Eurozone crisis: Troika returning to Greece

Greece must pay its suppliers, says EU task force head, UK construction PMI disappoints, EFSF temporary bailout fund sells €1.91bn of 91-day bills, Ireland gets ready to return to the markets,  Eurozone factory prices fall more than expected in May…

Powered by article titled “Eurozone crisis live: Troika returning to Greece” was written by Josephine Moulds, for on Tuesday 3rd July 2012 09.11 UTC

12.08pm: Socialist Pasok leader Evangelos Venizelos said today that he hoped Greece would be able to benefit from a European Union concession – already extended to Spain, Ireland and possibly Italy – allowing the use of EU rescue funding for the direct recapitalisation of banks. (Thanks to reader gpap for the comment.)

Venizelos said:

I would like to hope that this will apply to Cyprus, Portugal and Greece. This would help reduce (Greek) debt.

If it were to apply to Greece, it would reduce the country’s debt, now somewhere above €330bn, by as much as €50bn, which has been earmarked for the country’s banks as part of an earlier debt restructuring deal.

The Pasok chief also presented a 10-point plan for Greece, which includes honouring the country’s commitment to the country’s creditors but extending the adjustment period by three years.

11.39am: Over to Athens, where Horst Reichenbach, the head of the EU taskforce created to speed up Greece’s recovery using EU support funds, said Greece must prioritise paying out arrears it has racked up with suppliers to get funds flowing again to cash-strapped businesses.

The EU taskforce, which is working to help Greece reform its bloated public sector, said the lack of financing risked undermining any progress achieved through reforms.

Elsewhere reports that the government is ready to negotiate with the troika of the ECB, the EU and the IMF. It cites a government spokesman who said:

We will present data that cannot be doubted, which will prove the dead-end we have been led to by the current policies, especially with regard to the recession and unemployment. Using this data as our weapon and presenting our alternative proposals, we believe that we will succeed in a new path being approved.

We are making every effort to ensure there won’t be any more sacrifices or job losses.

The Greek government is expected to present its policy program in parliament on Thursday or Friday.

Separately, the labour institute has warned that the actual number of unemployed Greeks, including the long-term jobless, will reach 1.6m, or close to 30% by the end of the year, rather than the 1.48m originally expected. The gloomy forecast comes a day after eurozone data showed that more than one in two Greek young people are already out of work.

11.34am: Sticking with the debt markets, borrowing costs for the EFSF bailout fund have come down.

It has sold €1.91bn of 91-day bills with a yield – essentially the interest rate – of 0.1184%, compared with 0.137% at an auction in June.

11.27am: Irish bonds rallied on the news that Ireland is returning to the capital markets (see 11.16am), with the 9-year yield hitting its lowest point since October 2010 at 6.24%.

11.16am: Back to Dublin, where there are reports that Ireland will return to the debt markets for the first time since September 2010. It quit the capital markets before seeking an €85bn bailout from the EU and IMF.

Ireland will auction €500m of treasury bills with a three-month maturity on Thursday.

The country’s debt management agency had planned to restart debt auctions this summer but brought it forward to take advantage of a sharp rise in market confidence.

10.59am: The European Central Bank is “not fit for purpose”, concludes Louise Cooper of BGC Partners in a brilliant comment comparing the current financial crisis to the Great Depression of the 1930s. She writes:

“If you steal $25 you’re a thief, if you steal $250,000 you’re an embezzler and if you steal $2.5mn, you’re a financier”.

This comment could have been written in the press currently given the wave of recent bank disasters – mis selling interest rate swaps, manipulation of LIBOR, JP Morgan’s “whale like loss” (and that’s just in the UK and in the last few months). But the piece was actually written in The Nation magazine during America’s banking crisis. Just as today, Bankers were increasingly viewed as rogues and crooks and “banksters” were criticised for leading America into the Great Depression, as they are now.

How does this relate to the ECB? Cooper points out that in the 1930s, it was only when the Federal Reserve was given the power to print money and become the Lender of Last Resort (LLR) to banks did the banking system finally stabilise and the economy rebound. She writes:

Due to political reasons the ECB was never given the right to print money or given the right to step in and backstop banks – the LLR status. Without these two key powers, the ECB is seriously constrained it is ability to step in to rescue the European banking system. This is a serious weakness. It is all credit to Mario Draghi that he creatively used the ECB’s remit for “transmission of monetary policy” to provide half a trillion euro of funding to Europe’s banks via the LTRO (which averted the kind of banking crisis that America experienced in the 30s). However he is still operating with one arm tied behind his back. After the latest summit it appears the ECB is to be given new powers (greater role in banking supervision, some oversight of Spain’s banking rescue) but they do not go far enough.

Her verdict:

The European banking industry is teetering on the brink of disaster but the ECB has never been given the right tools to deal with such a crisis – it is not fit for purpose. It does not have the ability to print money neither has it the ability to save failing banks.

10.56am: Over to Dublin, where Henry McDonald is reporting that thousands of customers of the RBS-owned Ulster Bank have made complaints about disruption to their account payments.

Further pressure will be heaped on the RBS today as 48,000 monthly Irish social welfare payments are due to be paid to Ulster Bank customers in the Republic.

The bank faces further scrutiny and on Thursday in Ireland when senior members of the Ulster Bank will be up before a joint Irish parliamentary sub committee to discuss the latest banking crisis that impact on both sides of the Irish Sea.

The Consumers’ Association of Ireland said today it has received thousands of complaints from Ulster Bank customers, who are very frustrated at the poor quality of information they are receiving from the bank.

Chief Executive Dermot Jewell said: “Many, many consumers out there and bank customers were not ready for this. They found themselves on a back foot.

“And now they are struggling to figure out what are they going to do … It is chaotic for them, because they are completely at a loss.”

10.53am: Ooops, corrected the bailout figure. Reader authurn is indeed right, Greece’s bailout is worth €130bn not €173bn as we originally had it.

10.35am: Analysts say the UK construction PMI (see 10.12am) data was hugely disappointing and suggests the UK may not come out of recession in the second quarter. Howard Archer of IHS Global Insight writes:

Until recently, construction survey evidence had been appreciably stronger than the hard data which had fuelled hopes that the sector was doing appreciably better than officially reported by the Office for National Statistics. Unfortunately though, it is the survey evidence that is deteriorating rather than the hard data improving!

So there is now a very real danger that construction output contracted again in the second quarter after plunging 4.9% quarter-on-quarter in the first quarter, when it contributed 0.4 percentage point to overall GDP contraction of 0.3% quarter-on-quarter. This is a further blow to hopes that the overall economy avoided further contraction in the second quarter.

@scottybarber of Reuters has come up with another helpful chart showing the relation between UK construction PMI and UK GDP.

Simon Rubinsohn, RICS Chief Economist, said the data show the government’s infrastructure strategy is not working:

The dramatic turnaround in sentiment in the construction sector signalled by today’s number brings the CIPS indicator closer to the trend signalled by official data and is indicative of the failure of government policy to match rhetoric on infrastructure and other development with action. Relying on funding from institutions to deliver the necessary finance to support the programmes set out in the national infrastructure strategy is clearly not working and needs to be backed up by public monies if construction really is going to be a centrepiece of the recovery strategy.

10.28am: Very tardy agenda for the day…

• French finance minister speaks: 11.15am
• IMF chief Christine Lagarde speaks on the US economy
• US factory orders for May: 3pm
• Sweden central bank holds monetary policy meeting
• French prime minister Jean-Marc Ayrault speaks to parliament

In the debt markets, the Netherlands is selling €4bn of five-year debt. Belgium is selling three and six-month treasury certificates. The UK is selling £1.75bn of 4.75% treasury gilts. The US treasury is holding a weekly sale of 4-week bills.

10.19am: Eurozone factory prices fell more than expected in May as the cost of energy dropped sharply. The drop in prices will increase calls for an interest rate cut as early as this week to help the region’s stagnant economy.

Prices at factory gates in the eurozone slid 0.5% since April, compared with expectations of a 0.3% fall.

Price pressures have eased mainly because of a drop in the price of oil, which was trading above $120 a barrel earlier this year and is now below $100.

10.12am: British construction activity fell at its fastest pace in two and a half years in June, as underlying business conditions worsened and an extra public holiday hit output.

The Markit/CIPS construction PMI sank to 48.2 to 54.4 in May, its lowest reading since December 2009. Analysts were expecting the index to drop back to 53. A reading below 50 shows the sector is shrinking.

Markit said cost pressures had eased markedly, as increased costs for energy and raw materials were offset by lower fuel prices. That eases the way for the Bank of England to top up its quantitative easing programme when it meets on Thursday, as one of the big fears around boosting the stimulus programme is that it will fuel inflation.

9.38am: Good morning and welcome back to our rolling coverage of the eurozone debt crisis. Apologies for the late start. Barclays chief executive Bob Diamond quit this morning in a shock U-turn. My colleague Graeme Wearden has all the latest developments on that story on our Barclays live blog here.

Over in the eurozone, the troika of the EU, IMF and ECB are arriving in Greece today to check how Greece is doing in implementing its latest €173bn bailout program. Prime minister Antonis Samaras will be pushing for a better bailout agreement, despite warnings from a ECB member Jörg Asmussen yesterday that the country must press ahead with its reform program and not dally further in meeting its commitments.

Separately, Spanish newspaper El Pais has news that Spain will carry out more spending cuts (article in Spanish) by central and regional governments to bring down the deficit. © Guardian News & Media Limited 2010

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