Cyprus

Euro officials say Cypriot president won’t get bailout revamp. Fed Chairman Ben Bernanke to discuss US stimulus package. What the analysts say. Bank of England minutes: Mervyn King outvoted for last time as the Monetary Policy Committee keeps the size of QE program unchanged…

 


Powered by Guardian.co.ukThis article titled “Bernanke predicts tapering this year, as Cyprus denies seeking bailout changes – as it happened” was written by Graeme Wearden, for theguardian.com on Wednesday 19th June 2013 20.12 UTC

9.25pm BST

That’s a wrap

Time to stop, I think

• Highlights of the Fed decision, and Bernanke's press conference start here:

• Details of the Cyprus government's commitment to its bailout programme are here, with a full statement here

• Details and reaction to the UK report into banking, including its call to jail reckless bankers, start here

• And highlights of the Mansion House speeches start here.

Thanks, and goodnight. GW

9.24pm BST

Osborne at the Mansion House

Britain's Chancellor of the Exchequer George Osborne poses with his wife Frances Osborne (L) during the 'Lord Mayor's Dinner to the Bankers and Merchants of the City of London' at the Mansion House in London June 19, 2013.
Britain’s Chancellor of the Exchequer George Osborne poses with his wife Frances Osborne during the ‘Lord Mayor’s Dinner to the Bankers and Merchants of the City of London’ at the Mansion House in London tonight. Photograph: POOL/REUTERS

Here's our full story on the Mansion House speech, by my colleagues Jill Treanor and Nick Watt:

George Osborne readies City for Lloyds sell-off

George Osborne has signalled he is ready to start the sell-off of the taxpayer's stake in Lloyds Banking Group, but said he is to consider whether to break up the Royal Bank of Scotland, in a move that could delay the bailed out bank's return to the private sector.

In his annual speech to City grandees at Mansion House on Wednesday night, the chancellor said he was "actively considering options for share sales in Lloyds", in which the government has a 39% stake. Speculation is mounting that a partial sell-off of the state's Lloyds stake could take place within months.

But he played down expectations of an immediate "Tell Sid" style privatisation, as implemented by the Conservatives during the 1980s.

While Nils Pratley argues that the chancellor's change of heart on RBS, although somewhat baffling, is sensible:

The mystery deepens. Last week it was imperative that Stephen Hester be hustled out of Royal Bank of Scotland because the Treasury wanted privatisation to happen by the end of 2014 and to give a new chief executive time to settle in.

This week, however, a rapid sale of shares is not a priority. Instead, as chancellor George Osborne announced, the option of a good bank/bad bank split at RBS will be examined in detail. In any case, privatisation of RBS is "some way off", said Osborne, and Lloyds is top of the batting order for a sale of shares.

What on earth is going on? Well, one thing is clear: the assembled forces of Lord Lawson and other members of the Banking Commission, the governor of the Bank of England, and business secretary Vince Cable have scored a notable victory.

Here's Nils's full comment: George Osborne's shift on bad bank model is welcome

9.12pm BST

Wall Street down

Wall Street has closed for the day with the Dow Jones falling 206 points, or 1.35%, to 15112.

Ben Bernanke's prediction that the Fed's asset purchase scheme will start to slow this year, and end by the middle of 2014, has not gone down terribly well in New York.

Still, it's far from a rout. And the key to exiting this crisis will be how the process of tapering is managed, rather than exactly when it starts and finished. That's the 'landing on an aircraft carrier' analogy which the Fed chair made today.

Not that everyone took it totally seriously:

9.07pm BST

Sir Mervyn King is also speaking at the Mansion House — in a speech called A Governor looks back – and forward.

It includes the traditional sporting allusion:

I shall not detain you this evening with a retrospective examination of my time as Governor. Suffice it to say that it was a game of two halves. And, far from a boring goalless draw, it turned out to be a rather exciting and dramatic game, full of incident, with a red card or two and a passionate and at times justifiably angry crowd.

We shall have to wait for the historians of tomorrow to file the full match report. 

The full speech is online here.

8.57pm BST

Mansion House Speeches

And lo, the day ends with the Mansion House speeches in London.

The great and the good (and the rest) of Britain's financial world are gathered for the annual black tie event. And the big news tonight is that George Osborne is announcing that he will review whether to break up Royal Bank of Scotland.

He's also announcing that the government is "actively considering" returning Lloyds Banking Group to the private sector.

Osborne is declaring:

Nothing better signals Britain's move from rescue to recovery than the fact that we can start to plan for our exit from government share ownership of our biggest banks.

Our banking expert Jill Treanor sums it up:

Updated at 8.58pm BST

8.50pm BST

King to be Lord

Some late news in the UK — Sir Mervyn King is getting a peerage in recognition of his loyal service at the Bank of England

8.41pm BST

A bit more instant reaction to Bernanke

Kit Juckes of SocGen comments:

Bottom line – no backing down, no turning back, the Fed will taper unless the data deteriorate.

Kit also provides a copy of the key quote from Bernanke – on when asset purchases might slow, and then stop.

If the incoming data are broadly consistent with this forecast, the Committee currently anticipates that it would be appropriate to moderate the monthly pace of purchases later this year. And if the subsequent data remain broadly aligned with our current expectations for the economy, we would continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around midyear. In this scenario, when asset purchases ultimately come to an end, the unemployment rate would likely be in the vicinity of 7%, with solid economic growth supporting further job gains, a substantial improvement from the 8.1% unemployment rate that prevailed when the committee announced this program. I would like to emphasize once more the point that our policy is in no way predetermined and will depend on the incoming data and the evolution of the outlook as well as on the cumulative progress toward our objectives.

8.34pm BST

Here's a natty screengrab from Bloomberg, showing how volatility fluctuated through Bernanke's press conference as traders tried to work out what it means:

Volatility during Bernanke's speech
Photograph:/Bloomberg TV

8.31pm BST

And Bernanke's press conference is over.

8.27pm BST

Bernanke: I back Japan’s stimulus

Asked about Japan's stimulus programme, Ben Bernanke says he supports it – and prime minister Shinzo Abe's Three Arrow approach to reviving the economy.

The Bank of Japan needs to be very aggressive to tackle deflation, he says, and is also correct to be targetting fiscal and structural issues.

I support what Japan is doing, he adds, even if it has some effects on our economy, Bernanke adds.

8.25pm BST

8.24pm BST

Quantitative easing is often blamed for pushing up the price of commodities, but Bernanke says he's not seen much evidence that the current US stimulus programme has had an effect. He cited weaknesses in Europe's economy as one factor.

And on the labour market, the Fed chair sais that weak rises in wages is proof that the US unemployment rate is too high (as workers are in a poor bargaining position).

8.22pm BST

Bernanke also denies that the Fed isn't worried about inflation falling below its target (US CPI came in at 1.4% yesterday).

Inflation that is too low is a problem, he says – it's 'entirely wrong' to say the Fed isn't concerned about this risk.

8.20pm BST

Wall Street's looking less-and-less impressed by Bernanke's comments, and the prospect of tapering begining later this year.

The Dow is now down 158 points, or just over 1%, at 15158.

8.17pm BST

Bernanke also refused to reveal why he won't be attending the Jackson Hole symposium this summer — the central bankers shindig of choice.

He points out that he's been to the event many times — so what's the problem with attending different events instead?

Two personal questions in one press conference…..Bernanke's future risks becoming the story.

8.08pm BST

Meanwhile, over in Greece….

While the Federal Reserve was capturing our attention, the meeting between the three leaders of Greece's government broke up.

And Evangelos Venizelos, head of the left-wing Pasok party, has announced that another round of talks will take place on Thursday night, from 8.30pm local time (6.30pm BST).

From Athens, Helena Smith reports:

Mega TV interrupted its news programme to say that the talks have ended but that prime minister Antonis Samaras will not be making statements (as had been hoped).

His partners, socialist Pasok leader Evangelos Venizelos and Democratic Left leader Fotis Kouvellis will make statements however.

Doesn't sound like relations between the three men are fully repaired, following the row ove the closure of Greece's state broadcaster.

8.05pm BST

Bernanke says he hopes for more progress on implementing new rules on the financial sector, but argues that US banks are already being strengthened "as the rules are finalised".

He said:

We are not ignoring the health and safety of the banking sector. The amount of capital held by banks has almost doubled.

7.57pm BST

Key event

A few more key quotes from Bernanke:

7.52pm BST

Bernanke, whose term of office ends in early 2014, also declines to answer a question about his future. I'm here to talk about policy, not personal matters, he smiles.

7.51pm BST

Should we be worried about recent rises in interest rates on US government bonds?

No says Bernanke — it's a sign of optimism in the US economy.

7.48pm BST

Question time. Hasn't the Fed got its forecasts too optimistic in the past, so how can we be sure it's right to be considering tapering later this year?

Bernanke responds that "Fundamentals look a little better", especially in the housing market. But if the US economy falters, asset purchases will continue for longer, he says.

Updated at 7.49pm BST

7.44pm BST

Bernanke on the pace of asset purchases

Next Key Point: If the Fed's economic forecasts are correct, then the committee expects to start slowing its asset purchases scheme this year.

And it would probably end the scheme by the middle of 2014.

Bernanke also told his press conference that the US jobless rate will probably be around 7% when the slowing process begins ends.

That slowing process will be 'gradual'.

Bernanke also insists that slowing asset purchases should not stun the US economy. He describes it as:

Letting up the bit on the gas pedal as the car picks up speed, not pressing on the brake.

IUsing the brakes, by raising rates, is still far in the future, he adds.

Updated at 7.55pm BST

7.37pm BST

Bernanke: our view of normalising policy

Interesting. Bernanke tells his press conference that "a strong majority" of members of the Fed's Open Marcket Committee believe that it will not sell mortgage-backed securities acquired during its QE programme "during the process of normalising policy".

The Fed is currently buying bn of MBSs, and bn of Treasury bonds, each month.

We're not getting more information now, though, with Bernanke insisting that the Fed will continue to support the US economy even as the labour market and economic growth picks up.

Updated at 7.37pm BST

7.33pm BST

Bernanke is starting his press conference by reading out a statement, similar to the one released at 7pm BST (2pm EDT), and explaining the new economic forecasts.

Ben Bernanke, June 19th 2013
Ben Bernanke, June 19th 2013 Photograph: /Federal Reserve

7.30pm BST

HERE COMES BERNANKE

The Federal Reserve chairman's press conference is upon us – you can watch it in this livestream:

7.29pm BST

Fed: early reaction

Here's some early reaction to the Fed's statement, from Jeremy Cook, chief economist at World First foreign exchange said:

We’ve seen a fairly muted response to the Fed decision so far but, on balance, it looks like this is a meeting that was taken with the very real knowledge that markets have been spooked of late by what the central bank could be up to. This is a soothing release; designed to say that the tapering away of asset purchases will come but they are wary of scaring the horses

The balancing act in the data revisions comes down on the side of tapering sooner rather than later given growth is roughly the same as in the March meeting and unemployment is towards the lower side of March expectations too.

The key will be inflation. The Fed’s stock measure of inflation (Personal Consumption Expenditure) only rose 0.7% through the year to April, less than half the bank’s target. While we think that the risk of deflation in the US is low, we also believe that the Fed will continue asset purchases at the current rate through until the end of the year.

The Fed expects these measures to remain muted through 2014.

I am slightly away from the market’s expectations in that I believe that the Fed will not ‘taper’ away its asset purchases until next year. The basis of this is the Fed’s determination to make sure that the recovery in the US jobs market is sustainable. The latest numbers from the US jobs market have simply not been good enough in my eyes; additions to payrolls have not been above trend regularly and the unemployment rate is not improving consistently.

Fold in the likelihood that the world economy is likely to remain in a below trend growth cycle through Q3 and I would think that the Federal Reserve will err on the side of caution; especially as inflation expectations remain so firmly anchored.

7.26pm BST

Handy:

7.25pm BST

The Fed’s new forecasts

Federal Reserve predictions, June 2013
Photograph: Federal Reserve

Clearer version in the Fed's release (pdf).

7.19pm BST

US Treasuries slide on Fed statement

US government bonds have fallen in value since the Fed's statement was released, pushing up the yield (or interest rate) on the debt.

The yield on the 10-year Treasury bond has jumped to 2.27%, from 2.18% this morning, a move of 9 basis points (that's a significant shift for Treasuries).

That shows traders are anticipating an earlier 'tapering' of the Fed's bond-buying programme, despite it holding it unchanged at today's meeting.

Not much reaction in the stock market, though, with the Dow Jones down just 35 points.

7.15pm BST

Fed upgrades unemployment forecsts

The Federal Reserve has also released its new economic forecasts. They show that it now expects the US jobless rate to be lower next year than three months ago. They're online here.

The Fed nowe expects the unemployment rate to be between 6.5% to 6.8% in 2014, down from 6.7% to 7% in March.

With 6.5% seen as the crucial target for the Fed before it starts to tighten monetary policy, this suggests the end of ultra-lose monetary policy may be closer than previously thought….

7.07pm BST

Fed Statement in Full

Here's the full statement released by the Federal Reserve:

Information received since the Federal Open Market Committee met in May suggests that economic activity has been expanding at a moderate pace. Labor market conditions have shown further improvement in recent months, on balance, but the unemployment rate remains elevated. Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy is restraining economic growth. Partly reflecting transitory influences, inflation has been running below the Committee's longer-run objective, but longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee sees the downside risks to the outlook for the economy and the labor market as having diminished since the fall. The Committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective.

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of billion per month and longer-term Treasury securities at a pace of billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.

The Committee will closely monitor incoming information on economic and financial developments in coming months. The Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes. In determining the size, pace, and composition of its asset purchases, the Committee will continue to take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objectives.

To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Jerome H. Powell; Sarah Bloom Raskin; Eric S. Rosengren; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action was James Bullard, who believed that the Committee should signal more strongly its willingness to defend its inflation goal in light of recent low inflation readings, and Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations."

7.06pm BST

FED DECISION

The Federal Reserve's statement is out — the FOMC has voted to leave its QE programme unchanged at bn per month, although two members have dissented.

The Fed also stated that "downside risks" to the economy and the labour market have diminished 'since the Fall', with improvements to the employment sector in recen months.

It also reiterated to keep monetary policy at its current loose levels until the jobless rate has dropped below 6.5%.

Here's the Reuters snaps:

  • FED REPEATS WILL BUY LONGER-TERM TREASURY SECURITIES AT PACE OF bn A MONTH, AGENCY MBS AT bn A MONTH FED SAYS DOWNSIDE RISKS TO OUTLOOK FOR ECONOMY AND LABOR MARKET HAVE DIMINISHED SINCE THE FALL
  • FED VOTE IN FAVOR OF POLICY WAS 10-2; BULLARD DISSENTED, CITING RECENT LOW INFLATION READINGS; GEORGE DISSENTED, REPEATING CONCERNS OF FUTURE IMBALANCES
  • FED SAYS LABOR MARKET CONDITIONS HAVE SHOWN FURTHER IMPROVEMENT IN RECENT MONTHS, BUT JOBLESS RATE REMAINS ELEVATED
  • FED SAYS INFLATION HAS BEEN RUNNING BELOW TARGET, PARTLY REFLECTING TRANSITORY INFLUENCES; LONG-TERM INFLATION EXPECTATIONS STABLE
  • FED-TO KEEP FED FUNDS RATE 0-0.25% AS LONG AS JOBLESS RATE ABOVE 6.5%, 1-2 YEAR PROJECTED INFLATION NO MORE THAN 2.5%, LONGER-TERM INFLATION EXPECTATIONS WELL ANCHORED 
Federal Reserve Board Chairman Ben Bernanke testifies before the Joint Economic Committee in Washington in this May 22, 2013 file photo.
Federal Reserve Board Chairman Ben Bernanke. Photograph: GARY CAMERON/Reuters

Updated at 7.07pm BST

6.58pm BST

Fed statement imminent

Just a couple of minutes until the Federal Reserve's decision on US monetary policy, and updated economic forecasts.

Analysts and traders will be looking to see if the Fed has actually slowed its stimulus package (currently running at bn of bond purchases), and for any changes to the wording of its statement. 

Its new economic forecasts will be scrutinised for any changes to its growth and employment predictions. That could show whether the US central bank is closer, or further away, from slowing its quantitative easing programme.

6.28pm BST

Berlusconi declares support for Italian government despite court blow

In other euro crisis news, Silvio Berlusconi has vowed to keep supporting Italy's coalition government despite losing his bid to block his tax fraud conviction, from last October.

In a statement, Berlusconi said:

Today's constitutional court decision, which goes against common sense and all the preceding jurisprudence made by the very same court, will not have any influence on my personal commitment to support the government with loyalty and conviction.

The decision means the original judges who convicted the former prime minister eight months ago, and sentenced him to four years in prison, must now decide on his appeal.

Berlusconi claims they acted unfairly by not allowing him to delay a hearing in March 2010, which he couldn't attend due to prime ministerial duties.

6.06pm BST

Cyprus government’s denial in full

The Cypriot government has now released its full statement denying asking for changes to its bailout programme. Prime minister Anastiades was simply trying to alert fellow leaders to the economic challenges on the island when he wrote to them last week, apparently.

Here's the full statement, which comes hours after EU officials ruled out any leeway for Cyprus (see 9.25am)

Clarifying letter by the Government Spokesman regarding an article in the Financial Times 19/06/2013

The Government Spokesman, Mr Christos Stylianides, sent today the following clarifying letter in relation to an article in the Financial Times entitled “Cyprus President calls for bailout overhaul to save economy”. Specifically, the letter says:

“In response to Peter Spiegel’s article in the Financial Times issue of June 18, regarding President Anastasiades’ letter to the European leaders last week, I would like to offer the following clarifications.

The letter of President Anastasiades in no way aimed at a reversal of the memorandum of understanding (MoU), as the article reports.

As has been favourably observed by the EU institutions, Cyprus, in fact, applied most of the terms of the memorandum, even before the agreement was signed and sealed. Allow me to clarify that the Government is fully committed to implement all the provisions of the MoU, with the aim of achieving its objectives.

Furthermore, I would like to emphasize that it is not true to state, as reported in the said article, that failure to adequately prepare for the bailout impact is partly the Anastasiades’ government’s fault, which voted down the original plan, before accepting a similar deal nine days later.

In fact, the Government did not vote down the original plan. It submitted, as it was duty bound, the deal it had reached with its European partners to the Cyprus House of Representatives and it is the House that voted against it, in the first instance.

The objective of the President’s intervention was to bring to the attention of our European partners important issues, that are inhibiting the achievement of the objectives of the MoU and initiate a dialogue with a view to finding the best way forward.

I reiterate once again that the Cyprus government is fully committed to applying the terms of the memorandum and has already embarked on that road, because it is convinced that the full and transparent implementation of the agreement is the only way the economic challenges can be addressed There is no attempt to renegotiate the MoU.”

Updated at 6.09pm BST

5.19pm BST

While we wait for anything official from Athens following today's meeting of coalition leaders, here's an interesting piece on RadioBubble about the closure of Greek state broadcaster ERT:

Truths and lies about ERT: A former news director answers the Prime Minister's claims

It points out that Antonis Samaras, who has accused ERT of corruption and cronyism, actually made several senior appointments to the organisation. It also suggests the PM should share some blame for its recent drop in popularity. Interesting stuff

Updated at 5.34pm BST

5.01pm BST

Markets close

Traders gather at posts on the floor of the New York Stock Exchange Wednesday, June 19, 2013.
Traders on the floor of the New York Stock Exchange today. Photograph: Richard Drew/AP

Europe's stock markets have closed, with all the major markets falling during a day spent waiting for the Fed.

David Jones of IG explain:

It being Fed day, investors are stuck doing their best ‘rabbit in the headlights’ impression, unable to move much for fear of being caught out.

What will be, will be, and we just have to note that the Fed remains a fair distance from both its unemployment and inflation targets. Thus, despite the fairly broad improvement in the US economy, it is probably too early to take the monetary policy crutches away.

And the details… the FTSE 100 inished 25 points lower at 6348. That fall of -0.4% was matched by the Geman DAX, while the French CAC shed 0.55%.

Spain and Italy's main markets both closed around 1% lower.

In New York, the Dow Jones is flat.

Just two hours to wait for the Fed.

4.33pm BST

Cyprus denies seeking bailout changes

It appears that Cyprus has written to the Financial Times to insist that it is not demanding its bailout programme is overhauled, as the paper reported on its front page this morning (see 9.25am).

Via Reuters:

Cyprus is fully committed to implementing an EU/IMF bailout that saved the island nation from bankruptcy and is not attempting to renegotiate its terms, the government's spokesman said on Wednesday.

"I reiterate once again that the Cyprus government is fully committed to applying the terms of the memorandum and has already embarked on that road," Christos Stylianides wrote in a letter to the Financial Times and circulated to media.

"There is no attempt to renegotiate (it)". Stylianides was responding to an article in the Financial Times citing a letter Cypriot President Nicos Anastasiades sent to euro zone officials criticising the bailout terms. Reuters reported the letter on June 11.

Nicos Anastasiades's letter to the Troika is still online here. The key lines come at the end, with the president "calling upon you for active and tangible support" for its banking sector. He suggests reversing the merger of the 'good' portion of Laiki bank with Bank of Cyprus – which was a key part of the rescue programme.

So Nisosia may still be 'fully commmitted' to the bailout, but it still wanted additional help….

3.37pm BST

News flashes from Cyprus on the wires – the Nicosia government pledging to stick to its bailout plans.

• 15:27 – CYPRUS IS "FULLY COMMITTED" TO APPLYING TERMS OF EU/IMF BAILOUT-GOVT SPOKESMAN

ª 15:28 – CYPRUS SAYS IT IS NOT ATTEMPTING TO RENEGOTIATE BAILOUT-GOVT SPOKESMAN

More to follow…..

3.29pm BST

Video: Ed Balls on the Banking Commission report

And here's the shadow chancellor, Ed Balls, backing the call for bank reforms:

Updated at 3.30pm BST

3.28pm BST

Cameron supports new measures on bad bankers

Back on the UK Banking commission…and David Cameron has told parliament that the banking reform bill going through parliament will be amended to include powers to jail bankers for reckless misconduct.

The prime minister told MPs:

Obviously we need to take time to read this excellent report and I commend [Andrew Tyrie] for the excellent job that he has done. But penalising, including criminal penalties against bankers who behave irresponsibly, I say yes.

And also making sure that banks who are in receipt of taxpayers' money – that you can claw back bad bonuses I say yes too.

That may not please the Institute of Directors. Its director of Corporate Governance and Professional Standards, Dr Roger Barker, has just claimed the idea is flawed and counterproductive:

The risks associated with taking on personal liability could make it hard to recruit senior people and potentially drive up pay, which is clearly not the Commission’s intention.

On the other hand, any bankers who wants extra pay to compensate for the fact they might break the law should perhaps be avoided…

(see 11.12am onwards for more details of the Commission report, and our reader poll)

Updated at 3.29pm BST

2.55pm BST

Wall Street calm before Bernanke

Wall Street is open, and traders are sitting on their hands while they wait for the Federal Reserve's monetary policy decision and updated economic forecasts in around four hours.

Then the big event, Ben Bernanke's press conference, 30 minutes later.

The Dow Jones is down slightly, losing just 27 points at 15291 (-0.17%), while the major European stock markets are also in the red today:

Stock markets, 2.45pm June 19
Photograph: Thomson Reuters

2.47pm BST

Troika statement on Greece

The European Commission, ECB and IMF has released a pretty terse statement on their latest 'Troika' visit to Greece.

Here it is in full:

A mission from the EC, ECB, and IMF that has been reviewing the government's economic programme has made important progress. To allow completion of technical work, policy discussions will pause, but are expected to resume by the end of the month.

That technical work means assessing exactly how well (or badly) Greece is doing meeting its bailout targets. That includes laying off thousands of civil servants this year, an area where Athens has struggled.

2.21pm BST

Meanwhile in Greece, employees of state organisations who are at risk of dismissal have been demonstrating outside the Parliament in Athens today:

Employees of state organisations in danger of dismissal demonstrate in front of the Parliament Building, in Athens, Greece, 19 June 2013.
Photograph: ORESTIS PANAGIOTOU/EPA

2.09pm BST

Greek junior coalition leaders to demand concessions

Greece's coalition leaders are due to sit down in two hours time to discuss the way forward, following the row over state broadcaster ERT's closure.

The Junior partners, Evangelos Venizelos of Pasok and Fotis Kouvelis of Democratic Left, have already held a meeting to agree a joint position ahead of their crunch talks with PM Antonis Samaras.

Could the government collapse? Mujtaba Rahman, European director at Eurasia Group, reckons not.

Here's highlights from Rahman's latest analyst note:

Importantly, neither PASOK nor Democratic Left have threatened to leave the government. Instead, they have been looking to extract certain concessions. Venizelos wants a cabinet reshuffle to actually increase his party's participation and visibility in the government (his original strategy was to shadow the government in case things went wrong; however, as the program has performed Samaras has been swallowing all of the credit).

In terms of specifics, the current speculation is that PASOK is targeting the ministry of administrative reform as well as some deputy minister positions in the health and labour ministries. Likewise Kouvelis does not object to a reshuffle. Venizelos's and Kouvelis also keep repeating their desire for a renewal of the government's agreement and better "coordination of the government". In the aggregate, these statements should be interpreted as a warning to Samaras that he cannot decide on big policy issues without more active involvement and agreement of the coalition heads.

Of course, the latest opinion polls show that Pasok and Democratic Left would be big losers if an election was held soon. Both are currently polling around the 4-7% mark, compared to New Democracy at 29-30%.

Rahman adds:

Samaras personally comes in around 43% compared to Syriza's Tsipras at 37%, depending upon the poll). And government collapse would almost certainly lead to an internal leadership challenge within PASOK.

1.44pm BST

Cypriot President Nicos Anastasiades signing a document during the swearing-in ceremony for a new president and new judge of the Supreme Court, at the presidential palace in Nicosia on June 19, 2103.
Cypriot President Nicos Anastasiades at the presidential palace in Nicosia today. Photograph: STAVROS IOANNIDES/AFP/Getty Images

Following the Cyprus president's appeal for its bailout to be reexamined, economist Shaun Richards argues that the country must consider leaving the single currency.

He summarises Anastasiades' letter in this blog post, before wearily concluding:

So far his appeal has fallen on deaf ears, as this morning a spokesman for the European Commission has made it clear – that just like the Titanic – the plan is to go full steam ahead.

He then takes the latest economic data for Cyprus to assemble a dire picture of deflation, falling retail sales and shrinking GDP, with capital controls continuing to stifle economic growth.

A repeat of Greece's depression-grade slump looks likely:

Unfortunately the evidence so far is that my prediction from March 25th that the contraction that hit Greece will be repeated in Cyprus looks as though it is coming true and I fear that the risks are of something worse. However there is another way for Cyprus which would be to in effect reset the economic button via abandoning the capital controls imposed on her and leaving the Euro. At least there would be some hope and she would be doing so in a disinflationary phase which will help with any inflationary implications.

However, Cyprus does have one weapon – the €11bn of assistance provided the the ECB to prop up its banking sector:

As to threats from the Euro area she does have the bargaining counter of 11 billion Euros of Emergency Liquidity Assistance provided by the European Central Bank (via the Central Bank of Cyprus). So her bargaining position is stronger than it may initially appear.

More here: Cyprus needs to leave the Euro to have any chance of an economic recovery

12.50pm BST

Cyprus stil favourite to leave eurozone after bailout plea

Cyprus is now an evens-money bet to leave the eurozone within the next 12 months.

Ladbrokes slashed its odds after president Anastiades called for its bailout to be revamped. The news that he had been swiftly rebuffed by EU officials this morning (see 9.25am), means Cyprus remains the most likely country to leave the eurozone.

Next country to leave the Euro

  • Cyprus: 1/2
  • Greece: 2/1
  • Slovenia: 7/1
  • Italy: 10/1
  • Spain: 10/1
  • Portugal: 12/1
  • Cyprus to leave the Euro within a year: evens

Alex Donohue of Ladbrokes commented:

Cyprus have always been market leaders when it comes to leaving the Euro next. The latest news has seen their position strengthen and it would now be considered an upset were they not to leave within a year at least.

12.26pm BST

Fed meeting: latest reaction

Time for another look ahead to Ben Bernanke's press conference tonight, and the Federal Reserve's monthly decision on monetary policy (see our opening post at 8.12am for details)

Kit Juckes of Société Générale believes the Fed must start to slow its bond-buying programme soon, and is braced for some wild swings in the financial markets this summer.

There are good and bad ways to let air out of balloons, but the worst of all is not to start. Most US economists expect the Fed to start reducing its monthly bond purchases later this year, but the wider market view is much more mixed and there are plenty who expect the FOMC to put enough criteria in the way of tapering, to calm markets.

The next leg of a summer of market volatility is likely to start in the days ahead.

Jane Foley of Rabobank points out that Bernanke brought the attention on himself. The weak US labour market means the Fed's unlikely to 'taper' its bond-buying programme tonight, she adds:

Since Bernanke uttered the words on May 22 that the Fed could start to taper QE “at the next few meetings”, the markets have been focussed on the outcome of today’s FOMC decision at 19:00 BST and the press conference that will follow 30 minutes later. Insofar as Bernanke is unlikely to contradict himself, it is likely that the Fed President will reiterate his warnings that the Fed could start to taper QE in the foreseeable future. However, we do not expect this to happen before the turn of the year. 

The US unemployment rate currently stands at 7.6%. This is significantly below the 10% high registered in 2009. However, the US labour market has a long way to go before it can claim to have returned to pre-crisis levels. The labour force participation rate has only just come off a 37 year low. This suggests that the headline unemployment rate is understating the actual levels of joblessness and underemployment in the economy, potentially by a large margin.

RanSquawk’s FOMC preview

And Ransquawk predicts that the Fed will reiterate that it expects to maintain exceptionally low rates until mid-2015 or until the unemployment rate reaches 6.5%.

More in their video preview above, which explains how traders will be looking for any signs that Bernanke has turned more hawkish.

11.42am BST

The FT's James Mackintosh, though, reckons our bankers could even turn the threat of jail to their advantage:

11.15am BST

Should bankers be jailed? Vote now!

We're running a reader poll on whether the threat of jail for bad bankers would improve the industry, as recommended by the Banking Commission.

Would the threat of jail be enough to end bankers' reckless behaviour?

Shadow business secretary Chuka Umunna believes it would help:

Updated at 11.39am BST

11.12am BST

Banking Commission: reaction

The long-awaited report into Britain's banking sector, released at midnight, has captivated attention today.

The recommendation that bankers guilty of 'reckless misconduct' could be jailed has captured attention, while the commission also criticised the macho culture in British banking, and the government's meddling in the sector in recent years.

The report has been welcomed by chancellor George Osborne, Labour's Ed Balls, and many senior figures.

We've rounded up all the reaction here.

And here's our full story on the Banking Commission report:

Banking commission: Bankers should be jailed for 'reckless misconduct'

Commission led by Andrew Tyrie recommends jailing reckless bankers for and enforcing a wait for bonuses

10.52am BST

Eurozone construction output rises

Eurozone construction data, to April 2013
Construction data, to April 2013. Eurozone is pink, EU is black. Photograph: /Eurostat

There are encouraging signs of life in Europe's construction sector, with production rising by 2.0% in the euro area in April compared with May.

Eurostat reported big month-on-month increases in Germany (+6.7%), Portugal (+5.9%) and Italy (+5.5%). Work at civil engineering sites jumped by nearly 4% in the euro area, outpacing the 1.1% rise in building construction.

Output across the EU rose by 0.9%.

Monthly construction output can be volatile, and today's increase still leaves eurozone output around 6.6% lower than a year ago – in the early days of the recession.

Still, it may suggest the downturn is bottoming out.

10.14am BST

Bank of England minutes: early reaction

File photo dated 08/08/12 of a general view of the Bank of England.
The Bank of England. Photograph: Yui Mok/PA

Reuters has rounded up the early economist reaction to the Bank of England minutes, which showed its monetary policy committee was split 6-3 again over quantitative easng (and 9-0 to leave interest rates unchanged).

Here's some highlights:

Ross Walker of Royal Bank of Scotland:

There's no dramatic departure but the minutes serve as a reminder the MPC retains a dovish bias. The on-hold majority noted the rise in bond yields in response to Fed tapering concerns and hinted more QE could be done in response to that.

Philip Rush of Nomura:

It's as expected in terms of the vote split but, for me, the tone is slightly more dovish than the market might have expected. The minority voting for more QE thought the case for more stimulus remained compelling and the economic outlook was no stronger than it was in May.

It seems clear that both Fisher and Miles will continue to vote for more QE when Carney takes over next month.

Howard Archer of IHS Global Insight:

We now move to the Carney era at the Bank of England, and he will no doubt be relieved to see the economy looking a bit perkier as he takes up the reins.

Indeed, with the economy currently showing signs of widespread improvement, pressure on Carney to take immediate action has receded thereby giving him more time to take full stock of the situation from within the Bank of England and to establish his working relationship with the rest of the MPC.

"We believe it is unlikely that any major policy action will occur at the July MPC meeting, especially as the committee will be getting the Bank of England’s new growth and inflation forecasts at the August meeting.

While we do not expect any action from the Bank of England in July, we believe further Quantitative Easing is still very possible further out.

And here's more reaction:

9.50am BST

Bank of England Minutes: the details

The situation in the eurozone helped to persuade King, Fisher and Miles that Britain's economy needs another £25bn of quantitative easing (effectively creating fresh money to buy government bonds from the banks)

The minutes state that:

For other members the case for more monetary stimulus remained compelling…..

The risks from the euro area remained substantial, especially through their potential effects on the UK banking sector. Commodity prices were lower and domestic cost pressures, as illustrated by very low pay growth, remained weak.

The minutes also show that UK inflation, which hit 2.7% yesterday, is probably doing to hit 3% this summer. That's the level that precipitates a letter from the governor to the chancellor, explaining himself.

That job will fall to King's replacement, Mark Carney:

9.38am BST

Bank of England minutes released

Sir Mervyn King was, again, outvoted in his bid for another dose of quantitative easing to stimulate the UK economy, for the final time before he leaves the Bank of England.

Minutes from this month's Monetary Policy Committee meeting, just released, show that the committee divided 6-3 against another £25bn of quantitative easing.

Once again, the outgoing governor was joined by Paul Fisher and David Miles.

The minutes are online here (pdf).

Details and reaction to follow

Updated at 9.39am BST

9.25am BST

Cyprus call for bailout help falls on stony ground

Eurozone officials have slapped down Cyprus's bid to have its bailout terms softened.

Last week, Cyprus's president wrote to fellow eurozone leaders pleading for more help, and pointing out that his island was a casualty of the Greek debt restructuring.

Anastasiades's appeal, though, is likely to be rebuffed when finance minister meet tomorrow, ahead of an euro summit next week.

Reuters has the story:

Asked if the terms of the bailout could be changed, one senior EU policymaker said: "No, not as far as I can see."

A second official said: "There's no chance we'll revise the terms of the bailout, but we'll discuss it on Thursday."A third confirmed no change was possible in the short-term, but said there could "potentially" be adjustments in the medium term, as was the case of Greece. However, that also depends on euro zone leaders, who will meet on June 27-28.

The officials were speaking after the Financial Times gave the letter the front-page treatment today:

Financial Times Front Page, June 19 2013
Photograph: Financial Times

Open Europe has helpfully translated and published Anastasiades's letter here: Full letter from the Cypriot President to the Troika slamming Cypriot bailout

In it, he warns that Cyprus's economy is struggling to cope with the shock of the abrubt restructing of its banking sector, a badly prepared bailout, and ongoing liquidity problems at the Bank of Cyprus – which he dubbed a 'mega-systemic bank'.

Updated at 9.29am BST

9.09am BST

Greek leaders meet as Troika takes a breather

Greek prime minister Antonis Samaras and his coalition partners, PASOK leader Evangelos Venizelos and Fotis Kouvelis of Democratic Left (DIMAR), are expected to discuss a cabinet reshuffle when they meet at 4pm BST tonight (or 6pm local time).

Kathimerini describes the meeting as "crucial talks aimed at bridging a rift over the closure of state broadcaster ERT that has put the future of the government in doubt".

European Commission Director Matthias Morse (front) and European Central Bank's (ECB) Mission Chief for Greece Klaus Masuch leave the Prime minister's office in Athens June 18, 2013.
European Commission Director Matthias Morse (front) and European Central Bank mission chief for Greece Klaus Masuch leaving the prime minister’s office in Athens last night. Photograph: YORGOS KARAHALIS/REUTERS

Interestingly, officials from the Troika have paused their latest assessment of Greece's economy for a week, following talks last night.

The finance ministry stated last night that the sides have made decent progress. However, following the ERT row, and the recent problems with its privatisation programme, the Troika must be concerned about the situation….

Updated at 9.29am BST

8.51am BST

Market update

European stock markets are falling in early trading. The prospect of Ben Bernanke hinting tonight that the US stimulus package could be slowed soon is making investors cautious.

FTSE 100: down 36 points at 6337, – 0.6%

German DAX: down 48 points at 8180, -0.6%

French CAC: down 26 points at 3834, -0.7%

Spanish IBEX: down 65 points at 8114, -0.8%

Italian FTSE MIB: down 57 points at 16140, -0.35%

Mike McCudden, head of derivatives at stockbroker Interactive Investor, says traders are nervous….

Despite strong signs of improvement in the US economy, equity markets have been pricing in investor sentiment that Bernanke won't be scaling back on his QE programme any time soon.

Confirmation from the man himself later today may have the power to propel markets back up to recent highs but in early trade nervous investors are heading for the sidelines. Furthermore, market chatter that Bernanke may have decided not to stand for another term has awoken some bears from hibernation.

On that last point, Barack Obama strongly hinted this week that Bernanke will exit the Fed when his term expires in early 2014. The US president said that, like the head of the FBI, Bernanke has "already stayed a lot longer than he wanted or he was supposed to."

Updated at 8.53am BST

8.35am BST

Federal Reserve meeting: what the analysts and traders are saying:

Ben Bernanke's challenge tonight is to persuade those in the financial markets that the Fed can extricate itself from the warm, soothing glow of quantitative easing without a nasty shock.

So argues Marc Ostwald of Monument Securities:

So what is it that Mr Bernanke needs to deliver today in order for some form of calm to be restored?

The simple answer is to persuade markets that the Fed and other central banks can exit QE [quantitative easing, or bond buying] without inflicting a cataclysmic blood bath in financial markets, and without forcing a more substantive deleveraging, and wholesale write-off of non-performing assets in the mainstream financial sector, and also not unleashing wholesale destruction in the shadow banking sector.

In the "Goldilocks" scenario, Bernanke would argue that economic growth is just decent enough to allow some responsible slowing of QE at the appropriate time. Has he got the stomach for it, though, in the face of massive easing in Japan, and a rather stricter approach in the eurozone.

Ostwald isn't sure:

[it] looks to be an extraordinarily tall order for a man, who along with his departing 'academic in arms' Sir Mervyn King, is clearly weary of 'fighting a good theoretical fight' which founders eternally on the myopia of unreconstructed, and totally self-interested politicians and the captains of the financial sectors, along with those pesky realists that inhabit the ECB's increasingly numerous hawkish wing, (perhaps fleeing from Signor Activist Draghi).

And here's more early reaction:

Mike van Dulken, head of research at Accendo Markets hopes that Bernanke can take the idea of 'tapering' (ie, slowing the pace of the Fed's bond-buying) off the agenda for a while:

Maybe the markets are slowly coming round to accepting tapering will occur at some point (likely a few months away), but convinced now that there are no rate rises anytime soon and tapering can always be reversed?

To be honest, a tapering of taper talk would be nice.

Stan Shamu of IG reckons Bernanke will be cautious:

There is a high probability that Mr Bernanke will only make minor changes to his statement and will re-emphasise inflation and employment as the key metrics for adjusting asset purchases.

Following the recent data, we wouldn’t be surprised to see minor revisions to growth and employment.

And here's some Twitter chat, with Robin Bew of the Economist Intelligence Unit speculating that emerging market bonds could be hit if Bernanke hints at an early tightening:

Updated at 8.53am BST

8.17am BST

Today’s agenda

Coming up:

Bank of England minutes: 9.30am BST

Eurozone construction data for April: 10am BST / 11am CEST

Greek coalition leaders meet: from 4pm BST/ 6pm local time

Federal Reserve announces monetary policy decision, and releases latest economic forecasts: 7pm BST / 2pm EDT

 • Ben Bernanke's press conference: 7.30pm BST / 2.30pm EDT

• George Osborne's Mansion House speech: 8pm BST

Updated at 8.32am BST

8.12am BST

All City eyes on the Fed

Traders work on the floor of the New York Stock Exchange on June 17, 2013 in New York City.
Traders work on the floor of the New York Stock Exchange on June 17, 2013 in New York City. Photograph: Spencer Platt/Getty Images

Good morning, and welcome to our rolling coverage of the latest action across the eurozone, the financial markets and the global economy.

Few central bank events in recent years have been anticipated quite as eagerly as today's meeting of the US Federal Reserve's Open Market Committee.

The prospect of the Fed slowing its stimulus package has loomed over the financial markets for weeks now – and finally, it's time for Ben Bernanke to update us all on his views on America's economy, and future monetary policy.

The Fed will also release new growth forecasts for the world's largest economy. The FOMC isn't expected to start tightening policy today, but Bernanke's performance at his press conference tonight will be vigorously combed over for signals as to when its bond purchase scheme might start to be 'tapered' (as the jargon has it).

The Fed is currently buying bn of US government bonds and mortgage bonds each month with new electronic money, and the prospect of this punch bowl being taken away has already jolted shares and bonds in recent weeks.

As Michael Hewson of CMC Markets points out:

Given recent market volatility it is going to extraordinarily difficult for the Fed Chairman to signal any type of exit strategy without causing some form of market rout, which essentially makes the Fed a hostage to market sentiment.

adding:

How he goes about managing perceptions in his press conference will determine whether or not we head straight back down again after last nights gains, with the likelihood that we could well see continued volatility throughout the summer as the market scrutinises each and every economic data point, with a view to timing the taper.

Which also underlines what unusual times we are living through.

There's also lots more going on today, both in the eurozone and beyond.

• Greece's coalition leaders are holding fresh talks this afternoon to attempt to patch up relations, following the row over the closure of state broadcaster ERT.

I'll also be monitoring reaction to the news that Cyprus's president has asked for its bailout to be rewritten.

• In the UK, we get the latest minutes from the Bank of England's latest interest rate/QE-setting meeting. And, tonight, chancellor George Osborne will deliver the Mansion House Speech.

Also, an influentual report into the banking sector, published by MPs this morning, will also dominate the news agenda in Britain. Its recommendations include the proposal that reckless bankers who cause a crisis should face jail.

Busy day ahead….

guardian.co.uk © Guardian News & Media Limited 2010

Published via the Guardian News Feed plugin for WordPress.


USA 

The Eurogroup concludes that the necessary elements are in place for Member States to finalize the procedures required for the approval of the next EFSF instalment, which amounts to €7.5 bn. ESM agrees €3bn for Cypriot bailout…

 


Powered by Guardian.co.ukThis article titled “Eurozone crisis: Bailout payments for Cyprus and Greece agreed – as it happened” was written by Graeme Wearden, for theguardian.com on Monday 13th May 2013 18.20 UTC

9.14pm BST

Closing summary

Time to wrap up for the day.

To catch up on tonight's eurogroup press conference, see 7.36pm onwards for full highlights.

Here's a closing summary.

Greece and Cyprus are both receiving their next aid payments, in a move that removes the danger of either country running short of cash in the next few weeks.

After a meeting in Brussels this afternoon, the Eurogroup of finance ministers announced that Greece has done enough to quality for its next loans. €4.3bn will be handed over immediately, and the rest in June when a few outstanding issues have been addressed. (see 7.43pm for details)

Cyprus was awarded its first aid tranche under its bailout agreement earlier this afternoon, by the European Stability Mechanism. The Nicosia government gets €2bn immediately, and a further €1bn in June (see 3.30pm).

The Eurogroup also warned Slovenia that it must do more to reform its economy and strengthen its banks. (see 7.48pm)

In Greece… there were protests tonight over the government's attempts to stop a teachers strike. See 5.24pm onwards.

And grim construction data showed that the number of new building permits in Greece has almost halved, year-on-year. See 11.53am

The prime ministers of Spain and Portugal challenged Europe to agree banking union quickly, and called for more help to address their unemployment crises. See 5.58pm for a full report.

• Israel's central bank became the latest to cut interest rates, and also launched a programme to stop the shekel appreciating. See 1.50pm

A survey by Fitch found that a majority of investors believe financial markets are too calm, or too bullish, as the eurozone crisis has further to run. See 12.29pm

Italy held a succesful bond auction (see 11.31am onwards).

And another ECB policymaker hinted at negative interest rates for bank deposits (see 10.13am).

Thanks for reading, and for all the comments as ever. I'll be back tomorrow morning Goodnight! GW

Updated at 9.14pm BST

8.35pm BST

Not the most dramatic eurogroup meeting since the financial crisis struck…. and that's not a bad thing either.

8.27pm BST

It’s over

And that's the end of the eurogroup press conference.

Updated at 8.27pm BST

8.27pm BST

Asked about plans for eurozone banking reform, Jeroen Dijsselbloem repeats his goal of agreeing rules for bank recapitalisaion by the end of next month.

That would help pave the way to a single supervisory mechanism for the euro financial sector, from the summer of 2014.

8.24pm BST

Rehn: Greece could beat forecasts

A question on Greece, and the news today that the Troika's latest assessment shows that further measures may be needed to meet its targets in 2015 and 2016 (as covered at 2.25pm)

Rehn (again) says it is too early to say if additional measures needed, because Greek economic growth could be higher than expected.

OK, but since the financial crisis began Greece has consistently missed its forecasts to the downside….

Updated at 8.25pm BST

8.19pm BST

Olli Rehn at the Eurogroup, May 13 2013
Olli Rehn at tonight’s Eurogroup press conference.

On Portugal… Olli Rehn (who's doing the bulk of the talking tonight) says that its reform programme is "by and large" on track, and that political agreement has been reached on the seventh review of the Portuguese bailout program.

8.15pm BST

A Spanish journalist asks about the unemployment crisis raging in his country. Olli Rehn replies that the jobless crisis must be addressed, but puts part of the blame on "large and unsustainable macroeconomic balances" within the Spanish economy.

8.13pm BST

Rehn defends legality of banking union

Matina Stevis of the Wall Street Journal/Dow Jones asks about another key issue, the legality (or not) of introducing banking union and a single resolution scheme under the current EU treaties.

In reply, Jeroen Dijsselbloem admits that there are 'different opinions' over the important question of whether treaty change is needed. That shouldn't prevent the eurozone moving "far and as fast as we can", he adds.

And Olli Rehn says he's confident that all the elements of a banking union can be decided on the basis of the current treaty. But he then adds that work is continuing on the precise legal basis of a single resolution mechanism.

8.05pm BST

Rehn: We’d like to lift capital controls…

How long will Cyprus suffer capital controls?

Olli Rehn says that the eurozone would like to see the Cyprus government relax capital controls "for the point of view of economic recovery".

However, this could only happen when it was "safe, from the point of view of capital outflows".

UPDATE: To clarify, the capital controls are an issue for the Cyprus government, not the eurozone. Rehn's point is that the eurozone would like them lifted, but only when the moment is right

Klaus Regling of the ESM, who is also taking part in the press conference, denies that the Cyprus crisis has caused alarm across the eurozone. He points to a succesful Portuguese debt auction last week.

Updated at 8.38pm BST

7.58pm BST

Question time….

Asked about Slovenia's efforts to avoid a bailout, Olli Rehn says it's too early to say whether the country's reform programme is sufficient and credible.

On Greece, Rehn say the next 'review mission' will take place in the coming weeks. He also explains that Athens is expected to meet the remaining 'prior actions' this week, to ease the way for its €2.3bn aid payment in June.

Updated at 7.58pm BST

7.55pm BST

Now Olli Rehn, European Commissioner for monetary union, speaks — saying it's important the eurozone leaders work "intensively" to reach a solution on rules for bank recapitalisation by June.

Rehn also warned that Europe's banking sector remained a drag on its economy, as bad debts have not been recognised and cleaned-up – as happened in the US.

7.48pm BST

Slovenia also gets a rebuke, with Dijsselbloem saying the Eurogroup agreed that the Slovenian government must take swift action to reform its economy and restore trust in its banks.

Not sure that will exactly boster confidence in the Slovenian system at this time….

And nor is Lorcan Roche Kelly, chief Europe strategist at Trend Macrolytics:

Updated at 7.49pm BST

7.47pm BST

There's also a seperate statement on Cyprus – online here.

7.45pm BST

On Cyprus, Jeroen Dijsselbloem says that the Cypriot government has delivered on its bailout promises.

He welcomed the news today that the European Stability Mechanism has issued €2bn to Cyprus today (see 3.30pm), with another €1bn on the way.

Updated at 8.00pm BST

7.43pm BST

Eurogroup: Greece should get its next aid tranche

The Eurogroup has issued a statement on Greece – it's online here.

It confirms that Greece is ready to get €4.2bn of aid immediately, and a further €3.3bn €2.3bn once remaining measure have been taken (as Jeroen Dijsselbloem outlined at 7.40pm).

Here's the key statement:

The Eurogroup concludes that the necessary elements are in place for Member States to finalise the relevant national procedures required for the approval of the next EFSF instalment, which amounts to €7.5 bn.

The disbursement will take place in two sub-tranches. A first sub-tranche of €4.2 bn will be approved by the EWG and the EFSF Board of Directors in the following days, following the completion of the national procedures and the full implementation of the prior actions.

The disbursement of the second sub-tranche will be made in June 2013, linked to the implementation of the MoU milestones as agreed between Greece and the Troika.

Updated at 9.01pm BST

7.40pm BST

Dijsselbloem: A few priorities for Greece

On Greece, Dijsselbloem says that Greece has been making tremendous efforts, and claimed those efforts are now bearing results.

The Eurogroup has identified three priorities for Greece before it gets its next aid tranche — reforming its tax collection, opening up some professions, and reforming its public services.

Dijsselbloem says these remaining hurdles can be addressed in the coming days.

7.36pm BST

Eurogroup press conference begins.

The press conference is underway!

Jeroen Dijsselbloem says the Eurogroup considered the latest Spring forecasts from the EC (which warned of a deeper recession this year).

Dijsselbloem said Europe was "Not out of the woods", but was paving the way to sustainable growth and jobs.

Dijsselbloem added that the Eurogroup had welcomed the new Italian finance minister, Fabrizio Saccomanni, and urged him to deliver the 'ambitious structual reform agenda' needed to meet its targets.

Updated at 7.36pm BST

7.20pm BST

Tonight's press conference in Brussels will be streamed online here , and should start shortly.

7.14pm BST

Something of a light-hearted atmosphere in Brussels this evening – a sign that the eurozone crisis is in a calmer patch:

7.02pm BST

Word from Brussels that the eurogroup meeting has ended, and journalists are heading for the press conference room…..

#cancelsplantogohome

6.35pm BST

Greece's Kathimerini also reckons that the eurogroup ministers have agreed to hand over €7.5bn of loans to Athens, writing:

Although the meeting of eurozone finance ministers was continuing on Monday, reliable sources told Kathimerini that the European Financial Stability Facility (EFSF) is due to convene on Wednesday to approve the transfer of €4.bn. The money is expected to be disbursed on Friday.

Following on from this, if Greece completes the "milestones" it has agreed for May, then 3.3 billion euros will be released in June. A troika review will not be needed for this disbursement, which will be agreed by the Euro Working Group.

6.17pm BST

Greece's Capital.gr is reporting tonight that Eurogroup ministers have, as expected, decided to approve its next aid payment, worth €7.5bn.

The story's online here (in Greek). It says that Greek officials believe €4.2bn of loans will be handed over immediately, followed by a second tranche of €3.3bn in June once various structural measures are agreed .

Nothing official yet, though.

5.58pm BST

Spain and Portugal demand full banking union

Spain's Prime Minister Mariano Rajoy, right, and Portugal's Prime Minister Pedro Passos Coelho, left, gesture during a press conference at the Moncloa Palace, in Madrid, Monday, May 13, 2013.
Spain’s Prime Minister Mariano Rajoy, right, and Portugal’s Prime Minister Pedro Passos Coelho, left, at today’s press conference. Photograph: Andres Kudacki/AP

Earlier today the prime ministers of Spain and Portugal put more pressure on the eurozone to agree full eurozone banking union, and called for more help to address the tragedy of youth unemployment in their countries.

In the face of apparent foot-dragging from Germany (see 3.04pm), Spain's Mariano Rajoy and Portugual's Pedro Passos Coelho were united, at the Iberian Summit in Madrid.

AP has the details:

The leaders of Spain and Portugal on Monday demanded that the 17-nation eurozone speed up efforts to create a banking union and complained that credit is frozen in their countries, preventing economic growth and crucial job creation.

Many banks are lending at relatively high rates because they are worried about the weak economy. Those higher borrowing rates are making it difficult for households and companies to spend and invest.

"The money from the banking system isn't getting to the businesses or into the economy," Portugal's Pedro Coelho said after meeting with Spanish Prime Minister Mariano Rajoy.

Their bilateral government summit in Madrid came as European finance ministers were gathering in Brussels to discuss the continent's financial crisis.

Both Rajoy and Passos Coelho called on the European Union to move swiftly to create a regional banking union and to slow down budget cuts to help the economy grow.

"Investment is the only way to create jobs," Passos Coelho said. "If there's no financing, it'll be very hard for companies to grow and build up their business."

Spain has been in recession for most of the past four years and has a record 27.2 percent unemployment rate. Portugal, with a 17.7 percent jobless rate, is one of four eurozone countries to have received a sovereign bailout.

Both leaders said that more must also be done to reduce the crushing unemployment rates, which are particularly high for young people.

Portuguese Prime Minister Passos Coelho (L) and Spanish Prime Minister Mariano Rajoy (R) give a press conference at the Moncloa palace in Madrid on May 13, 2013.
Photograph: PIERRE-PHILIPPE MARCOU/AFP/Getty Images

Updated at 6.05pm BST

5.37pm BST

Protest marches are also taking place in Athens and Thessaloniki tonight, against the Greek government's attempts to prevent teachers holding a strike this Friday (as explained at 5.24pm)

Theodora Oikonomides, who blogs/tweets as the Irate Greek, is collecting photos from the scene on Twitter:

5.24pm BST

Strike called in Greece tomorrow over teachers’ protests

Over in Greece, tensions are rising between protesting schoolteachers and the government ahead of a planned strike later this week.

Our correspondent Helena Smith reports:

Piling on the pressure, the civil servants union ADEDY has now announced that it will stage a 24-hour strike Tuesday in a show of solidarity for school teachers. The walk-out follows the government’s decision to issue civil mobilization orders to prevent high school teachers from staging industrial action when students begin sitting annual exams on May 17.

 “With this action we want to send a strong message to the government that we will not allow public services to be dismantled, that we will not allow the country's constitution to be circumvented and the constitutional right of going on strike to be annulled,” said Adedy’s president Kostas Tsikrikas.

The union, however, stopped short of endorsing the strike action during the exam period despite agreeing that internationally-mandated austerity measures – including pay cuts and job dismissals — are “barbaric and unfair”.

 It is the third time in less than a year that prime minister Antonis Samaras’ governing coalition has resorted to the draconian measure of forcibly returning strikers to work.

Helena adds:

 Throughout the day, the rthetoric on all sides has been racheted up with Olme, the 88,000-strong secondary school teachers union, theatening to haul the government before Greece’s highest court, the council of state, if it dares to stop them from exerting their “sacred right” of walking off the job.

The sector is particularly enraged that school teachers will be amongst the first to be dismissed from posts under EU-IMF pressure to streamline the bloated civil service.

“We will also denounce Greece before European organisations for the violation of constitutional rights. They are mobilizing us with a law that was drafted to be used at times of war or natural disasters,” said Nikos Papachristos, the president of Olme. 

 Admitting that the mobilization order was “very hard” the government spokesman Simos Kedikogloyou said there was no going back. “The stike is tountamount to blackmailing society in a way that society can no longer accepted,” he said this morning.

Updated at 5.26pm BST

5.20pm BST

FTSE 100 extends winning streak

The FTSE 100 has closed up 6 points tonight. That's its eighth day of gains in a row, the longest 'winning streak' since June 2011 (my colleague Nick Fletcher points out).

it's been a quiet day generally, with the Spanish IBEX, Italian FTSE MIB and French CAC losing ground, and the German DAX little changed.

Stock markets closing prices, May 13 2013
Tonight’s stock markets closing prices, via Thomson Reuters

Chris Beauchamp, market analyst at IG, said traders were in subdued mood as they pondered how, and when, the US Federal Reserve might begin slowing its quantitative easing programme.

This debate was prompted by an article in the Wall Street Journal which said Fed officials planned to stop bond purchases in "careful and potentially halting steps".

Beauchamp commented:

It is only to be expected that the world’s most powerful central bank has begun to at least think about an exit from stimulus. Indeed, it would be more worrying if it hadn’t started to ponder how to wind down its unprecedented market support programme. Any withdrawal from stimulus will be a game of ‘Grandmother’s Footsteps’; i.e. slow and measured, not an ignominious run for the door.

This tweet sums up the Fed's 'dilemma':

4.29pm BST

Photos: Smiles at the eurogroup

Just received some photos from the eurogroup meeting, showing finance ministers in cheery mood as the gathering got underway.

(L-R) Eurogroup chairman Jeroen Dijsselbloem, Cyprus' Finance Minister Harris Georgiades and Italy's Economy Minister Fabrizio Saccomanni attend an euro zone finance ministers meeting in Brussels May 13, 2013.
From left: Eurogroup chairman Jeroen Dijsselbloem, Cyprus’ Finance Minister Harris Georgiades and Italy’s Economy Minister Fabrizio Saccomanni. Photograph: FRANCOIS LENOIR/REUTERS
Eurogroup chairman Jeroen Dijsselbloem, Greece's Finance Minister Yannis Stournaras, European Economic and Monetary Affairs Commissioner Olli Rehn and Ireland's Finance Minister Michael Noonan attend an euro zone finance ministers meeting in Brussels May 13, 2013
From left: Eurogroup chairman Jeroen Dijsselbloem, Greece’s Finance Minister Yannis Stournaras, European Economic and Monetary Affairs Commissioner Olli Rehn and Ireland’s Finance Minister Michael Noonan. Photograph: FRANCOIS LENOIR/REUTERS

Finland's Finance Minister Jutta Urpilainen and the new Cyprus finance minister, Haris Georgiades, also chatted before the meeting got underway:

Finland's Finance Minister Jutta Urpilainen, left, talks with the Cyprus' Finance Minister Haris Georgiades at the start of an Eurogroup meeting at the EU Council in Brussels on Monday, May 13, 2013. (AP Photo/Geert Vanden Wijngaert)
Photograph: Geert Vanden Wijngaert/AP

3.30pm BST

Green light for Cyprus’s first aid tranche

Cyprus's first aid payment has been officially approved by the European Stability Mechanism, the unit responsible for providing funding for euro-area bailouts.

The Board of Directors of the European Stability Mechanism (ESM) announced in the last few minutes that they have approved the Financial Assistance Facility Agreement for Cyprus.

The ESM is now transferring €2bn to Nicosia immediately, with another €1bn due by the end of June.

Klaus Regling, managing director of the ESM, announced:

The loans granted by the ESM help to maintain financial stability in the euro area and buy time for Cyprus.

This time enables Cyprus to undertake the reforms necessary to rebuild its economy on a sustainable basis.

The ESM's decision means there's no danger of Cyprus running out of funding in the short term. It is due to receive a total of €10bn of external loans by early 2016, under the bailout deal agreed in March.

The full press release is here: ESM disburses the first tranche of financial assistance to Cypru

And there are more details of the bailout here: FAQ: Financial Assistance for Cyprus

Updated at 3.39pm BST

3.12pm BST

Peter Spiegel, the Financial Times's Brussels bureau chief, fears that tonight's eurogroup meeting could be a little light on hard news….

Updated at 4.08pm BST

3.06pm BST

It appears that Germany's finance minister wasn't too keen to answer questions abotu tax evasion as he arrived for the eurogroup… at least from the Anglo-Saxon contingent.

Juergen Baetz, AP's man in Brussels, reports:

3.04pm BST

Dijsselbloem: banking union isn’t in trouble

Jeroen Dijsselbloem, head of the eurogroup, has tried to calm concerns that Europe's plans for banking union are unravelling.

Dijsselbloem told reporters outside the Justus Lipsius building that progress can be made without leaders deciding whether EU treaties would need rewriting.

He made the comments amid concern that a single resolution scheme – which outlines how a failed bank is handled – cannot be set up by 2014, as planned, because it isn't legal under current treaties. Germany, for one, fears that changing the legislation will be lengthy and tricky

Dijsselbloem said:

Many of the building blocks for the banking union can be put in place. The issue of the treaty change can be addressed later on….

I think the Germans are putting forward understandable questions, which will have to be dealt with. But I don't see why that should stop us making progress on banking union.

2.25pm BST

Troika: Greek privatisation process too slow

Reuters has got hold of a draft copy of the Troika's latest assessment of Greece, following their recent visit.

No major shocks… international lenders concluded that Greece is on track to hit its targets this year and in 2014, but warns it will struggle to fully return to te financal markets after that date.

The Troika also chides Athens for being too slow to privatise state assets….

Here's Reuters' early take:

Greece is set to meet its budget targets this year and next but must step up privatisations and public sector reform, the country's international lenders said in a draft report obtained by Reuters on Monday.

The report by the European Union and the International Monetary Fund assessing the country's progress in meeting its bailout goals, said the country's privatisation revenue target had been lowered for 2013 to €2bn (.59 billion) from €2.6bn euros.

"While progress has been made in preparing assets for privatisation, the overall speed of the privatisation process remains unsatisfactory," said the report.

The document adds to evidence that the debt-laden country still faces big hurdles to standing on its own feet, despite the fiscal progress made by its coalition government and about 200 billion euros in rescue loans it has obtained from the EU/IMF since mid-2010.

Even though Athens' overall debt outlook remains unchanged as it overachieves on budget cuts, Greece would take several years to fully return to capital markets once funding from the bailout programme ends in 2014, the report said.

Updated at 2.34pm BST

2.25pm BST

Why the Bank of Israel acted

The Bank of Israel's statement accompanying today's surprise interest rate cut is online here: The Bank of Israel reduces the interest rate by 0.25% to 1.5 %.

Here's how it justified the move (taken two weeks before its next scheduled meeting).

  • The appreciation trend of the shekel continues. In terms of the effective exchange rate, the shekel has appreciated by 2.4% in the past month, and by 5.4% in the past 3 months. The shekel’s strength against the dollar and the euro during these periods stood out markedly in comparison with other currencies’ movements vis-à-vis the dollar and euro. The appreciation trend was affected by, among other things, the beginning of natural gas production from the Tamar gas field, the interest rate reductions by central banks worldwide, notably the ECB, and the continued quantitative easing programs in several major economies around the world.
  • Forecasts of global growth, in particular projections regarding Europe and China, have recently been revised downward. This moderation is expected to have an effect on Israel’s economy.

The move caused some chatter in the City:

1.50pm BST

Israel in surprise rate cut

The Bank of Israel has joined the currency wars by cutting interest rates, and announcing a new programme to prevent the shekel's value rising too high.

In an unexpected, unscheduled move, the Bank of Israel cut its key lending rate by a quarter of one percent, to 1.25%.

It also declared it would intervene in the foreign exchange markets, by buying .1bn of other currencies by the end of 2013. It took the move because:

[the shekel] stood out markedly in comparison with other currencies' movements vis-à-vis the dollar and euro.

Another volley in the battle to devalue currencies….

Updated at 1.52pm BST

1.24pm BST

G8 could gee-up Fermanagh

Over in Northern Ireland, there is optimism that next month's G8 meeting will hand a £40m stimulus to the local economy in Enniskillen, County Fermanagh.

Our correspondent Henry McDonald explains:

While it is unclear if David Cameran, Barrack Obama, Vladimir Putin and the rest of the G8 can come up with plans to boost the global economy, the summit will at least generate £40 million of extra business in Northern Ireland.

According to research published today by Barclay's Bank and the University of Ulster, 85% of enterprises in Fermanagh believing holding the summit in the Irish border region will be good for them.

The report also found there could be a longer term boost for tourism and foreign investment as the lakeland county gets a chance to show off its stunning scenery to the entire planet next month.

1.09pm BST

Eurozone finance ministers have begun arriving in Brussels for this afternoon's meeting.

Austria's Maria Fekter is there, but swept past the assembled press pack without giving a tasty soundbite.

12.54pm BST

Interesting graph here, showing how bad debts have been rising alarmingly in weaker members of the eurozone since the crisis began:

Those 'non-performing loans' could force euro banks to seek new capital, especially once eurozone banking supervision is agreed this summer (when the ECB will take responsibility for the sector)…

12.29pm BST

Fitch survey: Eurozone crisis ain’t over

The eurozone financial crisis is not over, according to a majority of clients surveyed by ratings agency Fitch.

Fitch asked European fund managers (with €8.6trn of assets between them) whether the current buoyant financial markets reflected the reality of the situation.

It found that 41% reckoned the worst of the crisis is over due to strong support from the ECB and policy makers.

The remainder were split between:

29% who feel that this is a short-lived period of market calm;

30% who said markets are irrationally exuberant, ignoring the weak economic outlook for Europe.

That suggests the recent market rally could unwind, as Fitch warned:

If the latter is not validated by economic stabilisation and progress towards banking union, the danger is that market volatility will return with a vengeance over the summer, as it did in 2012 and 2011.

Fitch also found that only 9% of respondents ranked inflation as a high risk, versus 29% who regarded deflation as a major concern risk. Fears that loose, unconventional monetary policy from the world's central banks would send prices spiraling have eased…

For more on the inflation issue, check out these two blog posts:

• Mark Dow: There is zero correlation between the Fed printing and the money supply. Deal with it.

• @pawelmorski: Loose Money: Stop Us Before We Kill Again

11.53am BST

Greek construction output plunges

Greek building activity, Febuary 2013 vs 2012
Construction activity in many Greek regions has shrunk drastically. Photograph: ELSTAT

Dire construction data from Greece this morning. The number of permits issued to build new buildings tumbled by 42.9% year-on-year in February.

Just 1,240 new permits were awarded to builders during the month, down from 2,27 in February 2012. In volume terms, activity has almost halved.

It's another sign of the damage caused to Greece's economy, along with record unemployment and steadily shinking retail sales.

Economist Shaun Richards has written a blogpost today, outlining how the Greek economic crisis has been far worse than the Troika anticipated:

We are left three years after the bailout of Greece with shock and awe at the economic destruction that has been inflicted on Greece. Even the rose-tinted forecasts of the European Commission predict that her economy will shrink by 4.2% this year. Every time we see a number which shows a glimmer of hope we find another like todays truly dreadful construction numbers to shatter it.

Again and again we are told that reovery is “just around the corner” as we discover that like on a Roman road there are no corners in sight. I think that those responsible for this should be called to account for their actions. But sadly I see a world where one of them -Christine Lagarde- was elevated to the role of Manging Director of the IMF which can only be a sad indictment of these times.

Please remember this when it is presented as a success later that the Greek people will have another 7.5 billion Euros added to their debts by the end of June.

More here: Three years after the bailout of Greece the economy is still collapsing

Updated at 11.53am BST

11.26am BST

Italian bond auction reaction

Here's early reaction to the Italian debt sale (see 10.31am) from sovereign bond expert Nick Spiro, of Spiro Sovereign Strategy.

Spiro says the auction was 'solid', but warns that the market in bonds issued by Italy and Spain et al may be heading for turbulent times, eventually….

1. Sentiment towards eurozone peripheral sovereign debt remains remarkably benign despite the severity of the economic downturns across the region and the recent sell-off in core government bond markets. Central bank policy action continues to hold down Spanish and Italian borrowing costs even though the sustainability of the rally is being increasingly called into question. Despite evident tensions within Mr Letta's new coalition government and extremely bleak economic conditions, the resilience of Italy's sovereign bond market remains undiminished. However, demand at Spanish and Italian auctions has been somewhat lacklustre of late. Today's Italian sale was reflective of this trend but still a solid auction, with yields coming in further and the Treasury hitting the top end of its target.

2. There's a growing acknowledgement on the part of many market participants that Spanish and Italian bond prices have become far too detached from fundamentals. Yet just because the rally appears way overdone doesn't mean that it's about to go into reverse. The "reach for yield" continues unabated and Spanish and Italian debt markets are among the biggest beneficiaries of this dramatic shift in investment behaviour. Yet there's an inescapable sense that peripheral government bond markets are due for a correction – the timing and the abruptness of it being a matter of debate.

Updated at 11.31am BST

10.31am BST

Italian bond auction result

A successful bond auction for Italy. It just raised €8bn, its maximum target, at lower yields than earlier this year.

Not much sign that investors are losing their appetite for peripheral bonds (although demand was down slightly).

Here's the details:

• €3.5bn of 2016 bonds, at a yield of 1.92%, down from 2.29% in April (lowest yield since January 2013)

• €3bn of 2018 bonds, at a yield of 2.44%, down from 3.030%

• €1.5bn of 2026 bonds, at a yields of 4.07%, down from 4.55% in February

Financial analysts say it's a decent result, despite a drop in the bid-to-cover ratios (the measure of how over-subscribed the sale was)

Updated at 11.00am BST

10.13am BST

ECB negative rates ‘would be effective’

The euro has fallen this morning after Italy's central bank governor said the European Central Bank could cut its deposit rate (paid to banks who stash cash with it) into negative territory.

Ignazio Visco, a member of the ECB's governing council, told CNBC that a negative deposit rate would be effective.

The comments come 10 days after Mario Draghi revealed that the ECB was open to the idea of cutting the deposit rate below its current low of 0.0%.

Visco said:

We all agreed in the council that we have to look with care and in that case we may reduce the [deposit] rate….

We think that – and I personally think that, this is effective – the economy now is capable of taking it on board. Technically, we are equipped and ready to intervene. There may be unintended consequences – we know we may have to work on that – and we know how to work on that.

Just to be clear, we're not talking about hitting depositors with negative savings rates (the ECB cut that rate to a record low of 0.5% this month).

Imposing negative interest rates on bank deposits would be a significant development in the history of the eurozone. Visco's 'unintended consequences' include the possibility that banks buy riskier government bonds, rather than leaving money in the central bank to suffer a small loss each night.

Banks could also actually cut liquidity, rather than pushing more credit out into the eurozone economy.

But it's a complicated picture. A City pro who blogs and tweets as @barnejek did a fine post on this last Friday: What the central bank giveth, only the central bank taketh away.

I don’t question the fact that such a move will persuade banks to search for higher-yielding assets, ie loans but what I’m trying to explain is that the liquidity in the banking system is like a hot potato. The central bank controls how much money there is in the system (using various ways, eg printing money, changing the reserve requirement etc) and the market only needs to decide the price of this money.

The only way that lowering rates to the negative territory impacts the amount of cash in the system is because the central bank will be returning 99% of the money placed in it back to banks.

But then which of the major central banks could even contemplate shrinking its balance sheet at the time when the global economy remains exceptionally fragile?

And Frances Coppola's piece on the strange world of negative interest rates remains a must read, too.

Updated at 10.18am BST

9.40am BST

The Wall Street Journal's Matina Stevis predicts few fireworks in Brussels today, as euro finance ministers take stock of the situation:

9.37am BST

Heads up: Italy is auctioning up to €8bn of government debt this morning. RANsquawk has the details:

Updated at 9.37am BST

9.21am BST

Schäuble: Slovenia must accept tough austerity

Germany's finance minister declared this morning that Slovenia must swallow 'painful' measures if it is avoid seeking international help.

Wolfgang Schäuble told Germany's SWR radio station that:

Slovenia can manage [without a bailout programme]. However it must also carry out some painful restructuring [of its economy].

Quotes via Reuters.

Last week the Slovenian government announced a package of state asset sales, a restructuring of its ailing banking sector, and a 2% increase in VAT. The European Commission is expected to give its verdict on the plan by the end of May.

9.08am BST

Our economics editor, Larry Elliott, writes today that Spain's leaders are pinning their hopes on banking union, and eventually fiscal union too. But the risk of a "crash landing" remains dangerously real, he warns:

That's not just because unemployment in Spain has risen by three and a half million since the start of the crisis and has now reached 27%, or that the domestic economy has shrunk by a sixth. It is that Spain is up to its eyeballs in debt, with no likely improvement in prospect.

Despite austerity, little progress is being made in reducing the budget deficit and national debt is heading for well over 100% of gross domestic product. In the absence of more rapid growth and a banking union being agreed swiftly, a Greek-style debt restructuring seems eminently possible.

Spain is perhaps the emblematic eurozone country. Its past performance reflects the design flaws in the single currency; it is trapped in a low-growth, high-debt vortex; and it can only recover if a reluctant Germany backs plans for integration.

More here: Pedro Almodóvar's Spanish disaster script is all too realistic

8.52am BST

Cyprus: Europe must learn lessons

Cyprus is hoping to patch up relations with the eurozone during today's Eurogroup meeting, its finance minister has said.

Haris Georgiades (appointed in April) told CNBC that he was eager to repair any damage with relations with Brussels, following March's botched bailout that resulted in capital controls being imposed in Cyprus and heavy losses on larger bank customers.

Georgiades also warned that Europe must learn lessons from the Cyprus debacle and rethink its decision-making process.

8.33am BST

Video: Los Indignados hold ‘silent scream’

Spains' Los Indignados movement held a 'silent scream' in Madrid's Puerta del Sol square yesterday evening, as part of Sunday's protests.

This video clip shows that the famous square was packed, suggesting thousands of people took part:

Sunday's protests marked two years of Los Indignados (the official anniversary is this Wednesday).

Euronews has more details. Here's a flavour:

“I’m here because, two years later, things are worse. We demanded social rights, and we’re actually losing them,” said one demonstrator.

Another added: “I think everybody who is really concerned about people and not about other interests, should be here. We’re fighting to make everything fairer and to look after ourselves.

There were marches in around 30 cities in Spain, according to local reports. Many people were protesting against banks repossessing homes from people who can no longer afford their repayments (more than 350,000 families have been evicted since the crisis started).

Some photos:


Activists of the Mortgage Victims’ Platform (PAH) hold placards which read “Stop evictions” during a demonstration in Valencia on Sunday. Photograph: HEINO KALIS/REUTERS
Demonstrators gather in the Puerta del Sol on the second anniversary of the 15M movement in central Madrid May 12, 2013.
Demonstrators gather in the Puerta del Sol on the second anniversary of the 15M movement in central Madrid May 12, 2013. Photograph: PAUL HANNA/REUTERS
Demonstrators march on the second anniversary of the 15M movement in Malaga, southern Spain May 12, 2013
Demonstrators marching in Malaga on Sunday. Photograph: JON NAZCA/REUTERS

8.18am BST

The agenda

While the Eurogroup meeting takes place Spain's prime minister, Mariano Rajoy, will hosting his Portuguese counterpart, Pedro Passos Coelho, in Madrid.

As well as geography, the two leaders are united in facing public opposition to their austerity programmes.

• Rajoy and Passos Coelho at the Iberian summit

• Finance ministers arrive in Brussels for the Eurogroup: 2pm BST

• Eurogroup meeting begins 4pm BST

• Eurogroup press conference: 11pm BST (!)

7.59am BST

Ministers to decide on Greek and Cyprus aid payments

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

Greece and Cyprus will be under the microscope today when Eurozone finance ministers meet to decide whether to extend bailout payments to both countries.

Ministers are expected to give their approval to Cyprus's first aid tranche, worth €3bn, and also to sign off the latest instalment of Greece's own package. If that happens, expect to hear soothing words about Europe making progress…

…But the Eurogroup meeting will be overshadowed by two other unfolding stories — Slovenia's efforts to avoid its own bailout, and the escalating social unrest in Spain.

With Spanish unemployment at a blood-chilling 27%, there were fresh protests against the country's government over the weekend.

Spain's Los Indignados protest movement held marches in scores of cities across Spain on Sunday, under the slogan ""From outrage to rebellion" (more on this shortly)

Something for finance ministers to ponder as they head to the Eurogroup….

I'll be tracking the latest events through the day….

Updated at 8.39am BST

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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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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

guardian.co.uk © Guardian News & Media Limited 2010

Published via the Guardian News Feed plugin for WordPress.

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

 

IMF: Osborne should consider slowing fiscal plan. Full highlights of IMF’s latest World Economic Outlook. IMF concerned about the euro-area with Europe “languishing at bottom of three-speed economy.” Brent crude falls below $100 a barrel…

 


Powered by Guardian.co.ukThis article titled ” IMF cuts growth forecasts and urges George Osborne to rethink fiscal plans – as it happened” was written by Graeme Wearden, for theguardian.com on Tuesday 16th April 2013 16.08 UTC

5.33pm BST

Closing Summary

Time to wrap things up for the day here – but do check out the website tonight for more news from the IMF's meetings in Washington.

Here's a closing summary:

The International Monetary Fund has cut its forecasts for economic growth this year, in the latest warning that the world economy is struggling.

In its latest World Economic Outlook, the IMF lowered its world growth forecast to 3.3%, from 3.5%. It also expects a deeper recession in the eurozone (-0.3%, from -0.2%), and slightly less growth in the US this year (+1.9%, from 2.0%) (see 2.07pm onwards).

The IMF said the global outlook is slightly more positive than last autumn, but warned of a 'bumpy road ahead'.

The IMF lowered its forecast for UK growth this year to just 0.7%. It also urged chancellor George Osborne to consider changing the pace of his fiscal reform plans (see 2.01pm)

It pointed to the weakness of the economy, particularly the private sector, with chief economist Olivier Blanchard saying tonight that Osborne is 'playing with fire'. (see 5.06pm)

Fears over the global economy had already driven the oil price down, with a barrel of Brent crude costing less than 0 for the first time in nine months.

• German analysts and economists are also more worried about the situation. The monthly ZEW index posted a surprise fall this morning, with global trade and the Cyprus bailout blamed (see 10.11am).

The ZEW index helped to push shares down in Europe again today. The major indices all fell, with traders warning that the eurozone economy could be weaker than previously thought (see 4.53pm for closing prices).

Cyprus's president piled more pressure on the country's central bank governor. He attacked the Bank of Cyprus's conduct in a letter to ECB president Mario Draghi (see 3.59pm)

An opinion poll showed that Germany's new eurosceptic party has the support of around 3% of the country's voters – not enough to win seats in the Bundestag (see 11.17am).

The latest inflation data showed that the cost of living in the UK remained unchanged, at 2.8% (as measured by the CPI). Economists predicted that CPI will soon be back above 3%. (see 9.32am onwards).

In the eurozone, inflation fell slightly (see 10.02am) while in the US the cost of living actually dropped on a month-on-month basis (see 1.44pm).

I'll be back tomorrow – until then, thanks and goodnight!

5.08pm BST

The IMF's Olivier Blanchard has increased the pressure on George Osborne, telling Sky News this evening that the chancellor is 'playing with fire', and should considering changing his plans:

5.06pm BST

Shares rally on Wall Street

Shares have risen on Wall Street, with the Dow Jones industrial average and the S&P 500 both recovering some of yesterday's losses. Both indices had fallen in late trading on Monday, following the news of the fatal Boston Marathon bombing.

Dow Jones: up 128 points at 14,727, + 0.88%

S&P 500: up 15 points at 1,567, +0.98%

Traders held a moment of silence for the victims of yesterday's attack and their families, before the session started.

Traders observe a moment of silence to honor the victims and families of the Boston Marathon bombings, before the opening bell on the floor of the New York Stock Exchange, April 16, 2013.
Photograph: BRENDAN MCDERMID/REUTERS

4.53pm BST

Markets close in the red

Stock markets in Europe have closed for the day, with the major indices posting small losses.

The gold price hasn't managed much of a recovery today, currently up 1.1% at ,376 per ounce (having tumbled 9% on Monday).

And the oil price remains under pressure, with a barrel of Brent crude trading at .98, having dropped below 0 for the first time in 9 months this morning.

Here's the closing prices:

FTSE 100: down 39 points at 6304, -0.6%

German DAX: down 21 points at 7,690, -0.28%

French CAC: down 17 points at 3692, – 0.48%

Italian FTSE MIB: down 96 points at 15,533, -0.6%

Spanish IBEX: down 65 points at 7,948, -0.8%

This morning's drop in German economic confidence (see 10.11am) has helped to push shares down. Jennifer McKeown of Capital Economics said the ZEW index had fuelled concern that Germany's recovery is faltering.

While we still see Germany easily outperforming the rest of the euro-zone this year, we think that a strong and sustained recovery is too much to hope for. We maintain our forecast for the economy to stagnate this year and grow by just 0.5% in 2014.

4.31pm BST

Key event

The International Monetary Fund's warning to the UK over the pace of its fiscal adjustment (see 2.01pm) has triggered a political clash between the UK government and the Labour opposition.

The Treasury first. It downplayed the IMF's concern, pointing out that Britain's growth forecasts for this year are better than Europe's two biggest economies.

A spokesman said:

Today’s report from the IMF highlights the risks that continue to face economies around the world. Though the UK is forecast to have stronger growth than either France or Germany in 2013, difficulties in the euro area are still creating economic headwinds.

However, as the Chancellor said at the Budget, we are slowly but surely fixing this country’s economic problems. The deficit is down by a third, a million and a quarter new private sector jobs have been created and because of the credibility the Government has earned, families and businesses are benefitting from near-record low interest rates.

Thus sidestepping the IMF's call for the government to consider a change….

…to the chagrin of Ed Balls, shadow chancellor. Balls responded thus:

It was a serious mistake for George Osborne to totally ignore the IMF’s calls for a reassessment of fiscal policy in the Budget. They are right to step up their warnings and insist that a change of economic policy is considered right now.

“Our economy has flatlined for two and a half years, real wages are falling month by month and the result is £245 billion more borrowing than planned to pay for this economic failure. How much more damage needs to be done before the Chancellor finally acts?

Balls pointed out that the IMF had predicted growth of 2% for 2013 a year ago – but now expects GDP to expand by just 7%.

These downgraded growth forecasts are yet another damaging blow to a downgraded Chancellor whose economic policies have totally failed.

3.59pm BST

Cyprus president blasts central bank’s handling of the crisis

Governor of the Cypriot Central Bank, Panicos Demetriades speaks to media representatives after a meeting with Cypriot President Nicos Anastasiades, in front of presidential palace, Nicosia, Cyprus, 21 March 2013.
Governor of the Cypriot Central Bank, Panicos Demetriades, last month. Photograph: KATIA CHRISTODOULOU/EPA

Back in the eurozone… the battle over the future of Cyprus's central bank governor has taken another twist.

The president of Cyprus, Nicos Anastasiades, has written to Mario Draghi, telling the ECB president that the country's central bank failed to perform its duties in the run-up to the crisis.

The letter is a rebuttal to Draghi's warning last week that national central bank governors cannot be sacked unless they are "guilty of serious misconduct" or can no longer perform their duties.

Reuters has the details of the letter, apparently sent yesterday:

The governor of Cyprus's central bank failed to regulate its now-crippled banking system effectively, the island's president Nicos Anastasiades said in a letter to ECB chief Mario Draghi.

Deepening a row between the government and central bank, Anastasiades attacked Panicos Demetriades, who was appointed as governor last year, for what he said was sustaining an insolvent bank using a European Central Bank cash lifeline.

The president also said there were damaging delays in resolving problems in the banking sector, after depositors were slapped with massive losses to fund a state bailout last month.

In an April 15 letter to ECB President Draghi, a copy of which was seen by Reuters, Anastasiades speaks of "shortcomings of the Central Bank of Cyprus".

Speaking of Draghi, his appearance at the European Parliament didn't bring MEPs flocking:

2.59pm BST

MAP: Growth forecasts for 2013

Map of IMF growth forecasts
Photograph: IMF

This map, from the World Economic Outlook, shows which parts of the world economy should expand strongly this year (dark blue), which should manage solid growth (light blue), which will grow slower (yellow) or struggle (orange), and which will actually contract (red).

You can see why the IMF remains so concerned about Europe.

Updated at 3.34pm BST

2.53pm BST

Duncan Weldon, the TUC's senior policy officer, points out that the IMF's new forecasts for the UK are actually slightly more upbeat than official predictions for 2013, but more pessimistic for 2014:

Updated at 2.56pm BST

2.48pm BST

Larry Elliott: Europe languishing in three-speed global economy

Economics editor Larry Elliott has also analysed the report, and confirms that Europe's woes continue to alarm the IMF:

He writes:

Prolonged stagnation in the eurozone – GDP falls by 0.3% this year after a 0.6% drop in 2012 – is worrying in itself but it also has knock-on consequences for the rest of what the Fund sees as a three-speed global economy. In the first division are the emerging economies, which are exploiting their ability to catch-up with the countries of the developed world. They should see growth of more than 5% this year, similar to last year's performance.

The second division includes the US, Canada and Japan – even though the IMF clearly believes the stop-at-nothing reflationary strategy adopted by the new government in Tokyo is "risky" given the high level of public debt and the absence of a credible plan for putting the public finances back into some sort of order.

Finally, there is Europe, firmly in division three and with no immediate prospect of promotion.

Full analysis here: Eurozone crisis clouds IMF's improving outlook

2.48pm BST

Our full story about the IMF's warning to the UK is online here:

George Osborne should ease off on austerity, IMF warns

2.43pm BST

IMF to hold discussions with UK

Chancellor of the Exchequer George Osborne.
Chancellor of the Exchequer George Osborne. Photograph: Barbara Lindberg/Rex Features

The IMF will hold talks with the UK government over how the fiscal adjustment programme could be slowed.

From Washington, economics editor Larry Elliott reports:

Blanchard just singled out the UK as acountry that needs to show more flexibility on austerity.

"In the face of very weak private demand it is time to consider adjustment to the original fiscal plans," Blanchard said.

Blanchard added that the IMF will hold discussions with the UK over the coming months to "see what can be done" about pace of deficit reduction.

The IMF conducts an annual health check on the UK, which gives it a forum to raise its concerns.

Previously, the IMF has backed George Osborne's strategy while cautioning that a rethink might be needed if the economic situation worsened. With UK GDP shrinking again in the last three months of 2012, that moment has apparently arrived.

2.38pm BST

Back to the IMF briefing in Washington: chief economist Olivier Blanchard has told reporters that the risk that the eurozone might not stick together has "disappeared" due to measures from the European Central Bank and the European Union.

However, there is "a further urgent need to strengthen banks without weakening sovereigns", he added.

2.32pm BST

In other news, Mario Draghi is testifying at the European Parliament now. The president of the European Central Bank is telling MEPs that it is vital to deliver closer economic and monetary union. Live stream here.

2.28pm BST

IMF: Bumpy road ahead

The top-line message from the International Monetary Fund is that the world economy has improved since last October, but there's still plenty of problems.

As it puts it:

Global prospects have improved again but the road to recovery in the advanced economies will remain bumpy.

The IMF is relieved that policymakers in 'advanced economies' have successfully "defused" the threat of a breakup of the euro area and a sharp US fiscal contraction cut to the “fiscal cliff".

But, it warns that "old dangers remain and new risks have come to the fore.". And the eurozone continues to be top of the list:

In the short term, risks mainly relate to developments in the euro area, including uncertainty about the fallout from events in Cyprus and politics in Italy as well as vulnerabilities in the periphery.

2.22pm BST

You can download the IMF World Economic Outlook from its website:

Chapter 1: Global Prospects and Policies

Chapter 2: Country and Regional Perspectives

2.17pm BST

Click here to see an overview of the IMF's projections:

Summary of IMF forecasts in the World Economic Outlook, April 2013
Photograph: /IMF

2.16pm BST

Other key points from the IMF. It also expects France to shrink by 0.1% this year, Italy to contract by 1.5% and Spain to shrink by 1.6%.

And as expected (following last Friday's leak), it has cut its forecast for US growth this year to 1.9% (from 2%).

Updated at 3.31pm BST

2.13pm BST

Olivier Blanchard, chief economist at the International Monetary Fund
Olivier Blanchard, chief economist at the International Monetary Fund, presenting today’s report.

2.10pm BST

Watch the IMF press conference

The IMF is presenting its new World Economic Outlook at a press conference in Washington – you can see it live here:

2.07pm BST

IMF warns of deeper eurozone recession

The IMF has taken the red pen to most of its economic forecasts, admitting that the global recovery is weaker than expected.

It has cut its forecast for global growth to 3.3%, from 3.5% in the previous World Economic Outlook.

And it now expects the eurozone to shrink by 0.3% this year, worse than the 0.2% contraction expected before.

2.01pm BST

IMF cuts UK growth forecasts and urges austerity rethink

Breaking: The International Monetary Fund has cut its growth forecasts for the UK and urged George Osborne to reconsider the pace of his austerity programme.

The warning comes in the IMF's new World Economic Outlook figures, just released.

From Washington, our economics editor Larry Elliott reports:

George Osborne has been told by the International Monetary Fund to re-think the pace of his deficit reduction plan after the Washington based institution cut its forecast for UK growth in both 2013 and 2014.

The IMF’s flagship publication – the half-yearly World Economic Outlook – provided fresh ammunition for the chancellor’s Labour critics when it said the Treasury should contemplate being flexible about its austerity strategy.

In its latest forecasts, the Fund said gross domestic product in the UK would rise by 0.7% this year and by 1.5% in 2014 – in both cases a cut of 0.3 points from its last set of predictions in January.

The warning comes a week before the latest GDP data shows if Britain is in a triple-dip recession.

The IMF warned that the UK recovery was progressing slowly. Here's the key statement on the UK, explaining why Osborne should consider changing course.

Domestic rebalancing from the public to the private sector is being held back by deleveraging, tight credit conditions and economic uncertainty, while declining productivity growth and high unit labour costs are holding back much needed external rebalancing.

…In the UK, where recovery is weak owing to lacklustre demand, consideration should be given to greater near-term flexibility in the fiscal adjustment path.

The IMF is presenting the full World Economic Outlook in Washington now….

1.48pm BST

The number of new housing starts in the US has jumped to the highest level since June 2008 (three months before Lehman Brothers Failed).

The number of housing plots where work actually began jumped by 7% in March to 1.036 million, suggesting the housing recovery is strengthening.

1.44pm BST

US inflation data shows falling prices in March

The cost of living actually fell last month in America, according to the latest inflation data just released.

On a month-on-month basis, the consumer prices index was down by 0.2% in March vs February – mainly due to falling gasoline prices.

Inflation was also lower than expected on an annual basis, with CPI up by 1.5% compared with March 2012.

For comparison, eurozone CPI came in at 1.7% this morning (here) while in the UK it remained at 2.8% (from here).

1.27pm BST

MEPs approve bank bonus curbs

The European Parliament has given its approval to new rules for the banking sector, which include restrictions on bonuses – pegging them at 100% of annual salary.

AP has the story:

The European Parliament on Tuesday voted in favor of financial reforms, including a new law to cap bankers' bonuses.

The rule limits bonus payments at one year's base salary, or double that if a large majority of a bank's shareholders agrees. It will come into force next year and will also apply to European units of foreign banks and the employees of EU banks working overseas in New York, for example.

Lawmakers in Strasbourg overwhelmingly backed the proposed law and passed a sweeping package of financial laws that will force banks in the 27-nation European Union to strengthen their capital buffers.

"We are making our banks more resilient to crises with today's decision so that they no longer have to be bailed out with taxpayers' money," said Othmar Karas, a leading conservative lawmaker who oversaw the legislation.

The new reforms detailed in a 1,000-page document also lay important groundwork for the creation of a centralized banking supervisor for the eurozone, a cornerstone of the 17-country currency bloc's effort to tackle its debt crisis.

The package of financial reforms which implement the internationally agreed Basel III rules were hammered out earlier this year after months of arduous negotiations between EU governments, the EU Commission and parliament. They now have to be implemented in national law by next year.

Karas called the set of rules the "most comprehensive and far-reaching banking regulation in the EU's history."

The different legislative packages were adopted by about 600 European lawmakers, with about 40 or less voting against them.

EC president Jose Manuel Barroso and Commissioner Michel Barnier have just issued a statement welcoming the move. Here's a flavour:

These new rules will strengthen the internal governance of banks.

Remuneration policies will have to be aligned with sound and effective risk management. Shareholders are given a special responsibility and an appropriate and reasonable maximum ratio is introduced between the fixed salary and the bonus for all risk takers.

Critics of the plan, though, claim it will drive up basic salaries and make bankers less accountable for performance….

12.45pm BST

Goldman Sachs beats expectations

Meanwhile on Wall Street, Goldman Sachs has just smashed analyst expectations with its results for the first three months of 2013.

Goldman posted earnings per share of .29, against expectations of .88. And net revenues from investment banking were 36% higher than a year ago.

CEO Lloyd Blankfein said Goldman was 'pleased' with its performance, but claimed the firm isn't immune to the wider economic ills. He warned shareholders:

The potential for macro-economic instability was felt in the quarter and constrained overall corporate and investor activity.

Still, it's a sharp contrast with the gloom in much of Europe.

12.32pm BST

Just 90 minutes until the International Monetary Fund releases its latest World Economic Outlook, and anticipation is building…

11.43am BST

Economist Nouriel Roubini has warned that today's drop in optimism among German economists and analysts confirms that the eurozone 'malaise' has reached Germany:

11.40am BST

Market update

Looking back at the markets, and Brent crude oil remains below the 0 mark.

As this graph shows, the oil price has been on a downward path since early February, before recent disappointing economic data provided the latest push:

Brent crude oil price
Brent crude oil, in 2013. Photograph: Reuters

Europe's major indices are still in the red, with the DAX falling further after the ZEW index showed that economic optimism has fallen in Germany (see 10.11am)

FTSE 100: down 33 points at 6310, -0.5%

German DAX: down 42 points at 7669, -0.5%

French CAC: down 22 points at 3687, -0.6%

Spanish IBEX: down 31 points at 7982, -0.4%

Italian FTSE MIB: down 28 points at 15,600, -0.18%

The sell-off in London would be sharper, but for a rumour that the drawn-out merger of Xstrata and Glencore has been approved by China. Their shares are up over 5% each – but most of the market is down (79 shares have fallen, versus 21 risers):

FTSE 100, April 16 2013
Plenty of red ink on the FTSE 100 today.

11.17am BST

Germany’s new anti-euro party has 3% support

Germany's new eurosceptic political party has the support of 3% of the population, according to a poll released by the tabloid Bild today.

It's the first survey since Alternative für Deutschland (AfD) held its founding conference on Sunday. AfD fervently opposes eurozone bailouts, and will campaign in this autumn's election for the "orderly dissolution of the euro".

That leaves AfD some way adrift of the 5% threshold to claim seats in the Bundestag – but there's still several months until the elections. The poll also confirms that Angela Merkel's CDU party holds a solid lead over the main opposition group, the SPD:

German opinion poll, 16 April 2013
Photograph: Bild

AfD has been criticised by several German politicians since its launch – and Bild itself (no fan of eurozone bailouts) points out that a return to the Deutsche mark would make German exports much pricier.

Guy Verhofstadt, the former Belgian prime minister who leads the Alliance of Liberals and Democrats for Europe in the European parliament, took to Twitter to blast the party today. He called AfD "suicide for Germany" and a "nightmare" for the rest of Europe….

Rather than loosening Europe's ties, Verhofstaft's solution is closer fiscal integration:

11.00am BST

Greek ferry workers hold 24-hour walkout

A man walks past moored ships at the port of Piraeus, Greece, 16 April 2013. A 24-hour strike was called by all Greek seamen unions against the vote of a bill undermining their collective bargaining rights and to protest austerity measures on 16 April.
A man walks past moored ships at the port of Piraeus, Greece, this morning

A 24-hour strike has been called by all Greek seamen unions today, in protest at the country's austerity programme and a bill that will undermine workers' collective bargaining rights.

The walkout, which ends early on Wednesday morning, has left Greek islands without ferry links with the mainland, AP reports.

Living In Greece had more details:

• There is usually a last sailing from the islands as many vessels must return to slips in Athens.
• Routes between Greece and Italy are unaffected if the crew is Italian and ports are not blockaded.

Some suburban railway employees are also planning to hold four-hour stoppages between 8pm and midnight today, and on Wednesday and Thursday (more here).

Updated at 11.00am BST

10.11am BST

German economic sentiment takes a dive

Germany's ZEW index of economic sentiment has fallen sharply, as fears over the eurozone crisis loom over its largest economy.

The ZEW economic sentiment index slipped to just 36.8, down from March's 48.5 (and much worse than expectations) – a sign that optimism is faltering among the economists and analysts surveyed by ZEW.

The think tank cited recent disappointing economic data, and the ongoing eurozone crisis.

Updated at 10.15am BST

10.02am BST

Eurozone inflation

Eurozone inflation data is just in – CPI rose by 1.7% year-on-year in March, that's down on February's 1.8%.

That may give the European Central Bank more opportunity to cut interest rates…..

9.59am BST

Inflation: what the economists say

City economists are warning that UK inflation will head higher this year. Here's a round-up of early reaction, from Reuters:

GEORGE BUCKLEY, DEUTSCHE BANK

I do think you are going to see some increases in inflation over the course of the next three or four months. I wouldn't be surprised to see inflation heading above 3 percent. The one uncertain factor is here is how much petrol prices fall over the next few months based on the fact that we've seen lower oil prices and that could actually limit the peak in inflation we originally had at 3.4% or 3.5%….

ROB WOOD, BERENBERG BANK

The trend for inflation is probably up, heading to 3% pretty soon.
The Bank of England seems unlikely to engage in more asset purchases in the next month or two, with inflation threatening to go into letter-writing territory soon."

PHILIP SHAW, INVESTEC

This is about as close to consensus as you're likely to get. Our view remains that CPI will move above 3% in the coming months.

The big question is whether the MPC will look through this and become more aggressive on QE. We suspect it will.

9.54am BST

Wages failing to keep pace with inflation:

At 2.8%, the cost of living in the UK continues to outpace the rise in wages, as economist Shaun Richards points out:

And it appears it's partly our fault:

Not free websites, of course :)

9.48am BST

UK inflation: the details

While the consumer prices index rose by 2.8% year-on-year, prices were up by 0.3% during March itself.
Here's a chart that breaks down today's inflation data, showing how prices rose/fell last month compared to February, and compared to March 2012.

UK CPI inflation, March 2013
Photograph: /ONS/Reuters

The retail prices index (which includes housing costs) came in at 3.3%, or up 0.4% during March.

9.32am BST

UK inflation stays steady

UK inflation rose by 2.8% year-on-year in March, as measured by the Consumer Prices Index (the Office for National Statistics just reported).

That's a repeat of February's reading, and in line with expectations.

Clothing and footwear showed the largest month-on-month increase, while food and alcoholic beverage prices were down compared with February.

Table to follow…

Updated at 9.33am BST

9.05am BST

We'll also be watching the European Parliament this afternoon, where Mario Draghi is scheduled to make an appearance (at 2pm BST, RanSquawk flags up).

9.02am BST

The agenda

The biggest event on the agenda today is the International Monetary Fund's latest forecasts for the world economy.

We also have inflation data for the UK, the eurozone, and the US, as well as the ZEW measure of German investor confidence.

Some of the data from the IMF leaked last Friday, suggesting it will cut its prediction for US growth (see here), but there should be plenty of other interesting news to cover.

UK inflation data for March: 9.30am BST

Eurozone inflation data for March: 10am BST

German ZEW index of investor confidence: 10am BST

US inflation data: 1.30pm BST (8.30am EST)

IMF's latest World Economic Outlook: 2pm BST

8.39am BST

Shares down again

Europe's stock markets are in the red this morning,.

FTSE 100: down 24 points at 6318, – 0.3%

German DAX: down 12 points at 7700, – 0.16%

French CAC: down 3 points at 3706. -0.1%

Spanish IBEX: down 50 points at 1,963, – 0.6%

Italian FTSE MIB: down 54 points at 15,574. -0.35%

Rebecca O'Keeffe, head of investment at Interactive Investor, blamed fears over the state of the US and Chinese economies. She also fears more losses ahead – partly because of the eurozone crisis

With China disappointing and recent weak data from the US raising serious questions about whether the tax increases and spending cuts suggest a more significant impact on US growth, there seems little to entice investors.

And with continuing problems in Europe and the seemingly ever expanding black hole that represents the financial position of Cyprus, investors may be well advised to be more cautious over the coming weeks.

8.29am BST

An alternative view on gold….

Updated at 8.45am BST

8.25am BST

Gold price up, but close to two-year low

Gold has staggered back off the mat this morning, up around 1.3% at ,378 per ounce.

A crumb of comfort for gold bugs, whose morale and wallets are badly bruised by Monday's slump (gold was trading around ,560 last Thursday).

But few City analysts this morning are predicting a swift recovery. Katie Martin of Dow Jones sums up the latest reaction:

Updated at 8.48am BST

8.09am BST

Moody’s cuts China’s outlook

Rating agency Moody's has dented China's hopes of a credit rating upgrade this morning, by cutting the outlook to 'stable' from 'positive'.

In the latest sign of concern over China, Moody's warned that it had not made much progress in addressing potential bad debts held by its local government bodies.

It explained:

Progress has been less than anticipated in the process of both reducing latent risks by making local government contingent liabilities more transparent and in reining in rapid credit growth; therefore, some of the upward pressure on the Aa3 rating has eased.

Aa3 is the fourth highest rating on the Moody's scale. More here.

Updated at 8.10am BST

7.54am BST

Brent crude hits nine-month low as global fears grow

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

Concern over the state of the global economy is growing today, as the jitters that hit the markets yesterday continue to reverberate around the trading floors. 

Brent crude oil has fallen below the 0 a barrel mark overnight, its lowest levels since July 2012. Monday's disappointing growth figures from China are being blamed – with investors anticipating lower demand for oil if (as feared) the global economy is entering a stickier patch.

The message this morning is that economic growth may be more elusive than expected (despite the ultra-loose monetary policy we've been showered with since the crisis began).

As Myrto Sokou, senior analyst at the Sucden brokerage, explained to AFP:

The recent Chinese economic data failed to meet analysts’ expectations and added further pressure to the market that was already showing sharp losses following disappointing US economic data last week.

And Jonathan Barratt, the chief executive officer of Barratt’s Bulletin, warned that:

There is a level of confidence evaporating from the [oil] market.

Of course, lower oil prices could actually help Europe's struggling economies – lowering inflationary pressures and cutting transport costs.

But the broader picture remains that the economic picture does not look too great – Monday's Empire State Manufacturing Index, which measures the health of the US manufacturing sector, was also a disappointment.

Michael Hewson, senior market analyst at CMC Markets, warns that shares and commodities are likely to keep falling today:

Yesterday’s China inspired sell off looks set to continue this morning in the wake of continued sharp falls in oil, gold and copper prices as investors appear to be starting to lose patience and confidence in the so called global recovery story.

Another disappointing US economic indicator by way of the Empire manufacturing survey did nothing to quell these concerns as the run of disappointing US economic data continued.

 Despite billions of dollars of financial stimulus from central banks worldwide the global growth story still appears to be no closer to showing signs of moving into a higher gear, and if anything continues to misfire like a clapped out old motor vehicle.

And to complete the picture, Moody's has lowered its outlook on China from positive to stable (more on this shortly).

So, that's the cheery picture this morning – I'll be tracking all the economic news and developments in the euro crisis through the day …

Updated at 8.53am BST

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Finance ministers meet in Dublin to discuss crisis in Cyprus and Slovenia situation, with extensions to bailouts for Ireland and Portugal reportedly on the agenda. US retail sales register their largest drop in nine months, consumer sentiment falls…

 


Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Cyprus tops agenda as finance ministers meet” was written by Dan Milmo and Simon Neville, for theguardian.com on Friday 12th April 2013 16.42 UTC

5.42pm BST

Cameron and Merkel settle in for a night of talks

David Cameron has arrived in Berlin and is meeting with his German counterpart, Angela Merkel.

Shortly after arriving, Merkel showed Cameron around the grounds of her country mansion posing for pictures and doing lots of statesman-like pointing into the distance.

They then headed inside for a fireside chat to sort out all of Europe's problems.

And with two of Europe's most powerful leaders settling in for the night, it marks a good point to end today's live coverage of the eurozone crisis.

Thank you for all your comments and enjoy the weekend, we'll be back on Monday.

German Chancellor Angela Merkel and her husband Joachim Sauer welcome David and Samantha Cameron.
German Chancellor Angela Merkel and her husband Joachim Sauer welcome David and Samantha Cameron. Photograph: FABRIZIO BENSCH/REUTERS

5.32pm BST

Family portrait

European finance ministers poses during their meeting in Dublin.
European finance ministers poses during their meeting in Dublin. Photograph: CATHAL MCNAUGHTON/REUTERS

As promised, here's the family portrait of the EU ministers at their meeting in Dublin.

5.11pm BST

Merkel and Cameron meet

David Cameron has arrived at Angela Merkel's country retreat and both are posing for photos with their spouses.

Meanwhile, to get you in the mood, the Open Europe blog has written a list of 10 things Cameron shouldn't say to Merkel.

These include:

"I always thought the ECB should become more activist."

and

"Can you point me to that no-bailout clause in the EU treaties again?"

Elsewhere, the often amusing Angela Merkel twitter feed has tweeted about David Cameron bringing his family to stay in Germany overnight. (see 12.33pm)

Updated at 5.17pm BST

5.02pm BST

New Portugal spending cuts agreed

Over in Lisbon, the Portuguese government has presented new spending cut plans to the EU after a court rejected its initial €1.3bn austerity measures for this year.

The cuts are required as part of the agreement for its €78bn bailout.

The government will implement new spending cuts worth €600m at all ministries and bring forward the same amount of reductions envisaged for 2014.

In return, eurozone finance ministers will extend Portugal's loan maturity date by seven years.

4.26pm BST

The eurozone finance ministers have finally made it out for their group photo. Will upload a picture shortly. The photographer just shouted "and one more but look happier!"

4.19pm BST

Just to add some context, the last time gold fell below ,500 an ounce was in July 2011

4.14pm BST

Updated at 4.14pm BST

4.10pm BST

Gold below ,500

Gold prices are plunging today despite poor US retail figures today and declining consumer confidence, which usually leads to a boost for gold as a save haven.

It is now down 3% today to ,497 an ounce. Silver is also suffering.

It won't be much help for Cyprus, who are considering selling its gold reserves to raise funds for its bailout agreement.

3.46pm BST

Busy FinMins

The eurozone finance minster meetings is Dublin continue, and they must've got really stuck into their discussions because they are now running late for their family photo which was due 15 minutes ago. Latest estimates are that they will be ready in 10 minutes, unless negotiations over where in the lineup each minister stands have reached an impasse.

One topic that hasn't been covered in discussions today has been the concern over Slovenia (see below).

3.29pm BST

Slovenia banking boss supports €1bn estimate for recapitalisation

Staying in Slovenia, the head of the country's largest bank said the government's estimate that around €1bn is needed to recapitalise the country's three main lenders is correct, despite the OECD questioning it earlier this week.

Janko Medja, head of Nova Ljubljanska Banka, said plans to sell a bank, as suggested by the Slovenia PM, won't happen for at least a year.

On Tuesday the OECD had said it believed the government may have underestimated the amount needed for recapitalising the banks.

2.57pm BST

Slovenia PM: asset sales plans due in 14 days

In Slovenia, seen as the next eurozone country to fall into trouble, privatisation plans will be put to the country's parliament in two weeks, according to the PM.

The plan to sell off state assets, including a bank, is aimed at avoiding a bailout.

PM Alenka Bratusek said she would send a stability programme to EU partners by May 9.

The country needs to raise €3bn to cover its budget deficit, recapitalise its state-owned banks and repay maturing debt.

Bratusek said

We will immediately start processes to privatise one or two companies. My wish is that one of those would be a bank

Slovenian Prime Minister Alenka Bratusek assured Brussels reforms will continue in the hope of avoiding a bailout.
Slovenian Prime Minister Alenka Bratusek assured Brussels reforms will continue in the hope of avoiding a bailout. Photograph: Xinhua/Landov/Barcroft Media

2.48pm BST

Herman speaks

President of the European Council tweets

1.39pm BST

German gold smuggler

It has just been pointed out by AP that the German man arrested trying to board a plane in Athens with gold in his luggage didn't have half a ton, but just 7kg.

A decimal point went astray in the original story. Police found 7.185kg, not 7,185kg.

It's not just the weight of the gold that has changed, it's value also fell 3% this week, below ,530, to its lowest point in almost a year.

1.32pm BST

Cyprus gold

Dijsselbloem says there will be on pressure put on Cyprus to sell its gold to fund the bailout.

He said

Selling some gold has always been a option put forward by the Cypriot authorities, but this is a decision to be made independently and it is not any demand from the Troika or Eurogroup.

And with that, the press conference has now ended.

1.28pm BST

Draghi confirms that he has told the Cyprus president that he cannot sack the country's bank governor, Panicos Demetriades.

He said the independence of the ECB is enshrined in EU law and will not interfere in the running of the bank.

1.23pm BST

Cyprus loan

Olli Rehn, the Finnish finance minister, says the €17bn Cyprus bailout was for net financing needs, while the new figure of €23bn is for gross financing.

The €23bn figure came from a leaked document which an exasperated Rehn said shouldn't be relied on.

It's like comparing apples with pears and ending up with oranges.

That's what happens when you write stories based on leaked documents.

Also asked how Cyprus will return to growth in just two years, he said

There is a lot of uncertainty for the exact growth of Cyprus

Interesting that the predictions are already being questioned when the loan hasn't even arrived yet.

1.11pm BST

1.10pm BST

Eurogroup statement on Cyprus

The eurozone finance ministers have issued a joint statement on Cyprus.

Here's a slice to whet your palate:

The Eurogroup notes with satisfaction that the Cypriot authorities have implemented decisive bank
resolution, restructuring and recapitalisation measures to address the fragile and unique situation of
Cyprus' financial sector. The Eurogroup commends the authorities for their demonstrated resolve in
implementing these important measures in a tight timeframe and reiterates its appreciation for the
efforts made by the Cypriot citizens over the last weeks.

Updated at 1.42pm BST

1.05pm BST

The ECB head Mario Draghi is at the Dublin press conference but has decided he has "nothing to add" to proceedings.

1.03pm BST

Cyprus loan increase "not discussed"

Austrian finance minister Maria Fekter says talk of increasing the €10bn Cyprus loan was not discussed in meetings this morning.

12.58pm BST

He also urges the Troika group of lenders and Greece to accelerate talks.

12.57pm BST

Dijsselbloem says Ireland is a living, breathing example that the adjustment programme works.

He adds that ministers would like to extend loans to Ireland and Portugal by another seven years.

12.54pm BST

Cyprus update

12.52pm BST

Dublin press conference begins

Jeroen Dijsselbloem, the Dutch finance minister, is now taking at the eurozone meeting in Dublin.

The conference can be watched here

He is currently running through the discussions that have been held, in particular the loan to Cyprus, which could be approved by April 24.

12.41pm BST

German man arrested over gold smuggling

An unusual tale from Greece, where a German national has been arrested for trying to board a plane at Athens International Airport with half a ton of gold in his luggage.

Officials also found nearly €300,000 in cash, according to Greek website ekathimerini.com

As Mike van Dulken points out

12.33pm BST

Cameron heads to Germany

David Cameron is on his way to Germany to meet up with Angela Merkel, and this time he's bringing the family.

Samantha Cameron and their three children will be coming with him, making it the first official trip they've been on with the prime minister.

Since the weekend is approaching, they've been invited to stay with Merkel and her publicity shy husband Joachim Sauer, at her Meseberg residence – the equivalent of Chequers.

Official conversation will focus on the Syrian conflict, European reform and the forthcoming G8 summit.

Updated at 12.49pm BST

11.35am BST

Germany: Cyprus loan non-negotiable

Confirming the line of Luxembourg's finance minister earlier, the German government has said the €10bn IMF loan is non-negotiable.

Eurozone finance ministers in Dublin gave political backing for the loan, but German government spokesmen said the amount was "not up for negotiation"

The international credit programme of about €10bn is of course very high in relation to the size of the Cypriot economy.

Updated at 12.23pm BST

10.32am BST

Cyprus bailout

Adding to Cyprus's woes on learning the bailout needed has increased to €23bn, Luxembourg's finance minister, Luc Frieden, told German radio this morning that the IMF's €10bn contribution cannot be increased.

He said

I believe the policy will be that the volume will remain at €10bn.

I know that right now [financing needs] are somewhat higher for the period from 2013-2016, but we cannot do any more.

Updated at 10.57am BST

10.22am BST

Irish bank debt maturities extended

Back in Dublin, our correspondent Henry McDonald writes

Ireland's finance minister has said he has secured a deal to extend Ireland's bank debt maturities by seven years.

Michael Noonan said he reached the agreement with the Republic's EU partners as he arrived in Dublin Castle this morning for the EU finance ministers' summit.

Eurogroup ministers are meeting first to discuss the proposed deal for Ireland and Portugal which would give both countries more time to repay the EU portion of the two countries' bailouts.

Speaking on his arrival at the meeting, Noonan said he was reasonably optimistic.

He said: "The discussions I have had over the last 48 hours were quite successful and there is certainly agreement in principle now.

"Whether there is any particular difficulty that arises from colleagues or not, we won’t know until it is openly discussed at meetings, but I am reasonably optimistic."

Irish finance minister Michael Noonan (right) and Greek finance minister Ioannis Stournaras at the Dublin meetings.
Irish finance minister Michael Noonan (right) and Greek finance minister Ioannis Stournaras at the Dublin meetings. Photograph: Aidan Crawley/EPA

Updated at 10.58am BST

10.03am BST

Eurozone industrial output

Eurozone industrial output fell more than expected in February.

It dropped 3.1% compared with a year earlier and was up just 0.4% compared with January.

Bad news was compounded by a revision of January figures from -0.4% month-on-month to -0.6%

10.00am BST

Cyprus by numbers

As we look forward to the eurozone finance ministers' meeting in Dublin, where it's hoped the refinancing of Cyprus can be agreed, here's a quick reminder of what money the country needs.

According to Reuters, Cyprus needs €23bn from the second quarter of 2013 to the first quarter of 2016.

The eurozone bailout fund will give €9bn, the IMF €1bn and Cyprus must find €13bn.

The €10bn international bailout will go on:

  • €2.5bn on recapitalising the remains of the banking sector
  • €4.1bn on redeeming maturing government debt
  • €3.4bn to cover fiscal needs of Cypriot government

And Cyprus will make up its contribution from:

  • Up to €10.6bn from resolution on Laiki bank, losses imposed on junior shareholders and deposit for equity swap of uninsured depositors at Bank of Cyprus
  • Up to €600m from corporate tax rise to 12.5% from 10% and doubling capital gains tax to 30%
  • Around €400m from gold sales
  • Up to €1bn from debt rollover
  • €1.4bn from privatisation
  • €100m from a reduction in interest rates on its Russian loans

A full breakdown of the numbers can be found here

Updated at 12.06pm BST

9.37am BST

UK construction data

UK construction output rose in February by 5.5% compared with January, but fell 7% year-on-year, according to the ONS.

The previous year-on-year numbers in January was -7.9%.

Updated at 9.37am BST

9.11am BST

IMF forecasts leaked

Bloomberg is running an article that, it claims, contains a draft of the International Monetary Fund's world economic outlook due to be released next week. It contains a lowered forecast for US economic growth, Bloomberg says, will GDP expanding by 1.7% instead of 2% due to the automatic budget cuts and tax changes that have kicked in this year. The global economy has been inched lower as well, from 3.5% to 3.4%.

Updated at 9.11am BST

8.53am BST

Osborne: Dublin meeting will be "low key"

The Press Association is quoting a Treasury source, saying that George Osborne will attend the gathering of EU finance ministers but it will be "rather low key from a UK perspective."This means that the UK won't be extending any bilateral loans to Cyprus and will not be closely involved in discussions about a banking union and the eurozone-wide banking supervisor. UK banks are not expected to be subjected to the authority. The treasury minister, Greg Clark, will also be attending.

8.42am BST

This WSJ comment piece about Cyprus is being tweeted this morning. The intro is pointed.

8.39am BST

Market update

The FTSE got off to a negative start this morning, down 20.31 points or 0.3% at 6395. Reuters attributes this to profit taking – the FTSE has been on a good run – and concerns that Cyprus and others will require deeper bailouts.

Meanwhile, the pan-European FTSEurofirst 300 index has also slipped 0.3% in early trading.

Richard Perry, chief strategist at Central Markets, said:

There is the potential that Cyprus may need more money, and that may be a reason for investors to book a bit of profit on the back of the recent strong run.

Updated at 8.40am BST

8.29am BST

Dijsselbloem speaks

Mind out markets, Jeroen Dijsselbloem, the Dutch finance minister and head of the Eurogroup, has given an interview. But it looks slightly more benign than his index-rattling efforts last month, when he said the Cyprus deposit-raid might be a blueprint for all future EU bailouts.

In his interview with the Irish Times he says the outlook for Ireland – one of five EU countries to receive a bailout (if you count Spain's banks) – is "rather positive". He dances around the notorious "template" comments about Cyprus, stressing that "we have to work towards a different way of working with banking crises in the future." But he uses a phrase – bail-in – that is a euphemism for tapping savers' deposits above €100,000 (and bondholders too). So the issue of deposit raids – Cypriots are facing a bigger wipeout than first thought after events of recent days – won't go away. He says:

In a post-crisis situation you need mechanisms to deal with these problems. We are working on those – in the resolution and recovery directive there will be a way of dealing with a ‘bail-in’, giving us the instruments to do bailins in a proper way.

He goes on to say that deposits above €100,000 are still fair game.

There will be a hierarchy and the uninsured depositors will be at the end of the hierarchy… I can’t speculate on what the outcome is, but they’re definitely included in the proposal that’s now on the table [to deal with future crises].

Updated at 12.50pm BST

8.17am BST

Henry McDonald, our Ireland correspondent, says today's meeting of Eurogroup finance ministers and heads of central banks in Dublin will be picketed by members of the Republic's largest police union.

Up to 30 members of the Garda Representative Association's central executive have gathered outside Dublin Castle where the Eurogroup event for finance ministers is taking place. 

The GRA say they have staged the picket in protest at what they call the "unfairness" of cuts imposed on rank and file police officers in the state. 

GRA general secretary PJ Stone said this morning: "We have been badly treated by our political masters, and having been repeatedly denied the opportunity to directly negotiate our pay, we must express our anger and frustration through our continued placard protest."

Their placards include: "IRELAND Support your Police" and "IRLAND Unterstutze Deine Polizei".

The sight of the union representing more than 11,000 Gardai picketing their own government organised pan-European event will be an embarrassment for the Fine Gael-Labour coalition. Ireland holds the EU Presidency up until midway through this year. 

The stability of the European financial system and the growth prospects for the Union are a key topic for today.

Tomorrow, ministers will look at more information sharing between tax authorities.

The sharing of information is to combat tax evasion is also on the agenda at Dublin Castle.

Updated at 8.23am BST

8.17am BST

Spotlight on Dublin and Berlin

Morning all – it is a day of gatherings for the eurozone. Given that it is the year of the gathering in Ireland (to celebrate the country's considerable cultural and genealogical wattage), there is appropriately enough a meeting of Eurogroup finance ministers in Dublin. They will discuss the ongoing crisis in Cyprus and then move on to the imminent one in Slovenia before, reportedly, agreeing to extend the bailouts for Ireland and Portugal. But the latter might not be announced until tomorrow.

In Berlin, David Cameron is meeting Angela Merkel. The election clock is ticking for both of them, with Merkel's coming later this year. Right now, one of them is more likely to be returned to power than the other – but Cameron still has two years to ensure that the eurozone does not continue to destabilise the UK economy and his election chances.

Updated at 8.22am BST

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Debt sustainability analysis which leaked last night shows that Cyprus’s contribution to its own financing package has risen from €7bn to €13bn. Unemployment rate in Greece reaches 27.2%. US jobless claims fall by 42,000 to 346,000…

 


Powered by Guardian.co.ukThis article titled “Eurozone crisis: Alarm as Cyprus rescue bill swells to €23bn – as it happened” was written by Graeme Wearden, for theguardian.com on Thursday 11th April 2013 17.21 UTC

6.47pm BST

Closing summary

Tomorrow, finance ministers will hold their next meeting in Dublin. On the agenda — Cyprus's fiscal reform programme, the situation in Portugal, and whether to agree to extend the existing Portuguese and Irish rescue loans.

But that's all for today.

Here's a very brief closing summary.

The cost of Cyprus's financial rescue package has swelled to €23bn, documents disclosed last night have shown.

The extra cost, around €6bn, will fall on Cyprus itself, whose contribution has risen to €13bn (details at 8.46am)

The report predicts that the Cypriot economy will contract by over 12% in 2013 and 2014. Many bloggers (9.16am onwards) and City analysts (see 1.59pm) believe the forecasts are too optimistic.

Olli Rehn admitted tonight that the Commission cannot be sure how sharply Cyprus will contract (see 6.21pm)

Cyprus's government has denied that it will be forced to sell its gold reserves, although the report does state that Nicosia will raise €400m through a gold sale (see 1.23pm).

There are fears tonight that Portugal may need extra help from its lenders. Leaked documents, and analysis from Open Europe, both point to problems with funding that could prevent its return to the markets (see 4.03pm).

Mario Draghi has written to Cyprus's president, warning him not to fire central bank governor Panicos Demetriades (see 3.35pm onwards).

Eurogroup president Jeroem Dijsselbloem has predicted that finance ministers will agree to extend Portugal and Ireland's bailout loans tomorrow (see 2.43pm)

And in Athens, the Greek government has warned Germany that the long-standing issue of war reparations will not be forgotten…. (see 12.03pm)

We'll be back tomorrow – until then, thanks and goodnight!

6.21pm BST

Rehn: Hard to say how much Cyprus will contract

Just in – Olli Rehn, European Commissioner for monetary union, has given an interview to the Wall Street Journal / Dow Jones in which he admits that the full scale of Cyprus's recession is hard to calculate.

Their ace Matina Stevis has reported the key points on Twitter:

We've reported several times today that City experts don't believe Cyprus's economic targets are realistic (for example).

Rehn is also pushing for decisions on European banking union to be taken soon.

6.00pm BST

On a lighter note, the Central Bank of Ireland has accidentally minted 10,000 €10 coins honouring Irish writer James Joyce with an mistake in them.

The coins unfortunately include an extra word in a key quote from Ulysses:

Joyce wrote: "Ineluctable modality of the visible: at least that if no more, thought through my eyes. Signatures of all things I am here to read."

But alas the word 'that' has been added to the second line:

A view of a limited addition James Joyce collector coin issued by the Central Bank of Ireland. PRESS ASSOCIATION Photo. Issue date: Thursday April 11, 2013.
Photograph: Jason Clarke/PA

Our Dublin correspondent, Henry McDonald, has written the full story here. Bit of an embarrassment for the Bank of Ireland (although probably not enough to get the governor sacked — perhaps Mario Draghi will write another letter just in case…..).

And speaking of quotes… Danny Gabay, of City consultancy Fathom, has mischievously reminded us of a quote from Draghi's predecessor, Jean-Claude Trichet, when Cyprus entered the single currency in 2008:

For a small, open economy like Cyprus, euro adoption provides protection from international financial turmoil which often has a disproportionate impact on smaller economies.

Up to a point….

Updated at 6.21pm BST

4.36pm BST

Draghi’s letter received

Cyprus' government spokesman has confirmed that the ECB president's letter had landed in Nicosia, reports Helena Smith 

"We can confirm receipt of the letter," the spokesman Christos Stylianides said. He also had a retort for Draghi. "There is no issue for the government because its position has, and is, well-known regarding the autonomy of institutions," he added. "One thing is political handling [of an issue] and quite another the technocratic handling of an issue." 

4.03pm BST

Will Portugal need a second bailout?

Two interesting articles about Portugal to flag up – both warning that it is likely to need more financial help soon.

1) On at the Financial Times, Peter Spiegel is clasping another leaked document – showing that a second bailout is likely.

Peter writes:

Although the document doesn’t address it directly, it makes clear that Portugal will have a very hard time avoiding a second bailout, since its financing needs in 2014 and 2015 – its first years after bailout funding runs out in July 2014 – will be substantially higher than they were during the pre-crisis period.

2) Open Europe, the think tank, also believes Portugal needs more help.

It's new research paper (pfd) outlines how the Portuguese economy is deteriorating sharply. This could mean that Portugal taps the ECB's new bond-buying scheme, the Outright Monetary Transactions plan.

Here's Open Europe's analysis of Portugal's problems:

  • Domestic demand, government spending and investment are contracting sharply, leaving the country heavily reliant on uncertain export growth to drive the economy.
  • By cutting wages and costs at home (internal devaluation), Portugal has in recent years improved its level of competitiveness in the eurozone relative to Germany. However, this trend actually started to reverse sharply in 2012, meaning that the divergence between countries such as Portugal and Germany has begun growing again – exactly the sort of imbalance the eurozone is seeking to close.
  • In its austerity efforts, Portugal is now coming up against serious political and constitutional limits. For the second time, the country’s constitutional court has ruled against public sector wage cuts – a key plank in the country’s EU-mandated austerity plan – while the previous political consensus in the parliament for austerity has evaporated.
  • In combination, it will be increasingly difficult for Portugal to sell austerity at home and consequently to negotiate its bailout terms with creditor countries abroad.
  • Portugal may well need some further financial assistance before long. It is unlikely to take the form of a full second bailout, but could involve use of the ECB’s OMT bond-buying programme, assuming Portugal can return to the markets fully beforehand (even briefly).

3.49pm BST

Mario Draghi’s letter

Ta Nea has uploaded a copy of Mario Draghi's letter to the Cyprus president – click here to see it in Greek – in which the ECB chief warns against dismissing central bank head Panicos Demetriades.

As reported in our previous post, it reminds Nicos Anastasiades that a central bank governor cannot be dismissed unless he can no longer fulfill his duties or if he is guilty of serious misconduct.

Updated at 3.52pm BST

3.35pm BST

Draghi warns against firing Cyprus’s central bank governor – report

Mario Draghi, president of the European Central Bank (ECB), speaks during a news conference at the bank's headquarters on April 4, 2013 in Frankfurt, Germany.
Mario Draghi, president of the European Central Bank (ECB), has reportedly written to Cyprus’s president warning against dismissing his central bank governor. Photograph: Imago/Barcroft Media

As if Cyprus’ problems weren’t big enough, the island’s president also appears to face mounting criticism from European Central Bank Mario Draghi over his treatment of the governor of the central bank of Cyprus, reports Helena Smith, our correspondent in Athens.

She writes:

The ECB president Mario Draghi has reportedly taken the unusual step of reading the riot act to Cypriot president Nikos Anastasiades following mounting pressure on the island’s central bank governor to resign.

In a withering letter, Draghi warned the embattled leader that firing Panicos Demetriades over his handling of Cyprus’ worsening crisis would go against European Union law with which, he said, local legislation had to be “compatible.”

“As you know any decision to remove a governor from his duties is subject to judicial investigation by the Europe Union court,” he wrote adding that a central bank governor could only be sacked if he was found to be incapable of conducting his duty or judged guilty of serious misconduct.

The measures, he reminded Anastasiades, had been put in place to guarantee the independence of central bank governorship.

Draghi's letter was first reported by Ta Nea, Grece's leading daily, this afternoon – here's the story.

Helena adds:

Demetriades, who was appointed by former president Demetris Christofias, a veteran communist, has faced furious criticism over his role in the collapse of the island’s second largest lender, Laiki, and enforced losses depositors with over 100,00 euro at Laiki and the Bank of Cyprus will be forced to shoulder. Anastasiades says the central bank should have restructured Laiki after it was nationalized last year. The governor, who insists that the stringent terms of Cyprus’ bailout was a “political decision,” now faces criminal charges when a parliamentary investigation commences next week.

Draghi wrote the letter after the Cypriot leader sacked Demetriades’ deputy, Spyros Stavrinakis, earlier this week, Ta Nea said.

I just called the ECB, but alas they won't comment on the letter, or confirm that it was sent.

The ECB statute, though, is pretty clear that central bank governors can't be fired on whim. Here's the key section:

STATUTE OF THE EUROPEAN SYSTEM OF CENTRAL BANKS AND OF THE EUROPEAN CENTRAL BANK

14.2. The statutes of the national central banks shall, in particular, provide that the term of office of a Governor of a national central bank shall be no less than five years.

A Governor may be relieved from office only if he no longer fulfils the conditions required for the performance of his duties or if he has been guilty of serious misconduct. A decision to this effect may be referred to the Court of Justice by the Governor concerned or the Governing Council on grounds of infringement of these Treaties or of any rule of law relating to their application.

Such proceedings shall be instituted within two months of the publication of the decision or of its notification to the plaintiff or, in the absence thereof, of the day on which it came to the knowledge of the latter, as the case may be.

[end]

Updated at 3.36pm BST

2.43pm BST

Dijsselbloem: Ireland and Portugal should get loan help

Jeroen Dijsselbloem, the Dutch finance minister who leads the eurogroup of finance ministers (not without incident, either) has predicted that Ireland and Portugal will be granted extensions to their bailout loans on Friday.

Dijsselbloem is in Cork ahead of a two-day meeting of finance ministers that starts tomorrow. He told a press conference this afternoon that the eurogroup will probably decided to grant Ireland and Portugal seven more years to repay their loans from the European Union.

Dijsselbloem said:

The intention is very positive.

I hope that we will be able to finalise that tomorrow

(quotes via Reuters)

Extending the loans will lower the repayment burden, making it easier for both countries to return to the financial markets. But there are particular concerns over Portugal today, and whether it will soon need more help…. (more to follow)

1.59pm BST

Two City analysts have added to fears that Cyprus won't be able to hit the fiscal forecasts drawn up in its bailout plan.

Christoph Weil of Commerzbank reckoned that the country could get close to the growth figures"if everything goes according to plan", but warns that everything probably won't.

In particular, Weil suspects that Cyprus will not return to growth in 2015, when it is expected to grow by 1.1%.

AP's Juergen Baetz reports:

"If there are any problems and there are significant downside risks then it could be much worse, and a combined contraction of 20% is within the range of the possible," Weil said….

"The country must go through a painful and wide-ranging restructuring of its economy, with half of its banking sector evaporating, I think it will take at least three years for the economy to bottom out."

Jonathan Loynes of Capital Economics also believes the economic projections contain "a considerable degree of optimism":

This could force Cyprus to undertake further fiscal tightening to meet its borrowing targets and casting doubt over the sustainability of the bail-out.

Juergen's full story is online here: Cyprus bailout swells to billion

1.23pm BST

Cyprus: gold sale is not certain

Officials in Cyprus are playing down the prospect that the country will be forced to sell a chunk of its gold reserves

Government spokesman Christos Stylianides confirmed in the last few minutes that a gold sale is an option for financing the bailout. The responsibility, though, remains with Cyprus's central bank.

Stylianides also confirmed that the Cyprus financing package has risen to €23bn.

The Cyprus central bank had already denied this morning that the country's gold reserves would be sold.

Here's what the document outlining Cyprus's financing needs states:

It is envisaged to use the allocation of future central bank profits of approximately [EUR 0.4bn], subject to the principle of central bank independence and provided such profit allocation is in line with CBC rules and does not undermine the CBC duties under the Treaties and the Statute. 

Details of Cyprus gold sale
Photograph: EC

Cyprus is estimated to have around 13.9 tonnes of gold, and would have to sell over 10 tonnes, at today's prices, to raise €400m.

Adrian Ash, head of research at BullionVault, reckons it would the biggest bullion sale by a Eurozone central bank since France sold 17.4 tonnes in the first half of 2009, and would set a precedent.

Ash added:

What's interesting for Cyprus now is the EC's wording in the proposal. Advising Cyprus to sell off "excess" gold could be seen to point to the very heavy share of gold in the central bank's currency reserves – a massive 62%.

Yes, that's pretty much in line with the Eurozone as a whole (when you include the ECB's holdings), but it also suggests an attempt to get around the legal block on financing state deficits by selling central-bank assets via some or other "target" level for gold as a percentage of reserves.

12.40pm BST

In Athens, the government is holding fresh talks with top officials from the Troika today.

Here's a photo of IMF mission chief Poul Thomsen arriving for another meeting with Greek finance minister Yannis Stournaras:

International Monetary Fund (IMF) mission chief Poul Thomsen, center,  arrives for a meeting between Greek Finance Minister Yannis Stournaras and the debt inspectors from the European Central Bank, European Commission and International Monetary Fund, known as the troika, in Athens, Thursday, April 11, 2013.
Photograph: Petros Giannakouris/AP

Negotiations between the two sides have been grinding on for days. They are still trying to reach an agreement on overhauling the Greek civil services. The Troika is reportedly pushing for 7,000 officials to be laid off this year, rising to 20,000 by the end of 2014. Athens is refusing to accept this – thus the ongoing talks….

12.03pm BST

Greece chides Germany over war reparations issue

The question of whether Germany owes Greece billions of euros of unpaid reparations following the second world war has flared up today.

Greek foreign minister Dimitris Avramopoulos has hit back after Germany's finance minister, Wolfgang Schäuble, suggested that Greece should drop the issue and focus on reforming its economy.

Avramopoulos insisted that the matter was still important to Athens, and would be resolved in the courts (the full statement is below).

Some background:

This issue of German war reparations has been a running sore in Greece since the financial crisis began.

As well as the thousands of Greek lives lost and destruction of infrastructure, the Bank of Greece also made loans to the occupying forces during the 1941-1944 Axis occupation.

Some historians have claimed that compensation was never paid. And their voices have become louder since the first Greek bailout, and the demands placed on the country by the eurozone.

And now….

A new report, commissioned by the Greek government, had reportedly found compelling evidence that Germany is liable for large sums (one earlier estimate puts the bill at €162bn). It was put together by a group of researchers who ploughed through masses of official documents, dating back decades. (here's a report in To Vima).

Asked about the issue this week, Schäuble flatly rejected the suggestion that Germany could, let alone would, pay such compensation today.

Schäuble  apparently told a German newspaper (details here) that:

Greece has achieved a lot, but still had a long way to go.

[Greeks] should not lose their direction. Regarding the claims for reparations, I see no hope because this matter was cleared up a while ago.

This prompted today's rare official comment on the issue, with Avramopoulos declaring:

The reforms being carried out in Greece bear no relation – and can bear no relation – to the issue of German reparations.

What’s more, German reparations are an issue that the Greek state has been raising for many years now.

Whether this case has been resolved or not is determined by international justice, given that, by its nature, this issue concerns international law and the international justice organs.

Greece is not ‘losing its focus’ on the reform policy, despite the great sacrifices the Greek people are shouldering.

It seems certain that the issue will get more attention once the official report is published later this year.

10.50am BST

Greek jobless rate hits another record high

In Greece, the unemployment rate has risen to a new record high — as its long recession continues to scar the country's workforce.

The jobless rate is now 27.2%, data for January from the Hellenic Statistical Authority showed. That's double the eurozone average of 12% recorded in February (Greece's data lags a month behind).

Greece's jobless rate is the worst in the eurozone, behind Spain (26.3%) and Portugal (17.5%).

The full data is online here.

This graph shows how the jobless rate has risen steadily, although there was a welcome blip last December (when the rate dropped to 25.7%)

Greece's jobless rate, to Jabuary 2013
Photograph: /HELLENIC STATISTICAL AUTHORITY

The data also shows that 31.4% of women are out of work in Greece, compared to 23.9% of men.

And the youth jobless crisis is as awful as ever – with 59.3% of 15-24 year olds out of work.

10.42am BST

Where to read the reports

Just a reminder.

The Cyprus debt sustainability analysis, which includes the economic forecasts and various measures being taken under the bailout, is online here: Assessment of the public debt sustainability of Cyprus

And the financial details of the package, explaining how it has risen to €23bn, is online here: Assessment of the actual or potential financing needs of Cyprus.

(those documents are hosted by the FT, after first reaching Reuters and Dow Jones last night)

Updated at 11.05am BST

10.18am BST

How to make a catastrophe out of a crisis

It's easy to be critical of the European authorities over the Cyprus bailout plan (see this morning's earlier posts). But the finger of responsibility must also be pointed at Nicosia, and the fateful decision to impose a levy on all savers.

Although abandoned, this move created genuine alarm among Cypriots when it was announced as part of Bailout Plan A on 16 March.

We then had a week of political deadlock after MPs sensational rejected the plan, cunning plans including for a National Solidarity Fund which went nowhere, before president Nicos Anastasiades accepted the current programme after a dramatic meeting in Brussels (liveblogged here).

A better plan originally would surely have kept the bill below its current €23bn (although perhaps the original €17bn target was always too optimistic).

Blame all round. To quote Pawelmorski again:

The Cyprus negotiations started with a high-risk gamble – that depositors would bear part of the pain of restructuring; unfortunately, the Cypriot parliament then tried to bluff the Troika whilst declaring loudly that they didn’t have any cards at all, and a catastrophe was duly created.

10.04am BST

Pawel Morski on ‘lies’ and lessons in the Cyprus plan

Another great blog post on Cyprus, from fund manager @pawelmorski:

Cyprus: Of Course It’s A Template

It's a comprehensive take-down of the calculations within the Debt Sustainability Analysis.

These economic forecasts are dismissed as "worse than literally laughable":

Cyprus economic forecasts
Photograph: EC

Can exports really fall by just 5%, with a ravaged banking industry and the introduction of capital controls? Won't the losses suffered by wealthy depositors have a rather larger impact on spending (measures by consumption)?

The wealth effect wiping deposit worth 60% of GDP will apparently barely register on consumption – the Troika must think the deposits are all Russian. Compare with Iceland (50% drop in investment) or Latvia (40%), the former boosted by devaluation the latter by an intact financial system….

These projections cross the line from wild optimism into contemptuously half-hearted fable. This table is a bare-faced lie.

Another experienced voice warning that Cyprus's adjustment programme may go off the rails…..

Morski also makes an important point about the lessons we can learn from Cyprus as a model for the future.

Eurozone officials clearly moving to a system where taxpayers pay the price of rescuing banks to one where investors and large depositors do.

For a non-Template, the Cyprus solution drops some cracking clues as to EU priorities. At present, the capital structure is equity, subordinated debt, then senior debt and depositors together.

The new hierarchy will be: equity, sub debt, senior debt, uninsured depositors, and then at the top of the mountain as the floodwaters rise, voters insured depositors (remember that while a very big chunk of deposits are uninsured, almost all depositors are) the ECB and the Eurosystem…

There are good arguments for shifting the burden of bank rescues onto those who directly and deliberately benefit in the good times. There is also a powerful case that Europe's banks aren't strong enough, or investors confident enough, to make the shift now….

More here: Cyprus: Of Course It’s A Template

(PS: If you're on Twitter you really should be following @pawelmorski – especially if you enjoy a good scrap)

Updated at 10.11am BST

9.36am BST

Yiannis Mouzakis: Cyprus likely to miss its fiscal targets

From Cyprus, blogger Yiannis Mouzakis also fears that the targets outlined in the debt sustainability analysis are too optimistic.

This is the key chart, predicting how Cyprus's debt as a percentage of GDP (the crucial measure of debt sustainability in the Troika's book), will rise and then fall through its bailout programme.

Cyprus programe: debt/GDP forecast
Projections for Cyprus’s debt/GDP until 2020. Photograph: /EC

The grey area shows the areas of uncertainty – depending if the bailout programme goes better than expected, or worse.

Greece has been a textbook example of over-optimistic forecasts, which were missed, leading to extra austerity, leading to lower growth, leading to missed targets.

Yiannis fears a repeat, given the Troika's track record:

With a policy mix that has consistently surprised negatively on growth in every country that is either in a program or simply is forced to follow the Commission’s diktat, fiscal targets that are repeatedly missed even from the most compliant of countries like Portugal, and overall DSAs from the troika that are the definition of revision, the adverse scenario in the DSA of Cyprus is the one that is most likely to materialise.

More here: Another sorry debt sustainability analysis

9.16am BST

Joseph Cotterill: If you didn’t laugh you’d cry

Over on FT Alphaville Joseph Cotterill has crunched through the debt sustainability analysis, and is pretty alarmed:

The amount Cyprus had to find from depositors went up by €5bn in the nine or so days between the initial stupid idea and the deal they all eventually reached. Cyprus is a (roughly) €18bn economy. If you didn’t laugh you’d cry.

Joseph has concluded that the sums are seriously unconvincing, and driven by the need to keep the total bill for international lenders at €10bn:

Does the whole DSA read like an attempt to squeeze everything below this limit rather than set the numbers to what would be sustainable, even if they come out higher? Why yes it does.

He's also drilled into one particular detail: that Cyprus is expected to roll over up to €1bn of domestic law long-term debt, through a "voluntary sovereign bond exchange" covering bonds maturing in 2013-15.

It's a messy situation – but he reckons it could see eurozone heading for its second sovereign debt restructuring (after Greece, of course).

More here: The eurozone’s second sovereign restructuring?

Updated at 9.16am BST

8.46am BST

Cyprus debt sustainability report: Cyprus to supply €13bn

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

The scale of the crisis in Cyprus has been exposed by the official report into the country's debt sustainability assessment, which leaked on Wednesday afternoon [covered in yesterday's blog].

The total rescue package has jumped to €23bn, from €17bn, and it won't be a surprise that it's Cyprus, not its international lenders, filling the gap.

Thanks to the documents [posted online last night by the FT's invaluable Peter Spiegel], you can see that Cyprus is now expected to contribute €13bn to the financing of the adjustment programme. When the deal was first agreed, it was €7bn.

Here's how it breaks down:

1) €10.6bn from restructuring the banking sector (the resolution of Laiki Bank, and "bailing-in" junior debt and uninsured deposits in the Bank of Cyprus)

2) €600m from raising corporation tax, taxes on capital income, and increasing the bank levy on deposits raised by banks and credit institutions

3) €400m through selling some of Cyprus's gold reserves

4) €1.4bn through privatisations.

Cyprus is also expected to haggle a lower interest rate on its loan from the Russian Federation. And roll over some of its own bonds (of which more shortly….)

The unexpected jump in the refinancing package underlines quite how botched the original bailout was, and the scale of the damage caused to Cyprus during those mad March days.

Cyprus is expected to suffer a dire double-digit slump — contracting by 8.7% this year and another 3.9% in 2014. This chart explains:

Cyprus GDP - from DSA April 2013
Photograph: EC

But it could be much worse — as the debt sustainability analysis itself warns:

There is a non-negligible risk of a cycle of household and corporate defaults propagating through the economy, leading to further banking sector losses, worsening of labour market conditions, stronger than expected fall in house price and a prolonged loss of business and consumer confidence.

All factors we've seen played out in other eurozone bailouts since the crisis began. 

And if these forecasts are too optimistic, it's Cyprus who will be dipping back into its pocket. The DPA again:

In the event of underperformance of revenues or higher social spending needs, the Cypriot government has committed to stand ready to take additional measures to preserve the programme objectives, including by reducing discretionary spending, taking into account adverse macroeconomic effects.

A strategy that worked so well in Greece…

The DPA is also pretty blunt about the changes wrought on the Cypriot financial sector. The Cyprus-domestic banking sector used to represent 550% of the country's GDP. Not any more….

As a result of these actions the Cypriot banking sector has been downsized immediately and significantly to [350]% of GDP.

And the conclusion of the Debt Sustainability Analysis could send shivers through Nicosia:

A number of downside and upside risks to the debt projections may impact on the actual debt trajectory. Although difficult to quantify, downside risks appear dominant.

There's some good analysis of the reports already this morning (which I'll link to next). But take a look yourself:

Assessment of the public debt sustainability of Cyprus

Assessment of the actual or potential financing needs of Cyprus

(with another nod to the FT).

I'll also be tracking other events in the eurozone and beyond through the day….

Updated at 9.08am BST

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