[Newsletter 9/26/2011 - 9/30/2011] Watch out for the European debt talks to continue and for the effects of Libya oil production resuming

 

Market Update:

Wall Street gets a healthy start to the week as the Dow is up ~100 points after 15 minutes of trading.

Euro zone damps talk of rapid debt crisis steps

(Reuters) – Euro zone officials played down reports on Monday of emerging plans to halve Greece’s debts and recapitalize European banks to cope with the fallout, stressing that no such scheme is yet on the table.

Europe came under fierce pressure from the United States and other major economies at weekend talks in Washington to take swift, decisive action to stop the Greek debt crisis engulfing bigger euro zone states and derailing world economic recovery.

But officials said media reports that planning was already in place for a 50 percent writedown in Greek debt and a vast increase in the euro zone rescue fund, the EFSF, were highly premature.

“There is no change to the framework we are working on,” said a euro zone official who is involved in decision-making on financial assistance to Greece, Ireland and Portugal.

“All this talk of a specific haircut for Greece or an enlargement of the EFSF, it is all just speculation. We are not working along those lines,” said the official.

German Chancellor Angela Merkel, struggling to convince her fractious center-right coalition to back a strengthening of the EFSF in a crucial vote on Thursday, said on Sunday that letting Greece default would destroy investor confidence in the euro zone.

Diplomats said any talk of a fallback plan for Greece that would raise the cost to German taxpayers could only make her task more difficult in parliament this week.

Private economists and Brussels think-tanks are forecasting a Greek debt default within months or sooner, coupled with a capital injection for European banks and a ‘leveraging up’ of the EFSF so that it can handle fallout in Italy and Spain.

Euro zone officials acknowledge that such policy ideas are circulating and some could constitute a longer-term response to the 20-month debt crisis. But they insist no specific plans are yet in the works.

Instead, planning continues on the basis that Greece’s debt burden, which is close to 160 percent of GDP, can be sustained as long as the government fully implements austerity measures demanded by the European Commission, the European Central Bank and the IMF, the so-called troika.

U.S. Treasury Secretary Timothy Geithner highlighted global concerns about deficient European crisis management, saying on Saturday: “The threat of cascading default, bank runs and catastrophic risk must be taken off the table.”

IMF Chief Christine Lagarde, the former French finance minister who until four months ago was tackling the crisis from the European side, also made it the euro zone needs to act more decisively, notably to recapitalize banks on a large scale.

Quietly, euro zone policymakers accept that a combination of a much deeper Greek debt restructuring allied to coordinated bank recapitalizations and a bolstered rescue fund would make sense and might help the euro zone get on top of the crisis.

But such a plan would require support from all 17 euro zone countries, and it takes time in the EU’s decision-making structures to bring so many moving parts together at once.

“The ideas are all there, but it’s not as straightforward as just sitting down and deciding it,” said another euro zone financial official involved in handling the crisis.

“Many of us can agree privately that anything less than a 50 percent haircut for Greece would just be cosmetic, but getting that decided by all and implementing it is not so easy.”

PROPOSAL SOUP

Instead, the next step is expected to be a decision by the EU, ECB and IMF to sign off on the next tranche of support for Greece — the sixth payment from the original 110 billion euro emergency package agreed in May last year.

The timing will depend on when the troika completes a review of Athens’ progress on implementing deeper budget cuts and tax-raising measures. Without that 8 billion euros, Greece will run out of money to pay October wages and pensions.

Olli Rehn, the EU’s economic and monetary affairs commissioner, has said he hopes a decision can be taken by mid-October. It’s unlikely to come any sooner.

Germany’s deputy finance minister, Joerg Asmussen, said there was no chance euro zone finance ministers would be able to sign off on Greece’s next aid tranche when they meet next week.

“Given the delay of the troika mission, I do not see that the upcoming Eurogroup on October 3 will decide on the sixth tranche,” he said in a speech in Washington on Sunday.

Financial markets and the private sector seem to be moving more rapidly than policymakers to prepare themselves for the likelihood of a Greek default.

Safe-haven German government bonds fell on Monday and shares rallied partly due to a belief that European policymakers were working on more decisive action to tackle the debt crisis. Such hopes could be quickly dashed.

J.P. Morgan Securities said it expected euro zone governments to ease the funding crisis among European banks via a capital injection of up to 150 billion euros, an initiative that would be similar to the U.S. TARP program.

“Euro-TARP is in our view the best risk-reward medicine for opening the Eurobank funding market,” J.P. Morgan analyst Kian Abouhossein write in a note to clients.

In a separate report, UBS analysts said they expected some form of intervention from the European Central Bank and a euro zone guarantee scheme for bank term debt, or a Euro-TARP initiative, to provide “sticking plasters” for the system.

But there are no signs that any such plans are formally in preparation at this stage, again underlining that policymakers may be behind the curve in tackling the crisis.

Euro zone officials acknowledge that the EFSF, which will soon have an effective capacity of 440 billion euros, is not big enough to handle a potential bailout of Italy or Spain, the region’s third and fourth largest economies. But there is no clarity on how the fund could be raised without more guarantees.

One idea is for the fund to act as an insurer, guaranteeing the first portion of losses on Italian or Spanish debt. That could “leverage” its capacity four or five times, but the legality of such a scheme remains to be established and nothing has been put to euro zone finance ministers.

Another proposal would be to turn the EFSF into a bank, which would allow it to access ECB funds, meaning that it would effectively have unlimited capacity. But the ECB has raised concerns about such a step, which would politicize ECB operations and put it on the line for massive liabilities. Source

 

Major Media Headlines:

  • Europe begins to more aggressively look for problems to its debt crisis as pressure from the rest of the world grows. (Reuters) – Media Digest
  • China says it will not help a EU bailout. (WSJ) - Media Digest
  • A rising dollar could hurt U.S. economic growth. (WSJ) - Media Digest
  • Several oil and gas companies prepare IPOs. (WSJ) - Media Digest
  • Large U.S. and international banks, including Goldman Sachs (NYSE: GS), JPMorgan (NYSE: JPM) and Morgan Stanley (NYSE: MS), differed on how to address the EU crisis as they met on the subject last week. (Bloomberg) - Media Digest

 

Oil Today:

Oil is below $80/barrel as the week starts up in the US, production resuming in Libya will only help these prices continue down.

Italy’s Eni: Oil production resumes in Libya

ROME — Libya has resumed oil production for the first time since the civil war, tapping 15 wells and producing some 31,900 barrels per day, Italian energy giant Eni said Monday.

Eni said production had resumed at the Abu-Attifel fields, about 300 kilometers south of the city of Benghazi. Other wells would be reactivated soon to reach the “required volumes to fill the pipeline” between the Abu-Attifel field and the Zuetina port.

The operations are being conducted by Mellitah Oil & Gas, a partnership between Eni and Libya’s state-run National Oil Corp.

Before the protests against Libyan strongman Moammar Gadhafi in mid-February morphed into a full-scale civil war, Eni was producing 273,000 barrels of oil equivalent per day in Libya. The country sits atop Africa’s largest proven reserves of conventional crude.

With a small population of only 6 million, Libya raked in $40 billion last year from oil and gas exports. Experts say it could take about a year or more to get back to its pre-war production of 1.6 million barrels a day.

Earlier this month, Eni CEO Paolo Scaroni visited Tripoli to lay the groundwork for relaunching gas exports to Italy via the Greenstream pipeline, which can carry roughly 10 billion cubic meters of natural gas per year. It hasn’t been operational since late February.

Scaroni has set Oct. 15 as an optimistic deadline to restart the gas flow. Source

 

 


Weather Updates

Tropical Activity

Atlantic:

What to watch out for this week:

Really the only thing to look out for right now is a return to power by Ophelia, who has weakened into a tropical wave. Tropical Storm Philippe will turn north into the mid-Atlantic and fade away.

So, unless another storm comes up, things are looking pretty clear for the Atlantic. Storm updates will be streamed daily on Sun Coast’s Facebook page.

Tropical Storm Philippe and Ophelia remnant. Weekly Weather and Energy Newsletter - 9/26/2011

National Hurricane Center

Contact Sun Coast Resources to find out how we can keep you going during and after the storm with 24/7 Emergency Fueling Services!

 

Email or call toll-free at 800-677-3835 *490! Get ready for the incoming storms!

National Weather Conditions

National Weather Hazards. Weekly Weather and Energy Newsletter - 9/26/2011

National Weather Service

 

We are looking at quite a bit of rainfall across the country today. Some areas will be sad to get more rain, but other areas like Texas are in desperate need of rain, and they should get some later this week.

As far as alerts for today, there are tornado warnings in Eastern Kentucky and some freeze watches in Southern Oregon.

Click on the map to take a closer look at your area.

Subscribe to this blog on the right and get the Daily Weather and Energy Newsletter instantly in your inbox!