ECB lines up 1 trillion Euro rescue
Global Economics Weekly Brief
Sarkozy and Merkel meet on Euro
The French and German leaders are to meet to unveil proposals intended to stem the eurozone debt crisis, at the start of what could be a crucial week of talks.
Five days to save the Euro
Monday: Nicolas Sarkozy and Angela Merkel meet to try and agree a plan for tighter eurozone controls
Italian PM Mario Monti seeks parliamentary approval for his austerity package
Ireland's government begins to unveil details of its proposed austerity budget
Tuesday: US Treasury Secretary Timothy Geithner arrives in Germany before travelling to France and Italy for talks with euro leaders
Wednesday: The talking continues as many EU leaders gather in Marseille for a European People's Party congress
Thursday: ECB's monthly policy meeting could produce new measures
Thursday and Friday: Crucial EU summit in Brussels to consider Sarkozy-Merkel plan.
The future need will be more like 3 trillion Euro at the present rate of erosion of the EU countries economies.
While it has been another gloomy week, there are some signs of hope. The OECD revised down its forecasts of global growth and warned about the risks of Eurozone for the future. In the UK the Chancellor’s Autumn Statement was more downbeat, while the new Governor of the European Central Bank, Mario Draghi, highlighted his concerns of sovereign debt for the banking sector. The seriousness of the situation was not lost on the world’s major central banks. To counter US financial institutions worries about their Eurozone exposures, six of them came together in a co-ordinated action to increased dollar liquidity. This was well received by the markets and was bolstered by the fact that, either by coincidence or design, China loosened its monetary policy too. The politicians are also coming together. Talks of greater fiscal union and speeding up changes to the treaties have shown that the political momentum behind action to save the euro is gathering quickly. There are still many obstacles ahead, but there is a chink of light at the end of the Eurotunnel. Bankers still vote themselves `huge` bonuses on the back of massive bank charges and interest!
Gloomy George presented his Autumn Statement. The UK economy is weaker and its fiscal position is more precarious than previously thought. And we will have to swallow the austerity medicine for longer. The Office for Budget Responsibility (OBR) cut its growth forecasts for 2012 to 0.7% from the 2.5% announced in March. It also revised up its unemployment forecast, from 8.1% to 8.7%. Tax revenues will be lower and welfare payments higher as a result. The OBR is also worried that the UK’s growth potential has been damaged by the crisis. Together these mean it will take longer to cut the deficit. It now looks like it will take up to seven years. A lot longer than the Chancellor had hoped. The UK is in recession again!
UK manufacturing slowed again in November. Prospects for UK growth weren’t helped by the manufacturing surveys in November. The Purchasing Manager Index (PMI) edged down for the second consecutive month to 47.6 - well into contraction territory. It is now at its lowest since June 2009. New orders continued to deteriorate due to weak domestic and global market conditions. More worrying is the implied loss of confidence. Employment levels fell at the fastest rate since October 2009, as producers shed staff in the belief that the downturn will continue. There was some good news as input prices fell, giving some relief on margins, but increased competition and poor demand means it’s still going to be tough. More unemployment to come early in 2012!
Eurozone unemployment queues continued to grow rapidly in October. The Eurozone unemployment rate edged up to 10.3% in October. This is the highest rate across the 17 nation group since mid 1998. Germany continues to buck the upward trend. Its unemployment rate has fallen for three consecutive months and is just over half of the Eurozone average at 5.5%. In Italy and Spain things are much worse. Spain in particular is storing up problems for the future. With unemployment among the under 25s running at close to 50%, it faces the risk that a poorly skilled labour force will drag down its potential to grow in the future.
US unemployment surprises to the downside. US non-farm employment increased by 120k in November and US unemployment fell to 8.6% - its lowest rate since March 2009. The public sector is still shedding jobs, but retail, leisure, hospitality and heath care performed well. Some of the fall in unemployment is due to people who have stopped searching for jobs leaving the labour force. Nevertheless, rising employment and falling unemployment is still good news for the US labour market which has been struggling for so long. There will be more unemployment early in 2012!
Manufacturing expanded in the US, but house prices fell, again rapidly. Some more good news came from the US manufacturing sector. The manufacturing ISM survey picked up strongly in November to 52.7, well above the magic 50 which signifies expansion. The improvement was broadly based as production, new orders, and exports picked up. More of this might help to lift the housing market which is still in the dumps. House prices fell 3.6%y/y in September and are 31% below their 2006 peak, still weighed down by foreclosures.
China takes action against slowing growth. The HSBC and official PMIs both showed a contraction in China’s manufacturing activity in November. Both readings fell to their lowest since Q1 2009. This weakness and growing concerns about the impact of the euro crisis on global growth seems to justify lowering the reserve requirement ratio to ease credit conditions. The move will also have delighted the advanced economies looking for any boost to world demand. China needs the USA and Europe to be successful, if not, China have a serious issue globally!
Barclays Bank to `snub` King with £5 billion pay-out for bankers. Greed stills prevails for the very few globally.
BARCLAYS is reportedly planning to pay its investment bankers an estimated £5bn this year despite calls for restraint from Bank of England governor Sir Mervyn King.
Some 24,100 staff at Barclays Capital, the bank’s investment arm, are in line to receive an average £210,000 which would include all salaries, bonuses and other benefits.
A £5bn pay pot would mark a 10% decrease on last year’s remuneration, but is still likely to provoke outrage from groups which have campaigned for a crackdown on City pay since the 2008 credit crunch forced taxpayers to bail out Royal Bank of Scotland, Lloyds Banking Group and Northern Rock.
Sir Meryvn, in his role as chairman of the Financial Policy Committee (FPC), last week recommended that banks consider limiting pay and dividends in order to maintain sufficiently high levels of capital to protect from potential future financial shocks, such as the collapse of the euro or a downgrade to the UK’s credit rating.
Elsewhere, RBS, loss making bank which is 83% taxpayer-owned, is expected to pay £500m in bonuses to its investment bankers, an amount which would be confirmed in February. This would be down on £950m last year.
Barclays did not require a bailout in the wake of the financial crisis (they sold equity to others), but its reputation as one of the top-paying banks has drawn criticism, with its chief executive Bob Diamond, who used to head up BarCap, once dubbed “the unacceptable face of banking” by Lord Mandelson, the former business secretary.
Sir Mervyn said UK banks were in a better position than their continental peers to withstand future shocks, but should still build up capital levels to protect from major events. (Do we believe this statement?)
In its financial stability report, the FPC said UK banks’ exposure to government debts of the so-called vulnerable five – Greece, Portugal, Italy, Spain and Ireland – totalled £14.8bn, plus!.
The governor said that banks should “limit distributions” – seen as a warning to banks to cut bonuses and dividends – in a signal a further crackdown on City pay was on the way.
Tackle Roots of Crisis, Not Just Symptoms, Says Weber
Policymakers must tackle the root causes of the global economic crisis, not just the symptoms, said former Bundesbank president Axel Weber.
A Brief Overview of Globalization - click on the left for more information.
We have another global crisis that needs urgent attention by `skilled and experienced people` who can do the job right!
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ECB Trillion Euro Rescue