April 2013

Like it or not, Berlin leads the eurozone. Now it must decide the future of the currency area– and the sooner the better. The European Union is an incomplete association of sovereign states that is unlikely to withstand many years of stagnation…

 


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USA 

It is time for the European Central Bank to show its independence and act in the interests of all eurozone citizens– not just Angela Merkel’s, writes The Guardian’s economics editor Larry Elliott.  A different approach is needed to save the eurozone…

 


Powered by Guardian.co.ukThis article titled “European Central Bank must heed eurozone warning signs” was written by Larry Elliott, economics editor, for The Guardian on Tuesday 30th April 2013 12.57 UTC

The warning signs are flashing red for the eurozone. Inflation is plunging, unemployment is rising and activity is weakening across the board. Unless Europe wants to become the next Japan, mired in permanent deflation and depression, action is needed now.

Stage one of the process should be a cut in interest rates from the European Central Bank (ECB) when it meets in Bratislava on Thursday. The latest inflation figures show the annual increase in the cost of living across the 17-nation single-currency area fell from 1.7% to 1.2%, its lowest in three years and well below the ECB's 2% ceiling. Even Jens Weidmann, the ultra-hawkish president of Germany's Bundesbank, would be hard pressed to say there is a threat to price stability.

It's not hard to see why inflationary pressure is abating: the eurozone economy has been flat on its back for the past 18 months. Unemployment rose by 62,000 in March, taking the eurozone jobless rate to yet another record high of 12.1%. Spain and Greece remain the weak spots, but even in Germany labour market conditions are becoming more difficult. Across the eurozone, almost one in four young people are out of work.

Why is unemployment rising? Again, you don't have to be John Maynard Keynes to figure it out. Europe's banking system is bust, there is a shortage of credit, real incomes are under pressure and the deficiency of demand is being exacerbated by austerity overkill. Retail sales figures from Greece show that in February spending was more than 14% lower than a year earlier.

The malaise is spreading from the eurozone's periphery to its core. It will be mid-May before the official growth data for the first quarter of 2013 is published, but the early evidence from Spain, where GDP fell by 0.5%, is not encouraging. Judging by the grim forward-looking surveys of business and consumer confidence, the second quarter will suffer more of the same.

Monetary policy works only with a lag, so whatever the ECB does on Thursday will be too late to prevent the recession deepening. Angela Merkel has made it clear that she does not want to see a cut in the cost of borrowing, but it is time for the ECB to show its independence and act in the interests of all eurozone citizens, not just the one seeking re-election in the German polls this autumn.

In itself, a quarter-point cut in interest rates to 0.5% would do little to revive demand, ease the credit crunch or create jobs. Instead, it should be part of a three-pronged approach to boost growth. The cut in rates should be accompanied by an ECB announcement that it is willing to embrace the unconventional methods deployed by the Federal Reserve, the Bank of England and Japan to underpin activity. It should also be the catalyst for a less aggressive approach to cutting budget deficits, with countries given more time to bring their deficits below the eurozone ceiling of 3% of GDP.

For the past three years, macroeconomic policy in the eurozone has been run on sadomasochistic principles: that only regular doses of pain will ensure countries stick to strict reform programmes.

The upshot of this policy is clear for all to see. Businesses that are starved of credit are mothballing investment and cutting their workforce. Weaker growth means higher-than-expected budget deficits. Permanent austerity has bred social dislocation and political extremism. A different approach is needed to save the eurozone from catastrophe – starting on Thursday.

guardian.co.uk © Guardian News & Media Limited 2010

Published via the Guardian News Feed plugin for WordPress.

Eurozone unemployment hits 12.1%. Nearly one in four young people out of work. Falling inflation makes European Central Bank rate cut more likely. Spanish GDP falls by 0.5%. Italy’s prime minister wins second confidence vote…

 


Powered by Guardian.co.ukThis article titled “Eurozone jobless rate hits record high as inflation falls and Spanish recession deepens – as it happened” was written by Graeme Wearden and Nick Fletcher, for theguardian.com on Tuesday 30th April 2013 08.59 UTC

5.57pm BST

Moody’s downgrades Slovenia

Well it didn't take 24 hours.

After Slovenia earlier delayed pricing a bond pending a possible rating announcement, the announcement has come.

Moody's has downgrades the country's sovereign debt rating from BAA2 to BA1 with a negative outlook. It blamed the state of Slovenia's banking sector, the marked deterioration of the government's balance sheet and uncertain funding prospects that heighten the chances that external assistance will be needed:

Slovenia's vulnerability to external shocks, like though brought about by the crisis in Cyprus, could make it difficult for the sovereign to fund itself at sustainable rates, which increases the likelihood that authorities would need to request an external assistance programme.

Here's one of our earlier pieces looking at the state of the country.

And on that note, it's time to close up for the evening. Thanks for all your comments, and we'll be back tomorrow.

People take part in a demonstration gathering thousands on April 27, 2013 in central Ljubljana to protest against corruption and austerity measures in Slovenia. Photograph:  AFP/Getty Images/Jure Makovec
People take part in a demonstration gathering thousands on April 27, 2013 in central Ljubljana to protest against corruption and austerity measures in Slovenia. Photograph: AFP/Getty Images/Jure Makovec

5.44pm BST

Cyprus MPs unhappy despite bailout vote success

Back to Cyprus. The loan agreement may have been endorsed – if narrowly – but if the incendiary debate that preceded the vote is anything to go by Cyprus is far from being out of the woods, writes Helena Smith.

Indicative of the passions the EU-IMS backed rescue package has unleashed, MPs described the bailout as being far worse than the 1974 Turkish invasion of the island.

"In ten days this government has triggered ten Turkish invasions," NIkos Koulias, who sits in the House as an independent, told the parliament. "I'm not saying that the best solution is the return to the [Cyprus] pound but it will have less [adverse] effects. If we take the €10bn only to give it back to our creditors then we are worthy of our fate," said the lawmaker who voted down the agreement. 

Updated at 5.45pm BST

5.40pm BST

Italy has taken considerable reform steps, says Merkel

Here's the full quote from German chancellor Angela Merkel on Italy at her press conference with the country's new prime minister Enrico Letta, courtesy of Reuters:

We want to ensure Europe emerges from this crisis stronger than it went into it. As part of that, every country must do its part. Italy has taken considerable steps in this regard.

Letta, who is keen to push the growth agenda, said Rome was committed to maintaining budgetary discipline:

Our task is to continue with the policies of fiscal consolidation and keeping public accounts in order.

5.33pm BST

Italy’s Letta calls for same determination on growth as on consolidation

New Italian prime minister Enrico Letta has said he is committed to maintaining the public finances in order.

Speaking at a news conference in Berlin with chancellor Angela Merkel on his visit to Germany, Letta said the crisis the eurozone has been going through has not been solved because Europe has not been strong enough.

Addressing the theme of austerity versus growth, Letta said he wanted to see Europe show the same determination to pursue growthas it does to maintain sound public finances.

Merkel, speaking at a news conference with Letta, said each eurozone country must take its own steps to address its problems. Italy, she said, had already taken considerable steps in the right direction.

She said budget consolidation and growth were not contradictory, and together could lead to better competitiveness. Fighting unemployment was the central issue for Europe (one not going too well to judge by today's figures….)

German chancellor Angela Merkel and Italy's new prime minister Enrico Letta in Berlin. Photograph: AFP/Getty Images/John Macdougall
German chancellor Angela Merkel and Italy’s new prime minister Enrico Letta in Berlin. Photograph: AFP/Getty Images/John Macdougall
Letta welcomed with military honors in Berlin. Photograph: AP Photo/Gero Breloer
Letta welcomed with military honors in Berlin. Photograph: AP Photo/Gero Breloer
After you Angela.... Photograph: AP Photo/Michael Sohn
After you Angela…. Photograph: AP Photo/Michael Sohn

Updated at 5.34pm BST

5.20pm BST

European markets end on a mixed note

European markets have closed for the day and it's been a mixed performance ahead of this week's central bank meetings. Investors have been buoyed recently by the thought of more measures from the banks to stimulate the global economy, not least the ideal of an interest rate cut from the ECB. But today seems to have seen a little profit taking after the rally, given the poor economic figures from Europe and mixed data from the US. So:

• The FTSE 100 finished 27.90 points lower at 6430.12, down 0.43%

• France's Cac closed down 0.31% at 3856.75

• Germany's Dax is up 0.51% at 7913.71

• Italy's FTSE MIB has fallen 0.96% to 16,767.66

• Spain's Ibex is off 0.38% at 8419

The Dow Jones Industrial Average is currently down 0.12% or 17.31 points.

5.02pm BST

Cyprus parliament approves bailout

The Cypriot parliament has narrowly approved the EU bailout, including the hit on depositors' savings.

In a show of hands 29 members voted for approval and 27 against.

Cyprus is now expected to receive a total of €10bn in May.

Updated at 5.14pm BST

4.44pm BST

Deflation not the answer to periphery’s woes, says Capital Economics

If the peripheral eurozone economies regained competitiveness via outright deflation, their public and private sector debt levels would spiral higher as a share of GDP, prompting disaster, according to Capital Economics. European economist Ben May writes:

Our central view is that for the peripheral economies’ competitiveness to be restored over the next five years, while the rest of the eurozone continued to inflate gently, prices (as measured by the GDP deflator) would need to fall by about 23% in Greece, 12% in Italy and 6% in Spain and Portugal.

But if prices fell in line with these estimates and the real economy grew in line with the IMF’s forecasts, in 2020, Greek public debt would be around 170% of GDP, compared to the Troika’s forecast of 124%. In 2020, the Spanish, Portuguese and Italian ratios would also exceed the Troika’s
sustainable benchmark of 120% of GDP.

Yet the picture would probably be worse than this. The IMF’s GDP growth forecasts already look implausibly optimistic, even without deflation. Falling prices would have a further adverse effect. Accordingly, by 2020, government debt could equal 150% of GDP in Spain and Portugal and around 200% in Italy and Greece. Rising anxiety in the bond markets could cause debt service costs to soar, causing the debt position to worsen still further.

These debt ratios would be unsustainable. Fear of them exploding would surely prompt action to bring debt down. But more austerity in the public sector and more deleveraging in the private sector would lead to weaker growth, causing yet more deflation. Swathes of public and private sector
defaults, which would surely follow, would prompt major domestic banking crises.

So internal devaluation (i.e. deflation) would not so much solve the eurozone’s problem as shift its manifestation from one sphere to another. In conditions of heavy indebtedness, as a potential solution to the euro’s ills, internal devaluation is a snare and a delusion.

4.39pm BST

Slovenia delays bond price

Slovenia, which has come under increasing pressure following the chaotic Cypriot bailout, has delayed a dollar bond issue due to be priced today.

The country said the move was "pending a potential ratings announcement."

According to Reuters, such an announcement could come in the next 24 hours.

Updated at 4.45pm BST

4.31pm BST

Cyprus debates crucial bailout agreement ahead of vote

More news on that crucial vote in Cyprus where parliament has begun debating the island’s internationally-sponsored rescue deal ahead of the ballot. Our correspondent Helena Smith writes:

For the past few hours, Cyprus’ 56-seat House of Representatives has been fiercely debating the controversial bailout agreement in the knowledge that the island’s fate now hangs on the rescue package being endorsed.

If, as seems likely, it is passed, MPs say it will be by a whisker – with a majority of one. The swing vote is expected to come from the hardline European party following an eleventh hour pledge by the main opposition Akel and Edek parties to vote down the €10n deal.

The communist Akel, which curiously signed off on many of the measures before being ejected from power in June, has racheted up the rhetoric by calling for a referendum on whether the country should even remain in the eurozone.

Increasingly, even within the island’s business elite, there is a feeling that Cyprus would be better off if it exited the single currency and re-embraced the Cyprus pound. Calls for the island to leave the bloc have mounted as the knowledge has also sunk in that the price of international rescue funds in terms of budget cuts will be far higher than originally envisaged – at €13bn almost double the amount creditors at the EU and IMF had demanded when the agreement was initially sealed on March 25.

Visibly concerned, the island’s president Nikos Anastasiades appealed to MPS to support the bailout package ahead of the make-or-break vote. "An appeal: our country is passing through a critical time that calls for a sense of national responsibility and conduct in a manner which is consistent with the greater good," he told reporters as a visited an army camp earlier in the day.

Even if the loan deal is passed as is now expected, there is still a very real possibility that the tiny nation state whose total economic output amounts to less than 2% of the euro zone's entire GDP, will leave the 17-member bloc analysts say.

Protestors against the bailout package gather as the Cypriot parliament votes on the deal. Photograph: EPA/Katia Christodoulou
Protestors against the bailout package gather as the Cypriot parliament votes on the deal. Photograph: EPA/Katia Christodoulou

4.09pm BST

Dairy group Glanbia to create 2,000 jobs in Ireland

There was better news on the jobs from Ireland today and in one of the most stressed sectors hit by the Celtic Tiger crash – contruction. Henry McDonald in Dublin writes:

Glanbia Ingredients Ireland announced it will create more than 2,000 jobs, 450 of them in the construction sector as part of an expansion programme.

Embattled Taoiseach Enda Kenny was on hand to hear the announcement from the Republic's biggest diary ingredients company with Glanbia claiming the investment will inject a further €400 million into the country's rural economy. It will be centred on a new dairy production facility at Belview, between counties Kilkenny and Waterford in Ireland's southeast region.

According to Glanbia's chief executive Jim Bergin the plant will be entirely focused on export markets and will supply a range of nutritional powders to an increasing number of regions including the Middle East, Africa, Central America and Asia. It is yet another example of the Republic's relatively strong export sector particulary in the food industry that has remained robust in comparison to the recession battered domestic economy.

Taoiseach Enda Kenny (centre) with Glanbia chairman Liam Herlihy (right) and chief executive Jim Bergin (left). Photograph: Julien Behal/PA Wire
Taoiseach Enda Kenny (centre) with Glanbia chairman Liam Herlihy and chief executive Jim Bergin (left). Photograph: Julien Behal/PA Wire

Updated at 4.10pm BST

3.16pm BST

US consumer confidence improves but business activity misses forecasts

And after the good, a more mixed picture.

US consumer confidence increased in April, according to the conference board, with its index up from 61.9 in March to 68.1. James Knightley at ING Bank said:

The index has been rather choppy since the start of the year, which likely reflects uncertainty and worry over the degree of spending sequestration and tax rises. Nonetheless, fears over the impact on household finances seem to be easing with consumer expectations rising to 73.3 from 63.7.

Given this series has a decent correlation with consumer spending, this is an encouraging piece of news.

But a measure of US business activity showed a contraction for the first time since September 2009.

The ISM/Chicago index fell to 49% in April (anything below 50 is a contraction) compared to 52.4 in March and missing expectations of an improvement to 52.5.

Updated at 3.24pm BST

2.18pm BST

US house prices rise more than expected

More positive news from the US housing market. Single home prices rose by more than expected in February, recording their best rise since May 2006.

The S&P/Case Shiller index rose a seasonally adjusted 1.2% compared to expectations of a 0.9% rise. Year on year the rise was 9.3%. As the US Federal Reserve meets to consider its next move on measures to boost the world's largest economy, it appears the housing market is one bright spot.

2.08pm BST

Larry Elliott: ECB must heed the warning signs

Our economics editor, Larry Elliott, writes that the ECB must show decisive action on Thursday by easing monetary policy. Cutting rates, alone, isn't enough.

Larry writes:

In itself, a quarter-point cut in interest rates to 0.5% would do little to revive demand, ease the credit crunch or create jobs. Instead, it should be part of a three-pronged approach to boost growth. The cut in rates should be accompanied by an ECB announcement that it is willing to embrace the unconventional methods deployed by the Federal Reserve, the Bank of England and Japan to underpin activity. It should also be the catalyst for a less aggressive approach to cutting budget deficits, with countries given more time to bring their deficits below the eurozone ceiling of 3% of GDP.

For the past three years, macroeconomic policy in the eurozone has been run on sadomasochistic principles: that only regular doses of pain will ensure countries stick to strict reform programmes.

The upshot of this policy is clear for all to see. Businesses that are starved of credit are mothballing investment and cutting their workforce. Weaker growth means higher-than-expected budget deficits. Permanent austerity has bred social dislocation and political extremism. A different approach is needed to save the eurozone from catastrophe – starting on Thursday.

More here: European Central Bank must heed eurozone warning signs

And I'm handing over to my colleague Nick Fletcher…. thanks all GW

1.59pm BST

Photos: Italian vote of confidence debate

A couple of photos from today's confidence debate in the Italian senate, which the new government won confortably (see 1.26pm)

Former Premier Silvio Berlusconi, tsecond from right at top, shakes hands with an unidentified lawmaker as he attends a session for a second vote of confidence to confirm the new government, in the Italian Senate in Rome, Tuesday, April 30, 2013.
Former Premier Silvio Berlusconi shakes hands with an unidentified lawmaker as he attends a session for a second vote of confidence to confirm the new government, in the Italian Senate in Rome, Tuesday, April 30, 2013. Photograph: Alessandra Tarantino/AP
Italian Prime Minister Enrico Letta gestures at the Upper house of the parliament in Rome, April 30, 2013.
Italian Prime Minister Enrico Letta gestures at the Upper house of the parliament in Rome. Photograph: GIAMPIERO SPOSITO/REUTERS

During the debate, Silvio Berlusconi warned that his party could walk away from the coalition unless prime minister Letta yields to their demands for tax cuts, and slows its austerity programme.

Reuters has the details:

In a sign of the intense pressure he will face, four-times Prime Minister Silvio Berlusconi threatened to pull his centre-right People of Freedom party out of the coalition if it does not abolish an unpopular housing tax.

Berlusconi, who is not in cabinet but is playing a decisive role behind the scenes, added that the government must re-negotiate EU deficit commitments, echoing similar comments made earlier by two of Letta's own ministers.

But Foreign Minister Emma Bonino, a former European commissioner, responded that Italy cannot alter its targets, a view repeated by a spokesman for the European Commission in Brussels. "The targets, the objectives remain those that have been agreed," Commission spokesman Simon O'Connor said.

Speaking in the Senate before the confidence vote, Letta argued that Italy's need to ease austerity during the economic slump was shared by many European countries. "What is happening in Italy is happening all over Europe," Letta said. "Either there is a common European destiny or each country will eventually decline on its own."

1.26pm BST

Italian PM wins second vote of confidence

Breaking news from Italy — Enrico Letta has romped to victory in his second confidence vote, in the upper house of the Italian parliament.

A total of 233 Senators backed Letta's govenrment, with 59 voting against. There were 18 abstentions.

Now the new Italian PM faces his third test — meeting Angela Merkel in Berlin tonight.

Letta has been guiding expectations downwards….

Updated at 1.27pm BST

1.20pm BST

Rate (cut) expectations

Mario Draghi, President of the European Central Bank, ECB (L), reacts during the awarding ceremony of the Generation Euro Student's Award in Frankfurt/Main, Germany, on April 17, 2013.
Will Mario Draghi, president of the European Central Bank, ECB, deliver the goods on Thursday. Photograph: DANIEL ROLAND/AFP/Getty Images

Several City analysts and economists reckon the European Central Bank will bow to pressure this Thursday and cut interest rates by 0.25%, from 0.75% at present.

There's not much confidence that merely trimming borrowing costs will do much good, though. Perhaps Mario Draghi will produce something more surprising?

Richard Driver, currency analyst at Caxton FX explains:

This morning’s weak eurozone growth and unemployment figures only pile further pressure on the ECB to cut interest rates.

Other than Germany’s phobia of low interest rates, there really is nothing stopping the ECB and with this morning’s eurozone inflation data coming in so weak, the ground has probably never been more fertile for a rate cut.

Whether or not an interest rate cut will make any material difference in terms of economic growth is another matter but the ECB have nothing to lose by trying now, and we think they will.

The ECB runs the risk of diminishing its own credibility if it continues to ignore the deteriorating eurozone growth profile.

The new Italian PM’s pledge to fight austerity could help usher in a new approach to the balance between debt reduction and growth-promotion in the eurozone – something clearly needs to change.

Kit Juckes of Société Générale reckons the case for easier monetary easing is "plain for all to see", with unemployment up, inflation down, and credit being squeezed. But he suggests that a scheme to help small firms borrow would be more valuable. Something similar to the UK's funding for lending scheme:

Kit writes:

The case for a rate cut in Europe is two-fold. Firstly, as my colleague Adam Kurpiel argued in last week's Fixed Income Weekly, a rate cut would probably help slow the pace at which LTROs are being repaid, and therefore reverse the apparent unwinding of QE that is happening in the Euro Zone. I don't actually know to what extent a decrease in the excess liquidity in the Euro System affects anything beyond sentiment (mopping up the excess water around an over-filled bath tub isn't the same as emptying the tub!) but sentiment would be affected.

The second reason for acting is rather more banal – they'll cut because it does no harm and at the margin may help, even if only a little. Mr Draghi is not above doing things to help sentiment and indeed, at this stage, he must be aware of the risk of disappointment if he doesn't deliver something.

Wider expectations are focused around the idea that the ECB will do something to boost the supply of credit to companies and in particular SMEs. That, in some ways, would follow the UK's FLS scheme.

Brenda Kelly, senior market strategist at IG, confirms that recent poor data is actually cheering the City:

Investors are choosing to rely on optimism that the US Federal Reserve will leave its current stimulus in place and that the European Central Bank will look to cut its key lending rate.

Some economists are even calling for a 0.5% rate cut from ECB president Mario Draghi on Thursday in light of the evident decline in the German economy.

Setting aside the dearth of positive effects a rate cut might actually bring, one could question the wisdom of such an extreme rate reduction as it would leave the ECB with even fewer stimuli in its already depleted arsenal.

12.32pm BST

Gloomy data doesn’t scare the City

The financial markets are unphased by today's record unemployment rate in the eurozone (see 10.00am onwards) and surprise drop in euro-area inflation (see 10.34am)

European stock markets are pretty flat, and the euro has only inched a little lower.

City traders are shrugging off bad news on the expectation that central banks will continue to provide fresh stimulus measures to keep the show on the road. That won't rule out isolated crises (such as Cyprus) or the sudden slump in the gold price this month, but should prevent a rout. Despite the troubles in the real economy. Or so the theory goes.

Sebastien Galy of Société Générale fears that Europe is heading for rapid "Japanification" – a sustained period of little growth and low inflation.

He writes:

We are not heading for a Lehman like moment of global deleveraging, but a series of bone jarring thuds (local bubbles) along an otherwise beautiful scenic road.

It is the same feeling you get when visiting the wildlife reserve somewhere in central africa. The beautiful ride leaves you happy you didn't fall into any sinkhole, happy the lion no one told you about was busy on a gazelle and you didn't get caught on the way back by a friendly act of spontaneous local taxation on the road back. Otherwise it was a wonderful trip.

But the tourists may be jittery (to extend the safari analogy). A Reuters poll this lunchtime found that investors have moved more assets into cash, cutting their exposure to shares (as a percentage of total wealth) to the lowest level since 2007. Perhaps they can hear that lion roaring….

Updated at 12.38pm BST

11.40am BST

Cyprus bailout vote could be tight

Today's vote in the Cyprus parliament over its international loan deal is likely to be rather close, but most analysts reckon the Nicosia government will squeeze home.

The vote is constitutionally required before Cyprus can accept the terms of its bailout, and receive the first tranche of aid. Without that loan, Cyprus risks running out of money fast.

The complications arise because prime minister Nicos Anastasiades's Disy party only holds 20 seats in the 56-seat parliament. His coalition partner, Diko, holds another 8 — and has said it will reluctantly back the deal as "there's no other choice".

That still leaves Anastasiades short of one vote for an actual majority.

Three opposition parties with a total of 25 MPs have vowed to vote against the proposal, as has one independent MP.

The two remaining MPs both represent the the European party, which appears to be taking a balanced approach to the issue. Cyprus News Agency reports that one will vote against the loan agreement and the other will support it.

That would mean a 29-27 win for Anastasiades.

The debate is due to begin at 3pm local time (1pm BST), with a vote at 7pm local time (5pm BST).

Government spokesman Christos Stylianides warned ahead of the vote that it would be a disaster of Cyprus were to reject the deal at this late stage.

We have had enough of delusions. We don't have another choice.

(more details on the voting intentions here on BusinessWeek)

Updated at 2.00pm BST

11.15am BST

Greek retail sales tumble again

We're overwhelmed by disappointing economic news today.

Retail sales in Greece have declined by 14.4% year-on-year in February – the only relief is that it's slightly less severe than January's 16.8% slump.

11.01am BST

Analyst Cormac Leech points out that Germany's insistance on keeping inflation under control risks rebounding on them:

Yesterday, German inflation data showed that the cost of living actually fell last month, by 0.5% month-on-month.

10.47am BST

Record jobless – early reaction

Here's some early reaction to today's eurozone unemployment figures, and inflation data, from City analysts and commentators:

10.34am BST

Eurozone inflation slides — interest rate cut next?

Eurostat also reported this morning that inflation across the Eurozone has fallen to just 1.2% in April. That's a sharp fall on March's 1.7%, and a much smaller rise in the cost of living than analysts had expected.

That makes it more likely that the European Central Bank will bow to pressure and cut interest rates at its next monthly meeting on Thursday.

10.28am BST

Young people (once again) suffer

The figures for youth unemployment in Europe are so depressing and alarming, and part of a pattern we've been seeing for too many months.

Nearly one in four young people in the eurozone are out of work – and more than half in Spain.

The youth unemployment rate in the European Union rose to 23.5% in March (up from 22.6% a year ago), and 24.0% in the euro area (up from 22.5%).

And the periphery of Southern Europe continues to suffer the most, reinforcing all the fears of a growing lost generation.

The highest youth jobless rates were recorded in Spain (55.9%), Italy (38.4%) and Portugal (38.3%), and the lowest in Germany and Austria (both 7.6%).

10.18am BST

Unemployment across the EU has been rising steadily for the last five years, as this graph from Eurostat today shows:

Euro area and EU27 unemployment rates, to March 2013
Euro area (blue) and EU27 (black) unemployment rates. Photograph: Eurostat

10.14am BST

See the data yourself

Today's European unemployment data is online here: Euro area unemployment rate at 12.1%

10.12am BST

More details of today's jobless data.

Eurozone:

Unemployment rate in the euro area rose to a new record of 12.1% in March, up from 12.0% in February

There are now 19.211m people unemployed across the euro area, an increase of 1.723m in the last 12 months.

European Union

Unemployment rate in the EU was stable at 10.9% in March.

There are now 26.521m people unemployed across the euro area, an increase of 1.814m in the last 12 months.

Countries with the highest jobless rates:

Greece: 27.2% (in January)

Spain: 26.2%

Portugal: 17.5%

Countries with the lowest jobless rates

Austria: 4.7%

Germany: 5.4%

Luxembourg: 5.7%

Update

As a clarification on the German figure: Eurostat says it uses the trend component for Germany "instead of the more volatile seasonally adjusted
data." Hence the figure of 5.4% above (which is for March) does not tally with the 6.9% jobless rate quoted below which is (a) for April and ( b) seasonally adjusted.

Updated at 3.13pm BST

10.00am BST

Eurozone unemployment data released

Eurozone unemployment has, as we feared, hit a new record high of 12.1%.

More to follow.

Updated at 10.01am BST

9.59am BST

Is Abenomics having an impact?

There are encouraging signs from Japan today that its massive monetary stimulus package is having an effect.

Amid a glut of economic data overnight, Japanese household spending rose by 5.2% in March — the fastest monthly rise in nine years.

That suggests consumers are more confident about economic prospects (or deciding that it's better to spend than safe as their central bank battles with deflation).

Japan's jobless rate also dropped, to 4.1%, while manufacturing output rose by its fastest pace in a year in April.

There are also reasons to be cautious — retail sales, for example, were weaker than expected with a 0.3% year-on-year fall.

But the talk in Toyko was the Abenomics — the prime minister's new programme to end stagnation — is working.

Yoshiki Shinke, senior economist, Dai-Ichi Life Research Institute, said:

I expect the first quarter gross domestic product growth to exceed an annualised 2 percent, and if the corporate sector catches up with households, the pace of growth could accelerate…

Recovery in exports has been slow and so has industrial output, but as a weak yen is expected to impact shipments from now on, exports and factory output will pick up in coming months.

9.40am BST

Spanish recession to continue

Looking back at Spain's ongoing recession (see 8.02am onwards), and economists fear that the contraction will be repeated through the year.

Silvio Peruzzo of Nomura doesn't expect to see growth until "some time next year", adding"

We recognize the reforms of the government have been significant, but the problem is the starting position of the Spanish economy was much worse than any other European economies and adjusting in this environment is a lengthy process.

And the latest IMF forecast is for a 1.6% contraction in Spain this year.

However, Reuters flags up that finance minister Luis de Guindos struck an upbeat tone on Spanish radio:

All the indicators which look forward in Spain point to recovery, and a much better economy than one year ago.

Is he right? Well, trade data today showed that Spain's current account deficit came in at €1.3bn in February, down from €5.88bn. Exports rose 4.4% in the month, while imports shrank by 8.2%.

9.13am BST

Italian unemployment rate sticks at 11.5%

Italy's jobless data, just released, is better than expected – but still shows a country struggling with a severe youth unemployment problem.

The overall Italian unemployment rate was recorded at 11.5% in March, in line with February (which was revised down from 11.6%).

The jobless rate among under-25s, though, rose to 38.4% from 37.8%.

The data also confirmed that Italy faces a major problem getting people into the jobs market at all — its employment rate was just 56.3% (down 0.1 percentage point).

Updated at 9.14am BST

9.02am BST

Germany's jobless total has risen by 4,000 people in April March, on a sasonally adjusted basis, worse than the 2,000 rise analysts had expected.

That leaves the German jobless rate at 6.9%, on a seasonally adjusted basis.

Updated at 9.07am BST

8.54am BST

Interesting… one of Enrico Letta's new ministers has proposed changing the terms of Europe's stability and growth pact.

Flavio Zanonato told La Repubblica that Italy wants governments to be given more flexibility on their deficit targets.He suggested that 'investment spending' — money spend on structural projects that would stimuluate long-term growth — should be excluded from the targets.

Reuters has the details:

Italy's new government wants to renegotiate the pact of stability with the European Union, the industry minister said in an interview on Tuesday.

Flavio Zanonato said Italy needed to pursue a credible economic policy to maintain its reputation in Europe and keep the spread between Italian and German bond yields low.

"But we are also interested in renegotiating with the union the pact of stability," he told La Repubblica newspaper.

Zanonato said other countries such as France were calling for similar actions. "In particular it should be possible to exclude from the pact investment spending," he said.

The stability and growth pact is notorious for being loosly applied in the early days of the eurozone (whem both France and Germany breached its deficit limits without penalty) only to now be used to force struggling peripheral countries to cut their borrowing levels….

8.38am BST

News of the deepening Spanish recession comes four days after the country's unemployment total hit a new record high of 27%. That shocking total (more details here) is one reason that today's eurozone-wide jobless rate is expected to rise again.

Spain already appears to be on track to miss its deficit reduction targets for this year — and there are signs this morning that the government may be bowing to pressure to stimulate the economy:

8.02am BST

Spanish recession continues

As feared, Spain's economy has contracted by 0.5% for the seventh quarter in a row.

Data just released confirmed analyst forecasts, with Spanish GDP now 2% smaller than a year ago as the country's austerity programme — and the wider eurozone recession — continue to bite.

7.35am BST

Eurozone jobless rate expected to hit new record

Italy's designaded Prime Minister Enrico Letta gives his first speech for confidence in front of the Deputy chamber.
Prime Minister Enrico Letta (centre) will meet Angela Merkel for talks in Berlin tonight. Photograph: Simona Granati/Demotix/Corbis

Good morning, and welcome to our rolling coverage of the latest events in the eurozone crisis and across the global economy.

It could be another morning of bad economic news in Europe, as the ongoing recession hits firms and forces more people out of work.

The latest eurozone unemployment data, due at 10am BST, is expected to show the region's jobless rate has risen to a new record high of 12.1% in March (from 12% last month).

Italy's unemployment rate is also forecast to increase, showing the challenges facing its new government as it strives to drag the country back to growth.

And in Spain, new GDP data will doubtless confirm that the country's economy contracted again in the first three months of 2013 (economists expect a fall of 0.5%).

As Michael Hewson of CMC Markets puts it this morning:

The Spanish economy continues to buckle under record high unemployment of 27% and rapidly declining house price values.

With ratings agency Standard and Poor’s predicting that property prices could fall another 13% by year end the prognosis looks grim not only in Spain but for the rest of Europe as well.

A grim tale indeed, and one which will set the scene for a meeting tonight between the new Italian prime minister, Enrico Letta, and German chancellor Angela Merkel.

Having won hist first confidence vote last night (see Monday's blog), Letta faces a second one in the Italian Senate today. But visit to Berlin this evening will could be more exciting, following his pledge to spare Italy from 'fiscal consolidation alone'.

There could also be drama in Cyprus today, as its parliament votes on the terms of the country's bailout deal. The plan is expected to be passed with a narrow majority, but there could be fiery criticism of the way the deal was (mis)-handled.

I'll be following all the events through the day.

Updated at 7.52am BST

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Prime minister Enrico Letta presenting economic program in front of Parliament, with vote of confidence in his new government expected around 8pm local time. Bond auction success for Italy, but analysts cautious. Spanish retail sales tumble again…

 


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9.24pm BST

And finally…

Having won tonight's test, Enrico Letta's government faces a second vote of confidence on Tuesday in the Senate. That vote, though, could be overshadowed by his visit to Berlin to meet Angela Merkel.

Letta's vow to spare Italy from the threat of death through 'fiscal consolidation alone' could set up a clash with the German chancellor.

Here's AP's take on tonight's vote:

Italy's new government has easily won a confidence vote of confirmation in the lower house of Parliament.

Premier Enrico Letta's coalition of rival political blocs won the backing of the Chamber of Deputies on Monday night in a mandatory confidence vote on his coalition. The Chamber voted 453 to approve the government, and 153 voted no.

The government faces a required second vote Tuesday in the Senate, where Letta's center-left forces don't have the majority. But media mogul Silvio Berlusconi's center-right party, which is part of the tense coalition government, is expected to give Letta sufficient backing.

Earlier, Letta told the Chamber's lawmakers he intended to lower the tax burden on Italians in hopes of stimulating economic growth.

That's all for tonight. I'll be back tomorrow – until then, goodnight, and thanks. GW

9.12pm BST

Letta wins confidence vote

Finally, news from Rome – the Italian government has won its confidence vote in the lower house of parliament, by a comfortable margin of 453 votes versus 153.

6.39pm BST

One other thing to flag up tonight — the Cyprus government has said it plans to limit the immunity from prosecution enjoyed by its president, Nicos Anastasiades.

It's an attempt to rebuild public confidence in the nation's government following the traumatic way in which its bailout was handled.

Reuters has full details: Cyprus to limit president's immunity from prosecution.

(thanks to reader Hill777 in the comments below for flagging up)

6.27pm BST

Summary of key events

A quick recap on the sitation tonight, while we wait for the result of the vote of confidence in the Italian parliament.

• Italy's new prime minister, Enrico Letta, has pledged to pursue a new growth agenda at home and across Europe, in his first speech since taking office.

Letta opened a confidence debate in the lower house of the Italian parliament by warning that Italy faces a serious economic situation. The 46-year old declared that the country desperately needed a new economic strategy, saying:

We will die of fiscal consolidation alone, growth policies cannot wait any longer.

Letta, who is due in Berlin for talks with Angela Merkel on Tuesday, told MPs that he would cut workplace taxes, and make it more affordable for firms to employ young peope.

He also pledged to reform the welfare system, abolish the housing tax introduced by his predessor, Mario Monti, and hopefully cancel a planned rise in sales tax due this summer.

We have highlights of Letta's speech from 2.23pm onwards, with photos at 3.22pm

Italy's designaded Prime Minister Enrico Letta gives his first speech during before the confidence vote at Deputy chamber.
Enrico Letta speaking today. Photograph: Alessandra Benedetti/Corbis

Our Southern Europe editor, John Hooper, said Letta had offered an "an ambitious government programme". The lack of commitment to austerity might concern Germany, though (see 3.56pm for John's reaction in full).

• Letta's speech came after the financial markets responded positively to the news of a new government in Italy. Shares rallied in Milan and Italian government bonds strengthened, driving down the yield (or interest rate). (see 5.11pm for closing prices)

Italy also sold €6bn of new government debt at the lowest yields since October 2010. Some analysts, though, questioned whether the country was really such a safe credit risk (see 10.31am onwards).

And in other eurozone news…

Spanish retail sales continued to slump in the face of its ongoing recession. They tumbled 8.9% on a year-on-year basis in March (see 9.25am).

Eurozone consumer and economic confidence also remained worryingly low, according to the latest survey from the EC (see 10.16am)

And tomorrow… the Cyprus government will vote on the terms of its bailout plan (see 6.02pm).

6.02pm BST

Cyprus bailout vote tomorrow

Tomorrow, we're expecting the Cypriot parliament to vote on the terms of its own bailout package.

The government is expected to narrowly win. But, as the Open Europe think tank flags up, it could be close….. amid talk that Cyprus could yet quit the eurozone.

Open Europe has also published an interesting piece about how German politicians have been unphased by a strong attack on Angela Merkel from the French socialist party (so far, anyway):

Sorry – who are you again? The rather indifferent German response to French socialists' attack on Merkel

5.52pm BST

Standard & Poor's has announced tonight that the creation of the new Italian coalition has 'no immediate implications" to the country's credit rating.

S&P indicated that Enrico Letta will struggle to bring in the pro-growth reforms he spoke about today.

5.22pm BST

A tag cloud analysis of Enrico Letta's speech shows that the new prime minister didn't say much about one of the key challenges facing Italy – how to liberalise and reform its economy:

Tag cloud of Enrico Letta's speech
Photograph: Europa

That's from Europa – click here to see the original.

Updated at 5.44pm BST

5.15pm BST

Angelino Alfano, the deputy leader of the new Italian government (and key member of the centre-right), has welcomed Enrico Letta's speech.

And as our Southern Europe editor, John Hooper, points out, that won't displease the head of the radical Five Star Movement, Beppe Grillo, who has already denounced the coalition as a cosy stitch-up betweeen the established parties:

5.11pm BST

Europe's stock markets have given the new Italian government a cautious welcome today, with the main indices all closing higher – led by Milan.

As Chris Beauchamp of IG Index explains:

Investors may not have broken open the champagne to celebrate Mr Letta’s incumbency, but any progress in the tortured world of Italian politics is to be welcomed.

He now faces the problem of balancing the demands of bond markets with the expectations of an austerity-weary Italian populace, but the ‘grand coalition’ nature of his administration raises hope that the Italians will unite behind him to put the eurozone crisis firmly behind them.

Italian FTSE MIB: up 364 points at 16929, + 2.2%

Spanish IBEX: up 153 points at 8450, + 1.85%

FTSE 100: up 31 points at 6458, + 0.5%

German DAX: up 58.7 points at 7873, + 0.75%

French CAC: up 58.6 points at 3868, +1.5%

Updated at 5.11pm BST

5.01pm BST

Enrico Letta is expected to hold talks with the head of the European Council, Herman Van Rompuy, on Wednesday after his meeting with Angela Merkel tomorrow night:

4.37pm BST

Enrico Letta's pledge to create a new growth strategy for Italy should be welcomed in the US, which hasn't hidden its frustration over Europe's economic plans.

Last night, Barack Obama said he hopes to work with Enrico Letta to stimulate economic growth, in an official statement from the White House congratulating Letta and his ministers.

The United States and Italy share an enduring and essential friendship — one built on shared values and common commitment to promote peace, liberty, and prosperity both regionally and across the globe, including as NATO allies.

The President looks forward to working closely with Prime Minister Letta and President Napolitano as our two countries jointly seek to promote trade, jobs, and growth on both sides of the Atlantic and tackle today’s complex security challenges.

Earlier this month, Treasury secretary Jack Lew visited Brussels to urge leaders to stimulate economic demand.

Updated at 4.55pm BST

4.07pm BST

And here's Associated Press's first take on the Letta speech:

Italy's new premier says his broad coalition will work to heal the nation's finances while encouraging economic growth.

Enrico Letta is laying out his vision Monday of a pro-European Italy focused on spurring investments and job creation. The center-left leader, who has brought media mogul Silvio Berlusconi's conservatives together in a tense coalition, is seeking support as he faces for confidence votes in Parliament.

Appeasing Berlusconi, Letta said Italians won't have to pay an unpopular property tax this June while a system fairer to the less affluent is devised.

Financial markets have already signaled approval of this apparent end of the months-long political deadlock. Letta says he'll soon go to Brussels, Berlin and Paris to reassure EU allies about Italian economic seriousness.

3.56pm BST

John Hooper: An ambitious programme, but will Merkel like it?

Our Southern Europe editor, John Hooper, provides this rapid analysis of Enrico Letta's speech this afternoon:

Two things strike me immediately about Letta’s speech.

The first is that it was not that of a man who expects to pass a few basic reforms and then clear off. This was an ambitious government programme.

He talked about introducing a new electoral law; reforming the constitution to give the lower and upper houses of parliament different roles, and abolishing an entire level of government (that of the provincial administrations). But the latter was one of the few indications of where Letta intended to get the cash for what appear to be ambitious plans to boost spending and cut taxes.

This was the second point, and I’m not entirely sure that the markets – understandably relieved that the political deadlock here has been broken – have taken it on board. Letta said he would drop an unpopular tax on first homes that brought several billion last year. He plans to reduce employers’ contributions (the ‘tax on jobs’) and he said he was mulling a safety net benefit for families in difficulty because of the recession.

 This is all fine stuff, and it is in line with what many economists would recommend. But it’s not exactly the kind of fiscal austerity that Berlin (and the markets, for the most part) have continued to demand of southern European countries like Italy.

 Silvio Berlusconi’s people were visibly delighted. But I suspect that Letta will be in for a rather cautious welcome when he goes to see Mrs Merkel tomorrow.

3.37pm BST

Shares on the Italian stock market have rallied higher as Enrico Letta outlined his legislative plans. The FTSE MIB is now up 345 points, or 2.1%, at 16911.

3.26pm BST

Letta to visit Germany tomorrow

Enrico Letta will fly to Berlin on Tuesday night for talks with Angela Merkel, part of a flying trip around key European capitals.

The German government just announced that the two leaders will hold a press conference around 6pm local time (5pm BST) before having dinner together.

3.22pm BST

Photos: Enrico Letta’s speech

Here's a couple of photos of Italy's new prime minister speaking at this afternoon's vote of confidence debate, in which he pledged to deliver economic growth, reform welfare provision and clean up the Italian political system (see 2.23pm onwards)

Italy's new Prime Minister Enrico Letta delivers his speech at the Parliament in Rome on April 29, 2013, next to his vice Premier and Interior Minister Angelino Alfano (L) and Foreign Minister, Emma Bonino (R).
Enrico Letta delivers his speech alongside vice Premier and Interior Minister Angelino Alfano (left) and Foreign Minister, Emma Bonino (right). Photograph: ANDREAS SOLARO/AFP/Getty Images
Prime Minister Enrico Letta, standing at center surrounded by his Cabinet, delivers his speech during a vote of confidence to confirm the government, in the lower house of Parliament, in Rome, Monday, April 29, 2013.
Prime Minister Enrico Letta, surrounded by his Cabinet. Photograph: Andrew Medichini/AP

And here's a photo of MPs applauding Pier Luigi Bersani, who is stepping down as Democratic Party (PD) leader. After failing to agree a coalition deal himself, Bersani must now watch his former deputy, Letta, take power.

Italian deputies applaud out-going Democratic Party (PD) general secretary Pier Luigi Bersani (C - red tie) as Italy's new Prime Minister Enrico Letta delivers his speech at the Parliament in Rome on April 29, 2013.
Photograph: ANDREAS SOLARO/AFP/Getty Images

3.08pm BST

Turning to the Italian electoral system, Letta told parliament that Italy must make a commitment to making reforms in time for the next election.

This is a key demand from Italy's president, Giorgio Napolitano, who has threatened to resign unless changes were made.

Letta said his government would examine the state of progress in 18 months, and warned of 'consequences' (which weren't defined) if the process were blocked.

Updated at 3.15pm BST

3.01pm BST

Italian ministers face pay cut

Enrico Letta's government will cut ministers' "supplementary salaries" and other benefits, as part of a drive to cut spending.

He also told parliament he would work with Italy's unions to bring down unemployment:

We need a welfare system which is more universal, more focused on young people and women, extending it to those who are not covered, especially temporary workers.

2.46pm BST

Plans to increase Italy's VAT rate by 1 percentage point, to 22%, will be dropped.

2.40pm BST

Letta: Italy will die without growth policies

Here's the key quote from Enrico Letta's speech this afternoon, explainign the urgent need for growth:

We will die of fiscal consolidation alone, growth policies cannot wait any longer.

(that's via Reuters).

2.38pm BST

Enrico Letta is pledging to reduce taxes on workers and young people, in a drive to stimulate economic growth.

He also said he would halt the unpopular IMU housing tax from June, as demanded by Silvio Berlusconi (see 11.28am for details).

That should ensure the support of Berlusconi's PdL party in this evening's vote.

Letta also vowed to fight corruption in the Italian system by strengthening its justice system.

2.25pm BST

Letta: We need a new growth policy

Enrico Letta, the new Italian prime minister, is teling MPs in Rome that Italy faces a "serious economic situation".

He kicked off today's confidence debate by warning that the country simply cannot cope without new policies for growth.

Letta told MPs that he would visit Brussels, Paris and Berlin this week to meet fellow EU leaders and top officials and demonstrate that he is still committed to Italy's budget targets.

But he also insisted that Europe must change its approach to the financial crisis, so that it can become a "motor for growth".

More to follow

Updated at 2.25pm BST

2.23pm BST

Italian confidence debate begins

Enrico Letta has begun speaking in the Italian parliament, as today's confidence debate gets underway (with a vote scheduled for around 8pm CET).

General view of the Lower house of the parliament in Rome, April 29, 2013.
The lower house of the Italian parliament in Rome today. Photograph: ALESSANDRO BIANCHI/REUTERS

Updated at 3.03pm BST

2.13pm BST

The Bank of Italy has warned that bad debts across the country's banking sector will continue to rise this year.

BOI's latest financial stability report shows that 7.2% of all corporate loans are now in arrears, led by the building industry. It warned that the situation is getting worse:

There is an increase above all in bad loans to companies, especially in the construction sector..

According to leading indicators a further deterioration is underway.

Not surprising, given Italy's economy is set to keep shrinking this year.

Updated at 2.15pm BST

1.51pm BST

Consumer prices in Germany fell by 0.5% in April compared with March, and were just 1.2% higher than a year ago, according to fresh inflation data released this afternoon.

That might just make it even easier for the European Central Bank to cut interest rates when it meets on Thursday (although whether that would do much good is a moot point …)

Updated at 2.20pm BST

1.45pm BST

Italian deputy Prime Minister and Interior Minister Angelino Alfano (R) cheers with Economy and Finance Minister Fabrizio Saccomanni (L) at the end of the swearing in ceremony of the new government at the Quirinale Palace in Rome on April 28, 2013.
Economy and Finance Minister Fabrizio Saccomanni (left) at the end of Sunday’s swearing in ceremony, with Italian deputy Prime Minister and Interior Minister Angelino Alfano (right). Photograph: VINCENZO PINTO/AFP/Getty Images

CNBC has published a nice piece about Italy's new economy minister, Fabrizio Saccomanni, and his close links to the head of the European Central Bank, Mario Draghi:

It explains that Saccomanni's job is to reassure the financial markets that Italy hasn't lost its commitment to fiscal responsibility:

When Mario Draghi left the Italian central bank to go to the European Central Bank (ECB) in 2011, he backed his number two to replace him – only for then prime minister Silvio Berlusconi to oppose the move. Now that Fabrizio Saccomanni has "made it" to head the economy ministry, markets may expect him to be the ECB's new man in Rome.

"Saccomanni is definitely the guy that can keep the dialogue open between Italy and the European Central bank," Giada Giani, European economist at Citigroup told CNBC on Monday.

"He was Draghi's appointed number two at the Italian central bank so he was already his man within the bank. He was definitely one of the favorite guys to succeed him when he left to go to the ECB," Giani added.

Here's the full article: Is Italy's Economy Minister Draghi's Man in Rome?

Saccomanni gave a fairly broad-brush interview yesterday in which he suggested that he would aim to cut taxes, "restructure the state budget" and cut wasteful areas of public spending (Reuters has more details).

We should get more details in this afternoon's condidence debate (which starts around 2pm BST).

Updated at 2.21pm BST

1.26pm BST

Market update

In Milan, the main Italian stock index is up 1.5% this lunchtime – as the stock market rally following the creation of Enrico Letta's new government continues.

Italian government bonds have also continued to strengthen, pushing down yields (Italy's implicit cost of borrowing) following today's succesful bond sale (see 10.31am onwards).

• 10-year Italian bonds yields: down 12.5 basis points at 3.94%.

And here's the latest stock market prices:

Italian FTSE MIB: up 239 points at 16084, +1.44%

FTSE 100: up up 6 points at 6432, + 0.1%

German DAX: up 29 points at 7841, + 0.35%

Spanish IBEX: up 85 points at 8383, + 1.0%

French CAC: up 34 points at 3844, +0.8%

Traders work at their desks in front of the DAX board at the Frankfurt stock exchange April 29, 2013.
Traders working in front of the DAX board at the Frankfurt stock exchange this morning. Photograph: STRINGER/GERMANY/REUTERS

12.55pm BST

Asmussen: come on in, the water’s lovely

Jörg Asmussen, the German member of the European Central Bank's governing council, insisted today that the eurozone will survive the current crisis, and emerge from it in a stronger position — with more countries joining it in future.

Speaking in Berlin today, Asmussen insisted that it still makes sense for some nations, particularly in Eastern Europe, to join the eurozone despite the current crisis. He cited lower transaction costs and the removal of exchange rate risks.

Asmussen said:

I recognise that, at present, the euro area is not an excellent advertisement for stability given the difficulties facing a number of its members.

I also think it is important not to read too much into the current situation.

Latvia remains on track to become the 18th member of the euro area, having filed its application in March.

12.14pm BST

Back to Greece briefly, and the latest opinion poll data shows that New Democracy (the senior member of the coalition) holds a narrow lead over the opposition Syriza party.

ND has 20.5% support, followed by Syriza with 19.9%. Golden Dawn, the neo-Nazi group, is third with 9.3%.

12.01pm BST

Merkel: Come to Berlin, Enrico…

Angela Merkel has phoned Enrico Letta to wish him luck, and to invite the new Italian prime minister to the German capital soon.

Merkel's spokesman, Steffen Seibert, has just tweeted:

Chancellor Merkel has spoken by phone with PM Letta, wished his government success and invited him to a visit to Berlin soon

11.57am BST

Our Southern Europe editor, John Hooper,. reports heightened security in Rome following the shooting of two policemen yesterday:

11.51am BST

Germany's Volkswagen, Europe's largest carmarker, admitted this morning that it has been hit by the slump in demand for new vehicles in Europe.

Operating profits at its VW brand are down by 45% in the first three months of 2013, as profits margins are squeezed by the recession.

Chief executive Martin Winterkorn explained:

The current environment is definitely a tough challenge for the entire industry.

Europe's car industry has been emitting danger signs for months. In March, sales tumbled by over 10% (as covered here in the liveblog last week).

11.31am BST

Ansa, the Italian news agency, reports that Letta will give his speech to the Italian parliament at 3pm local time, or 2pm BST.

The actual confidence vote is scheduled for 8pm CET, or 7pm BST.

11.28am BST

Robin Bew, editorial director and chief economist of the Economist Intelligence Unit, predicts that Enrico Letta's government could soon be blown apart.

Bew fears that disagreements between Letta's Democratic Party (PD) and Silvio Berlusconi's People of Liberty (PdL ) could force Italy back to the polls this year.

One particular "old" policy is already looming over the new government — the housing tax imposed by Mario Monti.

PdL wants to hear Letta promise today to abolish the tax and repay the money already paid (around €8bn in total). If not, the party is threatening not to back the coalition.

Renato Brunetta, its leader in the lower house, told the Il Messaggero news paper:

If the prime minister doesn't make this precise commitment we will not give him our support in the vote of confidence.

(more details here on Reuters).

11.05am BST

Italian bond sale: what the analysts say

Here's an early round-up of analyst reaction to today's successful Italian debt sale (see 10.31am) (via Reuters)

Nicholas Spiro of Spiro Sovereign Strategy reckons that today's sale was "brilliantly timed", as the fears following February's inconclusive general election faded away.

While post-crisis market sentiment towards Italy has never been better, economic conditions have never been worse – as this morning's bleak business and economic confidence surveys show…..

The disconnect between Italy's bond market and the real economy is likely to increase further in the coming days and weeks. This will throw the mispricing of Italian sovereign debt into sharper relief, particularly given concerns about the durability of Mr Letta's government.

Spiro added that Italy's ability to borrow at below 4% for 10-years today was "one of the greatest anomalies in European sovereign credit".

Meanwhile Luca Cazzulani of Unicredit was cheered by the auction results:

The positive outcome of the auction reflects an improved situation compared with the previous auctions, helped by the announcement of a new government. The government still needs a confidence vote but this is not perceived as a problem.

Updated at 2.02pm BST

10.31am BST

Borrowing costs drop at Italian debt action

Success for Italy in the bond markets this morning, as traders give an early thumbs-up to prime minister Enrico Letta.

The Italian Treasury has sold its five and ten-year bonds at the lowest interest rates since October 2010.

Here's the details:

• €3bn of 10-year bonds sold at average yields of 3.94%, down from 4.66% last time.

•€3bn of 5-year bonds at average yields of 2.84%, down from 3.65% last time.

That's reassuring news for Enrico Letta as he gets down to business in Rome. Unlike Mario Monti, whose first task 18 months ago was to win back the confidence of the financial markets, Letta's priorities are domestic — fixing the bleeding economy and reforming the political landscape.

Updated at 10.42am BST

10.16am BST

Key event

Consumers and businesses acrosst the eurozone remain gloomy about the economic situation, data just released showed.

The European commission's monthly measure of economic sentiment fell this month to 88.6, down from March's 90.1. Firms also reported that their business climate has deteriorated this month.

Consumer sentiment improved slightly, but was still deep in negative territory – at minus 22.3, from minus 23.5 in March.

Updated at 2.20pm BST

9.55am BST

Photos: Yesterday’s protests in Athens

There were protests in Athens yesterday as the Greek government approved legislation that will mean 15,000 civil servants are laid off by the end of next year.

Demonstrators marched past the parliament building, and also burned an effigy of a Greek worker, as MPs debated the bills.

epa03680539 Protesters burn an effigy symbolizing a Greek worker during a protest rally, organized by the umbrella trade union groups General Confederation of Employees of Greece (GSEE) and the civil servants' union federation ADEDY, in front of the Greek Parliament in Athens, Greece, 28 April 2013.
Photograph: ORESTIS PANAGIOTOU/EPA
Protesters hold a banner during a protest rally, organized by the umbrella trade union groups General Confederation of Employees of Greece (GSEE) and the civil servants' union federation ADEDY, in front of the Greek Parliament in Athens, Greece, 28 April 2013.
Photograph: ORESTIS PANAGIOTOU/EPA

The legislation was passed despite the protests, meaning Greece will now receive its next tranche of bailout loans, worth around €8.8bn.

The debate was pretty lively, especially after finance minister Yannis Stournaras introduced a last-minute amendment that would allow firms to avoid paying the minimum wage

Greece's Kathimerini has details:

Opposition parties complained that the amendment was submitted without prior notice and only a few minutes before the vote was due to take place.

They also complained that the minimum wage was being by-passed. Stournaras defended the measure.

“It is true that €490 is a low wage but do not forget that in these cases we are talking about unemployed people,” he said. “This will be a relief for them.”

Greek Finance Minister Yannis Stournaras (L) watch main opposition Radical Left Coalition (SYRIZA) leader Alexis Tsipras (R) who speaks during a debate in the Greek Parliament, in Athens, Greece, 28 April 2013.
Greek finance minister Yannis Stournaras watches main opposition leader Alexis Tsipras speaking during last night debate. Photograph: SIMELA PANTZARTZI/EPA

9.25am BST

Spanish retail sales slide again amid raging jobless crisis

Another piece of grim economic news from Spain – Spanish retail sales fell by a jaw-dropping 8.9% year-on-year in March, the thirty-third monthly decline in a row, following a 7.7% decline in Febuary.

Another signal that the slump in Spain is actually getting worse, following last Thursday's record unemployment data.

The Atlantic ran a very good blogpost on the jobless crisis in Spain over the weekend: Spain Is Beyond Doomed: The 2 Scariest Unemployment Charts Ever

Here's one of the charts:

Spanish long-term joblessness
Photograph: The Atlantic

and here's a flavour of the piece:

Here's the story of Spanish unemployment in three acts. During the boom, joblessness was relatively high due to persistent structural problems. Then it shot up fast and faster as Spain's building bust and then Lehmangeddon hit in 2008. But it has kept climbing up since the panic abated, albeit at a less catastrophic pace, due to the toxic combination of too tight money and budgets.

In other words, austerity hasn't been the path to prosperity. It's been the path to perma-slump.

But the real story of the Spanish depression has been the story of the indignados: the mostly young, long-term unemployed. It's a bit hard to see just how dramatic it's been in the chart above, so I converted it to a line chart below. Almost all of the increase in unemployment since 2010 has been due to the increase in long-term unemployment of two years or more.

8.38am BST

Bond market-maker Gus Baratta has the details of this morning's Italian bond sale, which takes place in around 90 minutes time:

8.29am BST

Italian stock markets rises

Shares are rattling higher in Milan too. The FTSE MIB Index has risen 283 points at 16846, up 1.7%.

Letta's appointment, though, doesn't mean Italy is out of the woods — and analysts are warning that the new PM must quickly devise a coherent economic plan.

Michael Hewson of CMC Markets points out that Letta must maintain working relations with the centre-right PDL party, and his eurozone partners.

The new government will face its first test of cohesion soon enough in June with respect to a new housing tax which Berlusconi’s party has demanded be scrapped, and could well also stress test the new Italian governments relationship with Brussels and Berlin.

Mike van Dulken, head of research at Accendo Markets, also senses trouble ahead:

8.10am BST

Italian borrowing costs fall

Italian sovereign debt is rising in value this morning as traders welcome the news that Enrico Letta's government has been sworn in.

This has pushed the yield on its 10-year bonds down to 3.97%, from 4.06% on Friday (and down from over 7% eighteen months ago, when Mario Monti took over).

That suggests this morning's bond auction could be a success…

Updated at 8.13am BST

7.56am BST

Italian government begins work with confidence vote

Premier Enrico Letta, left, takes the cabinet minister bell handed over by former Premier Mario Monti during the handover ceremony.
Premier Enrico Letta, left, taking the cabinet minister bell from former Premier Mario Monti yesterday. Photograph: Luigi Mistrulli/Sipa Pre/SIPA

Good morning, and welcome to our rolling coverage of the latest events in the eurozone and the wider global economy.

A new era is underway in Italy today as the government led by Prime minister Enrico Letta gets to work, and announces how it will tackle the economic and political crisis raging in the country.

Having been sworn in on Sunday, Letta's government's first task is to win a confidence vote in the Italian parliament. While that shouldn't be a problem for the centre-left and centre-right coalition, the debate will allow the new Italian leader to articulate his vision for the country.

Letta's priorities, in his own words, are to tackle the "enormous, unbearable" economic emergency in Italy, change the pace of Europe's austerity programmes, and reform the discredited Italian electoral system.

He takes over a country suffering a deep recession — and which is still shaken by the shooting yesterday of two Italian policemen in Rome as the swearing-in took place.

One man was hit in the neck, and a second in the leg, while the alleged gunman has been named as Luigi Preiti, 49, from Calabria, a southern agricultural area suffering high unemployment and organized crime (more details here).

A Carabiniere police officer lies on the ground after being shot outside the Chigi Premier's office on April 28, 2013 in Rome, Italy. Two military police officers were shot in the square outside Palazzo Chigi while the new government of Enrico Letta was being sworn in.
A Carabiniere police officer lies on the ground after being shot outside the Chigi Premier’s office in Rome yesterday.

That attack shows the depth of the social crisis suffered by Italians, argued lower house speaker Laura Boldrini, who added:

There's a social emergency that needs answers and our politicians have to start giving them.

The financial markets will also give their verdict on Letta today, when the Italian Treasury holds an auction of five and 10-year government debt.
That sale will be closely watched to see whether investors are still confident in buying Italian debts.

I'll be tracking events in Italy, and beyond, through the day….

Updated at 7.58am BST

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Apr. 28, 2013 (Allthingsforex.com) – The next moves by the world’s two major central banks and the condition of the U.S. labor market will be on top of the agenda in the week ahead, as the markets prepare for a likely announcement of additional monetary policy easing by the European Central Bank.

In preparation for the new trading week, here is the outlook for the Top 10 spotlight economic events that will move the markets around the globe.

1.    USD- U.S. Personal Income and Outlays, a measure of consumer income and spending, released along with the PCE Price Index- the Fed’s preferred gauge of inflation, Mon., Apr. 29, 8:30 am, ET.

Consumer spending in the U.S. is forecast to register a smaller increase by 0.2% m/m in March, compared with 0.7% m/m in February. The Fed’s preferred core PCE Index could show inflation inching slightly higher by 0.1% m/m, but not enough to convince the Federal Open Markets Committee to change the direction of its current monetary policy.

2.    USD- U.S. Pending Home Sales, a leading indicator of housing market activity measuring pending home sale contracts, Mon., Apr. 29, 10:00 am, ET.

After dropping by 0.4% m/m in February, the pending home sales index is expected to get back on track with 0.3% m/m increase in March.

3.    EUR- Euro-zone HICP- Harmonized Index of Consumer Prices, the main measure of inflation preferred by the European Central Bank, Tues., Apr. 30, 5:00 am, ET.

Inflation in the euro-area is forecast to subside further to 1.6% y/y in April from 1.7% y/y in March. With the inflation gauge dropping below the European Central Bank’s 2% target, the formation of deflationary pressures could become one of the main factors that could prompt the ECB into additional monetary policy easing.

4.    USD- U.S. Consumer Confidence, a measure of consumers’ outlook on the economy, Tues., Apr. 30, 10:00 am, ET.

The outlook of U.S. consumers is forecast to remain optimistic, keeping the consumer confidence index above 60 with reading of 60.5 in April from 59.7 in the previous month.

5.    USD- U.S. ADP Employment Report, a measure of job creation in the private sector of the U.S. economy, Wed., May 1, 8:15 am, ET.

Job creation in the U.S. private sector is forecast to be less than it was in the previous month with 145K jobs added in April, compared with 158K jobs in March.

6.    USD- U.S. ISM Manufacturing Index, a leading indicator of economic conditions measuring activity in the manufacturing sector, Wed., May 1, 10:00 am, ET.

Activity in the U.S. manufacturing sector is forecast to lose a bit of steam with a reading 51.1 in April from 51.3 in March.

7.    USD- U.S. FOMC- Federal Open Markets Committee Interest Rate Announcement, Wed., May 1, 2:00 pm, ET.

Recent reports from the labor market and other sectors of the economy have sparked concerns that the U.S. may be losing momentum. In addition, the world’s largest economy will be dealing with the impact from the sequestration in the months ahead. Such economic backdrop does not create a sense of urgency for the Fed to start tightening anytime soon. The FOMC will maintain the current monetary policy course at its May meeting, and probably into 2014. The majority of policy makers will be likely to reiterate their commitment to open-ended QE until the unemployment rate falls below 6.5% or inflation exceeds 2.5%. No end in sight to QE and “exceptionally low levels for the federal funds rate” could weigh on the USD.

8.    EUR- European Central Bank Interest Rate Announcement, Thurs., May 2, 7:45 am, ET.

Mired in recession and record high unemployment, the euro-zone economy continues to suffer from a chronic contraction in its manufacturing and services sectors. With economic growth still nowhere to be seen, it would not be shocking to witness the European Central Bank announcing additional monetary policy easing measures as early as the next meeting on May 2. The euro will be pushed back into the $1.20′s if the European Central Bank announces LTRO 3, reduces the benchmark rate or hints of an impending rate cut in the near future.

9.    USD- U.S. Non-Farm Payrolls and Employment Situation, the main indicator of U.S. economic health measuring job creation and unemployment, Fri., May 3, 8:30 am, ET.

Following a dismal NFP report in March, job creation is expected to gain momentum in April. The U.S. economy is forecast to add 155K jobs compared with 88K in March, while the unemployment rate stays unchanged at 7.6%. An upbeat NFP report should help to dismiss last month’s unexpected drop as a one-off event and could give the USD a boost on expectations that the Fed might take the first step toward monetary policy tightening sooner rather than later.

10.    USD- U.S. ISM Non-Manufacturing Index, a leading indicator of economic conditions measuring activity in the services sector, Fri., May 3, 10:00 am, ET.

Although at a slightly slower pace, activity in the U.S. services sector is forecast to expand for another month with an index reading of 54.1 in April from 54.4 in March.

 

Frankfurt professor’s concerns echo recent alarms being sounded across Europe over Berlin’s stance on EU fiscal policy. A leaked policy paper from France was redolent with fear of and hostility to Merkel and her prescriptions in the euro crisis…

 


Powered by Guardian.co.ukThis article titled “German role in steering euro crisis could lead to disaster, warns expert” was written by Ian Traynor in Leuven, for theguardian.com on Sunday 28th April 2013 14.37 UTC

One of Germany's most influential political thinkers has delivered a stark warning that its post-second world war liberal democracy cannot be taken for granted and its dominant role in managing Europe's debt crisis could lead to disaster.

Jürgen Habermas, the Frankfurt professor whose political thinking has helped shape Germany over the past 50 years, called for the EU to be turned into a supranational democracy and the eurozone to become a fully fledged political union, while lambasting the "technocratic" handling of the crisis by Brussels and European leaders.

In his first big speech on the euro crisis, delivered at Leuven University, east of Brussels, Habermas called for a revival of Europe's doomed constitutional ambitions, arguing that the disconnect between what needed to be done in economic policy and what was deemed to be politically feasible for voters was one of the biggest perils facing the continent. "Postponing democracy is rather a dangerous move," he said.

At 83, Habermas has long been revered as a guru and mentor to the post-1968 generation of centre-left German politicians. He is a champion of a democratically underpinned European federation, and has reserved some of his most trenchant criticism for Berlin's role in the three-year crisis.

"The German government holds the key to the fate of the European Union in its hands. The main question is whether Germany is not only in a position to take the initiative, but also whether it could have an interest in doing so," he said.

"The leadership role that falls to Germany today is not only awakening historical ghosts all around us, but also tempts us to choose a unilateral national course or even to succumb to power fantasies of a 'German Europe'.

Euro coins and banknotes
Habermas says the EU elite’s response to the currency crisis has been to construct a technocracy without democratic roots. Photograph: Reuters

"We Germans should have learned from the catastrophes of the first half of the 20th century that it is in our national interest to avoid permanently the dilemma of a semi-hegemonic status that can hardly hold up without sliding into conflicts."

Habermas's wakeup call came at the end of a week of similar alarms being sounded on both sides of the country's borders. The Polish prime minister, Donald Tusk, in the presence of the German chancellor, Angela Merkel, in Berlin last week, said there were worries about German domination of the EU "everywhere, without exception".

A leaked draft policy paper from France's governing socialist party on Friday was redolent with fear of and hostility to Merkel and her policy prescriptions in the euro crisis.

Habermas demanded a sea change in German policy, away from insisting on "stabilising" the budgets of vulnerable eurozone countries by slashing social security systems and public services, to a policy of "solidarity" entailing common eurozone liability, mutualised debt, and euro bonds.

He located Germany's traditional EU enthusiasm in the post-Nazi quest for international rehabilitation through reconciliation with France and driving European unification processes, all occurring under the protection and promotion of the US in cold-war western Europe until the Soviet collapse in 1989.

Habermas said: "The German population at large could develop a liberal self-understanding for the first time. This arduous transformation of a political mentality cannot be taken for granted … Germany not only has an interest in a policy of solidarity, it has even a corresponding normative obligation … What is required is a co-operative effort from a shared political perspective to promote growth and competitiveness in the eurozone as a whole."

Such an effort would require Germany and several other countries to accept short- and medium-term redistribution in its long-term interest, he added, "a classic example of solidarity".

The structural imbalances between the economies of greatly divergent eurozone countries at the root of the crisis were certain to worsen under the policies being pursued, Habermas argued, because governments were making decisions "exclusively from [their] own national perspective. Until now, the German government has clung steadfastly to this dogma".

He said the EU elite's response to the crisis had been to construct a "technocracy without democratic roots", trapping Europe in a dilemma of legitimacy and accountability, between "the economic policies required to preserve the euro and, on the other, the political steps to closer integration. The steps that are necessary are unpopular and meet with spontaneous popular resistance".

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Spain cuts growth forecasts, delays deficit target. US GDP grows by annualized 2.5% in first quarter. Italy’s borrowing costs fall to record low. Worst of crisis is over, says ECB’s Provopoulos. US consumer sentiment index revised higher in April…

 


Powered by Guardian.co.ukThis article titled “US economy grows less than expected, while Spain cuts forecasts – as it happened” was written by Nick Fletcher, for theguardian.com on Friday 26th April 2013 07.38 UTC

5.18pm BST

European markets edge lower after positive week

After a fairly positive week – based mostly on the hope of an ECB rate cut next week – markets have paused for breath. Spain's delay of its deficit target and slight worse than expected US GDP figures gave some investors the excuse to take a bit of profit:

• The FTSE 100 finished down 16.17 points or 0.25% at 6426.42

• Germany's Dax was down 0.23%

• France's Cac closed 0.79% lower

• Italy's FTSE MIB ended down 0.51%

• Spain's Ibex dropped 0.81%

The Dow Jones Industrial Average has dipped between negative and positive but is currently up just 0.02%.

And with that it's time to close the blog for the week. Thanks for all the comments, and we'll be back again on Monday.

5.10pm BST

IMF welcomes Spanish announcement

Praise for Spain from the IMF too. Managing director Christine Lagarde said:

I strongly support the Spanish government's objectives of restoring a sound fiscal position while securing a recovery and creating jobs. Today's announcement to pursue a more gradual consolidation path is a welcome step toward meeting these goals, building on major reforms and structural fiscal improvements last year.

We are looking forward to discussing the measures underpinning the new strategy in the forthcoming …consultation mission to Spain, scheduled for early June.

4.14pm BST

Olli Rehn, vice president of the European Commission has started a new blog, and observers believe the first post could reflect a new mood:

4.06pm BST

Greece prepares to vote on controversial reforms

Greece's parliament is preparing to vote this weekend on a controversial multi-bill of internationally mandated reforms. Helena Smith writes:

The bill outlining the dismissal of 15,000 civil servants from the public sector and a host of other “prior actions” Athens’ ruling coalition has pledged to enact in exchange for rescue funds worth €8.8bn has just been presented to parliament.

But not without a fight. Protesting trade unionists representing the public and private sector have been out in force today and more demonstrations are planned when the bill is put to vote in the 300-seat House late on Sunday.

The firing of some 4,000 civil servants this year and around 11,000 next has been met with fierce opposition at a time when unemployment rates in Greece are nudging 28 % – the highest in the euro zone.

Protesting farmers in Athens claim that their investments on photovoltaic systems are no longer profitable due to tax reforms. Photograph: EPA/Alexandros Vlachos
Protesting farmers in Athens claim that their investments on photovoltaic systems are no longer profitable due to tax reforms. Photograph: EPA/Alexandros Vlachos
Greek municipal workers protest against government reforms in Athens. Photograph: EPA/Alkis Konstantinidis
Greek municipal workers protest against government reforms in Athens. Photograph: EPA/Alkis Konstantinidis

Helena adds:

But prime minister Antonis Samaras insists the Greek economy is beginning to recover. Today, he highlighted that optimism by hailing the decision of the Finnish mobile operator, Nokia, to expand in the country as proof that it was finally turning a corner. Many beg to differ, however, as the fiercely anti-austerity Syriza’s sudden bounce in the polls would also prove [see earlier].

With spirits riding high, the prime minister has decided to visit China in a bid to lure investors. Aides confirmed he would make the trip, his first to the Far East since assuming office, in mid-May. A huge drive is currently underway in China to boost tourism to “glorious Greece.”

3.53pm BST

European Commission welcomes Spanish deficit target delay

The European Commission has welcomed Spain's announcement of a delay to the country meeting its deficit target. In a statement the EC said:

Regarding the fiscal targets, the postponement of the correction of the excessive deficit (to below 3% of GDP) to 2016 is consistent with the current technical analysis by the Commission services of what would be a balanced – but still ambitious – fiscal consolidation path, given the difficult economic environment.

It is crucial that the fiscal path in the Stability Programme be based on prudent macroeconomic assumptions and a sufficient amount of high-quality, structural measures. Our assessment in this regard will be also made public on 29 May.

3.01pm BST

US consumer sentiment better than expected in April

Despite US goverment spending cuts and tax rises, a survey of consumer sentiment has come in stronger than expected.

The Thomson Reuters/University of Michigan index rose to 76.4 in April, up from a preliminary reading for the month of 72.3 and higher than the forecast 73.2.

The news has helped lift US shares which had been struggling in the wake of the slightly worse than forecast first quarter GDP figures.

So the Dow Jones Industrial Average is currently around 25 points higher having initially edged lower.

2.19pm BST

French socialists accuse Merkel of causing crisis

Here's more on the blast aimed at Angela Merkel by France's governming socialist party. Europe editor Ian Traynor writes:

French president Francois Hollande’s governing socialists have delivered a blistering assault on Germany’s chancellor Angela Merkel, accusing her of causing the single currency crisis that has been tearing Europe apart for more than three years, of acting selfishly and intransigently in her own political and German national interest, and demanding a “showdown” with the “chancellor of austerity.”

In a draft paper on party policy on Europe ahead of a conference in June, the socialists contend that Europe is being run by a rightwing Anglo-German cabal dominated by liberal free trade interests with the rest of the world and austerity within the EU.

They call into question the Franco-German alliance that has been at the heart of the EU for as long as it has existed and argue that France alone of the big EU countries has a government that is genuinely pro-European.

Merkel, as well as Hollande’s predecessor, Nicolas Sarkozy, and David Cameron come in for stinging attack. Merkel and Sarkozy, the draft declares, managed to turn a small crisis that started in Greece more than three years ago into a mega-European disaster.

The 21-page draft leaked to le Monde which said it had the tacit support of Hollande’s government has been organized by Jean-Christophe Cambadélis, a party vice-president.

“The [EU] community project is now scarred by an alliance of convenience between the Thatcherite accents of the current British Prime Minister – who sees Europe only as a la carte and about rebates – and the selfish intransigence of Chancellor Merkel who thinks of nothing else but the savings of depositors in Germany, the trade balance recorded in Berlin and her electoral future,” the paper said.

“Today France is alone among the big countries of the EU in having a government which is genuinely European.”

2.09pm BST

Syriza party in lead in new Greek poll

Over to Greece where a poll released today shows the fiercely anti-austerity far left Syriza party in the lead as speculation also grows of an imminent government reshuffle. Helena Smith writes:

A survey conducted by the polling firm, VPRC, shows Syriza recapturing its lead with 29.5% against 27% for the centre-right New Democracy party, the predominant force in the governing coalition. Some 76% of respondents said they believed the country was headed in the wrong direction even if a majority continued to believe that Antonis Samaras was more suitable as prime minister – he received 16.6% compared to 9.1% who backed Syriza leader Alexis Tsipras in the role. But 60.3% thought “no politician” was suited for leadership.

In a further sign of the malaise gripping a nation now trapped in a sixth straight year of recession, 77% of those polled voiced support for the “immediate abolishment” of the EU-IMF mandated reforms that Greece has been obliged to enforce in return for aid, saying the debt-choked country should instead apply a “plan of economic and productive reconstruction.”

Tsipras, who is currently visiting Portugal, has been busy blasting Berlin’s fixation with austerity. Earlier today, he insisted that no country in southern Europe would be able to exit the crisis if it continues to enforce such policies. “We have to be aware that the future of Europe does not lie in the divide between the north and the south,” he said calling for enhanced dialogue between the countries of the south. "[The future] does not lie with a German Europe of surpluses in the north and social disintegration in the south.”

The survey was released amid mounting speculation that Samaras will soon reshuffle his cabinet after inter-governmental disagreement, and an embarrassing u-turn, over a reform that was to be part of a bill Athens must pass to secure further aid from creditors.

Syriza leader Alexis Tsipras at a rally during a two day visit to Portugal. Photograph: EPA/Manuel de Almeida
Syriza leader Alexis Tsipras at a rally during a two day visit to Portugal. Photograph: EPA/Manuel de Almeida

Updated at 2.12pm BST

2.04pm BST

Spain softens its commitment to austerity

Back to Spain, and here is our correspondent Giles Tremlett's full take on the day's developments:

Spain has dramatically softened it commitment to austerity, changing this year's budget deficit target from 4.5% to 6.3% – a reduction of just 0.8 percent of GDP over the year.

The softening, however, comes accompanied with dismal predictions for Spain's biggest social problem, unemployment.

The government's own predictions, presented today by ministers but without the presence of prime minister Mariano Rajoy, show unemployment at 27% this year and sticking around 25% until 2016.
The government has put back the target of reaching the Brussels-mandated deficit level of below three percent until 2016, a move that will see public debt grow to 100 percent of GDP.

Indirect and corporate taxes will be boosted, but tax minister Cristobal Montoro refused to say exactly which indirect taxes would be hit – bar ruling out petrol, VAT and income tax.

"Spain has, to all intents and purposes, thrown in the towel on fiscal austerity. The scale of the government's revisions to the country's GDP and budget deficit targets underscore the extent to which front-loaded fiscal retrenchment has exacerbated Spain's economic downturn and become self-defeating," says Nicholas Spiro of Spiro Sovereign Strategy, who warns that investors are being too kind to Spain by paying ever-lower yield prices for its bonds.

"This is a belated acknowledgement on the part of the Rajoy government that its macroeconomic policies have failed."

Growth predictions remain modest, with Spain to stay in recession this year as its economy shrinks 1.3%. Growth will not rise above one percent, the level at which many analysts see net job growth, until 2016.
These growth figures depend entirely on exports, with internal consumption also not increasing until 2016.

Spanish economy minister Luis de Guindos (back), deputy prime minister Soraya Saenz de Santamaria (left) and treasury minister Cristobal Montoro arrive to unveil a cut in growth forecasts. Photograph: Reuters/Sergio Perez
Spanish economy minister Luis de Guindos (back), deputy prime minister Soraya Saenz de Santamaria (left) and treasury minister Cristobal Montoro arrive to unveil a cut in growth forecasts. Photograph: Reuters/Sergio Perez

1.47pm BST

US government spending falls again

A continuing fall in government spending – more than 4% lower after falling by 7% in the fourth quarter – was one downward pressure on the GDP figure. Annalisa Piazza at Newedge Strategy said:

The softer than expected outcome is mainly due to the downward surprise in government spending. That said, the overall picture of moderate growth remains intact. Looking ahead, risks for growth are skewed to the downside in the second quarter as timely economic indicators point downwards.

Such a scenario fully justifies a "wait and see" approach at next week's Federal Reserve meeting as policymakers are expected to wait for more evidence before making any decision on future policy steps. The ongoing bn monthly asset purchase is expected to be confirmed next Wednesday.

Rob Carnell at ING said:

Trying to get a handle on what is going on under the bonnet of the US economy is a little tricky with figures as erratic as these, but this may be surmised from the final sales figure to domestic purchasers, which strips away the impact of volatile inventories and exports. This showed a 1.9% gain in the first quarter of 2013, up from 1.5% in the final quarter of 2012, and probably as good an indication of the true state of the underlying economy as there is.

This is OK, but not fantastic. Moreover, with the data softening sharply as of March, and likely to continue weak through April and May, there is a good chance that second quarter of 2013 is substantially weaker even than this latest number – a GDP figure much closer to 1.0% seems possible, and at those low levels, a rogue negative quarter can never be ruled out.

As for the Fed, we doubt they will pay much attention to this essentially historical data. Next week’s meeting will have to acknowledge the softening of recent data. These GDP numbers confirm that trend. All talk of imminent QE downscaling can be forgotten for a while. But growth will likely return later in the year, at which point, QE chatter and Treasury yields will start to nose up again. This is going to be a choppy year for both growth and for markets.

Updated at 1.54pm BST

1.42pm BST

US stock market futures fall after GDP numbers

US investors appear not to like the GDP figures. Dominic Rushe in New York writes:

The below forecast figures are another sign that the economic recovery may be stalling.

US stock market futures are all falling before the markets open. Economists polled by MarketWatch had expected first-quarter annualized growth of 3.2%, up from just 0.4% in the final three months of 2012. The figures come amid signs of a slowdown in the wider economy. The US added just 88,000 new jobs in March, less than half the rate it needs to cut the unemployment rate. The next set of monthly job figures are due this time next Friday.

This is the government economists’ first take on how the economy grew in the first quarter and is subject to revision.

1.34pm BST

US GDP grows by less than expected 2.5%

Breaking news

The US economy grew by less than expected in the first quarter, although it was much stronger than at the end of 2012.

Official figures showed GDP growing by an annualised 2.5% compared to forecasts of a 3% rise. This was up from 0.4% in the final quarter of last year.

Despite the growth, the fact that it missed expectations could raise fears about the impact of goverment spending cuts and higher taxes.

But it is also likely to encourage the belief that the US Federal Reserve will continue its programme to boost the economy.

Updated at 3.27pm BST

1.22pm BST

Spain's economy minister Luis de Guindos says the new deficit cutting plan was agreed with Europe.

1.09pm BST

Spanish prime minister Mariano Rajoy is apparently not at the announcement of the economic reforms, which has caused some comment:

Here's a live link (in Spanish).

Updated at 2.50pm BST

1.06pm BST

Spain slashes growth forecasts

Spain has revised down its growth forecast for 2013 from a decline of 0.5% to a 1.3% fall. It is now predicting growth of 0.5% in 2014.

The government has also revised down its deficit forecast for 2013 to 6.3% of GDP. It predicts the public deficit will be 5.5% of GDP in 2014, 4.1% the following year and 2.7% in 2016.

That means Spain has delayed meeting the EU budget deficit target by two years to 2016.

The revisions, although harsh on the growth front, seem to be much as expected.

After Thursday's record unemployment rate of 27.2% in the first quarter, the rate is expected to be 27.1% for 2013, 26.7% in 2014 and 25.8% in 2015.

Meanwhile deputy prime minister Soraya Saenz de Santamaria said there was no need for major new reforms or taxes, and the government would try to cut taxes in the future.

Updated at 1.10pm BST

11.50am BST

Hollande’s party blasts Merkel, says Le Monde

Angela Merkel has come under renewed attack from France's socialists, according to a report in Le Monde.

Our Europe editor Ian Traynor tweets:

11.09am BST

Eleven banks will repay €2.276bn of money borrowed under the three year LTRO programme on 2 May, the ECB has announced.

This follows an average €10.85bn repaid over the past two weeks. Annalisa Piazza at Newedge Strategy said:

The outcome is softer than anticipated and it is well below the average of the past couple of weeks. Today's data, coupled with the expected ECB refi rates cut next week, should reduce the volatility of short-term rates going forward.

Updated at 11.13am BST

10.58am BST

Merkel did not mean to infringe on ECB’s independence, says spokesman

Here's bit of backtracking by the look of it.

According to Reuters a German government spokesman said Chancellor Angela Merkel "in no way intended to infringe on the ECB's independence" with her comments on interest rates.

You may recall she said that if the ECB looked at Germany alone, it would have to raise rates at the moment. Markets have been buoyant in the past few days on hopes the ECB will actually cut rates next week.

The spokesman also said the German government was confident the constitutional court would uphold the legality of the eurozone bailout measures.

German chancellor Angela Merkel discusses interest rates at a savings bank conference on Thursday. Photograph: Reuters/Fabrizio Bensch
German chancellor Angela Merkel discusses interest rates at a savings bank conference on Thursday. Photograph: Reuters/Fabrizio Bensch

Updated at 11.03am BST

10.33am BST

Worst of crisis is over, says ECB’s Provopoulos

The worst of the eurozone crisis is behind us and the European Central Bank may never have to use its Outright Monetary Transactions (OMT) bond buying programme.

That is the (over-optimistic?) view of ECB council member and head of the Greek central bank George Provopoulos. In an interview with Bloomberg in Athens yesterday he said:

Given that in the last few months we have had a kind of stabilization, normalization, maybe it will never be used. OMT has helped enormously. It is a good thing that we have decided to go ahead with that, just in case it would be needed.

I think the worst of the debt crisis is behind us.This does not mean that all weaknesses have been dealt with or that the road ahead will be without bumps. But I think the worst is over.

Interesting, given Germany's apparent antipathy towards OMT and its concerns about the ECB's actions.

10.15am BST

Italian bond auction sees record low yields

Italy's bond auction seems to have gone well, just a couple of days after the country finally began resolving the impasse after its inconclusive elections with the appointment of Enrico Letta as prime minister.

The country sold €8bn of six month treasury bills at a yield of 0.503%, down from 0.831% previously.

This is the lowest rate since the introduction of the euro.

Part of the demand was due to the expectation of an ECB rate cut next week.

Meanwhile Letta has said talks to form a government were encouraging while Silvio Berlusconi's centre right party said there were no real problems.

According to Ansa, the new government could be sworn in over the weekend with a confidence vote to follow on Monday.

Berlusconi however has ruled himself out of being a minister:

Updated at 10.21am BST

10.04am BST

Stock markets slip back

After a recent burst of enthusiasm, largely thanks to the hope of an ECB rate cut next week, investors seem to have turned cautious once more. So markets are slipping back across the board, probably not helped by renewed signs the Germans may be unhappy with the ECB.

• The FTSE 100 is down 34.57 points or 0.54%

• Germany's Dax has dropped 0.68%

• France's Cac is 1.01% lower

• Italy's FTSE MIB is 0.93% down

• Spain's Ibex is off 0.97%

• US futures are showing a 32 point decline on the Dow Jones

9.36am BST

Cyprus bank deposits fall in March

Cyprus bank deposits fell €1.8bn in March, according to figures from the European Central Bank. That of course was the month when the contentious bailout was agreed, with many depositors taking a hefty haircut on their savings.

Martin van Vliet at ING said:

The bank deposit figures for March suggest little contagion from the Cyprus bail-in of uninsured depositors to other Eurozone countries – which will probably cause a sigh of relief in Brussels. In fact, private-sector deposits in most other peripheral Eurozone countries saw further signs of recovery in March. Consumers and firms' deposits at banks in Spain and Portugal rose by 0.9% and 0.6% month on month respectively, while Greek bank deposits edged up by 0.1%.

Cypriot banks further increased their reliance on emergency liquidity assistance or ELA from the national central bank, from €10.2bn in February to €11.4bn at the end of March. That said, bank holidays and capital controls have clearly prevented a more massive capital flight.

Updated at 9.39am BST

9.31am BST

ECB’s Asmussen on rate cuts

More on ECB interest rate cuts. In a speech in Frankfurt, bank board member Joerg Asmussen has seemingly again played down the effectiveness of such moves (courtesy Bloomberg):

Ransquawk points out the comments are largely repeating what Asmussen said earlier this week.

Updated at 9.48am BST

9.21am BST

Bundesbank reportedly unhappy at ECB – again

The move by the European Central Bank and its head Mario Draghi to introduce the OMT bond buying programme is one of the drivers of the revival in eurozone sentiment. But there is more evidence that the Bundesbank is not keen. Gary Jenkins at Swordfish Research says:

When Spanish two year bonds hit 7% last summer it appeared that it might be game over for the Eurozone. Or at least Spain would have to restructure its debt or receive assistance on a scale that would have been unprecedented even in European bailout terms. At that moment however the ECB changed from an institution that spoke softly and carried a small stick (that was temporary and limited in time and scale) to one that shouted very loudly and carried a great big stick that it wouldn’t hesitate to use to punish anyone with the audacity to short / underweight European government bonds.

There is no doubt that Mr Draghi’s intervention was a turning point in the crisis. There have been comments about the readiness of the OMT program but the trend in bond yields for the stressed nations would suggest that the market was not prepared to test Mr Draghi’s resolve.

Interesting then to note that the German newspaper Handelsblatt has seemingly got hold of a paper outlining the Bundesbank’s position on the OMT which has been prepared for the German constitutional court.

The Bundesbank rejects the idea of sovereign bond purchases in strong terms and indeed questions the role of the central bank in deciding whether the currency is irreversible. It will be interesting to see whether this has any impact on the market today. Whilst the lack of support from the German central bank is important it is hardly new news; Jens Weidmann and others have been fairly vocal about their disapproval of the ECB’s actions throughout much of Mr Draghi’s tenure as president.

Mario Draghi, president of the European Central Bank, and Jens Weidmann, president of the Bundesbank. Photograph: AFP/Getty Images/Daniel Roland
Mario Draghi, president of the European Central Bank, and Jens Weidmann, president of the Bundesbank. Photograph: AFP/Getty Images/Daniel Roland

8.49am BST

Agenda

Here's a look at some of the day's events (all times BST):

 8:15 ECB's Asmussen Speaks in Frankfurt

10:00 Italy to Sell €8bn 184-Day Bills

11:00 ECB Announces 3-Year LTRO Repayment

Midday Spain unveils new reform programme

13:30 US GDP

13:30 US Personal Consumption

14:30 ECB Governing Council Member Nowotny speaks in Prague

14:55 University of Michigan confidence index

Updated at 9.15am BST

8.37am BST

Spanish reforms and US GDP in the spotlight

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

All week markets have been soaring as investors became increasingly convinced central banks will take more measures to stimulate a sluggish economy.

In particular, poor data from Germany encouraged the believe the European Central Bank could cut rates as early as next week. However German chancellor Angela Merkel threw a slight spanner in the works by suggesting that the ECB should raise rates if it was to judge solely by Germany.

Meanwhile the Bank of Japan decided early this morning to keep monetary policy unchanged, and did not unveil any further measures. It said Japanese inflation was likely to rise to around 2% during the next three years, but it said it would continue monetary easing as long as necessary to meet that target.

On the agenda today are new economic reforms from Spain, due to be unveiled at midday.

Prime minister Mariano Rajoy is trying to tread a fine line between austerity and growth – as is the rest of the eurozone although much of the emphasis is still on the former. According to Reuters a Spanish goverment source said on Thursday:

There will be no relaxing of the austerity drive because we believe in this policy. Having said that, with Europe in recession, it would be absurd not to adjust the deficit-cutting path.

Proposals are expected to include a reform of the public pension system to increase the retirement age, a review of unemployment benefits and steps to boost small business growth.

Also coming up are US GDP figures. Michael Hewson, senior market analyst at CMC Markets, said:

Today’s main event remains US first quarter GDP where expectations seem somewhat optimistic with expectations of a rise of 3.1%, up from a very disappointing 0.4% at the end of last year.

This seems excessively optimistic given that we have seen payroll tax hikes and spending cuts kick in at the beginning of the year as well as a host of disappointing economic data for March.

Updated at 8.51am BST

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UK GDP rises by 0.3% exceeding estimates by analysts and avoiding triple-dip disaster. George Osborne: Britain is recovering. But it’s a bumpy recovery. US jobless claims fall by 16,000 to seasonally adjusted 339,000, pointing to slow improvement…



Powered by Guardian.co.ukThis article titled “Poor Spanish and French jobs data but UK economy returns to growth- as it happened” was written by Graeme Wearden and Nick Fletcher, for theguardian.com on Thursday 25th April 2013 13.18 UTC

5.17pm BST

Stock markets in Europe continue rally

European markets have closed on a – mainly – positive note once again. Analysts said the continuing downbeat data from the eurozone – including poor jobless figures from Spain and France – made it ever more likely the European Central Bank would cut interest rates, perhaps as soon as next week.

Looking at the wider picture, there were some reasonable US weekly jobless figures which helped sentiment. And better than expected UK GDP figures encouraged investors in London, even though the data seemed to suggest there would be no action by the Bank of England to stimulate the economy at its meeting next week. So here is the closing snapshot:

• The FTSE 100 finished 10.83 points higher at 6442.59, a 0.17% increase

• Germany's Dax added 0.95% to 7832.86

• France's Cac closed 2.47% lower as the jobless total rose

• Italy's FTSE MIB ended up 0.52%

• Spain's Ibex dipped 0.29%

In the US, the Dow Jones Industrial Average is currently 0.48% higher.

And with that, it's time to close up for the evening. We'll be back tomorrow, so thanks for all your comments and see you then.

5.16pm BST

Italy's centre right party has been making positive noises after a meeting with new prime minister Enrico Letta.

According to Reuters, the party said Letta was open to its economic priorities and there wil be further talks to resolve outstanding issues.

And here's a poll showing the country's split:

5.05pm BST

French jobless figures hit new high

French unemployment figures are out and it's not good.

The number of jobless hit an all time high in March, rising by 1.2% to 3.225m. This is the 23rd monthly rise in a row, and means it has reached the worst level since records began in January 1996.

This is more bad news for president Francois Hollande, whose approval ratings are already at a low. They come despite the president's attempts to promote youth job schemes and allow flexible hiring and firing.

4.59pm BST

Cyprus sets date for vote on bailout package

Cyprus has set a date for the its parliament to vote on the island's EU-IMF sponsored rescue programme, reports Helena Smith. She writes:

Cypriot officials are now saying that the bailout package will be put to a make-or-break vote next week and "probably on Tuesday." The ballot has thrown fresh uncertainty around the rescue programme amid speculation that it may not muster the required majority in the 56-seat House.

Well-briefed insiders say the possibility of the island exiting the euro zone has grown dramatically in recent weeks with many among its business elite backing the idea "as the best way out of the crisis."

Meanwhile, the National Federation of Cypriots in the UK are increasingly speaking out against the unfair treatment that Cyprus has received at the hands of the EU and IMF.

"The troika has extracted its pound of flesh in Cyprus and has made the island pay dearly for the eurozone’s policy failures in Greece and elsewhere. Alternative solutions, including re-capitalisation of the two main Cypriot banks and their effective ‘nationalisation’ by the European Central Bank, were not given the time of day," Peter Droussiotis, who heads the federation, told an audience at the Palace of Westeminster last night.

 "Such measured solutions, which could have been further calibrated by a more managed contraction of the banking sector, over a transitional period, were set aside with the result that Cyprus’s economy has now suffered a devastating blow,” he said at a dinner attended by the island's foreign minister and leading British MPs.

4.32pm BST

Still with Germany, the country has raised its growth forecast for the current year from 0.4% to 0.5%, with 1.6% expected in 2014.

4.06pm BST

Merkel says ECB would raise rates if looking at Germany alone

There have been some (perhaps unguarded, perhaps not) comments from German chancellor Angela Merkel about European Central Bank interest rates.

As has become apparent in recent days, the markets have become increasingly convinced the ECB will cut rates at its meeting next week. Disappointing economic figures, not least from Germany itself, in the last few days have only reinforced that view.

But speaking at a savings banking conference Merkel said, in what observers said were unusually outspoken comments, that the ECB would have to raise rates if it were looking at Germany alone. In what could be seen as an acknowledgement that the one size fits all approach to completely divergent economies within the eurozone was flawed, she said (courtesy Reuters):

The ECB is in a difficult position. For Germany it would actually have to raise rates slightly at the moment, but for other countries it would have to do even more for more liquidity to be made available.

Meanwhile Investec poured a smidgeon of cold water on the hopes of a rate cut by the ECB next week. The broker's Victoria Clarke said:

The ECB meets in Bratislava next week with its next monetary policy announcement due at 12.45pm on Thursday and President Draghi’s press conference following at 1.30pm. We judge that the ECB is on the verge of reducing the main refinancing rate either in May or June, but on balance we suspect that move is more likely to come at the June meeting. Hence, whilst a very close call, we see the ECB maintaining the refi rate at 0.75%, the deposit rate at zero and the marginal lending rate at 1.5%.

Chancellor Angela Merkel at a savings bank conference. Photograph: Reuters/Fabrizio Bensch
Chancellor Angela Merkel at a savings bank conference – With the people, for the People. Photograph: Reuters/Fabrizio Bensch

Updated at 4.30pm BST

3.39pm BST

IMF official calls for Europe to boost growth

The IMF has said Europe must strengthen its growth prospects, otherwise it could fall into long term stagnation.

In a speech in London (apologies for being a bit UK-centric today) David Lipton said:

There is…a risk Europe could fall into stagnation, which would have very serious implications for households, companies, banks and other bedrock institutions.

So, to decisiveliy avoid that dangerous downside, policymakers must act now to strengthen the prospects for growth.

And the austerity versus growth debate goes on…

IMF members Christine Lagarde, Tharman Shanmugaratnam and David Lipton (left). Photograph: Stephen Jaffe/Getty Images
IMF members Christine Lagarde, Tharman Shanmugaratnam and David Lipton (left). Photograph: Stephen Jaffe/Getty Images

2.18pm BST

Video: Britain dodges the triple-dip recession

Here's a video clip of this morning's GDP announcement:

And leaving you with that, I am handing over to my colleague Nick Fletcher.

Updated at 3.55pm BST

2.13pm BST

Key event

There's encouraging economic data to report in the US as well — the number of people signing on for jobless benefit fall by 16,000 last week.

At 339,000, the initial jobless claims was the second-lowest reading since the financial crisis began.

2.11pm BST

Brian Reading of Lombard Street isn't getting carried away by today's GDP data:

Near stagnation for the rest of this year would validate the OBR’s 0.6% year-on-year growth forecast. A belly-dancer’s belly-wobbles don’t show whether she is gaining or losing weight. Too much attention is paid to first estimates.

2.07pm BST

It’s time for a late lunchtime round-up:

Britain has returned to growth and avoided a triple-dip recession, with its economy expanded by 0.3% in the first quarter of the year.

Chancellor George Osborne hailed today's GDP data as a sign that the UK is recovering (see his statement here). But Labour's Ed Balls argued that Britain still "urgently" needed a new fiscal plan (see 11.01am).

As my colleague Heather Stewart explains:

The key services sector expanded by 0.6% on the quarter, according to the ONS, while industrial production also grew, by 0.2% – though much of that was accounted for by North Sea output. The struggling construction sector declined by 2.5%.

• Heather's news story is here: UK avoids triple-dip recession with better-than-expected 0.3% GDP growth

Joe Grice, the chief economist of the ONS, told reporters that Britain was experiencing a bumpy and shallow recovery (see press conference highlights from 9.34am onwards)

• Business leaders have welcomed the news that the UK is growing (see 11.30am).

• But with the UK still 2.6% smaller than at its peak in 2008, there's no reason to rejoice (see Larry Elliott's analysis). Britain's recovery from the shock of the financial crisis remains slower than in the 1930s (see graph here).

• The news is likely to strengthen George Osborne's hand ahead of the arrival of International Monetary Fund officials next week (see here).

• In the City, the pound has rallied against the US dollar – up two cents this afternoon at .546.

UK GDP
UK GDP, on a quarterly basis, since the start of 2008

1.55pm BST

Stephen Lewis, chief economist at Monument Securities, argues that politicians should focus on making serious structural changes to the UK economy rather than scrapping over the pace of fiscal cutbacks.

In a research note Lewis also suggsts that Britain's economy is not faring too badly given the damage suffered by its financial sector when the crisis began:

It can hardly be doubted that the UK economy was among those suffering the most severe structural damage in the crisis, given its over-reliance on financial services. It would have been a reasonable expectation in 2009 that the UK would take longer than many other advanced economies to pull out of economic depression and that, while in depression, its GDP trajectory would be weaker than most other nations'. In the event, the UK's economy has lagged the performance of those with sounder structures, such as Germany and the USA.

On the other hand, it has been performing a good deal better than the economies of Spain and Italy, where the structural problems were less obvious in 2009. When viewed in this broad perspective, it makes little sense to argue that the UK is suffering peculiarly strong headwinds on account of the strategy Mr Osborne has chosen to follow. If it were, its GDP might be contracting at a 2-3% annual rate, which is the fate of several other European economies at the moment.

This is not to say that the UK's growth outlook might not be even stronger than it currently appears but action that addresses structural weaknesses is likely to be more effective than tweaking macroeconomic policies.

To fashion measures that strengthen the economy's structure is more of a challenge to politicians than to argue over macroeconomic settings. That may be one reason why comparatively little progress has been made towards structural reform.

1.26pm BST

Over on Comment is Free, Will Hutton is making the case for the government to push through structural reforms and create a new bad bank, rather than take comfort in today's data.

It's here: Don't be fooled by the GDP figures – Britain needs to change course

Here's a flavour:

Osborne has never looked economic reality squarely in the eye – that in 2008 Britain suffered a massive credit crunch, disabling its banking sector and exposing a vast legacy of private debt in an economy which had grossly over-invested in property, construction and financial services. Economies after such shocks and with such grievous imbalances need a prolonged period of convalescence. It is imperative, knowing that the private sector must retrench, that the public sector does all it can to compensate.

Over the past three years, Osborne has stubbornly done the opposite, blindly believing in the private sector's magical properties which the state can only impair. He has stood back, attempting to slash the deficit and generally disengaging. Events have forced him to moderate his position, with the beginnings of an industrial policy along with bank reform, but it has been too little, too late and with too little conviction. The pity is that today's news will reinforce his position, easing the political pressure for change.

1.11pm BST

Two years ago, George Osborne pledged to deliver "A Britain carried aloft by the march of the makers" in his March 2011 budget.

Today's GDP data, though, show that it's the services sector (+0.6%) which is delivering most of the growth rather than industry (+0.2% — mainly due to higher oil production), while manufacturing declined by 0.3%.

That doesn't suggest that the much-discussed rebalancing of the UK economy is completed.

Richard Barley of the Wall Street Journal warns:

The big picture is still one of an economy that is only creeping forwards: GDP is still 2.6% below 2008's peak and has risen just 0.4% over the past 18 months. With global economic data showing signs of a slowdown, it isn't clear the first quarter's expansion is sustainable.

Meanwhile, there is precious little sign of the rebalancing of the U.K. economy that policy makers like Bank of England Governor Mervyn King say is necessary: all of the growth in the first quarter was in the services sector, up 0.6%, while manufacturing contracted 0.3%. But the City still appears to be in the doldrums: business services and finance increased just 0.2% in the quarter.

12.44pm BST

Today's rise in GDP comes as economists warn that inflation in the UK could rise over the 3% mark again this summer.

Jeremy Cook, chief economist at World First, told BBC News that inflationary pressures mean it is vital that the UK economy keeps growing so workers can push for pay rises (inflation is currently 2.8%, while wages are rising at just 1%)

Cook explained:

If we start to see profits in manufacturing and construction, which were poor in this quarter, come alongside what the services sector is doing then members of those sectors can go to their companies, ask for wage increases, probably get them.

And therefore the cost of living for you and me become a little bit more favourable.

12.15pm BST

Osborne: it’s not an easy recovery

George Osborne, April 25th
Photograph: Sky News

Sky News just broadcast an interview with George Osborne in which the chancellor was cautiously upbeat about the UK economy following today's GDP data.

Osborne said:

It is not as easy a path out of recovery as anyone would have hoped a few years ago.

But added that Brritain has "won credibility around the world" for the way it has handled the crisis.

Osborne appeared relaxed about the prospect of next month's IMF visit. He argued that the pace of UK fiscal consolidation, or "the pace opf the cuts if you like" as he put it, is appropriate and consistent with the IMF's own guidance.

The chancellor added that manufacturing exports are growing slower than he'd like — which he partly blamed on the weakness on key markets in Europe.

12.07pm BST

The deputy prime minister, Nick Clegg, has taken a cautious view of today's GDP data:

Clegg said:

I don't want anyone to think that somehow we are out of the woods yet. We have still got a lot of work to do. The healing of the British economy is taking longer than we had anticipated and we will continue to work hard to make sure the country and the economy grow from strength to strength.

More here: Chancellor welcomes 0.3% economic growth, but Lib Dems are cautious

11.58am BST

Does the Osborne fightback start here?

Last week was pretty dire for George Osborne. It began with the International Monetary Fund suggesting his economic plan should be changed, and ended with MPs giving a scathing verdict on his new scheme to help first-time buyers (via a nasty rise in unemployment and Fitch downgrading Britain's AAA rating).

By the weekend, the chancellor appeared to be on the mat. But today's GDP data could be the moment that his fortunes change.

The IMF is due in London next week for a healthcheck on the UK economy — Osborne can now point to a growing economy — at a time when the eurozone remains stuck in recession.

It's even possible that the ONS will revise its historic data, and conclude that Britain did not contract between the fouth-quarter of 2011 and the second quarter of 2012. That would mean the dreaded double-dip never actually happened…

11.30am BST

GDP: the reaction

The general reaction to today's growth figures has been quite positive.

Graeme Leach, chief economist at the Institute of Directors, called it "good news just when we needed it".

John Cridland, CBI director general, argues that the UK now really needs "a recovery in manufacturing output, helped by a brighter global outlook":

And Rob Carnell of ING Bank called it "one in the eye" for the International Monetary Fund, after last week's criticism of the UK government from senior IMF staff.

There's a full, comprehensive round-up of reaction to today's GDP data, here: UK avoids triple-dip recession – full reaction

11.01am BST

Balls: Urgent action still needed

Ed Balls on UK GDP
Ed Balls on UK GDP Photograph: /BBC News

Ed Balls, shadow chancellor, has given a rather muted response to today's GDP data, repeating his call for the chancellor to adjust the pace of his fiscal plans.

Here's his full response:

These lacklustre figures show our economy is only just back to where it was six months ago and continue the picture of flatlining we have seen since the last spending review. David Cameron and George Osborne have now given us the slowest recovery for over 100 years.

This stagnation in our economy is the reason why people are worse off than when this government came to office. They took an economy that was starting to grow strongly, with falling unemployment and a falling deficit, and delivered stagnation, rising unemployment and £245 billion more borrowing than planned. The government’s economic policies have failed and Britain’s families and businesses continue to pay the price.

If we’re to have a strong and sustained recovery, and catch up all the ground we have lost over the last few years, we need urgent action to kickstart our economy and strengthen it for the long-term – as Labour and the IMF have warned. We need radical bank reform and a jobs and growth plan, including building thousands of affordable homes and a compulsory jobs guarantee for the long term unemployed. And instead of a tax cut for millionaires, we need a lower 10p starting rate of tax to ease the squeeze on millions of people on middle and low incomes.

The longer we continue to bump along the bottom the more long term damage will be done. Britain’s struggling families and businesses cannot afford another two years of this.”

Updated at 11.05am BST

10.54am BST

Slowest recovery since the Great Depression

This graph (from our Datablog) shows how the UK economy actually recovered faster after the Great Depression:

The Labour Party makes the same point, and tries to pin the blame on the prime minister.

10.42am BST

Alex Hern: UK is stagnating

In the New Statesman, Alex Hern is warning that "stagnation is still the name of the game" in the UK:

Our economic system is basically built around a paradigm of real economic growth in the two to three per cent range. We can handle short-term deviations from that norm, but the long-term trend must remain the same.

Growth much below that isn't growth at all; it's stagnation by another name. On top of that, real GDP growth isn't the only figure we heard today; we also know the growth per capita. And in a country with a rising population like ours, we need to be growing just for that to stand still.

As it is, GDP per capita fell by 0.3 per cent in the last quarter. The nation is getting richer, but its people are still getting poorer

More here: GDP grows by 0.3 per cent

And this graph from the ONS shows how GDP is stil below its 2008 peak:

UK GDP - main components, Q1 2013
Photograph: ONS

10.30am BST

Larry Elliott: It’s helpful for Osborne

Our economics editor Larry Elliott has analysed today's GDP data. He points out that while 0.3% growth is 'resonably solid' under the circumstances, but unspectacular by historic standards.

And it's enough to spare Osborne the 'disaster' of presiding over a triple-dip recession:

Larry writes:

The actual figure was reasonably solid. The service sector – which accounts for 75% of the economy – grew by 0.6% on the quarter, while a bounce back in North Sea oil output helped industrial production grow by 0.2%. Had it not been for the 2.5% quarterly drop in the still depressed construction sector, growth would have been around 0.5% in the first quarter, quite close to its long-term trend.

It is not all good news. Despite the growth in early 2013, the economy is still 2.6% below its peak in early 2008 when the recession began. And, as the Office for National Statistics noted, the economy is no bigger now than it was 18 months ago – a point Ed Balls will no doubt be making over the coming weeks and months.

But make no mistake, this number is helpful to Osborne, who was quick to say that there were encouraging signs that the economy is healing. Had Thursday's number been negative – even by just 0.1% – that claim would have been impossible to make.

More here: Unspectacular GDP data will take political heat off George Osborne

10.21am BST

Cable: it doesn’t feel like a recovery yet

Out in Brazil, business secretary Vince Cable has welcomed the news that Britain has avoided falling back into recession. But he also points to several weaknesses in the UK economy, including construction (which suffered that 2.5% contraction).

Here's Cable's full comment:

We've always said the road to recovery would be a marathon, not a sprint. 

Today's figures are modestly encouraging and taken alongside other indicators such as employment figures, suggest that things are going in the right direction.

However there is still a long way to go and some serious issues such as the systemic lack of bank lending to SMEs, the weakness in the construction sector and the need to press further on trade and exports, which I am doing now on my visit to Brazil.

These issues all need to be addressed before people feel like the economy is genuinely starting to recover.

10.17am BST

And here's what a bumpy, shallow recovery looks like (via the Guardian's Datablog)

UK GDP quarter-by-quarter
Photograph: Datablog

10.10am BST

ONS: Britain’s bumpy and shallow recovery

The ONS's chief economist Joe Grice said the 0.3 per cent growth registered from January to the end of March fitted the pattern in recent years.

"Today's figures seem to be not out of line with recent history of an upward trend, but one that is quite bumpy and shallow," he said.

The services sector growth of 0.6 per cent was "broadly based" and offset falls in manufacturing at the beginning of the year and a sharp fall in construction output.

But within the services sector, car sales were a major growth area after a spending surge in the first three months, said ONS statastician Rob Doody.

The services sector is now 0.7 per cent above its peak. However, manufacturing remains 10 per cent below the peak in 2008 and construction is 18 per cent below its peak, said Grice.

(via our economics correspondent, Phillip Inman)

10.06am BST

The full details of today's GDP data can be downloaded here:

Gross Domestic Product: Preliminary Estimate, Q1 2013 Release.

10.04am BST

My colleague Paul Owen is covering all the political news today, including the full reaction from Westminster to today's GDP data, here: Politics Live.

9.57am BST

Pound jumps, but FTSE doesn’t

The pound is rallying on the foreign exchange markets, up almost one-and-a-half cents against the US dollar at .514.

Shares are unmoved, though, as our market reporter Nick Fletcher reports:

The FTSE 100, down 15.85 points ahead of the GDP announcement, edged slightly higher before slipping back to the current 6414.56, down 17.20 points.

9.52am BST

Car sales and oil production fuel growth

Phillip Inman flags up that strong sales of motor vehicles, and a bounce-back in oil production, helped to push UK GDP up in Q1.

From the ONS press conference, he reports:

GDP was rescued by car sales, says the ONS, with the Motor trade element of the services sector showing the strongest growth…

A bounce back in North Sea production after a sharp decline in q4 2012 is also a big factor in the rise this quarter.

9.49am BST

Despite the welcome rise in UK GDP in the last three months, Britain's economy is still 2.6% smaller than its all-time peak in 2008 — shortly before the collapse of Lehman Brothers rocked the financial world and drove many countries into recession.

9.43am BST

Osborne: Britain is recovering

George Osborne has welcomed today's GDP data, arguing it shows that the government is making progress.

Here's the chancellor's statement in full:

Today’s figures are an encouraging sign the economy is healing. Despite a tough economic backdrop, we are making progress.

The deficit is down by a third, businesses have created over a million and a quarter new jobs, and interest rates are at record lows.

We all know there are no easy answers to problems built up over many years, and I can’t promise the road ahead will always be smooth, but by continuing to confront our problems head on, Britain is recovering and we are building an economy fit for the future.

9.40am BST

ONS press conference
Photograph: Sky News

Joe Grice, the head of the ONS, is refusing to make any predictions for how the UK economy may fare in the months ahead.

9.37am BST

Service sector leads the way

Britain's dominant service sector has led the way, putting the UK back to growth and averting the triple-dip.The construction industry, though, continues to suffer an ongoing contraction.

Service sector grew by 0.6% in Q1

Construction sector shrank by 2.5%

Production industries: grew by 0.2%

9.34am BST

Key event

On a year-on-year basis, Britain's GDP is 0.6% larger than a year ago.

Joe Grice of the ONS is explaining that this adds to the picture of a slow, bumpy recovery over the last 12 and 18 months. He's talking about Britain's economy being on a plateau, but one on a slow, upwards trend.

Updated at 9.41am BST

9.31am BST

Triple dip avoided

This is good news for George Osborne, says our economics editor Larry Elliott:

It means the triple-dip fears have been averted – although Labour will say that the economy is back to where it was six months ago.

Updated at 9.32am BST

9.30am BST

UK GDP released – Britain avoids recession

UK GDP has grown by 0.3% in the first three months of this year.

That means Britain has avoided falling back into recession.

More to follow

9.25am BST

The GDP data will be announced at a press conferrence at 9.30am sharp in London. Our economics correspondent Phillip Inman is there.

The news is also released to the City at the same moment.

Updated at 9.25am BST

9.20am BST

Just 10 minutes to go until the Office for National Statistics releases its first estimate of UK GDP for the first quarter of 2013, and the predictions and caveats are flying:

A bit of excitement is OK, though

9.12am BST

Surveys of UK firms in recent weeks have suggested that conditions have improved a little in 2013. That's one reason that City economists, on balance, predict a small rise in GDP.

This graph shows 'composite PMI' (a measure of whether companies' output is growing) versus GDP.

GDP vs PMI, to April 2013
Photograph: ING

9.03am BST

Marc Ostwald of Monument Securities says it is 'at best facile' to fret too much about the triple dip right now, as this morning's data will probably be revised.

Ostwald also points out that the consensus forecast of +0.1% in the first quarter would mean Britain's GDP would have risen by +0.3% on a year-on-year basis.

That would actually be quite a good outcome, in light of a very long and arduous winter and its dampening effect on activity, not only in the UK, but across Europe, notwithstanding the other non-weather related headwinds blowing from the Eurozone.

Economist Andrew Lilico argues that it doesn't really matter whether today's data shows a small rise or a small fall.

And in the readers comments below, rafters points to the big picture:

Double dip, triple dip, quadruple dip, what does it matter?

We're just bumping along the bottom like an aircraft failing to take flight. All a short period of growth means is we'll shortly have another dip to add to the number.

8.51am BST

Spanish jobs data shows perils of austerity

Here's our Madrid correspondent Giles Tremlett's take on this morning's dire Spanish unemployment data (see 8.42am)

Is this where austerity gets you? Spain's unemployment rate reached 27 percent in the first quarter of this year, with more than six million unemployed for the first time ever.The figure of 6.2 million unemployed comes from the state statistics agency today. Spain's economy shrank 1.9 percent over the last year, though the speed of decline appeared to be slowing in the first quarter.

Mariano Rajoy's People's party (PP) government is due to introduce further cuts tomorrow. There are also rumours of further pension reform, with the retirement age for Spaniards apparently set to rise above 67. But a change of heart in Brussels will, according to reports in El Pais, see the deficit target softened considerably this year – raising it from 4.5 percent of GDP to six percent or above. Last year's deficit (excluding bank bailouts) was 7.1 percent.

Spain's jobless rate is also more than three times as high as the UK — where it hit 7.9% last week.

8.42am BST

George Osborne has often blamed the eurozone's debt crisis for causing some of Britain's economic ills, and the latest Spanish unemployment data (just released) certainly confirms the scale of the crisis in Europe.

The Spanish jobless rate hit 27.1% in the first quarter of 2013 – even worse than economists had expected. Spain is already deep in recession, and its GDP is expected to shrink by 1.6% this year.

Updated at 8.43am BST

8.34am BST

The bigger picture…

As many of you are pointing out in the comments below, the triple-dip question shouldn't distract from the fact that Britain's economy has been bumping along for a while.

On a quarterly basis GDP has risen, or fallen (see the chart at 7.34am) but the broad picture is of an economy stagnating for most of the last two years.

Also worth noting that we only get the preliminary estimate of GDP this morning – it will probably be revised.

8.25am BST

GDP predictions?

Any predictions for UK GDP today? If so, do post them in the comments below. (Full disclosure: I plumped for +0.2% in the office sweepstake).

8.14am BST

Calm in the City

The London stock market has opened, and shares and sterling have risen slightly in early trading.

FTSE 100: up 25 points at 6456, + 0.4%. That's a new three-week high.

The pound is also up nearly half a cent against the dollar, at .530.

The word in the City is that Britain will probably avoid a triple dip, but that the wider economic landscape remains troubled.

As Michael Hewson of CMC Markets put it:

The amount of growth to all intents and purposes is likely to be economically insignificant, but in a political context it is very important for the credibility of the government’s current policy, being the difference between a triple dip recession or not.

Updated at 8.14am BST

8.04am BST

What the economists are saying

We've rounded-up some of the City economist forecasts for GDP. here: Will Britain slide into a triple-dip recession?

Updated at 8.04am BST

7.59am BST

Bad weather could be key

Fears of a triple-dip recession have been fuelled by the grim winter weather which Britain suffered at the start of 2013. Heavy snowfall forced some factories to close, and also deterred many people from venturing onto the high street to spend.

As we wrote last month: Cold weather makes triple-dip recession more likely, economists fear

City analyst James Knightley reckons that the UK economy was flat in the first three months of 2013. A reading of 0% change to GDP would mean that the UK was not back in recession.

Knightley explains:

Today’s GDP numbers will tell us if the UK has returned to technical recession for the third time in 5 years.

Bad weather in January and March make this a close call.

7.34am BST

Has Britain suffered a triple-dip?

Good morning. Britain will learn today whether it has slumped into an unprecedented triple-dip recession when economic output data for the first quarter of 2013 is published.

The data, released at 9.30am by the Office for National Statistics, is eagerly awaited both in the City and in Westminster.

A negative GDP reading will plunge the UK economy into its third recession (defined as two consecutive quarters of negative growth), since the financial crisis began in 2008.

UK GDP since 2008
Photograph: Office for National Statistics

As well as a measure of the UK's economic strength, the latest GDP data is also a scorecard of George Osborne's performance.

The chancellor is already under pressure from the International Monetary Fund to relax the pace of his fiscal programme, and stinging from the loss of Britain's AAA rating with two credit rating agencies this year.

Many economists expect that Britain probably eked out a little growth at the start of this year. The City consensus is that UK GDP expanded by 0.1% between January and March. But some economists have predicted a negative reading, which would follow the 0.3% contraction in the last quarter of 2012.

Britain is also the first major country to report GDP data for the first quarter of 2013, so today's data could show how the global economy is faring.

Updated at 7.39am BST

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Analysts say cut is imminent as German manufacturing contracts for first time in five months. The European Central Bank is poised to reduce the base rate from 0.75% after months of bleak figures from across the single currency zone…

 


Powered by Guardian.co.ukThis article titled “ECB could cut interest rates after German output falls” was written by Phillip Inman, for The Guardian on Tuesday 23rd April 2013 20.16 UTC

Weaker than forecast factory output in Germany and China sent the oil price below 0 on Tuesday and raised expectations that the European Central Bank will cut interest rates at its monthly meeting next month.

German manufacturing contracted for the first time in five months while France, Italy and Spain suffered steep cutbacks in output. China maintained its recent upturn in output, though at a slower pace. Data from the US also showed a slowdown at its factories in April.

The ECB is poised to reduce the base rate from 0.75% after months of bleak figures from across the single currency zone. Analysts said a rate cut was imminent after Jens Weidmann, head of Germany's central bank, conceded that lower interest rates would be considered should there be a worsening in the economic data.

The prospect of cheaper funds from the ECB sent stock markets soaring. The FTSE 100 shrugged off the poor manufacturing figures to climb 125 points to 6406 while the Paris CAC finished the day up 3.6% at 3783.

The gloomy state of the eurozone economies, which has surprised officials in Brussels, is likely to continue through the summer months, said analysts.

The European Commission and the ECB had previously forecast a recovery in the second half of the year as a crisis that has forced Greece, Ireland, Portugal and Cyprus to apply for bailouts appeared to be receding.

But northern Europe has increasingly suffered as austerity cuts in the south hit their exports.

Christoph Weil, economist at Commerzbank, said it was likely the ECB will reduce interest rates to 0.5%, in line with the Bank of England.

"Investors are convinced the ECB will do whatever it takes to prevent a breakup of the monetary union. However, the central bank cannot solve the structural problems in the crisis countries with the printing press.

"For this reason the economic outlook for these countries remains rather gloomy. And the impact is felt not only by companies in the crisis countries. The lack of demand from the periphery is affecting also the core countries. As long as there is no marked improvement in sales prospects, even the low interest rates are unlikely to induce companies to invest more," he said.

The US manufacturing sector also slowed, growing at its slowest pace in six months during April following a downturn in the domestic market. Markit's US manufacturing purchasing managers' index (PMI) fell to 52 from 54.6, remaining just above the 50 level that marks the line between growth and contraction.

Chris Williamson, chief economist at Markit, said the findings suggested output growth was slowing sharply in the second quarter.

"While this week's first quarter GDP numbers may… bring some brighter news on the economy, the picture looks to have already begun to darken again, with GDP growth set to weaken in the second quarter."

The US data "will obviously add significantly to concerns, most recently related to the softer China and German data, that another seasonal slowdown in the global economy is taking hold," said Alan Ruskin, Deutsche Bank's head of G10 currency strategy.

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EC denies u-turn on austerity. Euro-zone Composite PMI registers another month of contraction. Alarm as German service and manufacturing sectors both contract, but French PMI better. US new home sales rise less than expected…

 


Powered by Guardian.co.ukThis article titled “Germany’s private sector shrinks as eurozone decline continues – as it happened” was written by Graeme Wearden and Nick Fletcher, for theguardian.com on Tuesday 23rd April 2013 11.47 UTC

5.50pm BST

Spain’s Rajoy hints at further tax rises

Spanish prime minister Mariano Rajoy has opened the way to further tax rises and spending cuts, Reuters has reported.

The country will publish updated economic forecasts and a new programme of reforms on Friday and Rajoy said in a press conference:

We will not announce spending cuts like those we put out last year although we will likely need to review some entries in the budget.

We don't want to increase value added tax or income tax this year, but we also depend on the growth rate and the deficit-cutting path for the next years.

He also wants to introduce measures to promote growth.

And on that it's time to close up for the evening. Thanks for all your comments and we'll be back again tomorrow to follow all the latest developments.

5.32pm BST

European markets close sharply higher

It's been a buoyant day for European stock markets, with traders pointing to a number of factors for the gains. For a start, the poor manufacturing data, particularly from Germany, encouraged the belief that the European Central Bank could cut interest rates, possibly as soon as next week.

EC president Jose Manuel Barroso's comments that austerity may have reached the limits of public acceptance - albeit running into a dispute about what he actuallly meant – also encouraged investors.

On top of that came some good corporate results from the likes of chipmaker Arm in the UK and Netflix in the US. So here's the scores on the doors:

• The FTSE 100 finished 125.50 points or 2% higher at 6406.12, its biggest one day rise since 2 January

• Germany's Dax jumped 2.41%

• France's Cac climbed 3.58%

• Italy's FTSE MIB added 2.93%

• Spain's Ibex closed up 3.26%

Meanwhile the Dow Jones Industrial Average is currently up just over 1%.

The prospect of an ECB cut sent the euro as low as .2971, with the currency currently down 0.44% at .3009. Spanish bond yields dipped to their lowest level since November 2012, encouraged by a positive treasury bill auction. Hopes of a resolution to the impasse since the Italian elections helped push the country's yields below 4% to 3.937% at the moment.

Updated at 5.42pm BST

5.17pm BST

Italy edges closer to new prime minister

Italy could potentially have a new government in place by the weekend if president Giorgio Napolitano's talks aimed at naming a prime minister succeed.

But while there is some optimism a new government can be formed quickly, there may still be stumbling blocks. The favourite at the moment to step in and head a coalition government of the rival centre-left and centre-right parties is former prime minister Giuliano Amato.

But the Northern League party said it would not be in any government headed by Amato or technocrat Mario Monti.

And Silvio Berlusconi's centre-right People of Freedo party said it had no objections to another potential candidate for prime minister, Matteo Renzi, the centre-left mayor of Florence. However Reuters reported that Renzi had played down the possibility:
It's the hypothesis which is most surprising and least probable, I don't think it's on the table.

Former Italian prime minister Giuliano Amato who is one of the two favorites to lead the new Italian government. Photograph: Laura Lezza/Getty Images
Former Italian prime minister Giuliano Amato who is one of the two favorites to lead the new Italian government. Photograph: Laura Lezza/Getty Images
..and his rival, the mayor of Florence, Matteo Renzi (centre). Photograph:  EPA/Massimo Percossi
..and his potential rival, the mayor of Florence, Matteo Renzi (centre). Photograph: EPA/Massimo Percossi

4.00pm BST

Spanish economy continues shrinking

Spain's economy shrank by 0.5% in the first three months of the year, continuing the country's recession.

The Bank of Spain blamed the fall on a drop in consumer spending, which was down 0.8% in the quarter. The Bank has forecast the economy will contract by 1.5% this year before returning to growth in late 2014.

As reported earlier, Spain successfully sold €3bn worth of short-term debt at lower yields.

3.10pm BST

Positive US housing figures help lift Wall Street

Some reasonable housing data from the US but more downbeat manufacturing figures.

First, sales of new single family homes rose 1.5% in March to 417,000 after a 7.6% drop in the previous month. This was a little short of forecasts of a rise to 420,000. But sales were up 18.5% year on year, a good indication of how the housing market has been recovering. Annalisa Piazza at Newedge Strategy said:

In a nutshell, the US housing market remains on a moderate upward trend, also supported by falling mortgage rates and less restrictive credit conditions.

But following a worse than expected US purchasing managers index earlier , the Richmond Federal Reserve index showed a contraction in April, down 6 compared to a rise of 3 in March.

None of this has prevented stock markets – in the UK, Europe and the US – from roaring away. In Europe it seems to be the so-bad-it's-good syndrome, with poor figures (from Germany in particular) prompting talk of an interest rate cut from the ECB.

Wall Street has been lifted by a number of reasonable corporate results, including Netflix and Travelers, as well as the housing data.

Updated at 4.04pm BST

2.36pm BST

Italy faces risks to forecasts says central bank official

Italy faces risks to its economic growth forecasts, an official from the country's cental bank has said.

Reuters is reporting Daniele Franco as saying that there were downside risks to the forecasts of a 1.3% decline in GDP in 2013 and a 1.3% rise in 2014.

He added that any new government – which we are still waiting for of course – must avoid any doubts over whether it would respect the 3% of GDP deficit limit.

Meanwhile there is this comment from Eurogroup head Jeroen Dijsselbloem:

Updated at 2.39pm BST

2.06pm BST

US manufacturing shows sluggish growth

US manufacturing grew in April at its slowest pace for six months, with the lates PMI survey coming in below expectations.

The Markit report showed the purchasing managers index fell to 52 from 54.6 in March, less than the forecast 54. It indicates that US manufacturing may be losing its momentum as consumers worry about tax hikes and government spending cuts.

2.00pm BST

Bank of England’s McCafferty positive on UK economy

Meanwhile the newest member of the Bank of England's monetary policy committee has been sounding an optimistic note on the UK economy.

Growth will pick up pace this year, according to Ian McCafferty, who has sought to play down fears the country has slipped into an unprecedented triple-dip recession. My colleague Katie Allen writes:

McCafferty said improving credit conditions, a brighter international outlook and his expectations of a recovery in business investment all made him “hopeful for the UK economy through 2013 and into 2014”.

“Overall, I am hopeful for a modest pickup in growth as some of the negative factors that have made the last couple of years so difficult start to fade, and as levels of confidence, so badly battered by the impact of the euro crisis, start to heal,” he said in a speech at the Coventry and Warwickshire Chamber of Commerce.

Speaking ahead of official GDP data due on Thursday that is expected to show the UK has just escaped a triple-dip recession, McCafferty’s comments gave George Osborne a much needed boost after a difficult 10 days during which he was warned by the IMF’s chief economist, Olivier Blanchard, that he was “playing with fire” by sticking to his strategy of public sector cuts.

1.32pm BST

Germany’s Barthle hits out at Barroso austerity comments

The Barroso comments continue to stir things up. German politician Norbert Barthle has apparently condemned the reported comments from EC president José Manuel Barroso saying Europe's austerity programme had reached the limits of public acceptance:

Updated at 1.37pm BST

1.20pm BST

ECB rate cut talk lifts eurozone government debt

Growing talk of a rate cut by the European Central Bank, perhaps as early as next week, continues to lift eurozone debt.

With Germany's private sector shrinking for the first time in five months, the country's bund futures are moving higher and the 10-year yield is down nearly 1 basis point at 1.215%.

But peripheral debt is also performing well, with Italian yields down 12.5 basis points and Spanish yields 21 basis points lower. The hope of a resolution to the political uncertainty since the inconclusive Italian election was a factor, while in Spain an auction of three-month bonds attracted demand.

Updated at 3.12pm BST

12.47pm BST

Silvio Berlusconi is holding a healthy lead in the Italian opinion polls, according to new data released as president Giorgio Napolitano begins coalition talks.

One poll has Berlusconi's People of Freedom party ahead by 8%.

Alberto Nardelli, Italian political expert, tweets the details:

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

Updated at 1.05pm BST

12.30pm BST

EC denies austerity u-turn

A row is brewing in Brussels after the European Commission denied that president José Manuel Barroso pulled a u-turn yesterday when he said that Europe's austerity programme had reached the limits of public acceptance.

The EC has released a full transcript of the comments, made at a think tank event in Brussels. Austerity and growth debate: What President Barroso actually said at the Brussels Think Tank Dialogue.

They confirm that Barroso did state that the current approach to deleveraging Europe's 'unsustainable' debts was nearing its limits: (as we reported yesterday here).

Barroso said:

So while this policy is fundamentally right, I think it has reached its limits in many aspects, because a policy to be successful not only has to be properly designed. It has to have the minimum of political and social support.

And when asked to clarify by our Europe editor, Ian Traynor, Barroso stated that Europe's programme of deficit reduction had to be "complemented by a stronger emphasis on growth and growth measures in the shorter term:

We have been saying this, but we should say it louder and clearer. If not, even if the policy of correction of the deficit is basically correct, we can always discuss the fine-tuning, the rhythm or the pace, but that will not be sustainable politically and socially.

That's pretty clear, thanks.

So, fast-forward to Brussels where an EU spokesman has also just told the assembled Press Pack that Barroso hasn't changed his position:

Really? Ian, for one, isn't convinced:

Neither is the WSJ's Matina Stevis (who moderated Barroso's session). She also argues that backtracking is an blunder:

And Re-Define's Sony Kapoor speculates that Barroso's comment may not have pleased the German government:

11.42am BST

Analysts see little relief for Europe

The continuing fall in Eurozone output this month (see 9.19am) led by Germany's shrinking private sector seconomy, shows that there's no improvement in Europe's woes.

Analysts believe an ECB interest rate cut looks likely, but that probably won't be enough to turn the situation around.

Here's the latest reaction:

Carsten Brzeski of ING:

The eurozone’s economic engine is stuttering…

The weather and, much more important, disappointing Chinese activity, are still having a stranglehold over the German economy.

Kit Juckes of Société Générale:

At the margin, it is good news that we saw the divergence between Germany and France partially unwound, with German data coming out soft.

But the underlying story is that one of the best indicators of what is happening to growth suggests a mild depression continues, getting neither better, nor worse.

There will be debate about whether the ECB will cut rates further, though I doubt that would make any economic difference (except to the very front end of the Euro curve). But the ECB won't be tightening for a very, very long time indeed! Peripheral bond markets continue to rally and that in turn means FX models don't point to any great danger to the Euro, though I still think a weaker currency is needed, and inevitable if I am patient enough.

Richard Driver of Caxton FX:

This is yet more lacklustre data from the eurozone; the pace of contraction in France may be slowing but Germany is the one we are all interested in and the picture there looks very bleak indeed. The chances of a German and pan-European bounce back in Q2 are looking pretty remote right now. 

If the ECB don’t respond by cutting interest rates next month then you have to wonder how bad things have to get before they do bite the bullet. This should keep the euro under the cosh in the coming weeks.

11.20am BST

Cyprus finance minister: we’ll get bailout approved

Cypriot Finance Minister Harris Georgiades speaks to Reuters in an interview in Nicosia April 22, 2013.
Cypriot finance minister, Harris Georgiades, last night. Photograph: ANDREAS MANOLIS/Reuters

Cyprus's finance minister has attempted to calm fears over its bailout by insisting that MPs are certain to approve the deal when it comes to a vote in the coming days.

In an interview with Reuters, finance minister Harris Georgiades argued that the Nicosia parliament has already taken most of the difficult decisions (such as restructuring its banking sector and raising corporation tax)

Georgiades said:

I think parliament will acknowledge there is no alternative at this point.

We don't have a date for this vote yet – except that it is not expected before this Friday.

Georgiades suggested that the current restrictions on cash withdrawals and movement of capital could be eased within a few months.

Asked whether measures would be eased in two, or six months, Georgiades said: "Definitely not six months. I am optimistic we shall be able to proceed much sooner

Georgiades added that Cyprus was in no rush to start selling its gold reserves to raise €400m towards its reform plan, calling the sale:

…not even the most important, or the issue of the greatest magnitude.

Perhaps they're waiting until the gold price has recovered (it's down 0.5% today at ,413 per ounce)

Reuters' full interview is here: Gold sale not a priority – Cyprus finance minister

Updated at 11.20am BST

10.14am BST

In the markets…

German sovereign debt has risen in value this morning, pushing down the yield on its 10-year bonds to a new record low:

The German stock market has fallen 0.4% as traders avoid risk and digest the news that Germany's private sector is contracting.

In France, though, the main market is up 1% on relief that its downturn has eased.

Here's a round-up:

German DAX: down 24 points at 7453, – 0.3%

FTSE 100: up 30 points at 6,311, up 0.5%

French CAC: up 37 points at 3687, +1%

Spanish IBEX: up 84 points at 8112, +1%

Italian FTSE MIB: up 101 at 16123, +0.6%

10.02am BST

UK deficit falls by £300m

Britain managed to slice £300m off its budget deficit last year, according to the latest Public Finances figures.

The Office for National Statistics reported that the Public Sector Net Borrowing requirement (when various one-off items and financial interventions are excluded) came in at £120.6bn for the 2012-13 financial year.

That's a small improvement on the £120.9bn in the previous year.

Last year's deficit was equal to 5.57% of GDP, according to the ONS's figures. The UK's total national debt rose to £1.1858trn, or 75.4% of GDP (when the cost of financial sector interventions is ignored).

City economists aren't terribly impressed:

Howard Archer of IHS:

Some modestly good news for the Chancellor as the public deficit for 2012/13 came in marginally below the 2011/12 outturn and slightly less than the OBR had estimated in the budget.

Mind you the rate of improvement in 2012/13 makes a snail look fast, but at least the Chancellor can say the finances moved in the right direction!

9.47am BST

Here's more reaction to today's PMI data:

9.43am BST

Sweden’s unemployment rate rises

Sweden's jobless rate has jumped,in another signal that the European economy is struggling.

The unemployment rate in Sweden rose to 8.8% in March, up from 8.5% the previous month. Young people bore the brunt of the labour market, with the unemployment rate for people aged 15-24 rising to 28.1%, from 25.15 a year ago.

Statistics Sweden said this was due to an increase in the number of full-time students who are now full-time student job seekers, unable to find employment.

At 8.8%, Sweden's overall unemployment rate is rather lower than the 12% recorded in the eurozone last month.

9.31am BST

ECB rate cut spied

Economist Howard Archer of IHS reckons that the ECB is likely to cut interest rates, perhaps as early as next week, following today's data:

The ECB indicated at its April policy meeting that it is increasingly open to taking interest rates down from 0.75% to 0.50%, and latest comments by senior ECB policymakers indicate that that an interest rate cut could well occur if Eurozone economic activity continues to disappoint.

The April purchasing managers surveys certainly seem to fit the bill for an ECB interest rate cut and we believe there is a strong chance that the ECB will act as soon as its 2 May meeting. If the ECB does hold fire on interest rates at its May meeting next week, this looks increasingly likely to be only delaying the inevitable.

Hard to believe a quarter-point rate cut would really bring much cheer to the eurozone, though.

9.19am BST

Eurozone’s private sector shrinks again as Germany suffers

Germany has been dragged deeper into Europe's economic crisis, as the eurozone's private sector continues to contract at the same rate as in March.

That's the broad message from today's PMI data, with France's better-than-expected performance overshadowed by the deterioration in Germany.

Here's Markit's overall PMI data (combining the data from France and Germany).

Eurozone service sector PMI: 46.6, up from March's 46.4

Eurozone manufacturing PMI: 46.5, down from March's 46.8

Eurozone composite PMI: 46.5, marching March's 46.5.

Eurozone flash PMI vs GDP, to April 2013
Photograph: Markit

As Markit explained, the region's two largest member states are showing "divergent trends".

While France saw the rates of decline in both business activity and new business ease sharply to the slowest for four and eight months respectively, Germany saw both activity and new business fall at the steepest rates for six months.

The drop in German activity was also notable in being the first since last November.

Elsewhere across the region output fell at the slowest rate for three months in April, though the rate of loss of new business remained marked.

And in further gloom, firms cut payroll numbers (ie, the number of people they employ) for the 16th month in a row.

8.59am BST

Euro slides as traders anticipate ECB action

The euro has fallen since Germany's poor PMI data hit the wires, down amost one cent against the US dollar at .298.

The European Central Bank may respond with an early cut in interest rates, as Owen Callan of Danske Bank Markets explains:

8.56am BST

Key event

This graph from Markit, of Geman PMI data versus economic growth, shows why today's weak data (see 8.38am) could herald a contraction in GDP this quarter.

German PMI vs GDP, to April 2013
Photograph: Markit

8.45am BST

Germany hit by crisis in Southern Europe

Tim Moore, senior economist at Markit, warned that Germany's private sector has been weaking in recent months – leading to today's surprise fall in output (see 8.38am).

The data suggests the German economy could shrink this quarter, Moore explained. He added that German industry is clearly suffering from the crisis in the eurozone periphery:

Weaker demand was attributed to subdued business confidence across the euro area, with clients cutting spending amid concerns about the economic outlook for southern Europe.

In the manufacturing sector, there were also reports that destocking efforts had led to reduced production requirements.

Updated at 8.45am BST

8.38am BST

Surprise contraction in German private sector

Germany's private sector is shrinking for the first time since last November, with its services and manufacturing sectors both reporting much weaker than expected PMI data.

Both readings came in below the 50-point mark — showing a contraction in Europe's largest economy.

German service sector PMI: 49.2, down from March's 50.9.

German manufacturing PMI: 47.9, down from March's 49.

German composite PMI: 48.8, down from 50.6 in March

That is rather alarming news for Angela Merkel's government… More to follow.

that'

8.30am BST

China’s weak PMIs hits Shanghai shares

The weak Chinese PMI data released overnight sent shares sliding, with the Shanghai composite index closing 2.6% lower.

The data has reinforced fears that the Chinese economy is slowing.

CNBC has the full details: here's a flavour:

China's flash HSBC PMI fell to a two-month low of 50.5 in April from 51.6 in March – compared with expectations for a fall to 51.5. A reading above 50 indicates expanding activity and one below 50 signals contraction.

"It's a big miss. Confidence in the outlook for China has really diminished, particularly after first quarter growth data," said Tim Condon, head of research for Asia at ING. "People are now reforming their views on economy. The new view is that growth will be stagnant," he added.

Updated at 11.30am BST

8.22am BST

France's private sector has suffered a bruising two years now, as this graph from today's PMI data shows:

French PMI vs GDP, April 2013
Photograph: Markit

The French business people interviewed by Markit were more optimistic than in March, predicting a "modest expansion of activity" over the next 12 months:

Panellists expressed hope that market conditions will improve, although there remained concerns over the generally poor economic climate.

The full release is here (pdf)

Updated at 8.22am BST

8.14am BST

Europe's stock markets have opened a little higher on the back of the French PMI data (FTSE 100 is up 10 points). There's relief that the downturn in Europe's second-largest economy isn't worse.

But as Re-Define's Sony Kapoor points out, France's private sector is still shrinking:

Updated at 8.15am BST

8.07am BST

French PMI better than expected

Just in: France's manufacturing and service sectors are still shrinking — but the pace of the downturn is slowing.

French manufacturing PMI: 44.4 in April, up from 44.0 in March. An eight-month high.

French services PMI: 44.1, up from 41.3 in March. A four-month high.

Markit chief economist Chris Williamson told Reuters that the worst may be over for French firms:

They're seeing obviously very weak demand and thinking it can't get any worse, surely it will get better… Policymakers won't allow a further collapse.

Updated at 8.18am BST

7.58am BST

How PMI surveys work

A quick explainer of how the PMI data is calculated, and what it shows:

• Markit, the financial data firm, interviews purchasing managers across the private sector to find if their business conditions are better, worse, or the same than last month.

• That information is used to generate the PMI for each sector.

• A PMI of 50 means the sector was flat — anything higher shows growth, while a PMI below 50 indicates that economic activity fell.

And this month, economists predict that the overall composite eurozone PMI (combining services and manufacturing) will come in at 46.5, the same as March. That would mean Europe's private sector is continuing to contract.

7.48am BST

PMI data to show state of Europe’s economy

Workers assembling air conditioners at a factory of Gree Electric Appliances in Wuhan in central China's Hubei province 18 April 2013.
Workers assembling air conditioners at a factory of Gree Electric Appliances in the Hubei province of central China – Chinese PMI data this morning was weaker than expected. Photograph: SHEPHERD ZHOU

Good morning, and welcome to our rolling coverage of the Eurozone financial crisis, and other key events across the world economy.

It's a big day for data. Purchasing Managers Index reports from across the eurozone will show how manufacturers and service sector companies are performing this month.

Economists expect the PMIs to confirm that the eurozone's private sector is still shrinking, as many European countries struggle to come out of recession

That would put more pressure on the European Central Bank to cut interest rates, or even consider more unconventional measures.

The data will also provide fresh fodder for the raging debate on whether the eurozone should slow the pace of its austerity programme. As we reported yesterday, even EC president José Manuel Barroso is now hinting at a change of approach….

We get French PMIs shortly, at around 8am BST. Germany's data comes 30 minutes later, followed by the figure for the whole eurozone at 9am BST (10am CET).

China has already reported its PMIs for April, and they were rather lower than expected. The Chinese flash HSBC PMI fell to a two-month low of 50.5 in April from 51.6 in March. That has knocked stock markets in Asia overnight (more to follow).

Also coming up today… Italy's president, Giorgio Napolitano, will hold meetings in an effort to form a new government. And UK public finances (at 9.30am BST) will show how Britain is faring.

We'll be tracking all that, and other developments across the eurozone and beyond….

Updated at 7.50am BST

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