Finance & Business World

Ireland may merge two of its biggest lenders as part of a raft of measures aimed at drawing a line under Europe’s worst banking crisis.

The government is considering folding EBS Building Society, the fifth-largest, into Allied Irish Banks Plc (ALBK), the second- largest, according to two people with knowledge of the situation. An announcement may come today after the central bank publishes the results of bank stress tests at 4:30 p.m. in Dublin, said the people, who declined to be identified because the matter isn’t yet public.

The country is taking “the first step in making changes to the financial system that are long overdue,” Phil Hogan, Ireland’s environment minister, told national broadcaster RTE Radio today. Finance Minister Michael Noonan will later in parliament announce “important decisions,” Hogan said.

Ireland is trying to show investors, its taxpayers and the rest of the euro region that the nation has plugged all the holes in the banking system, whose collapse so far cost 46.3 billion euros ($65.8 billion) in capital and crippled what was once Europe’s most dynamic economy.

The third round of stress tests covers Bank of Ireland Plc, whose shares have dropped 65 percent over the last six months, Allied Irish, EBS and Irish Life & Permanent Plc. Noonan will set out how more money the banks need from a 35 billion-euro bailout fund set aside for them.

“There is no overnight solution here,” said Gavin Blessing, a bond analyst at Collins Stewart Plc (CLST) in Dublin. “It’s going to be quarters or even years before these banks can raise debt at attractive levels and fund themselves independently again in the wholesale market.”

Bailout Fund

Ireland’s banks were reliant on the European Central Bank for 88.7 billion euros of funding at the end of last month, the Irish central bank said today. They may have borrowed as much as an additional 70.1 billion euros in exceptional liquidity from the Irish central bank, according to figures on March 11.

The government may have to inject 27.5 billion euros extra into the banks in total, according to a survey of 10 analysts and economists by Bloomberg News.

This would exhaust about 80 percent of the bank fund set up last year as part of Ireland’s bailout by the European Union and International Monetary Fund. The fund includes 17.5 billion euros from Ireland’s own resources.

“A realistic number would be 40 billion euros,” said Brian Lucey, associate professor of finance at Trinity College, Dublin. “They will come in between 25 billion euros to 30 billion euros. Anything more will be a difficult sell.”

Bank of Ireland

Bank of Ireland, the largest lender, will seek as much as 5 billion euros, said two people with knowledge of the matter. Irish Life will require more than 3 billion euros, while EBS will need about 1 billion euros, three people with knowledge of the banks said. The people declined to be identified because the figures aren’t yet public.

The government controls four of the six domestic lenders, including Anglo Irish Bank Corp., which epitomized Ireland’s building boom and collapsed with the bursting of the property bubble and 15 percent decline in gross domestic product. Anglo Irish said today its final pretax loss was 17.7 billion euros for 2010, a record for an Irish company.

A fifth bank, Irish Life, yesterday suspended its shares until tomorrow on speculation the state will have to take majority control. The stock fell 45 percent on March 29. The company is weighing the sale of its profitable life assurance and investment management units to shore up its bank business, three people with knowledge of the talks said yesterday.

Announcements

Noonan decided yesterday to scrap the sale of state-owned EBS to a group including U.S. billionaire Wilbur Ross’s leveraged-buyout firm and Dublin-based Cardinal Capital Group. The state said in December is was acquiring 93 percent of Allied Irish, while it seized full control of EBS in May.

After central bank Governor Patrick Honohan, 61, publishes the results of the stress tests, Noonan, 67, who worked with Honohan in government in the 1980s, will address parliament shortly afterwards.

The main focus of this year’s assessment is on home loan portfolios after lenders were forced to sell 72.3 billion euros of risky commercial real-estate loans to the state last year at an average discount of 58 percent.

Deposits by Irish residents fell 9.8 percent in February from a year earlier, the central bank said today in Dublin. The decline was 1.8 billion euros over the month, it said.

The ECB expects Ireland to stand ready with a “backstop facility” for Irish banks, Lorenzo Bini Smaghi, an ECB executive board member, said yesterday.

Russian Car

Armed with the stress tests results, Ireland’s month-old Fine Gael-led government will seek to reopen the terms of the country’s 85 billion-euro bailout inked in November. Noonan will bring the results to a meeting of European finance ministers in Budapest starting on April 8 as he pushes for a reduction in the 5.8 percent interest rate on the loans.

The government also said it wants the ECB to provide longer-term financing for the banking system, and is seeking permission to share losses with senior bank bondholders. European policy makers are opposed to imposing losses on bank bondholders, on concern that it may reignite a banking crisis across the euro region.

Irish authorities also want fellow euro members to take direct stakes in the banks or provide insurance against losses for them as it tries to find buyers for lenders.

“It would be great if we could sell Bank of Ireland and Allied Irish for a euro to an overseas buyer, but that’s not going to happen,” said Jim Power, chief economist at Friends First in Dublin, who likened Irish banks to Soviet-era cars. “I compare it to trying to sell a 20-year-old Lada.”

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On the top floor of St. John’s Mercy Medical Center, doctors and nurses watch banks of video feeds, peering in on intensive care patients at rural hospitals across the Midwest.

Two critical care doctors and nine nurses in the St. Louis area oversee more than 400 patients at St. John’s Mercy and a dozen other hospitals in four states faxless cash advance. In round-the-clock shifts, they scan patients’ vital signs and review their medications, lab work, X-rays and medical records. They conduct real-time quality control audits to ensure best practices are being followed.

From this control room, they can operate high-resolution cameras mounted in doorways of patients’ rooms

Sales of existing homes fell in February after three straight monthly increases, an industry group said Monday.

According to the National Association of Realtors, homes sold at an annual rate of 4.88 million in February, down 9.6% from January and 2.8% lower than February 2010 sales.

The report was worse than economists had expected. A consensus of experts surveyed by Briefing.com had forecast an annualized sales rate of 5.05 million.

At the same time, the median home price declined 5.2% compared to the previous year, to $156,100.

"Housing affordability conditions have been at record levels and the economy has been improving, but home sales are being constrained," Lawrence Yun, NAR chief economist, said in a statement.

Yun said the housing market recovery is bound to be rocky, especially with the tight credit market.

NAR reported that all-cash sales went up to a record 33% of the total, up from 27% a year earlier instant credit report. It estimated the percentage of investor purchases hit 19%, the same level as a year ago.

"The decline in price corresponds to the record level of all-cash purchases where buyers — largely investors — are snapping up homes at bargain prices," Yun explained. "We’d be seeing greater numbers of traditional home buyers if mortgage credit conditions return to normal."

The decrease in sales was accompanied by an increase in supply. Inventory rose 3.5% to 3.49 million units, an 8.6-month supply at the current rates of sales.

Normally, a five or six-month supply is considered a good balance between supply and demand. 

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Investors plowed a record amount of cash into funds that invest in Japanese equities this week, taking full advantage of a sharp drop in the Nikkei following the disaster in Japan.

A whopping $956 million flowed into U.S.-based Japanese equity mutual funds and exchange traded funds in the week ended March 16, according to data from Thomson Reuters Lipper service.

A hefty chunk of that fresh cash went into Japanese stock ETFs, which accounted for nearly 98%, or $936 million, of the total amount. That’s the best weekly inflow on record, and almost twice the prior record set in November 2005, said Jeff Tjornrhoj, head of Lipper Americas Research.

The iShares MSCI Japan Index Fund (EWJ), the biggest Japanese tracking ETF, enjoyed the biggest boost.

On Tuesday alone, investors injected $692 million into the fund, whose top holdings include the Japanese-traded shares of Toyota, Honda, Mitsubishi, Canon, Sony and Tokyo Electric Power Co. That was the largest single-day inflow on record for the ETF, according to TrimTabs Investment Research.

It was also the same day the Nikkei 225 (NKY) index, the most prominent measure of stocks traded in Tokyo, dropped more than 10%.

"A lot of investors who have been watching the Japanese market with the intent to invest are viewing this dip in the market as the best time to get in since the financial crisis in 2008," said Minyi Chen, Asia equity analyst at TrimTabs quick payday loans.

That’s exactly what the manager of the YieldQuest Core Equity Fund (YQCEX) did. YieldQuest chief investment strategist Jay Chitnis boosted the fund’s allocation in the iShares MSCI Japan Index Fund to 10% from 6%, in the days following the earthquake.

"These sorts of events present a terrific buying opportunity in hindsight," Chitnis said. And since the Group of Seven nations pledged to intervene to stabilize the yen late Thursday, Chitnis expects Japanese stocks to deliver an even better performance than before.

"Japan is a huge export economy, and they’ve had to contend with a strong yen," he said. "If the yen weakens, that will make Japanese goods even more attractive in world markets, and that will be tremendous for Japanese companies’ earnings."

Plus, experts are optimistic that the earthquake’s impact will have a relatively mild long-term effect on the Japanese and global economies.

"Once the nuclear power plants situation is under control, the market will recover quickly, said TrimTabs’ Chen. After bottoming on Tuesday, the Nikkei has climbed almost 7%.  

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The restaurant industry, hit hard by recession and high unemployment, is seeing less investor appetite for its stocks.

Although people must eat, they are increasingly careful about how they spend their money to do so.

As in any severe shakeout, some types of restaurants and individual brands have used the opportunity to re-examine and perfect their businesses. They’ve shown gains in an industry still offering investment opportunities in 2011.

“The strong growth in demand in restaurants is the ‘quick-casual’ sector that is positioned between fast food and casual dining,” said Bryan Elliott, restaurant analyst with Raymond James in Atlanta. “These restaurants have no ‘wait staffs’ (table servers) and are perceived to offer better food quality and a better buying experience than fast food, which helped them do well during recession and continues to help now.”

Smaller staffs at these restaurants mean lower labor costs, while customers consider them not only convenient but also economical because there isn’t any tipping.

The leading companies of quick-casual dining have posted strong results and powerful stock-price gains over the past two years:

A French judge filed preliminary charges of manslaughter Friday against Air France over a 2009 crash that killed all 228 people aboard a jet that plunged into the Atlantic Ocean.

Air France vigorously protested the move, an unusual step in an emotional investigation into the worst-ever accident for France’s No. 1 airline.

Judge Sylvie Zimmerman filed the preliminary charges a day after doing the same against Airbus, the maker of the doomed jet and one of Europe’s biggest manufacturers.

Air France Flight 447 dived into the Atlantic on June 1, 2009, amid an intense, high-altitude thunderstorm while flying from Rio de Janeiro to Paris.

The cause of the crash remains unclear, and may never be determined without the “black box” flight recorders, somewhere in the ocean depths. A fourth search operation aimed at looking for them starts next week.

Automatic messages sent by the Airbus 330 jet’s computers show it was receiving false air speed readings from sensors known as pitot tubes. Investigators have said the crash was likely caused by a series of problems, and not just sensor error.

“We are protesting this,” CEO Pierre-Henri Gourgeon told reporters at the courthouse. “It seems to us that it is unfounded.”

“We do not understand and we do not recognize the reason or any good reason to justify the fact that we are prosecuted today,” he said.

Under French law, preliminary charges mean the investigating magistrate has sufficient reason to suspect wrongdoing. The step allows the magistrate to continue investigating before determining whether to send the case to trial.

Air France lawyer Fernand Garnaud said the judge did not elaborate on reasons for the move.

Gourgeon said the pitot problems were “a contributing factor but not the principal cause” of the crash. He said Air France had taken all necessary measures to fix faulty sensors.

Airbus knew since at least 2002 about the pitot problems, but air safety authorities did not order their replacement until after the crash.

The tubes, about the size of an adult hand and fitted to the underbelly of a plane, are vulnerable to blockage from water and icing. Experts have suggested that Flight 447’s sensors, made by French company Thales SA, may have iced over and sent false speed information to the computers as the plane ran into a thunderstorm at about 35,000 feet (10,600 meters).

In November, Air France issued a memo to investigators saying the carrier had counted 15 incidents in which the sensors had iced over on the same aircraft type in the 10 previous months before the crash.

The airline said it had informed Airbus and Thales about those findings, and estimated that about 16 documents that traced Air France’s exchanges with Airbus showed that the planemaker didn’t respond to its concerns.

Air France and Airbus will finance the estimated $12.5 million cost of the new search effort, in which three advanced underwater robots will scour the mountainous ocean floor between Brazil and western Africa, in depths of up to 4,000 meters (13,120 feet).

Gourgeon said Friday that the specialists in charge “feel convinced that they have a chance of finding some elements, of finding the wreckage, and if everything happens in ideal conditions, we might even envisage finding this famous black box.”

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Norway’s central bank kept its benchmark interest rate unchanged while signaling it may start tightening policy earlier than previously indicated as policy makers try to cool credit growth without fueling krone gains.

Oslo-based Norges Bank kept the overnight deposit rate at 2 percent, the bank said today. The decision was expected by 17 of the 18 economists surveyed by Bloomberg. One economist foresaw an increase to 2.25 percent. The krone gained as the bank, which has left rates unchanged since May, raised its forecast for future rate increases “slightly,” Deputy Governor Jan F. Qvigstad said at a press conference. The “normalization” of interest rates is proceeding faster than expected, he said.

“Norges Bank is now indicating that the rate will be raised in May or June and then again in October, December and January, by 25 basis points at each meeting,” said Kyrre Aamdal, an Oslo-based senior economist at DnB NOR Markets.

The bank is trying to steer an economic rebound in the world’s seventh-largest oil exporter without spurring a krone appreciation that may hurt exporters such as Europe’s third- biggest aluminum producer Norsk Hydro ASA. At the same time, Norway’s financial regulator has warned low borrowing costs risk fueling a credit-driven property bubble as house prices exceed a pre-crisis peak.

“The projections in the March 2011 Monetary Policy Report imply that the interest rate should gradually be raised towards a more normal level,” Qvigstad said in the statement.

Jobs, Prices

Europe’s lowest unemployment rate, which slipped to 3 percent last month not including seasonal swings, and house- price growth have yet to feed through to higher consumer prices. Underlying inflation, which adjusts for the impact of taxes and energy, was 0.8 percent in February, and has remained below the central bank’s 2.5 percent target since August 2009.

“Should economic activity or inflation rise more than expected, the increase in the key policy rate may be more pronounced than currently envisaged,” Qvigstad said business card. “In the event of a marked slowdown in world economic growth, heightened financial turbulence abroad or a further appreciation of the krone, the increase in the key policy rate could be deferred further ahead.”

The bank targets an interest rate interval of 1.75 percent to 2.75 percent until its June 2011 meeting, it said.

Krone Gains

The krone was trading 0.7 percent higher against the euro at 7.8687 at 3:12 p.m. in Oslo. Against the dollar, the krone was up 0.3 percent at 5.6462.

“The currency is key to what they are going to do, as long as inflation is quite low,” said Knut Magnussen, a senior economist at DnB Markets in Oslo. “Obviously they would like to hike rates in the months going forward but that depends very much on the currency.”

Norway’s mainland economy, which excludes income from oil, gas and shipping, expanded 2.2 percent last year and will grow 3.3 percent in 2011, Statistics Norway estimates. Financial Supervisory Authority Director Bjoern Skogstad Aamo said developments in the country’s property market make him “nervous,” in Oslo last week. The regulator estimates that household debt levels are rising faster than incomes.

The central bank today raised its forecast for mainland economic growth for this year to 3.25 percent from 3 percent previously. Output will expand 3.75 percent next year, versus an October estimate for 3 percent, it said. It also raised the outlook for 2013 and now sees 3.25 percent growth versus 2.75 percent previously.

House prices rose an annual an annual 9.2 percent in February, after gaining 7.6 percent in January, according to the Association of Norwegian Real Estate Agents.

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Paris property broker Kerstin Bachmann warned clients two years ago that the global financial crisis would trigger a slump in home prices. Last year, they rose at the fastest pace since at least 1991.

Residential values increased by almost 18 percent in 2010 after a 4 percent decline a year earlier, according to Paris Chamber of Notaries data based on prices per square meter. By the same measure, London had a 1 percent increase.

“All that happened was a small dip” after the financial crisis hit, said Bachmann, a partner at Paris Property Group, which handled 25 deals last year worth 40 million euros ($55 million). “Paris proved itself even more as a safe and sustainable investment option.”

French investors are putting more money into Paris real estate, shunning stock and bond markets, at a time when fewer owners are selling properties and insufficient homes are being built to meet demand. Transactions last year were 9 percent below the average for the past decade, Chamber of Notaries research shows. Prices in the city are rising at their fastest rate relative to disposable incomes since World War I, according to data compiled by government economist Jacques Friggit.

Real estate values in Paris, France’s administrative, financial and political center, have become disconnected from the rest of France. That mirrors London’s premium over the rest of the U.K. and New York’s stronger performance than the U.S. as a whole.

Paris property prices have risen 40 percent since 2005, while values across France are little changed in the same period, according to the national residential real estate brokers’ lobby, FNAIM.

‘World of Difference’

“There’s a world of difference between Paris and the rest of France,” said Roger Abecassis, president of the Consultants Immobilier Group, a chain of 10 brokerages covering the more affluent western half of Paris. “It’s a myth that overseas buyers are driving the market. It’s a French market.”

Construction companies broke ground on just 2,785 new homes in Paris’s 20 districts, or arrondissements, last year and new- home sales totaled only 510 in a city with a population of 2.23 million. That contrasts with the 39,255 of housing starts in the surrounding Ile-de-France region with 11.7 million people.

Transactions fell more sharply in Paris’s most expensive neighborhoods, where wealthy foreigners compete for space in a market dominated by French buyers. The number of properties for sale at Consultants Immobilier fell to 320 from about 700 two years ago, according to Abecassis.

“I’m working with half the inventory, but my revenue has doubled,” he said in an interview at his office in Passy, a neighborhood in the 16th arrondissement.

Trading Up

Most purchases are by existing owners looking to trade up or investors purchasing a rental property, said Sebastien Kuperfis, a director of his family’s Junot Investissements brokerage chain.

“We have lots of investors buying at ridiculously low income yields, but people want security,” he said. “We have reached prices that are so high that there are no first-time buyers.”

The biggest gains were in the “Triangle d’Or” neighborhood in the 8th arrondissement, which lies south of Avenue des Champs-Elysees. Prices advanced 38 percent and have doubled in five years, according to the notaries’ chamber.

The most expensive arrondissement is the 6th on the Left Bank of the River Seine, where the average is 14,105 euros a square meter ($1,829 a square foot), according to Databiens, which compiles its estimates from sales reported by brokers.

Top End

Homes in the district, which incorporates the Luxembourg Gardens, cost more than twice as much as in the 19th arrondissement in the northeast corner of the city, it said.

“The better the location, the less stock there is,” said Laurent Lakatos, the head of Databiens.

The most expensive Paris properties fetch 30,000 euros a square meter, according to Philippe Menager, co-founder of the luxury property brokerage of the same name. He and his associate Nicolas Hug sold two apartments overlooking the River Seine near the Musee d’Orsay for 50,000 euros a square meter and another near the Bois de Boulogne for a similar price, he said.

French “myopia” in choosing property over stocks and bonds is behind the increase, according to government economist Friggit.

“What sticks in their minds is the poor performance of the stock markets over the past 10 years, when there were two crashes, and they expect it to happen again,” Friggit said.

Record-low interest rates and the increased willingness of banks to grant longer-term loans have made purchasing a home more affordable, contributing to the price increases, he said.

Retreat Predicted

Friggit said home prices across the country will likely decline in the next five to eight years as they return to their values relative to incomes. In Paris, that happened in the 1990s after prices surged in the late 1980s, he said.

Paris Chamber of Notaries data show it took almost 11 years for average prices to return to the levels reached in the first quarter of 1991.

A lack of public information on prices is also driving the surge in values, according to Lakatos at Databiens.

Property title deeds aren’t public documents and data compiled by notaries, who handle the legal paperwork in all real estate transactions in France, are as much as six months out of date and distorted by small probate sales of undesirable properties, he said.

France lacks a multiple listing service to provide an accurate view of the market, said Bachmann at Paris Property Group.

Avoiding Brokers

More owners advertise properties themselves to avoid paying brokers the average 5 percent sales commission and profit more from the surge in prices. About half of sales don’t involve a broker, compared with about 30 percent two years ago, she said.

This results in price swings, a significant number of sales falling through and sometimes litigation, she said, because individual owners lack the overview of the market and aren’t bound by the legal constraints that apply to brokers.

“It’s the Wild West, where there are no rules,” she said, referring to sales that don’t involve a broker with a professional licence.

The high prices and limited supply are forcing less affluent buyers to look for properties in lower-cost neighborhoods in the northeast of the city or the inner suburbs, pushing up average values across the city, according to the Chamber of Paris Notaries.

“I like to think that Paris’s uniqueness and the fact that the French have healthy finances will support the market,” said Kuperfis at Junot Investissements. “Naturally I’m getting a bit worried,” about the price increases “because trees can’t keep growing to the sky.”

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GenMet is a growing Wisconsin metal fabricating company that would be growing much faster if it could find one thing — skilled workers.

"Currently we employ just over 70 people," said Mary Isbister, the company’s president. "We would be able to double revenue this year if we could find 20 more."

Isbister said she’s been turning work down on a daily basis because she needs more welders and workers to operate her laser cutters. Other manufacturers report shortages of electricians and machinists who can operate their computer-controlled equipment.

You might think that it would be easier for manufacturers to find new employees. After all, the number of workers employed in factories is still more than 2 million lower than pre-recession levels due to layoffs or plant closings.

But experts in manufacturing staffing say that many of the factory workers who find themselves without a job simply don’t have the specialized skills now in short supply.

"There are a lot of people out there looking for work who are assemblers, who are semi-skilled," said Jeff Owens, president of ATS, a manufacturing consulting firm. "There is definitely a shortage of people who are very capable to make the factories run."

And while it might only take about a year of training for a person to get the skills they need, many blue collar workers aren’t eager to try and find a new job in manufacturing after already being laid off.

"The perception out there is that we’re losing manufacturing jobs to China and India. So if they’ve already been displaced and they’re going to go back to school, they’re going for something not manufacturing-related," said Rob Clark, vice president of operations at Clark Metal Products, a company outside of Pittsburgh started by his grandfather and now run by his uncle.

Clark said he’s also having trouble finding skilled workers. Other manufacturers say they are getting plenty of applications when they post jobs, but in most cases it’s not from people with the most relevant experience to work in the factories.

"When we hire office workers, we get significant numbers of applicants who are qualified or overqualified," said Traci Tapani, co-President of Wyoming Machine, which is based just north of St. Paul, Minn. "But with production jobs, it’s difficult to get the applicants we’re looking for."

Manpower, the global temporary staffing firm, lists skilled trades as the most difficult position for employers to fill, both in the United States and across 36 countries surveyed.

Jonas Prising, Manpower’s president of the Americas, said a big part of the problem is the reluctance of students and other young job seekers to even consider pursuing trades because of worries that the manufacturing sector is doomed.

"If you look at the pipeline and the vocational colleges, it’s not an area that has been replenished," he said. "It needs to be explained that these are good jobs that are difficult to outsource."

And this is a problem that is likely to get worse for manufacturers, particularly as the labor market recovers and the skilled workers now on the job get closer and closer to retirement.

ATS’s Owens said there are some plants where the average age of the skilled workers is already in the mid-to-late 50’s. As a result, ATS predicts that the number of manufacturers with a large number of unfilled positions for skilled workers could nearly double within five years.  

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Leaders of the 17 euro nations backed a plan to tighten economic cooperation, clearing German Chancellor Angela Merkel’s condition for a comprehensive package to counter the debt crisis.

The blueprint commits nations to enact budget rules into law, a core German demand, a draft obtained by Bloomberg News showed. Intended to boost competitiveness, the pact sets goals rather than binding targets on policies from raising the retirement age to reducing labor costs. That helped overcome objections to the version proposed by Germany and France last month.

Euro-area leaders agreed “in principle on the pact for the euro,” European Union President Herman Van Rompuy said in a statement as the officials met in Brussels today. The leaders are “still discussing the other elements of the package.”

Following the agreement, European policy makers will turn to breaking a deadlock on crisis-fighting steps as they approach a self-imposed deadline of a late-March summit. Bond yields in Greece and Portugal touched euro-era records this week and debt ratings of Greece and Spain were cut, while the euro recorded its biggest weekly drop since the first week of 2011.

“There is not much time left,” Pier Carlo Padoan, chief economist with the Organization for Economic Cooperation and Development in Paris, said in a telephone interview. “This is a critical time for Europe — a failure to provide an effective response to the situation would be something that everybody in Europe would pay for and regret.”

Irish Clash

With two weeks to the summit endgame, Merkel and Irish Prime Minister Enda Kenny clashed over company tax rates after the chancellor insisted on a common corporate tax base as the condition for agreeing to ease the terms of Ireland’s 85 billion-euro ($118 billion) bailout.

Kenny dismissed her offer, which she outlined to lawmakers in Berlin yesterday, as an attack on Ireland’s 12.5 percent rate. Arriving for his first summit as leader, he called it “harmonization of taxes through the back door.”

The European Commission, the EU’s executive body, will present a proposal on a common corporate tax base in the coming weeks, the agency said today.

Merkel, at the helm of Europe’s largest economy and the biggest country contributor to the Greek and Irish bailouts, also insisted that Greece sell state assets before winning any relief on the cost of Greece’s rescue loans, four lawmakers who attended the closed-doors briefing in Berlin said. Greece has already dismissed selling state-owned land to cut debt.

Record Bond Yields

Greek 10-year yields rose 6 basis points to 12.81 percent and similar-maturity Irish yields jumped 14 basis points to 9.65 percent. Greek securities plunged this week after Moody’s Investors Service cut the nation’s rating, already at junk, by another three levels, saying the probability of default had increased. Credit-default swaps on Greek government debt rose 8 basis points to a record 1,048 basis points today.

Speaking in Brussels after a morning session with all 27 EU leaders to discuss Libya, Merkel for the first time hinted that she may back bulking up the EU rescue fund for indebted states to its full 440 billion-euro capacity need a personal loan with bad credit.

Retooling the fund to its intended size and an easing of Greek and Irish debt terms are “the least that international investors can expect this month,” said Stuart Thomson, chief economist at Ignis Asset Management in Glasgow. “Inevitably this will end in a messy compromise that fails to resolve the peripheral solvency crisis and merely prolongs the agony.”

Portuguese Deficit

The yield on Portugal’s five-year debt surged to a euro-era record of 8 percent today on speculation that Prime Minister Jose Socrates would soon be forced to follow Greece and Ireland and seek a bailout. Portugal’s 10-year bond yields reached 7.70 percent on March 9, the highest since at least 1997.

With the debt crisis lapping at Portugal’s shores, Socrates’s government today announced “significant” new commitments on deficit reduction amounting to 0.8 percent of gross domestic product for this year.

The additional measures should allow Portugal to bring the deficit down to the EU’s 3 percent limit in 2012, and are “an important building block of the needed comprehensive response to the sovereign debt crisis,” EU Economic and Monetary Affairs Commissioner Olli Rehn said in a statement.

“I hope the European leaders understand the seriousness of the situation we’re facing,” Portuguese Finance Minister Fernando Teixeira Dos Santos said in Lisbon.

‘Remarkable’ Cuts

Merkel, hemmed in by coalition resistance to burdening German taxpayers with additional rescue costs before six state elections, praised the “remarkable” Portuguese budget cuts, while saying that debt-wracked countries still have more austerity “homework” to do as part of the deal that EU leaders aim to have in place by month’s end.

The pact, which includes chapters on competitiveness, labor, sustainable public finances and the stability of financial systems, ran into opposition when it was floated by Merkel and French President Nicolas Sarkozy on Feb. 4.

The document, reworked by a panel chaired by Van Rompuy and Jose Barroso, president of the Brussels-based commission, leaves countries free to find their own policy mix without imposition from above.

“Concrete national commitments” will be made by leaders, benchmarked against “the best performers” among EU states, the pact said. The agreement will be ratified at the March 24-25 summit.

“There were proposals that went too far. What now is on the table is fine,” Dutch Prime Minister Mark Rutte told reporters. “At the same time, it is all very much national and not enforceable, but it will undoubtedly help to strengthen the economies.”

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