Actual finance blog

Europe

With winter fast approaching, the bailiffs of Budapest are in a race against the clock.

They have only days before temperatures plummet and evictions are frozen by law. Demand for their services is soaring, and in the last seven weeks at least three people in the capital have committed suicide over the prospect of losing their homes.

Ani Beres, a 58-year-old woman whose family farming business went bankrupt, sat on her bed and spoke of hurling herself out of the window as the debt men knocked on the door of her 9th floor apartment this week. Her last line of defense was a throng of angry family members and activists trying to get in their way.

Hungary’s eviction crisis has its roots in 2005, when hundreds of thousands of Hungarian families began taking out mortgages and other loans in foreign currencies _ overwhelmingly in Swiss francs _ to take advantage of lower interest rates and a strong Hungarian forint.

But the Hungarian currency has plummeted over the past two years as the economy, highly dependent on exports, spiraled downward in the global economic crisis.

Today, the currency is falling further as the economy teeters on the verge of recession. Hungary’s credit rating is threatened with downgrade to junk status. Investors are spooked by the government’s unorthodox economic policies. And exports to Western Europe are being buffeted by the eurozone’s own debt crisis.

In a sign of the depth of the currency shock, authorities said Thursday that state security services will investigate possible speculative attacks on the forint after it plunged to an all-time low against the euro this month.

While a Swiss franc was worth 150 forints in 2008, it has now risen to around 250 forints and the Beres family’s 8-million-forint loan ($34,500, euro25,700) has ballooned to at least 12 million forints ($69,000, euro51,400).

The family depends on welfare payments of 48,000 forints ($208, euro155), not enough to live on, much less to repay their loan.

“We get food from the neighbors to survive,” Beres said. “You can ask them!”

A bailiff backed by several police officers had come to evict her family, whose home was bought at auction by real estate investors after she was unable to repay a foreign-currency bank loan.

“We took out the loan to invest in our vegetable-growing business … but we went bankrupt and had to sell everything,” Beres said, as her husband, Laszlo, screamed at the bailiff in the stairwell and had to be restrained from attacking him.

“I’m hopeful we can sort things out. But I’ll do it, I’ll jump out right here in front of everyone!” she said. “How many people need to die in this country until a solution is found?”

Hungary was a favored destination for international investors during the years after the first post-communist elections in 1990. But in the 2008 global recession, it became the first EU country to receive a bailout from the International Monetary Fund to avoid defaulting on its loans.

Last year, Prime Minister Viktor Orban’s government decided to forgo IMF support so it could apply its unconventional economic policies, including allowing people to pay back foreign currency loans at exchange rates much lower than current market rates, with banks forced to absorb the difference.

Last week, however, the government announced it would seek a “safety net” from the IMF and the EU but denied that the financial assistance would take the shape of a new loan, thereby giving the IMF undeniable say in Hungary’s economic policy.

Despite Orban’s intention of keeping a “free hand” in economic matters, analysts are skeptical lenders will be so considerate.

“The government would like to preserve its total independence … but it’s unlikely that the IMF would provide money without having some say,” said Zoltan Arokszallasi, a macroeconomic analyst at Erste Bank in Budapest.

A government ban on evictions in place during the first half of the year will return Dec. 1 because of the freezing weather, so the number of forced expulsions has risen greatly during the past weeks as lenders or the new owners attempt to take possession of their properties.

There have been at least three suicides during recent evictions in Budapest.

On Oct. 6, Eva Stiaszni, a 49-year-old subway conductor slammed the door when authorities came to throw her out, sent a farewell text message on her cell phone to her 21-year-old daughter and jumped to her death from her apartment window on the 9th floor of a low-cost housing estate.

“My daughter never asked for my help or anyone else’s,” said her 77-year-old mother, Ica Stiaszni. “How did she end up in a such a state that she was driven to her death?”

At the Beres home _ after much shouting, pleading and threats _ the bailiff agreed to the family’s request for a three-month stay of eviction.

But their problems are far from over.

“We’ve been looking for an emergency home for months and have not found anything,” Beres said. “We have no place to go.”

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Stocks rose sharply Thursday amid mounting expectations that a Greek referendum on a European bailout plan will be abandoned and a surprise rate cut from the European Central Bank.

In Athens, Greek Prime Minister George Papandreou came under intense pressure from his own party and opposition lawmakers to resign and let a coalition government approve a European bailout plan instead of holding a risky referendum on it.

Papandreou’s unexpected announcement Monday that he intended to put the hard-fought bailout package to a referendum horrified Greece’s international partners and creditors, triggering turmoil in financial markets as investors fretted over the prospect of a disorderly default and the country’s exit from the 17-nation eurozone.

“Markets have rallied …. on the expectation that the referendum will be cancelled,” said Louise Cooper, markets analyst at BGC Partners.

In Europe, Britain’s FTSE 100 was up 1.1 percent at 5,546. France’s CAC-40 rose 3 percent 3,204 while Germany’s DAX was also 3 percent higher at 6,144.

In the U.S., the Dow Jones industrial average rose 1.2 percent, to 11,974 while the broader S&P 500 index rose 1 percent to 1,251.

Despite Thursday’s recovery, markets remain jittery about how Europe will resolve its debt crisis, especially now that it’s been openly admitted that a country can actually leave the euro.

This week’s instability in Greece has sent immediate ripples throughout Europe. Premier Silvio Berlusconi’s government in Italy was teetering as well after it failed to come up with a credible plan to deal with its dangerously high debts, and Portugal demanded more flexible terms for its own bailout.

Markets were thrown into turmoil on Monday after Papandreou’s referendum proposal. It horrified Greece’s international partners and creditors, triggering market worries that Greece may default on its debts and exit the eurozone.

This week’s turmoil was also a clear factor in the European Central Bank’s surprise decision Thursday to cut interest rates by a quarter of a percentage point to 1.25 percent. That helped shore up stock markets too.

The move, which comes earlier than expected by many economists, takes the bank’s benchmark rate to 1.25 percent.

European growth is expected to slow to near or below zero in the last three months of the year.

Uncertainty from Europe’s debt crisis is a factor. Business and consumers are reluctant to spend and investors because they fear more financial turmoil if Greece defaults on its debts.

The euro suffered a bout of selling after Draghi signaled that the ECB’s bond purchases, which have been keeping down borrowing rates for financially weak countries like Italy, are temporary and limited.

However, the retreat was short-lived as investors breathed a sigh of relief over the apparent scrapping of the referendum pledge. The euro was up 0.6 percent at $1.3771.

Though Greece’s political developments were the main point of interest in the markets, investors are keeping a close watch on the French resort of Cannes where the Group of 20 leaders from the industrial and developing world are meeting.

In Cannes, President Barack Obama pledged world leaders would flesh out details of a plan to resolve the European financial crisis.

Earlier in Asia, Hong Kong’s Hang Seng retreated 2.5 percent to close at 19,242.50. South Korea’s Kospi lost 1.5 percent to 1,869.96 and Australia’s S&P/ASX 200 shed 0.3 percent to 4,171.80.

Japanese markets were closed for a national holiday. Mainland Chinese shares rose, with the benchmark Shanghai Composite Index gaining 0.2 percent to 2,508.09.

Benchmark crude for December delivery was up $1.16 at $92.67 a barrel in electronic trading on the New York Mercantile Exchange.

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China has given the go-ahead for several local authorities to sell bonds as it moves to bridge financing shortfalls and prevent debt defaults by overextended provinces.

The Ministry of Finance said in a notice Thursday that Shanghai, Zhejiang and Guangdong provinces and Shenzhen, a special economic zone bordering Hong Kong, would be allowed to issue three-year and five-year bonds on a trial basis, subject to quotas.

China normally prohibits local governments from issuing bonds directly or from taking bank loans, confining such bonds to those issued by the central government on their behalf.

Local governments owe about 10.7 trillion yuan ($1.7 trillion) in debt through financing vehicles set up to support construction projects. Issuing bonds would help them to honor those obligations.

Instructions outlined by the ministry suggests plans for strict central government oversight of the program.

Bond quotas set for one year cannot be carried over to another, it says.

Funds raised by local government bond sales will be kept in a special account of the finance ministry which will oversee payment of interest and principal.

The ministry said the local governments also should provide timely information to the public regarding local economic and financial conditions.

With highway and railway projects running short of cash, Zhejiang province, west of Shanghai, plans to issue 8 billion yuan ($1.3 billion) worth of bonds to fund infrastructure projects this year, the official Xinhua News Agency reported earlier.

It characterized the plan as the beginning of a shift in how local government projects are financed.

Much of the money is also expected to be earmarked for so-called “affordable housing” projects.

Cities have been ordered to speed up construction of such housing, but many already debt-encumbered localities reportedly lack the financial wherewithal to follow through.

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Venezuelan President Hugo Chavez said he felt great and playfully boxed for television cameras on Friday as he emerged from his third round of chemotherapy for cancer.

The 57-year-old president, who shaved his head after he started losing hair due to the treatments, jumped up and down, raised his arms and sparred as he left the Carlos Arvelo Military Hospital in Venezuela’s capital.

Chavez told Venezuelan state television that during the week of treatment he had gained “more than a kilo” and now weighs 88 1/2 kilograms (195 pounds). “At the end the chemotherapy is softer.”

“Today we finished with the hemoglobin tests, white blood cells,” said the Venezuelan president, who was wearing an olive green military uniform and his trademark red beret. He added that his condition “couldn’t be better.”

Hospital director Col. Earle Siso said Chavez was released in “top condition not only in spirit but physically cash advance america.”

Standing in the open sunroof of a sport-utility vehicle, Chavez waved to supporters as he led a caravan to the presidential palace.

In a televised speech to supporters at the palace, Chavez said “this third cycle (of chemotherapy) ended without problems.”

“We still don’t know if I will need a fourth round. We will see in the coming days,” he said. “Every day I feel better.”

Chavez underwent surgery in Cuba that removed a cancerous tumor from his pelvic region in June. He has not specified where the tumor was located but said the latest follow-up tests haven’t detected any sign of malignant cells in his body.

He returned twice to Cuba for his first two rounds of chemotherapy.

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President Barack Obama is calling on Congress to put politics aside when lawmakers return from their recess in September and pass a series of initiatives the president says will spur job growth.

In his weekly radio and Internet address Saturday, Obama said Washington’s urgent mission is to get the economy growing faster and create jobs. The latest jobs report released Friday was better than expected, with the economy adding 117,000 jobs and the unemployment rate ticking down a notch to 9.1 percent.

“Our job right now has to be doing whatever we can to help folks find work, to help create the climate where a business can put up that job listing, where incomes are rising again for people,” Obama said.

The steps the president wants Congress to take include extending payroll tax cuts for another year, passing three free trade agreements and enacting patent reform. All of the measures are proposals the president has called for previously.

Obama’s weekly address capped a week that began with lawmakers and the White House reaching a deal to raise the nation’s debt ceiling and avert a potentially catastrophic government default. The deal also cuts federal spending by $2.1 trillion or more over the next decade.

Late Friday, however, the credit rating agency Standard & Poor’s downgraded the United States’ AAA credit rating for the first time in history, a move that could push interest rates higher and further unsettle the economy.

Obama, who recorded his address before S&P’s move, said that while the debt-ceiling deal makes some progress in reducing the nation’s deficit, both parties are going to have to work together on a larger plan to get the country’s finances in order.

In the weekly Republican address, New York Rep. Michael Grimm said the debt deal legislation was far from perfect and the cuts did not go far enough. Grimm, who voted for the bill, called on lawmakers to follow it up with a balanced-budget constitutional amendment this fall, saying it was the best way to provide certainty to the private sector and control long-term spending.

Grimm also said that the jobs report out Friday proves that Obama’s policies are not working. He said the GOP’s jobs plan calls for a simpler and fairer tax code, a reduction in regulations and an expansion of U.S. energy production.

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WATERLOO, ONT.

MONTREAL

The Justice Department, which earlier this year sued Ameren Missouri over alleged air violations at the Rush Island power plant, is raising the stakes in its case against the utility.

The government amended its complaint against St. Louis-based Ameren, citing additional violations of clean air laws intended to protect public health.

The amended lawsuit, filed Tuesday in U.S. District Court in St. Louis, includes two additional claims of Clean Air Act violations at the 1,200-megawatt Rush Island plant in Jefferson County related to construction projects in 2007 and 2010.

The updated lawsuit claims Ameren failed to get needed permits for major modifications at the plant, including the replacement of major boiler components at both Rush Island operating units.

The original lawsuit in January likewise accuses Ameren of doing work in 2001 and 2003 without the required permits.

According to the EPA, the multimillion-dollar modifications resulted in “significant net increases sulfur dioxide emissions,” at least partly because the new equipment makes the plant less prone to break down. That means it can operate more hours in a year, which translates into additional tons of coal being burned and more pollution emitted.

Ameren has denied the government’s allegations and is seeking to dismiss the original lawsuit. The EPA action also raised the ire of U.S. Sen. Roy Blunt, who believes it’s part of a broader attack on coal by the Obama administration.

The utility didn’t immediately respond to questions about the government’s new allegations.

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U.S. stocks fell early Friday, weighed down by weak earnings from two major technology companies.

Shares of Micron Technology Inc. fell 14 percent after the company said weak sales of computer chips hurt its earnings, which were far less than analysts had expected. Oracle Corp. fell 4 percent after its sales of computer hardware fell sharply.

Technology stocks were broadly lower. Micron had the biggest loss of any stock in the Standard & Poor’s 500 index. Cisco Systems Inc. fell 1.3 percent, while Microsoft Corp. lost 1 percent.

Drug company Pfizer Inc. dropped 1 percent after the government rejected its application to sell a new pain drug.

The Dow Jones industrial average fell 95, or 0.8 percent, to 11,952 in morning trading. The S&P 500 dropped 10, also 0.8 percent, to 1,273. The Nasdaq composite index fell 25, or 0.9 percent, to 2,662.

The poor reports from technology companies outweighed a slight improvement in first-quarter U.S. economic growth. Earlier Friday the government reported that the economy grew at an anemic 1.9 percent annual rate during the first three months of the year free 3-in-1 credit report. The number edged up from an earlier estimate of 1.8 percent, but still reflects weak growth. Economists expect little improvement in the second quarter, which ends next week.

The government also reported that businesses increased their orders of long-lasting goods by 1.9 percent in May after a sharp decline in April. Businesses ordered more machinery, equipment and airplanes.

The U.S. economic recovery has cooled since late April, pulling the stock market down in six out of the past seven weeks. Recent reports on housing, employment, manufacturing and retail sales have all been weak. The debt crisis in Greece and fears that China’s growth is slowing have also pushed markets lower.

Newell Rubbermaid Inc. rose 2 percent after the company late Thursday named Unilever executive Michael Polk CEO. Polk has been on Newell’s board of directors since 2009. Analysts applauded the choice.

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