January 16 2013

Katainen wants Britain at heart of EU. World Bank predicts another year of eurozone contraction. Car registrations down again. Bundesbank to recall its gold. U.S. industrial output rose by 0.3% m/m in December, following a 1.0% m/m gain in November…

Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Finnish PM says EU without UK would be like ‘fish without chips’” was written by Graeme Wearden, for guardian.co.uk on Wednesday 16th January 2013 16.59 UTC

4.54pm GMT

Europe’s stock markets have closed, after a pretty undramatic day.

FTSE 100: down 13 points at 6103, -0.22%

German DAX: up 14 points at 7690, +0.2%

French CAC: up 11 points at 3708, +0.3%

Spanish IBEX: down 19 points at 8581, – 0.23%

Italian FTSE MIB: down 127 points at 17339, -0.7%

Michael Hewson of CMC Markets is surprised there wasn’t more of a sell-off:

We’ve seen a bit of a softer tone in equity markets today after the World Bank adjusted its growth forecasts downward for 2013. The German finance ministry also downgraded its growth forecast for 2013 to 0.4%, but this has merely brought it into line with the Bundesbank projection of last month.

We’ve also seen a very disappointing report on new car sales in Europe which dropped again by 16.3% in December to their lowest levels since 1995.

Given the news flow today it’s hard to fathom why markets aren’t lower than they are, given the continued stream of bad news from the retail sector.

Following on from the administration of Jessops and HMV we’ve seen DVD chain Blockbuster follow suit today as it succumbs to competition from the more agile business models of internet rivals, Netflix, LoveFilm and Apple TV.

Also out today we’ve seen disappointing numbers from French Connection with the likelihood that tomorrow we could well also see a disappointing update from last year’s retail outperformer Dixons.

Updated at 4.59pm GMT

4.25pm GMT

US industrial output keeps rising

America continues to churn out economic data that would be most welcome in the eurozone.

This afternoon it was industrial output, which rose by 0.3% in December, following a 1.0% gain in November. That means industrial output rose by 1%, at an annualised rate, in the last three months of 2012.

In contrast the eurozone’s industrial output fell by 0.3% in November, and isn’t expected to have bounced back.

Capital Economics pointed out that the underlying picture in America was better than the headline number:

The 0.3% month-on-month gain in industrial production is a lot better than it looks because the unseasonably warm weather last month led to a 4.8% m/m drop in utilities output, which subtracted nearly 0.5% from overall production.

Manufacturing output actually increased by a robust 0.8% m/m.

Updated at 4.25pm GMT

3.49pm GMT

WSJ: discord over banking union

Europe’s plans for banking union are coming unstuck before they’re even agreed, according to the Wall Street Journal this afternoon.

The WSJ reports that some EU members are getting cold feet about the idea of recapitalising struggling banks directly – reckoning it could be better to make loans to their national governments first.

That, though, would not achieve the aim of breaking the ‘vicious link’ between the banks and the sovereigns.

The Journal also warns that some northern countries are still adamant that legacy bad debts should not be eligible – meaning banking union would not really clean up the sector.

Here’s the story: Euro-Zone Bank Plan Could Get Watered Down

And here’s a flavour:

One of the euro zone’s most significant commitments last year aimed at containing its financial crisis—a plan to allow the bloc’s bailout fund to directly boost the capital of banks in countries facing debt troubles—could be undermined by technical complications and second thoughts by some governments.

In meetings this week, the head of the bloc’s bailout fund told senior finance ministry officials that allowing the fund to directly recapitalize banks would deplete its lending capacity much faster than extending loans to governments, the fund’s usual role, two euro-zone officials said.

Rich countries, including Germany, meanwhile, insisted that governments should remain responsible for at least some of the direct aid to their banks, potentially leaving them saddled with losses.

Updated at 3.57pm GMT

3.18pm GMT

Photos: protests in Athens

Public opposition to the Greek government’s reform measures were on show today, despite some rather wet weather.

Workers from the Hellenic Postbank held a protest march in Athens against the bank’s privatisation, which could lead to job losses and branch closures.

The sale is part of Greece’s state asset sale plan.

Updated at 3.39pm GMT

2.55pm GMT

The view from Greece

Over in Greece the radical left main opposition leader, Alexis Tsipras has met the country’s head of state this morning amid mounting fears of a major terrorist attack following the recent wave of violence.

Our Athens correspondent Helena Smith reports:

The eurozone crisis was meant to be high on the agenda when the radical left leader met Greece’s president, Karolos Papoulias, to brief him about his recent trip to Germany and tour of Latin America in the run-up to Christmas.

Tsipras, who is on a mission to boost his Syriza party’s credibility abroad – next week he flies to the US – told Papoulias it was clear from his talks with German officials, including finance minister Wolfgang Schäuble, that Greece had failed to fully negotiate with its European partners when it signed up to the Mnimomio, or Memorandum, outlining the terms of Athens’ bailout from the EU and IMF.

As an example Tsipras took the case of the occupation loan Greece had been forced to give Germany when it was taken over by Nazi forces during the second world war. But even more then the eurozone it was the recent violence that has gripped Greece that dominated the talks. Tsipras, who meets the US ambassador this afternoon, expressed fears over the attacks – which has seen the homes of government officials and journalists being firebombed in the last week – describing the “strategy of tension” that appeared to be building up as especially “dangerous”.

Helena continues:

Tensions between Syriza and Athens’ fragile coalition have been on the rise following the accusation of leading party cadres that the attacks may have been executed by “para-state” officials in a bid to divert attention from unpopular EU-IMF dictated austerity measures.

The government has blamed the violence, squarely, on forces of the anti-austerity left with counter-terrorism officials saying at least three people, including a woman, were involved in a gun attack on the central offices of the ruling New Democracy party early Monday.

The public order minister, Nikos Dendias, went so far as to warn of a “major attack” when he briefed the governing coalition’s party leaders about the violence during a crisis meeting of the politicians late on Monday. Fotis Kouvellis, who leads the tri-partite alliance’s Democratic Left party, emerged from the talks saying it was imperative the government took steps to reinforce a protective social network “given that unemployment is at very high levels [and] is a threat to social cohesion”.

Updated at 3.07pm GMT

2.38pm GMT

Bundesbank confirms gold withdrawal plan

The Bundesbank has announced today that it will move a significant chunk of its gold reserves – around 674 tonnes of the stuff – back to Germany.

The plan will see Germany empty its section of the vaults at the Banque de Paris, where 374 tonnes of ingots currently sit gathering dust. Another 300 tonnes will be recovered from the Federal Reserve.

This is the official explanation:

The withdrawal of the reserves from the storage location in Paris reflects the change in the framework conditions since the introduction of the euro.

Given that France, like Germany, also has the euro as its national currency, the Bundesbank is no longer dependent on Paris as a financial centre in which to exchange gold for an international reserve currency should the need arise.

As capacity has now become available in the Bundesbank’s own vaults in Germany, the gold stocks can now be relocated from Paris to Frankfurt.

Unofficially, the end of the Cold War means that Germany now sees no need to keep its treasure well away from Russia. There’s also an argument that Berlin wants its gold close to hand in case the financial crisis flares up again (The Telegraph’s Ambrose Evans-Pritchard has dubbed it a watershed moment).

The real conspiracy theory is that the gold doesn’t even exist at all.

Anyway, the operation will last seven years, and here’s the plan:

Frankfurt: holds 31% of Germany’s gold today, rising to 50% in 2020

New York: 45% today, 37% by 2020

London: 13% today, 13% in 2020

Paris: 11% today, none by 2020

And you can read the full briefing from the Bundesbank, in German, here (pdf).

Updated at 2.52pm GMT

2.00pm GMT

Jyrki Katainen’s suggestion that the European Union without Britain would be like fish without chips has prompted some banter online, with both europhiles and eurosceptics (and those on the eurofence) getting stuck in:

Updated at 2.30pm GMT

1.28pm GMT

Finnish PM Jyrki Katainen also queried whether David Cameron had much chance of repatriating powers from Brussels, as the UK PM hopes.

Katainen said:

Being a member of the EU and especially in the single market you cannot kind of pick the raisins out of the bun.

It’s very difficult to say what would be the competences that could be repatriated. I don’t know exactly what they could be, and when looking at Britain and its role in Europe and in the world, it has benefited a lot from an integrated Europe.

That’s via the FT’s Peter Spiegel, who also attended today’s chat with Katainen, and has just posted the best quotes:

Updated at 2.29pm GMT

12.40pm GMT

Finland’s PM: Europe without Britain is like fish without chips

Some great quotes from the Finnish prime minister just flashed up. Jyrki Katainen has declared that a European Union without Britain would be like “fish without chips”.

In an interview with Reuters several journalists in Brussels, Katainen said he believed that most “major” UK politicians and members of the public want Britain to remain at the heart of Europe.

Katainen said (hat-tip Reuters):

The European Union without Britain is pretty much the same as fish without chips. It’s not a meal anymore.

The issue was raised at prime minister’s questions at midday, where David Cameron defended his plan to seek a new deal between the UK and Europe.

However, the PM also ruled out an in/out referendum anytime soon.

Political commentator Gaby Hinsliff reckons the issue of Europe will dominate UK politics for years….

Updated at 1.29pm GMT

12.31pm GMT

Malta downgraded

Another eurozone credit rating downgrade – Standard & Poor’s has just announced that it has downgraded Malta’s rating by one notch to BBB+, from A-, with a stable outlook.

That leaves the country just three notches above Junk.

UPDATE: Here’s S&P’s reasoning:

The dissolution of Malta’s parliament on January 7, 2013, will prevent a 2013 budget from being adopted until after the elections set for March 9, thus raising questions about the government’s ability to restore the fiscal flexibility it has gradually lost, and resolving the recurrent budgetary risks caused by loss-making state-owned enterprises.

Gross general government debt has risen to just above 75% of GDP, and could continue to increase on the back of weaker-than-projected growth or stock-flow adjustments…

The outlook on the long-term rating is stable, reflecting our view of Malta’s relative resilience to the ongoing political, financial, and monetary challenges in the eurozone.

Updated at 1.17pm GMT

12.11pm GMT

Germany urges ECB to return to normality

Germany’s economics ministry has also publicly urged the European Central Bank to return to standard monetary policy as swiftly as possible.

Here’s the key section (thanks to Reuters for the translation) in this morning’s annual report (see also 11.27am):

Monetary value must be stable for prices to be able to fulfill their signalling function.

That’s why the European Central Bank has a clear mandate: the ultimate goal of monetary policy is to ensure price stability. It is therefore crucial for the ECB to return to its normal mode of monetary policy as quickly as possible.

Hmmm. The ECB could point out that inflation remains steady at 2.2% (see 10.28am), suggesting that price stability has not been unduly undermined.

Economy minister Philipp Rösler also rebuffed the Spanish prime minister, Mariano Rajoy, for suggesting that German should launch new stimulus measures. Rösler told a press conference in Berlin that his government could not support ‘debt financed’ stimulus packages.

Updated at 12.19pm GMT

11.27am GMT

Germany cuts GDP forecasts

It’s official, the German government has slashed its growth forecasts for this year, blaming the impact of the eurocrisis on its trading partners.

The economy ministry announced that German GDP will grow by just 0.4% in 2013, down from its previous forecast of 1%. It still expects a bounceback in 2014, though, with GDP growth of 1.6%.

The revisions were expected following yesterday’s news that the German economy shrank, by around 0.5%, in the last quarter.

With the World Bank also slashing its forecasts for 2013 (see 8.43am), the consensus is clear – 2013 is going to be a dog of a year. But once again, economists see better times over the horizon…..

Updated at 11.28am GMT

11.09am GMT

Nowotny sees stability ahead

The Austrian central bank governor, Ewald Nowotny, provides today’s slice of eurozone optimism, telling reporters in Vienna that the worst is behind us.

Speaking at a Euromoney conference, he told Reuters that:

I am quite sure that the panic situation, if there ever had been one, is over.

We are in a clearly much more stable surrounding now. There is no reason to be careless, but there is a reason for cautious optimism.

Remarkable insouciance in Nowotny’s first line – as if there might not have been all that much to worry about last year…..

Anyway, he also disputed Jean-Claude Juncker’s claim that the euro was now too highly valued (see 10.16am), saying the euro’s rally was “not a matter of major concern”.

And he, unlike Juncker, has a hand in setting eurozone interest rates…

Updated at 11.29am GMT

10.28am GMT

Eurozone inflation remains steady

Inflation within the eurozone was unchanged last month at 2.2%, as measured by the Consumer Prices Index.

That, Howard Archer of IHS Global Insight says, means the European Central Bank could cut rates in the months ahead:

There is nothing alarming in the December Eurozone inflation data and underlying inflationary pressures seemingly remain muted amid extended weakened economic activity and high and rising unemployment.

Consequently, it still seems likely that Eurozone consumer price inflation will move below 2.0% over the coming months. This will help consumers’ purchasing power and gives the ECB scope to cut interest rates.

Updated at 10.28am GMT

10.16am GMT

Juncker warning sends euro down

Jean-Claude Juncker, outgoing head of the Eurogroup, has managed to talk the euro down by warning last night that the single currency was now “dangerously high” in the currency markets.

Juncker’s warning has knocked the euro down to $1.327 v the dollar, from nearly $1.34 yesterday.

Speaking to business leaders in Luxembourg, Juncker said the recent euro rally (up from just $1.20 last July) was actually threatening the eurozone’s prospects.

Here’s the key quote:

The eurozone has become more stable after lots of efforts, some from me….the euro foreign-exchange rate is dangerously high.

The euro’s weakness in 2012 has been credited with improving the region’s exports – just this morning, Italy reported that it posted a world trade surplus of €2.36bn in November 2012, from a deficit of €1.58bn in 2011. Falling domestic demand was also a factor (imports fell by nearly €3bn, while exports rose by €1bn).

Updated at 10.32am GMT

9.45am GMT

Kenny: Ireland is on track

Ireland’s prime minister has told the European parliament that his country will exit its bailout before 2013 is out – cementing its reputation as Europe’s austerity poster-child.

Speaking in Strasbourg, Enda Kenny pointed to the recovery in Ireland’s sovereign debt (latest bond prices show it could borrow for 10 years at just 4.2%). Ireland’s EU presidency, he said, will be all about:

stability, jobs and growth.

Kenny also pointed to the deepening jobless crisis, calling it “the deepest hurt” in Europe, and warning that a generation was growing up who believed their elected leaders had failed to give them a proper chance in life.

Updated at 9.47am GMT

9.25am GMT

Rajoy: Germany must push growth policies

Spain’s prime minister, Mariano Rajoy, urged fellow eurozone leaders to do more to stimulate growth, in an interview published by the Financial Times this morning.

Rajoy said that euro area countries who are performing best should push policies that would help the whole region to recover, in a pretty clear nudge at Germany:

I think that in this moment, when there is a need for growth, those who are able to implement growth policies should do it.

What is clear is that you cannot ask Spain to adopt expansionary policies at this time. But those countries that can, should.

Rajoy’s own €65bn austerity package has helped to push Spain deeper into recession, as he strives to hit Brussels’ deficit reduction targets.

The full transcript of the interview, by Tobias Buck and FT editor Lionel Barber, is online here. Here are a few highlights.

On the push for Catalan independence:

The unity of Spain goes back more than five centuries. This is the oldest country in Europe.

On Spain’s reluctance to take help from the European Central Bank, though its outright monetary transactions programme:

People might say that I wasn’t right by not entering the OMT. I am not really bothered by that … We took a decision that was right for Spain.

On his performance since taking office:

But in the year since I took over the government I reduced the public deficit in a situation where we were in recession. I pushed through structural reforms and a reform of the banking sector.

Updated at 9.32am GMT

9.00am GMT

New car registration data has shown the weakness of the eurozone economy – with the market shrinking at its fastest pace in more than two years.

Car sales across Europe fell 16.3% in December to 799,407 vehicles, the biggest monthly fall since October 2010.

Here’s Reuters take:

Annual car sales volumes in the EU fell 8.2% to 12.05m vehicles in 2012, Acea said. In the eurozone, they dropped 11.3% to just under 9m, according to Reuters’ calculations.

Acea’s data shows showed how demand for cars in Europe bounced back in 2009, but has been sliding ever since…

8.43am GMT

World Bank cuts forecasts

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

Growth, or the lack of it, is the big issue so far this morning. Overnight the World Bank has slashed its economic forecasts again, warning that developed nations will struggle in 2013.

The bank now expects the world economy to grow by just 2.4% this year, down from the rosier 3% it predicted in June. That would be just 0.1 percentage point higher than last year’s growth.

It predicts the eurozone will shrink by 0.1%, ripping up the forecast of 0.7% growth announced seven months ago, describing the global economic environment as “fragile and prone to further disappointment”.

It cited four main threats to the global economy, with the eurozone crisis top of the list:

While diminished, downside risks to the global economy persist and include a stalling of progress on the Euro Area crisis, debt and fiscal issues in the United States, the possibility of a sharp slowing of investment in China, and a disruption in global oil supplies.

Andrew Burns, the World Bank’s director of global economic trends, admitted that the bank had been a little too upbeat last summer, telling reporters that:

What we’re seeing is the recovery that we anticipated in June being pushed a little further back in time, beginning closer to the end of the first quarter, into the second quarter of 2013.

The World Bank also warned emerging nations that they couldn’t rely on the west to drive economic growth – as the eurozone crisis could escalate, or US budget negotiations could collapse:

Our economics editor, Larry Elliott, writes:

Highlighting the risks from a relapse in the euro area and from the political in-fighting in the US over the budget, the bank said poor countries needed to build up their economic strength because they could not rely on high-income countries to drag them along.

A wake-up call, perhaps, to those who confidently declare that the worst of the crisis is over. And with weak European car sales announced this morning (more to follow), growth remains the big issue.

As usual, I’ll be tracking the latest developments in the eurozone and beyond – including Irish prime minister, Enda Kenny, speaking at the European parliament, and the German government’s new economic forecasts.

Updated at 9.31am GMT

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