Europe in a Financial Crisis

[ModE98]

German unemployment has provided more signs of the effect of the eurozone debt crisis, growing for a fifth consecutive month in August with an increase of 9,000 to 2.901M vs. consensus for a rise of 8,000. The jobless rate stayed unchanged at 6.8%. "The significant labor market indicators as a whole are developing increasingly weakly. Lower German economic growth is showing here," the Labor Office said.

[The Virginian]

Germany is Europes only hope. If Germany is pulled down it will not bode well for Europe as a whole.

[ModE98]

Mr. V, you can place a bet on that.

[The Virginian]

BRUSSELS (AP) — The unemployment rate across the 17 countries that use the euro remained at a record high of 11.3 percent in July, official figures showed Friday, underscoring the huge task leaders face to restore confidence in the continent's economy.

The European Union's statistical agency, Eurostat, said 88,000 more people were without a job in July — for a total of 18 million — as governments and companies continued to trim payrolls to deal with problems of high debt and weak consumer spending.

The 11.3 percent unemployment rate, which is up 1.2 points from a year earlier, is the highest level since the euro was formed in 1999.

Joblessness increased in Spain and bailed-out Greece, both countries at the center of the European sovereign debt crisis which has thrown a cloud of doubt over the future of the single euro currency.

In Spain, the jobless figure rose by another 0.2 points to reach 25.1 percent, the highest in the eurozone. For Greece, the latest data available was for May, which saw a 0.5-point increase to 23.1 percent. A year earlier, it was 16.8 percent.

Youth unemployment was even worse. In Spain it stood at 52.9 percent for people under 25 and at 53.8 percent in Greece.

"Partners at all levels need to do all they can to avoid a lost generation which will be an economic and social disaster," said EU Employment Commissioner Laszlo Andor. He cautioned, however, that there was no "quick fix" to the problem.

Europe's economy has been hit by the combination of government savings measures — cuts to public sector payrolls and benefits and tax hikes — and the uncertainty that has caused huge volatility in financial markets. That uncertainty is keeping companies from hiring and investing and scaring households away from big purchases.

European leaders are preparing measures to boost confidence in government finances, hoping that greater stability will allow the economy to recover. But that task is proving long and arduous.

"We must not get used to these excruciatingly high levels of unemployment," said Hannes Swoboda, the president of the Socialist group at the European Parliament. "We have been witnessing constant, creeping increases in unemployment - and especially youth unemployment - for years now. Enough is enough."

The bottom of the eurozone's economic downturn though has yet to be reached, according to Ben May, European economist for Capital Economics.

[The Virginian]

On September 12, the German Constitutional Court will rule on whether the European Stability Mechanism (i.e. the bailout fund) is compliant with the country’s constitution, Business Insider’s Joe Weisenthal reports.

Should the court rule in favor of the ESM, then the bailout fund will become operational and available to all the ailing nations in the eurozone. However, should the court fail to ratify the bailout fund, well, then EU leaders will have to come up with something else.

And while most analysts say there’s a very slim chance the court will shoot down the plan, Morgan Stanley’s Elga Bartch says those chances are greater than you think. In fact, Bartch says there’s a 40 percent chance the court won’t approve the ESM.

“That‘s a really big chance of a negative blow to what’s seen as a decisive piece in the puzzle,” Weisenthal notes.

But let’s go back for a moment and examine what would happen if the court votes down the bailout fund. Morgan Stanley’s Laurence Mutkin and Elain Lin give us a little insight:

Should the ESM ratification fail, the immediate reaction would be a sharp rise in the pricing of systemic euro-sovereign risk. Furthermore, the conditionality expressed by ECB President Draghi at the August ECB press conference means that if the ESM were put on hold, the ECB would struggle to justify active intervention in sovereign markets.

This should lead to a widening of peripheral sovereign spreads to levels seen before the August ECB meeting, and a concomitant re-flattening (bear flattening) of the credit curves.

However, the outlook for the very front end of peripheral sovereign curves is more complicated. On the one hand, the market could continue to price in some hope of ECB intervention at the short end of yield curves, notwithstanding the expressed conditions of the “Draghi put”, as without them, the outlook for convertibility risk would rise very sharply. On the other hand, short-maturity peripheral yields have already fallen by 100-200bp and the short ends of peripheral curves have already steepened a lot since the “Whatever It Takes” speech; as we think that a positioning at the front end is already relatively heavy.

Simply put, months of work (i.e. arguing and haggling) by EU leaders would be undone and one of the last remaining options to deal with the global financial crisis would be null and void.

[jarhead1976]

I find it interesting that when reading the white paper from the IMF that the majority of creditor nations found in the Paris club and London club that are responsible for restructuring sovergn debt are in fact bankrupt.
So if the lenders of last resort can not qualify for restructuring under there own guidlines and the mathematics they use to restructure the debt of debtor country's , bound to be some problems .

With the Uk threatening to leave the EU , Germany will leave the rest of europe to its own demise.
Germany has more of something the rest of Europe doesn't . Gold to back its Deutsche mark

[jarhead1976]

"Sovereign debt managers and monetary policymakers do not share the same goals."

"The Federal Reserve’s new Operation Twist, the MEP, may have a significant impact on the 10-year Treasury bond yield, comparable to that of outright asset purchases under the LSAP programme. The MEP does not involve any size changes in the Fed balance sheet, but it is limited by the existing amount of short-maturity assets in the Fed asset portfolio. That said, the effectiveness of the Federal Reserve asset purchase programmes depends on Treasury debt management policy. When the Federal Reserve acts to lower yields for longer- dated bonds and the Treasury has large longer-term borrowing needs, a conflict of interests may emerge."

www.bis.org/publ/qtrpdf/r_qt1203e.pdf


The Money movers

www.federalreserve.gov/releases/h41/current/

LSAP = QE

[The Virginian]

MADRID (AP) — The Spanish government will inject another €6 billion ($7.5 billion) into its bank rescue fund to cope with growing problems in its financial sector as it awaits a loan from its 16 partner countries in the eurozone.

An official with the Economy Ministry, speaking only on condition of anonymity because of government policy, confirmed the extra cash will raise the capital base of the bank rescue fund to €15 billion.

The fund needs the new money to make an emergency cash injection of €4.5 billion ($5.7 billion) into Bankia SA, the nationalized lender, by buying new shares.

Like many of Spain's banks, Bankia is saddled with huge amounts of soured real estate investments left over from the 2008 property market crash.

Bankia has asked for a total of €19 billion in public aid. The total amount that will be injected into Bankia should be made public in coming weeks after audits of Spain banks are completed, according to the fund for the orderly restructuring of banks, or FROB, the bank rescue fund set up to help Spain's financial sector.

Spain could finance the fresh injection of cash into the rescue fund by issuing bonds, but no decision has been made yet, the official said.

To manage the rising cost of helping its banks, Spain has formally asked for a loan from other eurozone countries of up to €100 billion. The government expects to get the loan by early November, once the banks' restructuring plans are unveiled in the middle of this month.

Meanwhile, the economy is in a deep recession and is expected to recover only gradually.

The government said Tuesday that the number of people claiming unemployment benefits in Spain rose by 38,179 in August from the previous month to a total of 4,625,634.

Employment Ministry spokeswoman Engracia Hidalgo said although the monthly rise in unemployment was bad news, the increase was the smallest since August 2006.

Unemployment among young people under the age of 25 — one of the brackets hardest hit by the recession — fell by 4,060, a 0.9 percent dip from the previous month.

About half of young people remain without a job, however, underscoring the extent of the country's economic difficulties. Spain also has the European Union's highest overall unemployment rate, at 24.6 percent as of the end of the second quarter.

The tough economic outlook and the financial difficulties of Spanish banks and regional governments have spooked investors, who have been asking for higher interest rates to lend to the government.

Markets fearful that Spain may not be able to reduce its swollen deficit have been charging high prices for the country's debt.

Spain's benchmark 10-year bond rate stood at an elevated 6.6 percent on Tuesday. It was even higher this summer, before the European Central Bank said it was considering a plan to buy government bonds from countries like Spain. ECB President Mario Draghi is expected to detail that plan on Thursday.

Also Thursday, German Chancellor Angela Merkel is due to visit Madrid for talks with Prime Minister Mariano Rajoy, where Spain's progress with austerity measures is likely to be high on the agenda.

"The government remains committed to pursue all necessary reforms to promote employment," said Hidalgo.

[ModE98]

FRANKFURT (MarketWatch) -- The downturn in private-sector activity in the 17-nation euro zone deepened in August, the Markit euro-zone composite purchasing-managers' index, or PMI, for the region indicated Wednesday. The PMI fell to 46.3 from 46.5 in July and was down from a preliminary reading of 46.6. The index for the services sector fell to 47.2 from 47.9 in July and was down from a preliminary figure of 47.5. A reading of less than 50 signals a contraction in activity. "The final August PMI came in only slightly below its earlier flash estimate, leaving the euro-zone economy on course to fall back into technical recession in the third quarter," said Rob Dobson, senior economist at Markit. "Sharp declines in new orders at manufacturers and service providers, plus further job losses, mean that there is little prospect of a sustained improvement in economic conditions over the near-term," he said.

[ModE98]

France's jobless rate reached a 13-year high in Q2, rising to 10.2% from 10% in Q1. Excluding France's overseas territories, the figure was 9.7% vs. consensus of 9.8%. In all the talk about bond-buying and austerity, the figures are a reminder of the desperate state of the eurozone economy. The ECB is also making an interest rate decision today, with Credit Agricole expecting the bank to cut rates to 0.5% from 0.75%.


The OECD's chief economist, Carlo Padoan, has warned of a worldwide recession unless policy makers in the U.S. and Europe act, with the global economy having deteriorated from a few months ago. Padoan described the eurozone as being "at the epicenter of the crisis" but noted that a "new development" is a fall in confidence in the U.S. manufacturing sector.

[The Virginian]

Thousands of Greeks protest planned pay cuts


By DEREK GATOPOULOS




A worker walks on scaffoldings that covers a building under construction in Athens on Thursday, Sept. 6, 2012. Greece's unemployment rate surged to 24.4 percent in June as the number of people out of work in June rose by 34,000 to more than 1.2 million. (AP Photo/Petros Giannakouris)

A worker walks on scaffoldings that covers a building under construction in Athens on Thursday, Sept. 6, 2012. Greece's unemployment rate surged to 24.4 percent in June as the number of people out of work in June rose by 34,000 to more than 1.2 million. (AP Photo/Petros Giannakouris)

A woman leaves an unemployment bureau in Athens on Thursday, Sept. 6, 2012. Greece's unemployment rate surged to 24.4 percent in June as the number of people out of work in June rose by 34,000 to more than 1.2 million. (AP Photo/Petros Giannakouris)

A couple of pensioners sit outside the offices of Greece's main EOPYY state healthcare provider in the northern port city of Thessaloniki, during a rally against spending cuts in crisis-hit Greece on Thursday, Sept. 6, 2012. The sign reads: "EOPYY, healthcare services inside." Greece's coalition government is hammering out a new euro 11.5 billion (US dlrs 14.4 billion) austerity package for 2013-14, demanded by rescue creditors from other eurozone countries and the International Monetary Fund. (AP Photo/Nikolas Giakoumidis)

A worker unloads concrete sewage pipes at a construction site in Athens, Thursday, Sept. 6, 2012. Greece's unemployment rate surged to 24.4 percent in June, according to official figures Thursday, as protests continued against a massive new austerity package. (AP Photo/Thanassis Stavrakis)

A worker stands on a concrete sewage pipe at a construction site in Athens, Thursday, Sept. 6, 2012. Greece's unemployment rate surged to 24.4 percent in June, according to official figures Thursday, as protests continued against a massive new austerity package, with police blocking their colleagues from starting work.

ATHENS, Greece (AP) — Thousands of police marched through Athens on Thursday, chanting "thieves, thieves" and carrying black flags, to oppose planned pay cuts under a huge new austerity package meant to save Greece from defaulting on its mountain of debt.

The 4,000 protesters, who also included firefighters and coast guard officers, lit flares, blared spray-can horns, and set up mock gallows outside parliament.

The peaceful anti-government demonstration came amid deepening social gloom as official figures showed Greece's unemployment rate surged to 24.4 percent in June, including more than 1.2 million people out of work, many of them youths.

It was the latest in a string of protests against the new €11.5 billion ($14.4 billion) austerity package for 2013-14, demanded by rescue creditors from other eurozone countries and the International Monetary Fund.

A top labor leader warned Thursday that the spending cuts would unleash unprecedented social unrest without helping the recession-shackled economy.

"To insist on the (current) austerity program and adopt new measures against the less well-off will provoke a social explosion that is violent and of an intensity never seen before by Greek society," said Yiannis Panagopoulos, head of the country's main GSEE union.

Without the measures, Greece will lose access to the vital bailout loans that are shielding it from bankruptcy. But after 2 1/2 years of punishing austerity, the new cutbacks planned by Greece's conservative-led governing coalition have sparked deep anger, spawning unusual protests by workers such as judges and police.

Thursday's protesters shouted slogans such as "Thieves, thieves," ''Shame, you're delivering the final blow to the security forces," and "Come out and see how low you have brought us," as they marched to the Finance Ministry in central Athens.

They set up mock triple gallows on an open-top van, with a sign reading "Troika" — in reference to the austerity inspectors from the European Union, the IMF and the European Central Bank. An officer from each of the services — police, coast guard, and firefighters — stood with his head in a noose.

The new austerity program, though not yet finalized, is expected to see further cuts to benefits and pensions for several groups of employees on the state payroll, including the workers marching, judges and university professors.

"If you think a country's security can be protected by beggars and people in rags, you are making a big mistake," said Dimitris Saitakis of the coast guard officers association. "Let those who stay behind their desks join us on a night patrol during a storm and chase illegal immigrants and criminals."

Earlier Thursday, protesting police officers defied colleagues in the riot police and blocked the entrance of one of their own Athens facilities for about four hours.

About 50 officers prevented buses used to carry riot police from leaving the site. The buses are scheduled to go to the northern city of Thessaloniki, where weekend anti-austerity demonstrations are planned.

The jobless figure released by the statistical authority Thursday jumped from 23.5 percent in May and 17.2 percent the previous year — and was more than three times higher than in June 2008, the year before Greece's acute financial crisis began. An average 1,000 jobs were lost every day from June 2011 to June 2012.

Among young people aged up to 25, unemployment was a crippling 55 percent, compared to 20 percent four years ago.

The GSEE union estimates that unemployment will reach 29 percent in 2013, if the austerity measures are implemented. Union officials said that Greeks on minimum wage have seen their spending power reduced to 1979 levels, while those earning an average salary have been pushed back to the equivalent of the early 1980s.___

[The Virginian]

Experts warn of 'perfect storm' for global economy

By DAN PERRYBy DAN PERRY, Associated Press

CERNOBBIO, Italy (AP) — Experts and leaders gathered in Italy may disagree on the cure, but the malady seems clear: the world economy faces a "perfect storm" of risks that include prolonged crisis in a structurally flawed Europe, political paralysis pushing America off a "fiscal cliff," a slowdown in the emerging economies drying up the last of global growth, and the spectacularly destabilizing prospect of war over Iran's nuclear program.

A world of such unpredictable peril is also one in which jitters suppress the appetite for private and corporate risk, yielding meager investment and low consumption and prolonging the woes that snuck up on a booming world in the summer of 2007 as a "credit crunch", mushrooming a year later into the Great Recession.

Many attendees at the annual Ambrosetti Forum at Lake Como on Friday fretted about mounting U.S. debt and the Europe's inability to balance electorates' apparent insistence on national sovereignty with the need for regional coherence to salvage the teetering euro.

But economist Nouriel Roubini predicted years of gloom almost regardless of what is decided.

That analysis is rooted in the specific nature of this crisis, a downward spiral in which a financial meltdown largely caused by excess credit was defused by a blast of public spending; that 2009 stimulus, widely credited with avoiding a global depression, pushed some governments too far into the red for the markets' liking — a "sovereign debt crisis"; and this is turn was attacked through severe austerity measures that suppressed spending to the point that countries cannot grow their way back to prosperity.

"History suggests that whenever (there is) a crisis with too much private debt first and public debt second you have a painful process of deleveraging," said the famously apocalyptic New York University professor, a glowering fixture at such international talk-shops.

"That would imply many years, up to a decade, of low economic growth. And guess what? Economic recovery in the U.S. has been unending and in the eurozone and U.K. there's outright economic contraction right now, and that's not going to change unfortunately in the next few years."

The grim prognosis was consistent with new figures released a day earlier by the OECD, a club of the world's richest nations. Its report found that the global economy is slowing and that the G7 economies would grow at an annualized rate of just 0.3 percent in the third quarter of 2012. Furthermore, the OECD found, the continuing eurozone crisis "is dampening global confidence, weakening trade and employment and slowing economic growth" worldwide.

How to fix the eurozone, then? The different views are familiar.

Ali Babican, Turkey's deputy prime minister for economic and financial affairs, bemoaned the lack of a sense of common European interest — alluding to the lack of sympathy in places like Germany for the woes of an economically hammered eurozone colleague like Greece.

Other speakers focused on structural problems such as the "Balkanization" of Europe's banking system, which lacks a central guarantor like America's FDIC.

Increasingly popular is the argument that it is fundamentally illogical to allow a country to blunder into massive debt if it doesn't have the monetary tools to diminish its debt — lacking a currency to devalue.

Roubini said that the only solution was to extend the euro's monetary union in the direction of a banking, fiscal or even political union, at least to the point of having a single eurozone finance minister empowered to veto individual countries' budgets for exceeding a given deficit limit. "Today the eurozone is disintegrating. ... either move forward or you're going to fall off a cliff."

That rankled former Spanish Prime Minister Jose Maria Aznar, who declaimed the idea of "a United States of Europe" as counter to the psychology and history of the region.

"The history of Europe is a history of states," said Aznar, who led Spain from 1996 to 2004, a period of tremendous growth that seems an epoch away. "We must restrict this and not create another thing that does not work."

Better, he said quietly, was to ensure that countries take the "right decisions."

Some applied that label to one decision this week, a bond-buying plan from the European Central Bank that continued to lift financial markets on Friday.

But others noted that the offer by ECB president Mario Draghi is highly conditioned.

"The decision by the ECB is extremely important but ... the ECB is only one instrument (and) if governments do not do their part the ECB will not be able to succeed," said JPMorgan Chase International chairman Jocob Frenkel.

It was easier to find common ground on the question of the United States — with great concerns that country is headed toward another debt-ceiling crisis because regardless of the presidential election outcome Democrats and Republicans cannot agree on how to close a deficit that is digging an ever deeper debt hole.

"The largest economy of the world cannot continue this way without doing any kind of predictability about what is going to happen," said Babican. "We don't know much about the budget of 2012 and we don't know what kind of fiscal policy there will be in 2013. A fiscal cliff is coming."

Also clouding the atmosphere was the slowdown in emerging nations — including China, despite growth there that remains far higher than in the West.

"Seven percent growth may seem high, but for China, which had double-digit growth for 20 years, it really means bad news," said Li Cheng, a China expert from the Brookings Institute. He said there was risk of millions of layoffs which could spark "the largest crisis in (Communist China's) history because it may cause revolution."

The final element of what Roubini described as the "global perfect storm" is the possibility of an attack by Israel or the United States on Iran because "it's clear that negotiations have failed" on stopping Iran's nuclear ambitions. "The last thing the world needs given its fragility is another war in the Middle East and a spike in oil prices," Roubini said.

Israeli President Shimon Peres declined to address the Iran issue but sounded a philosophically optimistic note, suggesting that from his perspective at age 89, crises come and crises go. "Today what we call crisis is more of a profound change that we were not organized to meet properly," he said.

His solution was somewhat deflating to the audience, a graying crowd visibly given to collecting bulky stacks of paper: Hand things over to a younger generation — global, digital, and largely "not so impressed."

"They are better educated, better built, and more up to date."

___

[ModE98]

Eurozone manufacturing PMI increased to a preliminary 46 in September from 45.1 in August, although composite output fell to a 39-month low of 45.9. The flash PMI is consistent with GDP of -0.6% in Q3, "sending the region back into a technical recession," says Markit. German manufacturing PMI improved but still contracted, while France's manufacturing output slumped to 39.8 vs 45.3, suggesting that the country is also heading for recession.

[Driftr]

Capital flight from the 'bad' four to the 'good' seven. But I'm sure Draghi (sp?) has taken that all into account.

An accelerating flight of deposits from banks in four European countries is jeopardizing the renewal of economic growth and undermining a main tenet of the common currency: an integrated financial system. A total of 326 billion euros ($425 billion) was pulled from banks in Spain, Portugal, Ireland and Greece in the 12 months ended July 31, according to data compiled by Bloomberg. The plight of Irish and Greek lenders, which were bleeding cash in 2010, spread to Spain and Portugal last year.

The flight of deposits from the four countries coincides with an increase of about 300 billion euros at lenders in seven nations considered the core of the euro zone, including Germany and France, almost matching the outflow.
That’s leading to a fragmentation of credit and a two-tiered banking system blocking economic recovery and blunting European Central Bank policy in the third year of a sovereign-debt crisis.

www.bloomberg.com/news/2012-09-18/deposit-flight-from-europe-banks-eroding-common-currency.html

[The Virginian]

Anti-Austerity Protests and Strikes Rock Spain
Spain's struggling public sector workers and the unemployed converged on Spain's capitol to denounce their governments decision to implement deeper spending cuts.

therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=8838

[The Virginian]

Stocks slip as crisis in Europe deepens
European debt troubles remain in the foreground, and protests turn violent in Spain and Greece.

[The Virginian]

Chaotic Video Shows You How Serious Protests Are Becoming in Spain As Officer Is Drop-Kicked From Behind

www.theblaze.com/stories/chaotic-video-shows-you-how-serious-protests-are-becoming-in-spain-as-officer-is-drop-kicked-from-behind/

[The Virginian]

Greek, Spanish riots shatter European market calm
By ELENA BECATOROS


ATHENS, Greece (AP) — Europe's fragile financial calm was shattered Wednesday as investors worried that violent anti-austerity protests in Greece and Spain's debt troubles showed that the region still cannot get a grip on its financial crisis and stabilize its common currency, the euro.

Police fired tear gas at rioters hurling gasoline bombs and chunks of marble Wednesday during Greece's largest anti-austerity demonstration in six months — part of a 24-hour general strike that was a test for the nearly four-month old coalition government and the new spending cuts it plans to push through.

The brief but intense clashes by a couple of hundred rioters participating in the demonstration of more than 60,000 people came a day after anti-austerity protests rocked the Spanish capital, Madrid.

Hundreds of Spanish anti-austerity protesters gathered again Wednesday, ending near parliament in Madrid amid a heavy presence of riot police. In Tuesday's protest, police arrested 38 people and 64 were injured.

Spain's central bank warned Wednesday the country's economy continues to shrink "significantly," sending Spanish stock index tumbling and its borrowing costs rising.

Across Europe, stock markets fell as well. Germany's DAX dropped 2 percent while the CAC-40 in France fell 2.4 percent and Britain's FTSE 100 slid 1.4 percent. The euro was also hit, down a further 0.3 percent at $1.2840.

The turmoil Wednesday ended weeks of relative calm and optimism among investors that Europe and the 17 countries that use the euro might have turned a corner. Markets have been breathing easier since the European Central Bank said earlier this month it would buy unlimited amounts of government bonds to help countries with their debts.

The move by the ECB helped lower borrowing costs for indebted governments from levels that only two months ago threatened to bankrupt Spain and Italy. Stocks also rose. Media speculation about the timing and cost of a eurozone breakup or a departure by troubled Greece faded.

However, the economic reality in Europe remained dire. Several countries have had to impose harsh new spending cuts, tax rises and economic reforms to meet European deficit targets and, in Greece's case, to continue getting vital aid. The austerity has hit the countries' populations with cut wages and axed services, and left their economies struggling through recessions as reduced government spending has undermined growth.

"Yesterday's anti-austerity protests in Madrid, together with today's 24-hour strike in Greece, are both reminders that rampant unemployment and a general collapse in living standards make people desperate and angry," said David Morrison, senior market strategist at GFT Markets.

"There are growing concerns that the situation across the eurozone is set to take a turn for the worse."

Spain has struggled for months to convince investors that it can handle its debts. The government is to unveil an austere 2013 draft budget and new economic reforms Thursday. Many believe they could be a precursor to a request for financial help from the ECB. The government has already introduced €65 billion in austerity measures designed to bring down its deficit.

The country is suffering its second recession in three years, with a predicted 1.5 percent economic contraction in 2012, and has 25 percent unemployment. The Bank of Spain warned Wednesday the recession could be deeper.

Spain has come under pressure to tap the ECB bond-buying program that has been partly designed to keep a lid on the country's borrowing costs. So far, the government has been reluctant to ask for help for fear of the conditions that may be attached.

Spain's IBEX stock exchange fell in 4 per cent on Wednesday while the interest rate on its 10-year bonds rose 0.26 percentage points to 5.99 percent on concerns about the country's economy and that it is taking too long to make up its mind about applying for ECB assistance.

"The demonstrations remind us that central bankers cannot solve the crisis alone. The ECB's plan to intervene in sovereign bond markets can only succeed if governments in crisis countries can convince their electorates that ongoing austerity and reform are necessary to avoid bankruptcy," said Martin Koehring of the Economist Intelligence Unit.

"This, however, is increasingly challenging without the return of economic growth."

Greece, meanwhile, has been dependent since May 2010 on billions of euros in two rescue loan packages from other eurozone countries and the International Monetary Fund. In return, it slashed salaries and pensions and hiked taxes in an effort to reform an economy derailed by decades of overspending and corruption.

Although Greece accounts for only about 2 percent of the eurozone's total economy, its crisis has shaken the euro and led to concern it could destabilize other, much larger economies in the 17-nation bloc. Greece is in its fifth year of recession, with unemployment above 24 percent.

Shortly before Greece's strike got under way, Prime Minister Antonis Samaras and Finance Minister Yannis Stournaras hammered out a €11.5 billion ($14.87 billion) package of spending cuts for 2013-14 demanded by the country's international lenders, along with another €2 billion in improved tax collection.

The government has struggled to come up with austerity measures acceptable to the country's creditors, with disagreements arising between the three coalition parties. The next payment of €31 billion hinges on the further cuts.

Stournaras was briefing the other two party leaders Wednesday, and Samaras was to meet with them Thursday morning. If they agree, the package will be presented to Greece's debt inspectors.

Wednesday's strike shut down Greece's famed Acropolis and halted flights for hours. Ferry services were suspended, schools, shops and gas stations were closed and hospitals functioned on emergency staff.

While the demonstration began peacefully, a couple of hundred protesters broke away to smash paving stones and marble facades to use as missiles against riot police, leading to clashes that petered out after about an hour.

Eight policemen were injured, including one hit by a gasoline bomb, and 21 people were arrested, police said. At least two demonstrators were also injured.

Government spokesman Simos Kedikoglou said the limited violence and what he called a smaller turnout than opposition parties had hoped for showed that "Greek society understands what the government is doing is the only possible solution."

____

[ModE98]

It seems the situation grows ever more dire. Is a breakup inevitable? What a mess!

[Value Buy]

I guess Spain and Greek citizens fail to realize they have to work to garner a pay check.

We have seen this play out for two years now, and still sitting on the fence.
I did not know they could clone Congress.

[The Virginian]

Greek retail sales plunge amid deep recession

ATHENS, Greece (AP) — Greece's statistical authority says domestic retail sales dropped eight percent in July compared with a year earlier, highlighting the painful impact of a four-year recession.

The fall was worst in the clothing and footwear sector, where sales were down 18.6 percent compared with July 2011, the authority said in a statement Friday.

July and August are when Greek retailers offer summer sales, which normally boosts turnover.

But according to separate estimates from Greece's national trade confederation, turnover during the two-month sales period dropped 20 percent compared with a year earlier, and a total 36 percent since the summer of 2010.

Greece is surviving on international rescue loans, in return for a punishing austerity program to right its finances. The country's economy is expected to shrink about 7 percent this year.

[The Virginian]

PARIS (AP) — The French government presented a budget Friday that was heavy on taxes — including a controversial 75 percent income rate on high earners — but which critics said lacked fundamental reforms that could jumpstart economic growth.

President Francois Hollande's cabinet defended the spending plan for next year, calling it a "fighting budget" that would win the "battle" against joblessness and help growth.

Like many European countries, France must tread a fine line between cutting the debts that dragged them into the current financial crisis and investing in the economy to spur growth.

The French economy, the second largest among the 17 countries that use the euro, has not grown for three straight quarters, the national statistics agency confirmed Friday. Unemployment has been on the rise for more than a year and stands at 10.2 percent.

Economists warn, however, that things could get much worse in France if it doesn't get serious about slashing state spending and reforming stringent labor laws.

"This is a serious budget, it's a leftist budget and it's fighting budget," Finance Minister Pierre Moscovici told French radio station Europe-1 Friday morning.

Because Hollande promised that he would slash the country's deficit to 3 percent next year — a limit required by European rules — the government must find €30 billion in savings. One-third will come in spending cuts, with the rest in new or higher taxes on the wealthy and big companies, including a 75 percent tax on incomes over €1 million.

Among the other measures included are: a new income tax level at 45 percent for those making more than €150,000, an increase of capital gains taxes to bring them more in line with how salaries are taxed, and a cap on certain deductions for large companies on their income taxes.

The 75 percent tax will last for two years and has always been billed as a symbolic measure since it will bring in very little revenue. Several businessmen and politicians in the opposition have said that's exactly what's wrong with the 2013 budget: It sends the message that France doesn't like the rich and isn't open for business.

"France is sick from a model that isn't viable," said Guillaume Carou, CEO of Didaxis and president of the Club of Entrepreneurs, which represents 15,000 small businesses. "But (the government has) chosen to keep it, that's what the 2013 budget reveals."

Prime Minister Jean-Marc Ayrault rejected that characterization, however, insisting that the budget would win the battle against unemployment.

"It's a budget that aims to inspire confidence and to break the debt spiral that keeps growing and growing," he said after the budget was presented to the Cabinet.

The budget is built around an expectation of 0.8 percent growth for next year. If growth misses the projections, more cuts could be needed later.

Moscovici conceded that most economists predict the French economy will grow just 0.5 percent, but said that if the European debt crisis stabilizes, France would meet its targets.

[The Virginian]

MADRID (AP) — Spain's public debt will reach 90.5 percent of its gross domestic product in 2013 with its new austerity budget, according to government documents.

Spain also revised its debt ratio forecast for this year to 85.5 percent of GDP, up from 79.8 percent.

Finance Minister Cristobal Montoro said Saturday that Spain's increased interest costs on its public financing are the main cause of the rise: "it is important to reduce this increase and its speed."

Montoro spoke after presenting the 2013 draft budget the government says will cut overall spending by euro40 billion ($51 billion). The budget reduces funds available for unemployment payments by 6.3 percent, and support for Spain's royal house by 4 percent.

Spain is mired in its second recession in recent years with one-in-four workers without a job.

[Deleted]

It will be interesting to see how the new 75% tax plays out in France.

[The Virginian]

It will be interesting to see how the new 75% tax plays out in France.

It will be; If I lived in France I would look at moving.

[The Virginian]

Europe headed back into the danger zone
It's almost certain that the region's economy has slipped into a recession again


More evidence -- in case you needed it -- is showing that Europe has slipped back into recession in the third quarter. And the newest economic danger zone is named France.


In September, Europe’s manufacturing sector suffered its worst decline since 2009, according to the Markit Economics purchasing managers index released Monday morning.


Two countries in the eurozone did manage to show growth in their manufacturing sectors -- Ireland at 51.8 and the Netherlands at 50.7. (In this index any number above 50 shows that the economy or sector is growing. Less than 50 and the economy or sector is in contraction.)


After those two countries, though, the data was grim indeed. Germany 47.4. Italy 45.7. Austria 45.1. Spain 44.5. France 42.7. And Greece 42.2.


For the eurozone as a whole, the manufacturing index came in at 46.1 in the month. That’s the 11th month in a row with an index reading below 50. It is now almost a given that the eurozone economy as a whole will slip back into recession when data for the third quarter is put together.


money.msn.com/top-stocks/post.aspx?post=7a8391f0-0efe-4caf-8277-35d6ce11a508

[The Virginian]

Did somebody miss this tiny little detail? And could this detail finally force Spain to ask for a formal program of bond buying -- with the loathed "conditions" -- from the European Central Bank?


Wednesday, Standard and Poor's cut its credit rating on Spanish government bonds by two grades to BBB-, just a single notch above junk. Moody’s Investors Service is currently reviewing its Baa3 rating for a possible downgrade that would take Spain’s rating from the lowest investment grade to junk. Fitch Ratings gives Spanish government debt a BBB rating, or two grades above junk.


A downgrade by S&P, therefore, could move Spain's average debt rating from investment grade to junk not too far down the road. A junk rating would force some investors to sell their holdings of Spanish government debt. And even the prospect of that downgrade could be enough to trigger selling.


As long as Spanish government debt is rated above investment grade by all three ratings companies, Spanish government bonds remain eligible for inclusion in the Barclays Euro Treasury Index, Markit iBoxx Euro-Area Benchmark indexes and Citigroup’s European Government Bond Index and World Government Bond Index. That’s important because some fund managers use these indexes as a guide to allocating their cash. In addition, some funds have guidelines that require them to sell a nation’s bonds if they drop out of an index or lose their investment-grade rating.


Thursday, the market seems to be saying, "won't happen," since before bond investors rushed for the exits the Spanish government would act to request bond-buying help from the European Central Bank.That belief hasn't been enough to prevent Spanish two-year notes from falling for a fourth day, the longest stretch of declining prices in six weeks. But the increase in yields has been modest. Yields on the 10-year bonds remain under 6% because no one wants to sell these bonds if action by the European Central Bank -- which would cause yields to fall and bond prices to rise -- is just around the corner.


But that’s an inherently unstable position for the market. Spanish bond yields remain low only because the bond market thinks European Central Bank intervention is likely relatively soon. Those low yields mean that pressure on the Spanish government to request a bond-buying program remains muted. Which, in turn, pushes off the bond-buying program that the market is counting on as a reason to hold bonds. How long will markets wait for Spain to move?


money.msn.com/top-stocks/post.aspx?post=0be93ecc-107c-4812-8730-288aebd20cf9

[The Virginian]

Business
Debt, Neo-Nazis, Rising Tensions: European Union Wins the Nobel Peace Prize

www.theblaze.com/stories/debt-neo-nazis-rising-tensions-european-union-wins-the-nobel-peace-prize/

[The Virginian]

BERLIN (AP) — There were cheers around Germany when Chancellor Angela Merkel announced last year, in the wake of the Fukushima disaster in Japan, a swift end to nuclear power in favor of renewable energy sources like wind and solar.

But only 18 months into the plan, the cost of the switchover is beginning to sink in. Some politicians, fearful of losing popular support for the transition, are demanding an overhaul of the way it is financed.

The country's four main grid operators said Monday that households will from January see a nearly 50 percent rise in the tax they pay to finance the switchover — from €3.6 cents to €5.3 cents ($6.7 cents) per kilowatt hour. A typical family of four will pay about €250 ($324) per year under the tariff, including a sales tax.

"Electricity should not become a luxury item," warned Michael Fuchs, a leading lawmaker from Merkel's center-right coalition. "The energy switchover will at the end only be successful when met with broad public support."

Nuclear power has been controversial in Germany for decades and opposition swelled after the 1986 disaster at the Chernobyl plant in Ukraine sent a radioactive cloud over the country. Tens of thousands of people took to the streets after last year's Fukushima nuclear disaster urging the government to shut all reactors quickly.

Merkel's government decided to shut down the country's eight oldest reactors immediately and speed up the phase-out of the remaining reactors. Nuclear power's share of the German energy market has since declined from 23 percent to about 17 percent, with renewable energies shooting up from 20 percent to a quarter.

Now, however, complaints are growing about the rise in costs of electricity, particularly for lower-income families.

Germans already pay some of Europe's highest electricity prices, averaging about 24 euro cents (31 US cents) per kilowatt hour compared with about 13 euro cents in France or 14 euro cents in Britain, according to EU figures.

Germans have long been paying a surcharge on power bills, which guarantees producers of alternative energies a return on their investment above market rate. That's widely credited with boosting renewable energies and making Germany a leader on so-called green technologies.

Under the current system, however, the amount of surcharge is automatically linked to the amount of energy produced by renewable sources. As the alternative energies' production rises, so does the amount Germans must pay.

"The surcharge has more than quadrupled since 2009. It has crossed the tolerable level of pain," said Economy Minister Philipp Roesler. He urged a quick reform of the subsidy system, saying it has spiraled "out of control."

The tax totaled €17 billion ($22 billion) in 2011 and analysts expect it to top €25 billion next year — or about 1 percent of the country's economic output.

That is set to keep increasing as government plans call for generating 40 percent of electricity from renewable sources by 2020 and up to 80 percent by 2050. Reaching those ambitious targets will likely require investments of up to €300 billion ($390) over the next decade, according to analysts' forecasts.

"The energy switchover won't lead to falling electricity prices. Here we should tell people the truth," said Felix Matthes of Germany's renowned Institute for Applied Ecology.

While polls consistently show that the majority of Germans is in favor of phasing out nuclear power, the increasing cost is likely to test their resolve.

In a poll released Sunday, two-thirds of people surveyed said they are not prepared to pay more than €50 to finance the switchover — far less than the increase coming next year.

About 79 percent of the 1,001 people surveyed last month by pollster Emnid — on behalf of pro-market lobby Initiative New Social Market Economy — said rising energy bills were an important issue for them in determining whom they vote for in next year's national election. The poll did not specify a margin of error.

Changing the system won't be easy.

Last week Environment Minister Peter Altmaier presented a complex roadmap aimed at holding costs in check. But cutting renewable energy costs has proven difficult in the past, in part because the overall goal is popular and because so many groups — from families who bought solar panels at subsidized prices to big companies that have invested in technology development — profit from the system.

Altmaier acknowledged that it is unlikely changes to the system could be enacted by parliament before next year's elections.

"The electricity price goes up, and the population's support for phasing out nuclear power is declining," Germany's center-left opposition leader Sigmar Gabriel warned on Sunday.

His Social Democrats argue that the government is unfairly burdening households for the transition, especially hurting the nation's poorest.

An average household spends less than 2.5 percent of its monthly income on electricity, but that share now tops 4 percent for low-income households, according to the German Institute for Economic Research (DIW).

Some politicians, both on the left and right, have called for increasing welfare payments to the nation's poorest to offset rising electricity prices, which have shot up by about 44 percent since 2005.

"If we want to make sure that hundreds of thousands of families won't sit in the dark this winter, the government must act fast," said Ulrich Schneider, head of the Equal Welfare Association, an umbrella group of social organizations.

But Merkel's government also hopes that pushing through the energy switchover will give the country an upper hand when it comes to exporting green technologies as more nations seek to close down their nuclear power industries.

In Japan, the government has vowed to reduce and eventually phase out nuclear power, as has Switzerland. France this year also announced plans to promote renewable energies to reduce its dependence on nuclear power. In Lithuania on Sunday, voters rejected the idea of building a new nuclear power plant with a two-thirds majority.

Matthes of the Institute for Applied Ecology said that people are more likely to accept the increases when they realize that the energy sector's transformation is also a hedge against rising fossil fuel prices and a step toward energy independence.

"I think it's better to invest 1 percent of our GDP per year in expanding renewable energies at home than transferring increasingly high sums to people in Russia or the Middle East who are making a lot of money on fossil fuel reserves," he said.

Not a very bright move on the Germans part in my opinion. This radical reaction to the Japan disater is going to cost them dearly. I can understand the peoples reactions but this should be done slowly and methodically with a long term plan in place.

[Driftr]

I skimmed the second half of that. It looks like there's a poll saying people want to reduce nuclear. And there's a poll saying they don't want to pay the additional surcharge for clean. Has anyone thought to do a poll asking which of the two they'd choose?

A) Reduce nuclear and pay 125 euros a year in additional surchage.
B) Leave nuclear and pay no additional surcharge.