Euro Zone Output Down in May as Recovery Remains Fragile

Interesting how the weakness seems to be shifting to Germany and France?

Euro Zone Output Down in May as Recovery Remains Fragile

By Martin Santa

July 12 (Reuters) — Euro zone factory output fell in May for the first time in four months, data showed on Friday, suggesting a fragile and uneven recovery in the bloc that is struggling with record joblessness and renewed political tensions in southern Europe.

Industrial production in the 17 countries using the single currency fell 0.3 percent on the month, following a revised 0.5 percent increase in April, data from the EU’s statistics office Eurostat showed.

Economists polled by Reuters had expected a 0.2 percent decline in May.

Compared with the same period last year, factory output in May dropped as expected by 1.3 percent, after a 0.6 percent contraction in April.

Production in Europe’s two biggest economies, Germany and France, dropped in May, with Italy and Spain showing small increases. Overall, factory output was dented by a 2.3 percent drop in the production in durable goods, such as cars and TVs.

Germany, France, and Italy account for two-thirds of the euro zone’s industrial output.

French and Italian debt chiefs warn on EU Tobin Tax

So how about just letting the ECB fund them all at 0%???

Transactions taxes reduce transactions by making them costly,
which is exactly what this one will do.

So if that’s the outcome they want they should go ahead and do it.

And if they want deficit reduction, well, if they were working for me I’d replace them.

But they’re not, so expect more of same.

French and Italian debt chiefs warn on EU Tobin Tax

By Ambrose Evans-Pritchard

March 6 (Telegraph) — Both France and Italy have been keen advocates of the new Financial Transaction Tax (FTT) proposed by Brussels last month, claiming that it will raise money and curb speculation. But they may have overlooked the unintended effect on their own borrowing costs.

Maya Atig, acting chief of French debt agency, said the European Commission’s internal documents acknowledge that the FTT could drain liquidity in the bond markets by 15pc, an effect that would push up yield spreads and raise debt costs.

Brussels estimates that the tax will raise €30bn to €35bn each year for the eleven EU states taking part, but Mrs Atig told a Euromoney conference in London that any revenue would offset “the extra costs that we might have to pay”.

She said the French government is searching for ways to ensure that the tax does not “perturb” the bond market. “This something still to be discussed.”

Maria Cannata, director of Italy’s debt agency, said her country already has a version of the Tobin Tax but has been careful to exempt sovereign debt, adding that policy-makers must bear in mindful the “importance of not damaging the government bond markets”.

The proposal – now in the hands of working groups – is to come into force in early 2014. It will raise a fee of 0.1pc for shares and bonds, and 0.01pc for derivatives.

These rates are far higher than the Swedish tax in 1989 that led to an 85pc crash in bond sales, a 98pc fall in bond futures, and shut-down of options trading, before the experiment was abandoned.

Gabriele Frediani, head of the electronic fixed income market MTS, said the tax would cause repurchase or Repo trades to plunge by 99pc. “The Repo market would disappear overnight,” he said.

The Repo market serves as a vast pawn shop allowing banks to raise funds on money markets by pledging assets. It is a key source of short-term finance for firms, but by its nature it involves fast turn-over.

Brussels said it had changed the text after listening to concerns. Repo trades will be treated as a single transaction instead of two, halving the tax. Short-term loans with collateral will be exempted.

It said the FTT will cover the secondary market for bonds only, insisting that good yield on long-term debt will “still leave enough room for profit after the tax is applied”.

Markus Beyrer, head of the pan-EU industry lobby BusinessEurope, said he was “very disappointed” by the draft text, calling it a threat to growth and jobs.

The text includes an “issuance principle”, meaning that the tax will cover bonds and other assets issued in the eleven countries taking part, even if they are traded in London. This may breach “extra-territoriality” codes.

The Chancellor, George Osborne, said the FTT scheme would amount to a tax on pensioners and cost up to 1m jobs across the EU “without costing bankers a penny”. The traders would migrate to the US or Asia, taking the financial industry with them.

ECB earns €555m on Greek bond holdings FT.com

ECB earns €555m on Greek bond holdings

By Michael Steen in Frankfurt

(FT) —The European Central Bank said it earned €555m last year on its holdings of Greek sovereign bonds that were bought during the crisis in an attempt to calm financial market fears of a break-up of the eurozone.

The bank also revealed for the first time that nearly half of its holdings in the so-called Securities Markets Programme are of Italian debt. At the end of 2012 it held €99bn in Italian sovereign bonds, €30.8bn in Greek debt, €43.7bn in Spanish paper, €21.6bn in Portuguese debt and €13.6bn in Irish bonds.

Remember this?

Core Europe Sitting Pretty in their PIIGS Drawn Chariot

By Marshall Auerback and Warren Mosler

October 3, 2011 — The refusal to countenance a Greek default is now said to be dragging the euro zone toward even greater crisis. Implicit in this view, of course, is the idea that the current “bailout” proposals are operationally unsustainable and will lead to a broader contagion which will ultimately afflict the pristine credit ratings of core countries such as Germany and France.

Well, we see a very different view emerging: The “solution” currently on offer – i.e. the talk surrounding the European Financial Stability Fund (EFSF) now includes suggestions of ECB backing. This makes eminent sense. Let’s be honest: the EFSF is a political fig-leaf. If 440 billion euros proves insufficient, as many now contend, the fund would have to be expanded and the money ultimately has to come from the ECB — the only entity that can create new net financial euro denominated assets — which means that Germany need no longer fret about being asked for ongoing lump sums to fund the EFSF in a way that would ultimately damage its triple AAA credit rating.

Despite public protestations to the contrary, it is beginning to look like the elders of the euro zone have begun to embrace the reality that, when push comes to shove, it is the ECB that must write the check, and that it can continue to do so indefinitely.

That means, for example, the ECB can buy sufficient quantities of Greek bonds in the secondary markets to allow Greece to fund itself in the short term markets at reasonable interest rates. And it gets even better than that for the ECB, as the ECB also substantially enhances its profitability by continuing to buy deeply discounted Greek bonds and using Greece’s income stream to build the ECB’s stated capital. As long as it continues to buy Greek debt, Greece remains solvent, and the ECB continues to increase its accrual of profits that flow to capital.

The logical conclusion of all of this is ECB ownership of most of Greece’s debt, with austerity measures imposed by the ECB steering the Greek budget to a primary surplus, along with sufficient taxation to keep the ECB’s capital on the rise, and help fund the ECB’s operating budget as well. Now add to that similar arrangements with Ireland, Portugal, Spain and Italy and it’s Mission Accomplished!

Mission Accomplished? Are we daring to suggest that the Fathers of the euro zone had exactly this in mind when they signed the Treaty of Maastricht?

Or, put it another way: it’s all so obvious, so how could they not have this mind?

So let’s take a quick look at the central bank accounting to see if this seemingly outrageous thesis has merit.

Here is what is actually happening. By design from inception, when the ECB undertakes its bond buying operation, the ECB debt purchases merely shift net financial assets held by the ‘economy’ from Greek government liabilities to ECB liabilities in the form of clearing balances at the ECB. While the Greek government liabilities shift from ‘the economy’ to the ECB. Note: this process does not alter any ‘flows’ or ‘net stocks of euros’ in the real economy.

And so as long as the ECB imposes austerian terms and conditions, their bond buying will not be inflationary. Inflation from this channel comes from spending. However, in this case the ECB support comes only with reduced spending via its imposition of fiscal austerity. And reduced spending means reduced aggregate demand, which therefore means reduced inflation and a stronger currency. All stated objectives of the ECB.

We would stress that this is NOT our PROPOSED solution to the euro zone crisis (see here and here for our proposals), but it is clearly operationally sustainable, it addresses the solvency issues, and puts the PIIGS before the cart, which at least has the appearance of putting them right where the core nations of the euro zone want them to be.

Additionally, the ECB now officially has stated it will provide unlimited euro liquidity to its banks. This, too, is now widely recognized as non-inflationary. Nor is it expansionary, as bank assets remain constrained by regulation including capital adequacy and asset eligibility, which is required for them to receive ECB support in the first place.

To reiterate, it is becoming increasingly clear, crisis by crisis, that with ECB support, the current state of affairs can be operationally sustained.

The problem, then, shifts to political sustainability, which is a horse of a different color. And here is where the Greeks (and the other PIIGS) paradoxically have the whip hand. So long as the Greeks continue to accept the austerity, they wind up being burdened by virtue of their funding of the ECB. The ECB takes in their income payments from the bonds, and the ECB alone ensures that Greece remains solvent. It’s a great deal for the ECB and the core countries, such as Germany, France and the Netherlands, as it costs the core’s national taxpayers nothing. And, as least so far, Greece thinks the ECB is doing them a favor by keeping them out of default. The question remains as to whether the Greeks will continue to suffer from this odd variant of Stockholm (Berlin?) Syndrome.

Perhaps not if some of the more recent proposals make headway. As an example of what might be in store for Greece, consider the “Eureca Project”, publicly mooted in the French press last week. In essence, it aims to reduce “Greek debt from 145% to 88% of GDP in one step” without default (so protecting all northern European banks); reduce ECB exposure to Greek debt (that is, force Greece to pay the ECB for the bonds it has purchased in secondary bond markets) and it claims that it will “kick-start the Greek economy and revive growth and job creation” and promote “structural reform.”

So how is it going to do all of that? Simple: engage in the biggest asset strip in history. The proposal in essence calls for a non-sovereign entity to take all the public assets – hand them over to a holding company funded by the EU which pays Greece who then pay off all it debtors. End of process – except that if it is implemented, the Greeks could well say “Stuff it. Let’s default and take our chances. At least we get to keep our national assets.” That’s the risk that is being run if the ECB and the economic moralists in Germany take this too far. If this proposal were accepted, the eurocrats would in fact have a failed nation state on their hands in 3 months time — in the eurozone, not the Mideast or Africa.

By contrast, the current arrangements seem tame in comparison. They obviate the solvency issue, but even here one wonders how much more can be inflicted on countries such as Greece. We stress that the current arrangements have OPERATIONAL sustainability, not necessarily POLITICAL sustainability. The near universally accepted austerity theme is likely to result in continuously elevated unemployment, and a large output gap in general characterized by a lagging standard of living and high personal stress in general. This creates huge systemic risk insofar as it might well make sense for Greece (and others) ultimately to reject this harsh imposition of austerity. But, so far so good for the core nations, as there appears to be no movement in that directions (except on the streets of Athens, rather than in the Greek Parliament).

By the ECB continuing to fund Greece, and not allowing Greece to default, but instead to continue to service its debt, the whole dynamic has changed from doing Greece a favor by not allowing Athens to default to disciplining Greece by not allowing the country to default. And while that’s what the Germans SEEMINGLY haven’t yet figured out, if one is to judge from the current debate, particularly in Germany itself, at the same time they have approved the latest package and are quickly moving in the direction we are suggesting. Note that Angela Merkel has been most adamant on the particular question of allowing Greece to default or allowing an “orderly restructuring.” It’s also worth noting that when the ECB funds Greece, that funding facilitates Greek purchases of German goods and services, including military, at no cost to the German taxpayer. In fact, Germany gets to run larger trade surpluses, which means by accounting identity it is able to run lower government budget deficits, which allows it to feel virtuous and continue its incessant economic moralizing.

So what’s in it for Germany? That should be obvious by now: Germany gets to export to Greece, and to control/impose austerity on Greece, which keeps the euro strong, interest rates in Germany low, and FUNDS the ECB. All in the name of punishing the Greeks for past sins. It doesn’t get any better than that for the core nations. It’s time for the Germans to stop pushing their luck. Rather, they should embrace the genius of one of the so-called southern profligates, Italy, as they have surely created an operationally sustainable doomsday machine of which Machiavelli himself would be proud. How could this not be the Founding Fathers’ dream come true?

The earnings on the Greek debt are particularly significant as there has been a political agreement to pay back profits made from holding the bonds to the Greek government. Because the bonds still pay interest and were bought at depressed prices, they yield a lot of interest.

The €555m compares with income of €654m in 2011 on Greek debt – also published on Thursday – but only represents the ECB’s share of the earnings, which is a combination of interest paid on the bond and a paper profit derived from amortising its value over time.

The Eurosystem as a whole, which comprises all 17 national central banks that work with the ECB, would have made a significantly larger amount on the Greek bond holdings.

The ECB, which declared a net profit of €998m for 2012, up from €728m the year before, pays its profits to the other Eurosystem central banks, which then declare their own profits before passing money to national governments. Only then can any declared profits on Greek bond holdings be returned to Athens.

RBS: U.S. Equity Strategy Weekly; Assessing some Cracks in the Foundation

Good observations:

Assessing some Cracks in the Foundation

Most measures of investor sentiment rest deep within the optimistic domain. This, combined with the recent decline in volatility and performance correlation, suggests that investors have become much less concerned about the macro economy.

A serious correction has so far failed to materialize and shake out some of the optimism. Pull-backs are more evident in many of the larger markets outside of the U.S., including Brazil, France, Italy, Spain, and South Korea.

However, several leadership themes are beginning to give up some performance ground:

 I. Machinery. The group is starting to lag following a recent peak in the Mainstreet Farm Equipment Sales Index;

 II. Household Durables The stocks are correcting following a sideways move in the HMI;

 III. Autos & Components. This group is losing ground as auto sales growth decelerates;

 IV. Materials. The stocks have pulled back with the rise in the U.S. dollar and the weaker tone set by some global bourses.

Other important leadership themes at risk of rolling over include:

 I. Financials. High-yield credit spreads are beginning to widen and this is usually associated with performance turbulence for the sector.

 II. Consumer Discretionary. A softer tone to consumer confidence on the back of DC’s floundering and the rise in payroll taxes sets the stage for a pullback.

Yet, we continue to view these events as opportunity. The global leading data is rallying, while the monetary authorities continue to subsidize business cycle activity by holding interest rates substantially below the level of nominal GDP growth. In our opinion, these very powerful macro forces argue in favor of a bias towards economic leverage, beta, value and foreign exposure.

Fiscal Devaluation in Europe

It’s a policy designed to drive exports.
A form of protectionism.
It reduces consumption of imports to the extent domestic prices are helped by lower labor costs where domestic goods a compete directly with imports, which is probably limited.

And of course without further support of fx intervention (dollar and yen buying etc.) it makes the currency go up to the point where the effects are offset/no gains in employment, etc.

And if one nation does it the currency move hurts the others who don’t so it opens up a race to the bottom.

Recap:
It hurts low income consumers
It helps corporate profits
It supports the currency
And so those are the people that support it.
:(

Am I missing something?

Harvards Gopinath Helps France Beat Euro Straitjacket

By Rina Chandran

Feb 6 (Bloomberg) — When French President Francois Hollandeunveiled a plan in November for a business tax credit and higher sales taxes as a way to revive the economy, he was implementing an idea championed by economist Gita Gopinath.

Gopinath, 41, a professor at Harvard University in Cambridge, Massachusetts, has pushed for tax intervention as a way forward for euro-area countries that cannot devalue their exchange rates. Fiscal devaluation is helping France turn the corner during a period of extreme budget constraints, former Airbus SAS chief Louis Gallois said in a business- competitiveness report Hollande commissioned.

She advocated fiscal devaluation for Europes currency union in a 2011 paper she co-authored with her colleague Emmanuel Farhi and former student Oleg Itskhoki, an assistant professor at Princeton in New Jersey.

Despite discussions in policy circles, there is little formal analysis of the equivalence between fiscal devaluations and exchange-rate devaluations, they wrote. This paper is intended to bridge this gap.

The paper examines a remarkably simple alternative that doesnt require countries to abandon the euro and devalue their currencies, Gopinath said. By increasing value-added taxes while cutting payroll taxes, a government can create very similar effects on gross domestic product, consumption, employment and inflation.

The higher VAT raises the price of imported goods as foreign companies pay the levy. The lower payroll tax helps offset the extra sales tax for domestic companies, reducing the need for them to raise prices. Since exports are VAT exempt, the payroll-cost saving allows producers to sell goods cheaper overseas, simulating the effect of a weaker currency, according to the paper.

The policy also can help on the fiscal front, as increased competitiveness can lead to higher tax revenue, Gopinath said.

Hollande is seeking to revive Frances competitive edge by offering companies a 20 billion-euro ($27 billion) tax cut on some salaries as he attempts to turn around an economy that has barely grown in more than a year. He also will lift the two highest value-added tax rates. The plan was inspired partly by Gopinaths paper, said Harvard professorPhilippe Aghion, an informal campaign adviser to Hollande, who was elected president in May.

Aghion, who co-wrote a column in Le Monde newspaper last October advocating Gopinaths theory, said Gallois proposed to Hollande that its the right strategy for France. Gallois is slated to become a member of the board at automaker PSA Peugeot Citroen this year.

We contributed to the adoption of the policy by Hollande, and Gallois called to thank me, Aghion said in a telephone interview. There is wider interest in the policy. Italy, Spain, Greece — they should all be interested. Its an idea that would work.

Draghi Says Conditions Considerably More Favorable Than Last Yr

As previously discussed, looking like deficits high enough for stability and even modest growth, albeit with output and employment at tragically low levels, if they don’t further tighten fiscally.

It didn’t have be this way. They could have increased deficits pro actively vs via austerity.

Also, their ‘automatic fiscal stabilizers’ are very strong and, even if all is left alone, will tend to keep any recovery muted.

EU Headlines
Draghi Says Conditions Considerably More Favorable Than Last Yr
Merkel Takes Swipe at Yen
German Business Sentiment Rose More Than Forecast in January
Ifo Business Climate Index Rises
German Cooperative Banks See Growth Exceeding Government Outlook
France needs time to overtun rampant jobless rate: minister
Monti Says Monte Paschi Bailout Hinges on Bank of Italy
Italian PM under fire over bank crisis
Spain tries to peel back business rules

Euro-Area Exports Rose 2.4% in June

Unfortunately this is will also be spun as ‘austerity works’ as they don’t realize exports are real costs and imports as real benefits, meaning this is in fact evidence of deteriorating real terms of trade.

And, of course, globally it’s a 0 sum game as for every export there is an equal import. But while we can’t all net export, we can all attempt to net export with overly tight fiscal/low aggregate demand/high unemployment etc. in a very ugly race to the bottom.

Additionally, a rise in net exports from euro zone domestic policy comes with upward pressure on the currency that continues to the point where there are no net exports.

That’s why the ‘export models’ include the govt building foreign exchange reserves, as it sells its currency vs the currency of the region targeted for exports. Hence the growing hoards of $US reserves by all the nations targeting the US for exports.

However, the euro zone, unlike Germany under the mark, doesn’t do that for ideological reasons. They don’t want to buy $US and build $US reserves and give the appearance that the $US is the ‘reserve currency’ backing the euro. And so instead of sustaining net exports, the euro goes up to the point where there are no net exports. Note that the euro appreciated from about 85 to 160 to the dollar during its first decade before backing off to under 120 due to portfolio shifting from blind fear of oblivion. And during that time the currency movement always kept net exports in check.

This is all why the ECB doing ‘whatever it takes’ which means conditional funding to sustain solvency while keeping fiscal ‘overly tight’ is extremely euro friendly.

Euro-Area Exports Rose 2.4% in June, Led by Germany: Economy

By Simone Meier

August 17 (Bloomberg) — Euro-area exports rose for a second month in June, driven by a surge in shipments from Germany, as companies tapped into emerging markets to offset declining demand at home.\

Exports from the 17-nation currency bloc advanced a seasonally adjusted 2.4 percent from May, when they gained 0.4 percent, the European Union’s statistics office in Luxembourg said today. Imports stagnated in the period and the trade surplus widened to 10.5 billion euros ($13 billion) from 6.8 billion euros.

Europe’s economy contracted 0.2 percent in the second quarter as tougher austerity measures pushed at least six member states including Italy and Spain into recession. With households and companies across the region cutting spending, exporters such as L’Oreal SA, the world’s largest cosmetics maker, have relied on faster-growing Asian markets to bolster sales.

“The euro-region economy is undergoing a mild recession,” said Alexander Krueger, chief economist at Bankhaus Lampe KG in Dusseldorf. “The global growth dynamic has eased somewhat, but exports will continue to support development to a certain extent in the second half of the year.”

German exports jumped 6.6 percent in June to 40.9 billion euros, while imports in Europe’s largest economy rose 1.5 percent. Shipments from Italy increased 2 percent in the period.
France and Spain reported gains of 1 percent and 1.4 percent, respectively.

U.K. Unemployment Rate Hits 9-Month Low, Defying Recession

More hints from europe that deficits may be high enough to support a bit of GDP growth?

Euro-Region Construction Output Advanced in May, Led by Germany

By Simone Meier

July 18 (Bloomberg) — Euro-area construction output rose in May, as gains in Germany and Portugal offset declining production in Italy, Spain and the Netherlands.

Construction in the 17-nation euro area advanced 0.1 percent from April, when it dropped 3.7 percent, the European Union’s statistics office in Luxembourg said today. From a year earlier, construction output declined 8.4 percent.

In Germany, Europe’s biggest economy, construction output increased 3.1 percent from April, when it fell 5.5 percent, today’s report showed. Portugal and France reported increases of 3.6 percent and 0.4 percent, respectively. In Italy, output fell 1.4 percent from the previous month, when it dropped 4.3 percent. Spanish output slumped 3.3 percent after a 3 percent drop in April, and the Netherlands had a decline of 0.7 percent.

In the 27-nation EU, output rose 1.6 percent from April, when it fell 6.9 percent. Ireland and Greece are not required to provide monthly data on construction output.

U.K. Unemployment Rate Hits 9-Month Low, Defying Recession

By Scott Hamilton

July 18 (Bloomberg) — U.K. unemployment fell to a nine- month low in the quarter through May. Unemployment based on International Labour Organization methods fell to 8.1 percent of the workforce from 8.2 percent in the period through April. Jobless-benefit claims rose 6,100 in June. The number of people in work climbed 181,000 to 29.4 million with full- time work accounting for most of the increase. London gained 61,000, partly reflecting hiring for the Olympic Games that open on July 27. The claimant-count rate was 4.9 percent. Claims rose 6,900 in May instead of the 8,100 rise initially reported. June was affected by a rule change that forced more lone parents to claim Jobseeker’s Allowance.

ECB to Ensure That Lenders Have Enough Liquidity, Visco Says

More constructive hints?

ECB to Ensure That Lenders Have Enough Liquidity, Visco Says

(Bloomberg) The European Central Bank will continue to guarantee sufficient liquidity for lenders and keep up the fight against market fragmentation among the 17 countries that share the euro, Bank of Italy Governor Ignazio Visco said. “The ECB can’t but continue to pursue these objectives,” Visco said today in a speech in Rome. The ECB cut rates to a record low on July 5 on concern the euro area is slipping deeper into a recession. The central bank, headed by Mario Draghi, agreed in June to help nations in distress by acting as a buying agent for sovereign bonds purchased by government-run bailout funds. The rate cut, to 0.75 percent, is an indication of the ECB’s intention to guarantee “adequate monetary conditions” in the euro area, Visco said. “It followed other measures adopted last month designed to continue to ensure necessary liquidity for the banking system and fight the effects of the fragmentation of monetary and financial markets,” he said.

German Finance Minister Asks Court Not to Block Euro Assistance

(New York Times) The German finance minister warned on Tuesday that there would be severe consequences for the euro currency union if this country’s highest court blocks Germany’s recent ratification of two measures for fighting Europe’s financial crisis.

Officials Spar Over Who Will Guarantee Bank Losses

(WSJ) German finance minister Wolfgang Schäuble said that even once the euro zone’s bailout fund has been authorized to directly recapitalize struggling banks, the lenders’ host government should retain final liability for any losses. “We expect that the final liability of the state will remain” even once the banking supervisor is up and running, he told journalists. He added that what mattered was that the bank support wouldn’t add to a country’s debt—something that he said would be possible even under a scenario where the government retained liability for potential losses. Other officials insisted that banks’ host states wouldn’t have to guarantee any support from the bailout fund.

A Euro-Zone Strategy Shift

(WSJ) Finance ministers from the euro zone agreed that Spain need only reduce its deficit to 4.5% of gross domestic product next year, and 2.8% in 2014, in order to avoid financial penalties. The deal, Spanish Finance Minister Luis de Guindos told reporters, had been clinched without fresh demands on fiscal policy from euro-zone partners, although Eurogroup Chairman Jean-Claude Juncker had warned that there would be a thorough examination of every bank that asks for aid. “I repeat it again, and these are fundamental points, these are two completely independent agreements, they are not related in any way because there is no macroeconomic conditionality in the agreement on the memorandum [of understanding],” he said.

Noyer Warns Hollande of France’s ‘Serious’ Economic Weakness

(Bloomberg) France’s unit cost of labor of 34.20 euros an hour compares with Germany’s 30.10 euros, Italy’s 26.80 euros and 20.60 euros for Spain. Unit labor costs in France have increased by about 20 percent relative to Germany since 2000 as French companies implemented the nation’s 35-hour work-week law, according to Coe-Rexecode. “Of all advanced countries, France has registered, since 2000, the sharpest decline in its market share in global exports,” Bank of France Governor Christian Noyer said. “The drop in the number of hours worked and rigidities in working time arrangements have probably played a role” and reviving exports means tackling all sorts of restrictions that hamper activity, he said.

French current account deficit narrows in May

(AFP) The French current account deficit narrowed slightly in May, owing to a smaller shortfall in the trade of goods and a bigger surplus in services, official data showed on Monday. The Bank of France said the current account, which measures all current payments in and out of the country, showed an overall deficit of 4.1 billion euros ($5.3 billion), compared with a 4.4 billion euro shortfall in April. A breakdown of data showed that the deficit in exchanges of goods had decreased to 5.6 billion euros in May from 6.0 billion in April, while a surplus in services grew to 1.9 billion euros from 1.7 billion.

This is not good if/when implemented:

Rajoy Announces 65 Billion Euros in Budget Cuts to Fight Crisis

(Bloomberg) Spanish Prime Minister Mariano Rajoy announced tax increases and spending cuts totaling 65 billion euros in the next two-and-a-half years. Rajoy’s fourth austerity package in seven months will raise the sales levy to 21 percent from 18 percent; scrap a tax rebate for home buyers; scale back unemployment benefits; consolidate local governments and eliminate the year-end bonus for some public workers. The budget cuts are about double those previously announced. Spain’s central government budget deficit swelled to 3.41 percent of gross domestic product in the first five months of the year, approaching the full-year goal of 3.5 percent after the government brought forward transfers to regional administrations and the social-security system.

Spain Agrees to Guarantee Bond Issuance of Cash-Strapped Regions

(Bloomberg) Spain will guarantee bonds issued by regional governments to help them regain access to capital markets and ease a funding squeeze. The program will be “voluntary” for regions and will come with additional conditions on budget deficits, Antonio Beteta, deputy minister for public administration, told reporters. The plan will be presented at a meeting of regional budget chiefs on July 12, he said. “The mechanism aims to make issues more liquid and easier to place on the markets as they have a central-government guarantee,” Beteta said. Regions face redemptions of about 15 billion euros in the second half of the year, according to data on the Budget Ministry’s website.

Spain Says European Rescue for Banks Opens Door to ECB Funding

(Bloomberg) Spain’s FROB rescue fund will distribute bonds issued by the EFSF to the banks, which “can use them at the ECB if they need the liquidity,” Spanish Economy Minister Luis de Guindos told reporters. As part of the agreement for Spain’s 100 billion-euro bank bailout, one or several vehicles will be created to buy assets from lenders at a “reasonable” price, de Guindos said. Those vehicles will issue bonds that will also be eligible at the ECB. Industrywide conditions for the financial assistance include a 9 percent capital requirement, de Guindos said. A first tranche of 30 billion euros is to be used as soon as the end of the month. Remaining details will be clinched in the memorandum of understanding due to be signed on July 20, he said.

Norway intervenes to avert oil industry closure

This was about to be seriously disruptive:

Norway intervenes to avert oil industry closure

By Mia Shanley and Dmitry Zhdannikov

July 9 (Reuters) — Norway’s government ordered on Monday a last-minute settlement in a dispute between striking oil workers and employers in a move to alleviate market fears over a full closure of its oil industry and a steep cut in Europe’s supplies.

The strike over pensions had kept crude prices on the boil with analysts expecting far quicker action by the government to stop the oil industry from locking out all offshore staff from their workplaces from midnight (2200 GMT) on Monday.

Oil markets breathed a sigh of relief on news of the intervention and crude prices dropped in early Asian trade.

Under Norwegian law, the government can force the striking workers back to duty and has done so in the past to protect the industry on which much of the country’s economy depends.

But it was slow to intervene in the latest dispute, which was in its third week, and did so on Monday only minutes before the start of the lockout, citing potential economic consequences.

“I had to make this decision to protect Norway’s vital interests. It wasn’t an easy choice, but I had to do it,” Labour Minister Hanne Bjurstroem told Reuters after meeting with the trade unions and the Norwegian oil industry association (OLF).

A full closure of output in Norway – the world’s No. 8 oil exporter – would have cut off more than 2 million barrels of oil, natural gas liquids (NGL) and condensate per day.

But the minister said her main concern was the potential cut in gas supplies. Norway is the world’s second-biggest gas exporter by pipeline, with the majority of supplies going to Britain, the Netherlands France and Germany.

“This could have had serious consequences for the trust in Norway as a credible supplier,” she added.

The oil and gas industry makes up about one-fifth of Norway’s $417 billion economy.

Leif Sande, leader of the largest labour union Industri Energi, representing more than half of 7,000 offshore workers, said workers would return to work immediately.

“It’s very sad. The strike is over,” he told journalists.

The dispute has raised eyebrows in Norway, where oil and gas workers are already the world’s best paid, raking in an average $180,000 a year. Offshore workers clock 16 weeks a year but cite tough conditions for their call for early retirement at 62.

The oil industry had refused to budge.

“I am very happy that the minister chose to end a conflict that has cost Norway and the oil companies large sums,” said Gro Braekken, leader of the OLF.

The OLF said the 16-day strike came at a cost of some 3.1 billion Norwegian crowns ($509 million).

The next step is compulsory arbitration to define a new wage agreement.

“With this decision we can see that whenever the oil industry says jump, the government listens,” Hilde Marit Rysst, leader of union SAFE, told Reuters. “We will never leave this issue – it is completely unthinkable to stop fighting for those who are worn out at 62.”

She said unions would push their issues at the next suitable opportunity.

Norway is keen to retain its image as a reliable supplier of energy, but analysts have said the Labour-led coalition government was slow to intervene as it faces general elections in a year, and labour unions are important partners.

On Monday, Labour Minister Bjurstroem said she believed the lockout was not necessary and the oil industry will have to take responsibility.

About 10 percent of the 7,000 offshore workers have been on strike since June 24.

Brent crude dropped more than $1 to below $99 per barrel in early Asian trade on Tuesday on news of the intervention, after surging to above $101 on supply fears in the previous session.

The strike had choked off some 13 percent of Norway’s oil production and 4 percent of its gas output.

State-controlled Statoil, which operates the affected fields, said it would resume production immediately and would be back at full capacity by the end of the week.

The last lockout in the offshore sector occurred in 1986, shutting down production on the Norwegian continental shelf completely, and lasted for three weeks before the government intervened. In 2004, the center-conservative government stepped in to avert a lockout. ($1 = 6.0881 Norwegian crowns)