After Cyprus Bailout Deal, Europe's Problems Worse Than Ever

Cyprus may have been saved from disaster, but don't be fooled: Europe is still a hot mess.

In the middle of the night on the continent, officials managed to hastily stitch together a plan to rescue Cyprus and keep it from leaving the eurozone. The deal came just hours before a European Central Bank deadline that could have left Cyprus cut off from short-term capital, beginning the potential unraveling of the entire currency union. It also came just about one week after another hastily stitched-together bailout deal sparked outrage in Cyprus and around the region and created the need for desperate last-minute talks in the first place.

To paraphrase Winston Churchill, European policymakers always do the right thing, but only after exhausting every available alternative. As Quartz's Simone Foxman points out, this is no way to run a currency union, which together makes up the world's second-largest economy. And there are reasons to suspect this won't be the last bungled bailout.

The Cyprus debacle came about in part because the European Commission and the International Monetary Fund weren't on the same page about what to do with Cyprus from the start, the Financial Times reports -- an echo of their disagreements over helping Greece last year. This incident has left their relationship more fraught than ever, and it means we could very well get a repeat of the botched Cyprus bailout soon -- in Slovenia, or Italy, or who knows where else. Read more >>

Euro-Area Unemployment Climbs to Record

The euro-area jobless rate rose to a record in January as austerity measures taken to counter the debt crisis deepened the currency bloc’s recession.

Unemployment in the 17-nation euro area rose to 11.9 percent from a revised 11.8 percent in December, the European Union’s statistics office in Luxembourg said today. That’s the highest since the data series started in 1995. The figure is higher than the 11.8 percent median estimate of 33 economists in a Bloomberg News survey.

“The situation is very serious,” said Alexander Krueger, chief economist at Bankhaus Lampe in Dusseldorf. “There’s no support any more from Germany. It’s more or less a sideways movement which I expect to continue. Other economies like Italy, Spain and Portugal are very bad at the moment, so in the end the unemployment rate can only climb.”

The euro-area economy recorded its worst performance in four years in the fourth quarter with a contraction of 0.6 percent. Gross domestic product will decline again in the first three months before returning to growth in the second quarter, according to the median of 21 economists’ estimates in a separate Bloomberg survey. The European Commission forecasts unemployment rates of 12.2 percent and 12.1 percent for this year and next. Read more >>

Spain's rescued banks to shrink, slash jobs

Spain's four nationalized banks will more than halve their balance sheets in five years, slash jobs and impose hefty losses on bondholders, under plans approved by the European Commission on Wednesday.

The measures open the door for nearly 40 billion euros ($52 billion)in euro zone bail-out funds for the state-rescued banks, offering hope for an end to Spain's banking crisis which has pushed the country to the brink of asking for sovereign aid.

The approval sets in place one of the most far-reaching over-hauls of any European banking system ordered by the Commission since the start of a banking crisis in mid-2007 with the near collapse of German lender IKB.

"Our objective is to restore the viability of banks receiving aid so that they are able to function without public support in the future," said European Union Competition Commissioner Joaquin Almunia said.

Bankia, NCG Banco, Catalunya Banc and Banco de Valencia were taken over by the Spanish state after unsustainable lending during the country's decade-long property boom left the lenders dangerously short of capital. Read more >>

Strike to shut down Greece as EU leaders meet

The fourth such strike of the year is expected to paralyse train and ferry traffic, disrupt flights and shut down public services as unions seek to send a message to the government that they will not tolerate a third straight year of cuts. The coalition government of Prime Minister Antonis Samaras is holding delicate negotiations with Greece’s so-called ‘troika’ of creditors — the EU, IMF and European Central Bank — to secure the release of loans needed to avoid bankruptcy.

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The government has been told by its creditors to jumpstart flagging economic reforms and lighten the budget by 9.2 billion euros ($12 billion) next year in order to secure a 31.5-billion-euro loan slice next month. The money is part of an overall EU-IMF bailout of 130 billion euros that is tied to Greek reform pledges, including a long-delayed privatisation drive.

Waves of prior austerity measures over the last two years managed to slash Greece’s runaway deficit by over six percent of output, at the cost of cuts to wages, pensions and benefits. One in four Greeks are officially unemployed — with the real number higher still according to unions — and the economy is in a deepening recession. Read more >>

Greece’s Rating Outlook Lowered By S&P

Greece’s credit rating may be cut again by Standard & Poor’s on concern the debt-burdened nation will need more support from European Union lenders.

The outlook on Greece’s CCC rating, already eight levels below investment grade, was revised to negative from stable, S&P said in a statement yesterday. The change reflects the risk of a downgrade if Greece is unable to obtain its next disbursement of bailout loans from the EU and International Monetary Fund rescue package, the rating company said.

Representatives from the so-called troika of the European Commission, European Central Bank and IMF return to Athens early next month to review Greece’s economic program, which will determine whether the nation will receive further funds from rescue packages, amounting to 240 billion euros ($297 billion), needed to remain in the 17-nation euro area.

Prime Minister Antonis Samaras has held meetings with the leaders of the two parties supporting his coalition government since it was formed following elections on June 17 to hash out a 11.5 billion-euro package of budget cuts demanded by the creditors for the next two years. Finance Minister Yannis Stournaras said yesterday the government is still working on identifying almost a third of the cuts. Read more >>

EU Discuss Limiting ATM Withdrawals

European finance officials have discussed limiting the size of withdrawals from ATM machines, imposing border checks and introducing euro zone capital controls as a worst-case scenario should Athens decide to leave the euro. EU officials said the ideas are part of a range of contingency plans. They emphasised that the discussions were merely about being prepared for any eventuality rather than planning for something they expect to happen.

But with increased political uncertainty in Greece following the inconclusive election on May 6th and ahead of a second election on June 17th, there is now an increased need to have contingencies in place, the EU sources said. The European Commission said today it was helping with legal advice in discussions of contingency scenarios regarding Greece by the Eurogroup working group.

"I've not said that I'm not aware of any discussions, I've said I'm not aware about any plans, which is a slight difference," Commission spokesman Olivier Bailly told a regular news briefing, when asked about Commission involvement in discussions about the contingencies were Greece to leave the euro. "What I said also is that some people are working on scenarios. We are providing information about EU law, as the guardian of the treaty," he said. Read more >>

Terrified Spaniards Withdraw $82 Billion From Banks

Spaniards alarmed by the dire state of their banks are squirreling money abroad at the fastest rate since records began, figures showed on Thursday, and the credit ratings of eight regions were cut. Spain is the next country in the firing line of the euro zone's debt crisis, with spendthrift regions and shaky banks threatening to blow a hole in state finances and pushing funding costs towards levels that signal the need for a bailout.

The European Commission gave new help on Wednesday, offering direct aid from a euro zone rescue fund to recapitalize Spanish banks and more time for Madrid to reduce its budget deficit. That helped lower the risk premium investors demand to hold Spanish 10-year debt rather than the German benchmark on Thursday, but it remained close to the euro-era record, at 520 basis points.

Bank of Spain data showed a net 66.2 billion euros ($82.0 billion) was sent abroad last month, the most since records began in 1990. The figure compares to a 5.4 billion net entry of funds during the same month one year ago. Read more >>

EU Pushes Mandatory Internet ID for Europe

The number of the beast is 666 by William Blake

While the international ACTA treaty and United States’ CISPA legislation are setting the stage to clamp down on the world wide web, technocrats are working overtime to try to pin down your identity and make sure all your activities are thoroughly monitored and under control.

The European Union is now moving to create a mandatory electronic ID system for all EU citizens that would be implemented across Europe to standardize business both online and in person, authenticating users via a common ‘electronic signature.’ A single authenticating ID would guard access to the Internet, online data and most commerce.

It is nothing short of an attempt to phase in a Mark of the Beast system, and a prominent Bilderberg attendee is behind the scheme.Neelie Kroes is the EU’s Digital Agenda Commissioner, and is introducing legislation she hopes will force “the adoption of harmonised e-signatures, e-identities and electronic authentication services (eIAS) across EU member states.” More...

20,000 March at Frankfurt Occupy Protest Rally

At least 20,000 people held a major rally of the local Occupy movement in Frankfurt on Saturday to decry austerity measures affecting much of Europe, the dominance of banks, and what they call untamed capitalism. The protesters peacefully filled the city center of continental Europe's biggest financial hub on a warm and pleasant afternoon, said Frankfurt police spokesman Ruediger Regis. 

He said 20,000 people were there, while organizers put the number at 25,000. The protest group, named Blockupy, has called for blocking access to the European Central Bank, which is located in Frankfurt's business district.

Organizer spokesman Roland Seuss the protest is "against the Europe-wide austerity dictate by the (creditor) troika of ECB, the EU Commission and the International Monetary Fund." Last year, thousands in Germany took to the streets in rallies during the worldwide Occupy movement. But as Germany's economy is robust and unemployment at a record-low, those protests have mostly fizzled out. More...

ECB, Commission Working On Greek Exit Plans

The European Commission and the European Central Bank are drawing up plans should Greece abandon the euro, Trade Commissioner Karel De Gucht said in an interview published Friday, the first time a senior official in the European Union executive has acknowledged such preparations.

The ECB and the commission are "working on emergency scenarios in case Greece does not make it," De Gucht said in an interview with the Flemish newspaper De Standaard. Phone calls to and messages left from Dow Jones Newswires to De Gucht's office were not returned.

A commission spokeswoman denied that contingency plans for a Greek exit were under way. An ECB spokesman said in an e-mail the bank doesn't "engage in any speculations about any emergency plans or possible scenarios and therefore do not comment Commissioner De Gucht's statement." The "immutable preference" is for Greece to stay in the currency bloc, he said, echoing comments Wednesday from ECB President Mario Draghi. More...

The crisis in Europe and the financial aristocracy

The latest meeting of European Union (EU) finance ministers held at the start of this week once again revealed the complete subservience of the European political establishment to the European and international banking and finance cartels. (See “EU finance ministers meeting: No agreement on euro crisis”.)

Commenting on the relationship between European governments and the finance markets, British economist Phillipe Legrain writes: “So far, EU governments have decided that banks’ bondholders must be protected at all costs, preferring to impose losses on taxpayers instead—even if this stretches governments’ solvency to breaking point.”

For their part, reassured that they have the full backing of European treasuries behind them, the moguls of the finance world are undertaking their destructive work with renewed vigour.

An editorial in the German Süddeutsche Zeitung at the start of the year describes the activity of the modern breed of finance speculators:

“Just back from their two-week ski holiday, the currency dealers and finance managers have renewed their speculation against highly indebted Euro countries. Their first victim in the new year is Portugal….” Read more...

Half of Europe Veering Towards Bankrputcy

TERENCE ROTH -WSJ
After two years of crashing banking systems and economic recession, the euro zone enters 2010 with a full-blown debt crisis.

The European Commission warns that public finances in half of the 16 euro-zone nations are at high risk of becoming unsustainable.

Chartbook: Euro Zone at Risk

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Half of the 16 euro-zone countries are deemed to be at "high risk" in terms of the sustainability of their public finances. See an overview of each country's economic data.

Governments will spend the next year and beyond balancing the urgent need to fix public-sector debt and deficits -- without imperiling what appears to be a feeble economic recovery.

Even the staunchest optimists in Brussels and Frankfurt see a rocky process, with rating firms poised for more downgrades and bond markets meting out daily judgment over how governments are doing.

Greece and Spain saw their ratings downgraded. Ireland and Portugal have been warned they could be next. Even broader downgrades threaten if other European governments don't shape up.

Fitch warns in a December report that particularly the U.K. (which isn't in the euro zone) and Spain and France (which are) risk being downgraded if they don't articulate more-credible fiscal-consolidation programs during the coming year given the pace of fiscal deterioration.

With the young currency bloc facing the first major test of its fiscal reliability, financial markets are hedging their bets.

The euro ended 2009 slipping off its highs for the year and bank stocks were sliding on perceptions that their government-bond holdings could lose value. Economists worry the fiscal damage could take years to repair. The recession that has gripped the euro zone since mid-2008 collapsed tax revenues and sent welfare costs soaring.

Billions of euros dedicated to fiscal-stimulus plans and bank bailouts completed the devastation to government finances.

Investors also worry about the danger of a "double dip" European recession if governments get the timing and pace of budget consolidation wrong and choke off the recovery.

That prospect comes alongside concerns of more ratings downgrades and higher default risk if governments act too slowly.

Budget deficits for the region as whole in 2009 swelled to 6.4% of gross domestic product from 2% the year before. The EU forecast sees that gap widening to nearly 7% in 2010 before the worst is over.

European Central Bank President Jean-Claude Trichet says he worries that runaway government borrowing could undermine his ability to hold down inflation, and wasted no opportunity to cajole governments back into line. But ECB officials also acknowledge that countries such as Greece and Spain may need to move earlier in reducing deficits and the amount of debt flooding European bond markets.

By contrast, Germany and France will increase spending to add fresh fiscal stimulus in 2010, in France's case swelling its budget gap to more than 8% of GDP next year, according to EU projections. The concern in Berlin and Paris is that rising unemployment, a lagging indicator that continues to rise in the early stages of recovery, will do enough to limit domestic demand without the governments also turning off the taps too early.

The fiscal juggling acts within a multinational currency union frame the test that worried skeptics before the euro's launch a decade ago.

They said a monetary union unsupplemented by a political union risked a fiscal free-for-all among governments, especially in a full-blown recession. The next year will be a good time to prove them wrong.

The focus in early 2010 will remain on Greece and its budget deficit at 12.7% of GDP, four times the EU limit. The Greek government is trying to hammer together a political consensus in parliament for a plan to bring down public spending without triggering more social unrest seen in the country's streets at the close of 2009.

Europe has told Athens that it has to get itself into shape without outside help. Not many Europe watchers believe the euro zone would allow one of its own to go into default, discrediting the euro currency and the philosophy of a monetary commonwealth behind it.

If things did get that far, euro-zone governments would be expected to rush in with a rescue plan to absorb some of Greece's debt, or issue guarantees.

As if to cover all possibilities, ECB legal counsel Phoebus Athanassiou in December discussed in a working paper how and under what conditions a euro-zone country might withdraw or be expelled from the currency union.

But Brussels is still taking a hard line. The European Commission, in its latest quarterly economic report issued in December, said the strong reaction in financial markets to signs of fiscal laxness highlights the priority of getting a handle on runaway government spending.

It called Greece "a source of serious concern," but urged other member states to bring public finances into sustainable parameters of borrowing and debt.

The ECB is equally unforgiving. "One has to be very clear: The ECB has no mandate or intention to take into account the situation of a specific country, especially not with regard to public finances," Ewald Nowotny, the Austrian member of the ECB's Governing Council, said in a December interview with The Wall Street Journal.

That leaves it up to national leaders to take the pain to the people with varying combinations of more taxes, deeper spending cuts and scaled-back social programs. The tale of what Europe's big fiscal crackdown will look like, and how it will be received, will unfold over the next two years. The first chapter in Europe's big fiscal crackdown comes in January, when Greece is due to submit what is expected to be a radical fiscal overhaul.

Write to Terence Roth at terence.roth@wsj.com

Nearly One in Five EU Residents Struggle to Cope Financially

John Chapman and Femke De Keulenaer

BRUSSELS -- In July 2009, at a time when several European economies were just coming out of recession, nearly one in five (18%) European Union residents said their household had at some time in the past year run out of money to pay ordinary bills or to buy food or other daily consumer items.

Romanians (45%) and Latvians (40%) were most likely to say they had run out of money to pay for essential goods and services in the 12 months before the survey. In a number of other eastern European countries, such as Hungary, Bulgaria, and Lithuania, about a third of respondents said their household had gone through a similar experience. However, far fewer residents reported such problems in Denmark (5%), the Netherlands (8%), Sweden and Luxembourg (both 9%), and Germany (10%).

Looking ahead to the next 12 months, slightly more than one-quarter (26%) of EU residents expected their household's financial situation to deteriorate. More than half (55%) of respondents expected that their household's financial situation would be stable and 16% anticipated that their household's financial situation would improve.

Residents in Latvia (65%) and Lithuania (58%) were the most likely to expect their household's financial situation to be worse in the 12 months following the poll. At least 4 in 10 residents expected the same in Hungary (48%), Ireland (43%), Estonia, Greece, and Romania (all 41%).

Among the least likely to be pessimistic about their household's future financial situation (that is, thinking it would deteriorate) were those in Denmark (10%), Finland and Sweden (both 15%), Luxembourg (17%), and Austria (18%). Furthermore, at the time of the survey, at least one in five respondents in Sweden (24%) and Denmark (21%) expected an improvement in their household's financial situation in the year to come.

The EU residents most likely to expect their household's financial problems to get worse in the next 12 months were the unemployed (33%), retirees (31%), and those aged 55 and older (31%). Furthermore, 42% of those residents who had been unable to pay essential bills thought their household situation would get worse, compared with 23% of those who never had that experience.

These results show the picture of how EU residents were coping with the effects of the financial crisis in July 2009. Early next year, we will publish another article on this same topic.

Eurobarometer Reports

Gallup conducts Flash Eurobarometer surveys for the European Commission. These surveys enable European policymakers to hear the voices of EU residents in the 27 member states. Gallup has worked with the Commission on more than 90 Flash Eurobarometer surveys (with close to 1.5 million interviews) on subjects from the euro to consumer protection and from higher education to the financial crisis.

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MILLION HIT BY 'PLAGUE WORSE THAN SWINE FLU'

Greg Miskiw
The Sunday Express
A DEADLY plague could sweep across Europe, doctors fear, after an outbreak of a virus in Ukraine plunged the country and its neighbours into a state of panic.

A cocktail of three flu viruses are reported to have mutated into a single pneumonic plague, which it is believed may be far more dangerous than swine flu. The death toll has reached 189 and more than 1 million people have been infected, most of them in the nine regions of Western Ukraine.

President of Ukraine Viktor Yushchenko has called in the World Health Organisation and a team of nine specialists are carrying out tests in Kiev and Lviv to identify the virus. Samples have been sent to London for analysis.

President Yushchenko said: “People are dying. The epidemic is killing doctors. This is absolutely inconceivable in the 21st Century.”

In a TV interview, the President added: “Unlike similar epidemics in other countries, three causes of serious viral infections came together simultaneously in Ukraine – two seasonal flus and the Californian flu

“Virologists conclude that this combination of infections may produce an even more aggressive new virus as a result of mutation.”

Prime Minister Yulia Tymoshenko has been touring hospitals where victims are being treated and presidential elections in January could be cancelled .

Four men and one woman have died from the flu in Lviv, said emergency hospital chief doctor Myron Borysevych. Two of the dead patients were in the 22-35 age group, with two others over 60. He diagnosed the disease as viral pneumonia.

“We have sent the analyses to Kiev. We don’t believe it’s H1N1 swine flu. Neither do we know what kind of pneumonia it is.”

Universities, schools and kindergartens have been closed, public meetings have been banned and theatres shut. Last week several border crossings in the country were also closed.

Last night reports emerged of profiteering over face masks, which have sold out since the outbreak. There are also incidents of anti-virus medication being sold for exorbitant prices. A spokesman for the World Health Organisation said: “We do not have a time scale for the results of the tests in London, although some preliminary results have been obtained. I cannot tell you what they are.

“We did not have enough of the virus samples so we will have to grow some more before we can come to a conclusive decision about its nature.”

Neighbouring Poland has called on the EU to take action, fearing the mystery virus may spread westwards.

Prime Minister Donald Tusk has written to European Commission President Jose Manuel Barroso and the Swedish Prime Minister, Fredrik Reinfeldt, who holds the EU presidency, saying: “The character of this threat demands that rapid action be undertaken at the European Union level.”

Russia, Slovakia, Poland, Hungary and Romania, countries that border Ukraine, have already launched health checks on Ukrainians entering their territory.

Slovakia has closed two of five border crossings.

A doctor in Western Ukraine who did not want to be named, said:” We have carried out post mortems on two victims and found their lungs are as black as charcoal.

“They look like they have been burned. It’s terrifying.”