November 22, 2011, 8:50 AM EST

By Paul Abelsky and Helena Bedwell

(Updates with quotes starting in third paragraph.)

Nov. 22 (Bloomberg) — Georgia had its sovereign-credit rating raised by Standard & Poor’s one notch to BB-, three levels short of investment grade, on the government’s fiscal- consolidation plans.

The rating has a stable outlook, meaning it is more likely to remain unchanged than to be lowered or increased, S&P said today in a statement. The BB- assessment is one level higher than Ukraine and Albania.

“The upgrade reflects our view of Georgia’s strong growth prospects and improving public finances,” S&P said in the statement. “These strengths are underpinned by its commitment to market-oriented policies and its previous structural reforms and fiscal consolidation.”      Georgia is seeking to revive its $11.7 billion economy by luring investments in energy and tourism. Gross domestic product grew 6.4 percent in 2010 after shrinking 3.8 percent the previous year. Economic growth slowed to 4.7 percent in the second quarter from a year earlier, compared with 5.8 percent in the previous three months.

The country’s fiscal deficit will narrow to 3.7 percent of GDP this year from 9.2 percent in 2009, S&P said.

Spending Pressures

“We expect the government will adhere to its newly legislated fiscal rules, which oblige it to reduce the deficit to 3.0% of GDP by 2013,” S&P said. “The government has frontloaded expenditure-based fiscal consolidation in 2011, ahead of what will likely be spending pressures ahead of the 2012 parliamentary and 2013 presidential elections.

A reduction of Georgia’s external vulnerabilities through energy and tourism exports, or foreign-investment inflows, would prompt the ratings company to consider another upgrade, according to the statement.

‘‘Political risk does remain a constraint on the ratings, although in our view this continues to ease,’’ S&P said.

Link to Statement:NSN LV2B0H3PWT1D <GO>

–Editors: Alan Crosby, Andrew Langley

To contact the editor responsible for this story: Paul Abelsky at pabelsky@bloomberg.net

It all started with a relatively small problem: Greece, a country with a high level of indebtedness relative to its GDP, got downgraded. “Green shoots” were perking up everywhere here in the US and Europe as people were optimistic that the recovery we were hoping to get from the fall of ’08 was taking shape and gaining traction.

“A downgrade won’t be so bad if this recovery takes hold and Greece will be able to grow its way out of its problems. Plus, it’s just Greece. It’s not like we’re talking about Germany or anything.” That was the conventional wisdom two years ago. Whether it was an overdose of Hopium or just the typical whistling by the graveyard, who knows? At any rate, it doesn’t matter now. This situation has moved beyond Greece. It has moved beyond Portugal and beyond Ireland. Spain, Italy, and France are now at the center of a crisis that started with that Greek debt downgrade.

Two AAA-rated countries shouldn’t be trading this differently. And yet, they are. Perhaps this is another situation where a AAA rating isn’t worth much. Consider these two tables from the International Monetary Fund’s Fiscal Monitor, which it published in September:
 

Click to enlarge

Click to enlarge

General government debt-to-GDP ratios between France and Germany are relatively similar, yet when you look at the percentage of nonresident debt holders each country has, there’s a distinct difference: More French debt is held by non-nationals than German debt. Seventy percent of US general government debt (that’s federal debt plus state and local government debt) and 95 percent of Japanese general government debt are held domestically. This next chart compares the government debt holders of the US, the UK, and Japan with Greece, Ireland, and Portugal:
 

 
A stark contrast, this. But it also shows why one country (Japan) can seemingly borrow ad infinitum with no increased borrowing costs, while some of the countries in question have to be much more cautious. Borrowing bases (i.e., who your creditors are) do matter. Indeed, if a tree fell in a Japanese forest, I’m not sure anyone would see it or hear it if the forest was half as insular as Japan’s debt market is.
 
That’s an important distinction to make because tensions between debtors and creditors have been on the rise for the past few years, and what is being played out in the sovereign debt markets is the ultimate expression of that tension. Like a tragic symphony movement that builds to a crescendo, the action in debt markets has become volatile, loud, and frenetic. You know it’s all building to something somewhere in the future, it’s just questions of what, when, and how.
 
Because of where the banks sit in the modern economy, they’re a transmission mechanism for greed when they’re lending and fear when they’re not. And judging by overnight swap rates, they’re not lending much:
 

 

 

 

Don’t feel like home… he’s a little out…
And all these words elope… it’s nothing like your poem…
Putting in… inputting in… don’t feel like methadone…
– Pearl Jam, “Nothing As It Seems”
 
You’ll notice I circled the rates in the upper left hand of each chart. I did that because I wanted to try to build a swap curve in my mind’s eye and get a sense of its shape. Here’s a hint: It’s inverted. Swap rates on overnight money are higher than they are for 1-month, 3-month, and 1-year. A sign of stress, for sure.
 
You’ll also notice that I put in a blue vertical line right around July 2010 and a horizontal one that extends from July 2010 to the present. I did that because I wanted to answer a question: What has happened with swap rates since the European Central Bank called in €442 billion of emergency loans to banks on June 30, 2010? Well, the proof is in the charts. Rates have only moved higher and funding has gotten more erratic. Kind of like a junkie going through withdrawal, the banks seem to be having a hard time coping with less cheap liquidity laying around.
 
If only liquidity were the only thing that needed to be addressed. There’s also the delicate but not so subtle issue of capital adequacy, especially since European banks need to have core capital ratios of 9% by June 2012. But who is going to invest in European banks nowadays?
 

Click to enlarge
 
So if you’re not feeling particularly bullish about your prospects to raise capital, you only have one other choice: Reduce the size of your balance sheet. That means selling assets and write-downs. But what do you sell? You sell the stuff that has a bid, not the stuff that’s dragging your balance sheet down.
 
Which probably means the companies that were what we thought they were (see Too Big to Fail System: On Its Way Out?) are having to do some massive selling to raise capital. Which probably explains why French, Austrian, Dutch, and other sovereign debt will be sold instead of the Greek, Portuguese, Irish, Italian, or Spanish debt that is still being held on to. Because if you try to sell that stuff now, you’re not just taking a hickey on that loss; you’re taking something else that you won’t be able to lie about by saying you had an entanglement with a vacuum cleaner.
 
So what are the solutions? Everyone says they don’t want defaults (for now) and this situation has become too difficult to handicap, so defaulting on the debt is out. That really leaves us two scenarios: ECB purchases of sovereign debt as a lender of last resort or some sort of fiscal consolidation.
 
Let’s take the ECB purchasing sovereign debt first. The first issue is that the ECB can’t do this without making it look like a bailout, which they are prohibited from doing. Bank of England Governor Mervyn King recently said this on the subject (emphasis, mine):
 

This phrase “lender of last resort” has been bandied around by people who, it seems to me, have no idea what lender of last resort actually means, to be perfectly honest. It is very clear from its origin that lender of last resort by a central bank is intended to be lending to individual banking institutions and to institutions that are clearly regarded as solvent. And it is done against good collateral, and at a penalty rate. That’s what lender of last resort means.
 
That is a million miles away from the ECB buying sovereign debt of national countries, which is used and seen as a mechanism for financing the current-account deficit of those countries, which inevitably, if things go wrong, will create liabilities for the surplus countries. In other words, it would be a mechanism of transfers from the surplus to the deficit countries. That’s why the European Central Bank feels, and with total justification, that it is not the job of a central bank to do something which a government could perfectly well do itself but doesn’t particularly want to admit to doing.

 
So there you go: Good collateral at a penalty rate. But with the current state of play in Europe, I’m not sure anyone can tell what is “good collateral” anymore. Plus, a lender of last resort only applies to banks. So the banks would have to queue at the ECB’s refinancing operations with their sovereign debt, accept whatever haircut the ECB put on it (it probably wouldn’t be that harsh) and agree to the penalty rate that the ECB charges for the privilege of pledging that sovereign debt to them.
 
And so the banks will have to find someone/something to lend to so they can pay the ECB back. They will have to chase risk somewhere. Chasing risk? In this environment? To get the ECB their money back? Good luck with that. And you can probably assume that whatever time is bought from such a deal won’t be enough for a good number of banks. Because you can only use liquidity to mask a solvency issue for so long. Plus, what’s to say the ECB wouldn’t be asked to do the same for French, Dutch, Austrian debt? What if buying Italian and Spanish debt to cap their borrowing costs isn’t enough?
 
The other option folks are talking about is some sort of fiscal union, or perhaps some sort of cooperative arrangement could be developed. Fiscal union implies common governance, common safety net arrangements, and common wage and cost structures. That is not something you agree on quickly, and it’s not something you can do with sovereign debt holders breathing down your neck, either.
 
But you can negotiate some sort of cooperative debt agreement where nations could agree to treat each other’s sovereign debt as their own and do what King pointed out — provides the means for the development of a mechanism for transfers between surplus and debtor countries. Once you come to a sort of cooperative/burden-sharing agreement, then you can work out the governance and cost structure issues that come with fiscal union. This would probably also give the ECB cover to loosen interest rates and give sufficient cover to devalue the euro.
 
Because ultimately we’re talking about trying to make an entire continent competitive, not just a few countries. But it will take a lot more time to achieve than the markets want to give policymakers at the moment. The peripheral European countries’ risk profiles would improve, while the core/surplus countries would decline. But an equilibrium would be found in debt ratings across Europe.
 
So where do we go from here? I don’t know for sure, but it seems clear that we have not seen the last of this situation. And regardless of what path gets taken, darkening social mood will hang over Europe. Because while some of these ideas to improve Europe will take years and decades to implement and see the results, the markets and the people are demanding action and results now. There’s a genuine disconnect here, and it’s not a question of money.
 
It’s a question of time.

No positions in stocks mentioned.

I am honoured to talk to such a large and distinguished audience today. Europe is in all our hearts, but we cannot live from sentiment alone.

As employers, you need to know concretely where Europe is heading. You need a predictable planning horizon in order to be able to contribute to growth and jobs. This is also our interest in the European Commission, and I will present to you our plan. But before doing so, let me say a few words about the current situation in Europe’s economy.

There is no doubt that German economy has been doing well. Economic growth this year will be about 3%, as estimated by our recent autumn forecast and confirmed by the latest figures for the third quarter. Fiscal consolidation has been remarkable. The deficit will fall well below 3% this year, although public debt remains at over 80% of GDP. It is encouraging that domestic demand has recently strengthened in Germany, on the back of the strongest labour market performance since the unification.

This is, to a large extent, thanks to the transformation that the German economy underwent over the last decade, subsequent to the unification boom and the opening-up to the new Member States in Eastern Europe. As you remember, this was not easy: The reform process was accompanied by a period of subdued growth, as well as by budgetary consolidation (under the first excessive deficit procedure for Germany). And the latter has been quite controversial, as well as the necessary reforms such as raising the pension age to 67 years.

However, next year, the external climate will start to weaken economic prospects in Germany – not least from the euro area, which accounts for 40% of German exports. We project growth to be only 0.8% next year.

It is worrying that the recovery in Europe has come to a standstill, with euro-area growth only at ½ % next year. Despite determined efforts, some countries still have very high debt levels. They must, no doubt, continue on a strict course of fiscal consolidation, especially as the sovereign debt crisis is intensifying the financial market turmoil.

The fundamental reason for the turbulence in the sovereign debt market is that there is no trust in the market that some member states do the necessary fiscal and structural reforms to service their debt.

Those countries that have come under pressure need to step up their efforts to regain market confidence, and they have committed to do so.

In particular, Greece must make decisive and rapid progress in its transformation. The focus must be on both continuing the fiscal consolidation and intensifying the implementation of such structural reforms that can boost higher growth and job creation. The Commission’s Task Force led by Horst Reichenbach is coordinating technical assistance for Greece with these objectives in mind.

The example of Ireland demonstrates that the approach of conditional financial assistance can and does work. Thanks to the determined fiscal consolidation, restructuring of the banking sector and structural reforms, the Irish economy is on the path of recovery, and is also rewarded by the market. Similarly, Portugal is making good progress with its programme to underpin fiscal sustainability and improved competitiveness.

Fiscal consolidation is a necessary but not sufficient condition to bring Europe back on track. Tomorrow, the Commission will present its view which reforms should be taken as a matter of urgency in our Annual Growth Survey, which kicks off the second annual cycle of economic policy coordination in the Union. First, of course, we address fiscal consolidation and the financial sector. We also outline which structural reforms are most necessary to jobs and growth, in particular as regards human capital, and how to make public administration more effective.

In this spirit, we have started working with the new Italian government. As PM Mario Monti underlilned in his speeches before the Parliament, the government is faced with difficult challenges. Italy needs to deliver on fiscal consolidation and adopt bold measures to re-launch growth in the medium- but also in the short-term. The speed of political change and the very broad support obtained by the government in parliament are proof of the awareness of the need for a change of gear in policies.

The Commission received the mandate from the euro-area summit to monitor the implementation of the letter of intent sent by PM Berlusconi on 26 October. We are going to present a first report to the Eurogroup next Tuesday. Some of the measures have been taken, and the new PM has already indicated the intention to go further in some important areas. We will continue monitoring closely in the coming weeks and months.

Overall, the current situation in Italy represents an opportunity for positive change. I am confident that with the right policies Italy can overcome the current loss of market confidence.

Ladies and Gentlemen,

The EU treaties say very clearly that Member States shall regard their economic policies as a matter of common concern. We must ensure that this commitment is respected by all Member States.

We must now install a stability culture as the core principle of economic governance in the EU.

By the way, 15 years ago, the word Stabilitätskultur was used to argue for the independence of monetary policy for the upcoming new European Central Bank. The ECB has indeed lived up to its stability culture. It has delivered stable prices in the euro area, and when faced with the threat to financial stability, the ECB decisively took unconventional measures that were necessary and measured.

Now we must bring the stability culture to fiscal policy. We have made progress: New legislation to strengthen the Stability and Growth Pact proposed a year ago will enter into force shortly. It will allow us to tackle both fiscal and macro-economic imbalances of a Member State much earlier than has been the case. The new tools include the possibility of financial sanctions if a euro area Member State does not follow the EU recommendations to put its fiscal house in order.

And rest assured, I will make full use of all these new instruments from Day One of their entry into force. We cannot afford to tolerate a breach of jointly agreed rules by anyone anymore. We have seen, only too concretely, that it happens at the cost of other Member States.

Tomorrow, the Commission will present two proposals that bring further stability to fiscal policy of the euro area.

The first proposal underpins national stability culture by requiring numerical fiscal rules on the budget balance, in line with medium-term budgetary objectives of the Stability and Growth Pact. Such rules shall cover the whole government and be of binding, preferably constitutional, nature. You are right if this reminds you of the Schuldenbremse.

Moreover, we propose independent fiscal councils at national level to underpin robust budgetary planning. We also aim to complete the coordination of national budgetary cycles at the European level. In the so-called European Semester in the first half of each year, we evaluate the multi-annual budgetary plans at EU level. But for euro area countries, we need to make sure that the national budgets are in line with the obligations of the SGP before they are enacted. Thus the Commission should take a look at draft budgets by 15 October at the latest, and if needed issue its opiniion.

Our second proposal is reserved for such euro-area countries that receive financial assistance. For them, the enhanced surveillance and the monitoring of programme conditionality will be required through law.

These proposals can be implemented within the current EU Treaties. But strengthening the Economic and Monetary Union further would require changes to the Treaty. The President of the European Council, together with the Presidents of the Commission and the Eurogroup, are now identifying what kind of changes the deepening of political and economic integration within the euro area may require in the longer term.

Ladies and Gentlemen,

These are very fundamental changes to economic governance. However, as I have pointed out in the beginning, the crisis has extended and deepened. The Stabilitätskultur is necessary. But we may need to couple it with a further step addressing the sovereign debt directly.

I have read with great interest the proposal by the German Council of Economic Experts, the Sachverständigenrat, on the debt redemption fund. The debt redemption fund would be a systemic response to the crisis. This proposal balances risk-sharing – which is limited in time – with very stringent programmes for fiscal consolidation. I believe the proposal is worth exploring seriously and further.

On the condition that the euro-area governance will undergo a substantial change to ensure rules-based fiscal discipline, I believe that we could also think about how to enhance financial stability through broad liquid bond markets with reduced risk.

Tomorrow, the Commission will present a Green Paper on the rationale, preconditions and possible options of financing public debt through eurobonds – better called stability bonds. While the prospect of introducing stability bonds could help alleviate the sovereign debt crisis, I am also aware of the sometimes strong opposition against them.

For me, it is clear that any type of Eurobonds would have to go in parallel, hand in hand, by a substantially reinforced fiscal surveillance and policy coordination, as an essential counterpart. Stability Bonds would require that any step in the further sharing of risk would have to be balanced by provisions that ensure sustainable public finances and avoid free-riding on the consolidation efforts of others. This would have implications for fiscal sovereignty, which calls for a substantive debate in member states.

In other words, a profound reform of economic governance towards deeper policy integration is a necessary precondition for any serious move towards introducing stability bonds. Thus, the Commission’s proposals tomorrow really constitute an interlinked package, which builds on the recent reform of economic governance and stability mechanisms, and at the same time outlines a roadmap towards the next stage of an ever closer and sturdier economic union, in both dimensions.

Ladies and Gentlemen,

Let me conclude. At the current critical juncture, we have two options.

Either we can give in to populist voices and risk losing all we have achieved in fighting the crisis – and much of the achievements of European integration. Or we can choose to work together and take responsible decisions to conquer the financial turmoil, reinforce our economic governance, and turn the downturn into a lasting recovery.

I trust you choose to work together and help revive Europe. Further steps should be carefully considered, and always in balance. Commitments on the one side must be balanced by commitments on the other.

I said that we cannot live from sentiment alone. What I mean is this:

Die nächsten, sowohl notwendigen als auch tiefen Schritte zur europäischen Einigung sind nicht nur eine Sache des Herzens – sie sind eine Sache der Vernunft.

Vielen Dank

Tuesday, 22 November 2011 12:00

In an effort to draw in more consumers, many of the nation’s largest lenders are now increasing the rewards cardholders can earn for every dollar of credit card debt they take on during the holiday season.

Offers for rewards points and cash back credit cards are becoming more generous as the holidays approach, according to a report from USA Today. Increased competition for top borrowers coupled with consumers’ tendency to spend more on their credit cards during the final months of the year has led many to incentivize more spending.

For example, Discover is boosting cash back rewards between 5 and 10 percent for shopping done at certain retailers through its ShopDiscover program, the report said. Meanwhile, American Express is giving out five times as many points for purchases made through certain retailers such as Apple and Target, as well as discounting the cost of rewards points redemption for certain items.

Often, consumers spend more on their credit cards during the holiday season than they should, making it difficult to reduce debt and increasing the problems they may have in paying their bills.

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You’ve probably seen the ads where companies promise easy solutions to your debt. But do they help or hurt?

Bruce Hagan is a Certified Financial Planner in Tallahassee.
He says some debt negotiating companies can help. But one also must me wary. First rule of thumb, he says, if it’s too good to be true, it probably is.

“Debt Consolidation companies lead you to believe, somehow they wave a wand and part of the debt goes away or magically the interest rate that you’re paying is dropped so that you’re interest rate payments are lower. You know, there is no easy solution.”

No easy solution because no matter what you do, you still have to pay that debt off. At least most of it.
So what do you do?
Hagan firsts suggests to try it yourself
Talk to your lendors. Explain them your situation.

“Contact the people that you owe money and see if there’s some way that you can work out some sort of debt relief,” Hagan said.

“Be proactive. Talk with your lenders. Don’t just not make payments, and just shut them off because then you’re just going to exasperate the problem.”

Hagan also says there may be some situations one can go back to a retail merchant, credit card company or private lone lenders to negotiate the possibility of lowering the amount of money you owe.

“Explain to the lender, my income is this, here are my monthly expenses, as you can see I don’t have a lot of disgresionary spending going on, I’m a single mother, I have two children I have to care for, I do want to honor the obligation, is there any way we could talk about some relief of that debt?” Hagan said.

Hagan says, in a bad economy, more and more lendors are willing to talk.

“They *want* to talk to you. They do want to try to help you pay them back their money.”

If that doesn’t work, Hagan suggests the next step should be non-profit organizations.

“I think that if you can go to some sort of community legal aid or a church is sponsoring a debt symposium or some sort of a forum where you can go and listen where there are going to have volunteer counselors that can sit down and help you with your bills and kind of give you some ideas of where to go. I think that’s a great idea,” Hagan said.

Hagan says for-profit debt negotiators should be used as a last resort.
But if you feel you have to, you should always do your homework.

The Federal Trade Commission offers advice on their website when picking credit counseling services.

Ask what services they offer, if they’ll help you develop a plan to avoid future problems? Counselor qualifications. Where they got their accredidation from? Training? What do they do to keep your personal information secure? Most importantly, how are employees paid?

“And what’s really important for a lot of people to understand is that debt is not the problem itself as much as it is the symptom of the underlying problem, which is overspending and undersaving,” Hagan said.

And the best advice to avoid future debt problems? If you don’t have the money, don’t buy it.

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Latest Comments

Posted by: unemployeed Location: FL, GA on Nov 22, 2011 at 07:37 AM

Anonymous, Your correct it is wise to live with in your means to avoid debt. However, what would be a recommendation for those whom can not find employment for significant time frame (2 years). The increase in cost in the economy has made it difficult for many to take care of the home and family. Well paying jobs are rare and minimum wage jobs is not always the answer. For example, one family may have a working partner while the other is home with children. The second partner has to stay home because of the expenses of child care would put the family in further debt. Many family are/ have lived off available savings for significant amount of time. No matter how much you budget eventually those savings are gone. The only option left for some is to rely on credit to feed their loved ones. Once the credit is maxed out ….what is one to do then. This is not the 80s economy. The recession continues despite the suggestions of the government. Many are hurting and there does not seem to be any solutions any time soon.

Posted by: anonymous on Nov 21, 2011 at 07:39 PM

Live within your means and save, even a small amount, on a regular basis. In case of emergency, or job loss, you’ll have, at least, something. Too many folks don’t save and live on credit. Not everyone…but MANY.

Posted by: Sheryl Location: Crawfordville on Nov 21, 2011 at 06:14 PM

What’s the difference between Interest rate and an APR rate?

Ralph Widner, Princeton Borough

To the editor: 

The Princeton community owes an enormous debt to Anton Lahnston, Ryan Lilienthal, Patrick Simon, Alice Small, Valerie Haynes, William Metro, and Carol Golden �” citizens who labored long and hard for a year on the Consolidation and Shared Services Study Commission. Their work is a credit to them and to the community. These citizen volunteers probably did not anticipate fully the sometimes-personal rough and tumble of public debate that would greet their findings and recommendations. Elected officials may be inured to this aspect of our democracy, volunteers less so.

The leadership of our two mayors and governing boards deserve praise as well. They certainly met the test for enlightened leadership when a constituency is so divided.

For 10 years, I monitored and evaluated dozens of municipal and school consolidation efforts all across the country as president of a policy center operated by the nation’s top state and local officials. The report of Princeton’s Study Commission stands out as one of the most clear-headed, competent and practical among all the analyses I have reviewed.

Consolidations often lose their way during transition. Fortunately, the Study Commission has provided us with a very good road map to get through the thicket of decisions that now must be made. If we stick to the path it has charted, we will inherit a more effective, efficient and accountable government that is likely to please even those who opposed the commission’s recommendations this year. 

Ralph Widner 

Princeton Borough 

WASHINGTON — Americans borrowed more in September to buy cars and attend college, but they charged less to their credit cards for a third straight month. The figures suggest that consumers are growing more cautious about taking on high-interest debt in a weak economy.

Total consumer borrowing rose by $7.4 billion in September, the Federal Reserve said Monday. In August, it had fallen by the most in 16 months.

The September increase reflected a 5.8 percent increase in borrowing in the category that includes car and student loans. But the category that covers credit card purchases dropped 1 percent after larger declines in July and August.

Credit card use has sunk nearly 19 percent since September 2008, the height of the financial crisis. For many consumers, adding debt with high interest rates is too risky when jobs are scarce, pay raises are few and unemployment has been stuck near 9 percent for more than two years.

“Households continue to prefer cash over credit as employment, income and wealth prospects remain feeble,” said Gregory Daco, principal U.S. economist at IHS Global Insight.

The average annual percentage rate, or APR, on credit cards ticked up for variable-rate credit cards to 14.46 percent and was unchanged at 13.71 percent for fixed-rate credit cards, according Bankrate.com.

Auto loans are far cheaper. The average rate for a 48-month new-car loan was 5.31 percent last week.

The average rate for subsidized student loans was 4.5 percent last year, according to Student Loan Consolidator.com. Loans not subsidized by the federal government are capped at 6.8 percent through 2012.

Earlier this year, many economists worried the economy was at risk of slipping back into another recession. In August, the government said the economy grew at an annual rate of just 0.9 percent in the first half of the year, and Europe’s debt crisis jolted financial markets.

Those fears have since eased. The economy grew at an annual rate of 2.5 percent in the July-September period, the government said, the best quarterly growth in a year. Consumer spending grew three times as fast as it had in the spring.

Still, growth would have to be nearly twice as high — consistently — to make a major dent in the unemployment rate, which has been stuck near 9 percent for more than two years.

And economists worry that the summer spending gains can’t be sustained. Americans spent more in the July-September quarter even though they earned less. And they used their savings to make up the gap.

Troy Davig, an economist at Barclays Capital, said he expects consumers to borrow more in the coming months as the economy improves.

“Barring any major shocks, I think we will see gradual improvement,” Davig said. “But we are not expecting anything dramatic in terms of credit growth.”

Without more jobs and higher pay, consumers may be forced to cut back on spending. That would slow growth. Consumer spending accounts for 70 percent of economic activity.

On Friday, the government said the unemployment rate dipped to 9 percent in October from 9.1 percent, where it had been stuck for three months. The nation added 80,000 jobs, barely enough to keep pace with population growth.

Households began borrowing less and saving more when the country fell into a recession and unemployment surged. While economists believe Americans will gradually increase borrowing in coming months, they do not expect consumers to load up on debt the way they did during the housing boom.

Americans felt wealthier then and were more willing to take on added debt because of the soaring value of their homes.

The Federal Reserve’s borrowing report covers auto loans, student loans and credit cards. It excludes mortgages, home equity loans and other loans tied to real estate.

___

AP Economics Writer Derek Kravitz contributed to this report.

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Key European Union officials say the continent needs to oversee the spending of individual countries to ensure the survival of the euro currency and resolve the burgeoning debt crisis.

Both European Commission President Jose Manuel Barroso and EU President Herman Van Rompuy called Wednesday for further integration of Europe’s economic affairs.

Barroso told the European Parliament in Strasbourg that the continent is “now facing a truly systemic crisis.”  He said that without increased continent-wide meshing of economic interests and oversight, “we will not be able to sustain the common currency.”

Related video report by Al Pessin:

In Italy Wednesday, economist Mario Monti was sworn in as prime minister.  He unveiled a Cabinet of technocrats to try to impose austerity measures in an effort to trim his government’s $2.6 trillion debt and calm international financial markets.

Mr. Monti named himself finance minister and did not include any of the country’s fractious politicians in the Cabinet.  The former European Union commissioner said the exclusion of politicians in his government will actually help it.

“I reached the conclusion during the consultations that the absence of  political personalities in the government will help rather than hinder a solid base of support for the government in parliament and in the political parties because it will remove one ground for disagreement,” said Monti.

The new caretaker government in debt-ridden Greece easily won a confidence vote Wednesday. The parliamentary vote supports efforts by Prime Minister Lucas Papademos to impose unpopular spending cuts and tax increases, austerity measures demanded by the country’s international creditors in exchange for more outside funding for the government.

Tensions surfaced early Wednesday when the country’s electricity workers’ union briefly cut off power to the health ministry building in Athens.  Union officials said the shutdown was part of their protest of a tax on property owners – a tax the government is trying to collect through household electricity bills.

Mr. Papademos is specifically tasked with getting parliament to approve a new bailout deal with the European Union.  Greek officials warn the country faces bankruptcy without the new funding, an $11 billion installment of last year’s bailout.

In Italy, Mr. Monti said he is absolutely convinced that the country can make the sacrifices needed to overcome its debt crisis.  The prime minister-designate also assured Italians he has the backing of political, business and union leaders.  Nonetheless, a headline in Il Giornale, a newspaper owned by outgoing Prime Minister Silvio Berlusconi said, “He Can’t Last Long.”

Italy is the eurozone’s third-largest economy.  Fears that Italy might default on its debt or be forced to ask for a bailout have shaken financial markets around the globe.

Some information for this report was provided by AP, Bloomberg and Reuters.