September 24 2012

Portugal’s plan to hike social security payments dropped. French PM: Greece should be granted an extension. Greece still seeking €11.9bn savings. IMF expected to cut its global growth forecasts at its annual meeting in Tokyo…

Powered by article titled “Eurozone crisis as it happened: Portugal confirms tax U-turn after austerity protests” was written by Graeme Wearden and Nick Fletcher, for on Monday 24th September 2012 12.03 UTC


IMF to cut global growth forecasts

The IMF will cut its global growth forecasts at its annual meeting in Tokyo in a couple of weeks time. In a speech in Washington, managing director Christine Lagarde said:

We continue to project a gradual recovery, but global growth will likely be a bit weaker than we had anticipated even in July, and our forecast has trended downward over the last twelve months.

A number of factors are weighing the global economy down. At the centre of them all is the element of uncertainty; uncertainty about whether policymakers can and will deliver on their promises.

This is having very real effects: increasing divergence of economic fortunes in the Eurozone; a tepid recovery in the United States.

And now we are also seeing other global ripple effects: the slowdown in emerging markets; great concern in low-income countries about rising food prices and volatile commodity prices; growing frustrations across the Middle East.

On Europe she said a strong and effective banking union should be implemented immediately.

But reform programmes should be tailored to the needs of individual countries, and the international community must recognise the efforts being made by the struggling countries – presumably Greece and Spain in particular – and provide the necessary funding and support. And she also emphasised the need for growth as well as austerity (a contentious topic as we know):

On the fund’s part, we are favorably considering that this [support] be done in as timely and flexible a manner as possible: slowing the pace of fiscal adjustment where needed; focusing on measures rather than targets; and, above all, keeping the emphasis not just on austerity, but also on growth as we believe that the two can be reconciled and should not be mutually exclusive.

And on that note it’s time to shut up shop once more. Thanks for all your comments, and we’ll be back again tomorrow.


Oh dear. This won’t go down well with the austerity-hit Spanish public if true.


European markets end lower

European markets have closed, and its been a cautious day all round following disappointing German confidence figures, and Greece, Spain and Portugal all being in the eurozone spotlight as the crisis staggers on.

The FTSE 100 has finished 13.78 points lower at 5838.84

Germany’s Dax is down 0.52%

France’s Cac has lost 0.95%

Italy’s FTSE MIB is off 0.78%

Spain’s Ibex is 1.12% lower

The Dow Jones Industrial Average is currently down 0.18%


On the subject of European politicians, anyone who has wondered what the former Greek prime minister George Papandreou is up to, need go no further than the hallowed halls of Harvard University. As of today the ex socialist premier will start delivering a series of lectures on the euro debt crisis, says Helena Smith in Athens.

Less than a year after he joined the list of European leaders forced to resign over the euro crisis, Papandreou has popped up on the other side of the Atlantic for a teaching spell at Harvard. The politician, who remains a “simple MP” of the socialist Pasok party he led from 2004 to 2012 but which is now headed by his great rival, Evangelos Venizelos, will give his first lecture today at Harvard Kennedy School’s institute of politics where he is a “fall fellow”.

His subjects: the crisis in Greece and Europe, systemic weaknesses in the eurozone and institutional shortfalls in the European Union. Plenty of food for thought for students, with his course apparently being oversubscribed already.


One potential challenger to the German chancellor, Angela Merkel, could already be facing checkmate.

According to reports Peer Steinbrueck used ministerial notepaper to seek sponsorship for a chess event when he was finance minister. He told newspapers he did not think there was anything scandalous in it, but Merkel’s spokesman said official paper should only be used for official business. Reuters has the story on Chessgate here.


Ratings agency Fitch has said there is a “moderate probability” that Spain’s Banco de Valencia will be recapitalised by the country’s bank bailout fund, the FROB. So it has put the bank’s BB- rating on negative watch.

The results of the stress tests on Spain’s banks are due to be unveiled on Friday, with the government maintaining over the weekend that they would need only €60bn of the €100bn lifeline allocated to beef up their balance sheets.

The day before, Spain is expected to publish its new economic plans, amid continuing protests over the government’s austerity drive.


Back in Greece, there are suspicions that part of the difficulty in agreeing €11.9bn of spending cuts could be due to growing differences between the troika of lenders. After spending the morning talking to officials on the ground, our correspondent Helena Smith writes:

Debt dynamics are a complicated affair and when it comes to shoring up Greece even more so. The country’s three lenders – the IMF, EU commission and ECB – have long been thought to have different, if subtle, approaches to keeping Athens’ moribund economy alive.

Of late, media reports have been rife that those differences have grown as leading members of the IMF have expressed mounting consternation at the extent of the help required by an advanced western economy like Greece. Almost three years after the outbreak of the crisis in Athens, countries such as Brazil are nothing short of dismayed. Many in the IMF have now come round to thinking that the only way to make Greek debt sustainable – at 166% of GDP still the highest in the EU – is another restructuring, this time in the official sector.

At Greece’s finance ministry senior officials, including the finance minister, Yiannis Stournaras, are convinced that this explains why the IMF’s mission chief to Greece, Poul Thomsen, has recently made consensus over the measures so difficult. Prior to leaving Athens on Friday for a week’s break from the negotiations, Thomsen had reportedly been racheting up the pressure.

“Stournaras was furious with him. Every time they got somewhere, Thomsen would make another demand, such as agreeing to further cuts in wages and pensions, which he knew would be impossible for the government to enforce,” one well-placed source said.

“Basically they want the measures to fail so that Greece is forced to ask for another haircut [on its debt] but we know that is not the view of the European commission or Germany which is strongly against another debt restructuring at this time.”

Greek insiders said if the package was finally closed and the spending cuts agreed “the worst may be over”.

More than €25bn of the €31.5bn tranche will go straight to banks which will immediately be able to make loans. That’s a huge amount and so hugely important for business and liquidity. Everything depends on how the government handles the measures. If agreement over the cuts is clinched and the country doesn’t implode [in reaction to them] then on every front things will be easier,” another insider said.

“If GDP stops falling, there is a slight increase in employment and attitudes begin to change, I give it 60% to 70% that the worst is over and Greece’s future in the eurozone is assured. That is why the next month is so critical.”

Once consensus is reached over the measures, the prime minister, Antonis Samaras, is expected to address the nation. Aides say the conservative leader – once a vehement opponent of the deficit-reducing policies – will emphasise that while the austerity package is the price of remaining in the eurozone it will be the last Greeks have to endure.


Wall Street opens lower on eurozone gloom and downbeat Chicago report

Wall Street has caught the general global gloom and is following other markets lower.

In early trading the Dow Jones Industrial Average is down around 35 points, with the uncertainty over the eurozone and the poor German confidence figures taking their toll.

On top of that there has been a downbeat snapshot of part of the US economy, with the Chicago Fed activity index falling sharply in August. It is down to -0.87 from -0.12 the previous month, although Annalisa Piazza at Newedge Strategy said:

Although the index is close to “recessionary” levels, we suspect a modest upward correction will follow in the coming months. Indeed, the economy is certainly running well below potential but we don’t see signs of deep contraction any time soon. Certainly today’s report is a warning sign that the US economy is far from being on a sustainable upward trend.


A couple of new snaps of Portuguese PM Pedro Passos Coelho just arrived, taken as he explained today’s decision to drop an effective pay cut for Portugal’s workers.

He looks pretty downbeat – no wonder, given the huge public backlash to the proposal.

And with that, I’m handing over to my colleague Nick Fletcher


Back on Portugal’s tax U-turn (as covered at 13.03).

Pedro Passos Coelho has told the Portuguese people that the government cannot break away from its austerity commitments. Speaking after confirming that the unpopular social security payments hike has been axed, the PM said:

As long as Portugal maintains its level of fulfilment, we know that we will have the support of our external partners. If we do not, we put at risk our fulfilment, and these guarantee mechanisms will cease to exist.

In other words, the U-turn will have to be paid for by someone….


The euro continues to weaken today, hitting €1.289 against the US dollar – a fall of around 1c today.

This morning’s disappointing German business confidence data (see 10.36am) is the main factor weighing on the euro.

As Peter O’Flanagan of Clear Currency put it:

This weak reading will put further pressure on the euro and supports last week’s ZEW economic sentiment survey that predicts the next six months will see further contraction in Europe’s core



It’s official, Portugal has caved in on its plans to hit workers with a hike in their social security payments.

As expected (see 8.23am), the Lisbon government has pulled a U-turn on the austerity measures.

Speaking a little while ago, the prime minister, Pedro Passos Coelho, said new tax measures would be proposed. The original plan to raise employee social security payments from 11% of their salary to 18% is abandoned.

The decision is a victory for the hundreds of thousands of people who took to the streets nine days ago in massive protests against the plan.

Passos Coelho warned that Portugal needs to find the money from another source, otherwise its €78bn bailout could be at risk.

He added that he will continue negotiating with unions and business confederations over news ways to raise the funds, which could include separate income tax rises or changes to “capital tax measures” (Reuters reports).

Passos Coelho made his announcement after meeting union and business leaders this morning – here’s a photo of the PM (on the right) with the finance minister, Vitor Gaspar, before the talks began.


Some photos of journalists protesting in Athens today have just arrived.

This one shows striking media workers carrying a banner criticising the government’s changes to labour laws. On the left is a banner, promoting Wednesday’s general strike (see 10.11am for more details)

And this photo shows striking journalists outside their union building.


Row over plans to leverage ESM

A report that Europe’s new bailout fund could soon be leveraged up to provide €2tn of firepower has been rebuffed by the German finance ministry today, but the whole story is a little confusing.

It started with Der Spiegel reporting that some eurozone policymakers favour leveraging the €700bn resources of the European Stability Mechanism up to €2tn, by partnering with private capital and providing insurance against losses on euro sovereign debt.

When asked about this report this morning, Germany’s deputy finance minister Steffen Kampeter confirmed that a discussion about the issue was under way (although any such change would need the approval of the Bundestag, for starters).

So far, so good, until a finance ministry spokesman declared that reports of the ESM being boost to €2tn were unrealistic and “completely illusory”.

So what gives? Our Europe editor, Ian Traynor, detects the grim hand of government spin:

While Reuters’ Luke Baker points out that the ESM is inheriting some leverage powers from its predecessor, the European Financial Stability Facility:

Those powers included allowing the EFSF to offer insurance to private investors who bought eurozone sovereign bonds, and allowing it to partner with those investors and promise to pick up the first tranche of losses.

Finland apparently baulked at those powers being transferred to the ESM, so they won’t be in place when it comes into power next month. But it’s probably a matter of time …


Van Rompuy: Euro leaders must not relax

Who’d like to see a video of Herman van Rompuy, president of the European Council, demanding more action on the eurozone crisis?

Go on then….

The clip, launched this morning, shows Van Rompuy issuing a rallying cry against those who think the eurozone crisis is over.

Here’s a flavour of the video, which starts with VR niftily rotating his chair to face the camera (wonder how many takes that took):

As long as 25 million people in our countries are looking for a job, and as long as we have not yet fully stabilised the euro, we cannot sit back, and I will make sure that we will not sit back.

I see a tendency of losing the sense of urgency, both on short-term policies and on the longer term. This must not happen.


A curious auction of German bonds this morning saw investors agree to negative interest rates, but more than half the debt was left unsold.

The Bundesbank sold €1.17bn of 12-month bonds at a yield of -0.0184% (which means buyers will receive slightly less than they paid when the debt matures in September 2013).

A total of €3bn of bills were on sale, but despite receiving €6bn of bids it held back €1.83bn which it now plans to sell in the secondary market.


This morning’s weak German business confidence data (see 9.24am) has sent a shiver through the European financial world.

At 101.4, the IFO index hit its lowest level in two and a half years.

ING analyst Carsten Brzeski said it shows that the European Central Bank’s OMT programme (designed to help struggling euro countries) is not a miracle cure:

Brzeski explained:

Today’s Ifo index shows that German companies remain skeptical about the economic impact of Mario Draghi’s magic…

Despite fears of a looming eurozone break-up clearly fading away, German businesses are downscaling their expectations. The structural adjustments in Germany’s eurozone trading partners will take time and will dampen demand for German products.

The news has helped to send European stock markets down this morning:

FTSE 100: down 29 points at 5823, – 0.5%

Spain’s IBEX: down 127 points at 8103, – 1.5%

Italian FTSE MIB: down 223 point at 15767, -1.4%

German DAX: down 47 points at 7403, – 0.64%

French CAC: down 38 points at 3491, -1.1%


Greece enters an autumn of unrest

Meanwhile, Helena Smith reports that Greece is also bracing for a week of mobilisations and industrial action. Opposition parties predict a mass turn out this Wednesday when workers declare their first autumnal general strike.

Helena explains:

Opposition to the latest round of cuts will deepen this week when unions bring the country to a grinding halt in a mass protest against measures that will, they say, push the recession-hit nation ever closer to penury.

The strike, the 17th this year, is being widely seen as the “inaugural” rallying of the troops as resistance to the belt-tightening policies deepens. “Opposition to the measures is going to strengthen and, in our estimation, Wednesday’s strike will mark the start of it,” Panos Skourletis, press spokesman of the main opposition radical left Syriza party, has just told me. “Everyone will resist these measures because they are so unfair.”

Some strike action is taking place today, with journalists holding a 24-hour stoppage and judges downing tools (gavels?) at some courthouses. Living In Greece has full details.

Helena continues:

Addressing a two-day meeting of the party’s central political committee over the weekend, Syriza’s leader, Alexis Tsipras, said he foresaw the crisis entering a new phase and “getting much bigger” once the nearly €12bn package of cuts was announced.

Greece’s justice system, which has been badly disrupted by judges and prosecutors protesting the cuts in industrial action that began last week, will be at the centre of yet more strikes. Judges, whose wages will be directly affected by the cuts, announced over the weekend that they would continue the walkout, due to finish at the end of September, until 20 October.

Wednesday’s strike will see civil servants and private sector workers take to the streets as well as Greece’s burgeoning mass of unemployed – now at a record high of nearly 24%.


The Bank of England’s financial policy committee has concluded that the risks to Britain’s financial system are as great as in June.

The FPC warned that it still believes banks must reinforce their capital reserves, to protect them from future losses as the financial crisis continues.

We’ll have a full story on this shortly…


Another crucial week for Greece

In Greece, finance ministry officials hope to finally seal the contentious €11.9bn package of spending cuts that international creditors have set as the condition of further rescue loans, within the next few days.

Our correspondent Helena Smith writes:

 With the thriller over the budget cuts set to continue, finance ministry sources are braced for another week of negotiations in a last ditch effort to find the outstanding €2bn amount that Athens needs to come up with if the austerity package is finally to be closed.

Two days after the departure of high-level envoys from Greece’s “troika” of creditors at the EU, ECB and IMF, the talks will continue with the technical teams that are almost permanently based in the Greek capital – mission chiefs, who are believed to be number-crunching back in Brussels, are not due to return to debt-stricken Greece until next Tuesday.

A senior finance ministry source has told reporters that efforts will focus on ministerial budgets in the hope that with better house-keeping at the finance, labour, health and defence ministeries the €2bn savings can be found. “I hope the ministeries that are being targeted by the troika can contribute more to the cuts,” he said. By the time inspectors return, Athens will also have to have devised “a credible breakdown” of tax cuts amid what one insider described as “widespread suspicion” of the tax measures proposed so far. Troika officials have told the Greeks that “everything depends on you.”

Although, as yet, there has been no reaction on the part of the government to suggestions that Greece will be given more time to implement the gruelling fiscal adjustment programme – with France making this clearer than ever before (see 08:23am onwards) – prime minister Antonis Samaras’ conservative-led coalition knows it is in a race against time.

“The time frame is very pressing. We still want to close the package and get it passed by parliament before the euro group meeting [of finance ministers] on October 8th,” said one source. With the cuts being agreed, Greece will not be given the €31.5bn rescue loan it so badly needs to recapitalise banks and inject some liquidity into the lifeless economy.

Germany’s Der Spiegel, incidentally, claimed over the weekend that the Troika’s preliminary report had concluded there was a €20bn gap in Greece’s budget, suggesting that billions of euros of extra cuts would be needed. That has been denied by Athens, though.


Weak German business confidence hits euro

The euro has fallen in the last few minutes after the latest survey of German business confidence came in weaker than expected.

The monthly IFO index fell to 101.4 in September, down from 102.3 in August and is the fifth monthly decline in a row.

That’s dented hopes that the ECB’s recent bond-buying programme had lifted sentiment in the euro economy. It sent the euro sliding to $1.2903, down 0.8 of a cent.


There were more protests in Madrid over the weekend, as people took to the streets to urge Spain’s government to relax its austerity plans.

According to AFP, around 1,000 protesters marched peacefully up a central avenue from Atocha train station under banners with slogans such as “Bankers out of Power” and “Jobless, Homeless and Fearless”.

Here’s a photo:

The demonstrations come ahead of Madrid’s new economic plans, which could be published on Thursday.


A small gobbet of economic news: new data out of the Netherlands has confirmed that its GDP grew by 0.2% in the second quarter of 2012. That underlines that the Dutch economy fared better than the eurozone average (-0.2%), and also outperformed the UK (-0.5%).

On an annual basis, that leaves Netherlands’ GDP 0.4% smaller than a year ago.


Jean-Marc Ayrault’s call for Greece to be given more time to hit its targets (see 8.23am) appears to be the most explicit signal yet on this issue from Paris.

As the Financial Times flags up, the French prime minister also voiced exasperation at eurozone partners who have refused to cut Greece much slack:

Mr Ayrault made clear the frustrations in the new socialist government over the handling of Greece by eurozone leaders, including the German chancellor, criticising them for a “political weakness” and “a lack of vision”.

“When you think that the Greek crisis has lasted 2½ years, and that Greece represents only 2 per cent of the gross domestic product of the eurozone . . . European leaders have not been able to meet their responsibilities in time,” he said.


Good morning, and welcome to our rolling coverage of events in the eurozone, and other key developments in the world economy.

First up: a couple of interesting developments overnight.

1) Greece’s request for an extension to its financial programme has won the support of France’s prime minister.

Speaking on Sunday, Jean-Marc Ayrault said that Athens should be given more time to hit its targets, if it can show that it’s serious about reform.

Speaking to French online news site Mediapart, Ayrault argued that Greece could not be allowed to tumble out of the eurozone, saying:

The answer must not be a Greek exit from the eurozone.

We can already offer it more time … on the condition that Greece is sincere in its commitment to reform, especially fiscal reform.

As things stand, we’re still waiting for the Troika’s official report into Greece’s progress. Ayrault’s comments add weight to the theory that Athens will be granted more support in the event that it has missed a significant chunk of its targets.

We’ll bring you reaction to Ayrault’s comments as soon as possible.

2) Portugal is on the brink of abandoning its controversial plans to hike taxes on workers, in a victory for the huge numbers of people who protested a week ago.

Pedro Passos Coelho, the Portuguese prime minister, is due to hold talks with employers and trade unions today to discuss alternative proposals. The public opposition to his plan to effectively slash workers’ pay to fund lower taxes for companies appears to have forced Lisbon to change course.

As my colleague Giles Tremlett reported last night:

Portugal’s government is preparing a U-turn on an announced rise in social security contributions that would have instantly increased workers’ payments by nearly two-thirds amid a growing popular revolt against austerity measures.

Hundreds of thousands of people took to town squares across the country a week ago to protest at the announced rise, which raised contributions from 11 to 18% of salaries, sparking a pledge by the government this weekend to reconsider the unpopular move.

…an eight-hour meeting of the presidential state council was besieged by protesters in the small hours of Saturday morning and ended with a government pledge to renegotiate deficit-cutting measures with trade unions and employers.

Giles’s full story is here.

We’ll be watching the latest developments in Portugal today, and also monitoring events in Spain. There’s speculation that this may be the week that Madrid seeks financial help, although prime minister Mariano Rajoy could well sit tight and look to ride out the crisis a little longer…. © Guardian News & Media Limited 2010

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