The problems in Spain cannot be denied any longer. In fact, the crisis that hit the Eurozone is something that cannot be hidden.

Since the credit crisis that began in the U.S. a few years ago, countries and their banks have fallen like trees, showing black holes that had been hiding for years, as well as very bad practices that did nothing but make what was already a big problem worse.

Now that the complete rescue is about to come to Spain– the first one was only for the banks, although it counts as government debt– many authors and writers of Spanish newspapers question the competence of the European Central Bank (ECB), and wonder what prevents the ECB from saving us from total disaster by buying public debt of states that are worse off. In these writers’ speeches they explain that the ECB should act as the International Monetary Fund (IMF), and provide financial resources to those who need it.

Are they wrong asking for this? Absolutely. The answer to the question of why the ECB does not act as the IMF is this one: because they are not the same. Despite the fact that, apparently, both agencies have similarities, the truth is the objectives for which they were created are completely different in each one, and the way they respond is not the same. That is why it is advisable to make a couple of clarifications on the differences between the two entities, in order to understand why the ECB is not a “European IMF.” It was not intended to be one.

The IMF was created in a completely different context, when the consequences of the Great Depression could be still felt. Its creation reflected the attempt of several countries to avoid repeating the disastrous measures that weakened economic activity during those years.

Meanwhile, the ECB, successor to the European Monetary Institute, was created in 1998, but it did not make full use of its powers until the entry of the euro in 1999. The creation, established in the Maastricht Treaty, responded first to the oversight of the transition of member countries from their national currencies to the euro and, second,  the need for the existence of a bank for this currency.

With these completely different contexts it is logical that the objectives of both entities are not the same. Thus, the main function of the IMF is to oversee the smooth running of international economic policy, and to encourage it, acting as a fund where countries can ask for help when they need temporary financing.

However, the main objective of the ECB is to maintain the price stability in the euro area by maintaining the inflation at low levels, leaving other objectives subordinates to this first and foremost. Broadly speaking, it seems that we can define the IMF as a fund that lends money to countries who need it, and the ECB as that one who ensures the proper functioning of the Eurozone. So, the role of the first one is active, while the second one’s role is rather passive.

Now the big question is: if the euro is not working properly and there is a risk of its disappearance, can the ECB not protect it through the purchase of public debt? The answer is, again, no. Why? Because of the statutes which regulate it.

Since it was created, the ECB defined itself as completely independent from the member countries of the Eurozone– which has been questioned in recent years, especially by the suspect origin of the last directors of the ECB– and the measures should not respond to the national interests of any country. In the same way, the European institutions and national governments are required to respect this independence, and this means that there is no mechanism by which a member state may compel the ECB to act in one way or another.

This is the main reason why the ECB cannot rescue any Eurozone country. Besides this, there is another powerful reason that we forget sometimes: the conditions for being a member of the Eurozone are strict. It is not enough to wish to adopt the currency, there are steps to follow before completing the transition.

The ECB is responsible for safeguarding the proper functioning of the euro because it assumes that other institutions– created for that purpose– have been responsible for verifying that the candidates have the specific requirements for entry. If someone has not, whose fault is it then?

Image Courtesy of  eisenrah

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London, United Kingdom — June proved to be a bullish month for stock markets, with investors buying back into the market after three previous months of declines as Central Banks looked to stimulate a slowing global economy.

In June, the FTSE 100 gained 251 points or 4.7%. However, having hit resistance at the 5700 level at the end of last week, will the FTSE’s charge start to run out of steam? By close of play in the UK on Friday (July 6), all the major indices were firmly in the red, with the Dow Jones leading the way as it fell by over 150 points (over 1%) by 4.40pm (BST). Major indices in the UK and Europe recorded falls too, with the FTSE 100 shedding 30 points and Germany’s DAX 30 sliding by over 125 points to close the week at 5662.6 and 6410.1 respectively.

Luckily for some, spread betting is a viable alternative to conventional trading, making it possible for traders to profit from rising as well as falling markets – an excellent option during volatile market conditions such as the present.

More falls expected this week?

Last Friday’s dip in market sentiment was caused largely by the release of worse than expected non-farm payroll data in the US, which showed the country’s unemployment rate remaining unchanged at 8.2% in June but the number of new jobs was disappointing, with a total of 80,000 new payrolls being added to the economy against expectations of 90,000. Private payrolls also failed to recover, adding just 84,000 jobs against expectations of 102,000.

In the UK, meanwhile, the Barclays Libor scandal continued to fray nerves after the Serious Fraud Office launched an official investigation into the rate-fixing controversy.

Globally too, sentiment was sombre, with International Monetary Fund chief Christine Lagarde revealing that the IMF will be revising its growth forecast for the global economy lower from the current 3.5%.

With spread betting, it is possible to profit irrespective of whether the markets are moving up or down, meaning that traders can net a profit even when markets are on the decline.

All you have to do is determine whether you expect market prices to rise or fall in the coming days. If  prices are expected to rise, one should take a long position and if the prices are expected to fall, one should go short.

Spread betting is a leveraged product which can result in losses greater than the initial deposit. Individuals should be sure that they fully understand the risks.

*Spread betting is exempt from UK stamp duty and Capital Gains Tax (CGT). However, tax laws are subject to change and depend on individual circumstances.

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Spain has received a 100 billion euro ($125 billion) after denying it needed it for several weeks. Although the announcement of the bailout originally had the global markets opening high, the uncertainty surrounding the details and implications of this bailout have caused the enthusiasm to disappear. Investors are still worried about spending money on Spain and they are also worried about what this bailout means for Italy.

The rating agency, Fitch downgraded Santander and BBVA – two of Spain’s largest banks – from As to BBB+s. This downgrade, in addition to uncertainty in the markets has caused investors to sit on their money rather than risk spending it. Fitch claimed the lower rating was caused by its worries that Spain will “remain in recession through the remainder of this year and 2013 compared to the previous expectation that the economy would benefit from a mild recovery in 2013 which directly affects the banks’ volumes of activities in Spain.”

The exact amount of emergency funds for Spain are still unknown, but the amount will be announced later in June after the Spanish banks have been audited. Many Spaniards were surprised about the bailout after their government insisted it did not need the money. There were several demonstrations on June 10 against the bailout after the announcement was made.

The Spanish government insists that the banks are the ones that need the bailout and are receiving the bailout, not the government itself. However, the bailout money cannot go directly to the banks, as Spain wants it to be, and must go through the Spanish government. A troika will also be created to oversee the financial management of the money in Spain just like in the bailouts for the Republic of Ireland, Greece and Portugal.

The bailout was meant to alleviate the concerns within financial markets that Spain itself was unstable and would go down with its banks. According to Richard Hunter of Hargreaves Lansdown stockbrokers, “some much-needed time has now been bought in Spain, which will allow the market an – at least temporary – sigh of relief.” However, the bailout seems to be its own worst enemy. The uncertainty surrounding the exact amount, the outcome and the mechanism of the bailout have not led to more investing.

Most of the bailout funds will come from the newly founded European Stability Mechanism that was formed specifically to help alleviate the Eurozone crisis. The funds are considered a loan that the Spanish government will eventually have to pay back, meaning this bailout makes Spain even more in debt. However, the fund itself will be considered a “senior” creditor which means that it will be paid back first if Spain defaults on its loan. Many investors are worried that they will not get paid back if they invest in Spain by buying its government bonds because everyone would be second to the Mechanism fund. Therefore, the Spanish bonds that were over 6% previous to the bailout are now almost up to 6.5% after the bailout according to the BBC.

Spain was still unsure about receiving a bailout but European finance officials pushed Spain into receiving help for its banks.

Moody’s rating agency has also said that Spain’s banking problem, “is not likely to be a major source of contagion to other euro area countries, except for Italy.”

 Italy

Many are now worried that if Spain’s bailout does not succeed, Italy may be next to need help – if it’s not already too late. Italian bonds are up to 6%, meaning that investors see these bonds as high risk. The Italian GDP dropped 0.8% in the first quarter of this year whereas Spain’s only dropped 0.4%. Most predictions show the Italian economy shrinking at least another 1.5% this year. This is Italy’s fourth recession since 2001 and consumer spending and exports are down.

The Italian government has recently been practicing austerity measures under the government of Prime Minister Mario Monti. The Italian Economic Development Minister, Corrado Passera stated, “this great discipline that we have imposed on ourselves in terms of public finances makes us one of the countries best equipped to confront the financial turbulence that Europe finds itself in today.” Passera also claimed, “in the past months, Italy has done, from a financial point of view, everything that needed doing to save itself.”

Italy currently relies heavily on funding from the European Central Bank, which could hurt it in the long run. However, Italian banks have not suffered as much as Spanish banks because they did not suffer from the same housing bubble. Italy’s unemployment rate is also half of Spain’s and its borrowing costs are lower. Italy’s deficit for this year is lower than Spain’s but its overall debt is higher. Still, Italy is in a fragile position.

Sovereign debt expert Nicholas Spiro has warned that too many are linking Spain’s problems to Italy. “Where Spain goes, there is the perception that Italy will follow, which is terrible because it is like comparing apples and pears.” Spiro claimed that Italy’s economy was “infinitely better” than Spain’s, particularly because Italy did not have to deal with the same housing crisis as Spain.

Although it looks as though Italy may save itself, investors are still too skittish. Currently many reforms are still necessary and will have to be passed over the next year. Prime Minister Monti had the support to push through these reforms but he seems to be quickly losing it.

Monti and newly elected French President Francois Hollande are both in favor of Eurobonds, bonds that are guaranteed by all of the Eurozone. These Eurobonds would help alleviate Italy’s debt and would mean its bonds would not be as high a risk to investors. Hollande and Monti will meet on June 14 to discuss the possibility of Eurobonds. However, Merkel has already announced that she is against them and Germany’s support will be necessary for Eurobonds to be successful at all.

Image Courtesy of   European Council

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According to a report put out by the European Central Bank on Wednesday, May 30, 2012, none of the eight countries that are waiting to join the euro currency are ready. Most countries in the group have only been waiting since 2004 or 2007 but Sweden has been waiting since 1995.

Bulgaria, the Czech Republic, Latvia Lithuania, Hungary, Poland, Romania, and Sweden are the eight countries that are members of the European Union but are not a part of the Eurozone – meaning they are not using the euro as their currency. Seventeen countries are currently using the euro, including Greece, although there have been discussions that it may have to leave the Eurozone. Currently the United Kingdom and Denmark are not using the euro either – instead they are using the pound sterling and krone respectively – but the decision to not use the euro was theirs, not the European Central Bank’s.

The United Kingdom opted out of the euro by negotiating an exception within the Maastricht Treaty of 1992. Joining the euro was heavily opposed by most of the United Kingdom, although its close neighbor, the Republic of Ireland, has adopted the euro. Denmark was able to opt out of the euro as one of the four conditions of the Edinburgh Agreement in 1992.

The European Central Bank must report on the progress of these eight countries every two years. So far it appears as if only Latvia will be able to join the euro currency by the next assessment in 2014. According to the bank, “in none of the eight countries examined, [is] the legal framework fully compatible with all requirements for the adoption of the euro.” They also claimed, “incompatibilities remain regarding central bank independence” in all of the countries.

Additionally Latvia and Lithuania are the only two countries of the eight currently taking part in the exchange rate mechanism II for more than two years which is required to be a part of the Eurozone.

Many of the countries’ economies are doing better than current eurozone countries. Seven of the eight countries – the exception being Hungary – have a debt-to-GDP ratio under 60% which is the Eurozone limit. Currently Greece’s ratio of debt-to-GDP is 165.3% and Italy, Ireland, and Portugal had ratios last year above 100%.

According to a statement from Prime Minister Donald Tusk of Poland earlier this May, Poland is still interested in joining the Eurozone even though the euro has been damaged by the current debt crisis.

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German Chancellor Angela Merkel met with the English Prime Minister David Cameron to discuss the Eurozone crisis. Both leaders support a two-speed approach to the future of Europe.

Several leaders outside of the Eurozone, such as U.S. President Barack Obama, have urged Germany and the other participating nations to take immediate action on the crisis. Cameron stated, “I’m very clear that urgent action is needed to deal with the market uncertainty… [it] is about building firewalls and recapitalizing the banks.” Although Cameron has urged the Eurozone to solve this crisis, he has made it quite clear that he expects them to solve their own problems.

The United Kingdom and Denmark, although members of the European Union, negotiated agreements in 1992 to be excluded from the euro. Both countries wanted to maintain their own currency, which now appears to have been the best course of action.

Merkel has already admitted that the Eurozone crisis has been building over the last ten years and will not be solved in a day. Merkel stated, “now it will also take a few years to get things right again.”

Many economic experts have claimed that the Eurozone structure is faulty because seventeen nations are connected through a currency but are not coordinated with their budget plans. This lack of budget coordination is not a problem until a crisis such as the 2008 recession arises; now the weaker economies are dragging down the whole system. Merkel agrees that something must be done to integrate these nations better. “We need more Europe, we need not only a monetary union, but we also need a so-called fiscal union, in other words more joint budget policy,” she said.

European Union officials in Brussels want Germany, the strongest economy in the Union, to accept jointly guaranteed European debt and allow the European Central Bank to issue eurobonds. These eurobonds would help to regain some of the debt for the other countries as well as Germany, but Merkel worries that issuing these eurobonds would harm the German people and the German economy more. Before any kind of fiscal union is created in Europe, Merkel is insistent that there needs to be more stability from other European Union countries. Some experts claim that the integration cannot wait.

Another suggestion from the European Commission and European Central Bank is the creation of a central banking authority that would help alleviate concerns of excessive debt. Currently, Spain’s finance minister has claimed that credit markets are “effectively shut” to Spain at this time, making it impossible for them to get the billions in euros to rescue their banks. As of 6 June 2012, the European Commission has announced a plan for a “bank union” in Europe that would make it easier for countries like Spain to get credit.

Although many worry that Spain will need a bailout, Spain insists that they will not. Merkel has stated that Germany will not pressure Spain to take a bailout although the funds will be there if they are necessary.

The European Central Bank cannot provide bailouts due to the ‘no bailout’ clause of the Maastricht Treaty of 1992. However, starting in July there will be a 500 billion euro rescue fund known as the European Stability Mechanism.

Merkel has insisted on austerity measures in bailout countries such as Greece, but these measures have been met with great opposition. Many claim that what governments should be focusing on is growth. Merkel claims, “budget consolidation [aka austerity measures] and growth are two sides of one and the same coin.”

Currently a budget-discipline agreement is being discussed across Europe and has already been ratified in some countries. The Irish referendum vote in the previous week affirmed the agreement. Merkel’s coalition government in the German Parliament is working to get the two-thirds majority necessary to approve the agreement. However, the opposition party – which believes the debt crisis can only be solved by spending for growth – has also requested a financial transaction tax be added to the agreement or at least followed by Germany.

The United Kingdom, with London being the biggest financial center in Europe, is opposed to a Europe-wide financial transaction tax. Cameron stated that the tax would “simply [draw] those transactions offshore and to other places.”

On 7 June 2012 Merkel stated, “we need a political union first and foremost… step by step we must from now on give up more competences to Europe, and allow Europe more powers of control.” Although Cameron agrees that the Eurozone must become more integrated financially, his country is not a member of the Eurozone and would not have to deal with the consequences.

After meeting with Cameron, Merkel announced that she is tolerant of a ‘two-speed’ Europe, meaning that while the current Eurozone countries become more integrated fiscally and politically, other countries such as Denmark and the United Kingdom that use their own currency would still be a part of the Union but relegated to the edges. Merkel claims, “we have to be open. We always have to make it possible for everyone [to join]… but we must not stop because one or the other don’t want to come along just yet.”

Merkel says that one of the greatest aids for the European Union countries is to become more competitive. She claims that the economies will improve when they begin producing more on the global market.

An EU summit is planned for later in June and the leaders will discuss plans for a political union. However, according to Merkel, the decision and the arrangements will not be completed in one summit and more meetings will have to be planned.

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Cyprus, like all other Eurozone countries, has been struggling with debt and recession. However, due to the recent crisis in Greece it is looking more and more likely that Cyprus will be the next country requesting a bailout from the Eurozone, like Greece, Portugal and the Republic of Ireland have before them.

Cyprus has a total of 23 billion euros (US$29 billion) tied up in the Greek financial crisis. The second largest lender in Cyprus, Cyprus Popular Bank, lost 1.8 billion euro (US$2.2 billion) in Greek investments. The Cypriot government has since underwritten the 1.8 billion euro equity issue to help the bank raise capital from other investors, but if the bank is unable to raise the money from other investors by June 30, 2012, the government will have to put up the funds itself – an amount equal to a tenth of the Cypriot economy.

Talks about Greece leaving the euro currency are also making Cyprus more nervous. If Greece leaves the euro they will most likely switch back to the drachma. However, Greece will no longer have the advantage of other countries to appreciate the value of their currency even though they have a bad economy, meaning the drachma will be severely devalued in relation to the euro.

This devaluation will cause Greece to default on their loans to other countries including not only the bailout to the Eurozone, but also to Cyprus. President Demetris Christofias stated, “[Greece leaving the Eurozone and the euro currency] is something I hope will never happen.”

Cyprus and its banks have not been able to borrow on international markets since June of 2011 after two of the world’s top three credit raters gave Cyprus a junk status.

Since then Cyprus managed to borrow 2.5 billion euros (US$3.1 billion) from Russia which it has used to survive for the past year. Cyprus is trying to find another independent investor or country to loan them the 1.8 billion they need to save Cyprus Popular Bank and their economy. According to the Telegraph, Cyprus is in talks with China for another loan and possibly another undisclosed investor as well.

The European Commission has recommended that Cyprus make significant changes to its economy. Some of these changes include fixing its public finances, recapitalizing its banks, reforming labor and service markets, revitalizing the energy sector, updating education policy, and correcting pension and healthcare systems. Cyprus will release a new plan that will hopefully help them reach their deficit goal of 2.5% of GDP this year. Cyprus also hopes to keep its low 10% corporate tax to encourage financial investments.

If Cyprus is unable to receive another investment from an independent nation or investor or Greece leaves the euro, it will need to request a bailout from the Eurozone.

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In recent weeks Spain’s banking crisis has gone from bad to worse. Spain’s credit rating has recently been downgraded from an A to BBB+ by Standard & Poor’s because of the debt it will most likely take on from its banks and regional government failures. Spain is the fifth largest economy in the Eurozone, leaving many worrying about the ramifications of these recent developments on the rest of Europe.

Currently Spain’s deficit is too high for the Eurozone. The European Commission says that Spain can be given more time to reduce their deficit from the 8.9% of the GDP – as it stands currently – by 2013. However, the high deficit in Spain is causing fewer individuals and countries to risk investing in the country.

Bond yields in Spain are up to 6.7% meaning that they are high risk. Yields on bonds are higher when they are riskier because investors want a higher return if they are putting money into something that is unstable. In contrast the German and US bond yield is at 1.28% and 1.64% respectively. Therefore, instead of investing in Spain’s government bonds more people are investing in the US and Germany. However, this high bond yield also means that Spain will accumulate more debt and have to pay a higher interest when borrowing money.

Despite all recent efforts the Spanish economy is expected to shrink 1.8% this year alone and another 0.3% next year. However, Prime Minister Mariano Rajoy insists that Spain will not require a bailout like Portugal, the Republic of Ireland, and Greece have needed; Spanish banks, on the other hand, have already asked for bailout money.

Bankia, a recently formed banking group of seven banks, asked for a 19 billion Euro bailout. Bankia originally reported a 309 million Euro profit for the year of 2011 when it actually had lost 2.98 billion euros. It is unknown as of yet how Spain will get the bailout money when it is already struggling under its own deficit.

The President of the European Commission, José Manuel Barroso, has suggested that they use the Eurozone’s new 500 billion euro stability mechanism to inject some capital into the banks, but Germany, Europe’s largest economy, has already rejected the plan. Another option is for Spain to give Bankia government bonds to then trade with the European Central Bank (ECB) for money.

Although it has been reported that the ECB has already rejected this plan a recent article by the BBC claims that these reports are false and that the solution is not yet off the table. The European Commission has also suggested creating a “banking union” to monitor all Eurozone banks in the future.

In addition to struggling with the mounting bank debts, Spain is also forced to rescue several regional governments who are no longer capable of borrowing money. Several regional governments have gone bankrupt and rating agencies, such as Standard & Poor’s, have put these regions at junk status. Most recently Catalonia, the wealthiest autonomous region in Spain, has asked for help from the central government; Catalonia accounts for one-fifth of the Spanish economy.

Spain is giving these regions government-backed bonds which they can then use to borrow money. However, as stated previously, these bonds are at a high yield which makes this solution temporary. A Spanish economy ministry spokesperson stated, “the goal is to reduce the pressure on the regions, which is often greater than the pressure on the state in general, with some regions not ale to borrow on the market.”

Regional banks have tried to strengthen each other through mergers. Ibercaja, Liberbank, and Caja3 merged in late May to become more resilient. This merger created the seventh biggest lender in Spain with 120 billion euros in assets. Liberbank and Caja3 were previously mergers of four and three regional banks respectively.

Spain’s unemployment as of April is at 24.3%, the worst in the Eurozone – even worse than Greece. It is expected to climb to 25.1% by 2013 even with the recent precautions taken by the newly elected center-right government. Prime Minister Rajoy has made several labor market cuts including cutting back on severance pay and restricting inflation-linked increases in salary; these decisions have been unpopular with unions and workers. Spain’s high unemployment also means that there are fewer people who are paying higher tax rates or even paying taxes.

Spain’s economy is heavily tied to the economy of Italy, the fourth largest economy in Europe. These close ties lead investors to worry that if there is a run on the Spanish banks there will also be a run on the Italian banks, throwing both countries into a deeper crisis. Italy is now borrowing at a rate over 5.66%; borrowing at a consistent 7% rate is considered unstable and has triggered the bailouts for Greece, Portugal, and the Republic of Ireland in the past.

The Spanish debt crisis was not caused by irresponsible government spending such as in Greece. Spain ran a balanced budget every year until the recession hit in 2008. The problems were planted when Spain joined the euro in 1999 and interest rates fell because Spain’s economy was good and other economies, such as the German economy, were not.

Investors wanted to invest in Spain which is what drove the interest rates lower. While the Spanish government resisted taking out more loans because of the cheaper interest rate the Spanish people did not. The country experienced a long housing boom that also affected the construction sector. When the recession hit, the housing and credit bubbles burst leaving many banks with toxic debt – debt that was unlikely to be repaid.

Image Courtesy of  Alberto Carrasco Casado

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Amsterdam, Netherlands - Atradius, one of the leading global credit insurance companies anticipates an increase in insolvencies across most developed markets. The Eurozone led slowdown in global growth and the tight financing conditions make it more difficult for businesses to grow.

Uncertainty over the Eurozone sovereign debt crisis and development of the economy has increased tensions in financial markets, though the latter have eased since the ECB intervention of Euro 1 trillion.

A major issue is that credit conditions in advanced markets have been tight and have shown hardly any improvement since the financial crisis in 2008. The banking sector continues to consolidate its debts and seeks additional capital to comply with new and stricter regulations. This has created a challenging environment for households and firms, especially in the Eurozone, and, to a lesser extent, in the US.

Insolvencies rise

Atradius expects the number of insolvencies to increase across most European markets as those of the US improve, as discussed in the April 2012 Atradius Economic Outlook [http://global.atradius.com/creditmanagementknowledge/publications/economic-research.html].

Increases are expected to be the highest in Southern Europe, with forecasts of double-digit growth in Italy and Greece. The insolvency situation is expected to deteriorate somewhat, even in Germany, despite its relatively benign economic conditions. Better news is coming from the United States. With the country’s moderate growth, Atradius projects a decrease in insolvencies. But the forecasted number of insolvencies over the year remains high from an historical perspective.

Downside risks

In general, insolvencies tend to track the business cycle, with economic growth below trend pushing up insolvency numbers. Therefore, there continue to be downside risks to this scenario.

Firstly, an escalation of the Eurozone crisis would hit firms and governments across the globe through financial and trade linkages. In accordance with our analysis in January, Atradius still expects the Eurozone to stay intact as the costs of a break-up would be extensive.

Secondly, the risk of a steep increase in the price of oil, as spare capacity is limited and unrest in the Middle East is high. While the dependence on oil is declining, a large price increase over a short period would increase retail prices and hurt consumer spending across the globe.

Atradius chief-economist John Lorie commented; “Whereas the US is moving on relatively well, in the Eurozone the sovereign debt crisis has moved from the financial markets to firms and households. As consumer confidence is low we see consumers unwilling to spend and banks unwilling to provide finance to firms in the Eurozone. Rates of insolvencies are likely to go up in those markets. In the US on the other hand, rates are likely to improve.”

About Atradius

The Atradius Group provides trade credit insurance, surety and collections services worldwide. With a presence through 160 offices in 45 countries, it has a market share of approximately 31% of the global trade credit insurance market. Atradius has access to credit information on 100 million companies worldwide and makes more than 20,000 trade credit limit decisions daily. Its products help protect companies throughout the world from payment risks associated with selling products and services on credit.

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International conference calls for closer bilateral ties between Europe and Russia following the return of Vladimir Putin as President of the Russian Federation.

A panel of senior European and Russian politicians has said that the likely return of Vladimir Putin as President of the Russian Federation will ensure “positive stability”, at an international conference in Venice today. Despite recent protests in Moscow, and protests across the major cities of Russia expected in the lead up to the election, the panel said that Mr. Putin is still the most popular politician in Russia.

H.E. Hon. Franco Frattini, former Minister of Foreign Affairs of Italy, said: “There is still some mistrust in Europe of Russia. But we should be the best friend that Russia has… Russia and Europe are too small to work individually. We must work together to have a global impact…Despite some critics the EU will be ready to recognize (Vladimir) Putin as leader.

Stability in Russia is an added value… Under the leadership of Putin Russia has moved forward. Further economic and political reforms are needed, but substantial progress has been made, especially if we compare the situation in Russia to 15 years ago”.

“The upcoming elections will mark an important time in our shared history. It will be a great opportunity to strengthen co-operation between EU states and Russia… I am confident that Mr Putin, the future President of Russia, will give the green light to a new agreement of partnership and co-operation. We must consider Russia not just a strategic partner, but a loyal friend.”

Speaking after Franco Frattini, Jose Maria Aznar, former Prime Minister of Spain, commented: “Russia is key for the stability of Europe. Russia will emerge strengthened from the upcoming elections… I believe Mr. Putin still has a project for Russia.”

The panel argued that of all the Presidential candidates Mr. Putin would be the most likely to bring “increased bi-lateral relations between Europe and Russia”, calling on further co-operation in the areas of economic and trade relations, energy security, international political relations and international security.

H.R. Yitzah Herzog MP, former Minister of Social Welfare, Israel, said: “We all ask ourselves what Russia will be like after the election. The answer is clear – stability is essential for the continuation of reform. Russia should adjust its position on the current key issues related to the Middle East.”

The panel called for the pace of discussions on bilateral relations to quicken, concluding that given the Eurozone crisis and the relative economic and political stability in Russia the Russian Federation has become an increasingly important neighbor and partner to Europe.

Helen Teplitskaia, President of the American-Russian Chamber of Commerce and Industry, stated: “The increase in Europe-Russia trade shows that the two are coming closer together… However, the ghost of the Cold War still prevails for many in Europe. The more Russia is pushed away from the West, the closer it gets to China.”
“Russia’s WTO accession will be beneficial for Europe,” she added.

Organized by prominent Italian organization “Fondazione Alcide De Gaspari”, with the support of a Russian think tank “The Institute of International Integration Studies”, the conference, entitled ‘The Russian Presidential elections: European expectations’, was held at Isola di San Servolo, Venice.

Speakers at the conference included H.E. Hon. Franco Frattini, former Minister of Foreign Affairs; Jose Maria Aznar, former Prime Minister of Spain; Marino Zorzato, Member of the Italian Parliament; Alexander Babakov, Member of the Russian State Duma and deputy Co-Chairman of the Duma Inter-parliamentary.

Image Courtesy of  Alexey Kryuchkov / Shutterstock.com

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The European Central Bank cut its economic growth forecast for the Euro zone amid rising fear for the economic health of the continent. This move is a downward revision of earlier forecast by ECB. ECB President Jean-Claude Trichet said at a press conference that “there is a risk that growth will slow to near standstill nest year.”

The downward spiral of the European economy has been so powerful that it has casted clouds over the future prospect of whole Euro zone. A crisis of sovereign debt might develop unprecedented fissure in the union which perhaps may lead Greece to exit the EU. Furthermore there has been growing concerns over the future of the Euro as currency.

On the possibility of the Euro zone sinking back into recession, Trichet said “it is difficult to make forecasts in the current situation.”An unfortunate economic situation in Europe is emerging from fiscal disintegration among nations in the Euro zone, coupled with an overall fragile economy. Even so, authorities could have averted the debt dilemma if the economy would have been functioning well.

The confidence in the 17-nation currency area was further dented when Italy was forced to pay the highest interest rates since joining the EU. “I think there is a possibility, if wrong steps are taken, that the system goes off the rails” said Sergio Marchionne, CEO of Italian car maker FIAT. Markets have already taken interest rates on Italian bonds to much higher levels indicating the risks involved in the vehicle.

Yields on bonds are determined according to market sentiment — if investors feel very edgy and uncertain, interest rates may soar and vice versa, leading to a breeding burden on governments. Five year bond yield hit a Euro lifetime high of 5.60 percent recently. Domenico Lombardi, president of the Oxford institute of Economic Policy said “European policy makers must act fast to ward off a full-blown market attack on Italy.”

On the other hand, Moody’s rating agency downgraded two top French banks over fear of their exposure to Greek sovereign debt. Moody’s cut the rating of Credit Agricole bank, one of biggest of Europe from Aa1 to Aa2 and also downgraded the rating of Societe Generale from Aa2 to Aa3.

Banking industry in the Euro zone is in the circle of gloom for being exposed to various potentially unsafe securities of government bonds. The institute of international finance told that prolonged inability to deal with Europe’s debt issues put its banking system at severe risk.

In his description of the magnitude of severity of economic uncertainty, European commission head Jose Manuel Barroso said “the most serious challenge of a generation. This is a fight… for the economic and political future of Europe.” It all depends on how the financially big countries of Europe behave in a bid to rescue the area — how well they hear the brawl of economically beleaguered nations by designing a suitable rescue package that optimally saves the EU from disintegration in the future.

What is needed is a temporary bail-out and stringent fiscal integration among nations in the future in order to ward-off economic demons.

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