Powered by article titled “Bank of England cuts growth forecasts and leaves rates on hold – as it happened” was written by Graeme Wearden, for on Thursday 4th February 2016 18.51 UTC

One last thing…The London stock market outperformed its French and German rivals today, to finish 61 points higher, or 1%, at 5898.

Mining shares led the way, with Anglo American surging by 19%, Glencore gaining 15% and Antofagasta jumping by 14%.

That followed the sudden weakening in the US dollar, as Wall Street and the City anticipated that US interest rates would not rise much this year, given recent weak data.

A cheaper dollar pushes up commodity prices, while looser monetary policy should be good for growth. Welcome news for miners, who had a torrid 2015.

Mining stocks have also been heavily shorted by hedge funds, so those bears will have been squeezed by the rising share prices.

Good night. GW


A late PS…

Larry Elliott, our economics editor, has summed up the message from the Bank of England today. Here’s his conclusion:

There are three conclusions to be drawn from the inflation report, the minutes and the governor’s letter.

The first is that it would now be a major surprise if interest rates rose this year.

The second is that the Bank’s credibility has been dented by its failure to call the economy right and the confused messages it has been sending out to the public.

Finally, the prospect of 0.5% interest rates extending into an eighth and perhaps a ninth year risks stoking up a housing boom. The Bank has so-called macroprudential tools that can be deployed to cool down the property market without damaging the rest of the economy. It is going to need them.

And finally, a couple of photos from today’s press conference just landed:

Mark Carney, the Governor of the Bank of England, speaks during the quarterly Inflation Report press conference, in London, Thursday, Feb. 4, 2016. The Bank of England policymakers have voted to keep interest rates at their record low of 0.5 percent as Governor Mark Carney unveils economic forecasts for Britain. (Niklas Halle’n, Pool Photo via AP)
Bank of England Inflation Report Press Conferenceepa05142914 Bank of England Governor Mark Carney speaks during a press conference at the Bank of England in London, Britain, 04 February 2016. The Bank of England has cut its prediction for growth for 2016 from 2.5 per cent to 2.2 per cent and has decided to keep interest rates at 0.5 per cent. EPA/WILL OLIVER

Ouch. The latest economic data from America is a reminder of why the Bank of England is worried about the global economy.

US factory orders shrank by 2.9% in December, according to new data – the biggest drop since the end of 2014.

Being criticised by journalists is an occupational hazard in central banking, but Mark Carney doesn’t appear to enjoy it.

So he may not particularly like this analysis of today’s inflation report, from Sky News’s Ed Conway.

Mr Carney’s problem is that every time he makes a big forecast he seems to get it wrong.

When he came into office, the Governor brought with him a whizzy new framework for setting UK interest rates. Under “forward guidance”, he would provide clarity about borrowing costs.

He promised, based on the Bank’s forecasts, that he and the Monetary Policy Committee would start to consider lifting them only when unemployment dropped beneath 7%.

Suddenly, within a few months, the jobless rate, hitherto stuck stubbornly above that level, started to come down. Within a year, forward guidance had to be dropped, replaced with a far more vague set of promises some nicknamed “fuzzy guidance”.

Not to be deterred, Mr Carney started to drop hints about when the first rise in rates would come. In a speech at the Mansion House in 2014 he signalled that rates would go up sooner than markets expected (which meant within a year). That was wrong.

Last summer he predicted the decision to raise rates would come into sharper relief “at the turn of the year”. That was wrong. Well, unless you’re being very literal indeed and think it could also entail not raising rates.

The one prediction he has stuck to that had, up until now, looked pretty uncontroversial was that the next move in rates would be up rather than down. But, in the past few weeks even that has now come into question….

More here:

The Independent’s Ben Chu flags up one curious moment in today’s press conference:

That’s a bit odd, as you might expect inflation to take off sharpish once spare capacity in the labour market has been sucked up.

As, indeed, a former Bank deputy governor pointed out:


Today was dubbed “Super Thursday”, but it was more like “Party pooper Thursday” as the Bank of England cut its growth forecasts.

Savers, who might wonder when they might get a higher interest rate, won’t be feeling particularly super, either.

Rohan Sivajoti, advisory services director at financial advisor eVestor, says:

“With a unanimous vote to keep interest rates unchanged, a mediocre global economic outlook and growing deflation fears, ‘Super Thursday’ has proved to be anything but.

“Beleaguered savers, who yet again will be inwardly groaning at the news, may also be resigned to the fact that they have limited options at present. However, now more than ever, savers need to make their investments work harder for them. Those looking to secure their financial future, should review deposits and options for investments and look at reducing debt while it is still relatively cheap to do so.”

There was quite a contrast between Mark Carney’s performance at the press conference, and the minutes of this week’s Monetary Policy Committee meeting released at noon.

Kallum Pickering, senior UK economist at Berenberg Bank, says the MPC are clearly worried.

The MPC cautioned on risk from financial market volatility, slowing global growth and now the EU referendum.

The committee noted that since the previous report other central banks including the European Central Bank had eased further, oil prices had fallen and financial market volatility had risen. This was linked to developments in China and other emerging markets and had ‘coloured’ the outlook for the global economy

Stephanie Flanders, JP Morgan’s chief market strategist for Europe (and former BBC economics editor), says weak wage growth could scupper a rate hike this year.

She writes:

The bottom line of today’s report is that the UK cannot ignore the weakening of global growth prospects – particularly the weakness of global trade – and neither can the Bank of England. But domestic consumption is driving the recovery in the UK and the US and the Bank of England can see little reason to expect domestic consumption to grind to a halt.

On balance, we still expect the US Federal Reserve to raise rates again over the course of 2016 as recession worries recede and sentiment in emerging market economics starts to stabilise. In that environment, we would expect the Bank of England also to raise rates by the end of 2016. However, much will depend on domestic wage pressures, which look somewhat weaker now than they did 6 months ago.

Whatever happens, the high level of UK household debt – much of it borrowed on adjustable or semi-adjustable mortgages – underscores that the rate increases that do happen will be gradual and modest relative to past cycles.“

Snap summary: Carney rails against the doubters

Back in 2014, Mark Carney was labelled the “unreliable boyfriend” for giving mixed messages about possible rate rise timings.

Today, it felt like the governor was playing a defensive husband, denying that he ever misled the public while insisting that he’ll still raise rates at the right time.

Anyway, a quick recap:

The prospects of an early UK interest rate rise have receded, after the Bank of England left borrowing costs at a record low of just 0.5%. The Monetary Policy Committee voted 9-0 to leave rates at 0.5%, with noted hawk Ian McCafferty abandoning his calls for a rise.

The BoE has slashed its growth forecasts. It now expects GDP to rise by just 2.2% this year, not 2.5%, as Britain is hit by the weakening global economy.

Mark Carney has insisted that interest rates are still more likely to rise, than fall. The governor faced down a sceptical press pack in London, who reminded the governor that his previous forward guidance on the path of interest rises has proved somewhat unreliable.

Asked if he sticks to his previous prediction that the next move will be upwards, he declared

“Absolutely. The whole MPC stands by that.”

Carney also rejected criticism for telling households recently that interest rates were “more likely than not” to rise in 2016. He said his original forward guidance, that rates would stay on hold until the economy improved, had given businesses and households confidence.

We are not going to tie our hands ever to raise interest rates or adjust policy in any way, shape or form to a certain date.”

Governor Carney warned that problems in the global economy could hurt Britain, saying:

The outlook for trade is particularly challenging, with net exports expected to drag on UK growth over the forecast period.

But he tried to play down the idea that Britain could follow Japan and the Eurozone into imposing negative interest rates.

Carney said a rate cut hasn’t even been discussed at this week’s MPC meeting, but the committee does keep its tools under review.

And asked about the EU referendum, Carney said the Brexit risk has had some impact on the pound.

“There is not yet a big risk premium built into business and household confidence around the referendum. We do see in th eexchange rate market, and it’s observed in the report, that there has been some buying of protection if you will, around the referendum.”

That’s the end of the press conference. The press pack are scrambling back to their newsrooms, and Mark Carney has headed back to his office to keep the monetary wheels in motion.

I’ll pull together a summary shortly.

Carney: We haven’t discussed negative rates

Q: Negative interest rates are now in place in Japan, the eurozone, and Switzerland, so are they within the Bank’s toolkit?

Carney replies that the bank thinks interest rates are “not at the lower bound” – in other words, they could be cut further.

We will review our toolkit, he continues. But we have not discussed negative rates, as monetary policy is pointing in a different direction.

He reminds the reporters that they saw the minutes of this month’s MPC meeting, while they were locked in a room “being treated pretty badly and forced to read a bunch of documents”*.

Those minutes show that negative interest rates weren’t discussed. You’ll know when they are…

[* - don’t worry, they probably get drinks and biscuits too]

Another questions about Brexit — what contingency plans have the BoE taken?

Carney declines to reveal any details, but suggests that – like with the 2014 Scottish referendum – the Bank will reveal its homework after the event.

Q: Are you worried, governor, that you might go through your entire tenure at the Bank without raising interest rates?

Carney insist he’s relaxed about this prospect.

He points out that former policymaker David Miles did two terms without raising interest rates, but did plenty of other things such as quantitative easing.

The important thing is that we set policy to maximise the changes that we meet our objectives. That’s how we’re going to be judged.

Carney sees downside risks from global economy

Q: How worried is the Bank of England about the global economy?

We do see some downside risks, Carney replies. Britain is a particularly open economy, so it’s very vulnerable to global problems.

That’s why the Bank of England usually has lower growth forecast than other bodies, such as the IMF.

He cites market fears over China, and its knock-on impact on other emerging markets.

And monetary policy could tighten more quickly, if those upside risks develop.


Q: When does low inflation start to become a worry for the Bank?

Carney bats this question over to Ben Broadbent.

Broadbent says there’s “no simple level when it becomes an over-riding concern”, but the bank is watching wages closely for signs that inflation is weakening.

Now deputy governor Ben Broadbent takes the microphone, insisting that there’s no ‘mechanical link’ between the UK output gap and any interest rate move.

You might remember that the output gap was one measure cited by Mark Carney in 2014, when he took his second stab at setting forward guidance on interest rates.

So, it’s still a factor, but don’t expect it to trigger an interest rate hike.

We won’t be “bound by past comments” when we decide it’s time to raise interest rates, says Carney.

He also denies that his forward guidance, various speeches, and wotnot have caused volatility. Short-term UK interest rates are half as volatile as before he was parachuted into the BoE

City experts aren’t very impressed with Mark Carney’s performance, as he tries to talk down the Brexit risk and talk up the chances of an interest rate hike:

Our economics editor Larry Elliott asks Carney when the decision about rate rises will come into “sharper focus” again.

Carney denies that the MPC are looking at monetary policy through bleary eyes. We take a decision at every meeting. This week’s decision was “easy”, though.

Carney gets a question about the European Union referendum.

He says the Bank of England isn’t modelling for ‘parallel universes”, so today’s report doesn’t estimate the impact of Brexit.

He argues that there isn’t yet a “big risk premium” due to the possibility of Britain leaving the EU.

However, there has been some impact on the pound as investors seek protection ahead of the referendum.

Mark Carney is trying to argue that the financial markets are underpricing the chances of a UK interest rate rise.

Paul Diggle, economist at Aberdeen Asset Management, isn’t sure Carney’s message will get through:

The Bank did send a signal that they think the market is wrong about when it thinks rates will rise. Investors think the first rate rise won’t come until February 2018 and the Bank has tried to say they should bet on it coming sooner.

But the way they send this signal is so opaque – a couple of graphs buried in chapter 5 of the Inflation Report – it’s not really clear whether anyone will pay attention. Carney’s forward guidance certainly hasn’t paid dividends for investors up until now.”

Carney is now warning that there could be more slack in the labour market than first thought.

That would mean wage growth might be disappointing (as firms wouldn’t have to fight for workers as much), meaning inflation remains weak.

But he also points to the introduction of the national living wage, which should raise inflation a bit.

(from April, workers in the UK aged over 25 earning the minimum rate of £6.70 per hour will get a 50p per hour increase).


Q: Do you think the public gives your advice as much credibility as it used to, given previous guidance on rates?

Carney gives a long answer, defending his original forward guidance (he originally set a 7% jobless rate as a key target before considering a rate rise, only to backtrack when it was achieved sooner than planned).

The worst thing we can say about that guidance is that more people went to work earlier – and we’re not going to apologise for that, Carney smiles.

And he’s also happy that UK households believe rates may rise this year, as it means they are less likely to risk a credit splurge. Although households have made “great progress”, they are still pretty indebted.

Carney insists, though, that the MPC will never “tie its hands” to changing monetary policy at a certain time, or at certain events.

And in short, we have nothing to explain, he concludes — a classic central banker’s answer to criticism.

Carney insists rates more likely to rise than fall

Onto questions:

Q: Does Mark Carney still believe interest rate are more likely to rise, rather than fall?

Absolutely, the governor replies, and so does the monetary policy committee.

He reiterates that the market path of rates implies that inflation will overshoot the 2% target in the medium term unless borrowing costs are hiked.


Interest rates are more likely than not to rise during the forecast horizon, says Carney.

He points to the current “market path” for interest rates (where investors expect borrowing costs to be). On that path, inflation will hit its 2% target in the medium term, and then rise higher, meaning higher borrowing costs will be needed.

And Carney insists:

We’ll do the right thing at the right time, on rates.

Katie is tweeting the key points from Carney’s press conference:

Carney says the Bank of England expects real incomes in the UK to grow solidly this year, after several lean years.

And business investment should also continue to grow strongly.

Carney then warns that global financial conditions have deteriorated notably recently, with a “particularly challenging” outlook for trade.

That means Britain’s net exports will continue to drag on growth (ie, we’ll import more than we sell to the rest of the world)

Mark Carney’s press conference begins

The governor of the Bank of England is giving a press conference now, to discuss the quarterly inflation report.

Mark Carney begins by saying that the UK economy is in much better shape than in March 2009 when rates were first cut to 0.5%.

Seven years ago, the economy was in serious trouble at the height of the financial crisis, and heading into recession.

Today, we have sluggish global growth, turbulent financial markets, and a resilient UK economy.

And that’s why the Bank still expects the UK economy to keep growing.

The prospect of UK interest rates being cut to a new record low is looming over the City:

It’s staggering to think that UK interest rates have now been pegged at 0.5% for almost seven years (it started in the dark days of March 2009)

Laith Khalaf, Senior Analyst at Hargreaves Lansdown, says we could see a decade of ultra-low rates:

‘An interest rate rise is like the pot of gold at the end of the rainbow, the nearer you get to it, the further away it moves. A rise in rates now looks firmly in the long grass, with growth forecasts cut and cheaper oil putting downward pressure on inflation, which is already way below the Bank of England’s target.

Markets are currently pricing in a rate rise in the middle of 2017, though they have been consistently premature in their forecasts, and reaching the dubious milestone of a decade of ultra-low interest rates is now a distinct possibility.

The prospect of an early UK interest rate rise has receded into the distance, writes Katie Allen from the Bank of England.

She reports:

The Bank flagged the recent sharp sell-off in global stock markets and investors’ jitters about a slowdown in China as it revealed that policymaker Ian McCafferty dropped his recent call for a rate rise.

He had voted against the eight other members of the Monetary Policy Committee (MPC) since last August but this month agreed with his colleagues that it was too soon to raise interest rates from 0.5%, where they have been for almost seven years.

Wage growth has been weaker than the MPC had been expecting and minutes to its latest policy meeting suggested it was cautious about predicting any significant pick-up in pay over coming months.

“Against that backdrop, all members of the committee thought that maintaining the current stance of policy was appropriate at this meeting,” the minutes said.

Here’s Katie’s full story:

The pound has fallen almost half a cent against the US dollar, to $1.456.

Markets are concluding that interest rates won’t move for some time, given today’s gloomy inflation report and the news that Ian McCafferty has given up calling for a rate hike.

The Inflation report is online here, and full of interesting charts if you like that kind of thing.

This one shows how the oil price has fallen much further than the Bank expected:


And this shows how the markets are already expecting interest rates to stay lower, for longer.


This chart shows how the Bank of England has cut its growth forecasts for the next three years (the old forecasts are in brackets after the new ones)

BoE grwoth o

And the message from the BoE is that economic conditions have deteriorated over the last quarter:

Since the November Report, global output and trade growth have slowed further and the latest data suggest a softer picture for UK activity in 2015 than previously assumed, with four-quarter growth slowing to 2¼% by Q4 on the MPC’s backcast.


The Bank of England also points to the turmoil in the financial markets:

Developments in financial markets seem in part to reflect greater weight being placed on the risks to the global outlook stemming from China and other emerging economies.

BoE cuts growth forecasts

The Bank of England has also taken a knife to its growth forecasts, admitting that the UK economy is not expanding as fast as expected.

It now expects GDP to rise by just 2.2% this year, down from 2.5% three months ago.

And for 2017, it has cut its growth forecast to 2.3%, down from 2.6%.

The Bank of England says that economic conditions have deteriorated in the last three since its November quarterly inflation report:

Global growth has fallen back further over the past three months, as emerging economies have generally continued to slow and as the US economy has grown by less than expected.

There have also been considerable falls in the prices of risky assets and another significant fall in oil prices.

The 9-0 vote means that Ian McCafferty has abandoned his calls for interest rates to rise.

He had been the lone hawk on the MPC, arguing that borrowing costs should go up now before inflation took hold. But with oil so cheap, and growth weakening around the globe, he’s had a rethink.

Bank of England interest rate decision

Breaking: The Bank of England has voted to leave UK interest rates at their current record low of 0.5%.

And the decision was unanimous, with the Bank’s monetary policy committee voting 9-0 not to alter borrowing costs.


Super Thursday, a preamble

We have less than 30 minutes to go until Bank of England announces its interest rate decision, at noon in London.

It will also release its latest quarterly inflation report, with new forecasts for growth and inflation.

And half an hour after that, Mark Carney will hold a press conference to discuss the report.

This is the third “Super Thursday” — but frankly, the first two haven’t lived up to this billing, thanks to the lack of pressure to raise interest rates and the mediocre global economic outlook.

Alastair McCaig of IG reckons it needs rebanding:

How the department overseeing the trade descriptions act have not intervened in the use of the term ‘Super Thursday’ when the Bank of England posts its inflation report and interest rate decision, is somewhat baffling.

Anyway, the smart money is on another ‘no change’ in interest rates, followed by plenty of questions about the darkening global outlook, deflation fears, and whether Britain could follow Japan and the eurozone into imposing negative interest rates.

Ed Conway, writing for Sky News today, points out that borrowing costs could be cut this year.

Households should prepare themselves for a possible UK interest rate cut this year, with investors betting that there is now a greater chance that the next move in borrowing costs is down not up.

Money markets are now putting a one-in-four probability on the Bank of England reducing its official rates below the 0.5% level they have been sitting at since 2009.

It follows a dramatic shift in their expectations for interest rates.

For the majority of the post-crisis recovery, markets were betting that 0.5% would be the floor for borrowing costs, which would rise in the coming years. Now they are not pricing in a full increase in Bank rate until August 2018 – two months after Mark Carney’s five year term as Bank Governor is due to end…

Back in Brussels, Pierre Moscovici has explained that his latest forecasts don’t factor in the prospect of Britain’s leaving the EU.

Why not? Because everyone’s committed to avoiding such an outcome.

Moscovici has also defended the EC’s more rosy forecasts for Greece (well, less gloomy, anyway):

Shares in London have been lurching around like a well-refreshed journalist leaving The Inkwell after last orders (I imagine).

After jumping almost 90 points at the open, the FTSE 100 index slowly subsided until it was only up 20 points, before getting a second wind and romping ahead again.

Mining companies are still leading the way, with Anglo American leaping by 11%, BHP Billiton gaining 8% and Antofagasta up 7.5%.

The FTSE 100 this morning
The FTSE 100 this morning Photograph: Thomson Reuters

It makes for a tricky morning for traders:

So why the wild lurches? Investors are trying to decide how much optimism to take from the rally in the oil price, and the sudden weakness in the US dollar.

This could mean that the turmoil in the commodity market is reaching a bottom, especially if the US Federal Reserve is backing away from raising American interest rates several times this year.

The City is also waiting for the Bank of England to deliver its quarterly inflation report, in an hour’s time.

Ilya Spivak, currency strategist, at DailyFX, says markets expect a “dovish outcome”.

Traders are currently pricing in a 64% chance that rates remain unchanged over the next year, and a 36% probability that rates are cut to 0.25%, he adds.

Commissioner Pierre Moscovici is briefing the media now, about the EC’s new economic forecasts.

My colleague Jennifer Rankin is tweeting the key points:

I can’t believe *anyone* is euphoric, given the last few years. But do carry on, Pierre…

The FT’s Peter Spiegel is also ferreting out some important facts:

Despite those headwinds from China and refugees, the European economy is now entering its fourth year of recovery, says the EC.

Today’s report states:

Growth continues at a moderate rate, driven mainly by consumption. At the same time, much of the world economy is grappling with major challenges and risks to European growth are therefore increasing.

EC forecasts

EC slashes inflation forecast as headwinds grow

A flurry of news is flying our way from Brussels, as the European Commission releases its new economic forecasts.

The headline event is that the EC has slashed its forecast for inflation this year to just 0.5%, from 1% three months ago.

That’s partly because of the oil price, and also because “wage growth remains subdued”.

It has also trimmed its growth forecast for 2016 to 1.7%, down from an earlier forecast of 1.8%.

The EC still expects eurozone GDP to rise by 1.9% in 2017, as the slow recovery picks up pace (a little).

The Commission blames problems in emerging markets, and also points to the refugee crisis.

Commission Vice President Valdis Dombrovskis warns:

Europe’s moderate growth is facing increasing headwinds, from slower growth in emerging markets such as China, to weak global trade and geopolitical tensions in Europe’s neighbourhood.”

The EC has also revised up its Greek forecasts, saying the economy didn’t actually contract in 2015. It also expects a smaller recession this year.


Anti-austerity general strike brings Athens to a standstill

Greece is in the grips of a general strike today as demonstrators renew their protests against the country’s latest bailout deal.

Transport links are shut down, shops are closed, and thousands of people are marching through the Greek capital right now.

Members of the PAME Communist-affiliated shout slogans during a 24-hour nationwide general strike in Athens, Thursday, Feb. 4, 2016. Unions called the strike to protest pension reforms that are part of Greece’s third international bailout. The left-led government is trying to overhaul the country’s ailing pension system by increasing social security contributions to avoid pension cuts, but critics say the reforms will lead many to lose two-thirds of their income to contributions and taxes. (AP Photo/Petros Giannakouris)
Members of the PAME Communist-affiliated shout slogans during a 24-hour nationwide general strike in Athens today. Photograph: Petros Giannakouris/AP

Our Athens correspondent, Helena Smith, reports that the effects are withering.

She writes:

This is the fifth general strike since the leftist Syriza first came to power but none has been so fully endorsed. In a reflection of the growing anger at all embracing tax and pension reforms, the entire country appears to be paralysed by industrial action supported by every walk of life.

In Athens, where almost nothing is open, streets and central boulevards resembled a ghost town this morning with the shutters down on shops, offices and ministerial buildings. Small businesses, which usually turn a blind eye to the pleas of unionists to stay closed, have today heeded their call. “We have no choice,” said Lakis Antonakis who owns the popular Piazza Duomo café opposite the capital’s cathedral.

“If they pass these laws more than 50 percent of our earnings will be taxed and I am one of the lucky ones because I can depend on tourists. Other businesses are really struggling. It’s become unsustainable to keep them open. Everyone is very pessimistic.”

Unionists, who planned mass protest rallies, attributed the high turn out to the determination of Greeks to ram home the message that they will not accept pension and tax reforms as they now stand.

Members of the communist-affiliated PAME union march during a 24-hour general strike against planned pension reforms in Athens, Greece, February 4, 2016. REUTERS/Alkis Konstantinidis
Members of the PAME Communist-affiliated hold a banner reads in Greek ‘’Social Security’’ during a 24-hour nationwide general strike in Athens, Thursday, Feb. 4, 2016. Unions called the strike to protest pension reforms that are part of Greece’s third international bailout. The left-led government is trying to overhaul the country’s ailing pension system by increasing social security contributions to avoid pension cuts, but critics say the reforms will lead many to lose two-thirds of their income to contributions and taxes. (AP Photo/Petros Giannakouris)
Members of the PAME Communist-affiliated hold a banner reading ‘’Social Security’’. Photograph: Petros Giannakouris/AP

International creditors, led by the IMF, are pushing prime minister Alexis Tsipras for further cuts in pensions to make up for a fiscal shortfall of up to €4.5bn over the next three years.

Grigoris Kalomoiris, of the civil servants union, Adedy, said he also thought Greeks had been encouraged by protesting farmers who have set up roadblocks nationwide. “Their action over the past two weeks has had a ripple effect. Everything is close even the state audit office,” he told me.

“Farmers are leading the way. People are very determined to stop this pillaging because pillaging is what it is. Greece and Greeks cannot go on being pushed like this in the name of debt.”

The strike, ironically, has the full support of Syriza – although government officials, who will soon be called to vote on the reforms, are keeping mum.

National wide strike in Athensepa05142365 Women stand in front of a closed suburban station at the Athens Eleftherios Venizelos airport during a 24-hour national strike, in Athens Greece, 04 February 2016. Greece’s largest private and public sector unions GSEE and ADEDY held a strike on 04 February to protest against the government’s planned pension reforms. Public transport was grinding to a halt, while trains were cancelled and ferries stayed put in harbours, also cutting off the Greek islands from the mainland. EPA/YANNIS KOLESIDIS
A closed suburban station at the Athens Eleftherios Venizelos airport. Photograph: Yannis Kolesidis/EPA

Apparently the solution to monetary policy paralysis is taller central bank governors:


You might have expected the euro to fall this morning, after Mario Draghi guilefully declared that central banks shouldn’t stop taking action to fight deflation.

But the single currency didn’t take the hint. Instead, the euro has hit a three-month high against the US dollar, at $1.116.

And that’s starting to weigh on European markets, pushing shares down from their earlier highs….

VW car sales fall 14% in Britain

FILE - In this Feb. 14, 2013, file photo, a Volkswagen logo is seen on the grill of a Volkswagen on display in Pittsburgh. New Mexico is suing Volkswagen and other German automakers over an emissions cheating scandal that involves millions of cars worldwide, the first state to do so but almost certainly not the last. (AP Photo/Gene J. Puskar, File)

Sales of Volkswagen cars slumped by almost 14% in the UK last month, suggesting that the company is still suffering from the emissions scandal.

Just 12,055 VW-branded cars were registered in January, down from 13,993 in January 2015, according to new figures from the Society of Motor Manufacturers and Traders.

That cuts VW’s market share to 7.1%, from 8.5%.

Other Volkswagen brands also had a bad month. Sales of Seat cars slumped by 25%, from 4,137 to 3,119.

This is the fourth month in a row that VW car sales have dropped, following last year’s revelations that it used cheat software to get around emissions tests.

Overall, the UK’s new car market got off to a positive start in January, according to the SMMT.

Registrations rose by 2.9% compared with the same month in 2015 to reach an 11-year high of 169,678 units.

SMMT car sales


Goldman Sachs has weighed into the Brexit debate, predicting that the pound would slump by around 15% if Britain vote to leave the EU.

In a new research note, it argues that investors would be put off from putting capital into the UK if the public reject David Cameron’s new deal.

And if the domestic economy also suffered, sterling would come under sustained pressure – due to the country’s current account deficit.

Goldman predicts:

In our framework, a decline of 2% in domestic demand would still see close to a 15% drop in the British pound to close the current account deficit.

Worth remembering that Goldman isn’t completely impartial in this fight. The Bank has apparently given a six-figure donation to the Britain Stronger in Europe campaign, which is fighting against Brexit.

Mario Draghi: No excuse for inaction

Mario Draghi Presents ECB Report At EU ParliamentSTRASBOURG, FRANCE - FEBRUARY 1: The governor of the European central Bank, or ECB Mario Draghi speaks to the plenary room in the European Parliament ahead of the debate on the ECB report for 2014 on February 1, 2016 in Strasbourg, France. During the last press conference in Frankfurt, Draghi indicated that the bank may review its course of action in March. (Photo by Michele Tantussi/Getty Images)

European Central Bank chief Mario Draghi has dropped a clear hint that the ECB embark on fresh stimulus measures next month.

Speaking in Frankfurt a few minute ago, Draghi insisted that central bankers can’t just stop trying to hit their inflation goals because “global disinflation” is dragging prices down.

He declared:

There are forces in the global economy today that are conspiring to hold inflation down. Those forces might cause inflation to return more slowly to our objective. But there is no reason why they should lead to a permanently lower inflation rate.

What matters is that central banks act within their mandates to fulfill their mandates. In the euro area, that might create different challenges than it does in other jurisdictions. But those challenges can be mitigated. They do not justify inaction.

The speech is online here.

Double ouch:

Ouch. Shares in Credit Suisse have tumbled by around 10% in early trading.

The Swiss bank is missing out on today’s rally, after hitting shareholders with a loss of 5.83 billion Swiss francs ($5.8 billion) in the last quarter. That drove the bank into its first annual loss since 2008.

Credit Suisse took a bigger-than-expected charge to cover restructuring its investment bank,. as new CEO Tidjane Thaim tries to turn the firm around.

Thaim was also quite gloomy about the situation today, warning that:

Market conditions in January 2016 have remained challenging and we expect markets to remain volatile throughout the remainder of the first quarter of 2016 as macroeconomic issues persist .

Oil is continuing to gain ground this morning, adding to last night’s 8% surge.

Brent crude has risen to $35.36, up another 1%.

European stock markets are a sea of green, as traders welcome the higher oil price and the weaker US dollar.

European markets jump in trading

Up we go!

European markets are rallying at the start of trading, breaking three days of declines during this volatile week.

The FTSE 100 index of blue-chip shares opened 80 points higher, at 5917. That’s a gain of 1.2%, clawing back Wednesday’’s losses.

The German, French, Italian and Spanish markets are also up at least 1%.

Mining companies are leading the recovery. The weaker US dollar should spur demand for natural resources, as it will take some pressure off emerging markets.

Top risers on the FTSE 100 today
Top risers on the FTSE 100 today Photograph: Thomson Reuters

And Shell’s shares are rising, despite the company posting an 87% drop in profits this morning. Investors may have feared an even worse performance, given the slump in the oil price.

The key to today’s market moves is that the US dollar took an almighty tumble overnight.

After strengthening for months, the greenback suffered its biggest one-day drop since 2011.

That followed Wednesday’s disappointing US services sector data, which made investors conclude that US interest rates are unlikely to be hiked anytime soon. Perhaps not until 2017?

Mike van Dulken of Accendo Markets says the dollar fell on hopes that the Federal Reserve will “reign in its over-egged hawkishness”.

This delivered a welcome overshadowing of global growth concerns for markets hooked on cheap money.

And this chart puts the dollar’s weakness into some contect:

Asian markets rallied as oil recovers

It’s been another day of wild market action in Asia.

Most stock markets have surged overnight, on relief that the oil price has climbed back to over $35 per barrel.

Australia’s S&P/ASX 200 index led the way, jumping by 2%, with investors hoping that the commodity crunch may be bottoming out.

Only Japan missed out, because the yen gained against the US dollar (bad news for Japanese exporters)

Asian markets today
Asian markets today Photograph: Thomson Reuters

From Melbourne, Chris Weston of IG calls it “an incredible night of moves in markets”. And the trigger was the oil price, which has gained almost 10% since yesterday afternoon.

What we have seen is one of the most amazing one day moves in oil one will ever see, with US and Brent oil rallying 9% and 8% from yesterday’s ASX 200 close.

Oil is benefitting from a weaker dollar, rumours that OPEC might pull an emergency meeting to cut production, and suggestions that the selloff has simply gone too far.


Introduction: Bank of England Super(?) Thursday

Bank of England Governor Mark Carney listens during an inflation report news conference at the Bank of England in London, Britain November 5, 2015. The Bank of England gave no sign that it was in any more of a hurry to raise interest rates on Thursday, predicting near-zero inflation would pick up only slowly even if borrowing costs stay on hold all of next year. REUTERS/Jonathan Brady/pool

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

It’s Bank of England Super Thursday — that time of the quarter when the UK central bank sets interest rates, and also releases its latest inflation report.

“Super” could be pushing it, though. We’re expecting rates to remain unchanged at 0.5% (of course). The BoE will probably also lower its forecasts for growth and inflation, reflecting recent turmoil and rising pessimism about the world economy.

Governor Mark Carney will then face the cream of the economic press pack, who will presumably try to get him to admit that interest rates are highly unlikely to rise this year (despite Carney’s recent pronouncements). Might they even be cut to fresh record lows, governor?…

Also coming up today…

It’s going to be another lively day in the markets. European shares are expected to rally strongly, after three days of falls, and oil is looking perkier too (more on that shortly)

European Central Bank chief Mario Draghi is giving a speech in Frankfurt this morning; could that include fresh hints about ECB stimulus in March?

In the corporate world, we’re getting results from oil group Shell and mobile network operator Vodafone, among others.

We’ll be tracking all the main events through the day…

Updated © Guardian News & Media Limited 2010

Published via the Guardian News Feed plugin for WordPress.


A £500m rise in cars shipped abroad fails to ease prospects of huge UK trade deficit in third quarter fueled by strong pound plus eurozone woes and declining oil industry. The significant improvement seen in Q2 now considered as “only temporary”…


Powered by article titled “Car exports cut monthly UK trade deficit but quarterly gap is growing” was written by Phillip Inman Economics correspondent, for on Friday 9th October 2015 11.47 UTC

A rise in car exports helped improve Britain’s trade deficit in August, according to official figures.

The monthly shortfall in the trade balance for goods narrowed to £3.3bn from £4.4bn in July. However, the UK was still heading for a huge deficit in the third quarter of the year after an upward revision to July’s shortfall.

Paul Hollingsworth, UK economist at Capital Economics, said: “Even if the trade deficit held steady in September, this would still leave the deficit in the third quarter as a whole at around £11bn, far higher than the £3.5bn deficit recorded in the second quarter.”

He said this suggests that net trade is probably making “a significant negative contribution to GDP” at the moment.

Hollingsworth warned that the strong pound and weakness in demand overseas as the US economy stuttered and the eurozone remained in the doldrums meant the government’s hopes of a significant rebalancing towards manufacturing exports would be dashed in the near term.

Alongside the £500m rise in car exports in August, the chemicals industry sent more of its production to the US, the ONS said. Total goods exports increased by 3.5% to £23.6bn in August 2015 from £22.8bn in July 2015.

But this positive news was offset by the continued decline in Britain’s oil industry, which has been a major factor holding back progress this year.

Lower production and the lower oil price have dented exports, and though oil imports are likewise cheaper, they continue to rise in volume.

The mothballing and subsequent closure of the Redcar steel plant could also have had an impact as the export of basic materials dived in August by more than 10%.

The services sector recorded an improvement in its trade balance, but the ONS pointed out that the UK continued to rely heavily on the financial services industry to pay its way in the world.

Figures for the second quarter showed that the surplus on trade in services was £22.8bn, of which almost half – £10.1bn – was contributed by banks, insurers and the fund management industry.

David Kern, chief economist at the British Chambers of Commerce, said the narrowing of the deficit in August was welcome, but taking the July and August figures together pointed towards a deterioration.

“This confirms our earlier assessment that the significant improvement seen in the second quarter was only temporary.

“The large trade deficit remains a major national problem. This is particularly true when we consider that other areas of our current account, notably the income balance, remain statistically insignificant.”

Kern urged the government to adopt measures that will “secure a long-term improvement in our trading position”. © Guardian News & Media Limited 2010

Published via the Guardian News Feed plugin for WordPress.

PLEASE NOTE: Add your own commentary here above the horizontal line, but do not make any changes below the line. (Of course, you should also delete this text before you publish this post.)

Powered by article titled “Protester disrupts European Central Bank press conference – as it happened” was written by Graeme Wearden, for on Wednesday 15th April 2015 18.07 UTC

Closing summary: Protests in the heart of the ECB

It’s time for a closing summary.

Mario Draghi’s press conference in Frankfurt was dramatically disrupted today by an activist, in a protest against the European Central Bank’s policies.

In a remarkable security breach the protestor, understood to be Josephine Witt, leapt on the desk, showering glitter on the ECB president.

She also threw leaflets condemning the “undemocratic” Bank, and its role in the financial crisis, and chanted “End the ECB dictatorship” repeatedly, before being removed by security staff.

A protester who jumped on top of ECB president Mario Draghi’s desk during a news conference at the European Central Bank is detained by security. Her shirt reads “End the ECB Dick-tatorship”.
A protester who jumped on top of ECB president Mario Draghi’s desk during a news conference at the European Central Bank is detained by security. Her shirt reads “End the ECB Dick-tatorship”. Photograph: Marcus Golejewski/Demotix/Corbis

And there’s a video clip here.

The press conference was briefly suspended, before Draghi returned to tell reporters that his QE programme was delivering benefits to the eurozone economy, and to call for Europe’s labour market to be reformed to help younger people.

According to the ECB, Ms Witt registered as a journalist to attend today’s press conference in the Bank’s new Frankfurt headquarters. Staff took “immediate and effective action”, it said in a statement.

For example:

A protester who jumped on top of ECB president Mario Draghi’s desk during a news conference at the European Central Bank is detained by security. Her shirt reads “End the ECB Dick-tatorship”.
. Photograph: Marcus Golejewski/Demotix/Corbis

Police confirmed that they arrested a 21-year-old woman at the scene; she was later released:

Witt told Bloomberg tonight that she was motivated to protest against Draghi because he’s never been elected.

What’s very concerning to me is that Mario Draghi as ECB president is not actually serving the societies, but imposing rules on them — without ever being elected,” the 21-year-old said.

“This press conference is the little, little bit of democracy that the ECB gave us. I used this opportunity to express my criticism.”

It’s the latest in a series of protests against the ECB since the financial crisis began; last month, anti-austerity protestors caused major disruption in Frankfurt.

Once the drama was over, Draghi rebuffed concerns that the ECB’s new QE stimulus programme might falter, for lack of eurozone debt to buy:

“Now the worries about potential scarcity of government bonds, sovereign bonds to be bought under our purchase programme are just a little exaggerated. We don’t see problems. Both direct and indirect evidence and market feedbacks show that there isn’t any problem and our programme is flexible enough in any event to be adjusted if circumstances were to change.”

And he also refused to countenance the idea that Greece might default:

“I don’t even want to contemplate that. And based on the Greek government leaders’ statements this option is not contemplated by themselves as well. So I’m not ready to discuss any possible situation like that.”

But rating agency S&P then raised the stakes tonight, by cutting Greece’s credit rating deeper into junk.

I’ll be back tomorrow for another busy day of liveblogging, but probably one free of today’s drama (right, Josephine?…)

Thanks for reading and commenting, as ever. GW


Ms Witt registered as a Vice reporter, according to the Telegraph:

The economics correspondent Pete Spence explains her motives:

Ms Witt said she would continue to engage in “hardcore activism” in response to what she believed was an “undemocratic” ECB. She added that recent protests in Frankfurt during the opening of the ECB’s new offices were a reaction to Mr Draghi’s leadership. “[He] never got a mandate, never got voted for or elected,” she said.

“He imposes policies on these societies that are completely undemocratic,” she added. A friend of Ms Witt said she opposes what she describes as “European neo-liberalism”, and argued that the ECB cannot act “without a state of surveillance, of police and violence”.

If you squint at the photos taken earlier, you can see this is indeed the paper swirling around Mario Draghi’s head.

Protesters aren’t usually verified on Twitter, so I can’t confirm whether this actually is today’s activist or not: #disclaimer

While the credit rating downgrade isn’t a surprise, Standard & Poor’s has some serious concerns over Greece.

S&P says Greece’s economic state is “highly uncertain”, and warns that:

“without deep economic reform or further relief, we expect Greece’s debt and other financial commitments will be unsustainable”.

Greece’s solvency increasingly hinges on “favourable business, financial, and economic conditions”, it adds.

But despite the current problems, S&P reckons the government will manage to continue to pay salaries,pensions in cash (rather than non-negotiable IOUs) despite “weakening cash fiscal receipts”.

S&P downgrades Greece

Breaking news: Greece’s credit rating has just been cut by Standard & Poor’s, which also left the country on a negative outlook.

Wonder what S&P think of the ECB’s security system…

Video: That protest in full

For those of you who haven’t seen the protest already, this video captures the moment Mario Draghi’s opening statement was dramatically disrupted



Hopefully the ECB tighten up their security checks, before someone else pretends to be an economics hack.

ECB: Protester registered as a journalist

ALTERNATIVE CROP A woman disrupts a press conference by Mario Draghi (C), President of the European Central Bank, (ECB) following a meeting of the Governing Council ain Frankfurt / Main, Germany, on April 15, 2015. The woman who charged at Draghi calling for an “end to the ECB dictatorship” was quickly escorted out of the premises by security officers before the news conference resumed. AFP PHOTO / DANIEL ROLANDDANIEL ROLAND/AFP/Getty Images
The moment Mario Draghi was glitterbombed, and had a “butterfly” protest statement thrown at him Photograph: Daniel Roland/AFP/Getty Images

The European Central Bank has now issued a formal response:

Statement on incident at ECB press conference

The European Central Bank’s press conference was briefly disrupted by a protester today, who jumped on to the stage and threw confetti. Staff from the ECB are investigating the incident.

Security staff took immediate and effective action.

Initial findings suggest that the activist registered as journalist for a news organisation she does not represent. Like all visitors to the ECB, she went through an identity check, metal detector and x-ray of her bag, before entering the building.

ECB President Mario Draghi remained unharmed and calmly proceeded with the press conference. <end>

Here is a copy of the paper thrown at Mario Draghi today, accusing the ECB of arrogance and creating human disasters through its policies (thanks to Pete Spence of the Telegraph).

There is a Femen activist called Josephine Witt (short profile here), although the statement suggests it is an attack on austerity rather than the patriarchy.


Today’s incident feels unprecedented in financial circles; I can’t recall any central bank protestor getting so close to their target before, especially inside the central bank’s own headquarters.

But it’s not the first time the ECB has been a target. Last month, 350 people were arrested after protests disrupted the official opening of the new headquarters in Frankfurt, with several police cars set ablaze.

And the ECB’s decision to hold its monthly meeting in Barcelona in 2012 backfired, with thousands of police on the streets as protest marches took place.

It’s important to note that Draghi is completely unharmed — not too surprising, given confetti doesn’t pose much risk to human health. He certainly got off lighter than WTO Director-General Renato Ruggiero, who in 1999 was hit with cream pies by environmental protesters.

Update: He’s not a central banker, of course, but we shouldn’t forget the attempt to ‘pie’ Rupert Murdoch in 2011 at the UK parliament.


Police: 21-year-old arrested

A woman is taken away by security after she interrupted a press conference by President of the European Central Bank (ECB) by throwing confettis following a meeting of the Governing Council in Frankfurt / Main, Germany, on April 15, 2015.
. Photograph: Daniel Roland/AFP/Getty Images

Frankfurt police say the protester is a 21-year old woman from Hamburg. She’s currently being questioned.


The FEMEN activist group have claimed responsibility for the protest.

Femen have previously demonstrated against Vladimir Putin over the Ukraine conflict, and against former IMF chief Dominique Strauss-Kahn.


Confirmation from Reuters:


The women who threw paper and confetti at Mario Draghi is now in custody in Frankfurt, according to Bloomberg.

After the drama:

ECB press conference, April 15 2015
. Photograph: ECB

And that’s the end of the press conference. Unusually, there is a small ripple of applause — which Mario Draghi says is “very comforting”.

A couple of people wander to the front to take photos, but Draghi’s swiftly out of the room before there’s any more drama.

Finally, Draghi takes a question from a group of young people who won a competition to attend today’s press conference.

They ask for his views on the employment market today, and the prospects when they enter the labour market in a couple of years.

Best question of the day, Draghi replies.

The key to improving the eurozone’s labour market is to eliminate “duel market conditions”, he says, so that young people have a fair change of getting employment.

We must make it easier to hire people, cut the time people are unemployed, and change educational structure to make sure people have the right skills. That’s the most important thing.

Finally, a question about the protest. A journalists asks whether the European Central Bank president is OK, as he seems pretty calm.

You’ve answered your own question there, Draghi smiles back.

He then returns to normal business, insisting that economic conditions are improving, and bank lending is improving.

However, the recovery is reliant on the ECB sticking with its monetary policy measures.

Clarification. Another photo just arrived, showing that the protestor was actually saying “End the ECB Dick-Tatorship”. A subtle difference.

A female activist (C) wearing a t-shirt with a slogan reading: ‘ECB Dick-Tatorship’ is subdued by ECB security personnel after an incident at the press conference of the European Central Bank in Frankfurt, Germany, 15 April 2015.
. Photograph: Boris Roessler/EPA


The European Central Bank says it is “investigating” today’s protest:

If you’re just tuning in, you can watch Mario Draghi’s press conference online here. He’s now covering weighty monetary policy issues, and their role in underpinning the eurozone recovery.

Amazingly, no-one has actually asked a question about the protest (“Are you OK, Mr Draghi?” might be a good place to start).

The ECB chief says that the press conference will run for another 10 minutes to make up for the time lost when it was dramatically disrupted.

Mario Draghi appears to be unshaken by the incident. He is now fielding questions about the eurozone. He says that he doesn’t even want to contemplate the possibility that Greece might default on its debts.

And he points to Spain as a success story, saying it is experiencing a “strong and employment rich recovery, supported by labour market reform”.

Bloomberg have uploaded a video clip too.

It shows that the protester was shouting “End the ECB dictatorship” before being bundled out.


Mario Draghi’s opening statement is now online here (without any reference to the disruption)

Here’s Associated Press’s early take on the protests:

A female protester interrupted the European Central Bank’s press conference on Wednesday, screaming “End ECB dictatorship” while she rushed the stage and threw what looked like confetti.

The action happened as ECB President Mario Draghi was delivering opening remarks after the bank’s latest policy meeting.

Draghi reappeared on stage a few minutes later and carried on with his remarks.

Some activists accuse the ECB of trying to enforce budget austerity measures on eurozone countries, such as Greece, that are under financial bailout programs.

Photos: Protester disrupts ECB press conference

Here are photos of the moment that the European Central Bank’s press conference was disrupted by a protester shouting “end the ECB dictatorship.” [see earlier blogpost onwards]

It shows she threw paper and confetti at the head of the ECB, Mario Draghi, before being carried out of the room:

A woman disrupts a press conference by Mario Draghi, President of the European Central Bank, (ECB) following a meeting of the Governing Council ain Frankfurt / Main, Germany, on April 15, 2015. AFP PHOTO / DANIEL ROLANDDANIEL ROLAND/AFP/Getty Images
. Photograph: Daniel Roland/AFP/Getty Images
Security officers detain a protester who jumped on the table in front of the European Central Bank President Mario Draghi during a news conference in Frankfurt, April 15, 2015. The news conference was disrupted on Wednesday when a woman in a black T-shirt jumped on the podium. REUTERS/Kai Pfaffenbach
. Photograph: Kai Pfaffenbach/REUTERS
A woman interrupts a press conference by Mario Draghi, President of the European Central Bank (ECB) following a meeting of the Governing Council in Frankfurt / Main, Germany, on April 15, 2015. AFP PHOTO / DANIEL ROLANDDANIEL ROLAND/AFP/Getty Images
. Photograph: Daniel Roland/AFP/Getty Images
Security officers detain a protester who jumped on the table in front of the European Central Bank President Mario Draghi during a news conference in Frankfurt, April 15, 2015. The news conference was disrupted on Wednesday when a woman in a black T-shirt jumped on the podium. REUTERS/Kai Pfaffenbach
. Photograph: Kai Pfaffenbach/REUTERS


Draghi has also played down concerns that the ECB’s QE stimulus programme will struggle to find enough eurozone bonds to buy.


Draghi is now taking questions from the media – no-one has asked if he’s OK following the attack, though.

Asked about Greece, he says that the ECB will support the Greek banks for as long as they are solvent. The ECB has now extended €110bn to the Greek financial sector, he adds.

Draghi concluded his statement by warning that the eurozone needs more supply side measures to tackle its high structural unemployment & low potential output growth.

Draghi appears completely unruffled by the disruption, and has returned to his statement.

He says the ECB is monitoring inflation closely, and still expects inflation to rise back towards its target in 2016 and 2017.

Here’s a better photo of the moment that Mario Draghi’s press conference was dramatically disrupted a few moments ago.

OK, we’re back now — Mario Draghi is unhurt, and he’s continuing with his opening statement.

A remarkable security breach, though — this press conference is taking place inside the ECB’s headquarters.

It looks like the protestor threw confetti at the ECB chief.


The protestor has been removed from the room, and the press conference has been suspended.

ECB press conference disrupted

Mario Draghi has then been dramatically cut off, as a woman rushed to the front press conference repeatedly shouting “End ECB dictatorship. End ECB dictatorship”*

She also threw something at the ECB chief – which looked like paper.


Press conference begins

Mario Draghi starts cheerfully, saying he’s “very pleased” to welcome the media to the press conference.

He confirms that the ECB began its stimulus programme as planned. It is proceeding smoothly.

There is “clear evidence” that the policy measures we have put in place are effective, he declares. Borrowing conditions for firms and households have “improved notably”.

The press room in Frankfurt is nicely packed…and there’s a burst of camera action as Draghi arrives.

. Photograph: ECB

Angst breaking out across finance Twitter

Umm no sign of Mario yet….

Maybe the lifts are broken again, like in January…..

Mario Draghi’s press conference is being streamed live, here.

Reminder: we want to hear Mario Draghi’s views on his QE programme, Greece, and the state of the eurozone, when the press conference starts in around 5 minutes.


Lunchtime summary: Stock markets at 14-year high ahead of ECB

A quick recap.

The European Central Bank has voted to leave eurozone interest rates at their current record lows.

ECB president Mario Draghi will hold a press conference at 1.30pm BST (2.30pm Frankfurt), where he’s expected to discuss the state of the eurozone economy and the early success of his QE programme.

He may be asked whether the bond-buying programme could end early, if it’s successful.

European stock markets have hit their highest levels in 14 years, and the euro has fallen back, as investors prepare for this afternoon’s ECB press conference.

Traders are calculating that central banks will maintain accommodative monetary policy for some time, with the eurozone still in negative inflation and China’s economy slowing.

Nick Gartside, fund manager at JPM Global Bond Opportunities Fund, explains:

Globally investors should bear in mind this is not the time to fight central banks.

Powerful policies are forcing bond investors to sell bonds back to the central banks and redeploy those assets, and we cannot forget how much this supports risk assets.”

That’s helped to drive the FTSE 100 to a new alltime high, over 7100 points for the first time.

European stock markets, 1pm, April 15 2015
European stock markets, 1pm, April 15 2015 Photograph: Thomson Reuters

German bonds are hitting new highs, driving the interest rate on its 10-year bonds close to zero.

It’s been a worrying morning for Greece, though.

Slovakia’s finance minister has warned there is little chance of a deal to unlock aid next week, meaning:

“Greece is moving ever closer to the abyss.”

And new budget data has shown that Greece only achieved a primary surplus of 0.4% last year, well below target [details here].

The Kathimerini newspaper says this raises fresh fears over Greece’s financial health.

The budget figures show “that Greece needs external financing not just to meet redemptions but also to meet its current financing needs,” said James Nixon, chief European economist at Oxford Economics in London.

“There’s very little appetite in Europe to extend significant lending to Greece, and so that means that effectively there will be a demand for renewed austerity and further fiscal tightening.”

ECB leaves interest rates at record lows

FRANKFURT AM MAIN, GERMANY - JANUARY 21: The symbol of the Euro, the currency of the Eurozone, stands illuminated on January 21, 2015 in Frankfurt, Germany. The European Central Bank (ECB) is schedule to meet tomorrow and announce a large-scale bond buying program. The Euro has dropped sharply against the U.S. dollar in recent months. (Photo by Hannelore Foerster/Getty Images)
. Photograph: Hannelore Foerster/Getty Images

It’s official: The European Central Bank has voted to leave the key interest rates across the eurozone unchanged, at today’s meeting.

That means the benchmark rate remains at its lowest level ever, at 0.05%. Banks will still be charged 0.3% for overnight borrowing from the ECB, and hit with a negative interest rate of -0.2% for leaving cash in the ECB’s vaults.


Here’s the statement. Now we must await Mario Draghi’s press conference, in just under 45 minutes.

Heads-up, the ECB is about to announce the decisions on monetary policy taken at today’s meeting:

Slovakia: Greece is close to the abyss

Slovak finance minister Peter Kazimir has thrown cold water on hopes of a breakthrough in the Greek bailout talks next week.

Speaking after a cabinet meeting in Bratislava, Kazimir warned that Greece is heading towards ‘the abyss”.

Reuters has the details:

“Given the we have lost a lot of time, I am sceptical,” Kazimir told reporters after a Slovak cabinet meeting when asked if he believed the Riga meeting could bring a breakthrough.

“Greece is moving ever closer to the abyss.”

Kazimir is a member of the Eurogroup, which will meet next Friday in Riga. Greece hopes that this will unlock some aid (as we reported last night).

However, German finance ministry spokesman Friederike von Tiesenhausen has just warned reporters in Berlin that talks are deadlocked:

He also denied this morning’s rumour that Germany was preparing for Greece to default.

The damage suffered by the Greek economy in the last four years has been exposed by new fiscal data published by statistics body Elstat this morning.

The figures confirm that Greece’s GDP shrank from €207bn in 2011 to €170bn in 2014.

And that means its national debt swelled from 171% of GDP to 177% GDP last year, despite the billions of Greek debt being written down in 2012 and heavy spending cuts.

The report also shows that Greece posted a small primary surplus [ie, ignoring debt repayments] of 0.4% of GDP in 2014; much lower than the 2% estimated by the previous Greek government last October.

Greek fiscal report
Greek fiscal report Photograph: Elstat

The broader deficit was 3.5% of GDP, slightly above the 3% target set by Brussels.

Today’s antitrust charge against Google over its Shopping service could be just the start, says competition commissioner Margrethe Vestager.

She’s briefing reporters in Brussels now, explaining that other services are also under the Commission’s microscope as it tries to ensure consumers aren’t exploited.

Vestager is also denying that there’s an anti-American tinge to the probe.

Brussels hits Google with antitrust charge

After five years of work, the European Commission has just hit Google with a charge that it abuses its dominant position in the search industry.

The case relates to Google’s shopping service; the EC says the search giant stifles competition by favouring its own pages.

Brussels has also opened a separate investigation into Google’s Android operating system.

Competition chief Margrethe Vestager says:

“I have also launched a formal antitrust investigation of Google’s conduct concerning mobile operating systems, apps and services. Smartphones, tablets and similar devices play an increasing role in many people’s daily lives and I want to make sure the markets in this area can flourish without anticompetitive constraints imposed by any company.”

Antitrust: Commission sends Statement of Objections to Google on comparison shopping service; opens separate formal investigation on Android

More to follow…

The Eurozone Rumour Mill is grinding hard this morning, with Germany’s Die Zeit newspaper claiming that Angela Merkel’s government is preparing a plan to keep Greece inside the euro area even if it defaults.

According to Die Zeit, Germany fears that Greece could soon miss a debt repayment, and could be prepared offer concessions if Athens can show its committed to reforms.

The German government is declining to comment…

The drop in short-term borrowing costs in the eurozone is truly remarkable, with only Greece missing out:

The Greek government has cleared one, rather small, hurdle this morning by auctioning over €800m of three-month debt.

This will cover the cost of repaying three-month bonds which mature soon. The debt was almost certainly bought by Greek banks, who will receive a yield of 2.7% [so Athens must pay much more to borrow until July than Berlin would pay to borrow until 2045]

Update: German’s ten-year government bonds just hit a new record high:


Remarkable scenes in the bond markets today – German 30-year sovereign debt is changing hands at an effective interest rate of just 0.57%.

German 10-year bunds are now yielding just 0.13%, meaning Berlin can borrow for basically nothing for the next decade. And eight-year bund yields turned negative yesterday, meaning they’re worth more than their face value.

We can thank Mario Draghi for this situation. Under the ECB’s quantitative easing programme; it can buy bonds at negative yields as long as they’re not below its own deposit rate of -0.2% (what it charges banks to leave funds in the ECB vaults). Traders are piling into eurozone bonds, confident that they can sell them to Frankfurt at a guaranteed profit.

German two-year bond yields are already below this mark, at -0.27%. Some economists suggest the ECB may be forced to cut the deposit rate even lower, to find enough bonds to meet its QE targets.

The Turkish lira isn’t a pretty sight this morning — it just hit a record low against the US dollar.

Investors are getting jittery about June’s general election, and the sustained pressure which president Recep Tayyip Erdoğan is putting on Turkey’s central bank.

Erdogan has pushed hard for interest rate cuts to stimulate the economy, despite Turkey’s inflation rate rising to 7.6% last month.

His wider goal, if his AK party secures a sizeable victory in the election, is to rewrite Turkey’s constitution to create a full-blown presidential system giving him a tighter grip on power [officially the presidency is a ceremonial role, but Erdogan, a former prime minister, has other ideas, putting him at odds with his successor].

Nour Al-Hammoury, chief market strategist at ADS Securities in Abu Dhabi, is also keen to hear about how Mario Draghi might end his stimulus programme:

No one is expecting the ECB to change their policy, but questions will be asked about the length of the QE programme if European economies continue to grow more quickly than expected.

Investors will want to know whether the ECB has revised its exit strategy.

Mario Draghi could send the euro soaring if he gives any suggestion that his QE programme will be curtailed earlier than planned.

Currently the ECB is committed to buying €60bn of government bonds, and other debt, per month until September 2016. But there is speculation that it could ‘taper’ the plan if it succeeds in driving inflation and growth.

Ilya Spivak of DailyFX explains:

“The Eurozone economy has shown some signs of life in recent months and the central bank chief will almost certainly have to field questions about the possibility that QE will be cut short if growth and inflation mend faster than expected.

Rhetoric opening the door to such a possibility may be interpreted as a relative shift away from the ultra-dovish extreme on the policy outlook spectrum, boosting the Euro.”

Euro versus dollar, 2005-2015
Euro versus dollar over the last decade. Photograph: Thomson Reuters

The euro is currently worth $1.0607, close to its lowest level in 13 years. A weak single currency should help push inflation up, so Draghi is likely to dampen talk of tapering.


The FTSE 100 has just nudged a new record high of 7102 points.

High street chain Next is leading the way, up 2.3% after JP Morgan raised its price target.

Tony Cross of Trustnet Direct says the Chinese slowdown is the big story in the City this morning:

The big point of interest is the swathe of economic data we saw released from Beijing overnight – headline GDP was as expected at 7%, but a number of other readings fell short of expectations. However, rather than this initiating another rally for local markets, there’s growing concern that Chinese stocks are in bubble territory and as a result many traders have remained sidelined.

The Shanghai stock index has surged by a remarkable 28% this year, as retail investors pile into shares despite signs the economy is weakening. This kind of exuberance doesn’t always ends well….

Chinese investors look at prices of shares and the Shanghai Composite Index at a stock brokerage house in Shanghai today.
Chinese investors look at prices of shares and the Shanghai Composite Index at a stock brokerage house in Shanghai today. Photograph: Johannes Eisele/AFP/Getty Images

Here’s your regular reminder of Greece’s looming debt repayments, via Mike Bird of Business Insider.


I was going to knock up a list of key points to watch out for from the ECB today…. but Bloomberg’s Alessandro Speciale has already nailed it.

Here’s his list of five key points:

  • Must we really start worrying about tapering? (might the ECB end its QE bond-buying programme earlier than planned, if it succeeds in stimulating the economy
  • Are the March forecasts too optimistic? (minutes of the Bank’s last meeting showed some policymakers doubt the forecast of inflation hitting 1.8% in 2017)
  • Will the ECB find enough assets to buy? (some analysts suspect the pool of eurozone bonds could run dry as the QE programme mops them up)
  • What is the latest on Greece? (will the ECB keep providing emergency funding if the April 24 deadline for a deal is missed?)
  • Is there progress on structural reforms? (Draghi will surely repeat his regular plea to eurozone politicians not to slacken off)

European markets calm after Chinese growth slows

A woman walks at the Bund in front of the financial district of Pudong in Shanghai, in this March 5, 2015 file photo. China’s economy grew 7.0 percent in the first quarter of 2015, as expected but still its slowest rate in six years, reinforcing bets that policymakers will take more steps to bolster growth. REUTERS/Aly Song/Files
Shanghai’s financial district.

European stock markets are inching higher in early trading, as we await the ECB’s press conference this afternoon.

The FTSE 100 is up 10 points, with investors digesting the news overnight that China’s economy grew at its slowest pace in six years.

Chinese GDP expanded by an annual rate of 7% in the January-March quarter, according to government data, broadly in line with forecasts (and official targets).

But the underlying picture is less healthy, as Reuters explains:

Activity indicators, which are regarded as a more accurate picture of the economy, were all weaker in March than expected. Factory output climbed 5.6% in March from a year ago, below forecasts for a 6.9% gain.

Most tellingly, China’s power usage declined 3.7% compared with the previous year, the biggest drop since late 2008, when China’s economy was hit by the global financial crisis.

And that could mean more stimulus measures from Beijing…..


Greek bond yields spike on default fears

There’s an early selloff in Greek bonds this morning, despite the government claiming it will reach a deal with creditors next week.

Traders have driven the yield (or interest rate) on 10-year Greek bonds over 12%, from 11.9% last night.

Overnight, Bloomberg quoted an “international official” who said the two sides are not moving closer to a deal:

The Greek government’s refusal to proceed with any privatizations, and its pledges to reverse labor-market reform, pension reform and budget savings can’t be accepted by the country’s creditors, the official said, asking not to be named as talks between the two sides are not public.

Brussels insiders have been consistently less optimistic than their Greek counterparts since this crisis began.

The Agenda: It’s ECB Wednesday

The European Central Bank’s headquarters in Frankfurt.
The European Central Bank’s headquarters in Frankfurt. Photograph: Boris Roessler/EPA

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

The European Central Bank is top of the agenda today, as it holds its latest monetary policy committee meeting.

No, don’t adjust your calendars – it’s not Thursday already; the ECB is gathering a day earlier than usual so Mario Draghi can jet off to Washington for the International Monetary Fund’s Spring Meeting.

We’re not expecting any changes to eurozone interest rates (they can hardly go much lower, and it would be madness to raise them), so the real action comes at 1.30pm BST (2.30pm Frankfurt time) at Draghi’s press conference.

The ECB chief will be quizzed about his new QE bond-buying programme, which is giving the eurozone a much needed boost, and the state of the wider economy.

Stan Shamu of IG suspects Draghi will sound upbeat:

The press conference deserves some attention given Mario Draghi could make some positive commentary around signs of improvement in the economy.

Draghi’s views on the Greek crisis will also be worth hearing (as ever), as we tick towards another crunch deadline.

The ECB is understood to have thrown Athens a small lifeline last night, by offering its banks another €800m in emergency funding. That takes the total liquidity available to €74bn; Reuters reckons there’s around €4bn left.

Greece continues to loom over the markets today, amid speculation that it won’t reach a deal with its creditors at the next eurogroup meeting on 24 April.

Last night, deputy foreign minister Euclid Tsakalotos rejected such talk, declaring:

“I am absolutely confident an agreement will be reached on 24 April. Deals are always done five or three or one minute before midnight, it’s not unusual that they should go right to the brink.”

Or occasionally, right over the brink…..

I’ll be tracking all the main events through the day.

Updated © Guardian News & Media Limited 2010

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With its linked trade and innovation deficits, the UK seems as unprepared for a currency war as it was for real war in 1939. Countries are trying to export deflation somewhere else, using currency manipulation to do so…


Powered by article titled “UK looks ill-prepared if a global currency war breaks out” was written by Larry Elliott economics editor, for The Guardian on Sunday 17th November 2013 19.41 UTC

Rumours of war are in the air. Currency war, that is. The US treasury has forged an alliance with Brussels to attack Germany’s beggar-thy-neighbour approach to the rest of the eurozone. Last week the Czech government said it would defend its economy by driving down the value of  the koruna, following the aggressively interventionist example of  Japan and Switzerland.

It’s not hard to see why the atmosphere is becoming less cordial. This is a low growth world marked by over-capacity. Wages are under downward pressure and this is leading to ever-stronger deflationary pressure. A lack of international policy co-operation means that countries are trying to export deflation somewhere else, using currency manipulation to do so.

If a full-scale currency war does break out Britain looks as ill-prepared as it was for a military fight in 1939. We like to think of ourselves as a nation of buccaneering traders but only 16% of small and medium enterprises, with a turnover of over £20m, are actually exporting. We like to think of ourselves as the nation of innovators, yet as Richard Jones, of Sheffield University, notes, the UK is a less research and development intensive country than it was 30 years ago, and it lags well behind most of its rivals. The UK has linked trade and innovation deficits.

Jones, in a paper for the Sheffield Political Economy Research Institute, examines in detail how during the past 30 years the UK’s corporate laboratories have vanished and how big R&D spenders such as ICI and GEC switched from being companies that thought about long-term investment to ones where the prevailing doctrine was to return the money spent on R&D to shareholders.

Those in charge of UK manufacturing companies became more interested in the next bid, the next deal and the next set of quarterly results than in developing new product ranges.

The consequences of decades of neglect of the country’s productive base and an over-reliance on North Sea oil and financial services are now glaringly apparent. In the past, recessions have ended with the current account broadly in balance. This recovery starts with a current account deficit of more than 3%  of national output.

This is despite a fall of 20% in the value of the pound between 2007 and 2013, which in theory should have boosted exports. In reality, exports grew by 0.4% a year between early 2009 and the start of 2013, compared with 1% a year in the previous decade.

Ministers have a pat answer when quizzed about the poor performance of exports. It is, they say, the result of geography. More than 40% of UK exports go to the eurozone, where growth is weak and demand for imports has collapsed. So the impact of sterling’s depreciation has been blunted.

This view is not shared by the Bank of England. While admitting that the global recovery is patchy, the bank noted in its February inflation report that “the relative weakness of UK exports does not reflect particular weakness in its major trading partners”. It concluded that some other explanation was needed “to explain the disappointing performance of UK exports”, and found it in a sharp drop in exports of financial services and the tendency of UK firms to use a cheaper pound to boost profits rather than increase market share. The decline in exports from the City since the crash highlights the risks for Britain of the “eggs in one basket” approach.

As Ken Coutts and Bob Rowthorn note in a paper on the prospects for the balance of payments, the UK has gone from being a country that had a 10% of GDP surplus in trade in manufactures in 1950 to running a 4% of GDP deficit by 2011. North Sea oil and gas were in decline, so energy added to the deficit by 1.3% of GDP. Food and government transfers to overseas bodies such as the EU, World Bank and UN were the other big debits.

On the other side of the ledger there were three sources of surpluses: financial services and insurance (3.1% of GDP); other knowledge-intensive services, which include law, consultancy and IT (2.5% of GDP); and investment income (1.1% of GDP). Once all the debits and credits were totted up Britain had a current account deficit of 1.9% of national income. This rose to 4% of GDP in 2012.

The recession has taken a heavy toll on two of the surplus sectors. Investment income has turned negative, and global demand for financial services has fallen. This has affected the UK more than the other big global providers of financial services, the US and EU.

According to the Bank of England, “This could reflect lower demand for UK financial services in general, or a particularly sharp fall in demand for those financial products in which the UK specialised prior to the crisis.” This is a polite way of saying that no one any longer wants what Lord Turner once dubbed the City’s “socially useless” products.

Coutts and Rowthorn model what happens to the current account using assumptions for growth in the UK domestic economy and world trade, the level of UK competitiveness, oil prices, North Sea oil and gas production, and returns on financial assets.

The baseline projection is that the current account is 3% of GDP in 2022. Using a slightly more pessimistic assumption, the deficit swells to 5% of GDP. As the authors note: “A deficit of this magnitude would be a cause for serious alarm.”

It certainly would be. The outgoing trade and investment minister, Lord Green, told a conference in the City to mark export week that there was no guarantee the rest of the world would be prepared to finance deficits of this size for ever. The government has a target for raising exports to £1tn a year by 2020 – which will require them to grow by 9% a year. (The average since 2012 has been 5%.)

We have heard the “export or die” message many times in the past, to little effect it has to be said. It is not impossible to improve Britain’s export performance, though doing so with the current economic model is a pipe dream. It will require nurturing manufacturing, knowledge-based services and those bits of the financial services sector for which there is long-term demand.

Britain, Jones says, “needs to build a new developmental state, a state that once again takes responsibility for large-scale technological innovation as the basis for sustainable growth and prosperity”. Amen to that. If a currency war is brewing, we need the can-do spirit of 1940, not the head-in-the-sands approach of 1938. © Guardian News & Media Limited 2010

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After years of the Fed pumping $85bn a month into financial markets, the strength of the American recovery will be tested. The Federal Reserve chairman is expected to make the symbolic gesture this week of announcing the beginning of the end of QE…


Powered by article titled “Bernanke set to begin Fed’s tapering of QE – but is the US economy ready?” was written by Heather Stewart and Katie Allen, for The Guardian on Sunday 15th September 2013 20.25 UTC

As Barack Obama gears up to announce Ben Bernanke’s successor, the Federal Reserve chairman is expected to make the deeply symbolic gesture this week of announcing the beginning of the end of quantitative easing – the drastic depression-busting policy that has led the Fed to pump an extraordinary $85bn (£54bn) a month into financial markets.

It will signal the Fed’s belief that the US economy is on the mend, but it could also frighten the markets and hit interest rates. So what exactly is Bernanke doing, why now – and how might it affect the UK and other countries?

What will the Federal Reserve do?

After on Tuesday and Wednesday’s regular policy meeting, the Fed is widely expected to announce that it will start to “taper” its $85bn-a-month quantitative easing (QE) programme, perhaps cutting its monthly purchases of assets such as government bonds by $10bn or $15bn.

Is that good news?

It should be: it means the governors of the Fed, led by the chairman, Bernanke, believe the US economy is strong enough to stand on its own, without support from a constant flow of cheap, electronically created money – though they still have no plans to raise base interest rates from the record low of 0.25%, and they expect to stop adding to QE over a period of up to a year. “We really want to see a situation where central banks should not be pumping money into markets. It’s not a healthy thing to be doing,” says Chris Williamson, chief economist at data provider Markit.

Why are they doing it now?

Economic data is pointing to a modest but steady recovery. House prices have turned, rising by 12% in the year to June. Unemployment has fallen to 7.3%, its lowest level since the end of 2008, albeit partly because many women and retirees have left the workforce.

Since QE on such a huge scale carries its own risks – it can distort financial markets, for example – the Fed is keen to withdraw it once it thinks an upturn is well underway. However, some recent data, including worse-than-expected retail sales figures on Friday, have raised doubts about the health of the upturn.

There’s another reason too: Bernanke’s term as governor ends in January next year, and he may feel that at least making a start on the process of tapering – marking the beginning of the end of the policy emergency that started more than five years ago – would be a fitting end to his tenure.

How will the markets react?

With a shrug, the Fed hopes, since it has carefully communicated its intentions. Scotiabank’s Alan Clarke said: “I think it’s pretty much priced in … Speculation began months ago, the market has already moved and we are still seeing some very robust data. The foot is on the accelerator pedal just a bit more lightly.”

However, a larger-than-expected move could still cause ripples – and a decision not to taper at all would be a shock, though some analysts believe it remains a possibility. Paul Ashworth, US economist at Capital Economics, said: “I don’t think they’ve actually decided on this ahead of time.”

What will investors be looking for?

First, the scale of the reduction in asset purchases. No taper at all might suggest Bernanke and his colleagues have lingering concerns about the health of the economy; a reduction of $20bn a month or more would come as a shock. The tone of the statement, and the chairman’s subsequent press conference, will also be scrutinised, with markets hoping for reassurance that even once tapering is underway, there is no immediate plan to raise interest rates: Bernanke has previously said he doesn’t expect this to take place until unemployment has fallen to 6.5% or below. Williamson said: “I think they will accompany the announcement with a very dovish statement designed not to scare people that the economy is too weak but to reassure stimulus won’t be taken away too quickly.”

What does it mean for the UK?

Long-term interest rates in UK markets have risen sharply since the early summer, at least in part because of the Fed’s announcement on tapering, and that shift, which has a knock-on effect on some mortgage and other loan rates, is likely to continue as the stimulus is progressively withdrawn.

If tapering occurs without setting off a market crash or choking off recovery, it may help to reassure policymakers in the UK that they can tighten policy once the recovery gets firmly under way, without sparking a renewed crisis. David Kern, economic adviser to the British Chamber of Commerce, said: “it will strengthen for me the argument against doing more QE in the UK.”

How will the eurozone be affected?

It could cut both ways: a strengthening US economy is a welcome market for Europe’s exporters, and if the value of the dollar increases against the euro on the prospect of higher interest rates, that will make eurozone goods cheaper.

However, the prospect of an end to QE in the US has also caused bond yields in all major markets to rise, pushing up borrowing costs – including for many governments. That could make life harder for countries such as Spain and Italy that are already in a fiscal tight spot.

What about emerging markets?

Back in May, Bernanke merely had to moot the idea of ending QE to send emerging markets reeling. A side-effect of the unprecedented flood of cheap money under QE has been that banks and other investors have used the cash to make riskier investments in emerging markets. The prospect of that tap being turned off has already seen capital pouring out of emerging markets and currencies, potentially exposing underlying weaknesses in economies that have been flourishing on a ready supply of cheap credit.

“It has triggered all sorts of significant movements around the world out of emerging markets. It’s had big ramifications for India and other parts of Asia,” said Clarke.

Central banks in Brazil and India have been forced to take action to shore up their currencies; Turkey and Indonesia also look vulnerable. Many of these markets have looked calmer in recent weeks, but the concrete fact of tapering could set off a fresh panic. © Guardian News & Media Limited 2010

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Italian election boosts euro – live coverage here. Sterling drops below €1.14 after Moody’s downgrades UK. Investors want new growth measures from George Osborne. What the analysts say. Financial markets upbeat about Italian election result…

Powered by article titled “Pound slides against euro after Moody’s downgrade – live” was written by Graeme Wearden, for on Monday 25th February 2013 16.48 UTC

4.48pm GMT

Wondering how Britain’s downgrade, and the fall in the pound, affects you? My colleague Hilary Osborne has the answers here: How the loss of Britain’s triple-A credit rating will affect consumers (savers who enjoy holidaying across the Channel should take a deep breath first)

4.34pm GMT

Sterling’s Silvio lining

Those twists and turns in the Italian general election have helped sterling recover some ground against the euro – but the pound is still down 1% at €1.143.

The pound is also heading for its lowest closing level against the US dollar in two and a half years, at just over $1.51.

So not a great day for sterling. No wonder Osborne decided against talking the pound down – it can fall perfectly well on its own!

Updated at 4.48pm GMT

4.23pm GMT

Osborne resists conscription into currency wars

One more interesting line to flag up from George Osborne’s session in parliament – asked about the possible impact on sterling of the Moody’s downgrade, the chancellor cited the G7′s recent promise not to conduct a currency war.

That ought to please his predecessor, Lord Lawson (who ran the Treasury between June 1983 and October 1989). Yesterday, Lawson said it would be a disaster for ministers or central bankers (yes, you, Mervyn King) to suggest that a weak pound would be useful.

As Lawson put it:

I think it would be a very great mistake if anyone in the government or Bank of England gave the impression we would like to see a further depreciation of sterling.

That would not be clever; that would not be sensible; that would not be helpful.

Updated at 4.28pm GMT

4.06pm GMT

New projections from the Italian general election have completely punctured the rally in Milan.

The news that Silvio Berlusconi‘s centre-right coalition is thought to be ahead in the Senate has pushed the FTSE MIB into negative territory; an hour ago, it was up 4%.

Paul Owen has the details:


Centre-right coalition: 31.7%

Centre-left coalition: 29%

Five Star Movement: 25.1%

Centrist coalition: 8.5%

More on Paul’s rolling coverage: Italian election results – live coverage

Updated at 4.16pm GMT

3.42pm GMT

The key line from George Osborne is that he’s not going to change the pace of his deficit reduction plan; otherwise, a bad situation would be even worse.

Ed Balls, shadow chancellor, is arguing that the government is illogical, having previously insisted that its plan A was essential in order to keep the AAA rating.

Osborne, though, claims Balls is the man without an economic plan: “His answer to a debt crisis is to borrow more,” Osborne says.

Good knockabout stuff (it’s on Sky News and BBC Parliament), and on Andrew Sparrow’s blog.

Updated at 4.15pm GMT

3.36pm GMT

Osborne questioned over AAA downgrade

Over in Parliament, Ed Balls is demanding an urgent answer from George Osborne on Britain’s economic policy after the loss of the AAA rating.

Andrew Sparrow is live-blogging all the action here from parliament:

Osborne begins by pointing out that UK bond yields are stable today, and that the FTSE 100 is up: there is no panic in the markets, he says.

And then he’s swiftly into the politics, saying Moody’s is encouraging him to continue “the process of winding down the huge debts built up over the last decade”.

Updated at 4.11pm GMT

3.33pm GMT

Latest odds on a sterling crisis

There is plenty of speculation that the pound is heading to parity with the euro (it got to €1.02 at the end of 2008).

Ladbrokes has now weighed in, offering odds of just 6/4 that sterling falls to €1 or lower this year (from below €1.14 now).

It also offers just 4/1 on the pound slumping to parity against the US dollar. That would only happen if there was a remarkable run on the pound this year – so the odds feel a little ungenerous. Still, you may have other thoughts …

Updated at 3.34pm GMT

3.11pm GMT

Irish unions agree pay cuts

Another important development to flag up in Ireland: a breakthrough in the Irish government’s bid to slash its massive public pay bill as part of the IMF/EU/ECB austerity programme.

The deal means bigger pay cuts for higher earners, as Henry McDonald reports from Dublin:

During talks to revise the so-called Croke Park Agreement between the state and public sector trade unions it has been agreed that government employees earning more than €185,000 per annum will take a 10% pay cut.

Overall pay cuts will kick in for state workers at 5.5% for those earning more than €65,000 up to the 10% ceiling for the highest earners.

The Irish public sector is one of the most highly paid in the industrialised world and has one of the best, most generous pension systems. The Fine Gael-Labour government has been under tremendous pressure from the so called troika of the IMF, EU and ECB to reform its public sector and slash wages.

The deal, if agreed by a series of ballots of public sector-based unions, will run from July 2013 until 2016.

Ireland’s minister for public expenditure, Brendan Howlin, said: “These proposals constitute a fair and balanced agenda to repair our public finances.

“The revised measures recommended by the LRC (Labour Relations Commission) meet the budgetary targets of the government and address many of the concerns expressed by the staff representatives during the negotiations.”

Updated at 3.15pm GMT

2.57pm GMT

Back to Britain, and here’s a video clip of a defiant George Osborne saying he won’t “run away” from Britain’s problems, and insisting that the situation would be even worse if he changed his policies.

Updated at 3.12pm GMT

2.45pm GMT

Bank shares are leading the rally in Italy, gaining at least 6% each. Trading in Monte dei Paschi Siena, Italy’s oldest bank, which has been hit by a major scandal, has just been paused because its shares jumped so strongly.

And shares in Mediaset, the media empire owned by Silvio Berluconi, are up by over 8%.

For full coverage of the Italian election, check out Paul Owen’s rolling blog.

Updated at 2.48pm GMT

2.28pm GMT

The Italian stock market has jumped since the exit polls came out. It’s up 3.9%, or 636 points, at 16870.

The euro has also jumped, now up 1 cent against the US dollar at $1.329.

Updated at 2.47pm GMT

2.27pm GMT

The exit polls from Italy are in, and the stock markets are rallying hard.

The top line is that the centre-left Democratic party has won the most votes in races for both the upper and lower house, with a clear lead over Silvio Berlusconi’s party.

The second key development is that Mario Monti, the technocratic PM parachuted in to run Italy, has been rejected by the public. Bebbe Grillo’s Five Star Movement has won much more support.

Here are the projections for the lower house, from SkyTG 24

Democratic Party: 34.5%

Berlusconi’s coalition: 29%

Five Star Movement: 19%

Monti’s centrist coalition: 9.5%

And for Senate

Democratic Party: 37%

Berlusconi’s coalition: 31%

Five Star Movement: 16.5%

Monti’s centrist coalition: 9%

Updated at 2.46pm GMT

1.36pm GMT

Just half an hour until the voting closes in Italy and we get the exit polls from a general election that will help to determine the future of the eurozone financial crisis.

Robert O’Daly, Italy analyst at the Economist Intelligence Unit, reckons this is “arguably the most important [election[ since the start of the country's membership of the euro."

A stable, reformist government is hoped for, but there is a high risk of a hung parliament with Mr Bersani's centre-left winning a majority in the lower house but unable to form a majority in the upper house, even with the added support of outgoing prime minister Monti's centrists.

My colleague Paul Owen is blogging the results here: Italian election results – live coverage.

Updated at 2.13pm GMT

1.16pm GMT

EU demands no let-up in Irish austerity

In Ireland, the government has been warned not to look upon €1bn they saved from the IOU bill on the busted Anglo Irish Bank as a "windfall".

Henry McDonald reports from Dublin:

Olli Rehn, the EU's commissioner on economic and monetary matters, said the money should not be used to lighten the load of next year's Irish budget.

Rehn's intervention this morning will be viewed in Dublin as a sign that the EU, alongside with the European Central Bank and the IMF, still calls the shots when it comes to Ireland's fiscal policies.

Speaking on RTÉ's Morning Ireland programme, Rehn said the money should not be used to "soften" next year's budget.

Rehn said it was important that Ireland stick to the EU/IMF programme, which has imposed austerity cuts and reduced public spending.

The EU commissioner said he was surprised the savings had been described in some quarters as "windfall gains".

He said it was important that the Irish government be consistent in its fiscal policies, and continue to implement measures to reduce the debt burden.

After Ireland secured a deal on the so-called promissory notes to bondholders of the defunct Anglo Irish Bank, some have been urging Enda Kenny and his coalition partners to spend the saved €1bn on capital building projects to help stimulate domestic demand in the republic.

Those are just the kind of projects City investors want to see from George Osborne (see 10.02am for more details)

Updated at 2.10pm GMT

1.11pm GMT

Rating agencies: who rates them?

The relatively muted reaction to the UK's downgrade bolsters the argument that rating agencies simply get too much attention.

Moody's doesn't have a souped-up Delorean hidden in the basement; it's simply working off the same indicators and forecasts as everyone else.

Except a trader or fund manager can take a decision, and execute it, a lot faster than an agency typically manages.

Vince Cable, the business secretary, dismissed the downgrade as "largely symbolic" yesterday – which was certainly not the tune Osborne has been singing for years (Labour provides a round-up here). But supporters of the chancellor say he managed to protect the AAA when it mattered most.

Back in January 2012, my colleague Aditya Chakrabortty wrote perhaps the definitive take-down of the cult of the rating agency: Time to take control of the credit rating agencies.

Why should S&P and Moody's earn such vast sums? Certainly not for their oracular genius – the agencies have as much foresight as Mr Magoo. In my working life, the credit-rating duopoly has failed to warn investors about the Asian financial crisis, Enron, the subprime crisis, Lehman Brothers – and Greece.

My particular favourite, Moody's report dates from December 2009 and is titled "Investor fears over Greek government liquidity misplaced". Six months later, Athens received a $147bn rescue package.

Not much has changed over the last year, alas. The EU did agree new rules to control the agencies last year, but tougher measures were watered down.

Updated at 2.11pm GMT

12.47pm GMT

Sterling hits 16-month low against the euro

Sterling continues to sink against the euro today - partly due to the Moody's downgrade, and partly due to optimism that the Italian general election will deliver a stable election (see 11.40am)

The pound is now down 1.75 euro cents at €1.139, a tumble of 1.5% since trading began. That's the lowest level since October 2011.

A weaker pound is a blow to those of you planning a holiday on the continent, but should provide a boost to exporters. Many firms, though, have argued that they'd rather have simple certainty about the pound's value over the next couple of years (also, if you buy raw materials or certain parts from Europe, a weaker pound can be a handicap).

12.35pm GMT

… Or will he?

There's speculation in parliament this afternoon that George Osborne may miss the urgent question on the downgrade, owing to an unfortunate clash with his pre-scheduled skit at the inquiry into banking:

The opposition would love that! My learned colleague Andrew Sparrow is on the case from parliament (his Politics live blog is here)

Updated at 12.42pm GMT

12.29pm GMT

Osborne to face MPs

Labour has got its way - George Osborne will have to answer an urgent question about Britain's downgrade, at 3.30pm.

11.57am GMT

Over in Westminster, the Labour party is trying to thwart George Osborne's efforts to keep his head down. The opposition is reportedly planning to haul the chancellor to parliament to answer an urgent parliamentary question on the Moody's downgrade of the UK credit rating.

Osborne won't be able to avoid discussing the situation today – he's due to appear at a parliamentary inquiry into Britain's banking sector at 3.45pm GMT (it will be streamed live here)

Updated at 12.04pm GMT

11.52am GMT

Sky News's Ed Conway neatly sums up the market reaction to the UK's triple-A downgradey: Apocalypse No.

Updated at 12.03pm GMT

11.50am GMT

Italy sold €2.82bn of bonds this morning, in another sign that the financial markets are optimistic about today's general election.

The two-year bonds were shifted at an average yield of 1.68%, with traders bidding for 1.65 times the amount of debt on offer. That's a good result, according to the RBS credit strategist Alberto Gallo.

Updated at 12.03pm GMT

11.40am GMT

Italian election exit polls due soon

The big story in the eurozone crisis is the Italian general election. Polls in Italy close at 2pm GMT (3pm local time), at which point we'll be swamped with exit poll data.

That will be fascinating, especially as opinion polls have been outlawed for the last two weeks.

The crucial questions is whether the centre-left Democratic party has won an outright majority in both the lower house of parliament and in the senate.

Intriguingly, voter turnout was lower in early voting yesterday than at the previous election. Political analysts say it was notably down in areas where Silvio Berlusconi has enjoyed solid support.

That may mean the Democratic party performs well, perhaps giving its leader, Pier Luigi Bersani, a clear majority.

However, the wild card in the election is the Five Star Movement, whose comedian leader, Beppe Grillo, has won supporters with a message of radical change, including a plan for a referendum on Italy's eurozone membership.

If Grillo wins a substantial share of the vote, he could win enough seats to deny Bersani that majority, perhaps forcing a coalition with Mario Monti.

Right now, the euro is rallying as traders conclude that Silvio Berlusconi has not had a good election. it's up 0.64% against the US dollar and 1.3% against the pound (one reason sterling fell to a 17-month low).

The whole election could depend on Lombardy, in the north of the country. Dubbed the Italian Ohio (the US state where American presidential elections are often decided), it could give Bersani the keys to the Senate - if he wins first place there. Fail, and he may need to form a coalition.

Updated at 11.52am GMT

10.50am GMT

The FTSE 100 index continues to rally today, up 35 points at 6371. My colleague Nick Fletcher writes that the blue-chip index is showing its global credentials again, with hopes of more monetary easing boosting shares prices.

For a start, comments from US Federal Reserve officials late on the same day spelt out the merits of its bond-buying programme, prompting hopes of continuing stimulus for the world's largest economy. And in Japan, sentiment was boosted by talk that the next central bank governor could be Haruhiko Kuroda, Asian Development Bank president, who is an advocate of aggressive monetary easing.

And with a survey showing Chinese manufacturing growing for the fourth month - albeit slipping back from two-year highs - the mining sector was given a lift.

Updated at 10.55am GMT

10.42am GMT

Gilts take trip back to safety

Good news for George Osborne (and the rest of Britain, really): UK sovereign bonds have swiftly recovered from the loss of the AAA rating at Moody's.

After an early rise, UK bond yields have sunk back to Friday's levels - suggesting the downgrade has had no short-term impact on British borrowing costs (borrowing for 10 years costs around 2.1% a year).

Updated at 10.53am GMT

10.26am GMT

How the pound doing?

A quick update on sterling:

• Against the US dollar, the pound is stable and pretty fat at around $1.51. It initially slumped to its lowest levels since July 2010, in early trading in Asia, but clawed its way back as European traders got to work.

• But against the euro, the pound has shed more than 1% this morning to €1.1433. That means one euro's now worth 87.4p.

• The Bank of England's own 'trade-weighted' measure of sterling (valuing the pound against a range of other currencies) has been pulled down to its lowest level since September 2011.

So, certainly not a run on the pound: few currency traders are breaking sweat. As explained at 8.56am, the financial markets had been expecting a downgrade, and the weakness of the UK economy had pushed sterling down steadily through the year, as this graph shows.

Updated at 10.31am GMT

10.02am GMT

City looks for more stimulus from Osborne

George Osborne spent the weekend insisting that he would not abandon his deficit-reduction targets in the light of the downgrade. However, some City analysts and investors believe, and hope, that the chancellor will announce more measures to stimulate growth.

M&G's retail bond team reckon Moody's may have done Osborne a favour by shooting the AAA now:

Gemma Godfrey, head of investment strategy at Brooks Macdonald, told me lat night that investors wanted to see Osborne announce new infrastructure spending in next month's budget.

She explained:

The markets are more focused on growth than on deficit reduction … As an investor in a low-growth environment, you're looking for any areas that can give you growth.

The emphasis should be to kickstart growth, because without growth our debt levels will be very hard to manage.

Godfrey pointed out that infrastructure spend is classified as "capital" rather than "current" spending, giving Osborne the opportunity to announce fresh spending plans.

An interesting accounting quirk could come to the rescue: infrastructure spend is classified as 'capital', not 'current', spending, and with a £3 boost to the economy per £1 spent, the pressure could encourage a strategy of investing for growth and companies that benefit could see profits boosted.

Alternatively, the risk is that too great a focus on deficit reduction could further squeeze the economy and domestic corporate revenues.

With Fitch due to rule on Britain's AAA after the budget, Osborne needs to play a blinder. Jane Foley of Rabobank comments:

While Chancellor Osborne at the weekend pledged not to err from his austerity course, this is not a path supported by all members of the coalition, so the news raises the risk for intra-government tension, which could in itself undermine the pound.

The 20 March budget is the perfect opportunity for the chancellor to lay out his response to the ‘growth v austerity' arguments, which now have fresh momentum. These policies will be crucial in determining whether other credit ratings agencies decide whether or not to downgrade the UK further.

Updated at 10.18am GMT

9.39am GMT

Markets rally again

European stock markets have completely shrugged off the UK downgrade:

FTSE 100: up 45 points at 6381, + 0.7%

German DAX: up 72 points at 7734, +0.95%

French CAC: up 16 points at 3722, + 0.4%

Spanish IBEX: up 52 points at 8233, + 0.67%

Italian FTSE MIB: up 138 points at 16372, +0.8%

Updated at 10.07am GMT

9.05am GMT

Paul Donovan, managing director of Global Economics at UBS, refuses to get excited about the downgrade, telling clients in a research note:

One of the credit rating agencies downgraded the UK from AAA for some reason or another.

The government responded with complete indifference, which will likely be the reaction of investors.

It's certainly true that the pound remains stable against the US dollar this morning, at $1.515.

Updated at 10.07am GMT

8.56am GMT

Moody's downgrade: what the analysts say

City analysts are in broad agreement that the loss of Britain's AAA rating was 'priced in'. Here's a round-up of the early comment:

Kit Juckes of Société Générale said:

Let's start at home. Firstly, the risk of a UK default is no higher today than it was a week ago and remains incredibly low, simply because the pound can act as a shock absorber. That's the beauty of this floating currency thingy, which only becomes a problem in a real rout (think GBP/USD below parity).

Secondly, the downgrade was so well flagged that surely it is priced in.

And thirdly, while this does harm to the UK chancellor's credibility, the rating agencies have already trashed their credibility irredeemably.

Juckes added, though, that the pound looks "for all the world" as if it could drop to $1.40 against the US dollar in the longer term.

Louise Cooper of CooperCity says the downgrade proves that, without growth, the UK's debt figures look "very nasty":

The UK is not a safe haven, it only became one because the rest of Europe looked so scary, the UK was relatively safe. But thanks to [the European Central Bank president Mario] Draghi, the risks of a eurozone implosion have reduced, at least for the time being. Therefore the risks of the UK, by itself, are back in the spotlight.

At different times in history and the economic cycle, particular data becomes more or less important . I am old enough to remember the money supply-targeting of the Thatcher years. For the UK, the data to watch very closely currently is any indicator of future output/GDP and the monthly government debt figures.

The UK is on a tightrope, with little in the way of a safety net. Wobbles could easily become catastrophic. Osborne: hold on tight to that balancing pole.

Gary Jenkins of Swordfish Research believes the Moody’s downgrade could set the tone for the year:

So, there we have it: officially we are now Good Britain; no longer Great, I’m afraid. Oh well, it had to happen sooner or later, and it’s nice that S&P let Moody’s go first this time. The key drivers of the downgrade were: ‘continued weakness in the medium-term growth outlook, challenges that subdued growth poses to the government’s fiscal consolidation programme, and, as a consequence of the UK’s high and rising debt burden, a ‘deterioration in the shock-absorption capacity of the government’s balance sheet …’

Difficult to argue with that. And if the economic data across much of Europe continues to be as poor as it has over the last few months, then I think we shall see these lines repeated by the agencies in 2013.

Kathleen Brooks, research director at, said the downgrade “reinforces the perilous economic position the UK is in”:

This downgrade may fuel more speculation that QE will be restarted later this year. This is pound negative for the medium term, and we could see sub-$1.50 in the near term.

Updated at 10.06am GMT

8.40am GMT

Uk gilts fall

Britain’s sovereign debt has also weakened this morning, but not dramatically.

The yield on UK 10-year gilts is up to 2.15%, from 2.1% on Friday.

In broad terms, the yield is the interest rate on a bond – so it indicates that UK borrowing costs are now higher. However, they are still extremely low, in historical terms.

The broader question is whether the loss of the AAA has a longer-term impact. As Paul Griffiths, co-global head of fixed income at Aberdeen Asset Management, put it over the weekend:

It is certainly a different situation to when the US was downgraded and treasury bill yields and the dollar rallied. Investors viewed the decision as a sign of deteriorating global growth and continued to see US treasuries as a safe haven. The UK does not have that same status.

Updated at 9.59am GMT

8.21am GMT

City experts reckon the weekend chatter about a new sterling crisis (see below) was somewhat overblown.

As Michael Hewson of CMC Markets put it on Radio 5 a few minutes ago, this is “a political sideshow rather than an economic sideshow”.

There’s an awful lot of negative news related to the pound, and a lot of it is priced in.

Updated at 9.56am GMT

8.17am GMT

Sterling hits 17-month low

Breaking: The pound has slid to a new 17-month low on the currency markets this morning after the Moody’s downgrade.

The sterling trade-weighted index, which tracks the pound against a basket of currencies, has dropped around 1% this morning.

The slide is partly because of the pound dropping around one euro cent against the euro, to €1.145.

As this graph shows, the slide started once trading began in Asia overnight.

The pound has actually held up quite well against the US dollar. It’s broadly unchanged this morning, at $1.515 (having shed one cent late on Friday night).

Updated at 9.56am GMT

7.48am GMT

Britain faces life after the downgrade

Good morning. Britain is tasting life outside the triple-A club after Moody’s decided on Friday night to cut the national credit rating for the first time in history.

The downgrade prompted fears over the weekend of a run on the pound, and speculation that UK borrowing costs could be driven higher as investors lose faith in Britain.

The decision by Moody’s deals a bruising blow to the embattled chancellor, George Osborne, who has repeatedly nailed his credibility to the AAA rating. Former chancellors have warned that Britain faces a difficult road, with Ken Clarke predicting it will take “several more years” before the AAA can be clawed back.

The pound did wobble in Asian trading overnight, and is down around by one euro cent against the euro this morning. But there’s no sign, yet, of a full-blown sterling crisis.

We’ll be tracking all the reaction to the AAA downgrade, along with other key events in the world economy. Those include the results of the Italian election, as financial markets nervously wait to see whether a clear winner emerges.

Updated at 9.54am GMT © Guardian News & Media Limited 2010

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Mario Draghi expected to announce plan to buy unlimited quantities of government debt from troubled eurozone members. German Chancellor Angela Merkel tells lawmakers she opposes unlimited European Central Bank bond purchases…

Powered by article titled “Euro rises on report of ECB plan to buy unlimited debt” was written by Larry Elliott, economics editor, for on Wednesday 5th September 2012 14.19 UTC

The euro rose on the foreign exchanges on Wednesday after the Bloomberg financial news service reported that the European Central Bank was preparing to announce plans to buy unlimited quantities of government debt from troubled members of the single currency.

Quoting central bank officials, the agency said the ECB was ready to take action to bring down the interest rates on borrowing paid by countries such as Italy and Spain. Full details of the blueprint are likely to be disclosed by Mario Draghi, the ECB president, on Thursday after a meeting of the central bank’s governing council.

According to the Bloomberg, the ECB plans to “sterilise” its bond-buying by removing money from elsewhere in the eurozone economy such as by selling bonds or restricting the money supply. This could ease fears that action to help the weaker members of the 17-nation bloc will lead to an explosion in the money supply.

The ECB is likely to concentrate on buying short-term debt – bonds that mature within three years – in the hope that it will provide breathing space until longer-term measures are in place.

Germany has been critical of Draghi’s plan to “do whatever it takes” to prevent a breakup of the single currency, but Bloomberg said the ECB expected the proposals to be adopted despite the misgivings of Angela Merkel and the president of the Bundesbank, Jens Weidmann.

Some analysts have been expecting Draghi to set a target level for bond yields of eurozone countries, but this is not thought to form part of the proposal.

The euro rose by half a cent after the apparent leak of the Draghi plan, although some analysts remained cautious. “I think the market saw the word ‘unlimited’ and jumped before realising that the ECB would not expand its balance sheet as it would sterilise all its purchases and thus this was not the kind of aggressive monetary expansion that FX traders were looking for,” said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York.

“Net takeaway is that if this is sterilised it will probably not be enough to keep the bond vigilantes at bay. Furthermore, the backing away from any specific yield targets is exactly the lack of clarity that the FX market will not like.” © Guardian News & Media Limited 2010

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Calls for ‘banking union’ to save euro after Paris and Brussels support Spain’s plea for EU rescue of its beleaguered banks

Powered by article titled “Germany weighs up federal Europe plan to end debt crisis” was written by Ian Traynor in Brussels and Giles Tremlett in Madrid, for The Guardian on Monday 4th June 2012 21.09 UTC

Europe’s leaders appear to be edging towards an ambitious and controversial new blueprint for a federalised eurozone after Paris and Brussels threw their weight behind Spain’s pleas for an EU rescue of its beleaguered banks.

At the start of three weeks likely to be crucial to the survival of the euro, the new French government and the European commission voiced strong backing for a new eurozone “banking union” to save the single currency.

The plan could see vast national debt and banking liabilities pooled – and then backed by the financial strength of Germany – in return for eurozone governments surrendering sovereignty over their budgets and fiscal policies to a central eurozone authority.

Spain’s banking crisis, together with extreme volatility in Greece ahead of the rerun general election on 17 June and the French parliamentary poll on the same day, are compounding the febrile atmosphere and worrying the markets.

A “gang of four” – the European council president, the commission chief, the president of the European Central Bank and the head of the eurogroup of 17 finance ministers – has been charged with drafting the proposals for a deeper eurozone fiscal union, to be presented to an EU summit at the end of the month.

“You can’t demand eurobonds but not be prepared for the next step in European integration,” Germany’s chancellor, Angela Merkel, said at the weekend. “We won’t be able to create a successful currency like that and no one outside will lend us money any more.”

Pierre Moscovici, the new French finance minister, said eurozone bailout funds should be used to inject cash into collapsing banks. Such direct payments are impossible under existing rules. Moscovici added that France wants the summit to set up a eurozone banking union, which would take on responsibility for propping up failing banks and guarantee depositors’ savings across the 17 countries.

The commission and France are piling pressure on Germany to line up behind the proposal, which Merkel would need to take to her parliament for agreement. Renewed focus on Merkel came as she endured some of the strongest criticism yet seen during the 30-month crisis for the way she has handled the euro turbulence.

Joschka Fischer, the former German foreign minister, warned that his country was at risk of destroying itself and Europe for the third time in a century, and gave Merkel just a few months to change course and save the currency. In an article published on Monday, he wrote: “Germany destroyed itself – and the European order – twice in the 20th century. It would be both tragic and ironic if a restored Germany, by peaceful means and with the best of intentions, brought about the ruin of the European order a third time.”

At a meeting in Berlin on Monday night, José Manuel Barroso, the European commission president, was expected to press Merkel on the issue of bank rescues, which has turned critical because of Spain’s banking emergency.

Spain’s prime minister, Mariano Rajoy, is reluctant to request a full-scale EU bailout because it would come with draconian and humiliating terms. He has the support of Olli Rehn, the European commissioner for monetary affairs. “It is important to consider this alternative of direct bank recapitalisation,” said Rehn, “to break the link between the sovereigns and the banks.”

Under existing rules for the bailout fund, money may go only to governments that can request a state rescue and then use the cash to shore up their distressed banks. The vast bulk of the Irish bailout has gone directly to the country’s ailing banks.

On his debut visit to Brussels, Moscovici called for a change in those rules: “We are in favour of this banking union,” he said. “It’s a fundamental issue for which proposals are on the table.”

Spain’s most senior banker, Emilio Botin, boss of Santander, called on Europe’s rescue funds to help out. He said four of Spain’s banks needed €40bn (£32bn) of new capital “and that will be enough”. Botin’s figures reportedly include €19bn that the Spanish government has already pledged to pump into stricken lender Bankia – cash that Spain does not have.

Botin’s assessment is at odds with banking analysts, who estimate that Spain’s banks need up to €100bn. Santander, which operates a ringfenced banking business in the UK, is not among those judged to need fresh capital. However, it is likely that if new direct bank support were approved for Spain, Ireland and Portugal might request similar treatment.

In a speech in Italy at the weekend, the financier George Soros warned that Merkel had no more than three months to fix the euro, but outlined the prospect of a grim new eurozone controlled by Berlin.

“The likelihood is that the euro will survive because a breakup would be devastating not only for the periphery but also for Germany,” he said. “Germany is likely to do what is necessary to preserve the euro – but nothing more.

“That would result in a eurozone dominated by Germany in which the divergence between the creditor and debtor countries would continue to widen and the periphery would turn into permanently depressed areas in need of constant transfer of payments … it would be a German empire with the periphery as the hinterland.”

The proposals being drafted for the summit are certain to feature calls for a form of eurobond whereby Germany and other smaller creditor countries guarantee the debts of the struggling member states.

The blueprint, not yet finalised, has been played down by the European commission. “There is no masterplan,” said a spokeswoman, Pia Ahrenkilde-Hansen. The notion was also rubbished in Berlin on Monday – but not ruled out. “We are talking about several years and certainly not a solution that we are thinking about in the current problematic situation,” said Merkel’s spokesman.

In return for yielding to the pressure to pay to save the euro, Berlin will insist on major steps towards a eurozone federation or political union with budgetary, fiscal, and scrutiny powers vested in Brussels and in the European Court of Justice, meaning vast transfers of sovereignty from member states.

The Portuguese government said three of its leading banks would receive capital injections of €5.8bn, using funds provided under the country’s €78bn state bailout.

The banks included Portugal’s largest, Millennium, as well as BPI and state-owned Caixa Geral de Depositos. Only one of the country’s major banks, Banco Espirito Santo, is surviving without state funding. © Guardian News & Media Limited 2010

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As the EU debt crisis rages on, here is a guide to those debt market terms, possible remedies and institutions to steer your way through the eurozone crisis…


Powered by article titled “Eurozone crisis glossary” was written by Josephine Moulds, for on Friday 1st June 2012 06.05 UTC



A debt instrument issued by a government or company. Investors buy bonds (thereby lending the government or company money) in return for an annual interest rate, and receive the full amount they lent at the end of the bond’s term, also known as the maturity. A bond’s maturity can be as short as a year to as long as 100 years. Different countries refer to their government bonds by different names: Gilts (UK), Treasuries (US) and Bunds (Germany).

Bond yield

We often refer to this as the interest rate paid on the bond. In fact, it is a little more complicated. After they are sold, bonds are traded in a secondary market. If you buy a bond at its original price, the yield will be equal to the interest rate (or coupon) the company or government must pay on that bond until maturity. For example, if you buy $1,000 of a bond with a 10% coupon at its original price, your yield will be 10%. If you only pay $800 for that bond, the yield will be higher because you are getting the same guaranteed return on an asset that is worth less.

The bond yield shows how likely a company or government is to default; the higher the yield, the higher the perceived risk of default. That is because when Spain looks more likely to default, demand for Spanish debt falls; the price of Spanish bonds drops and the yield on Spanish debt rises. Yield is also a good proxy for how much interest a company or country would have to pay on their debt if they were selling new bonds.

Bond auction

Government bonds tend to be sold via an auction because the secondary market for government bonds is relatively active, so it is easy to find out the price of a bond equivalent to the new bond being issued.

Investors will put in bids for the new bond with the debt management office (DMO) of the country selling bonds. If an investor wants their full order they will usually put in at least the market price or higher. The DMO will fill up the orders at the highest prices first, gradually working down the list. Sometimes it may choose not to issue the full amount of bonds on offer, if it considers the prices offered too low.

Bid-to-cover ratio

The value of bids divided by the value of bids accepted in a bond auction. This gives a good idea of the demand for a particular bond. The higher the ratio, the higher the demand.

Long tail

In the debt markets, a long tail means a large difference between the average price and the lowest price paid for a bond in the same auction. This is not necessarily a sign of a weak auction, as the vast majority of bonds may have gone for a good price but a few small orders could have been filled at a much lower price.

Bond syndication

Corporate bonds tend to be sold via a syndicate of investment banks who market and place the bonds. They will go to investors and ask them to put in an order at a suggested price. The current trend is for investment banks to start with an extremely cheap price to reel investors in, but ratchet the price up when the bond is issued. The banks will also increase the size of the bond if they possibly can.


The difference between two figures. Often used when comparing bond prices. When considering the differing fortunes of Greece and Spain, traders might look at the spread between German and Italian bond yields. It tends to be measured in basis points, which are fractions of percentage points. 100bp = 1%.

Credit default swap (CDS)

Often referred to as an insurance policy against a company or country defaulting. In fact, CDSs are more frequently used to bet that a company or country will default, rather than to protect against any losses if it does. Investors pay a fee to hold a CDS and will receive a payout if the company or country defaults. Crucially, the investor does not need to hold the debt of the company or country in question.

Credit event

A credit event is the moment the ISDA (International Swaps and Derivatives Association) committee decides there has been a default, triggering the payout due to CDS investors.

Credit rating

A rating based on the likelihood a company or country will default. There are three main credit rating agencies – Standard & Poor’s, Moody’s and Fitch. Ratings go from AAA, which is considered very safe, to D, when a company or country is in default. Anything below BBB is considered junk, or speculative grade debt. The agencies often signal that they are likely to downgrade a particular country by putting its rating on “Outlook Negative” or “Creditwatch Negative”.

The International Swaps and Derivatives Association (ISDA)

A trade association for derivatives that are traded directly between two parties – called over-the-counter trading – rather than via an exchange. It aims to make these opaque markets safe and efficient by helping resolve disputes.


Long-term refinancing operations (LTROs)

These involve the ECB lending money to banks in the eurozone at very low rates. This flood of cheap money is intended so that banks can lend more money to businesses and consumers, which would in turn help boost economic growth. The ECB has carried out two LTROs since December last year, lending a total of more than €1 trillion.

Quantitative easing (QE)

A policy used by the Bank of England in the hope of stimulating the UK economy. The Bank of England, with the permission of the Treasury, creates money by crediting its own account. It uses that money to buy government bonds from banks, pushing the price of the bonds up and the yields down (see bond yield), thus driving down the government’s borrowing costs. The hope is that banks then have more money to lend to businesses and consumers. Theoretically, when the economy has recovered, the Bank of England sells the bonds it has bought and destroys the cash it receives, so there has been no extra cash created. So far, the Bank of England has injected £325bn into the economy in this way.

European Financial Stability Facility (EFSF) and European Stability Mechanism (ESM)

Also known as the firewall. The ESM is a permanent rescue fund to replace the temporary EFSF. When the debt crisis erupted, the 27 member states of the EU agreed to create a fund, financed by the members of the eurozone, to provide financial help to eurozone states in economic difficulty. The EFSF is backed by commitments for a total of €780bn and has a lending capacity of €440bn. As Europe’s largest economy, Germany provides the largest commitment to the fund and therefore wields the most influence in negotiations over bailouts and the size of the fund.

The EFSF is due to expire in 2013 due to the lack of a legal basis for the fund, although the programmes to deliver €300bn in loans to Ireland, Portugal and Greece will run their course until 2015. The ESM will be launched as soon as member states representing 90% of the capital commitments have ratified it, which is expected in July 2012, and it is able to run in tandem with the EFSF. Its lending capacity has been capped at €500bn.

Securities market programme (SMP)

The programme that allows the ECB to buys bonds from troubled eurozone countries, to help keep their borrowing costs down. The central bank has left the programme unused of late but executive board member Benoit Coeure reminded markets it was still an option in April this year. It is a tool favoured by the troubled nations as SMP bond purchases do not come with conditions.


Proposed debt instruments that would be issued by an individual country within the eurozone, but underwritten by all members of the eurozone. This would bring down borrowing costs for the most troubled countries in the eurozone. But critics say they open up a so-called “moral hazard”: if profligate behaviour goes unpunished, what’s to stop any country going on the national equivalent of a bender and expecting Germany to pick up the tab? French president François Hollande, Italy’s prime minister Mario Monti and Spain’s PM Mariano Rajoy all want to bring them in, but the Germans, Finns and Austrians are against them.

Financial transaction tax

Otherwise known as the Tobin tax, or (emotively) the Robin Hood tax. The FTT would apply to all 27 EU countries and the European Commission says it could raise €55bn a year, ensuring the sector made “a fair contribution” in an austere economic climate. But critics say it is distorting and the volume of transactions would fall so it would not raise that level of funds. Support from the tax comes from an unlikely alliance of actor Bill Nighy, the Archbishop of Canterbury, and president of the European Commission José Manuel Barroso, among others; David Cameron is against it.

Fiscal compact

A treaty signed by all members of the European Union, except the UK and the Czech Republic. The fiscal compact will force member states to hit tough budget targets, which would mean more short-term pain for a country that is already deep into its austerity programme. But the fiscal compact will also guarantee access to the European Stability Mechanism. Despite signing the compact in January, Ireland subsequently decided to hold a referendum on it on 30 May 2012.

The Greek memorandum

The treaty that obliges Greece to make swingeing cuts to public spending in return for its second eurozone bailout worth €130bn in addition to a €100bn writedown of debt by the bankrupt country’s private creditors. The mainstream parties in Greece have committed to the memorandum, but Alexis Tsipras, who heads Syriza – a coalition of radical left groups that took 17% of the vote in the May 2012 elections – has called it “a path that will lead to hell”. The second round of elections on June 17 – after the politicians failed to form a government the first time round – has therefore been portrayed as a choice between sticking to the memorandum to stay in the euro, or abandoning austerity and leaving the single currency.


International Monetary Fund (IMF)

The IMF lends to countries in difficulties on condition that they follow its guidelines for fixing their economy. It has 188 member countries who provide $364bn of resources to the fund. In April 2012, member countries announced additional pledges to increase the IMF’s lending resources by over $430bn to go towards bailouts for countries hit by the global financial crisis.

European Central Bank (ECB)

The institution in charge of monetary policy for the 17 eurozone countries, headquartered in Frankfurt, Germany. The current president of the ECB is Mario Draghi, former governor of the Bank of Italy. As Europe’s biggest economy, Germany’s central bank (the Bundesbank) holds the largest portion of the bank’s €10bn capital, almost 19%. The governing council of the ECB comprises an executive board and the governors of the national central banks of the eurozone.


An informal gathering of the finance ministers of the eurozone, currently headed by the prime minister of Luxembourg Jean-Claude Juncker. The Eurogroup usually meets the evening before the full meeting of the ECOFIN Council, which meets once a month. The ECOFIN Council is a group of the economics and finance ministers of the 27 European Union member states, as well as budget ministers when budgetary issues are discussed.


The trio of the IMF, the EU and the ECB managing the bailouts of European countries.

European Union (EU)

The economic and political partnership between 27 European countries that together cover much of the continent.

European Commission (EC)

The European Union’s executive body. The EC proposes legislation to go through the European Parliament and Council. It manages and implements EU policies and the budget, and enforces European law (jointly with the European Court of Justice). The 27 commissioners (one for every member state of the EU) meet once a week in Brussels.

European Parliament

Members of the European Parliament (MEPs) are voted for directly by EU voters every five years. Together with the European Council, the European Parliament debates and passes European laws and the EU budget.

European Council

The heads of state or government of the 27 EU member states, along with the president of the European Commission, José Manuel Barroso, and the president of the European Council, currently Herman Van Rompuy. © Guardian News & Media Limited 2010

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