Friday, 28 September 2012

Euro Falls Versus Dollar as U.S. Economic Data Trails

By Joseph Ciolli - Sep 29, 2012 12:00 AM GMT+0400

The euro fell against the dollar after U.S. purchasing managers data and consumer sentiment trailed forecasts, crimping demand for riskier assets.
The shared currency pared declines after a stress test showed Spanish banks have a combined capital shortfall of 59.3 billion euros ($76.3 billion), less than earlier estimates amid speculation a financial bailout will be sought. The U.S. currency strengthened versus most of its 16 major counterparts after the Institute for Supply Management-Chicago Inc. said its business barometer fell for the first time in three years, signaling contraction. China’s yuan rose to the strongest versus the dollar since 1993.
Spanish Prime Minister Mariano Rajoy
Mariano Rajoy, Spain's prime minister. Photographer:AngelNavarrete /Bloomberg
“I’m skeptical the Spanish stress test results will be able to alleviate concerns about global growth,” Joe Manimbo, a market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co (WU), said in a telephone interview. “But it can keep some firepower available for the bloc’s rescue fund, which can be viewed as a positive for the single currency.”
The 17-nation fell 0.5 percent to $1.2851 at 3:57 p.m. New Yorktime, after gaining as much as 0.4 percent. It rose 0.1 percent to 100.30 yen. The dollar added 0.6 percent to 78.05 yen.

Euro Path

The euro has weakened 3.4 percent this year, the second worst performance after the yen among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar is down 2.5 percent.
“Weak economic data is weighing on the stock market, triggering a risk-off environment, and the euro is getting hit,” Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York, said in a telephone interview. “It’s not just a euro move. It’s a broad-based decline.”
The yen’s share of global foreign-exchange reserves rose from March through June to the highest level since the third quarter of 2005, International Monetary Fund data show. The euro’s portion of reserves rebounded from a more than five-year low, rising to 25.1 percent from 24.9 percent. The percentage of reserves denominated in dollars fell to 61.9 percent from 62.1 percent.
The New Zealand dollar has led all major currencies this month against the greenback, appreciating 3.2 percent. The Brazilian real increased the least out of 16 counterparts versus the dollar, gaining 0.2 percent.

Krona, Real

Swedish’s krona has appreciated more than all of its peers versus the dollar this quarter, gaining 5.4 percent. The South African rand is on pace for the biggest quarterly decline out of its peers, having slipped 1.9 percent.
The real has lost 7.9 percent versus the dollar in 2012, more than three times the decline of the rand, the second- biggest loser. The Mexican peso leads all 16 of the dollar’s biggest peers with a gain of 8.3 percent this year.
Implied volatility, which signals the expected pace of currency swings, for the currencies of Group of Seven nations reached 7.73, its lowest level since October 2007, according to a JPMorgan Chase & Co. index. Lower volatility makes investments in currencies with higher benchmark lending rates more attractive because the risk in such trades is that market moves will erase profit.

Pound Falls

The British pound fell today versus the majority of its 16 major counterparts after Fitch Ratingssaid that government debt will peak at a higher level and later than it previously predicted, increasing its risk of a downgrade.
Sterling depreciated 0.6 percent to $1.6142 after earlier falling 0.8 percent, its biggest decline since Aug. 1. The pound fell 0.1 percent to 79.60 pence per euro.
The Dollar Index, which tracks the greenback against the currencies of six U.S. trading partners, added 0.5 percent 79.947.
The Institute for Supply Management-Chicago’s business barometer fell 49.7 this month from 53 in August. A reading of 50 is the dividing line between expansion and contraction. The medianestimate of 57 economists surveyed by Bloomberg forecast the gauge would fall to 52.8.
The Thomson Reuters/University of Michigan final sentiment index rose to 78.3 this month from 74.3 in August. Economists projected 79 for the measure after a preliminary September reading of 79.2, according to the Bloomberg survey median.
“The ugly results are serving to drive down risk even further as investors are looking for the safe-haven shelter of the U.S. dollar,” Neal Gilbert, a market strategist at GFT Markets, wrote today in a note to clients.

China Currency

The yuan strengthened on speculation the nation will step up efforts to halt a slowdown in the world’s second-largest economy. The monetary authority injected a record amount of funds into the financial system this week to ease a cash squeeze in the run up to a week-long holiday that starts Oct. 1.
“Funds are flowing back into the market as people bet China will soon act more aggressively to revive growth,” said Kenix Lai, a Hong Kong-based foreign-exchange analyst at Bank of East Asia Ltd. (23)
The yuan rose as much as 0.3 percent to 6.2835 per dollar. China’s currency, which has strengthened 1.1 percent this quarter, can trade as much as 1 percent on either side of the central bank’s daily fixing.
Spain commissioned the independent stress test as part of the conditions agreed in July for aEuropean bailout of as much as 100 billion euros for its banking system, which has been saddled with more than 180 billion euros of losses linked to souring real estate assets. The total capital deficit is less than the 62 billion euros management consultants Oliver Wymanestimated in June that banks would need.
The attempt to show how its banks would bear an extreme scenario in which the economy would shrink for three years in a row is part of the government’s drive to show it is fixing Spain’s economy as it considers whether to seek a further rescue package from Europe.
To contact the reporter on this story: Joseph Ciolli in New York at
To contact the editor responsible for this story: Dave Liedtka at

Canadian Dollar Weakens as Stocks Decline on Aversion to Risk

By Katia Dmitrieva - Sep 28, 2012 9:41 PM GMT+0400

The Canadian dollar declined versus its U.S. counterpart amid weak North American economic data and falling stocks as concern Spain’s fiscal woes may intensify Europe’s debt crisis fueled investment in low-risk assets.
Canada’s currency was headed for a weekly decline against majority of its most-traded peers after an economic-growth report suggested the nation’s homebuilding may be slowing and U.S. business activity unexpectedly contracted for the first time in three years. Canadian government bonds rose, with the yield on the benchmark 10-year note declining to the lowest level in almost two months. The so-called loonie pared monthly and quarterly gains as a stress test showed Spain’s banks have a combined capital shortfall of 59.3 billion euros ($76.3 billion).
“Spain is a top concern and causing jitters,” Blake Jespersen, managing director of foreign exchange in Toronto at Bank of Montreal (BMO), said in a phone interview. “Equity markets are also shaky today, which is hurting the risk tone. It’s why you’re seeing profit-taking on riskier currencies.”
The loonie, as the Canadian currency is known for the image of the aquatic bird on the C$1 coin, fell 0.3 percent to 98.42 cents per U.S. dollar at 1:35 p.m. in Toronto after earlier gaining 0.2 percent. One Canadian dollar buys $1.0172.
Yields on 10-year government bonds fell two basis points, or 0.02 percentage point, to 1.74 percent after touching 1.69 percent, the lowest since Aug. 3. The 2.75 security maturing in June 2022 added 20 cents to 109.01.
The Standard & Poor’s 500 Index slid 0.3 percent and is down 1.2 percent this week. Futures in crude-oil, Canada’s largest export, gained 0.5 percent to $92.30 per barrel in New York after falling as much as 0.5 percent.

‘Risk-Off Mood’

Canadian output rose 0.2 percent to an annualized C$1.29 trillion ($1.31 trillion), Statistics Canada said today in Ottawa, faster than the 0.1 percent gain forecast in a Bloomberg News economist survey with 23 responses. The agency today also reduced its June growth estimate to 0.1 percent from 0.2 percent. Home construction declined 0.1 percent in July and the output of real estate agents and brokers fell 1.5 percent.
“You’d expect people to think about interest rates, but I think the market is really still ignoring domestic data,” Greg Moore, currency strategist at Toronto-Dominion Bank (TD), said in a phone interview. “There’s a risk-off mood moving the dollar lower.”
Bank of Canada Governor Mark Carney on Sept. 5 held his key lending rate at 1 percent, where it’s been since September 2010, the longest unchanged period since the 1950s. Carney reiterated that an increase “may become appropriate” as domestic spending props up an economic recovery restrained by weak global demand for exports.

‘Pessimistic Estimates’

Other Canadian reports this month have shown little pressure for Carney to raise interest rates soon. Consumer prices advanced 1.2 percent in August from a year ago, below the central bank’s 2 percent target, and realtor reports have signaled home price increases are ebbing in major cities where Finance Minister Jim Flaherty had said there were signs of overbuilding.
Among Spain’s banks, the Bankia group, a nationalized lender, had a 24.7 billion-euro capital deficit in the tests conducted by management consultants Oliver Wyman that also showed Banco Popular Espanol SA had a 3.22 billion-euro shortfall. The stress tests of 14 lenders showed no capital deficit for seven banks, including Banco Santander SA, Banco Bilbao Vizcaya Argentaria SA and Banco Sabadell SA.

U.S. Data

Benchmark U.S. stock indexes extended declines as the Institute for Supply Management-Chicago Inc. said its business barometer fell to 49.7 this month from 53 in August. A reading of 50 is the dividing line between growth and contraction. U.S. household purchases rose 0.5 percent, matching the median estimate of economists, while the Thomson Reuters/University of Michigan final sentiment index (SPX) rose to 78.3 this month from 74.3 in August, trailing the median economist estimate of 79.
Canada’s dollar has strengthened 1.7 percent this year against nine developed-nation counterparts tracked by Bloomberg Correlation-Weighted Currency Indexes. The greenback has dropped 2.6 percent, with the yen tumbling 4.1 percent to lead decliners. The New Zealand dollar’s 4.9 percent rise leads gainers.
To contact the reporter on this story: Katia Dmitrieva in New York at
To contact the editor responsible for this story: Dave Liedtka at

U.K. Gilts Gain for Second Week on Spain Concern; Pound Slides

By Lucy Meakin - Sep 28, 2012 7:31 PM GMT+0400

U.K. government bonds rose, posting a second weekly gain, as speculation the Spanish government’s fifth austerity package will fail to resolve the nation’s debt crisis boosted demand for safer assets.
Ten-year yields fell to the lowest level in more than two weeks before Spain reveals the results of stress tests on its banks. The pound weakened against all of its 16 major counterparts tracked by Bloomberg. Sterling fell for the first time this week against the euro on speculation its four-day advance was excessive.
“Nervousness about the situation in Spain remains pretty close to the surface, even after the budget” released yesterday, said John Wraith, a fixed-income strategist at Bank of America Merrill Lynch in London. That “typically knocks onto lower yields for gilts because of safe-haven flows.”
The 10-year gilt yield dropped two basis points, or 0.02 percentage point, to 1.72 percent at 4:19 p.m. London time after falling to 1.68 percent, the lowest since Sept. 10. The 1.75 percent bond due in September 2022 rose 0.14, or 1.40 pounds per 1,000-pound ($1,620) face amount, to 100.31. The yield has fallen 12 basis points this week.
Gilts returned 1 percent this quarter through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds gained 1.1 percent and U.S. Treasuries rose 0.5 percent.

Spain Budget

Spanish Prime Minister Mariano Rajoy’s government yesterday announced a 13 billion-euro ($16.8 billion) package of spending cuts, and a new tax on lottery winnings in an effort to shrink the euro area’s third-largest budget deficit.
The Bank of Spain said this week early indicators suggest gross domestic product is still falling at a “significant pace” after the recession deepened in the second quarter.
The release of the results of the independent stress test conducted by consulting firm Oliver Wyman will reveal the size of the hole in the Spanish banking system, which is reeling from a property crash, prompting the country to agree a 100 billion- euro bailout in July.
Sterling has gained 2.7 percent versus the dollar this quarter, its biggest advance since the three months ended March.
The pound dropped 0.2 percent to 79.68 pence per euro after appreciating to 79.24 pence yesterday, the strongest level since Sept. 6. The currency fell 0.7 percent to $1.6113, the weakest since Sept. 13.

U.K. Data

The pound weakened today even as GfK said its index of U.K. consumer confidence rose one point in September to minus 28, a 15-month high. The gauge had held at minus 29 for the previous four months.
A separate report showed Britain’s services industry expanded at its fastest pace for more than a year in July, adding to evidence that the economy returned to growth in the third quarter.
Services, which account for about three quarters of the economy, grew 1.1 percent from June, when the sector fell 1.5 percent, the Office for National Statistics said in London today. It was the biggest increase since May 2011.
The pound is little changed in the past three months, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The euro fell 0.7 percent and the dollar slumped 4.1 percent.
To contact the reporter on this story: Lucy Meakin in London at
To contact the editor responsible for this story: Paul Dobson at

Monti Says ECB Conditions, IMF Role Hinder Bond Requests

By Andrew Davis and Andrew Frye - Sep 28, 2012 6:55 PM GMT+0400

The European Central Bank should not impose extra economic conditions on nations using its bond- buying mechanism, and the International Monetary Fund shouldn’t have an oversight role, said Italian Prime Minister Mario Monti.
Countries such as Italy and Spain are reluctant to request the bond buying they championed because of uncertainty about what conditions the central bank would seek to impose, he said. The program is only available to countries that are already taming public finances and conditions should not go beyond European Union recommendations made in June, Monti said.
Italian Prime Minister Mario Monti
Italian Prime Minister Mario Monti speaks during a Bloomberg Television interview in New York. Photographer: Peter Foley/Bloomberg
Sept. 27 (Bloomberg) -- Italian Prime Minister Mario Monti speaks about the country's budget, the European debt crisis and his role in politics. He speaks with Erik Schatzker on Bloomberg Television's "Bottom Line." (Source: Bloomberg)
Monti Says ECB Conditions, IMF Role Hinder Bond-Buying Requests
Monti said “it’s not necessary” for the IMF to be involved and the ECB and the EU need to move quickly to define the conditions that recipient nations should expect. Photographer: Hannelore Foerster/Bloomberg
Oversight should be limited to establishing “checks so the countries continue to behave in that positive way,” Monti said in an interview with Erik Schatzker on Bloomberg Television yesterday in New York. “If this is the conditionality that will be finally delivered, should a country be in a market situation suggesting its use, there would be nothing dishonorable.”
The yield on Italy’s benchmark 10-year bond has fallen more than 120 basis points since Aug. 2 when ECB President Mario Draghi first said the bank was prepared to act in tandem with the EU to attack high borrowing costs by buying bonds of distressed euro-area nations. The rally eased after Sept. 6 when Draghi released details of the plan and said the bank would impose strict conditionality and seek IMF participation in overseeing the plan.

Define Conditions

Monti said “it’s not necessary” for the IMF to be involved, and the ECB and the EU need to move quickly to define the conditions that recipient nations should expect.
“I believe that should be really kept to a minimum, because there is no reason to delay something that was already rather well defined in June by the European Council,” he said.
Spain’s 10-year bond yield is hovering near 6 percent and the government announced yesterday a fifth austerity package that may be a move to head off tougher conditions demanded as part of a bond-buying program. Monti said that he didn’t know whether Spain making a request for international aid would help bring down Italian yields or make the country more vulnerable. “We are in unchartered territory,” he said.
The terms and conditions of the joint ECB-EU bond buying plan will likely be “at the very top of the agenda” when European leaders meet in Brussels on Oct. 18-19, said Michael Derks, chief strategist at FxPro Group Ltd. in London.
“It’s going to be fiercely debated,” Derks said. “We can expect that this next summit will not go well at all.”

Declaring Victory

Monti is coming under pressure from within his own coalition as the country prepares for elections. The premier, whose diplomacy at the June 28 European summit in Brussels helped set the groundwork for the ECB program, had his crisis- fighting leadership questioned yesterday by Former Italian Prime Minister Silvio Berlusconi.
“Monti went to Brussels, and he returned telling all the newspapers he won,” Berlusconi said, citing an agreement among EU leaders to expand their use of the European Stability Mechanism rescue fund. “But the fund’s capital is only 500 billion euros” ($650 billion), which is “nothing compared with the size of the public debt in Europe.”
Under Draghi’s bond-buying plan, the ECB will put its resources next to the ESM’s funds.

Draghi’s Plan

Italian yields have fallen about 200 basis points since Monti was appointed to lead a government of non-politicians after the resignation of Berlusconi in November. In less than a year he has overhauled the pension system, revamped labor markets, cracked down on tax evasion and implemented 20 billion euros of austerity measures that pushed Italy deeper into its fourth recession since 2001. The cuts have left the country on track to bring its deficit within the EU limit this year.
The premier is rushing to implement those reforms before the elections, due by April. Monti said he won’t run as he has already been appointed as a lifetime senator, and he has no political plans. He still left the door open to second term.
“All I am saying is, I will be a senator -- should there be any special circumstance where the political forces would believe that there might be a need for my service, I would consider it,” Monti said.

Public Support

Monti’s approval rating rose 1 percentage point to 52 percent of voters this month, according to a Sept. 17 poll by IPR Marketing. That compares with a low of 46 percent in June and a high of 59 percent in February. An eventual second Monti term was backed by 81 percent of investors and business leaders, including at least 40 chief executive officers, who took part in a Sole 24 Ore Radiocor survey this month.
“It would be a step forward for the country,” Fiat SpA (F) Chief Executive Officer Sergio Marchionne said to reporters in Paris today. “It would add credibility and remove uncertainty. There are no alternatives, given his abilities.”
Monti didn’t think a second term would be likely.
“I am very confident that elections would bring about a political majority large enough with a political leader that can govern the country,” he said.
Italy’s two biggest political parties, which agreed in November to support Monti’s administration, are resuming their rivalry as campaigning begins. The Democratic Party, led by Pier Luigi Bersani, and Berlusconi’s People of Liberty party are vying to win enough votes to form a government.
“The rigor and credibility Monti provided can’t be turned back on,” Bersani said yesterday.
To contact the reporters on this story: Andrew Davis in Rome at
Andrew Frye in Rome at
To contact the editor responsible for this story: James Hertling at

Yuan Rises to Strongest Level Since 1993 on Stimulus Bets

By Kyoungwha Kim and Fion Li - Sep 28, 2012 1:00 PM GMT+0400

The yuan climbed to a 19-year high on speculation China will step up efforts to arrest a seven- quarter slowdown in the world’s second-largest economy.
The currency had its biggest gain in six months after the People’s Bank of China strengthened its reference rate today by the most since Aug. 22. The central bank injected a record amount of funds into the financial system this week to address a cash squeeze ahead of a weeklong holiday that starts Oct. 1. The Shanghai Composite Index jumped 4.1 percent in the past two days, buoyed by a report suggesting policy makers plan to unveil measures to support Chinese stocks.
Yuan Climbs to Strongest Level Since 1993 on China Stimulus Bets
The yuan gained 0.24 percent to 6.2872 per dollar at 2:51 p.m. in Shanghai, according to the China Foreign Exchange Trade System. Photographer: Jerome Favre/Bloomberg
“Funds are flowing back into the market as people bet Chinawill soon act more aggressively to revive growth,” said Kenix Lai, a Hong Kong-based foreign-exchange analyst at Bank of East Asia Ltd. “There’s always expectations that the government will announce important polices before or at the end of a long holiday. The stock market is also rallying on stimulus bets.”
The yuan gained 0.28 percent to close at 6.2849 per dollar in Shanghai, according to the China Foreign Exchange Trade System. It has strengthened 1.1 percent this quarter and today touched 6.2835, the strongest level since China unified official and market exchange rates at the end of 1993. The currency can trade as much as 1 percent on either side of the central bank’s daily fixing, which was raised 0.08 percent today to 6.3410.

U.S. Election

Before today’s advance the yuan was headed for an annual decline versus the dollar and renewed appreciation may make Chinese currency policy less of a hot topic in the U.S., where President Barack Obama is seeking a second term in a November election.
Obama, who has said China keeps its currency weak to give its exporters an edge, touted a trade complaint against the Asian nation this month over illegally subsidizing shipment of automobiles and auto parts. Republican candidate Mitt Romney said he would on his first day in the White House tell the Treasury Department to list China as a currency manipulator, paving the way for more duties on Chinese imports. The U.S. ambassador to China, Gary Locke, said Sept. 13 the yuan “is still undervalued.”
Twelve-month non-deliverable forwards rose 0.19 percent to 6.4065 per dollar in Hong Kong, a 1.9 percent discount to the spot rate in Shanghai, according to data compiled by Bloomberg. In Hong Kong’s offshore market, the yuan gained 0.19 percent to 6.3010. The onshore exchange rate will end this year at 6.32, according to the median estimate of analysts surveyed by Bloomberg.

Traders Surprised

“The yuan forwards are strengthening as the onshore spot rose to a record high, which took some investors by surprise,” said Banny Lam, a Hong Kong-based chief economist at CCB International Securities Ltd., a unit of China’s second-largest bank by market value. “Those investors might have to terminate some short positions,” he said, referring to bets China’s currency would weaken.
The yuan’s rally is being spurred by an expanding supply of dollars. The Federal Reserve announced a third round of asset purchases this month, a policy known as quantitative easing that spurs demand for higher-yielding assets beyond U.S. borders. The yield on China’s one-year government debt is 2.82 percent, compared with 0.16 percent for similar-maturity Treasuries.
The securities regulator is considering lowering taxes on stock and bond investments, China Securities Journal reported today, citing an unidentified official. Economists predict gross domestic product will increase 7.4 percent in the three months through September, according to the median estimate in a Bloomberg survey, and that would be the smallest gain since March 2009. Growth slowed in each of the previous six quarters.
“The economy is not doing so well and the government will implement new stimulus although the scale won’t be as large as before due to concerns about some bubbles in the property market,” said Bruce Yam, a foreign-exchange strategist at Sun Hung Kai Financial Ltd. “The yuan will find it difficult to strengthen beyond 6.25 in the final quarter.”
To contact the reporters on this story: Kyoungwha Kim in Singapore at
Fion Li in Hong Kong at
To contact the editor responsible for this story: James Regan at

Wednesday, 26 September 2012

Mexican Peso Declines as Protests in Europe Add to Debt Concern

By Ben Bain - Sep 27, 2012 2:03 AM GMT+0400

Mexico’s peso dropped as protests against European austerity measures added to concern that leaders won’t be able to stem the region’s debt crisis, damping demand for emerging-market currencies.
The peso depreciated 0.1 percent to 12.8698 per U.S. dollar at 4 p.m. in Mexico City. The peso reduced its rally this year to 8.3 percent, still the best performance among the greenback’s 16 most-traded counterparts. It has gained 3.7 percent in the third quarter.

Developing-nation currencies slumped worldwide and Spanish bond yields surged as demonstrators in Madrid planned a second night of protests against austerity measures, coinciding with a general strike in Greece. European turmoil helped make the peso the worst-performing major currency in Latin America last year.

“The market seems to be jittery,” Eduardo Suarez, a Latin America strategist at Bank of Nova Scotia in Toronto, said in an e-mailed message. “Uncertainty over the bailout request” remains.

Germany, the Netherlands and Finland said late yesterday Spain should bear the cost of problems in its banks, with the European Stability Mechanism assuming only a limited burden in recapitalizations. Spain’s Prime Minister Mariano Rajoy told the Wall Street Journal in comments confirmed by his office that he would “100 percent” seek a rescue if borrowing costs stayed “too high.”

Mexico reported a preliminary trade deficit of $979.2 million for August, above the $800 million deficit predicted by the median of 11 estimates compiled by Bloomberg.

Yields on Mexico’s local currency bonds due in 2024 dropped five basis points, or 0.05 percentage point, to 5.37 percent, according to data compiled by Bloomberg. The price increased 0.52 centavo to 141.38 centavos per peso.

To contact the reporter on this story: Ben Bain in Mexico City at

To contact the editor responsible for this story: David Papadopoulos at

Brazil Real Falls on Report of Possible Government Intervention

By Josue Leonel and Blake Schmidt - Sep 27, 2012 1:22 AM GMT+0400

Brazil’s real dropped for a fourth day in the longest stretch of losses in September after a newspaper reported that the government may take steps to prevent the currency’s appreciation.

The real declined 0.2 percent to 2.0356 per U.S. dollar, extending its decline in the third quarter to 1.3 percent, the worst performance among the greenback’s 16 most-traded counterparts tracked by Bloomberg. Swap rates on contracts due in January 2014 were unchanged at 7.73 percent.

“The government is going to try its best to contain the real from a speculative attack as the expectation for flows is very positive,” Italo Abucater, the head of currency trading at Icap Brasil, said in a phone interview from Sao Paulo. “And the market abroad has been bad since yesterday.”

The real also fell against the dollar along with most other major currencies as concern global stimulus measures will fail to bolster the economy encouraged demand for a refuge.

Brazil may take action to protect the real from stimulus by central banks in the U.S., Europe and Japan, Valor Economico reported, citing an official in the government’s economic team whom it didn’t name.

Possible government measures include boosting dollar reserves and reducing the primary surplus to allow for more tax cuts, the newspaper reported. An official at the Finance Ministry said it doesn’t comment on reports based on unidentified people.
Rousseff at UN

Brazilian President Dilma Rousseff criticized the U.S.’s and Europe’s handling of the global economic crisis, saying in a speech to the United Nations yesterday that a reliance on monetary policy won’t revive world growth and is unfairly hurting emerging markets.

In the opening address of the UN’s 67th General Assembly, Rousseff said emerging-market currencies have suffered an “artificial appreciation” as a result of the monetary policies adopted by rich nations.

Finance Minister Guido Mantega said last week that Brazil’s government stands ready to act to prevent the real from rallying in response to the extra stimulus.

The real has slid 8.3 percent against the dollar in 2012 as Brazil’s government supported industry by raising tariffs and imposing barriers on capital inflows. The central bank auctioned $5.7 billion in four reverse currency swaps Sept. 12 through Sept. 17 to contain the real.

Policy makers have cut the target lending rate by 5 percentage points since August 2011 to a record low 7.5 percent, the biggest reductions among Group of 20 nations. Trading in swap rates indicates the benchmark Selic may be lowered by a quarter-percentage point in October.

Spanish bond yields surged today the most this month as demonstrators planned a second night of protests in Madrid. European stocks fell the most in two months on concern the debt crisis is worsening. Oil retreated for a third day while Treasuries extended their longest rally since 2008.

To contact the reporters on this story: Josue Leonel in em São Paulo at; Blake Schmidt in Sao Paulo at

To contact the editor responsible for this story: David Papadopoulos at

Euro Can Bear Fewer Members as Czech Leader Calls Greeks Victims

By Laura Zelenko - Sep 27, 2012 2:06 AM GMT+0400

The exit of one or more member states from the euro won’t destroy the monetary union or the project of European integration, Czech President Vaclav Klaus said.
And a Greek departure from the currency would be a “victory” for that country, which has been a victim of the monetary system, Klaus said yesterday in an interview at Bloomberg’s headquarters in New York.
Vaclav Klaus, the Czech Republic's president. 

Photographer: Peter Foley/Bloomberg

Sept. 26 (Bloomberg) -- Czech President Vaclav Klaus speaks about the country's ties with the European Union and the region's debt crisis. He speaks with Bloomberg reporters and editors in New York. (Source: Bloomberg)

The Czech Republic, which pledged to adopt the euro as part of its agreement to join the European Union in 2004, is under no official deadline to do so and the question of joining the common currency is a “non-issue” in the country, said Klaus, whose second term as president expires in March.

“I don’t think the euro as a currency disappears,” Klaus, 71, said. “The issue is whether all of the 17 countries and potentially a few others should be or will be in this system or not.”

European Central Bank President Mario Draghi said July 26 he would do “whatever it takes” to save the 17-nation euro zone. That challenged the view of skeptics including Kenneth Rogoff, an economics professor at Harvard University in Cambridge, Massachusetts, who said the same month he expected Greece to leave the common currency after undergoing the largest ever sovereign-debt restructuring.

Klaus, who as Czech prime minister oversaw the Jan. 1, 1993 split of what was then Czechoslovakia and the subsequent adoption of separate Czech and Slovak currencies, said the euro- zone system is punishing some countries that would be better off pulling out.
Greece ‘a Victim’

“Greece is a victim of the monetary union,” he said. “It would be much better for them not to be in the straightjacket. It would be a victory for them.”

Klaus, an economist who studied in the U.S. and Italy and worked at the Czechoslovak central bank under communism, served as finance minister and then prime minister following the 1989 Velvet Revolution that ended the communist regime. He has been president since February 2003, when he replaced his political rival, Vaclav Havel.

The president is in New York to attend the United Nations General Assembly and promote his new book, “Europe: The Shattering of Illusions.”

He called himself a “euro-realist,” saying he supports European integration while not embracing the shift towards “unification, centralization, harmonization, standardization” of the whole continent, including the single currency.

“We accepted with some reluctance the prepared conditions for our entry” into the EU, Klaus said. “We were aware of the fact that joining the euro system was one of the conditions. But we are quite happy with the fact that there was no timing.
No One ‘Pushing’

“So perhaps in the year 2074 we can join the European Monetary Union as well,” he said. “No one is pushing us.”

The Czech koruna was the world’s best performer against the euro in the decade ended December 2010, advancing 40 percent. Investor confidence in the Czech economy is reflected in the nation’s 10-year local-currency debt, which yields 2.4 percent, compared with 4.8 percent for similar-maturity Polish bonds and 7.2 percent for Hungary’s.

Regional apprehension about the euro has grown with Europe’s debt crisis. While euro-zone nations purchase more than half of the exports of eastern European nations, seven of the 10 former communist countries to join the EU since 2004 have yet to adopt the currency.

Poland, which three years ago shelved plans to join in 2013, deems the euro “completely unattractive,” Prime Minister Donald Tusk said in July. Hungary won’t adopt the currency before 2018, Premier Viktor Orban said in March. Bulgaria has indefinitely delayed plans to scrap the lev, Prime Minister Boyko Borisov told the Wall Street Journal in a Sept. 4 interview.
Economy Contracted

The European debt crisis is taking a toll on the Czech Republic, whose economy contracted in the first two quarters of 2012 amid weaker demand in the euro region, its main market for Skoda cars, television monitors and other Czech-made goods. Exports account for about 75 percent of Czech GDP.

The koruna has increased about 2 percent against the euro this year, compared with 10 percent for the Hungarian forint and 8 percent for the Polish zloty.

Klaus touted his experience in dissolving Czechoslovakia into separate Czech and Slovak nations and abandoning initial plans to maintain a common currency when Slovak officials said they wanted to devalue after the separation. The split of the Czechoslovak currency was a non-event because the Czech government was prepared, he said.
Managed Departure

“It’s technically possible,” to manage the departure from a common currency, Klaus said. “It’s not true what all the politicians are saying about disastrous consequences. You have to do it in an organized way. You can’t allow an anarchy situation.”

Rogoff, a former International Monetary Fund chief economist, told Tom Keene on “Bloomberg Surveillance” July 27 that he expected Greece to “ultimately” leave the euro and that “the real question is what is going to happen to the broader euro.”

Chances of a breakup of the monetary union by the end of 2013 fell to 47.1 percent yesterday from more than 60 percent in late July, according to Dublin-based data, after Draghi gave details earlier this month of a plan announced in August to buy debt of members including Spain and Italy.

As he approaches the end of his term, Klaus said his most important legacy is his role as Czechoslovak finance minister after the fall of communism, when he helped open up the economy, set a new exchange rate and create new political and social systems.

“That moment was the change,” Klaus said. “Everything else is really making small marginal changes, for the better or worse.”

To contact the reporters on this story: Laura Zelenko in New York at

To contact the editors responsible for this story: John Fraher at jfraher@bloomberg,net