Italy

ECB keeps rates at record low 0.5% as the 17-nation economy recovers from the prolonged recession. Italian Prime Minister Letta survives as Berlusconi caves in. Letta: A new election would be a disaster. Anger in Greece as Golden Dawn MPs released…

 


Powered by Guardian.co.ukThis article titled “Berlusconi backs Italian prime minister in crunch confidence vote – live” was written by Graeme Wearden, for theguardian.com on Wednesday 2nd October 2013 12.11 UTC

It will be fascinating to see what Mario Draghi, head of the European Central Bank, makes of the Italian situation when he begins a press conference in 20 minutes time (as expected, they have left interest rates unchanged)

Our Southern European editor John Hooper says Berlusconi has saved face, but lost influence:

Enrico Letta definitely looked less than euphoric as Berlusconi yanked hard on the political handbrake, and declared with palpable understatement:

we have decided, not without some internal strife, to support the government.

The general view among Italian political journalists is that Letta would be much better off without Berlusconi around at all. Instead, Letta remains the prime minister of a shaky coalition.

Having said that, Berlusconi is damaged by the antics of the last few days. The remarkable political gymnastics must have taken their toll — and an optimist might argue that PdL is irrevocably on the path to a new future….

Updated

Why Berlusconi caved in

What drama!

So, here’s the position. By sensationally dropping his opposition to Enrico Letta, Silvio Berlusconi has guaranteed that the Italian government survives.

Add all Berlusconi’s PdL senators to Letta’s existing support — his PD party, plus small parties and senators for life — and it’s a healthy majority.

So why did Berlusconi do it? Clearly, he concluded that he could not keep enough of his PdL party onside. The photo I included in the blog earlier showed a long list of rebels.

If Berlusconi hadn’t pulled such a SCREECHING u-turn, then he would presumably have seen his group shatter. The moderates would have followed Letta, and he’d have been left nursing a rump faction.

Updated

The Italian stock market jumped as the news came in, pushing the FTSE MIB up 1.4% today.

Italian government debt prices remain high, with the yield on 10-year bonds down at 4.38% (from 4.46% yesterday).

Here’s the key quotes from Berlusoni, before he threw his support behind Letta a few moments ago.

Updated

Berlusconi himself buried his head in his hands after announcing that the PdL party will support Letta — which means today’s confidence vote is a WIN for the prime minister.

It was not the speech of a winner — rather of a man whose long grip on his party may be slipping .

There’s applause in the Senate as Berlusconi says he will support Enrico Letta — although I think I saw Letta pull a rather rueful grin.

BERLUSCONI BACKS LETTA

BERLUSCONI SAYS HE AND HIS PEOPLE OF FREEDOM PARTY WILL SUPPORT LETTA.

Berlusconi

Berlusconi is addressing the Senate in an atmosphere of silence, trying to sound statesmanlike….

Berlusconi’s got the microphone!

Former technocratic prime minister Mario Monti just gave a brisk speech, in which he urged senators not to risk Italy falling into the troika and its “neocolonial oversight”. If Italy is forced to take a bailout, it could take years to recover, Monti warned.

Updated

While we wait for that vote, here’s Reuters’ report on Letta’s second speech to the Senate:

Italian Prime Minister Enrico Letta said on Wednesday his government could achieve reforms even with a smaller majority, as he wound up a debate on a confidence vote in which he has been boosted by dissidents from Silvio Berlusconi’s centre-right party.

“Our government can reach its objectives despite the fact that the majority’s numbers have changed,” Letta said as he formally put a confidence motion to the Senate, which is expected to complete the vote in the early afternoon.

Letta spoke at length about Italy’s role in the European Union and his goal to push for greater integration during the country’s rotating presidency in the second half of 2014, suggesting he sees his government lasting at least until 2015.

The vote hasn’t actually started yet. Senators are continuing to give their views. The latest word from Rome is that Berlusconi isn’t expected to speak (but given today’s twists and turns, let’s see).

Rome correspondent Lizzy Davies reports that two distinguished honorary senators, architect Renzo Piano and conductor Claudio Abbado, are both absent because they are out of the country.

Confidence Vote has been called

To repeat, Enrico Letta has called for a vote of confidence.

After a dramatic couple of hours in the Senate, we still don’t know what’s going to happen. There have been rumours that Berlusconi will back Letta, and also that he will order the entire PdL party to vote against. Speculation abounds.

We do know that there is a solid bunch of ‘dovish’ PdL senators who are unlikely to bow to pressure from Berlusconi, and are highly likely to back Letta. But we do not know if it will be enough.

As John Hooper flagged up the Berlusconi rebels are talking about creating a new party called ”Popolari per l’Italia”.

Wolf Piccoli, managing director at Teneo Intelligence, is as reliable as any, and he reckons Letta might get 171 votes — that’s a win, as he needs 160 for victory.

A briefer speech from Letta this time — his main message to the Senate is that today is a historic opportunity. Tomorrow the government must get back to work.

Amid applause from some members of the senate, Letta calls for a confidence vote:

Updated

Letta still looks calm:

Updated

Letta speaks again as vote looms

Italian prime Enrico Letta is beginning his second speech to the Senate, explaining that he didn’t sleep last night as he worked to hold the government together.

He’s initially heard in silence (gosh it’s tense), but there’s some heckling as Letta bluntly tells the Senate that he’s not prepared to keep taking “lessons in morality” from those who are holding him to ransom.

Letta then tells Senators that he needs their support. A smaller majority will make it even hard for him to govern.

Letta back on his feet

Enrico Letta is speaking again in the Italian parliament. Reminder: it’s being streamed on RAI News.

Updated

The rumour mill keeps swirling in Italy ahead of this lunchtime’s confidence vote. One insider reckons Berlusconi is going to back Letta, the next says he’s not. Confusion reigns (not for the first, or last time).

John Hooper, our Souther Europe editor, reports that Berlusconi’s rebels are talking of creating a new party called “Popolari per l’Italia” – even if the loyalist wing of PdL join them by supporting Letta.

Plenty of concern in Greece that three Golden Dawn MPs were released from court this morning, and promptly kicked and shoved their way through the assembled media .

Here’s a flavour:

Three Golden Dawn MPs released on bail – lash out at press

Breaking away to Greece briefly.

Four of the Golden Dawn MPs who were arrested as part of the clampdown on the neo-Nazi party appeared in court today. Three of the men were promptly released pending a future trial, while party leader Nikolaos Michaloliakos is due back in court later today.

TV footage from the scene shows one cameraman being pushed out of the way, while another man is kicked as the MPs and their supporters leave the scene.

Here’s the video clip showing the aggressive scenes:

And here’s Kathimerini’s early take:

Only one of four Golden Dawn deputies arrested last week on charges of heading a criminal organization responsible for a range of felonies, including murder, assault, blackmail and money laundering, among others, was remanded in custody on Wednesday, while another three were released pending trial, one of them posting a 50,000 euro bail.

Yiannis Lagos was expected to be transferred to a local jail on Wednesday following a unanimous decision reached by two investigative magistrates and two prosecutors.

Party spokesman Ilias Kasidiaris was ordered to post a €50,000 bail and not to exit the country. Deputies Ilias Panayiotaros and Nikos Michos were also ordered not to leave the country.

The clampdown followed the death of 34-year-old rapper Pavlos Fyssas two weeks ago. A Golden Dawn member was subsequently arrested over the stabbing.

More to follow

Updated

Here’s a photo that appears to show the list of Senators from the People of Freedom party who are considering backing Enrico Letta:

Rumours flying:

It is increasingly likely that Enrico Letta has enough votes for victory, even if Berlusconi decides to back him.

Letta needs 161 votes for victory – although he would like more. Vincenzo Scarpetta of Open Europe reckons that he currently has 170 senators behind him, based on the latest reports and public statements.

Here’s how Barclays summed it up this morning:

Letta has the numbers to survive the vote today. The Government needs the support of 161 Senators, and can count on 137.

With the support of the life Senators, and defectors from the smaller parties (including M5S) it is likely to get to around 147-149. Letta therefore only needs around 12-14 PdL Senators to defect in order to survive. With the PdL split he is likely to get this.

More reaction to the reports that Berlusconi is considering throwing his support behind Enrico Letta in the confidence vote:

It would be a stunning u-turn from Silvio Berlusconi if, as reports suggest, he has now decided to back Enrico Letta in today’s vote of confidence.

But it wouldn’t exactly be out of character — and a number of political journalists and analysts were suggesting yesterday that this might happen, once we learned that his party were rebelling.

Remember, it was Berlusconi who triggered this crisis by threatening to bring the government down last week — by withdrawing his PdL party from the Letta coalition.

If he backs Letta today, then he could still trigger a crisis in future.

As Serena Ruffoni of the WSJ put it to me:

I don’t think the Letta government is any stronger even if it survives this confidence vote.

Updated

Reports: Berlusconi’s Party to back Letta

Important: Sky Italia is reporting that the People of Freedom party are going to BACK Enrico Letta in the confidence vote.

If true, that means Letta would win a solid majority. It would also suggest that Berlusconi has decided that he cannot bring his rebels back into line, and has decided to fall in with them.

That is NOT the best result for Letta, though. While he’d still be in power, he’d also still be lumbered with the Berlusconi problem.

Market reaction

The Italian stock market surged during Enrico Letta’s speech, hitting a new two-year high as the PM sat down.

Italian government bonds are also strengthening, which has pushed the yield on its 10-year debt down to 4.37% . It as as high as 4.74% on Monday after Berlusconi launched his bid to bring the Letta government down.

Senators are now speaking, with one tearing into Silvio Berlusconi — calling the former prime minister “‘a simple story of criminality”.

The BBC’s Gavin Hewitt reckons the gloves are off, as the battle for Italy’s future continues:

Updated

Letta speech: instant reaction

How did he do?

Five months isn’t enough time to build a track record of leadership success — and much of Letta’s time as prime minister has been overshadowed by Berlusconi’s legal defeats.

It was a speech of vision — asking Senators to choose between future of a more competitive, thriving Italy, or a future of political strife, fresh elections, and the prospect of another divided parliament at the end of it.

Letta isn’t the most thrilling orator in European politics, but he has a mature, sensible style.

Highlights of his speech start here.

Updated

Letta’s speech over

Worth noting that Berlusconi didn’t applaud Letta as he ended his speech – so he’s not thrown in the towel yet….

Enrico Letta concluded his speech by urging those in the chamber to give him their ”courage and confidence”. “A confidence that is not against anyone; a confidence that is for Italy” (quotes via Lizzy).

He also urged senators to search their consciences, and avoid a result that would leave them feeling “shameful regret”.

While Letta was speaking, Berlusconi could be seen holding discussion with some of his allies. I grabbed a picture:

Oh the drama….

There’s also a European theme to the speech — with Letta speaking of the need to dream of a “United States of Europe” one day. That fits with his tradition of being a solid Europhile (he was an MEP at one stage of his career)

Letta is outlining his vision for Italy — saying that growth and jobs must be the focus in 2014.

Apparently Berlusconi has told Italian media that he will listen to Letta’s speech and then decide whether to support him or not.

Enrico Letta’s speech is turning into a solid defense of his government’s record in the five months since he took over (colleague Lizzy Davies dubs it a “ very level-headed and systematic defense”.

But will that be enough to persuade PdL members to back him? As explained earlier — Letta would like to see 30 rebels jump the fence. He needs more than 20 (I think 24 is the magic number).

Letta also cited three priorities – support economic recovery; cutting taxes on workers, and increasing competition in Italy’s economy.

Letta is continuing to defend his government’s record on the economy — part of the strategy to persuade moderate members of the Berlusconi camp to back him.

It is on ordinary people suffering in economic crisis that our actions will have biggest effect, he said.

A better webfeed

Berlusconi’s just arrived! He also looks weary, probably due to late night efforts to corall rebelling members of his PdL party into line.

No sign of Silvio Berlusconi at the start of Letta’s crunch speech. Angelino Alfano (deputy PM) is there, and there’s a consensus that he looks nervous.

(see 8.22am for a blurry snap of Dudu not being walked)

Looks like the confidence vote will come at midday — earlier than the previous indications.

And how many rebels will there be?

Lizzy Davies writes:

It’s all about the numbers today. Giovanardi claimed yesterday there were “more than 40″- believed to be as many as 44- PdL MPs prepared to vote for the confidence vote. But the Italian press reports that Berlusconi’s hawks told him the rebels were much- much- less numerous. Who’s right?

We’ll find out soon. Letta needs over 20 rebels. He’d be happier with more than 30.

Updated

Letta went on to warn that a new election could cause the same gridlock as last time:

Enrico Letta is urging parliament to give him a mandate for a “real and new” pact to tackle Italy’s problems.

(a reminder — Italy’s last election, in February, resulted in deadlock — with no party winning a majority in the Senate. Eventually a coalition was agreed between the centre-left PD and Berlusconi’s centre-right PdL, with Letta (a senior member of PD) as leader)

Here’s the key early quotes from Letta’s speech:

Letta speech begins

Prime minister Enrico Letta has begun to give one of the speeches of his political life, in a bid to win enough support to continue as the head of Italy’s shaky coalition government.

Before he started, there was a standing ovation for the country’s veteran president, Giorgio Napolitano.

Letta began his speech in the Italian parliament by urging its members to “seize the moment”. And, as expected, he insisted that the legal troubles of Silvio Berlusconi cannot be an excuse to bring the country’s government down.

But can he persuade enough of Berlusconi’s PdL party to back him?

Lizzy Davies is tweeting the key points, so I’ll be embedding them in the blog now….

Watch the speech here

Enrico Letta has begun speaking in the Italian parliament.

There’s a live stream here. However, it’s very flaky.

Key points from his speech will follow!

Update: the latest word from Italy is that we might get the confidence vote around midday, not this evening as I initially thought. 

Markets down

Europe’s stock markets are all in the red today, with the FTSE 100 shedding 73 points. There’s nervousness about the situation in Italy, and also a knock-on effect from a bad day in Asia. The US Federal government shutdown isn’t exactly helping sentiment.

Overnight, the Nikkei tumbled 2% after the latest stimulus package from prime minister Abe failed to excite investors.

Updated

Tesco shares lead fallers in London

In the City, Tesco’s shares are leading the fallers on the FTSE 100 after issuing a trading statement, down over 3%.

Britain’s biggest supermarket reported zero growth in like-for like UK sales, excluding fuel and VAT sales tax, in the 13 weeks to 24 August.

Tesco also warned that it faced ‘challenging economic conditions’ overseas. Europe was particularly tough, with profits down almost 70% and like-for-like sales down by 5% in the first half of the year.

Sainsbury posted stronger figures in the UK (as expected) – sales at British stores open at least a year were up 2%. Its shares are also suffering, though, down 1.5%. More here.

Wolf Piccoli, managing director at Teneo Intelligence, agrees that it could be a long day in the Rome parliament:

Analysts at Nordea Markets say it’s “fight night” in Italy, and possibly Berlusconi’s final bout.

In the red corner, we have PM Letta, who has probably worked hard – together with the President – to convince some of Berlusconi’s senators that new elections at this point is in no one’s interest.

A vote for a continuation of the current government and later on a vote for a budget and a new electoral law would make for a fresh start after spring elections. In the blue corner, we have Berlusconi. Media are full of stories about Berlusconi’s outstanding merits when it comes to winning tight political battles. But this time it seems that even members of his own party believes he has gone too far. Even Alfano – who has been seen as the crown prince in the PDL – said that he might vote for a continuation of the government.

Furthermore, it may be the old Champs last fight, if he is stripped of his senatorial seat on Friday. It will be a close call. Italy, and to a lesser extent Spain, will sell off if the government falls.

Jeremy Cook of World First agrees:

What might Letta tell parliament in his speech this morning?

Lizzy Davies explains that his speech is likely to focus on the socio-economic suffering of Italy, and tell deputies that they cannot just let its government fall.

His strategy will be to ram home the idea that the judicial woes of one man* have to be kept separate from the interests of the country – in an effort to split the doves in Berlusconi’s party from the hawks.

• – that man being Berlusconi himself, of course, who is on the brink of being expelled from the Senate after his tax fraud conviction.

In the comments section, regular reader mrwicket has outlined the potential scenarios from tonight’s vote.

As he flags up, we’re not 100% certain that a confidence vote will actually be called — Enrico Letta will probably judge the mood of the Senate first, and if he feels he can’t win then he might simply resign.

So, Django Alfano is standing his ground and wants to support Letta in the vote of confidence, as do the other maybe ministers and a chunk of the party.

Berlusconi says he wants the government to fall and to have new elections.

The two will meet again this morning at 9’30 so things could change.

Marina Berlusconi is said to be ready to enter into politics.

I asked yesterday how you could have a vote of confidence in a government that didn’t exist. On Monday, Letta’s office said the resignations were irrevocable but yesterday afternoon, it announced that it had refused to accept them. The ‘maybe ministers’ will walk into parliament today as ministers.

Giovanardi claimed yesterday that there were 40 PdL senators ready to vote for Letta (some reports in the evening said that number was dwindling). He even spoke of a new party called Nuova Italia

There were some nasty exchanges last night between Sallusti, editor of Il Giornale and Cicchitto, an important PdL dissident. Sallusti said they were cowards, hitting the man when he was down and that they had forgotten what had happened to Fini. “They are stabbing him in the back in his moment of weakness. They are cowards because they didn’t have the courage to do it when he was strong.”
“No! You are the coward!” etc…

Letta has said he will refuse to govern with a weak majority.

————

Possible scenarios;

Letta wins vote of confidence with sufficient votes to continue in government.

Letta wins vote of confidence with insufficient votes to continue in government and Napolitano sets up a technical government.

Letta wins vote of confidence by a narrow margin and continues to govern

Letta loses vote of confidence and Napolitano sets up a technical government.

Letta doesn’t call for a vote of confidence and Napolitano sets up a technical government.

————

With regard to policy, there would be very little to distinguish between a Letta government and a technical government so we will be as we were after this dramatic little interlude. The change is likely to be inside the PdL.

Lisa Jucca, Reuters chief financial correspondent in Italy, agrees that this could be the moment that Angelino Alfano, Berlusconi’s right-hand man for so long, finally rises up:

How Letta can win

Silvio Berlusconi is facing an unprecedented rebellion, opening up the possibility that Letta can surge to victory tonight. As our Rome correspondent, Lizzy Davies, explains:

To win the confidence vote in the senate, Letta needs to attract extra votes from either the centre-right PdL or the anti-establishment Five Star Movement (M5S) to reach the magic number of 161. He has said, however, that he has no interest in continuing at the head of a government that only sneaks in by a handful of votes.

His chances appeared to have been significantly boosted on Tuesday, when Carlo Giovanardi, a long-time ally of Berlusconi, struck the first major blow when he announced that “more than 40″ PdL MPs were prepared to vote to keep the government afloat.

Then, in a stunning move likened by one observer to an “Et tu, Brute?” moment, Angelino Alfano, the deputy prime minister long seen as Berlusconi’s political heir, appeared to solidify the mutiny. “I remain firmly convinced that all our party should tomorrow back the confidence vote in Letta,” he said, according to Ansa.

Here’s the full story: Silvio Berlusconi’s allies turn on him to keep Italy’s grand coalition alive

Make-or-break confidence vote for Italian PM

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

After yesterday’s foray into the US shutdown , we’re back in familiar territory today – the political crisis in Italy, with a monthly meeting of the European Central Bank on top.

Enrico Letta, Italy’s prime minister, is heading to parliament this morning for a make-or-break confidence vote. It was triggered by Silvio Berlusconi’s decision last Saturday to ordered his ministers out of the coalition, to bring Letta down.

Does Letta still have the support of the lower house, and the Senate? If not, Italy could be plunged deeper into chaos.

But Letta could win, and wins well, if Berlusconi’s centre-right party defy their disgraced leader and through their support behind the PM. Yesterday, key members of the People of Freedom party (PdL) said they would support the coalition [an alliance between Letta's own centre-left PD and the PdL].

The big question is how many PdL members of the Senate decide to throw their support behind Letta today.

Letta is due to start giving his first speech at around 9.30am Rome time, or 8.30am BST. The actual confidence vote could be quite late (we’ll update with firm timings when we have them).

The other key event in the eurozone today is the monthly meeting of the ECB’s governing council. They’re in Paris today. We’re not expecting any change to interest rates. There’s also a press conference at 2.30pm Paris time (1.30pm BST), where Mario Draghi will be quizzed over a range of issues, doubtless including his homeland of Italy.

I’ll be tracking all the developments through the day…

Updated

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USA 

Spanish GDP falls 0.1%. Sweden also shrinks. Italy’s top court considering Silvio Berlusconi’s conviction and sentence for tax fraud. Alberto Nardelli: Four scenarios for Italy. Eurozone economic confidence improves, while US consumer confidence drops…

 


Powered by Guardian.co.ukThis article titled “Eurozone crisis: Berlusconi prosecutor seeks cut in public office ban – as it happened” was written by Graeme Wearden, for theguardian.com on Tuesday 30th July 2013 19.24 UTC

8.16pm BST

So, with the Italian supreme court closed for the night, I'll shut up shop here too.

Back tomorrow with more coverage from Rome, and the usual fare. Thanks, and goodnight. GW

8.03pm BST

Berlusconi court adjourns until Wednesday

The Supreme Court in Rome has just adjourned for the day.

Silvio Berlusconi's final appeal will resume on Wednesday, when his legal team led by Franco Coppi is expected to present their counter arguments.

As explained at 4.07pm, Berlusconi's case is made up of around 50 different point. This includes the argument that the former PM wasn't really in ful charge of Mediaset when the offences took place, as he was busy with his political career.

A verdict could come tomorrow, or we might be left wating until Thursday….

Updated at 8.26pm BST

8.00pm BST

A quick recap

A reminder of the importance of this case:

Today's appeal hearing at the Supreme Court (which could last until Thursday) is Silvio Berlusconi's final attempt to avoid a ban from public office and a jail term over a tax fraud conviction involving his Mediaset empire.

If the sentence is upheld, then political analysts fear Berlusconi's Freedom Party could pull its support for the fragile Italian coalition. That could bring down prime minister Enrico Letta.

So, why has the prosecutor recommended reducing the public office ban from five years to three? Reuters explains that the move was made on "technical legal grounds"

One piece of idle speculation did strike me: that by cutting the sentence, the prosecutors reduce the risk that judges will acquit Berlusconi or void the verdict and start the process again… That's just a personal thought.

Alternatively, they could simply be responding to the Berlusconi side's case. (updated for clarity).

Updated at 8.14pm BST

7.25pm BST

Reuters: Berlusconi prosecutor seeks cut in public office ban

Reuters' Rome bureau provides details of the latest development in Silvio Berlusconi's appeal — the fact that the prosecution has proposed that the public office ban should be cut:

An Italian public prosecutor on Tuesday asked the country's top court to reduce former Prime Minister Silvio Berlusconi's ban from public office for tax fraud to 3 years from 5, but to confirm a one year prison term.

The supreme court is hearing Berlusconi's last appeal in a case which could threaten the survival of Italy's shaky coalition government if his conviction is confirmed.

Berlusconi was sentenced to four years in jail by the lower court but this has been reduced to one year under a 2006 amnesty.

7.20pm BST

ANSA: the legal arguments

ANSA, the Italian news agency, has details of the early skirmishes in the Berlusconi court case:

The four-year conviction regards a system of inflated film-rights purchases at Berlusconi's Mediaset media empire and the use of offshore companies to create slush funds.

Prosecutors say this enabled Berlusconi to dodge taxes on around seven million euros in 2002 and 2003.

"There is a thread that is given from the continuity of the system starting from the period of its invention in the 1980s," Prosecutor Antonello Mura told the Cassation Tuesday. Mura said the aim was to "inflate costs for tax benefits and produce payments for the creation of substantial capital abroad". Berlusconi says he had nothing to do with these dealings or authorising them as he was too occupied with political matters.

He was premier at the time.

Franco Coppi, a member of Berlusconi's defence team, said that the "crime does not exist", adding that he was aiming to have the conviction overturned.

More here.

7.14pm BST

Open Europe's Vincenzo Scarpetta also flags up this latest development:

(reminder: Open Europe's analysis of the case is covered at 12.23pm)

7.01pm BST

A late newsflash from Rome, saying the Italian prosecutor has asked for Silvio Berlusconi's ban from public office to be reduced:

• ITALY TAX FRAUD CASE PROSECUTOR REQUESTS REDUCTION OF BERLUSCONI BAN FROM PUBLIC OFFICE TO 3 YEARS FROM 5 BUT CONFIRMATION OF PRISON SENTENCE 

Looking for more details now….

Updated at 7.03pm BST

6.19pm BST

AP: Berlusconi’s lawyer won’t make predictions, but…

Silvio Berlusconi's lawyer, Franco Coppi, during a break today.
Silvio Berlusconi’s lawyer, Franco Coppi, during a break today. Photograph: Claudia borgia/Demotix/Corbis

Associated Press reports that Silvio Berlusconi's lawyer, Franco Coppi, tried to avoid guessing the outcome of today's hearing. Not completely successfully.

Here's a flavour of its report from the Italian supreme court in Rome, as Berlusconi's appeal was being heard:

The tensely awaited decision, which could have an impact on Italy's fragile, three-month-old coalition government, is expected Wednesday or possibly Thursday, Berlusconi's lawyer Franco Coppi told reporters outside the courtroom.

Berlusconi's case is one of eight on the docket, and the last one to be heard.

"I'm superstitious and I don't make predictions," Coppi said during a break after the court spent two and a half hours summarizing the case, but he added: "I expect to win."

4.57pm BST

Back on the Cypriot haircut deal

Charles Forelle of the Wall Street Journal calculates that large depositors with over €100,000 in Bank of Cyprus are only getting back 15% of that 'unsecured' funds straight away, under the deal announced today (see 3.49pm):

Updated at 4.58pm BST

4.54pm BST

This handy graphic shows how the Greek bailout funds have been spent since its first bailout in 2010.

You'll note that a lot was used to cover maturing debt (the large purple slice), along with interest payments (red) and recapitalising the banks (grey/blue).

Very little was actually spent by the Athens goverment (primary deficit in blue, and 'other government needs' in green).

That's via Yiannis Mouzakis, a handy expert on the crisis based in Cyprus (who blogs as The Prodigal Greek).

4.40pm BST

Peugeot Citroen state aid aproved

Just in – the European Commission has (as rumoured last week) approved France's €7bn loan to the financing arm of struggling auto firm PSA Peugeot Citroen.

The EC did insist, though, that the loan was made at a higher price, to avoid competition concerns.

Commissioner Joaquin Almunia explained:

This is a balanced result which offers the PSA group the chance to make a new start on a sound basis.

4.32pm BST

Readers with an interest in economic history might like to know that the Bank of England has made various historical documents available online.

News Release – Historic Bank of England publications and documents now available online

It includes more than 80,000 ledgers, files and individual records. FT Alphaville's Joseph Cotterill has been trawling, and dredged up a few highlights already:

Updated at 4.32pm BST

4.07pm BST

Francesca Pascale, the girlfriend of Italian former Premier Silvio Berlusconi, leaves his residence in Rome, Tuesday, July 30, 2013. Berlusconi is waiting in his home in Rome for the decision that will change his political fate as Italy's highest court hears arguments in the former premier's fraud conviction.
Francesca Pascale, the girlfriend of Italian former Premier Silvio Berlusconi, leaving his residence in Rome today. Berlusconi remains there waiting for the court ruling. Photograph: Riccardo De Luca/AP

Nice piece in the Economist this afternoon on Silvio Berlusconi's court appeal hearing today.

Between a rock and a hard place

It points out that Berlusconi's defence is based on around 50 objections to the original conviction:

Central to their case is the argument that the billionaire media proprietor, who was prime minister at the time of the alleged offences in 2002 and 2003, was then not really in charge of Mediaset, his television empire.

That is the first of the ironies: his lawyers’ task would be a lot easier if, back in the 1990s when he entered politics, Mr Berlusconi had listened to his adversaries and ring-fenced his business interests from his political career.

If Berlusconi loses this final fight, "JH" writes, then prime minister Enrico Letta might have to ask his MPs to vote against the sentence – even though Berlusconi is a longtime opponent. If they refuse, the coalition could fall. At the least, it would enhance the prospects of Letta's rival, "the more telegenic, albeit less experienced, Matteo Renzi, the mayor of Florence".

One of the PdL’s lawmakers, Francesco Giro, told an interviewer as the court was assembling that Mr Berlusconi, though incurably optimistic, was “anxious”. He was not the only one.

3.59pm BST

3.47pm BST

Bank of Cyprus savers suffer 47.5% haircut

It's official. Large investors with more than €100,000 in Bank of Cyprus when the country collapsed into a bailout this year are surrendering 47.5% of that money in exchange for new shares in the company.

The Central Bank of Cyprus announced the news today. It put a positive spin on it, saying "significant progress" had been made in recapitalising BoC.

According to Reuters, the move means depositors will lose around €8bn.

And what of the rest? The Central Bank of Cyprus explained that 12% of deposits that were previously blocked will be released. The balance will be split into three deposits per customer, which will be locked for six, nine and 12 months each. However,…

BoC will have the option to renew the time deposits once for the same time duration

So in practice, savers might not get their hands on any of the money for a year, and could have to wait 24 months for the lot.

Here's the full statement:

Significant progress at Bank of Cyprus with the completion of the recapitalisation and the exit from resolution

And as this picture shows, anger over the Cypriot bailout is still visible:

A man walks past a of wall of a Bank of Cyprus branch which has graffiti on it reading in Greek: Troika get out in the Cypriot capital, Nicosia.
A man walks past a Bank of Cyprus branch which has graffiti on it reading in Greek: “Troika get out”. Photograph: Yiannis Kourtoglou/Demotix/Corbis

Updated at 5.49pm BST

3.16pm BST

Mixed news from America on the consumer confidence front — the headline measure calculated by the Conference Board fell ths month, to 80.3 from 82.1 in June.

US consumers, it seems, are growing more worried about the future. The expectations index slid to 84.7, from 91.1. That suggests growing worries about America's economic growth through the year, as fiscal cutbacks hit home.

The 'present situations' index, though, climbed to its highest level since May 2008.

3.00pm BST

Italian update

The lawyer of former Italian prime Minister Silvio Berlusconi, Franco Coppi (3rd L) walks out of the entrance of the Court of Cassation building, during a pause of the supreme court session which will decide whether to confirm former Italian Prime Minister Silvio Berlusconi's one-year prison sentence and five-year ban from politics in a long-running tax fraud case involving his media business interests, on July 30, 2013, in central Rome.  The final appeal hearing began on July 30 but one of Berlusconi's lawyers told reporters that the verdict may come only on July 31 or August 1.
The lawyer of former Italian prime Minister Silvio Berlusconi, Franco Coppi (3rd L) walks out of the entrance of the Court of Cassation building, during a pause of today’s supreme court session. Photograph: ANDREAS SOLARO/AFP/Getty Images

Back in Italy, its supreme court spent this morning hearing a summing up of the legal arguments in Silvio Berlusconi's tax fraud case.

They then called a lunch break – giving the crowds of reporters outside the court a glimpse of Berlusconi's legal team.

Silvio Berlusconi's lawyer Franco Coppi, center, leaves the Court of Cassation building where Berlusconi's case on tax fraud will be decided, in Rome, Tuesday, July 30, 2013.
Silvio Berlusconi’s lawyer Franco Coppi, center, leaving the Court of Cassation building. Photograph: Gregorio Borgia/AP

Public prosecutor Antonello Mura was lined up to present his case after the break.

As flagged up earlier, Berlusconi's lawyers – and some legal experts – don't expect a verdict tonight.

2.17pm BST

US house prices up again

Strong housing data from America this afternoon, where prices continue to romp ahead.

The S&P/Case-Shiller index, covering 20 US cities. showed a 2.4% rise in house prices during May. That means a positively perky 12.2% year-on-year rise – the biggest annual increase since March 2006.

House prices in Dallas and Denver are now at record levels.

The San Francisco showed the biggest gains, up 4.3% in May. Atlanta, Chicago, San Diego, and Seattle also posted gains of more than 3%.

Analysts had expected an even bigger rise, of 12.4% year-on-year. But ithe broad picture remains upbeat

S&P/Case Shiller house price index, to May 2013
Photograph: S&P/Case Shiller

Updated at 2.27pm BST

1.48pm BST

And here's a couple of snaps of Greece's finance minister, Yannis Stournaras, during his upbeat interview with Reuters (see 1.27pm).

Greece's Finance Minister Yannis Stournaras walks in his office during an interview with Reuters in Athens July 29, 2013.
 Photograph: YORGOS KARAHALIS/REUTERS
Greece's Finance Minister Yannis Stournaras speaks during an interview with Reuters in Athens July 29, 2013.
Photograph: YORGOS KARAHALIS/REUTERS

Alas, no photos of the broken window…

1.27pm BST

The optimism of the Greek finance minister

Over in Greece, finance minister Yannis Stournaras has suggested the Greek government may avoid incurring a black hole in its bailout plan.

In a decidedly upbeat interview with Reuters, Stournaras argued that Greece's economy may actually perform better than its lenders predict.

A decent tourism season and a well-executed reform plan could mean Greece avoids the fiscal gap, of around 2% of GDP, which the Troika has predicted.

Stournaras argued that Greece's main threat is "political risk", not economic, due to MPs running out of enthusiam and patience for austerlty.

He said:

MPs just reflect the average man or woman in the street – they have to believe that there is light at the end of the tunnel. If they believe it they will continue voting the few necessary measures left over, if they don't they are not going to. This is the great risk.

Reuters also reports that Stournaras's office, in the centre of Athens, still sports a broken window thanks to "a bullet fired by angry anti-austerity demonstrators in 2010".

This 'feature' has also caught the eye of investors visiting Greece…

Updated at 1.30pm BST

12.23pm BST

Open Europe: Berlusconi case Q&A

It can be hard to keep track of Silvio Berlusconi's various legal travails. On top of the Mediaset tax fraud case under consideration today, he has also been convicted of breaching confidentiality in March 2013 over a leaked police wiretap, and also found guilty of underage sex charges in June.

Helpfully, Open Europe have published a guide to today's case:

Q&A: All you need to know about Berlusconi's tax fraud trial and its potential implications for the Italian government

It explains how the four-year prison sentence, if upheld, would need to be approved by the Senate, and that Berlusconi's age means most of the sentence would probably be annuled.

But Open Europe also warns that the political implications are unclear:

Several senior members of Berlusconi's party have evoked drastic retaliation (withdrawal from government, resignation en masse of Berlusconi's MPs and Senators, snap elections, and so forth).

The truth is Il Cavaliere would make the final decision – and his party would then almost certainly follow the leader. Sure enough, there would be the potential to trigger a political crisis in Italy.

12.01pm BST

Photos: Outside Rome’s supreme court

A couple more snaps from Rome, as judges at the supreme court consider Silvio Bersluconi's appeal:

A man holds up a picture of former Italian Prime Minister Silvio Berlusconi as he protests in front of Italy's supreme court building in Rome July 30, 2013.
A man holds up a picture of former Italian Prime Minister Silvio Berlusconi as he protests in front of Italy’s supreme court building in Rome today. Photograph: ALESSANDRO BIANCHI/REUTERS
Journalists gather outside the Court of Cassation building where former premier Silvio Berlusconi's case on tax fraud will be decided, in Rome, Tuesday, July 30, 2013.
Journalists gather outside the Court of Cassation building. Photograph: Gregorio Borgia/AP

11.42am BST

Italian debt auction unrattled by Berlusconi case

Berlusconi's court case drama did not alarm bond investors this morning at an auction of Italian debt.

Italy managed to raise its target of €6.75bn through selling new five and 10-year bonds without any obvious difficulty. Yields (or interest rates) dropped compared to the previous sale of this type.

Nick Spiro, sovereign bond expert at Spiro Sovereign Strategy, said the results showed that markets remain unconcerned over political risk in Italy, thanks to the potential support on offer from the European Central Bank

Mario Draghi, it seems, is more important than Silvio Berlusconi to Italy right now. Spiro writes:

Once again, the travails of Mr Berlusconi cast a long shadow over Italian politics. The "Berlusconi factor" seems to be a permanent fixture on Italy's political landscape. Yet the big difference between now and 2011 is that Italian politics is of scant concern to markets. 

Only a sudden collapse of Mr Letta's government is likely to trigger a sharp sell-off – and even this would almost certainly not be as severe as previous bond market routs if the reaction to February's inconclusive election is anything to go by. 

The reality is that the ECB's bond-buying programme, in spite of all its shortcomings, continues to suppress Spanish and Italian yields.

11.09am BST

Silvio Berlusconi's lawyer, Franco Coppi, has told journalists in Rome this morning that he doesn't expect a verdict today.

That's via Reuters, which adds that Coppi said the defence would not request that the case be postponed until September. The judges could still decide to do that on their own account, though.

Updated at 11.24am BST

10.55am BST

It appears that the Italian judges will not issue a verdict tonight, unless it is to postpone the whole process:

10.53am BST

Photo: the Italian court

Back to Italy, and here's a photo from outside the Court of Cassation building in Rome.

Police forces stand outside the Court of Cassation building where former Premier Silvio Berlusconi's case on tax fraud will be decided, in Rome, Tuesday, July 30, 2013.
Photograph: Mauro Scrobogna/AP

Police officers are in action as the judges settle down to consider Silvio Berlusconi's final appeal against his conviction, ban from public office and prison sentence for tax fraud (see opening post for the details).

Interestingly, shares in companies within Berlusconi's media empire are all up this morning, as trader Alessandro Aimone explains:

Perhaps investors anticipate a good result for the former PM. As Alberto Nardelli explained at 7.58am, the sentence could be overturned, or voided, or delayed….

10.41am BST

Eurozone economic sentiment improves – analysis

Eurozone Economic Sentiment
Eurozone Economic Sentiment Photograph: /EC

Eurozone economic sentiment is now at a 15-month high (see previous post), which reinforces the chances that the euro area will exit recession this quarter.

But with the main readings stuck in negative territory, or below the long-term average, the data also shows that the recovery will be tough.

Howard Archer of IHS Global Insight reckons the eurozone should eke out 'marginal growth' later this year.

All business sectors saw confidence rise in July, with the exception of construction, which consumer confidence rose to a 23-month high. Similarly most countries saw confidence pick-up including Germany, France, Italy and Spain.

However….

it is hard to see consumers generally lifting their spending markedly in the near term as their confidence is still limited despite improving appreciably to a 23-month high in July while they are still facing generally high unemployment and limited purchasing power (as limited wage growth and tight fiscal policy counters moderate inflation). The situation does vary markedly though between countries and German consumers are well placed to spend more.

10.09am BST

Eurozone confidence data released

Business and consumers across the eurozone are less pessimistic about the economic climate, according to data just published by the European Commission.

Economic sentiment across the eurozone rose to 92.5 in July, from 91.3 in June, the EC reported. Better, but (understandably) still below the 100-mark average.

The data generally showed an improving situation, although the picture is clearly still tough:

• The industrial climate reading rose to minus 10.6, from minus 11.2.

• Services sentiment picked up to minus 7.8, from minus 9.6

And consumers remained nervous, with a sentiment reading of minus 17.4, from minus 18.8.

9.59am BST

Elsewhere in the City this morning: BP's bn fund to compensate those hurt by the Deepwater Horizon disaster is running dry, with just 0m in the tank. Full story here.

9.57am BST

Customers use ATM machines outside a Barclays bank branch in London, Britain, 09 October 2012.
Barclays cash call…. Photograph: ANDY RAIN/EPA

Here's our full story on Barclays revealing a £12.6bn capital shortfall this morning, and announcing a £6bn rights issue:

Barclays pushed into £6bn cash call to plug capital gap

Barclays is asking shareholders for almost £6bn of cash as the bank's new management team races to comply with a demand by the Bank of England that it plug a £12.8bn capital shortfall.

As Antony Jenkins admitted on Tuesday the bank was increasing its provisions for mis-selling financial products by £2bn, he conceded that Barclays had been forced to change its plans as a result of the actions of the Bank of England, which showed the bank's finances were in a worse state than previously thought.

9.36am BST

Sweden in surprise contraction

The crisis in the eurozone may have hit Sweden, with the surprise news that its economy shrank in the last three months.

The Swedish statistics office dashed forecasts of a 0.1% rise in GDP by reporting a 0.1% contraction in the April-June period. That's a sharp deterioration on the 0.6% expansion in the first quarter of 2013.

The contraction means the Swedish economy has only grown by 0.6% over the last 12 months, down from 1.7% year-on-year three months ago.

Analysts urged caution, as these are only preliminary statistics.

As Robert Bergqvist of SEB put it:

The main reason for the weakening of the economy in second quarter is very weak external demand, and problems within the euro area.

On other hand, private consumption is fairly strong, and retail sales yesterday were also strong and that confirms the key growth driver is households, and private consumption.

9.00am BST

Graph: Spanish GDP

And this graph from the Instituto Nacional de Estadistica shows how Spain's economy has slumped over the last eight quarters:

Spanish GDP, quarter-on-quarter
Spanish GDP, quarter-on-quarter. Photograph: INE

8.49am BST

Ebrahim Rahbari, Citi analyst, is more downbeat about Spain's prospects, commenting:

We're not counting on a further improvement in the third quarter and are very sceptical of any statement that the recession in close to being over.

In an environment where there is more than 25 percent unemployment, a slightly positive GDP figure does not mean the recession has ended.

(via Reuters)

Updated at 12.37pm BST

8.20am BST

Economist Shaun Richards agrees that the Spanish GDP data is an improvement:

Updated at 8.21am BST

8.14am BST

Spanish GDP falls 0.1%: instant reaction

Kit Juckes of Société Générale tweets that the 0.1% drop in Spanish GDP in the last three months shows its economy is levelling out.

Updated at 8.14am BST

8.05am BST

Spanish GDP falls by 0.1%

Breaking: Spain's economy has now been shrinking for two full years.

Data just released by the Spanish National Statistics Institute showed that Spanish GDP fell by 0.1% between April and June. That's the eighth quarterly contraction in a row.

Encouragingly, though, the pace of decline has slowed — following the 0.5% contraction suffered in the first three months of 2013.

And on a year-on-year basis, the Spanish economy has shrunk by 1.7% — slightly better than the 1.8% economists had expected.

I don't think we can call it a green shoot of recovery – but perhaps the bitter frost is easing?

7.58am BST

Alberto Nardelli: Four scenarios

There are four possible scenarios of how the Supreme Court ruling over Silvio Berlusconi could play out, explains political analyst Alberto Nardelli.

• the ruling is postponed.

• Berlusconi’s lawyers ask for the ruling to be postponed – they have until Tuesday morning to put in a formal request. Risky, as it would freeze the statute of limitations.

• Berlusconi is acquitted – two possibilities in this scenario: 1) sentence is void and the appeal trial needs to start again (which could end with the statute of limitations kicking in (Sept. 2014)) and 2) full acquittal.

• the sentence is upheld – the key point here, which is missing from lots of media analysis I’ve read is the fact that the ban from public office needs to be rubber stamped by a Senate committee vote

Nardelli also suspects that a` final ruling might not come until Wednesday or Thursday.

Here's his full analysis:

Silvio Berlusconi Mediaset verdict – possible scenarios

Updated at 8.26am BST

7.42am BST

Italy waits for Berlusconi appeal ruling

A rally is held in front of the Court of Cassation of Rome in view of the Mediaset lawsuit that sees Silvio Berlusconi accused of tax fraud. Western Europe
A rally was held in front of the Court of Cassation of Rome yesterday by supporters of Silvio Berlusconi. Photograph: Fabrizio Lasorsa/Demotix/Corbis

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

Judgement Day is looming for Silvio Berlusconio, in a case that could have major implications for the stability of the Italian government, and perhaps the eurozone too.

Italy's supreme court will meet today to consider Silvio Berlusconi's final appeal against a 1-year jail sentence and 5-year ban from office for tax fraud. If the judges uphold the ruling, then the three-times prime minister – who has dominated the Italian system for two decades – would face ejection from politics.

And that prospect raises the threat that Berlusconi's People of Liberty party would pull the plug on Enrico Letta's shaky-looking coalition.

Tense times, with rumours swirling that the judges might take the pragmatic step of delaying a decision.

As my colleague Lizzy Davies explains from Rome:

If the judges agree with those verdicts, they are likely to enforce the requested sentence of four years in prison and a five-year ban on holding public office. The former is unlikely to cause the 76-year-old to lose much sleep as prisoners of his age rarely go to jail in Italy and, due to a 2006 amnesty law, he would be more likely to spend a year under some form of house arrest. But the latter could effectively end the political career of a man who, for better or worse, still plays a highly influential role in his country's affairs.

As head of the centre-right Freedom People (PdL) party, the main partner in centre-left prime minister Enrico Letta's government, Berlusconi is still capable of bringing down the coalition by withdrawing his support, should the moment suit him.

However, as the date of the cassation hearing has approached, speculation has mounted that the decision could be postponed.

Tense times – especially as legal experts are split on how long it will take to get the verdict… Here's Lizzy's full story.

It's looking like a busy day generally. There's plenty of economic data to shed new light on the state of the eurozone, including Spanish GDP data for the last three months (at 8am BST) and euro area consumer confidence and business confidence (at 10am BST).

It's also hectic in the City — with Barclays dominating attention with news that it is tapping shareholders for almost £6bn to improve its capital base. It's also announced that another £2bn is being set aside to cover compensation for consumer misselling….

Here's the statement from Barclays on its rights issue.

My collleagues are on the case with that story now….

I'll be tracking all the developments through the day….

Updated at 7.51am BST

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FTSE 100 at 5-month low, UK 10-year bond yields hit 2.5%. Britain’s borrowing costs at their highest since October 2011. Greek reshuffle expected. Spain and Italy’s borrowing costs rise in early trading. Liquidity clampdown sent Chinese stocks reeling…

 


Powered by Guardian.co.ukThis article titled “Stock markets fall and bond yields rise after China enters bear market territory – as it happened” was written by Graeme Wearden, for theguardian.com on Monday 24th June 2013 14.19 UTC

7.19pm BST

Closing summary

Time to stop for the day, after a session dominated by financial news (there was a dearth of eurozone political and social developments today, I'm afraid):

My colleagues Jill Treanor and Phillip Inman have filed a full report on today's market action. Here's a flavour:

Fears that the Federal Reserve is preparing to remove its stimulus from the US economy coupled with anxiety that China is being gripped by its own credit crunch sent jitters through global stock and bond markets.

The rout hit yields on UK government bonds – gilts – which hit their highest level since October 2011 in what analysts said was one of the most rapid moves ever witnessed on the market. Yields, which move inversely to price, on 10 year gilts have now risen a full percentage point to edge towards 2.6% in just two months, a rapid pace of change in the potential cost of government borrowing that could in turn increase the price at which companies and households borrow.

The FTSE 100, which only in May was testing all-time highs, lost another 70 points to sit just above 6,000 – a key level it only moved through at the start of 2013 – while the Dow Jones Industrial Index in the US suffered a 200 point loss in the first half an hour of trading. Commodity prices, such as copper, were also lower.

Yields on US government bonds, known as Treasuries, also hit two year highs as investors digested recent remarks by Fed chairman Ben Bernanke that he might begin to slow down the central bank’s bn monthly purchases of bonds which are being used to simulate the economy.

Governments in the eurozone, particularly the fragile economies of Spain and Italy, also faced their highest borrowing costs since May as yields rose on fears about the action of the Fed.

The full story is here: Fed fears and China credit crunch concerns send jitters through markets

Otherwise..

• The closing European stock market prices are covered at 6.02pm

• The details of China's rout overnight, as its clampdown on shadow banking continues, are in the opening post

• And the latest bond yields are rounded up at 6.24pm

• Secret tapes have added weight to the theory that Anglo Irish bank deliberately misled the Dublin government when it sought financial help, as explained at 2.29pm

• Details of Silvio Berlusconi's conviction, jail term, and ban from public office start at 4.33pm onwards

• And don't miss Richard Fisher, head of the Dallas Federal Reserve, on 'feral hogs' and 'cold turkey' at 6.57pm.

I'll be back tomorrow. Until then, thanks and goodnight.

Updated at 7.19pm BST

6.57pm BST

Fed’s Fisher hogs limelight with turkey talk

Just time to flag up some remarkable quotes from a (non-voting) member of the Federal Reserve's Open Market Committee, Richard Fisher.

Speaking in London tonight, Bank of Dallas president Fisher backed withdrawing the Fed's stimulus package, in a gradual fashion.

Fisher (one of the Fed's more hawkish members) declared:

I'm not in favour of going from wild turkey to cold turkey over night.

But Fisher didn't stop there with the animal analogies. In an interview with the Financial Times he laid into the the “feral hogs” of financial markets, who he said were overreacting to the prospect of the Fed tapering its bond-buying.

The Fed won't be knocked off-course by a few days of turbulence, he insisted, as that would encourage speculators to wade in and try to force a u-turn. He's not forgotten the sight of George Soros 'breaking' the Bank of England over two decades ago.

Or, as Fisher put it:

My personal feeling is that you don’t walk up to a lion and flinch.

adding….

I don’t think anyone can break the Fed . . . . But I do believe that big money does organise itself somewhat like feral hogs. If they detect a weakness or a bad scent, they’ll go after it.

Full interview here: FOMC member warns off ‘feral hogs’ in markets

6.28pm BST

Our Wall Street correspondent, Dominic Rushe, sums up the action in New York so far: US stock markets fall sharply over Fed comments and China growth concerns

Here's a flavour:

Gus Faucher, senior economist with PNC Bank, said the US sell-off was an overreaction that was unlikely to continue.

"I think the fundamentals in the US are solid," he said. "The economy is continuing to expand, companies continue to add jobs, demand is holding up, profits continue to improve." The sell-off was probably a "necessary correction" after major gains in recent months, he said.

6.24pm BST

Bond yields rise across the board

The fact that Britain's borrowing costs hit a 20-month high today will probably get plenty of attention tonight and tomorrow. But it's really part of a broader theme today, with US Treasury yields rising again as the Fed prepares to slow its monetary easing.

And to address a point IfigEusLannuon raised this morning (in the comments), the difference, or 'spread', between different countries is increasing — showing that weaker countries are being seen as a proportionately bigger risk.

In particular, the spread between German yields and those of Spain and Italy have widened.

Here's the details of the key 10-year bond yields tonight:

• UK: 2.545%, up 13.8 basis points (ie, 0.138% higher than Friday)

• US: 2.599%, up 8bp

• Germany: 1.8%, up 8bp

• France: 2.449%, up 12bp

• Spain: 5.07%, up 18bp

• Italy: 4.82%, up 24bp

• Portugal: 6.848%, up 39bp

• Greece: 11.6%, up 32bp

(all yields are from Tradeweb, via Reuters)

US Treasuries are under the closest scrutiny (although Spain also merits attention at >5%). John Higgins of Capital Economics reckons that there's little danger of a 'bloodbath' in the Treasury market, given the Fed's strategy for slowing QE.

Higgins explains:

The central bank is poised to trim its purchases rather than halt them all of a sudden, and it could well step them up again to prevent any rise in yields that it considers “disorderly”.

Finally, and perhaps most importantly, we don’t expect the federal funds rate to be hiked for perhaps a year and a half or so after unconventional easing is first scaled back.

The upshot is that while the best days for Treasuries are probably now over, we think there is no need to hit the panic button.

Updated at 6.42pm BST

6.02pm BST

Markets close with shares in retreat

After another day of heavy selling, UK gilts have closed at their weakest point in 20 months and the FTSE 100 has closed at its lowest level since early January.

And that picture is mirrored across the markets, with all the major indices posting substantial losses and bond yields up — particularly in the eurozone periphery.

As I've been mentioning through the day, the turbulence is being blamed on two factors; fears that China is heading into liquidity crunch as its central bank squeezes shadow banks; and lingering worries about America's quantitative easing stimulus programme being slowed soon.

Here's a full round-up of the closing equity markets:

FTSE 100: down 87 points at 6029, -1.42%

German DAX: down 96 points at 7692, – 1.24%

French CAC: down 62 points at 3595, -1.71%

Spanish IBEX: down 147 points at 7553, -1.91%

Italian FTSE MIB: down 142 points at 15112, – 0.93%

There were only six risers on the FTSE 100, where the list of biggest losers included several mining giants (Vedanta, GlencoreXstrata, Anglo America and Rio Tinto).

FTSE 100 top fallers, close of trading, June 24
Photograph: Thomson Reuters

Michael Hewson of CMC Markets explained:

Fears of a continued cash squeeze in the Chinese banking system has seen European markets continue their soft tone on fears that a dislocation in the Chinese banking system will cause further downward revisions in forward expectations for Chinese growth over the coming months.

This uncertainty combined with rising apprehension over the pace of future asset purchases from the Federal Reserve has seen stock markets pick up where they left off last week and hit fresh lows for 2013, as investors mull over the twin impact of the removal of the unlimited free money that they have become used to over the last three years. It is probably more than anything else that motivated the weekend warning from the Bank of International Settlements that monetary policy was now reaching the limits of its effectiveness and as such central banks should focus on preparing their escape routes.

The biggest decliners have once again been the basic resource stocks as concerns over Chinese demand continue to bear down on the mining sector as it continues to hit fresh three year lows on virtually a weekly basis.

Updated at 6.03pm BST

4.53pm BST

President of the court Giulia Turri (C) reads the sentence for former Italian prime minister Silvio Berlusconi in Milan June 24, 2013.
President of the court, Giulia Turri (centre), reads the sentence for former Italian prime minister Silvio Berlusconi in Milan a few minutes ago. Photograph: ALESSANDRO GAROFALO/REUTERS

Here's Reuters' early story on Berlusconi's conviction this afternoon:

A Milan court sentenced former Italian prime minister Silvio Berlusconi on Monday to seven years in jail and banned him from public office after finding him guilty of paying for sex with a minor and abusing his powers of office to cover up the affair.

The verdict adds to mounting complications facing Prime Minister Enrico Letta, whose fragile left-right coalition government is supported by Berlusconi's centre-right People of Freedom (PDL) party.

Berlusconi was found guilty of paying for sex with former teenaged nightclub dancer Karima El Mahroug, better known under her stage name "Ruby the Heartstealer", during the now notorious "bunga bunga" sex parties at his palatial home near Milan.

The panel of three judges, all women, also found the 76 year-old former premier guilty of abuse of office by arranging to have her released from police custody when she was detained in a separate theft case.

Berlusconi will not have to serve any jail time unless the sentence is confirmed on appeal.

Updated at 5.00pm BST

4.45pm BST

Regarding Berlusconi's conviction and sentencing, this preview piece by Lizzy Davies sets out the background of the trial, and the role of nightclub dancer Karima el-Mahroug, or Ruby Rubacuori (Heartstealer).

4.33pm BST

Berlusconi sentenced to seven years and banned from office

Silvio Berlusconi verdict
Silvio Berlusconi verdict Photograph: /Sky News

Breaking news: Silvio Berlusconi has been sentenced to seven years in jail and banned from public office having been found guilty of paying for underage sex, and abuse of office.

The sentence, handed down in the last few moments, is actually more severe that the prosecution in the case dubbed Rubygate had sought.

However, the former PM is not being led down to the cells… instead the verdict will now go to an appeal.

Still, the decision of the three judges raises fresh concerns over the stability of Italys coalition, as Berlusconi's party could potentially withdraw their support for prime minister Enrico Letta.

Updated at 4.43pm BST

3.19pm BST

Wall Street has kept falling – with the Dow now down 220 points, or nearly 1.5%.

Marketwatch confirms that the prospect of a liquidity crunch in China is a big worry today, as much as the Fed's plans to slow its asset purchase scheme:

U.S. stocks are declining “due to the concern over the state of the Chinese economy and the implications for the rest of the world,” said Stephen Pope, managing partner at Spotlight Ideas, in an email

“I am convinced we have overdone the downside with regard to that [Federal Reserve] story, but now with China we have another excuse to trade with timidity.”

And here's confirmation that all the main markets are in the red again:

Stock markets, 3pm, 24th June 2013
Photograph: Thomson Reuters

2.49pm BST

Wall Street opens, and shares fall

Wall Street is open, and shares are falling in early trading, following today's losses in Europe and the China rout (see 1.13pm for the round-up).

The Dow Jones industrial average is down 160 points at 14638, or -1/1%, with similar falls on the S&P and the Nasdaq.

And with government bond yields still around their earlier highs, the other poing to flag up is that volatility (as tracked by the 'fear index, Vix) is up 11%:

2.29pm BST

The Anglo Irish Tapes

Irish Independent, June 24
Photograph: http://www.independent.ie

The most remarkable story of the day comes from Ireland. Secret tapes released this morning give the clearest signal yet that senior bankers at Anglo Irish Bank deliberately tricked the Irish government into a rescue deal on 2008.

The recordings, released by the Irish Independent today, show John Bowe and Peter Fitzgerald discussing their request for €7bn of emergency funding to keep Anglo Irish running, once the financial crisis struck.

The final bill was €30bn, helping to precipitate Ireland's own bailout.

There have long been suspicions that Anglo's management knew the full scale of the crisis and hid it from the Dublin government, who fatefully decided to pick up the bill on the taxpayers' behalf.

Our correspondent in Ireland, Henry McDonald, explains:

On tape Fitzgerald asks Bowe how did he arrive at the figure of €7bn to which the latter replies: "Just as Drummer [the then Anglo Irish Bank CEO David Drumm now in exile and disgrace in Boston] would say, 'picked it out my arse.'"

The conversation also tends to back up the view that Anglo Irish bankers knew that €7bn would never be enough to save the bank but once they had hoodwinked the Dublin government the taxpayer would keep picking up the tab.

In their exchange Bowe says: "Yeah, and that number is seven, but the reality is that actually we need more than that. But you know the strategy here is you pull them in, you get them to write a big cheque and they have to keep, they have to have support their money, you know."

Here's Henry's full story: Irish bankers 'hoodwinked' government over bailout, secret recordings show

And you can listen to the recordings on the Irish Independent's site (the third recording, 'strategy', is the real humdinger).

1.55pm BST

On the subject of Britain's rising borrowing costs to a 20-month low, maverick Tory MP Douglas Carswell tweets:

The yield on UK 10-year bonds is a decent indication of how much it will cost George Osborne to sell new debt to service the deficit.

Last month, 10-year gilts were yielding just 1.6%. They've risen sharply since, but today's rise to 2.5% is still low on historic terms.

10-year gilts were yielding 5% in July 2008, shortly before the collapse of Lehman Brothers, as this graph shows:

UK 10-year bond yields, to June 24
Photograph: /Thomson Reuters

The big question, though, is how much will they rise in the month ahead? A return to higher bond yields might be welcomed as a sign that normality is returning to the markets, yet it could inflame the crisis by

1) forcing sizeable losses on investors who bought bonds when yields were at record lows (and thus prices at record highs).

2) pushing up sovereign borrowing costs – potentially a problem for countries running sizeable deficits (the UK is on track to borrow some £120bn this year, or around 7.4% of GDP).

Updated at 3.04pm BST

1.13pm BST

Markets hit new lows for the day

The selloff in Europe's stock markets is accelerating, with the FTSE 100 now down 85 points at 6030, its lowest level since early January.

And with bonds falling, Britain's borrowing costs are at their highest level since October 2011.

Other European markets are also falling deeper into the red, with Spain's IBEX and France's CAC both down by over 2%.

And Wall Street is also expected to join the selloff in a couple of hours, with the Dow Jones expected to shed 150 points as US traders react to China's tumbling stock market (as explained this morning, Chinese indices suffered their worst day's trading in nearly four years as the clampdown on its shadow banking sector continues).

Fawad Razaqzada, market strategist at GFT Markets, said China's liquidity squeeze came as investors were still digesting the prospect of the Federal Reserve winding down its stimulus programme.

Razaqzada explained:

Surging interbank lending rates in China are pointing to a liquidity squeeze and there's little apparent sign of intervention by government to ease the situation.

As a result the Shanghai composite is off by over 5% and markets elsewhere in the region are telling a similar tale…

This does mean that just as traders were coming to terms with the end of QE, there's another significant factor they need to be pricing into the market, too.

And that 'pricing in' process has seen government bonds under the cosh again, as nerves stalk the trading floors

Prices are falling across the board and driving up interest rates — both for riskier eurozone members and 'safe-haven' countries such as the US.

UK gilts are falling in line with the market, which pushes Britain's borrowing cost to a 20-month high of 2.55% (for 10-years).

Here's the latest 10-year bond yields (the classic measure of borrowing costs):

Spain: 5.03%, up 14 basis points (14bp) [from 4.89% on Friday]

Italy: 4.79%, up 20bp

Greece: 11.62%, up 30bp

US: 2.63%, up 12bp

UK: 2.55%, up 14bp

France: 2.53%, up 20bp

Germany: 1.82%, up 10bp

Here's a selection of instant reaction:

Updated at 1.27pm BST

12.34pm BST

ERT sit-in continues

People gather outside the ERT office to show their support, on 24 June.
People gather outside the ERT office to show their support earlier today. Photograph: Nikolas Georgiou/Demotix/Corbis

Also in Greece, employees of its ERT state broadcaster are continuing their sit-in at its Athens HQ.

Despite repeated demands for them to exit the building, the occuption is entering its 14th day, with increasingly weary-looking staff continuing to broadcast.

The Greek finance ministry called on workers to leave "to allow for the unhindered and immediate implementation" of the Council of State's decision last (that a limited service should be restored, but ERT should still close).

A giant monitor in the courtyard displays an ERT broadcast.
A giant monitor in the courtyard outside ERT’s headquarters displays an ERT broadcast. Photograph: Nikolas Georgiou/Demotix/Corbis

12.17pm BST

Greek reshuffle on cards today

Greece's Prime Minister's Antonis Samaras leaving his office in Athens June 24, 2013
Greece’s prime minister’s Antonis Samaras leaving his office in Athens this morning. Photograph: JOHN KOLESIDIS/REUTERS

Over in Greece, the two parties which still make up the country's coalition are discussing a cabinet reshuffle today.

Following the exit of Democratic Left on Friday, prime minister Antonis Samaras and Evangelos Venizeloz of Pasok must now reshape their government.

Kathimerini has mopped up the latest chatter, including the suggestion that Venizelos might become foreign minister (our correspondent Helena Smith explained last week that the Pasok leader wanted his party to have more prominence in the government:

Here's the latest:

According to sources, the ratio of New Democracy to PASOK ministers in the new cabinet will be 2:1.

There were rumors that Venizelos may assume the post of foreign minister, currently held by Dimitris Avramopoulos, as well as the position of deputy prime minister. Among those expected to keep their posts are Development Minister Costis Hatzidakis, Public Order Minister Nikos Dendias, Tourism Minister Olga Kefaloyianni and Education Minister Constantinos Arvanitopoulos. Finance Minister Yannis Stournaras is also expected to remain in place.

There's no immediate risk of the government collapsing. Samaras still controls 153 of the 300 seats in parliament, and Dem. Left could still support him in key votes despite quitting the coalition.

11.52am BST

The copper price has dropped to a new three-year low this morning.

Fears over China's slowing economy are being blamed, along with the US dollar strengthening again as investors pull money out of bonds and shares.

Having fallen last week, copper dropped again this morning to as low as ,613. China mops up around 40% of world copper output, so the new push against risky lending in its shadow banking sector is also hitting the metal.

From the WSJ:

“The outlook for Chinese demand in the short term is negative,” Phillip Futures Investment Analyst Joyce Liu said, adding that tight liquidity will mean higher costs for companies importing copper into China.

11.00am BST

FTSE 100, the details

Here's a graph showing how the FTSE 100 has now shed all its gains through the year after today's drop, and a list of the top fallers on the index.

FTSE 100 over the last year, to June 24
Photograph: Thomson Reuters
FTSE 100 top fallers, June 24
Photograph: Thomson Reuters

10.13am BST

FTSE hits five-month low as Chinese bear market looms

The FTSE 100 index of leading shares has dropped to its lowest level since January, as the slump in China's stock market overnight hits Europe's stock markets.

After a slow start, the main European indices are all falling again, adding to last week's hefty losses. The Footsie fell as low as 6057, a drop of 58 points. Spain's IBEX is the worse performer, down 1.5%.

The Chinese benchmark index, the CSI 300, is now in a 'bear market' — its 6.3% tumble this morning means its more than 20% off its peak.

The China selloff (sparked by the clampdown on its shadow banking - see 8.39am) and the Federal Reserve's plan to turn the stimulus tap down are proving a nasty cocktail for the markets.

Mike van Dulken, head of research at Accendo Markets, said the worries over the Fed were being "compounded" by the liquidity sqeeze in China and fears over its domestic economy, adding:

One thing this sell-off has demonstrated is how much more quickly markets tend to correct, even after a sharp ascent like that from mid-April.

Commodity prices are also slding again, pushing the price of a barrel of Brent crude oil below 0/barrel. Gold is also down again, losing another to ,281 per ounce.

There's no real let-up in the market gloom — as Aurelija Augulyte of Nordea Markets points out:

9.40am BST

Encouraging economic data from Germany – where business morale has risen for the second month in a row.

The IFO index rose to 105.9, from 105.7 in May, with German companies saying they are more confident of an economic revival later this year. No signs of full-blown euphoria, just a steady improvement in business confidence.

The recent huge flooding in parts of Germany also didn't cause any alarm, it seems.

Dr Jörg Zeuner of KFW summed it up:

Companies remained confident in June and continue to expect a good domestic economy. The devastating floods in Southern and Eastern Germany hardly influenced this outlook.

That's a good signal and confirms our expectations of a moderate economic revival in the second half. Risks in the international environment continue, such as recently the fierce reaction of investors to the monetary policy comments from the U.S. central bank.

9.26am BST

Kit Juckes, Société Générale's top currency expert, reckons that the US Federal Reserve may attempt to stop the government bond selloff in the next few days – having lit the touchpaper last week.

He writes:

At some pont this week (and I'm betting it is before Wednesday evening), the Fed will make sufficiently clear its concerns about market turmoil to stop the relentless rise in Treasury yields.

Of course, now that the genie has been let out of the bottle and the great big carry bubble has been burst, we won't go back to the halcyon days before taper entered the dictionary, but we will get a little bit of relief.

9.09am BST

Verdict expected in Silvio Berlusconi’s underage sex trial

Over in Milan, the underage sex case brought against Silvio Berlusconi is about to be resolved — in a development that could have serious political implications.

The judges hearing the case against the former Italian prime minister, who still has considerable political influence, just retired to consider their verdict.

The allegations against Berlusconi revolve around 'Ruby the heart stealer', a nightclub dancer. If convicted, the two-time PM could be jailed for four years.

Italy's treacle-slow political system means that Berlusconi would not be immediately incarcerated even if found guilty — he could make two appeals first.

But as my colleague Lizzy Davies explains, the case has a political dimension – especially given Berlusconi's other legal problems:

There are concerns…that the real effect of a guilty verdict could be on the country's unstable political landscape and Enrico Letta's government, which almost every day sees fresh bickering between Berlusconi's People of Freedom party (PdL) and the centre-left Democratic party (PD).

For the moment, Berlusconi is insisting that he supports the government regardless of his legal problems. But there is anger among the ranks of the PdL, and some party figures would like to see their leader withdraw support from the coalition if his "persecution" by the courts continues – a move that would trigger fresh elections.

Walston said the risk of immediate political instability as a result of the Ruby trial was small. A far bigger concern for Berlusconi and his allies is a tax fraud case in which he has already exhausted one appeal and is approaching a definitive ruling by the court of cassation, Italy's supreme court.

If that conviction is upheld, a four-year jail sentence – and, crucially, a five-year ban on public office – would come into force.

Here's Lizzy's full story on the case: Silvio Berlusconi's underage sex trial verdict expected

8.54am BST

UK gilt yields also up

Britain's government debt is also falling this morning, pushing up the yield on UK gilts. The 10-year version is now trading at a yield (interest rate) of 2.45%.

It's a small move – up from 2.41% on Friday night. But the yield has been climbing higher for the last seven weeks – at the start of May, 10-year gilts were yielding just 1.62%….

Updated at 8.54am BST

8.43am BST

Another sign of jitters this morning — the Euro STOXX 50 Volatility index has hit a four-month high in early trading.

8.39am BST

China’s stock market routed by liquidity fears

China's CSI 300 market, to June 24
China’s CSI 300 market over the last 3 months, which has tumbled as fears over its shadow banking sector grew. Photograph: /Thomson Reuters

China's stock market has suffered its biggest daily fall in almost four years, as the crackdown on its shadow banking system continues.

The benchmark CSI300 index slumped by 6.3%, its biggest daily fall since 31 August 2009. Financial stocks were particularly badly hit.

Stocks tumbled after China's central bank signalled that its crackdown on the country's shadow banking sector would continue, fanning fears of a credit crunch.

The People's Bank of China stated this morning that liquidity in the country's financial system was "reasonable" — which was taken a signal that it would maintain the liquidity squeeze that began last week.

PBOC also declared that China's commercial banks need to 'improve' the way they manage liquidity and control risks. In other words — help us stabilise the market by cleaning up your balance sheets.

The PBOC appears to be determined to clamp down on riskier areas of banking, such as underground lending and speculation, which increase leverage in the Chinese financial market – at a time when the wider economy is strugglng.

Reuters has more details:

"It's much easier to borrow money today, but costs remain high. Our business is apparently affected, but mainly on side business, such as wealth management," said a trader at a mid-sized commercial bank in Shanghai.

"Maybe this is what the central bank hopes as the government is calling for more money to be used for real economy."

On a positive note – the interest rate China's banks charge to lend money to each other fell this morning.

8.16am BST

As this graph shows, Spain's borrowing costs hit a near three-month high this morning, but are still lower than a year ago when a bailout looks likely:

Spanish 10-year bond yields, over the last two years. Photograph; Thomsen Reuters
Spanish 10-year bond yield, over the last two years. Photograph; Thomsen Reuters

Updated at 8.16am BST

8.00am BST

Bond yields on the rise again

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

The government bond sell-off which began last week continues in earnest this Monday morning, putting renewed presure on Spain and Italy

Sovereign debt is falling across the board in early trading, pushing up the borrowing costs of countries around the world. And some of the eurozone's weaker members are being hit hard.

As I type, Spain's 10-year bond yield just hit 5% for the first time since the start of April, up from 4.88% on Friday. Italy's debt is also being pummelled, driving its 10-year yield up to 4.71% (from 4.58%).

These bond yields are still some distance away from the danger zone (typically 7% is seen as the level where countries risk being locked out of the markets).

But the speed of the reversal is a concern, as the markets remain spooked by the prospect of the US Federal Reserve withdrawing its stimulus measures.

It looks like we're in for a rough ride for a while. As Ian WIlliams of Peel Hunt put it:

The transition towards a more growth-driven phase of market performance is likely to remain bumpy though the summer as the long awaited improvement in corporate earnings has been slow to emerge.

US Treasuries (America's government debt) is also sliding again this morning, pushing up its own 10-year bond yields by another 10 basis points (0.1%) to 2.61%.

Meanwhile, over in China, fears over the ongoing liquidity squeeze in its banking system have sent its stock markets tumbling, in their biggest daily fall in four years (more on this shortly).

Plenty to watch in the markets today…..

While in the political sphere, I'll be monitoring events in Athens where the ruling coalition is down to just two parties after Democratic Left quit the government last Friday….

Updated at 8.14am BST

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Bundesbank warning over slipping deficit targets. Vodafone: ‘Severe’ economic weakness in Southern Europe. Parliamentary Committee approves plan to bail-in large depositors. UK inflation falls more than expected to 2.4% y/y in April from 2.8%…

 


Powered by Guardian.co.ukThis article titled “Eurozone crisis as it happened: Italian PM warns EU could ‘implode’ without action on growth and jobs” was written by Graeme Wearden and Nick Fletcher, for theguardian.com on Tuesday 21st May 2013 17.21 UTC

6.21pm BST

Protests over Papandreou’s talk on Greek crisis

Over in Greece, there is much ado over former prime minister George Papandreou giving a talk on the crisis that has rocked the country at an upcoming Ted X convention in Edinburgh. Helena Smith in Athens says:

On hearing of the politician’s participation in a panel entitled “moments of truth,” outraged Greeks (for although they are anonymous that is what the protestors are presumed to be) immediately launched a protest campaign that has already drawn thousands of signatories. 

“George Papandreou lead Greece into the embrace of the IMF … and [with it] into a deep humanitarian crisis,” said the protestors in a statement that referred to the galloping unemployment, poverty and unprecedented number of suicides that stewardship under the IMF has also unleashed. “At the same time Papandreou continues to support the neo-liberal policies that drove the country to its present plight while he travels in luxury around the world giving lectures on the lessons he has learned from the Greek crisis.”

This is not the first time that Papandreou has been openly criticised for capitalising on the crisis – the politician’s decision give a course about his experience at Harvard university’s JFK school last year sparked similar anger. But it is the first time that protestors have taken to the internet to vent their spleen – with the pressure now mounting (2824 signatures had been gathered by this afternoon) it remains to be seen whether he will be forced to pull out of the conference.

Chief executive of Russian energy company Gazprom, Alexey Miller (L), leaves the Maximos mansion after a meeting with Greek prime minister Antonis Samaras. Photograph: EPA/Alexandros Vlachos
Chief executive of Russian energy company Gazprom, Alexey Miller (L), leaves the Maximos mansion after a meeting with Greek prime minister Antonis Samaras. Photograph: EPA/Alexandros Vlachos

Meanwhile Papandreou's arch rival — Greece's current prime minister Antonis Samaras, has spent the afternoon in talks with the head of Gazprom as the country attempts to expedite it’s much-delayed privatisation drive. 

This is the third time since March that Gazprom chief Alexei Miller has flown into Athens for talks. The Russians have made no secret of the fact that they want to buy Despa, the Greek natural gas company long seen as a jewel in the crown of Greece’s privatisation program which protestors say is yet another humiliation the country is being forced to endure as a result of IMF intervention.

And on that note, it's time to close up for the day. Thanks for all the comments, and we'll be back tomorrow.

5.13pm BST

European markets end on strong note

European markets made a positive finish to the day, boosted by comments from Federal Reserve member James Bullard suggesting there would not be an early end to the central bank's bond buying programme.

The FTSE 100 finished up 48.24 points at 6803.87, its highest finish since its record close on 30 December 1999

• Germany's Dax rose 0.19% to 8472.2, reversing an early fall

• France's Cac closed 0.33% higher at 4036.18

• But Italy's FTSE MIB fell 0.45% although it was well off its lows

• Spain's Ibex ended 0.6% lower

The Dow Jones Industrial Average is currently 48 points or 0.32% higher.

4.36pm BST

Fed’s Bullard says bond buying should continue

Recent comments from US Federal Reserve members seemed to suggest a tapering off of its bond buying programme.

But James Bullard, president of St Louis Federal Reserve Bank, said the centrel bank should keep buying bonds, while adjusting the pace depending on economic conditions.

And in a speech to the Goethe University in Frankfurt, he said the ECB should consider asset purchases if inflation fell further. He said, as reported by Reuters:

Quantitative easing is closest to standard monetary policy [once interest rates get near zero], involves clear action and has been effective.

3.23pm BST

Germany and Spain agree deal to combat youth unemployment

Still with unemployment, one of the biggest issues facing the eurozone (and indeed elsewhere), Germany has agreed a deal to help reduce youth unemployment in Spain.

Under the terms of the agreement between the two countries, Germany will create 5,000 jobs a year for young Spanish workers. El Pais reports:

A memorandum of understanding in this area was signed Tuesday in Madrid by Spanish Labor Minister Fátima Báñez and her German counterpart Ursula Von der Leyen. It includes work combined with professional training and stable posts for qualified workers.

Báñez welcomed Germany’s “commitment” toward helping young Spaniards, adding that the accord would provide “many opportunities for many young Spanish people which today, because of the crisis they do not have in Spain, and which, however, they can have in other European Union countries on a temporary basis.”

The accord calls for the interchange of workers and cooperation in the area of labor affairs. There are currently 43,548 Spaniards affiliated with the German Social Security system, and 37,797 Germans in the Spanish system.

Both countries also agreed to work together on initiatives at the EU level to reduce youth unemployment. “This cooperation between Spain and Germany will very soon show itself in additional joint measures that will make a better life for our young people possible,” the two countries said in a statement

3.19pm BST

Samaras hopes to attract outside investment to tackle jobless crisis

Greek prime minister Antonis Samara said his recent trips to China and Azerbaijan would help attract outside investment into the country and combat its chronic unemployment problem.

According to a report by ekathimerini, Samaras said after a meeting with Greek president Karolos Papoulias in Athens:

We have consolidated Greece’s position in Europe and now we are consolidating it on a global level.

He said unemployment, which reached a record 27% in February was “the country’s biggest problem.”

Greek prime minister Antonis Samaras after his meeting with Greek president Karolos Papoulias. Photograph: AP Photo/Petros Giannakouris
Greek prime minister Antonis Samaras after his meeting with Greek president Karolos Papoulias. Photograph: AP Photo/Petros Giannakouris

Updated at 3.51pm BST

2.53pm BST

Opening rise on Wall Street lifts European markets

An opening rise on Wall Street has given a lift to global markets.

The Dow Jones Industrial Average has added 49 points or 0.3% in early trading, ahead of a congressional testimony from US Federal Reserve chairman Ben Bernanke on Wednesday. The meeting will be closely watched for any comments on the Fed's bond buying programme, and whether its quantitative easing could be coming to a close. Recent remarks by Fed members have suggested that actions to boost the economy could start tapering off.

With the money taps providing a major influence on the stock market rally, any signs they will be switched off could see shares decline from their recent peaks.

At the moment though, investors are still in the mood to wait and see. So with the positive start in the US, the FTSE 100 is at its best levels of the day, up around 25 points at 6781and close to its 2000 peak of 6798. Higher than that, and we are back in territory last seen in 1999, and not far off the all time peak of 6930.

Meanwhile European markets have also seen a turnaround after the US open. Both Germany's Dax and France's Cac 40 had drifted lower during the morning, but are now up around 3 points.

Italy's FTSE MIB and Spain's Ibex 35 are both in negative territory but are off their worst levels.

2.24pm BST

Interesting blogpost on Open Europe today, suggesting that the solution to Britain's "Europe problem" could be a new kind of membership of the EU, dubbed EEA plus.

This 'special status’ would give Britain the benefits of the single market, along with votes on issues that are relevent to the European Economic Area. 

Thus, the UK could keep influence on issues that really matter to it, like the financial system. It could also exclude itself from areas where closer integration wasn't desirable. So neither In nor Out.

Another great advantage of this model is that it could provide an institutional wrapping for all those countries that for one reason or another cannot be full EU members, and certainly not eurozone members: the UK, Norway, Switzerland and maybe even Turkey. It would be a new mode of European membership – and, if the UK can get its act together, very much the "economic growth" tier.

EEA plus: a model for the future of the UK in Europe?

And I'm handing over to my colleague Nick Fletcher. Thanks all. GW

1.42pm BST

Protester on St Peter’s Basilica in Rome

Italian businessman Marcello De Finizio stands on the dome of St Peter's basilica to protest against austerity measures on May 21, 2013 at the Vatican.
Photograph: ANDREAS SOLARO/AFP/Getty Images

An Italian businessman continues to hold a one-man anti-austerity demonstration on the dome of St Peter's basilica, having scaled it yesterday to protest against the European Union's economic policies.

Marcello Di Finizio, who owns a restaurant in Trieste restaurant, dodged security and scaled the basilica on Monday afternoon.

Authorities have been trying to persuade the 47-year-old man to come down, but so far without success.

Di Finizio, who has climbed the 137-metre dome twice before, is holding a banner which reads:

Stop this massacre, the political horror show is continue….help us Pope Francis..

Italian businessman Marcello De Finizio stands on the dome of St Peter's basilica to protest against austerity measures on May 21, 2013 at the Vatican. The businessman hung  a banner saying:
Photograph: ANDREAS SOLARO/AFP/Getty Images
Italian businessman Marcello di Finizio stands by his banner with writings against the Italian Government and the Euro as he protests on St. Peter's 130-meter-high (42-feet-high) dome, at the Vatican, Tuesday, May 21, 2013.
Photograph: Alessandra Tarantino/AP

Updated at 1.51pm BST

1.04pm BST

Letta demands EU action on growth and jobs

The Italian prime minister has warned that the European Union could implode unless leaders do more to deal with its economic crisis and the record levels of youth unemployment.

Enrico Letta, whose popularity has fallen steadily since he was sworn in last month, told the Senate in Rome this morning that EU leaders must show decisive action.

Otherwise, he warned, voters will reject the European project at the ballot box.

Here are Letta's key quotes (via the Ansa newswire)

I have the impression that the EU cannot keep going as it has up to today, with timidness or a lack of decisions.

Either it accelerates or it risks imploding…. As things are, I don't think it can hold up and the people will be the ones who make it implode the next time they vote.

Letta was briefing MPs before leaders gather for the next Council of Europe meeting on Wednesday. He said youth unemployment had to be an "absolute" priority, adding:

The EU is in a crisis of legitimacy over the lack of results [on youth joblessness].

The record levels of youth unemployment (over 60% in Greece now), so seem to have shaken European leaders and top officials in Brussels into action.

There's a great piece on this issue in Germany's Spiegel newspaper, which lambasts leaders for talking about the problem, but not fixing it.

Jobless Youth: Europe's Hollow Efforts to Save a Lost Generation

Here's a flavour:

Perhaps it takes reaching a certain age to recognize the problem. "We need a program to eliminate youth unemployment in Southern Europe. (European Commission President José Manuel) Barroso has failed to do so," says former German Chancellor Helmut Schmidt, now 94. "This is a scandal beyond compare."

Economists also argue that it's about time Europe did something about the problem. "The long-term prospects of young people in the crisis-ridden countries are extremely grim. This increases the risk of radicalization of an entire generation," warns Joachim Möller, director of Germany's Institute of Employment Research, a labor market think tank.

"It was a mistake for politicians to acknowledge the problem but do nothing for so long," says Michael Hüther, head of the Cologne Institute for Economic Research, which is closely aligned with employers. And Wolfgang Franz, former chairman of the German Council of Economic Experts, says that "unconventional approaches" are called for to combat not just youth unemployment but also its long-term negative consequences.

"Someone who is unemployed in his or her younger years will spend a lifetime struggling with poorer career opportunities and lower pay," he adds.

….

The Italian public are demanding action too, with well-attended protests over the weekend demanding a new economic plan:

Thousands of people protested in Rome urging Prime Minister Enrico Letta to focus on creating jobs.
Photograph: Francesco Fotia/Demotix/Corbis

Updated at 1.12pm BST

12.09pm BST

Pound thumped by inflation data

Pound vs Dollar, May 21 2013
Pound vs US dollar today. Photograph: Thomson Reuters

The pound has fallen more than one cent against the US dollar today following the news that UK inflation fell more than expected in March.

The drop in the consumer prices index, from 2.8% to 2.4%, means there's more chance the Bank of England will ease monetary policy again soon. Especially with new governor Mark Carney arriving this summer:

Andy Scott, account manager at HIFX, commented:

Whilst the economy seems to be showing some more positive signs of recovery, it’s still very sluggish and there’s still the risk of seeing further contractions unless the pace of recovery picks up, especially with the eurozone still in recession.

The new governor will no doubt be keen to make his mark at the Bank when he starts in July and he may well opt for additional quantitative easing to further aid the recovery.

Updated at 12.09pm BST

11.53am BST

The overview of the Bundesbank's latest monthly report is online here (pdf).

Its upbeat assessment of the German economy is accompanied by this warning:

However, the poor economic conditions prevailing in many parts of the euro area and the current problems associated with the sovereign debt crisis mean that macroeconomic risks remain high.

11.29am BST

Bundesbank urges rigour over deficit targets

Bundesbank, German Federal Bank facade.
Photograph: imagebroker/Alamy

Gerrmany's economy is on track for a solid recovery in the current quarter, the Bundesbank has predicted in its new monthly report on Europe's largest economy.

The German central bank also warned European leaders not to relax their deficit targets too much, as this would – in its view – hurt credibility in the eurozone.

The Bundesbank pointed to a recent rise in production orders across the country's manufacturing base:

Overall economic activity is expected to improve markedly in the second quarter of 2013, a view that is supported not only by the likely catching- up effects in response to the weather-related downturn in construction activity during last winter.

With industrial new orders picking up appreciably after a poor start to the year, there is reason to hope that exports and investment in machinery and equipment – the demand components that can usually be relied upon most to set the pace for the German economy – will recover as well.

Last week's GDP data showed that Germany grew by just 0.1% in the first three months of 2013, as the wider eurozone shrank by another 0.2%.

And on the issue of flexibility when applying deficit-reduction rules, the report said:

The binding effect (of the rules) threatens to be damaged from the start if the impression arises that necessary deficit reduction could perpetually be pushed back as long as sufficient political pressure is applied.

(quotes via Reuters)

The key word here is 'perpetually', I suspect. Spain and France are already being offered more time to get their deficits below the EC's 3% target — without any alarm in the financial markets.

Updated at 11.51am BST

11.07am BST

Key event

Interesting piece in the Wall Street Journal today about how the eurozone crisis has prompted a surge in grass root politic:

It looks at the Spanish municipality of Torrelodones, where housewife-turned-mayor Elena Biurrun has thrown out official perks and used the savings to improve school and local infrastructure since being elected two yeas ago:

Here's a flavour:

At her inauguration Ms. Biurrun choked up before a jubilant crowd.

Then she began slashing away. She lowered the mayor's salary by 21%, to €49,500 a year, trimmed council members' salaries and eliminated four paid advisory positions.

She got rid of the police escort and the leased car, and gave the chauffeur a different job. She returned a carpet, emblazoned with the town seal, that had cost nearly €300 a month to clean. She ordered council members to pay for their own meals at work events instead of billing the town.

"I was so indignant seeing what these people had been doing with everyone's money as if it were their own," Ms. Biurrun said.

10.37am BST

European markets dropping back

After yesterday's record high on the German DAX, European stock markets are mostly down this morning. In London, though, the FTSE could hit another 12-year high today, after closing at its highest level since September 2000 yesterday.

European stock markets, May 21 2013, morning
Photograph: Thomson Reuters

Traders are anticipating the prospect of central bankers starting to withdraw the drip of monetary stimulus, especially with the Fed's Ben Bernanke testifying at Capitol Hill tomorrow.

It's the old argument over whether we're experiencing a bubble that's threatening to pop, or if the central banks are cannily guiding us to a point where genuine confidence and economic fundamentals take over.

As Yusuf Heusen, sales trader at IG, explains:

Perhaps global growth doesn’t merit markets at these highs, but liquidity-boosting actions from central banks take precedence.

The City is also absorbing a profits warning from cruise liner firm Carnival, as my colleague Nick Fletcher explains: FTSE heads for new 13 year high, but Carnival sinks 13% after warning on earnings…

… and the surprise departure of G4S boss Nick Buckles, 10 months after its Olympic security debacle.

Updated at 11.58am BST

9.50am BST

Economist Rob Wood of Berenberg Bank agrees that UK inflation is heading higher, despite this morning's surprise drop:

The squeeze on consumers from higher inflation will get worse before it gets better, but today's data highlights that underlying inflationary pressures remain well contained.

Inflation is likely to peak, probably around the 3 percent mark maybe a touch below, this summer which is much better than it seemed a few months ago.

9.47am BST

UK inflation, the early reaction

Duncan Weldon, the TUC's senior policy officer, cautions against getting too excited by today's drop in inflation:

While Societe Generale's Kit Juckes warns that the cost of living will probably head higher:

And IG's Chris Beauchamp reckons it gives the new Bank of England governor, Mark Carney, more leeway to waggle the monetary policy levers:

9.37am BST

UK inflation drops

Just in, UK inflation has fallen for the first time since last September.

The Consumer Prices Index came in at 2.4% last month, the Office for National Statistics reported. That's a surprise drop after March's 2.8%, and closer to the Bank of England's official target of 2%.

Lower fuel and lubricant costs were the prime factor, the ONS said.

Good news for the UK, although real wages are still failing to keep pace (they're rising by around 0.8% annually, on average).

Reaction to follow.

Updated at 9.38am BST

9.26am BST

Draft law to bail-in large depositors approved

Europe has moved a step closer to bailing in large depositors in future bank rescues, as happened in Cyprus this year.

Last night, the European Parliament's economics committee approved draft legislation under which customers with more than €100,000 would be liable to fund a rescue package. Smaller savers, though, would still be protected.

This new bank recovery and resolution mechanism is meant to end the era of taxpayer-funded bank rescues. Bank of England Deputy Governor Paul Tucker called it a milestone towards a world where governments were no longer willing to rescue banks that are “too big to fail”.

Under the EU proposal, a bank would dip into large deposits of over €100,000 once it had exhausted other avenues such as shareholders and bondholders, Reuters explains.

There could still be a battle, though, over who stands first in line for losses.

Sven Giegold, a German Green lawmaker, explained:

The struggle will be how binding the bail-in and the hierarchy of liabilities is.

That issue of seniority of claims is explained well by Frances Coppolo, former banker, here: The equivalence of debt and equity.

It explains how, if bank is in trouble, losses are initially suffered by shareholders, before working their way down this table:

Bank liability structure
Photograph: Frances Coppola

So for all the talk about Cyprus being unique, its bailout was clearly a watershed, as Matina Stevis of the Wall Street Journal points out:

8.52am BST

Vodafone warning on Southern Europe

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

The economic crisis in Southern Europe has been laid bare by Vodafone this morning.

It warned shareholders that it has been scorched by the ongoing slump in demand in Spain, Italy, Portugal and Greece, blaming "severe macroeconomic weakness" across the region.

Vodafone is taking a new £1.8bn impairment charge on its Spanish and Italian operations, taking its total writedowns on Southern Europe this year alone to a hefty £7.7bn.

Revenue in Southern Europe are down by 16.7%. Some of that can be blamed on competition, but mostly its due to the biting recession in the eurozone's weaker members, amid austerity cuts and record unemployment.

Vittorio Colao, chief executive, didn't pull his punches either, saying;

The macroeconomic environment in Southern Europe has been very challenging.

And today's financial results back this up — with a 12.8% tumble in service revenue in Italy, partly driven by "the severe macroeconomic weakness". In Spain, they fell 11.5%.

In Greece, too, revenues are down by 13.4%.

OK, a nation's mobile phone bill isn't exactly the last word in financial modelling. But it just shows what an economic crisis means in practice — for companies, fewer calls means less business, while for consumers it's another sign that they simply can't afford to spend what they used to.

As usual, I'll be tracking all the news through the day….

Updated at 8.57am BST

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

Published via the Guardian News Feed plugin for WordPress.

US jobs data smashes forecasts. S&P 500 remains over 1,600 for the first time ever, while the Dow Jones rallies above 15,000. US and German stock markets hit record highs. European Commission Spring Forecasts show deepening recession…

 


Powered by Guardian.co.ukThis article titled “US jobless rate falls to four-year low as EC cuts eurozone growth forecast – as it happened” was written by Graeme Wearden, for theguardian.com on Friday 3rd May 2013 16.14 UTC

5.44pm BST

Closing summary

It's all over in Europe, after a busy week. We've had May Day rallies, a Greek strike, the ECB monthly meeting, and more economic news (mostly bad) than I'd like to remember.

A very brief recap of today's two main stories

The US labour market is recovering faster than we thought. Today's jobs data showed 165,000 new positions were created in April, with another February and March's total revised higher by 114,000 new jobs. See here onwards.

Europe's economy is in worse shape than the European Commission had previously admitted. The EC's new growth forecasts predict a 0.4% drop in GDP this year, and show that France and Spain will both miss the official deficit targets this year. Here's a summary from earlier.

Commissioner Olli Rehn also claimed that Britain had no flexibility to ease fiscal policy (see here)

In other news

• Markets have posted strong gains, with the German DAX closing at its highest ever level, and the US Dow Jones and S&P 500 both hitting record highs (see here)

• ECB policy maker Ewald Nowotny suffered a nasty dose of over-interpretations over negative interest rates (see here)

• Finland's AAA credit rating has been affirmed by Fitch (see here)

• A MP representing the Greek nei-Nazi Golden Dawn party, who is accused of trying to pull a gun on the mayer of Athens (and punching a girl in the melee) could face charges. (see here).

Have great weekends all. Thanks, and goodnight!

Updated at 6.43pm BST

5.14pm BST

Late news from the rating agencies — Fitch has just affirmed Finland's AAA rating, with a stable outlook.

Finland's rating is underpinned by a combination of strong governance, high income per capita, a positive net international investment position and an impeccable debt service record. Government borrowing is currently strongly placed in financial markets. The strength of public finances is a key support to the rating despite the more pressing issue of population aging.

Public finances remain robust compared to peers. This provides Finland with some scope to absorb unexpected shocks and is reflected in the Stable Outlook. At 53% of GDP in 2012, general government debt is in line with the 'AAA' median and well below eurozone rating peers, including Germany ('AAA'/Stable). While the government has acknowledged that it will fail to meet its objective to reduce the central government deficit to no more than 1% of GDP by 2015, Fitch expects debt to GDP will remain below the EU threshold of 60% of GDP during the remainder of the parliamentary term of the current administration.

With pension fund assets over 70% of GDP the government has a net asset position, one of only six countries in the OECD and only second to Norway when measured relative to GDP. This is a mitigating factor towards the rising cost of an ageing population for the government for the short to medium term. The impact of an ageing population on public finances, however, will accelerate from 2020 and the government will need to implement further reforms of pensions to restore long run sustainability.

Here's the statement: Fitch Affirms Finland at 'AAA'; Outlook Stable

5.05pm BST

Dax hits record high as markets rally

Germany's DAX stock exchange has closed at its highest ever level, as the rally sparked by today's forecast-beating American jobs data.

The DAX jumped by 160 points, or 2%, to 8122 points.

Here's a graph showing how Europe's markets closed, and the latest details from Wall Street.

Stock markets closing prices, May 3 2013
Photograph: Thomson Reuters

As you can see, the S&P 500 remains over 1,600 for the first time ever, while the Dow Jones has dropped back below 15,000 having hit its own intra-day record high earlier.

Updated at 5.49pm BST

4.16pm BST

In Greece, MPs are to decide whether the Golden Dawn MP accused of trying to pull a gun on the mayor of Athens should face charges.

The parliament will be asked to consider whether to lift the immunity from prosecution of Giorgos Germenis, who is also said to have accidentally hit a 12-year girl in the face when trying to strike the mayor.

Kathimerini reports:

The Athens public prosecutor was on Friday to forward the case file on Golden Dawn deputy Giorgos Germenis to Parliament so MPs can decide on whether to lift the extreme rightist's immunity and allow him to face charges in connection with the attempted assault on Thursday of Athens Mayor Giorgos Kaminis.

Police forwarded the prosecutor the file on Germenis which relates to the charges of attempted bodily harm and verbal abuse. According to witnesses, Germenis tried to punch Kaminis after the mayor asked police to stop Golden Dawn from distributing food in Syntagma Square on Thursday. The lawmaker's punch missed the mayor and hit a 12-year-old who had visited a municipal office where candles for Orthodox Easter were being distributed. She was not seriously hurt.

Parliament must now decide whether to lift Germenis' immunity.

3.30pm BST

The Dow Jones industrial average just broke over the 15,000 mark for the first time:

Anyone who was quick to 'Sell in May' may be feeling a bit bruised.

Updated at 3.30pm BST

3.09pm BST

Two more gobbets of US economic data have landed – and they are not as good as the jobs report.

New orders at US factories fell by 4.0% in March, a bigger-than-expected drop.

And the monthly measure of the services sector showed that growth slowed in April to a nine-month low. The ISM non-manufacturing index fell to 53.1, down from 54.4 in March.

Updated at 3.09pm BST

2.56pm BST

Capital Economics: a soothing non-farm payroll

Here's Capital Economics's take on the US jobs data:

The better than expected 165,000 increase in non-farm payrolls in April, combined with the 114,000 upward revision to the gains in the preceding two months, will go a long way toward soothing fears of another spring slowdown.

With the unemployment rate edging down to a four-and-a-bit-year low of 7.5%, the Fed may yet begin to slow the pace of its asset purchases sometime in the second half of the year.

2.45pm BST

Wall Street surges on jobs data

Wall Street is open, and shares are racing higher as traders welcome the better-than-expected jobs data.

The S&P 500 has broken above the 1,600 point mark for the first time ever, and the Dow Jones industrial average has jumped 154 points to 14985, + 1.05%.

European stock markets are also jumping — on optimism that America's economy is in better shape.

FTSE 100: up 80 points at 6541, +1.2%

German DAX: up 138 points at 8099, + 1.74%

French CAC: up 48 points at 3907, + 1.26%

Italian FTSE MIB: up 155 points at 16903, + 0.9%

Spanish IBEX: up 156 points at 8562, + 1.8%

Now we just need to move this optimism into the real European economy….

Updated at 2.49pm BST

2.23pm BST

Today's US unemployment data is also another reminder of how bad the situation in Europe has become. The eurozone's jobless rate has now hit 12.1%, and the EC expects it will average 12.2% this year (see this post from earlier today)

The US jobs market is also looking healthier than the UK, where the unemployment rate hit 7.9% in the three months to February.

2.10pm BST

Our Wall Street correspondent, Dominic Rushe, has filed his first news story on the US jobs data:

US unemployment hits lowest rate in four years on strong April jobs figures

World markets soar as monthly report blows past estimates, with 165,000 jobs added and a jobless rate of 7.5%

2.06pm BST

Despite the strong payroll data, there was no jobs growth in America's construction or manufacturing sectors last month.

1.57pm BST

Some detail on today's US jobs data:

The 165,000 new jobs created in April were focused on these areas: professional and business services, food services and drinking places, retail trade, and health care.

Tthe number of long-term unemployed (those jobless for 27 weeks or more) has fallen by 258,000 to 4.4 million.

But there are also two data points that may signal economic weakness:

• The number of people working part time because their hours had been cut back or because they were unable to find a full-time job rose by 278,000 to 7.9 million…

• …and the average working week for all employees on private nonfarm payrolls decreased by 0.2 hours in April to 34.4 hours.

And finally, the labour force participation rate — the percentage of people who are either in work, or looking for it – was flat month-on-month at 63.3%.

1.44pm BST

Markets surge on non-farm payroll data

The news that the US economy created 165,000 new jobs in April, and that an extra 114,000 more jobs were created than we thought in March and February, has cheered the markets.

The FTSE 100 has jumped by 54 points to 6513, up 0.8%.

And Wall Street is expected to rally when trading begins in under an hour's time:

The dollar is also rallying against other currencies, up 1% against the yen, as the US economy looks healthier than 20 minutes ago.

Updated at 1.46pm BST

1.36pm BST

See the non-farm payroll data for yourself

You can read the details of the US jobs data here, on the Bureau of Labor Statistics website:

Employment Situation Summary

1.34pm BST

US jobless rate drops

The better-than expected rise jobs data from the US has pushed down the unemployment rate to 7.5% in April, from 7.6% in March.

1.30pm BST

Non-Fam Payroll

Breaking: The US economy gained 165,000 new jobs in April. Beating forecasts.

March's number has been revised higher to 138,000, from the 88,000 that was so disappointing.

And February's non-farm payroll has also been revised higher, to 332,000 from 268,000.

Updated at 1.33pm BST

1.26pm BST

Nowotny: What I meant was….

Screeching tires and the smell of burning rubber from Bratislava this afternoon.

ECB governing council member Ewald Nowotny has told reporters that his comments about Mario Draghi's comments on negative interest rates being over-interpreted have been (wait for it) over-interpreted.

Nowotny said he was "a bit astonished" to see the euro rise this morning, after he said there was "no short-term relevence" to Draghi's statement yesterday that the ECB was technically ready to charge banks who left deposits with them (see 8.59am).

Reuters has the new Nowotny comments:

"I was a bit astonished by the reaction of the markets to my comments concerning the deposit facility," Nowotny told reporters in Bratislava.
"What I wanted to make very clear is: yes, there has been of course a discussion about going into negative territory and we are open minded about it but it is nothing that has immediate effect," he said.
"That is what I really meant," he added. "Not that it is something that has to be excluded in principle. It is just an ongoing discussion. We are open minded about it but it is not something that will lead to a short-term result."
"I felt overinterpreted by the markets," the Austrian National Bank head said.

The euro is still trading above .31, a gain of almost half a cent today.

If Nowotny feels over-interpreted again, I'm sure he'll let us know.

Updated at 1.29pm BST

1.16pm BST

Electionista has wrapped up the latest political polling data from Italy and Germany:

In Italy:

And in Germany:

1.05pm BST

Read This

Excellent blogpost on yesterday's ECB press conference by @pawelmorski, City fund manager, on Mario Draghi's failure to announce any decisive new measures to help the weakest areas of the eurozone, and why the much-expected cut in interest rates really isn't enough.

We know – in as much as we know anything in economics that that 25bps cut will not add sufficient liquidity where it is needed. It may pump up Bund prices, and even help property owners in Helsinki or Munich, but money is not flowing to the companies and individuals that need it at the periphery for sure, and increasingly to the semi-core. This is like calling the Fire Brigade and being put on hold with periodic “Your Call Is Important to Us”‘s.

The conference unfolded in the manner of those 1960s sitcom marital scenes when the husband comes home on his Wedding Anniversary with some ragged daffodils bought at a petrol station and an extra-large Toblerone. At first the wife is indulgent, waiting for the curtain to be swept aside and the string quartet and banquet revealed (maybe those much-leaked plans to siphon funds to smaller firms?).

Then, as incredulity turns to rage, the husband gets self-righteous and defensive. He has, after all, been slaving away all day for the money to pay for these delightful flowers and delicious treats;

Quite!

More here: Mario Draghi: Your Call Is Important To Us

12.47pm BST

Non-Farm Payroll preview…

Here's RanSquawk's video preview of the US jobs data for April, due for release in 45 minutes.

Marketwatch has also written a preview, here. It explains that economists expect another 135,000 new jobs were created last month, while "another soft number would raise alarm"

Business Insider has rounded up some of the best analyst predictions:

IT'S JOBS DAY IN AMERICA: Here's Everything You Need To Know To Get Ready

12.35pm BST

Spring forecasts: a rapid round-up

EU commissioner Economic and Monetary Affairs Olli Rehn attends a press conference on the spring European Economic Forecast on May 3, 2013 at the EU Headquarters in Brussels.
EU commissioner Economic and Monetary Affairs Olli Rehn today.

So a quick recap of the key points from the EC's Spring Forecasts (see 10.08am for details)

The eurozone recession will be deeper. The EC now expects a 0.4% drop in GDP in 2013, revised down from 0.3%, and a 1.2% rise in 2014, down from 1.4%.

Unemployment will remain a crisis. The euro area rate is expected to rise to 12.2% in 2013, and be 12.1% in 2014. The EC also pointed to the risks of "social cohesion" from the jobless rates in some countries — but continues to push for countries to lower their deficits to meet its stability and growth pact.

France, Spain, Italy and the Netherlands will all remain in recession this year.

Spain and France will be given another two years to hit the EC's deficit targets. Both are on track to run deficits significantly over 3% of GDP this year (6.5% for Spain, 3.9% for France). 

Britain hasn't got room to ease. The EC forecasts a deficit of 6.8% in the UK in 2013. According to Rehn, the UK's debt levels mean that:

There is really no case for a discretionary fiscal loosening in the UK.

And Italy is only expected to trim its deficit to 2.9% of GDP this year. That suggesting little room for additional stimulus measures without breaching the 3% target.

12.17pm BST

Analysts: EC forecasts are too upbeat

Martin Koehring, European Analyst at The Economist Intelligence Unit fears that the EC has not cut its growth forecasts enough.

The EIU predicts that eurozone GDP will shrink by 0.7% this year and only recover by 0.5% in 2014 (rather than Olli Rehn's forecast of -0.4% this year and +1.2% in 2014).

Koehring fears that austerity programmes and the weak eurozone banking sector will be a bigger drag on growth than the EC believes:

Although financial markets in the euro area have stabilised and country borrowing costs have remained low, ongoing fiscal austerity will continue to limit consumer and business spending in 2013-14.

Banks also remain hesitant to lend and demand for credit is low; we expect this to remain the case despite the recent interest rate cut by the European Central Bank.

Major downside risks even to our more downbeat forecast persist, particularly a deterioration of the euro zone debt crisis, highlighted by the uncertain situations in Cyprus and Italy.

Sony Kapoor of the Re-Define think tank agrees:

11.45am BST

Media reaction

In the FT, Peter Spiegel focuses on the fact that Spain, France and the Netherlands are all expected to miss the target of bringing their deficts below 3% of GDP this year:

Here's the story: EU economies to breach deficit limits as economic picture darkens

Three of the eurozone’s five largest economies will bust through EU-mandated deficit limits this year as the bloc’s recession continues to deepen, according to highly anticipated European Commission forecasts published on Friday.

In addition to the anticipated breaches by France, Spain and the Netherlands, the currency union’s third-largest economy, Italy, will come within a hair’s breadth of missing the limit of 3 per cent of economic output, with a 2013 deficit forecasted at 2.9 per cent.

And in the Wall Street Journal, Matina Stevis points to the desperate state of the European jobs markets

EU Paints Gloomier Picture for Economy

Dire jobs conditions and a protracted drying-up of credit to households and businesses will keep Europe's economy in a deeper-than-expected contraction in 2013 and slow down its return to growth in 2014, the European Commission said in its spring economic forecasts Friday.

The 27-nation European Union economy will shrink by 0.1% in 2013, the EU's executive said. Its winter forecast published in February had projected a 0.1% growth rate. The 17-member euro area will suffer a 0.4% economic contraction this year, while the earlier forecast was a 0.3% contraction. The spring forecasts mark a small-scale calibration of the winter ones, taking into account economic performance in the early months of the year.

Unemployment will remain at historic highs, with the EU's jobless rate seen at 11.1% for this year and next. In the euro zone, 12.2% of the workforce will be out of work in 2013 and the situation will hardly get better in 2014, when the rate is seen at 12.1%. Greece and Spain will see record jobless rates of 27% this year, a vastly different story to Austria's unemployment rate, seen at 4.7% in 2013.

11.33am BST

Reuters newsflash: FRENCH FINMIN WELCOMES EU COMMISSION'S FLEXIBILITY ON DEFICIT TARGET

That follows Olli Rehn's comments that it makes sense to give France two more years to get its deficit below 3% — to 2015, rather than 2013.

Updated at 11.33am BST

11.19am BST

12 months ago, the EC was predicting growth of 1% this year — not the 0.4% contraction in today's forecasts, as Charles Forelle of the WSJ points out:

11.04am BST

Rehn: UK can’t loosen fiscal policy

Britain's high debt levels mean it cannot risk a fiscal stimulus, claims Olli Rehn.

Asked about the UK economy at today's briefing, commissioner Rehn pointed to the fact that the level of public debt is likely to rise close to 100% next year (under the EU's calculations).

There is really no case for a discretionary fiscal loosening in the UK

It is important that the UK follows through with consistent fiscal consoliation… to reach a sustainable fiscal position.

The EC expects the UK economy to "improve gradually" with 0.6% GDP growth this year, then 1.7% in 2014.

10.59am BST

Olli Rehn, presenting the Spring 2013 forecasts
Photograph: EC

Slovenia is unlikely to get its deficit below 3% as soon as planned, Olli Rehn says, and the EC would want to see new economic reforms in return for extending the deadline.

Asked about whether Slovenia could avoid international help, Rehn said:

The stock of problems is not as vast as for many other countries, while the trend is very negative

Therefore Slovenia's economic situation is stilll manageable as long as decisive action is taken without delay.

10.47am BST

Rehn: Spain and France should get more time

Speaking in Brussels, Olli Rehn has told reporters that the EC is prepared to give France and Spain two more years to get their deficits below 3% of GDP.

Rehn said:

For France and Spain is is very obvious that it is more reasonable to have a correction of the excessive deficit over another two years.

But other countries, though, should stick to their existing plans

Today's forecasts show that France is expected to run a deficit of 3.9% in 2013, and 4.2% in 2014.

On Italy, Olli Rehn says that he has been speaking with the country's new finance minister, and is looking forward to receiving details of how Enrico Letta's government plans to meet its own deficit reduction targets.

10.27am BST

Read the EC’s Spring forecast

10.26am BST

More details of the EC growth forecasts from the Brussels press pack:

10.18am BST

EU: joblessness could affect social cohesion

The EC sees no hope of early relief in the unemployment market. It predicts that the jobless rate in the eurozone will reach 12.2% for 2013, and 12.1% in 2014*.

It added:

While the risks to the economic outlook have become more balanced on the back of important policy decisions since last summer, downside risks remain predominant.

Very high levels of unemployment in some Member States could affect social cohesion and become persistent if further reforms are not undertaken.

* – updated

Updated at 11.36am BST

10.15am BST

The EC has also cut its forecast for growth in 2014, from 1.4% to 1.2%.

So, a deeper recession (with a 0.4% drop in GDP this year) and a slower recovery next year.

Updated at 10.16am BST

10.08am BST

EC cuts growth forecasts

Breaking news: the European Commission has cut its growth forecasts for the euro area, and warned that unemployment levels in some regions are unacceptably high.

In its Spring forecasts, the EC predicted that eurozone GDP would fall by 0.4% this year, worse than the 0.3% decline pencilled in previously.

For bailed-out, buffeted Cyprus, the EC now predicts a 8.7% tumble in economic output this year.

Lots more to follow…

Updated at 10.13am BST

10.02am BST

EC’s new Spring forecasts

Over in Brussels, commissioner Olli Rehn is announcing the EC's new economic forecasts — there's a live feed here.

10.01am BST

UK service sector output at post-Olympic high

Punchy economic news in the UK – with the service sector growing at its fastest rate in eight months in April.

Markit's PMI came in at 52.9, up from 52.4, while the measure of new orders was the strongest since last May.

That's an encouraging signal for UK economic growth this quarter (after dodging recession in Q1).

9.53am BST

Key event

European sovereign debt is rising in value this morning, driving down borrowing costs across the region.

Spain's 10-year bond yields have dropped below the 4% mark for the first time since 2010, while Italy's 10-year debt is yielding just 3.74%.

Very little of note in the stock markets, with the FTSE 100, the DAX and the CAC basically flat.

9.39am BST

India cuts interest rates

India cut its interest rate for the third time this year earlier today, in an attempt to stimulate the country's economy.

The Reserve Bank of India (RBI) lowered its key rate to 7.25% from 7.5%, but warned that it didn't see much opportunity for further easing.

India cut its growth forecast to 5% earlier this year, from over 6%. But inflation is too high for the RBI to consider cutting much further — with its consumer prices index recorded at 10.39% in March.

In a statement the RBI said it:

cannot afford to lower its guard against the possibility of resurgence of inflation pressures.

India's other challenge is that it's running a sizable current account deficit, which jumped to a record of 6.7% (partly due to the cost of importing commodities such as oil).

Indranil Pan, an economist at Kotak Mahindra Bank in Mumbai, reckons that it's fanciful to expect the RBI to revitalise India's economy alone:

Rate cuts are not the answer to resolve growth problems. The push has to come from the government by cutting wasteful expenditure and improving infrastructure bottlenecks.

Economist Shaun Richards wrote a nice piece about the challenges facing the Indian central bank, back in February: The Reserve Bank of India is taking quite a gamble with India’s economic future

8.59am BST

ECB tries to calm negative rate talk

Yesterday's ECB meeting still looms over the European markets today, with one of the Bank's governing council members trying to dampen talk that the ECB might impose a negative deposit rate on banks*.

Ewald Nowotny reckons people got too excited about Mario Draghi's comment that the ECB was "technically ready" to cut its deposit rate into negative territory, from 0.0% today.

Nowotny told reporters in Bratislava that:

Markets have over-interpreted the discussion yesterday.

Of course, this is one of many options. But it is not an option that is relevant in the near future and it would need many aspects to analyse … side effects and psychological effects. So, this is nothing that is of short-term relevance.

That's helped to send the euro popping back against the US dollar, up 0.3% this morning at just over .31.

Updated at 9.00am BST

8.46am BST

US jobs data dominates the markets

Good morning, and welcome to our rolling coverage of the latest events across the eurozone and the wider global economy.

It's a quieter morning after the drama of yesterday, when the European Central Bank slashed borrowing costs to a record low of 0.5% and hinted at imposing negative interest rates on banks which stash money with it overnight.

The big action will come this afternoon – when America reports its employment data for April. The non-farm payroll (always 'eagerly awaited') will give us a decent idea of how the world's largest economy is performing, particularly as last month's reading was extremely weak.

All week, economists have been cutting their forecasts for how many new jobs were created in America. They started at 155,000, but now it's down to around 140,000.

Another disappointing reading might well add to fears that America's economy has entered a softer patch, with analysts already expecting GDP growth to slow this quarter as the 'sequester' government cutbacks hit home.

Meanwhile, there's lots of analysis and reaction from the ECB to wade through (more to follow), and the EC is releasing its new Spring Economic Forecasts.

I'll also be watching the usual hotspots of action, such as Italy, Cyprus and Greece — where there's outrage after a Golden Dawn MP apparently tried to pulled a gun on the Athens mayor and accidentally punched a 12 year old girl.

I wish I was making that up, but as Kathimerini explains:

A crackdown by municipal authorities on an attempt by extreme-right Golden Dawn to distribute free food in central Syntagma Square on Thursday prompted one of the party’s MPs to attempt an assault on Athens Mayor Giorgos Kaminis during which the MP apparently tried to pull out a gun.

According to witnesses, Giorgos Germenis tried to punch Kaminis after the mayor asked police to stop Golden Dawn from distributing food in Syntagma. Police were sent to the square early on Thursday and used tear gas to force members of Golden Dawn to retreat from the area, taking with them a refrigerated truck containing meat, potatoes and other food.

A few hours after the police crackdown, Germenis visited the offices of City Hall’s solidarity initiative, which happens to be close to Golden Dawn’s old headquarters near Larissis railway station, while workers were giving Easter candles to children and their parents.

Witnesses said the MP lunged at Kaminis and tried to punch him but hit a 12-year-old girl instead, leaving her with a lightly bruised forehead. According to municipal employees, and to Kaminis, Germenis had a gun in his trouser pocket and tried to pull it out but was stopped by security guards.

Updated at 8.52am BST

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Eurozone unemployment hits 12.1%. Nearly one in four young people out of work. Falling inflation makes European Central Bank rate cut more likely. Spanish GDP falls by 0.5%. Italy’s prime minister wins second confidence vote…

 


Powered by Guardian.co.ukThis article titled “Eurozone jobless rate hits record high as inflation falls and Spanish recession deepens – as it happened” was written by Graeme Wearden and Nick Fletcher, for theguardian.com on Tuesday 30th April 2013 08.59 UTC

5.57pm BST

Moody’s downgrades Slovenia

Well it didn't take 24 hours.

After Slovenia earlier delayed pricing a bond pending a possible rating announcement, the announcement has come.

Moody's has downgrades the country's sovereign debt rating from BAA2 to BA1 with a negative outlook. It blamed the state of Slovenia's banking sector, the marked deterioration of the government's balance sheet and uncertain funding prospects that heighten the chances that external assistance will be needed:

Slovenia's vulnerability to external shocks, like though brought about by the crisis in Cyprus, could make it difficult for the sovereign to fund itself at sustainable rates, which increases the likelihood that authorities would need to request an external assistance programme.

Here's one of our earlier pieces looking at the state of the country.

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

People take part in a demonstration gathering thousands on April 27, 2013 in central Ljubljana to protest against corruption and austerity measures in Slovenia. Photograph:  AFP/Getty Images/Jure Makovec
People take part in a demonstration gathering thousands on April 27, 2013 in central Ljubljana to protest against corruption and austerity measures in Slovenia. Photograph: AFP/Getty Images/Jure Makovec

5.44pm BST

Cyprus MPs unhappy despite bailout vote success

Back to Cyprus. The loan agreement may have been endorsed – if narrowly – but if the incendiary debate that preceded the vote is anything to go by Cyprus is far from being out of the woods, writes Helena Smith.

Indicative of the passions the EU-IMS backed rescue package has unleashed, MPs described the bailout as being far worse than the 1974 Turkish invasion of the island.

"In ten days this government has triggered ten Turkish invasions," NIkos Koulias, who sits in the House as an independent, told the parliament. "I'm not saying that the best solution is the return to the [Cyprus] pound but it will have less [adverse] effects. If we take the €10bn only to give it back to our creditors then we are worthy of our fate," said the lawmaker who voted down the agreement. 

Updated at 5.45pm BST

5.40pm BST

Italy has taken considerable reform steps, says Merkel

Here's the full quote from German chancellor Angela Merkel on Italy at her press conference with the country's new prime minister Enrico Letta, courtesy of Reuters:

We want to ensure Europe emerges from this crisis stronger than it went into it. As part of that, every country must do its part. Italy has taken considerable steps in this regard.

Letta, who is keen to push the growth agenda, said Rome was committed to maintaining budgetary discipline:

Our task is to continue with the policies of fiscal consolidation and keeping public accounts in order.

5.33pm BST

Italy’s Letta calls for same determination on growth as on consolidation

New Italian prime minister Enrico Letta has said he is committed to maintaining the public finances in order.

Speaking at a news conference in Berlin with chancellor Angela Merkel on his visit to Germany, Letta said the crisis the eurozone has been going through has not been solved because Europe has not been strong enough.

Addressing the theme of austerity versus growth, Letta said he wanted to see Europe show the same determination to pursue growthas it does to maintain sound public finances.

Merkel, speaking at a news conference with Letta, said each eurozone country must take its own steps to address its problems. Italy, she said, had already taken considerable steps in the right direction.

She said budget consolidation and growth were not contradictory, and together could lead to better competitiveness. Fighting unemployment was the central issue for Europe (one not going too well to judge by today's figures….)

German chancellor Angela Merkel and Italy's new prime minister Enrico Letta in Berlin. Photograph: AFP/Getty Images/John Macdougall
German chancellor Angela Merkel and Italy’s new prime minister Enrico Letta in Berlin. Photograph: AFP/Getty Images/John Macdougall
Letta welcomed with military honors in Berlin. Photograph: AP Photo/Gero Breloer
Letta welcomed with military honors in Berlin. Photograph: AP Photo/Gero Breloer
After you Angela.... Photograph: AP Photo/Michael Sohn
After you Angela…. Photograph: AP Photo/Michael Sohn

Updated at 5.34pm BST

5.20pm BST

European markets end on a mixed note

European markets have closed for the day and it's been a mixed performance ahead of this week's central bank meetings. Investors have been buoyed recently by the thought of more measures from the banks to stimulate the global economy, not least the ideal of an interest rate cut from the ECB. But today seems to have seen a little profit taking after the rally, given the poor economic figures from Europe and mixed data from the US. So:

• The FTSE 100 finished 27.90 points lower at 6430.12, down 0.43%

• France's Cac closed down 0.31% at 3856.75

• Germany's Dax is up 0.51% at 7913.71

• Italy's FTSE MIB has fallen 0.96% to 16,767.66

• Spain's Ibex is off 0.38% at 8419

The Dow Jones Industrial Average is currently down 0.12% or 17.31 points.

5.02pm BST

Cyprus parliament approves bailout

The Cypriot parliament has narrowly approved the EU bailout, including the hit on depositors' savings.

In a show of hands 29 members voted for approval and 27 against.

Cyprus is now expected to receive a total of €10bn in May.

Updated at 5.14pm BST

4.44pm BST

Deflation not the answer to periphery’s woes, says Capital Economics

If the peripheral eurozone economies regained competitiveness via outright deflation, their public and private sector debt levels would spiral higher as a share of GDP, prompting disaster, according to Capital Economics. European economist Ben May writes:

Our central view is that for the peripheral economies’ competitiveness to be restored over the next five years, while the rest of the eurozone continued to inflate gently, prices (as measured by the GDP deflator) would need to fall by about 23% in Greece, 12% in Italy and 6% in Spain and Portugal.

But if prices fell in line with these estimates and the real economy grew in line with the IMF’s forecasts, in 2020, Greek public debt would be around 170% of GDP, compared to the Troika’s forecast of 124%. In 2020, the Spanish, Portuguese and Italian ratios would also exceed the Troika’s
sustainable benchmark of 120% of GDP.

Yet the picture would probably be worse than this. The IMF’s GDP growth forecasts already look implausibly optimistic, even without deflation. Falling prices would have a further adverse effect. Accordingly, by 2020, government debt could equal 150% of GDP in Spain and Portugal and around 200% in Italy and Greece. Rising anxiety in the bond markets could cause debt service costs to soar, causing the debt position to worsen still further.

These debt ratios would be unsustainable. Fear of them exploding would surely prompt action to bring debt down. But more austerity in the public sector and more deleveraging in the private sector would lead to weaker growth, causing yet more deflation. Swathes of public and private sector
defaults, which would surely follow, would prompt major domestic banking crises.

So internal devaluation (i.e. deflation) would not so much solve the eurozone’s problem as shift its manifestation from one sphere to another. In conditions of heavy indebtedness, as a potential solution to the euro’s ills, internal devaluation is a snare and a delusion.

4.39pm BST

Slovenia delays bond price

Slovenia, which has come under increasing pressure following the chaotic Cypriot bailout, has delayed a dollar bond issue due to be priced today.

The country said the move was "pending a potential ratings announcement."

According to Reuters, such an announcement could come in the next 24 hours.

Updated at 4.45pm BST

4.31pm BST

Cyprus debates crucial bailout agreement ahead of vote

More news on that crucial vote in Cyprus where parliament has begun debating the island’s internationally-sponsored rescue deal ahead of the ballot. Our correspondent Helena Smith writes:

For the past few hours, Cyprus’ 56-seat House of Representatives has been fiercely debating the controversial bailout agreement in the knowledge that the island’s fate now hangs on the rescue package being endorsed.

If, as seems likely, it is passed, MPs say it will be by a whisker – with a majority of one. The swing vote is expected to come from the hardline European party following an eleventh hour pledge by the main opposition Akel and Edek parties to vote down the €10n deal.

The communist Akel, which curiously signed off on many of the measures before being ejected from power in June, has racheted up the rhetoric by calling for a referendum on whether the country should even remain in the eurozone.

Increasingly, even within the island’s business elite, there is a feeling that Cyprus would be better off if it exited the single currency and re-embraced the Cyprus pound. Calls for the island to leave the bloc have mounted as the knowledge has also sunk in that the price of international rescue funds in terms of budget cuts will be far higher than originally envisaged – at €13bn almost double the amount creditors at the EU and IMF had demanded when the agreement was initially sealed on March 25.

Visibly concerned, the island’s president Nikos Anastasiades appealed to MPS to support the bailout package ahead of the make-or-break vote. "An appeal: our country is passing through a critical time that calls for a sense of national responsibility and conduct in a manner which is consistent with the greater good," he told reporters as a visited an army camp earlier in the day.

Even if the loan deal is passed as is now expected, there is still a very real possibility that the tiny nation state whose total economic output amounts to less than 2% of the euro zone's entire GDP, will leave the 17-member bloc analysts say.

Protestors against the bailout package gather as the Cypriot parliament votes on the deal. Photograph: EPA/Katia Christodoulou
Protestors against the bailout package gather as the Cypriot parliament votes on the deal. Photograph: EPA/Katia Christodoulou

4.09pm BST

Dairy group Glanbia to create 2,000 jobs in Ireland

There was better news on the jobs from Ireland today and in one of the most stressed sectors hit by the Celtic Tiger crash – contruction. Henry McDonald in Dublin writes:

Glanbia Ingredients Ireland announced it will create more than 2,000 jobs, 450 of them in the construction sector as part of an expansion programme.

Embattled Taoiseach Enda Kenny was on hand to hear the announcement from the Republic's biggest diary ingredients company with Glanbia claiming the investment will inject a further €400 million into the country's rural economy. It will be centred on a new dairy production facility at Belview, between counties Kilkenny and Waterford in Ireland's southeast region.

According to Glanbia's chief executive Jim Bergin the plant will be entirely focused on export markets and will supply a range of nutritional powders to an increasing number of regions including the Middle East, Africa, Central America and Asia. It is yet another example of the Republic's relatively strong export sector particulary in the food industry that has remained robust in comparison to the recession battered domestic economy.

Taoiseach Enda Kenny (centre) with Glanbia chairman Liam Herlihy (right) and chief executive Jim Bergin (left). Photograph: Julien Behal/PA Wire
Taoiseach Enda Kenny (centre) with Glanbia chairman Liam Herlihy and chief executive Jim Bergin (left). Photograph: Julien Behal/PA Wire

Updated at 4.10pm BST

3.16pm BST

US consumer confidence improves but business activity misses forecasts

And after the good, a more mixed picture.

US consumer confidence increased in April, according to the conference board, with its index up from 61.9 in March to 68.1. James Knightley at ING Bank said:

The index has been rather choppy since the start of the year, which likely reflects uncertainty and worry over the degree of spending sequestration and tax rises. Nonetheless, fears over the impact on household finances seem to be easing with consumer expectations rising to 73.3 from 63.7.

Given this series has a decent correlation with consumer spending, this is an encouraging piece of news.

But a measure of US business activity showed a contraction for the first time since September 2009.

The ISM/Chicago index fell to 49% in April (anything below 50 is a contraction) compared to 52.4 in March and missing expectations of an improvement to 52.5.

Updated at 3.24pm BST

2.18pm BST

US house prices rise more than expected

More positive news from the US housing market. Single home prices rose by more than expected in February, recording their best rise since May 2006.

The S&P/Case Shiller index rose a seasonally adjusted 1.2% compared to expectations of a 0.9% rise. Year on year the rise was 9.3%. As the US Federal Reserve meets to consider its next move on measures to boost the world's largest economy, it appears the housing market is one bright spot.

2.08pm BST

Larry Elliott: ECB must heed the warning signs

Our economics editor, Larry Elliott, writes that the ECB must show decisive action on Thursday by easing monetary policy. Cutting rates, alone, isn't enough.

Larry writes:

In itself, a quarter-point cut in interest rates to 0.5% would do little to revive demand, ease the credit crunch or create jobs. Instead, it should be part of a three-pronged approach to boost growth. The cut in rates should be accompanied by an ECB announcement that it is willing to embrace the unconventional methods deployed by the Federal Reserve, the Bank of England and Japan to underpin activity. It should also be the catalyst for a less aggressive approach to cutting budget deficits, with countries given more time to bring their deficits below the eurozone ceiling of 3% of GDP.

For the past three years, macroeconomic policy in the eurozone has been run on sadomasochistic principles: that only regular doses of pain will ensure countries stick to strict reform programmes.

The upshot of this policy is clear for all to see. Businesses that are starved of credit are mothballing investment and cutting their workforce. Weaker growth means higher-than-expected budget deficits. Permanent austerity has bred social dislocation and political extremism. A different approach is needed to save the eurozone from catastrophe – starting on Thursday.

More here: European Central Bank must heed eurozone warning signs

And I'm handing over to my colleague Nick Fletcher…. thanks all GW

1.59pm BST

Photos: Italian vote of confidence debate

A couple of photos from today's confidence debate in the Italian senate, which the new government won confortably (see 1.26pm)

Former Premier Silvio Berlusconi, tsecond from right at top, shakes hands with an unidentified lawmaker as he attends a session for a second vote of confidence to confirm the new government, in the Italian Senate in Rome, Tuesday, April 30, 2013.
Former Premier Silvio Berlusconi shakes hands with an unidentified lawmaker as he attends a session for a second vote of confidence to confirm the new government, in the Italian Senate in Rome, Tuesday, April 30, 2013. Photograph: Alessandra Tarantino/AP
Italian Prime Minister Enrico Letta gestures at the Upper house of the parliament in Rome, April 30, 2013.
Italian Prime Minister Enrico Letta gestures at the Upper house of the parliament in Rome. Photograph: GIAMPIERO SPOSITO/REUTERS

During the debate, Silvio Berlusconi warned that his party could walk away from the coalition unless prime minister Letta yields to their demands for tax cuts, and slows its austerity programme.

Reuters has the details:

In a sign of the intense pressure he will face, four-times Prime Minister Silvio Berlusconi threatened to pull his centre-right People of Freedom party out of the coalition if it does not abolish an unpopular housing tax.

Berlusconi, who is not in cabinet but is playing a decisive role behind the scenes, added that the government must re-negotiate EU deficit commitments, echoing similar comments made earlier by two of Letta's own ministers.

But Foreign Minister Emma Bonino, a former European commissioner, responded that Italy cannot alter its targets, a view repeated by a spokesman for the European Commission in Brussels. "The targets, the objectives remain those that have been agreed," Commission spokesman Simon O'Connor said.

Speaking in the Senate before the confidence vote, Letta argued that Italy's need to ease austerity during the economic slump was shared by many European countries. "What is happening in Italy is happening all over Europe," Letta said. "Either there is a common European destiny or each country will eventually decline on its own."

1.26pm BST

Italian PM wins second vote of confidence

Breaking news from Italy — Enrico Letta has romped to victory in his second confidence vote, in the upper house of the Italian parliament.

A total of 233 Senators backed Letta's govenrment, with 59 voting against. There were 18 abstentions.

Now the new Italian PM faces his third test — meeting Angela Merkel in Berlin tonight.

Letta has been guiding expectations downwards….

Updated at 1.27pm BST

1.20pm BST

Rate (cut) expectations

Mario Draghi, President of the European Central Bank, ECB (L), reacts during the awarding ceremony of the Generation Euro Student's Award in Frankfurt/Main, Germany, on April 17, 2013.
Will Mario Draghi, president of the European Central Bank, ECB, deliver the goods on Thursday. Photograph: DANIEL ROLAND/AFP/Getty Images

Several City analysts and economists reckon the European Central Bank will bow to pressure this Thursday and cut interest rates by 0.25%, from 0.75% at present.

There's not much confidence that merely trimming borrowing costs will do much good, though. Perhaps Mario Draghi will produce something more surprising?

Richard Driver, currency analyst at Caxton FX explains:

This morning’s weak eurozone growth and unemployment figures only pile further pressure on the ECB to cut interest rates.

Other than Germany’s phobia of low interest rates, there really is nothing stopping the ECB and with this morning’s eurozone inflation data coming in so weak, the ground has probably never been more fertile for a rate cut.

Whether or not an interest rate cut will make any material difference in terms of economic growth is another matter but the ECB have nothing to lose by trying now, and we think they will.

The ECB runs the risk of diminishing its own credibility if it continues to ignore the deteriorating eurozone growth profile.

The new Italian PM’s pledge to fight austerity could help usher in a new approach to the balance between debt reduction and growth-promotion in the eurozone – something clearly needs to change.

Kit Juckes of Société Générale reckons the case for easier monetary easing is "plain for all to see", with unemployment up, inflation down, and credit being squeezed. But he suggests that a scheme to help small firms borrow would be more valuable. Something similar to the UK's funding for lending scheme:

Kit writes:

The case for a rate cut in Europe is two-fold. Firstly, as my colleague Adam Kurpiel argued in last week's Fixed Income Weekly, a rate cut would probably help slow the pace at which LTROs are being repaid, and therefore reverse the apparent unwinding of QE that is happening in the Euro Zone. I don't actually know to what extent a decrease in the excess liquidity in the Euro System affects anything beyond sentiment (mopping up the excess water around an over-filled bath tub isn't the same as emptying the tub!) but sentiment would be affected.

The second reason for acting is rather more banal – they'll cut because it does no harm and at the margin may help, even if only a little. Mr Draghi is not above doing things to help sentiment and indeed, at this stage, he must be aware of the risk of disappointment if he doesn't deliver something.

Wider expectations are focused around the idea that the ECB will do something to boost the supply of credit to companies and in particular SMEs. That, in some ways, would follow the UK's FLS scheme.

Brenda Kelly, senior market strategist at IG, confirms that recent poor data is actually cheering the City:

Investors are choosing to rely on optimism that the US Federal Reserve will leave its current stimulus in place and that the European Central Bank will look to cut its key lending rate.

Some economists are even calling for a 0.5% rate cut from ECB president Mario Draghi on Thursday in light of the evident decline in the German economy.

Setting aside the dearth of positive effects a rate cut might actually bring, one could question the wisdom of such an extreme rate reduction as it would leave the ECB with even fewer stimuli in its already depleted arsenal.

12.32pm BST

Gloomy data doesn’t scare the City

The financial markets are unphased by today's record unemployment rate in the eurozone (see 10.00am onwards) and surprise drop in euro-area inflation (see 10.34am)

European stock markets are pretty flat, and the euro has only inched a little lower.

City traders are shrugging off bad news on the expectation that central banks will continue to provide fresh stimulus measures to keep the show on the road. That won't rule out isolated crises (such as Cyprus) or the sudden slump in the gold price this month, but should prevent a rout. Despite the troubles in the real economy. Or so the theory goes.

Sebastien Galy of Société Générale fears that Europe is heading for rapid "Japanification" – a sustained period of little growth and low inflation.

He writes:

We are not heading for a Lehman like moment of global deleveraging, but a series of bone jarring thuds (local bubbles) along an otherwise beautiful scenic road.

It is the same feeling you get when visiting the wildlife reserve somewhere in central africa. The beautiful ride leaves you happy you didn't fall into any sinkhole, happy the lion no one told you about was busy on a gazelle and you didn't get caught on the way back by a friendly act of spontaneous local taxation on the road back. Otherwise it was a wonderful trip.

But the tourists may be jittery (to extend the safari analogy). A Reuters poll this lunchtime found that investors have moved more assets into cash, cutting their exposure to shares (as a percentage of total wealth) to the lowest level since 2007. Perhaps they can hear that lion roaring….

Updated at 12.38pm BST

11.40am BST

Cyprus bailout vote could be tight

Today's vote in the Cyprus parliament over its international loan deal is likely to be rather close, but most analysts reckon the Nicosia government will squeeze home.

The vote is constitutionally required before Cyprus can accept the terms of its bailout, and receive the first tranche of aid. Without that loan, Cyprus risks running out of money fast.

The complications arise because prime minister Nicos Anastasiades's Disy party only holds 20 seats in the 56-seat parliament. His coalition partner, Diko, holds another 8 — and has said it will reluctantly back the deal as "there's no other choice".

That still leaves Anastasiades short of one vote for an actual majority.

Three opposition parties with a total of 25 MPs have vowed to vote against the proposal, as has one independent MP.

The two remaining MPs both represent the the European party, which appears to be taking a balanced approach to the issue. Cyprus News Agency reports that one will vote against the loan agreement and the other will support it.

That would mean a 29-27 win for Anastasiades.

The debate is due to begin at 3pm local time (1pm BST), with a vote at 7pm local time (5pm BST).

Government spokesman Christos Stylianides warned ahead of the vote that it would be a disaster of Cyprus were to reject the deal at this late stage.

We have had enough of delusions. We don't have another choice.

(more details on the voting intentions here on BusinessWeek)

Updated at 2.00pm BST

11.15am BST

Greek retail sales tumble again

We're overwhelmed by disappointing economic news today.

Retail sales in Greece have declined by 14.4% year-on-year in February – the only relief is that it's slightly less severe than January's 16.8% slump.

11.01am BST

Analyst Cormac Leech points out that Germany's insistance on keeping inflation under control risks rebounding on them:

Yesterday, German inflation data showed that the cost of living actually fell last month, by 0.5% month-on-month.

10.47am BST

Record jobless – early reaction

Here's some early reaction to today's eurozone unemployment figures, and inflation data, from City analysts and commentators:

10.34am BST

Eurozone inflation slides — interest rate cut next?

Eurostat also reported this morning that inflation across the Eurozone has fallen to just 1.2% in April. That's a sharp fall on March's 1.7%, and a much smaller rise in the cost of living than analysts had expected.

That makes it more likely that the European Central Bank will bow to pressure and cut interest rates at its next monthly meeting on Thursday.

10.28am BST

Young people (once again) suffer

The figures for youth unemployment in Europe are so depressing and alarming, and part of a pattern we've been seeing for too many months.

Nearly one in four young people in the eurozone are out of work – and more than half in Spain.

The youth unemployment rate in the European Union rose to 23.5% in March (up from 22.6% a year ago), and 24.0% in the euro area (up from 22.5%).

And the periphery of Southern Europe continues to suffer the most, reinforcing all the fears of a growing lost generation.

The highest youth jobless rates were recorded in Spain (55.9%), Italy (38.4%) and Portugal (38.3%), and the lowest in Germany and Austria (both 7.6%).

10.18am BST

Unemployment across the EU has been rising steadily for the last five years, as this graph from Eurostat today shows:

Euro area and EU27 unemployment rates, to March 2013
Euro area (blue) and EU27 (black) unemployment rates. Photograph: Eurostat

10.14am BST

See the data yourself

Today's European unemployment data is online here: Euro area unemployment rate at 12.1%

10.12am BST

More details of today's jobless data.

Eurozone:

Unemployment rate in the euro area rose to a new record of 12.1% in March, up from 12.0% in February

There are now 19.211m people unemployed across the euro area, an increase of 1.723m in the last 12 months.

European Union

Unemployment rate in the EU was stable at 10.9% in March.

There are now 26.521m people unemployed across the euro area, an increase of 1.814m in the last 12 months.

Countries with the highest jobless rates:

Greece: 27.2% (in January)

Spain: 26.2%

Portugal: 17.5%

Countries with the lowest jobless rates

Austria: 4.7%

Germany: 5.4%

Luxembourg: 5.7%

Update

As a clarification on the German figure: Eurostat says it uses the trend component for Germany "instead of the more volatile seasonally adjusted
data." Hence the figure of 5.4% above (which is for March) does not tally with the 6.9% jobless rate quoted below which is (a) for April and ( b) seasonally adjusted.

Updated at 3.13pm BST

10.00am BST

Eurozone unemployment data released

Eurozone unemployment has, as we feared, hit a new record high of 12.1%.

More to follow.

Updated at 10.01am BST

9.59am BST

Is Abenomics having an impact?

There are encouraging signs from Japan today that its massive monetary stimulus package is having an effect.

Amid a glut of economic data overnight, Japanese household spending rose by 5.2% in March — the fastest monthly rise in nine years.

That suggests consumers are more confident about economic prospects (or deciding that it's better to spend than safe as their central bank battles with deflation).

Japan's jobless rate also dropped, to 4.1%, while manufacturing output rose by its fastest pace in a year in April.

There are also reasons to be cautious — retail sales, for example, were weaker than expected with a 0.3% year-on-year fall.

But the talk in Toyko was the Abenomics — the prime minister's new programme to end stagnation — is working.

Yoshiki Shinke, senior economist, Dai-Ichi Life Research Institute, said:

I expect the first quarter gross domestic product growth to exceed an annualised 2 percent, and if the corporate sector catches up with households, the pace of growth could accelerate…

Recovery in exports has been slow and so has industrial output, but as a weak yen is expected to impact shipments from now on, exports and factory output will pick up in coming months.

9.40am BST

Spanish recession to continue

Looking back at Spain's ongoing recession (see 8.02am onwards), and economists fear that the contraction will be repeated through the year.

Silvio Peruzzo of Nomura doesn't expect to see growth until "some time next year", adding"

We recognize the reforms of the government have been significant, but the problem is the starting position of the Spanish economy was much worse than any other European economies and adjusting in this environment is a lengthy process.

And the latest IMF forecast is for a 1.6% contraction in Spain this year.

However, Reuters flags up that finance minister Luis de Guindos struck an upbeat tone on Spanish radio:

All the indicators which look forward in Spain point to recovery, and a much better economy than one year ago.

Is he right? Well, trade data today showed that Spain's current account deficit came in at €1.3bn in February, down from €5.88bn. Exports rose 4.4% in the month, while imports shrank by 8.2%.

9.13am BST

Italian unemployment rate sticks at 11.5%

Italy's jobless data, just released, is better than expected – but still shows a country struggling with a severe youth unemployment problem.

The overall Italian unemployment rate was recorded at 11.5% in March, in line with February (which was revised down from 11.6%).

The jobless rate among under-25s, though, rose to 38.4% from 37.8%.

The data also confirmed that Italy faces a major problem getting people into the jobs market at all — its employment rate was just 56.3% (down 0.1 percentage point).

Updated at 9.14am BST

9.02am BST

Germany's jobless total has risen by 4,000 people in April March, on a sasonally adjusted basis, worse than the 2,000 rise analysts had expected.

That leaves the German jobless rate at 6.9%, on a seasonally adjusted basis.

Updated at 9.07am BST

8.54am BST

Interesting… one of Enrico Letta's new ministers has proposed changing the terms of Europe's stability and growth pact.

Flavio Zanonato told La Repubblica that Italy wants governments to be given more flexibility on their deficit targets.He suggested that 'investment spending' — money spend on structural projects that would stimuluate long-term growth — should be excluded from the targets.

Reuters has the details:

Italy's new government wants to renegotiate the pact of stability with the European Union, the industry minister said in an interview on Tuesday.

Flavio Zanonato said Italy needed to pursue a credible economic policy to maintain its reputation in Europe and keep the spread between Italian and German bond yields low.

"But we are also interested in renegotiating with the union the pact of stability," he told La Repubblica newspaper.

Zanonato said other countries such as France were calling for similar actions. "In particular it should be possible to exclude from the pact investment spending," he said.

The stability and growth pact is notorious for being loosly applied in the early days of the eurozone (whem both France and Germany breached its deficit limits without penalty) only to now be used to force struggling peripheral countries to cut their borrowing levels….

8.38am BST

News of the deepening Spanish recession comes four days after the country's unemployment total hit a new record high of 27%. That shocking total (more details here) is one reason that today's eurozone-wide jobless rate is expected to rise again.

Spain already appears to be on track to miss its deficit reduction targets for this year — and there are signs this morning that the government may be bowing to pressure to stimulate the economy:

8.02am BST

Spanish recession continues

As feared, Spain's economy has contracted by 0.5% for the seventh quarter in a row.

Data just released confirmed analyst forecasts, with Spanish GDP now 2% smaller than a year ago as the country's austerity programme — and the wider eurozone recession — continue to bite.

7.35am BST

Eurozone jobless rate expected to hit new record

Italy's designaded Prime Minister Enrico Letta gives his first speech for confidence in front of the Deputy chamber.
Prime Minister Enrico Letta (centre) will meet Angela Merkel for talks in Berlin tonight. Photograph: Simona Granati/Demotix/Corbis

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

It could be another morning of bad economic news in Europe, as the ongoing recession hits firms and forces more people out of work.

The latest eurozone unemployment data, due at 10am BST, is expected to show the region's jobless rate has risen to a new record high of 12.1% in March (from 12% last month).

Italy's unemployment rate is also forecast to increase, showing the challenges facing its new government as it strives to drag the country back to growth.

And in Spain, new GDP data will doubtless confirm that the country's economy contracted again in the first three months of 2013 (economists expect a fall of 0.5%).

As Michael Hewson of CMC Markets puts it this morning:

The Spanish economy continues to buckle under record high unemployment of 27% and rapidly declining house price values.

With ratings agency Standard and Poor’s predicting that property prices could fall another 13% by year end the prognosis looks grim not only in Spain but for the rest of Europe as well.

A grim tale indeed, and one which will set the scene for a meeting tonight between the new Italian prime minister, Enrico Letta, and German chancellor Angela Merkel.

Having won hist first confidence vote last night (see Monday's blog), Letta faces a second one in the Italian Senate today. But visit to Berlin this evening will could be more exciting, following his pledge to spare Italy from 'fiscal consolidation alone'.

There could also be drama in Cyprus today, as its parliament votes on the terms of the country's bailout deal. The plan is expected to be passed with a narrow majority, but there could be fiery criticism of the way the deal was (mis)-handled.

I'll be following all the events through the day.

Updated at 7.52am BST

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Prime minister Enrico Letta presenting economic program in front of Parliament, with vote of confidence in his new government expected around 8pm local time. Bond auction success for Italy, but analysts cautious. Spanish retail sales tumble again…

 


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9.24pm BST

And finally…

Having won tonight's test, Enrico Letta's government faces a second vote of confidence on Tuesday in the Senate. That vote, though, could be overshadowed by his visit to Berlin to meet Angela Merkel.

Letta's vow to spare Italy from the threat of death through 'fiscal consolidation alone' could set up a clash with the German chancellor.

Here's AP's take on tonight's vote:

Italy's new government has easily won a confidence vote of confirmation in the lower house of Parliament.

Premier Enrico Letta's coalition of rival political blocs won the backing of the Chamber of Deputies on Monday night in a mandatory confidence vote on his coalition. The Chamber voted 453 to approve the government, and 153 voted no.

The government faces a required second vote Tuesday in the Senate, where Letta's center-left forces don't have the majority. But media mogul Silvio Berlusconi's center-right party, which is part of the tense coalition government, is expected to give Letta sufficient backing.

Earlier, Letta told the Chamber's lawmakers he intended to lower the tax burden on Italians in hopes of stimulating economic growth.

That's all for tonight. I'll be back tomorrow – until then, goodnight, and thanks. GW

9.12pm BST

Letta wins confidence vote

Finally, news from Rome – the Italian government has won its confidence vote in the lower house of parliament, by a comfortable margin of 453 votes versus 153.

6.39pm BST

One other thing to flag up tonight — the Cyprus government has said it plans to limit the immunity from prosecution enjoyed by its president, Nicos Anastasiades.

It's an attempt to rebuild public confidence in the nation's government following the traumatic way in which its bailout was handled.

Reuters has full details: Cyprus to limit president's immunity from prosecution.

(thanks to reader Hill777 in the comments below for flagging up)

6.27pm BST

Summary of key events

A quick recap on the sitation tonight, while we wait for the result of the vote of confidence in the Italian parliament.

• Italy's new prime minister, Enrico Letta, has pledged to pursue a new growth agenda at home and across Europe, in his first speech since taking office.

Letta opened a confidence debate in the lower house of the Italian parliament by warning that Italy faces a serious economic situation. The 46-year old declared that the country desperately needed a new economic strategy, saying:

We will die of fiscal consolidation alone, growth policies cannot wait any longer.

Letta, who is due in Berlin for talks with Angela Merkel on Tuesday, told MPs that he would cut workplace taxes, and make it more affordable for firms to employ young peope.

He also pledged to reform the welfare system, abolish the housing tax introduced by his predessor, Mario Monti, and hopefully cancel a planned rise in sales tax due this summer.

We have highlights of Letta's speech from 2.23pm onwards, with photos at 3.22pm

Italy's designaded Prime Minister Enrico Letta gives his first speech during before the confidence vote at Deputy chamber.
Enrico Letta speaking today. Photograph: Alessandra Benedetti/Corbis

Our Southern Europe editor, John Hooper, said Letta had offered an "an ambitious government programme". The lack of commitment to austerity might concern Germany, though (see 3.56pm for John's reaction in full).

• Letta's speech came after the financial markets responded positively to the news of a new government in Italy. Shares rallied in Milan and Italian government bonds strengthened, driving down the yield (or interest rate). (see 5.11pm for closing prices)

Italy also sold €6bn of new government debt at the lowest yields since October 2010. Some analysts, though, questioned whether the country was really such a safe credit risk (see 10.31am onwards).

And in other eurozone news…

Spanish retail sales continued to slump in the face of its ongoing recession. They tumbled 8.9% on a year-on-year basis in March (see 9.25am).

Eurozone consumer and economic confidence also remained worryingly low, according to the latest survey from the EC (see 10.16am)

And tomorrow… the Cyprus government will vote on the terms of its bailout plan (see 6.02pm).

6.02pm BST

Cyprus bailout vote tomorrow

Tomorrow, we're expecting the Cypriot parliament to vote on the terms of its own bailout package.

The government is expected to narrowly win. But, as the Open Europe think tank flags up, it could be close….. amid talk that Cyprus could yet quit the eurozone.

Open Europe has also published an interesting piece about how German politicians have been unphased by a strong attack on Angela Merkel from the French socialist party (so far, anyway):

Sorry – who are you again? The rather indifferent German response to French socialists' attack on Merkel

5.52pm BST

Standard & Poor's has announced tonight that the creation of the new Italian coalition has 'no immediate implications" to the country's credit rating.

S&P indicated that Enrico Letta will struggle to bring in the pro-growth reforms he spoke about today.

5.22pm BST

A tag cloud analysis of Enrico Letta's speech shows that the new prime minister didn't say much about one of the key challenges facing Italy – how to liberalise and reform its economy:

Tag cloud of Enrico Letta's speech
Photograph: Europa

That's from Europa – click here to see the original.

Updated at 5.44pm BST

5.15pm BST

Angelino Alfano, the deputy leader of the new Italian government (and key member of the centre-right), has welcomed Enrico Letta's speech.

And as our Southern Europe editor, John Hooper, points out, that won't displease the head of the radical Five Star Movement, Beppe Grillo, who has already denounced the coalition as a cosy stitch-up betweeen the established parties:

5.11pm BST

Europe's stock markets have given the new Italian government a cautious welcome today, with the main indices all closing higher – led by Milan.

As Chris Beauchamp of IG Index explains:

Investors may not have broken open the champagne to celebrate Mr Letta’s incumbency, but any progress in the tortured world of Italian politics is to be welcomed.

He now faces the problem of balancing the demands of bond markets with the expectations of an austerity-weary Italian populace, but the ‘grand coalition’ nature of his administration raises hope that the Italians will unite behind him to put the eurozone crisis firmly behind them.

Italian FTSE MIB: up 364 points at 16929, + 2.2%

Spanish IBEX: up 153 points at 8450, + 1.85%

FTSE 100: up 31 points at 6458, + 0.5%

German DAX: up 58.7 points at 7873, + 0.75%

French CAC: up 58.6 points at 3868, +1.5%

Updated at 5.11pm BST

5.01pm BST

Enrico Letta is expected to hold talks with the head of the European Council, Herman Van Rompuy, on Wednesday after his meeting with Angela Merkel tomorrow night:

4.37pm BST

Enrico Letta's pledge to create a new growth strategy for Italy should be welcomed in the US, which hasn't hidden its frustration over Europe's economic plans.

Last night, Barack Obama said he hopes to work with Enrico Letta to stimulate economic growth, in an official statement from the White House congratulating Letta and his ministers.

The United States and Italy share an enduring and essential friendship — one built on shared values and common commitment to promote peace, liberty, and prosperity both regionally and across the globe, including as NATO allies.

The President looks forward to working closely with Prime Minister Letta and President Napolitano as our two countries jointly seek to promote trade, jobs, and growth on both sides of the Atlantic and tackle today’s complex security challenges.

Earlier this month, Treasury secretary Jack Lew visited Brussels to urge leaders to stimulate economic demand.

Updated at 4.55pm BST

4.07pm BST

And here's Associated Press's first take on the Letta speech:

Italy's new premier says his broad coalition will work to heal the nation's finances while encouraging economic growth.

Enrico Letta is laying out his vision Monday of a pro-European Italy focused on spurring investments and job creation. The center-left leader, who has brought media mogul Silvio Berlusconi's conservatives together in a tense coalition, is seeking support as he faces for confidence votes in Parliament.

Appeasing Berlusconi, Letta said Italians won't have to pay an unpopular property tax this June while a system fairer to the less affluent is devised.

Financial markets have already signaled approval of this apparent end of the months-long political deadlock. Letta says he'll soon go to Brussels, Berlin and Paris to reassure EU allies about Italian economic seriousness.

3.56pm BST

John Hooper: An ambitious programme, but will Merkel like it?

Our Southern Europe editor, John Hooper, provides this rapid analysis of Enrico Letta's speech this afternoon:

Two things strike me immediately about Letta’s speech.

The first is that it was not that of a man who expects to pass a few basic reforms and then clear off. This was an ambitious government programme.

He talked about introducing a new electoral law; reforming the constitution to give the lower and upper houses of parliament different roles, and abolishing an entire level of government (that of the provincial administrations). But the latter was one of the few indications of where Letta intended to get the cash for what appear to be ambitious plans to boost spending and cut taxes.

This was the second point, and I’m not entirely sure that the markets – understandably relieved that the political deadlock here has been broken – have taken it on board. Letta said he would drop an unpopular tax on first homes that brought several billion last year. He plans to reduce employers’ contributions (the ‘tax on jobs’) and he said he was mulling a safety net benefit for families in difficulty because of the recession.

 This is all fine stuff, and it is in line with what many economists would recommend. But it’s not exactly the kind of fiscal austerity that Berlin (and the markets, for the most part) have continued to demand of southern European countries like Italy.

 Silvio Berlusconi’s people were visibly delighted. But I suspect that Letta will be in for a rather cautious welcome when he goes to see Mrs Merkel tomorrow.

3.37pm BST

Shares on the Italian stock market have rallied higher as Enrico Letta outlined his legislative plans. The FTSE MIB is now up 345 points, or 2.1%, at 16911.

3.26pm BST

Letta to visit Germany tomorrow

Enrico Letta will fly to Berlin on Tuesday night for talks with Angela Merkel, part of a flying trip around key European capitals.

The German government just announced that the two leaders will hold a press conference around 6pm local time (5pm BST) before having dinner together.

3.22pm BST

Photos: Enrico Letta’s speech

Here's a couple of photos of Italy's new prime minister speaking at this afternoon's vote of confidence debate, in which he pledged to deliver economic growth, reform welfare provision and clean up the Italian political system (see 2.23pm onwards)

Italy's new Prime Minister Enrico Letta delivers his speech at the Parliament in Rome on April 29, 2013, next to his vice Premier and Interior Minister Angelino Alfano (L) and Foreign Minister, Emma Bonino (R).
Enrico Letta delivers his speech alongside vice Premier and Interior Minister Angelino Alfano (left) and Foreign Minister, Emma Bonino (right). Photograph: ANDREAS SOLARO/AFP/Getty Images
Prime Minister Enrico Letta, standing at center surrounded by his Cabinet, delivers his speech during a vote of confidence to confirm the government, in the lower house of Parliament, in Rome, Monday, April 29, 2013.
Prime Minister Enrico Letta, surrounded by his Cabinet. Photograph: Andrew Medichini/AP

And here's a photo of MPs applauding Pier Luigi Bersani, who is stepping down as Democratic Party (PD) leader. After failing to agree a coalition deal himself, Bersani must now watch his former deputy, Letta, take power.

Italian deputies applaud out-going Democratic Party (PD) general secretary Pier Luigi Bersani (C - red tie) as Italy's new Prime Minister Enrico Letta delivers his speech at the Parliament in Rome on April 29, 2013.
Photograph: ANDREAS SOLARO/AFP/Getty Images

3.08pm BST

Turning to the Italian electoral system, Letta told parliament that Italy must make a commitment to making reforms in time for the next election.

This is a key demand from Italy's president, Giorgio Napolitano, who has threatened to resign unless changes were made.

Letta said his government would examine the state of progress in 18 months, and warned of 'consequences' (which weren't defined) if the process were blocked.

Updated at 3.15pm BST

3.01pm BST

Italian ministers face pay cut

Enrico Letta's government will cut ministers' "supplementary salaries" and other benefits, as part of a drive to cut spending.

He also told parliament he would work with Italy's unions to bring down unemployment:

We need a welfare system which is more universal, more focused on young people and women, extending it to those who are not covered, especially temporary workers.

2.46pm BST

Plans to increase Italy's VAT rate by 1 percentage point, to 22%, will be dropped.

2.40pm BST

Letta: Italy will die without growth policies

Here's the key quote from Enrico Letta's speech this afternoon, explainign the urgent need for growth:

We will die of fiscal consolidation alone, growth policies cannot wait any longer.

(that's via Reuters).

2.38pm BST

Enrico Letta is pledging to reduce taxes on workers and young people, in a drive to stimulate economic growth.

He also said he would halt the unpopular IMU housing tax from June, as demanded by Silvio Berlusconi (see 11.28am for details).

That should ensure the support of Berlusconi's PdL party in this evening's vote.

Letta also vowed to fight corruption in the Italian system by strengthening its justice system.

2.25pm BST

Letta: We need a new growth policy

Enrico Letta, the new Italian prime minister, is teling MPs in Rome that Italy faces a "serious economic situation".

He kicked off today's confidence debate by warning that the country simply cannot cope without new policies for growth.

Letta told MPs that he would visit Brussels, Paris and Berlin this week to meet fellow EU leaders and top officials and demonstrate that he is still committed to Italy's budget targets.

But he also insisted that Europe must change its approach to the financial crisis, so that it can become a "motor for growth".

More to follow

Updated at 2.25pm BST

2.23pm BST

Italian confidence debate begins

Enrico Letta has begun speaking in the Italian parliament, as today's confidence debate gets underway (with a vote scheduled for around 8pm CET).

General view of the Lower house of the parliament in Rome, April 29, 2013.
The lower house of the Italian parliament in Rome today. Photograph: ALESSANDRO BIANCHI/REUTERS

Updated at 3.03pm BST

2.13pm BST

The Bank of Italy has warned that bad debts across the country's banking sector will continue to rise this year.

BOI's latest financial stability report shows that 7.2% of all corporate loans are now in arrears, led by the building industry. It warned that the situation is getting worse:

There is an increase above all in bad loans to companies, especially in the construction sector..

According to leading indicators a further deterioration is underway.

Not surprising, given Italy's economy is set to keep shrinking this year.

Updated at 2.15pm BST

1.51pm BST

Consumer prices in Germany fell by 0.5% in April compared with March, and were just 1.2% higher than a year ago, according to fresh inflation data released this afternoon.

That might just make it even easier for the European Central Bank to cut interest rates when it meets on Thursday (although whether that would do much good is a moot point …)

Updated at 2.20pm BST

1.45pm BST

Italian deputy Prime Minister and Interior Minister Angelino Alfano (R) cheers with Economy and Finance Minister Fabrizio Saccomanni (L) at the end of the swearing in ceremony of the new government at the Quirinale Palace in Rome on April 28, 2013.
Economy and Finance Minister Fabrizio Saccomanni (left) at the end of Sunday’s swearing in ceremony, with Italian deputy Prime Minister and Interior Minister Angelino Alfano (right). Photograph: VINCENZO PINTO/AFP/Getty Images

CNBC has published a nice piece about Italy's new economy minister, Fabrizio Saccomanni, and his close links to the head of the European Central Bank, Mario Draghi:

It explains that Saccomanni's job is to reassure the financial markets that Italy hasn't lost its commitment to fiscal responsibility:

When Mario Draghi left the Italian central bank to go to the European Central Bank (ECB) in 2011, he backed his number two to replace him – only for then prime minister Silvio Berlusconi to oppose the move. Now that Fabrizio Saccomanni has "made it" to head the economy ministry, markets may expect him to be the ECB's new man in Rome.

"Saccomanni is definitely the guy that can keep the dialogue open between Italy and the European Central bank," Giada Giani, European economist at Citigroup told CNBC on Monday.

"He was Draghi's appointed number two at the Italian central bank so he was already his man within the bank. He was definitely one of the favorite guys to succeed him when he left to go to the ECB," Giani added.

Here's the full article: Is Italy's Economy Minister Draghi's Man in Rome?

Saccomanni gave a fairly broad-brush interview yesterday in which he suggested that he would aim to cut taxes, "restructure the state budget" and cut wasteful areas of public spending (Reuters has more details).

We should get more details in this afternoon's condidence debate (which starts around 2pm BST).

Updated at 2.21pm BST

1.26pm BST

Market update

In Milan, the main Italian stock index is up 1.5% this lunchtime – as the stock market rally following the creation of Enrico Letta's new government continues.

Italian government bonds have also continued to strengthen, pushing down yields (Italy's implicit cost of borrowing) following today's succesful bond sale (see 10.31am onwards).

• 10-year Italian bonds yields: down 12.5 basis points at 3.94%.

And here's the latest stock market prices:

Italian FTSE MIB: up 239 points at 16084, +1.44%

FTSE 100: up up 6 points at 6432, + 0.1%

German DAX: up 29 points at 7841, + 0.35%

Spanish IBEX: up 85 points at 8383, + 1.0%

French CAC: up 34 points at 3844, +0.8%

Traders work at their desks in front of the DAX board at the Frankfurt stock exchange April 29, 2013.
Traders working in front of the DAX board at the Frankfurt stock exchange this morning. Photograph: STRINGER/GERMANY/REUTERS

12.55pm BST

Asmussen: come on in, the water’s lovely

Jörg Asmussen, the German member of the European Central Bank's governing council, insisted today that the eurozone will survive the current crisis, and emerge from it in a stronger position — with more countries joining it in future.

Speaking in Berlin today, Asmussen insisted that it still makes sense for some nations, particularly in Eastern Europe, to join the eurozone despite the current crisis. He cited lower transaction costs and the removal of exchange rate risks.

Asmussen said:

I recognise that, at present, the euro area is not an excellent advertisement for stability given the difficulties facing a number of its members.

I also think it is important not to read too much into the current situation.

Latvia remains on track to become the 18th member of the euro area, having filed its application in March.

12.14pm BST

Back to Greece briefly, and the latest opinion poll data shows that New Democracy (the senior member of the coalition) holds a narrow lead over the opposition Syriza party.

ND has 20.5% support, followed by Syriza with 19.9%. Golden Dawn, the neo-Nazi group, is third with 9.3%.

12.01pm BST

Merkel: Come to Berlin, Enrico…

Angela Merkel has phoned Enrico Letta to wish him luck, and to invite the new Italian prime minister to the German capital soon.

Merkel's spokesman, Steffen Seibert, has just tweeted:

Chancellor Merkel has spoken by phone with PM Letta, wished his government success and invited him to a visit to Berlin soon

11.57am BST

Our Southern Europe editor, John Hooper,. reports heightened security in Rome following the shooting of two policemen yesterday:

11.51am BST

Germany's Volkswagen, Europe's largest carmarker, admitted this morning that it has been hit by the slump in demand for new vehicles in Europe.

Operating profits at its VW brand are down by 45% in the first three months of 2013, as profits margins are squeezed by the recession.

Chief executive Martin Winterkorn explained:

The current environment is definitely a tough challenge for the entire industry.

Europe's car industry has been emitting danger signs for months. In March, sales tumbled by over 10% (as covered here in the liveblog last week).

11.31am BST

Ansa, the Italian news agency, reports that Letta will give his speech to the Italian parliament at 3pm local time, or 2pm BST.

The actual confidence vote is scheduled for 8pm CET, or 7pm BST.

11.28am BST

Robin Bew, editorial director and chief economist of the Economist Intelligence Unit, predicts that Enrico Letta's government could soon be blown apart.

Bew fears that disagreements between Letta's Democratic Party (PD) and Silvio Berlusconi's People of Liberty (PdL ) could force Italy back to the polls this year.

One particular "old" policy is already looming over the new government — the housing tax imposed by Mario Monti.

PdL wants to hear Letta promise today to abolish the tax and repay the money already paid (around €8bn in total). If not, the party is threatening not to back the coalition.

Renato Brunetta, its leader in the lower house, told the Il Messaggero news paper:

If the prime minister doesn't make this precise commitment we will not give him our support in the vote of confidence.

(more details here on Reuters).

11.05am BST

Italian bond sale: what the analysts say

Here's an early round-up of analyst reaction to today's successful Italian debt sale (see 10.31am) (via Reuters)

Nicholas Spiro of Spiro Sovereign Strategy reckons that today's sale was "brilliantly timed", as the fears following February's inconclusive general election faded away.

While post-crisis market sentiment towards Italy has never been better, economic conditions have never been worse – as this morning's bleak business and economic confidence surveys show…..

The disconnect between Italy's bond market and the real economy is likely to increase further in the coming days and weeks. This will throw the mispricing of Italian sovereign debt into sharper relief, particularly given concerns about the durability of Mr Letta's government.

Spiro added that Italy's ability to borrow at below 4% for 10-years today was "one of the greatest anomalies in European sovereign credit".

Meanwhile Luca Cazzulani of Unicredit was cheered by the auction results:

The positive outcome of the auction reflects an improved situation compared with the previous auctions, helped by the announcement of a new government. The government still needs a confidence vote but this is not perceived as a problem.

Updated at 2.02pm BST

10.31am BST

Borrowing costs drop at Italian debt action

Success for Italy in the bond markets this morning, as traders give an early thumbs-up to prime minister Enrico Letta.

The Italian Treasury has sold its five and ten-year bonds at the lowest interest rates since October 2010.

Here's the details:

• €3bn of 10-year bonds sold at average yields of 3.94%, down from 4.66% last time.

•€3bn of 5-year bonds at average yields of 2.84%, down from 3.65% last time.

That's reassuring news for Enrico Letta as he gets down to business in Rome. Unlike Mario Monti, whose first task 18 months ago was to win back the confidence of the financial markets, Letta's priorities are domestic — fixing the bleeding economy and reforming the political landscape.

Updated at 10.42am BST

10.16am BST

Key event

Consumers and businesses acrosst the eurozone remain gloomy about the economic situation, data just released showed.

The European commission's monthly measure of economic sentiment fell this month to 88.6, down from March's 90.1. Firms also reported that their business climate has deteriorated this month.

Consumer sentiment improved slightly, but was still deep in negative territory – at minus 22.3, from minus 23.5 in March.

Updated at 2.20pm BST

9.55am BST

Photos: Yesterday’s protests in Athens

There were protests in Athens yesterday as the Greek government approved legislation that will mean 15,000 civil servants are laid off by the end of next year.

Demonstrators marched past the parliament building, and also burned an effigy of a Greek worker, as MPs debated the bills.

epa03680539 Protesters burn an effigy symbolizing a Greek worker during a protest rally, organized by the umbrella trade union groups General Confederation of Employees of Greece (GSEE) and the civil servants' union federation ADEDY, in front of the Greek Parliament in Athens, Greece, 28 April 2013.
Photograph: ORESTIS PANAGIOTOU/EPA
Protesters hold a banner during a protest rally, organized by the umbrella trade union groups General Confederation of Employees of Greece (GSEE) and the civil servants' union federation ADEDY, in front of the Greek Parliament in Athens, Greece, 28 April 2013.
Photograph: ORESTIS PANAGIOTOU/EPA

The legislation was passed despite the protests, meaning Greece will now receive its next tranche of bailout loans, worth around €8.8bn.

The debate was pretty lively, especially after finance minister Yannis Stournaras introduced a last-minute amendment that would allow firms to avoid paying the minimum wage

Greece's Kathimerini has details:

Opposition parties complained that the amendment was submitted without prior notice and only a few minutes before the vote was due to take place.

They also complained that the minimum wage was being by-passed. Stournaras defended the measure.

“It is true that €490 is a low wage but do not forget that in these cases we are talking about unemployed people,” he said. “This will be a relief for them.”

Greek Finance Minister Yannis Stournaras (L) watch main opposition Radical Left Coalition (SYRIZA) leader Alexis Tsipras (R) who speaks during a debate in the Greek Parliament, in Athens, Greece, 28 April 2013.
Greek finance minister Yannis Stournaras watches main opposition leader Alexis Tsipras speaking during last night debate. Photograph: SIMELA PANTZARTZI/EPA

9.25am BST

Spanish retail sales slide again amid raging jobless crisis

Another piece of grim economic news from Spain – Spanish retail sales fell by a jaw-dropping 8.9% year-on-year in March, the thirty-third monthly decline in a row, following a 7.7% decline in Febuary.

Another signal that the slump in Spain is actually getting worse, following last Thursday's record unemployment data.

The Atlantic ran a very good blogpost on the jobless crisis in Spain over the weekend: Spain Is Beyond Doomed: The 2 Scariest Unemployment Charts Ever

Here's one of the charts:

Spanish long-term joblessness
Photograph: The Atlantic

and here's a flavour of the piece:

Here's the story of Spanish unemployment in three acts. During the boom, joblessness was relatively high due to persistent structural problems. Then it shot up fast and faster as Spain's building bust and then Lehmangeddon hit in 2008. But it has kept climbing up since the panic abated, albeit at a less catastrophic pace, due to the toxic combination of too tight money and budgets.

In other words, austerity hasn't been the path to prosperity. It's been the path to perma-slump.

But the real story of the Spanish depression has been the story of the indignados: the mostly young, long-term unemployed. It's a bit hard to see just how dramatic it's been in the chart above, so I converted it to a line chart below. Almost all of the increase in unemployment since 2010 has been due to the increase in long-term unemployment of two years or more.

8.38am BST

Bond market-maker Gus Baratta has the details of this morning's Italian bond sale, which takes place in around 90 minutes time:

8.29am BST

Italian stock markets rises

Shares are rattling higher in Milan too. The FTSE MIB Index has risen 283 points at 16846, up 1.7%.

Letta's appointment, though, doesn't mean Italy is out of the woods — and analysts are warning that the new PM must quickly devise a coherent economic plan.

Michael Hewson of CMC Markets points out that Letta must maintain working relations with the centre-right PDL party, and his eurozone partners.

The new government will face its first test of cohesion soon enough in June with respect to a new housing tax which Berlusconi’s party has demanded be scrapped, and could well also stress test the new Italian governments relationship with Brussels and Berlin.

Mike van Dulken, head of research at Accendo Markets, also senses trouble ahead:

8.10am BST

Italian borrowing costs fall

Italian sovereign debt is rising in value this morning as traders welcome the news that Enrico Letta's government has been sworn in.

This has pushed the yield on its 10-year bonds down to 3.97%, from 4.06% on Friday (and down from over 7% eighteen months ago, when Mario Monti took over).

That suggests this morning's bond auction could be a success…

Updated at 8.13am BST

7.56am BST

Italian government begins work with confidence vote

Premier Enrico Letta, left, takes the cabinet minister bell handed over by former Premier Mario Monti during the handover ceremony.
Premier Enrico Letta, left, taking the cabinet minister bell from former Premier Mario Monti yesterday. Photograph: Luigi Mistrulli/Sipa Pre/SIPA

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

A new era is underway in Italy today as the government led by Prime minister Enrico Letta gets to work, and announces how it will tackle the economic and political crisis raging in the country.

Having been sworn in on Sunday, Letta's government's first task is to win a confidence vote in the Italian parliament. While that shouldn't be a problem for the centre-left and centre-right coalition, the debate will allow the new Italian leader to articulate his vision for the country.

Letta's priorities, in his own words, are to tackle the "enormous, unbearable" economic emergency in Italy, change the pace of Europe's austerity programmes, and reform the discredited Italian electoral system.

He takes over a country suffering a deep recession — and which is still shaken by the shooting yesterday of two Italian policemen in Rome as the swearing-in took place.

One man was hit in the neck, and a second in the leg, while the alleged gunman has been named as Luigi Preiti, 49, from Calabria, a southern agricultural area suffering high unemployment and organized crime (more details here).

A Carabiniere police officer lies on the ground after being shot outside the Chigi Premier's office on April 28, 2013 in Rome, Italy. Two military police officers were shot in the square outside Palazzo Chigi while the new government of Enrico Letta was being sworn in.
A Carabiniere police officer lies on the ground after being shot outside the Chigi Premier’s office in Rome yesterday.

That attack shows the depth of the social crisis suffered by Italians, argued lower house speaker Laura Boldrini, who added:

There's a social emergency that needs answers and our politicians have to start giving them.

The financial markets will also give their verdict on Letta today, when the Italian Treasury holds an auction of five and 10-year government debt.
That sale will be closely watched to see whether investors are still confident in buying Italian debts.

I'll be tracking events in Italy, and beyond, through the day….

Updated at 7.58am BST

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Barroso: We’ve reached the limit on austerity. Bill Gross: investors want growth not austerity. Eurozone government debt hits 90% of GDP. Relief as Italian president reelected. But Five Star Movement protests. US existing home sales drop…

 


Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Brussels hints at austerity rethink as opposition mounts – as it happened” was written by Graeme Wearden, for theguardian.com on Monday 22nd April 2013 12.28 UTC

6.13pm BST

Closing summary

Time to wrap up for the day above the line (you can keep going below the line as long as you like!).

Here's a closing summary.

Pressure is growing to rethink the eurozone's austerity programme after top Brussels officials admitted that a new approach is needed to fix the crisis.

European Commission president José Manuel Barroso said the current programme of fiscal reform has reached its social and political limits, and suggested countries could be given more time to bring their deficits into line (see 2.17pm).

And European Council president Herman Van Rompuy declared that there was a 'renewed sense of urgency' to the crisis (see 4.53pm).

Bill Gross, head of bond-trading firm Pimco, weighed into the debate today. He told the FT that the UK and members of the Eurozone had blundered by enforcing austerity cutbacks, saying investers were more worried about future growth (see 12.11pm).

New data showed that total sovereign debt held by eurozone countries has reached 90% of GDP. Eurostat also reported that 17 members of the EU ran deficits over the target of 3% of annual output last year (see 10.40am onwards)

In Italy, president Giorgio Napolitano was sworn in for a second term. In an emotional speech, Napolitano savaged Italian politicians for not reforming the country's political system. Fighting back tears, he said he would resign unless vital changes were made — and insisted that a new government was urgently needed. (see 4.40pm).

Talks over the formation of a new government will start on Tuesday.

The financial markets cheered Napolitano's decision to serve a second term. Italy's borrowing costs fell, as the Milan stock market rallied by 1.6% (see 5.09pm for closing prices).

Political analysts warned, though, that Italy was in a precarious state. (see 2.43pm and 3.11pm).

Angela Merkel called on European leaders to continue to push for closer integration. Some sovereignty must be surrendered in return for a stable future, the German chancellor said (see 3..33pm).

Over in Japan, there was relief that G20 finance ministers didn't publicly criticised its new stimulus package. The Nikkei hit a new near-five year high, and the yen weakened closer to the 100 yen/$ mark (see 9.08am).

And a new deadline loomed in Greece. MPs were warned that they must pass a new bill of measures by Sunday, to ensure that their next aid payment is received (see 4.10pm).

Thanks for reading and commenting (some great stuff below the line, as ever). See you all tomorrow… G

Giorgio Napolitano (C) is applauded by Chamber of Deputies president Laura Boldrini (L), while being congratulated by Senate president Pietro Grasso (R), at the Italian parliament in Rome, 22 April 2013.
Giorgio Napolitano being applauded by Chamber of Deputies president Laura Boldrini (left), while being congratulated by Senate president Pietro Grasso (right), after being sworn in today. Photograph: MAURIZIO BRAMBATTI/EPA

Updated at 6.23pm BST

6.10pm BST

Just in — the Italian president has announced that he will begin a "rapid series of meetings" on Tuesday on the creation of a new government….

5.40pm BST

Support for Germany's new anti-euro party, Alternative für Deutschland, has risen to 5% — the threshold for winning seats in the Bundestag.

That's up from 3% when the party held its first conference earlier this month

Here's the latest polling data from INSA:

CDU/CSU: 38%,

SPD: 26%,

Greens: 15%,

Left: 6%,

FDP: 5%,

AfD: 5%,

Pirates: 2%

Updated at 5.40pm BST

5.33pm BST

Spain's population has fallen for the first time in decades, according to census data published today.

The Spanish population dropped by 206,000 to 47.1m, the National Statistic Institute (NSI) reported. Most of the decline is due to overseas workers leaving the country, it added.

The BBC has the full story: Spain's population shrinks as immigrants flee economic crisis

Updated at 5.33pm BST

5.14pm BST

And over in America, Europeam commissioner Olli Rehn has warned that growth will only return "slowly" to Europe's economy in the second half of this year.

Even that cautious forecast is too optimistic for Re-Define's Sony Kapoor:

Updated at 5.14pm BST

5.09pm BST

European markets are closed

President Giorgio Napolitano's threat to resign unless Italian politics is reformed didn't cause any late alarm in the Milan stock market where shares finished higher.

Italian sovereign debt have also staged a strong recovery, showing investors have more confidence in the country's future. The yield on Italy's 10-year bonds has now dropped to 4.06%, a chunky 16-basis point fall.

Other European markets were mixed, though:

Here's the closing prices:

Italian FTSE MIB: up 260 points at 16,021, + 1.66%

FTSE 100: down 6 points at 6280, – 0.09%

German DAX: up 18 points at 7478, – 0.24%

French CAC: flat

Spanish IBEX: up 112 points at 8,027, +1.4%

And here's Michael Hewson of CMC Markets' take:

Equity markets initially enjoyed somewhat of a relief rebound today after last week’s declines, helped by the lack of criticism from the G20 over Japan's attempts to create inflation which helped boost sentiment…however this could well be construed as clutching at straws given that the economic outlook continues to remain difficult.

There was also renewed optimism over an end to the political deadlock in Italy after Giorgio Napolitano agreed to another seven year term as President in an attempt to break the political deadlock that has gripped Europe’s third largest economy for nearly two months now.

Despite the optimism the inescapable fact remains that it is a sad state of affairs when an 87 year old man has to stand for re-election in an attempt to try and move the country forwards with respect to either a new coalition government, or new elections.

4.53pm BST

Van Rompuy: New urgency to fix the crisis

European Council president Herman Van Rompuy has claimed this evening that there is a "renewed sense of urgency" in Brussels to fix Europe's economic problems.

Welcome to the party, Herman…

There's more:

Updated at 4.55pm BST

4.43pm BST

Re-elected Italian President Giorgio Napolitano (C) addresses deputies and senators next to Laura Boldrini (L), president of the Italian Parliament and Pietro Grasso, president of the Italian senate, at the Italian Parliament in Rome on April 22, 2013.
Re-elected Italian President Giorgio Napolitano (C) addresses deputies and senators this afternoon. Photograph: ALBERTO PIZZOLI/AFP/Getty Images

4.40pm BST

President Napolitano: reform Italy or I quit

Giorgio Napolitano has been sworn in as Italy's next presdent, and promptly threatened to resign unless the country's politicians get their act together.

The 87-year old Napolitano gave an emotional speech, saying he had only agreed to take on an unprecedented second term to break the deadlock that was gripping Italy.

He was scathing about Italy's political leaders, citing their failure to reform the country's electoral law (which helped to deliver stalemate at February's general election). He warned that he would quite unless vital reforms were made.

According to Reuters, Napolitano was "occasionally choking back tears" as he said leaders "must not hesitate" in forming a new government (check out our 2.43pm post for Open Europe's analysis).

Any system in which the new president threatens to resign within 20 minutes of being sworn in clearly needs urgent treatment.

4.31pm BST

On Fitch’s AAA downgrade

A couple of good blogposts about Fitch's downgrade of the UK's triple-A rating, on Friday night, to flag up:

Banking expert Frances Coppola argues that it's a political downgrade:

Fitch notes that the UK's public debt is denominated exclusively in domestic currency. A sovereign currency-issuing government should never default on its domestic-currency sovereign debt obligations, since it can always create money to settle them. Debt default for a sovereign currency issuer is a therefore a POLITICAL decision, not an economic one. 

Fitch's downgrade amounts to a vote of no confidence in the Cameron government, and particularly in the Chancellorship of George Osborne. And the timing of the announcement is exquisite, coming as it does at the end of a week which saw bad labour market figures, criticism from the IMF of the Chancellor's economic strategy, and the exposure of fundamental flaws in an economic theory frequently used to justify aggressive deficit reduction measures.

And Duncan Weldon of the TUC flags up Fitch's supportive comments on the UK's debt profile (Britain has sold more long-maturity bonds than average). That gives the Treasury the flexibility to slow down its fiscal adjustment programme, he argues:

Whilst my views of the calibre of rating agencies analysis throughout the crisis has been pretty much in line with that of Jonathan Portes, I thought one nugget of information in Fitch’s statement was worth highlighting.

"The long average maturity of public debt (15 years) – the longest of any high-grade sovereign -exclusively denominated in local currency and low interest service burden implies a higher level of debt tolerance than many high-grade peers." [said Fitch]

This is an important point. Much as there is a tendency to look at deficit/GDP ratios without taking account of interest rates, too often economists look at debt/GDP ratios without looking at the maturity of that debt. This is nonsensical. As any individual can grasp, there is a world of difference between owing someone £100,000 repayable in twenty years time and owing someone £100,000 due tomorrow.

4.10pm BST

Over in Greece, MPs have been told that they must pass a bill outlining the next swathe of cutbacks by Sunday.

Finance minister Yannis Stournaras told MPs today that the legislation needs to be approved before parliament adjourns for Orthodox Easter. It will include laying off 15,000 civil servants over the next two years — one of the measures demanded by international lenders.

Greek newspaper Kathimerini explains:

Stournaras said that he would brief coalition leaders about the measures on Tuesday and would submit the bill to Parliament on Thursday under an emergency procedure.

The minister said that the vote would have to take place by Sunday because Greek Parliament will not be sitting next week as it is Holy Week ahead of Orthodox Easter.

He said that Greece would have to approve the prior actions in time for a Eurogroup meeting on May 13, when an instalment of 6 billion euros is due to be approved.

4.00pm BST

World stock markets have fallen back this afternoon, following disappointing results from equipment and machinery maker Caterpillar (see 1.06pm).

In New York the Dow Jones industrial average is down 0.4% – and the UK FTSE 100, the German Dax and the French CAC are all in the red in late trading (European markets close in 30 minutes).

There is also anxiety on Wall Street that Apple might miss forecasts when it releases its latest financial results on Tuesday night.

3.33pm BST

Merkel: Europe must give up some sovereignty

German Chancellor Angela Merkel and Polish Prime Minister Donald Tusk talking before the conference.
German Chancellor Angela Merkel and Polish Prime Minister Donald Tusk earlier today. Photograph: Gon alo Silva/Demotix/Corbis

German chancellor Angela Merkel has caused a stir this afternoon after declaring that European countries needed to yield some sovereignty to ensure Europe's survival.

Merkel made a pitch for more integration at a press conference with Polish prime minister Donald Tusk.

The chancellor was concerned that other European leaders lose their commitment to a closer Europe when the crisis ebbs away.Tusk, though, warned that it could be counterproductive for Berlin to force its agenda on the rest of the EU

As Reuters reports:

"We seem to find common solutions when we are staring over the abyss," Merkel said. "But as soon as the pressure eases, people say they want to go their own way.

"We need to be ready to accept that Europe has the last word in certain areas. Otherwise we won't be able to continue to build Europe," she added.

Tusk said it would be "dangerous" if other countries in Europe felt Germany was imposing its own economic model across the entire bloc.

But Merkel denied that, saying Europe was made up of different cultures and economies with different strengths. The key she said, was for Europe to orient itself towards best practices.

That meant Germany accepting a single market for services, a common labour market and more compatible social security systems, so that Europeans could move from one state to the other without worrying about their pensions.

"We don't always need to give up national practices but we need to be compatible," Merkel said. "It is chaos right now."
"We need to be prepared to break with the past in order to leap forward. I'm ready to do this," she said.

A lot of these issues will be tackled in June, at the next major EU summit.

Updated at 4.42pm BST

3.31pm BST

Eurozone consumer confidence rises

A welcome piece of encouraging economic data — consumer confidence across the eurozone rose in April to a nine-month high.

Consumer sentiment came in at -20.4 this month, up from -21.6 in March, according to Eurostat. That's still poor in historical terms, but a sign that people are less nervous. March, of course, was the month of the Cyprus bailout crisis.

Howard Archer, chief European economist at IHS Global Insight, said the rise in consumer confidence was welcome, but warned that people were unlikely to increase their spending soon:

Despite April’s increase, confidence is still low compared to long-term norms while Eurozone consumers continue to largely face high and rising unemployment, generally muted wage growth and tight fiscal policy.

This is particularly, the case in the southern periphery countries but it is also true for countries such as France and the Netherlands.

3.11pm BST

Robert O’Daly, Italian Analyst at The Economist Intelligence Unit, warns that Italian politics remains unstable, even though the country finally has a new president:

The re-election of Giorgio Napolitano as president has helped to reassure investors as it is expected to lead to the formation in the coming days of a broad centre-left/centre-right/centrist-backed government, probably led by Giuliano Amato.

However, the political deadlock since the February general election has taken its toll on the centre-left, the largest group in parliament. The centre-left is now deeply divided and the dominant Democratic Party risks splintering into several separate groups. The young mayor of Florence, Matteo Renzi, is openly challenging the current leader of the Democrats and the centre-left, Pier Luigi Bersani.

The internal turmoil of the Democratic Party and the broader centre-left alliance is likely to be a source of instability for the next government.”

2.43pm BST

Open Europe: What now for Italy?

Open Europe has released new analysis on the situation in Italy following the re-election of Giorgio Napolitano on Saturday.

And Italy's new President is…the old one! What happens next?

And here's the lowdown:

  • Napolitano will take his second oath this afternoon. From that moment, he will re-gain the power to dissolve parliament and call new elections.
  • Crucially, Napolitano has said he will "clarify the terms" under which he agreed to stay on in his (second) inauguration speech. The Italian media are speculating on at least two conditions. First, a shorter mandate than the seven years set out in the Italian Constitution – otherwise Re Giorgio would be leaving office at 95. Second, and most important, the formation of a national unity government – backed by the centre-left Democratic Party, Monti's centrist group and Silvio Berlusconi's People of Freedom party.
  • The markets seem to take the formation of a new government for granted, with Italy's borrowing costs going down this morning (see 1.27pm for details)
  • The latest from the Italian media is that Napolitano will hold a swift round of talks and could give someone the mandate to form the new government as early as tomorrow. There are reportedly two clear favourites to lead the new government. One is Giuliano Amato, 75 years old, who already served twice as Italian Prime Minister. The alternative is Enrico Letta, Pier Luigi Bersani's right hand. We would put our money on Amato, especially since not everyone within Letta's own Democratic Party is enthusiastic about him being appointed as Prime Minister.
  • The new government is likely to be a mix of politicians and technocrats. It will focus its efforts on bringing home 5-6 key reforms, based on the proposals put forward by the ten 'wise men' earlier this month. We expect the new government to give priority to political, rather than economic reform. Top of the agenda will be changing the electoral system, along with reforming a pretty dysfunctional institutional structure where the two houses of parliament have perfectly equal powers.
  • In any case, the new government is unlikely to remain in charge for the entire five-year parliamentary term.

More here.

There's also a rumour swirling this afternoon that outgoing prime minister Mario Monti could stay on as foreign minister:

Updated at 2.44pm BST

2.17pm BST

Barroso: euro austerity has reached its limits.

European Commission President Jose Manuel Barroso speeches at the opening of the 'Think Tank' conference at the Residence Palace, in Brussels, Belgium, 22 April 2013.
European Commission President Jose Manuel Barroso at the opening of the ‘Think Tank’ conference at the Residence Palace, Brussels, this morning. Photograph: JULIEN WARNAND/EPA

EC president José Manuel Barroso appeared to admit today that Europe's austerity drive cannot be pushed any harder.

Speaking in Brussels, Barroso warnedthat Europe's programme of fiscal consolidation has reached its "political and social" limits. He also hinted that countries who are missing their deficit targets will be given more flexibility.

Barroso told the Think Tank Dialogue:

While I think this policy is fundamentally right, I think it has reached its limits…

A policy to be successful not only has to be properly designed, it has to have the minimum of political and social support.

Barroso explained that Europe needs a "stronger emphasis on growth and growth measures".

Even if the policy of correcting deficit is fundamentally correct, we can always discuss fine tuning of pace.

Quite a change of heart from Barroso, given the EC's role helping to set bailout programmes since the crisis began. He faced a tough grilling by our Europe editor Ian Traynor:

Updated at 2.19pm BST

1.27pm BST

Optimism pushes Italian borrowing costs down

In the financial markets, there is still optimism over the situation in Italy – following Giorgo Napolitano's re-election as president on Saturday (see 8.29am). Government bonds continues to strengthen, which means Italy's cost of borrowing (measured by bond yields) has fallen.

Shares continue to rally. Here's the details:

• 10-year Italian bond yields, down 15 basis points at 4.07%.

• FTSE MIB: up 328 points, or 2.1%, at 16087 points.

But Sebastien Galy of Société Générale warns that the rally could be short-lived:

Napolitano's re-appointment, coupled with Bersani's resignation, paves the way for a coalition government between the Democratic Party and the Berlusconi-led centre-right.

But such a coalition government, born more out of political necessity than a popular mandate, is unlikely to be able to pursue the necessary structural reforms to the Italian economy, and is also likely to be short-lived. We essentially still have a problematic political situation in Italy. Keep short euro.

Updated at 1.28pm BST

1.06pm BST

Caterpillar: Eurozone to shrink almost 0.5% this year

A parking lot at Caterpillar Belgium, in Gosselies, Belgium.
A parking lot at Caterpillar Belgium, in Gosselies, Belgium. Photograph: Yves Logghe/AP

Caterpillar, the construction and mining equipment giant, has warned that it expects the eurozone to shrink this year – and by more than the International Monetary Fund believes.

In its latest results, released to Wall Street a few minutes ago (pdf), Caterpillar criticised the way the eurozone crisis is being handled. It said:

We believe that economic policies in the Eurozone have not changed enough to address record high unemployment, a 20-year low in construction and over a year of declining output. We expect the Eurozone economy will decline close to 0.5 percent this year.

Last week, the IMF predicted that eurozone GDP would fall by 0.3% in 2013.

Caterpillar's wide range of industrial and construction products mean it is a useful economic gauge – as demand for the firm's diggers, engines and trucks rises and falls with the wider economy.

Caterpillar warned shareholders that it has cut its sales and profit outlooks for this year, following a drop in demand for its mining equipment.

Our revised 2013 outlook reflects a sales decline of about 50% from 2012 for traditional Cat machines used in mining and a decline of about 15% for sales of machines from our Bucyrus acquisition.

Despite that, Caterpillar sees stability in the US and China:

As we began 2013, we were concerned about economic growth in the United States and China and are pleased with the relative stability we have seen so far this year. In the United States, we are encouraged by progress so far and are becoming more optimistic on the housing sector in particular. 

In China, first quarter economic growth was slightly less than many expected, but in our view, remains consistent with slow growth in the world economy.

12.11pm BST

Bill Gross blasts UK and eurozone over austerity

The chief executive of bond-trading giant Pimco has laid into the fiscal progammes of the UK and parts of the eurozone today, as the austerity debate continues to rage.

Bill Gross called for new stimulus measures to get economic growth moving again,rather than worrying about short-term debt targets, in an interview with the Financial Times published this morning.

Gross warned:

The UK and almost all of Europe have erred in terms of believing that austerity, fiscal austerity in the short term, is the way to produce real growth. It is not.

You’ve got to spend money.

Gross's broad point is that it is a serious mistake to slash spending in an attempt to please the financial markets:

Bond investors want growth much like equity investors, and to the extent that too much austerity leads to recession or stagnation then credit spreads widen out – even if a country can print its own currency and write its own cheques.

In the long term it is important to be fiscal and austere. It is important to have a relatively average or low rate of debt to GDP….

The question in terms of the long term and the short term is how quickly to do it.

Gross's comments are topical – with today's data showing that total government debt across the eurozone has reached 90% of GDP and 17 EU countries running deficits above 3% despite several years of fiscal consolidation programmes.

(Portugal's deficit of 6.4%, for example, shows the challenge of reducing borrowing during a deep recession. Lisbon was forced into taking a bailout after its borrowing costs climbed into the danger zone after years of borrowing and weak growth)

This also looks like a u-turn from Gross.

Three years ago, the Pimco chief famously warned investors against buying UK government debt, warning that gilts were "resting on a bed of nitroglycerine". That forecast hasn't been born out yet — 10-year gilt yields have strengthened to just 1.6% , from around 4% three years ago.

Here's some early reaction:

11.20am BST

90% debt/GDP ratio fails to alarm…

The news that Britain, France and the eurozone's debt piles have all hit 90% of GDP (under Eurostat's maths) comes just days after research that warned this was the trigger point for slumping growth was rather discredited.

I imagine that Kenneth Rogoff and Carmen Reinhart's paper, Growth in a Time of Debt, would have been cited this morning — if it hadn't been shown to include Excel spreadsheet errors and selective user of data.

The Harvard pair insist that the report still shows that growth falls sharply when debt rises above 90%.

(incidentally, Eurostat's debt figures show 'consolidated gross debt', while Britain's Office for Budget Responsibility favours 'public sector net debt', which was 75.9% for the UK in the last financial year).

Updated at 11.32am BST

10.59am BST

Debt/GDP table

And here's the key details of today's government debt figures from Eurostat (see 10.40am onwards).

Government debt, as a percentage of GDP, 2012

Germany: 81.9%

France: 90.2%

Britain: 90.0%

Spain: 84.2%

Italy: 127.0%

Greece: 156.9%

Portugal: 123.6%

Ireland: 117.6%

Cyprus: 85.8%

Slovenia: 54.1%

Euro area: 90.6%

EU27 85.3%

Updated at 11.04am BST

10.47am BST

Germany tops the deficit pile

Germany outshone the rest of Europe by posting a budget surplus, of 0.2%.

Annual surpluses/deficits for 2012, via Eurostat

Germany: +0.2%


France: -4.8%


Britain: -6.3%


Spain: -10.6%


Italy: -3.0%

Greece: -10.0%

Portugal: -6.4%

Ireland: -7.6%

Cyprus: -6.3%

Slovenia: -4.0%

Euro area: -3.7%

European Union: -4.0%

You can download the full details here.

10.40am BST

Eurozone debt hits 90% of GDP

The Eurozone's government debt pile has risen to 90% of GDP, according to new data from Eurostat this morning which showed the region's annual deficit had fallen.

Eurostat has calculated that eurozone members' collective debt reached €8.6 trilion in 2012, when its combined economic output was nearly €9.5 trillion.

The total eurozone deficit fell to 3.7%, from 4.2% a year ago. Brussels will see that as proof that tough fiscal consolidation programmes are finally bearing fruit.

But the data shows stark difference across the region, and the wider EU. Five eurozone countries have deficit levels above 6% of GDP, a position shared with the UK.

And seventeen members of the European Union missed the target of a deficit below 3% of output (with Spain the worst, at 10.6%)

As Eurostat put it:

In all, thirteen Member States recorded an improvement in their government balance relative to GDP in 2012 compared with 2011, twelve a worsening and two remained stable.

Updated at 11.46am BST

10.15am BST

Italian stock market keeps climbing

ItalianRome traders really are feeling upbeat today – the FTSE MIB index is now up 2.15% at 16100 points.

(The Italian stock market is, of course, in Milan not Rome as I wrote originally. Apologies)

Updated at 1.21pm BST

10.13am BST

Key event

Here's one for the macro economists in the room – America is to recalculate decades-worth of historical economic data, to include factors such as research-and-development spending.

The move by the Bureau of Economic Analysis will also see 'intangible items' such as film royalties added to US GDP this summer. According to the Financial Times, it will make the US economy 3% larger.

The FT explains:

Billions of dollars of intangible assets will enter the gross domestic product of the world’s largest economy in a revision aimed at capturing the changing nature of US output…..

At present, R&D counts as a cost of doing business, so the final output of Apple iPads is included in GDP but the research done to create them is not. R&D will now count as an investment, adding a bit more than 2 per cent to the measured size of the economy.

Here's the full story: Data shift to lift US economy 3%

Despite the extent of the revision, the BEA reckons we won't see "large changes" in economic cycles or underlying trends. But it should give a different picture of the world's largest economy.

As the FT explains:

GDP will soar in small states that host a lot of military R&D, but barely change in others, widening measured income gaps across the US. R&D is expected to boost the GDP of New Mexico by 10 per cent and Maryland by 6 per cent while Louisiana will see an increase of just 0.6 per cent.

Creative works are expected to add a further 0.5 per cent to the overall size of the US economy. Around one-third of that will come from movies, one-third from TV programmes, and one-third from books, music and theatre.

9.30am BST

In the markets…

Most of the major European stock markets are up this morning, on relief over the re-election of Italy's president (see 8.29am) and the Nikkei's rally overnight (see 9.08am).

Italian FTSE MIB: up 274 points at 16035. +1.7%

FTSE 100: up 30 points at 6316, + 0.5%

German DAX: up 24 points at 7473, + 0.2%

French CAC: down 1 point at 3650, -0.04%

Spanish IBEX: up 42 points at 7957, +0.5%

Mike van Dulken, head of research at Accendo Markets, reckons investors are more bullish about upcoming company results:

Friday’s rebound has continued after the G20 refrained from criticising the Bank of Japan, and earnings optimism rises.

9.27am BST

This graph (via IG's early morning note) shows the correlation between Japan's Nikkei index and the yen/$ over the last year:

Nikkei vs Yen
Photograph: Bloomberg

9.08am BST

Sliding yen drives Nikkei higher

The Japanese stock market hit its highest level in almost five years today, after Japan avoided an international rebuke over its new stimulus and monetary easing programme.

The Nikkei ended 1.89% higher at 13,568 points, and the Japanese yen inched closer to the symbolic ¥100 mark, hitting ¥99.88.

Last week's G20 meeting ended with world finance ministers pledging to be "mindful" of the dangers of extended monetary stimulus, but made no specific reference to Japan.

Traders see it as a green light for the yen to keep falling, especially as Bank of Japan governor Haruhiko Kuroda told parliament this morning that other countries understood Tokyo's desire to revive its economy (Reuters has more details here).

Updated at 9.08am BST

8.50am BST

Five Star Movement protests at Napolitano re-election

Leader of the 5 Star Movement Beppe Grillo speaks during a press conference in Rome, Sunday, April 21, 2013.
Beppe Grillo speaks during a press conference in Rome, Sunday, April 21, 2013. Photograph: Mauro Scrobogna/AP

Beppe Grillo, the head of the radical Five Star Movement, has blasted Giorgio Napolitano's re-election as "a cunning little institutional coup" by Italy's established parties.

Grillo told a press conference yesterday that:

They have stolen a year of time. I don't think we can accept this.

Napolitano could now dissolve parliament and call a snap election (a power not available to a president at the end of his term). That gives him more leverage over the various parties to force them to form a government.

The prospect of a PD-PDL alliance brought many Five Star supporters onto the streets on Saturday night:

Five-Star Movement's leader Beppe Grillo on the roof of a car in Rome, Italy, 21 April 2013.
Five-Star Movement’s leader Beppe Grillo on the roof of a car in Rome yesterday. Photograph: GUIDO MONTANI/EPA
Activists of anti-establishment 5 Star Movement gather to stage a protest in Rome, Sunday, April 21, 2013.
Activists of anti-establishment 5 Star Movement gather to stage a protest in Rome, Sunday, April 21, 2013. Photograph: Gregorio Borgia/AP

8.29am BST

Italian bond yields hit record lows

Lawmakers and senators applaud after Giorgio Napolitano was elected new Italian head of state at the Lower Chamber on April 20, 2013 in Rome, Italy.
Lawmakers and senators applaud after Giorgio Napolitano was elected new Italian head of state at the Lower Chamber, on April 20, 2013. Photograph: Marco Ravagli/Barcroft Media

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

There is relief in the financial markets this morning after the deadlock over Italy's next president was finally broken over the weekend.

Italian borrowing costs have fallen sharply, and shares are rallying across Europe.

After four failed votes, and with the centre-left Democratic Party (PD) on its knees, Georgio Napolitano was re-elected as president for an unprecented second term.

The 87-year old strolled to victory, with broad support from both PD and Silvio Berlusconi's People of Freedom (PDL) party. That could pave the way to a new government — Italy has already been trapped in deadlock for two months since February's general election.

Optimism that Italy could be inching fowards has driven down its borrowing costs this morning as traders piled into its bonds.

Here's the details:

The yield (or interest rate) on Italian two-year debt hit a record low of 1.267% in early trading.

And the yield on ten-year sovereign debt — the benchmark for a country's ability to borrow – also rose in value, pushing down the yield to 4.1% (from 4.22% last night). Far from the 7%-plus yields that forced Berlusconi out of office in November 2011.

And the Italian main share index, the FTSE MIB, has jumped bny 1.6% — up 255 points at 16,017.

Italy's problems are hardly over. The centre-left PD party, for example, is in turmoil – with leader Pier Luigi Bersani resigning over the weekend after both his favoured candidates for the presidency were rejected. But perhaps a corner has been turned….

As usual, I'll be covering all the latest developments through the day….

Updated at 8.30am BST

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

 


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

6.04pm BST

European markets close on a high note

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

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

• Germany's Dax added 1.91%

• France's Cac closed 1.98% higher

• Italy's FTSE MIB ended up 1.4%

• Spain's Ibex added 1.65%

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

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

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

Updated at 6.09pm BST

6.03pm BST

Osborne confirms Laika UK account transfers

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

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

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

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

Updated at 6.08pm BST

5.46pm BST

Samaras hopeful ahead of troika visit to Greece

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

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

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

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

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

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

Updated at 9.20am BST

5.26pm BST

ECB’s Coeure warns on currency wars

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

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

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

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

Updated at 5.47pm BST

5.10pm BST

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

Updated at 5.44pm BST

4.23pm BST

Former French minister reportedly admits to foreign bank account

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

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

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

Updated at 4.34pm BST

3.30pm BST

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

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

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

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

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

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

Updated at 3.42pm BST

3.02pm BST

IMF to close Latvian office

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

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

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

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

2.32pm BST

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

And on the reshuffle:

Updated at 2.33pm BST

2.26pm BST

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

2.25pm BST

Markets buoyant across Europe

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

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

France CAC 40: up 1%

Germany DAX: up 1.1%

Spain IBEX: up 0.8%

Italy FTSE MIB: up 0.7%

Updated at 2.28pm BST

1.58pm BST

Georgiades takes over as Cypriot finance minister

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

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

Updated at 2.23pm BST

1.50pm BST

Cypriot cabinet reshuffle expected today – ekathimerini

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

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

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

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

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

Updated at 2.22pm BST

1.29pm BST

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

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

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

Updated at 1.59pm BST

1.20pm BST

Cypriot finance minister resigns

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

More on that as it comes in …

Updated at 1.34pm BST

1.17pm BST

Cyprus concludes talks with lenders

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

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

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

Under the terms of the deal …

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

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

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

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

Updated at 1.34pm BST

12.00pm BST

Italian wise men meet to try to break deadlock

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

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

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

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

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

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

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

Updated at 1.05pm BST

11.47am BST

No significant outflow of funds from Slovenia, says central banker

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

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

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

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

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

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

Updated at 1.06pm BST

11.27am BST

Eurozone unemployment up 2.1% since crisis began

Another gloomy fact of the day.

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

10.56am BST

Spain seeks more time to cut deficit

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

Julien Toyer reports:

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

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

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

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

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

Updated at 1.12pm BST

10.43am BST

Eurozone youth unemployment continues to rise

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

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

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

10.32am BST

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

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

Updated at 1.31pm BST

10.18am BST

Poor UK factory data raises chance of more QE

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

Christian Schulz of Berenberg Bank writes:

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

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

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

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

10.14am BST

Eurozone unemployment hits new high

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

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

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

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

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

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

Updated at 1.41pm BST

10.04am BST

Eurozone lending declines

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

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

Updated at 1.42pm BST

9.47am BST

Cyprus to ease capital controls

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

Reuters reports:

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

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

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


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

Updated at 1.48pm BST

9.36am BST

UK factory data worse than expected

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

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

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

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

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

Updated at 1.53pm BST

9.27am BST

Cyprus share index drops after two-week hiatus

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

Updated at 1.54pm BST

9.26am BST

Slump in eurozone manufacturing could prompt ECB to cut rates

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

Here's Howard Archer of IHS Global Insight:

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

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

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

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

Updated at 2.06pm BST

9.21am BST

French factory slump continues

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

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

Jack Kennedy at Markit said:

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

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

Updated at 2.07pm BST

9.16am BST

German manufacturing contracts

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

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

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

Tim Moore at Markit said:

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

Updated at 2.08pm BST

9.03am BST

Italian factory sector continues to slide

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

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

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

Updated at 2.09pm BST

8.50am BST

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

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

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

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

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

Updated at 2.10pm BST

8.38am BST

Swiss manufacturing in surprise contraction

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

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

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

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

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

Next up Italy, and hopes are not high.

Updated at 2.11pm BST

8.33am BST

Spanish manufacutring contraction accelerates

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

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

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

Markit economist Andrew Harker said:

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

8.27am BST

Irish manufacturing contracts for first time in over a year

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

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

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

Updated at 2.12pm BST

8.22am BST

Cyprus wins deadline extension

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

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

Updated at 2.14pm BST

8.20am BST

Laiki’s UK customers escape Cypriot savings levy

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

My colleague Jill Treanor reports:

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

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

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

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


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

Updated at 2.16pm BST

8.16am BST

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

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

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

Updated at 2.16pm BST

8.10am BST

Anastasiades denies family member exported funds

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

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

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

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

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

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

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

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

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

Updated at 2.20pm BST

7.50am BST

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

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

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

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Europe could have dealt with Cyprus cheaply and painlessly with a pan-European body able to recapitalize the country’s banks. Next could be Malta and Slovenia where the government is already making contingency plans for coping with bank losses…

 


Powered by Guardian.co.ukThis article titled “Eurozone crisis demands one banking policy, one fiscal policy – and one voice” was written by Larry Elliott, economics editor, for The Guardian on Monday 1st April 2013 13.24 UTC

It had all started to look quite promising. The US was picking up, China had avoided a hard landing and in Japan the early signs from the new government's anti-deflation approach were encouraging. Even in Britain, the first couple of months of 2013 provided some tentative hope – from the housing market and consumer spending, mainly – that the economy might escape another year of stagnation.

Then Cyprus came along. The last two weeks of March brought the crisis in the eurozone back into the spotlight, and by the end of the month the story was no longer rising share prices on Wall Street on the back of strong corporate profitability or the better prospects for Japanese growth. It was, simply, which country in the eurozone would be the next to require a bailout.

The past few days has seen what Nick Parsons, head of strategy at National Australia Bank, has called the "reverse Spartacus" effect after the scene at the end of Stanley Kubrick's epic in which captured slaves are offered clemency if they identify the rebel leader. All refuse.

In the aftermath of Cyprus, it has been a case of "I'm not Spartacus". Four members of the eurozone felt the need to issue statements explaining why they were different from the troubled island in the eastern Med. We now know that Portugal is not Spartacus, Greece is not Spartacus, Malta is not Spartacus and Luxembourg, which has the highest ratio of bank deposits to GDP in the eurozone, is not Spartacus. As Parsons noted wryly, Italy was unable to say it was not Spartacus because it still doesn't have a government to speak on its behalf. Otherwise it would probably have done so.

Few of the independent voices in the financial markets take such attempts at reassurance seriously. Another crisis in the eurozone could be avoided, but only if those in charge (sic) act more speedily and effectively than they have in the past. As things stand, another outbreak of trouble looks inevitable.

Cyprus has enough money to get by for a couple of months, but by then will be feeling the impact of a slow-motion bank run as depositors remove their money at the rate of €300 (£250) a day. The economy has been crippled by the terms of the bailout, a Carthaginian peace if ever there was one, and the country's debt ratio is bound to explode.

Investors are already casting a wary eye over Malta, which appears to have been the short-term beneficiary of capital flight from Cyprus, but the bookies favourite for the next country to need a bailout is Slovenia, where the government is already making contingency plans for coping with bank losses.

By focusing on the eurozone's minnows, the markets are in danger of overlooking a much bigger potential problem. If attempts to put together a new government in Rome fail, Italy will be facing a second general election and in such a scenario opinion polls currently put Silvio Berlusconi ahead.

It is not hard to sketch out a sequence of events in which Berlusconi completes a political comeback, the markets take fright, Italian bond yields go through the roof, the European Central Bank (ECB) under Mario Draghi says it will only buy Italian debt if Berlusconi agrees to a package of austerity and structural reforms, the new government refuses and then calls a referendum on Italy's membership of the single currency. Italy has already had six consecutive quarters of falling GDP and is on course for a seventh, making the recession the longest since modern records began in 1960. So when Berlusconi says he cannot let the country fall into a "recessive spiral without end", he strikes a chord.

If policymakers are alive to the threat posed by one of the six founder members of the European Economic Community back in 1957, they have yet to show it. The assumptions seem to be that Cyprus is exceptional, that the ECB will ride to the rescue if it proves not to be, and that Europe will be dragged out of the danger zone by the pick-up in the rest of the global economy.

This is the height of foolishness. The factors causing the crisis in Cyprus are replicated in many other member states. The ECB's "big bazooka" – buying the bonds of struggling governments without limit – has yet to be tested, and because Europe is the world's biggest market, the likelihood is that the re-emergence of the sovereign debt crisis will seriously impair growth prospects in North America and Asia.

Economists at Fathom Consulting draw a comparison between the eurozone today and the UK at the very start of the financial crisis. Mistakes were made with the handling of Northern Rock because of fears that a bailout would create problems of moral hazard – in other words helping a bank that had got itself into trouble through its own stupidity would encourage bad behaviour by others. The systemic risks were not recognised, with disastrous consequences.

Similarly, the eurozone has not understood the systemic potential of the current crisis, Fathom argues, not least the "doom loop" between fragile banks and indebted governments. Austerity is making matters worse because cuts to public spending and higher taxes hit economic activity by more than they reduce government deficits. Public debt as a share of national incomes goes up, not down.

Austerity can work, but conditions have to be right for it. It helps if a country's trading partners are growing robustly, because then the squeeze on domestic demand can be offset by rising exports. It helps if the central bank can compensate for tighter fiscal policy by easing monetary policy, either through lower interest rates or through unconventional measures such as quantitative easing (QE). And it helps if the exchange rate can fall. Not one of these conditions applies in the eurozone, which is why the fiscal multipliers – the impact of tax and spending policies on growth – are so high. Put bluntly, removing one euro of demand through austerity leads to the loss of more than one euro in GDP.

So what should be done? Clearly, the self-defeating nature of current policy needs to be recognised. Countries need to be given more time to put their public finances in order. The emphasis should be shifted from headline budget deficits to structural deficits so that some account is taken of the state of the economic cycle, and the ECB needs to be ready with its own version of QE.

Simultaneously, work needs to speed up on creating a banking and fiscal union. Europe could have dealt with Cyprus cheaply and painlessly had there been a pan-European body capable of recapitalising the country's banks. Delay in setting up such a body threatens to be costly.

Finally, the eurozone needs to start talking with one voice. A bit of "I'm Spartacus" would not go amiss.

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