Posts tagged euro

(Source: independent.co.uk)

The latest quarterly Business Outlook by Deloitte Access Economics forecasts that Europe will be the key to growth globally and locally this year.

The report, titled “Eurogeddon”, warns that 2012 could easily bring a deep recession and widespread bank failures in Europe.

Deloitte Access Economics director Chris Richardson says there is a 50-50 chance that Europe will muddle through the crisis.

“If it doesn’t then yes, Australia has something like a rerun of the global financial crisis - unemployment up, profits down, Government budget hit for six,” Mr Richardson said.

“Probably not a recession; a technical recession, thanks to magnificent momentum in mining, but a tough time nonetheless.”

Mr Richardson says the European Central Bank is containing the situation by pumping money to the banks in the form of discount loans.

“The money that Europe’s central bank is pumping out is working very effectively as sticky tape,” Mr Richardson said.

“It is going to the banks, but the banks in turn are passing indirectly some of it back to governments and that combination is holding Europe together.”

But even if the sticky tape does hold, Deloitte still expects Europe’s problems to weigh on parts of the Australian economy.

More finance jobs are likely to go, the unemployment rate is expected to rise to 5.5 per cent, and Mr Richardson, who describes Europe as a “seething cauldron of risk”, says the effects already are being seen in workplaces around Australia.

“You’re getting employers who are giving employees overtime rather than taking on new people,” he said.

For the Australian economy, China is key.

Mr Richardson says it would react quickly to any implosion in Europe, but its coffers are not as full as they were during the global financial crisis.

“Europe is a bigger customer for China than the United States is, and there are risks about that,” he said.

“At some stage China will have an ugly year and when they do it will be pretty bad news for Australia.”

Westpac chief economist Bill Evans is more confident that China can withstand Europe’s problems.

“China’s very much a domestically driven economy,” Mr Evans said.

“Whilst we’re expecting that the growth in China in the first half of the year - mainly because of these domestic tightening policies - to be around about a 6.5 per cent momentum, I think by the second half of the year, it will be more like eight.”

While Australian Government debt is relatively low, Mr Richardson is concerned that household debt as a proportion of GDP remains amongst the highest in the world.

“It is not something that I see as an immediate problem but yes, it remains an area of vulnerability for Australia if bank failures in Europe start to happen and credit tightens up once more,” he said.

The Federal Government is still committed to achieving a surplus next year, but warns it will be tough.

Mr Richardson believes the Government must be prepared to ditch that ambition given the severity of Europe’s debt woes.

“If Europe blows then the surplus is a goner, and so it should be,” Mr Richardson said.

“Basically you should use the budget to help defend against the downturn, but even if Europe doesn’t blow, it is getting hard to get the surplus.”

All thoughts for Treasurer Wayne Swan to consider as he returns to work and begins putting together the budget.

(Source: abc.net.au)

Eurozone and US leaders must act urgently to stop their debt crises from spiralling out of control and causing economic disruption and a deep depression, the OECD warned on Monday.

THE OECD says the eurozone crisis is now one step away from plunging advanced economies into an abyss of recession and even depression, with waves of bankruptcies and wealth destruction in Europe.

“The euro area crisis represents the key risk to the world economy at present,” the OECD said in an unusually stark outlook report.

“A large negative event would… most likely send the OECD area as a whole into recession.”

It says the European Central Bank should intervene massively to help stabilise debt markets and cut interest rates while US politicians need to change a fiscal policy that could tip the country into recession.

However quick action and structural reforms to free up labour markets could add vigour to what is otherwise likely to be sluggish growth for the next two years.

“If not addressed, recent contagion to countries thought to have relatively solid public finances could massively escalate economic disruption,” it said, adding pressure on banks has increased the risk of a credit crunch.

The eurozone is already in slight recession, the OECD said, and a major misstep in handling the debt crisis could drag the United States, Japan and other advanced economies down as well.

Pressure would mount for one or more countries to leave the euro, which the OECD said would only aggravate the crisis and “most likely result in a deep depression in both the exiting and remaining euro area countries as well as in the world economy.”

With the eurozone divided on how to contain the debt crisis and US lawmakers split on taxes and spending cuts, there is a danger a quick response may not come.

“We are concerned that policy-makers fail to see the urgency of taking decisive action to tackle the real and growing risks to the global economy,” OECD chief economist Pier Carlo Padoan said during the launch of the report in Paris.

Growth in the eurozone is set to stall next year, dropping to 0.2 per cent from 1.6 per cent this year, even if the currency bloc manages to muddle through.

‘Decisive program’

In the United States, if the automatic spending cuts agreed in an August budget deal came into force, and tax cuts were allowed to expire, US growth would slump to just 0.3 per cent next year from 1.7 per cent this year.

Modest loosening of fiscal policy while putting into place a credible medium-term plan to address the deficit and debt could keep the US economy growing at 2.0 per cent next year and 2.5 per cent in 2013.

In the eurozone, the ECB should buy up weaker member state government bonds in huge quantities and interest rates must fall in order to really get to grips with the debt crisis, the OECD said.

A credible containment of the EU debt crisis would require a significant boost to the eurozone bailout fund and “together with, or including, greater use of the ECB balance sheet,” the OECD said.

Germany has so far rejected the ECB becoming like the US Federal Reserve or Bank of England and intervening massively in the debt market, worrying that it would lose its credibility and that governments would feel less pressure to reform if they were being helped out in this way.

However the OECD said “a credible and decisive program may not increase ECB exposure compared with the end result of the current … (ad hoc) intervention” that it is currently undertaking.

The ECB has already bought nearly 200 billion euros in eurozone government bonds in the secondary market in an effort to ease borrowing costs for members at risk, such as Italy and Spain.

However in order to avert the worst, the ECB might need to take on a sizable portion of the Italian, Spanish and Belgian debt worth around 3 trillion euros.

This would still only represent about a third of the annual output of the currency bloc, it added.

A decisive containment of the debt crisis, which the OECD said should also include stronger central controls over national fiscal policies and structural reforms, could add a a percentage point to growth next year and nearly two points in 2013. The US economy would also get a considerable boost.

The OECD analysis comes amid reports, denied by the IMF, that Italy has been seeking a 600 billion euro ($800 billion) bailout and a recognition by Germany and France that an Italian debt default would be “the end of the euro.”

Moody’s credit rating agency warned meanwhile that the eurozone crisis threatens all EU country ratings.

AFP

(Source: abc.net.au)

AFP - Former British prime minister Tony Blair warned on Sunday that the collapse of the euro would be “catastrophic” and urged Europe to move fast to support the currency.

Blair said European leaders faced “very difficult and painful” choices and a “long-term framework of credibility” was needed to see off the crisis.

Speaking following the resignation of Italian Prime Minister Silvio Berlusconi on Saturday, Blair said there had “never been a tougher time to be a leader than right now”.

But he said the “whole weight” of European institutions — including the European Central Bank — must get behind the euro if it was to survive.

He told BBC TV that economies had to align and that “the myth that the Italian and German economies were the same — that 10-year myth has now evaporated”.

Measures required to bring stability to the euro would be painful, he warned, but added: “If the single currency broke up, it would be catastrophic.”

Blair, who was premier for a decade until 2007, was also asked if his former finance minister Gordon Brown had been right to push hard for Britain to stay out of the euro when Labour was in power.

“He was right, although I would also say by the way, I was never in favour of doing it unless the economics were right,” Blair replied.

British Prime Minister David Cameron will meet German Chancellor Angela Merkel in Berlin on Friday for talks on the euro’s difficulties and the economy.

Cameron said on Friday there was still “a big question mark” over the future of the eurozone and stressed it was not in Britain’s interests for the single currency to break up but the government is “preparing for every eventuality”.

(Source: france24.com)

Monti nominated as Italian PM

Italian president Giorgio Napolitano has nominated ex-European commissioner Mario Monti to form a new government, a day after Silvio Berlusconi quit after dominating politics for nearly two decades.

“Senator Mario Monti was given the task of forming the government,” a spokesman for the president told reporters.

The 68-year-old economics professor and dean of the prestigious Bocconi University in Milan, dubbed ‘Super Mario’ by the Italian press, earned a fearless reputation as the top trust-busting bureaucrat in Brussels, but until now has never held political office.

Former European commissioner Mario Monti has arrived at the Italian president’s office on Sunday evening (local time) after marathon talks with the leaders of all political parties in parliament on setting up the new cabinet, the presidency said in a statement.

There will now be a confidence vote in parliament for the new cabinet to officially take control.

(Source: abc.net.au)

European Union chiefs are drawing up plans for a single “Treasury” to oversee tax and spending across the 17 eurozone nations.

The proposal, put forward by Herman Van Rompuy, the European Council president, would be the clearest sign yet of a new “United States of Europe” — with Britain left on the sidelines.

The plan comes as European governments desperately trying to save the euro from collapse last night faced a new bombshell, with sources at the International Monetary Fund saying it would not pay for a second Greek bail-out.

It was also disclosed last night that British businesses are turning their back on Brussels regulations to give temporary workers full employment rights, with supermarket chain Tesco leading the charge.

Meanwhile, David Cameron is attempting to face down a rebellion tomorrow by Tory MPs in a vote over staging a referendum on Britain’s membership of the EU.

Ministers expect 60 or 70 MPs to defy the party’s high command and back the call for a referendum, while some rebels claim the final toll could be up to 100 — about a third of the parliamentary party.

Downing Street has upped the stakes dramatically. Last night, No 10 sources insisted they would impose a three-line whip — effectively ordering all Tory MPs to fall in line.

Mr Cameron, who yesterday took personal charge of the effort to persuade MPs to back the Government, has come under intense pressure from Cabinet colleagues to try to defuse the revolt by offering concessions or a way out to rebels. Sources say a handful of parliamentary private secretaries — the lowest rung on the government ladder — might resign.

The single Treasury plan emerged in Brussels yesterday as Europe’s finance ministers tried to find a way out of the crisis engulfing the eurozone. A full-scale rescue plan could cost about £1.75 trillion.

British sources said Mr Van Rompuy, who is regarded as being close to the German government, suggested plans for a “finance ministry” to be based either in Frankfurt or Paris. The EU already has its own “foreign ministry”, headed by Baroness Ashton, the former British Labour minister, and based in Brussels.

A senior Coalition source told The Sunday Telegraph: “I am well aware of arguments in Brussels and elsewhere in favour of a single Treasury. You’d get any number of different versions of ‘Europe’ all running at very different speeds.”

A series of meetings are due to be held over the next few days on the eurozone crisis that will involve the leaders of EU member states.

They were overshadowed last night as senior sources at the International Monetary Fund indicated privately that it is not willing to further bail out Greece, whose economy has an outstanding debt of about £232 billion.

The IMF, with the EU and the European Central Bank, is assessing Greece’s debt crisis, and a joint report yesterday suggested lenders might have to agree losses of up to 60 per cent in a Greek default.

Any suggestion that the IMF would not be part of a new bail-out of Greece could spark panic in the markets and worsen the eurozone crisis.

Eurosceptic Tories, meanwhile, are arguing in favour of “repatriating” powers from the EU to Britain, including the Agency Workers Directive, imposed last year at an annual cost of £1.8 billion, which is putting at risk 28,000 temporary job contracts for those aged between 16 and 24. Tesco has asked one of its suppliers to take advantage of a loophole in the law which allows workers to “opt out”.

As Mr Cameron led the drive this weekend to neuter the Tory rebellion, Nigel Farage, the leader of Ukip, indicated his party might not field candidates at the next election against MPs who vote for a referendum.

However, there is no danger of Mr Cameron losing the non-binding vote. He can count on the “payroll vote” of more than 100 ministers, most if not all Lib Dams and nearly the entire bloc of 258 Labour MPs.

On Saturday Tory rebels were among speakers at a “People’s Pledge” pro-referendum rally in Westminster. They included David Davis, the former shadow home secretary, who called the EU a “nascent superstate”.

(Source: telegraph.co.uk)