28 August 2010 - Global Markets Review

Good Morning Ladies and Gentlemen,

Oh how a few years change things!

It's hard to believe that just 5 years ago (yes, FIVE years only), Dublin in Ireland was being touted as the deputy financial Capital City of Europe; second only to London.

But 5 years seemingly is a long, long time in the banking world (just ask Lehman's et al).

Raising money just got a whole lot tougher for Ireland's cash-strapped banks.

Standard & Poor's this week cut the country's credit rating to AA-, the lowest since 1995, just as 30 billion Euros ($37.9 billion) of government-guaranteed bank debt is due to roll over. Lenders may have to turn to the European Central Bank it seems.

The timing is awful in reality. If the banks can't refinance, then they become more reliant on the ECB, which hurts the perception of Ireland, which in turn drives sovereign spreads wider. It becomes a vicious circle.

S&P said on Tuesday it may cost as much as 50 billion Euros to recapitalize Irish banks, which almost toppled during the credit crisis and are saddled with bad debt. The cut pushed up the extra yield demanded by investors to hold 10-year Irish government bonds over German to a record. The next test comes Friday when Ireland sells as much as 600 million Euros in bills.

The sovereign debt crisis had been put on the back burner for several weeks, but now the market will rediscount the hot spots. The Ireland news was like an aftershock for the Euro bond markets.

The cost of insuring against default on Irish bank bonds approached the highest in a year Thursday.

Credit-default swaps on the senior debt of state-owned Anglo Irish Bank Corp., which was taken over by the government in 2009, Friday rose to 581, after rising to as high as 584 Wednesday, according to data provider CMA. That means it costs 581,000 Euros annually to insure 10 million Euros of the lender's bonds for five years.

Irish banks have about 30 billion Euros of government- guaranteed debt securities to roll over in September, Nomura International Plc said in a report on Aug. 17.

The premium investors demand to hold Irish 10-year debt rose partly on the worrisome bank guarantee roll, also known as the funding cliff.

The difference in yield between Irish and German 10-year bonds climbed to a record 345 basis points Friday. The spread has widened 78 points since the European Commission approved the injection of more cash into Anglo Irish on Aug. 10.

The Irish Financial Index has fallen 54% over the last year.

As part of the Euro area, Irish banks can resort to the ECB in Frankfurt. The central bank offers lenders unlimited cash against eligible collateral at the benchmark lending rate of 1% for up to three months.

Still, they may not have to raise as much as 30 billion Euros after selling troubled real-estate loans to the National Asset Management Agency, set up by the government to help cleanse the financial system of toxic debt.

On the face of it, it may look like Irish banks are facing a wall of maturing debt in September, but NAMA has a twofold impact on bank liquidity.

First, lenders including Bank of Ireland Plc and Anglo Irish are selling loans with a nominal value of 81 billion Euros to the agency, meaning they have fewer assets to finance. Second, the banks are receiving government-backed bonds to replace real-estate loans.

These 'NAMA Bonds' can be refinanced with the ECB or act as a liquidity buffer but banks are likely to seek to raise 15 billion Euros by the end of the year.

While some Irish lenders have sold debt securities in private sales in recent months, no government-guaranteed lender has sold a benchmark bond since April, when Irish Life & Permanent Plc found buyers for 1.25 billion Euros of bonds.

Investors this week demanded a record 382 basis points, or 3.82%, of extra yield to hold the 3.125% bonds due 2013 sold by Irish Life & Permanent, according to Royal Bank of Scotland Group Plc prices on Bloomberg.

It's now two years since the Irish banks were first put on government-sponsored life support. Given that the banks are still struggling to raise funds, I can't see how anyone can see this as anything other than a disappointing outcome.

The danger for Ireland is that increasing reliance on ECB may in turn impact on government debt.

Central Bank Governor Patrick Honohan said last week that the Anglo Irish bailout may cost about 25 billion Euros. S&P said the figure may be 35 billion Euros.

Anglo Irish has proved to be an even larger black hole than anyone imagined and there are major worries around at the moment that the cost of banking recapitalization is now beyond the reach of the government.

Now that is a real scary thought!

I wanted to avoid mentioning the US this week, but just when I thought I could, I stumbled across a pearl deep in the realms of US economic opinion.

Just when I thought it impossible to find a subjective American, my trawls this week came across a very good article that is currently causing much debate in the US Senate and Congress.

Social security and its ever-spiralling deficit.

"Social Security just celebrated its 75th birthday. Love it or hate it, it has done its job and should retire.

We need a new system, the Personal Security System, which retains Social Security's best features, scraps the rest, and covers its costs.

Social Security's objective - forcing people to save for retirement - is legit'. Otherwise millions of us would seek handouts in our old age.

But Social Security has also played a central role in the massive, six-decade Ponzi scheme known as US fiscal policy, which transfers ever-larger sums from the young to the old.

In so doing, Uncle Sam has assured successive young contributors that they would have their turn, in retirement, to get back much more than they put in. But all chain letters end, and the US's is now collapsing.

The letter's last purchasers -- Friday's and tomorrow's youngsters -- face enormous increases in taxes and cuts in benefits. This fiscal child abuse, which will turn the American dream into a nightmare, is best summarized by the $202 trillion fiscal gap discussed in my last column.

The gap is the present value difference between future federal spending and revenue. Closing this gap via taxes requires doubling every tax we pay, starting now. Such a policy would hurt younger people much more than older ones because wages constitute most of the tax base.

What about cutting defense instead? Sadly, there's no room there. The defense budget's 5% share of gross domestic product is historically low and is projected to decline to 3% by 2020. And the $202 trillion figure already incorporates this huge defense cut.

Reducing current benefits, most of which go to the elderly, is another option. But such a policy is highly unlikely. The elderly vote and are well-organized, whereas 3-year-olds can neither vote, nor buy Congressmen.

In contrast, cutting future benefits is politically feasible because it hits the young. And that's where Congress is heading, starting with Social Security. The president's fiscal commission will probably recommend raising Social Security's full retirement age to 70 from 67, for those who are now younger than 45. This won't change the ages at which future retirees can start collecting benefits. It will simply cut by one-fifth what they get.

Some political economists point to Social Security's 2010 Trustees Report and say, "Leave it alone. The system won't run short of cash until 2037."

Unfortunately, the Trustees' cash-flow accounting, like all such accounting, is arbitrary and misleading. In fact, Social Security is broke. Its fiscal gap, which the Trustees measure correctly, is $16 trillion.

This gap is small compared with the US's overall $202 trillion shortfall, not because the Trustees treat Social Security's $2.5 trillion trust fund as an asset (a questionable choice), but because they credit one-third of federal revenue to the program.

But Dollars are Dollars. If we re-label Social Security "payroll" taxes as "general revenue wage taxes," Social Security's fiscal gap increases by $60 trillion, and the fiscal gap of all other government activities falls by $60 trillion, leaving the overall $202 trillion gap unchanged.

Even by the Trustees' measure, there's a massive problem. Coming up with $16 trillion requires permanently raising revenue or cutting benefits by 26%, starting now. In other words, the program is 26% underfunded.

Now cutting benefits of new retirees by 20%, with an increase in the so-called full retirement age, starting 20 or so years from now isn't the same as immediately cutting the benefits of all retirees by 26%. Hence, the fiscal commissioners will need to hit young people with an even bigger whammy if they really want to solve Social Security's long-term woes.

Most likely, Washington will simply raise the retirement age and kick the can further down the road. This is what the Greenspan Commission did in 1983, knowing full well that by 2010 the system would be in even worse shape.

I say, retire Social Security and replace it with a version that works. Do this by freezing the current system, paying Friday's retirees their benefits, while paying workers only what they have accrued so far once they retire.

Next, have all workers contribute 8% of their pay to the new system, with half going to a personal account and half to an account of a spouse or legal partner. The federal government would make matching contributions for the poor, the disabled and the unemployed, permitting the system to be as progressive as desired.

All contributions would be invested in a global, market- weighted index of stocks, bonds, and real estate. The government would do the investing at very low cost and guarantee that contributors' account balances at retirement would equal at least what was contributed, adjusted for inflation.

Between ages 57 and 67, each worker's balances would gradually be swapped for inflation-indexed annuities sold by the government. Those dying before 67 would bequeath their account balances to their heirs.

While this plan has private accounts, Wall Street plays no role and makes no money. Additional contributions would be used to fund life- and disability-insurance pools.

Our nation is in terribly hot water. Business as usual is no answer. The only way to move ahead is to radically reform our retirement, tax, health-care and financial institutions to achieve much more for a lot less.

The Personal Security System is a major step in that direction. It meets all the legitimate goals of Social Security without the system's waste and penchant for robbing the young."

Very true to the point I feel and certainly not in keeping with what CNBC and Bloomberg television have been 'spouting' of late.

But this week China has also come into focus, albeit the crosshairs of CNBC and Bloomberg once again - that in its own right is usually a sign that the US is in trouble and deflecting attention away from them serves a short-term diversionary purpose.

China's crime? High increases in food and coffee prices in Eastern seaboard cities.

Who are the complainants? Migrant Chinese coming into those major cities.

Who has taken umbrage and taken up this issue with a passion? CNBC and Bloomberg. Go figure!

On to the numbers on the boards for the week that was:

US Markets

How the US did this week .....

US Summary US stocks rose, paring the market's third straight weekly loss, as Federal Reserve Chairman Ben S. Bernanke vowed to safeguard the recovery and growth in gross domestic product slowed less than estimated.

Alcoa and Exxon Mobil helped lead materials and energy producers to the top gains among 10 groups after Bernanke said the central bank will do "all that it can" to foster growth. Boeing Co., the world's largest aerospace company, advanced 3%. 3Par Inc. jumped 25% after Hewlett- Packard Co. offered $30 a share for the company, topping Dell Inc's $27-a-share proposal.

The Standard & Poor's 500 Index gained 1.7% to 1,064.59 as of 4 p.m. in New York. The Dow Jones Industrial Average advanced 164.84 points, or 1.7%, to 10,150.65. It ended the week down 0.6%.

The S&P 500 lost 0.7% this week after lower-than- forecast US durable-goods orders and home sales cast further doubt on strength of the world's largest economy. The gauge has tumbled 13% from this year's high in April.

Benchmark indexes rebounded from seven-week lows Friday after the government said the US economy grew at a 1.6% annual rate in the second quarter, topping the average economist estimate of 1.4%.

The S&P 500 briefly erased gains as a gauge of consumer confidence trailed estimates, Bernanke started speaking in Jackson Hole, Wyoming, and Intel Corp. cut its sales forecast at the same time, 10 a.m. in New York. The Thomson Reuters/ University of Michigan final index of US consumer sentiment for August rose to 68.9, lower than the median economist forecast of 69.6, from an eight-month low of 67.8 in July.

Stocks then rebounded, with energy companies rallying 2.8% for the second-biggest gain among 10 industries in the S&P 500. Bernanke said the US central bank "will do all that it can" to ensure a continuation of the economic recovery, and outlined steps it might take if the growth slows.

Exxon Mobil, the largest US oil company, rose 2.3% to $59.80 and Chevron Corp., the second-largest, increased 2.2% to $74.93. Consol Energy Inc., a coal and Appalachia natural-gas producer, advanced 5% to $32.78.

DuPont, the third-biggest US chemical maker, gained 3.9% to $41.01. Alcoa, the largest US aluminum producer, rose 3.1% to $10.32. Freeport-McMoRan Copper & Gold Inc., the world's largest publicly traded copper miner, increased 6.1% to $71.20 as materials producers climbed 2.9% for the biggest gain among 10 industries in the S&P 500.

Industrial companies climbed 2.1% as a group, led by Boeing, which rose 3% to $63.16. General Electric Co. advanced 1.5% to $14.71.

Intel said third-quarter revenue will be $11 billion, "plus or minus $200 million," below the previous expectation of between $11.2 billion and $12 billion. Trading in the shares was briefly halted after they triggered an exchange circuit breaker meant to prevent excessive volatility. The stock closed up 1.1% to $18.37.

SanDisk Corp., the biggest maker of flash-memory cards, slipped 4.4% to $34.19 for the biggest decline in the S&P 500.

3Par surged 25% to $32.46. HP boosted its offer for the company to $30 a share after 3Par said it would accept Dell's increased offer of $27 per share, which matched a prior offer from HP. The public bidding kicked off on Aug. 16, when Dell said it would pay $1.15 billion, or $18 a share.

Netezza Corp. soared 33% to $19.87. The maker of data-storage appliances increased its full-year sales forecast after second-quarter earnings beat analysts' estimates.

J. Crew Group Inc. declined 7.2% to $31.04. The US clothing retailer reduced its forecast, saying it expects earnings of $2.35 a share at most in the current fiscal year. The company had projected profit of as much as $2.45.

Investors withdrew a net $7.1 billion from equity funds tracked worldwide in the week to 25 August and put some $5.2 billion into bonds amid concern economies in the US and Europe are losing momentum, EPFR Global said. Speculation that the global rebound will falter is driving investors to the relative safety of bonds, sending yields on two-year Treasury bonds and German 30-year government securities to record lows this week.

Tiffany & Co. fell the second-most in the S&P 500, dropping 3.2% to $40.71. The world's second-largest luxury jewelry retailer reported second-quarter sales of $668.8 million, missing the average analyst estimate by 3.2%.

European Markets

What has been happening in Europe this week .....

Europe Summary European stocks rose for a second day, paring the Stoxx Europe 600 Index's third straight weekly drop, as stronger-than-forecast US economic growth eased concern the world's biggest economy will return to recession.

Banca Monte dei Paschi di Siena SpA surged 5% after the Italian lender more than tripled net income. Royal Vopak NV gained 7.3% after the world's largest chemical- and oil- storage company raised its profit outlook. Carrefour SA, the world's second-biggest retailer, climbed 3.3% as Citigroup Inc. recommended the shares.

The Stoxx 600 advanced 0.6% to 251.24 at the 4:30 p.m. close in London, erasing an earlier drop of 0.9%.

GERMANY

German stocks rose, with the benchmark DAX Index trimming its weekly decline, after a report showed that the US economy grew more than estimated in the second quarter.

Deutsche Telekom AG rose 2.3% and Drillisch AG climbed 5.2% as telecommunication shares surged across Europe, posting the best performance among 19 industry groups in the Stoxx Europe 600 Index. Salzgitter AG, Germany's second- largest steelmaker, rose 1.6%, following metal prices higher. SMA Solar Technology AG gained 3% after refuting speculation that it was the target of a takeover bid by First Solar Inc. of the US Infineon Technologies AG, Europe's second-largest chipmaker, declined 1% as Intel Corp. cut its third-quarter revenue and gross margin forecasts.

The DAX Index surged 0.7% to 5,951.17 at the close in Frankfurt, trimming its weekly decline to 0.9%. The gauge has retreated 6.3% from this year's high on 9 August as the Fed said the pace of recovery in the US economy will probably be "more modest" than forecast. The decline has pushed the DAX to its cheapest valuation relative to companies' reported earnings since 2008. The broader HDAX Index also gained 0.7%.

Deutsche Telekom AG rose 2.3% to 10.41 Euros as European telecommunications shares surged 2.2%. Drillisch AG, the operator of mobile networks for T-Mobile, Vodafone-D2 and E-Plus, gained 5.2% to 5.10 Euros, the stock's biggest gain since July 13.

Salzgitter AG rose 1.6% to 47.78 Euros, extending Thursday's 0.6% advance. Copper, lead, nickel, tin and zinc climbed on the London Metal Exchange.

SMA Solar Technology AG, the maker of solar power equipment, climbed 3% to 82.34 Euros. "Rumors about a First Solar takeover are baseless," Anna Raudszus, a spokeswoman for investor relations at SMA Solar, said Friday by telephone. First Solar spokesman Sebastian Fasbender in Berlin declined to comment.

Commerzbank fell 2% to 6.27 Euros after Handelsblatt reported that Germany's second biggest bank plans to sell new shares as early as autumn this year. Commerzbank may sell 5 billion Euros ($6.38 billion) or more if the stock market can absorb it so that the German government can exit the Frankfurt- based lender more quickly.

Infineon dropped 1% to 4.61 Euros. Intel now expects third-quarter revenue to be $11 billion, "plus or minus $200 million," compared with its previous forecast of $11.2 billion to $12 billion.

Intel said its forecast third-quarter gross margin is now 66%, "plus or minus a point", lower than the previous forecast of 67%, "plus or minus a couple of points."

German households are increasingly optimistic about the economy, a survey found, adding to existing signs that the biggest Eurozone economy is firmly on the recovery track.

The forward-looking consumer confidence index rose to 4.1 points in September from a revised 4 points in August, a monthly survey from GfK Group showed Thursday. Economists had expected the index to show a reading of 4 points. The substantial rise in German gross domestic product in the second quarter, falling unemployment and the decrease in the use of reduced working hours were cited as the sentiment boosting factors.

Reflecting brightening consumer optimism, moderate inflation rate and the continuing improvement on the Labour market, households' income expectations increased further. After logging 29.1 points in July, the indicator rose to 36 points in August.

Further, a measure for households' propensity to buy remained at 27.9 points in August. GfK said the stable high level of propensity to buy seems to be a good sign of sustained positive consumer sentiment after the special business cycle of the football World Cup is over. At the same time, the firm noted that uncertainties with regard to planned austerity measures and the expiration of stimulus programs are evidently preventing a more substantial upward trend in the propensity to buy.

"Consumers clearly do not believe the recovery of the German economy to be a flash in the pan, but rather expect it to continue," GfK said. German businesses also share the consumers' optimism. In August, the Ifo business climate index rose again.

In the second quarter, the German economy expanded at its fastest pace since reunification. Gross domestic product grew 2.2% sequentially following a revised 0.5% increase in the first three months of the year. Given the strong second quarter GDP figure, Deutsche Bundesbank raised its 2010 growth outlook to 3% from 1.9% projected earlier.

FRANCE

France's CAC 40 Index gained 0.9% to 3,507.44 at the 5:30 p.m. close of trading in Paris, paring this week's drop to 0.5%, the gauge's third straight week of losses. The SBF 120 Index also climbed 0.9% Friday.

Carrefour, the world's second-biggest retailer, climbed 3.3% to 35.72 Euros for the second-largest gain in the CAC 40 after Citigroup Inc. raised its recommendation to "buy" from "hold" and lifted its price estimate 5% to 40 Euros. The bank praised the group for introducing its Carrefour Planet format, which attempts to "capture the consumer's imagination" by "outsourcing a large portion of the non-food offer."

European Aeronautic, Defence & Space, the parent company of Airbus, declined 3.2% to 17.39 Euros, for the second-biggest drop on the CAC 40. Les Echos reported that Airbus has slashed its A350 airplane production targets, citing estimates given to sub-contractors. The world's biggest commercial-aircraft maker now plans to make 10 A350s in 2013, compared with a previous target of 18, the newspaper said.

Etam Developpement surged 3.9% to 34 Euros after the women's clothing designer and retailer said first-half net income rose to 7.2 million Euros ($9.2 million) from 2.2 million Euros a year earlier.

Scor rose 4% to 16.94 Euros. JPMorgan Chase & Co. raised its recommendation on France's largest reinsurer to "overweight" from "neutral," saying the shares are trading at a 34% discount to its estimated book value for 2010.

France' private sector expansion slowed in August from June led by slower growth in the service sector, figures showed on Monday.

The Markit France composite purchasing managers' index fell to 59.0 from 59.7 in July. This marks a five-month low in the indicator.

This was mainly due to a fall in the services PMI, which dropped to 59.9 from 61.1, a four-month low. On the other hand, the manufacturing PMI climbed to 54.7 from 53.9, a two-month high.

The manufacturing output index rose to 57.1 from 56.7 in July, a three-month high.

BELGIUM

The Bel 20 in Brussels ended the week at 2,467.55, a Friday gain of 0.86%.

Prices of houses and apartments rose by about 5% in the first half of 2010, according to new figures from the Belgian economic ministry (SPF Economie). Residential land prices rose by 14%.

From January to June, a house defined as "ordinary" sold for an average price of 177,775€, versus 169,310€ at the end of the same period in 2009, a rise of 4.99%. Prices of larger houses ("villas") rose by 5.4% and now cost an average of 314,852€. The average price of an apartment rose 5.5% to 184,598€.

In the same period, land for building residential property rose to 103.6€ per square metre, a 14.4% increase.

SPF Economie's report shows that trends are "roughly similar" in Wallonia and Flanders. For an "ordinary" house, the average price rose 3.4% in Wallonia (to 135,774€) and 4.1% in Flanders (to 188,630€).

In Wallonia, Hainaut province is the least expensive with an average price of 117,856€ for an "ordinary" dwelling; Brabant Wallon is the most expensive with an average price of 213,097 Euros. Lasne is the most expensive commune, with an average price of 350,846€.

According to SPF's website, the numbers reflect the prices of properties that were sold (as opposed to the prices offered by sellers).

Business confidence in Belgium increased for a second month in August amid a rebound in the economy .

The indicator of business confidence rose to minus 5.1 in August from minus 6.5 in July, the National Bank of Belgium said Tuesday. The reading was much better than economists' forecast for minus 6.

Sentiment increased in each of the four business sectors surveyed, with the sharpest improvement logged in the building industry. The rise in confidence was largely driven by a more favorable view of orders, the central bank said. The confidence indicator for the building industry rose to minus 3.2 from minus 5.6.

Confidence in the manufacturing sector grew due to brighter prospects for employment and appraisal of order books. The corresponding indicator rose to minus 8.1 from minus 9.5.

Underpinned by the improved outlook for demand, the sentiment in the business-related services sector grew for the first time after a fall over four consecutive months. The relevant index rose to 4.1 from 3.1. The confidence index for trade climbed to 1.1 from 0.8.

The smoothed overall synthetic curve that mirrors the underlying trend in the economy showed a decline for the second month in a row, the bank said.

The Belgian economy grew 0.7% sequentially in the second quarter, following stagnation in the previous quarter. Last week, data released by the central bank showed that consumer confidence improved for the third consecutive month after a significant decline observed in May.

THE NETHERLANDS

In Amsterdam the AEX headed into the weekend on 317.04, up 0.90% for the day.

State-owned bank ABN Amro posted a loss of almost €1bn in the second quarter of this year, due partly to the cost of the merger with Fortis.

Both banks were taken over by the state in 2008.

The sale of parts of its operations on EU orders also hit earnings, the bank said in a statement.

Excluding one-offs, ABN Amro booked net profit of €325m, up 57% on a year ago.

'This underlying performance was driven by an increase in revenues, predominantly as a result of growth of the loan portfolio and improved margins on savings products, as market conditions improved,' CEO Gerrit Zalm said in the statement.

'However, we remain cautious and expect the level of loan impairments in the remainder of the year to be somewhat higher than the low levels seen in the first six months,' he said.

Supermarket group Ahold booked sales of €7.1bn in the second quarter of 2010, an increase of 10.8% on the same period a year ago.

Excluding currency effects, the growth in sales was 4.4%

Operating profit was up 17.6% at €347m while net profit rose 3.1% to €202m.

"We continued to grow sales, volumes and market share in the Netherlands and the United States while delivering solid financial results,' CEO John Rishton said in a statement.

However, 'market conditions remained challenging with high levels of competitive promotional activity,' he said.

In the US, net sales were up 5.5% to $5.5bn, due largely to acquisitions. In the Netherlands, net sales rose 4.4% to €2.3bn.

Dutch producer confidence index increased in August from the previous month, a report by the Central Bureau of Statistics showed on Thursday.

The producer confidence index was 0.4 in August, up from minus 2.4 in the previous month. The latest increase came after two consecutive months of decline. A year earlier, the confidence indicator was minus 9.2.

Among the major three sub indicators, sentiment regarding the stocks of industrial companies improved in August compared to the previous month, while there were more entreprenEurs having a positive opinion about the order position. Production expectations increase and producers were less pessimistic about future employment trends in their industry.

SWITZERLAND

Zurich's SMI drew a line under the trading week at 6,183.14, a Friday gain of 0.84%.

Switzerland's employment showed a slight increase in the second quarter as the decline in the industrial sector moderated and the tertiary sector continued to add more jobs, the Federal Statistical Office said Thursday.

The number of jobs rose 0.6% annually in the second quarter to 3.968 million. Economists had expected a 0.8% annual growth in payrolls and the expected level of employment was 3.975 million. In the first quarter, the employment level was 3.961 million, up 0.1%. The statistical office said all short-term employment indicators showed a positive trend for the first time since the fourth quarter of 2007.

The renewed optimism was most strongly felt in the secondary sector, where the decline was less pronounced. Employment in the sector dropped 0.6% to 1.031 million. At the same time, employment in the tertiary sector continued to grow, with a 1% rise in the second quarter. Meanwhile, the level was 2.937 million.

Total number of employed in the second quarter was 4.54 million, an increase of 0.5% from a year ago. There were 2.48 million employed men and 2.06 million employed women. Swiss citizens with job fell 0.1% annually to 3.27 million, while the number of foreigners working in the country increased 2.1% to 1.27 million.

The Swiss Labour market situation is expected to improve further. Earlier in the month, monthly data released by the State Secretariat for Economic Affairs, or SECO, showed that the seasonally adjusted number of unemployed fell to 149,864 in July from 153,817 in June. The agency expects employment to increase 0.4% this year and 0.6% next year. Moreover, investors and consumers are upbeat about the economy.

The Swiss economy expanded 0.4% sequentially in the first quarter following 0.8% growth in the final quarter of 2009. The SECO is due to release second quarter national accounts on September 2. It foresees Switzerland's economic growth to moderate to 1.6% in 2011 from an estimated 1.8% in 2010.

Switzerland's M3 money supply, the broadest measure of money supply in the country, climbed 6.5% year-on-year in July, slower than the 7.4% increase in the previous month, the Swiss National Bank said on Monday.

At the same time, M2 money supply slowed to 9.4% from 11.1%, while M1 money supply slowed to 9.7% from 12.3%.

The Swiss tax authorities say they have met Thursday's deadline for examining the cases of about 4,450 United States clients of the UBS bank, suspected of tax offences.

The State Secretariat for International Financial Matters (SIF), issued a statement saying that the Federal Tax Administration (FTA) had "issued the corresponding conclusive decrees" on the cases, as it was obliged to do by an agreement signed last August between Switzerland and the US.

Client data in about half the cases has already been supplied to the US, and delivery will "be largely concluded by autumn 2010", the statement added.

The Swiss Federal Tax Administration had about 40 experts processing the data of alleged tax evaders, Mario Tuor, a spokesman for the SIF told swissinfo.ch earlier.

Michael Ambühl, the state secretary for International Financial and Tax Matters, said last week he believed Swiss banks should not run into further trouble with the US taxman.

Switzerland and UBS have signed an accord to disclose details of the US accounts at UBS thereby settling a long dispute.

However, the UBS clients had the possibility of going to court to fight the handover of their data.

By the end of July there were around 300 cases which were either still being heard by the courts or where it had been decided, after examination of the data, that the information should not be passed on, Tuor said.

At the moment 57 appeals from US clients are still pending at the Federal Administrative Court. A court decision in the middle of July, rejecting one client's appeal not to have her data handed over, is likely to apply to 40 of these remaining cases.

Court spokesman Andrea Arcidiacono confirmed media reports that 120 appeals had been submitted between May and August.

AUSTRIA

The ATX in Vienna rounded out the Friday session and the week at 2,413.73, up 0.61%.

BAWAG, the Austrian bank owned by Cerberus Capital, said profit would decline in the second half as funding costs rise and credit demand falls, but it would post its first profit since 2006.

BAWAG said on Wednesday it raised net profit by seven times in the first half to 97 million Euros ($123 million), mainly thanks to lower bad debt charges and higher revenue as well as lower structured credit writedowns compared to last year.

BAWAG is planning to sell its 10% stake in Hungarian bank MKB, which is controlled by Germany's BayernLB, but Chief Executive Byron Haynes said he would wait until the market was more favourable for such an asset sale.

Austria's production index rose a working day-adjusted 5.7% annually in June, Statistics Austria said Tuesday. Month-on-month, the index fell a seasonally adjusted 0.6%.

During the month, industrial output was 9.1% higher than last year. Meanwhile, construction output fell 6.3% annually. In June, production of input materials recorded a robust growth of 13.4%. At the same time, energy production climbed 7.8% year-on-year.

Production of capital goods industries increased 6.5% and that of durable consumer goods rose 1.7%. Output of non-durable consumer goods grew 3.7% annually in June.

Compared to May, industrial output declined 0.5% after adjusting for seasonal variations. Month-on-month, production in construction declined 0.8%. Output in durable consumer goods industries dropped 2.6% from previous month.

Production of capital, intermediate and non-durable goods as well as energy output also declined on a monthly basis.

Earlier, data from the Austrian Institute of Economic Research, or Wifo, showed that the economy expanded 1.9% year-on-year in the second quarter, after a stagnation in the first quarter.

Sequentially, the economy grew a seasonally and calender adjusted 0.9%.The growth was mainly driven by buoyant external demand.

Austria's visitor arrivals increased in the May to July period compared to the previous year, a report by the Statistics Austria showed on Wednesday.

The number of visitors arrived in Austria increased a record high of 5.3% in the May to July period compared to the same period of the previous year. During the period, visitor arrivals totaled 8.79 million. Meanwhile, the number of overnight stays increased 1.4% annually to 29.78 million.

For the January to July period, the total number of overnight stays increased 0.6% compared to the same period of the previous year. Overnight stays totaled 78.77 million during the period.

SWEDEN

Stockholm's OMX 30 ended the Friday session on 1,018.89, that was up 1.27% for the day.

Venture capital company Cevian Capital, led by Christer Gardell, and American billionaire Carl Icahn have together bought 4.64% of the shares in Swedbank, according to a disclosure notice on Monday.

Gardell also seeks a seat on the bank's election committee.

Through Cevian Capital Fund II, Cevian controls 3.58% of Swedbank's shares, while Icahn directs another 1.06%.

Through his stake, Gardell is eligible for a position on Swedbank's nomination committee, which votes on candidates for the organisation's board.

However, Gardell declined to comment on whether he sees a need to reshuffle the board.

"I do not want to comment on this matter," he said.

Cevian's investment in Swedbank is long-term, according to Gardell.

Sweden's centre-right government on Thursday reportedly outlined reforms that will be executed if it wins the election next month. The election will be held on September 19.

The proposed reforms worth around SEK 32.8 billion will be implemented between 2011 and 2014, the government said in its manifesto ahead of the election. The government also plans to reduce the stakes in Nordea Bank and the telecom operator TeliaSonera.

The number employed persons in Sweden aged 15-74 totaled 4,744,000 in July, up 98,000 from the prior year, Statistics Sweden said Thursday. The number of temporarily employed persons rose by 73,000.

The number of unemployed persons in July came in at 415,000. This is no statistically significant change compared to the same month in 2009, the statistical office said.

The unemployment rate came in at 8% in July. The expected rate was 7.9%. Among men, the jobless rate equaled 8% and among women 8.1%. These are no statistically significant changes compared to July 2009, the report said.

Swedish consumer confidence improved more than expected in August, the National Institute of Economic Research, or NIER, said Wednesday. The corresponding index rose to 25.2 from 23.3 in July.

Economists were looking for a reading of 23. Compared to July, interest rate expectations two years ahead remained unchanged at 4.2%. However, their optimism regarding the Swedish economy increased since last month.

Meanwhile, the economic tendency indicator remained unchanged at 109.9 in August, signaling considerably stronger than normal sentiment among businesses and consumers. Economists had forecast a reading of 112 for the index.

The confidence indicator for the manufacturing industry rose three points between July and August after declining seven points in the previous month.

DENMARK

Copenhagen's OMX closed out the Friday trading session on 393.45, a Friday jump of 0.20%.

A study of 56 financial institutions in the Danish kingdom has found that 27 have failed to live up to at least one of the five 'threshold limit' categories developed by the Financial Supervisory Authority to determine the risk of a bank's operations to customers, according to a new study.

The study of Danish, Faroese and Greenlandic financial institutions was carried out by financial newsletter Bankinfo and analyst Bjarne Jensen of BJ Consult. The analysis was based on figures from the bank's 2009 financial statements.

The FSA's five categories for banks are: the sum of large loans (under 100% of base capital); loan growth (less than 20% annually); real estate risk (less than 25% of total loans); stable funding (loans exceeding 1.25 times the deposit); and liquidity coverage (greater than 50%).

According to the FSA, financial institutions will need to comply in all five areas by the end of 2010 or be subject to punitive action from the authority.

Four of the banks - Amagerbanken, Eik Bank, Max Bank and Århus Lokalbank - failed to meet three of the category requirements. Six others - FIH, Grønlandsbanken, Middelfart Sparekasse, Morsø Bank, Sparekassen Hvelbo and Østjydsk Bank - fell short in two categories.

The 17 banks that violated one category are: Alm. Brand, BankNordik, Danske Bank, Den Jyske Sparekasse, Morsø Sparekasse, Nordea Bank, Nykredit Bank, Skjern Bank, Skælskør Bank, Sparekassen Faaborg, Sparekassen Lolland, Sparekassen Østjylland, Svendborg Sparekasse, Sydbank, Totalbanken, Tønder Bank and Vestjysk Bank.

The OMX in Stockholm completed a hectic trading week on

Christian Clausen, the CEO of Nordic banking group Nordea has spoken out against state bail outs of troubled banks, arguing that they should be allowed to fold.

Speaking in an interview with Danish magazine Lederne, Clausen divides responsibility for the fall out from the finance crisis with politicians, the banks themselves, and their customers.

"The bad banks should be allowed to go bankrupt, and customers should have been affected. This has just not been politically acceptable, as it would have affected the customers," Clausen said to the magazine.

But Clausen said that the consequences would be the same as for customers of businesses in other sectors, such as airlines or construction firms, which would not be saved by the state.

"The discipline required in choosing a bank you have faith in has been removed due to the principle of being 'too big to fail'," adding that he hoped that international regulation would continue in the direction of allowing troubled banks to fail.

Clausen said that while Nordea was not responsible for the crisis, it would do its bit to ensure that there would be no repeat.

Danish jobless rate dropped in July from the previous month, a report by the Statistics Denmark showed on Thursday.

The seasonally adjusted jobless rate dropped to 4.1% in July from 4.2% in the previous month. The jobless rate was 4.1% in May. The unemployment rate for men and women was 4.7% and 3.5%, respectively.

The number of unemployed persons totaled 112,800 in July, smaller than 113,600 persons in the previous month.

On an unadjusted basis, the jobless rate rose to 3.6% in July from 3.3% recorded a year ago. The number of unemployed persons increased to 97,900 from 89,400 in the previous year.

Danish economy expanded at a faster pace in the first quarter. The gross domestic product increased to 0.5% sequentially from 0.2% growth in the fourth quarter of 2009. The annual consumer price inflation rose to 2.3% in July from 1.7% in the previous month.

Statistics Denmark said on Monday that the country's consumer confidence index increased to 4.4 in August from 4.1 in July.

Consumer assessment of the household financial situation in the past 12 months fell to 1.8 in August from 2.5 in July, while views on the household financial situation over the next 12 months eased to 11.8 from 15.5.

Danes rate the general economic situation in the last 12 months better, with the sub-index rising to -2.9 from -9.7. Perception of the economic situation in the next year, meanwhile, was slightly less optimistic, with the index falling to 16.5 from 17.9.

The indicator assessing consumers' willingness to spend money on major purchases rose to -5.3 from -5.9.

Danish based cleaning firm ISS has become the fourth largest company in the world measured in the number of employees, reports public broadcaster DR.

The firm has a total of 525,000 employees across 51 countries and thereby moves into the big league, fourth after giants Tesco, Wall Mart and Group Four Securicor, and ahead of multinationals like Siemens and McDonald's.

Established in 1901, ISS is now owned by EQT Partners and Goldman Sachs Capital and is headquartered in Copenhagen.

FINLAND

In Helsinki the OMX finished the week at 6,498.29, up 0.19%.

Finland's unemployment rate remained unchanged at a seasonally adjusted 8.3% in July compared to the previous month, Statistics Finland said Tuesday.

Prior to July, the rate was declining steadily since January.

On a seasonally adjusted basis, the number of unemployed was 226,000, slightly up from the 225,000 in June.

According to the statistical office, 2.45 million Finns were employed in the country during July.

However, on an unadjusted basis, the jobless rate fell to 7.5% in July from 8.8% in June and the number of unemployed was 206,000. A year earlier, the rate was 7.7% and the trend of the unemployment rate was 8.3%.

The number of employed persons increased by 27,000 from last year. The employment rate was 70.6%, 0.3 percentage points higher than a year earlier.

The Labour force population increased 0.8% over last year in July and the number of the unemployed decreased 2.2% annually. The Labour force participation rate was 67.9% in July. According to estimates of Ministry of Employment and Economy, the number of unemployed job seekers registered at the various employment offices was 289,000 at the end of July, which was 1,000 less than the July 2009 numbers.

At the end of July, the number of persons covered by Labour market policy measures totaled 74,000, which was 6,000 higher than that in July of the previous year. Altogether, 2.7% of the Labour force was covered by Labour market policy measures.

Last week, the Finnish government, in its 2011 budget proposal, projected an unemployment rate of 8.6% for this year, which is expected to edge down to 8.2% in 2011.

The government expects the economy to grow 2% this year and the growth rate to be close to 3% in 2011 due to a pick-up in investment. The Finance Ministry pointed to the fragile global growth and slow growth of employment as the major risks to the current forecasts.

The nominal earnings of wage and salary earners in Finland rose between April and June compared to a year ago, figures showed on Friday.

Statistics Finland said wage earnings increased 2.7%. When adjusted for changes in consumer prices, the earnings rose 1.8% compared to a year ago.

Wage earnings rose in the local government sector by 3.9%, in the central government sector by 3.2%, and in the private sector by 2.3%.

NORWAY

Oslo's OBX pulled the curtains on the trading session Friday at 320.41, up 0.92%.

As expected, the Executive Board of the Norwegian Central Bank (Norges Bank) on Wednesday decided to keep the key policy rate unchanged at 2%.

"Recent developments in the Norwegian economy have been broadly in line with expectations. Activity is rising moderately. Inflation has slowed and is now below 2%," says Norges Bank Governor Svein Gjedrem.

The bank stated that global economic growth has been slightly stronger than expected, but the level of activity is still low in advanced economies. Turbulence related to public finances in several European countries has receded, but the outlook for the US economy is somewhat more uncertain.

"Considerations relating to both inflation and stable developments in output and employment imply that the interest rate should be kept low. The consideration of guarding against the risk of future financial imbalances that may disturb activity and inflation somewhat further ahead suggests that the interest rate should be gradually brought closer to a more normal level," Gjedrem says.

The Government Pension Fund Global - also known as the National Oil Fund - reports a 5.4% (NOK 155 billion) negative return in the second quarter, caused by a decline in global equity markets.

"The biggest stock market drop was in Europe, where the fund has about half its equity investments," says Yngve Slyngstad, Chief Executive Officer of Norges Bank Investment Management (NBIM). "The decline was largely driven by concern over high sovereign debt in some European countries, funding challenges for banks and fears of a new economic slowdown."

The fund's investments consisted of 59.6% equities and 40.4% fixed-income securities at the end of the quarter. These had a second-quarter return of -9.2% and 1%, respectively, measured in international currency. The fund's return was in line with the return on its benchmark portfolio.

The market value of the fund rose 29 billion kroner to 2,792 billion kroner. A decline in the krone exchange rate added 149 billion kroner to the market value, which was also increased by 35 billion kroner in capital inflows from the government. This was partially offset by the negative quarterly return of 155 billion kroner.

The single worst-performing investment was in oil producer BP. The company's oil spill in the Gulf of Mexico in April was the largest in US history and BP's share price halved in the second quarter. However, this has led the Pension Fund to purchase more BP shares.

The fiscal account of the Norwegian central government showed an increase in both revenue and expenditure in the second quarter of 2010.

Revenue grew 1.3% in the second quarter from the previous year and expenditure by 2.3%, Statistics Norway said Thursday. The surplus was approximately unchanged at NOK 121 billion.

Total revenue in the second quarter came in at NOK 352 billion, up NOK 4.4 billion compared to the same period last year. About half of this increase was due to improved operating surplus in extraction of petroleum.

At the same time, total expenditure rose by NOK 5.2 billion to NOK 231 billion. The increase in expenditure was due to a rise in transfers to municipalities and county municipalities and transfers to other state accounts.

The number of employed persons in Norway rose by 17,000 in June from March, data from Statistics Norway showed on Wednesday. The unemployment rate remained stable at 3.5% in the same period, the statistical office said. June's figure is the average of May to July numbers and March represents average of February to April.

In comparison, seasonally-adjusted figures for those registered unemployed with the Labour and Welfare Organisation including government initiatives to promote employment fell by around 2,000.

SPAIN

The IBEX in Madrid drew to a close Friday on 10,148.20, up 1.44%.

Spain's gross domestic product continued to creep up in the June quarter, figures showed on Thursday, but economists say the outlook for the southern European country is grim.

The economy grew 0.2% between April and June, the country's statistical office INE said on Thursday, confirming an earlier estimate. The growth figure means Spain has averted falling back into recession for now. The country exited its worst recession for decades in the March quarter, growing 0.1%.

INE also revised up the annual GDP comparison for the June quarter. The economy is now estimated to have contracted 0.1% compared to a year ago, better than the 0.2% decline estimated earlier.

Growth in the June quarter was driven by exports and consumer spending. Exports climbed 10.5% from a year earlier, while household consumption grew 2%, the first rise after seven quarterly falls.

Investment in equipment rebounded to grow 8.7%, also contributing to growth. However, construction investment was still depressed, down 11.4%.

Analysts say there is little to cheer about the data and pointed out that the increase in consumer spending was mainly brought about by temporary factors such as the final days of the government's car scrappage scheme and consumers bringing forward purchases to avoid the VAT rise in July.

Spanish Prime Minister Jose Luis Rodriguez Zapatero announced steep budget cuts aimed at bringing down the country's large budget deficit, after pressure from the European Union. Measures include public sector wage cuts and smaller budget allocations for regional governments. Spain currently has a deficit of 11.2% of GDP, which it has pledged to bring under 3% by 2013.

The government's spending cuts have been met with stiff resistance from Spaniards, with numerous demonstrations and strikes staged by public sector workers. The Iberian nation has the highest unemployment rate in the Euro area at 20.1%, with nearly half of under 25s without a job.

The average state pension for retirees in Spain rose to Eur 886.40 a month at the start of August, data released by the Ministry of Employment and Immigration showed on Tuesday. This represents a 3.5% increase from a year ago.

The ministry said that overall state pension - including those for disabled persons, orphans, widows and widowers - was at Eur 781.34 per month, representing an annual increase of 3.4%.

Some 8.7 million pensions were being paid out in Spain at the start of August, up 1.6% annually, with retirement pensions amounting to 5.2 million of the total.

Earlier this year the Spanish government introduced the harshest spending cuts since Spain returned to democracy following the death of General Francisco Franco in 1975 in a bid to cut its gaping budget deficit. Measures introduced include a suspension on pension payments beginning next year and a pay cut for public sector workers.

PORTUGAL

Lisbon's PSI General concluded the week Friday at 2,615.41, up 0.64% for the session Friday.

Portuguese energy company Energias de Portugal, or EDP, Monday said a regulatory change in Portugal, including an investment incentive for new power plants, will boost its earnings from next year.

The company said the new regulation will make remuneration for power in Portugal similar to that in Spain, representing an estimated increase of EDP's consolidated annual earnings before interest, taxes, depreciation and amortization, or Ebitda, of Eur45 million from 2011 onward.

Portugal's current account deficit narrowed in the January to June period from a year ago, data from the Bank of Portugal showed on Thursday.

The current account deficit totaled Eur 9.17 billion in the January to June period, narrowing from Eur 9.45 billion deficit last year. The balance in goods account dropped to minus Eur 8.58 billion from Eur 8.34 billion last year, while the balance in the services account increased to Eur 2.51 billion from Eur 2.24 billion.

At the same time, the income account deficit narrowed to Eur 3.95 billion from Eur 4.19 billion a year ago. The capital account surplus decreased to Eur 482 million from Eur 854 million.

Meanwhile, the financial account surplus widened to Eur 9.18 billion in the January to June period from Eur 8.63 billion a year ago. The direct investment rose to Eur 1.06 billion from Eur 817 million, while portfolio investment showed a deficit balance of Eur 17.27 billion compared to Eur 11.66 billion surplus last year.

ITALY

Italy's benchmark FTSE MIB Index gained 0.4%, to 19,817.46 at the 5:30 p.m. close in Milan, paring this week's loss to 0.3%.

Banca Monte dei Paschi di Siena SpA surged 5% to 95.6 Euro cents, the stock's biggest gain since July. Italy's third-largest bank said its second-quarter net income more than tripled to 118.9 million Euros ($151.2 million) from 31.5 million Euros a year earlier.

Citigroup Inc. and Credit Suisse Group AG upgraded the stock to "hold" from "sell" and to "neutral" from "underperform," respectively. Banca Akros lifted its rating to "accumulate" from "hold."

Banca Popolare di Milano Scrl 4.5% to 3.42 Euros, the stock's third loss in four days. Italy's oldest co-operative bank said its second-quarter net income fell to 20.1 million Euros from 52.4 million Euros a year earlier.

"We believe consensus EPS for 2010-12 will be revised down by 10-15% and expect the market to react negatively to what we consider a very weak set of results," Credit Suisse wrote in a note. Intermonte Sim SpA downgraded the stock to "neutral" from "outperform."

Hera advanced a second day, rising 1.5% to 1.41 Euros. Intermonte Sim upgraded the regional utility to "outperform" from "neutral," while Equita Sim SpA added the stock to its "small cap portfolio."

Impregilo increased 4.5% to 2.01 Euros, its second day of gains. Italy's biggest builder said first-half net income rose 6% to 56.2 million Euros.

Intesa Sanpaolo declined 2% to 2.26 Euros, paring Thursday 4.1% gain. Italy's second-biggest bank said second-quarter profit rose to 1 billion Euros from 513 million Euros a year earlier helped by a capital gain from asset sales. That compares with the 1.04 billion-Euro median estimate of 18 analysts surveyed by Bloomberg.

Landi Renzo rose 2.7% to 3.65 Euros, extending Thursday's 2.9% gain. Banca Akros upgraded the maker of injection systems for alternative fuels to "buy" from "accumulate," saying in a note that second-quarter results were "good despite Italian incentive termination."

Landi also had its price estimate increased to 3.20 Euros from 3 Euros at Exane BNP Paribas.

STMicroelectronics, Europe's largest semiconductor maker, retreated 3.4% to 5.38 Euros, erasing Thursday's increase, after Intel Corp. cut its sales forecast.

Telecom Italia, Italy's biggest phone company, advanced 3.9% to 1.07 Euros, the shares' third consecutive increase as telecommunication shares were the best performers in Europe Friday.

Tod's increased 1.3% to 62.33 Euros, the stock's third straight gain. UBS AG, Deutsche Bank AG, and Natixis Securities lifted their price estimates on the luxury-goods maker.

Confidence among Italian consumers plunged in August to its lowest level since March 2009 as government austerity measures made households more pessimistic about their personal financial situation and the possibility for savings, survey results showed Thursday.

The seasonally-adjusted consumer confidence index fell to 104.1 in August from a revised 105.5 in July, research firm ISAE said in a survey. Economists had expected a reading of 105.3.

The decline in the sentiment index was mainly driven by a fall in the consumers' evaluation of their personal financial situation. The corresponding indicator fell to 116.4 from 119.3 in July.

Consumers were more downbeat on the possibility for future savings and their propensity to purchase also dampened. The indicator measuring households' propensity to buy durable goods fell to minus 102 in August from minus 74 in the previous month.

However, the survey showed that their intentions for heavy purchases in the next 12 months showed some improvement. Italians considered the present time as favorable for same savings, but remained cautious about the their ability to save in the next 12 months period.

Italians' assessment regarding current personal financial situation fell in August, as the indicator dropped to 112.9 from 114.6 in July. Their view about future economic situation was also dull with the indicator dropping to 95.3 from 96.4.

Nonetheless, households' assessment about the overall economic situation improved and the corresponding index increased to 81 from 79.8. They were also more positive about the prospects of the Labour market.

According to preliminary data released earlier this month, the Italian economy expanded 0.4% sequentially in the second quarter, at the same pace as in the first three months of the year. Annually, economic growth quickened to 1.1% in the second quarter from 0.5% in the first quarter.

Economists believe that the growth was mainly boosted by exports. However, Bank of Italy had observed that going forward, the boost from exports may lessen as countries start consolidating their budgets and completes the phasing out of emergency measures.

Last month, annual inflation hit a 19-month high of 1.7%, bolstered by higher electricity and transportation costs. In June, inflation was 1.3%.

GREECE

In Athens, the Athex Composite ended both the session and the week Friday on

Greece's trade deficit narrowed to Eur 1.56 billion from Eur 2.75 billion in the same period of last year, the Hellenic Statistical Authority said Wednesday.

Total value of exports totaled Eur 1.41 billion compared to Eur 1.24 billion in June 2009. Annually, exports grew 13.4%. At the same time, the total value of imports dropped 25.6% to Eur 2.96 billion.

During January to June, exports totaled Eur 7.39 billion and imports came in at Eur 18.29 billion, resulting in a deficit of Eur 10.9 billion.

The head of the Bank of Greece and top officials from the country's largest lenders met Thursday to discuss the improving prospects of the economy.

After quite a long time, the leaders of Greece's banking industry appeared optimistic on the economy and its future course, stating that a difficult cycle was ending and a new one beginning.

They all agreed that efforts must gradually turn toward improving economic growth policies. A 25-billion-Euro bank support program, seen as provideing a boost to slowing credit growth, is expected to contribute to this goal.

Finance Minister Giorgos Papaconstantinou pointed out in Parliament Thursday that "this liquidity, arising from the second part of the support schedule, will be given based on one prerequisite: the submission of credit growth plans from each bank separately."

"Only under this condition will money be provided to Greek banks. The funds must reach the real economy and boost loan growth to households and businesses. This is the government's goal," he told lawmakers.

Bank of Greece Governor Giorgos Provopoulos stressed in his meeting with bankers the need to re-establish the flow of credit to businesses and households as economic conditions and prospects improve following recent reforms.

The heads of National Bank, Eurobank EFG, Alpha, Piraeus and ATEbank took part in the meeting.

They, in turn, expressed satisfaction with the government's so far successful implementation of the Stability and Growth Pact and recognized the positive prospects for the economy. Provopoulos added that this needed to be more widely communicated in Greece and abroad.

Another topic of discussion at the meeting was the Bank of Greece taking over the supervision of the insurance sector, which is to begin on December 1. According to sources, Provopoulos asked that all banks take the necessary steps to improve their insurance subsidiaries.