The 440bn-euro ( £366bn) European Financial Stability Facility (EFSF) was set up in May last year to try to protect the eurozone by rescuing troubled [...]]]> Increasing the size of a eurozone bail out loans fund is “one option” being considered by governments.Ministers were also looking at extending the fund’s scope to buy bonds directly on markets.

The 440bn-euro ( £366bn) European Financial Stability Facility (EFSF) was set up in May last year to try to protect the eurozone by rescuing troubled member states.

It is financed by the eurozone members themselves and has been used to support the Republic of Ireland. Some think it is only a matter of time before Portugal and Spain need similar help.

But while the current guarantees would be enough to support Portugal, there are fears that bailing out Spain would require more funding.

Greece, the Republic of Ireland and Portugal each account for about 2% of the eurozone economy, whereas Spain makes up about 10%.

However proposals to set aside more funds to help out in any future crisis have garnered some opposition, most notably from Germany.

Some believe such a step would lead to it will lead to “moral hazard” – where if a country knew there was a cushion waiting, it would not fight as hard to stay solvent as it would have done had it thought it would hit hard ground.

Germany in particular will have difficulty signing up to further support as some German taxpayers already feel their prudence is being squandered on helping more feckless nations.

There are seven key elections in the country next year and the German chancellor, Angela Merkel, as part of a coalition government, has not got the comfort of a solid majority for her party.

Housing experts welcomed the decision, saying it would help home owners and the housing market.

Home Information Packs were introduced by the labour govt to “speed up” [...]]]> Home owners will no longer have to pay for a Home Information Pack (HIP) when selling their property after the new coalition government today scrapped the controversial red tape packs.

Housing experts welcomed the decision, saying it would help home owners and the housing market.

Home Information Packs were introduced by the labour govt to “speed up” the house selling process by obliging sellers to provide certain information about their property when it is first put up for sale.

Labour Ministers suggested the move would save consumers £870 million over the next 10 years as the packs are paid for sellers and cost several hundred pounds each.

However, energy performance certificates – which show how energy efficient a property is – will be retained.

The continuing energy survey is eu red tape- over which UK politicians are powerless…

Coalition Housing minister Grant Shapps said: “Home sellers will get immediate relief. It means they can put their house on the market without having to shell out thousands of pounds.”

Speculation has been rife about when exactly the packs would be scrapped and the government said it had moved quickly to make today’s announcement to avoid uncertainty and to prevent a slump in an already fragile housing market.

Housing experts welcomed the decision, saying it would help home owners and the housing market.

Kirstie Allsopp, the television presenter, said “Is absurd that there was ever this additional expense. I am thrilled to bits because it is really important to help people to sell their home quicker.”

However, the decision is unlikely to be popular with thousands of people who retrained as home inspectors to provide the packs as they are likely to lose their jobs once they are no longer compulsory.

Mike Ockenden, director general of the Association of Home Information Pack Providers, said: “More than 3,000 jobs will go and 10,000 will be affected as a result of the suspension of HIPs.”

Re-Mortgager reckons at £25K UK average earnings, that’s a saving  to cash strapped property owners of £75 million this year alone!

Jean-Claude Trichet, the President of the ECB, said that it was too soon to end its support measures. Apart from reducing [...]]]> The European Central Bank (ECB) said yesterday that it was in no mood to withdraw the emergency measures it has been using to stimulate the eurozone economy in the face of the global financial crisis.

Jean-Claude Trichet, the President of the ECB, said that it was too soon to end its support measures. Apart from reducing interest rates, these have included pumping extra cash into the eurozone in an attempt to kick-start lending.

Speaking after the ECB voted to maintain interest rates in the eurozone at 1 per cent, Mr Trichet said the significant contraction in the 15-member zone had ended, but dismissed suggestions that the bank should now begin to unwind its support.

He added: “Today is not the time to exit. It is more of a bumpy road ahead. Uncertainty is high. Prudence and caution are still of the essence. Overall, the recovery is expected to be rather uneven.”

Mr Trichet confirmed that, later this month, the ECB would offer to lend unlimited funds to banks for the next year at a flat rate of 1 per cent. This is in line with the rate charged on the €442 billion (£384 billion) of 12-month funds that the ECB made available in June. The move defied predictions in some quarters that it might charge banks slightly more in a sign that monetary tightening was imminent.

His comments sent yields on the two year bonds issued by leading eurozone economies, such as Germany, to their lowest levels for six months.

The organisation, which exists to promote economic growth and development, said that several of the economies in the G7 group of developed nations would perform better during the whole of 2009 than it predicted in [...]]]> Britain’s economy will lag other developed nations in emerging from recession, according to the Organisation for Economic Co-operation and Development (OECD).

The organisation, which exists to promote economic growth and development, said that several of the economies in the G7 group of developed nations would perform better during the whole of 2009 than it predicted in June — with Britain a glaring exception.

The news will come as an embarrassment to Gordon Brown and Alistair Darling ahead of this weekend’s meeting of the G20 finance ministers in London and a summit in Pittsburgh beginning on September 24.

The OECD said that it now expected the UK economy to contract by 4.7 per cent for the year as a whole. That compares with the 4.3 per cent contraction it forecast in its June Economic Outlook forecast.

Britain was the only member of the G7 group of developed nations for which the Paris-based organisation has reduced its growth forecast since June. The OECD now expects the eurozone to suffer a 3.9 per cent contraction during the year, compared with the 4.8 per cent previously forecast, while the predicted contraction for Japan’s economy has come down from 6.8 per cent to 5.6 per cent.

Within the eurozone, the outlook for Germany and France has improved significantly, with the German economy predicted to contract by 4.8 per cent this year — down from the 6.1 per cent forecast by the OECD in June. The organisation also expects the French economy to contract by only 2.1 per cent this year — down from the 3 per cent reduction it expected three months ago.
 

Standard & Poor’s (S&P;) downgraded the long-term rating of the former “Celtic Tiger” by a further notch to [...]]]> Ireland had its credit rating cut for the second time in three months and was warned that it could fall further following concerns about the “continued fragility” of its banking sector and doubts about the Government’s bailout plan.

Standard & Poor’s (S&P;) downgraded the long-term rating of the former “Celtic Tiger” by a further notch to AA, from AA+.

The Republic was stripped of its top AAA ranking in March when S&P; concluded that the meltdown in the country’s finances would take far longer to repair than the Government envisaged.

Today S&P; warned: “The rating could be lowered again if asset quality in the Irish banking system deteriorates at a faster pace than we expect … and if, as a result of its suport for the sector or due to an even more pronounced downturn in economic growth, the Government’s fiscal performance weakens further than we currently assume.”

The fresh downgrade was triggered, S&P; said, in part by poor recent figures from Anglo Irish Bank.

In May, in its first results since nationalisation, Anglo reported losses of €4 billion (£3.4 billion) for the six months to March 21, compared with a €667 million profit in the same period last year while provisions for bad loans were €4.1 billion, compared with just €33 million last year.

The losses, S&P; said, were at the upper end of its own expectations and highlighted the “continued fragility of the Irish banking sector”.

S&P; is also sceptical about the power of Ireland’s new National Asset Management Agency (NAMA) to revive the fortunes of its banking sector. The agency is a “bad bank” which will take on the toxic debts of financial institutions.

The ratings agency considers NAMA’s ability to meet its financial objectives is “uncertain because of the risk that cashflows from its assets could fall below its funding costs”.

Overall, S&P; concluded, the cost to the Government of bailiing out the banking sector will be “significantly higher than what we had expected when we last lowered the rating in March … and consequently that the net general government debt burden will also be significantly higher over the medium term”.

Ireland’s economy has been savaged by the global economic downturn as well as a slumping property market, soaring unemployment and tumbling retail sales. In September, Ireland became the first eurozone country to fall into an official recession after it declared two successive quarters of negative economic growth.

Prior to the current downturn, the Irish economy had not experienced a recession since 1983 and enjoyed double-digit growth in the 1990s.

In a bid to salvage the situation the Irish Government has pumped €7 billion into its two top lenders, Allied Irish Bank and Bank of Ireland.

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The failure of a government bond auction yesterday heightened fears that the tiny Baltic state will have to devalue its currency, the lat, [...]]]> Latvian crisis deepens as Europe debates aid as Latvia has been urged to tighten its public finances with fears escalating that the recession hit Eastern European country is facing a huge currency devaluation.

The failure of a government bond auction yesterday heightened fears that the tiny Baltic state will have to devalue its currency, the lat, which could have a huge impact on the rest of the region and other EU states.

If the lat, which is pegged to the euro, is devalued, Estonia and Lithuania’s currencies are likely to follow suit.

Sweden would also be affected because large Swedish banks, such as Swedbank and SEB, control 50 per cent of Latvia’s lending market.

Some economists believe that the panic caused by a devaluation in the Baltic States could spread to other weaker members of the EU, such as Romania and Hungary, and even older members such, as the Irish Republic, Greece and Portugal.

This could mean that the stronger economies in the eurozone, such as Germany, would have to bail out their fellow EU countries or risk the break up of the single currency.

Latvia, a recent addition to the EU, was bailed out by the Union and the International Monetary Fund (IMF) in December after its economy was pummelled by the financial crisis.

It has followed a monetary policy of “fixing” its exchange rate and encouraging its citizens to borrow in euros and Swiss francs, which is one of the reasons it is now in so much debt.

However, there are fears that this could lead to more civil unrest in Latvia, where the previous Government was forced to resign in February as rioting erupted in Riga over unemployment and poverty.

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The quarterly fall in GDP in the eurozone– a key measure of economic health – takes the annual decline [...]]]> The IMF said that they expects the global economy to recover in the first half of next year despite worse-than-expected figures from the eurozone economy showing that GDP shrank by 2.5 per cent during the first quarter.

The quarterly fall in GDP in the eurozone– a key measure of economic health – takes the annual decline to a record of 4.6 per cent across the 16 countries that use the euro.

Germany revealed the worst fall in GDP, shrinking 3.8 per cent over three months in its worst performance since reunification in 1990. Economists had forecast German GDP would contract by 3 per cent.

However, the IMF’s Dominique Strauss-Kahn said that green shoots of revival are everywhere but he stressed that banks’ balance sheets must be cleansed before an economic recovery can take place.

While today’s figures are far worse than expected, economists said the quarter would prove to be a low point, with the slowdown set to ease in the coming months.

France, Europe’s second-biggest economy, reported that GDP shrank by 1.2 per cent on the quarter while Italy, the next biggest, fell 2.4 per cent.

Much of Germany’s contraction was due to a sharp decline in exports, which make up a large proportion of the country’s economy, and a drop off in investment. The dramatic plunge in output was the fourth quarter in a row that Germany’s economy has shrunk.

Moreover, officials said fourth quarter GDP, which was previously the worst on record, was revised down to a contraction of 2.2 per cent, compared with the previously reported decline of 2.1 per cent.

Germany is now expecting a 6 per cent contraction this year and is predicting growth of just 0.5 per cent in 2010.

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Economists had been expecting a bigger reduction of half a percentage point to 1pc, but speaking at a press conference after the monthly decision ECB president Jean-Claude Trichet did not rule out further cuts.

He said that [...]]]> The European Central Bank has cut interest rates in the eurozone to a record low of 1.25pc, down from 1.5pc.

Economists had been expecting a bigger reduction of half a percentage point to 1pc, but speaking at a press conference after the monthly decision ECB president Jean-Claude Trichet did not rule out further cuts.

He said that rates may be cut “in a measured way,” adding that while inflationary pressures were subsiding, the outlook for the economy remained poor.

“The latest economic data and survey information confirm that the world economy, including the euro area, is undergoing a severe downturn. Both global and euro area demand are likely to remain very weak over 2009, before gradually recovering in the course of 2010,” he said.

The ECB’s Governing Council has reduced interest rates by a total of three percentage points since early October, after the global financial crisis intensified following Lehman Brothers’ collapse in September.

Mr Trichet said the ECB would announce “non-standard” measures at its policy meeting in May in an attempt to stimulate the eurozone economy, which officially entered recession at the end of last year. The Organisation for Economic Co-operation and Development (OECD) predicted earlier this week that the eurozone economy would contract by 4.1pc this year. That is a significantly bigger drop than the 2.2pc to 3.2pc fall forecast by the ECB.

“We expect the ECB to trim its key interest rate to 1pc at its May meeting,” said Howard Archer, chief economist at IHS Global Insight. “It is possible that the ECB could eventually bring the interest rate down below 1pc but it looks reluctant to do this and instead will increasingly focus on “non-conventional” measures to boost economic activity.”

Options include the lending of funds to banks at fixed interest rates for longer periods, and the purchase of private sector assets.

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The target going forward is now for a lower rate with the medium term outlook still towards 1.1500. This latest Euro weakness stemmed from renewed apprehension towards the economic outlook for Eastern Europe and a warning released by Moody’s overnight that Western European [...]]]> This support level has held since early December against the US dollar.

The target going forward is now for a lower rate with the medium term outlook still towards 1.1500. This latest Euro weakness stemmed from renewed apprehension towards the economic outlook for Eastern Europe and a warning released by Moody’s overnight that Western European Banks’ rating would need to be downgraded as a result.

This provoked a new wave of risk aversion trading this morning in Asia with weakness seen not only in the Euro but also the AUD, NZD and other regional currencies.

The Yen, which has been a safe haven since the demise of the carry trade mentality, didn’t benefit either as their own domestic woes appear finally to be catching Japan up (ie the collapse in Japanese economic activity – down nearly 13% y/y, the move to a deficit on trade and rising political risk with the PM’s approval rating falling below 10% and the untimely departure of the Finance Minister following his ‘Rome adventure’).

No data yesterday combined with the US holiday left us grasping for official comment and the officials didn’t disappoint. The usual ECB rhetoric emerged with various members talking in a concerned way about the European economic situation and implying interest rate cuts to come.

The BoE Deputy Governor, Charles Bean, speaking at the National Union of Farmers Conference in Birmingham predicted that there was a 75% chance that the UK economy would contract by more than the 4% rate that was predicted by Mervyn King last week.

This comes amidst rising fears that data is about to show the UK entering a period of deflation. Today’s release is expected to show that the RPI year-on-year figure has dropped to, or just below zero (expected to be -0.1%) and the CPI number, although less dramatic, will still show an easing from 3.1% down to 2.9%. This maintains the probability that the Government’s target rate of 2% will be reached/breeched in the figures for March.

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In the capital markets, the Gilt auction from the DMO went OK (a slightly lower bid ratio than the last time but the same bid tail).

Prices continued to fall though with yields rising and these moves [...]]]> Today looks no different with just December Retail Sales and the 4th Qtr GDP figures, both from the UK.

In the capital markets, the Gilt auction from the DMO went OK (a slightly lower bid ratio than the last time but the same bid tail).

Prices continued to fall though with yields rising and these moves were mirrored in the US and German markets. In the Money Markets, interest rates in Sterling and Euro continued to edge lower although the ECB continues to push a hawkish line, making two things clear to the markets – it’s not planning any more big moves, and in fact the scope to cut rates further is limited.

The ECB Head, M. Trichet, for instance, said a correction in growth was typical following buoyant periods and that he remained hopeful economies would be back in ‘positive terrain’ in 2010. In other words, he sounded very much like he was trying to shift the emphasis away from near term downward risks to growth and further ahead to the recovery phase.

Bini-Smaghi spoke directly on rates, suggesting that since there isn’t a serious risk of deflation, it made no sense to drop rates to zero. He said it is important not to create another credit bubble through current policy actions – there is little room to cut nominal interest rates below 2%, he said.

This morning’s data from the EU, the Manufacturing & Service Composite PMI figures, were reported slightly better than had been anticipated although not enough to reverse the recent Euro decline.

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The €˜workday adjusted number (whatever that is!) was even worse with a reduction from [...]]]> With data from Germany hurting the currency ahead of the ECB Meeting tomorrow, the German GDP figure for 2008 came in exactly as the market had anticipated at +1.3% but the fall from +2.5% the previous year still made unpleasant reading.

The €˜workday adjusted number (whatever that is!) was even worse with a reduction from 2.6 in 2007 to 1.0 in 2008. Added to this, the German engineering orders in November fell by 30% in real terms from the previous year with the quarterly fall reported at 16% from a year ago. The November fall was split evenly (domestic -32% and foreign -29%) showing that the downturn is indeed global.

The German Engineering Industry’s (VDMA) Chief Economist commenting on the figures said, “For the last quarter of 2008, the November figures point to a decline in orders never seen before. We believe there will be a decline in the production volume in 2009.”

It’s not a good sign and not taken very well by the currency.

This morning has also seen the repeat publication of an OECD report on the Eurozone which forecasts a 0.6% fall in GDP for 2009 and a view that the ECB has plenty of scope to cut their interest rates further. Another millstone.

And finally, following the announcements from Standard & Poors that several Eurozone countries’ long term rating were being put on negative watch/outlook, there were rumours aplenty that a good chance existed that one of the member countries would exit the Euro.

Loans Calculators Blog- loans rates blog for news about interest rates- unsecured and secured loans, mortgages, remortgages and refinancing including home loans, equity release and consolidate debt loans.