Banks act amid new crisis warning

15 September 2011 Last updated at 20:11 GMT Christine Lagarde: "We have entered into a very dangerous zone of the crisis"

Five central banks have announced a co-ordinated move to try to help the financial system, as the boss of the International Monetary Fund warns of a "dangerous" new economic phase.

The central banks are to provide commercial banks with three additional tranches of loans to help ease funding pressures.

Banking stocks rose sharply, with BNP Paribas up as much as 22%.

IMF managing director Christine Lagarde said "bold action" was needed.

Speaking in Washington, she said: "Uncertainty hovers over sovereigns across the advanced economies, banks in Europe, and households in the United States.

"Without collective, bold, action, there is a real risk that the major economies slip back instead of moving forward."

She added that the debt woes in the eurozone also risked harming economies in the developing world.

"If the advanced economies succumb to recession, the emerging markets will not escape," said Ms Lagarde.

Exposure fears

The move by the Federal Reserve, Bank of England, European Central Bank, Bank of Japan and Swiss National Bank follows fears about the exposure of banks - primarily those in Europe - to eurozone sovereign debt.

Continue reading the main story Last Updated at 07:24 GMT

Market indexCurrent valueTrendVariation% variationThis concern has made European banks reluctant to lend to each other, creating the risk of short-term funding problems for those most exposed.

European banks and their American counterparts have been moving funds out of Europe in recent months because of these exposure fears, worsening the liquidity problems in the eurozone banking system.

The new loans are being issued in dollars, because European banks can already access additional euro funds from the European Central Bank.

The three additional three-month loan offers will be conducted in October, November and December.

The main central banks carried out similar action to boost the liquidity of commercial lenders at the height of the financial crisis in 2008. The facility has been withdrawn and reintroduced a number of times since then.

Three-month loans

The UK's FTSE 100 index ended up 2.1% following the central bank announcement, while Germany's Dax added 3.2% and France's Cac advanced 3.3%. Wall Street's Dow Jones ended up 1.7%.

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Central bankers have done what the likes of President Sarkozy and Chancellor Merkel find it so hard to do. They have acted quickly and decisively to combat a clear and present threat”

End Quote Stephanie Flanders Economics editor, BBC News French banks - which had already been higher earlier in the day - posted some of the biggest rises, as they are the most exposed to sovereign debt in Greece and other heavily indebted eurozone nations.

BNP Paribas closed up 13%, Credit Agricole 5.9% and Societe Generale 5.4%.

On Wednesday, Credit Agricole and Societe Generale each had their credit ratings downgraded by rating agency Moody's, after it reviewed their exposure to Greek debt.

Moody's also said it would keep BNP Paribas on review for a possible downgrade.

In the UK, shares in Lloyds Banking Group rose 7.2%, while Germany's Commerzbank added 7.8%.

The euro also gained against the dollar following the announcement by the central banks, adding 0.8% to $1.38519.

Analysts have welcomed the move by central banks, but warned that more will still have to be done to tackle the underlying problem of high levels of eurozone sovereign debt.

"The stress is still there as long as sovereign debt issues aren't dealt with aggressively, but this move eases short-term funding problems," said Peter Boockvar, equity strategist at Miller Tabak in New York.

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Belgian king returns over crisis

14 September 2011 Last updated at 16:27 GMT Belgian government broker Elio Di Rupo has made a final appeal to parties King Albert II of Belgium is cutting short a holiday in France to fly back to Brussels as his appointed mediator struggles to form a new government.

Yves Leterme, the caretaker prime minister, announced on Tuesday evening he was leaving the post to take up a new job in Paris.

The divided country has been without an elected government for 15 months.

Talks between Flemish and Walloon parties have reached an impasse, mediator Elio Di Rupo said.

He said he was making a final attempt on Wednesday to reach an agreement, and appealed to the parties to make a "last effort of responsibility".

"The future of the country is at stake," he said in a statement.

Disagreement centres on electoral boundaries in the linguistically and culturally divided Brussels region.

Financial markets and rating agencies are putting pressure on the country to create an effective government capable of carrying out structural reforms, and reducing debt.

Mr Leterme announced he would leave by the end of this year to take up a post at the Organisation for Economic Cooperation and Development.

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Swazi fund crisis 'shuts schools'

14 September 2011 Last updated at 16:33 GMT Many children attending school in Swaziland are orphans Most schools in Swaziland are shut because of the financial crisis that has hit the government, the head of the Swaziland Principals Association says.

Charles Bennett told the BBC teachers were boycotting classes at the start of the new term because the government had failed to pay money for school fees.

More than 60% of Swazi school children are poor or orphans, Mr Bennett said.

The government has not yet received a $355m (£218m) loan promised by South Africa to help it pay bills.

The crisis has triggered widespread protests in Swaziland, which is ruled by an absolute monarch, King Mswati III.

Last week, opposition supporters burnt images of the king in the second city, Manzini - a rare and punishable offence in a country where the monarch is revered, analysts say.

'Chalk shortage'

Mr Bennett said the government owed schools nearly $11m and services had been cut because of the failure to pay bills.

The opposition wants an end to the absolute rule of King Mswati III

"There is no electricity... no water," Mr Bennett told the BBC's Focus on Africa programme.

"The feeding programme - which covers most of the pupils - doesn't exist because there is no money to buy food."

Mr Bennett said more than 60% of pupils did not pay school fees because they fell in the category of "orphans and vulnerable children".

Schools were, therefore, heavily dependent on government funding, he said.

"We might be running out of material, such as paper for exams and chalk," Mr Bennett said.

Pat Muir, principal secretary in the education ministry, appealed to teachers to call off the boycott, the Times of Swaziland newspaper reports.

The money would be paid to schools by Thursday, he said, according to the report.

Last month, the University of Swaziland failed to open for the new academic year after the government failed to provide money for student fees.

Aids activists say Swazi schools have many orphans because their parents died of HIV/Aids.

'Lavish lifestyle'

Swaziland, with a population of 1.2m, has one of the highest HIV/Aids rates in the world.

About 230,000 people are HIV-positive, of whom 65,000 depend on state hospitals to give them free antiretroviral drugs.

However, health workers say hospitals are running out of the drugs because of the financial crisis.

King Mswati, who has 13 wives, has ruled Swaziland since 1986.

Critics accuse the royal family of lavish spending, despite the fact that many of his subjects languish in poverty.

The government says its financial crisis has been caused by a sharp decline in the landlocked kingdom's income from the Southern African Customs Union (Sacu), following a new tariff deal.

Last month, South Africa said it would give Swaziland a $355m bailout, but it has not yet released the money.

Pretoria said it first wanted the government to introduce fiscal reforms.

Swazi rights groups say South Africa should give the bailout only if King Mswati agrees to introduce democratic rule.

Political parties are banned in Swaziland.

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Luchi Cruz-Valdez Reports About Looming Water Crisis in DOKYU5′s ‘Huling Patak’

Huling Patak Ulat ni Luchi Cruz-Valdes on DOKYU5 airs this Sunday (August 28) on TV5.

An archipelago, the Philippines is surrounded by bodies of water. Yet, by 2025, experts predict a severe water shortage in the country. The rapid increase in population, urbanization and industrialization has reduced the quantity and affected the quality of Philippine waters.

Today, the signs of the imminent crisis are palpable. Access to clean and adequate water is an acute seasonable problem in urban and coastal areas. Only 36% of the country’s river systems are classified as sources of public water supply; up to 58% of groundwater sampled by government agents is contaminated with coliform and needs treatment; and 31% of diseases monitored over a five-year period are due to water-borne sources.

“Huling Patak,” a one-hour documentary to be aired nationwide on TV5 and Aksyon TV Channel 41, presents the state of water resources in the Philippines and the looming crisis.

Based on the compelling stories of six localities – Tawi Tawi, Davao, Camarines Sur, Quezon, Antipolo, and Metro Manila — and accounts of people living in the cusps of danger due to lack or absence of potable water – NEWS5 chief Luchi Cruz-Valdes weaves a story of decades of neglect and abuse of a resource more important than oil. Luchi explores the whys and wherefores of an impending disaster as well as the risks faced by Filipinos as we live with life threatening water scarcity.

Together with experts and examples of best practices that ensure sustained and efficient delivery of safe, clean water despite very limited resources, Luchi tells a story of doom and despair, and a promise that every Filipino can do something to avert a looming crisis. This special DOKYU5 presentation aims to tell them how.

“Huling Patak” airs this Sunday (August 28) at 10:30pm on TV5 with simulcast airing over Aksyon TV (Channel 41 in Mega Manila, Channel 29 in Metro Cebu and Davao, Channel 1 on Cignal Digital TV and Channel 59 on Sky Cable).

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AUDIO: Europe 'living in fantasy' over crisis

Was the deal put together by eurozone heads of state last week more sticking plaster than lasting solution?

Terry Smith, chief executive of Tullett Prebon, explains that although Europe's deal has "bought a bit of time", it has only "kicked the can down the road".

Get in touch with Today via email , Twitter or Facebook or text us on 84844.

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Drama or crisis?

28 July 2011 Last updated at 10:44 GMT By Damian Kahya Business reporter, BBC News Some Republicans are firmly against raising the debt ceiling As worries over debts move from Europe to the US, the markets have reacted with only mild panic.

Economic problems in the US could be far more serious for the world economy than anything that could happen in Greece.

But some economists have suggested that an essentially political drama is being mistaken for an economic crisis.

The US government needs the permission of Congress to raise the ceiling on the amount of money it can borrow.

If Congress doesn't grant it - currently the deadline is 2 August - the government will hit the limit and may have difficulties in paying its bills.

But there is a wider economic problem behind the stalemate.

The US - like Greece - is spending far more than it earns through taxes.

The annual budget deficit has reached $1.5tn (£920bn) this year - just over 10% of GDP - and the country has amassed a national debt of around $14.3tn.

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The interests of voters and the interests of the markets are completely at odds”

End Quote Dr Pippa Malmgren Principalis Asset Management President Barack Obama and the Republican controlled House of Representatives both agree the US needs to borrow less in the future - they just disagree on how.

It's that argument which is delaying progress on lifting the current borrowing limit.

As a result, ratings agencies have suggested that they may downgrade US debt from its benchmark top-rated AAA status - unless the two sides agree on radical action to lift the limit and cut the deficit.

Default

The immediate worry for investors is that, if no deal is agreed by the 2 August, the US may find itself at risk of a so called technical default.

"The interests of voters and the interests of the markets are completely at odds," says Dr Pippa Malmgren from Principalis Asset Management.

Some members of Congress were elected promising not to allow the government to run a deficit.

"The market keeps being surprised when it shouldn't be. You will win votes if you shut the government down," she says.

President Clinton shut down some government services in 1995 after parties failed to agree a budget

But a failure to reach a deal by the deadline may not provoke panic.

"The 2 August deadline is not an absolute deadline, because tax revenues are pretty good so far," says James Knightley from ING.

Potential impact

If it does run out of money the government may stop paying wages and social security checks - a so-called 'shut down'.

Government last shut down under Bill Clinton in 1995 when non-essential government services stopped after similar failed negotiations over the budget.

That would hurt the fragile economic recovery - but many economists find it hard to believe the US would ever default and fail to pay its debts.

"I think the risk of that is almost zero," says Josh Feinman, global chief economist for DB Advisors.

"They'll keep paying the bond holders but they'll stop paying someone else." he added.

Not everyone agrees with Mr Feinman though.

The US needs to re-finance $1.7tn, or 12% of its total debt this year - that would be hard to do if it can't borrow fresh funds.

Fidelity, one of the largest private sector holders of US bonds, say they have been preparing for a possible default.

"We have re-positioned our portfolios to respond to [the threat of default] and that means we have raised our liquidity [cash] and adjusted our portfolio maturities past the early part of August," says Robert Brown, head of Fidelity's money-market business.

That means funds - which lend money to banks and businesses - are already holding more cash to prepare for a possible default.

This limits the amount they can invest - potentially driving up the cost of lending to businesses.

The cost will stay high until investors believe the crisis is solved on a long term basis.

With so much at stake some warn that, unless it is resolved soon, the political stand-off may undermine wider business confidence.

"We've got a melodrama here and we're going to have a panic for no good reason," warns Professor Peter Morici from the University of Maryland.

"If they do something at the eleventh hour they might not avoid panic. Companies are starting to hoard cash and delay hiring, that is the beginning of a crisis."

The economy could slow as companies panic over the uncertainties created by seemingly endless negotiations in Washington.

Downgrade

Even if the borrowing limit is raised, the US may have its top AAA credit rating downgraded.

Ratings agency Standard and Poor's has cut its outlook on the US's credit rating to negative.

Economists say agencies want a comprehensive deal to limit the US deficit over the long term.

"Agencies have said if we don't get the debt ceiling raised soon, coupled with an agreement in both houses of Congress to stop the debt ballooning, then we are going to downgrade the US," says Phillip Shaw from Investec.

Lowering the credit rating may make it harder for the government and companies to borrow money in the long term.

"You might see some impact outside of treasuries," warns Mr Feinman.

Markets have so far failed to panic over debt talks

US debt would be less safe, so investors holding it would have less freedom to lend to other, riskier, companies.

"If you downgrade the US then they might have to sell some lower-rated stuff in order to keep the average credit quality."

But he doesn't think a downgrade makes any sense.

The US, he says, is not like Greece - it controls its own currency and can print as much as it likes to pay back debts.

"A credit rating is based on the chances [lenders] are going to get paid back. When you control your own monetary policy what does a rating even mean?" argues Mr Feinman.

Figures collated by ING show that 45% of US debt is held by the US government - which is unlikely to be unduly perturbed by a downgrade.

Even money-market funds such as Fidelity would not have to sell their debt, as US law makes government debt exempt from rules about diversification of risk.

Over the long term though the US may find it very hard to recover it's credit rating - should it need to.

"In my 16 years at Fidelity and at other firms, I've never seen an upgrade to AAA. We are the bellwether for safety and there are a lot of advantages that go with that," says Mr Brown.

Distraction

Some argue the episode is a distraction.

"The slowdown we are seeing in emerging and developed markets, together with the ongoing European crisis, is foremost in my thinking," says Rick Patel, portfolio manager at Fidelity International in the UK.

He sees the current uncertainty as investment opportunity.

"I've been investing in US treasuries largely because of the weakening growth outlook [in the US] which leads me to think treasuries are the way to go."

For others, the focus will soon return to Europe, where governments can't simply print money to get out of debt.

"Once the US story is complete and that is past we are going to revert to the eurozone story again," says Mr Knightley.

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