• European leaders add to rising fears of breakup

    A new election is scheduled for June 17, as debate continues over the country's place in the euro zone. NBC's Stephanie Gosk reports.

    By John W. Schoen, Senior Producer

    European officials are playing a dangerous game of chicken with Greece.

    In an apparent signal to Greek voters, the head of the World Bank warned Thursday that if Athens were to depart from the common currency, Spain and Italy could well be the next dominoes to fall in Europe’s widening financial crisis.

    After ousting the Athens government that agreed to deeper spending cuts in return for a financial lifeline, voters return to the polls in June after the winning parties failed to form a new government. Apparently hoping to convince Greek voters to return a pro-austerity government to power, European officials are now openly discussing the likely dire consequences if they don’t.

    But the comments may have only served to heighten fears of a wider breakup of the eurozone should Greece exit the monetary union.    

    Investors backed away further from Spain's government debt Thursday, raising the country’s borrowing costs to levels that sparked the Greek debt crisis in the first place.

    Bond buyers were also reacting to fresh economic data showing that Spain’s economy is beginning to shrink, which makes its existing debt load even harder to carry.

    The growing crisis also has caused growing nervousness among U.S. investors. Since the inconclusive Greek vote May 6, the Dow Jones industrial average has fallen in seven out of eight sessions and was down again Thursday. U.S. banking giant JPMorgan Chase send another ripple of worries through the market May 10 when it said it had lost at least $2 billion in a failed attempt to hedge against European volatility.

    The recession is also putting more pressure on Spain’s banks, which have been saddled with bad mortgages as the country faces a deepening housing bust. Last week, the government took over Bankia, which holds 10 percent of the banking system’s deposits, after it reportedly suffered an large outflow of deposits.

    Aris Messinis / AFP - Getty Images

    Greek Archbishop Ieronimos blesses the new caretaker prime minister, Panagiotis Pikrammenos, right, in Athens Thursday. Greeks will return to the polls next month after an inconclusive vote sent jitters across the eurozone.

    The news follows reports that depositors pulled another $900 million out of Greek banks on Wednesday, extending a capital flight that could bring down Greece’s banking system. The fear is that those worries spread among depositors in other countries like Spain where the banking system is already under pressure.

    Until very recently, European officials were loath to even discuss the idea of Greece’s departure from the compact binding 17 nations with a common currency. For one thing, the treaty that created the euro has no provision for a member country to abandon the currency or for its expulsion by the rest of the monetary union.

    But central bankers and officials of agencies like the World Bank and International Monetary Fund have begun to think – and discuss – the unthinkable. IMF chief Christine Lagarde warned this week that Greek's departure from the euro would be “quite messy” and  "extremely expensive."

    Analysts who are looking at the potential impact say the losses and economic pain would be widely felt.

    Replacing the euro with a new, devalued currency would wipe out much of the remaining assets on Greek bank books. Europe’s central bankers have already pulled back some forms of funding for Greek banks that have been hit hardest by withdrawals. Hundreds of billions worth of additional borrowing by Greek households and businesses would be in legal limbo.

    Any new currency – or a return to the pre-euro drachma – would be massively devalued, by some estimates as much as half the value of a euro. That would help Greece’s economy eventually get back on a growth path because it would make its products and services cheaper for buyers spending dollars and euros. A week’s vacation in Crete would cost half the price of a comparable trip to Sardinia.

    But Greek households and businesses would bear the immediate pain. Imported goods and commodities like oil would suddenly cost twice as much. Households and businesses making good on outstanding loans written in euros would see repayment double in local currency terms.

    European officials who engineered the costly plan to “save” Greece -- led by France and Germany -- would also feel the pain. Much or all of the more than $200 billion in loans already extended to the Greek government by the IMF, European Central Bank and Europe’s private banks would be at risk. That would mean explaining to French and German taxpayers what went wrong with the grand plan.

    It would also raise the political costs of extending further bailouts to weaker, debt-burdened countries including Spain and Italy. As Greece demonstrates that a once-unthinkable exit from the euro is now possible, other countries may follow. If investors continued to shun Spanish and Italian government bonds and depositors flee their banks, the choice facing Europe grows more stark.

    Worries about the fragmentation of Europe’s monetary union have already sapped business and consumer confidence and brought the region’s economy to a dead stop. Government austerity measures imposed on weaker economies are driving them deeper into recession.

    As that recession spreads, the pain of Greece’s departure from the euro would be felt even more broadly, according to Michel Juvet, an economist at Bordier, a Swiss bank.

    “At the same time we have China, which is slowing down very, very fast, we have the U.S. economy, which is losing momentum, and we have this global slowdown, “ he said. “All economies are so connected that when one country or one big zone is suffering, the others are suffering as well. This is globalization.”

    Others see the crisis in starker terms.

    “This is phase two of the global financial crisis," said R. Seetharaman, CEO of Doha Bank in Qatar. "That’s the reality."

    What's happening in the global markets and how are the Europeans handling the euro crisis? R. Seetharaman, Doha Bank CEO, provides perspective on Middle East banking mentality, summer gas prices, and global economic trends.

     

  • World Bank on Greece crisis: Spain and Italy could be next

    Questions are growing over whether Greece can survive financially until new elections on June 17. Jonathan Rugman reports for NBC News' partner in Britain, Channel 4 News.

    By Alastair Jamieson, msnbc.com and Reuters

    Spain and Italy will be the next victims of the European financial crisis if Greece crashes out of the euro currency zone, the head of the World Bank has warned.

    Fears that Athens may be forced to issue registered warrants or return to its former currency, the drachma, have rattled global markets and alarmed world leaders, with Greece set to figure high on the agenda at the G8 summit in Camp David later this week.

    A cabinet of professors and diplomats was sworn in Thursday, to steer the debt-ridden eurozone state into repeat elections on 17 June, the BBC reported.

    Europe, US and the world brace for messy impact from Greece

    The risk of the contagion spreading to bigger European economies that are vulnerable due to high debt or weak banks has sent stocks and commodities tumbling, and has driven Europe's single currency toward its lowest levels this year.


    "The core question will be not Greece, but Spain and Italy," World Bank President Robert Zoellick said on Wednesday.

    Reuters reported that a Greek exit from the eurozone would have effects reminiscent of the collapse of the Lehman Brothers investment bank collapsed in 2008, which spread panic on global financial markets, and said that it could expose other European nations to hundreds of billions of euros in losses.

    Recession-hit Spain, which faces deep concerns over the health of its banks, is set to see its medium-term borrowing costs rise sharply at an auction on Thursday of 1.5-2.5 billion euros of bonds expiring in 2015 and 2016.

    Greeks withdraw $894 million in a day: Is this beginning of a run on banks?

    Meanwhile International Monetary Fund chief Christine Lagarde warned of "extremely expensive" consequences were Greece to leave the eurozone, a once taboo possibility that European leaders have now begun to discuss openly.

    Echoing Zoellick's comments, Lagarde told Dutch television that a Greek departure from the euro "would be extremely expensive and hard, and not just for Greece."

    Greeks have withdrawn hundreds of millions of euros from banks in recent days as fears grow that the country might be forced out of the eurozone, although there has been no sign of a run on individual Athens bank branches.

    In March, Greece agreed to extensive budget cuts as part of the conditions of a $165 billion bailout package organized by the European Union and the IMF.

    European shares edged lower at the start of trading on Thursday, having closed down during the last three sessions.

    The BBC said Panagiotis Pikrammenos, the senior judge who has taken over as prime minister of Greece, views the cabinet's sole task as leading the country into the poll in the hope of producing a more conclusive result.

    On May 6, voters punished the two mainstream parties that had imposed austerity measures under the terms of international bailout deals.

    Reuters contributed to this report.

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  • Quebec moves to restore order as striking students clash with police

    Rogerio Barbosa / AFP - Getty Images

    A student protester in a panda suit confronts a policeman in downtown Montreal on May 17, 2012. The students are striking over a planned tuition hike of 82 percent or over $1,700 as part of the government's efforts to rein in a budget deficit.

    Reuters reports — Quebec's government moved late on Wednesday to end a sometimes violent 14-week mass student strike in the Canadian province that officials fear could harm the economy and deter tourists.

    Rogerio Barbosa / AFP - Getty Images

    Policemen aim a teargas gun.

    Premier Jean Charest said his government would shortly unveil legislation to ensure students could freely attend classes, although he did not give details. He did not address speculation that the bill would allow strikers to be fined.

    "It is time calm was restored ... the current situation has gone on for too long," Charest said in a late-night statement to reporters.

    Some 155,000 people - more than a third of the college and university students in the predominantly French-speaking province - are striking to protest against a steep rise in what are some of the lowest tuition fees in north America. Read the full story.

    Rogerio Barbosa / AFP - Getty Images

    Rogerio Barbosa / AFP - Getty Images

    Policemen restrain a student protester.

     

  • Iranians feel the pain of sanctions: 'Everything has doubled in price'

    By Ali Arouzi, NBC News correspondent
    TEHRAN – The economy here is in shambles, according to Iranians, whether the government will admit it or not.

    The United States, the European Union and the U.N. have imposed tough economic sanctions against Iran –- blocking access to the international banking system and hurting sales of Iranian crude oil -– as a way to persuade Tehran to abandon its nuclear program. 

    In the short term, the harsh sanctions have had an impact on Iran’s economy -– inflation has gone through the roof, and the unemployment rate is staggering, especially among young Iranians. Prices of consumer goods have doubled, tripled, even quadrupled in some cases, according to consumers. 

    The business community is in disarray, and as things keep getting worse, it’s all people are talking about.

    Reuters

    CLICK ON THE GRAPHIC ABOVE TO ENLARGE THE IMAGE. Iran Sanctions: Key areas affected by sanctions imposed by the international community against Iran.

    Barely getting by 
    At the Tajrish Bazaar in North Tehran on a recent afternoon, Ahmed, a 31-year-old unemployed man, poured his heart out to me. Speaking on the condition of anonymity, as all those interviewed for this story did because of the political sensitivity of speaking out in Iran, he told me his story. 

    He said he has been unemployed for the past year, doing odd jobs, and that he barely makes enough to feed himself, let alone his wife and children. The lack of jobs and the extraordinary rise in food prices have hamstrung him. But he was most worried about what the crippled economy is doing to the youth of Iran, who he said are turning to crime and drugs if they can’t find work. 

    In Iran, appearance is everything. How you dress and wear your beard says a lot about your politics. 

    As I talked to Ahmed, who was dressed in Western-style clothes, another man looked on disapprovingly. He had a full dark black beard and was dressed in conservative black clothes. He was listening to everything Ahmed said and wanted to talk to us, although he declined to give us his name.

    He said that people like Ahmed were making excuses and were lazy. He argued that the economy had become tougher, but no more so than the Iranian people were used to over the years. He blamed the U.S. for the bad economy, accusing President Barack Obama of unfairly trying to squeeze Iran. But he said that in the end, the rough economic times had taught Iran to be more self-reliant. 

    “We need to tighten our belts for now and weather this storm with the West as we have always done. And we will be victorious again,” he said.

    NBC's Ali Arouzi reported from Istanbul, Turkey in April during the most recent meeting between world leaders and Iranian representatives to discuss Iran's nuclear intentions.

    New sanctions' real impact
    The most recent international sanctions have targeted Iran’s crude oil and banking sectors. In addition to harsh U.S. measures, 27 countries in the European Union agreed in January to ban Iranian oil imports –- giving countries until July 1 to terminate their deals. They also put a freeze on assets belonging to the Central Bank of Iran and a ban on trade in gold and other precious metals.  

    Anthony Cordesman, who holds the Burke chair in strategy at the Center for Strategic and International Studies and is a long-time Iran watcher, said that despite years of sanctions against Iran, the most recent ones have had the greatest impact –- partly because they target banking.

    The banking sanctions “have had the most popular, or broad, impact. Right now Iran can’t even operate on the international clearinghouse.”   

    “I think that this is the first time that sanctions have really had a major bite. Up to now, they have all been fairly limited,” said Cordesman.  “But beginning in November, and it’s just beginning to bite, you can’t bank internationally effectively, you can’t move money. You don’t have a stable conversion rate –- but the rial [Iran’s currency] is way down, so your savings are of very uncertain value unless you’ve invested in property.  You don’t know what’s going to happen to your business. You have to be very cautious about how much money you can spend on a marriage for your children or their education.” 

    He added that we really won’t begin to see the full impact of the sanctions until summer, when they have all gone into effect.  “So everyone knows it’s getting worse, but no one knows yet how serious.” 

    Vali Nasr, the incoming dean     at the Johns Hopkins School of Advanced International Studies, explained how these sanctions differ from 30 years of sanctions that mostly targeted imports into Iran. 

    Slideshow: Everyday life in Iran

    At schools, in shops, and on the streets of big cities and small towns, daily life plays out in Iran.

    Launch slideshow

    “The new set of sanctions targeting Iran’s oil industry, central bank, ability to conduct international financial transactions, are of a different nature largely because they are going after the government’s source of income –- the ability to sell oil or receive money for oil,” said Nasr. “So these have had an impact because they have caused extensive inflation inside Iran. They’ve caused the government to scrap a variety of projects, which has caused unemployment.  

    “There is no doubt that economic hardship has become much more pronounced. And there is on top of that a layer of uncertainty. So there is significant economic hardship that is hitting the lower rung of society and the Iranian middle class,” said Nasr.
     
    Back in Tajrish Bazaar, Roya, a well-dressed woman in her 60s wearing a Hermes scarf for a hijab and carrying a Louis Vuitton bag, explained how even she is being hit by the economic uncertainty. While she is a wealthy Iranian living in the leafy suburbs of affluent North Tehran, she said her purchasing power has been halved by the struggling economy. 

    “Everything has doubled in price,” Roya said. “My son lives in Los Angeles, and it’s cheaper to go shopping there -- amazing. Things have become difficult for me even though I am among the better off Iranians. I can’t imagine how difficult it is for folks downtown.” 
    When I asked her what the solution was, she replied sarcastically, “That’s for the country’s economists to figure out.”

    Close to the bone
    For international relations analysts, like Cordesman and Nasr, getting reliable information on what’s going on in Iran is very difficult. Both analysts said that basically all of their information on the impact of the current sanctions is anecdotal. 

    “You have to rely on anecdotal information especially because the Iranian government does not have an interest in revealing how painful the sanctions are. They may admit that they are hurting, but they don’t want to put numbers out there,” said Nasr. 

    But it’s not all doom and gloom for the regime. President Mahmoud Ahmadinejad often touts during public events that Iran has a record $90 billion in foreign exchange reserves, as well as untold reserves of gold, silver and precious stones. 

    Even though experts estimate that Iran has seen a decline in sales of about 300, 000 barrels of oil per day as a result of the sanctions, this has been offset by a 15 percent rise in crude prices. 

    And the effect and pain of sanctions have not been distributed evenly. While blue-collar workers in downtown Tehran can expect to eat meat once a month only as a treat, North Tehran is awash with Mercedes and Porsche SUVs costing as much as $500,000 after the import tax has been paid.    

    Will the sanctions achieve goal?
    So the question remains as to whether the sanctions will achieve their goal: curtailing Iran’s nuclear program.

    “The sanctions have had an impact of getting Iran to the negotiating table. Iran came to Istanbul [the site of the latest diplomatic talks] with much more seriousness than in the past,” said Nasr. 

    But he added that the sanctions alone won’t be enough for Iran’s leaders to give up a program they have invested heavily in –- both financially and in terms of building the nuclear program as a point of national pride.  “Just because the Iranian public dislikes this regime –- that does not mean that they dislike the nuclear program. They don’t see this as the regime’s nuclear program, they see it as Iran’s nuclear program,” said Nasr.  

    In order for the sanctions to work, Nasr explained, the U.S. and other parties at the table need to give something back -– otherwise it would just seem like Iran is surrendering to the West’s demands, not an easy sell at home. 

    “Until now, the whole approach has been stick-heavy and carrot-poor. And the sticks are very explicit and the carrots are vague. And maybe that was necessary to get their attention and to show that we meant business. But now going forward -– [the U.S.] can’t ask [Iran] for concrete concessions –- like stop this, stop that -– but not put concrete things on the table, like this sanction will be lifted.  If all the concessions are on the Iranian side and what they get is just a promissory note, I don’t think it will fly.”   

    “End of the day, these two countries have not had a single thing they’ve agreed on or done together in the last 30 years. So you couldn’t expect them to actually be able to conclude a deal without some sort of reciprocal, trust-building, concrete steps going forward.”

    Msnbc.com’s Petra Cahill contributed to this report. 

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  • Protests outside nationalized Spanish bank as Euro zone worries grow

    Pedro Armestre / AFP - Getty Images

    A woman holds a card reading "This bank cheats, defrauds, throws people out of their houses" during a protest held outside Caja Madrid bank's headquarters in Madrid on May 14, 2012.

    Alberto Di Lolli / AP

    Riot police stand guard in front of a branch of the recently nationalized Caja Madrid bank during a protest in Madrid on May 14, 2012.

    The Associated Press reports — Spanish Prime Minister Mariano Rajoy on Sunday defended his government's harsh austerity measures aimed at correcting Spain's grim economic forecast, one day after tens of thousands of Spaniards took to the streets to protest his handling of the country's worst crisis in decades.

    On Friday the government ordered independent assessments of its banks' debt loads and forced them to set aside billions more in provisions for the real estate sector. 

    Global shares , euro hit as political risks pile up

  • Greek turmoil deepens Europe's debt crisis

    John Kolesidis / Reuters

    Greek actress Ino Menegaki, playing the role of high priestess, takes part in the Olympic torch ceremony at the site of ancient Olympia in Greece Thursday. Greece could use some help from above as it struggles to solve deep economic and political problems.

    By John W. Schoen, Senior Producer

    The deepening political turmoil in Greece has begun reverberating throughout the global financial markets as Athens’ failure to form a government last weekend threatens to further undermine the battered European economy and banking system.

    Two years after European leaders began engineering a bailout for the debt-laden Greek government in return for deep spending cuts, the grand plan to cement the widening cracks in Europe’s common currency appears to have collapsed. 

    There is no Plan B. 

    "Greece is an unguided missile launched from the middle of the eurozone," said Carl Weinberg, chief economist at High Frequency Economics. “How, when and where it will strike cannot be predicted."

    On Thursday, Greece’s fragmented political leadership failed in another last-ditch effort to form a government, all but assuring another round of elections next month. Voters swept from power the two major parties that had engineered a painful austerity plan with Europe’s wealthier countries, led by Germany, in exchange for an ongoing financial lifeline.

     With no government in place to enforce spending cuts, the European Union temporarily cut off a portion of that lifeline, raising the likelihood that Greece will be forced to leave the 17-nation compact that shares a common currency. The Athens government is due to run out of cash in June.

    Without the financial lifeline or membership in the common currency, Greece faces a grim future. With its economy already contracting at an estimated 6 percent annual rate, an exit from the eurozone would accelerate its economic and financial collapse. But holders of its debt, including Europe’s banking system, would also feel the blow.

    The turmoil is already putting pressure on other European governments wrestling with large debts and deep spending cuts.  

    No one can predict the outcome. And unlike the sudden financial panic that swept the world in September 2008, some analysts say, the crisis could stretch on for years. Europe has become a “slow motion train wreck,” according to New York University economist Nouriel Roubini.

    "Slow motion because it might take three or four years," he told CNBC. "But three or four years in which all these risks coming from the eurozone -- economic, political, fiscal, financial -- are going to get gradually worse."

    For the moment, Spain appears to be the most vulnerable to the “contagion” of Greece’s apparently imminent demise.

    With Spain’s economy mired in the second recession since 2009 and unemployment at 25 percent, the country’s bankers are struggling with rising loan defaults left behind by a U.S.-style housing bust. Spanish banks, unable to unload bloated inventories of repossessed homes, are stuck with nearly a quarter trillion dollars worth of bad debt.

    CNBC's Michelle Caruso-Cabrera reports on the details of Alexis Tsipras' plans for Greece's future.

    On Wednesday, the Spanish government took over the latest casualty, Bankia, which holds 10 percent of the Spanish banking system's deposits. Government officials there are expected to demand as early as Friday that bankers set aside more capital to offset those debts. That would leave them with less cash to lend to businesses and consumers, dampening spending and deepening the recession.

    That recession is spreading across Europe. On Thursday, the OECD said in a monthly economic update that France and Italy are showing further signs of weakness.

    That leaves Germany, Europe’s largest economy, as the main provider of financial lifelines to its weaker neighbors. Despite growing signs that deep budget cuts are worsening Europe’s economic contraction, German leaders remain publicly steadfast in support of further “austerity” as the ultimate cure.

    On Thursday, German Chancellor Angela Merkel insisted, in a newspaper interview, that Greece has to follow through on further cuts due next month under terms of the bailout negotiated by its government. German Finance Minister Wolfgang Schaeuble said Thursday that Europe and the International Monetary Fund stood ready to help Greece, but the country’s fate would depend on adherence to the existing plan. 

    "Whether Greece is ready to do what is necessary - only the Greek people can decide," he told a news conference. "Greece can rely on the solidarity of Europe, but if Greece does not help itself, there is nothing to be done."

    If the austerity plan fails and Germany withdraws financial support, Greece would almost certainly default on its debt, including loans already extended by the IMF and European Central Bank. The impact of those losses could make it much more difficult for other countries to win support for bailouts of their own.

    "If after all this Greece has to be written off after all, it will also add to aid fatigue that is making the round in the countries financing the bailouts," said Natascha Gewaltig, head of European economics for Action Economics.

    Borrowers across Europe already face a tougher time getting credit as banks are apparently hoarding cash to weather an increasingly risky and uncertain future, according to a recent analysis by the Wall Street Journal.  At the end of March, 10 of Europe's biggest banks had parked nearly $1.2 trillion at central banks around the world. That’s $128 billion, or 12 percent, higher than December and up 66 percent from the end of 2010, the Journal said.

    As Europe’s economic and financial crisis drags on, tighter credit conditions could spread worldwide to large companies trying to raise cash by selling bonds. On Thursday, Standard & Poor's issued a report estimating that nonfinancial corporations in the eurozone, U.K., U.S., China, and Japan will need to raise $43 trillion to $46 trillion over the next five years, including $30 trillion of debt to refinance existing bonds and $13 trillion to $16 trillion of new money to fund growth. The report warned of "credit rationing that may occur as banks seek to restructure their balance sheets" and investors grow jittery about the risks of buying all that debt.

    "Combined with the eurozone crisis, the slow U.S. economic recovery, and the prospect of a slowing economy in China, this raises the downside risk of a perfect storm in global corporate credit markets," said Jayan Dhru, S&P head of global corporate ratings.

    Investors are also warily watching the looming "fiscal cliff" facing the biggest borrower of all, the U.S. government. Unless Congress and the White House can steer away from it, massive tax hikes and spending cuts are scheduled to take effect at year-end. Economists have warned the combined impact could cost the U.S. economy between 2.5 and 5 percent of gross domestic product, stopping the anemic recovery in its tracks.

    "The markets are telling Washington, 'You better get it in gear; you cannot let this uncertainty overhang the market,'" said Yra Harris, a currency trader at Praxis Trading. "This uncertainty is really making people nervous."

  • Votes throw future of euro into question

    By John W. Schoen, Senior Producer

    It took European leaders two years to cobble together a shaky plan to save their common currency,  the euro, a grand economic experiment undertaken in more prosperous times.

    Now, with recession spreading and deepening, it took voters across the continent just two days to reject the deep government spending cuts their leaders enacted in hopes of salvaging that common currency.

    “The euro is an experiment that is in the process of failing," said Michael Crofton, CEO of Philadelphia Trust Co., a private bank.

    "You’re going to see the euro at least divide at a minimum, if not collapse completely," he told CNBC. "What I think we have seen in these elections is the fact that people don't really want to be governed without their consent."

    The pan-European plan to slash government spending has been years in the making but never fully tested in a popular referendum. So the results of weekend elections in Greece, France and Germany came as little surprise. Aside from being deeply unpopular among voters losing jobs and benefits, the plan hasn't worked. Deep government budget cuts have sent Europe into recession, shrinking tax receipts and forcing deeper spending cuts and weakening the capacity of individual government to their sustain existing debts. 

    The widening European recession is already being felt by U.S. multinational companies. Among companies in the Standard and Poor’s 500 index, some 20 percent of profits come from European sales. Last week, for example, General Motors reported that it lost a quarter-billion dollars on slumping sales in Europe, even as it posted strong profits on robust car sales in North America.

    Now as voters eject political leaders responsible for shepherding Europe through its debt crisis, the outcome is even further in doubt.

    In Greece, epicenter of the financial turmoil, voters rebelled against crippling wage cuts offered up by their elected representatives in return for a bailout from wealthier countries led by Germany. The rise of smaller Greek political parties to the right and left of the incumbents produced a deeply fragmented slate of new leaders, leaving no party with enough candidates to govern alone.

    That will force another election, possibly as soon as next month. The result is a new round of political turmoil in Athens that could put the carefully negotiated bailout in jeopardy – forcing Greece’s economy deeper into depression and hasten its exit from the euro.

    In France, President Nicolas Sarkozy, as expected, lost to Socialist Francois Hollande, who campaigned on a promise to reverse course on government budget cuts and hire thousands of teachers, create new jobs for younger workers and bring the retirement age for some workers back down to 60 from 62. To balance the French budget, Hollande pledged to cut spending and raise taxes, mostly on the rich and large businesses.

    Sarkozy’s exit from the European political stage will also be a blow to German Chancellor Angela Merkel, who engineered a so-called fiscal compact that calls on heavily indebted countries like Greece, Spain, Portugal and Italy to make the deep budget cuts that prompted the electoral backlash.  In return for spending concessions, Germany agreed to back financial lifelines for the struggling companies.

    Why election results in Europe could mean the dismantling of austerity measures; Buffett goes on a spending spree; and Facebook's IPO road show kicks off, with the "Squawk on the Street" team.

    The failure of that austerity policy has prompted calls for alternative solutions, including deferring budget cuts, expanding the bailout fund and creating a single European bond that could help lower borrowing costs for weaker countries but raise costs for German taxpayers.

    This weekend, German voters in state elections got their turn to weigh in on the idea of abandoning austerity – and gave it a resounding “nein.” German taxpayers are loathe to see their wages used to fund bailouts for European neighbors who are seen as too quick to borrow and spend freely.

    The voters' message was not lost on Merkel, who had backed her ally Sarkozy. On Monday, Merkel’s government rejected the idea that Europe was about to shift course on the fiscal compact.

    "The position of the German government is clear: We will continue on our savings path,'' said Volker Kauder, parliamentary leader of Merkel's Christian Democratic party. "Germans could end up paying for the Socialist victory in France with more guarantees, more money. And that is not acceptable. Germany is not here to finance French election promises."

    Germany’s insistence on imposing austerity on her neighbors, though, may not be sustainable. Berlin has been able to win concessions from other governments because its large, expanding economy has been a source of stability during the financial crisis. But as Europe's recession spreads, German companies are feeling the impact.

    With U.S. in a weak recovery and growth in China slowing, the export-driven German economic machine is at risk of stalling out. That could harden Germany’s resolve to adhere to an austerity policy that has so far proved to be a political and economic failure.  

    “The problem is that the German economy is beginning to soften, and along with that I expect the polls to start showing lesser support for providing backstops to the periphery,” said David Rosenberg, chief economist at Gluskin Sheff, an investment management firm. "From a geopolitical standpoint, an ever-isolated Germany spells even more instability."

  • Clinton to tell India: Cut back on Iran oil

    Shannon Stapleton / AFP - Getty Images

    U.S. Secretary of State Hillary Clinton waves upon her arrival at the airport in Kolkata, India on Sunday.

    By NBC News and msnbc.com news services

    KOLKATA, India - The United States will seek assurances that India will reduce its purchases of oil from sanctions-hit Iran during a visit by Secretary of State Hillary Clinton to the South Asian giant this week, a senior U.S. official said on Sunday.

    Clinton started a three-day trip to India on Sunday that will coincide with a visit by a large Iranian trade delegation, as India walks a tightrope of strengthening ties with ally the United States and sating its fast-growing energy needs.

    She arrived in India from a 24-hour visit to Bangladesh, where NBC News reported that she visited the US Embassy in Dhaka to thank worker and expressed “hurt” at a local opinion poll that showed most people believe the U.S. is anti Muslim.

    During her visit, Clinton will also make the case for the country to open its supermarket sector to foreign chains such as U.S. giant Wal-Mart Stores - a major economic reform that has stalled under Prime Minister Manmohan Singh's government.

    India has publicly rejected Western sanctions but has pushed refiners to cut imports of oil from Iran by 15-20 percent - enough, it hopes, to win a waiver from Washington.

    The United States in March granted exemptions to Japan and 10 European Union nations from its sanctions, which are aimed at pressuring Iran to end its nuclear programme. India and China, Iran's biggest buyers of crude, remain on a list at risk if they do not cut oil imports "substantially".

    "Our assessment is India is making good progress but we really need to receive assurances that they are going to continue to make good progress," a senior U.S. official, travelling with Clinton, told reporters.

    The 56-member trade delegation, led by the president of Iran's chamber of commerce, will also arrive on Sunday for another round of talks on how the two can trade via a rupee mechanism set up to skirt sanctions. A previous trade mission of Indian businesses to Iran in March had proved unproductive.

    "These are not going to be strategic trades of any kind," the U.S. official said. "So I don't think that we are too concerned about this, but we'll obviously want to hear from the government what they see as the focus of this trade delegation."

    Shannon Stapleton / AFP - Getty Images

    U.S. Secretary of State Hillary Clinton speaks to students at the Dhaka International School in Dhaka, Sunday.

    Relations between the United States and India have blossomed in recent years, especially during the presidency of George W. Bush, which signed a landmark civilian nuclear pact with India. But irritants, especially over trade and investment barriers, have raised temperatures of late.

    Clinton arrives in India leaving behind her a stormy visit to China, which saw Beijing and Washington tussle over the fate of a blind Chinese human rights activist who had escaped 19 months of house arrest and fled to the U.S. embassy.

    From Kolkata, Clinton will travel to New Delhi on Monday to meet Singh. Afghanistan and India's controversial proposals on retroactive taxation are likely talking points, Indian sources told Reuters last week.

    Reuters contributed to this report.

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  • Greek voters deal blow to parties that have governed for decades

    Angelos Tzortzinis / AFP - Getty Images

    A man casts his vote for Greece's general elections at a polling station in Athens on Sunday.

    By ELENA BECATOROS and DEREK GATOPOULOS , The Associated Press

    Updated at 6:15 p.m. ET: ATHENS, Greece -- Greeks angered by a protracted financial crisis punished the parties that have dominated politics for decades Sunday, with projected election results showing them hemorrhaging support to anti-bailout groups and no party gaining enough ballots to form a government.

     

    Responding quickly to the protest vote, the heads of the parties in first and second place pledged to seek to either renegotiate the terms of Greece's multibillion dollar international bailout agreement or overturn it.

    More than two years of repeated austerity measures in return for bailout loans from other European Union countries and the IMF have pushed Greece into a deep recession that has seen the jobless rate explode and tens of thousands of businesses close. The misery has infuriated voters who on Sunday dealt a massive blow to the decades-old dominance of the country's two main parties, the socialist PASOK and conservative New Democracy.

    The two, which have alternated in power since the end of the seven-year dictatorship in 1974, had managed to coexist in an uneasy alliance for the past six months as a governing coalition cobbled together to secure a second bailout deal and the biggest debt writedown in history.

    Official projections Sunday showed New Democracy winning 18.9 percent, giving it 108 seats in the 300-member parliament - far short of the 151 needed to form a government. The anti-bailout left-wing Syriza party was projected second with 16.8 percent and 51 seats, and the formerly majority socialist PASOK lagged behind with 13.4 and 41 seats.

    Following votes in France and Greece, the euro fell to a three-week low. The votes are a response to austerity measures pushed by Germany. CNBC's John Harwood has more.

    The extremist far-right Golden Dawn party, which ran on an anti-immigrant platform and wants landmines along Greece's borders, is projected to win 7 percent of the vote, giving it 22 deputies in Parliament - a massive gain for a party that until a few months ago was on the fringes of Greek politics.

    With no outright majority, a coalition government will have to be formed. If successive efforts by the top three parties fail, the country will head into new elections - a prospect that has alarmed Greece's international creditors.

    Both New Democracy head Antonis Samaras and PASOK leader and former finance minister Evangelos Venizelos voiced support for a coalition - but with certain caveats.

    "The fact that New Democracy is the first party increases its responsibility, as it is now the only pillar of political stability in Greece," Samaras said. "We are ready to take up the responsibilty to form a new government of national salvation with two exclusive aims: For Greece to remain in the euro and to amend the terms of the loan agreements so that there is economic growth and relief for Greek society."

    Before the elections, Samaras had insisted he would not form a coalition with his socialist rivals.

    Syriza head Alexis Tsipras said the drubbing of New Democracy and PASOK, which had signed Greece's loan agreements, meant "their signatures have lost legal legitimacy by the popular vote."

    "The people have rewarded a proposal made by us to form a government of the Left that will cancel the loan agreements and overturn the course of our people toward misery," Tsipras said.

    Both statements are likely to alarm Greece's international creditors, who will be watching the debt-ridden country closely to see if it is meeting the strict fiscal targets of spending cuts and boosting revenue in return for rescue loans that are keeping it from default. The country is expected to take yet more austerity measures in June.

    Partial official results with 48 percent of the vote counted showed New Democracy with 20.05 percent, Syriza with 16.02 percent and PASOK with 13.84 percent.

    Golden Dawn, which rejects the neo-Nazi label and calls itself a nationalist partriotic party, had 6.86 percent - a meteoric rise for a party that won just 0.23 in the previous elections in 2009.

    "Greek citizens should not fear us, the only ones who should fear us are the traitors," Golden Dawn leader Nikolaos Michaloliakos told The Associated Press. The outcome is particularly devastating to PASOK, which won a landslide victory in the last parliamentary elections in 2009 with more than 43 percent of the vote.

    "For us at PASOK, the day is particularly painful," Venizelos said. "We new that we would pay the price, having taken a emotionally and politically unbearable position to take the measures that were necessary."

    He ruled out a two-party government with New Democracy and called for a broad coalition of pro-European parties, regardless of their stance on the bailouts.

    "A coalition government of the old two-party system would not have sufficient legitimacy or sufficient domestic and international credibility if it would gather a slim majority," Venizelos said. "A government of national unity with the participation of all the parties that favor a European course, regardless of their positions toward the loan agreements, would have meaning."

    Days of talks are expected as parties attempt to hammer out a governing coalition.

     

    Yannis Androutsopoulos / AP

    Former Socialist Prime Minister George Papandreou, second left, is welcomed by supporters prior to casting his ballot in Kalentzi, western Greece, on Sunday.

    More world news from msnbc.com and NBC News:

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  • Cuba's little capitalists venture into a budding economy

    Desmond Boylan / Reuters

    Customers are entertained as they dine inside the newly licensed restaurant "El Bedouino" in Havana on April 1. The restaurant is an example of how life is changing in Cuba since President Raul Castro launched a string of limited economic reforms, legalizing certain kinds of businesses, including restaurants, hostels and street vendors.

    Enrique De La Osa / Reuters

    Women sell clothes they made to pedestrians along a street in Havana on March 24.

    Desmond Boylan / Reuters

    A woman pays a man with a private licence to sell goods at a stall in Havana on Feb. 29.

    Reuters reports -- After his ailing older brother, Fidel, stepped down as president four years ago, Raul Castro began to encourage self-employment. He initiated changes in sectors previously restricted to the state or which had operated illegally in Cuba's vast black market.

    He has given Cubans the right, with some restrictions, to buy and sell homes and cars for the first time since the early days of the 1959 revolution, led by Fidel.

    Would-be farmers can lease land from the government. New small entrepreneurs are being allowed to enter into contracts with state companies and local governments.

    As a result, more Cubans are setting up their own businesses as the cash-strapped government moves to cut spending and boost tax revenue.

    Read the full story.

    Desmond Boylan / Reuters

    A car with a "for sale" sign is seen on a street in Havana on Feb. 29. Unseen in the past, cars for sale are an example of how life is changing in Cuba since President Raul Castro launched a string of limited economic reforms, legalizing certain kinds of businesses, including restaurants, hostels and street vendors.

    Enrique De La Osa / Reuters

    Leather craftsman Arle Toro (right) tries to sell a hat to a pedestrian along a street in Havana on March 24.

    Desmond Boylan / Reuters

    A woman walks past an apartment with a "for sale" sign in Santiago de Cuba March 25, 2012. Unseen in the past, home sales are an example of how life is changing in Cuba since President Raul Castro launched a string of limited economic reforms, legalizing certain kinds of businesses, including restaurants, hostels and street vendors.

  • News Corp.'s board has 'full confidence' in Murdoch

    Sang Tan / AP

    Rupert Murdoch, right, and his son James Murdoch, left, have come under fire for their handling of the hacking affair last year that resulted in the closure of the News of the World.

    By Roland Jones

    News Corp.’s (NWS) board of directors said Wednesday it has “full confidence” in Rupert Murdoch’s fitness to continue to lead the international media company.

    The statement, which came days after a British House of Commons committee report called Murdoch “not a fit person” to head a major international company, followed a meeting of News Corp.’s board of directors.

    In its statement, the board said its decision was unanimous.

    “The Board based its vote of confidence on Rupert Murdoch's vision and leadership in building News Corporation, his ongoing performance as Chairman and CEO, and his demonstrated resolve to address the mistakes of the Company identified in the Select Committee's report,” the statement said.

    Rupert Murdoch and his son James have come under fire in recent months for their handling of the hacking affair last year that resulted in the closure of the News of the World tabloid.

  • UK slides back into recession in first double dip since 1970s

    Andy Rain / EPA

    The last time Britain suffered a double-dip recession was in 1975.

    By Reuters

    LONDON - Britain's economy slid into its second recession since the financial crisis after official data unexpectedly showed a fall in output in the first three months of 2012, piling pressure on Prime Minister David Cameron's embattled coalition government.

    The Office for National Statistics said Britain's gross domestic product fell 0.2 percent in the first quarter of 2012 after contracting by 0.3 percent at the end of 2011, confounding forecasts for 0.1 percent growth.

    The last time Britain suffered a double-dip recession was in 1975.

    Most economists had expected Britain's $2.4 trillion economy to eke out modest growth in the early 2012, but these forecasts were upset by the biggest fall in construction output in three years coupled with anemic service sector growth and a fall in industrial output.

    Wednesday's figures will be a deep blow for Britain's Conservative / Liberal Democrat coalition, which has slid in opinion polls since a poorly received annual budget statement in March and risks embarrassment at local elections on May 3. The government is also under pressure over revelations about its close relationship with media tycoon Rupert Murdoch.

    Fresh reports show little evidence of housing rebound

    The government desperately needs growth to achieve its overriding goal of eliminating Britain's large budget deficit over the next five years.

    Britain's economy contracted by 7.1 percent during its 2008-2009 recession and recovery since has been slow, with headwinds from the eurozone debt crisis, government spending cuts, high inflation and a damaged banking sector.

    The Bank of England has warned that there is a risk of another contraction in the second quarter of 2012, due to an extra public holiday. But unlike during the previous two quarters, it does not appear keen to provide further monetary stimulus through quantitative easing asset purchases, due to above-target inflation which looks stickier than before.

    Consumers confident but wary about the economy

    The BoE, and a number of private-sector economists, had argued before Wednesday that the underlying health of Britain's economy was stronger than ONS data suggested, due to relatively upbeat private-sector surveys and a fall in unemployment.

    The ONS's preliminary estimates of GDP are the first released in the European Union, and are based partly on estimated data. On average, they are revised by 0.1 percentage points up or down by the time a second revision is published two months later, but bigger moves are not uncommon.

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