Economic Outlook: Europe's balancing acts

By ANTHONY HALL, United Press International  |  April 16, 2012 at 9:47 AM
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Europe, in a delicate, business-as-usual environment, is testing some of its financial balancing acts.

Moody's Investors Service announced late last week it would postpone revealing what it expected to be another round of downgrades for European banks. It is reviewing the finances at 114 of them in 16 countries, The Wall Street Journal reported.

Downgrades are old news in Europe but each notch upsets the equilibrium at least slightly. Investors get nervous; depositors do, too. When depositors get nervous, it makes investors even more nervous. There is nothing like withdrawing funds to keep a banker awake at night.

Ironically, the $1 trillion in cheap loans made by the European Central Bank in recent months to about 800 banks on the Continent have triggered a more intense reaction from Moody's, which is now reviewing books to see who is dependent on the loans with terms so generous -- 1 percent, three year loans -- they could be labeled a bailout.

Spanish bonds on Monday defined another balancing act, with yields topping 6 percent that triggered a flight to safety for some. That sent German 10-year benchmark notes to 1.628 percent. Italian yields also rose, climbing to 5.65 percent.

When the going gets tough, the money does not go under mattresses. It goes to U.S. and German securities and to gold futures, which rose last week, although prices were dropped slightly at the end of the week to $1,652 per troy ounce.

Stocks were off in Asia but higher in Europe Monday. The Nikkei 225 index in Japan shed 167.35 points, 1.74 percent, to 9,470.64. The Hang Seng index in Hong Kong dropped 90.40 points, 0.44 percent, to 20,610.60.

The Shanghai composite index in China lost 0.09 percent to 2,357.03 and the Sensex in India added 33 percent to 17,150.90. The All Ordinarie's index in Australia fell 0.49 percent to 4,382.49.

In midmorning trading, the FTSE 100 index in Britain added 0.89 percent to 5,702.09 while the DAX index in Germany gained 1.02 percent to 6,651.24. The CAC 40 index in France added 1.43 percent to 3,234.77 and the pan-European Stoxx 50 gained 1.02 percent to 2,393.35.

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