FRANKFURT — Mario Draghi, the president of the European Central Bank, laid the groundwork for a more aggressive response to the debt crisis Thursday, suggesting that the bank could increase its support for the European economy if political leaders took more radical steps to enforce spending discipline among members.
In the run-up to a meeting of European leaders late next week, Mr. Draghi’s remarks seemed to be part of a larger effort by the bank and the region’s biggest economic powers — Germany and France — to lay the foundation for a broader rescue without seeming to compromise their principles.
Later in the day Thursday, the French president, Nicolas Sarkozy — acknowledging the region’s debt crisis — announced that he and the German chancellor, Angela Merkel, would meet in Paris on Monday “to make French-German propositions to guarantee the future of Europe.”
Last weekend, Germany and France began floating a plan to hold member nations of the euro currency union more financially accountable to their fellow members by giving European Union officials the power to vet and approve their national budgets. Euro zone agreement to such a proposal is seen as a possible precondition to increased financing by the central bank, to which Germany and France are the biggest contributors.
Mr. Draghi, in the manner of central bankers, made no explicit promises on Thursday. And the quid pro quo he offered governments was indirect. But his remarks illuminated how the bank might answer increasingly desperate calls for the bank to escalate its intervention in bond markets without violating its own mandate or alienating Germany, where opposition to a central bank bailout of Greece or Italy continues to run deep.
Speaking to the European Parliament in Brussels, Mr. Draghi stopped well short of offering a European version of the sort of large securities purchases that the United States Federal Reserve has used to try stimulating the American economy.
But he seemed to be saying that the bank would use its virtually unlimited resources to keep financial markets at bay, if government leaders in the euro region agreed to do their part by addressing the structural flaws that had allowed the debt problems of Greece to mutate into a threat to the global economy.
“What I believe our economic and monetary union needs is a new fiscal compact,” Mr. Draghi said. “It is time to adapt the euro area design with a set of institutions, rules and processes that is commensurate with the requirements of monetary union.”
The new head of the European Central Bank signaled on Thursday it stood ready to act more aggressively to fight Europe’s debt crisis if political leaders agree next week on much tighter budget controls in the 17-nation euro zone.
In France, President Nicolas Sarkozy called for a new treaty incorporating tougher budget discipline, a European Monetary Fund to support countries in difficulty and decisions in the euro area taken by majority vote instead of unanimity.
Addressing supporters in the port city of Toulon, Sarkozy said he and German Chancellor Angela Merkel would meet next Monday to outline joint proposals to put to a December9 EU summit, seen as make-or-break for the 12-year-old single currency.
“Let us not hide it, Europe may be swept away by the crisis if it doesn’t get a grip, if it doesn’t change,” Sarkozy said, warning that a collapse of the euro would make France’s debt unmanageable and wipe out people’s savings.
“We don’t have the right to let such a disaster happen.”
Facebook games developer Zynga Inc will sell about 15 percent of its common stock in an initial public offering, Bloomberg said, citing a person with knowledge of the matter.
Zynga plans to sell shares for $8.50 to $10 apiece in its initial public offering to raise as much as $1 billion, valuing the company at as high as $7 billion, the agency said.
Already, another jobs Friday is upon us tomorrow. The consensus call is that 125,000 new jobs were created in November, unemployment is expected to stay flat at 9%. Here’s what the geeks are saying:
- RBS – Firms remain cautious about adding to their workforces in the current environment, pointing to an agonizingly slow downward drift in the unemployment rate. We expect an increase of 125,000 in tomorrow’s November nonfarm payroll release, and an unchanged unemployment rate at 9.0%.
- Deutsche Bank – We recently raised our forecast for nonfarm payrolls from +125k to +150k (175k private vs. 150k previously) on the back of improving data including ADP employment (206k vs. 130k), the Chicago PMI (62.6 vs. 58.4), the manufacturing ISM (52.7 vs. 50.8) and jobs plentiful (5.8 vs. 3.6)/jobs hard-toget (42.1 vs. 46.9). In addition, we are encouraged by the broader downtrend in jobless claims (the 4-week average on initial claims is near its April low), as well as the ongoing pattern of upward revisions to payrolls over the past several months. In point of fact, private payrolls have been revised higher in each of the past five months by an average of +32k. Hence, if October’s private payroll gain of +104k is revised up by a similar amount, then our November private payroll forecast of +175k will be less of a dramatic increase. Upward revisions to payrolls are consistent with our thesis that employment and income are being understated.
- Goldman Sachs – Based on information released so far this week, we are changing our payroll forecast to +125,000 from +100,000. This is roughly in line with the consensus expectation for tomorrow’s release.
- TD Securities — We are certainly encouraged by the strong showing in a wide array of ancillary employment indicators, including the November ADP employment report, weekly jobless claims and household employment survey, and believe the risk to our call for a 175K gain in employment may be titled to the upside. Collectively, the strength in all three reports matches (or in some cases exceeds) their strong performance earlier this year, when the economy was adding jobs at a decent 200K+ clip.
- Capital Economics — Given the stronger than expected gain in the ADP measure of private employment, we now anticipate a 140,000 increase in the official measure of non-farm payrolls in November (13.30 GMT), up from October’s 80,000 gain. However, the unemployment rate should remain at 9.0%.
- BNP Paribas — We have revised our forecast for nonfarm payrolls up to 150k from 125k. The pick-up in hiring should be driven by the private sector, which we now expect will add 175k jobs after a 104k increase in the month prior (see chart above). Meanwhile, the government sector is forecast to shed 25k employees as state and local entities continue to struggle to close large budget gaps. We do not think that the overall pace of hiring will be enough to bring down the unemployment rate from 9% in November, though that assumes a stable labor force participation rate.
- Nomura – Today’s data release should not alter market expectations for the November payroll report, due out Friday 2 December. We forecast an increase in total nonfarm payrolls of 140,000 (150,000 private), with an unchanged unemployment rate at 9.0%.
- Barclays Capital — We continue to look for nonfarm payrolls to rise 125k in tomorrow’s November report, with a 150k increase in the private sector.
Economics:
8:30 a.m. — The big jobs report for November arrives. The consensus calls for 125,000 jobs and unemployment standing pat at 9%.
FedSpeak:
9:00 a.m. — Dallas Fed President Fisher speaks on ‘America’s Fiscal Challenges’ in Dallas.
10 a.m. — Philadelphia Fed President Plosser speech at Policy Forum in Philadelphia.
To suggest financial markets have been volatile as of late is simply a wild understatement. Although we’ve certainly seen this type of volatility in terms of percentage moves over short spaces of time in the past, we can’t remember when we’ve last seen this degree of volatility within the context of whipsaw back and forth movement. Although it may sound hard to believe, if one looked only at closing S&P prices and added up the interim high to low and low to high movements of the SPX since literally May 1 of this year, the S&P has traveled 1,233.83 points!!!! More than the entire value of the SPX as of the close the day after Thanksgiving. Now how’s that for volatility over a seven month period?