It’s just won’t let up. We’re breaking out Greece for a following post because there’s just so much happening.
We’ve got an exit scenario from one of the euro’s creators, speculation about a British E.U. exit, and downgrades for Greece, Spain, Italy, and Slovenia plus a rater kudos for Germany.
We’ve got two nations officially entering recession, one in the West [France], the other in the East [Serbia], and more good numbers for Germany. From Spain, a Spailout delay, a dumpster-diving ban, and a labor union grocery expropriation.
From Italy, we’ve got a deeper slide into recession, bailout doubts and dissent, and a Montibank’s regretful austerian honesty.
We conclude with a eurowide banking slowdown andf a story that strips austerity to its bloody, rotten core.
Eurozone founder says exits may lie ahead
Otmar Issing’s the consummate financial insider, a German economist who sat on the boards of the Bundesbank and the European Central Bank, and advised Golman Sachs, he now heads the Center for Financial Studies at Goethe University in Frankfurt
He’s also one of the founders of the euro, and the way he sees it, some countries may be leaving the common currency
From the London Telegraph’s Matthew Sparks:
One of the founding fathers of the euro admits that some states may be forced to abandon the single currency, but insists Germany would be better off staying in.
Otmar Issing, a former European Central Bank chief economist, warned that the eurozone could be heading towards fracture in a book called How we save the euro and strengthen Europe published this week .
“Everything speaks in favour of saving the euro area. How many countries will be able to be part of it in the long term remains to be seen,” said Mr Issing in the book, which is written as a conversation between an economist and a journalist.
At no point did he explicitly refer to Greece, but the debt-stricken country has been hovering perilously close to default and an exit from the eurozone as it makes harsh spending cuts and tax hikes to appease the EU and ECB after receiving billions in bail-out payments.
“We are still a long way off saying ‘that’s it, now we are sure to make progress’. Substantial reforms in almost all countries are still pending,” he added.
Mr Issing is one of the founding fathers of the euro, but also predicted potential problems with the plan and argued that political union ought to precede a shared currency to ensure its stability in the long-term. The economist has now said there is a case for some countries to leave the union in order to solve their own debt problems, but that Germany would do best to remain a member.
Brits to leave the E.U.? Nomura speculates
The United Kingdom doesn’t belong to the eurozone, but they do belong the the larger European Union. But the question is, for how long?
The Japanese financial giant Nomura speculates that, should things get worse, the European Union could lose one of its three offshore members [the others are Ireland and Cyprus].
The U.K. is not renowned for its smooth relationship with its European partners and, like the end of a tempestuous love affair where both partners have tried their best to accommodate the others’ demands, the relationship could finally hit the rocks with Britain leaving the EU for good, according to a report by Nomura.
According to CNBC the bank says although the U.K. has always had an ambivalent relationship with its European neighbors, the euro zone crisis has fueled deeper skepticism over Europe with the British government looking to re-negotiate its ties and obligations to the EU.
To be sure, a British exit from the European Union would be nothing on the lines of a Greek exit or ‘Grexit’ from the euro zone. Britain doesn’t use the euro and has control over its monetary policy.
Still, its departure from the European Union would affect markets though Newton says it’s hard to quantify.
“We believe, increasing possibility of either a looser U.K. relationship with the EU or a U.K. exit is bound, in our view, to raise both economic and political concerns, including in financial markets.”
S&P’s negative outlook for Greece
What’s also notable is that Tuesday’s announcement of the downgraded outlook for Greece is that a further downgrade may be coming.
Greece’s credit rating may be cut again by Standard & Poor’s on concern a worsening economy raises the likelihood the troubled nation will need more support from European Union lenders, daily Kathimerini reports today.
The outlook on Greece’s CCC rating, already eight levels below investment grade, was revised to negative from stable, S&P said yesterday in a statement as Bloomberg reported. The change reflects the risk of a downgrade if Greece is unable to obtain the next disbursement from the European Union and International Monetary Fund rescue package, the rating company said.
Finance Minister Yannis Stournaras said yesterday the government is still working on identifying almost a third of the cuts required by international creditors to resume the flow of bailout funds. Greece may need as much as 7 billion euros in loans this year as gross domestic product shrinks as much as 11% in 2012 and 2013, S&P said.
More from Keep Talking Greece, which quotes from the announcement:
“Following delays in implementing budgetary consolidation measures and a worsening Greek economy, we believe Greece is likely to require additional financing for 2012 under the EU/International Monetary Fund (IMF) program,” S&P said in a statement.
“We are revising the outlook on the long-term ratings on Greece to negative, reflecting the possibility of a downgrade if Greece fails to secure the next disbursement of the EU/IMF Program,” S&P said.
Another downgrade for Spain, Italy
Dominion Bond Rating Service isn’t one of the giants of the ratings game, but it’s Canada’s dominant rater, so their dual downgrade may be s foreshadowing of further downgrades to come from the leading outfits.
From Eleazar David Meléndez of International Business Times:
Toronto-based credit rating agency DBRS, Inc. announced Wednesday it is downgrading the sovereign credit ratings of the Kingdom of Spain and the Republic of Italy from their current “A (high)” ratings. The rating agency gave Spain’s long-term rating a two-notch downgrade to “A (low).” Italy was taken down one notch to “A.”
Both countries’ ratings were assigned a “Negative” trend outlook.
For Spain, DBRS cited “considerable downside risks to the economic growth outlook,” including a worsening private sector outlook, deteriorating public debt dynamics, a weak general economic environment, stressed financing conditions, and doubts about the policy response at the euro zone level. For Italy, it questioned the government’s “ability to achieve its ambitious deficit reduction targets,” stressed financing conditions and policy uncertatinty at the national and European level.
The rating agency also announced that it was confirming its long-term rating on debt issued by the Republic of Ireland at “A (low),” citing “tentative signs of stabilisation in the Irish economy, progress reducing fiscal imbalances, and the restoration of lost competitiveness as reflected by two consecutive years of current account surpluses.”
Fitch downgrades Slovenia
One of the more recent entries to the eurozone, Slovenia emerged from the breakup of Czechoslovakia during the collapse of the former Soviet Union, becoming an independent state in 1992.
The country only entered the European Monetary Union five years ago, and is one of the E.U.’s smaller states, with a population of barely two million.
The nation’s economy officially entered recession in the last quarter of 2011, and the country’s entry on the list of potential bailout targets has earned it a Fitch downgrade.
From Deutsche Presse-Agentur:
Fitch Ratings agency on Wednesday followed Moody’s and Standard & Poor’s lead, downgrading Slovenia’s debt to the fourth-lowest investment grade.
The rating was lowered to A- from A, with a negative outlook. The downgrade puts Slovenia on a par with Poland, Italy and Malaysia, Bloomberg news agency said.
Last week, Moody’s Investors Service and Standard & Poor’s cut Slovenia’s ratings. The moves reflect the possibility that Slovenia is at risk of becoming the sixth euro-zone member to require a rescue, after Greece, Ireland, Portugal, Spain and Cyprus.
Fitch said the fact that the country’s banks need more capital was a major factor in the decision to downgrade.
But Germany retains its AAA Fitch rating
Here’s the first part of their announcement, via The Guardian:
The affirmation reflects Germany’s longstanding credit strengths and robust economic performance over the past two years. Against the background of fragile global recovery and the intensification of the eurozone crisis, Germany has recorded strong GDP growth and a declining trend in unemployment, partly as a result of previous structural reforms.
Several factors contribute to Germany’s solid macroeconomic position. Germany is the only major advanced economy which had lower unemployment rate in H112 than it had in 2007. The level of German GDP has increased by a cumulative 5.8% since the beginning of 2010, compared to 2.3% for the eurozone. The monetary conditions set for the entire eurozone by the ECB are accommodative for Germany given the strong cyclical position of its economy. As a consequence of safe-haven capital inflows, yields are also at extremely low levels. Furthermore, Germany has a strong net external creditor position and a large, albeit gradually declining, current account surplus.
The German financial sector has stabilised since 2009 and liquidity is abundant in the current environment. However, meeting Basel III requirements will remain a challenge for German banks in light of modest profitability and still a high leverage. Since mid-2008, German banks have cut their total eurozone exposure by €332bn, a 30% fall, of which €187bn was withdrawn from Greece, Italy, Spain and Portugal, a fall of 44%. Despite this fast pace of deleveraging, the quality of the remaining assets may well deteriorate further as the recession deepens in the periphery.
Germany has all the ingredients of a declining public debt path. The economy is growing, budget deficit is moderate and nominal interest rates reached record low levels. Nevertheless the longer track record serves as a warning sign. Despite the fiscal rules of the eurozone, the debt/GDP ratio had increased to 83% by 2010 from 55% in 1995. During the 13 years of monetary union, the German debt ratio declined in only five years and has been above the 60% reference value since 2003.
So once again, Germany emerges as the big financial winner from the eurozone.
And next, two new recessions plus a boom. . .
France officially entering recession
The central bank’s proclamation makes it fact, at least in the media’s eyes.
From Agence France Presse:
France is headed back into recession for the second time in three years, its central bank warned Wednesday in a setback for the recovery prospects of the stricken eurozone.
In a downbeat survey of the outlook for Europe’s second biggest economy, the Bank of France predicted a 0.1 percent contraction in gross domestic product (GDP) for the third quarter of this year.
If that outcome is confirmed it would follow a similar fall in output for the three months to June and zero growth in the first quarter of 2012.
France is also grappling with a trade deficit running at close to record highs, despite shrinking in the first half of the year.
Imports outstripped exports by 34.9 billion euros ($43.2 billion) in the first half of the year, down from 38.2 billion in the first six months of 2011.
Trade Minister Nicole Bricq said the figures reflected a weakening world economy and the crisis in Europe.
But she added: “That said, they also reflect a problem with the competitiveness of our businesses. We need far more businesses and we need much stronger businesses.”
More from the London Telegraph:
Uncertainty over the fate of the euro and related problems in credit markets have resulted in consumers and investors either cancelling or delaying major spending decisions.
This has hit the construction and automobile industries in France particularly hard. New housing starts in the second quarter were 14pc below 2011 levels, while July car sales were down 7pc on a year earlier.
With these job-intensive sectors struggling, unemployment has spiked.
Latest figures put the jobless total at nearly 10pc of the workforce with a further 5pc working fewer hours than they would like.
Serbia officially enters recession
Not a eurozone member and just a membership candidate in the E.U., Serbia’s another result of the Yugoslav breakup, with a population of just over seven million.
Serbian Minister of Finance and Economy Mladjan Dinkic stated Wednesday that Serbia is in recession as the data showed that the GDP drop in the first quarter amounted to 1.3 percent, and 0.6 percent in the second.
Dinkic said these are preliminary data, but added that the precise figures can only be worse. The economic situation is additionally aggravated by the draught, Dinkic said, and announced measures such as a cut in procurement of fertilizers, seeds and fuel.
Speaking about the budget, Dinkic said that the deficit of the consolidated account amounts over seven percent of the GDP, while the deficit of the Republic of Serbia surpasses five percent of the GDP, and noted that the planned deficit was 4.25 percent.
Serbia’s public debt amounted around 30 percent of the GDP five years ago, and today it is about 55 percent of the GDP, according to the NBS data, and 53.5 percent according to the data of the Ministry of Finance, Dinkic stated.
But the usual suspect is doing quite well
That would be Germany, the primary beneficiary and driving power of the eurozone. The latest good numbers from Agence France-Presse:
The German trade surplus grew in June but both imports and exports fell as the debt crisis crimps demand in Europe’s biggest economy, official data showed on Wednesday.
Germany exported goods worth 92.3 billion euros ($114.5 billion) in seasonally-adjusted terms in June, 1.5 percent less than in May, the national statistics office Destatis said in a statement.
Imports were down 2.9 percent at 76.1 billion euros, so that the trade surplus increased to 16.2 billion euros from 15.3 billion euros in May.
Taking the first six months of 2012 as a whole, however, exports were still on the rise, climbing 4.8 percent over the year-earlier period to 550.4 billion euros in unadjusted terms, while imports were up 2.4 percent at 457.1 billion euros.
That meant the January-June trade surplus increased 18.4 percent to 93.3 billion euros.
Nevertheless, analysts said the long-running eurozone debt crisis is beginning to make itself felt on the German economy.
“A rather weak flow of orders from abroad for quite a long time is now having an impact on exports,” said Commerzbank economist Ulrike Rondorf.
“The figures available so far suggest that the German economy expanded in the second quarter but the signs are now growing that gross domestic product (GDP) is likely to shrink in the third quarter,” she said.
Read the rest.http://www.eubusiness.com/news-eu/germany-eurozone.hzj/
And on to Spain. . .
Spain holds back on the Spailout
Though the Troika has basically pleaded with Spain to go for a bailout, the government’s been reticent, no doubt well aware that with unemployment through the roof and folks regularly marching in the streets, there’s a stiff price to be paid for signing an austerity memorandum.
From Agence France-Presse:
Spain has not as yet formally submitted a request to activate an EU emergency aid programme for its banks, the European Commission said Wednesday.
“The Commission can confirm that at this point it has not received a request to activate the emergency aid programme,” spokesman Olivier Bailly said, as sources in Madrid suggested the government would call for help earlier than planned.
“We are working on the demand for funds for Bankia. The deadlines are open. There is an installment of 30 billion euros and a possibility of an earlier injection,” a source in the Spanish economy ministry told AFP.
He referred to a state-owned bank that was formed in 2010 through the merger of several regional savings banks as part of a costly restructuring of a banking sector stricken by the financial crisis.
“We are working on that for Bankia and the rest of the nationalised banks” — CatalunyaCaixa, Novagalicia and Banco de Valencia, the source added.
Spain’s government had planned to announce after the results of an audit due in September how much the four banks need to get from a 30-billion-euro ($37-billion) first installment of eurozone loans.
Bullfights decline as economy staggers
The economic crisis may be only half the picture. People are also becoming sensitive to the notion of stabbing and then killing animals for public entertainment.
From Deutsche Presse-Agentur:
Bullfights are a part of the Spanish summer, with the spectacle of matadors in their glittering suits facing huge bulls drawing locals and tourists alike.
But the industry that became a symbol of Spain has now been hit by the country’s economic crisis, while animal rights activists have also stepped up their campaign against the “national fiesta.”
The number of professional bullfights being performed in Spain has gone down from 2,400 in 2007 to 1,300 this year, Jose Maria Baviano, a spokesman for Madrid’s famed Las Ventas bullring, told dpa.
Baviano said that Las Ventas – known as “the cathedral of bullfighting” – remains a bright spot among the country’s bullrings. But at many other venues, the economic crisis has reduced the number of spectators, who no longer have money to attend bullfights.
Spanish city orders locks to stop dumpster diving
We’ve known several folks who made it through tough times by sort through supermarket waste bins, but a Berkeley-sized city in Spain has ordered markets to lock their bins to stop people from gathering food.
It’s done, we’re told, out of health concerns — much like the sort that have led a city council majority here in Berkeley, led by Mayor Tom “Edifice Rex” Bates to stop the poor from sitting or sleeping on city streets.
The Spanish city of Girona has decided to lock supermarket rubbish bins to stop people scavenging for food.
Products past their sell by date are thrown away at the end of the day and then taken and eaten by hungry people.
The practice has increased since the Spanish economy began to unravel.
There are 1.73 million households in Spain where all eligible workers are unemployed.
Xavier Llompart, who works for the Comebal supermarket chain, said: “There are a large number of perishable products that are thrown away and are then eaten, they are the products that the people are looking for.”
The move is not as mean as it first appears, officials said that there are health risks involved for those who eat from the bins and the practice causes social alarm.
Not to worry, says the city government. There’ll be food baskets for the tyruly hungry.
Labor radicals launch food expropriation
Spain actually retains a strong base of organized labor radicals, including the Sindicato Andaluz de Trabajadores [SAT], or Andalusian Workers Union.
Formed in 2007, the union claims about 25,000 members in Andalusia, and it’s explicitly anti-capitalist and sydicalist.
Union members took the Occupy notion to the next level Tuesday, as MercoPress reports:
Pickets of unemployed and union members in the south of Spain took over supermarkets and took food produce which they then delivered to social organizations and needy families to protest and warn of the consequences of the tough measures implemented by the government.
The initiative was organized by the Andalucia Workers Union, SAT and took place in two neighbourhoods, one of them in Sevilla and the other in Cadiz.
In Ecija, Sevilla, an estimated thirty jobless members from a farm workers union at midday Tuesday marched into a local supermarket and left with carts full of basic food such as cooking oil, milk, sugar, rice and fresh vegetables.
The protesters left pamphlets warning of the consequences of the austerity measures from the government of President Mariano Rajoy.
There was some scuffling with employees but the protestors marched with over 1.500 kilos of food and the police did not intervene, according to Jose Caballero responsible for the organization of the assault on the business.
Here’s a video of the action [in Spanish] via For what we are… they will be:h
And on to Italy. . .
No end in sight to Italian recession
A video report from eurnews:
Three-card Monti wins an austerian confidence vote
The Troikarchs’ technarch in Rome won a legislative mandate for his latest round of immiserating austerian cuts.
From Valentina Pop of EUobserver:
Italian Prime Minister Mario Monti won a confidence vote on Tuesday (7 August) linked to another €4.5 billion worth of spending cuts aimed at convincing investors that Italy’s economy is sound.
But fresh data shows a worsening recession and rising borrowing costs.
The bill – which comes on top of previous spending cuts amounting to a total of €26 billion by 2014 – was approved with 371 MPs, while 86 said No and 22 abstained.
The €4.5 billion worth of cutbacks will be implemented by the end of this year. The remaining €21.5 billion are to be spread out over the next years.
Thousands of hospital beds are to be slashed and 20 percent of top public officials to be fired as part of the austerity drive.
Hey, who needs hospital beds where there are investors to please?
Pressure mounts to halt Italian bailout
Seems like lots of folks in Italy are dismayed at the notion of being subjected to yet another austerity memorandum dictated from afar, and they’re putting pressure Monti to prevent the move.
From Guy Dinmore and Giulia Segreti of Financial Times via CNN:
“We can do it alone” is the latest rallying cry to be heard in Italy as economists and politicians shower Mario Monti with proposals to use the country’s own vast but often dormant resources to slash its debt mountain rather than become hostage to the perceived diktat of Germany and Brussels.
Initiatives range from the patriotically modest to politically opportunist. But they add up to a crescendo of protests that the prime minister will find hard to ignore as he considers giving up sovereignty in exchange for the uncertain outcome of intervention to prop up Italy’s debt by eurozone bailout funds and the European Central Bank.
The latest proposal was registered in parliament on Tuesday by two centre-left MPs — Giulio Santagata and Giacomo Portas — who believe Italians can be persuaded out of the national good to pay some of their taxes in advance.
“Before we end up like the Greeks we want to show we are able to save ourselves,” Mr Santagata, a former minister and convinced European, told the Financial Times.
Monti backtracks over sovereignty flap
Three-card let his mask slip a bit Monday, and he’s been paying for it ever since.
Seems he was just too damn honest about the Troika’s agenda, and he’s been forced to do what newspaper folks used to call a skinback.
Mario Monti has denied accusations that he is seeking to sideline national parliaments in Europe in efforts to save the euro. He said he in no way wishes to weaken the checks and balances that parliaments exert on the executive. Instead, the Italian prime minister said on Monday night, he wanted to strengthen parliaments on the national and European level. “The autonomy of the parliament in relation to the executive is not up for debate,” he said.
In a SPIEGEL interview published on Monday, Monti warned that European leaders could not allow themselves to be bound entirely to parliamentary resolutions in their efforts to save the euro. “If governments let themselves be fully bound by the decisions of their parliaments without protecting their own freedom to act, a break up of Europe would be a more probable outcome than deeper integration,” he warned in the SPIEGEL interview.
On Monday night, Monti said that his comments had been aimed at promoting a “constant and systemic dialogue” between governments and parliaments on the process of European integration. When it comes to government negotiations at the European level, he said in clarification, “a certain amount of flexibility is necessary in order to reach agreements.” Still, he said this had to happen within the parameters that had been agreed to by parliament. “Every government has a duty to explain itself and interact in a dynamic, transparent and effective way with parliament,” he said.
Open Europe adds some context to what they describe as Monti’s faux pas:
Remember, although Monti leads a technocrat-only government (and, indeed, is an unelected technocrat himself), he has to rely on parliamentary support to pass the structural reforms Italy needs so badly.
Berlusconi’s party still holds the highest number of seats in both chambers of the Italian parliament. Therefore, if Berlusconi’s MPs and senators were to withdraw their support, Monti and his cabinet would have no alternative but to quit. So Monti should probably choose his words more carefully.
Berlusconi’s party instantly retaliated, and the result was the government failing to obtain a majority during one of the votes in the lower house yesterday over a new €26bn savings package. It was mainly a symbolic move (the specific vote was on a procedural act) and the package was eventually approved, but it was a reminder of the important role still played by Berlusconi’s lot.
So the media montebank’s bloc is challenging the Montibank, playing along for the time being.
Meanwhile, Berlusconi’s still planning a comeback, offering the promise of real spectacle in months ahead.
Crisis slows European interbank transfers
Pressurop reports on a London Times story reporting the latest manifestation of the eurocrisis, the dramatic slowdown of interbank transfers between eurozone nations.
And, as expected, the declines are greatest on the North/South axis
Here’s their report [the Times original is behind a paywall]:
Europe’s financial services single market is fragmenting as regulators pressure banks to retreat behind their national borders amid mounting fears of a euro break-up, reports The Times. A report by US investment banking firm Goldman Sachs says interbank lending across Europe has dropped, leading to a reduction in the flow of credit from Northern Europe to the South. The daily continues –
The trend is being driven in part by national supervisors, which are pushing local banks to build up capital and liquidity at the expense of other EU countries. Compounding this is the fear of euro exit … which is prompting banks in Northern Europe to curb their exposure to Mediterranean countries for fear that their loans will be repaid in reintroduced national currencies. German banks’ lending to Italian banks halved as a share of the latter country’s quarterly GDP between the pre-Lehman period and the first three months of this year, Goldman found.
Austerity embodied: Fire workers, bring in prisoners
What makes this story particularly emblematic of our times is the nature of the business allegedly doing the neoliberal dirty.
From Tom Goodenough of the London Daily Mail:
Prisoners on day release, including those convicted of murder, are receiving just £3 a day to work at a call centre in a practice branded ‘Dickensian’ by Union bosses.
Becoming Green, which specialises in renewable energy, employs 25 inmates from HMP Prescoed in Monmouthshire, south Wales.
And since the prisoners have been taken on, staff say the company has fired some of its other workers.
Andy Richards, Unite Wales regional secretary, said the employment of the prisoners was a ‘worrying development’.
He said: ‘This looks likes a disgraceful and worrying development which follows the UK government’s already discredited workfare scheme.
‘It is nothing short of Dickensian to exploit prisoners while Cardiff call centre workers lose their jobs.