Eurozone crisis live: Fresh deadlock in Italy as Grillo rules out alliance

Grillo damns Bersani as a political stalker. Steinbruck’s ‘clowns’ comment annoys Italian president. Italy holds successful auction, sells €6.5bn of bonds. EU austerity plans shaken by Italian vote. US pending home sales rise more than expected…

Powered by article titled “Eurozone crisis live: Fresh deadlock in Italy as Grillo rules out alliance with centre-left” was written by Graeme Wearden, for on Wednesday 27th February 2013 15.18 UTC

3.15pm GMT

Bersani’s ally: no deal with Berlusconi

It’s official – the Left Ecology Freedom party, which teamed up with Pier Luigi Bersani in the election, is refusing to take part in a coalition with Silvio Berlusconi.

Reuters has the full details:

The junior partner in Italy’s centre-left coalition on Wednesday rejected forming a governing alliance with the centre-right after neither side won enough seats to govern in this week’s election.

“No grand coalition,” said Nichi Vendola, leader of the Left Ecology Freedom party, after a meeting with centre-left leader Pier Luigi Bersani.

In a statement, Vendola said he hoped populist leader Beppe Grillo did not want a right-left government either, and called for a government that would “give an electric shock” to the country.

Updated at 3.21pm GMT

2.53pm GMT

It’s moving fast in Italy… one of Bersani’s allies has ruled out a deal with Berlusconi’s People of Freedom party, reports Reuters.

Here’s the newsflash:


Looking for the details now….

Updated at 3.11pm GMT

2.49pm GMT

It’s lose lose lose for Bersani

Beppe Grillo’s decision (see 2.36pm) leaves Pier Luigi Bersani in a very difficult position. If an alliance with Five Star is ruled out, then his only hope of a majority is through a grand coalition with Silvio Berlusconi.

Political analyst Alberto Nardelli explains:

Updated at 3.18pm GMT

2.36pm GMT

Grillo rules out alliance with centre-left group

Big news from Italy – Beppe Grillo has ruled out forming an alliance with the centre-left, dashing hopes that the two sides could form a stable government.

The leader of the Five Star Movement made the announcement in a blog post in which he blasted Pier Luigi Bersani as “a stalker” and a “dead man talking” who should have resigned rather than attempted to woo his rivals – as he did last night.

Writing on his blog, Grillo reiterated his opposition to any form of formal alliance with Bersani’s Democratic Party. Instead, Grillo said, Five Star would only support policies which it agreed with.

The news was accompanied with a remarkable graphic of Pier Luigi Bersani presented as a corpse:

Click here for Grillo’s full statement.

Reaction to follow

Updated at 2.43pm GMT

2.24pm GMT

Italian president blows out Peer Steinbrück over clown comments

German politician Peer Steinbrück has paid a heavy price for joking yesterday that the Italian election had been won by a couple of clowns – Italy’s president, Giorgio Napolitano, has cancelled a meeting with him.

The rebuke comes after Steinbrück‘s, the SPD’s candidate for the chancellorship in this autumn’s general election, told voters at an event called Straight Talk with Peer Steinbrück that

To a certain degree I am appalled that two clowns have won.

In fairness to Steinbrück, he’s not the first person to connect Beppe Grillo’s career as a satirist with Silvio Berlusconi‘s long record of being, well, Silvio Berlusconi – or “a clown with a testosterone boost”, as he put it.

But Napolitano – on a trip to Germany – is most unamused.

Der Spiegel has more details.

Updated at 2.52pm GMT

1.35pm GMT

Bean blasts negative interest rates plan

In the UK, one of the Bank of England’s deputy governors has tried to shoot down speculation that Britain might experiment with negative interest rates — a day after a fellow deputy suggested it might.

Charlie Bean insisted that the Bank was not about to ask to be paid to hold commercial banks’ deposits, despite Paul Tucker hinting that it was under consideration.

Speaking at a conference organised by the Institute of Economic Affairs, Bean said:

Any suggestion that we have a plan to introduce negative interest rates immediately, I should make absolutely clear, is not the case.

The ECB cut its deposit rate to 0.0% last year, in an attempt to get banks to lend. But as our economics correspondent, Phillip Inman, reports, Bean says the Bank of England couldn’t easily folow.

Bean did his best to demolish the policy, saying it would create huge problems for banks that have tied mortgages to the current bank base rate of 0.5%.

“It has significant negative side-effects which is why I do not support it,” explained Bean.

He pointed out that the European Central Bank has a separate rate for some commercial bank deposits because they are forced to keep particular reserves, whereas UK banks are allowed flexibility.

Disaggregating some bank deposits with Threadneedle Street from others would be a minefield, Bean added.

I just chatted with economist Shaun Richards, who argued that the ECB’s move hadn’t worked:

Zero rates had zero effect. The ECB cut the deposit rate to zero, and all the money just moved to another account in the ECB.

Richards said he wasn’t surprised to see Tucker discussing negative rates, given the weak state of the UK economy and the Bank’s failure to stimulate output. But he pointed out that previous rate cuts haven’t had much effect, and warns that savers would inevitably suffer.

Just to be clear, this is different from the Bank of England’s base rate, which is at a current record low of 0.5%. Our Q&A explains all….

…unlike a certain radio station this morning, it seems:

Updated at 2.26pm GMT

12.46pm GMT

Greek embezzlement

Over in Greece, the former mayor of Thessaloniki has been jailed for life after being convicted of stealing almost €18m from the city.

Vassilis Papageorgopoulos was convicted of embezzlement after a trial where four others were also convicted and received lesser sentences, including the municipality’s former general secretary, Michalis Lemousias, ex-cashier Panayiotis Saxonis.

Greek newspaper Kathimerini reports:

Papageorgopoulos and 17 other officials stood trial for allegedly embezzling almost 52 million euros from the municipality’s coffers, though the Thessaloniki court on Wednesday said that there was proof of 17.962 million euros having been misappropriated by the former mayor and his cohorts.

The other 13 officials were acquitted.

Updated at 1.47pm GMT

12.04pm GMT

Reforms must carry on – Van Rompuy

Herman Van Rompuy, president of the European Council, has joined the ranks of Eurocrats warning Italy that they cannot avoid fiscal consolidation.

Speaking after meeting the prime minister of Hungary, Viktor Orbán, Van Rompuy said the pair had spoken about “ the economic and social situation in Europe”.

As I have said before – and others like me – I believe that 2012 marked a turning point in the crisis in the eurozone – and that the worst is now hopefully behind us.

But we should not become complacent – neither in Member States nor at the level of the European Union and the eurozone. There is no real alternative to keep up reforming our economies. There is no way back for any of our Member States.

Updated at 1.48pm GMT

11.41am GMT

There’s very little political action to report in Italy yet (where the Pope is making an emotional farewell to huge crowds in the Vatican).

But Beppe Grillo’s Five Star group are making murmurings about a potential deal with Bersani, it seems:

11.25am GMT

Word from Brussels that the European Commission president, José Manuel Barroso, will meet Italy’s current prime minister, Mario Monti, to discuss the situation.

11.02am GMT

Reaction to Italian bond sale

The news that Italy’s much-watched bond sale went smoothly (see 10.24am) has cheered analysts, although some traders are muttering darkly that we don’t know who bought the bonds (so perhaps domestic banks mopped most of them up to ease the panic).

Nick Spiro of Spiro Sovereign Strategy said the sale had gone “relatively smoothly”, but warned:

The higher yields show that Italian sovereign debt is now caught in a tug-of-war between the reassurance provided by the ECB’s fiscal backstop and the confusion and instability in Italian politics.

…While there’s still none of the panic of November 2011 or July 2012, sentiment towards Italy has deteriorated markedly since Sunday’s inconclusive parliamentary election.

Nick Stamenkovic of RIA Capital Markets said the results would generate “some relief”, with buyers calculating that an Italian government will be carved out, somehow.

They got reasonable demand, but clearly investors demanded a higher risk premium to take it down.

Demand reflected by the bid/cover ratio suggests that despite the uncertain outlook, investors believe that some sort of a coalition will be cobbled together in coming weeks.

And Elisabeth Afseth of Investec agreed that the important point is that the Italian debt management office “got it done”.

The yields are higher than anything they’ve done for quite some time but that’s hardly a big surprise but they got the amount they wanted.

But some were more cynical:

10.24am GMT

Italian bond sale success

Breaking: the results of the Italian debt auction are in, and it has gone better than feared.

Borrowing costs are up compared with the previous auctions (no surprise there!), but they are not at dangerous levels. And there certainly wasn’t a buyer’s strike – Italy sold the full €6.5bn on offer.

Here’s the details:

• Italy sold €2.5bn of 5-year bonds at an average yield of 3.59%, up from 2.94% last time.

• It also sold €4bn of 10-year bonds at an average yield of 4.83%, up from 4.17%

And the bid-to-cover ratio (the amount of bids compared to the amount on offer) actually rose, to 1.6, from 1.3 last time.

Reaction to follow

Updated at 1.50pm GMT

10.03am GMT

The better news in today’s UK GDP data is that the economy actually grew over the last 12 months.

Britain’s economy was 0.3% higher than a year ago – not flat as expected. That’s because the ONS have revised two other quarters last year. It now thinks GDP in Q1 2012 only fell by -0.1% (from -0.2%), while Q3 2012 GDP is now estimated at +1.0% (from +0.9%).

On the one hand, this is much weaker than the UK government had expected (via the independent Office for Budget Responsibility)

On the other hand, some eurozone countries would welcome any growth:

Updated at 1.52pm GMT

9.35am GMT

UK GDP confirmed

Despite rumours it would be revised down, UK GDP is unchanged at -0.3% for the last quarter, the ONS just reported.

Output data for various sections of the British economy showed that:

• UK services sector shrank by 0.1% in October-December

• Construction output rose by 0.9%

• Industrial output tumbled by 1.9% and manufacturing output by 1.3% — both the steepest falls since the first quarter of 2009

9.27am GMT

Moody’s has warned it could downgrade Italy

Rating agency Moody’s weighed in on the Italian election deadlock last night, warning that it could downgrade the country’s credit rating if a government can’t be formed, or if its economic reform agenda now stalls.

In a statement, Moody’s said:

We would consider downgrading Italy’s government debt rating in the event of additional material deterioration in the country’s economic prospects or difficulties in implementing reform

A deterioration in funding conditions as a result of new, substantial domestic economic and financial shocks from the euro area debt crisis would also place downward pressure on Italy’s rating.

Moody’s currently rates Italy just two notches above Junk status, at Baa2.

8.55am GMT

Bernanke helps ease markets

City traders also appear to be taking comfort from US central bank chief Ben Bernanke – who yesterday calmed fears that the Federal Reserve will tighten monetary policy.

Mike van Dulken, Head of Research at Accendo Markets, explains:

While Italian political chaos likely to persist as discussions take place on coalition formation, investors still looked to put more onus on US Fed Chairman’s statement that quantitative easing was here to stay.

8.51am GMT

Shares rally

After yesterday’s drama, Europe’s stock markets are rising in early trading.

Italy’s FTSE MIB: up 106 points at 15657, + 0.7%,

FTSE 100: up 29 points at 6299, + 0.5%

German DAX: up 35 points at 7629, +0.4%

French CAC: up 24 points at 3646, +0.7%

Spanish IBEX: up 64 points at 8044, +0.8%

So why the change? One argument is that investors would actually welcome some grit being thrown into the wheels of the eurozone austerity machine.

The prospect of a Bersani-Grillo government, providing some stability but less fiscal consolidation, isn’t a reason to panic.

Investors haven’t been demanding that economic growth is choked off recklessly across Europe — their concern is simply that they get their money back.

Or as one London fund manager put it:

8.23am GMT

Deadlocked Italy holds bond sale as EU faces turmoil

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

It never really went away, but there’s no doubt that the eurozone crisis is now getting everyone’s full attention again.

The deadlock in Italy following the weekend’s election is a very nasty shock to those who thought the worst was somehow over for Europe.

With a majority of voters rejecting the reform plans favoured by the EU, we might be looking at months of drama:

As our front page story today declares:

Three years of German-led austerity and budget cuts aimed at saving the euro and retooling the European economy was left facing one of its biggest challenges as Italian voters’ rejection of spending cuts and tax rises opened up a stark new fissure in European politics.

The governing stalemate in Rome and the vote in the general election – by a factor of three to two – against the austerity policies pursued by Italy‘s humiliated caretaker prime minister, Mario Monti, meant that the spending cuts and tax rises dictated by the eurozone would grind to a halt, risking a re-eruption of the euro crisis after six months of relative stability.

That was yesterday. Now, Italy’s first challenge is to sell up to €6.5bn of long-term government bonds this morning.

Investors are certain to demand a higher rate of return, with Italy’s future so uncertain. How much higher (and how many bond traders take part), will show how nervous the markets are today.

And the big question remains – who will govern Italy?

Last night Pier Luigi Bersani threw down a challenge to Beppe Grillo and his Five Star Movement (M5S) — you’ve won influence, now use it.

As John Hooper reported from Rome:

At a press conference in Rome, a weary-looking Bersani said it was time for the upstart movement to do something more than just demand the removal of Italy’s mainstream politicians.

“Up to now, they have been saying: ‘All go home.’ But now they’re here, too. So either they go home as well, or they say what they want to do for their country and their children.”

Such an alliance would scupper the Grand Coalition favoured by Silvio Berlusconi. Your move, Beppe.

We’ll be watching all the latest political and financial developments through the day….

Updated at 8.37am GMT © Guardian News & Media Limited 2010

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