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Greece leaves the Euro within a year?

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News and Views in brief

Economy

Harvard University Professor Martin Feldstein, who predicted in 1998 that the euro would prove an “economic liability,” said the single currency will survive for now, even as he bets Greece quits within a year.

“With the exception of Greece leaving, I don’t think the whole thing is going to fall apart anytime soon,” Feldstein said in a Nov. 14 telephone interview. “The Greek situation is impossible.”

Feldstein’s views on Europe carry increased weight as the region’s two-year debt crisis validates his warnings in the 1990s that uniting so many disparate nations under the same exchange and interest rates could backfire.

While he said he doesn’t like to “use the word vindicate,” Feldstein, who turns 72 next week, said he recently reviewed his euro-skeptic articles and “thought they were pretty much on target, even though they were written 20 years ago.”

His conclusions often left him at odds with now-former European Central Bank President Jean-Claude Trichet, who consistently rejected as “absurd” any speculation the euro area would shrink and warned that a member shouldn’t be allowed to default.http://www.bloomberg.com/news/2011-11-16/feldstein-poised-to-secure-victory-over-euro-as-trichet-departs-a-crisis.html

U.K. unemployment jumped in the third quarter as joblessness among young people climbed above 1 million for the first time since at least 1992.

Unemployment as measured by International Labour Organization standards rose by 129,000 to 2.62 million, the biggest increase since 2009, the Office for National Statistics said in London today. The jobless rate climbed to a 15-year high of 8.3 percent. The number of unemployment-benefit claims rose 5,300 to 1.6 million in October.

The figures heap pressure on Prime Minister David Cameron to do more to boost an economy at risk of sliding back into recession as Europe’s escalating debt crisis convulses financial markets. The Bank of England will probably slash its U.K. growth forecasts in its quarterly report due to be published at 10:30 a.m. today.

“The unemployment number ticking up so much is quite dramatic and an 8.3 percent unemployment rate is punchy,” said Peter Dixon, an economist at Commerzbank AG in London. “People are finding that it’s grim. It’s tough to find a job.”http://www.bloomberg.com/news/2011-11-16/u-k-unemployment-soars-jobless-young-top-1m.html

 

Indexes

U.S. stock-index futures fell as the Bank of England said failure by European officials to resolve the region’s debt crisis could lead to “significant adverse effects” on the global economy.

Futures contracts on the Standard & Poor’s 500 Index expiring next month lost 0.8 percent to 1,244.6 at 10:58 a.m. in London, having earlier climbed as much as 0.4 percent. Dow Jones Industrial Average futures retreated 64 points, or 0.5 percent, to 11,974.

“The euro-zone debt crisis continues to plague the market,” said Kully Samra, who manages U.K.-based clients for Charles Schwab Corp., which has $1.5 trillion of client assets. “Although U.S. economic data has been steadily improving in the second half of the year, with most of the temporary factors from the first half fading, growth forecasts remain muted.” http://www.bloomberg.com/news/2011-11-16/u-s-stock-index-futures-slide-as-european-sovereign-debt-concern-deepens.html

German stocks retreated for a third day as Infineon Technologies AG slumped, offsetting gains by the country’s two largest utilities.

Infineon, Europe’s second-biggest semiconductor maker dropped 4.7 percent after forecasting lower 2012 sales.

The DAX Index (DAX) fell 0.8 percent to 5,883.58 at 11:48 a.m. in Frankfurt, reversing an early rally of as much as 1.6 percent.

“We need to see credible political and economical solutions soon before stocks can begin to climb again for real. Until then markets will shift up and down aligned with political news,” said Torben Hoyer, the chief equity adviser at Nordea Private Banking in Copenhagen in a note to clients.

Germany’s benchmark measure lost 0.9 percent yesterday as Italy’s prime minister in waiting, Mario Monti, struggled to get the country’s political parties to participate in his new Cabinet. Italian 10-year bonds rose above 7 percent and the extra yield investors demand to hold 10-year bonds from France, Belgium, Spain and Austria instead of benchmark German bunds all increased to euro-era records.

http://www.bloomberg.com/news/2011-11-16/german-stocks-drop-for-a-third-day-as-infineon-technologies-shares-retreat.html

Currencies

The euro declined, falling to within two cents of a five-week low against the dollar as European Commission President Jose Barroso said the region is facing a “truly systemic crisis.”

The 17-nation currency pared its decline after the European Central Bank was said to be buying Spanish and Italian government bonds, narrowing their yield gap over benchmark German bunds. The pound fell for a third day against the dollar as unemployment increased and joblessness among young people climbed above 1 million for the first time since at least 1992.

“Each day that goes by the situation is getting worse, and it’s inevitable under those circumstances that the currency comes under pressure,” said Derek Halpenny, European head of currency research at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “There’s unbelievably difficult decisions that lie ahead for Europe in terms of resolving this crisis.”http://www.bloomberg.com/news/2011-11-16/euro-rebounds-from-five-week-low-on-speculation-ecb-buying-spanish-bonds.html

 

Commodities

Rising government demands for higher taxes and royalties are becoming a bigger threat to mining companies and their production than the financial crisis that’s wiped $6 trillion off stock market values since July.

“You can’t ignore it and the problem is it’s gathering pace,” David Russell, a director at Ernst & Young LLP’s mining and metals team in London, said Nov. 14. “It’s almost like a contagion. The key risk is an inability to plan.”

Resource nationalism, as the push by states is known, jumped to being the number one concern among mining executives this year, replacing capital allocation, Ernst & Young said in its annual risk survey published in August. At least 11 countries from Australia to Ecuador have this year raised or revealed plans to increase taxes or royalties on sales of resources such as gold and coal, according to Deutsche Bank AG.

“If it continues to rise, it just raises the uncertainty for the companies when making investments for the future,” Evy Hambro, manager of the $16 billion World Mining Fund for BlackRock Inc. (BLK), a top-two shareholder in four of the five biggest mining companies, said in an interview. “We are definitely going to see more. We’re concerned about it.” http://www.bloomberg.com/news/2011-11-16/nationalism-replaces-crisis-as-biggest-threat-to-metal-supply-commodities.html

Oil retreated from near its highest in three months as European stocks pared gains and the region’s single currency declined, signaling renewed concern that the debt crisis will damage economic growth.

West Texas Intermediate futures erased an earlier gain, following yesterday’s rally to the highest price since July 26. The Stoxx Europe 600 Index was unchanged as of 10:46 a.m. in London after gaining 1.2 percent. The euro was 0.3 percent weaker against the dollar at $1.3498.

“For quite a long time the oil price has correlated well with events in the sovereign debt crisis,” said Torbjoern Kjus, an Oslo-based senior market analyst at DnB NOR, who predicts the price of Brent crude will average $105 a barrel this quarter. “I would not be surprised to see prices falling back more. We are risking a banking crisis.”http://www.bloomberg.com/news/2011-11-15/oil-trades-near-three-month-high-on-u-s-economy-declining-fuel-supplies.html

 

 

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Wed, 11/16/2011 - 11:00 | 1882554 treemagnet
treemagnet's picture

Greece?  We're still talking about Greece?!  Stay, go, whatever - Italy will self destruct within a year.  3rd largest bond market, G7 country, too big to save, Greece?  Fugedabhadet.

Wed, 11/16/2011 - 09:43 | 1882182 Ronaldo
Ronaldo's picture

It is rather hard to imagine this experiment producing a good final product.  The Euro just doesn't have a political/financilal/judicial backing or structure that can completely manage itself.  As a consortium of expectant willing partners, each with their own will and goals, it isn't a stable basis for the future.  The partners have different expectations. 

Ask the rich in the USA or any country if they want to constantly pay out benefits to those in their own country that are less affluent than themselves. Now multiply the response with a tinge of national pride and sending money to the less affluent in another country.  Please!!!! It is a flawed model, based on HOPIUM.

Wed, 11/16/2011 - 09:54 | 1882248 tim73
tim73's picture

Double standards. If you applied the same standards to USA, it would fall apart even sooner than Eurozone. 50 million Americans on food stamps, social mobility is a joke, way worse than in Eurozone. Public education quality in poor cities is very bad, not much more than kindergartens with armed guards for teenagers.

Where did that OWS movement started...from USA! Income differences are way more extreme than in Eurozone. Not to even mention access to health care and crime rates. It is USA which will fall apart much more likely due to extreme differences in society.

Wed, 11/16/2011 - 10:26 | 1882395 Ronaldo
Ronaldo's picture

I had no intention of stating the USA was not similar in many ways, but there is one judicial and political system in the USA to react to those same issues.  Not so in EU. 

We even get discussion about Texas ceding the Union.  Not gonna happen in the USA, but a country CAN leave the EU.

Wed, 11/16/2011 - 09:10 | 1882096 SwingForce
SwingForce's picture

They won't leave until they are kicked out, come on.

Wed, 11/16/2011 - 10:19 | 1882361 e2thex
e2thex's picture

France will not allow Greece to leave.

Wed, 11/16/2011 - 09:01 | 1882083 tim73
tim73's picture

Oh, another American predicting the end of euro. If I threw a coin at Wall Street into a crowd, I would probably hit another "economist" also predicting the end of euro.

Wed, 11/16/2011 - 08:56 | 1882070 disabledvet
disabledvet's picture

And the entire EU will fly apart in a week. Shall we spin the wheel one more time on this gamble we're taking?
http://www.youtube.com/watch?v=u4iNw1Hvcu8&feature=player_detailpage

Wed, 11/16/2011 - 11:32 | 1882683 covert
covert's picture

the euro was doomed before it was started, a bad idea. if the canadian pipeline happens, the world economy will improve.

http://expose2.wordpress.com

 

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