Germany hinted at the possibility that European leaders may ultimately accept a write-off of Greek debt, provided that “Greece one day can rely once again on its own revenue, without having to borrow”. Germany has until now ruled out such a scenario on the pretext that it violates EU treaties.

This political shift on Greece’s mountain of debt shows a growing consensus among EU policymakers that a Greek default and eventual exit from the common currency would ruin the currency union. German Chancellor Angela Merkel said that euro leaders might consider writing off debt once the country has a budget surplus. Mounting Greek debt triggered Europe’s debt crisis three years ago.

Meanwhile, last week Greece announced bids to repurchase, at a hefty discount, €10 billion worth of bonds it issued earlier this year.

The European Central Bank (ECB) kept its benchmark rate unchanged at 0.75 per cent. The rate determines what commercial banks charge for borrowing from the ECB and, indirectly, the interest rates banks set for their consumers. The ECB also cut its forecast for economic growth in 2013 from +0.5 per cent to -0.3 per cent.

The Bank of England also left its key rate at the all-time low of 0.5 per cent, at which it has been since March 2009. Additionally, the bank did not authorise any further stimulus measures. These decisions were widely expected by the markets.

In the US, manufacturing in November unexpectedly fell for the fourth month in the past six, as factory managers worried about the so-called ‘fiscal cliff’. The Institute for Supply Management’s factory index fell to 49.5, the lowest reading since July 2009.

The reading for October was 51.7. A survey carried out by Bloomberg News indicated that the expected reading was 51.4.

Weaker demand from abroad, less investment in equipment and the possibility of automatic government budget cuts and tax increases in 2013 are all hurdles to business.

This article was compiled by Bank of Valletta plc for general information purposes only.