The European Stability Mechanism (ESM) is still weeks away from being established and any progress will be slow while Europe is on its summer holiday.
“September should prove to be a pivotal month as the ESM comes in to play at about the same time as Greece would technically become insolvent,” notes Vimal Popat of Market Securities.
Earlier in the year, brokers were predicting that Greece would leave the eurozone in the next 12 months and that view is gaining traction.
David Kerns of Moneycorp says: “Some economists are now estimating the chances of Greece crashing out of the euro by the start of 2013 at 90pc. With the single currency seemingly doomed, the euro will continue to be weak for the foreseeable future.”
Jeremy Cook of World First agrees: “With tumbling growth everywhere, the act of simply pumping good money after bad into a bottomless pit has lost its appeal. Greece will leave the euro within the next year and be better for it.”
But Simon Smith, chief economist at FxPro, is not so sure. “I used to think that cutting Greece adrift was more likely a year ago. The trouble is now that the troika is in too deep. We’re firmly in a dilemma, namely that it’s costing more to keep them [the Greeks] in, but the costs of letting them leave is also rising.”
Kerns says: “Greece is on the rack, and Spain is rushing towards the edge of the abyss. The Madrid government is being stretched to breaking point by the debts racked up by Spain’s free-spending regions. Spain will soon need a huge sovereign bailout.”
Spanish borrowing costs have topped 7 pc and Italy’s soared to 6.5 pc last week.
Chris Towner of HiFX says: “This cannot be tolerated for long. There needs to be a solution put in place similar to the funding for lending scheme announced in the UK, whereby Spain and Italy can borrow from the ECB at more tolerable rates as long as they reduce their debt piles. At the end of the day the solution is within Europe, but it does require more integration.”
Naturally the deterioration across the water in the eurozone affects Britain, as last week’s shrinking growth figures showed.
Robin Haynes, head of Currency Index, says: “With the whole bloc sliding towards chaos and prolonged recession, inevitably the UK will suffer. The negative GDP figure sent the pound lower across the board last Wednesday, so it could be dangerous to assume that the escalating crisis means forever improving exchange rates for Brits.”
And Josh Ferry Woodard of TorFX adds: “As the UK’s largest trade partner, the eurozone has a massive impact on the UK economy. Over the past 13-months the pound has appreciated by over 15 cents against the euro, which has made British exports considerably less competitive and hampered the Bank of England’s plan to export the UK out of recession.”
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Finance must escape the shadows - Financial Times
July 31, 2012 7:39 pm
Washington mayor under fire as finance scandal swirls - Reuters
* Two campaign workers, consultant have pleaded guilty
* Gray was elected Washington's mayor in 2010
* "The lunatics were minding the asylum," analyst says
By Ian Simpson
WASHINGTON, July 31 (Reuters) - Even as the District of Columbia is doing better than it has in decades, a campaign finance scandal is threatening to bring down the man in charge of the U.S. capital's local government -- Mayor Vincent Gray.
Two campaign workers and a consultant have pleaded guilty in an ongoing federal probe into the 2010 election, when Gray pledged to return integrity to city hall. His ratings dropping, the mayor is resisting calls by some council members to quit.
Gray, a Democrat, is not alleged to have been involved in or known about the events behind the scandal. But the affair reflects a culture of ingrained municipal corruption in the city, which is under unprecedented scrutiny by newly aggressive prosecutors, analysts said.
"The lunatics were minding the asylum. Now we have a situation where literally there is a new sheriff in town," said Chuck Thies, a political analyst and columnist.
The district, which is home to the U.S. Capitol and the White House, is under the district of the U.S. Congress and not part of any state.
The finance scandal is casting a cloud over Gray's office amid an economic and demographic boom for the city of 618,000 people.
With steady growth and a flourishing cultural scene, Washington ranked second behind Houston in a Forbes.com ranking of the coolest places to live in the United States.
The once-a-decade Census in 2010 recorded the District's first upturn in population in 60 years, driven by an influx of young professionals and immigrants.
The murder rate is at levels not seen since the 1960s. Unemployment is dropping, though still above the national average at 9.1 percent.
After wooing by Gray, retailer Wal-Mart Stores Inc is planning to open its first outlets in the District.
"SHADOW CAMPAIGN"
As part of the campaign scandal, two Gray aides have pleaded guilty over a scheme to pay a minor mayoral candidate to disparage incumbent Adrian Fenty in the 2010 Democratic mayoral primary.
A former consultant pleaded guilty in July for her role in helping to hide and spend about $650,000 in undisclosed campaign funds from a city contractor.
U.S. Attorney Ronald Machen Jr, who has spearheaded the federal probe, has said the 2010 race hid a "shadow campaign" that featured cash concealed from voters.
Gray easily won the primary, the key to victory in the overwhelmingly Democratic city, and cruised to a win in the general election.
In another blow to Gray, the Washington Post reported on July 23 that his campaign kept a database with the identities of almost 6,000 public housing residents it targeted in get-out-the-vote efforts.
Legal experts told the Post the list appeared to be an unauthorized use of private government information.
A Washington Post poll in July found only 29 percent of city residents approved of how Gray was doing his job. Fifty-four percent thought he should quit.
RIBBON-CUTTING
Gray, a youthful-looking 69, is keeping up a steady schedule of meetings and community events despite the allegations.
Cutting a ribbon on a business improvement project last week amid sweltering heat, Gray told about 100 applauding supporters that its bicycle lanes and gas and power lines were a model for the city.
He later turned aside questions from a Reuters reporter about the allegations, saying: "Let's not break into this, OK? Let's focus on this."
Asked how Gray was dealing with the scandal, spokesman Pedro Ribeiro said: "He continues to maintain the same schedule of running a city, and a healthy city at that."
The campaign charges are the latest in a long line of District scandals that include Mayor Marion Barry's conviction on a drug charge in 1990 -- he is now on the City Council -- and the 2008 conviction of a tax official for embezzling almost $50 million.
In June, Kwame Brown, the former council chairman, pleaded guilty to bank fraud and violating finance laws as part of his 2008 campaign. Another councilman pleaded guilty in January to stealing more than $350,000 in city funds.
Thies, the analyst, said the cloud over Gray was a result of increased federal and press scrutiny, infighting over city contracts and a political "old guard" that has failed to keep up with changing times.
Dorothy Brizill, founder of DC Watch, a government watchdog organization, called the current allegations "really over the top."
"Nobody blows the whistle (on corruption) and it goes on for years," she said.
Forex Flash: Fed expected to launch stimulus measures in upcoming months – NAB - FXStreet.com
“We suspect this won’t mean an announcement of additional QE following the meeting currently underway, given ‘operation twist’, which is intended to impact on the economy in a similar way to QE, extended in the previous meeting this appears too soon.” he adds. The Fed Chairman in his post-June meeting press conference noted the difficulties in reading recent data (e.g. due to weather, seasonal adjustment) and the need to take additional readings on the economy. One month’s jobs report doesn’t seem sufficient, although the sluggish economy indicated by the GDP report may change this.
A more likely intermediate step would be to extend the Fed’s forward guidance on how long the Feds Fund Rate will remain exceptionally low from late 2014 into 2015. However, the Fed Chairman has explicitly identified further QE as one of the measures they would consider if they decided to ease policy further. Therefore, additional QE is possible, although it may be kept in reserve for now.
Pro-market Chidambaram returns as finance minister - Reuters India
NEW DELHI |
NEW DELHI (Reuters) - Palaniappan Chidambaram, who as finance minister oversaw India's strongest growth surge in the past two decades, returned to the post on Tuesday but faces a sharp economic slowdown, worsening public finances and falling exports this time around.
A Harvard-educated former lawyer who is regarded as a market-friendly reformer, took over a ministry that was run until recently by Pranab Mukherjee, now the country's president.
"I think we are in safe hands now, it could lead to a turn in sentiment as Chidambaram was involved with reforms, fiscal consolidation," said Abheek Barua, chief economist at HDFC Bank in New Delhi.
"So there will be a sense of ownership now of the reform agenda and that's critical as there was a sense of drift, a sense of no ownership. Nothing will happen magically overnight, but the market will have enough conviction on the reform process."
However, his intellectual prowess, perceived as arrogance in some quarters, has won the 66-year-old enemies within the ruling Congress party and on occasion alienated public opinion.
Prime Minister Manmohan Singh, who stood in as finance minister for a few weeks after Mukherjee's departure, has taken a risk by appointing Chidambaram, who is also battling legal cases.
The Supreme Court is hearing a petition seeking to make him a co-accused in a multi-billion-dollar telecoms scandal that has rocked the Congress-led coalition government, while a subordinate court is hearing another petition challenging his election to parliament in 2009.
Moving from the Home Ministry, Chidambaram becomes Finance Minister for a third time.
In his first stint, in the mid-1990s, Chidambaram carried forward the transformational reforms launched by Singh in 1991, scrapping controls and restrictions right across India's insular and state-stifled economy.
He curbed government spending and kept a huge deficit within limits imposed by a special law that he had piloted himself. In 1997, Chidambaram delighted economists with a budget that lowered import tariffs and slashed tax rates to boost revenues in a country where avoidance was the norm.
POLITICAL, ECONOMIC CHALLENGES
Later, he was hailed for his deft handling of the economy during the global financial crisis in 2008, and his four-year tenure from 2004 saw economic growth averaging about 9 percent.
Investors have been baying for reforms since Singh's coalition government was re-elected in 2009. Political dissension stymied Mukherjee's efforts to push major reforms during his three-year tenure and Chidambaram is likely to face the same roadblocks.
"The fact is the kind of constraints which this government has faced, it is a big question whether Chidambaram or any other person from the government would be able to solve it," said Rupa Rege Nitsure, chief economist at Bank of Baroda.
Chidambaram faces a raft of challenges in his new job.
The government's failure to implement structural reforms has resulted in a stubbornly high inflation, making it difficult for the central Reserve Bank of India to cut interest rates significantly despite ebbing economic growth.
Latest quarterly growth figures showed a nine-year low of 5.3 percent, and yet inflation has been running at above 7 percent for two years.
On Tuesday, the RBI predicted more economic pain, lowering its growth projection for financial 2012/13 (April-March) to 6.5 percent from 7.3 and raising its inflation forecast for March 2013 to 7 percent from 6.5.
Higher spending on subsidies coupled with sluggish tax receipts have bloated the fiscal deficit, putting India's investment-grade sovereign debt rating in peril. A record current account gap, policy flip-flops and waning global appetite for risk have also hammered the rupee this year.
To make matters worse, disappointing summer monsoon rains have raised the spectre of a drought, which could force higher public spending and aggravate the government's fiscal troubles.
(Additional reporting by Frank Jack Daniel, Nigam Prusty and C. K. Nayak in NEW DELHI; Swati Bhat and Suvashree Dey Choudhury in MUMBAI; Editing by John Chalmers and Jon Boyle)
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