The EU commission says 22.8 million people were unemployed in the EU in August, down by 62,000 from July and by 300,000 from August last year. In less welcome news, eurozone inflation jumped from 2.5% to 3% in September, galloping away from the European Central Bank's 2% target.News :
Greece will not meet deficit targets this year or in 2012
Greek civil servants block troika from entering finance ministry
Greek finance minister tries to quash talk of ‘disorderly default’
Greek civil servants block troika from entering finance ministry
Greek finance minister tries to quash talk of ‘disorderly default’
EU economy commissioner Olli Rehn said on Monday (3 October) that European finance chiefs are considering different options on how to leverage the eurozone’s multi-billion-euro rescue fund to give it further firepower. "We are reviewing options on optimising the use of the [European Financial Stability Fund] in order to get more out of it and make it more effective as a financial firewall to contain contagion. Leveraging is one of the options," he said speaking to reporters in Luxembourg. Finance ministers are meeting in Luxembourg to assess the heavily indebted Greek government’s latest announced efforts to deliver on its promises of austerity and structural adjustment made to international lenders. There are growing fears that were Spain and Italy to be cut off from market funding, the existing €440 billion rescue fund would be insufficient to bail out such large economies and even an expansion of the war-chest to €780 billion agreed by eurozone leaders in July may not be enough.
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Shares in Bank of America, Citi and Morgan Stanley fell to their lowest levels since March 2009 after the Franco-Belgian bank Dexia looked like it might be the first lending casualty from the Greek crisis.
American banks also saw the insurance taken against their debt spike higher with credit default swaps jumping 8pc to 19pc.
Eurozone finance ministers have told Greece that the debt-crippled nation will be granted no further concessions despite Athens' admission that it will miss its deficit reduction targets.
The warning set up a fresh showdown between the "troika" of the European Union (EU), European Central Bank and International Monetary Fund (IMF), and the Greek government over the payment of a vital €8bn (£6.8bn) bail-out instalment, and sparked a sharp sell-off in European and global markets.
Evangelos Venizelos, the Greek finance minister, claimed that the "troika" had accepted that Greece would fall €4.3bn short of its debt target because austerity had plunged the country into a deeper recession than expected. But eurozone ministers, while conceding that Greece is struggling with recession, made it clear they will not concede on EU-IMF demands for deeper cuts to Greek spending before handing over the next rescue tranche.
Asian Growth
The International Monetary Fund lowered its forecast for 2011 global economic growth to 4 percent from 4.3 percent on Sept. 20. Developing Asia will grow 8.2 percent this year and 8 percent in 2012, the IMF estimates.
As economies deteriorate and banks become more reluctant to lend, the cost of loans is rising. When Olam International Ltd. (OLAM) borrowed $625 million for five years last month it agreed to pay a margin of 300 basis points more than Libor, data compiled by Bloomberg show. The commodities supplier partly owned by Singapore’s Temasek Holdings Pte pays a margin of 275 basis points for a $350 million loan in August 2010, which matures in 2013, the data show.
Citic Pacific Ltd. (267), which mines iron ore and develops properties in China, agreed to pay a margin of 153 basis points more than the Hong Kong interbank offered rate when it borrowed HK$4.5 billion ($577 million) in August in a loan that matures in August 2016. That compares with a margin of 120 basis points for a HK$5.73 billion five-year loan in September 2010.
“There’s been a lot of talk over the last few months about the rising cost of funds, but now we’re beginning to really see the effects of it,” HSBC’s Lipton said. “In the past, some banks had been able to avoid passing on rising funding costs, but now there’s pressure to increase returns.”
Looser Credit Advantage
Loan volumes in Asia will remain muted in the fourth quarter because borrowers took advantage of looser credit earlier this year, according to Atul Sodhi, the Asia-Pacific head of loan syndication at Credit Agricole.
“The first half saw very good liquidity and companies around the region took that as an opportunity to take care of a lot of their financing needs,” Sodhi said. “Today, when the market is a little tighter and liquidity is coming at a higher price, there’s no compelling need for borrowers to tap the market.”
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