Greek Prime Minister George Papandreou’s drive to put together a unity government descended into disarray as rival parties fell to squabbling over the next premier, undermining their bid to secure bailout funds needed to prevent a financial collapse. Papandreou met with President Karolos Papoulias in Athens today to resign as criticism grew over delays in naming a new prime minister. Papandreou attended the meeting with Antonis Samaras, leader of the opposition New Democracy party, and opposition LAOS party leader George Karatzaferis, who then abandoned the talks.“Despite our differences we leave clashes and sterile opposition to one side,” Papandreou said in an address to the nation televised live on state-run NET TV. Papandreou didn’t name a new prime minister in his speech. Greece’s two biggest political parties agreed to name parliament speaker Filippos Petsalnikos to head the government rather than former European Central Bank Vice President Lucas Papademos, To Vima newspaper reported, without saying how it got the information. President Papoulias called a meeting for 10 a.m. local time tomorrow with political party leaders. No official announcement was made on who will staff the new government and Papandreou has not formally resigned.
GBP/USD
U.K. Prime Minister David Cameron said the cost of servicing Italy’s debt is approaching unsustainable levels and called on European leaders to spell out details of their bailout fund to prevent contagion spreading. Italian bond yields on five-year notes rose above 7 percent for the first time in the euro era, driving European stocks and U.S. index futures lower, amid political uncertainty in Italy and limited progress in implementing bailout measures for Greece.“If you don’t have credibility about your plans to deal with your debts and deal with your deficits, whether you like the markets or not, they won’t lend you any money,” Cameron told lawmakers in London today. “That’s what we are seeing in countries like Greece and now tragically in Italy, where the price of borrowing money is getting to a totally unsustainable level.”Cameron is concerned that that the sovereign credit crisis sweeping Europe’s southern fringe may hurt Britain’s growth prospects, tipping a fragile economy back into recession for the second time in three years. Without a direct say in euro-area policy, Britain is struggling to shape Europe’s response to the crisis, while rebel lawmakers in the premier’s Conservative Party are calling for Britain to loosen ties with the 27-nation bloc.
USD/JPY
After seeing one in three of its manufacturing jobs disappear in the past two decades and China overtake it as the world’s second-largest economy, the worst may be yet to come for Japan. The impact of the yen’s exchange rate, with a 50 percent surge against the dollar in the past five years, is entering “non-linear” territory, where gains have a deeper impact on business decisions, according to Jens Nordvig at Nomura Holdings Inc. The trend is already seen in moves by companies from Toyota Motor Corp., which has boosted foreign output to 58 percent of the total from 49 percent five years ago, to Panasonic Corp. ,which aims to buy 57 percent of its parts and materials from abroad this year, up from 43 percent in 2009.“I’m devastated in the morning when I check exchange rates,” said Shuuichi Hase, deputy director of manufacturing support at the municipal government of Higashi Osaka, which has more factories than any other urban area in Japan. “It’s too strong for businesses to survive.”Japan’s dilemma mirrors that of Switzerland, which imposed a ceiling on its exchange rate on Sept. 6 to safeguard the competitiveness of exporters including Nestle SA, the world’s biggest food company. With Prime Minister Yoshihiko Noda’s administration stopping short of a Swiss-style move, Japanese policy makers are under pressure to alleviate the impact of the currency’s advance.
USD/CAD
Canada’s dollar dropped to the lowest level in almost three weeks on demand for the relative safety of the U.S. currency after a European clearinghouse raised its margin requirements for Italian bond transactions. The Canadian currency dropped as much as 1.4 percent, the most this week, extending its losses in the second half of the year to 5.7 percent. North American stocks slid along with Canadian government bond yields. Italian bond yields surged to euro-era records. “The market itself right now is in a state of panic, “said Boris Schlossberg, director of research at the online currency trader GFT Forex in New York, in a telephone interview. “We’re in a very tenuous position. The negative risk environment is going to be negative for all high-beta currencies,” he said, referring to those including the Canadian and Australian dollars, which tend to rise and fall with equities and raw materials. Canada’s currency depreciated 1.3 percent to C$1.0218 per U.S. dollar at 3:33 p.m. in Toronto. It earlier touched C$1.0233, the weakest since Oct. 20. One Canadian dollar buys 97.87 U.S. cents. The Standard & Poor’s 500 Index sank 3.3 percent. The S&P/TSX Composite Index dropped 2.1 percent. Futures on crude oil, Canada’s largest export, slid 0.8 percent to $96.20 a barrel in New York.
