34,000 more out of work in Eurozone

BRUSSELS: Unemployment in the eurozone remained at record highs in August and the number of people out of work climbed again, highlighting the human cost of the bloc's three-year debt crisis.

Joblessness in the 17 countries sharing the euro was 11.4% of the working population in August, which was stable compared with July on a statistical basis, but another 34,000 people were out of work in the month, the EU's statistics office Eurostat said yesterday.

That left 18.2 million people unemployed in the eurozone, the highest level since the euro's inception in 1999, while 25.5 million people were out of a job in the wider 27-nation European Union, Eurostat said.

The debt crisis that began in Greece in 2010 and has spread across the eurozone to engulf Ireland, Portugal, Cyprus and the much bigger economy of Spain has devastated business confidence and sapped companies' abilities to create jobs.

A European-wide drive to cut debts and deficits to try to win back that lost confidence has led governments to cut back spending and lay off staff, while stubbornly high inflation and limited bank credit are adding to household's problems.

Joblessness could go beyond 19 million by early 2014, or about 12% of the eurozone's workforce, according to a new study by consultancy Ernst & Young, predicting that rate to rise to 27% in indebted Greece. That compares with 24.4% in the country in June, the latest data available.

“In this difficult environment, companies are likely to reduce employment further in order to preserve productivity and profitability,” the report said.

Eurozone manufacturing put in its worst performance in the three months to September since the depths of the 2008/2009 financial crisis, with factories hit by falling demand despite cutting prices, a survey showed yesterday.

The International Monetary Fund expects the eurozone's economy to shrink 0.3% this year and only a weak recovery to emerge next year that will generate 0.7% growth.

But the joblessness picture also obscures wide regional variations. In Austria, unemployment is the eurozone's lowest at 4.5% in August, a slight fall from July, while Spain has the highest rate at 25.1% in the month.

While a bursting of a real estate bubble in Spain and the end of a decade of credit-fuelled expansion in Greece account for difficulties in the Mediterranean, policymakers still face the challenge of trying to revive growth across the bloc.

“The recession in the eurozone is due to the tough consolidation course in the peripheral countries, weaker global demand and the high uncertainty coming from the sovereign debt crisis,” Commerzbank economist Christoph Weil wrote in a recent research note.

Eurozone and UK central bankers will likely leave policy unchanged at their meetings this week, but both will announce additional measures to help their moribund economies before the year's end, according to a poll. - Reuters

Banks to sue Dubai Group's US$10 billion loans in debt pile

DUBAI: Royal Bank of Scotland (RBS) and two other banks have begun legal proceedings against an investment vehicle owned by Dubai's ruler, an unprecedented move to secure repayment after two years of unsuccessful debt talks.

RBS, along with German lender Commerzbank and South Africa's Standard Bank, had threatened legal action after walking away from negotiations over Dubai Group's US$10bil debt pile, sources said in July.

The banks began legal proceedings in a London court on Sept 6, breaking with the precedent in previous restructuring cases involving Dubai state-linked entities because of the opaque and untested insolvency system in the United Arab Emirates (UAE).

Given the complexities of the case, in particular the lack of precedent, the London filing threatens to extend debt talks well into the future, having dragged on since Dubai Group missed interest payments on two facilities in late 2010.

“Arbitration could be two years and we don't want to see the destruction of shareholder value just because these banks have thrown their toys in the corner,” said a source.

In a statement, RBS said it was forced to take action after several concessions offered to the group failed to secure a solution.

“We do, however, want to make clear that our preference was always to conclude an agreement without formal legal proceedings and we therefore remain open to such an outcome if an acceptable commercial resolution is forthcoming,” it said.

Such sentiment adds fuel to the belief that the legal action is more likely a negotiating tactic on behalf of the three banks all of which are unsecured creditors to secure a better deal from Dubai Group.

“They are unsecured and have nothing so they are doing it out of desperation or because they expect the Dubai government will bail out the group,” said one UAE-based banker.

The government walked away from debt talks in January, dashing any hope creditors had of state support.

Dubai Group, a unit of Dubai Holding which is the investment arm of Sheikh Mohammed bin Rashid al-Maktoum, was hard hit by the global financial crisis in 2008 due to excessive use of leverage in its investments and a sharp decline in the value of its portfolio companies.

Like a number of other state-linked entities in the emirate, it embarked on talks with creditors to restructure debt and extend maturities.

The London filing comes at a time when others on the restructuring are considering a proposal, put to the group before the summer, which would see all lenders extend their obligations to allow for Dubai Group's asset values to recover before they are sold.

Debt extensions range from 3 years for secured creditors up to 12 years for unsecured creditors. The sheer length of time is the main concern for the three banks because of the cost it would impose on unsecured lenders to extend cash for so long.

“Over 35 banks are working towards an agreement and a global term sheet is now being considered by bank credit committees, a number of which have indicated their support,” Dubai Group said in a separate statement. “We believe that we can reach a consensual agreement with our creditors.” - Reuters