Greek review, Spanish debt sale signal Europe recovery
Greece won international lenders’ approval for its efforts to fix its finances and Spain raised new funds at far cheaper rates than it had to pay just two months ago in further signs that Europe is getting over its debt crisis.
After some strong surveys on business activity in July, the euro strengthened on a further forecast-beating report, this time a big rise in manufacturing orders in Germany during the month of June.
More large banks in the region reported better earnings than expected, too, among them Barclays and Commerzbank.
European Central Bank chief Jean-Claude Trichet predicted an «exceptional» report on economic output in the euro zone in the second quarter — coupled nonetheless with a warning that the second half of 2010 would not be so hot.
«The main message is we remain cautious and prudent,» he told a regular ECB news conference in Frankfurt. «Growth is likely to remain uneven and relatively modest.
«We expect the two quarters of the second semester to be significantly less dynamic than the second quarter because the second quarter seems to be really exceptional,» said Trichet.
The news on the day was largely positive, both in terms of market confidence and in terms of economic activity in at least the second quarter of 2010.
Spain, which at the height of the euro zone debt crisis in May and June was forced to announce extra austerity measures to combat investor concern, pulled off a successful bond auction, selling 3,5 billion euros (2,9 billion pounds) of three-year bonds and paying a premium of just 2,276 percent compared with 3,317 percent at a June sale.
Greece won recognition for its efforts to honour a draconian programme of spending cuts, tax hikes and other measures agreed to stabilise public finances in return for a 110 billion euro rescue.
In their most positive assessment so far, and an antidote to market scepticism, officials from the IMF, ECB and European Commission said Athens would likely meet this year’s deficit cutting target, though risks remained.
«This was a very ambitious programme with a lot of front-loading, and the good news is that it is being implemented as agreed,» the IMF’s mission chief for Greece Poul Thomsen told Reuters in an interview.
While Greece is now largely ring-fenced for three years with the bailout funding lined up by euro zone governments and the International Monetary Fund, Spain and others that came under market pressure are only in recent weeks starting to see some relief.
The premium investors demand of Spain on its 10-year bonds versus the equivalent debt of safe-house Germany stood at around 159 basis points on Thursday, versus just short of 200 basis points in mid-July and a peak of around 224 basis points in mid-June.
MOOD CHANGE AND Q2 GDP SPURT
Like Trichet, many economists are encouraged but nonetheless suspect that recent data snapshots, while better than expected, do not change the basic analysis: after the recession of 2009, the economic recovery will be patchy and relatively lacklustre.
The positive news flow contrasted strikingly, however, with months of bearish headlines since Greece’s admission last year of a massive deficit began to spread talk of default in markets.
The German economy ministry said that strong foreign demand lifted orders for German manufactured goods 3,5 percent in June, more than twice the forecast.
Economist Dirk Schumacher at Goldman Sachs said: «The tempo is so fast however that it clearly can’t continue. The economy will cool slightly, although we don’t expect it to stagnate.»
Nick Matthews, economist at RBS, said his bank was expecting Germany to perhaps announce its best quarterly GDP figure in 20 years next week but that this was partly just a reaction to an awful first quarter, both for Germany and the broader euro zone.
In Spain, far harder hit than Germany after a collapse in housing and construction booms compounded the effects of the global downturn of 2008—2009, a report showed that its industrial production grew for a fourth straight month in June.
The euro zone economy as a whole grew 0,2 percent between January and March after a 0,1 percent expansion in the final three months of 2009.
The latest Reuters poll estimates that it grew a healthier 0,6 percent in the second quarter but saw slower growth of just 0,3 percent per quarter through to the middle of next year.
The economy is seen growing 1,3 percent next year, compared to 2011 forecasts for 2,0 percent in major trading partner Britain and 2,8 percent for the United States, the world’s biggest economy.
07/17/2010
— Filed under: Finance
Tags: debt, Greece, recovery
