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Greece gets yet another lifeline

Greece’s eurozone creditors gave the heavily indebted country another lifeline with transfers of €3 billion between now and October to prevent upsetting the financial markets before the German elections due in September. At the same time, they put more pressure on the Greek government to further cut jobs and reduce spending.

Greece is to get a €2.5 billion in new loans this month plus a further €500 million in October. Furthermore, the European Central Bank (ECB) is to return €2 billion in profits it made on Greek bonds while the International Monetary Fund (IMF) is expected to provide €1.8 billion in August.

In the meantime, according to the Office for National Statistics, during May, the UK manufacturing industry unexpectedly contracted, casting doubts on the strength of the economic recovery in the second quarter.

Factory output fell by 0.8 per cent from April, when the decline was 0.2 per cent. Economists in a Bloom­berg News Survey expected an increase of 0.4 per cent. Separate data showed that, during the same month, the goods-trade gap was little changed at £8.5 billion (€9.2bn). These data suggest the broad-based recovery that business surveys are pointing to may be finding difficulty to find a solid footing.

Finally in the US, the chairman of the US Federal Reserve Ben Bernanke indicated that the Fed will keep up its bond-buying programme for the months to come, saying “that highly accommodative monetary policy for the foreseeable future is what’s needed for the US economy”.

The chairman’s comments came after the minutes of the last Federal Open Market Committee meeting showed that policymakers are divided between those who believe that bond-buying tapering is warranted soon and those who would like to see further improvement in the labour market before such tapering goes ahead.

The Fed’s June meeting was held prior to the release of the government’s report on the US labour market for June that showed surprising strength.

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

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