October 2012

There are now 18.49 million people without jobs in the 17 countries sharing the euro. More than one in four people out of work in Greece and Spain as jobless rate rises to 11.6%. 25.751 million men and women were without jobs last month…

Powered by Guardian.co.ukThis article titled “Eurozone unemployment hits new high” was written by Julia Kollewe, for guardian.co.uk on Wednesday 31st October 2012 12.34 UTC

Unemployment in the eurozone has risen to a new high, with Spain recording the highest jobless rate with more than one in four out of work.

There are now 18.49 million people without jobs in the 17 countries sharing the euro, European statistics office Eurostat said on Wednesday, with an extra 146,000 joining the ranks of the unemployed last month. The jobless rate increased to 11.6% in September, the highest on record, from a revised 11.5% in August.

“With surveys suggesting that firms are becoming more reluctant to hire, the eurozone unemployment rate looks set to rise further, placing more pressure on struggling households,” said Ben May, European economist at Capital Economics.

The lowest unemployment rates were recorded in Austria (4.4%), Luxembourg (5.2%), Germany and the Netherlands (both 5.4%), which are near full employment. Spain (25.8%) and Greece (25.1% in July) had the highest unemployment in the eurozone, while France looks much like Italy (both at 10.8%), with a steady rise in joblessness. August data for Greece will be published next week, although the true picture is probably worse, as a growing number of Greek workers remain nominally employed but have not been paid for some time.

Howard Archer, chief European economist at IHS Global Insight, said the jobless data was “dismal”, adding: “Eurozone labour markets remain under serious pressure from ongoing weakened economic activity and low business confidence.”

Youth unemployment also hit a new high in Spain with 54.2% of under-25-year-olds out of work, up from 53.8%.

Across the whole European Union, 25.751 million men and women were without jobs last month – an increase of 169,000 from August – while the unemployment rate stayed at 10.6%.

By comparison, the unemployment rate was 7.9% in the UK, 7.8% in the US and 4.2% in Japan in September.

There was some good news for the eurozone though – inflation eased to 2.5% in October, from 2.6%. Energy prices continued to rise, by 7.8%, but by less than the month before, when they climbed by 9.1% year-on-year. Food became dearer, however, with prices up 3.2% compared with 2.9% in September.

Economists expect the European Central Bank to cut interest rates again before the year is out from the current record low of 0.75% to support the flagging economy, which probably slumped back to recession in the third quarter.

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In the broadcast today: Will this be another Fizzled USD Rally vs. JPY? Following the Bank of Japan’s decision to expand the size of its quantitative easing operations, we examine the impact of the monetary policy of the Japanese central bank which has not been effective in weakening its currency and ponder if this could be yet another fizzled USD rally against the JPY, we analyze the latest trend developments in the USD/JPY currency pair, we keep an eye on the range in the EUR/USD pair, we note the resilience of the GBP vs. USD above the $1.60 mark, we highlight the market’s reaction to the Bank of Japan interest rate announcement, the U.K. Distributive Trades, the Spanish GDP, the Euro-zone Economic Sentiment Index, the German Unemployment, the Sicilian election, and the Italian bond auction, we discuss new forecasts from Citigroup and Royal Bank of Scotland, and prepare for the trading session ahead.

Live Broadcast from 9:00 am to 10:00 am, Eastern Time, Monday – Friday.

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Spain’s GDP falls by 0.3% in last quarter. German jobless total rises. Italian bond auction success. Portuguese prime minister tells parliament that it is essential that Portugal avoids a second bailout. Concerns that Cyprus could run out of money…

Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Spanish recession deepens, German unemployment rises” was written by Graeme Wearden, for guardian.co.uk on Tuesday 30th October 2012 12.43 UTC


Portuguese PM appeals for unity

Over in Lisbon, the Portuguese prime minister has urged his political opponents to work with him and help the country survive the eurozone crisis.

Pedro Passos Coelho told parliament that it was essential that Portugal avoids a second bailout, and argued that only a “general reform” of the state would help it return to the financial markets and to growth.

That means politicians from across the spectrum working together, and with unions and employers, said Passos Coelho, who has been buffeted by public anger over his austerity plans.

Here’s the key quote:

Our problem is not just budgetary. There is a consensus in the country that we need to have a general reform of the state if we want to solve the crisis

Passos Coelho was speaking during the opening of the debate on the 2013 State budget, which includes a tough package of tax rises and spending cutbacks.


There is concern that Cyprus could run out of money to pay public workers salaries in December if it cannot agree a bailout deal with the International Monetary Fund soon.

Reuters has the details, in a story headlined: Dithering Cyprus may have problems meeting December payroll: paper

Cyprus may have difficulty paying public sector salaries in December unless a bailout deal is clinched and cleared by mid-November, a newspaper reported on Tuesday.

Citing confidential minutes of a meeting in parliament, the Politis daily quoted Finance Minister Vassos Shiarly telling politicians he was worried Cyprus would be “butchered” if international lenders treated it in isolation from other euro zone states in need of financing.

Meeting December’s payroll commitments was contingent on the goodwill of bankers, he was quoted as saying.

Troika officials have been negotiating in Nicosea for several weeks, but there is strong opposition against some of the austerity measures and labour market reforms being proposed.


Schäuble cheers Dublin

Over in Ireland, government ministers are in cheerier mood than their Spanish counterparts after a visit from Germany’s finance minister, Wolfgang Schäuble, yesterday

From Dublin, Henry McDonald reports:

Before he left the Republic on Monday night the second most powerful man in the German cabinet delighted his Irish hosts by predicting that unlike other EU nations Ireland will not need a second bail out to keep the country’s public services and finances running.

“I have every confidence that Ireland is on track,” Schäuble remarked beside the Irish finance minister Michael Noonan and the minister in charge of public expenditure, Brendan Howlin.

Henry continues:

Schäuble insisted, drawing on recent IMF and EU reports, that the Republic would not need another multi-billion euro bailout.

He also again held out hope that the Europe might help ease the burden of Irish banking debts accepting that “Ireland is a special case.”

The positive noises emitting from a German Finance Minister about Ireland’s ability to get back into the international markets to borrow has not however lifted the doom and gloom particularly over domestic demand, which remains in the doldrums and may take yet another major hit with the imposition of cuts to social welfare and increased taxes in the forthcoming December budget.

Busy chap, Schäuble. Having met with France’s finance minister in Berlin this morning (see 9.45am), he is due at Oxford University later today to deliver a talk called “Europe – Still a Common Vision?”


Eurozone economic sentiments keeps falling…

Confidence in the euro economy among eurozone companies has slipped to a 38-month low this month, data released this morning showed.

Economic sentiment fell in most countries including Germany (where unemployment is rising – see 9.12am). It did, however, rise slightly in Italy and Spain.

Howard Archer of IHS Global Insight commented:

Eurozone economic sentiment sank further to a 38-month in October as it continued to be hit by ongoing major concerns about the current Eurozone economic situation and outlook.


Reaction to Italy’s decent debt auction

The head of Italy’s Debt Management Agency has welcomed the result of today’s bond auction (see 10.32am), saying the sale went “very well”.

Jeremy Cook, chief economist at World First, believes the auction shows investors aren’t worried by Silvio Berlusconi’s threat to withdraw his party’s support from Mario Monti’s administration.

Nick Spiro of Spiro Sovereign Strategy agreed, saying the promise of unlimited bond purchases by the ECB was helping Italy:

Markets are taking the heightened political risk in Italy in their stride. For the time being, Mr Berlusconi’s tirades against the Monti government are seen as little more than background noise.

Annalisa Piazza of Newedge said there had been “good demand” for the five-year and 10-year bonds on sale.

And Elisabeth Afseth of Investec argued that Italian politicians will be forced to address the scale of the challenges facing the country:

There is a realisation that the situation is fairly serious and might have to be dealt with rather than playing internal politics too much.


Italian borrowing costs hit 17-month low

Silvio Berlusconi’s threat to bring down the Italian government did not deter investors from buying Italy’s debt at its auction of five and ten-year bonds this morning.

The Italian Treasury raised a total of €7bn, at its lowest borrowing costs since May 2011.

It sold €4bn of five-year bonds at average yields of 3.8%, down from 4.09% last month…. and €3bn of 10-year bonds at average yields of 4.92%, down from 5.24% in September.

Reaction to follow!


Axe swung at UBS

In the world of banking, UBS announced this morning that it is cutting 10,000 jobs.

The Swiss bank is aiming to save 3.4bn Swiss francs (£2.66bn) though a wide-ranging restructuring that will see its investment banking division shaken up and its fixed-income operations wound down, as UBS focuses on wealth management.

Reuters is calling the move “one of the biggest bonfires of finance jobs since the implosion of Lehman Brothers in 2008″.

City insiders report that UBS employees affected by the cull received the news in a pretty blunt fashion – their office passes were apparently deactivated….

The FT’s Alice Ross confirms that the mood is bleak inside the UBS offices today:


France pushes for debt mutualisation

France’s finance minister has called for the introduction of some kind of debt mutualisation in the eurozone, but also admitted that the idea of full-blown eurobonds is not acceptable to the German government today.

Speaking in Berlin this morning, finance minister Pierre Moscovici said:

We are not talking any more about Eurobonds. I know it is a red line here in Germany, for some, the present government among them.

What I mean is that we need to address together the debt issue, and this must be backed by all 17 members of the euro zone, in order to pool some short-term sovereign funding instruments to build a first step towards some kind of mutualisation of the debt.

Germany’s position is that debt mutualisation is not acceptable until there is closer economic and fiscal union within the euro region (otherwise, how can taxpayers in one country be expected to guarantee the debts of another?).

Moscovici also played down concerns over Britain’s future in the European Union, saying that the UK has always been a ‘special case’.

Here’s some other highlights, via Bloomberg’s Linda Yueh:

German finance minister Wolfgang Schäuble also spoke alongside Moscovici, and said he did not want to lose Britain from the EU.


Estefania Ponte, an economist at Madrid-based broker Cortal Consors, supports our theory that the Spanish GDP data paints too rosy a picture (see 8.32):

Ponte said (via Reuters):

[The 0.3% contraction] does not mean the economy is doing better, but only shows the families have brought forward purchases ahead of the VAT hike.


Germany unemployment data released

The German unemployment total has risen, as the core of the eurozone feels the impact of the crisis.

On a seasonally adjusted basis, the number of jobless people in Germany rose by 20,000 in October, to 2.937m. That takes the unemployment rate to 6.9% – matching September’s rate (which was revised higher this morning).

In a statement, the Labour ministry said that the German labour market was “in good shape”, despite economic challenges.

Certainly in better shape than Spain, where one in four people are out of work.

Germany’s jobless rate is also stronger than the US (7.8%) and the UK (7.9%).


The Agenda

Today’s Spanish GDP data marks the start of a busy day.

Here’s what’s on the agenda:

ECB president Mario Draghi speaking in Frankfurt: this morning
German unemployment: from 8.55am GMT
Italian debt auction: from 9am GMT / 10am CET
Eurozone consumer confidence: 10am GMT
Mario Monti at World Economic Forum in Rome: all day
US consumer confidence: 2pm GMT / 8am EST


Analysis on Spain from Megan Greene

Megan Greene, eurozone crisis expert at Roubini Global Economics, says Spain is in a very troubling position.

She predicts that Mariano Rajoy, Spain’s prime minister, will request financial help within weeks, and is not convinced by the new ‘bad bank’ set up to handle the toxic debts in the Spanish banking system.

Here’s her analysis of today’s economic data (see 08.06 onwards)

Spain’s GDP in Q3 came out very mildly less negative than expected (0.3% contraction vs expected 0.4%), but this hardly offsets a slew of worrisome indicators coming out of Spain recently: unemployment recently exceeded 25%, the regional bailout fund has essentially run out of cash, the new bad bank looks very similar to NAMA in Ireland (which most would claim was a disaster) and the nexus between banks and the sovereign will not be broken until the ECB is in place as an effective SSM [banking regulator] (presumably sometime in late 2013, though it could be later).

(We covered the details of the bad bank at the end of yesterday’s blog.)

Greene continues:

Without economic growth Spain’s external and public debt positions are completely unsustainable. I expect Spain will be pushed into requesting official support by the end of this year.


Why Spanish GDP was better than feared

The reason today’s Spanish GDP fall was less bad than expected (-0.3% not -0.4%) may be that Spaniards brought forward some spending to avoid this autumn’s tax rise (such as the VAT rise).

From Madrid, my colleague Giles Tremlett explains:

The 0.3% drop in GDP hides a surge in consumer spending provoked by a sales tax hike introduced in September.

Consumers bought big ticket items, like cars, before prices went up. Analysts believe this means that some of the pain expected in the third quarter has simply been deferred until the last quarter.

The latest IMF report on Spain forecast a 1.3% drop in GDP during 2013, so there is no suggestion that its recession is bottoming out.


GDP down, but inflation up

Spanish inflation data was also released at 8am GMT, and showed that the cost of living is rising in Spain.

Despite the recession, the consumer prices index rose to 3.5% year-on-year in October, from 3.4% the previous month. The CPI rise includes the impact of a hike in VAT in September, from 18% to 21% as part of Madrid’s austerity package.


The only good thing we can say about this morning’s Spanish economic data is that the 0.3% decline in GDP in the last three months is slightly better than the 0.4% decline penciled in by economists.

But the data still shows an economy steadily shrinking.

Q3 2012: -0.3%

Q2 2012: -0.4%

Q1 2012: -0.4%

Q4 2011: -0.3%


Spanish recession continues as GDP falls 0.3%

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

Just in: Spain’s economic downturn has deepened further.

The National Statistics Institute just reported that Spanish GDP fell by 0.3% in the third quarter of 2012.

On a year-on-year basis, Spain’s economy is now 1.6% smaller than at te end of the third quarter of 2011.

It’s the latest economic blow to hit Spain in recent days. Retail sales tumbled by a jaw-dropping 10.6% year-on-year in September (see yesterday’s blog), while unemployment hit 25% in the third quarter of 2012 (see last Friday).

Spain’s economy has now been shrinking for 12 months, and the recession is likely to continue for many more months – as the government’s €60bn austerity package takes its toll.

Analysis and reaction to follow…

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In the broadcast today: USD and JPY New Trading Week Outlook. With next week’s Bank of Japan monetary policy decision and the U.S. Non-Farm Payrolls and Employment Situation report on the horizon, we spotlight the USD and the JPY as the currencies to watch in the week ahead and explore the outlook for these two currency majors, we list the Top 10 economic events that will move the markets during the new trading week, we examine the consensus forecasts for the upcoming economic data, we analyze the price correction in the USD/JPY currency pair, we take a look at the bearish breakout in the EUR/USD pair, we keep an eye on the rally of the GBP vs. USD, we highlight the market’s reaction to the German Consumer Confidence Index, the Spanish Unemployment Rate, and the U.S. GDP and Consumer Sentiment, we discuss new forecasts from Barclays, JPMorgan, Mizuho Bank, Credit Suisse and Morgan Stanley, and prepare for the trading week ahead.

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Spanish jobless rate rises over 25% as German consumer confidence hits 5-year high. Greece given until Sunday to agree on austerity measures. The U.S. economy grows more than expected by 2.0% in the third quarter of the year…

Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Spanish unemployment hits record high as US GDP beats forecast” was written by Graeme Wearden, for guardian.co.uk on Friday 26th October 2012 12.54 UTC


US GDP reactions:

Here’s some early reaction to, and instant analysis of, the stronger-than-expected US GDP (see 13.31 onwards) from Twitter:


Europe’s financial markets have rallied since the US GDP data was released. The major indexes are now mostly flat, having been down this morning (see 9.45am).

The 2.0% annualised rise in GDP was driven by an increase in spending by consumers and the US government.

However, it would have been higher without the drought which struck the US this summer – and knocked 0.4% off GDP growth.



Breaking: The US economy grew by 2% on an annualised basis in the third quarter of 2012.

That’s a stronger performance than expected, and much better than the annualised 1.3% recorded in Q2 2012.

It means American economic output rose by 0.5% between July and September, compared with April-June.

More to follow!


UK Parliament to debate withdrawal from the EU

The House of Commons is about to consider a bill that would bring the United Kingdom’s membership of the European Union to an end.

The European Communities Act 1972 (Repeal) Bill has been introduced by Douglas Carswell (independently-minded Conservative MP, scourge of fiat money, no fan of the civil service either).

It will be streamed on the Parliamentary web site, and is due to start very soon.

At the risk of ruining the surprise, the bill is unlikely to get much further (few Private Member’s Bills make it onto the statute book). It will be interesting to see how much support Carswell can muster though, at a time when the drive for closer European integration appears to be nudging the UK closer to the exit….


A German MP has dented the détente between Berlin and Dublin by claiming that Ireland cannot have the retrospective bank recapitalisation deal it is seeking unless it agrees to a new financial programme.

Norbert Barthle declared that Ireland would have to sign to a new agreement with the Troika, with new conditions, before it could tap the European Stability Mechanism to recapitalise its banks.

That rather goes against Angela Merkel’s comments on Sunday night that Ireland was a ‘special case’ (having taken its toxic bank debts onto the public books before Europe had agreed its new bailout powers).

The Irish Times has more details of the comments from Barthle, who is the spokesman for German Chancellor Angela Merkel’s CDU group in the Bundestag.

Barthle’s views been swiftly rebutted by Ireland’s foreign minister, Eamon Gilmore. He pointed out that Ireland is focused on returning to the financial markets, not signing up to more austerity:


US GDP preview….

In one hour’s time, we’ll discover how the US economy performed in the third quarter of this year.

Economists predict growth picked up pace in Q3, at an annualised rate of 1.8% to 1.9% (so almost 0.5% on a quarterly basis).

With no deal on the fiscal cliff, and no shortage of disappointing earnings from American firms in recent days, the GDP data is eagerly awaited.

Ilya Spivak, Currency Strategist at DailyFX, says a strong performance could calm nerves in the markets:

Third-quarter US GDP figures may help countervail negativity however….

The pickup may stoke hopes that firming growth in the world’s top economy is becoming better able to offset sluggish performance in Asia and a recession in Europe.


Anti-austerity protests in Valencia

A protest against the Spanish government’s austerity programme has been taking place in Valencia this morning.

It was led by civil servants angered by the €60bn package of tax rises and spending cuts announced by Mariano Rajoy, Spain’s prime minister.

Here are some photos from the demos:


Bankia execs must hand back bonuses

Now here’s a clawback – 72 senior bankers at Spain’s Bankia have been ordered to repay bonuses which were ‘earned’ in 2011.

Our correspondent in Madrid, Giles Tremlett, reports:

Bankia is to tell them to return the money in response to a petition from the European commission, which says they should not have been awarded bonuses just weeks before the bank admitted it needed €23bn in bailout money.

“We have received the instruction via the Bank of Spain and, effectively, those people will have to return their bonuses,” a spokeswoman said.

Despite Bankia’s lurch into nationalisation this summer, most of the executives are still employed at the bank – making it easier to recoup the money.


More reaction to Spain’s jobless crisis

Here’s more reaction to today’s Spanish unemployment data, and the wider crisis in Spain’s economy (via Bloomberg)

Justin Knight, a European rate strategist at UBS AG in London:

Unemployment is one part of a multifaceted problem in Spain….

The recession is looking very bad and it looks like it will be worse than forecast. This is a Spanish problem as much as it is a problem of the euro; Spain’s public and private sector net external debt is the same size as Greece’s.

Ricardo Santos, an economist at BNP Paribas SA in London:

The situation is serious…There is still room for a deterioration in unemployment. Activity is weak and the government will reduce jobs as there are strict targets to adjust the number of public-sector temporary workers, especially in health and education.

The only glimmer of hope in today’s bleak figures was a small drop in youth unemployment, from 53% to 52% during the quarter.

But at 25.02%, the overall rate is desperately high by historic standards, as well as being a Spanish record:


Fans of Greek deadlines will be keen to know that Athens has been given until Sunday night to achieve full agreement on its €13.5bn austerity package.

Kathimerini has the details:

The three-day extension it got in order to get maximum backing within the three-party coalition will be necessary as minor partner Democratic Left insists on an improvement in the terms concerning labor reforms that it staunchly opposes.

The Euro Working Group (EWG) of eurozone finance ministry officials will convene again on Monday to discuss whatever conclusions Athens has come to and prepare the blueprint that the Eurogroup of euro area finance ministers may discuss on Wednesday through a video conference that sources from Brussels say is likely to take place in order to discuss Greece.


Southern Spain suffers most

Our Madrid correspondent, Giles Tremlett, flags up that Spain’s jobs crisis is particularly acute in the south of the country.

Giles writes:

Today’s third quarter unemployment figures in Spain are terrible enough, confirming that one in four Spaniards are now out of work. But the figures for some southern provinces are even more shocking.

Jaen, in Andalucia, for example, now has 39 percent unemployment – nearly four out of ten workers. In fact Andalucia, the country’s most populous region which stretches from Huelva in the west to Almeria in the east, has an unemployment rate of 35 percent.

Of Spain’s seventeen regions, two more – the Canary Islands and western Extremadura – also have one in three people out of work.

Full details are here (pdf).


Gloom from Italy, where manufacturing business confidence has fallen unexpectedly.

The Italian statistics body reported that business confidence dipped to 87.6 on its index, worse than analysts had forecast and a disappointing reversal after rising in September to 88.

Firms reported that their order books were shrinking, at a time when Europe is sliding into recession.


Over in Asia, most of the main indices fell today after Apple released weaker-than-expected financial results last night, and Amazon also disappointed.

Here’s the damage:

Japan’s Nikkei 225: down 122 points at 8,933, – 1.35%

Hong Kong Hang Seng: down 264 points at 21,546, – 1.21%

China’s Shanghai Composite Index: down 36 points at 2,066, -1.69%

Europe’s markets are following suit too, led by Spain.

FTSE 100: down 33 points at 5772. -0.57%

German DAX: down 46 points at 7153, -0.65%

French CAC: down 28 points at 3383

Spanish IBEX: down 94 points at 7685, – 1.23%

Italian FTSE MIB: down 154 points at 15376, – 0.98%


One alarming element of today’s rise in Spanish unemployment (see 8.13 onwards) is that most of the country’s latest austerity package hasn’t kicked in yet.

With Spain’s likely to keep shrinking through 2013, today’s record high of 25% could be broken.

Silvio Peruzzo, economist at Nomura in London, warned (vie Reuters):

There is a debate over the optimistic growth outlook for next year by the government, which is given little credibility.

Weaker growth than expected, coupled with austerity, could easily see unemployment hit 26 percent next year.


Here’s Independent economist Shaun Richards on the Spanish jobless crisis:


El Pais has a great graph showing how Spain’s unemployment has risen, on its site this morning:

El Pais also has the regional breakdown of today’s jobless data, and reports that the highest increases were seen in Andalusia (61,300), Valencia (26,500) and Murcia (20,600).

More here.


German consumer confidence at five-year high

While Spain’s jobless rate is at its highest in at least 36 years, the picture in Germany is rather rosier.

German consumer confidence has hit its highest level since the financial crisis began.

This is based on the monthly consumer sentiment index compiled by GfK, which rose unexpectedly to 6.3, up from 6.1 a month ago. That shows Germans are more upbeat about November’s prospects than for any month since October 2007 – when the credit crunch began.

Those surveyed are also more willing to spend than a month ago, and also more bullish about their income expectations.

Galling news for those in the periphery. But it could be good news generally, if German consumers can help drag the eurozone forwards.

ING economist Carsten Brzeski commented:


Labour reforms and recession blamed for Spanish jobless rise

The news that the Spanish unemployment rate has hit 25% in the last three months highlights the steady deterioration in Spain’s economy, which has been shrinking all year.

An extra 85,000 joined the ranks of the unemployed in the last quarter, taking the total to 5,778,100.

The data was released by the Ministry of Labour and Immigration at 8am BST (9am CEST). The jobless crisis in Spain rivals Greece’s own slump in employment.

Today’s rise may be partly due to the government’s labour reforms.

Here’s Reuters early take:

Spain’s unemployment rate rose to 25 percent in the third quarter, a new record high, official data showed on Friday as a labour reform making it easier to dismiss workers and steep recession left even more out of a job.

The data is separate to the monthly readings from Eurostat – which pegged the Spanish jobless rate at 25.1% in August.

It’s the highest rate since at least 1976:


Spanish jobless rate hits 25%

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

We start with some breaking news – Spanish unemployment has hit a new record high.

Government figures just released showed that the jobless rate jumped to 25% in the third quarter of 2012, up from 24.6% in the second three months of the year.

More to follow …

Also coming up today …

For the second day running, the big news will probably come outside Europe. It’s America’s turn to release the first estimate of economic activity for the last three months.

After the UK beat forecasts on Thursday and slid gracefully out of recession, the US third-quarter GDP is eagerly awaited. Not least with the presidential election just 11 days away… 

Concerns over the state of the US economy have been growing in recent days, with a swathe of global giants missing forecasts. This trend continues last night, with both Apple and Amazon failing to shine:

Wall Street not impressed by iPad numbers – The Guardian

Apple And Amazon Earnings Disappoint – Sky News

Back on home turf, we face another day of negotiations between the Greek government and the troika. The junior coalition partner, Democratic Left, continues to oppose parts of the €13.5bn austerity package that Greece must agree in return for aid.

As finance minister Yannis Stournaras said last night:

The only obstacle to an agreement is the Democratic Left’s stance… I hope that eventually they will agree.

We’ll be tracking events in Athens through the day, and also covering all the reaction and analysis when the US GDP data is released this afternoon (at 1.30pm BST).

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In the broadcast today: Can the GBP Rally Further vs. USD into the $1.60′s? In the aftermath of the Fed’s meeting and a stronger than expected U.K. economic growth data, we focus on the GBP and explore the potential for continuation of the sterling’s rally against the USD further into the $1.60′s, we analyze the latest trend developments in the GBP/USD currency pair, we keep an eye on the weekly range of the EUR/USD pair, we note the break above 80 yen for the USD/JPY currency pair, we highlight the market’s reaction to the Reserve Bank of New Zealand interest rate announcement, the U.K. GDP, the U.S. Jobless Claims and Pending Home Sales Index, and the Federal Open Markets Committee monetary policy announcement, we discuss new forecasts from Bank of New York-Mellon and Bank of Tokyo-Mitsubishi, and prepare for the trading session ahead.

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U.K. Q3 GDP estimate shows the end of the longest double-dip recession since the second world war. The U.K. economy grows by 1.0% q/q in Q3, beating the forecasts for 0.6% q/q growth. U.S. jobless claims fall, durable good orders rise…

Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Britain emerges from recession” was written by Josephine Moulds, for guardian.co.uk on Thursday 25th October 2012 14.45 UTC


Potentially interesting development from ratings agency Fitch on Twitter. Will update as soon as we hear anything.


Some more impact from the UK GDP figures this morning.

The euro has taken a hit, sinking to a two-week low.

The currency lost 0.6% making €1 worth 80.37p, its weakest since 11th October.


A ‘Truth and Reconcilliation’ style tribunal should be held into the collapse of the Anglo Irish Bank – the financial institution that almost bankrupted Ireland. Henry McDonald, our Ireland correspondent, reports:

The cost of rescuing and nationalising Anglo Irish and other banks has cost the Irish taxpayers billions of euros and saddled the state with huge debts, which they are seeking help from the EU to cover.

The call for such an inquiry was made today in Dublin at a Transparency International conference focussing on corruption in the Republic.

Dr Jane Suiter, a panelist at the conference, politics lecturer and anti-corruption campaigner, said such a commission would be far cheaper than previous tribunals into Irish political corruption that cost tens of millions of euros.

She warned that the Irish political class may oppose establishing a tribunal into banking given the alleged connections between top bankers, major property speculators and politicians. “I don’t think there is any great appetite for it given that a lot of peope involved were in the major parties,” she said.


Angela Merkel would not have the backing of her coalition partners to push through a deal to give Greece a loan of €16bn-€20bn, said Otto Fricke a budget spokesman for her junior coalition partner. ekathimerini reports:

Fricke was speaking after Handelsblatt newspaper cited an agreement between the Greek government and its international creditors as saying that Greece will get a loan of 16-20 billion euros to supplement its second rescue package while gaining an extra two years to reach its deficit targets. Germany’s parliament would need to approve the loan.

Fricke, a Free Democratic Party lawmaker, told reporters in Berlin on Thursday that he sees “no majority for such a thing.”


EC president Herman Van Rompuy has, apparently been and gone from Number 10 Downing Street, with no press conference to announce what was discussed. The press office is still debating whether to put a statement out on what was said. We’ll post anything as soon as we get it.

In the meantime, here’s another picture of the pair when they met earlier today.

Meanwhile, Open Europe is running the headline that Danish prime minister Helle Thorning-Schmidt has threatened to veto the next long-term EU budget if Denmark fails to secure a rebate of 1bn Danish Krone.


The Coalition’s record on Europe has been “lamentable” especially the “phantom veto” which has harmed relations with EU partners, said Labour MP Chris Leslie at an Open Europe event this afternoon. He said:

That’s not to say UK should never wield veto but it has to be done in a way to safeguard national interests not like in December.

He said Europe still suffers from accountability and democratic deficit. He is hesitant about an in/out referendum because it crowds out debate on reform of structures, institutions and policy areas.

The UK should be leading on reforming the “oil tanker” EU budget, he added, and we should be looking at real term cuts not just a freeze on spending.


US durable goods orders rose by almost 10% in September, driven by a sharp increase in orders for transportation equipment. That compares with forecasts of a 7% rise, and a 13% slump in August. Durable goods are goods expected to last more than three years, so usually require large investments. A rise suggests buyers are more optimistic about the economy.

Tim Ghriskey, chief investment officer at Solaris Group, said:

We’ve seen weak durable goods orders for a while here, so to see this strong number is heartening. We’ve also heard from a number of companies in the reporting season that September was a weak month for business. This indicates that at least orders of the durables side are strengthening here.

Jobless claims in the US, meanwhile, fell last week, raising hopes that the labour market is healing. The number of Americans filing new claims for unemployment benefits dropped 23,000 to 369,000.


Briefly back to GDP, the disparity between Britain’s regions increased more than in any other major economy over the past 12 years, according to the Bank of International Settlements, via Sky News’ Ed Conway.


David Cameron said he will discuss keeping Europe’s costs under control with EC preisdent Herman Van Rompuy today, Retuers reports. Speaking ahead of the talks, but after Van Rompuy arrived, Cameron told reporters:

We have the whole question of the future budget which I’m sure we’ll be discussing today and how important I think it’s to keep our costs and spending under control.


Greek finance minister Yannis Stournaras is apparently back in business, after discharging himself from hospital (see 11.24am), with reports that he has said the troika will not accept changes to agreed labour measures.

A spokesman for the Democratic Left (DIMAR) has already said it will not vote for the labour reforms as they stand.


Ireland has received a relatively clean bill of health from the troika of the ECB, the European Comission and the IMF. In a statement following the review mission to Ireland, the troika noted:

Policy implementation remains steadfast despite the challenging external environment, helping Ireland to start to regain market access.

The country is expected to meet its fiscal targets this year and the troika say the authorities are committed to next year’s deficit ceiling of 7.5%. The economy is expected to grow by 0.5% this year, and 1% next.

But, the troika notes:

Unemployment remains unacceptably high, especially among the youth, making job creation and growth a key priority.


There is a huge amount of regional disparity in this ‘recovery’, as the reader showmaster notes in the comments below. Sky is running a good graphic on this (in the highlights on the right).

The unemployment slide is probably the most telling, with a rate of 9.9% in the North East, compared with 5.8% in south west England.

Union Unite also notes that growth is too focused on London and does not reflect the ‘real’ economy. General secretary, Len McCluskey, said:

Too much of the growth is centred on London and the service sector, a more realistic indicator is that the construction industry is still in the doldrums and its contribution to the last quarter’s GDP figures declined by 2.5 per cent.

With some 90% of the cuts still to come, consumer confidence is what we really need to recover, but with crippling income and housing cuts heading for the low waged there will be little chance of hope spreading beyond the M25.


The European Parliament has rejected the nomination of Yves Mersch, president of the central bank of Luxembourg, to the executive board of the European Central Bank.

On Monday, the economic affairs committee rejected his nomination, saying that it would result in an all-male board at the ECB. However, some believe Mersch was rejected because many of the committee’s members do not agree with him politically. Mersch is known as an inflation hawk

The vote is not, however, binding and many expect the appointment to go ahead anyway.


The responses to news that the UK is out of recession keep coming in. Juergen Maier, managing director of Siemens Industry heralded the 1% rise as “great news for the UK economy”.

This is a really strong number that I think also confirms a catch up from last quarter’s bank holidays and special effects. The best thing about this data is that it now gives industry real confidence that a genuine recovery is firmly within reach.

Whilst it will remain tough for at least 12 months, it is the fastest growth seen since the crash of 2008 with manufacturing up significantly which we must see as confidence to invest for the future.

Where we need to work harder is to ensure a stronger local supply base for these industries, and that journey is going to take a little longer because it takes real long term investment in skills, automated factories and R&D.


Greek finance minister Yannis Stournaras has beentaken to hospital on Thursday, where he was diagnosed with a serious viral infection and exhaustion. ekathimerini reports:

The minister was discharged at his own request before returning to the Finance Ministry offices for talks with officials ahead of a scheduled meeting with Prime Minister Antonis Samaras.

ekathimerini then lists a staggering number of Greek ministers who have been feeling the strain from the punishing schedule of negotiations with the troika.

Earlier this month, Justice Minister Antonis Roupakiotis underwent an operation to remove a blood clot from his brain.

In June, former National Bank president Vassilis Rapanos turned down the job of Finance Minister, offered to him by Samaras, citing serious health problems. A few days before that [Prime Minister Antonis] Samaras himself underwent eye surgery.

At last October’s crucial European Union summit, two aides to the then Prime Minister George Papandreou suffered serious health problems.

Giorgos Glynos suffered a heart attack ahead of the meeting, while Giorgos Zannias developed high blood pressure during the summit and was ordered to stay in his room.


Back to the eurozone, where lending to companies has dropped significantly in September as the bleak economic outlook dampened demand.

The European Central Bank said loans in the private sector fell 0.8% from the same month a year ago, below expectations of a 0.6% fall.

Howard Archer at IHS Global Insight said the drop was not just down to uncertainty over the economic outlook but also a result of banks’ unwillingness to lend.

The concern is that a number of companies who do want to borrow – whether it be to support their operations, lift investment, explore new markets – and are in decent shape are finding it hard to.


Shadow chancellor Ed Balls has come through with a veritable essay of a response to the GDP figures. No wonder it took him so long. Some edited highlights…

He notes that the UK economy has grown by just 0.6% over the past two year, compared with growth of 3.4% in the US and 3.3% in Germany.

So the question for the coming months is whether and how we can catch up all the ground we have lost over the last two years and not keep falling behind as other countries move ahead.

Balls proposes a plan to secure and sustain a strong economic recovery, including using funds from the 4G mobile spectrum auction to build 100,000 affordable homes, a temporary VAT cut and a bank bonus tax to fund jobs for young people out of work.

We also need action to ease the squeeze for people on low and middle incomes, rather than a tax cut for millionaires. And we need long-term changes to make our economy stronger, including a long-term plan to rebuild our infrastructure and radical reform of the banks.


David Tinsley at BNP Paribas has a mixed response to the GDP data. He too says the entire 1% bounce could be down to one-off factors.

Still that might prove to be a little bit of tough assessment – it may well be the there was some weak positive momentum over the middle of this year. Certainly the labour market data would suggest that is the case.

Overall, appearances can be deceiving. The UK economy is not growing at an annualised rate of 4.0%! But nonetheless the economy is at least flat and maybe moving forward. That’s a better position then many economies elsewhere in Europe.


My mistake (re lack of Labour response, see 10.19am), Ed Balls’ spinner Alex Belardinelli did tweet on GDP about an hour ago.


The CBI sounds a more upbeat note on the figures. Director general John Cridland said:

It’s really encouraging news that growth has snapped back so strongly in the third quarter. Although the Olympics and Jubilee have made up the majority of that growth, these numbers do also seem to point to some acceleration in underlying momentum.

We expect conditions to remain positive going into the fourth quarter, reflecting some easing of the pressure on household budgets from lower inflation. But the global economic environment remains challenging.


Vicky Redwood of Captial Economics says it is possible that all of the 1% rise in GDP was down to temporary factors.

As the Olympic effects unwind, it is still possible that the economy contract again in Q4. This would leave GDP in 2012 as a whole shrinking, albeit by slightly less than the 0.5% drop that we have been forecasting.

But, she says, the Chancellor has already jumped on the figures as a vindication for sticking to Plan A.

Given that the public borrowing figures are also looking less dreadful than they were, a significant change of course in December’s Autumn Statement might now be a bit less likely.


There is (as noted by London & Capital Asset Management’s global head of dealing) a deafening silence from Labour, usually so ready to comment on economic figures.


Off GDP news for a minute and over to Italy, where retail sales were (very slightly) better than expected.

Retail sales were unchanged in August, compared with expectations of a 0.2% decline.

They continue to point to long-running weakness of consumer spending in Italy, where household budgets have been squeezed by rising taxes and stagnant wages. The economy is expected to shrink by around 2.5% this year.


More analyst comment on the UK GDP figures (see 9.30am – up 1% in Q3). Howard Archer of Global Insight, also sees the possibility of the economy slipping again before the end of the year.

The economy is far from out of the woods with further relapses highly possible in the face of still tough domestic and global (especially Eurozone) conditions. So it is premature for the Chancellor to contemplate singing in his bathtub (or on the train).

He says it is an extremely close call over whether the Bank of England opts for increase its quantitative easing programme in November.

Nevertheless, with recovery currently looking limited and far from guaranteed, we believe that the Bank of England will ultimately decide to give the economy a further helping hand – be it in November or delayed until early-2013.


And comments from the man himself. Chancellor George Osborne said (in an emailed statement, thank you MickGJ):

There is still a long way to go, but these figures show we are on the right track. This another sign [typo, Chancellor's own] that the economy is healing and we have the right approach: we’ve cut the deficit by a quarter, over a million new jobs have been created in the private sector, inflation is down, and the economy is growing.

Yesterday’s weak data from the eurozone were a reminder that we still face many economic challenges at home and abroad. By continuing to take the tough decisions needed to deal with our debts and equip our economy for the global race we’re in, this Government is laying the foundations for lasting prosperity.


Chris Williamson at Markit sounds a typically gloomy note. He says there is a danger that GDP will fall again in the fourth quarter.

The government will most likely make the most out of this good news, but unfortunately it is unlikely that the UK will see such a strong performance again for some time. In reality, the danger is that this figure fuels a misguided belief that the economy is on the mend, when in fact there is plenty of evidence to suggest that momentum is being lost again.

There is a real risk that a return to contraction might be seen again in the fourth quarter.


The official release is now up. Apart from the headline figure, it is worth restating that GDP is flat compared with the third quarter last year.

The ONS said Olympic ticket sales added 0.2%. They said the events would also have driven the creative arts and entertainment activities, hotels, food and drink and transport.

It said there was little evidence of an Olympic effect in retail, while video, TV and programme production was weak because of “people watching the Olympics instead”.


Independent economist Shaun Richards points to construction as a continuing worry.


And it seems the presentation is over. Simon Neville writes:

That’s it. As soon as it had started it has finished. The three cameramen start packing up their kit. The broadcast reporters dash off to start giving their analysis and the statisticians start to consider what they’ll say as they give a round of one-on-one interviews with Sky, BBC, Channel 4 and others.


The manufacturers’ organisation the EEF is quick off the mark with its response. Chief executive Terry Scuoler said:

Output across manufacturing and the wider economy has mounted a strong rebound confirming that activity wasn’t lost, just displaced from the previous quarter. This has to be regarded as a positive development, given the disappointing data in the year so far.

However, a true account of the UK’s economic performance has been skewed recently due to a series of one-off events, and this quarter is no different. The question is whether this first estimate is enough to signal an improvement in the underlying growth picture. With survey data, particularly in our major markets, pointing to difficult trading conditions in recent months, it’s unlikely this pace of expansion will be maintained into the new year.


The Office for National Statistics says we should look at the run of GDP figures, not just one quarter. It said output has been flat over the past year. A word of warning for the Chancellor, perhaps?


Here come the more muted responses. Data provider Markit notes that we are still significantly below the peak in 2008.

Economists calculate that underlying growth over the past two quarters is 0.3%.



More from Simon Neville:

And that’s it. No whoops or cheers. The bunting has not been hung out and champagne corks remain in. (Although there is a distant hubbub from the larger hall in the next room where the civil service fast track members are meeting. Keen is an understatement.

In terms of the detail, the UK service sector picked up 1.3%, industrial output was up by 1.1%, but construction dropped by 2.5%. Overall, it was the biggest rise since the third quarter of 2007.




Simon Neville writes:

We may have come out of recession but ONS budgets still being squeezed. A handful of biscuits and tea and coffee is all that await journalists


Britain is out of recession

The economy grew by 1% in the third quarter, pulling the UK out of the longest double dip recession since the second world war.

That is a genuinely good result. Economists said the Olympics and the bounce-back after the Jubilee weekend in the second quarter would add around 0.7% to output. This level means there is some genuine underlying growth.

The result will strengthen the chancellor’s hand ahead of his autumn statement in December.


My colleague Simon Neville is at the GDP presentation. He writes:

Only six journalists in the chairs with 5 minutes to go until start of GDP announcement in Church House conference centre.
One ONS staff member tells me 10 years ago there would be journalists from all newspapers. Another tells me to sit near the front to make it look busy…


Adding to the corporate gloom, Santander said net profits dropped by two thirds in the nine months to September.

The eurozone’s biggest bank said it had been hit by writedowns on bad property investments made during Spain’s decade-long housing boom.

Santander has written off €5bn in losses and says it has now completed 90% of the writedowns, forced on the bank by the government, of repossessed housing and unrecoverable loans to developers.

It has also increased provisions against bad debts to €9.5bn.


A quick look at the markets, which are looking relatively buoyant, considering the dire corporate news. (see 8.05am)

UK FTSE 100: up 0.5%, or 29 points, to 5834

France CAC 40: up 0.8%

Germany DAX: up 0.4%

Spain IBEX: up 0.5%

Italy FTSE MIB: up 0.6%


Gary Jenkins of Swordfish Research has a witty take on GDP this morning.

The [Q3 GDP] figure should be “good news” or it would indicate that our PM can’t read…I guess the Chancellor can’t read train tickets so who knows what the figure will be…

He also has an interesting take on ECB President Mario Draghi’s speech to the German parliament yesterday.

Mr Draghi came, he saw and he got out alive. Whilst you could make counter arguments for nearly everything he said, if he had not acted when he did then Spanish bonds would now be talked about in price rather than yield terms and we might be facing a complete implosion of the Eurozone. So you pay your money and you takes your choice.

I can’t resist mentioning the following comment though; “OMT’s will not lead to disguised financing of governments…” Well no, quite. There is nothing disguised about it.


Sweden has kept its key interest rate at 1.25% as expected but said it would be raised at a later stage and at a slower pace than forecast in September.

What’s more, some of the members of its rate-setting committee advocated cutting the rate this month, with one pushing for a cut to 0.75%.


Celebrations for David Cameron, at least, will be curtailed. He is due to meet Herman Van Rompuy, president of the European Council at midday to wrangle over the EU budget.

It is likely to be a heated conversation. The European Parliament this week backed a 6.8% rise in EU spending for 2013 and an overall rise of at least 5% for 2014-2020, both due to be agreed before the end of the year.

The long-term budget requires unanimity among the 27 member-states and Cameron has threatened to veto any increase above inflation. 

The budget for next year, however, is decided by qualified majority voting, meaning Britain could be overruled.


Betting for the GDP figures are in. Our office sweepstake runs from +0.3% to +1%. Whatever happens the government will laud it as a success, but it’s worth noting what Vicky Redwood at Capital Economics said late last week.

She thinks the rise in GDP will largely be a result of temporary effects, such as the Olympics and a bounce back after the jubilee weekend in the second quarter dented output. Those factors will add at least 0.7% to third-quarter GDP, she said.

GDP will therefore need to have risen by more than that to point to any recovery in underlying output. Anything less should be viewed as disappointing.

For the record, she is betting on +0.6%.


Dire corporate earnings out of Europe

There’s a torrent of bad news from companies in the UK and the eurozone out this morning.

German luxury car company Daimler was perhaps the worst, warning that it would miss its earnings forecast by around €1bn. The company announced plans to cut €2bn of costs by the end of 2014. It blamed:

Significantly more difficult market conditions.

Net profits at Credit Suisse tumbled by 63% in the third quarter, prompting the bank to announce an extra 1bn Swiss francs of cost cuts by 2015.

France Telecom slashed its dividend for this year and next, after it said operating cash flow next year would fall by around €1bn. It has been hit by the arrival of Iliad’s low-cost mobile service and a nine-month price war.

And in the UK, WPP – the world’s largest advertising group – cut its full-year outlook for the second time in two months. Chief executive Martin Sorrell told Reuters:

We’re exceedingly cautious now. There’s a lot of concern out there.

He said business owners’ main concern had switched from the fate of the eurozone crisis to how the US government would tackle its deficit.


Today’s agenda

  • UK preliminary GDP for Q3: 9.30am
  • Italy retail sales for August: 10am
  • David Cameron meets EC President: 12pm
  • US durable goods for September: 1.30pm
  • US weekly jobless claims: 1.30pm

In the debt markets, the US is selling three and six-month treasury bills, and seven-year notes.


Good morning and welcome to our rolling coverage of the eurozone debt crisis.

Today is all about Britain’s GDP figures, due out at 9.30am. David Cameron – who sees the data one day in advance – hinted yesterday it will be an upbeat release, with his comment:

The good news is going to keep coming.

Later in the day, data on durable goods orders in the US are expected to show growing consumer confidence across the pond.

But it’s not all good news. There’s a slew of gloomy corporate data from the UK and Europe out already this morning, more on that shortly.

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Mario Draghi at the Bundestag – highlights. Greek finance minister admits no deal yet. Memorandum shows plans for hefty job cuts and tax rises. Anger over German push for tighter controls on Greece. Euro-zone economy weakens…

Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Confusion over Greek austerity deal, amid anger over German budget demands” was written by Graeme Wearden, for guardian.co.uk on Wednesday 24th October 2012 14.35 UTC


Norbert Lammert, president of the Bundestag, is also taking part in the press conference (see 15.00 onwards)

He said Draghi’s talk had “enhanced understanding and trust” between the European central bank and the German parliament.

Draghi was also at pains to sound upbeat, saying it was a useful opportunity to express ones views in a way which can be understood by the non-specialist, who don’t work on these issues 24-hours a day.

And with that the press conference was over. Now we wait for German lawmakers to leak what really happened.


Mario Draghi also shot down those reports earlier today that Greece has been given another 24 months grace to hit its targets.

The ECB president said that the Troika’s review of the Greek economy was not complete – only then could decisions be taken. He added:

I cannot comment on these rumours.


Mario Draghi gives press conference- highlights

Mario Draghi is giving his press conference in the Bundestag now, following his session before German MPs.

He told reporters that he assured lawmakers that his bond-buying programme was ” fully in compliance with the ECB’s mandate of price stability for the entire eurozone”.

Draghi described his visit as an important piece of “trust building”, particularly with the German public.

He was asked whether he could return home, confident that he had reassured Germany’s taxpayers. Draghi smoothly replied that it was too early for that sort of confidence (!).


Schäuble: can’t confirm deal on Greece’s targets

Further indication that Greece hasn’t won a two-year extension to its fiscal reform programme (officially anyway), from Germany’s finance minister.

Wolfgang Schäuble told reporters in Berlin that a deal isn’t possible until the Troika concludes its report and the eurozone’s finance ministers have read it.


FT Alphaville has romped through the details of the German finance ministry’s demand for tighter controi of Greece’s finances (as blogged about from 9.36am).

Good place to start if you’re trying to get up to speed: Germany wants Greece to hand over more budget control


Hold the bunting!

Remarkably, Greece’s finance minister appears to have now admitted that Athens doesn’t have a deal with the Troika over the aid package after all.

Barely 90 minute after telling the Greek parliament that an agreement had been hammered out (see 13.18), Yannis Stournaras then told MPs that, well, it hasn’t. Yet.

Over to Reuters:

Greece’s government is still trying to win additional concessions from foreign lenders on an austerity plan even though the bulk of negotiations have been completed, Finance Minister Yannis Stournaras told parliament on Wednesday.

“To a great extent, the negotiations have been completed,” Stournaras said. “But even now, we are trying for improvements.”

Earlier on Wednesday, Stournaras said the package of austerity cuts and reforms had been finalized and was ready to be put to parliament next week.

This dizzying u-turn came after a German government spokesman denied that Greece had got its two-year extension (a key part of any deal) (see 13.37).

Doubtless it’ll all become clear eventually….


The Wall Street Journal says it’s got its hands on the latest draft version of the memorandum of understanding for the Greek aid deal/austerity plan, and it apparently does include the two-year extension.

It adds that the MOU also includes raising the retirement age to 67, and putting 25,000 civil servants into a labour pool prior to being laid off – but you knew that hours ago :)


One key part of Mario Draghi’s pitch to the Bundestag (see 13.51) is that the ECB had to act as markets were not prepared to wait for reforms to take hold.

Only a “fully credible backstop” (ie the promise to buy the sovereign debt of a country seeking help) would work.

And that, he adds, is in the interest of all the eurozone’s creditors, including Germany….

We’ll find out in around an hour whether this message went down well, when Draghi holds a press conference (eta 3pm BST)


Draghi: my bond programme is essential

Mario Draghi has defended his Outright Monetary Transactions plan to the Bundestag in the last few minutes.

Draghi promised German MPs that the pledge to buy unlimited quantities of bonds will dispel fears over the euro’s future.

The ECB president also began his two-hour appearance in Berlin by repeating his line that politicians, not central bankers, must take the decisive steps to ensure Europe’s future

Here’s how Draghi defended the OMT, which he insisted did not put taxpayers at risk.

We designed the OMTs exactly to…restore monetary policy transmission in two key ways.

First, it provides for ex ante unlimited interventions in government bond markets, focusing on bonds with a remaining maturity of up to three years. A lot of comments have been made about this commitment. But we have to understand how markets work. Interventions are designed to send a clear signal to investors that their fears about the euro area are baseless.

Second, as a pre-requisite for OMTs, countries must have negotiated with the other euro area governments a European Stability Mechanism (ESM) programme with strict and effective conditionality. This ensures that governments continue to correct economic weaknesses while the ECB is active. The involvement of the IMF, with its unparalleled track record in monitoring adjustment programmes would be an additional safeguard.

The full statement has been uploaded to the ECB website.

Draghi also warned that deflation is a bigger risk than inflation today, which may not convince German lawmakers who fear a return to the 1920s.

Dow Jones Newswires’ FXTrader service tweets other highlights:


Germany denies Greek deal is done

News is flashing up that Germany has denied that Greece has got the two-year extension (as finance minister Stournaras claimed – see last few posts).

Curiouser and curiouser. And it leaves Greek citizens feeling as confused as ever.


Greek finance ministry says deal is done

Greece’s finance ministry is also briefing that a deal has been reached on its austerity package.

Reuters has the story:

Greece will tell a Euro Working Group meeting on Thursday that it has finalized an austerity package after lenders made additional concessions on labour reforms, the finance minister said on Wednesday.

The government plans to submit two separate bills on austerity cuts and labour reforms to parliament next week, Yannis Stournaras said in comments confirmed by a finance ministry official. He did not provide further details.

Stournaras has also been giving more details to MPs in Athens (see also 13.03). He’s told them that Greece hopes cut its debt mountain by reducing the interest and extending the maturities of its bailout loans.

But it needs the permission of its lenders – ie the troika.

Stournaras said (via Reuters again):

A debt haircut happens in two ways…

The first is to lower the nominal value. If you do that unilaterally, nobody will ever lend you money again. The second way, which produces exactly the same result in terms of net present value, is to lower the interest and extend the repayment schedule…

That is what we are asking for today.

This all fits with the idea Greece getting a two-year extension to its bailout targets. But it’s not clear that an agreement has been reached…


Another twist in the Greek extension saga. Greek finance minister Yannis Stournaras has apparently declared that Greece has been granted an extra two years to hit its targets.

Reuters reports that Stournaras gave Greek MPs the good news a little while ago.

Here’s the latest from the Reuters terminal:

Greece’s lender have given the country more time to meet its deficit targets under a 130-billion-euro bailout, the country’s finance minister said on Wednesday.

“Today, we obtained the extension,” Yiannis Stournaras told lawmakers.

Greece has been seeking a two-year extension to its fiscal adjustment programme in order to soften the impact of a new round of austerity measures it is about to take under pressure from its EU and IMF lenders.

And Greek newspaper Kathimerini reports that Stournaras has given similar information to journalists in Athens:

“The package has been sealed,” Stournaras is reported to have told journalists, less than 24 hours after coalition partners Democratic Left and PASOK expressed objections to some aspects of the measures.

Democratic Left, the smallest of the three parties in the coalition, objected to some of the labor market reforms but it appears that a compromise with the troika has been found.

Sources said that instead of reducing the notice companies have to give to employees before making them redundant from six to three months, a compromise has been reached on four months.

Bloomberg’s Michael McKee has a similar report:

Suspect we’ll only know officially once the full measures are agreed, ready to be delivered to parliament for a vote.


Mario Draghi, president of the European Central Bank, is due to start his session at the Bundestag anytime now.

Draghi faces a tough session, with many German MPs concerned that the ECB’s plan to buy the bonds of struggling eurozone countries in unlimited quantities will undermine its independence and potentially leave their taxpayers on the hook for losses in Spain and Italy.

Disappointingly, the session is not being televised (this was the original plan). Instead, Draghi will hold a press conference with the president of the German lower house of parliament, Norbert Lammert, around 3pm BST (4pm local time).


Russia cancels debt auction

Russia cancelled a debt auction this morning, after investors demanded an unacceptably high return.

It blamed wider jitters in the financial markets, as Reuters reports:

The Russian Finance Ministry scrapped a weekly auction of 30 billion roubles ($955 million) of seven-year OFZ treasury bonds on Wednesday after yields on its debt spiked higher.

The market correction led investors to seek a yield above the 7.12-7.17 percent range announced for the sale of February 2019 bonds, the ministry said in a statement.


EC downplays report of Greek extension deal

The European Commission has played down the report that Greece has apparently won its battle for a two-year extension to its austerity programme (see 10.36am).

Olli Rehn’s spokesman, Simon O’Connor, told reporters:

I am not in a position to confirm anything in the report….There is no agreement yet.

An extension (as predicted by Süddeutsche Zeitung) would give Athens much-need time to implement labour market reforms and privatisation schemes.

But as our Europe editor, Ian Traynor, points out, it will be costly:

This extension throws up a funding gap of up to €18bn in 2013-14 alone, according to the unnamed sources talking to the German paper.

There may be more funding to be filled for 2015-16, and it is still not clear how this gap is to be filled. The IMF and the Europeans have been arguing about it

It seems clear, however, that Athens will get its €31.5bn disbursement by the end of next month in whatever form. The troika is expected to report that the IMF-set target of debt sustainability at 120% of GDP by 2020 cannot be met, raising questions of how the IMF will respond.


Another day, another protest in Greece.

Earlier today, members of the right-wing Independent Greeks party held a demonstration outside a debt collection agency in the Athens district of Tauros. Associated Press says they were protesting against the agency pursuing debts from “Greeks who are economic hardship during the financial crisis”.


UK factories suffer falling orders

Britain isn’t immune to the tide of alarming data sweeping through the financial world today, with a new latest assessment of UK factory orders showing a shock fall.

The CBI reported that British factories suffered a big drop in orders in October, with domestic orders down 10% and export orders 17% lower.

The CBI’s overall industrial trends survey came in at -3, its lowest level since last December.

As with this morning’s other disappointing data (see 10.57am onwards), the survey showed that weakness at home and abroad was to blame.

Anna Leach, head of economic analysis at the CBI, commented:

Domestic and overseas demand have both slipped unexpectedly this quarter, while output growth has tailed off.

Sentiment regarding business conditions has also fallen back, particularly for exports. UK companies are increasingly concerned by political and economic conditions abroad, whether it is ongoing weakness and uncertainty in the Eurozone or the approaching fiscal cliff in the US.

Leach added, though, that underlying conditions seem “relatively stable”, with employment rising, and expectations for output and orders holding up well.


Eurozone economy weakens

Europe’s manufacturing and service industries are also suffering a pretty dire month, according to the ‘flash’ estimate of output released this morning.

Markit’s composite PMI survey (which measures activity at around 5,000 eurozone firms) fell to 45.8, from 46.1. Any figure below 50 indicates a contraction, so the figures shows that the eurozone downturn is getting worse.

This graph shows PMI tracked against GDP, and suggests a significant contraction is underway – perhaps 0.5% quarter-on-quarter.

Chris Williamson, chief economist at Markit, said the underlying business climate in the eurozone had deteriorated sharply in recent months:

While GDP may decline only modestly in the third quarter, a steeper fall looks to be on the cards for the fourth quarter.

The financial markets may have cheered the positive developments from policymakers in seeking to resolve the region’s debt crisis, notably the promise of bond market intervention by the ECB, but business appears to have been less impressed.

Williamson pointed out that sentiment about prospects for the year ahead is now the gloomiest since early-2009. The weakness in the global economy is a key factor:

In addition to worries about the health of domestic markets, companies are also seeing demand weaken further afield, notably in Asia and, to a lesser extent, the US.

And Germany saw its second consecutive monthly fall in employment since early 2010.


Economic gloom abounds as German confidence falls

There’s a lot of pretty grim economic data around this morning, which I’ll wrap up quickly now.

German Business Confidence slides

The IFO survey showed that confidence among German business leaders fell this month to its lowest level in two and a half years. It fell to 100.0, down from 101.4 in September, defying expectations of a rise to 101.6.

The future expectations sub-index also fell, showing executives are more worried about growth prospects.

The Munich-based IFO institute also warned that the “clouds over the German economy are darkening”, and predicted stagnation in the last quarter of the year.

City experts said the message from IFO was unremittingly downbeat:


Report: Greece to get two-year extension

As ballymichael and northland have already flagged up in the comments below, there are reports in the German media this morning that Greece will receive the two-year extension it has been seeking.

Süddeutsche Zeitung reports that Greece will be allowed until 2016 to bring its deficit below 3% of GDP and get its next aid tranche, worth €31.5bn, once it agrees the austerity measures demanded by the troika.

Original article in German

Google translation into English

However… Jorg Asmussen (Germany’s man on the ECB’s executive board), has downplayed the report this morning, and warned that any such delay would mean more money, from somewhere…

Asumssen told German public broadcaster ARD:

So far there is no final agreement by the troika with the Greek government. We are making progress in Athens, but we are not there.

If one were to stretch the fiscal targets by two years, it would mean the other euro zone states having to provide more financial means.

But Greece is rumoured to be significantly off-track in hitting its debt targets (see: IMF and Europe in dangerous game of brinkmanship over failing Greek bailout). So one might conclude that either the debt targets must be extended or Greece’s debt pile must be restructured in some way. Or both….


Greek cabinet reshuffle rumoured

Our correspondent Helena Smith reports from Athens that there is a sense of panic among government circles.

Helena writes:

Ta Nea this morning says it all. “Dangerous Deadlock”, it declares. “The next installation is up in the air after the veto.”

The leading daily points out that Antonis Samaras will likely be forced to forge ahead with a cabinet reshuffle – without the participation of the small Demcoratic Left party lead by Fotis Kouvellis, following the latter’s steadfast refusal to accept further reforms in the labour market.

Ta Nea opined:

The ultimate effort to put out a government crisis of mega proportions has been underway since yesterday pm between the [headquarters of the coalition's participating parties] after the categoric refusal of Democratic Left leader Fotis Kouvellis to accept a compromise solution with the troika over labour changes.

As high-ranking government officials admitted late last night the troika’s insistence and Kouvellis’ veto at one minute to midnight changes everything and will now force Antonis Samaras to take other steps….

…even if those steps are taken without the political and parliamentary support of the Democratic Left.

With time of the absolute essence the coalition has to move doubly quickly if the €13.5bn austerity package and “prior actions” [i.e. structural reforms] required in return for further rescue loans are to be implemented in time for the next meeting of euro zone finance ministers on 12 November.

Samaras has repeatedly said that public coffers will run dry by 16 November.


Anger at German proposals for new Greek oversight

The fact that the German finance ministry proposed the new clampdown on Greece’s finances is causing particular unease today.

As the Kathimerini newspaper writes:

Germany is proposing that Greece give up more of its fiscal sovereignty and come under closer economic control, according to a document leaked on Tuesday.

The German Finance Ministry proposals were made public by PASOK officials and made for controversial reading as they called for an escrow account into which Greece’s bailout installments are paid to be transferred to the European Central Bank and for the account to also receive the tax revenues that Greece collects.

And as one reader, equusmulusoctopus, points out, the loss of sovereignty implied by the measures is deeply concerning.

It’s actually worse than putting the country under receivership and more akin to directly governing it through troika-appointed czars.

You can’t get any closer than this to an occupation without actually rolling in with tanks.


Our Athens correspondent, Helena Smith, reports that today’s talk shows are dominated by discussion of the “unreasonable pressure” which the troika is bringing to bear on Greece at the 11th hour.

Some of the measures that are apparently being demanded (see 9.36am) have been talked about before – for example, the escrow account was raised back in February (see here).

But the new proposal does appear to take more control away from Greece, especially as it is billed as an “externally managed” account, rather than falling under the control of the Bank of Greece. The suggestion that some Greek tax receipts should be funneled in is also new (I think).


German ministry demands tigher control

The other issue causing alarm in Greece this morning is a report that significant new controls are being demanded on the Greek budget in return for its next aid payment.

The measures give the ECB, the EU and the IMF much tighter control of Greece’s budgets, and have already aroused anger from people who see Greek sovereignty being undermined.

These measures include:

• the creation of an escrow account managed by an external body such as the European Central Bank. All aid payments will be placed in this account.

More controversially, the measure also outlines that some Greek revenue will be directed straight into this account, once Greece has reached a primary surplus.

• Should Greece miss its targets, the government would have to make sweeping cuts to all areas of official spending.

• Greece could need “external approval” from a body such as the EU commission before it could borrow. This is described as being “along the lines of supervision of regional or local authorities by some federal states” – even though Europe is not (yet) a federation.

• Greece will receive compulsory ‘technical aid’ to improve its tax collecting service, anti-corruption operations and privatisation programme.

To Vima, the Greek newspaper, reports that the list was sent to Athens by the German finance ministry, and released by the Pasok party (a junior member of the coalition government).

An English translation of the document has been uploaded to the web.

It all adds up to further controls over Athens, and may fuel further protests against the country’s direction. But given Greece’s need for aid, Antonis Samaras may have no choice.

Worth remembering, though, that Samaras has still not persuaded his coalition partners to back the plan. And even then, individual MPs have to approve it.

With very many thanks to equusmulusoctopus, one of our regular readers.


Austerity measures detailed

Although there have been rumours and leaks for the last four months, the 94-page draft memorandum that emerged overnight is the first time Greece’s new austerity measures have been seen in full.

We should caution that these details have not been officially released.

Here’s a list of the key points (via Ethnos)

Maintaining the emergency solidarity levy until 2018 – this is an increase in personal taxation of up to 5% that was introduced last year.
• Lowering the number of income tax bands to three or four, from eight at present.
Big cuts to the public payroll: with 20,000 civil servants leaving in 2013, and a further 5,000 in 2014
• Increasing the retirement age by 2 years, from 65 to 67
Increase in interest on deposits from 10% to 15% in 2014.
Eliminating various tax exemptions
Increasing taxes on farmers.
• Retroactive reductions from 1 August 2012 to “special payrolls”, on a sliding scale from 2% to 35%.
A huge cut in the the number of associate professors from 15,226 to 2,000.
Increasing urban traffic ticket prices by 25%, from March 2013.
• Remove special seasonal unemployment benefit payments.

The plans for civil service job cuts would see tens of thousands of people transferred into a “labour pool”, with 5,000 being laid off each quarter until the troika’s demands have been reached – according to a report on Skai News today.


Greek memorandum shows depth of austerity measures

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

Important developments this morning in Greece, where details of the new austerity terms that are being demanded by its troika of lenders have emerged.

The tough new measures include laying off up to 25,000 civil servants, hiking the retirement age to 67, and wide-ranging tax increases.

The details hit the headlines after the country’s three coalition leaders failed to agree on the country’s austerity package last night. I’ll pop the full list up shortly.

There is also anger in Greece that the troika is demanding tougher controls on its budgets. This includes some Greek revenue being directed into a special escrow account (along with Greece’s bailout aid), and conditions for “horizontal” spending cuts across the board if Greece fails to hit future targets.

More on this to follow, too…

The other big news story today is in Germany, where Mario Draghi is appearing before the Bundestag for a two-hour session, from 12.45pm BST (1.45pm CEST). A press conference is scheduled for 3pm BST (4pm CEST.

And new economic data from Europe’s manufacturing and services sectors are also being released this morning, along with UK business confidence data.

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In the broadcast today: Will the EUR and CAD Regain their Momentum vs. USD? With the markets around the globe in the red and the EUR and the CAD feeling the pressure vs. the USD, we ponder if the single currency and the “loonie” will be able to regain their bullish momentum against the greenback, we analyze the EUR/USD currency pair’s drop below $1.30, we note the bearish breakout in the GBP/USD pair, we take a look at the pullback in the USD/JPY currency pair, we highlight the market’s reaction to the downgrade of Spanish regions by Moody’s, the French Business Sentiment, and the Bank of Canada interest rate announcement, we discuss new forecasts from Bank of New York-Mellon and Royal Bank of Canada, and prepare for the trading session ahead.

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