We open with two graphic takes on the awarding [ludicrous] of the Nobel Peace Prize to the European Union, a de facto endorsement of austerity. Then its on to the latest conflicting statements from two notable Troikarchs and some bad economic news for the industrial giant of the North and a plea for mercy for the PIIGS.
From Spain, the latest Spailout date prediction, more sentiment for Catalonian secession, anger at a rater’s downgrade, and a meet with German lawmakers. More austyerity’s coming to Portugal, along with the Tobin Tax,m and the raters downgrade the country’s banks.
In Italy, judges declared their own pay cuts illegal, the economic contraction deepens, and families are sinking deeper into debt.
We close with talks for the merger of two major car companies and a boost for a secession movement in the North.
European Union wins Nobel Peace Prize
We’ll let two images comment for us, first from the Occupy movement:
And this from Portuguese cartoonist antero:
Not impossible because it can’t be done, but because it won’t be done, given the current cast of characters in starring roles in the global financial con game now udnerway.
From Philip Aldrick of the London Telegraph:
Christine Lagarde has called for decisive action from world leaders to end uncertainties in the global economy that are prolonging “terrifying and unacceptable” levels of unemployment.
Rounding on Europe and the US in particular, the managing director of the International Monetary Fund said this week’s annual meetings in Tokyo needed to be marked by “courageous action on behalf of our members”.
Speaking just days after the IMF slashed its global growth forecasts for both this year and next, Ms Lagarde said the economic weakness was not just a result of “tail risks” such as a eurozone break-up but “the degree of uncertainty in many corners of the world – whether it is Europe or America”.
“It is deterring investors from investing and creating jobs,” she said. “We need action to lift the veil of uncertainty.”
She also reiterated the softening of the IMF’s position on austerity, saying that governments should no longer pursue specific debt reduction targets but focus on implementing reforms.
More from Xinhua:
Right actions with long-term view have been done by some central banks in euro area, and IMF received the good signals and consider them a good opportunity to seize as much uncertainties, in every corner of the world, preventing the decision makers from investing, creating jobs and developing values.
Speaking of the emerging markets, Lagarde said, there are also many challenges, so they need to keep a close watch on the vulnerabilities of both of the domestic market and the external market.
Looking into the future, IMF suggested there are four key policies for all members to do to make the economy keep going forward.
Firstly, continue to complete the financial sector reform making the finical sector safer, as the safety have not improved much yet than five years ago. And then, countries should deal with the legacy of high debt, especially in the advanced economies, which have extremely high level. Policy makers also need to expand the employment on creating the condition for economic growth, because the jobless rate among young people is unacceptable. Finally, all members of IMF should face the global unbalance, which is the topic has been talking for a long time.
The key problem is that the solution to debt is always austerity under the rules of the game as it’s now played, and austerity always means layoffs, pay and pension cuts, and other measures designed to reduce organized labor to the status of indentured serfs.
And as if to prove our contention
Consider this pronouncement from a second Troikarch.
From Valentina Pop of EUobserver:
EU commission chief Jose Manuel Barroso has come to the defence of more budget cuts to bring confidence back to southern economies, even as the IMF said the effects of austerity may have been underestimated.
“Nobody defends austerity in Europe, but can anyone tell governments to spend more? There is nothing more anti-social than high levels of debt,” Barroso said Thursday (11 October) at a conference organised by Friends of Europe, a Brussels-based think-tank.
He said austerity was not “imposed” by the EU commission – although the institution is involved in the so-called troika of international lenders in Greece, Portugal, Ireland and Spain – but that all the EU rules countries have to adhere to are “taken unanimously by governments.”
“We have to put right the balance of responsibility. The reality is decisions are taken by the governments themselves,” he said.
German economists trim growth expectations
The strongest economy in the North is going to do less well that predicted a few months back.
With all that austerity imposed on the south, coupled with the other effects of the ongoing global crash, we’re not surprised.
From Deutsche Welle:
A group of leading German economic institutes on Thursday revised their expectations for economic growth in Germany in the current year as well as in 2013, saying they expected less growth than they had originally anticipated.
Presenting their annual Autumn Outlook, the experts said they now reckoned with 0.8 percent growth in Germany in 2012, down from 0.9 percent in their spring forecast. But while there was only a slight revision for this year, the institutes halved their estimates for 2013, saying domestic growth would only amount to 1.0 percent instead of the 2.0 percent predicted half a year ago.
“Economic expansion will remain subdued for some months to come, but will pick up again in 2013,” the report said. It added that unemployment would also rise slightly next year, but would still stay below the psychologically important threshold of three million unemployed.
The head of the German public sector union, Frank Bsirske, warned, though, that other nations’ troubles were now becoming Germany’s own troubles.
“We’ve just watched fellow euro area countries sliding deeper into recession as a result of excessive savings measures,” Bsirske said.
He claimed that it was now pivotal to implement a European-wide investment and growth program worth 2.6 billion euros ($3.34 billion) over the next decade. But he added there was no political will at present to break through what he called “the vicious circle of budget consolidation and recession.”
More from the Economic Times:
While Germany clocked up growth of 0.5 per cent in the first quarter and 0.3 per cent in the second quarter, “there are currently a large number of signs that overall economic expansion will weaken towards the end of the year,” they wrote.
As a result, gross domestic product ( GDP) was projected to grow by 0.8 per cent overall this year and by 1.0 per cent next year.
That marked a downgrade from the institutes’ previous spring forecasts when they had been pencilling in growth of 0.9 per cent for this year and 2.0 per cent for next year.
Furthermore, the latest projections were based on the assumption that the situation in the euro area, currently grappling with its worst-ever crisis, would stabilise.
If it did not then Germany, which has held up much better to the long-running crisis than its eurozone partners, could find its economy going backwards, they said.
Takehiko Kambayashi and Helen Maguire of Deutsche Presse-Agentur add:
The institutes lashed out at the European Central Bank’s decision last month to buy the bonds of fragile eurozone states, warning that it could drive up inflation by “effectively providing monetary financing for states.”
“The ECB is no longer independent of fiscal policy, blurring the responsibilities for individual policy areas,” they charged.
Germany has been at loggerheads with European proponents of the debt-buying scheme, often preaching austerity over bailout measures – perceived by many Germans to be overly generous – as the way out of the debt crisis.
On Thursday however, Berlin received backing from European Commission President Jose Manuel Barroso, who insisted that Germany had “broader support for solidarity, contrary to what many people say.”
“The perspective from Berlin is not the perspective of Athens,” Barroso acknowledged at a Brussels think-tank event. “But I believe it is unfair to portray Germany as the kind of country that does not want to commit to the common good of Europe.”
Lagarde calls for some slack for the PIIGS
Specifically, she says they should be given some more time to meet deficit reduction targets,
From Miguel Jiménez of El País:
IMF Managing Director Christine Lagarde on Thursday called for financially strapped euro-zone countries such as Spain, Portugal and Greece to be cut more slack in reducing their public deficits.
Lagarde said that the criteria used for deficit targets should be set in structural terms – i.e. corrected for the fall in economic activity – rather than in nominal terms. All three countries are currently in recession, a situation that will continue into next year.
“It is sometimes better, given the circumstances and the fact that many countries at the same time go through that same set of policies with a view to reducing their deficit, it is sometimes better to have a bit more time,” Lagarde said at a news conference in Tokyo, where the IMF is holding its annual meeting.
“That is what I have advocated for Portugal, this is what I have advocated for Spain, and this is what we are advocating for Greece, where I said repeatedly that an additional two years was necessary for the country to actually face the fiscal consolidation program that is considered.”
The European Commission has given Spain and Portugal another year to bring their deficits back within the European Union ceiling of 3 percent of GDP. But in its World Economic Outlook report released earlier this week, the IMF said it does not expect Spain to achieve that goal until 2017, when Brussels wants the government of Prime Minister Mariano Rajoy to get there in 2014.
And on to Spain. . .
Spailout request could come next month
The story refers to anonymous sources, but we suspect they’re on to something.
From an Strupczewski and Julien Toyer of Reuters:
Spain could ask for financial aid from the euro zone next month and if it does the request would likely be dealt with alongside a revised loan program for Greece and a bailout for Cyprus in one big package, euro zone officials said.
The Spanish government is considering the conditions of such a rescue package and has said it would take a decision only once it has more clarity on the conditions and the scope of the aid.
“We’re moving, we’re taking steps, we’re preparing it, things will crystallize in November,” said a senior official who is directly involved in talks about a potential Spanish aid.
The official spoke on the condition of anonymity because of the sensitive nature of the discussions.
Asked to clarify if this meant an aid request was expected in November, he said “I am confident this will happen then, in November.”
A second senior source also pointed to November as the most likely time for a move from Madrid.
Most in Catalonia favor secession vote
Consider that the small province in the northeast is the country’s industrial heartland and accounts for a fifth of the national economy, the notion of secession has folks in Madrid sweating.
From El País:
Three out of every four Catalans are in favor of holding a poll to decide on independence for Spain’s richest region, according to a survey published Wednesday by the Catalan government’s Center for Opinion Studies.
The news comes as Education Minister José Ignacio Wert stirred the nationalist nest by saying the central government wants to “Hispanicize Catalan students” with the end of making them “feel as proud as being Spaniards as Catalans.”
Pro-independence sentiment has risen in Catalonia in recent months on the back of the economic crisis. According to the survey, 74.1 percent of Catalans want a referendum on independence. Nearly all voters for the region’s main pro-independence parties are in favor — including 83.4 percent of supporters of regional premier Artur Mas’s CiU nationalist bloc, 92 percent of ERC Catalan Republican Left voters and 96.1 percent of leftist-green ICV voters — the survey revealed.
Almost 60 percent of Catalan Socialist Party supporters are also in favor of the vote.
Spanish officials angry at S&P downgrade
Considering the action came with a Spailout bid in the works, the downgrade means more interest on debt, which worsens the crisis and further reduces chances of meeting deficit targets without further draconian austerity measures.
From Deutsche Presse-Agentur:
Spanish officials on Thursday criticized ratings agency Standard & Poor’s decision to downgrade the country’s credit rating to near junk level, calling on it to reconsider.
S&P lowered its rating for government bonds by two notches from BBB+ to BBB- with a negative outlook late Wednesday.
The agency cited Spain’s worsening recession, rising unemployment, social unrest, regional tensions and developments in the eurozone.
Fernando Jimenez Latorre, a secretary of state at the Economy Ministry, said the government did not agree with some of the criteria that S&P based its assessment on.
German legislators meet with Spanish Indignados
North meets South and comes away impressed, for all the good it will do in light of the stark line taken by the Iron Chancellor and her colleagues.
From Elsa García de Blas of El País:
“They impressed us with their solid knowledge of the topics they presented to us,” said German member of parliament for the Greens Beate Müller-Gemmeke after she and five of her Bundestag colleagues met with representatives of the 15-M, Real Democracy Now, Platform for Mortgage Affected (PAH) and other protest movements in Madrid Thursday.
The Bundestag committee for Work and Social Affairs had requested the unusual meeting with members of Spain’s so-called indignados (the indignant ones) so as to get to “know the political and social reality” of the austerity-wracked country.
In a 48-page document they handed to the Germans, the indignados expressed their regret that no committee from either Spain’s Congress or Senate had requested a similar meeting with them.
“Not just that, but also that the Popular Party government is putting into practice a policy of brutal repression and criminalization against citizens,” it read. “We ask for your help. Our government doesn’t listen to us.”
And on to Portugal. . .
More austerity coming to Portugal
The measures should be revealed this week, but it’s clear they’re going to hurt.
From Deutsche Welle:
Portugal is on course to implement a draconian 2013 austerity budget. Following a 20-hour marathon session, the cabinet on Thursday approved massive spending cuts next year and a string of corrections to this year’s budget.
Details of the measures in the pipeline are yet to be made public, but the package looked certain to include hikes in income tax and other taxes to replace a stalled rise in workers’ social contributions which had been wiped off the table after widespread protests across the country.
The country now needs to keep deficits below 5.0 percent of gross domestic product this year and below 4.5 percent in 2013. Last year, Portugal logged 4.4 percent of fresh borrowing, but that was a one-off effect from an exceptional transfer of banks’ pension funds into state coffers.
Lisbon’s austerity course has brought tens of thousands of people onto the streets in recent months, and protests are unlikely to die down any time soon. The trade union confederation CGTP has called for a general strike on November 14.
Portugal goes for the Tobin Tax
While the proposal to add a small tax to financial market transactions has stalled elsewhere in Europe, the Portuguese government has decided to bit the bullet.
From Sergio Goncalves of Reuters:
Portugal’s 2013 budget plans to impose a financial transactions tax of up to 0.3 percent and to cut pensions next year, going well beyond a proposal from the European Commission which floated a tax rate of just 0.1 percent.
Eager to reassure international lenders – who are underpinning its 78-billion euro bailout – recession-hit Portugal is trying to follow in Ireland’s footsteps and to make a full return to global bond markets to fund itself.
There are signs it is close to achieving that goal with lower yields but anti-austerity protests and issues over the economy’s longer-term competitiveness risk undercutting those efforts, while banks are warning that a transaction tax would put Lisbon at a disadvantage to rivals such as London.
Rating agency downgrades Portuguese banks’ status
The move was an outlook downgrade.
From Deutsche Presse-Agentur:
The ratings agency Fitch on Thursday put four of Portugal’s largest banks on a negative outlook, while the government approved what is expected to be the country’s most austere budget in decades.
The banks in question were the state-owned Caixa Geral de Depositos (CGD), Banco Comercial Portugues (BCP), Banco Portugues de Inversiones (BPI) and Santander Totta, a subsidiary of Spain’s largest bank Santander.
Fitch said the banks had made progress in capitalization and retail funding, but that they could suffer from the ongoing recession and from further downgrades in Portugal’s sovereign debt ratings.
And on to Italy. . .
Court kills pay cuts, including their own
Needless to say, pay cuts for folks lower down on the bureaucratic ladder remains in place.
From Alvise Armellini of Deutsche Presse-Agentur:
Forcing top bureaucrats to take a pay cut in the name of austerity is unconstitutional, Italy’s top court ruled on Thursday, striking down a measure adopted by former premier Silvio Berlusconi and also backed by his successor Mario Monti.
In May 2010, Berlusconi unveiled a 25-billion-euro austerity package including temporary wage reductions for public officials earning more than 90,000 (116,500 dollars) and more than 150,000 euros per year, applicable from 2011 to 2013.
This was necessary “considering the exceptional international economic situation and the urgent need to meet public accounts targets agreed at European level,” the Berlusconi government said in a decree.
On Wednesday, Monti’s technocratic administration said it wanted to extend the pay cuts to 2014, as part of a 10-billion-euro package to meet 2013 EU deficit targets.
But the Italian constitutional court objected Thursday that the measure “cannot be considered a wage cut,” but was instead “a special levy applicable only to public sector workers.”
Judges also struck down pay freezes and cuts in benefits for magistrates, introduced by the same 2010 decree, which the Monti government wanted to extend beyond 2013.
Italian contraction to continue, deepen
The latest predictions have the recession continuing at least through next year, with debt peaking as year later.
From the Economic Times:
Italy will have another year of recession in 2013, deeper than the government expects, and its huge public debt will steadily rise to a new peak by 2014, a Reuters poll showed on Thursday.
The consensus of more than 20 economists polled in the past week projects a 2.4 per cent contraction in the euro zone’s third largest economy this year – the same as the government expects.
The Reuters poll, however, foresees a further 0.7 per cent contraction in 2013, compared with a government projection of a 0.2 per cent contraction.
“Italy is being engulfed by deep recessionary conditions, the gloomier outlook reflects the relentless pounding from the euro zone debt crisis,” said Raj Badiani of IHS Global Insight.
Italian families sink deeper into debt
At least 300,000 families are struggling, according to the laest numbers from the country’s central bank.
Three hundred thousand Italian families have a hard time paying off their debts and 160,000 are over-indebted, according to an occasional paper by the Bank of Italy on the ‘Debt of Italian families after the 2008 crisis’, portraying the situation in 2010. The paper said the percentage of vulnerable families with a high incidence of debt on income remained unvaried between 2008 and 2010 while simulations for 2011-2012 revealed ‘limited variations’ of vulnerability.
Families who are over 90 days late in paying a loan present ‘an objective inability to abide by their obligations’, the study said, and totalled 300,000 in 2010, 5.5% of indebted families and 1.2% of Italian families.
Some 160,000 were over-indebted as they had not been able to pay debts for a period of time, totalling 3% of indebted families and 0.6% of all families. This condition was characterized, along with a 90-day delay, by a ‘persisting unbalance between the obligations undertaken and assets which can be paid off’. All over-indebted families ‘have a hard time reaching the end of the month with their income’, said the paper. In 85% of cases they reach the end of the month ‘with many problems or with difficulty’ and for the remaining 15% ‘with a few problems’.
Troubled carmakers in merger talks
One’s as General Motors subsidiary and the other’s a venerable French firm. Both have been hit hard by the crash.
From Deutsche Presse-Agentur:
General Motors’ struggling European subsidiary Opel and French carmaker PSA Peugeot Citroen are in talks for a possible merger, a business newspaper reported Friday.
US-based GM and the management of PSA were discussing a tie-up, with a decision possible by the end of the year, according to an unattributed report on latribune.fr.
A PSA spokesman declined to comment Friday.
The chief of Opel’s labour council said he had no knowledge of any talks but told the Allgemeinen Zeitung Mainz that such a merger “makes no sense.”
Opel’s production is centred in Germany.
Flemish secessionists score a major win
While there’s been a lot of talk of late of the possible secession of Catalonia, another movement with an equally venerable history is gaining power in the North.
In both cases, regional differences are enhanced by language differences.
From Deutsche Welle:
Belgium has been voting in local elections that have taken on added significance in light of the country’s linguistic divide. Flemish nationalists looked set to make strides in pulling away from French-speaking Wallonia.
With nearly a third of the votes counted just after 6 pm local time, the New Flemish Alliance (N-VA) had taken 37.4 percent in the port city of Antwerp, Flanders’ largest city.
Across Flanders, the N-VA was appeared be garnering 20-30 percent of the vote, compared with just 5 percent in municipal polls six years ago.
Party leader Bart De Wever, pictured, was on the brink of becoming mayor of Antwerp. It is position he has promised to build on ahead of national elections in 2014, using the prominence it gives him to challenge the central government of Socialist Prime Minister Elio Di Rupo.
The incumbent mayor of Antwerp, Patrick Janssens, conceded defeat to the NV-A, having only gathered about 29.1 percent of the vote. He appealed for De Wever to make the welfare of the city his focus.