Economic hardship continues in Europe

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DUBLIN — Alarming financial news flowed out of Europe in a torrent Friday, just a week after the EU leaders struck a deal they thought would contain the continent’s debt crisis.

The bombardment shredded hopes of a lasting solution to the turmoil that is endangering the euro – the currency used by 17 European nations – and threatening the entire global economy.

In quick succession:

• The Fitch Ratings agency announced it was considering further cuts to the credit scores of six eurozone nations: heavyweights Italy and Spain, and Belgium, Cyprus, Ireland and Slovenia.

• Ireland’s economy shrunk again much deeper than had been expected, with its third-quarter gross domestic product falling 1.9 percent. Ireland is one of three eurozone nations kept solvent only by an international bailout.

• Bankers and hedge funds were balking in talks about forgiving 50 percent of Greece’s massive debts.

• The red ink in Spain’s regional governments surged 22 percent in the past year, endangering the central government’s efforts to cut overall Spanish debt.

• France, the second-largest eurozone economy after Germany, warned that it faced at least a temporary recession next year.

• The euro hovered Fri­day just above $1.30, a cent higher than its 11-month low.

On the positive side, Fitch said France should keep its top AAA credit rating even though the country’s debt load is projected to rise through 2014. Italian lawmakers overwhelmingly passed Premier Mario Monti’s new austerity package in a confidence vote, even though many still objected to its pension reforms.

French officials and investors had feared that France could get downgraded, which would have immediate repercussions for the entire eurozone. France and Germany’s AAA credit ratings underpin the rating for the eurozone’s bailout fund.

European Union leaders confirmed Friday they have distributed the text of their proposed new budget-stability treaty, a pact designed to deter runaway deficits and supposed to become EU law by March. But as growth prospects fade across the continent, governments are facing the likelihood that Europe’s debt crisis will prove longer and tougher to overcome than even their most recently revised forecasts.

Until this week, EU leaders held up Ireland as the model for how a debt-struck nation should behave – defying economic gravity by simultaneously growing its economy while sucking billions out of that same economy in Europe’s longest austerity drive.

But on Friday, Ireland announced its third-quarter gross domestic product fell 1.9 percent, its national product 2.2 percent. Economists had expected only a 0.5 percent fall for GDP and none at all for GNP. The latter figure is considered a better measure of Ireland’s economic vitality because it excludes the largely exported profits of about 600 American companies based in the country.

U.S. STANDS BY

WASHINGTON — Europe’s financial crisis poses a threat to U.S. banks and the economy, but it is up to the con­tinent’s leaders – not the Federal Reserve – to find a resolution, a top official at the central bank said Friday. New York Federal Reserve Bank President William Dudley defended the Fed’s decision to lower the cost of dollar funds for overseas banks as an important step to safeguard the U.S. economy, but he told lawmakers no further intervention was planned.

– Reuters


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