Italy

Eurozone finance chiefs expected to thrash out a bailout deal for Cyprus this afternoon. Italy may be heading toward political gridlock as the parliament convenes to elect leaders of both houses. US consumer sentiment unexpectedly drops…



Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Cyprus bailout deal edges closer” was written by Josephine Moulds and Nick Fletcher, for guardian.co.uk on Friday 15th March 2013 15.39 UTC

3.39pm GMT

Austerity has gone too far, says former Italian prime minister Prodi

Former Italian prime minister Romano Prodi has been airing his views about the current state of the eurozone.

In an interview with Bloomberg, the former European Commission president said austerity measures in Europe had been excessive, and the euro was too high. The agency reports:

“The euro has a very high rate of exchange,” Prodi, a former European Commission president, said in an interview with Sara Eisen airing on Bloomberg Television today. “I do think that it’s stronger than needed.

“The austerity was, in my opinion, necessary in the beginning, it worked for a while, now it’s gone too far,” Prodi said.

Prodi had been mentioned as a possible successor to Italian pesident Giorgio Napolitano when his term expires in May. In a separate Bloomberg interview he dismissed this speculation, saying he had alienated fellow politicians over the years with his strong positions.

“I have always been — let’s say — very strong-minded in my political opinion, I always take positions,” Prodi said. “I think that is not a concrete probability that the majority will vote for me.”

2.56pm GMT

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

2.51pm GMT

Cyprus depositors may face tax to help bailout

Depositors in Cyprus banks are likely to be taxed in some way to help towards a bailout of the tiny island, Reuters is reporting, after policymakers discarded the idea of imposing outright losses on deposit holders.

Eurozone finance chiefs are preparing for a 4pm meeting to discuss a Cyprus bailout, which is likely to result in, at least, a provisional agreement.

Luke Baker writes:

“Bailing-in” bank depositors would be legally difficult and carry the risk of weakening confidence in banks across the eruozone, the officials said. Germany, Finland and the IMF had supported the bail-in idea.

A tax on the total sum of depositors of 5%, for example, or a tax of 20%-30% on interest generated by the deposits would be easier, officials said, and not threaten financial stability.

2.26pm GMT

US consumer confidence drops unexpectedly

Adding to the bad news for the US, consumer confidence tumbled to its lowest in over a year in March.

The latest consumer sentiment survey by the University of Michigan showed Americans were dissatisfied with government economic policies and fewer expected to see improvements in growth or the jobs market.

The index dropped to 71.8 from 77.6 in February, a huge miss from expectations for a reading of 78. It was the lowest level since December 2011.

That will likely dent the rally in US shares. The Dow is currently down 39 points on the day, or 0.3%.

2.18pm GMT

Good news and bad news for US economy – analysis

Looking back at the US economic data out this week, Holger Schieding of Berenberg Bank notes that there is both good and bad news.

First the good news: Americans are getting richer again. Asset values have recovered and a higher savings rate has allowed US households to reduce their outstanding debt burden.

Now the bad news: The rebound in US private wealth has been largely matched by a rise in US federal debt from a pre-Lehman level of 64% of GDP in 2007 to 104% of GDP at the end of 2012. One way or another, households are the major taxpayers. If we treated the rise in public debt as a contingent liability of households, the apparent gain in US household net worth would largely disappear.

This, he explains, matters for the US economic outlook. US households have repaired their household budgets and can start shopping again, helping to boost domestic demand.

But, he says, the US government has no choice but to tighten the reins. The tax hikes of roughly 1.3% of US GDP at the start of last year and the recent automatic spending cuts of 0.7% of this year’s GDP “can only be the beginning”. He concludes:

We expect the US economy to expand nicely as consumers drive the recovery. But the US government needs a long period of fiscal restraint. As a result, overall US demand growth will likely oscillate around 2% and not around the desired 3% for the foreseeable future. Austerity is inevitable and painful, especially if it is mostly done through higher taxes.

2.09pm GMT

Barroso focuses on youth unemployment

For his part, José Manuel Barroso, president of the European Commission, said:

In Europe, too many young people are asking if they will ever find a job or have the same quality of life as their parents. And we need to give them a better prospect.

He noted various schemes that have been targeted at reducing youth unemployment, including the Youth Guarantee, which would promise young Europeans either a job, further education, or work-focussed training, at the latest four months after becoming unemployed. Barroso said:

I really saw a commitment of the heads of state and government to address this problem with the sense of urgency required.

1.58pm GMT

Herman Van Rompuy calls for jobs policy

European Council president Herman Van Rompuy has issued a statement following the summit of EU leaders.

He said the council looked at issues like companies’ access to credit as a key driver for growth, at competitiveness, and how well the jobs market was functioning. He said:

There is a need for a specific employment policy, making our growth more labour-intensive.

He added that policymakers must keep up the pace to implement the single supervisory mechanism for banks in the region.

Updated at 2.00pm GMT

1.50pm GMT

Greek coalition will not survive 2014 – analyst

The coalition in Greece will collapse by the middle of next year, the Economist Intelligence Unit has warned.

Following Greece’s failure to convince the troika to release the next slice of bailout funds, Martin Koehring, analyst at the Economist Intelligence says the government will not last until the second half of 2014, causing a fresh election and potentially complicating relations with the troika even more. He says:

Disagreement over public-sector staffing levels remain the key issue preventing release of the latest bail-out tranche to Greece. With the unemployment rate already above 24%, the government finds it difficult to implement its commitment under the bail-out programme to reduce the public-sector workforce by 150,000 by 2015.

The troika has said that talks would resume in early April. However, the delay will create cash-flow problems for the government since the March tranche of funding will not now be authorised at least until April. It also jeopardises timely disbursement of the second-quarter tranche.

Ongoing disagreements between the troika and the government are set to exacerbate tensions within the fragile three-party coalition government. The Economist Intelligence Unit expects the coalition to collapse by the second half of 2014, causing a fresh election and potentially complicating Greece-troika relations further.

1.32pm GMT

US enjoys rebound in manufacturing

Over to the US, where industrial production figures were better than expected, the latest in a run of good economic news from the world’s largest economy.

Industrial output grew by 0.7% last monthon a rebound in manufacturing, compared with forecasts for a rise of 0.4%.

The data echoes a strong reading from Markit’s PMI output index for February.

1.20pm GMT

Merkel sees no desire to ease austerity

Crucially, Angela Merkel said she saw no sign of desire to ease the austerity course and the EU will stand by its course of budget reduction.

The lady is clearly not for turning. It remains to be seen how that message will play out at the German elections later this year.

1.13pm GMT

Merkel sounds cautioun over Cyprus bailout

For her part, German chancellor Angela Merkel sounded a note of caution over a bailout for Cyprus.

If you consider that at a certain point in time, Cyprus could not finance itself, then… you don’t want to reach such a point, from a political point of view.

But one cannot say that just because you don’t want to reach such a point, politically, that you must help under any conditions. To leave Cyprus up to its own devices and simply see what happens would not be responsible in my view.

She added that it would not be responsible to simply leave Cyprus to struggle on its own.

Reports on Twitter suggest she is also keen to see a government in Italy “soon”.

Updated at 1.16pm GMT

1.10pm GMT

Hollande says Cyprus not discussed at summit

In Brussels, the EU leaders have emerged from today’s summit. Much of the talk is of the arms embargo with Syria, but there was also talk of the economic situation.

First up, French president François Hollande. He said the group had not discussed Cyprus, but that issue will be addressed by eurozone finance ministers.

The summit did discuss improving competitivity, he added.

12.58pm GMT

Athens negotiates over Greek property tax

Back to Greece where our correspondent Helena Smith says mass lay-offs in the public sector are not the only point of contention with troika officials who suspended talks with the debt-stricken country on Thursday.

She writes:

With recession worsening, higher taxes are another key issue The highly controversial property tax, introduced in 2011 and slapped on households through electricity bills, has elicited particular opprobrium, so much so that the conservative-dominated coalition promised to slash the EU-IMF mandated measure after assuming power in June 2012.

Hit by successive rounds of pay and pension cuts and a barrage of other duties, more and more Greeks, who have seen their disposable income drop by as much as 50% in the last two years, say even if they wanted to, they can no longer afford to pay the tax.

Growing numbers, who have inherited properties, say they are caught between a rock and a hard place: unable to sell properties in a depressed market but also unable to pay the duties now slapped on them.

The emergency measure raises approximately €3bn a year – vital to revenues. Under immense popular pressure, prime minister Antonis Samaras’ fragile coalition has attempted to persuade troika technocrats that it can raise the money if the tax is merged with other property duties.

Mission chiefs from the EC, ECB and IMF, however, have not been convinced, citing the innate weaknesses of Greece’s infamously leaky tax collection system.

Insiders worry that if the government is seen to lose yet another battle in the tug and pull of negotiations, it could suffer a potentially fatal PR communications defeat. The fiercely anti-bailout political opposition has stepped up criticism of the government saying it is already reneging on its promises.

12.39pm GMT

US consumer prices rise more sharply than expected

Over in the US, consumer prices showed their largest increase in nearly four years in February.

The consumer price index rose 0.7% after being flat in both December and January. This compares with expectations of a 0.5% increase.

But this was largely due to a surge in the price of gasoline (or petrol, if you prefer) which jumped 9.1%, the largest gain since June 2009. The year on year increase in the CPI was 2%.

With little in the way of underlying inflationary pressures, the figures should not prevent the US Federal Reserve pumping more money into the sytem through its bond buying programme to help boost the world’s largest economy.

Signs that the economy is indeed heading in the right direction come from the latest New York state manufacturing survey. The index came in at 9.24 in March, expanding for the second month in a row. But the rise was less than the 10.04 seen in February and below expectations of a figure of 10. New orders fell but firms continued to be optimistic, with the index of business conditions six months ahead hitting 36.43 from 33.07, its highest since April 2012.

Updated at 12.44pm GMT

12.23pm GMT

Five Star Movement eschews left or right as it enters parliament

It was always going to be an unusual but memorable day as Italy’s parliament reconvened after the recent inconclusive elections, with members of the maverick party founded by comedian Beppo Grillo taking their places for the first time.

And so it is proving. Southern Europe editor John Hooper writes:

Not since the dawn of the Italian Republic after the Second World War, when ex-Communist partisans arrived in force, has there been an opening of parliament anything like today’s.

The representatives of the Five Star Movement (M5S) unexpectedly respected the rule that male Italian lawmakers must wear ties (though, in line with the M5S’s enivronmentalist principles, many chose a black one bearing the words “No Coal”). But from the moment that the movement’s deputies entered the Chamber, it was clear they were going to be awkward to deal with.

Instead of taking up a position on the left or right of the semi-circle in which the members of the lower house sit, the M5S’s deputies (who prefer to be called “citizens”) ranged themselves around the back.

“Neither right nor left, but above (and beyond),” chirped one of their number, Tiziana Ciprini, on her Facebook page.

The whole episode reflected the view that the movement’s co-founder, the comedian, Beppe Grillo, put to me in an interview last month: that the M5S cannot be fitted into conventional political categories.

It is one of things that worries many Italians about the M5S. Most of the so-called grillini are passionately committed to progressive causes (they eschew the mineral water that is everywhere available in parliament in favour of tap water, for example).

But denying the existence of left and right is a classic sign of populism. And Mussolini did it all the time.

12.00pm GMT

Greenspan sees no signs of ‘irrational exuberance’

Across the pond, former chairman of the Federal Reserve Alan Greenspan has been speaking.

Greenspan – who coined the term “irrational exuberance” to describe the dotcom bubble of the 1990s – says he sees no sign of irrational exuberance in the market right now, and that, by historical standards, stocks are significantly undervalued.

Asked on CNBC, if his successor Ben Bernanke willl stay in office after 2014, Greenspan says:

I would hope so, but I would fully understand if he’s had enough.

11.45am GMT

BoE’s Dale dismisses central bank focus on growth as ‘dangerous’

Back to the UK, where the Bank of England’s chief economist is sounding cautious over any possible extension to the central bank’s role.

In a speech in London, Dale says suggestions that central banks should focus more on growth, and that a period of higher inflation may even aid the recovery, is “dangerous talk”.

In recent weeks, George Osborne’s chief economic adviser has been touring the US to sound out opinion on adjusting the Bank of England’s remit, in a bid to aid the UK’s economic recovery.

The FT reports:

The Treasury sees monetary activism as crucial for underpinning the recovery. In the Budget, Mr Osborne will state the MPC’s annual remit and is likely to launch a debate, supported by Mr Carney, on whether it should change.

The most radical option on the table is a “dual mandate”, as given to the Federal Reserve in the US, where the BoE would target inflation and a “real economy” variable such as employment.

11.19am GMT

Portugal could issue bonds in coming weeks

Portuguese finance minister Vitor Gaspar has said that conditions appear good for a possible bond issue in the coming weeks.

That would be the second bond issue since its 2011 bailout, after it sold five-year government debt in January. Gaspar said:

The conditions appear to be appropriate for a possible bond issue in the coming weeks.

But he added that the country was under no pressure to issue debt and any decision to do so would depend on finding market opportunities.

11.11am GMT

Eurozone labour costs even out

Taking a closer look at the eurozone labour costs, out earlier today (see 10.43am), the data revealed a wide variation across diffferent countries.

In Germany, the cost of labour rose by a solid 2.9%, but dropped by 3.4% in Spain.

While this is undoubtedly bad news for Spanish workers, it will raise hopes that competitiveness in the eurozone is (gradually) evening out.

Jonathan Loynes at Capital Economics writes:

This might provide some further hope that the competitiveness gap between the northern and southern economies is slowly being closed, although it will have obviously detrimental effects on Spain’s household sector in the near term.

Hourly labour costs across the eurozone rose by just 1.3% in the last three months of 2012, compared with the same period in 2011. That was less than half the rise in early 2009, when Europeans were giving themselves generous pay hikes, driving up the cost of labour by 12% between 2001 and 2011.

Updated at 11.15am GMT

11.05am GMT

Athens prepares to sack 5,000 civil servants

Over to Greece, where reports suggest the government is planning to sack 5,000 civil servants by the end of next year to appease its international lenders.

The troika – of the EC, the ECB and the IMF – left Athens yesterday after failing to reach an agreement over reforms, delaying the payment of the next €2.8bn slice of bailout funds that Greece was due to receive later this month. The troika officials will return to Greece at the beginning of April.

Ekathimerini reports that the Greek government offered to fire 5,000 workers by 2015, in return for the release of the bailout funds. It said the proposal was put to the troika representatives before they left.

10.43am GMT

Eurozone inflation eases, opening door to ECB rate cut

Eurozone consumer price inflation dropped to 1.8% in Februrary, its lowest level since mid-2010.

Modest wage growth in the currency bloc added to signs that the European central Bank has room for an interest rate cut.

Howard Archer of IHS Global Insight says:

While lower inflation is providing some much-needed good news for struggling consumers in many eurozone countries, low and reduced wage growth in the fourth quarter of 2012 adds to the pressures they are under. Weakened earnings growth comes on top of very high and rising unemployment in many countries, as well as tight fiscal policy.

The ECB currently seems reluctant to take interest rates lower than the current record low level of 0.75%, but the bank could be forced into reconsidering its position if the eurozone fails to show clear signs of economic improvement over the coming weeks. Downside risks to the eurozone outlook could mount if protracted political uncertainty in Italy eventually leads to a renewed intensification of sovereign debt tensions.

10.17am GMT

Sterling rises on King’s comments

To the pound, which has seen a dramatic reversal in fortunes after outgoing Bank of England governor Mervyn King said last night it was now “properly valued”

King has repeatedly talked down the pound since autumn and the currency has dropped by almost 6% against Britain’s main trading partners since the start of the year.

But King signalled yesterday that he thinks things have gone far enough, telling ITV News:

We are moving to a properly valued exchange rate. I think we’re probably there.

Basically we’re at the same level [of sterling] we were after the impact of the financial crisis. We’re certainly not looking to push sterling down. We’re looking to ensure recovery in the UK economy and gradually bring inflation back to our 2% target.

His comments stand in contrast with the fact that King is known to have voted for an expansion of the quantitative easing programme – which would drive down the value of the pound – at the February meeting of the monetary policy committee.

His apparent change of heart prompted criticism from some quarters.

9.59am GMT

Portugal granted extension for spending cuts

Portugal has been given more time to implement its deeply unpopular spending cuts after the country’s economic outlook worsened.

Finance minister Vitor Gaspar said Portugal had passed the seventh review carried out by inspectors from the country’s troika of lenders – the ECB, the EC and the IMF.

The troika have granted Lisbon an extra year to make cuts worth 2.5% of GDP, or roughly €4bn. These now have to be carried out by 2015, rather than 2014 as previously stipulated.

Portuguese GDP is expected to drop by 2.3% this year, much deeper than the 1% drop expected at the time of the last review in November.

9.50am GMT

Italian government debt tops two trillion

Italian government debt topped two trillion in January, a new historical record. That compares with €1,988bn the previous month and caused some astonishment on Twitter.

Updated at 9.50am GMT

9.34am GMT

Cyrpus bailout deal will not be definitive – Reuters

But any deal on Cyprus agreed today will not be definitive, reports Reuters.

Luke Baker writes that a framework for a deal will be presented to the Eurogroup working group before midday on Friday, which will assess whether the plan goes far enough in steadily reducing Cyprus’ debt over the coming years and ensuring that the bailout can be paid back.

Eurozone finance ministers then meet at 4pm to consider the package. Baker reports:

Officials said the best that could be hoped for was a “political agreement” on the proposal, since input may still be required from Russia to finalize the terms.

Cypriot Finance Minister Michael Sarris will travel to Moscow for meetings on Monday, a Cypriot diplomat said, raising the possibility that an agreement on participation can be struck with the Russians then.

Plans are already being made for another meeting of euro zone finance ministers in the middle of next week, once the Cypriot finance minister has returned from Moscow and officials have a more precise idea of the shape of the rescue deal.

9.27am GMT

Cyprus bailout will not replicate Greek deal – Juncker

The Wall Street Journal is running quotes from Luxembourg’s prime minister (and former head of the Eurogroup) Jean-Claude Juncker, suggesting the solution to Cyprus’s difficulties won’t be the same as Greece’s but it should have the same result.

Leaving the summit in the early hours of this morning, Juncker said:

In the Greek case we said we would never replicate the solution applied to it. That said, we should find a solution [for Cyprus] that won’t be the same but that produces the same results.

Asked if depositors at Cypriot banks could lose part of their deposits in a bailout agreement, he said he could not be clear on the solution the eurozone would come up with.

He and other leaders have expressed hopes an agreement can be reached on Cyprus today.

9.23am GMT

Cyprus bailout deal expected today

There are hopes that the finance chiefs of the 17 eurozone nations will come to more concrete conclusions, with an agreement over a Cyprus bailout later today.

Christian Schulz of Berenberg bank summarises the key elements of a possible deal, as follows:

  • A smaller package: According to Eurogroup chief Dijsselboem, the package could be €10bn rather than €17bn.
  • A depositor contribution: The money needs to come from somewhere. Crucially, a deal must avoid bank runs and repercussions in other countries. Privatisations and a modest corporation tax increase would be harmless. A one-off depositor tax, as a controlled form of depositor bail-in, is riskier but seems likely. Fortunately, a contagion-prone sovereign debt restructuring seems off the agenda.
  • IMF involvement: Northern Eurozone states demand a similar IMF involvement, as in the other bail-outs.
  • Russia also seems ready to extend a €2.5bn loan and reduce interest rates.

9.03am GMT

EU summit may take rough edges off asuterity

Over in Brussels, the summit continues but leaders are unlikely to take any far-reaching decisions.

European politicians are said to be nervous about the outcome of Italy’s elections which delivered a resounding rejection of austerity, but feel they have little room for manoeuvre, if they want to retain the confidence of the financial markets.

Our European editor Ian Traynor writes in today’s paper (second half of article):

“If you need to get people to lend you money, if you finance yourself in the markets, an economic policy shift is not viable,” said the senior diplomat. “It’s about credibility.”

The Thursday evening summit focused on economic policy options and was to be followed by another meeting of the 17 eurozone leaders at which Mario Draghi, the head of the European Central Bank, was to brief the meeting and was expected to name and blame countries failing to implement adequate structural reform.

While the draft summit communique repeatedly referred to the need to stimulate growth and deplored Europe‘s record levels of unemployment – more than 26 million – there was little sign of any departure from the “fiscal consolidation” that has been the preeminent response to the crisis over the past three years.

Nor was there any sign that Berlin was shifting its hard line on fiscal and budget discipline. Rather, the Germans stressed that the absolute priority was for Europe to regain competitiveness by reducing unit labour costs and through structural reforms to labour markets, pension and welfare systems.

The likeliest outcome was agreement on a set of policies that may take a little of the rough edges off the austerity packages, by delivering several billion euros to fight youth unemployment in the worst-hit areas or slightly relaxing budget deficit ceilings by allowing big public investment projects deemed eventually to be contributing to growth to be taken out of the calculation. Agreement was also expected on “flexibility” in interpreting the rules for national debt and deficit levels in the eurozone, signalling that countries like France, Spain, and the Netherlands could be given longer to observe the ceilings.

8.41am GMT

Italian lawmakers to vote on key roles

The first task facing the lawmakers this morning is to elect speakers of both houses.

These roles wield significant power as, along with internal budget commissioners, they oversee the more than €70m that gets handed out annually to individual party delegations to the cost of staff and expenses.

Until now, details of these payments have been kept secret but an M5S speaker would be likely to lift the lid on how that money is spent. Bloomberg reports:

Grillo, an ex-comic, drew cheers during the election campaign by saying at rallies that his lawmakers would “open parliament like a can of tuna” by revealing backroom discussions and detailing expenses that haven’t been published.

Voting for the two speakers begins at 9.30am in the lower house and 10am in the Senate. The majority required diminishes after each inconclusive ballot.

But, Italian news agency ANSA reported yesterday that Bersani told his allies he would seek to scupper the votes because there has not yet been any progress towards forming a coalition.

Updated at 8.44am GMT

8.33am GMT

Grillo’s force shun parliamentary privileges

The Five Star deputies and senators range from lawyers and scientists to unemployed activists, none of which have any previous parliamentary experience.

And they are preparing to shake-up parliament, saying they they will shun the Italian parliamentarian’s title of “Honorable” and refuse privileges typically reserved for lawmakers and unavailable to citizens at large.

Bloomberg reports:

[Italian] lawmakers make about €20,000 a month in salary and benefits, including train and air travel. Yesterday, Grillo called on Pier Luigi Bersani, head of the largest parliamentary force, to persuade his members to give up more than half of their pay. Monthly salaries, at about €11,000 should be reduced to €5,000, Grillo said.

Updated at 8.45am GMT

8.25am GMT

Italian elections recap

First off, Italy, where members of Beppe Grillo’s Five Star Movement (M5S) will be preparing to take their place in parliament for the first time today.

Just to recap, Italy has found itself in political gridlock after elections last month that split the country three ways.

  • Together with their smaller allies, Pier Luigi Bersani’s centre-left Democratic Party (PD) won control of the lower house, with 340 seats, after benefiting from the automatic premium, which guarantees the alliance that wins most votes 55% of the seats.
  • But the party did did not get the necessary majority in the upper house, the senate, which holds the same legislative powers as the chamber of deputies.
  • Silvio Berlusconi’s centre-right alliance won 124 seats in the lower house.
  • But the upstart, anti-establishment M5S was the real shock of the election, winning more than 25% of the votes, the largest share for any single party (beating the PD on its own, but not the PD plus smaller allies). That gives MS5 108 seats. The party is now seen as the key to any coalition government as neither Bersani nor Grillo are willing to consider an alliance with Berlusconi. 

Updated at 8.45am GMT

8.07am GMT

Today’s agenda

There’s also some economic data to keep us busy, while Portugal will announce the results of its troika review later in the day.

  • Spain house prices (Q4): 8am
  • Spain labour costs (Q4): 8am
  • Switzerland producer and import prices (February): 8.15am
  • Italian parliament reconvenes: 9.30am
  • Portuguese finance minister announces results of troika review: 9.30am
  • Italy government debt (January): 9.30am
  • Eurozone inflation (February): 10am
  • US inflation (February): 12.30pm
  • EU’s Rehn speaks in Brussels: 2.30pm
  • Eurogroup meets to discuss Cyprus: 4pm
  • EU’s Van Rompuy speaks in Brussels: 4.15pm

8.02am GMT

Good morning and welcome to our rolling coverage of the eurozone crisis.

This morning, Italian politicians reconvene for the first time since the inconclusive elections almost three weeks ago. The politicians will be braced for a fight over key roles, such as speaker of the upper and lower houses, which could pave the way to a stable government. 

The EU leaders are also meeting for day two of their summit in Brussels to wrangle over the fine balance between austerity and growth.

And later, the finance ministers of the 17 members of the eurozone will try and hammer out a bailout deal for Cyprus.

We’ll have updates from those events and other developments in the global economy throughout the day.

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

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In the broadcast today: EUR and JPY Outlook ahead of Events in Italy and Japan. Ahead of tomorrow’s gathering of the Italian parliament and the Japanese upper house vote on the new Bank of Japan Governor, we examine the potential impact of these events on the EUR and the JPY and explore the outlook for the two currency majors, we analyze the bullish trend in the USD/JPY currency pair, we continue to monitor the range in the EUR/USD pair, we note the strengthening of the GBP vs USD, we highlight the market’s reaction to the statement by an ECB council member, the Swiss National Bank and the Reserve Bank of New Zealand Interest Rate Announcements, the Australian Employment report, the Japanese Industrial Production, and the U.S. Jobless Claims, we discuss new forecasts from Bank of New York-Mellon and UBS, and prepare for the trading session ahead.

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European leaders meet to discuss growth vs austerity. Greek unemployment hits new high. Troika leaves Greece without agreement. A day before the Italian parliament meets, an ECB council member says the bank should be ready to activate OMT program…



Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Protesters gather at EU summit on growth” was written by Josephine Moulds, for guardian.co.uk on Thursday 14th March 2013 14.50 UTC

2.50pm GMT

ECB should be ready to activate OMT

The European Central Bank should be ready to pull make good on its promise to buy government bonds of crisis-hit countries, if certain conditions are fulfilled, an ECB governing council member said today.

Klaas Knot said:

I don’t want to speculate on any specific case. But it is clear that if certain circumstances are fulfilled, then the ECB should be ready for activation.

Another ECB governing council member Panicos Demetriades told Reuters earlier today that Ireland’s issuance of its first long-term bond since the bailout was an important step towards qualifying for help from the programme.

2.33pm GMT

Lagarde to join Eurogroup meeting on Cyprus

IMF chief Christine Lagarde will take part in the Eurogroup meeeting of eurozone finance ministers tomorrow (see 8.55am), according to a Reuters headline.

This is particularly interesting as the IMF is keen to push its line on Cyprus, that depositors in Cypriot banks should bear some of the cost of any bailout. (see 8.56am)

Updated at 2.34pm GMT

2.10pm GMT

Meanwhile, the protestors outside are growing in number, despite the snow.

Reuters estimates that around 10,000 people took part in a demonstration on outside the EC headquarters on the first day of the EU summit.

2.04pm GMT

Here come the pictures of the leaders arriving for the EU summit. A pick of the best…

1.53pm GMT

Draft conclusions from EU summit focus on growth

While Germany might be keen to push the austerity line at the EU summit, it seems the draft conclusions, at least, appear to be very focused on growth.

The stagnation of economic activity forecast for 2013 and the unacceptably high levels of unemployment emphasise how crucial it is to accelerate efforts to support growth as a matter of priority.

Particular priority must be given to supporting youth employment and promoting growth and competitiveness.

1.43pm GMT

German finance minister confident about Italy

The German finance minister is now speaking. Wolfgang Schaüble says he is very confident Italy will build a government capable of acting. He says Italy under prime minister Mario Monti has made great progress.

He also says there is no reason to be depressed on the economic outlook. Then he comes out with the (now rather predictable line) that the “crisis is not over”.

1.37pm GMT

More protests in Greece

Over in Greece, hundreds of students have been blocking up the education ministry today to protest against the shake-up of the university system.

The Greek government plans to reduce the number of higher education departments in the new academic year, in a bid to save funds as the country grapples with its worst financial crisis in decades.

1.27pm GMT

Italy to ask for more flexibility over budget deficit

And so it begins. Italian prime minister Mario Monti has said he will ask his EU partners to grant Italy more flexibility in its budget deficit objectives to help efforts to boost its stagnant economy.

Speaking on the way into the EU summit, he said:

Reasonable margins for flexilbility have been introduced and we will ask to be able to avail ourselves of these margins.

12.45pm GMT

US jobless claims fall unexpectedly last week

Another positive sign for the US employment market has come with better than expected jobless claims figures.

Weekly initial claims unexpectedly fell 10,000 to 332,000, the third straight week of declines. Economists polled by Reuters had expected a rise to around 350,000.

11.55am GMT

Markets up on yesterday’s upbeat US data

Quick look at the markets, which are buoyant, after cheery US retail sales figures out yesterday drove optimism that the global economic outlook is improving. (Clearly traders have chosen to ignore the rather more pessimistic data out of Europe today).

UK FTSE 100: up 0.35%, or 23 points, at 6505

France CAC 40: up 0.54%

Germany DAX: up 0.69%

Spain IBEX: up 1.33%

Italy FTSE MIB: up 1.35%

11.45am GMT

Austerity: ‘NO’… Solidarity: ‘YES’!

Here’s a picture of the vast banner protestors have erected outside the EC headquarters, for the two-day European summit that starts today.

Updated at 11.56am GMT

11.41am GMT

Eurozone unemployment “worrying” – economist

Eurozone employment numbers (see 10.40am) are “disappointing and worrying” says Howard Archer of IHS Global Insight.

While Eurozone economic activity seemed to bottom out last October and business confidence has trended up in recent months, neither appears strong enough to prevent further rises in Eurozone unemployment for some time to come – although the situation will vary markedly between countries.

Meanwhile, the increased drop in Eurozone employment in the fourth quarter of 2012 maintains belief that consumer spending will remain generally muted in the near term at least, especially as consumers are also facing muted wage growth and tighter fiscal policy in many countries.

11.03am GMT

Troika leaves Greece without agreement

The troika – of the EU, the ECB and the IMF – leave Greece today without a resolution over civil service job cuts.

After extending their trip by several days, Greece’s international lenders said they would return to the country in April to finish their review.

The troika said in a statement that Greece was making significant progress in reforms required to receive the next tranche of emergency loans, but some issues remain and Athens needs time to complete the work.

ekathimerini reports:

Talks between Prime Minister Antonis Samaras and troika officials lasted for a couple of hours on Wednesday night but no conclusion was reached on matters including the reduction of civil servant numbers and a payment plan for firms and individuals who owe social security contributions.

Despite the apparent impasse in the discussions, Finance Minister Yannis Stournaras insisted that the two sides were edging toward a deal and that Greece’s next loan tranche of €2.8bn was not in danger.

10.40am GMT

Eurozone employment drops

Eurozone employment, meanwhile, dropped by 0.3% in the fourth quarter compared with the third, as the stagnant economy failed to generate new jobs despite the Christmas shopping season.

Of the eurozone’s major economies, only Germany managed an increase in employment, while the job rate in Spain dropped 1.4%.

Marie Diron of accountancy firm Ernst & Young offered this gloomy assessment of the European jobs market:

A further rise in unemployment int he short term, and only a slow decline from 2014 is likely to be an impediment to growth. Even with recovery, the number of people out of work across Europe will remain stubbornly high. By the end of 2017, we estimate the unemployment rate will remain above 11%.

10.17am GMT

Greek unemployment hits new high

Meanwhile, the ECB’s confidence of a turnaround this year (see 9.47am) looks a little misplaced in the light of Greek jobless figures out this morning.

Unemployment in Greece hit 26% in the fourth quarter of last year, up from 24.8% in the third.

The highest unemployment rate is recorded among people aged between 15 and 24, at 57.8%.

There are also deeply worrying figures on long-term unemployment.

The statistics agency Elstat said the percentage of people that have been looking for a job for more than one year has reached 65.3%.

Updated at 10.22am GMT

10.08am GMT

Healthy demand at special Spanish bond auction

Spain’s borrowing costs have come down again at a special debt auction. The country sold €803m of longer-dated debt, with healthy demand for the government bonds on offer.

The Treasury sold €134m of 2029 bonds at a yield of 5.22%, compared with 5.78% at the last sale in February. 

Yields were 5.434% and 5.432% respectively on the 2040 and 2041 bonds, lower than at the previous sales.

Lyn Graham-Taylor at Rabobank said:

It looks like a decent set of auction results. Much lower yields than when these bonds were last auctioned, which is not surprising given the continued compression of Spanish yields.

The size was roughly as anticipated and obviously it was always going to go well given that it looks like this was a request from primary dealers, a reverse inquiry and to an extent a chance for the Tesoro to dip their toe at the longer end again.

In the secondary market, the yields on Spanish 10-year debt are still ahead of Italy’s but only just. Bond investors are growing increasingly nervous about the political deadlock in Italy and so are selling bonds, driving prices down and yields higher.

Meanwhile, Spain’s fortunes are seen to be improving.

The yield – effectively the interest rate – on Spanish 10-year debt is currently at 4.853%.

The yield on Italian 10-year debt is 4.682%.

For further explanation of how the bond market works, see our eurozone crisis glossary.

9.47am GMT

ECB will not cut rates – ECB board member

The European Central Bank does not need to change interest rates at this stage, ECB governing council member Ewald Nowotny said this morning, despite recent exhortations from the IMF that it should do exactly that.

Nowotny said that growth momentum in the eurozone was set to pick up this year and that the bank needed to wait to see the positive impact of structural reforms.

President [Mario] Draghi has said that while we have generally unsatisfactory economic developments in Europe now we assume that growth forces will improve in the course of 2013. So this is why we are watching developments. It would not be appropriate to take interest rate policy steps.

Massive improvements have begun here. One has to give the improvements time to take effect.

The ECB said in its monthly bulletin that the eurozone is expected to recover gradually later this year, although that could be hampered if governments fail to implement structural reforms.

9.35am GMT

European court brands Spanish mortgage laws illegal

Sticking with Spain, the European Court of Justice has today ruled that the country’s mortgage laws are “abusive” and “illegal”.

(Thanks to DonJuan for flagging this up in the comments below.)

At present, banks can demand full payment for the outstanding mortgage if a homeowner fails to pay just one monthly installment. This has resulted in a wave of people losing their homes.

The Christian Science Monitor reports:

Eviction proceedings have soared since 2007 to some 450,000, according to the most recent court data, although that includes all types of properties. The number of those ending in evictions increased by nearly 135 percent in 2012 from the year before, pointing toward worsening trends.

El Pais reports this morning that the European court ruling will be directly applicable from today and in current lawsuits.

[Typo corrected - thank you for flagging it up.]

Updated at 2.19pm GMT

9.11am GMT

Spanish retail sales better but still bad

[Clarification: Sorry it was not very clear before.]

Spanish retail sales dropped 10.2% in the year to January. The Spanish statistics office says this is adjusted for “calendar and seasonal effects”, i.e. each month’s statistics will take into account seasonal effects and the differing number of working days from year to year.

That compares with expectations of an 11.1% decline, and an annual decline of 11.4% in December (revised down from -10.7%).

Spain’s annual retail sales figures have shown a decline for the past 31 months. However, in January, they ticked up by 0.9% compared with the previous month.

Updated at 11.18am GMT

9.06am GMT

Spain to tap debt markets

Over to Spain, which is looking to cash in on a recent rally in its bonds with an unscheduled debt auction today. It is likely to sell €1bn-€2bn of debt and we should get the results through in about half an hour. Watch this space.

8.56am GMT

Cyprus bailout talks crucial to next stage of crisis

This Eurogroup meeting (see 8.55am) will be the first time all 17 finance ministers debate the subject and deep divisions remain over how to manage a bailout of the tiny island.

Peter Spiegel of the FT reports:

Differences continue to centre on how fast Cyprus should get its debt down to a manageable level. Without a cut in the €17bn cost, Cypriot sovereign debt will reach 145 per cent of gross domestic product, by far the highest in the eurozone except for Greece.

Advocates of a more radical plan – which would include a big restructuring of the crippled Cypriot banking sector, which needs about €10bn in new capital – want Nicosia’s sovereign debt cut to 100 per cent of GDP by 2016, the end of the three-year bailout. Others are urging a more gradual path, which would get Cyprus to 100 per cent by 2020.

The International Monetary Fund has been leading the charge for tougher action and has received strong backing from a German-led group of northern eurozone countries.

Part of the IMF plan is to force losses on depositors in Cypriot banks to finance the €10bn bank rescue. This is seen as popular in countries (such as Germany), which are concerned Cypriot banks are nests for Russian mobsters to launder their money.

But the EC and the Cypriot government are worried it would spark bank runs in Cyprus, which could spread to the likes of Spain.

As debt guru Lee Buchheit noted, the way policymakers handle the Cyprus bailout is crucial to the next stage of the crisis. He told me:

The world will watch what they do in Cyprus and view it as an expression of their current thinking.

In one sense, the fact that Cyprus is small arguably allows them to experiment a bit more. But the world will watch it and see Spain.

More of that interview here.

8.55am GMT

Cyprus not on summit agenda

Meanwhile, German finance minister Wolfgang Schaüble was very clear that a bailout of Cyprus was not on the agenda for the summit.

Some would like that this question will be discussed at the EU summit. This is not on the agenda of the EU summit and also not its responsibility.

A German official did, however, admit that it was likely to be discussed on the sidelines.

Separately, the Eurogroup of eurozone finance ministers will meet on Friday to discuss the thorny issue of a bailout for the tiny island, as announced by the group’s new head on Twitter.

[Correction: Apologies, Friday is definitely tomorrow, not today]

Updated at 10.07am GMT

8.25am GMT

German finances “envy of the world”, says German minister

Germany, meanwhile, is starting to look like the smug man of Europe, with claims that its finances are the “envy of the world”.

Europe’s largest economy yesterday revealed budget plans that show net new borrowing falling to €6.4bn next year, while the structural deficit will drop to zero. Economy minister Philipp Roesler said:

With all modesty, this is a result of historic proportions.

The lesson from the sovereign debt crisis is that solid finances are essential. Thanks to this approach Germany is in the vanguard in Europe. Our success with a policy of growth-oriented consolidation is the envy of the world.

(One can only imagine what he would have said if he weren’t being modest.)

It is thought the plans were rushed through ahead of the EU summit, so Germany could lead by example. The FT reports:

Wolfgang Schäuble, German finance minister, said on Wednesday that his budget for 2014, involving spending cuts of more than €5bn to trim the total below €300bn, was “a strong signal for Europe”.

He described the 2014 spending plan as “growth-friendly consolidation”, intended to prove to the rest of the eurozone that “consistent sustainable budgeting and growth are not mutually exclusive”.

It is thought that there is already some disagreement over how much to emphasize austerity in the final conclusions of the summit. FT reporters write:

According to a draft seen by the Financial Times, the conclusions call for “short-term targeted measures to boost growth and jobs” – a line that has come under criticism from a German-led group of northern eurozone countries.

All in all, today’s summit is likely to see some lively debate.

8.07am GMT

Tensions rise between France and Germany

The summit is also likely to reveal the growing tensions between Germany and France, the eurozone’s two largest economies.

French president François Hollande said earlier this week that he would not be able to cut the public deficit to the EU limit of 3% of GDP this year, and that it was more likely to come in at 3.7%, as a result of the country’s troubled economy.

German finance minister Wolfgang Schaüble, however, has since said that he was “sure that France would, like us, respect the rules” on the public deficit.

7.59am GMT

Growth not just austerity

With unemployment across the eurozone at record highs and Italy still reeling from the anti-austerity vote at its recent elections, EU politicians will be keen to show they are focussing on growth and not just belt-tightening.

One EU official told AP:

If there is no growth for 10 years then you can’t pay back your debt … there is not much room for manoeuvre.

As is the way with these things, a draft of the summit conclusions is already circulating. AP reports:

[The draft] says that with no upturn this year and “unacceptably high levels of unemployment”, it is critical to support growth “as a matter of priority”.

Stabilising public finances must be done through “growth-friendly fiscal consolidation”, it adds.

“Hiding in this language is the idea that you can stretch the time (to meet deficit targets) a bit … while those in a stronger position can increase expenditure,” another EU official said.

Updated at 8.00am GMT

7.40am GMT

Good morning and welcome to our rolling coverage of the eurozone debt crisis and other global economic events.

EU leaders gather in Brussels today for a two-day summit in an attempt to negotiate the difficult balance between austerity and growth.

Already, the protestors are gathering and have strung huge banners outside the EU headquarters proclaiming “Austerity Pact, No! Solidarity Pact, Yes!” (We’ll try and get pictures of that, as soon as we can.)

Eurozone finance ministers, meanwhile, will meet tonight after the summit closes to discuss a Cyprus bailout.

We’ll have all the news on that and other economic developments around the world as the day goes on.

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

Published via the Guardian News Feed plugin for WordPress.

Mar. 13, 2013 (Allthingsforex.com) – The euro was pushed further into the $1.20′s against the US dollar today after Italian borrowing costs rose at a debt auction and industrial production in the euro-area registered bigger than expected drop, while US retail sales rose at the fastest pace in five months.

Manufacturing output in the euro-zone declined by 0.4% m/m in January, compared with a forecast of -0.1% m/m and following the upwardly-revised 0.9% m/m increase in December.

The Italian Treasury sold two-year notes at 2.48%, higher than the 2.30% at a previous auction. Investors also demanded a higher 4.90% premium for Italian bonds maturing in 2028, compared with 4.80% prior yield for securities with the same maturity.

In contrast to the disappointing euro-area data, US retail sales beat the consensus forecasts for 0.5% m/m increase, rising by 1.1% m/m in February. The US dollar attracted more bids on signs that the recovery in the world’s largest economy is gaining traction.

Uncertainty about the future of Italy could add more pressure on the single currency in the days ahead.

A week after Fitch cut the country’s credit rating, the new Italian parliament gathers this Friday, March 15 for its first session following last month’s inconclusive election. The Democratic Party is struggling to form a coalition, desperately trying to reach an agreement with Beppe Grillo’s anti-establishment Five Star Movement. However, Grillo has been very clear about his opposition to an alliance with any of the main parties and has said that his movement wants to lead the next Italian government.

It seems highly unlikely that a workable coalition will be formed and this could push Italy one step closer to a new election later this year. In other words, we could be looking at months of uncertainty about Italy’s future, which could spook investor sentiment and could lead to rising borrowing costs, risk aversion and more euro weakness.

The euro is breaking below last week’s support at $1.2954, reaching as low as $1.2922 today and looks positioned for a challenge of the double bottom at $1.2875, established in December, 2012. A breach of this level could open the door to a test of $1.2803 and possibly the November 13, 2012 low at $1.2659.

 

 

Anti-establishment Five Star Movement said it wants to lead Italy’s next government following last month’s inconclusive elections. The political uncertainty in Italy may mean the country misses a deadline for presenting its stability program to European authorities…

 


Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Grillo’s party stakes claim to lead Italy” was written by Josephine Moulds and Nick Fletcher, for guardian.co.uk on Monday 11th March 2013 15.36 UTC

3.36pm GMT

Ireland’s Kenny hits out at cost of bailout

Irish prime minister Enda Kenny sought to pressure on his European partners by claiming that the EU in Brussels and the European Central Bank in Frankfurt compounded Ireland’s fiscal woes over the way they handed the Republic’s banking debt. Our Ireland correspondent Henry McDonald writes:

The Taoiseach used a speech to the Mansion House in London to claim that the punitive nature of banking debt, imposed from the EU and ECB, only deepened the financial errors of the last Fianna Fail led government.

Kenny said the €64bn cost of bailing out Irish banks had imposed huge financial burdens on the public back in Ireland and it was time Europe took notice.

He told his audience in the City of London that having the Irish public shoulder that burden was primarily the responsibility of the previous government.

But the bail-out programme crafted in the EU and ECB had put huge pressures on the Irish people.

His remarks are designed to persuade the EU and ECB to ease the burden of banking debts to foreign bondholders for toxic financial institutions like the now defunct Anglo Irish Bank.

The Irish Premier will meet David Cameron later to discuss deepening Anglo-Irish trade and garner support from the UK for a deal from Europe on Irish banking debts, that continue to cripple the national finances.

3.24pm GMT

People of Freedom in court protest supporting Berlusconi

Dozens of parliamentarians from Silvio Berlusconi’s centre-right People of Freedom party have been protesting outside a Milan court against the former prime minister going on trial.

Judges have ordered checks to be made on Berlusconi, who has been in hospital since Friday with an eye problem. The trial focuses on claims of paying for sex with a minor, but Berlusconi faces a number of court hearings in separate trials this month.

He denies any wrongdoing, and claims he is being persecuted by left-wingers who want to end his political career.

In the acrimonious battle around Berlusconi in the wake of Italy’s inconclusive election, the protestors say the trial is scandalous and not the normal functioning of a justice system. As for the man himself:

3.13pm GMT

Greece’s central government budget had a deficit of €813m at the end of February, deputy finance minister Christos Staikouras has told reporters.

There was a surplus of €177m in January, reports Reuters. This excludes spending by local authorities and social security organisations.

2.39pm GMT

Italy may miss deadline for presenting stability programme to EU

The political uncertainty in Italy may mean the country misses a deadline for presenting its stability programme to European authorities, one of its diplomats said.

The unnamed Italian diplomat said to Reuters:

Due to the political stalemate, Italy may delay the presentation this year of the national stability programme to the European Commission, due by the end of April.

But the commission has not yet received any notice of a possible delay. An EU official told Reuters:

Governments have until the end of April to present their stability programmes and we don’t have any indication at this stage that that won’t be met.

Updated at 2.40pm GMT

2.24pm GMT

With Italy’s Pier Luigi Bersani struggling to form a workable coalition, Renzi may be the man to take the party forward.

Reuters reports:

Now Renzi is waiting for his moment as Bersani fights for survival, desperately trying to reach an agreement with Grillo that will allow him to form a minority government with backing from the anti-establishment 5-Star Movement.

With Grillo pouring insults on Bersani at every opportunity, the 61-year-old center left leader looks to have only a tiny chance of success, despite near unanimous backing from his Democratic Party (PD) leadership this week.

The market-friendly Renzi challenged Bersani in party primaries back in November, threatening to “scrap” Italy’s old leadership.

He was roundly beaten as the party machine mobilized PD cadres to support the leader. But Bersani’s terrible election campaign has opened the way for a comeback.

And with that, I’m handing over to my colleague Nick Fletcher.

Updated at 2.35pm GMT

2.12pm GMT

Italians back Renzi for prime minister over Bersani

Back to Italy, where the young mayor of Florence is emerging as one of the big winners from the inconclusive elections.

At just 38, Matteo Renzi is, according to Reuters “an electric, fast-talking and articulate performer who paces the stage in his shirt sleeves pushing just the right buttons to whip up a crowd”.

This contrasts sharply with the leader of his party, Pier Luigi Bersani, whose drab campaign meant the Democratic Party only scraped a victory and failed to win control of the senate.

Tellingly, a recent poll showed that 28% of Italians support Renzi for prime minister, while only 14% want Bersani.

1.45pm GMT

Students protest in Athens

Over in Greece, the protests continue, with students now protesting outside the parliament building.

Photo via @MakisSinodinos.

1.41pm GMT

One in four Germans would vote to quit euro

Following news of the rise of the anit-euro movement in Germany (see 10.02am), it seems it could win substantial backing in the upcoming German elections.

Reuters reports that one in four Germans would vote for a party that wants to quit the euro, according to an opinion poll published today.

The poll conducted by TNS-Emnid for the weekly Focus magazine showed 26% of Germans would consider backing a party that wanted to take Germany out of the euro and as many as four in 10 Germans in the 40-49 age bracket would do so.

12.04pm GMT

Pound tumbles on diverging fortunes of US and UK

Sterling has hit a new two-and-a-half year low against the dollar, as investors bet against the UK’s economic fortunes.

Strong US jobs numbers last week stoked speculation that the Federal Reserve would, at some point, cut back on its massive stimulus programme.

In the UK, however, there is increasing evidence to suggest the economy is headed for its third recession in four years, which would likely drive the Bank of England to expand its quantitative easing programme.

Just to recap, with these stimulus programmes the central banks print more money to pump into the economy, therefore making the currency worth less.

Sterling dropped 0.3% to $1.4868, its lowest point since mid-2010.

11.42am GMT

European parliament chief say Europe risks losing a generation

Attempts to rescue the eurozone from crisis have failed, or that appears to be what the president of the European parliament is saying in a very frank interview with Reuters. Martin Schulz, a German socialist who leads the European parliament told Luke Baker:

We saved the banks but are running the risk of losing a generation. One of the biggest threats to the European Union is that people entirely lose their confidence in the capacity of the EU to solve their problems. And if the younger generation is losing trust, then in my eyes the European Union is in real danger.

Schulz said he had recently taken part in a debate where he was challenged by a Spanish woman over the issue of young people being abandoned for the sake of rescuing wealthy banks.

She effectively raised the question: ‘You have given €700bn euros for the banking system, how much money do you have for me?’” he said. “And what is my answer?

If we have €700bn to stabilise the banking system, we must have at least as much money to stabilize the young generation in such countries.

We are world champions in cuts, but we have less idea … when it comes to stimulating growth.

Updated at 12.00pm GMT

11.28am GMT

Growth firming in OECD

There is happier news from the rest of the world. The OECD said this morning that the economic outlook in major industrialised economies is improving, with the US and Japan leading the way.

The Paris-based think tank’s latest monthly indicator for the OECD’s 33 major industrialised countries pointed to firming growth.

Its indicator rose to 100.4 from 100.3 in December, rising further above the long-term average of 100. The US showed the strongest improvement with a reading of 100.9.

11.18am GMT

Portuguese GDP decline accelerates

And over to another crisis-hit country… Portuguese GDP dropped 1.8% in the fourth quarter.

That’s a very bad result as it shows a rapid acceleration in the contraction of the economy, driven by a fall in exports.

Portugal is weighed down by a stinging austerity package, which many say have worsened the country’s economic outlook.

Today’s figures confirm original estimates and provide new data showing exports dropped 2.4% in the fourth quarter.

11.12am GMT

Greece remains mired in deep recession

The Greek economy, meanwhile, contracted by 5.7% in the fourth quarter, a slight improvement on initial estimates of a 6% decline.

That points to Greece contracting by 6.4% over the year, an improvement on the 7.1% contraction in 2011.

10.56am GMT

Italy’s fourth quarter GDP figures confirmed the economy remained deep in recession at the end of last year.

Recent business surveys, which provide more up-to-date information, point to further sharp falls in GDP this year, while the ongoing political uncertainty will put spending under pressure. As a result, Capital Economics estimates the Italian economy could contract by as much as 3.5% this year.

Looking at the French industrial production figures (see 8.32am), Capital Economics says it looks likely that France will officially re-enter recession this quarter.

Which just adds to a gloomy picture for the region as a whole. They write:

In all, then, the latest hard data, like the timelier business and consumer surveys, suggest that the euro-zone probably remained in recession in Q1. Given this, we continue to think that the consensus forecast for a fall in euro-zone GDP of just 0.2% this year is much too optimistic.

10.47am GMT

Italy likely to face new elections this year

The Italian parliament has its first session on Friday, which analysts at RBS say will “mark the start of a season of political instability which will likely lead to new elections”. RBS expects the elections to be announced this year.

Alberto Gallo writes:

Meanwhile, political gridlock is likely to turn into economic gridlock. With uncertainty about tax and labour reforms, Italian firms are even less likely to invest, and banks less likely to lend

He says the debt markets “continue to underestimate the risk of political instability in Italy and in the periphery, and the calls for a switch from a pro-austerity fiscal compact to a growth compact”.

We think these risks will emerge more strongly as the possibility of new elections in Italy becomes reality – which is no earlier than May 15.

10.23am GMT

Markets too sanguine on Italy – analyst

Another voice has joined the crowd cautioning that the markets are “too sanguine about Italy”.

Hugo Dixon writes in Reuters’ Breaking Views:

The country’s politics and economics are messed up – and there are no easy solutions. And while Rome does have the ECB as a backstop, it may have to get to the brink before using it…

The most likely scenario then is that Italy will be forced into a second election which will still produce no clear winner. If the 5-Star Movement is the largest party, markets could panic. If one of the other two comes out ahead, there will have to be renewed discussions over a grand coalition. Even then, a further rise in bond yields may be needed to knock heads together. Meanwhile, the recession will drag on and the fiscal position will worsen. Not a pretty picture.

The markets appear to be paying attention to this growing chorus of doom-mongers and the yield – effectively the interest rate – on Italy’s 10-year government debt is rising.

It ticked up 7.2bps this morning to 4.665%, according to Tradeweb, after Fitch downgraded Italy’s debt on Friday. That is still considerably lower than the dangerously high levels it hit last year of more than 6.5%.

10.02am GMT

Rise of anti-euro movement in Germany

Meanwhile in Germany, a new movement has formed intent on abandoning European efforts to prop up the common currency. And, reports Der Spiegel (in English), its founders are a collection of some of the country’s top economists and academics.

Charles Hawley writes:

Named Alternative für Deutschland (Alternative for Germany), the group has a clear goal: “the dissolution of the euro in favor of national currencies or smaller currency unions.” The party also demands an end to aid payments and the dismantling of the European Stability Mechanism bailout fund.

The movement has not yet formally become a political party, but reportedly plans to do so in the middle of April. Even then, writes Hawley, it is not yet certain that the party will be able to collect the requisite number of signatures in time to be included on the ballot in general elections this autumn – a minimum of 2,000 in each of Germany’s 16 states or 0.1% of each state’s population, whichever is lower.

If it does, he says the party could attract a number of protest votes.

Ultimately, the party’s success will likely have more to do with the state of the common currency as the election approaches. Should the crisis flare up, so too could anti-euro sentiment. That sentiment in Germany now has a political home.

Updated at 10.16am GMT

9.40am GMT

Lagarde could face formal investigation – Sunday Times

IMF chief Christine Lagarde could be forced to step down as a result of an inquiry into whether former French government officials were complicit in the payment of huge damages to a tycoon, the Sunday Times has reported.

Matthew Campbell writes:

Speculation is growing that Christine Lagarde, the former French finance minister who succeeded Dominique Strauss-Kahn at the helm of the IMF, may be placed under formal investigation after being summoned to answer questions by a judge in the next few days.

She is facing accusations of “complicity in embezzlement” of public funds for instigating an arbitration process that awarded £348m to Bernard Tapie, a controversial businessman who claimed to have been defrauded by a state-owned bank in the 1990s.

Lagarde, 57, has denied any wrongdoing, as has Stéphane Richard, the chief executive of France Telecom, her former chief of staff, whose home was raided by police last month.

9.27am GMT

Greek privatisation minister quits

Sticking with Greece, our correspondent in Athens Helena Smith reports in this morning’s paper that the country’s privatisation chief Takis Athanasopoulos has resigned after only a few months in the job. She writes:

In another setback for Greece’s reforms, Athanasopoulos resigned, after being charged with dereliction of duty in his former role as chief executive of the public utility PPC.

An official at the Greek finance ministry, Giorgos Mergos, also stepped down after being charged. Both men denied knowingly commissioning a loss-making plant when on the board of PPC, which led to losses of more than €100m for the state-owned power company.

Athanasopoulos said he welcomed the charges. “It gives me the opportunity to prove that the interest of the PPC and the state were fully served,” he wrote in a resignation letter, insisting his decision to step down had been motivated by the desire not to further impede Greece’s problem-plagued privatisation process.

9.23am GMT

More protests in Athens

Over to Athens, which has been rocked with protests and violence over the weekend. The so-called “indignants” returned to Syntagma Square last night to be met by riot police, who used tear gas on them and made at least one arrest.

This morning, the protests continue. ekathimerini reports:

Culture Ministry employees were holding a protest in central Athens on Monday morning, on their second 24-hour strike in the last four days.

The civil servants gathered outside the Culture Ministry as archaeological sites and state-run museums remain closed.

The ministry employees are protesting about their department’s new organizational chart amid concerns about their job security.

Elsewhere in the city, ekathimerini reports that a homemade bomb went off late last night outside a branch of a courier service. No injuries were reported and the building suffered minor damage.

An Acropolis police station, meanwhile, was subject to an arson attack. A statement online said that it had been carried out in remembrance of Lambros Fountas, the member of the Revolutionary Struggle urban guerrilla group, who was shot dead by police two years ago. Nobody was injured in the attack although it caused substantial damage.

Updated at 9.54am GMT

9.08am GMT

Italy poses ‘near and present danger’

But analysts still see political deadlock in Italy as a “near and present danger” for the eurozone.

Gary Jenkins of Swordfish Research says the most likely outcome from Italy’s inconclusive elections is that some kind of market-friendly resolution will be found. But he says that could come under threat if Italian politicians come into conflict with the ECB.

The promise by ECB chief Mario Draghi ‘to do whatever it takes’ has largely becalmed the markets, he writes. But that could be tested if the crisis-hit countries refuse to play by Draghi’s rules.

He notes Draghi’s response at last week’s ECB press conference to a question regarding the potential for Italy to depart from the strategy of austerity:

Italy, like all the other countries, should continue first on the structural reform path, which is the only way that can restore growth, and second build on the very significant fiscal consolidation it has reached. That is very important because that is what gives credibility in the markets and therefore lower spreads and therefore in the end lower lending rates, therefore more credit to the economy and more job creation. This is the path.

Jenkins writes:

Now that didn’t sound to me like a man who thought that it was appropriate for Europe to move away from austerity. Thus it could bring him into conflict with politicians before very long if the economy does not recover and job creation remains non-existent in the stressed countries of Europe. Whilst Mr Draghi has stated he will do ‘whatever it takes,’ that does not necessarily mean that he will immediately cave in to the demands of politicians.

If Italy ends up with an anti-austerity government, the market might therefore assume that the ECB’s promise of support via its bond-buying programme – the so-called OMT – could be weakening. Which could cause Italy (and consequently Spain)’s borrowing costs to escalate. Which could takes us back to the dark days of the crisis once more.

8.44am GMT

Italians in favour of sticking with euro

Back to Italy, where polls are showing a large majority if the population are in favour of staying in the eurozone and against a referendum on membership.

An opinion poll in Italian newspaper Corriere della Sera showed on Sudnay that 74% of Italians wanted to keep the euro, and just 16% wanted to return to the lira.

Almost 70% of Italians said they were either strongly or moderately against holding a referendum on membership of the eurozone, compared with 30% who though it was a quite good or very good idea.

That seems to conflict with last months’ election results, where parties critical of austerity measures imposed by Europe fared particularly well.

But the poll showed that even among voters for Beppe Grillo’s populist Five Star Movement, some 73% did not want to return to the lira and 65% did not want a referendum.

For his part, Beppe Grillo has toned down his rhetoric on the single currency and last month denied that he ever called for a euro exit.

All I said was that we want to be informed about a plan B on leaving the euro, on what happens if we stay in and what happens if we leave, this information is our right.

Updated at 9.53am GMT

8.32am GMT

French factory output slumps

Ouch. French industrial production dropped by 1.2% in January, compared with a 0.9% rise in December.

Factory output contributed to the decline, down 1.4% on the month.

Looking over a longer time-horizon, industrial production dropped 3.3% in November-January, compared with the same period 12 months previously.

Updated at 8.33am GMT

8.22am GMT

German imports rebound strongly

A quick look at the data out of Germany show the surplus narrowing in the eurozone’s largest economy.

Imports rebounded in January after two weak months to rise by 3.3%, their fastest rate of growth since last May.

Exports were also up, rising 1.4% in January (seasonally-adjusted), the biggest rise in five months.

The surplus came down to €15.7bn, bang in line with economist expectations.

8.16am GMT

Chinese data disappoints

There was disappointing data out of China over the weekend, with inflation at a 10-month high in February while factory output and consumer spending were weaker than forecast.

First off, the inflation numbers. Official data showed the consumer price index rose 3.2% in February from a year ago, compared with expectations of a 3% rise. That could temper hopes that the Chinese government will boost spending in order to drive growth, which had lifted markets last week.

Annual growth in industrial production also slowed to 9.9% in January and February, compared with estimates of 10.6%.

While retail sales figures came in well below expectations, rising 12.3%, compared with forecasts of a 14.5% rise. That will raise concerns about domestic demand, particularly in light of rising prices.

Xu Gao at Everbright securities told Reuters:

This data shows that the economy is in the process of a mild recovery and that it is still fragile. It faces a lot of uncertainties.

7.58am GMT

Today’s agenda

There’s some key data out ahead of the eurozone summit later in the week, with German trade figures already released and some indication of the health (or otherwise) of the French economy.

  • Germany trade balance (January): 7am
  • France industrial production (January): 7.45am
  • Italian GDP (Q4 final revision): 9am

We’ve also got the final revision to Greece’s fourth quarter GDP, Spain’s budget balance for January, and inflation figures out of Ireland.

Updated at 7.58am GMT

7.42am GMT

Good morning and welcome to our rolling coverage of the eurozone crisis and other global economic events.

This weekend, the party set up by comic-turned-politician Beppe Grillo – the Five Star Movement – said it wanted to lead the next Italian government and reiterated its opposition to an alliance with any of the main parties.

Reuters reports:

The movement’s newly elected parliamentary leaders told reporters it would make this position clear to President Giorgio Napolitano when he begins consultations later this month on the formation of a government.

“Our proposal will be a Five Star government,” the movement’s Senate leader Vito Crimi said after a meeting of its lawmakers in a Rome hotel.

It is unlikely that the other parties would accept a government led by the 5-Star Movement. This is partly because of policy differences and partly because although it was the most voted single party at the election, 5-Star has fewer seats in parliament than the center-left and center-right coalitions.

Italy was downgraded by Fitch on Friday to BBB+, with a negative outlook due to “increased political uncertainty and a non-conducive backdrop for further structural reform measures constitute a further adverse shock to the real economy”.

The country also awaits the final revision to fourth quarter GDP at 9am. We’ll have all the news on that and other developments in the eurozone and beyond.

Updated at 9.52am GMT

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In the broadcast today: Is the EUR Ready to Transition Into the $1.20′s? With the new post-election Italian Parliament meeting for the first time in the week ahead and with another EU Summit on the horizon, we focus on the EUR and examine the factors that could push the single currency’s exchange rate vs USD further into the $1.20′s, we list the Top 10 spotlight economic events that will move the markets next week, we examine the consensus forecasts for the upcoming economic data, we analyze the latest trend developments in the EUR/USD currency pair, we take a close look at the persistent weakness in the GBP/USD pair, we keep an eye on the unstoppable rally of the USD vs JPY, we highlight the market’s reaction to the Japanese GDP and Current Account, the Canadian Employment and Unemployment Rate, and the U.S. Non-Farm Payrolls, we discuss new forecasts from Bank of New York-Mellon, Westpac Banking Group and Barclays, and prepare for the trading session ahead.

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Center-left leader Pier Luigi Bersani tells his party he can lead next Italian government. Bersani’s eight-point plan reveiled. Bank of Canada keeps rates on hold. Dow registers another all-time high, hitting 14,320 in early trading this morning…



Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Bersani vows to break Italy’s austerity trap” was written by Graeme Wearden (until 3pm) and Nick Fletcher (now), for guardian.co.uk on Wednesday 6th March 2013 16.09 UTC

3.42pm GMT

Portugal must press on with reforms, says prime minister

Portugal’s Prime Minister Pedro Passos Coelho said the country must press on with its budget adjustment and structural reforms, to ensure the continuing support of its EU partners. He told parliament:

It is only possible to have our partners ready to help us in returning to debt markets as long as we are successful in executing the bailout programme in a credible way.

We need to proceed with firmness and resilience.

Updated at 4.09pm GMT

3.21pm GMT

Dow hits another new peak in early trading

Following the positive US jobs numbers earlier, the Dow Jones Industrial Average has got off to a strong start in early trading which means, yes, it’s at another new peak, hitting 14,320.

This rise comes amid hopes of further central bank stimulus despite – or because of – the disagreements over the current US spending cuts. Christopher Vecchio at DailyFX said:

On the surface, political tension is ominous; we’ve seen over the past several years what division in Europe and the US can do to investors’ sense of security.

This time, however, political division in the US might be forcing the Federal Reserve’s hand in keeping interest rates low as the economy struggles with balancing growth (a strengthening US consumer) and austerity (higher taxes and lower government spending).

In a sense, then, the political gridlock embracing the world’s largest economy is a bullish catalyst, because it means the Fed will need to continue its expansive quantitative easing policies.

Updated at 3.44pm GMT

3.14pm GMT

Canada keeps rates on hold

Over to Canada, where the central bank kept its interest rates on hold at 1% and seemed to hint at a further delay in any increase.

The bank, whose governor Mark Carney is set to take over at the Bank of England from Sir Mervyn King, has been signalling for some months the next move would be upwards. In January it said a move was “less imminent” and now it talked of keeping rates on hold “for a period of time.” Its statement said:

With continued slack in the Canadian economy, the muted outlook for inflation, and the more constructive evolution of imbalances in the household sector, the considerable monetary policy stimulus currently in place will likely remain appropriate for a period of time, after which some modest withdrawal will likely be required, consistent with achieving the 2% inflation target.

2.53pm GMT

Greek students protest in Athens

In Athens, university students have been demonstrating outside the parliament in protest at plans to overhaul the Greek university system.

It’s the latest in a string of protests against cuts to the Greek education system. This includes merging or shutting down 384 departments and faculties across Greece’s universities and technical colleges. Some institutions are expected to close altogether.

Teachers say will cause deep, permanent damage to standards in the sector

The government, though, has argued that it is vital to make cutbacks to save funds.

Here are some photo’s from today – a reminder that anger over austerity cutbacks has not diminished.

Keep Talking Greece has a report on the protests here, in which it gives the reform measures a rather withering verdict:

The plan seems to have been worked out the usual …Greek way: without thorough thought, without academic logic and without taking into consideration the real life factors. For example:

- The merger will force students of Public Relations Department in Agrinio to get a diploma in Economics.

- In some areas, the closure of technical colleges will force students to relocate 200-300 km away. And this in times of economic hardship for the students and their families.

(and with that, I’m handing over to my colleague Nick Fletcher. Thanks. GW)

1.59pm GMT

The Democratic Party meeting is continuing in Italy today. Eurasia Group’s Wolf Piccoli flags up that former Italian PM Massimo D’Alema has spoken, and given some limited backing to Pier Luigi Bersani.

Former leadership candidate Mattei Renzi, though, appears to have remained quiet.

1.36pm GMT

Some encouraging news from the US – the number of people employed in the private sector rose by 198,000 in February, beating forecast of a 170,000 rise.

1.12pm GMT

Surprise Polish rate cut

Unexpected news from Poland – its central bank has just cut interest rates by 50 basis points, to 3.25%.

Economists had been split between those forecasting a 0.25% cut, and those plumping for no change.

A reminder that central bankers can pull unexpected moves — and we’ve got the Bank of England and the European Central Bank setting monetary policy tomorrow.

And Canada later today….

12.53pm GMT

There was quite a media scrum outside the Democratic Party’s meeting today – here’s a couple of photos:

12.24pm GMT

Italian government bonds rally

Italian government debt has risen in value today, reversing the spike in borrowing costs seen after last week’s general election.

The yield (interest rate) on Italy’s 10-year bonds is down at 4.6% today, down from 4.74% last night. Spanish yields are also lower, dropping to 4.99%.

That suggests bond traders are moving back into peripheral eurozone debt, and are less worried about the crisis blowing up again.

Analysts say that the talk of a new technocratic government in Italy (see 8.34am) has calmed the markets.

11.28am GMT

Lizzy Davies on Bersani’s big speech

Our Rome correspondent, Lizzy Davies, says there were “no big surprises” from Pier Luigi Bersani this morning (see 9.28am onwards).

Lizzy writes:

Bersani insisted once again that it was the PD’s responsibility to try to form a government, he outlined an eight-point “programme of essentials” which ranged from a conflict of interest law to measures to get Italy “out of the cage of austerity”.

(those eight-points are summarised here.

Many of these run along the same lines as the M5S, but Bersani took the opportunity to deny he was “courting” Beppe Grillo but merely trying to understand what had led to its success.

He ruled out- again- any cooperation with Berlusconi’s centre-right, but said the PD was open to discussion with other parties, in particular with Mario Monti’s Scelta Civica.

But he reiterated that the ball was in the PD’s court. “The other parties cannot offer something better in terms of governability; they have neither the intentions nor the numbers,” he said, according to the Ansa news agency. “Apart from some ideas to block our path, they don’t have anything to say to the country.”

Poor Bersani, though. Although this was his big speech, many eyes are on another man in the room: Matteo Renzi, the young mayor of Florence who fought against him in the leadership primaries last year. Renzi, who met with Monti yesterday at Palazzo Chigi, is, for the moment, rejecting any suggestion that he could seize this inglorious moment in the party’s history to make his move.

That doesn’t, of course, stop commentators from speculating furiously. It will be very interesting to see what he says later.

Updated at 11.45am GMT

11.14am GMT

Key event

Here’s some instant reaction to Sir Mervyn King’s call for a new strategy for the Royal Bank of Scotland (see 11.05am):

11.05am GMT

Mervyn King: It’s time to come clean about RBS

Meanwhile, Sir Mervyn King has dropped a bombshell on the UK banking sector by calling for a radical shakeup of the way Royal Bank of Scotland is being managed.

King said that RBS needed to admit the true scale of the bad loans on its balance sheet.

He argued that RBS’s failure to write down bad loans was holding the company back, and the wider economy. He wasn’t directly critical of chief executive Stephen Hester, but insisted that a different approach was needed.

The governor told the Banking Standards commission that the losses on RBS’s balance sheet don’t go away simply because they haven’t been recognised yet

As he put it:

This has dragged on unnecessarily long….

I would certainly be prepared to lend my support to those who would argue that it is better to recognise [the situation and restructure RBS].

King added that the Treasury should not worry about the effect of the plan, on the public finances (more public money would probably be pumped into the bank to cover the ‘new’ losses).

Lord Lawson, the former UK chancellor, said King’s proposal was “very important indeed”, and could give a much-needed boost to small business lending in Britain.

It’s a pretty jaw-dropping intervention from the governor, two weeks before the next UK budget.

Reaction to follow!

Updated at 11.36am GMT

10.56am GMT

Democratic Party leaders are now discussing Bersani’s plan.

10.55am GMT

Bersani ended his speech by calling on the Five Star Movement (M5S) to engage with the democratic process:

Beppe Grillo has previously said that M5S could support specific measures that fit with its own priorities.

10.39am GMT

Bersani’s eight-point plan for a government of change

Important developments at the Democratic Party meeting. Pier Luigi Bersani has unveiled the eight-point plan which he hopes to base a government around.

Bersani also ruled out a grand coalition with Silvio Berlusconi’s centre-right alliance.

Instead, he pledged to propose a ‘government for change’ based around an “essential programme”.

The first challenge is to break out of the ‘cage of austerity’ created by Europe’s policy of fiscal consolidation. The first priority must be to help the real economy – only then should Italy turn to deficit and debt reduction, he says.

The remaining points are:

2) Measures to tackle the social emergency in Italy

3) Reform of its political system;

4) New measures on equity & justice

5) New rules on conflict of interests;

6) Green economy & sustainable development

7) Working on legislation on citizenship rights for migrants & civil partnerships;

8) Improve education, and research & development

Bersani also argues that Italy could play a key role in changing Europe’s economic policies.

10.23am GMT

Speaking of bonus caps, Conservative MP Douglas Carswell and French MEP Philippe Lambert have clashed over the issue on Bloomberg TV:

10.18am GMT

King: bank bonus caps are a distraction

Sir Mervyn King also weighs in on bank bonuses caps, arguing that the measures will be neither as effective as supporters claim, or as devastating as critics argue either.

They will, though, be a distraction at a time when there are bigger issues to solve.

King remains critical of the sector, though, saying banks have “lobbied intensively” on the leverage ratios they are allowed to run, in an attempt to maximise the return on their investments and thus the size of the bonuses.

10.14am GMT

Meanwhile, in parliament, Andrew Bailey — the Bank of England’s deputy governor for prudential regulation — has criticised the European clampdown on banking bonuses.

Bailey argues that it is mistake to peg bonuses at 100% of annual salaries, because it will undermine efforts to keep bankers on the straight and narrow (as basic salaries may rise to compensate them).

Fixed remuneration is cash out of the door — it’s much harder to get something back from someone once it’s paid to them.

Bailey argues that there has been real progress over bonuses in recent years, pointing out that bonus pools have shrunk recently because of fines imposed on banks (eg RBS following its Libor fine). Bonuses have also been clawed back in the cases of malice, he adds.

Bottom line: until Britain has fixed its ‘too big to fail’ problem, Bailey doesn’t want the bonus structure shaken up in the way the EU has agreed.

(speaking of bonuses, reader zippyp flags up an article arguing that the media got rather too excited about the EU bonus battle yesterday.

It’s here: EU legislation: blundering in the dark. )

Updated at 11.40am GMT

10.06am GMT

Monti, though, wasn’t the only leader who fell short in the Italian election. Bersani concedes that the result was a disappointment, and effectively a defeat

(hard to argue, given the Democratic Party entered the contest with a strong lead)

10.00am GMT

Back to Pier Luigi Bersani. He has pointed out that Mario Monti, the technocratic PM, failed to win enough support to play a significant role in the next administration.

9.54am GMT

9.52am GMT

Meanwhile, Bank of England governor Sir Mervyn King is up at the Banking Standards commission. It’s being streamed here.

King starts by agreeing that UK banks are still too important, and too big to fail.

9.52am GMT

Some more headlines from Bersani’s speech:

9.49am GMT

On the Five Star Movement, Bersani says the challenge is not to woo Beppe Grillo but to understand the reasons behind the former comic’s rise.

He’s also talking about the need to reform Italy’s political system.

9.46am GMT

Pier Luigi Bersani begins by warning that Italians are becoming poorer since the financial crisis struck, and speaks of a political earthquake that is shaking democracies across Europe, and

He takes a swipe at Silvio Berlusconi too, saying his rival had brought discredit to the Italian political system during his years in charge.

9.28am GMT

Not yet..

Correction, it appears that the Democratic Party meeting starts later than I thought.

The hall is filling up with PD members, but there’s no sign of Pier Luigi Bersani yet.

Here’s the scene:

Incidentally, this is a better webstream, on http://www.europaquotidiano.it

(the first one I linked to is running adverts).

9.03am GMT

Stock markets rise again

Europe’s stock markets are climbing again today, following yesterday’s rally which saw the FTSE 100 hit a five-year high and the Dow Jones smash a new record.

Here’s the situation:

FTSE 100: up 17 points at 6450, + 0.28%

German DAX: up 43 points at 7914, +0.56%

French CAC: up 15 points at 3802. +0.4%

Spanish IBEX: up 34 points at 8457, +0.4%

Italian FTSE MIB: up 20 at 15994, +0.14%

8.50am GMT

What might happen this morning

Here’s some early thoughts on Bersani’s meeting today, from Alberto Nardelli, blogger, entrepreneur and Italian politics expert:

The party will back Bersani’s line to have a go at trying get the backing of parliament. As the largest coalition in both houses, procedure-wise, this is the right thing to do.

[however this is likely to fail as M5S has reiterated multiple times it will not provide a confidence vote].

As a plan B, while Bersani’s current approach seems to point to an immediate election as the only alternative to working with the M5S, the PD (Democratic Party) directive is likely to budge from this “Grillo or Bust” approach and open up to a greater flexibility towards alternative options (such as backing PMs/governments proposed by the president).

And if PD did support a technocratic government, it’s possible that fresh elections could be put off for a year or so.

8.43am GMT

Watch Bersani’s meeting

Pier Luigi Bersani’s meeting should be streamed online, here: www.youdem.tv

Updated at 9.10am GMT

8.34am GMT

Bersani to outline plan to form next Italian government

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

After yesterday’s focus on bankers bonuses, we’re back in the world of Italian politics this morning. Pier Luigi Bersani, the centre-left leader, will address senior members of his Democratic Left party shortly to outline how plans to form a government.

Having failed to win control of the Italian Senate, but holding a majority of seats in the lower house, Bersani still believes he can take power. But with the radical Five Star Movement (M5S) sticking to its guns and refusing to join Bersani or his rightwing rival Silvio Berlusconi in a coalition, it’s still unclear how the deadlock will be broken.

The key could be to design a legislative programme, and a new cabinet, that sufficient M5S’s senators are prepared to support.

Bersani is due to address about 100 members of the party’s top internal body at 10.00 am in Rome, or 9am GMT.

The meeting comes as speculation swirls that an unelected prime minister could be the answer. President Georgio Napolitano is reportedly considering installing a second technocratic PM to succeed Mario Monti.

As one government official told Reuters last night:

Napolitano wants a government with the broadest possible support that will last as long as possible.

We’ll be tracking Bersani’s meeting, and other key events across the eurozone and beyond.

That will include Sir Mervyn King’s appearance before the banking standards committee of parliament this morning (from 9.45am). The outgoing Bank of England governor will give his view on the financial sector, following the Libor scandal.

Updated at 9.23am GMT

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

Published via the Guardian News Feed plugin for WordPress.

Spain’s Labor ministry reports a 1.2% rise in unemployment in February. Eurogroup finance ministers to discuss aid package for Cyprus, while Italy could see reelection. Weekend protests in Lisbon. Beppe Grillo meets new parliamentarians…



Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Spanish jobless total hits five million; Cyprus bailout talks resume” was written by Graeme Wearden, for guardian.co.uk on Monday 4th March 2013 16.00 UTC

4.00pm GMT

Osborne faces (losing?) battle over bonus caps

Today’s eurogroup meeting is, for once, just a taster ahead of the big action tomorrow — a clash between Britain and the rest of the EU over the plan to cap bankers bonuses.

George Osborne, the UK chancellor, is hoping to make last-ditch changes to the plan, announced last week, to cap performance-related payouts at 100% of salaries. He’s likely to fail.

Our Europe editor, Ian Traynor, sets the scene:

In a highly unusual defeat for the British financial services sector, illustrating the UK’s deepening isolation in Europe and the reluctance of EU partners to do Britain any more favours, finance ministers of the other 26 are expected to endorse new legislation to slash “fat cat” bonuses.

The decision to limit bonuses ordinarily to a year’s salary was made last week at hard-fought negotiations between the European Parliament and officials from the 27 member states. Despite David Cameron’s denunciation of the deal and Osborne’s pledges to contest it, the decision appears irreversible. The UK is unable to wield a veto as Tuesday’s decision can go to a qualified majority vote if necessary.

Britain has been unable to muster enough allies to block the proposal. Its likeliest supporters, Sweden, The Netherlands, and, most crucially, Germany have all come out in favour of capping bonuses.

After David Cameron’s success over the EU budget, it looks like Britain is returning to familiar isolation, as it cannot block the plan. However, Osborne could perhaps win some concessions…. More here

2.31pm GMT

The early news from the Five Star Movement meeting is that Beppe Grillo has reiterated that the party will not support any government in a vote of confidence (which is essential for a new administration to take power):

2.10pm GMT

Key event

Here’s a live feed of the Five Star Movement’s meeting:

2.05pm GMT

Watch Five Star Movement live

The meeting between Beppe Grillo and the new Five Star Movement parliamentarians has begun in Italy, and is being live-streamed at Grillo’s site (click here).

Unfortunately, the site appears to be struggling under the weight of traffic. I’ll try and embed the livestream. Otherwise, I’ll drop in the highlights ASAP.

1.42pm GMT

Jeroen Dijsselbloem, Dutch finance minister and the new head of the Eurogroup, has told reporters in Brussels that he hopes to make progress on Cyprus’s bailout application today.

Dijsselbloem said he was looking forward to meeting the “new colleague from Cyprus”, following last month’s presidential election. However, the big breakthrough won’t come today.

Dijsselbloem added:

Of course we’re very glad that there is a new government that we can work with, to find a solution for Cyprus.

As I’ve said before we’re probably going to reach an agreement in March, that’s what we’re aiming at, and it’s going to be an agreement that works on stabilisation, both for Cyprus and the eurozone as a whole.

The full video clip is here.

Updated at 2.19pm GMT

1.14pm GMT

Latvia to eurozone: room for one more?

Latvia has taken the plunge and decided to apply to join the eurozone.

Finance minister Andris Vilks told reporters this morning that the application will arrive in Brussels tomorrow, adding:

This is a day that will enter Latvia’s history.

It’s caused a bit of a buzz in Brussels, where eurocrats see it as a sign that the euro project is still on the road.

Our Europe editor, Ian Traynor, told us all two weeks ago that the application would come in March. That article is well worth a read, with prime minister, Algirdas Butkevicius, explaining exactly why Latvia still wants to join the euro club. It’s all about the security:

“We see it as a kind of insurance mechanism,” said Dombrovskis. “We don’t expect to go back into a crisis. We’re sticking with prudent fiscal policies and we don’t expect to overheat our economy again.

“And whatever happens to the euro happens to us anyway. Our economy is completely euro-ised: 80% of borrowing, households and businesses, is in euros. This will help financial and economic stability.”

12.29pm GMT

In Italy, masks and meetings

The political situation in Italy remains masked (ahem) in uncertainty today.

Last night, centre-left leader Pier Luigi Bersani threw down a challenge to the Five Star Movement (M5S) warning leader Beppe Grillo that “we’ll all go home” unless he backed a temporary government.

Speaking on Italian TV, Bersani declared that:

“He heads a movement that has a third of the Chamber, he needs to decide what he will do or we will all be sent packing, including Grillo.

Bersani’s failure to win a majority in the Italian Senate, and his refusal to form an alliance with Silvio Bersluconi, leave the former communist dependent on some kind of agreement with M5S.

Grillo himself has taken to wearing a mask in public, in an effort to deter journalists from asking about his plans. Over the weekend he indicated that he might support a government that was committed to cleaning up Italian politics (a prospect he saw as somewhat remote)

The situation could develop today – Grillo is due to meet with his new parliamentarians to discuss strategy. And Bloomberg are reporting that M5S is considering abstaining in an up-coming confidence vote. That, if it happened, would help a minority government to be created.

Here’s the Bloomberg story:

Beppe Grillo’s senators-elect, who hold a blocking minority in Italy’s upper house of parliament, may consider staging a confidence-vote walk-out to allow a political rival to form a government and ease gridlock.

Grillo’s Five Star Movement is seeking to influence the program of Italy’s next government and would require policy concessions in exchange for a walk-out, said two senators-elect who declined to be identified because no deal has been made. Five Star won’t vote to support any government, they said.

Walking out would lower the threshold for achieving a majority in the Senate confidence vote, making it easier to secure enough backing for a new government.

Updated at 12.35pm GMT

11.01am GMT

Eurozone investor confidence slides

The political mess in Italy has alarmed investors, whose growing confidence over the euro area has taken a knock this month.

The monthly eurozone investor confidence index, conducted by Sentix, has dropped to -10.6, down from -3.6 in February. That shows that investors across the eurozone have grown more nervous, reversing a six-month trend.

Sentix blamed the Italy election results:

The reason for this setback is obvious: it is the outcome of the election in Italy which has caused uncertainty over the country’s future development to skyrocket….This has had a negative impact on the whole euro zone.

Updated at 11.31am GMT

10.40am GMT

Chinese stock market tumble hits Europe

Most of Europe’s stock markets have fallen this morning, after the main Chinese indices suffered an alarming sell-off.

Overnight the CSI 300 share index (which includes the biggest companies on the Shanghai and Shenzhen markets) slumped by 4.6%, its biggest daily fall since November 2010. The Shanghai Composite index shed 3.7%, with property companies the biggest fallers.

The selloff was prompted by a new clampdown on speculators, and plans to force second home owners to pay higher interest rates and larger deposits

Some traders also blamed an investigation into China’s ‘ghost towns’ — newly built residential areas where no-one actually resides — by CBS News’s 60 Minutes. 

It showed images of vacant shops, empty streets, and half-built apartments where work appears to have suddenly stopped – suggesting that the Chinese property bubble may be bursting….

Here’s a video clip:

And here’s the situation in Europe:

FTSE 100: down 24 points at 6353, – 0.4%

German DAX: down 42 points at 7665, -0.5%

French CAC: down 8.5 points at 3691, – 0.23%

Italian FTSE MIB: down 146 points at 15528, -0.93%

Spanish IBEX: up 22 point at 8210, +0.3%

Updated at 10.40am GMT

10.15am GMT

Sharan Burrow, head of the international Trade Union Movement, argues that the International Monetary Fund should heed the public anger in Portugal.

She argues that austerity is being challenged across Europe, with Dutch unions now clashing the Netherlands government over a €4bn cuts package.

In the Netherlands, the government wants new wage freezes and tax rises after an official estimate that the Dutch budget deficit will hit 3.3% in 2013 and 3.4% per cent in 2014, over the EU’s 3% target.

Ton Heerts, head of the FNV federation of unions, has slammed the proposal as “stupidest thing you could do right now”, warning it will make the Dutch recession even worse (the FT has more details).

10.03am GMT

Photos: the Lisbon Protests

Here’s a few snaps from Saturday’s anti-austerity demonstrations in the Portuguese capital:

Updated at 11.30am GMT

9.50am GMT

Why Portugal is seeking new baIlout terms

Last weekend’s protests in Portugal were some of the largest seen in Europe during the crisis.

Organisers said that half a million people joined the demonstrations in Lisbon, with hundreds of thousands more attending other protests st some thirty cities (photos to follow).

The huge crowds in Lisbon’s Praca do Comercio square chanted, “It’s time for the government to go”, and there were also slogans declaring “Austerity Kills” and “Screw the Troika”.

Last week, Portugal’s government insisted it could not change its austerity programme, saying it would be “rudderless in a sea of storms” if it couldn’t rely on the support of the International Monetary Fund and the IMF.

However, Portual is expected to tell Eurogroup members today that it needs to be given an extra year to hit its bailout targets – a recognition that its recession is deeper than official forecasts.

As the Wall Street Journal explains here (with a handy graphic):

Portuguese officials acknowledge they overestimated tax revenues and underestimated how much money the country would have to spend on social benefits to the unemployed. They say Portugal has been hit hard by a deeper-than-expected slowdown in the euro zone, with which it does most of its trade.

Labor unions and opposition parties have accused the government of blindly making spending cuts and raising taxes without realizing that they would contribute to a downward economic spiral.

Full story: Portugal to Seek New Bailout Terms

9.12am GMT

Eurogroup to also consider Ireland and Portugal

Euro finance ministers will begin today’s Eurogroup meeting at 3pm Brussels time, or 2pm GMT. A press conference is expected at 8pm GMT.

Matina Stevis, the WSJ’s Brussels hotshot, flags up that ministers will consider whether to extend Ireland and Portugal’s financial reform programmes, but doesn’t believe any decisions will be taken:

Updated at 9.13am GMT

9.03am GMT

Spanish unemployment rises again

Gloomy economic news from Spain this morning – the number of people registered as out of work has risen by 1.2% last month, breaking through the 5 million barrier.

The Labour ministry reported that the number of registered jobless in Spain rose by another 59,444, as the country’s economy continued to contract.

The data doesn’t include around 1 million people who are out of work, but not registered as such.

The austerity programme being implemented by the current government is widely blamed for stifling economic growth and driving people out of work.

As this chart shows, employment in Spain has been falling since the financial crisis began, a trend that accelerated in the last two years:

Updated at 9.31am GMT

8.42am GMT

Eurogroup to debate Cyprus bailout again

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

The finance ministers of the eurozone will have a lot to chew on today when they gather in Brussels this afternoon for the latest Eurogroup meeting.

Top of the list – Cyprus’s bailout, which is back on the agenda following the election of Nicos Anastasiades last week. The €17bn package had stalled over the country’s reluctance to sell state assets, and Germany’s concerns that much of the aid would (it claims) benefit criminals who use the island’s banking sector for money-laundering.

The eurogroup is also expected to discuss the situation in Italy, mired in political uncertainty following last month’s general election.

Ministers are likely to insist that Italy sticks to its commitments, following last week’s rise in Italian bond yields — despite the wave of support for anti-austerity candidates, which leaves president Giorgio Napolitano struggling to form a government.

The talk this morning is that a second technocratic government could be installed, or that fresh elections will be called this summer.

And ministers may also be alarmed by the huge protests in Portugal over the weekend, with mass rallies urging the Lisbon government to halt its austerity programme. Europe’s drive for spending cuts and tax rises has already been shaken by the Italian election results. Could the Portuguese protests help to turn the tide?

As usual, we’ll be tracking the latest development through the day.

Updated at 8.59am GMT

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Euro falls below $1.30 to 2013 low on record high unemployment and another month of contraction in the region’s manufacturing sector. Euro jobless rate now at 11.9%. Grillo attacks Bersani again. US manufacturing expands more than expected…



Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Record unemployment and shrinking manufacturing drive euro down” was written by Graeme Wearden, for guardian.co.uk on Friday 1st March 2013 15.48 UTC

3.39pm GMT

US manufacturing sector beats foecasts

America’s manufacturing sector has, once again, outperformed other nations.

The US ISM index jumped to 54.2 in February from 53.1 in January, which means that growth is accelerating.

That’s the fastest rate in 20 months, and makes the contractions in the UK (PMI of 49.7) and the eurozone (PMI of 47.9) look even worse.

Amna Asaf of Capital Economics commented:

US manufacturers were undeterred by the fragile recovery in overseas manufacturing activity, for now at least.

Updated at 3.48pm GMT

3.08pm GMT

Exclusive: M5S’s Casaleggio on the party’s future

Gianroberto Casaleggio, joint founder of the Italian Five Star Movement, has given an exclusive interview to the Guardian in which he states there is no chance of the group joining the country’s next government.

But… speaking to John Hooper, our Southern Europe editor, Casaleggio also suggests that the party could provide limited support for a minority government, on policies which M5S agreed with.

Casaleggio, the man who helped mastermind the movement’s rapid growth using the power of the Internet, explained:

If a government is put together, formed by other parties, the Five Star Movement will vote for everything that forms an integral part of its programme.

Significantly, Casaleggio also says the party will remain on the sidelines as president Napolitano tries to build a coalition over the coming days. That, John says, is a new, tougher line from M5S.

Here’s the story: M5S says it will not help form Italian government

Definitely worth a read, as Casaleggio opens up about the party’s long-term ambitions, and about how digital democracy will fundamentally reshape politics around the globe.

What is happening in Italy is just the beginning of a much more radical change. It’s a change that is going to touch all democracies.

2.42pm GMT

Pound falls below $1.50

The pound just slipped below the $1.50 mark for the first time since early July 2010, a fall of 1.5 cents against the US dollar today.

Sterling has been suffering since this morning’s weak manufacturing data was released, fueling fears of a triple-dip recession.

Kit Juckes of Societe Generale reckons the pound could soon be as low as $1.40.

Since, as I’ve argued plenty of times before, a weaker pound won’t really help UK exports (of planes, lawyers and investment bankers) as much as they hurt consumes’ real incomes, the UK’s de facto weak pound policy won’t work well, so will continue for a long time.

There is no other path.

1.42pm GMT

Italy’s president has challenged the German government to do more to help the eurozone out of its economic crisis, on the final day of his trip to Germany.

President Giorgio Napolitano told an audience in Berlin that Germany had shown leadership in the crisis. However, he then appeared to chide its government for not stimulating its domestic economy more vigorously to help its neighbours:

Napolitano said:

I don’t want to simplify the problem, but it would be reasonable to expect an expansive impulse from Germany to contribute to a real, not just proclaimed, recovery in growth and employment in Europe.

(quote via Reuters).

Today’s manufacturing data showed that Germany’s factories are enjoying rising output, while most other countries are still suffering the impact of the euro recession.

The Italian president also dampened speculation that the election could be rerun soon, telling reporters that “I’m not interested in a new vote”, and that his successor (Napolitano’s term ends in May) is unlikely to want more instability either.

Napolitano’s trip had already been marred by the diplomatic spat after the SPD’s candidate for the chancellorship, Peer Steinbrück, over his comment that two clowns had won the election.

1.00pm GMT

Italy has missed its deficit reduction target for 2012 – but the good news is that it didn’t exceed the 3% target limit set by the European Commission.

Italy’s deficit came in at 3.0%, rather higher than Mario Monti’s most recent forecast of 2.6%. But it still low enough for the country to extract itself from the EC’s ‘excessive deficit’ procedure.

This pushed the total national debt to a new record high of 127% of GDP.

12.29pm GMT

Euro hits lowest level of 2013

The euro has fallen to its lowest level of 2013, following the latest record unemployment levels and weak manufacturing data.

The euro just dropped through the $1.30 mark for the first time since last December, to a low of $1.2987.

Traders are blaming fresh fears over the health of Europe’s economy, with eurozone jobless rate now at 11.9% (see 10.06am) and factory output falling sharply in Italy and France (see 9.32am)

The ongoing uncertainty over Italy, following Beppe Grillo’s latest attack on the centre-left (see 11.50am), isn’t helping the euro either.

12.16pm GMT

Economist Megan Greene suggests that the solution to the deadlock in Italy could be for Bersani to step down and be replaced by Matteo Renzi, who was defeated for the leadership of the centre-left late last year.

Renzi, mayor of Florence, had pledged to be loyal to Bersani – but Beppe Grillo’s repeated personal attacks on the Democratic Party leader are adding to the pressure for a change.

11.50am GMT

Grillo: hands off my senators!

Back to Italy, and Beppe Grillo has just tried to sink Pier Luigi Bersani’s efforts to become the prime minister of a minority government.

In a new blog post (see it here), Grillo accused Bersani and his Democratic Party of acting like “vulgar predators” by trying to persuade some his Five Star Movement’s new senators to work with him.

Grillo pointed out that everyone who stood as a M5S candidate had agreed not to “associate with other parties or coalitions or groups except for voting on shared points”.

Grillo declared that:

M5S, its elected officials, its activists, its voters are not for sale.

and added that Bersani does not realise he is “out of history”.

This looks like a blow to Bersani’s hopes of persuading president Napolitano that he can build a consensus with M5S (see 8.47am).

The stalemate continues…

Updated at 12.21pm GMT

10.54am GMT

Eurozone inflation drops below 2%

Inflation in the eurozone has fallen below the 2% mark, giving the European Central Bank some leeway to cut interest rates.

The consumer prices index dropped to 1.8% in February, from 2.0% in January. The ECB’s goal is to have the cost of living rising by a little below 2% per year – so there’s now more leeway for a rate cut…

10.42am GMT

Table: Latest jobless rates

And here’s each country’s unemployment rate (as that picture at 10.14am is a little blurry).

  • Eurozone: 11.9%
  • European Union: 10.8%
  • Belgium: 7.4%
  • Bulgaria: 12.%
  • Czech Republic: 7.0%
  • Denmark: 7.4%
  • Germany: 5.3%
  • Estonia 9.9%
  • Ireland: 14.7%
  • Greece: 27%
  • Spain: 26.2%
  • France: 10.6%
  • Italy: 11.7%
  • Cyprus: 14.7%
  • Latvia: 14.4%
  • Lithuania: 13.3%
  • Luxembourg: 5.3%
  • Hungary: 11.1%
  • Malta: 7.0%
  • Netherlands: 6.0%
  • Austria: 4.9%
  • Poland: 10.6%
  • Romania: 6.6%
  • Slovenia: 10.2%
  • Slovakia: 14.9%
  • Finland: 7.9%
  • Sweden: 8.0%
  • UK: 7.7%

10.31am GMT

10.14am GMT

Jobless rates across the EU

As usual, the highest jobless rates are being suffered in Spain (26.2%) and Greece (27%).

Austria (4.9%) and Denmark (5.3%) enjoy the lowest unemployment levels.

Updated at 10.46am GMT

10.06am GMT

Eurozone unemployment hits record high again

It’s official: Eurozone unemployment has hit a new record high of 11.9%, as the economic downturn forces more people out of work.

That’s up from a new estimate of 11.8% for December (which has been revised up).

That means that 18.998 million men and women were out of work in the euro area, and a total of 26.217m people across the European Union.

The statement’s online here:

More to follow

9.55am GMT

Much gloom in the City following the news that Britain’s manufacturing sector shrank in February (see 9.50am).

9.50am GMT

Britain’s manufacturing sector has also suffered a grim February, with Markit reporting the first contraction since last November.

The UK manufacturing PMI skittered down to 47.9, from 50.5 in January. Economists had expected a rise to 51, and the pound had swiftly shed one cent against the US dollar, to $1.505.

Markit warned that the manufacturing sector will be ‘a drag on economic growth’ this quarter, unless we see a big recovery in March. The triple-dip recession remains a risk.

9.39am GMT

…and this graph shows how German and French manufacturers are now experiencing diverging fortunes:

9.32am GMT

The slump in Italian and French manufacturing output reported this morning could show the region will continue to suffer recession this quarter.

The eurozone manufacturing PMI for February, which measures activity across the region, crept up to 47.9 vs 47.8 in January. That means it still shrank, despite Germany hitting growth again.

Howard Archer of IHS Global Insight commented:

While Eurozone economic activity appears to have bottomed out around last October, it looks highly possible that the single currency area will still suffer a fourth successive quarter of contraction in the first quarter of 2013.

9.21am GMT

When we say ‘record high’ – the Italian jobless data goes back to 1992, so this is the worst unemployment situation in at least 21 years. Certainly since the euro was created.

9.11am GMT

Record unemployment in Italy too

And another blow for Italy: its jobless rate has jumped to a new record high.

Unemployment across Italy is now running at 11.7% of the population, up from 11.3% in January. The youth unemployment rate also rose to a new record high, with 38.7% of young people out of work.

Rising unemployment was a big factor in the Italian election, particularly among parties arguing against Mario Monti’s economic reforms. This will surely bolster their argument.

We get overall eurozone jobless date in just under an hour’s time (10am GMT) – and it could also be another record high (from 11.7% last month).

Updated at 9.12am GMT

9.04am GMT

Italian manufacturing output slides

Economic data just released shows that the Italian economy is in a bad way – manufacturing activity has fallen for the 19th month in a row, and by more than expected.

The monthly PMI survey came in at a mere 45.8 for February, down 47.8 in January — which means the country’s manufacturing sector is shrinking at a faster pace [any number below 50 means contraction].

Other European economies are also reporting PMI data – and it shows that Germany continues to outperform weaker members of the eurozone.

German manufacturing PMI rose to 50.3, from 49.8 in January – meaning it returned to growth.

But France manufacturing sector is still shrinking, but at a slower pace (with a PMI of 43.9, up from 42.9 in January).

8.47am GMT

Bersani says ‘no deal with Berlusconi’

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

Italy remains in a state of political flux this morning. Pier Luigi Bersani, the centre-left leader whose hopes of winning this week’s general election were dashed, has this morning ruled out a Grand Coalition with the centre-right.

In an interview with the La Repubblica newspaper, Bersani insisted that he can become Italy’s next leader without getting into bed with Silvio Berlusconi.

He declared:

I want to spell it out clearly: the idea of a grand coalition does not exist and will never exist.

Instead, Bersani hopes to persuade Italy’s president, Giorgio Napolitano, that he could govern without a majority in the Senate (having narrowly won control of the lower house). He has drawn up a seven or eight-point plan to present to Napolitano next Wednesday.

Asked if his goal was to be prime minister in a minority government, Bersani said:

Call it what you want: a minority government, a government of purpose, I do not care.

I call it a government of change, which I assume the responsibility of guiding.

The full interview is online at Bersani’s web site (in Italian).

With Beppe Grillo ( refusing to back Bersani in a vote of confidence, a deal with Berlusconi was the only way the centre-left could get a majority in the Senate.

Some political analysts have questioned whether Napolitano would agree to a minority government, given the implicit instability. We’ll find out next week….

In the meantime, the rest of Europe watches the events in Italy with interest. And one German politician has raised the possibility of the country abandoning the euro.

Klaus-Peter Willsch, a member of Angela Merkel’s CDU party, has even declared that Italy should leave the eurozone, rather than hold fresh elections, if a majority of the population will not support the measures needed to support the eurozone.

Willsch told the “Handelsblatt” newspaper that:

A monetary union will survive only if it benefits all of its members.

It’s a little early to be discussing Italy’s exit from the single currency, I’d suggest – but Willsch‘s comments do show how much concern Italy has created.

As usual we’ll be tracking the action through the day….

Updated at 8.49am GMT

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EU officials agree bonus cap against UK opposition. Mixed data from Spain reflects uncertainty. Berlusconi investigated for corruption. US jobs data points to recovery, GDP revised higher to show 0.1% growth in the final quarter of last year…



Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Bankers face cap on bonuses after EU deal” was written by Josephine Moulds and Nick Fletcher, for guardian.co.uk on Thursday 28th February 2013 14.38 UTC

2.29pm GMT

Italy uncertainty should not hit Ireland’s bond issue plans

Speaking of the Italian election, Ireland does not believe the uncertainty over the outcome should derail its plans to issue bonds this year.

The country aims to sell a new benchmark 10-year bond in the first half of the year, the chief executive of its National Asset Management Agency John Corrigan told Dow Jones. He said:

Italy is obviously going through a difficult time following the election and that has some impact on European capital markets, but our judgement is it won’t knock us off course in relation to our return to the market.

Updated at 2.38pm GMT

2.24pm GMT

Here’s the Economist’s view of this week’s Italian election result (no comment needed):

2.14pm GMT

Rehn says UK should not sit on European sidelines

Olli Rehn has now turned his attention to the UK, saying it should remain involved in the EU.

He says if he were a British citizen, he would not want his country sitting on the European sidelines. It is firmly in Britain’s interest to use its energy to reform Europe rather than undo it.

Not a fan of a referendum then, it would seem.

As one of our former colleagues notes:

Rehn has added that there is a need to urgently complete the repair of the banking system.

Updated at 2.19pm GMT

2.04pm GMT

And with that I’ll pass you over to my colleague Nick Fletcher.

2.02pm GMT

EU’s Rehn confident Italy will find its way

Back to London, where Olli Rehn, the European Commissioner for economic and monetary affairs, is expressing his confidence that Italy will swiftly find its way forward.

Speaking at a Policy Network conference, he says it is important that Italy pursues reform for sustainable growth.

More generally, he says high debt countries have only one option, to restore sustainability to finances. Surplus countries, meanwhile, should use reforms to boost domestic demand.

He says fiscal consolidation needs to proceed at a careful but steady pace.

1.50pm GMT

Mixed data out of Spain reflects uncertainty

The mixture of good and bad news from Madrid today reflects the uncertainty hanging over Spain’s economy as the government boasts about almost meeting EU-set deficit targets while austerity deepens recession. My colleague Giles Tremlett reports:

The 6.74% budget deficit – just 0.4% off target – will be welcomed in Brussels, though the figure surprises some observers. It is still possible that, as with the 2011 deficit, it will increase as more reliable figures appear over coming weeks. Most impressively, assuming the figures are accurate, is the way regional governments – once the rogue elephants in Spain’s public finances – have slashed deficits close to government-set targets.

But a final quarter drop in GDP of 0.8% – more than double the previous quarter’s shrinkage – bodes badly for a country where unemployment is already officially at 26%, as consumer spending falls even while Spaniards save less.

Early (and incomplete) figures for this quarter point to “continued contraction of activity, in a context of marked apathy in internal consumption,” according to the Bank of Spain.

Mariano Rajoy’s government hopes it will be rewarded for good behaviour – and for not being Italy – with a relaxation of this year’s Brussels-set deficit target, which is currently at 4.5%. It is also predicting a return to growth at the end of the year.

But the biggest fear in Madrid today is that a predicted fragile recovery that is still more than six months away will be thrown off track if Italy provokes a return to euro jitters – with Spain first in line to suffer contagion.

1.34pm GMT

US jobless claims point to recovery

Sticking with the US, jobless claims dropped 22,000 last week to a seasonally adjusted 344,000. That was better than expected and suggests the jobs market in the US is picking up.

1.32pm GMT

US GDP revised up but misses expectataions

US GDP has been revised up to +0.1% for the fourth quarter of 2012 from an original estimate that GDP actually fell by 0.1%.

Still this was not as big a revision as some had forecast, with analysts betting that the economy had in fact grown by 0.5%.

(Just to clarify, the US GDP figures are annualised, so they show the value that would be registered if the quarterly rate of change were maintained for a full year.)

Updated at 1.41pm GMT

1.24pm GMT

Nerves about Italy should not be overdone – ECB’s Nowotny

There has been a clear improvement over the past year in Europe’s economic situation but there is more work to be done to lift the southern economies out of trouble, ECB policymaker Ewald Nowotny said today.

With masterful understatement, he noted the nervousness about Italy’s inconclusive election results but said it should not be overdone.

Of course everyone’s a bit nervous. One should keep things in perspective. I do not think there will be fundamental change in the politics in Italy because there are just economic necessities that you have to follow.

There was a bond auction yesterday that went quite well. One shouldn’t overdo it.

1.13pm GMT

EU bonus cap ‘deluded’ says Boris Johnson

London mayor Boris Johnson expresses his opposition to the EU bonus cap, in his inimitable style.

This is possibly the most deluded measure to come from Europe since Diocletian tried to fix the price of groceries across the Roman empire.

It would be interesting to know what people abroad think of Boris. Clown or comedy genius?

12.32pm GMT

Cyprus election result boosts chances of deal with lenders – Moody’s

Meanwhile the election of pro-bailout candidate Nicos Anastasiades in Cyprus has boosted the chances of a deal with international lenders, says Moody’s

But the ratings agency said the results of the weekend’s other eurozone election did not alter its assessment the island could eventually default. It said:

Domestic banks’ recapitalisation needs remain uncertain and we anticipate Cyprus’ debt burden will rise dramatically, reaching an unsustainable level. There is a 50% chance that the sheer size of Cyprus’ anticipated debt load will eventually compel authorities to pursue every avenue for debt reduction, including private sector losses on Cypriot debt.

12.08pm GMT

Van Rompuy confident Italy will stick with euro

More assurances that Italy will stick with the euro project. The faster they come the weaker they sound.

Here’s European council president Herman Van Rompuy, who this morning expressed his full confidence that Italy will continue to remain a stable and strong member of the European Union and of the eurozone.

Van Rompuy met outgoing Italian prime minister Mario Monti today to discuss the upcoming council, which will discuss growth and job creation.

12.02pm GMT

Despite the UK government’s opposition to the EU bonus cap, MEPs from both Labour and the Tories broadly welcomed the deal.

Labour MEP, Arlene McCarthy, said:

These rules are designed to make banks safer, more accountable and ensure they focus on lending to the real economy.

It’s a shame that the UK government has sought to defend this broken bonus culture by acting as the trade union for a minority of highly paid traders. The coalition government says they want reform of the banking sector yet they are the only member state to defend the status quo by maintaining the current flawed bonus culture.

Conservative MEP, Vicky Ford, said:

I do fear that a cap on bankers bonuses is a blunt instrument but I was pleased to sharpen it by including elements that encourage bankers to take long-term decisions, otherwise they risk their bonuses being clawed back.

Of course some top bankers will be affected by the bonus cap but I feel that we have managed to produce a deal that will strike the right balance for the majority of bankers who take responsible decisions. If the bonus cap is shown to cause bankers to begin relocating outside the EU then we will have the ability to swiftly look again at the provisions in place through an early review.

11.52am GMT

Bonus cap could make banking more attractive

The EU cap on bonuses (see 7.32am and following) could alter the way the City works and for the better, says another commentator from the Cass business school.

Andre Spicer, professor of organisational behaviour, said:

The new EU curbs on bankers’ bonuses will force banks to rethink how they motivate their star performers. For some time banks have relied on super-sized bonuses to attract and retain star performers.

Some of the alternatives to large bonuses will include longer-term incentives which are linked to performance of the institution over five or 10 years. It might include soft incentives such as better working hours, more supportive work environments, more opportunities for self-actualisation and more interesting design of jobs. This could lead to workplaces where bankers are no longer willing to put up with 364 days of stressful work and one good day when bonuses are paid. This will mean banking is likely to be a more attractive job for a wider range of people.

The cap on bonuses will also mean that banks need to rethink their business models. Until now banks have relied on a few stars in small units of investment banking to make significant chunks of the bank’s profit. Now banks will need to think about ways of harnessing the talent of the vast majority of their employees who don’t receive giant bonuses. This could see the large banks returning to older style banking.

But, he writes, the cap could drive bankers into more lucrative posts at hedge funds or private equity firms.

Updated at 12.33pm GMT

11.45am GMT

Spain’s deficit comes down to 6.7%

Spain will miss its target for deficit reduction this year, but not by too much.

The public deficit has come down to 6.74% in 2012, from 8.9% in 2011. That misses the target of 6.3% agreed with Europe, but should be enough to appease the markets.

The European Commission is said to be happy with Spain’s performance and is expected to give the country another extension on shrinking the deficit to below 3%. At present, that target is set (somewhat ambitiously) for next year.

Spain’s treasury minister Cristobal Montoro said there was no need for new budget cutting measures, and that strict rules on autonomous regions’ spending are working.

11.34am GMT

Just to confirm the EU bonus cap has been written specifically for the financial industry, so it will apply to bankers’ and their ilk, not other industries. Thanks to laasan for the question in the comments below.

11.24am GMT

Osborne on the ropes

Why do they do it? Surely by now politicians are so afraid of the damaging headlines, they should know not to be photographed in bizarre poses.

But apparently not. The Evening Standard is running a picture of embattled chancellor George Osborne skipping… even as he grapples with the loss of the UK’s triple-A rating, a rising deficit, and an economy struggling to show any kind of growth. Post your captions in the comments below.

Updated at 11.26am GMT

11.10am GMT

EU bonus cap ‘ludicrous’ – London-based commentator

Here’s Pete Hahn of Cass Business School, on the bonus cap.

Much of banking and economics are cyclical and the basis of bonuses was to address cyclicality. Certainly, bonus payments lost that purpose and need to be reoriented. Yet, the current proposal appears aimed at ludicrously legislating the economic cycle and creating ever higher fixed salaries and perks for those leading the largest banks. Those worried about Europe’s growth might think about how high fixed pay packages with limited upside might influence senior bankers to increase risk taking or not.

11.06am GMT

City of London lashes out at ‘counterintuitive’ bonus cap

There’s more reaction coming through on the EU cap on bonuses agreed overnight (see 7.23am). Unsurprisingly, there are dissenting voices in the City. Mark Boleat, policy chairman at the City of London Corporation, said:

This bonus cap risks placing the EU at a competitive disadvantage to other international financial centres in Asia and the US. The devil will be in the detail but removing flexibility from pay arrangements in this highly cyclical industry would seem counterintuitive – especially if it leads to higher fixed salaries.
In recent years, much work has been undertaken to tie remuneration and incentives more closely to sustainable, long-term performance. This has included introducing a right of claw-back, payment in shares with only a limited cash element and deferred payment, and greater transparency over the packages paid to the highest earners in a business. This is already changing the culture across the industry to ensure pay reflects performance.

The MEP who negotiated the deal for the European Parliament, Othmar Karas, this morning tried to downplay the impact of the cap in Germany. But, as AP’s Brussels correspondent notes, any effect felt there will be multiplied in London.

11.00am GMT

No risk of contagion from inconclusive elections – Italian president

Back to Italy, where the president Giorgio Napolitano said he sees no risk of wider European contagion from the Italian political situation.

Reuters reports him saying there is a difficult path ahead but that he is convinced Italy’s future is in Europe. He says he is confident that Italy will continue to take its responsibilities and accept sacrifices needed to continue the European project.

The Italian people have made a democratic choice that must be respected, he says. The constitution does not allow the process of forming a new government to be accelerated.

10.22am GMT

Eurozone inflation drops to 2%

Eurozone inflation eased in January to 2%, paving the way for a possible rate cut from the European Central Bank.

Eurostat said the annual inflation rate came down from 2.2% in December. That brings the 12-month average to 1.9%, just below the ECB’s inflation target, which could let the central bank cut rates in a bid to boost activity.

Howard Archer of IHS Global Insight said:

The ECB currently seems reluctant to take interest rates lower than the current record low level of 0.75%, but the bank could be forced into reconsidering its position if the eurozone fails to show clear signs of economic improvement over the coming weeks or if the euro strengthens anew to reach new highs. Downside risks to the eurozone outlook could mount if protracted political uncertainty in Italy leads to a renewed intensification of sovereign debt tensions.

Updated at 10.45am GMT

10.12am GMT

Berlusconi investigated for corruption

Reports are emerging that Silvio Berlusconi – who won a sizable portion of the vote at the Italian elections – is being probed in Naples for suspected corruption and illegal party funding.

Italian news agency ANSA said the case regards money allegedly paid to Senator Sergio De Gregorio – who defected from the centre left to join Berlusconi’s party some years ago – citing judicial sources.

The news prompted little surprise on Twitter at least.

Updated at 10.16am GMT

9.56am GMT

EC president says confidence returning to Europe

Over in Ireland, EC president Jose Manuel Barroso is sounding upbeat. Speaking to a business conference, he said there are signs that confidence is returning to Europe, but the situation is still “fragile”.

The banking debt crisis exposed the uneven performance of competitiveness across Europe and the region must now implement reforms for businesses to get the most out of the single market, he said.

And, for his Irish audience, he praised the country’s progress under the bailout programme.

He was appearing alongside Irish prime minister Enda Kenny, who said the country has to deal with the ‘issue of high unemployment’.

Figures out yesterday showed Irish unemployment falling, but still high at 14.2% in the fourth quarter of last year.

Kenny also had warm words about European politics.

9.43am GMT

It’s no wonder Monti agreed to keep his commitment at the European Commissions Competition forum. He clearly wanted a bit of love after Sunday’s humiliating defeat.

9.25am GMT

Mario Monti, outgoing PM, concludes with the following…

The message I would like to leave with you, in 2013 Italy will have a close to zero structural deficit. There is an accompanying strategy at the EU level that needs to be pursued, unless we passively allow that simplistic, some would say populistic (I do not pass judgment on the Italian elections) tendency to have the EU policies derailed.

He gets rapturous applause and a standing ovation. But it’s got to be said it was a very dry speech. Against the likes of Beppe Grillo, it’s no great surprise he didn’t get the votes at home.

9.17am GMT

If you do the right policies and don’t get the recognition (ie rates don’t come down), there is a political backlash, says Monti.

9.15am GMT

9.13am GMT

Monti says there are delays between when a good reform is brought in and when the benefits are felt.

The benefits in terms of growth tend to take more time than the benefits to the financial markets.

9.12am GMT

Back to outgoing Italian prime minister Mario Monti, who is speaking in Brussels.

He is defending his record, saying the market situation in 2011 left no choice but to cut the budget and push through reforms, despite low growth.

9.04am GMT

German unemployment down in February

We’ll keep one eye on that. Meanwhile, German unemployment fell in February, although slightly less than forecast (in seasonally adjusted terms).

The number of people out of a job dropped by 3,000 to 2.9m in February, while economists were expecting it to fall by 5,000.

The unemployment rate held steady at 6.9% (after January’s rate was revised up to 6.9%).

The closely watched jobless total (which is not adjusted) remained above the 3m mark.

8.56am GMT

So far, the focus is very much on competition and it does not look like he will be taking questions.

Italy has felt the benefits of competition with new high-speed rail links, says Mario Monti (who is still being billed as Italy’s prime minister, despite being the clear loser in Sunday’s elections).

Updated at 8.57am GMT

8.54am GMT

Monti speaks in Brussels

Over to Brussels, where Mario Monti is giving the keynote speech at a Competition Conference. You can watch it live here, he’s speaking in English.

8.36am GMT

Markets rise on hope of central bank support

Over to the stock markets, which are looking up on the hope that central banks will step in again to support the economy, although Italy is lagging behind amid the political uncertainty.

UK FTSE 100: up 0.4%, or 27 points, at 6353

Germany Dax: up 0.8%

France CAC 40: up 0.6%

Spain IBEX: up 0.8%

Italy FTSE MIB: up 0.1%

8.29am GMT

Bankia posts biggest loss in Spanish corporate history

Sticking with Spain, one of the country’s nationalised banks today posted a loss of €19bn, by far the largest loss ever reported in Spanish corporate history.

The bank has undertaken a major operation cleaning its balance sheet of soured property loans and other loss-making activities over the past year.

Investors were expecting a big number after Bankia warned of huge losses when it was bailed out late last year.

The Bankia chairman Jose Ignacio Goirigolzarri said in a statement that the bank’s priority is…

To make Bankia a profitable institution in order to return to the community the support it has given us.

8.21am GMT

Spanish fourth quarter GDP drops 0.8%

There is some miserable data out of Spain this morning, which saw its GDP figures revised down to -0.8% for the final quarter of last year, from an initial estimate of -0.7% That means the Spanish economy shrank by 1.9% over the year.

That is the sixth straight quarter that Spain’s economy contracted and the downturn appears to be speeding up, with GDP dropping at its fastest quarterly pace since mid-2009.

Updated at 8.29am GMT

8.10am GMT

German finance minister ‘never said the crisis was over’

Still nothing has been settled in Italy after Beppe Grillo – the ex-comedian whose Five Star Movement broke through in spectacular style at the elections – ruled out backing a government led by the centre left.

Though European markets are settling down after the inconclusive election results, there is still plenty of nervousness out there. And eurozone policymakers are falling over themselves to point out they never said the crisis was over.

German finance minister Wolfgang Schauble said that Italy’s inconclusive weekend election had raised the risk of market turmoil spreading to other euro countries and urged Italian politicians to form a stable government quickly. He told Reuters:

The election result in Italy has sparked doubts in the market that a stable government can be formed. When such doubts arise there is a danger of contagion. We saw this last year when elections in Greece led to political uncertainty. Other countries are then infected.

I never said the euro crisis was over. I only said that we have made significant progress. We need to continue on this path, but we will have setbacks.

7.51am GMT

Bonus cap morally right – think tank

Sony Kapoor, managing director of the Re-Define think tank, meanwhile says it is economically sound and morally right. He writes:

This will help tackle the culture of excessive risk-taking and the bending of rules that has now become endemic to banking. Undertaking this at an EU-wide level will also limit any large-scale migration of the so-called ‘talent’. It will reduce the risks borne by tax-payers and go a long way to rehabilitate the industry, making it focus on serving the real economy again.

7.47am GMT

Fears that bonus cap will push up salaries

But there are concerns the move will be counterproductive. This from the chief economist at the Economist Intelligence Unit…

Updated at 7.52am GMT

7.32am GMT

Good morning and welcome back to our rolling coverage of the eurozone crisis and other global economic events.

Overnight, EU leaders agreed to introduce what will amount to the world’s strictest curbs on bankers’ bonuses, railroading opposition from the UK Treasury.

The basic agreement will cap bankers’ bonuses at a year’s salary. While it still needs approval from EU governments, the main points could become law as early as next year.

And the UK cannot veto it. This will rock the City of London, where bonuses can sometimes be as much as 12 times a bankers’ salary.

My colleague Ian Traynor reports from Brussels:

The UK financial sector was dealt a withering blow on Wednesday night when the European Union agreed on moves to slash the bonuses that may be paid to bankers, defeating strong Treasury opposition to the new rules.

A meeting of officials from the 27 countries of the EU with MEPs and the European commission agreed to cap bankers’ bonuses broadly at a year’s salary, with the proviso that the bonus could be doubled subject to majority shareholder approval.

The agreement has still to be approved by EU governments before coming into force next year. While details may still be tweaked, it is expected that the main points will become EU law.

Britain, strongly opposed to the new legislation, will not be able to veto it as it will be carried by a qualified majority vote of the EU member states.

The deal will be another blow for Chancellor George Osborne who strongly opposed the deal. The FT reports:

Tensions were so high that George Osborne, at one point snapped and said defending the package would make him “look like an idiot”.

Updated at 7.34am GMT

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