Posts Tagged ‘Sovereign Debt’

MF Global Files for Bankruptcy and Plunges in First Day of OTC Trading

Wednesday, November 2nd, 2011

November 2, 2011 - MF Global (NYSE: MF) tumbled in its first day of over-the-counter trading after the futures brokerage filed for bankruptcy, prompting the New York Stock Exchange to delist the shares.  MF Global’s bankruptcy is the 8th largest bankruptcy of all time.

The stock, quoted under the symbol “MFGLQ,” declined 83 percent to 21 cents at 12:45 p.m. New York time on trading volume of 170.9 million shares. MF Global plunged 67 percent last week as the New York-based firm reported a record $191.6 million quarterly loss.

MF Global stock hasn’t changed hands during a regular trading session since Oct. 28. NYSE Euronext suspended the stock before the New York Stock Exchange opened on Oct. 31. MF Global filed the eighth-largest U.S. bankruptcy this week after failing to find a buyer over the weekend. The futures broker suffered a ratings downgrade and loss of customers after revealing it had investments related to $6.3 billion in European sovereign debt.

The night before MF posted its biggest quarterly loss, triggering a 48 percent stock plunge, Chairman and Chief Executive Officer Jon Corzine appeared at a steak dinner at New York’s Helmsley Park Lane Hotel for a speech to a group of bankers and traders.

“There was no sense at all that there was impending doom,” Kenneth Polcari, a managing director of ICAP Corporates, said of Corzine’s Oct. 24 address to the National Organization of Investment Professionals. “He gave a spectacular speech” about his decades at Goldman Sachs, life as a U.S. senator and New Jersey governor and his return to the private sector. “He’s had a full life, up until now.”

Corzine, 64, excused himself before the main course was served, saying he had to prepare for an earnings call the next day, said David Shields, vice chairman of New York-based brokerage Wellington Shields & Co. and a former chairman of the organization. The group seeks to foster “a favorable regulatory environment,” according to its website.

Timothy Mahoney, CEO of New York-based Bids Trading LP, said Corzine’s speech was “delightful.”

The next day, MF Global reported a $191.6 million net loss tied to its $6.3 billion wager on European sovereign debt. On Oct. 27, after the company’s bonds dropped to 63.75 cents on the dollar, Moody’s Investors Service and Fitch Ratings cut the firm to below investment grade, or junk. Unable to find a buyer, the company filed for bankruptcy on Oct. 31, the first major U.S. casualty of the European debt crisis.

‘Serve the Public’

At least two dozen U.S. lawmakers and regulators, including Representative Joe Barton, a Texas Republican, Carolyn Maloney, Democrat of New York, and former Securities and Exchange Commission Chairman Harvey Pitt have addressed the group, according to its website.

“There are many people in the group that do lobby and talk to regulators,” Shields said. “You talk to regulators, you talk to lawmakers and you try to get the points forward, things that will help the marketplace, that will serve the public.”

The group’s board includes head traders at firms such as Waddell & Reed Financial Inc., whose futures trade triggered the flash crash of May 6, 2010, according to a study by the SEC and the U.S. Commodity Futures Trading Commission.

Its members’ firms “trade approximately 70 percent of the institutional volume transacted daily in the New York and Nasdaq markets,” according to the website.

‘Difficult’ Day

The group’s current chairman, Dan Hannafin of Boston-based investment manager Wellington Management Co., declined to comment on the dinner. Corzine and Diana DeSocio, an MF Global spokeswoman, didn’t reply to an e-mailed request for comment.

Mahoney said he appreciated Corzine’s ability “to compartmentalize” and speak engagingly last week. Mahoney’s firm, Bids, runs a private trading venue known as a dark pool, and is a joint venture of banks including Goldman Sachs.

Before the speech, Moody’s cut MF Global’s credit ratings to the lowest investment grade. Polcari said there was one reference to Corzine’s “difficult” day.

While he was “cordial” and “positive,” the MF Global chief lacked his typical “sharp bounce,” Shields said. Corzine is “a member of the community,” and could be invited back after the bankruptcy, he said. “People go through bad times.”

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

Google Launches Trading Floor to Manage $26.5 Billion in Cash Reserves

Sunday, May 30th, 2010

According to Google Treasurer Callinicos, the firm has started a trading team and is currently hiring for entry level and experienced trading positions.  Callinicos is very well respected in the finance and technology industries, after serving as Treasurer of Microsoft at a time where the company was generating 7% cash returns.  In 2004, the company was able to pay out a one-time $32 billion dividend.

Specifically, Google is looking for bond traders and portfolio analysts.   The firm currently has the 3rd largest cash reserves of any company, after Microsoft and Cisco.  The trading team will also be used to buy back shares after Google purchased AdMob in a $750 million stock transaction recently.  The transaction was cleared on May 21st.  Surprisingly, Google has been public about not returning cash to shareholders, and instead internally generating value.

The trading floor at Google opened up in January.  Traders at the firm have a primarily role of preserving capital and generating reasonable returns, so that Google has adequate capital to continue to make acquisitions.  The investment team has grown from six people at the outset to 30 people as of today.  Many of the traders at Google are from Goldman Sachs and J.P. Morgan.  Google’s technology allows traders to see 98% of positions in real time, whereas most bank can only monitor 60-70% of transactions in real time.

Google has pulled away from U.S. government notes and has moved $4.9 billion into corporate bonds and agency mortgage-backed securities.  The company has also invested in emerging market sovereign debt.  Unfortunately, Google’s trading salaries are not as lucrative as those on Wall Street, but the company culture is much more laid back and focused on capital preservation.

The firm is currently looking for risk analysts, sovereign debt traders, and MBS traders.  A recent hire, Ranidu Lankaj, had a full ride at Yale, worked for 2 years at Lehman Brothers, and published his first Sri Lankan rap record at age 19. (Source: Bloomberg Businessweek)

European Union Proposes $928 Billion Crisis Aversion Plan…It’s About Time!

Sunday, May 9th, 2010

After months of avoiding the debt refinancing troubles of Greece, the European Union came together this weekend in a crisis summit to address the falling Euro and credit malaise in the EU.  Describing short investors as a “wolf pack” plaguing the continent, ministers vowed to counter financial markets from causing the Greek debt crisis from spreading.  The plan offers $805 billion (600 billion) to the continent (440 billion euros from EU, 100 billion from IMF, 60 billion Euro stabilization fund) for crisis measures.  This comes after the IMF approved a 30 billion Euro bailout for Greece today.

If the IMF commits 220 billion Euros, the plan could reach $928 billion!

Why 600 billion Euros at the outset?  European economists predict that if Ireland, Portugal, and Spain eventually come to require bailouts similar to Greece’s, the total cost could be some 500 billion euros.

Let’s avoid another Lehman Brothers…

Greece

According to Reuters, “European Union finance ministers on Sunday promised to counter the “wolfpack” of the financial markets as they sought agreement on a 600 billion euro ($805 billion) plan to keep Greece’s debt crisis from spreading.

The compromise measure under discussion included loan guarantees by euro zone countries worth 440 billion euros, a 60 billion euro stabilization fund and a 100 billion euro top-up of International Monetary Fund loans, EU sources said.

Financial markets have been punishing heavily indebted euro zone members, threatening to plunge them into Greece’s plight. The safety net being assembled was meant to protect other countries with bloated budgets, such as Portugal, Spain and Ireland.

Jitters over euro zone finances have set global markets on edge, and provided a backdrop for a nearly 1,000-point drop in the Dow Jones industrial average on Thursday, whose trigger remains a mystery.

Hopes the EU package would successfully tackle the crisis helped lift the euro, which gained almost 2 percent against the U.S. dollar and 3 percent on the yen in early Asia trade. U.S. stock futures also surged at the start of trade on Sunday.

Moving swiftly to bolster Greece and instill some confidence in shaky markets, the IMF approved a 30 billion euro rescue loan as part of a broader combined EU-IMF bailout for the country totaling 110 billion euros. The IMF said 5.5 billion euros from the three-year loan would be disbursed immediately.

To secure the funds, Greece has committed to budget-cutting measures so sharp that they have already caused violent protests.

“Today’s strong action by the IMF to support Greece will contribute to the broad international effort underway to help bring stability to the euro area and secure recovery in the global economy,” IMF Managing Director Dominique Strauss-Kahn said in a statement.

‘WOLFPACK BEHAVIORS’

But whether the coordinated international actions would settle global markets, which have been roiled in recent days, remained to be seen. Policymakers around the globe have become worried about the knock-on effects should the crisis spread.

“We now see … wolfpack behaviors, and if we will not stop these packs, even if it is self-inflicted weakness, they will tear the weaker countries apart,” Swedish Finance Minister Anders Borg told reporters in Brussels as he arrived for the EU meeting.

Britain’s finance minister Alistair Darling stressed the need to stabilize markets, while ministers from France, Spain, Finland and other euro zone states vowed to defend their shared currency.

U.S. President Barack Obama and German Chancellor Angela Merkel spoke by phone earlier on Sunday about the importance of EU members acting to build confidence in markets.

Economists estimate that if Portugal, Ireland and Spain — three other heavily indebted euro zone countries — eventually come to require bailouts similar to Greece’s, the total cost could be some 500 billion euros.

As details of the financial barriers that the EU was putting up to ward off speculators against Greece and other debt-laden countries became public, G20 finance officials held a teleconference to discuss the crisis.

Last week, fears that a euro zone debt crisis could rock banks and the global economy like the September 2008 collapse of U.S. bank Lehman Brothers swept through markets, pushing global stocks to near a three-month low. It was unclear whether the EU crisis package would stem the tide.

“All in all this is good news, but it is unlikely in itself to calm markets; it’s all too ‘slow-burner’ stuff,” said Erik Nielsen, chief European economist at Goldman Sachs. He said he expected the European Central Bank would soon need to take some type of emergency action.

EU sources said ECB governors met to discuss the crisis, but no details were available.

MARKET TURMOIL

The 16 nations that use the single currency have been criticized for contributing to market uncertainty by responding too slowly to the crisis in Greece.

An IMF board source told Reuters that some board members had shared those concerns and raised worries that the crisis could spread to other euro zone countries.

A euro zone summit last week asked for a European stabilization mechanism.

Some economists said the move was welcome, but that it would cure the symptoms, rather than the disease.

“By putting in place additional safeguards for the euro area financial system, governments finally appear to be rising to the challenge of the sovereign debt crisis,” Morgan Stanley said in a research note to clients.

“But, like the measures taken before — for the benefit of Greece — a stabilization fund is just buying time for distressed borrowers,” it said.”

Morgan Stanley Sovereign Credit Outlook: Greece Fears Continue to Drive Bond Yields Higher

Wednesday, May 5th, 2010

What should have been a 1 month affair has now become a 6 month ordeal for the world credit markets.  As of today, May 5th, the European equity markets are in fact negative for the year and the world MSCI index has given up its entire gain for 2010.  It is ironic how a country that only makes up 2.3% of Europe’s GDP could cause the Euro to fall from 1.40 to 1.28 in a matter of weeks.  Euro shorts have multiplied despite efforts by banks such as Citi to put targets on the currency at 1.35+.  Commodity markets have also been roiled, with the VIX jumping 15% yesterday as well.  Worries that Portugal would be downgraded again have multiplied investor concerns.  Investors around the world wait in fear as policy measures will be discussed by Germany and other European nations on May 7th.  Riots in Greece have killed three so far in retaliation to austerity measures linked to the proposed bailout by the European Union and the IMF.

Please see Morgan Stanley’s outlook below.

Contagion Call Slides

According to Ms. Petrakis of Bloomberg, “May 6 (Bloomberg) — Greece’s Parliament will debate today the austerity measures demanded as a condition of an internationally led bailout as the nation mourns the three victims of Athens protests against the plan.

Prime Minister George Papandreou, whose Pasok party holds a 10-seat majority in the legislature, will tell lawmakers today that the wage and pension cuts are necessary to secure the 110 billion-euro ($141 billion) package and avoid default.

“No one was happy with the new measures,” Papandreou told parliament yesterday after the killings, which he called a “brutal murder.”

“We have compassion for every family who has seen their plans for the future slip seemingly further away,” he said. “But we took these measures to secure a future which might not exist otherwise.”

Greece agreed to the austerity package on May 2, pledging 30 billion euros in budget cuts in the next three years to tame the euro-region’s second-biggest deficit. Papandreou was forced to seek the aid after soaring borrowing costs left Greece cut off from markets. The measures have fueled months of protests that culminated in yesterday’s general strike. Three bank workers were killed when a small group of protesters threw fire- bombs at a bank.

Papandreou is pushing to get parliamentary approval before a European Union summit in Brussels tomorrow on the plan that will help ready the funds for distribution. The country faces 8.5 billion euros in bond redemptions on May 19.

Bonds Drop

Yesterday’s violence deepened losses in Greek debt. The yield premium investors demand to buy Greek 10-year bonds over comparable German debt, reached 719 basis points. The country’s 2-year notes yield almost 16 percent, 26 times more than Germany.

“I want to believe it is easy to overestimate this problem,” said Erik Nielsen, chief European economist at Goldman Sachs Group Inc, in a conference call yester. “One should not be overly concerned so far.”

Europe is scrambling to activate the aid package to try to stop the fallout from spreading to other high-deficit countries such as Spain and Portugal. Yield premiums on those countries’ debt have also jumped and the euro has slid more than 10 percent this year, to the lowest in more than a year.

Chancellor Angela Merkel appealed to the German Parliament yesterday to approve the nation’s share of the loans, saying the stability of the euro was at stake. Germany will pay 22.4 billion euros, almost 30 percent, of the euro-region funds offered to Greece over three years, and public opposition to the bailout is running high. German lawmakers will vote tomorrow on the aid.

Anarchists’ Blaze

The debate in the Greek parliament will be overshadowed by the violence of yesterday’s strike that turned deadly when protesters, who police described as self-styled anarchists, set fire to a branch of Marfin Egnatia Bank SA, killing two women and a man trapped inside the building.

Athens police swept through the anarchist stronghold of Exarhia yesterday, arresting 25, and detaining 70, according to a police statement. A total of 29 officers were injured in yesterday’s protests, the statement said.

Opposition leaders warned Papandreou not to try to exploit the deaths to push through the austerity measures.

“The tragic death of three people is absolutely condemned,” Aleka Papariga, the head of the Communist Party of Greece, said yesterday on state-run NET TV. “But it can’t be used by the government as an alibi for the people to accept these anti-democratic measures — measures that will come every three, six, nine months.”

More Strikes

The violence may not be enough to end the protests. Local government workers are continuing their strike for another 24 hours, with garbage collectors due to begin a walkout tomorrow morning, according to the state-run Athens News Agency. Stavros Koukos, the president of the federation of bank unions OTOE, told Alter TV that a 24-hour strike would be held tomorrow after the deaths of the three bank employees.

The bill on the measures will debated all day with a vote expected late in the day.

Elected in October on pledges to raise wages for public workers and step up stimulus spending, Papandreou revised up the 2009 budget deficit to more than 12 percent of gross domestic product, four times the EU limit, and twice the previous government’s estimate. EU officials revised the deficit further on April 22, to 13.6 percent of GDP.

Papandreou has said the austerity measures are needed to lower the shortfall to within the EU limit of 3 percent of GDP in 2014. Still, they will deepen a yearlong recession and lead to a 4 percent economic contraction this year and boost unemployment already at a six-year high of 11.6 percent.

“The greatest challenge of the days is maintaining social cohesion and social peace,” Greek President Karolos Papoulias said in an e-mailed statement. “Our country has reached the edge of the abyss. It is the responsibility of all of us that we not step forward into it.”

Eurozone Credit Risk, Defined

Friday, March 5th, 2010

Great description of Eurozone Credit Risk

Eurozone Sovereign Risk (CA Research)

Greek Debt Downgraded at Worst Moment!

Wednesday, February 24th, 2010

According to ZeroHedge, Greek debt was recently downgraded by Fitch.  Just today, S&P also announced that they would downgrade the country’s sovereign debt over the next month by 1 or 2 notches, driving up the country’s cost of capital in light of its current fiscal situation.

“And just as Greece was about to launch its 10 year bond offering… Where is Papandreou to claim that Fitch was bought by all the accounts (who may or may not invest in the €5 billion issue) to make the price even better. Because the spread to Bunds just jumped by about 10 bps to 325 following the news. Fitch notes: “The rating actions reflect Fitch’s view that the banks’ already weakening asset quality and profitability will come under further pressure due to anticipated considerable fiscal adjustments in Greece. In particular, Fitch believes the required fiscal tightening that needs to be made by the Greek government will have a significant effect on the real economy, affecting loan demand and putting additional pressure on asset quality. The latter could result in higher credit costs, ultimately weakening underlying profitability.” In the US, where any news is good news, equities jump following the headline.

From Fitch:

Fitch Ratings-Barcelona/London-23 February 2010: Fitch Ratings has today downgraded the Long-term and Short-term Issuer Default Ratings (IDR) of Greece’s four largest banks,  National Bank of Greece (NBG), Alpha Bank  (Alpha), Efg Eurobank Ergasias (Eurobank) and Piraeus Bank (Piraeus) to ‘BBB’ from ‘BBB+’ and ‘F3′ from ‘F2′ respectively. The Outlook on the Long-term IDRs is Negative.

At the same time, the agency has downgraded the banks’ Individual Ratings to ‘C’ from ‘B/C’, whilst the ratings of the banks’ senior, subordinated and hybrid capital instruments have all been downgraded by one notch. The Support Ratings and Support Rating Floors (SRF) of all four banks have been affirmed.

A full rating breakdown is provided at the end of this comment.  Separately, Fitch has also affirmed Agricultural Bank of Greece’s (ATEbank) Long-term IDR at ‘BBB-’, which is on its SRF, and Short-term IDR at ‘F3′. The Outlook on the Long-term IDR is Negative. ATEbank’s IDRs, Support Rating and SRF are based on sovereign support as the bank is majority-owned by the Greek state (rated ‘BBB+’/Negative Outlook).

The rating actions reflect Fitch’s view that the banks’ already weakening asset quality and profitability will come under further pressure due to anticipated considerable fiscal adjustments in Greece. In particular, Fitch believes the required fiscal tightening that needs to be made by the Greek government will have a significant effect on the real economy, affecting loan demand and putting additional pressure on asset quality. The latter could result in higher credit costs, ultimately weakening underlying profitability.

While the banks’ operations in South Eastern Europe (SEE) and Turkey add revenue diversification, such revenues are derived from more volatile economies – some of which have themselves experienced recessionary pressures.

The banks’ profitability is also likely to be affected by higher funding costs derived from increased funding and liquidity pressures on Greek banks which mostly resulted from the ongoing market perception of elevated risk surrounding the Greek sovereign. The uncertainties surrounding the Greek public finances have to a large extent constrained Greek banks’ access to wholesale markets and, to a lesser degree, interbank markets at reasonable prices. As a result, Greek banks continue to rely to some degree on European Central bank (ECB) funding. While unhindered access to ECB facilities provides short-term liquidity, Fitch would welcome a rebalancing of the banks’ funding and liquidity profiles towards more traditional funding sources. However, on a positive note, Fitch highlights that Greek banks continue to be primarily funded by customer deposits (86% of gross loans on average for the five largest Greek banks at end-Q309), highlighting limited reliance on non-bank wholesale funding. Additionally, wholesale funding maturities for 2010 are manageable and funding needs for the year should be limited.

Excluding ATEbank, the other four banks’ Long-term IDRs remain based on their individual financial strength, as expressed by Fitch’s Individual Rating. This takes into account their well-established domestic banking franchises, which support revenue generation and good deposit bases, sound and in most cases recently strengthened capitalisation and also some degree of geographical diversification.

The Negative Outlook on all the banks’ IDRs could be revised to Stable should Greek banks be successful in reducing ECB funding and be able to rebalance their funding and liquidity position without impairing their profitability, and if their underlying earnings capacity proves to be more resilient than currently anticipated to the expected prolonged recessionary environment in Greece and to a lesser extent in SEE.

The ratings of the Greek banks affected by today’s rating action are as follows:

  • National Bank of Greece S.A.Long-term IDR downgraded to ‘BBB’ from ‘BBB+’; Outlook NegativeShort-term IDR downgraded to ‘F3′ from ‘F2′Individual Rating downgraded to ‘C’ from ‘B/C’Support Rating affirmed at ’2′Support Rating Floor affirmed at ‘BBB-’Senior notes downgraded to ‘BBB’ from ‘BBB+’Subordinated notes downgraded to ‘BBB-’ from ‘BBB’Hybrid capital downgraded to ‘BB+’ from ‘BBB-’
  • Efg Eurobank Ergasias S.A.Long-term IDR downgraded to ‘BBB’ from ‘BBB+’; Outlook NegativeShort-term IDR downgraded to ‘F3′ from ‘F2′Individual Rating downgraded to ‘C’ from ‘B/C’Support Rating affirmed at ’3′Support Rating Floor affirmed at ‘BB+’Senior notes downgraded to ‘BBB’ from ‘BBB+’Subordinated notes downgraded to ‘BBB-’ from ‘BBB’Hybrid capital downgraded to ‘BB+’ from ‘BBB-’
  • Alpha Bank S.A.Long-term IDR downgraded to ‘BBB’ from ‘BBB+’; Outlook NegativeShort-term IDR downgraded to ‘F3′ from ‘F2′Individual Rating downgraded to ‘C’ from ‘B/C’Support Rating affirmed at ’3′Support Rating Floor affirmed at ‘BB+’Senior notes downgraded to ‘BBB’ from ‘BBB+’Subordinated notes downgraded to ‘BBB-’ from ‘BBB’Junior Subordinated notes downgraded to ‘BB+’ from ‘BBB-’Hybrid capital downgraded to ‘BB+’ from ‘BBB-’
  • Piraeus Bank S.A.Long-term IDR downgraded to ‘BBB’ from ‘BBB+’; Outlook NegativeShort-term IDR downgraded to ‘F3′ from ‘F2′Individual Rating downgraded to ‘C’ from ‘B/C’Support Rating affirmed at ’3′Support Rating Floor affirmed at ‘BB+’Senior notes downgraded to ‘BBB’ from ‘BBB+’Subordinated notes downgraded to ‘BBB-’ from ‘BBB’
  • Agricultural Bank of Greece (ATEbank)Long-term IDR affirmed at ‘BBB-’; Negative OutlookShort-term IDR affirmed at ‘F3′Individual Rating affirmed at ‘C/D’Support Rating affirmed at ’2′Support Rating Floor affirmed at ‘BBB-’

The rating impact, if any, from the above rating actions on Greek banks’ subsidiaries, securitisation transactions and covered bonds will be detailed in separate comments.”

For more information, see ZeroHedge…

Greece Outlaws Shadow Transactions

Sunday, February 14th, 2010

greece3

According to Mike Shedlock, in order to collect more tax revenue in Greece, the local government recently outlawed cash transactions greater than 1,500 Euros.  Taxes were also raised on individuals who earn more than 75,000 Euros.  The Greeks have tried lowering government wages, and lowering state capital expenditures.  However, after seeing riot after riot in the education and government services industries, the only method to raise government revenue seems to be by increasing taxes and sharply reducing economic growth, while the other EU members sit back and relax.  The Greek finance minister was quoted, saying:


“From 1. Jan. 2011, every transaction above 1,500 euros between natural persons and businesses, or between businesses, will not be considered legal if it is done in cash. Transactions will have to be done through debit or credit cards”

“There’s tax relief for incomes up to 40,000 (euros)”

“Taxable income based on the new scales will include capital gains from the short-term trading of stocks”

“Deposits in banks outside Greece are exempted from audits of their origin if they are repatriated within six months of the passing of the tax bill and are taxed with a 5 percent rate”

“Wages of board members in unlisted state companies will fall by 50 percent”

“The budget bill for allowances and compensations will be cut by 10 percent”

According to Mike, “Everyone in Greece will quickly figure out that that the time to buy major purchases is now. So expect to see sales plunge starting January 1, 2011 as demand for everything priced above 1500 euros shifts forward.”

New 40% Tax Rate

In addition raising their sales and value added taxes, the Greek government plans to instate a 40% tax rate on high income individuals.

“The 40 percent tax rate will be applied on income levels that are lower than what is the case today, but there will also be intermediate rates that will provide relief for low and middle incomes,” Finance Minister George Papaconstantinou told Ta Nea newspaper in an interview.

He said that as a result of the tax changes, the biggest burden would be felt by a small percentage of tax payers as 95 percent of earners report incomes below 30,000 euros a year.

Retirement Age, Fuel Taxes Rise

Please consider Greece raises retirement age and fuel taxes a day ahead of nationwide civil service strike.

Prime Minister George Papandreou told a cabinet meeting that the reforms “must go ahead now … with greater speed.”

“Our primary duty now is to save the economy and reduce the debt, aiming to do so through the fairest possible solutions that will protect — as far as that is possible — the weaker and middle classes,” said Papandreou, who is to meet in Paris with French President Nicolas Sarkozy on Wednesday ahead of a European Union summit the following day.

The new tax bill, Papaconstantinou said, will increase the burden on the rich while easing taxation for those on low incomes. The top income bracket which will be taxed by the maximum 40 percent will be expanded to include incomes of over euro 60,000 a year, from the current euro 75,000 threshold.

Papaconstantinou said that public consultation over the tax bill continued, and that there could be changes, but that any amendments would be based on the broad principles outlined in the draft.

He confirmed plans to freeze public sector hirings and wages, while cutting bonuses or stipends by 10 percent, a move he said would trim between euro18 and euro345 euros off monthly salaries. The stipend cut will also apply to those of the prime minister, ministers and other high-ranking ministry officials.

“We all know that the civil service salary system is one full of injustices, that lacks any central logic and has evolved with successive bonus payments,” Papaconstantinou said. “We are committed to have a unified payment system.”

He also said all Greeks must collect receipts in order to qualify for the income tax-free amount of euro12,000 — an attempt to crack down on widespread tax evasion, where vendors under-declare their income by not giving receipts. Cash registers will have to be installed everywhere, including kiosks found on practically every Greek street, and food markets.

Pensions Increase

In a move that makes little economic sense in light of attempted austerity measures everywhere else, Greece to grant pension increases of 1.5 pct.

“All pensions will increase by 1.5 percent,” Finance Minister George Papaconstantinou said in a television interview.

“The government did not intend to raise the nation’s top 40 percent income tax rate as part of measures to shore up its finances,” he said.

Mike has “little faith this will work because revenue projections are sketchy and austerity measures will undoubtedly plunge Greece into a severe recession, if not depression.”

~I.S.

For more information, please visit Mish’s Global Economic Trends…

Greek CDS Spikes

Thursday, February 11th, 2010

Greek CDS

Greek CDS has been spiking for the last two weeks, as perceived sovereign risk has risen for the “Ring of Fire” or the PIGS: Portugal, Ireland, Greece, and Spain.  These countries all share two things in common, growing budget deficits and high debt ratios as a percentage of GDP.

For more information, please visit ZeroHedge…