Britannia Radio

Here it is.  The USA resumes its place as the driving force behind 
the world economy and European and other countries are in for a very 
sticky patch.

Of course the new president could louse it all up but as I decided 
weeks ago  I'd wait till the Americans had chosen a new president 
before acknowledging the fact!   I'll know at breakfast - I expect!

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TELEGRAPH   4.11.08
1. Recession hits Europe as Club Med debt worries grow
The European Commission has slashed its economics forecasts, warning 
that the eurozone is now the grip of full recession for the first 
time since the launch of the euro and faces a deep slump for another 
two years.

By Ambrose Evans-Pritchard

"The economic horizon has significantly darkened," said Joaquim 
Almunia, the EU's economics commissioner.
"The situation in the markets remains precarious and the crisis is 
not yet over. It is very hard to estimate how deep the financial 
crisis will be, how long it will last, and what negative effects it 
will ultimately have on the real economy," he said.

Mr Almunia said the eurozone began to shrink in the second quarter 
and has been contracting ever since. Growth next year will be just 
0.1pc, and 0.9pc in 2010, with a "significant" risk of an even deeper 
downturn. Some budget deficits will balloon out of control if 
governments try resorting to fiscal stimulus to cushion the blow.

Brussels said the dramatic rise in the bond costs of Italy, Greece, 
and other heavily-endebted states suggests markets may be losing 
confidence in the state finances of these countries.

The spreads between German Bunds and 10-year bonds in the Club Med 
bloc have rocketed to post-EMU highs, reaching 157 basis points for 
Greece, 126 for Italy, and 90 for Portugal, - as well as 74 for 
Belgium, which also has large debt. They have reached 109 for 
Ireland, reflecting concerns over Dublin's ability to guarantee its 
outsize banks.

"A glance at those figures indicates that governments have to keep in 
mind the sustainability of public funds. Countries that have problems 
cannot ignore this lack of sustainability,'' said Mr Almunia.

Rising debt costs pose an immediate threat to Italy's finances. The 
country needs to roll over ?198bn in state debt next year alone. 
Rising spreads risk setting off a compound effect that widens the 
budget deficit ever further, debt trajectory to spiral upwards.

The Commission said the imbalances that built up between North and 
South "may turn out to be particularly damaging".

The grim warnings came as the eurozone's manufacturing index plunged 
to a record low of 41.3 in October, led by a shock collapse in Italy 
and Spain. Brussels said Spain's unemployment rate would reach 15pc 
by 2010 as the housing crash gathers pace.

The Spanish government said yesterday it would step in directly to 
pay half the mortgage costs for those who lose their jobs in order to 
pre-empt a self-feeding spiral of defaults. The package covers 
mortgages up to ?170,000 for the next two years.

It is also planning a rescue for the car industry after vehicle sales 
fell 40pc last month (and 19pc in Italy). There are mounting fears 
that Volkwagen may be mulling major cuts to plant in Spain.

The auto crunch has spread to Germany, where 40,000 BMW workers are 
staying home this week after temporary factory closures in Munich and 
Regensburg to help the clear the inventory of unsold cars. 
Handelsblatt reports that the financing arms of the German car-makers 
are "burning money" at an alarming speed and may need a bail-out.

Analysts say it is now certain that the European Central Bank will 
cut rates by a half point or more on Thursday. A string of ECB 
governors have said in recent days that inflation has receded as a 
serious threat. Even Axel Weber, the Bundesbank's uber-hawk, warns 
that "central banks must be alert so as not to fall behind the curve".

A top cast of private economists on the "shadow" ECB committee have 
called for a 100bp cut to 2.75pc, including Jacques Cailloux from 
RBS, Julian Callow from Barclays Capital, Stephen King from HSBC, 
Erik Nielson from Goldman Sachs, and Thomas Mayer from Deutsche Bank. 
Mr Mayer said the Germany economy could contact by 1.5pc next year.
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5.11.08
2. Talk of America's corporate demise may have been greatly exaggerated
America's corporate giants have regained their place as the world's 
most valuable companies, reflecting a profound shift in the global 
power structure as the deep strengths of the US economy reassert 
themselves.

By Ambrose Evans-Pritchard

The oil group Exxon Mobile is once again the global leader with a 
market value of $390bn. PetroChina briefly had a theoretical paper 
value of over $1,000bn at the height of the Shanghai bubble but has 
since crashed to $299bn.

Wal-Mart ($222bn), Microsoft ($207bn) and General Electric ($206) 
have moved briskly up the ladder, claiming the third, fourth, and 
fifth slots, with Protcter & Gamble, Johnson & Johnson, and Warren 
Buffett's Berkshire Hathaway close behind.

The league table is a striking change from the picture just a year 
ago, when Chinese companies such as PetroChina, ICBC bank, China 
Mobile, and other rising stars seem poised to sweep away the Anglo-
Saxon laggards.

Market veterans note the similarity with the late 1980s when eight of 
the world's ten biggest companies were briefly Japanese, a distortion 
that was soon corrected as debt deflation engulfed the Nikkei. Most 
economists believe China will fare better, but it may nevertheless 
suffer a hardlanding as exports slump. Manufacturing output 
contracted sharply last month, according to a CLSA survey.

Global bourses have fallen by half over the last year, losing $20 
trillion in market value. The drops have been steepest in many of the 
BRIC states (Brazil, Russia, India, China) touted until recently as 
the dynamic new force that would soon challenge the hegemony of the 
Atlantic region.

Moscow's RTS Index has dropped by 67pc. Russian corporations have to 
roll over almost a third of their $510bn of foreign loans by the end 
of next year. Some of the biggest names have been lining up for 
Kremlin bail-outs.
The energy giant Gazprom ($100bn) -- which talked of becoming the 
world's biggest company last year -- has crashed from third place to 
37th, and has seen the credit default swaps (CDS) on its debt trade 
at 1,300, higher than Lehman Brothers before it went bankrupt. 
Brazil's energy group Petrobras has fallen from sixth to 38th place.

It is not that perceptions of the US economy have been upgraded, but 
rather that investors had sharply downgraded their view of the rest 
of the world, especially Europe, Russia, China, and emerging markers 
everywhere -- especially those with current account deficits. The 
very aggressive policy response by the US Federal Reserve is now 
viewed as a big plus compared to slow and half-hearted moves by 
Europe's central banks.

The flight to safety in the US can been seen in the powerful dollar 
rally over recent months, and diminishing fears about the credit-
worthiness of US Treasury debt. Like the reports of Mark Twain's 
death, talk of America's demise may have been exaggerated.