Tensions are still far from being resolved in the euro area. Everything started off well on Wednesday with two successful bond issues by Italy, which raised the amount expected at rates down significantly. But that was not enough to reassure investors, who know that the Peninsula will face a real “wall” of debt in the first months of 2012. And will pass a new test important markets on Thursday.
On Wednesday, Italian 10-year rate remained close to the threshold of 7% to 6.91% by end of session. The euro was also in trouble. He suddenly picked up in the afternoon, falling to its lowest level since January against the greenback at 1.2916 dollar in a market marked indeed by a very low trading volume. He also reached its lowest level against the yen over 10 years.
The Italian Treasury has raised 9 billion euros for good six months at rates halved over the last operation similar: they went out at 3.25% against 6.50% on November 25. Another operation that covered securities “zero coupon” with a maturity of two years was also well received. For analysts of Brown Brothers Harriman is related “to the austerity measures introduced by the government Monti and operation of the ECB last week.” On 21 December, the ECB has indeed lent to banks 489 billion euros in a special operation to 3 years. A massive injection of cash intended to revive the interbank market, but also to relieve the sovereign debt. The authorities hope that banks will use these funds to buy government bonds in the euro area. But nothing is less certain. “Do not rely on banks to increase their exposure to sovereign risk and thus reset the spiral of distrust of markets,” said the head of a large French settlement.
States in the euro area may need to raise more than 800 billion euros in 2012. Italy remains the largest emitter with a program more than 200 billion euros for its loans to medium and long term (after 211 billion euros in 2011). Just in the first four months of 2012, Rome will have to repay investors 91 billion euros of securities maturing.
Italy will also pass a new test this Thursday. The Italian Treasury hopes to raise between 5 and 8 billion euros over several loans with a maturity of 3 to 10 years. The result of the issuance to 10 years, a barometer of the appetite of international investors will be particularly followed.
Archive for December, 2011
Tensions are still far from being resolved in the euro area. Everything started off well on Wednesday with two successful bond issues by Italy, which raised the amount expected at rates down significantly. But that was not enough to reassure investors, who know that the Peninsula will face a real “wall” of debt in the first months of 2012. And will pass a new test important markets on Thursday.
Poorly managed, the debt crisis has spread. The use of the printing press now seems inevitable.
Rather than multiplying the euro, Europe has attacked the debt crisis affecting mainly Greece and Italy by multiplying … the peaks. A default choice. Use money creation to ease the debt burden of the most indebted countries, as do the United States, would have been simpler.
The hypothesis was not consensus within the Union, the richest countries not wishing to pay for the less virtuous. So that the situation has severely deteriorated in 2011. The first Greek rescue plan, designed in 2010, is suddenly seemed impossible at the end of spring 2011, in the light of the deterioration of public accounts of the country.
After the adoption of an austerity plan further by the Greek Parliament in June, European leaders meet on July 21 for a summit expected to be the final time high, and He who was to close the subject, with a new plan aid to the country of over $ 100 billion, and a relaxation of the EFSF (European Financial Stability Fund), created to put out the fires of the crisis of the euro.
From failure to failure
Alas, the decisions taken at the meeting does not convince anyone. The reverse happens. Greek debt holders should forget 21% of the amount of their claims: an unprecedented opportunity, which plunge over the banks, which drive the stock markets down.
It is the failure of the summit major causes them to multiply. The worsening situation of Greek public finances resulting in a new high, Oct. 27, which proposed to the creditors to sit on half their due. Another failure.
The last of the peaks of last resort, that of December 9, is also the most serious. In proposing a new fiscal pact, which imposes rules of conduct for all EU countries, Germany and France are facing a bone size: the refusal of the United Kingdom, concerned about any additional European integration time when the “euro bashing” is fashionable to join. “There are now two Europe,” said Nicolas Sarkozy. Twenty-six countries have indeed signed the pact outlines legal budget to blur. Placing Europe for its 10th anniversary to be celebrated this weekend in front of a wall. The dreaded contagion occurred, and several countries, including France, probably, should be stripped of their triple-A in early 2012.
The financial orthodoxy decided in late December is too late: “Between two evils, orthodox and insolvency, the market has chosen sides and privileges as the printing press in the United Kingdom, the USA and Japan. The ECB will now adopt the same process as the others! “Says Christophe Brulé, Entheca of Finance.
The debt crisis has plunged Europe into a major crisis of governance. Plunged into recession by the debt burden, she sees herself now forced to implement monetary policy sought to be avoided at all costs, initially
According to the Research Institute for Public Policy, Great – Britain could plunge into recession in 2012
The British economy will experience a “dark” years 2012, during which it may plunge into recession, says the Institute for Public Policy Research (center left).
“As we prepare to enter 2012, the word seems to best describe the future for the British economy is the adjective” dark “,” judge Tuesday Tony Dolphin, chief economist at the IPPR.
“The crisis in the euro zone is not resolved and the country (members) are forced one after the other extreme austerity measures that result in lower production. Consequently, the economy of the entire euro area appears to be entering a mild recession, “he says.
“The risk is that the rhetoric of austerity at the national and the crisis in Europe discouraged trust, so that the economy slide into recession,” he said.
“The only good news is that the weakening global economy led to lower inflation,” he said. “The forecasting organizations, including the Bank of England expects inflation close to the 2% target by the end of 2012 and nothing in the latest data suggests that only would be different, “said he.
The latest official projections UK growth forecast at 0.9% this year and 0.7% next year, figures still considered too optimistic by most economists.
The rating agency Moody’s said Dec. 20 that the UK could eventually lose its triple A, the best possible rating for sovereign debt rating agencies, because of the impact of the crisis in the euro area.
The Christmas break is welcome. A few days respite for a planet out of breath. The return will be that of all the dangers, says Christine Lagarde to JDD. Since lookout International, Executive Director of the IMF sees bigger storms next year. “The world economy is in a dangerous situation,” she insists. “At a very dangerous turning point,” she insisted this week, during a trip to Nigeria and Niger. Worried, she observes the euro area countries lead the rest of the world to the economic and financial failure. She points to the risk of social unrest.
It is a double spiral. The Old World plunges into recession, slows global trade and production. And financial crisis is spreading into “a crisis of confidence in public debt and the financial system.” The main partner, America, is affected. And emerging countries, today’s engines of 2000 flu. Lagarde mentioned China, Brazil, Russia, “where growth forecasts are revised downwards. These countries, which were locomotives, these factors are subject to instability.” In late January, the IMF will deliver its world economic forecasts. He was counting on an increase of up to 4%. Christine Lagarde warned that this figure will be revised downward.
The demand for euro area banks for refinancing operation unprecedented three years of the European Central Bank launched Wednesday reached a record high.
It is in a particularly threatening to the euro area and the European Central Bank (ECB) launched its “Operation bazooka small arms.” Large opening its doors to the banks at risk of a credit crunch, it launched Wednesday the first of two unprecedented refinancing operations to three years announced on December 8, whose success has not waned. Building on the credo that guides since the beginning of the crisis: to ensure the liquidity of banks, responsible for 75% of the financing of the economy in the euro area, is the top priority.
The application has been served in full, as the ECB promised, very attractive fixed rate of 1%, the level of its key policy rate. And it reached a record for refinancing long-term – the LTRO (“long-term refinancing operations”) – initiated at the height of the financial crisis in 2009. The peak of 442.24 billion euros achieved in the first such operation with a maturity of twelve months, conducted in June 2009, was sprayed as a total of 489.191 billion euros was used to 523 banks in the euro zone that have arisen. This amount far exceeds the median forecast of economists who had forecast claims of 310 billion euros, but it is not excessive given the liquidity needs of banks.
Especially since a large proportion of demand – some 61% according to RBS believes that the net inflow of cash is only € 191 billion – from a recycling of existing credit lines to seven days, three months and one year. Finally, the high demand for this exceptional online only compensates the weakness of that observed on October 26, at the reopening of a line of ready-to one year, unearthed by Jean-Claude Trichet, signing one of his last acts as head of the institution in Frankfurt. Only 181 banks were then presented to the office of the ECB, limited to a total 56.9 billion euros.
Some had questioned the reasons for the missed appointment. The answer then took the form of expectations: many banks expected a rate cut next. They have won two since, between November 3 and December 8, the new President of the ECB, Mario Draghi, has unraveled the twin towers of monetary screws operated by his illustrious predecessor from April to July, when the sky seemed the European s ‘clear, reducing the cost of money of 1.5% to 1%. The operation of replacing an auction Wednesday to thirteen months, a maturity that was also unprecedented, and will be followed by a second three-year LTRO, February 29, 2012.
More important than the size of the operation Wednesday will be the use of funds by banks. To those who still think that this funding is an ultra-long invitation to purchase sovereign debt and to flow back and bond yields, it should be noted two evidences. First, banks suffer from a true poisoning funds provided by the central bank, they have never been so dependent. Second, and perhaps most importantly, they will have to face very heavy schedule next year. Mario Draghi recalled recently that 600 billion euros in bank debt maturing in 2012, of which 230 billion for the first quarter alone. The fact remains that the ECB has proven once again that it was the lender of last resort … the banks.
The Paris Stock Exchange on a finished down 0.82% in a market worried about the situation of banks that rushed from the European Central Bank (ECB) to borrow almost 500 billion euros.
The situation may soon change currently in the Paris Bourse. While the CAC seemed comfortably in the green, he moved into negative territory around 1:30 p.m.. Of course, the intervention of the ECB has taken place. The stock market was right to believe: the European Central Bank (ECB) has lent 489 191 000 000 euros to 523 banks in the euro area. The ECB offered loans for three years in unlimited quantities and at a rate of 1%. A second similar operation will be conducted February 29, 2012.
This action, as strong and symbolic as it is, does not solve the problems of sovereign debt. At the close, the Dow was down 0.82% to 3030.47 points in a trade volume of 2.4 billion euros.
Tuesday, the benchmark index of the Paris had garnered a gain of 2.73%, supported by reassuring news on the macroeconomic front. Trading volumes remain low in the approach of the festive season.
As for currencies, the euro lost ground when he was playing up this morning. Italian GDP contracted by 0.2% in the third quarter, reflecting the economic crisis affecting the peninsula.
In a tense and volatile, a barrel of “light sweet crude” for February delivery, which is the first day of trading was down 0.36% to 97.27 dollars a barrel of Brent Sea North slips for the same maturity of 0.34% to 106.64 dollars.
The banking sector featured
Credit Agricole lost 2.13% to 4.23 euros. Similarly, BNP Paribas was down 2.97% to 29.24 euros and Societe Generale 3.40% to 16.63 euros. The rating agency Fitch announced that it has yet revised to negative from stable the outlook of the note several banks including Societe Generale, the mutual BPCE (GBPCE) and Dexia Credit Local.
Total gains 1.11% to 37.44 euros, while the group’s oil production in Libya is expected to return by January to its prewar levels, according to an official of French oil group.
Disappointments weigh on Oracle Capgemini that folds to 4.88% and signs and the worst performance of the ranking of the 40 largest market capitalizations of the Paris.
Safran (0.54%) tends to resist when the group has confirmed the creation of a joint venture with Thales (-1.49% to 22.54 euros) in optronics. This approximation is well below the asset swap scheme proposed in discussions for almost two years under pressure from the state. Moreover Reynald Seznec, CEO of Thales Alenia Space, told Reuters that the market for commercial satellites is expected to stabilize around 25 units per year in the long term after several strong years.
Carrefour Sliding 4.749% to 16.57 euros. American activist fund Knight Vinke would seek a seat on the board of the distributor, the Financial Times reported Wednesday.
Areva folds of 1.81% to 17.94 euros, while the rating agency Standard & Poor’s lowered the long notes and short-term French nuclear group to BBB-and A-3, respectively, against BBB + and A- 2 above. The outlook is stable.
“Global Financial Crisis, European Debt Crisis andReform of International Monetary System”
Dominique Strauss-KahnI would like first to thank you for having invited me here to speak in Beijing. It is a good time and thisis most especially a very good place from which to talk about the crisis in the global economy.As everybody knows, the current crisis has remote causes and closer ones. The crisis in Europe islinked to the level of debt. And this I will turn to later.
1. But let’s start with the structural problem.
1.1. We are living through a dramatic change in the global economy.
Not globalization, which is a fact and a ‘given’, a part of the way we live, but the ending of a veryspecial time, the closing of a singular period.For centuries, I could say for millennia, economic power was strongly correlated with the size of thelabour force. Of course innovation and technology could temporarily change the balance of power,but after a short period of time those new technologies were available to others and equilibrium wasre-established.• However these last two centuries have been an historical exception to this rule. For the first time inthe history of mankind some countries, not very populous as a proportion of the total, succeeded inkeeping for themselves the new technology they had invented or adapted, and they used it to dominatethe world. The global history of the 19
and the 20
centuries is a story of western dominance basedon proprietary technologies. This was equally the case for industrial as well as for militarytechnologies.• This period, this singularity, is coming to an end. We are back to the long term trend. Technologiescannot be kept secret anymore. Education, voluntary technology transfers, the movement of people,and also industrial espionage (including the use of the Internet) have helped to spread information.Of course this process does not take place overnight. It takes time to get back to normalcy, it may takedecades to complete the change. But the move cannot be stopped. We are contemplating the end of an era of technological exceptionalism.
1.2. Does this mean the beginning of the end of the period of dominance by advanced economies?
• Does it mean that big countries, like China or India, will unstoppably become the Superpowers of the coming decades? Maybe, but technology alone is not enough to accomplish this changeover. Thewhole of society must be able to take advantage of the process of innovation. The diffusion of innovation throughout an economy relies on there being a more inclusive society where creativity canflourish. It is not likely that the old state-driven technology policies will be appropriate to this
challenge. The American success story relies on technology plus entrepreneurship which in turnrequires unbridled creativity.So that is what is at stake today. For two centuries we have experienced an incredibly odd situationwhere some countries (including Germany, France, the UK and, of course, the USA) have been ableto play an outsize role despite the fact that they were small in population and geographic size (trueeven in some respects of the USA).• How long will it take to get back to normalcy? I don’t know. But it will happen. And who is thengoing to take the lead? Probably the countries with large populations as has always been the case,providing they are able to catch up on the technological side (and personally I have little doubt aboutthis) and can develop a model of society inclusive and free enough to boost creativity. This is the realchallenge. Both tasks are dual and equal keys to competitiveness.It is competitiveness which is really the issue in the global economy, as long as the linkages betweenthe different parts of the global economy are working well.These linkages have a name – the International Monetary System (IMS).
2. This brings me to my second major point. Is the IMS working properly? And if not, whatneeds to be done to improve it?
Those who would challenge my assertion that the IMS may not be working properly point to thefollowing arguments. They say that, after all:• the current IMS has enabled remarkable progress in the global economy, plus financial integration:- fostering strong global growth in living standards; and- recently surviving a global financial crisis of historic proportions.• but I say that this system has also exhibited symptoms of instability, as seen by:- frequent crises, persistent current account imbalances and exchange ratemisalignments; and also- volatile capital flows and volatile currencies.These symptoms of instability have been – increasingly – the source of tensions which if leftunaddressed will threaten the progress of globalization.We must address the root causes of theseinstabilities. And what are they? I see four: the absence of effective global adjustment mechanisms,the volatility of capital flows, limited access to global liquidity, and the poor supply of ‘safe’ globalasset classes
2.1. How can we promote more effective global adjustment?
Cooperation is an obvious answer. It worked during the 2008 crisis but the momentum behind that isnow gone, despite the effort made by the IMF and the G20.IMF surveillance should be a key instrument in promoting effective global adjustment. But in practicethis has not always been the case. Why? The design of the IMS is not the sole culprit but it is limitingin one important way, namely that (except for exchange rate policy) countries have no obligation torun their policies in ways consistent with systemic stability. This hardly seems sensible in ourinterdependent world. Hence, not only should countries’ multilateral obligations be strengthened butalso their accountability for failing to uphold them.These are legitimate issues to raise at both global and regional levels, especially at EU level.
2.2. Can we make cross-border capital flows safer?
This issue is often presented as one for Emerging Market economies to worry about. That is true forsure, but in reality it is one that policy makers in all countries
should worry about. The bulk of cross-border capital flows actually takes place among advanced economies, and recent years have shownthat advanced economies are not immune to those asset bubbles and busts associated with large andvolatile capital flows. This suggests that the healthy functioning of the IMS depends crucially onorderly cross-border capital flows. But there is no system at all here: flows are driven by policies(monetary, prudential and capital account) which have until now been pursued with the focus on thegoal of domestic stability.Hence it is worth asking whether globally agreed
“rules of the road”
might be useful? Inflows are notthe only issue, outflows should also be borne in mind. That is why there is an urgent need for bothsource and recipient countries to cooperate (bearing in mind that most countries are both source andrecipient).What do I mean by “cooperate”? We need mechanisms for coordinating macro policies in times of stress, just as we did in 2009. Why not consider mechanisms to bring together originators andrecipients of capital flows? This is precisely the sort of international cooperation which the IMF’sfounders had in mind.
2.3. How can we enhance global liquidity?
This is the question of the so-called ‘global financial safety net’ that the IMF together with the KoreanGovernment raised during the G20 meeting in Seoul in November 2010.
Since the 2008 crisis we have come a long way in enhancing the provision of liquidity in times of extreme volatility. The central banks have done
their job and the IMF’s resources have increasedsignificantly.But the size of global output, trade and capital flows now dwarf the Fund’s resources. These must beincreased dramatically. In the absence of IMF resources correctly scaled to the challenge, manycountries are justifiably not convinced that the global financial safety net is strong enough. So thecostly accumulation of reserves continues.What else can be done?- one important avenue to explore is the strengthening of partnerships, of Regional FinancialArrangements like the EU or the Chang Mai Initiative (CMI); and- another is to improve the predictability of systemic liquidity provision more generally, instead of leaving this task exclusively to the central banks, which always face the contradiction between theirdomestic and global targets.
2.4. How can reserve asset diversification be promoted?
The demand for safe global asset classes has been growing much faster than potential supply. Thisreflects the fact that global monetary and financial assets are less diversified in currency terms than isglobal GDP.
There could be scope for enhancing the stability of the system by encouraging greater internationaluse of currencies other than the four currencies currently in the SDR (Special Drawing Rights) basket.A multi-polar system would by no means be a problem. There may also be other changes worthconsidering for the SDR including:
– increasing the global stock of SDRs to help meet demand for precautionary reserves;- using SDRs to price global trade & denominate financial assets;- issuing SDR-denominated bonds by sovereigns and international financial institutions; and- even, the “crazy idea”, as I call it, of issuing bonds in SDRs in the public markets. The idea is for theIMF to issue its own bonds denominated in SDRs to increase its own resources, de facto creating anew market in SDRs.On this road, we will encounter a large number of technical hurdles. But the main obstacle remainsthat it requires a major leap in international policy coordination.Let me wrap up this section. The IMS we have is not broken, but it has serious holes in it. Leftunaddressed, they leave the whole system vulnerable.
3. Turning now to my last point, the epicenter of the current crisis: Eurozone Debt.
3.1. This crisis is of course a debt crisis
. But it is even more a growth, banking sector, and, for somecountries, a competitiveness crisis. The high level of public debt would be a problem by itself eventhough, for many European countries, the debt ratio remains in the same range as in the USA. But theparticular European structural weakness comes from the fact that during the good years growthrevenues were spent, rather than being used to reduce the debt. Hence the question is whether or notthe European core countries will be able to reduce their level of debt using resources coming fromfuture growth? And moreover whether there will be growth at all? The prospects are not good, to saythe least.
On top of the debt problem sits the ‘austerity policy-setting problem’
– that the austerity policieswhich seem to be the current European mantra will serve to make the debt ratio worse not better. Addin a financial sector which has still not been fixed, is further endangered by the holding of largeamounts of public debt of questionable value, and which in conforming with the ratio-based approachof the new Basel III capital requirements is, in practice, reducing the value of the denominator(lending less) rather than enlarging the numerator (recapitalizing), and you have the perfect storm.The storm which now besets the Eurozone economies.
3.3. Against this background, the posture of European political leaders has, first, been denial of the problem.
The IMF was initially not welcome as the Europeans believed they were able to fix theproblem alone. They seemed to have moved a long way since May 2009 when it appeared that theIMF was not only useful but essential. But the IMF was at that point treated by them as a juniorpartner, and when the Fund argued that the maturity of Greek loans should be longer and the interestrates lower, in order to avoid killing growth, its point of view did not prevail. Each and everyEuropean leader focused on the debt level and no one wanted to pay enough attention to thecompetitiveness problem – the real key to growth. As is so often the case, the long term solvabilityproblem was hidden behind the short term liquidity problem. Attention was focused on the politically“easiest” issue at the expense of the fundamental.The political leaders were in denial. They are still in denial.Because of policy mistakes made by Greek governments (and this is also true for other countriesbeyond Greece, like Portugal) billions of euros have been lost. But the responsibility for this losscannot be attributed to these countries alone. Eurozone surveillance is also called into question bywhat has happened, as is in some respects IMF surveillance. Hence, it is simply fair to share the costbetween all the members of the zone. It is the right thing to do. But not only is it fair, it is alsorealistic. For it is quite unrealistic to think that the other choice is in any way workable. The loss is
too big to be repaid by the Greeks alone. Alternatively, because Greece’s GDP is only about 2% of Eurozone GDP the costs could be shared among the members, if not without pain. But the basic idea,the default setting chosen, was not this. It was not to consider the Eurozone as a zone of solidarity asany monetary union should be. It was rather to ask the Greeks to pay for their sins, and hence to payyields exceeding the cost of the loans made by the European partners.Why? Because nobody wanted to acknowledge the loss even if the results of the denial could be, andhave been, to increase this loss.European countries are now swinging from one plan to another, from one last ditch summit to thenext, still not accepting or acknowledging their losses, nor making it possible for growth to restart,and as a consequence failing to restore confidence in the future.
3.4. The last episode in Brussels on December 9
was just one more example
, bleeding away day byday the remains of any confidence investors and potential lenders may have in politicians to solve thecrisis.• For the short term, the Brussels plan does not solve the liquidity problem.The role of the ECB is still the one defined in the Treaty. It is fair to say that the ECB has played welluntil now, but the ECB remains the only central bank that is not a lender of last resort. Hence the risk is a risk of default not a risk of monetization.The opposite may happen of course. It is possible that faced with an imminent crisis in Eurozone bank and government debt refinancing, the ECB may decide simply to “print money” through non-conventional measures and act as a quasi Federal Reserve.
If the Eurozone really is at the edge of thecliff nothing will be wrong with this. But of course this policy will have other important drawbacksand moreover will not solve any of the structural problems. The cliff moves away but does notdisappear.In trying to avoid this, a firewall (EFSF + ESM + IMF) close to one trillion euros (without leveraging)has been announced but:- the 500 billion euros from the ESM will not exist before at least six months time, which is fartoo late;- the 200 billion euros which are supposed to come from the IMF are in limbo as long as theBundesbank argues that it cannot go along without US involvement, which is not going tohappen; and- a possible complement could come from Asian countries which are ready to help because theyunderstand that decreasing trade and deleveraging by European banks are damaging their owneconomies. But the counterpart will probably be in the area of quotas and voice at the IMFBoard, and here we face another kind of European denial.• As far as the long term is concerned, it does not look any better.What the Eurozone needs is real fiscal union. It is not news that the euro is sitting still in the middle of the river. A monetary union without a central budget just does not make sense. This question wasextensively discussed in 1998 at the launching of the euro, but without successful resolution. Duringthe really rather calm first half of the last decade the raft survived comfortably enough on a placid sea,but with the recent gale it appears clearly that the raft is not strong enough to avoid sinking.Hence what the Eurozone needs is both a unified bond market and a fiscal union with strong centralinstitutions, not a “super-stability pact”. But what has been set up in Brussels today is indeed only a
super-stability pact, as Jens Weidmann, the President of the Bundesbank, recently made clear. Thismay be good news for German domestic politics, but it is bad news for the European population.Even the super-stability pact is lame. The so-called Golden Rule is confusing because it has alreadyattracted different interpretations and definitions, and because it is unclear how the sanctions wouldwork in any case. Let me put a straight question. “Just what will happen, do you think, if a ‘punished’country refuses to pay?” And if it pays this will obviously be pro-cyclical. Don’t get me wrong. I amnot saying that rules are useless but what makes the German rule credible for Germany is that the manon the street there
thinks it is a good rule, not the rule itself. Now I am afraid that the same ruletransposed to other Eurozone countries will not have the same legitimacy and respect among the menand women on the streets in cities and countries west, south and east of Frankfurt.
4. So where do we stand?
None of the main problems has been addressed: no central budget, no institutional centre, no lender of last resort, no expansion of monetary policy (which would help solve the competitiveness problem if inflation were comparatively lower in the debtor and problem countries), not to talk about the lack of labour force mobility.The only good news is that Eurobonds have not been banished. This is helpful even if they are onlyone tool among others and not the essential political step forward which is required.This inability to solve the Greek and other similar cases reveals essential European politicalweaknesses. I do not buy the argument that if the Greek case were solved then the problem would goto Italy, not least because of the fact that the Italian economy can live with current borrowing rates fora rather long time thanks to the long maturity of its debt. I believe that if for once the Eurozone showsthat it has correctly understood the problem, that the markets would follow. But not before. Lenderswill not return in the absence of that act of political recognition.Day after day the choice becomes clearer.We Europeans can try to stay put in the middle of the river, attempting to roll forward an everincreasing snowball of debt and inevitably bringing on ourselves a long period of low growth with itsaccompaniment of social unrest. Or we can try, as many are beginning to suggest, to go back to theoriginal river bank and accept the dismantling first of the Eurozone, and afterwards as I believe of theUnion. In this case our future is decline and submission to our powerful cousins from overseas. Or wecan decide to make the crossing to the far bank and this is the right thing to do. It means going furtherin building the European Union, it means understanding that although we may belong to the French,the German or, dare I say it, to the British tribe, that from the perspective of a globalised world, andindeed from Beijing where you and I are today, we are seen as Europeans. Then the challenge will notbe technical, it will be democratic.
With the probable loss of the triple AAA, the other bad news for the government. France has fallen into recession, according to INSEE forecasts released Thursday night. GDP expected to fall by 0.2% in the fourth quarter of this year and 0.1% in the first quarter of 2012. Two consecutive quarters of decline of the wealth produced, is the technical definition that economists use to describe the recessionary conditions. This is the second time in five years after the depression of 2008-2009, which was deeper. Since the liberation, these episodes were rare negative (1974-1975, 1993).
According to INSEE, the economy because of the dark debt crisis. Under the weight of accumulated deficits and mistrust of markets, banks have closed the credit tap. Chain consequences: less investment, less real estate projects, less than intra-European trade, therefore less jobs …
61,000 jobs would be lost in the private
The Institute provides a drain on the labor market would be lost 61,000 jobs in the private sector (industry, construction, services and trade) in the first half of 2012, against 137,000 in the first half of 2011 creations. The unemployment rate would rise to 9.6% of the workforce in metropolitan end of June against 9.1% a year earlier. A new challenge for Nicolas Sarkozy, the choice of voters to be statistically correlated with the labor market.
That’s not all. Consumption, the main driver of the French economy, also hold. The French close their wallets for several reasons. The deterioration of the labor market slows payroll. Inflation and tax increases (freezing of the scale and raising taxes on savings) reduce the purchasing power.
A vicious circle is activated, which, according to INSEE, affects the entire euro area, also in recession. The debate over the recessionary effects of rigor may be revived, and, therefore, that on an economic recovery.
Little room for optimism
INSEE sees a shy crisis in the spring (0.1% of GDP), but leaves little room for optimism. Overall, growth in 2012 promises to be close to zero. To achieve the government’s forecast (1%) would require a strong and very hypothetical increase of 1.3% of GDP in the third and fourth quarter. It would be unheard of.
Under these conditions, the official deficit forecast (4.5% of GDP in 2012) seems out of reach. Baroin, Minister of Economy and Valérie Pécresse, Minister for the Budget, had explained that the state could support growth weakened to 0.5%, the lowest. They will have to redo their calculations. With zero growth, tax revenues and social fail. If he wants to keep its commitment, the government will launch a third austerity plan. Risk it there before the presidential election?
For now, the rating agencies Moody’s and Standard & Poor’s have a boulevard to degrade the country’s triple AAA, a prospect that the rumored Thursday night or Friday. They had warned that weak growth would deprive the State of revenues sufficient to guarantee the repayment of its debt in the calendar. The presidential campaign is committed under this panorama.
NEW YORK / PARIS (Reuters) – Fitch Ratings lowered the outlook on Friday Note “triple A” from France to negative, expressing concern about the potential consequences of the debt crisis on the finances of the State French.
Fitch notes, however, confirmed the French long-term ‘AAA’, the best possible, as well as its short-term rating ‘F1 +’.
Calling for the implementation of a “comprehensive solution” to problems facing the euro area sovereign issuers, the rating agency has also placed on negative watch notes six other countries using the euro, including Spain and Italy.
Lowering the outlook from stable to negative indicates a slightly higher risk of 50% downgrade within two years, said Fitch.
“The negative outlook is linked to increased risk of materialization of the contingent liabilities of the French state, due to the worsening financial and economic situation in the entire euro area,” the agency said in a statement released after the closure of European stock.
She added that in his view, France is the country most exposed to a further intensification of the crisis among the other States recorded ‘AAA’ in the euro area.
“The intensification of the crisis in the euro area since the month of July is a serious shock to the area and for the French economy and the stability of its financial sector,” said Fitch.
“Despite the new fiscal measures announced in August and November (…), other measures may be needed to reduce the deficit to 3% of GDP by 2013.”
Barely a week after the European Council of December 8 and 9, the markets have a new anxiety attacks. For the first time since 11 January, the euro fell, Wednesday, December 14, under $ 1.30 at 1.2983 dollar. “In this year-end market, with volumes down, it seems that there is a growing distrust of high vis-à-vis all euro-denominated assets,” said Rene Defossez, strategist at Natixis.
Wednesday Traditionally, stock markets plunged (- 3.33% in Paris), the rates paid by Italy to borrow is still tense, the differences in yields (spread) between the obligations of Member States have dug a little while they were stable from the top … “The decline of the euro is the only positive for a week, a breath of fresh air to the economy, notes Michel Juvet, a director at the Swiss bank Bordier. For the rest, a break with the policy was so started that markets no longer believe much of their words. ”
And this problem of credibility in addition to questions about the content of the agreement, expected to strengthen fiscal discipline within the euro area and improve the firewall to the crisis. Olivier Blanchard, chief economist of the International Monetary Fund (IMF) said Wednesday at a conference in New York that it was “insufficient” to settle the crisis, although progress has been made.
“Markets were waiting for two things: building a relief fund and a massive purchase of government debt by the European Central Bank (ECB), do you note in Brussels. But the ECB does not act decisively, and the progress is at a snail on the firewall supposed to stop the contagion. ”
Discussions still stumble on strengthening the European Financial Stability Fund (EFSF), and how his successor, the European Stability Mechanism (MES), although it was agreed that it would be operational by in July 2012. Germany refuses, among others, to add the strike forces of the two instruments and sticks to the initial compromise: the amounts incurred by the EFSF (nearly 200 billion for Greece, Ireland and Portugal) have be deduced from the envelope mobilized by the MES (500 billion euros maximum).
Another concern, the restructuring of the Greek debt under negotiation with the banks is delayed. However, it conditions the implementation of the second aid plan in Athens …
To make matters worse, uncertainty persists about the intergovernmental treaty promised by the seventeen countries in the euro area and by almost all countries outside the monetary union, with the exception of the United Kingdom. The directors of the Treasury Seventeen were on Wednesday, the first lap and will accelerate the negotiations next week.
There are different views in particular on the scope of the future treaty, or its binding on the candidates for the euro sign. Before lifting the reservations and to confirm, or not, its participation, the Czech Republic said it would consider on each.
Markets are concerned about additional problems that the new treaty might encounter phase of ratification after signing the best in March 2012. Under pressure from the opposition, Prime Minister of Ireland, Enda Kenny, has not ruled out a referendum in his country, but said the decision would be made after consultation with the guardians of the Constitution. The Netherlands, Sweden and Denmark could also experience some difficulties in ratifying the new treaty, due to problems of coalition. To work around the obstacle, it is thought to introduce a clause that allows the future agreement to enter into force without waiting to be ratified everywhere.
And these concerns, plus the threat of an imminent breakdown of the note of some countries in the euro area by Standard & Poor’s, starting with the triple A of France …
Many tensions that bring Italy into the collimator. The peninsula had to pay, Wednesday, interest rates for borrowing records to five years. And the secondary bond market (the resale), Italian bond yields go up to ten years, day after day, they reached 6.75% on Thursday morning, far more than 7.244% of 25 November … Now Italy is the country of the euro area will have to borrow more markets in 2012. Nothing between February and April, some 91 billion euros of Italian bonds will mature, it will refinance loans ..