“Most worrying day of the crisis so far”

As fear drives eurozone debt markets and economies markedly downwards, and the increased volatility makes good money for some, the underlying grievance of the Occupy Wall Street movement can now be seen mirrored clearly in the European crisis.

The tension is effectively between those who believe that inequality is divisive and we should all pull together (Germany), and those who believe in ‘every man for himself’.

The people whose underlying attitudes and behaviour led to the creation of the crisis are now doing very little to fix it. Members of Italy’s political ‘elite’, for example, are reluctant to join the new cabinet that will address the problems they created. Investors meanwhile are effectively betting on how fast the ship they are standing on will sink. Few people are willing to step up and start baling.

Those attitudes and behaviours need to change. As Martin Wolf tells us, “what is at stake is … the stability of of the European — perhaps the world’s — economy”.

Fear is driving eurozone debt markets and economies to worsen, as volatility continues:

Investor fears of government inability to repay loans yesterday spread to the bonds of triple-A rated France, Finland, Austria and the Netherlands. “Markets are losing patience and are going for the jugular… the core countries” said the chief economist at Hermes. All main eurozone countries except Germany saw higher bond yields. Few buyers could be found. Global head of fixed income at Aberdeen said, “We are wary of buying anything in the eurozone.” As one trader put it, “It is really scary. Everyone is liquidating. Everyone is heading for the door.” The premium (compared to Germany) that Spain pays for debt also hit a euro-era high

Fear also drove European shares to fall ‘markedly’ (around one per cent). Credit Suisse described the euro area as continuing to “lurch unsteadily towards fiscal union and into recession.” The bank forecast a one per cent recession next year, with recovery in the latter part of 2012. New economic figures for the third quarter of this year showed that the eurozone grew by only 0.2 per cent, the same as the previous quarter.

The cost of credit default swaps for most eurozone debt hit a euro-era high. Five years of insurance against default of Italian debt now costs over six per cent of the principal, up from one per cent in April. Spain, Belgium, France, Austria, Netherlands have lower but high rates. Investors now expect recession for Europe and are shunning it in favour of the US and emerging markets — “a sharp reversal from the outlook earlier this year.”

Solutions are hard to envisage, let alone implement:

With all this volatility bringing “very good times for trading platforms” and stock exchanges, it is difficult to see what might overcome the fear and reverse the trend.

Solutions being attempted include calls by the French president for structural reforms to cut labour costs and a review of the funding of the country’s welfare system. This is likely to increase support for the Occupy movement, which authorities in the US, UK and Switzerland moved against yesterday.

In euroland, “fingers are pointing in all directions” but few have appetite for any of the solutions, and there is little unity. Reform of the Italian government is stalling already, as members of the country’s political elite show reluctance to join Mario Monti’s cabinet and actually help to fix the problems they helped to create. Italian bonds and equities fell ‘heavily’.

The cultural conflict playing out before us at the moment seems to be between collective responsibility and an “everyone for himself” attitude

The call for cooperation and equality that has been made by the Occupy Wall Street movement could be heard echoed in the leader of Angela Merkel’s CDU party. He said it was not acceptable for the UK to be “only defending its own interests” rather than those of the wider EU over the introduction of a Tobin tax.

Conversely, gold fell around one per cent yesterday after it emerged that John Paulson had cut his holdings and other traders also cut their positions. Paulson, “the world’s most prominent gold bull”, bought gold as a way of betting that “governments and central banks would be unable to manage an orderly withdrawal of their extraordinary policies of the financial crisis”).

Lots of people are betting whether the ship is going to sink and if so how fast, but very few are baling water.

And as Martin Wolf writes, “What is at stake today is not only the stability of of the European — perhaps the world’s — economy, but the survival of the most successful — and certainly most civilised — effort to unite Europe since the fall of the western Roman empire 1,535 years ago.

Walmart reported its first rise in USA sales for over two years (up 1.3% over the quarter) , but profits continued to fall (2.9%). Sales outside the US were up just over 20 per cent, leading to net growth of just over eight per cent globally.

Investigations into possible fraud at Olympus are continuing around the world.

Airbus followed up Boeing’s order for 50-70 aircraft (from Emirates on Monday) with an order from Qatar for 55 Airbus A320 Neo planes. The deal is worth about a third of the Boeing one at list prices, and Qatar bargained hard, informing a press conference that the deal had reached an impasse, such that EADS’ chief strategy officer had to get involved before the deal could be sealed. Interesting that it seems to be oil rich states in the Middle East that are buying aircraft.

Citigroup is cutting at least 900 jobs, joining Bank of America, Credit Suisse, Godman Sachs and others.

In the USA, Caesars Entertainment has revived plans for an IPO, but on a much smaller scale than originally envisaged: $50m instead of $530m.

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1 Comment

  1. Hi Finn

    Thanks for this article. i like the way you pull together several topics that are too often reported separately in mainstream media (Eurozone, UK, Tobin Tax, OWS/OLSX).

    “Lots of people are betting whether the ship is going to sink and if so how fast, but very few are baling water.”

    So true … there are carpetbaggers in every difficult situation,

    I love the way the UK anti-euro types are so smug about the Euro crisis. Haven’t they noticed at even with all the very obvious problems in the Euro, the Pound has still fallen against it consistently over the last few years? Just saying…

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