Eurozone tensions have intensified after grim news on the economic outlook and as investors seek safety in Germany on growing doubts over Greece’s future in the currency union.
Shortly after an EU summit failed to produce a remedy, a survey of eurozone business confidence for this month released on Thursday showed its sharpest monthly fall for nearly three years, while the data for Germany was the worst for six months and a survey in France the poorest for 37 months.
European Central Bank (ECB) President Mario Draghi said the EU was at “a crucial moment in its history” and that the debt crisis had demonstrated the EU’s weaknesses.
“The process of European -integration needs a courageous jump in political imagination to survive,” he said, adding that while growth was a priority, “there is no sustainable growth without ordered public accounts.”
ECB governing council member Ewald Nowotny warned of a “massive shock” of unknown consequences if Greece should stumble back to the drachma and cautioned against taking the possibility too lightly.
“I believe the fate of Europe is too important to now carry out thoughtless experiments,” Nowotny, an Austrian, said in words aimed squarely at Germany’s Bundesbank, which has claimed a Greek euro exit would be manageable.
Amid the strain, the euro slumped to a 22-month low against the US dollar of US$1.2516, but -Europe’s stock markets staged a technical bounce after heavy losses on Wednesday, despite a slew of bad news on the economy.
Italian Prime Minister Mario Monti, in televised comments on Thursday, said Europe had been wrong in recent years to insist on “a too-rapid adjustment” from Athens.
The kind of profound cultural and political changes involved “require a generation” to carry out, he said.
Nevertheless, Monti encouraged Greece to honor its agreements, while at the same time urging its partners to avoid “diktats,” in a clear allusion to Germany.
If Greeks vote in new elections on June 17 for parties opposed to the budget cuts and reforms tied to a second debt rescue, the EU, IMF and ECB are expected to cut their financial lifeline.
That would in effect force Greece out of the eurozone and could cause incalculable risks for other weaker members, notably Spain.
With these unknowns, investors are putting their money into safe-haven German 10-year bonds, pushing the rate of return down to a record low of 1.358 percent.
However, EU President Herman Van Rompuy, according to an EU source, is now “less pessimistic than a fortnight ago,” sensing the Greek vote will produce a clear outcome as people come to terms with the likely disastrous consequences of leaving the eurozone.
However, Citi analysts have a different view.
“We assume that Greece will leave European monetary union in early 2013,” they said, adding that sizeable adverse contagion around the eurozone would force an ECB rate cut, more cheap financing for troubled banks and a bailout of sorts for Spain.
They tipped EU leaders to -combine eurobonds in the long-term with jointly-funded bank deposit guarantees in the short-term, to offer an incentive for investors to stay in countries seen at risk of exiting the euro.
The use of eurobonds for joint borrowing intended to ease the cost of raising fresh funds for weaker member states was discussed at length at Wednesday’s EU summit as part of a new focus on generating growth.
This push was headed by French President Francois Hollande, but German Chancellor Angela Merkel held firm to her line that structural reforms to improve competitiveness in countries with debt problems must come before eurobonds.
Monti voiced cautious optimism on the possibility of the introduction of eurobonds.
However London-based ETX Capital trader Markus Huber said investors would remain wary of eurobonds unless they were introduced as part of a wider-ranging economic and political union.
The risk was that distressed countries such as Spain or Italy would “start spending again [with the new funds raised], leading to a crisis much worse then the one we are seeing now,” he said.
However Organisation for Economic Co-operation and Development (OECD) Secretary-General Angel Gurria said policymakers were getting “hung up on a word” and that EU nations already shared risks through a whole list of institutions and mechanisms.
The comments came after the OECD on Tuesday warned that the intensifying eurozone crisis posed the most serious risk to the global economy.
At Berenberg bank, analyst Christian Schulz said that the next EU summit scheduled for June 28 and June 29 was likely to result in a “very modest” growth initiative.
BUSINESS UPDATE: The iPhone assembler said operations outlook is expected to show quarter-on-quarter and year-on-year growth for the second quarter Hon Hai Precision Industry Co (鴻海精密) yesterday reported strong growth in sales last month, potentially raising expectations for iPhone sales while artificial intelligence (AI)-related business booms. The company, which assembles the majority of Apple Inc’s smartphones, reported a 19.03 percent rise in monthly sales to NT$510.9 billion (US$15.78 billion), from NT$429.22 billion in the same period last year. On a monthly basis, sales rose 14.16 percent, it said. The company in a statement said that last month’s revenue was a record-breaking April performance. Hon Hai, known also as Foxconn Technology Group (富士康科技集團), assembles most iPhones, but the company is diversifying its business to
Apple Inc has been developing a homegrown chip to run artificial intelligence (AI) tools in data centers, although it is unclear if the semiconductor would ever be deployed, the Wall Street Journal reported on Monday. The effort would build on Apple’s previous efforts to make in-house chips, which run in its iPhones, Macs and other devices, according to the Journal, which cited unidentified people familiar with the matter. The server project is code-named ACDC (Apple Chips in Data Center) within the company, aiming to utilize Apple’s expertise in chip design for the company’s server infrastructure, the newspaper said. While this initiative has been
Clambering hand-over-hand, sweat dripping into his eyes, a durian laborer expertly slices a cumbersome fruit from a tree before tossing it down to land with a soft thump in his colleague’s waiting arms about 15m below. Among Thailand’s most famous and lucrative exports, the pungent “king of fruits” is as distinctive in its smell as its spiky green-brown carapace, and has been farmed in the kingdom for hundreds of years. However, a vicious heat wave engulfing Southeast Asia has resulted in smaller yields and spiraling costs, with growers and sellers increasingly panicked as global warming damages the industry. “This year is a crisis,”
HIGH-TECH: As leading-edge process technologies become more complicated, only a handful of players are able to provide design services, the company’s CEO said Artificial intelligence (AI) chip designer Alchip Technologies Ltd (世芯) yesterday said that revenue would grow significantly again in 2026 after adding a major AI chip customer, reversing moderation amid a product transition next year. The Taipei-based application-specific IC (ASIC) designer reiterated its strong revenue growth forecast for this year and 2026 after its stock plummeted about 23 percent to NT$3,145 from a peak of NT$4,085 on March 6 amid growing competition. Alchip said it has built strong partnerships with cloud service providers (CSP), denying that it had lost orders to smaller competitors such as Faraday Technology Corp (智原). Faraday said it has secured