Obama ups pressure ahead of Senate jobs bill vote (Reuters)

WASHINGTON (Reuters) – President Barack Obama maintained his attack against congressional Republicans over his jobs bill on Saturday, upping pressure before it faces a vote in the Senate next week.

Repeating a warning to make them explain to the American people why they oppose his measures, Obama said the country needed it as insurance against a double dip recession.

"This jobs bill can help guard against another downturn here in America," the president said in his weekly address.

Republicans, who complain Obama is more interested in keeping his own job in next year's election than creating work for ordinary Americans, dismissed the steps as more of the same policies they say have missed their mark in the past.

"It's nothing but a rehash of the same failed ideas he's already tried, combined with a huge tax increase," said Republican Senator John Thune in his party's weekly address.

The president has toured the country since he launched the proposal last month in a bid to enlist public opinion to pressure Congress to pass the bill, and he held a short-notice press conference on Thursday to hammer home this message.

"If their plan doesn't measure up, the American people deserve to know what it is that Republicans in Congress don't like about this jobs plan," Obama said.

Senate Democrats will vote on his $447 billion proposal for tax cuts and spending on Tuesday, after replacing Obama's suggestion of how to cover its cost with their own millionaire tax surcharge. However, the Senate is not expected to get enough votes to pave the way for the bill's passage.

If it does fail to win the 60 votes needed to avoid Republican delaying tactics in the Senate, congressional Democrats will likely look at other ways to advance bits of Obama's initiative, either through promoting individual bills or by attaching measures into other legislation.

Obama said action was needed and the latest monthly jobs data, released on Friday, bore him out.

It showed U.S. unemployment remained pinned at a historically lofty 9.1 percent last month -- a rate of joblessness the president must reduce to improve his hopes of winning reelection in November 2012.

Trade pacts between the United States and South Korea, Colombia and Panama that will be voted on by U.S. lawmakers on Wednesday could generate business that Obama says may create tens of thousands of new U.S. jobs.

He hosts South Korean President Lee Myung-bak to a White House state visit on Thursday and they will travel together to Detroit on Friday to discuss the job benefits of the pact.

But Republicans complain that he should have advanced these deals when he entered the White House 2-1/2 years ago.

"It's extremely unfortunate that we had to wait so long for the president to do something so simple, to help promote American exports, and create American jobs," Thune said.

(Reporting by Alister Bull; Editing by Paul Simao)

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Europe eyes bolstering banks ahead of debt storm (Reuters)

DUBLIN/FRANKFURT (Reuters) – European banks may need more than 100 billion euros ($135 billion) to withstand the sovereign debt crisis, Ireland estimated on Saturday ahead of a meeting between German Chancellor Angela Merkel and French President Nicolas Sarkozy to work out how to recapitalize the lenders.

The falling value of banks' holdings of government debt from Greece and other euro zone periphery states has already prompted the implosion of Belgian lender Dexia, adding urgency to the Merkel-Sarkozy talks on the crisis.

Germany and France have so far been split over how to strengthen shaky lenders and fight financial market contagion that may follow a possible Greek default.

Paris is keen to tap the euro zone's 400 billion rescue fund, the EFSF, to recapitalize its own banks, while Berlin is insisting the fund should be used as a last resort.

The International Monetary Fund (IMF) has said European banks need 200 billion euros in additional funds.

Irish Finance Minister Michael Noonan said the capital needed to bolster banks cushions was likely to come from a variety of sources but the bill would be large.

"I think there is general agreement that it will be significantly in excess of 100 billion (euros)," Noonan told reporters on the sidelines of an economic forum in Dublin.

"I know that some of the big German banks that I was talking to personally intend raising money on the market so it will be private funding. Other banks would like to avail of the EFSF fund. Other banks will rely on their sovereign governments to provide the capital so there is going to be a range of ways of doing it," he said.

Regulators worry that forcing a raft of major lenders to take state aid would not be the best use of Europe's capital resources, while banks fear than singling out only some lenders for extra support could heighten market worries about weaknesses at individual banks.

German newspaper Frankfurter Allgemeine Zeitung on Saturday cited financial sources as saying France's five-biggest lenders would agree to take 10-15 billion euros in funding from the French state but also wanted to see Germany's No. 1 lender Deutsche Bank plump its capital cushion.

Deutsche Bank Chief Executive Josef Ackermann is against any role for the state in his own bank's capital position and has ruled out a capital increase.

A Deutsche Bank spokesman on Saturday referred to Ackermann's long-standing public position and declined further comment.

Sarkozy is due to arrive in Berlin late on Sunday afternoon and hold a working dinner with Merkel in the evening, amid signs that conditions for resolving the crisis are getting no easier.

Slovakia's coalition government was in deadlock on Saturday over talks on ratifying a strengthening of the EFSF rescue fund, with a junior party insisting on conditions for its support.

Euro zone minnows Slovakia and Malta are the last countries holding up expansion of the EFSF mandate, which is needed to fight the sovereign debt crisis.

Meanwhile, Greece's representative at the IMF said the country's borrowing needs will be higher than currently projected due to a tougher-than-expected recession and the outcome of a debt agreement with private sector creditors.

"This financing gap will have to be covered either by increasing the 109 billion euro loan agreed on July 21 or through a restructuring of private debt," Panagiotis Roumeliotis said in an interview in financial daily Imerisia.

EU leaders agreed in July to provide Greece with a second bailout of more than 109 billion euros to help the country service its debt through to 2020. ($1 = 0.741 Euros)

(Reporting by Jonathan Gould, Sarah Marsh, Carmel Crimmins, Lorraine Turner, Christian Plumb, Philip Blenkinsop and Andreas Rinke; Editing by Alison Birrane)

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GM profit nearly doubles, slowdown risk ahead (Reuters)

DETROIT (Reuters) – General Motors Co's quarterly profit shot past Wall Street expectations, but its share price slipped as investors focused on the risks of a sputtering economy and resurgent Japanese rivals.

GM reported second-quarter profit that nearly doubled as people paid more for new cars like the Chevrolet Cruze, and the automaker took a larger share of global sales as major Japanese competitors were largely sidelined by the March earthquake.

GM shares, which rose after the results were announced, later fell 2.6 percent in morning trading.

"It was a solid quarter that shows GM's return to health is on track," said Edward Jones analyst Matt Collins. "But with Japanese automakers getting back in the game while the economy appears to be stalling, this is probably as good as it gets this year."

Coming out of bankruptcy, GM Chief Executive Dan Akerson and other executives said the company stripped out enough costs to make the business recession proof so it could thrive even in a weak auto market.

The first major test of that claim for investors, including the U.S. Treasury, will be how GM performs if the economy slips back into recession.

"There is an increased level of uncertainty," GM Chief Financial Officer Dan Ammann told reporters. "But what we're trying to do, and what we've done successfully, is to configure the business with a low break-even point and a strong balance sheet so we can handle whatever scenario comes along."

The U.S. automaker is pushing heavily into smaller, more fuel-efficient cars like the Cruze, but still relies heavily on sales of more profitable trucks in the U.S. market.

In the second quarter, GM raised prices and reduced discounts thanks to strong sales of vehicles such as the Cruze and the Chevy Equinox and the lack of competitive pressure from the likes of Toyota Motor Corp.

Jefferies analyst Peter Nesvold called GM's quarterly performance phenomenal because of a bigger-than-expected lift from higher prices. But he also said the results were not enough to dispel investor concerns about the economy.

"The market is clearly saying, 'I don't care what you did in the first half, I want to know what you're going to do in the second half and 2012.' And the market is saying, 'Whatever you think volume and revenues are going to be, you're too high,'" Nesvold said.

'BACK WITH A VENGEANCE'

GM's gains came as its Japanese rivals struggled with fewer vehicles to sell because of disruptions to the supply of auto parts after the Japan earthquake.

GM North American President Mark Reuss, speaking at an industry conference on Thursday, said the automaker was braced for Toyota, Honda Motor Co and Nissan Motor Co to "be back with a vengeance" this year in the U.S. market.

For the second quarter, GM's net income rose to $2.52 billion, or $1.54 per share, from $1.33 billion, or 85 cents per share, a year earlier.

The earnings per share blew past the $1.20 analysts polled by Thomson Reuters I/B/E/S had projected on average.

Revenue rose 19 percent to $39.4 billion, above the $36.74 billion analysts expected.

"We believe this quarter should begin to revive momentum around the GM story," Citi analyst Itay Michaeli said.

Michaeli said the results might prompt investors to raise their valuation for a stock that has dropped by more than 25 percent since the beginning of the year.

GM emerged from bankruptcy in 2009 after a $52 billion taxpayer-funded bailout. The U.S. Treasury owns 32 percent of GM's common shares, and how it unwinds that stakes remains an unanswered question.

GM's share of global vehicle sales rose to 12.2 percent in the quarter from 11.6 percent a year earlier. Toyota's slip allowed GM to retake its spot as the largest global automaker by sales volume in the first half.

If the economy falters in the second half of the year, GM may have to raise incentives on its vehicles to lure shoppers, analysts have said.

For the second half of the year, GM expects its adjusted profit before interest and taxes to be "modestly" lower than the first half, but full-year results to be better than in 2010.

GM ended the quarter with liquidity of almost $40 billion, up from $36.5 billion at the end of June. Ammann said the company's focus would be on maintaining its "fortress balance sheet" to reinvest in the business and withstand economic shocks.

"We want to return cash to shareholders. When and how and in what form that will happen has yet to be determined," he said.

(Reporting by Ben Klayman and Kevin Krolicki in Detroit; Editing by Derek Caney, John Wallace, Dave Zimmerman)

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Banks study Greek debt rollover ahead of key vote (Reuters)

By George Georgiopoulos and Emmanuel Jarry George Georgiopoulos And Emmanuel Jarry – 1?hr?32?mins?ago

ATHENS/PARIS (Reuters) – France offered a radical solution on Monday for banks to roll over holdings of Greek debt for 30 years as the Athens government fought to get backbench rebels to back a crucial austerity plan to avert bankruptcy.

With depositors fleeing Greek banks in growing numbers and financial markets watching anxiously, President Nicolas Sarkozy told a news conference in Paris that French banks had reached a draft agreement with the authorities on a voluntary rollover of maturing bonds.

"We concluded that by stretching out the loans over 30 years, putting (interest rates) at the level of European loans, plus a premium indexed to future Greek growth, that would be a system that each country could find attractive," he said.

The plan, drafted by French bankers, was put to a meeting of international bankers and European Union officials with the International Institute of Finance (IIF) in Rome on Monday but no decision was taken, an Italian Treasury official said.

In a sign of ebbing confidence that Greece can avoid default on its 340 billion euro debt mountain, Moody's said Greek banks had lost about 8 percent of private sector deposits so far this year as customers burned their savings due to unemployment, transferred funds abroad or bought gold.

French government sources said under an outline deal, banks would reinvest 70 percent of the proceeds when Greek bonds fall due in 2011-14 and cash out the rest. Of the amount reinvested, 50 percent would go into the new 30-year bonds and 20 percent would go into zero-coupon AAA bonds with deferred interest.

The new bonds would be placed in a Special Purpose Vehicle, effectively removing Greek debt from the balance sheets of participating banks, the source said.

Private banking sources said the new bonds could be guaranteed by the euro zone's rescue fund (EFSF) or the European Investment Bank. Banks would hold equity in the SPV instead.

However, a French government source described the solution, proposed by French bankers, as "a sort of private Brady bond without a public guarantee," referring to a 1989 swap of Latin American debt for tradeable securities, some of them guaranteed, proposed by then U.S. Treasury Secretary Nicholas Brady.

German banks voiced interest in the "French model" although Deutsche Bank chief Josef Ackermann said it was only one of several solutions being considered and it was unclear whether any satisfactory proposal could be found.

"Political leaders expect a solution by the end of the week but we should not rush it," Ackermann told Reuters Television in an interview. "It is important to have a good solution. The issues are complex and need to be discussed."

Any new financial rescue for Athens, including official lending and private sector participation, depends on the Greek parliament approving this week a five-year austerity plan and legislation to implement structural reforms and privatizations.

REBELS PRESSED

Greek Finance Minister Evangelos Venizelos met ruling socialist party (PASOK) rebels in Athens to push them to toe the line in parliamentary votes on Wednesday and Thursday, where a defeat could plunge the country into default.

Greece's conservative opposition has rejected calls for national unity, forcing Prime Minister George Papandreou to rely on his slim parliamentary majority to push through a painful mix of spending cuts, tax hikes and state selloffs.

However with Greece stuck in deep recession, at least three PASOK deputies have expressed serious reservations or outright opposition to a plan they say will crush any hope of growth for years to come and it is unclear how the numbers will play out.

Without parliamentary approval for the measures, which have caused a wave of strikes and demonstrations, the European Union and International Monetary Fund say they will not release the fifth tranche of the 110 billion-euro bailout agreed last year.

If the 12 billion-euro tranche is not forthcoming, the Greek government, which has been shut out of financial markets because of the ruined state of its public finances, will run out of money within weeks, probably triggering a Europe-wide crisis.

"If it is Greece alone, that's already big," Ackermann said. "But if other countries are drawn in through contagion, it could be bigger than Lehman," he said, referring to the disastrous 2008 collapse of Wall Street investment bank Lehman Bros.

Three euro zone sources in Brussels said EU officials were working on a contingency plan for Greece if its parliament rejects an austerity program and the country cannot receive the next installment of EU/IMF emergency loans.

The fallback plan, distinct from the French rollover ideas, involves ways to ensure Greece gets the liquidity needed to avoid default if the next 12 billion euro tranche of aid cannot be paid out by mid-July, the sources said.

PREPARATIONS

The debate in Athens is set to begin on Monday evening with an initial vote on the framework austerity package due on Wednesday, and lawmakers then voting on Thursday on a separate bill containing specific steps to implement it.

Defections over the past 13 months have cut Papandreou's support in the 300-member parliament to 155 seats, meaning a handful of votes could decide the issue, which may be further complicated if one bill passes and the other does not.

In an interview with Spanish daily El Mundo on Sunday, Deputy Prime Minister Theodore Pangalos said he believed the first vote would pass but he was less confident about the second implementation bill.

"That's where we may have problems," he said. "I don't know whether some of our legislators will vote against it."

Venizelos was due to meet wavering deputies throughout Monday in a last-ditch bid to ensure the votes pass after German ministers warned that Europe had to make plans for the event of a defeat which would block the next tranche of aid.

"(Rejection) isn't Plan A, or the most likely outcome but the euro zone and its financial sectors need to make preparations," Deputy Finance Minister Joerg Asmussen told a conference on Monday.

Progress in the rollover talks cooled demand for safe-haven bonds on Monday but the premium investors demand to hold Greek debt rather than benchmark German Bunds widened by a further 20 basis points to 1,432 basis points.

BAILOUT INSUFFICIENT

With the current 110 billion bailout insufficient to keep Greece going, European leaders are working on a further package of a similar size including a contribution from private banks which would agree to a voluntary rollover of their Greek debt.

Whether such a deal will be enough to stave off problems in the longer term remains uncertain. Many investors and economists believe that even if the austerity package is passed this week, it will merely delay an inevitable restructuring or default.

With the fate of both the existing aid plan and the new package dependent on this week's vote, major rallies are planned by the protesters who have been occupying Syntagma Square outside the Greek parliament in Athens for the past month.

Public anger at the political class has been fueled by Greece's worst recession since the 1970s, a youth unemployment rate of more than 40 percent and public finances that have been shattered by a debt equivalent to some 150 percent of gross domestic product.

The powerful public sector union ADEDY and its private sector equivalent GSEE are due to hold a 48-hour strike on June 28 and 29, that will hit public transport, telecoms, the post office and many hospitals.

Many companies, including the main electricity group PPC which is slated for partial privatization next year, have already started rolling stoppages.

On Monday, protesters hung a huge banner off the Acropolis, the ancient rock outcrop which dominates Athens, proclaiming: "People have the power, they never surrender."

(Additional reporting by Stephen Slater in London, Luke Baker and Julien Toyer in Brussels, Nick Vinocur in Paris, Stefano Bernabei and Gavin Jones in Rome; Writing by James Mackenzie and Paul Taylor, editing by Paul Taylor/Janet McBride)

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Republicans firm on taxes ahead of Obama meeting (Reuters)

WASHINGTON (Reuters) – The Senate's top two Republicans on Sunday stood firm against including tax increases in any deal to raise the debt limit and shrink budget deficits one day before a meeting with President Barack Obama, but said the showdown need not go down to the "11th hour."

Obama is to meet separately with Senate Democratic and Republican leaders on Monday to try to revive negotiations that collapsed on Thursday when Republicans walked out over Democrats' demands for tax increases.

Sending a message to Obama in appearances on Sunday news interview shows, Senate Republican leader Mitch McConnell and Jon Kyl, his deputy in the leadership, presented a unified front demanding spending cuts and opposing tax hikes.

"We have a spending problem. We don't have a problem because we tax too little," McConnell said on the ABC program "This Week."

"We need to quit borrowing, quit spending, and get us our trajectory heading in the right direction. Throwing more tax revenue into the mix is simply not going to produce a desirable result, and it won't pass," McConnell added.

Obama said on Saturday he remained committed to working with Congress to solve the government's debt problem, but the focus could not be only on spending cuts, as Republicans demand.

The $14.3 trillion U.S. debt ceiling must be raised before August 2 or the Treasury Department will run out of money to pay the nation's bills. A default on debt payments could send markets plunging globally and raise the risk of another U.S. recession.

"One of the reasons we are meeting tomorrow (Monday) is that I think both the Democrats and the Republicans would like to come together and finish this negotiation and finish it sometime soon. It need not necessarily go to the 11th hour," McConnell said.

"We need to put something together that will actually pass and make a difference, impress Standard & Poor's and Moody's and the rating agencies that are about to downgrade the U.S. credit rating for the first time in our history," he added.

'KILL THE ECONOMY'

The U.S. federal deficit stands at $1.4 trillion, among the highest levels relative to the economy since World War Two.

Speaking on "Fox News Sunday," Kyl said "we have to try" to get a deal by August 2.

"I think the president has to make a decision -- which is more important to him: solving this problem, reducing spending somewhat, or making sure that we raise taxes on American economy?" Kyl said.

"If you want to kill the economy, raise taxes. Are we going to vote to absolutely put another anchor around the neck of the economy, which is struggling to try to recover here? Absolutely not. It's terrible policy," Kyl added.

Democrats have eased back from their insistence that personal income tax rates need to rise on the wealthiest Americans to focus instead on ending a wide range of tax breaks on everything from corporate jets to oil and gas subsidies.

They have also proposed closing tax breaks that benefit the wealthy, such as limiting the deductions for households making more than $500,000 a year.

Republicans control the House of Representatives while the Democrats control the Senate.

Appearing on CNN's "State of the Union" program, House Minority Leader Nancy Pelosi said Democrats must have a say in crafting an agreement, especially if Republicans in the chamber cannot generate enough support on their own to pass a final plan.

Pelosi said any package that only cuts spending is unworkable, suggesting that closing what she and other Democrats call corporate "tax subsidies" for oil companies and other businesses should be included in any deal.

"You cannot achieve what you set out to do if you say it's just about cutting. It has to be about increasing the revenue stream as well. There are many things you can do in terms of special interest loopholes," Pelosi said.

Republican Senator Jim DeMint, a favorite of the conservative Tea Party movement advocating deep spending cuts, said he believes the United States would not default on its obligations if Congress fails to raise the debt ceiling.

"If we add another $2 trillion to our debt without taking control of it, I think you're going to see the markets respond in a much worse way," DeMint said on CNN.

(Reporting by John Crawley, Paul Simao, Paul Eckert and Lucia Mutikani; Writing by Will Dunham; Editing by Vicki Allen)

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