Italy, France, Norway – bad news all round

Japan is set to put more money into Europe’s crisis fund, and just in time notes Norway’s Dagens Næringsliv because of the crisis meetings in both Greece and Italy today.

Europe’s finance ministers met yesterday, even as the European Commission called for more urgent action in light of the developments in sovereign debt pricing through the day. And meanwhile markets await the possible fall of Italy’s government should the country’s prime minster Silvio Berlusconi lose a key budget vote in parliament today.

The view from Norway is also tarnished by rating agency Moody’s, which announced late yesterday that its outlook for Norwegian banks is still negative. Partly because of the risks associated with property lending in the country’s hot property market.

That situation could become worse after yet another bank, Handelsbanken, announced it too believed the country’s central bank, Norges Bank, would look to cut interest rates. Senior economist Kari Due-Andresen at Handelsbanken Capital Markets said she believed the key lending rate could be cut more than 0.25% if the head of Norges Bank Øystein Olsen and other members of the committee deciding rates felt that they needed a stronger baulwark against the threat from Europe’s sovereign debt crisis.

Due-Andresen added that any such rate cut may not actually be passed on to the wider economy, because Norwegian banks are not immune to the higher borrowing costs across the continent. Their costs have been rising despite the fact Norges Bank has left its own rates unchanged since May 2011.

Yesterday InvestmentEurope reported that DnB Nor Markets was predicting a 0.25% cut to the country’s key lending rate by December.

Denmark’s Børsen suggests that France could be heading into a “death spiral” because of the announcement by its government to tighten finances to an extent not seen since the Second World War. The objective is to cut €65bn of its debt over the next five years to maintain its AAA rating.

Including a previous announcements, the country is looking to implement €112bn of cuts – including to schools, pensions, welfare – and a new “super tax” on bigger businesses.

It quotes former member of the Bank of England’s Monetary Policy Committee Danny Balanchflower as stating the position France is taking is “like 1930”, when cuts were introduced to an economy already in recession.

Back on the issue of italy, Lombard Street Research and other analysts in London are quoted by Affärsvärlden in Sweden as suggesting the country is on a precipice. One calculation says if the country’s has to roll over debt at a rate of 7% next year then the country faces an interest rate bill alone of €43bn.


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