Econowrap: Seismic shifts in Europe, U.S., Mideast


We’re focusing today mostly on the United States and Europe, but we’ll open with an economic game-changer and figures revealing the truly vast extent of the global economic crisus

Gulf states to abandon the petrodollar

This one’s a stunning move, and one that’s likely destined to rewrite one of the basic rules of global financial game, challenging the dominance of the American currency.

From Robert Fisk of The Independent:

In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.

Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.

The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.

The Americans, who are aware the meetings have taken place – although they have not discovered the details – are sure to fight this international cabal which will include hitherto loyal allies Japan and the Gulf Arabs. Against the background to these currency meetings, Sun Bigan, China’s former special envoy to the Middle East, has warned there is a risk of deepening divisions between China and the US over influence and oil in the Middle East. “Bilateral quarrels and clashes are unavoidable,” he told the Asia and Africa Review. “We cannot lower vigilance against hostility in the Middle East over energy interests and security.”

This sounds like a dangerous prediction of a future economic war between the US and China over Middle East oil – yet again turning the region’s conflicts into a battle for great power supremacy. China uses more oil incrementally than the US because its growth is less energy efficient. The transitional currency in the move away from dollars, according to Chinese banking sources, may well be gold. An indication of the huge amounts involved can be gained from the wealth of Abu Dhabi, Saudi Arabia, Kuwait and Qatar who together hold an estimated $2.1 trillion in dollar reserves.

Read the rest.

Barack Obama’s saber-rattling in the Pacific has come home to roost. Why does China need to challenge the U.S. militarily, when they can do it in the money-changing rooms of the global financial industry?

Stunning numbers: Global employment crisis

Consider this: A third of the planet’s workforce is either jobless or working for less than $2 a day.

While the crisis may be bad here in the U.S., especially for the jobless [a group which includes your friendly neighborhood blooger], the American reality pales when compared to an analysis of the work crisis across the planet, as confirmed by newly released numbers.

From economist Stephanie Kelton of the University of Missouri-Kansas City, writing at New Economic Perspectives:

The International Labor Office (ILO) has just released a sobering report on the growing crisis in world labor markets.  We began the year with 1.1 billion people – one out of every three people in the global labor force – either unemployed or among the 900 million working poor who earn less than US$2 a day. On top of the existing glut of 200 million unemployed, global labor markets will see an average of 40 million new entrants each year.  That means that an additional 400 million jobs will need to be created over the next decade in order to prevent a further increase in unemployment.  To employ everyone who wants to work, the world needs 600 million new jobs.

The concern, however, is that global growth is decelerating, which means it will be difficult for global labor markets to keep up with the growth of the labor force, much less make up any lost ground.  In 2011, global growth slowed from 5.1 percent to just 4 percent, and the IMF is warning of a further deceleration in 2012.  The ILO report warns that even a modest slowdown in 2012, say 0.2 percent points, would mean an additional 1.7 million unemployed by 2013.  The report also highlights the impact that overly tight fiscal policies have had on growth and employment, beginning with the job-killing austerity programs that have become especially common within the Eurozone.  Elsewhere, in nations with ample policy space, governments have lost their appetite for fiscal stimulus, even as heightened insecurity and depressed consumer confidence keep private sector demand weak.

Read the rest.

The good news/bad news U.S. economic numbers

In brief: The good news is that American production went up in the last quarter. The bad news: The products produced didn’t wind up in consumer hands but in warehouses, as wholesalers and retailers restocked inventory.

From the BBC:

The pace of US economic growth increased in the final three months of 2011, according to official figures.

The economy grew at an annualised rate of 2.8%, the Commerce Department said.

This was up from the 1.8% annual rate recorded in the previous quarter, although it was slightly lower than the 3% rate predicted by analysts.

However, the growth largely came from businesses stockpiling goods they had produced, rather than selling them.

Although the stockpiling lifted the figures, analysts believe businesses will not continue doing this, resulting in a lower growth figure for the current quarter.

Read the rest.

More from the New York Times’s Catherine Rampell:

Forecasts have called for such slow growth that the Federal Reserve on Wednesday said it planned to keep interest rates near zero through 2014. Even with the pickup in output, the pace last quarter was below the average of economic expansions in the United States since World War II. Given how much ground was lost during the Great Recession, the United States economy needs above-average growth right now.

Government spending is not helping, either. Not because it’s too big — but because it’s shrinking at a rapid pace.

Spending at the federal, state and local levels fell at an annual rate of 4.6 percent last quarter, providing a significant drag on total gross domestic product. At least at the state and local levels, the cuts are likely to continue as municipal governments shed workers and public services.

Read the rest.

And now, on to Europe.

The downgraders strike again

This time, a wholesale move by Fitch.

From the BBC:

Fitch ratings agency has downgraded five eurozone economies, including Italy and Spain, citing financial weakness during the debt crisis.

Italy was downgraded two notches to A- from A+, while Spain was also lowered two levels to A from AA-.

Belgium, Slovenia and Cyprus were also downgraded, while Fitch cut its outlook for the Republic of Ireland.

Earlier this month, Standard & Poor’s agency downgraded nine eurozone eoconomies, including France.

“Overall, today’s rating actions balance the marked deterioration in the economic outlook with both the substantive policy initiatives at the national level to address macro-financial and fiscal imbalances,” Fitch said.

Read the rest.

More from Agence France-Presse:

Fitch lopped two notches off the ratings on Italy, Spain and Slovenia, saying that Italy faced too-slow growth against its rising debt and Spain faced “a significantly worsened fiscal and economic outlook.”

Italy was downgraded to “A-“, and Spain and Slovenia to “A”.

Fitch cut by one notch Belgium, to “A,” and Cyprus, to “BBB-“.

Ireland’s rating at “BBB” was maintained, but Fitch put the country on a “negative outlook,” signaling it could suffer a downgrade. The other five countries were already on negative outlook.

Fitch said that its negative outlooks on those six, as well as those on France and Portugal, primarily reflected the risk that the crisis could intensify further.

Read the rest.

European banks just won’t lend all that extra cash

No surprise, given that U.S. banks did precisely the same when the Fed flooded their coffers with cash during the latest rounds of the Barackian bailout.

From Deutsche Welle’s Uwe Hessler:

Fears of an emerging credit crunch in the eurozone increased on Friday as data showed a sharp slowdown in bank lending to the private sector, despite recent unprecedented injections of liquidity.

The European Central Bank (ECB) calculated in regular monthly data that growth in loans to the private sector slowed substantially, to just 1.0 percent in December from 1.7 percent in November. That means 37 billion euros ($48.5 billion) less were loaned to eurozone businesses in that period, and 10 billion less to private households.

In a series of special liquidity measures, the ECB launched its longest-ever liquidity operations last year, lending eurozone banks as much as 489 billion euros for a period of three years at super-cheap rates.

However, the new data fuel concerns that banks are simply hoarding the cash, rather than lending it to businesses and households as the ECB hoped they would.

>snip<

“The sharp moderation in annual growth in loans to the private sector in December, particularly the appreciable monthly fall in loans to businesses, will reinforce concern that credit conditions are now increasingly tightening,” IHS Global Insight’s chief economist Howard Archer told AFP.

He said this would pose “a mounting risk to already struggling eurozone economic activity.”

At the same time, the ECB data showed a decline in inflationary pressures as economic growth slows in the eurozone following the region’s debt crisis.

Read the rest.

More austerity measures demanded from Greece

Despite the appointment of a bankster-certified prime minister at the helm of Greek government, the Greeks aren’t doing what their would-be financial masters in the north are demanding.

So now the squeeze is on.

From Jonathan Walsh of Reuters:

The European Union and IMF want Greece to push through more budget cuts and implement a series of long-agreed austerity reforms before they agree on a new bailout the country needs to avert bankruptcy, a report obtained by Reuters shows.

All eyes have been on Athens’ tortuous debt swap talks with its private creditors in recent weeks. EU economic and monetary affairs chief Olli Rehn injected some optimism on Friday, saying an agreement was “very close” and might be clinched as soon as this weekend.

With or without a deal with private creditors, Greece will not get the 130-billion euro package it needs to avert a chaotic default if it does not convince its euro zone partners and the International Monetary Fund that it is doing enough to implement the reforms they require in return for the aid.

“Greece has not only to commit itself, Greece has to deliver. Not all of the commitments have been fulfilled. That is one of the critical issues to confidence,” German Finance Minister Wolfgang Schaeuble said at the annual World Economic Forum meeting in Davos on Friday.

Read the rest.

More details of the demands were discovered in a leaked document cited in a second Reuters story:

The EU, IMF and ECB lenders – known as the troika – have drawn up a report this week which includes a list of measures they want to see enacted by Athens.

Top of the list is passing a supplementary budget with more cuts to reach fiscal targets in 2012. The troika suggests large spending cuts in defence and health spending as well as cutting redundant state entities. The document does not specify the amount of cuts needed.

The EU and IMF are also pressing Greece to adopt a much-delayed reform of supplementary pensions, ensure that a plan to replace only 1 out of 5 civil servants leaving the workforce is enacted and want Greece to finalise the opening up of its many closed professions such as lawyers and pharmacists, which they have been demanding for years, the document shows.

They also want the Bank of Greece to complete its assessment of Greek banks’ capital shortfall and they expect the government to enact legslation to improve wage flexibility and further liberalise product and service markets, the document says.

Read the rest.

The big money players won’t be happy until every aspect of the Greek commons has been privatized, and government pared to the bone.

Greece cracks down on volunteer aid programs

With millions of Greeks unemployed and homelessness soaring, the Greek government has decided to clamp down on volunteer programs to feed the growing numbers of hungry folks.

From The Greek Streets reports: reports:

The government just issued a decree which in the name of public health, attacks to the regular soup kitchens organised by political groups that cook and offer food to the increasing mumber of homeless (reaching 20,000 in Athens only).  Homelss people though are not the only ones depending on these soup kicthens, but plenty more neo-poor who cannot afford to buy food depend on them. The Secretary of Public Health named Dimopoulos issued a decree stating that only formal agencies can offer food for free in public these are the church, the municipalities and NGOs any other such effort has to be approved by the authorities.

Italians rebel against newest austerity moves

First, a video from euronews:

And now the details, also from euronews:

Italian unions have taken to the streets of Rome to protest against Prime Minister Mario Monti’s austerity measures.

The former EU commissioner wants to boost productivity by opening up so-called ‘closed-shop’ professions.

Taxis, the legal profession and pharmacies are among those sectors that face more competition.

>snip<

Monti’s technocrat government also wants greater private sector participation in the transport industry.

Public transport workers took part in a 24-hour strike, wreaking havoc on buses and trains.

Rome’s two metro lines and local commuter trains were not running, while some airport and airline staff also walked out.

Read the rest.

The pain in Spain is mainly quite plain

Just consider the soaring unemployment figures.

From Emma Ross-Thomas of Bloomberg:

Spain’s unemployment rate rose to 22.9 percent, the highest in 15 years, increasing pressure on Prime Minister Mariano Rajoy to deliver on his election pledge to create jobs in a shrinking economy.

The unemployment rate rose in the fourth quarter from 21.5 percent in the previous three months, the National Statistics Institute in Madrid said today. That’s more than twice the euro- region average and exceeds the median estimate of 22.2 percent in a Bloomberg survey of seven analysts.

Unemployment “is the main source of vulnerability of the Spanish economy and this is something that we hope to start to fix in the short term,” Economy Minister Luis de Guindos said today on Bloomberg Television in Davos, Switzerland. “We have to take a lot of decisions because there are some things that don’t work properly in the labor market in Spain.”

Spain is home to a third of the euro region’s unemployed, according to the European Union’s statistics office, which estimates that half of young Spaniards are out of work. The People’s Party government, which won the Nov. 20 election after a campaign focused on jobs, has promised to overhaul labor and wage rules in the next two weeks to prompt companies to hire.

Read the rest.

The South rises, and Davos takes note

As always, we try to close on an upbeat note.

Today, some surprising numbers about the one global region that’s thriving.

From Manuela Kasper-Claridge of Deutsche Welle:

On the facade of the Hotel Belvedere in central Davos hangs an enormous sign that reads “Brazil.” As the fastest-growing economy in Latin America, the country is confidently advertising itself to the other participants of the World Economic Forum, which runs until Sunday.

The Belvedere is the top hotel during the event, hosting both heads of state and government and top business leaders, like energy giant RWE chief Jürgen Grossman and Google’s current executive chairman and former CEO, Eric Schmidt.

Mexico is also employing the “think big” principle, and had two large pavilions built nearby to market its economy and host bilateral meetings. Mexican President Felipe Calderon turned up with numerous ministers and one of the largest state delegations.

On Wednesday, Calderon gave a joint press conference with Renault chief Carlos Ghosn, where he announced an investment project of up to $2 billion (1.5 billion euros) in the country. In the coming years, the project is to create some 20,000 new jobs. Mexico currently holds the chairmanship of the Group of 20 leading developed and emerging economies, and plans on organizing several initiatives this year.

Developing economies are strutting their stuff in Davos – and it’s no wonder, given their expected average growth of 6 percent in 2012, according to a recent study by the consultancy firm Ernst & Young. In contrast, experts foresee no growth, or perhaps even contraction, in the economy of the eurozone.

Read the rest.

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