As fresh statistics in both Europe and the US dash hopes for an early economic recovery, Brussels is proposing micro loans to small firms in a bid to help them keep local jobs.

According to data published by Eurostat, the EU's statistical office, on Thursday (2 July), the jobless rate in the eurozone was 9.5 percent in May, up from 9.3 percent in April. It is the highest rate since May 1999 and it involves around 15 million men and women.

Fresh EU job figures show the recession has struck hard at the bloc's labour market

Meanwhile, the unemployment rate across the bloc was 8.9 percent in May, a four year high. The number of jobless persons increased by 385,000 compared to the previous month and by 5.1 million since May 2008.

Altogether, it is expected that some 3.5 million jobs will be lost this year across the EU.

Spain continues to feature as the member state with the highest unemployment rate, while the Netherlands recorded the lowest rates (3.2%) and, along with Germany, the lowest surge of the number of unemployed compared to last year.

EUOBSERVER / BRUSSELS - The European Commission announced on Thursday (2 July) its intention to release the second tranche of an EU loan agreed with Latvia last year, while at the same time calling on the small Baltic state to put its public finances in order by 2012.

The disbursement of the €1.2 billion sum will come later this month once the commission has had time to raise the funding on international markets, something it can do at a much lower rate than Latvia due to its higher credit standing.

Riga has cut back public spending three times this year

The loan is part of a wider €7.5 billion package agreed between Latvia and the EU, the International Monetary Fund and other lenders last December.

"Latvia is going though a very painful adjustment, but the EU is providing considerable support with a balance of payments loan that is the biggest part of the international financial assistance," said economy commissioner Joaquin Almunia.

In my column this week, which has caused rather a lot of debate among our readers, I posited the idea that this whole spending debate was rather missing the point. My argument is that the massive fiscal slug that has been taken out of the UK budget is a consequence largely of a sudden dive in tax revenue - not a massive surge in spending. The evidence can be seen in the chart below, which is from the OECD's Economic Outlook report last week (and keen-eyed readers may recognise for having made a cameo in this blog back then).

Chancellor says return of the bonus culture threatens to undermine global economy again

Alistair Darling has warned bankers to stop backsliding into their bad old ways as he promised a much tougher regulatory system to prevent a repeat of last autumn's financial crisis.

Amid signs that the bonus culture blamed for excessive risk-taking is creeping back in the City of London, the Chancellor declared in an interview with The Independent: "There are people who are too complacent in my view. They need to be brought back to earth."

Mr Darling disclosed that he will try to end a damaging turf war between the Bank of England and the Financial Services Authority (FSA) by giving them both more powers in a White Paper on banking unveiled next week.

July 3 (Bloomberg) -- Six banks in Illinois and one in Texas were seized by regulators as the deepening financial crisis pushed the toll of failed U.S. lenders this year to 52, the most since 1992.

Twelve banks have failed this year in Illinois, the most of any state. The seven lenders seized yesterday, with total assets of $1.49 billion and deposits of $1.34 billion, were closed by state or federal regulators and the Federal Deposit Insurance Corp. was named receiver, according to statements from the FDIC. Buyers were named for each of the closed institutions.

The Illinois banks are affiliates of Peotone Bank & Trust Co., in Peotone, Illinois, about 45 miles (72 kilometers) south of Chicago. The failures resulted primarily because of soured loans and losses on investments in collateralized debt obligations, the FDIC said. Illinois, with an unemployment rate above the national average, was one of seven states to begin the fiscal year without a spending plan.

Germany's lower house of parliament, the Bundestag, has passed a bill for the creation of "bad banks" to absorb toxic assets and clean up balance sheets at financial institutions caught up in the financial crisis. 

The bill is essentially aimed at unfreezing credit markets and freeing commercial and state-owned banks of their risky and non-core assets.

This will be achieved by shifting as much as 230 billion euros ($322 billion) worth of toxic assets held by banks to the so-called bad banks.

The plan will involve exchanging items such as asset-backed securities and collateralized-debt obligations for state-guaranteed bonds, for which banks will be charged a fee.

EUOBSERVER / BRUSSELS - Turkey will host the signing of an inter-governmental agreement on the EU-backed Nabucco gas pipeline on 13 July, in a major breakthrough for the long-delayed project aimed at reducing Europe's gas reliance on Russia.

"I can confirm that the European Commission has received an invitation to the signing ceremony of the inter-governmental agreement on the Nabucco pipeline on 13 July in Ankara," commission spokesman Ferran Tarradellas said at a press conference on Friday (3 July).

Bosphorus bridge: Turkey has so far blocked the signing of a legal agreement on Nabucco

The 13 July transit deal will secure the legal basis and conditions for the use of the pipeline crossing EU candidate country Turkey and member states Bulgaria, Romania, Hungary and Austria. The 3,300 km long pipe is designed to bring natural gas to Europe from Azerbaijan and potentially Turkmenistan, Iraq or even Iran at a later stage. Currently, several eastern and central European countries import up to 100 percent of their gas consumption from Russia.

The project, first put forward in 2002, has so far developed at a steady pace, amid strong criticism from Russia, who wants to protect its monopoly on the transport and trading of Caspian gas from its former Soviet republics.

CONCLUSION:

Pushing on a string is difficult.  Pushing a zombie on a string is even harder. Pushing a zombie bank on a string is impossible. Unless the balance sheets of the banks are strengthened sufficiently, through massive further injections of capital, the removal of toxic assets and much lower leverage, unconventional monetary policy will not work. The banking system in the north-Atlantic region is not facing a liquidity shortage - it has got liquidity coming out of its ears.  It is facing a capital shortage.  Much of it still totters on the edge of insolvency.  Recapitalising banks slowly through large spreads on low business volumes and through quasi-fiscal subsidies extended by the central banks in their financial support operations will take years - years of impaired intermediation and abysmally restricted external finance for households and non-financial corporations.

Recapitalising the banks and paying off private household debt through high unanticipated inflation would be possible, but undesirable.  I propose a combination of mandatory recapitalisation of the banks and a debt Jubilee for the household sector to remove the two key obstacles to an economic revival.  The mandatory recapitalisation would be first through new equity issuance in the market, then though mandatory debt-to-equity conversion and similar haircuts for unsecured bank creditors, and last through increased government equity stakes.  All these capital injections should take the form of tangible common equity.  Anything else would be cosmetic.

Subsequent regulation of the banking sector (broadly defined to include all highly-leveraged entities with serious maturity and/or liquidity mismatch on their balance sheets) will then be necessary to prevent a recurrence of the disaster we are now struggling through.

In preparation for the Jubilee, I am going long in ram's horns.  In good Torah/Biblical tradition, we should have one of these every 49 or 50 years.  We skipped a few.  Let's have a big one now.

At least one FT columnist is telling it straight.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

"Bob Chapman's influential International Forecaster is reporting on the possibility of a so-called "bank holiday" planned for late August or early September. According to Chapman's sources, U.S. embassies around the world are selling dollars and stockpiling money from respective countries where they operate.

FDR imposed a "bank holiday" soon after taking office. It resulted in the government stealing gold from the American people and giving them useless fiat paper money in return.

"Some US embassies worldwide are being advised to purchase massive amounts of local currencies," writes Harry Schultz, "enough to last them a year." Schultz publishes the Harry Schultz Letter, an international investment, financial, economic, and geopolitical newsletter named as "Newsletter of the Year" by Peter Brimelow of Market Watch in 2005 and 2008."

"...Mr. Schultz believes a "bank holiday" would suit the burning desires of the international bankster elite. It will lead to "nationalization," which is a polite word for brazen thievery. It will allow the government -- owned lock, stock and barrel by the global elite and run by their corrupt whores and cronies -- to rape secured creditors and bondholders. Nationalization is the unfettered process of grabbing up of insurance companies, mortgage companies, banks, medical care, and car companies and handing them over to the monopoly men.

During the FDR "bank holiday," Schulz notes, "thousands of banks never reopened; it was a face-saving way of shutting them down. I would guess the same would occur today; thousands have little or no net value, loaded with debt, bad mortgages."

In order soften the nation up for the coming pillage, the Obama administration has proposed a plan to give the privately-owned and unaccountable Federal Reserve complete regulatory oversight across the entire U.S. economy. The new rules would see the Fed given the authority to "regulate" any company whose activity it believes could threaten the economy and the markets -- that is to say if it "threatens" the monopolistic interests of the bankers.

Ready to give your soul for a loan in these difficult economic times? In Latvia, where the crisis has raged more than in the rest of the European Union, you can.

Such a deal is being offered by the Kontora loan company, whose public face is Viktor Mirosiichenko, 34.

Clients have to sign a contract, with the words "Agreement" in bold letters at the top. The client agrees to the collateral, "that is, my immortal soul".

Mirosiichenko said his company would not employ debt collectors to get its money back if people refused to repay, and promised no physical violence.

Signatories only have to give their first name and do not show any documents.

"If they don't give it back, what can you do? They won't have a soul, that's all," he told Reuters in a basement office, with one desk, a computer and three chairs.

Health concerns are raised over the imported building material. Some drywall made with radioactive phosphogypsum, a waste byproduct, was shipped to the U.S. by at least four Chinese-based firms.

Reporting from Los Angeles and Wuhan, China -- The final years of the U.S. housing boom and a disastrous series of Gulf Coast hurricanes created a golden opportunity for Chinese drywall manufacturers. With domestic suppliers unable to keep up with demand, imports of Chinese drywall to the U.S. jumped 17-fold in 2006 from the year before.

That imported drywall is now at the center of complaints of foul odors seeping from walls. Hundreds of homeowners, most in Florida, have also reported corrosion to their air conditioners, mirrors, electrical outlets and even jewelry.

State and federal authorities have traced the problems to Chinese-made drywall but haven't yet fully determined the causes. Some Chinese experts, however, suspect that the culprit is a radioactive phosphorus substance -- phosphogypsum -- that is banned for construction use in the U.S. but has been used by Chinese manufacturers for almost a decade.

Copies of Chinese customs reports obtained by The Times, along with interviews, indicate that drywall made with phosphogypsum was shipped to the U.S. in 2006 by at least four Chinese-based manufacturers and trading firms.

The health risk of phosphogypsum is uncertain, but industry specialists say they are troubled by its widespread use and the possibility it was exported, especially in light of recent incidents in which other Chinese imports such as pet food, toys and candy were found to be contaminated with toxic or unsafe substances.

The consumer is 70% of our economy, give or take a few points. The consumer's "savings rate" (which government blithely declares as income minus spending), which was in fact negative (that is, consumers were spending more than they made through taking on more and more debt), but is now solidly positive at 6.9%.

The impact of this (6.9% X 70%) is an immediate 4.83 decrease in real GDP. Fudge the numbers all you want (and government will), but this is the math, and the math is never, ever wrong.

The truly bad news however is that most of the time saving in fact turns into capital formation - that is, it becomes investment. But government doesn't differentiate between actual savings and debt repayment - their formula is simply "income less spending = savings rate."

You had one guest on this evening who "got it", but you wouldn't let him explain it, so I will.

Consumers are not saving, they are paying down debt in a furious attempt to avoid defaulting on nearly $1 trillion in outstanding credit card balances that have gone from 11% interest to 29.6% along with OptionARMs that are experiencing a tripling of payments while the home's value is underwater and precludes refinance, all while consumers are being laid off by the hundreds of thousands monthly.

BT has proposed that employees take up to a year off, in return for taking a 75 per cent pay cut. To encourage as many workers to take up of the offer, the company will pay their reduced salary as an upfront cash payment.

It is also offering staff a one-off payment of £1,000 if they switch from full-time to part-time work.

Parents are also being offered the opportunity to work only in school term times, so they can spend the summer holidays with their children. ...

"It's already a widespread phenomenon in smaller companies, where there is a feeling that everyone is a family and needs to pull together. But more larger companies will follow suit," he said. Experts believe that cutting workers' hours and pay - rather than outright sacking them - is masking the true extent of the jobs crisis. ...

Unions, however, support BT's initiative. Andy Kerr, deputy general secretary of the Communication Workers Union, said: "We recognise that there are falling work volumes at BT and have been focused on staff retention and avoiding any need for compulsory redundancies." He said the "summer sabbaticals" are a "great opportunity for staff to pursue travel, study pursue travel, study or other activities while knowing they have a job to return to". ...

A senior manager in BT said the scheme is designed so that staff can go off on the "long holiday they've always wanted without having to quit their jobs".

A spokesman for the telecoms company said: "These are innovative ways to help keep employees during these tough economic times."