The UK pound kept close to the 1.20 mark against the euro this week, as economic data in both the UK and eurozone points to a difficult road for 2012. In particular, in the UK retail sales dropped a precipitous –0.8% last month, signalling that consumers are no more confident in their prospects, while the coalition government borrowed more than twice as much as forecast. In Europe meanwhile, attention has turned to Spain and Italy, where crucial labour reforms are being debated, while spluttering manufacturing output points to a deepening recession. UK retailers on the back foot UK retail sales declined double the expected rate last month, falling –0.8% compared to the -0.4% forecast. … [Read more...] about UK pound to euro exchange rate stable as outlook darkens
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Pound to euro stable as central banks hold rates
The situation in Greece especially has topped the headlines this past week, and had the potential to send the euro into meltdown had it not turned out so well. The Greek government conducted a debt swap, aimed at getting bondholders holding more than €200bn in Greek bonds to change their bonds for ones worth 75% less. Had they refused, Greece would have been refused its €130bn EU bailout and been forced to default, prompting the much-feared contagion across Europe. In the event though, Greece’s creditors decided that triggering a financial apocalypse was not perhaps in their best interests, and more than 95% accepted the deal. Cue much jubilation among Greek and European Union public … [Read more...] about Pound to euro stable as central banks hold rates
How much more can Greece take?
The euro has enjoyed an optimistic week. In particular, reports that the coalition in Greece has agreed a debt reduction plan with its creditors following eight long months of negotiations have boosted sentiment. From here on, Greece’s creditors will accept a 70.0% loss in the value of their existing government bonds, while receiving just 4.0% interest on the new ones. (This is a little like going into a negotiating room and not only coming out with no gains, but losing your trousers and shirt in addition. It is astonishing bondholders accepted these terms, and must reflect incredible pressure from the EU.) Of course, this is but one side of the coin. In return, Greece must implement … [Read more...] about How much more can Greece take?
UK to dodge the recession bullet?
(In case you don't know, the UK services PMI is a monthly measure of productivity in the UK services industry. It accounts for two thirds of economic output in Britain, and so is crucial in determining UK growth.) This month UK services took market forecasts, chopped them into small chunks with onions and carrots, fried them, and ate them for dinner. The PMI hit 56.0 (releases above 50.0 mean growth and the higher the better.) This compares to 54.0 the month before, and expectations of a slowdown to 53.5. It’s a 10 month high for UK services, and the biggest single jump on record. Great! Of course, before this, economists thought Britain would soon be re-entering recession. The economy … [Read more...] about UK to dodge the recession bullet?
Is Greece poised to give the euro a boost?
For almost eight months, bureaucrats in Athens have been negotiating to convince investors to take a voluntary loss on their bonds, arguing this is the only way Greece can get its debt onto a sustainable footing. Until just the last day or so bondholders have refused, for the good reason that volunteering to take a loss is like opening your wallet to strangers in the street! Somehow or other though EU officials have managed the impossible, and investors stand poised to accept a 50.0% loss on their existing Greek bonds, while accepting an interest rate of just 3.75% on replacements. How then might this help the euro? Because if Greek officials and bondholders had not reached agreement, … [Read more...] about Is Greece poised to give the euro a boost?
Spain: Too big to fail?
The European Union’s three victims-so-far of the global financial meltdown have, not incorrectly, been described as the economic bloc’s periphery. Their economies are relatively small and, though at times worries about their debts have undermined the euro currency, their problems – even taken in combination – are hardly likely to bring the bloc to its knees. Individually, they were sick from a debilitating cocktail of similar problems: bed-ridden with debt and weak from a bad diet of profligate government spending and loan-happy banks. Nothing, it seemed, that a dose of bailout money from the EU and IMF could not cure with a trip to the emergency ward. Spain is showing similar symptoms. … [Read more...] about Spain: Too big to fail?
The market tears up Zapatero’s social contract
“My government’s ambition is to make this an innovative, creative, entrepreneurial country while upholding the social welfare state… I think we should learn the lesson of the Great Depression: when an economy enters a deep recession, the only way we can come out of it is from a big push from the public sector.” José Luis Rodríguez Zapatero uttered these words less than a year ago. At the time, with Spain mired in recession, critics could argue with his ideological stance, but nobody could doubt his convictions. However, the prime minister’s announcement on May 12 of a broad and radical raft of austerity measures has seen him perform the biggest U-turn of his six years in government … [Read more...] about The market tears up Zapatero’s social contract
Not yet a Greek tragedy, but still a Spanish drama
“Complete insanity” is how Prime Minister José Luis Rodríguez Zapatero summed up speculation that his government had approached the International Monetary Fund to request a €280-billion bailout. “These rumours can increase differences and hurt the interests of our country, which is simply intolerable and of course we intend to fight it,” he told reporters in Brussels ahead of an emergency summit among leaders of countries using the euro currency. The IMF also denied the speculation. The rumours that Spain was looking for help started circulating after the European Union and the IMF agreed on Sunday to the first bailout of a euro-zone country, giving Greece a €110-billion loan over … [Read more...] about Not yet a Greek tragedy, but still a Spanish drama