NEWS,01.08.2012

Record unemployment in eurozone

Joblessness in the eurozone hit on Tuesday its highest level since the single currency was born, a further sign of economic desperation as hopes erode that the bloc will be saved by its central bank this week.An additional 123 000 people were out of work in the eurozone in June, figures from Eurostat showed, bringing the unemployment rate to a record high 11.2% across the 17 countries that use the single currency.The rate hides wide divergences, with unemployment as low as 4.5% in Austria and as high as 24.8% in Spain, where a shrinking economy makes it ever more difficult to pay off debt.New data showed capital fleeing Spanish banks at a growing rate. Spain has come dangerously close to losing affordable access to financial markets, raising the prospect of a bailout that would swamp the euro zone's hastily erected defences. If Spain goes, Italy, with an economy twice the size, could follow.Eurozone leaders have spent the past week issuing statements promising to take whatever steps are necessary to rescue the currency, but none have raised expectations as much as Mario Draghi, head of the European Central Bank.His announcement last Thursday that the ECB would do whatever within its mandate to rescue the currency raised expectations that he will deliver forceful new steps this week to lower Spanish and Italian borrowing costs.But market sentiment has since soured, showing that investors doubt whether he can deliver.Germany, which says it is illegal for the ECB to bankroll government borrowing, squelched talk of any easing of its opposition to letting the eurozone's rescue fund borrow from the ECB so it could buy almost unlimited quantities of government bonds.Italian Prime Minister Mario Monti, who has campaigned for concerted action by the eurozone's rescue funds and the ECB to bring down ruinous borrowing costs for Spain and Italy, struck an optimistic tone."It is a tunnel but ... some light is appearing at the end of the tunnel. We and the rest of Europe are approaching the end of the tunnel," he told RAI public radio before talks in Paris with French President Francois Hollande.Monti said decisions taken at an EU summit last month were starting to bear fruit. "We are now seeing the results both in the willingness of European institutions as well as from the governments of individual countries, including Germany," he said.After lunching with Hollande, he said there was no time to lose and they had discussed deadlines, adding: "We cannot afford even a minute of distraction." The ECB's Draghi promise last week to act to preserve the euro raised investors' expectations of a resumption of a long-suspended government bond-buying programme. Investors are waiting to see what the ECB announces at a meeting of its policy-setting Governing Council on Thursday."Today will probably be a quiet last day of the month. Everybody is waiting for Thursday to see if Draghi can deliver," said Lex van Dam, hedge fund manager at Hampstead Capital, which manages $500m of assets."He'd better pull a big rabbit out of his hat."However, central bank sources cautioned against expecting dramatic action, saying bold moves could be at least five weeks away because other elements must first fall into place.They said Spain would first have to formally request a eurozone assistance programme, which it has so far resisted doing, and eurozone governments would have to agree to use their rescue funds to buy bonds in tandem with the ECB.Safe-haven German government bonds rallied on Tuesday and European shares fell as scepticism over the prospect of bold ECB action set in and Berlin repeated its opposition to a banking licence for the rescue fund. Monti, who will also visit Finland and Spain, said he was confident Spanish Prime Minister Mariano Rajoy would be able to tackle the country's problems.The scale of Rajoy's challenge was highlighted on Tuesday when figures showed that capital flight from Spain accelerated in May, the month when Madrid was forced to nationalise the fourth biggest lender, Bankia, and before eurozone countries agreed to help bail out Spanish banks. Capital outflows in the first five months of this year totalled €163.2bn - equivalent to about 16% of economic output. The same period last year saw a net inflow of €14.6bn.Spanish retail sales fell by 5.2% year-on-year on a calendar-adjusted basis in June, separate data showed, marking a 24th straight month of declines. Near-bankrupt Greece meanwhile reported that it is fast running out of cash as it awaits the next instalment of aid from international lenders. Deputy Finance Minister Christos Staikouras said that in the absence of €3.2bn needed to repay an ECB bond on August 20, Athens would lack the money to pay everyday public expenses ranging from police and other public service wages to pensions and welfare benefits."Cash reserves are almost zero," he told state NET television. "It is risky to say until when (they will last) ... but we are certainly on the brink."Speaking to reporters in London on Monday evening, Hollande voiced support for Monti's campaign to persuade euro zone leaders and institutions to act to reduce Italian and Spanish borrowing costs."European solidarity is of course about laying down discipline, but it's also about allowing countries that made hard choices to be rewarded with lower interest rates," Hollande said during a visit to the Olympic Games. "If countries undertake austerity measures and still have very high interest rates, how can they win the trust of their people?" he said.Monti spoke by telephone over the weekend with German Chancellor Angela Merkel, who is holidaying in northern Italy.Berlin agreed in principle at an EU summit in June that the eurozone rescue funds could buy bonds of countries that risk losing market access, but was angered when Monti said that such support should not entail any stricter economic conditions or international monitoring.There has also been renewed pressure from France, Italy and some central bankers to give the eurozone's future permanent rescue fund a banking licence so it can borrow money from the central bank to fight bond market contagion.The Sueddeutsche Zeitung said supporters of the idea were gaining ground in the eurozone, but the German Finance Ministry reiterated its opposition on Tuesday, sending markets down.A legal opinion commissioned by the ECB in March 2011 concluded that such a move would breach an EU treaty ban on monetary financing of governments. 

Eurozone factory downturn takes root

The eurozone’s manufacturing sector contracted for the 11th straight month in July as output and new orders plummeted, a business survey found on Wednesday. The data, which showed the downturn is deepening its roots in the core, will provide grim reading for policymakers who are battling to contain a debt crisis that has raged across the continent. Markit’s Eurozone Purchasing Managers’ Index (PMI) for the manufacturing sector fell to 44.0, the lowest reading since June 2009 and below a flash reading of 44.1 and June’s 45.1. The output index sank to 43.4, the lowest since May 2009, under June’s 44.7 and an earlier flash 43.6. Markit said it was in line with the official measure of production falling at a quarterly rate of over 1%. “The eurozone manufacturing sector’s woes intensified again in July. Manufacturing therefore looks to be on course to act as a major drag on economic growth in the third quarter, as the eurozone faces a deepening slide back into recession,” said Chris Williamson at Markit. After stagnating in the first quarter, narrowly avoiding a technical recession, a raft of gloomy data pushed economists in a Reuters poll last month to predict a contraction in the second and third quarters. In a bid to spur growth the European Central Bank cut interest rates to a record low of 0.75% in June and is expected to cut them again to 0.5% before the year is out. At its policy meeting on Thursday, it is expected to restart its dormant government bond buying programme with the aim of lowering Spanish and Italian government bond yields, which have reached levels unsustainable in the long-term. Bank President Mario Draghi vowed last week that “the ECB is ready to do whatever it takes to preserve the euro”.Earlier data from Germany, Europe’s largest economy, showed its manufacturing sector contracted at its fastest pace in three years last month and it was a similar story in neighbouring France. Spain, which slid deeper into recession in the second quarter, saw the 15th straight month of contraction, while Italy chalked up a year in contractionary territory. The PMI for Greece, where the debt crisis began, has been below 50 since September 2009. Ireland was the only country to show signs of emerging from the downturn, Markit said, where its PMI was above 50 for the fifth month. Factories across the eurozone cut prices at the fastest pace since early 2010, but the new orders index still fell to 42.8 from the previous month’s 43.5 and has only been lower once in over three years. New export orders were at an eight-month low. “The current weakness of global economic growth suggests that all producers face a challenging environment in export markets as well as at home,” Williamson said. Some of the output was generated by firms running down backlogs for the 14th consecutive month and workforces were cut for the sixth month to reduce costs. Unemployment across the bloc rose to a euro-era high of 11.2% in June, official data showed on Tuesday. 

Average UK home slumps to R2.12

House prices in recession-affected Britain slid in July on an annual basis by the biggest amount in nearly three years, a survey by major home-loans provider Nationwide showed on Wednesday.The average value of a home in Britain stood at £164 389 ($257 743, R2.12m) in July - down 2.6% compared with the same month in 2011, the lender said in a statement.They meanwhile dropped by 0.7% in July compared with one month earlier, it added."UK house prices declined for the fourth time in five months in July, with prices falling by 0.7%. This pushed the annual pace of price growth down to minus 2.6%, from minus 1.5% in June - the weakest outturn since August 2009," said Nationwide chief economist Robert Gardner."The weaker price trend observed in recent quarters is unsurprising, given the disappointing performance of the wider economy. Data released last week revealed that the UK recession intensified in the three months to July."

NEWS, 05.06.2012.

G7 action pending on Spain's debt crisis

 

Spain said today credit markets were closing to the euro zone's fourth biggest economy as finance chiefs of the Group of Seven major economies conferred on the currency bloc's worsening debt crisis but took no joint action.Treasury Minister Cristobal Montoro sent out a dramatic distress signal about the impact of his country's banking crisis on government borrowing, saying that at current rates, financial markets were effectively shut to Spain.The European Union's top economic official, Olli Rehn, said Madrid had not requested EU assistance, but German newspaper Die Welt said European officials were considering offering Spain a precautionary credit line via the bloc's rescue fund by mid-June."The risk premium says Spain doesn't have the market door open," Montoro said on Onda Cero radio. "The risk premium says that as a state we have a problem in accessing markets, when we need to refinance our debt."Spain is beset by bank debts triggered by the bursting of a real estate bubble in 2008, aggravated by overspending by its autonomous regions.The premium investors demand to hold Spanish 10-year debt rather than safe haven German bonds hit a euro era high of 548 basis points on Friday, on concerns that it will eventually be forced to seek a Greek-style bailout.A precautionary credit line would give Spain the option of trying to raise funds on its own to recapitalise its banks and tapping the European aid if it failed to raise enough.Two Spanish government sources denied earlier on Tuesday that Madrid needed or wanted such a line from the European Financial Stability Facility or the International Monetary Fund.But Montoro said Spanish banks should be recapitalised through European mechanisms, departing from the previous government line that Spain could raise the money on its own and prompting the Madrid stock market to rise.His comments on Spain's borrowing sent the euro down after the 17-nation European currency earlier hit a one-week high against the dollar on hopes that the conference call of G7 finance ministers and central bankers might hasten action.The U.S. Treasury, which chaired that meeting, said in a statement that the G7 discussed "progress towards a financial and fiscal union in Europe" and agreed to monitor developments closely. But the group made no joint statement and took no immediate action.White House economic adviser Michael Froman said the EU had done a lot to address its debt problems but clearly more action was required to reduce market anxieties."Europe has taken a number of very important steps in the last months to address the crisis," Froman told a panel at the CSIS think-tank. "It's clear now from the markets that they expect more, and more is needed."Japanese Finance Minister Jun Azumi said the G7 finance chiefs agreed to work together to deal with the problems facing Spain and Greece."I see market anxiety over world economy largely stemming from Europe's problems," Azumi told reporters in Tokyo."Bigger solution" European leaders, alarmed by the latest turn of events, have begun thinking seriously about the economic union needed to make the single currency project secure. But that end-game is months or years away."What we have learnt since the weekend is that all the talk about a bigger solution, a bigger response from the politicians is gaining some steam," said Rainer Guntermann, strategist at Commerzbank in Frankfurt. "At the same time it doesn't look like they have a quick fix at hand, not a fundamental game changer at this point in time."One senior European G7 source, speaking just before the teleconference, said it was set to turn into a "Germany-bashing session", with other partners applying severe pressure on Berlin to do more to stimulate growth and help the euro zone.The source, who requested anonymity due to the confidential nature of the call, confirmed that Germany was pushing Spain to accept international aid, as Greece, Ireland and Portugal have done, to help it recapitalise stricken banks."They don't want to. They are too proud. It's fatal hubris," the source said of the Spanish government.Berlin and the European Central Bank have so far resisted pressure from Madrid to ride to its rescue without forcing Spain into the humiliation of an internationally supervised bailout.French Foreign Minister Laurent Fabius said Europe must find a solution to the Spanish banking crisis that did not add to Madrid's already heavy budget deficit.The ECB holds its monthly rate-setting meeting on Wednesday and European Union leaders meet on June 28-29 to discuss a strategy for overcoming the crisis, which began in late 2009 when Greece revealed it had covered up a huge budget deficit.Contagion Investors have fled peripheral euro zone sovereign debt amid worries about Spain's banking crisis and fears that a June 17 Greek election could lead to Athens leaving the currency bloc, setting off a wave of contagion around the euro area.Spain will test the market on Friday by issuing up to 2 billion euros ($2.5 billion) in medium- and long-term bonds at auction.Emilio Botin, chairman of the nation's biggest bank, Banco Santander told Reuters Spanish banks needed about 40 billion euros in additional capital, adding that "there is no financial crisis in Spain".Montoro said the bank recapitalisation figures were "perfectly accessible" but analysts were perplexed about his comments on Spain's ability to raise debt.His comments appeared aimed at pressuring the ECB and EU paymaster Germany to find ways of helping. But the central bank has so far shunned calls to resume purchases of Spanish government bonds, and Berlin has rejected allowing direct aid from the euro zone's rescue fund to recapitalise Spanish banks without setting conditions for the government.The festering euro zone crisis has sparked mounting concern outside Europe. On Monday, a G7 source said fears that capital flight from Spain could escalate into a full-fledged bank run had triggered the emergency conference call.Pressure is building in particular on Germany, the biggest contributor to euro zone rescue funds, to back away from its prescription of fiscal austerity for the region's weaker economies and to work harder on fostering growth.Berlin argues it is already doing its share by encouraging generous domestic wage settlements, accepting the prospect of higher-than-usual German inflation and most recently agreeing that Spain should have more time to achieve its fiscal targets.Chancellor Angela Merkel opened the door on Monday to the prospect of a euro zone banking union in the medium term, saying she would consider the idea of putting systemically important cross-border banks under European supervision.However, Berlin is so far resisting a joint deposit guarantee for euro zone banks and a bank resolution fund, both of which would create new liabilities for German taxpayers.A German government strategy paper seen by Reuters showed Berlin does not expect final decisions on strengthening economic policy coordination until March 2013, with only a roadmap being agreed at this month's summit.The ECB could contribute by cutting its main interest rate, lowering its deposit rate to try to shake loose some 700 billion euros parked overnight in its vaults by anxious banks, or by providing a third big liquidity injection to banks. But most analysts it will await the outcome of the Greek election and the EU summit before taking decisive action.

NEWS, 03.06.2012.

Greece leftist party's debt-free vision

 

 

No debt repayments, higher salaries and freedom from EU-IMF tutelage: Greece under the radical leftists, who are poised to win a June 17 election, seems a world removed from its current recession nightmare.The Syriza party has pledged to tear up Greece's loan agreement with the EU and the IMF, which is currently keeping the country on its feet but at the cost of an unprecedented wave of austerity cuts and structural reforms.If implemented, such a programme, which would also mean the nationalisation of banks and a halt to privatisation, could well mean Greece's ejection from the eurozone, potentially sending shockwaves through the global economy.Fed up with two years of salary and pension cuts, Greek voters on May 6 punished larger parties associated with the bailout and catapulted Syriza to second place, within striking distance of the top.Opinion polls show that the radical leftists, only the fifth party in 2009, could even emerge as the victors in this month's repeat ballot.The condensed programme of the loosely-knit coalition of moderate Communists, Trotskyists, ecologists and other leftist groups was announced on June 1.In it, the party's leading minds set out their vision for a more equitable Greece, liberated from the excesses of capitalism, heavy industry and political corruption.Under Syriza's blueprint, state loan repayments to service a debt of over €350bn are to be frozen to free funds for social support programmes.The privatisation of major public companies - a key condition of the EU-IMF bailout deal - is to be suspended as well.Greek banks that draw on European support funds to recapitalise themselves after a landmark state debt cut brokered by the previous government in March will be "nationalised and socialised."And the EU-IMF bailout deal, dubbed here the "memorandum," which the leftists say has brought only recession and misery to Greece, is to be rejected and redrawn from scratch."The first act of the government of the Left will be to annul the memorandum and its application laws," Syriza's 37-year-old leader Alexis Tsipras said on Friday."We will seek a new renegotiation of the debt at European level, aiming to drastically reduce it, or a debt moratorium and a suspension of interest payments until conditions for the stabilisation and recovery of the economy are created," Tsipras said during a presentation of the party's revised programme.A previous version of Syriza's platform, drawn up in April, had pledged to outlaw offshore company dealings and shut down NATO bases in Greece.The revised version released on Friday plans a withdrawal from NATO operations, starting from Greece's mission to Afghanistan, and a future "disengagement" from the military alliance altogether."At a time when the international balance shifts and US hegemony increasingly comes into question, the policy of Euro-Atlanticism and complying with NATO war plans has no future," said senior party member Thodoris Dritsas.The older parties Syriza decimated on May 6, the socialist Pasok and the New Democracy conservatives, have dismissed its programme as unrealistic and Tsipras as an arrogant demagogue still wet behind the ears."Those who speak of a one-sided rejection of the bailout are like children playing with matches inside an armoury," New Democracy leader Antonis Samaras said during a presentation of his party's own programme on May 31.Syriza's leading economist Yiannis Dragasakis, a former junior finance minister in 1990, believes Greece could take a political decision to reject the loan agreement and dump unwanted labour reforms yet still retain vital EU-IMF loans."Some elements of the bailout deal can be rejected unilaterally. Others require cooperation to do so," he said in a recent televised interview.Even European MP Daniel Cohn-Bendit - a left-wing icon and staunch critic of Greece's bailout terms - recently dismissed Syriza's plans to reverse wage cuts as "idiotic"."Europe will give no more money, Greek coffers are empty," he told a Greens news conference on May 23, after Tsipras had visited Paris and Berlin."It's like asking someone 'how would you like to commit suicide, with a gun or an axe?'" he said.In March, Syriza sued Germany's Bild newspaper for a million euros ($1.26m) after it allegedly portrayed Tsipras as a "half-criminal" who "openly supports violent anarchists.""Will these radicals soon be governing Greece?," the tabloid asked its readers.

ECB rate cut eyed as euro crisis bites

 

The European Central Bank may cut interest rates again soon as the eurozone debt crisis deepens, but it will continue to insist that it is up to governments to find a lasting solution, analysts say.ECB watchers predict the central bank - which will hold its regular policy-setting meeting next week on Wednesday instead of Thursday owing to a public holiday - will not alter borrowing costs just yet this month.But it could act in July as deepening fears about Greece and possible contagion to other countries push the 17 countries that share the euro back into recession, the analysts predicted. "The further escalation of the eurozone crisis has intensified the pressure on the ECB to take further remedial action," said Capital Economics' chief European economist Jonathan Loynes."But while president (Mario) Draghi may hold open the prospect of further support of the region's banks after the meeting on June 6, he is likely to insist again that it is up to national policymakers to address their broader economic and fiscal problems," Loynes said. The ECB has never hesitated to act from the very beginning of the crisis.It quickly reversed last year's rate hikes to bring eurozone borrowing costs back down to an all-time low of 1.0% and embarked on a hotly contested programme of indirectly buying up the bonds of debt-mired countries.Most recently, in two so-called long-term refinancing operations (LTROs) in December and February, it pumped more than €1.0 trillion into the banking system to avert a dangerous credit squeeze in the euro area.Nevertheless, ECB officials have all along insisted that such measures cannot cure the root cause of the crisis - profligate spending by governments."Can the ECB fill the vacuum of lack of action by national governments on fiscal growth? The answer is no," Draghi said again during a hearing at the European parliament last week.The ECB argues that its overriding priority, even in times of crisis, is to keep a lid on inflation in the single currency area.The latest data indicate that price pressures are indeed under control - area-wide inflation slowed to 2.4% in May from 2.6% in April and in Germany, the bloc's biggest economy, inflation slowed to 1.9%, its lowest level in 17 months.Further up the inflation pipeline, too, the money supply expanded by just 2.5% in April, a sharp slowdown compared with the previous month, despite the huge amounts of liquidity pumped into the system via the ECB's anti-crisis measures."With the inflation threat receding, the ECB has more scope to stimulate the economy," argued Berenberg Bank chief economist Holger Schmieding.The ECB will also publish its latest quarterly staff projections on inflation and economic growth on Wednesday.They are likely to be revised downwards, "leaving the door open for further policy accommodation," said Newedge Strategy analyst Annalisa Piazza.She saw a "60% chance" that the ECB would trim its rates by a quarter of a percentage point to 0.75% as early as this month.Nevertheless, "the timing of a rate cut is highly uncertain," the analyst cautioned.While the "weaker fundamentals and increasing stress in financial markets fully justify a quarter-point cut this week, the ECB might decide a later cut is the best tactical option" as borrowing costs are already at record lows and the full effects of the anti-crisis measures have yet to unfold, she argued.Berenberg Bank's Schmieding, too, saw a "good case" for a quarter-point rate cut.But the bank would probably wait until July by which time the outcome of the Greek parliamentary elections on June 17 will be known, the economist argued.Greece is heading to the polls for a second time in six weeks after an inconclusive vote on May 6. And with the radical leftist Syriza party, chief opponent of a massive EU-IMF bailout accord, tipped to win this time, the election could lead to Greece quitting the single currency. Commerzbank economist Michael Schubert also predicted the ECB would hold rates steady again this week, "not least because it wants to maintain the pressure on politicians."Nevertheless, ECB chief Draghi would "leave the door wide open for further action," Schubert said.

NEWS.04.03.2012.

Putin always wins

Vladimir Putin has won a resounding victory in Russia's presidential election, exit polls show. He has secured a new six-year term in the Kremlin and a mandate to deal with opposition protests after a vote that opponents said was marred by fraud. Two television exit polls, released after voting ended on Sunday, forecast the former KGB spy would win 59.3% and 58.3% of the votes, enough to make a runoff against the second-placed candidate unnecessary. His nearest rival, communist Gennady Zyuganov, fell short of 20% in both polls.Putin's opponents said voting in many parts of the vast country was skewed to help him return to the presidency after four years as prime minister and vowed to step up the biggest protests since he rose to power 12 years ago. But although they portray him as an authoritarian ruler who is out of touch, his victory had not been in any doubt. The main challenge for Putin, credited by many Russians credit with rebuilding the country's image and overseeing an economic boom, was to win outright in the first round.” I think the elections will be legitimate, fair, and Putin will win in the first round, unless the court rules otherwise," Putin's spokesman, Dmitry Peskov, was shown saying on internet and cable television channel TV Dozhd before voting ended.Putin was likely to portray the victory as strong backing against the opposition protesters, although he has promised not to crack down on them. He is also expected to return to the Kremlin with tough fighting talk against the West, a trademark of his first presidency and election campaign. Some voters expressed anger at being offered no real choice in a vote pitting Putin against four others - communist Zyuganov, nationalist Vladimir Zhirinovsky, ex-parliamentary speaker Sergei Mironov and billionaire Mikhail Prokhorov.Others said Putin, 59, who has portrayed himself as a man of action and guardian of stability, was the tough national leader the world's biggest country and energy producer needed.” I voted for Putin because he was a good president and our children were looked after and that's all. That's how I feel," said Maria Fedotova, a 92-year-old grandmother wrapped up in fur coat and hat, flanked by relatives.

 Putin has remained Russia's dominant leader and its most popular politician since stepping aside in 2008 to make way for his ally, Dmitry Medvedev, because he was barred from a third straight term by the constitution. But some voters are tired of his macho antics, such as horse riding bare chested, and a system that concentrates power in his hands. They fear he could win two more terms, ruling until 2024 - almost as long as Soviet dictator Josef Stalin. Vote monitors from the opposition and bloggers posted allegations of election rigging across the country of 143 million. Golos, an independent monitoring group, said it had registered at least 2,283 reports of violations nationwide. An Interior Ministry spokesman denied there had been any major violations. Election officials also dismissed reports of widespread fraud in a parliamentary election on December 4 which triggered the opposition protests. Thousands of opposition activists as well as an international observer mission were also monitoring the polls. The opposition protests were sparked by the disputed Dec. 4 election, but anger was focused at Putin, who bungled the September 24 announcement of his presidential bid by appearing simply to inform Russians that he would rule for another six years..