The euro crisis, part 394

Rearranging the deckchairs

The markets once again are calling euro-zone leaders’ bluff. Time to get ahead of things

The Economist

Aug 6th 2011 | from the print edition

WHATEVER plans European leaders had made for their holidays are being disrupted by an adversary that never takes a break: the bond markets. A fortnight after yet another summit in Brussels to resolve the euro zone’s debt saga, the pressure on Greece, Ireland and Portugal—the three minnows to have been bailed out by Europe and the IMF so far—has eased. But the strains on far-bigger Spain and Italy are rapidly worsening. The extra interest that both countries pay to borrow for ten years compared with Germany rose to euro-era records this week. Shares in Italian banks, stuffed with domestic government bonds, are being pounded on a daily basis.

Time for a double dip?

The Economist

A lousy debt deal, rising fears of a recession, the danger of longer-term stagnation: America’s outlook is grim

THIS ought to have been a good week for the American economy. The country’s leaders at last ended a ludicrously irresponsible bout of fiscal brinkmanship, removing the threat of global financial Armageddon by agreeing to raise the federal debt ceiling. Yet far from heaving a sigh of relief, investors are nervous. Stockmarkets around the world have tumbled. On August 2nd, the day the debt deal was signed, the S&P 500 index saw its biggest one-day fall in over a year, and yields on ten-year Treasury bonds dropped to 2.6%, their lowest level in nine months, as investors sought safety

French Court Orders Investigation of Lagarde

By WILLIAM HOROBIN, NOEMIE BISSERBE and DAVID GAUTHIER-VILLARS

PARIS—A French criminal court Thursday ordered a probe into whether International Monetary Fund chief Christine Lagarde was complicit in any misuse of public funds in 2008, when she was France's finance minister.

ECB Reactivates Anticrisis Measures

The Wall Street Journal

By GEOFFREY T. SMITH

LONDON—The European Central Bank reactivated two of its most potent anticrisis measures Thursday in an attempt to stop the debt crisis from reaching Spain and Italy.

Stocks Tumble as Signs Point to Weak Global Economy

 The New York Times

The stock market fell sharply Thursday on intensifying investor fears about a slowdown in global economic growth and worries about Europe’s ongoing debt crisis, which is centered now on Italy and Spain.

As Japan intervened to weaken its currency and European stock markets turned negative across the board, United States stocks fell by around 3 percent in morning trading in New York.

Emerging vs developed economies

Power shift

Aug 4th 2011, 17:34 by The Economist online

The emerging world begins to seize the lion's share of global markets

REAL GDP in most rich economies is still below its level at the end of 2007. In contrast, emerging economies’ output has jumped by almost 20% over the same period. The rich world’s woes have clearly hastened the shift in global economic power towards the emerging markets. But exactly how big are emerging economies compared with the old developed world? This chart looks at a wide range of indicators:

Euro crisis: Barroso warns debt crisis is spreading

BBC News

European Commission President Jose Manuel Barroso has warned that the sovereign debt crisis is spreading beyond the periphery of the eurozone.

In a letter to European governments, he called on them to give their "full backing" to the euro currency zone.

He also said governments should rapidly re-assess the European Financial Stability Fund (EFSF) to reduce the risk of contagion in the eurozone.

Bond spreads in the euro zone

The single currency's medical chart

Aug 3rd 2011, 18:31 by The Economist online

THE euro zone's disease has taken a strange turn since the last summit on July 21st. The medicine that leaders prescribed immediately improved the situation of countries in the emergency room, ie, Greece, Ireland and Portugal, which have all received bail-out loans. But it worsened the condition of those outside hospital who had started to fall ill.

Euro Problems Need Fixing Before Financial Markets Lose Their Faith: View

By the Editors Aug 4, 2011 3:00 AM GMT+0300

Bloomberg

The U.S. Congress may have narrowly avoided a government-debt disaster, but financial troubles are resurging across the Atlantic. If European leaders can’t find the political will to implement the drastic measures needed to stem their crisis, markets could soon put them in an untenable position.

Italy's Woes Weigh on Europe

Prime Minister Resists Calls for New Measures, Anxiety Spreads Across Continent

By STACY MEICHTRY, CHARLES FORELLE and DAVID ENRICH

ROME—Italian Prime Minister Silvio Berlusconi resisted calls for a swift economic overhaul, heightening worries that the world's eighth-largest economy is sliding into the sort of debt distress that has laid low its smaller European neighbors.

World debt guide

Owe dear

Jul 28th 2011, 13:05 by The Economist online

Our interactive graphic shows how deeply in hock we all are THE headlines are all about sovereign debt at the moment. But that is only part of the problem. Debt rose across the rich world during the boom, from consumers maxing out credit cards to financial firms taking on more leverage, and the process of reducing it is still at a very early stage.

U.S. Debt-Ceiling Agreement Is an Alarming Bipartisan Mess: View

Bloomberg

The deal reached by the U.S. Congress to raise the $14.3 trillion debt ceiling has spared the nation an immediate catastrophe while potentially setting a path for longer-term disasters.

Financial markets’ initial euphoria over the deal faded quickly. The S&P 500 index of U.S. stocks declined for the sixth day in a row, losing 0.4 percent Monday to close at 1,286.94. The dollar gained against the euro and the yen but declined to a record low against the Swiss franc.

Gold Rallies to Record for Second Day as Signs of Slowdown Fire Up Demand

Bloomberg

By Pham-Duy Nguyen and Nicholas Larkin - Aug 3, 2011 5:35 PM GMT+0300

Gold rose to a record $1,675.90 an ounce in New York on signs that the U.S. economy is faltering amid debt woes, boosting demand for the precious metal as an investment haven.

Moody’s Investors Service said the U.S. credit rating may be downgraded and yesterday placed the country on negative outlook after President Barack Obama signed into law a plan to lift the nation’s borrowing limit and cut spending. Gold priced in euros also reached a record on concern that slowing growth will hamper efforts by Spain and Italy to trim debt.

EU says capacity to solve debt crisis in doubt

(Reuters) - The European Union acknowledged on Wednesday that investors now doubt whether the euro zone can overcome its debt crisis and Italy's Silvio Berlusconi called for more action to ward off market attacks.

European Commission President Jose Manuel Barroso said a surge in Italian and Spanish bond yields to 14-year highs was cause for deep concern although they did not reflect the true state of the third and fourth largest economies in the currency area.

Worsening euro crisis may force bigger rescue fund

(Reuters) - A worsening euro zone debt crisis may ultimately force the bloc to expand its 440 billion euro ($625 billion) bailout fund, despite political opposition in key contributing countries, some officials and analysts say.

Italy, Spain Bond Yields Rise Further

The Wall Street Journal

BY NEELABH CHATURVEDI AND MARK BROWN

LONDON—Italian and Spanish government bond yields rose again toward dangerously high levels early Wednesday on persistent fears that the euro-zone debt crisis is spreading to countries too big to be rescued by the existing euro-zone bailout fund.

Italian 10-year yields rose to 6.227%, a fresh euro-era high, taking the ...

The debt ceiling crisis

Tuesday morning quarterbacking

Aug 2nd 2011, 8:24 by Buttonwood

The Economist

WHAT lessons can be learned from the last minute deal on the US debt ceiling? The first may be that the markets (and some commenters on this blog) were right all along; the politicians would take things to the wire but would eventually do a deal. "It's theatre, folks" as one reader remarked. The trouble with this assumption is that it only encourages politicians to play the game of chicken on the grounds that the other side will blink; this time, the Democrats did but they may adjust their tactics next time.

That 30s feeling

Aug 2nd 2011, 15:16 by R.A. | WASHINGTON,

The Economist

PAUL KRUGMAN finds a troubling story out of Greece:

They descended by the hundreds — black-shirted, bat-wielding youths chasing down dark-skinned immigrants through the streets of Athens and beating them senseless in an unprecedented show of force by Greece’s far-right extremists.

Worries Mount Over Italy and Spain

The Wall Street Journal

By STACY MEICHTRY in Rome, JONATHAN HOUSE in Madrid and CHARLES FORELLE in Brussels

Government bonds and financial markets in Italy and Spain continued their relentless downward march Tuesday, heightening concern about the potential spread of the euro zone's debt crisis into two of the region's most vulnerable countries.

WRAPUP 2-Cyprus faces imminent bailout threat, biggest bank says

Reuters

Adds statements by finance ministry, European Commission)

* Cyprus would be fourth euro zone state to seek bailout

* Bond yields soar in secondary market, CDS hit record

* European Commission says bailout not being discussed

* Government says no significant funding needs til December

* Looking at local, international funding options after that

By Michele Kambas