LONDON — European industrial production rebounded unexpectedly in May, according to data released Thursday, and Italy’s short-term borrowing costs dropped, providing glimmers of hope that have been rare lately in the euro zone.
But stocks were down in Europe on Thursday, as they were earlier in Asia, where the sagging global economy continues to undermine efforts to stimulate growth.
New data on Europe for May defied predictions of stagnation, as the German economy, the biggest using the euro, offset a decline in France and helped lift overall output in the 17-nation euro zone by 0.6 percent from April, according to the European Union’s statistics office in Luxembourg.
Meanwhile, the Italian Treasury sold €7.5 billion, or $9.1 billion, in one-year bills at 2.697 percent, down from 3.972 percent at the last similar sale on June 13.
The auction of €5.25 billion in Italian bonds Friday will be a bigger test because of the longer maturity of that debt, which therefore carries a higher risk.
With its stock of €1.9 trillion in public debt, Italy has been close to the heart of the euro crisis, seeing its borrowing costs rise to close to 6 percent, which could make its government finances unsustainable in the medium term.
In recent days that pressure has eased somewhat, and on Thursday the yield on Italy’s 10-year bond was 5.7 percent.
But Carlo Tommaselli, at Société Générale in Milan, said any positive news about May’s industrial output in Germany was outweighed by continuing worries about the more recent slowdown of the global economy.
“The market is looking for growth, and I think today’s spotlight is on the lack of growth,” he said.
In Italy, analysts are awaiting revised estimated from the country’s central bank on growth prospects for 2012, and these are likely to show a contraction of more than 2 percentage points of gross domestic product, he said.
Meanwhile a recent warning from the president of the European Central Bank, Mario Draghi, of an economic slowdown were weighing heavily on the financial markets, Mr. Tommaselli added.
In midafternoon trading, the benchmark Italian stock index, the FTSE Italia, was down 1.6 percent. Other major European indexes were down by 0.5 to 1 percent.
The euro was trading at $1.2181. In another hint that the euro zone’s credit crunch might soon be easing, a European policy maker, Josef Bonnici, suggested that banks may soon be offering more loans to businesses and consumers.
An increased flow of credit to business is vital to efforts to spark economic growth. Mr. Bonnici, a member of the governing council of the European Central Bank, said such an increase could be one result of the central bank’s decision last week to cut to zero the amount it pays banks to park their cash there.
The amount of money sent to the central bank overnight dropped by more than half. “Especially the fact that the deposit rate was reduced to zero provides an incentive for the banking system to look what alternatives there are to improve their earnings,” Mr. Bonnici told reporters on the sidelines of a central bank conference in Casablanca, Reuters reported.
“This may lead to greater borrowing, especially in some member states.” In the current risk-averse climate, large sums had flowed into the central bank before it cut the deposit rate.
Figures published by the E.C.B. on Thursday showed banks held €325 billion in the facility overnight, well down on both the €800 billion they left there the previous day and the €700 billion they deposited at the same point of the last reserves period in June.
Italy is critical to the fate of the euro, as it has the third-largest economy using the currency, after Germany and France.
Though Prime Minister Mario Monti is widely respected as a technocrat, he repeated his intention this week to stand down when his mandate expires next year.
A meeting of European Union finance ministers on Monday and Tuesday provided only some of the detail craved by financial markets on how the euro zone intends to create a banking union, make loans direct to struggling banks and free up its rescue fund to buy the debt of nations like Spain and Italy.
For several weeks Mr. Monti has been pressing for a new mechanism to limit the difference between the interest rates paid by countries in the euro zone.
Though Italian bond yields are lower than those of Spain, some worry that both countries could face a spike in costs in the summer months when trading is thin and the market is more vulnerable to shifts.
The Bank of Italy governor, Ignazio Visco, said Wednesday that the difference between the yields of Italian and German bonds was “far above what would be justified by the fundamentals of our economy.”
Italy has not been able to consolidate the lower borrowing costs it initially gained from Mr. Monti’s arrival last year, partly because of a more general anxiety in the markets about the state of the euro zone.
Soon after the meeting of European finance ministers on Tuesday, Mr. Monti repeated that he thought Italy would not follow Greece, Ireland, Portugal and Spain in needing a bailout.
But on Wednesday, Mr. Monti called Italy’s efforts to balance its budget and spur growth a “very tough war.”
In a speech at the national banking association’s annual assembly, Mr. Monti said Italy had engaged in a battle to counter the widespread prejudices against it, the heritage of its high public debt, the inertial effects of decisions made in the past and “above all, against certain structural vices of our economy.”
Mr. Monti has remained focused on Italy’s economic problems, even while giving up the title of finance minister on Wednesday, appointing a new economic and financial policy committee and naming his deputy finance minister, Vittorio Grilli, to that role, which he had filled since he took power.
The prime minister will lead the committee, which includes Mr. Grilli and the development minister, Corrado Passera. In his eight months as leader, Mr. Monti has passed pension and labor market changes as well as measures to promote growth and cut state spending.
He said that even if it took time, he had no doubts that the measures adopted by his government would spur growth and decrease unemployment. However, he said he was frustrated by the lack of visible benefits. Italy has grown sluggishly over the past decade and is in recession, shrinking 1.9 percent this year.
In its annual report, the International Monetary Fund praised Italy’s most recent moves but said that maintaining momentum would be crucial. Mr. Monti underlined the importance of a coherent European message to the markets.
The plan to ward off market pressure with bailout mechanisms — the European Stability Mechanism and the European Financial Stability Facility — agreed to last month by European leaders “must be consolidated both in its substance and in the way it is communicated,” he said.
On Thursday the Italian Senate voted to support Italy’s contribution to the European Stability Mechanism. Italy's Chamber of Deputies is set to vote on it July 19, the day before the meeting of the European Union finance ministers.
nytimes.com
But stocks were down in Europe on Thursday, as they were earlier in Asia, where the sagging global economy continues to undermine efforts to stimulate growth.
New data on Europe for May defied predictions of stagnation, as the German economy, the biggest using the euro, offset a decline in France and helped lift overall output in the 17-nation euro zone by 0.6 percent from April, according to the European Union’s statistics office in Luxembourg.
Meanwhile, the Italian Treasury sold €7.5 billion, or $9.1 billion, in one-year bills at 2.697 percent, down from 3.972 percent at the last similar sale on June 13.
The auction of €5.25 billion in Italian bonds Friday will be a bigger test because of the longer maturity of that debt, which therefore carries a higher risk.
With its stock of €1.9 trillion in public debt, Italy has been close to the heart of the euro crisis, seeing its borrowing costs rise to close to 6 percent, which could make its government finances unsustainable in the medium term.
In recent days that pressure has eased somewhat, and on Thursday the yield on Italy’s 10-year bond was 5.7 percent.
But Carlo Tommaselli, at Société Générale in Milan, said any positive news about May’s industrial output in Germany was outweighed by continuing worries about the more recent slowdown of the global economy.
“The market is looking for growth, and I think today’s spotlight is on the lack of growth,” he said.
In Italy, analysts are awaiting revised estimated from the country’s central bank on growth prospects for 2012, and these are likely to show a contraction of more than 2 percentage points of gross domestic product, he said.
Meanwhile a recent warning from the president of the European Central Bank, Mario Draghi, of an economic slowdown were weighing heavily on the financial markets, Mr. Tommaselli added.
In midafternoon trading, the benchmark Italian stock index, the FTSE Italia, was down 1.6 percent. Other major European indexes were down by 0.5 to 1 percent.
The euro was trading at $1.2181. In another hint that the euro zone’s credit crunch might soon be easing, a European policy maker, Josef Bonnici, suggested that banks may soon be offering more loans to businesses and consumers.
An increased flow of credit to business is vital to efforts to spark economic growth. Mr. Bonnici, a member of the governing council of the European Central Bank, said such an increase could be one result of the central bank’s decision last week to cut to zero the amount it pays banks to park their cash there.
The amount of money sent to the central bank overnight dropped by more than half. “Especially the fact that the deposit rate was reduced to zero provides an incentive for the banking system to look what alternatives there are to improve their earnings,” Mr. Bonnici told reporters on the sidelines of a central bank conference in Casablanca, Reuters reported.
“This may lead to greater borrowing, especially in some member states.” In the current risk-averse climate, large sums had flowed into the central bank before it cut the deposit rate.
Figures published by the E.C.B. on Thursday showed banks held €325 billion in the facility overnight, well down on both the €800 billion they left there the previous day and the €700 billion they deposited at the same point of the last reserves period in June.
Italy is critical to the fate of the euro, as it has the third-largest economy using the currency, after Germany and France.
Though Prime Minister Mario Monti is widely respected as a technocrat, he repeated his intention this week to stand down when his mandate expires next year.
A meeting of European Union finance ministers on Monday and Tuesday provided only some of the detail craved by financial markets on how the euro zone intends to create a banking union, make loans direct to struggling banks and free up its rescue fund to buy the debt of nations like Spain and Italy.
For several weeks Mr. Monti has been pressing for a new mechanism to limit the difference between the interest rates paid by countries in the euro zone.
Though Italian bond yields are lower than those of Spain, some worry that both countries could face a spike in costs in the summer months when trading is thin and the market is more vulnerable to shifts.
The Bank of Italy governor, Ignazio Visco, said Wednesday that the difference between the yields of Italian and German bonds was “far above what would be justified by the fundamentals of our economy.”
Italy has not been able to consolidate the lower borrowing costs it initially gained from Mr. Monti’s arrival last year, partly because of a more general anxiety in the markets about the state of the euro zone.
Soon after the meeting of European finance ministers on Tuesday, Mr. Monti repeated that he thought Italy would not follow Greece, Ireland, Portugal and Spain in needing a bailout.
But on Wednesday, Mr. Monti called Italy’s efforts to balance its budget and spur growth a “very tough war.”
In a speech at the national banking association’s annual assembly, Mr. Monti said Italy had engaged in a battle to counter the widespread prejudices against it, the heritage of its high public debt, the inertial effects of decisions made in the past and “above all, against certain structural vices of our economy.”
Mr. Monti has remained focused on Italy’s economic problems, even while giving up the title of finance minister on Wednesday, appointing a new economic and financial policy committee and naming his deputy finance minister, Vittorio Grilli, to that role, which he had filled since he took power.
The prime minister will lead the committee, which includes Mr. Grilli and the development minister, Corrado Passera. In his eight months as leader, Mr. Monti has passed pension and labor market changes as well as measures to promote growth and cut state spending.
He said that even if it took time, he had no doubts that the measures adopted by his government would spur growth and decrease unemployment. However, he said he was frustrated by the lack of visible benefits. Italy has grown sluggishly over the past decade and is in recession, shrinking 1.9 percent this year.
In its annual report, the International Monetary Fund praised Italy’s most recent moves but said that maintaining momentum would be crucial. Mr. Monti underlined the importance of a coherent European message to the markets.
The plan to ward off market pressure with bailout mechanisms — the European Stability Mechanism and the European Financial Stability Facility — agreed to last month by European leaders “must be consolidated both in its substance and in the way it is communicated,” he said.
On Thursday the Italian Senate voted to support Italy’s contribution to the European Stability Mechanism. Italy's Chamber of Deputies is set to vote on it July 19, the day before the meeting of the European Union finance ministers.
nytimes.com
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