News Links: Euro Zone Economy Shrinks

The euro zone’s four largest economies all contracted in November, with German activity shrinking for the first time in two and a half years.

Financial data firm Markit Economics said Monday its composite Purchasing Managers’ Index for Germany fell to 49.4 from 50.3 in November. That is the first time the index has fallen below 50-indicating a contraction in business activity-since July 2009.

today’s panics are more likely to involve major financial institutions and are largely hidden from plain sight until they are severe enough to trigger plunging stock prices, bankruptcies, layoffs and rising unemployment. And the current European crisis is a reminder that some of the vulnerabilities exposed in 2008 still exist.

contends that Judge Jed Rakoff’s ruling against a proposed $285 million SEC settlement with Citigroup over a $1 billion CDO (Class V Funding III) that delivered $700 million in losses to investors and $160 million in profits to Citi is misguided. Stewart argues, based on "some reporting," that the SEC is unlikely to do better in the trial that Rakoff has forced on the agency by nixing the settlement.

Angela Merkel and Nicolas Sarkozy are as far apart as they ever were. But with five days to go until the next summit, their political standoff is part of the usual pre-summit poker game. The German chancellor and the French president always reach some agreement in the end. My main concern is they will again fudge it.

Since peaking at about 7.33% on November 25, well into the danger zone above 7%, beyond which it becomes difficult, if not impossible, for Italy to service its debt, Italy’s 10-year bond yield has plunged to less than 6.1% this morning.

General Motors Co. has arranged to buy back Chevrolet Volts from some owners who asked to return the cars amid a federal safety investigation of the car’s battery, the company said on Friday.

Widespread evidence of voter fraud Sunday will likely bring condemnations from Western capitals in the coming days. With 92% of the vote counted, United Russia had garnered only 50%, compared with 64% in the previous parliamentary election four years ago. Opposition parties said that even this figure was inflated because of alleged ballot stuffing and illegal voting that they said was rampant.

Enda Kenny, Ireland’s Prime Minister Enda, warned the Irish people of more economic hardship on the eve on a harsh austerity budget.

Elsa Fornero, the Italian welfare minister, broke down in tears as the technocratic government adopted an aggressive €30bn (£26bn) austerity package in a bid to stave of the crisis enveloping the country.

Britain’s manufacturing industry is heading for a sharp slowdown as confidence, orders and output tumble, further undermining hopes that the sector can help lead the country’s economic recovery.

The gap between rich and poor is widening across most developed economies as skilled workers reap more rewards and top executives and bankers benefit from a global job market, the Organization for Economic Cooperation and Development said. The average income of the richest tenth of the population is now about nine times that of the poorest tenth, the Paris- based OECD said today in a report. The gap has increased about 10 percent since the mid 1980s.

Consumers entered this year’s final month demanding models ranging from big pickups to luxury sedans to fuel-sipping hybrids after pushing November’s sales to the fastest monthly pace since the government’s "cash for clunkers" trade-in program in August 2009.

This shows the banks are wary of lending money to each other in the interbank market because of fears the debt crisis could topple some of Europe’s big banks. Eurozone financial institutions put €313.76bn on deposit for 24 hours at the ECB shortly after the world’s leading central banks stepped into the markets to inject calm and ease the pressures in the inter-bank market.

Dow Theory Letters’ octogenarian Richard Russell, who is unwell, didn’t provide the detail on "why a massive storm is brewing" that he promised last week. ( See Nov. 28 column. ) But he did dismiss the rally tersely: "In a desperate effort to raise stocks, the central banks of the world coordinated by forcing more money into the world system. The obvious result was a surge in stock prices, with the Dow Jones Industrial Average DJIA -0.0051%  rising almost 500 points. This is exciting for now, but it will result in inflation within six months to a year. Along with rising inflation will be its cousin, higher interest rates. This will impact everything from commodity prices to the rising cost of financing the federal debt."

Die Sanierung Opels ist viel schwerer als gedacht. Deshalb kündigt der Mutterkonzern General Motors neue Einschnitte in Europa an – und bringt die hiesigen Arbeitnehmer gegen sich auf.

Crisis-hit Franco-Belgian bank Dexia (DEXI.BR) has secured temporary financing guarantees from Belgium, France and Luxembourg to keep it running while the countries cement the bailout they put together in October.

A Chinese bank is in talks about taking a stake in Saab, in the latest attempt to rescue the crisis-hit Swedish car maker after an earlier deal to secure its future ran into trouble.

China’s services sector cooled in November to its weakest growth in three months, an HSBC purchasing managers’ index showed on Monday, the latest data portraying an economy slowing quickly and in need of policy support.

Germany is prepared to soften language in the euro zone’s permanent bailout mechanism compelling bondholders to accept losses in exchange for much stricter budget rules, four sources have told Reuters.

India may face its worst financial crisis in decades if it fails to stem a slide in the rupee, leaving the central bank with a difficult choice over how to make best use of its limited reserves to maintain the confidence of foreign investors.

UK service sector activity picked up in November after falling in the previous month, although the rate of job losses was the fastest in 15 months, a closely-watched survey suggests.

Eurozone service sector activity shrank further in November, led by a sharp contraction in Spain, surveys suggest. Italian service-sector firms also continued to see a sharp fall in business, while Germany has stagnated.

You will notice that: yes, Virginia, the Germans bailed out the banks. Also, the Germans carried out the biggest discretionary fiscal stimulus in Europe at 5% of GDP. In all, German public debt increased as a percentage of GDP by more than Italy or France’s and second only to the UK’s. Also, Italy’s problems are entirely to do with growth or else with interest rates. And it looks like the political ability to pull in taxes is pretty important (something Daniel Davies pointed out not so long ago).