Financial Regulatory Forum

ANALYSIS-Whatever happened to the euro zone crisis?

By Paul Taylor

PARIS, Aug 9 (Reuters) – What a difference a few weeks make.

In early June, doomsayers were predicting the demise of the euro after a 110 billion euro ($145.2 billion) bailout for Greece and a $1 trillion financial safety net for the rest of the 16-nation single currency area failed to calm market panic.

European banks were hardly lending to each other, the euro had hit a four-year low against the dollar, and there was widespread talk that Greece would have to default on its debt.

“We are assigning a higher and higher probability to a break-up of the euro zone,” Gina Sanchez, director of equity and asset allocation strategy at Roubini Global Economics told a Reuters Summit on June 8.

“I don’t want to overstate that. It’s not our base case, which is they muddle through,” she said.

Among the grounds she cited for a possible collapse were a lack of political will to cut budget deficits and Germany’s reluctance to foot the bill for rescue packages.

ANALYSIS-Gloom starts to lift in euro zone crisis

By Timothy Heritage

BRUSSELS, July 9 (Reuters) – Gloom over the future of the euro zone is starting to lift after months of crisis, with policy makers sounding increasingly confident that the worst is over.

There are still plenty of risks. Economic growth is fragile, governments must keep the political will to impose austerity steps for years to come, and small banks in the hardest-hit countries remain unable to borrow in the markets, making them dependent on the European Central Bank for funds.

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ANALYSIS-Next phase of financial crisis may be the hardest

By Emily Kaiser

WASHINGTON, May 21 (Reuters) – It took $5 trillion and an unprecedented global coalition of G20 countries to stabilize the economy after investment bank Lehman Brothers collapsed in 2008. Quelling the next phase of the financial crisis may be even harder.

To stop the panic that erupted nearly two years ago, governments transferred a mountain of debt from private to public accounts. Now, those government debts are distressing financial markets and there is nowhere left to shift the burden.

Europe’s clumsy response to Greece’s debt woes highlighted the economic and political headaches that await debt-laden countries and those who finance their borrowing.

ANALYSIS-EU faces battle over closer economic union

By Timothy Heritage

BRUSSELS, May 21 (Reuters) – Agreeing on a $1 trillion safety net may prove the easy part of saving the euro now the European Union’s leaders are turning to the divisive issue of tightening economic policy coordination.

The European Commission wants to reinforce economic surveillance and budget discipline to strengthen the euro zone and prevent a repeat of Greece’s debt crisis in any of the other 15 countries that use the single currency.

But a battle is looming over the proposals even before the first meeting on Friday of a task force set up by EU President Herman Van Rompuy to come up with ideas on how to toughen EU budget rules and improve policy coordination.

Euro rescue could help banks in regulatory battle

By Lionel Laurent and Huw Jones

PARIS/LONDON, May 10 (Reuters) – A $1 trillion rescue package to stabilise the euro could bolster European banks’ negotiating power as they attempt to fight stricter regulatory capital requirements they expect will hurt economic growth.

Europe’s lenders are already significant holders of sovereign euro debt and will be relied upon to buy more state-guaranteed debt as part of the rescue package, which is likely to see them push for extra concessions, analysts said.

“What there needs to be is a realisation among politicians that you cannot legislate and regulate the banks’ profitability away and expect them to keep buying your debts,” MF Global bank sector analyst Simon Maughan said.

FACTBOX – Coming events in euro zone debt crisis

April 12 (Reuters) – Following are upcoming events in the

euro zone debt crisis:

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EU’s Barnier pledges to tackle speculators

By John O’Donnell

BRUSSELS, March 17 (Reuters) – The European Commission plans to propose controls on certain government debt derivatives as soon as June in an effort to crack down on speculation blamed for aggravating Greece’s borrowing problems.

Curbing speculation by hedge funds in credit default swaps, a form of debt insurance, is high on the EU’s political agenda as finance ministers consider a possible bailout of Greece, the euro zone’s most troubled economy.

On Wednesday, Michel Barnier, the European commissioner in charge of financial market regulation, said he would propose rules to control naked selling of credit default swaps — the sale of the insurance contracts to buyers who do not own the debt — as soon as June.

EU to discuss credit default swap speculation, watchdog frets

By Huw Jones and Krista Hughes

LONDON/BASEL, Switzerland, March 8 (Reuters) – European Union finance ministers will discuss next week how to dampen speculation on sovereign credit default swap markets, sources said, as central bankers worry some selling practices pose wider risks.

Greek debt has come under pressure as the country seeks to tackle a ballooning deficit and some politicians say speculators using CDSs, intended to insure against any risk of debt defaults, are amplifying the country’s problems.

“The European Commission may bring forward an initiative at the 16 March Ecofin,” an EU diplomat said.

ANALYSIS – Icesave row, Greece feed anti-EU fire in Iceland

By Wojciech Moskwa

REYKJAVIK, March 8 (Reuters) – In the eyes of Icelanders, it seems Brussels can do no right. When it comes to fish, European Union bureaucrats intervene too much. When it comes to debt crises like Icesave or Greece, EU leaders simply don’t do enough.

The result is that on an island which has plenty of good reasons to join the bloc, interest in membership is now waning.

And that increases the odds that Iceland’s long-term future could be that it slips back into being a rocky outpost on the northern fringe of Europe, with its embattled currency prey to the ebbs and flows of financial markets.

Meeting on CDS market helps shape EU derivatives law – regulator

BRUSSELS, March 5 (Reuters) – The European Union’s executive body said a meeting on Friday with supervisors and investment industry officials has helped shape a planned law on derivatives due later in the year.

The meeting was held amid pressure from France, Germany and Luxembourg to crack down on what they see as hedge funds using credit default swaps to push Greek government bonds and the euro lower.

“It was a useful meeting and it will feed into preparation for rules on derivatives that we will propose in the Summer,” a spokeswoman for EU Internal Market Commissioner, Michel Barnier, said.

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