May 19, 2024

Euro Zone Business Activity Rises

Business activity in the euro zone rose this month to a 27-month high, according to a survey of the zone’s purchasing managers by Markit Economics, a data and analysis firm based in London.

Germany, which has the largest economy in Europe, led the euro zone with strong new business and employment gains, according to the Markit survey. French purchasing managers also reported modestly improving business.

The report came on the heels of the election victory of Chancellor Angela Merkel in Germany. European stock markets and the euro currency were essentially unchanged, as investors took the widely expected election outcome in stride; only the large margin of Ms. Merkel’s success had been unexpected.

Ms. Merkel’s triumph and the fact that the anti-euro party Alternative for Germany fell short of the total needed to enter Parliament may allow her more freedom to address problems like the likelihood that Greece, Portugal and Slovenia will need additional bailouts. Germany also holds trump cards in crucial European discussions on banking oversight. But Germany’s own banks remain fragile.

Markit’s composite index of euro zone purchasing managers, which tracks sales, employment, inventory and prices, rose to 52.1 in September from 51.5 in August, the sixth consecutive monthly gain. Markit said new orders received by businesses accounted for the gain, rising at their fastest pace since June 2011.

James Howat, an economist with Capital Economics in London, wrote in a note that the data suggested a rise in quarterly growth of about 0.4 percent, after the second quarter’s gain of 0.3 percent, or 1.1 percent on an annualized basis.

While even a modest increase in growth would be welcome news for the battered European economy, a much more significant rebound will be necessary to address its unemployment crisis. More than 19 million people are without a job in the euro zone, according to Eurostat, the European Union statistical agency.

The zone’s economy had contracted for the six quarters before the April-to-June period, and Mr. Howat said that some recent data had been disappointing. The recovery remains “fragile,” he said.

While Germany’s economy is improving, the country’s central bank warned on Monday that German banks were still shaky.

As a group, German banks reported higher operating profit in 2012, the German Bundesbank wrote in its monthly report. But much of the improvement was the result of trading profits, which are subject to large fluctuations, the Bundesbank said.

The better overall result “should not obscure the fact that the German banking industry remains in a complex state of conflict,” the Bundesbank said. Banks must find a balance between the need for profitability and the need to build more sustainable businesses, it added.

While there is no shortage of credit in Germany, banks like HSH Nordbank in Hamburg and Commerzbank in Frankfurt remain burdened by exposure to loans to the troubled shipping industry and other problems. As a group, German banks are among the most highly leveraged in the world, which could make them vulnerable to financial shocks.

Jack Ewing contributed reporting from Berlin.

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Bank of England Holds Rate at Already Low Level

LONDON — The Bank of England made good on its pledge to keep interest rates low on Thursday, amid signs that Britain’s economic recovery was picking up steam.

The British central bank kept its benchmark interest rate unchanged at a record low of 0.5 percent. It also said it would hold its program of economic stimulus at £375 billion, or $580 billion.

After avoiding a triple-dip recession at the beginning of the year, the British economy started to recover. Relatively low borrowing costs, a buoyant housing market and an improvement of the economic situation in the euro zone, Britain’s largest export market, pushed growth to 0.7 percent in the three months that ended June 30.

But the Bank of England governor, Mark J. Carney, and some economists have warned that the current speed of the recovery, though encouraging, is unlikely to be sustainable.

“In the near term, we will get pretty strong growth,” said Jens Larsen, an economist at RBC Capital Markets. “Looking ahead, I don’t think we’ll have that very fast cyclical recovery that this would suggest. Wages, income in general and the level of indebtedness are still headwinds.”

The bank said Thursday it would reinvest proceeds from £1.9 billion worth of maturing British government bond purchased under its asset-buying program in keeping the overall size of the economic stimulus at £375 billion.

Mr. Carney, the former Canadian central bank governor who moved to the Bank of England in July, said in a speech last month that the outlook for British growth had “improved considerably in recent months” but that the prospects over the next three years were “solid, not stellar.” The pace of recovery is widely expected to slow at the beginning of next year.

In July, Mr. Carney pledged to keep interest rates at a record low of 0.5 percent until unemployment fell to 7 percent; it currently is at 7.8 percent. The pledge, called forward guidance, is supposed to help fuel the economic recovery by creating certainty among borrowers about the affordability of debt in the near term.

But Rob Wood, chief economist for Britain at Berenberg Bank in London, said in a note that he expected unemployment to reach 7 percent in the third quarter of 2015.

This is a faster decline than the BoE expects, so the first rate rise is probably coming sooner than Mark Carney has argued,” Mr. Wood wrote. “Output is still 3 percent lower than it was in 2007, and there are 732,000 more part-time workers who want but cannot get a full-time job. So recovering demand growth will result in a jobs-lite recovery rather than rapidly falling unemployment.”

Nick Beecroft, chairman and senior market analyst at Saxo Capital Market, noted that the bank’s statement on Thursday madeno attempt to fight the market’s judgment that rates will be on the increase long before the bank’s doomed forward guidance would have us believe.” He predicted that “rates will be on the rise in late 2014.”

The Organization for Economic Cooperation and Development said Tuesday that the economic outlook in countries like Britain, the United States and Japan had improved and that a “moderate recovery” was under way. Growth in Britain was “picking up more vigorously than expected,” and the euro area as a whole was no longer in recession, the O.E.C.D. said.

According to one survey, the British manufacturing sector grew to the highest level in more than two years in August. Yet some economists worried that growth was bolstered only by stoking the British property market.

Britain’s construction industry grew last month at the fastest pace in six years and faster than some economists had expected, according to Markit Economics and the Chartered Institute of Purchasing and Supply. Construction of residential homes was the best-performing section of the industry. In a separate survey, Markit said the British manufacturing sector grew to the highest level in more than two years in August.

The value of homes has been rising, helped by low interest rates and a government program to help first-time buyers. House prices increased at the fastest pace since 2010 in July, according to Hometrack, a property research concern. Home builders, including Persimmon and Barratt Homes, have reported higher sales over the last three months and stepped-up the construction of new homes.

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World Economy Growing Unevenly, O.E.C.D. Says

PARIS — The world economy will continue slowly expanding for the rest of the year, despite signs of relative weakness in China and other emerging markets, and an uneven recovery in Europe, the Organization for Economic Cooperation and Development said Tuesday.

The United States, Britain and Japan are growing “at encouraging rates,” while the euro zone emerged from six straight quarters of contraction in the April-June period, the organization said in a new forecast. Recent indicators from the major advanced economies, including increased business confidence and stronger industrial production, suggest the trend will “continue at the improved rate seen in the second quarter.”

The United States economy will probably grow at a 2.5 percent annualized rate in the third quarter and 2.7 percent in the fourth, the report said. The country’s economy grew at a 2.5 percent rate in the second quarter.

Japan will grow by 2.6 percent in the third quarter and 2.4 percent in the fourth quarter, in line with the 2.6 percent second quarter figure, according to the organization, a Paris-based research and policy consortium representing the world’s most advanced economies. Its outlook contained no major surprises and appeared to be consistent with mainstream private and official forecasts.

Jorgen Elmeskov, the O.E.C.D.’s deputy chief economist, said the latest indicators point to “essentially the same” picture as in May, the time of the organization’s last assessment, although “the numbers are a tad higher.”

But the assessment of the jobs market was notably somber. Unemployment, currently at high levels across the developed world, could become entrenched, the O.E.C.D. said, as long-term joblessness becomes structural unemployment, with the potential to “remain even as the recovery takes hold.”

Germany, France and Italy, the three largest euro zone economies, are likely to expand by a combined 1.3 percent in the third quarter and 1.4 percent in the fourth quarter, the organization said. That would be a little slower than the second quarter, when growth in those economies was 1.6 percent. Germany’s economy will continue to be the main driver of European growth, the report suggests, even as France grows slowly and Italy continues to contract slightly.

The picture in emerging economies is less promising, the organization noted. China, it said, “appears to have passed the trough” — the nadir of its economic cycle — but it and other emerging economies face significant uncertainty, including possible financial market disruptions. That would be partly in reaction to the United States Federal Reserve’s plans to begin scaling back its economic stimulus program, a process being called “tapering” by the financial world.

The Chinese economy is likely to grow at a 7.2 percent annualized rate in the third quarter and 8.1 percent in the fourth, the report said, accelerating from the 7.0 percent growth recorded in the second quarter.

While China’s overall growth rate is faster than that of developed countries, and the recent cooling partly reflects the government’s desire to rein in credit market excesses, many economists say that high growth is necessary to hold social tensions in check.

In some emerging economies, slowing growth, together with the prospect of tighter Federal Reserve monetary policy and the increase in global bond yields that have accompanied it, have brought “market instability, rising financing costs, capital outflows and currency depreciations,” the report said. The problem is most pronounced where governments have depended on inflows of foreign investment to finance current-account deficits, it noted.

One country facing such a predicament is India, where the currency has been falling sharply. In such a situation, the report said, emerging market central banks might face “difficult policy dilemmas,” with capital flight and downward pressure on currencies arguing for higher interest rates that could in turn weigh on growth.

The renewed momentum of some of the more advanced economies marks a turnabout from recent years, when moribund growth in Japan and Europe was more than balanced by strong growth in emerging markets, the report said. Now, the weaker showing by emerging markets “makes for a continuation of sluggish global growth, notwithstanding the pickup in advanced economies.”

Mr. Elmeskov pointed to “a loss of momentum in structural reform” among emerging market countries as a contributor to the slowing growth,

Under the circumstances, the report cautioned, “a sustainable recovery is not yet firmly established and important risks remain,” among them the possibility of “deadlock and brinkmanship over fiscal policy in the United States,” and the 17-nation euro zone’s continuing vulnerability to “renewed financial, banking and sovereign debt tensions.”

“The risks still call for a determined policy approach,” Mr. Elmeskov said.

Unemployment, currently at high levels across the developed world, could become entrenched, it said, as long-term joblessness becomes structural unemployment, with the potential to “remain even as the recovery takes hold.”

The problem of long-term joblessness is best addressed by better training policies, as well as stronger demand, as well as tax reforms to increase work incentives, the organization said.

Both the developed economies and the emerging countries face the prospect that growth will remain slow over the longer term, it said, so “reforms to boost growth, rebalance the global economy and reduce structural impediments to job creation remain vital.”

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Euro Zone’s Recession Ends, at Least for Now

The two biggest economies in the 17-nation euro zone each helped pull the region as a whole out of its doldrums, with Germany posting 2.8 percent annualized growth in the second quarter and France 2.0 percent. Over all, gross domestic product in the zone grew 1.2 percent, according to Eurostat, the official statistics office of the European Union. The second quarter’s growth slightly exceeded the 0.8 percent growth forecast by economists.

The euro zone’s growth fell short of the 1.7 percent second-quarter showing by the United States and 2.6 percent in Japan.

But even modest growth is a relief in a region where unemployment has risen to 12.1 percent and there are still fears of a new debt crisis and existential questions about the euro.

The meager growth rate will not make a serious dent in the problems of the 26 million people Eurostat says cannot find work, said Ralph Solveen, an economist at Commerzbank in Frankfurt.

“I wouldn’t look for a significant reduction in unemployment in the next year,” he said. “At best, we can hope for a stabilization of the job market.”

The fact that households in Germany and France helped to drive the rebound “suggests that the recent period of relative calmness in the euro zone is encouraging core consumers to spend money and might raise hopes of a narrowing of the economic imbalances within the currency union,” said Jonathan Loynes, an economist in London with Capital Economics.

A surprisingly strong showing came from Portugal, where the economy grew 4.4 percent in the second quarter, the highest rate in the 28-nation European Union. The return to growth after two years of deep recession was hailed by the center-right government in Lisbon as proof that austerity policies, imposed in return for a bailout of 78 billion euros ($104 billion) negotiated in May 2011, were finally bearing fruit.

Besides Portugal, there were signs of life elsewhere in the battered “periphery” of the euro zone. Spain’s economy shrank by 0.4 percent, improving on a 2.0 percent slide in the first quarter.

The economy of Cyprus, still reeling from the collapse of its banks and the troika’s remedy, shrank 5.6 percent at an annualized rate, the worst showing of any union member but a modest improvement from its 6.8 percent first-quarter decline. Even the hapless Greek economy, which has suffered 20 consecutive quarters of decline, got a small glimmer of hope with signs that the pace of contraction is slowing.

Economists say that cleaning up bad loans at Europe’s banks and getting them to lend again would help the economy gain firmer footing. Politicians are not expected to act until after Germany’s elections. The European Central Bank said last month that it would seek to encourage lending to Southern Europe by making it easier for banks to use certain securities as collateral.

Still, Mr. Loynes wrote, the weaker European economies “remain a very long way from the rates of expansion required to address their deep-seated problems of mass unemployment and cripplingly high debt.”

“The recession may be over,” he added, “but the debt crisis is decidedly not.’”

In the August vacation season, with much of Europe preparing for a long holiday weekend, politicians were generally muted in their reaction to the G.D.P. report. Officials said that there was no reason for complacency, but added that they saw some chance at longer-term growth.

Chancellor Angela Merkel of Germany, who is seeking a third term in Sept. 22 elections, had no immediate comment. But her economics minister, Philipp Rösler, wasted no time in proclaiming that “there is every reason for people in Germany to look optimistically into the future.” Ms. Merkel has been the main proponent of structural reform in the weaker economies of Southern Europe. But neither economists nor politicians used Wednesday’s figures to proclaim a victory for pro- or anti-austerity camps.

David Jolly reported from Paris, and Alison Smale from Berlin. Alissa J. Rubin and Scott Sayare contributed reporting from Paris, and Gaia Pianigiani from Siena, Italy.

This article has been revised to reflect the following correction:

Correction: August 14, 2013

An earlier version of this article misstated the rate of decline in Cyprus’s economy. Its gross domestic product shrank by 1.4 percent in the latest quarter, not by 1.7 percent (which was the rate of decline in the first three months of the year).

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Central Bank Signals Slight Optimism for Europe, but Interest Rates Stay Low

“We are seeing possibly the first signs this significant improvement in confidence and interest rates is finding its way to the economy,” Mr. Draghi said at a news conference after the bank’s decision to leave its benchmark interest rate unchanged at a record low of 0.5 percent.

The still fragile state of the euro zone economy means that any decision to raise interest rates is still a long way off, Mr. Draghi indicated. Policy makers expect “the key E.C.B. interest rates to remain at present or lower levels for an extended period of time,” Mr. Draghi said, repeating a pledge he first made a month earlier.

In London on Thursday, Britain’s central bank, the Bank of England, also decided to hold interest rates steady.

The Bank of England held its interest rate at 0.5 percent, also a record low, and made no change to its program of economic stimulus, leaving the target at £375 billion, or about $570 billion. In Britain, which does not use the euro, the government reported last week that the economy grew 0.6 percent in the second quarter from the previous quarter and that all main industries were reporting faster growth for the first time in three years.

For Mr. Draghi, it has been about a year since he defused fears of a euro zone breakup by promising to do “whatever it takes” to keep the common currency together. That expression of resolve helped check the euro zone’s decline, but was not enough to push the region into growth again.

Asked to take stock of the state of the euro zone today, Mr. Draghi listed numerous improvements, including stronger exports from countries like Spain and Italy; lower market interest rates for government bonds; and progress by political leaders in reducing their deficits and improving economic performance. “The picture seems to be better from all angles than it was a year ago,” he said.

But he took a more cautious view than many analysts of recent surveys of business sentiment, which have raised hopes that the euro zone economy could be emerging from recession. The surveys “tentatively confirm the expectation of a stabilization of economic activity at low levels,” Mr. Draghi said.

At least one analyst detected a nuanced shift in Mr. Draghi’s assessment.

“If there was any change at all, his description of economic prospects sounded slightly more optimistic,” Jörg Krämer, chief economist at Commerzbank in Frankfurt, said in a note to clients.

“Slightly” is the crucial word. Credit for businesses remains scarce, Mr. Draghi noted, and the labor market is weak. Unemployment in the euro zone was stuck at a record high of 12.1 percent in June, according to official data published Wednesday, though there was an infinitesimal decline in the total number of jobless people: 24,000 fewer people were out of work in May out of a total of 19 million.

Even if the euro zone economy does emerge from recession soon, economists say, growth will be weak and it will take years before joblessness in countries like Spain — where more than a quarter of the work force is unemployed — returns to tolerable levels.

With interest rates already at record lows, Mr. Draghi has in recent months been trying to use his powers of persuasion to talk down market rates and make credit more available to businesses and consumers. Last month, he broke with precedent by promising to keep rates low for an extended period. Before then, the central bank refused to offer so-called forward guidance.

On Thursday, Mr. Draghi contested comments by some analysts that his forward guidance has not had much effect. It was successful in calming financial markets, he said, and partly successful in pushing down short-term market interest rates.

He left open the possibility that interest rates could fall further, but refused to say whether members of the bank’s Governing Council discussed a rate cut when they met on Thursday.

The job of the European Central Bank has been complicated recently by signs that the United States Federal Reserve could begin to gradually roll back its economic stimulus. On Wednesday, the Fed indicated it would continue its bond-buying program for at least another month.

Expectations of an eventually tighter United States monetary policy have unsettled financial markets in Europe, prompting Mr. Draghi to reassure investors that the European bank was a long way from going in the same direction.

Julia Werdigier contributed reporting from London.

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New Siemens Chief Sees Weakness in China

Only hours after his predecessor was toppled because of operational problems and declining profit at the German industrial giant, Joe Kaeser, a Siemens insider promoted to the top job on Wednesday, warned that China could take longer than expected to resume its rapid growth. China is a crucial market for Siemens and hundreds of other European companies, and a continued slowdown there could delay recovery of the euro zone.

“The economic reorientation of China will take time,” Mr. Kaeser said at a news conference at Siemens headquarters in Munich.

The comments by Mr. Kaeser, who has worked at Siemens since 1980 and previously was chief financial officer, came only hours after the Siemens supervisory board named him to replace Peter Löscher, who took the blame for the mixed financial results also announced Wednesday.

The faltering Chinese economy has become a major concern for Europe and especially Germany. While Germany’s most important trading partners remain the United States and other European countries, demand from China and other developing nations has in recent years grown much faster and has compensated for weakness in the traditional markets.

“Given Germany’s higher dependence on the emerging markets in recent years,” Ralph Solveen, an economist at Commerzbank, said in a note to clients, “much lower growth of the economy there would have a marked impact on Germany and could push the long-awaited upswing further into the future.”

The appointment of Mr. Kaeser, 56, is a return to the Siemens’s tradition of naming insiders to head the company. He promised to restore the company’s reputation for reliability and top-flight engineering, which has suffered recently because of a number of well-publicized fiascos.

Siemens has been late to deliver high-speed trains for the German railroad and had problems connecting a huge offshore wind generation project to the power grid. Those problems contributed to a profit warning last week, and a decline in sales and operating profit that Siemens reported on Wednesday. Those problems led to Mr. Löscher’s departure.

Mr. Löscher, 55, who had previously worked in top management at the American drug maker Merck and at General Electric, was brought aboard in 2007 to lead the company, one of Germany’s largest employers, during a corruption scandal.

The appointment of an outsider made sense at time when many existing Siemens managers were under a cloud, said Christian Stadler, an associate professor at Warwick Business School in Coventry, England, who has studied Siemens.

But over the long run it is difficult for an outsider lacking extensive internal connections to manage a company as diverse and far-flung as Siemens, Mr. Stadler said. Siemens products include trains, medical scanners and equipment for generating and transmitting electricity, and it operates in almost every country in the world.

“It is really hard for an outsider to get a grip on an organization as large and complex as Siemens,” Mr. Stadler said. “Without having the necessary networks, it’s almost impossible.”

Mr. Löscher’s departure was a foregone conclusion after Siemens said on Saturday that the supervisory board planned to vote on his dismissal at a meeting on Wednesday. In a statement on Wednesday, Siemens said Mr. Löscher was leaving by mutual consent.

“During the past week I came to the conclusion that the foundation of trust necessary for me to remain was lacking,” Mr. Löscher said in a statement.

An earnings report by Siemens on Wednesday showed an improvement in net profit and new orders during the three months through June, Siemens’s fiscal third quarter. But sales declined. In addition, third-quarter operating profit fell at the company’s most important divisions, and Siemens said it expected profit for the full year to fall to 4 billion euros, or $5.3 billion, from 4.6 billion in 2012.

Net profit rose 43 percent to 1.1 billion euros, Siemens said, but the gain came largely from the Osram lighting unit, which the company has spun off in an initial public offering.

Among the company’s four divisions, operating profit fell 31 percent to 1.3 billion euros, Siemens said, largely because of the cost of a restructuring program. Sales fell 2 percent to 19.25 billion euros, while new orders rose 19 percent, to 21.14 billion euros.

Much of the jump in orders came from a single contract to provide regional trains for the expansion and improvement of rail service in greater London, known as Thameslink.

Mr. Kaeser, who had been Siemens’s chief financial officer since 2006, is seen as a steady hand who will help regain the confidence of employees weary of constant restructuring plans.

“The key to success is not the strategy,” Mr. Kaeser said. “The key to success is the culture of a company and its values and what it stands for.”

“Our company is certainly not in crisis, nor is it in need of major restructuring,” Mr. Kaeser said in a statement. “However, we’ve been too preoccupied with ourselves lately and have lost some of our profit momentum vis-à-vis our competitors.”

Mr. Kaeser told reporters that Siemens had expected the Chinese economy to recover quickly after the recent turnover in leadership but now realized there were deep structural problems in that country that need to be addressed first. China country suffers from huge overcapacity in steel, mining and cement production — industries that Siemens services.

China must restructure those industries, which could fuel unemployment and cause civil unrest, Mr. Kaeser said. “China clearly needs longer than we originally thought,” he said.

Mr. Kaeser conceded that, as a close associate of Mr. Löscher throughout his predecessor’s tenure, he shared responsibility for decisions that had been made.

“The management board decided the measures,” Mr. Kaeser said. “A lot worked out; some things didn’t work out and need to be improved.”

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Crisis-Struck Europeans Losing Faith in Governments

BERLIN — Less than 10 percent of people in the European countries hardest hit by the sovereign debt crisis believe that their leaders are doing a good job at fighting corruption, reflecting a crisis of faith in government since the crisis crippled much of the euro zone in 2008, an anti-corruption group has found.

A global survey of people’s views on corruption by Transparency International, released on Tuesday, revealed a deep disconnect between elected leaders and the people they govern. Roughly half of the 114,000 people surveyed viewed political parties as the most corrupt institutions, and more than half think their governments are run by special interest groups, the survey showed.

João Paulo Batalha, a board member at Transparency International in Portugal, pointed to the near unraveling of the government of Prime Minister Pedro Passos Coelho last week as an example of how seeking to address his country’s problems by focusing solely on the fiscal aspect has led to the frustration reflected in the survey.

‘’I think the problem is deeper than that and it has to do not with the amount of money that the government has spent, but it has more to do with the way the government spends money,’’ Mr. Batalha said. ‘’There are huge conflicts of interest between the public sector and the private sector. There are huge problems with wasteful spending that is not just wasteful because of incompetence, but because of corruption.’’

The ‘’Global Corruption Barometer’’ is the widest survey conducted to date by the international corruption watchdog organization, based in Berlin. It asked people in 107 countries about their opinions of their governments and which institutions they see as the most corrupt.

Only 23 percent of those surveyed internationally believed that their government’s efforts to fight corruption were effective, down from 32 percent in 2008. In Portugal, for example, only 8 percent expressed confidence in their leaders’ abilities to fight corruption. That compares with 21 percent in 2007, before the outbreak of the financial crisis.

Even in Europe’s more prosperous countries the mood has soured. Only 11 percent of Britons surveyed and 13 percent of Germans saw their government as effective in fighting corruption, both well below the global average of 22 percent.

While corruption remains most rampant in many of the world’s developing countries, where the survey found most people said they had to pay bribes to receive public services, the wealthier economic powers were not immune from corruption.

‘’In many countries there are no clear lobby regulations,’’ said Miklos Marschall, a director at Transparency International, who called on European countries to establish more clear codes of conduct and clear ethics declarations. ‘’Nineteen out of 25 European countries do not regulate lobbying at all.’’

Across the globe, 51 percent of people surveyed saw political parties in their countries as the most corrupt institutions, followed by the police and the judiciary.

The media did not fare as badly, but it was seen as most corrupt in Australia and Britain. Some 69 percent said it was the most corrupt institution in Britain, up from 39 percent three years ago, reflecting the series of scandals around phone hacking and the Leveson Inquiry.

The Leveson Inquiry into the ethics of the British press was set up after a scandal over phone-hacking at one of the newspapers of Rupert Murdoch’s media empire, which has a strong grip on the media in both Australia and Britain.

Still, nearly 9 out of 10 people surveyed said they would act against corruption and two-thirds of those who were asked to pay a bribe had refused, suggesting that governments, civil society and the business sector need to do more to engage people in thwarting corruption, Transparency International said.

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Lenders Close to Agreement on Greek Aid

International lenders are very close to wrapping up talks with Greece to unlock a further €8.1 billion in loans, though more efforts are required from Athens to overhaul its economy, the European Union’s top economic official said Sunday, a day before euro zone finance ministers meet to decide on the aid.

Athens has been in talks with inspectors from the Union, the European Central Bank and the International Monetary Fund, otherwise known as the troika, since last Monday to discuss progress on overhauls agreed as part of its €240 billion, or $308 billion, bailout.

“We are very close to a staff-level agreement,” Olli Rehn, the E.U. commissioner for economic and monetary affairs, said, referring to the talks between international lenders and Greek officials.

“The final decision is for tomorrow,” he said. “The ball is in the Greek court, and it depends on whether Greece is able to deliver the remaining elements of the milestones that have been agreed.”

Greece needs the funds from the €8.1 billion tranche being reviewed to buy back €2.2 billion of its bonds due in August.

Bailed out twice by its foreign lenders, Greece relies on foreign aid to stay afloat. Failure to successfully conclude its bailout review, and unlock the funds, could push the country close to bankruptcy once again and possibly reignite the euro zone crisis.

But international officials seemed upbeat on Sunday.

“We made very good progress,” Poul M. Thomsen, head of the I.M.F.’s mission to Greece, told a news conference, adding that he hoped talks would be concluded early Monday before the Eurogroup meeting of finance ministers.

The Greek finance minister, Yannis Stournaras, also said he was optimistic that a deal would come together by Monday morning. Troika officials were to leave Athens on Sunday but were expected remain in contact with Greek officials to nail down the final details.

The €8.1 billion installment is one of the last big cash injections that Greece will receive as part of the €240 billion rescue package, which expires at the end of 2014.

Mr. Rehn reiterated that aid for Greece could be split into installments. Lenders have become increasingly frustrated with Greece’s slow progress on shrinking the civil service and making it more efficient and less corrupt.

Talks with the troika stumbled last week over a missed June deadline to put 12,500 state workers into a “mobility” plan under which they would be transferred or laid off within a year. But an agreement over the issue was reached on Saturday, with the troika reportedly giving Greece a few more months to push through the plan.

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Europe’s Bank Deal Is Seen as Progress With Flaws

It may not be the “revolutionary change in the way banks are treated in the European Union” that the Irish finance minister, Michael Noonan, trumpeted after the late-night session.

The agreement is intended to reduce the chance that a bank crisis will descend into a government debt crisis, as happened in Spain and Ireland when the cost of bank rescues helped undermine public finances.

But because Germany insisted on high hurdles before its taxpayers would be made liable for bank failures in other countries, there remains a risk that weaker countries could still become victims of the failure of a big domestic bank.

“There is not much sharing of the costs across the euro zone,” said Marie Diron, an economist in London who advises the consulting firm Ernst Young. The 60 billion euro, or $78 billion, in euro zone money that has been allocated for bank recapitalization “is nothing,” she said. “It would be exhausted very quickly.”

The deal on banks is aimed at breaking the so-called doom loop, in which struggling governments take their states deeper into debt to save their banking systems, only to face sky-high sovereign borrowing costs.

Analysts were cautious about declaring an end to Europe’s banking woes.

“Is it the best solution to break the doom loop? Of course it’s not,” said Nicolas Véron, a senior fellow at Bruegel, a research organization in Brussels.

He said Germany was unlikely to agree to pay for past mistakes by banks or bank regulators in other countries, even after the German national elections in the autumn.

Mr. Véron said he expected the agreement to be modified as it went through the European Parliament, as leaders weigh some of the consequences of forcing creditors and some depositors to help pay for bank rescues.

But as European Union heads of state arrived here on Thursday for a two-day summit meeting, they sought to put the finance ministers’ deal in the best possible light.

François Hollande, the French president, hailed the breakthrough as “extremely useful for protecting savers and to avoid having taxpayers pay for a banking crisis for which they are not responsible.”

The German chancellor, Angela Merkel, speaking to her Parliament in Berlin on Thursday before heading to Brussels, thanked her finance minister, Wolfgang Schäuble, for his efforts on the bank deal. “The priority will be to make the creditors and owners responsible, and we get away from taxpayers always putting up for the banks,” Ms. Merkel said. “This is really necessary.”

The new system is expected to go into full effect in 2018. It specifies the order in which banks’ investors and creditors, and then uninsured depositors, will face losses.

Deposits under 100,000 euros would remain protected. Small businesses and individual savers with more than 100,000 euros would enjoy better protection than other categories of unsecured creditors when losses were imposed.

Such clarity could help prevent a recurrence of the chaos that ensued during the bailout for Cyprus in March, when governments and international lenders initially agreed to penalize small savers because of the lack of a template for imposing losses on the country’s troubled banks.

Ms. Diron, the London economist, warned that the agreement could increase the interest rates banks pay to raise the money they lend to customers.

But that is a necessary adjustment, she said. Rates banks paid in the past were too low, because investors assumed that they would be bailed out by governments.

“Investors will now price in the risk of losing their money,” Ms. Diron added. “But that should have happened already.”

The deal gives countries like Britain some flexibility to choose where losses will fall, as long as bondholders and shareholders representing 8 percent of a failing bank’s total liabilities are wiped out first.

Sweden won leeway for even more flexibility to make exemptions to certain classes of creditors in exchange for other commitments.

Germany was especially wary of endorsing new rules that could eventually mean the use of shared European money to directly inject new capital into other countries’ failing banks. As a concession to German concerns, the ministers agreed to significant measures.

Before using cash directly from the shared European fund, a bank would need to draw the maximum amount permissible from its own government bailout money. Governments then would need to put any initial money drawn from the shared European fund onto their national balance sheets.

After that, a bank would still need to wipe out all of its remaining senior bondholders before, finally, being able to use the shared European fund directly.

The European Union’s governments and members of the European Parliament also confirmed on Thursday that they had finally agreed on a European Union budget through the end of the decade.

That funding amounts to nearly 1 trillion euros for farming, science, infrastructure and overseas aid, as well as money to support the daily business of running the organization.

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German Court to Weigh Bond Buying by E.C.B.

On one side is Jens Weidmann, the president of the Bundesbank, the German central bank. He plans to argue that the European Central Bank acted illegally when it promised last year to buy unlimited amounts of government bonds if needed to help prevent Italy and Spain from having to leave the euro.

The other, Jörg Asmussen, a member of the executive board of the European Central Bank, will defend the central bank’s actions, which have significantly eased fears that the euro zone will disintegrate.

The two men — who studied under the same economics professor at the University of Bonn, Manfred J. M. Neumann — are among the most prominent expert witnesses scheduled to appear before the Federal Constitutional Court in Karlsruhe on Tuesday and Wednesday. Their testimony is already being portrayed as a duel between those who contend that Europe’s central bank has a duty to do whatever is necessary to save the currency union, and those who argue that the central bank has merely rewarded the feckless behavior of countries like Italy and Greece.

The court is considering lawsuits brought by German citizens in response to central bank actions to contain the euro zone crisis. While no national court in Europe has the power to tell the central bank what to do, the German Constitutional Court could place limits on the country’s participation in anticrisis measures. One former high court justice, Udo Di Fabio, even argued in a recent paper that Germany would have to withdraw from the currency union if central bank actions violated national laws — a move that, if it reached that point, would probably destroy the euro.

Most analysts do not expect such a drastic result when the Constitutional Court issues a ruling this year. But the legal challenges, and the media attention they have received, may already be restraining central bank action.

The bank “pays a lot of attention not only to the court but also to public opinion,” said Thomas Harjes, an economist at Barclays in Frankfurt. “If they feel they are losing support in Germany, their credibility would be damaged.”

Much of the intellectual foundation for the legal challenges comes from the academic work of people like Mr. Neumann, the University of Bonn professor. His views, including a fixation on inflation and an almost moralistic belief that countries must live with the consequences of their past mistakes, have had an obvious influence on Mr. Weidmann, the Bundesbank president. Mr. Weidmann worked as a research assistant to Mr. Neumann while earning his doctorate in the 1990s.

“The position that he represents is also the position that I would take,” Mr. Neumann said of his protégé on Monday.

As for Mr. Asmussen, his other former pupil, Mr. Neumann was more restrained in his praise: “He has to formulate the majority opinion of the E.C.B. That is different from the German position.”

Mr. Weidmann has made no secret of his opposition to bond buying, even in theory. “Such burden-sharing measures should lie only with elected parliaments, not independent central banks,” he told an audience in Paris last month.

To his critics, Mr. Weidmann is seen as someone who insists on a narrow interpretation of European Union treaties written decades ago, when no one could imagine such a persistent crisis. While the threat of a euro breakup has receded, the Continent has been stuck in recession for a year and a half. But Mr. Weidmann also speaks for millions of Germans who are suspicious of European institutions and fearful that the country’s taxpayers will ultimately pay the bill.

So far the debate is largely theoretical. The European Central Bank has not bought any government bonds since it announced a willingness to do so last autumn. The mere threat of action was enough to calm bond markets and lower borrowing costs for Italy and Spain.

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