Headlines

Britain's economy may have entered a mild recession in the last three months of 2011, hampering the government's core policy aim of spurring growth and raising the chances that the Bank of England will inject more cash soon, Reuters reported. Britain's recovery from the 2008/2009 recession - the deepest since the depression-hit 1930s - has already been sluggish, and unemployment has crept up to a 17-year high as the government cuts spending deeply to erase a huge budget deficit.

The International Monetary Fund warned on Tuesday that global growth prospects had dimmed as the sovereign debt crisis in the euro zone entered a “perilous new phase,” the International Herald Tribune reported. Releasing quarterly updates of three reports on the outlooks for the economy, debt and global financial stability, the fund cut its estimates of global growth this year to 3.25 percent, from the 4 percent it forecast in September, on “sharply escalated” risks emanating from Europe.

The Bank of England stands ready to engage in further stimulus and extend support to lenders facing funding shortages in order to shepherd the U.K. economy through a new global slowdown, BOE Governor Mervyn King said Tuesday, The Wall Street Journal reported. Mr. King told an audience in Brighton, England, that the U.K. faces an "arduous, long and uneven" recovery in the years ahead as it attempts to work off its debts and rebalance its economy away from debt-fueled spending towards exports and investment. This will not be an easy year, Mr. King said.

Does this sound familiar? Central bankers who are so concerned about the threat to their currency that they demand that austerity be imposed upon angry citizens. Political leaders who, facing a deep recession that has led to large-scale unemployment, insist that the only route to recovery is to cut public spending, pay off national debt and impose higher taxes. How about this? Economists, doubting the wisdom of bankers and lawmakers, argue that the best way to avoid a decade of lost jobs and economic stagnation is to borrow and spend to promote economic growth.

Joe Hockey has called on Australians to embrace a new spirit of austerity, saying families and businesses should pay off debt to prepare for up to two decades of economic turmoil, The Australian reported. The opposition treasury spokesman said it critical for the government to pay off debt, but similar policies should be pursued in households and boardrooms. "The bottom line is that we are going to have a very volatile period, economic period, for the next 10-20 years, " he told ABC radio.

Finnish unemployment rose to the highest in six months at the end of last year, increasing more than economists estimated, as Europe's debt crisis sapped economic growth in the northernmost euro member, the Irish Times reported on a Bloomberg story. The jobless rate, which isn't adjusted for seasonal variations, rose to 7.4 per cent in December from 6.2 per cent in November, Statistics Finland said Tuesday. The rate topped all four economist estimates in a survey by Bloomberg.

Switzerland-based refiner Petroplus Holdings AG plans to file for insolvency, after talks with its lenders failed to unblock credit lines and the company succumbed to the weak profit margins that have dogged the sector in Europe during the past year, The Wall Street Journal reported.

Germany is open to boosting the firepower of the eurozone’s rescue funds to €750bn in exchange for strict budget rules favoured by Berlin in a new fiscal compact for all members of the currency union, the Financial Times reported. Berlin appeared to soften its longstanding resistance to increasing the funds only hours after the International Monetary Fund warned that the eurozone needed more money to build “a larger firewall” to prevent the crisis from spreading to its core economies.

Investors, economists and politicians are increasingly concerned that Portugal will need a second bailout as fears mount that it won't be able to return to markets for financing next year, The Wall Street Journal reported. While the Portuguese government's finances are covered this year as long as it abides by its bailout agreement, Portugal must regain full access to capital markets next year to help repay €9 billion ($11.64 billion) in debt coming due in September 2013.

Greece came under heavy pressure at a meeting of eurozone finance ministers on Monday to revamp a stalled debt restructuring deal with private bondholders and accelerate structural reforms in order to avert a disorderly default, the Financial Times reported. Ministers from Germany and the Netherlands rounded on their Greek counterpart and urged him to deliver on promised reforms to the economy, in a sign that patience with Athens is wearing thin just as eurozone members begin to finalise the details of a second bail-out package.