Econowrap: Euro deal in danger, Greek bombshell

The much heralded deal to save Europe’s economy looks less like a solution and more like a stopgap with each passing day.

But the real bombshell comes in the form of an announcement from the Greek government:

The whole Euro bailout was triggered by Greece’s economic disaster and it’s contingent on Greece buying the deal.

Well, now it seems that Greek acceptance is fair from a done deal, following this blockbuster announcement, via Kathimerini English Edition:

Prime Minister George Papandreou has stated his intention to hold a referendum on last week’s agreement in Brussels for Greece’s bondholders to accept a 50 percent haircut and the country to receive some 130 billion euros in loans from its eurozone partners.

Speaking to PASOK MPs, Papandreou also said that he would ask for a vote of confidence in Parliament. This is likely to to take place next week. The referendum could happen later this year.

Papandreou said he had faith in Greeks making the right decision. “Let us allow the people to have the last word, let them decide on the country’s fate,” he said. He said handing the vote over to Greeks was «an act of patriotism.”

The premier insisted that calling snap polls – ahead of elections scheduled for 2013 – would be “simply dodging the issue.”

The vote of confidence – likely to be held next week – would come just over four months after a similar vote that Papandreou sought, and won, to bolster his government ahead of a Parliamentary vote on austerity measures.

The premier’s bombshell came a day after an opinion poll, carried out by To Vima, found that 60 percent of Greeks regard last Thursday’s EU debt deal as “negative” or “probably negative.”

And some context: It’s all about Greece

From The Economic Collapse:

Once the euphoria of the initial announcement faded and as people have begun to closely examine the details of the European debt deal, they have started to realize that this “debt deal” is really just a “managed” Greek debt default.  Let’s be honest – this deal is not going to solve anything.  All it does is buy Greece a few months.  Meanwhile, it is going to make the financial collapse of other nations in Europe even more likely.  Anyone that believes that the financial situation in Europe is better now than it was last week simply does not understand what is going on.  Bond yields are going to go through the roof and investors are going to start to panic.  The European Central Bank is going to have an extremely difficult time trying to keep a lid on this thing.  Instead of being a solution, the European debt deal has brought us several steps closer to a complete financial meltdown in Europe.

Read the rest.

And again, it’s all Greek to us

From Tim Duy’s Fed Watch:

Not only are the details of the grand European plan still in flux, but so are the broad brushstrokes!  Clearly, the Greeks have just brought back into play all the uncertainty last week’s summit was meant to dispell.  It is not unreasonable to think the Greek electorate is more willing to technically default and start from scratch than their leaders. Indeed, shouldn’t this be our baseline scenario?

Bottom Line:  Last’s week European Summit accomplished far less than even the reduced expectations going into last week.  The cracks began appearing before the ink was dry.  More worrisome is that the Greek leadership didn’t even believe they were on board in the first place.  Simply put, the world economy is no less fragile than it was a week ago.  And in that fragility still lies the recession risk for a still struggling US economy.

Read the rest.

And even should Greece approve, recession coming

Indeed, it seems that Europe is headed into yet another round of recession, and we use that word advisedly, since for much of Europe there hasn’t been any “recovery” at all.

Jack Ewing reports for the New York Times:

The European economy broadcast mixed signals Monday, as inflation remained above the level considered acceptable by the European Central Bank, but unemployment rose and reinforced expectations of a looming recession.

The Organization for Economic Cooperation and Development forecast Monday that euro zone economies will see a “marked slowdown” next year, and called on the European Union to clarify its anti-crisis measures, The Associated Press reported.

In an update of economic forecasts timed to coincide with this week’s meeting of the Group of 20 major economies, the Paris-based O.E.C.D. said “patches of mild negative growth” were likely in the euro zone in 2012.

It predicted economic growth in the euro zone would stall at 0.3 percent next year, after just 1.6 percent growth this year. That is down from the O.E.C.D.’s forecast in May of 2 percent growth in the euro zone in 2012.

“Detailed information is needed” on how the European Union will implement the package of measures announced last week aimed at resolving the European debt crisis, the O.E.C.D. said.

Inflation in the 17 countries that belong to the euro area was steady in October at 3 percent, according to figures from Eurostat, the European Union statistical agency. That was contrary to analyst predictions of a slight drop because of slowing economic growth. However, unemployment edged higher to 10.2 percent in September from 10.1 percent in August, Eurostat said.

The data, along with a muted official forecast for Spanish growth, offer no easy choices for Mario Draghi when he presides over his first monetary policy meeting as president of the European Central Bank on Thursday.

Read the rest.

U.N. agency warns of global unrest

From Global Economic Crisis:

The International Labor Organization is the latest global body to warn about the ongoing global economic crisis. According to the most recent report from the ILO, the global economy is about to tip into what it calls a “a new and deeper jobs recession.” Given that advanced economies already are experiencing levels of unemployment and underemployment rivaling the Great Depression of the 1930s, it is not surprising that the ILO believes that the next phase of the jobs crisis will lead to a sharply elevated risk of social unrest.

As fiscal austerity becomes the preferred policy response in advanced economies to the ongoing global economic crisis and its related sovereign debt crisis, even higher levels of unemployment are unavoidable. The current spread of the Occupy Wall Street movement to many other cities across the world points to the validity of the ILO’s warning about spreading social unrest.

Read the rest.

And China’s role grows even clearer

As we’ve already noted, the hidden player in the Euro deal is China.

No consider this from Deutsche Welle, drawn from a fascinating interview with Jonathan Holslag, director of research for the Brussels Institute of Contemporary China Studies, on China’s growing say — and stake — in the European economy.

Here he talks about China’s skepticism about European governance:

The Chinese have lost all their trust in Europe as a political actor, a leading economy, and as a model for building a welfare state and for social development. We have a vast perception problem in China. The Chinese tend to see Europe as a spoiled group of decaying countries that do not really deserve the product of China’s hard work. That might seem to be a populous sentiment, but I think that it is quite a widely-held view in China, among officials, as well.

What they complain a lot about is that Europe has lectured them for decades about how to do their economic housework and that now the teacher itself is in need of a lesson and is in deep trouble. I think this image problem we have with China will make negotiations tougher and will also make it more difficult for Chinese leaders to step in with support – they will be under a lot of pressure to be tough in terms of their demands for guarantees and also to be tough in signalling their resolve of negotiations with regard to market economy status. So that is definitely creating an awkward situation.

Read the rest.

And more on the China connection from Presseurop:

And what if China can’t help Europe? On the day Chinese President Hu Jintao is visiting Austria Die Presse warns against “false hopes of a Chinese saviour.” The financial clout that China wields abroad can’t hide the problems the Beijing government is facing inside its own country, writes the Vienna daily.

China, it turns out, is at risk of an explosion of debt. In 2008 it initiated “a massive stimulus package equivalent to 440 billion euros that was meant to protect the country from the financial crisis triggered in the United States.” The catch: only 133 billion came from the state budget. The rest was loaned by banks, state enterprises and individuals. “Today, not just huge cities like Shanghai or Beijing but thousands of smaller cities and towns as well are deeply in debt to the state banks.”

China’s official newspaper China Daily affirms that “China cannot be Europe’s saviour, nor be a cure-all for its ills, but it will do what it can to extend a helping hand as a friend. But friendship is a two-way street. China has already invested significant sums in European bonds and would like guarantees that its investment is safe.”

And the wealth gap increases in Spain

Spain is another key player in the Euro crisis, and the question is only when, not if, yet another round of bailouts will be needed.

The plight of the Spanish working class worsens by the day, another factor to be considered in that ILO warning about spreading unrest.

From Presseurop:

“The gap between rich and poor is widening in Spain”, reports El País, which points out that economic inequality has reached “a record high” since 1995, when it began to be measured by European statistics. Adding that the “change has led to Spain lagging behind the European Union”, the daily notes that the most recent data compiled by Eurostat in 2009 show that only Latvia, Romania and Lithuania are worse off in this regard. “Economic blight”  in Spain, which has close to 5 million unemployed (21.5% of the working population), wage reductions and an end to a number of state benefits have caused the gap to grow in the course of the crisis, continues the daily, which highlights an “abrupt worsening of the situation in 2010″.

The inequality of income distribution, as measured by the s80/s20 ratio which takes into account the richest 20% and the poorest 20% of the population, now stands at 6.9 in Spain, as opposed to 4.5 in Germany. In 2009, the EU average for this figure was 4.9.

And even the strong man takes measures

The one real economic powerhouse of “Old Europe” is Germany, where organized labor is still relatively strong.

But one thing Germany lacks is a national minimum wage law, and we think its very significant that the federal government is now considering a move once unthinkable to the nation’s currently dominant conservative political party.

Could it be a sign that political savants fear worker unrest there and are moving to abate it before things get worse?

From Holly Fox of Deutsche Welle:

German Chancellor Angela Merkel’s Christian Democrats (CDU) are exploring the idea of a mandatory minimum wage for workers, party leaders said on Sunday.

“It is no longer a question of whether we will have a minimum wage, but how we will agree to the right amount,” Labor Minister Ursula von der Leyen told the newspaper the Süddeutsche Zeitung.

According to Peter Altmaier, the party’s chief parliamentary whip, the CDU will debate a proposal for a minimum wage ahead of a November congress.

Labor Minister Ursula von der LeyenVon der Leyen said that finding the right level would be the most difficult part This is a significant policy reversal for Merkel’s party, which has previously rejected a nationwide minimum wage. Opposition to a minimum wage is even written into the coalition agreement signed by the CDU and its pro-business coalition partners, the Free Democrats, in 2009.

Competitiveness in Europe’s largest economy has increased over the last decade, partly by keeping wages low and making the labor market more flexible. But some workers feel they’ve been left behind, even as Germany recovered from the global downturn faster than expected.

Currently unions and employers in some industries have negotiated minimum wage agreements for their area. The center-left opposition and unions have long called for a national minimum wage and welcomed the news of the CDU’s new stance.

Read the rest.

And Occupy catches fire in Germany

In light of the previous item, consider this from Deutsche Welle’s Richard Connor:

Thousands gathered across Germany on Saturday to protest over wealth inequalities and a perceived lack of transparency in the financial services industry.

According to police figures, about 2,500 people rallied in Frankfurt to march on a route that took them past the headquarters of both the German national bank and the European Central Bank (ECB).

The activist group Attac, which organized the event, said at least 5,000 had attended.

Members of the Occupy Frankfurt group, which has been camped outside the ECB for the past two weeks, have said they plan to remain at the site for two more weeks.

In Berlin, some 1,000 protesters gathered outside the main city hall carrying plaques bearing the message “Occupy Berlin.”

Read the rest.

And one final item, this one from closer to home

Yet another Wall Street firm takes a hit, reported by the BBC:

US brokerage firm MF Global has filed for Chapter 11 bankruptcy protection after revealing £4bn of eurozone debt exposure.

The US brokerage, which has 2,000 staff worldwide including 600 in London, is said to be planning to sell its assets to rival Interactive Brokers Group.

Shares in MF Global were suspended by the New York authorities on Monday.

JPMorgan Chase and Deutsche Bank are the firm’s two biggest creditors.

JPMorgan is said to have a claim of more than $1.2bn, while Deutsche Bank is owed more than $1bn.

Shares in JPMorgan fell 3.3% on the news of MF Global’s Chapter 11 move, while Deutsche Bank’s US-listed shares lost 8.7%.

Deutsche’s shares in Europe were also hit, down 8.6%.

Read the rest.


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