European slowdown hitting some states hard

7:30 AM European, hitting, slowdown, States No Comments

The European meltdown is weighing heavily on the U.S. economy, with states that rely heavily on exports most at risk from the deepening crisis overseas.

An analysis by Wells Fargo estimates that Utah and West Virginia economies face the biggest risk from the problems in the eurozone, while many Western states including Wyoming and Colorado are unlikely to see much impact.

“The impact of the eurozone recession on each state varies considerably with the mix of goods and services produced and exported,” Wells Fargo economist Mark Vitner said in the analysis.

The European and U.S. economies are linked through numerous ties. The most direct — and most easily tracked — impact centers on a trade relationship that is "the largest and most complex in the world," according to the Office of the U.S. Trade Representative. Those ties generate trade flows of about $3.6 billion a day and account for more than 7 million jobs.

But that money flows unevenly within the U.S., leaving some state economies more vulnerable than others. States with the highest risk of slowing exports are those heavily concentrated in transportation equipment, commodities and chemicals, according to Vitner's analysis.

Those include South Carolina, where more than 250 transportation-related companies employ more than 32,000 workers. Vitner estimates the slowdown in exports over the last year has shaved roughly 1.4 percent off the state’s GDP.

The drop in exports has been partly offset by continued investment in new plants, including a new Boeing aircraft factory. In Alabama, the fourth-biggest vehicle exporting state, weaker demand for cars and trucks is being offset by plans for expanded production by Mercedes-Benz, Honda and Hyundai.

The drop in transportation exports has also been offset by orders from the rest of the world, which has helped blunt the impact on states that rely heavily on aircraft manufacturing. But Washington state, where the aircraft industry makes up 71 percent of exports, remains vulnerable to a further slowdown. With nearly two-thirds of its exports coming from sales of aircraft and related equipment, Connecticut is also vulnerable.

States that rely heavily on exports of commodities face the greatest risk, according to Vitner. Those include Utah and Nevada, with large exports of gold and silver, and West Virginia, a major coal exporter. Slowing chemical exports have hit Louisiana hard. Louisiana’s exports to the eurozone fell 31 percent in the first five months of the year.

The European recession also hurts states that rely heavily on industries such as financial services and tourism.

“European visitors account for around 40 percent of all international visitors to the United States, and the volume of visitors has slowed noticeably over the past few months,” according to Vitner.

Top U.S. destinations include New York, Los Angeles, Miami, San Francisco, Las Vegas, Orlando, Fla., and Washington, D.C. The eurozone slowdown is hitting East Coast destinations the hardest, Vitner said.

The crisis also hurts the financial centers of New York, Chicago, Philadelphia and Boston. As of June 30, the six largest U.S. financial firms by assets had cut more than 18,000 jobs in the past year, or 1.6 percent of the total, according to The Wall Street Journal.

Eurozone woes add to existing troubles
The slowdown comes as states are already struggling with weaker economic growth and persistent pressure on state budgets. Last year, six states — Wyoming, Alabama, Mississippi, New Jersey, Maine and Hawaii — saw their economies shrink.

States with positive growth are still feeling the hangover from the 2007-09 recession, which cut deeply into revenues just as newly unemployed people turned to their services for help in large numbers. Other costs, including for healthcare and public employee pensions, are rising rapidly, forcing cuts in basic services such as law enforcement, schools and transportation.

The budget crunch shows no signs of easing, and states' current spending, taxation and budget practices cannot be sustained, according to an independent bipartisan committee.

As aging populations drive health care and pension costs higher, revenue from sales and gas taxes is shrinking, the group said in a report last week. Meanwhile, grants from the federal government, which provide about a third of state revenue, are likely to shrink, the report said.

The State Budget Crisis Task Force, headed by Volcker and former New York Lt. Gov. Richard Ravitch, studied six key states.

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European Union split over treaty to save euro

3:13 AM European, split, treaty, union No Comments

Prime Minister David Cameron speaks during a news conference at an European Union summit in Brussels.

BRUSSELS — The 17 countries that use the euro, plus nearly all of their European Union partners, agreed Friday to an ambitious treaty tying their finances together in the hopes of solving Europe's debt crisis. Yet opposition led by Britain created a deep rift in the union.

In drafting a new treaty, the countries hope to help European nations struggling with giant debts over the long term, and in that sense there were early indications of success. Such an agreement is considered necessary before the European Central Bank and other institutions commit more money to lowering the borrowing costs of heavily indebted countries like Italy and Spain.

“It’s a very good outcome for the euro area, very good,” ECB President Mario Draghi said in Brussels. “It is going to be the basis for much more disciplined economic policy for euro-area members. And certainly it is going to be helpful in the present situation.” 

Even after Friday's long-awaited deal, watched by governments and markets worldwide, European leaders have huge hurdles still ahead. They are meeting again later Friday to work out what exactly their new treaty will contain and how violators of its strict budget rules will be policed. They want it written by March.

Asian stocks — already trading when the Europeans announced their 11th-hour deal — tumbled Friday as investors grew increasingly pessimistic that European leaders would conclude this week's crucial summit without finding a solution radical enough to fix the debt crisis.

Britain, which doesn't use the euro, led the push against a treaty tying all 27 EU countries to tighter fiscal union, arguing that it would threaten sovereignty and London's esteemed financial services industry. Germany and France, the eurozone's biggest economies, had pushed for a 27-nation accord.

U.K. prime minister blamed
French President Nicolas Sarkozy laid the blame at the feet of British Prime Minister David Cameron.

"David Cameron made a proposal that seemed to us unacceptable, a protocol to the treaty that would have exonerated the United Kingdom from a great number of financial service regulations," Sarkozy said shortly before dawn, after what he called a "difficult" dinner meeting had dragged through the night.

"We couldn't accept this. We consider to the contrary that part of the troubles of the world come from the lack of regulation of financial services," Sarkozy said. "If you want an opt-out clause to not be in the euro and ask to participate in all decisions of the euro ... and even criticize it, this is not possible."

Cameron defended his stance.

"What was on offer is not in Britain's interest so I didn't agree to it," he told reporters in Brussels.

"We're not in the euro and I'm glad we're not in the euro," he said. "We're never going to join the euro and we're never going to give up this kind of sovereignty that these countries are having to give up."

The French president said work was proceeding on an "intergovernmental accord" among the 17 countries that use the euro plus as many as six others, not counting Britain, Hungary, and so-far undecided Czech Republic and Sweden.

Swedish Prime Minister Fredrik Reinfeldt signaled after the meeting it was unlikely his country would join the accord.

"It would be very odd signing up to a treaty pointing out as if we were a eurozone country," he told The Associated Press. "And that was never the aim."

Intervention into national budgets
The governments signing onto the new treaty will have to agree to allow unprecedented intervention in national budgets by EU-wide bodies.

Yves Herman / Reuters

Spain's outgoing Prime Minister Jose Luis Rodriguez Zapatero, left, talks to France's President Nicolas Sarkozy, right.

According to a statement issued after the meeting broke up, governments participating in the agreement will need to have balanced budgets — which is counted as a structural deficit no greater than 0.5 percent of gross domestic product — and will have to amend their constitutions to include such a requirement.

The treaty will include an unspecified "automatic correction mechanism" for countries that break the rules, the statement said.

In addition, countries that run deficits larger than 3 percent will face sanctions.

To prevent such deficits, countries will have to submit their national budgets to the European Commission, which will have the authority to request that they be revised. Countries will also have to report in advance how much they plan to borrow.

But Cameron threatened to complicate the new 23-member treaty.

"The institutions of the European Union belong to the European Union, belong to the 27" member states, he said. The new treaty would rely on the European Commission and the European Court of Justice to enforce its rules.

"One step forward, two steps back," Alan Clarke, U.K. and eurozone economist at Scotia Capital, said before the first day of summit talks concluded. "The eurozone leaders might as well not bother. Pack their bags, go home, enjoy the weekend and do their Christmas shopping."

Despite the challenges ahead, European Central Bank chief Mario Draghi said it was a good result for the eurozone, and German Chancellor Angela Merkel praised it.

"I have always said the 17 states of the eurogroup have to regain credibility," she said. "And I believe with today's decisions this can and will be achieved."

Marathon negotiating session
The summit meeting in Brussels was viewed as a critical step in the effort to save the euro. The currency is losing the trust of the international financial markets, who fear that some debt-laden euro countries may ultimately be unable to pay their debts.

That doubt means that the governments of countries viewed as in a precarious state must pay higher interest to borrow the money they need to carry on — and that, in turn, makes their budget deficits even worse and can be unsustainable in the long run.

EU officials believe that one way of regaining market trust is to beef up the financial governance overseeing the eurozone countries and their budgets. Any intergovernmental treaty will be an effort to ensure that national budgets are brought into balance and large debts are not run up again.

And the officials believe another way to regain the trust of investors is to have enough money on hand to guarantee that eurozone countries won't default on their debts.

Toward that end, Herman Van Rompuy, president of the European Council, said the eurozone, together with some other EU countries, would provide up to €200 billion ($268 billion) in extra resources to the International Monetary Fund, to be used to help countries in dire straits. Non-euro countries Sweden and Denmark already said they would contribute some extra money.

Sarkozy also said the EU's two bailout funds, meant to rescue countries having trouble refinancing their debts — the European Stability Mechanism, or ESM, and the European Financial Stability Facility, or EFSF — would be managed by the European Central Bank, though the details still need to be worked out.

The failure to get agreement among all 27 EU members came despite a marathon negotiating session. The 27 EU presidents and prime ministers began their talks at 7:30 Thursday evening and continued past 4:30 a.m.

A Reuters poll of economists found that while 33 out of 57 believe the eurozone will probably survive in its current form, 38 of those questioned expected this week's summit would fail to deliver a decisive solution to the debt crisis.

The Associated Press and Reuters contributed to this report.

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Geithner: European crisis threatens global economy

8:12 PM crisis, economy, European, Geithner, Global, threatens No Comments

HONOLULU — Treasury Secretary Timothy Geithner has demanded rapid action by Europe to restore financial stability, warning that the region's economic crisis is "the central challenge to global growth."

"We are all directly affected by the crisis in Europe," Geithner said after a meeting of finance ministers of the 21-member Asia-Pacific Economic Cooperation forum late on Thursday. "It is crucial that Europe move quickly to put in place a strong plan to restore financial stability. They're moving ahead, but we just need them to move ahead more quickly and with more force behind it."

Asia-Pacific finance chiefs agreed to do whatever it takes to prevent the malaise from Europe's debt crisis spreading as a possible European recession threatens the global economy.

Wall Street rallies amid progress in Europe

President Barack Obama spoke with German Chancellor Angela Merkel and French President Nicolas Sarkozy late on Thursday and also called Italian President Giorgio Napolitano.

Turmoil
Italy's upper parliament voted on Friday to pass a package of spending cuts, after being pushed to the brink by bond markets. In Athens, a new interim government was sworn in as Greece attempted to calm the political turmoil that has threatened to bankrupt it and force it out of the euro zone.

European shares edged higher on Friday on hopes that Italy would make political progress that will enable it to quickly cut a debt mountain, easing investors' worst fears about the euro zone debt crisis.

The European Union warned on Thursday that the 17 countries using the euro common currency could slip back into recession next year as the debt crisis that has already engulfed Ireland, Portugal and Greece has shown alarming signs of spinning out of control.

The spillover from the European crisis is adding to the pressure in the Asia-Pacific — now the strongest driver of world growth — for more effective trade regimes to help spur job creation and for reforms to ensure financial resiliency.

Geithner said the Asia-Pacific's economies were "in a better position than most to take steps to strengthen growth in the face of these pressures."

A European recession would be felt sharply in the U.S., where growth is already anemic, and in Asia, which relies on Europe as a big market for its cars, clothing, consumer electronics and other exports.

In Rome, months of dithering and delay ended when the Italian upper house voted to pass an austerity package Friday. The law should in the lower house on Saturday, triggering the resignation of prime minister Silvio Berlusconi, who pledged to quit once has promised to resign after the financial stability law was endorsed by both houses of parliament.

Goodbye 'bunga bunga', hello prison for Berlusconi?

Mario Monti, a former European Commissioner who has emerged as favorite to replace Silvio Berlusconi as prime minister.

If the second vote passes smoothly as expected, Napolitano may accept Berlusconi's resignation as early as Saturday night and formally mandate Monti to try to form a new government soon afterwards.

If Rome burns, US will feel the heat

At first, Berlusconi had insisted that early elections were the only option. But he has since softened his stand and is said by sources to be open to a new government.

Greece's new interim Cabinet was sworn in Friday, with former European Central Bank Vice President Lucas Papademos at its helm as prime minister and the key position of finance minister unchanged.

The new government of Papademos, who also spent time as Greece's central bank governor, must now implement the terms of Greece's latest debt deal — a €130 billion ($177 billion) agreement reached by the European Union on Oct. 27. It includes provisions for private bondholders to forgive 50 percent — or some €100 billion — of their Greek debt holdings.

Leave Germany? Live in Germany? It's all Greek to them

With European leaders struggling to agree on how to tackle the deepening crisis, pressure has mounted on the European Central Bank to act more forcefully.

The president of the European Commission warned that the collapse of the eurozone would cause a crash that would instantly wipe out half of the value of Europe’s economy, plunging the continent into a depression as deep as the 1930s slump, according to a report in Britain's Daily Telegraph.

Jose Manuel Barroso said that if the euro area broke apart, the estimated initial cost would be up to 50 per cent of European gross domestic product. "It would jeopardize the future prosperity of the next generation. That is the threat that hangs over us," he said.

The Associated Press, Reuters and msnbc.com staff contributed to this report

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European bank Dexia teeters at the brink

8:32 AM brink, Dexia, European, teeters No Comments

As France and Belgium fight to prevent European bank Dexia from going under, could the institution’s troubles herald the beginning of a new and more calamitous phase for Europe’s debt crisis?

The two countries promised Tuesday to insure the bank’s deposits after its stock price was brutalized amid investors’ concerns about its exposure to potentially bad debt from Europe’s most debt-laden economies. Shares of the Franco-Belgian bank were down some 40 percent at one point Tuesday.

Many in Europe expect a Greek debt default to happen soon. The greater concern for market participants is what bonds European banks are holding. Fears that banks could face large losses on their holdings of euro zone sovereign debt have made financial institutions in Europe reluctant to lend to one another and have led other creditors to limit their exposure to Europe. The situation, coupled with a regional economic slowdown, threatens to morph into a full-blown banking crisis. The fear is that more banks like Dexia are yet to be exposed.

There’s a worrying parallel here too. The Financial Times points out Tuesday that, like U.S. bank Bear Stearns, which heralded the financial crisis of 2008, Dexia “may be sending a warning that we should be more worried.” Columnist James Mackintosh notes that Bear, destroyed over fears of its unsellable toxic subprime mortgage investments, was “an ex-canary on the dirty coalface of Wall Street.” Dexia may be taken down by its unsellable toxic subprime sovereign debt, particularly from Greece, and herald a more severe financial crisis in Europe.

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Banned short selling in 4 European countries

11:33 PM Banned, countries, European, Selling, short No Comments

PARIS France, Italy, Spain and Belgium are banning short sales on select to calm shares amid efforts to market turmoil, the Bank shares, the wild circular sent and has aggravated concerns about Europe's large debt.

The EU markets supervisor, the ESMA movement announced late Thursday night to increase monitoring of the stormy markets earlier in the day. Movement limited two-day Whipsaw trading that saw the market value of French banks fall and rise of billions of euros.

A trader wants to make a profit in a short sale by you bet on the decline in the price of a stock. The practice is been blamed for contributing to market volatility.

The ESMA said in a statement that "the four countries have announced today or will soon be known new bans on short sales or short positions" Friday.

The French market regulator, which announced late Thursday AMF to that net-short-selling bans BNP Paribas and Credit Agricole and leading insurer for 15 days on 11 shares, including the banks Societe Generale,.

Authority of Belgium said that it would prohibit short selling Friday on financial stocks such as leading banks and insurance companies. Belgium had already banned short selling, which is essentially a bet on a decline in the price of a share without borrowing of share since August 2008.

Several countries banned short selling in the middle of the financial crisis 2008 to try to tame the volatility. But some experts the prohibitions, actually a feeling of uncertainty contributed to.

French bankers and officials who encrypted to investors nerves after days to calm down, that France of the next largest economy, could lose the coveted AAA rating proposals. Appeared of late in the day, these efforts have an impact, but economists said that the upturn remained very fragile.

The EU markets supervisor said on Thursday that the regulatory authorities monitoring the financial markets, after which rose days of steep Selloffs.

Bank of France head Christian Noyer guilt "unfounded rumors" for crashes in shares of the top banks, BNP Paribas and Societe Generale, and said that financial institutions of the country sound were. The country's regulator warned sanctions against anyone, the fuels or benefited from rumors, the sell-off fed.

Noyer, said that French banks semi-annual "" confirmed its solidity in a difficult economic environment and the banks capital cushions were healthy.

French bank shares fell Thursday until strong us jobs data helped to drive solid gains late in the European trading day on Wall Street. BNP Paribas closed by 0.3 percent and Societe Generale rose by 3.7 percent.

France takes complaints markets ensure that there are downgraded to his credit under.

Friday's GDP figures attention are France's share of the second quarter. Some warned that France could suffer when there are significant new money to bail out more struggling States of the eurozone.

The leaders of the largest economies who gave eurozone, Germany and France, that they discuss solutions for Europe's financial difficulties Tuesday, will meet.

French President Nicolas Sarkozy said that the two "peace" on the management of the eurozone will present before the end of the summer. German Chancellor Angela Merkel spokesman said the meeting on the proposals, as economic policy and crisis management to improve would focus the zone.

Their triple-A rating of France confirmed all three leading rating agencies and analysts said that she could not identify a trigger for the market turmoil.

"There is nothing behind it, it's a Malintentioned market speculators trading on pure rumors," said Marc Touati, an economist at the French company Assya Compagnie Financiere trade.

After Societe Generale, France of the second-largest bank, the stock saw almost 15 percent of the Bank asked Wednesday, delete the French regulator, to investigate the rumors that it was because of his serious threat of debt from troubled euro-zone economies on the ropes.

Societe Generale CEO Frederic Oudea called the rumors "totally unfounded" and "irrational". Speaking on France-info radio, he urged calm and insisted that basics are the Bank.

Oudea said that Societe Generale their exposure to Greek debt had taken a profit in the second quarter.

France's growth prospects are much better than that of Italy and Spain, but its economic expansion slowed, and it is to reduce a deficit for years, to 7.1 per cent in the last year was not. No other euro-zone economy an AAA-rated has a higher debt as France - around 85 per cent of gross national income.

Adding to the market provide French presidential elections planned for spring 2012 can it make the Government on further cost-cutting measures at a time when the economy slows down.

Elsewhere in Europe announced prefer an increase in unemployment, after a series of unpopular austerity measures aimed, Greece out of debt, the problems in the euro area raised.

And Italian Finance Minister Giulio Tremonti, told lawmakers Thursday that hard and rapid measures are needed in the next two years, to balance the budget by 2013. Top has seen the market turmoil Italy's borrowing costs in the markets up to uncomfortably high.

___

Gabriele Steinhauser in Brussels and Melissa Eddy in Berlin contributed to this report.

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European Bank urged Portugal to seek help

1:58 PM European, Portugal, urged No Comments

Lisbon/Brussels Jean-Claude Trichet, the President of the European Central Bank (ECB) encouraged the Central Bank on Thursday fight Portugal to facilitate assistance to its financial woes.

Trichet spoke to who said ECB that it suffers from its main interest rate by a quarter percentage point to fight inflation, despite the debt problems, Portugal, Greece and also Ireland.

"We ask the Portuguese authorities to support encouraged", said Trichet, added to that which implement ECB which nation will help aid plan to everyone, which puts it in place.

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Portugal's woes are expected to meet with EU Finance Ministers in Budapest later Thursday will be discussed.

The ECB key refinancing rate is up to 1.25 per cent from a record low of 1 percent. The increase in the ECB benchmark refinancing rate, be first since July 2008 features a smooth exit from the Central Bank policy response to the global financial crisis. It had held since May 2009 the RAFFI rate to a record low 1.0%.

Trichet continued Europe faces risk of inflation despite the economic difficulties in Portugal, Greece and Ireland. Risks "remain inflation on the head" and the ECB future price developments, added "monitor very closely" he added.

The ECB rate decision came less than 24 hours after Portugal announced that it was looking for European Union support, long by the financial markets expected a decision.

Portugal will formalize its request for a bailout, reach the 85 billion euro ($122 billion) on Thursday could and a deal could be reached before June 5 election, officials said.

Decided on Wednesday, development aid, third country find Lisbon's caretaker Government always the euro Greece and Ireland to.

Cabinet Minister Pedro Silva Pereira said "Portugal today your request is formalized with the European Commission" reporters after a cabinet meeting.

The Socialist government resigned on 23 March to Parliament its strict plan rejected, sparking one crisis, the Portuguese-borrow pushed prices higher and led to more downgrades of the country's credit.

A euro zone source played down concerns that Prime Minister Jose Socrates could negotiate Government not the necessary powers, a federal bailout program, say, it would likely this in close cooperation with the main opposition party.

The source said that the most important elements of the programme by the Government before would probably little changed announced and budget targets.

Story: China raises prices for the fourth time since October

"The Portuguese programme before the elections, are agreed on 5 June," said an another senior EU source, adding that the first loans were most likely take place at Portugal until then.

Silva Pereira comment would that probably not on size of the aid, but said the Finnish Government, it could amount to 75-85 billion euros (107-122 billion dollars).

Portuguese banks took the unprecedented step Monday of warning the Government that could stop them think its debt - a move that likely Socrates search tip in help.

Publico daily said "Pressure from banks was crucial for the Government request for the help."

German Finance Minister Wolfgang Schauble said that the only could aid of a reform programme which would take to put two to three weeks together, adding that the problem at a meeting of the Eurogroup in Hungary would be discussed on Friday.

The associated press and Reuters contributed to this report.

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