The monthly survey of funds by Bank of America Merrill Lynch has picked up a sudden crumbling of confidence in the eurozone core, with France viewed as the country most likely to deliver a nasty surprise later this year. Europe’s debt crisis is by far the biggest worry worldwide, with the US “fiscal cliff” and China’s property slide well behind.
A net 32 of money managers expect trouble in Germany, a dramatic reversal since May. The worries may be linked to the Bundesbank’s rocketing claims on eurozone central banks under the ECB’s “Target2” payment system, now €729bn (£572m). These reflect the scale of capital flight from the Club Med bloc, and may prove hard to collect if the euro blows apart.
A net 55pc expect a bad surprise from France, which has $710bn (£456bn) of bank exposure to Club Med. President François Hollande is courting fate by raising the minimum wage, employing 60,000 new teachers and clinging to a largely unreformed state that takes 56pc of GDP.
While investors seem willing to overlook the leisurely pace of fiscal tightening, they may be less forgiving of Mr Hollande’s nonchalance over France’s relentless loss of global competitiveness.
The growing doubts about Germany and France have not yet surfaced in the debt markets. Short-term borrowing costs have turned negative in both countries. The immediate flight to safety has overwhelmed all other effects.
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Einstein dies and goes to heaven only to be informed that his room is not yet ready. "I hope you will not mind waiting in a dormitory. We are very sorry, but it's the best we can do and you will have to share the room with others" he is told by the doorman.Einstein says that this is no problem at all and that there is no need to make such a great fuss. So the doorman leads him to the dorm. They enter and Albert is introduced to all of the present inhabitants. "See, Here is your first room mate. He has an IQ of 180!"
"That's wonderful!" says Albert. "We can discuss mathematics!""And here is your second room mate. His IQ is 150!"
"That's wonderful!" says Albert. "We can discuss physics!""And here is your third room mate. His IQ is 100!"
"That's wonderful! We can discuss the latest plays at the theater!"Just then another man moves out to capture Albert's hand and shake it. "I'm your last room mate and I'm sorry, but my IQ is only 80."Albert smiles back at him and says, "So, do you really think Q E will work this time.?"
Mr Monti held an “urgent” meeting with the country’s president Giorgio Napolitano on Wednesday to grapple with the constitutional issue after it emerged that the region faces a deficit of up to €7bn (£5.49bn) this year and is in danger of default without sweeping cuts.
Sicily’s regional councillor Andrea Vecchio warned that the island has run out of money. “I’m afraid we will soon no longer be able to pay civil servants’ salaries,” he said.
“The developments in Sicily are very serious,” said Prof Giuseppe Ragusa from Luiss University in Rome. “It is just the sort of negative shock we don’t want right now. Everything has to go perfectly for Italy to pull through.”
The full extent of Sicily’s crisis came to light just before Moody’s downgraded a string of Italian regions, cutting many to levels even lower than Sicily. Piedmont, Abruzzo, Calabria, Lazio, and Campania were all slashed. The City of Naples fell to junk status, plagued by “systemic pressure” from a deep social and economic crisis.
BBC, which explores the "eurozone's religious faultline". Chris Bowlby of BBC Radio 4 points out that the German word for debt - schuld - is the same as the word for "guilt" or "sin" and he writes:
Discussion among eurozone leaders about the future of their single currency has become an increasingly divisive affair. On the surface, religion has nothing to do with it - but could Protestant and Catholic leaders have deep-seated instincts that lead them to pull the eurozone in different directions, until it breaks?
Following the last European summit in Brussels there was much talk of defeat for Chancellor Merkel by what was described as a "new Latin Alliance" of Italy and Spain backed by France.
Many Germans protested that too much had been conceded by their government - and it might not be too far-fetched to see this as just the latest Protestant criticism of the Latin approach to matters monetary, which has deep roots in German culture, shaped by religious belief.
09.19 Germany's parliament is interrupting its summer break to vote today on the rescue package for Spain's banks that could be worth up to €100bn.
Angela Merkel is optimistic of securing a broad majority for the aid deal, although bailing out eurozone nations is not popular in prosperous Germany.
Officials argue, however, that stabilising Spain's banking sector is in the country's own interests. Steffen Kampeter, a deputy finance minister, said:
We tried once, with Lehman Brothers, letting a system-relevant financial institute go bust - the result was the economy shrinking in Germany.
He added that helping Spain's banks is "above all in the interest of Europe's financial market stability and so also in the interest of jobs in Germany".
There is a point after which further cuts will seriously undermine the public services to the point of their collapse. They cannot apply more cuts on the strained health care system, the schools, etc without creating havoc in these areas. These services can barely function in Greece any longer and further cuts will put people's safety in jeopardy. With 68% of Greeks at or near the poverty line, how far can they go? And how far can they cut before they admit that the austerity policies have impressively failed?
draft contract with the European Financial Stability Facility (EFSF) - the rescue fund providing the money) includes plans for using whatever money is not given to Spain's banks in order to buy sovereign bonds – in other words to lend money to the Spanish government or, at least, to keep pressure off Spain's sovereign debt.
If this mechanism were activated (and it is not automatic), the EFSF could buy fresh debt being auctioned by Spain or go shopping in the secondary bond market.
In order for this to happen, Spain would have to comply with all the conditions that Brussels has been setting for its economy – basically meaning hitting deficit targets and implementing the reforms it suggests.
Spain would then be able to request that whatever is left of the €100bn euros after banks have asked for their share be used by the EFSF to buy bonds. Permission would have to be given by the eurozone's finance ministers, the Eurogroup. Current estimates see banks asking for €65bn euros, which would leave up to €35bn for bond-buying, if Spain won permission.
The document warns, however, that direct buying of bonds from the Spanish government in the primary market would involve "a macroeconomic adjustment programme or a precautionary programme" - taking us closer to a full-blown bailout.
With the final deal due to be signed tomorrow, Spaniards complain they are still being given fewer details on the bank bailout than parliaments in other parts of Europe.
draft contract with the European Financial Stability Facility (EFSF) - the rescue fund providing the money) includes plans for using whatever money is not given to Spain's banks in order to buy sovereign bonds – in other words to lend money to the Spanish government or, at least, to keep pressure off Spain's sovereign debt.
If this mechanism were activated (and it is not automatic), the EFSF could buy fresh debt being auctioned by Spain or go shopping in the secondary bond market.
In order for this to happen, Spain would have to comply with all the conditions that Brussels has been setting for its economy – basically meaning hitting deficit targets and implementing the reforms it suggests.
Spain would then be able to request that whatever is left of the €100bn euros after banks have asked for their share be used by the EFSF to buy bonds. Permission would have to be given by the eurozone's finance ministers, the Eurogroup. Current estimates see banks asking for €65bn euros, which would leave up to €35bn for bond-buying, if Spain won permission.
The document warns, however, that direct buying of bonds from the Spanish government in the primary market would involve "a macroeconomic adjustment programme or a precautionary programme" - taking us closer to a full-blown bailout.
With the final deal due to be signed tomorrow, Spaniards complain they are still being given fewer details on the bank bailout than parliaments in other parts of Europe.
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