E.U. Parliament To Investigate Euro Zone Bailout

The euro zone‘s trillion dollar bailout are likely to be subject to a criminal investigation, the EUobserver.com reports. Several member of the European Parliament are questioning the way in which E.U. leaders and finance minsters rapidly cobbled together a €750 billion euro zone rescue mechanism at the beginning of last month, referring to the process as “highly undemocratic”.

“This is something that we are going to follow up.”

Wolf Klinz

Comments made by the influential center-right MEP Wolf Klinz on Thursday, refer in particular to the new balance-of-payments facility for euro zone states that makes up part of the support mechanism. “This is something that we are going to follow up,” Mr Klinz said when asked whether parliament should have been consulted beforehand.

Wolf Klinz from Germany is also chairman of the E.U. parliament’s special committee on the financial crisis.

“It’s the first step towards euro-bonds,” Wolf Klinz adds.

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“Personally I am against euro-bonds to finance member-state debts.”

Under the facility, the European Commission can raise up to €60 billion on capital markets and then lend the money to euro-area states that are struggling to meet their debt obligations.

Others have also questioned the legitimacy of the new tool, under which the commission can raise money at low interest rates by issuing bonds, backed by the bloc’s roughly €140 billion annual budget.

However, officials say Article 122 of the EU treaties, which allows financial support to be given to member states struggling due to exceptional circumstances, provides a firm legal basis.

Presented With Doomsday Scenario

“We are facing such exceptional circumstance today and the mechanism will stay in place as long as needed to safeguard financial stability,” finance ministers said last month in justifying their decision.

The other components of the euro area rescue mechanism include €440 billion in government-backed loan guarantees and bilateral loans on an intergovernmental basis, and €250 billion in IMF money.

Sources say EU leaders meeting in Brussels on the fateful Friday, 7 May, were presented with a doomsday scenario, with analysts predicting skyrocketing borrowing rates for several peripheral euro zone states the following week.

As part of the resulting deal to protect these states and the euro zone as a whole, the European Central Bank was also forced to throw standard practices out the window as policy makers rushed to agree measures before markets opened on Monday morning.

The bank’s decision to commence sovereign bond purchases on the secondary market was previously seen as strictly taboo.

Original post at the EUobserver.com.

Related by the Econotwist:

Why Optimists Are Wrong About The Euro Zone

Bundesbank Suspects A French Conspiracy

Goodbye Keynes – Hello Ricardo!

Transantlantic Bailout Buddys Agree To Disagree

China To Dump Euro?

Merkel, Obama, Sarkozy Have Investors Shitting Their Pants

European Banks: “Leman Times Ten”

Proposal For New Single European Bond

You Sue Me, I Sue You, Oh Peggy, Peggy Sue

ECB Announces Bailout Program

Europe Is Cracking Up

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Wall Street Get Smacked Again – Post-Trading Commentary

U.S. stocks sank, with the Standard & Poor’s 500 Index falling to its lowest level in four months, as slower-than-estimated jobs growth spurred concern the economic recovery may not be as robust as forecast. The S&P 500 Index declined 3.4 percent to 1,064.88. It was the biggest drop on the day of the U.S. Labor Department’s monthly jobs report since at least 1998, according to data compiled by Bespoke Investment Group LLC. The Dow sank 324.06 points, or 3.2 percent, to 9,931.22.

“Those who had been expecting a more robust recovery might be cutting down their projections.”

James Dunigan

The S&P 500 erased its weekly advance after the Labor Department said today that payrolls increased by 431,000 in May, trailing the median economist forecast in a Bloomberg News survey that called for a gain of 536,000. Private employers added 41,000 positions, 139,000 less than estimated.

“The jobs report puts a damper on the growth story,” said James Dunigan, chief investment officer at PNC Wealth Management in Philadelphia.

“It’s a victim of the uncertainty that we’ve seen over the last months especially regarding the European situation. Those who had been expecting a more robust recovery might be cutting down their projections.”

Mohamed A. El-Erian, whose firm runs the world’s biggest mutual fund, says stock investors should brace for higher volatility after the jobs report.

“Investors should keep their seat belts on and tight,” El-Erian, chief executive officer of Pacific Investment Management Co, wrote in an e-mail to Bloomberg News.

“The disappointing jobs report is further evidence that drivers of self-sustaining private consumption growth are facing structural problems that result in slow income growth, reduced credit availability and lower ability to monetize wealth.”

The Euro sank below $1.20 for the first time since March 2006, to $1,19550,  amid speculation the European fiscal crisis may be spreading into the financial system.

A Defining Moment

“Every now and then, what starts out as an apparently isolated incident of tragedy or stupidity turns out to be one of those defining events in history. A morning in September at the start of the decade turned out that way, when what seemed, at first, to be an errant act of navigational aerial stupidity turned out to be an initial salvo of terrorism.”

“Now, we have what started out as a human tragedy, the loss of life aboard an offshore rig, turning into a defining moment for the oil industry, national security and domestic oil supply. The BP disaster has turned offshore drilling into a political quagmire, and has destroyed one of our nation’s pillars of domestic oil supply,” analysts at Cameron Hanover writes in a post-trading commentary Friday.

Here’s the rest of the market summary:

“From our perspective, Friday’s biggest story was the Baker‐Hughes report, released after the market closed, which showed half of our nation’s offshore rigs idled. The number fell from 46 to 23, its lowest figure since August, 1993. The moratorium on deepwater drilling gave us our first decline in the rig count in six weeks, and saw it plunge by 29 to 1,506. Gas rigs dropped by 2.1%, or by 20 rigs, to 947. No one has been talking about a “gas spill,” but gas is just the first of what we expect to be many collateral damages.”

“The rig count was not Friday’s motivating force, despite the importance we may read into it. Oil prices dropped steeply, as traders reacted to a collapse in equities, a decline by the euro to less than $1.20, its lowest exchange rate against the US dollar since March, 2006, and an unemployment report which showed much less of an increase in non‐farm payrolls than had been expected. These three factors worked hand‐in‐glove together to generate the huge decline in oil prices.”

“On the charts, crude oil prices had been threatening to break above resistance up to $75.72 on Thursday, but had fallen short of that. Heating oil prices had broken over 203.92, but they finished one point beneath that level, which makes Friday’s decline a technical failure on the charts. That realization seemed to add another element of selling to the mix.”

“From the popularly‐held perspective, Friday’s decline came as the result of the May unemployment figures being disappointing, with a gain in non‐farm payrolls of 431,000 against estimates for a gain of 515,000. Many of the jobs that did materialize came from census bureau positions that are temporary. The euro fell more quickly and sharply after the numbers were released, but it had already been on the ropes because of concerns over Hungarian debt. This was tucked in beside the problems experienced by Greece and others earlier in May. And the US stock market plunged, losing 323.31 points to end at 9,931.97, below the psychologically important 10,000 level.”

“The upshot of this week’s volatile trading is this: US oil demand has increased in recent weeks, but is under pressure by unemployment, which continues to be the millstone weighing around the economy’s neck. Any gains made by the US are being balanced by concerns over European sovereign debt, which has become a can of worms, now that it has been opened. And any hope that consumers might feel cheered by anything has taken a hit with the DJIA breaking below 10,000, a psychologically significant level that leaves investors feeling less wealthy. Oil prices seem to be on the verge of a fresh round of losses. Recent gains now seem to have been part of a rally in a market that is still weak.”

“Note: When we do rally or advance for real, the loss of offshore drilling and recent gains in demand now seem likely to lead prices higher. We need to get past everything else, though, first.”

Here’s a copy of the commentary, incl. charts and figures from Cameron Hanover.

Related by the Econotwist:

Rosenberg: “Statistical Illusion Of Recovery”

S&P 500 Drops 3.4% On Disappointing Job Report

Oil Spill Makes Waves

Why Optimists Are Wrong About The Euro Zone

BP Is Drowning In Its Own Oil Spill

Goodbye Keynes – Hello Ricardo!

U.S. Stock Market: Worst Week Since 1940

Merkel, Obama, Sarkozy Have Investors Shitting Their Pants

European Banks: “Leman Times Ten”

Welcome Back to Earth, Mr. Market

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Swedbank To Merge Baltic Subsidiaries Into The Group

Swedbank plans to merge its Baltic banks that at present are subsidiaries into the parent group. A survey commissioned by Swedbank recently showed that it would be the most economic solution, balticbusinessnews.com reports.

“From the viewpoint of capital management, the most cost-effective solution would be to merge Baltic subsidiaries directly into the parent group Swedbank AB,” Hakan Berg, head of Baltic banking in Swedbank says.

Berg said that the company’s board of directors will make a final decision in this issue by the end of the summer.

At present Swedbank’s banks in Latvia and Lithuania are subsidiaries of Swedbank AS that is incorporated in Estonia.

Hakan Berg himself became the new chairman of the supervisory council of Swedbank AS from May 25. Priit Perens, the bank’s managing director in Estonia, is the chairman of the management board of Swedbank AS.

As part of the restructuring of the group’s management system, Michael Wolf who is CEO of Swedbank Group, left the supervisory council of the Estonian company.

Berg adding that Baltic banking remained a strategic business area for the group and that the objective of the changes was to free the Group CEO from the function of managing and supervision of subsidiaries.

“This will be my job,” he says.

Norwegian DnB NOR will shortly decide if they’re gonna acquire the full 100% of its Baltic subsidiary, DnB NORD,

The Norwegians currently holds a controlling stake of 51% of the Baltic bank.

Related by the Econotwist:

Estonia: Banks Lost USD 23 million in Q1

Morgan Stanley To Buy Bad Baltic Loans?

Swedbank Leaves The State Guarantee Program

Latvia To Split And Sell Nations Leading Bank

The Nordic Superbank Dream

Standard and Poor’s: The Baltic Are Stabilizing

Swedbank Buy Greek Bonds With Estonian Money

Swedbank In Estonia: “Daylight Robbery”

How Sweden sent Estonian economy into free fall

Nordic Central Banks Agree On Baltic Bank Bailout

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