Posts Tagged ‘France’

Rising Unemployment Could Push Eurozone Into a Double-Dip Recession

Wednesday, April 18th, 2012

Europe’s unemployment has soared to 10.8 percent, the highest rate in more than 14 years as companies from Spain to Italy eliminated jobs to weather the region’s crisis, according to the European Union’s (EU) statistics office.  That’s the highest since June 1997, before the Euro was introduced.  European companies are cutting costs and eliminating jobs after draconian austerity measures slashed consumer demand and pushed economies from Greece to Ireland into recession.

According to Eurostat, the number of unemployed totaled 17.1 million, nearly 1.5 million higher than in 2011.  The figures stand in marked contrast to the United States, which has seen solid increases in employment over the past few months.  “It looks odds-on that Eurozone GDP contracted again in the first quarter of 2012….thereby moving into recession,” said Howard Archer, chief European economist at IHS Global Insight.  “And the prospects for the second quarter of 2012 currently hardly look rosy.”

The North-South divide is evident, with the nations reporting the lowest unemployment rates being Austria with 4.2 percent; the Netherlands at 4.9 percent; Luxembourg at 5.2 percent; and Germany at 5.7 percent.  Unemployment is highest among young people, with 20 percent of those under 25 looking for work in the Eurozone, primarily in the southern nations.  The European Commission, the EU’s executive arm, defended the debt-fighting strategy, insisting that reforms undertaken by governments are crucial and will ultimately bear fruit.  “We must combat the crisis in all its fronts,” Amadeu Altafaj, the commission’s economic affairs spokesman, said, stressing that growth policies are part of the strategy.

According to Markit, a financing information company, Germany and France, the Eurozone’s two powerhouse economies, saw manufacturing activity levels deteriorate.  France fared the worst with activity at a 33-month low of 46.7 on a scale where anything below 50 indicates a contracting economy.  Only Austria and Ireland saw their output increase.

Spain, whose government recently announced new austerity measures, had the Eurozone’s highest unemployment rate at 23.6 percent; youth unemployment — those under 25 years of age — was 50.5 percent.  Greece, Portugal and Ireland — the three countries that have received bailouts — had unemployment rates of 21 percent, 15 percent and 14.7 percent respectively.

With unemployment rising at a time of austerity, consumers have stopped spending and that holds back the Eurozone economy despite signs of life elsewhere.  “Soaring unemployment is clearly adding to the pressure on household incomes from aggressive fiscal tightening in the region’s periphery,” said Jennifer McKeown, senior European economist at Capital Economics.  She fears that the situation will worsen and that even in Germany, where unemployment held steady at 5.7 percent, “survey measures of hiring point to a downturn to come.”

The numbers are likely to worsen even more. “We expect it to go higher, to reach 11 percent by the end of the year,” said Raphael Brun-Aguerre, an economist at JP Morgan in London.  “You have public sector job cuts, income going down, weak consumption.  The economic growth outlook is negative and is going to worsen unemployment.”

Writing for the Value Walk website, Matt Rego says that “By the looks of it, Europe could be heading for a recession very soon.  If the GDP contracts this 1st quarter of 2012, they will most likely be in a double dip.  Those are some pretty scary numbers and forecasts because they would send economic aftershocks around the world.  If Europe goes into a double dip and U.S. corporate margins do peak, we could be looking at trouble.  If you are a ‘super bull’ right now, I would reconsider because we are walking the line for both factors coming true and there really is nothing we can do, the damage is done.  Could we have seen all of the year’s gains in the beginning of this year?  Probably not but this European recession scare would certainly trigger a correction in the U.S. markets.  Bottom line, get some protection for your portfolio.  Buy stocks that aren’t influenced by economic times and buy protection for stocks that would react harshly to a double dip.”

Fallout From European Credit Downgrades Still Underway

Monday, January 23rd, 2012

European leaders will this week try to deliver new fiscal rules and cut Greece’s onerous debt burden.  All this in the wake of Standard & Poor’s (S&P) Eurozone downgrades.

France was not the only Eurozone nation to feel the pain. Austria was cut to AA+ from AAA; Cyprus to BB+ from BBB; Italy to BBB+ from A; Malta to A- from A; Portugal to BB from BBB-; the Slovak Republic to A from A+; Slovenia to A+ from AA-; and Spain to A from AA-. S&P left the AAA ratings of Germany, Finland, Luxembourg and the Netherlands the same.

The European Central Bank (ECB) emerged unscathed.  The ratings agency said Eurozone monetary authorities “have been instrumental in averting a collapse of market confidence,” mostly thanks to the ECB launching new loan programs aimed at keeping the European banking system liquid while it works to resolve funding pressure brought on by the sovereign debt crisis.

The talks on Greece and budgets may serve as tougher tests of the tentative recovery in investor sentiment than S&P’s decision to cut the ratings of nine Eurozone nations, including France. If history repeats itself, fallout from the downgrades may be limited.  JPMorgan Chase research shows that 10-year yields for the nine sovereign nations that lost their AAA credit rating between 1998 and last year rose an average of two basis points the next week.

Policymakers worked doggedly to take back the initiative. German Chancellor Angela Merkel said S&P’s decision and criticism of “insufficient”  policy steps reinforced her view that leaders must try harder to resolve the two-year crisis. Germany is now alone in the Eurozone with a stable AAA credit rating. Reacting to Spain’s downgrade to A from AA-, Prime Minister Mariano Rajoy pledged spending cuts and to clean up the banking system, as well as a “clear, firm and forceful” commitment to the Euro’s future. French Finance Minister Francois Baroin said the reduction of France’s rating was “disappointing,” yet expected

The European Financial Stability Facility (EFSF), which is intended to fund rescue packages for the troubled nations of Greece, Ireland and Portugal, owes its AAA rating to guarantees from its sponsoring nations. “I was never of the opinion that the EFSF necessarily has to be AAA,” Merkel said.  Luxembourg Prime Minister Jean-Claude Junker said the EFSF’s shareholders will look at how to maintain the top rating of the fund, which plans to sell up to 1.5 billion Euros in six-month bills starting this week. In the meantime, Merkel and other European leaders want to move speedily toward setting up its permanent successor, the European Stability Mechanism, this year — one year ahead of the original plan.

Greece’s Prime Minister Lucas Papademos said that a deal will be hammered out. “Some further reflection is necessary on how to put all the elements together,” he said. “So as you know, there is a little pause in these discussions. But I’m confident that they will continue and we will reach an agreement that is mutually acceptable in time.”

Standard & Poor’s downgraded nine of the 17 Eurozone countries and said it would decide before too long whether to cut the Eurozone’s bailout fund, the EFSF, from AAA.  “A one-notch downgrade for France was completely priced in, so no negative surprise here, and quite logical after the United States got downgraded,” said David Thebault, head of quantitative sales trading at Global Equities.

Thanks to the downgrades, fears of a Greek default also increased after talks between private creditors and the government over proposed voluntary write downs on Greek government bonds appeared near collapse.  Greece appears to be close to default on its sovereign debt, eclipsing the news that France and other Eurozone members lost their triple-A credit ratings.  “At the start of this year, (we) took the view that things in the Eurozone had to get worse before they got better. With the S&P downgrade of nine Eurozone countries and worries about the progress of Greek debt restructuring talks, things just did get worse,” wrote economists at HSBC.

Additionally there are implications for Eurozone banks from the sovereign downgrades.

“The direct impact of further sovereign and bank downgrades on institutions in peripheral.  nations is perhaps neither here nor there given that they are already effectively shut out of wholesale funding markets due to pre-existing investor concerns over the ability of governments in these countries to stand behind their banks,’ said Michael Symonds, credit analyst at Daiwa Capital Markets.

Writing in the Sydney Morning Herald, Ha-Joon Chang says that “Even the most rational Europeans must now feel that Friday the 13th is an unlucky day after all.  On that day last week, the Greek debt restructuring negotiation broke down, with many bondholders refusing to join the voluntary 50 per cent ‘haircut’  – that is, debt write off – scheme, agreed to last summer. While the negotiations may resume, this has dramatically increased the chance of disorderly Greek default.  The Eurozone countries criticize S&P and other ratings agencies for unjustly downgrading their economies. France is particularly upset that it was downgraded while Britain has kept its AAA status, hinting at an Anglo-American conspiracy against France. But this does not wash, as one of the big three, Fitch Ratings, is 80 per cent owned by a French company.”

Italy Asks IMF to Oversee its Debt Reduction Efforts

Tuesday, November 29th, 2011

Italy’s Prime Minister Silvio Berlusconi has asked for international oversight of his efforts to slash the eurozone’s second-largest debt, even as his unraveling coalition threatens efforts to build a wall against Europe’s debt crisis.  Berlusconi’s government asked the International Monetary Fund (IMF) to assess its debt-reduction progress, and turned down an offer of financial assistance.

“It hasn’t been imposed, it was requested,” Berlusconi said.  The IMF will carry out quarterly “certifications” of the euro region’s third-largest economy, he said, noting that the current sell-off of Italian debt is “a temporary trend” even as the nation’s borrowing costs soared to record highs.  Berlusconi is under mounting pressure as Italy tries to avoid yielding to the sovereign-debt crisis.

Italy’s 10-year borrowing costs are getting dangerously close to the seven percent level that forced Greece, Ireland and Portugal to ask for bailouts.  The yield on the nation’s benchmark 10-year bond surged to a euro-era record of 6.404 percent, the highest since the creation of the single currency.  “If the current Greek tragedy is not to turn into an Italian tragedy, with far more serious and far-reaching consequences for the eurozone, Berlusconi must resign immediately,” Marc Ostwald, a fixed-income strategist at Monument Securities Ltd., said.  Berlusconi may be “remembered as the architect of Italy’s descent into an economic inferno.”

IMF managing director Christine Lagarde hopes that quarterly monitoring will start by the end of November to verify that the reforms Berlusconi promised are implemented.  “It’s verification and certification if you will, of implementation of a program that Italy has committed to,” she said. “It’s one of the best ways to have an independent view…to verify that promised measures are actually implemented.”  She agreed that Italy doesn’t need IMF funding.  “The problem that is at stake — and that was clearly identified both by the Italian authorities and its partners — is a lack of credibility of the measures that are announced,” according to Lagarde.  “The typical instrument that we would use is a precautionary credit line.  Italy does not need the funding that is associated with such instruments so the next best instrument is fiscal monitoring, which is what we have identified.”

Lagarde isn’t certain that the proposed reforms are credible. “The problem that is at stake and that was clearly identified both by the Italian authorities and by its partners is a lack of credibility of the measures that were announced,” Lagarde said.  Additionally, the IMF will provide funds to stimulate Italy’s economy, although under strict conditions.

Will Berlusconi’s regime survive this crisis?  “Historically, technocrat governments in Italy have been able to pass pro-growth structural reforms, including politically difficult labor market reforms,” said Barclays Capital analyst Fabio Fois.  Governments such as those led by Carlo Azeglio Ciampi and Lamberto Dini – who had served as central bankers — in the early 1990s saved Italy from financial crises even worse than the present one.  “I think the political parties would have a big incentive to go through the painful policy adjustment now, before the next election due in 2013, so that whoever wins won’t have to do it later,” Fois said.

Berlusconi seemed almost nostalgic for the days when the lira was Italy’s currency. “You don’t get much in your supermarket trolley for €80 today, whereas you used to get a lot for 80,000 lire,” he said.

He insisted that Italy’s economy is generally prospering.  “The restaurants and vacation spots are always full, nobody thinks there is a crisis,” he said, noting that, considering its low household debt levels, Italy has Europe’s second-strongest economy, after Germany and was stronger than France or the U.K.  The country’s €1.9 trillion in public debt, the equivalent of nearly 120 percent of GDP, was a legacy problem, had not grown in the past 20 years, and had been consistently serviced, Berlusconi said.

Berlusconi admitted that his government “might have made a mistake” in assuming the public debt was sustainable without more aggressive fiscal and reform action.  When asked what he thought about frequent warnings from European Union partners that Italy demonstrate credibility with the promised reforms, Berlusconi said the criticism reflected prejudice about past Italian behavior.  “If we don’t enact the reforms Italy will be in trouble,” he said.  “But we will enact them.”

S&P Computer Error Briefly Downgrades France’s Credit Rating

Tuesday, November 22nd, 2011

Whoops!  Someone has a red face.  France’s credit ratings have not been downgraded by Standard & Poor’s (S&P) and apparently resulted from an accidental transmission of a message that it had downgraded the nation’s credit. S&P’s error roiled global equity, bond, currency and commodity markets when it sent and then corrected the erroneous message.

“As a result of a technical error, a message was automatically disseminated today to some subscribers of S&P’s Global Credit Portal suggesting that France’s credit rating had been changed,” S&P said.  “This is not the case: the ratings on Republic of France remain ‘AAA/A-1+’ with a stable outlook, and this incident is not related to any ratings surveillance activity.  We are investigating the cause of the error.”

Downgrading France’s credit rating would negatively impact the rating of the European Financial Stability Facility (EFSF), the bailout fund for struggling euro member countries that has funded rescue packages for Greece, Ireland and Portugal.  If the EFSF ends up paying higher interest on its bonds, it may not be able to provide as much funding for indebted nations.  “It was a mess,” said Lane Newman, the New York-based director of foreign exchange at ING Groep NV. “It calls into question the credibility of people who can have that sort of impact not really being careful.”

“It clearly raises issues about internal systems and controls,” said Christopher Whalen, managing director of Institutional Risk Analytics, a Torrance, CA-based bank- rating firm.  “The onus is on them to be careful and it’s troubling.  Whether you’re a broker dealer or a rating agency, everything you say has to be very carefully considered because of the weight that they carry.”

The incident is currently under investigation.  “This is a very serious incident,” said European Union (EU) Internal Market Commissioner Michel Barnier.  “This shows that we are in an extremely volatile situation, that markets are extremely tense, and therefore that players on these markets must be extremely rigorous and exercise a duty of responsibility.”  Barnier continues, “It is all the more important since these are not minor players on these markets, but actually one of the three major rating agencies and therefore an agency that has a particular responsibility. I do not wish to make a statement on the failure itself, which immediately was recognized by Standard & Poor’s.  The European authority for credit rating agencies, together with AMF, the French market authority, will have to look into this and draw conclusions from this incident.”

S&P’s error spooked investors already apprehensive over Europe’s debt crisis, feeding concerns that the continent’s debt problems had engulfed the region’s second-largest economy.  It contributed to the worst day for French government bonds since before the euro debuted in 1999.

The Globe and Mail’s David Berman wonders If the error was practice for the real thing. “Standard & Poor’s downgrade of France’s credit rating was apparently accidental – so consider the reaction to the panicky downgrade as a kind of dress rehearsal:  It lets you know how markets will react if and when an actual downgrade goes through.  The way things are going for Europe’s sovereign-debt crisis, an actual downgrade looks more than likely.  Just as Italy supplanted Greece as the eurozone’s biggest trouble spot, highlighted by the country’s surging bond yields, France has the makings of a troubled spot in-the-making.”

As MarketWatch’s Laura Mandaro sums it up, the computer did it.

Vive la France!!!

Monday, August 8th, 2011

The popular image of French men and women spending their time in sidewalk cafes sipping aperitifs, smoking Gauloises and watching the world go by belies the fact that the nation’s residents work the least amount of hours in the world, yet are among the most productiveAccording to a recent UBS survey, people globally work an average of 1,902 hours annually.  The work day is even longer for people in Asian and Middle Eastern cities.  By contrast, residents of Paris and Lyon have the shortest workday at 1,582 and 1,594 hours annually, respectively.

In 2010, France’s GDP totaled $2.113 trillion; that represented a 1.6 percent growth rate and a GDP per capita of $38,016.  The French achieve their high standard of living while working 16 percent fewer hours than the average person, and nearly 25 percent less than their Asian peers.  Visit France and you’ll see that their standard of living is probably significantly higher than the GDP numbers indicate.  If you divide France’s GDP per capita by actual hours worked, you’d probably learn that the French are achieving some of the highest returns on work-hours invested.

Because healthcare and education are virtually free, the French have the ability to put more emphasis on family and pleasure rather than making a profit.  Additionally, the French have 11 national holidays every year and many workers take extra time off if those holidays occur on a Tuesday or Thursday.  Then there’s France’s legendary vacation time – which can range from five to eight weeks a year.  Despite this and with an unemployment rate of 9.5 percent as of May 2011, France remains the world’s fifth largest economy.  And the French achieve all that with a 35-hour workweek, which was adopted in 1998 in an effort to create more jobs for the unemployed.  The early retirement age is 62, although most French opt to retire at 65.

France scores among the top 10 in International Living magazine’s “Best Quality of Life” survey.  According to the article on the results of the 2011 survey, “Still, it can be useful to step back and see how each nation fares relative to others when we do consider these categories.  To come out ahead, a country must be an all-around good pick, not just a standout in one area or two. And that explains why the top finishers are developed nations like the U.S. and the rest of our top 10 — New Zealand, Malta, France, Monaco, Belgium, Japan, United Kingdom, Austria, and Germany.  None is among the most affordable nations on the planet.  But they all offer other benefits.  These nations are home to plenty of expats who are thrilled with life in their chosen havens.”

Writing on, Nobel Prize-winning economist Paul Krugman says that “It’s true that French GDP per capita (output divided by the number of people in the nation), for example, is only about three-quarters of the American level, when adjusted for purchasing power.  But when you look closely at that number, the story is certainly more complex than many people think.  Let’s look at data released by the Bureau of Labor Statistics in the United States — at data on France in particular, since that’s the country Americans have strong feelings about, right?  I’m going to focus on the data from 2008, not 2009.  In 2009, businesses in the United States laid off a lot of workers, while European firms did not.  That produced a divergence in productivity that had more to do with short-run business cycle events than with fundamental trends.  Data from 2008 allows for a better sense of the underlying differences.  GDP, per capita, per person, France produces 73 percent of what the United States produces in a year.  GDP per hour worked: A French worker produces about 99 percent of what an American worker produces in one hour.  Number of workers: For every 100 workers in the United States, France has about 84 workers.  Hours per worker: For every 100 hours an American works, a French person works about 88.  So French workers are roughly as productive as American workers.”

At present, France is the fastest growing economy in the European Union.  According to Ken Hurst of Works Management, “New productivity data published today (4 February) highlights a further rise in labor productivity across the European Union, thereby extending the current period of improvement to 21 months.  Furthermore, the pace of increase accelerated since December to a five-month high and put France in first place in the growth league.  Broken down by nation, the latest data highlighted gains across the EU’s four largest economies, the strongest of which was recorded in France – where output per employee rose at the strongest pace since last July.  Marked gains were recorded in both the manufacturing and service sectors.”

Ireland Accepts EU/IMF Bailout

Tuesday, December 14th, 2010

Ireland Accepts EU/IMF BailoutAgainst its will, Ireland is now in a state of receivership mandated by the European Union (EU) and the International Monetary Fund (IMF) in an effort to resolve the Emerald Isle’s debt crisis.   European central bankers have paid £111 billion into Ireland’s banks to prevent damage to the euro in what is being jokingly referred to as the “Oliver Cromwell package.”  EU president Herman Van Rompuy described the action as a “survival crisis.”

Irish Prime Minister Brian Cowen will delay any decision on whether to proceed with national elections until the 2011 budget is passed and details of the international bailout package are negotiated “I’m saying that it is imperative for this country that the budget is passed,” Cowen said.  “I’m also saying that it is highly important in the interests of political stability that that happens.  It’s very important for people to understand that any further delay in this matter in fact weakens this country’s position.”

Cowen asked for significant “financial assistance” from the EU and the IMF and promised. spending cuts and tax increases.  This request came shortly after the prime minister said Ireland had “made no application for external support” for its debt-laden banks.  Dublin has spent billions trying to prop up its embattled banking sector.

Ireland is the second EU country, after Greece, to seek outside help to stabilize its finances.   That nation has been under strong pressure from its European neighbors – primarily Germany and France — to apply for a bailout, which they hope will calm investors and prevent a crisis of confidence in the euro.

“It is important that this state continues to fund itself in a stable way,” said Brian Lenihan, Ireland’s Finance Minister, “that economic continuity is preserved, that there is no danger to the borrowing which the state requires.”  Ireland’s low corporate tax rate – just 12.5 percent- — will not enter into the discussion because the country wants to attract large companies.

European Nations Look Into Selling Public Assets to Resolve Debt

Thursday, July 22nd, 2010

European nations look into selling public buildings to pay down debt.  Debt-laden European governments seeking ways to raise money are considering the possibility of selling public properties such as office buildings.  Countries considering selling assets include Germany, the U.K., France and Greece, all of which were hit hard by the global banking crisis.

“It is clear that several European governments are looking to secure disposals on a large scale,” noted Richard Holberton, a CB Richard Ellis director.  Although Holberton says it’s not clear what effect these sales would have on government funds, “their impact on real estate markets could be a lot more significant.”  Government-owned assets comprised between two and 2 ½ percent of all European public sales since 2006.  That could double this year, according to CBRE, and could account for four percent of the €100 billion — $125 billion – that will be sold this year.

Although some properties are expected to attract significant purchaser interest, some government buildings won’t sell so easily.  Surplus office buildings could be in undesirable locations, for example.  Prime assets that are still occupied by government offices will have far more appeal to investors.  “Where assets are well located, of good quality, and continue to produce income from occupation by a public-sector tenant, this generates an income stream that is attractive to investors,” Holberton said.

Jon Levy: European Real Estate Opportunities

Monday, April 26th, 2010

Jon Levy is a European Union analyst with Eurasia Group and a frequent commentator on European issues, appearing on CNN, CNBC and NPR.  He was previously director of national security policy for John Kerry's presidential campaign. Jon Levy is a European Union analyst with Eurasia Group and a frequent commentator on European issues, appearing on CNN, CNBC and NPR.  He was previously director of national security policy for John Kerry’s presidential campaign.  In a recent interview for the Alter NOW podcasts, Levy discussed several factors shaping European real estate markets – as well as European investment in U.S. assets.  His comments touch on the outlook for eastern Europe, investment thinking in Germany and some of the macroeconomic challenges facing the U.K.  Levy’s comments add a unique perspective to some of the key trends we are watching in the European markets.

A few insights…

German open-ended real estate mutual funds are expected to invest 12 billion euros (approximately $18 billion) in Europe and the United States over the next few years.  These funds have already raised three billion euros in the first eight months of 2009, reinforcing a sense that – at least for Germany – the worst of the financial crisis is over and markets are stabilizing.  Germany is now one of the most aggressive investors in American real estate, behind only Australia.  These funds display a preference for high-quality, income-producing assets.

Levy noted that there has been dramatic tightening of credit and liquidity in Eastern Europe.  However, as he notes, the ability to adopt the euro – while an uneven and politically charged process – provides an exit from this environment – a key distinction with other emerging market crises.  Furthermore, within Eastern Europe, there are significant differences in outlook, with several regions and sectors poised for growth.  This situation, Levy argues, may present attractive entry points as broader credit and liquidity conditions lead to more favorable asset prices.

In the United Kingdom, an estimated $350 billion is needed to refinance commercial real estate loans in a market where many properties have gone into default and values have declined 44 percent since 2007.  The leasing pool in the City of London has been dramatically reduced as there is a consolidation in the banking and asset management industry.  There is a strong emerging view that the UK needs to diversify its economy away from financial services and back into manufacturing and agriculture to achieve a healthier balance.  Levy also provides some insight into the situation in the UK.

Eurasia Group is the world’s leading political risk and consulting firm that helps corporations make informed business decisions in countries around the world.

icon for podpress  Jon Levy: European Real Estate Opportunities: Play Now | Play in Popup | Download