Desperate for good news, markets soared on conflicting reports that the eurobank would buy up high priced bonds from the suffering South, but Moody’s says there’s a lot left to be done. And those poor eurobanksters are so overworked, Frankfurt’s hiring more. Meanwhile, German continues to rank in crash from the bonds issued by the desperate South and Britain’s going deeper into debt.
In Spain, an anti-austerity regional leader has called for new elections, jobless benefits for those with families are getting a small bump, while the Portguese economy continues to shrink, Fitch calls for Italian reforms, and the Danes create a new program to help the young find jobs, and the Irish banks have cut off loans to businesses.
Markets rise on euro dreams
Ah, the wonders of the market. Bouyed by hopes the eurobank is gonna buy up all that expensive debt, the buy orders were burning up the wires.
From Louise Armitstead of the London Telegraph:
Global stockmarkets rose and the borrowing costs of Europe’s sinner states dropped as traders bet that the political and economic deadlock over debt crisis may shift decisively within days.
The FTSE Eurofirst 300 climbed to a 13-month high; America’s S&P 500 hit its highest level for four years before tech sector losses saw it close down 4.96 points at 1,413.17; while the euro rose 1pc to hit a seven week high against the dollar. Spain’s borrowing costs dropped at debt auction while Portugal’s 10-year yields fell to levels not seen since Lisbon sought a bail-out in April 2011.
Despite officials trying to dissuade them, traders bet that the European Central Bank (ECB) is preparing to unleash a transformative bond-buying programme, with or without German support. The move, which many expect as soon as the ECB meeting in September, could provide the euro and its 17-members with the powerful backstop it has lacked.
Traders also gambled that a series of summits between European leaders could result in a radical change in Brussels’ Greek strategy, towards growth rather than pure austerity.
So all’s sweetness and light, right?
Moody’s delivers another blow
This time it’s not a downgrade but an analysis, and — given the power of rating agencies — an austerian mandate.
Before Moody’s will offering any serious upgrades, a whole lot more of those “structural reforms” are required.
Euro-area peripheral nations are “at best” halfway through correcting the economic imbalances that helped cause the debt crisis and must press on with structural reforms, Moody’s Investors Service said.
“Adjustments, both in the periphery and the core, have already taken place — in some cases, to a significant degree,” Moody’s analysts including by Sovereign Chief Economist Lucio Vinhas de Souza in New York said in a report published today, according to Bloomberg. The process “is at best only half complete.”
Policy makers in the struggling nations of Europe’s periphery are trying to rewire their economies to generate the growth they need to pay their debts. The European Union and the International Monetary Fund have pledged at least 393 billion euros ($485 billion) in aid to Greece, Ireland, Portugal and Spain to help them pay their bills while they implement reforms.
While Moody’s noted progress in some countries’ trade balances and labor competitiveness, it said that governments cannot ease back on the pace of reform. The report didn’t mention the credit ratings of any nations.
More from the London Telegraph’s Rachel Cooper:
Moody’s highlighted adjustment successes so far, such as Spanish labour costs dropping 5.9pc from their peak, while those in Greece and Ireland have fallen 7.8pc and 13.7pc respectively.
This has helped to support exports and sustain economic output as their governments cut spending at home, Moody’s said. “Competitiveness gains in the euro area periphery seem to have come about as a result of improvements in productivity that relied mostly on employment falling faster than output,” the agency added.
The Moody’s report did not mention the credit ratings of any nations. But separately on Tuesday, David Riley, Fitch Ratings managing director, told Bloomberg that euro-area countries may face renewed pressure on their sovereign debt ratings if they do not make headway on resolving the debt crisis by the end of the year.
Ah, the poor, overworked banksters
Seems the eurobank staff is so overburdened, what with reviewing all those budgets and drafting all those memoranda, that they just can’t get by with the staff they have.
So while Greek civil servants are facing another round of layoffs and Spain readies for another bailout and attendant layoffs and salary cuts, the eurobank is hiring.
From Agence France-Presse:
The European Central Bank has agreed to take on 40 additional staff to ease the workload from the eurozone debt crisis, a spokesman said Tuesday, amid calls by unions for even more new hirings.
The ECB’s executive board has given the green light to the hiring of 40 new staff, a spokesman told AFP, confirming a corresponding report in the daily Die Welt.
But IPSO, the only recognised union at the ECB and whose members account for more than 40 percent of staff, has said that will not be enough.
ECB president Mario Draghi already acknowledged back in July that the tasks facing the central bank staff had multiplied greatly as a result of the euro crisis and become “more difficult and psychologically demanding.”
“It is no surprise that (staff) see themselves as overworked, and our assessment is exactly the same,” Draghi said at the time, adding that the ECB was taking steps to alleviate that stress and the executive board had discussed a “very modest” increase in resources.
Good to know the crisis is good for somebody. Other than all those folks buying up things that used to be the collective property of nations and peoples.
More German profits from the eurocrisis
That’s because the Greeks are paying back a few billion in bonds to the the eurobank, and Germany will reap the largest share.
Greece announcement on Monday, that it will make a EUR 3.2 bln of maturing bond reimbursement to the European Central Bank, adds to Germany materialized gains on the back of the euro crisis. When the ECB releases these gains against the euro countries, Germany will receive the biggest share as the largest contributor to the Central Bank, eFXnews reported.
Thus, moving forward Germany will continue to receive a bigger share given that by 2026, Greece’s maturing bond reimbursement to the ECB would reach EUR 12.7 bln according to FT Deutschland’s calculations.
In the meantime, Germany has already made significant gains from the very low interest rate it paid to finance its debt as shown in the calculations of economist Jens Boysen-Hogrefe of Germany’s Kiel Institute, Handelsblatt reported.
According to these calculations, over the past three and half years, Germany saved a cool EUR 68 bln in interest cost compared to its average rate from 1999 to 2008.
Britain goes deeper into hock
Yep, with the third dip of recession underway, the United Kingdom is digging itself deeper into debt.
The biggest hit came from a drop in corporate tax revenues.
From The Independent’s Oliver Wright:
George Osborne’s attempt to cut Britain’s deficit was dealt a blow today when official figures revealed that the Government borrowed £3 billion more than expected last month.
Public sector finances suffered from a 20 per cent fall in corporation tax receipts from business while public spending rose by 5 per cent, fuelled by higher benefit payments.
Overall public sector net borrowing came in at £600 million in July, compared with a surplus of £2.8 billion in the same month last year. City’s expectations had been for a surplus of £2.5 billion.
Public sector net debt now stands at above £1 trillion, compared to £940 billion a year ago, and represents 65.7 per cent of the UK’s GDP, up from 61.8 per cent last year.
Basque region premier calls early elections
The socialist leader says it’s time to end austerity policies in his region, and that cost his coalition any support from the conservative Popular Party, so he’s calling for elections in two months in an effort to solidify support for his anti-austerity agenda.
From Javier Rivas, Pedro Gorospe, and Fernando Garea of El País:
The Socialist regional premier of the Basque Country, Patxi López, has called early elections for October 21, a day after the first anniversary of ETA’s unilateral ceasefire.
“We have already adopted the anti-crisis measures and we have guaranteed that the most disadvantaged will not suffer,” López said on Tuesday morning. “The Basque Country is a more modern and freer country than in 2009. We have done what we promised. We have brought terrorism to an end, we have returned Euskadi to normality and we have guaranteed a high level of public services, leaving behind the permanent confrontation [of the Basque nationalists].”
López denied there was an economic motive behind the decision to call voters to the ballot boxes, saying simply that Basques need to choose “a model” to escape the financial crisis.
However, López’s position as Basque leader has been weakened by the withdrawal of support from the Popular Party (PP), due to his opposition to Prime Minister Mariano Rajoy’s austerity plans and the presentation of an appeal against cutbacks in health and education. The PP leader in the Basque Country, Antonio Basagoiti, had warned in April that there was a line López could not cross: namely using his position as regional premier to “challenge PP policies.” The PP broke off its pact with the Socialists in May, leading to calls from opposition parties for López to announce early elections.
Spain ups some jobless benefits
The measures apply only to those with dependents, leaving out an increase for most of the more than 50 percent of young Spaniards without jobs.
Unemployment benefits for people with dependent family members will increase from 400 to 450 euros a month, sources from Spain’s Ministry of Employment and Social Security said on Tuesday.
Unemployed people with no other coverage, and who support a spouse or companion and two more relatives, are eligible for the raise, to be approved by the Cabinet on Friday August 24, the sources said.
Basque city to end bullfights
It’s not austerity but ethics that’s prompting the end of a tradition.
From Inés P. Chávarri of El País:
Moves are being made in San Sebastián City Hall to prevent bullfights being held in the Basque city on ethical grounds.
The municipal council is controlled by the radical left-wing, pro-independence abertzale Bildu group, which is opposed to what is known as la fiesta nacional. “There is an anti-bullfighting argument that this council subscribes to 100 percent, which says the death and suffering of an animal should not be made into a spectacle,” city mayor Juan Karlos Izagirre said Monday.
Izagirre said the city does not plan to renew the license of the company that has the right to exploit San Sebastián’s bullring when it expires this year.
Portuguese economy slumps deeper
The contraction in the year’s second quarter reached 3.3 percent, bringing the decline for the past two years to 13.3 percent, taking the economy back to 1999 levels.
From Deutsche Presse Agentur:
Unemployment has meanwhile soared to a record 15 per cent. More than half of Portugal’s approximately 800,000 jobless do not receive unemployment benefits, the daily Publico reported.
The number of people earning less than 310 euros (370 dollars) a month has meanwhile increased by 9.4 per cent to 153,000, according to the statistics body INE.
Critics blame the recession partly on the massive budget cuts enacted by Prime Minister Pedro Passos Coelho’s centre-right government.
The austerity policies have allowed Portugal to reduce its budget deficit and borrowing costs, earning it praise from the European Union and the International Monetary Fund, which granted Lisbon a bailout worth 78 billion euros.
But the government is also being accused of paralyzing the economy and fuelling poverty by cutting spending on public investments and social benefits.
Fitch calls for Italian reforms
Enough of austerity they say. But what do they mean by reforms? And how do austerity and reforms differ?
Enquiring minds want to know.
‘’Italy does not need more austerity measures. It is time for reform,’‘ Fitch Managing Director of Sovereign Ratings David Riley told Bloomberg TV on Tuesday.
Italy’s biggest wild card is whether or not Spain will apply for a European Stability Mechanism (ESM) bailout, should Germany’s Constitutional Court approve it, Riley said.
The markets will penalize Spain if it falters in asking for the bailout, with consequences for Italy as well, Riley said.
Danes set aside funds to help youth
The total, proposed by Prime Minister Helle Thorning-Schmidt and Deputy Prime Minister and Minister for Economic and Interior Affairs Margrethe Vestager, is equivalent to $106.2 million, and will provide extra help for the nation’s young in a time of economic certainty.
In evaluating the figures, one Danish kroner is worth about 16.7 cents.
From Christian Wenande of The Copenhagen Post:
The package, which is to be funded with 635 million kroner, is expected to help roughly 7,000 young people find work through apprenticeships and increased job rotations in private businesses.
The Youth Package, which covers the years 2013-2016, is part of the government’s 2013 budget proposal and amounts to 645 million kroner:
- 177 million kroner is slated for subsidies for companies that take on adult apprentices from fields in which employment opportunities are limited.
- 272 million kroner will go to strengthening the job rotation programme, which upgrades workers via education, while replacing them with the unemployed.
- 88 million kroner will go to the ‘knowledge pilot’ scheme.
61 million kroner will go to aiding education and work experience consultants.
- 26 million kroner will go to education.
- 15 million kroner will go to vocational pilots.
- 6 million kroner will go to jobs for people who are freshly graduated.
Irish banksters reject most business loans
They’ve got the cash, but they won’t lend it out — much like their American counterparts, which have been notoriously tight with all that cash they’ve been hoarding.
From Irish Times reporter Dan O’Brien
Irish banks reject more business loan applications than any other state in the euro zone except Greece, with small and medium businesses in Ireland twice as likely to have a loan application turned down as the average across the bloc.
The new figures are contained in a study published this morning by the Central Bank of Ireland.
While some teetering businesses which seek credit have little chance of repaying loans – and thus have to be refused them – the new study says that “high rejection rates in Ireland cannot be explained by the quality of the pool of potential borrowers”.
More than one in four businesses seeking a loan or an overdraft were rejected in the six months to March.
That is more than double the euro average and compares with one in 28 in Germany.