China invests billions in oil sands

China invests billions in oil sands Robert Lee, a lab technician at ConocoPhillips' Surmont oil sands project in Alberta, examines a vial of water and oil sediment. Looking on is Perry Berkenpas, vice president of oil sands operations for ConocoPhillips Canada. / HC Dealmaking For decades, U.S. and Canadian companies were the biggest investors in Canada's oil sands reserves. But other countries, led by China, have poured billions into Canada's oil sands projects in the past few years. 2005 China's CNOOC buys 17 percent stake in Calgary-based MEG Energy Corp. 2010 PetroChina International Investment Co. buys 60 percent working interest in Athabasca Oil Sands Corp.'s MacKay River and Dover oil sands projects. Sinopec (China Petrochemical Corp.) buys ConocoPhillips' 9 percent stake in Syncrude Canada, the world's biggest oil sands producer. China Investment Corp. buys 45 percent stake in an oil sands project owned by Penn West Energy Trust. Thailand-based PTT Exploration and Production buys 40 percent share in Statoil's Kai Kos Dehseh oil sands project. 2011 CNOOC acquires the bankrupt OPTI Canada, whose main asset was a 35 percent working interest in Nexen's Long Lake oil sands project. Source: Houston Chronicle research HED HERE This is a precede. This is a precede. This is a precede. Ludbcvude : Ednvu ef9we ewfje9 edcedh Mu xhcdhc: Aduiduhuw ue hfewfuehuh Ehdfcwehfh: Xewh ewhjwh9e hbb sxjbckjcjc ixsbsc This is my source line right here. Page 1 of 1 FORT McMURRAY, Alberta - As U.S. companies look toward oil riches in northern Canada, they're encountering increasing competition - as well as some much-needed cash infusions - from the Far East. U.S. and Canadian companies have dominated Alberta's oil sands for decades. Now, though, Chinese firms are rushing to snap up Canadian oil sands resources and invest in ongoing projects - to the tune of $15 billion in the past 18 months in Alberta alone. They are motivated by a desire to jump into one of the world's lowest-risk oil investments and to quench the exploding energy demands of Asian markets - even though getting the product from Canada to Asia is just a pipe dream now. The foreign funding can help pay for what research firm IHS CERA estimates will be $100 billion in spending on oil sands projects over the next decade. And for a growing number of U.S. oil companies, many based in Houston, the infusion of Chinese cash in Canadian projects is welcome funding for some capital-intensive oil sands projects. "Many of the actual oil companies - no matter where they are from - are very interested in partnering," said Jackie Forrest, the Calgary, Alberta-based head of oil sands research for IHS CERA. "That can help raise capital and, in some cases, also bring expertise and knowledge to the partnership." Most of the recent deals have been by Chinese companies buying shares in existing projects. For instance, Sinopec spent $4.65 billion last year buying ConocoPhillips' 9 percent stake in Syncrude Canada Ltd., the world's biggest oil sands producer. And earlier this summer, state-owned CNOOC spent $2.1 billion acquiring the bankrupt OPTI Canada, whose main asset was a 35 percent working interest in Nexen's Long Lake oil sands project in Alberta. Plants want to expand That influx of capital can help companies ramp up production and expand operations at existing projects, said Alberta Minister of Energy Ronald Liepert. "Plants that are currently 25,000 barrels a day, they want to expand to 100,000 barrels a day, and they don't have the capital to do that," he said. "So they're actually on the prowl for investment - and there's real money in China." China isn't the only country getting into the oil sands game from across the Pacific. Companies based in Thailand and Australia also have made plays recently for Canadian oil sands projects and portfolios. Major draws are the low geological risks of Canada's well-explored oil sands, and the nation's political stability. "You know the oil is there, so the risk is more in executing the project, getting it online and getting the capital associated with building the project," Forrest said. The Canadian market offers fewer barriers, said Nick Olds, the senior vice president of oil sands for ConocoPhillips Canada. "With the oil sands, you've got a significant resource - 173 billion barrels of oil recoverable with current technology, and that's only going to get better," Olds said. "If you look at other areas of the world," he said, "it is very difficult to get access to (the) resource." By contrast, the oil sands in Canada are "not state-controlled and they're not government-owned." The "oil" in the Canadian oil sands is bitumen, a hydrocarbon that is as hard as a hockey puck at 50 degrees and can be refined into synthetic crude oil or other products. The oil sands in Alberta are a mixture of sand, water, clay and bitumen that is extracted by open-pit mining and by less invasive in situ techniques that use heat to draw the bitumen directly from the underground reservoirs. Canada's oil sands bounty makes it second only to Saudi Arabia in its reserve base. Its recoverable oil is estimated to be more than 10 times U.S. reserves. Since China doesn't have similar oil sands deposits, the Asian companies investing in Canadian crude aren't so concerned with getting technology and know-how out of their deals. Instead, they are getting the promise of strong returns and the chance of eventually sending some of that oil home. "There is a long-term plan to get oil to the East, and it will happen," said Liepert, the Alberta energy minister. Right now, the only real export market for Canada's crude is the United States. But the Midwest refineries that are served by existing border-crossing pipelines are expected to reach their maximum capacity for processing the northern oil supply by 2015, according to IHS CERA. Plans for pipeline Asian markets loom as a new and promising opportunity for oil sands developers eager to command global prices for the product, but there is no immediate avenue to deliver the crude to Asia. The most likely corridor - the Northern Gateway pipeline proposed by Calgary-based Enbridge - has been ensnared in disputes with environmentalists and indigenous communities worried about damage from oil spills. Last month Enbridge disclosed it has enough contracts with shippers to fill the pipeline, which would transport crude 731 miles from Alberta to Kitmat, B.C., for tanker transport to Asian markets. Although Enbridge isn't saying what companies have signed up to use the pipeline, China's Sinopec has confirmed it is helping to finance the $5.5 billion project. A new avenue to Asian markets also would benefit U.S. oil companies with big Canadian crude reserves, including Exxon Mobil, ConocoPhillips and Shell. If it gets past regulatory hurdles, the pipeline could be completed as early as 2017. "We want to become a global energy superpower," said Liepert. "And you're not going to become a global superpower of anything with one customer." source

FOREX Euro down after rally this week, still in downtrend, what's next?

Today I visited reuters.com and reading an article about forex and I found this article, Euro down after rally this week , still in a downtrend. Then what will happen next, especially in this week? OK we read the news first! The euro dropped on Friday, as investors locked in profits after this week's rally sparked by global central bank action to boost liquidity, and could stay weak on any negative news coming out of an EU finance ministers' meeting. Analysts said investors also sold the euro, pushing it to session lows against the dollar, after the Bank of Portugal said the Portuguese island of Madeira failed to report information about debts from previous years that amounted to 0.5 percent of gross domestic product in 2010. [ID:nLDE78F07C]. "We had a pretty good run-up in euro/dollar the last couple of days from $1.37 to $1.39 because of positive news this week. So we've had a bit of a short squeeze," said Ray Attrill, senior currency strategist, at BNP Paribas in New York. However, he added that market players remained bearish on the euro and those expecting any new policy initiatives from the European Union finance minister's meeting will be disappointed. The euro was last down 0.5 percent at $1.38081 EUR=EBS, off a one-week peak of $1.39370 hit on Thursday but held above a seven-month trough below $1.35 plumbed on Monday. The euro has gained around 1.8 percent so far this week, its best weekly performance since the week of July 24 on trading platform EBS. It fell to a session low of $1.37530, with traders saying it extended losses after stop-loss orders were triggered on the break of $1.37700, with more stops at $1.37500. Overall though investors were reluctant to take large positions ahead of the outcome of an EU meeting in Poland, at which Treasury Secretary Timothy Geithner is a participant. Geithner told EU finance ministers on Friday they should end loose talk about a euro zone break-up and work more closely with the European Central Bank to tackle the debt crisis. He also said Europe would not see similar global financial coordination as there was in 2009, but that Washington would do what it could to help. For more, see [ID:nL3E7KG0KC]. Technical charts indicated the euro could find support around $1.3738, the 23.6 percent retracement of the fall from $1.45500 on Aug.29 to $1.34949 on Sept.12. The euro had hit a one-week high after a coordinated move by central banks on Thursday to provide dollars. Funding strains, evident through the cross currency basis swap market, which had hit some euro zone banks, including large French banks and were impacting the euro, had appeared to be easing. The three-month euro/dollar cross currency basis swap EURCBS3M=ICAP, or the relative premium for swapping euro LIBOR for dollar LIBOR tightened to around minus 88 basis points from on Friday, a day after the action from global central banks. It narrowed from as wide as minus 115 basis points on Monday. Wider spreads reflect elevated demand to borrow U.S. dollars in the currency forward market and often supports the greenback's spot value against the euro In the options market euro/dollar month implied vols - measure of investor demand to protect against spot price volatility - were steady around 14.20 percent and off this week's high of around 18 percent EURVOL. FED EASING EYED While investors remain wary of the euro, they are also reluctance to take long positions in the dollar ahead of a Federal Reserve meeting next week, where policymakers may flag another round of quantitative easing to boost the economy. That move should weigh on the dollar and help riskier assets rally, although analysts said some market players thought "Operation Twist" was the more likely outcome. In such a scenario the Fed would buy longer dated Treasury bonds and sell shorter dated ones to keep rates at the longer end lower without expanding the balance sheet. Daragh Maher, FX strategist at Credit Agricole in London said the "Operation Twist" could be positive for the dollar because it would stimulate growth. "It would be seen as delivering stimulus without printing....dollars." The ICE Futures' dollar index was last up 0.4 percent at 76.551 .DXY. Against the yen, the dollar remained stuck at 76.730 yen JPY=EBS, flat on the day. The threat of Japanese intervention has helped keep dollar/yen in a tight range and above its all-time low of 75.94 yen. (Additional reporting by Anirban Nag in London; Editing by Theodore d'Afflisio) source

Franc Falls as Bernanke Improves Sentiment on Markets

Hi All today I check this blog and want to read somethink but I can't so.. I just copying this news about Franc Falls as Bernanke Improves Sentiment on Markets!!

You can read the news bellow!


The Swiss franc slumped today after Federal Reserve Chairman Ben. S. Bernanke spoke today, improving sentiment on markets, while rumors abound that Switzerland’s policy makers are preparing another action to weaken the Swiss currency.



There are different opinions on what steps Switzerland is going to take in order to weaken its currency. Some analysts speculate that the Swiss National Bank is preparing another intervention. Some experts predict that local banks may impose charges for franc deposits. Whatever the truth is, the rumors undermine franc’s strength.

Optimism, caused by the speech of Chairman Bernanke, influenced the franc even more, perhaps. Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce, thought:

What Bernanke said suggested was perhaps the world’s economic weakness is not so bad that it warrants another round of QE, and that helped to damp demand for the franc. There has also been speculation about the SNB’s possible further action on the franc, which makes the market cautious.

USD/CHF climbed from 0.7928 to 0.8060 as of 20:11 GMT today after touching the daily high of 0.8157, the highest level since July 22. EUR/CHF advanced from 1.1401 to 1.1684. CHF/JPY sank from 97.61 to 95.05, while earlier it reached the lowest price since June 20 — 94.44.

If you have any questions, comments or opinions regarding the Swiss Franc, feel free to post them using the commentary form below. source: http://www.topforexnews.com/2011/08/26/franc-falls-as-bernanke-improves-sentiment-on-markets/

Fed buys $1.5 bln in TIPS; Treasurys stay up

NEW YORK (MarketWatch) -- The Federal Reserve Bank of New York bought $1.5 billion in Treasury Inflation Protected Securities on Friday, as part of a program that is the centerpiece of the Fed's easy monetary policy. Dealers offered the Fed $4.261 billion debt maturing from 2013 through 2041. After the buyback, Treasurys stayed higher. Yields on 10-year notes, /quotes/comstock/31*!ust10y (UST10Y 3.51, -0.04, -1.15%) , which move inversely to prices, fell 5 basis points to 3.51%

Risk Appetite Subdued Ahead Of US GDP- USD Firms

Hai there, welcome back to market review blog. Now we have news from GDP USD. Check it out


Asia Pacific markets were lower after a lackluster performance in US equities saw the Dow, the S&P, and the Nasdaq fall by .3%, .4%, and .6% respectively. Disappointing topline revenues and softer guidance reports weighed on sentiment one day before the US is set to release Q2 GDP figures. Remarks made by Federal Reserve Bank of St. Louis President James Bullard also helped subdue risk appetite after he suggested that the US is moving closer to Japanese-style deflation and may need additional quantitative easing measures. The Hang Seng index, the Shanghai SE composite, and the S&P/ASX 200 index were off by .3%, .4%, and .7% respectively. The Nikkei 225 was the worst performer, losing more than 1.6% after a report showed June industrial production had fallen by 1.5% m/m. Consensus estimates had called for an uptick to .2% from .1% a month earlier. Japanese markets have fallen more than 2% in the past three sessions amid ongoing concerns regarding the health of the US recovery and persistent strength in the yen. The dollar slid to a 8 month low versus the yen, as uneasy investors seek haven ahead of today's US data flow.

Commodities were mostly lower, with crude oil paring gains to trade at $77.70per barrel at 10am in London. Gold holds just beneath $1170 per ounce after failing to break through the $1160 support level earlier in the week. Risk-off trades supported the dollar, with the index trading higher by .6% to 81.90. Treasury yields continue to fall, with the 10-year note falling to 2.95% and the 5-year yielding 1.63%.

Euro Retreats After Testing 1.31

The euro reversed yesterday's gains after testing the 1.31 handle early in the US session. Disappointing German retail sales figures accelerated haven flows, pushing the single currency as low as 1.2980. Eurozone unemployment was in line with expectations, with the figure printing at 10.0%. Support is seen at the lower bound trendline of the ascending channel at 1.2960. Downside risk for the euro increases with a break below the 61.8% Fibonacci extension taken from the July 20th and 29th crests, at 1.2920, with targets eyed lower at the 1.28 figure, and 1.2740. Interim resistance stands at 1.3045, backed by the 1.31 handle, and 1.3150.

Euro Gains on Speculation Traders Exiting Bets on Its Decline

The market review blog today news Euro Gains on Speculation Traders Exiting Bets on Its Decline.

The euro climbed to its highest level in a week against the dollar amid speculation investors who bet on its decline amid Europe’s sovereign-debt crisis had to buy back the currency as it strengthened for a third day.

The euro headed for its largest five-day gain in eight months after yesterday rising from its lowest level since 2006 as traders theorized the European Central Bank may intervene to support the currency. German lawmakers today approved their country’s share of a $1 trillion euro-region bailout. The yen swing between gains and losses against the dollar as U.S. stocks gained for the first time in four days.

“There was certainly capitulation,” said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp., world’s largest custodial bank, with more than $20 trillion in assets under administration. “It was scorched earth yesterday and players are on the sideline licking their wounds. It may take weeks, or even months, for risk appetite to return.”

The euro advanced 0.6 percent to $1.2567 at 10:24 a.m. in New York from $1.2487 yesterday, after earlier rising to $1.2672, the strongest since May 13. The currency, which touched a four-year low of $1.2144 on May 19, has gained 1.7 percent versus the greenback this week, the most since the five days ending Sept. 11, 2009.

‘More Decisive’

The shared currency gained 0.9 percent to 113.02 yen from 111.99. It yesterday plunged as much as 3.8 percent to the weakest against the Japan’s currency since November 2001. The yen traded at 89.75 per dollar from 89.68. The Standard & Poor’s 500 Index rose as much as 0.9 percent after earlier falling as much as 1.5 percent that dragged it below its weakest level during the May 6 market rout.

The euro gained before European Union President Herman Van Rompuy hosts a meeting of finance ministers in Brussels today to discuss reforms to economic governance.

“Today’s meeting is an excuse to indulge in some short covering,” said Audrey Childe-Freeman, a senior currency strategist at Brown Brothers Harriman Ltd. in London. “There is little chance of any more big announcements today, but like the rumors of intervention it’s enough to give a little relief to the euro for now.”

Hedge funds and other large speculators on May 11 increased bets on a decline in the euro to 113,890 contracts more than those anticipating a gain, the most ever, according to Commodity Futures Trading Commission data.

Europe’s single currency has dropped 5.9 percent this year against its developed-world counterparts, according to Bloomberg Correlation Weighted Indexes.

Carry Trade

Today’s vote by German lawmakers allayed market concern they would balk at approving a second emergency loan package in as many weeks. The lower house of parliament voted 319 to 73 in favor of contributing as much as 148 billion euros ($184 billion) to indebted European states to backstop the euro; 195 lawmakers abstained. The upper house, or Bundesrat, also passed the measure, sending it on to President Horst Koehler for signature.

Brazil’s real dropped 6.6 percent against the yen this week as price fluctuations remained at elevated levels, sapping demand for carry trades, in which investors buy higher-yielding assets with amounts borrowed in nations with low interest rates. Japan’s benchmark lending rate of 0.1 percent, less than the 9.5 percent in Brazil, has made the yen popular for funding such transactions.

JPMorgan Chase & Co.’s implied-volatility index for six major currencies versus the dollar climbed to as high as 16.95 percent yesterday, the most since April 2009. The index traded at 16.22 percent today.

“The environment is becoming unstable with volatility at very high levels,” said Joseph Capurso, a currency strategist at Commonwealth Bank of Australia in Sydney. “The yen is about the only currency that does really well in this environment.”

‘Extremely Antsy’

Higher volatility suggests a greater risk for carry trades, where gains in the funding currency erode profits from the interest-rate differential, and may cause losses as it becomes more expensive.

The yen fell earlier versus the dollar after comments by Finance Minister Naoto Kan raised speculation Japanese authorities may act to weaken the currency. The yen surged more than 2 percent against the greenback yesterday.

“We must closely monitor the situation to make sure this won’t cause excessive yen appreciation,” he said.

A stronger yen reduces the competitiveness of Japanese goods overseas. Japan’s large manufacturers expect the currency to average 91 per dollar this fiscal year, according to a recent Bank of Japan Tankan survey.

“Yen below 90 is already an expensive yen,” Steven Englander, head of Group of 10 currency strategy at Citigroup in New York said in a Bloomberg Radio interview today. “There is an opportunity to short the yen at 90.”

‘Elevated Threat’

There is an “elevated threat” the central banks of Europe, the U.S. and Japan will intervene in currency markets though the threshold has not yet been reached, according to Morgan Stanley.

The chance of joint intervention by the Group of Three has increased to 30 percent, above the long-term average of 12 percent, Sophia Drossos, co-head of global foreign-exchange strategy at the U.S. investment bank, wrote in a note to clients. The probability is based on a model that takes into account factors such exchange-rate momentum and market positioning.

“The strongest warning signals in our model have been coming from the pace of euro decline rather than the direction of the move itself,” New York-based Drossos wrote in the note yesterday. “Other indicators in our model suggest euro weakness does not appear out of line with fundamentals or policy preferences.”

Euro Sales Extend as Morgan Stanley Mulls EU Breakup

This is forex times ... April 29 (Bloomberg)- Investors are abandoning the euro at a rate not seen since the collapse of Lehman Brothers Holdings Inc. as Europe’s worsening fiscal crisis threatens to splinter the 16-nation currency union.

Pension funds and banks sold euros this month at the fastest pace since the second half of 2008, when the currency tumbled more than 25 percent against the dollar between mid-July and the end of October, according to Bank of New York Mellon Corp., the world’s biggest custodian of financial assets with $23 trillion. Demand for options giving the right to sell the euro against the dollar versus those allowing for purchases rose yesterday to the highest level since November 2008.

“The assumptions that went into the makeup of the euro- zone, and hence the euro, are now being brought into question and revalued,” said Eric Busay, a manager of currencies and international bonds in Sacramento at the California Public Employees’ Retirement System, the largest U.S. public pension, with $202 billion under management. “There are differences, and screaming differences, that have now been shown between the regions of the euro-zone.”

While the euro became a rival to the dollar after the common currency’s inception in 1999, the debt crisis that began in Greece shows how it is being shaken by one country comprising 2.6 percent of the region’s economy. The euro’s 11 percent decline in the past six months made it the worst performer among its 16 most-traded peers. Standard & Poor’s cut the credit ratings on Greece, Portugal and Spain in the last two days.

Central-Bank Holdings

Credit-default swaps on the debt of Greece, Portugal and Spain climbed to record highs as the 16 nations making up the euro failed to bridge economic and political differences fast enough for traders.

The euro fell to a one-year low of $1.3115 yesterday in New York, down from 2009’s high of $1.5144 on Nov. 25, as German Chancellor Angela Merkel said in Berlin the “stability of the euro zone” was at stake if a 45 billion-euro ($59 billion) loan package for Greece orchestrated by the International Monetary Fund can’t be delivered soon.

Currency strategists are having a hard time keeping up with the decline. The median average of 32 forecasts compiled by Bloomberg is for the currency to end the year at $1.32. In February, the estimate was $1.43. The euro was at $1.3236 at 3:25 p.m. in London today.

Dumping Bonds

Bank of New York Mellon’s chief currency strategist, Simon Derrick in London, said the euro may tumble to $1.10 by the end of 2011. Morgan Stanley predicts it will trade at $1.24 by year- end. Without central bank support, the euro’s long-term fair value is $1.20, UBS AG said April 26.

Investors are on course to sell a net 50 billion euros of euro-region bonds this year, compared with purchases of 225 billion euros in 2009, according to a Nomura Holdings Inc. projection.

Central banks reduced the share of euros in their $8.1 trillion of reserves to 27.6 percent in the fourth quarter of 2009 from 28 percent in the previous three months, according to Morgan Stanley calculations based on IMF data. The figure was about 17 percent when the euro was introduced 11 years ago.

“Central bankers and institutional investors have spent 10 years pricing out the likelihood of a euro-zone break-up, and now they have to price it in again,” said Emma Lawson, a currency strategist in London at Morgan Stanley. “The euro will no longer have this additional support going forward.”

‘Shift in Attitudes’

The euro’s one-month option risk-reversal rate fell to minus 1.97 percent yesterday, the lowest level since Nov. 4, 2008, and down from minus 0.9 two weeks earlier, signaling a relative increase in demand for puts, which grant traders the right to sell the currency. It was at minus 1.7 percent today.

“Euro weakness is driven by a broad shift in investor attitudes, a shift which goes well beyond shorter-term foreign- exchange position changes within hedge funds,” Nomura foreign- exchange analysts Jennifer Hau in London and Jens Nordvig in New York wrote in an April 20 report to clients.

The euro, introduced on Jan. 1, 1999, at a rate of about $1.17, weakened to 82.30 U.S. cents in 2000 as the region’s economy slumped amid the bursting of the dot-com bubble. It peaked at $1.6038 in July 2008 as the global financial crisis worsened.

While the European Union shares a common monetary policy, members are responsible for their own fiscal decisions. That allowed Greece’s budget deficit to expand to almost 14 percent of its gross domestic product, exceeding the EU’s 3 percent limit without penalty. Germany’s is 3.2 percent of its GDP.

‘Vulnerable Spot’

Greece’s $357 billion economy is 2.6 percent of the euro zone’s $13.6 trillion and compares with $3.65 trillion for Germany, according to data compiled by Bloomberg.

Even though Merkel called for a quick resolution of the aid package for Greece, she has delayed German approval of loans in the face of voter opposition. Almost 60 percent of Germans don’t want to help Greece, the Die Welt newspaper reported this week, citing a survey of 1,009 people.

“The problem with Europe, and people had forgotten about this over the past decade, is that the experiment of monetary union without political union, and without any sort of federalism across the euro-zone, puts them in a very vulnerable spot,” Scott Mather, head of global portfolio management at Pacific Investment Management Co. in Munich, said in a Bloomberg radio interview on April 26.

‘Nationalistic’ Tendencies

“So when push comes to shove and you have these large imbalances that develop between countries, it is very likely that they go back to the old world of being more nationalistic,” said Mather, whose Newport Beach, California- based firm runs the $220 billion Total Return Fund, the world’s biggest bond fund.

The outlook for the euro and the dollar are both poor, according to Kenneth Rogoff, a former IMF chief economist and professor at Harvard University in Cambridge, Massachusetts. President Barack Obama has increased U.S. marketable debt to an unprecedented $7.76 trillion to fund a budget deficit the government predicts will swell to $1.6 trillion in the fiscal year ending Sept. 30.

“There’s a tremendous surge to diversify out of the dollar, and the euro is still the main alternative,” Rogoff said in a telephone interview. “Both the euro and the dollar have their longer-term vulnerabilities.”

Since 2001 the percentage of currency reserves held in dollars has fallen to 62.1 percent from 72.7 percent, according to the IMF in Washington.

‘Great Solution’

Nobel Prize-winning economist Robert Mundell said the Greek crisis is a fiscal issue, not a broader credibility peril for Europe’s common currency.

“It’s not a euro problem; the euro has been a great solution,” Mundell, a professor at Columbia University in New York, said in an interview yesterday on Bloomberg Television. “It’s a deficit and debt problem.”

Mundell said there must be conditions attached to the financing package for Greece with a year-by-year target to reduce the country’s debt and cut its deficit “well below 3 percent” of GDP.

“It could be handled if the Greeks would be able to demonstrate to Germany and the other countries that they will keep the line and do this,” Mundell said. “There has to be that transformation, otherwise the alternative is a big restructuring of the Greek debt.”

Bigger Than TARP

The euro’s weakness may also help Europe’s economy rebound as its exports become more competitive. Bundesbank President Axel Weber said April 26 that Germany’s recovery will gather steam in the second quarter. The nation’s exports rose 5.1 percent in February from the previous month, the most since June 2009, a government report showed on April 9.

To fix the region’s fiscal crisis the EU may need a plan larger than the $700 billion Troubled Asset Relief Program deployed by the U.S. after the collapse of Lehman Brothers, according to Goldman Sachs Group Inc., JPMorgan Chase & Co. and Royal Bank of Scotland Group Plc.

Lower credit ratings on EU nations may force banks to boost the amount of capital they’re required to hold against bets on sovereign debt, said Brian Yelvington, head of fixed-income strategy at broker-dealer Knight Libertas LLC in Greenwich, Connecticut. While bank capital rules give a risk weighting of zero percent for government debt rated AA- or higher, it jumps to 50 percent for debt graded BBB+ to BBB- on the S&P scale and 100 percent for BB+ to B-.

Soaring Yields

Yields on Greek two-year notes soared to a record 26 percent yesterday. Portugal’s jumped to 7.05 percent and Spain’s reached 2.53 percent. S&P lowered its rating on Greece by three steps to BB+, or below investment grade, from BBB+ on April 27, minutes after cutting Portugal to A- from A+. It reduced Spain’s rating one step to AA from AA+ yesterday.

“The euro is not the euro we initially bought into,” said Roddy Macpherson, investment director in Edinburgh at Scottish Widows Investment Partnership Ltd., which manages the equivalent of $216 billion of assets. “The whole confidence in the euro has taken a bit of a bashing. We’re short the euro.”