Thursday, 3 November 2011

Europe cuts aid to Greece

Markets rebounded somewhat on Wednesday but the European debt situation remains precarious. Bloomberg reports that Europe has suspended aid payments to Greece.

European leaders cut off aid payments to Greece and said a referendum in five weeks will determine whether the debt-strapped nation becomes the first to exit the 17-country euro area.

Crisis talks ended in the French resort of Cannes late yesterday with German Chancellor Angela Merkel and French President Nicolas Sarkozy withholding 8 billion euros ($11 billion) of assistance and warning Greece it will surrender all European aid if it votes against a bailout package agreed upon only last week.

Eurozone economic data on Wednesday had been negative.

Manufacturing contracted even more in October than initially estimated. The Markit manufacturing PMI fell to 47.1 last month from 48.5 in September.

In Germany, the euro area's largest economy, the unemployment rate rose to 7.0 percent in October from 6.9 percent in September.

There was some good news in the UK on Wednesday though. The Markit/CIPS construction PMI jumped to 53.9 in October from 50.1 the previous month.

The US economy had also performed relatively well recently, allowing the Federal Reserve to leave monetary policy unchanged on Wednesday. However, it may be about to do more, according to Bloomberg:

Federal Reserve Chairman Ben S. Bernanke said unemployment is still “far too high” and the Fed may take further steps to boost growth, such as buying mortgage bonds or changing the way it communicates its policy goals to the public.

Additional stimulus “remains on the table,” Bernanke said today at a press conference in Washington, declining to specify conditions that would prompt a move. “While we still expect that economic activity and labor market conditions will improve gradually over time, the pace of progress is likely to be frustratingly slow.”

The Fed now projects that unemployment will average 8.5 percent to 8.7 percent in the final three months of 2012, up from 7.8 percent to 8.2 percent previously.

A report by ADP Employer Services on Wednesday showed that US private sector employment is continuing to grow though, rising by 110,000 in October following an increase of 116,000 in September.

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