Eventually, the enlargement of cross-border capital flows and their concentration on Eurozone countries brought about by the euro will have to be unwound. Only when these flows reflect long-term viable investment opportunities will they no longer constitute a danger for the stability of the euro.
This requires a shrinking of current account deficits as well as surpluses of EZ countries. However, in view of the structural savings surpluses of some EZ member countries, intra-area current account adjustment alone will probably not be enough. What is also required is a redirection of the current account surpluses to countries outside the Eurozone. If the private sector is unable to do this because of its reluctance to assume exchange rate risk, the public sector may have to help. In any case, an increased demand for foreign assets will lower the exchange rate of the euro, which will facilitate efforts by the deficit countries to overcome recession by an expansion of exports.
An important gauge of China’s manufacturing sector has weakened sharply, adding to the pressure on the government to take more decisive action to support the flagging economy. The official purchasing managers’ index for manufacturing fell to 50.4 in May, its lowest in five months, from 53.3 in April. Although it was the Chinese PMI’s sixth straight month above the 50 level, which signals an expansion of activity, the fall in the index highlighted a clear softening of growth momentum. High quality global journalism requires investment. As the first item of official economic data for May, the PMI offers a timely glimpse into how the Chinese economy performed over the past month. Many analysts and officials had believed that China was on track for a “soft landing” until a raft of poor data in April led to a flurry of growth forecast downgrades. http://www.ft.com/intl/cms/s/0/d2f17014-ab87-11e1-b675-00144feabdc0.html#axzz1wQ4tZnA1
The dramatic drop in Indian economic growth isn’t bothering the likes of Mahendra Saraf. A farmer, he works in a sector that has seen growth shrink to 1.7 per cent in the first three months of 2012 against 7.5 per cent in the same period last year. But Mr Saraf, 26, is confident the blow to his profits will be cushioned by government agricultural subsidies. “Global and domestic demand was not been very strong,” he says, “but the government buys excess grain at a fixed price, so we will get that money anyway.” High quality global journalism requires investment. Such safety blankets – the size of which vary from state to state and industry to industry – are among the targets of those who say the government of Manmohan Singh needs to take radical measures to restore growth in the Indian economy. With growth in the first quarter of 2012 rising at 5.3 per cent, the slowest rate in nine years, policy makers are panicking about how to turn things around. “It’s an absolute disaster,” says Omkar Goswami, head of the Corporate and Economic Research Group in New Delhi. “We went from nearly growing at 10 per cent to 5 per cent in less than two years . . . it’s very, very concerning.”http://www.ft.com/intl/cms/s/0/d9928116-ab13-11e1-b875-00144feabdc0.html#axzz1wQ4tZnA1
Madrid was dealt a double blow on Thursday after it emerged that almost €100bn in capital had left the country in the first three months of the year and the head of the European Central Bank lambasted its handling of Bankia, the troubled Spanish lender. Data published by Spain’s central bank showed €97bn had been pulled out in the first quarter – around a 10th of the country’s GDP – as concerns mounted over Madrid’s ability to contain its twin economic and financial crises, which have forced government borrowing costs to euro-era highs. http://www.ft.com/intl/cms/s/0/25c39204-ab01-11e1-b875-00144feabdc0.html#axzz1wQ4tZnA1
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The Spanish government called for investor calm on Thursday as shares in Bankia, the country’s second-largest bank by domestic deposits, tumbled nearly 30 per cent and Moody’s conducted a sweeping downgrade of other lenders. Further fuelling the sense of unease among eurozone banks, the government in Cyprus announced it would underwrite a €1.8bn capital raising by Popular Bank of Cyprus that analysts said could force the tiny island nation to seek bailout assistance from Brussels. http://www.ft.com/intl/cms/s/0/1c0fd102-a046-11e1-90f3-00144feabdc0.html#axzz1vC4kvAGM
Facebook set the share price for its initial public offering at $38, giving the social-networking company a $104bn valuation and propelling it into the ranks of the top 25 US public companies. Mark Zuckerberg, the 28-year old founder and chief executive, raised $1.1bn, leaving him with a stake valued at $19bn, firmly establishing him as one of the richest men in the world.http://www.ft.com/intl/cms/s/0/e7b43504-a051-11e1-88e6-00144feabdc0.html#axzz1vC4kvAGM
An oil tanker belonging to Iran’s state-owned shipping line has been switching flags and using multiple companies to transport crude from Syria to Iran, illustrating how Tehran is helping to sidestep international efforts to choke the finances of Bashar al-Assad, Syrian president. Documents obtained by the Financial Times show the vessel, operated by the Islamic Republic International Shipping Lines, sailed from Syria to the Gulf of Oman and then Iran, using different flags and changing owners. http://www.ft.com/intl/cms/s/0/9704c760-9abe-11e1-9c98-00144feabdc0.html#axzz1vC4kvAGM
The US said it “welcomed” the evolution” of debate in Europe towards growth on the eve of a G8 summit that could see Angela Merkel, Germany’s chancellor, isolated as other world leaders push her to help stimulate the economy in Europe. In a move to make the G8 less formal and more productive, Barack Obama will host the group – whose economic policies could sway his re-election prospects this autumn – away from the media at the presidential retreat of Camp David, Maryland. http://www.ft.com/intl/cms/s/0/0668fb34-a038-11e1-90f3-00144feabdc0.html#axzz1vC4kvAGM
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