Cyprus bailout

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

 


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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USA 

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

 


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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The UK Office for National Statistics reports 0.7% sales fall despite a near 1% rise in food sales. Sales volumes declined as department stores and homeware retailers suffered from March snow. The decline was smaller than the -0.8% forecast…

 


Powered by Guardian.co.ukThis article titled “Retail sales hit by March snow” was written by Phillip Inman, economics correspondent, for theguardian.com on Thursday 18th April 2013 10.15 UTC

Retail sales fell by more than expected in March after heavy snowfall deterred shoppers from venturing out to buy clothes and homeware.

According to official figures, sales volumes declined by 0.7% last month despite a near 1% rise in food sales as department stores and homeware retailers suffered from the cold weather.

James Knightley, UK economist at ING bank, said although sales were weaker than expected, they offered "a little more reassurance" that the UK would avoid falling into its third recession since the financial crisis began.

"Nonetheless, yesterday's employment numbers were not great and softer global figures still lead us to believe that the Bank of England will come in with more stimulus, potentially as soon as the May meeting when they produce new economic forecasts," he said.

First-quarter growth figures for the UK are released in a week, and economists remain split on whether they will show an unprecedented triple-dip downturn.

Chris Williamson, chief economist at Markit, the financial data provider, said higher retail sales figures at the end of last year to February showed the economy had regained some of its momentum, but, like Knightley, he warned the bounce could be short-lived.

"The upward trend in sales has followed a steady improvement in consumer confidence since late last year. Surveys of households show confidence had picked up further in March, linked in part to people being busier at work, which both improved job security and raised take-home pay. However, there is a worry that rising unemployment, weak pay growth and high inflation could reverse this trend in coming months," he said.

Woman picking up shopping bags
Retail sales have proved volatile in recent months, with a 0.7% decline in January. Photograph: Winston Davidian/Getty Images

Alan Clarke, UK economist at Scotia Bank, said the retail figures were disappointing and reflected a weakening economy that could still show a triple-dip recession.

"With wage inflation at around 1% and headline inflation at close to 3%, the maths don't add up to much in the way of consumer spending growth – rather the opposite – falling consumer spending by mid-year," he said. "Let's hope the Bank of England's new tactic of targeting business investment works."

Retail sales have proved volatile in recent months, with a 0.7% decline in January, when snow was again a factor, being followed by a 2.1% rise in February.

The Office for National Statistics said the March figures pushed sales over the year into a decline of 0.5%.

Knightley said: "The figure was always going to be weak, with the heavy snowfall in the month, which particularly hurt clothing retailers (with sales down 3.1% month on month), given they had started to stock their spring fashion ranges.

"The ONS reports that it was the coldest March since 1962 with department stores and household goods stores also particularly depressed (down 4% and 6.2% month on month respectively)."

High petrol prices also deterred motorists from filling up their tanks – the ONS figures showed a 1% decline in petrol sales.

The poor figures were rescued only by the consistent rise of food sales, which was repeated in March. Food sales rose 0.9%, the largest gain since July 2011.

Sales of goods over the internet gained momentum, with a 6% rise.

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European Parliament scathing over way Cypriot deal was handled. UK unemployment rate rises to 7.9%. European car sales slump 10%. Rogoff & Reinhart row stirs economics world. Will Chinese bad debts become another crisis?

 


Powered by Guardian.co.ukThis article titled “Markets slide as Bundesbank head warns recovery could take a decade – as it happened” was written by Graeme Wearden, for theguardian.com on Wednesday 17th April 2013 14.40 UTC

6.49pm BST

Closing summary

Time to wrap things up. Here's a brief closing summary

Europe's stock markets have fallen sharply, after another day dominated by concerns over economic growth. The German Dax fell by 2.35% to its lowest level of 2013, while in London the FTSE 100 shed 50 points to a 10-week low (see 6.04pm for closing prices).

Germany's top central banker warned that the task of recovering from Europe's debt crisis could take a decade. Jens Weidmann, head of the Bundesbank, also suggested the ECB could cut interest rates to stimulate demand (see 4.59pm)

European car sales fell by over 10% last month, as the financial crisis hit the auto industry. Germany, France and Spain all saw double-digit falls (see 8.30am).

MEPs were deeply critical of the handling of the Cyprus bailout. A session at the European Parliament saw a series of politicians blast the botched rescue package (see 10.26am for early highlights and 12.47pm for details)

Harvard economists Kenneth Rogoff and Carmen Reinhart defended their research paper into the effects of debt on growth levels. They admitted making a mistake with an excel spreadsheet in which meant they overstated the impact of high debt on GDP. (See 2.16pm for details and 3.40pm for an example of the criticism directed at the pair).

Greek medical workers held a six-hour anti-austerity strike, and held a protest in Athens. (see 4.06pm for photos)

In the UK, the unemployment rate rose to 7.9%. Economists warned that the labour market has now caught up with the weak economy (see 9.59am onwards).

• Slovenia held a debt buyback (see 6.25pm)

• Portugal's opposition leader refused to support its austerity package (see 5.49pm)

I'll be back tomorrow. Until then, thanks for reading and commenting. Apologies that we had some technical issues with the comments system today (and yesterday) – our star tech team have fixed it now.

Goodnight!

6.25pm BST

Slovenia’s debt buyback

Slovenia made progress today in its battle to avoid becoming the next member of the eurozone to seek international assistance.

It held a debt buyback, in an attempt to cut its refinancing costs as its new government constructs a deal to strengthen its banks. The project started well, with Slovenia raising €1.1bn with a bond auction. It then used some of the proceeds to buy back €510m of bonds that would have matured in June.

That means it shouldn't have to worry about rolling them over then – effectively buying some time.

Timothy Ash, a London-based emerging markets economist for Standard Bank, said (via the WSJ):

It has eased a little bit of the pressure, but they will ultimately have to come to the market abroad to raise financing.

6.04pm BST

European markets tumble amid gloomy forecasts

A bad day on Europe's stock markets has seen the German Dax slide to its lowest level since last December.

Bundesbank head Jens Weidmann's warning that the European recovery could last a decade helped to drive shares down across the region. There was also a rumour that Germany's credit rating was at risk — which surfaced this morning without ever being substantiated.

Here's the damage:

FTSE 100: down 60 points at 6244, – 0.96%

German DAX: down 179 points at 7503. -2.34%

French CAC: down 86 points at 3599, -2.35%

Spanish IBEX: down 145 points at 7803, -1.8%

Italian FTSE MIB: down 149 points at 15383, -0.96%

And in the foreign exchange markets, the euro has fallen by 1.5 cents against the US dollar, to .303.

So what caused Europe's stock markets to slide?

Traders are blaming the steady stream of negative economic data in recent days, including this morning's tumble in new car sales. They also pointed to today's warnings from the International Monetary Fund (which cut its growth forecasts again yesterday). That German downgrade rumour was another factor.

Here's some reaction:

Sebastien Galy of Societe Generale

The sensitivity of different markets to negative surprises seems to have risen sharply recently, particularly in Europe and the broad emerging market spectrum. It suggests that the period of consolidation is continuing.

Michael Hewson of CMC Markets

A day after the IMF downgraded its growth forecasts for the Euro area in 2013, markets have come under pressure once again today after European car sales once again slid on a monthly basis, this time down 10.2% to almost a 20 year low, with Germany’s auto market in particular suffering a sharp 17% slide.

Reported comments from Bundesbank chief Jens Weidmann, that Europe's recovery could well take a decade, also hit sentiment in the afternoon session and has seen European markets start to close in on significant support levels, while the DAX has led the declines making new lows for 2013.

Chris Beauchamp of IG

Overall it seems as if the general tone has shifted from ‘buy the dips’ to ‘sell the rallies’, with the sustaining sense of optimism that carried markets forward in the first quarter of 2013 having finally exhausted itself.

5.49pm BST

Portugal’s opposition leader won’t support austerity plans

The head of the Portuguese opposition has refused to back the country's austerity programme tonight, despite efforts from the Troika today to get political backing for the plan:

Reuters has the details:

Portugal's main opposition Socialists reiterated their rejection of the centre-right government's austerity policies on Wednesday despite attempts by Lisbon's EU and IMF lenders to rebuild a political consensus around their bailout.

"Our position is to show to the troika that the policy applied here does not lead to the desired results and also provokes a recessive spiral," Socialist leader Antonio Jose Seguro told reporters.

He was speaking after meeting representatives of Portugal's lenders from the European Union and IMF who are in Lisbon this week to work with the government on new spending cuts needed to meet bailout goals after the constitutional court rejected some austerity measures from this year's budget.

The coalition government has a comfortable majority in parliament to pass bills, but the lenders want a broader political support for austerity to make the reforms sustainable.

Portugal's austerity programme is being rejigged after its constitutional court rejected pay and benefit cuts last month. Pedro Passos Coelho responded by pledging to cut health and education spending.

5.27pm BST

Esther Bintliff of the Financial Times has pulled together a list of the key research papers and articles to explain the row over Carmen Reinhart and Kenneth Rogoff's research into the effects of debt levels on growth (see here for more)

4.59pm BST

Bundesbank chief: recovery could take a decade

Mario Draghi, President of the European Central Bank, ECB (L), and Jens Weidmann, President of the Bundesbank are pictured during the awarding ceremony of the Generation Euro Student's Award in Frankfurt/Main, Germany, on April 17, 2013.
Jens Weidmann, President of the Bundesbank (right) with Mario Draghi today at the awards ceremony of the Generation Euro Student’s Award in Frankfurt. Photograph: DANIEL ROLAND/AFP/Getty Images

Jens Weidmann, head of the Bundesbank, has caused a stir tonight by warning it may take a decade for Europe to recover from the debt crisis.

In an interview with the Wall Street Journal, Weidmann dismissed the suggestion that Europe was through the worst of its problems.

Instead, he indicated that the European Central Bank might have to cut interest rates to stimulate growth — which is interesting given Weidmann is one of the most hawkish members of the ECB's Governing Council.

Weidmann's comments pushed the euro down, and helped to send shares sliding in Europe (with the French and German stock markets posting heavy losses).

Here's a flavour:

"Overcoming the crisis and the crisis effects will remain a challenge over the next decade," he said, contrasting recent comments from European Commission President José Manuel Barroso that the worst of Europe's crisis is over.

"The calm that we are currently seeing might be treacherous" if it delays reforms at the national and European level, Mr. Weidmann said. There can be no quick fixes from the ECB either, he said.

Full interview here.

4.18pm BST

Also in Athens, Greek finance minister Yannis Stournaras told MPs this afternoon that "the Greek banking system was endangered by the the Cyprus crisis."

From Greece, Helena Smith reports:

"It's not an exaggeration to say that the Greek banking system was in danger because if the deposits of Greeks at Cypriot branches [in Greece] had also suffered a haircut, no one knows what would have happened afterwards," Stournaras told parliament as it debated the decision to ring fence the banks.

The decision to place the Greek network of Bank of Cyprus and Laiki banks in the hands of Pireaus Bank was "evidence of the helpful stance and support of Greece towards Cyprus," he said.

Many Cypriots would disagree. Greece is widely blamed by the islanders for their country's spectacular economic collapse. Had it not been for Nicosia standing in solidarity next to Athens when its own debt load was restructured last year, the Cypriot banking system would not have suffered €4.5bn of losses (tountamount to 25% of GDP) overnight, officials say.

One of the best kept secrets, rarely if ever acknowledged by the leaderships of both countries, is the little love lost between them. In truth the Cypriots and Greeks have little time for each other.

Updated at 4.18pm BST

4.06pm BST

Photos: medical staff protest in Greece

Here are a few photos from Athens today, where employees of the Greek health service held a six-hour strike in protest at the government's austerity package.


Hospital workers carry a banner reading “government, IMF, EU-troika are harmful for the public health” outside the ministry of health in Athens.
Employees in the Greek NHS (ESY) demonstrate in the center of Athens against government announced plans to lay off 1500 public sector employees as part of the continuous austerity measures.
Photograph: Giorgos Panagakis/Demotix/Corbis
A demonstrator is seen making noise with a whistle.
Photograph: Giorgos Panagakis/Demotix/Corbis

The protest followed the Greek government's decision to agree to cut 15,000 civil servant jobs by 2015 (see our story from Monday night).

3.55pm BST

Key event

Global slowdown watch: The Bank of Canada has cut its forecasts for GDP growth this year, from 2% to 1.5%.

BoC, whose governor Mark Carney will take over at the Bank of England this summer, effectively conceded it had been too optimistic about the Canadian recovery. It now reckons it will not return to full capacity until mid-2015, some six months later than predicted in January.

The move came as it left interest rates at 1%.

3.40pm BST

The jesting over Kenneth Rogoff and Carmen Reinhart's Excel problems which led them to overstate the impact of debt levels on growth (see 2.16pm) continues…

Updated at 3.51pm BST

3.21pm BST

IMF’s Viñals warns of old risks and new ones

José Viñals, the head of the IMF's monetary and capital markets department, was in cheerful mood at the press conference to mark the launch of the IMF's Global Financial Stability Report, reports Larry Elliott.

From the press conference, Larry writes:

Spring had arrived not just in Washington, he said, but "also it seems in global financial markets, where after repeated storms and threatening clouds, some blue sky and more sunny days are emerging."

It's not all good news, though. Vinals says there are two groups of risks facing financial markets – old risks and new risks.

The old risks are the continuing problems in the euro are and the weak state of banks.

The new risks are the US, where debt underwriting standards are "weakening rapidly and low interest rates are leading some pension funds and insurance companies to take further risks to close funding gaps; the spill over effect into emerging markets from cheap money in advanced countries; and the possibility that the unwinding of prolonged monetary easing in the US could de-stabilise credit markets.

"Put simply", says Vinals, "we are in uncharted territory".

3.00pm BST

IMF’s eurozone recommendations

The IMF's message to Europe today is: clean up your banks, and make progress on banking union.

Here's the key recommendations for the euro area:

• Bank balance sheets and business models need to be strengthened to improve investor confidence, reduce fragmentation, and improve the supply of credit for solvent small and medium-sized enterprises. Enhanced disclosure for banks and conducting selective asset quality reviews will help restore confidence in bank balance sheets and improve market discipline

• To anchor financial stability in the euro area and for ongoing crisis management, fast and sustained progress toward an effective Single
Supervisory Mechanism (SSM) and the completion of the banking union are essential.

A Single Resolution Mechanism should become operational at around the same time as the SSM becomes effective. This should be accompanied by agreement on a time-bound roadmap to set up a single resolution authority and deposit guarantee scheme, with common backstops. Proposals to harmonize capital requirements, resolution, common deposit
guarantee schemes, and insurance supervision frameworks at the EU level should be implemented promptly. Modalities and governance arrangements for direct recapitalization of banks by the European Stability Mechanism should also be established.

• The developments in Cyprus underscore the urgency for completing reforms across the euro area in order to reverse financial fragmentation
and further strengthen market resilience.

2.52pm BST

IMF: Financial crisis could flare up again

Over to Washington, where the International Monetary Fund has released its half-yearly Global Financial Stability Review (downloadable here)

Catchily titled "Old Risks, New Challenges", the report calls on world leaders and officials to take new steps to secure the recovery, or risk the crisis flaring up again. That means cleaning up the banking sector (particularly in Europe), and also being vigilant to avoid the current accomodative monetary policy causing a new credit boom.

Our economics editor Larry Elliott reports from Washington:

The International Monetary Fund has warned that the repair job on the world's battered financial system is only partly completed and said failure to finish the job risks propelling the crisis into a chronic new phase.

While being encouraged by the marked improvement in financial market conditions over the past six months, the IMF said further action was needed to tackle underlying threats to stability.

In its half-yearly Global Financial Stability Review, the fund said that the recent problems in Cyprus were a reminder of the continued fragility of market confidence.

"Global market conditions have improved appreciably in the past six months, providing additional support to the economy, and prompting a sharp rally in risk assets", the report said.

More from Larry here.

2.16pm BST

Rogoff/Reinhart row throws austerity debate open

The world of economics is in an almighty flap today after a famous (or perhaps notorious) academic paper into the impact of debt levels on growth was found to contain coding errors, and selective use of data.

The two top economists, Kenneth Rogoff and Carmen Reinhart of Harvard, have defended their study this morning – but critics of austerity programmes believe that the case for urgent fiscal consolidation has been damaged.

Some background. Rogoff and Reingart's paper was called Growth in a Time of Debt. The key finding was that countries with 90% or higher debt/GDP ratios suffer growth rates "several percent" below the average — and has been used to justify many of the fiscal consolidation programmes launched since the financial crisis began.

Anyway, last night researchers at the University of Massachusetts appeared to blow the study apart. After getting hold of the original data set, they made the startling claim that Rogoff and Reinhart had

a) excluded several years after the second world war, where there was high debt and average growth,

b) weighed the data in a "debatable" way

c) committed an Excel coding mistake that meant certain countries with high debt and average growth simply weren't counted

(full details here)

According to the Massachusetts maths… if you use all the data, and don't mess up your Excel cells, the (mean) average real GDP growth rate for countries carrying a public debt-to-GDP ratio of over 90% is actually 2.2%, not -0.1% as Growth in a Time of Debt.

This caused a storm overnight. As US economist Dean Baker explained:

In the United States, many politicians have pointed to R&R's work as justification for deficit reduction even though the economy is far below full employment by any reasonable measure.

In Europe, R&R's work and its derivatives have been used to justify austerity policies that have pushed the unemployment rate over 10% for the eurozone as a whole and above 20% in Greece and Spain. In other words, this is a mistake that has had enormous consequences.

(more from Dean Baker here)

Other critics of austerity were equally scathing (Paul Krugman posted once, then twice) . And there was a certain amount of twitter tittering about two of the world's most eminent economists getting their sums wrong.

Anyway, Rogoff and Reingart have now issued a full response, in which they defend their work while conceding some ground (see here).

After labouring over their data again, the pair have owned up to the Excel coding error. They denied deliberately excluding certain countries ("there were still gaps in our public data debt set at the time of this paper.") and weighing the models to give less importance to certain "a small number of countries that may have their own peculiarities").

But Rogoff and Reingart are adamant that the broad point remains valid. "Put differently, growth at high debt levels is a little more than half of the growth rate at the lowest levels of debt," they said.

As the FT puts it:

The economic historians admitted that there was an Excel blunder. “Herndon, Ash and Pollin accurately point out the coding error that omits several countries from the averages in figure 2. Full stop. HAP are on point,” they said.

However, they “objected in the strongest terms” to the second criticism that they missed several years of data, and stood firm on the issue of unconventional weighting.

More here: Harvard duo defend case for austerity

But does it matter?

There's a persuasive argument that politicians used R&R to justify policies they wanted to impose anyway. And rival economists had already questioned the conclusions of the report (what comes first, the high debt or the slow growth?).

But the timing is fascinating — the Massachusetts work hit the newswires as we were still digesting the IMF's warning to George Osborne to relax the pace of his austerity programme.

Growth in a Time of Debt used to be a weapon in the armory of the deficit-cutters. Their opponents won't fear it any more….

Anyway…. a trader who blogs and tweets as Barnejek provided our favourite response:

And here's another good take on Quartz.

2.08pm BST

Here's the key section from Olli Rehn's speech to the European Parliament, defending the Cyprus bailout (before he was roasted by MEPs)

The support programme will enable Cyprus to restore the health of the economy and to create a more sustainable economic model. The loans of up to 10 billion euros equal to more than half of Cypriot GDP.

I agree with the Minister of Finance of Cyprus, Haris Georgiades, who said yesterday that he wants to shun the blame game and focus on the future. He said as follows: "We are determined to adopt and implement all those reform measures, which we should have adopted a long time ago, but we failed to do so".

Indeed, we now have to concentrate all our efforts to facilitate the emergence of new sources of economic activity and to alleviate the social consequences of the economic shock.

The Commission decided on the 27 of March to set up a Support Group for Cyprus with the implementation of the adjustment programme. The Commission is now mobilising its resources to provide technical assistance. The Support Group will rely on expertise from across the Commission services. An immediate priority is to identify the relevant resources available from the current structural funds.

The Commission stands by the Cypriot people in this time of deep trouble. We are committed to help Cyprus to get through the tough times and overcome the current difficulties. I trust that we can count on the support of the European Parliament in together mobilising the available resources for Cyprus, as quickly and as effectively as possible.

The full speech is online here

12.47pm BST

MEPs criticise Cyprus bailout – more details

European Union Commissioner for Economic and Monetary Affairs Olli Rehn adresses the assembly during a debate on the situation in Cyprus, on April 17, 2013, at the European Parliament in Strasbourg, eastern France.
European Union Commissioner for Economic and Monetary Affairs Olli Rehn at the European Parliament in Strasbourg this morning. Photograph: FREDERICK FLORIN/AFP/Getty Images

The European Parliament has released details of its concerns over the Cyprus bailout, following this morning's grilling of commissioner Olli Rehn (see 10.26am).

It confirms that MEPs were scathing about the Eurogroup's handing of the issue, and also condemned the decision (later reversed) to impose losses on smaller savers.

Criticism rained down on Rehn from all sides of the spectrum, with accusations of double standards and claims that Germany displayed 'near colonial' behaviour:

Here's the details: Cyprus: MEPs criticise handling of bailout programme

The key quotes from the EP statement:

Jean-Paul Gauzes, a French member of the EPP group, said that the Eurogroup's appalling communication was central to the fiasco. He also blamed the EU institutions for not being vigilant enough and Cypriot banks for having built up too much risk.

Hannes Swoboda, the Austrian leader of the S&D group, criticised the Council and more particularly Germany for behaving in a "near colonial way". He also called on the Commission to disband the troika, a partnership between the Commission, the European Central Bank and the International Monetary Fund, which oversees the implementation of bailout packages.

Jan Zahradil, a Czech member of the ECR group, said that the real problem was much wider than what was happening in Cyprus. Cyprus was being used as an excuse to attack national fiscal sovereignty, he said.

Nigel Farage, the British co-chair of the EFD group, accused the Commission of criminal behaviour, robbing people to prop up the euro project. He concluded that no-one has confidence in the euro.

Takis Hadjigeorgiou, a Cypriot member of the GUE/NGL group, accused the EPP political family of having double standards, by supporting the Cypriot cause within the EP, but not within the Eurogroup. He also criticised the Council for imposing measures on Cyprus which it would never apply to larger countries.

….

Olli Rehn, though, argued that it was time to stop assigning blame for the Cyprus deal.

During the session, members of the European United Left of the European Parliament group held up posters with the slogan "Hands off Cyprus, Portugal, Greece, Spain, Ireland"


Photograph: VINCENT KESSLER/REUTERS

Updated at 12.50pm BST

12.14pm BST

Greek doctors hold six-hour strike

In Greece, medical staff are holding a six-hour walkout in protest at the government's cuts to health care budgets.

From Athens, my colleague Helena Smith reports that a "well-humoured" demonstration is taking place:

Demonstrators are walking up to parliament as I write to deliver a petition denouncing "murderous cuts" in health care.

Many chanting "Hands off State hospitals. Enough with the Troika's barbaric policies."

Protestors are expressing outrage at the Greek government's decision to slash 15,000 public sector jobs by 2015.

"All these cuts are totally counter-productive. It reminds me of what you went through in Britain when Thatcher imposed her sinful policies on the NHS," said Michalis Papastakos, a doctor who trained in London at the time.

The strike is taking place between 9am and 3pm local time, or 7am to 1pm BST.

Updated at 12.24pm BST

11.44am BST

Trouble in China?

Looking at the wider financial economy, there's a lot of interest in China this week following its weaker-than-expected economic growth in the first quarter of 2013.

That has refocused attention on the bad debts lurking in the Chinese local government sector. One senior auditor even warned yesterday that the local authority bond market was "out of control"

Zhang Ke warned (via the FT):

We audited some local government bond issues and found them very dangerous, so we pulled out…

Most don’t have strong debt servicing abilities. Things could become very serious.

Those debts were built up since the financial crisis began, with Beijing encouraging local governments to increase their borrowings to sustain growth.

So is China heading for a major crash? Paul McNamara, investment Director at GAM, reckons not. He told CNBC this morning that the Chinese government should be able to contain the problem:

Here's a video of the interview:

McNamara explained:

I think [calling China] the next crash is probably a stretch – there's nothing really wrong with China that the government can't rescue.

They are going to have to step in. It's been very clear for some time that the local governments have been the vehicle by which they got growth going again.

A lot of those loans will probably have to be written off or moved onto the central government balance sheet, McNamara says, but that's not enough to cause a panic.

It's very hard to get a full scale crisis in China, just because they've got capital controls.

And this gallery, from last month, shows the 'ghost cities' that have proliferated in China in recent years.

Updated at 11.55am BST

11.05am BST

Germany's borrowing costs have fallen to a record low this morning, at a sale of €4bn of 10-year bunds.

Strong demand for German debt usually indicates traders are pushing their money into "safe havens".

10.26am BST

MEPs criticise Commission over botched Cyprus bailout.

The European Parliament is holding a session on the Cyprus bailout this morning – it's being streamed here (although the link is a little flaky).

The MEPs want to find out how the Cypriot rescue plan was so badly handled.

The session began with UKIP's Nigel Farage savaging the decision to force losses on depositors in Cyprus, before Sharon Bowles (who chairs the Economic and Monetary Affairs Committee), also laid into commissioner Olli Rehn.

Bruno Waterfield of the Daily Telegraph and Irish journalist Karen Coleman have been watching, and report:

10.20am BST

UK unemployment: early reaction

Economists and City investors are disappointed by today's weak UK unemployment data, with some warning that the labour market has caught up with the lack of growth in the economy. 

Here's some early reaction:

Alan Clarke of Scotia Bank:

It's very disappointing that employment was down in the last three months….

The ILO (jobless) rate rose from 7.8 to 7.9 percent, I think that’s the focus. A 5,000 to 10,000 drop in unemployment in the payment count measure – that measure does tend to get distorted by various government policy changes, which is why I look at the ILO.
It's not a disaster, but a lot of the froth and really good news we had over the last year on jobs is becoming exhausted, which shouldn’t be a surprise when there is not much growth around.

Brian Hilliard of Societe Generale

The jobs figures were disappointing. Even though the clamaint count has continued to fall, the 3-month on 3-month rate of employment growth has fallen to zero.

Ian Brinkley, director of The Work Foundation

As we predicted, economic reality has caught up with the labour market. The jobs recovery of 2012 appears to have stalled.

Comparing the three months to February with the previous three months shows that our economy has stopped creating new jobs, unemployment is increasing and wage growth has stalled. The increase in youth unemployment is of particular concern and disappointing given the Coalition has made tackling youth unemployment such a high priority. 

These numbers should be a spur for the government to focus the upcoming Spending Review on supporting activities with the potential to create jobs and drive growth.

10.07am BST

Key event

Pay in the UK has failed to keep pace with inflation since the early days of the financial crisis, as this chart from this morning's unemployment data shows:

Average earnings vs inflation in the UK
Photograph: Office for National Statistics

9.59am BST

UK unemployment rate rises to 7.9%

Unemployment in the UK has jumped, in a sign that Britain's economy remains worryingly weak .

The number of people out of work in Britain rose by 70,000 in the three months to February, compared to the previous quarter. That pushed the jobless rate up to 7.9%, from 7.8% last month, to its highest level since last summer.

Youth unemployment rose by 20,000 to 979,000, as young people continues to face the brunt of the troubles in the economy.

There was also a nasty slump in wages. Total pay rose by just 0.8%, year-on-year, in the three months to February. With inflation at 2.8%, that means real wages kept shrinking.

The only good news was a 7,000 drop in the claimant count, in March.

UK Labour Market, April 2013
Photograph: Office for National Statistics

More details here. Reaction to follow…

Updated at 10.00am BST

9.35am BST

Bank of England minutes

The Bank of England remains split over monetary policy — with its committee split 6-3 again over whether to create another £25bn to spend buying government debt.

Outgoing governor, Sir Mervyn King, was again outvoted, with a majority of policymakers leaving the QE programme at £375bn. All nine members voted to leave interest rates at their record low of 0.5%.

You can download the minutes here (pdf).

9.21am BST

Cyprus to decide on gold sale soon

Cyprus's finance minister has declared that the country will probably decide to start selling some of its gold reserves to help fund its bailout programme "in the coming months".

Haris Georgiades also told Bloomberg that the country's central bank will have to make the decision. This adds another potential complication to the sale, as governor Panicos Demetriades (under fire for his own handling of the crisis) has said he hasn't even been consulted about the plan.

Georgiades told Bloomberg:

The exact details of it will be formulated in due course primarily by the board of the central bank…Obviously it’s a big decision.

News that Cyprus would sell €400m of gold broke last week, when the details of the European Commission's debt sustainability report on the country leaked.

Cyprus holds around 13.9 metric tonnes of gold, which was worth around 0m (€580m) last week. Its value has now dropped to 0m (€508m) following the plunge in the gold price.

Some analysts have suggested that Cyprus's planned gold sale helped to puncture the gold price. Georgiades commented:

I’m not really sure if the series of events is exactly matching with the recent movements in the price of gold, but I suspect maybe it was a contributing factor.

9.00am BST

Australia: Europe must slow its austerity drive

Australia's top finance minister has blasted European leaders for damaging the global economy through their 'mindless' focus on austerity.

Wayne Swan, Treasurer of Australia, told the Wall Street Journal that Europe needed to take a slower approach to fiscal consolidation:

We need developed economies to take the hand brake off growth that is coming from mindless austerity…

We need new sources of growth to come from developed economies, particularly Europe, but at the moment fiscal austerity there is a huge brake on growth.

The full piece is here.

UPDATE: Regular reader AussieAnalyst reckons we shouldn't take much notice of Mr Swan….

Updated at 10.01am BST

8.48am BST

The agenda

Here's what's coming up today (via RANSquawk):

UK unemployment data: 9.30am BST

Bank of England minutes: 9.30am BST

Bank of Italy's quarterly economic bulletin: 10am BST

Angela Merkel meets Estonia's prime minister Ansip: from 11.30am BST

IMF's Financial Stability Review released: 2pm BST

Updated at 8.57am BST

8.30am BST

European car sales tumble again

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

It's another bleak morning for Europe's carmakers. New figures show that sales across the region tumbled by 10.2% in March, led by a slump in sales in Germany.

This proved seriously bad news for the region's carmakers, who saw their own sales slump again.

The Association of European Carmakers reported that last month:

Italy: -4.9% year-on-year

Spain: -13.9% year-on-year

France: -16.2% year-on-year

Germany: -17.1% year-on-year

The UK, though, continues to defy the downturn, with sales rising 5.9% last month.

Denand for new passenger cars across the EU has now fallen for the last 18 months. These graphs suggest that the downturn is actually picking up pace.

European car sales to March 2013
Photograph: Association of European Carmakers

Today's data underlines the link between consumer spending and manufacturing. With austerity-hit European customers spending, many of the region's carmakers suffered deep sales falls last month.

VW Group: -9%

Peugeot/Citreon: -16%

Renault: -9.6%

GM Group: -12.6%

Ford: -15.8%

Fiat Group: -0.8%

Toyota: -16.3%

Many of these companies are already making cutbacks and strategic changes — Peugeot, for example, angered the French government with its plan to cut 8,000 jobs.

The decline in sales makes those recovery plans even tougher — Reuters reckons we could see profits warnings from some of the major players in the months ahead.

With the International Monetary Fund warning yesterday that the eurozone will shrink by 0.3% this year, Europe's economic woes remain very worrying.

We'll be hearing more from the IMF today, as its Spring Conference continues in Washington. There's also the latest Bank of England minutes, UK unemployment data, and a debate in the European Parliament on Cyprus coming up.

Updated at 8.31am BST

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April 16, 2013 (Allthingsforex.com) – Finance ministers and central bankers from the 20 most-developed industrialized nations in the world will gather in Washington, DC on April 18 and 19.

Currency traders should pay close attention to any statements or agreements that could be made during the G20 meeting on the issues of “currency wars” and competitive currency devaluation.

The G20 did not directly criticize Japan at the last meeting. However, with the yen depreciating rapidly due to the unprecedented measures taken by the Bank of Japan, it would be interesting to see if the efforts of Japanese officials to weaken their currency will be criticized by their G20 colleagues this time around.

The JPY negative trend is still intact, but we could see some unwinding of short yen positions ahead of the meeting.

Included below is a G20 infographic by our friends at FXstreet.com:

g20: finance ministers and central bank governors' meeting

 

Michael Sarris quits after concluding Cyprus bailout talks. First installment of aid scheduled for May. Euro-zone manufacturing slump worsens with 20 months of contraction. Unemployment in euro area hits new high at 12%. UK factory output declines…

 


Powered by Guardian.co.ukThis article titled “Eurozone crisis: Cypriot finance minister resigns as blame game begins” was written by Josephine Moulds and Nick Fletcher, for theguardian.com on Wednesday 3rd April 2013 08.20 UTC

6.04pm BST

European markets close on a high note

Stock markets have begun the week, and indeed the quarter, by recording reasonable gains, lifted by hopes of further central bank action after disappointing manufacturing figures from across the globe, flavoured with a touch of takeover speculation.

• The FTSE 100 finished 78.92 points higher at 6490.66, a 1.23% rise

• Germany's Dax added 1.91%

• France's Cac closed 1.98% higher

• Italy's FTSE MIB ended up 1.4%

• Spain's Ibex added 1.65%

• But Athens was down 1.48% and Cyprus closed 2.48% lower

In the US, the Dow Jones Industrial Average is currently 94 points or 0.64% higher while the S&P 500 came to within just three points of its all time intra-day high of 1576.

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

Updated at 6.09pm BST

6.03pm BST

Osborne confirms Laika UK account transfers

Laiki bank's 15,000 UK accounts with total balances of £270m have been transferred to the Bank of Cyprus's UK subsidiary, chancellor George Osborne has confirmed.

In a letter to Andrew Tyrie, the chairman of the Treasury select commitee, Osborne said that without a deal Laiki depositors would have been sucked into the restructuring "and all the uncertainty that would have brought with it". In his letter, published on the Treasury web site, he wrote:

There has been no material recourse to public funds. We have not made a bilateral loan to Cyprus and the UK is not contributing to the financial assistance programme announced by the eurogroup.

We support Cypriot efforts to restructure their banking system, as it is in everyone's interests that their financial sector is safe and secure. But I promised a solution that would stop depositors here from being sucked into that restructuring process. We have delivered on that.

Updated at 6.08pm BST

5.46pm BST

Samaras hopeful ahead of troika visit to Greece

Over in Greece, our correspondent Helena Smith says prime minister Antonis Samaras’ coalition government is hopeful it will finalise negotiations when visiting troika officials descend on Athens tomorrow. She writes:

Much hangs on the troika’s visit to Greece starting with the debt-stricken country’s next €2.8bn installment of aid. The tranche has been held up since mission chiefs representing the EU, ECB and IMF cut short their last inspection tour of Greece in March.

But emerging from talks with the prime minster, Antonis Samaras, the finance minister Yannis Stournaras said he was confident differences with troika officials would soon be settled. Greek media reports said the governing coalition expected all outstanding differences with foreign lenders to be resolved by the end of the month when Greece hopes to take receipt of a total €8.8bn (including €6bn due this month) from creditors.

The troika is expected to begin reviewing progress made on budget targets when representatives meet Stournaras on Thursday morning.

Greece’s leading daily, Ta Nea, said mission chiefs, including the IMF official Poul Thomsen, expected to be in the country for at least ten days although experience has shown that this could change. 

Among the thorny issues likely to delay progress are demands that Athens immediately sacks up to 35,000 civil servants from the bloated public sector and continues to apply a highly controversial property tax through electricity bills.

Updated at 9.20am BST

5.26pm BST

ECB’s Coeure warns on currency wars

ECB board member Benoît Coeuré has warned of the dangers of currency wars, saying foreign exchange swings caused by misguided policies could become disruptive.

This was especially true, he said in a speech for a conference on the subject, since central banks in advanced economies had reached the limits of their ability to manoeuvre. He said:

It would be a matter of concern if countries were to directly pursue overt competitive devaluations.

The Bank of Japan wants to take aggressive monetary policy measures to hit its inflation target, in terms of the volume and types of assets it purchases.

Updated at 5.47pm BST

5.10pm BST

Bank of Cyprus has suspended its operations in Romania for a week, so they can be restructured and sold.

Updated at 5.44pm BST

4.23pm BST

Former French minister reportedly admits to foreign bank account

Former French budget minister Jerome Cahuzac has admitted he has had a foreign bank account for the last 20 years, containing a reported €600,000.

Cahuzac, in charge of clamping down on tax evasion, resigned last month after allegations that he evaded taxes with a secret Swiss bank account.

He had repeatedly denied the accusations, and a legal investigation was opened.

Updated at 4.34pm BST

3.30pm BST

Bersani says Italy’s problems cannot be solved by new elections

Back in Italy, and centre-left leader Pier Luigi Bersani has said the country's problems cannot be solved by new elections, despite its inability to form a government after an inconclusive poll.

Bersani repeated he was not willing to form a grand coalition with Silvio Berlusconi's centre-right party. He said a centre-right demand to pick the president of the republic was unacceptable.

His task of trying to form a government was over, Bersani said, and a new phase had opened.

The president has already appointed 10 wise men to try to find a way out of the deadlock.

Democratic Party leader Pier Luigi Bersani at the Quirinale Presidential palace in Rome at the end of March. Photograph: Reuters/Tony Gentile
Democratic Party leader Pier Luigi Bersani at the Quirinale Presidential palace in Rome at the end of March. Photograph: Reuters/Tony Gentile

Updated at 3.42pm BST

3.02pm BST

IMF to close Latvian office

The International Monetary Fund will close its office in Latvia this summer, after the Baltic state repaid all its outstanding obligations last year following its 2008 bailout. The IMF said:

Latvia has regained macroeconomic stability and its economic recovery is now well established, though significant remaining challenges include the ongoing need to address still-high unemployment and to continue microeconomic reforms.

The IMF looks forward to continued close cooperation with Latvia, primarily in the context of regular bilateral policy consultations as with other IMF member countries.

The country has formally applied to join the euro in 2014.

2.32pm BST

More from Cyprus, with a reported comment from the now ex-finance minister Michael Sarris:

And on the reshuffle:

Updated at 2.33pm BST

2.26pm BST

And with that I'll hand you over to my colleague Nick Fletcher.

2.25pm BST

Markets buoyant across Europe

A quick look at the markets. In the UK, shares have powered ahead after poor manufacturing data raised hopes the Bank of England may boost its quantitative easing programme earlier than expected.

UK FTSE 100: up 1.1%, or 72 points, at 6484

France CAC 40: up 1%

Germany DAX: up 1.1%

Spain IBEX: up 0.8%

Italy FTSE MIB: up 0.7%

Updated at 2.28pm BST

1.58pm BST

Georgiades takes over as Cypriot finance minister

The Cypriot government has now confirmed that the labour minister, Harris Gerogiades, has been appointed as the new finance minister.

Cyprus' new finance minister Harris Georgiades, second from left, in a meeting ahead of the country's bailout.
Cyprus’ new finance minister Harris Georgiades, second from left, in a meeting ahead of the country’s bailout. Photograph: Petros Giannakouris/AP

Updated at 2.23pm BST

1.50pm BST

Cypriot cabinet reshuffle expected today – ekathimerini

A full shakeup of the Cypriot cabinet is expected in the next few hours, ekathimerini reports.

It blames the resignation of the Cypriot finance minister on his handling of the crisis since 1 March. From the website

Cypriot finance minister Michalis Sarris tendered his resignation on Tuesday afternoon, Skai radio reported, following the president's disappointment with his handling of the island's crisis since 1 March.

His successor is about to be named, with labour minister Haris Georgiadis being among the favorites.

A full shakeup of the Cypriot cabinet is expected in the next few hours, too.

Updated at 2.22pm BST

1.29pm BST

Reuters concurs. The Cypriot finance minister, Michael Sarris, has resigned after concluding talks with the island state's international lenders. President Nicos Anastasiades has accepted his resignation.

Another headline suggests he has quit because of 'ongoing investigations'.

State broadcaster RIK TV says the labour minister, Harris Georgiades, is likely to take his place.

Updated at 1.59pm BST

1.20pm BST

Cypriot finance minister resigns

Oops. It seems the Cypriot government was premature in its denials over the future of the finance minister, Michael Sarris (see 1.17pm). Bloomberg, for one, is running the headline that Sarris has just resigned. 

More on that as it comes in …

Updated at 1.34pm BST

1.17pm BST

Cyprus concludes talks with lenders

Further developments in Cyprus, which has concluded talks with its lenders and agreed the final terms of its €10bn bailout.

The government said the island state will get its first slice of aid in May. Here's government spokesman Christos Sylianides:

We have concluded on a memorandum. This is a significant development.

Under the terms of the deal …

  • Cyprus has until 2018 to shore up its finances
  • It will pay 2.5% interest on the bailout loans and will start repayment in 10 years' time

The finance minister, Michael Sarris, said he hoped to ease capital controls as soon as possible but was unable to say when that might happen.

The government earlier had to deny reports that Sarris was going to be replaced.

Cypriot finance minister Michael Sarris could not say when capital controls will be eased.
The Cypriot finance minister, Michael Sarris, was unable to say when capital controls would be eased. Photograph: Yannis Behrakis/Reuters

Updated at 1.34pm BST

12.00pm BST

Italian wise men meet to try to break deadlock

In Italy, 10 wise men appointed by the president are meeting to try to find a way out of the country's political deadlock, following inconclusive elections last month.

The ANSA news wire quotes a presidential spokesman saying the meetings are "absolutely informal, purely reconnaissance, and have obvious time limits".

At 11am local time, a meeting began with the six figures responsible for economic and European issues. At 12, it's the turn of the institutional figures, including the president of the constitutional court and various politicians.

The president's office said the meetings are aimed at …

formulating precise policy proposals that can become a target shared by political forces.

The meetings have come in for strong criticism from Silvio Berlusconi's party, which described them as a useless waste of time.

Berlusconi, leader of centre-right PDL party gave a press conference after a meeting with Italy's president last week.
Silvio Berlusconi gives a press conference after a meeting with Italy’s president last week. Photograph: Tiziana Fabi/AFP/Getty Images

Updated at 1.05pm BST

11.47am BST

No significant outflow of funds from Slovenia, says central banker

Over to Slovenia, which many see as the most likely contender for the next international bailout.

The head of the central bank, Marko Kranjec, said today he was worried about 2014. He is not the only one.

The Slovenian central bank sees GDP contracting by 1.9% this year, but says it will grow by 0.5% in 2014.

Kranjec said investors have not been pulling out large amounts of money from Slovenia in the wake of the Cyprus crisis, which saw strict capital controls imposed when the bailout was announced.

We are monitoring the [deposit] flows on a daily basis but have not registered significant moves. The way the situation in Cyprus was being solved did not influence the confidence of our depositors.

Ljubljana at sunset from Castle Hill, Slovenia.
Ljubljana at sunset from Castle Hill, Slovenia. Photograph: Guy Edwardes/Getty Images

Updated at 1.06pm BST

11.27am BST

Eurozone unemployment up 2.1% since crisis began

Another gloomy fact of the day.

Channel 4's economics editor notes that the rise in eurozone unemployment as a result of the debt crisis will soon beat the rise immediately following the Lehman crash.

10.56am BST

Spain seeks more time to cut deficit

There's more bad news from Spain, which is set to cut its growth forecasts this week and ask for more time to reduce its budget deficit as the recession cuts deeper than expected, a government source told Reuters.

Julien Toyer reports:

Spain's gross domestic product (GDP) will be forecast to shrink by 1%, rather than 0.5%, the source said, adding that the government intended to shift emphasis to growth rather than deficit reduction.

Spain is negotiating with the European commission for more time to bring its deficit within 3% of GDP, something it is currently expected to do by 2014, the source said.

Spain will increase its 2013 deficit target to 6% of GDP, from an existing forecast of 4.5%. The figures on growth and the deficit could still vary by one or two decimal points, depending on the outcome of talks with the commission, the source said.

If the country is given one extra year, the deficit-cutting path will be 6% of GDP in 2013, 4.5% in 2014 and 3% in 2015, the source said, adding this was the most likely outcome of the negotiations.

Spain's economy will sink deeper into recession this year.
Spain’s economy will sink deeper into recession this year. Photograph: Susana Vera/Reuters

Updated at 1.12pm BST

10.43am BST

Eurozone youth unemployment continues to rise

Back to the eurozone jobless data, where statistics for youth unemployment make particularly grim reading.

In Greece, almost 60% of the under 25s are out of work, and in Spain the number continues to rise, hitting 55.7% in February.

Only Austria and Germany (not included in the Bloomberg chart below) have rates of under 10%.

10.32am BST

Here's the EEF, the UK manufacturers' association, on the factory data. Lee Hopley, chief economist at the EEF, said:

There’s been very little in any of the survey data over the past couple of months that would indicate that manufacturing has staged a recovery in the first quarter of the year. The continued weakness in the PMI is disappointing overall, but of particular concern is another month of falling export demand. While manufacturers have made some good gains in non-EU markets over the past couple of years, the on-going drag on orders from the eurozone is still significant and likely to impact on prospects over the coming months.

Updated at 1.31pm BST

10.18am BST

Poor UK factory data raises chance of more QE

Back to the weak UK manufacturing data, which one analyst says comes as no surprise.

Christian Schulz of Berenberg Bank writes:

The poor performance of manufacturing should come as no surprise. Each of the past three years has seemed to begin with a burst of optimism from the PMIs, followed by a return to reality.

This year, the UK's main trading partner remains in recession, and UK domestic demand is being hobbled by the squeeze on household real incomes as inflation runs ahead of wage growth. Sterling's depreciation should help manufacturing later in the year, but March is far too early to see any benefits.

He says further stimulus is pretty much inevitable this year. If services PMI data (out on Thursday) is bad, the Bank of England could act as early as this month. 

But May or August are much more likely months for a move than April. On balance, we stick to our call for Fed-style guidance and more asset purchases to be announced in August, but the risks of an earlier move have risen a touch.

10.14am BST

Eurozone unemployment hits new high

Eurozone unemployment data is in, and it makes predictably grim reading.

Joblessness in the currency bloc hit an all-time high of 12% in February, compared with an original estimate of 11.9% for January, which has since been revised up to 12%.

That is a big jump from this time last year, when the unemployment rate was 10.9%.

As usual, there were huge discrepancies between the member states, with the lowest unemployment rates recorded in Austria at 4.8% and Germany at 5.4%. The highest was in Greece, which recorded a rate of 26.4% (although the figures are from December 2012), and Spain, where the rate is 26.3%.

Unemployment in the European Union
Unemployment in the EU. Source: Eurostat

Codes as follows… Belgium (BE), Bulgaria (BG), the Czech Republic (CZ), Denmark (DK), Germany (DE), Estonia (EE), Ireland (IE), Greece (EL), Spain (ES), France (FR), Italy (IT), Cyprus (CY), Latvia (LV), Lithuania (LT), Luxembourg (LU), Hungary (HU), Malta (MT), the Netherlands (NL), Austria (AT), Poland (PL), Portugal (PT), Romania (RO), Slovenia (SI), Slovakia (SK), Finland (FI), Sweden (SE) and the United Kingdom (UK).

Updated at 1.41pm BST

10.04am BST

Eurozone lending declines

Another attractive chart to display a worrying trend in the eurozone, courtesy of a Norwegian trader.

The graph shows the decline of lending in the eurozone, led by Spain (for a larger version, click on the image).

Updated at 1.42pm BST

9.47am BST

Cyprus to ease capital controls

Back to Cyprus, where reports suggest the country will ease some of its restrictions designed to stop money flowing out of the country today.

Reuters reports:

Cyprus is expected to announce a partial relaxation of currency controls on Tuesday, raising the ceiling for financial transactions that do not require central bank approval to €25,000 from €5,000, a central bank source said.

Cypriot authorities have also decided, in consultation with international lenders, to unblock 10% of a 40% effective freeze on large deposits in Bank of Cyprus under a bail-in arrangement.

The country held a Cyprus Aid concert in Nicosia last night, where participants were asked to make a contribution in kind such as food, which will be distributed to individuals, families and other groups in immediate need.


People donate bags of food as they attend the Cyprus Aid solidarity concert last night. Photograph: Yiannis Kourtoglou/AFP/Getty Images

Updated at 1.48pm BST

9.36am BST

UK factory data worse than expected

Over in the UK, manufacturing missed expectations but is slightly higher than last month.

The sector is still in decline, however, with a PMI of 48.3. That's up from February's 47.9, but worse than forecasts of 48.7.

Rob Dobson at Markit said the numbers could be enough to push the Bank of England to expand its quantitative easing programme at its meeting next week.

He says that first quarter GDP is still on a knife-edge. If the economy contracted again in the first quarter, the UK would slide into its third recession (defined as two consecutive quarters of contraction) in four years. Dobson says:

The onus is now on the far larger service sector to prevent the UK from slipping into a triple-dip recession. The ongoing weakness of manufacturing and the hard to estimate impact of bad weather on first quarter growth suggest that this is still touch-and-go and that any expansion will be disappointing nonetheless.

Updated at 1.53pm BST

9.27am BST

Cyprus share index drops after two-week hiatus

Ouch. The Cyprus stock exchange is now down by 2.35%. No great surprise there, but it's not going to do the country any good. 

Updated at 1.54pm BST

9.26am BST

Slump in eurozone manufacturing could prompt ECB to cut rates

With manufacturing in all eurozone member states contracting, analysts say GDP in the currency bloc is likely to have dropped in the first quarter.

Here's Howard Archer of IHS Global Insight:

The deeper contraction in eurozone manufacturing activity in March is both disappointing and worrying. It now looks odds-on that the eurozone suffered further GDP contraction in the first quarter of 2013, likely around 0.3% quarter-on-quarter, while the increased drop in orders and declining backlogs of work does not bode at all well for second quarter prospects.

But he does not expect the European Central Bank to rush to cut rates in order to try and drive a recovery.

Despite mounting signs that the already weak eurozone economic situation is deteriorating anew and muted inflationary pressures, the ECB still seems likely to hold off from cutting interest rates at its April policy meeting on Thursday.
 
The ECB currently appears reluctant to take interest rates down from 0.75% to 0.50%, partly due to some doubts that such a move would have a beneficial impact given current fragmented conditions in credit markets. And there is a risk that this fragmentation could be magnified by the recent events in Cyprus.

However, some governing council members did favour an interest rate cut in March, and we suspect that likely ongoing disappointing eurozone economic news will increasingly prod the ECB towards acting within the next few months. We suspect that the ECB will eventually take interest rates down from 0.75% to 0.50%, very possibly around June.

Updated at 2.06pm BST

9.21am BST

French factory slump continues

French manufacturing is also predictably bad, with activity down for the 13th month running.

The Markit PMI inched up to 44 (from 43.9 in February) but remains significantly below the 50 mark that separates growth from contraction. 

Jack Kennedy at Markit said:

A very slight improvement in the headline PMI figure does little to disguise an ongoing sharp deterioration in French manufacturing sector operating conditions during March.

The chart below shows just how badly France has fared compared with the rest of the eurozone. Follow the thin red line.

Updated at 2.07pm BST

9.16am BST

German manufacturing contracts

Even German manufacturing is bad, moving back into negative territory after a positive reading in February.

The sector – which represents around a fifth of the German economy – was hit by a fall in new orders, raising doubts about the strength of the eurozone recovery in the first quarter. 

Markit's manufacturing PMI for Germany dropped to 49 in March from 50.3.

Tim Moore at Markit said:

Manufacturers cited heightened uncertainty about the economic outlook especially across export markets within the euro area, as having curtailed client spending.

Updated at 2.08pm BST

9.03am BST

Italian factory sector continues to slide

Over to Italy, where manufacturing was even worse than expected, making today a day for negative surprises.

The PMI came in at 44.5, substantially below the 50 mark that separates growth from contraction and missing forecasts of 45.4.

It is the 20th straight month in which manufacturing has contracted, with little sign of turning the corner so far.

Updated at 2.09pm BST

8.50am BST

Cyprus stock exchange opens down 0.5% after two-week haitus

The Cyprus stock exchange is open again after a more than two-week hiatus, and shares are down 0.5%.

Trading in the country's two largest lenders, Bank of Cyprus, which will undergo a major restructuring, and Laiki Bank, which will be wound down, has been halted. 

The stock exchange has been closed since 15 March, when Cyprus announced initial plans for a eurozone bailout (which were subsequently revised).

The Cyprus general market index dropped 11% in the first few months of the year, according to Bloomberg. The index has slumped 98% from its peak in October 2007.

Updated at 2.10pm BST

8.38am BST

Swiss manufacturing in surprise contraction

Over to Switzerland, where the manufacturing sector also unexpectedly moved into negative territory last month. 

The Swiss PMI dropped to a seasonally adjusted 48.3 in March, from 50.8 in February. That is below the 50 mark that separates growth from contraction and is a big miss from analyst forecasts of 50.2. 

Analysts at Credit Suisse and the SVME purchasing managers' association said:

The chaos surrounding the bailout package for Cyprus and stalemate in the Italian elections also created uncertainty among Swiss companies.

We anticipate that the recent flare-up int eh crisis will last a while yet, but that the medium-term trend toward a recovery in the eurozone is not at risk.

Next up Italy, and hopes are not high.

Updated at 2.11pm BST

8.33am BST

Spanish manufacutring contraction accelerates

Spanish manufacturing fared even worse, with the sector shrinking at its fastest rate since October.

The Markit PMI for manufacturing – which accounts for just over 12% of Spain's economy – dropped to 44.2 in March from 46.8 in February. 

There were some signs at the beginning of this year that the long slide in Spanish manufacturing was bottoming out, but this data seems to counter that.

Markit economist Andrew Harker said:

The data for Spain make grim reading for the manufacturing sector. Moreover, the latest figures have brought an end to the recent period of moderating declines and cast doubt on any hopes of recovery for the rest of the year.

8.27am BST

Irish manufacturing contracts for first time in over a year

Now to today, and the manufacturing data is rolling in from the eurozone.

First up, Ireland, which had a shocker in March. Manufacturing in Ireland contracted for the first time in over a year last month, with the shaprest drop in new export orders since the dark days of August 2009.

The NCB purchasing managers' index fell to 48.6 in March from 51.5 in February, dropping below the 50 line that separates growth from contraction for the first time since February last year.

Updated at 2.12pm BST

8.22am BST

Cyprus wins deadline extension

Cypriot negotiators won concessions from its international lenders over the weekend, on the basis that it is facing a longer and deeper recession than feared.

The island state has been granted an extra year to achieve a budget surplus of 4%. The original deal was based on forecasts that the economy would shrink 3.5% this year, but an anonymous government official told the Associated Press that the economy is now projected to contract by about 9%. A government spokesman, Christos Stylianides, said negotiators are now pushing to extend the deadline to 2018 to achieve a better budget surplus.

Updated at 2.14pm BST

8.20am BST

Laiki’s UK customers escape Cypriot savings levy

UK customers of Laiki bank will be relieved to hear this morning that they will not lose their savings.

My colleague Jill Treanor reports:

Some 15,000 account holders at Laiki bank in the UK are to escape any levy imposed on savings by the Cypriot authorities.

After a week of negotiations since George Osborne told MPs the government was trying to find ways to stop Laiki being "sucked" into the Cyprus bailout, the UK arm of Bank of Cyprus has taken over £270m of Laiki balances in the UK.

As Laiki operates as a "branch" in the UK, its depositors were covered by the Cyprus government for the €100,000 (£85,000) European-wide guarantee in savings but could have been subject to levies above that level.

However, as Bank of Cyprus UK Limited is a separately capitalised, UK incorporated bank, it is subject to UK regulation and protected by the financial services compensation scheme which guarantees up to £85,000. Its customers will not be hit by any levy – possibly 60% on accounts above £85,000 – or restrictions on limiting withdrawals to €300 a day.


Volunteers organize food donated by attendees of the “Cyprus Aid” solidarity concert in the centre of the Cypriot capital, Nicosia, yesterday. Photograph: Yiannis Kourtoglou/AFP/Getty Images

Updated at 2.16pm BST

8.16am BST

The Cypriot president has now launched an investigation into events leading to the financial crisis. The Wall Street Journal reports:

A three-member panel of former top judges tasked with investigating the events leading to the financial crisis has received copies of the lists, Cyprus's top public prosecutor said Monday.

On Monday, Mr. Anastasiades said they would leave no stone unturned. "These three respected judges . . . will be given the mandate to investigate anything that might relate to me, or my relatives by marriage," he said.

Updated at 2.16pm BST

8.10am BST

Anastasiades denies family member exported funds

The blame game began in Cyrpus this weekend, with reports emerging that a company with family ties to the president, Nicos Anastasiades, withdrew funds from the island ahead of the bailout.

Just to recap, last week Cyprus and the troika of international lenders agreed a €10bn bailout plan aimed at saving the island from financial meltdown.

  • Under the terms of the deal, depositors holding more than €100,000 at the Bank of Cyprus will lose 37.5% of their savings in exchange for bank shares. A further 22.5% will be put into a fund that earns no interest and could be confiscated should the bank need further funds.
  • Depositors in Laiki bank with over €100,000 will face heavy losses. Those with deposits of less than €100,000 will have their accounts transferred to Bank of Cyprus.
  • The central bank imposed strict capital controls following the announcement of the bailout to stem the flow of funds fleeing the country.

It seems, however, that several people had advance warning of the deal and millions of euros leaked out of the island before it was announced. 

Greek and Cypriot media have published a list of 132 companies and individuals that allegedly pulled money out of Cypriot banks and sent it abroad days before the capital controls came into force.

Among them was A Loutsios & Sons Ltd, a company said to be co-owned by the father-in-law of one of Anastasiades's daughters.

The list could not be verified, and the company has denied that it moved any cash.

The president said the reports were an "attempt to defame companies or people linked to my family".

A Greek website has published another list, naming six current and former politicians and several others whom it claims benefited from favourable loan restructuring at Laiki Bank. All of those named have denied any wrongdoing.

Updated at 2.20pm BST

7.50am BST

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

Cyprus continued to dominate the headlines over the weekend, after its controversial bailout that punished savers in Cypriot banks was agreed last week.

We'll have all the news from there, the rest of the eurozone and around throughout the day.

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Capital controls in Cyprus will intensify the slump while severely damaging the credibility of the euro. The idea that the single currency would rival the US dollar as a secure store of wealth has taken a pasting as a result of the disastrous handling of Cyprus…



Powered by Guardian.co.ukThis article titled “Demolishing some myths about the single currency” was written by Larry Elliott, for guardian.co.uk on Wednesday 27th March 2013 22.29 UTC

The introduction of capital controls in Cyprus is a textbook example of shutting the stable door after the horse has bolted. Rich Russians and wealthy Cypriots knew the crisis was coming and have had the best part of a fortnight to spirit their money out of the country since it broke, even assuming they did not do so beforehand. The restrictions will intensify the slump Cyprus faces while not removing the risk of bank runs when branches finally open for businesson Thursday. What’s more, the controls severely damage the credibility of the euro.

That’s not to say the controls are unnecessary. Even with the severe restrictions announced in place, there is a possibility of bank runs. Without them, bank runs would be a certainty. Modern banking is essentially based on a sleight of hand under which banks have readily available funds that are only a fraction of their total deposits. If all the customers demand their money at once, as would be the case in Cyprus without controls, the banks go under.

The government in Nicosia insists capital controls will be removed within a week, but that looks as heroic an assumption as the idea that the economy will shrink by just 3.5% this year, the current EU forecast. Iceland introduced capital controls in 2008 and still has them in place. There will no doubt be pressure from Brussels on Cyprus to lift the controls as quickly as possible, but most analysts expect them to be in place for a minimum of six months.

As far as the real economy is concerned, Latvia – which had pegged its currency to the euro – suffered an 18% contraction of its economy following a banking collapse. And bank deposits were just 100% of GDP in Latvia; in Cyprus they were 800% of GDP before the crisis. To sum up, Cyprus is going to have a collapsing economy buttressed by capital controls, but unlike Iceland will not have the option of devaluation to make itself more competitive. Speculation that it will become the first country to leave the euro will not go away. Indeed, it will intensify the longer the capital controls are in place.

There are, of course, wider implications for Europe despite attempts over the last week to say that Cyprus is a special case. When the euro was created just over a decade ago it was supposed to embody certain principles. One of those principles was that a euro would be a euro anywhere inside the single currency zone. That has now been violated; a euro in Nicosia is not worth the same as a euro in Berlin.

A second trait of the single currency was that it was supposed to be a secure store of wealth. International investors would have confidence in it and it would rival the dollar as a global reserve currency. That idea has also taken a pasting as a result of the disastrous handling of Cyprus; the decision to make deposit holders pay a share of the bailout has been accompanied by a fall in the value of the euro against the dollar. That’s hardly surprising; savings in US banks are perceived as rock solid whereas those in eurozone banks are not.

A third core belief was that the euro would lead to economic convergence, with the weaker and poorer countries raising their performance to the level of the rich nations at the monetary union’s core. This has looked increasingly absurd against a backdrop of bailouts for Greece, Ireland and Portugal, and the chronic lack of competitiveness displayed by Italy, Spain and – more recently – France.

So Cyprus has put two myths to bed. One is the myth of convergence; the other is that the debt crisis is over. A new chapter has opened, that’s all.

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In the broadcast today: Will the EUR Damage Last beyond the Cyprus Debacle? As the Cyprus debacle continues to raise anxiety levels by creating uncertainty and a sense of distrust throughout the euro-area, we examine the damage that has been inflicted on the EUR and ponder its long term implications for the single currency, we analyze the bearish breakout in the EUR/USD currency pair, we note the resumptions of the downtrend in the GBP/USD pair, we keep an eye on the USD/JPY currency pair, we highlight the market’s reaction to the capital controls proposed by the government in Cyprus, the U.K. GDP, the Euro-zone Economic Sentiment, and the U.S. Pending Home Sales, we discuss new forecasts from Bank of New York-Mellon and Morgan Stanley, and prepare for the trading session ahead.

Restrictions on how much money can be taken out of the country, including bans on checks cashed. Will banks re-open on Thursday? More protests due this afternoon. Bank of Cyprus CEO ‘fired’. Malta and Luxembourg: we’re not like Cyprus…



Powered by Guardian.co.ukThis article titled “Cyprus crisis: tough capital controls agreed – live” was written by Graeme Wearden, for guardian.co.uk on Wednesday 27th March 2013 16.10 UTC

4.10pm GMT

We’re still waiting for an official announcement from the Cypriot government on the capital controls.

In the meantime, Greek newspaper Kathimerini (which broke the news of the decree alongside the WSJ/Dow Jones this afternoon) has this report:

Cyprus decides on capital controls, including ban on checks being cashed.

3.47pm GMT

And here’s more reaction:

3.45pm GMT

Hats off to Janine Louloudi, a freelance journalist working in Nicosia, for translating the government decree on capital controls into English (you can download it here).

3.16pm GMT

Nathan Morley, reporter at the Cyprus Mail, explains how the ban on cashing cheques will hurt people:

3.06pm GMT

The instant reaction to Cyprus’s capital controls splits into two camps — one warning that the new measures will have a chilling effect on its economy, and the other predicting that the measures will last much longer than seven days.

2.57pm GMT

There’s no information about restrictions on ATM machines (although here may be more details still to leak). But, of course, people are already limited to taking out just €100 per day.

2.50pm GMT

Capital Controls annouced

Details of Cyprus’s capital controls are now hitting the newswires.

Here are the key points (mainly via Dow Jones and Reuters).

• All savings accounts must run until their expiry date – with no early withdrawals allowed.

• Cashing of cheques will be suspended, but ‘cheque deposits’ will be allowed.

• Payments out of the country are suspended, with certain exemptions:

a) Individuals will only be allowed to take €3,000 in cash on each trip out of the country.

b) Import payments will be allowed when ‘the relevant documents’ are provided to the authorities.

c) Cypriots will only be allowed to transfer up to €10,000 per quarter for fellow citizens who are studying abroad.

• All credit/debit card transactions abroad will be capped at €5,000 per person, per month.

• The measures will apply to all accounts, regardless of the currency it uses.

• They will run for seven days

Reaction to follow

Updated at 3.25pm GMT

1.53pm GMT

We’re running a poll today, on how long it will take for the restrictions on Cyprus’s financial system to be lifted:

How long will the capital controls in Cyprus last?

12.22pm GMT

The cash-only economy

These photos from Cyprus today show how customers at at petrol station in Nicosia are only allowed to pay by cash.

11.55am GMT

Early details of capital controls…

Capital controls to be imposed in Cyprus will limit foreign transactions and capital outflows but not movements of money within the country itself, according to the head of its chamber of commerce.

Phidias Pelides made the comments to reporters after meeting government officials, saying:

We have been assured that limitations will not affect transactions within Cyprus at all.

Where there will be limitations is on what we spend abroad and also on capital outflows.

(via Reuters)

That would prevent the threat of capital racing out of Cyprus, draining its banks and creating a deeper liquidity crisis.

We still don’t have confirmation that the banks will definitely open on Thursday….

Updated at 12.04pm GMT

11.46am GMT

Over on Twitter, Economist Hulk is explaining the nitty-gritty of economics to the masses (once HULK gets his follower count-up, anyway):

Another distinguished fund manager with too much time on his hands? Or perhaps a journalist desperate to throw off the chains of impartiality and shout what s/he really thinks.

Updated at 11.51am GMT

11.31am GMT

Malta and Luxembourg are not Cyprus, say Malta and Luxembourg

Malta and Luxembourg have both denied claims that they could suffer the same fate as Cyprus as they both operate outsized banking sectors.

Malta’s banking sector is eight times its GDP — even more that Cyprus’s is was. But the governor of the Central Bank of Malta, Josef Bonnici, insists that it’s in much better shape.

Speaking to Reuters, Bonnini said Malta’s banks weren’t carrying the foreign sovereign debt that helped cause Cyprus’s crisis:

The problems facing Cypriot banks include losses made on their holdings of Greek bonds, whereas Maltese domestic banks have limited exposure to securities issued by the (euro zone bailout) programme countries.

Luxembourg’s banking sector is about 20 times its annual GDP, and is understandably worried by recent comments from Brussels. Its government said it is:

concerned about recent statements and declarations” on the alleged risks of outsized financial sectors.

Our Europe editor, Ian Traynor, wrote on Monday evening that Cyprus’s fate has alarmed Malta and Luxembourg:

Malta’s finance minister sat next to his German and Cypriot counterparts at the first Cyprus bailout meeting in Brussels 10 days ago and was extremely chastened by what he witnessed.

After experiencing Wolfgang Schäuble, the German finance minister, up close, he wrote an article in the Malta Times saying God help his country if it encounters similar problems in the eurozone.

Then there is Luxembourg, which along with Austria, is the eurozone’s biggest champion of banking secrecy.

Cyprus’s banks have been tamed – are Malta and Luxembourg next?

Updated at 11.35am GMT

10.51am GMT

Key event

The central bank of Cyprus has confirmed in the last few minutes that the draft capital controls are ready.

A spokesperson for the bank said it hopes to brief the public on the situation by the end of the day, and repeated the line that they will be kept flexible, if possible.

Banks to reopen tomorrow, then?….

10.32am GMT

Economic confidence across the eurozone and the EU was already low, by historical terms, before this month’s drop:

10.25am GMT

Economic confidence across the eurozone has fallen this month, reversing four months of gains and sending the euro sliding further.

The data suggests the Cyprus crisis has alarmed business leaders across the region, undermining efforts to bring the eurozone out of recession.

Economic sentiment slumped by 1.1 points to 90.0, according to the EC’s monthly measure, driven by falling optimism among manufacturers.

10.06am GMT

Protests planned in Nicosia tonight

Protests are mounting in Cyprus as the full extent of Monday’s EU-IMF bailout sinks in.

The communist Akel party, in collaboration with a group of private citizens, is planning a mass demonstration at 5.30pm local time, or 3.30 GMT, outside the offices of the European commission.

They will protest against policies that many fear have put the tiny nation state on the Greek path of economic self-destruction.

From Nicosia, my colleague Helena Smith reports:

“There is a lot of fury and growing fury,” said Giorgos Doulouka, the party’s spokesman. “We all know what awaits us, that these polices are going to lead to a huge decrease in the GDP of our country, recession and cuts in pensions and benefits because the government won’t be able to meet budget targets.”

The protest, which is expected to draw thousands, will move onto the presidential palace. Anger has been underscored by panic among employees over what awaits the Bank of Cyprus, following the Greek Cypriot finance minister’s announcement Tuesday that the lender will undergo restructuring and internal recapitalisation.

Helena has also just spoken to the former central bank governor Afxendis Afxendiou who says he thinks the banks, closed for the past 11 days, will re-open tomorrow.

9.55am GMT

Bank of Cyprus CEO fired – reports

Back in Nicosia, it appears that the chief executive of the Bank of Cyprus (BoC) has been dramatically fired.

Local media are reporting that Yiannis Kypri was ousted by the country’s central bank, following the appointment of a special administrator to run BoC.

Reuters’s Nicosia bureau has the details:

Cyprus’s central bank has fired the chief executive officer of the Bank of Cyprus, an official at the island’s largest commercial lender said on Wednesday.It follows the appointment of a special administrator to run the bank, which was saved from collapse this week under a painful European Union bailout for Cyprus.

The bank’s chairman, Andreas Artemis, submitted his resignation on Tuesday.An official at the bank, who declined to be named, said local media reports that CEO Yiannis Kypri had been removed from the post were “valid”.

The source was unable to confirm reports that the central bank had demanded the resignation of the entire board.

The reaction of BoC’s staff will be interesting. Yesterday, hundreds of employees held a demonstration at the bank’s HQ and were clearly furious with the actions of the central bank.

Updated at 10.04am GMT

9.44am GMT

UK GDP

A gobbet of economic news…. Britain’s economy only grew by a measly 0.2% during 2012, not 0.3% as previously thought. That’s according to new data from the Office for National Statistics, which also confirmed that GDP shrank by 0.3% in the last three months of 2012,

France’s economy also shrank by 0.3% in the last three months of 2012, separate data from Paris showed. Europe’s larger economies ended last year on a low.

9.30am GMT

Here’s a video clip of Paul Mason, Newsnight’s economics editor, holding a draft copy of the capital controls that should be announced in Cyprus today.

The document is littered with ‘xx’s, showing that bank managers (as of last night) didn’t have any clear idea what the capital controls would be. That doesn’t bolster confidence that they’ll all be ready to reopen tomorrow morning….

Updated at 9.35am GMT

9.25am GMT

Moody’s: eurozone overestimates its ability to curb contagion

Eurozone leaders and top officials may be kidding themselves if they reckon they’ve prevented the Cyprus bailout causing damage to other countries, a senior executive at Moody’s warned today.

Bart Oosterveld, managing director of sovereign risk at Moody’s, told Reuters that policymakers are overestimating their ability to contain the crisis.

Here’s the key quotes:

Policymakers appear very confident that market conditions are benign enough and that they have the tools to avoid contagion to other peripheral economies and their banking systems.

We think that that confidence may well be misplaced.

So far, Cyprus has remained largely a local difficulty – with the bond yields of Spain and Italy unaffected (so far). OK, the euro has lost ground – but that won’t cause alarm in Brussels (and will please countries with a strong export sector…. )

Updated at 9.28am GMT

9.06am GMT

Euro hits four-month low

The euro fell to a new four-month low against the US dollar this morning, to $1.2818.

Traders blamed the aftermath of the Cyprus bailout. Confusion reigns over whether Europe is moving towards a system where large depositors and bond holders, rather than taxpayers, will be tapped when a bank fails.

Kit Juckes of Société Générale explains:

Anger at the treatment of Cypriot depositors won’t abate and the damage to confidence in Europe’s financial system and leadership is done.

Updated at 9.10am GMT

8.46am GMT

Capital controls: further reading

The government of Cyprus said yesterday that capital controls could be lifted in a few weeks. But in the past, these restrictions have lasted much longer.

Here’s Bloomberg’s take: Cyprus Capital Controls First in EU Could Last Years

Cyprus is on the verge of an unprecedented financial experiment: imposing controls on money transfers in an economy that doesn’t have its own currency….

“Thanks to political mismanagement, we now have a first: capital controls in the euro zone,” said Nicolas Veron, a senior fellow at Bruegel in Brussels and a visiting fellow at the Peterson Institute for International Economics in Washington.

“How long is temporary? It could turn out like Iceland, extending to many years.”

The BBC has a handy explainer: Cyprus crisis: What are capital controls and why does it need them?

And there’s a good Q&A on the Wall Street Journal.

Updated at 9.10am GMT

8.29am GMT

Michalis Sarris: Capital controls will be within ‘realms of reason’

Good morning, and welcome to our rolling coverage of the crisis in Cyprus following its bailout.

A historic day looms, as Cyprus prepares to become the first member of the eurozone to impose restrictions on the flow of money in its economy.

Finance minister Michalis Sarris says the new capital controls should be ready by noon Cyprus time, or 10am GMT. He’s already defended them in a TV interview saying:

I think they will be within the realms of reason

Banks will open on Thursday … We will look at the best way to limit the possibility of large sums of money leaving, and not imposing punitive conditions on the economy, businesses and individuals.

The capital controls are meant to prevent hordes of savers descending on Cyprus’s bank branches and cleaning the vaults out. So what might they be?

Based on the legislation passed by the Cyprus parliament, and a report by the BBC’s Paul Mason (who’s seen a draft version), it will probably include:

* Limits on cash withdrawals (currently €100 at ATM machine),
* restrictions on access to savings accounts,
* limits on paying by cheques (possibly a ban),
* restrictions on the use of credit and debit cards,
* and a ban on taking large sums of money out of Cyprus.

We’ll get the details soon, along with other developments through the day…..

Updated at 8.32am GMT

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Bailout deal for Cyprus agreed in the early hours of this morning. Heavy losses for depositors with over €100,000. Laiki’s face wipeout. Smaller savers protected. Germany: new deal is much better. Early analysis. How the drama unfolded…



Powered by Guardian.co.ukThis article titled “Cyprus agrees bailout deal with the eurozone – live” was written by Graeme Wearden, for guardian.co.uk on Monday 25th March 2013 14.20 UTC

2.20pm GMT

Irish economy shows scars of austerity

If Cyprus wants a taste of life after a few years under an IMF-led austerity package it could turn to Ireland. One fifth of shops in Ireland’s second city Cork are now vacant as the Republic suffers its worst six months of high street trading.

From Dublin, Henry McDonald reports:

The closure of Cork based electrical retailer Flor Griffin as well as UK companies like HMV and Game on Irish main streets reflects continued depressed demand among still debt ridden consumers.

The Republic’s Chambers of Commerce and Retail Excellence Ireland are demanding action such as lower rents and commercial rates to halt the retail downturn.

Evidence from trade groups over the first quarter of this year reveal that in parts of central Dublin 24% of retail units lie empty.

Overall more than ten per recent of retail units in the Irish capital lie idle while in Athlone, a town in central Ireland that successfully attracted foreign multi national investment nearly 20 per cent of shops are empty.

The ongoing downturn in domestic demand is due to frugal Irish consumers worried over mortgage and other personal debts being too frightened to spend.

Alan McQuaid, chief economist at Merrion Stockbrokers, believes the Irish government was on its way to reaching its target of 1.5% growth this year.

But McQuaid issued a warning that the Cypriot fiscal crisis could have a ripple effect on the Irish economy at the other end of the EU.

“Assuming the Cyprus problem doesn’t blow up into a full scale Eurozone crisis, then there is no reason why the Irish government can’t meet its official growth target for the second year running,” he said.

1.51pm GMT

On Wall Street the Dow Jones industrial average is up just 40 points higher at 14552, with news of last night’s deal failing to spark much of a rally.

US markets have been largely untroubled by the Cyprus news in recent weeks. Dominic Rushe reports:

Unlike the roller coaster ride US markets endured during the height of the Greek crisis, there doesn’t seem to be much fear of contagion. During the Greek crisis investors liked to point out that the Greek economy was worth about the same as the Dallas/Fort Worth area. Cyprus’s GDP at $23.57bn is a little bit more than Goodyear, the tire company, brings in in revenues each year.

The Dow snapped a four week winning streak last week, closing down 2.08 points. But that’s a mere 0.01% for the week and it actually closed up on Friday.

Updated at 1.52pm GMT

1.40pm GMT

EC: capital controls will be temporary…

European Commission officials told reporters in Brussels this lunchtime that capital controls in Cyprus are only likely to be implemented for a short time.

Commissioner Michel Barnier told reporters that:

Any measures to restrict or limit freedom of movement may only be enacted exceptionally and temporarily and that is what has been requested by the Cypriot authorities.

Capital controls will mean very tough restrictions on bank account access and the movement of cash out of Cyprus, to help prevent a bank run.

James Mackintosh of the FT points out that capital controls can be a hard habit to break:

Updated at 1.42pm GMT

12.56pm GMT

Parents fear for their children’s future in Cyprus

There were peaceful protests against the bailout deal outside Greece’s embassy in Nicosia this morning, during a parade of high school students to mark Greek independence day:

Faisal Islam, Channel 4′s economics editor, was there – and reported that parents were desperately worried about how the crisis will affect their children’s lives.

12.28pm GMT

Putin: we can restructure Cyprus’s loan

Despite describing the haircut for wealthy savers as stealing (see 11.31am), Russia has signaled that it will support Cyprus by agreeing to relax the terms of its existing loan.

President Vladimir Putin announced a little while ago that Russia will restructure the €2.5bn euro loan made to Cyprus in December 2011.

Howard Amos has the details:

“In light of the decision taken by the Eurogroup, President Putin considers it possible to support the efforts of the President of Cyprus, and also the European Commission, directed at overcoming the economic and systemic banking crisis of this island state,” Putin’s spokesman Dmitry Peskov told journalists, Interfax reported.

Cypriot Finance Minister Michalis Sarris visited Moscow last week to seek financial support from the Kremlin, but was sent away apparently empty handed. A re-negotiation of the loan, including reducing the interest rate and extending its duration beyond 2016, was one of the items discussed.

“I think the loan will be extended and the conditions adjusted,” Sarris said as he was leaving Moscow on Friday.

12.07pm GMT

President Anastasiades to address the nation tonight

The government has just announced that the Cypriot president Nicos Anastasiades will make a televised statement at 7pm today (5pm GMT), with regard to the results of the Eurogroup meeting yesterday on Cyprus.

The statement will be televised live by the Cyprus Broadcasting Corporation (Cybc).

My colleague Helena Smith adds that the government has been arguing that it did the best it could:

The Interior minister Sokratis Hasiko has said the banks will open in Cyprus tomorrow calling the deal “the best solution possible.”

“The no vote had its own negative effects and banks were put under pressure,” he said this morning. “We had got to the point where were discussing a haircut of between 50 and 60 percent … so this is the best possible solution.”

Updated at 1.31pm GMT

11.56am GMT

Poll: Is the worst over for Cyprus?

Around 90% of readers fear that worse times are ahead for Cyprus, according to a poll launched this morning (which already has hundreds of votes).

Vote here:

Does the bailout deal mean the worst is over for Cyprus? – poll

Updated at 11.58am GMT

11.31am GMT

Medvedev: Cyprus is stealing from large depositors

Russian prime minister Dmitry Medvedev has accused Cypus of agreeing to “steal” from big deposit-holders at Laiki Bank and Bank of Cyprus.

It’s the first official signal of Moscow’s displeasure.

From the Russian capital, Howard Amos reports (and explains that Medvedev was channeling Lenin):

Medvedev is the first Russian official to speak out about the Cyprus deal announced early this morning.

“They are continuing to steal what has already been stolen,” Medvedev told a government meeting, using a phrase Vladimir Lenin to answer the allegation that the Bolsheviks were thieves.

Russian officials have repeatedly compared the Cypriot bank levy to Soviet-era expropriation.

But he added the impact on Russian companies and Russian money was not yet fully clear. “We need to understand how this story will develop.”

Medvedev was an outspoken critic of the initial agreement between Cyprus and the troika of the European Commission, IMF and European Central Bank to levy a compulsory tax on deposits, describing the plan as “absurd” last week and accusing the EU of behaving like “an elephant in a china shop.”

Updated at 11.40am GMT

11.19am GMT

Larry Elliott: Cyprus could suffer a worse economic collapse than Greece

It’s a bad deal — although probably the best deal in the circumstances — and Cyprus will probably need a second rescue package, says our economics editor, Larry Elliott.

Larry writes:

For a start, Cyprus faces a bleak economic future in which the need for a second bailout looks a strong probability. It is not just that the country’s economic model has been destroyed. Nor is it simply that a brutal austerity programme is the condition for the €10bn loan.

These will both hurt, but be compounded by a ferocious credit crunch as the banks seek to shore up their balance sheets by lending less and at higher rates of interest. The risk is of a full-scale economic collapse that will result in Cyprus having a debt problem worse than that in Greece.

More here: Cyprus bailout: deeply flawed – but a best effort in desperate times

11.07am GMT

11.02am GMT

Miriam Elder: anger in Cyprus today

The long lines that we’ve seen at Cyprus ATMs have dissipated this morning, now that regular Cypriots know they won’t be immediately affected by the haircut agreed in Brussels.

But from Limassol, my colleague Miriam Elder reports that people remain distressed by the situation:

It’s also a holiday here, but the mood is pretty grim. Cypriots realise that their economy will take a huge hit — there are worries of long-term unemployment as big foreign investors are expected to seek ways to flee from the country.

Anger remains directed at the EU, and Germany in particular.

I talked to one woman who works at a hotel – she moved to Cyprus eight months ago to escape the financial crisis in Greece.

“We came here to find a better life, and it’s exactly the same thing as in Greece. Everywhere I go there’s crisis — I’m telling all my friends that I’ll go to Germany next,” said Alexandra Salmani, 32.

“Someone has to learn to say no to Merkel. They saw a rich country, decided to take their money, and destroy them. They are not human.”

As I type, newsflashes from Berlin are coming in. Angela Merkel’s spokesman is telling a press briefing that the Cypriot government must now explain to the people “why this path is difficult but right”….

10.11am GMT

Here’s video footage of last night’s eurogroup press conference where the deal was announced (for anyone who had better things to do around 2am GMT)

10.02am GMT

The Cyprus crisis has permanently changed the nature of the eurozone and and left small countries such as Luxembourg (which also has an out-sized financial sector) extremely jittery, says our Europe editor, Ian Traynor:

9.53am GMT

Schäuble: this deal is ‘much better’

The German finance minister, Wolfgang Schäuble, has declared that the deal agreed in Brussels overnight is “much better” from a German point of view than the original plan.

Speaking at a press conference in Berlin, Schäuble said that Cyprus had finally recognised that large depositors must make a much larger contribution to the bailout:

[Cypriot President] Anastasiades came to understand that it was not just Germany and the IMF that wanted a bail-in, but also the others.

Here are more newswire snaps from Reuters:

• GERMANY’S SCHAEUBLE SAYS CYPRUS DEAL IS “FAIR” FOR ALL INVOLVED

• GERMANY’S SCHAEUBLE SAYS GOAL IS TO REDUCE CYPRIOT BANKING SECTOR TO EUROPEAN AVERAGE OF THREE-TIMES NATIONAL OUTPUT

•GERMANY’S SCHAEUBLE SAYS CYPRIOT BANKS SHOULD BE REOPENED AS SOON AS POSSIBLE, TALKS ON THIS TO TAKE PLACE TODAY

• GERMANY’S SCHAEUBLE SAYS GOAL IS TO COMPLETE EUROPEAN PARLIAMENTARY APPROVALS OF CYPRUS DEAL IN THIRD WEEK OF APRIL

Updated at 10.53am GMT

9.42am GMT

Nicos Anastasiades, Cyprus’s president, just issued a short statement thanking people for their support during yesterday’s negotiations in Brussels:

No mention of the reports that he threatened to resign during the negotiations…

9.18am GMT

Michelle Caruso-Cabrera of CNBC has been taking a photo of the same ATM machine in Nicosia in recent today. This morning, it’s pretty quiet.

Updated at 9.37am GMT

9.15am GMT

Gary Jenkins: this is just the start of Cyprus’s problems

So, is this the end of Cyprus’s problems? My colleague Josephine Moulds just put that question to bond analyst Gary Jenkins of Swordfish Research, prompting a huge laugh from the other end of the phone. He said (once he’d recovered himself):

In a way this is just the beginning of their problems. They’ve stopped the old business model [attracting deposits from wealthy individuals] but it hasn’t been replaced with anything else.

He notes that the EU has made no economic projections for Cyprus, so has no idea how or when it will get its €10bn back from this country.

They are never going to see that €10bn back. The economy is crushed for the next God knows how many years. As soon as people can take their money out the banks, they will take it out. If I’ve €10,000 in the Bank of Cyprus, why would I leave it there?

Anyone’s guess would be that the economy is going to crash in these circumstances. Confidence has disappeared. What is the impact on Cypriot companies? Has noone looked at how many corporates have over €100,000 in the bank? Who’s going to want to do business with Cypriot corporates right now?

Gary’s conclusion…

It’s a nuclear bomb to crack a nut. If you’re worried about money laundering go after money launderers. Don’t go after Cypriot nationals.

The deal will also have a major impact on banks in Spain and Italy, he says.

If you’re a US company, US politicians have been talking about how to get the money back from overseas. No non-Italian and non-Spanish companies are going to keep their money there.

Similarly, he says, normal people banking in Spain and Italy will now likely pull their money out of the bank at the first sign of trouble, prompting disastrous bank runs.

With regard to this subject I must say I have found some of the comments as to why this wouldn’t happen interesting. Many have said how much better capitalised Italian and Spanish banks are, and how it is well known that the Cypriot banking system as a percentage of GDP was way bigger than other European countries.

Quite right (although I have my doubts as to the real strength of many of these banks) but do they really think that the average person in the street has any interest about such statistics? In the event of a major problem do you think that people will say ‘oh I will leave my money in the bank because their tier one ratio is 10% and as our banking system is nowhere near as big as the Cypriot one on a relative scale?’ If they do they are likely to be crushed underfoot in the rush as others decide not to take any chances.

9.11am GMT

European Commission President Jose Manuel Barroso looked satisfied, and tired, as the Eurozone meeting broke up early this morning:

9.08am GMT

The best early reaction

Joseph Cotterill of FT Alphaville has written the best detailed analysis of the Cyprus deal: Scratch one stupid idea [Updated]:

Here are the key points (head over to AV for the full read (then come back!))

1) In case you didn’t get the memo the first time, this still isn’t about spanking money-launderers. (because there’s no differentiation between foreign and domestic customers with over €100k)

2) It’s a depositor bail-in — for two specific banks, one of which is in full resolution. (rather than forcing all customers at all banks to contribute, as in the first – hated – bailout plan)

3) It’s also a senior bank bond bail-in. (Holders of Laiki’s senior unsecured debt look fully wiped out – those at Bank of Cyprus will take a brisk haircut)

4) Emergency Liquidity Assistance. — Was this the week we found out that ELA will be protected from default no matter what? (under the deal, the assistance supplied by the European Central Bank to Laiki is now transferred to Bank of Cyprus)

* * * * * *

And over at Reuters, Felix Salmon points out that the winding-down of Laiki is a rather big deal for a rather small country:

The resolution of Laiki is going to give the world a very real example of what happens when a too-big-to-fail bank is allowed to fail.

Laiki is small by global standards, but very large by comparison with Cyprus’s GDP. If Cyprus can survive Laiki’s collapse, then maybe — just maybe — the world could cope with the “resolution” of a big bank like Citigroup. But that’s a very big “if”.

More likely, the costs to Cyprus of allowing Laiki to fail will be enormous, both politically and economically. And 800,000 Cypriots will for years to come be paying the price of what Mohamed El-Erian elegantly calls “bailout fatigue”.

More here: Cyprus: It’s not over yet

8.52am GMT

There’s no sign of celebration in Cyprus this morning, as people digest the news that the bailout has been secured in return for the downsizing of its banking system and heavy losses for wealthy savers:

8.38am GMT

30% haircut for Bank of Cyprus’s wealthy savers

Just in: Depositors in Bank of Cyprus with over €100,000 are likely to lose 30% on their holdings, the chairman of the island’s parliamentary finance committee has predicted.

Nicholas Papadopoulos made the prediction to Irish radio this morning, saying:

I haven’t heard a formal announcement about the haircut, but this is the figure I heard.

No update on the position for big depositors at Laiki — but clearly they’ll lose more than the crowd at BoC, and they could lose the lot (over €100k).

Updated at 8.40am GMT

8.24am GMT

European shares gain

European markets have risen in early trading as investors react to the news from Brussels.

FTSE 100: up 40 points at 6432, + 0.6%

German DAX: up 77 points at 7989, +1%

French CAC: up 53 points at 3823, + 1.5%

Italian FTSE MIB: up 121 points at 16166, + 0.75%

Spanish IBEX: up 79 points at 8403, +0.89%

And in Asia, the Japanese Nikkei finished 1.7% higher.

The euro, though, is bobbing around $1.30 — just 0.1 cents higher than on Friday night. Not exactly a monster rally….

8.06am GMT

Capital controls loom

The deal won’t prevent tough capital controls being imposed on Cypriots. We saw an early taste of it yesterday, when ATM cash withdrawal limits were cut to €100 per day

The controls will also make it hard, or impossible, to transfer money between accounts or out of the country – to avoid a bank run draining the country’s remaining banks.

During this morning’s press conference, EC commissioner Olli Rehn said he hoped Cyprus would be able to raise them soon, but the reality could be months of restrictions.

7.53am GMT

7.51am GMT

The bank restructuring deal

Full details of the Cyprus deal are still emerging this morning, but the top line is that wealthy depositors are being hit much harder than in the original plan.

Here’s what we understand:

• All deposits under €100k have been protected.

Laiki Bank (or Popular Bank) will be wound down and split into a ‘good’ and ‘bad’ bank. Thousands of jobs are likely to be lost.

• The ‘good’ bit of Laiki (smaller savers) will being moulded into Bank of Cyprus.

• The bad bit, containing its uninsured deposits and toxic assets, will be wound down over time.

• Those with savings over €100,000 at Laiki, along with bond holders and shareholders, will all make a “full contribution” to the restructuring. That is being taken as a signal that wealthy depositors could be wiped out completely – but the full picture may take a while to emerge.

As Gary Jenkins of Swordfish Research put it:

Whilst there was no official confirmation I assume that deposit holders over €100k in Laiki Bank will be totally wiped out, but that is just an assumption from the language used.

• Uninsured deposits (€100k and above) in Bank of Cyprus will be frozen, and remain suspended until the bank has been recapitalised. It’s not clear what haircut they will suffer — there was talk of 40% plus in Brussels last night.

7.36am GMT

You can read the statement released by the eurogroup (eurozone finance ministers) here.

7.28am GMT

Key event

if you missed Sunday’s bailout drama, you can relive all the excitement in yesterday’s Cyprus crisis liveblog:

Cyprus bailout: last-ditch deal agreed – as it happened

Highlights of the press conference start at 1.30am (it’s been quite a night)

7.13am GMT

Last-minute Cyprus deal agreed

Good morning. Cyprus has struck a last-gasp draft deal with its international lenders overnight which should mean it secures its desperately needed €10bn bailout and avoids crashing out of the eurozone.

In return for the aid, the Cyprus government has committed to imposing very heavy losses on depositors with over €100,000 in the bank. Its second-largest bank, Laiki, will be shut down while the country’s largest lender, Bank of Cyprus, is being heavily restructured.

The agreement was hammered out after a classic marathon session of talks in Brussels from Sunday lunchtime, in which Cyprus’s president Nicos Anastasiades reportedly threatened to resign rather than accept the terms demanded by the country’s lenders.

But a deal was finally put together out, culminating in a press conference at 1.30am GMT.

There was relief in Brussels early this morning, but Cyprus still faces a troubled future, with its banks remaining closed today.

Cyprus’ finance minister Michalis Sarris told reporters:

It’s not that we won a battle, but we really have avoided a disastrous exit from the eurozone.

The deal should mean that the European Central Bank lifts its threat to withdraw liquidity from the Cypriot banking sector.

It also appears that the deal will not need the approval of the Cypriot parliament.

But many questions remain: how will the Russians react? Will the deal be acceptable in Cyprus?…

….And just how much damage has the chaos and confusion of the last week caused to Cyprus, and the rest of the eurozone?

We’ll be tracking all the developments throughout the day.

Updated at 7.22am GMT

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