June 22nd, 2010 06:26:16 GMT

France’s Pension Reform Fails To Convince Markets And Critics


By Stephen Sandelius

PARIS (MNI) – The reform of France’s pension system unveiled last
week by the government has prompted criticism from all sides and failed
to reassure markets about the consolidation of public finances.

Public opinion remains largely opposed to the proposed reform and
unions are counting on a massive turnout at protest rallies planned this

As the details of the reform were largely in line with the hints
and leaks orchestrated by officials, there was little immediate market
reaction the day of the announcement. France’s spread versus the German
Bund actually widened marginally.

The narrowing of this spread in the preceding days had been due
more to a general easing of market concerns over the solvency of the
peripheral countries than to France’s “minimal” pension reform measures,
explained analyst Rene Defossez of Natixis.

“Nobody really believes in the capacity of this reform” to assure
the financing of the pension system over the long term, he said. “It
goes in the right direction” but is “largely insufficient.”

Even Senate Finance Committee chairman Jean Arthuis, a former
finance minister still linked to the governing coalition, complained
that “the numbers don’t add up.”

By lifting the minimum retirement age by two years to 62 and hiking
contributions from investment earnings, stock options and the highest
income bracket, the reform aims to slice the shortfall in the
pay-as-you-go pension system from over E32 billion this year to E7.8
billion by 2015 and eliminate it entirely by 2018.

By that date, the various pension systems will have accumulated
“more than E60 billion in debt, which sooner or later will lead to
higher taxes,” Arthuis warned.

Even after 2018, the government will continue to shoulder an annual
burden of E15.6 billion to finance the pension shortfall for civil
servants, despite a hike in their contributions.

Like other analysts, Arthuis raised doubts about the economic
assumptions of the reform, notably the return to full employment over
the coming decade, which would allow the pension system to cannibalize a
projected E1.4 billion surplus in the unemployment insurance fund.

Labor Minister Eric Woerth argued again Sunday that this transfer
is “very cautious” since it represents less than 3% of the deficit
reduction in 2018.

For analysts at UBS, the hypothesis, “although not outrageous,” is
nevertheless “quite optimistic”.

The assumption of a return to long-term potential GDP growth rates
of 2.2% on average from 2014 onward has also raised some eyebrows among
analysts, who doubt that the enormous slack in the economy can be
absorbed during a period of massive budget tightening.

“Having the official medium-term growth projections at the upper
margin of consensus forecasts risks significantly underestimating the
size of the required fiscal efforts,” the IMF cautioned last week.

At UBS, analysts concluded that less than two thirds of the
system’s deficit will be eliminated by 2018.

A bigger issue is what happens after 2018, when the demographic
mismatch between a shrinking active population and a swelling pool of
pensioners becomes more acute.

“The question is all the more pertinent as the economic gains of
raising the retirement age wane over the long term,” reminded analyst
Axelle Lacan of Credit Agricole.

For the shorter term, the pension deficit is still only a fraction
of the total public deficit, which is expected to climb to 8% of GDP
this year. Doubts in the market about the government’s ability to slash
it to 3% over the coming three years help explain why France’s spread
against the Bund is among the largest of the triple-A sovereigns and why
this spread can easily widen by 20 bps at the slightest scare, explained

To alleviate these doubts, the government is preparing further
“announcements” of consolidation measures for the coming weeks, top
presidential advisor Claude Gueant told the Financial Times this week:
“Our budget for next year, and the plan for the next three years, will
be serious and determined. The trend to get to 3% will appear credible.”

For the public at large, the proposed pension reform is hardly
credible at all. Only 15% believe it will assure a lasting financial
balance, according to a BVA poll conducted last week. Yet 54% remain
opposed to even a two-year rise in the retirement age and 61% feel the
measures are “unjust.”

It may well be this impression of injustice — fueled by the social
fallout from the banking crisis — that explains the contractions in
public opinion and highlights the dilemma of any attempt to reconcile
the working population with the hard demographic realities of an ageing

The government’s proposal integrates in part the demands of the
unions and the political opposition to enlarge the revenue base of the
pension system by taxing business, the rich and the golden parachutes.
It also makes exceptions for those who began work at an early age or who
have suffered physically at their jobs.

Still, the French remain more inclined to the strategies of the
unions or the Socialist Party, which defend the “social right” to
retirement at 60, according to a TNS-Sofres survey earlier this month. A
clear majority back the unions in their protest movements.

Buoyed by this wave of support, the nearly united front of unions
has called another day of rallies and marches this Thursday.

“I think we will have a very large protest,” Francois Chereque of
the moderate CFDT union said on Monday, pledging to maintain the
pressure on individual lawmakers during the summer vacation and perhaps
renew the movement when Parliament begins debating the proposals next

–Paris newsroom +331 4271 5540; Email: stephen@marketnews.com

[TOPICS: MFFBU$,M$F$$$,M$X$$$,MGX$$$]

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June 22nd, 2010 05:55:20 GMT

EU Barroso: Reducing Debt Vital To Restore Confidence, Growth


FRANKFURT (MNI) – Reducing public debt is vital to restore
confidence, and thus economic growth, European Commission President Jose
Manuel Barroso said in a newspaper interview published Tuesday.

In the interview, published in the International Herald Tribune,
Barroso rejected U.S. President Barack Obama’s pre-G20 appeal to heads
of state to leave austerity for the medium term in order to focus on

“Without addressing this issue [of debt reduction], there will be
no confidence, and without confidence, no growth,” Barroso said.

He also defended Germany’s focus on financial security, adding that
the impact of the country’s spending cuts had been exaggerated.

In an apparent response to recent statements that Germany should
boost its domestic demand for the sake of other states’ exports, Barroso
stressed that it was up to other countries to become more competitive,
rather than Germany reducing its competitiveness.

Barroso said Spain’s structural reform program would not hinder it
greatly, but that regional budgetary powers should be limited.

–Frankfurt bureau: +49-69-720 142; email: frankfurt@marketnews.com

[TOPICS: MT$$$$,M$$FX$,M$$EC$,M$X$$$,M$$CR$,MGX$$$]

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June 22nd, 2010 05:25:49 GMT

Japan May Supermarket Sales -5.3% Y/Y, Down 18 Months In Row


TOKYO (MNI) – Sales at supermarkets in Japan open for at least a
year fell 5.3% in May from a year earlier to Y1.02 trillion as consumers
remained frugal on the back of continued severe labor and income
conditions, an industry group said on Tuesday.

The rainy days since the middle of the month also dampened consumer
incentive to buy goods, Japan Chain Stores Association said.

It was the 18th consecutive year-on-year drop in supermarket sales
following -4.9% in April. The last y/y rise in sales was +0.6% marked in
November 2008.

The figures are based on the combined sales at 62 supermarket
chains which together operate 7,852 outlets. The numbers have been
adjusted to facilitate comparison on a same-store basis.

Including sales at stores newly opened during the past year,
revenue fell 6.2% from a year earlier in May, down for the 30th
consecutive month after falling 5.5% the previous month. The last time
sales under this category rose was in November 2007 (+0.5% y/y).

** Market News International Tokyo Newsroom: 81-3-5403-4833 **

[TOPICS: M$J$$$,M$A$$$,MAJDS$]

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June 22nd, 2010 05:15:26 GMT

EMU Data: MNI Survey Of Econ Data Forecasts, June 22


EU Commission – June
Consumer Confidence (flash)

Median* -18.0
High forecast -17.0
Low forecast -20.0
Number of responses 6

Barclays Cap. -17.0
Action Economics na
Commerzbank -18.0
Capital Economics -20.0
West LB na
Credit Agricole na
JP Morgan na
Nomura na
4Cast na
Natixis na
BNP Paribas na
Unicredit na
UBS -18.0
DZ Bank na
Goldman Sachs na
Citi -20.0
Soc. Generale -19.0


* Median is based on above forecasts and is not intended to represent
a consensus.

The survey was conducted on Friday, June 18.


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June 22nd, 2010 05:15:25 GMT

Germany Data: MNI Survey Of Econ Data Forecasts, June 22


Ifo – June
Business Current
Climate Situation Expectations

Median* 101.1 99.7 102.0
High forecast 102.3 100.5 103.4
Low forecast 100.4 96.0 101.0
Number of responses 15 8 7

Barclays Cap. 101.2 99.1 103.4
Action Economics na na na
Commerzbank 101.5 na na
Capital Economics 100.5 na na
West LB 101.0 na na
Credit Agricole 101.2 100.5 102.0
JP Morgan na na na
Nomura 102.3 na na
4Cast 100.9 99.7 102.0
Natixis 101.0 100.0 102.0
BNP Paribas 100.5 na na
Unicredit 101.0 na na
UBS 101.5 100.5 102.6
DZ Bank 100.4 99.7 101.0
Goldman Sachs 102.0 96.0 na
Citi 101.2 na na
Soc. Generale 100.7 99.0 102.5


* Median is based on above forecasts and is not intended to represent
a consensus.

The survey was conducted on Friday, June 18.


1 Comment

June 22nd, 2010 05:14:37 GMT

EUR/USD very marginally easier during Asian trade


Weak Asian stocks have weighed on EUR/USD, but only marginally so.  EUR/USD down at 1.2305 from North American close Monday up around 1.2320.

Not a whole lot of euro zone economic data today:

08:00 GMT: German Ifo for June: business climate expected 101.2 from 101.5; current assessment expected 99.8 from 99.4; expectations 102.7 from 103.7

08:00 GMT: Euro zone c/a for April 

14:00 GMT: Euro zone consumer confidence index for June expected -19 from -18

European stocks expected to open lower this morning.

Talk of stops through 1.2260 and 1.2240.  Decent bids 1.2150/60. On topside sell orders 1.2360/70, stops just above.


June 22nd, 2010 04:31:21 GMT

ForexLive Asian market wrap: Yuan fixed at record level against USD


  • USD/CNY official mid-rate at 6.7980 vs 6.8275 yesterday
  • Regional stockmarkets -0.5% but bounce after China sets firmer rate for Yuan

It has been a quiet session in Asia apart from some excitement around the China official fix for the USD/CNY. Traders saw this as a good indication of China’s new flexibility and the fixing was set at yesterdays closing rate of 6.7975, 3 Yuan lower than yesterday. That market has rallied back towards 6.8100 but is still an indication of increased willingness on China’s behalf.

The AUD was again the main lightning rod and it jumped from .8770 to .8800 about 30 seconds before the official release on Reuters. AUD/USD traded to a high of .8832 on short covering but has since given back some of these gains. Range: .8757/.8832

EUR/USD has been pressured by selling on the crosses with EUR/AUD and EUR/CHF the leaders. EUR/CHF made another fresh low below 1.3665. Ranges: 1.2285/1.2353, EUR/CHF 1.3653/1.3703

Cable has drifted lower but has lagged the EUR/USD, with the cross also sliding modestly. Ranges: 1.4750/97, .8327/58

USD/JPY has traded in a tight 23 pip range with the usual cross plays dominating. 90.87/91.10, EUR/JPY 111.78/112.45

Markets: Nikkei -0.6%, Kospi -0.5%, HK flat. Gold steady at $1240/oz.


June 22nd, 2010 04:12:52 GMT

Quick look at the order books


I guess that many traders are either on holidays or have taken their orders off due to Chinese activity, but whatever the reason, I’m hearing that order boards are relatively light in the interbank market

  • EUR/USD: stops below 1.2260 and 1.2240; Sovereign bids 1.2155/80. Plentiful sell orders 1.2360 through 1.2420 although some stops also seen above 1.2370.
  • USD/JPY: corporate sell orders starting at 91.80. Intraday bids starting at 90.60, getting heavier towards 90.00 with heavy stops below there
  • EUR/GBP: heavy stops reported above .8400
  • USD/CAD: still talk of strong buying interest on dips towards 1.0150 from Asian central banks

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