Protests on the streets of Madrid on Monday highlighted the tensions inside the euro area after banner-waving protesters blamed Brussels, Berlin and the right of centre PP government of Mariano Rajoy for privatisations and cuts in healthcare spending.
Elga Bartsch, an analyst at Morgan Stanley, said she was anxious that Barroso and his colleagues in Brussels would fail to resolve long-running disputes over the EU's new institutions.
"The euro crisis seems contained for now. But we think it is not resolved for good. In addressing the fundamental flaws in the euro's institutional set-up, progress on banking union will be key. Assuming no crisis escalation, the euro area should re-emerge from recession and return to sub-par growth. Politics is the main risk," she said. Political deadlock, which has also characterised the reform agenda in Washington and Tokyo, could allow social unrest to grow and wreck any coherent reform plans, she said.
"An extended recession, diverging political positions and several elections create a difficult backdrop for in-depth reforms. We therefore expect only limited progress on an effective resolution of the crisis this year. We believe that progress on banking union, where preparations are under way for a Single Supervisory Mechanism (SSM) and where discussions continue on harmonising, and possibly pooling, bank resolution and deposit guarantee schemes, will be key." Merkel faces a general election in the autumn against a resurgent Social Democratic party (SPD) while the Italians are expected to go to the polls next month in an election that could see a revived Silvio Berlusconi with enough votes to block reform measures. Global stock markets, which have warmed to the message that the euro crisis is abating, drifted lower as some investors sought to cash in on last week's strong gains and worries grew of more political brinkmanship in Washington. Major indices surged last week after the US Congress passed a bill to avoid a "fiscal cliff" combination of government spending cuts and tax increases.
The deal, however, remains incomplete. Politicians will face another deadline in two months to agree on more spending cuts while a debate over the country's $16 trillion (£9.9tn) debt ceiling is also looming. Concerns that the eurozone will suffer another year of economic downturn after entering recession last year were heightened by comments from OECD boss Angel Gurría who said the 17 member zone could continue contracting into 2014.
Britain's FTSE 100 fell 0.4% to 6064 while Germany's Dax was down over 0.7% to 7719.78. France's Cac-40 lost 0.8% to 3701.06.
Wall Street opened lower as well, with the Dow shedding 0.4% to 13,377.13 and the broader S&P 500 falling 0.4% to 1460.14.
The one bright spot for the markets was the banking sector, where stocks were up after global regulators eased new rules obliging lenders to set capital aside. The so-called Basel III rules are a set of new international standards to make sure banks protect themselves from the same trouble that caused the 2008 financial crash. On Sunday, the officials setting those rules delayed the date by which banks needed to have certain amounts of cash readily available.
8 comments:
Brussels fears 'poverty trap' for half of Europe as North-South gap widens'
So the EU implements emissions targets, working time directives and tens of thousands of other nanny state, interfering directives, drags in a number of countries at negative interest rates to a botched currency created without fiscal and political union and is surprised when it implodes in economic catastrophe.
What a useless bunch of ideologues the EU and EZ are, they have created in ten years a failed authoritarian oligarchy running most of Europe.
The jobless rate has reached an all-time high of 26.6pc in Spain, rising to 56.5pc for youth. It is much the same picture in Greece, where unemployment has spiked from 19pc to 26pc over the past year as austerity bites in earnest, with Portugal not far behind as it follows suit with draconian cuts. There are now 18.8m people looking for work across the eurozone.
“A widening gap is emerging,” said Laszlo Andor, the European Social Affairs Commissioner. “Peripheral states appear to be caught in a downward spiral of falling economic output, rapidly rising unemployment and eroding individual incomes.”
Mr Andor’s unemployment report said the welfare systems of southern Europe are unravelling as governments slash benefits, leaving families exposed to the full brunt of the crisis. The “automatic stabilisers” are no longer functioning properly.
He said there is a rising risk that the long-term jobless will fall into an “enormous poverty trap” if the crisis is allowed to drag on. “Severe material deprivation” has surged to 31pc in Latvia and 44pc in Bulgaria, casting doubts on claims that these two euro-pegged countries have shaken off the crisis .
Spain’s long-term jobless now number 2m, while the country’s GINI coefficient measuring inequality has risen from 31.2 to 34 since the crisis began.
Healthcare managers in the Madrid region are resigning over plans to privatise part of the health service in and around the Spanish capital.
The regional government wants to cut costs by privatising the management of 27 health centres, out of 270 in total.
On Tuesday 322 managers from more than half of the centres tendered their resignations, to take effect when the privatisation takes place.
Spain's debt crisis has brought deep cuts to public healthcare.
The country's 17 semi-autonomous regions administer healthcare and education.
On Monday thousands of Spanish medical workers and residents marched through Madrid, angry at the conservative regional government's privatisation plans.
I think you are groping towards a realisation that weak/strong with respect to currencies is a particularly unilluminating distinction, which also makes a nonsense of what our friend Khaki Suit is struggling to articulate above. Consider if you will the following:
I am going to pursue a 'strong' currency (franc fort) policy, in order to do that I am going to induce people to hold it by paying a higher rate of of interest than my competitors. We can perhaps think of historical examples when such a strategy was professed, it is a subject on which George Soros might have a view. Does that make my currency strong because it keeps its value up against other currencies or weak because I have to pay depositors more to hold it?
The FT's newly ordained "person of the year", the ever sardonically smiling ECB president, Mario Draghi, recently addressed Germany's co-operative banks: eurozone trade, he claimed, accounted for a staggering 40% of Germany's entire GDP. Not a single eyebrow was raised in the audience. The truth is somewhat different: total exports are equivalent to around 43% of Germany's GDP and the eurozone accounts for less than 37% of total exports, according to recently revised figures. That means that exports to the eurozone nominally account for roughly 15% of German GDP. This share will fall further. In reality, however, the contribution of the eurozone to the German economy is even smaller. The reason for this is simple: the eurozone countries do not pay for most imports from Germany; most of Germany's current account surplus is financed by the Bundesbank.
Between 1998 and 2011, German exports grew by over 115%. Export growth, however, did not translate into economic growth. According to Eurostat, during 1998-2011 Germany grew at an average annual rate of close to 1.4%, compared to around 1.5% for France, 1.8% for the Netherlands, 2.7% for Sweden, 2% for Britain, and average growth of 1.7 % for the EU as whole. Germany also lagged significantly behind the United States which achieved over 2%. Only Japan, Italy, Portugal and, according to some calculations, Denmark performed worse than Germany.
If the Bundesbank had printed and invested the money at home, it could have stimulated domestic demand, or reduced German public indebtedness to well under the 60% of GDP required by the Maastricht treaty. The Target2 system instead forces the Bundesbank to act as a supremely inefficient German sovereign wealth fund which is allowed to invest in one type of asset only: public and private southern eurozone debt. This German "wealth destruction" fund allows the euro countries to buy German goods they cannot afford and provides German industry with a multibillion euro export subsidy, which it does not need.
Draghi has Germany by the throat. Through the Target2 system the ECB is forcing the Bundesbank to underwrite a large part of Germany's eurozone exports with public money. With his unlimited bond-buying programme, the former Goldman Sachs banker is further encouraging governments and bankrupt banks in southern Europe (as well as France and, to a lesser extent, throughout the eurozone), to recycle and socialise their toxic debt via the ECB and by means of inflation, low interest rates and/or re-capitalisation of the ECB with German, Finnish or Dutch money.
The euro has benefited German industry, but it is expropriating the German saver and the German taxpayer. As the system works well for Germany's export industry, German politicians can tell the German people that all is well in the "best of all possible worlds". If the euro were wound up today, Germany would stand to lose hundreds of billions. Through the rescue funds, government bond buys and Target2 system the ECB and the German government are propping up a system that is ultimately unsustainable. With the euro rescue, Germany is shackled to a corpse. Germany's Panglossian politicians refuse to accept that even now Germany would be better off cutting her losses. Draghi, meanwhile, has not lost sight of his project for the "lirafication" of the euro and busily pours liquidity into the financial market at negligible interest – in defiance of his mandate and the EU treaties, to the eurozone's ultimate doom and to sustain the profits of international investment banks.
I wonder whether any of you knee-jerk reactionaries have ever even read Marx or 20th Century history other than from the vantage point of the victor. You certainly couldn't come across as more stupid and ignorant if you tried. Well, I suppose you're not a new creation - your equivalents have existed in every pre-revolutionary period throughout history.
"For most Germans real wages and living standards have not risen for 20 years, and Germany's once envied welfare, health and pensions system is being dismantled. Inequality has also risen"
European equality hits home. The only people benefiting from this global market are the upper layers of society.
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