Looking back over 2012, it was clear where it had all started to go wrong for the eurozone. Markets had rallied strongly in the first two months of the year following the decision by the European Central Bank in late 2011 to provide cheap three-year loans to commercial banks starved of credit. Interest rates on the bonds of the weaker members of monetary union tumbled, raising hope that Europe was emerging from its debt nightmare.
Then, on 2 March, Spain‘s new prime minister, Mariano Rajoy, announced that he was ditching the budget deficit target: instead of reducing borrowing to 4.4% of GDP as Brussels wanted, Rajoy would be aiming for 5.8%. He was later forced to bring that down, but only slightly.
There was no immediate explosion; it took a couple of weeks for financial markets to react to the news. But by early April, interest rates on 10-year Spanish bonds were back to where they were in the dark days of 2011. Back then, pressure mounted as the bad economic news continued during the spring and summer and by the late autumn Spain became the fourth eurozone country to need a bailout from the EU, the ECB and the International Monetary Fund.
That, briefly, was how many in the markets saw 2012 panning out as they headed off for Easter. The thinking went as follows: Spain has suffered a colossal property bust that has left it with weak growth, high unemployment and the shakiest of banking sectors. A double-dip recession will make it impossible to bring down the deficit in line with the Brussels timetable, particularly since the appetite for stringency is stronger in Madrid than at municipal level.
This makes markets nervous. the Greek crisis shows that investors face 70% losses in the event of default, and markets remain to be convinced Greece was a one-off. They are, therefore, demanding higher returns on Spanish debt. This adds to Spain’s problems, raising its debt-servicing costs, pushing up long-term interest rates,and making a bailout more likely. Little wonder the IMF says Spain faces “severe challenges”.
Spain will not need immediate financial help, and the good news is that it has already sold nearly half the bonds needed to cover borrowing this year. The ECB’s long-term refinancing operations will also provide enough liquidity to prevent Spanish banks from going belly-up.
But it is not hard to sketch out how things go from bad to worse over the coming months. First, signs that François Hollande will defeat Nicolas Sarkozy in a run-off for the French presidency give the markets jitters. Then, the lack of growth in Spain makes it look unlikely that even the watered-down deficit targets will be hit. There are demonstrations and strikes over austerity. Eventually, the government throws in the towel and admits it needs outside help.
Even this need not be a drama, if three preconditions are met. The first is that policymakers both in Spain and at the eurozone level learn lessons from the botched rescues of the past two and a half years. Experience shows that there is a need to move decisively and with speed. The second condition is that there are enough bailout funds available to the EU and the IMF to cope with the demands of Europe’s fourth-biggest economy.
Finally, there has to be a recognition, belatedly, that Spain’s deficit-reduction programme needs growth more than austerity. The war chest available to Europe and the IMF is probably big enough to cope with Spain. But the adamantine belief in cutting at all costs shows that lessons still need to be learned.
Nicholas Ferguson’s elevation at BSkyB hasn’t been applauded by all shareholders. He is not, they fear, the tough independent chairman prepared to overhaul the boardroom that the satellite broadcaster needs.
BSkyB’s is not a normal board. Of the 12 non-execs, four are News Corp placemen and three have been there more than nine years, which means they are not classed as independent under the corporate governance code. Two more, including Ferguson, will pass the nine-year mark next summer.
Ferguson, investors point out, was on transmit, rather than receive, when so many of them expressed concern about James Murdoch’s tenure after the hacking scandal exploded. Ferguson’s job, as senior non-exec, was to listen to shareholders. But while 45% of them were preparing to oppose or abstain from supporting Murdoch’s re-election, Ferguson was penning a letter robustly defending his chairman.
Sky investors would like someone with a record of delivering financial success; in Ferguson’s seven years at private equity group SVG, its shares have halved. But mostly they want someone prepared to force through change. And they are not convinced that man is Nicholas Ferguson.
source: guardian.co.uk
The volcanic ash cloud that grounded planes across Europe last month has cost Thomas Cook around £70m.
The travel firm reported this morning that the disruption will have a significant impact on its financial results this year. But on an optimistic note, it believes that the public have not been deterred from booking a foreign holiday.
Thomas Cook estimates that it lost up to £20m of revenue from customers who chose not to rebook their holiday after they were unable to fly. The rest of the £70m cost relates to the cost of supporting customers who were stranded, and bringing them home.
Chief executive Manny Fontenla-Novoa said this morning that while customers had been reluctant to book holidays during the days whenflights were cancelled, booking patterns quickly recovered once airspace was reopened.
“We are pleased with the development of our summer bookings programme, particularly given the disruption caused by the volcanic ash cloud. If we exclude the estimated impact of the volcanic ash cloud, then the group remains confident of meeting board expectations for the year,” Fontenla-Novoa said.
The volcanic ash cloud has caused significant economic damage, withthe EU estimating that European businesses lost up to €2.5bn (£2.1bn), Airlines are thought to have lost at least $1.7bn (£1.15bn).
Within the travel sector, TUI reported a £90m hit earlier this week.
Fontenla-Novoa still believes that the authorities overreacted by closing down airspace for so many days.
“The group is working with the government and relevant national and international bodies to put in place measures to ensure such a blanket ban is not needlessly imposed again and to seek some compensation for the exceptional costs and lost contribution,” he said.
Thomas Cook also reported this morning that it made a smaller pretax loss in the six months to the end of March, at £252m compared with £309m the year before.
source: guardian.co.uk
Thomas Cook is close to striking a £1.2bn refinancing deal that will give the troubled travel group two more years’ breathing space to turn round its business.
A consortium of 17 banks including Royal Bank of Scotland and Barclays is expected to approve an extension of loans until 2015. Although the conditions are likely to be stringent, with higher interest rates and the lenders taking a significant stake in the company, the deal is regarded as good news by Thomas Cook.
Without the backing of the banks, it would have had to repay the bulk of its debt by April 2013.
Britain’s oldest and best-known tour operator appeared to be on the brink of collapse before Christmas after a disastrous year that featured three profit warnings and the departure of its long-serving chief executive. Despite £100m of short-term funding having been secured in autumn 2011, an emergency loan of £200m was needed by late November to keep the firm afloat. Bookings slumped in subsequent months as reports of its financial woes deterred customers.
The new arrangement negotiated by the interim chief executive, Sam Weihagen, is likely to be followed by further asset sales to help pay off the debt of the 170-year-old firm, which has an annual turnover of £9bn and 30,000 employees.
Last year it sold off its Spanish hotel chain to Iberostar and it is looking to sell its Indian division entirely, although Weihagen has said he would take only a “compelling offer” for the growing Indian holiday business. Its fleet of planes may also be sold and leased back.
Another asset that could be sold is its stake in Nats, the air traffic controller. The shareholding is part-owned with six other airlines in the Airlines Group, which is considering whether to sell its investment.
The firm is also axing 200 of its 1,300 UK high-street stores. Thomas Cook shares tumbled by more than 75% to less than 10p on one tumultuous day in November last year, but have since recovered to 20.5p. It recently announced a 2% fall in summer bookings in Britain, but said a new “Wonderful World” advertising campaign had brought in new business, while improvements to its websites had meant a 19% increase in online bookings in recent weeks.
In a statement last month, Weihagen said trading across the group was “stable” and in line with expectations.
He said the outlook for the business remained challenging, with a major factor being lower consumer demand, and the French market in particular slumping. However, he said bookings across much of Europe had improved and summer trading was “encouraging”.
The company says it is now seeing British holidaymakers return to Tunisia after a drop in bookings since the Arab spring – although its German clientele have largely boycotted Greece since the Euro crisis and bailouts.
source: guardian.co.uk
The so-called underemployment rate, which counts jobless people looking for work, part-time workers who need full-time jobs and discouraged job seekers, fell to a three-year low of 14.5% from 14.9% in February.
When that rate falls, it’s a sign not only of less economic pain, but also that the economy is operating closer to full capacity, said Heidi Shierholz, labor economist with the Economic Policy Institute, a liberal think tank.
“When that rate is lower, it is better, better both for workers and the economy,” she said.
The underemployment rate reached a record high of 17.2% in November 2009.
Then two years of slow, uneven improvement followed, as the economy slowly mended. But in October of 2011 things began to rapidly improve.
March’s underemployment rate is the best reading since just beforePresident Obama took office in January 2009.
Fewer frustrated baristas: Much of the improvement came because the number of workers who want full-time jobs but who are stuck working part time fell by 447,000 to 7.6 million. It’s the sixth-biggest monthly drop on record.
“That’s a big drop and that’s unambiguous good news,” said Shierholz.
In addition, the number of unemployed, as well as the number of discouraged workers, also both declined.
There are 12.7 million unemployed job seekers, and about 2.4 million more who say they want to work but are no longer counted in the labor force since they’ve stopped looking. Those readings fell by a combined 389,000 in March, another sign of less economic desperation.
The more widely followed unemployment rate showed only modest improvement in March to 8.2% from 8.3%. But that was discounted by many, since it was driven by 333,000 people dropping out of the labor
source: money.cnn.com