May 17 2013

The outlook may be opimistic but the Greek unemployment picture remains dire. EU car sales rise for first time in 19 months. Spanish bad loans rise. Italian government to reform property tax. US consumer sentiment index rose to its highest level in six years, up from 76.4 in April to 83.7 so far this month…


Powered by article titled “Eurozone crisis as it happened: Greece on track to exit slump next year, says Troika” was written by Graeme Wearden and Nick Fletcher, for on Friday 17th May 2013 17.08 UTC

6.08pm BST

IMF report on Cyprus leads to new anti-austerity row

Crisis-hit Cyprus could be headed for a much worse recession than initially anticipated when international creditors agreed to prop up its economy, the IMF has announced in a 47-page report released today. Helena Smith writes:

Forecasting that the island’s output will shrink by at least 9% in 2013 (and perhaps even more) the IMF said Cyprus faced “unusually high” macro-economic risks if it did not adhere to the stringent terms of the €13bn bailout it has signed with the EU, ECB and IMF.

"Should these risks materialize, additional financing measures may be needed to preserve debt sustainability," it said, predicting that the tiny nation’s debt load would hit 126% of gross domestic product in 2015 before falling to 105% of GDP by 2020. 

Despite having already agreed to draconian belt-tightening measures – including highly controversial capital capitals – it was likely that Nicosia would be required to further slash GDP by 4.7% a year (the equivalent of €900m worth of budget cuts) over 2015 to 2018 to secure the island’s long-term primary budget surplus, said the IMF.

With the ink on the loan agreement barely dry, the report has unleashed fury among politicians on the island with the anti-austerity main opposition Akel party not only slamming the bailout deal but questioning if the government had read it before it signed up to the agreement. 

Akel cadres say the IMF assessment will embolden those now openly asking if it would not be better for the beleaguered island to exit the eurozone than apply such tough conditions.

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

6.01pm BST

Here's the full statement on the EFSF payments to Greece.

As IfigEusLannuon rightly points out below the payments are loans not aid and have to be paid back.

5.39pm BST

Slovenia debt cut by Fitch

Slovenia has seen its debt rating cut by Fitch, the agency has just announced.

Last month Moody's reduced its rating on the country to junk, from Ba1 to Baa2.

Now Fitch has cut from A- to BBB+ with a negative outlook. It said the economic outlook had deteriorated and it now forecast a 2% decline in GDP in 2013. It predicts a 0.3% decline in 2014, leaving it as only one of two eurozone countries to contract.

The agency said its estimates of the cost of bank recapitalisation were higher than official forecasts. It estimated the sector needed an injection of €2.8bn, with €2bn needed for the three largest banks. This is more than double the official estimate.

5.27pm BST

European shares on the rise again

European car sale figures and the positive US consumer sentiment data have combined to keep markets moving higher.

• The FTSE 100 finished 35.26 points higher at 6723.06

• Germany's Dax rose 28.13 points to 8398.00

• France's Cac climbed 22.20 points to 4001.27

• Italy's FTSE MIB added 60.6 points to 17,604.61

• Spain's Ibex was up 40.1 points at 8582.4

• The Athens market added 1.62% to 1152.6

And in the US, the Dow Jones Industrial Average is currently around 60 points or 0.,4% higher.

4.14pm BST

Still with Greece, the ESFS bailout fund has said the country will receive €4.2bn of the next tranche of €7.2bn aid.

That takes the total aid so far to €120bn. The next payment will be made in June.

3.42pm BST

Tensions grow after ejection of Golden Dawn MP

More on this morning's ejection of a far-right MP from the Greek parliament, which has sent political tensions soaring. Helena Smith writes:

Predictably, the extreme right Golden Dawn party was quick to roll out an announcement following the removal of its MP, Panayiotis Iliopoulos, from the 300-seat House.

Railing against the “filthy slanderous attack of the entire media against Golden Dawn” it denied than any of its MPs had shouted “Heil Hitler” during the heated exchange in the chamber, [see earlier post].

“The controversial and provocative phrase was uttered by Syriza’s MP from Zakynthos, Stavros Kontonis,” it insisted. “We demand from the parrots of the system who have linked Golden Dawn with this particular phrase to revoke [their stance] immediately, otherwise they will suffer the legal effects [that come with] dissemination of false news and slanderous defamation.”

Video of Greek parliamentary session

Hours later, minutes taken during the session revealed the offending phrase had been uttered not by the neo-Nazi party’s spokesman, Christos Pappas, as initially believed, but Christos Panztas, an MP with the far-left Syriza, the country’s main opposition party. Pappas was the focus of another parliamentary furore earlier this week when it was exposed that he had openly praised the Fuhrer in a piece written for Golden Dawn’s magazine years ago.

The incident does not bode well – even if this is not the first time a Golden Dawn MP has caused commotion in the House. With the party now able to take the moral high-ground, many worry the episode could stoke further the flames of support for the far right group shown in the latest poll to be published today as firmly entrenching its position as Greece’s third major party with 11.5%t.

On Thursday. Thessaloniki mayor Yiannis Boutaris said Golden Dawn’s presence in parliament was “a disgrace.” “Golden Dawn should not be in the parliament. This party is a disgrace for Greek society. The fact that this party is third is indicative of the abjection of Greek society.”

Updated at 3.42pm BST

3.01pm BST

US consumer sentiment at six year high

There's an upbeat mood in the US, to judge from the latest consumer survey.

The Thomson Reuters/University of Michigan's sentiment index rose to its highest level for six years, up from 76.4 in April to 83.7 so far this month. That was higher than the forecast of around 78.

Consumers were more positive about their personal finances than at any time since 2007, especially among households in the top third of income levels. Annalisa Piazza at Newedge Strategy said:

Today's outcome was somehow at odds with the recent news on the development of the US economy that depicted a rather mixed picture, with solid retail sales versus sluggish business confidence indicators. If anything, consumer confidence might have been supported by lower gasoline prices that implicitly prop up buying conditions for US households. That said, we suspect US households continue to remain sceptical on the development of future activity as headwinds to growth remain well alive.

The news has helped lift the Dow Jones Industrial Average by more than 50 points in early trading.

Updated at 3.03pm BST

2.46pm BST

EC report into Greece

Greece is on track to emerge from its economic slump next year, its lenders predicted today.

The European Commission's latest report into Greece, published today (you can download it here), argued that Athens is making significant progress under its bailout deal.

Following its latest visit to Greece, Troika officials remain convinced that the Greek economy will start growing in 2014, with a GDP increase of 0.6% next year.

The top-line of the report is quite upbeat about a country that has suffered deeply since the crisis began:

Public finances are steadily improving, the banking sector recapitalisation has reached an advanced stage and important structural reforms are being implemented, although further major efforts are needed to fully
deliver the delayed public administration reform and to make the new semi-autonomous revenue administration effective in the fight against tax evasion.

But the Troika also cautioned that the fiscal outlook beyond 2014 "remains inherently uncertain", as further austerity measures will be needed to hit future targets:

The fiscal outlook depends to a large extent on progress in strengthening the tax and social security revenue administrations. Within the current macroeconomic framework, the gaps are currently estimated at about 1.7% of GDP in 2015 and 2.1% of GDP in 2016. The task of filling the gap in 2015-16 will be taken up in the context of the 2014 budget
negotiations in the fall.

The report also predicted that Greek wage costs will be driven down by another 7% this year, following a 4.2% drop in compensation per employee last year. That will mean Greece will "regain its 1995 labour cost competitiveness position relative to the Euro area" in 2014.

Greek labour costs, Troika assessment
Greek labour costs, Troika assessment Photograph: /EC

The Troika also remains concerned about Greece's banks, saying they continue to face "the consequences of the recession and the inability of some borrowers to service their debt obligations".

And on unemployment, the picture is pretty bleak, with the jobless rate expected to remain over 20% in three years time.

The number of dismissals still remains high and the overall labour market is likely to remain weak until GDP begins to recover.

Hence, the annual unemployment rate is projected to peak at 27.0% in 2013. Once the recovery gains traction, especially the frontloading of wage adjustments is projected to give rise to a relatively rapid and sustainable decline in unemployment to 26.0% in 2014 and to 21.0% in 2016.

And on that note, I'm handing over to my colleague Nick Fletcher for the rest of the day (easing back into things). Thanks all, and best wishes for the weekend. GW

Updated at 3.00pm BST

2.19pm BST

Europe's contruction industry suffered another poor month in March, with output falling by 1.7% month-on-month across the eurozone (and 1.1% across the EU).

Eurozone construction data, to March 2013
Eurozone construction data, to March 2013 Photograph: /Eurostat

The largest decreases were seen in Portugal (-10.7%), the Czech Republic (-7.6%) and Slovakia (-5.0%), with the highest increases in Romania (+2.8%) and Spain (+2.4%).

New data was only available for 14 members of the EU: production fell in ten countries, and only rose in four.

1.53pm BST

An invitation

Would you be interested in meeting your fellow contributors – along with the journalists who run the blog?

The Guardian’s news community team are hosting a meet-up event at the Guardian’s offices at Kings Place in London on 5th June. The setup will be informal – with drinks and nibbles and a chance to get to know other top contributors followed by a Q&A with the Guardian liveblogging team.

If you're interested in attending, please email

1.39pm BST

As it's quiet, here's a couple of interesting posts that caught the eye this morning….

Reuters' James Saft has written a nice piece about how quantitative easing may be backfiring, by encouraging investors to hold more cash rather than riskier assets.

The thinking behind QE rests partly on the assumption that buying up government bonds will drive interest rates down and entice investors to tilt their holdings towards riskier investments like stocks. That in turn is supposed to goose investment and consumption.

Unfortunately, that assumption may be running afoul of, or fouling up, the way in which most investors construct their portfolios.

Saft is riffing off this research note published earlier this week Toby Nangle, fund manager at Threadneedle Investments. In it, Nangle explained how investors would usually buy government bonds as a handy hedge against riskier holdings in shares. QE, though, has driven prices so high that the strategy doesn't work:

By bidding yields on government bonds down to current levels, monetary policymakers have largely extinguished government bonds as an effective portfolio hedge.

Elsewhere, fund manager/blogger @pawelmorski has rattled out another interesting piece, pinning the blame for Europe's recent economic misery on its banks, rather than government austerity: It Is That Simple: Europe’s Problem is the Banks.

US/EU bank lending
US/EU bank lending Photograph: /@pawelmorski

These two series are a long way from directly comparable but they’re close enough that the divergence is interesting. US firms are borrowing again, European ones aren’t. This looks like a clear-cut job for monetary policy.

Timely, given the news this morning that Spain's bad bank debts are rising (see 9.07am).

12.58pm BST

Mersch: eurozone governments must make tough choices

Yves Mersch, ECB executive board member, has given a speech in London today on the future of the eurozone, and the mistakes that led to the current crisis.

It's an interesting insight into current thinking in the ECB, Mersch talks about the importance of getting banking union agreed, but also focuses on the need for 'structural' change within Europe.

On how the crisis began, Mersch explained:

The euro area has been facing insufficiencies on several fronts, all at the same time. Let me be blunt: it has had governance shortcomings, stretched states, fragile banks, shrinking economies, sinking confidence in institutions and doubts about its integrity. Each of these difficulties has exacerbated the others; it has been a vicious circle. The crisis did not originate in the euro area, nor is it limited to it. But inside the euro area it has inflicted severe losses and pain, particularly on the younger generation

Mersch also fleshed out the challenge facing national governments:

In most of the stressed euro area countries this still requires tough choices across the generations and over time: e.g. education versus pension entitlements, infrastructure versus healthcare, research and development versus defence, and so on.

Strengthening of tax administrations and treasury systems, expenditure control, privatisation will also be crucial. Reducing the costs of bureaucracy will matter more than ever across the euro area.

There are varying needs for true innovation clusters à-la-Silicon Valley, as well as investments in scientific and technical education, research and development, encouragement of “angel investments”, and grassroots and sustainable banking.

Labour markets need to become inclusive and fair in every country, while encouraging labour mobility, in particular in a monetary union. Greater competitiveness and sustainable growth of the whole euro area will then follow.

This has been a regular theme at Mario Draghi's press conferences too. Critics, though, argue that it's hard for leaders in, say, Italy or Spain to push through structural reforms at the same time as chasing demanding deficit-reduction targets.

Mersch's speech is online here, resolutely titled: “Built to Last”: The New Euro Area Framework

12.23pm BST

Italy to reform property tax

The Italian government has agreed to reform the unpopular IMU housing tax, a key demand from coalition partner, the People of Liberty party.

Prime minister Enrico Letta told a press conference that payments will be suspended in June, adding:

We are setting a time until August 31 within which the government and its supporting majority will reform IMU.

Letta added that the cost of reforming IMU would come "100%" from spending cuts.

IMU was introduced by former technocratic leader Mario Monti, and proved deeply unpopular. Silvio Berlusconi's election campaign earlier this year focused on his promise to abolish it. Getting rid of it altogether would cost €8bn.

Letta also announced a new €1bn fund to help unemployed people get back to work.

Opinion poll data today showed falling support for Italy's new coalition government of centre-left, centre-right and centrist parties. Letta only enjoyed 43% support when he was sworn in under a month ago, but has now lost nine percentage points.

Updated at 12.30pm BST

11.51am BST

In the UK, a Bank of England monetary policymaker has declared that the British economy may be inching back to recovery.

Martin Weale told an audience in Birmingham:

No one can be certain but it is possible that the near-stagnation of the past three years is being replaced by a move to modest growth.

Weale also argued that the BoE's monetary policy committee should resist acting like "inflation nutters", and use its new, more flexible mandate on inflation targeting wisely:

The correct thing for policymakers to do would be to accept a modest degree of entrenchment of raised inflation expectations as a price worth paying for a smoother output path.

The full speech is online here: and includes this handy graph showing how UK wage growth has stuttered to a near-standstill (just 0 .8% year-on-year)

UK wage growth levels
UK wage growth levels Photograph: /BoE/ONS

Weale's speech also includes a reference to a lecture given by some chap called Mark Carney….

11.10am BST

Shares in several Europe's carmakers have risen today, following the news this morning that sales rose year-on-year in April.

Peugeot Citroen is leading the risers, up 6% (despite reporting a 10% drop in its own sales during the month).

Automobile share prices, May 17th
Photograph: Thomson Reuters

10.43am BST

Exciting scenes in the Greek parliament this morning, where a Golden Dawn MP was thrown out of the chamber amid a stream of cursing.

Panayiotis Iliopoulos was shown the door after claiming that opposition party leader Alexis Tsipras was working on a "souped-up question" for prime minister Antonis Samaras. The PM, Iliopoulos claimed, was "sleeping the sleep of the just" (he's actually on a trip to China).

Kathimerini has the details:

Pulled up,,,for using derogatory language, Iliopoulos went further, condemning fellow MPs as "wretched sell-outs" and "goats". He was removed from the House, cursing all the while, witnesses said.

Also in Friday's session, a request by former prime minister and socialist PASOK deputy George Papandreou to be granted leave so he can attend a conference abroad prompted hoots of laughter from Golden Dawn MPs in attendance.

Updated at 11.22am BST

10.04am BST

Speaking of Spanish banks… DonJuan points out below that the former boss of Caja Madrid was remanded in custody last night and relieved of his passport.

Miguel Blesa is being investigated over "alleged irregularities" in the lender's 0m purchase of the City National Bank of Florida in 2008.

El PaIs's story has more details:

Caja Madrid took control of City National Bank of Florida in 2008 after paying 618 million euros for 83 percent of the US lender in a deal approved unanimously by the Spanish bank’s board of directors in order to “strengthen” its presence in America.

The Bank of Spain noted that as well as excessive investment in the US lender the purchase was carried out in such a way as to “elude the obligatory control of the tax and economy authorities in Madrid.”

Caja Madrid is one of the firms that were merged to form Bankia, with ill-fated results.

Updated at 10.36am BST

9.37am BST

Spain’s ‘extend and pretend’ strategy

The rise in Spain's bad loans in March follows a drop earlier this year, when Spanish banks transferred some toxic assets to the country's new Bad Bank.

Analysts fear that Spain's banking sector is still refusing to face reality by admitting that other loans won't be repaid.This is the “delay and pray” strategy, where credit is extended even though the borrower is highly unlikely to repay the money.

The FT did a good piece on the issue yesterday. In it, Santiago López, a Madrid-based bank analyst at Exane BNP Paribas, explained:

Some of the clients that have been restructured will eventually be able to pay back their debts. In many other cases the proverbial can has just been kicked down the road and we believe that banks will need significantly higher provisions to deal with restructured loans.

9.07am BST

Spanish bad loan data

The bad loans festering in Spain's financial sector swelled again in March, data just released by its central bank shows.

A total of €163.3bn of loans are now 'non-performing", the Bank of Spain reported. That pushes the bad loan ratio up to 10.47%, from 10.39% a month.

8.45am BST

The broader picture for Europe's car industry remains pretty tough this year — even if April's encouraging data does show that the sales decline is bottoming out.

Major manufacturers have suffered big losses in the region, and many assembly lines are running below full capacity. Last month alone, Ford reported that its European losses had tripled, while Volkswagen reported a 38% drop in earnings.

It's a long, long way back to the heady pre-crash days – if, indeed, such conditions can be repeated.

As Stephen Odell, head of Ford's European Operations, told the WSJ in an article published yesterday:

We are hopeful that we can see signs of troughing or plateauing during the course of this year but I'm not sure that we have seen it yet.

Updated at 8.46am BST

8.27am BST

The rise in new car registrations last month shows consumers are more optimistic about economic prospects, argues Gian Primo Quagliano, the head of automotive research company CSP in Bologna, Italy.

Quagliano told Bloomberg that recent talk of European leaders easing off on austerity in favour of growth-friendly measures is also helping:

The recovery of sales in Germany is positive and may be an indication that consumers are getting back into the market on signs that austerity in Europe may be close to an end

When the car market changes direction, the reason is never just related to technical calendar effects.

More here.

8.04am BST

Euro car sales post first increase since September 2011

Good morning, and welcome to our rolling coverage coverage of the Eurozone financial crisis, and other interesting developments across the global economy.

And for once, we can start with some encouraging economic news — European car sales have risen, breaking a downward trend that dates back to the end of September 2011.

Purchases of new cars across the European Union in April were 1.7% higher than a year ago, data from the European Automobile Manufacturers Association (ACEA) released this morning showed.

Rising demand from Germany (+3.8%), the UK (+14.8%) and — perhaps most surprisingly — Spain (+10.8%) led the way.

These graphs, comparing monthly sales to the previous year, shows how the long downturn has finally been broken.

European car sales to April 2013
Photograph: ACEA

ACEA's full report is here (pdf)

We need to be cautious about hanging out the bunting, though. There are three reasons to be cautious:

• There were another two working days in April 2013 – more opportunity to nip down to the showroom or haggle a credit agreement with the bank

• Demand for new cars continued sliding in two key economies at the heart of the crisis – France (-5.3%) and Italy (-10.8%).

• This small rally in April doesn't wipe away the disappointment of January, February and March. New car registrations over the first four months of the year are 7.1% lower than in 2012.

And as ACEA put it:

In absolute figures, it is the third lowest level of new registrations for a month of April.

Still, it's nice to start the blog with some upbeat data, especially from a sector that's been badly dented by Europe's economic troubles.

Reaction to follow…

Coming up today, the main political developments could some in Italy, where Enrico Letta's cabinet is meeting to discuss measures to revive its economy.

On the economics front, we have fresh eurozone construction data at 10am BST.

And in finance, the European Central Bank will release an update on how much money has been repaid by banks who borrowed from its huge liquidity injections (the LTRO programme).

I'll be tracking all the latest developments as usual.

Updated at 9.02am BST © Guardian News & Media Limited 2010

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