Eurozone debt crisis concerns stand renewed as Spanish Premier Mariano Rajoy faced opposition calls to resign amid contested reports about illegal payments, while Deutsche Bank AG said this year’s rally in Italian and Spanish bonds may falter as Italy’s Silvio Berlusconi narrowed the front-runner’s lead before elections this month. Political uproar in Spain and Italy are rattling Eurozone investors and shaking voter confidence just as stability is needed to push through economic reform measures to save their economies. Strategists from Commerzbank recommend reducing holdings of Spain’s debt. Eurozone Stocks tumbled the most this year and the Euro slid while Spanish Bond yields surged amid renewed concern about Eurozone debt crisis. U.S. Treasuries rose, while oil fell after the longest stretch of weekly gains since 2004. The Euro declined 0.9% to $1.3516, retreating from the strongest level since November 2011. Spanish 10-year yields jumped 23 basis points to 5.44% and Italy’s rates added 14 points. Ten-year US yields lost six basis points to 1.96%. Crude Oil sank 1.6% to $96.17 a barrel, the most in two months, after capping an eighth straight weekly gain. While market strategists say that equities have already recorded most of this year’s gains, bears who predicted declines at this point in 2012 only to see the S&P 500 close up 13%, are being overlooked. Bulls say the rally is just getting started after U.S. investor sentiment rose to a two-year high and billionaire Warren Buffett offered to buy the parent of the New York Stock Exchange.
Spain’s registered Unemployment rose in January as a fifth year of economic downturn left the country with a third of the jobless in Eurozone. The number of people registering for jobless benefits rose by 132,055 from December to 4.98 million, the Labor Ministry in Madrid said today. Spain’s unemployment rate reached a record 26%, the statistics agency reported on Jan. 24. Companies in the fourth-largest Eurozone economy are using new labor rules to reduce costs as the deepest austerity measures in the nation’s democratic history undermine demand. Economists forecast unemployment will continue to rise this year and the International Monetary Fund predicts a 1.5% economic contraction. Exports fell in November from a year ago and the number of tourists visiting in December declined as the only drivers left for Spanish economic activity weakened amid a Eurozone slowdown. A sluggish economy, uncertainty over the outcome of this month’s Italian election and Rajoy’s new troubles threaten to curtail the time won by politicians with the central-bank bond buying. For now, European policy makers have room to maneuver as borrowing costs for indebted nations have fallen and investor confidence returns. Opposition leader Alfredo Perez Rubalcaba said Rajoy should resign after reports in El Pais newspaper that he or members of his People’s Party received illegal payments. Media reports allege Mr. Rajoy and some Popular Party colleagues operated a double accounting system to make secret cash payments to party officials. Rajoy said Feb. 2 that the allegations are unfounded and stem from unknown people trying to damage his party. German Chancellor Angela Merkel backed Rajoy & declared that Mr. Rajoy’s government had the German government’s “full trust” in fixing Spain’s economic and financial crisis, which has seen the jobless rate climb relentlessly to 26%, the highest in the Western world.
The Italian trouble is related to Italy’s third-biggest bank, Monte dei Paschi diSiena, which has received two government bailouts and may yet have to be nationalized as its losses mount. The bank is closely associated with Italy’s Democratic Party, whose chief, Pier Luigi Bersani, is leading in the polls, though slipping from his highs as former Prime Minister Silvio Berlusconi makes a late surge before the Feb. 25 general election. “The Monte [banking] scandals now look like overwhelming the Italian election campaign and put Bersani and the Democratic Party’s victory at risk,” James Walston, political commentator at the American University of Rome, said in his Monday blog. The Monte controversy centres on allegedly unreported derivatives deals. The bank, now under new management, has admitted that the derivatives losses might total more than €700-million ($945-million). The bank is also accused of vastly overpaying for Italy Antonveneta in 2007, when it was owned by Spain’s Santander bank. Monte paid €9-billion for the bank, representing an earnings multiple, that was roughly twice the going rate at the time. The sharp rise in the Euro in recent weeks has also raised the anxiety levels of investors, who fear the feeble Eurozone recovery will collapse as the common currency gains momentum, hurting exports. Since the summer alone, the Euro is up 30% against the yen, though less so against the US Dollar and Pound. In a Monday note, ING Financial Markets economist Carsten Brzeski said the soaring Euro effects different countries in different ways. Spain and Portugal, which mainly export to other Eurozone countries, would not be hurt much. But other countries that rely heavily on exports outside the region will face new problems. France and Italy, he said “could be pushed into new crisis territory on the back of the stronger Euro.”
Spain‘s Corruption Scandal Damages Rajoy
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