Euro Falls Against Dollar as Irish Deal Fails to Stem Concern— The euro fell to the lowest level in more than two months against the dollar as Ireland’s agreement to receive 85 billion euros ($112 billion) in aid failed to stem concern that Europe’s sovereign-debt crisis will deepen. The shared European currency slipped versus the yen and erased an early advance versus the greenback. Finance chiefs ended crisis talks in Brussels yesterday, agreeing that a future crisis-management system won’t automatically cut the value of bond holdings as the Irish package was secured. Irish opposition parties criticized the terms of the agreement, and the cost of insuring debt from Spain and Portugal soared to record highs. “We saw an attempt for the euro to trade higher earlier in the session, but even if the Irish problem is solved, and that’s still debatable with the need to get the austerity budget passed, investors are very wary of seeing the reaction of the other peripheral members,”
China’s food crisis spells end of record highs – For all Ireland’s woes, it hasn’t yet seen empty supermarket shelves and long bread queues. In contrast, consumers in the world’s most booming economy, China, are travelling miles to buy basic goods such as soy sauce and cooking oil, and watching prices increase while they wait in line at market stalls. Rampant food price inflation – of more than 10pc last month – is causing extreme concern and radical action from the Chinese authorities while the world’s political and economic attention has been on Ireland, Spain and Portugal.
Roubini tells Portugal to seek bailout as markets slide – Nouriel Roubini, the US economist, said Portugal should consider asking for a bailout before its financial plight worsens as the euro fell after the €85bn Ireland bailout failed to ease eurozone debt fears. Mr Roubini, the economist who predicted the financial crisis, told daily paper Diario Economico it is "increasingly likely" Portugal will require international assistance. He said the country is approaching "a critical point" due to it high debt load and weak growth and there were ample funds to shore up Portugal, one of the eurozone’s smaller countries which contributes less than 2pc to the 16-nation bloc’s gross domestic product. However, he said neighboring Spain, Europe’s fourth-largest economy, is "too big to bail out."
Ireland must find €17.5bn from its pension fund and reserves for bailout – EU ministers tonight spelt out the terms of Ireland‘s €85bn international financial rescue package, and revealed the Dublin government will have to raid its national pension fund and other cash reserves for €17.5bn as a condition of the deal to bail out its banks and debt-laden economy. The unexpected contribution from Ireland was demanded at a hastily arranged meeting of the eurozone’s finance ministers, who were desperate to secure a deal before the markets open tomorrow. The package from the EU and International Monetary Fund includes €67.5bn of external loans. €10bn will go straight to the crippled banks, and €25bn is earmarked for bank support in the future. The remaining €50bn will be used to shore up the public finances and allow the government to keep making welfare payments and cover other expenses such as health and education.
Financial News: France Seizes EUR36 Billion Of Pension Assets – Asset managers will have the chance to get billions of euros in mandates in the next few months for the EUR36 billion Fonds de R??serve pour les Retraites (FRR), the French reserve pension fund, after the French parliament last week passed a law to use its assets to pay off the debts of France’s welfare system. The assets have been transferred into the state’s social debt sinking fund Cades. The FRR will continue to control the assets, but as a third-party manager on behalf of Cades. The move reflects a willingness by governments to use long-term assets to fill short-term deficits, including Ireland’s announcement last week that it would use the country’s EUR24 billion National Pensions Reserve Fund "to support the exchequer’s funding programme" and Hungary’s bid to claw $15 billion of private pension funds to the state system.
Spanish debt rate hits eight-year high – Investors fled Spanish debt Monday, pushing 10-year bond rates to an eight-year high, as Ireland’s 85-billion-euro rescue failed to stop fears the crisis may spread. Markets are turning their focus to Portugal and Spain on concerns they could be the next dominoes to topple. If Spain was to require an international rescue, it would dwarf those seen to date in Greece and Ireland. Spain’s gross domestic product is twice that of Ireland, Portugal and Greece combined. Investors demanded higher yields before taking a bet on Spanish debt, despite the authorities’ argument that the country’s economy is in no danger of needing a rescue. Spanish 10-year bond yields rose in early afternoon trade to 5.330 percent, the highest since 2002. The Spanish yield was 2.58 percentage points above the rate demanded for safe-bet German bonds.
Illinois in $1.5bn bond sale to pay bills – Illinois on Monday begins a $1.46bn bond sale that will allow the cash-strapped state to use future payments from a legal settlement with tobacco companies to pay its bills. The sale comes at a nervous time for municipal debt markets. In the past two weeks, investors have withdrawn more than $5bn from mutual and exchange-traded funds that buy “munis”, according to Lipper, the fund tracker, as a rise in yields on benchmark Treasury bonds compounded fears of rising defaults by muni issuers. Illinois, along with California, is among the most troubled of the 50 US states, which are struggling with budget deficits and underfunded pension plans. Most of the proceeds from this week’s bond sale will pay $1.2bn to $1.3bn of overdue bills to vendors, who, under state law, would have to file claims in court if they are not paid by December 31, said John Sinsheimer, Illinois’ director of capital markets.
House could delay Medicare rate cuts – The House on Monday is scheduled to take up a $1-billion measure delaying by one month a 23 percent cut in federal Medicare reimbursements to doctors. The payment reduction is scheduled to go into effect Wednesday if members of the House don’t act. The Senate approved the legislation earlier this month A 1997 law requires that doctors’ Medicare rates be adjusted each year based on the health of the economy, with the goal of keeping the program in the black. Rate cuts have been blocked 10 times in the last eight years, including four times this year. The American Medical Association has said that if the cut is enacted, doctors may have to stop accepting Medicare patients. Some 43 million people, mostly senior citizens, receive Medicare benefits.