Tag Archives: wsj

Greece debt deal still important to all of us

It is hard to overemphasize how important Greece and Europe are to our eventual economic recovery. Whether we like it or not our fortunes are tied to Europe. We do a ton of trade with Europe. If they fall in the tank, they’re not going to buy US exports and that will cause a significant slowing of our economy. No matter how much we’d like to think that we are strong and independent, we are tied to the world economy, especially to Europe.

From WSJ (may need a subscription):

Greece and its private sector creditors said Saturday they were on the verge of a deal to write off €100 billion ($132 billion) worth of the country’s debt, pending the outcome of separate talks on a new, multi-billion euro bailout for Athens.

In separate statements, Greece and the creditors both noted significant progress in the talks and said a final deal would be announced next week in tandem with the new loan program.

Effectively, the focus now shifts to a European summit in Brussels Monday where the continent’s leaders will sanctify — or not — the terms of the debt restructuring and the new loan. But complicating those discussions are concerns that Greece’s funding needs might be bigger than originally thought, while Europe appears divided over how to cover the gap.

Badness in Europe

One of the big dark clouds hanging over our economy is our very close ties to Europe. If the European economy tanks, we will be pulled down with it. This is a fact. S&P has downgraded France and just about everyone else in Europe except for Germany.

From WSJ:

France and eight other euro-zone countries suffered ratings downgrades on their sovereign debt Friday, sparking renewed global worries over Europe’s ability to bail itself out of financial crisis.

Standard & Poor’s Ratings Services stripped triple-A ratings from France and Austria and downgraded seven others, including Spain, Italy and Portugal. It retained the triple-A rating on Europe’s No. 1 economy, Germany.

The downgrade to France, the zone’s second-largest economy, will make it harder—and potentially more expensive—for the euro zone’s bailout fund to help troubled states, because the fund’s own triple-A rating depends on those of its constituents. The downgrades also speak to how deeply the concerns over countries on the euro zone’s periphery have penetrated its core.

Oh, and don’t forget Greece. Their debt talks have collapsed.

American Airlines Files for Bankruptcy – This Can’t Be Good for Us

from WSJ

Yesterday, as I was driving home from work, I heard that American Airlines is filing for bankruptcy. American Airlines. Depending upon how you measure, American Airlines is one of the biggest, if not the biggest, airline in the country. American Airlines, along with Southwest Airlines, weathered the 9/11 downturn fairly well. So what happened? In their court filings, American Airlines has $24.7 billion in assets and $29.6 billion in debt. So how did this happen? What is the problem?

It’s the planes

American’s mainline jet fleet of 619 planes includes 247 twin-engine MD-80s made by McDonnell Douglas Corp., according to the airline’s website. Boeing acquired McDonnell Douglas in 1997. Those planes, which are no longer in production, are being replaced by Boeing 737-800s, which are about one-third more fuel efficient.

Placing an order for aircraft “creates a contract,” and in bankruptcy accepting or rejecting the contract will be up to AMR, said Scott Peltz, the national leader of RSM McGladrey’s Financial Advisory Service in Chicago. Boeing and other suppliers will probably have representatives at AMR’s bankruptcy hearings who “will be looking at what their options are,” he said.

Boeing said it has “no reason to doubt” that the jet order remains pivotal to AMR. Boeing and Airbus will provide $13 billion of financing on the first 230 jets, American said in July.

Maybe it’s more than just the planes. I read this in the Wall Street Journal:

The Fort Worth, Texas, company for years has resisted the type of court-protected restructuring that allowed other big carriers including United Continental Holdings Inc.’s United Airlines and Delta Air Lines Inc. to realign costs and find merger partners. AMR said its annual labor costs, including pensions, are about $800 million more than rivals, a figure unions dispute. Its financial woes have grown in recent months as contract talks with its pilots fizzled and fuel prices rose.

The bottom line, as I see it, is that this isn’t good for the country or for labor. There are going to be job losses. There are going to be fewer flights, especially to smaller cities. This isn’t good.