January 10 2013

ECB press conference highlights. Draghi says “There is a positive contagion when things go well and that’s what’s in play now.” Unemployment in Greece hits 26.8%. Spain and Italy hold successful bond auctions. Bank of England leaves rates unchanged…

Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Mario Draghi sees ‘positive contagion’ as ECB leaves rates unchanged” was written by Graeme Wearden, for guardian.co.uk on Thursday 10th January 2013 17.28 UTC

5.24pm GMT

Draghi’s best quotes

Reuters has helpfully published a round-up of the best quotes from Mario Draghi — HIGHLIGHTS-Draghi comments at ECB news conference

4.55pm GMT

The Greek finance ministry has reported that Greece’s central government budget deficit shrank by a third in 2012.

The budget gap (which doesn’t include social security payments or the cost of running local government services) dropped by 30% to €15.91bn, from €22.77bn. That reflects the cutbacks implemented last year, and brings Athens closer to the goal of a primary budget surplus.

4.31pm GMT

ECB unveils new €5 note

More developments at the ECB – Mario Draghi has officially unveiled the new €5 note.

It boasts a photo of the ancient Greek goddess Europa, and will come into circulation on May 2*

* – assuming the euro lasts that long**

** – only joking, Mr Draghi.

More seriously, the ECB says the new note will include special security features to fight counterfeiters, adding that 531,000 fake euro notes were found and removed from circulation last year. That’s a 12% drop.

UPDATE: here’s an actual photo (Europa’s head and shoulders can be seen on the right).

Updated at 5.28pm GMT

3.24pm GMT

The rally in Spanish government debt continues…

3.09pm GMT

Draghi sees ‘positive contagion’

This may be the best “take-away” quote from ECB president Mario Draghi during today’s press conference (see 1.29pm onwards)

There is a positive contagion when things go well and that’s what’s in play now.

2.29pm GMT

Draghi: too early to claim victory

Last question: Does Mario Draghi see the calming in the markets as a “personal success”?

He replies:

Let me be absolutely clear on this, the jury is still out. It’s too early to claim success.

And with that, the first ECB press conference of 2013 is over.

But as the ECB board stand up and leave, someone leaves the microphones on for a few seconds – enough to hear ECB vice-president Vítor Constâncio tease his boss for his final answer:

Updated at 2.33pm GMT

2.26pm GMT

And the euro rises to $1.32, up 1.3 cents today.

2.21pm GMT

Would the ECB consider a Funding for Lending scheme like the one recently created in the UK?

Draghi argues that the Long Term Refinancing Operations already run by the ECB are similar, as they allow banks to use a wide range of collateral to borrow from the central bank.

We think our scheme is simpler

Draghi points out that banks can use loans made using LTRO funds as collateral with the ECB, freeing up fresh capital for more lending. Not everyone thinks that’s a good thing….

Updated at 2.25pm GMT

2.18pm GMT

Finally, someone reminds Draghi that there’s an unemployment crisis in Europe.

Draghi reminds the room that the ECB doesn’t have an explicit mandate to target the jobless rate. He then argues that ‘dual labour markets’ are being created, with older workers enjoying better job security while young people bear the brunt.

He also suggests there are ‘structural reasons’ behind the youth unemployment crisis, given the huge regional difference that exist within the euro. A central bank can’t solve those…..

Updated at 2.21pm GMT

2.14pm GMT

More reaction:

2.12pm GMT

An unusual question from the floor — a journalist launches into an anecdote about how he met a man recently who said his job was in ‘waste management’, only to explain he was actually a banker charged with valuing “garbage assets” in banks.

That includes German banks who are valuing toxic debts at ‘fantasy values’, says said banker. So, Mr Draghi, is there a hidden problem here?

Draghi says he doesn’t believe this is a significant problem, but concedes that there is more work to do on banks’ balance sheets, and that local regulators should keep a close watch on how banks value their assets.

2.05pm GMT

Michael Steen of the Financial Times reminds Draghi that he warned that risks remain to the downside. Does that mean that there’s now a danger of ‘exuberance’ (given the recent stock market rally)?

Draghi replies that he doesn’t see a big danger here:

We are back in a normal situation from a financial viewpoint – we are not seeing a strong recovery.

But he adds that the ECB is closely watching possible signs of exuberance in certain parts of the financial system.

And then the ECB president moves onto a favourite theme – the need for governments to make structural adjustments to fix imbalances in the euro area.

That’s the only thing that matters.

Updated at 2.23pm GMT

2.01pm GMT

The Q&A continues, and Mario Draghi permits himself the smallest pat on the back.

Asked for his views on other central banks, he says that each one carries out its own mandate:

Within this each central bank tries to steer private sector expectations…we’ve shown how to do it.

1.57pm GMT

Draghi’s statement in full

The ECB has now uploaded its full opening statement – here.

Here’s the summary:

To sum up, the economic analysis indicates that price developments should remain in line with price stability over the medium term. A cross-check with the signals from the monetary analysis confirms this picture.

Other economic policy areas will need to make further contributions to ensure a firm stabilisation of financial markets and an improvement in the outlook for growth. Further structural reforms should be rapidly implemented to make the euro area a more flexible, dynamic and competitive economy. In particular, product market reforms to increase competition and competitiveness are essential, accompanied by measures to improve the functioning of labour markets. Such reforms will boost the euro area’s growth potential and employment and improve the adjustment capacities of the euro area countries. They will also add further momentum to the progress being made with regard to unit labour costs and current account imbalances. As regards fiscal policies, the recent significant decline in sovereign bond yields should be bolstered by further progress in fiscal consolidation in line with the commitments under the Stability and Growth Pact.

1.55pm GMT

Draghi: not ready to stop non-standard measures yet

Another question – is the European Central Bank considering exiting from its current unorthodox monetary measures, given the recent improvement in market conditions?


Mario Draghi says the ECB is not planning an exit from non-standard measures, as it sees “signs of fragmentation in eurozone”. It wants to see cleare signs of recovery first.

Updated at 2.24pm GMT

1.52pm GMT

Euro rallies

The Euro has rallied to $1.316 on the news that the ECB was ‘unanimous’ in its vote to leave eurozone borrowing costs unchanged.

1.49pm GMT

Another questioner queries whether the ECB really didn’t consider a rate cut – last month there were clear signs that some board members considered a cut.

Draghi reiterates that everyone was on the same page.

Updated at 2.25pm GMT

1.48pm GMT

Draghi’s list of improvements (see 13.45pm) ignores Europe’s unemployment crisis – where the latest data shows things have got (even) worse.

Of course Draghi’s mandate is price stability (unlike the US Fed, which has now decided to target the American jobless rate).

1.45pm GMT

Question 1) Was the decision unanimous?

Yes it was, Draghi replies, and goes on to list several reasons to be optimistic:

CDS* rates are lower, stock markets are higher, volatility rates are at recent lows, the deposits in periphery banks are up…. the ECB balance sheet continues to shrink.

He adde:

All in all we have signs that fragmentation is being repaired… but all this has not made its way through to the real economy yet.

* – credit default swaps, used to insure against a bond defaulting

1.43pm GMT

Onto questions….

1.43pm GMT

1.42pm GMT

Draghi’s summing up statement has a ‘steady as she goes’ feel. He repeats that inflation is under control, but other players in the crisis must do more to ensure:

firm stabilisation for financial markets and an improvement in the outlook for growth.

And on the recent rally in bond yields, he predicts further improvements as the eurozone recovery continues.

1.40pm GMT

Draghi’s statement has a certain familiar ring to it….

1.40pm GMT

On the credit side, Draghi says the situtation is still subdued.

1.38pm GMT

The underlying pace of monetary expansion continues to be subdued, Mario Draghi continues.

1.37pm GMT

1.36pm GMT

Draghi forecasts that the economic recovery will begin this year, as structural reforms and the ECB’s own actions bear fruit.

Risks, though, remain on the downside, due to the risk of ‘slow implemention’ of reforms.

Updated at 1.36pm GMT

1.34pm GMT

Draghi adds that it is still essential for national governments to mend the imbalances within the eurozone, and continue with financial sector restructuring.

IE: don’t relax just because the crisis has eased

1.34pm GMT

Mario Draghis begins by predicting that inflationary pressures will be ‘contained’ over the forecasting horizons, and that expectations are anchored to the ECB’s target of CPI inflation close to, but below 2%.

He still expects inflation to fall below 2% this year.

1.32pm GMT

And we’re off…. Draghi starts by wishing everyone a very happy new year

1.29pm GMT

ECB press conference begins

The European Central Bank’s monthly press conference is just getting underway – remember you can watch it here.

Update: actually, the live feed has started but it’s just journalists chattering….

Updated at 1.31pm GMT

1.27pm GMT

A press conference is also underway in Dublin, where Jose Manuel Barroso is visiting to mark the start of the Irish EU presidency.

Barroso has apparently repeated his argument that the worst ravages of the eurozone crisis have abated.

Tony Connelly of RTE has the key quotes:

1.19pm GMT

You can watch the European Central Bank press conference (starting in 15 minutes) live at the ECB’s site: Webcast of the press conference 10 January 2013.

(I can’t find a way of embedding it without it autoplaying, which I know people find annoying, so I won’t)

12.48pm GMT

Here’s the full statement from the ECB:

10 January 2013 – Monetary policy decisions

At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.75%, 1.50% and 0.00% respectively.

The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 2.30 p.m. CET today.

12.47pm GMT

ECB leaves interest rates unchanged

Breaking: The European Central Bank has left its interest rates unchanged.

That’s broadly as expected – though some economists had suspected there could be a shock cut.

Updated at 2.28pm GMT

12.44pm GMT

Kit Juckes of SocGen isn’t cheered that sovereign bond and the euro have both strengthened despite the weaknesses in the euro economy.

Juckes sees a worrying comparison with another country who suffered a debt crisis, followed by a long stagnation:

Really low bond yields and a strong currency despite a huge debt burden, sizeable budget deficit and chronic economic weakness. Yup, the Japanification of the eurozone continues apace.

Updated at 2.28pm GMT

12.23pm GMT

Economists believe that the Bank of England is likely to boost its QE bond-buying programme in the months ahead, having left it unchanged along with interest rates today (see 12.01pm).

Nida Ali, economic advisor to the Ernst & Young ITEM Club, argued that the Bank needs to send a clear signal that it will take more action to help the UK economy:

In our view, the Bank has been very ambivalent about their policy stance, with members projecting a neutral attitude about whether policy should be loosened or not.

We think that, similar to the Fed, the Bank should make a clearer commitment to doing whatever it takes to keep the recovery on track and provide guidance on the likely future path of rates.

Jeremy Cook of foreign exchange company World First believes the QE programme could have swelled to £500bn by the end of 2013.

There is also speculation that UK interest rates could stay at their current record low for another four years:

12.01pm GMT

Bank of England leaves interest rates unchanged

The Bank of England has voted to leave UK interest rates unchanged at 0.5%.

There’s no change to the quantitative easing progamme either, which remains at £375bn.

Not a surprise.

11.59am GMT

Back in the financial markets, Spanish government debt is rallying following this morning’s bond sale.

This has pushed the yield on its 10-year bonds below 5% for the first time since March 2012 (currently 4.95%, a fall of 0.165 percentage points).

That bolsters the argument that the immediate crisis in the eurozone has eased since last summer, when Spanish debt was trading at ‘bailout danger zone levels’ above 7%.

11.49am GMT

Cyprus: Just show us some solidarity

Cyprus has hit back at Germany following reports yesterday that its bailout could be blocked by the Bundestag because of concerns over money laundering in its banking sector.

Government spokesman Stefanos Stefanou has declared that Cyprus is the victim of Greece’s debt restructuring (which slashed the value of Greek bonds held by Cypriot banks, leaving a €10bn+ black hole).

Stefanou also rejected Angela Merkel’s suggestion that Cyprus could not expect to be treated differently, and must swallow demands for state privatisations.

He said:

We never asked for special treatment.

What we are asking for is an expression of solidarity – which is a basic EU principle – towards a country which is the victim of a European decision to restructure Greek debt.

According to Reuters, the decision to apply a haircut to Greek bonds cost Cyprus banks the equivalent of 20% of the country’s GDP. The decision to make private investors share the price of the Greek aid package rather backfired on Cyprus….

Updated at 2.31pm GMT

10.56am GMT

This graph shows how Greece’s unemployment rate has almost doubled over the last two years:

That’s from the official data, which can be downloaded here.

Updated at 11.28am GMT

10.39am GMT

Greek unemployment hits new record

Greek unemployment has hit a record high, data just released shows, in a stern reminder that bond sales are not the only measure of success in dealing with the euro crisis.

The Greek jobless rate hit 26.8% in October, up from September’s 26.2%. In raw terms, another 36,219 people lost their jobs during the month.

Greece now has the highest unemployment rate in the eurozone (followed by Spain with 26.6% in November).

Greece’s youth jobless crisis also deepened, hitting 56.6%. It has almost doubled in the last three years:

The data also shows that women are being disproportionately hit – the female unemployment rate is now 30.4%, compared with 24.1% for men.

10.19am GMT

The successful Spanish and Italian debt auctions have cheered the financial markets, with the euro climbing 0.27% to nudge $1.31 again.

Here’s some early reaction:

10.12am GMT

More debt auction news, and Italy has followed Spain by selling debt at lower costs.

The Italian debt management agency found buyers for €8.5bn of one-year bonds at average yields of 0.864%, much lower than the 1.456% demanded by investors in the previous auction (in December).

10.08am GMT

Spanish auction succcess

Just in: Spain has held a successful bond auction, selling more debt than expected at sharply lower borrowing costs.

The Spanish Treasury raised a total of €5.8bn, beating its own maximum target of €5bn.

And the significant falls in the yields (or interest rates) on the various flavours of bonds showed traders were keen to get their hands on Spanish debt.

Here’s the details:

• €3.397bn of two-year bonds at a maximum yield of 2.587%

• €1.95bn of five-year bonds, at a maximum yield of 4.033%, down from 4.769% in November 2012

• €470m of 13-year bonds at a maximum yield of 5.569%, down from 6.218% in July 2011

That’s a decent result for Madrid, and shows that the bond-buying programme announced by Mario Draghi last summer is still boosting confidence.

9.41am GMT

Central Bank meetings today

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

Central bankers are in the spotlight today, with the European Central Bank and the Bank of England both holding their monthly meetings to set monetary policy.

We’re not expecting any rate cuts (although you can never be sure), but the ECB’s press conference at 1.30pm GMT (2.30pm Frankfurt time) will dominate attention.

Mario Draghi will give his views on the state of the European economy, and probably field a few telling questions about the eurozone crisis. Will he agree that the worst is over, or renew his pressure on leaders to take decisive action now before panic returns?….

Otherwise, we’ll be watching the situation in Cyprus after German politicians warned yesterday that its bailout could be in jeopardy.

And Spain is holding a bond sale this morning — the results will indicate whether Madrid can keep staving off a request for financial help.

(ps, sorry for the late start — was distracted by the drama at Marks & Spencer)

Updated at 9.48am GMT

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