EU ministers seal banking agreement on eve of Brussels summit

Finance ministers say they have reached deal after lengthy negotiations on how to deal with failing banks in the eurozone

EU finance ministers announced late on Wednesday night that they had reached agreement on a new system for dealing with eurozone banks, under intense pressure to seal the accord on their new flagship policy in advance of a two-day Brussels summit opening on Thursday.

EU officials announced a "crucial breakthrough" on a fiscal backstop for rescuing or winding up failing banks in the Eurozone at 3am on Wednesday. But the details were inconclusive from the meeting of the Eurozone countries and were still being haggled over by all 28 EU finance ministers in Brussels 18 hours later.

All the signs were that Germany had prevailed in its reluctance to assent to any pooled liability for the eurozone banking sector under the new regime of eurozone supervision known as the banking union.

The key issues were: who pays to wind up or recapitalise a failing eurozone bank, and who decides when a bank should be closed down.

EU officials said the breakthrough meant a "common" or pooled eurozone backstop would be available for dealing with troubled banks. The common backstop would not be available until 2025 at the earliest and would consist of a €55bn (£46bn) pot of money raised by the banks themselves via a levy over the decade from 2015.

In the meantime, Germany conceded that the eurozone's €500bn bailout fund, the European stability mechanism, could be used as a last resort for rescuing failed banks if governments did not have enough money.

Earlier the agreement had looked fragile, hedged with conditions and caveats, and was attacked as inadequate by the European Central Bank, whose credibility is at stake as the new supervisor of most of the eurozone banking sector under the new regime.

EU leaders need to agree on the banking wind-up arrangements, known as the single resolution mechanism and the single resolution fund, at their summit on Thursday and Friday if the deadlines for getting the new system operational are to be met. Two weeks of late-night meetings in Brussels and Berlin have pushed issues to the brink.

There will be big problems with getting the deals agreed with the European parliament, and with national ratifications of a new treaty between participating governments on the funding of banking resolution.

The French-led group of southern countries, the European commission and the ECB opposed this.

"It's a choice between a banking union that's not perfect, or nothing," said a senior EU official.

In the transitional decade, from 2015, the issue is what happens in a banking crisis. On German insistence, there will be no European response except as a last resort; nor will there be any escape from adding to national debt burdens to fund a bailout.

The governments concerned would also be able to ask to tap the ESM in an emergency, but according to existing restrictive rules. This was the main German concession.

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UK manufacturing recovery in full swing as new orders boom

PMI rose to 58.4 in November, with new orders at a near-20 year high and thousands of new staff taken on last month

Manufacturers enjoyed a jump in demand that pushed growth to its fastest rate for more than two years and saw the sector take on thousands of new staff last month.

New orders were the strongest for almost 20 years and job creation accelerated, according to the Markit/CIPS UK Manufacturing PMI survey. Encouragingly for the government's push to rebalance the economy, export orders also picked up.

The closely watched report comes as a timely boost to Chancellor George Osborne as he prepares to present his autumn statement plans for growth, spending and taxes on Thursday.

The headline activity index rose to 58.4 in November from an upwardly revised 56.5 in October. That was its eighth month above the 50-mark that separates expansion from contraction and was well ahead of the consensus forecast for 56 in a Reuters poll of economists.

The news sent the pound to a five-year high against a basket of other major currencies as traders bet an accelerating UK recovery would see interest rates rising sooner than the central bank has been suggesting.

Rob Dobson, senior economist at survey compilers Markit commented: "UK manufacturing continued to hit the high notes in November. The Manufacturing PMI struck a fresh two-and-a-half year peak as production and new orders rose at, or close to, 19-year record rates. The sector is on course to beat the 0.9% increase in output seen in the third quarter.

"Sustaining the recovery remains the key and the news here is also positive. The manufacturing expansion remains broad-based by sector, demand from the domestic market continues to surge higher and new export orders are rising at a clip close to October's 32-month high."

As activity and orders picked up, firms took on new staff at the fastest pace for more than two years.

Markit said manufacturers were creating around 5,000 jobs a month across all parts of the sector and all sizes of firms.

James Knightley, economist at ING Financial Markets said the job creation pointed to unemployment falling faster than the Bank of England is predicting. That could see interest rates rising sooner than the central bank has suggested, he said. Policymakers are waiting for unemployment to drop to 7% before they will consider raising borrowing costs from their current record low.

Kinghtley said the job creation suggested in manufacturing report "supports our view that the unemployment rate will drop below 7% late 2014/early 2015". He also highlighted a robust production reading and strong orders from the eurozone.

"Taking it all together it implies that the UK economy is looking in good shape with interest rate rises looking increasingly probable from early 2015," he added.

The survey follows forecasts from manufacturers' organisation EEF that the sector will grow faster than the wider economy next year. The group thinks the sector probably contracted by 0.1% this year but will grow 2.7% next year while UK GDP rises 2.4%. The EEF's latest survey suggested firms are more confident about investing and hiring staff over the next year but they feel the export outlook is still uncertain thanks to problems in some emerging markets and sluggish growth in the key market, the eurozone.

Economists said the manufacturing report marked a strong start to the monthly trio of PMI surveys from the three main sectors. Tuesday sees the release of the construction report while the closely watched survey from Britain's dominant services sector on Wednesday is expected to show that strong growth continued in November.

"If [the manufacturing PMI] is followed by robust construction and, especially services, surveys, it will look very likely that GDP growth in the fourth quarter could at least match the 0.8% quarter-on-quarter expansion seen in the third quarter," said Howard Archer, at IHS Global Insight.

"Much will depend on how well consumer spending performs in the fourth quarter, as there have been some signs that consumers have taken a breather after spending at a robust pace in the third quarter."

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Why central bankers' composure is pure theatre

Federal Reserve, European Central Bank and Bank of England know extricating from stimulus policies is fraught with danger

Central bankers like to project a sense of serenity. The markets may be traumatised and the politicians may be panicking, but nothing fazes the technocrats in charge of our money. They are headmasterly figures: slightly detached but with their fingers on the pulse.

That's the image. In reality, the central bankers are in a funk about the health of their nations' economies and the challenge of extricating their institutions from the stimulus policies that have been responsible for what has, so far, been a tepid global recovery.

Why else would the Federal Reserve have bottled a decision on gradually winding down its bond-buying programme? Why else would the European Central Bank have surprised the markets with a cut in borrowing costs last week? Why else would the Bank of England feel the need to reassure the public that the 0.5% bank rate that has been in force since early 2009 would remain in place until unemployment came down to 7%, barring some unforeseen inflationary shock?

Mark Carney will face the press this week for the first time since he outlined Threadneedle Street's forward guidance in August and the governor will have the job of explaining why unemployment is now expected to come down faster than the Bank predicted three months ago.

On the face of it, this is an easy gig. Carney could stand up and say it is a jolly good thing the economy is doing better than expected and, therefore, interest rates can start to return to more normal levels a little earlier than planned. This, though, is the UK, and here there are really only three economic moods: periods when there is concern that the economy is not growing, periods when the worry is that it is growing too fast, and periods when a combination of steady growth and low inflation is considered too good to last.

For now, the UK appears to have moved from fretting about a triple-dip recession to fears about overheating without any intervening Goldilocks period. Accordingly, the financial markets will be focused in coming months on barometers of excess demand: the housing market, the trade figures, earnings and consumer spending.

Carney will have a period of grace before the markets start to demand action. In part that's because those indicators speaking of problems to come – the housing market and the trade balance – are flashing amber rather than red. In part, though, it is because problems are more acute elsewhere.

For the Fed, it is a question of when to taper, not whether. It wants to continue supporting what is a historically modest recovery with low interest rates and quantitative easing, but thinks the amount of new money creation each month should be reduced.

But it wants to do this without causing chaos either domestically or in the broader global economy. When the Fed chairman, Ben Bernanke, floated the idea of a gradual taper to bond-buying back in May, financial markets threw a fit. The laws of supply and demand have meant that bond prices have risen as central banks have bought more and more of them. The interest rate on a bond goes down as the price goes up, and these interest rates (bond yields) affect how much it costs firms and households to borrow over long periods.

Speculation about a Fed taper pushed up bond yields, which in turn made mortgages more expensive in the US. That put the dampers on the recovery in the housing market.

The same laws of demand and supply meant that electronically printing trillions of dollars has driven down the value of the US currency. It has also created a massive pool of funds looking for places around the world where returns were high. This was not in the west, where both growth and interest rates were low, but the emerging world, where growth was strong and borrowing costs much higher.

Even the threat of a Fed taper was enough to put this process into reverse. Money came flooding back out of emerging markets, putting pressure on their currencies as growth rates were slowing.

Europe has a different problem. Relief during the summer that the eurozone was at last coming out of an 18-month double-dip recession pushed up the value of the single currency. But a stronger currency means lower inflation because the cost of imported goods falls.

Inflation in the 17-nation bloc as a whole stands at 0.7%, well below the ECB's target of close to but just less than 2%. In those countries worst affected by the sovereign debt crisis it is already negative.

Deflation is not always a bad thing. In fact, if you are a saver it is a good thing because your money goes further. For debtors, though, a period of falling prices means that your debt burden increases. If interest rates are rising, then you can quickly find yourself in a situation where your debt is increasingly unpayable even if your income is going up at the same time.

What applies to individuals applies to countries also. Greece is already in a situation where it will require another bailout to make its debts sustainable and it wouldn't take much to push some other countries on the eurozone's periphery – Italy and Spain most notably – over the edge.

Economists at Fathom financial consultants have modelled what would happen to eurozone debt sustainability given plausible (if relatively generous) assumptions for budget deficits, growth rates and inflation. They found that if primary government budget balances (excluding debt interest payments) and growth rates were set at their long-term average, debt sustainability hinges on what happens to inflation.

At an inflation rate of 2%, the level of debt to national output (the debt to GDP ratio) declines for every country in the eurozone, including Greece. At 1%, and assuming a Fed taper leads to an increase in long-term interest rates of 1.5 percentage points in the next two years, debt becomes unsustainable for the peripheral eurozone countries. At zero inflation, even without a taper, debt sustainability is a problem for the core of the currency zone as well.

This threat explains many things. It explains why ECB head Mario Draghi moved so quickly to cut ECB interest rates last week. It explains why there is a lot of nervousness about the upcoming asset quality review of Europe's banks, since they are awash with eurozone bonds. It explains why the Americans, who know a taper is coming, are openly frustrated with Germany's failure both to reflate and to press ahead with banking union. And it explains why the sang-froid of central bankers is strictly for show.

Article Source : http://www.guardian.co.uk
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Eurozone unemployment stuck until 2015, warns European commission

Commission warns jobless total will remain at record 12.2% in 2014, as growth forecast drops to 1.1%

The European commission is warning that it is too early to claim victory in the euro area's fight against recession after its latest forecasts showed it would be 2015 before weak growth generated a fall in the jobless total.

Although the 17-nation single currency zone started to expand in the summer after a six-quarter double-dip recession, Brussels said there will be a lag before the pickup in activity leads to a fall in unemployment.

The commission trimmed its growth forecast for the euro area in 2014 from 1.2% to 1.1% and said unemployment will remain stuck at a record 12.2% next year. It added that there were encouraging signs that the recovery would continue but said the legacy of Europe's debt crisis would continue to act as a brake on growth.

Only in 2015, when growth is expected to increase to 1.7%, does the commission see a dent being made in the jobless total, with unemployment predicted to drop to 11.8%.

Olli Rehn, the commission's vice-president for economic and monetary affairs and the euro, said: "There are increasing signs that the European economy has reached a turning point. The fiscal consolidation and structural reforms undertaken in Europe have created the basis for recovery.

"But it is too early to declare victory: unemployment remains at unacceptably high levels. That's why we must continue working to modernise the European economy, for sustainable growth and job creation."

The commission, publishing forecasts three times a year for the eurozone and the EU, stresses that the return to solid growth in the countries that belong to the monetary union is set to be gradual, with big differences in economic performance across member states. Financial markets believe the combination of sluggish growth, high unemployment and the threat of deflation will prompt the European Central Bank into fresh efforts to boost activity.

Of the bigger euro area countries, only Germany is forecast to grow by more than 1% in 2014. Spain is expected to expand by 0.5%, Italy by 0.7% and France by 0.9%.

By contrast, the commission said the outlook for the UK – which has exceeded expectations in 2013 – was "quite bright". Growth of 2.2% is pencilled in for 2014, rising to 2.4% in 2015.

Article Source : http://www.guardian.co.uk
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Slumping car sales underline fragility of eurozone economy

The UK is the only major European market to record more new passenger car registrations in 2013 than last year

Slumping car sales across the EU in August have underlined the fragility of the eurozone economy, with the cumulative figures for the year to date at a record low.

The UK remained the only major European market to record more new passenger car registrations in 2013 than last year, with 10.9% more sales this August than last.

Across the EU, sales dropped to 653,872 vehicles in August – traditionally a slow month but a figure that still remains 5% lower than in 2012. For 2013 so far, the total stands at just 7,841,596 – the lowest figure since the European Automobile Manufacturers' Association (ACEA) started compiling them in 1990.

After a slight rise in July, the trend continued downwards outside the UK, with what is set to be a sixth straight year of falling sales. Sales slid further in France, Italy and Germany. In Cyprus sales this year are down 40%. ACEA said: "The downturn prevailed across significant markets."

The PSA Group, manufacturer of Peugeot and Citroën cars, continued to lose ground to rivals, with an 18% drop in registrations, while market leader Volkswagen Group's sales fell 11% in August. VW-brand vehicles alone were down 17.3% year on year – a statistic the German manufacturer partly attributed to freak weather that damaged thousands of vehicles ahead of delivery.

Despite the downward trend, analysts believe the picture could soon improve for car manufacturers. Mark Fulthorpe, an automotive analyst at IHS, said: "The general sense we get is that we are now bumping along the bottom. At least in the car market, the rate of decline has slowed.

"There have been some positive developments in France and Germany in recent months, but not enough to offset problems in the periphery – but we may get a more neutral picture ahead."

He pointed to the experience of Britain and the US to argue that car sales in Europe could pick up before a full economic recovery. "The age of vehicles on the road is increasing, and servicing costs and repair costs for older vehicles will give many drivers reason for a newer car when consumer confidence returns at all.

"That has been the impetus for the turnaround we've seen in the American market, where many purchases were deferred in the darkest days of the crisis."

He added: "It's only in last few weeks that commentators in the UK have really thought that the economy has turned, but you can see from the last year's figures that people were already making those big-ticket purchases here."

The UK has now seen 18 months of consecutive rises, with the market for new cars in August up to 65,937 units. Although September's figures will be more significant, the summer continued the trend of double-digit rises.

The Society of Motor Manufacturers and Traders ascribed the growth to increasingly confident consumers being offered attractive terms, including a surge in sales of alternative fuel cars. Mike Hawes, SMMT's chief executive said: "Buyers are clearly capitalising on attractive deals and new technologies against a backdrop of increasing economic confidence."

Article Source : http://www.guardian.co.uk

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UK economy: a miraculous recovery – or a blip in a longer-term decline?

The UK seems to be experiencing a remarkable economic turnaround – but how is it comparing with the US and Europe?

In Newcastle-upon-Tyne, property prices are racing ahead. Over the last year it ranks as Britain's top performing city, with an 11% jump in the cost of buying a home.

London lags behind the capital of the north-east with a 5.2% increase, though it remains the most expensive region.

The forecast is that prices will soar over the next couple of years as the turnaround in Britain's economic fortunes begins to feed into the property market.

In the last month, the economy has stepped up a gear. Manufacturing and construction industries have fallen in step with the already resurgent service sector to push the UK well ahead of Germany, France and the rest of the eurozone in the growth stakes.

When the latest GDP figures appear next month, the UK could outstrip the US, which has propped up the world economy since the financial crash of 2008.

Economists are now asking whether George Osborne has found a magic formula. Such is the confidence in Britain's new-found vigour that some experts are questioning the Bank of England's low-interest policy, which Threadneedle Street said only last month should last until 2016, such is the underlying weakness of key sectors in the economy.

So is the UK recovery real? Is it just a short-term burst in property dealing before the longer-term realities of a slow decline reassert themselves? And how does the UK compare with other countries?

UK unemployment. Credit: Guardian graphics

Employment/pay

Since the financial crash, workers across the developed world have been forced to price themselves back into work. Workers in Spain, Ireland, Germany and the UK have accepted the equivalent of zero-hour contracts that come with low pay and few benefits.

Britain's unemployment rate is now below 8% – although still above the 7% level being targeted by the Bank of England. As a result of immigration, there are almost 2m more people in the UK than in 2008, and many have found jobs.

However, this expansion in activity has not fed through into wage packets. The TUC has calculated that in the last five years average pay has fallen by 6.3% in real terms. A worker putting in 40 hours a week is £30.30 a week worse off, taking inflation into account, than in 2008.

Studies shows that four in every five jobs created since 2010 have been in low-pay sectors.

Wage rises in 2013 are averaging 2%, while inflation is running at 2.8%. A report on Monday by the Recruitment and Employment Confederation (REC) and KPMG shows the sharpest rise in salaries for full-time staff since 2008, but the REC also found that short-term appointments are at their highest since July 1998 – showing that employers are still seeking a flexible workforce.

A surge in the number of new jobs in the last 18 months has cut the US unemployment rate to 7.3%, its lowest for four years. But much of the fall is due to people leaving the job market altogether, mainly due to baby boomers retiring, younger people staying in college, and poorer workers claiming disability benefits. The US employment rate is 63.2% compared with 71.5% in the UK. In July a lacklustre 169,000 extra jobs were created, less than the 400,000 needed before the unemployment rate falls meaningfully.

In July, EU unemployment was at 11% , with the eurozone at 12.1% – both up half a percentage point on July 2012. That meant 26.6 million unemployed – roughly equal to the entire population of the Netherlands and Belgium combined.

The situation is much more concentrated among young people, with 5.5 million under-25-year-olds jobless.

Despite the crisis, salary levels have risen everywhere in the EU in recent years, with the notable exception of Britain and the bailed-out countries of Greece, Ireland and Portugal.

The EU's highest earners, the Danes, enjoyed gross average earnings of €60,000. Its poorest, the Bulgarians, get €4,668.

Exports

The financial crash of 2008 brought with it an inbuilt spur for recovery – a low exchange rate. While the indebted countries of the eurozone were tied to an exchange rate dictated by Germany, the UK could cash in on a 25% decline in the value of sterling.

Exports of goods are up, but the rise has disappointed ministers, who believed manufacturers would grab a golden opportunity to win market share in fast-growing countries such as Brazil, China and Turkey. Manufacturers have increased their output in response to an increase in domestic demand and turned away from cultivating export orders.

Without the revenues from North Sea oil and gas production, which have proved insufficient to counter energy imports since 2004, the UK's industrial position looks weak.

The service sector, which includes the City, the advertising industry and £9bn education export business, has maintained a surplus over imports throughout the last five years. However, exports of services have remained flat.

Maintaining Washington's spending budgets between 2009 and 2012 against attacks from conservative forces in Congress kept the economy growing. That is the Keynesian view inside the White House and among liberal commentators, who argue that the reason the US economy is larger than it was in 2008 (the UK economy is still 2.7% smaller) is the result of government spending and investment.

Like Germany, the US has benefited from huge demand from China and the far east for industrial equipment and cars. As a result, exports have grown steadily and proved a major impetus to growth.

Germany, along with China, is the global export champion, and while the crisis has hurt purchases of German goods in parts of the EU, its performance continues to excel, helping the EU to a rising exports record.

German exports grew 4.3% last year to over €1tn, according to the federal statistics office, with a more than 10% increase in sales to non-EU countries compensating for stagnation in European exports.

EU exports collapsed by more than €200bn in 2009 compared with the previous year, but have since recovered.

Article Source : http://www.guardian.co.uk

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Stock markets soar on positive world manufacturing surveys

UK order books and output grew at fastest pace in 20 years while China's year-long contraction ended

Stock markets soared on Monday as surveys of manufacturing output around the world gave the strongest indication yet that the richest countries are finally shaking off the after-effects of the financial crisis.

British manufacturing order books and output grew at their fastest in almost two decades while China, which has suffered a year-long contraction in manufacturing output, saw activity expand in August. Factory sectors in Spain and Italy returned to growth for the first time since 2011. Only France and India among the world's biggest economies experienced falls in production and Paris will be comforted by indications that some areas of manufacturing stabilised during the summer.

India, though, appeared to be heading into deeper trouble after a fall in the rupee failed to arrest the country's first contraction in manufacturing for more than four years.

The FTSE 100 jumped almost 100 points to 6507 with mining groups leading the charge. Rio Tinto and Anglo American saw a sharp rise in their values as investors bet on a more widespread use of iron, coal and nickel. The French Cac and German Dax also rose strongly.

George Osborne has taken comfort in recent months that the UK's long-awaited recovery in manufacturing is under way. The services sector has expanded for more than a year, but the economy was unable to push ahead while construction and manufacturing contracted. Since the beginning of the year those sectors have stopped being a drag on growth and in recent months have added momentum to the growth figures.

The monthly snapshot from the Chartered Institute of Purchasing and Supply/Markit said the return of confidence, a rosier outlook for exporters and demand for new products had all helped UK factories in August.

The purchasing managers index (PMI) rose from 54.8 in July to 57.2 last month – its highest level in two and a half years.

The PMI is made up of various measures of industrial activity including orders, output, employment, stock levels and inflationary pressure.

Rob Dobson, senior economist at survey compilers Markit, said orders and output were growing at their fastest since the summer of 1994, a period when the UK was recovering from recession.

He said: "The UK's factories are booming again. Orders and output are growing at the fastest rates for almost 20 years, as rising demand from domestic customers is being accompanied by a return to growth of our largest trading partner, the eurozone."

Meanwhile, Britain's high streets have performed well this year and the British Retail Consortium said the trend continued into August. Sales rose 3.6% on a year ago as shops expanded to cope with rising demand. The BRC said the figures augured well for the autumn because they were strong enough to show an improvement on last August, when the Olympics was at its height.

Strong manufacturing growth has been accompanied by an increase in price pressures, the Markit report said. Companies reported rising costs for fuel and raw materials, with its input prices index up by 10.4 points on the month – the second highest rise in the survey's history.

The potential for a rise in inflation, coupled with analysis showing that much of the boost to the economy has been based on consumer spending while investment remained on hold, has persuaded some analysts to conclude that the quickening recovery is unsustainable.

Trevor Greetham, a director at Fidelity Worldwide Investment, accused the government of "unleashing the beast" of cheap mortgages to foster a dash for growth before the 2015 election.

He said a large part of the current recovery could be traced back to the government's Funding for Lending Scheme, which offers cheap money to banks, and the housing market scheme Help to Buy, which have channelled money into mortgages at the expense of business lending.

The TUC said the benefits of the recovery were being swallowed up by business managers and shareholders, leaving workers worse off.

Speaking before the TUC's annual conference next week, general secretary Frances O'Grady pointed out that UK workers have suffered a huge squeeze on their incomes over the last five years, with average pay falling by 6.3% in real terms.

She said many have remained on frozen or low pay while inflation has jumped, leaving someone earning £26,000 a year more than £30 a week worse off in real terms.

The study, part of the TUC's Britain Needs a Pay Rise campaign, compared hourly pay rates in 2007 (at 2012 prices) with those in 2012, and "shows the extent of the pay squeeze being felt by families across the UK as incomes fail to keep pace with rising prices".

O'Grady said the north-west was the hardest hit region in the UK following a fall in average hourly pay from £11.43 in 2007 to £10.52 in 2012 – an 8% drop in real terms.

France, India and Russia struggle

France's manufacturing sector is struggling to recover after a difficult year of redundancies at the state-backed car makers Renault and Peugeot Citroën and high-profile steel works closures.

While eurozone manufacturing activity expanded for a second successive month in August, in France the purchasing managers index was confirmed at 49.7, where a figure below 50 shows activity contracted. It was the only eurozone country where the measure of activity failed to improve.

However, output has fallen in France over the last four years far less than some other eurozone countries, and the slow rate of contraction was read by many analysts as a sign that the recession is bottoming out.

India also suffered a slowdown in manufacturing output in August, though much of the blame was heaped on the administration of prime minister Manmohan Singh, a former economics professor, who has run the country since 2004 and was re-elected in May.

The HSBC manufacturing purchasing managers' index fell to 48.5 after a drop in domestic and export orders. In the last two years GDP growth has more than halved to 4.4% and investment funds have flowed out of the country. The central bank has hiked interest rates, making it tougher for businesses and consumers to borrow.

India was not alone among the "Bric" countries to suffer a contraction in manufacturing. Russia's output also fell, largely because of government neglect and a high rouble. A drop in oil revenues exposed the weakness in manufacturing weakness, leading Vladimir Putin to suggest he may free several jailed business leaders to boost output and growth.

Article Source : http://www.guardian.co.uk

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If Greece needs a third bailout, Europe had better find a formula that sticks

A better approach would see Greece's lenders take more pain up-front – but is Germany prepared to support that?

So, Greece will soon need a third bailout. German finance minister Wolfgang Schäuble admitted as much on Tuesday – and was even prepared to say so during the pre-election period in Germany. One assumes Schäuble deemed it safe to dive into these politically contentious waters only because he also stuck to the party line that Athens would receive no more debt forgiveness.

What a shame. If a third bailout is required the time has come for the euro-powers to find a formula that sticks. A small loan package, to fill the hole already identified by the International Monetary Fund, would represent another dose of medicine that isn't working. The Greek economy, weighed down by austerity measures, would stumble along for a while – but a fourth package would loom sooner or later.

Germany's finance minister Wolfgang Schäuble.

A better approach would see Greece's lenders take more pain up-front – get the debt down to manageable levels and hope to see economic growth reduce the burden further. Is Germany, after the election, prepared to support that idea? If it's not, we'll be talking about a fresh eurozone crisis by the end of the year.

Article Source : http://www.guardian.co.uk

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