One false move in Europe could set off global chain reaction If the trouble starts -- and it remains an "if" -- the trigger may well be obscure to the concerns of most Americans: a missed budget projection by the Spanish government, the failure of Greece to hit a deficit-reduction target, a drop in Ireland's economic output. But the knife-edge psychology currently governing global markets has put the future of the U.S. economic recovery in the hands of politicians in an assortment of European capitals. If one or more fail to make the expected progress on cutting budgets, restructuring economies or boosting growth, it could drain confidence in a broad and unsettling way. Credit markets worldwide could lock up and throw the global economy back into recession. For the average American, that seemingly distant sequence of events could translate into another hit on the 401(k) plan, a lost factory shift if exports to Europe decline and another shock to the banking system that might make it harder to borrow. "If what happened in Greece were to happen in a large country, it could fundamentally mark our times," Angelos Pangratis, head of the European Union delegation to the United States, said Friday after a panel discussion on the crisis in Greece sponsored by the Greater Washington Board of Trade. That local economic development boards are sponsoring panels on government debt in Greece is perhaps proof enough that Europe's problems are the world's. That the dominoes can tumble fast was shown Thursday when a new and narrowly drawn stock-trading policy in Germany helped trigger a sell-off on Wall Street. It marks a change, Barclays Capital chief European economist Julian Callow wrote in a Friday analysis, from a situation in which the bonds of European countries were considered to carry virtually zero risk to a "brave new world" where sovereign default in one of the world's core economic areas is a tangible threat. Bank holdings of European debt are now being studied with the same focus given to holdings of U.S. mortgage-backed securities as the global financial crisis unfolded in 2008 -- and with the same suspicion that problems in one part of the world could wreck others. The most vulnerable European countries -- Greece, Spain, Portugal and Ireland -- may represent only about 4 percent of world economic activity, but "the debt crisis and its ripple effects are bad news for all corners of the world," said Cornell University economist Eswar Prasad. The risk of a worst-case scenario is still considered remote. European countries have pledged hundreds of billions of dollars to aid indebted neighbors that run into trouble, and they say they are committed to fixing the continent's larger economic problems. The euro and U.S. markets were both higher Friday after the German Parliament approved a key piece of that support program. A renewed effort by the U.S. Federal Reserve to ensure that European banks have adequate access to dollars has generated little demand -- a sign that a feared shortage of cash is not in the offing. U.S. banks are not heavily exposed to the weaker European countries, Fed governor Daniel K. Tarullo said in testimony on Capitol Hill last week. Banks are in better shape overall, after fresh infusions of capital. Meanwhile, the U.S. economic recovery has been strengthening through the year, with jobs added in five of the last six months, and recent consumer spending and industrial output stronger than most forecasts. But the fallout from Europe could still be widely felt. U.S. trade officials, hoping the country can dramatically boost its exports, are dismayed at the steep drop in the value of the euro -- which is around $1.25, down from more than $1.50 in November. The decline makes American goods more expensive compared with those produced in Europe. The slide in the common European currency could also change the way China and a host of Asian countries approach their currency policies, possibly making them less likely to agree with U.S. demands to raise the value of their money. If they raised it, Asian goods would become more expensive in world markets, making it easier for U.S. products to compete. The connections are being closely watched. Analysts are studying how the involvement of Greek financial institutions in Eastern Europe, or Spanish banks in Latin America, could affect those economies. The International Monetary Fund and E.U. officials are doing biweekly checks on Greece's progress to ensure its economic reform program stays on track, according to Vassilis Kaskarelis, Greece's ambassador to the United States. Inside the euro zone, banks are intimately linked, with a web of investments and cross-country bond holdings that could be a main vector for financial "contagion," with a default in one country weakening banks elsewhere. There are some positive impacts in all this for the United States. For one, uncertainty about European government debt has driven global investors toward U.S. government bonds, which in turn is pushing down long-term interest rates. The 10-year Treasury bond had a rate of 3.2 percent Friday compared with nearly 4 percent last month. Those lower rates should flow through to private borrowing, helping Americans getting mortgages or businesses looking to grow. The European panic is also lowering the price of oil and other commodities on global markets, potentially making it cheaper for Americans to fuel their cars and heat their homes. A barrel of oil went for about $70 on Friday, down from almost $87 on April 6. A final positive for the U.S. economy is that the stronger dollar will help keep inflation in check by reducing the cost of imports. That, combined with renewed worry about the strength of the recovery, is likely to give the Fed some leeway to delay raising interest rates above their current extremely low levels longer than it would have otherwise. The most precise comparison is to the East Asian financial crisis that enveloped Thailand, Indonesia, South Korea and other nations in 1997 and 1998. There were widespread fears that the crisis would damage the U.S. economy, including through a financial contagion effect. The Fed even cut interest rates in the fall of 1998 to try to forestall a weakening in U.S. growth. But there was little obvious impact on the U.S. economy, which grew 4.5 percent in 1997, 4.4 percent in 1998, and 4.8 percent in 1999. http://www.washingtonpost.com/wp-dyn/content/article/2010/05/23/AR2010052304170.html
Bearice, you keep posting these pedestrian articles as if there is something important there. This latest tree killer misses the point entirely. Greece is insolvent and that has been obvious to all serious people since last December. The economic problem that keeps flashing up is not about Greece's insolvency, its about the solution and the competency of the EU in dealing with the issue. We are seeing that nobody in power knows what to do, and that they have been herded, like a bunch of cats, into exactly the wrong strategy, adopting dramatic austerity that is socially destabilizing and economically incompetent. There are only two ways to solve an excess debt problem: 1. Default, and 2. Increased Income. Austerity as proposed will destroy income (sovereign revenues) and increase the debt/gdp....resulting in a default later. That is the problem. The adopted solution is the problem. The more EU countries that adopt austerity plans the more growth will destroyed and the worlse the sovereign credits will become. The market is tanking becuase it looks like all of Europe is running like lemmings off this cliff...and it looks like we might too.
You guys have obviously not been getting enough Ketchup.. http://en.wikipedia.org/wiki/Ketchup (always give an appropriate link!)
Britain at risk of Japan-style deflation Adam Posen, a member of the Bank's Monetary Policy Committee, said that although Britain and the US were unlikely to face repeated recessions, in many senses their plight was "scarier" than Japan's. The warning is of particular significance because Mr Posen - an American economist - was recruited to the MPC partly because he is a renowned Japan expert. In speech at the London School of Economics, he said: "The UK worryingly combines a couple of financial parallels to Japan with far less room for fiscal action to compensate for them than Japan had." Britain faces an uncomfortable trio of obstacles, none of which faced Japan in the 1980s or 1990s. Unlike Japan, Britain has to sell a large proportion of its debt to overseas investors, who are more likely to exit the market if they become scared of Britain's fiscal prospects. The UK also faces the challenge of having to boost a troubled manufacturing sector if it is to recover sufficiently. Unlike Japan, it does not have the luxury of having a worldwide market with a large and growing appetite for exports. He also warned that the banking system's continued troubles would undermine companies' abilities to raise funds, and pointed out that businesses already appeared to be hoarding savings - something which happened in Japan. Using a film analogy, Mr Posen said that it was possible that there could be UK "remake" of the Japanese episode. "Unfortunately, the ironic twist for this upcoming film is that in some ways the remake might be scarier than the original. That risk arises not only because the original Great Recession was not quite so scary as previously thought on close viewing, but because Japan actually had various resources with which to manage its situation while the UK and other economies are not similarly endowed, even if some Japanese policymakers failed to take advantage of them." The warning may come as a surprise to some, since last week the Office for National Statistics revealed that the Retail Price Index measure of inflation had risen to an 18-year high of 5.3pc. However, there is a growing number of economists who fear that the current relapse of financial stress could spark a global double-dip recession. Andrew Roberts, credit strategist at RBS, said last week that the world could be heading for Great Depression II. Albert Edwards of Societe Generale expects some years of deflation, followed by hyperinflation as countries monetise their deficits. http://www.telegraph.co.uk/finance/...Britain-at-risk-of-Japan-style-deflation.html
Deposits The Tables of this section present a more detailed analysis of credit institutions deposits than the one given in the âAggregated balance sheet of credit institutionsâ . The Tables give the breakdown of deposits by economic sector (general government, corporations, and households) as well as by geographical territory (prefecture) of the country. The data are presented separately for the pre and post 1.1.2001 period. Α. Data for the period after the entry of Greece into the euro area (2001- ) * Deposits held with credit institutions, breakdown by sector * Deposits held with credit institutions, breakdown by prefecture Β. Data for the period before the entry of Greece into the euro area (1998 - 2000) * Deposits held with credit institutions, breakdown by sector * Deposits held with credit institutions, breakdown by prefecture 1.2 Corporations and Households 227.355 million EUR http://www.bankofgreece.gr/Pages/en...y/deposits.aspx Greece, default ? LOL ! Rich country...