The turmoil in Greece is on-going and yet another election that few believe will resolve anything is forthcoming. As European leaders struggle with how to preserve their monetary union, Greece is rapidly running out of money. Greek’s treasury chest could be empty as early as July, shortly after this month’s crucial elections. Athens might have to temporarily stop paying salaries and pensions, along with imports of fuel, food and pharmaceuticals. Meanwhile, frustrated European Union officials have begun openly discussing Greece’s exit from the euro currency system.
The budget gap is widening as the group of lenders — the International Monetary Fund, the European Central Bank and the European Commission withhold 1 billion euros in bailout money allocated for government financing while it waits to see whether new leaders elected on June 17 will honor Greece’s commitments.
Spain, the latest casualty in Europe’s unending debt crisis, urged the euro zone to set up a new fiscal authority to manage the region’s finances and send a strong signal to markets that the single currency project, the Euro, is here to stay. Spain’s borrowing costs have jumped in recent weeks, largely due to doubts over whether the government can raise sufficient funds for the rising cost of strengthening its banks. Spanish financial institutions were left with huge debt and mounting default on loans after the 2008 crash of the housing and construction markets. While the euro zone unemployment rate is 11%, Spain’s unemployment rate is close to 25% with 40% of those being under the age of 25. Spain’s Prime Minister Mariano Rajoy said the new fiscal authority would also go a long way to alleviating Spain’s dilemma, which, along with the prospect of a Greek euro exit, has threatened to derail the single currency program.
Right now the Euro Zone’s most immediate and urgent issue is the liquidity and confidence of the financial system. There are continuing negotiations to refinance all of the euro zone region banks, not just Spain’s. European Central Bank President Mario Draghi said officials are ready to add more stimulus to the Euro region’s economy if necessary. The ECB is under pressure to lower rates and introduce more liquidity support for banks as governments struggle to fix a financial and confidence crisis that’s besieging Spain and could spread to other euro zone countries. However, the European Central Bank left both interest rates and the prognosis for slow economic growth unchanged.
New orders for United States factory goods fell in April for the third time in four months as demand slipped for everything from cars and machinery to computers – the latest troublesome sign for the economy. The Commerce Department reported orders for manufactured goods dropped 0.6 percent during the month. The government also revised its estimate for new orders in March to show a steeper decline. Consumer confidence unexpectedly fell in May to the lowest level in four months as Americans grew more negative about the labor market.
Federal Reserve Vice Chair Janet Yellen has restated her view that further action by the central bank might be necessary to stimulate the sputtering U.S. economy. Yellen said “An extended period of highly accommodative policy is necessary to combat the persistent headwinds to recovery,” The pace of the current recovery has turned out to be persistently slower than most observers expected,” she added. Yellen was the latest Fed official to weigh in on the state of the economy. Her remarks came amid growing anxiety among investors and consumers, following last week’s unexpected dismal May jobs report and concerns about Europe’s debt crisis.
Two Federal Reserve Presidents said they are prepared to take even more policy action to boost the erratic U.S. economic recovery, but neither wants to pull the trigger now. Atlanta Fed President Dennis Lockhart and John Williams, of the San Francisco Fed bank, pointed to Europe’s brewing crisis as a main threat to the United States. Weak U.S. jobs growth has increased expectations that the Fed will take action to stimulate the economy once again.
European Union leadership and Washington officials can provide as much currency, real or recently printed, for this political uncertainty and economic breakdown as they deem required or necessary. But without a bona fide course of action to restore confidence, create a realistic job program, and focus on actual growth, they are just taking one finger out of one of the expanding holes in the dike and putting it in another.
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