Category: Business

EIB provides EUR 400 million for Istanbul-Ankara High Speed Rail Line

The European Investment Bank provided EUR 400 million in favour of the Turkish State Railways TCDD as a further contribution to the country’s main transport corridor between Ankara and Istanbul. The additional funding brings the total EIB support for the high speed railway line (HSL) to EUR 1.25 billion and the total value of EIB support for the Turkish rail system in the last decade to some EUR 2.4 billion. This facility further consolidates the position of EIB as Turkey’s key financial partner for the funding of priority railway projects and the country’s efforts to re-balance its transport mode mix in favour of the railways.

This flagship project was first financed by the EIB in 2006. It aims at building the country’s first high speed railway between the country’s two largest cities. The project will lead to significant time gains for travelers along the corridor and will assist economic development and quality of life as well as generating significant environmental benefits. The project constitutes a key element of the Government’s plans to increase the share of rail transport by improving productivity and effectiveness of railway operations. It will interconnect with the Marmaray Bosphorus Tunnel, enabling train connections across the two continents. In addition, the project is strongly supportive of key strategic objectives of EU policy and is a continuation of the Pan-European Corridor IV. The European Union is also providing a grant of EUR 120 million to the HSL project through its Instruments for Pre-Accession (IPA) funds. This project is therefore an excellent example of the complementary use of EU grants and EIB loans for this priority investment in the sustainable transport infrastructure of the country.

via EIB provides EUR 400 million for Istanbul-Ankara High Speed Rail Line.

December 18, 2011
French credit downgrade could come ‘within days’

Standard & Poor’s expected downgrade could create panic in the financial markets and make eurozone crisis even worse

Richard Wachman, City editor, Toby Helm and Kim Willsher

Standard and Poor's is expected to cut France's triple A credit rating 'within days' Photograph: Justin Lane/EPA

France could be stripped of its triple-A credit rating before Christmas, raising new doubts about the survival of the euro, analysts have predicted.

Standard & Poor’s – one of the three top rating agencies – is expected to cut France’s rating within days, in a move that would weaken its ability to raise funds on financial markets.

The move would raise doubts over the future of the single currency at a time when questions abound as to whether the deal thrashed out in Brussels represents the breakthrough hoped for in advance of the summit. Andrew Tyrie, chairman of the Commons Treasury select committee, raised the spectre of Greece leaving the eurozone, saying it was unlikely Athens could afford to pay its way if it stayed in the zone. “Few people believe that Greece can remain solvent within the eurozone,” he said. “Should Greece have to leave, the recapitalisation of a number of continental banks would be necessary.”

David Cameron and George Osborne have stressed that their top priority is for the eurozone to survive the crisis because the consequences of a disorderly breakup would be devastating for the UK as well as the European economies. However, most Tory MPs now doubt that it can survive in its current form. Bill Cash, the veteran Eurosceptic MP, said: “The entire European Union project is unravelling as the euro itself unravels.”

The imminence of a ratings decision by S&P may explain why France has sought to deflect attention by lashing out against Britain, claiming the UK’s financial position is weaker than its own. Last week the Bank of France suggested the credit rating agencies train their fire on London, even though there seems no imminent danger of Britain losing its premier rating.

After days of angry exchanges between Paris and London, both sides called for a ceasefire. A senior British diplomatic source said: “I hope all this calms down soon, as it is not in anyone’s interest for it to continue. That, I believe, is why the French prime minister called Nick Clegg on Friday afternoon [to build bridges].”

The diplomat added: “We can only guess that what’s behind it is that they’re so nervous about losing the triple-A rating, nervous not just for political and economic reasons, but because there’s an election coming up.”

Analysts said that if France’s rating was slashed its borrowing costs would rise, making it more expensive for Paris to refinance its debt burden in the new year. A downgrade would also hit France’s ability to contribute to the European financial stability facility, set up by members of the eurozone to combat the eurozone’s sovereign debt crisis, and provide emergency funding. Traders in London said the price France has to pay to borrow has already risen, indicating that markets have partially discounted the possibility of a lower credit rating.

France has to pay more to borrow relative to fellow triple-A rated Germany: when France borrows over 10 years it pays an interest rate that is at least a percentage point higher than what Berlin pays.

One analyst said: “The overall perception is that French finances are weaker than Germany’s and this imposes significant extra costs on France.”

Adding together repayments of existing debt, interest owed and new borrowing, France needs to find €400bn (£335bn) next year just to stay afloat. An extra 1% would cost French taxpayers €4bn a year. European leaders are under pressure to boost the firepower of the EU’s multibillion bailout package after Belgium’s credit rating was cut by Moody’s, another of the top three ratings agencies. Moody’s warned that indebted eurozone countries such as Belgium would find it increasingly hard to fund their debts or achieve economic growth in the face of Europe’s austerity drive. “The fragility of the sovereign debt markets is increasingly entrenched and unlikely to be reversed in the near future,” warned Moody’s.

Rival ratings agency Fitch said it could cut Belgium’s credit rating, along with those of Spain, Italy, Slovenia, Cyprus and Ireland. Fitch kept France’s AAA credit rating intact, although it revised its outlook for the country down to “negative”.

The latest credit rating changes came as the EU released details of the “fiscal compact” deal designed to rescue the euro.

www.guardian.co.uk, 17 December 2011

December 18, 2011
UK strikes back at French criticism

By George Parker in London and Hugh Carnegy in Paris

Britain has described as “simply unacceptable” attacks on the UK economy by French ministers and central bankers, as tensions over the eurozone crisis brought relations between the two countries to a new low.

Amid fears in Paris that France could lose its triple A sovereign debt rating, François Baroin, French finance minister, on Friday said: “The economic situation in Britain today is very worrying, and you’d rather be French than British in economic terms.”

His comments follow remarks by Christian Noyer, head of the Bank of France, who said credit rating agencies should be more worried about Britain, which had “bigger deficits, more debt, higher inflation and less growth than us and where credit is shrinking”.

Initially the attacks were shrugged off by Downing Street. British officials saw the comments as an attempt to deflect attention from the possible downgrade and from new figures showing France had slipped into recession during the fourth quarter.

Nick Clegg, UK deputy prime minister, told François Fillon, French prime minister, that the comments were “simply unacceptable” and steps should be taken to calm the rhetoric.

Mr Fillon had earlier talked about “our British friends who are even more indebted than us”. He told Mr Clegg he had intended to illustrate what he believed was the rating agencies’ inconsistency.

France is irritated it has been threatened with a downgrade despite its budget deficit, at 5.7 per cent of gross domestic product this year, being lower than Britain’s at more than 9 per cent. Mr Fillon told Mr Clegg he had not meant to question Britain’s triple A rating.

Downing Street said the comments coming from Paris were “not the most helpful contribution”. David Cameron’s spokesman said the coalition government’s deficit reduction plan – one of the most aggressive of any big economy – had reassured the rating agencies.

But Conservative MPs were less diplomatic. Neil Parish, a Tory MP and former MEP, said: “I suggest the French keep their mouths shut and put their own house in order.”

Tensions between Britain and France have been rising for weeks and were inflamed when George Osborne, UK chancellor, compared market concerns over French debt with the situation in Greece.

David Cameron’s use of the veto in last week’s European Union treaty negotiations provoked attacks from Nicolas Sarkozy, although the blockade delivered to the French president precisely the looser intergovernmental deal on eurozone fiscal discipline he had wanted.

In an attempt to make an agreement more palatable to non-eurozone countries, a first draft said they would not be forced to comply with tough budget rules until they adopted the single currency.

Mr Cameron and Mr Sarkozy have not spoken since the summit, in contrast to attempts by Angela Merkel to patch up relations with the UK prime minister. On Friday the German chancellor phoned Mr Cameron to discuss negotiations on the new eurozone treaty.

Eurozone bond markets mostly rallied on Friday despite worries over downgrades of the region’s sovereign debt. Fitch placed Belgium, Cyprus, Ireland, Italy, Slovenia and Spain on watch for a ratings downgrade.

In thin markets, French and Spanish yields fell as some investors speculated that buying could have been sparked by banks looking to use the bonds as collateral for cheap loans from the European Central Bank next week. Gilt yields were also close to fresh record lows, while US Treasuries were heading for their biggest weekly gains in six weeks.

“A lot of funds and clients are no longer trading because of year-end and uncertainty in these markets,” said one trader at a European bank. “But yields for Spain and Italy are still very high and it is difficult to see them coming down much before Christmas, particularly with worries over sovereign downgrades.”

The euro traded more or less flat with sterling. The pound touched 10-month highs this week as fears around the eurozone started to prompt some sellers in the single currency. European equities were also more or less flat as they lacked clear direction.

Additional reporting by David Oakley and Joshua Chaffin

www.ft.com, 16 December 2011

December 18, 2011
Iran Threatens To Send ‘OIL’ To $200 A Barrel

War in the Economic Jugular Vein of the World

By Steve Christ

Are you ready for ‘OIL’ to skyrocket to $200 a barrel?

Iran is!

And, they’re prepared to play their trump card to send it there.

Faced with a rash of mysterious explosions, military drones caught flying overhead, and renewed promises to end their nuclear ambitions, the Iranians are threatening to close the Strait of Hormuz — otherwise known as “the economic jugular vein of the world” — again.

As Iranian lawmaker Parviz Sarvari said yesterday, “Soon we will hold a military maneuver on how to close the Strait of Hormuz. If the world wants to make the region insecure, we will make the world insecure.”

The announcement came just weeks after Iran’s energy minister told Al Jazeera television that Tehran was prepared to use oil as a political tool in any “conflict over its nuclear program.”

Given Iran’s dominance over this bottleneck for oil exports from the Persian Gulf, this is a promise they can likely keep…

Today’s price of $100 a barrel doesn’t even come close to pricing in the geopolitical calamity closing the Persian Gulf would present.

Just 34 miles wide, thirteen tankers carrying 15.5 million barrels of crude oil pass through the Strait each day, making it one of the world’s most important waterways.

In all, 33% of the oil shipped via tankers passes through the Strait of Hormuz.

The Strait is so vital to the world economy, its closure would be considered an act of war that only the U.S. Navy has the power to fix…

www.wealthdaily.com, December 13th, 2011

December 18, 2011
Revealed: bankers’ secret meetings with ministers

Details of Treasury visits prompt fears Osborne will take soft line on banking reform

Ben Chu

The full scale of big banks’ lobbying of the Chancellor, George Osborne, to get him to water down banking reforms can be revealed today. Senior bank executives met or called Treasury ministers nine times in the weeks after Sir John Vickers published his landmark proposals on how to prevent another banking crisis, The Independent can reveal.

Bank bosses are fighting furiously behind the scenes to limit any changes to the way they do business. Fears are growing – articulated by Sir John himself – that the banks are successfully thwarting the Government’s plans to overhaul the British banking system and the Treasury is weakening some of the key reforms as a result of intense lobbying.

Mr Osborne also personally met the Barclays boss Bob Diamond, the Royal Bank of Scotland’s Stephen Hester and Lloyds’ Antonio Horta-Osorio on separate occasions in the days before the Vickers report.

Mr Osborne will announce his official response to the Vickers Independent Commission on Banking proposals on Monday – it is certain to be scrutinised for any sign that the Government’s resolve to tackle the sector has been weakened.

The commission recommended that banks should be required to “ring fence” their high street banking operations away from their “casino” investment operations; and to increase their capital buffers in order to reduce the chances of British taxpayers being forced to rescue them in future. (Taxpayers had to pump in £65.9bn to save Lloyds, RBS and HBOS.)

The full list of contacts between bankers and ministers, revealed through a request under the Freedom of Information Act by The Independent, shows that the Chief Secretary to the Treasury Danny Alexander and the Financial Secretary to the Treasury Mark Hoban held meetings with Mr Hester of RBS, Mr Diamond, and Douglas Flint of HSBC in the nine days after the release of the Vickers report in September as they lobbied against the plans. The largest banks have warned that the reforms could harm the economy and threatened to move their headquarters out of Britain.

Mr Hester attended a meeting with Mr Alexander on the very day the report was published. Mr Hoban held his own meeting with Mr Hester two days later. The Financial Secretary also met separately with the chief executives of Lloyds, Barclays and HSBC in the same week. This was followed over the next month with further meetings and phone calls between Mr Hoban and senior bankers. There was also a meeting between the Commercial Secretary to the Treasury, Lord Sassoon – himself a former investment banker for SG Warburg – and Naguib Kheraj, the vice-chairman of Barclays on 4 October.

“Bank bosses seem to have been down their inside track to the Treasury as often as a Murdoch editor into No10 under Andy Coulson and none of them were there to talk about the weather,” Lord Oakeshott, the former Liberal Democrat Treasury spokesman, said.

Mr Osborne welcomed the final conclusions of the Banking Commission in September and promised to implement them. But there have been reports that the Treasury is preparing to water down key elements such as the special protection for retail depositors and the new, rigorous capital regime.

Robert Jenkins, a member of the UK’s incoming new super regulator, the Financial Policy Committee, said in a speech last month that bank lobbies are “winning battles” over new regulation. He has also warned that the 2019 implementation date for the Vickers reforms would “allow lobbyists to chip away until the proposal becomes both unrecognisable and ineffective”.

Sir John told Parliament last month: “One sees evidence of lobbying activity in a variety of jurisdictions on these fronts and I think it’s very important both within the UK and in the wider international community that there is strong resistance. It is for Government and Parliament to resist emasculation or watering down.“

Mr Diamond told the Treasury Select Committee this week that the Vickers reforms would cost Barclays “north of £1bn” a year. He also told MPs that forcing banks such as Barclays to hold more capital risked stunting economic growth. “I do worry that we lean too far on cutting risk and increasing capital and too little on the impact that has on the real economy,” he said.

In quotes: What they said about bank reform

“We need to think deeply about whether we can sustain banks that are not only too big to fail, but potentially too big to bail.”

George Osborne, 8 April 2009

“The large banks with their casino banking practices need to be broken up.”

Vince Cable, 3 March 2010

“It is an impressive report and an important step towards a new banking system.”

George Osborne on the final Vickers report, 12 September 2011

“As long as we legislate during this parliament, I suspect, actually, the changes will be implemented well before 2019.”

Nick Clegg, 20 September 2011

“Unless we actually think about the deep structure issues that have led us to where we are, we’d be doomed to go through it again, but on a larger scale.”

Mervyn King, Bank of England Governor, January 2010

“I want radical reform. The key is we move to implementation of something that is effective and we do it without delay.”

Alistair Darling, January 2010

The Independent, London, 16 December 2011

December 16, 2011
Turkey: “unstoppable” for long?

by Daniel Dombey

Whatever criticisms you can make of what one analyst labels Turkey’s “unstoppable” economy, there’s one thing the country’s economic boom is thankfully free of. It’s not an American style jobless recovery.

Quite the contrary. In the last year Turkey has created some 1.8m new jobs. Figures released on Thursday showed unemployment fell to 8.8 per cent to September, the lowest level since 2005 and down from a 2009 peak of more than 16 per cent.. On a seasonally adjusted basis, unemployment fell to 9.2 per cent, also the lowest level of recent times. But analysts are almost universal in predicting that things won’t stay quite this sweet for long.

Unstoppable it may be for the moment, but just about no one expects Turkey to keep up its current hectic pace of economic expansion – 9.6 per cent for the first nine months of this year compared with the same period in 2010.

Indeed, on Thursday Merrill Lynch added its voice to Goldman Sachs’ in warning of the risk of an imminent recession.

“With the complexity of central bank policy and the need for corporates to absorb their foreign exchange mismatches, the result could manifest itself in a recession which we do not believe is fully appreciated by the market,” Merrill said, in an apparent reference to the central bank’s sensationally complicated interest rate corridor policy and the $59bn of dollars in short term obligations held by Turkish corporates, much of which come due in the next few months.

The interest rate corridor policy involves rationing how much the central bank lends commercial banks at the benchmark rate of 5.75 per cent rather than more expensive rates of 12 and 12.5 per cent. It allows the central bank a huge amount of flexibility over rates, but has led to widespread calls, particularly from abroad, for greater transparency and predictability.

Indeed, so great is the confusion about what interest rates actually are that some bankers say it has become hard to perform an old-fashioned carry trade, and that many portfolio investors are just waiting until the benchmark rate is increased to deal with Turkey’s bloated current account deficit and rising inflation.

Still, that’s not to say there isn’t any foreign investment. Just this week, the Malaysian sovereign wealth fund Khazanah Nasional moved closer to completing a deal whereby it would take a majority stake of Acibadem, a big Turkish hospital chain, through direct and indirect holdings. Since Acibadem, which runs 11 hospitals and other medical facilities, has market capitalisation of about TL2.5bn ($1.3bn), it is not a trivial deal.

So while Turkey may be headed for tougher times in coming months – and the jobs bonanza seems set to slow – its longer term growth story is still bringing investors in.

via Turkey: “unstoppable” for long? | beyondbrics | News and views on emerging markets from the Financial Times – FT.com.

December 16, 2011