Unemployment rate in eurozone states hits 12%, while UK manufacturing sector shrinks for second successive month
Europe’s woes deepened on Tuesday after surveys revealed much of the continent locked into a spiral of declining manufacturing output and rising unemployment.
Predictions that the eurozone economies would stage a recovery this year appeared to be woefully wide of the mark as a long-run contraction in manufacturing accelerated and the number of unemployed people in the eurozone reached 12%. Across the wider, 27-country EU the total number of jobless is a record 26.3m.
Britain failed to shake off the gloom after bad weather and weak demand from the eurozone left the UK manufacturing sector contracting for a second successive month in March.
Factories in Germany and Ireland, which fared well last year compared to their counterparts in Spain and Portugal, also fell back into decline in March according to the purchasing managers index (PMI) compiled by Markit.
The eurozone manufacturingPMI fell to 46.8 from 47.9 in February – slightly better than an preliminary estimate of 46.6, but extending its run below the 50 mark that separates growth and contraction for a 20th month. Separate data showed European car sales shrank 8.2% across Europe last year to a 17-year low of 12.05 million vehicles, reflecting declining wages and higher unemployment.
Car makers blamed much of the decline on consumers postponing purchases while the crisis in Cyprus flared. After a dismal 2012, analysts warned that several car firms could struggle to survive 2013 with further declines in sales threatening more losses.
Across a broad range of manufacturing, the picture was equally bleak, especially in France. French factory activity retreated for a 13th month and car registrations dived 16.4% in March, further underlining the malaise sweeping through the eurozone’s second-biggest economy.
Capital Economics said: “Combined with today’s record-high unemployment figures, the survey confirms that the euro-zone is mired in recession. What’s more, there is no reason to expect things to turn around any time soon.”
Even Switzerland, which has proved a haven from much of the euro crisis, suffered a sharp decline in manufacturing.
The landlocked country is notorious for its secretive banking industry, but less well known is its reliance on manufacturing for almost a third of GDP. However, the high value of the Swiss franc has increased the price of the sector’s exports and, combined with the decline in demand from eurozone countires, triggered a fall in sales.
In Britain manufacturing output dropped at the fastest pace since October 2012 but the prospects for new business brightened slightly.
New export orders weakened for the 15th successive month amid reports of stiff competition from the US and Asia and poor demand from Europe.
CIPS/Markit said there had been modest job losses in industry last month, concentrated in bigger companies. But the survey warned that cost pressures on manufacturing were increasing as a result of dearer electricity, oil and food products.
Figures from the European statistics office Eurostat showed that the overall unemployment rate in the 17-member currency union has risen steeply since February last year, when the rate was 10.9%.
Across the EU as a whole, there are now 26.3m people out of work, pushing the jobless rate to 10.9%, up from 10.2% in the same month last year.
Britain, which had until recently succeeded in cutting unemployment, joined a list of 19 EU member states that suffered a rise in February. Only eight countries experienced a fall in unemployment.
Despite operating against a backdrop of rising unemployment and falling inflation, the European Central Bank president, Mario Draghi, has so far resisted easing monetary policy in a similar vein to the Bank of England and the US Federal Reserve, which have pumped vast sums into their respective economies under the policy of quantitative easing (QE).
The ECB meets on Thursday to consider cutting interest rates to boost growth, but it is expected to maintain the current 0.75% base rate and reject pleas to adopt QE.
Andrea Broughton, principal research fellow at the Institute for Employment Studies, said Brussels risked creating a “lost generation” of young people who have left school or college only to join the dole queue.
She said: “Youth unemployment remains the EU’s biggest employment-related headache, and shows no signs of abating, with an average rate for the under-25s of 23.5% in the 27 EU member states. In Greece, the youth unemployment rate is nearing 60% – a rate of 58.4% was recorded in December 2012. In Spain, the youth unemployment figure is 55.7%.”
Brussels launched a youth guarantee this year that urged member states to ensure all young people receive an offer of work, continued education, an apprenticeship or a traineeship within four months of leaving formal education or becoming unemployed.
Posted by sysadmin | Posted on 03-04-2013
Category : Business
Tags: banking, case, comment is free, economics, european union, eurozone crisis, financial, football, german, spanish, term
There is a close similarity between football and the economy of Europe. Should German-style regulations control both?
The Champions League quarter final between Borussia Dortmund and Malaga is a metaphor for the economic and political fault lines of Europe. Dortmund represents solid German values, a profitable club from the tightly regulated Bundesliga. Malaga, by contrast, has been in dispute with Uefa for some time and had until midnight on 31 March to prove to Uefa that they have paid up all overdue debts or they will be excluded from Uefa competition for the next four years.
It’s true that a few years ago Dortmund had financial troubles, but they were forced to sell players and accept a loan from Bayern Munich to balance the books. Equivalent regulation and control is unknown in Spain. Last week a report suggested that Spanish clubs as a whole may come under investigation by the European commission for receiving illegal state aid, and by most accounts the majority of Spanish clubs are not commercially viable. Even Spanish MEPs have called for football clubs to live within their means.
Just as the Spanish economy is mired in recession because of a catastrophic backlog of bad debts and the German economic juggernaut continues to prosper, so German football seems ready to carry all before it while southern Europe’s traditional strength seeps away. Indeed, there is a very close similarity between football and the wider economy of Europe, in terms of the causes of crisis, the solutions, and ultimately the winners and losers.
First, the problem. Contrary to appearance, there is little difference between a football manager and a bank manager. Both are gamblers who use other people’s money to bet on the next big thing. Both work hard to present an aura of invulnerability and inevitability, when in reality both are exposed to the fickle laws of chance.
The principle of banking is to borrow short and lend long, giving rise to two sorts of risk – liquidity risk (depositors want their money back) and solvency risk (the long-term investment you lent to went belly up). Usually it is insolvency that leads to a liquidity crisis and general failure.
The principle of football is to buy players today in the expectation of future success and income, which also gives rise to liquidity risk (the future revenues are slow to arrive) and insolvency risk (the future revenues never arrive).
Given that we cannot live without banking or football, both sorts of manager are prone to moral hazard – taking excessive risk today in the knowledge that if things don’t work out tomorrow then the organisation is too big to fail. Banks and football clubs almost never disappear, but they often have to be propped up when they fail.
Historically the propping up has been carried out by local and national governments. In the case of banks, it has been the national central bank that has provided liquidity as the lender of last resort, and the central government that has bailed out losses by using the largesse of the taxpayers. In the case of football, typically local governments have provided subsidies and the national tax authorities have written off overdue payments to keep the clubs afloat.
Now Europe has a new regime, the eurozone for banking and Uefa financial fair play for football. For those nations signed up to the euro, the European Central Bank provides liquidity for the banks and if the bad debts are too large for the national government to cover – as has been the case in recent years for Ireland, Portugal, Greece, Spain and now Cyprus – then bailout has to come from the combined eurozone, whose decision-making is currently dominated by Angela Merkel and the German government.
In the past many governments were prepared to write off bad debts by printing more money and inflating the problem away, reducing the value of their currencies and thus stimulating an economic revival following a short-term crisis. Austerity will not allow this to happen, so exposed countries are forced to live with seemingly permanent recession. So long as the eurozone crisis keeps the euro exchange rate competitive, German exporters benefit and the German economy continues to grow.
This is not, as some would like to suggest, a German conspiracy. To the Germans it just seems like common sense, but it is also true that everyone goes into these things with their own interests at heart while convincing themselves they are acting in the best interests of everyone.
So too with the financial fair play regulations. Under Uefa’s rules, clubs are penalised if they lack liquidity, while EU rules against state aid prohibit a government bailout for insolvent clubs. Traditionally strong clubs from southern Europe are now being forced to live within their ever decreasing means, and this football austerity is also likely to benefit Germany.
German clubs were at the forefront of pushing for financial regulation at the European level to match their own regulation at home. Thanks to public investment in new stadiums for the 2006 World Cup, generous sponsorship from Germany’s industrial giants and a wealthy population of 80 million, German clubs are set to outspend their southern neighbours in the years to come, reversing a decade or more of weakness.
Many people argue that Europe’s austerity policy is not tenable in the long run if it impoverishes the poorer nations, and much the same can be said of the financial fair play regulations. Sound finance is a worthy goal, but not if it guarantees German and English dominance (in the latter case funded by international broadcast income) at the expense of the game’s traditional southern powers.
Posted by sysadmin | Posted on 30-03-2013
Category : Business
Tags: anastasiades, authorities, bank, control, cyprus, economic, euro, european union, eurozone, financial, friday, the guardian, year
Nicos Anastasiades says crisis has been averted but blasts eurozone members for turning island into an ‘experiment’
Cyprus’s president on Friday insisted his country has a future in the euro in a speech that also criticised his eurozone partners for forcing the Mediterranean island to be an “experiment”.
“We have no intention of leaving the euro. In no way will we experiment with the future of our country,” Nicos Anastasiades said.
Speaking the day after Cypriot banks reopened after a two-week closure to stave off financial collapse, the Conservative head of state said the threat of bankruptcy had been averted.
He also promised that restrictions on banking transactions – the first ever to be imposed on a eurozone member state – would be gradually lifted, but did not specify when.
Cash withdrawals from banks have been limited to €300 (£253) a day, while only €1,000 in cash can be taken out of the country, and there are restrictions on the use of credit cards abroad. Cypriot authorities loosened some restrictions on using cheques on Friday – but only to allow payments to government agencies of up to €5,000.
In another turnaround of capital controls placed on a euro member state, the finance ministry announced that debit and credit card transactions with the borders of the country could also be unlimited.
Cyprus’s Central Bank has also imposed limits on the money that can be taken “beyond the control of the Cypriot authorities” – a reference to the northern part of the island under Turkish control.
After an initial estimate that the capital controls would be in place for a matter of days, the government then warned later in the week they could last for “about a month”.
Anastasiades, who was elected in a landslide victory on a pro-bailout platform last month, has faced a backlash over the terms of the rescue. On Friday he accused eurozone leaders of making “unprecedented demands that forced Cyprus to become an experiment”. He also criticised European banking authorities for allowing money to flood into Laiki, the island’s second biggest bank, which had racked up billions of debt in bad loans and is now being wound up as part of the rescue deal.
“How serious were those authorities that permitted the financing of a bankrupt bank to the highest possible amount?” Anastasiades said.
Barely a month in power, the government has appointed an investigating committee of former supreme and international criminal court judges to probe possible criminal misconduct in the collapse of the Cypriot economy. With shocked Greek Cypriots now facing years of economic pain, there are mounting calls for punishment to be meted out to the politicians and bankers found to be responsible for the dire straits in which the island now finds itself.
The Swedish foreign minister, Carl Bildt, who flew into Cyprus to hold talks with Anastasiades, said Cyprus was heading for years of economic recession. “It is going to go into recession, a big slump,” he told the Guardian. “A lot could have been done to stop it reaching this point. I cannot say I am optimistic, but I am also not alarmed.”
Cyprus secured a €10bn (£8.4bn) bailout from the “troika” of lenders – the European Union, the European Central Bank and the International Monetary Fund – to avert financial collapse. As well as the winding up of Laiki, the island had to agree to an unprecedented levy on bank savings of more than $100,000 to fund the bailout. Earlier plans to raid the accounts of small depositors were abandoned amid fury from ordinary savers.
Cypriot banks were calm on Friday, with no big queues reported. “The situation, despite all its tragedy, has been contained,” said Anastasiades.
The Cypriot president’s attempt to draw a line under the crisis that has gripped the eurozone came as Slovenia, another minnow of the currency union, insisted it did not need the eurozone to rescue its troubled banks.
“We will need no bailout this year,” said the Slovenian finance minister, Uros Cufer. “I am calm.” Borrowing costs for the former Yugoslav republic, which has a population of two million, have jumped as investors look for the next weak link in the single currency.
The Cypriot crisis has sent shudders throughout the eurozone, where the outlook remains gloomy and unemployment rises to record levels.
Figures released on Friday showed that France failed to meet its budget deficit target in 2012 and will miss it again this year. The country’s public debt has also risen to a record level.
The latest bad news came only hours after French president François Hollande had gone on live television to reassure the nation of his ability to lead it out of the economic mire.
INSEE, France’s national statistics agency reported that public debt rose to €1.8 trillion, a record 90.2 per cent of GDP, in 2012, up from 85.8 per cent in 2011. France’s Socialist government has already admitted it will not be able to keep a pledge to bring the deficit down to 3 per cent by the end of 2013 as agreed with the European Commission. The figure is now expected to be around 3.7 per cent, and France has asked for an extension to the deadline for reaching the target. France has not balanced its books since 1974 under successive governments of different political hue.
Posted by admin | Posted on 28-03-2013
Category : Business
Tags: bank, banking, country, day, euro, european, european union, eurozone crisis, guardian.co.uk, lawyer, time, world news
People leaving island can reportedly take only €3,000 in banknotes and spend up to €5,000 a month on credit cards
Cyprus has made eurozone history by imposing swingeing measures to stop money flooding out of the country when its banks reopen after a 12-day hiatus
Posted by sysadmin | Posted on 25-03-2013
Category : Business
Tags: bank, cyprus, euro, europe, european, european union, finance, financial sector, fund, meeting, minister, monetary, officials, president, sunday
President, eurozone finance ministers and bailout troika hold emergency meeting as €100 limit imposed on ATM withdrawals
Wealthy Russians stand to lose billions of euros in Cypriot banks under draconian terms being hammered out on Sunday night in Brussels to prevent the Mediterranean tax haven becoming the first country forced out of the single currency.
Negotiations got underway amid a hardening of the stance held by the International Monetary Fund and Germany, who insisted that depositors must take the hit for bailing out the eurozone’s latest crisis economy.
There were signs of panic in Cyprus as a €100 (£85) limit was imposed on ATM withdrawals, with more stringent capital controls to follow if a deal is reached.
The European Central Bank has threatened to cut off funds propping up Cypriot banks on Monday, precipitating the island’s exit from the euro if agreement was not reached on Sunday night at the emergency meeting between eurozone finance ministers, the president of Cyprus Nicos Anastasiades, and the bailout troika of the IMF, European Commission and the ECB.
The Europeans, with the Germans and the IMF taking a particularly hard line, demanded the winding up of Cyprus Popular Bank, the country’s second biggest, and the restructuring of Bank of Cyprus, the biggest financial institution.
The parties considered new proposals that had emerged over the weekend with European officials speaking of a levy of up to 25% on Bank of Cyprus depositors with accounts holding more than €100,000, plus a further levy of up to 5% on similar deposits in other banks.
“The numbers have not changed. If anything they’ve got worse,” said Wolfgang Schäuble , Germany’s finance minister. He said that last week’s agreement to raise €5.8bn had to be achieved. This time, however, savers with less than €100,000 would be spared, meaning the burden would fall much more heavily on the wealthy than the 9.9% levy proposed for their accounts last week.
Berlin is determined that the island deflates a bloated financial sector that exceeds the size of the Cypriot economy by a factor of seven. “It is well-known that I won’t allow myself to be blackmailed, by no one or nothing,” said Schäuble. “I’m aware of my responsibility for the stability of the euro. If we take the wrong decisions, we’ll be doing the euro a great misservice,” he told a German Sunday newspaper.
Russians are estimated to hold more than €20bn of the €68bn deposited in Cypriot banks. Some €38bn of the total is in accounts liable for the levy, suggesting that Russians could forfeit around €3bn. If the Cypriot government balked at the bank levy, the IMF and German officials were likely to demand even stiffer terms, including a “bail-in” arrangement whereby account holders with more €100,000 would forfeit up to 40% of their savings in return for shares in restructured banks.
Anastasiades held meetings with EU officials in Brussels before the main summit with the euro group – the 17 finance ministers of the single currency area – which included troika representatives Christine Lagarde, head of the IMF, Mario Draghi, president of the ECB, and Olli Rehn, European commissioner for economic and monetary affairs.
Little progress was reported from the earlier meetings on Sunday on resolving the stalemate over how to structure a €17bn bailout, with creditors unwilling to offer more than €10bn while expressing dissatisfaction over Cypriot proposals to supply the remainder.
Over the weekend, Nicosia moved on legislation to wind up Cyprus Popular Bank and to introduce capital controls to try to prevent a bank run and flight of money out of the country.
If an agreement is found, the proposed deal would still need to pass the Cypriot parliament probably by Monday at the latest. It was clear that whether Cyprus accepted or rejected the bailout terms, its economy and banking sector faced maximum disruption and turmoil. “There are only hard choices left,” said Rehn.
Posted by sysadmin | Posted on 25-03-2013
Category : Business
Tags: cypriot, cyprus, european union, eurozone, finance, meeting, the guardian
Agreement set to involve heavy losses for wealthy investors, while those with savings under €100,000 will be spared
European leaders reached an agreement with Cyprus early on Monday morning that closes down the island’s second-biggest bank and inflicts huge losses on wealthy savers.
Russians would lose billions of euros under draconian terms that are aimed at preventing the Mediterranean tax haven becoming the first country forced out of the single currency.
“Herman Van Rompuy has brokered an agreement between the troika and Cyprus,” said an EU source, referring to the president of the European council and Cyprus’s trio of creditors: the European commission, the European Central Bank and the International Monetary Fund.
A meeting of eurozone finance ministers that started six hours late reached an agreement in the early hours of Monday morning to finalise the fine print of the deal. Savers with deposits of less than €100,000 (£85,000) would be spared but it was thought there would be heavy losses inflicted on the deposits of the wealthy.
Laiki, or Cyprus Popular Bank, is to be closed, with its good assets transferred to Bank of Cyprus, the country’s biggest bank, where savers would suffer big losses in return for equity shares. Those with more than €100,000 in Laiki would also be hit hard.
Negotiations got under way amid a hardening of the stance by the IMF and Germany, which insisted that depositors must take the hit for bailing out the eurozone’s latest crisis economy.
There were signs of panic in Cyprus as a €100 limit was imposed on ATM withdrawals, with more stringent capital controls to follow if the deal is finalised.
The European Central Bank had threatened to cut off funds propping up Cypriot banks on Monday, which would have precipitated the island’s exit from the euro if agreement was not reached at the emergency meeting.
“The numbers have not changed. If anything they’ve got worse,” said Wolfgang Schäuble, Germany’s finance minister. He said the aims of last week’s agreement to raise €5.8bn – details of which were rejected by Cyprus – had to be achieved. This time, however, savers with less than €100,000 will be spared, meaning the burden falls much more heavily on the wealthy than the 9.9% levy proposed last week for their accounts.
Germany is determined that the island deflate a bloated financial sector that exceeds the size of the Cypriot economy by a factor of seven.
“It is well known that I won’t allow myself to be blackmailed by no one or nothing,” said Schäuble. “I’m aware of my responsibility for the stability of the euro. If we take the wrong decisions we’ll be doing the euro a great disservice,” he told a German Sunday newspaper.
Russians are estimated to hold more than €20bn of the €68bn deposited in Cypriot banks. Bank of Cyprus holds €28bn in deposits although it was not clear how much of that would qualify for the “haircut”. But it was clear that the losses would amount to several billion.
The Cypriot president, Nicos Anastasiades, held meetings with EU officials in Brussels before the meeting of the euro group – the 17 finance ministers of the single-currency area – which included troika representatives Christine Lagarde, head of the IMF, Mario Draghi, president of the ECB, and Olli Rehn, European commissioner for economic and monetary affairs.
Little progress was reported from the earlier meetings on resolving the stalemate over how to structure a €17bn bailout, with creditors unwilling to offer more than €10bn while expressing dissatisfaction with Cypriot proposals to supply the remainder.
The agreement outlined early on Monday came close to what Lagarde had demanded a week ago and which had been rebuffed by Anastasiades.
Over the weekend Nicosia moved on legislation to wind up Cyprus Popular Bank and introduce capital controls to try to prevent a bank run and the flight of money out of the country.
