In this issue:

Russian Vice Premier: Shift From Dollar to Euro 'Unavoidable'

How Many German Insurance Firms Are Close To Bankruptcy?

Vulture Funds Eye Overseas Deposits of Argentine Bank


From Volume 2, Issue Number 42 of Electronic Intelligence Weekly, Published Oct. 21, 2003

World Economic News

Russian Vice Premier: Shift From Dollar to Euro 'Unavoidable'

Commenting on perspectives for Russia's trade with Europe Oct. 15, Viktor Khristenko said in Moscow, that he saw the dollar being increasingly replaced by the euro as something "unavoidable."

The domination of the dollar in the past has had to do with the fact that the exchanges for trading hydrocarbons and some other crucial commodities were using dollars, Khristenko said. But in the past, the dollar has been a stable currency, whereas now it isn't anymore. Therefore, recently "a diversification tendency" can be observed "in regard to currency, in the hydrocarbons sphere," he added, "and suppliers will find it unwise not to diversify their risks."

The fact that Khristenko's remarks came in the context of meetings he had with EU Trade Commissioner Pascal Lamy, certainly is not unrelated.

How Many German Insurance Firms Are Close To Bankruptcy?

This question is being raised in financial markets these days. On Oct. 17, the German Parliament passed new legislation for the German insurance sector, pushed by Finance Minister Hans Eichel, which reduces the amount of taxes the life and health-insurance firms have to pay. For the whole sector, the tax reduction amounts to about 5-10 billion euro per year. The insurance firms, in particular the life insurers, have lost huge amounts of money due to the recent three years' stock-market crash. The German government argues, that under current tax legislation, the insurance firms actually have to pay more taxes when they suffer losses on the stock markets. The firms could avoid paying these taxes, by partly selling off their reserves. But—and here comes the argument by the German government—by reducing their reserves, certain German insurance firms would have come very close to the point of insolvency.

Earlier this year, Mannheimer Lebensversicherung became the first large life-insurance firm in Germany to become insolvent. Its policies had to be rescued by the insurance sector's new "Protector" guarantee fund.

The move by the German government will improve the situation of the insurance firms—but only on the books. In the case of Munich Re, the largest reinsurance firm in the world, it will turn a 600 million euro loss into a 100 million euro profit. Munich Re has shares in the life-insurance firms Hamburg-Mannheimer, Victoria, and Karlsruher. Allianz, AMB Generali, and AXA are also believed to profit massively from the tax change. Christine Scheel, chairman of the Bundestag Financial Committee, welcomed the decision, saying that "it will prevent insurance firms from becoming insolvent."

According to financial insiders, certain life-insurance firms in Germany, including some big names, probably would not have survived the year 2004 without such measures. In spring 2003, the Federal supervision agency for the financial sector, BaFin, performed a so-called "stress tests" among the 15 largest German insurance firms. And two of the 15 failed the test, which means that under uncomfortable market conditions, they might have gone bankrupt. Many small and medium-sized life-insurance firms, which have very limited reserves, have only survived to the present day because the stock markets recovered slightly in the last six months. Any return of stock-market turbulences could mean their end.

Munich Re announced on Oct. 17 that it will sell new stocks worth 3.8 billion euro to boost its reserves, which have been depleted by falling stock markets. The firm said it thereby hopes to restore its credit rating. Within the last 12 months, Munich Re lost its "Triple A" rating, and was downgraded four levels by Standard & Poor's. On top of the dramatic fall of Munich Re's stock price last year, its stocks are down this year again by 17%, making it the worst performer on the Bloomberg Europe 500 Insurance Index.

Vulture Funds Eye Overseas Deposits of Argentine Bank

Vulture funds are eyeing deposits held in the Miami, New York, London, and Madrid branches of Argentina's state-owned Banco de la Nacion, Clarin of Buenos Argentina reported Oct. 13. Representatives of two of these funds, Old Castle and Lightwater, have also asked a Manhattan judge to demand that President Nestor Kirchner provide a complete listing of all the assets which Argentina holds abroad. There are now a total of 80 legal suits against Argentina, filed by vulture funds and other "creditors," in the U.S., Italy, and Germany.

No big surprise: It was none other than Wall Street's Domingo Cavallo, possibly the most hated man in Argentina, who turns out to be the vultures' best friend. As Finance Minister in the early 1990s, and in 2001, to make the country's debt paper more attractive, he made sure that the clause by which Argentina waived sovereign immunity, was included in the contracts with investors.

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