Last week, worries intensified in the markets that Greece will face a default, adding to concerns as global economies, meanwhile, experience a slowdown in growth pace.
Prime Minister George Papandreou, said he will slash one month’s wages from all elected officials and impose an annual charge on all property for two years, to meet the budget deficit targets for 2011 and 2012 which are 17.1 billion euros and 14.9 billion euros, where the new measures will help in reducing the shortfall by 2 billion euros to offset the slowdown in activities.
The Greek government is doing more attempts to become eligible for receiving the next tranches of the EU-IMF bailout to avoid default.
Tensions returned once again to markets with the rise in Greek bond yields and cost of insuring against default, which raised the possibility that the debt contagion could spread to other large highly indebted nations in the region, especially Italy and Spain.
The Italian government sold 3.9 billion euros of five-year notes while the Spain sold 3.95 billion euros long-term sovereign bonds.
Moreover, with speculations that Germany is ready to kick Greece out of the euro area, the unexpected resignation of European Central Bank's chief economist Juergen Stark, no clear action from the G7 in their meeting and expected downgrade to France's top banks due to their exposure to Greek banks, markets went on the rampage.
However, the sentiment started to improve into the week as expectations increased that the ECB bought Italian bonds and the European Commission's President Jose Manuel Barroso said he is close to proposing options on joint euro-area bond sales.
Merkel and Sarkozy also said they are “convinced that the future of Greece is in the euro zone.” While we saw the flare of confidence gain more and more momentum with the unexpected coordinated action from the ECB along with the Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank to conduct three more US dollar liquidity-providing operations with a maturity of around three months till the end of the year.
This move was preemptive from the ECB to prevent the freeze of money markets with the signs of strain starting to appear after banks started to access the ECB facilities for money as European banks started to struggle in dollar funding.
In the U.K., fundamentals continued to add to worries as annual CPI for August accelerated to 4.5% in August from 4.4% in July. Unemployment in the three months ending July rose by 80,000 to 2.51 million and employment in government jobs fell by a record in the three months through June.
Retail sales with auto fuel slipped 0.1% compared with the revised 0.2% in July, while the reading excluding auto fuel dropped 0.1%, lower than the prior 0.2% rise.
This week, BoE minutes for the month of September will be available with some expecting to see some members joining Adam Posen in calling for an APF increase to boost the sluggish growth
