After 4 days of politicking Greece finally has a new short term leader:
Greece named former European Central Bank vice-president Lucas Papademos on Thursday to head a crisis government, ending a chaotic search for a leader to save the country from default, bankruptcy and an exit from the euro zone.
A somber Papademos called on Greeks to unite behind him after months of divisive politicking, as he sets about securing a bailout from the European Union that will impose yet more hardship on a nation already suffering soaring unemployment.
“The Greek economy is facing huge problems despite the efforts undertaken,” Papademos said as he emerged from the coalition talks brokered by President Karolos Papoulias.
“The choices we make will be decisive for the Greek people. The path will not be easy but I am convinced the problems will be resolved faster and at a smaller cost if there is unity, understanding and prudence.”
There is no doubt Papademos has a very difficult task ahead of him. The fact that an ex-member of the ECB is now running the country may calm the markets but it doesn’t change the fact that Greece’s economy continues to deteriorate under austerity and Euro area macroeconomic dynamics:
Greece’s jobless rate hit a record high of 18.4 percent in August, as the country struggles through painful austerity measures demanded by foreign lenders and its fourth year of recession.
Data from national statistics agency ELSTAT on Thursday showed unemployment rose from 16.5 percent in July as a rise in tourism activity in August failed to stem sharp job losses in the economy. More than four-in-ten young people were out of work.
“The rate of deterioration in the labor market topped even the most pessimistic projections during a month when tourism provides support,” said Nikos Magginas, an economist at National Bank of Greece.
“At this pace, it will be hard to see unemployment below 18 percent in the last quarter.
Greece’s economy is seen shrinking for a fourth consecutive year in 2011, at an annual pace of 5.5 percent. The European Union and International Monetary Fund do not expect a recovery before 2013.
With ever rising unemployment and falling production there is no way this political resolution is the last “crisis” from Greece.
In Italy the politicking continues:
Former European Commissioner Mario Monti has won growing support to succeed Prime Minister Silvio Berlusconi. The respected economist is known as a tough negotiator with connections to top European policy makers.
He is seen by many as the most likely head of a caretaker government of Technocrats, which could pass vital reforms. Both the current ruling party the PDL and President Napolitano back the appointment.
Italy’s Senate will vote Friday on the latest round of cost cutting. The Senate will include Mr Monti who was made a “a Senator for Life” by the Italian President on Wednesday so that he could vote on the legislation. If the vote passes then Prime Minister Silvio Berlusconi is supposed to resign immediately making way for a new PM which is believe to be Mr Monti
It appears, however, that Berlusconi has other plans:
As Italy’s political establishment on Wednesday positioned a technocrat to lead an interim government through an unpopular season of auserity, Prime Minister Silvio Berlusconi accelerated his efforts to position a hand-picked successor to lead his center-right party.
For months, Mr. Berlusconi has been grooming Angelino Alfano, secretary of his People of Freedom party and a former justice minister, to succeed him as party leader and, eventually, prime minister. Mr. Berlusconi had at first planned to hand the reins to Mr. Alfano before his own term expired in 2013.
Overnight Italy managed to raise 5 billion euros by selling 366-day bills at an average yield of 6.087 percent, the highest yield for since 1997. The ECB is believed to have done most of the heavy lifting, although the bid to cover ratio was 1.99 suggesting there was private interest. The yield is under control for now, just, but even the ECB is admitting that it is running out of ammo:
European Central Bank policy makers said the bank can’t do much more to stem the region’s sovereign debt crisis, suggesting they are reluctant to significantly ramp up bond purchases to lower Italy’s borrowing costs.
“Not much more can be expected from us, it’s up to the governments,” Governing Council member Klaas Knot, who heads the Dutch central bank, told lawmakers in The Hague today. Three other policy makers have also publicly rejected calls for more ECB intervention and two further officials, who spoke on condition of anonymity, said the central bank has no plans to make its purchase program unlimited.
As I said yesterday, my focus is moving to France as it is likely to be the next country in trouble as contagion leaks from Italy through the banking system. Overnight Credit Agricole , the largest retail bank in France, reported a 65% slump in profits on Greek losses and according to France’s central bank the country’s economy is stalling:
The French economy is to stagnate in the last quarter of the year, the Bank of France warned today. The warning came just two days after the government announced a new round of austerity measures.
“Gross domestic product will be stable in the fourth quarter of 2011,” the bank said in its monthly business climate report for October. The French central bank said industrial activity had “remained stable” in October and that service providers were reporting slower activity.
Overnight the markets got a little spooked when Standard & Poor’s accidentally issued a message stating it had cut France’s triple-A credit rating. The message was quickly re-tracted but it looks like some damage was done with French bonds sharply higher overnight, the 2 year up over 20% , and the French sovereign CDS climbing 4%:
There also seems to be a fight brewing between the French government and the EU over how far to take austerity:
France snubbed an EU call to introduce more austerity measures, saying on Thursday the country’s latest round of belt tightening would be big enough to bring its deficit back into line with EU limits.
President Nicolas Sarkozy’s government announced on Monday a second savings drive in three monthsthe face of an economic slowdown and persuade investors it merits its , as it battles to keep its deficit targets within reach in AAA rating as one of the world’s safest borrowers.
Forecasting lower growth in France than the government, EU Economic and Monetary Policy Commissioner Olli Rehn urged further steps to ensure France is able to cut its public deficit to an EU limit of 3 percent of gross domestic product in 2013 from an estimated 5.7 percent this year.
But French Finance Minister Francois Baroin and Budget Minister Valerie Pecresse said the latest saving measures had built in leeway to offset the impact of lower than expected growth both in 2012 and 2013.
With much of the latest data showing that the EU economy is going backwards and France attempting to keep its economy going to maintain its AAA rating, and therefore the EFSF, you would have thought that the people in charge of the whole structure would be looking at ways to help out. But this is Europe:
The European Union’s monetary affairs commissioner says that five countries face sanctions under the bloc’s new spending rules because they are not doing enough to cut their budgets.
Olli Rehn warned Belgium, Cyprus, Hungary, Malta and Poland may be the first to get penalized under the EU’s strengthened stability and growth pact set to come in force in mid-December.
Under the new rules, sanctions for countries that break the caps on budget deficits and debt levels become more automatic, in an effort to prevent a worsening of the debt crisis.
Rehn said “What we need now is unwavering implementation… I will start using the new rules of economic governance from day one.”
I have been calling a European recession for a while now and this certainly doesn’t change my mind.
In other news the permanent bailout fund seems to be stalling over disagreements between France and Germany, the Troika is back in Portugal having a poke through the books, the Spanish economy continues to look like a train wreck and finally Austria’s AAA also looks under threat.