World Economic News
German Stocks Continue Meltdown; 70% Loss in Three Years
Exactly three years after the meltdown on the German stock market began on March 7, 2000, when the DAX-30 stock index reached its all-time intra-day high of 8,136 points, the DAX closed at slightly above 2,400 pointsi.e., 70% of its peak value has been wiped out. At the same time, the market capitalization of the 30 DAX stocks crashed from 1 trillion euro to just 350 billion euro. The loss of 650 billion euros, just in the top 30 German stocks, amounts to 31% of the German economy's annual Gross Domestic Product (GDP). Biggest losers include Deutsche Telekom (-90%), and financial stocks such as Allianz (-83%), HypoVereinsbank (-86%), Commerzbank (-86%), and MLP (-94%). However, investments in DAX stocks still turned out to be much better than those in the German "New Market," where stocks on average lost 97% in the last three years.
In other world markets: London FTSE stocks hit an eight-year low; the Japanese Nikkei index plummeted to a new 20-year low; in the U.S., the market capitalization of top corporations listed in the Wilshire-5000 index has fallen from almost $17 trillion to just $9 trillion within the last three years.
France, German, U.K. Submit Proposal for New, Flexible Budget Criteria
France, Germany, and Britain submitted a proposal in early March, calling for new flexible European Union budget rules, but it was rejected by other EU nations, at a meeting of finance ministers in Brussels. The three countries' finance ministers said that heads of state and government should discuss the plan at the March 20 EU summit. Budget rules, the proposal said, should give "the flexibility needed to face different economic environments in order to strengthen growth," by "taking account of specific situations," diplo-talk for the fact that continued austerity, as demanded by EU budget rules, is becoming increasingly impossible to sell to the citizens of member nations.
IMF Warns U.K. Housing Bubble About To Pop
In its annual Article IV review of the United Kingdom economy, the IMF board, noting the high and increasing levels of household debt, called for "heightened vigilance" by authorities to risks in the housing market, "especially regarding the possible existence of a housing-price bubble, with its potential deflationary consequences."
ECB Lowers Interest Rate; Dollar Continues Crash vs. Euro
While some Europeans were hoping for a bigger cut to "spur" growth, William Duisenberg, the European Central Bank (ECB) president, said of the quarter-point cut of its refinance interest rate, from 2.75% to 2.50%, "We thought this cut in the current uncertain [geopolitical] circumstances was most appropriate." Hours later, the Danish Central Bank lowered its two-week lending rate by 25 basis points, from 2.95% to 2.70%. The ECB banker who has been unwilling to follow Sir Alan Greenspan's wall-of-money interest-rate cuts last year, but was also holding fast to the Maastricht criteria, argued that now was the time to act, due to the "subdued pace of economic growth and the appreciation of the exchange rate of the euro." In the wake of the ECB cut, the euro rose to 1.1008 dollars from 1.0959its highest since March 1999.
German Train Engineers Conduct Warning Strike
A one-hour warning strike March 6, disrupted the German state railway network for the better part of a day, as engineers struck from 6 a.m. to 7 a.m. Nearly 1.5 million passengers were delayed, while service on 1,000 trains850 of which were passenger trainswas suspended. Delays were especially severe at the major hubs of Berlin, Frankfurt, Munich, and Cologne. The unions are seeking a 5% pay-raise and an equalization of pay-scale for its members working in eastern Germany. So far, Deutsche Bahn has offered only a 1.3% raise.
Turkey Is Punished by International Markets for Parliament Vote
Within the first few minutes of trading on March 3, the Turkish stock index crashed by 11.3%, the biggest drop at opening ever recorded. The Turkish lira immediately fell 5% to the dollar (which is falling against all other major currencies). The Central Bank had to put out a statement threatening to intervene in the currency markets. The turmoil on currency and stock markets followed the March 1 decision in the Turkish Parliament to reject the stationing of 62,000 U.S. troops to open up a northern front against Iraq, in spite of Washington's promise of $15-30 billion compensation in grants and loans.
In a desperate move to calm markets, the Turkish government March 3 presented a 2003 budget, fully in line with draconian IMF demands, that is, a 6.5% primary surplus (before debt payments), made possible by increasing taxes and slashing expenditures. Until now, the government had rejected the IMF demands, but for the moment, it believes it can't fight the U.S. Administration and the IMF at the same time. The IMF had promised Turkey $16 billion in loans. However the IMF program was put on hold in October 2002, because Turkey refused to implement brutal austerity while its economy is in the biggest economic crisis since 1945.
Turkey Needs $30 Billion To Avoid a Debt Default
Turkey needs $30 billion in U.S. loans to avoid a debt default, according to international bankers, who say IMF loans and IMF-backed austerity plans would not be enough to meet all Turkey's debt obligations this year. Interest payments on Turkey's national debt currently use up two-thirds of its fiscal revenue. Turkey would use the U.S. loans, to "swap" about one-third of its domestic debt, reducing debt payments and lengthening the repayment schedule. The government borrows in its own currency, at a cost that has risen to 30% above inflation, to make debt paymentsand reportedly had to tap its cash reserves on March 5.
"Financially, there's no way out for Turkey if there's no U.S. money," said a Deutsche Bank economist.
Vivendi: Largest Corporate Loss in French History
Vivendi Universal posted a $25.6-billion loss in 2002, the largest corporate loss in French history, almost double the loss reported for 2001, after the world's second-largest media conglomerate wrote down the value of assets bought during the stock market and telecom bubbles of the 1990s.
France Telecom, Europe's most debt-laden phone company, had earlier reported a loss of nearly $23 billion for 2002.
Israel's Deficit Soars; Foreigners Continue To Withdraw Funds
Israel's state deficit hit another record for the month of February, reaching 2.752 billion shekels. This follows a similar amount for January which give a total deficit for the first two months of 2003 of 5.43 billion shekels, or over $1 billion. This is already one-third of the projected deficit for all of 2003, meaning that the deficit exceeds 6% of Gross Domestic Product. One of the main reasons for the deficit is the ongoing collapse of tax revenues, which, for February, were 11% lower than the year before. If this trend continues, the credit-rating companies will cut Israel's state credit rating, making it even harder for Israel to borrow overseas.
Durable good purchases collapsed another 22%, compared to the year before.
Finance Minister Benjamin Netanyahu issued a meaningless statement: "These data make the difficulty of the economic situation tangible." He will be implementing a drastic budget-cutting program that will include massive layoffs in the public sector.
Making things still worse, foreign residents continue to pull their foreign-currency holdings out of Israel. In January alone, $174 million flew out of Israeli banks. In addition to this, $74 million was sent out of the country by Israeli citizens. If these outflows continue, banks will have trouble giving foreign currency loans to Israelis.
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