--No more than 25 percent of the total floor area can be used commercially.
--At least 10 percent of the annual budget must go to reserves.
--The right of first refusal is OK as long as it isn't used to discriminate.
In addition, associations must submit copies of their budget, insurance policy, declaration and bylaws, plat of survey, any management agreement, analysis of outstanding or pending litigation, and minutes from the last two meetings.
Associations can become certified in one of two ways. The first is to wait for an FHA buyer to come along and let the buyer's lender do the work. Certain lenders, typically the largest ones, are eligible to certify associations under the Direct Endorsement Lender Review and Approval Process, or DELRAP. The association supplies the necessary documents and information.
Certification via lender takes two to four weeks, and fees vary, depending on the size of the association and company policies.
The second way is for associations to apply directly to the U.S. Department of Housing and Urban Development, which oversees the FHA. This is called the HUD Review and Approval Process, or HRAP. Decisions are coming down in four to six weeks, said Judith Heaney, supervisory operations officer for HUD's Chicago regional office.
Many associations hire consultants such as Stenger or their attorneys to assemble and submit applications. Stenger's rates slide, starting at $500 for small associations. Attorneys charge more, and management companies might add fees as well.
Which way to go depends on the association and its resources. Viewpoints are varied.
"We are advising our associations to do HRAP and work with an attorney who understands the process," said Lou Lutz, president of Legum & Norman Mid-West in Chicago. "In the long run, if it is not done properly and the association is rejected, it can be even more costly to the unit owners."
Early certification will benefit current owners who wish to refinance or who need to sell, perhaps to settle an estate, said Heaney.
"Once it's done, it's done," said Stenger. "Then it doesn't matter who the buyer uses for a lender."
Langley noted that some buyers prefer to shop at approved associations rather than take a chance on those that aren't. But certification is good for only two years, and an association could spend time and money but not have a sale for six months.
"I see an advantage in preparing the package ahead of time so we can advertise a unit as being FHA DELRAP-ready," he said.
"The associations know what's appropriate for their ownership," said Heaney.
For more information, call the FHA helpline at 800-225-5342 (800-CALL-FHA) or e-mail condoprojectapprovalinquiries@hud.gov. Be patient.
Friday, April 30, 2010
More American Expatriates Give Up Citizenship
More American Expatriates Give Up Citizenship
By BRIAN KNOWLTON
Copyright by The New York Times
Published: April 25, 2010
http://www.nytimes.com/2010/04/26/us/26expat.html
WASHINGTON — Amid mounting frustration over taxation and banking problems, small but growing numbers of overseas Americans are taking the weighty step of renouncing their citizenship.
“What we have seen is a substantial change in mentality among the overseas community in the past two years,” said Jackie Bugnion, director of American Citizens Abroad, an advocacy group based in Geneva. “Before, no one would dare mention to other Americans that they were even thinking of renouncing their U.S. nationality. Now, it is an openly discussed issue.”
The Federal Register, the government publication that records such decisions, shows that 502 expatriates gave up their U.S. citizenship or permanent residency status in the last quarter of 2009. That is a tiny portion of the 5.2 million Americans estimated by the State Department to be living abroad.
Still, 502 was the largest quarterly figure in years, more than twice the total for all of 2008, and it looms larger, given how agonizing the decision can be. There were 235 renunciations in 2008 and 743 last year. Waiting periods to meet with consular officers to formalize renunciations have grown.
Anecdotally, frustrations over tax and banking questions, not political considerations, appear to be the main drivers of the surge. Expat advocates say that as it becomes more difficult for Americans to live and work abroad, it will become harder for American companies to compete.
American expats have long complained that the United States is the only industrialized country to tax citizens on income earned abroad, even when they are taxed in their country of residence, though they are allowed to exclude their first $91,400 in foreign-earned income.
One Swiss-based business executive, who spoke on the condition of anonymity because of sensitive family issues, said she weighed the decision for 10 years. She had lived abroad for years but had pleasant memories of service in the U.S. Marine Corps.
Yet the notion of double taxation — and of future tax obligations for her children, who will receive few U.S. services — finally pushed her to renounce, she said.
“I loved my time in the Marines, and the U.S. is still a great country,” she said. “But having lived here 20 years and having to pay and file while seeing other countries’ nationals not having to do that, I just think it’s grossly unfair.”
“It’s taxation without representation,” she added.
Stringent new banking regulations — aimed both at curbing tax evasion and, under the Patriot Act, preventing money from flowing to terrorist groups — have inadvertently made it harder for some expats to keep bank accounts in the United States and in some cases abroad.
Some U.S.-based banks have closed expats’ accounts because of difficulty in certifying that the holders still maintain U.S. addresses, as required by a Patriot Act provision.
“It seems the new anti-terrorist rules are having unintended effects,” Daniel Flynn, who lives in Belgium, wrote in a letter quoted by the Americans Abroad Caucus in the U.S. Congress in correspondence with the Treasury Department.
“I was born in San Francisco in 1939, served my country as an army officer from 1961 to 1963, have been paying U.S. income taxes for 57 years, since 1952, have continually maintained federal voting residence, and hold a valid American passport.”
Mr. Flynn had held an account with a U.S. bank for 44 years. Still, he wrote, “they said that the new anti-terrorism rules required them to close our account because of our address outside the U.S.”
Kathleen Rittenhouse, who lives in Canada, wrote that until she encountered a similar problem, “I did not know that the Patriot Act placed me in the same category as terrorists, arms dealers and money launderers.”
Andy Sundberg, another director of American Citizens Abroad, said, “These banks are closing our accounts as acts of prudent self-defense.” But the result, he said, is that expats have become “toxic citizens.”
The Americans Abroad Caucus, headed by Representative Carolyn B. Maloney, Democrat of New York, and Representative Joe Wilson, Republican of South Carolina, has made repeated entreaties to the Treasury Department.
In response, Treasury Secretary Timothy F. Geithner wrote Ms. Maloney on Feb. 24 that “nothing in U.S. financial law and regulation should make it impossible for Americans living abroad to access financial services here in the United States.”
But banks, Treasury officials note, are free to ignore that advice.
“That Americans living overseas are being denied banking services in U.S. banks, and increasingly in foreign banks, is unacceptable,” Ms. Maloney said in a letter Friday to leaders of the House Financial Services Committee, requesting a hearing on the question.
Mr. Wilson, joining her request, said that pleas from expats for relief “continue to come in at a startling rate.”
Relinquishing citizenship is relatively simple. The person must appear before a U.S. consular or diplomatic official in a foreign country and sign a renunciation oath. This does not allow a person to escape old tax bills or military obligations.
Now, expats’ representatives fear renunciations will become more common.
“It is a sad outcome,” Ms. Bugnion said, “but I personally feel that we are now seeing only the tip of the iceberg.”
By BRIAN KNOWLTON
Copyright by The New York Times
Published: April 25, 2010
http://www.nytimes.com/2010/04/26/us/26expat.html
WASHINGTON — Amid mounting frustration over taxation and banking problems, small but growing numbers of overseas Americans are taking the weighty step of renouncing their citizenship.
“What we have seen is a substantial change in mentality among the overseas community in the past two years,” said Jackie Bugnion, director of American Citizens Abroad, an advocacy group based in Geneva. “Before, no one would dare mention to other Americans that they were even thinking of renouncing their U.S. nationality. Now, it is an openly discussed issue.”
The Federal Register, the government publication that records such decisions, shows that 502 expatriates gave up their U.S. citizenship or permanent residency status in the last quarter of 2009. That is a tiny portion of the 5.2 million Americans estimated by the State Department to be living abroad.
Still, 502 was the largest quarterly figure in years, more than twice the total for all of 2008, and it looms larger, given how agonizing the decision can be. There were 235 renunciations in 2008 and 743 last year. Waiting periods to meet with consular officers to formalize renunciations have grown.
Anecdotally, frustrations over tax and banking questions, not political considerations, appear to be the main drivers of the surge. Expat advocates say that as it becomes more difficult for Americans to live and work abroad, it will become harder for American companies to compete.
American expats have long complained that the United States is the only industrialized country to tax citizens on income earned abroad, even when they are taxed in their country of residence, though they are allowed to exclude their first $91,400 in foreign-earned income.
One Swiss-based business executive, who spoke on the condition of anonymity because of sensitive family issues, said she weighed the decision for 10 years. She had lived abroad for years but had pleasant memories of service in the U.S. Marine Corps.
Yet the notion of double taxation — and of future tax obligations for her children, who will receive few U.S. services — finally pushed her to renounce, she said.
“I loved my time in the Marines, and the U.S. is still a great country,” she said. “But having lived here 20 years and having to pay and file while seeing other countries’ nationals not having to do that, I just think it’s grossly unfair.”
“It’s taxation without representation,” she added.
Stringent new banking regulations — aimed both at curbing tax evasion and, under the Patriot Act, preventing money from flowing to terrorist groups — have inadvertently made it harder for some expats to keep bank accounts in the United States and in some cases abroad.
Some U.S.-based banks have closed expats’ accounts because of difficulty in certifying that the holders still maintain U.S. addresses, as required by a Patriot Act provision.
“It seems the new anti-terrorist rules are having unintended effects,” Daniel Flynn, who lives in Belgium, wrote in a letter quoted by the Americans Abroad Caucus in the U.S. Congress in correspondence with the Treasury Department.
“I was born in San Francisco in 1939, served my country as an army officer from 1961 to 1963, have been paying U.S. income taxes for 57 years, since 1952, have continually maintained federal voting residence, and hold a valid American passport.”
Mr. Flynn had held an account with a U.S. bank for 44 years. Still, he wrote, “they said that the new anti-terrorism rules required them to close our account because of our address outside the U.S.”
Kathleen Rittenhouse, who lives in Canada, wrote that until she encountered a similar problem, “I did not know that the Patriot Act placed me in the same category as terrorists, arms dealers and money launderers.”
Andy Sundberg, another director of American Citizens Abroad, said, “These banks are closing our accounts as acts of prudent self-defense.” But the result, he said, is that expats have become “toxic citizens.”
The Americans Abroad Caucus, headed by Representative Carolyn B. Maloney, Democrat of New York, and Representative Joe Wilson, Republican of South Carolina, has made repeated entreaties to the Treasury Department.
In response, Treasury Secretary Timothy F. Geithner wrote Ms. Maloney on Feb. 24 that “nothing in U.S. financial law and regulation should make it impossible for Americans living abroad to access financial services here in the United States.”
But banks, Treasury officials note, are free to ignore that advice.
“That Americans living overseas are being denied banking services in U.S. banks, and increasingly in foreign banks, is unacceptable,” Ms. Maloney said in a letter Friday to leaders of the House Financial Services Committee, requesting a hearing on the question.
Mr. Wilson, joining her request, said that pleas from expats for relief “continue to come in at a startling rate.”
Relinquishing citizenship is relatively simple. The person must appear before a U.S. consular or diplomatic official in a foreign country and sign a renunciation oath. This does not allow a person to escape old tax bills or military obligations.
Now, expats’ representatives fear renunciations will become more common.
“It is a sad outcome,” Ms. Bugnion said, “but I personally feel that we are now seeing only the tip of the iceberg.”
Utah Conservatives sing chorus of 'Bye bye Bennett' with glee
Utah Conservatives sing chorus of 'Bye bye Bennett' with glee
By Amy Gardner
Copyright by The Washington Post
Friday, April 30, 2010; 8:23 AM
http://www.washingtonpost.com/wp-dyn/content/article/2010/04/30/AR2010043000770.html?hpid=topnews
SALT LAKE CITY -- Delivering the opening prayer of the Beaver County Republican Convention recently, cattle rancher Gilbert Yardley prayed for Utah to elect "honest" people to Congress -- anybody to replace "the bunch we have in there now."
Sen. Robert F. Bennett was in the room, hoping to persuade state delegates to nominate him at the May 8 GOP convention. A friend seated next to Bennett leaned in to whisper the obvious: "I don't think he's one of yours."
It's no surprise that anger at Washington and Congress is coursing through Republican circles. What took party leaders by surprise is that the anger here is directed not at President Obama, but squarely at Bennett. And with a flurry of state primaries scheduled in the coming weeks, a Bennett defeat could become a rallying point for anti-incumbent fervor elsewhere.
"You've been there a while, you haven't fixed it," Garn McMullin, a small-business owner angry about the spiraling costs of Social Security, said to Bennett at the Salt Lake County convention last weekend. "Convince me as a delegate if it hasn't happened yet, why I should believe you'll make it happen now."
Bennett readily admits that he is in deep trouble. By all accounts, his best hope is to emerge from the state convention in second place among eight candidates. If he draws more than 40 percent of delegate votes, he and the winner will face off in a June primary. And Bennett's campaign cash and renown could give him an advantage with the less intense electorate of a primary.
But first Bennett has to get that 40 percent. In a dimly lighted high school auditorium in suburban Provo on Saturday, about 1,000 Republicans cheered wildly when candidate Mike Lee, the son of a former president of Brigham Young University, asked whether they thought Congress was broken. They hooted with approval when another candidate, marketing executive Cherilyn Eagar, called for the abolition of the departments of education and energy and the EPA. And they went nuts when a third challenger, entrepreneur Tim Bridgewater, threw this red meat their way: "There's been a lot of talk about term limits. I'm working on a term limit for Senator Bennett right now!"
According to a poll published Sunday by local news outlets, 41 percent of convention delegates say they will not vote for Bennett; Lee holds the lead by a wide margin.
Bennett's detractors point to his support for then-President George W. Bush's immigration amnesty proposal and the financial bailouts of banks and auto companies, as well as Bennett's authorship, with Democratic Sen. Ron Wyden (Ore.), of a health-care proposal that included an individual mandate. Critics are also upset with Bennett for having pledged, during his first campaign in 1992, to serve only two terms (he's seeking his fourth).
"The whole reason I started the Tea Party of Utah was because of Bob Bennett," said David Kirkham of Provo, a convention delegate who said he is torn between voting for Lee and Bridgewater. Kirkham's group, and the tea party-affiliated Utah Rising and 9.12 movements, have been particularly active in opposing Bennett. All seven of his opponents are courting these groups heavily.
"There's a lot of frustration among Republicans who feel that the party lost the moral high ground on fiscal issues during the Bush years," said Utah Gov. Gary R. Herbert (R), who is officially neutral in the race. "He gets the broad brush because he was there. This is a perfect storm against him that's kind of unique to our times."
Bennett has grown so accustomed to the vitriol of the campaign that he hardly flinches as he listens, county convention after county convention, to his opponents and other critics take aim and fire. At age 76 and 6 feet 6 inches tall, he towers over his constituents as he speaks about his efforts to curtail spending on such entitlement programs as Medicare, Medicaid and Social Security. He fiercely defends his support for the bailouts.
"If the Republicans seize power as part of the 2010 elections and we don't have solutions, the American people will turn on us with the same vigor they turned on the Democrats," he said. "And I'm convinced that the movement working against me is a movement of slogans, not solutions."
Bennett sells his incumbency as crucial influence for Utah in Washington, something that would be lost if a newcomer replaced him. But he has a distant personal style ("Bob is not a hugger," one friend said), and he struggles when he disagrees with the voters he is so desperately courting. When one Salt Lake constituent, worried about the rising national debt, said, "Our kids are just going to get splattered," Bennett replied quite firmly, "Well, no. We can fix this, if we do it right." The delegate walked away, unconvinced.
Bennett relies heavily on his knowledge of policy, which he views as the reason he should be returned to Washington. But it doesn't make for good sound bites. While supporters crowd around Lee and cluck approvingly while he talks about defending the Constitution and repealing the "grave monstrosity" of health reform, listeners are often silent (and look a little bit lulled) when they stop to hear Bennett. At the Utah County convention Saturday, Bennett spent more than 10 minutes explaining the dispute between Thomas Jefferson and Alexander Hamilton over whether the Constitution allowed for the formation of a national bank.
The point: "If the people who wrote it can have disagreements over what it means, don't demonize people 200 years later for disagreeing over what it means." But it wasn't enough to sway his listeners. "I don't think I'll vote for him," said John Loveland, 42, a National Guardsman from Provo. "He's good on national defense, he's good on the wars. But it's time for a change."
Bennett sounded as close as he gets to exasperated when he calmly marveled to a constituent at the Salt Lake convention about why he is the target of this election cycle's anger and upset. In 2004, no one opposed him for the Republican nomination, and his general election campaign was so assured that he didn't spend a penny on television. In 2006, he noted, he earned a 93 percent approval rating among Republican primary voters.
"Now, I'm not a true Republican because I don't go on Fox and CNN and scream," he said.
Still, it remains unclear how prevalent the anger is -- or whether those who are mad simply did a better job storming the convention process. Adding to Bennett's frustration is the involvement of outside groups. The anti-tax group Club for Growth began running television ads against Bennett last month. Jim Gilchrist, leader of the California-based Minuteman Project, has endorsed one of the challengers.
Bennett, needless to say, has a national network of his own. Mitt Romney, who won the 2008 Republican presidential primary in Utah with an astonishing 89 percent of the vote, will introduce Bennett at the May 8 convention -- an appearance that is sure to give the incumbent a boost. And if Bennett should survive to a primary, Republicans such as Senate Minority Leader Mitch McConnell and former Utah governor Mike Leavitt are likely to pitch in.
Still, it's notable that Bennett hasn't asked all of them to stump for him in advance of the state convention. That's how unclear it is that these "establishment" figures would even help.
By Amy Gardner
Copyright by The Washington Post
Friday, April 30, 2010; 8:23 AM
http://www.washingtonpost.com/wp-dyn/content/article/2010/04/30/AR2010043000770.html?hpid=topnews
SALT LAKE CITY -- Delivering the opening prayer of the Beaver County Republican Convention recently, cattle rancher Gilbert Yardley prayed for Utah to elect "honest" people to Congress -- anybody to replace "the bunch we have in there now."
Sen. Robert F. Bennett was in the room, hoping to persuade state delegates to nominate him at the May 8 GOP convention. A friend seated next to Bennett leaned in to whisper the obvious: "I don't think he's one of yours."
It's no surprise that anger at Washington and Congress is coursing through Republican circles. What took party leaders by surprise is that the anger here is directed not at President Obama, but squarely at Bennett. And with a flurry of state primaries scheduled in the coming weeks, a Bennett defeat could become a rallying point for anti-incumbent fervor elsewhere.
"You've been there a while, you haven't fixed it," Garn McMullin, a small-business owner angry about the spiraling costs of Social Security, said to Bennett at the Salt Lake County convention last weekend. "Convince me as a delegate if it hasn't happened yet, why I should believe you'll make it happen now."
Bennett readily admits that he is in deep trouble. By all accounts, his best hope is to emerge from the state convention in second place among eight candidates. If he draws more than 40 percent of delegate votes, he and the winner will face off in a June primary. And Bennett's campaign cash and renown could give him an advantage with the less intense electorate of a primary.
But first Bennett has to get that 40 percent. In a dimly lighted high school auditorium in suburban Provo on Saturday, about 1,000 Republicans cheered wildly when candidate Mike Lee, the son of a former president of Brigham Young University, asked whether they thought Congress was broken. They hooted with approval when another candidate, marketing executive Cherilyn Eagar, called for the abolition of the departments of education and energy and the EPA. And they went nuts when a third challenger, entrepreneur Tim Bridgewater, threw this red meat their way: "There's been a lot of talk about term limits. I'm working on a term limit for Senator Bennett right now!"
According to a poll published Sunday by local news outlets, 41 percent of convention delegates say they will not vote for Bennett; Lee holds the lead by a wide margin.
Bennett's detractors point to his support for then-President George W. Bush's immigration amnesty proposal and the financial bailouts of banks and auto companies, as well as Bennett's authorship, with Democratic Sen. Ron Wyden (Ore.), of a health-care proposal that included an individual mandate. Critics are also upset with Bennett for having pledged, during his first campaign in 1992, to serve only two terms (he's seeking his fourth).
"The whole reason I started the Tea Party of Utah was because of Bob Bennett," said David Kirkham of Provo, a convention delegate who said he is torn between voting for Lee and Bridgewater. Kirkham's group, and the tea party-affiliated Utah Rising and 9.12 movements, have been particularly active in opposing Bennett. All seven of his opponents are courting these groups heavily.
"There's a lot of frustration among Republicans who feel that the party lost the moral high ground on fiscal issues during the Bush years," said Utah Gov. Gary R. Herbert (R), who is officially neutral in the race. "He gets the broad brush because he was there. This is a perfect storm against him that's kind of unique to our times."
Bennett has grown so accustomed to the vitriol of the campaign that he hardly flinches as he listens, county convention after county convention, to his opponents and other critics take aim and fire. At age 76 and 6 feet 6 inches tall, he towers over his constituents as he speaks about his efforts to curtail spending on such entitlement programs as Medicare, Medicaid and Social Security. He fiercely defends his support for the bailouts.
"If the Republicans seize power as part of the 2010 elections and we don't have solutions, the American people will turn on us with the same vigor they turned on the Democrats," he said. "And I'm convinced that the movement working against me is a movement of slogans, not solutions."
Bennett sells his incumbency as crucial influence for Utah in Washington, something that would be lost if a newcomer replaced him. But he has a distant personal style ("Bob is not a hugger," one friend said), and he struggles when he disagrees with the voters he is so desperately courting. When one Salt Lake constituent, worried about the rising national debt, said, "Our kids are just going to get splattered," Bennett replied quite firmly, "Well, no. We can fix this, if we do it right." The delegate walked away, unconvinced.
Bennett relies heavily on his knowledge of policy, which he views as the reason he should be returned to Washington. But it doesn't make for good sound bites. While supporters crowd around Lee and cluck approvingly while he talks about defending the Constitution and repealing the "grave monstrosity" of health reform, listeners are often silent (and look a little bit lulled) when they stop to hear Bennett. At the Utah County convention Saturday, Bennett spent more than 10 minutes explaining the dispute between Thomas Jefferson and Alexander Hamilton over whether the Constitution allowed for the formation of a national bank.
The point: "If the people who wrote it can have disagreements over what it means, don't demonize people 200 years later for disagreeing over what it means." But it wasn't enough to sway his listeners. "I don't think I'll vote for him," said John Loveland, 42, a National Guardsman from Provo. "He's good on national defense, he's good on the wars. But it's time for a change."
Bennett sounded as close as he gets to exasperated when he calmly marveled to a constituent at the Salt Lake convention about why he is the target of this election cycle's anger and upset. In 2004, no one opposed him for the Republican nomination, and his general election campaign was so assured that he didn't spend a penny on television. In 2006, he noted, he earned a 93 percent approval rating among Republican primary voters.
"Now, I'm not a true Republican because I don't go on Fox and CNN and scream," he said.
Still, it remains unclear how prevalent the anger is -- or whether those who are mad simply did a better job storming the convention process. Adding to Bennett's frustration is the involvement of outside groups. The anti-tax group Club for Growth began running television ads against Bennett last month. Jim Gilchrist, leader of the California-based Minuteman Project, has endorsed one of the challengers.
Bennett, needless to say, has a national network of his own. Mitt Romney, who won the 2008 Republican presidential primary in Utah with an astonishing 89 percent of the vote, will introduce Bennett at the May 8 convention -- an appearance that is sure to give the incumbent a boost. And if Bennett should survive to a primary, Republicans such as Senate Minority Leader Mitch McConnell and former Utah governor Mike Leavitt are likely to pitch in.
Still, it's notable that Bennett hasn't asked all of them to stump for him in advance of the state convention. That's how unclear it is that these "establishment" figures would even help.
Consumers Help Drive U.S. Economy to 3.2% Growth Rate
Consumers Help Drive U.S. Economy to 3.2% Growth Rate
By CATHERINE RAMPELL
Copyright by The New York Times
Published: April 30, 2010
http://www.nytimes.com/2010/05/01/business/economy/01econ.html?th&emc=th
The United States economy has expanded for three quarters in a row, the Commerce Department said on Friday, helped along by consumer spending. Now the question is, Will the jobs follow?
The broadest measure of the overall economy grew at an inflation-adjusted annual rate of 3.2 percent in the first quarter of 2010, the Commerce Department reported. It had expanded 5.6 percent in the fourth quarter of 2009 and 2.2 percent in the third quarter.
While the expansion is welcome, it has not delivered the level of hiring needed to recover the ground lost during the recession.
Speaking in the Rose Garden on Friday, President Obama acknowledged that many Americans might find little comfort in the numbers because “ ‘you’re hired’ is the only economic news they’re waiting to hear.”
Still, economists are hopeful that news of solid, continued growth may bolster business confidence and persuade more companies to expand.
“It’s been a case of, when will they stop worrying and learn to love the boom?” said Robert J. Barbera, chief economist at ITG, who added that many analysts and companies had underestimated the economic turnaround.
After dragging their heels for many months, consumers were at last a major contributor to economic growth in the first quarter. Consumer spending grew at an annual rate of 3.6 percent, a big gain from the 1.6 percent rate of the previous three months. Purchases of durable goods like cars led the way.
Whether Americans might retrench for the long haul after seeing their homes lose value has been one of the biggest questions about the aftermath of the Great Recession. Consumer spending makes up more than 70 percent of the economy, and it usually drives growth during economic recoveries.
Economists are hopeful that families will continue to pick up the pace of purchasing and make the recovery more sustainable, although consumers may remain cautious about spending given the tepid growth in job creation and personal income. Consumer sentiment dipped slightly in April, according to a Reuters/University of Michigan consumer sentiment index released on Friday.
“We haven’t had consumer spending growth this strong in three years,” said Nigel Gault, chief United States economist at IHS Global Insight. “But the caveat is that with real disposable incomes not growing, this was all done through the saving rate. We cannot rely on consumers continually driving down their savings. They need income support from hiring.”
Small businesses say Americans are loosening up a little after a bewildering period of debt reduction and uncertainty.
Nate Evans, who owns a pottery-making business with his wife, Hallie, in New Albin, Iowa, said sales in 2009 were the worst ever but that business was just starting to pick up. The Evanses sell their wares from their Allamakee Wood-Fired Pottery home studio as well as in galleries in nearby states, and at craft shows in Wisconsin, Minnesota, Iowa and Illinois.
“I felt like the energy of the crowd was better,” Mr. Evans said of the first fair this year, in Minnesota, adding that other craft sellers seemed to agree. “Most of the people we talked to said it was better than last year. Hey, it’s not great, but it’s better than last year.”
Just as Americans stepped up their purchases of autos and other products in the first quarter, companies invested more in capital goods. Business purchases of equipment and software, for example, grew at an annual rate of 13.4 percent, building on a 19 percent increase in the final quarter of 2009.
For the first time in two years, businesses started increasing their stockpiles of goods. This inventory growth accounted for about half of the expansion in the first quarter. In the previous quarter, about two-thirds of economic growth resulted from a decision by companies to draw down their inventories more slowly — that is, not clearing their stockroom shelves so quickly but still not adding to them.
Additional spending by companies “is very good news, since it indicates businesses are feeling more confident about the expansion to start spending some of their cash,” Mr. Gault said. “If businesses are spending more on equipment, usually that would go along with more hiring, too.”
Federal government spending, including some remaining money from stimulus programs, grew at an annualized rate of 1.4 percent in the first quarter. But this was more than offset by continued cuts by state and local governments, whose spending decreased 3.8 percent. It was the third consecutive quarterly decline for state and local spending.
The New York Times
“Government spending contracted, for all the ballyhoo about stimulus,” said John Ryding, chief economist at RDQ Economics. “This recovery is going to have to stand on the backs of private-sector demand, not on government demand, given all the current fiscal challenges.”
Modest expansion in business activity may not be enough to ease the lasting pain of the recession, many economists say.
Hiring only recently began to materialize, with the economy adding 162,000 jobs in March, of which 48,000 were temporary Census-related positions. The economy had shed about eight million jobs since the recession began in December 2007.
Job growth hasn’t been as strong as economic growth for several reasons, economists say. Businesses have found ways to make more with fewer resources, meaning that they have been able to meet additional demand for their products without bringing on many new workers. And companies are sitting on a tremendous amount of cash and appear unwilling to spend it.
“Companies may be reluctant to invest because there’s an enormous amount of uncertainty ahead for them, not just in health care policy but tax policy,” said Paul Ashworth, senior United States economist at Capital Economics. “This isn’t just about the sustainability of the recovery itself.”
Mr. Obama, in his remarks on Friday morning, rejected criticisms that his policies were bad for hiring by talking about tax cuts for small businesses, loans backed by the government and investments in areas like clean energy — policies intended in part to encourage job creation.
Even if hiring does finally start to grow at the same rate with demand, the economy is simply not growing fast enough to make a big dent in unemployment, economists say.
The nation’s gross domestic product — a broad measure of goods and services produced in the country — is far below its potential, according to projections of where the economy would have been had it followed its long-term trend.
Output would need to grow at least 5 percent annually for several years to get back on track — and perhaps what is more important, to stimulate enough job creation to employ the 15 million Americans already out of work and the 100,000 new workers joining the labor force each month.
Right now, many economists expect the nation’s output to expand 2.5 to 3.5 percent this year.
“Unless the pace of growth picks up significantly, we will see high unemployment rates for years to come,” said Josh Bivens, an economist at the Economic Policy Institute, a liberal research organization in Washington.
Christine Hauser contributed reporting.
By CATHERINE RAMPELL
Copyright by The New York Times
Published: April 30, 2010
http://www.nytimes.com/2010/05/01/business/economy/01econ.html?th&emc=th
The United States economy has expanded for three quarters in a row, the Commerce Department said on Friday, helped along by consumer spending. Now the question is, Will the jobs follow?
The broadest measure of the overall economy grew at an inflation-adjusted annual rate of 3.2 percent in the first quarter of 2010, the Commerce Department reported. It had expanded 5.6 percent in the fourth quarter of 2009 and 2.2 percent in the third quarter.
While the expansion is welcome, it has not delivered the level of hiring needed to recover the ground lost during the recession.
Speaking in the Rose Garden on Friday, President Obama acknowledged that many Americans might find little comfort in the numbers because “ ‘you’re hired’ is the only economic news they’re waiting to hear.”
Still, economists are hopeful that news of solid, continued growth may bolster business confidence and persuade more companies to expand.
“It’s been a case of, when will they stop worrying and learn to love the boom?” said Robert J. Barbera, chief economist at ITG, who added that many analysts and companies had underestimated the economic turnaround.
After dragging their heels for many months, consumers were at last a major contributor to economic growth in the first quarter. Consumer spending grew at an annual rate of 3.6 percent, a big gain from the 1.6 percent rate of the previous three months. Purchases of durable goods like cars led the way.
Whether Americans might retrench for the long haul after seeing their homes lose value has been one of the biggest questions about the aftermath of the Great Recession. Consumer spending makes up more than 70 percent of the economy, and it usually drives growth during economic recoveries.
Economists are hopeful that families will continue to pick up the pace of purchasing and make the recovery more sustainable, although consumers may remain cautious about spending given the tepid growth in job creation and personal income. Consumer sentiment dipped slightly in April, according to a Reuters/University of Michigan consumer sentiment index released on Friday.
“We haven’t had consumer spending growth this strong in three years,” said Nigel Gault, chief United States economist at IHS Global Insight. “But the caveat is that with real disposable incomes not growing, this was all done through the saving rate. We cannot rely on consumers continually driving down their savings. They need income support from hiring.”
Small businesses say Americans are loosening up a little after a bewildering period of debt reduction and uncertainty.
Nate Evans, who owns a pottery-making business with his wife, Hallie, in New Albin, Iowa, said sales in 2009 were the worst ever but that business was just starting to pick up. The Evanses sell their wares from their Allamakee Wood-Fired Pottery home studio as well as in galleries in nearby states, and at craft shows in Wisconsin, Minnesota, Iowa and Illinois.
“I felt like the energy of the crowd was better,” Mr. Evans said of the first fair this year, in Minnesota, adding that other craft sellers seemed to agree. “Most of the people we talked to said it was better than last year. Hey, it’s not great, but it’s better than last year.”
Just as Americans stepped up their purchases of autos and other products in the first quarter, companies invested more in capital goods. Business purchases of equipment and software, for example, grew at an annual rate of 13.4 percent, building on a 19 percent increase in the final quarter of 2009.
For the first time in two years, businesses started increasing their stockpiles of goods. This inventory growth accounted for about half of the expansion in the first quarter. In the previous quarter, about two-thirds of economic growth resulted from a decision by companies to draw down their inventories more slowly — that is, not clearing their stockroom shelves so quickly but still not adding to them.
Additional spending by companies “is very good news, since it indicates businesses are feeling more confident about the expansion to start spending some of their cash,” Mr. Gault said. “If businesses are spending more on equipment, usually that would go along with more hiring, too.”
Federal government spending, including some remaining money from stimulus programs, grew at an annualized rate of 1.4 percent in the first quarter. But this was more than offset by continued cuts by state and local governments, whose spending decreased 3.8 percent. It was the third consecutive quarterly decline for state and local spending.
The New York Times
“Government spending contracted, for all the ballyhoo about stimulus,” said John Ryding, chief economist at RDQ Economics. “This recovery is going to have to stand on the backs of private-sector demand, not on government demand, given all the current fiscal challenges.”
Modest expansion in business activity may not be enough to ease the lasting pain of the recession, many economists say.
Hiring only recently began to materialize, with the economy adding 162,000 jobs in March, of which 48,000 were temporary Census-related positions. The economy had shed about eight million jobs since the recession began in December 2007.
Job growth hasn’t been as strong as economic growth for several reasons, economists say. Businesses have found ways to make more with fewer resources, meaning that they have been able to meet additional demand for their products without bringing on many new workers. And companies are sitting on a tremendous amount of cash and appear unwilling to spend it.
“Companies may be reluctant to invest because there’s an enormous amount of uncertainty ahead for them, not just in health care policy but tax policy,” said Paul Ashworth, senior United States economist at Capital Economics. “This isn’t just about the sustainability of the recovery itself.”
Mr. Obama, in his remarks on Friday morning, rejected criticisms that his policies were bad for hiring by talking about tax cuts for small businesses, loans backed by the government and investments in areas like clean energy — policies intended in part to encourage job creation.
Even if hiring does finally start to grow at the same rate with demand, the economy is simply not growing fast enough to make a big dent in unemployment, economists say.
The nation’s gross domestic product — a broad measure of goods and services produced in the country — is far below its potential, according to projections of where the economy would have been had it followed its long-term trend.
Output would need to grow at least 5 percent annually for several years to get back on track — and perhaps what is more important, to stimulate enough job creation to employ the 15 million Americans already out of work and the 100,000 new workers joining the labor force each month.
Right now, many economists expect the nation’s output to expand 2.5 to 3.5 percent this year.
“Unless the pace of growth picks up significantly, we will see high unemployment rates for years to come,” said Josh Bivens, an economist at the Economic Policy Institute, a liberal research organization in Washington.
Christine Hauser contributed reporting.
More people walking away from mortgages
More people walking away from mortgages
By Suzanne Kapner in New York
Copyright The Financial Times Limited 2010
Published: April 30 2010 04:49 | Last updated: April 30 2010 04:49
http://www.ft.com/cms/s/0/f8f99804-53f5-11df-aba0-00144feab49a.html
A growing number of people are walking away from their homes because they owe more on their mortgages than the properties are worth, new research shows.
The number of so-called strategic defaults spiked to 31 per cent of all US foreclosures in March, up from 22 per cent a year ago, according to research to be released on Friday by the Kellogg School of Management at Northwestern University.
The researchers also found that borrowers are 23 per cent more likely to strategically default on their mortgage once their neighbours walk away from their homes.
“There is a contagion effect, it’s like a disease,” said Paola Sapienza, one of the professors who conducted the study.
The problem of underwater borrowers is the latest wrinkle in the housing crisis that started with subprime loans and quickly spilled over into more of the mainstream population.
Unlike low-income borrowers who have lost their jobs and are unable to make mortgage payments, people who are underwater are choosing to walk way from their homes, even though they have the ability to pay, because the value of the property has declined so precipitously. “It’s an economic decision,” Ms Sapienza said.
The researchers said that banks and mortgage servicers have contributed to the sense that it’s “okay to walk away” by not aggressively pursuing delinquent borrowers.
“Even in recourse states, where banks have the legal means to go after delinquent borrowers, the evidence shows that they are doing very little,” Ms Sapienza said.
As a result, the moral stigma attached to walking away had started to dissipate, said Jon Maddux, the chief executive of You Walk Away, which, for a fee, guides homeowners through the foreclosure process. “People are starting to change their way of thinking. It’s almost become trendy to walk away from your home,” he said.
It does not always make financial sense to walk away, however. Borrowers must factor in the cost of moving and resettling their families elsewhere.
Ms Sapienza estimates that walking away is economically worthwhile only when borrowers owe 25 per cent or more on their mortgages than the house is worth.
Recent studies have suggested that homes underwater may not regain their original value for decades.
Morgan Stanley also released data on Thursday that showed strategic defaults had increased considerably in recent months.
The bank estimates that 10.7m homeowners are underwater, or about 23 per cent of all properties in foreclosure.
“Strategic defaults have emerged as a key theme in the context of the ongoing foreclosure crisis in US housing,” Vishwanath Tirupattur, analyst, wrote. Although he said he hoped new government programmes designed to tackle the problem would start to show results, he added, “there is much work to be done.”
First American CoreLogic estimates that 11.3m, or 24 per cent, of residential properties were underwater at the end of the fourth quarter, up from 10.7m, or 23 per cent, at the end of the third quarter.
By Suzanne Kapner in New York
Copyright The Financial Times Limited 2010
Published: April 30 2010 04:49 | Last updated: April 30 2010 04:49
http://www.ft.com/cms/s/0/f8f99804-53f5-11df-aba0-00144feab49a.html
A growing number of people are walking away from their homes because they owe more on their mortgages than the properties are worth, new research shows.
The number of so-called strategic defaults spiked to 31 per cent of all US foreclosures in March, up from 22 per cent a year ago, according to research to be released on Friday by the Kellogg School of Management at Northwestern University.
The researchers also found that borrowers are 23 per cent more likely to strategically default on their mortgage once their neighbours walk away from their homes.
“There is a contagion effect, it’s like a disease,” said Paola Sapienza, one of the professors who conducted the study.
The problem of underwater borrowers is the latest wrinkle in the housing crisis that started with subprime loans and quickly spilled over into more of the mainstream population.
Unlike low-income borrowers who have lost their jobs and are unable to make mortgage payments, people who are underwater are choosing to walk way from their homes, even though they have the ability to pay, because the value of the property has declined so precipitously. “It’s an economic decision,” Ms Sapienza said.
The researchers said that banks and mortgage servicers have contributed to the sense that it’s “okay to walk away” by not aggressively pursuing delinquent borrowers.
“Even in recourse states, where banks have the legal means to go after delinquent borrowers, the evidence shows that they are doing very little,” Ms Sapienza said.
As a result, the moral stigma attached to walking away had started to dissipate, said Jon Maddux, the chief executive of You Walk Away, which, for a fee, guides homeowners through the foreclosure process. “People are starting to change their way of thinking. It’s almost become trendy to walk away from your home,” he said.
It does not always make financial sense to walk away, however. Borrowers must factor in the cost of moving and resettling their families elsewhere.
Ms Sapienza estimates that walking away is economically worthwhile only when borrowers owe 25 per cent or more on their mortgages than the house is worth.
Recent studies have suggested that homes underwater may not regain their original value for decades.
Morgan Stanley also released data on Thursday that showed strategic defaults had increased considerably in recent months.
The bank estimates that 10.7m homeowners are underwater, or about 23 per cent of all properties in foreclosure.
“Strategic defaults have emerged as a key theme in the context of the ongoing foreclosure crisis in US housing,” Vishwanath Tirupattur, analyst, wrote. Although he said he hoped new government programmes designed to tackle the problem would start to show results, he added, “there is much work to be done.”
First American CoreLogic estimates that 11.3m, or 24 per cent, of residential properties were underwater at the end of the fourth quarter, up from 10.7m, or 23 per cent, at the end of the third quarter.
EU and China move closer to Iran sanctions
EU and China move closer to Iran sanctions
© Reuters Limited
April 30, 2010
http://www.ft.com/cms/s/0/eede8924-5431-11df-b75d-00144feab49a.html
BEIJING, April 30 – European talks with Chinese leaders over Iran have moved towards how to target sanctions rather than whether they should be applied at all, the European Union said on Friday.
Catherine Ashton, EU foreign affairs chief, said she told Chinese premier Wen Jiabao sanctions were needed to keep pressure on Iran over its nuclear activities and that she felt China had accepted that position.
“Premier Wen was clearly in process of saying we should have them (sanctions) but ... he wants them to be targeted,” she said.
Mr Wen’s stance appears in line with a statement by China’s Foreign Ministry on Wednesday that China “does not oppose the twin track strategy” of dialogue and sanctions.
That statement, which followed a meeting of the Chinese and French presidents, reiterated China still hoped dialogue would resolve the issue. French president Nicolas Sarkozy said after the meeting the time for sanctions was nearing.
Recent overtures by Iran for talks did not mean sanctions should be abandoned, Ms Ashton said, adding she believed the two-track approach was needed to keep up pressure.
Beijing faces growing calls from Western governments to support a fresh round of UN Security Council sanctions against Iran over its disputed nuclear activities, even as it tries to steer a diplomatic middle role between powerful, nuclear-armed states and those without nuclear capacity.
Although China has been discussing possible sanctions, it has also long stressed that Iranian demands for peaceful nuclear power must also be heeded and has in the past expressed displeasure at sanctions proposals hitting Iran’s energy sector.
Iran rejects Western charges that it is secretly developing atomic weapons and says the goal of its nuclear programme is the generation of electricity and other peaceful activities. But Iran has defied five Security Council resolutions ordering it to cease uranium enrichment.
After meetings with top Chinese diplomats, Ashton will fly to New York where she is due to address the UN Security Council.
© Reuters Limited
April 30, 2010
http://www.ft.com/cms/s/0/eede8924-5431-11df-b75d-00144feab49a.html
BEIJING, April 30 – European talks with Chinese leaders over Iran have moved towards how to target sanctions rather than whether they should be applied at all, the European Union said on Friday.
Catherine Ashton, EU foreign affairs chief, said she told Chinese premier Wen Jiabao sanctions were needed to keep pressure on Iran over its nuclear activities and that she felt China had accepted that position.
“Premier Wen was clearly in process of saying we should have them (sanctions) but ... he wants them to be targeted,” she said.
Mr Wen’s stance appears in line with a statement by China’s Foreign Ministry on Wednesday that China “does not oppose the twin track strategy” of dialogue and sanctions.
That statement, which followed a meeting of the Chinese and French presidents, reiterated China still hoped dialogue would resolve the issue. French president Nicolas Sarkozy said after the meeting the time for sanctions was nearing.
Recent overtures by Iran for talks did not mean sanctions should be abandoned, Ms Ashton said, adding she believed the two-track approach was needed to keep up pressure.
Beijing faces growing calls from Western governments to support a fresh round of UN Security Council sanctions against Iran over its disputed nuclear activities, even as it tries to steer a diplomatic middle role between powerful, nuclear-armed states and those without nuclear capacity.
Although China has been discussing possible sanctions, it has also long stressed that Iranian demands for peaceful nuclear power must also be heeded and has in the past expressed displeasure at sanctions proposals hitting Iran’s energy sector.
Iran rejects Western charges that it is secretly developing atomic weapons and says the goal of its nuclear programme is the generation of electricity and other peaceful activities. But Iran has defied five Security Council resolutions ordering it to cease uranium enrichment.
After meetings with top Chinese diplomats, Ashton will fly to New York where she is due to address the UN Security Council.
The Euro Trap By PAUL KRUGMAN
The Euro Trap
By PAUL KRUGMAN
Copyright by The New York Times
Published: April 29, 2010
http://www.nytimes.com/2010/04/30/opinion/30krugman.html?ref=opinion
Not that long ago, European economists used to mock their American counterparts for having questioned the wisdom of Europe’s march to monetary union. “On the whole,” declared an article published just this past January, “the euro has, thus far, gone much better than many U.S. economists had predicted.”
Oops. The article summarized the euro-skeptics’ views as having been: “It can’t happen, it’s a bad idea, it won’t last.” Well, it did happen, but right now it does seem to have been a bad idea for exactly the reasons the skeptics cited. And as for whether it will last — suddenly, that’s looking like an open question.
To understand the euro-mess — and its lessons for the rest of us — you need to see past the headlines. Right now everyone is focused on public debt, which can make it seem as if this is a simple story of governments that couldn’t control their spending. But that’s only part of the story for Greece, much less for Portugal, and not at all the story for Spain.
The fact is that three years ago none of the countries now in or near crisis seemed to be in deep fiscal trouble. Even Greece’s 2007 budget deficit was no higher, as a share of G.D.P., than the deficits the United States ran in the mid-1980s (morning in America!), while Spain actually ran a surplus. And all of the countries were attracting large inflows of foreign capital, largely because markets believed that membership in the euro zone made Greek, Portuguese and Spanish bonds safe investments.
Then came the global financial crisis. Those inflows of capital dried up; revenues plunged and deficits soared; and membership in the euro, which had encouraged markets to love the crisis countries not wisely but too well, turned into a trap.
What’s the nature of the trap? During the years of easy money, wages and prices in the crisis countries rose much faster than in the rest of Europe. Now that the money is no longer rolling in, those countries need to get costs back in line.
But that’s a much harder thing to do now than it was when each European nation had its own currency. Back then, costs could be brought in line by adjusting exchange rates — e.g., Greece could cut its wages relative to German wages simply by reducing the value of the drachma in terms of Deutsche marks. Now that Greece and Germany share the same currency, however, the only way to reduce Greek relative costs is through some combination of German inflation and Greek deflation. And since Germany won’t accept inflation, deflation it is.
The problem is that deflation — falling wages and prices — is always and everywhere a deeply painful process. It invariably involves a prolonged slump with high unemployment. And it also aggravates debt problems, both public and private, because incomes fall while the debt burden doesn’t.
Hence the crisis. Greece’s fiscal woes would be serious but probably manageable if the Greek economy’s prospects for the next few years looked even moderately favorable. But they don’t. Earlier this week, when it downgraded Greek debt, Standard & Poor’s suggested that the euro value of Greek G.D.P. may not return to its 2008 level until 2017, meaning that Greece has no hope of growing out of its troubles.
All this is exactly what the euro-skeptics feared. Giving up the ability to adjust exchange rates, they warned, would invite future crises. And it has.
So what will happen to the euro? Until recently, most analysts, myself included, considered a euro breakup basically impossible, since any government that even hinted that it was considering leaving the euro would be inviting a catastrophic run on its banks. But if the crisis countries are forced into default, they’ll probably face severe bank runs anyway, forcing them into emergency measures like temporary restrictions on bank withdrawals. This would open the door to euro exit.
So is the euro itself in danger? In a word, yes. If European leaders don’t start acting much more forcefully, providing Greece with enough help to avoid the worst, a chain reaction that starts with a Greek default and ends up wreaking much wider havoc looks all too possible.
Meanwhile, what are the lessons for the rest of us?
The deficit hawks are already trying to appropriate the European crisis, presenting it as an object lesson in the evils of government red ink. What the crisis really demonstrates, however, is the dangers of putting yourself in a policy straitjacket. When they joined the euro, the governments of Greece, Portugal and Spain denied themselves the ability to do some bad things, like printing too much money; but they also denied themselves the ability to respond flexibly to events.
And when crisis strikes, governments need to be able to act. That’s what the architects of the euro forgot — and the rest of us need to remember.
By PAUL KRUGMAN
Copyright by The New York Times
Published: April 29, 2010
http://www.nytimes.com/2010/04/30/opinion/30krugman.html?ref=opinion
Not that long ago, European economists used to mock their American counterparts for having questioned the wisdom of Europe’s march to monetary union. “On the whole,” declared an article published just this past January, “the euro has, thus far, gone much better than many U.S. economists had predicted.”
Oops. The article summarized the euro-skeptics’ views as having been: “It can’t happen, it’s a bad idea, it won’t last.” Well, it did happen, but right now it does seem to have been a bad idea for exactly the reasons the skeptics cited. And as for whether it will last — suddenly, that’s looking like an open question.
To understand the euro-mess — and its lessons for the rest of us — you need to see past the headlines. Right now everyone is focused on public debt, which can make it seem as if this is a simple story of governments that couldn’t control their spending. But that’s only part of the story for Greece, much less for Portugal, and not at all the story for Spain.
The fact is that three years ago none of the countries now in or near crisis seemed to be in deep fiscal trouble. Even Greece’s 2007 budget deficit was no higher, as a share of G.D.P., than the deficits the United States ran in the mid-1980s (morning in America!), while Spain actually ran a surplus. And all of the countries were attracting large inflows of foreign capital, largely because markets believed that membership in the euro zone made Greek, Portuguese and Spanish bonds safe investments.
Then came the global financial crisis. Those inflows of capital dried up; revenues plunged and deficits soared; and membership in the euro, which had encouraged markets to love the crisis countries not wisely but too well, turned into a trap.
What’s the nature of the trap? During the years of easy money, wages and prices in the crisis countries rose much faster than in the rest of Europe. Now that the money is no longer rolling in, those countries need to get costs back in line.
But that’s a much harder thing to do now than it was when each European nation had its own currency. Back then, costs could be brought in line by adjusting exchange rates — e.g., Greece could cut its wages relative to German wages simply by reducing the value of the drachma in terms of Deutsche marks. Now that Greece and Germany share the same currency, however, the only way to reduce Greek relative costs is through some combination of German inflation and Greek deflation. And since Germany won’t accept inflation, deflation it is.
The problem is that deflation — falling wages and prices — is always and everywhere a deeply painful process. It invariably involves a prolonged slump with high unemployment. And it also aggravates debt problems, both public and private, because incomes fall while the debt burden doesn’t.
Hence the crisis. Greece’s fiscal woes would be serious but probably manageable if the Greek economy’s prospects for the next few years looked even moderately favorable. But they don’t. Earlier this week, when it downgraded Greek debt, Standard & Poor’s suggested that the euro value of Greek G.D.P. may not return to its 2008 level until 2017, meaning that Greece has no hope of growing out of its troubles.
All this is exactly what the euro-skeptics feared. Giving up the ability to adjust exchange rates, they warned, would invite future crises. And it has.
So what will happen to the euro? Until recently, most analysts, myself included, considered a euro breakup basically impossible, since any government that even hinted that it was considering leaving the euro would be inviting a catastrophic run on its banks. But if the crisis countries are forced into default, they’ll probably face severe bank runs anyway, forcing them into emergency measures like temporary restrictions on bank withdrawals. This would open the door to euro exit.
So is the euro itself in danger? In a word, yes. If European leaders don’t start acting much more forcefully, providing Greece with enough help to avoid the worst, a chain reaction that starts with a Greek default and ends up wreaking much wider havoc looks all too possible.
Meanwhile, what are the lessons for the rest of us?
The deficit hawks are already trying to appropriate the European crisis, presenting it as an object lesson in the evils of government red ink. What the crisis really demonstrates, however, is the dangers of putting yourself in a policy straitjacket. When they joined the euro, the governments of Greece, Portugal and Spain denied themselves the ability to do some bad things, like printing too much money; but they also denied themselves the ability to respond flexibly to events.
And when crisis strikes, governments need to be able to act. That’s what the architects of the euro forgot — and the rest of us need to remember.
36 Hours in Beirut
36 Hours in Beirut
By SETH SHERWOOD
Copyright by The New York Times
Published: May 2, 2010
http://travel.nytimes.com/2010/05/02/travel/02hours.html?hpw
WANT a Beirut investment tip? Concrete. Thanks to a couple of years of political calm, the palm-fringed Middle Eastern city is bingeing on new buildings and cultural projects. A fast-expanding night-life strip, an upstart design district, new hotels and the country’s first contemporary art museum have all sprouted in the last few years. And they’re certainly not going unnoticed. A record number of travelers showed up to discover Lebanon and its capital in 2009. If the peace holds, look for an even bigger swell this year.
Beirut, Lebanon
Friday
5 p.m.
1) SMOKE ON THE WATER
Muslim women in headscarves, scruffy locals in rock T-shirts, Filipina baby sitters: come dusk, Beirut’s seaside walkway known as the Corniche becomes host to a city on parade. To watch it and enjoy views of the glittering Mediterranean while you’re at it, start across from the Hard Rock Cafe (where an outdoor banner reads, “The time will come when you see we are all one...”) and stroll west past the fast-rising hotels, luxury apartment buildings and the leafy campus of the American University of Beirut. The Manara Palace Cafe (961-1-364-949), next to the lighthouse on the water, is a perfect place to absorb the salt air, wash of waves, cry of seagulls and fiery sunset while drinking fresh mango juice (7,500 pounds, or $5 at 1,492 Lebanese pounds to the dollar) and smoking sweet fruit tobacco from a narghile pipe (12,000 pounds).
8 p.m.
2) DUELING FLAVORS
The city’s top two regional cuisines, Lebanese and Armenian, are served up masterfully at Al Mayass (Wadih Naim Street, Ashrafieh; 961-1-215-046), an Old World-style restaurant where a lively soundtrack is provided by roaming musicians. Itch, a zesty cold salad of bulgur, finely chopped parsley, diced tomato, lemon and spices, cuts the Middle East heat. But the marquee attraction is the grilled kebab in syrupy cherry sauce. Dinner for two with arak, the local aniseed liquor, runs about 140,000 pounds.
11 p.m.
3) MIDEAST GROOVES
Late night unleashes a sea of C’s — Champagne, Chivas Regal, Cohibas, Cartier, cleavage — at Music Hall (Starco Center, Minet El Hosn; 961-3-807-555; elefteriades.com), where dolled-up young professionals, cigar-smoking captains of industry and local celebrities fill the plush red booths and chairs to watch more than a dozen musical acts belt out a globetrotting playlist. Backed by an orchestra in red robes, the talents range from leopard-print divas doing Beyoncé covers to the Chehade Brothers, a Palestinian pair who kick out rollicking Arabian jams in exotic scales. Book in advance. The $55 cover charge is applied toward drinks. (Note that prices are often quoted in American currency, and dollars are widely accepted.)
Saturday
11 a.m.
4) FARM FRESH
Find an empty suitcase and wheel it down to Souk El Tayeb (Saifi Village parking lot; 961-1-442-664; soukeltayeb.com), Beirut’s first farmers’ market, which started in 2004. Drawn from a broad spectrum of Lebanon’s diverse faiths and rural regions, the dozens of growers, producers and artisans who gather every Saturday (9 a.m. to 2 p.m.) represent both a subtle social experiment in national reconciliation and an excellent market for snapping up local olive oil, tomatoes, cheeses, jams, breads, soaps, baskets, flowers and nearly everything else from Lebanon’s horn of plenty. It’s a prime spot to assemble a farm-fresh brunch. The Earth & Co. stand serves hot manouche (5,000 pounds), warm thin sourdough bread wrapped around thyme, labneh cheese and sliced tomato.
1 p.m.
5) THE LEBANESE AESTHETIC
Whether you’re furnishing a sultan’s palace or a mere studio, the Ottoman-style town houses in Saifi Village are quickly filling with boutiques from top Lebanese design talents. Nada Debs (Moukhalsieh Street; 961-1-999-002; nadadebs.com) mixes Far East and Middle East styles, like a cube-shaped oak candleholder inlaid with geometric mother-of-pearl patterns ($100). And Bokja (just off Moukhalsieh Street; 961-1-975-576; bokjadesign.com), run by the design duo Maria Hibri and Hoda Baroudi, takes iconic chairs and sofas by Western designers, like the classic Eames lounger, and reupholsters them with kaleidoscopic collages of fabrics from the Middle East, Central Asia and beyond.
4 p.m.
6) AVANT-GARDE AFTERNOON
With the new Beirut Art Center (Jisr El Wati, Street 97, Building 13; 961-1-397-018; beirutartcenter.org), the Lebanese capital is emerging as a strong contender for the art capital of the Middle East. Opened last year, the nation’s first contemporary art museum is an airy white two-level space that holds rotating exhibitions — often two at a time — all year long. From the experimental films of the Lebanese architect Bernard Khoury to the photographs of Emily Jacir, a Palestinian conceptual artist, the museum’s rotating exhibitions are the most unusual, adventurous, intellectually challenging and envelope-pushing that you’ll find in Beirut.
8 p.m.
7) A RETURN TO PARIS
A clutch of new French restaurants seem bent on recapturing Beirut’s long-ago nickname as Paris of the Middle East. Opened in November, the neo-bistro Couqley (The Alleyway, Gouraud Street, Gemmayzeh; 961-1-442-678; couqley.com) is run by the French-American-Belgian chef Alexis Couquelet, who is a veteran of top Gallic kitchens including Paris’s Market and La Bastide de St.-Tropez. Twice a week, he receives shipments of beef and duck flown in from France, resulting in a thick filet de boeuf with a Bordelaise sauce, and a confit de canard jazzed up with fresh raspberries that cut the fatty duck with fruity acidic zing. Book in advance. Dinner for two, without wine, about 120,000 pounds.
11 p.m.
8) THE COCKTAIL DISTRICT
Mashroob is the word for a drink in Arabic, and you’ll find a whirlwind of them in the red-hot Gemmayzeh district. There’s a bar for every clique and mood. Bourgeois singles and 40-something divorcées sip Chateau Ksara wine and crowd the long bar at Kayan (Liban Street, Gemmayzeh; 961-1-563-611), an airy and vaguely British colonial-style bar. For live Arabian music, backgammon and water pipes, try Gemmayzeh Café (Gouraud Street, Gemmayzeh; 961-1-580-817). And when it’s time to dance to D.J.-spun electro, house and indie rock, the self-styled cool kids and creative set swill Almaza beer in the velvety confines of Behind the Green Door (across from Electricité du Liban, Gouraud Street, Mar Mikhael; 961-70-856-866).
Noon
9) A BEIRUT BRUNCH
If you’re still feeling the excess of your Arabian night, mimosas and Bloody Marys await at Casablanca (Dar El Mreisseh Street, Ein El Mreisseh; 961-1-369-334), an Ottoman-era mansion restored with funky colors and contemporary art. Menu items like French toast, eggs Benedict and bagels with smoked salmon suggest a New York City diner. But the chatter of Arabic, French and English from Lebanese brunchers brings you back to cosmopolitan Beirut. Brunch for two, about 60,000 pounds.
2 p.m.
10) LEVANTINE SHORES
In a city of many faiths — Christian, Sunni, Shiite, Druze — at least one religion is universally practiced: sun worship. One of the most pleasant temples is Lazy B (off the airport highway, Jiyeh; 961-70-95-00-10; lazyb.me), about 20 miles south of Beirut. From May to October, the tranquil beach club features a smorgasbord of sandy coast, rocky coves, grassy expanses, scenic outdoor terraces, swimming pools and other spots where hordes of heliophiles absorb ultraviolet rays and cultivate their bronzed exteriors. So here’s a final Beirut investment tip: suntan oil.
IF YOU GO
Many airlines including Air France, Lufthansa and Egypt Air offer flights to Beirut from New York City with a layover. A recent search found a Lufthansa flight in May from Kennedy Airport, with a change in Frankfurt, for about $1,200.
The newest luxury hotel is the Four Seasons Hotel Beirut (1418 Avenue Professor Wafic Sinno, Minet El Hosn; 961-1-761-000; fourseasons.com/beirut). Opened this year, the 230-room hotel has a sleek Mediterranean restaurant and a plush colonial-style bar, with doubles from $250.
Orient Queen Homes (John Kennedy Street, Ras Beirut; 961-1-361-140;orientqueenhomes.com), near the American University of Beirut, opened last year and has 71 apartments and suites done in angular Ikea-esque style. Studios start at $150.
A good budget bet is the Mayflower Hotel (Yafet Street, Hamra, 961-1-340-680; mayflowerbeirut.com), a British colonial-style hotel that was spruced up in 2007 and offers Mediterranean vistas and a rooftop pool, with 85 rooms from $130.
By SETH SHERWOOD
Copyright by The New York Times
Published: May 2, 2010
http://travel.nytimes.com/2010/05/02/travel/02hours.html?hpw
WANT a Beirut investment tip? Concrete. Thanks to a couple of years of political calm, the palm-fringed Middle Eastern city is bingeing on new buildings and cultural projects. A fast-expanding night-life strip, an upstart design district, new hotels and the country’s first contemporary art museum have all sprouted in the last few years. And they’re certainly not going unnoticed. A record number of travelers showed up to discover Lebanon and its capital in 2009. If the peace holds, look for an even bigger swell this year.
Beirut, Lebanon
Friday
5 p.m.
1) SMOKE ON THE WATER
Muslim women in headscarves, scruffy locals in rock T-shirts, Filipina baby sitters: come dusk, Beirut’s seaside walkway known as the Corniche becomes host to a city on parade. To watch it and enjoy views of the glittering Mediterranean while you’re at it, start across from the Hard Rock Cafe (where an outdoor banner reads, “The time will come when you see we are all one...”) and stroll west past the fast-rising hotels, luxury apartment buildings and the leafy campus of the American University of Beirut. The Manara Palace Cafe (961-1-364-949), next to the lighthouse on the water, is a perfect place to absorb the salt air, wash of waves, cry of seagulls and fiery sunset while drinking fresh mango juice (7,500 pounds, or $5 at 1,492 Lebanese pounds to the dollar) and smoking sweet fruit tobacco from a narghile pipe (12,000 pounds).
8 p.m.
2) DUELING FLAVORS
The city’s top two regional cuisines, Lebanese and Armenian, are served up masterfully at Al Mayass (Wadih Naim Street, Ashrafieh; 961-1-215-046), an Old World-style restaurant where a lively soundtrack is provided by roaming musicians. Itch, a zesty cold salad of bulgur, finely chopped parsley, diced tomato, lemon and spices, cuts the Middle East heat. But the marquee attraction is the grilled kebab in syrupy cherry sauce. Dinner for two with arak, the local aniseed liquor, runs about 140,000 pounds.
11 p.m.
3) MIDEAST GROOVES
Late night unleashes a sea of C’s — Champagne, Chivas Regal, Cohibas, Cartier, cleavage — at Music Hall (Starco Center, Minet El Hosn; 961-3-807-555; elefteriades.com), where dolled-up young professionals, cigar-smoking captains of industry and local celebrities fill the plush red booths and chairs to watch more than a dozen musical acts belt out a globetrotting playlist. Backed by an orchestra in red robes, the talents range from leopard-print divas doing Beyoncé covers to the Chehade Brothers, a Palestinian pair who kick out rollicking Arabian jams in exotic scales. Book in advance. The $55 cover charge is applied toward drinks. (Note that prices are often quoted in American currency, and dollars are widely accepted.)
Saturday
11 a.m.
4) FARM FRESH
Find an empty suitcase and wheel it down to Souk El Tayeb (Saifi Village parking lot; 961-1-442-664; soukeltayeb.com), Beirut’s first farmers’ market, which started in 2004. Drawn from a broad spectrum of Lebanon’s diverse faiths and rural regions, the dozens of growers, producers and artisans who gather every Saturday (9 a.m. to 2 p.m.) represent both a subtle social experiment in national reconciliation and an excellent market for snapping up local olive oil, tomatoes, cheeses, jams, breads, soaps, baskets, flowers and nearly everything else from Lebanon’s horn of plenty. It’s a prime spot to assemble a farm-fresh brunch. The Earth & Co. stand serves hot manouche (5,000 pounds), warm thin sourdough bread wrapped around thyme, labneh cheese and sliced tomato.
1 p.m.
5) THE LEBANESE AESTHETIC
Whether you’re furnishing a sultan’s palace or a mere studio, the Ottoman-style town houses in Saifi Village are quickly filling with boutiques from top Lebanese design talents. Nada Debs (Moukhalsieh Street; 961-1-999-002; nadadebs.com) mixes Far East and Middle East styles, like a cube-shaped oak candleholder inlaid with geometric mother-of-pearl patterns ($100). And Bokja (just off Moukhalsieh Street; 961-1-975-576; bokjadesign.com), run by the design duo Maria Hibri and Hoda Baroudi, takes iconic chairs and sofas by Western designers, like the classic Eames lounger, and reupholsters them with kaleidoscopic collages of fabrics from the Middle East, Central Asia and beyond.
4 p.m.
6) AVANT-GARDE AFTERNOON
With the new Beirut Art Center (Jisr El Wati, Street 97, Building 13; 961-1-397-018; beirutartcenter.org), the Lebanese capital is emerging as a strong contender for the art capital of the Middle East. Opened last year, the nation’s first contemporary art museum is an airy white two-level space that holds rotating exhibitions — often two at a time — all year long. From the experimental films of the Lebanese architect Bernard Khoury to the photographs of Emily Jacir, a Palestinian conceptual artist, the museum’s rotating exhibitions are the most unusual, adventurous, intellectually challenging and envelope-pushing that you’ll find in Beirut.
8 p.m.
7) A RETURN TO PARIS
A clutch of new French restaurants seem bent on recapturing Beirut’s long-ago nickname as Paris of the Middle East. Opened in November, the neo-bistro Couqley (The Alleyway, Gouraud Street, Gemmayzeh; 961-1-442-678; couqley.com) is run by the French-American-Belgian chef Alexis Couquelet, who is a veteran of top Gallic kitchens including Paris’s Market and La Bastide de St.-Tropez. Twice a week, he receives shipments of beef and duck flown in from France, resulting in a thick filet de boeuf with a Bordelaise sauce, and a confit de canard jazzed up with fresh raspberries that cut the fatty duck with fruity acidic zing. Book in advance. Dinner for two, without wine, about 120,000 pounds.
11 p.m.
8) THE COCKTAIL DISTRICT
Mashroob is the word for a drink in Arabic, and you’ll find a whirlwind of them in the red-hot Gemmayzeh district. There’s a bar for every clique and mood. Bourgeois singles and 40-something divorcées sip Chateau Ksara wine and crowd the long bar at Kayan (Liban Street, Gemmayzeh; 961-1-563-611), an airy and vaguely British colonial-style bar. For live Arabian music, backgammon and water pipes, try Gemmayzeh Café (Gouraud Street, Gemmayzeh; 961-1-580-817). And when it’s time to dance to D.J.-spun electro, house and indie rock, the self-styled cool kids and creative set swill Almaza beer in the velvety confines of Behind the Green Door (across from Electricité du Liban, Gouraud Street, Mar Mikhael; 961-70-856-866).
Noon
9) A BEIRUT BRUNCH
If you’re still feeling the excess of your Arabian night, mimosas and Bloody Marys await at Casablanca (Dar El Mreisseh Street, Ein El Mreisseh; 961-1-369-334), an Ottoman-era mansion restored with funky colors and contemporary art. Menu items like French toast, eggs Benedict and bagels with smoked salmon suggest a New York City diner. But the chatter of Arabic, French and English from Lebanese brunchers brings you back to cosmopolitan Beirut. Brunch for two, about 60,000 pounds.
2 p.m.
10) LEVANTINE SHORES
In a city of many faiths — Christian, Sunni, Shiite, Druze — at least one religion is universally practiced: sun worship. One of the most pleasant temples is Lazy B (off the airport highway, Jiyeh; 961-70-95-00-10; lazyb.me), about 20 miles south of Beirut. From May to October, the tranquil beach club features a smorgasbord of sandy coast, rocky coves, grassy expanses, scenic outdoor terraces, swimming pools and other spots where hordes of heliophiles absorb ultraviolet rays and cultivate their bronzed exteriors. So here’s a final Beirut investment tip: suntan oil.
IF YOU GO
Many airlines including Air France, Lufthansa and Egypt Air offer flights to Beirut from New York City with a layover. A recent search found a Lufthansa flight in May from Kennedy Airport, with a change in Frankfurt, for about $1,200.
The newest luxury hotel is the Four Seasons Hotel Beirut (1418 Avenue Professor Wafic Sinno, Minet El Hosn; 961-1-761-000; fourseasons.com/beirut). Opened this year, the 230-room hotel has a sleek Mediterranean restaurant and a plush colonial-style bar, with doubles from $250.
Orient Queen Homes (John Kennedy Street, Ras Beirut; 961-1-361-140;orientqueenhomes.com), near the American University of Beirut, opened last year and has 71 apartments and suites done in angular Ikea-esque style. Studios start at $150.
A good budget bet is the Mayflower Hotel (Yafet Street, Hamra, 961-1-340-680; mayflowerbeirut.com), a British colonial-style hotel that was spruced up in 2007 and offers Mediterranean vistas and a rooftop pool, with 85 rooms from $130.
White House Takes a Bigger Role in the Oil Spill Cleanup/Weather hurts Gulf oil fight; new drilling on hold
White House Takes a Bigger Role in the Oil Spill Cleanup
By CAMPBELL ROBERTSON
Copyright by The New York Times
Published: April 29, 2010
http://www.nytimes.com/2010/04/30/us/30gulf.html?hpw
NEW ORLEANS — The response to the oil spill in the Gulf of Mexico intensified abruptly on Thursday, with the federal government intervening more aggressively as the rapidly growing slick drifted ever closer to the fragile coastline of Louisiana.
Calling it “a spill of national significance” which could threaten coastline in several states, Homeland Security Secretary Janet Napolitano announced the creation of a second command post in Mobile, Ala., in addition to the one in Louisiana, to manage potential coastal impact in Alabama, Mississippi and Florida. Interior Secretary Ken Salazar ordered an immediate review of the 30 offshore drilling rigs and 47 production platforms operating in the deepwater Gulf, and is sending teams to conduct on-site inspections.
The oil slick was only three miles offshore on Thursday afternoon and was expected to hit coastal Louisiana as early as Thursday night, prompting Gov. Bobby Jindal to declare a state of emergency and to request the participation of the National Guard in response efforts. About 40,000 feet of boom had been placed around Pass-a-Loutre, the area of the Mississippi River Delta where the oil was expected to touch first, a spokesman for Mr. Jindal said.
The Navy provided 50 contractors, 7 skimming systems and 66,000 feet of inflatable containment boom, a spokesman said. About 210,000 feet of boom had been laid down to protect the shoreline in several places along the Gulf Coast, though experts said that marshlands presented a far more daunting cleaning challenge than sandy beaches.
Eight days after the first explosion on the rig, which left 11 workers missing and presumed dead, the tenor of the response team’s briefings changed abruptly Wednesday night with a hastily called news conference to announce that the rate of the spill was estimated to be 5,000 barrels a day, or more than 200,000 gallons — five times the previous estimate. By Thursday, it was apparent that the cleanup operation desperately needed help, with no indication that the well would be sealed any time soon and oil drifting closer to shore.
The response effort has been driven by BP, the company that was leasing the rig and is responsible for the cleanup, under the oversight of the Coast Guard and in consultation with the Minerals Management Service and the National Oceanic and Atmospheric Administration. While additional federal resources, including naval support, were available before Wednesday, officials had given little indication that such reinforcements would be deployed so quickly and at such a scale.
“Some of it existed from the start,” Rear Adm. Mary E. Landry of the Coast Guard, the federal on-scene coordinator, said of the federal resources. “We can ramp it up as we need it.”
Referring to what she called “dynamic tension” among the participants in a spill response, Admiral Landry said it was her duty to ensure that BP was trying every approach available.
“If BP does not request these resources, then I can and I will,” she said.
Asked whether the Coast Guard had confidence in BP’s efforts, Admiral Landry said, “BP, from Day 1, has attempted to be very responsive and be a very responsible spiller.”
BP, in turn, has pointed out on more than one occasion that Transocean owned the oil rig and the blowout preventer, a device that apparently failed to function properly and that is continuing to be the most significant obstacle to stopping the spill.
Underscoring how acute the situation has become, BP is soliciting ideas and techniques from four other major oil companies — Exxon Mobil, Chevron, Shell and Anadarko. BP officials have also requested help from the Defense Department in efforts to activate the blowout preventer, a stack of hydraulically activated valves at the top of the well that is designed to seal it off in the event of a sudden pressure release.
Doug Suttles, the chief operating officer for exploration and production for BP, said the company had asked the military for better imaging technology and more advanced remotely operated vehicles. As of now, there are six such vehicles monitoring or trying to fix the blowout preventer, which sits on the sea floor.
“To be frank, the offer of help from all quarters is welcome,” said David Nicholas, a BP spokesman.
But Norman Polmar, an expert on military systems, said the robotic submersibles used by the oil industry were better equipped to try to stop the oil leak than any of the Navy’s minisubs. The Navy’s unmanned subs have cameras and can retrieve bits of hardware, he said, but are not designed to plug a hole in a pipe or do repair work.
Other efforts to contain the spill included a tactic that Admiral Landry called “absolutely novel”: crews awaited approval on Thursday night to begin deploying chemical dispersants underwater near the source of the leaks. Aircraft have dropped nearly 100,000 gallons of the dispersants on the water’s surface to break down the oil, a more conventional strategy.
BP is also designing and building large boxlike structures that could be lowered over the leaks in the riser, the 5,000-foot-long pipe that connected the well to the rig and has since become detached and is snaking along the sea floor. The structures would contain the leaking oil and route it to the surface to be collected. This temporary solution could take several weeks to execute.
Mr. Suttles said three such structures were being prepared, one of which is complete and could corral the worst of the leaks. But citing the disclosure of the new leak on Wednesday night, experts said more were certainly possible.
“All that movement is going to continue to stress and fatigue the pipe and create more leaks,” said Jeffrey Short, Pacific science director for Oceana and former chemist with the National Oceanic and Atmospheric Administration who helped clean the spill from the Exxon Valdez in 1989.
“This is not on a good trajectory,” he added.
The next solution is drilling relief wells that would allow crews to plug the gushing cavity with mud, concrete or other heavy liquid. The drilling of one such well is expected to begin in the next 48 hours, Mr. Suttles said, but it could be three months before the leak is plugged by this method.
The legal and political dimensions of the oil spill spread as well on Thursday, with lawyers filing suits on behalf of commercial fishermen, shrimpers and injured workers against BP; Transocean; Cameron, the company that manufactured the blowout preventer; and other companies involved in the drilling process, including Halliburton.
Representative Edward J. Markey, a Massachusetts Democrat who is chairman of the Select Committee on Energy Independence and Global Warming, has asked the heads of major oil companies, including BP, to testify at a hearing about the spill.
Opponents of President Obama’s plan to expand offshore drilling have also called for a halt. Senator Bill Nelson, Democrat of Florida, called Thursday for a moratorium on all new offshore oil exploration while the cause of this rig explosion is under investigation. Mr. Nelson, a longtime opponent of oil drilling off the coasts of Florida, said in a letter to Mr. Obama that the spreading oil spill threatened environmental and economic disaster all along the Gulf Coast.
Administration officials stressed that the president’s offshore drilling plan was the beginning of a lengthy review process and did not mean that large new areas would see immediate oil and gas activity. They also said that they expected that members of Congress and the public would have new questions about the safety of offshore operations and that the administration would rethink its commitment to offshore drilling in light of the accident.
“That is the beginning of a process,” said Carol M. Browner, the White House coordinator of energy and climate policy. “What is occurring now will also be taken into consideration.”
Robbie Brown contributed reporting from Robert, La.; John M. Broder and Helene Cooper contributed from Washington; and Christopher Drew and Henry Fountain from New York.
Weather hurts Gulf oil fight; new drilling on hold
Copyright by The Associated Press
April 30, 2010
http://news.yahoo.com/s/ap/20100430/ap_on_bi_ge/us_louisiana_oil_rig_explosion
MOUTH OF THE MISSISSIPPI RIVER – Oil from a massive spill in the Gulf of Mexico was oozing into Louisiana's ecologically rich wetlands Friday as storms threatened to frustrate desperate protection efforts. The White House put a hold on any new offshore oil projects until the rig disaster that caused the spill is explained.
Crews in boats were patrolling coastal marshes early Friday looking for areas where the oil has flowed in, the Coast Guard said.
The National Weather Service predicted winds, high tides and waves through Sunday that could push oil deep into the inlets, ponds and lakes that line the boot of southeast Louisiana. Seas of 6 to 7 feet were pushing tides several feet above normal toward the coast, compounded by thunderstorms expected in the area Friday.
Crews are unable to skim oil from the surface or burn it off for the next couple of days because of the weather, Coast Guard Rear Adm. Sally Brice-O'Hara said on ABC's "Good Morning America."
Waves may also wash over booms strung out just off shorelines to stop the oil, said Tom McKenzie, a spokesman for U.S. Fish and Wildlife Service, which is hoping booms will keep oil off the Chandeleur Islands, part of a national wildlife refuge.
"The challenge is, are they going to hold up in any kind of serious weather," McKenzie said. "And if there's oil, will the oil overcome the barriers even though they're ... executed well?"
A top adviser to President Barack Obama said Friday that no new oil drilling would be allowed until authorities learn what caused the explosion of the rig Deepwater Horizon. David Axelrod told ABC's "Good Morning America" that "no additional drilling has been authorized and none will until we find out what has happened here." Obama recently lifted a drilling moratorium for many offshore areas, including the Atlantic and Gulf areas.
The leak from a blown-out well a mile underwater is five times bigger than first believed. Faint fingers of oily sheen began reaching the Mississippi River delta late Thursday, lapping the Louisiana shoreline in long, thin lines. Thicker oil was farther offshore. Officials have said they would do everything to keep the Mississippi River open to traffic.
The Coast Guard defended the federal response so far. Asked on all three network television morning shows Friday whether the government has done enough to push oil company BP PLC to plug the underwater leak and protect the coast, Brice-O'Hara said theresponse led by the Coast Guard has been rapid, sustained and has adapted as the threat grew since a drill rig exploded and sank last week, causing the seafloor spill.
The oil slick could become the nation's worst environmental disaster in decades, threatening to eclipse even the Exxon Valdez in scope. It imperils hundreds of species of fish, birds and other wildlife along the Gulf Coast, one of the world's richest seafood grounds, teeming with shrimp, oysters and other marine life.
"It is of grave concern," David Kennedy of the National Oceanic and Atmospheric Administration, told The Associated Press about the spill. "I am frightened. This is a very, very big thing. And the efforts that are going to be required to do anything about it, especially if it continues on, are just mind-boggling."
Oil clumps seabirds' feathers, leaving them without insulation — and when they preen, they swallow it. Prolonged contact with the skin can cause burns, said Nils Warnock, a spill recovery supervisor with the California Oiled Wildlife Care Network at the University of California-Davis. Oil swallowed by animals can cause anemia, hemorrhaging and other problems, said Jay Holcomb, executive director of the International Bird Rescue Research Center in California.
The spewing oil — about 210,000 gallons a day — comes from a well drilled by the rig Deepwater Horizon, which exploded in flames April 20 and sank two days later. BP was operating the rig that was owned by Transocean Ltd. The Coast Guard is working with BP to deploy floating booms, skimmers and chemical dispersants, and set controlled fires to burn the oil off the water's surface.
The leak from the ocean floor proved to be far bigger than initially reported, contributing to a growing sense among some in Louisiana that the government failed them again, just as it did during Hurricane Katrina in 2005. President Obama dispatched Cabinet officials to deal with the crisis.
Cade Thomas, a fishing guide in Venice, worried that his livelihood will be destroyed. He said he did not know whether to blame the Coast Guard, the government or BP.
"They lied to us. They came out and said it was leaking 1,000 barrels when I think they knew it was more. And they weren't proactive," he said. "As soon as it blew up, they should have started wrapping it with booms."
BP shares continued falling early Friday. Shares were down 2 percent in early trading on the London Stock Exchange, a day after dropping 7 percent in London. In New York on Thursday, BP shares fell $4.78 to close at $52.56, taking the fall in the company's market value to about $25 billion since the explosion.
Government officials said the well 40 miles offshore is spewing about 5,000 barrels, or 200,000 gallons, a day into the gulf.
At that rate, the spill could eclipse the worst oil spill in U.S. history — the 11 million gallons that leaked from the grounded tanker Exxon Valdez in Alaska's Prince William Sound in 1989 — in the three months it could take to drill a relief well and plug the gushing well 5,000 feet underwater on the sea floor. Ultimately, the spill could grow much larger than the Valdez because Gulf of Mexico wells tap deposits that hold many times more oil than a single tanker.
BP has requested more resources from the Defense Department, especially underwater equipment that might be better than what is commercially available. A BP executive said the corporation would "take help from anyone." That includes fishermen who could be hired to help deploy containment boom.
Louisiana Gov. Bobby Jindal declared a state of emergency so officials could begin preparing for the oil's impact. He also asked the federal government if he could call up 6,000 National Guard troops to help.
Associated Press writers Holbrook Mohr in Mississippi, Phuong Le in Seattle, Janet McConnaughey, Kevin McGill, Michael Kunzelman and Brett Martel in New Orleans, and Melinda Deslatte in Baton Rouge also contributed to this report.
By CAMPBELL ROBERTSON
Copyright by The New York Times
Published: April 29, 2010
http://www.nytimes.com/2010/04/30/us/30gulf.html?hpw
NEW ORLEANS — The response to the oil spill in the Gulf of Mexico intensified abruptly on Thursday, with the federal government intervening more aggressively as the rapidly growing slick drifted ever closer to the fragile coastline of Louisiana.
Calling it “a spill of national significance” which could threaten coastline in several states, Homeland Security Secretary Janet Napolitano announced the creation of a second command post in Mobile, Ala., in addition to the one in Louisiana, to manage potential coastal impact in Alabama, Mississippi and Florida. Interior Secretary Ken Salazar ordered an immediate review of the 30 offshore drilling rigs and 47 production platforms operating in the deepwater Gulf, and is sending teams to conduct on-site inspections.
The oil slick was only three miles offshore on Thursday afternoon and was expected to hit coastal Louisiana as early as Thursday night, prompting Gov. Bobby Jindal to declare a state of emergency and to request the participation of the National Guard in response efforts. About 40,000 feet of boom had been placed around Pass-a-Loutre, the area of the Mississippi River Delta where the oil was expected to touch first, a spokesman for Mr. Jindal said.
The Navy provided 50 contractors, 7 skimming systems and 66,000 feet of inflatable containment boom, a spokesman said. About 210,000 feet of boom had been laid down to protect the shoreline in several places along the Gulf Coast, though experts said that marshlands presented a far more daunting cleaning challenge than sandy beaches.
Eight days after the first explosion on the rig, which left 11 workers missing and presumed dead, the tenor of the response team’s briefings changed abruptly Wednesday night with a hastily called news conference to announce that the rate of the spill was estimated to be 5,000 barrels a day, or more than 200,000 gallons — five times the previous estimate. By Thursday, it was apparent that the cleanup operation desperately needed help, with no indication that the well would be sealed any time soon and oil drifting closer to shore.
The response effort has been driven by BP, the company that was leasing the rig and is responsible for the cleanup, under the oversight of the Coast Guard and in consultation with the Minerals Management Service and the National Oceanic and Atmospheric Administration. While additional federal resources, including naval support, were available before Wednesday, officials had given little indication that such reinforcements would be deployed so quickly and at such a scale.
“Some of it existed from the start,” Rear Adm. Mary E. Landry of the Coast Guard, the federal on-scene coordinator, said of the federal resources. “We can ramp it up as we need it.”
Referring to what she called “dynamic tension” among the participants in a spill response, Admiral Landry said it was her duty to ensure that BP was trying every approach available.
“If BP does not request these resources, then I can and I will,” she said.
Asked whether the Coast Guard had confidence in BP’s efforts, Admiral Landry said, “BP, from Day 1, has attempted to be very responsive and be a very responsible spiller.”
BP, in turn, has pointed out on more than one occasion that Transocean owned the oil rig and the blowout preventer, a device that apparently failed to function properly and that is continuing to be the most significant obstacle to stopping the spill.
Underscoring how acute the situation has become, BP is soliciting ideas and techniques from four other major oil companies — Exxon Mobil, Chevron, Shell and Anadarko. BP officials have also requested help from the Defense Department in efforts to activate the blowout preventer, a stack of hydraulically activated valves at the top of the well that is designed to seal it off in the event of a sudden pressure release.
Doug Suttles, the chief operating officer for exploration and production for BP, said the company had asked the military for better imaging technology and more advanced remotely operated vehicles. As of now, there are six such vehicles monitoring or trying to fix the blowout preventer, which sits on the sea floor.
“To be frank, the offer of help from all quarters is welcome,” said David Nicholas, a BP spokesman.
But Norman Polmar, an expert on military systems, said the robotic submersibles used by the oil industry were better equipped to try to stop the oil leak than any of the Navy’s minisubs. The Navy’s unmanned subs have cameras and can retrieve bits of hardware, he said, but are not designed to plug a hole in a pipe or do repair work.
Other efforts to contain the spill included a tactic that Admiral Landry called “absolutely novel”: crews awaited approval on Thursday night to begin deploying chemical dispersants underwater near the source of the leaks. Aircraft have dropped nearly 100,000 gallons of the dispersants on the water’s surface to break down the oil, a more conventional strategy.
BP is also designing and building large boxlike structures that could be lowered over the leaks in the riser, the 5,000-foot-long pipe that connected the well to the rig and has since become detached and is snaking along the sea floor. The structures would contain the leaking oil and route it to the surface to be collected. This temporary solution could take several weeks to execute.
Mr. Suttles said three such structures were being prepared, one of which is complete and could corral the worst of the leaks. But citing the disclosure of the new leak on Wednesday night, experts said more were certainly possible.
“All that movement is going to continue to stress and fatigue the pipe and create more leaks,” said Jeffrey Short, Pacific science director for Oceana and former chemist with the National Oceanic and Atmospheric Administration who helped clean the spill from the Exxon Valdez in 1989.
“This is not on a good trajectory,” he added.
The next solution is drilling relief wells that would allow crews to plug the gushing cavity with mud, concrete or other heavy liquid. The drilling of one such well is expected to begin in the next 48 hours, Mr. Suttles said, but it could be three months before the leak is plugged by this method.
The legal and political dimensions of the oil spill spread as well on Thursday, with lawyers filing suits on behalf of commercial fishermen, shrimpers and injured workers against BP; Transocean; Cameron, the company that manufactured the blowout preventer; and other companies involved in the drilling process, including Halliburton.
Representative Edward J. Markey, a Massachusetts Democrat who is chairman of the Select Committee on Energy Independence and Global Warming, has asked the heads of major oil companies, including BP, to testify at a hearing about the spill.
Opponents of President Obama’s plan to expand offshore drilling have also called for a halt. Senator Bill Nelson, Democrat of Florida, called Thursday for a moratorium on all new offshore oil exploration while the cause of this rig explosion is under investigation. Mr. Nelson, a longtime opponent of oil drilling off the coasts of Florida, said in a letter to Mr. Obama that the spreading oil spill threatened environmental and economic disaster all along the Gulf Coast.
Administration officials stressed that the president’s offshore drilling plan was the beginning of a lengthy review process and did not mean that large new areas would see immediate oil and gas activity. They also said that they expected that members of Congress and the public would have new questions about the safety of offshore operations and that the administration would rethink its commitment to offshore drilling in light of the accident.
“That is the beginning of a process,” said Carol M. Browner, the White House coordinator of energy and climate policy. “What is occurring now will also be taken into consideration.”
Robbie Brown contributed reporting from Robert, La.; John M. Broder and Helene Cooper contributed from Washington; and Christopher Drew and Henry Fountain from New York.
Weather hurts Gulf oil fight; new drilling on hold
Copyright by The Associated Press
April 30, 2010
http://news.yahoo.com/s/ap/20100430/ap_on_bi_ge/us_louisiana_oil_rig_explosion
MOUTH OF THE MISSISSIPPI RIVER – Oil from a massive spill in the Gulf of Mexico was oozing into Louisiana's ecologically rich wetlands Friday as storms threatened to frustrate desperate protection efforts. The White House put a hold on any new offshore oil projects until the rig disaster that caused the spill is explained.
Crews in boats were patrolling coastal marshes early Friday looking for areas where the oil has flowed in, the Coast Guard said.
The National Weather Service predicted winds, high tides and waves through Sunday that could push oil deep into the inlets, ponds and lakes that line the boot of southeast Louisiana. Seas of 6 to 7 feet were pushing tides several feet above normal toward the coast, compounded by thunderstorms expected in the area Friday.
Crews are unable to skim oil from the surface or burn it off for the next couple of days because of the weather, Coast Guard Rear Adm. Sally Brice-O'Hara said on ABC's "Good Morning America."
Waves may also wash over booms strung out just off shorelines to stop the oil, said Tom McKenzie, a spokesman for U.S. Fish and Wildlife Service, which is hoping booms will keep oil off the Chandeleur Islands, part of a national wildlife refuge.
"The challenge is, are they going to hold up in any kind of serious weather," McKenzie said. "And if there's oil, will the oil overcome the barriers even though they're ... executed well?"
A top adviser to President Barack Obama said Friday that no new oil drilling would be allowed until authorities learn what caused the explosion of the rig Deepwater Horizon. David Axelrod told ABC's "Good Morning America" that "no additional drilling has been authorized and none will until we find out what has happened here." Obama recently lifted a drilling moratorium for many offshore areas, including the Atlantic and Gulf areas.
The leak from a blown-out well a mile underwater is five times bigger than first believed. Faint fingers of oily sheen began reaching the Mississippi River delta late Thursday, lapping the Louisiana shoreline in long, thin lines. Thicker oil was farther offshore. Officials have said they would do everything to keep the Mississippi River open to traffic.
The Coast Guard defended the federal response so far. Asked on all three network television morning shows Friday whether the government has done enough to push oil company BP PLC to plug the underwater leak and protect the coast, Brice-O'Hara said theresponse led by the Coast Guard has been rapid, sustained and has adapted as the threat grew since a drill rig exploded and sank last week, causing the seafloor spill.
The oil slick could become the nation's worst environmental disaster in decades, threatening to eclipse even the Exxon Valdez in scope. It imperils hundreds of species of fish, birds and other wildlife along the Gulf Coast, one of the world's richest seafood grounds, teeming with shrimp, oysters and other marine life.
"It is of grave concern," David Kennedy of the National Oceanic and Atmospheric Administration, told The Associated Press about the spill. "I am frightened. This is a very, very big thing. And the efforts that are going to be required to do anything about it, especially if it continues on, are just mind-boggling."
Oil clumps seabirds' feathers, leaving them without insulation — and when they preen, they swallow it. Prolonged contact with the skin can cause burns, said Nils Warnock, a spill recovery supervisor with the California Oiled Wildlife Care Network at the University of California-Davis. Oil swallowed by animals can cause anemia, hemorrhaging and other problems, said Jay Holcomb, executive director of the International Bird Rescue Research Center in California.
The spewing oil — about 210,000 gallons a day — comes from a well drilled by the rig Deepwater Horizon, which exploded in flames April 20 and sank two days later. BP was operating the rig that was owned by Transocean Ltd. The Coast Guard is working with BP to deploy floating booms, skimmers and chemical dispersants, and set controlled fires to burn the oil off the water's surface.
The leak from the ocean floor proved to be far bigger than initially reported, contributing to a growing sense among some in Louisiana that the government failed them again, just as it did during Hurricane Katrina in 2005. President Obama dispatched Cabinet officials to deal with the crisis.
Cade Thomas, a fishing guide in Venice, worried that his livelihood will be destroyed. He said he did not know whether to blame the Coast Guard, the government or BP.
"They lied to us. They came out and said it was leaking 1,000 barrels when I think they knew it was more. And they weren't proactive," he said. "As soon as it blew up, they should have started wrapping it with booms."
BP shares continued falling early Friday. Shares were down 2 percent in early trading on the London Stock Exchange, a day after dropping 7 percent in London. In New York on Thursday, BP shares fell $4.78 to close at $52.56, taking the fall in the company's market value to about $25 billion since the explosion.
Government officials said the well 40 miles offshore is spewing about 5,000 barrels, or 200,000 gallons, a day into the gulf.
At that rate, the spill could eclipse the worst oil spill in U.S. history — the 11 million gallons that leaked from the grounded tanker Exxon Valdez in Alaska's Prince William Sound in 1989 — in the three months it could take to drill a relief well and plug the gushing well 5,000 feet underwater on the sea floor. Ultimately, the spill could grow much larger than the Valdez because Gulf of Mexico wells tap deposits that hold many times more oil than a single tanker.
BP has requested more resources from the Defense Department, especially underwater equipment that might be better than what is commercially available. A BP executive said the corporation would "take help from anyone." That includes fishermen who could be hired to help deploy containment boom.
Louisiana Gov. Bobby Jindal declared a state of emergency so officials could begin preparing for the oil's impact. He also asked the federal government if he could call up 6,000 National Guard troops to help.
Associated Press writers Holbrook Mohr in Mississippi, Phuong Le in Seattle, Janet McConnaughey, Kevin McGill, Michael Kunzelman and Brett Martel in New Orleans, and Melinda Deslatte in Baton Rouge also contributed to this report.
Democrats Tweak Bank Bill to Preclude Bailouts
Democrats Tweak Bank Bill to Preclude Bailouts
By DAVID M. HERSZENHORN
Copyright by The New York Times
Published: April 29, 2010
http://www.nytimes.com/2010/04/30/business/30regulate.html?th&emc=th
WASHINGTON — The Senate opened debate on Thursday on a far-reaching financial regulation bill, and Democrats moved quickly to demonstrate that the legislation would not provide any future taxpayer bailouts of failing financial companies — answering a Republican criticism that the Democrats had dismissed as false.
The first amendment proposed to the bill, by Senator Barbara Boxer, Democrat of California, was intended to tighten language in the bill regarding how the government would handle any future collapses of financial companies.
The bill, sponsored by Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the Banking Committee, calls for the government to shut down failed banks, and it would create a $50 billion fund, paid for by major financial institutions, to help pay for unwinding failed companies.
Some Republicans, including the party’s Senate leader, Mitch McConnell of Kentucky, had criticized the Democrats’ legislation, saying that it would encourage, rather than prevent, taxpayer-financed bailouts of big banks.
The Democrats forcefully rejected that charge, saying that the bill was written specifically to prevent government bailouts and that the $50 billion fund would ensure that the financial industry, not taxpayers, would pay to liquidate failed companies.
In the negotiations that led Republicans to allow floor debate to get under way, Democrats indicated a willingness to remove the $50 billion fund from the legislation. The Obama administration had also opposed the fund, out of concern that it might actually hamper the government’s ability to deal with costly bank failures.
In a floor speech, Mrs. Boxer again rejected the Republican criticism, although her amendment suggested that there might have been some reason to question the possibility of future bailouts.
“When I heard my colleagues on the other side say Senator Dodd’s bill would ensure taxpayer bailouts, I knew it was false,” she said. “It is like saying this glass of water is a cup of coffee. No, this glass of water is a glass of water. It is not coffee.”
Still, Mrs. Boxer said, Why not clear things up? “I said to Chairman Dodd, I have an idea that we should put together a very simple bill, an amendment to the bill that basically says what we know is true, that all financial companies put into receivership under this title shall be liquidated. No company is going to be kept afloat. All funds expended will be repaid to the taxpayers by the financial sector through assessments or the sale of the assets of the company.”
In a provision titled, “Liquidation required,” Mrs. Boxer’s amendment states: “All financial companies put into receivership under this title shall be liquidated. No taxpayer funds shall be used to prevent the liquidation of any financial company under this title. All funds expended in the liquidation of a financial company under this title shall be recovered from the disposition of assets of such financial company, or shall be the responsibility of the financial sector, through assessments.”
Her amendment also stresses that taxpayers will not pay for shutting down failed companies. “Taxpayers shall bear no losses from the exercise of any authority under this title,” it states. “All funds expended in the liquidation of a financial company under this title shall be the responsibility of the financial sector, through assessments.”
No votes were expected on amendments to the legislation until sometime next week. With the Kentucky Derby taking place in Louisville this weekend, Mr. McConnell, in particular, has reason to want to head home from Washington.
Debate on the legislation moved forward after Republicans said on Wednesday that they would no longer block the Democrats from bringing the bill to the floor.
The floor fight is expected to last at least two weeks. Republicans control enough votes to filibuster the measure and, if they remain united, could block it from being adopted.
As the debate began, Senator Richard C. Shelby of Alabama, the senior Republican on the Banking Committee, said that he would work aggressively to force changes to the legislation.
“My goal during consideration of this legislation here will be to reshape this bill,” he said, “so that it actually ends bailouts, protects consumers without jeopardizing our small community banks and brings transparency, as Senator Dodd mentioned, to the world of derivatives, without sacrificing economic growth and job creation, which we desperately need in this country.”
Mr. Shelby also said he would work to prevent overregulation that could allow the government to interfere with the functioning of the economy. He said he would work “to remove dozens of provisions that unnecessarily expand the reach of the federal government into the private affairs of Americans and potentially endanger our civil liberties.”
And Mr. Shelby said he expected Democrats to agree to remove the $50 billion “bailout fund some people call a honey pot.”
Mr. Dodd, in his opening speech, said the parties would work together to adopt an important law. “The status quo is unacceptable,” he said. “We cannot leave the American people vulnerable to the present construct of our financial regulatory system. The American people have paid too high a price for the failure of our system to stop Wall Street greed.”
By DAVID M. HERSZENHORN
Copyright by The New York Times
Published: April 29, 2010
http://www.nytimes.com/2010/04/30/business/30regulate.html?th&emc=th
WASHINGTON — The Senate opened debate on Thursday on a far-reaching financial regulation bill, and Democrats moved quickly to demonstrate that the legislation would not provide any future taxpayer bailouts of failing financial companies — answering a Republican criticism that the Democrats had dismissed as false.
The first amendment proposed to the bill, by Senator Barbara Boxer, Democrat of California, was intended to tighten language in the bill regarding how the government would handle any future collapses of financial companies.
The bill, sponsored by Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the Banking Committee, calls for the government to shut down failed banks, and it would create a $50 billion fund, paid for by major financial institutions, to help pay for unwinding failed companies.
Some Republicans, including the party’s Senate leader, Mitch McConnell of Kentucky, had criticized the Democrats’ legislation, saying that it would encourage, rather than prevent, taxpayer-financed bailouts of big banks.
The Democrats forcefully rejected that charge, saying that the bill was written specifically to prevent government bailouts and that the $50 billion fund would ensure that the financial industry, not taxpayers, would pay to liquidate failed companies.
In the negotiations that led Republicans to allow floor debate to get under way, Democrats indicated a willingness to remove the $50 billion fund from the legislation. The Obama administration had also opposed the fund, out of concern that it might actually hamper the government’s ability to deal with costly bank failures.
In a floor speech, Mrs. Boxer again rejected the Republican criticism, although her amendment suggested that there might have been some reason to question the possibility of future bailouts.
“When I heard my colleagues on the other side say Senator Dodd’s bill would ensure taxpayer bailouts, I knew it was false,” she said. “It is like saying this glass of water is a cup of coffee. No, this glass of water is a glass of water. It is not coffee.”
Still, Mrs. Boxer said, Why not clear things up? “I said to Chairman Dodd, I have an idea that we should put together a very simple bill, an amendment to the bill that basically says what we know is true, that all financial companies put into receivership under this title shall be liquidated. No company is going to be kept afloat. All funds expended will be repaid to the taxpayers by the financial sector through assessments or the sale of the assets of the company.”
In a provision titled, “Liquidation required,” Mrs. Boxer’s amendment states: “All financial companies put into receivership under this title shall be liquidated. No taxpayer funds shall be used to prevent the liquidation of any financial company under this title. All funds expended in the liquidation of a financial company under this title shall be recovered from the disposition of assets of such financial company, or shall be the responsibility of the financial sector, through assessments.”
Her amendment also stresses that taxpayers will not pay for shutting down failed companies. “Taxpayers shall bear no losses from the exercise of any authority under this title,” it states. “All funds expended in the liquidation of a financial company under this title shall be the responsibility of the financial sector, through assessments.”
No votes were expected on amendments to the legislation until sometime next week. With the Kentucky Derby taking place in Louisville this weekend, Mr. McConnell, in particular, has reason to want to head home from Washington.
Debate on the legislation moved forward after Republicans said on Wednesday that they would no longer block the Democrats from bringing the bill to the floor.
The floor fight is expected to last at least two weeks. Republicans control enough votes to filibuster the measure and, if they remain united, could block it from being adopted.
As the debate began, Senator Richard C. Shelby of Alabama, the senior Republican on the Banking Committee, said that he would work aggressively to force changes to the legislation.
“My goal during consideration of this legislation here will be to reshape this bill,” he said, “so that it actually ends bailouts, protects consumers without jeopardizing our small community banks and brings transparency, as Senator Dodd mentioned, to the world of derivatives, without sacrificing economic growth and job creation, which we desperately need in this country.”
Mr. Shelby also said he would work to prevent overregulation that could allow the government to interfere with the functioning of the economy. He said he would work “to remove dozens of provisions that unnecessarily expand the reach of the federal government into the private affairs of Americans and potentially endanger our civil liberties.”
And Mr. Shelby said he expected Democrats to agree to remove the $50 billion “bailout fund some people call a honey pot.”
Mr. Dodd, in his opening speech, said the parties would work together to adopt an important law. “The status quo is unacceptable,” he said. “We cannot leave the American people vulnerable to the present construct of our financial regulatory system. The American people have paid too high a price for the failure of our system to stop Wall Street greed.”
U.S. Said to Open Criminal Inquiry Into Goldman
U.S. Said to Open Criminal Inquiry Into Goldman
By LOUISE STORY and MICHAEL J. de la MERCED
Copyright by The New York Times
Published: April 29, 2010
http://www.nytimes.com/2010/04/30/business/30case.html?th&emc=th
Federal prosecutors have opened an investigation into trading at Goldman Sachs, raising the possibility of criminal charges against the Wall Street giant, according to people familiar with the matter.
While the investigation is still in a preliminary stage, the move could escalate the legal troubles swirling around Goldman.
The Securities and Exchange Commission, which two weeks ago filed a civil fraud suit against Goldman, referred its investigation to prosecutors for the Southern District of New York, which has now opened its own inquiry.
Goldman has vigorously denied the accusations by the S.E.C., which accused Goldman of defrauding investors involved a complex mortgage deal known as Abacus 2007-AC1.
Federal prosecutors would face a higher bar in bringing a criminal case against Goldman, whose role in the mortgage market came under sharp scrutiny this week during a marathon hearing in the Senate. In contrast to civil cases, the burden of proof is higher in criminal ones, where prosecutors must prove their case beyond a reasonable doubt.
The stakes are high for Goldman, but they are also high for the United States attorney’s office. Prosecutors from the Eastern District of New York lost a case last year filed against two hedge fund managers at Bear Stearns, whose collapse presaged the turmoil on Wall Street.
Prosecutors built much of that case around internal e-mail messages at Bear Stearns, much the way the S.E.C. and senators have pointed to e-mail at Goldman in which employees had disparaged investments that they were selling to their customers.
In the end, however, prosecutors were unable to prove to a jury any criminal wrongdoing by the Bear Stearns employees.
A spokesman for Goldman declined to say whether the bank knows about a criminal case, but he said “given the recent focus on the firm, we’re not surprised” to learn about a criminal inquiry. The spokesman said Goldman would cooperate with any investigators’ requests for information.
A spokeswoman for the Southern District also declined to comment.
Goldman has said it will defend itself against the S.E.C.’s accusations. The firm’s executives discussed the case last week during their quarterly earnings call, and this week, they testified about their mortgage operations in a nearly 11-hour hearing in Washington before a Senate subcommittee.
That hearing focused broadly on Goldman’s mortgage operations, and the Senate subcommittee released reams of new internal documents from Goldman. The Senate Permanent Subcommittee on Investigations is looking into many other mortgage deals beyond the one cited by the S.E.C.
The deal at the heart of the S.E.C. case was one of 25 mortgage securities that Goldman created in a program it called Abacus. The agency has hinted that it may expand its inquiry to other Wall Street firms.
Those securities were synthetic collateralized debt obligations, which are bundles of derivatives that mimic the performance of mortgage bonds. The securities allowed people who believed that the housing market would collapse to buy insurance against certain mortgage bonds they thought might fail. When those mortgage bonds did fail, the investors in the Abacus deals suffered major losses.
The Abacus deals were, however, very profitable for the parties that were negative on the housing market. In the Abacus 2007-AC1 deal, the hedge fund manager John A. Paulson raked in about $1 billion when the bonds he helped select hit trouble.
Mr. Paulson has not been named in the S.E.C.’s case because he was not involved in marketing and selling the deal.
Many in Congress have been pressing for a criminal inquiry. This week, 62 House members sent a letter to the Justice Department asking it to conduct an investigation into Goldman’s actions.
Charlie Savage contributed reporting.
By LOUISE STORY and MICHAEL J. de la MERCED
Copyright by The New York Times
Published: April 29, 2010
http://www.nytimes.com/2010/04/30/business/30case.html?th&emc=th
Federal prosecutors have opened an investigation into trading at Goldman Sachs, raising the possibility of criminal charges against the Wall Street giant, according to people familiar with the matter.
While the investigation is still in a preliminary stage, the move could escalate the legal troubles swirling around Goldman.
The Securities and Exchange Commission, which two weeks ago filed a civil fraud suit against Goldman, referred its investigation to prosecutors for the Southern District of New York, which has now opened its own inquiry.
Goldman has vigorously denied the accusations by the S.E.C., which accused Goldman of defrauding investors involved a complex mortgage deal known as Abacus 2007-AC1.
Federal prosecutors would face a higher bar in bringing a criminal case against Goldman, whose role in the mortgage market came under sharp scrutiny this week during a marathon hearing in the Senate. In contrast to civil cases, the burden of proof is higher in criminal ones, where prosecutors must prove their case beyond a reasonable doubt.
The stakes are high for Goldman, but they are also high for the United States attorney’s office. Prosecutors from the Eastern District of New York lost a case last year filed against two hedge fund managers at Bear Stearns, whose collapse presaged the turmoil on Wall Street.
Prosecutors built much of that case around internal e-mail messages at Bear Stearns, much the way the S.E.C. and senators have pointed to e-mail at Goldman in which employees had disparaged investments that they were selling to their customers.
In the end, however, prosecutors were unable to prove to a jury any criminal wrongdoing by the Bear Stearns employees.
A spokesman for Goldman declined to say whether the bank knows about a criminal case, but he said “given the recent focus on the firm, we’re not surprised” to learn about a criminal inquiry. The spokesman said Goldman would cooperate with any investigators’ requests for information.
A spokeswoman for the Southern District also declined to comment.
Goldman has said it will defend itself against the S.E.C.’s accusations. The firm’s executives discussed the case last week during their quarterly earnings call, and this week, they testified about their mortgage operations in a nearly 11-hour hearing in Washington before a Senate subcommittee.
That hearing focused broadly on Goldman’s mortgage operations, and the Senate subcommittee released reams of new internal documents from Goldman. The Senate Permanent Subcommittee on Investigations is looking into many other mortgage deals beyond the one cited by the S.E.C.
The deal at the heart of the S.E.C. case was one of 25 mortgage securities that Goldman created in a program it called Abacus. The agency has hinted that it may expand its inquiry to other Wall Street firms.
Those securities were synthetic collateralized debt obligations, which are bundles of derivatives that mimic the performance of mortgage bonds. The securities allowed people who believed that the housing market would collapse to buy insurance against certain mortgage bonds they thought might fail. When those mortgage bonds did fail, the investors in the Abacus deals suffered major losses.
The Abacus deals were, however, very profitable for the parties that were negative on the housing market. In the Abacus 2007-AC1 deal, the hedge fund manager John A. Paulson raked in about $1 billion when the bonds he helped select hit trouble.
Mr. Paulson has not been named in the S.E.C.’s case because he was not involved in marketing and selling the deal.
Many in Congress have been pressing for a criminal inquiry. This week, 62 House members sent a letter to the Justice Department asking it to conduct an investigation into Goldman’s actions.
Charlie Savage contributed reporting.
In Abuse Crisis, a Church Is Pitted Against Society and Itself
In Abuse Crisis, a Church Is Pitted Against Society and Itself
By RACHEL DONADIO
Copyright by The New York Times
Published: April 29, 2010
http://www.nytimes.com/2010/04/30/world/europe/30pope.html?th&emc=th
VATICAN CITY — As the sexual abuse crisis continues to unfold in the Roman Catholic Church, with more victims coming forward worldwide and three bishops resigning last week alone, it is clear the issue is more than a passing storm or a problem of papal communications.
Instead, the church is undergoing nothing less than an epochal shift: It pits those who hold fast to a more traditional idea of protecting bishops and priests above all against those who call for more openness and accountability. The battle lines are drawn between the church and society at large, which clearly clamors for accountability, and also inside the church itself.
Uncomfortably, the crisis also pits the moral legacies of two popes against each other: the towering and modernizing John Paul II, who nonetheless did little about sexual abuse; and his successor, Benedict XVI, who in recent years, at least, has taken the issue of pedophile priests more seriously.
He has had little choice, given the depth of the scandal and the anger it has unleashed. But when supporters defend Benedict, they are implicitly condemning John Paul and how an entire generation of bishops and the Vatican hierarchy acted in response to criminal behavior.
“The church realizes that it doesn’t have a way out, at least not until it confronts the entirety of its problems,” said Alberto Melloni, the director of the liberal Catholic John XXIII Foundation for Religious Science in Bologna, Italy.
This latest eruption of the scandal, nearly a decade after the costly turmoil in the American church, may just be beginning. Last week, a bishop in Ireland resigned, acknowledging he had covered up abuse, while one in Germany and one in Belgium also stepped down, admitting that they themselves had abused children. Other resignations are expected in Ireland after two government reports documented decades of widespread abuse and a cover-up in church-run schools for the poor.
The question, Mr. Melloni said, is whether the Vatican will hew to old explanations that pedophilia is the byproduct of a sexual revolution it had always fought, or whether it will confront the failures in church leadership that allowed sexual abuses to go unpunished.
Benedict expressed both views in a pastoral letter to Irish Catholics released March 20, his most complete remarks on the sexual abuse crisis. He said that secularism and “misguided” interpretations of the reforms of the liberalizing Second Vatican Council contributed to the context of the abuse.
But he also strongly decried “a tendency in society to favor the clergy and other authority figures; and a misplaced concern for the reputation of the church and the avoidance of scandal.”
Last weekend, the Vatican spokesman, the Rev. Federico Lombardi, said, “secrecy and reserve, even in their positive aspects, are not values cultivated in today’s culture. We have to be able to have nothing to hide.”
Yet the culture of the church was for decades skewed against public disclosure and cooperation with the civil authorities.
That secrecy was made bluntly clear in a 2001 letter written by a top cardinal, who contended that this was a policy supported uniformly from John Paul on down. Only this month did the Vatican affirm that bishops should follow civil laws in countries that require reporting pedophilia and other abuse to the authorities.
This month, Cardinal Darío Castrillón Hoyos, 80, a former head of the Vatican’s Congregation for the Clergy, made headlines when he said that John Paul had approved of the letter he wrote to a French bishop in 2001, praising him for facing prison rather than handing over a pedophile priest to civil courts.
The priest was convicted of molesting boys, and the bishop received a three-month suspended prison sentence for not turning him in. In a radio interview last week, the cardinal upped the ante, saying the letter emerged from a meeting where the future pope, then Cardinal Joseph Ratzinger, was also present, The Associated Press reported last week.
Father Lombardi confirmed the letter’s authenticity. But in a rare if typically oblique critique of a sitting cardinal, he said it was evidence of “how timely” it was for the Vatican in 2001 to centralize authority over sexual abuse cases with the powerful Congregation for the Doctrine of the Faith, which Cardinal Ratzinger then headed. Indeed, even some of Benedict’s harshest critics concede that abuse cases have been handled better since then, even if they say they still believe there is a long way to go.
But when supporters defend Benedict, they implicitly criticize John Paul.
Even if few will acknowledge it openly, the sexual abuse crisis has cast a shadow over John Paul’s legacy.
John Paul may have brought the church in line with the tides of history, but on sexual abuse he upheld a vision of the priesthood that critics say ultimately favors the hierarchy over the victims.
Some place John Paul’s defense of priests in the context of his background in communist Poland, where the secret police accused clergy members of sexual crimes to undermine the church.
Yet the pope never met with victims and never apologized for sexual abuse, even long after the end of the cold war.
In contrast, Benedict has met with sexual abuse victims four times, including this month in Malta, but only in private and after intense pressure from the media.
Last year, Benedict confirmed the “heroic virtues” of John Paul, moving him closer to sainthood, but Vatican experts say the renewed attention on historical questions may delay the process.
And protecting the memory of John Paul has not completely silenced supporters of the present pope. They cite two of the most prominent and damaging abuse cases — those of the Rev. Marcial Maciel Degollado, founder of the powerful religious order The Legionaries of Christ, and Cardinal Hans Hermann Groër of Vienna — and contend that Cardinal Ratzinger advocated stronger measures.
In the case of Father Maciel, a close friend of John Paul’s, his supporters say that Cardinal Ratzinger reopened the case and in 2006, he was sentenced to live out his days in prayer and penance. He died in 2008. By the standards of the Vatican, the punishment was extraordinary — impossible under John Paul. To the victims and many outsiders, it amounted to very little against a man who for decades abused seminarians, fathered several children and misappropriated funds.
“While Cardinal Joseph Ratzinger was perhaps the most powerful and influential churchman at the Vatican after Pope John Paul II, he would not buck the system to take action against Maciel, or earlier, in the Groër case,” said David Gibson, a biographer of Benedict who writes on religion for Politicsdaily.com. “His concern for the proper order of authority, and the clerical culture took precedence.”
Critics and defenders of Benedict say healing the church will require action and a full accounting of the past. That will not be easy on the legacy of John Paul.
And to protect the church Benedict has spent a lifetime nurturing, many are calling on him to explain his own past to show how he understands that the rules of the church do not conflict with the rule of law.
By RACHEL DONADIO
Copyright by The New York Times
Published: April 29, 2010
http://www.nytimes.com/2010/04/30/world/europe/30pope.html?th&emc=th
VATICAN CITY — As the sexual abuse crisis continues to unfold in the Roman Catholic Church, with more victims coming forward worldwide and three bishops resigning last week alone, it is clear the issue is more than a passing storm or a problem of papal communications.
Instead, the church is undergoing nothing less than an epochal shift: It pits those who hold fast to a more traditional idea of protecting bishops and priests above all against those who call for more openness and accountability. The battle lines are drawn between the church and society at large, which clearly clamors for accountability, and also inside the church itself.
Uncomfortably, the crisis also pits the moral legacies of two popes against each other: the towering and modernizing John Paul II, who nonetheless did little about sexual abuse; and his successor, Benedict XVI, who in recent years, at least, has taken the issue of pedophile priests more seriously.
He has had little choice, given the depth of the scandal and the anger it has unleashed. But when supporters defend Benedict, they are implicitly condemning John Paul and how an entire generation of bishops and the Vatican hierarchy acted in response to criminal behavior.
“The church realizes that it doesn’t have a way out, at least not until it confronts the entirety of its problems,” said Alberto Melloni, the director of the liberal Catholic John XXIII Foundation for Religious Science in Bologna, Italy.
This latest eruption of the scandal, nearly a decade after the costly turmoil in the American church, may just be beginning. Last week, a bishop in Ireland resigned, acknowledging he had covered up abuse, while one in Germany and one in Belgium also stepped down, admitting that they themselves had abused children. Other resignations are expected in Ireland after two government reports documented decades of widespread abuse and a cover-up in church-run schools for the poor.
The question, Mr. Melloni said, is whether the Vatican will hew to old explanations that pedophilia is the byproduct of a sexual revolution it had always fought, or whether it will confront the failures in church leadership that allowed sexual abuses to go unpunished.
Benedict expressed both views in a pastoral letter to Irish Catholics released March 20, his most complete remarks on the sexual abuse crisis. He said that secularism and “misguided” interpretations of the reforms of the liberalizing Second Vatican Council contributed to the context of the abuse.
But he also strongly decried “a tendency in society to favor the clergy and other authority figures; and a misplaced concern for the reputation of the church and the avoidance of scandal.”
Last weekend, the Vatican spokesman, the Rev. Federico Lombardi, said, “secrecy and reserve, even in their positive aspects, are not values cultivated in today’s culture. We have to be able to have nothing to hide.”
Yet the culture of the church was for decades skewed against public disclosure and cooperation with the civil authorities.
That secrecy was made bluntly clear in a 2001 letter written by a top cardinal, who contended that this was a policy supported uniformly from John Paul on down. Only this month did the Vatican affirm that bishops should follow civil laws in countries that require reporting pedophilia and other abuse to the authorities.
This month, Cardinal Darío Castrillón Hoyos, 80, a former head of the Vatican’s Congregation for the Clergy, made headlines when he said that John Paul had approved of the letter he wrote to a French bishop in 2001, praising him for facing prison rather than handing over a pedophile priest to civil courts.
The priest was convicted of molesting boys, and the bishop received a three-month suspended prison sentence for not turning him in. In a radio interview last week, the cardinal upped the ante, saying the letter emerged from a meeting where the future pope, then Cardinal Joseph Ratzinger, was also present, The Associated Press reported last week.
Father Lombardi confirmed the letter’s authenticity. But in a rare if typically oblique critique of a sitting cardinal, he said it was evidence of “how timely” it was for the Vatican in 2001 to centralize authority over sexual abuse cases with the powerful Congregation for the Doctrine of the Faith, which Cardinal Ratzinger then headed. Indeed, even some of Benedict’s harshest critics concede that abuse cases have been handled better since then, even if they say they still believe there is a long way to go.
But when supporters defend Benedict, they implicitly criticize John Paul.
Even if few will acknowledge it openly, the sexual abuse crisis has cast a shadow over John Paul’s legacy.
John Paul may have brought the church in line with the tides of history, but on sexual abuse he upheld a vision of the priesthood that critics say ultimately favors the hierarchy over the victims.
Some place John Paul’s defense of priests in the context of his background in communist Poland, where the secret police accused clergy members of sexual crimes to undermine the church.
Yet the pope never met with victims and never apologized for sexual abuse, even long after the end of the cold war.
In contrast, Benedict has met with sexual abuse victims four times, including this month in Malta, but only in private and after intense pressure from the media.
Last year, Benedict confirmed the “heroic virtues” of John Paul, moving him closer to sainthood, but Vatican experts say the renewed attention on historical questions may delay the process.
And protecting the memory of John Paul has not completely silenced supporters of the present pope. They cite two of the most prominent and damaging abuse cases — those of the Rev. Marcial Maciel Degollado, founder of the powerful religious order The Legionaries of Christ, and Cardinal Hans Hermann Groër of Vienna — and contend that Cardinal Ratzinger advocated stronger measures.
In the case of Father Maciel, a close friend of John Paul’s, his supporters say that Cardinal Ratzinger reopened the case and in 2006, he was sentenced to live out his days in prayer and penance. He died in 2008. By the standards of the Vatican, the punishment was extraordinary — impossible under John Paul. To the victims and many outsiders, it amounted to very little against a man who for decades abused seminarians, fathered several children and misappropriated funds.
“While Cardinal Joseph Ratzinger was perhaps the most powerful and influential churchman at the Vatican after Pope John Paul II, he would not buck the system to take action against Maciel, or earlier, in the Groër case,” said David Gibson, a biographer of Benedict who writes on religion for Politicsdaily.com. “His concern for the proper order of authority, and the clerical culture took precedence.”
Critics and defenders of Benedict say healing the church will require action and a full accounting of the past. That will not be easy on the legacy of John Paul.
And to protect the church Benedict has spent a lifetime nurturing, many are calling on him to explain his own past to show how he understands that the rules of the church do not conflict with the rule of law.
In Europe, a Delicate Decision on Rates/Europe Acts Swiftly on Long-Delayed Greek Bailout/Euro Rises After I.M.F. Boosts Pledge to Aid Greece
In Europe, a Delicate Decision on Rates
By JACK EWING
Copyright by The New York Times
Published: April 29, 2010
http://www.nytimes.com/2010/04/30/business/global/30ecb.html?th&emc=th
FRANKFURT — Europe’s collective anguish over Greece was interrupted by some good news on Thursday. German unemployment fell more than expected, while earnings surged for some of the country’s biggest companies.
No one is going to complain about signs of robust growth in Europe’s largest economy, which has 10 times the economic output of Greece. But the recovery of the northern half of the euro zone as the southern periphery sinks deeper into crisis sets up a quandary for monetary policy makers that could increase the already serious tensions within Europe.
If growth in Northern Europe continues to gain during the rest of the year, the European Central Bank in Frankfurt will eventually face pressure to raise interest rates to contain inflation.
But a rate increase could harm Greece as well as Spain, Portugal and other countries with debt problems, raising the high cost of borrowing for governments and business.
The central bank “cannot risk inflation in the euro area for the sake of these three countries,” said Zsolt Darvas, an economist at Breugel, a research organization in Brussels. “They will have to face higher interest rates, and it will be very difficult for them to sort out their fiscal problems.”
That view is commonly held in Germany and countries near it. Another view is that relieving the suffering of Southern Europe should trump trying to stamp out future inflation with a heavy hand.
For the central bank, fortunately, the day of reckoning probably will not come until early next year. With no signs yet that inflation is an imminent danger, most economists do not expect an increase in the benchmark interest rate — it is now 1 percent — until March 2011, according to a Reuters poll.
But Jean-Claude Trichet, president of the central bank, and other members of its governing council face plenty of other tough choices in the weeks and months ahead.
One risk is that the loss of faith in Greek solvency will spread to Portugal and perhaps Spain, threatening another bank crisis and forcing the central bank to act.
The central bank has begun to gradually cut back on the nearly unlimited cash it lent to European banks after interbank lending froze in 2008. But some analysts say they believe the central bank could stop that process or even reverse it.
The bank “may have to go back and reopen some of its unconventional measures,” said Nick Matthews, senior European economist at the Royal Bank of Scotland.
The central bank could also face pressure if the United States Federal Reserve began raising rates. Higher rates in the United States would encourage investors to move assets into dollars to earn a better return, causing the euro to fall even more.
A weaker euro would be good for Greece and European exporters in general by making their products less expensive in foreign markets. But the downside is that a weaker euro would increase the cost of oil and other commodities, which are usually priced in dollars. Higher energy costs would feed inflation, adding pressure on the central bank to raise rates.
For now, that risk seems to have eased after the Fed signaled Wednesday that it was in no hurry to raise rates.
The downgrading of Greek debt to junk status by the ratings agency Standard & Poor’s, and the risk of Moody’s and Fitch following suit, presents a more immediate problem for the central bank. Under the central bank’s rules, that would make Greek debt ineligible as collateral for central bank loans, creating serious problems for banks in Greece that use their holdings of domestic bonds to borrow cash.
“The E.C.B. doesn’t want to be the one to push Greece over the edge,” said Janet Henry, chief European economist at HSBC. “If push comes to shove, they would bend the rules.”
But a shift in policy could also damage the credibility of the central bank, said Mr. Darvas, the economist for Breugel. The central bank has already loosened its collateral requirements to help Greece, despite Mr. Trichet’s insistence that the bank would not tailor policy to specific countries.
The central bank also changed course on whether the International Monetary Fund should play a major role in rescuing Greece. Members of the bank’s governing council first said that Europe could deal with its own problems, then pivoted as they were forced to acknowledge that the I.M.F. was indispensable.
Such missteps notwithstanding, bickering among European Union leaders has underlined the importance of the central bank as the one institution in the euro zone able to move decisively in response to an economic crisis.
Alessandro Leipold, former acting director of the I.M.F.’s European department, speculated that the central bank could stretch its mandate even further if Europe’s politicians were too slow to agree on the terms of a rescue package for Greece.
For example, the central bank could organize a bridge loan to allow Greece to meet its immediate financing needs and avoid a default, Mr. Leipold said. “I don’t know the technicalities but it should be possible,” he said. Other analysts said they thought such a move was unlikely.
Another option, according to analysts at R.B.S., entails the central bank buying government bonds, which the bank has avoided.
The central bank “will defend the region using all the tools at its disposal,” the R.B.S. analysts said in a note on Monday. As global trade recovers, German exporters like Siemens, the electronics conglomerate, and the software maker SAP have reported strong earnings, helping seasonally adjusted unemployment fall to 7.8 percent, from 8 percent.
Economists recall that when Germany was struggling in the middle of the decade, the central bank kept interest rates low even though the policy led to overheated economies in Ireland and other countries. “Then they were setting policy for Germany rather than smaller countries — where conditions were far too loose,” Ms. Henry of HSBC said.
In the coming year, “Germany will feature more prominently than the periphery,” she added. “The E.C.B. has its 2 percent inflation limit, and they will do what it takes to achieve that.”
Europe Acts Swiftly on Long-Delayed Greek Bailout
By NICHOLAS KULISH and DAN BILEFSKY
Copyright by The New York Times
Published: April 29, 2010
http://www.nytimes.com/2010/04/30/world/europe/30greece.html?th&emc=th
BERLIN — European leaders raced Thursday to complete their part of a long-delayed financial rescue package for Greece, hoping to head off a chain reaction against other heavily indebted European nations that could turn into a financial meltdown across the continent.
After balking for months at bailing out the Greek economy, leaders in Germany attacked the crisis with a newfound urgency. One day after Chancellor Angela Merkel declared her support for swift action, opposition parties in Berlin signaled a willingness to move quickly on legislation to send billions in loans to Athens before it needs to repay bondholders more than $10 billion on May 19.
Markets reacted positively Thursday to the news of a plan that would provide up to $160 billion from the International Monetary Fund and the other countries that use the euro currency. The euro strengthened against the dollar on the news, after hitting a one-year low the day before, and the cost of insuring against the default of European bonds fell.
European leaders — many of whom resisted the involvement of the I.M.F. and who have now been prodded to action by its director, Dominique Strauss-Kahn — have struggled for months for an effective response to the Greek problem. In the process, critics say, the costs of a bailout have mounted drastically.
And there was fresh skepticism on Thursday whether the latest proposal would calm the markets for more than a day, in a crisis where official promises of action have been followed by new delays and a steady stream of bad news, like the downgrades this week of the debt of Greece, Portugal and Spain.
Financial experts expressed fears on Thursday that Mrs. Merkel might have waited so long that the contagion had spread beyond even Germany’s ability to contain it. “These downgrades this week show that the market has taken over,” said Alfred Steinherr, research professor at the DIW research institute in Berlin and a former chief economist at the European Investment Bank. “Now, it is very difficult for policy makers to take it back into their own hands.”
There is a risk now that “even Germany will become financially overburdened,” Dr. Steinherr said, if it is forced to pay tens or hundreds of billions to Greece and possibly other euro-area countries like Portugal and Spain. “And that would then become really a huge crisis.”
European leaders tried to claim the initiative and show that they were working together to calm market fears over Greece’s tide of debt and the long-term viability of the euro currency. Traveling in Beijing on Thursday, President Nicolas Sarkozy of France told reporters that he was in constant contact with Mrs. Merkel and that Germany and France were “in perfect agreement” on how to deal with the crisis, a spokesman for the president in Paris confirmed.
Negotiators in Athens pushed to wrap up an agreement for significant cuts in Greek public spending to clear the way for the government to get financing and reassure investors worldwide that European debt was safe.
The Greek prime minister, George Papandreou, met with labor leaders on Thursday to persuade them to accept austerity measures that the government hopes will help clear the way to securing the bailout package.
After the meeting, Ilias Iliopoulos, the general secretary of Adedy, the largest public employees union, said in an interview that union officials had been informed that Greece had been asked to raise its value-added tax to 25 percent and to accept a three-year pay freeze.
He said Mr. Papandreou also intended to introduce new rules to let companies reduce their work forces by 4 percent a month instead of the current 2 percent, and to increase taxes on fuel, tobacco and alcohol.
In Greece, where taking to the streets is a national pastime, some observers have feared a backlash. But analysts said that Greek public opinion, opposition parties and even the unions realized the gravity of the situation and were unlikely to succeed in blocking measures that were necessary to save the country from economic collapse.
“The reaction of the unions so far has been mild by Greek standards,” said Nikos Magginas, senior economist at the National Bank of Greece, the country’s largest commercial bank. “Public opinion in Greece is in shock and realizes that Greeks have no other choice but to do what is necessary to prevent economic collapse. A social consensus exists that this is necessary.”
European leaders also sought to head off a harsh public reaction to the bailout plan. Olli Rehn, the European Union commissioner for monetary affairs, said at a news conference in Brussels on Thursday that the loan package would be a benefit to all member states sharing the euro currency — not just a sop for spendthrift Greeks. “This is absolutely crucial for our economic recovery,” he said.
Prominent German officials, including President Horst Köhler and Axel Weber, the president of the German Bundesbank, made public statements in support of Mrs. Merkel’s plan, with a similar emphasis on the benefits to Germany from such an agreement.
“Germany should, in its own interest, provide its contribution to the stabilization,” Mr. Köhler said in a televised speech in Munich.
“The German taxpayer profits from a stable euro, and that holds for protecting it,” Mr. Weber told Germany’s highest-circulation newspaper, the tabloid Bild, which has hammered relentlessly on the theme of Greek greed and wastefulness since the crisis began this year. The interview with Mr. Weber ran on the second page of the paper, while a giant headline on the front page declared, “Greeks want even more billions from us!”
“If Greece is allowed to fail, the damage to the German budget and German taxpayers will with certainty be greater than if we rescue it,” said Roland Koch, state premier in Hessen and a leading member of Mrs. Merkel’s Christian Democrats, in an interview on Thursday with the daily newspaper Berliner Zeitung. “The faster a decision is made, the less harm will arise,” Mr. Koch said.
It was unclear whether the pleas were having much impact. A poll of a thousand adults by the research group Emnid on behalf of the television news channel N24 found that 76 percent of those surveyed said they did not believe Greece would repay its debts, compared with just 19 percent who thought it could.
“You don’t help an alcoholic by putting a bottle of schnapps in front of him,” said Frank Schäffler, a member of the Finance Committee in the German Parliament for the pro-business Free Democrats, the junior member of Mrs. Merkel’s governing coalition. But even Mr. Schäffler said the proposal was likely to pass Parliament quickly, now that opposition parties like the Social Democrats and the Greens were prepared to act.
“The population in Germany is with a very, very great majority against, and the Parliament will probably approve it with a very great majority,” Mr. Schäffler said.
Germany will raise its share of the money through KfW, the state development bank, according to lawmakers and a letter attached to a draft version of the bill sent out this week. The legislation is one page long and includes a one-page explanatory statement. In the version of the bill circulated to members of the government on Tuesday, the sum of $11 billion is listed for this year. The figure for the following two years was yet to be filled in.
Dan Bilefsky reported from Athens. Reporting was contributed by Jack Ewing from Frankfurt, Matthew Saltmarsh and Katrin Bennhold from Paris and James Kanter from Brussels.
Euro Rises After I.M.F. Boosts Pledge to Aid Greece
By LANDON THOMAS Jr. and NICHOLAS KULISH
copyright by The Associated Press
Published: April 29, 2010
http://www.nytimes.com/2010/04/30/business/global/30euro.html?hpw
European stocks rose modestly and the euro halted its decline Thursday, a day after the International Monetary Fund promised to increase the 45 billion-euro aid package for Greece to as much as 120 billion euros over three years to quell the fund’s biggest crisis since the Asian woes of 1997.
The fund is racing to conclude an agreement for more painful austerity measures from Greece by Monday, clearing the way for the government to receive funding and reassuring investors worldwide that European debt is safe. On Wednesday, Dominique Strauss-Kahn, the I.M.F.’s forceful managing director, made the higher aid pledge in a private meeting with German legislators. The package would be the equivalent of up to $160 billion and would come from both the I.M.F. and from other countries using the euro.
But as has frequently been the case during Europe’s debt crisis, the promise of help was overshadowed by more disturbing news — in this case a cut in the debt rating of Spain by a major agency just a day after downgrades for Portugal and Greece.
The growing fear is that the fallout from Greece and even Portugal — which together compose just 5 percent of European economic activity — could be a mere sideshow if Spain, with its much larger economy, has difficulty repaying its debt.
In European morning trading, the euro was at $1.3237, up slightly from $1.3220 late Wednesday in New York. The Euro Stoxx 50 index, a barometer of euro-zone blue chips, rose 0.8 percent, and the FTSE-100 index in London rose 0.5 percent.
Trading in U.S. index futures suggested Wall Street stocks would open slightly higher, after the Dow Jones industrial average rose 53 points Wednesday to close at 11,045.27.
Most major Asian markets fell, with both the Hang Seng index in Hong Kong and the S&P/ASX 200 index in Sydney dropping 0.8 percent. Tokyo markets were closed for a holiday.
In many ways, the current troubles in Europe go to the heart of the fund’s new mission to serve as a firewall in the financial crisis — an objective that was bolstered by $750 billion in fresh capital from Group of 20 countries last year.
Unlike its previous efforts in smaller, emerging economies in Asia in 1997, and more recently in Hungary, Romania, Latvia and Iceland, the fund has been hamstrung in its efforts to act quickly and decisively by political concerns within the European Union, which insists on assuming a leading role.
“It is a problem,” said Alessandro Leipold, a former acting director of the I.M.F.’s European department. “It should not be that difficult — they did it in Hungary and Latvia. But the egos are different in industrialized countries.”
A case can be made that if Greece had sought help from the fund late last year after the forecast for its budget deficit doubled, the amount of support needed to reassure investors would have been much less than the 120 billion euros that even now might not be enough.
In that vein, Mr. Leipold said Portugal and Spain should ignore any stigma associated with an I.M.F. program and make the case to the European Commission in Brussels that asking proactively now for aid would soothe skeptical markets and save Europe billions in the future.
“The market has seen its worst fears come true,” he said. “What it needs is a surprise on the upside.”
Concerns have already surfaced in Congress that the broad demands of the sovereign debt crisis will quickly exhaust the I.M.F.’s reserves and leave the United States, the fund’s largest shareholder, with the bill.
Representative Mark Kirk, a Republican from Illinois, said such a drain could occur if Portugal, Ireland and Spain sought I.M.F. aid at the same time. Mr. Kirk worked at the World Bank during the 1982 debt crisis in Mexico, which came close to depleting the fund’s reserves.
“We have seen this movie before,” he said. “Spain is five times as big as Greece — that would mean a package of 500 billion.”
Mr. Kirk sits on the House Appropriations Committee that oversees I.M.F. funds and said that he had already asked for hearings on the fund’s ability to handle a European collapse.
In Athens, the Greek government had no choice but to seek an I.M.F. solution after its costs of borrowing skyrocketed, but that has not made the negotiations for aid any easier.
The fund has sent one its most senior staff members, Poul Thomsen, who has overseen complex fund negotiations in Iceland and Russia, to assist Bob Traa, the official responsible for Greece, to work out a solution.
According to people who have been briefed on the talks, the aim is to secure from Greece a letter of intent for even deeper budget cuts than the tough measures imposed so far, like reductions in civil service pay, in exchange for emergency funds.
Steps being discussed include closing down parts of the little-used Greek railway system, which employs 7,000 people and is estimated to lose a few million euros a day; limiting unions’ ability to impose collective bargaining agreements, which lead to ever-higher public sector pay; cutting out the two months of pay that private-sector workers get on top of their annual pay packages; increasing the retirement age and cutting back on pensions; and opening up the country’s trucking market in an effort to lower extremely high transportation rates that have hindered the country’s competitiveness.
With Greece now shut out of the debt markets, it has little leverage to resist — especially in light of the 8 billion euros it needs to repay bondholders on May 19. Analysts expect a deal by next week at the latest.
But whether a Greek resolution calms investor fears about the ability of Portugal and Spain to repay their own maturing debt remains unclear.
In a recent note to investors, Ray Dalio, founder of Bridgewater Associates, one of the world’s largest hedge funds, described the market concern as intensely focused on Spain.
“Spain’s cash flows (current-account and budget deficit) are extremely bad,” Mr. Dalio and his colleagues wrote in a February letter. “Spain’s living standards are reliant on not just the roll of old debt, but also on significant further external lending. For these reasons, we don’t want to hold Spanish debt at these spreads.”
David Jolly, Matthew Saltmarsh and Sewell Chan contributed reporting.
By JACK EWING
Copyright by The New York Times
Published: April 29, 2010
http://www.nytimes.com/2010/04/30/business/global/30ecb.html?th&emc=th
FRANKFURT — Europe’s collective anguish over Greece was interrupted by some good news on Thursday. German unemployment fell more than expected, while earnings surged for some of the country’s biggest companies.
No one is going to complain about signs of robust growth in Europe’s largest economy, which has 10 times the economic output of Greece. But the recovery of the northern half of the euro zone as the southern periphery sinks deeper into crisis sets up a quandary for monetary policy makers that could increase the already serious tensions within Europe.
If growth in Northern Europe continues to gain during the rest of the year, the European Central Bank in Frankfurt will eventually face pressure to raise interest rates to contain inflation.
But a rate increase could harm Greece as well as Spain, Portugal and other countries with debt problems, raising the high cost of borrowing for governments and business.
The central bank “cannot risk inflation in the euro area for the sake of these three countries,” said Zsolt Darvas, an economist at Breugel, a research organization in Brussels. “They will have to face higher interest rates, and it will be very difficult for them to sort out their fiscal problems.”
That view is commonly held in Germany and countries near it. Another view is that relieving the suffering of Southern Europe should trump trying to stamp out future inflation with a heavy hand.
For the central bank, fortunately, the day of reckoning probably will not come until early next year. With no signs yet that inflation is an imminent danger, most economists do not expect an increase in the benchmark interest rate — it is now 1 percent — until March 2011, according to a Reuters poll.
But Jean-Claude Trichet, president of the central bank, and other members of its governing council face plenty of other tough choices in the weeks and months ahead.
One risk is that the loss of faith in Greek solvency will spread to Portugal and perhaps Spain, threatening another bank crisis and forcing the central bank to act.
The central bank has begun to gradually cut back on the nearly unlimited cash it lent to European banks after interbank lending froze in 2008. But some analysts say they believe the central bank could stop that process or even reverse it.
The bank “may have to go back and reopen some of its unconventional measures,” said Nick Matthews, senior European economist at the Royal Bank of Scotland.
The central bank could also face pressure if the United States Federal Reserve began raising rates. Higher rates in the United States would encourage investors to move assets into dollars to earn a better return, causing the euro to fall even more.
A weaker euro would be good for Greece and European exporters in general by making their products less expensive in foreign markets. But the downside is that a weaker euro would increase the cost of oil and other commodities, which are usually priced in dollars. Higher energy costs would feed inflation, adding pressure on the central bank to raise rates.
For now, that risk seems to have eased after the Fed signaled Wednesday that it was in no hurry to raise rates.
The downgrading of Greek debt to junk status by the ratings agency Standard & Poor’s, and the risk of Moody’s and Fitch following suit, presents a more immediate problem for the central bank. Under the central bank’s rules, that would make Greek debt ineligible as collateral for central bank loans, creating serious problems for banks in Greece that use their holdings of domestic bonds to borrow cash.
“The E.C.B. doesn’t want to be the one to push Greece over the edge,” said Janet Henry, chief European economist at HSBC. “If push comes to shove, they would bend the rules.”
But a shift in policy could also damage the credibility of the central bank, said Mr. Darvas, the economist for Breugel. The central bank has already loosened its collateral requirements to help Greece, despite Mr. Trichet’s insistence that the bank would not tailor policy to specific countries.
The central bank also changed course on whether the International Monetary Fund should play a major role in rescuing Greece. Members of the bank’s governing council first said that Europe could deal with its own problems, then pivoted as they were forced to acknowledge that the I.M.F. was indispensable.
Such missteps notwithstanding, bickering among European Union leaders has underlined the importance of the central bank as the one institution in the euro zone able to move decisively in response to an economic crisis.
Alessandro Leipold, former acting director of the I.M.F.’s European department, speculated that the central bank could stretch its mandate even further if Europe’s politicians were too slow to agree on the terms of a rescue package for Greece.
For example, the central bank could organize a bridge loan to allow Greece to meet its immediate financing needs and avoid a default, Mr. Leipold said. “I don’t know the technicalities but it should be possible,” he said. Other analysts said they thought such a move was unlikely.
Another option, according to analysts at R.B.S., entails the central bank buying government bonds, which the bank has avoided.
The central bank “will defend the region using all the tools at its disposal,” the R.B.S. analysts said in a note on Monday. As global trade recovers, German exporters like Siemens, the electronics conglomerate, and the software maker SAP have reported strong earnings, helping seasonally adjusted unemployment fall to 7.8 percent, from 8 percent.
Economists recall that when Germany was struggling in the middle of the decade, the central bank kept interest rates low even though the policy led to overheated economies in Ireland and other countries. “Then they were setting policy for Germany rather than smaller countries — where conditions were far too loose,” Ms. Henry of HSBC said.
In the coming year, “Germany will feature more prominently than the periphery,” she added. “The E.C.B. has its 2 percent inflation limit, and they will do what it takes to achieve that.”
Europe Acts Swiftly on Long-Delayed Greek Bailout
By NICHOLAS KULISH and DAN BILEFSKY
Copyright by The New York Times
Published: April 29, 2010
http://www.nytimes.com/2010/04/30/world/europe/30greece.html?th&emc=th
BERLIN — European leaders raced Thursday to complete their part of a long-delayed financial rescue package for Greece, hoping to head off a chain reaction against other heavily indebted European nations that could turn into a financial meltdown across the continent.
After balking for months at bailing out the Greek economy, leaders in Germany attacked the crisis with a newfound urgency. One day after Chancellor Angela Merkel declared her support for swift action, opposition parties in Berlin signaled a willingness to move quickly on legislation to send billions in loans to Athens before it needs to repay bondholders more than $10 billion on May 19.
Markets reacted positively Thursday to the news of a plan that would provide up to $160 billion from the International Monetary Fund and the other countries that use the euro currency. The euro strengthened against the dollar on the news, after hitting a one-year low the day before, and the cost of insuring against the default of European bonds fell.
European leaders — many of whom resisted the involvement of the I.M.F. and who have now been prodded to action by its director, Dominique Strauss-Kahn — have struggled for months for an effective response to the Greek problem. In the process, critics say, the costs of a bailout have mounted drastically.
And there was fresh skepticism on Thursday whether the latest proposal would calm the markets for more than a day, in a crisis where official promises of action have been followed by new delays and a steady stream of bad news, like the downgrades this week of the debt of Greece, Portugal and Spain.
Financial experts expressed fears on Thursday that Mrs. Merkel might have waited so long that the contagion had spread beyond even Germany’s ability to contain it. “These downgrades this week show that the market has taken over,” said Alfred Steinherr, research professor at the DIW research institute in Berlin and a former chief economist at the European Investment Bank. “Now, it is very difficult for policy makers to take it back into their own hands.”
There is a risk now that “even Germany will become financially overburdened,” Dr. Steinherr said, if it is forced to pay tens or hundreds of billions to Greece and possibly other euro-area countries like Portugal and Spain. “And that would then become really a huge crisis.”
European leaders tried to claim the initiative and show that they were working together to calm market fears over Greece’s tide of debt and the long-term viability of the euro currency. Traveling in Beijing on Thursday, President Nicolas Sarkozy of France told reporters that he was in constant contact with Mrs. Merkel and that Germany and France were “in perfect agreement” on how to deal with the crisis, a spokesman for the president in Paris confirmed.
Negotiators in Athens pushed to wrap up an agreement for significant cuts in Greek public spending to clear the way for the government to get financing and reassure investors worldwide that European debt was safe.
The Greek prime minister, George Papandreou, met with labor leaders on Thursday to persuade them to accept austerity measures that the government hopes will help clear the way to securing the bailout package.
After the meeting, Ilias Iliopoulos, the general secretary of Adedy, the largest public employees union, said in an interview that union officials had been informed that Greece had been asked to raise its value-added tax to 25 percent and to accept a three-year pay freeze.
He said Mr. Papandreou also intended to introduce new rules to let companies reduce their work forces by 4 percent a month instead of the current 2 percent, and to increase taxes on fuel, tobacco and alcohol.
In Greece, where taking to the streets is a national pastime, some observers have feared a backlash. But analysts said that Greek public opinion, opposition parties and even the unions realized the gravity of the situation and were unlikely to succeed in blocking measures that were necessary to save the country from economic collapse.
“The reaction of the unions so far has been mild by Greek standards,” said Nikos Magginas, senior economist at the National Bank of Greece, the country’s largest commercial bank. “Public opinion in Greece is in shock and realizes that Greeks have no other choice but to do what is necessary to prevent economic collapse. A social consensus exists that this is necessary.”
European leaders also sought to head off a harsh public reaction to the bailout plan. Olli Rehn, the European Union commissioner for monetary affairs, said at a news conference in Brussels on Thursday that the loan package would be a benefit to all member states sharing the euro currency — not just a sop for spendthrift Greeks. “This is absolutely crucial for our economic recovery,” he said.
Prominent German officials, including President Horst Köhler and Axel Weber, the president of the German Bundesbank, made public statements in support of Mrs. Merkel’s plan, with a similar emphasis on the benefits to Germany from such an agreement.
“Germany should, in its own interest, provide its contribution to the stabilization,” Mr. Köhler said in a televised speech in Munich.
“The German taxpayer profits from a stable euro, and that holds for protecting it,” Mr. Weber told Germany’s highest-circulation newspaper, the tabloid Bild, which has hammered relentlessly on the theme of Greek greed and wastefulness since the crisis began this year. The interview with Mr. Weber ran on the second page of the paper, while a giant headline on the front page declared, “Greeks want even more billions from us!”
“If Greece is allowed to fail, the damage to the German budget and German taxpayers will with certainty be greater than if we rescue it,” said Roland Koch, state premier in Hessen and a leading member of Mrs. Merkel’s Christian Democrats, in an interview on Thursday with the daily newspaper Berliner Zeitung. “The faster a decision is made, the less harm will arise,” Mr. Koch said.
It was unclear whether the pleas were having much impact. A poll of a thousand adults by the research group Emnid on behalf of the television news channel N24 found that 76 percent of those surveyed said they did not believe Greece would repay its debts, compared with just 19 percent who thought it could.
“You don’t help an alcoholic by putting a bottle of schnapps in front of him,” said Frank Schäffler, a member of the Finance Committee in the German Parliament for the pro-business Free Democrats, the junior member of Mrs. Merkel’s governing coalition. But even Mr. Schäffler said the proposal was likely to pass Parliament quickly, now that opposition parties like the Social Democrats and the Greens were prepared to act.
“The population in Germany is with a very, very great majority against, and the Parliament will probably approve it with a very great majority,” Mr. Schäffler said.
Germany will raise its share of the money through KfW, the state development bank, according to lawmakers and a letter attached to a draft version of the bill sent out this week. The legislation is one page long and includes a one-page explanatory statement. In the version of the bill circulated to members of the government on Tuesday, the sum of $11 billion is listed for this year. The figure for the following two years was yet to be filled in.
Dan Bilefsky reported from Athens. Reporting was contributed by Jack Ewing from Frankfurt, Matthew Saltmarsh and Katrin Bennhold from Paris and James Kanter from Brussels.
Euro Rises After I.M.F. Boosts Pledge to Aid Greece
By LANDON THOMAS Jr. and NICHOLAS KULISH
copyright by The Associated Press
Published: April 29, 2010
http://www.nytimes.com/2010/04/30/business/global/30euro.html?hpw
European stocks rose modestly and the euro halted its decline Thursday, a day after the International Monetary Fund promised to increase the 45 billion-euro aid package for Greece to as much as 120 billion euros over three years to quell the fund’s biggest crisis since the Asian woes of 1997.
The fund is racing to conclude an agreement for more painful austerity measures from Greece by Monday, clearing the way for the government to receive funding and reassuring investors worldwide that European debt is safe. On Wednesday, Dominique Strauss-Kahn, the I.M.F.’s forceful managing director, made the higher aid pledge in a private meeting with German legislators. The package would be the equivalent of up to $160 billion and would come from both the I.M.F. and from other countries using the euro.
But as has frequently been the case during Europe’s debt crisis, the promise of help was overshadowed by more disturbing news — in this case a cut in the debt rating of Spain by a major agency just a day after downgrades for Portugal and Greece.
The growing fear is that the fallout from Greece and even Portugal — which together compose just 5 percent of European economic activity — could be a mere sideshow if Spain, with its much larger economy, has difficulty repaying its debt.
In European morning trading, the euro was at $1.3237, up slightly from $1.3220 late Wednesday in New York. The Euro Stoxx 50 index, a barometer of euro-zone blue chips, rose 0.8 percent, and the FTSE-100 index in London rose 0.5 percent.
Trading in U.S. index futures suggested Wall Street stocks would open slightly higher, after the Dow Jones industrial average rose 53 points Wednesday to close at 11,045.27.
Most major Asian markets fell, with both the Hang Seng index in Hong Kong and the S&P/ASX 200 index in Sydney dropping 0.8 percent. Tokyo markets were closed for a holiday.
In many ways, the current troubles in Europe go to the heart of the fund’s new mission to serve as a firewall in the financial crisis — an objective that was bolstered by $750 billion in fresh capital from Group of 20 countries last year.
Unlike its previous efforts in smaller, emerging economies in Asia in 1997, and more recently in Hungary, Romania, Latvia and Iceland, the fund has been hamstrung in its efforts to act quickly and decisively by political concerns within the European Union, which insists on assuming a leading role.
“It is a problem,” said Alessandro Leipold, a former acting director of the I.M.F.’s European department. “It should not be that difficult — they did it in Hungary and Latvia. But the egos are different in industrialized countries.”
A case can be made that if Greece had sought help from the fund late last year after the forecast for its budget deficit doubled, the amount of support needed to reassure investors would have been much less than the 120 billion euros that even now might not be enough.
In that vein, Mr. Leipold said Portugal and Spain should ignore any stigma associated with an I.M.F. program and make the case to the European Commission in Brussels that asking proactively now for aid would soothe skeptical markets and save Europe billions in the future.
“The market has seen its worst fears come true,” he said. “What it needs is a surprise on the upside.”
Concerns have already surfaced in Congress that the broad demands of the sovereign debt crisis will quickly exhaust the I.M.F.’s reserves and leave the United States, the fund’s largest shareholder, with the bill.
Representative Mark Kirk, a Republican from Illinois, said such a drain could occur if Portugal, Ireland and Spain sought I.M.F. aid at the same time. Mr. Kirk worked at the World Bank during the 1982 debt crisis in Mexico, which came close to depleting the fund’s reserves.
“We have seen this movie before,” he said. “Spain is five times as big as Greece — that would mean a package of 500 billion.”
Mr. Kirk sits on the House Appropriations Committee that oversees I.M.F. funds and said that he had already asked for hearings on the fund’s ability to handle a European collapse.
In Athens, the Greek government had no choice but to seek an I.M.F. solution after its costs of borrowing skyrocketed, but that has not made the negotiations for aid any easier.
The fund has sent one its most senior staff members, Poul Thomsen, who has overseen complex fund negotiations in Iceland and Russia, to assist Bob Traa, the official responsible for Greece, to work out a solution.
According to people who have been briefed on the talks, the aim is to secure from Greece a letter of intent for even deeper budget cuts than the tough measures imposed so far, like reductions in civil service pay, in exchange for emergency funds.
Steps being discussed include closing down parts of the little-used Greek railway system, which employs 7,000 people and is estimated to lose a few million euros a day; limiting unions’ ability to impose collective bargaining agreements, which lead to ever-higher public sector pay; cutting out the two months of pay that private-sector workers get on top of their annual pay packages; increasing the retirement age and cutting back on pensions; and opening up the country’s trucking market in an effort to lower extremely high transportation rates that have hindered the country’s competitiveness.
With Greece now shut out of the debt markets, it has little leverage to resist — especially in light of the 8 billion euros it needs to repay bondholders on May 19. Analysts expect a deal by next week at the latest.
But whether a Greek resolution calms investor fears about the ability of Portugal and Spain to repay their own maturing debt remains unclear.
In a recent note to investors, Ray Dalio, founder of Bridgewater Associates, one of the world’s largest hedge funds, described the market concern as intensely focused on Spain.
“Spain’s cash flows (current-account and budget deficit) are extremely bad,” Mr. Dalio and his colleagues wrote in a February letter. “Spain’s living standards are reliant on not just the roll of old debt, but also on significant further external lending. For these reasons, we don’t want to hold Spanish debt at these spreads.”
David Jolly, Matthew Saltmarsh and Sewell Chan contributed reporting.
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