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Unemployment in Euro Zone Rises to a New High

December 1, 2012 by Leave a Comment

Mario Draghi, the E.C.B. president, cautioned that, “We haven’t gotten out of the crisis yet.” But he told Europe 1 radio in Paris, “The recovery for the entire euro zone will no doubt begin in the second half of 2013.”

That was a firmer forecast than Mr. Draghi gave earlier last month, when he said only that growth next year would be weak. And it came as separate data indicated that inflation continued to fall, giving the E.C.B. more leeway to pump cash into the economy if needed.

Mr. Draghi’s statement, along with tentative indications that countries like Spain and Portugal are getting a grip on their economic problems, held out hope that a turning point in the euro zone crisis might be on the distant horizon.

“Clear progress is visible in the dismantling of economic imbalances in the euro zone,” economists at the German insurer Allianz said in a note Friday. “The reforms are bearing their first fruits.”

To be sure, many economists remain skeptical. And Mr. Draghi used a separate appearance in Paris on Friday to deliver a lecture on economic competitiveness that, given the setting, could be read as a warning to France, the second-largest economy in the euro zone, after Germany. The country is seen as a risk because of rigid labor regulations and other rules that critics say suppress entrepreneurship.

“It is indeed of utmost importance that national policies continue to focus not only on fiscal measures,” Mr. Draghi said, “but at the same time address key structural problems in labor and product markets.”

Mr. Draghi acknowledged that austerity measures by various governments would inevitably bring “a short-term contraction in economic activity.” But he repeated the central bank’s vow to do “everything necessary” to maintain stability in the euro zone. The central bank has promised to buy debt from countries like Spain in any amount necessary to hold down their borrowing costs, provided they agree to conditions.

The E.C.B. gained a little more maneuvering room for measures to combat the crisis after another report said that inflation in the euro zone declined to 2.2 percent in November from 2.5 percent in October. The E.C.B. seeks to hold inflation to about 2 percent. The falling inflation rate should help mute complaints from the Bundesbank, Germany’s central bank, that E.C.B. measures pose a risk to price stability.

Lower inflation would also make it easier for the E.C.B. to cut its main interest rate, which already stands at a record low of 0.75 percent. But most analysts do not expect a cut next week when the bank holds its monthly monetary policy meeting.

The labor market report Friday underlined the grave effect that the euro zone crisis had had on European society. The jobless rate in the euro zone rose to 11.7 percent in October, breaking the previous record in September of 11.6 percent, the official Eurostat statistical agency reported from Luxembourg.

The jobs market tends to react to underlying economic trends with a time lag, so the rise was not necessarily inconsistent with Mr. Draghi’s prediction of a turnaround next year.

Still, that was probably little consolation to the 18.7 million people in the euro zone who have been classified as jobless.

Spain, struggling with collapse of its real estate sector and painful austerity measures, again led all 27 European Union countries, with a 26.2 percent jobless rate. Greece was in second place with a 25.4 percent rate in August, the latest month for which data were available.

Austria’s 4.3 percent rate was the lowest.

For youth, the unemployment picture was even worse: 23.9 percent of people under 25 in the euro zone are currently defined as unemployed, Eurostat said.

For the entire 27-nation European Union, Eurostat said, the unemployment rate rose to 10.7 percent in October from 10.6 percent a month earlier.

Article source: http://www.nytimes.com/2012/12/01/business/global/daily-euro-zone-watch.html?partner=rss&emc=rss

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Britons Strike as Government Extends Austerity Measures

November 30, 2011 by Leave a Comment

Courts, schools, hospitals, airports and government offices could all be hit by the strike, which has come to be seen as an emblem of resistance to government plans to squeeze public-sector pensions and cut government spending to reduce debt.

Education authorities across Britain said thousands of schools had closed because teachers were on strike, and many parents had taken a day off from work to look after children.

The stoppage was billed as the most extensive in decades, mirroring the turmoil in the debt-plagued euro zone across the English Channel and offering a reminder of the potential social and political impact of the financial crisis seizing much of Europe. While Britain is not part of the single European currency, it is a member of the European Union and relies on the continent for much of its trade.

The chancellor of the Exchequer, George Osborne, said on Tuesday that because of the slowdown in the euro zone, British economic growth this year and next would be slower than forecast in March and “debt will not fall as fast as we’d hoped.”

He added that Britain could avoid a recession next year only if the euro zone found a solution to its crisis.

“We’ll do whatever we can to protect Britain from this debt storm,” Mr. Osborne told a packed Parliament. “If the rest of Europe heads into a recession, it may be hard to avoid one here in the U.K.”

News reports on Wednesday spoke of picket lines being set up outside public buildings while workers planned rallies and demonstrations across Britain. Some of the first workers to strike were in Liverpool, where tunnels under the River Mersey were closed. But the overall level of participation remained unclear.

Some routes into London, normally clogged with commuter traffic and cars ferrying children to school, were virtually deserted as the strike began.

Medical officials said up to 60,000 nonurgent hospital procedures — from surgery to outpatient visits — were postponed because of the strike. But airport operators said that two Britain’s two biggest airports — Heathrow and Gatwick near London — were functioning with relatively little delay because many border service personnel had not joined the strike and were being assisted by other government officials to inspect the passports of arriving passengers.

The airports had been an early focus of worries that travelers could be delayed by up to 12 hours.

“Immigration queues are currently at normal levels,” BAA, the leading airport operator, said. In addition to drafting in support staff, the operator had also asked airlines to restrict the number of passengers booked on flights.

“However, there still remains a possibility for delays for arriving passengers later in the day,” BAA said.

The company operating Eurostar, the high-speed train using the Channel tunnel, had urged passengers to be prepared for delays. But, by midmorning, a Eurostar spokeswoman said, “everything is fine, with no delays or cancellations.”

At the weekly parliamentary session devoted to questions to the prime minister, the strike provoked fierce exchanges between Prime Minister David Cameron and the Labour opposition leader, Ed Miliband, who accused the government of secretly welcoming the walkout.

“I don’t want to see any strikes,” Mr. Cameron said. “I don’t want to see our schools closed. I don’t want to see problems on our borders.”

He called the strike “something of a damp squib,” but acknowledged that it had forced the closure of 60 percent of British schools. He also said that “less than a third” of civil service employees were on strike.

Article source: http://feeds.nytimes.com/click.phdo?i=6b45846e58d39f5d7b29fbaae1cdace2

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Slow Pace of Greek Talks Fuels Anxieties

November 8, 2011 by Leave a Comment

But negotiations were proceeding slowly, and a statement released by the government cast doubt on whether the parties would be able to agree on a new leader before Tuesday.

The statement, in its entirety, read: “There was a positive approach in talks between Prime Minister George Papandreou and the leader of the main opposition, Antonis Samaras, regarding who should be the new prime minister.”

Mr. Papandreou’s office said that a cabinet meeting was scheduled for noon Tuesday. It remained unclear when a new prime minister and government would be announced.

The wrangling has fueled fresh fears about Greece’s acceptance of a debt-relief deal struck on Oct. 26 that is seen as crucial to containing the crisis and insulating Italy, a much larger economy whose political leaders have also struggled to cut budgets and deal with heavy debt.

Deepening doubts on that score, finance ministers from the euro zone on Monday demanded a letter from the two leading Greek political parties confirming their commitment to the loan deal before releasing the $11 billion Athens says it needs to avert default on its debts next month.

Reflecting the confusion in Rome and Athens, yields on Italian bonds — the price Italy must pay to borrow money on international markets — rose on Monday to more than 6.6 percent, the highest since the introduction of the euro more than a decade ago, news reports said.

The debt deal requires that the Greek Parliament pass a new round of austerity measures, including layoffs of government workers, in a climate of growing social unrest. It also calls for permanent foreign monitoring to ensure that Greece keeps its pledges of structural changes to its economy, a requirement that many Greeks see as an affront to national sovereignty.

The new unity government, in which the major Greek parties would share power, is widely expected to be led by a nonpolitician and to govern for several months, long enough to implement the debt deal and pass a budget for 2012.

In a statement early Monday, the Greek Finance Ministry said that delegations from Mr. Papandreou’s Socialist Party and Mr. Samaras’s New Democracy Party regarded Feb. 19 as “the most appropriate date for elections.”

Mr. Samaras is not expected to play a role in the unity government, but would be a candidate for prime minister in the general election.

In many ways, a new interim government buys time for European leaders to put together a stronger bailout mechanism that would protect larger economies from the risk of default, chief among them Italy.

“The decision is very positive, because it will appease the markets and because it shows that Greek authorities are doing what foreign leaders want them to do — to get on with implementing the conditions for the E.U. debt deal,” said Athanassios Papandropoulos, an economist and a commentator for the conservative Greek newspaper Estia.

Still, Mr. Papandropoulos said he saw little chance that a unity government could get Greece on the road to recovery. “It will last three months,” he said. “then we’ll have elections, and then we’ll have the same problems all over again.”

One person being mentioned as a possible leader of the new unity government is Lucas Papademos, a former governor of the Bank of Greece. Mr. Papademos is a former vice president of the European Central Bank and has been teaching at Harvard since his retirement in 2010.

 The Greek debt crisis flared during Mr. Papademos’s last year at the European Central Bank, and he became known for supporting a hard-line policy that Greece should never default.

 Now, if he were to head the new government, Mr. Papademos would have to support the 50 percent debt reduction proposal that is the heart of the deal.

Landon Thomas Jr. contributed reporting.

Article source: http://www.nytimes.com/2011/11/08/world/europe/greek-leaders-reach-deal-to-form-a-new-government.html?partner=rss&emc=rss

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Greek Leader Calls Off Referendum

November 4, 2011 by Leave a Comment

The decision to abandon his idea of holding a popular vote on the European debt deal did not end the political turmoil here; Mr. Papandreou still faces a rebellion in his own Socialist Party and the fury of some opposition figures, and he will have to weather a difficult confidence vote on Friday. But talk of a possible unity government eased international fears of immediate new elections and a looming default if he did not survive in office, cheering markets in Europe and abroad.

In an address to his party’s central committee on Thursday evening, Mr. Papandreou said there was no need for a referendum now that the opposition New Democracy Party had said for the first time that it would back the agreement, reached last week, to write down Greek debt in exchange for austerity measures and a commitment to the euro as the nation’s currency.

The prime minister invited the New Democracy Party to become “co-negotiators” on the deal and later said that talks on a unity government should begin immediately. He also suggested that he would be willing to step aside so that others could form a unity government if he won Friday’s confidence vote. “I am not clinging to my seat,” he said.

He made those comments after the New Democracy leader, Antonis Samaras, accused the prime minister of “deception.” Mr. Samaras was angry that Mr. Papandreou appeared to be trying to hold on to his post after securing the opposition’s cooperation.

Mr. Papandreou’s decision to call off the referendum followed three days of political volleyball that whipsawed world markets, shook the Continent to its foundations and drove angry European leaders to issue an ultimatum on Wednesday demanding that Greece decide once and for all if it wanted to remain a part of the European Union and its currency bloc, the euro zone.

But after a day of political horse-trading, Greece’s Byzantine political storm began to look less like points of departure for Europe than hastily considered parliamentary maneuvers by a prime minister who was looking for a way to shore up support with both the Socialists and the opposition — or to negotiate a graceful exit. As has happened so often in the euro crisis, the fate of the European enterprise seemed to hinge on the political machinations of one of the union’s smallest members.

At first, Mr. Papandreou was said to have offered to resign before the confidence vote on Friday. By late afternoon, however, the Greek news media reported during the cabinet meeting that he not only was refusing to resign but was in fact calling off the referendum.

Late Thursday, there were reports that Mr. Papandreou had agreed to step down following the confidence vote on Friday after members of his cabinet urged him to do so for the good of the party. The prime minister, by this account, did not resist the idea.

He has offered no hint of that in public, saying he is simply trying to do what is best for Greece, which is to keep it in the European Union and the currency zone.

“The question was never about the referendum but about whether or not we are prepared to approve the decisions on Oct. 26,” he said, referring to the European Union’s debt deal, which wrote down some of Greece’s privately held debt by 50 percent, cutting the nation’s private and public-sector debt burden by about 30 percent over all. “What is at stake is our position in the E.U.”

The finance minister, Evangelos Venizelos, confirmed that the referendum had been canceled and said the government should seek approval of the loan deal from a broader majority of 180 members in Parliament — which would require support from some of the opposition — rather than the simple majority of 151 that has backed previous measures.

Few Greeks, weary of austerity, seemed to have faith in their politicians. No matter who is in power, “it will stay the same,” said Stefanos Merkouris, a waiter in Athens. “Nothing’s going to change.”

Steven Erlanger contributed reporting from Cannes, France, and Alan Cowell from Paris.

Article source: http://www.nytimes.com/2011/11/04/world/europe/greek-leaders-split-on-euro-referendum.html?partner=rss&emc=rss

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Greek Premier, Papandereou, Praises European Debt Deal

October 28, 2011 by Leave a Comment

The accord, reached early Thursday morning in Brussels, includes an agreement by banks to accept a 50 percent loss on the face value of their Greek debt.

“The agreement allows us to make the necessary reforms without the burden of debt hanging around our necks,” Mr. Papandreou said, referring to Greece’s demanding — and unpopular — program of austerity measures and structural changes.

“Everyone needs to carry out his own personal revolution,” he said, calling on Greeks to support reforms.

But even as the agreement gave the country some much-needed breathing room, there were concerns about whether the reduction in Greek debt would help the nation’s rapidly shrinking economy, which has endured a credit crunch. For their part, Greek businesses were worried that the proposed nationalization of some banks might give the state too much control over the economy.

Some critics dismissed the accord, whose details were somewhat vague, as little more than window dressing.

“The most important problem is the bank capitalization,” said Yanis Varoufakis, an economist at the University of Athens, referring to a component of the plan that forces banks to raise new capital to protect themselves from possible sovereign debt defaults. “They didn’t specify how they were going to do it, or what they did say leaves a great amount of doubt.”

“It’s a complete fiasco,” he said of the new plan, “which is being once again paraded around as a great triumph.”

The new deal aims to bring down Greece’s debt to 120 percent of gross domestic product by 2020. Mr. Papandreou said Thursday that this would make the country’s debt “absolutely sustainable” and that there would be no more primary budget deficits. “From next year, we’ll be moving on to primary surpluses,” he said.

But many in Greece wondered how that could happen. The Greek economy contracted by 5.5 percent this year, and it is projected to shrink by 3 percent next year. Last month, the 2011 estimated budget deficit was increased to 9.5 percent of G.D.P., from 8.6 percent.

Greece’s once-protected public sector, which still employs one in five Greeks, has been hit by across-the-board wage cuts and planned layoffs, but with the credit crunch and the global economic slowdown, Greece’s private sector has been hit harder.

Unemployment is 16 percent and increasing. Since 2009, the Greek economy has lost all of the 320,000 jobs it created between 2000 and 2008, according to Savas Robolis, a labor market expert at the Greek General Confederation of Labor, the country’s main trade union.

“For a long time, banks have stopped giving loans to small businesses and they’re struggling,” Mr. Robolis said.

The banks’ agreement to accept a huge loss on their Greek debt “will force banks to sanitize their portfolios,” he said. “The liquidity, which has fallen, will be even worse if they’re not quick to recapitalize by March or April. If things don’t pick up, it will get ugly.”

Mr. Robolis, who has advised the government on pension reform, said that Greece’s pension funds, a portfolio worth about $34 billion, would also need an infusion of capital because of losses they were expected to incur in the write-down of Greek debt.

Even as Mr. Papandreou emphasized that the debt accord “creates new potential for growth and liquidity to return to the real economy,” the details of the recapitalization remained unclear.

In a news conference here, Finance Minister Evangelos Venizelos said that the new $184 billion rescue package pledged by foreign creditors as part of the new deal would cover Greece’s financing needs and allow it to recapitalize its banks.

Of that package, $42.5 billion has been earmarked as incentives for banks participating in private sector involvement in the write-down, and another $42.5 billion would provide banks with new capital.

But half of the recapitalization fund, or $21.3 billion, would come from planned privatizations of Greek state assets — a program widely seen to have stalled — as well as from a new Greek-German solar energy project.

Article source: http://www.nytimes.com/2011/10/28/world/europe/greek-premier-papandereou-praises-european-debt-deal.html?partner=rss&emc=rss

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Greece Plans New Austerity Measures

September 22, 2011 by Leave a Comment

Greece’s so-called troika of foreign lenders — the European Central Bank, European Commission and International Monetary Fund — have required the measures as a condition for releasing the next installment of $11 billion in aid that the country needs to meet expenses starting in mid-October. Fears of a Greek default have shaken world markets and revealed deep fissures in the European Union.

Finance Minister Evangelos Venizelos told Parliament on Wednesday that Greece had no choice but to continue with its austerity program in order to appease the financial markets. “The markets are blackmailing us and the circumstances are humiliating us,” he said.

He added that the government would do everything possible to keep the country “out of danger.” In a rare about-face, Mr. Venizelos, a Socialist Party stalwart who is widely seen as holding the reins of Prime Minister George Papandreou’s government, said that Greece was fortunate to be under foreign supervision.

“The Greek people are suffering, the country is upset and depressed but also dignified and proud,” Mr. Venizelos added.

Coming just months after the government passed an earlier package of unpopular austerity measures, including tax increases and wage freezes, the new measures are wildly unpopular and touch for the first time on two pillars of Greek society — the civil service and family homes — further squeezing a society in which one in five workers is employed by the public sector.

A growing number of Greeks are increasingly confused and upset by the ever-evolving and expanding measures. On Wednesday, Greece’s two main labor unions called 24-hour general strikes for Oct. 5 and 19.

“Last year, we were prepared to make these sacrifices, we recognized the need,” said Antonis Karanikas, 48, the head of a public-sector entity that evaluates insurance claims made by farmers, as he participated on Wednesday in a peaceful protest by public-sector workers in Athens.

“But what the government is trying to do now is without a real plan,” he added. “It’s creating a sense of panic among a large segment of the Greek population.”

After a seven-hour cabinet meeting on Wednesday, the government issued a statement detailing the new measures, but it failed to confirm, or flesh out, a new property tax announced earlier this month. Originally, Mr. Venizelos said the tax would range from 50 cents to about $14 a square meter, or 11 square feet, depending on the value of the property and the building’s age. But there has been some debate about increasing the top of the scale to $28.

The tax would be levied through electricity bills in order to thwart evasion. But the powerful union that represents the public energy utility said it would oppose the tax, making its implementation uncertain.

On Wednesday, the government also announced that it would lower the threshold above which income is taxed to $6,800 annually from about $11,000. It would also cut pensions above $1,600 a month and pensions above about $1,400 a month for retirees younger than 55.

On Wednesday, the government said it would move ahead in October with placing about 30,000 civil servants — or 3 percent of the public work force — on a so-called labor reserve program in which their wages would be cut for 12 months, after which their positions could be terminated.

Labor unions and the center-right opposition have criticized this as a back door to firing. Under the Constitution, public-sector workers cannot be fired.

Ilias Mossialos, the government spokesman, said that talks between Greece and its foreign lenders would pick up again next week when the foreign inspectors return to Athens. Talks broke down this month when the lenders said they were unconvinced that Greece could meet its deficit reduction targets in view of the slow pace of carrying out the austerity measures.

Article source: http://feeds.nytimes.com/click.phdo?i=b249866ba76650ab1f8567d8ebdc6b63

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Stocks & Bonds: Wall Street Follows Europe in Rebound

September 8, 2011 by Leave a Comment

Wall Street picked up the momentum from higher markets in Europe and Asia. Bank stocks gained nearly 5 percent, a welcome reversal of a recent trend in the last few weeks, when they struggled amid uncertainty about euro zone debt; fluctuations in key economic data that reflect the challenges for housing and lending; and recently, a federal lawsuit that revisits problems with the way mortgages were handled.

Analysts said investors were encouraged by a ruling by the German Constitutional Court that rejected challenges that try to block German participation in bailouts for other countries in the euro area. Still, the court said future financial rescues would need the approval of Parliament’s budget committee.

The development, as well as European economic data released on Wednesday, went to the heart of a number of the issues facing investors, including how to gauge the euro zone’s approach to its debt crisis and the pace of global economic growth.

The three main indexes in the United States were all more than 2 percent higher. The Dow Jones industrial average was up 2.5 percent, or 275.56 points, to 11,414.86. The Standard Poor’s 500-stock index rose 2.9 percent, or 33.38 points, to 1,198.62, and the Nasdaq composite index was up 3.0 percent, or 75.11 points to 2,548.94.

“It is a bit of a relief rally,” said Paul Zemsky, the chief investment officer of multi-asset strategies for ING Investment Management.

Given the volatility in the markets recently, he and other analysts were cautious about the prospects for the broad gains to stick.

There was “a favorable outcome” to the German court ruling and the market was responding, Mr. Zemsky said, “but we need to see follow-through.”

In addition to the German court ruling, the Italian Senate approved austerity measures — after the markets closed — intended to fend off the country’s sovereign debt crisis.

“The Italian Senate passing the austerity bill is a boost and besides that I think it is going to help relieve some of the sovereign debt concerns, especially those that were intensifying in the past week or so regarding Italy and Spain,” said Peter Cardillo, the chief market economist for Rockwell Global Capital.

At the same time, some analysts said that the banking sector might have hit its lows.

In a research report, analysts from Deutsche Bank noted that bank stocks have declined by 24 percent since July 21, the date to which the most recent sell-off period is often traced, while the broader market as measured by the Standard Poor’s 500-stock index was down by 13 percent.

“While numerous macro concerns remain, we believe the sell-off is overdone” if gross domestic product growth is more than 1 percent, the analysts said about bank stocks over all.

Of the 10 most actively traded bank stocks on Wednesday, Regions Financial was up the most, more than 12 percent, at $4.37. The Deutsche Bank analysts upgraded the stock, which shed the most during the sell-off, as a buy after noting its management was cutting costs and for its outlook on the economy.

Bank of America rose more than 7 percent to $7.48. The bank shook up its top management team on Tuesday as it contended with a flagging share price and mounting legal liabilities. Citigroup was up 4.6 percent at $28.98.

Economists have been recalculating their outlook for the economy in the light of softer economic data and, to some extent, recent stock market volatility has increased the uncertainty for businesses. On Wednesday, a Federal Reserve survey of its 12 districts reported that many businesses in the United States had downgraded or become more cautious about their near-term outlooks.

Mr. Cardillo said the Fed’s description in the survey, known as the beige book, that economic activity continued to expand at a modest pace in some districts also helped trading.

“I think this rally probably will extend itself,” he said.

But the markets in the United States are also intertwined with global economies, and Mr. Zemsky noted that new data from Germany provided some support on Wednesday; the country’s industrial production was reported to have surged 4 percent in July, above expectations and reversing a decline in June, despite slack demand.

“It looks like the economies around the world are slowing, not stopping,” Mr. Zemsky said.

Corporate news propelled trading in critical sectors.

The technology sector rose solidly, led by Yahoo, which was up more than 5 percent at $13.61. The company’s chief executive, Carol A. Bartz, was fired Tuesday, ending a rocky two-year tenure in which she tried to revitalize the online media company.

The Treasury’s benchmark 10-year note fell 17/32 to 100 24/32 and the yield rose to 2.04 percent from 1.98 percent late Tuesday.

Article source: http://feeds.nytimes.com/click.phdo?i=b166d14e39793e262150d64e0c3eb94f

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Italy’s Proposed Austerity Measures Fall Apart

September 3, 2011 by Leave a Comment

ROME — Just a few weeks ago, Prime Minister Silvio Berlusconi announced a sweeping 45.5 billion-euro package of austerity measures to help Italy stave off a sovereign debt crisis. Today, those measures are unraveling, subject to so much backtracking and political wrangling that European leaders are raising the pressure on Italy to deliver as promised.

Every day, modifications to a wide array of steps — whether tax increases, pension spending or cuts to local government — appear and vanish like so many trial balloons as Mr. Berlusconi struggles to appease the conflicting vested interests within his own fractious coalition. Rounding out the fray are the center-left opposition and labor unions, which oppose many of the measures and have called a general strike for Tuesday.

This might seem the usual Italian political theater. But with the future of the euro in play, and with Mr. Berlusconi’s government weaker by the day, European leaders have become alarmed by the disarray. In an interview published Friday in an Italian business journal, the head of the European Central Bank, Jean-Claude Trichet, called the steps “extremely important.”

“It is therefore essential that the objectives announced for the improvement of public finances be fully confirmed and implemented,” Mr. Trichet added.

The Berlusconi government announced the new measures in mid-August, promising to eliminate the budget deficit by 2013, a year earlier than planned, in exchange for the European Central Bank buying Italian debt to help reduce the country’s borrowing costs and stave off a debt crisis.

But after weeks of relative calm, yields on Italian bonds rose Friday to 5.24 percent, their highest levels since the central bank’s intervention. Economists say that higher borrowing costs could strangle the Italian economy, which the International Monetary Fund expects to grow by only 1 percent in 2011 — not enough to bring down a public debt that is 120 percent of the nation’s gross domestic product, the highest percentage in the euro-zone after Greece.

Last week, the deputy director general of the Bank of Italy, Ignazio Visco, warned Italian lawmakers that the austerity package “cannot be reduced, even in light of the unfavorable evolution of the international macroeconomic picture.”

In harsh statements this week, the Italian industrialists’ organization, Confindustria, called the austerity package “weak and inadequate,” saying it could place both Italy and Europe at risk.

Exactly what those measures are, however, has become a moving target, with the government backing away from steps it once called crucial. The final bill is expected to be put to a vote in the Senate next week and the Lower House the following week.

In recent weeks, the government called off a proposed “solidarity tax” on those who earn more than 90,000 euros a year, the equivalent of about $127,800, after opposition from lawmakers within the center-right coalition who feared it would damage their supporters. And after complaints from local politicians, it also reduced the proposed cuts to financing for local governments by 1.8 billion euros.

On Monday, after a daylong meeting with his ministers, Mr. Berlusconi announced that Italy would reach its budget-cutting goal by not allowing Italians to include their time in universities or once-mandatory military service in the 40 years of social security contributions required to be eligible for a state pension. But he dropped the proposal two days later, after protests by the center-left opposition and labor unions.

Analysts say the confusion is undermining Italy’s clout in Europe. “The credibility of Italy in the eyes of the European Central Bank hinges on the clarity and the certainty of its choices — exactly what it has not shown in recent days,” the political commentator Massimo Franco wrote in a front-page editorial Friday in Corriere della Sera.

The reversals add up to a 5 billion-euro hole that the government must fill, said Chiara Corsa, an analyst at Unicredit in Milan.

On Friday, Finance Minister Giulio Tremonti said the government would fill the hole using other means, including the revenues expected from cracking down on tax evasion. In one proposal, Italians would face jail time if a court finds they owe more than 3 million euros in back taxes, and cities would be able to post the tax returns of its citizens to discourage evasion. Confindustria criticized those measures as inadequate, “incoherent” and difficult to implement technically in Italy’s complex legal system.

Article source: http://www.nytimes.com/2011/09/03/world/europe/03italy.html?partner=rss&emc=rss

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Economix: Conspiracy Theories About the G.O.P. and the Economy

July 27, 2011 by Leave a Comment

In the last few days, several readers, economists and radio hosts have asked me whether I buy the most cynical interpretation of the debt crisis stalemate: maybe Republicans are reluctant to raise the debt ceiling, or are calling for austerity measures that could slow the recovery, because they actually want the economy to do badly. That way voters will demand a change in political leadership, and vote more Republicans into office in 2012.

CATHERINE RAMPELL

CATHERINE RAMPELL

Dollars to doughnuts.

I’m no political scientist, but that sounds a little too Machiavellian even for the most hardhearted of politicians.

But more important, I’m also reluctant to believe this conspiracy theory because the conspiracy isn’t necessary. That is, the economy is likely to be in bad shape in November 2012 no matter what happens with the debt talks.

As of January, the Congressional Budget Office projected that unemployment in the fourth quarter of 2012 would be 8.2 percent. Macroeconomic Advisers, another respected forecaster, recently published a similar outlook.

Of course, there are many outcomes to these debt negotiations that would make the economy even worse off than the current projections show. But really, there’s no need to paint the lily.

Article source: http://feeds.nytimes.com/click.phdo?i=e86944192f3b9740543b7e083b8b8fda

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Markets Weigh Concerns Over Italy’s Debt

July 12, 2011 by Leave a Comment

As investors fretted about a new wave of financial instability, the euro slumped to its lowest level since March and borrowing costs rose again for Europe’s weaker economies.

In midday trading, the Dow Jones industrial average was flat, with a gain of just 5.26 points, to 12,511.02 points. The Standard Poor’s 500-stock index was also largely unchanged, at 1,320.27, and the Nasdaq composite was down 9.91 points, or 0.35 percent, to 2,792.71.

European indexes, after declining sharply in morning trading, regained some ground in the afternoon. The Euro Stoxx 50 index, a barometer of euro zone blue chips, was down 0.58 percent. The FTSE 100 index in London slid 1.02 percent.

In the day’s most dramatic action, the main Italian stock market index slid more than 4 percent in morning trading, before bouncing most of the way back, after Giulio Tremonti, the economy minister, returned to Rome early from a meeting of euro zone officials to take charge of discussions on new austerity measures and the government successfully sold one-year debt.

Mr. Tremonti is considered by many investors to be instrumental to Italy’s bid for market credibility. Silvio Berlusconi, the embattled prime minister, led investors to ditch Italian debt last week when he suggested Mr. Tremonti might be forced out of the government.

Italy has begun moving into the front of investors’ consciousness, but the question of how to aid Greece remains unsolved. In a letter to Jean-Claude Juncker, the president of the euro zone finance ministers’ group, the Greek Prime Minister George Papandreou complained that market turmoil was undermining his government’s efforts at economic reform, and called for “collective forceful decisions” from his European partners.

European finance officials met for six hours Monday in Brussels but failed to resolve a long-running dispute over private sector involvement in a second bailout for Greece.

“If Europe does not make the right, collective, forceful decisions now, we risk new, and possibly global, market calamities due to a contagion of doubt that could engulf our common union,” Mr. Papandreou wrote.

Holger Schmieding, chief economist at Berenberg Bank in London, wrote in a research note that Greece was not the euro zone’s main problem. “Instead, the massive contagion from the small periphery to the big bond markets of Italy and Spain in the last four trading days has turned into the real problem,” he said.

Asian shares were down across the board. The Tokyo benchmark Nikkei 225 stock average fell 1.4 percent. The main Sydney market index, the S. P./ASX 200, fell 1.9 percent, In Hong Kong, the Hang Seng index fell 3.1, and in Shanghai the composite index fell 1.7 percent.

Data released Tuesday showed that bank lending in China had remained more buoyant than expected in June, fanning expectations that Beijing may tighten lending requirements or raise interest rates again in its battle to contain inflation.

The Bank of Japan governor, Masaaki Shirakawa, said that global economic growth was “slowing somewhat,” Reuters reported from Tokyo. “The U.S. economy faces severe balance sheet adjustments, and sovereign problems pose a risk to Europe,” he said.

Also on Tuesday, Moody’s issued a list of Chinese companies that raised “red flags” at the ratings agency because of possible governance or accounting risks, causing the shares of those companies to tumble.

New York crude oil futures fell 0.4 percent to $94.76 a barrel.

The euro slumped, falling to $1.3992 from $1.4029 late Monday. The dollar fell to 79.64 yen from 80.26 yen, signaling that Japanese investors were becoming more risk averse and repatriating overseas funds.

The worries about Italy have further shaken already fragile global market sentiment. Even though Italy retains solid debt ratings, a sound banking system and a relatively small budget deficit compared to the size of its economy, it is plagued with high debt, feeble growth and political paralysis.

The jitters prompted the Italian stock market regulator on Monday to impose emergency rules against short selling after shares in Italian banks slumped for a fifth straight session.

The cost of insuring Italy’s sovereign debt against default surged to an all-time high, and the interest on its 10-year bond leaped to 5.8 percent before falling back.

“The current escalation of the euro area periphery crisis is the third period in which the problems facing Greece, Ireland and Portugal have seriously threatened more serious contagion in the euro area,” Paul Robinson, an analyst at Barclays Capital, wrote in a note.

As grave as the situation is, however, he added, “the previous episodes during which Spain and Italy were significantly affected proved temporary, and the situation facing both economies is far less serious than in Greece’s case.”

Bettina Wassener reported from Hong Kong. Niki Kitsantonis contributed reporting from Athens.

Article source: http://www.nytimes.com/2011/07/13/business/worries-about-italys-debt-drag-down-asian-markets.html?partner=rss&emc=rss

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