Italy
Against a backdrop of nationwide strikes, the government of embattled Italian Prime Minister Silvio Berlusconi is scrambling to secure parliamentary backing for a revised reform package, new tax rises and spending cuts.
The 20 percent value added tax (VAT) bracket will be raised to 21 percent and a special 3 percent levy will be imposed on incomes of more than 500,000 euros (US$703,148). A strike in Rome on Tuesday showed the strength of feeling that richer Italians had escaped tax rises and spending cuts. Economist David Mackie at JPMorgan said: “Once you say to Italy, we will not allow you to fail, they then have the upper hand. There has been a moral hazard issue with Greece for some time. Now we have one in Italy, too.”
Greece
Under heavy fire from German and Finnish politicians, Greek Prime Minister George Papandreou’s left-of-center government is facing accusations of backsliding.
Having committed itself to huge cuts in state spending and a 50 billion euro privatization program to gain a second EU bailout package, the fear around Europe and the US is that Papandreou cannot force through the urgent reforms needed to make the cuts work.
The interest rate for the government to borrow for two years is now more than 50 percent, showing investors do not want to go near the Greek economy. Officials on Tuesday denied newspaper claims that they had asked for faster bailout payments to fill the gap left by lower taxes and higher spending.
Britain
British Chancellor of the Exchequer George Osborne is to downgrade his growth forecasts for the UK after a series of gloomy business surveys and sharply declining consumer confidence.
Stock markets were spooked on Monday when a survey of the vital services sector was the worst for a decade. Services make up 75 percent of economic activity.
A similar survey of manufacturing last week was dire. Construction, once a booming industry, has shriveled. A double-dip recession beckons and some economists believe the economy may already be contracting.
The chancellor is sticking to his austerity plan and hoping Bank of England Governor Mervyn King can ease the pain by maintaining low interest rates.
Switzerland
The Swiss economy has appeared largely immune to the effects of the current crisis and grew robustly in the second quarter.
GDP climbed by 2.3 percent from last year but the latest quarterly increase — 0.4 percent — was the lowest since 2009, causing economists to worry that the strength of the Swiss franc would put a further brake on expansion this year and into next year.
That is why the Swiss National Bank in effect devalued its currency on Tuesday. The Swiss franc, seen as a safe heaven, had moved close to parity with the euro, but its strength has made the country’s exports much more expensive and harmed its tourism industry. Swiss residents have been crossing into Germany to shop.
Ireland
Ireland is in the depths of the worst recession in its history, but there are signs it may have turned the corner.
Ireland was bailed out by the IMF with 85 billion euros last year, but some economists believe the austerity measures introduced by the Dublin government are now paying off. Borrowing costs have fallen and GDP growth is forecast at 1.8 percent this year.
Still, while Ireland is banking on exports to return it to economic growth this year, it also desperately needs to halt the decline in consumer spending in order to meet growth targets crucial to dealing with a mounting debt pile. December’s budget already promises to cut spending and raise taxes by at least 3.6 billion euros.
Germany
Despite its stellar status, Germany is far from all-conquering.
The DAX share index has lost 29 percent since the beginning of July — significantly worse than London’s FTSE 100 — while business confidence is tumbling at the fastest rate since the collapse of Lehman Brothers.
New data on Tuesday showed a sharper than expected fall in industrial orders in July, especially from beyond the eurozone. German taxpayers are becoming increasingly skeptical about efforts to help eurozone strugglers such as Greece.
That in turn has put domestic pressure on German Chancellor Angela Merkel, whose coalition government has suffered a string of setbacks this year.
Spain
Another day, another denial from Spain that it has come close to requiring a bailout.
Spanish Finance Minister Elena Salgado rejected suggestions on Tuesday that the country nearly called in the IMF last month, after a Spanish union leader reported that Spanish Prime Minister Jose Luis Rodriguez Zapatero had told union and business leaders he had seen “the edge of the abyss, in the form of a bailout for the Spanish economy.”
Whatever the truth, Spain is in deep trouble. To cut its borrowing requirement, the country has just started a privatization program, which includes selling a 30 percent stake in the national lottery and part of the state airport authority.
Portugal
There are plenty of economists who put Portugal and Greece in the same boat.
Moody’s, the ratings agency, says Lisbon’s attempts to cut state budgets are failing and it is only a matter of time before officials seek a second Brussels bailout — the first entailed 80 billion euros of loans. Portuguese Prime Minister Pedro Passos Coelho says more cuts will do the trick, despite expecting the economy to contract this year and next.
Finance Minister Vitor Gaspar says the Portuguese should expect to pay more taxes next year, including higher VAT and increases for higher earners and companies making big profits. Protests across the country are likely as unemployment is set to head toward a peak of 13.2 percent next year.
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