December 5 2012

Dublin will announce billions of euros in fresh spending cuts today as the pain of austerity continues. Demonstrations against the cost cutting budget scheduled later this afternoon. Spanish bond auction disappoints. Eurozone retail sales drop in October…

Powered by article titled “Eurozone crisis live: Ireland to unveil another austerity budget” was written by Nick Fletcher and Graeme Wearden, for on Wednesday 5th December 2012 13.50 UTC


Barricades outside Irish parliament ahead of budget

Barricades have been erected outside the Dail in case demonstrations against the cost cutting budget get out of hand later this afternoon, writes Henry McDonald.

Gardai are out in force around the Irish parliament in south central Dublin.
Possibly in response to public anger over the pain they will have to endure for the sixth time in a row there are reports this lunchtime that party leaders in the Dail are going to take a 10% in their allowances with TDs [members of the lower house] also expected to take a hit in payments.


US jobs figures come in below expectations

Ahead of the US non-farm payrolls figures on Friday, come some disappointing employment figures.

US private sector employers added 118,000 jobs in November, according to payroll processor ADP, but this was lower than the 125,000 expected by economists. October’s number was revised down from an increase of 158,000 to 157,000.

And yes, there is some talk of Hurricane Sandy being to blame. Annalisa Piazza at Newedge Strategy said:

Should the non-farm payrolls track the ADP report in November, the Friday employment report would be a touch stronger than expected but still weaker than in October. The effects of the superstorm Sandy will be clear in the November non-farm report and – despite today’s ADP report – we still see non-farms to come in at around 90,000 in November. The ADP suggested that the Hurricane cut job creation by around 86,000 in November.


Finland slips into recession

Finland has become the latest eurozone member to slip into recession.

The country, one of four left in the eurozone with its AAA rating intact, said GDP fell by 1.2% year on year in the third quarter, following a revised 0.2% decline in the previous three months.

Finland’s exports have been hit by the eurozone crisis, but one of its key companies, mobile phone group Nokia, has lost market share to the likes of Apple and Google.


The new chairman of the eurogroup to replace Jean-Claude Juncker should be an acting finance minister, said a German government spokeswoman.

Juncker – the prime minister of Luxembourg who was also finance minister when he took on the eurogroup job – announced this week he would step down at the end of this year or early in 2013. That leaves little time to find a replacement.


According to Reuters the spokeswoman has corrected the earlier statement to say the eurogroup chairman does not have to be an acting finance minister. So, as you were.


UK chancellor: GDP fall this year due to eurozone crisis

George Osborne says the independent Office of Budget Responsibility has cut its forecast for UK GDP to 0.1% this year, blaming it on the euro crisis.

In March the forecast was for growth of 0.8%. He said the OBR assumed the eurozone would recover but it continued to contract, and the euro crisis would constrain growth for several years to come.


UK autumn statement begins. Follow live blog here.


The calm before the storm?


Greek finance ministry officials have reacted furiously to the banks’ announcement this morning that they would decide on Friday whether to back the bond buying plan.

They told our Athens correspondent Helena Smith that an extension to the buy-back operation is now definitely on the cards:

“What do they mean they will decide on Friday? They’ve had had all week to think about this. Have they not given it any thought?,” asked one well-placed official. “We will now have to see [following this announcement] whether the whole process will have to be prolonged which may well be the case.”


Independent economist Shaun Richards has been taking a look at the Irish economy ahead of today’s budget. His conclusion:

It seems incredibly unlikely that the Irish economy can expand by 2.5% in 2014 and 2.9% in 2015. If we now add in her austerity plans which after today’s €3.5bn is supposed to have an extra €3.1bn in 2014 and €2bn in 2015 we see that she is in danger of foundering under the sea of debt that her banks have left her with.

There are always two sides to every story and on the upside she has seen interest rates on her debt fall and not every economic number is grim as for example retail sales rose by 1.7% in October on September and by 3.1% on the year before. Also her unemployment rate has just edged lower from 14.7% to 14.6% in November. But we also have signs that what her low corporate taxes brought her such as booming pharmaceutical production are fading just as other countries are also questioning the impact of such taxation regimes. So to get out of this morass Ireland will need to find new things to produce especially drugs. Can anybody think of likely ones?

2013 looks like being the most crucial year for a country which has been lauded as the poster boy of austerity.


Irish unemployment improves

Ahead of this afternoon’s Irish budget there is some slightly encouraging data for the Fine Gael-Labour coalition to hold onto regarding Irish unemployment rates, writes Henry McDonald in Dublin.

Figures published today by the Republic’s Central Statistics Office show that the numbers on the unemployment register for November were 2,895 lower than the previous month. The current jobless total is also down 12,290 compared to the same period last year according to the CSO although this may be only a crumb of comfort for the economy as the overall unemployment rate in Ireland is currently 14.6 per cent.

This could however be put down to more and more Irish people, particularly those under 40, who are emigrating from the state to countries such as Australia and Canada.


Back in Greece, and Reuters is reporting that the country’s banks will decide on Friday whether to take part in the crucial bond buying plan.

Greek lenders hold around €17bn of the €63bn bonds eligible for the buyback so their support is crucial.


Berlusconi said to be considering forcing early Italian election

Over in Italy, and Silvio Berlusconi is stirring it up again.

According to La Stampa (via Open Europe) Berlusconi plans to discuss at a lunch with party members today whether to withdraw support from prime minister Mario Monti’s government and possibly force an early election.

The paper also says the country’s new draft electoral law will not be submitted to the senate today, as planned, because of disagreements between the various parties.


German bond auction success

More bond auctions, and Germany’s has – predictably – been a success.

In its last issue of the year, it sold €3.3bn of two year Schatz notes at a yield of -0.01% – a sign investors are still prepared to suffer negative interest rates for security amid the eurozone crisis and, increasingly, worries about the US fiscal cliff.



On a lighter note:


Irish government wants to break free from reliance on troika

More from Henry McDonald ahead of the Irish budget:

One of the key aims of the Fine Gael-Labour government is to restore fulll economic sovereignty and no longer rely (as the Republic has done since 2010) on the largesse of the so-called troika – the International Monetary Fund, the European Central Bank and the EU – to pay for Ireland’s public services.

The coalition wants to return to the international markets to borrow in order to finance the state sometime in 2013. However according to Transparency International today confidence in Ireland may be hard to obtain. A Transparency International index (see earlier), launched on Budget Day, reveals that corruption in Ireland is still higher than in some developing nations like Uruguary and the Bahamas. A global survey of 176 nations gives Ireland its worst ever ranking in the worldwide corruption league with Ireland ranked 25th.

The index is one of the most commonly used measures of political risk and is used by credit risk agency Standard and Poor’s to assess the likelihood of sovereign debt default. According to John Devitt, Chief Executive of TI Ireland, ‘If investors believe government decisions are being swayed by political or private gain, it could have a harmful effect for our economic recovery. Small, open economies are much more exposed to reputational risk that their more powerful counterparts. Risk-averse and politically aware investors will also look elsewhere when deciding where to locate or do business if they suspect that favoured businesses and government are in bed with one another’.

Meanwhile Dublin based Russian-born Trinity College economist Constantin Gurdgiev is unconvinced by the Irish budget debate. He has tweeted:

The entire Irish Budget 2013 ‘debate’ is amusing: no serious reforms being discussed one side of tax-&-spend policies or the other by the Govt or opposition parties. Instead, incessant bickering as to how we can find someone else to pay for the benefits to a specific interest group draws a picture of a dysfunctional governance system reliant on ‘the feeding trough’ model of the Social Partnership.


Eurozone service sector edges up in November but still contracting

Earlier, a eurozone service sector survey also painted a picture of continuing decline.

Markit’s eurozone services PMI index came in at 46.5 in November. That was better than the initial estimate of 45.8 and an improvement on October’s figure of 45.7. But it is still way off the 50 level which would signal growth. Annalisa Piazza at Newedge Strategy said:

Looking at the biggest EMU countries PMIs, we clearly see that the upward revision is fully explained by a substantial correction in the German Services PMI (up to 49.7 from 48 initially estimated). Other EMU countries’ PMI were extremely sluggish over the month.

The uptick [from October] is good news as it might be a sign that activity has bottomed out in the third quarter. Nevertheless we see no signs of improvement that suggest that the EMU economy might recover any time soon. Further contraction in GDP remains our baseline scenario at least until the first quarter of 2013.


Eurozone retail sales fall 1.2% in October, biggest fall since April

Retail sales volumes in the eurozone dropped by 1.2% in October compared to the previous month, the biggest fall since April as the economic woes continue to bite.

Economists had been expecting a 0.1% fall, and on top of that, September’s figure was revised down from a 0.2% fall to a 0.6% decline.

The year on year drop was 3.6%, compared to forecasts of a 0.8% fall.

So much for hopes of a consumer led recovery from the downturn. Howard Archer at IHS Global Insight said:

A 1.2% plunge in retail sales volumes in October fuels concern that consumer spending will be very weak across the Eurozone in the fourth quarter and will drag down GDP.

It is notable that spending on non-food products fell by 1.4% month-on-month in October, which suggests that consumers were particularly wary of making discretionary purchases. There were also declines of 0.8% month-on-month in sales of food, drink and tobacco, and 0.1% month-on-month in sales of automotive fuel.

Overall Eurozone retail sales were dragged down in October by a 2.8% month-on-month drop in Germany, while there was also another marked decline in Spain (1.2%) following the VAT hike at the start of September.

The prospects for consumer spending in the Eurozone look troubling in the near term at least given very low consumer confidence, high and rising unemployment, generally muted wage growth and tightening fiscal policy in many countries. The only really good news for Eurozone consumers is that consumer price inflation fell back to a 23-month low of 2.2% in November from 2.5% in October, which will help purchasing power.


Greece tops list of European countries perceived to be most corrupt

Greece is perceived to be the most corrupt country in Europe, according to the latest index from Transparency International.

My colleague Simon Rogers has all the details of the index here.

North Korea tops the list, but the UK is one place worse than last year while the US has improved.


Spain raises €4.3bn in bond sale but total disappoints

Spain has successfully raised €4.3bn, but not the full €4.5bn it wanted, while the price it paid is still high, ahead of any bailout request from the country.

The country sold €1.1bn of ten year bonds at 5.29%, down from 5.458% in October’s auction. The bond was covered 2.3 times, up from 1.9 times in October.

Its 2015 bond raised €2.1bn at a yield of 3.39% (3.61% in November), with a lower cover of 2 times (from 2.1 times),

It sold €1bn worth of 2019 bonds with a yield of 4.669% and was 2.5 times covered.

In the market, the yield of Spanish ten year bonds have edged up to 5.366%.

RIA Capital Markets strategist Nick Stamenkovic told Reuters:

A bit disappointing they didn’t manage to raise the full amount…that caused a bit of a correction in the market.

The sheer scale of issuance next year and the lack of demand from domestic investors suggest to me that it’s just a matter of time before Spain has to make an official bailout (request), but that’s a story for early 2013.

Meanwhile Nicholas Spiro, managing director at Spiro Sovereign Strategy, questioned the recent rally in Spanish debt prices:

The rally… not only looks overdone but is becoming more and more detached from economic fundamentals. This is an entirely externally driven improvement in sentiment which is unsustainable given the severity of Spain’s troubles.

The Rajoy government is bound to interpret the dramatic improvement in sentiment towards Spain as part of a reassessment of Spanish risk. The government is now even less keen on requesting a sovereign bail-out since it believes the markets are becoming less and less sensitive to a Spanish request for an ECB-backed bond-buying programme.


UK service sector disappoints

Some worrying news for the UK economy – the service sector grew by its weakest amount in nearly two years in November, with a PMI of just 50.2 (down from 50.6 in October and well shy of forecast of 51.1.) That means it barely grew at all.

Chris Williamson of Markit, which produces the data, says it shows Britain faces the risk of contracting again in the current quarter. Not good news for George Osborne ahead of today’s autumn statement.

The UK isn’t the only country struggling – Spain’s service sector shrank for the 17th month in a row in November (with a PMI of just 42.4).

And with that I’m going to concentrate on the autumn statement blog, so I’ll leave the eurozone in the hands of my colleague Nick Fletcher.


Henry McDonald: What to expect in the Irish budget

Irish finance minister Michael Noonan will deliver the 2013 Irish budget at 2.30pm.

Our Dublin correspondent, Henry McDonald, explains that it will be the country’s sixth cost-cutting, indirect tax-raising austerity budget since the financial crisis began:

Henry writes:

As Ireland tries to plug the hole in its public finances and, ultimately regain its economic sovereignty, Noonan will announce an expected
€1.25bn indirect tax hikes as well as cuts in public spending amounting to €2.25bn.

His Cabinet colleague, the Labour Party leader and Deputy Prime Minister Eamon Gilmore has promised that although the budget will again be tough it will also be fair. High earners and the rich elite will endure pain through the budgetary measures, Gilmore insisted.

Those with the broadest financial backs including banker pensioners, retired ministers and hospital consultants, are going to take a €500m hit across several fronts in the budget for 2013.

For those at the bottom of the pile the bad news will include a cut in ten euros to child benefit although rent and fuel allowances will remain untouched.

There is also expected to be a property tax average at about €300 per year on most households.

The state of Irish public finances remains in chronic shape with Noonan’s own department revealing this week that the Irish Exchequer took in €300 million less than it expected from income tax this autumn while there continues to be over-spending of nearly €100 million in social welfare and the health service.

Ireland, which still has one of the most generous social welfare systems in the western world (the dole for a single person in Ireland is €188 euros per week as compared to Greece where it is around €50), still relies on the support of the IMF and Europe to keep paying for its social and public services.


Upbeat stock markets

Europe’s stock markets are up in early trading, and close to their highest levels of 2012.

FTSE 100: up 31 points at 5900, + 0.5%

German DAX: up 36 points at 7472, + 0.5%

French CAC: up 23 points at 3604, + 0.6%

Spanish IBEX: up 62 points at 7964, + 0.8%

Italian FTSE MIB: up 141 points at 16182, + 0.88%


Robin Bew, chief economist of The Economist Intelligence Unit, is concerned by the failure to make significant progress towards a single eurozone banking supervisor (if you were here yesterday, you’ll already know that Berlin and Paris remain divided over how to regulate the region’s banks).


UK’s autumn statement today too

It’s also a big day in the UK, with the chancellor, George Osborne, presenting his autumn statement to the House of Commons at 12.30pm. We’re covering it live in a separate blog: Autumn statement 2012 – live coverage of George Osborne’s speech.


What’s expected

Much of today’s Irish budget was agreed under the terms of the €85bn bailout that Ireland signed up for in 2012.

Measure expected include:

• €1bn in tax rises

• €500m cuts to capital expenditure

• €1.7bn cuts to departmental budgets

• A property tax


A ‘very tough budget’

Today’s Irish austerity budget will be presented as the final dose of seriously unpleasant medicine on the country’s slow return to health.

Ireland’s deputy prime minister Eamon Gilmore set the ground yesterday, saying it will be a “very tough budget”:

It was always going to be a tough budget, but it is the budget that is going to get us to 85% of the adjustment that has to be made.

It will therefore put the end in sight for these type of measures and these type of budgets.


Another austerity budget for Ireland

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

Today we’re focusing on Ireland, where another tough budget will be unveiled this afternoon.

The Dublin government is expected to announce spending cuts and tax hikes worth €3.5bn. The measures will be billed as a move towards ending Ireland’s austerity programme and returning to growth, but it will be another blow to a country that was forced to seek financial help two years ago.

We’ll also be tracking the reaction to Europe’s failure yesterday to agree the details of a banking regulator for the eurozone, due to a rift between Germany and France. © Guardian News & Media Limited 2010

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