EU Battles to Save Euro as Merkel Eyes ‘Step by Step’ Solution to Crisis

By James G. Neuger and Stephanie Bodoni - Dec 9, 2011 1:54 AM GMT+0700

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Dec. 8 (Bloomberg) -- David Trone, managing director at JMP Securities, talks about the the possibility of a breakup of the euro zone. Trone, speaking with Tom Keene on Bloomberg Television's "Surveillance Midday," also discusses former MF Global Holdings Ltd. Chief Executive Officer Jon Corzine's testimony before the House Agriculture Committee today and the outlook for U.S. financial stocks. (Source: Bloomberg)

European leaders battled over the fate of the euro in last-ditch efforts to stem two years of turmoil in financial markets and put the debt-addled continent on a sounder economic footing.

Plans to funnel central bank loans through the International Monetary Fund started to fall into place as French President Nicolas Sarkozy warned “there’ll be no second chance” in the absence of a credible crisis-containment strategy from a summit that began today in Brussels.

Chancellor Angela Merkel of Germany, Europe’s dominant economy, damped expectations, saying the euro’s credibility has suffered and calling the 15th summit in 23 months part of a “step-by-step” solution to the crisis that has cast doubt on the currency’s survival.

European leaders began open-ended talks over dinner at 7:30 p.m., with no press briefing scheduled. They are navigating a labyrinth of political, legal and economic constraints amid unrelenting pressure from financial markets in a bid to craft a fifth “comprehensive” package to stamp out the crisis that began with the Greek government discovering an unexpected budget hole in October 2009.

Spanish and Italian bonds tumbled and the Stoxx Europe 600 Index lost 1.5 percent, reversing a 1 percent advance, as some investors reined in expectations about the summit’s outcome.

Whether the meeting wraps up on schedule tomorrow or runs into the weekend, the leaders are likely to leave Brussels with much business unfinished. Planned amendments to European treaties won’t be penned until March and may take several more months to enshrine in law.

‘Kind of Surprised’

In addition, the independent European Central Bank signaled today that a Brussels deal to tighten budget-deficit rules for the 17 euro governments wouldn’t prompt it to rush to the rescue of Spain or Italy, the two countries now seen as most vulnerable.

ECB President Mario Draghi said he was “kind of surprised” by a view that took hold in markets last week that the central bank would rapidly supplement its 207 billion-euro bond-buying operations in response to a summit announcement of steps toward a closer fiscal union. Draghi is taking part in the summit.

“The ball is still in the politicians’ court, increasing pressure on EU leaders to come up with longer-term solutions for the debt crisis,” said Mohit Kumar, head of European interest- rate strategy at Deutsche Bank AG in London. “This won’t bode well for periphery bonds.”

ECB War Chest

Italian 10-year bonds slid the most in almost a month today, pushing up yields by 44 basis points to 6.43 percent. Bonds of other high-yielding countries also fell as investors sought the relative safety of German debt. The yield on 10-year bunds declined 9 basis points to 2.01 percent. The euro was down 0.7 percent on the day at $1.3318.

Still, Draghi didn’t rule out a proposal up for discussion tonight that would channel about 150 billion euros ($200 billion) from national central banks into the IMF’s crisis- fighting war chest. Euro-area governments expect central banks of non-euro EU countries to chip in 50 billion euros more.

The ECB provided breathing space today, trimming its main interest rate by a quarter-point to 1 percent and pledging to offer commercial banks unlimited cash for three years to tide them through the crisis.

Treaty Change

ECB measures sought to alleviate the impact of the debt crisis on the banking system, now in need of 114.7 billion euros in fresh capital, according to a European Banking Authority announcement today. European lenders will have to raise a total of 8 billion euros more than estimated by the EBA in October.

With Greece, Ireland and Portugal drawing on a combined 256 billion euros in European and IMF loans and Greece counting on 130 billion euros more, the government leaders’ focus shifted to preventing future budgetary crackups by reinforcing a “stability pact” that Germany conceived in the 1990s and watered down in 2005.

“What’s important for me is that the euro can only win back its credibility if we change the treaties a way that develops toward a stability union,” Merkel said before the summit. “That’s what at the core here for me.”

Marching in lockstep with Merkel, Sarkozy pressed for national balanced-budget amendments, ironclad barriers against excessive deficits and debt, and new powers for European authorities to dictate budgets in countries that overstep the limits. The tougher system, to be anchored in European treaties, would go beyond crisis-triggered rules that take effect next week.

‘More Solidarity’

Their task has been complicated by Standard and Poor’s decision to issue a downgrade warning for 15 euro-area governments pending the summit outcome.

“We need more solidarity in the euro zone and more discipline,” Sarkozy said at a pre-summit meeting of conservative leaders in Marseille. Europe is in an “extraordinarily dangerous situation.”

In a joint letter to European leaders yesterday, Merkel and Sarkozy set a March 2012 deadline for an agreement on treaty amendments, calling on euro states to set up their own fiscal- enforcement system in the absence of an accord among all 27 EU governments.

That go-it-alone threat plus a call for a financial transaction tax set up a showdown with U.K. Prime Minister David Cameron, head of the biggest EU country still using its own currency. Cameron comes to Brussels vowing to defend London’s status as Europe’s premier financial market.

‘Britain’s Interests’

“We need obviously to get that stability in the euro zone that’s good for European countries, good for Britain as well,” Cameron said on his way into the summit. “But also we need to protect Britain’s interests.”

A consensus is emerging to speed the setup of a permanent rescue fund, the 500 billion-euro European Stability Mechanism. It is likely to go into operation in late 2012, instead of mid- 2013 as originally planned, the EU diplomat said. No decision is likely tonight on combining it with the current rescue fund, the 440 billion-euro European Financial Stability Facility, the diplomat said.

In a concession by Germany, the revamped permanent fund will follow IMF practices on imposing potential losses on holders of bonds of debt-ridden states. Merkel agreed in yesterday’s letter that the two writedowns imposed on Greek bondholders this year were “unique and exceptional.”

National sensitivities pervade the negotiations, such as Finland’s objection to scrapping the unanimity rule for decisions by the fund to grant aid packages.

U.S. Treasury Secretary Timothy F. Geithner, on the final leg of a three-day trip to Europe, has urged policy makers to work with central banks to erect a “stronger firewall.”

“The leaders of Europe are moving this week to strengthen the foundations of monetary union,” Geithner said after talks with Italian Prime Minister Mario Monti in Milan. “These are vital and critical but also very challenging reforms. And they will take time.”

To contact the reporters on this story: James G. Neuger in Brussels at jneuger@bloomberg.net; Stephanie Bodoni in Brussels at

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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Corzine: I Didn’t ‘Intend’ to Break Rules

By Silla Brush and Lorraine Woellert - Dec 9, 2011 5:17 AM GMT+0700

Jon S. Corzine told lawmakers he never intended to break any rules as head of MF Global Holdings Ltd. and doesn’t know what happened to an estimated $1.2 billion in missing client funds.

“I’m not in a position, given the number of transactions, to know anything specifically about the movement of any specific funds,” Corzine said today at a House Agriculture Committee hearing in Washington. “I certainly would never intend to direct or have segregated funds moved.”

Under subpoena and under oath, the former Democratic senator and New Jersey governor testified on Capitol Hill for two and a half hours, repeatedly apologizing to investors, customers and employees of the failed New York brokerage.

“I simply do not know where the money is, or why the accounts have not been reconciled to date,” Corzine said. “I apologize, both personally and on behalf of the company, to our customers, our employees and our investors. I truly know that they are bearing the brunt” of the collapse.

Under repeated questioning, Corzine said that he did not knowingly authorize any movement of funds out of client accounts, and that any such transfers could have been a misunderstanding or misinterpretation of his intent.

‘Fix This’

Corzine said that on the evening of Oct. 30, the night before MF Global filed what has become the eighth-largest U.S. bankruptcy, he was informed of the shortfall in client accounts and told employees, “We’ve got to fix this,” and “We’ve got to find the money.” He speculated that someone “could misinterpret” such remarks.

James W. Giddens, the trustee overseeing the liquidation of the firm, has estimated that $1.2 billion in client money is missing. The Commodity Futures Trading Commission, Securities and Exchange Commission and Justice Department are investigating.

Corzine, who resigned as chairman and chief executive officer of MF Global on Nov. 4, said in his opening remarks that he was “stunned” when he learned that the company couldn’t account for “many hundreds of millions of dollars.”

Corzine’s appearance before the House Agriculture Committee, which oversees the CFTC, came after the panel voted to issue a subpoena to compel his testimony. The Senate Agriculture Committee and a House Financial Services subcommittee also voted to subpoena Corzine.

Answering All Questions

Corzine didn’t once decline to answer a question or invoke his Fifth Amendment right to remain silent.

“As a former United States senator who recognizes the importance of congressional oversight, and recognizing my position as former chief executive officer in these terrible circumstances, I believe it is appropriate that I attempt to respond to your inquiries,” Corzine said in a written statement to the committee.

Corzine said he offered to testify to Congress without subpoena in January, by which time he might have been better able to prepare. “While I intend to be responsive to the best of my ability today, without adequate time and materials to prepare, I may be unable to respond to various questions members might pose,” he told lawmakers.

CFTC commissioner Jill Sommers, testifying in advance of Corzine, said regulators are still working to trace all the transactions and that some client funds may be recovered.

“If there is any customer money that has been transferred out of the accounts, that is part of what we are working together to find and that money will be clawed back to be distributed back to customers,” Sommers, the commissioner overseeing the agency’s investigation of MF Global, told the committee.

Penalties Possible

MF Global employees could face civil or criminal penalties if rules or laws were violated, Sommers said.

“They are subject to civil prosecution under our rules, and there would also be potential for criminal violations,” Sommers said.

MF Global filed for bankruptcy protection after making risky bets on some of Europe’s most indebted countries. Sommers said that regulators haven’t found evidence that client funds were incorporated in the European debt positions.

Under current rules, customer money is supposed to be kept segregated from the firms’ accounts. “We were receiving daily segregation reports from MF Global and those did not raise red flags for us until right before the bankruptcy,” Sommers said.

If funds are missing because of internal errors at MF Global, Corzine may have breached responsibilities under Sarbanes-Oxley rules, according to Daniel Collins, a professor of accounting at the University of Iowa’s Tippie College of Business.

Corzine Vote

Under the 2002 law -- for which Corzine voted as senator -- top executives must certify the accuracy of financial statements and assess whether they have sufficient safeguards to catch fraud and bookkeeping errors. Corzine signed off on MF Global’s quarterly reports prior to the bankruptcy.

“Whether these are operational errors or not is a serious matter,” Collins said in a phone interview. “If effective controls for monitoring the flow of the funds from the clients through the different investments are not in place, then that would be a breach of the Sarbanes-Oxley responsibilities of top management.”

Internal Controls

President George W. Bush signed Sarbanes-Oxley into law after accounting scandals at Enron Corp. and WorldCom Inc. eroded investor confidence. Executives must also have internal controls certified by an outside auditor under the law.

In his written statement, Corzine for the first time provided details on so-called repurchase-to-maturity transactions that have drawn legal and regulatory scrutiny in the weeks since the bankruptcy. He described himself as a “strong” advocate of the transactions while saying that because he isn’t an accountant he can’t vouch for the way the transactions were handled.

“I accept responsibility for the RTM trades that MF Global engaged in from the time that I arrived at MF Global until my departure, on November 3, 2011, and I strongly advocated the trading strategy that I have described,” he said.

MF Global’s board was told of the European debt trades and approved limits on the risk in the trades by specific countries, Corzine told lawmakers. “The directors approved sovereign risk limits for these RTM trades. At the time of the bankruptcy, MF Global was within these risk limits,” he said.

None of the foreign debt securities that MF Global used in the repo transactions has yet defaulted or been restructured, Corzine said.

Lobbying Efforts

He acknowledged lobbying the CFTC and its Chairman Gary Gensler, a former colleague at Goldman Sachs Group Inc., on a rule change relating to how client funds can be invested. Corzine said he took part in a conference call with Gensler on the matter, a conversation that involved other officials.

“I did not exert undue or improper influence on regulators,” Corzine told lawmakers. He said in his written statement that he and Gensler saw each other at a number of other personal and business events in 2010 and 2011, but that the two didn’t discuss regulatory matters.

Gensler has recused himself from involvement in matters related to the MF Global bankruptcy because of his ties to Corzine, who was co-chairman of Goldman Sachs before entering politics. The client funds rule, which was delayed by Gensler to give commissioners more time to debate the regulation, has since been completed.

Rating Downgrades

Corzine’s testimony detailed events leading up to the firm’s bankruptcy, insisting that its losses were related to ratings downgrades on its European debt portfolio, not to direct losses on those positions. Following a disappointing earnings report, clients and counterparties began to withdraw business and collateral.

“Despite our best efforts to sell assets and generate liquidity, the marketplace lost confidence in the firm,” Corzine said.

Corzine reiterated that his knowledge of specific transactions involving client funds was limited.

“There were an extraordinary number of transactions during this period, the last few days of MF Global. And I do not know, for example, whether there were operational errors at MF Global or elsewhere, or whether banks and counterparties have held onto funds that should rightfully have been returned to MF Global,” Corzine said. “I am sure that the trustee in bankruptcy, the SIPC receiver, and the regulators are working to answer these questions and to understand precisely what happened during the firm’s last days and hours.”

To contact the reporters on this story: Silla Brush in Washington at sbrush@bloomberg.net; Lorraine Woellert in Washington at lwoellert@bloomberg.net.

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net

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Gas-Fracking Chemicals Detected in Wyoming Aquifer, EPA Says

By Jim Efstathiou Jr. - Dec 9, 2011 3:50 AM GMT+0700

The U.S. Environmental Protection Agency said for the first time it found chemicals used in extracting natural gas through hydraulic fracturing in a drinking-water aquifer in west-central Wyoming.

Samples taken from two deep water-monitoring wells near a gas field in Pavillion, Wyoming, showed synthetic chemicals such as glycols and alcohols “consistent with gas production and hydraulic-fracturing fluids,” the agency said today in an e- mailed statement.

The U.S. gets about one-third of its gas from fracturing, or fracking, in which millions of gallons of chemically treated water and sand are forced underground to break rock and let trapped vapor flow. The findings give ammunition to environmental groups, such as the Natural Resources Defense Council, that have said the drilling risks tainting drinking water and needs stronger regulation.

“This is just evidence of why we need better rules,” Amy Mall, senior policy analyst for the group in Washington, said in an interview. “It’s a game-changer. EPA experts and scientists have recognized that there is real contamination, that there is a real scientific basis for linking it to fracking.”

After complaints from residents of Pavillion, about 230 miles (370 kilometers) northeast of Salt Lake City, the EPA began investigating private drinking-water wells about three years ago. Calgary-based Encana Corp. (ECA), Canada’s largest natural- gas producer, owns about 150 wells in Pavillion, according to spokesman Doug Hock.

‘Not Definitive’

“They’ve used terms like ‘likely,’” Hock said today in an interview. “What they’ve come up with here is a probability. It’s not a definitive conclusion.”

Synthetic chemicals discovered in the aquifer are just as likely “the result of contamination from their own sampling,” he said.

Industry representatives such as Aubrey McClendon, chairman and chief executive officer of Chesapeake Energy Corp. (CHK), the most active U.S. oil and natural-gas driller among well operators, have said there haven’t been proven cases of fracking fluids contaminating drinking water.

“Try not to be the 51st person to write a story about the alleged contamination of somebody’s water well from fracking,” McClendon said April 8 at the Society of American Business Editors and Writers conference at Southern Methodist University in Dallas. “There have been some issues with drilling wells. They don’t come from fracking.”

Deep Monitoring

In 2010, the U.S. Department of Health and Human Services recommended that Pavillion residents use alternate sources of water for drinking and cooking. While testing detected petroleum hydrocarbons in wells and in groundwater, the agency at the time said it couldn’t pinpoint the source of the contamination.

The EPA dug two deep monitoring wells into the aquifer and found “compounds likely associated with gas-production practices, including hydraulic fracturing,” according to today’s statement. Levels of the chemicals in the deep wells are “well above” acceptable standards under the Safe Drinking Water Act, the agency said.

Fracking chemicals may have entered the aquifer through faulty well construction, gaps in impermeable rock or fractures created during drilling, the EPA said.

“There are various things that can go wrong, but it all points to the fact that we need stronger rules,” Mall said.

‘Poor Aquifer’

Encana has been providing drinking water to about 21 families in Pavillion since August, 2010, Hock said. Some residents were already using outside water sources “because they realize it’s a very poor aquifer,” he said.

Hock said he wasn’t sure if Encana used the synthetic chemicals found in the aquifer when fracking wells in Pavillion.

“I don’t believe that we did,” Hock said. “I don’t know for certain.”

Today’s draft findings are specific to Pavillion, where fracking is occurring “in and below the drinking-water aquifer” and close to water wells, the agency said. The findings will be submitted to an independent scientific review panel.

“Given the area’s complex geology and the proximity of drinking water wells to ground water contamination, EPA is concerned about the movement of contaminants within the aquifer and the safety of drinking-water wells over time,” the agency said.

To contact the reporter on this story: Jim Efstathiou Jr. in New York at jefstathiou@bloomberg.net

To contact the editor responsible for this story: Larry Liebert at lliebert@bloomberg.net

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Clearwire Tumbles on Plan to Raise $350 Million in Stock Sale

By Scott Moritz and Tom Giles - Dec 8, 2011 9:45 PM GMT+0700

Clearwire Corp. (CLWR), the money-losing wireless broadband provider, tumbled after saying it will raise $350 million in an equity offering to help cover costs and improve its mobile network.

The company will sell 175 million Class A shares at $2 apiece in an offering expected to close on Dec. 13, an increase from earlier plans to raise $300 million, Bellevue, Washington- based Clearwire said yesterday in a statement. Sprint Nextel Corp. (S), which owns a majority of the economic interest in Clearwire, also will buy about 172 million shares of the company’s Class B shares in a separate transaction.

Clearwire dropped 6.6 percent to $2.13 at 9:38 a.m. New York time, after falling as much as 10 percent. The stock had slid 56 percent this year before today.

Clearwire will use the money to build out a higher-speed Long-Term Evolution, or LTE, wireless network and pay other operating expenses. The financings may dilute the value of Clearwire’s existing stock, depending on the price of the offerings, John Hodulik, an analyst at UBS AG, said this week.

At $2 a share, the offering “would dilute existing shareholders by about 33 percent based on Clearwire’s 915 million shares outstanding,” Hodulik said in a research note.

Clearwire last week said it’s extending a network-sharing deal with Sprint valued at as much as $1.6 billion over the next four years. Overland Park, Kansas-based Sprint buys wholesale wireless capacity from Clearwire and then resells the service to its own customers.

The equity offerings and the deal last week, which came after a standoff over how the two companies would work together when their current network agreement expires at the end of 2012, gives Clearwire more stable finances, Jonathan Chaplin, an analyst at Credit Suisse Group AG, said this week.

Clearwire also said yesterday that it’s granting underwriters a 30-day option to purchase as much as an additional $52.5 million of Class A common shares.

To contact the reporters on this story: Scott Moritz in New York at smoritz6@bloomberg.net; Tom Giles in San Francisco at tgiles@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net.

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Media Moguls See Netflix, Hulu Video as Top Issue to ‘Navigate’

By Edmund Lee - Dec 8, 2011 12:01 PM GMT+0700

News Corp. Chief Operating Officer Chase Carey said the biggest challenge facing the company is digital-distribution deals with Internet companies such as Netflix Inc. (NFLX) and Hulu LLC.

“The digital space is incredibly important,” Carey said yesterday at a UBS AG media and communications conference in New York. “Over the next five years, it’ll be the number one issue we’ll have to navigate.”

Media companies such as News Corp., Time Warner Inc. (TWX), Viacom Inc. and CBS Corp. (CBS) are experimenting with online distribution of television and movie content. The efforts have the potential to create new revenue streams for media companies, though they need to be careful not to cannibalize revenue from cable operators and other partners, Carey said.

“They’re an exciting new dimension to the business,” he said.

Deep-pocketed players have emerged to offer distribution over the Internet. Aside from Hulu and Netflix, Amazon Inc. (AMZN) markets a streaming service and Apple Inc. offers digital downloads. Verizon Communications Inc. (VZ), the second-largest U.S. telephone company, could soon offer a Netflix competitor, according to Janney Montgomery Scott LLC.

Digital distribution, also known as “over the top,” may make the most sense for older video, including TV shows and movies that are generating little revenue elsewhere, said Carey and David Zaslav, chief executive officer of Discovery Communications Inc. Discovery, whose programs include “Deadliest Catch” and “Man vs. Wild,” cut a deal that allows Netflix to offer its shows well after they’re on cable channels.

18 Months And Older

“We were very intrigued by this idea of a new window,” said Zaslav at UBS. “We don’t know what this new window is going to do, but we created a new window, mostly 18 months old and older.”

Time Warner CEO Jeff Bewkes, once a vocal critic of services like Netflix, said he sees value in Internet deals, particularly for older video.

“These kinds of services can definitely add value to all of us if you’re trying to get that obscure movie you haven’t seen yet in a window that’s not the current window,” he said. “Netflix is our friend.”

Netflix and Time Warner recently signed a distribution deal for programs from its roster of shows on the CW Network, owned by Time Warner and CBS.

‘Arms Race’

Netflix CEO Reed Hastings said there’s an “arms race” among online video companies to get the best content, helping pull in customers. He said his company’s primary competitor may ultimately become Time Warner’s HBO Go service, which lets people watch the cable channel’s own shows such “Boardwalk Empire” and movies the channel has negotiated rights for when they want.

“The competitor we fear most is HBO Go,” Hastings said at the conference. “HBO is becoming more Netflix-like and we’re becoming more HBO-like. The two of us will compete for a very long time.”

News Corp. (NWSA)’s Carey said Netflix is evolving into something similar to a cable channel. Los Gatos, California-based Netflix recently secured an exclusive streaming deal with DreamWorks Animation SKG Inc. (DWA), allowing the studio to shift away from HBO.

Content providers like Viacom have been open to exclusive streaming deals as well. Viacom’s Paramount movie division signed exclusive rights to some of its films to Netflix, which CEO Philippe Dauman sees as lucrative.

“The value of our content has increased significantly since we did the Netflix deal,” Dauman said at UBS conference. “We have a very good relationship with Netflix.”

Non-exclusive deals, on the other hand, allow Viacom to sell shows and films to multiple digital distributors.

“The revenues through that form of distribution should increase,” he said.

Hulu’s Value

CBS chief Leslie Moonves told investors at the conference to expect more digital distribution deals in the future.

“Our guys are talking to a variety of people every single day,” he said. “So I don’t think you’ve heard the last of these deals.”

Hulu, which is owned by News Corp., Walt Disney Co. (DIS) and Providence Equity Partners, was pulled off the market this year after an auction because of the video-streaming service’s potential, said Carey. Hulu has a bigger opportunity than Netflix and its value “dwarfed” the proposed offers, he said.

To contact the reporter on this story: Edmund Lee in New York at elee310@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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IBM Buys DemandTec for $440 Million to Expand Consumer Tools

By Cecile Daurat - Dec 8, 2011 9:32 PM GMT+0700

International Business Machines Corp. (IBM), the world’s biggest producer of computer services, agreed to buy DemandTec Inc. (DMAN) for about $440 million, adding Internet- based tools to help businesses make decisions based on consumer buying trends.

The all-cash transaction amounts to $13.20 a share, Armonk, New York-based IBM said today in a statement. That’s 57 percent higher than DemandTec’s closing price yesterday.

The purchase will extend IBM’s Smarter Commerce initiative with price, promotion and other marketing analytics that let companies examine different customer-buying scenarios, online and in stores, and spot shopping trends. The market for Smarter Commerce is worth $20 billion in software alone, IBM estimates.

DemandTec, based in San Mateo, California, has approximately 450 customers worldwide in retail, consumer products and other industries and employs more than 350 people.

IBM fell 0.4 percent to $193.23 at 9:30 a.m. New York time. DemandTec trading was halted pending the announcement.

To contact the reporter on this story: Cecile Daurat in Wilmington at cdaurat@bloomberg.net

To contact the editor responsible for this story: Kevin Miller at kmiller@bloomberg.net

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Samsung Loses Bid to Block Apple IPhone 4S Sales in France

By Heather Smith - Dec 8, 2011 9:45 PM GMT+0700

Samsung Electronics Co. (005930) failed to win a court order blocking Apple Inc. (AAPL) from selling its newest smartphone, the iPhone 4S, in France.

The Paris court rejected Samsung’s request for an emergency order against Apple while it considers the South Korean company’s patent-infringement claims.

Samsung, the biggest maker of smartphones, sought to block sales of the new handset in France, Italy and the U.K. days after it was unveiled in October, arguing Apple violated its wireless-communications patents. Suwon, South Korea-based Samsung sued in Paris in July over earlier versions of the iPhone and Apple’s iPad tablet.

“The disproportionate character of the ban sought by Samsung against Apple is clear,” Judge Marie-Christine Courboulay said in the decision today.

The Paris court ruled Samsung must pay Apple 100,000 euros ($134,100) for legal fees while denying Apple’s request for damages. Samsung’s claim wasn’t “abusive” and the company’s infringement claims can move forward as a regular lawsuit, Courboulay said.

Florence Catel, a Samsung spokeswoman in Paris, declined to comment on the decision. Calls to Apple’s office in London for comment weren’t immediately returned.

Samsung has been locked in a global legal battle with Apple since the Cupertino, California-based company claimed in an April suit that Samsung’s Galaxy devices copied the iPad and iPhone. Samsung was the world’s biggest maker of smartphones in the last quarter, while Apple dominates the tablet market.

30 Lawsuits

The companies have filed at least 30 lawsuits in 10 countries and European Union regulators have started an antitrust probe of the companies’ use of smartphone patents.

A Milan court will hold a hearing Dec. 16 concerning Samsung’s Italian suit. Samsung won a Dec. 3 decision in California, when the U.S. District Court in San Jose rejected Apple’s request to block Samsung’s 4G smartphone and its Galaxy 10.1 tablet computer.

To contact the reporter on this story: Heather Smith in Paris at hsmith26@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net.

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Euro Slides After Draghi Says Didn’t Signal More Bond Purchases; Yen Gains

By Catarina Saraiva and Keith Jenkins - Dec 8, 2011 11:32 PM GMT+0700

The euro fell the most in three weeks against the yen and slumped versus the dollar after European Central Bank President Mario Draghi said he didn’t signal stepping up bond purchases to spur growth.

The 17-nation currency reached the lowest level this month versus the greenback, reversing brief gains, after Draghi’s comments damped speculation that the ECB would expand its bond- buying role to stem the region’s debt crisis. The yen rose against most of its major counterparts on concern the euro-area crisis will slow global growth, increasing demand for the safety of Japan’s currency. Australia’s dollar fell.

“You saw the euro rise when the bank measures came out, but then you saw the reversal when Draghi made it pretty clear that they’re not ready to engage in any further measures,” said Brian Kim, a Stamford, Connecticut-based currency strategist at Royal Bank of Scotland Group Plc. “As it became clear that the ECB wasn’t going to do much else, you saw the dollar gain across the board. There’s definitely a risk-off tone.”

The euro weakened 0.8 percent to 103.35 yen at 11:28 a.m. in New York after falling as much as 1.1 percent, the most since Nov. 14. The single currency dropped 0.8 percent to $1.3300. The yen was little changed at 77.72 per dollar.

Draghi’s Surprise

Draghi said during a press conference in Frankfurt that he was “kind of surprised by the implicit meaning” that was given to his comments last week when he said the ECB could follow faster fiscal union with “other elements.”

“So the market misinterpreted the fiscal compact argument that Draghi used at the European Parliament,” said Jeremy Stretch, executive director of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. The focus is back on Europe’s two bailouts funds, the European Financial Stability Facility and the European Stability Mechanism, “although as we know they have limited, inadequate firepower.”

Italian and Spanish bonds declined after Draghi’s comments. The yield on 10-year Italian bonds climbed 31 basis points, or 0.31 percentage point, to 6.3 percent and the yield on similar- maturity Spanish debt advanced 25 basis points to 5.68 percent.

The Australian dollar fell from an almost four-week high versus the yen after the statistics bureau said the number of people employed declined by 6,300 last month after rising by a revised 16,800 the prior month.

Aussie Jobs

“Full-time jobs dropped a lot,” said Lee Wai Tuck, a strategist at Forecast Pte in Singapore. “This will trigger some concerns over the jobs market in Australia and, of course, the economy. The Aussie dropped.”

Australia’s currency weakened 1.1 percent to 79.12 yen after rising to 80.52 yen on Dec. 2, the strongest since Nov. 9. The Aussie slid 1.1 percent to $1.0179.

The yen advanced the most against the South African rand and Swedish krona as investors sought safer assets as European leaders gathered in Brussels for a two-day meeting to address the debt crisis.

“The yen is the classic beneficiary in this market,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “Lower interest rates in the other major advanced economies are converging towards Japan, and there’s a general risk-off trade as well.”

Standard & Poor’s yesterday placed the European Union’s AAA long-term rating on “creditwatch negative” after a similar action a day earlier on 15 of the 17 euro members. The company said on Dec. 5 it may lower the ratings of Germany and other members of the euro due to “continuing disagreements” about how to tackle the sovereign-debt crisis.

Euro Debts

Euro-area governments have to repay more than 1.1 trillion euros ($1.5 trillion) of long- and short-term debt in 2012, with about 519 billion euros of Italian, French and German debt maturing in the first half alone, data compiled by Bloomberg show. The ECB has bought a total of 207 billion euros of sovereign bonds during the region’s crisis in an effort to stem surges in bond yields.

The euro gained as much as 0.4 percent versus the dollar earlier after the ECB offered lenders as much money as they need for three years and loosened collateral rules at refinancing operations to ease strains in credit markets.

The ECB cut its benchmark interest rate by a quarter- percentage point to 1 percent, matching a record low, as expected by 55 of 58 economists in a Bloomberg News survey. The central bank also cut banks’ reserve ratios to 1 percent from 2 percent and will stop fine-tuning operations at the end of each reserve maintenance period, Draghi said.

The euro has weakened 0.3 percent this year against its nine developed-nation counterparts, according to Bloomberg Correlation-Weighted Indexes. The yen has advanced 3.3 percent, the best performance, and the dollar has weakened 0.1 percent.

To contact the reporters on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net; Keith Jenkins in London at kjenkins3@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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Stocks, Euro, Italian Bonds Retreat as ECB Damps Debt-Buying Speculation

By Michael P. Regan and Rita Nazareth - Dec 8, 2011 11:20 PM GMT+0700

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Dec. 8 (Bloomberg) -- Michael Kurtz, chief Asian equity strategist at Nomura Holdings Inc., talks about the outlook for Asian financial markets and his investment strategy. Kurtz speaks with John Dawson on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

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Dec. 8 (Bloomberg) -- Wilfred Sit, Asia chief investment officer for Baring Asset Management, talks about the outlook for Asian financial markets in 2012 and his investment strategy. Sit speaks in Hong Kong with Susan Li on Bloomberg Television's "First Up" .(Source: Bloomberg)

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Dec. 8 (Bloomberg) -- David Roche, president of Independent Strategy and a former Morgan Stanley global strategist, talks about the impact of the European sovereign debt crisis on financial markets and the outlook for the global economy. Roche speaks with John Dawson, Angie Lau, Zeb Eckert and David Ingles on Bloomberg Television's "Asia Edge." (Source: Bloomberg)

Stocks slid, while the euro weakened and Spanish and Italian bonds tumbled, as the European Central Bank damped speculation it would boost debt purchases and regulators said the region’s lenders need to raise more capital than previously estimated.

The Standard & Poor’s 500 Index lost 1.3 percent to 1,244.92 at 11:18 a.m. in New York. The Stoxx Europe 600 Index retreated 1.4 percent, reversing a 1 percent advance. The euro slid 0.9 percent to $1.3295. Yields on 10-year Italian and Spanish bonds jumped at least 35 basis points. The S&P GSCI Index of commodities lost 1.2 percent, erasing a gain of as much as 0.9 percent. Ten-year U.S. Treasury yields fell four basis points to 1.99 percent after gaining six points earlier.

European equities and the euro headed lower as ECB President Mario Draghi said he did not necessarily signal the central bank would step up government bond purchases when he spoke last week, adding that the program was not eternal or infinite. Stocks extended losses as the European Banking Authority said the region’s banks will need to raise 114.7 billion euros ($152.7 billion) in fresh capital, up from a previous estimate of 106 billion euros.

“The pessimism is coming from the fact that the ECB didn’t go any further on the possibility of buying debt,” Peter Jankovskis, who helps manage about $2.4 billion at Oakbrook Investments in Lisle, Illinois, said in a telephone interview. “They continue to do things to Band-Aid the banking sector, but they aren’t getting at the fundamental issue here, which is that some of these underlying countries are nearing insolvency.”

EU Summit

Stocks and the shared euro currency had rallied earlier as Draghi said the ECB was pursuing more non-standard measures to fight the crisis, including unlimited three-year loans to banks and looser collateral criteria.

The Frankfurt-based ECB also today reduced its benchmark rate by a quarter percentage point to 1 percent, matching a record low. Investors also awaited for more announcements from Europe as leaders prepared to meet in Brussels to lay the foundations for a fiscal union. Euro-area leaders may agree to provide 150 billion euros ($201 billion) in loans through the International Monetary Fund to shore up European finances, a European Union diplomat said.

The S&P 500 snapped a three-day rally (SPX) as concern about European efforts to fight the debt crisis overshadowed a bigger- than-forecast decrease in jobless claims. Initial claims dropped by 23,000 to 381,000 in the week ended Dec. 3, the fewest since February, Labor Department figures showed. The median forecast of 47 economists in a Bloomberg News survey called for a drop to 395,000.

‘Made a Mess of It’

“Nobody wants to commit capital ahead of the summit,” Michael Shaoul, chairman of Marketfield Asset Management in New York, which oversees $1 billion, said in a telephone interview. “Most of the good news that the ECB delivered was expected. You have the concern that the last few times Europe leaders have sat down and talked about this they made a mess of it. People are preparing for the worst.”

JPMorgan Chase & Co., Alcoa Inc., DuPont Co. and Bank of America Corp. lost more than 2 percent to lead declines in 26 of 30 stocks in the Dow average, which lost more than 100 points.

Silver, cocoa, oil and zinc slid more than 1.7 percent to lead declines in 17 of 24 commodities tracked by the S&P GSCI. Crude tumbled 1.9 percent to $98.58 a barrel.

Automobile producers, banks and construction and material companies led losses in 18 of 19 industries in the Stoxx 600.

European Yields

Italy’s 10-year bond yield surged 45 basis points to 6.44 percent, sending their spread above benchmark German bunds up 44 basis points to 4.43 percentage points. Spain’s 10-year yield climbed 35 basis points to 5.78 percent, trading 3.77 percentage points above bunds.

The MSCI Asia Pacific Index retreated 0.7 percent as Australia’s S&P/ASX 200 slid 0.3 percent and Japan’s Nikkei 225 fell 0.7 percent. Australian employment fell by 6,300 after a revised increase of 16,800 in October, compared with the median estimate of a 10,000 advance in a in a Bloomberg survey of 22 economists. Japanese machinery orders unexpectedly slipped 6.9 percent from a month earlier, the Cabinet Office said in Tokyo.

The MSCI Emerging Markets Index tumbled 1.4 percent. The Hang Seng China Enterprises Index dropped 0.9 percent in Hong Kong. India’s Sensex slumped 2.3 percent, the most since Nov. 21, after the central bank signaled it may not lower reserve requirements for lenders. Russia’s Micex Index rose 0.6 percent after losing 4 percent in the preceding two sessions following protests against the results of parliamentary elections. Brazil’s Bovespa slumped 1.9 percent.

To contact the reporters on this story: Michael P. Regan in New York at mregan12@bloomberg.net; Rita Nazareth in Sao Paulo at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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Draghi Pushes to Unfreeze Credit as Bond-Buy Talk Damped

By Gabi Thesing and Simone Meier - Dec 8, 2011 10:22 PM GMT+0700

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Dec. 8 (Bloomberg) -- Mickey Levy, chief economist at Bank of America Corp., discusses the European Central Bank's decision to cut interest rates and the prospects for the European Union leaders' summit in Brussels. Levy, speaking with Betty Liu on Bloomberg Television's "In the Loop," also talks about Federal Reserve Chairman Ben S. Bernanke's job performance and the outlook for the U.S. economy. (Source: Bloomberg)

European Central Bank President Mario Draghi cut interest rates and offered banks unlimited cash for three years while steering clear of any signal the ECB will buy more bonds to stem the region’s debt crisis.

The Frankfurt-based ECB today reduced its benchmark rate by a quarter percentage point to 1 percent, matching a record low. It pledged for the first time to offer banks unlimited cash for three years and loosened the collateral rules it imposes when lending to financial institutions.

The measures “should ensure enhanced access of the banking sector to liquidity,” Draghi told reporters in Frankfurt today after chairing a meeting of the ECB’s Governing Council.

Hours before European leaders meet in Brussels, Draghi kept the onus on them to solve the two-year debt crisis by repeating his call for a “fiscal compact” and denying he had hinted the ECB would automatically support such an initiative with more bond purchases.

Draghi’s comments roiled markets, with stocks and the euro rising on the bank-lending measures before falling after he damped speculation that more bond purchases are imminent. The euro sank more than 1 percent and traded at $1.3336 at 3:41 p.m. in Frankfurt.

“All euro-area governments urgently need to do their utmost” to deliver fiscal sustainability, he said. Draghi, who said on Dec. 1 that “other elements” could follow a push toward a fiscal union, said he was “kind of surprised” that the remarks were viewed as a suggestion the ECB would intensify bond purchases.

Stocks Rally

“The headline event today was that Draghi made it absolutely and explicitly clear that there would be no ECB bond buying bazooka,” said James Nixon, chief European economist at Societe Generale SA in London. “They’ll stay in the market but will only buy small amounts. It’s governments who’ll have to do the heavy lifting.”

The Stoxx Europe 600 Index declined 1.18 percent to 238.61 at 4:20 p.m. in Frankfurt after earlier rallying as much as 1 percent. Italian and Spanish 10-year bond yields rose more than 20 basis points, climbing to 6.3 percent and 5.7 percent, respectively. The euro fell 0.7 percent today to $1.3314.

Speaking at the same time in the French port of Marseille, German Chancellor Angela Merkel played down investor hopes by saying there will be no “big-bang” solution for Europe’s woes at the summit, which starts at 7:30 p.m. in Brussels. The meeting will be “one stop” along the way to ending them, she said.

Lending Jolt

With the ECB’s focus on jolting banks into lending, Draghi made it easier for them to borrow cash from the central bank. Credit claims such as bank loans will become eligible as collateral and he also reduced the rating threshold on asset- backed securities.

The ECB also cut in half banks’ reserve ratios to 1 percent and will stop fine-tuning operations at the end of each reserve maintenance period. The 36-month loans will be conducted at a fixed rate with full allotment, Draghi said.

Draghi spoke as EU leaders meet to devise a fifth “comprehensive” solution in 19 months for a crisis which has left Germany and France, the euro’s linchpins, facing the threat of losing their AAA rating from Standard & Poor’s.

Merkel and French President Nicolas Sarkozy are proposing to amend European treaties to tighten controls on budgets. Germany nevertheless rejects proposals to combine the region’s current and permanent rescue funds, a German government official told reporters in Berlin yesterday on condition of anonymity.

-- With assistance from Jeff Black and Rainer Buergin in Frankfurt and Kristian Siedenburg in Vienna. Editors: John Fraher, Matthew Brockett

To contact the reporters on this story: Gabi Thesing in Frankfurt at gthesing@bloomberg.net; Simone Meier in Frankfurt at smeier@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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Jobless Claims in U.S. at Lowest in Nine Months

By Bob Willis - Dec 8, 2011 11:37 PM GMT+0700

Fewer Americans than forecast filed applications for unemployment benefits last week, reflecting a drop in firings that may signal the job market is on the mend.

Jobless claims fell by 23,000 to 381,000 in the week ended Dec. 3, the fewest since February, Labor Department figures showed today in Washington. Other data showed consumer sentiment has stabilized around levels usually associated with recessions, and wholesalers boosted inventories heading into the holidays.

A decrease in firings may foreshadow bigger gains in hiring that will help Americans gain enough confidence in the economic recovery to sustain the pickup in holiday spending into 2012. Nonetheless, the specter of a slump in Europe brought on by the debt crisis and government haggling over the U.S. budget loom as obstacles to bigger increases in employment.

“The U.S. continues to show solid momentum in what has been the Achilles heel of the recovery, the labor market,” said Eric Green, chief market economist at TD Securities Inc. in New York. “It reinforces what is a big divergence in economic fortunes between the U.S. and Europe. If the European crisis takes a turn for the worse, the knock-on effect to the U.S. means good data today can sour quickly.”

Stocks fell after European Central Bank President Mario Draghi said he didn’t signal plans to purchase more bonds last week, damping speculation the central bank will act. The Standard & Poor’s 500 Index dropped 1.3 percent to 1,245.22 at 11:35 a.m. in New York. Treasury securities rose, sending the yield on the benchmark 10-year note down to 1.98 percent from 2.03 percent late yesterday.

Cutting Rates

The ECB today reduced its benchmark rate by a quarter percentage point to 1 percent, matching a record low. It pledged for the first time to offer banks unlimited cash for three years and loosened the collateral rules it imposes when lending to financial institutions.

In Asia, machinery orders in Japan unexpectedly fell in October for a second straight month, signaling that a slowing global economy and the strong yen are prompting companies to postpone investment. Bookings, an indicator of capital spending, decreased 6.9 percent from a month earlier, the Cabinet Office said in Tokyo, a larger decline than predicted by all 27 economists surveyed by Bloomberg News.

The median jobless claims forecast of 47 economists in a Bloomberg survey called for a drop to 395,000. Estimates ranged from 375,000 to 410,000. The Labor Department revised the prior week’s figure, which included the Thanksgiving Day holiday, up to 404,000 from a previously reported 402,000.

Consumer Comfort

The Bloomberg Consumer Comfort Index was at minus 50.3 in the period ended Dec. 4, after a reading of minus 50.2 the prior week, a report showed today. The gauge has been at minus 50 or worse for 11 of the past 12 weeks, an unprecedented stretch of pessimism in its 26-year history.

“Consumer confidence appears to be stabilizing, albeit near historically low levels,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. “However, that stabilization is quite tenuous. Like the U.S. economy, consumer confidence is at risk due to the events unfolding in Europe and the increasingly divisive rhetoric coming out of Washington.”

Inventories at U.S. wholesalers rose in October by the most in five months as distributors moved to bring stockpiles in line with demand, a report from the Commerce Department also showed. The 1.6 percent increase followed no change in September.

Rebuilding Inventories

The gain shows companies are trying to rebuild stockpiles as sales improve, which will help the world’s largest economy accelerate this quarter. Economists at Barclays Capital Inc. in New York raised their tracking estimate for fourth-quarter gross domestic product to a 3.2 percent annual rate following the report from 2.8 percent. GDP grew at a 2 percent pace from July through September.

The improvement in jobless claims may have been exaggerated by seasonal effects, said Brian Jones, a senior U.S. economist at Societe Generale in New York “The numbers are moving in the right direction,” said Jones, who forecast a drop to 380,000. “You have to be careful because we’re around the Thanksgiving holiday and the Department of Labor has a hard time adjusting around floating holidays.”

A Labor Department spokesman said there was nothing unusual in the state level data last week.

The seasonal-adjustment factors projected applications would jump by about 182,000, representing a rebound from the shortened, Thanksgiving holiday workweek and the biggest upward adjustment for the year. Instead they climbed by about 151,000, pushing down the adjusted reading, the spokesman said.

Seasonal Firings

The decrease may also reflect fewer year-end seasonal dismissals, the spokesman said.

The number of people continuing to receive jobless benefits dropped by 174,000 in the week ended Nov. 26 to 3.58 million, the fewest since September 2008. Those who’ve used up their traditional benefits and are now collecting emergency and extended payments decreased by about 211,600 to 3.31 million in the week ended Nov. 19.

Initial jobless claims reflect weekly firings and tend to fall as job growth -- measured by the monthly non-farm payrolls report -- accelerates.

The unemployment rate unexpectedly dropped to 8.6 percent in November and payrolls increased by 120,000 after a 100,000 gain the prior month that was larger than previously estimated, figures from the Labor Department showed last week.

President Barack Obama and congressional leaders are trying to put together a package of year-end tax and spending provisions that can be enacted, including an extension of the payroll tax cut and jobless benefits.

Many lawmakers agree that the 2 percentage-point cut in the payroll tax for employees, which expires Dec. 31, should be extended through 2012. They also agree that Congress should continue expanded unemployment benefits and prevent Medicare reimbursements from being cut in January. They disagree over how to offset the cost to the U.S. Treasury and on what other provisions should be added.

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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U.S. Stock Futures Fall on Draghi Remarks

By Michael P. Regan - Dec 8, 2011 9:06 PM GMT+0700

U.S. stock futures, European equities and the euro fell, erasing earlier gains, after European Central Bank president Mario Draghi said he didn’t signal plans to purchase more bonds.

Futures on the Standard & Poor’s 500 Index expiring this month fell 0.7 percent to 1,255.0 at 9:05 a.m. in New York after climbing as much as 0.6 percent. The Stoxx Europe 600 Index lost 0.4 percent, reversing a 1 percent advance. The euro slipped 0.4 percent to $1.3363. The S&P GSCI Index of commodities rose 0.1 percent, paring a gain of as much as 0.9 percent.

Equities and the euro headed lower after Draghi said the ECB’s bond-purchase program was not eternal or infinite, damping speculation that the central bank will increase purchases of debt of struggling European nations. Stocks and the shared currency had rallied earlier as Draghi said the ECB was pursuing more non-standard measures to fight the crisis, including three- year loans and looser collateral criteria.

To contact the editor responsible for this story: Michael P. Regan at mregan12@bloomberg.net

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Draghi Courts Bundesbank to Avoid Trichet Fate

By Jeff Black and Simon Kennedy - Dec 8, 2011 7:57 PM GMT+0700

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Dec. 8 (Bloomberg) -- The European Central Bank may delve deeper into its toolbox today to stimulate bank lending and fight off a recession as Europe's leaders gather to lay the foundations for a fiscal union. Linda Yueh reports on Bloomberg Television's "Countdown" with Linzie Janis and Owen Thomas. (Source: Bloomberg)

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Dec. 8 (Bloomberg) -- Julian Callow, head of international economics at Barclays Capital, talks about the outlook for today's European Central Bank and Bank of England interest rate decisions. He speaks with Owen Thomas, Francine Lacqua and Linda Yueh on Bloomberg Television's "Countdown." (Source: Bloomberg)

Mario Draghi knows he can’t afford to repeat Jean-Claude Trichet’s mistake.

A month into his term as European Central Bank president, Draghi is being careful not to alienate Bundesbank chief Jens Weidmann, a vocal opponent of the ECB’s bond purchases. As Europe’s sovereign debt turmoil enters what could be its decisive days, Draghi needs to keep Germany’s central banker onside for any expansion of the ECB’s crisis-fighting role, say economists from Barclays Capital to Societe Generale SA.

“Draghi is likely to be very conscious and aware of the Bundesbank’s perspective,” said Julian Callow, chief European economist at Barclays in London. “It’s going to be a hard act for Draghi to balance strong views for dramatic action and calls from Weidmann for a more cautious approach.”

Draghi, 64, may need all the diplomatic nous he’s accrued in a career that began under the tutelage of Stanley Fischer at the Massachusetts Institute of Technology and has taken him to Italy’s finance ministry, the boardrooms of Goldman Sachs Group Inc. and now the 35th floor of the ECB’s Frankfurt headquarters. As he pushes governments toward fiscal union to secure a lasting solution to the debt crisis, Draghi has signaled greater central bank intervention could be the quid pro quo.

Trichet’s Lesson

“If the ECB sees governments are moving in this direction, and this is not enough to restore market confidence in the short term, more ECB action to provide confidence will probably come,” said Marco Valli, chief euro-area economist at UniCredit Group in Milan.

Trichet learned the hard way how important it is to have the Bundesbank’s support.

As the euro region faced the risk of splintering over the weekend of May 8-9 last year, Trichet cajoled most of the Governing Council into entering bond markets for the first time to put a lid on soaring yields.

Hours later, then Bundesbank President Axel Weber criticized the move, robbing it of the legitimacy only Germany, Europe’s anchor of stability, can bestow.

Ireland was forced to seek a bailout six months later, Portugal followed in April, Greece is negotiating a debt haircut, and the yields on Italian and Spanish bonds last month rose to euro-era highs of 7.4 percent and 6.7 percent respectively, even as the ECB continued to buy them.

Lender of Last Resort

Euro-area governments have to repay more than 1.1 trillion euros ($1.5 trillion) of long- and short-term debt in 2012, with about 519 billion euros of Italian, French and German debt maturing in the first half alone, data compiled by Bloomberg show.

Weidmann, 43, has said the ECB can’t become a lender of last resort for euro-area governments because that would exceed its mandate and erode its independence. He has backing from German Chancellor Angela Merkel, who fought off French entreaties for the ECB to do more.

Draghi has appeared to align himself with Germany by calling for a “fiscal compact” in the euro area to restore investor confidence. He has also hinted at more ECB involvement if governments agree to that, saying on Dec. 1 that “other elements” could follow.

The Italian’s skills as a consensus builder, honed during his chairmanship of the Financial Stability Board, may stand him in good stead as the ECB contemplates further measures.

‘Committee Man’

In his first month at the central bank, Draghi has acted as more of a moderator during internal discussions, listening to council members and trying to strike broad agreement rather than outlining his own opinion and rallying supporters behind it, according a person familiar with the matter. Where Trichet would open a policy meeting by starting with his own position, Draghi sums up the opinions of others first, the person said.

“What was quite evident at the end of Trichet’s term was that he was capable of very independent action,” said James Nixon, co-chief European economist at Societe Generale and a former forecaster at the ECB. “As a personal style, Draghi has been more of a committee man, building consensus for actions.”

Draghi’s performance was endorsed in a Dec. 5-6 Bloomberg poll, which showed 63 percent of investors rated him favorably, up from 36 percent in September. A third of those surveyed backed fiscal union as the most effective remedy for the debt crisis with only 15 percent seeking quantitative easing. Still, almost three-quarters said the Federal Reserve has done a better job in handling economic challenges than the ECB, which was viewed the superior performer by just 13 percent.

Unanimous Support

Chairing his first council meeting on Nov. 3, three days after taking office, Draghi won unanimous support for an unexpected rate cut, the first in two years. He also played a role in last week’s decision by six central banks to make it easier for banks to borrow dollars.

Draghi was educated at the Sapienza University of Rome and became the first Italian to secure an economics Ph.D. from MIT. Fellow MIT alumni include Fed Chairman Ben S. Bernanke, Bank of England Governor Mervyn King and Bank of Israel governor Fischer, who also taught Draghi there in 1974 and 1975.

Bernanke, King and Fisher have all increased monetary stimulus recently as a global economic slowdown threatens to become a slump. Draghi may follow suit.

“The worst-case scenario is that Weidmann somehow undermines him,” said Carsten Brzeski, senior economist at ING Group NV in Brussels. “If Draghi wants to go for the maximum impact, it has to be with Weidmann.”

ECB Rift

While Weber, who began this year as the front-runner to succeed Trichet, resigned in February, the ECB’s rift with its German policy makers continues. When the ECB stepped into Italian and Spanish bond markets in August, Weidmann voted against the move and Juergen Stark, a former Bundesbank vice president, announced he will prematurely step down from his role as the ECB’s chief economist at the end of the year.

ECB council member Ewald Nowotny said on Dec. 5 he’s worried that Germany may increasingly have a problem “in trusting the ECB,” and that “it makes sense to make policy that doesn’t isolate the biggest economy.”

At the same time, Germany’s resistance to bond purchases has restricted the ECB’s freedom of movement, said Paul de Grauwe, a professor at Catholic University of Leuven in Belgium.

By focusing solely on stabilizing markets with limited asset buying, the ECB has given investors the impression its program is half-hearted and not enough of a reason to hold onto the bonds, he said. “The ECB decided to buy bonds and then did it in a way that would fail,” said De Grauwe.

Asset Purchases

Holger Schmieding, chief economist at Berenberg Bank in London, estimates the ECB has bought assets totaling 3 percent of the euro area’s gross domestic product, six times less than the Federal Reserve has bought or pledged to.

With the 17-nation euro area facing recession, ECB policy makers meeting today in Frankfurt returned the benchmark interest rate to match a record low of 1 percent with the second quarter-point cut in as many months, reversing the two increases Trichet oversaw earlier this year. That decision was predicted by 55 of 58 economists in a Bloomberg News survey.

Officials are also considering more measures to stimulate bank lending as the debt crisis tightens access to credit, such as easing collateral rules and offering longer-term loans, said three people with knowledge of the deliberations.

Whether they go further in coming days will depend on the outcome of a leaders’ summit in Brussels that begins today, and whether Weidmann can be persuaded to sign up, said Schmieding. The heads of government are gathering to craft the fifth “comprehensive” solution in 19 months to a debt crisis that’s left Germany and France facing the threat of losing their AAA rating from Standard & Poor’s.

‘Super Mario’

“The risk for Draghi in moving without Weidmann is very, very serious,” Schmieding said. “If he were to be portrayed in the German press as the Italian who is risking hyperinflation to save Italy, he would have a very serious credibility issue.”

Prior to becoming Italy’s central bank governor in 2005, Draghi spent three years at Goldman Sachs in London, where he rose to join the firm’s global management committee, a two-dozen strong executive including then Chief Executive Officer and future U.S. Treasury Secretary Henry Paulson.

Draghi joined Goldman Sachs from Italy’s finance ministry, where he earned the nickname “Super Mario” for overseeing more than $100 billion in state asset sales.

If anyone can steer the ECB through the debt crisis, it’s Draghi, former French president Valery Giscard d’Estaing said in a September interview.

“Draghi belongs to an ancient and solid culture of the Bank of Italy,” said d’Estaing, one of the founding fathers of the euro. “Their culture is not Mediterranean, it’s a northern Italian culture, from Lombardia, serious, methodical, saving, so Draghi brings the kind of culture that matches the current needs of the ECB.”

To contact the reporters on this story: Jeff Black in Frankfurt at Jblack25@bloomberg.net; Simon Kennedy in London at skennedy4@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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ECB Cuts Key Rate to 1%, May Dig Into Toolbox

By Gabi Thesing and Jeff Black - Dec 8, 2011 7:46 PM GMT+0700

The European Central Bank cut interest rates for a second straight month and may delve even deeper into its toolbox today to stimulate bank lending and fight off a recession.

ECB policy makers meeting in Frankfurt lowered the benchmark interest rate by a quarter percentage point to 1 percent to match a record low, as expected by 55 of 58 economists in a Bloomberg News survey. They may also loosen collateral criteria to give banks greater access to cheap cash and offer longer-term loans, said three euro-area officials with knowledge of the deliberations. ECB President Mario Draghi holds a press conference at 2:30 p.m.

“They will have listened to the banks and will start some measures to alleviate some of the strains in markets,” said Christoph Rieger, head of fixed income strategy at Commerzbank AG in Frankfurt. “They will also keep open the option to go below 1 percent on rates, that’s no longer the magic floor.”

The ECB is focusing on getting banks lending again rather than increasing its government bond purchases to fight the debt crisis. Later today, Europe’s leaders will convene in Brussels for talks to frame the fifth “comprehensive” solution in 19 months to the turmoil, which has left Germany and France facing the threat of losing their AAA rating from Standard & Poor’s.

Bank of England

The ECB’s insistence that governments take measures to restore investor confidence appears to have paid dividends, with Italian and Spanish yields plunging after Germany and France agreed to move the 17-nation euro area toward a fiscal union.

The Bank of England kept the size of its asset-purchase program unchanged at 275 billion pounds ($432 billion) today and left its key rate at 0.5 percent.

Investors will look for signs from Draghi that the ECB is willing to step up its bond purchases to cap government borrowing costs if leaders agree on a concrete plan and timeline to stamp out the crisis, said Grant Lewis, head of research at Daiwa Capital Markets in London.

“Even if it does, and we continue to have our doubts, a currency that has a central bank persistently providing finance to governments is not one that is likely to be a success in the long term,” he said.

Draghi said on Dec. 1 that the ECB’s bond buying “can only be limited.” If governments move toward a “fiscal compact,” there may be room for “other elements,” he said, without elaborating.

Leaders Meet

European Union leaders will meet for dinner at 7.30 p.m. in Brussels for talks that will continue tomorrow.

French President Nicolas Sarkozy and German Chancellor Angela Merkel are proposing to amend European treaties to tighten controls on budgets. Still, Germany rejects proposals to combine the region’s current and permanent rescue funds, a German government official told reporters in Berlin yesterday on condition of anonymity.

The ECB must step up its asset purchases, said Angel Gurria, secretary general of the Organization for Economic Cooperation and Development.

“The ECB is the ultimate weapon” and “has to be part of the solution,” he said yesterday in an interview in Durban, South Africa. “You are using a slingshot, where is the bazooka?”

Draghi has indicated the ECB will address signs of a credit squeeze, which falls squarely within its remit.

‘Credit Tightening’

The central bank has “observed serious credit tightening” and is “aware of the continuing difficulties for banks, due to the stress on sovereign bonds, the tightness of funding markets and scarcity of eligible collateral in some financial segments,” he said on Dec. 1.

Policy makers may broaden the pool of eligible collateral for ECB loans by loosening rules governing the use of asset- backed securities, said officials speaking on condition of anonymity.

The ECB is already lending banks as much money as they want against eligible collateral for periods of up to a year. It is likely to add two-year loans to its arsenal, two officials said. While a three-year loan has been discussed, it is unlikely at this stage, they said.

One official said the economic outlook has deteriorated markedly since Draghi said on Nov. 3 that the ECB expected a “mild recession.”

The OECD on Nov. 28 predicted euro-area growth will slow to 0.2 percent next year from 1.6 percent this year. The ECB will today publish its latest projections, including a 2013 inflation forecast that may justify further monetary stimulus.

Draghi said last week that the ECB’s goal is to maintain price stability “in either direction,” suggesting it would act as forcefully to prevent a significant undershooting of its 2 percent ceiling as it would to stop an overshooting.

“This applies to both the setting of official interest rates and the implementation of non-standard measures,” he said.

-- With assistance from Andres Martinez in Durban and Kristian Siedenburg in Vienna. Editors: Matthew Brockett, Simone Meier

To contact the reporters on this story: Gabi Thesing in Frankfurt at gthesing@bloomberg.net; Jeff Black in Frankfurt at jblack25@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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European Stocks Decline as Draghi Damps Speculation of ECB Bond Purchases

By Peter Levring - Dec 8, 2011 9:07 PM GMT+0700

European stocks retreated as European Central Bank President Mario Draghi said he didn’t necessarily signal that the ECB would step up government bond purchases last week when speaking before lawmakers in Brussels.

The Stoxx Europe 600 Index declined 0.5 percent to 240.25 at 2:07 p.m. in London, having earlier rallied as much as 1 percent. The measure posted its biggest gain since November 2008 last week as central banks lowered the interest rate on dollar funding and China reduced its reserve ratio for banks.

The ECB cut its benchmark interest rate by a quarter percentage point to 1 percent today, as expected by 55 of 58 economists in a Bloomberg News survey. The bank also offered lenders as much money as they need for three years and loosened collateral rules at refinancing operations to ease strains in credit markets.

To contact the reporter on this story: Peter Levring in Copenhagen at plevring1@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net

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ECB May Dig Deeper Into Crisis Toolbox as Leaders Mark ‘Date With Destiny’

By Gabi Thesing and Jeff Black - Dec 8, 2011 4:40 PM GMT+0700

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Dec. 8 (Bloomberg) -- Mitul Kotecha, head of global currency strategy at Credit Agricole CIB in Hong Kong, talks about his expectations for today's European Central Bank and Bank of England interest rate decisions, and the outlook for the euro. Kotecha speaks with Linzie Janis on Bloomberg Television's "First Look." (Source: Bloomberg)

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Dec. 8 (Bloomberg) -- Stephen Schwartz, chief economist for Asia at Banco Bilbao Vizcaya Argentaria SA in Hong Kong, talks about the outlook for Asian economies and European leaders' efforts to resolve the region's debt crisis. Schwartz speaks with John Dawson on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

The European Central Bank may delve deeper into its toolbox today to stimulate bank lending and fight off a recession as Europe’s leaders gather to lay the foundations for a fiscal union.

ECB policy makers meeting in Frankfurt will cut the benchmark interest rate by a quarter percentage point to 1 percent, according to 54 of 58 economists in a Bloomberg News survey. They may also loosen collateral criteria to give banks greater access to cheap cash and offer longer-term loans, said three euro-area officials with knowledge of the deliberations.

Hours later, Europe’s leaders will convene in Brussels for talks to frame the fifth “comprehensive” solution in 19 months to a debt crisis that’s left Germany and France facing the threat of losing their AAA rating from Standard & Poor’s. The ECB says that governments must address the cause of the turmoil as it focuses on getting banks lending again rather than increasing purchases of indebted nations’ bonds.

“It’s yet another date with destiny in the euro area,” said Julian Callow, chief European economist at Barclays Capital in London. “It’s clear there won’t be the ultimate resolution, but the proposals are going in the right direction. The markets seem to have finally understood that in the ECB’s eyes it’s up to governments to solve it, and it’s worth noting that it’s doing a lot on the banking side.”

Stocks Advance

European stocks rose for the first time in three days on speculation policy makers will reduce borrowing costs and introduce new ways to tackle the debt crisis. The Stoxx Europe 600 Index advanced 0.2 percent as of 9:30 a.m. in London. The euro was little changed at $1.3400.

The ECB announces its rate decision at 1:45 p.m. in Frankfurt and President Mario Draghi holds a press conference 45 minutes later. European Union leaders will meet for dinner at 7.30 p.m. in Brussels for talks that will continue tomorrow.

Separately, the Bank of England will keep the size of its asset-purchase program unchanged at 275 billion pounds ($432 billion) and leave its key rate at 0.5 percent, according to another survey of economists. That decision is due at noon in London.

The ECB’s insistence that governments take measures to restore investor confidence appears to have paid dividends, with Italian and Spanish yields plunging after Germany and France agreed to move the 17-nation euro area toward a fiscal union, a stance they reiterated yesterday.

Joint Letter

French President Nicolas Sarkozy and German Chancellor Angela Merkel are proposing to amend European treaties to tighten controls on budgets. In a joint letter to EU President Herman Van Rompuy, the leaders said they want a decision by the close of their summit tomorrow so that the measures can be ready by March next year.

Still, Germany rejects proposals to combine the region’s current and permanent rescue funds, a German government official told reporters in Berlin yesterday on condition of anonymity.

The ECB must step up its bond purchases to stamp out the crisis, said Angel Gurria, secretary general of the Organization for Economic Cooperation and Development.

“The ECB is the ultimate weapon” and “has to be part of the solution,” he said yesterday in an interview in Durban, South Africa. “You are using a slingshot, where is the bazooka?”

‘Other Elements’

Draghi said on Dec. 1 that the ECB’s bond purchases “can only be limited.” If governments move toward a “fiscal compact,” there may be room for “other elements,” he said, without elaborating.

“Markets are clearly hoping for any signs of future ECB bond buys,” said Jens Sondergaard, senior economist at Nomura International Plc in London. “We think they’ll be disappointed. They won’t endorse or commit to anything before they see what the outcome of the EU summit is.”

Draghi did indicate a willingness to address signs of a credit squeeze, which falls squarely within the ECB’s remit.

The central bank has “observed serious credit tightening” and is “aware of the continuing difficulties for banks, due to the stress on sovereign bonds, the tightness of funding markets and scarcity of eligible collateral in some financial segments,” Draghi said.

Collateral Pool

Policy makers may broaden the pool of eligible collateral for ECB loans by loosening rules governing the use of asset- backed securities, said officials speaking on condition of anonymity. They may also increase the amount of uncovered bank bonds that can constitute a lender’s collateral portfolio from the current 10 percent limit, they said.

The ECB is already lending banks as much money as they want against eligible collateral for periods of up to a year. It is likely to add two-year loans to its arsenal, two officials said. While a three-year loan has been discussed, it is unlikely at this stage, they said.

One official said longer-term loans might encourage banks to lend to companies and households, and they would also help financial institutions meet new Basel rules on holding longer- term liquidity.

Today’s meeting is the ECB’s last scheduled opportunity to take policy action this year. It will be accompanied by publication of the central bank’s latest projections, including a 2013 inflation forecast that may justify further monetary stimulus.

Economic Outlook

Draghi said last week that the ECB’s goal is to maintain price stability “in either direction,” suggesting it would act as forcefully to prevent a significant undershooting of its 2 percent ceiling as it would to stop an overshooting.

“This applies to both the setting of official interest rates and the implementation of non-standard measures,” Draghi said.

One official said the economic outlook has deteriorated markedly since Draghi said on Nov. 3 that the ECB expected a “mild recession.”

The OECD said Nov. 28 that growing doubts about the survival of Europe’s monetary union has caused global growth to stall and represents the main risk to the world economy.

The euro area itself is already in a “mild” recession, with the region set to register growth of 1.6 percent this year and just 0.2 percent in 2012, the OECD said.

-- With assistance from Andres Martinez in Durban and Kristian Siedenburg in Vienna. Editors: Matthew Brockett, Craig Stirling

To contact the reporters on this story: Gabi Thesing in London at gthesing@bloomberg.net; Jeff Black in Frankfurt at jblack25@bloomberg.net;

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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