More Austerity, Strikes, Recession and Loans

With the US elections out of the way, the economic angst meter has shifted its attention. New concern is focused this time on both ends of the Euro zone spectrum - Greece and Germany.

Yesterday, the ever-more-fragile Greek coalition government once again ratcheted up austerity. The Greeks themselves were outside their parliament buildings, striking and protesting. Inside, their representatives were "debating" (for a day), then passing (barely, by 153 votes out of 300) more spending cuts and tax increases. Prime Minister Samaras said his government's bank account would be empty of euros by November 16. So this further fiscal tightening was an urgent, necessary condition for the release of the next $40 billion bailout tranche from the so-called troika of lenders (the European Union, the European Central Bank, and the IMF). A necessary, but not sufficient, condition - the next vote required for freeing up the loan installment is scheduled for November 12, when Euro Finance Ministers must approve it. No one is expecting a rubber-stamping - German Finance Minister Schaeuble stated today that he will not even vote until the troika's latest audit of Greek finances is available. Watch for some "interim financing" to avert a complete collapse - and more protesting in Athens' streets.

As Greece sinks further, Germany - regarded as the Euro engine and ultimate source of Euro financing - is faltering. After expanding 3-4% in each of the years 2010 and 2011, growth has nearly stalled this year. The real concern is that the economy looks to actually contract this quarter and into next year, with industrial production and new orders dropping in September, German business sentiment worsening, and unemployment rising.

Ms. Merkel's political balancing act - between German electorate bailout fatigue, on the one hand, and, on the other, seemingly unending requests (read Greece, Spain and even Italy) for financial assistance - just keeps getting more difficult.