“Like a bolt out of the blue”
– a senior EU official reacting to Greece’s announcement of a referendum on the EU bail-out
The party’s over: Greek government calls for a referendum on the EU bailout . . . Eurozone jobless hits a euro-era peak . . . Italian yields soar . . . Bank of Spain warns further austerity measures may be necessary . . . OECD cuts growth projections
Financial Times
Prime Minister Papandreou made the pledge on Monday night.
“We have faith in our citizens, we believe in their judgement and therefore in their decision. All the country’s political forces should support the [bail-out] agreement. The citizens will do the same once they are fully informed.”
Needless to say, the alarm bells are ringing in Brussels, Paris and Berlin.
While he did not set a specific date for the vote, the FT suggests it will probably be held in January, when Greek bondholders are expected to sign up for a voluntary 50 per cent haircut currently being negotiated with the International Institute of Finance, wrapping up the new bail-out package. One Athens banker said: “This is a worrying decision by the prime minister. It could derail the whole process even before it’s properly started.”
The premier also announced a vote of confidence in his government would be held later this week to endorse the referendum proposal. That vote would follow a three-day debate on Greece’s worsening economic and social problems.
Seasonally adjusted unemployment in the 17-country bloc rose to 16.2m in September, 188,000 higher than in August and the highest since comparable data started in the late 1990s, reported Eurostat, the European Union’s statistical office. It was the biggest monthly rise in two years. In September, eurozone unemployment was equivalent to 10.2 per cent of the labour force – the same as in June last year but otherwise the highest since June 1998.
Wall Street Journal
Italian bonds are getting pulverised Monday. The five-year Italian bond yield is trading at 5.95%, the highest it has ever been since the inception of the euro. The 10-year yield has climbed above the psychologically important 6% level, a level that in the past portended a sharp slide in government bond prices of other fiscally frail countries.
OECD
The OECD slashed its growth forecasts to show the eurozone economy expanding by only 0.3 per cent in 2012, assuming there is no sudden crisis. In June, it had forecast 2 per cent growth. Failure to restore confidence and a repeat of the financial turmoil seen in recent years could see some large OECD economies contracting by as much as 5 per cent by the first half of 2013, it added.
Bank of Spain
As the year has unfolded, the Spanish economy has progressively weakened following the subdued recovery on which it had embarked in 2010. On Quarterly National Accounts (QNA) figures, the quarter-on-quarter rate of GDP growth slowed in Q2 to 0.2 %, placing the year-on-year rate at 0.7 %. Behind this lies an acceleration in the decline in national demand (-0.4 % in terms of the quarter-on-quarter rate), offset only in part by the improved contribution (to 0.6 pp) of net external demand to output. The information available for Q3 suggests this pattern of weakening continued mid-year, against a background marked by the worsening euro area sovereign debt crisis. Estimates made on the basis of the as yet partial and incomplete conjunctural information indicate that GDP is expected to have posted a quarter-on-quarter rate of change of zero in Q3, placing its year-on-year rate at 0.7 %.
The weakness of domestic demand and of activity has affected the rate of reduction of the fiscal imbalance. On the revenue side, the information available on tax takings to September shared by central government and regional and local government, on one hand, and the Social Security system, on the other, indicates that the growth of tax revenue is below the budgetary projection . . . if the budget outturn data for the coming months were to indicate the possibility of these risks materialising, further measures would forcibly have to be adopted in keeping with the unconditional nature of the commitment assumed by the government to comply with the fiscal targets, and in light of the close monitoring to which public finances will be subject during the current sovereign debt crisis.
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