15 May 2010 - Global Markets Review

Good Morning Ladies & Gentlemen,

Oh what a week that was!

What I mentioned last week concerning my innate distrust of Ratings Agencies, filtered through to the banking sector this week.

The battery of allegations against Wall Street banks extended dramatically on Thursday as some of the world's largest financial firms confirmed they faced criminal investigation.

At least nine major banks were said to be under criminal and civil probes over the sale of mortgage-backed products that have been blamed for sparking the global economic crisis.

What began as an investigation into Goldman Sachs' trading practices now appears to have become a near sector-wide investigation that is striking at the heart of Wall Street's credibility.

In two separate probes, the Securities and Exchange Commission and New York's Attorney General are said to be investigating whether banks misled investors by selling securities they bet against and also deceived ratings agencies about the products' value. The Wall Street Journal on Thursday reported that Goldman Sachs, JP Morgan, Citigroup, Deutsche Bank and UBS are all the subject of criminal investigation for selling mortgage related deals while betting against them.

Meanwhile the New York Times reported that the government's top local prosecutor, Andrew Cuomo, was probing whether eight banks misled ratings agencies to inflate the grades of certain mortgage securities. Standard & Poor's, Fitch Ratings and Moody's Investors Service were said to have rated the mortgage deals. The agencies have taken flack for overstating the quality of mortgage securities that later lost value in the wake of the housing collapse.

The Times, citing unidentified individuals with knowledge of the investigation, said Mr Cuomo was also looking into a practice of bank mortgage desks hiring rating agencies employees to help create mortgage deals that secured better ratings than they were due. Goldman Sachs, Morgan Stanley, UBS, Citigroup, Credit Suisse, Deutsche Bank, Credit Agricole and Merrill Lynch - which is owned by Bank of America - were all cited as targets by the paper.

On the markets themselves this week; not such severe swings as the previous week - but none less volatile at the core.

Talking of last week's massive Thursday decline, the US investigated quickly toalleviate global fears relating to the US Market volatility - and this Ladies & Gentlemen was their initial discovery:

Major Wall Street firms retreated from the market Thursday at the very moment when they were most needed to support normal trading, in what a senior federal regulator called the "most significant" factor behind the stock market's dramatic volatility.

Securities and Exchange Commission Chairman Mary Schapiro discounted Monday many of the most widely discussed theories behind why the markets panicked. These include an erroneous "fat finger" trade that started it all; hacking or terrorist activity; unusually large trading in shares of Procter & Gamble, a component of the Dow Jones industrial average; and trading in derivatives.

"The markets failed investors," Schapiro said. But, she added, "at this point, we are unable to point to a single event which could be the sole cause."

In prepared testimony before a congressional panel probing the market turmoil, Schapiro said a key cause was the sudden withdrawal from the market of firms that traditionally play a role as a "liquidity provider" by purchasing stocks when prices are declining and selling stocks when prices are rising.

Under securities laws, some of the firms -- often associated with a major bank or brokerage -- are required to remain active in the market even during times of market stress. But many of these more established liquidity providers have been displaced in the past decade by high-speed electronic trading firms that face no such legal obligation to provide liquidity.

The SEC named no names. Some of the largest established liquidity providers include Citadel Securities, Barclays Capital and Merrill Lynch, which are part of financial conglomerates. Less-known firms that are recent comers to the industry include Getco and Jump Trading. These companies are smaller operations that focus exclusively on electronic trading.

Schapiro said liquidity providers stopped buying stocks that suffered large price declines Thursday, "whether because of an intentional decision to withdraw or because of specific market practices," without specifying those practices. She said there is no indication that government rules were breached.

Regulators have spent the past several days analyzing millions of trades but have yet to determine what was behind Thursday's volatility. On that day, the Dow Jones industrial average rapidly fell nearly 1,000 points before rebounding 700 points, as many individual stocks suffered dramatic plunges before reclaiming most of their declines.

Schapiro said that the investigation's preliminary findings will be issued Monday but that the task at hand is huge: reviewing millions of trades in billions of shares.

Schapiro identified as another key cause of the volatility the different rules among exchanges for when to slow or stop trading in a fast-declining stock. On Monday, Schapiro gave US stock exchanges 24 hours to devise a marketwide plan to stop or slow trading in stocks that are falling rapidly.

The SEC said on Tuesday that it had received the exchanges' recommendations but would not say what they were.

Meanwhile, the SEC and Commodity Futures Trading Commission announced Tuesday the creation of a joint task force to discuss emerging regulatory issues, with an initial focus on Thursday's volatility. The task force will look at regulatory loopholes and any possible gaps between areas of the market overseen by the two entities.

Members of the committee include, among others, Brooksley Born, a former CFTC chairman who warned more than a decade ago about the risks of derivatives; former SEC chairman David S. Ruder; and former Vanguard chief executive Jack Brennan.

Schapiro said Thursday's volatility raises several regulatory implications. She said the SEC would look at "timeout" mechanisms that pause action in the market or particular stocks during times of distress.

She said the automated nature of Friday's trading might require additional timeout mechanisms. In addition, she said the SEC is considering limits on the prices at which trades can be executed and limitations on the size of market orders.

Schapiro also said the agency would look at whether short-term trading strategies, such as those that use computer analysis to make split-second decisions, need to be curtailed.

The SEC has several proposals outstanding that would address some of these issues. One proposal would beef up risk-management controls for brokers. Another would make it easier to capture and analyze trading patterns across markets.

So, in a nutshell, we're none the wiser how or why this happened - astonishing in 2010 - how can we NOT pinpoint something; for every action there is a reaction, so it is not rocket science to think that we should be able to trace back to what caused this to happen at that specific time in the trading day.

Talking of the US's problems, of course Europe has problems of their own although I personally think that whilst undoubtedly Europe has its 'issues' - and large issues they most certainly are for certain countries - I cannot help but feel that the US is revelling in Europe's woes because as I mentioned last week, this creates a diversion away from their own severe problems - problems that I think run much deeper than the problems in Europe and will only result in the complete demise economically and fiscally of the US of A.

Whilst casting stones freely and deriding European Governments, those across the pond only have to look at their own Governments to see the root causes of their own under-the-surface turmoil.

There is good news and bad news about the debt crisis in Greece. The good news is that, notwithstanding stock markets' breathtaking plunge and recovery of recent days, it doesn't seem likely to do much damage to the US economy.

The bad news is that the US economy will suffer a lot if they keep following the sort of fiscal policies that have created the crisis in Greece.

Greece's problem is that it has lived far beyond its means. Its government budget deficit is now nearly 14% of its gross domestic product, and its total debt is 115% of GDP. The Greek parliament has approved some painful cuts and tax increases, but recent strikes and riots raise doubts whether the government can make them stick.

The nearly $1 trillion bailout by the European Union and the International Monetary Fund has reassured investors, who had grown very skittish about getting repaid. Markets yo-yo'ed all week, but that major rescue effort seems to have reduced the panic and kept it from spreading, at least for now.

Though the Greek economy is small, its collapse could have dampened growth in the US, so the improved sentiment midweek was good news for Americans. Fortunately, the US economy is showing signs of a potential recovery, with three consecutive quarters of growth and low inflation. Hiring is also picking up at last.

Banks have emerged from the downturn with stronger balance sheets. Robust growth in countries such as China and India is serving as a tonic for economies in the rest of the world.

But the hopeful short-term prospects in the US are not addressing the plainly obvious issue. The real problem for the American economy is that the federal government (and many states, insolvent Illinois included) is making the same fiscal mistakes that led Greece to the edge of the cliff.

The federal budget deficit is expected to top 10% of GDP this year, the highest since World War II, and next year won't be much better. Given current trends, the total debt will reach a scary 90% of GDP just a decade from now.

Much of the recent deficit spending in Washington stems from a defensible response to a severe economic crisis. But once that is past, spending will continue to rise, by nearly 60% over the next decade. Revenues will lag far behind.

Add in an unexpected economic downturn sometime in the next few years, and a bad situation could get much worse - a la what's happening in Greece.

The US has the advantage that the Dollar enjoys a preferred place as the international reserve currency, giving their policymakers a certain latitude FOR THE MOMENT.

But that status is not guaranteed for all time and when that status starts to fall, then I feel Europe will have the last laugh and laugh the longest!

If Americans want to avoid the fate of toay's Greece, they had better do what the Greeks failed to do: scale down what they demand from the government and accept the need to pay for what they get.

As the saying goes; Americans in Glass Houses shouldn't throw stones (well, that is what the saying says in my little book of idioms).

But seriously, I cannot write this newsletter today without covering Europe - and it does not look too pretty on the surface.

Amid cries of outrage and expressions of disbelief, a new age of austerity has arrived in Europe.

As governments across the Eurozone impose cuts on a scale unseen in decades, Greece - widely seen as the centre of the crisis - has already seen violent demonstrations and general strikes. Now there is growing concern that such displays of public anger will become more widespread.

Spanish trade unions were on Thursday threatening nationwide walkouts and protests. The shock is palpable in countries which have moved from poverty to prosperity during the decades of almost uninterrupted growth since the second world war and have always enjoyed the material benefits of European Union membership.

"Two things are hard to believe: I can get laid-off and that I'll have to work to 65 to get a pension," says Yannis Adamopoulos, who is a security guard at a state-controlled Greek corporation. Another Greek, Fotis Magriotis, a self-employed civil engineer, has put his sports utility vehicle up for sale. Work is hard to find and taxes on petrol have twice been increased. "There's no alternative to downsizing," he says.

Such statements provoke grim humour in the northern half of Europe, where job insecurity, retirement at 65, small cars and high petrol prices are not unusual.

In the end it was the financial markets, not the austere German paymasters of the Eurozone, that exposed the vulnerability of Greece, Spain and Portugal and triggered a €750bn rescue package unveiled at the weekend.

The emergency bail-out, which aims to free up sovereign debt and interbank markets in Europe, came with strings attached by the European Union, the International Monetary Fund and the US: after the two-year fiscal spending binge that followed the financial crisis of 2008 and made life easier during the recession, governments will be obliged to cut their deficits, and cut them hard.

For the first time since EU aid started flowing freely in the 1980s, Greeks face a significant drop in living standards, with the economy set to shrink 4 per cent this year and another 2.6 per cent in 2011.

The new reality being imposed by the Greek socialist government - a 12 per cent wage cut for civil servants, reductions in pensions and looming job losses in public sector corporations - stuns workers in the bloated state sector.

A similar, if less severe, adjustment is being imposed by the socialist government of Spain. José Luis Rodríguez Zapatero, prime minister, is angering former allies in the trade union movement by going back on his promises and cutting civil service pay by 5 per cent from next month as part of a drive to control the deficit.

Orthodox economists, and Mr Zapatero's conservative opponents, say the government and the Spanish people have been slow to grasp the importance of having a dynamic private sector to pay for the welfare state. "The Spanish want to think like Cubans and live like Yankees," says Lorenzo Bernaldo de Quirós, an economist and business consultant.

In the north, the Germans have been living up to their reputation as diligent workers prudently aware of the eternal trade-off between services and taxes. Many voters in the North Rhine-Westphalia state election last Sunday said they would rather pay more taxes than see their local swimming pool or kindergarten close.

"Germans are far more in favour of stability and austerity and not for deficit spending," says Jürgen Falter, professor of political science at Mainz university. "It is part of the collective memory, going back to the hyperinflation that wiped out their grandparents' savings in the 1920s."

The north-south divide, however, is not as stark as it first appears.

France straddles north and south and could face mass protests over a three-year government spending freeze. Ireland and the UK in north-west Europe were among the most profligate European nations as bubbles in housing and financial services swelled unsustainably in the heady years before the collapse of Lehman Brothers.

In Dublin at least, the harsh cuts unveiled to restore order to public finances are beginning to bite. Around the corner from Government Buildings, John Myley, a shoe repairer, complains that a lot of his customers are finding it hard to pay. "Everyone's trying to keep up appearances. But at the moment, I tell you, I've got 14 pairs of shoes on tick [credit], for people who can't pay until they're paid at the end of the month."

The former and the new British governments have proposed sweeping cuts to public expenditure but the issue was not much discussed in the general election campaign and details remain secret. There is no means yet of knowing how well Britain will accept its fate. But even small cuts of £500m to university expenditure this year brought howls of protest.

Nor are southern Europeans necessarily as profligate as some suggest.

Italians feel their belts have been tightened for some time, although the word austerity has not entered Italy's political vocabulary because Silvio Berlusconi, prime minister, likes to keep the mood upbeat. Over the past five years both centre-left and centre-right governments have kept a fairly tight lid on spending, keeping Italy's ratio of budget deficit to gross domestic product within manageable limits.

In Portugal, the economically conservative inhabitants are responding to tough austerity measures by saving, prioritising mortgage payments and defending jobs.

As in previous recessions, when thousands worked for months without pay, the country has opted for resilience rather than revolt. Domestic savings are up and defaults on mortgage loans remain low.

After a decade of the lowest economic growth in the Eurozone, however, the Portuguese face another four years of belt-tightening with growing frustration.

The same is true of most of western Europe. Each Eurozone country is taking the measures it must take or can take - from pursuing tax cheats in Spain and Greece, to reducing child benefits in Ireland and controlling public spending almost everywhere - to reach a budget deficit target of 3 per cent of GDP in the next three or four years.

The danger is that a Europe hounded by market forces has acted too late, and that these sharp doses of austerity will stifle the first stirrings of new economic growth and so worsen budget problems in the future by provoking a relapse into recession.

A lot of Spaniards have realised this week that the money isn't theirs', it's borrowed from others and so they do not have sovereign powers - and they are getting worried that is for sure.

On to the numbers for the week that was:

US Markets

How the US did this week .....

US Summary US stocks fell, paring a weekly rally that's the biggest in two months, as concern Europe's debt crisis is destabilizing its currency overshadowed stronger-than- estimated reports on retail sales and industrial production.

All but 11 companies in the S&P 500 declined, led by technology companies and banks, as the Euro traded at its weakest level against the Dollar since the aftermath of the collapse of Lehman Brothers Holdings Inc. in 2008. Visa Inc. and MasterCard Inc. slumped more than 8% after a Senate vote to curb debit-card fees. Nvidia Corp. fell the most in a year after its sales forecast fell short of analyst estimates.

The S&P 500 lost 1.9% to 1,135.68 at 4 p.m. in New York, trimming its weekly advance to 2.2%. The Dow Jones Industrial Average dropped 162.79 points, or 1.5%, to 10,620.16. Seven stocks declined for every one that rose on US exchanges.

The S&P 500 gained 4.2% this week through Thursday after the European Union set up a financial-aid package valued at almost $1 trillion, including a plan to buy government and private debt, after downgrades of Greece, Spain and Portugal made investors wary of the region.

The main benchmark for US stocks is down 6.7% from this year's high on April 23 amid concern European measures to avert debt defaults will derail the global recovery. Japan's Sony Corp., the maker of televisions and cameras that is a bellwether of consumer spending, said it may suffer a "significant impact" if Europe's deficit problems spread and forecast profit for this fiscal year that's less than half the average estimate of analysts surveyed by Bloomberg.

Intel Corp., the world's largest maker of semiconductors, Caterpillar Inc., the largest maker of construction equipment, and Alcoa Inc., the largest US aluminum producer, all fell at least 2.7%.

The benchmark index for US stock options increased 17%, reflecting a higher cost of using derivatives as insurance against losses. The VIX, as the Chicago Board Options Exchange Volatility Index is known, rose 4.56 points to 31.24. The VIX had the biggest weekly gain in its two-decade history last week, increasing 86%.

Freeport-McMoRan Copper & Gold Inc. fell 2.8% to $69.72, helping lead declines in commodity producers as copper futures slumped 3%. Aluminum, lead and zinc also slumped on the London Metal Exchange, reflecting a weaker outlook for global growth.

Exxon Mobil, the biggest US oil company, fell 1.8% to $63.60. Crude fell to $71.61 a barrel on the New York Mercantile Exchange, the lowest settlement for a most-active contract since Feb. 5. The Euro's drop helped push the Dollar to a one-year high against a basket of six major currencies, curbing demand for Dollar-denominated commodities.

Visa, the world's biggest electronic-payments network, fell 9.9% to $77.26. MasterCard, the second-biggest, retreated 8.6% to $212.45.

The Senate action on debit-card fees also weighed on banks. Bank of America Corp., Wells Fargo & Co. and JPMorgan Chase & Co., the biggest US debit-card issuers, all fell at least 2.2%.

American Express Co., the biggest US credit-card issuer by purchases, dropped 5.1% to $40.64 for the biggest decline in the Dow average. While AmEx doesn't issue debit cards, the measure allows retailers to offer discounts for competing card brands.

Retail purchases increased 0.4% last month, exceeding the median estimate of economists surveyed by Bloomberg News, after a 2.1% gain in March that was larger than previously estimated, the Commerce Department said Friday.

Also indicating the economic recovery extended into the second quarter, the Federal Reserve said the output of factories, mines and utilities increased 0.8%, compared with a 0.7% median estimate, and the March increase was revised higher.

Nvidia Corp. slid 12% to $12.96 for the biggest decline in the S&P 500. The world's second-largest maker of graphics chips said sales will drop as much as 5% to about $950 million in the current quarter from last quarter's $1 billion. Analysts had predicted sales of $991 million on average, according to a Bloomberg survey.

Advanced Micro Devices Inc., Nvidia's smaller rival, declined 6.6% to $8.80.

Of the S&P 500 companies that have reported first-quarter results, 77% have topped the average analyst estimate as a profit recovery extended into a second quarter. Aggregate profits fell from the year-earlier period for a record nine straight quarters beginning in June 2007.

European Markets

What has been happening in Europe this week .....

Europe Summary European stocks slumped, with the Stoxx Europe 600 Index paring its biggest weekly gain since July, amid mounting concern that the region's debt crisis will hamper economic growth.

Banco Santander SA and Barclays Plc led a retreat among bank stocks as Credit Suisse Group AG forecast new regulation may cost the industry 244 billion Euros ($306 billion). Rio Tinto Group plunged 5.5% as mining stocks fell. Saras SpA declined 2.6% after the Italian oil refiner swung to a loss in the first quarter.

The Stoxx 600 sank 3.4% to 248.46 as all 19 industry groups declined. The gauge has still rallied 4.8% this week after the European Union unveiled a 750 billion-Euro financial assistance package, backed by European Central Bank bond purchases, aimed at stopping the turmoil from spreading. The Euro Stoxx 50 Index of Euro-region equities tumbled 4.7% Friday, its biggest drop since March 2009.

Spain's IBEX 35 tumbled 6.6%, the biggest decline since October 2008 and the worst performance among the 18 western European markets. Italy's FTSEMIB Index slumped 5.3%. Spain's underlying inflation rate turned negative in April for the first time on record as the highest jobless rate in the Euro region curbed demand. The UK's FTSE 100 Index slumped 3.1%, while Germany's DAX Index declined 3.1%.

GERMANY

German stocks slumped, with the benchmark DAX Index trimming its biggest weekly gain since July 2009, as concern lingered that Europe's debt crisis may curb economic growth.

Deutsche Bank AG and Commerzbank AG sank more than 4%. Infineon Technologies AG, Europe's second-largest chipmaker, dropped 3.5% as Sony Corp. forecast profit that missed analysts' estimates. ThyssenKrupp AG and Salzgitter AG retreated with metal prices.

The DAX slid 3.1% to 6,056.71, snapping a four-day advance. The gauge rallied 6% this week after the European Union unveiled a 750 billion-Euro ($929 billion) financial-aid package for indebted countries and the European Central Bank said it will purchase government and private debt. The broader HDAX Index lost 3.1% Friday.

The benchmark gauge for German shares has fallen 4.4% from this year's high on April 26 amid concern Europe's economy will struggle to withstand a spiraling sovereign-debt crisis that began in Greece.

Deutsche Bank, Germany's biggest bank, slipped 4.2% to 48.75 Euros. Chief Executive Officer Josef Ackermann said in an interview with ZDF television late Thursday that Greece may not be able to repay its debt in full, arguing it would require "incredible efforts."

Commerzbank, Germany's second- largest bank, tumbled 4.1% to 6.10 Euros. Allianz SE, Europe's biggest insurer, slid 4.1% to 83.29 Euros.

Infineon declined 3.5% to 5.04 Euros, snapping two days of gains. Sony, the maker of Bravia televisions and Cyber- shot cameras forecast net income of 50 billion Yen ($540 million) this fiscal year, less than half the average of 19 estimates compiled by Bloomberg.

ThyssenKrupp, Germany's largest steelmaker, dropped 4.4% to 22.66 Euros, while smaller rival Salzgitter fell 4.7% to 53.73 Euros. Copper, lead, nickel, tin and zinc all declined on the London Metal Exchange.

Germany registered surprise growth for the first three months of the year led by investment and exports despite a harsh winter. The economy grew for the fourth quarter in a row, maintaining its gradual recovery.

The largest Eurozone economy grew 0.2% on a quarterly basis in the first quarter, according to a report released by the Federal Statistical Office on Wednesday. The result for the fourth quarter of 2009 was slightly revised upwards to 0.2% from the initial flat reading.

The statistical office said that the economy continued to expand despite the relatively cold and long winter. Economists were expecting the economy to remain flat in the first quarter of 2010.

The sequential growth was led by a positive contribution from capital formation in machinery and equipment as well as exports. Also, the building of inventories and the increase in government final consumption expenditure contributed to offsetting the negative influence of capital formation in construction, final consumption expenditure of households, and imports.

When compared with a year earlier, the gross domestic product increased, following the slump in the previous few quarters. The price-adjusted GDP in the first quarter rose 1.7%, reversing a 1.5% fall in the prior quarter. Annual growth exceeded the consensus forecast of 1.2%.

At the same time, the calendar-adjusted annual growth was 1.6% compared to the 2.2% contraction seen in the fourth quarter. The statistical office will release more detailed results on May 21.

Further, the report showed that the economic performance in the first quarter was achieved by 39.8 million persons in employment, down 107,000 persons or 0.3% from a year earlier.

The German government expects the economy to expand 1.4% this year and forecast an acceleration in growth to 1.6% for 2011. The Washington-based International Monetary Fund forecasts 1.2% growth for this year and 1.7% in 2011.

Separate data released Friday showed that the French economic growth slowed to 0.1% in the first quarter from 0.5% in the final three months of 2009. Meanwhile, Spain exited recession with a modest 0.1% growth.

These growth figures came in a week that saw the European Union adopting extraordinary steps to safeguard the stability of the Euro region. At the start of the week, EU finance ministers agreed emergency measures worth up to Eur 500 billion to stop the Greek debt crisis from spilling over to other countries in the Euro area. The package includes loan guarantees worth Eur 440 billion provided by the 16 member states of the Eurozone, plus a Eur 60 billion contribution from the European Commission.

German insolvency courts reported 13,487 insolvencies in February, an increase of 11.3% over a year earlier, the Federal Statistical Office said Wednesday. There were 2,558 enterprise insolvencies, up 6.9% year-on-year. Consumer insolvencies grew 15.9% to 8,632.

In January and February, 26,507 insolvencies were registered, which marked an increase of 6.9% compared to the same period of the previous year. A breakdown of data showed that there were 5,105 enterprise insolvencies. Altogether, the courts registered 16,897 consumer insolvencies, which were 10.1% more than in January and February 2009.

FRANCE

France's CAC 40 Index fell 171.18, or 4.6%, to 3,560.36 in Paris amid mounting concern that Europe's debt crisis will hamper economic growth. The broader SBF 120 Index declined 4.4%.

ArcelorMittal, the world's largest steelmaker, dropped 2.01 Euros, or 7.1%, to 26.25 Euros, pacing European steel and mining stocks lower as commodity prices declined.

Chinese Premier Wen Jiabao said Thursday the foundations for a global recovery aren't "solid" and the sovereign-debt crisis is "deepening."

Credit Agricole fell 66 cents, or 6.4%, to 9.62 Euros as a person familiar with investigations said New York Attorney General Andrew Cuomo subpoenaed eight banks including Credit Agricole.

Separately, analysts at Credit Suisse Group AG forecast new European regulation may cost the region's banks 244 billion Euros ($306 billion).

BNP Paribas, France's biggest lender, dropped 7.4% to 47.97 Euros. Societe Generale SA (GLE FP) tumbled 8.6% to 35.25 Euros.

European Aeronautic, Defence & Space climbed 78.5 cents, or 5.1%, to 16.32 Euros as Deutsche Bank AG raised its recommendation for the shares to "buy" from "hold." The maker of Airbus planes Friday reported a 64% drop in earnings before interest and taxes to 83 million Euros, in line with some analysts' estimates including Oddo Securities' Yan Derocles, who said the "risk-reward ratio is now attractive."

Total, Europe's third-largest energy company, declined 1.68 Euros, or 4.2%, to 38.43 as crude oil fell to a three-month low on concern Europe's sovereign-debt crisis will reduce global economic growth and fuel consumption.

The French economic growth slowed more than expected in the first three months of this year as households' consumption leveled out and government's stimulus measures started fading.

Gross domestic product, or GDP, grew 0.1% sequentially in the first quarter, statistical office Insee said Wednesday. However, the growth was less than Economists' growth forecast of 0.3%. In April, the Bank of France had predicted 0.4% rise for the quarter.

Meanwhile, the statistical office revised down fourth-quarter GDP growth to 0.5% from 0.6% reported earlier.

Details of data showed that households' consumption expenditure stagnated after logging 0.9% growth, while government spending increased at a slower pace of 0.1% compared with fourth quarter's 0.7% rise.

Total gross fixed capital formation continued to decrease, but the pace of decline eased to 0.8% from 1.1%. Non-financial corporated and unincorporated enterprises investment fell 0.9%, households contribution decreased 0.7% and general government investment dropped 1.2%.

Export growth jumped to 3.9% from 0.4%, while imports rose at a slower pace of 2% than 2.6% rise in the fourth quarter. However, inventory changes negatively contributed to economic growth. It marked 0.1% decline, reversing 0.6% growth.

French economic growth is expected to pick up from the second quarter. The Bank of France said on Monday that it expects the second biggest Eurozone economy to grow 0.5% in the second quarter.

Also on Wednesday, official reports showed that the German economy grew 0.2% and the Spanish economy exited recession by growing 0.1%. Spanish growth comes after six successive quarters of negative growth.

Economists expect the Euro area economy to expand 0.1% in the first quarter.

BELGIUM

The Bel 20 in Brussels closed the week on 2,447.17, a drop of 3.46% for Friday.

KBC Groep NV, Belgium's biggest bank and insurer by market value, reported profit that surpassed analysts' estimates after making smaller additions to provisions for bad loans.

First-quarter net income was 442 million Euros ($559 million) compared with a net loss of 3.6 billion Euros a year earlier, KBC, based in Brussels, said Friday in a statement. Profit beat the 376 million-Euro average of seven analyst estimates compiled by Bloomberg. Loan impairments totaled 355 million Euros, a 46% drop from the preceding quarter.

Chief Executive Officer Jan Vanhevel said KBC "may have seen a turn in the credit cycle," prompting the bank to make smaller provisions even as the proportion of loans in arrears continued to increase. KBC also said it accumulated 1.5 billion Euros of surplus capital so far, which should help the bank reimburse 7 billion Euros of state aid by 2013.

Reversals of writedowns on KBC's synthetic collateralized debt obligations added 182 million Euros to first-quarter profit and have surpassed 2 billion Euros since the second quarter of 2009 because of narrowing credit spreads.

Operating expenses on an underlying basis fell 6% to 1.18 billion Euros in the quarter and the bank's cost-income ratio, a gauge of expenses as a proportion of revenue, narrowed to 50% from 55% last year.

KBC aims for a cost-income ratio of 52% after completing disposals including the planned sale of its private bank KBL European Private Bankers SA and an initial public offering of a minority stake in its Czech banking unit CSOB AS, Philips said on the call. KBC is in talks with "different parties" about the planned sale of its private bank, Vanhevel said Friday, without naming them.

Loans more than three months in arrears increased to 3.6% of loans outstanding as of March 31 from 3.4% at the end of last year. KBC's cover ratio for non-performing loans decreased to 48% from 50% on Dec. 31.

Belgian Insurance firm Ageas, formerly known as Fortis Holding and the remnant of the financial services giant Fortis NV, said Wednesday that the falling value of its legacy assets pushed it into the red in the first quarter.

The company made a net loss of Eur209 million compared with Fortis Holding's profit of Eur44 million a year earlier, after being hit by Eur271 million in write-downs on its general account, which includes the company's investment portfolio.

Chief Executive Officer Bart De Smet said in a statement: "In line with previous announcements, Ageas took additional initiatives to adjust the risk concentration on government bonds. It reduced its position in Southern European government bonds and redeployed the proceeds into other fixed income securities. Going forward Ageas will continue to manage its investment portfolio in line with its overall investment strategy."

The company said it had reduced its exposure to Greece, Portugal and Italy with most of the proceeds reinvested in Belgian government bonds. Between Jan. 1 and May 10, Ageas sold Southern European government bonds worth Eur4 billion.

It said profit after minorities for its insurance activities increased to Eur85 million from Eur21 million a year earlier, with asset inflows up 20% at Eur5 billion.

The increase came mainly from substantially higher inflows in its Asian business, especially in China.

Inflows in continental Europe and the UK were up 16% and 21%, while Belgium inflows declined 3%, the company said.

Chemicals and plastics company Solvay Tuesday said net profit grew almost 20 times in the first quarter, boosted by a capital gain from the sales of its drugs unit, and that 2010 had started well.

"The year 2010 started in the context of demand/recovery," the Belgian company said in a statement, adding that if the trend continues, the chemicals sector's recurring operating profit for the full year should be in line with that of 2009, while that of its plastics business should expand.

Brussels-based Solvay's net profit rose to Eur1.73 billion in the first quarter, from Eur91 million in the first three months of 2009, slightly disappointing the Eur1.76 billion median estimates of analysts compiled by Vara Research. Revenue decreased by about 4% to Eur1.91 billion, mainly due to the divestment of its pharma activities on Feb. 15, 2010.

Solvay said last year it was selling its pharma unit for Eur4.5 billion in cash to rival Abbott Laboratories, and it got a Eur1.7 billion capital gain earlier this year. That's the main reason behind the first-quarter net profit boost.

THE NETHERLANDS

In Amsterdam the AEX finished the trading session Friday at 327.24, a dip of 3.13% on the session.

ING Groep NV, the biggest Dutch financial-services company, swung to a first-quarter profit as writedowns narrowed, bad loans fell and it booked a gain on the sale of Asian and Swiss private-banking businesses.

ING rose as much as 7.2% in Amsterdam trading after reporting net income of 1.33 billion Euros ($1.68 billion), higher than the 981 million-Euro average estimate of 12 analysts surveyed by Bloomberg. The company posted a 793 million-Euro loss in the year-earlier period.

ING, which traces its roots to 1743, plans to operationally separate its insurance and banking units by the end of the year as it prepares to sell the insurer. The divisions reported profit excluding asset sales and special items of 269 million Euros and 1.28 billion Euros, respectively. Net gains on investments amounted to 403 million Euros, ING said in a statement.

Aegon NV, the Dutch operator of Transamerica and other US insurance companies, reported a return to profit in the first quarter on Wednesday, as it wrote down the value of investment assets by the smallest amount in nearly two years.

Net profit was Euro371 million ($471.1 million), from a loss of Euro173 million in the same period a year earlier.

"We saw improved underlying earnings and net income, as well as strong deposits," said Chief Executive Alex Wynaendts in a statement.

Underlying earnings -- a nonstandard measure that strips out the impact of impairments and divestments -- were Euro488 million, up from a loss of Euro98 million in the same period a year ago. That was mostly due to a strong improvement in the US, where Aegon has the bulk of its business.

Consumer prices in the Netherlands increased 1.1% year-on-year in April, the Central Bureau of Statistics said on Tuesday.

This was exactly in line with analyst forecasts and follows a 1% increase in March.

The rise in the inflation rate was mainly due to higher charges for air travel, the statistical office said. Vegetable prices also increased in April, contributing to the rise in inflation.

On a harmonized basis, consumer prices increased 0.6% annually, slower than the 0.7% growth in the prior month.

This compares to a HICP rate of 1.5% in the whole of the Euro area.

SWITZERLAND

Zurich's SMI ended the week on 6,428.68, a drop of 2.23% for the day.

The Swiss government proposed the parliament to bring legislation to quickly and effectively limit the risks for the national economy caused by large, systemically important banks.

"The insolvency of a large financial institution would have serious repercussions for our country," the government said in a statement. "The Federal Council believes that measures to prevent and mitigate damages are to be taken quickly via legislation."

The government said the risks of systemically important banks should be restricted, as more stringent capital, liquidity and risk diversification requirements will be set out in the Banking Act.

The proposal on the legislative measures should be put out for consultation in the form of a conference in October 2010, and be adopted by the Federal Council by the end of 2010, the government report said.

Swiss producer and import prices rose 0.6% in April on a monthly comparison, data from the Federal Statistical Office showed Wednesday. Economists had expected the monthly growth to ease to 0.4% from 0.5% in March.

Higher prices for petroleum and metal products in particular led to an increase of 0.5% in the producer price index and of 0.7% in the import price index. On a yearly basis, producer prices and import prices were up 0.3% and 1.8%, respectively.

Annually, the producer and import price index climbed 0.8% in April, after staying flat in the March. Consensus forecast was for 0.6% increase.

Swiss consumer confidence improved significantly in April, the latest quarterly survey conducted by the State Secretariat for Economic Affairs or SECO showed Tuesday. Consumers are expecting, for the coming months, a much lower increase in unemployment as well as a stronger positive development of the economy.

The consumer sentiment index stood at plus 14 in April, up from negative 7 points seen in January. The index stood well above the consensus forecast of 1.

The survey conducted among 1,100 households showed that the expectations on the general economic situation for the coming 12 months rose to 44 from 24 in the prior quarter and the index for unemployment stood at 8, down from 77.

Further, assessment of future development of the personal financial situation rose slightly to 7 in April from 6 in January, while future potential to save money dropped to 15 from 19.

AUSTRIA

The ATX in Vienna headed into the weekend on 2,479.90, down 2.95%.

Europe's biggest online betting site Bwin has released its latest financial results for Q1 2010, showing a 1.2% increase in gross gaming revenue to €133.2m compared to the same period in 2009 of €117.6m.

The Austrian company currently operates across 25 major markets and offers sports betting, poker, casino games and soft games to its more than 20 million customers worldwide.

In Q1, its sports betting business saw an impressive increase in revenue of 13%, while the company's other verticals posted impressive gains with casino revenue up 10% and games revenue increasing by 82%.

Bwin's poker revenue also grew a solid 22.4% from €31.1 million in the first quarter of 2010 to €38.1 million in Q1 2010. However, the company's acquisition of Gioco Digitale in September was largely responsible for Bwin's impressive poker figures, without which poker revenue would have fallen 17%.

Austrian biotech company Intercell is eyeing a significant pick up in sales of its Ixiaro vaccine against Japanese Encephalitis after posting a wider-than-expected first-quarter net loss.

The group posted a net loss of 14.7 million Euros ($19.72 million), trailing the average estimate in a Reuters poll as research and development expenses jumped 19.1%. [ID:nLDE6490SW]

"Product sales are expected to increase significantly in Q2 2010 driven by both the traveller and the military market segments," the group said in a statement.

Austria's gross domestic product or GDP remained unchanged on a sequential basis in the first quarter, compared to the 0.3% growth in the previous quarter, the Austrian Institute of Economic Research or WIFO said on Wednesday. A year ago, the GDP was down 2.2%.

Year-on-year, the GDP increased 0.4% in the first quarter, compared to the 1.2% fall in the preceding quarter.

SWEDEN

In Stockholm, the OMX rounded out the week on 984.91, down 2.51% for the Friday session.

Sweden's central bank is seen hiking interest rates at a slightly faster pace than previously anticipated over the coming 12 months, a survey of key business and financial groups showed on Wednesday.

The TNS SIFO Prospera survey showed the central bank's repo rate at 1.4% in 12 months time, up slightly from the 1.3% anticipated by businesses in the previous survey in April.

In two years' time, the repo rate is seen at 2.5%, down from 2.6%.

The key interest rate is currently at 0.25%.

Meanwhile, Sweden's gross domestic product is seen growing 2.3% in a years' time, up from the 2.2% increase predicted in the previous survey.

In two years' time, the economy is seen growing 2.8%.

Businesses expect inflation to hit 1.6% in 12 months' time and 2.2% in 24 months' time. The April survey showed one-year and two-year inflation expectations of 1.7% and 2.3%, respectively.

Swedish jobless rate stood at 4.9% in April, a report by the Public Employment Service showed on Tuesday. The jobless rate came in line with economists expectations.

The number of registered unemployed persons totaled 412,000 in April, which was 9% of the workforce. At the same time, the number of vacancies increased by 14,000 from the prior year to 48,000.

Swedish industries' capacity utilization rate rose to 84.9% in the March quarter from 80% in the December quarter, Statistics Sweden said on Tuesday.

The manufacturing sector's capacity utilization rate climbed to 84.6% from 80%, while in the mining sector, it improved to 88.6% from 87.5%.

Meanwhile, total stocks or inventories in industry increased 6.2% in the March quarter compared to the December quarter to SEK 10.1 billion.

Compared to the March quarter of 2009, total stocks in industry went up by 8.7%.

DENMARK

Copenhagen's OMX was closed Thursday and Friday for a Public Holiday.

Denmark's current account balance recorded a surplus of DKK 4.99 billion in March it was announced this week.

This is larger than the DKK 3.48 billion surplus recorded in February.

The surplus on goods and services increased to DKK 8.78 billion in March from DKK 5.19 billion in February.

The income account, on the other hand, swung to a deficit of DKK 515 million, while the deficit in the current transfers account narrowed to DKK 3.28 billion.

Consumer prices in Denmark increased 2.4% in April compared to the same month a year ago, data released by Statistics Denmark showed on Monday.

It follows a 2.2% rise in prices in March.

The largest price increase was registered in the alcoholic beverages & tobacco component, up 5.4%, mainly due to higher prices of tobacco.

Transport costs jumped 4.4% from a year ago, mainly due to higher prices of gasoline.

On a month-over-month basis, the consumer price index edged up 0.2% in April.

Meanwhile, the harmonized consumer price index increased by 0.2% on a monthly basis and by 2.4% on a yearly basis.

Also on Monday, they announced that the country's exports jumped 10.1% in March compared to a year ago.

The spike in exports was due an increase in commodity, fuel & chemical exports, which traditionally see large monthly fluctuations.

Exports to non-E.U. countries rose 22.6%, while those to E.U. countries were up 4%.

Imports, meanwhile, increased 2.9% on an annual basis in March.

The country recorded a trade surplus of DKK 8.3 billion in March, up from DKK 5.2 billion in February.

NORWAY

In Oslo, the OBX finished trading at 329.66, a 3.61% drop on the day.

The Norwegian government has tightened its 2010 budget in its mid-year revision by targeting a non-oil deficit of NOK 139.6 billion compared to the NOK 148.5 billion set in October.

The tightening will be achieved by cutting the spending of its oil revenue by NOK 17 billion.

Norway runs large budget surpluses when its petroleum and oil revenues are included but deficits when they are excluded.

To avoid overheating, the country invests all its oil revenue in an offshore fund and spends only 4% of its value each year.

The country's finance ministry forecasts mainland gross domestic product to expand 2.1% in 2010 after contracting 1.5% in 2009.

Norway's harmonized index of consumer prices increased 3.4% in April compared to a year ago, Statistics Norway said on Monday.

That compares to a 3.6% increase in March.

On a month-over-month basis, harmonized consumer prices increased 0.2%, led by price increases on clothing and books.

Along with this, they also reported that Consumer prices in Norway increased 3.3% in April compared to the same month a year ago.

That is higher than analyst forecasts for a 2.9% inflation rate and follows a 3.4% increase in prices in March.

On a month-over-month basis, consumer prices increased 0.2% - again missing expectations for a 0.2% fall.

Core consumer prices increased 1.7% in April compared to one year ago - the same rate as in the previous month. On a monthly basis, core prices were up 0.3%.

Meanwhile, producer prices in Norway rocketed 26.7% in April, faster than the 21.7% rise in March.

The rise in the producer price inflation rate was influenced by higher prices in the export market and higher prices in the extraction of oil and natural gas, Statistics Norway said.

On a monthly basis, producer prices increased 3.5%.

FINLAND

In Helsinki the OMX wound down the week, finishing at 6,550.82, down 3.48% for the day.

This week it was announced that the building costs in Finland increased 0.2% on an annual basis in April, compared to the 0.5% fall in the previous month.

Labor costs in construction increased 0.3% annually in April, while prices of materials grew 0.8%. Other inputs costs fell 2.3%.

On a monthly basis, building costs grew 0.3% in April, faster than the 0.2% growth in the previous month. The prices of materials climbed 0.6% and those of other inputs rose 0.2%. In contrast, labor costs fell 0.3%.

Retail sales value in Finland increased 6.8% year-on-year in March, faster than the 1.8% increase in the previous month, Statistics Finland said on Wednesday.

In volume terms, sales were up 5.7%, faster than the 1.2% increase in the preceding month.

At the same time, wholesale trade increased 8.5% in value terms and 5% in volume terms.

Separately, the statistical office said turnover in the services industries decreased 3.6% in the December to February period when compared to the same period a year ago.

Turnover contracted the most in professional, scientific & technical activities, down 7.6% annually.

Finnish job vacancies rose 8% year-on-year to 49,700 in the first quarter of this year, the Statistics Finland also said this week.

According to official data, 34,800 or 70% of the job vacancies were in private enterprises. Job vacancies increased in Northern Finland and Western Finland and diminished in Uusimaa region.

By industry, job vacancies increased in trade and in recreational, cultural and sporting activities and in other service activities. Contraction was recorded in public administration, education and human health and social work activities.

The statistical office said employers had fewer recruitment problems than one year ago. The share of hard-to-fill vacancies of all job vacancies fell by nine percentage points to 23%.

SPAIN

Madrid's Ibex ended up at 9,314.70, down a massive 6.64% for Friday alone.

Spanish Prime Minister Jose Luis Rodriguez Zapatero has announced fresh budget cuts aimed at bringing down the country's large budget deficit, while official figures showed that the economy emerged from its deep recession in the first quarter.

Zapatero told Parliament that wages in the public sector would be slashed by 5% on average this year and frozen in 2011. Other measures include a Eur 1.2 billion cut in funding for regional governments, and the abolition of a Eur 2,500 childbirth allowance.

The prime minister said the government planned to save up to Eur 15 billion through the new measures and that it would shave a further 1.5 points off the deficit to gross domestic product ratio by 2011.

Spain currently has a deficit of 11.2% of GDP, which it pledged to bring under 3% by 2013. But with the Euro in freefall and fears rife of contagion effects spreading from Greece, the government said earlier in the week that it intended to accelerate fiscal consolidation and bring down its public deficit sooner.

Zapatero said government wages, including his own, will be reduced by 15%, while investment will also be cut. The government will also suspend pension payments from 2011.

With the economy grappling with massive imbalances and high unemployment, the new measures are likely to be met with resistance by Spaniards. Figures released for the March quarter showed that Spain had an unemployment rate of 20.05% - the highest in the Euro area, with nearly half of them under 25s without a job.

Data released Friday by statistical office INE showed that the Spanish economy emerged from recession after growing 0.1% between January and March. It comes after six successive quarters of negative growth and follows a 0.1% contraction in the final three months of 2009.

On a year-over-year basis, gross domestic product was still down 1.3%. Analysts had forecast a 1.4% decline. The figures are only preliminary estimates however, and may be revised up or down.

Investor confidence in the Spanish economy has taken a nosedive in recent weeks over fears that contagion effects could spread from the debt crisis in Greece and it remains to be seen whether the positive growth in the economy could spark a turnaround in confidence.

Spain had its long-term sovereign debt rating downgraded to AA from AA+ by ratings agency Standard & Poor's last month, with a deep deterioration in public finances and a long period of economic weakness blamed.

That downgrade forced Prime Minister Jose Luis Rodriguez Zapatero to appeal for calm in the financial markets and quash speculation that Spain could be the next country to need an aid package from the European Union.

Although, Spain's government debt is mild when compared to some of its European counterparts, the country's private sector suffers from a massive debt overhang.

Reforms to Spain's labour market would help the government to bring down its large budget deficit, the head of the country's central bank Miguel Angel Fernandez Ordonez said on Tuesday.

"A significant proportion of the dramatic increase in the deficit recorded in the last two years is directly or indirectly related to trends in the labour market," Ordonez said in a conference in Madrid.

"Preventing the increase in structural unemployment would greatly enhance the process of fiscal consolidation."

Spain's unemployment rate at the end of the March quarter stood at 20.05% - the highest in the Eurozone.

PORTUGAL

The PSI General in Lisbon headed into the weekend at 2,491.57, declining 3.97% in the process.

Wednesday, the Statistics Portugal announced that the gross domestic product or GDP increased 1% on a sequential basis in the first quarter, compared to the 0.3% fall in the previous quarter.

Year-on-year, the GDP grew 1.7% in the first quarter, after a 1.1% fall in the fourth quarter. A year earlier, the GDP was down 3.7%.

The final GDP estimates for the first quarter is due on 9th June 2010, the statistical office said.

They also announced that the consumer price index or CPI rose 0.7% year-on-year in April, faster than the 0.5% growth in the previous month. A year ago, the CPI was down 0.5%.

Month-on-month, the CPI dropped 0.4% in April, compared to the 1.1% increase in the previous month.

Meanwhile, the harmonized index of consumer prices or HICP rose 0.7% on an annual basis in April, faster than the 0.6% growth in the preceding month. The HICP was down 0.4% compared to the previous month.

ITALY

Italy's benchmark FTSE MIB Index tumbled 1,097.66, or 5.3%, to 19,781.17 in Milan, the steepest retreat since March 2009. All forty stocks in the index fell amid mounting concern that Europe's debt crisis will hamper economic growth.

El Pais reported Friday that French President Nicolas Sarkozy threatened to pull out of the Euro at a May 7 summit of European leaders to force German Chancellor Angela Merkel to agree to a rescue package for heavily indebted Euro members.

Aides to Sarkozy, Merkel and Spanish Prime Minister Jose Luis Rodriguez Zapatero all denied the report. The Madrid-based newspaper said Zapatero related the exchange at a meeting two days ago with members of his Socialist Party.

ERG fell 25 cents, or 2.4%, to 10.02 Euros after the refiner posted a first-quarter net loss at replacement cost of 16 million Euros ($20 million). ERG said it expected higher refining margins in the next quarter.

Unipol Gruppo Finanziario declined 3.5 cents, or 4.8%, to 0.7015 Euros after the insurer recorded a net loss of 7 million Euros in the first quarter, compared with profit of 39 million Euros a year earlier. The company said it expects to return to profit in 2010.

Prysmian lost 80 cents, or 6.5%, to 11.60 Euros after the company said its first-quarter net income fell to 22 million Euros from 90 million Euros a year earlier.

Saras retreated 4.6 cents, or 2.6%, to 1.708 Euros after the company swung to a loss of 9.3 million Euros in the first quarter from a profit of 58.2 million Euros a year earlier. Saras also said in a slide presentation on its website that it expects an impact on earnings before interest, taxes, depreciation and amortization of $20 million to $26 million this year due to scheduled maintenance.

Unione di Banche Italiane tumbled 70.5 cents, or 8.3%, to 7.78 Euros after Italy's fourth-largest bank posted a 57% rise in first-quarter profit to 38.1 million Euros that still missed analysts' estimates of profit of 61 million Euros. The company cited a trading loss and lower interest income.

Separately, Credit Suisse Group AG said in a report Friday that new regulations may cost European banks as much as 244 billion Euros and could curb earnings by 37%.

Intesa Sanpaolo, Italy's second-biggest bank which Friday reported a 36% decline in first-quarter profit, lost 12.25 cents, or 5.3%, to 2.175 Euros.

The Italian economy staged a good start in the first three months of the year by logging better than expected growth.

Gross domestic product rose 0.5% on a sequential basis following a revised 0.1% contraction, figures from the statistical office Istat showed Wednesday. Growth exceeded economists' expectations for 0.3% expansion.

On an annual basis, GDP climbed 0.6%, ending seven quarters of negative growth. It followed 2.8% contraction in the fourth quarter.

UniCredit Research described Italy's first quarter growth as a "good start" of 2010. Although the Italian GDP series has recently displayed some volatility, so that a stepback into weaker growth cannot be ruled out, Friday's numbers clearly represent an upside risk to our call of a 0.5% growth for 2010," the firm said.

Also on Wednesday, separate reports showed that the German economy grew 0.2% after stagnating in the fourth quarter, while French growth eased to 0.1% from 0.5%. The Spanish economy exited recession by growing 0.1%. Debt-ridden Greek economy remained mired in recession. GDP fell 0.8% in the first quarter, extending the fall that started in the fourth quarter of 2008.

GREECE

In Athens, the ATHEX Composite rounded off the week at 1,658.29, a Friday dip of 3.41%.

The Socialist government in Greece late Monday announced tough pension reforms as part of its austerity measures to pull the debt-ridden country out of its economic debacle.

Drafted after consultations with the European Union and the International Monetary Fund which together finance the 110 billion Euro ($144.5 billion) bailout loan, the Pension Reform Bill endorsed by the George Papendrou Cabinet raises retirement age of female workers and discourages employees from seeking early retirement.

It also provides for swingeing cuts in pensions with an average reduction of seven% envisaged by 2030. Those opting for voluntary retirement will see an annual six% reduction in pensions for each of the remaining year they would have otherwise spent on the job. Moreover, the pension sum drawn by respective pensioners will come to only 65% of the salary drawn by them while in active service.

Labour Minister Andreas Loverdos said the measures were not only aimed at saving pensions and health care but were also meant for the welfare of future generations. "We are saving the pensions and heath care, not only of this, but also of future generations," he said.

If the pension system were to be left in its present form it will cost the government a whopping 24% of its Gross National Product in 2050, Loverdos said.

The Bill will be tabled in the Parliament later this week and is expected to secure a massive endorsement from the ruling Socialists when it is put to vote in June. Another of its proposals includes calculating all pensions through a uniform method and hence special benefits for certain professions will be scrapped.

Greece's labor unions have openly come out against the austerity measures which they say target only the poor sections of the society and fresh round of protests have been called for Wednesday with the possibility of another crippling nationwide strike looming large.

The country owes its current economic mess to a host of factors including the abandoning of its currency 'drachma' in favor of Euro which made it all the more easy for it to borrow money, the massive costs involved in staging the Athens Olympics, global recession and widespread tax evasion resulting in government coffers turning empty.

Greek gross domestic product or GDP dropped a seasonally adjusted 0.8% on a sequential basis in the first quarter, same as in the previous quarter, the statistical office said on Wednesday. A year earlier, the GDP was down 1%.

Year-on-year, the GDP decreased 2.3% in the first quarter, after falling 2.6% in the fourth quarter, revised from 2.5% fall reported initially.

On an unadjusted basis, the GDP fell 2.3% annually in the first quarter, compared to the 2.5% decline in the preceding quarter.

Greek import price index increased 9.6% on an annual basis in March, compared to the 3.1% fall recorded a year ago, the statistical office also highlighted this week.

On a monthly basis, import prices climbed 1.5% in March, after falling 0.1% in February.

In the twelve-month period April 2009 to March 2010, the annual average rate of change of import prices grew 0.8%, compared to the 4.4% increase a year ago.