March 20, 2023

Media Decoder Blog: Fake Ads in India Showing Bound and Gagged Women Lead to Firings

The Indian operation of a worldwide advertising agency has fired employees and apologized after an uproar over fake celebrity poster ads that were created for a real agency client, Ford Motor, without Ford’s approval or authorization.

The ads were produced by employees of JWT India, part of the JWT unit of WPP, and depicted well-known figures like Paris Hilton and Silvio Berlusconi behind the wheel of a Ford Figo hatchback. In the trunk of the hatchback in each poster ad were women, bound and gagged; in the ad featuring Ms. Hilton, the women in the trunk resembled the Kardashian sisters.

The ads were uploaded to an industry Web site, Ads of the World, and, according to a post on the Web site of the trade publication Advertising Age, also entered in an Indian advertising awards competition. They were subsequently withdrawn from both outlets after vituperative comments about the poster ads began appearing in social media.

The ads were “never intended for paid publication, were never requested by our Ford client and never should have been created, let alone uploaded to the Internet,” JWT said in a statement.

The statement included an apology, which called the ads “distasteful” and “contrary to the standards of professionalism and decency at JWT.” The statement also disclosed that, “after a thorough internal review, we have taken appropriate disciplinary action with those involved, which included the exit of employees.”

The statement did not identify the employees or suggest how many were fired. The post said those dismissed included two senior creative executives at JWT India, one of whom was also the managing partner there.

In addition to the apology from JWT, the Indian operation of Ford Motor also apologized for the ads. The content of the fake ads was deemed particularly contentious because of a recent series of well-publicized sex crimes against Indian women.

The dispute over the poster ads is not common in advertising, but it is not unheard of either. From time to time, there are controversies generated by ads produced by employees or executives of an agency without authorization or approval from clients.

Such ads, known as spec ads, are typically created for amusement or to enter in an awards show in place of actual ads. The rogue nature of spec ads was underlined by the statement from JWT, which said the ad posters “did not go through the normal review and oversight process” at JWT India.

The Internet and social media have made it far easier for unauthorized ads to be seen more widely, beyond the agency employees who create them and the judges of the awards shows in which the ads may be entered.

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Gas and Oil Futures Rise as Investors Take Cover

Gasoline and heating oil futures gained on Monday while United States Treasuries also rose, as economic worries over Hurricane Sandy fueled safe-haven buying in thin trading as the powerful storm began to batter the East Coast.

The storm forced Wall Street to close on the anniversary of the 1929 stock market crash. It was the stock market’s first weather-related closure in 27 years, and other markets closed early as investors braced for the impact of the hurricane, one of the biggest storms ever to slam the Eastern Seaboard.

In Europe, stocks, led by insurers, fell on expectations that damage related to the storm would increase claims, while political jitters in debt-laden Italy cast shadows on the euro zone. The reinsurers Swiss Re and Hannover RE led a weaker European insurance sector index.

“We are seeing insurers slide and we’ve sold a bit of Aviva and RSA,” said Ed Woolfitt, head of trading at Galvan Research.

The blue-chip Euro Stoxx 50 index fell 0.7 percent, to 2,478.84, after Silvio Berlusconi, the former prime minister of Italy, threatened to bring down the government of his successor, Mario Monti, which has appeased markets with its austerity agenda.

In London, the FTSE 100 fell 0.2 percent, to 5,795.10. The DAX index in Germany fell 0.4 percent, to 7,203.16, and the CAC 40 in Paris slipped 0.8 percent, to 3,408.89.

The euro fell against the dollar and yen, hurt by uncertainty over whether Greece could agree to a deal on austerity and with no sign of when Spain might request aid. The euro was expected to remain subdued against the dollar and the yen, with investors preferring safe-haven currencies, with weak earnings from top companies in the region weighing on investors.

The euro was down 0.3 percent at $1.290, not far from a two-week low of $1.2881.

The dollar rose to a session high against the yen ahead of a Bank of Japan policy review on Tuesday at which the central bank is expected to further ease monetary policy.

With the storm bearing down on the East Coast, trading was thin in United States foreign exchange, fixed-income, precious metals and energy markets as public transportation was shut in New York and parts of Lower Manhattan were evacuated.

“You have uncertainties now. You have these safe-haven purchases. People are trying to figure out the economic impact from the storm,” said Larry Milstein, head of government and agency trading at R. W. Pressprich Company in New York.

“Right now it’s the easy way to buy Treasuries and wait to see what happens,” Mr. Milstein said.

The benchmark United States 10-year Treasury note traded 8/32 higher in price to yield 1.72 percent.

United States heating oil futures gained, touching the highest level relative to crude oil on record, as dealers hedged against the risk of power failures and flooding from the hurricane that could damage refineries and keep production shut for weeks.

The crack spread, the difference in value between a barrel of heating oil and a barrel of crude oil, touched $45.15 a barrel.

“Markets will be watching for reports of damage to energy infrastructure, notably refineries, post-Sandy, given the state of extremely low gas oil inventories as we move into winter season,” Deutsche Bank analysts said.

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Italy Backs Financial Tax

Italian Prime Minister Mario Monti on Wednesday threw his support behind a new tax on financial transactions, backing a push by Germany and France, but said he would prefer to have it apply across the whole European Union.

German Chancellor Angela Merkel and French President Nicolas Sarkozy have suggested such a tax among the 17-nation euro countries might be sufficient. But the Italian prime minister said he would rather have it applied across the full 27-nation EU — which would be more difficult because of British opposition.

“We are open to supporting this initiative at the EU level,” Mr. Monti said at a news conference with Mrs. Merkel during his first visit to Berlin since taking over from Silvio Berlusconi in November.

While the Berlusconi government had rejected a new financial levy outright, Mr. Monti has said he thought it was a good idea, particularly as a means of reducing the tax burden on families.

Mr. Sarkozy, who faces an election in April, has said France could even enact the tax unilaterally, but Germany has been more guarded.

Mrs. Merkel earlier this week, after meeting with Sarkozy in Berlin, said there’s no agreement yet on the tax inside her own governing coalition. She called for European leaders to clarify their stance on the matter by March.

The European Commission has estimated that the tax could raise as much as 57 billion euros ($77 billion) a year in Europe.

The tax would be a tiny percentage of the value of a trade — the French government proposed 0.1 percent on bonds and shares and 0.01 percent on more complex derivatives. Although some countries already have a minimal duty on share trading, the new proposal would not only increase the scope and size of the tax but also siphon off some revenue to Brussels.

There is no final decision yet, however, on what financial instruments would be taxed and whether currency trades — which make up a large slice of worldwide transactions — would be targeted as well.

Mr. Monti studied at Yale with the economist James Tobin, who first proposed the levy.

Mr. Monti’s meeting with Mrs. Merkel is the latest in a series of talks between European leaders. Following her talks Monday with Mr. Sarkozy, the German leader met in Berlin on Tuesday evening with International Monetary Fund chief Christine Lagarde. Ms. Lagarde was in Paris on Wednesday to speak with Mr. Sarkozy.

Mrs. Merkel and Mr. Sarkozy also plan to travel to Italy on Jan. 20 before a European summit at the end of the month.

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Scandal at Finmeccanica Revives Questions in Italy

ROME — For weeks now, the influential chairman of Finmeccanica, the state-backed Italian military equipment group, has been resisting calls to resign, even as the company sinks ever deeper into a widening kickbacks scandal and posts disappointing returns.

At least four investigations, at times overlapping, are under way involving Finmeccanica and its subsidiaries, laying bare what prosecutors depict as a system of patronage, slush funds and bribery that has already felled some executives at the group and contributed to a big slide in the company’s shares.

Italian media reports are comparing the cases with the so-called Clean Hands investigation of the 1990s, which uncovered kickbacks at dozens of Italian companies and swept away an entire political class.

The day of reckoning for Pier Francesco Guarguaglini, the chairman and former chief executive, could come Thursday, when the board of directors was to review what it last week cryptically called “delegated powers and granting of powers.”

Last week, Mario Monti, the new Italian prime minister, said he was keeping an eye on the case and expected a “rapid and responsible” solution. On Wednesday, he said his government would respect the board’s “procedures and the eventual deliberations.”

While it is likely that a shakeup of some kind in Finmeccanica’s corporate governance could emerge, the outcome of the meeting is anything but a foregone conclusion, although Italian newspapers have been abuzz about possible successors to Mr. Guarguaglini in recent days.

As evidenced by the tenaciousness of Mr. Monti’s predecessor, Silvio Berlusconi, and other beleaguered public figures, “Italians aren’t used to giving up their seats,” said Luca Giustiniano, an associate professor in management at Luiss University in Rome.

“It’s not in our culture to leave when we’re invited to leave,” he said.

Tension within the company have also been fueled by an open conflict between Mr. Guarguaglini, who was chief executive from 2002 until May, and his successor in the post, Giuseppe Orsi, over their differing visions for the group, which has lost two-thirds of its market value since January.

In many ways, the turbulence that has engulfed the company, Italy’s second-largest industrial group, after Fiat, has laid bare both the dynamic potential of Italian industry as well as the ingrained mechanisms in the national way of doing business that deter such growth.

Under Mr. Guarguaglini, the company became a strong international competitor and nearly doubled its work force to some 71,000 people through a series of at times costly acquisitions.

The group is best known for its still-profitable AgustaWestland helicopter division. Through its Alenia unit it is also a supplier to Boeing for its new Dreamliner passenger aircraft.

In November, Alenia took a write-down of €753 million, or $1 billion, partly because components supplied to Boeing were deemed to be unsatisfactory.

Just Tuesday, its Ansaldo transport units signed a $1.3 billion contract to supply technology and vehicles for a new, driverless subway system for Honolulu.

In 2008 Finmeccanica bought DRS Technologies, a U.S. supplier of military electronic products, for €3.4 billion, a price that some analysts consider too high and that has contributed in no small part to a debt load of €4.7 billion.

Mr. Guarguaglini also attempted to simplify the group and focus on its principal areas. But some analysts say that the strong state presence, with the Finance Ministry owning just over 30 percent of Finmeccanica, prevented broader changes because of the impact they might have on the company’s Italian employees, who account for around 56 percent of its global work force.

Since taking over in May, Mr. Orsi has spearheaded a series of efficiency plans that include selling some €1 billion in assets and nonstrategic operations.

Mr. Giustiniano at Luiss University noted that the company operated in sectors that were especially vulnerable to global factors like the economic downturn. That, he said, partly explained the company’s recent losses, which totaled €324 million in the third quarter.

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Signs of Broad Contagion in Europe as Growth Slows

Published data showed that the euro zone economy grew marginally in the third quarter, kept above water by France and Germany, in what analysts interpreted as probably a last gasp before debt problems dragged the Continent into recession.

Traders said the big moves in the bond markets came as investors continued to shed exposure to European debt.

With few buyers, interest rates on Italian government bonds again rose above 7 percent — the kind of market pressure that last week led to the ouster of Prime Minister Silvio Berlusconi.

But they also continued to increase in France, Spain and Belgium. They also moved upward in Finland, Austria and the Netherlands, which have relatively strong underlying financial positions and until recently had mostly been spared the full effects of the financial crisis.

“The concern is spilling over to the other candidates that could be next for the domino effect behind Italy,” said Millan Mulraine, an interest rate strategist at TD Securities in New York. “The ubiquitous nature of the increase in yields suggests that the problem is spreading well beyond the troubled peripheral countries.”

In recent weeks, the European Central Bank has been regularly buying government bonds to try to push down interest rates. But Mr. Mulraine said the bank bought a smaller amount than usual on Tuesday.

Without the central bank’s usual presence in the markets, bond prices fell and yields rose, and investors appeared to worry that a widening circle of European nations could be dragged into the Continent’s problems.

“While France has for weeks been under some market pressure, with fears over the country’s AAA-rating to the fore, the likes of the Netherlands and Finland had proved immune,” analysts at Daiwa wrote in a research note. “That no longer appears to be the case.”

Yields jumped a quarter of a percentage point in Spain, to nearly 6.35 percent, and about the same in France, to nearly 3.7 percent. They spiked even more in Italy and crossed the 7 percent level, which economists consider unsustainable. The gap between those rates and Germany’s 1.8 percent yield also widened to levels that some analysts saw as alarming.

Analysts said they expected the central bank to return to the markets soon, and with a much more aggressive program of bond buying, to put a ceiling on rates.

Compounding euro zone anxieties was a report Tuesday that gross domestic product for the region barely grew 0.2 percent from July through September, compared with the previous three months. That was the same growth rate as in the previous quarter.

In contrast, the United States economy grew by 0.6 percent in the third quarter from the second, while the Japanese economy grew 1.5 percent.

The data from Eurostat, the statistical office of the European Union, did nothing to alter a consensus among economists that euro area output had already begun to decline since September.

Anxiety about the sovereign debt crisis has led businesses and consumers to cut spending, and government austerity programs have contributed to deep recessions in countries like Greece and Portugal.

Economists define a recession as at least two consecutive quarters of declining output.

The third-quarter figures “have little bearing on the bigger question — namely how is the sovereign debt crisis going to be resolved and at what collateral damage to the real economy?” Jens Sondergaard, senior economist for Europe at Nomura, said in a note to clients.

The huge risk facing Europe is that debt problems and slower growth will create a downward spiral that policy makers may not be able to stop.

If economies slow, then government tax revenue will decline. That, along with higher borrowing costs, would increase fears that countries like Italy may not be able to service their debt. In that cycle, confidence and growth suffer further.

François Cabau, an analyst at Barclays Capital, said in a note Tuesday that if business confidence continued to fall during the rest of 2011, the downturn “could prove to be larger than we currently expect, depressing private domestic demand even further.”

Ample data has pointed to an impending slowdown in the euro area, including reports last week of declines in industrial production and retail sales.

The European Commission, citing painful budget-balancing measures that will weigh on output, cut its growth forecast last week for the 17 euro zone nations, to 0.5 percent in 2012, and predicted that Greece’s recession would deepen.

But even that gloomy forecast is starting to seem too optimistic.

Germany, the largest economy in Europe, has been bucking the downward trend so far. Its economy grew by 0.5 percent in the third quarter, compared with 0.3 percent in the second, according to the data released Tuesday.

French growth continued to hold up in the third quarter, but that is not expected to last, either.

Olli Rehn, the European commissioner for economic and monetary affairs, said last Thursday that the European Union’s economic recovery had “now come to a standstill, and there is a risk of a new recession.”

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For European Union and the Euro, a Moment of Truth

On Saturday, the crisis swept away its second leader, when Prime Minister Silvio Berlusconi resigned after 17 years of dominance in Italian politics to the jeers and cheers of crowds in Rome.

Both there and in Greece, jumbled parliaments came together with urgency to install more technocratic governments that are committed to delivering the difficult reforms and austerity measures demanded by the European Union, the European Central Bank and the International Monetary Fund.

Despite those drastic and tangible steps, though, there is a host of problems that could quickly overwhelm Europe’s progress.

Looming over all the discussions of reform and financing mechanisms is the slowdown in the Continent’s already anemic growth rate, to 0.5 percent in 2012, and even the threat of a double-dip recession, the European Commission said in a forecast for the euro zone last week.

That calls into doubt the adequacy of the euro zone’s latest attempt to placate the markets, the lagging effort to bolster the $605 billion European Financial Stability Facility to $1.4 trillion or to find other funding. The task will become that much harder in a recessionary environment, especially as France’s credibility with investors begins to decline.

“I think we’re in very dangerous territory, and the euro zone has to act soon,” said Simon Tilford, chief economist for the Center for European Reform in London. “There isn’t really a muddle-through option right now. And those who argue that it’s possible for the south and Italy to default or deflate into competitiveness are fanciful and flying in the face of evidence.”

The damage that can result, he said, is potentially severe “to their economies, debt burdens, social and political stability, democratic accountability, and their belief in their European allies and in the European Union itself.”

At the center of it all sits Germany, leading the bloc of Northern European countries, which also includes the Netherlands and Finland, steadfastly maintaining that austerity and fiscal rectitude on the part of the debtors, no matter how painful, represent the only path to resolving the crisis. Any proposals to share the burden with the heavily indebted countries by collectivizing European debt — even though they may have contributed to the prosperity of the northern countries by consuming their exports — are rejected out of hand, largely for fear of a political backlash.

When Germany’s council of independent economic advisers proposed to Chancellor Angela Merkel last week a way to share European debt to protect Italy and Spain, she dismissed the idea as impossible without changes to European Union treaties. She has also opposed any expansion in the European Central Bank’s role in buying up the bonds of the indebted countries, which could hold down interest rates on their debts, let alone allowing the bank to guarantee Italian debt.

But critics say there is no time for the treaty changes Mrs. Merkel is talking about; those could take years to put in place.

“The crisis must be solved right now, and it simply will not wait for these instruments to fix it,” said Bernhard Rapkay, chairman of Germany’s Social Democrats in the European Parliament.

The vulnerability of Italy — the third-largest economy in the euro zone and the fourth-largest debtor nation in the world — brought the crisis into the core of the euro zone. For all the speculation over weaker countries eventually choosing to leave the euro, there is really no euro without Italy, certainly not a euro that can be considered a common European currency.

And if borrowing becomes so expensive for Italy that it is priced out of the markets, which seemed a real possibility last week, there is no so-called wall of money big enough to bail it out or to guarantee its $2.6 trillion debt.

“We’ve entered a make-or-break scenario,” said Thomas Klau, a German who heads the Paris office of the European Council on Foreign Relations. “The present situation with Italy now is sustainable for days, perhaps weeks, but not months. This new chapter either writes the endgame of the euro zone, or it precedes a much bigger leap into political and economic integration than all those made so far.”

With each bout of uncertainty, speculative attacks come closer to the core of the European Union. Greece teeters, Italy wobbles and France begins to tremble. The precariousness of the situation was on full view Thursday when a leading ratings agency, Standard Poor’s, mistakenly suggested on its Web site that it had downgraded France’s prized AAA rating, prompting a sell-off in French government bonds.

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Greece and Italy Seek a Solution From Technocrats

Greece named Lucas Papademos, a former vice president of the European Central Bank, interim prime minister of a unity government charged with preventing the country from default. In Italy, momentum was building behind Mario Monti, a former European commissioner, to replace the once-invincible Prime Minister Silvio Berlusconi as early as Monday.

The question now, in both Italy and Greece, is whether the technocrats can succeed where elected leaders failed — whether pressure from the European Union backed by the whip of the financial markets will be enough to dislodge the entrenched cultures of political patronage that experts largely blame for the slow growth and financial crises that plague both countries.

Some said there was cause for optimism. “First, the mere fact that they have been asked in such difficult circumstances means that they have a mandate,” said Iain Begg, an expert on the European monetary union at the London School of Economics. “Granted, it’s not a democratic one, but it flows from disaffection with the bickering political class.”

The conventional wisdom from European Union leaders in Brussels has been that greater political consensus in Greece and a change of leadership in Italy could help restore market confidence in the euro. But with investors increasingly viewing European sovereign debt as a toxic asset, it seems doubtful that the markets will truly calm down until both Italy and Greece do more than apply fiscal bandages and until the European Union can put more firepower in its bailout mechanisms.

On the surface, Greece and Italy seem remarkably alike. Both countries have entrenched patronage networks that predate the European Union by centuries and suffocating regulations and work rules. And both Mr. Papademos, 64, and Mr. Monti, 68, the president of Bocconi University in Milan, have close ties to European Union officials, who are taking a strong hand in managing the affairs of both countries because the fate of the euro hangs in the balance.

Both face daunting changes. In Italy, a new government will be asked to carry out labor and tax reforms and other growth-enhancing measures. It will also have to write a new electoral law.

In Greece, the government must push through unpopular wage cuts and public sector layoffs in exchange for more foreign aid, and then try to make more structural changes during its brief mandate than the country has introduced in 30 years.

But the similarities end there. Greece is effectively bankrupt and needs a steady hand to guide it. Prime Minister George A. Papandreou ran out of political capital trying to impose austerity on a restive country. Some have criticized him for failing to carry out reforms fast enough, while no party alone has wanted to bear the political cost of stepping into his shoes.

Mr. Papademos must also negotiate with the European Union and banks on the terms of a delicate voluntary write-down of Greek private debt so as to avoid a default — amid a deep recession, a credit crunch and a climate of growing social unrest.

In Italy, where the economic fundaments are far stronger than those of Greece, there is a new wind of optimism mixed with trepidation this week, as the debt crisis led to the abrupt end of the Berlusconi era.

“It’s a historic moment,” said Roberto Napoletano, the editor in chief of the business daily Il Sole 24 Ore, which has been running campaigns to alert Italians that their savings and businesses are at risk without credible leadership. “Italy has to act, but it can do it.”

Indeed, Italy pulled back from the brink on Thursday as investors gained confidence that Mr. Berlusconi would be gone by Monday, replaced by Mr. Monti, an economist with an international reputation. That impression was underscored by the sight of Mr. Monti arriving at the Quirinal Palace on Thursday, where he met for two hours with Italy’s president, Giorgio Napolitano, who is responsible for picking a new head of government.

Mr. Berlusconi himself sent Mr. Monti a telegram wishing him “fruitful work in the interests of the country,” the news agency ANSA reported.

In contrast to Greece, which resents outside interference, Italy has often looked to technocratic leaders backed by outside powers in moments of political transition. It did so in the early 1990s, after the collapse of the postwar political order, and again in the mid-1990s, when a unity government pushed through changes that helped Italy into the euro.

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Italy Agrees on $65 Billion in Austerity Measures

ROME — Scrambling to fend off a sovereign debt crisis, the Italian government on Friday approved $65 billion in additional emergency austerity measures over the next two years, including tax increases and cuts to local government in an effort to balance the budget by 2013.

The government was responding to demands by the European Central Bank, which last week began buying Italian bonds, driving down Italy’s borrowing costs. But it did so on the condition that Italy make significant changes, including liberalizing its labor market and closed professions, privatizing state industry and adjusting its pension system.

After an emergency cabinet meeting on Friday, Prime Minister Silvio Berlusconi announced the new measures, which include raising the capital gains tax to 20 percent from 12.5 percent, except for government bonds; eliminating several nonreligious national holidays; and cracking down on businesses that do not give receipts.

“It wasn’t easy,” Mr. Berlusconi said, looking tired at a news conference on Friday evening, after days of round-the-clock negotiations over the normally quiet August holiday period. “We’re personally pained to have to take these measures, but we are satisfied.”

Facing intense market turbulence and rising borrowing costs, Mr. Berlusconi pledged last week that Italy would eliminate its budget deficit, from the 3.9 percent of gross domestic product it is projected to represent this year, to zero by 2013.

That would be a year earlier than originally planned in a $65 billion austerity package approved by Parliament in July, including tax increases and higher health care fees.

The new measures go into effect as soon as they are approved by the president of Italy, who is expected to sign off on them shortly. They must be approved by Parliament, which can also make modifications, within 60 days.

Market pressures have placed Mr. Berlusconi’s increasingly weak government in a difficult position. With a public debt of 120 percent of gross domestic product, it has to cut spending and stimulate an economy that is expected to grow by only 1 percent this year.

The new measures also include a “solidarity tax” on high earners: an additional 5 percent tax on incomes above $128,000 a year and 10 percent on incomes above $213,000 a year for the next two years.

“Our heart bleeds to have to do this, we who bragged never to put our hands in the pockets of Italians,” Mr. Berlusconi said. “But the world situation changed, and we found ourselves faced with the hugest global crisis ever.”

In a concession to growing antipolitical sentiment in Italy, Mr. Berlusconi said the government would also cut $13.5 billion from local and regional governments.

It would do this in part by eliminating 54,000 elected positions in provincial, regional and city governments after the next round of local elections, and by cutting politicians’ salaries and requiring members of Parliament to travel economy class.

Earlier on Friday, representatives of regional, provincial and city authorities gave a news conference criticizing the measures. Roberto Formigoni, the president of the Region of Lombardi, said that cuts to regional social welfare and transportation systems would have “a depressive effect” on the economy.

The government said the measures also include increased labor flexibility and some changes to Italy’s pension system, but it did not go into greater detail.

Finance Minister Giulio Tremonti is expected to give a news conference on Saturday to elaborate on the measures.

In Italy, changes to the labor market have to be negotiated with business leaders, who have criticized the government’s proposals as too little, too late, and labor unions, which have said they unfairly place the burden on middle- and lower-class Italians.

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Group of 7 Will Meet to Address Debt Issue

The Italian prime minister, Silvio Berlusconi, whose nation has been viewed as the next potential debt-laden domino to fall, also announced a number of measures Italy would take to restore the confidence of investors and creditors.

The G-7 meeting is meant to show that leaders are taking action to address the crisis, even before votes occur in national parliaments next month to expand Europe’s rescue fund for its most financially troubled members.

While no details of the meeting’s agenda were given, the situation “requires coordinated action,” Mr. Berlusconi said. “We have to recognize that the world has entered a global financial crisis that concerns all countries.”

For all the hum of activity on Friday, though, many economists and analysts remained unconvinced that sufficient steps were being taken to resolve the problems engulfing the European nations that share the euro.

European stocks were down for a second consecutive day on Friday, on the gnawing realization that Europe and the United States may face fundamental economic problems for years to come.

The turmoil prompted a flurry of phone calls between President Nicolas Sarkozy of France from his vacation retreat on the French Riviera, and Chancellor Angela Merkel of Germany, who had chosen an August getaway to Italy. Mrs. Merkel and Mr. Sarkozy also each spoke with President Obama on Friday, the White House said, but offered no details on their discussions.

Mr. Berlusconi, meanwhile, spoke by phone Friday with Mrs. Merkel and, separately, with Herman Van Rompuy, the European Council president, and with José Luis Rodríguez Zapatero of Spain — the other big debt-saddled European country that, like Italy, is seen as teetering.

Mr. Zapatero of Spain, whose economy is in greater peril as investors drive up borrowing costs, also spoke separately to both Mr. Sarkozy and Mrs. Merkel from his vacation in Andalucia.

At a hastily called news conference, Mr. Berlusconi, who has been criticized for being too slow to recognize that Italy’s debt problems threaten the euro union, said his country would take various steps to address the crisis.

He said Italy would aim for a balanced budget a year earlier than a previously stated 2013 deadline, seek a constitutional balanced-budget amendment and make other moves to liberalize the nation’s economy — which is so sclerotic from bureaucratic rules that it has barely grown for a decade.

Parliament may shorten its August recess to pass the measures, Mr. Berlusconi said. He appeared alongside the economy minister, Giulio Tremonti, whom Mr. Berlusconi had recently treated with public disdain that added to the market’s concerns about Italy.

Many analysts remain skeptical that European leaders have grasped the problems confronting them.

“Politicians have done everything to demonstrate they are not ahead of the curve,” said Stefan Schneider, the chief international economist at Deutsche Bank in Frankfurt. “That is hitting market confidence and creating a self-fulfilling feedback loop.”

Just days after Washington struck a harrowing, last-minute deal to lift America’s debt ceiling, a stark reality has come crashing in on both sides of the Atlantic. Neither the United States nor Europe has yet fully recovered from the financial crisis that spread from spring 2007 through early 2009.

Instead, brief bright spots of recovery have been overshadowed by rising unemployment and anemic economies, especially as debt-reduction austerity programs in Europe and spending cuts in the United States weigh on growth.

Signs of economic weakness continue to emerge. New data indicates that industrial output fell in June in Italy and Spain, and both economies grew at a tepid pace in the second quarter. While the German economy remained strong, industrial production there slid in June, by 1.1 percent, as construction activity also slackened.

Meanwhile, leaders in Brussels on Friday were trying undo the damage wrought by José Manuel Barroso, the European Commission president, a day after he frightened investors by conceding that Europe was gripped by political paralysis.

Judy Dempsey contributed reporting from Berlin, James Kanter from Brussels and Matthew Saltmarsh from London.

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Economix: The Truth About Fundamentals

Herewith I offer a fundamental law about fundamentals:

If a government feels a need to proclaim that its economic fundamentals are strong, they are not.



Notions on high and low finance.

As you may recall, we heard a lot about fundamentals when the American economy was sliding into recession in 2007 and early 2008. But the immediate impetus for formulating the law comes from Rachel Donadio’s article on Wednesday:

ROME — As markets continued to hammer Italy, Prime Minister Silvio Berlusconi on Wednesday rebutted calls for his resignation, saying Italy’s economic fundamentals were strong and pledging that his government was “up to the task” of fostering economic growth.

Mr. Berlusconi went on to declare: “Our economy is healthy. The country is economically and financially solid.”

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