The German chancellor says she’s ready to part with some cash to save the euro, but her own party’s opposition is growing greater, the Brits are parsing the costs of a eurozone collapse, and inflation’s holding steady in common currency turf.
We got a bleak assessment of Germany’s economic future, an economist’s rationale for a German eurozone exit, bad news for a German carmaker and a major bank, and rising Dutch unemployment.
From Spain, we’ve got the latest trade numbers [mixed], a mayor hunger striking against austerity, regional refusals to charge “illegals” for healthcare, and another bailout for a busted-out bank.
In Italy, Prime Minister Mario Monti says he won’t cut taxes yet and Rome’s shop-owners are closing doors as purchases drop.
Finally, we’ve got the latest jobless numbers from the former Sick Man of Europe, a call to drop ethanol in a drought-plagued world, and a save-the-euro plan from Hitler’s finance minister.
Germany’s on board with eurocash, says Merkel
Under pressure from her own party to stop sending German cash to bailout those folks on the southern rim, German Chancellor Angela Merkel says she’s on board with the European Central Bank bailout fund.
From Bloomberg’s Tony Czuczka and Patrick Donahue:
Chancellor Angela Merkel backed the European Central Bank’s insistence on conditions for helping reduce borrowing costs in indebted countries, saying Germany is “in line” with the ECB’s approach to defending the euro.
“Obviously time is pressing” on stamping out the debt crisis, though “on many of these issues we feel we’re on the right track,” Merkel told reporters in Ottawa today at a joint press conference with Canadian Prime Minister Stephen Harper. Euro-area policy makers “feel committed to do everything we can to maintain the common currency.”
Asked about ECB chief Mario Draghi’s announcement that the central bank may return to sovereign bond-buying, Merkel said that recent ECB decisions “have made it clear that the European Central Bank is counting on political action in the form of conditionality as the precondition for a positive development of the euro.”
As leader of Europe’s largest economy and the biggest single contributor to euro-region bailouts, Merkel is facing calls from Italy and Spain to pool debt to bring down bond yields, from Greece to back an easing of its austerity timetable and from the ECB for politicians to take the lead in fighting the crisis. She also faces domestic pressure from her coalition partners to refuse any more aid for Greece.
But there’s growing dissent in Merkelandia
The conservative chancellor’s own party is growing increasingly rebellious, as ANSAmed reports:
Discord within Germany’s ruling coalition over how to deal with the ongoing euro crisis flared anew Thursday when two politicians from the ruling coalition took aim at Mario Draghi, the Italian chief of the European Central Bank (ECB).
In an article on business daily Handelsblatt’s online version, austerity hawks Klaus-Peter Willsch, from German Premier Angela Merkel’s CDU party, and Frank Schaeffler, from coalition partner FDP, accused Draghi of “turning the ECB into a creditor of states and a bad bank.” Willsch also called for increasing Germany’s say in the bank’s management, writing that “a new weighting of votes is needed for ECB decision-making in proportion to each country’s responsibility”
Eurozone inflation rate holds steady
Though is higher that the eurobanksters hoped for, and still three times higher than what the bank’s prime lending rate.
From Deutsche Presse Agentur:
Annual inflation in the eurozone held steady at 2.4 per cent for the third consecutive month in July, the European Union’s statistics agency said Thursday, confirming a prior estimate.
The data from Eurostat was in line with analysts’ expectations.
Consumer prices in the 17-member currency area have now been above the European Central Bank’s (ECB) 2-per-cent annual target for 20 months in a row.
The ECB this month left its benchmark refinancing rate on hold at a historic low of 0.75 per cent, but its chief Mario Draghi hinted that the bank could soon deliver another cut in borrowing costs.
Any inflation is hard on folks laboring under austerity regimes, especially Greeks, who have lost a goodly chunk of the paychecks and pensions are are barely scraping by in a land where more and more government services are subject to the higher prices invariably accompanying privatization.
Brits calculate costs of eurozone fail
They’d be higher, since the continent’s the main market for Britain’s exports.
But the main significance is the simple fact of the study itself, an indication that the British government is losing faith in the currency it didn’t adopt.
From Szu Ping Chan of the London Telegraph:
A break-up of the eurozone would cost Britain’s economy £100bn, secret Treasury estimates show.
Officials said that a eurozone collapse caused by Greece’s departure from the 17-nation bloc would see UK economic output shrink by 7pc, or £105bn.
They added that a Greek exit would have a damaging knock-on effect on the rest of Europe. ‘We are hopeful that they will muddle through again,” a senior official told the Daily Mail. “The alternative is to brace for a 7pc fall in GDP.”
Internal documents indicate that a break-up would lead to a dramatic decline in trade with Britain’s eurozone partners, where 40pc of the UK’s exports are sent, the paper said.
Citigroup last month put the probability of “Grexit” at 90pc.
Bank of England data showed last month that British banks could be faced with losses of up to £100bn if Spain and Italy’s economies implode following contagion from Greece.
A sobering analysis of Germany’s future
The collapse is finally hitting Europe’s dominant economy, and Deutsche Welle economics correspondent Henrik Böhme sees little hope for change, given the perilous plight of the other industrial giants:
The debt crisis has now hit Germany. At first, the national economy managed to cope with the sharp economic decline in 2009, in which economic performance declined by five percent. Worldwide, warehouses were empty and following the Lehman shock, investment was necessary. This helped German manufacturers of machinery and other capital goods. Production also couldn’t keep up with demand in the automotive industry, especially with high-priced luxury cars. The full order books are still enough to cushion the bumps of the recession. That’s the reason there’s still a small amount of growth.
All this is not surprising. For European customers who purchase German goods, the money is slowly running out. Everywhere, but especially in the south of the continent, the huge debt burden is crippling growth. Until now, that could be compensated by global demand, in particular from Asia. However, the global giant – China – is now also weakening, and India’s government is driving foreign investors out of the country. Brazil’s economic boom has also lost much of its momentum. And America can think of nothing better to do than point the finger at the Europeans, instead of reviving their own economy and reflecting upon their own huge mountain of debt.
Is a Gerxit the solution to eurocrisis?
That would be a German exit from the currency zone and a reappearance of the Deutschmark.
That’s the solution suggested by labor economist Clyde Prestowitz, who heads the Economic Strategy Institute and counseled the Reagan administration Department Commerce, and John Prout, who served as treasurer of Credit Commercial de France.
An excerpt from their analysis, posted at CNN:
The analysis of the problems of the euro and the European Union has long been upside down, focused on the debt and competitive weaknesses of the so-called peripheral countries (Greece, Italy, Spain, Portugal and Ireland) and especially of Greece. But issues of debt and competitiveness existed and were dealt with rather easily long before the euro arrived, through periodic devaluation of the currencies of the less-competitive countries against those of the more competitive countries, and especially against the deutsche mark.
The problem now is not the weaknesses of the periphery, it’s the excessive competitive strength of Germany. Not only is the German economy inherently strong as a result of the high productivity of its workforce, its exports have added competitiveness because the euro is undervalued as far as Germany is concerned. Because it is the common currency of the eurozone countries, the value of the euro reflects the average of their combined competitiveness. But Germany’s competitiveness is far above the average. So, for Germany, the euro is too weak. This is why Germany has been accumulating chronic trade surpluses on the scale of the Chinese.
As long as the rest of the eurozone countries are locked in the euro with Germany, the only way for them to become more competitive is to become, well, more Germanic, through austerity measures that cut government spending, reduce welfare budgets, cut wages and raise unemployment. This is, of course, what they have been doing for the past two years.
The cost to Germany of saving Europe will be a hit to exports and perhaps a temporary rise in unemployment, but a return to the deutsche mark would attract a flood of capital to Germany and thereby spur investment while holding interest rates and inflation down.
The real question is whether the cost of slower export growth and increased unemployment is less than that of paying for Greece, then Spain, etc. Somehow, the “unknown” risks of a German exit from the euro appear more manageable, more quantifiable and in some ways more familiar a challenge than endless austerity, social unrest and political polarization.
GM’s Opel cuts hours, paychecks
While other German carmakers are still doing relatively well, that not the case with Opel, the General Motors subsidiary that once built trucks for the Wehrmacht.
From Deutsche Presse-Agentur:
General Motors’ European arm, Opel, said Thursday it was negotiating with union leaders to cut working hours and pay for thousands of staff at its main German plant west of Frankfurt after disappointing car sales.
Cuts were also sought at a components factory in Kaiserslautern.
The reductions, with staff working one or several days fewer per month, are a traditional German strategy to avoid layoffs and spread the pain of income losses throughout the workforce.
The government partly tops up the workers’ losses in pay. Berlin says this is cheaper in the long run than supporting them if they become jobless.
Opel has failed to benefit from Germany’s robust economy. Its local market share has sunk while exports to southern Europe languish. It is separately negotiating on strategic restructuring to reduce its 40,000-strong European workforce.
A company spokesman said Opel was seeking to cut hours for 6,000 factory workers and 10,000 clerical and development staff at its sprawling suburban site at Ruesselsheim.
Dutch jobless numbers hit 16-year high
Yet more evidence that the crisis has moved north.
Over half a million people registered out of work in the Netherlands, the first time the figure hit such a high since 1996, said the Dutch Central Bureau of Statistics on Thursday.
The latest CBS figures showed that the seasonally adjusted unemployment in July 2012 grew by 14 thousand to a total of 510,000 people, which is 6.5 percent of the workforce.
According to the statistics, the unemployment rate has been rising for over a year. Though in 2004 and 2005, unemployment was relatively high as well, the number of unemployed remained just under 500,000. Compared to that time, currently more men are unemployed and the number of unemployed older workers is also higher.
And on to Spain. . .
Spanish trade balance improves
One of those good news/bad news stories.
Exports increased, but imports declined, what with fewer people able to afford anything but the basics.
Spain’s trade deficit totalled 18.641 billion euros in the first semester of 2012, down 22.5 percent compared to the same period in 2011, according to data released today by the Economy Ministry.
The result is due to a 3.4 percent increase in exports, which reached 109.974 billion euros, and a diminution in imports by 1.4 percent of up to 128.615 billion euros.
In the month of June alone the trade deficit reached 2.7 billion euros, with a 31.2 decrease compared to the same month last year. During the first semester of 2012, all sectors registered a positive trend in exports except for carmakers whose sales abroad fell 9.9 percent compared to the same period in 2011. The car sector represented until June 14.8 percent of all Spanish exports.
Meanwhile the turnover of services fell 5.2 percent in June and that of the industrial sector declined by 6.7 percent compared to the same month in 2011, according to data released today by the national statistics bureau.
Another Spanish mayor battles austerity
Unlike Juan Manuel Sánchez Gordillo, his Andalusian counterpart, he’s not conducting grocery store expropriations to feed the jobless.
This mayor’s engaged in a hunger strike to save his town’s solar industry, threatened by a subsidy shutoff.
From Angelika Stucke of Spiegel:
It’s been over four months since Angel Vadillo began camping out in an old van in front of Spain’s Ministry Industry on April 10. For the last two of those months, he hasn’t eaten. His van is spare, decorated only with a picture of his one-and-a-half-year-old granddaughter. Aside from that, he only has a thin mattress, a full book shelf, a laptop and a mobile phone, both of which he charges with solar power.
Indeed, it is solar power that kicked off Vadillo’s unusual protest in the first place. In January, Spanish Industry Minister José Manuel Soria cut all subsidies for new projects relating to renewable energies.
Vadillo is the mayor of Alburquerque, a municipality with a population of 5,500 in Extremadura in the west of Spain. For the last two decades, Alburquerque has staked its future on solar energy, and five new facilities with a capacity of 250 megawatts had been planned prior to the subsidy cuts. Now, those plans have been shelved: “That means that we will lose some 850 jobs,” says Vadillo. It is estimated that the measure will cost a total of 10,000 jobs across the country.
Vadillo is hoping to force the minister to at least take a seat at the negotiating table. His mission began by walking the 600 kilometers (311 miles) from his constituency to Madrid. When the minister of industry refused to receive him, he decided to camp outside the building. When that too failed to get him the result he wanted, he stopped eating. That was on June 11.
Soria did consent to a single meeting with Vadillo once the mayor made his hunger strike public. “Our talk was more of a monologue,” Vadillo says. “I explained my position and the minister didn’t say a word except that I should reconsider my position.” Vadillo believes that the government is using the economic crisis merely as a pretext “in order to push through their conservative policies.”
More rebellions in Spain, over health
The target: The new Spanish austerity measures excluding “illegal” immigrants from the health care system.
The provocateurs: The heads of five of Spain’s regional governments.
From El País:
At least five regions say they plan to rebel against government cost-cutting measures to remove 150,000 undocumented immigrants from the public health system on September 1 and deny them the same access to treatment they have enjoyed to date.
Andalusia, Asturias and the Basque Country, run by the Socialists; the Canary Islands, controlled by the Canarian Coalition and the Socialists; and CiU Catalan nationalist bloc-run Catalonia have all warned of the dangers the central government’s measure could involve and have pledged to go on guaranteeing healthcare to those people affected.
The rebelling regions, which account for around half of illegal immigrants in Spain, are now studying how they can continue to offer universal healthcare within their territories. Catalonia says all outpatient treatment will be guaranteed, but has yet to resolve how to go on attending to hospitalized patients, according to a regional health department spokeswoman.
Meanwhile, Andalusia says it will not rule out appealing to the Constitutional Court if the government legally forces it to start charging undocumented immigrants an annual 700-euro fee for medical cover, as the Health Ministry has proposed.
And on to Italy. . .
No tax cuts yet, says Three-Card Monti
The austerity doctrine is premised in part on cutting taxes, a practice said to ensure economic vitality.
That the notion is flawed can be attested to by the case of the United States, where a post-World War II economic boom was accompanied by high corporate and personal income taxes.
Monti’s not cutting taxes because he opposes the idea. He’s holding off because he needs to keep money flowing into the coffers of Rome, given the specter of a bailout hovering in the wings.
From Deutsche Presse Agentur:
The Italian government remains focused on restoring the country’s public finances and has no plans to cut taxes for the time being, Prime Minister Mario Monti said Thursday.
“The tax burden on individuals and businesses is certainly excessive, but at this point in time, attention towards rebalancing public finances cannot be loosened,” Monti said in a statement.
The comments came a day after La Repubblica, a left-of-centre daily, reported that Monti was considering requests from leaders of the parties supporting his technocratic government to lower income tax.
In his statement, Monti acknowledged that lowering the tax burden was one of the government’s “most important objectives.”
However, such an objective would only be achieved once the markets were convinced that “distributing the benefits” of the current reforms and austerity measures were a “credible” option.
Rome shopowners stagger under the weight of crisis
Both Romans and tourists are holding onto their euros, forcing businesses to close and driving those still open to offer cut-rate prices just to keep their doors open.
From Mathilde Auvillain of Agence France-Presse:
It is not just stifling summer heat that is keeping shoppers at bay on Rome’s Via del Corso: as the economic crisis hits locals and tourists alike, many shops have little choice but to close for good.
The few people around seem to ziz zag from shop to shop, seeking relief from the heat in air-conditioned outlets and leaving behind frustrated shop assistants who struggle to sell anything despite discounts of up to 80 percent.
“The crisis has hit everyone,” sighed one empty-handed customer, while shopkeepers up and down the street whiled away their time folding and re-folding piles of brightly coloured T-shirts and stylish outfits.
“The sales have not gone well,” said clothes shop manager Fabio Anticoli. While the eternal city usually draws tourists from all over the world who spend their cash on Italian designs, “this year, it’s an impoverished tourism.”
The sales have gone “very badly” compared with 2011 according to the shopkeepers’ association Confesercenti, which reports a 20 percent drop in turnover in central Rome, a figure that rises to 40 percent in outer suburbs.
Next, a little banking business. . .
Spain’s Bankia ready for another bailout
While the eurobank has been pumping large volumes of cash through Spain’s banks in a sort of backdoor bailout, the cash will come to Bankia through the front door.
Bankia’s the creation of a raft of failed banks, including its namesake, and both the Spanish government and the banksters of Frankfurt are eager to keep it from failing and yet another round of mergers.
Spain will soon receive an emergency loan to save Bankia, the first disbursement from the 100 billion-euro EU bailout package, Bloomberg reported today, quoting a person familiar with the issue. Bankia will get the first portion of the aid “imminently”, Bloomberg said.
U.S. prosecutors cast an eagle eye on Deutsche Bank
Along with six other banking giants suspected in LIBORgate.
We suspect that eventually fines will be levied, but no jail time. After all, jails are reserved for the poor, and the occasional overly gauche member of the nouveau riche.
Besides, Obama’s shown no inclination to jail he folks who did so much to get him elected four years ago.
From Valentina Pop of EUobserver:
US prosecutors are investigating seven banking giants, including Germany’s Deutsche Bank, for involvement in alleged fixing of the British interbank rate (Libor).
Apart from Germany’s largest commercial bank, the US probe targets two American giants, JP Morgan Chase and Citigroup, Switzerland’s UBS and three British banks – Barclays, Royal Bank of Scotland and HSBC, sources familiar with the investigation told Reuters and Bloomberg news wires.
The subpoenas demand emails and documents exchanged between bank CEOs potentially exposing their role in the interbank rate fixing.
Over a dozen banks are suspected to have manipulated the interbank rate between 2005-2009, which is agreed daily in London among top bank managers based on how much they think they would lend to each other. Libor has an impact on hundreds of trillions of euros worth of transactions, mortgages, loans and credit cards.
Similar investigations are carried out in Britain and Germany, but there Deutsche Bank has obtained protection from prosecution in exchange for information on the case, according to Handelsblatt.
The “Sick Man of Europe” ails no more
Back in 1914, the Ottoman Empire was dubbed Europe’s “Sick Man” by Russian Czar Nicholas I, reflecting on the massive debt into which the country had fallen.
The Ottoman Caliphate is long gone, booted out by secular soldiers after the empire fatally sided with the German empire in World War I.
And now, nearly a century after losing most of its foothold in Europe and with a possible European Union membership in the works, Turkey’s economy is comparatively healthy, as reflected in the latest unemployment figures — which are going down as the rest of Europe’s have been creeping upward.
From Anatolia News Agency:
The unemployment rate in Turkey fell to 8.2 percent in May, the lowest level last 10 years, according to the official data. The improvement is based on seasonal effects in a slowing economy, according to economists
The unemployment rate in Turkey dropped to 8.2 percent in May, compared with 9 percent the previous month and 9.4 percent in May 2011, according to official data released yesterday.
The figure is the lowest in the last 10 years, said Finance Minister Mehmet S,ims,ek.
The decrease in the labor market, a significant improvement despite a slowing economy, was mainly due to seasonal effects in the services sector and an early start to the harvest. But the seasonally adjusted figure remained unchanged at 9 percent, which is still the lowest level since the initiation of the new employment indexes in 2005.
“We observed that the improvement in the labor market gained some momentum in May compared to April, despite the slowing economy. In fact, detailed employment data confirm the state of economic activity. Employment in industry remained almost unchanged, whereas with the start of the tourism and construction seasons employment in those sectors increased substantially,” said Özgür Altug(, chief economist at BGC Partners.
Seyfettin Gürsel, an economist who heads Istanbul-based think tank Betam, emphasized “a significant seasonal effect on the [unemployment] data.”
Agrofuel, hunger, and European politics
With global food supplies under threat by the record heat and drought in the U.S. and elsewhere, the notion of using food crops to make transportation fuels is starting to look even dicier, and critics of the agrofuel industry are seizing on the crisis to demand reductions or elimination of government mandates requiring ethanol use in cars and trucks.
Drought-stricken crops and record-high grain prices have strengthened critics of the European Union biofuel industry, adding fears of a food crisis to their claims that it does not ultimately reduce carbon dioxide emissions.
The renewed anxiety adds to pressure on the European Commission to forge a deal this year to help ensure that EU biofuels do not clash with food production or the environment.
Such an agreement would remove some of the uncertainty that has hung over the multi-billion-euro bioenergy industry during years of debate.
The UN Food and Agriculture Organization last week called for a suspension of US ethanol quotas as a response to the impact of the worst American drought in more than half a century on corn supplies and prices.
Ahead of a US election, immediate change is unlikely. But the debate highlights concerns that EU goals also stoke commodity volatility because they exaggerate inelasticity of demand.
“The US situation should be a warning for the EU that our inflexible biofuel mandate can lead to food price volatilities, especially as we are currently converting 65% of our vegetable oils into biodiesel,” said Nusa Urbancic, programme manager at campaign group Transport and Environment.
Finally, a time-tested plan to save the euro
University of Southampton Management School Chair in International Banking Richard Werner says there’s a plan that’s already been drafted that provides just the right approach.
The only potential problem has to do with the author, Hjalmar Horace Greeley Schacht, the former Reichsbank president who just happened to serve as economics minister to Adolf Hitler.
James Hurley of the London Telegraph reports:
Firstly, the plan involves the European Central Bank buying the banking system’s bad assets at face value, which Prof Werner says would not cost taxpayers or cause inflation.
Next – and here’s Dr Schacht’s 1930s magic – the Spanish government and others should stop selling pricey government bonds entirely.
Instead, they should fund themselves through loan contracts from banks in their countries, which Prof Werner says would result in cheaper sovereign borrowing.
All very appealing – but shouldn’t we be wary of using ideas favoured by the Nazis?
“If we don’t want to adopt economic policies on the basis that they were favoured by Hitler’s government, which is an understandable viewpoint, then we should not have introduced the euro in the first place,” Prof Werner responds.
“The introduction of a single European currency, with the central bank located in Germany, was, after all, favoured by Hitler and his technocrats.”
Joachim von Ribbentrop, Hitler’s foreign minister, even prepared plans for a European Federation under German suzerainity.
In 1943, the German ministers Joachim von Ribbentrop and Cecil von Renthe-Fink eventually proposed the creation of a European confederacy, which would have had a single currency, a central bank in Berlin, a regional principle, a labour policy and economic and trading agreements.
Say, isn’t that what they’ve got now? Except the bank’s in Frankfurt, not Berlin.