President Nicolas Sarkozy (r) and Greek Prime Minister George Papandreou, at a press conference at the Élysée Palace, Paris, Sunday March 07, 2010 - - see link to story in Box below

French industry business confidence dipped in February, while sentiment rose among service providers, data from the Bank of France showed Monday. The business sentiment indicator for industries dropped to 102 in February from 104 in January.

The  bank said the capacity utilisation rate continued to recover in February, although it remained below its long-term average. The continuing improvement in order books brought them closer to a normal level of demand while inventories of final goods appeared consistent with targeted levels. In the short term, forecasts still point to a slight rise in activity on average, the bank said. The monthly index of business activity signals GDP is expected to increase by 0.4% in the first quarter of 2010, revised downwards by 0.1 of a percentage point from an initial estimate.

Irish economy inching towards recession's end: Davy chief economist, Rossa White, comments - - "Last week's high-frequency data from the Irish economy were encouraging. They suggest that by the end of February the economy was close to bottom. We continue to expect a return to slight volume (not nominal) growth quarter-on-quarter in Q2. But the economy is likely to move pretty much sideways overall during 2010.

We suggested at the time January numbers were revealed that unseasonably bad weather had probably distorted them. If that was the case, the dip in the PMI was likely to have been a blip to be followed by return to trend in February. That is exactly what occurred: the PMIs for services and manufacturing jumped back above 48 and are inching close to the 50 break-even line. In fact, the services reading reached 48.8, the best since January 2008. But activity is still driven by improving new export orders, which are growing. Domestic demand is still shrinking, albeit marginally.

Elsewhere, the Live Register recorded its biggest percentage decline since January 2007. Yes, it's from a worryingly high base, but claimants have been more or less stabilising since August 2008. We forecast that the unemployment rate will peak in the summer, below 13.5%. Elsewhere, retail sales for January were encouraging. The volume of 'core' sales rose 0.1% month-on-month. Yet the fact that the value of sales increased for a second month is perhaps more informative. It suggests that the pace of price discounting is slowing in response to steadily improving consumer demand. Consumer confidence slipped after the sharp January bounce, but the February reading was nonetheless easily the second highest in the last two years."

Carrot offered to Greece is a welcome one:Goodbody chief economist, Dermot O'Leary, commented today - - "With the stick used by the larger European nations to coerce the Greeks into making the necessary painful adjustments having worked, the carrot was given in return over the weekend. French President Sarkozy gave the strongest hint yet that it would, along with other Eurozone states, support Greece in its hour of need, saying 'we have measures, we are ready, we are determined.' Along with comments from Greek Prime Minister Papandreou, it is clear that a very high-stakes game is going on between members of the Eurozone and so-called 'speculators' in the financial markets, who are betting on the demise of a Eurozone member.

The news that a new IMF-style institution is being mulled over by some European policymakers is a clear sign that the EU wants to avoid a repeat of current instability in the Eurozone, by giving powers for stronger enforcement of adherence to fiscal rules where the Stability and Growth Pact has failed. Bond markets have been pretty sanguine on Ireland over the past few months, and the spread of 10-year Irish bond yields over bunds fell to its lowest level since November on Friday. Nevertheless, if Greece's problems were to deteriorate, it may lead to contagion into other Eurozone states, including here, and cause further problems for the euro also. The carrot offered to Greece over the weekend is a welcome one."

Consumers in China and India won't be able to pick up the slack in U.S. demand as their consumption is equivalent to 25% of total U.S. demand, says Stephen Roach, Asia chairman at Morgan Stanley. He tells CNBC's Karen Tso, Sri Jegarajah & Martin Soong:

The week in Irish banks: Goodbody analyst, Eamonn Hughes, commented - - "What a week that was, with the share prices starting closer to €1 last Monday and finishing the week over 40% higher in the case of AIB and 20% higher for BOI, with the market looking like it reacted favourably to the AIB results and roadshow. We have run some scenarios on capital raising and disposal scenarios for the banks and at our base cases the banks are looking closer to fairly valued. Though with AIB having a number of disposal options, depending on a wide range of assumptions, one can still see some upside there.

However, one of the key inputs is the level of capital required at the banks, with our target of 8% core equity by end 2014 a key metric. With our estimates showing the banks making profits in 2012-14, then we assume they must get to 6.0-6.5% by the trough, which is end 2011. They are the right side of breakeven in 2012 before starting to work their way to sustainable ROEs by 2014, of 15%. Last week, there was mounting speculation that new capital rules would be agreed upon by the Central Bank Governor and Financial Regulator by the end this month, so it is with interest we note some commentary over the weekend that the rules are designed to bring Irish banks into line with new international guidelines more quickly than their EU counterparts in a bid to improve confidence in them.

It appears the new rules will be announced in a major announcement due on banking, which will include details of the start of the NAMA process. The press commentary indicates that the banks will be obliged to move towards a Tier 1 ratio of 8% and that a significant proportion of this is to be equity. Unfortunately, the article neither gives the timing nor the proportion of equity, so it's a little difficult to call whether these levels are more or less stringent than we already have pencilled into our models. As we mentioned above, our capital raising targets get the banks to 6.0-6.5% at the trough and drive requirements of €4bn gross in the case of AIB (prior to any disposals) and €2.7bn in the case of BOI. Clearly, we await further details with bated breath!"

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