Obama says worst over, but debt fears roil markets
Concerns about the debt burden facing countries trying to spend their way out of the economic downturn spooked investors on Thursday despite optimism from President Barack Obama that the U.S. economy was past the worst.
“It’s safe to say we have stepped back from the brink,” Obama told a fundraiser in Beverly Hills. “There is some calm that didn’t exist before.”
But despite increasingly upbeat comments from policymakers, global markets have focused on the extra debt governments are taking on to fund their stimulus packages, ever since Standard & Poor’s lowered its outlook for Britain’s sovereign credit ratings to negative a week ago.
That prompted scrutiny of other major economies — including the United States — where concerns about the U.S. debt mountain sent Treasury prices and stocks tumbling on Wednesday.
Asian stocks fell in turn on Thursday and European bourses were expected to open lower, taking their cue from Wall Street’s weakness.
Global markets are also watching developments in the U.S. auto industry, where General Motors Corp moved closer to filing the largest bankruptcy ever for a U.S. industrial company after a crucial bond exchange proposal failed.
GM said in a statement an offer to exchange $27 billion in bond debt for a 10 percent stake in a reorganized company by a midnight deadline had fallen far short of the 90 percent acceptance target.
GM FACES BANKRUPTCY, OPEL FUTURE UNCERTAIN
GM’s board was expected to meet this week to consider the dwindling options available, but the company is widely anticipated to follow fellow U no credit check pay day loans.S. automaker Chrysler into bankruptcy.
Chrysler faces a key court hearing on Thursday expected to clear the way for Fiat SpA, along with labor unions and the U.S. and Canadian governments, to take control of a restructured company in exchange for $2 billion paid to lenders.
The U.S. government-brokered bankruptcy for Chrysler has been seen as a test case for the more complex and larger filing expected from GM in the next few days.
In Germany, talks on shielding GM’s European brand Opel from the looming bankruptcy of its parent ended without a resolution. German Finance Minister Peer Steinbrueck said he hoped a deal could be reached on Friday, but said there was “surprise and disappointment” with the stance of U.S. negotiators.
Ministers said the battle for Opel had narrowed to a two-way race between Fiat and Canadian auto parts company Magna. But choosing a final bidder for Opel and closing a deal could take months — time neither the carmaker nor the German government have with GM’s bankruptcy looming.
To tide Opel over, Germany has put together a 1.5 billion euro ($2.1 billion) aid package. But it has made this aid contingent on the U.S. government and GM agreeing to its plan to temporarily place Opel assets in a trust, a move that would protect its patents and technology from GM creditors.
Ministers said they expected answers from the United States by Friday to allow the bailout to proceed.