Actual finance blog

The eurozone’s hard-won deal overhauling its rescue fund and extending Greece a euro109 billion bailout is not in doubt, Greece’s finance minister insisted Friday.

Evangelos Venizelos’ comments come as five countries are demanding collateral in exchange for their contributions. The Netherlands, Slovenia, Austria and Slovakia said Thursday they wanted hundreds of millions of euros in collateral like Finland, which struck a deal with the Greek government earlier in the week to receive cash as security for their part of the bailout.

Although the amount of cash being demanded by the five would probably not be large enough to sink the deal, it could drive up the overall cost of the bailout, which was part of a July 21 eurozone agreement that gave the 17-country eurozone new powers designed to help a country before it is in full crisis.

The demands have also laid bare the tensions over how to deal with Europe’s debt crisis, which has already seen Greece, Ireland and Portugal bailed out.

The July 21 deal “is not in doubt, because it is of vital importance to the eurozone,” Venizelos told Skai radio, adding that the agreement was not just about his country.

“It is a decision that concerns Greece as part of a much more general problem,” he said.

Venizelos stressed the collateral deal with Finland depended on approval by other eurozone members and that the Finns had wanted to make it public. Athens, he said, would have preferred to wait until after the issue had been discussed by the eurozone members before announcing it.

The minister, who assumed his position in late June following a political crisis in Greece, stressed the need for clear messages from the eurozone, saying there were political and financial “side effect(s) each time the eurozone doesn’t send clear messages.”

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Executives from the country’s biggest banks met with U.S. Treasury officials Friday to discuss how debt auctions will be handled if Congress fails to raise the borrowing limit before Tuesday’s deadline.

Treasury officials met in New York with representatives from 20 large banks that serve as primary dealers for the sale of Treasury securities. They took questions amid growing concern that the borrowing limit will not be raised in time to avoid a default on the debt. And they discussed the possibility of delaying or reducing the size of the upcoming auctions if the debt limit is not raised.

Some of the banks recommended that the government use short-term Treasury bills, called cash management bills, in place of a full refunding auction. That would raise some debt but not as much as a refunding. So it could keep Treasury under the current $14.3 trillion borrowing limit.

No decisions were announced at the meeting, and Treasury provided no details of how the government will decide which bills to pay should the borrowing limit not be raised. A statement said the meeting was to prepare for an upcoming quarterly debt auction.

White House spokesman Jay Carney said the administration did not plan to provide the public with details Friday on how the government will prioritize payments. Carney said the administration plans to lay out its contingency plans, but it would wait until closer to next Tuesday’s deadline.

Treasury makes 80 million payments a month.

If the debt ceiling is not raised, Treasury will not have the ability after Aug. 2 to borrow new debt. But it would still be able to refinance debt that is maturing as long as the operation does not increase the total debt supply. Treasury has to borrow on average $125 billion in new debt each month and refinance $500 billion in maturing debt.

The next quarterly auction is scheduled for the week of Aug. 8. If it is not postponed, Treasury is scheduled to release its borrowing plans at a news conference Wednesday. Market participants had expected that Treasury would announce plans to borrow around $72 billion, the same amount that the government raised at the last refunding auction in May.

Scott Sherman, an interest-rate strategist at Credit Suisse, said that if the debt ceiling is not raised by Tuesday, Treasury will have to decide whether to proceed with a tentative schedule for the debt auctions the week or Aug. 8 or announce plans to trim the size of those auctions to keep under the current debt limit.

Moody’s Investors Service said late Friday that the United States should be able to keep its triple-A credit rating as long as Washington works out a deal that lets it continue to pay bondholders.

“If the debt limit is not raised before Aug. 2, we believe that Treasury would give priority to debt service payments and could thus postpone a potential debt default for a number of days,” Moody’s said in its new report. “Revenues would be more than adequate for some period of time to meet those payments although other outlays would be severely reduced as a result.”

Private economists believe the government would pay bond holders first if the debt limit is not raised. If the Treasury missed a bond payment, the country would likely default on its debt. That could rattle markets and increase borrowing costs on most consumer and business loans, many of which are linked to the rates on Treasurys.

Some economists say the government will have enough cash on hand to meet interest payments and some other payments until as late as Aug. 15.

Officials of the bond-trading divisions of JPMorgan, Goldman Sachs, Citigroup and the other big banks attended the meeting at the New York Federal Reserve Bank.

Treasury would normally meet with half of the 20 dealers before a quarterly auction. However, given the heighted concerns surrounding the debt stalemate, Treasury decided to expand the discussions to include all 20 banks.

Treasury said in its statement that the general consensus among the banks participating in the discussion was that Congress “should act as quickly as possible to raise the debt ceiling for as long a period as possible to lift the cloud of uncertainty from the economy.”

The Obama administration wants Congress to increase the borrowing limit to last beyond the November 2012 elections. Republicans in the House want a smaller initial increase, and second increases tied to more spending cuts that would take place next year before the election.

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If you get the late night munchies, you might want to check the store hours of your local grocery store before you head out to it.

A couple of Schnucks stores, which were previously 24 hours, have recently scaled back their hours.

The hours at the stores in Dardenne Prairie and High Ridge (on Dillon Road) are now 6 a.m. to midnight.

In total, 28 of Schnucks 67 metro St. Louis stores are open 24 hours.

Lori Willis, a company spokeswoman, said Schnucks began re-evaluating its 24-hour stores several years ago when a factory closed nearby one of its stores. Without a late-night shift, there was no longer a need to keep that store open all night long, she said.

The chain makes such decisions on a store by store basis short term personal loans. If there’s not much traffic in the later hours, it’s not very cost-effective to keep the stores open all night, Willis said.

“Our goal is to operate our stores in as efficient a manner as possible in order to keep costs down,” she said.

Back in April, the management team at the Culinaria, Schnucks’ downtown St. Louis grocery store, proposed closing the store two hours earlier to 8 p.m.

But when some of the downtown residents objected, the store manager reconsidered the proposal. He decided instead to close an hour earlier - at 9 p.m. - just on Saturday and Sunday.

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The European Union and Singapore should complete talks on a free trade agreement in a few months and implement the pact by the end of 2011, aiming to double trade within five years, a top EU negotiator said Wednesday.

The trade pact would eliminate several hundred million dollars a year in EU tariffs that Singapore companies currently pay, Chief EU Negotiator Rupert Schlegelmilch said.

“We’re still discussing technical issues like rules of origin and tariff and services liberalization,” Schlegelmilch said at a news conference in Singapore. “But on all these chapters we’re very advanced.”

The EU is also deep into trade agreement negotiations with India and Malaysia and is considering beginning talks with Japan, Vietnam, Indonesia, the Philippines and Thailand, Schlegelmilch said.

Trade between the EU and Singapore jumped 22 percent last year, led by higher demand for machinery and transport equipment. Despite a population of just 5.1 million, Singapore is the EU’s 12th-largest trading partner with two-way trade of euros 43 billion ($62 billion) last year and the fifth-biggest in Asia behind China, Japan, India and South Korea.

For Singapore, the EU is its second-biggest recipient of the city-state’s goods after neighboring Malaysia.

The EU poured Singapore dollars 173 billion ($141 billion) of foreign direct investment into Singapore in 2009, about 30 percent of all FDI to the island compared to 11 percent from the U.S. About 8,500 EU companies have a presence in Singapore.

“You have very often the impression that the EU is on the decline,” EU Ambassador to Singapore Marc Ungeheuser said. “But the statistics don’t lie.”

The EU accounts for 28 percent of the global economy and has a population of 501 million.

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A Houston company is in the early stages of planning one of the largest energy infrastructure projects the Midwest has seen in years - a $1.7 billion high-voltage transmission line connecting Kansas wind farms with consumers in St. Louis and throughout the Ohio River Valley.

The so-called Grain Belt Express transmission line, named to evoke images of train hopper cars rolling across the Plains, would stretch 550 miles from southwestern Kansas to southeastern Missouri. It would be capable of moving 3,500 megawatts of electricity - roughly enough to power 3.5 million homes - to eastern Missouri, Southern Illinois and beyond.

The project is being driven by renewable energy demand, more specifically state mandates that have been approved by voters and legislatures including Missouri and Illinois. The goal in each case is to replace coal-fired power with cleaner energy supplies.

While there is solar energy potential anywhere the sun shines, and renewable fuels such as biomass are getting more traction, wind power is eyed as the renewables workhorse.

“The trick is you’ve got to move it from windy parts of the country to where the population centers are,” said Mark Lawlor, director of development for Clean Line Energy Partners LLC, the company planning the project.

That describes the logic behind the Grain Belt Express line. Western Kansas is among the areas with the nation’s best wind energy potential, but development of new projects has stalled somewhat because that area is already awash in wind power.

Developers there are lining up to build new wind farms, representing thousands of megawatts. Projects have been permitted and land has been leased, but work won’t go forward without additional transmission infrastructure, he said.

Lawlor said the existing transmission grid lacked capacity to move Kansas wind power to eastern Missouri. A similar challenge faces wind farm developers in Iowa, northern Illinois and elsewhere. Even if capacity was available on existing lines, it would be difficult logistically - the equivalent of driving 500 miles on winding, two-lane country roads.

ENERGY SUPERHIGHWAY

The answer, according to Clean Line Energy, is a large-scale transmission project, an electron superhighway spanning the better part of two states with no off-ramps between the start and end points.

“We want to do it on a large scale to keep the overall cost of the power at a minimum,” Lawlor said.

Besides scale, the key to making the project viable is direct current technology.

The Grain Belt Express line will look much like existing alternating current transmission lines crisscrossing the country, but the planned high-voltage DC line is preferable for moving large amounts of power long distances. Such lines are more efficient, reliable and economical, Lawlor said. They also require narrower rights of way and smaller towers.

Such DC transmission lines are rare, but not new. Twenty already operate in the United States, the company said.

The Grain Belt Express line will originate near Spearville, Kan., and stretch across southern Missouri to a St. Francois County substation, where it will connect with Ameren facilities. A specific route hasn’t been chosen. If all goes as planned, construction could begin as soon as 2014 and be complete by 2016, Lawlor said.

Developers have a lot of work to do in the meantime. They need approval from federal and state regulators. Then there’s siting and permitting issues and negotiations with land owners, who often object to the installation of infrastructure many consider unsightly.

“We’re spending a tremendous amount of time up front to identify a route that has the least impact,” Lawlor said.

‘TOLL ROAD’

Clean Line Energy applied in March with the Kansas Corporation Commission to be approved as a public utility in the state. The company is expected to seek permission from the Missouri Public Service Commission next year.

Lawlor said the project would be privately financed and ultimately paid for by utilities, their customers, other wholesale power buyers and renewable energy generators that buy capacity on the line. Rates will be set by the Federal Energy Regulatory Commission. Clean Line Energy would maintain the line, but it would be controlled by a regional grid operator.

Who pays for intrastate transmission projects is frequently a thorny issue. Clean Line Energy seeks to avoid such disputes because only transmission customers will pay for it.

“This is like a toll road,” he said. “You don’t pay for it if you don’t use it.”

To help sell the project, Clean Line says the project will be an economic boon for Kansas and Missouri, stimulating $7 billion in new wind power projects and hundreds of permanent jobs in western Kansas and thousands of construction jobs along the entire route, according to a study prepared for the company by St. Louis-based Development Strategies.

Of course, any economic benefit is secondary to the main purpose of the project, to accommodate growing renewable energy demand without breaking the bank.

The Department of Energy’s National Renewable Energy Laboratory said last year in a technical study that the eastern half of the country - an area that’s home to 70 percent of the population - could get at least 20 percent of electricity from wind power by 2024, but it would require tens of billions of dollars in new transmission infrastructure.

PENT UP DEMAND

The study underscored the fact that wind development has outpaced transmission infrastructure, prompting new companies to sprout up to help satisfy a backlog of demand. Those companies include independent transmission developers such as Clean Line Energy as well as utilities such as Ameren, which have formed transmission subsidiaries.

Ameren announced last year a $1.3 billion series of transmission projects spanning more than 500 miles in Illinois. The Illinois projects, collectively referred to as the Grand Rivers projects, is aimed at least partly at moving wind power to the east.

“Ameren is working closely with Clean Line Energy to reliably integrate their project into the transmission system,” said Maureen Borkowski, CEO of the Ameren subsidiary. “We believe it will mesh well with Ameren Transmission’s plans.”

Ameren Transmission plans to target Missouri for its next initiative, but nothing has been announced publicly.

Clean Line Energy is owned by Ziff Brothers Investments LLC and Michael Zilkha of Houston, who previously owned Horizon Wind Energy LLC. Several former Horizon executives are part of the company’s senior management.

The Grain Belt Express project is one of four long-haul transmission projects the company is developing.

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Several dozen residents from the town around Japan’s crippled nuclear plant have been allowed back to their homes briefly to collect belongings for the first time since the complex went into crisis after a devastating tsunami.

Residents of Futaba were among the 80,000 people evacuated from the area soon after the March 11 disaster, and most have not been able to return.

Many evacuees had no idea how long the crisis would drag on and left with only the clothes they were wearing and their purses or wallets.

Residents of Futaba were allowed to stay at their homes for two hours only, and given one large plastic bag in which to collect their things due to space restrictions and fears of contamination.

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The push to replace the U.S. dollar as the world’s reserve currency has been gaining steam, with one expert arguing that America "must give up on the dollar."

In a Financial Times op-ed, Michael Pettis, a finance professor at Peking University, said U.S. policymakers should lead the charge to create a more diverse reserve system, "in which the dollar is simply first among equals."

The dollar has been the dominant reserve currency for decades, with central banks and other institutions around the world amassing vast reserves.

Pettis argues that this has resulted in dangerous trade imbalances that threaten to destabilize the global economy. He contends that countries such as China have been able to "game the system" by stockpiling dollars, which has allowed them to grab a larger share of global demand for goods and services.

At the same time, the U.S. economy has suffered as money rushes out of the country and into red-hot emerging markets. Pettis said this leaves the United States with a stark choice between further pain in the job market, as demand continues to shift overseas, or adding to already massive deficits to finance domestic growth.

"Americans, in other words, must choose between higher unemployment and higher debt," Pettis wrote.

As such, the United States may eventually need to force the rest of the world to gradually "disengage" from the dollar as a reserve currency if it continues to decline.

The dollar index, which measures the greenback against a basket of currencies, has fallen 5% so far this year to around 74.80. That’s down from a high near 87 in June of 2009, as jittery investors flocked to the dollar for safety.

However, there is not an obvious alternative to the dollar.

Pettis suggested that the euro could emerge over the next decade, since no other world currency has "the necessary characteristics to allow it plausibly to serve the needs of the global economy."

But he suggested that European officials would resist taking on the responsibility, since it would saddle the European Union with the same burdens currently facing the United States.

Meanwhile, the International Monetary Fund has proposed a larger role for its special drawing rights, or SDRs, in the global reserve system.

SDRs represent potential claims on the currencies of IMF members. They were created by the IMF in 1969 and can be converted into whatever currency a borrower requires at exchange rates based on a weighted basket of international currencies. The IMF typically lends funds to countries denominated in SDRs.

The global monetary system and the dollar will be discussed this weekend as finance officials from the Group of 20 economies gather in Washington for the spring meetings of the International Monetary Fund and the World Bank.

The dollar found some support Friday as investors turned cautious ahead of possible policy changes stemming from this weekend’s summit.

"Today’s risk will come from sideline comments from the G20 and IMF meetings as well as the deluge of U.S. data," said Camilla Sutton, chief currency strategist at Scotia Capital.

Investors are also focused on the outlook for global interest rates, as central banks adjust to rising inflation.

China reported Friday that overall consumer prices rose 5% in March, as energy and food prices have surged. China’s central bank has been gradually raising interest rates this year to help cool inflation.

In Europe, consumer prices rose 2.7% in March versus last year, according to data released Friday from EuroStat. The European Central Bank hiked interest rates last week for the first time since the 2008 financial crisis.

U.S. inflation also picked up in March, driven mainly by rising gas prices. Excluding food and energy prices though, inflation remains relatively tame.

While many investors and economists expect the Federal Reserve to maintain its low interest rate policy for some time, some central bank officials have been calling for a tighter stance to ward off inflation.

"The biggest risk to a change in the downward US dollar trend is a shift in stance at the Fed," said Sutton. "At some point the Fed will move away from emergency level interest rates and the US dollar will likely rally temporarily." 

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Canadians are paying 20 per cent more on average than Americans for identical products even though the value of the loonie has soared above the U.S. greenback, according to a report to be released Thursday.

The price survey by a leading Canadian economist confirms what many consumers suspect

Berkshire Hathaway now has four internal candidates to eventually replace Warren Buffett as chief executive.

That new tidbit about the plan to replace the revered 80-year-old investor someday was revealed Monday in documents filed with the Securities and Exchange Commission. Previously, Buffett had said Berkshire had three internal candidates for the CEO job but refused to name them.

Buffett remains in good health and has no plans to retire.

The revelation about a fourth candidate reinforces speculation that Burlington Northern Santa Fe CEO Matt Rose became a contender after Berkshire acquired the railroad last year guaranteed payday loan.

The other Berkshire managers believed to be on the short list are David Sokol, chairman of NetJets and MidAmerican Energy; Ajit Jain, who runs Berkshire’s reinsurance division; and Tony Nicely, chief executive of Geico.

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JEFFERSON CITY