shocks that can be manifested in 2011 in the context of government debt

• Sovereign-bond yields are rising—not just in beleaguered economies on the edge of the euro zone, but across much of the rich world. During the first two weeks of December Spain’s ten-year borrowing costs hit 5.5%, the highest rate in more than a decade. Yields on American ten-year Treasuries jumped more than half a percentage point to 3.5%, a six-month peak. German ten-year Bunds rose to 3%, a yield not seen since May. This simultaneous shift in the rich world’s core as well as the enfeebled euro periphery raises two questions. Are the rising yields being driven by similar forces? And are they the harbingers of a broader bond-market bust?
• The pessimistic interpretation is that this reflects concerns about America’s fiscal mess, in a paler version of bondholders’ jitters about Greece and Spain. The worriers point out that bond yields jumped after the recent announcement of a tax-cut plan that is likely to add some $800 billion to America’s public debt over the next decade, and which utterly fails to explain how the country’s medium-term finances are to be sorted out. Likewise, Germany’s dearer borrowing costs may have less to do with optimism about its economy than with concerns about the costs to its exchequer of keeping the euro zone together.
• But optimists argue that the scale of the bond-market moves and the dynamics behind them are totally different in the core and in the periphery. Investors may be fretting about the Irish or Spanish governments’ ability to pay their debts, but elsewhere, especially in America, the rise in bond yields—from extraordinarily low to merely very low—is a reflection of better growth prospects rather than worsening government finances. As the economy accelerates, the risk of deflation recedes, private investment rises and the Fed is less likely to engage in further rounds of quantitative easing (printing money to buy bonds). These shifts all push government-bond yields up, but they are a cause for cheer rather than gloom.
• So far the evidence suggests that it is confidence rather than fear that has pushed bond yields up of late. In America especially, a rising stockmarket, the strength of the dollar and absence of a spike in credit-default swaps all suggest the recent bond-market sell-off is being driven by hopes for growth rather than by fear of deficits.
• In the coming year, however, a different dynamic may take hold. The surge in private savings in the wake of the economic crisis has masked big changes in the rich world’s sovereign-bond markets. First, governments are much more indebted, compared both with their recent past and with fast-growing emerging economies. At 70% of GDP, the average rich economy’s net sovereign debt is 50% higher than it was in 2007, and more than twice as high as the average debt burden in emerging economies. That has happened at a time when the rich world’s growth prospects are deteriorating. Second, with budget deficits still gaping and lots of short-term debt coming due, many governments’ financing needs are rising. Calculations by the Institute of International Finance, a bankers’ group, suggest that America needs to raise over $4 trillion in 2011 and European governments collectively need to borrow almost $3 trillion. Japan, with the world’s highest government-debt burden and short maturities, must raise funds worth more than 50% of GDP by the end of 2011.
• Meanwhile, policy uncertainty has increased. Quantitative easing means that central banks now have a big role in long-term government-bond markets. Worries are sharpest in the euro zone, not just because sovereign defaults are now regarded as a distinct possibility, but also because policymakers have managed to confuse sovereign-bond holders by offering them no losses in the short term and plenty in the medium term.
• Amid all this uncertainty, only one thing is clear: sovereign yields are likely to rise, and even the strongest governments cannot afford to be sanguine about a bond-market bust. America may be the issuer of the world’s reserve currency, but its debt markets are not immune to a sudden upward lurch, which in turn could threaten the fragile recovery.
• Governments could, and should, minimise this volatility. America needs to complement its short-term tax cuts with an agreement on medium-term deficit reduction. Japan should kick-start growth and overhaul the tax code. But the most urgent task is in Europe, where leaders need to blend inconsistencies between today’s rescues and tomorrow’s reform proposals into a coherent plan for managing the euro.
• There are, unfortunately, few signs of any of this happening. That is why 2011 could be a year of more, and bigger, sovereign-debt shocks.

china,looking east

• China, the world’s second-largest consumer of oil, is poised to buy more Saudi oil than the United States does. Last year it actually did so, though this year’s figures suggest that the Americans may again be level-pegging as the biggest buyer. In the next two years, however, China looks set to become consistently the Saudis’ key customer. Moreover, the Saudis are also now buying more Chinese goods—mostly food, textiles, hardware and heavy industrial stuff—than American ones.
• Since he came to the throne in 2005, King Abdullah has adopted a pro-Asian, “look east” trade policy. More than half of Saudi oil now goes to Asia, against around 14%, at the latest count, to the United States. Saudi Aramco, the world’s largest oil company, owns a refinery in Qingdao province and has another, in Fujian, as a joint venture with Sinopec, a Chinese petroleum giant, and ExxonMobil, an American one. Meanwhile, Chinese firms have begun to invest in infrastructure and industry in Saudi Arabia, including in an aluminium smelter in the southern province of Jizan, at a cost of $3 billion. Saudi Arabia now sends students on scholarships to Chinese universities, and some rich Saudis, more used to shopping for Gucci in New York or London, are heading to once-obscure Chinese cities to buy furniture.
• Like many African countries, the Saudis like the lack of political conditions that China attaches to its economic relations. Although American officials these days do not seem to press the Saudis very hard to become democratic or to uphold human rights, America’s media and its rights lobbies are relentlessly critical. Meanwhile, Saudis in general dislike what they see as America’s bias towards Israel. Recent American visa curbs against Arabs, including Saudis, have made matters worse.
• But this reorientation should not be exaggerated. While widening their market for oil sales, the Saudis still need arms, military support and technology. Here China still lags far behind America, which remains the Saudis’ military mainstay: an arms deal worth $60 billion is about to be clinched. The presence of American troops in the Gulf, though no longer on Saudi soil, reassures the Saudis—and China, since it can bank on America’s presence.
• As a net capital exporter with only a basic education system, Saudi Arabia needs foreign know-how and training more than it needs foreign cash for investment. Except for building infrastructure, it still looks for skills from the United States, Europe and Japan. (The Gulf’s other economic heavyweight, the United Arab Emirates, has asked a South Korean consortium to build the emirates’ first nuclear power plant.)
• Moreover, the Chinese and Saudis do have some bones of contention. China has accused Saudi Arabia of dumping petrochemicals on its markets. And a much-heralded project, a railway between Mecca and the holy sites of Mina and Mount Arafat, recently built by the Chinese, has ended in a row, with China Railways threatening to sue the Saudi authorities for the losses it has made on the investment. Some firms would have been put off by the fact that non-Muslims are barred from working in Mecca, so China simply converted hundreds of railway workers to Islam. But the project ran into problems over the allocation of land, cost overruns and even workers’ riots, which rarely occur in Saudi Arabia.

sensex closed with strong growth in the last one hour of the trade

• The markets gained substantially this week and the positivity was seen across all sectors. Metal, IT and oil & gas lead the rally during the week and the numbers are following: the Sensex was up 1.69% and Nifty up 1.45%.
• The Sensex closed at 19864, up 217 points from its previous close, and Nifty shut shop at 5948, up 56 points.
• State-run explorer Oil and Natural Gas Corp expects its cash reserves to fall to 70 billion rupees ($1.5 billion) from 150 billion now after its board approved a special dividend on Thursday.
• Hero Honda, India’s largest motorcycle maker, sees royalty payments to Honda Motor remaining at the current level or going down in future after the split of their joint venture, its chief executive said.
• BSE sensex provisionally closed nearly 1 percent higher on Thursday, cheering the Reserve Bank of India’s (RBI) decision to keep key interest rates on hold as expected, while firm European shares helped.
• Indian private airlines seem to have litte choice but to give in to the clamour for lower fares, as the government cracks the whip on carriers that have raised spot fares excessively in recent months.
• Chinese Premier Wen Jiabao pressed on with a charm offensive in India on Thursday, offering support for New Delhi’s bid for a greater role in the United Nations and agreeing on an ambitious target of $100 billion in trade between the rising Asian powers by 2015.
• European stocks reversed early losses and turned flat around midday on Thursday as shares in Southern Europe dipped following Spain’s bond auction.
• Hero Group said on Thursday it would buy Japanese automaker Honda Motor Co’s 26-percent stake in their joint venture Hero Honda Motors in a phased manner.
• Ratings agency Moody’s warned Spain on Wednesday its credit rating could be downgraded, highlighting concerns about euro zone debt contagion on the eve of a European Union summit.
• The Reserve Bank of India (RBI) will buy bonds worth up to 120 billion rupees via open market operation each week for the next four weeks, it said in a statement on Thursday.
• The United States requires a “fundamental rethink” of its tax system, and many industrialised countries will have to raise taxes above pre-crisis levels to reduce their deficits, the OECD said on Wednesday.
• Ireland’s parliament approved a multi-billion euro EU/IMF bailout package on Wednesday in the face of opposition threats to renegotiate the deal to force losses on some senior bondholders in Irish banks.
• Wage growth is recovering but has not regained pre-crisis levels, meaning many countries still face the threat of deflation from inadequate demand, the International Labour Organization said on Wednesday.

sensex along with asian markets trading under pressure

• The Sensex is trading at 19682, down 116 points from its previous close, and Nifty is at 5899, down 44 points. (12:09 pm, india).
• Japan’s Nikkei average held on to gains on Wednesday after hitting a seven-month closing high the day before, with a subdued economic statement by the Federal Reserve despite strong U.S. retail sales for November prompting investors to snap up profits.
• Toyota Motor Corp said on Wednesday it has received 12,000 orders for its Etios sedan in India since it began taking orders on Dec. 1, putting it well on track to meet the car’s annual sales target of 70,000 units.
• The Federal Reserve on Tuesday offered only a cautious nod to the economy’s improving prospects as it put a spotlight on lofty unemployment and reaffirmed its commitment to buy $600 billion in bonds.
• Yields on U.S. Treasuries climbed to seven-month highs in Asia on Wednesday and the dollar rebounded as upbeat retail sales data added to evidence that America’s economy is gathering steam.
• Valuations in India are higher than China but the country’s growth potential is also greater, says Templeton Asset Management’s Mark Mobius.
• Germany threw its weight on Tuesday behind a potential capital increase by the European Central Bank, saying it would react positively to such a move if the ECB deems it necessary.
• U.S. retail sales were stronger than expected in November as consumers shopped despite high unemployment and producer prices rose, evidence the economic recovery gathered steam in the fourth quarter.
• Ratings agency Moody’s said on Wednesday it had put Spain on review for a possible downgrade because of its high funding needs, doubts over its banking sector and concerns on regional finances, a decision which sent the euro lower.
• More Chinese households see inflation accelerating from 28-month highs, quarterly polls from the central bank showed on Wednesday, and that is feeding expectations for a further tightening in monetary policy.
• Shares in state-run oil retailers rallied on Wednesday after the companies began raising petrol prices, but the move dented the broader market due to the risk of inflation pressures.
• Members of the World Trade Organization are showing new energy and determination to reach a global trade deal but must now abandon fixed positions to clinch the agreement, the head of the WTO said on Tuesday.
• Chief executive officers of large U.S. companies are much more optimistic about the economy than a few months ago, although their expectations for growth remain modest, according to a quarterly survey by the Business Roundtable.
• India’s gold demand will take a hit as increasingly prosperous rural consumers switch to other investment options and step up spending on discretionary items, setting the stage for China to overtake its neighbour as top consumer of the metal.
• Headline inflation eased in line with expectations to its lowest level in a year for November, giving the Reserve Bank of India (RBI) room to leave interest rates on hold at its policy review later this week.
• Mexico asked the International Monetary Fund to extend a credit line to Latin America’s No. 2 economy to more than $70 billion on Tuesday as a safety net in case of more global financial market turmoil.
• Anil Dhirubhai Ambani Group (ADAG) companies, Reliance Power and Reliance Communications, will sew up about $3 billion in loans from mostly Chinese banks, officials said on.

sensex closed with slight gains

• The Sensex closed at 19799, up 107 points from its previous close, and Nifty shut shop at 5944, up 36 points.
• The leaders of India and China meet this week to try to boost trade and soothe tensions between two nations accounting for more than a third of humanity and crucial for driving global economic growth.
• The Reserve Bank of India (RBI) is expected to stay pat on rates at its review on Thursday, with analysts anticipating the current tight liquidity conditions in the banking system to ease by end-March, a Reuters poll showed.
• The government is considering a hike in diesel prices to help state-run marketing firms cushion the blow of higher crude oil prices, the oil minister said on Tuesday.
• Bank of India said on Tuesday it will raise its base rate to 9 percent per annum from 8.5 percent effective Dec 15.
• Telenor’s Indian unit has received a notice from the telecoms ministry, the company said on Tuesday, adding that it will respond to the notice in time.
• State-run oil marketing firms will raise petrol prices by 2.95 rupees per litre this week, oil companies sources told Reuters on Tuesday.
• Inflation eased in line with expectations to its lowest level in a year for November, giving the Reserve Bank of India (RBI) room to leave interest rates on hold at its policy review later this week. India’s wholesale price index rose 7.48 percent in November from a year earlier compared with 8.58 percent in October, data released on Tuesday showed — exactly matching a Reuters poll forecast.
• Germany threw its weight on Tuesday behind a potential capital increase by the European Central Bank, saying it would react positively to such a move if the ECB deems it necessary.
• Headline inflation eased in line with expectations to its lowest level in a year for November, giving the Reserve Bank of India (RBI) room to leave interest rates on hold at its policy review later this week.
• The euro zone’s economic recovery seems to be taking hold and is broadening, but growth will slow as governments cut spending to ward off the debt crisis, the European Commission said on Tuesday.
• U.S. retail sales were stronger than expected in November as consumers stepped up despite the shadow of high unemployment, while producer prices rose, offering further evidence the economic recovery gathered steam in the fourth quarter.
• Belgium’s failure to form a government since elections in June threatens its ability to manage its debt and could lead to a downgrade of its sovereign rating within six months, Standard & Poor’s said on Tuesday.
• The government may allow foreign direct investment in multi-brand retail in the next three months, a Pantaloon Retail (India) Ltd executive said on Tuesday.
• The government is considering a hike in diesel prices to help state-run marketing firms cushion the blow of higher crude oil prices, the oil minister said on Tuesday.
• China will probably target a limit of about 7.5 trillion yuan ($1.1 trillion) in new loans next year, the same as this year’s target, a leading official newspaper reported on Tuesday, an indication that policy could be slightly looser than expected.

sensex trading flat note with a negative bias

• On Friday, the US markets ended higher with the Dow Jones up 40 odd points while Asia is trading positive after a mixed start this morning.
• The BSE Sensex shrugged off firm Asian stocks and were down 0.6 percent on Monday in choppy trade, as worries due to an ongoing corruption probe continued to weigh.
• State-run Indian Oil Corp’s share sale is likely to be delayed to the next fiscal year starting in April due to a surge in the price of crude oil to the highest level in two years, the Mint reported on Monday.
• The government will take a decision by March on whether to allow U.K. explorer Cairn Energy’s plan to sell majority stake in its local unit to Vedanta Resources, the oil minister said, further delaying a key nod by a month.
• Shares of personal care products maker Emami Ltd jumped 20 percent to hit its upper circuit on Monday after its attempt to acquire privately-held Indian Paras Pharmaceuticals fell through as fears of overpaying for the deal subsided, analysts said.
• A selective increase in required reserves for Chinese banks that was due to expire this week will be extended for another three months, three industry sources told Reuters on Monday, a small step in a tightening campaign that is on track to intensify in the coming months.
• Oil prices France wants a wide international debate as it takes over the G20 presidency to drive its plans for an overhaul of the global monetary system and economic governance, Economy Minister Christine Lagarde said on Saturday.were higher on Monday after the Organization of the Petroleum Exporting Countries agreed at the weekend to keep crude oil output levels flat.
• China will ratchet up efforts to quell inflation in 2011 while pushing forward economic restructuring to help sustain robust growth, state media said on Sunday after the close of an annual policy-setting conference.
• Europe’s single currency is here to stay and those who bet against its survival are making a mistake, German Finance Minister Wolfgang Schaeuble said.
• France wants a wide international debate as it takes over the G20 presidency to drive its plans for an overhaul of the global monetary system and economic governance, Economy Minister Christine Lagarde saidThe Reserve Bank of India (RBI) will revisit its growth projection for the economy at its third-quarter policy review on Jan. 25, its chief said on Wednesday. on Saturday.
• The Reserve Bank of India (RBI) will revisit its growth projection for the economy at its third-quarter policy review on Jan. 25, its chief said on Wednesday.
• India’s economy could grow by nine percent this fiscal year, the highest in three years, and average inflation will be nearly double the Reserve Bank end-year targets, according to a review of the economy by the finance ministry.
• The Reserve Bank of India deputy governor Shyamala Gopinath said on Wednesday that an infrastructure debt fund is expected to materialise in a couple of weeks.

America, the euro zone and the emerging world are heading in different directions

• THIS year has turned out to be a surprisingly good one for the world economy. Global output has probably risen by close to 5%, well above its trend rate and a lot faster than forecasters were expecting 12 months ago. Most of the dangers that frightened financial markets during the year have failed to materialise. China’s economy has not suffered a hard landing. America’s mid-year slowdown did not become a double-dip recession. Granted, the troubles of the euro area’s peripheral economies have proved all too real. Yet the euro zone as a whole has grown at a decent rate for an ageing continent, thanks to oomph from Germany, the fastest-growing big rich economy in 2010.
• The question now is whether 2011 will follow the same pattern. Many people seem to think so. Consumer and business confidence is rising in most parts of the world; global manufacturing is accelerating; and financial markets are buoyant. The MSCI index of global share prices has climbed by 20% since early July. Investors today are shrugging off news far more ominous than that which rattled them earlier this year, from the soaring debt yields in the euro zone’s periphery to news of rising inflation in China.
• Earlier this year investors were too pessimistic. Now their breezy confidence seems misplaced. To oversimplify a little, the performance of the world economy in 2011 depends on what happens in three places: the big emerging markets, the euro area and America. (Yes, Japan is still an economic heavyweight, but it is less likely to yield surprises.) These big three are heading in very different directions, with very different growth prospects and contradictory policy choices. Some of this divergence is inevitable: even to the casual observer, India’s economy has always been rather different from America’s. But new splits are opening up, especially in the rich world, and with them come ever more chances for friction.
  
• Begin with the big emerging markets, by far the biggest contributors to global growth this year. From Shenzhen to São Paulo these economies have been on a tear. Spare capacity has been used up. Where it can, foreign capital is pouring in. Isolated worries about asset bubbles have been replaced by a fear of broader overheating. China is the prime example but by no means alone. With Brazilian shops packed with shoppers, inflation there has surged above 5% and imports in November were 44% higher than the previous year.
  
• Cheap money is often the problem. Though the slump of 2009 is a distant memory, monetary conditions are still extraordinarily loose, thanks, in many places, to efforts to hold down currencies (again, China leads in this respect). This combination is unsustainable. To stop prices accelerating, most emerging economies will need tighter policies next year. If they do too much, their growth could slow sharply. If they do too little, they invite higher inflation and a bigger tightening later. Either way, the chances of a macroeconomic shock emanating from the emerging world are rising steeply.
  
• The euro area is another obvious source of stress, this time financial as well as macroeconomic. In the short term growth will surely slow, if only because of government spending cuts. In core countries, notably Germany, this fiscal consolidation is voluntary, even masochistic. The embattled economies on the periphery, such as Ireland, Portugal and Greece, have less choice and a grim future. Empirical evidence suggests that countries in a currency union are unlikely to be able to improve their competitiveness quickly by screwing down wages and prices. Worse, the financial consequences of a shift to a world where a euro-area country can go bust are only just becoming clear. Not only do too many euro-zone governments owe too much, but Europe’s entire banking model, which is based on thorough integration across borders, may need revisiting . These difficulties would tax the most enlightened policymakers. The euro zone’s political leaders, alas, are a fractious and underwhelming lot. An even bigger mess seems all but certain in 2011.
• America’s economy, too, will shift, but in a different direction. Unlike Europe’s, America’s macroeconomic policy mix has just moved decisively away from austerity. The tax-cut agreement reached on December 7th by Barack Obama and congressional Republicans was far bigger than expected. Not only did it extend George Bush’s expiring tax breaks for two years, but it also added more than 2% of GDP in new breaks for 2011. When this is coupled with the continued bond-buying of the Federal Reserve, America is injecting itself with another dose of stimulus steroids just when Europe is checking into rehab and enduring cold turkey.
• The result of this could be that American output grows by as much as 4% next year. That is nicely above trend and enough to reduce unemployment, although not quickly. But America’s politicians are taking a risk, too. Even though their country’s long-term budget outlook is famously dire, Mr Obama and the Republicans did not even try to find an agreement on medium-term fiscal consolidation this week. Various proposals to fix the deficit look set to gather dust . Bondholders, who have been very forgiving of the printer of the world’s chief reserve currency, greeted the tax deal by selling Treasuries. Some investors, no doubt, see faster growth on the way; but a growing number are worried about the size of America’s fiscal hole. If those worries take hold, the United States could even see a bond-market bust in 2011.
• How much does this parting of the ways matter? The divergence between the world’s big three will compound the risks in each one. America’s loose monetary policy and concerns about sovereign defaults in the euro zone will encourage capital to flow to emerging economies, making the latter’s central banks reluctant to raise interest rates and dampen down inflation. Over the next five years emerging economies are expected to account for over 50% of global growth but only 13% of the increase in net global public debt. Rather than rebalancing, the world economy in the immediate future will skew even more between a debt-ridden West and thrifty East.
• The West avoided depression in part because Europe and America worked together and shared a similar economic philosophy. Now both are obsessed with internal problems and have adopted wholly opposite strategies for dealing with them. That bodes ill for international co-operation. Policymakers in Brussels will hardly focus on another trade round when a euro member is about to go bust. And it bodes ill for financial markets, since neither Europe’s sticking-plaster approach to the euro nor America’s “jam today, God knows what tomorrow” tactic with the deficit are sustainable.
  
• Of course, it does not have to be this way. Now they have splurged the cash, Mr Obama and Congress could move on to a medium-term plan to reduce the deficit. Europe’s feuding leaders could hash out a deal to put the single currency and the zone’s banking system on a sustainable footing. And the big emerging economies could allow their currencies to rise. But don’t bet on it. A more divided world economy could make 2011 a year of damaging shocks.

disappointing job figures despite good economic show in US

• Almost  everywhere you look, the American recovery seems to be picking up pace. The economy grew faster in the third quarter than originally reported. Industrial production continues to grow. Spending has been surprisingly strong, and the latest figures on pending home sales suggest that even housing markets may be stirring from their deep slump. The growth seems to be everywhere except the place it matters most—labour markets. Employment in America turned in a surprisingly poor performance in November, indicating that recovery still hasn’t gotten the job creation machine turning steadily.
• The Bureau of Labour Statistics reported a disappointing gain of only 39,000 jobs for the month of November. The figure came in well below expectations. In October, the economy grew by an (upwardly revised) 172,000 jobs, and on Wednesday a private employment report estimated that the economy added 93,000 private sector workers. Markets had expected one of the strongest reports of the recovery so far. That’s not what they received.
  
• In November, according to the BLS, private employers added just 50,000 new jobs—the worst performance since April. From that paltry total were subtracted 11,000 in lost government jobs. Small gains in federal and state government employment were offset by a 14,000 job fall in local government employment. Within the private sector, drops in employment among goods-producing and retail trade firms were offset by new hires among professional and businesses services and in the health and education sectors.
  
• The unemployment rate rose to 9.8%—its highest level since April and close to the 10.1% recession peak. At 15.1m, the number of unemployed workers rose back to its April high (though some of this increase was due to new entrants to the labour force). Fully 6.3m people have been out of work for more than 27 weeks. Many of these workers are now cycling off federal emergency unemployment benefits, which expired November 30. Congress has yet to reauthorise the emergency benefits package, as it has done so many times through the recession. Some 2m jobless workers may lose benefits by the end of 2010, and perhaps 4m or more will lose them by April.
• There is little to be happy about in this report, in other words. But there are some indications that the November numbers may be an aberration. September’s job losses were revised down to 24,000 in this report, while October’s job gains were revised upward, from 151,000 to 172,000. Through November, weekly data on initial jobless claims showed significant improvement. And of course, many other indicators have been flashing positive signs in recent weeks.
• It’s likely, then, that the November figures will be revised up in future months to show a better performance more in keeping with broader trends. And it’s important to remember that monthly data are noisy. America’s labour markets have yet to generate job growth sufficient to bring down the unemployment rate. But the pace of recovery has been improving. There is good reason to suspect that when all is said and done this report will appear as a blip marring a strengthening upward employment trend. All the same, policymakers in Washington weighing whether to extend unemployment benefits and tax cuts should heed the obvious weakness in labour markets. They can and should make sure that November’s number remains an anomaly.

euro,a boon or a bane

• The euro is getting costly for some in euro nations.A break-up would be even worse,considering it a necessary evil.
• BOND markets have scorned the €85 billion ($113 billion) bail-out offered to Ireland on November 28th. Yields have risen not just for Ireland but for Portugal, Spain, Italy and even Belgium. The euro has fallen—again. As one botched rescue follows another, solemn vows from European Union leaders that a break-up of the single currency is unthinkable and impossible have lost their power to convince. And that is leading many to question whether the euro can survive.
• The case against it is that European citizens can no longer live under its yoke. In Europe’s periphery some are yearning to be spared the years of grinding austerity that may be needed for wages and prices to become competitive. In the German-dominated core they are fed up with paying for other countries’ fecklessness and they fear that, as creditors, they will suffer if the European Central Bank (ECB) inflates away the laggards’ debts. Deep down lurks the sullen suspicion that this is a drama that the euro zone may be condemned to relive time and again. So why not get out now?
• Financial history is littered with events that turned from the unthinkable to the inevitable with breathtaking speed: Britain left the gold standard in 1931, Argentina abandoned its dollar peg in January 2002. But a collapse of the euro would bring with it unprecedented technical, economic and political costs.
• A break-up might happen in one of two ways. One or more weak members (Greece, Ireland, Portugal, perhaps Spain) might leave, presumably to devalue their new currency. Or a fed-up Germany, possibly joined by the Netherlands and Austria, could decide to junk the euro and restore the D-mark, which would then appreciate.
• In either case, the costs would be enormous. For a start, the technical difficulties of reintroducing a national currency, reprogramming computers and vending machines, minting coins and printing notes are huge (three years’ preparation was needed for the euro). Any hint that a weak country was about to leave would lead to runs on deposits, further weakening troubled banks. That would result in capital controls and perhaps limits on bank withdrawals, which in turn would strangle commerce. Leavers would be cut off from foreign finance, perhaps for years, further starving their economies of funds.
  
• The calculation would be only slightly better if the euro escapee were Germany. Again, there would be bank runs in Europe as depositors fled weaker countries, leading to the reintroduction of capital controls. Even if German banks gained deposits, their large euro-zone assets would be marked down: Germany, remember, is the system’s biggest creditor. Lastly, German exporters, having been big beneficiaries of a more stable single currency, would howl at being landed once again with a sharply rising D-mark.
• If the economics of pulling apart the euro look dubious, the politics risks detonating a chain reaction that would threaten the fabric of the single market and the EU itself. The EU and the euro have been Germany’s post-war anchors. If it abandoned the currency, at huge cost, and left the rest of the euro zone to fend for itself, its commitment to the EU would be in serious doubt.
  
• If a weaker country left, risking not just European banks but also the currency, it would become a pariah exporting its pain to its neighbours. Once capital controls were in place Europe’s financial markets would be in tatters and it would be hard to preserve cross-border European trade. The collapse of the single market, which has done more than anything else to knit Europe together, would threaten the EU itself.However much countries may now regret joining the euro, leaving it does not make sense. But the fact that it ought to survive does not mean that it will. And unless Europe’s leaders move further and faster, it might not.
• Europe’s leaders have been slow and timid in response to market pressures. Greece and now Ireland have forced them, reluctantly, into bail-outs. Only belatedly have they recognised that some countries are not just in need of bridging loans to tide them over, but may be unable to repay their debts. That means that some pain will have to be inflicted on bondholders.
• This will be easier to achieve now that euro-zone governments have agreed that sovereign-debt issues after 2013 should contain collective-action clauses, which stop hold-out investors blocking deals. The Irish have already imposed “haircuts” on subordinated-debt holders in their banks, though they were stopped from doing this for senior bondholders . Such talk is inevitably unpopular in the markets. Yet losses must be possible if investors are to distinguish between sovereign-debt issuers.
• The crisis should also have brought home to weak deficit countries the high cost of their failure to make the reforms to labour and product markets, and to welfare systems, necessary to restore their lost competitiveness. Even if they left the euro, they would have to take such steps to thrive. Within it, reform would not just revive moribund economies, but also create the chance of future growth to safeguard the single currency. Reform would be easier if surplus countries (ie, Germany) did more to boost their own domestic demand.
• Lastly, if the euro is to survive, creditor countries need to give more aid to deficit countries. They could do this directly, or the ECB could provide liquidity to banks or buy up government bonds before they fall too far. It has indicated it may start doing the latter again. Germany hates the idea of more aid to debtor countries —hence its slowness to accept bail-outs and its determination to penalise bondholders. Its unwillingness to subsidise the weak and profligate is understandable; but the alternative is worse.
  
• Breaking up the euro is not unthinkable, just very costly. Because they refuse to face up to the possibility that it might happen, Europe’s leaders are failing to take the measures necessary to avert it.

selling activity led US markets dip

• Dow Jones Ind. Avg. down by 22 points, S&P500 down by 4 points and NASDAQ getting into green. (11:00pm , india).
• WikiLeaks moved its website address to Switzerland on Friday after two U.S. Internet providers ditched it in the space of two days, and Paris tried to ban French servers from hosting its database of leaked information.
• A bold plan to slash the U.S. budget deficit fell short on Friday of winning support needed from a presidential commission to trigger congressional action, but it was expected to help shape future budget debates.
• Wall Street mostly shrugged off a weaker-than-expected payrolls report on Friday, leaving stocks little changed as the data didn’t alter investors’ view the economic recovery is on track.
• Oil fell from two-year highs on Friday after closely watched U.S. jobs data missed expectations, while North Sea Brent crude futures held above $90 due to the extreme cold weather covering much of Europe.
• Gold jumped above $1,400 an ounce on Friday and was headed for its biggest weekly gain since April after U.S. jobs data cast doubt on the strength of the U.S. economic recovery, sending the dollar tumbling 1 percent.
• U.S.-based mining group Walter Energy Inc  is to buy Canada’s Western Coal. for C$3.3 billion ($3.3 billion) to create one of the largest producers of steel-making metallurgical coal.
• PepsiCo’s  mammoth acquisition of Wimm-Bill-Dann has raised expectations for more deals in Russia, boosted by strong belief in consumer growth and an improving investment climate, analysts said.
• Private equity firm Apollo Management APOLO.UL is in talks to buy hair salon chain Regis Corp , the New York Post said, citing two sources close to the situation.