March 14 2013

In the broadcast today: EUR and JPY Outlook ahead of Events in Italy and Japan. Ahead of tomorrow’s gathering of the Italian parliament and the Japanese upper house vote on the new Bank of Japan Governor, we examine the potential impact of these events on the EUR and the JPY and explore the outlook for the two currency majors, we analyze the bullish trend in the USD/JPY currency pair, we continue to monitor the range in the EUR/USD pair, we note the strengthening of the GBP vs USD, we highlight the market’s reaction to the statement by an ECB council member, the Swiss National Bank and the Reserve Bank of New Zealand Interest Rate Announcements, the Australian Employment report, the Japanese Industrial Production, and the U.S. Jobless Claims, we discuss new forecasts from Bank of New York-Mellon and UBS, and prepare for the trading session ahead.

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European leaders meet to discuss growth vs austerity. Greek unemployment hits new high. Troika leaves Greece without agreement. A day before the Italian parliament meets, an ECB council member says the bank should be ready to activate OMT program…



Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Protesters gather at EU summit on growth” was written by Josephine Moulds, for guardian.co.uk on Thursday 14th March 2013 14.50 UTC

2.50pm GMT

ECB should be ready to activate OMT

The European Central Bank should be ready to pull make good on its promise to buy government bonds of crisis-hit countries, if certain conditions are fulfilled, an ECB governing council member said today.

Klaas Knot said:

I don’t want to speculate on any specific case. But it is clear that if certain circumstances are fulfilled, then the ECB should be ready for activation.

Another ECB governing council member Panicos Demetriades told Reuters earlier today that Ireland’s issuance of its first long-term bond since the bailout was an important step towards qualifying for help from the programme.

2.33pm GMT

Lagarde to join Eurogroup meeting on Cyprus

IMF chief Christine Lagarde will take part in the Eurogroup meeeting of eurozone finance ministers tomorrow (see 8.55am), according to a Reuters headline.

This is particularly interesting as the IMF is keen to push its line on Cyprus, that depositors in Cypriot banks should bear some of the cost of any bailout. (see 8.56am)

Updated at 2.34pm GMT

2.10pm GMT

Meanwhile, the protestors outside are growing in number, despite the snow.

Reuters estimates that around 10,000 people took part in a demonstration on outside the EC headquarters on the first day of the EU summit.

2.04pm GMT

Here come the pictures of the leaders arriving for the EU summit. A pick of the best…

1.53pm GMT

Draft conclusions from EU summit focus on growth

While Germany might be keen to push the austerity line at the EU summit, it seems the draft conclusions, at least, appear to be very focused on growth.

The stagnation of economic activity forecast for 2013 and the unacceptably high levels of unemployment emphasise how crucial it is to accelerate efforts to support growth as a matter of priority.

Particular priority must be given to supporting youth employment and promoting growth and competitiveness.

1.43pm GMT

German finance minister confident about Italy

The German finance minister is now speaking. Wolfgang Schaüble says he is very confident Italy will build a government capable of acting. He says Italy under prime minister Mario Monti has made great progress.

He also says there is no reason to be depressed on the economic outlook. Then he comes out with the (now rather predictable line) that the “crisis is not over”.

1.37pm GMT

More protests in Greece

Over in Greece, hundreds of students have been blocking up the education ministry today to protest against the shake-up of the university system.

The Greek government plans to reduce the number of higher education departments in the new academic year, in a bid to save funds as the country grapples with its worst financial crisis in decades.

1.27pm GMT

Italy to ask for more flexibility over budget deficit

And so it begins. Italian prime minister Mario Monti has said he will ask his EU partners to grant Italy more flexibility in its budget deficit objectives to help efforts to boost its stagnant economy.

Speaking on the way into the EU summit, he said:

Reasonable margins for flexilbility have been introduced and we will ask to be able to avail ourselves of these margins.

12.45pm GMT

US jobless claims fall unexpectedly last week

Another positive sign for the US employment market has come with better than expected jobless claims figures.

Weekly initial claims unexpectedly fell 10,000 to 332,000, the third straight week of declines. Economists polled by Reuters had expected a rise to around 350,000.

11.55am GMT

Markets up on yesterday’s upbeat US data

Quick look at the markets, which are buoyant, after cheery US retail sales figures out yesterday drove optimism that the global economic outlook is improving. (Clearly traders have chosen to ignore the rather more pessimistic data out of Europe today).

UK FTSE 100: up 0.35%, or 23 points, at 6505

France CAC 40: up 0.54%

Germany DAX: up 0.69%

Spain IBEX: up 1.33%

Italy FTSE MIB: up 1.35%

11.45am GMT

Austerity: ‘NO’… Solidarity: ‘YES’!

Here’s a picture of the vast banner protestors have erected outside the EC headquarters, for the two-day European summit that starts today.

Updated at 11.56am GMT

11.41am GMT

Eurozone unemployment “worrying” – economist

Eurozone employment numbers (see 10.40am) are “disappointing and worrying” says Howard Archer of IHS Global Insight.

While Eurozone economic activity seemed to bottom out last October and business confidence has trended up in recent months, neither appears strong enough to prevent further rises in Eurozone unemployment for some time to come – although the situation will vary markedly between countries.

Meanwhile, the increased drop in Eurozone employment in the fourth quarter of 2012 maintains belief that consumer spending will remain generally muted in the near term at least, especially as consumers are also facing muted wage growth and tighter fiscal policy in many countries.

11.03am GMT

Troika leaves Greece without agreement

The troika – of the EU, the ECB and the IMF – leave Greece today without a resolution over civil service job cuts.

After extending their trip by several days, Greece’s international lenders said they would return to the country in April to finish their review.

The troika said in a statement that Greece was making significant progress in reforms required to receive the next tranche of emergency loans, but some issues remain and Athens needs time to complete the work.

ekathimerini reports:

Talks between Prime Minister Antonis Samaras and troika officials lasted for a couple of hours on Wednesday night but no conclusion was reached on matters including the reduction of civil servant numbers and a payment plan for firms and individuals who owe social security contributions.

Despite the apparent impasse in the discussions, Finance Minister Yannis Stournaras insisted that the two sides were edging toward a deal and that Greece’s next loan tranche of €2.8bn was not in danger.

10.40am GMT

Eurozone employment drops

Eurozone employment, meanwhile, dropped by 0.3% in the fourth quarter compared with the third, as the stagnant economy failed to generate new jobs despite the Christmas shopping season.

Of the eurozone’s major economies, only Germany managed an increase in employment, while the job rate in Spain dropped 1.4%.

Marie Diron of accountancy firm Ernst & Young offered this gloomy assessment of the European jobs market:

A further rise in unemployment int he short term, and only a slow decline from 2014 is likely to be an impediment to growth. Even with recovery, the number of people out of work across Europe will remain stubbornly high. By the end of 2017, we estimate the unemployment rate will remain above 11%.

10.17am GMT

Greek unemployment hits new high

Meanwhile, the ECB’s confidence of a turnaround this year (see 9.47am) looks a little misplaced in the light of Greek jobless figures out this morning.

Unemployment in Greece hit 26% in the fourth quarter of last year, up from 24.8% in the third.

The highest unemployment rate is recorded among people aged between 15 and 24, at 57.8%.

There are also deeply worrying figures on long-term unemployment.

The statistics agency Elstat said the percentage of people that have been looking for a job for more than one year has reached 65.3%.

Updated at 10.22am GMT

10.08am GMT

Healthy demand at special Spanish bond auction

Spain’s borrowing costs have come down again at a special debt auction. The country sold €803m of longer-dated debt, with healthy demand for the government bonds on offer.

The Treasury sold €134m of 2029 bonds at a yield of 5.22%, compared with 5.78% at the last sale in February. 

Yields were 5.434% and 5.432% respectively on the 2040 and 2041 bonds, lower than at the previous sales.

Lyn Graham-Taylor at Rabobank said:

It looks like a decent set of auction results. Much lower yields than when these bonds were last auctioned, which is not surprising given the continued compression of Spanish yields.

The size was roughly as anticipated and obviously it was always going to go well given that it looks like this was a request from primary dealers, a reverse inquiry and to an extent a chance for the Tesoro to dip their toe at the longer end again.

In the secondary market, the yields on Spanish 10-year debt are still ahead of Italy’s but only just. Bond investors are growing increasingly nervous about the political deadlock in Italy and so are selling bonds, driving prices down and yields higher.

Meanwhile, Spain’s fortunes are seen to be improving.

The yield – effectively the interest rate – on Spanish 10-year debt is currently at 4.853%.

The yield on Italian 10-year debt is 4.682%.

For further explanation of how the bond market works, see our eurozone crisis glossary.

9.47am GMT

ECB will not cut rates – ECB board member

The European Central Bank does not need to change interest rates at this stage, ECB governing council member Ewald Nowotny said this morning, despite recent exhortations from the IMF that it should do exactly that.

Nowotny said that growth momentum in the eurozone was set to pick up this year and that the bank needed to wait to see the positive impact of structural reforms.

President [Mario] Draghi has said that while we have generally unsatisfactory economic developments in Europe now we assume that growth forces will improve in the course of 2013. So this is why we are watching developments. It would not be appropriate to take interest rate policy steps.

Massive improvements have begun here. One has to give the improvements time to take effect.

The ECB said in its monthly bulletin that the eurozone is expected to recover gradually later this year, although that could be hampered if governments fail to implement structural reforms.

9.35am GMT

European court brands Spanish mortgage laws illegal

Sticking with Spain, the European Court of Justice has today ruled that the country’s mortgage laws are “abusive” and “illegal”.

(Thanks to DonJuan for flagging this up in the comments below.)

At present, banks can demand full payment for the outstanding mortgage if a homeowner fails to pay just one monthly installment. This has resulted in a wave of people losing their homes.

The Christian Science Monitor reports:

Eviction proceedings have soared since 2007 to some 450,000, according to the most recent court data, although that includes all types of properties. The number of those ending in evictions increased by nearly 135 percent in 2012 from the year before, pointing toward worsening trends.

El Pais reports this morning that the European court ruling will be directly applicable from today and in current lawsuits.

[Typo corrected - thank you for flagging it up.]

Updated at 2.19pm GMT

9.11am GMT

Spanish retail sales better but still bad

[Clarification: Sorry it was not very clear before.]

Spanish retail sales dropped 10.2% in the year to January. The Spanish statistics office says this is adjusted for “calendar and seasonal effects”, i.e. each month’s statistics will take into account seasonal effects and the differing number of working days from year to year.

That compares with expectations of an 11.1% decline, and an annual decline of 11.4% in December (revised down from -10.7%).

Spain’s annual retail sales figures have shown a decline for the past 31 months. However, in January, they ticked up by 0.9% compared with the previous month.

Updated at 11.18am GMT

9.06am GMT

Spain to tap debt markets

Over to Spain, which is looking to cash in on a recent rally in its bonds with an unscheduled debt auction today. It is likely to sell €1bn-€2bn of debt and we should get the results through in about half an hour. Watch this space.

8.56am GMT

Cyprus bailout talks crucial to next stage of crisis

This Eurogroup meeting (see 8.55am) will be the first time all 17 finance ministers debate the subject and deep divisions remain over how to manage a bailout of the tiny island.

Peter Spiegel of the FT reports:

Differences continue to centre on how fast Cyprus should get its debt down to a manageable level. Without a cut in the €17bn cost, Cypriot sovereign debt will reach 145 per cent of gross domestic product, by far the highest in the eurozone except for Greece.

Advocates of a more radical plan – which would include a big restructuring of the crippled Cypriot banking sector, which needs about €10bn in new capital – want Nicosia’s sovereign debt cut to 100 per cent of GDP by 2016, the end of the three-year bailout. Others are urging a more gradual path, which would get Cyprus to 100 per cent by 2020.

The International Monetary Fund has been leading the charge for tougher action and has received strong backing from a German-led group of northern eurozone countries.

Part of the IMF plan is to force losses on depositors in Cypriot banks to finance the €10bn bank rescue. This is seen as popular in countries (such as Germany), which are concerned Cypriot banks are nests for Russian mobsters to launder their money.

But the EC and the Cypriot government are worried it would spark bank runs in Cyprus, which could spread to the likes of Spain.

As debt guru Lee Buchheit noted, the way policymakers handle the Cyprus bailout is crucial to the next stage of the crisis. He told me:

The world will watch what they do in Cyprus and view it as an expression of their current thinking.

In one sense, the fact that Cyprus is small arguably allows them to experiment a bit more. But the world will watch it and see Spain.

More of that interview here.

8.55am GMT

Cyprus not on summit agenda

Meanwhile, German finance minister Wolfgang Schaüble was very clear that a bailout of Cyprus was not on the agenda for the summit.

Some would like that this question will be discussed at the EU summit. This is not on the agenda of the EU summit and also not its responsibility.

A German official did, however, admit that it was likely to be discussed on the sidelines.

Separately, the Eurogroup of eurozone finance ministers will meet on Friday to discuss the thorny issue of a bailout for the tiny island, as announced by the group’s new head on Twitter.

[Correction: Apologies, Friday is definitely tomorrow, not today]

Updated at 10.07am GMT

8.25am GMT

German finances “envy of the world”, says German minister

Germany, meanwhile, is starting to look like the smug man of Europe, with claims that its finances are the “envy of the world”.

Europe’s largest economy yesterday revealed budget plans that show net new borrowing falling to €6.4bn next year, while the structural deficit will drop to zero. Economy minister Philipp Roesler said:

With all modesty, this is a result of historic proportions.

The lesson from the sovereign debt crisis is that solid finances are essential. Thanks to this approach Germany is in the vanguard in Europe. Our success with a policy of growth-oriented consolidation is the envy of the world.

(One can only imagine what he would have said if he weren’t being modest.)

It is thought the plans were rushed through ahead of the EU summit, so Germany could lead by example. The FT reports:

Wolfgang Schäuble, German finance minister, said on Wednesday that his budget for 2014, involving spending cuts of more than €5bn to trim the total below €300bn, was “a strong signal for Europe”.

He described the 2014 spending plan as “growth-friendly consolidation”, intended to prove to the rest of the eurozone that “consistent sustainable budgeting and growth are not mutually exclusive”.

It is thought that there is already some disagreement over how much to emphasize austerity in the final conclusions of the summit. FT reporters write:

According to a draft seen by the Financial Times, the conclusions call for “short-term targeted measures to boost growth and jobs” – a line that has come under criticism from a German-led group of northern eurozone countries.

All in all, today’s summit is likely to see some lively debate.

8.07am GMT

Tensions rise between France and Germany

The summit is also likely to reveal the growing tensions between Germany and France, the eurozone’s two largest economies.

French president François Hollande said earlier this week that he would not be able to cut the public deficit to the EU limit of 3% of GDP this year, and that it was more likely to come in at 3.7%, as a result of the country’s troubled economy.

German finance minister Wolfgang Schaüble, however, has since said that he was “sure that France would, like us, respect the rules” on the public deficit.

7.59am GMT

Growth not just austerity

With unemployment across the eurozone at record highs and Italy still reeling from the anti-austerity vote at its recent elections, EU politicians will be keen to show they are focussing on growth and not just belt-tightening.

One EU official told AP:

If there is no growth for 10 years then you can’t pay back your debt … there is not much room for manoeuvre.

As is the way with these things, a draft of the summit conclusions is already circulating. AP reports:

[The draft] says that with no upturn this year and “unacceptably high levels of unemployment”, it is critical to support growth “as a matter of priority”.

Stabilising public finances must be done through “growth-friendly fiscal consolidation”, it adds.

“Hiding in this language is the idea that you can stretch the time (to meet deficit targets) a bit … while those in a stronger position can increase expenditure,” another EU official said.

Updated at 8.00am GMT

7.40am GMT

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

EU leaders gather in Brussels today for a two-day summit in an attempt to negotiate the difficult balance between austerity and growth.

Already, the protestors are gathering and have strung huge banners outside the EU headquarters proclaiming “Austerity Pact, No! Solidarity Pact, Yes!” (We’ll try and get pictures of that, as soon as we can.)

Eurozone finance ministers, meanwhile, will meet tonight after the summit closes to discuss a Cyprus bailout.

We’ll have all the news on that and other economic developments around the world as the day goes on.

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