It changes by the hour ....what a circus !!! lies and deceit and that's all !!

Good news for the European economy: retail sales were much stronger than expected in August.

Eurostat reported that retail sales volumes rose by 0.7% in the euro area, and 0.4% across the wider European Union in August. July's data was also revised higher, showing consumers weren't as cautious about spending as first thought.

Eurozone retail sales to August 2013 Photograph: /Eurostat

Eurostat's data shows that non-food shopping was strong, rising by 0.6% in the eurozone. That covers items such as computers, clothing and medical products.

The data also showed an increase in fuel purchases, suggesting a rise in motor journeys. Spending on "automotive fuel in specialized stores" (that's petrol stations to you and me) was up by 0.9% across euro members.

The eurozone recovery is gathering pace, with its private sector firms reporting the biggest leap in activity since June 2011 last month.

Data firm Markit's monthly surveys of companies across the single currency showed a solid rise in activity.

New business has picked up, and the rate of job cuts may finally be slowing to a halt.

Markit's monthly survey of activity came in at 52.2, up from August's 51.5. Both service sector firms and manufacturers said conditions were better.

Photograph: Markit

Here's some key factoids from the report (online here)

Ireland: 55.7 2-month low
Germany: 53.2 2-month low
Italy: 52.8 29-month high
France: 50.5 20-month high
Spain: 49.6 2-month low

The news comes hours after China's service sector output hit a 6-month high.

Chris Williamson, chief economist at Markit, said the eurozone data showed Europe's recovery on track, despite Spain's private firms faltering after a better August.

As long as we don't worship the Keynesian Dogma we are going to read things like this one.

Mr Rajoy said the eurozone's fourth largest economy was "out of recession but not out of the crisis", and faced a long period of more austerity before the country could sustain the recovery.

"The task now is to achieve a vigorous recovery that allows us to create jobs," he told the Wall Street Journal.

Spain's unemployment rate, at 25pc, is among the highest in the eurozone. The bloc's official unemployment rate of 12.1pc also masks huge disparities. While Austria boasts an unemployment rate of just 4.8pc, the jobless rate in bailed-out Greece is 27.6pc.

The recovery in Germany, Europe's largest economy, has also been fragile. Data on Tuesday showed business sentiment rose for a fifth consecutive month in September. The Ifo Institute's business climate index, which is based on a survey of 7,000 firms, rose to 107.7 in September, from 107.6 in August. However, the reading fell short of the 108.2 expected by economists.

European Central Bank rate-setter Ewald Nowotny said on Tuesday that the bank had "flexible" tools at its disposal if it needs to take additional measures, including providing banks with additional central bank money. ECB President Mario Draghi said on Monday that the ECB stood ready to deliver a fresh injection of cash into Europe's banks. Asked about the possibility of the central bank giving banks another chance for those loans, known as Long Term Refinancing Operations (LTRO), Mr Nowotny said: "It is certainly important to show all that we have in the way of instruments, which are flexible...Pier Carlo Padoan, the OECD's chief economist, said he expected growth in the 17-nation bloc to be negative this year, despite several countries showing signs of recovery. Mr Padoan said the single currency area, which emerged from its longest recession in more than 40 years in the second quarter, remained "a considerable source of risk" to the global recovery, though he added that the systemic risk from the eurozone's debt crisis had subsided. He added that while countries should continue to implement austerity policies, automatic stabilisers such as unemployment benefits should be allowed to kick-in if economies stalled. Mr Padoan also urged policymakers to tackle high jobless rates. "There is no doubt that policy priority number one in the euro area is fighting unemployment. Let's not fool ourselves and expect unemployment to come down in a stable fashion," he said.

Economists expect growth in the eurozone to pick up in the second half of the year. On Monday, Spanish prime minister Mariano Rajoy said the country would exit recession - defined as two or more consecutive quarters of negative output - in the third quarter, following two years of contraction. 

Cyprus’s central bank said lenders would remain closed until at least Tuesday amid growing speculation the Meditterranean island could become the eurozone member to exit the currency bloc.

Officials at the ECB were reported on Wednesday to be considering pulling the plug on Cypriot banks unless the country agreed to a new bailout package.

Jörge Asmussen, the ECB’s chief negotiator, warned that Cyprus’s decision to reject the terms of an €10bn (£8.6bn) bailout meant it could not guarantee support to domestic lenders for much longer.

“We can provide emergency liquidity only to solvent banks and... the solvency of Cypriot banks cannot be assumed if an aid programme is not agreed on soon, which would allow for a quick recapitalisation of the banking sector,” said Mr Asmussen in an interview with a German newspaper.

The threat followed the unanimous voting down by the Cypriot parliament of a rescue package that would have seen the authorities levy a “tax” of up to 10pc on deposits of more than €100,000.

Senior European politicians have expressed hope that a new bailout could be organised, however some have begun to openly discuss the possibility of Cyprus exiting the euro. Austrian Chancellor, Werner Faymann, said he could not “rule anything out for Cyprus”.

German Chancellor Angela Merkel said she expected the Cypriot government to come up with a new rescue plan, but continued to insist it was fair for large depositors in Cypriot banks to face a loss on their savings.

Banks in Cyprus have remained closed since last week and on Wednesday the country’s central bank said lenders would not open their doors until next Tuesday, leaving Cypriots dependent on using ATMs for day-to-day cash.  The prolonged closure of banks has led to widespread fears among senior industry executives that it could undermine confidence in the financial system. Christian Clausen, president of the European Banking Federation, said a way had to be found to reopen Cypriot banks before it was “too late”.

“Everything needs to be solved very quickly. This is a matter of a very few days before it gets too late,” Mr Clausen told Reuters... While the eurozone finance ministers are busy having their conference call, Bloomberg reports that the currency bloc's finance chiefs are pressuring Cyprus to shrink its banking system. Here's what the newswire had to say:

Finance ministers for the 17 euro countries are considering a plan to shutter the two biggest banks in Cyprus and freeze the assets of uninsured depositors, said the four officials, who asked not to be named because the talks are ongoing. The ministers are holding a teleconference tonight.

UPDATE : Cyprus Popular Bank and the Bank of Cyprus would be split to create a so-called bad bank, one of the officials said.
Insured deposits -- below the European Union ceiling of 100,000 euros -- would go into a so-called good bank and not sustain any losses, while uninsured deposits would go into the bad bank and be frozen until assets could be sold, said the four officials.

Losses to unsecured creditors, including uninsured depositors, could reach 40 percent under the plan, which has support from the International Monetary Fund and the European Central Bank. hile the eurozone finance ministers are busy having their conference call, Bloomberg reports that the currency bloc's finance chiefs are pressuring Cyprus to shrink its banking system. Here's what the newswire had to say: Finance ministers for the 17 euro countries are considering a plan to shutter the two biggest banks in Cyprus and freeze the assets of uninsured depositors, said the four officials, who asked not to be named because the talks are ongoing.

Russians in Cyprus are getting tired of suggestions from Germany that anyone with a Russian accent here is a Mafioso. They say that claims that the island is simply a money-laundering post for Mob cash are wide of the mark, and that the EU strategy has been purely a political one.
"Since this started happening the German, Dutch, and Scandinavian treasuries have been doing very well while the quotes for southern European ones have gone down," says Andrei Surikov, 30, a financial manager from Moscow who moved to Cyprus three years ago.
"The whole thing is just a dirty political game, and I don't think the EU has estimated the impact of what they have done. The trust has gone now in the whole system."  

 

The Statement by the Eurogroup President

Statement by the Eurogroup President on Cyprus - The Eurogroup held a teleconference this evening to take stock of the situation in Cyprus. I recall that the political agreement reached on 16 March on the cornerstones of the adjustment programme and the financing envelope for Cyprus reflects the consensus reached by the Cypriot government with the Eurogroup. The implementation of the reform measures included in the draft programme is the best guarantee for a more prosperous future for Cyprus and its citizens, through a viable financial sector, sound public finances and sustainable economic growth. I reiterate that the stability levy on deposits is a one-off measure. This measure will - together with the international financial support - be used to restore the viability of the Cypriot banking system and hence, safeguard financial stability in Cyprus. In the absence of this measure, Cyprus would have faced scenarios that would have left deposit holders significantly worse off.

The Eurogroup continues to be of the view that small depositors should be treated differently from large depositors and reaffirms the importance of fully guaranteeing deposits below €100,000. The Cypriot authorities will introduce more progressivity in the one-off levy compared to what was agreed on 16 March, provided that it continues yielding the targeted reduction of the financing envelope and, hence, not impact the overall amount of financial assistance up to €10bn.

The Eurogroup takes note of the authorities' decision to declare a temporary bank holiday in Cyprus on 19-20 March 2013 to safeguard the stability of the financial sector, and urges a swift decision by the Cypriot authorities and parliament to rapidly implement the agreed measures.

The euro area Member States stand ready to assist Cyprus in its reform efforts on the basis of the agreed adjustment programme.

The taboos are falling one by one.

“We must leave the austerity cage,” he told leaders of his Democrat Party (Pd), responding to Italy’s electoral earthquake by tearing up his pre-election programme. “A change of course is absolutely necessary given that five years of austerity and attacks on workers have pushed up public debt levels across Europe,” he said.

“The vicious circle between belt-tightening and recession is putting representative government at risk and making it impossible to govern. The immediate emergency is the real economy and joblessness,” he said. The pledge puts Mr Bersani on a collision course with the ECB, which is constrained from helping to shore up the Italian bond market unless Rome complies with Europe’s austerity agenda. “Italian voters may have effectively voted away the ECB safety net,” said Christian Schulz from Berenberg Bank. The central bank cannot activate its bond purchase programme (OMT) unless Italy requests a rescue from the EMU bail-out fund, and that in turn requires a vote in Germany’s Bundestag.

“The ECB cannot – and will not want to – do anything to help Italy after the inconclusive election result, even if borrowing costs spiral out of control,” he said.

Mr Bersani’s Democrats (Pd) and its allies control the lower house but failed to win the senate. He is hoping for tacit support on a law-by-law basis from the Five Star Movement of comedian Beppe Grillo. Mr Grillo has responded with a volley of anathemas, calling Mr Bersani a relic from a defunct political order that must be swept away by civic revolution. Yet many of his 163 senators and deputies say the movement should seek common ground with the Pd.

Mr Bersani said Italy should mobilize its EU voting weight to push for an EU-wide change of course. He has natural allies in Paris.

French finance minister Pierre Moscovici warned EMU colleagues on Monday that current policies “risk a loss of social and political confidence across Europe. We must not pile austerity on top of recession”. Mr Moscovici said France would need an extra year to meet its deficit target of 3pc of GDP and called for action to tackle the root of the crisis with an EMU-wide growth strategy.

French officials are deeply alarmed by the relentless upward rise in France’s unemployment rate to 10.6pc, or 26.9pc for youth. President Francois Hollande’s popularity ratings have crashed from 55pc to 30pc since his election in May, the fastest decline ever recorded for a French leader.

Italy, France, and Spain toyed with a Latin bloc alliance last year to confront Germany over EMU’s contractionary policy mix, but the initiative faded.

Mr Hollande pulled back from a showdown with Berlin and ultimately pushed through further fiscal cuts and reforms, while Italy’s Mario Monti was never willing to jeopardise the European Project that he served for ten years as a commissioner.

Critics says Mr Monti, whose Civic Choice list won just 10pc of the vote, went native in Brussels long ago and has been slow to understand the deeper political crisis unfolding in Italy.

The outgoing premier gave them fresh ammunition today, saying that it would be better to hold fresh elections than to see an anti-EU government to take power.

It is unclear whether a second vote would achieve what he intends. The latest snap polls show that Mr Grillo’s support is still rising, jumping from 25pc to 28pc.

Ominously, nostalgia for Fascist leader Benito Mussolini has started to emerge as the post-War order crumbles. Two key figures have praised elements of Fascist rule over the last two days.

A leader of the Five Star Movement professed “fascination” with the Fascist sense of the Italian state and the family, while the deputy state secretary of the economy said Mussolini “governed well until 1935.” (source telegraph)

Germany's central bank, the Bundesbank....

The German economy grew by 0.7% in 2012, a sharp slowdown on the previous year, preliminary figures show. The figure was well below the 3% growth seen in 2011 and suggests the economy contracted in the fourth quarter. "In 2012, the German economy proved to be resistant in a difficult economic environment and withstood the European recession," the federal statistics office Destatis said. Some analysts believe the German economy will enter recession itself. Destatis said economic activity "slowed down considerably" in the second half of the year, and particularly in the final quarter. "The full-year growth figure [of 0.7%] implies a contraction of around half a percentage point in the fourth quarter," the office's top statistician Norbert Raeth said. Last month, Germany's central bank, the Bundesbank, cut its growth forecast for this year to 0.4% and warned that the economy may have contracted in the final three months of 2012, and may do so again in first quarter of 2013. The eurozone economy as a whole is already in recession, having contracted in both in the third and fourth quarters of last year. For 2012 as a whole, Destatis said foreign trade was "very robust", with exports up 4.1% on 2011. Imports grew by 2.3%. The positive trade balance was "once again the main driving force for economic growth in Germany". Household expenditure increased by 0.8%, while government spending was up 1%. The figures also showed that while the service sector of the economy expanded, industry and construction contracted. Destatis will publish official fourth-quarter growth figures on 14 February.

French unions and businesses on Friday agreed on broad changes to labor laws, a key plank of President François Hollande's efforts to arrest rising unemployment and restore France's competitive edge. But after months of wrangling, only three of the five labor unions around the table gave their backing to the accord, depriving Mr. Hollande of the unanimous support that would give him a strong political boost.

New ways for employers to cut pay and working hours in tough times

• Simplification of legal procedures for layoffs
• Health insurance benefits extended to more workers
• Higher levies in fixed-term contracts to encourage permanent hires
• Incentives to hire young workers on permanent contracts.

"This is the first time in over 30 years that a negotiation at this level and with such depth has reached agreement," Mr. Hollande said. "This is a success for social dialogue." The government will now present the text to Parliament, where Mr. Hollande has a majority. French President François Hollande, right, speaks to Prime Minister Jean-Marc Ayrault after a meeting with French government ministers, focused on France's economic situation and employment, earlier this month. Negotiators still have to return to their unions to finally sign off on the agreement. Joseph Thouvenel, a representative for the Christian CFTC union, and moderate CFDT union negotiator Patrick Pierron said they will give a favorable opinion, and the CFE-CGC union negotiator Marie-Françoise Leflon said she had helped achieve a more balanced agreement. "The objective of creating conditions to fight insecurity and boost employment has been achieved," Mr. Pierron said. "We have met the challenge of getting extremely positive things for business and new points for employees," said Patrick Bernasconi, the negotiator for employers' group Medef. As expected, two more radical unions the CGT and the FO, said they won't sign the pact. Under terms of the agreement, business associations secured a victory that will allow companies to cut working hours and wages when times are tough, as German businesses have done during the global economic crisis to ensure their survival. Employees will have their jobs guaranteed during those periods of flexible wages and hours.

The European Central Bank has announced a shake-up of responsibilities among its executive board, putting new arrival Yves Mersch - formerly governor of Luxembourg's central bank - jointly in charge of heading up plans for the eurozone banking union alongside vice president Vitor Constancio.

Hungary's central bank has cut its interest rate - the highest in the EU - for the fifth time in as many months. The Magyar Nemzeti Bank lowered the two-week deposit rate to 5.75pc from 6pc, continuing a trend of lowering the rate by a quarter point every month. The bank's president is due to appear at a news conference this afternoon to explain the decision, which is perceived as risky in the face of high inflation of 5.2pc.

Bloomberg reports that central bank chiefs from across the world are set to meet as early as January 6 to revisit the terms of the Basel III rules drafted in 2010. At the heart of discussion will be requirements on how much liquid capital banks must hold as a proportion of their total balance sheet, which the regulations say should be enough to survive a 30-day credit squeeze. Central bankers, including ECB President Mario Draghi, say could drag down interbank lending, and slow economic recovery.

EU lawmakers have admitted they will fail to meet the globally-agreed January deadline for the implementation of tougher capital requirements on banks. A meeting planned for today to thrash out the final details of a deal after talks last week stopped short of full agreement has been postponed. The move sees the EU join the US in delaying the introduction of the regulation, known as the Basel III rules, which are widely expected to come into force one year later than planned, in January 2014.

Spanish economy minister Luis de Guindos has revealed plans to fully compensate those who lost investments by purchasing complex financial instruments they did not understand. His plans will give the hundreds of thousands of Spaniards misleadingly sold high-risk instruments a chance to claim compensation for the losses which followed the banks' €37bn bail-out.

Spain is being made to return to competitiveness through so-called internal devaluation. Wages are falling to offset their rapid appreciation relative to those in core Europe during the years leading up to the crisis. It would help Spain if inflation—and thus labor costs—were rising faster in core Europe, reducing the amount of domestic deflation needed. But that’s not happening—indeed core inflation is running below rates around the euro zone’s troubled fringe, in part because of austerity-related tax increases in the latter. Without German acceptance of higher inflation, Spain is looking at more of the same. More wage cuts, more unemployment, more contraction.

The country is already into its second recession since the financial crisis and forecasters have been paring back growth expectations for the coming year. Official unemployment makes up around a quarter of the potential labor force and continues to rise. Even ignoring that the data are probably distorted upward by overly generous employment protections that give firms strong incentives to use unreported workers, the jobless rate is unsustainably high. Social and political strife is already common.  Even where economic measures have improved, the turnaround isn’t all positive. For example, Spain has managed to turn its current-account deficit into a surplus, but only because domestic demand and thus imports have collapsed.  The ratings agencies don’t tell us anything we don’t know. Their downgrades have little or no significant bond-market impact. But they’re still relevant because they confirm an increasingly gloomy outlook.

Difficulties in the markets for Spain, a slippery slope towards a bailout, austerity, protests and social unrest, we have seen this movie before. Here is my a guide for how to deal with the situation.

An ancient Greek guide for Spanish and other PIIGS who wish to deal effectively with the crisis

1. Dealing in private with the pain and anxiety caused by the market turmoil and/or frequent visits of the Troika and their impossible demands (for how to deal in public see other points below): Draw from Stoicism. Stoics strived to be free of suffering and through exercise of reason achieve peace of mind - meant in the ancient sense of having "clear judgment" – as well as maintain equanimity in the face of life's highs and lows.

2. Dealing with “nice” comments about your morality: Use Aristotelian or Chryssipian logic. Convince yourself with sound deductive syllogisms that the rubbish posted around the world about your country & culture is the result of incorrect induction and reckless stereotyping (one pig does this, two pigs do this, therefore all pigs do this).

3. Dealing with the unethical behaviour of political and economic elites in your country and the abroad: Adopt Socratic dialectic and ethics in public life. Socrates was renowned for his relentless questioning of authorities and public figures, which was aimed not to humiliate individuals (yeah sure – never swallowed this at school) but to discover truth with a view to achieving the “good life” for everyone.

4. Dealing with seemingly endless half-baked attempts to re-establish financial stability: Recall Zenon’s paradoxes especially the one of Achilles and the Tortoise. If the Tortoise is given advantage in the race, Achilles will never reach her because by the time he has reached the last position, the Tortoise will always have moved a bit further.

5. Dealing with debt slavery: Recall σεισάχθεια (seisachtheia), Prior to Solon (5th cent BC) Athenians practiced debt enslavement: a citizen incapable of paying his debts became "enslaved" to the creditor. This issue primarily concerned peasants working leased land belonging to rich landowners and unable to pay their rents. In theory, those enslaved would be liberated when their original debts were repaid. Solon put an end to it with the σεισάχθεια / seisachtheia, liberation of debts, which prevented all claim to the person by the debtor.

6. Finally, if you fail to bring about the much desired relief or political change with the above measures why not go for a Roman style “Spartacus slave revolt” and then establish “Epicurean philosophical communes” all over the Med. They survived for hundreds of years in antiquity and provided peace and happiness to millions.

When will the Eurozone countries begin to face reality and dump their currency. Germany, won't keep picking up the bills while those with problems won't take the medicine needed to survive. Its far to much debt for the ECB to take, and something has to give. I just think it's time we cut loose from the mad house altogether.... Both the German and Greek developments are interesting, but I think that the real debate is going to be over how Draghi's "sterilization" is going to work. He is going to create unlimited amounts of new cash to buy peripheral Bonds and if all that cash gets into the economy, it could be inflationary, so the claim is that he is going to find ways to suck it back in. But that means the ECB selling assets, and there Draghi doesn't have any good choices. If he tried selling PIIGS Bonds that the ECB owns, it would just cancel out the effects of OMT. If he sells core country Bonds, he dilutes the quality of the ECB balance sheet even more, and he pushes the price of the core country Bonds down, and yields up, and so harms the core country taxpayers. The third way that has been proposed won't even work. That proposal was to persuade commercial Banks to convert their cash deposits at the ECB into one-week term deposits that technically aren't cash. But a one-week term deposit is similar enough to cash that Banks will behave as if it's cash. So at the end of the day the commercial Banks will get the new OMT cash and retain their existing cash as one-week deposits, which could lead to the Banks creating a credit bubble....Pro austerity or pro tax-and-spend? That is the question to which the electorate do not have a clue as to the answer. They are waiting for their political guides to provide it: on the left the Labour Party and the Trade Unions and on the right the Conservative led coalition and business; none of them capable of delivering - except by invective - the magic bullet to cure the problem. Instead the electorate are reduced to booing the Tory Ministers at the Games for attempting to solve the problem (the structural deficit) that they did not cause, and cheering the representative of the left who did. Politics is a deep and murky world,isn't it?

Green light for the "QARTO REICH"...

The eurozone's permanent bail-out fund HAS BEEN ratified - with conditions.......Germany's constitutional court has given the green light for Germany's president to sign the €700bn European Stability Mechanism into German law.

That takes away the danger of the bailout fund being blocked.

But there are also some key conditions:

1) The court has rules that German liability to the ESM must not exceed €190bn without asking the Bundestag for approval.

2) Both houses of the German Parliament must be kept informed about how the funds within the ESM are deployed.

No-one really has the courage to kill the Euro, nor do they have the where with all to rescue it. How do people think the markets will react to yet another plan about what we'd like to do if we had the balls/mandate.

Another important element in today's court ruling: the judges are going to consider the bond-buying programme announced last week by the European Central Bank.

German MP Peter Gauweiler asked the court to consider whether the Outright Monetary Transactions (OMT) plan was also a violation of German sovereignty, as it allows the ECB to buy unlimited quantities of eurozone sovereign debt. Gauweiler's complaint failed to postpone today's decision, but it suggests there could be further action from Karlsruhe in the months ahead, as the judges examine whether OMT transfers German sovereignty to the ECB.

Enormous growth with cheap money, that's United Europe

That is what we experienced in the last decades of the EU. Regard Spain, it changed, grew and modernised, in rural regions partially medieval,her life with an unmatched velocity never experienced before in history. - And ended in the financial crisis. That was mainly the fault of the socialists, with the coward Zapatero, now fleeing before the voters, and by socialists inbred attitude to waste the money, that others earned. And this horror experience shall now be revived in France with a President to elect who already declared that he would disregard the rules for austerity- and preferably waste German money.
By the way:I just returned from the "total emergency“ in Spain’s most suffering region Catalonia, nearly bankrupt. The restaurants were filled with Spanish families. Enjoying excellent food with pescados, mariscos and bogavantes (lobster) together with cava and one of the favourite cars seems to be the Porsche Cayenne... With the speed at which the level of quoted debt is increasing and far greater than any rate of inflation surely there must be questions on how big the black hole in the finances actually is. If you told me it was a 100 billion today then all of a sudden it lurched to 300 billion any sane person would say "WTF". ... SO SOMEBODY HAS BEEN LYING OR HIDING THE TRUE SCALE OF THE PROBLEM! At that point you can't fix it the size of the problem is not yet determined so honestly now "how big is the problem"??? You will not get a straight answer on this because they would be called out on it tomorrow when it has doubled yet again!....Germany’s ECB board member, said today: “The risk premia of sovereign bonds now reflect not just the insolvency risk of some countries but an exchange rate risk, which should not theoretically exist in a currency union. The markets are pricing in a break-up of the eurozone. Such systemic doubts are not acceptable".
Ahhh, "theoretically"... Well, theories are often very, very wrong indeed. Or were Greece, Ireland, Portugal, now Spain and next Italy all supposed to be declared insolvent as part of the euro "master plan", eh? ...Want some more data for your "theory"?....there, you see..."The Catastrophic State of Italy's Labor Market - September 4, 2012 - Spiegel. Italy's economy remains in freefall. The country is shedding jobs, production rates are abysmal and the infrastructure is appalling. Banca d'Italia, now forecasts a 2 percent drop in GDP this year"

An interesting point -- Spanish 10 year debt is yielding 7.5pc, half of what it ought to yield but enough to spook markets not yet ready to face the inevitable deflation of what has long been a bond super-bubble. This bubble is particularly evident in France. The debt levels which the country has are as unsustainable as Britain’s, yet its policies are more irresponsible and its remedies more restricted. Although it is considered a core country in the eurozone, France’s economic profile now bears more resemblance to Greece’s the Germany’s. Public debt in France is at 86.1pc of GDP (146pc if ECB liabilities and bank guarantees are included). The projected budget deficit this year is 4.5pc, with France having exempted itself from the EU’s instruction to bring deficits down to 3pct by the end of the year. These numbers are not unusual in the context of eurozone economies in general. What distinguishes France is the lack of political will to address them and, as a consequence, a projected debt to GDP ratio which would place it firmly amongst the PIIGS grouping. A 2010 paper by the Bank of International Settlements – cited by economist John Mauldin in his brilliant recent dispatch on ‘hidden lions’ – sought to model the likely effects of three separate policy paths by European governments. These range in severity from governments essentially carrying on as they are, to the most extreme austerity the authors believe to be politically possible, a gradual downwards movement in government spending while age related entitlements are frozen.

UPSSSSS....!!!!

Finland and Holland move to block bond-buying plans, casting the first doubts on last week's summit deal, as figures show a slide in Spain, Greece and Italy's manufacturing activity and a rise in unemployment across the eurozone....A little more detail on this German court hearing. Germany's parliament last week approved the ESM, but President Joachim Gauck said he will not sign it into law until the powerful constitutional court has given its go-ahead. Several critics have already filed complaints against the ESM with the court, who will hear these complaints on Tuesday 10 July - one day after the fund is supposed to take effect. Over in Greece, ministers are deep in talks over how to ease the punishing terms of its bailout before a review by the country's lenders. Antonis Samaras, the country's prime minister, wants more time to meet targets and to dilute austerity measures. Reuters reports that ministers from the conservative-led coalition were huddled in talks on Monday to work out the plan before "troika" inspectors from the EU, ECB and IMF begin their review of Greece's faltering progress in fiscal adjustment and reforms.

Angela Merkel, the German chancellor, was asked about this today. She said we must accept decisions of other states and there is no need to make decisions now... Confusion still reigns, it would appear, over whether direct overcapitalization of banks by the eurozone's permanent rescue fund would require a treaty change. Yesterday, the European Commission said no legislative changes were needed in the treaty governing the European Stability Mechanism. But the Dutch government said today it was uncertain if a direct overcapitalization of banks by the euro zone's permanent rescue fund would require a treaty change. For now, however, it was assuming that no treaty change would be needed and, when appropriate, the cabinet would propose that parliament approve the addition to the ESM's mandate.

France's finance minister has said that the country's revised budget, due to go before the cabinet on Wednesday, will rein the government's deficit to a targeted 4.5pc of GDP. ...

Reuters reports that Pierre Moscovici said that without budget amendments the deficit would hit 5.0pc of GDP this year - implying the government needed some €10bn in new deficit cutting measures. 

The China Securities Regulatory Commission granted the first batch of licenses under a newly launched trial program that allows yuan funds raised offshore to be invested in China's capital markets, according to some of the funds and people familiar with the situation. The Hong Kong subsidiaries of asset managers Harvest Fund Management Co., E Fund Management, HuaAn Fund Management Co. and HFT Investment Management received the Renminbi Qualified Foreign Institutional Investor licenses today, according to the funds. Renminbi is another name for the Chinese currency.

There is little doubt that European banks need shoring up right now. That fact was made clear Wednesday, when 523 banks tapped the European Central Bank for a record 489 billion euros (nearly $640 billion) in loans. Compared with their American peers, they have been much more dependent on borrowing in recent years to finance their lending binges. On average, European banks’ loan books exceed their deposits by 1.2 times. In the United States the average loan-to-deposit ratio is 0.70. The upshot is that it will probably take much longer for Europe’s banks to unwind their bad loans and debt than it has for American banks. The European Banking Authority, after a third round of stress tests in October, has ordered Europe’s fragile banks to raise more than 114 billion euros in fresh cash in the next six months. By June 2012, the region’s financial institutions will need to increase their so-called core Tier 1 capital ratio — the strictest measure of a bank’s ability to resist financial shocks — to 9 percent of assets. That ratio, higher than the 5 percent preliminary target that the Federal Reserve set for American banks this week, reflects the acute capital strains that European banks are facing. To meet the new European standard, analysts predict that the region’s banks could end up selling assets, shrinking loan books and shutting down foreign subsidiaries in a de- leveraging process that may exceed 3 trillion euros in the coming years. And unless they are able to find better methods to restore their balance sheets — including direct support from their equally stressed national governments — many banks could well end up failing, analysts warn.

30 November 2011 - Coordinated central bank action to address pressures in global money markets

The Governing Council of the European Central Bank (ECB) decided in co-operation with other central banks the establishment of a temporary network of reciprocal swap lines. This action will enable the Eurosystem to provide euro to those central banks when required, as well as enabling the Eurosystem to provide liquidity operations, should they be needed, in Japanese yen, sterling, Swiss francs and Canadian dollars (in addition to the existing operations in US dollars). The ECB will regularly conduct US dollar liquidity-providing operations with a maturity of approximately one week and three months at the new pricing. The schedule for these operations, which will take the form of repurchase operations against eligible collateral and will be carried out as fixed-rate tender procedures with full allotment, will be published today on the ECB’s website. In addition, the initial margin for three-month US dollar operations will be reduced from currently 20% to 12% and weekly updates of the EUR/USD exchange rate will be introduced in order to carry out margin calls. Those changes will be effective as of the operations to be conducted on 7 December 2011. Further details about the operations will be made available in the respective modified tender procedure via the ECB’s Website. Information on the actions to be taken by other central banks is available on the following websites: ; Bank of Canada (http://www.bankofcanada.ca) ; Bank of England (http://www.bankofengland.co.uk) ; Bank of Japan (http://www.boj.or.jp/en) ; Federal Reserve (http://www.federalreserve.gov) ; Swiss National Bank (http://www.snb.ch)

Italian bond yields spike•Two-year bond yields soar above 8% as investors put premium on near-term risks

(Source)The Guardian - UK : Desmond Supple and Jens Sondergaard on the EMEA team at Nomura have just issued their Europe Special Report: Endgame : The eurozone financial crisis has entered a far more dangerous phase as asymmetry of risk in the market has combined with banking sector deleveraging. This is a particularly toxic combination for financial asset values and ultimately the real economy. Unless a sizable balance sheet can be brought to bear on the crisis – which we believe can now only be the ECB – a euro break-up now appears probable rather than possible. The need for an ECB policy response is immediate in our view. However, we expect the ECB to deliver only conventional easing measures next month (25bp rate cut, longer-term LTROs and dovish forward guidance to monetary policy). This would not comprise a solution to the crisis, but should enable the ECB to avert a full-force financial crisis in December. However, we would be more comfortable in making this assumption if the ECB also eased collateral rules. The risk is that the ECB is required to deliver this policy response before 8 December. However, as we enter 2012 we believe the ECB will have to go down the QE route as the economic outlook deteriorates and financial market stress intensifies. This could preserve the integrity of the euro, although the risks are sizable and over the coming weeks and months the outlook for financial markets appears bleak and downside economic risks are likely to build.

German government officials tried to play down the scale of the abortive bond auction

The Irish government has suddenly complicated the picture by requesting debt relief from as a reward for upholding the integrity of the EU financial system after the Lehman crisis, though there is no explicit linkage between the two issues. "We carried an undue burden for protecting the European banking system from contagion," said finance minister Michael Noonan. "We are looking at ways to reduce the debt. We would like to see our European colleagues address this in a positive manner. Wherever there is a reckless borrower, there is also a reckless lender," he said, alluding to German, French, British and Dutch banks. Mr Noonan hinted that Dublin is asking for some of interested relief on a €31bn EU promissory noted linked to the Anglo Irish fiasco, among other matters. Mr Noonan said Ireland's public mood has turned very sour. "We have indicated to Europe's authorities that it will be difficult to get the Irish public to pass a referendum on treaty change," he said. The EU's new fiscal rules would be legally binding and "justiciable" before the European Court, he said. This raises the likelihood that Ireland's top court would insist on a referendum. The Irish voted `No' to both the Nice and Lisbon Treaties, before being pressured into repeat ballots, and would certainly some form of quid pro quo in this case. The European commission president, José Manuel Barroso, has admitted that it will be impossible to save the euro unless eurozone countries agreed to strict central controls on their tax and spending policies. Barroso's warning, his starkest yet in the sovereign debt crisis, came as Germany suffered what analysts called a "disaster" as it managed to sell only two-thirds of its 10-year bonds (bunds) at auction. With markets already pricing in an imminent endgame for the single currency, France suffered further ignominy with a warning shot across its bows about its triple-A credit rating from US agency Fitch. The euro slid to its lowest level against the dollar for seven weeks. German government officials tried to play down the scale of the abortive bund auction, pointing to the lowest rate – 1.98% – ever recorded for such a long-term bond. But the Bundesbank was forced to retain almost €2.4bn of the planned €6bn sale "for another day" and analysts said the weak demand indicated that eurozone contagion was now afflicting Europe's strongest economy. The commission president, bristling with impatience, exasperation and anger, made his remarks on the euro's survival at a Brussels news conference where he launched a green paper on so-called stability bonds – common eurozone debt instruments for pooling sovereign risk.

The newly appointed Italian Prime Minister Mario Monti has named a government entirely composed of unelected figures, just days after a technocratic government was installed in Greece, where the presence of far-right figures linked to the military junta are raising hackles. Monti, an ex-EU-commissioner, was appointed officially on Wednesday by the president of the republic. The new Prime minister has in turn also appointed himself finance minister and, in a move likely to amplify criticisms that a regime of bankers has been imposed on Europe’s southern flank, Corrado Passero, the CEO of Intesa Sanpaolo, the country’s largest bank, has been awarded the industry and infrastructure job.All ministerial posts will be held by technocrats, soldiers and diplomats. Along these lines, the Italian ambassador in Washington, Giulio Terzi di Sant’Agata, has been made foreign minister while an admiral in the navy, Giampaolo Di Paola is now defence minister, eliminating civilian command of the armed forces. "The process of forming a government has taken a radically unorthodox and rushed route after Silvio Berlusconi - under pressure from markets and other EU leaders, resigned as the country’s economic position grew ever more precarious and threatened to pull the entire eurozone down." writes the EUobserver. Meanwhile in Greece - Far-right MPs with links to the Greek Junta appointed ministers. The imposition of the technocrats in Rome comes just days after former vice-president of the European Central Bank, Lucas Papademos, was placed in the top office in Greece, where he too has appointed an administration of technocrats, complimented by members of the far right - the first time Athens has seen such figures in government since the fall of the military junta in 1974.