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Morning papers: Bank scandal has silver lining for UK

The morning papers brought to you by Investment Adviser: Tuesday August 7 2012.

By Simona Stankovska | Published Aug 07, 2012 | comments

Refunds of mis-sold payment protection insurance are doing more to boost Britain’s stuttering economy than government initiatives to stimulate growth, official and bank data show, reports the Financial Times.

The UK’s five biggest banks have set aside almost £9bn to cover claims for selling their customers loan insurance that was either not needed or could not be used, in one of the most costly consumer scandals on record.

IMF pushes Europe to ease Greek burden

The International Monetary Fund, facing discontent among its members about the huge sums it has lent to the euro zone, is pushing the currency bloc’s governments to take steps to lighten the burden of the bailout loans they made to Athens, officials familiar with continuing discussions said, reports The Wall Street Journal.

The IMF pressure -which officials said has been clear in private discussions among Greece’s official lenders - comes in response to mounting evidence that Greece’s deep recession has thrown the country’s bailout program woefully off track from targets set earlier this year.

Germany and Italy near blows over euro

German politicians from across the spectrum have reacted furiously to warnings by Italy’s Mario Monti that Bundestag control over EU debt policies threatens to bring about the “disintegration” of the European project, reports The Telegraph.

“We must make it clear to Mr Monti that we Germans will not shut down our democracy to pay Italian debts,” said Alexander Dobrindt, secretary-general of Bavaria’s Social Christians (CSU).

Britain’s top credit rating ‘not the biggest issue’

Britain’s top credit rating is “not the be-all and end-all” at a time of high unemployment and low growth, according to Danny Alexander, Chief Secretary to the Treasury, reports The Telegraph.

In controversial remarks, Mr Alexander suggested that keeping Britain’s gold-plated triple-A rating should not be the Government’s biggest priority.

The senior Liberal Democrat’s comments come days after George Osborne, the Chancellor, declared that Britain’s top rating was a sign the “world has confidence” in the Coalition’s efforts to reduce the deficit.

Greece’s bond auction to test resolve and Spanish and Italian bonds rally

Greece plans to raise about €6bn (£4.7bn) of short-term funds this week from local banks after its eurozone partners turned down a request for a bridge loan to repay a bond held by the EBC that matures later this month, reports the Financial Times.

Elsewhere, Spanish and Italian sovereign and corporate bonds continued their rally on Monday, buoyed by investor expectations that the ECB will buy short-dated debt in an effort to soothe market turmoil.

Yields on two-year Spanish government bonds, which were trading at 7 per cent at the end of July, fell 46 basis points to 3.5 per cent on Monday, while yields on equivalent Italian paper fell 9bp to 3.04 per cent.

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