Dexia shares slump on Greece woes

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3 October 2011 Last updated at 19:56 GMT Dexia received a 6bn-euro bailout at the height of the financial crisis Dexia has called an emergency board meeting amid fears over its exposure to Greek debt.

Meanwhile, shares in the Franco-Belgian bank fell 10% on Monday after rating agency Moody's said it was reviewing Dexia for a possible downgrade.

The finance ministers of Belgium and France are meeting eurozone colleagues in Luxembourg, and are expected to discuss ways to support the bank.

Financial markets fell on news Greece would miss deficit reduction targets.

Greece announced on Sunday that the 2011 deficit was projected to be 8.5% of gross domestic product, down from 10.5% in 2010, but short of the 7.6% target set by the EU and IMF.

Write-off

The news affected financial markets across Asia and Europe, with bank shares among the hardest hit.

Eurozone banks have been hit by cash outflows since the summer amid fears that Greece, and possibly other governments, may ultimately default on their debts, and even leave the eurozone, leaving their lenders sitting on big losses.

Dexia shares initially fell 14% on news of the possible rating downgrde, and despite a rally back in later trading, they were still the worst hit in the financial sector.

Moody's cited Dexia's potential losses on a Greek debt default, as well as the bank's recent difficulties in borrowing short-term cash from markets, as reasons for the rating review.

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It was only on July 15 that the European Banking Authority [stress tests]... portrayed Dexia as one of the strongest banks in Europe”

End Quote Robert Peston Business editor, BBC News Dexia's exposure to Greek government debt totals 3.4bn euros ($4.5bn; ￡2.9bn). Its total exposure to Greece - including to private-sector Greek borrowers - is 4.8bn euros.

It has already written off 21% of its Greek debts, but market prices now suggest the eventually loss to lenders could be in excess of 50% of the amount owed by Greece.

Paris-based business newspaper Les Echos reported on Friday that the French and Belgian governments would discuss measures to shore up Dexia's balance sheet.

The bank is already partly-owned by the two governments, after it received a 6bn euros joint bailout at the height of the financial crisis in 2008.

There were reports last week that the bank could be split up, and speculation of a possible nationalisation of the bank.

Another option under consideration is the sale of Credit Local, a unit of the bank responsible for lending to French local governments.

Belgian Finance Minister Didier Reynders told Belgian radio on Friday that Dexia's shareholders should be behind the bank and be ready intervene if there was a problem.

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Greece to miss targets on deficit

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2 October 2011 Last updated at 20:27 GMT The Greek austerity measures are hugely unpopular and have led to a wave of strikes and protests Greece has said its budget deficit will be cut in 2011 and 2012 but will still miss targets set by the EU and IMF.

The 2011 deficit is projected to be 8.5% of GDP, down from 10.5% in 2010 but short of the 7.6% target.

The government, which on Sunday adopted its 2012 draft budget, blamed the shortfall on deepening recession.

The figures come as inspectors from the IMF, EU and European Central Bank are in Athens to decide whether Greece should get a key bail-out instalment.

Greece needs the 8bn euros (￡6.9bn; $10.9bn) instalment to avoid going bankrupt next month.

Bankruptcy would put severe pressure on the eurozone, damage European bank finances and possibly have a serious knock-on effect on the world economy.

'Unanimously approved'

The Greek finance ministry said on Sunday that its unpopular austerity measures would have to be adhered to even if the latest targets were to be met.

It said: "Three critical months remain to finish 2011, and the final estimate of 8.5% of GDP deficit can be achieved if the state mechanism and citizens respond accordingly."

It released figures for 2012's projected deficit, putting it at 6.8% of GDP, also short of the 6.5% target.

The figures came as the government met to approve Greece's draft budget for next year.

It blamed an economic contraction this year of 5.5% - rather than May's 3.8% estimate - for the failure to meet deficit targets.

The cabinet meeting also approved a measure to put 30,000 civil service staff on "labour reserve" by the end of the year.

This places them on partial pay with possible dismissal after a year.

"The labour reserve measure was approved unanimously," one deputy minister told Reuters.

This measure, along with other wage cuts and tax rises, have been part of a package intended to persuade the so called "troika" of the EU, IMF and ECB to continue with its bail-out.

The inspectors will report back to EU finance ministers soon but analysts believe they have little choice but to approve the latest tranche.

The Greek austerity measures are hugely unpopular at home and have led to a wave of strikes and protests.

Many Greeks believe the austerity measures are strangling any chance of growth.

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VIDEO: Could the Drachma return to Greece?

September 16, 2011 to help stand 06: 43 GMT

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Merkel bids to allay Greece fears

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13 September 2011 Last updated at 19:53 GMT Angela Merkel says a Greek default will have a domino effect across Europe German Chancellor Angela Merkel has sought to calm market nerves over a possible Greek debt default, saying the eurozone must stick together.

The collapse of Greece and its exit from the euro would have a domino effect, she told German radio.

Her comments came after reports that Germany was preparing for Greece to potentially leave the euro.

Mrs Merkel is now set to talk on Wednesday with French President Nicolas Sarkozy and the Greek prime minister.

It was also revealed that Brazil, Russia, India, China and South Africa, the so-called Brics group of emerging economies, were going to discuss how they could help the eurozone.

Brazilian Finance Minister Guido Mantega said finance ministers and central bank presidents from the five nations would discuss the eurozone debt crisis at a meeting on 22 September in Washington.

He said: "We're going to meet next week in Washington, and we're going to talk about what to do to help the European Union get out of this situation."

'Big danger'

Fears of a Greek default caused sharp falls in shares on Monday, but markets ultimately rose on Tuesday.

Mrs Merkel told the RBB radio station: "The top priority is to avoid an uncontrolled insolvency, because that would not just affect Greece, and the danger that it hits everyone - or at least several countries - is very big.

"I have made my position very clear that everything must be done to keep the eurozone together politically. Because we would soon have a domino effect," said the chancellor.

At the weekend, German Economy Minister Philipp Roesler suggested that Greece would need an "orderly default" on its debts, a comment that sent global share prices tumbling on Monday.

European stock markets initially fell on Tuesday, with France's Cac index down 1.8% on fears that its banks, which are heavily exposed to Greece, have most to lose from a default.

However, markets ultimately closed up, with banks leading the gains.

France's Cac added 1.4%, with Societe Generale adding 15%.

The UK's FTSE 100 closed up 0.9%, with Royal Bank of Scotland rising 5.3%.

Austerity measures

Mrs Merkel noted in her interview that there was currently no formal procedure in the eurozone for an "orderly default" of a member state.

She said that Greece was getting its public finances on track. "Everything I hear from Greece is that the Greek government has hopefully seen the writing on the wall and is now doing some of the things that are required," she said.

Despite her attempt to soothe the markets, fears of an imminent Greek default pushed interest rates on the country's 10-year government bonds to over 24% on Tuesday.

Greece has received two international bailouts each worth about 110bn euros - although the second has still to be implemented - yet its financial health remains critical.

In recent days the government has promised several times to accelerate plans for public sector cuts.

On Sunday, Athens imposed a new, two-year blanket tax on property.

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