Our list of eurocrisis heroes and villians grows longer….
Below the line, ohjesusmygoodness pins the villain badge on the Financial Times, the Wall Street Journal and the hedge funds industry for acting as prophets of doom during the crisis*
batman11 harks back to Alan Greenspan, the former head of the Federal Reserve, for sowing the seeds of the crisis:
He did a lot of the groundwork, convincing the West of the need for unfettered and un-regulated financial markets. His influence helped repeal the laws that had stopped an earlier repeat of the 1930′s depression. He also developed the interest rate mechanism for controlling an economy; previously directly targeted aid had been given in times of trouble. Low interest rates could be sold as a way of helping the economy, while keeping his KGB agents awash with cash for their destructive endeavours against the West. Bernanke is just a puppet who was groomed by Greenspan to take over his role.
Addicks123 isn’t convinced that George Osborne deserves hero status (as suggested by BankingIsMyDayJob), arguing that:
Osborne has failed to grasp that austerity doesn’t work – well maybe it does, but not when you want to simultaneously achieve growth. This is as stupid as trying to gain weight by starving yourself. It didn’t work in the 1930s when Hoover tried it, it failed in the 1980s when Thatcher tried it and as with the 1980s we are dealing with the same consequences – declining living standards, social unrest and youth unemployment.
And on Twitter, Kieran Dunne 11 suggests:
@KieranDunne11 villains of 2011 were, and will continue to be, the Franco-German banks. Hero, well, was there one?
AussieAnalyst has two ideas:
• “The Greek People, for standing firm for their democratic principles and rights and in the face of deep and cutting austerity measures.”
• The UK government for standing up for the UK and her people by not succumbing to the enormous pressures placed on it in joining the latest EZ Debt Crisis Proposal.
Many thanks for all the suggestions so far (and there’s still time to include more).
* – some might put live blogging in this category too, but in all honesty we’re just trying to keep up with the crisis rather than inflame it….
While much of Spain is on holiday, its new prime minister is currently holding a cabinet meeting to approve the first stage of his austerity programe.
Mariano Rajoy, who won power in a general election last month, is expected to announce billions of euros of savings – through spending cuts and economic reforms. The plan will be designed to reassure the financial markets that Spain can get its finances in order.
Mariano Rajoy. Photograph: Daniel Ochoa De Olza/AP
But with the unemployment rate above 20% (and youth unemployment around 40%), Rajoy faces a terribly difficult challenge. He said last week that at least €16.5bn needs to be cut from government spending in 2012.
The austerity plan will include a public sector pay and recruitment freeze, and a small cost of living increase for pensioners. The sitation is complicated because Spain’s 17 autonomous regions will not report their own budget balances until next spring – thus, the exact state of Spain’s public accounts is unknown.
IHS Global Insight released their forecasts for 2012 this morning. Here’s a few predictions:
• Eurozone GDP to contract by around 0.7% overall in 2012, with declines in the fourth quarter of 2011 and the first half of 2012 followed by only gradual recovery.
• We expect the ECB to respond to the likely Eurozone GDP contraction in the fourth quarter of 2011 and the early months of 2012 by cutting interest rates further.
• Eurozone consumer price inflation still seems poised to imminently embark on a sustained downward trend that takes it below 2.0% by mid-2012 as weakened economic activity and high and rising unemployment reduces underlying price pressures and base effects become increasingly favourable due to the waning impact of the sharp increases in oil and commodity prices in late-2010/early-2011.
And what might 2012 have in store for the pound? IHS’s Howard Archer says it may all depend on which currency looks like “the best looking horse in the glue factory.”
If Eurozone sovereign debt turmoil continues or worsens, the pound is likely to firm further. However, if there a dilution of concern over the Eurozone, then sterling is likely to come under increased downward pressure from a greater focus on the poor UK economic fundamentals. Not that the economic fundamentals for the Eurozone or the US are that great.
The euro is ending the year with another unwelcome milestone – it just hit a record low against the Australian dollar (€1=AUS$ 1.2718)
Against the US dollar, the euro is bobbing around $ 1.293, having hit a 15-month low yesterday.
The City consensus is that the euro will fall in value in 2012, having been surprisingly robust in 2011 (a year ago, one euro was worth $ 1.33).
Marc Chandler, chief currency strategist at Brown Brothers, told CNBC that Europe’s troubled banking sector will weigh heavily on the euro in 2012.
It’s a very thin market, but people are preparing for the worst next year.
Update: the euro also hit a new ten-year low against the Japanese yen today.
A date for the diary – France is planning to sell €7bn-€8bn of government debt on 5 January 2012. That will be a significant test of market confidence in Europe’s second-largest economy, which is proudly ending the year with its AAA-rating intact.
Next week will see plenty of action in the sovereign debt market – with Britain planning to sell £3.75bn of five-year gilts on 4 January and Germany auctioning €5bn-worth of bunds on the same day.
Silvio Berlusconi, a pantomime villian for the eurozone crisis? Photograph: Andreas Solaro/AFP/Getty Images
We’re already getting some great suggestions for euro crisis heroes and villains of the year.
In the reader comments below, BankingIsMyDayJob awards hero status to George Osborne, Mario Draghi, Giulio Tremonti, Mervyn King and Ireland.
In the villains’ corner, BankingIsMyDayJob put Angela Merkel, José Manuel Barroso, Olli Rehn, John-Claude Trichet, and Greece.
andrewtc suggests a third category, “zero of the year”. Namely “Ed Milliband who absolutely failed to say anything sensible or decisive or provide any alternative throughout the whole year”.
Allebert puts Silvio Berlusconi among the villains:
He is a joke – can’t take anything seriously – he represents, however, a pretty good picture of why Italy is going “business failure” – I’m thinking of all the sex scandals and his broadcasting company which he did not sell. He is a complete moron!
On twitter, @jollyenglishman also suggests Italy’s departed prime minister, but reckons he’s not all bad.
@jollyenglishman Silvio Berlusconi is surely the greatest hero and villain of the #Eurocrisis. A perfect blend of politics and pantomime.
“Hero” may be slightly pushing it for the King of Bunga Bunga, but he certainly provided some light relief in a dark year …
European stock markets aren’t alone in suffering this year. In Japan, the Nikkei index closed at its lowest end-of-year level since 1982.
The Nikkei fell by 17% during 2011. Not all due to the eurozone crisis – March’s devastating earthquake and tsunami drove share prices lower, with the nation’s manufacturing base badly affected by the disaster.
German finance minister Wolfgang Schäuble. Photograph: Ian Langsdon/EPA
Wolfgang Schäuble, Germany’s finance minister (and potential candidate for eurozone hero/villain of the year) is in defiant voice today, ruling out a break-up of the eurozone in 2012.
In an interview with German newspaper Handelsblatt, Schäuble declared that the fate of many nations was bound together by the euro, therefore:
The leaders of the eurozone will do everything possible to prevent it from falling apart.
To achieve this, Schäuble said, it is essential for eurozone members to follow through on their pledge to pump €80bn of fresh capital into the European Stability Mechanism:
The sooner we have the €80 euro capital injection together, the better … It would be the strongest signal that the member countries of the eurozone to their common currency are, under all circumstances.
He also pledged that Germany will not be “the brakeman on this issue” – other countries must pay their share.
Schäuble was dubbed “the most dangerous man in the world” by the Daily Telegraph’s Ambrose Evans-Pritchard, for his insistance that troubled eurozone countries should undergo sharp fiscal cutbacks. But Schäuble’s determination that Germany should not shoulder the full bill for fixing the euro crisis has also been applauded back home.
UK gilt yields just hit a new record low. In quiet trading, the interest rate on Britain’s 10-year government bonds slipped as low as 1.932%.
US and German 10-year bonds are trading at even lower yields than gilts, though – at 1.90% and 1.84% respectively. Italy’s yields remain above 7% (all data via Tradeweb).
Yields move in inverse proportion to the price of a bond, so low yields indicate that investors are placing a high premium on UK debt (although the rush into safer government bonds also reflects fears of sluggish economic growth, as Larry Elliott explains here).
George Osborne has regularly cited Britain’s low borrowing costs as proof that his fiscal consolidation plan is justified. David Miller, partner at Cheviot Asset Management, argues that the chancellor is right, saying that:
Overall market movements this year have shown Britain to be a beacon of sanity in Europe. We have a stable government with a plan to reduce the deficit, an empowered central bank, and a floating currency. This is not a bad combination for surviving difficult times.
2011 has been a bad year for Europe’s stock markets. Trading has begun, and the FTSE 100 is limping towards a hefty loss for the year. It’s currently down 25 points at 5541. The French and German markets are also slightly lower.
London’s blue-chip index has fallen by around 6% this year, having ended 2010 at 5899 points. Most of the damage was done in August, when shares tumbled as the true extent of the eurozone crisis became clear.
So what can we look forward to in 2012? More volatility appears to be the consensus. Beyond that, some tipsters are remarkable coy. As stock market historian David Schwartz puts it in the Sun today:
It could go up by 1,000 points, it could go down by 1,000 points. The problem is Europe. They are screw-ups, big time, and they have been blundering and muddling for a year. There are a lot of reasons to expect them to continue to do so.
Good morning, and welcome to another day of rolling coverage of the European financial crisis. Our last one of the year, alas.
As usual, we’ll be tracking the latest action in the eurozone crisis – with Spain due to announce austerity measures. And as it’s the last trading session of 2011, we’ll be looking back at the last 12 months and gathering together predictions for 2012.
We’d also like your help, please. Who were your heroes and villains of 2011? Which groups or individuals should be praised for their role in the eurozone crisis, and who should be castigated? And why?
It may be a quieter day – there’s little economic news on the calendar, and no gripping corporate news. But we’ll do our best …
