Businesses in the U.S. unexpectedly expanded at a faster pace in June and consumer confidence reached a 10-week high, signs that economic growth may pick up in the second half of the year.
The Institute for Supply Management-Chicago Inc.’s business barometer climbed to 61.1, exceeding the highest forecast in a Bloomberg News survey, from 56.6 in May. Readings greater than 50 signal expansion. The Bloomberg Consumer Comfort Index rose to minus 43.9 from minus 44.9.
Friday, July 1, 2011
Papandreou Wins Vote on Second Greek Austerity Bill in Bid for More EU Aid
Greek Prime Minister George Papandreou’s drive to stave off the euro area’s first sovereign default stayed on track after lawmakers backed a bill to authorize an austerity plan required to keep rescue aid flowing.
The premier won the vote by 155 to 136, allowing him to implement a 78 billion-euro ($112 billion) package of tax increases and asset sales that was a condition of receiving further European Union aid. Those steps were approved in a vote yesterday which was marred by street violence as police fired tear gas on crowds. That ballot was carried by 155 votes to 138.
The premier won the vote by 155 to 136, allowing him to implement a 78 billion-euro ($112 billion) package of tax increases and asset sales that was a condition of receiving further European Union aid. Those steps were approved in a vote yesterday which was marred by street violence as police fired tear gas on crowds. That ballot was carried by 155 votes to 138.
S&P Would Lower U.S. Credit Rating to D on Failure to Increase Debt Limit
Standard & Poor’s would cut the U.S. credit rating to its lowest level and Moody’s Investors Service said it will probably reduce its ranking if the government fails to increase the debt limit, leading to a default.
S&P would lower its sovereign top-level AAA ranking to D, the last rung on its scale if the U.S. can’t pay its debt, John Chambers, chairman of the company’s sovereign rating committee, said today. Moody’s said it would probably assign a position in the Aa range, or within three steps of its highest level.
S&P would lower its sovereign top-level AAA ranking to D, the last rung on its scale if the U.S. can’t pay its debt, John Chambers, chairman of the company’s sovereign rating committee, said today. Moody’s said it would probably assign a position in the Aa range, or within three steps of its highest level.
German Unemployment Fell for 24th Month in June, Jobless Rate Held Steady
German unemployment declined for a 24th straight month in June, underscoring the resilience of Europe’s largest economy amid the euro region’s debt crisis.
The number of people out of work fell a seasonally adjusted 8,000 to 2.97 million, the Nuremberg-based Federal Labor Agency said today. Economists forecast a drop of 17,000, according to the median of 32 estimates in a Bloomberg News survey. The jobless rate held at 7 percent, the lowest since records for a reunified Germany began in 1991.
German companies are stepping up output and hiring, bolstering consumer demand and helping drive the euro region’s economic expansion. Germany’s economic performance contrasts with that of Greece, where rioters failed yesterday to halt the passage of additional austerity measures as the debt-burdened country struggles to emerge from a recession.
“The German labor market has been improving rapidly since the middle of 2009,” said Aline Schuiling, an economist at ABN Amro Bank NV in Amsterdam. “The combination of robust employment growth and rising wage growth will underpin consumption this year and next.”
The euro traded at $1.4486 at 10:37 a.m. in Frankfurt, up 0.4 percent from yesterday.
The Bundesbank on June 10 forecast the economy will expand 3.1 percent this year after record growth of 3.6 percent in 2010. The “prospects of the German economy experiencing a lengthy period of expansion are rising,” the central bank said.
Porsche Hiring
German carmaker Porsche SE is seeking to hire at least 1,000 people at its factory in Leipzig, while Volkswagen AG (VOW)’s Audi unit plans to recruit some 300 skilled workers. Siemens AG (SIE), Europe’s largest engineering company, has said it has about 4,000 open positions, partly due to a lack of suitable candidates.
“While we don’t see a wide-spread, cross-sector shortage of skilled labor, there are problems in individual occupations such as electrical engineering,” Labor Agency head Frank- Juergen Weise told reporters in Nuremberg today.
With European governments from Spain to Ireland cutting spending, German companies have relied on faster-growing economies to boost sales. Bayerische Motoren Werke AG, the world’s biggest maker of luxury cars based in Munich, said on June 8 that deliveries jumped 22 percent last month.
Germany’s expansion “continues to be driven by foreign demand, but even more now by domestic demand,” the Essen-based RWI economic institute said on June 16. Hiring will increase and “the situation of public households will improve considerably” through 2012, it said.
Greek Package
GfK AG said on June 28 its consumer sentiment index, based on a survey of about 2,000 people, will rise for the first time in four months in July. “Good general conditions” have become “more influential than detrimental factors, such as the state of affairs in Greece,” it said.
European leaders are seeking ways to agree on a deal to prevent Greece from restructuring its debt. Greek lawmakers yesterday passed a 78 billion-euro ($113 billion) austerity package and German Finance Minister Wolfgang Schaeuble is due to meet with banks and insurers in Berlin today to discuss their participation in a second aid package.
Waning Confidence
The euro-region economy is already showing signs of cooling. European economic confidence dropped to the lowest in eight months in June and manufacturing growth weakened. In Germany, investor confidence dropped more than economists forecast last month to the lowest in 2 1/2 years.
The recent slowdown in the decline of German unemployment may be due to the fact that much of the economy’s rebound after the winter season set in earlier than usual, the Labor Agency said today in its report. The economy expanded 1.5 percent in the first quarter from the fourth, when it grew 0.4 percent.
According to comparable data from the Organization for Economic Cooperation and Development, Germany’s jobless rate was 6.1 percent in April while the euro-region average was 9.9 percent. France had 9.4 percent unemployment, the U.S. 9 percent and Spain 20.7 percent.
In the euro-region economy, unemployment probably held at 9.9 percent in May, according to a Bloomberg survey. The European Union’s statistics office in Luxembourg will release the report tomorrow.
The number of people out of work fell a seasonally adjusted 8,000 to 2.97 million, the Nuremberg-based Federal Labor Agency said today. Economists forecast a drop of 17,000, according to the median of 32 estimates in a Bloomberg News survey. The jobless rate held at 7 percent, the lowest since records for a reunified Germany began in 1991.
German companies are stepping up output and hiring, bolstering consumer demand and helping drive the euro region’s economic expansion. Germany’s economic performance contrasts with that of Greece, where rioters failed yesterday to halt the passage of additional austerity measures as the debt-burdened country struggles to emerge from a recession.
“The German labor market has been improving rapidly since the middle of 2009,” said Aline Schuiling, an economist at ABN Amro Bank NV in Amsterdam. “The combination of robust employment growth and rising wage growth will underpin consumption this year and next.”
The euro traded at $1.4486 at 10:37 a.m. in Frankfurt, up 0.4 percent from yesterday.
The Bundesbank on June 10 forecast the economy will expand 3.1 percent this year after record growth of 3.6 percent in 2010. The “prospects of the German economy experiencing a lengthy period of expansion are rising,” the central bank said.
Porsche Hiring
German carmaker Porsche SE is seeking to hire at least 1,000 people at its factory in Leipzig, while Volkswagen AG (VOW)’s Audi unit plans to recruit some 300 skilled workers. Siemens AG (SIE), Europe’s largest engineering company, has said it has about 4,000 open positions, partly due to a lack of suitable candidates.
“While we don’t see a wide-spread, cross-sector shortage of skilled labor, there are problems in individual occupations such as electrical engineering,” Labor Agency head Frank- Juergen Weise told reporters in Nuremberg today.
With European governments from Spain to Ireland cutting spending, German companies have relied on faster-growing economies to boost sales. Bayerische Motoren Werke AG, the world’s biggest maker of luxury cars based in Munich, said on June 8 that deliveries jumped 22 percent last month.
Germany’s expansion “continues to be driven by foreign demand, but even more now by domestic demand,” the Essen-based RWI economic institute said on June 16. Hiring will increase and “the situation of public households will improve considerably” through 2012, it said.
Greek Package
GfK AG said on June 28 its consumer sentiment index, based on a survey of about 2,000 people, will rise for the first time in four months in July. “Good general conditions” have become “more influential than detrimental factors, such as the state of affairs in Greece,” it said.
European leaders are seeking ways to agree on a deal to prevent Greece from restructuring its debt. Greek lawmakers yesterday passed a 78 billion-euro ($113 billion) austerity package and German Finance Minister Wolfgang Schaeuble is due to meet with banks and insurers in Berlin today to discuss their participation in a second aid package.
Waning Confidence
The euro-region economy is already showing signs of cooling. European economic confidence dropped to the lowest in eight months in June and manufacturing growth weakened. In Germany, investor confidence dropped more than economists forecast last month to the lowest in 2 1/2 years.
The recent slowdown in the decline of German unemployment may be due to the fact that much of the economy’s rebound after the winter season set in earlier than usual, the Labor Agency said today in its report. The economy expanded 1.5 percent in the first quarter from the fourth, when it grew 0.4 percent.
According to comparable data from the Organization for Economic Cooperation and Development, Germany’s jobless rate was 6.1 percent in April while the euro-region average was 9.9 percent. France had 9.4 percent unemployment, the U.S. 9 percent and Spain 20.7 percent.
In the euro-region economy, unemployment probably held at 9.9 percent in May, according to a Bloomberg survey. The European Union’s statistics office in Luxembourg will release the report tomorrow.
South African Producer Inflation Accelerates to 6.9% in May, Agency Says
The cost of goods leaving South African factories and mines rose at a faster pace in May than the previous month, reflecting a rise in the price of food, electricity, oil and other commodities.
Producer prices increased an annual 6.9 percent after gaining 6.6 percent in April, Pretoria-based Statistics South Africa said on its website today. The median estimate of 14 economists surveyed by Bloomberg was 7.1 percent. Prices rose 0.4 percent in the month.
“Commodity prices have corrected slightly off earlier highs, which should help to contain producer inflation in the months ahead,” Carmen Altenkirch, an economist at Nedbank Group Ltd. in Johannesburg, said in e-mailed comments. “However, base effects and the return of some pricing power to producers should push prices at the manufacturing level up modestly.”
The price of crude fell 9.9 percent in May on the New York Mercantile Exchange, trimming its 12-month gain to 39 percent. Higher factory-gate prices may feed through to consumer inflation, placing pressure on the central bank to raise interest rates from a 30-year low.
Consumer inflation accelerated to 4.6 percent from 4.2 percent in April. The central bank’s inflation target range is between 3 percent and 6 percent.
Mixed Signals
Reserve Bank Governor Gill Marcus left the benchmark interest rate unchanged at 5.5 percent on May 12, while warning that the outlook for inflation had deteriorated. The bank expects inflation to average 5.1 percent this year and 6 percent in 2012, with a temporary breach of its target in the first quarter of next year.
The bank’s monetary policy committee is due to announce its next interest-rate decision on July 21. South Africa’s economic data is giving mixed signals about what interest rate is needed, Marcus said in Pretoria today.
The rand traded at 6.7888 per dollar at 12:25 p.m. in Johannesburg, little changed from before the release of the inflation data and stronger than 6.8259 late yesterday.
Bonds advanced for the first day in three. The 13.5 percent notes due 2015 jumped 17 cents to 121.41 rand, driving the yield down five basis points, or 0.05 percentage point, to 7.45 percent. The 6.75 percent securities due 2021 climbed 34 cents to 89.26 rand.
Producer prices increased an annual 6.9 percent after gaining 6.6 percent in April, Pretoria-based Statistics South Africa said on its website today. The median estimate of 14 economists surveyed by Bloomberg was 7.1 percent. Prices rose 0.4 percent in the month.
“Commodity prices have corrected slightly off earlier highs, which should help to contain producer inflation in the months ahead,” Carmen Altenkirch, an economist at Nedbank Group Ltd. in Johannesburg, said in e-mailed comments. “However, base effects and the return of some pricing power to producers should push prices at the manufacturing level up modestly.”
The price of crude fell 9.9 percent in May on the New York Mercantile Exchange, trimming its 12-month gain to 39 percent. Higher factory-gate prices may feed through to consumer inflation, placing pressure on the central bank to raise interest rates from a 30-year low.
Consumer inflation accelerated to 4.6 percent from 4.2 percent in April. The central bank’s inflation target range is between 3 percent and 6 percent.
Mixed Signals
Reserve Bank Governor Gill Marcus left the benchmark interest rate unchanged at 5.5 percent on May 12, while warning that the outlook for inflation had deteriorated. The bank expects inflation to average 5.1 percent this year and 6 percent in 2012, with a temporary breach of its target in the first quarter of next year.
The bank’s monetary policy committee is due to announce its next interest-rate decision on July 21. South Africa’s economic data is giving mixed signals about what interest rate is needed, Marcus said in Pretoria today.
The rand traded at 6.7888 per dollar at 12:25 p.m. in Johannesburg, little changed from before the release of the inflation data and stronger than 6.8259 late yesterday.
Bonds advanced for the first day in three. The 13.5 percent notes due 2015 jumped 17 cents to 121.41 rand, driving the yield down five basis points, or 0.05 percentage point, to 7.45 percent. The 6.75 percent securities due 2021 climbed 34 cents to 89.26 rand.
RBA’s McKibbin Sees Greece as First Carriage in World Fiscal ‘Train Wreck’
Greece is one of several nations that will need to cut spending and boost taxes, slowing global growth even as low interest rates raise the risk of inflation, Australian central bank board member Warwick McKibbin said.
The fiscal outlook “is what I call the slow motion train wreck -- the first carriage to break is going to be the Greek economy, but we have a series of economies facing very serious fiscal adjustment,” said McKibbin, a professor at Australian National University whose board term ends July 30, in a speech in Melbourne today. He said his comments reflected his personal views, not those of the Reserve Bank of Australia.
Greece’s capital has been paralyzed for the past two days by a general strike and protests from more than 20,000 people as lawmakers deliberate on Prime Minister George Papandreou’s $112 billion austerity plan. Having won passage for a bill setting out his strategy for budget cuts, Papandreou must today win a second ballot to execute measures ranging from tax increases to asset sales.
“There’s almost guaranteed collapse or crisis in the euro zone and there’s serious global inflation problems and a policy response looming,” said McKibbin, who is also a senior fellow at the Brookings Institution in Washington. “All of these have implications for relative commodity prices.”
In contrast, Treasurer Wayne Swan in a speech at the same Melbourne conference today said: “Some have a dire view of what’s happening in Europe. I don’t share those views.”
Euro Advancing
The euro rose to a three-week high on prospects the European Central Bank will raise borrowing costs next week to curb inflation. The currency climbed to as high as $1.4504, the highest level since June 10, before trading at $1.4498 as of 11:59 a.m. in Tokyo.
ECB President Jean-Claude Trichet said on June 28 that policy makers are in “strong vigilance mode.”
Australia is experiencing a surge in resource investment as mining and energy firms boost output to meet demand from China and India, two economies that account for more than a third of the world’s population. That’s bolstered demand for Australia’s dollar, the world’s fifth-most traded currency, which advanced 27 percent in the past year and reached $1.1012 on May 2, the highest since it was freely floated in 1983.
Australian Boom
“Everyone seems to be focusing primarily on maximizing the return of this resources boom. I think that’s the wrong focus, we also need to focus on minimizing risk,” McKibbin said. “China and India seem to be in everyone’s minds, but also there is a key contribution from very loose monetary policy.”
The U.S. Federal Reserve has held its benchmark rate near zero since December 2008 and is scheduled to complete Treasury purchases today under a $600 billion program of so-called quantitative easing.
“If you ignore the monetary aspects of what’s happening in the global economy, you are going to be over-optimistic in many projections,” McKibbin said.
Australia’s central bank, in a May 6 policy statement, forecast growth in 2011 at 4.25 percent. Consumer prices will rise 3.25 percent over the period and core inflation will quicken to 3 percent from 2.75 percent, it said. The RBA aims to keep price growth between 2 percent and 3 percent on average.
Greek lawmakers yesterday needed the protection of riot police who frequently deployed tear gas in violent clashes with protesters. A blaze at the Hellenic Post Office, on the ground floor of the building housing the finance ministry opposite the legislature, was doused by fire fighters.
Greek Yields
While approval today would pave the way for Greece to secure a fifth tranche of money from the European Union to prevent a default, the yield on the country’s two-year bond yesterday remained above 27 percent for an 11th day.
The yield on the 4.6 percent note maturing in May 2013 has jumped to 27.31 percent from 16.93 percent on April 13, when German Finance Minister Wolfgang Schaeuble raised the prospect that Greece may have to restructure its debt.
Under the terms of the new austerity plan, Papandreou has pledged to find buyers for state assets worth 50 billion euros ($72 billion) and impose levies ranging from 1 percent to 5 percent on wages. He also plans higher taxes on restaurants and bars, higher heating-oil taxes and lowering the tax-free threshold to 8,000 euros from 12,000 euros presently.
The Greek government’s struggles to gain aid needed to avoid a default helped send Australian two-year government bond yields to a nine-month low, on concern Europe’s debt crisis would lead to a repeat of the credit crunch that followed the 2008 collapse of Lehman Brothers Holdings Inc.
“All these issues are going to determine what’s happening in the global sphere and all of these will impact on the Australian economy,” McKibbin said.
RBA Governor Glenn Stevens said in minutes of the bank’s June 7 meeting released last week that his board will weigh developments in Europe against a forecast acceleration in price growth in deciding whether to raise interest rates. Stevens has held the cash-rate target at 4.75 percent, the highest level in the developed world, for the past six meetings.
The fiscal outlook “is what I call the slow motion train wreck -- the first carriage to break is going to be the Greek economy, but we have a series of economies facing very serious fiscal adjustment,” said McKibbin, a professor at Australian National University whose board term ends July 30, in a speech in Melbourne today. He said his comments reflected his personal views, not those of the Reserve Bank of Australia.
Greece’s capital has been paralyzed for the past two days by a general strike and protests from more than 20,000 people as lawmakers deliberate on Prime Minister George Papandreou’s $112 billion austerity plan. Having won passage for a bill setting out his strategy for budget cuts, Papandreou must today win a second ballot to execute measures ranging from tax increases to asset sales.
“There’s almost guaranteed collapse or crisis in the euro zone and there’s serious global inflation problems and a policy response looming,” said McKibbin, who is also a senior fellow at the Brookings Institution in Washington. “All of these have implications for relative commodity prices.”
In contrast, Treasurer Wayne Swan in a speech at the same Melbourne conference today said: “Some have a dire view of what’s happening in Europe. I don’t share those views.”
Euro Advancing
The euro rose to a three-week high on prospects the European Central Bank will raise borrowing costs next week to curb inflation. The currency climbed to as high as $1.4504, the highest level since June 10, before trading at $1.4498 as of 11:59 a.m. in Tokyo.
ECB President Jean-Claude Trichet said on June 28 that policy makers are in “strong vigilance mode.”
Australia is experiencing a surge in resource investment as mining and energy firms boost output to meet demand from China and India, two economies that account for more than a third of the world’s population. That’s bolstered demand for Australia’s dollar, the world’s fifth-most traded currency, which advanced 27 percent in the past year and reached $1.1012 on May 2, the highest since it was freely floated in 1983.
Australian Boom
“Everyone seems to be focusing primarily on maximizing the return of this resources boom. I think that’s the wrong focus, we also need to focus on minimizing risk,” McKibbin said. “China and India seem to be in everyone’s minds, but also there is a key contribution from very loose monetary policy.”
The U.S. Federal Reserve has held its benchmark rate near zero since December 2008 and is scheduled to complete Treasury purchases today under a $600 billion program of so-called quantitative easing.
“If you ignore the monetary aspects of what’s happening in the global economy, you are going to be over-optimistic in many projections,” McKibbin said.
Australia’s central bank, in a May 6 policy statement, forecast growth in 2011 at 4.25 percent. Consumer prices will rise 3.25 percent over the period and core inflation will quicken to 3 percent from 2.75 percent, it said. The RBA aims to keep price growth between 2 percent and 3 percent on average.
Greek lawmakers yesterday needed the protection of riot police who frequently deployed tear gas in violent clashes with protesters. A blaze at the Hellenic Post Office, on the ground floor of the building housing the finance ministry opposite the legislature, was doused by fire fighters.
Greek Yields
While approval today would pave the way for Greece to secure a fifth tranche of money from the European Union to prevent a default, the yield on the country’s two-year bond yesterday remained above 27 percent for an 11th day.
The yield on the 4.6 percent note maturing in May 2013 has jumped to 27.31 percent from 16.93 percent on April 13, when German Finance Minister Wolfgang Schaeuble raised the prospect that Greece may have to restructure its debt.
Under the terms of the new austerity plan, Papandreou has pledged to find buyers for state assets worth 50 billion euros ($72 billion) and impose levies ranging from 1 percent to 5 percent on wages. He also plans higher taxes on restaurants and bars, higher heating-oil taxes and lowering the tax-free threshold to 8,000 euros from 12,000 euros presently.
The Greek government’s struggles to gain aid needed to avoid a default helped send Australian two-year government bond yields to a nine-month low, on concern Europe’s debt crisis would lead to a repeat of the credit crunch that followed the 2008 collapse of Lehman Brothers Holdings Inc.
“All these issues are going to determine what’s happening in the global sphere and all of these will impact on the Australian economy,” McKibbin said.
RBA Governor Glenn Stevens said in minutes of the bank’s June 7 meeting released last week that his board will weigh developments in Europe against a forecast acceleration in price growth in deciding whether to raise interest rates. Stevens has held the cash-rate target at 4.75 percent, the highest level in the developed world, for the past six meetings.
Bill Clinton Says U.S. Lacks Planning Needed for Global Success
Former President Bill Clinton, opening a conference on job creation, said the U.S. lacks the long-term budgeting and planning needed to be as successful as possible on the global stage.
“We’ve gotten ourselves in a position where we’re spending too much money on today and yesterday and not money enough on tomorrow,” he said yesterday during the initial panel discussion at the Clinton Global Initiative’s two-day gathering in Chicago. “We’re borrowing too much, so that once the economy picks up, we’re creating tomorrow’s problem.”
Clinton said the nation must find a better mix for the portions of the U.S. gross domestic product represented by federal spending and taxes.
“We can’t afford to spend 25 percent of GDP on government expenditures,” he said. “I don’t think we can afford to tax at only 15 percent of GDP, either, which is about where we are.”
He called for a 10-year plan that would allow Americans to have a better sense of “what we think would be a competitive level of revenues and a competitive level of expenditures.”
Clinton spoke as President Barack Obama and congressional Republican leaders remain at odds on how to reduce the deficit and clear the way for an agreement to raise the nation’s borrowing limit, now $14.3 trillion. The Treasury Department has said it has until Aug. 2 before its ability to pay U.S. debt obligations runs out.
‘Painful Cuts’
At a White House news conference yesterday, Obama urged the Republicans to set aside their rejection of tax increases as part of a deficit reduction plan. Democrats are willing to accept some “painful cuts” to favored programs, and Republicans must concede that some taxes may have to be raised, he said.
Clinton urged greater lending to help the U.S. economy. “We continue to struggle with this economy and the low rate of business formation and job creation,” he said.
“The banks of America now have well over $2 trillion in cash not committed to loans,” he said. “There is nowhere near $2 trillion in loan demand out there now, but there’s more than is presently being satisfied.”
The recession in the U.S. officially lasted from December 2007 to June 2009. During that period, the world’s largest economy shrank 4.1 percent, the Commerce Department reported last year.
Unemployment Benefits
More Americans than forecast filed applications for unemployment benefits last week, showing little progress in the labor market.
Jobless claims fell by 1,000 to 428,000 in the week ended June 25, according to Labor Department figures released today.
Clinton told CNBC today that one way to reduce the unemployment rate of about 9 percent would be to help employers find and train workers for the 3 million job openings that are being advertised.
Job vacancies are being filled at half the rate of previous recessions, he said.
By assisting companies, “we could hire another couple million people,” Clinton said. “That would lower the unemployment rate, increase the confidence rate and get investment going.”
Clinton also urged that financing be provided to help pay unemployed construction workers to upgrade buildings to make them more energy efficient.
Obama Re-Election Chances
The unemployment rate is likely to be better on Election Day, which will be among the factors ensuring Obama another four years in the White House, Clinton told ABC News in article posted online today.
“I’ll be surprised if he’s not re-elected,” he said.
Clinton praised several Republican presidential contenders such as Jon Huntsman, describing the former Utah governor as “conservative, but non-ideological, practical.”
Former Massachusetts Governor Mitt Romney is a better campaigner than he was four years ago, and Minnesota Representative Michele Bachmann has done well because “she comes across as a real person,” Clinton told ABC News.
More than 750 business and government leaders are attending Clinton’s conference at a Chicago hotel, along with three members of Obama’s cabinet, Clinton said. They are Treasury Secretary Timothy Geithner, Agriculture Secretary Tom Vilsack and Energy Secretary Steven Chu.
Global Initiative
The conference marks the first time the former president has held such a gathering focused solely on the U.S. He established the Clinton Global Initiative in 2005, and the group says that over the years it has received investment commitments worth $63 billion that already have helped 300 million people in 180 countries.
Chicago Mayor Rahm Emanuel, Obama’s former White House chief of staff and an aide during Clinton’s administration, made a pitch for corporations to consider his city for expansion.
“If you see us willing to shape our future with a sense of confidence, you’ll have the confidence then to invest in our city,” he said. “We in the public sector, we don’t create jobs. We create the conditions so that you can invest and create the jobs in our city.”
Emanuel said he plans to host a conference in Chicago focused on continuing the city’s commitment to the aviation industry. Along with having two international airports, O’Hare and Midway, Chicago is the headquarters for Boeing Co. (BA) and United Continental Holdings Inc. (UAL)
After Labor Day
After Emanuel made his remarks, spokeswoman Tarrah Cooper said details are being worked out for the conference, which will be held sometime after Labor Day.
Clinton offered praise for Emanuel, elected in February to succeed Richard M. Daley, who retired after serving as Chicago’s mayor for 22 years.
“When he worked for me in the White House, he used to remind everybody that over the long run the best politics is good policy,” Clinton said. “He was utterly obsessed with finding every good idea then being implemented in the United States or around the world.”
Emanuel worked for Clinton as a political director and senior adviser.
“Obviously, since our personal relationship goes back 20 years, I have a vested interest on bragging on him, and you are entitled to discount some of it, but I predict to you that his tenure as mayor of Chicago will be one of the most brilliant chapters in this city’s long and storied history,” Clinton said. “And it’s altogether fitting because from the first day I met him, Rahm told me that Chicago should be the capital of the world.”
More Incentives
Appearing on the conference’s first panel, Mississippi Governor Haley Barbour called for more incentives to create training programs that teach practical skills.
“We have got to stop stigmatizing skills training and trades in the United States,” said Barbour, who in April ruled out running for the 2012 Republican presidential nomination.
Barbour also called for deficit reduction and a smaller federal government.
“That is a huge barrier to employment,” he said.
“We’ve gotten ourselves in a position where we’re spending too much money on today and yesterday and not money enough on tomorrow,” he said yesterday during the initial panel discussion at the Clinton Global Initiative’s two-day gathering in Chicago. “We’re borrowing too much, so that once the economy picks up, we’re creating tomorrow’s problem.”
Clinton said the nation must find a better mix for the portions of the U.S. gross domestic product represented by federal spending and taxes.
“We can’t afford to spend 25 percent of GDP on government expenditures,” he said. “I don’t think we can afford to tax at only 15 percent of GDP, either, which is about where we are.”
He called for a 10-year plan that would allow Americans to have a better sense of “what we think would be a competitive level of revenues and a competitive level of expenditures.”
Clinton spoke as President Barack Obama and congressional Republican leaders remain at odds on how to reduce the deficit and clear the way for an agreement to raise the nation’s borrowing limit, now $14.3 trillion. The Treasury Department has said it has until Aug. 2 before its ability to pay U.S. debt obligations runs out.
‘Painful Cuts’
At a White House news conference yesterday, Obama urged the Republicans to set aside their rejection of tax increases as part of a deficit reduction plan. Democrats are willing to accept some “painful cuts” to favored programs, and Republicans must concede that some taxes may have to be raised, he said.
Clinton urged greater lending to help the U.S. economy. “We continue to struggle with this economy and the low rate of business formation and job creation,” he said.
“The banks of America now have well over $2 trillion in cash not committed to loans,” he said. “There is nowhere near $2 trillion in loan demand out there now, but there’s more than is presently being satisfied.”
The recession in the U.S. officially lasted from December 2007 to June 2009. During that period, the world’s largest economy shrank 4.1 percent, the Commerce Department reported last year.
Unemployment Benefits
More Americans than forecast filed applications for unemployment benefits last week, showing little progress in the labor market.
Jobless claims fell by 1,000 to 428,000 in the week ended June 25, according to Labor Department figures released today.
Clinton told CNBC today that one way to reduce the unemployment rate of about 9 percent would be to help employers find and train workers for the 3 million job openings that are being advertised.
Job vacancies are being filled at half the rate of previous recessions, he said.
By assisting companies, “we could hire another couple million people,” Clinton said. “That would lower the unemployment rate, increase the confidence rate and get investment going.”
Clinton also urged that financing be provided to help pay unemployed construction workers to upgrade buildings to make them more energy efficient.
Obama Re-Election Chances
The unemployment rate is likely to be better on Election Day, which will be among the factors ensuring Obama another four years in the White House, Clinton told ABC News in article posted online today.
“I’ll be surprised if he’s not re-elected,” he said.
Clinton praised several Republican presidential contenders such as Jon Huntsman, describing the former Utah governor as “conservative, but non-ideological, practical.”
Former Massachusetts Governor Mitt Romney is a better campaigner than he was four years ago, and Minnesota Representative Michele Bachmann has done well because “she comes across as a real person,” Clinton told ABC News.
More than 750 business and government leaders are attending Clinton’s conference at a Chicago hotel, along with three members of Obama’s cabinet, Clinton said. They are Treasury Secretary Timothy Geithner, Agriculture Secretary Tom Vilsack and Energy Secretary Steven Chu.
Global Initiative
The conference marks the first time the former president has held such a gathering focused solely on the U.S. He established the Clinton Global Initiative in 2005, and the group says that over the years it has received investment commitments worth $63 billion that already have helped 300 million people in 180 countries.
Chicago Mayor Rahm Emanuel, Obama’s former White House chief of staff and an aide during Clinton’s administration, made a pitch for corporations to consider his city for expansion.
“If you see us willing to shape our future with a sense of confidence, you’ll have the confidence then to invest in our city,” he said. “We in the public sector, we don’t create jobs. We create the conditions so that you can invest and create the jobs in our city.”
Emanuel said he plans to host a conference in Chicago focused on continuing the city’s commitment to the aviation industry. Along with having two international airports, O’Hare and Midway, Chicago is the headquarters for Boeing Co. (BA) and United Continental Holdings Inc. (UAL)
After Labor Day
After Emanuel made his remarks, spokeswoman Tarrah Cooper said details are being worked out for the conference, which will be held sometime after Labor Day.
Clinton offered praise for Emanuel, elected in February to succeed Richard M. Daley, who retired after serving as Chicago’s mayor for 22 years.
“When he worked for me in the White House, he used to remind everybody that over the long run the best politics is good policy,” Clinton said. “He was utterly obsessed with finding every good idea then being implemented in the United States or around the world.”
Emanuel worked for Clinton as a political director and senior adviser.
“Obviously, since our personal relationship goes back 20 years, I have a vested interest on bragging on him, and you are entitled to discount some of it, but I predict to you that his tenure as mayor of Chicago will be one of the most brilliant chapters in this city’s long and storied history,” Clinton said. “And it’s altogether fitting because from the first day I met him, Rahm told me that Chicago should be the capital of the world.”
More Incentives
Appearing on the conference’s first panel, Mississippi Governor Haley Barbour called for more incentives to create training programs that teach practical skills.
“We have got to stop stigmatizing skills training and trades in the United States,” said Barbour, who in April ruled out running for the 2012 Republican presidential nomination.
Barbour also called for deficit reduction and a smaller federal government.
“That is a huge barrier to employment,” he said.
Consumer Confidence in U.S. at 10-Week High on Fuel, Bloomberg Index Shows
Consumer confidence rose to the highest level in 10 weeks as falling gasoline prices provided relief to Americans contending with 9.1 percent joblessness.
The Bloomberg Consumer Comfort Index increased to minus 43.9 for the period ended June 26 after dropping to minus 44.9 the prior week. The change in the comfort gauge last week was within the survey’s margin of error of 3 points. The measure among those with a college degree or more was the least negative in more than two years.
Retail fuel costs that have dropped 11 percent from a 2011 high of $3.99 per gallon are relieving stress on Americans’ pocketbooks. Lower prices at the pump are reassuring consumers coping with a cooling labor market that’s restraining incomes and spending.
“The drop in gasoline prices does give real spending power a lift, reversing the some of the hits over the last couple of months,” said James O’Sullivan, chief economist at MF Global Inc. in New York. “Ultimately the key driver of spending, as well as confidence, will be the state of the labor market.”
Slow job growth has weighed on monthly consumer confidence ratings. The Conference Board said June 28 its sentiment index dropped to a seven-month low, while the Thomson Reuters/University of Michigan preliminary index of consumer sentiment declined, according to a June 17 report.
Changes in gasoline prices and the Bloomberg comfort index have shown an inverse correlation since 2004, according to calculations by Joseph Brusuelas, senior economist at Bloomberg LP in New York.
Jobless Claims
Another report today showed the labor market is struggling to improve as more Americans than forecast filed first-time applications for unemployment benefits. Jobless claims dropped by 1,000 to 428,000 last week, the Labor Department said. Economists surveyed by Bloomberg projected 420,000 claims, according to the median estimate.
Job gains in May were the weakest since September as employers added 54,000 positions, the government said June 3.
A separately report today showed businesses unexpectedly expanded at a faster pace in June as orders picked up. The Institute for Supply Management-Chicago Inc. said its business barometer rose to 61.1 this month from 56.6 a month earlier. Figures greater than 50 signal expansion. Economists called for the index to drop to 54, according to the median forecast in a Bloomberg News survey.
U.S. stocks rose for a fourth day. The Standard & Poor’s 500 Index gained 0.8 percent to 1,317.43 at 10:09 a.m. in New York.
Economic Views
In the Bloomberg survey, all three components advanced. An index of consumers’ views of the economy increased to minus 79.2 last week from minus 80.1. The gauge of personal finances rose to minus 5.5 from minus 7.6 the prior week. The buying climate measure was little changed at minus 46.9, the best showing since January.
Adults between the ages of 18 to 34 grew more confident, with the index rising to minus 37.8, the highest since the week ended April 17. College graduates, with an index of minus 30.2, were the most optimistic since April 2009. Comfort levels among people 65 and older, by contrast, dropped to the lowest level since June 2010.
The overall Bloomberg consumer comfort index has averaged minus 44.7 so far this year, compared with minus 45.7 for the full year 2010 and minus 47.9 in 2009, the report showed.
The gauge hasn’t climbed above minus 40, a level associated with recessions, since late February, which “speaks to longer- term forces such as the persistently weak job and housing markets,” Gary Langer, president of Langer Research Associates LLC in New York, which compiles the index for Bloomberg, said in a statement.
Restraining Spending
Rising commodity prices and slow income growth are weighing on consumers’ perception of the economy and keeping them from spending, Howard Levine, chief executive officer of Family Dollar Stores Inc. (FDO), said yesterday. The second-biggest dollar chain in the U.S. reported earnings for the third quarter ended May 28 that fell below analysts’ forecasts in a Bloomberg survey. The Matthews, North Carolina-based company also trimmed projections for fiscal 2011 profit.
“Today many consumers remain financially constrained,” Levine said on a conference call. “Higher prices combined with rising food costs and sluggish income growth have left many families believing that the economic recovery has yet to take hold.”
Among consumers who own their homes, confidence fell to minus 44.3, the lowest since the week ended March 20, according to today’s figures. The S&P/Case-Shiller index of property values in 20 cities dropped 4 percent in the year ended April 2011, the biggest decline in 17 months.
Renters’ Optimism
Those renting a residence became more optimistic, with an index of minus 42.2, the highest since February, Bloomberg’s gauge showed.
The Bloomberg Consumer Comfort Index is based on responses to telephone interviews with a random sample of 1,000 U.S. residents age 18 and over. Each week, 250 respondents are asked for their views on the economy, personal finances and buying climate. Results are combined with data from the previous three weeks, and the percentage of negative responses is subtracted from the share of positive views on each question, with the results then averaged.
The comfort index can range from 100, indicating every participant in the survey had a positive response to all three components, to minus 100, signaling all views were negative.
Field work for the index is done by Social Science Research Solutions in Media, Pennsylvania.
The Bloomberg Consumer Comfort Index increased to minus 43.9 for the period ended June 26 after dropping to minus 44.9 the prior week. The change in the comfort gauge last week was within the survey’s margin of error of 3 points. The measure among those with a college degree or more was the least negative in more than two years.
Retail fuel costs that have dropped 11 percent from a 2011 high of $3.99 per gallon are relieving stress on Americans’ pocketbooks. Lower prices at the pump are reassuring consumers coping with a cooling labor market that’s restraining incomes and spending.
“The drop in gasoline prices does give real spending power a lift, reversing the some of the hits over the last couple of months,” said James O’Sullivan, chief economist at MF Global Inc. in New York. “Ultimately the key driver of spending, as well as confidence, will be the state of the labor market.”
Slow job growth has weighed on monthly consumer confidence ratings. The Conference Board said June 28 its sentiment index dropped to a seven-month low, while the Thomson Reuters/University of Michigan preliminary index of consumer sentiment declined, according to a June 17 report.
Changes in gasoline prices and the Bloomberg comfort index have shown an inverse correlation since 2004, according to calculations by Joseph Brusuelas, senior economist at Bloomberg LP in New York.
Jobless Claims
Another report today showed the labor market is struggling to improve as more Americans than forecast filed first-time applications for unemployment benefits. Jobless claims dropped by 1,000 to 428,000 last week, the Labor Department said. Economists surveyed by Bloomberg projected 420,000 claims, according to the median estimate.
Job gains in May were the weakest since September as employers added 54,000 positions, the government said June 3.
A separately report today showed businesses unexpectedly expanded at a faster pace in June as orders picked up. The Institute for Supply Management-Chicago Inc. said its business barometer rose to 61.1 this month from 56.6 a month earlier. Figures greater than 50 signal expansion. Economists called for the index to drop to 54, according to the median forecast in a Bloomberg News survey.
U.S. stocks rose for a fourth day. The Standard & Poor’s 500 Index gained 0.8 percent to 1,317.43 at 10:09 a.m. in New York.
Economic Views
In the Bloomberg survey, all three components advanced. An index of consumers’ views of the economy increased to minus 79.2 last week from minus 80.1. The gauge of personal finances rose to minus 5.5 from minus 7.6 the prior week. The buying climate measure was little changed at minus 46.9, the best showing since January.
Adults between the ages of 18 to 34 grew more confident, with the index rising to minus 37.8, the highest since the week ended April 17. College graduates, with an index of minus 30.2, were the most optimistic since April 2009. Comfort levels among people 65 and older, by contrast, dropped to the lowest level since June 2010.
The overall Bloomberg consumer comfort index has averaged minus 44.7 so far this year, compared with minus 45.7 for the full year 2010 and minus 47.9 in 2009, the report showed.
The gauge hasn’t climbed above minus 40, a level associated with recessions, since late February, which “speaks to longer- term forces such as the persistently weak job and housing markets,” Gary Langer, president of Langer Research Associates LLC in New York, which compiles the index for Bloomberg, said in a statement.
Restraining Spending
Rising commodity prices and slow income growth are weighing on consumers’ perception of the economy and keeping them from spending, Howard Levine, chief executive officer of Family Dollar Stores Inc. (FDO), said yesterday. The second-biggest dollar chain in the U.S. reported earnings for the third quarter ended May 28 that fell below analysts’ forecasts in a Bloomberg survey. The Matthews, North Carolina-based company also trimmed projections for fiscal 2011 profit.
“Today many consumers remain financially constrained,” Levine said on a conference call. “Higher prices combined with rising food costs and sluggish income growth have left many families believing that the economic recovery has yet to take hold.”
Among consumers who own their homes, confidence fell to minus 44.3, the lowest since the week ended March 20, according to today’s figures. The S&P/Case-Shiller index of property values in 20 cities dropped 4 percent in the year ended April 2011, the biggest decline in 17 months.
Renters’ Optimism
Those renting a residence became more optimistic, with an index of minus 42.2, the highest since February, Bloomberg’s gauge showed.
The Bloomberg Consumer Comfort Index is based on responses to telephone interviews with a random sample of 1,000 U.S. residents age 18 and over. Each week, 250 respondents are asked for their views on the economy, personal finances and buying climate. Results are combined with data from the previous three weeks, and the percentage of negative responses is subtracted from the share of positive views on each question, with the results then averaged.
The comfort index can range from 100, indicating every participant in the survey had a positive response to all three components, to minus 100, signaling all views were negative.
Field work for the index is done by Social Science Research Solutions in Media, Pennsylvania.
Tale of Two Visions for Euro Boils Beneath Fight to Fix Greek Debt Crisis
The longer Greece avoids default, the closer European leaders come to breaking one of their oldest taboos by taking responsibility for the finances of a neighbor.
Even as they resist European Central Bank President Jean- Claude Trichet’s call for a “major strengthening” of fiscal ties, European authorities are becoming the biggest holders of Greek debt. That would leave the country a virtual ward of the state, the objection of the bloc’s politicians to sharing sovereignty undercut by their own efforts to save the euro.
“The more debt restructuring is avoided the more Greece’s liabilities are socialized and the more a de facto fiscal union occurs,” said David Mackie, chief European economist at JPMorgan Chase & Co. in London. “If the ECB is successful in its attempt to prevent any kind of restructuring in the near- term, the region will move down the path towards the destination Trichet wants.”
Greek lawmakers yesterday approved an austerity package, clearing the way for the second international rescue in two years, which would expand taxpayers’ stake in Europe’s most- indebted country. For investors, greater subsidies from the strong to the weak risk hurting the German bonds that serve as the region’s benchmark.
The outcome of the scrap may determine whether the euro evolves or runs aground on the concern that its 17 members are too diverse to be united in one currency if some aren’t willing to abide by the rules and others won’t aid those in trouble.
Europe’s ‘Crossroads’
“We are at the crossroads for Europe,” said Guy Verhofstadt, Belgium’s prime minister for most of the euro’s first decade, said in an interview. “It is impossible to have monetary union in the coming years if we don’t build economic and fiscal union. We see Trichet realizing that, but some political leaders have other views.”
The cost of greater union would fall mainly on the core economies. Nomura International Plc economists calculate that reaching a U.S.-level of integration would require Germany to transfer 3.5 percent of gross domestic product, compared with the 0.7 percent it contributes to the EU budget that amounts to about 1 percent of GDP.
Strategists at Brockhouse & Cooper Inc., a Montreal-based brokerage, say funding Greece, Ireland and Portugal will amount to about 2 percent of the gross domestic product in France and Germany in 2011, roughly the same as their growth rates.
Household Share
Open Europe, a London-based research group, estimates each euro-zone household already underwrites 535 euros ($773) of Greek debt and a second bailout would almost triple that by 2014.
Trichet made his most public case yet on June 2 when he accepted the Charlemagne prize, awarded annually by the German city of Aachen to supporters of European integration. Seeking to turn the crisis into an opportunity to deliver a “union of tomorrow,” the 68-year old central banker urged politicians to fix a flaw in the euro architecture he helped build.
While the ECB has delivered the price stability required of monetary union, beating current “difficulties requires a major strengthening of the rules and organizations that govern fiscal and economic policies,” said Trichet. He proposed European institutions wield veto power over the budgets of countries in crisis and the creation of a regional finance ministry that, while lacking spending powers, would monitor policy making.
The likes of German Chancellor Angela Merkel, 56, fret that deeper ties mean national capitals will lose influence over their budgets as they transfer more cash across borders to keep the euro area together.
‘Meet in the Middle’
Still, the need to prevent a Greek default has already led toward greater fiscal solidarity, says Gary Jenkins, head of fixed income at Evolution Securities Ltd. in London.
Even more would force yields on the bonds of the so-called periphery to “meet more in the middle” with Germany’s, he said. “Greek debt would look better and German debt worse.”
Investors demand a premium of about 13 percentage points to hold 10-year Greek debt over 10-year German notes. The spread has narrowed from a record 15 percentage points as Europe moved closer to a second bailout. German borrowing costs are now about the same as in the U.S., where 10-year yields were higher by an average of 18 basis points in the first five months of the year.
Jim O’Neill, chairman of Goldman Sachs Asset Management, says countries may need to start issuing common bonds to attract investors to Europe and terminate the crisis.
Survival Mode
“If you wanted economic and monetary union, you have got to start delivering it,” said O’Neill. “This crisis is all about whether Europe’s policy makers want this thing to survive.”
Germany now rejects such an idea for fear it would impose higher borrowing costs on its economy. A solution suggested by the Brussels-based research group Bruegel would have countries fold their debts up to 60 percent of GDP into a joint “blue” bond that would likely enjoy relative lower interest rates than governments currently pay. Any excess debt would then be sold on a national basis as a “red” bond, which by facing a higher yield would carry an incentive to cutback.
“The benefit for Germany is if it strengthens the system and makes fiscal policy more disciplined, while smaller countries get access to a larger market,” said Jean Pisani- Ferry, Bruegel’s director and a former EU adviser. Those with large debts “suffer a margin cost.”
The euro area’s lack of a U.S.-style mechanism to spray money around the region to smooth gyrations has been singled out from the start by critics as its Achilles heel. Billionaire investor George Soros said June 26 that the euro has “fundamental flaws that need to be corrected.”
Bundesbank’s Wish
Signatories of 1991’s Maastricht Treaty, which created the currency bloc, dodged the issue to maintain control over their individual purse-strings and policies. In doing so, they ignored the Bundesbank’s call for a “comprehensive political union’” and instead imposed limits on budgets and debts that have never been enforced.
What they sought to dodge may nevertheless be happening. While the rulebook bans bailouts and monetary financing of member states, the fiscal strains of Greece, Portugal and Ireland have been soothed with 256 billion euros in aid and 77 billion euros of bond buying by the ECB.
“One of the endgames of this crisis is more fiscal integration and we may be getting more of it because of this crisis than we did in the last 20, 30 years,” said Laurent Bilke, head of European interest rate strategy at Nomura in London and a former ECB economist.
‘Quantum Leap’
Trichet, a co-writer of the Maastricht treaty who is set to step down in four months, has chastised governments’ recent efforts to harden surveillance of economies for lacking the “quantum leap” that would involve “quasi-automatic” fines and fewer voting rights for transgressors. Governments respond that they are still tightening their grip by enforcing their budget rules faster, setting annual targets for debt reduction and advancing the vetting of national fiscal plans.
Trichet’s 11th-hour campaign underscores how much the ECB has at stake. The Frankfurt-based central bank has about 120 billion euros of exposure to Greece, having bought its bonds and accepted them as collateral for emergency bank loans, London- based Fathom Financial Consulting estimates. A 70 percent writedown would cost the ECB about 25 billion euros and its collateral would take a hit of 20 billion euros, erasing its entire capital base, it said.
‘Political Will’
Trichet’s cause may be carried on when Bank of Italy Governor Mario Draghi replaces him at the helm of the ECB in November. Draghi told the European Parliament this month that the debt crisis poses “a real test for the political will in Europe to do whatever is needed to ensure the achievements of economic and monetary integration.”
Merkel, the biggest contributor to the EU’s bailouts and an advocate of having investors share the cost, says her aim is to preserve a system in which the taxpayers of prudent nations aren’t on the hook for the mistakes of the wasteful. For her, fiscal union spells a weaker not stronger euro.
“The question for me as chancellor isn’t just showing solidarity,” Merkel said on March 23. “There’s also a question of where does that solidarity end” and the risk is that Europe’s strength drifts into “mediocrity.”
A push toward fiscal union and the euro itself could still founder if the public runs out of patience. The role of governments is being questioned throughout the continent with Greeks taking to the streets to oppose the austerity measures demanded of them and opinion polls showing Germans irritated by footing the bailout bill.
Popular Opposition
“The people of Europe do not want any form of fiscal union, so any debate is just theoretical,” said Eric Chaney, chief economist for the Axa SA (CS) and a former French finance ministry official. “If it means fiscal transfers the population is very clear in opposing that.”
Trichet has failed to win some past battles. As well as governments rebuffing his tougher budget monitoring, they ignored his idea to replace the ECB as a buyer of bonds and his reluctance to involve the IMF in supporting Greece.
Notwithstanding these defeats and what he calls Germany’s aversion to “unlimited liability union,” Gilles Moec, co-head of European economic research at Deutsche Bank AG, sees signs of greater fiscal links already forming as policy makers head off what would be the first default by a euro member.
At their latest round of crisis talks, authorities this month vowed to do whatever it takes to prevent a Greek bankruptcy. To do so, they boosted the size of their rescue fund, agreed the investment of creditors would be voluntary and said their future crisis-resolution mechanism would no longer have priority over investors in any post-default repayment.
“The losses arising from a sovereign default on Greece, Portugal and Ireland would be shared across all euro-zone’s taxpayers,” said Moec, a former economist at the Bank of France. “This is a clear step towards fiscal union.”
Even as they resist European Central Bank President Jean- Claude Trichet’s call for a “major strengthening” of fiscal ties, European authorities are becoming the biggest holders of Greek debt. That would leave the country a virtual ward of the state, the objection of the bloc’s politicians to sharing sovereignty undercut by their own efforts to save the euro.
“The more debt restructuring is avoided the more Greece’s liabilities are socialized and the more a de facto fiscal union occurs,” said David Mackie, chief European economist at JPMorgan Chase & Co. in London. “If the ECB is successful in its attempt to prevent any kind of restructuring in the near- term, the region will move down the path towards the destination Trichet wants.”
Greek lawmakers yesterday approved an austerity package, clearing the way for the second international rescue in two years, which would expand taxpayers’ stake in Europe’s most- indebted country. For investors, greater subsidies from the strong to the weak risk hurting the German bonds that serve as the region’s benchmark.
The outcome of the scrap may determine whether the euro evolves or runs aground on the concern that its 17 members are too diverse to be united in one currency if some aren’t willing to abide by the rules and others won’t aid those in trouble.
Europe’s ‘Crossroads’
“We are at the crossroads for Europe,” said Guy Verhofstadt, Belgium’s prime minister for most of the euro’s first decade, said in an interview. “It is impossible to have monetary union in the coming years if we don’t build economic and fiscal union. We see Trichet realizing that, but some political leaders have other views.”
The cost of greater union would fall mainly on the core economies. Nomura International Plc economists calculate that reaching a U.S.-level of integration would require Germany to transfer 3.5 percent of gross domestic product, compared with the 0.7 percent it contributes to the EU budget that amounts to about 1 percent of GDP.
Strategists at Brockhouse & Cooper Inc., a Montreal-based brokerage, say funding Greece, Ireland and Portugal will amount to about 2 percent of the gross domestic product in France and Germany in 2011, roughly the same as their growth rates.
Household Share
Open Europe, a London-based research group, estimates each euro-zone household already underwrites 535 euros ($773) of Greek debt and a second bailout would almost triple that by 2014.
Trichet made his most public case yet on June 2 when he accepted the Charlemagne prize, awarded annually by the German city of Aachen to supporters of European integration. Seeking to turn the crisis into an opportunity to deliver a “union of tomorrow,” the 68-year old central banker urged politicians to fix a flaw in the euro architecture he helped build.
While the ECB has delivered the price stability required of monetary union, beating current “difficulties requires a major strengthening of the rules and organizations that govern fiscal and economic policies,” said Trichet. He proposed European institutions wield veto power over the budgets of countries in crisis and the creation of a regional finance ministry that, while lacking spending powers, would monitor policy making.
The likes of German Chancellor Angela Merkel, 56, fret that deeper ties mean national capitals will lose influence over their budgets as they transfer more cash across borders to keep the euro area together.
‘Meet in the Middle’
Still, the need to prevent a Greek default has already led toward greater fiscal solidarity, says Gary Jenkins, head of fixed income at Evolution Securities Ltd. in London.
Even more would force yields on the bonds of the so-called periphery to “meet more in the middle” with Germany’s, he said. “Greek debt would look better and German debt worse.”
Investors demand a premium of about 13 percentage points to hold 10-year Greek debt over 10-year German notes. The spread has narrowed from a record 15 percentage points as Europe moved closer to a second bailout. German borrowing costs are now about the same as in the U.S., where 10-year yields were higher by an average of 18 basis points in the first five months of the year.
Jim O’Neill, chairman of Goldman Sachs Asset Management, says countries may need to start issuing common bonds to attract investors to Europe and terminate the crisis.
Survival Mode
“If you wanted economic and monetary union, you have got to start delivering it,” said O’Neill. “This crisis is all about whether Europe’s policy makers want this thing to survive.”
Germany now rejects such an idea for fear it would impose higher borrowing costs on its economy. A solution suggested by the Brussels-based research group Bruegel would have countries fold their debts up to 60 percent of GDP into a joint “blue” bond that would likely enjoy relative lower interest rates than governments currently pay. Any excess debt would then be sold on a national basis as a “red” bond, which by facing a higher yield would carry an incentive to cutback.
“The benefit for Germany is if it strengthens the system and makes fiscal policy more disciplined, while smaller countries get access to a larger market,” said Jean Pisani- Ferry, Bruegel’s director and a former EU adviser. Those with large debts “suffer a margin cost.”
The euro area’s lack of a U.S.-style mechanism to spray money around the region to smooth gyrations has been singled out from the start by critics as its Achilles heel. Billionaire investor George Soros said June 26 that the euro has “fundamental flaws that need to be corrected.”
Bundesbank’s Wish
Signatories of 1991’s Maastricht Treaty, which created the currency bloc, dodged the issue to maintain control over their individual purse-strings and policies. In doing so, they ignored the Bundesbank’s call for a “comprehensive political union’” and instead imposed limits on budgets and debts that have never been enforced.
What they sought to dodge may nevertheless be happening. While the rulebook bans bailouts and monetary financing of member states, the fiscal strains of Greece, Portugal and Ireland have been soothed with 256 billion euros in aid and 77 billion euros of bond buying by the ECB.
“One of the endgames of this crisis is more fiscal integration and we may be getting more of it because of this crisis than we did in the last 20, 30 years,” said Laurent Bilke, head of European interest rate strategy at Nomura in London and a former ECB economist.
‘Quantum Leap’
Trichet, a co-writer of the Maastricht treaty who is set to step down in four months, has chastised governments’ recent efforts to harden surveillance of economies for lacking the “quantum leap” that would involve “quasi-automatic” fines and fewer voting rights for transgressors. Governments respond that they are still tightening their grip by enforcing their budget rules faster, setting annual targets for debt reduction and advancing the vetting of national fiscal plans.
Trichet’s 11th-hour campaign underscores how much the ECB has at stake. The Frankfurt-based central bank has about 120 billion euros of exposure to Greece, having bought its bonds and accepted them as collateral for emergency bank loans, London- based Fathom Financial Consulting estimates. A 70 percent writedown would cost the ECB about 25 billion euros and its collateral would take a hit of 20 billion euros, erasing its entire capital base, it said.
‘Political Will’
Trichet’s cause may be carried on when Bank of Italy Governor Mario Draghi replaces him at the helm of the ECB in November. Draghi told the European Parliament this month that the debt crisis poses “a real test for the political will in Europe to do whatever is needed to ensure the achievements of economic and monetary integration.”
Merkel, the biggest contributor to the EU’s bailouts and an advocate of having investors share the cost, says her aim is to preserve a system in which the taxpayers of prudent nations aren’t on the hook for the mistakes of the wasteful. For her, fiscal union spells a weaker not stronger euro.
“The question for me as chancellor isn’t just showing solidarity,” Merkel said on March 23. “There’s also a question of where does that solidarity end” and the risk is that Europe’s strength drifts into “mediocrity.”
A push toward fiscal union and the euro itself could still founder if the public runs out of patience. The role of governments is being questioned throughout the continent with Greeks taking to the streets to oppose the austerity measures demanded of them and opinion polls showing Germans irritated by footing the bailout bill.
Popular Opposition
“The people of Europe do not want any form of fiscal union, so any debate is just theoretical,” said Eric Chaney, chief economist for the Axa SA (CS) and a former French finance ministry official. “If it means fiscal transfers the population is very clear in opposing that.”
Trichet has failed to win some past battles. As well as governments rebuffing his tougher budget monitoring, they ignored his idea to replace the ECB as a buyer of bonds and his reluctance to involve the IMF in supporting Greece.
Notwithstanding these defeats and what he calls Germany’s aversion to “unlimited liability union,” Gilles Moec, co-head of European economic research at Deutsche Bank AG, sees signs of greater fiscal links already forming as policy makers head off what would be the first default by a euro member.
At their latest round of crisis talks, authorities this month vowed to do whatever it takes to prevent a Greek bankruptcy. To do so, they boosted the size of their rescue fund, agreed the investment of creditors would be voluntary and said their future crisis-resolution mechanism would no longer have priority over investors in any post-default repayment.
“The losses arising from a sovereign default on Greece, Portugal and Ireland would be shared across all euro-zone’s taxpayers,” said Moec, a former economist at the Bank of France. “This is a clear step towards fiscal union.”
Trichet Signals ECB Ready to Rise Rates As Greece Tries to Avoid Default
European Central Bank President Jean-Claude Trichet signaled officials remain determined to raise borrowing costs next week even as Greece struggles to stave off a default amid violent street protests.
“The monetary policy stance is still accommodative and risks to price stability are on the upside,” Trichet told lawmakers in Brussels today. “We are in a state of strong vigilance and we stand ready to act in a firm and timely manner to avoid that recent price developments give rise to broad-based inflationary pressures over the medium term.”
ECB officials are concerned that oil-driven inflation and faster economic growth will fuel wage demands. His comments come against the backdrop of Greek Prime Minister George Papandreou facing a second ballot in two days trying to pull his country back from the threat of a default and persuade investors he can implement a $112 billion-euro austerity plan.
The euro extended its advance against the dollar after Trichet’s comments, climbing as much as 0.6 percent to $1.4521. It traded at $1.4491 at 10:52 a.m. in Frankfurt. German two-year notes erased an advance, leaving the yield little changed at 1.56 percent.
The ECB’s governing council next convenes in Frankfurt on July 7. The central bank raised its benchmark interest rate by 25 basis points to 1.25 percent in April.
Greek Package
The cost of insuring Greek sovereign debt rose 33 basis points today to 1,978 basis points, according to CMA prices for credit-default swaps. That signals an 82 percent probability the nation will fail to meet its commitments within five years. The yield on the two-year Greek government bond was up 2 basis points today at 27.566 percent.
European officials are racing to prepare a second bailout package that could help Greece through 2014, while seeking participation from the region’s banks.
Trichet reiterated the ECB’s opposition to “all concepts that are not purely voluntary” and called for “the avoidance of credit events or selective default or default.”
He declined to comment on nations’ proposals as “at this stage we don’t yet have a position of governments we can examine.” The ECB remains “very alert. We follow what’s going on but I can’t give you a precise judgment,” Trichet said.
Fellow ECB officials Ewald Nowotny and Lorenzo Bini Smaghi said a French proposal for involving creditors in the Greek rescue was “interesting.”
“The monetary policy stance is still accommodative and risks to price stability are on the upside,” Trichet told lawmakers in Brussels today. “We are in a state of strong vigilance and we stand ready to act in a firm and timely manner to avoid that recent price developments give rise to broad-based inflationary pressures over the medium term.”
ECB officials are concerned that oil-driven inflation and faster economic growth will fuel wage demands. His comments come against the backdrop of Greek Prime Minister George Papandreou facing a second ballot in two days trying to pull his country back from the threat of a default and persuade investors he can implement a $112 billion-euro austerity plan.
The euro extended its advance against the dollar after Trichet’s comments, climbing as much as 0.6 percent to $1.4521. It traded at $1.4491 at 10:52 a.m. in Frankfurt. German two-year notes erased an advance, leaving the yield little changed at 1.56 percent.
The ECB’s governing council next convenes in Frankfurt on July 7. The central bank raised its benchmark interest rate by 25 basis points to 1.25 percent in April.
Greek Package
The cost of insuring Greek sovereign debt rose 33 basis points today to 1,978 basis points, according to CMA prices for credit-default swaps. That signals an 82 percent probability the nation will fail to meet its commitments within five years. The yield on the two-year Greek government bond was up 2 basis points today at 27.566 percent.
European officials are racing to prepare a second bailout package that could help Greece through 2014, while seeking participation from the region’s banks.
Trichet reiterated the ECB’s opposition to “all concepts that are not purely voluntary” and called for “the avoidance of credit events or selective default or default.”
He declined to comment on nations’ proposals as “at this stage we don’t yet have a position of governments we can examine.” The ECB remains “very alert. We follow what’s going on but I can’t give you a precise judgment,” Trichet said.
Fellow ECB officials Ewald Nowotny and Lorenzo Bini Smaghi said a French proposal for involving creditors in the Greek rescue was “interesting.”
German Retail Sales Unexpectedly Declined in May on Oil-Driven Inflation
German retail sales unexpectedly fell in May as oil-driven inflation sapped household incomes.
Sales, adjusted for inflation and seasonal swings, fell 2.8 percent from April, when they stagnated, the Federal Statistics Office in Wiesbaden said today. Economists forecast a gain of 0.5 percent, the median of 25 estimates in a Bloomberg News survey showed. Sales rose 2.2 percent in the year.
“Oil and gasoline prices were still quite high in May and that may have kept people from spending,” said Christian Schulz, an economist at Joh. Berenberg Gossler & Co. in London. “At the same time, Germany is booming and the overall trend is for stronger consumer spending.”
Increasing export orders from Asia have prompted German companies to step up hiring, sending unemployment to the lowest in two decades. While Germany’s Bundesbank earlier this month raised its 2011 growth forecast, rising energy costs are leaving households with less money to spend.
While crude oil prices have retreated over the past month, they’re still up 26 percent from a year earlier. Germany’s inflation rate, calculated using a harmonized European Union method, held at 2.4 percent in June. That’s above the European Central Bank’s 2 percent limit.
Sales, adjusted for inflation and seasonal swings, fell 2.8 percent from April, when they stagnated, the Federal Statistics Office in Wiesbaden said today. Economists forecast a gain of 0.5 percent, the median of 25 estimates in a Bloomberg News survey showed. Sales rose 2.2 percent in the year.
“Oil and gasoline prices were still quite high in May and that may have kept people from spending,” said Christian Schulz, an economist at Joh. Berenberg Gossler & Co. in London. “At the same time, Germany is booming and the overall trend is for stronger consumer spending.”
Increasing export orders from Asia have prompted German companies to step up hiring, sending unemployment to the lowest in two decades. While Germany’s Bundesbank earlier this month raised its 2011 growth forecast, rising energy costs are leaving households with less money to spend.
While crude oil prices have retreated over the past month, they’re still up 26 percent from a year earlier. Germany’s inflation rate, calculated using a harmonized European Union method, held at 2.4 percent in June. That’s above the European Central Bank’s 2 percent limit.
U.K. Consumer Confidence Declined in June on Deteriorating Economy Outlook
U.K. consumer sentiment fell more than economists forecast in June, erasing part of the boost brought from public holidays as Britons lost confidence in the economy, a report by GfK NOP Ltd. showed.
An index of sentiment slipped 4 points to minus 25 from May, when it increased 10 points, the London-based research group said in an e-mailed report today. All five measures of the index declined, with confidence in the economic outlook for the next year dropping 3 points to minus 18.
“It was almost inevitable that there would be a drop in confidence in June following last month’s unique, feel-good circumstances of public holidays and the royal wedding,” GfK Social Research Managing Director Nick Moon said in a statement. “As we move into the summer, the outlook for the beleaguered high street remains a gloomy one.”
Britons’ confidence in the recovery is faltering as inflation squeezes incomes at the fastest pace since the 1970s. Public-sector workers are striking today to protest against government job cuts and curbs on pensions. The economy stagnated in the six months through March and the Bank of England says the recovery remains fragile.
The pound fell against the dollar today and traded at $1.6029 as of 1:58 p.m. in London, down 0.2 percent since yesterday.
GfK’s measure of consumers’ view of their personal financial situation over the next 12 months fell 5 points to minus 8 in June, while their view of the past year declined 2 points to minus 20. A gauge of Britons’ willingness to make major purchases dropped 1 point to minus 27.
Gross domestic product rose 0.5 percent from the fourth quarter, barely enough to erase the contraction recorded in the final three months of 2010. Real incomes fell last year for the first time since 1981 and the U.K. Treasury predicts a further drop this year, marking the first back-to-back decline since the 1970’s oil crisis and recession.
An index of sentiment slipped 4 points to minus 25 from May, when it increased 10 points, the London-based research group said in an e-mailed report today. All five measures of the index declined, with confidence in the economic outlook for the next year dropping 3 points to minus 18.
“It was almost inevitable that there would be a drop in confidence in June following last month’s unique, feel-good circumstances of public holidays and the royal wedding,” GfK Social Research Managing Director Nick Moon said in a statement. “As we move into the summer, the outlook for the beleaguered high street remains a gloomy one.”
Britons’ confidence in the recovery is faltering as inflation squeezes incomes at the fastest pace since the 1970s. Public-sector workers are striking today to protest against government job cuts and curbs on pensions. The economy stagnated in the six months through March and the Bank of England says the recovery remains fragile.
The pound fell against the dollar today and traded at $1.6029 as of 1:58 p.m. in London, down 0.2 percent since yesterday.
GfK’s measure of consumers’ view of their personal financial situation over the next 12 months fell 5 points to minus 8 in June, while their view of the past year declined 2 points to minus 20. A gauge of Britons’ willingness to make major purchases dropped 1 point to minus 27.
Gross domestic product rose 0.5 percent from the fourth quarter, barely enough to erase the contraction recorded in the final three months of 2010. Real incomes fell last year for the first time since 1981 and the U.K. Treasury predicts a further drop this year, marking the first back-to-back decline since the 1970’s oil crisis and recession.
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