Eurozone crisis: EU ministers agree bank rescue rules as UK recession worse than feared

UK double-dip never happened… but UK economy still weaker than thought. European Union deal sees creditors pay for failed bank rescues. What the ministers said.  Ireland is back in recession after its GDP data was revised sharply lower…


Powered by article titled “Eurozone crisis: Bank rescue rules agreed, as EU Summit begins” was written by Graeme Wearden, for on Thursday 27th June 2013 17.49 UTC

6.49pm BST

Key event

EU leaders have now got down to work in Brussels, and probably won't hold a press conference until late tonight.

So I'm going to stop the liveblog — and catch up on developments in the morning. We'll have more news on the EU summit on the website this evening, and I'll be back in the morning.

Thanks and goodnight. GW

6.28pm BST

More details leaking out…

6.22pm BST

Van Rompuy: let’s make progress on youth unemployment

EC president Herman Van Rompuy opened the EU summit tonight by urging leaders to take "concrete action" on two key issues – youth unemployment, and the credit crunch that is holding small firms back.

You can watch a recording here.

It suggests that the draft statement that emerged earlier today, outlining new 'investment plan' to fight joblessness and drive growth, is on the money (see 4.36pm).

6.17pm BST

Photos: EU leaders get down to business

A couple of photos from inside the EU headquarters in Brussels, as tonight's Summit got underway:

European Commission President  Jose Manuel Barroso arrives for a roundtable meeting at the EU headquarters on June 7, 2013 in Brussels, during European Union leaders summit.
European Commission President Jose Manuel Barroso. Photograph: BERTRAND LANGLOIS/AFP/Getty Images
epa03763157 British Prime Minister David Cameron and Luxembourg's Prime Minister Jean-Claude Juncker (R) during a European Council summit in Brussels, Belgium, 27 June 2013
British PM David Cameron (left) and Luxembourg’s Prime Minister Jean-Claude Juncker. Photograph: OLIVIER HOSLET/EPA

6.05pm BST

Fed’s Lockhart urges calm over tapering

City analysts had predicted earlier this week that the Federal Reserve might respond to last week's tumbling markets with some reassuring statements….and lo, the Atlanta Fed's president is doing just that.

Dennis Lockhart, in a speech in Marietta, argued that the financial markets had mis-interpreted Ben Bernanke last week. No reason to panic about the US 'tapering' its quantitative easing, he soothed. If growth falters, we'll keep stimulating.

Here's Lockhart's key quotes:

The pace of purchases, the composition of purchases and the ultimate size of the Fed's balance sheet still depend on how economic conditions evolve.

If inflation expectations of the public and those indicated by financial markets soften appreciably, we policymakers would have to re-evaluate the appropriateness of policy for the situation.

And this seems to be driving another rally in government bonds, with US Treasuries, UK gilts, German bunds, and peripheral debt from the eurozone all strengthening.

Here's the 10-year bond yields tonight: (falling yields means higher prices):

• US: 2.47%, down 6 basis points (ie, from 2.53% last night)

• UK: 2.42%, down 2bp

• Germany: 1.729%, down 3bp

• Spain: 4.75%, down 5bp

• Italy: 4.58%, down 13bp

• Greece: 10.69%, down 45bp

5.52pm BST

Markets close

Shares up, volatility down. That's the simple story from Europe's stock markets today — particularly after William Dudley of the New York Fed suggested America's bond-buying stimulus package will continue for longer than Ben Bernanke indicated last week (see 3.37pm).

Here's the closing prices:

Stock markets, closing prices, June 27
Photograph: Thomson Reuters

With the FTSE 100 finishing 77 points higher, IG's David Madden said pessimists in the City were starting to get edgy,. They'll probably take the initiative again soon, though, he added:

After three strong ‘up’ days for the FTSE 100, the bears can be forgiven for feeling downcast. With the index straying into triple-digit territory, everyone has been reminded that the volatility of June is not likely to go away as we move into the next month. It looks as if we might have one last hurrah ahead of month-end before reality sets in once again.

4.36pm BST

Over in Brussels, a draft copy of the agreement that will be announced at the end of today/tomorrow's EU summit is circulating. It suggests leaders will announce a new 'investment plan', in an effort to tackle the youth jobless crisis (or at least look like they're tackling the youth jobless crisis)

4.10pm BST

Open Europe: positives and negatives from bank bailout deal

Open Europe has published its views of the EU bank rescue deal agreed early this morning:

Bank bail-in plans finally agreed, but its only a small step towards banking union

It welcomes the fact that bank creditors, not taxpayers, will be on the hook for future losses, but is concerned about the 'flexibility' given to national governments over whether to contribute to a rescue (under the plan, a state could cover up to 5% of a bank's liabilities, after creditors have contributed 8%)

Here's a flavour of Open Europe's analysis:


  • Reaching a deal is positive in itself, as it adds some much needed certainty following the Cypriot crisis. It also keeps the progress towards banking union inching along.
  • The burden has been shifted away from taxpayers towards bank creditors.
  • The added flexibility is important between eurozone and non-eurozone countries, with the UK and Sweden scoring some important caveats. The deal highlights that non-eurozone countries can still have influence on such rules and the acceptance of the need for flexibility between the two groups.


  • From a eurozone point of view, the flexibility could be counterproductive, particularly the use of exemptions in exceptional circumstances. How exactly will this be defined and determined? If at national level, then there could be clear political pressure in a crisis to invoke this. For example, it is hard to imagine that the crises in Greece, Portugal, Ireland and Spain would not have triggered this in some way.
  • Could see cost of bank funding rise, particularly in terms of unsecured credit due to fairly strong depositor preference.
  • Lots of unanswered questions – not least, when and how will these rules apply? It’s not clear in exactly what situation and at what time the new rules would kick in. Does it rely on a request for aid from the bank or the national government?
  • Furthermore, there are questions over how this will work practically in different circumstances – for example, the difference between a bank which has almost completely failed and one which is simply struggling to recapitalise.
  • The timeline also still seems very long, with the actual bail-in rules not in force until 2018, even though the directive is due to be in place by 2015. That said, the broad template may well still apply, particularly where banking union is involved.

More here.

3.57pm BST

Shares rally on Fed comments

After a quiet day in Europe, stock markets are now romping ahead with the FTSE 100 up by 105 points, and the Dow Jones 150 points to the good.

The trigger is comments from a member of the Federal Reserve's Open Market committee, suggesting that the UE economy might not be strong enough to to justify ending its stimulus package.

William Dudley, the head of the New York Federal Reserve, told an audience in New York that:

Economic circumstances could diverge significantly from the FOMC’s expectations.

If labor market conditions and the economy’s growth momentum were to be less favorable than in the FOMC’s outlook — and this is what has happened in recent years — I would expect that the asset purchases would continue at a higher pace for longer.

The suggestion that the Fed might not start to 'taper' its bn/month bond-buying programme is music to the markets' ears, it seems…..

3.20pm BST

EU budget deal cheers Brussels, but Cameron shows concern

European Commission President Jose Manuel Barroso, left, and Irish Prime Minister Enda Kenny participate in a media conference at EU headquarters in Brussels on Thursday, June 27, 2013.
European Commission President Jose Manuel Barroso, left, and Irish Prime Minister Enda Kenny announcing today’s deal. Photograph: Virginia Mayo/AP

Eurocrats are in cheerful mood as they prepare to get the EU summit underway.

Not only because of the bank rescue framework agreed overnight. but because a 'political deal' has been struck over the sticky problem of the next EU budget.

The 'multi-year financial framework', covering spending for the next seven years, was agreed back in February and famously included the first-ever real-term cut in spending. MEPs, though, promptly blocked it.

But this morning, European Commission president Jose Manuel Barroso and Irish PM Enda Kenny (in his final few days holding the rotating presidency) announced that a deal had been reached.

Under the compromise, the final budget size is unchanged at €960bn, but there will be more flexibility about how unspent commitments can be reassigned between budget areas, and different years.

Barroso declared that the plan is a boost for Europe, as it will help Brussels to invest in projects to boost growth and employment:

This is really important for these citizens and these regions in Europe that badly need investment.

European Parliament President Martin Schulz said he was "optimistic" that MEPs will give their approval next week.

AP's take is here: EU strikes .3 trillion multi-annual budget deal

and the FT's is here: EU reaches €960bn budget deal

Britain's Prime Minister David Cameron arrives at a European Union leaders summit in Brussels June 27, 2013.

David Cameron appeared to show some concern about today's agreement, though, telling reporters in Brussels that Europe must stick to the terms of the original deal.

The key point is that not all the commitments in the EU budget are actually delivered. This extra flexibility agreed today could mean less money remains unspent.

2.03pm BST

Heads-up: European leaders have started arriving for the EU Council summit in Brussels.

Updated at 2.03pm BST

1.34pm BST

Photos: Portugal’s general strike

Portugal's anti-austerity general strike is in full swing. A group of protesters in Lisbon blocking a road to show their opposition to the country's deep spending cuts:

Protesters holding a banner that reads in Portuguese: “We Stop the Austerity. General Strike”, block one of the main Lisbon avenues. Photograph: Francisco Seco/AP
Portuguese police officers try to clear the street of protesters as they block one of Lisbon's main avenues during a general strike,
Portuguese police officers try to clear the street of protesters. Photograph: Francisco Seco/AP

Local reports say that while transport links were badly hit, few private workers are taking part in the walkout – partly because they cannot afford to lose a day's pay.

Carlos Silva, leader of Portugal's UGT union, acknowledging that the private sector has less opportunity to take part in industrial action.

Silva also declared:

These austerity policies punish the country, violate the people, penalise workers and pensioners, so the strike will be a cry of resistance to these policies.

A woman passes by the closed ticketing at Santa Apolonia station during the general strike in Lisbon, on June 27, 2013.
A woman passes by the closed ticketing at Santa Apolonia station during the general strike in Lisbon. Photograph: PATRICIA DE MELO MOREIRA/AFP/Getty Images

12.41pm BST

Greek opinion poll data

Over to Greece, and the latest opinion poll data shows that the governing New Democracy is maintaining a narrow lead.

Despite the row over the closure of state broadcaster ERT, ND came top with 22% of support followed by the opposition left-wing Syriza group on 20.8%.

The extremist Golden Dawn party is still third on 9.1%, then PASOK (ND's junior coalition partner) on 6.1%, Independent Greeks on 5.5% and the Communist Party on 5.1%.

Democratic Left, which quit the coalition last Friday, is now polling just 3% support – any lower and it won't qualify for seats in the parliament.

12.30pm BST

Irish recession: what the analysts say

Here's a round-up of economist reaction to Ireland's fall back into recession, via Reuters.


The economy is on a slightly weaker trajectory than was generally envisaged, but it's not entirely surprising given the global backdrop that exports have performed poorly." "The economy is still making uneven progress, but it's very fragile and it probably means we have to be very careful about the scale of adjustment in budget 2014. For my money, this suggests we use most of the promissory note savings on the economy and avoid even weaker growth over the next year." "These numbers are very volatile, the reality is there is still a marginal improvement in employment, so i don't think these numbers are saying we are tumbling into a dramatically poorer condition. But it does say that it is uneven, any sort of progression is very modest. Its flatlining.


It's not a huge surprise what's out today. Merchandise exports were quite weak due to patent cliff effects, so there was going to be a bit of an expectation that that was going to be a bit of a drag anyway." "The other thing to note is that retail sales were quite poor too which was a bit of a negative read through in terms of personal consumption, and a certain amount of that was down to a disappointing couple of months for car sales. Things should get better as the year goes on.


It's not a good number and it clearly shows that we're not immune to what's going on globally. Given these numbers you'd be hard pushed to have growth for the year as a whole." "Whether it puts your bailout into question… I think the NTMA (debt agency) would argue that they're flush with money so there's no serious issue there and I think if they want to leave (the bailout), they will leave.

Updated at 12.30pm BST

11.41am BST

Ireland in recession – the details

The news that Ireland's economy has shrunk for three quarters in a row has dashed any hopes of a recovery, my colleague Lisa O'Carroll writes.

Today's revised gross domestic produce for 2012 show the economy flatlined with GDP rising by just +0.2%, revised down from +0.9%.

GDP for the third and fourth quarters of 2012 was lower than previously stated, at -1% and -0.2%, the central statistics office in Ireland said on Thursday. 

The economy continued to contract in the first quarter of 2013 when GDP growth stood at now -0.6%. This was due to falling exports and weakening consumer spending, said the CSO.

Karl Whelan, professor of economics at University College Dublin, tweeted that the Irish ministers should heed the data and stop discussing Ireland's 'recovery':

The full release is here. It shows that Gross National Product (which strips out foreign companies based in Ireland) did rise during the last quarter.

Irish GDP/GNP data
Photograph: Ireland’s Central Statistics Office

Updated at 11.41am BST

11.18am BST

Ireland back in recession

Now this is a nasty surprise. Ireland is back in recession after its GDP data was revised sharply lower.

Figures just released show that the Irish economy has actually been shrinking for the last nine months, including a 0.6% contraction in the first quarter of this year.

Details and reaction to follow

10.53am BST

Key event

Back to the EU bank bailout deal agreed in the early hours in Brussels (in which bondholders, shareholders and depositors with over €100,000 in the bank would contribute to future rescue deals if a bank failed).

Tim Dolan, a partner at the international law firm SJ Berwin, comments on the deal:

This deal creates a clear set of rules for dealing with failing banks which should lead to a level playing field between banks based in larger and smaller European nations. The risk with this deal was that smaller European nations would be left having to require failing banks to resort to obtaining support from creditors while larger European nations would be able to support failing banks by deploying taxpayer support. This deal should ensure broad consistency.

All creditors of banks, and particularly unsecured bondholders, need to understand that there is a greater risk that they will suffer some loss should their bank fail in the future. There is also a greater risk that, in the event of a complete collapse of a bank, shareholders and large depositors will be required to provide some support before the taxpayer.

10.16am BST

Updated at 10.30am BST

10.12am BST

10.11am BST

Here's some reaction to the UK GDP revisions (see 9.35am onwards) from Jeremy Cook, chief economist at the foreign exchange company, World First:

This data release highlights the problems that Britons are currently facing in a nut shell. Levels of disposable income have fallen to the lowest since 1987 as inflation bites at wage packets whilst savings ratio falls have shown that people are using life savings to keep their heads above water.

Whether the UK entered a double-dip or, as today’s numbers show, it didn’t matters little to the man on the street who is seeing large falls in real term wage growth as a result of the lack of business output.

Sterling has fallen in the aftermath of this announcement, and although this data is 3 months old and could be considered stale, the lack of real improvement since leaves the government and the new Bank of England Governor a lot to do.

10.08am BST

Disposable income ravaged

Another gloomy point in today's UK economic data – disposable income fell at its biggest rate since 1987 in the first three months of this year.

9.57am BST

The pound has fallen since the new GDP data was released, down almost half a cent against the US dollar at .526.

Updated at 10.02am BST

9.57am BST

Jonathan Portes of the National Institute of Economic and Social Research makes the same point. Today's new data shows the UK suffered a severe downturn, and has only managed a feeble recovery since.

9.53am BST

Britain's economy is still 3.9% lower than its pre-recession peak, the ONS's new data shows (see 9.35am onwards).

That's even worse than the 2.6% previously estimated. So we've lost the double-dip, but the original dip was even more of a shocker.

9.51am BST

9.45am BST

Instant reaction

The elimination of Britain's double-dip recession is getting plenty of attention, but the fact that the original downturn was even more severe is more important.

Chris Giles of the Financial Times comments:

Updated at 9.45am BST

9.41am BST

Key event

The ONS also confirmed that Britain's economy grew by 0.3% in the first three months of this year, as previously expected. However the year-on-year figure has been revised down to just +0.3%, from +0.6% before.

That's because of the revisions the ONS has made to legacy data.

Updated at 9.41am BST

9.35am BST

ONS: double-dip never happened but UK recession was deeper

It's official, Britain never suffered a double-dip recession.

The Office for National Statistics has just reported that the economy did not shrinking in the first quarter of 2012, as previously thought.

However, it's not all good news. After carrying out a major revision of recent economic data, the ONS has calculated that UK GDP actually tumbled by a jaw-dropping 7.2% in the aftermath of the financial crisis of 2008. Not 6.3% as previously thought.

More to follow!

9.27am BST

General strike under way in Portugal

Workers hold flags at a picket line at the beginning of a general strike in Lisbon June 26, 2013.
Last night, workers gathered at a picket line in Lisbon at the beginning of today’s general strike. Photograph: JOSE MANUEL RIBEIRO/REUTERS

The general strike called by Portugal's two biggest unions is underway, as workers register their anger over the country's austerity programme.

Reuters reports that public transport has come "to a virtual standstill":

Trains were not running, metro and ferry services stopped in Lisbon, and many bus routes were suspended, forcing those who chose to go to work take longer, alternative routes that were served by fewer buses than usual. State-owned airline TAP has warned of possible disruption but not cancelled any flights.

9.07am BST

German unemployment data released

Germany's labour market continues to outperform the rest of the eurozone.

Data just released shows that the jobless total fell by 12,000 this month, on a seasonally adjusted basis. Economist had expected a rise of 8,000. It leaves Germany's jobless rate flat at 6.8% (May's original reading of 6.9% was revised down) compared to a eurozone average of 12.2%.

8.56am BST

Our Europe editor, Ian Traynor, suggests we shouldn't expect major progress at the EU summit which starts later today:

8.47am BST

Reuters' Hugo Dixon gave the EU deal (see opening post for details) a cautious welcome:

Updated at 8.47am BST

8.45am BST

French consumer confidence hits alltime low

Gloom in France — consumers are at their most pessimistic since records began in 1972, according to data released this morning.

The French statistics agency INSEE reported that consumer confidence slid again, to its lowest level since it began monitoring morale in 1972. French consumers are also more downbeat than ever before about their future living prospects.

At just 78, the reading was somewhat shy of analyst forecasts of 81, and far from the long-term average of 100.

The French economy is currently in recession, with unemployment moving steadily higher, and the government trying to cut public spending to hit EU deficit targets. Consumers have plenty of reasons to worry.

8.34am BST

Morgan Stanley's analysts aren't too impressed with the plan:

8.31am BST

The Wall Street Journal flags up that weaker euro-zone governments would be able to borrow from the currency union's rescue fund, the European Stability Mechanism, to top up their own backstops. But it won't be easy:

Taxpayer-funded bailouts will only be allowed under "extraordinary circumstances," when it is technically impossible to impose losses on certain creditors in a rush or when a government is worried about effects on financial stability, officials said. Such exceptions will have to be authorized by the European Commission, the EU's executive arm.

Rich countries like Germany and Finland worked hard to make it as difficult as possible for poorer countries to tap the euro-zone rescue fund.

Ministers agreed that the common fund could eventually be used to recapitalize failing banks directly, but only to protect depositors—not shareholders or bondholders—and if the bank's home government has run out of money.

More here.

8.21am BST

What the ministers said

Speaking to reporters after the deal was agreed, Dutch finance minister Jeroen Dijsselbloem argued it was a significant step forward:

If a bank gets in trouble we will now, throughout Europe, have one set of rules on who pays the bill," he said.

"The financial sector itself will now to a very, very large extent become responsible for dealing with its own problems.

(that's from the BBC's take on the deal)

Dijsselbloem had been heavily criticised a few months ago for indicating that the Cyprus bailout (which forced massive losses on some large depositors) was a template for future rescue deals. He backtracked on the comments, but this deal confirms that the Cypriot experience could be repeated across the continent.

And German finance minister Wolfgang Schaeuble confirmed this point, telling reporters:

They can affect German savers just as well as they can affect any other investor in the world.

France's Pierre Moscovici told the press pack that Europe's bailout fund could still be used for bank rescues (after creditors have been hit). Reuters got the quotes:

French Finance Minister Pierre Moscovici signalled that ministers also agreed to French demands that the euro zone's rescue fund, the European Stability Mechanism, can be used to help banks in the 17-nation currency area that run into trouble.

It makes the whole thing coherent," said Moscovici. "It creates a solidity for the system and a system of solidarity.

Finish Minister of finance Jutta URPILAINEN (L) is talking with the swedish Minister of finance Anders BORG (C) and the Romanian Minister or Budget Liviu VOINEA (R) prior an european finance Ministers meeting in the EU council headquarter.
Finish minister of finance Jutta Urpilainen (left) talking with Sweden’s Anders Borg and Romania’s Liviu Voinea (right) before last night’s meeting began. Photograph: Thierry Tronnel/Corbis

Updated at 8.26am BST

8.07am BST

Bank rules agreed: media round-up

In the Financial Times, Alex Barker describes the deal as the eurozone's "flagship effort to bolster Europe’s patchy national defences against bank failure".

Barker explains how ministers finally agreed some flexibility:

Under the compromise, after the minimum bail-in is implemented, countries are additionally given an option to dip into resolution funds or state resources to recapitalise the bank and shield other creditors. The intervention is capped at 5 per cent of the bank’s total liabilities and is contingent on Brussels approval.

This issue of national flexibility bedevilled the talks for months, as member states jockeyed to tailor the rules to suit their own banks and past experiences of handling financial crises. A German-led group pushed for strict, automatic bail-in procedures, while France and some non-eurozone countries demanded more national discretion.

Jurgen Baetz of Associated Press writes that the deal gives "new credibility" to Europe's push for banking union.

He writes:

Following the 2008-2009 financial crisis, countries like Ireland, Britain and Germany each had to pump dozens of billions of fresh capital into ailing banks to avoid the financial system from collapsing.

To avoid that happening again, finance ministers discussed who should contribute in which order and how much to a bank's rescue – a so-called bail-in – so that ordinary taxpayers aren't left with the bill.

"Bail-in is now the rule," stressed Ireland's Finance Minister Michael Noonan, adding the rules put an end to moral hazard by making it clear that banks will suffer before the government might come in to help, if at all. "This is a revolutionary change in the way banks are treated," he added.

But John O'Donnell and Robin Emmott of Reuters warn that banking union is far from agreed:

Thorny issues lie ahead, not least whether countries or a central European authority should have the final say in shutting or restructuring a bad bank.

The European Commission, the EU executive, is expected to unveil its proposal for a new agency to carry out this task of "executioner" as early as next week, officials said.

"The most important discussion has yet to start and that is how decisions on restructuring will be made," said Nicolas Veron, a financial expert at Brussels-based think tank Bruegel. "It's premature to say that Europe is getting its act together."

7.35am BST

New bank rescue rules force losses on creditors

Good morning, and welcome to our rolling coverage of events in the eurozone, the world economy and the financial markets.

Europe's finance ministers have finally agreed new rules to handle the cost of future bank bailouts, which will see losses forced onto creditors such as large depositers as well as bond holders and shareholders.

After another late-night session in Brussels, ministers hammered out rules that will mean creditors are 'bailed in' to help cover the cost of future rescue deals. It's meant to end the era of taxpayers automatically picking up the tab, and should help Europe move towards proper banking union.

The key to the deal is that 8% of a failing bank's total liabilities – first shareholders, then junior bondholders, then 'uninsured deposits' (over €100,000) – must be effectively 'wiped out' before public funds can be used.

Deposits of under €100,000 remain protected. And the deal also puts big deposits held by large companies ahead in the firing line before those of smaller companies and individuals.

Michael Noonan, the Irish finance minister, described it as a revolutionary change in the way banks are treated in the European Union.

The deal also leaves some discretion for national goverments to decide whether to step in, as Jurgen Baetz of Associated Press explains:

Those forced losses will go as high as 8% of a bank's total liabilities, only then would national governments kick in and top it up with a bailout possibly worth another 5% of the liabilities.

The negotiations were complicated because some nations feared being bound by overly rigid European rules. Others warned that too much flexibility would create new imbalances between the bloc's weaker and stronger economies and a lack of common rules would destroy certainty for investors and erode trust in the financial system.

Another key point: member states are expected to set up "ex-ante resolution funds", eventually holding a sum equal to 0.8% of national deposits, to fund their own contributions.

The draft deal still needs the approval of the EU parliament, and is expected to begin in 2018.

I'll pull together reaction to the deal, and more details, shortly.

The deal comes before an EU summit where countries could agree further steps to move closer to full banking union. Leaders will also discuss plans to fight Europe's youth unemployment crisis.

Also coming up today — a general strike is taking place in Portugal in protest at the country's ongoing austerity measures; and new GDP data for the UK is released at 9.30am BST.

Updated at 8.10am BST © Guardian News & Media Limited 2010

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