March 11 2013

Anti-establishment Five Star Movement said it wants to lead Italy’s next government following last month’s inconclusive elections. The political uncertainty in Italy may mean the country misses a deadline for presenting its stability program to European authorities…

 


Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Grillo’s party stakes claim to lead Italy” was written by Josephine Moulds and Nick Fletcher, for guardian.co.uk on Monday 11th March 2013 15.36 UTC

3.36pm GMT

Ireland’s Kenny hits out at cost of bailout

Irish prime minister Enda Kenny sought to pressure on his European partners by claiming that the EU in Brussels and the European Central Bank in Frankfurt compounded Ireland’s fiscal woes over the way they handed the Republic’s banking debt. Our Ireland correspondent Henry McDonald writes:

The Taoiseach used a speech to the Mansion House in London to claim that the punitive nature of banking debt, imposed from the EU and ECB, only deepened the financial errors of the last Fianna Fail led government.

Kenny said the €64bn cost of bailing out Irish banks had imposed huge financial burdens on the public back in Ireland and it was time Europe took notice.

He told his audience in the City of London that having the Irish public shoulder that burden was primarily the responsibility of the previous government.

But the bail-out programme crafted in the EU and ECB had put huge pressures on the Irish people.

His remarks are designed to persuade the EU and ECB to ease the burden of banking debts to foreign bondholders for toxic financial institutions like the now defunct Anglo Irish Bank.

The Irish Premier will meet David Cameron later to discuss deepening Anglo-Irish trade and garner support from the UK for a deal from Europe on Irish banking debts, that continue to cripple the national finances.

3.24pm GMT

People of Freedom in court protest supporting Berlusconi

Dozens of parliamentarians from Silvio Berlusconi’s centre-right People of Freedom party have been protesting outside a Milan court against the former prime minister going on trial.

Judges have ordered checks to be made on Berlusconi, who has been in hospital since Friday with an eye problem. The trial focuses on claims of paying for sex with a minor, but Berlusconi faces a number of court hearings in separate trials this month.

He denies any wrongdoing, and claims he is being persecuted by left-wingers who want to end his political career.

In the acrimonious battle around Berlusconi in the wake of Italy’s inconclusive election, the protestors say the trial is scandalous and not the normal functioning of a justice system. As for the man himself:

3.13pm GMT

Greece’s central government budget had a deficit of €813m at the end of February, deputy finance minister Christos Staikouras has told reporters.

There was a surplus of €177m in January, reports Reuters. This excludes spending by local authorities and social security organisations.

2.39pm GMT

Italy may miss deadline for presenting stability programme to EU

The political uncertainty in Italy may mean the country misses a deadline for presenting its stability programme to European authorities, one of its diplomats said.

The unnamed Italian diplomat said to Reuters:

Due to the political stalemate, Italy may delay the presentation this year of the national stability programme to the European Commission, due by the end of April.

But the commission has not yet received any notice of a possible delay. An EU official told Reuters:

Governments have until the end of April to present their stability programmes and we don’t have any indication at this stage that that won’t be met.

Updated at 2.40pm GMT

2.24pm GMT

With Italy’s Pier Luigi Bersani struggling to form a workable coalition, Renzi may be the man to take the party forward.

Reuters reports:

Now Renzi is waiting for his moment as Bersani fights for survival, desperately trying to reach an agreement with Grillo that will allow him to form a minority government with backing from the anti-establishment 5-Star Movement.

With Grillo pouring insults on Bersani at every opportunity, the 61-year-old center left leader looks to have only a tiny chance of success, despite near unanimous backing from his Democratic Party (PD) leadership this week.

The market-friendly Renzi challenged Bersani in party primaries back in November, threatening to “scrap” Italy’s old leadership.

He was roundly beaten as the party machine mobilized PD cadres to support the leader. But Bersani’s terrible election campaign has opened the way for a comeback.

And with that, I’m handing over to my colleague Nick Fletcher.

Updated at 2.35pm GMT

2.12pm GMT

Italians back Renzi for prime minister over Bersani

Back to Italy, where the young mayor of Florence is emerging as one of the big winners from the inconclusive elections.

At just 38, Matteo Renzi is, according to Reuters “an electric, fast-talking and articulate performer who paces the stage in his shirt sleeves pushing just the right buttons to whip up a crowd”.

This contrasts sharply with the leader of his party, Pier Luigi Bersani, whose drab campaign meant the Democratic Party only scraped a victory and failed to win control of the senate.

Tellingly, a recent poll showed that 28% of Italians support Renzi for prime minister, while only 14% want Bersani.

1.45pm GMT

Students protest in Athens

Over in Greece, the protests continue, with students now protesting outside the parliament building.

Photo via @MakisSinodinos.

1.41pm GMT

One in four Germans would vote to quit euro

Following news of the rise of the anit-euro movement in Germany (see 10.02am), it seems it could win substantial backing in the upcoming German elections.

Reuters reports that one in four Germans would vote for a party that wants to quit the euro, according to an opinion poll published today.

The poll conducted by TNS-Emnid for the weekly Focus magazine showed 26% of Germans would consider backing a party that wanted to take Germany out of the euro and as many as four in 10 Germans in the 40-49 age bracket would do so.

12.04pm GMT

Pound tumbles on diverging fortunes of US and UK

Sterling has hit a new two-and-a-half year low against the dollar, as investors bet against the UK’s economic fortunes.

Strong US jobs numbers last week stoked speculation that the Federal Reserve would, at some point, cut back on its massive stimulus programme.

In the UK, however, there is increasing evidence to suggest the economy is headed for its third recession in four years, which would likely drive the Bank of England to expand its quantitative easing programme.

Just to recap, with these stimulus programmes the central banks print more money to pump into the economy, therefore making the currency worth less.

Sterling dropped 0.3% to $1.4868, its lowest point since mid-2010.

11.42am GMT

European parliament chief say Europe risks losing a generation

Attempts to rescue the eurozone from crisis have failed, or that appears to be what the president of the European parliament is saying in a very frank interview with Reuters. Martin Schulz, a German socialist who leads the European parliament told Luke Baker:

We saved the banks but are running the risk of losing a generation. One of the biggest threats to the European Union is that people entirely lose their confidence in the capacity of the EU to solve their problems. And if the younger generation is losing trust, then in my eyes the European Union is in real danger.

Schulz said he had recently taken part in a debate where he was challenged by a Spanish woman over the issue of young people being abandoned for the sake of rescuing wealthy banks.

She effectively raised the question: ‘You have given €700bn euros for the banking system, how much money do you have for me?’” he said. “And what is my answer?

If we have €700bn to stabilise the banking system, we must have at least as much money to stabilize the young generation in such countries.

We are world champions in cuts, but we have less idea … when it comes to stimulating growth.

Updated at 12.00pm GMT

11.28am GMT

Growth firming in OECD

There is happier news from the rest of the world. The OECD said this morning that the economic outlook in major industrialised economies is improving, with the US and Japan leading the way.

The Paris-based think tank’s latest monthly indicator for the OECD’s 33 major industrialised countries pointed to firming growth.

Its indicator rose to 100.4 from 100.3 in December, rising further above the long-term average of 100. The US showed the strongest improvement with a reading of 100.9.

11.18am GMT

Portuguese GDP decline accelerates

And over to another crisis-hit country… Portuguese GDP dropped 1.8% in the fourth quarter.

That’s a very bad result as it shows a rapid acceleration in the contraction of the economy, driven by a fall in exports.

Portugal is weighed down by a stinging austerity package, which many say have worsened the country’s economic outlook.

Today’s figures confirm original estimates and provide new data showing exports dropped 2.4% in the fourth quarter.

11.12am GMT

Greece remains mired in deep recession

The Greek economy, meanwhile, contracted by 5.7% in the fourth quarter, a slight improvement on initial estimates of a 6% decline.

That points to Greece contracting by 6.4% over the year, an improvement on the 7.1% contraction in 2011.

10.56am GMT

Italy’s fourth quarter GDP figures confirmed the economy remained deep in recession at the end of last year.

Recent business surveys, which provide more up-to-date information, point to further sharp falls in GDP this year, while the ongoing political uncertainty will put spending under pressure. As a result, Capital Economics estimates the Italian economy could contract by as much as 3.5% this year.

Looking at the French industrial production figures (see 8.32am), Capital Economics says it looks likely that France will officially re-enter recession this quarter.

Which just adds to a gloomy picture for the region as a whole. They write:

In all, then, the latest hard data, like the timelier business and consumer surveys, suggest that the euro-zone probably remained in recession in Q1. Given this, we continue to think that the consensus forecast for a fall in euro-zone GDP of just 0.2% this year is much too optimistic.

10.47am GMT

Italy likely to face new elections this year

The Italian parliament has its first session on Friday, which analysts at RBS say will “mark the start of a season of political instability which will likely lead to new elections”. RBS expects the elections to be announced this year.

Alberto Gallo writes:

Meanwhile, political gridlock is likely to turn into economic gridlock. With uncertainty about tax and labour reforms, Italian firms are even less likely to invest, and banks less likely to lend

He says the debt markets “continue to underestimate the risk of political instability in Italy and in the periphery, and the calls for a switch from a pro-austerity fiscal compact to a growth compact”.

We think these risks will emerge more strongly as the possibility of new elections in Italy becomes reality – which is no earlier than May 15.

10.23am GMT

Markets too sanguine on Italy – analyst

Another voice has joined the crowd cautioning that the markets are “too sanguine about Italy”.

Hugo Dixon writes in Reuters’ Breaking Views:

The country’s politics and economics are messed up – and there are no easy solutions. And while Rome does have the ECB as a backstop, it may have to get to the brink before using it…

The most likely scenario then is that Italy will be forced into a second election which will still produce no clear winner. If the 5-Star Movement is the largest party, markets could panic. If one of the other two comes out ahead, there will have to be renewed discussions over a grand coalition. Even then, a further rise in bond yields may be needed to knock heads together. Meanwhile, the recession will drag on and the fiscal position will worsen. Not a pretty picture.

The markets appear to be paying attention to this growing chorus of doom-mongers and the yield – effectively the interest rate – on Italy’s 10-year government debt is rising.

It ticked up 7.2bps this morning to 4.665%, according to Tradeweb, after Fitch downgraded Italy’s debt on Friday. That is still considerably lower than the dangerously high levels it hit last year of more than 6.5%.

10.02am GMT

Rise of anti-euro movement in Germany

Meanwhile in Germany, a new movement has formed intent on abandoning European efforts to prop up the common currency. And, reports Der Spiegel (in English), its founders are a collection of some of the country’s top economists and academics.

Charles Hawley writes:

Named Alternative für Deutschland (Alternative for Germany), the group has a clear goal: “the dissolution of the euro in favor of national currencies or smaller currency unions.” The party also demands an end to aid payments and the dismantling of the European Stability Mechanism bailout fund.

The movement has not yet formally become a political party, but reportedly plans to do so in the middle of April. Even then, writes Hawley, it is not yet certain that the party will be able to collect the requisite number of signatures in time to be included on the ballot in general elections this autumn – a minimum of 2,000 in each of Germany’s 16 states or 0.1% of each state’s population, whichever is lower.

If it does, he says the party could attract a number of protest votes.

Ultimately, the party’s success will likely have more to do with the state of the common currency as the election approaches. Should the crisis flare up, so too could anti-euro sentiment. That sentiment in Germany now has a political home.

Updated at 10.16am GMT

9.40am GMT

Lagarde could face formal investigation – Sunday Times

IMF chief Christine Lagarde could be forced to step down as a result of an inquiry into whether former French government officials were complicit in the payment of huge damages to a tycoon, the Sunday Times has reported.

Matthew Campbell writes:

Speculation is growing that Christine Lagarde, the former French finance minister who succeeded Dominique Strauss-Kahn at the helm of the IMF, may be placed under formal investigation after being summoned to answer questions by a judge in the next few days.

She is facing accusations of “complicity in embezzlement” of public funds for instigating an arbitration process that awarded £348m to Bernard Tapie, a controversial businessman who claimed to have been defrauded by a state-owned bank in the 1990s.

Lagarde, 57, has denied any wrongdoing, as has Stéphane Richard, the chief executive of France Telecom, her former chief of staff, whose home was raided by police last month.

9.27am GMT

Greek privatisation minister quits

Sticking with Greece, our correspondent in Athens Helena Smith reports in this morning’s paper that the country’s privatisation chief Takis Athanasopoulos has resigned after only a few months in the job. She writes:

In another setback for Greece’s reforms, Athanasopoulos resigned, after being charged with dereliction of duty in his former role as chief executive of the public utility PPC.

An official at the Greek finance ministry, Giorgos Mergos, also stepped down after being charged. Both men denied knowingly commissioning a loss-making plant when on the board of PPC, which led to losses of more than €100m for the state-owned power company.

Athanasopoulos said he welcomed the charges. “It gives me the opportunity to prove that the interest of the PPC and the state were fully served,” he wrote in a resignation letter, insisting his decision to step down had been motivated by the desire not to further impede Greece’s problem-plagued privatisation process.

9.23am GMT

More protests in Athens

Over to Athens, which has been rocked with protests and violence over the weekend. The so-called “indignants” returned to Syntagma Square last night to be met by riot police, who used tear gas on them and made at least one arrest.

This morning, the protests continue. ekathimerini reports:

Culture Ministry employees were holding a protest in central Athens on Monday morning, on their second 24-hour strike in the last four days.

The civil servants gathered outside the Culture Ministry as archaeological sites and state-run museums remain closed.

The ministry employees are protesting about their department’s new organizational chart amid concerns about their job security.

Elsewhere in the city, ekathimerini reports that a homemade bomb went off late last night outside a branch of a courier service. No injuries were reported and the building suffered minor damage.

An Acropolis police station, meanwhile, was subject to an arson attack. A statement online said that it had been carried out in remembrance of Lambros Fountas, the member of the Revolutionary Struggle urban guerrilla group, who was shot dead by police two years ago. Nobody was injured in the attack although it caused substantial damage.

Updated at 9.54am GMT

9.08am GMT

Italy poses ‘near and present danger’

But analysts still see political deadlock in Italy as a “near and present danger” for the eurozone.

Gary Jenkins of Swordfish Research says the most likely outcome from Italy’s inconclusive elections is that some kind of market-friendly resolution will be found. But he says that could come under threat if Italian politicians come into conflict with the ECB.

The promise by ECB chief Mario Draghi ‘to do whatever it takes’ has largely becalmed the markets, he writes. But that could be tested if the crisis-hit countries refuse to play by Draghi’s rules.

He notes Draghi’s response at last week’s ECB press conference to a question regarding the potential for Italy to depart from the strategy of austerity:

Italy, like all the other countries, should continue first on the structural reform path, which is the only way that can restore growth, and second build on the very significant fiscal consolidation it has reached. That is very important because that is what gives credibility in the markets and therefore lower spreads and therefore in the end lower lending rates, therefore more credit to the economy and more job creation. This is the path.

Jenkins writes:

Now that didn’t sound to me like a man who thought that it was appropriate for Europe to move away from austerity. Thus it could bring him into conflict with politicians before very long if the economy does not recover and job creation remains non-existent in the stressed countries of Europe. Whilst Mr Draghi has stated he will do ‘whatever it takes,’ that does not necessarily mean that he will immediately cave in to the demands of politicians.

If Italy ends up with an anti-austerity government, the market might therefore assume that the ECB’s promise of support via its bond-buying programme – the so-called OMT – could be weakening. Which could cause Italy (and consequently Spain)’s borrowing costs to escalate. Which could takes us back to the dark days of the crisis once more.

8.44am GMT

Italians in favour of sticking with euro

Back to Italy, where polls are showing a large majority if the population are in favour of staying in the eurozone and against a referendum on membership.

An opinion poll in Italian newspaper Corriere della Sera showed on Sudnay that 74% of Italians wanted to keep the euro, and just 16% wanted to return to the lira.

Almost 70% of Italians said they were either strongly or moderately against holding a referendum on membership of the eurozone, compared with 30% who though it was a quite good or very good idea.

That seems to conflict with last months’ election results, where parties critical of austerity measures imposed by Europe fared particularly well.

But the poll showed that even among voters for Beppe Grillo’s populist Five Star Movement, some 73% did not want to return to the lira and 65% did not want a referendum.

For his part, Beppe Grillo has toned down his rhetoric on the single currency and last month denied that he ever called for a euro exit.

All I said was that we want to be informed about a plan B on leaving the euro, on what happens if we stay in and what happens if we leave, this information is our right.

Updated at 9.53am GMT

8.32am GMT

French factory output slumps

Ouch. French industrial production dropped by 1.2% in January, compared with a 0.9% rise in December.

Factory output contributed to the decline, down 1.4% on the month.

Looking over a longer time-horizon, industrial production dropped 3.3% in November-January, compared with the same period 12 months previously.

Updated at 8.33am GMT

8.22am GMT

German imports rebound strongly

A quick look at the data out of Germany show the surplus narrowing in the eurozone’s largest economy.

Imports rebounded in January after two weak months to rise by 3.3%, their fastest rate of growth since last May.

Exports were also up, rising 1.4% in January (seasonally-adjusted), the biggest rise in five months.

The surplus came down to €15.7bn, bang in line with economist expectations.

8.16am GMT

Chinese data disappoints

There was disappointing data out of China over the weekend, with inflation at a 10-month high in February while factory output and consumer spending were weaker than forecast.

First off, the inflation numbers. Official data showed the consumer price index rose 3.2% in February from a year ago, compared with expectations of a 3% rise. That could temper hopes that the Chinese government will boost spending in order to drive growth, which had lifted markets last week.

Annual growth in industrial production also slowed to 9.9% in January and February, compared with estimates of 10.6%.

While retail sales figures came in well below expectations, rising 12.3%, compared with forecasts of a 14.5% rise. That will raise concerns about domestic demand, particularly in light of rising prices.

Xu Gao at Everbright securities told Reuters:

This data shows that the economy is in the process of a mild recovery and that it is still fragile. It faces a lot of uncertainties.

7.58am GMT

Today’s agenda

There’s some key data out ahead of the eurozone summit later in the week, with German trade figures already released and some indication of the health (or otherwise) of the French economy.

  • Germany trade balance (January): 7am
  • France industrial production (January): 7.45am
  • Italian GDP (Q4 final revision): 9am

We’ve also got the final revision to Greece’s fourth quarter GDP, Spain’s budget balance for January, and inflation figures out of Ireland.

Updated at 7.58am GMT

7.42am GMT

Good morning and welcome to our rolling coverage of the eurozone crisis and other global economic events.

This weekend, the party set up by comic-turned-politician Beppe Grillo – the Five Star Movement – said it wanted to lead the next Italian government and reiterated its opposition to an alliance with any of the main parties.

Reuters reports:

The movement’s newly elected parliamentary leaders told reporters it would make this position clear to President Giorgio Napolitano when he begins consultations later this month on the formation of a government.

“Our proposal will be a Five Star government,” the movement’s Senate leader Vito Crimi said after a meeting of its lawmakers in a Rome hotel.

It is unlikely that the other parties would accept a government led by the 5-Star Movement. This is partly because of policy differences and partly because although it was the most voted single party at the election, 5-Star has fewer seats in parliament than the center-left and center-right coalitions.

Italy was downgraded by Fitch on Friday to BBB+, with a negative outlook due to “increased political uncertainty and a non-conducive backdrop for further structural reform measures constitute a further adverse shock to the real economy”.

The country also awaits the final revision to fourth quarter GDP at 9am. We’ll have all the news on that and other developments in the eurozone and beyond.

Updated at 9.52am GMT

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