business0521

Thursday 21 May 2015
A2 BUSINESS DAY
FT
NATIONAL NEWS
In association with
Investors rehearse scenarios for Greek default
FERDINANDO GIUGLIANO
Government’s murky cash position
makes it difficult to assess the date
of any reneging
With Greece fast running
out of cash, investors and
policy makers have begun
contemplating the possibility
of a default and its consequences.
The question they are asking
Six big banks fined
$5.6bn over ...
Continued from page A1
Barclays settled with several other
regulators.
One Barclays trader said in a
November 5 2010 chat: “If you aint
cheating, you aint trying,” according
to the New York Department of
Financial Services, which was part
of the settlement.
Loretta Lynch, the US attorneygeneral,
said that the penalties the
banks would pay were “commensurate
with the pervasive harm that
was done”. The fines should “deter
competitors from chasing profits
without regard to fairness to law
or public welfare”.
“This is a major blow for these
banks, both financially and for
their reputation,” said Mark Taylor,
Dean of Warwick Business School.
The revelation that traders colluded
to move around currency
exchange rates was particularly
embarrassing for the banks because
it occurred after they had
paid billions of dollars to settle
claims that their traders had tried
to rig the London interbank offered
rate.
It has raised questions as to
whether the industry had learnt
any lessons from the previous
scandal.
Three banks were also fined
an additional total of $400m for
manipulating the Libor and Isdafix
benchmarks, bringing the tally for
the day to $6bn.
Global banks have now paid
more than $10bn in relation to
the forex scandal, exceeding the
$9bn paid by a larger group of
institutions to settle the Libor rigging
claims.
UBS escaped criminal charges
on forex because it was the first to
co-operate with investigators. But
the DoJ found it had violated the
terms of its Libor settlement, so
the bank will plead guilty to rigging
Libor and pay an additional fine
over that issue.
is whether it is possible to keep
Athens in the currency union
even if it failed to repay some of
its creditors, thereby sparing the
global economy a renewed phase
of uncertainty.
“Our base-case scenario remains
that Greece and its international
partners will reach an
agreement,” wrote Reinhard Cluse,
an economist at UBS, in a research
note. “Nevertheless . . . the risk of
failure and eventual Grexit should
not be underestimated”.
The cash position of the Greek
government is murky, making it
hard to assess when exactly Athens
might be forced to renege on its
obligations.
Silvia Merler, an economist at
Bruegel, a European think-tank,
has calculated that the government
is running a better than
expected primary budget surplus.
Tunisian delegation attend a sign ceremony between U.S. Secretary of State John Kerry (L) and Tunisian Minister for Political Affairs
Mohsen Marzouk, next to Tunisian President Beji Caid Essebsi (2nd L), in Washington, yesterday. REUTERS
Cœure spurs debate on central bankers’ cosy ties
LAIRE JONES AND SAM
Policy makers need to be in touch with
financial market participants but
their links fuel concerns over conflicts
of interest
On Monday evening at halfpast
seven, Benoît Cœuré,
a European Central Bank
board member, dropped a profitable
nugget of information on an
audience of hedge fund managers,
academics and finance officials at
a private event in London’s five-star
Berkeley Hotel. The region’s policy
makers, he said, planned to frontload
bond purchases in May and
June.
The euro barely moved on the
revelation. But the next morning, it
plunged.
The reason for that discrepancy
is that those outside the room were
unaware of Mr Cœuré’s remarks
until the ECB published them on its
website at 9am Frankfurt time - more
than 12 hours later. After the remarks
appeared, the euro fell more than 1.2
per cent against the dollar in minutes.
An ECB statement attributed the
publication delay to “an internal procedural
error”. The central bank also
said that while the event - co-organised
by a centre funded by hedge fund
Brevan Howard - took place under
Chatham House rules, it was always
the intention to publish the speech at
the time Mr Cœuré made his remarks.
The episode has ignited a debate
about the intimate ties between
the world’s top central bankers and
private-sector players.
Central bankers often mix with
bankers and hedge fund managers.
Policy makers have a duty to explain
their policies to markets - doing so can
make their actions more effective. In
turn, they must also keep abreast of
the financial sector and its players if
they are to design proper monetary
policies and counter financial turmoil.
The dangers of losing touch with
markets were evident during the early
stages of the world financial crisis in
2007, when the Bank of England’s
senior management failed to realise
for some time that all the UK’s banks
were suffering from a potentially cata-
However, this is largely the result
of a severe squeeze on public
spending.
Most importantly, the government
faces a challenging debt
redemption schedule with approximately
€2bn due to the International
Monetary Fund and around
€6.5bn to the European Central
Bank and other eurozone central
banks between June and August.
Athens also has to pay its civil
strophic shortage of liquidity.
But as the Berkeley episode shows,
how and when central bankers communicate
can risk the appearance of
conflicts of interest, and encourage
the suspicion that wealthy and wellconnected
financiers are receiving
better information than everyone
else.
“Even by the standards of conspiracy
theories, it’s far-fetched to
believe that there was any intention
by the ECB to selectively disclose
sensitive information to a privileged
set of investors,” said Richard Barwell,
economist at Royal Bank of Scotland.
“But there is a wider issue for all
central banks about how to communicate
with the markets.”
As guardians of currency, a symbol
of sovereignty that above all else
relies on trust to preserve its value,
central bankers may be under even
more scrutiny than other public
servants. A perceived revolving door
between financial officialdom and
the private sector - and a string of
recent scandals over the leaking of
market-sensitive information - may
have also raised public concern.
servants and pensioners, just as
the existing rescue programme
with the eurozone, which is
stalled, terminates at the end of
June. The government is adamant
that an agreement is in sight,
but the possibility of an accident
remains. While a default need
not necessarily lead to a “Grexit”,
economists warn the risks of a
departure would increase substantially
if it did occur.
Japan growth
struggles to gain
momentum
ROBIN HARDING
Recovery seems on track but pace
of expansion disappoints when
inventories stripped out
Japan’s economy grew at an
annualised pace of 2.4 per
cent in the first quarter but
mainly due to a huge build-up in
inventories.
The stock market surged, with
the market capitalisation of the Tokyo
Stock Exchange’s first section,
for large companies, exceeding its
1989 peak, as headline growth in
gross domestic product beat analyst
forecasts of 1.5 per cent.
But the data were scrambled
by the conflicting effects of the
surge in inventories and a plunging
oil price. After stripping out
inventories, the annualised pace
of expansion was 0.4 per cent.
Overall, the report showed a
moderate expansion in consumer
and business spending, implying
Japan’s economic recovery is still
on track. However, the pace of that
recovery will disappoint the government
of Prime Minister Shinzo
Abe and the Bank of Japan, more
than two years after they launched
a massive economic stimulus.
“The acceleration in GDP
growth last quarter was mostly
due to a jump in inventories, and a
range of indicators point to a slowdown
in the second quarter,” said
Marcel Thieliant, Japan economist
at Capital Economics in Singapore.
Private consumption and investment
both grew at an annualised
pace of 1.4 per cent,
suggesting the economy is slowly
regaining vitality after a drop
into recession in the middle of
last year. Growth of 1.4 per cent
is higher than Japan’s long-run
potential - thought to be less
than 1 per cent - so the economy
is growing fast enough to soak up
spare capacity.
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