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First it was Athens. Then Rome. Could Paris be next? While Italy has replaced Greece as the focus of anxiety amid Europe’s worsening debt crisis, investors are increasingly concerned about the outlook for France, whose banks are among the world’s biggest and are closely linked with their counterparts in the United States.
First it was Athens. Then Rome. Could Paris be next? While Italy has replaced Greece as the focus of anxiety amid Europe’s worsening debt crisis, investors are increasingly concerned about the outlook for France, whose banks are among the world’s biggest and are closely linked with their counterparts in the United States.
One crucial gauge of investor sentiment, the difference between what France pays to borrow versus what Germany pays, has doubled since the beginning of October, and last week reached its widest point since the formation of the euro currency zone in 1999. Meanwhile, speculation that France could soon lose the sterling triple-A rating on its sovereign debt intensified after Standard & Poor’s mistakenly told clients on Thursday that it was downgrading France’s debt.
The jump in Italian bond yields to more than 7 percent last week, on concern about Rome’s ability to borrow, reminded investors just how much Italian debt French banks hold.
But French banks also hold a lot of French government bonds, whose yields have risen in tandem with concerns that Paris’s finances may be strained as it foots a larger bill to help prevent the crisis from engulfing Italy.
“Once you are dealing with Italy, you are dealing with France as well,” said Hans Mikkelsen, senior credit strategist at Bank of America Merrill Lynch. “This is cutting into the core.”
Japan Emerges From Post-Quake Slump
Japan’s economy expanded for the first time in four quarters, recovering from the record March earthquake as companies bolstered production and exports rose.
Gross domestic product grew at an annualized 6.0 percent in the three months ending Sept. 30, the fastest pace in a year and a half, the Cabinet Office said today in Tokyo. The median forecast of 26 economists surveyed by Bloomberg News was for a 5.9 percent increase.
Japan’s return to growth after three quarters of contraction was driven by companies including Toyota Motor Corp. making up for lost output from the March disaster. The rebound is already showing signs of waning as the yen’s climb to post- World War II highs and Europe’s deepening fiscal woes threaten the outlook for exports.
The economy’s expansion “is a sign that economic conditions are back to normal,” Yoshiki Shinke, a senior economist at Dai-Ichi Life Research in Tokyo, said before the report was released. “The focus has already shifted to determining the magnitude of the slowdown or whether an expansion is sustainable.”
Weaker global demand and Europe’s debt crisis have slowed expansion in Asian nations fromChina to South Korea to the Philippines. “No country can be immune” to the effects of Europe’s turmoil, International Monetary Fund Managing Director Christine Lagarde said Nov. 12.
Rebound May Slow
Swan Says Europe’s Debt Woes Will Make Australian Budget Surplus Tougher
Australian Prime Minister Julia Gillard’s pledge to return to a budget surplus in 2013 is being made “a lot tougher” by Europe’s sovereign debt crisis, Treasurer Wayne Swan said.
“The hit to government revenue caused by the global turbulence means we’ll have to continue making tough budget decisions,” Swan said in an e-mailed statement yesterday. The crisis is flowing “through to government revenue, and will add to the A$130 billion ($134 billion) in revenue writedowns we’ve seen since the global financial crisis first struck.”
Australia is unlikely to meet its pledge without policy changes, Deloitte Access Economics said on Nov. 7, forecasting the shortfall will be A$1.9 billion in 2012-13, or A$5.4 billion worse than Treasury’s estimate of a A$3.5 billion surplus. Failure to achieve the target may stoke criticism of the Labor government’s fiscal management by the opposition Liberal- National coalition, which leads in opinion polls.
A Cabinet committee has signed off on cuts to be revealed in the government’s mid-year budget review within the next two weeks, the Australian Financial Review reported today, without saying where it obtained the information.
Former Treasury official Chris Richardson, now a partner at the Canberra-based economic advisory company Deloitte Access, said Nov. 7 that the “dream is over” for Swan’s bid to bring the budget to surplus by 2013. The underlying cash deficit in the 12 months to June 30, 2012, is forecast at A$31.2 billion, A$8.6 billion less than official estimates, he estimated.
Cutting Forecasts
At the weekend I went to a talk by one of the most impressive public intellectuals in Australia, Pierre Ryckmans. After the session, I asked him about the deteriorating economy of Europe.
''It's incredible,'' he replied. ''They are living in a fantasy.''
He summed it up with this: the European social democrats, and their allies in the bureaucratic class, have been living in a fantasy world which is now unravelling.
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The country of Ryckmans' birth and adolescence, Belgium, has not had a federal government for more than a year (more than 500 days, in fact). Belgium has been run by a caretaker prime minister.
Brussels, the capital of Belgium and the base of the European Union, is split politically and demographically by a fault line between the (more productive) Flemish-speaking north and the (less productive) French-speaking south, with a large, rapidly growing and unemployment-plagued Muslim minority in the mix.
The first major bank failure in this year's euro zone crisis was in Belgium, when the Dexia group had to be bailed out by taxpayers. Belgium's public debt as a percentage of gross domestic product is almost 100 per cent, the highest in Europe outside Greece and Italy, both now in crisis.
FINANCIALLY distressed property listings and mortgagee sales are attracting cashed-up buyers looking for bargains, particularly for prestige properties.
This week a block of apartments at Edgecliff, offered for sale under receivers' instructions, sold for $5 million through Ray White Double Bay.
Named Brantwood Hall, the character four-storey block in New South Head Road had passed in at auction two weeks ago. With 12 one-bedroom apartments and a three-bedroom penthouse, the building shows a gross annual return of $270,304 which the selling agents believe could be improved.