April 20 2013

Britain loses AAA rating with Fitch. Gross government debt expected to hit 101%. Treasury: we can’t run away from Britain’s debts. Britain is launching legal action against a plan to introduce a financial transaction tax in eurozone countries…


Powered by Guardian.co.ukThis article titled “Fitch downgrades UK credit rating – as it happened” was written by Graeme Wearden, for theguardian.com on Friday 19th April 2013 18.35 UTC

8.34pm BST

Closing summary

Our news story on the Fitch downgrade is now online here: Fitch strips UK of AAA credit rating.

Here's a flavour:

The UK's credit standing took a further blow on Friday when Fitch Ratings became the second major international agency to strip it of its top-notch credit rating.

The move is an embarrassment for the coalition, which promised to protect Britain's rating when it took power in 2010, and will heighten the debate about whether austerity is still the right approach.

Fitch trimmed the rating to AA+ from AAA, citing a weaker economic and fiscal outlook. But it returned the outlook to "stable", removing the threat of any further rating action, at least in the near term.

"The fiscal space to absorb further adverse economic and financial shocks is no longer consistent with a AAA rating," it said in a statement.

And as the reaction to the move has now died down, I'm going to shut up the liveblog for the day.

Here's the key points:

You can track the reaction to Fitch's downgrade from 5.06pm.

Here's the official statement

George Osborne says there's no credible alternative…

Shadow chancellor Ed Balls called it 'another devastating blow' to Osborne, and David Cameron

City analysts reacted calmly.

Thanks for reading, and goodnight. Back next week…..

8.30pm BST

Another photo from Washington, catching Osborne and Sir Mervyn King in thoughtful mood:

Britain Chancellor of the Exchequer George Osborne, center, stands with Bank of England Gov. Mervyn King, left, and U.S. Treasury Secretary Jack Lew during a group photo of the G20 finance ministers and central bank governors on the sidelines of their meeting at World Bank Group International Monetary Fund Spring Meetings in Washington, Friday, April 19, 2013.
Britain Chancellor of the Exchequer George Osborne, center, stands with Bank of England Gov. Mervyn King, left, and U.S. Treasury Secretary Jack Lew during a group photo of the G20 finance ministers and central bank governors on the sidelines of their meeting at World Bank Group International Monetary Fund Spring Meetings in Washington. Photograph: Charles Dharapak/AP

8.15pm BST

Meanwhile in Washington, finance ministers have agreed not to set hard targets for debt reduction.

Reuters has the details

8.09pm BST

UK launches legal action over FTT

Another important story to flag up… Britain is launching legal action against a plan to introduce a financial transaction tax in eleven eurozone countries.

The government says it is worried that the plan will affect banks and institutions in countries outside the scheme – in other words, hurt the City..

From Washington, Larry Elliott reports:

The scheme, also known as a Tobin tax, would put a levy on all euro transactions anywhere in the world. But hopes for it suffered a setback when George Osborne said in Washington that the UK was taking the case to the European court of justice (ECJ).

"I am not against financial transaction taxes in principle," the chancellor said, noting that the UK put stamp duty on shares. "But I am concerned about the extra-territorial aspects of the European commission's proposals.

It's quite a dramatic move from the UK. FTT supporters aren't impressed – the Robin Hood Tax campaign called it "the last refuge of a chancellor who has lost the argument".

Here's the full story: George Osborne to challenge proposed financial transaction tax in court

7.45pm BST

The International Monetary Fund has taken another swipe at the government's budget plans tonight.

In an interview with the BBC's Hardtalk programme, Christine Lagarde was asked whether the UK government needed show more flexibility.

She replied that Britain's recent "weak growth" meant the government could now reconsider its plans (effectively repeating her point from earlier this week).

Here's the quote:

We are saying with this medium-term, strong anchoring of fiscal consolidation, the pace has to be adjusted depending on the circumstances and given the weak growth that we have observed lately … now might be the time to consider.

The IMF has previously backed Osborne's plans. And the reference to "medium-term, strong anchoring of fiscal consolidation" shows it hasn't lost all faith in the UK.

7.35pm BST

Here's a second statement from the Treasury tonight, insisting that the UK economy is improving:

Though it is taking time, we are fixing this country's economic problems.

The deficit is down by a third, a million and a quarter new private-sector jobs have been created and the credibility we have earned means households and businesses are benefiting from near record low interest rates.

The test will come next Thursday, when the first estimate of UK economic output in January, February and March is released. If GDP has fallen then Britain will be a triple-dip recession.

7.23pm BST

Osborne: no credible alternative

US Treasury Secretary Jack Lew (R) talks with British Chancellor of the Exchequer George Osborne (L) during group photo of G-20 finance ministers and central bankers at the 2013 IMF and World Bank Spring Meetings in Washington, DC, USA, 19 April 2013.
 George Osborne (left) speaking to US Treasury Secretary Jack Lew during the group photo of G20 finance ministers and central bankers at the 2013 IMF and World Bank Spring Meetings in Washington. Photograph: SHAWN THEW/EPA

Over in Washington at the G20 meeting, George Osborne is refusing to be beaten down by Fitch's downgrade.

Speaking to the Financial Times, the chancellor argued that there was no 'credible' alternative to his plans.

Osborne said:

While of course there are ongoing economic challenges in the UK, I don’t feel a particularly strong political challenge to our economic policy.

I don’t feel under particular pressure politically because I don’t see anyone coming up with a credible alternative.

7.08pm BST

Rob Wood, chief UK economist at Berenbeg Bank, agrees that Fitch's downgrade has little impact economically. He points out that the UK deficit is not actually expected to fall this year (it is forecast to be £121bn, versus £120bn in 2012-2013)

Wood commented:

The downgrade comes hot on the heels of the spat this week between the IMF and the UK government, about whether to ease back on consolidation.

It will be further ammunition for the Labour opposition. Although in reality the arguments about Plan A and Plan B are pretty meaningless. The Chancellor has more or less switched to Plan B already.

He does not expect government borrowing to fall between FY2011/12 and FY2013/14. Ignoring all his questionable fiddles to get the measured deficit down, the Chancellor expects to borrow more than £100bn in the final fiscal year of the current parliament. It is hard to imagine a credible plan to borrow much more than that. Indeed, the stable outlook from Fitch relies on continued commitment to consolidation.

6.52pm BST

City unshaken by downgrade

There's a pretty muted reaction in the City tonight to Fitch's downgrade.

Economists and traders were already well aware of the state of the British economy, having digested the economic forecasts in last month's budget.

And Britain's credit rating had already lost its AAA status when Moody's made its own downgrade in February. The pound is still down on the day (see 5.33pm for a chart), but a fall of 0.5 cents isn't a big move.

Here's some early reaction:

Torben Kaaber, CEO at Saxo Capital Markets:

Poor George Osborne really has had a bad few days, not only has the IMF turned its back on him, Fitch has just downgraded the UK to AA+; a painful end to the week.

This further adds to the negativity around GBP and the perceived lack of policy to address the UK’s weak economic growth; specifically it was the poor economic growth that was highlighted by both Moody’s and Fitch as the key elements in their decisions to cut.

This downgrade set against a background of weakening UK economic data and the Bank of England likely to continue to add monetary stimulus would suggest that GBP will stay under pressure for now. Either way, shaky ground ahead, however given Osborne’s strong rhetoric to date, it seems the man is not for turning.

David Tinsley of BNP Paribas

For now the UK government is likely to stick to their existing plans for consolidation. But if growth falls short of already modest forecasts then pressure will build still further.

Howard Archer of IHS Global Insight

We suspect that there is likely to be little, if any, economic or market fall-out from Fitch’s decision to strip the UK’s of its rating, especially as the new AA+ rating has a stable outlook attached to it, which means that there are unlikely to be any further changes by Fitch to the rating for at least the next two years.

Updated at 6.58pm BST

6.19pm BST

Fitch's downgrade has come as George Osborne attends the meeting of G20 finance ministers in Washington.

Not the best timing for the chancellor, points out Channel 4's economics editor, Faisal Islam.

6.15pm BST

Ed Balls responds:

Ed Balls, the shadow chancellor, has called the downgrade "another humiliating blow" to the government, and repeated Labour's jibe that Osborne is a "downgraded chancellor".

Here's his full response:

This is another humiliating blow to a Prime Minister and Chancellor who said keeping our AAA rating was the number one test of their economic and political credibility. And it ends a disastrous week for George Osborne’s economic policy after the IMF downgraded its UK economic forecasts again and warned Britain needs a plan B for jobs and growth.

It’s not the views of the credit rating agencies, but the economic realities they are responding to which should be ringing alarm bells at the Treasury. Fitch is clear that their decision is a result of the weak growth performance of the UK in recent years. They are responding to nearly three years of stagnation, rising unemployment and billions more borrowing to pay for this economic failure.

This downgraded Chancellor needs to wake up and realise that his failing economic policies are causing long-term damage and Britain’s families and businesses are paying the price. When even your biggest allies – the IMF and the credit rating agencies – abandon you it really is time to put political pride aside and finally act to kickstart the economy.

Updated at 6.32pm BST

6.12pm BST

A bad week, by George

Fitch's downgrade comes at the end of a difficult week for George Osborne.

The International Monetary Fund warned on Tuesday that the government should ease the pace of its austerity programme, given the weak state of the economy.

On Wednesday, Britain's unemployment rate rose to 7.9%.

Then on Thursday, the IMF's Christine Lagarde repeated that Osborne should rethink and promised that her officials would conduct a thorough investigation into the health of the UK economy next month.

6.00pm BST

Fitch is the first agency to cut Britain's credit rating since last month's budget – the axe has been hovering since it put the UK on "rating watch negative" four weeks ago.

Standard & Poor's is now the only Big Three rating agency to still rank the UK as AAA (Moody's didn't even wait for the budget).

This puts the UK in a similar position as France (who are only AAA with Fitch).

Updated at 6.33pm BST

5.54pm BST

The headwinds of ‘private and public sector deleveraging’

Critics of George Osborne are likely to seize on Fitch's point that Britain's budget deficits are now forecast to be higher than expected last year (the third 'ratings driver' in the statement at 5.12pm)

Fitch blames "the weak growth performance of the UK economy in recent years", which it says are partly due to "headwinds of private and public sector deleveraging and the eurozone crisis".

Clearly Osborne can't be blamed for the euro's woes. But many Keynesian economists have argued that it was a blunder to attempt an austerity programme while many companies, and households, were also looking to pay down their debts.

Updated at 5.59pm BST

5.44pm BST

Treasury: downgrade shows Britain must tackle debts

The Treasury has responded to Fitch's downgrade, arguing that the move doesn't mean chancellor George Osborne should change course:

A spokesman said:

This is a stark reminder that the UK cannot simply run away from its problems, or refuse to deal with a legacy of debt built up over a decade.

Fitch themselves say the government's 'continued policy commitment to reducing the underlying budget deficit' is one of the main reasons UK debt now has a 'stable' outlook.

5.33pm BST

Pound drops after Fitch downgrade

The pound is down half a cent against the dollar today, following Fitch's announcement, to .523.

That's not a major move really, and as you can see sterling had actually been sliding all afternoon….

Sterling, April 19 2013
Pound vs dollar today. Photograph: Reuters

Updated at 6.33pm BST

5.23pm BST

Fitch’s statement

Fitch's statement is online here.

The new rating is AA+ with a stable outlook, which means Fitch is not anticipating a further downgrade in the near future.

5.12pm BST

Why Fitch downgraded the UK

Fitch says it took the decision to downgrade Britain's triple-A rating because of the country's deteriorating economic climate.

It now believes Britain's gross debt will peak at 101% of GDP in 2015-16.

A debt mountain larger than the UK's annual economic outlook is not consistence with a top-notch credit rating.

Here's the key points from tonight's statement:

• Fitch now forecasts that general government gross debt (GGGD) will peak at 101% of GDP in 2015-16 (equivalent to 86% of GDP for public sector net debt, PSND) and will only gradually decline from 2017-18. This compares with Fitch's previous projection for GGGD peaking at 97% and declining from 2016-17 and the 'AAA' median of around 50%.

• Fitch previously commented that failure to stabilise debt below 100% of GDP and place it on a firm downward path towards 90% of GDP over the medium term would likely trigger a rating downgrade. Despite the UK's strong fiscal financing flexibility underpinned by its own currency with reserve currency status and the long average maturity of public debt, the fiscal space to absorb further adverse economic and financial shocks is no longer consistent with a 'AAA' rating.

• Higher than previously projected budget deficits and debt primarily reflects the weak growth performance of the UK economy in recent years, partly due to headwinds of private and public sector deleveraging and the eurozone crisis. Fitch has revised down its forecast economic growth in 2013 and 2014 to 0.8% and 1.8%, respectively, from 1.5% and 2.0% at the time of the last review of the UK's sovereign ratings in September 2012. The UK economy is not expected to reach its 2007 level of real GDP until 2014, underscoring the weakness of the economic recovery.

• Despite significant progress in reducing public sector net borrowing (PSNB from a peak of 11.2% of GDP (GBP159bn) in 2009-10, the budget deficit remains 7.4% of GDP (excluding the effect of the transfer of Royal Mail pensions) and is not expected to fall below 6% of GDP and GBP100bn until the end of the current parliament term. The slower pace of deficit reduction means that the next government will be required to implement substantial spending reductions (and/or tax increases) if public debt is to be stabilised and reduced over the medium term.

Updated at 5.17pm BST

5.06pm BST


Breaking News: Fitch has downgraded the UK's triple-A rating, by one notch, to AA+.

4.34pm BST

Goldbugs swarmed on bullion in April, says Royal Mint

My colleague Katie Allen has been looking into sales of physical gold over the last week and has some interesting numbers from the Royal Mint.

The battering in financial markets for gold has brought out the bargain hunters in the physical market and bars, nuggets and coins are going gangbusters.

In India, the world's biggest gold buyer, the wedding season is boosting sales further, jewellers report.

In the UK the Royal Mint tells us that bullion sales have rocketed.

Richard Samuels, bullion manager at The Royal Mint said:

Demand for gold bullion coins during April has seen an increase of over 150% in sales on the previous month, and over 200% on the same period in 2012.

Shane Bissett, director of bullion and commemorative coin at The Royal Mint said:

Since the dip in the price of gold we have seen increased demand for our gold bullion coins from the major coin markets, and this presently shows no sign of abating. The Royal Mint continues to supply to its customers and is increasing production to accommodate the higher demand.

The gold price has risen today, incidentally, to ,402 per ounce.

Updated at 5.00pm BST

4.03pm BST

Photos: Alessandra Mussolini wears ‘The Devil Wears Prodi’ top

Surprising scenes in the Italian parliamentAlessandra Mussolini MP, granddaughter of Benito, turned up for today's presidential vote with "The Devil Wears Prodi" written on the back of her top.

This led to hissing and booing from centre-left MPs, who had selected former prime minister Romano Prodi as their favoured candidate for the presidency (see 1.25pm for details).

Mussolini is a member of Silvio Berlusconi's PdL party, who are refusing to support their former rival.

Alessandra Mussolini wears a t-shirt to protest during the second day of the presidential election in the lower house of the parliament in Rome April 19, 2013.
Photograph: Max Rossi/Reuters
Lower house president Laura Boldrini (R) checks the t-shirt of  PDL (People of Freedom party) member Alessandra Mussolini (C) during the second day of the presidential election in the lower house of the parliament in Rome April 19, 2013.
Lower house president Laura Boldrini (R) checks the Alessandra Mussolini’s t-shirt. Photograph: Max Rossi/Reuters
PDL (People of Freedom party) member Alessandra Mussolini (L) gestures with Lower house president Laura Boldrini during the second day of the presidential election in the lower house of the parliament in Rome April 19, 2013. I
Photograph: Max Rossi/Reuters
Alessandra Mussolini of The People of Freedom (PdL) wears a T-shirt which reads 'The Devil wears Prodi' ('Il Diavolo veste Prodi') as she arrives in the Chamber of Deputies on the second day of the election of the new Italian President, Rome, Italy, 19 April 2013.
Photograph: Alessandro Di Meo/EPA

We don't have the results of the latest ballot yet, though.

Updated at 4.14pm BST

3.36pm BST

Over in Washington, we're expecting a statement from G20 finance ministers later this afternoon.

Details are starting to leak … the Wall Street Journal reckons we'll get a repeat of their previous comments about committing to avoid a currency war …

Updated at 3.36pm BST

3.30pm BST

Photos: Cyprus begins inquiry into bailout crisis

Cyprus' Finance Ministry permanent secretary Christos Patsalides, the first witness of a public inquiry into Cyprus' economic collapse, testifies before a panel of judges in Nicosia April 19, 2013.
Cyprus’s finance ministry permanent secretary Christos Patsalides testifying today. Photograph: ANDREAS MANOLIS/Reuters

The top civil servant at Cyprus's finance ministry has savaged the country's international lenders as "forces of occupation" with no compassion for human rights, at the start of an official judicial probe into the crisis.

Christos Patsalides told the inquiry that the officials who negotiated with Cyprus had been "unrelenting", and had driven it into its current plight.

Patsalides said:

With the imposition of Germany and the IMF…they shot a pigeon with an atomic bomb".

Cyprus's finance ministry permanent secretary Christos Patsalides (background right) starts testifying, Nicosia Friday 19 April 2013, into the economic circumstances leading to the turmoil of an EU sanctioned bailout for the troubled Mediterranean island.
Photograph: Katia Christodoulou

Here's more details via Reuters:

Asked whether forcing losses on depositors was compatible with their individual rights, Patsalides replied: "When you are dealing with forces of occupation, they don't talk about human rights."

Cyprus, which had modelled itself as an offshore financial services centre for lack of any other resources, now faces a grim future with its reputation in tatters and its economy deep in recession.

"They destroyed an economic system that worked," Patsalides said. "Yes, we have our shortcomings, but the magnitude of the punishment is far greater than the size of the problem."

Updated at 3.41pm BST

2.32pm BST

Schäuble suggests ECB should reduce liquidity

Wolfgang Schäuble has waded into the debate over excessive monetary easing by suggesting that the European Central Bank should take the opportunity to reduce liquidity.

The comments created some concern in the financial markets — with several eurocrisis experts pointing out that the weakest areas of the eurozone would benefit from more easing, not tightening at this stage.

After all, the IMF's Christine Lagarde argued this week that the ECB is the only central bank with the room to do more.

I've now found the comments, which were made in an interview with Germany's Wirtschafts Woche. It's online here.

Here's the key quotes:

There is a lot of money in the market, in my opinion too much money…If the ECB tries to exploit leeway to reduce the large liquidity a little, I can only welcome this.

Schäuble went on, though, to recognise that the economic crisis is not over, adding:

We must not forget in Germany that many European countries are still in a precarious position growth.

Worth noting that eurozone inflation actually dropped to 1.7% last month – hardly a sign of an overheating economy. And many banks have begun repaying early the cheap loans they took from the ECB over a year ago.

Here's the early reaction:

Updated at 2.39pm BST

1.25pm BST

You won't be surprised to learn that Italian MPs have again failed to elect a president, at their third round of voting today.

Now the fourth round, where a successful candidate just needs a straight majority (not the two-thirds mandate of earlier rounds).

The centre-left Democratic party has set up a clash with Silvio Berlusconi's People of Freedom (PDL) by choosing former prime minister Romano Prodi as its candidate.

That could prompt an early general election, as PDL has refused to accept Prodi. He and Berlusconi were fierce opponents through the last decade – Prodi defeated his rightwing rival in the general election of 2006, only to be ousted in 2008, when Berlusconi returned to office.

The fourth round starts in around an hour's time:

Updated at 1.28pm BST

12.25pm BST

Finland approves Cyprus bailout

Finland's parliament has given its approval to the Cyprus bailout, at two votes in Helsinki this lunchtime.

A total of 86 MPs backed Prime Minister Jyrki Katainen’s six-party coalition, with 65 against and 48 MPs absent (figures via Bloomberg).

The country's grand committee (which oversees EU policy) then voted 16 – 9 to back the aid package.

As we wrote yesterday, Cyprus's government is planning to hold its own vote to approve (or potentially reject) the programme agreed with Brussels, the ECB and the IMF.

Updated at 1.27pm BST

11.52am BST

Arrests over Greek migrant shooting

The Greek government has pledged not to deport migrant workers who were shot this week after asking for their unpaid wages, after three supervisors suspected of firing on the group were arrested.

The shooting of 28 Bangladeshi strawberry pickers shot in the Nea Manolada area prompted a public outcry, and coverage in the international media.

Visiting the site today, public order minister Nikos Dendias announced this morning that the victims would not be expelled from Greece, and said the government would crack down on the use of unregistered workers.

Kathemerini adds:

The brutal assault does not only violate Greek laws but also every sense of humanity and has no relation to Greece's culture, Dendias said after speaking with local police chiefs.

Greek police have issued a statement this morning, saying that they have now detained three men near the village where the shootings took place on Wednesday.

Two of the Greek men, aged 39 and 27, were arrested at their lawyer's office. The third, aged 21, was stopped during a road check. according to AP.

Migrant workers sit inside a makeshift camp in Nea Manolada on April 18, 2013.
Migrant workers sit inside a makeshift camp in Nea Manolada yesterday. Photograph: Giota Korbaki/AFP/Getty Images

Updated at 1.26pm BST

11.08am BST

Markets rise on G20 hopes

European stock markets are up this morning, partly driven by hopes that the G20 will make some progress towards repairing the global economy today.

FTSE 100: up 33 points at 6277, + 0.5%

German DAX: up 37 points at 7510, +0.5%

French CAC: up 44 points at 3643, +1.24%

Spanish IBEX: up 120 points at 7932, +1.5%

Italian FTSE MIB: up 330 points at 15,811. 2.1%

Brenda Kelly, market analyst at IG, points out that there are few fundamental reasons for traders to be cheerier:

Equity markets ramped up small gains in early trade, showing a recovery from yesterday’s mediocre performance. The cautious sentiment seems to be hinged on a positive outcome from the meeting of finance leaders in Washington today. Corporate and economic data from both across the water and closer to home have failed to lend any true traction to recent rally.

And Kit Juckes of Société Générale points out that share prices are still benefiting from the relaxed monetary policy that is causing such concern to fast-growing emerging nations (see 8.51am).

Updated at 11.08am BST

10.46am BST

German constitutional court to hear complaint against euro rescue funds

President of the German Constitutional Court Andreas Vosskuhle (R) arrives with other judges for the hearing on the European Stability Mechanism (ESM) and the fiscal pact in Karlsruhe July 10, 2012.
From July 2012, when the German constitutional court held a hearing on the European Stability Mechanism (ESM) and the fiscal pact. Photograph: Alex Domanski/Reuters

Heads up: Germany's constitutional court has announced that it will hear a wide-ranging complaint into Europe's rescue packages in June.

The two-day hearing, set for 11-12 June, will examine whether the European Central Bank's new bond-buying scheme or OMT (Outright Monetary Transactions) violates the German constitution.

Germany's top judges will also consider the ECB's earlier SMP bond-buying programme (used to stabilise the borrowing costs of Spain and Italy in 2011), and its Emergency Liquidity Assistance (which propped up banks in Cyprus). as well.

The court, in Karlsruhe, ruled seven months ago that the European Stability Mechanism (the €700bn rescue fund set aside for bailouts) did not infringe budget sovereignty of the German parliament. This new case will also see it consider the ESM again.

Updated at 1.20pm BST

10.17am BST

IMF fears ‘poisoned umbrellas’ in London

The UK government and the International Monetary Fund are preparing for a serious scrap over Britain's fiscal plans next month.

IMF officials are due in London in May to conduct their annual assessment – and are widely expected to challenge George Osborne's policies (following Christine Lagarde's concern over the UK's weak growth).

The Treasury, though, is planning an aggressive response – suggesting a clash that could potentially influence the economic debate beyond the UK.

According to the Financial Times, an unnamed IMF official is even harking back to the killing of Bulgarian dissident writer Georgi Markov back in 1978:

IMF economists concede they may need to watch out for “poisoned umbrellas” for their so-called “Article IV” mission to London. One aide to Mr Osborne said: “If they recommend we loosen fiscal policy, we won’t do it. We think they are wrong.”

Mr Osborne believes that IMF criticism of his policies is unfair, as Britain’s 1 per cent fiscal contraction this year is in line with the fund’s general recommendations for advanced economies.

Not sure the umbrella reference is in the very best taste…

Financial Times Front Page, April 19 2013
Today’s Financial Times

Updated at 1.16pm BST

9.47am BST

Italian industrial orders down 7.9%

Italy's industrial sector has suffered another slump in demand. Industrial orders tumbled by 7.9% in February, compared to a year ago, a sharper fall than analysts had expected.

On a seasonally adjusted basis, orders were down 2.5% month on month in February, on top of a 1.4% decline in January. That adds to fears that the eurozone economy weakened towards the end of December.

Updated at 1.15pm BST

9.08am BST

Yen falls back…

The G20 will not rebuke Japan over its new aggressive monetary easing policies, according to its finance minister, Taro Aso.

The Yen fell by over 1% against other currencies this morning after Aso told reporters that finance ministers will not make any official complaint over "Abenomics".

In response, the yen has fallen to over ¥99 to the US dollar.

8.51am BST

Emerging economies warn over liquidity surge

The world's leading emerging and developing countries have sounded the alarm this morning over dangers of huge monetary stimulus programmes.

In a joint communique, the group of 24 emerging and developing countries warned central banks in "advanced" economies that their unconventional policies would cause huge damage:

The G24, which includes Brazil, India and South Africa, said:

We remain concerned about the fragility and pace of the global recovery because of the protracted difficulties and uncertainties in many advanced economies, including the euro area and the United States.

We call on advanced economies to take into account the negative spillover effects on the emerging and developing countries of prolonged unconventional monetary policies.

AFP has a full report here.

The quantitative easing programmes launched by the US since the crisis began have long concerned the G24, who saw "hot money" flow into their economies after the Federal Reserve boosted liquidity.

The Bank of Japan's bold new scheme to double its monetary base and finally slay deflation is a new worry – the IMF warned this week that the seeds of the next crisis could be being sown now.

Updated at 1.14pm BST

8.27am BST

Olli Rehn: we could slow austerity down

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

The battle between growth and austerity is centre stage today as the world's most powerful finance ministers and central bank governors gather in Washington for the G20 talks.

Overnight, European commissioner Olli Rehn signalled that the eurozone may finally be prepared to bow to pressure and relax its fiscal consolidation programme in some countries – where the belt tightening is clearly doing more harm than good.

Speaking to Reuters, Rehn declared:

In the early phase of the crisis it was essential to restore the credibility of fiscal policy in Europe because that was fundamentally questioned by market forces…

There was no choice. Decisive action was taken.

Now, as we have restored the credibility in the short-term, that gives us the possibility of having a smoother path of fiscal adjustment in the medium-term.

It could be an important shift in Brussels' position, as the G20 are expected to discuss whether to agree on a collective "co-ordinated debt reduction plan" for the coming years.

Rehn's comments also come as the International Monetary Fund appeared to shift its position on the balance between fiscal consolidation and stimulus. Some journalists are talking of a power battle within the Fund, with more Keynesian elements perhaps taking the upper hand.

But talk of more stimulus measures in the world's biggest economies may be alarming the developing world – who have issued a warning about the push for ever-more liquidity (more to follow).

In Europe, the Finnish parliament is due to debate the Cyprus bailout. The news yesterday that Cypriot MPs will hold their own vote is causing some jitters.

And Italian MPs will continue to vote on their next president, after two failed ballots yesterday.

I'll be tracking the latest developments in Europe, and beyond, through the day.

Updated at 1.13pm BST

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