UK should be ready for action if growth slows down: Lagarde

Authorities in the UK should be in a state of “heighted readiness” to counter any further slowdown in the UK, said International Monetary Fund Managing Director Christine Lagarde.

UK policies are “appropriate” for a recovery, said Ms Lagarde in a speech in London, stopping short of earlier demand for tax cuts to stimulate consumer spending. Prediction of an export led recovery by Chancellor George Osborne is slowing down in both Europe and the US and policies need to be “nimble” to counter adverse effects, she added.

“This heightened risk means a heightened readiness to respond, particularly if it looks like the economy is headed for a prolonged period of weak growth and high unemployment,” she said. Measures like increased spending on public welfare and reduced tax burden will provide an “important cushion” if the economy weakens. She urged BoE Governor Mervyn King to ease monetary policy if the economy doesn’t improve “improve soon.”

As the economy struggles with slow growth and rising inflation, the Bank of England yesterday refused to extend economic stimulus further. It maintained the key interest rate at the historic low level of 0.5% while keeping the bond program unchanged at £200 billion.

However, Chancellor Osborne said his policy tries to balance structural deficits rather than total budget shortfall where automatic stabilisers are activated when the economy faces a lean patch. The fiscal watchdog expects the present deficit of 5 percent to become zero by 2015, a year ahead of schedule, he said.

“Countries with large budget deficits and significant fiscal vulnerabilities, including the U.K., with one of the largest deficits of all, must continue to set out an implement credible deficit-reduction plans,” said Osborne while speaking on the same occasion. “Britain will stick to the deficit plan we have set out,” he added.

Economists said the Office for Budget Responsibility may be forced to lower its growth forecast from 1.7 percent for 2011 and revise government borrowing upwards when it publishes the fiscal and economic outlook report in November.

Italy to assess economy next week, will announce fresh measures to spur growth

Italian Economy Minister Giulio Tremonti said today that he will initiate an in-depth assessment of the country’s economy next week to find out the efficacy of past measures to improve public finances and discuss new measures to spur economic activity.

As Prime Minister Silvio Berlusconi’s centre-right ruling coalition drags its feet over debt reduction and growth stimulating measures, the euro zone’s third largest economy has moved to the centre of the EU economic crisis in recent weeks.

“Our economy needs a check. If some of the things we have done are working we have to communicate them. If there are things to add we will add them,” Tremonti told reporters at the G7 finance ministers’ meeting, being held at the French Mediterranean port city of Marseille.

“I spoke yesterday about this idea with the Bank of Italy’s vice-general director. We must make this inventory together with the economic organisations – OECD, IMF and EU Commission – that have expressed great interest to these developments,” he added.

Italy has built up a debt pile of €1.9 trillion and has recently agreed to austerity measures to balance its budget under mounting pressures from the bond markets. An Italian debt crisis has the possibility of derailing the existing euro zone bailout mechanisms.

The new deficit reduction measures are likely to be approved by the parliament by next amid widespread apprehensions that it may further slowdown an already struggling economy.

The world is yet to come out of the recession, said Mr. Tremonti.

“It is now almost five years since the start of the crisis in 2007 and it is going to continue. The crisis has been managed but I do not think it has been overcome and this is everybody’s opinion,” he said.

Greek economy may shrink more than 5% this fiscal, says finance minister

Greek finance minister told the country’s economy may shrink more than 5% this year toppling earlier projections while addressing business people in the northern Greek city of Thessalonoki.

Athens is struggling to widen its tax base to meet its deficit reduction targets as recession bites in. Without improvement in deficit reduction, the continued flow of aid under a bailout plan with IMF and other eurozone partners may get derailed.

“The recession is exceeding all projections, even the troika’s (EU-ECB- IMF) forecast. The projection in May was that recession would be at 3.8 percent, now we are exceeding 5.0 percent,” said Greek Finance Minister Evangelos Venizelos.

The country’s economy had shrunk by 8.1 per cent in the first quarter of 2011. The rate slowed down to 7.3 per cent in the second quarter for the €230 billion economy.

The government’s austerity measures such as cut in public sector pay and pensions and higher indirect taxes have already caused widespread resentment.

The finance minister is aware that other EU members are growing impatient at Athens’ continued slide and wanted to convince them that the country is committed to carry out the economic reforms.

“The most clear message Greece is sending right now … is that we are absolutely determined, without weighing any political cost, to fully meet our obligations versus are institutional partners,” said Mr. Venizelos.

Greece has to meet the conditions laid out by the troika of ECB, the IMF and the EU to receive the package it’s seeking, said German Chancellor Angela Markel.

The country is waiting for a €8 billion tranche of emergency funding under the negotiated bail-out plan and is certain to default without it.

The troika had suspended talks with Athens after it failed to stick to deficit reduction plans. Greece may not be able to avoid default indefinitely is the working assumption now.

“We must prove all those who say that Greece can’t, or doesn’t have the will, is a pariah or does not deserve to be in the euro, wrong,” added Mr. Venizelos.

“The private sector is responding very well to the PSI (private sector involvement),” said the minister referring to the debt swap plan Athens plans to conclude next month with the holders of Greek debt.

Name of firms to be made public while announcing ombudsman decisions: FOS

Under the new government rules, the Financial Ombudsman Service plans to publish the names of firms engaged in complaints when it announces ombudsman decisions.

The government intends the FOS to publish final decisions in the draft Financial Services Bill. The bill however, is silent over whether the identities of the firms involved should be made public.

The FOS however, has announced in a consultation paper published today that the names of firms involved should be disclosed.

“The draft legislation is silent on the question of whether the identities of financial businesses should be disclosed. Our initial view is that we should not delete the name of the financial business involved – nor seek to avoid publication of information that would identify the business involved,” the consultation says.

“In many cases, the identity of the financial business is central to the issue in question, and its identity is often clear from the substance of the decision itself. For example, product names, policy wordings and business practices often form a core part of an ombudsman’s considerations, which might all point to a specific business.

“So if the objective was to protect the identity of the financial business in the same way as we propose to protect the identity of consumers, there would need to be extensive redaction of the decision – often effectively making the decision incomprehensible on publication,” it added.

The cost of publishing FOS decisions is unlikely to exceed £600,000 in the first year, dropping to £200,000 every year after that, the ombudsman estimated.

“Our initial view is that these proposals would not increase costs for those businesses (or their customers) who already have good complaints-handling processes. We would welcome evidence from businesses on this point. Publication could reduce costs for businesses, by making the approach the ombudsman takes clearer and so helping to avoid unnecessary referrals of unresolved cases to the ombudsman service,” the consultation observed.

The paper says it doesn’t plan to publish adjudicator views though. The consultation is open till December 9.

CPI gains have been wiped out by sliding gilt yields: JLT

Consultant JLT Benefit Solutions believe gains made by schemes by switching indexation to Consumer Price Index (CPI) have been wiped out by falling interest rates.

Scheme sponsors and trustees are under false impression that switching to CPI has improved things, but the fall in long-maturity gilt yields have not been matched by the fall in corporate bond yields – used by companies to calculate liabilities in books, the consultant observed.

The pension liabilities in the UK have grown between 10% and 20% because of the fall in yields, JLT estimates.

“The spread between gilts and corporate bonds has increased. Pension liabilities shown in company accounts are measured by reference to AA corporate bond yields and so these will not show corresponding increases. In other words only half the impact will be revealed in company accounts and investors and others could well be in for a nasty surprise when the next funding valuation is prepared,” said JLT executive director Steven Robinson.

Compared to their typical yields of between 4% and 4.5% in recent years, UK government long-maturity fixed coupon gilts are currently returning 3.5% yields per annum, JLT observed.

“When the government announced the replacement of RPI by CPI, where scheme rules permitted, this was signalled as saving a scheme significant costs, so sponsors and trustees may have been under a false impression that things were getting better. Many of these gains will now have been wiped out by the impact of the fall in gilt yields,” explained Mr. Robinson.

The recent fall in equity values have landed another blow in addition to falling gilt yields to UK pension schemes, JLT said, adding this resulted in FTSE100 deficits doubling to £70 billion from £35 billion.

UK corporates may find re-risking measures such as capping pensionable salary, enhanced transfer value exercises and pension increase exchange exercises particularly attractive in the changed scenario, JLT said.

Implementation of Hutton reforms unlikely to end pension woes: CPS

A report published by the Centre for Policy Studies today, said even the full implementation of the Lord Hutton report on public sector pension reforms is unlikely to create a long term and sustainable state pension system.

The report – titled ‘The 100 billion negotiations’ and authored by Michael Johnson, argued that moving public sector employees to defined contribution schemes instead would help the government focus on improving state pension.

The eight page report published by the Conservative-linked think tank observed that while the main difference remained in their pension arrangements, public sector employees received 13 per cent higher wages than those in the private sector.

The government could save a whopping £100 billion in today’s money in future by simply cutting the cost of public sector pensions by 25%, the report observed.

“The stakes are very high. The relatively lavish pensions enjoyed by many public sector workers are a burden which will largely be met by the private sector,” said Tim Knox, CPS director.

The private sector will become a “defined benefit pensions desert” within the next few years where pensioners assumed own longevity risk, the report said.

The state’s limited capacity to absorb pensions-linked longevity risk could be concentrated to an improved state pension if it also switched to DC schemes, the report noted.

Future savings could be achieved by using economies of scale to save on investment and actuarial fees and consolidating the funded public sector schemes, said Edmund Truell, founder of Pension Corporation.

“This has been successfully trialled in other countries including Canada and Denmark and works to the benefit of all – the pensioners get their accrued benefits and the taxpayer saves vast amounts of money. At the same time, these funds should be allowed to invest in long-term infrastructure projects to the benefit of society more widely,” said Mr. Truell.

The CPS report also questioned the basis of assumptions for real earnings, growth in public sector workforce and productivity in the Hutton report. The pension costs have been projected to come down to 1.4% of GDP by 2060 in the Hutton report. These assumptions have now backfired since unions have used them to argue that public sector pensions are inexpensive.

“Yes, reform of public sector pensions is tremendously difficult. But this must be ruthlessly pursued if we are to have a lasting and fair solution,” observed Mr. Knox.

Lobby group to oppose retrospective DWP legislation

Lobby group Collective Defined Contribution Forum (CDCF) warned that retrospective legislation stemming from the Imperial Home Décor judgment could ruin the future development of collective defined contribution.

The members of CDCF will organize an “emergency meeting” next week to decide its strategy following its meeting with the Department for Work and Pensions (DWP).

The Supreme Court had ruled in July that DC schemes with defined benefit elements, such as internal annuitisation or an investment underpin, will be regulated by money purchase rules, making establishment of CDC scheme easier.

However, to counter the ruling, DWP promptly announced it would introduce retrospective legislation.

The key members of CDCF are HarmishWilson partner Harmish Wilson, The Pensions Trust, Pinsent Masons partner Robin Ellison and Danish provider ATP.

“The DWP has clearly got a worthwhile aim – to clarify the confusion between DB and DC. But rather than jump in they should take a step back and think about what would be a good structure for the future. They should not impose legislation now that could completely stifle future initiatives,” said Sarah Smart, chairman of trustees at The Pension Trust.

“They need to get real about the fact that DC, in its current guise, is a lousy solution. We need to work together to do something better for members. But if they continue doing things like imposing retrospective legislation then we are doomed,” she added.

She rejected the government’s claim that there was no demand for CDC.


Barry Parr, another member of the CDC Forum and Orange Pension Scheme trustee and co-chairman of Association of Member-Nominated Trustees backed Smart’s claim. He said the company Everything Everywhere, formed by merging T-mobile UK and Orange UK, had seriously considered CDC but abandoned the plan since ‘legal unknowns’ were too many. The company will consider it once legislative position becomes clear, he said.


“The big driver we were looking for was the potential that members can finish up with better benefits than traditional DC. That is still an attraction,” he added.

Personal pension savings have dropped due to recession: ONS

Data released by Office for National Statistics (ONS) show personal pension contributions have dropped 10% since 2007. Contributions dropped by £2.2 billion to £18.7 billion in 2009-10 from £20.9 billion in 2007-08, figures released yesterday (September 7, 2011) by ONS showed.

As recession continued to bite people’s personal budgets, the number of small savers slowly tapered off. The drop in contributions can further complicate recovery as the fall in living standards is already a cause for concern, said the Trades Union Congress (TUC).

“With living standards under such a severe squeeze it is understandable that people cut back on their pensions, but keeping up decent contributions is the only way to deliver even modest living standards in retirement,” added Brendan Barber, general secretary of TUC.

The UK government should be “proactive” to resolve “chronic underfunding of retirement in the UK,” said Kevin LeGrand, president of Society of Pension Consultants, adding that the situation is unlike to improve soon.

“For a significant boost in the membership of private pension schemes we will have to await the introduction of auto-enrolment, starting from the middle of 2012. However, that is unlikely to address fully the chronic underfunding of retirement in the UK especially if the average level of contributions is reduced to the statutory minimum for many of those currently enjoying a higher contribution rate,” said Mr. LeGrand.

The priorities of individuals change during pressing times, said Darren Philp, director of policy at the National Association of Pension Funds (NAPF). Contributions towards pensions however, remain vital, he added.

“The UK’s population is on a collision course with its own retirement. People are not saving enough and millions risk facing poverty in their old age. The auto-enrolment reforms being introduced from next year are likely to result in 5-9 million people starting to save into a pension or save more. This is a key opportunity to get the country saving for its old age,” said Mr. Philp.

Interestingly, the gap between public and private sector workers joining defined benefit schemes continued to widen. While most public sector employees can still join a defined benefit scheme, 56% of active private sector employees were in DB schemes closed to new members.

Employers can contribute through debit cards: NEST

Employers can make contributions to the National Employment Savings Trust (NEST) using debit cards, a facility denied by most service providers.

The new online system of NEST allows employers to contribute either through direct credit or debit cards, although the employer expects majority to contribute through cards.

Although there’s no additional cost for contributions, NEST reserves the right to charge for contributions made through debit cards and direct credits if transaction costs become expensive in future – an unlikely scenario.

Standard Life is the only provider that allows debit card contributions for its stakeholder schemes now.

Direct debits will incur no cost and NEST has no authority to levy charge for it. However, if terms and conditions are broken, NEST will initiate discussions with employers first and fees levied will cover the actual cost incurred since NEST is a not-for-profit organisation.

“We did not introduce that across our subsequent corporate pension arrangements because there is very little demand for it,” said Jamie Jenkins of Standard Life, referring to the debit card contributions facility.

“We have not seen any demand for it. However, it is very much in mind as part of our 2012 development schedule,” said Dave Lowe, pension management director at Zurich.

Provider Friends Life does not accept contributions by debit cards but plans are afoot to introduce direct debit facility for all members not covered by scheme contributions paid by employers.

Employers can customise access of third parties, such as IFAS and employee benefit consultants, in NEST’s online system. The frequency of contributions can also be decided by firms.

“As well as providing flexibility around payment methods, we’re building-in increased flexibility around the due date of contributions and their frequency in order to align to more payroll cycles and improving our website’s provision for downloading data, following discussions with large employers,” said Graham Vidler, director of communications and development at NEST.

UK pension schemes affected by accounting standards: NAPF

A report prepared by the Leeds University Business School found accounting standards used now to estimate assets and liabilities of UK schemes undermine pension provisions.

Current accounting standards bring volatility in the short-term pension surpluses and deficits of companies since assets are marked to market on a daily basis, the report, commissioned by the National Association of Pension Funds (NAPF), found.

The regular valuation of assets is at odds wit the long-term investment philosophy of pension funds, which seeks to create wealth over long periods of time, the report observed.

“The current standards are not appropriate for the long-term nature of pensions. They allow short-term stock market volatility to perversely affect pensions and their long-term strategy by presenting large deficits which may prove inaccurate in the long-run,” said Lindsay Tomlinson, chairman of NAPF.

As a result of market volatility and accounting practices, firms have closed down viable pension schemes and become extremely cautious, the Accounting for Pensions report said.

Excessive risk-aversion has resulted in increased pension provisions for companies and misallocation of assets in the economy through higher investments in low-yield government bonds, the report said.

Preference for safer government securities has further complicated the matter as funds are exiting equity investments, supporting the private sector less when it faces a real threat of a double-dip recession.

“For too long accounting standard setters have focused on the theory rather than practice and there has been a vacuum of accountability. Accounting standard setters, both in the UK and internationally, need to have a real world approach that truly takes into account the economic consequences of their actions,” the report observed.

Pension liabilities should be calculated as the net present value of future asset-liability cash flow, allowing for the asset-liability interaction over the life of the pension scheme, the report recommended.

The NAPF has been advocating for a different accounting standard for long and commissioned a review early last year.

Savers may lose £5,000 for delaying annuity purchase

Equity release specialist Key Retirement Solutions claimed many savers are may lose up to £5,000 for delaying purchase of their annuities in the hope of seeing their pension savings recover.

Following FTSE100’s slump of 12 per cent in the last two months, many individuals are concerned over the shrinking size of their pension pots and are delaying their annuity purchase, hoping their investments will recover soon, said the provider.

Annuity rates have fallen by about three percent over the last two months with a pension fund worth £100,000 now generating about £6,624 annually, a loss of £207 each year compared with £6,831 on average per annum, adding up to £5,000 over 25 years.

The loss may be aggravated further as analysts predict further fall in annuity rates. Rates have fallen by 20 per cent in the last three years alone.

Pensioners stand to lose another £200 per annum if rates fall an extra 3 per cent in the next three months.

The specialist further added that a number of savers reaching retirement will transfer their pension funds to safer investments to guard against stock market volatility. Delaying buying annuity will cost them future incomes without any fund value appreciation, the firm observed.

“Pensioners have to literally live with the decision they take on an annuity and delaying can mean ensuring a lower income for life,” said Dean Mirfin, group director at KRS.

“People coming up to retirement are generally panicking unnecessarily over the effects of volatility on their funds when they should be concentrating on annuity rates and getting the best deal possible. What has to be taken into account is not just the effect of falling annuity rates, delay also means that income that would have been paid out today, if the annuity was bought now, is lost for good,” added Mr. Mirfin.


Short service refunds would soon be a thing of the past, vows Steve Webb

Warning employers against factoring in short service refunds when selecting a pension scheme, pensions minister Steve Webb said they will no longer be a part of future pension landscape.

The Department for Work and Pensions (DWP) is examining if these issues could be addressed as they tackled the wider issue of pension transfers, said Mr. Webb while addressing the annual LCP Pensions Conference Today.

Terming the short service refund as the “troubling feature of the system”, Mr. Webb said they don’t fit with the government’s agenda of ensuring the population saved more for retirement.

The department will examine all the options available including ensuring pension pots defaulted to a single provider when workers changed employers, or insisting on funds shifted to new employer’s scheme.

“My vision is that instead of having lots of little pots, people will end up with one big fat pot, which would help them see the value of their pension and encourage them to shop around,” said Mr. Webb.

He also spoke on the need to weed out bad practices over enhanced transfer value exercises and the means to deal with workers stuck with small pension pots.

Mr. Webb cautioned people about reading too much into the scare stories that would inevitably appear in the media.

The yet-to be launched auto-enrolment presented a real opportunity to people without pensions, especially the younger workers, he said.

“If you’re 50 and not in a pension there’s probably a good reason. But if you’re 20 and not in a pension it’s probably just because you’re 20,” he added.

The main challenge remained in transforming the state pension system, Webber said, adding reforms would provide the foundation for future policies.

“If you don’t get that right then you can’t have a good foundation – it must be simple, understandable and provide a firm foundation,” he observed.

“If we look forward to the summer of 2012, when after years of preparation, blood, sweat and tears the starting gun fires and the first people are auto-enrolled, they will want to know whether to stay in, and a solid government foundation is key to that decision,” he added.

Cameron may ‘water down’ proposals of ICB: The Sunday Telegraph

The proposals from the Independent Commission on Banking (ICB) for ‘ringfencing’ retail operations from investment banking may be significantly ‘watered down’ by Prime Minister David Cameron as he fears this may slow down economic growth, the Sunday Telegraph reported.

Cameron had told senior government officials that any proposal from the ICB to demarcate retail and investment banking operations and increase capital requirements needs to be reviewed though he wanted the debate on banking to continue.

“We are not going to pre-empt the ICB. We haven’t seen the final report and will respond once the final report is out in a couple of weeks,” a government spokeswoman said when asked to comment on the report.

Set up after the credit crisis had hit the economy and the banking industry badly, the ICB is set to submit its final report on September 12.

The report will reiterate its previous proposals of separating the retail operations from investment banking so that tax-payers are not exposed to excessive risks.

However, Britain’s four leading banks – HSBC, Barclays and part-nationalised banks Lloyds and RBS have been cautioning against excessive regulations, stating they could harm the economic recovery.

There have been intense media speculations over HSBC and Barclays shifting their headquarters away from London as well, something that both the banks have assiduously rejected.

The ICB has also proposed to increase banks’ core Tier I capital to 10 per cent of Risk Weighted Assets (RWA), a move opposed by bankers since it would make lending to businesses harder for them, affecting their profitability and the country’s economic growth.

The exact model of ringfencing has not been proposed by the ICB since certain banking operations come under both investment banking and retail operations.

While Britain would not wish to be out of sync with the tougher Basel III capital requirements – due for introduction in 2013, reforms may not actually be introduced until after the 2015 general election.

Chancellor George Osborne has supported ICB’s interim ringfencing proposal, while business secretary Vince Cable has demanded complete separation of trading and retail operations.

Ireland ahead of bank reforms schedule, IMF approves payment

The International Monetary Fund (IMF) approved the release of €1.48 billion to Ireland under the international rescue plan saying the country is ahead of schedule on legal restructuring of banks.

“The authorities are pushing forward financial sector reforms which are at the heart of Ireland’s response to the crisis. Bank recapitalization has been completed with welcome private investor participation. Legal restructuring of banks is ahead of schedule and their boards and management teams are being renewed,” the IMF said in a statement in Washington on Saturday.

Ireland is due to receive an additional €2.5 billion in European aids by the end of September and another tranche of €3 billion by the end of October, the European Union said in Brussels on Saturday. Britain is also expected to chip in another €500 million, the EU added.

Ireland is targeting to cut its budget deficit to 3 per cent of GDP by 2015 and has already accepted an international rescue package of €85 billion last year. The government will revise its growth forecast for the year and may also cut growth forecast for 2012 from 0.8 per cent published earlier this year, said finance minister Michael Noonan.

The Irish Republic’s budget deficit widened to €20.4 billion in the first eight months through August compared with a shortfall of €12.1 billion last year. The central bank governor Patrick Honohan urged lawmakers to consider a faster approach to reduce and said the current plan is “minimum required to ensure stability.”

“The Irish authorities have maintained resolute implementation of their economic program. The economy is showing signs of stabilization and financial market conditions have also recently improved,” observed the IMF.

“Ireland’s economy, however, faces a weakening in trading partner growth, which could dampen the pace of Ireland’s recovery in the near term,” the multilateral lender observed.

UK government unlikely to exit bank investments soon

The possibility UK government selling its stake in the Royal Bank of Scotland and Lloyds and exiting the investments within this parliament has almost but disappeared, senior officials connected with the process conceded.

Ahead of 2015’s planned election, Chancellor George Osborne was hopeful of selling the shares until recently, by 2012, signaling the end of the banking crisis and providing funds for higher government spending and possible tax cuts. Lib Dem leader Nick Clegg has also proposed a “people’s banking system” by giving every British voter shares in the state-owned banks.

However, the share prices of RBS and Lloyds have been ravaged by the recent market turmoil, caused by an economic slowdown and a looming sovereign debt crisis. The share prices are trading at about half the value that the government had paid while pumping in £66 billion.

Lloyds on Friday closed at 36p, compared to the average “in price” of 74p paid by the government. RBS’ shares closed at 25p, compared with the purchase price of 50p.

Given the weak economic growth outlook and poor bank profitability, chances of the stock prices appreciating considerably by 2015 are bleak, said bankers. Also the government may not implement the Vickers Commission proposal of ‘ringfencing’ the investment banking and retail operations of UK banks by 2015, complicating matters further.

“If you don’t know what the financial implications are (of ringfencing), it is much harder to write the prospectus. The less clear the economics are, the more the market will demand a discount in the value of the shares,” observed a senior bank director.

Business secretary Vince Cable and Mr. Osborne privately acknowledge that they knew it will be years before Vickers reforms could be implemented. The government planned to reduce the national debt from the sale of its stake in the banks.

However, the government body UKFI that oversees the investment in RBS, Lloyds and Northern Rock, refused to comment.

Proposed Euro bond would get the weakest state’s rating, warns S&P

The head of ratings agency Standard & Poor’s European sovereign rating unit warned on Saturday that a joint Euro bond guaranteed by all member countries would get the weakest member’s credit rating.

Talking at a panel discussion, Moritz Kraemer, managing director of the EMEA sovereign ratings division said S&P was not in talks with the European Union about the possible since it would amount to conflict of interest.

The proposed joint euro bond should be structured along the lines of Germany’s jumbo bond where different states come together to guarantee their bit of the debt issue, said Kraemer.

“If the euro bond is structured like this and we have public criteria out there then the answer is very simple. If we have a euro bond where Germany guarantees 27 percent, France 20 and Greece 2 percent then the rating of the euro bond would be CC, which is the rating of Greece,” Kraemer said.

“If it is a joint and not a several guarantee then it would be the weakest-link approach, as we call it. Possibly this could be structured in a different way. I don’t know because we are not in talks with the EU. It is not our task to help structuring or advising. We don’t do this again to prevent conflict of interest,”

The sovereign credit rating of Greece was further cut to CC from CCC by Standard & Poor’s in July, pushing it closer to the junk category. The European Union’s proposed debt restructuring would put the country into ‘selective default’, the ratings agency had observed.

S&P’s move followed similar prior downgrading by the other two big ratings agency, Moody’s and Fitch, which had warned of a Greek default despite banks and euro zone leaders agreeing that the private sector should shoulder part of the rescue package burden that provides desperately needed cash to keep the bankrupt country’s economy afloat.