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Poll Shows European Union Loses Favor on Continent

May 13, 2013 by Leave a Comment

The results of an annual survey by the Pew Research Center, a nonpartisan organization based in Washington, show a deepening disillusionment with the union in major member countries.

The results of the survey suggest that more citizens than ever could end up opposing the transfer of more power to European Union institutions that may be vital for transforming the euro into a viable currency over the long term.

“The effort over the past half-century to create a more united Europe is now the principal casualty of the euro crisis,” according to a report that Pew published with the survey results. The title of the report summed it up: “The New Sick Man of Europe: the European Union.”

The poll pointedly noted that, “No European country is becoming more dispirited and disillusioned faster than France.” Last year, 60 percent of the French surveyed said they had a favorable impression of the European Union. This year only 41 percent did, a decline of 19 percentage points that was the biggest annual drop among the countries surveyed.

The results corresponded to some degree to the health of a nation’s economy. Only Greeks and Italians professed less belief in the benefits of economic union than the French, according to Pew. In Germany, 60 percent held a favorable impression of the union.

That could have everything to do with the listless economy in France, which is on the verge of joining much of Southern Europe in recession and has an unemployment rate of 11 percent. The German economy has fared better and has a relatively low unemployment rate of 5.4 percent.

“French and the Germans differ so greatly over the challenges facing their economies that they look as if they live on different continents, not within a single European market,” the authors of the Pew report wrote. As a result, the “French look less like Germans and a lot more like the Spanish, the Italians and the Greeks.”

The gloomy view is understandable given the economic crisis in Europe.

“The limits of the European Union institutional architecture are perceived more directly by the citizens now,” said Enzo Moavero Milanesi, Italy’s minister for European affairs, in an interview. “They have always been known, but citizens expected a more rapid and efficient response to the crisis and ended up complaining about the lengthy procedures, the many meetings, the difficult discussions.

“But it’s a paradox,” said Mr. Milanesi. “The E.U. has made great steps toward further integration and a strengthened monetary union. We even started discussing forms of possible political union, but people are still disappointed.”

One of the smallest declines in sentiment — two percentage points, to 43 percent — was in Britain. But the economic union has never been popular there.

“We should try and renegotiate our relationship with the European Union,” said William Drake, co-founder of the investment advisory firm Lord North Street in London, expressing an opinion shared by many in his country. He added that many regulations were “not being properly discussed and debated by our own democratically elected Parliament. It sort of feels like we don’t rule our own country anymore.”

The polls were conducted during March in Germany, Britain, France, Italy, Spain, Greece, Poland and the Czech Republic, by telephone or in person, with between 700 and 1,100 adults in each country. Each poll has a margin of sampling error of either three or four percentage points.

In France, where voters eight years ago rejected a constitutional treaty meant to streamline decision-making in the European Union and lay out a blueprint for its future, 77 percent of Pew survey respondents said this year that European economic integration had made things worse for their country. That was an increase of 14 percentage points from the previous poll.

Reporting was contributed by Nicola Clark and David Jolly from Paris, Jack Ewing from Frankfurt, Julia Werdigier from London, Elisabetta Povoledo from Milan and Raphael Minder from Madrid.

Article source: http://www.nytimes.com/2013/05/14/business/global/poll-shows-european-union-loses-favor-in-europe.html?partner=rss&emc=rss

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Central Bank Takes Step as Europe’s Downturn Drags On

May 2, 2013 by Leave a Comment

The central bank, meeting in Bratislava, cut its benchmark interest rate to 0.5 percent from 0.75 percent, which was already a record low. It was the first change in interest rates since July 2012 and the bank’s fourth cut since Mario Draghi took over as its president in November 2011.

The central bank will continue providing unlimited loans to banks at the benchmark interest rate “as long as needed” and at least until mid-2014, Mr. Draghi said at a news conference after the announcement.

Even at its new low of 0.5 percent, the European Central Bank’s benchmark rate remains higher than the 0.25 percent rate the Federal Reserve has had in place since late 2008. On Wednesday, the Fed said it would maintain its stimulus campaign, buying $85 billion a month in Treasury and mortgage-backed securities. The Fed added that it would consider adjusting its efforts to spur growth and reduce unemployment in the United States.

A cut by the European Central Bank was widely expected after a series of economic indicators in recent weeks foreshadowing an extended downturn in the euro zone, with recession even threatening the seemingly unstoppable German economy. On Thursday, two stalwarts of corporate Germany, BMW and Siemens, warned of lower profits for 2013 because of the downturn in European markets.

Many economists argued that the central bank was practically obliged to cut rates. Inflation in the euro zone was just 1.2 percent in April, well below the E.C.B. target of about 2 percent. The central bank is mandated to maintain price stability above all else, which includes heading off deflation — a downward spiral in prices that can be even more destructive than inflation.

But there is widespread skepticism about the likelihood that the rate cut will do much to restore the flow of credit in countries like Italy and Spain, which are in the midst of long-term slumps. The cut could have negative effects in Germany, where low interest rates have fueled steep rises in home prices in some cities.

“A rate cut will only have a small impact on the economy but it will signal an easier monetary policy stance,” Marie Diron, an economist who advises the consulting firm Ernst Young, wrote in an e-mail ahead of the decision.

Investor reaction to the rate cut was muted. European markets initially rose after the announcement, but then slumped lower.

Many banks in Europe, whose shyness to lend the E.C.B. is trying to address, may regard the cut with mixed feelings. While the new rate will lower the cost of raising money, the cut may also reduce the profit margin on mortgages or other forms of lending. Many banks in Europe are barely profitable and can ill afford any more problems.

Some economists argue that there is little the central bank can do to force-feed credit to small businesses in countries like Greece and Portugal that are suffering prolonged downturns. Banks’ reluctance to grant loans reflects the sad fact that many businesses and consumers are poor credit risks, Richard Barwell, an economist at Royal Bank of Scotland, wrote in a note to clients.

Mr. Barwell referred to a recent European Central Bank survey that found that the biggest problem for businesses in countries like Italy is finding customers, not credit. The central bank cannot help businesses with that problem, he wrote. Still, he said, “the E.C.B. has reached the point where it has to do something.”

A cut may, however, help some exporters by helping to reduce the value of the euro compared to the dollar and other major currencies. A lower official interest rate tends to make it less attractive to hold euros, and drive down the exchange rate, making European products cheaper in foreign markets.

A rate cut “would be a sign that policy makers understand it is time to find a way to compete,” Marco Tronchetti Provera, chief executive of the Italian tire maker Pirelli, said during an interview last week.

The central bank also cut the higher rate it charges for overnight loans, the so-called marginal lending facility, to 1 percent from 1.5 percent. The benchmark rate of 0.5 percent, known as the main refinancing rate, is what banks pay to borrow for a week or more and is the rate that normally has the most powerful effect on the economy.

The European Central Bank left the rate it charges banks to park money at the bank, the deposit rate, at zero. There has been speculation in the past that the E.C.B. would cut the deposit rate below zero, charging banks to park their money, in order to discourage lenders from hoarding cash rather than issuing loans. But there was fear that move could have unintended consequences.

And in another step to ease the credit crunch in southern Europe, Mr. Draghi said the central bank would also consult with European Union institutions on how to revive the market for asset-backed securities, in which outstanding loans are bundled and sold to investors. A more lively market for asset-backed securities could also help lending, although Mr. Draghi did not immediately explain what steps he had in mind.

Article source: http://www.nytimes.com/2013/05/03/business/global/03iht-euro03.html?partner=rss&emc=rss

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E.C.B. Cuts Key Interest Rate to 0.5%, a New Low

May 2, 2013 by Leave a Comment

The central bank, meeting in Bratislava, cut its benchmark interest rate to 0.5 percent from 0.75 percent, which was already a record low. It was the first change in interest rates since July 2012 and the bank’s fourth cut since Mario Draghi took over as its president in November 2011.

The central bank will continue providing unlimited loans to banks at the benchmark interest rate “as long as needed” and at least until mid-2014, Mr. Draghi said at a news conference after the announcement.

Even at its new low of 0.5 percent, the European Central Bank’s benchmark rate remains higher than the 0.25 percent rate the Federal Reserve has had in place since late 2008. On Wednesday, the Fed said it would maintain its stimulus campaign, buying $85 billion a month in Treasury and mortgage-backed securities. The Fed added that it would consider adjusting its efforts to spur growth and reduce unemployment in the United States.

A cut by the European Central Bank was widely expected after a series of economic indicators in recent weeks foreshadowing an extended downturn in the euro zone, with recession even threatening the seemingly unstoppable German economy. On Thursday, two stalwarts of corporate Germany, BMW and Siemens, warned of lower profits for 2013 because of the downturn in European markets.

Many economists argued that the central bank was practically obliged to cut rates. Inflation in the euro zone was just 1.2 percent in April, well below the E.C.B. target of about 2 percent. The central bank is mandated to maintain price stability above all else, which includes heading off deflation — a downward spiral in prices that can be even more destructive than inflation.

But there is widespread skepticism about the likelihood that the rate cut will do much to restore the flow of credit in countries like Italy and Spain, which are in the midst of long-term slumps. The cut could have negative effects in Germany, where low interest rates have fueled steep rises in home prices in some cities.

“A rate cut will only have a small impact on the economy but it will signal an easier monetary policy stance,” Marie Diron, an economist who advises the consulting firm Ernst Young, wrote in an e-mail ahead of the decision.

Investor reaction to the rate cut was muted. European markets initially rose after the announcement, but then slumped lower.

Many banks in Europe, whose shyness to lend the E.C.B. is trying to address, may regard the cut with mixed feelings. While the new rate will lower the cost of raising money, the cut may also reduce the profit margin on mortgages or other forms of lending. Many banks in Europe are barely profitable and can ill afford any more problems.

Some economists argue that there is little the central bank can do to force-feed credit to small businesses in countries like Greece and Portugal that are suffering prolonged downturns. Banks’ reluctance to grant loans reflects the sad fact that many businesses and consumers are poor credit risks, Richard Barwell, an economist at Royal Bank of Scotland, wrote in a note to clients.

Mr. Barwell referred to a recent European Central Bank survey that found that the biggest problem for businesses in countries like Italy is finding customers, not credit. The central bank cannot help businesses with that problem, he wrote. Still, he said, “the E.C.B. has reached the point where it has to do something.”

A cut may, however, help some exporters by helping to reduce the value of the euro compared to the dollar and other major currencies. A lower official interest rate tends to make it less attractive to hold euros, and drive down the exchange rate, making European products cheaper in foreign markets.

A rate cut “would be a sign that policy makers understand it is time to find a way to compete,” Marco Tronchetti Provera, chief executive of the Italian tire maker Pirelli, said during an interview last week.

The central bank also cut the higher rate it charges for overnight loans, the so-called marginal lending facility, to 1 percent from 1.5 percent. The benchmark rate of 0.5 percent, known as the main refinancing rate, is what banks pay to borrow for a week or more and is the rate that normally has the most powerful effect on the economy.

The European Central Bank left the rate it charges banks to park money at the bank, the deposit rate, at zero. There has been speculation in the past that the E.C.B. would cut the deposit rate below zero, charging banks to park their money, in order to discourage lenders from hoarding cash rather than issuing loans. But there was fear that move could have unintended consequences.

And in another step to ease the credit crunch in southern Europe, Mr. Draghi said the central bank would also consult with European Union institutions on how to revive the market for asset-backed securities, in which outstanding loans are bundled and sold to investors. A more lively market for asset-backed securities could also help lending, although Mr. Draghi did not immediately explain what steps he had in mind.

Article source: http://www.nytimes.com/2013/05/03/business/global/03iht-euro03.html?partner=rss&emc=rss

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German Central Bank Cuts Country’s Growth Forecast

December 7, 2012 by Leave a Comment

Considering “the difficult economic situation in some euro-area countries and widespread uncertainty, economic growth will be lower than previously assumed,” the Bundesbank said.

Germany’s gross domestic product is likely to expand by only 0.4 percent next year, the bank said, down from its June forecast for 1.6 percent growth.

The bank did sound an optimistic note, saying that G.D.P. stood to rise by 1.9 percent in 2014 “if the euro-area banking and sovereign debt crisis does not escalate further and uncertainty among investors and consumers gradually subsides.”

Reinforcing the Bundesbank’s pessimism, a report Friday from the Economy Ministry in Berlin indicated that industrial production at German factories tumbled by 2.6 percent in October from September, and 3.7 percent from a year earlier.

“The German decoupling from the rest of the euro zone has come to an end,” Carsten Brzeski, an economist in Brussels with the commercial bank ING, wrote in a research note. “Strong trading ties with non-Eurozone countries had shielded the economy against the euro crisis. Now, with the global economic cooling in the second half of the year, this immunity is quickly fading away. The thinning out of order books throughout the year is finally feeding through to the real economy.”

The euro zone as a whole is already in recession, with the currency bloc’s G.D.P. falling in the third quarter by 0.1 percent from the April-June period, Eurostat, the statistical office of the European Union, said Thursday. That was a second consecutive quarterly decline — the textbook definition of the onset of a recession.

Despite the current malaise, “the sound underlying health of the German economy suggests that it will overcome the temporary lull without major damage to the employment, in particular,” the Bundesbank president, Jens Weidmann, said in a statement.

Germany’s unemployment rate was 5.4 percent in October, according to Eurostat. That was well below the euro zone rate for that month of 11.7 percent, a record.

And yet, Mr. Weidmann issued a warning Friday: “The balance of risks is on the downside. If global economic growth falls short of expectations or the debt crisis intensifies in some countries, growth will probably fall below the baseline assumption.”

Recent data have indicated that even with a calming of markets after long months of crisis, Europe remains in a rut. Eurostat said Wednesday that euro zone retail sales fell 1.2 percent in October from September, a sign that the limping job market is holding back economic activity.

The Bundesbank forecast came a day after the European Central Bank offered a much gloomier outlook for the 17-nation euro zone. The E.C.B. president, Mario Draghi, said the bank now expected 2013 growth of no more than 0.3 percent, weaker than its previous forecast for 0.5 percent growth.


Article source: http://www.nytimes.com/2012/12/08/business/global/german-central-bank-cuts-countrys-growth-forecast.html?partner=rss&emc=rss

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French and German Economies Grew in Third Quarter

November 15, 2012 by Leave a Comment

Spain’s economy, meanwhile, remained in recession, contracting 0.3 percent in the third quarter after a 0.4 percent contraction in the second quarter, according to revised figures released Thursday.

Economists expect the E.U. statistics office Eurostat to say that the bloc’s output shrank 0.2 percent in the third quarter, as it did in the second quarter. Business surveys point to a deeper decline.

That would push the €9.4 trillion, or $12 trillion, euro zone economy, which generates a fifth of global output, officially in recession. Italy and Spain have been contracting for months and Greece — where the euro debt crisis began — is suffering an outright depression.

The quarterly performance of Germany, Europe’s dominant economy, was in line with forecasts, but analysts said it could not defy gravity for much longer. The French economy surprised on the upside, having been expected to post no growth at all after a revised 0.1 percent fall in the second quarter.

“That was the last good number from Germany for the time being,” said Jörg Kraemer, chief economist at Commerzbank. He predicted that the German economy probably would shrink somewhat in the fourth quarter, given that orders have been falling for the last year and the business climate “has caved in” on “the uncertainty caused by the euro zone crisis.”

“I don’t expect the German economy to return to decent growth rates until the middle of next year,” Mr. Kramer said.

Hopes for a broader recovery next year are also fading, with the European Commission saying the euro zone economy will flatline in 2013.

A rebound in the euro zone could be vital for the rest of the world as the United States faces a political battle over its finances and China struggles with the impact of the crisis on their companies’ ability to grow and prosper.

Figures out earlier this week showed the Portuguese economy shrank 0.8 percent quarter-on-quarter while Greece tumbled further, casting doubt on whether Athens and its lenders can come up with a credible plan to put its finances back on track.

Millions of workers went on strike across Europe on Wednesday to protest the government spending cuts they say are driving the region into a deeper malaise but which Germany and the European Commission say are crucial to healing the wounds of a decade-long, credit-fueled boom.

But the European Central Bank’s pledge to buy euro zone government bonds in potentially unlimited amounts, should a country first seek help from the rescue fund, has diminished any threat of a euro zone calamity.

Spain sank deeper into recession in the third quarter, as a brutal austerity program hammered public spending and weak domestic demand piles pressure on the country to seek international aid.

Spain’s flagging economy, the fourth largest in the euro zone, is sharply in the market’s focus on concerns the government cannot control its finances but remains reluctant to apply for European aid.

Spain urgently needs to seek a bailout, a member of the European Central Bank governing council, Luc Coene, was quoted as saying in a Belgian newspaper on Thursday.

The government forecast for end-2012 is a 1.5 percent contraction, though Economy Minister Luis de Guindos has said figures suggested the economy would perform better.

“It’s true that Spain surprised on the upside because of strong exports which had a positive spillover on to investments,” said Tullia Bucco, an economist at Unicredit, adding that while the prospect might “provide some comfort” for Prime Minister Mariano Rajoy, “it doesn’t change the challenges that Spain faces ahead.”

Article source: http://www.nytimes.com/2012/11/16/business/global/daily-euro-zone-watch.html?partner=rss&emc=rss

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Special Report: Central European Business: In Euro Zone or Not, Countries of Central Europe Are Buffeted

October 30, 2011 by Leave a Comment

With the region’s economies — many of them small but also open— dependent on exports to euro zone countries, and with the prospect that even the German economy, Europe’s largest, could slow markedly in the coming months, analysts across Central Europe are bracing themselves for some tough times ahead.

“The euro crisis is affecting Central Europe in a number of different ways,” said Maciej Krzak, economist at the Center for Social and Economic Research, an independent research institute in Warsaw. “For one thing, it impacts on trade flows and growth in Central Europe. And there is a kind of contagion: risk aversion and capital flights.”

The European Bank for Reconstruction and Development, or E.B.R.D., which supports the development of market economies and democracies in countries stretching from Central Europe to Central Asia, says the euro zone’s sovereign debt troubles will inevitably cloud the growth prospects of its eastern neighbors for the coming year.

“Until the resolution of the euro zone crisis, a period of continued market instability, constrained credit as well as the resulting near standstill in Western Europe is expected to seriously affect the outlook for the E.B.R.D. region,” the bank warned in a report on regional economic prospects, published in October.

“Recovery and growth will be thrown off track” in many countries of the region, “although none of them is projected to see negative growth in 2011 or 2012,” the report said.

Take the case of Estonia.

“We suffered a huge amount during the global financial crisis,” said Marje Josing, director of the Estonian Institute of Economic Research, based in Tallinn.

Mrs. Josing recalled how in 2009, the Estonian government introduced a huge savings program, cutting its budget 10 percent while private companies cut salaries 20 percent.

“We knew what we had to do if we wanted to survive, attract investment and become competitive,” Mrs. Josing said. “And we did. Our companies became more productive and competitive. We brought the budget deficit under control, and we joined the euro.”

That was at the start of this year — just as the sovereign debt crisis on the euro zone’s southern flank came to a head and growth bogged down across Europe.

Estonia’s exports to other euro zone countries make up a quarter of its gross domestic product, with its close neighbor and fellow euro member Finland, one of its most important trading partners. Finnish companies are a major source of work for Estonian subcontractors.

“Of course we are feeling the pressure, with the slowdown in growth sweeping across the euro zone countries,” Mrs. Josing said.

With a population of just 1.3 million, the country is highly vulnerable to external shocks: and with company order backlogs declining, the slowdown is feeding quickly through to the job market, where the unemployment rate stood at 13.3 percent in the second quarter.

Worse may be to come. The E.B.R.D., in its report this month, revised down its economic forecasts for the Baltic states. It now expects the euro zone crisis to slow growth in the Baltic region to 1.7 percent next year, down from a 3.4 percent growth rate forecast as recently as July.

“The E.B.R.D. is predicting a slow-down in emerging Europe’s economic growth next year with the continuing euro zone sovereign debt crisis posing challenges to recovery from the 2008-2009 global financial crisis,” the bank said in its report.

For all that, the Estonian government does not regret its decision to join the common currency. “Before we joined the euro zone the Estonian crown was pegged in any case to the euro,” Mrs. Josing noted. Adopting the currency, she said, “provided discipline.”

Article source: http://www.nytimes.com/2011/10/31/business/global/31iht-RCE-OVERVIEW31.html?partner=rss&emc=rss

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Europe Set for Worst Quarter Since 2008

September 30, 2011 by Leave a Comment

The euro retreated and was on course for its biggest monthly drop in nearly a year, dipping on weak retail sales data from Germany a day after approval from the country’s parliament of new powers for Europe’s bailout fund gave the currency only a fleeting boost.

Fears the debt crisis will spiral and the global economy slow caused investors to slash bets on risky assets in the quarter to the end of September.

The pan-European FTSEurofirst 300 index fell 1.1 percent on Friday, on course for its worst quarterly loss since the months following the collapse of Lehman Brothers three years ago.

“Short-term, we still have the same prospects: the timing of a (likely) Greek default, the nature of it, how shared or otherwise; the uncertainty of whether the (second Greek bailout) package needs to be revisited,” said Philip Isherwood, head of equity strategy, Europe and UK, at Evolution Securities.

The MSCI world equity index fell 0.8 percent. It has dropped more than 16 percent over the quarter, the biggest drop since the last three months of 2008.

Asian equities also extended the worst monthly performance since the most volatile days of the global financial crisis in October 2008. Chinese shares racked up sharp losses amid fears of a property market correction.

The euro fell to fresh session lows against the dollar, with traders also saying comments from German Economy Minister Philipp Roesler that the Bundestag did not seem willing to approve leveraging the euro zone’s bailout fund were weighing on the single currency.

The euro was last down 0.6 percent against the dollar at$1.3504, having fallen to a day’s low of $1.3486 earlier.

“We don’t expect any concrete decisions from next week’s Eurogroup (finance ministers’) meeting. But we could get a positive statement that policymakers will help the euro zone periphery, which could help sentiment,” said You-Na Park, currency strategist at Commerzbank in Frankfurt.

She said any euro gains on such optimism would likely be capped around $1.37.

The retreat in riskier assets helped safe-haven German government bonds higher after five consecutive sessions of losses as investors rebalanced their portfolios on the last day of the month and quarter.

German 10-year government bond yields were down 4 basis points at 1.97 percent, tracking benchmark U.S. Treasury yields which were 3 bps lower at 1.97 percent.

(Additional reporting by Simon Jessop and Naomi Tajitsu; Editing by John Stonestreet)

Article source: http://www.nytimes.com/reuters/2011/09/28/business/business-us-markets-global.html?partner=rss&emc=rss

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