EU Leaders Commit To Bail-Out Fund - European heads of government vowed on Friday that the eurozone’s bail-out fund would always have enough financial wherewithal to rescue any faltering country, but the leaders stopped short of saying they would increase its size. The promise, contained in their summit communiqué after two days of meetings, was the most explicit commitment to date by European Union leaders about their willingness to back a bail-out of even larger eurozone economies such asSpain and Italy, should those countries get cut off from the financial markets.But their unwillingness to enlarge the fund, which had been proposed by some EU finance ministers, was a sign that they believed setting a new, higher limit would only lead bond traders to assume EU leaders believed a Spanish or Italian bail-out was inevitable. The commitment came on the same day Moody’s cut Ireland’s credit rating five levels and said the outlook for Irish debt was “negative”. The downgrade was expected following last month’s €85bn Irish bail-out, but the severity of cut was more than anticipated. .
China Leader Says Anti-Inflation Measures Needed – One of China’s top leaders said at a government meeting that measures needed to be taken to tamp down inflation in the coming year, according to a report on Friday by Xinhua, the state news agency. The comments were one of the clearest signs yet that Chinese leaders are increasingly concerned about popular resentment arising as a result of soaring living costs. The leader, Li Keqiang, vice premier of China, said in comments made Thursday that “more efforts should be provided to stabilize prices next year.” Over the next five years, economic growth rates should be defined “reasonably,” he added, an indication that leaders could be anxious about an overheated economy. Mr. Li’s remarks were made at a work meeting in Beijing in which the State Council, China’s cabinet, discussed policies and goals of a five-year plan for development that will begin next year.
The Federal Budget Deficit and the Looming Crisis – The US federal government is barreling towards a certain fiscal train wreck. While there is much being gleefully reported about the return of the shoppers – er consumers – uh patriotic citizens – spending more than they have, there is almost no hope of growth returning fast enough to offset the amount of budgetary deterioration that now seems to be baked into the cake. As always, one component of the problem is that the US political leadership has absolutely zero experience with even controlling spending let alone cutting spending. Where austerity is being attempted in Europe (at great pain too…if you have not seen this video of the recent Greek riots it is both remarkable and disturbing) the current civil unrest shows that citizens don’t necessarily dutifully accept their politicians’ belt-tightening policies. The plan, such as it is, for the US fiscal and monetary authorities seems to be to keep up the government spending (including the Fed’s QE efforts) for as long as necessary until self-sustaining growth returns.
Moody’s Slashes Ireland’s Credit Rating – Having pledged late Thursday to do “whatever is required” to contain the debt crisis and defend their embattled currency, European Union leaders reconvened for the final day of a summit meeting. In the draft of a closing statement, the leaders welcomed the “impressive progress” in Dublin toward meeting the stiff conditions set for its recent bailout, including adoption of steep budget cuts. Moody’s Investors Service had a different assessment, however. It cut Ireland’s credit rating by five notches to Baa1, with a negative outlook, from Aa2 and said further downgrades could follow. The downgrade represented a further blow for a county that has enacted deep austerity cuts — and it is likely to raise questions about whether the rating agencies are exacerbating the efforts of struggling euro countries to emerge from the crisis.