Eeyore's News and View

Brown: EU leaders back $264B economy stimulus
BRUSSELS (AP) — British Prime Minister Gordon Brown says EU leaders have agreed on a $264.3 billion economic stimulus package to rescue their recession-hit economies. He also says European Union governments' approach would not tamper with British plans to spend its way out of a downturn. The EU plan covers 2009-2010. Brown told reporters at an EU summit Friday that Britain's fiscal policy stance had been vindicated and EU leaders agreed that budgets must support monetary policy. Germany's finance minister has been harshly critical of Britain, saying it was crass and unwise to load the next generation with debt as it tries to stoke growth with sales tax cuts.

Correa Defaults on Ecuador Bonds, Seeks Restructuring
By Stephan Kueffner Dec. 12 (Bloomberg) -- Ecuadorean President Rafael Correa halted payment on foreign bonds he calls “illegal” and “illegitimate,” putting the South American country in default for a second time in a decade. The government won’t make a $30.6 million interest payment by Dec. 15, when a monthlong grace period expires, Correa told reporters in his office in Guayaquil. The $510 million bonds due in 2012 plunged to 23 cents on the dollar from 31 yesterday and 97.5 cents three months ago. “I have given the order that interest payments not be made,” Correa said. “The country is in default.” By defaulting, Correa, a close ally of Venezuelan President Hugo Chavez, fulfills a threat he has made since a 2006 presidential campaign that ended in a landslide victory. His decision comes as a deepening global economic slump throttles demand for oil, the country’s biggest export. Ecuador, which defaulted in 1999, owes about $10 billion to bondholders, multilateral lenders and other countries. “I couldn’t allow the continued payment of a debt that by all measures is immoral and illegitimate,” Correa said. “It is now time to bring in justice and dignity.” ‘Serial Defaulter’ Correa, 45, said the government will present a restructuring proposal in coming days. “We want creditors to recoup part of their money,” he said. “Ecuador is moving further into isolation,” said Vicente Albornoz, head of the Cordes research institute in Quito. “The hardliners in the government won.” A debt commission Correa formed last year said in a 172- page report in November that the global bonds due in 2012 and 2030 “show serious signs of illegality,” including issuance without proper government authorization. Correa invoked the 30- day grace period on the interest payment last month, saying he wanted to analyze the commission’s findings. “Ecuador is a serial defaulter,” said Arturo Porzecanski, an international finance professor at American University in Washington. “They defaulted in the 1980s, 1990s and this decade. A lot of other countries have had one or two defaults, but Ecuador tops them all.” Correa, who holds a doctorate in economics from the University of Illinois at Urbana-Champaign, has said he will not sacrifice spending on health and education to pay the debt. Ecuador’s foreign obligations are equal to 21 percent of its $44 billion gross domestic product. Argentina’s debt, by comparison, was equivalent to 150 percent of its GDP when it defaulted in 2001, according to Goldman Sachs Group Inc. ‘Just Political’ Oil, which has plunged 67 percent since July amid the global financial crisis, accounts for about 60 percent of Ecuador’s exports. Finance Minister Maria Elsa Viteri said on Nov. 18 the country’s fiscal accounts remain “strong and healthy.” Ecuador had $5.65 billion in cash reserves as of Dec. 5, according to the central bank. The default was triggered by the combination of the decline in oil with “a ridiculous ideology,” said Claudio Loser, the former director of the International Monetary fund’s Western Hemisphere department, who now is a scholar at the Inter- American Dialogue. “The financial need wasn’t so great that it was forced to declare a default,” Loser said. The South American country has defaulted six times since it separated from Gran Colombia in 1830, according to “Debt Defaults and Lessons from a Decade of Crises,” a book published in 2007 by Federico Sturzenegger and Jeromin Zettelmeyer. “It’s a final blow to external investors, and particularly any energy investors that may have retained interest or had future plans to attempt an investment in Ecuador,” said Enrique Alvarez, head of Latin America fixed-income research at IDEAglobal Inc. in New York.
http://www.bloomberg.com/apps/news?pid=20601087&sid=avVnU01XRJWE&refer=home

Iceland’s Meltdown
"All financial innovation involves … the creation of debt secured in greater or lesser adequacy by real assets,” wrote the economist John Kenneth Galbraith in 1993. And “all crises have involved debt that, in one fashion or another, has become dangerously out of scale in relation to the underlying means of payment.” Iceland’s neophyte bankers no doubt wish they’d paid more attention to this warning. In the past two months, many countries have seen their banks brought low by excess leverage, but none has been punished so thoroughly as Iceland, where the currency and the government’s credit rating have joined the banking system on the ash heap of history. “Too big to fail” turned into “too big to save”—the banks’ holdings were so large relative to Iceland’s economy that the government had no credibility as a lender of last resort. The economy looks likely to shrink by 10 percent this year, and future growth may not be enough to cover the interest on the massive foreign loans that Iceland needs simply to keep functioning. Notably, Iceland’s financial industry had little exposure to American subprime mortgages. In this, Iceland serves as an important reminder: ultimately, leverage, more than houses, is to blame for the severity of the international financial crisis. And leverage is what regulators worldwide will need to tackle as we seek to clean up the mess.
http://www.theatlantic.com/doc/200812/map-iceland

Northeast struggles after storm blacks out 1.25M December 13, 2008 - 12:15pm

Ice clings to trees overhanging a swollen brook in Chester, Vt. Friday Dec. 12, 2008. A winter storm coated southern Vermont in ice, felling trees and power lines and creating the possibility of floods. (AP Photo/Jason R. Henske)

By KATHY McCORMACK
Associated Press Writer

CONCORD, N.H. (AP) - Utility crews worked through a night of hand-numbing cold in the Northeast but they still had a long way to go before restoring power to all of the more than 1 million homes and businesses blacked out by a huge ice storm. In New Hampshire, where more than 370,000 customers still had no electricity Saturday, Gov. John Lynch urged residents still without power to make overnight plans early. "I think there were a lot of people who decided to just stick it out and stay home last night hoping that power would be restored today, but I think people have to assume that power will not come back today and seek shelter," Lynch said. Utilities say it will be days before all service is restored. Temperatures dipped into the teens Friday night and early Saturday in northern New England, forcing many people out of their homes and into shelters. About 60 people spent the night at the Rochester, N.H., Middle School, including Debbie Reed, 57, who left her apartment Friday afternoon when she started seeing her breath. "I still don't have power. I can't shower, I can't cook, I can't do much of anything," she said. "My plan is to go home and see how long I can stand it. If the power isn't back on by tonight I'll come back here. It's so cold I can only stand it for so long." The ice storm compared with some of the Northeast's worst, especially in New Hampshire, where more than half the state _ 400,000-plus homes and businesses _ was without power at the peak of the outage. Far fewer customers were affected by the infamous Ice Storm of '98, when some residents spent more than a week in the dark. New Hampshire opened at least 25 shelters. People lost power as far south as Pennsylvania, but most of the outages were in New Hampshire, Massachusetts, Maine and New York. "This is pathetic," said Bob Cott of Portland, Maine. "I'm already sick of winter and we have nine days to go before it officially begins." At least one death was blamed on the storm: New Hampshire officials said a man died of carbon monoxide poisoning after turning on his generator when his power went out Thursday night. Both Lynch and Massachusetts Gov. Deval Patrick declared states of emergency Friday and called up members of the National Guard. Maine Gov. John Baldacci declared a limited emergency allowing utility crews to work longer hours. "All of the resources at our disposal have been made available to try to get the roads clear and power restored," said Patrick, adding that it would be "ambitious" to think power would be restored by Monday to the 350,000 homes and businesses that lost service in his state. "This is not going to be a couple of hours," Patrick said. "It's likely to be several days." An army of utility crews from across the East, Midwest and Canada headed into the region to help restore power. By Saturday morning, crews had restored power to about 150,000 homes and businesses in Massachusetts, but more than 200,000 still were in the dark. Peter Judge of the Massachusetts Emergency Management Agency said that despite the cold, fewer than 1,000 residents took advantage of the 40 shelters set up across the state. In Maine, about 176,000 homes and businesses still were without power Saturday, mostly in Central Maine Power's service area. At its peak on Friday, 220,000 CMP customers were in the dark. Maine officials say 150 to 200 people spent the night in shelters. Vermont utilities reported just under 15,000 customers were without power Saturday morning. Central Vermont Public Service Corp. had 33 line crews from western Pennsylvania helping its workers repair power lines. A number of retirees also pitched in, said CVPS spokeswoman Christine Rivers. "We'd put one line up, and it seemed like another would break," said CVPS Springfield Operations Supervisor Stan Tucker. "It seems like every line has multiple problems." In eastern New York, National Grid and other utilities reported more than 255,000 customers without service. "Trees were down on all the roads," said Miguel Figueroa, 28, as he waited for coffee at a Starbucks in Colonie, N.Y. "... I couldn't even get on the Thruway today." About 4,700 customers lost power in Pennsylvania, most of them in the Poconos, and some 17,000 customers were blacked out in Connecticut. http://www.wtop.com/?nid=104&sid=1547428

India navy arrests 23 pirates in Gulf of Aden
NEW DELHI (AP) — The Indian navy says it has arrested 23 pirates who threatened a merchant vessel in the Gulf of Aden.
Navy spokesman Commander Nirad Sinha says Indian forces repulsed the pirates Saturday as they were about to board the merchant ship.
He says the pirates are from Somalia and Yemen, two countries surrounding the Gulf of Aden.
No further details were immediately available.
Last month, India's navy drew criticism after sinking a Thai fishing trawler that had been commandeered hours earlier by pirates.
The navy defended its actions, saying it had fired in self-defense.
Somali pirates have become increasingly brazen, and recently seized a Saudi supertanker loaded with $100 million worth of crude oil.
http://www.usatoday.com/news/world/2008-12-13-pirates_N.htm