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Debt-laden Italy is likely to default, but Spain might just avoid it, according to the British think tank, the Centre for Economics and Business Research.

With the countries weighed down by debt, the think tank modelled “good” and “bad” economic scenarios for both.

It found that Italy will not avoid default unless it sees an unlikely big jump in economic growth.

However, it said, “there is a real chance that Spain may avoid default”.

Even though Italy has managed to run tight budgets, and has vowed to eliminate its deficit by 2014, the economy needs a significant boost in growth.

But its economy grew by just 0.1% in the first quarter of 2011 and further growth is expected to remain sluggish.

On Wednesday, Italian Prime Minister Silvio Berlusconi addressed parliament, saying the economy was “strong” and the nation’s banks “solvent”.

But many economists believe that the eurozone’s third largest economy risks being engulfed in the debt crisis.

In a report published on Thursday, the CEBR calculated that Italy’s debt would rise from 128% of annual output to 150% by 2017 if bond yields stay above the current 6% and growth remains stagnant.

“Even if the cost of borrowing goes back down to 4%, the growth rate is so anaemic that we see the debt-GDP ratio remaining at 123% in 2018,” said Doug McWilliams, the CEBR’s chief executive.

The conditions in Spain are better because its debt is much lower. Even under the “bad” scenario, Madrid‘s debt ratio would climb to no higher than 75% of national output.

“Fingers crossed but there is a real chance that Spain may avoid default and debt restructuring, unless it gets dragged down by contagion,” Mr McWilliams said.

“Realistically, Italy is bound to default, but Spain may just get away without having to do so,” he said.


London-based, Asia-focused Standard Chartered Bank has reported an increase in half-year profits.

Pre-tax profits for the first six months of the year were $3.6bn (£2.2bn), up 17% from last year.

Profits grew in all of the territories where Standard Chartered operates, except for its biggest market, India, where profits fell by 5%.

It blamed rising interest rates, growing competition and regulatory changes for falling profits in India.

Profits grew by 23% in Hong Kong, 34% in Singapore, 14% in South Korea and 19% in China.

Income from its businesses in the Middle East grew 4%, in Africa it grew 10% and in the Americas and Europe it grew 11%.

“The group’s strong performance in the first half of 2011 should be seen in the context of the ongoing economic uncertainties, particularly in the West, and the sustained global regulatory upheaval,” said Standard Chartered chairman Sir John Peace.

“Standard Chartered has had a strong start to 2011 and this momentum has continued into the second half.”

Second-quarter profits at Societe Generale, France’s second-biggest bank, have fallen as a result of its exposure to Greek sovereign debt.

SocGen‘s net profit for the quarter fell to 747m euros ($1.06bn; £652m), down 31% from a year ago.

It made a 395m euro writedown on its Greek debt holdings. The bank holds about 2.65bn euros of Greek sovereign bonds.

SocGen also warned that its 2012 profit target would be “difficult to achieve”.

In a statement, the bank said that the second quarter results reflected the global economic and financial situation, which remained very mixed.

Frederic Oudea, the group’s chairman and chief executive, said, “The Q2 results testify to the Group’s resilience in an uncertain economic environment.”

On Tuesday, BNP Paribas, which has the biggest exposure to Greek debt among France’s banks, announced that it was setting aside 534m euros to cover its expected Greek losses.

French banks are among the biggest holders of Greek debt and were involved in the negotiations of a second bailout for the country, which included private sector support.

Banks could end up taking a loss of 21% on the value of their Greek debt as a result of the bailout.

European shares have opened lower, following falls in the US and Asia, as concerns grow about the state of the global economy.

London was down 1.6% and Frankfurt and Paris both down 1.7% in early trading.

In New York, the Dow Jones closed down 2.2% after official figures showed a fall in US consumer spending for the first time in nearly two years.

Asian markets followed suit, with the Nikkei closing down 2.1% and the Hang Seng down 1.1%.

Oil prices also fell in Asian trade, with US light sweet crude for September delivery easing 49 cents to $93.30 a barrel and Brent crude for September delivery dropping 65 cents to $115.81.

Shifting worries

US lawmakers managed to avoid a debt default on Tuesday by raising the debt ceiling. However, analysts say there has been a sharp change in global focus from the US debt issues.

“I think the conditions have completely changed this week,” said Koichi Ono from Daiwa Securities Capital Markets in Tokyo.

“Until last week, people have been saying the US debt ceiling was the problem. Now they talk about worries about the health of the economy.”

This was underscored by official data which came out on Tuesday showing a fall in US consumer spending for the first time in nearly two years.

The figures also showed that incomes had barely risen, indicating that the economy was stalling in the first half of this year.

“There certainly have been weaker numbers globally, particularly out of the US,” said Greg Gibbs from RBS in Sydney.

“There is already a high level of uncertainty in global markets and that’s another layer which is impacting on sentiment.”

Euro pressuresAnd it is not just the US dragging down markets, say analysts.

Just as the US debt crisis seems to be subsiding, the European crisis has come back into focus.

Spain and Italy are under renewed pressure because of concerns that the eurozone bailout fund is not enough to protect their larger economies if they can no longer pay their debts.

Bond yields, or the interest countries pay on their loans, have risen sharply in recent days.

“It’s a pretty bleak picture,” said Justin Gallagher of RBS in Sydney.

“The implications for the Italian market and economy going through something similar to Greece is pretty frightening. People are suggesting it’s not bailout-able. That’s how big it is.”

German carmaker BMW has said that its second-quarter profit more than doubled after it sold a record number of cars.

Net profit rose to 1.8bn euros ($2.6bn; £1.6bn), from 834m euros in the same period last year, with revenue up 17% to 17.9bn euros.

BMW – which also owns Mini and Rolls-Royce – sold a record 450,608 vehicles, a year-on-year gain of 18.5%.

The results were boosted by growth in the lucrative Chinese market, where its sales rose 52% from last year.

BMW sold 63,300 cars in China during the quarter, compared with 80,300 in its home market, Germany.

New Minis

“We expect the business environment to remain favourable during the second half of 2011,” the company said.

For the first six months of the year, sales jumped 20% to 833,366.

BMW recently said its new Mini coupe would be launched later this year and the Mini Roadster in 2012.

Both are to be produced in Oxford, where more than 2 million Minis have been built since 2001 – about 75% of them for export.

In June, BMW issued a new full-year sales target of more than 1.6 million for 2011.

Barclays has reported pre-tax profits of £2.6bn for the first six months of the year, down 33% from last year.

The bank also said it aimed to cut at least 1,400 more jobs in 2011, having cut 1,400 posts already this year.

The fall in half-year profits was partly caused by a £1bn provision for settling claims of mis-selling of payment protection insurance (PPI).

However the bank reported a big drop in bad debts and said it was on course to meet targets for UK business lending.

Charges for bad debts fell 41% on last year to £1.8bn due to better management of its exposure to troubled eurozone economies such as Spain and Portugal.

Most of Barclays’ profits come from its investment banking division, Barclays Capital, which includes parts of the former US bank Lehman Brothers.

But adjusted profits at this division fell 9% to £2.3bn due to lower returns from investments in bonds and commodities.

Job losses

The bank said it was looking to cut costs to boost profits in future.

Chief executive Bob Diamond said 1,400 jobs had been cut during the first six months of the year across its operations.

“You should assume this trend will continue and increase somewhat,” he said.

Barclays currently employs more than 147,000 staff around the world.

On Monday, rival HSBC announced it would cut 25,000 jobs by 2013 as part of its own efforts to cut costs. It had already announced 5,000 job cuts.

Lending targets

Despite the reduced profits, Mr Diamond said he was pleased with the results in what he called a “lacklustre” economic environment.

He said the bank was fulfilling its deal with the government to lend to UK businesses.

“We are meeting our Project Merlin commitments and have extended £20bn of new lending to businesses in the first half,” he said.

That included £7bn of lending to small- and medium-sized firms.

The pilots of an Air France plane that crashed into the Atlantic in 2009 lacked adequate training, French investigators have found.

France’s BEA authority said pilots had failed to discuss repeated stall warnings and did not have the training to deal with the hazard. Air France rejected the accusation.

BEA called for mandatory training in high-altitude stalling for all pilots.

All 228 people on board the Airbus 330 from Brazil to France were killed.

‘No passenger alert’

BEA head Jean-Paul Troadec said that “the situation was salvageable” during the flight’s final minutes.

Investigators said an account of those minutes, captured on flight recorders, concluded that the crew had failed to “formally identify the loss of altitude” despite an alarm ringing for nearly a minute.

“The first event which triggered it all is the disconnection of the automatic pilot following the loss of the speed indicators, very probably after they were frozen by ice crystals,” said Mr Troadec.

“At this time the pilot should have initiated a procedure known as ‘Unreliable IAS (indicated air speed)’, a procedure which consists of taking an angle of five degrees, but the angle they took was far superior.

“That is why the plane flew upwards, the plane took a rapid vertical flight of 7,000 feet/minute… The angle they took was too much,” Mr Troadec said.

The BEA report said the co-pilots in charge of the plane when the emergency began “had received no high-altitude training for unreliable IAS (indicated air speed) procedure and manual air craft handling”.

The report also said that the pilots failed to alert passengers to the crisis as they struggled to regain control.

The authority issued 10 new safety recommendations, including mandatory training for all pilots in France to ensure they could handle a high-altitude stall.

A statement from Air France rejected the BEA’s findings, saying that “nothing at this stage can allow the crew’s technical competence to be blamed” for the crash.

“The crew on duty showed professionalism and stayed committed until the end to operating the flight. Air France salutes their courage and determination in these extreme conditions,” it said.

The flight recorders, preserved in a tank of demineralised water, are displayed in Le Bourget, Paris, 12 May
Flight recorders were found this year

“The altitude-loss alarm was activated and deactivated several times, contradicting the real status of the aircraft, which contributed strongly to the crew’s difficulty in analysing the situation,” Air France said.

Airbus said it welcomed the report and would give full support to the process, so that the industry could “benefit from any lessons to be learnt from this event”.

Air France and Airbus are being investigated for alleged manslaughter in connection with the crash.

“The BEA establishes the facts and makes recommendations based on those facts,” AFP quoted Environment and Transport Minister Nathalie Kosciusko-Morizet as saying on RTL radio.

“As to who is responsible, that is up to the courts,” she added.

Flight AF 447 went down on 1 June 2009 after running into an intense high-altitude thunderstorm, four hours into a flight from Rio de Janeiro in Brazil to Paris.

The wreckage of the plane was discovered after a long search of 10,000 sq km (3,860 sq miles) of sea floor.

The final minutes of Flight AF447

Map showing path of Flight AF 447

1. 0135 GMT: The crew informs the controller of the flight’s location

2. 0159-0206 GMT: The co-pilot warns of turbulence ahead before the captain leaves the cockpit for a rest break

3. 0208 GMT: The plane turns left, diverting from the planned route. Turbulence increases

4. 0210 GMT: The auto-pilot and auto-thrust mechanisms disengage. The plane rolls to the right. The co-pilot attempts to raise the nose. The stall warning sounds twice and the plane’s speed drops. The co-pilot calls the captain

5. 0210 GMT: The stall warning sounds again. The plane climbs to 38,000ft

6. 0211-0213 GMT: The captain re-enters the cockpit. The plane is flying at 35,000 ft but is descending 10,000 ft per minute. The co-pilot says “I don’t have any more indications”, pulls the nose down and the stall warning sounds again

Several German industrial giants have seen their share prices fall after reporting disappointing results.

Siemens, Europe’s largest engineering conglomerate, reported a drop in third-quarter profits, sending shares down 1.5%.

Chemical firm BASF and carmaker Volkswagen also saw their stocks drop.

The share-price falls helped pushed down the benchmark Dax index of the 30 biggest stocks in Germany. The Dax fell 1.2%, or 89.58 points, to 7,163.10.

Stocks across Europe were lower on fears of the health of the US economy and also concerns over whether the US will reach a political deal to pay its debts.

‘Challenging’ environment

Siemens said its third-quarter net profit from continuing operations had fallen 47% to 763m euros ($1.11bn, £673m) from the same period a year earlier- below the 1bn euro profit many analysts had expected.

Much of the decline came from the healthcare division, which makes products such as MRI machines and radiation equipment.

“The business environment for healthcare remained challenging,” Siemens said.

VW, Europe’s biggest carmaker, said its net profit for the first six months of the year rose three-fold to 6.5bn euros.

However, it added that higher commodity prices would “weaken the volume effect” over higher sales for 2011, sending shares down 4.9%.

Meanwhile, BASF shares fell 5.2% after it reported a 22%-increase in second-quarter net profit to 1.45bn euros, but added that high oil prices were weighing on new orders.

“We continue to be concerned about the development of the euro as well as the debt situation in some European countries and the United States,” BASF chief executive Kurt Bock said.

Rival Bayer said its second-quarter net income rose 41% to 747m euros and confirmed “the full-year sales and earnings forecast that we raised in April”.

However, its revenues of 9.25bn euros fell short of analysts’ forecasts, and Bayer’s shares fell 1.9%.

Shares in Lufthansa declined 2.8% after it warned of high oil prices and “competitive pressure in certain markets”.

The German airline, which owns the brands Swiss, Austrian and BMI, said its net income rose 55% to 301m euros for the April-to-June period.

The lawyer defending Anders Behring Breivik, who admits carrying out Friday’s mass killings in Norway, says his client is probably insane.

However he added it was too early to say if Mr Breivik would plead insanity.

Meanwhile, police have defended their handling of the event in which 76 people died in the bombing in Oslo and a shooting spree on a nearby island.

It was an hour-and-a-half before an armed unit reached Utoeya island after the shooting began.

“I don’t think we think we could have done this faster,” Police Chief of Staff Johan Fredriksen told journalists in Oslo.

He also dismissed criticism that staff manning the police department‘s one helicopter were on holiday.

Mr Fredriksen said the helicopter was only used for observational purposes and would not have affected the reaction to the shooting.

Mr Breivik is facing terrorism charges and police are considering also charging him with crimes against humanity, which carry a possible 30-year sentence, a prosecutor has said.

Mr Breivik’s lawyer, Geir Lippestad, told reporters: “This whole case indicated that he is insane.”

He said his client believed that he was in a war and that he would be vindicated in 60 years’ time.

A medical evaluation would be carried out to establish his psychiatric condition, Mr Lippestad added.

He said Mr Breivik had told him he was part of an anti-Islam network that had two cells in Norway and several more abroad.

Norwegian police and researchers have cast doubt on such claims, but said they were investigating them.

A police spokesman said two psychiatrists would assess Mr Breivik, who was also being kept on suicide watch.

Mr Lippestad also said that his client had used “some kind of drugs” before the crime.

‘Fantastic’ police work

Mr Breivik, a right-wing Christian extremist, appeared in court on Monday to face charges of destabilising vital functions of society, including government, and causing serious fear in the population.

He accepted responsibility for the attacks but denied the terrorism charges.

Prosecutor Christian Hatlo told Aftenposten that a new charge of crimes against humanity, which could be brought under a 2008 law, was “a possibility”.

Police spokesman Sturla Henreiksboe told AFP news agency: “Police have so far cited… the law on terrorism but seeking other charges has not been excluded.”

Earlier Mr Hatlo said Mr Breivik claimed he had worked in a cell, or group, and that there were two other cells working with him.

Although police sources say other groups are unlikely, Mr Hatlo said he “cannot completely, and I stress completely, rule out that others were involved in what happened”.

He said his operation had not been aimed at killing as many people as possible but that he wanted to create the greatest loss possible to Norway’s governing Labour Party, which he accused of failing the country on immigration.

The bomb in Oslo targeted buildings connected to the Labour government, and the youth camp on Utoeya island that was attacked was also run by the party.

The police have said they are to start to formally release the names of the victims on their website at 18:00 local time (16:00 GMT).

Police chief Sveinung Sponheim said the names, including the victims’ ages and where they lived would be published.

Names will continue to be released at 16:00 GMT each day until all the victims have been identified and all relatives informed, he said.

Earlier Norwegian Justice Minister Knut Storberget praised the “fantastic” work done by police.

“I had the opportunity to thank police in Oslo and other districts,” he told reporters after talks with Oslo’s police chief.

The praise comes despite criticism in the media that officers were slow to respond to the shooting on Utoeya island, where most of the victims died.

“It is very important that we have an open and critical approach,” Mr Storberget said, “but there is a time for everything.”

Mr Breivik has been remanded in custody for eight weeks, the first four in full isolation.

On Monday up to 250,000 people poured on to the streets of the capital, many of them holding flowers in memory of the eight people killed in the Oslo blast and the 68 who died at the youth camp on Utoeya.


Growth in the UK economy slowed in the three months to 30 June, partly because of the extra bank holiday in April.

Gross Domestic Product (GDP) grew by 0.2% in the second quarter, according to the Office for National Statistics.

It grew by 0.5% in the previous three months, but contracted by 0.5% in the last three months of 2010.

The ONS said growth had also been slowed by some other one-off factors, including the effects of the Japanese earthquake and tsunami.

‘Safe haven’

“The positive news is that the British economy is continuing to grow and is creating jobs,” said Chancellor George Osborne.

“And it is positive news too that at a time of real international instability we are a safe haven in the storm.”

But shadow chancellor Ed Balls said that the slowdown was a serious problem for the government and it should take steps to boost growth.

“These figures show that last year’s recovery has been recklessly choked off by George Osborne’s VAT rise and spending review,” he said.

“The economy has effectively flatlined for nine months and this is very bad news for jobs, living standards, business investment and for getting the deficit down.”

Mr Balls has called on the government to reverse the increase in VAT that took effect at the beginning of the year.

The think tank the Institute for Public Policy Research (IPPR) was also critical of the level of growth.

“Last June, the OBR [Office for Budget Responsibility] predicted GDP would grow by 2.6% in 2011, but even if the economy gets back on track in quarters three and four this year, it will barely reach 1.2%,” said IPPR director Nick Pearce.

“Outside of London, in particular, the recession continues to be felt and the UK economy might as well still be in recession, even if technically it isn’t.”

The ONS highlighted a number of special events in the second quarter that may have affected the GDP figures.

They were: the additional bank holiday for the royal wedding, the wedding itself, the after-effects of the Japanese earthquake and tsunami, the first phase of Olympic ticket sales and the record warm weather in April.

The ONS estimated that without these one-off factors, GDP would have been 0.5 percentage points higher.

Not all of the one-off factors were negative. Warm weather in April, for example, boosted spending on hotels and restaurants, but reduced spending on domestic fuel.

Nonetheless, analysts say that the ONS statement that GDP would have grown by 0.7% without one-off factors is good news.

“Given the comments from the ONS, this is a better-than-hoped-for report, but with confidence remaining weak and household finances under major pressure the underlying trend remains subdued,” said James Knightley at ING Financial Markets.

“Nonetheless, with firms still looking to hire and invest… we remain hopeful of a gradual acceleration in GDP growth over the next 12 months.”

Alan Clarke at Scotia Capital said: “What seems to have driven this is a stellar bounce-back in services output after the Easter fall, but 0.2% growth is nothing to get the champagne corks popping.”

“The biggest drag on growth at the moment is inflation and that’s eating into household disposable income and holding back consumer spending.”