So this is what ‘no change’ looks like: 123,000 more people unemployed in just one month. Most European unemployment rates rose last month, but the headline figure remained at 10 per cent because of falling unemployment rates and large populations in a handful of countries. Latvia is still suffering terribly, with unemployment rising to 22.3 per cent from 21.6 per cent in a single month.
Inflation is a better picture, with levels mostly close to target and almost all trends looking healthier. Slovakia and Estonia have pulled themselves out of deflation for the first time in months; Irish deflation is steady; and even Latvia’s deflation has tempered a little, from 4.3 to 4 per cent. Greece, and perhaps surprisingly, Norway, are experiencing steady-ish rises to 3.9 and 3.6 per cent, respectively. Only in Iceland is the trend a real cause for concern: inflation is still rising quickly, from 10.7 per cent last month, to 11.6 per cent this month. The spread of inflation among the countries – a very crude measure – has risen from 15 percentage points last month to 15.6pp this month.
Officials in Berlin have admitted they are looking at how to construct a “firewall” to prevent the Greek debt crisis spiralling out of control, raising hopes in the markets of a European rescue plan for Greece.
Current discussions concern reducing contagion rather than helping Greece, however. “We’re thinking about what we should do if the crisis spills from Greece into other euro countries. So it’s more about finding firewalls, containing the problem, than principally about helping the Greeks,” said one official. He added there were “no concrete plans” as yet.
Brussels has just approved €6.9bn of ‘urgent rescue aid’ for ABN Amro and Fortis Bank. The cash is destined to separate Fortis from both its Netherland unit and its (2007-acquired) ABN Amro operations. The separated parts will then be merged. The various units have insufficient cash to achieve the reconstruction by themselves.
Meanwhile the Irish government is set to acquire further stakes in its top banks as a result of loans being transferred to the country’s “bad bank”, central bank governor Patrick Honohan said today. “It is pretty clear the government will be acquiring additional equity stakes,” Mr Honohan told an event at Trinity College Dublin.
A change in travel plans by Jean-Claude Trichet, European Central Bank president, has caused a flurry of excitement in financial markets this morning. He is leaving early a Reserve Bank of Australia conference in Sydney in order to get back for Thursday’s European Union leaders summit in Brussels. The buzz in markets is that this could be a sign that a bail-out is being prepared for Greece.
It is a good story to trade on (the euro is up a bit) but is such speculation credible? I am not so sure. It didn’t help that the first reports said Mr Trichet was returning for an extraordinary meeting of the ECB’s governing council - an understandable mistake for anyone in Australia not familiar with the EU’s array of councils and presidents.
But my understanding is that the ECB president always intended to be at Thursday’s summit in Brussels, which was
If nothing else, a positive aspect of Greece’s plight has been the wave of ideas on how the eurozone could operate more effectively in the future.
A big shortcoming identified by many has been the lack of proper “crisis management” procedures, which have arguably exacerbated Greece’s difficulties. Now – just in time for the EU leaders’ summit in Brussels this week – comes an ingenious solution for a European Monetary Fund, put forward by Daniel Gros, director of the Brussels-based Centre for European Policy Studies, and Thomas Mayer, chief economist at Deutsche Bank.
Their idea is for a sort of eurozone version of the International Monetary Fund, which could provide emergency loans to struggling countries or ensure a default was orderly, with minimum effect for other eurozone countries. It would be funded by contributions from countries in the weakest financial position, calculated according to how grievous was their abuse of the EU’s fiscal rules as set out in its ”stability and growth pact”.