Greece blinking Will Italy or Spain barge doors first..?

The Rift in Euro Zone opens wide Juergen Stark resigned

Juergen Stark resigned from the European Central Bank’s Executive Board after protesting the bank’s bond purchases on a conference call earlier this week, said a euro-area central bank official familiar with the meeting.

During the Sept. 4 call, Stark, 63, expressed his strong opposition to the program, which was expanded last month when the ECB started buying Italian and Spanish bonds, said the official, who spoke on condition of anonymity because the discussions are confidential. Stark was supported by the central banks of Austria and the Netherlands, the person said. The resignation of Stark, the ECB’s chief economist, is a blow to the bank, the official said, noting he is the second German ECB member after Axel Weber to leave over the bond program.

Stark’s resignation, less than two months before President Jean-Claude Trichet’s term ends, suggests policy makers are increasingly split over the best way to fight Europe’s debt crisis. The ECB’s bond purchases have also been opposed by Bundesbank President Jens Weidmann and his predecessor Weber, who earlier this year pulled out of the running to succeed Trichet.

“There is quite a severe row going on,” said Juergen Michels, chief euro-region economist at Citigroup Inc. in London. “It seems that it went too far.”

‘Personal Reasons’

The euro extended its decline after news of Stark’s possible resignation was first published. It traded at $1.3662 at 5:37 p.m. in Frankfurt, down 1.6 percent on the day.

Stark today informed Trichet that, “for personal reasons, he will resign from his position,” the Frankfurt-based ECB said in a statement. “Stark will stay on in his current position until a successor is appointed, which, according to the appointment procedure, will be by the end of this year.”

The German government will nominate Deputy Finance Minister Joerg Asmussen to replace Stark on the ECB’s six-member board, Germany’s N-TV reported, without saying where it got the information.

The ECB, which started its bond program in May last year when Greece’s fiscal crisis began to spread to other euro-area countries, has so far spent 129 billion euros ($176 billion) on the bonds of distressed governments in an attempt to lower their yields. While the ECB says it is trying to ensure the transmission of its interest rates, Stark told Bloomberg News on Aug. 18 that the purchases blur the line between monetary and fiscal policy.

No ‘Glowing Advocate’

“It’s generally known that I’m not a glowing advocate of these purchases,” Stark said. “I see the rationale. Our accommodative monetary policy isn’t being transmitted in certain regions. So it’s justifiable from a policy point of view. But there’s an important point -- we are also reducing interest rates for the sovereign. That’s where the problem is.”

Stark’s eight-year term was due to end on May 31, 2014. When he and Trichet depart, half of the ECB’s board will be new. Belgium’s Peter Praet joined in June. Bank of Italy Governor Mario Draghi will take the ECB’s helm on Nov. 1.

Trichet yesterday said the central bank has cut its growth forecasts for this year and next and reduced its assessment of inflation risks, opening the door for further stimulus measures. Stark is one of the ECB’s most ardent inflation fighters.

“Things do not look too good from outside, with a second German leaving the Governing Council to openly criticize the ECB after Weber,” said Laurent Bilke, a former ECB economist now working at Nomura International in London. “Good luck to Mario Draghi.”

Eurozone Contracts, Japan In Recession.,

                                                                                                                                                                                                       Eurozone drifts nearer to stagnation in July, as Germany and France slow further and Spain falls back into contraction
                                                              Data collected 12–26 July.
Key points:
.. Final Eurozone Composite Output Index at 22-month low of 51.1 in July (flash estimate: 50.8).

.. Growth led by France, as Germany slows sharply. Contractions seen in Italy and Spain.

.. Further job creation in Germany and France, while pace of losses eased               outside of the big-two.
                                              Output growth slips closer to stagnation

Having eased sharply in each of the previous three months, Eurozone private sector growth moved closer to stagnation at the start of Q3 2011.
The Final Eurozone PMI® Composite Output Index fell to 51.1 in July, down from 53.3 in June. Although above the earlier flash estimate of 50.8, the final reading was still the lowest since September 2009. Activity has risen throughout the past two years.

Output growth eased in both the manufacturing and service sectors in July. Manufacturing production scarcely rose over the month. Meanwhile, the rate of expansion in service sector business activity was the weakest since September 2009.
The slowdown was broad-based by nation. Rates of expansion were the least marked since October 2009 and August 2009 in Germany and France respectively, and well below those seen in the opening quarter of the year. Further contractions were seen in Italy and Spain. In the case of Spain, the rate of decline was the steepest for 19 months.
                                              Nations ranked by output (July)
                                              France 53.2 23-  month low
                                              Germany 52.5 21-month low
                                              Italy 49.1 2-        month high
                                              Spain 46.1 19-   month low



The principal factor underlying weaker output growth was a near stagnation of inflows of incoming new business. Levels of new work slowed on the back of weakening conditions in domestic markets and the first decline in new manufacturing export business (including intra-Eurozone trade) for two years.
The rate of expansion in new business eased sharply in Germany (weakest in two-year period of growth) and also moderated in France (23-month low). Italy reported a further reduction, while Spain saw new orders fall back into contraction with the steepest rate of decline since the end of 2009.


                 Job creation continues in big-two nations, rates of reduction ease in Italy and Spain


Job creation held up comparatively well in light of the slower expansions in output and new business. Employment rose for the fifteenth month running in July, with the rate of increase only slightly below the average for that period. Payroll numbers rose at both manufacturers and service providers.
The slowdown mainly reflected weaker job creation in Germany. However, Germany still reported the strongest increase in payroll numbers overall, followed at some distance by France (which saw a faster rate of jobs growth than in June). Although further losses were recorded in Italy and Spain, rates of decline eased in both nations.
                                             Output price indices by nation


July saw average input price inflation ease further from March’s 32-month high. Slower cost increases were reported in both the manufacturing and service sectors, with by far the sharper easing seen at manufacturers. Cost inflation slowed in all of the nations covered by the survey.

        
                              Japanese private sector activity falls at solid pace in July

Key points:

.. Composite data signals fifth successive monthly decline in business activity

..  Private sector new work falls only marginally

..   Service sector optimism remains solid

Summary:

              Japanese service providers reported lower business activity for the sixth consecutive month during July, as intakes of new work continued to fall amid weak domestic consumption. Companies further reduced their employee numbers in response. Looking ahead, service providers expressed a solid degree of optimism in the one-year business outlook. Meanwhile, output prices and input costs decreased at marked and marginal rates respectively.

The seasonally adjusted Business Activity Index posted 45.3 in July, down fractionally from 45.4 in June,