Torrent of bad financial news flows out of Europe

Oh Dear!! This from the AP. More jolly holiday news from our European neighbors.

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Torrent of bad financial news flows out of Europe

Dec 16, 6:32 PM (ET)

By SHAWN POGATCHNIK

DUBLIN (AP) - Alarming financial news flowed out of Europe in a torrent Friday, just a week after the EU leaders struck a deal they thought would contain the continent's debt crisis.

The bombardment shredded hopes of a lasting solution to the turmoil that is endangering the euro - the currency used by 17 European nations - and threatening the entire global economy.

In quick succession:

- The Fitch Ratings agency announced it was considering further cuts to the credit scores of six eurozone nations - heavyweights Italy and Spain, as well as Belgium, Cyprus, Ireland and Slovenia. It said all six could face downgrades of one or two notches.

- Moody's Investors Services downgraded Belgium's credit rating by two notches. Belgium's local- and foreign-currency government bond ratings fell to "Aa3" from Aa1," with a negative outlook. The ratings remain investment grade.

- Ireland's economy shrunk again much deeper than had been expected, with its third-quarter gross domestic product falling 1.9 percent. Ireland is one of three eurozone nations kept solvent only by an international bailout.

- Bankers and hedge funds were balking in talks about forgiving 50 percent of Greece's massive debts, a key issue in the debate over Greece's second rescue bailout.

- The red ink in Spain's regional governments surged 22 percent in the last year, endangering the central government's efforts to cut overall Spanish debt.

- France, the second-largest eurozone economy after Germany, warned that it faced at least a temporary recession next year.

- The euro hovered Friday just above $1.30, a cent higher than its 11-month low.

On the positive side, Fitch said France should keep its top AAA credit rating even though the country's debt load is projected to rise through 2014. Italian lawmakers overwhelmingly passed Premier Mario Monti's new austerity package in a confidence vote, even though many still objected to its pension reforms.

French officials and investors had feared that France could get downgraded, which would have immediate repercussions for the entire eurozone. France and Germany's AAA credit ratings underpin the rating for the eurozone's bailout fund.

European Union leaders confirmed Friday they have distributed the text of their proposed new budget-stability treaty, a pact designed to deter runaway deficits and supposed to become EU law by March. But as growth prospects fade across the continent, governments are facing the likelihood that Europe's debt crisis will prove longer and tougher to overcome than even their most recently revised forecasts.

Until this week, EU leaders held up Ireland as the model for how a debt-struck nation should behave - defying economic gravity by simultaneously growing its economy while sucking billions out of that same economy in Europe's longest austerity drive.

But on Friday, Ireland announced its third-quarter gross domestic product fell 1.9 percent, its national product 2.2 percent. Economists had expected only an 0.5 percent fall for GDP and none at all for GNP. The latter figure is considered a better measure of Ireland's economic vitality because it excludes the largely exported profits of about 600 American companies based in the country.

Ireland has been cutting spending and hiking taxes since late 2008 and has plans to keep doing so through 2015. Next year's target is euro2.2 billion ($2.9 billion) in cuts and euro1.6 billion ($2.1 billion) in extra charges, including a hike in national sales tax to 23 percent and introduction of a new euro100 ($131) tax on every property.

But the country's finances this year are seriously out of whack: It is spending euro57 billion ($74.5 billion), including euro10 billion ($13 billion) to keep its five nationalized banks afloat, but collecting just euro34 billion ($44 billion) in taxes.

Labor union leaders say the unexpected slump confirmed Friday is irrefutable evidence that Ireland's 4.5 million citizens already have been squeezed too much, too quickly.

"Current policies are making recovery almost impossible," said David Begg, general secretary of the Irish Congress of Trade Unions. "No economy can sustain the sort of ongoing damage that is being inflicted on us."

"We need growth and we need it quickly," he added.

Ireland's year-old international bailout requires the Irish to reduce their annual deficits from an EU record 32 percent of GDP in 2010 to the traditional eurozone limit of 3 percent by 2015. But analysts agree that Ireland cannot hope to meet the 2015 goal if its economy doesn't grow sufficiently.

Ireland's recovery plan now presumes 1.6 percent growth in 2012 and 2.8 percent growth in each of the next three years - figures many consider way too optimistic.

Alan McQuaid, chief economist at Bloxham Stockbrokers in Dublin, said Ireland would "do well" to reach 0.5 percent growth this year "given the deteriorating world economic backdrop and the fall-off in global demand." He said he doubted Ireland could top 1 percent growth next year.

In other developments:

ITALY:

The new premier's austerity package passed 495-88 Friday, but lawmakers on both the left and right criticized the pension reforms as too harsh. The plan raises euro30 billion ($39 billion) in extra taxes and pension reforms and plows about euro10 billion ($13 billion) of that back into growth measures.

Prosecutors in the southern region of Calabria, meanwhile, said they were investigating 10 envelopes with bullets inside found in a post office in the town of Lamezia Terme. The envelopes were addressed to the new leader Monti, his labor minister, former Premier Silvio Berlusconi and other top political or media figures, according to the Italian news agency ANSA.

Reports said the envelopes contained notes threatening those named if the austerity package wasn't changed.

GREECE:

European officials told The Associated Press that private holders of Greek bonds were resisting EU efforts to persuade them to take a voluntary 50 percent cut in the value of their holdings. The talks in Paris between EU and Greek leaders against representatives of global banks and hedge funds have been very difficult, they said.

The proposed euro100 billion ($130.6 billion) write-off of privately held Greek bonds is supposed to be agreed upon by early next year - and it's central to Greece's second bailout deal. Without it, Greece's debt is forecast to escalate to nearly 200 percent of GDP.

SPAIN:

A new conservative government committed to increased austerity is coming into office next week, but it faces a rapidly deteriorating financial outlook.

The Bank of Spain announced a 22 percent surge over the past year in the debts of the country's 17 regional governments to euro135.2 billion ($176.6 billion). Spain's central government debt rose 15 percent to above euro706 billion ($922.3 billion).

PORTUGAL:

The main opposition party refused Friday to support the government's plan to amend the constitution to include a budget-deficit limit. All 17 members of the eurozone are supposed to make such commitments as part of the bloc's week-old plan to enshrine spending controls in a new treaty.

In a further worrying development, ratings agency Standard & Poor's on Friday downgraded the credit rating of six leading Portuguese banks to junk status.

Portugal received its own euro80 billion ($104.5 billion) international bailout deal in April.