December 3 2012

Spain applies for bank bailout funds. Eurozone finance ministers are expected to approve the disbursement later today. Details of vital bond swap for Greece.Greek bonds rally, but there’s concern in Athens. U.S. manufacturing data offers reasons for optimism…



Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Greece launches debt buyback scheme” was written by Graeme Wearden (until 2.30) and Nick Fletcher (now), for guardian.co.uk on Monday 3rd December 2012 14.41 UTC

2.36pm:

Holland and Monti emphasize

French president Francois Hollande and Italian PM Mario Monti have repeated the “euro is irreversible” line at a joint press conference in Lyons.

Monti has also said the spread between Italian and German bonds was still not acceptable although it was on a pleasing downward trend. Then he reportedly added:

Meanwhile in the European parliament, German finance minister Wolfgang Schaeuble said solutions to the eurozone crisis can only be found step by step.

2.22pm:

Here’s some more expert comment on today’s Greek bond swap (via the Reuters terminal):

Ricardo Barbieri, strategist at Mizuho

[The pricing] indicates they really want the swap to succeed.

Some investors might be tempted to participate in the swap because of the ability to simplify their position, should they wish to maintain exposure to Greece, otherwise an opportunity to exit totally, completely their positions at a level that is better than Friday’s close.

Stuart Thomson, manager of the Ignis Strategic Bond fund.

This is just another milepost on Greece’s road to Hell, which is of course, paved with good intentions.

The success of this buyback depends on the hedge funds and very much on their calculation whether a holdout could eventually get them more, or whether they will face a haircut in the next round.

I’ve got to scoot now, so Nick Fletcher is your host. Cheers all. GW

2.10pm:

In the comments section below, 200gnomes points out that I’ve not mentioned claims that ex-Greek PM George Papandreou’s mother appears on the list of Greek tax evaders.

Not a conspiracy of silence – more that I”m not really sure what to make of the story.

Anyway, the raw facts are that two Greek newspapers, “To Vima” and “Proto Thema”, reported yesterday that Margaret Papandreou (89) is on the Lagarde List, and has €550m squirreled away in a Swiss bank account.

The claims (which would be absolute dynamite if true) have been very strongly denied by the Papandreou clan, with Mrs P claiming the family were being victimised for having “never served this country’s interest groups” (a claim that left TheGribbler despairing in the comments below).

The FT has more details of the denial (£).

We may have more details later.

2.02pm:

US manufacturing sector keeps growing

Another positive piece of industrial data – America’s manufacturing PMI (as measured by Markit) rose in November to 52.8, up from 51 in October. That means growth accelerated during the month.

A sub-index that tracks new orders also rose, suggesting that the US economy is ending 2012 in better shape than much of Europe.

Confusingly, we’ll have another manufacturing PMI reading later this afternoon (the ISM one).

1.49pm:

Haldane: Our grandchildren will pay for this crisis

The cost of the financial crisis will linger for decades, and the bill could still be being paid off in two generation’s time.

So warned Andy Haldane, the Bank of England’s executive director of financial stability, in an interview on BBC Radio 4′s World At One programme.

Haldane explained that in terms of the loss of incomes and outputs, this is as bad as a world war (elaborating on a point he made in late October when he applauded the Occupy movement).

Nick Sutton, the show’s editor, has the key quotes:

The whole programme’s online here, and you can here Haldane’s section here on Audioboo.

1.15pm:

Spanish bank funding request – more details

Reuters has the full details of the Spanish bank bailout request:

Spain on Monday requested formally the disbursement of €39.5bn ($51.4bn) of European funds to recapitalise its crippled banking sector, the Economy Ministry said in a statement.

The money – €37bn for the four nationalised banks Bankia, Catalunya Banc, NCG Banco and Banco de Valencia and €2.5bn for the so-called “bad bank” – should be paid to the state’s banking fund FROB around Dec. 12, it added.

Eurozone finance ministers are expected to approve the disbursement later on Monday when they meet in Brussels for their monthly meeting.

The €37bn figure was approved by the EC last week (and covered in Wednesday’s blog).

1.03pm:

Spain makes bank bailout request (not sovereign bailout reqest)

Just in: Spain has officially requested a bailout for its banking sector.

A statement issued in the last couple of minutes shows that the aid would be dispersed to Madrid on or around 12 December.

To be clear, this isn’t the long-anticipated request for a full-blown bailout – it’s the application to recapitalise the battered banking sector (agreed in principle this summer).

The news caused a little flurry in the financial markets, sending German bond prices falling and pushing the euro to a new six-week high against the dollar ($1.3075).

One fund manager reckons computer-based trading systems (the algorithmic systems that react almost instantly to the latest news) may have got confused …

12.39pm:

Protests in Athens

Two different sets of anti-austerity protests have been taking place in Athens today.

One involves municipal workers, who are continuing to demonstrate against plans to lay off staff across the state sector (as part of the austerity plan demanded by the Troika):

The second protest is taking place to mark the International Day of People with Disability, with a group demonstrating against cuts to Greek welfare spending.

Disability groups say that Greece’s austerity programmes have deprived many people of their benefits.

Here’s some more photos from Athens:

12.08pm:

Italian bonds rally

Italian government debt have been strengthening this morning, pushing down their yield (the interest rate on the bonds).

And in the last couple of minutes the spread between Italian and German 10-year bonds has dropped below 300 basis points mark for the first time since March.

Italy’s 10-year bond yield: 4.39%, down 11 basis points

Germany’s 10-year bond yield: 1.418%, up 3 basis points.

Another fillip for those who reckon the eurozone crisis is petering out (or at least entering a calmer phase)

11.59am:

Comment is free (ly available again)

Looks like the comments section has been fixed – thanks for your patience. Apologies again for the disruption.

11.46am:

Greek central bank hails new start

Back to the Greek bond swap plan – and in Athens the central bank of Greece has just stated that the deal opens the way for economic recovery.

In a statement, it said

A new start is now possible. [The deal] creates plausible expectations of a recovery of the Greek economy, perhaps even earlier than projected at present.

But before that happens, the Bank of Greece sees more pain ahead. It predicted that GDP would shrink by ‘slightly more than 6%’ in 2012, and another 4.5% in 2013, before ‘positive growth’ finally returns in 2014.

11.29am:

We’ve plotted this morning’s manufacturing data (see 9.44am onwards) on one graph, showing how the main eurozone countries and the UK have performed:

11.15am:

This afternoon’s Eurogroup meeting of euro finance ministers is the fourth in as many weeks. Luke Baker of Reuters reckons they’re approaching their half century of crunch gatherings since the crisis began.

Canaryatthewharf made a similar point in the comments section below:

Hopefully we can start focusing soon on wider issues than just the euro-zone if the debt buy back works and Greece gets sufficient cash to function until end-2013.

But are we really approaching a lull? Economists and assorted experts are divided, between those who reckon the eurozone isn’t getting the credit for the decisive progress made in recent months, and those who reckon policymakers have only papered over the cracks.

This little exchange on twitter between economist Megan Greene (bearish) and journalist Joe Weisenthal (bullish) shows the opposing views.

10.43am:

Scepticism in Greece over bond swap deal

Over in Greece our correspondent Helena Smith says the debt buyback has got a mixed reception this morning. She writes:

Among economists, analysts and even government officials there is widespread scepticism about the scheme. Speaking on the state-run TV channel NET this morning, finance experts described the buyback operation as “very problematic” with many calling it the most difficult part of the latest EU-IMF backed attempt to rescue Greece.

“A big part of the bonds that have been issued are in the hands of hedge funds,” said prominent economics professor Charalambos Gotsis, adding that investors had acquired them earlier in the summer at very good rates. “With Greece no longer facing the scenario of a Grexit, it is debatable whether they will want to part with them,” added Gotsis who reckoned that hedge funds had acquired around €20bn worth of the government bonds.

Greek banks, which hold an estimated €15bn of the new bonds, have also opposed the scheme claiming it will put them in the onerous position of having to forfeit potential profits.

Their stance prompted Prime Minister Antonis Samaras to insist over the weekend that banks would actually benefit from the deal as the value of the bonds they held was far lower. Samaras, who is acutely aware that Greece’s next €44bn loan tranche is dependent on the buyback (with officials saying it will pare back the country’s debt load by at least €30bn), also quashed speculation that Greek pension funds would be part of the transaction. “The banks’ reaction undoubtedly played a role in the offer being better than expected,” said one insider referring to government prices being more generous than anticipated [as explained at 8.38am]

But, interestingly, Greek finance ministry officials this morning did not rule out the scheme being extended beyond the official close of the deal at 5pm Friday, adds Helena.

‘If it doesn’t go well then logically [the scheme] will be extended,’ said one finance ministry official. ‘But let’s not jump the gun and talk about failure before it has even got off the ground.’

10.33am:

No comment

Looks like we’re having a few technical glitches with the Guardian’s comment system at the moment…. Apologies for that (I don’t think I’ve broken anything). Hoping it will be resolved shortly….

10.01am:

UK manufacturing beats forecasts

The UK’s manufacturing sector has crawled its way back towards growth, with a PMI of 49.7 in November. That’s much better than October’s 47.7, and better than analysts had expected.

Just slightly below stagnation isn’t great – but it suggests the sector might be staging a recovery.

9.52am:

Eurozone recession is deepening – economist

Chris Williamson, chief economist at Markit, warned that the eurozone’s manufacturing sector remains in a “severe downturn”, following the news that the slowdown eased last month (see 9.44am).

Williamson said:

The ongoing steep pace of manufacturing decline suggests that the region’s recession will have deepened in the final quarter of the year, extending into a third successive quarter.

With official data lagging the PMI, the rate of GDP decline is likely to have gathered pace markedly on the surprisingly modest 0.1% decline seen in the third quarter.

There is also reason to be optimistic, though:

Production and employment look set to fall at reduced rates in
coming months as export demand slowly revives in markets such as the US and Asia.

However…

the ongoing uncertainty caused by the region’s debt crisis means business confidence clearly remains fragile and companies continue to focus on tight cost control, meaning any robust recovery still looks a long way off and prone to a set-back if the crisis worsens.

9.44am:

Eurozone manufacturing sector shrinks again

It’s one of those mornings when we’re inundated with manufacturing data for the previous month from across the global economy (via Markit)

Today’s Purchasing Managers Indexes (PMIs) paint a mixed picture – so here are the highlights (and as a reminder, any number below 50 = contraction).

• The eurozone’s manufacturing sector’s PMI of 46.2 for November was the highest since March, but means the sector has now shrunk for the last 16 months

• Germany kept shrinking, with a PMI of 46.8, up from 46.0 in October.

• France’s manufacturing output fell sharply again, with a PMI of just 44.5, up from October’s 43.7. [garble corrected - thanks madeupname2 !]

• Greece’s manufacturing sector continued to contract sharply, with a PMI of just 41.8 (slightly better than October’s 41.0).

9.19am:

Euro up

The euro has risen in value this morning following the Greek debt swap announcement, up nearly half a cent against the US dollar at $1.303.

The single currency has shrugged off the news that Moody’s cut the triple-A rating of the European Stability Mechanism euro rescue fund late on Friday.

But Kit Juckes, Global macro strategist at SocGen, isn’t impressed:

9.04am:

A Greek debt calculator

Those bright sparks at Reuters have created an interactive Greek bond buyback calculator, which lets you work out how much Athens could slice off its debt mountain through the swap.

It’s here.

Remember that the buyback cost can’t exceed €10bn (the maximum amount of new bonds that Greece plans to offer in exchange).

Playing around with it, I can get Greece’s savings up to €52bn….

8.48am:

Interestingly, today’s offer appears to be a little more generous than had been indicated a week ago. When the deal was announced, the eurogroup suggested that Greece would pay no more than the previous Friday’s closing price.

Today’s prices are higher – perhaps an indication that Greece simply can’t let the deal fail.

8.38am:

Greek debt rises in value

Greek sovereign debt is rallying in early trading as traders absorb the details of the bond swap announced this morning.

Via the Reuters terminal:

• GREEK BOND MATURING 2023 PRICE RISES 2.675 ON DAY TO 37.8670

• GREEK BOND MATURING 2042 PRICE RISES 1.544 ON DAY TO 29.729

Those prices are both slightly below the minimum that Greece is proposing to pay (the official statement has the full chart), suggesting some uncertainty over the deal’s chances.

And this image shows how the value of the 2023 bond rose this morning (from just a third of its face value).

8.30am:

See the statement

You can download the official statement from the Greek ministry of finance here (in English).

8.28am:

Greece launches debt buyback scheme

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

We can start with some breaking news: Greece has officially launched a scheme to buy back its debt from private investors.

This scheme is a crucial part of the new deal for Athens agreed a week ago. It needs to succeed to unlock the €44bn of rescue loans due to Greece.

In the last few minutes, The Hellenic Republic ministry of finance announced it will offer holders of Greek debt the chance to swap their bonds for up to €10bn of six-month bills.

Investors will be offered the chance to swap their Greek bonds for a maximum price of between 40.1% and 32.2% of their face value (depending on their maturity). It will work like a “Dutch auction” - with Greece starting with a low offer and raising it until investors bite.

The deal will run all week – concluding at 5pm Friday 7 December. The results will then be announced as soon “as reasonably practicable”.

But the Hellenic Republic also cautioned that the swap can only proceed if it meets “all of the conditions under a financing agreement entered into with the European Financial Stability Facility” – which is providing the funds for the swap.

Finance Minister Yannis Stournaras is due to present the findings to the rest of the eurozone this evening in Brussels.

I’ll be tracking the reaction to the debt swap plan, as well as other key events through the day. That will include a splurge of manufacturing data that will show how global industry is coping with the crisis.

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