Josephine Moulds

Britain’s economy remains fragile but ‘improvements are beginning to be seen’ says OECD chief economist. According to OECD, the UK is expected to show annualised growth of 0.5% in the first quarter, and 1.4% in the second quarter of 2013…

 


Powered by Guardian.co.ukThis article titled “UK economy should avoid triple-dip recession, OECD forecasts” was written by Josephine Moulds and Phillip Inman, for The Guardian on Thursday 28th March 2013 20.17 UTC

Britain's economy is getting stronger and should avoid a triple-dip recession, according to the Organisation for Economic Co-operation and Development. The Paris-based thinktank sounded a positive note as official figures showed that the services sector, which contracted at the end of last year, returned to growth in January.

Barring changes in government policy, the UK is expected to have grown at an annual rate of 0.5% in the first quarter and to grow at 1.4% in the second.

Pier Carlo Padoan, the OECD's chief economist, said: "The situation [in the UK] is still fragile. I think the policy course, both in terms of monetary and fiscal policy, is going in the right direction and improvements are beginning to be seen."

Until recently, the OECD and the International Monetary Fund had been warning George Osborne that his austerity policies risked prolonging the longest economic depression in 100 years. Padoan had called on the chancellor to relax spending cuts and put forward growth policies, in a shift to a Plan B for the economy.

But the more upbeat outlook from the OECD was reinforced by a survey of the UK's services industry that showed an improvement during January, offsetting a weakening picture in the construction and manufacturing sectors. The Office for National Statistics said the services sector, accounting for three-quarters of economic activity, expanded by 0.3% on the previous month and was 0.8% ahead of the same month a year earlier.

Unfortunately for ministers hoping to see an improvement across the private sector, the strongest element of the services index in recent years has proved to be government spending. The financial services sector has almost recovered to its pre-recession peak, along with business services, leaving the distribution, hotels and restaurants, transport, storage and communication sectors well below their high-water mark.

Chris Williamson, chief economist of financial data provider Markit, said the services data combined with strong retail sales would persuade the Bank of England to stay its hand when it meets next week.

Capital Economics said an increase in quantitative easing from the current £375bn the Bank of England had pumped into the economy would probably need to wait until at least the autumn, when incoming governor Mark Carney would have established a new remit focused on growth.

The OECD said activity was picking up in many major economies, with the global outlook improving since its last update in November. It expected the US to rebound in the first three months of this year, while Japan had been boosted by a new growth strategy and stimulus package. But it said improvements in financial markets around the globe had not been fully reflected in real economic activity, in part because confidence remained low.

Padoan warned that the flood of cheap money into the system, via generous stimulus packages, had also led to some "excessive risk-taking". "We have now learned that imbalances build up in a way we tend to ignore," he said. "Let's watch prices of assets going up which are not warranted by fundamentals. Let's be very careful. At the same time, let's be careful of not putting a brake on the recovery that is slowly materialising. It's a delicate balancing act."

The OECD said a meaningful recovery in Europe would take longer than in the rest of the G7. It blamed this on a deteriorating jobs market, which had depressed consumer confidence. "Especially in Europe, the rise of long-term unemployment, with more of the unemployed moving off unemployment insurance on to less generous social benefits, is worsening poverty and inequality," it said.

The thinktank also highlighted the growing divergence between Germany, which it expects to pick up strongly in the first half of this year, and other economies, which are forecast to either contract or show minimal growth.

Germany is expected to grow by 2.3% on an annual basis in the first quarter, and then 2.6% in the second. By contrast, France is forecast to shrink by 0.6% on an annual basis in the first quarter, followed by 0.5% annualised growth in the second quarter.

Growth in emerging markets is still much faster than in the G7 and these countries will drive the global economy this year. The OECD said annualised growth in China was expected to continue to be well above 8% in the first half of 2013.

US economy perking up

The number of Americans filing new claims for unemployment benefits rose last week, but not enough to suggest the labour market recovery was taking a step back.

Other data showed the economy expanded at an annual rate of 0.4% in the fourth quarter, more than the government had estimated.

The reports reinforced the view that the US economy perked up in the first quarter, although it still appeared vulnerable to fiscal austerity measures that kicked in early in the year.

"The underlying growth trend is showing some encouraging signs, but the key risk is how much fiscal tightening we'll see this year," said Laura Rosner, economist at BNP Paribas in New York.

While jobless claims increased more than expected last week, they have trended lower this year and remain near five-year lows. Last week, initial claims for state unemployment benefits increased 16,000 to a seasonally adjusted 357,000, the labor department said.

The four-week moving average for new claims, a better measure of labour market trends, rose 2,250 to 343,000.

Still, for many economists a trend reading below the 350,000 level points to a firm pace of hiring in March. Reuters, Washington

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USA 

Portugal’s prime minister expected to survive – but vote will destroy consensus in crisis-hit state. New Cyprus finance minister will do as he’s told. Tax on savers to double under Cyprus bailout. US ISM Non-Manufacturing data disappoints…

 


Powered by Guardian.co.ukThis article titled “Eurozone crisis as it happened: Portuguese government faces no-confidence vote” was written by Josephine Moulds and Nick Fletcher, for theguardian.com on Wednesday 3rd April 2013 13.44 UTC

5.47pm BST

Cyprus government hails new bailout terms

Meanwhile, back in Cyprus the government has been crowing about the terms of the new memorandum of understanding it has signed with international creditors. Helena Smith writes:

Good news may be hard to find in Cyprus these days but president Nicos Anastasiades’ government went out of its way today to put a positive spin on the €10bn bailout programme it has finally wrapped up with the EU, ECB and IMF. Speaking to reporters, the government spokesman Christos Stylianides described the deal as being a great deal “better” that the draft agreement previously reached under the former president and veteran communist Demetris Christofias. 


“This is a very important development which ends a very long period of uncertainty,” Stylianides said of the programme, negotiated with troika officials by outgoing finance minister Michalis Sarris. Under the deal, which must now be ratified by all 27 EU parliaments, Cyprus will be able to repay the €10bn loan at the much more competitive interest rate of between 2.5% and 2.7% rather than the 4.5% secured by the Christofias government for a €2.5bn loan from Russia.

In addition, said Stylianides, the agreement — Sarris’ last act before leaving office – foresees the island’s fiscal adjustment period being prolonged by two years thus allowing more wiggle space for the government to reach a primary surplus by 2018.

With austerity the name of the game, the Troika have also insisted that all government officials – with the exception of the president and House speaker – be banned from flying business class when they make trips abroad (the restriction will be lifted on transatlantic flights). 

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

5.15pm BST

European markets close lower

It's been a down day for stock markets, with the continuing concerns about Cyprus and Portugal as well as some disappointing US data dampening sentiment. Investors remained cautious ahead of the Bank of England and European Central Bank meetings on Thursday, not to mention the US non-farm payroll numbers due on Friday. Toby Morris, senior sales trader at CMC Markets UK, said:

An early correction in European equities has deepened this afternoon as the market’s failure to push on past recent psychological levels sparked a round of profit taking, pushing the major indices lower.

• The FTSE 100 fell 70.38 points to 6420.28, down 1.08%

• Germany's Dax was down 0.87%

• France's Cac closed 1.32% lower

• Italy's FTSE MIB lost 2.28%

• Spain's Ibex ended 1.81% lower

• Portugal's PSI 20 dropped 3.54%

• The Athens market fell 2.16%

In the US the Dow Jones Industrial Average is currently down nearly 60% or 0.39%.

4.26pm BST

Reports are emerging that Cyprus will extend its capital controls for another 7 days.

Updated at 4.27pm BST

4.05pm BST

Portuguese market down 4%

Despite the likelihood of the no-confidence vote in Portugal failing, it has certainly focused attention again on the country's troubles.

The PSI 20 index is down 4%, making it the worst European market performer of the day, with banks among the fallers. Not surprising, given what happened in Cyprus and the knock-on effect of that on the eurozone financial sector.

There is also the small matter of the constitutional court which has been examining this year's budget since January and is expected to give its ruling on the legality of the plans in the coming weeks. Opposition parties argued that planned cuts to pensions, salaries and welfare benefits undermined workers' basic rights.

3.39pm BST

Portugal opposition calls for removal of

Portugal's opposition party has called for a renegotiation of the country's EU/IMF bailout package and labelled the government an "incompetent" one which must be replaced.

Socialist leader Antonio Jose Seguro, presenting a largely symbolic no confidence motion, said his party was against the spending cuts the government agreed to. He said (as reported by Reuters):

Your government is destroying Portugal and there is only one solution – to replace the incompetent government.

But the prime minister Pedro Passos Coelho, whose centre-right coalition has a comfortable majority, said the country had to comply with the programme to guarantee funding, and the no-confidence vote created a climate of political instability. He said a bailout renegotiation would lead to a second bailout.

Updated at 4.13pm BST

3.25pm BST

The weaker than expected jobs data out from the US today could mean analysts are being too optimistic about Friday's non-farm payroll numbers, suggested James Knightley at ING. He said:

The employment component [of the ISM non-manufacturing survey] dropped to 53.3 from 57.2. Given today’s ADP payrolls survey also showed a slowdown in private sector hiring to 158,000 from 237,000 in February this perhaps indicates some downside risk to the consensus forecast of non-farm payrolls rising 198,000 on Friday.

With ongoing concerns about the potential economic impact from sequestration we suspect that we are going to see a softer period of activity data. As such we doubt that the Federal Reserve’s quantitative easing plans will be scaled back before the third quarter of 2013.

3.20pm BST

Greek business head calls for rethink on bailout terms

It may count as stating the obvious but the head of Greece's biggest business group reckons the Cypriot crisis could tip his country into an even deeper recession this year.

He also called for the troika of international lenders, due in Greece this week, to rethink the bailout programme by promoting growth measures as well as austerity. From Reuters:

"Greece is directly affected by the Cyprus crisis and based on some estimates this may chop up to one percentage point off GDP (gross domestic product)," Dimitris Daskalopoulos, head of the Hellenic Federation of Enterprises (SEB), told reporters.

"With the success of the Greek bailout programme already hanging by a thread, many signs show the recession is deepening with the prospect of recovery in 2014 fading," Daskalopoulos said.

He said the insistence on austerity by the eurozone's core to cure the ills of the debt crisis risked breeding euro scepticism and anti-German sentiment among the suffering countries of the single currency bloc.

"The North must give and the South must change, otherwise the historic demons of Europe will find again room to act."

He said the protracted economic downturn and fiscal austerity were testing society's tolerance limits and called on the government and its international lenders to retool the applied programme with growth measures.

"The bell of reforms must finally ring loudly in Greece," Daskalopoulos said. "We cannot be fighting tooth and nail against firing a few thousand public sector workers when almost one million people have lost their jobs in the private sector."

Chairman of the Hellenic Federation of Enterprises Dimitris Daskalopoulos (centre)  discusses the Cypriot crisis at a news conference today. Photograph:  EPA/Alkis Konstantinidis
Chairman of the Hellenic Federation of Enterprises Dimitris Daskalopoulos (centre) discusses the Cypriot crisis at a news conference today. Photograph: EPA/Alkis Konstantinidis

Updated at 3.21pm BST

3.03pm BST

US services index slightly worse than forecast

The latest US services data has come in a little weaker than expected, which has done little to perk up markets.

The Intitute for Supply Management reported the non-manufacturing index fell to 54.4 in March, compared to 56 in February and expectations of a figure of 55.8. This is the lowest figure since August.

Ahead of the non-farm payroll numbers on Friday, the employment component of the index fell from 57.2 to 53.3, the weakest since November.

As a result the Dow Jones Industrial Average, down around 11 points earlier, has now fallen 40 points.

Updated at 3.10pm BST

2.57pm BST

Austrian court rejects challenge to ESM bailout fund

Over in Austria, the country's constitutional court had thrown out a challenge against the ratification of the European Stability Mechanism bailout fund. AP writes:

The court said on Wednesday that case, filed by the former right-wing state government in the province of Carinthia, was unfounded. That government lost a state election earlier this year.

The €500bn ESM started work late last year. Austria is one of the 17-nation eurozone's more prosperous countries and bailing out eurozone strugglers has not been popular there.

The court found that Austria's government and Parliament acted within the country's constitution in approving the fund and that there was no improper transfer of sovereignty.

2.44pm BST

Quick look at the markets…

  • UK FTSE 100: down 0.4%, 29 points, at 6462
  • France CAC 40: down 0.2%
  • Germany DAX: down 0.05%
  • Spain IBEX: down 0.7%
  • Italy FTSE MIB: down 1.1%

And with that I will hand over to my colleague Nick Fletcher.

2.40pm BST

UK mortgage avaiability increases

In the UK, banks' appetite for lending to individuals grew in the first three months of 2013, but the availability of loans to small and medium businesses remained restricted, according to the Bank of England's latest credit conditions survey.

My colleague Hilary Osborne writes:

Lenders reported an increase in the overall availability of secured credit to households for the third consecutive quarter, citing attempts to increase their market share as the main reason for offering more loans. An increased appetite for risk, and a fall in the cost of providing mortgages, helped by the government's Funding for Lending scheme, also contributed.

The government's Funding for Lending scheme, introduced in August 2012, has reduced costs for lenders by offering cheap funding to banks and building societies. It was designed to boost lending to householders and businesses, but the Bank's survey suggests that small and medium companies may still be struggling to raise funds.

Leo Ringer, CBI head of financial services, said:

It is encouraging that the cost of finance for small businesses fell in the first quarter for the first time in more than three years.

This indicates that the Funding for Lending Scheme is starting to make an impact on business lending as well as in the housing market, which chimes with what firms are telling us.

However, the sharp fall in demand for finance from small businesses is a timely reminder that the flow of credit is a two-way street. Lending flows will only improve materially when there is a significant pick-up in business confidence and demand.

2.16pm BST

Cypriot bank workers to strike on Thursday

In Cyprus, bank workers are set to stage a strike tomorrow, saying that the pensions of its members at the island's two largest banks have not been protected.

The bank workers' union, ETYK, said the pension funds of workers in Laiki Bank, which is being wound down, and Bank of Cyprus, which will be severely restructured, were at risk.

It has called a two-hour work stoppage between 12.30 and 2.30pm local time, followed by a march to parliament.

A poster depicting German Chancelor Angela Merkel as a Nazi officer, outside Cyprus presidential palace during a protest last week.
A poster depicting German Chancelor Angela Merkel as a Nazi officer, outside Cyprus presidential palace during a protest last week. Photograph: PATRICK BAZ/AFP/Getty Images

Updated at 3.05pm BST

1.44pm BST

Eurozone crisis hits development funds

The eurozone crisis is having far-reaching effects, not least on the aid being sent to the developing world. Our economics editor Larry Elliott writes:

Deep cuts in aid budgets by crisis-stricken euro zone countries have prompted the biggest fall in development assistance to the world’s poorest nations since the mid-1990s.

Sharp drops in spending by Spain, Italy, Greece and Portugal resulted in a 4% decline in financial assistance to the developing world in 2012, according to the annual assessment conducted by the Organisation for Economic Cooperation and Development.

The OECD, a club for 33 rich nations, said it was concerned by the decline, which it blamed on the austerity programmes forced on many euro zone countries over the past three years.

After a 2% drop in 2011, the decline in 2012 was the biggest in 15 years and was the first back-to-back drop in development assistance since 1996-97 – the years immediately before the mass public campaigns in the West for debt relief and increased development assistance.

1.41pm BST

US jobs report disappoints

US jobs numbers for March fell well short of expectations, suggesting the improvement in the jobs market could be stalling.

Private sector employers added 158,000 jobs in March, compared with forecasts of 200,000 new jobs in the ADP national employment report. Moody's economist Mark Zandi said:

I'm very optimistic about the economy but I think the next six months are going to be pretty tricky and we're going to see that in the job market. So I think we actually will see weaker jobs numbers in the next few months.

February's figure was revised up to an increase of 237,000 from the previously reported 198,000.

1.32pm BST

Italian treasury slashes growth forecasts

Over to Italy, where the treasury has cut its growth expectations, just two weeks after the last forecasts. 

Treasury undersecretary Gianfranco Polillo said the economy is likely to contract by 1.5% and 1.6% this year. Speaking to Radio 24, he said:

This year we will see a fall in gross domestic product of 1.3% if things go well, but it will probably be -1.5% or -1.6%.

The currency bloc's third largest economy has shrunk for six consecutive quarters, its longest recession in 20 years.

Mario Monti's outgoing government slashed this year's forecast to -1.3% last moth from its previous estimate of -0.2%.

1.23pm BST

Cyprus finance minister toes the line

Cyprus's new finance minister has taken on his first task and has (essentially) said he will do what he is told.

Harris Georgiades said the island state is committed to meeting all the terms of a €10bn bailout deal agreed with the troika of the EC, the ECB and the IMF last week.

We shall implement the [memorandum of understanding] fully, and without any derogations. We shall meet all timeframes, we will meet all targets.

Earlier today a spokesman for the German finance ministry said they expect the Cypriot memorandum of understanding to be ready by April 9.

The new Cypriot finance minister Harris Georgiades says Cyrpus will implement its memorandum of understanding fully.
The new Cypriot finance minister Harris Georgiades says Cyrpus will implement its memorandum of understanding fully. Photograph: KATIA CHRISTODOULOU/EPA

12.05pm BST

German five-year borrowing costs fall

Germany's bond sale went well today, with five year borrowing costs dropping to their lowest level since August.

The sale of the five-year bonds came at a yield – effectively the interest rate – of 0.33%.

Reuters reports:

German yields have fallen back close to their lowest ever levels over the past two months as concerns about inconclusive Italian elections and an unprecedented levy on bank depositors in Cyprus have pushed investors towards safe-haven assets.

Those concerns helped support the sale, which drew bids worth 1.9 times the amount allocated to investors – a measure of demand which was in line with previous sales this year.

11.58am BST

EC and IMF hail Cyprus agreement, as troika prepares to descend on Greece

Olli Rehn, the vice president of the European Commission and IMF chief Christine Lagarde have now put out a statement hailing the agreement for the Cyprus bailout. They say:

While the Cypriot government has already adopted important fiscal consolidation measures, the programme entails a well-paced fiscal adjustment that balances short-run cyclical concerns and long-run sustainability objectives, while protecting vulnerable groups. The social welfare system will be reviewed with the view to ensuring sustainability and social fairness.

The programme puts forward comprehensive structural reforms to set the conditions for growth and job creation.

Significant challenges lie ahead for Cyprus. The European Commission and the International Monetary Fund stand by Cyprus and the Cypriot people in helping to restore financial stability, fiscal sustainability and growth to the country and its people.

Rehn is due to fly to Athens tomorrow, as part of the troika mission to resume its latest inspection of Greek public finances and check on the progress of structural reforms.

11.44am BST

Rajoy says Spain will see benefits of sacrifices next year

Spanish president Mariano Rajoy has said the Spanish will start to see the results of the sacrifices made under austerity, next year.

Speaking in a closed session, which was broadcast live on TV, he said:

In 2014 Spain will show clear growth and we will start to create jobs. The Spanish people will start to see the tangible results of the efforts they have made.

He admitted that this year "will be hard". His comments were met with some scepticism.

He said the country had already seen results from its labours, but they had not yet reached the real economy.

It is not that we have not got any results, we have, they are good and promising, but they have not reached the Spanish people. This is the thanklessness of this task. But we have avoided the worst, [in avoiding] two bailouts.

11.28am BST

Italy to vote for new president on April 18

Italy's parliament will start voting for a new president to replace Giorgio Napolitano on April 18, the speaker of the lower house said today.

Napolitano has made little headway in breaking a political deadlock wince last month's inconclusive elections. His seven-year term ends in mid-May and it is likely that the next president will inherit the impasse.

Napolitano on the right in the grand Quirinale palace in Rome yesterday.
Napolitano on the right in the grand Quirinale palace in Rome yesterday. Photograph: PRESIDENTIAL PRESS OFFICE/HANDOUT/EPA

11.23am BST

Bank of England could boost QE tomorrow – economist

Here's Howard Archer on the Bank of England decision…

Interest rates completed a fourth year at 0.50% in March, and the strong likelihood is that they will stay there through the rest of 2013 and 2014 as well. If interest rates were to move any time soon it would be downwards, but we suspect that the Bank of England will retain the view that lower interest rates may not be beneficial overall for the economy.

Instead, he says, the question is whether the bank expands its programme of pumping money into the economy, via quantitative easing.

With the economy at risk of having suffered further GDP contraction in the first quarter of 2012, it looks to be a knife edge decision as to whether the MPC go for another £25 billion of Quantitative Easing on Thursday.
 
It could even come down to the strength or otherwise of the purchasing managers survey for the dominant services sector in March (which is out on Thursday morning). A reasonably decent survey would ease concerns that the economy contracted in the first quarter and would perhaps give the MPC some more breathing space.
 
A poor services survey, coming on top of the largely disappointing manufacturing and construction surveys, would exert significant late pressure on the MPC to give the economy a further helping hand with more QE.

Whether this happens on Thursday or not, Archer expects the bank to deliver one £25bn slug of QE in the second quarter (taking the stock up to £400bn) with another £25bn shortly after Mark Carney takes over as Bank of England governor in July.

11.01am BST

ECB and Bank of England preview

Easing inflation in the eurozone does leave the European Central Bank scope to cut interest rates at its meeting tomorrow. (Central banks cite rising prices as one of the key dangers of cutting rates or pumping money into the economy).

But analysts say it will probably hold fire, for the time being, at least. Analysts at investment bank ING say:

Choosing a rather ineffective but politically acceptable rate cut or an effective but politically controversial lending bazooka. At tomorrow’s meeting, rates should remain on hold but if the recovery fails to unfold, the ECB will eventually have to choose

Here's Howard Archer of IHS Global Insight:

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

The Bank of England also announces the outcome of its monthly rate-setting meeting tomorrow. ING says it too is likely to keep policy unchanged this week, but three members of the committee, including the governor, will continue to push for more stimulus.

10.52am BST

Eurozone inflation eases but price of core goods and services up

Eurozone inflation has eased from 1.8% to 1.7%, the lowest rate since August 2010.

The drop was driven by a sharp fall in energy inflation, though this was partially offset by rising prices of core goods and services

Capital Economics said:

These [latter] increases might fuel speculation that underlying price pressures in the currency union are starting to pick back up again, perhaps in response to faster wages growth in some countries and the inflationary effects of the recent falls in the euro.

But we think that would be a premature conclusion. Wage pressures remain generally subdued and the euro’s previous strength should continue to push import prices down for some time yet. Our guess, therefore, is that these are blips and that core inflation will continue to ease over the coming months, pushing the headline rate further below the ECB’s 2% “ceiling”. Unfortunately, though, this looks unlikely to prompt the central bank to provide further policy support.

10.35am BST

Tax on Cypriot savers to double under bailout plan

The IMF will contribute €1bn over three years to the €10bn bailout agreed with Cyprus. The fund has also put out more details of the terms of the bailout, which look (predictably) punishing. 

In a prepared statement, Lagarde starts by suggesting that austerity measures for 2013-2015, introduced with this year's budget, mean there is little need for additional measures in the short-term.

But, she goes on to say these measures will achieve savings worth just 5% of GDP. The IMF says Cyprus must more than double those savings, if it is to achieve its goal of a 4% GDP surplus in 2018 (which it needs to start paying down its debt).

Among other things, the fund suggests Cyprus doubles the tax on income from savings to 30% (as if Cypriot savers had not been punished enough). And the government should also raise the corporate income tax rate from 10% to 12.5%.

Lagarde said:

There will be protection for the most vulnerable groups. The social welfare system will be reviewed to streamline administration costs, minimize the overlap of existing programs, and improve their targeting to ensure that public resources reach those in need.

IMF chief Christine Lagarde says Cyprus must implement austerity measures to meet strict targets, under the terms of the bailout.
IMF chief Christine Lagarde says Cyprus must implement austerity measures to meet strict targets, under the terms of the bailout. Photograph: JOHN THYS/AFP/Getty Images

9.54am BST

Some instant reaction from Twitter…

9.51am BST

UK construction could weigh on first quarter GDP

UK construction figures are in and they look bad, with the sector contracting for the third month running in March.

The construction PMI inched up to 47.2 from 46.8 in February, but remains below the 50 mark that separates growth from contraction.

Markit said that unusually cold weather combined with sluggish underlying demand kept a lid on building work in March.

The danger is that construction will act as a drag on GDP in the first quarter. Tim Moore at Markit said:

The negative print for construction output mirrors that seen for manufacturing, and now leaves the service sector as the last great hope for avoiding another slide in UK GDP.

If the economy contracts in the first quarter, Britain will slide into a triple-dip recession, which will be a huge blow to the chancellor.

Sterling dropped on the data to around .5093, from .5116 before the release.

9.41am BST

New Cypriot finance minister sworn in

Over to Cyprus, where the new finance minister Harris Georgiades was sworn in this morning. 

He takes over from Michael Sarris who resigned yesterday, after a probe was launched into how the island was pushed to the verge of bankruptcy.

Sarris said his previous role as chairman of Laiki, the country's second largest bank which is being wound down, was likely to be subject to scrutiny, as part of the investigation.

President Nicos Anastasiades warned him this morning of the "difficult days ahead." He said at the swearing in ceremony that they would require…

Firstly, collectivity and, secondly, consistency and fiscal discipline and all those measures that will contribute to kick-starting the economy as soon as possible.

I have no doubt that you will not only accomplish your task to the full, but in the best way possible that is worthy of your predecessor.

Charlie Charalambous at AFP reports:

Georgiades, a 40-year-old economist who had been labour minister, formally took up his new post a day after Michalis Sarris said he was stepping down to cooperate with judges investigating the failure of Laiki Bank, where he was chairman for much of last year.

The bank's collapse was a major contributor to the island's near financial meltdown and need for a crippling eurozone bailout.

Also sworn in on Wednesday was Zeta Emilianidou, permanent secretary at the commerce ministry, who becomes the first woman in the Anastasiades cabinet, taking over from Georgiades at the labour ministry.

New Cypriot finance minister Harris Georgiades was sworn in this morning.
New Cypriot finance minister Harris Georgiades was sworn in this morning. Photograph: ANDREAS MANOLIS/Reuters

9.10am BST

French far-right could benefit from political scandals

The Cahuzac scandal (see 8.52am) has shaken the French public's faith in politicians even further, and there are fears that this distrust could fuel a rise in the popularity of the far-right party, the Front National.

It comes at a particularly bad time for the socialist government, coinciding with the questioning of one of its senators, as part of a separate investigation into the misuse of public funds.

The opposition, meanwhile, has been rocked with scandal and last week, former president Nicolas Sarkozy was placed under formal investigation on suspicion that he received illegal campaign donations from France’s richest woman, Liliane Bettencourt. Sarkozy denies the allegation.

The far-right party of Marine Le Pen portrays both main parties as equally corrupt and is likely to benefit from the escalating distrust of politicians. Front National vice president Florian Philippot said yesterday:

This is another example of the decay of the political system that is in power, and which must now leave.

President of the far-right party the Front National, Marine Le Pen, portrays both mainstream parties in France as equally corrupt.
President of the far-right party the Front National, Marine Le Pen, portrays both mainstream parties in France as equally corrupt. Photograph: BERTRAND GUAY/AFP/Getty Images

8.52am BST

Mosocvici denies covering up Cahuzac scandal

In France, economy minister Pierre Moscovici has been forced to deny any part in covering up the scandal engulfing former budget minister Pierre Cahuzac.

For a recap of that story, David Chazan writes in The Times this morning:

François Hollande, the beleaguered French President, suffered a severe blow yesterday when his former budget minister, who is under investigation for tax fraud, admitted holding illegal offshore bank accounts.

Jérôme Cahuzac, who resigned last month, confessed to investigating judges that he had held about €600,000 in an undisclosed foreign account for the past 20 years.

It is alleged that he held several Swiss bank accounts and transferred funds to Singapore. Failing to disclose such arrangements is illegal in France.

The development is deeply embarrassing for Mr Hollande, who came to power last year vowing that his Socialist government would mark a break with the scandals that tainted the administration of his predecessor, Nicolas Sarkozy. Until yesterday, Mr Cahuzac, 60, a former plastic surgeon who has led a crackdown on tax dodgers, had continued to proclaim his innocence, even after resigning from the Government.

This morning, Moscovici defended the government, which had given Cahuzac its full backing. He said on RTL: 

The president of the republic, the prime minister and myself, we did what needed to be done.

There was no complacency, no desire to obstruct justice, no desire to whitewash or cover it up.


A local paper headline reads “Cahuzac is no longer minister”, on March 20, 2013 in southwestern France. Cahuzac resigned yesterday after prosecutors announced a probe into a Swiss bank account he allegedly used to hide assets from the tax authorities. Photograph: MEHDI FEDOUACH/AFP/Getty Images

8.31am BST

Passos Coelho under fire for unpopular austerity

Focus shifts to Lisbon again today, with a no-confidence vote in the government of prime minister Pedro Passos Coelho. The debate kicks off at 4pm.

This is the fourth time Portuguese politicians have attempted to oust the current government – which is pushing through unpopular austerity measures in exchange for a eurozone bailout – but the first that is supported by all the left-wing opposition.

Meanwhile, the courts in Portugal are debating the constitutionality of some of the austerity measures.

Passos Coelho said last week he would resign if the court rules against them, forcing him to revise the 2013 budget. But he was forced to backtrack when he was accused of placing undue pressure on the courts. He said:

I will not speculate or create expectations around possible [court] decisions. I won't contribute to instability.

Whatever his motives, it is thought the move may have backfired as the courts will be more inclined to demonstrate their independence from the executive following the headlines.

More protests against the government in Portugal. People burn a dummy of a rabbit in Palmela, near Lisbon over the Easter weekend. The ritual refers to prime minister Pedro Passos Coelho, whose surname translates to rabbit in Portuguese.
More protests against the government in Portugal. People burn a dummy of a rabbit in Palmela, near Lisbon over the Easter weekend. The ritual refers to prime minister Pedro Passos Coelho, whose surname translates to rabbit in Portuguese. Photograph: JOSE MANUEL RIBEIRO/Reuters

8.10am BST

Today’s agenda

A quick look at the data coming up. In the UK, we've got construction figures for March and there is an estimate of inflation from the eurozone.

  • UK construction PMI (March): 9.30am
  • Eurozone CPI estimate (March): 10am
  • EU's Barroso and Czech leader Zeman speak: 10.45am
  • Bank of England's Andy Haldane speaks: 11am
  • US ADP employment change (March): 1.15pm
  • Italian PM Monti and economy inister Grilli meet: 2pm
  • US ISM non-manufacturing (March): 3pm

In the debt markets, Germany is selling €4bn of five year bonds. (Thanks to Ransquawk for the data).

8.08am BST

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

Later today, the Portuguese government of Pedro Passos Coelho will face its fourth no-confidence vote. The government is expected to survive but the challenge has buried any hope of consensus between the two main parties in a country, mired in recession and crippled by austerity imposed by its international lenders.

Cyrpus will swear in its new finance minister and there may be further developments in France, after former budget minister Jérôme Cahuzac admitted to holding a secret Swiss bank account.

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

 


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

6.04pm BST

European markets close on a high note

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

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

• Germany's Dax added 1.91%

• France's Cac closed 1.98% higher

• Italy's FTSE MIB ended up 1.4%

• Spain's Ibex added 1.65%

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

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

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

Updated at 6.09pm BST

6.03pm BST

Osborne confirms Laika UK account transfers

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

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

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

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

Updated at 6.08pm BST

5.46pm BST

Samaras hopeful ahead of troika visit to Greece

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

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

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

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

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

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

Updated at 9.20am BST

5.26pm BST

ECB’s Coeure warns on currency wars

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

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

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

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

Updated at 5.47pm BST

5.10pm BST

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

Updated at 5.44pm BST

4.23pm BST

Former French minister reportedly admits to foreign bank account

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

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

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

Updated at 4.34pm BST

3.30pm BST

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

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

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

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

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

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

Updated at 3.42pm BST

3.02pm BST

IMF to close Latvian office

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

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

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

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

2.32pm BST

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

And on the reshuffle:

Updated at 2.33pm BST

2.26pm BST

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

2.25pm BST

Markets buoyant across Europe

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

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

France CAC 40: up 1%

Germany DAX: up 1.1%

Spain IBEX: up 0.8%

Italy FTSE MIB: up 0.7%

Updated at 2.28pm BST

1.58pm BST

Georgiades takes over as Cypriot finance minister

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

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

Updated at 2.23pm BST

1.50pm BST

Cypriot cabinet reshuffle expected today – ekathimerini

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

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

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

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

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

Updated at 2.22pm BST

1.29pm BST

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

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

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

Updated at 1.59pm BST

1.20pm BST

Cypriot finance minister resigns

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

More on that as it comes in …

Updated at 1.34pm BST

1.17pm BST

Cyprus concludes talks with lenders

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

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

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

Under the terms of the deal …

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

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

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

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

Updated at 1.34pm BST

12.00pm BST

Italian wise men meet to try to break deadlock

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

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

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

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

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

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

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

Updated at 1.05pm BST

11.47am BST

No significant outflow of funds from Slovenia, says central banker

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

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

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

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

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

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

Updated at 1.06pm BST

11.27am BST

Eurozone unemployment up 2.1% since crisis began

Another gloomy fact of the day.

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

10.56am BST

Spain seeks more time to cut deficit

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

Julien Toyer reports:

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

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

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

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

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

Updated at 1.12pm BST

10.43am BST

Eurozone youth unemployment continues to rise

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

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

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

10.32am BST

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

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

Updated at 1.31pm BST

10.18am BST

Poor UK factory data raises chance of more QE

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

Christian Schulz of Berenberg Bank writes:

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

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

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

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

10.14am BST

Eurozone unemployment hits new high

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

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

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

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

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

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

Updated at 1.41pm BST

10.04am BST

Eurozone lending declines

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

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

Updated at 1.42pm BST

9.47am BST

Cyprus to ease capital controls

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

Reuters reports:

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

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

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


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

Updated at 1.48pm BST

9.36am BST

UK factory data worse than expected

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

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

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

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

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

Updated at 1.53pm BST

9.27am BST

Cyprus share index drops after two-week hiatus

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

Updated at 1.54pm BST

9.26am BST

Slump in eurozone manufacturing could prompt ECB to cut rates

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

Here's Howard Archer of IHS Global Insight:

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

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

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

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

Updated at 2.06pm BST

9.21am BST

French factory slump continues

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

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

Jack Kennedy at Markit said:

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

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

Updated at 2.07pm BST

9.16am BST

German manufacturing contracts

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

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

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

Tim Moore at Markit said:

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

Updated at 2.08pm BST

9.03am BST

Italian factory sector continues to slide

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

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

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

Updated at 2.09pm BST

8.50am BST

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

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

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

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

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

Updated at 2.10pm BST

8.38am BST

Swiss manufacturing in surprise contraction

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

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

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

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

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

Next up Italy, and hopes are not high.

Updated at 2.11pm BST

8.33am BST

Spanish manufacutring contraction accelerates

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

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

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

Markit economist Andrew Harker said:

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

8.27am BST

Irish manufacturing contracts for first time in over a year

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

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

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

Updated at 2.12pm BST

8.22am BST

Cyprus wins deadline extension

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

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

Updated at 2.14pm BST

8.20am BST

Laiki’s UK customers escape Cypriot savings levy

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

My colleague Jill Treanor reports:

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

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

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

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


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

Updated at 2.16pm BST

8.16am BST

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

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

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

Updated at 2.16pm BST

8.10am BST

Anastasiades denies family member exported funds

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

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

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

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

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

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

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

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

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

Updated at 2.20pm BST

7.50am BST

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

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

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

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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.

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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.

Britain’s factory output drops 1.5% unexpectedly painting a grim picture of the economy. Greek international lenders to discuss reforms with Samaras. Carney meets treasury officials to discuss bank remit. Cyprus and the Troika negotiate a small bailout…



Powered by Guardian.co.ukThis article titled “Eurozone crisis live: UK manufacturing slump raises risk of triple-dip” was written by Josephine Moulds and Nick Fletcher, for guardian.co.uk on Tuesday 12th March 2013 16.19 UTC

4.16pm GMT

Cyprus and troika reportedly negotiating small bailout

Meanwhile Cyprus and the troika are negotiating a smaller bailout package, Dow Jones is reporting:

Earlier of course German finance minister Wolfgang Schaeuble was saying the Bundestag could vote on a bailout package for Cyprus next week. If the deal gets done this week, that timetable looks plausible.

Updated at 4.19pm GMT

4.09pm GMT

Samaras and troika meeting reportedly delayed

Still with Greece, the meeting between prime minister Antonis Samaras and visiting troika officials, due to take place this evening has now apparently been postponed until tomorrow…

3.59pm GMT

ECB funding to Greek banks rises in January

Greek banks turned to cheaper ECB funding in January, new figures have shown.

ECB funding to the country’s banks rose from €19.35bn in December to €76.22, while emergency liquidity assistance from Greece’s central bank fell from €101.85bn to €31.42bn. Tapping European Central Bank funds is around 2 percentage points cheaper than the ELA.

3.27pm GMT

Germany’s second largest bank, Commerzbank, is preparing a capital increase of between €700m and €800m, according to a report in Manager Magazin.

Updated at 3.35pm GMT

3.23pm GMT

Germany could vote on Cyprus package next week

Germany could vote on an aid package for Cyprus as early as next week.

That is what finance minister Wolfgang Schaeuble has told conservative politicians, although that is dependent on a decision from eurozone finance ministers that the country require financial assistance.

The Bundestag lower house of parliament would be deciding on a €17bn aid package for Cyprus, mainly to help recapitalise its banks.

Updated at 3.27pm GMT

3.01pm GMT

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

3.01pm GMT

UK GDP forecast to drop by 0.1% in February

Respected forecaster NIESR estimates that the UK economy declined by 0.1% in February. That would point towards a 0.1% decline in GDP over the three months to February.

But the thinktank would not be drawn on whether the economy will shrink over the three months to March and therefore slide into a triple-dip recession.

Simon Kirby of NIESR said:

It’s going to be a very close run thing. The obsession with triple-dip distracts us from the more important point that the UK has been effectively flat for over two years. The real risk for the economy is an absence of growth throughout 2013. It’s the risk that this trend of stagnation will continue through 2013.

He said the trade figures today may have looked positive but, in fact, demonstrated the weakness of imports, which highlighted the lack of domestic demand.

NIESR defines a period of depression as one in which the economy languishes below its pre-recession peak, which they pinpoint as January 2008. The UK economy is still 3.25% below that level and NIESR says this period of depression is likely to continue until 2015.

But he notes the disputes over the term ‘depression’.

Quite often people think about a depression in terms of a very, very, very severe recession, like the experience of Germany in 1930s. That is quite clearly not the case for the UK at the moment.

Updated at 3.28pm GMT

2.15pm GMT

Greek PM gears up for meeting with troika

Over in Greece, our correspondent Helena Smith says officials are putting on a brave face ahead of prime minister Antonis Samaras’ crunch meeting with visiting troika mission chiefs.

She writes:

Ahead of the talks, which begin at 6pm local time, Greece’s technocrat finance minister Yannis Stournaras today held back-to-back meetings with technical teams representing foreign lenders at the EU, ECB and IMF.

As the debt-stricken country’s next €2.8bn installment of aid depends on the outcome of tonight’s discussions, the rush to reach consensus on a series of outstanding issues has assumed what one official described as “dramatic proportions.”

Although the climate between Greece and its creditors has much improved since the conservative-led coalition assumed power last June, more divides the two than unites them, say analysts who agree that a breakdown would be a severe blow.

Far away from the optimism expressed by Stournaras in his interview with the Guardian, few observers in Athens believe the eurozone’s weakest link has overcome the crisis. Most see the autumn as a make-or-break time following general elections at the end of September in Germany.

Taxes, debts and public sector lay-offs have topped the list of disagreements with visiting troika inspectors. Creditors are pushing for the highly controversial property tax, levied through electricity bills, to be extended through 2013.

At a time when liquidity has all but dried up and Greece is undergoing a form of internal default, with no one paying anyone else, the prospect of the measure being prolonged has been met with protests and derision.

Auditors are also demanding faster implementation of civil servant staff reductions – a demand that has elicited fierce opposition from Samaras’ two junior leftwing partners at a time when unemployment is nudging towards a European high of 27%. What compromises are made – and more importantly how they are made – will determine tonight’s result.

Updated at 3.28pm GMT

1.40pm GMT

Banking union vital for eurozone – ECB board memeber

A banking union is “vital” for better financial integration of the eurozone, ECB board member Benoît Coeuré said today.

A highly integrated financial system is necessary to ensure that the impulses coming from our monetary policy diffuse homogeneously through financial markets across the euro area as a whole.

He said a “strong and independent supranatural supervisor” for the banking sector would help the monetary union function more smoothly and aid the restoration of confidence in the banking sector.

Regaining such confidence, in turn, is also key to reversing financial fragmentation and restarting fully functioning cross-border markets.

You can read the full speech here.

Updated at 1.42pm GMT

1.30pm GMT

Carney meets UK treasury official to discuss bank remit

The incoming governor of the Bank of England, Mark Carney, has met the UK treasury’s top civil servant to discuss changes to the central bank’s remit, according to Bloomberg.

Carney and Nicholas Macpherson are reported to have discussed the options in Ottawa ahead of the budget next week, when it is thought chancellor George Osborne may announce changes to the Bank of England’s role. (Cynics might suggest this would be an interesting diversionary tactic.)

Theophilos Argitis of Bloomberg reports:

Carney has signaled support for allowing the bank more flexibility in meeting its 2% inflation goal and promoted the idea of issuing guidance on longer-term policy.

In a speech in December, Carney put forward the idea of targeting nominal GDP rather than inflation. He then said in a treasury select committee.

The benefits of any regime change would have to be weighed carefully, not only against the potential risks but also against the effectiveness of other unconventional monetary measures under the proven, flexible inflation-targeting framework.

This was particularly notable as Carney was the first to suggest the inflation-targeting framework was “flexible”.

12.04pm GMT

UK industrial production hits lowest point in two decades

Despite the focus on today’s manufacturing data out of the UK, it is worth pointing out just how bad the industrial production figures were, falling to their lowest level since May 1992, a near 21-year low.

11.59am GMT

UK in danger of falling into depression – economist

With all the talk of the UK dropping into an economic depression in the comments below, it may be worth looking at how significant a threat this is.

First off, Investopedia defines an economic depression as follows:

A depression is a sustained and severe recession. Where a recession is a normal part of the business cycle, lasting for a period of months, a depression is an extreme fall in economic activity lasting for a number of years.

Shaun Richards, an independent economist who writes the blog Mindful Money, says the UK is in danger of falling into a depression and blames it on “a clear policy error in the UK to emphasis monetary policy as a response to the credit crunch”.

The “quick fix” has not worked and indeed it cannot now be quick and it plainly is not working either. Splashing money into the system and devaluing the currency are not working and yet we get more of it.

He cites the possible expansion of quantitative easing, plans to put Funding for Lending on steroids, and the decline of the pound. Instead, he says, the government should be concentrating on reforming the banks.

11.30am GMT

EC’s Rehn accuses Krugman of lying

The claws are out. The EU’s top economic official Olli Rehn has hit back at critics of austerity and called US economist Paul Krugman a liar in the process.

The fight between the two bubbled up last month when the European Commission published forecasts showing the recession in southern European countries applying tough austerity policies would be deeper and last longer than previously projected.

At the time, Krugman accused the commissioner for economic and monetary affairs of a “Rehn of Terror” for arguing that EU countries’ austerity policies had restored market confidence.

Rehn responded in an interview in a Finnish newspaper this morning, using a parliamentary euphemism for a lie:

Krugman put words in my mouth that would be termed in the Finnish Parliament a modified truth.

Reuters reports that Rehn said Krugman and other critics had distorted the findings of an International Monetary Fund study published last year on so-called “fiscal multipliers” and the consequences of austerity policies to attack European policies.

In the paper, IMF economists acknowledged they may have underestimated the impact of government spending cuts in dampening growth.

Rehn said:

It is essential that the IMF paper does not give rise to the conclusion that economic adjustment would not be desirable.

He added that Brussels and the IMF agree on the importance of structural economic reforms to boost growth.

Responding to those who argued for a slower pace of fiscal consolidation to ease the pain on citizens, Rehn said that might have been possible if unlimited cheap funding had been available from either the private sector or other euro zone countries.

What I don’t understand is where on earth the stimulus money could have come from,” he said, adding: “I sincerely hope that people who are cleverer than me will suggest alternative ways of getting credit flowing into Europe.

So far, distinguished economic experts had not suggested any financially or politically realistic alternatives, Rehn was quoted as saying.

Updated at 2.22pm GMT

11.12am GMT

UK data – Guardian wrap

Here’s our economics correspondent Philip Inman on the UK data.

The UK’s third recession since the financial crash is almost certain after a dive in manufacturing in January.

According to official data, a sharp fall in the production of pharmaceuticals and building materials pushed manufacturing 1.5% lower than December and 3% lower than the same month last year.

A wider measure of industrial production fell 1.2% compared with a poll of economists for Reuters that showed they expected a 0.1% rise.

Alan Clarke, UK economist at Scotia Bank said only a strong rise in the services sector could rescue the economy from a triple dip recession. “It is looking unlikely,” he said.

Critics of the government’s economic policies blamed the fall on a slump in demand that followed the UK and continental Europe’s pursuit of austerity before growth has regained momentum.

Manufacturing employers group EEF warned that many firms were holding back production and investment while customers at home and abroad remained “jittery”.

The figures are likely to increase pressure on the Bank of England to inject further funds into the economy. Last month the central bank’s monetary policy committee balked at boosting the total spent as part of its quantitative easing policy from £375bn.

Full story here.

11.09am GMT

Spanish borrowing costs fall

While Italian borrowing costs are rising (see 10.12am), Spain’s have dropped to their lowest level since April 2010 – just before the international rescue was announced for Greece.

The Spanish treasury sold €5.8bn of six and 12-month treasury bills, beating the target amount of €5.5bn.

The one-year debt came in at an average yield of 1.363% – compared with 1.548% in February.

Six month-debt came in at an average yield of 0.794%, compared with 0.859% a month earlier.

Jose Luis Martinez at Citi said:

It was a very positive auction, with strong underlying demand… with lower yields. What more can you ask for?

10.56am GMT

Trends in the UK trade balance

This is interesting. Markit shows how the increase in the UK’s trade of services has been more than offset by the decline in the UK’s trade of goods since the year 2000, with little sign of a change in the trend any time soon.

10.45am GMT

Bank of England under pressure to do more QE – economist

There’s a growing chorus of economists calling for more stimulus from the Bank of England and the government, following the poor UK data.

Here’s Chris Williamson of Markit:

The data will pile more pressure on the Bank of England, to inject more stimulus into the economy at its next policy meeting, and on the chancellor, to accept that more needs to be done to boost growth in next week’s budget. With such a weak start to the year, the economy is facing an increased risk of falling into a triple-dip recession and the much-vaunted rebalancing remains elusive. In fact, recent data suggest the UK is moving in the opposite direction: away from goods production and is becoming ever-more dependent on consumer spending.

10.40am GMT

UK needs export strategy – BCC

Britain needs a national export strategy says the British Chambers of Commerce, following poor manufacturing data.

David Kern chief economist BCC said:

More effective action is needed to ensure that the considerable untapped potential of many British exporters can be used to drive a sustainable recovery. The government must implement the measures it has already announced to support companies seeking to break into new markets. We clearly need a national export strategy that focuses on key areas such as trade finance, promotion, and insurance, and would enable British companies to compete in the global arena.

Updated at 10.40am GMT

10.34am GMT

German central bank chief says inflation risks declining

Meanwhile, the head of Germany’s central bank says the risk of inflation in the eurozone is declining.

Germany is seen as the main impediment to the European Central Bank cutting rates because of its fear of inflation. But Jens Weidmann, who is a member of the ECB’s governing council, said in a statement this morning there was no reason to stir up concerns about inflation.

In the short term, we in the euro area have, if anything, declining inflation risks.

He said Germany’s economy is still shaken by the eurozone crisis, which poses the biggest risk to the outlook for the country’s economy.

Only some of the confidence lost as a result of crisis has been recovered so far.

But he expects Germany’s growth to strengthen as the year progresses.

10.25am GMT

UK manufacturing down but trade balance improves – Reuters wrap

Here’s the Reuters report on the UK data:

British manufacturing output fell in January at the fastest pace since June, wiping out the previous month’s gains and reinforcing fears that the economy made a weak start to the year.

Manufacturing output dropped 1.5% on the month, the Office for National Statistics said on Tuesday, noting that snowy weather at the end of January had had little impact.

The wider reading of industrial output, which includes energy production and mining, fell 1.2% after a 1.1% rise in December, partly due to a shutdown of a North Sea oil field that typically accounts for 3%-6% of Britain’s oil production.

Economists had predicted broadly steady readings for both manufacturing and industrial production. The latest figures will worry finance minister George Osborne as he prepares to deliver his annual budget to parliament next week.

The sluggish trend may persist. A survey of purchasing managers revealed earlier an unexpected contraction in the manufacturing sector in February, raising the risk that Britain is entering its third recession since the 2008 financial crisis.

However, separate ONS data released at the same time showed a rare improvement in Britain’s trade position. The goods trade deficit shrank to £8.195bn in January from £8.738bn in December, versus forecasts for a modest deterioration to £9bn.

10.20am GMT

Here’s a graph of the plunge in sterling on the UK data, courtesy of CMC Market’s Michael Hewson.

10.14am GMT

The change in the UK’s inflation basket (see 9.46am) prompts the inevitable horsemeat jokes…

10.12am GMT

Italy’s borrowing costs rise

Over to Italy, where there is more bad news. Hit by the political instability in the country, its borrowing costs have risen in the latest auction of one-year debt.

Italy paid a yield – effectively the interest rate – of 1.28% in an auction of €7.75bn of one-year debt, the highest rate since December.

But it could be a lot worse. After an initial shock, the markets recovered and appear relatively sanguine about the current political impasse.

10.07am GMT

British manufacturing slides back

Here’s a chart from the ONS that shows the slide in industrial production and manufacturing, despite the odd bounce.

10.03am GMT

Here’s Howard Archer of IHS Global Insight on the “worrying” set of UK data.

The manufacturing figures are awful even if it is possible that the snow had more of a negative impact than the Office for National Statistics indicate and are a real blow to first quarter growth prospects.

A rebound in manufacturing output in December and some reasonable survey evidence for January had lifted hopes that the manufacturing sector could be emerging from a torrid time but the January output figures and a poor purchasing managers’ survey for February indicate that manufacturers are still finding life very tough.

On the face of it, the sharply reduced trade deficit in January is better news for hopes that the economy can grow in the first quarter. But even here the headline figure masks some worrying trends as the reduced deficit occurred because UK imports fell more than exports. This indicates that UK exporters are currently still finding life very tough while domestic demand is weak

All in all, a pretty worrying set of data for both the Bank of England and the Chancellor to contemplate.

Updated at 10.24am GMT

10.02am GMT

UK sliding towards triple-dip – economist

David Tinsley at BNP Paribas, meanwhile, says the UK is headed for its third recession in four years.

They are extremely disappointing manufacturing production numbers. Perhaps the story is not the weather behind the overall picture and it’s not just down to oil output that has led to distortions in the data over the last six months or so. Basically it’s a very bad start to January and therefore the first quarter. Unless the service sector delivers solid growth, we are likely to see a contraction in the first quarter.

Updated at 10.02am GMT

10.01am GMT

Osborne under pressure to deliver stimulus – economist

Here’s Philip Shaw of Investec on the “appalling” manufacturing data, which he says piles pressure on George Osborne to announce some kind of stimulus in next week’s budget.

The manufacturing figures are appalling. They represent a very poor start to 2013 for the factory sector. This may be a snow story once again, but one should be wary about putting too much of the blame onto weather conditions.

Our view is that the UK will probably avoid a triple-dip recession but these figures hardly inspire confidence in that view.

The softness of the numbers, irrespective of special events really puts the pressure on the chancellor to deliver some sort of stimulus to the economy.

Clearly on the fiscal side, there is no room to relax policy, either by cutting taxes or raising spending. What he seems likely to do would be to give the monetary policy committee more licence to be aggressive on policy as suggested by newspaper headlines last week. And there remains the question of trying to channel credit to SMEs.

Updated at 10.23am GMT

9.58am GMT

Britain’s trade position improves but points to weak demand

To recap, UK manufacturing output fell in January at its fastest pace since 2009 (ignoring the Jubilee weekend last year), wiping out December’s gains.

Separately, the ONS said Britain’s trade position showed a rare improvement in January, driven by a drop in oil imports.

Some instant reaction to the data, courtesy of Reuters:

James Knightley economist at ING:

With the February PMI manufacturing index coming in so weak and with orders numbers also disappointing it looks as though this sector is going to be a major drag on growth in the first quarter of 2013.

We have already has poor construction numbers for the start of the quarter so the prospect of yet another return to technical recession is very real.

This will intensify the pressure on the Bank of England to do more to help support the economy, given government officials suggest they have no intention of letting up on austerity.

Admittedly the trade balance has improved, but this is more to do with weakness in imports than a pick-up in exports. As such it underlines the weak domestic demand story in the UK.

9.50am GMT

FTSE rises on hopes of more stimulus

The UK stock market rose on the poor data, which commentators put down to hopes that the Bank of England will pump more money into the economy to revive the economy, via its quantitative easing programme.

9.46am GMT

Blueberries drop into the inflation basket

On a lighter note, the Office for National Statistics has updated the basket of goods it uses to calculate inflation.

In come… ebooks, set-top boxes, white rum, hot chocolate, deli type meats and blueberries, and packets of daily disposable contact lenses

Out go… on-sale champagne and (inexplicably) basin taps.

Updated at 9.47am GMT

9.40am GMT

Steve Collins of London & Capital Asset Management notes that the last time UK manufacturing was this bad was a result of the many bank holidays over the Jubilee weekend. Ignoring that, this is the worst showing from the sector since the dark days of 2009.

9.38am GMT

Pound tumbles on poor UK data

The pound dropped to a new two-and-a-half year low on the miserable UK data, down by half a cent against dollar to $1.4854 (and still falling).

9.35am GMT

UK industrial output misses forecasts

Taking a closer look at the figures, the 1.5% month-on-month decline in manufacturing output is the steepest drop since June last year.

Industrial output also missed forecasts of a 0.1% increase, to drop 1.2% in January.

9.31am GMT

UK manufacturing slump raises prospect of triple-dip

UK manufacturing figures are in and they look bad. Economists were expecting factory output to be flat in January, but instead it dropped 1.5%, according to the Office for National Statistics.

January was blighted by snow, but these figures will all be fed into the GDP calculator and suggest the UK could be headed for its third recession in four years.

Just to recap, the UK economy shrank by 0.3% in the last quarter of 2012. A technical recession is defined as two consecutive quarters of contraction, so a decline this month would push the UK into a dreaded triple-dip.

The news will come as a blow to the chancellor, George Osborne, who is due to present his budget next week.

We’ll have analyst reaction on those figures as it comes in.

Updated at 10.20am GMT

9.12am GMT

Stournaras says Greece is out of the woods

The Greek finance minister Yiannis Stournaras says Greece is close to overcoming its financial crisis and can look forward with optimism, in the Guardian this morning.

Speaking to our correspondent in Athens, Helena Smith, Stournaras said:

To a large extent, Greece is out of the woods. No one talks about Grexit now – even economists who advocated Grexit have apologised for it.

As far as fiscal adjustment is concerned, we have covered two thirds of the goal. As far as competitiveness is concerned, we have covered three quarters of the distance to the goal. Greece has paid a very high price in terms of austerity … But I think the worse is behind us and we can look at the future with hope.

Prompting some derision on Twitter…

Updated at 10.19am GMT

9.06am GMT

Denmark’s triple-A status confirmed

Denmark’s triple-A rating was confirmed this morning by ratings agency Fitch, with a stable outlook.

Fitch said Denmark merited the top-notch rating because of its…

Track record of macro-financial stability reflected in low and stable inflation, current account surpluses and the stable banking sector despite a high level of household indebtedness and weakening housing market.

Eurozone outsider, Denmark is one of the few European countries to retain its triple-A rating. But the country of bicycles crime dramas has not been completely impervious to the crisis. The Danish economy shrank more than expected at the end of last year, putting government forecasts for growth in doubt.

A burst property bubble hit confidence and private consumption and put the banking sector under pressure. Sluggish exports also hampered economic recovery, as demand in the eurozone stayed weak.

Fitch remained unworried, saying this morning:

Concerns for the banking sector arising from the bursting of the
housing bubble in 2008 and the global financial crisis in 2009 have eased, and large Danish banks in particular have improved balance sheets and capitalisation.

Though it notes the country’s sensitivity to the eurozone crisis, as a potential risk.

As a small open economy with extensive trade and financial linkages to the rest of the world and eurozone, a material worsening of the global economic outlook and/or intensification of the eurozone crisis would affect Denmark’s economic recovery and potentially place pressure on public finances and the financial sector.

8.33am GMT

German inflation hits two-year low

Inflation in Germany slowed to its lowest level in more than two years in February, according to official data.

The statistics office confirmed previous estimates that the cost of living in Germany increased by just 1.5% on a 12-month basis this month, down from 1.7% in January.

That could help pave the way for an ECB rate cut. IMF chief Christine Lagarde said last week that the ECB should cut rates and noted that restoring the balance in the EU might mean allowing somewhat higher inflation and wage growth in countries like Germany.

8.17am GMT

Hollande hits the road

In France, embattled president François Hollande is attempting to reverse a vertiginous decline in his popularity with a road trip around the country.

Our Paris correspondent Angelique Chrisafis reports:

François Hollande tried today to reverse his record unpopularity by embarking on old-fashioned, lingering trips to the provinces in the style of Charles de Gaulle, whose made-to-measure bed he will pointedly be sleeping in on his first trip in Dijon.

Several polls have shown Hollande’s approval ratings to be the lowest of any modern French leader 10 months into a presidency. French military intervention in Mali, which the Socialists hoped would improve his presidential stature and neutralise the right’s charges of dithering, produced only a slight, short-lived bounce.

The latest TNS-Sofres poll found only 30% of French people had confidence in him to solve France’s problems. An Ifop poll for Paris Match found only 37% of the French approved of his politics.

Hollande’s unpopularity is linked to the growing economic crisis and rising unemployment. No French leader has ever managed to climb in the popularity stakes while joblessness was rising fast. French unemployment is at a 14-year high and has steadily grown for almost two years. It threatens soon to reach the 1997 record of 3.2 million without work.

Updated at 8.19am GMT

7.57am GMT

Today’s agenda

We’ve got industrial and manufacturing data out of the UK today. And respected thinktank NIESR will make its estimate of UK GDP in February, which will be closely watched for indications that the economy is sliding into a triple-dip recession.

As Michael Hewson of CMC Markets notes:

With the pound continuing to sink on the currency markets and investors continuing to focus more on the UK’s fragile fundamentals every piece of economic data is being subject to greater and greater scrutiny ahead of next week’s budget, as the pressure continues to build on the Chancellor to come up with some creative measures to help boost the UK’s struggling economy.

  • Germany inflation (February): 7am
  • France current account (January): 7.45am
  • UK industrial and manufacturing data (January): 9.30am
  • UK trade balance (January): 9.30am
  • Germany Bundesbank’s annual report for 2012: 10am
  • UK GDP estimate from NIESR (February): 3pm

In the debt markets, Spain and Italy are selling short-term debt, and Germany is selling €1bn of a bond due in 2023.

Updated at 10.15am GMT

7.54am GMT

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

Greek prime minister Antonis Samaras will meet the troika mission chiefs in Athens this afternoon in an attempt to agree on key reforms. The result of the meeting will decide whether Greece’s international lenders release the next installment of the country’s €173bn bailout.

The meeting comes at the end of a marathon visit from the troika, which has been extended after officials got bogged down in a spat over public-sector layoffs.

Greece has promised to cut the civil service by 150,000 workers by the end of 2015. So far, it is on track to meet that target through attrition but the government has yet to actually sack anyone.

We’ll have updates on that meeting later today and other economic events from around the world.

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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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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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PMIs from the euro-zone’s largest economies point to widening gulf between France and Germany. Grim outlook for France’s economy. UK public finances better than expected. US jobless claims rise and existing homes sales inch higher…



Powered by Guardian.co.ukThis article titled “Eurozone crisis as it happened: French economy worsens as Germany powers ahead” was written by Josephine Moulds, for guardian.co.uk on Thursday 21st February 2013 15.02 UTC

2.58pm GMT

And with that I’m afraid we’re going to close the blog early today. Thanks for all your comments.

2.57pm GMT

Markets hammered by French data

European markets have been hammered today, on the back of data showing the French economy continues to falter, and fears that the US could switch off its stimulus programme.

  • UK FTSE 100: down 1.64%, or 105 points, at 6290
  • France CAC 40: down 1.87%
  • Germany DAX: down 1.68%
  • Spain IBEX: down 1.72%
  • Italy FTSE MIB: down 2.81%

2.47pm GMT

UK public finances disappointing – IFS

Back to the UK’s public finance data again (see 9.40am and following), which the highly-respected Institute for Fiscal Studies says will be a disappointment for George Osborne

Rowena Crawford at the IFS said:

As the chancellor prepares for his budget next month, he will likely be disappointed by today’s public finance figures. January is an important month for receipts but, although growth in income tax receipts was strong, this was partially offset by very weak growth in corporation tax receipts. Together this leaves tax receipts running below the growth forecast for the year as a whole. Spending continues to run higher than forecast, due to strong growth in spending on both welfare benefits and on the delivery and administration of public services.

As a result borrowing is now on course to be almost £7bn higher this year than the OBR forecast in December. Therefore borrowing is more likely to be slightly higher rather than slightly lower than last year’s level, although much uncertainty remains and things could still change in the final two months of the year.

What matters more than the level of borrowing this year is the outlook for revenues and spending in the medium term. Some of the extra borrowing so far this year is due to Whitehall departments underspending by less than assumed. This may not persist and therefore might not concern the chancellor – in particular if the money is being spent well.

Potentially more concerning is the low growth in tax receipts and the high growth in spending on welfare benefits: were these to persist into future years then the large planned fiscal tightening might need to be increased.

Updated at 3.02pm GMT

2.42pm GMT

Dutch consumer morale hits a low

There are clouds gathering over the Netherlands, with reams of data out today showing it could struggle to hold onto its prized triple-A credit rating. An unholy trinity of releases showed:

  • Consumer confidence hit its lowest point since records began in 1986, at -44 points
  • Unemployment hit its highest level in around 16 years
  • House prices dropped at their sharpest rate over a year since 1995

Updated at 2.44pm GMT

2.12pm GMT

Growth in US factory activity slows slightly

And here comes US manufacturing PMI data, which looks pretty good. The pace of growth of the factory sector slowed in February, but remained near a nine-month peak thanks to strong domestic demand.

Markit’s manufacturing PMI came dropped back to 55.2 from 55.8, still comfortably above the 50 mark that separates growth from contraction.

But job creation in the sector hit a three-month low. Chris Williamson at Markit said:

While the survey therefore paints an encouraging picture of the manufacturing sector, helping to drive a return to growth for the economy as a whole in the first quarter of this year, firms still need to see greater confidence in the longer-term economic outlook for employment numbers to pick up again.

2.06pm GMT

Ireland looks to issue 10-year bond before summer

Back to Ireland, which is apparently looking to issue a 10-year bond in the first half of this year.

Reuters reports that Irish finance minister, Michael Noonan, who is on a visit to London, said Ireland wanted to prove it is ready to exit its bailout programme.

I think the issuance will be 10-year and that will be one of the serious tests of market conditions and of our ability to get back into the market. I would like that we would be back in the markets fully by 2014… and at present I think we are on track.

2.02pm GMT

Panic-driven austerity could lead to eurozone breakup, say economists

Panic-driven austerity in the eurozone produced the double-dip recession and could have even more dire consequences, write two economists on the VOX blog.

Paul De Grauwe of the London School of Economics and Yuemei Ji of the University of Leuven argue that fear and panic led to excessive, and possibly self-defeating, austerity in the south while failing to induce offsetting stimulus in the north.

The conclude that resistance to austerity measures could once again raise the spectre of countries wishing to leave the eurozone.

The intense austerity programs that have been dictated by financial markets create new risks for the eurozone. While the ECB 2012 decision to be a lender of last resort in the government bond markets eliminated the existential fears about the future of the eurozone, the new risks for the future of the eurozone now have shifted into the social and political sphere. As it becomes obvious that the austerity programmes produce unnecessary sufferings especially for the millions of people who have been thrown into unemployment and poverty, resistance against these programs is likely to increase. A resistance that may lead millions of people to wish to be liberated from what they perceive to be shackles imposed by the euro.

Updated at 2.39pm GMT

1.52pm GMT

US jobless rise more than expected

More US data reveals that jobless claims across the Atlantic rose more than expected last week, but remain at levels consistent with a steady improvement in the jobs market.

Initial claims for unemployment benefits rose 20,000 to a seasonally adjusted 362,000, compared with forecasts of 355,000.

Ryan Sweet, a senior economist at Moody’s Analytics, told Bloomberg:

Businesses just seem to be sitting tight with regard to layoffs, which is reason for optimism. If we get through these hurdles over the next couple months the job market should begin to improve more noticeably.

Updated at 1.55pm GMT

1.47pm GMT

US inflation unchanged

US inflation was unchanged in January, which should make it easier for the Federal Reserve to maintain its ambitious stimulus programme.

Official data showed that weak petrol and food prices helped suppress annual inflation, which came in at 1.6%, down from 1.7% in December.

1.24pm GMT

French minister fights back

The French minister who recieved a letter lambasting the “lazy” French (see 8.50am) has retaliated, reports the Telegraph. Arnaud Montebourg, minister for industrial renewal in France, told Maurice Taylor, chief executive of US tyremaker Titan:

Your comments, which are as extremist as they are insulting, display a perfect ignorance of our country, France.

He pointed out that since Titan is “20 times smaller” than “French technology leader” Michelin, which is “35 times more profitable”, Taylor “could have learned and gained enormously from a French base.”

Updated at 2.10pm GMT

12.06pm GMT

UK back in the currency wars, says economist

The pound regained some ground today against the dollar, after the better-than-expected public finances data. But it is expected to stay weak, as a result of signs the Bank of England could expand the quantitative easing programme.

Sterling was down 0.1% on the day at $1.5223, recovering for a two-and-a-half-year low it hit earlier in the day.

But, says Nick Beecroft of Saxo Bank, the UK is very much back in the currency wars.

When the UK economy hit the doldrums in the wake of the credit crunch in 2008, authorities were left with two main weapons to fight their way out of recession: low interest rates and a weaker sterling to help boost exports. Given that, historically, low rates have failed to boost consumer spending by alleviating households’ debt burden, UK policy makers will be tempted to manipulate their currency.

When asked about the perceived potential benefits of QE, central bankers of the US, UK and the Eurozone will wax lyrical about some combination of improved monetary transmission, improved sentiment through higher asset prices, cheaper government bond rates, leading to lower mortgage rates and project discount rates, and fear of inflation which promotes near term consumption, but the one benefit that dare not speak its name is currency debasement. We’ll never hear an explicit admission from any of those central banks, that a major corollary benefit of their QE programme is a decline in the value of their currency. That would be tantamount to a declaration of economic war – a trade war – such as the one which so damagingly extended and deepened the 1930’s Depression.

The trouble is that, with the political uncertainty about the future of the UK’s relationship with the EU hampering investments and British export performances since 2000 being the worst among the G20 nations, achieving economic growth will be difficult. The question is: how long will the Bank of England be able to keep its powder dry and refrain from currency devaluation.

Updated at 12.25pm GMT

11.38am GMT

UK factory orders better than expected

Back to the UK, where factory orders improved more than expected in February.

The CBI’s industrial trends survey rose to -14 from -20 in January, beating expectations of a reading of -15.

Of the 436 manufacturers, 15% responded that total order books were above normal and 29% said they were below, giving a balance of -14%

The export order book balance also rose to -20 from -29.

Anna Leach of the CBI said:

The rebound in manufacturing orders and expectations for output growth provide some further signs of improvement in the outlook for the UK economy. However, exports order books are likely to remain relatively weak until global conditions, especially in the eurozone, improve more markedly.

11.28am GMT

Irish finance minister sees compromise on EU bonus talks

Sticking with Ireland, Irish finance minister Michael Noonan says he expects a compromise to be secured on a proposal to cap bankers’ bonuses.

His view is of particular interest as Ireland currently holds the European Union’s rotating presidency.

Negotiations to introduce a cap on bankers’ bonuses in the European Union stalled on Tuesday after EU countries and the bloc’s parliament clashed over how far to go in curbing pay for the industry’s top earners.

Noonan said on Bloomberg TV:

We think there is a median where a settlement can be reached without upsetting the cost base in the city of London or without depriving people of rightfully earned bonuses. But is has to be done in a new formulation.

Updated at 11.32am GMT

11.16am GMT

Spain bond sale sees good demand

Over to the debt markets, where Spain has sold more bonds than targeted, thanks to strong demand.

Madrid sold €4.2bn of debt due in 2015, 2019 and 2023, compared with a target of €3bn-€4bn, and borrowing costs eased.

The bond due in 2019 had an average yield of 4.275%, almost 2.5 percentage points lower than yields paid at its last outing in July, at the height of worries about the eurozone.

The bond due in 2015 had an average yield of 2.54%, compared with 2.82% in February.

The bond due in 2023 sold at a yield of 5.2%, in its first auction since it was introduced.

But traders said the sale was helped by the amount of money central banks are pumping into markets. Lyn Graham-Taylor at Rabobank said:

This is a strong set of results and continues the theme of decent demand for Spanish debt. We still believe this to be largely driven by the large amount of central bank liquidity in the system rather than an improvement in the fundamentals of Spain and major progress towards fiscal union being made by the eurozone.

Ireland, meanwhile, sold €500m of three-month Treasury bills at a yield of 0.24% – close to the lowest levels it has reached since Ireland returned to the debt markets last year.

Updated at 11.31am GMT

10.36am GMT

UK public finances flattered by one-offs, says economist

Here’s David Tinsley of BNP Paribas on the UK public finances data. It seems the longer the economists have taken to digest the figures, the gloomier they are…

The UK public sector finances get more confused with reclassifications by the month. But looking through the smoke, things don’t look too jolly.

The figures are being flattered by one-offs, but the big picture is the consolidation effort stalled in 2012/13. Indeed, the underlying deficit actually rose a little. The best one can say is that it is against a backdrop where the economy showed zero growth, so at least the rise wasn’t larger. But there may be a storm brewing if the economy doesn’t show some growth soon.

Updated at 10.39am GMT

10.29am GMT

EU parliament president tells Italians how to vote

The president of the European parliament has told Italians not to vote for Silvio Berlusconi in this weekend’s elections, in what looks like an unwise move that could easily backfire.

Martin Schulz – once compared to a Nazi concentration camp guard by Berlusconi – urged Italian voters to ‘make the right choice’. He said:

Silvio Berlusconi has already sent Italy into a tailspin with irresponsible behaviour in government and personal escapades.

Much is at stake in the forthcoming elections, including making sure that the confidence built up by (prime minister) Mario Monti is not lost. I am very confident that Italian voters will make the right choice for their country.

The fear is that his comments will prompt a backlash in Italy.

Updated at 10.34am GMT

10.11am GMT

Here’s Chris Williamson on the public finances data, which he says makes it likely the UK will lose its triple-A rating.

The government’s borrowing target for the year of £108.5bn is still looking unrealistic. Borrowing for the year is now looking likely to come in around £5-10bn higher than the government was hoping, and could easily end up higher than the £120bn seen in 2011-12 if tax revenues continue to disappoint.

With borrowing rising and the economy stagnating over the past year, the UK’s AAA credit rating is looking increasingly at risk. The spring budget will need to address the concern that more stimulus is needed besides central bank action in order to get the economy on a sustainable recovery path. Without a credible plan from the government to break the vicious circle of a sluggish economy, low tax revenues and rising public sector borrowing, the credit rating agencies are likely to lose their patience.

Updated at 11.14am GMT

10.02am GMT

QE ‘profits’ reduce UK deficit less than hoped

It should be noted, the UK public finances data enjoyed a £3.8bn boost from ‘profits’ from the Bank of England’s holdings in the gilt market, as a result of the quantitative easing programme.

But the ONS estimates that this interest income will only reduce the deficit by £6.4bn, significantly less than the £11.5bn the government’s independent budget watchdog estimated in December.

Reuters writes that this is because the ONS would not allow the full amount transferred to count towards reducing the budget deficit.

Updated at 10.10am GMT

9.58am GMT

UK data cuts threat of AAA downgrade – economist

The UK could escape the embarrassing fate of losing its prized triple-A credit rating, writes James Knightley of ING, following better than expected public finances data (see below).

This may be perceived as lowering the threat of an imminent AAA rating downgrade from one of the major ratings agencies and so is going to be a short term positive for sterling.

But George Osborne still faces a difficult decision at next month’s budget, writes Capital Economics:

With borrowing still very high and fiscal progress appearing to have ground to a halt, the dilemma faced by the Chancellor at next month’s Budget over whether to tighten fiscal policy, or loosen and go for growth, remains acute.

9.51am GMT

But UK borrowing still higher than last tax year

But it is still not clear whether the UK chancellor will be able to say that deficit reduction is on track when he presents his budget in less than a month.

Borrowing since the start of the tax year in April 2012 came to £93.8bn, excluding a one-off boost from the transfer of Royal Mail pension assets.

That is 1.6% higher than at the same point in the 2011/12 tax year, and Osborne faces a tough task to meet his target to bring full-year borrowing down to £108.5bn, from around £120bn in 2011/12.

Marc Otswald of Monument Securities says, leaving aside the slightly larger than expected monthly surplus, there is nothing to comfort Osborne in the data. He points out some of the low lights of the ONS report (citing figures for the tax year to date, compared with the same period in the previous tax year):

- Income Tax receipts a little lower but that is no surprise given
a weak economy

- Corporation Tax still very weak £36.8bn vs. £40.5bn

- VAT receipts up: £85bn vs. £83.8bn, but that is in fact
less than the pace of inflation… so weak

- Outlays – horrible, net departmental outlays £476.9bn vs.
£466.3bn, with some offset from Interest payments due to fall
in Gilt yields – so much for getting the budget under control

9.40am GMT

UK public finances show big surplus in January

There was good news for George Osborne this morning, with Britain’s public finances showing a bigger than expected surplus in January.

The government’s preferred measure of public borrowing, which strips out some of the effects of its bank bailouts, showed a surplus of £11.4bn in January.

That is up from £6.4bn pounds in January 2012 and above analysts’ forecasts of a surplus of £8.15bn. January is typically a good month for tax receipts, as it marks the deadline for self-assessed tax returns to be paid.

9.21am GMT

Eurozone data could push ECB to cut rates

The ECB’s bond-buying programme may have improved sentiment but it has not lifted economic activity, says Howard Archer of IHS Global Insight.

The purchasing managers survey reinforce concern that while the eurozone economic environment has been helped by a marked reduction in sovereign debt tensions, lower bond yields and improved business confidence since late-2012 (largely due to the ECB unveiling its bond buying policy) this is still not really feeding through to lift economic activity.

He says the data could push the ECB to cut rates.

The relapse in manufacturing and services activity in February puts renewed pressure on the ECB to cut interest rates, especially given the recent strength of the euro. We suspect that the ECB will remain reluctant to trim interest rates for now, but it could buckle if the eurozone continues to falter.

9.18am GMT

Here’s Capital Economics on the eurozone data.

The fall in the composite eurozone PMI in February puts a dent in hopes that the region would emerge from recession in the first quarter. On past form, the index points to a quarterly fall in GDP of about 0.3%, after Q4’s 0.6% fall….

The fall in the French PMI is more worrying – at face value the index is now consistent with a 1% quarterly fall in GDP. In all, then, the latest PMI number supports our view that the improvement in the financial markets will not be enough on its own to kick start an economic recovery.

Updated at 9.38am GMT

9.16am GMT

Eurozone services data dash hopes of recovery

Ouch. Eurozone PMIs do not look good, with services dropping in February, dashing hopes that the region could emerge from a recession soon.

The flash services PMI – one of the earliest monthly indicators of economic activity in the region – dropped from 48.6 to 47.3 in February, a big miss from analyst expectations of a rise to 49.

Chris Williamson of Markit highlighted the growing divide between Germany and France.

Digging into the data shows increasing schisms within the eurozone. National divergences between France and Germany have widened so far this year to the worst seen since the survey began in 1998. Germany is on course to grow in the first quarter. In contrast, Frances’s downturn is likely to deepen, bringing the euro area’s second-largest member more in line with the periphery than with the now solitary-looking German ‘core’.

9.06am GMT

Grim outlook for Europe’s second largest economy

Here’s Markit’s graph showing just how bad it looks in France. The composite PMI, which usually preempts GDP data fairly accurately, is sliding dramatically.

This morning the French media suggested the EU Commission is expected to cut its already grim forecast for France’s economy and budget deficit this year, citing a report due out Friday.

Le Monde and Le Point reported that the commission’s economic experts have reduced their forecast for France’s economic growth this year to 0.1% from 0.4%.

The country’s deficit is now forecast at 3.6% of GDP, up from a prior estimate of 3.5%, which would miss the Maastricht treaty target of 3%.

France is the second largest economy in the eurozone and problems there signal problems right at the very heart of the currency bloc.

8.50am GMT

French work ethic attacked

One man will be unsurprised by the miserable data out of France (see 8.20am) and that is Maurice “Morry” Taylor Jr, the head of US tyre company Titan International, which yesterday launched a blistering attack on the French work ethic.

My colleague Kim Wilsher in Paris reports:

Taylor, a 1996 US Republican presidential candidate, revealed he was no loss to the international diplomatic service in his letter to the minister, who had suggested he might like to take over a Goodyear tyre factory in the economically struggling industrial heartland of northern France, near Amiens.

“Do you think we’re stupid?” Taylor wrote to Montebourg in the letter, which was made public on Wednesday. “I’ve visited this factory several times. The French workers are paid high wages but only work three hours. They have one hour for their lunch, they talk for three hours and they work for three hours. I said this directly to their union leaders; they replied that’s the way it is in France.

8.39am GMT

Markets hit by Fed split

Over to the markets, which are suffering after minutes released last night showed signs of a split over the US Federal Reserve’s stimulus programme.

  • UK FTSE 100: down 1.2%, or 80 points, at 6314
  • France CAC 40: down 1.2%
  • Germany DAX: down 1.2%
  • Spain IBEX: down 1.75%
  • Italy FTSE MIB: down 2%

8.35am GMT

German data points to economic rebound

German business activity, meanwhile, increased for a third straight month in February, adding to signs the region’s largest economy is rebounding after GDP declined in the fourth quarter.

The data points to a widening gulf between it and the region’s second largest economy, France, which continues to flounder.

The German composite PMI, which accounts for more than two thirds of the economy, stood at 52.7 in February. That was down from January’s 54.4, but still comfortably above the 50 mark that separates growth from contraction.

Tim Moore at Markit said:

Despite the slight loss of momentum since January, the survey suggests that Germany can still be relied upon as an engine for the eurozone.

Updated at 8.52am GMT

8.29am GMT

The six problems with Italy and how to solve them

While we wait for Germany’s PMIs, check out the Guardian’s spread on Italy in the paper this morning.

My colleague Lizzie Davies in Rome numbers the six things wrong with Italy and how to solve them, starting with the effects of austerity.

She goes on to highlight the plight of women in the country run for years by Silvio Berlusconi, a man better known for his bunga bunga parties than anything else. She writes:

Held back by ingrained cultural attitudes, inadequate public services and political under-representation, they may have better educational qualifications than their male counterparts but they are significantly less likely to be in paid work.

8.20am GMT

French services sector shrinks at fastest rate in four years

The French data is predictably bad. The French services sector shrank in February at its fastest rate in nearly four years, suggesting it is far from a turnaround.

The services PMI came in at 42.7 in February, compared with 43.6 last month. The manufacturing index ticked up to 43.6, but remains well below the 50 mark that separates growth from contraction.

The composite PMI, which accounts for roughly two-thirds of French economic output, dropped to 42.3 from 42.7 in January.

Chris Williamson at Markit said:

There is a fairly consistent picture showing that the French business sector is suffering its worst downturn since the height of the financial crisis.

Updated at 8.22am GMT

8.13am GMT

Today’s agenda

A quick look at today’s agenda, before we plunge into the French PMIs.

  • France PMIs for February: 7.58am
  • Merkel addresses the Bundestag on the EU budget: 8am
  • Rajoy speaks in State of Nation debate: 8am
  • Italian election candidates hold press conference: 8.10am
  • Germany PMIs for February: 8.28am
  • Eurozone PMIs for February: 8.58am
  • UK public sector borrowing for January: 9.30am
  • UK CBI trends for February: 11am
  • US inflation for January: 1.30pm
  • US weekly jobless claims: 1.30pm
  • US PMIs for February: 1.58pm

In the debt markets, the UK is selling a £2.25bn of a 10-year gilt; while Spain is selling €3bn-€4bn of bonds maturing in 2015, 2019 and 2023.

8.05am GMT

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

The state of the French economy will be in focus this morning, with eurozone PMIs set to show a widening gulf between France and Germany.

UK chancellor George Osborne will also be in the spotlight when the public sector borrowing figures are released. These could offer some relief after the miserable 4G auction proceeds, as January is traditionally a strong month for tax receipts.

Later in the day, we’ve got a Spanish 10-year bond auction, as Mariano Rajoy’s government continues to take advantage of lower rates. And there’s a key UK gilt auction, which could suffer from the news that Mervyn King voted for more QE at the Bank of England’s last meeting.

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G20 aims for stronger commitments against exchange rate manipulation. UK retail sales plunge in January, down 0.6% on the month, compared with expectations of a 0.5% increase. Eurozone trade surplus widens. US industrial production drops…



Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Currency wars come to Moscow as G20 meets” was written by Josephine Moulds, for guardian.co.uk on Friday 15th February 2013 14.53 UTC

2.53pm GMT

And with that I will hand over the blog to Nick Fletcher. Thanks for all your comments and have a lovely weekend.

2.26pm GMT

US industrial output falls on weak manufacturing

US industrial production dropped unexpectedly in January, weighed down by weak manufacturing and mining.

Industrial output dropped 0.1% over the month, compared with a rise of 0.4% in December, and expectations of a rise of 0.2%.

But Markit points out that the three-month trend is positive, with production rising by 1.6% compared with the previous three months.

2.19pm GMT

Eurozone trade surplus masks worrying developments – economist

Just back to the eurozone trade figures briefly (see 10.14am), which showed a healthy-looking surplus in December.

Howard Archer of IHS Global Insight notes that the underlying picture was not so encouraging as both exports and imports fell appreciably in December and over the fourth quarter of 2012. He writes:

This suggests that the markedly increased 0.6% quarter-on-quarter drop in Eurozone GDP in the fourth quarter of 2012 was significantly influenced by a weakened export performance. Meanwhile, the appreciable drop in Eurozone imports is consistent with weakened Eurozone domestic demand in the fourth quarter.

1.49pm GMT

Bernanke syas US in line with G7 stance

Fed chairman Ben Bernanke is now speaking at the G20. He says a strong US economy equals a strong world economy.

The US is acting in line with the position of the Group of Seven nations, he says, by using domestic policy tools to boost growth and reduce unemployment.

Consistent with the G7 policy statement, the US is using domestic policy tools to advance domestic objectives.

Updated at 2.00pm GMT

1.33pm GMT

Putin tells G20 to get their houses in order

Russian president Vladimir Putin, meanwhile, told the Group of 20 nations that it was vital to eliminate economic imbalances and have a clear strategy on borrowing to put the global economy on a sustainable growth path.

The days when economic crises had an isolated impact are gone. Problems in the US and the eurozone affect each country’s economy.

1.26pm GMT

Lagarde says talk of currency wars is “overblown”

Now IMF chief Christine Lagarde is up. She too says talk of currency wars is “overblown”.

Yes, the euro has appreciated and yes the yen has depreciated, but that is the result of good policies in the eurozone and looser policy in Japan. There is no major deviation from fair value of major currencies.

1.20pm GMT

G20 statement will not make commitments re fx rates

The G20 draft will make not mention a commitment to not target foreign exchange rates, Reuters is reporting, citing a G20 delegate.

Headlines on the wires suggest the latest draft communique will repeat previous language on avoiding excessive foreign exchange volatility and disorderly movements in foreign exchange rates.

But the G20 deputies did not single out Japan in their disucssions about the communique, the G20 delegate said.

Reuters says the draft also reaffirms commitments to medium-term fiscal plans but says some countries need to take into account near-term considerations.

It does not include this week’s G7 language on the need to use fiscal and monetary policies only for domestic objectives.

The (remarkably talkative) G20 delegate said the deputies debated whether fiscal consolidation has been too aggressive or whether the lack of fiscal consolidation has led to too much uncertainty.

Very few pictures coming through from the meeting, but here’s the OECD’s Angel Gurria giving Russia’s finance minister a big hug.

12.01pm GMT

Portuguese PM opens door to cutting 2013 forecast

Back to Portugal, where the prime minister is sounding downbeat about the country’s prospects this year. Pedro Passos Coelho suggested the government may have to cut its forecasts for this year, saying:

The [fourth quarter] results leave us with a level of foreign demand that, if extended into 2013, will not allow us to maintain the projections we have made.

Portugal is in its third year of recession, as it labours under a crippling austerity programme imposed by the country’s international lenders.

10.59am GMT

Meanwhile, over in Moscow, the governor of the Bank of Japan Masaaki Shirakawa is saying countries must be aware of the impact of domestic policies on the rest of the world.

While the head of the OECD Angel Gurria tells CNBC we are further away today from a currency war then we were two or three years ago.

10.47am GMT

UK consumers are skint – Guardian’s Larry Elliott

Here’s our economics editor, Larry Elliott, on the UK retail sales figures. He says, while you can blame the snow for some things, the real reason behind poor sales is that consumers don’t have the money to splash out. More online shortly…

The best explanation of all, therefore, is the most obvious one: consumers are skint. Real incomes, according to the ONS, are back to 2003 levels, and with petrol prices again rising sharply there is simply less money available for discretionary spending.
But isn’t this inconsistent with an improving labour market, which should be leading to an increase in aggregate incomes? Not at all. Rising employment masks two big trends: the increase in part-time work and the willingness of workers to accept cuts in real (inflation-adjusted) pay in order to avoid losing their jobs.
As a result, spending power for millions of Britons is weak and is likely to remain so. That’s why the ONS is reporting that the proportion of on-line sales remained above the 10% mark in January. Normally, there is a spike in internet buying in December as consumers load up on CDs, books and clothes for Christmas presents, and then the percentage falls back. This year it has remained high, a sign that Britain has not lost the spending habit but is being forced to shop around for bargains.

10.34am GMT

Brazil will not allow over-appreciation of real

Brazil’s finance minister Guido Mantega is now making his voice heard over in Moscow at the G20. He says Brazil will not allow an over-appreciation of the real.

Mantega is thoguht to have coined the term “currency wars” to describe the series of competitive devaluations adopted by rich nations to bolster their exports to the detriment of emerging market nations. Reuters reports:

Since then Brazil has actively sought to depreciate its currency, the real, to protect local manufacturers of everything from shoes to suits and make its exports more competitive. It has taken bold action to curb speculative capital inflows with higher taxes.

10.14am GMT

Eurozone trade surplus widens

[Clarification: Using the monthly figures (as usual) apologies to those who prefer yearly statistics]

The eurozone trade surplus widened in December, with imports falling at a faster rate than exports.

Eurostat said the unadjusted trade surplus was €11.7bn in December. That is higher than the €8bn a year earlier, but lower than forecasts for a rise to €13.1bn.

The biggest single improvement was in Italy, which swung to a €9bn surplus in the first 11 months of 2012, from a deficit of almost €27bn a year earlier.

Updated at 11.33am GMT

10.06am GMT

Chris Williamson of Markit is more upbeat.

While the snow clearly had an impact on sales, the decline was nothing like as severe as we’ve seen in previous years. For example, the 0.6% decline in January compared with a 1.9% monthly fall in December 2010, when the country was also hit by heavy snow. The data therefore add to other survey evidence which suggests the economy got off fairly lightly from snow disruption, further allaying fears of a weather-related “triple dip” recession. We should also remember that retail sales are not used in the calculation of the first estimates of GDP, which the PMIs suggest is still on source to recover from the downturn seen late last year.

10.04am GMT

Rob Wood of Berenberg Bank agrees that the snow is not the whole picture.

The snow problem shouldn’t disguise the real problem, however. The underlying picture is that the economy is bouncing along the bottom, so weather disruptions can easily tip it into negative territory.

The underlying story is a familiar one for UK households, which have been fed a diet of meagre wage growth and above target inflation for much of the past four years. As inflation heads up again, those meagre wage rises will stretch even less far and consumption will struggle to get going for a little while yet. The particularly disappointing aspect of today’s data is that the growth in the value of spending on the high street also slowed to a standstill as households presumably tried to boost their savings.

The chances of a triple-drip had receded a little with improved data in recent weeks, but in truth the data had not pointed to much momentum. And this release brings a dip back on the table. If the snow disruption is reflected in other industries, with construction being the most likely candidate again, then we could well see a quarterly contraction in Q1 2013.

10.02am GMT

Here’s Howard Archer of IHS Global Insight on the dire UK retail sales figures.

Even allowing for a substantial hit to retail sales from the snow, the further fall in January fuels concern that consumers may be becoming more careful in their spending as consumer price inflation moves back up and squeezes purchasing power.

A serious concern for retailers – and the economy in general – is that consumers’ purchasing power is coming under renewed pressure from a move back up in inflation while earnings growth remains muted.

9.52am GMT

450 new eBay jobs in Ireland

Briefly over to Ireland where there is some good news on the jobs front, with the announcement of 450 posts from eBay in the border town of Dundalk. Our correspondent in Dublin Henry McDonald reports:

The Taoiseach Enda Kenny visited eBay’s operation centre in Dundalk this morning at the launch of the new jobs.

eBay has joined the likes of Facebook, Twitter, Linked-In and Google in establishing their European base in the Republic.
The new posts will help provide the growing European customer base of the company’s eBay Marketplaces and PayPal businesses with an enhanced experience in the areas of customer services, sales and compliance. The new positions, which are in addition to 1,000 new jobs announced by PayPal last year, are located within its Customer Services team and also based at the Dundalk facility.

Gary Hagel, Senior Director, eBay Customer Experience, UK, Ireland and Rest of Europe said: “eBay’s continued commitment to its customers is underlined through this investment in customer services team members fulfilling a variety of roles to make eBay an even better place to shop and sell. Ireland is a centre of excellence for our Global Customer Experience function and the country provides a highly-skilled workforce for eBay with the required technical and language skills, an attractive research environment and proven track record on delivery.”

Louise Phelan, Vice President Global Operations EMEA at PayPal said: “Today’s announcement is fantastic news for the Dundalk area. We are looking forward to welcoming our eBay colleagues at the PayPal site in Dundalk. Last year was a great year for PayPal in Ireland. Our Dundalk site was operational within 11 weeks of the contracts being signed. We currently have over 230 people employed on site there and we look forward to continuing to expand this number in 2013.”

Updated at 9.57am GMT

9.44am GMT

UK headed for triple-dip?

Just to recap, the UK economy shrank in the final three months of 2012. If it contracts again in the first three months of this year, that will plunge the UK into its third recession in four years… the dreaded triple-dip.

That would leave chancellor George Osborne’s reputation in tatters.

And consumer spending is a huge part of the UK economy, as noted by Sky’s Ed Conway.

9.41am GMT

Here’s James Knightley from ING on the impact of retail sales on the pound.

The ONS stated that there was an impact from snow which had particularly hurt small grocers. This adds to the negative newsflow on the UK with worries over the UK’s EU referendum and the Scottish independence vote along with a potential rating downgrade all helping to keep downward pressure on sterling.

9.40am GMT

Rather than the snow, some analysts see a more fundamental issue at play in the UK retail sales figures.

9.39am GMT

Sterling tumbles on poor retail sales figures

The news has sent the pound tumbling to its lowest point in more than six months against the dollar, at $1.5470.

9.36am GMT

Brits go on diet as snow falls

The main factor driving UK retail sales lower was a slump in food sales, with food sales down 1.6% in January, the largest monthly fall since May 2011.

Even more starkly, food sales were estimated to have fallen 2.6% year-on-year (seasonally adjusted), to the lowest level since April 2004.

The ONS says small grocers blamed poor sales on the heavy snowfall at the end of the month.

As energy and futures trader Nicola Duke notes, the figures do seem to represent reality out on the streets.

Updated at 9.38am GMT

9.32am GMT

UK retail sales slump in January

Ouch. UK retail sales slumped dramatically in January, down 0.6% on the month, compared with expectations of a 0.5% increase.

That’s terrible news for George Osborne as it will reignite fears that the UK is headed for a triple-dip recession.

9.23am GMT

We’ve got UK retail sales figures for January coming up and the forecasts are pretty upbeat. Economists expect December’s 0.3% decline to swing to a 0.5% rise in sales over the month.

Although Marc Ostwald of Monument Securities warns that the data between December and February is often very wide of expectations. Eight minutes until we find out…

9.15am GMT

Tensions in Greece continue to flare

Disabled citizens have gathered outside the main offices of the finance ministry in Athens this morning to protest against reductions to their salaries and pensions imposed as part of a broader government austerity program. Ekathimerini reports:

The union representing the country’s disabled is lobbying the government to provide relief to the retired and working disabled and for guardians of those with heavy disabilities.

Unionists have demanded a meeting with Finance Minister Yannis Stournaras, Labor and Social Insurance Minister Yiannis Vroutsis and others to discuss their grievances.

While Greek students celebrated Valentine’s Day with a protest march last night, demonstrating against reforms to the education system.

And in the country’s second largest city, Thessaloniki, demonstrators gathered to protest against the death of 38-year-old Babakar Ndiaye from Senegal who died after falling from a height of 7m to the train station in Athens while being chased by the municipal police for selling goods in the street.

9.00am GMT

Looking back at yesterday’s figures, Draghi says fourth quarter GDP data was more negative than the ECB expected.

8.53am GMT

Draghi says currency chatter is fruitless

Now it’s ECB chief Mario Draghi’s turn to speak out against currency manipulation. Over in Moscow for the G20, he says:

Currency chatter is inappropriate, fruitless and self-defeating.

He says the ECB mandate is mid-term price stability in both directions.

The exchange rate is not a policy target but it is important for growth and price stability, he adds, noting the fundamental issue at the heart of these discussions.

He too says the euro is not overvalued, saying that nominal and real euro exchange rates are around their long-term averages. He declines to comment on the likely wording of the G20 statement.

He also weighs in on the austerity vs growth debate, saying:

We don’t believe that inflating budget deficits to create demand is sustainable.

No pictures of Draghi in a wooly hat yet, but here’s a reminder of another central bank governor enjoying the snow at the 2010 G7 meeting…

Updated at 8.53am GMT

8.43am GMT

As the meetings and photo shoots of the Group of 20 jamboree begin, there are those that question how useful these events are. Paul Donovan, senior economist at UBS, says:

And so another taxpayer financed weekend minibreak gets underway, as twenty countries fly their officials around the world to have their photograph taken and to issue a pre-agreed communiqué. At a guess the communiqué will say that the G20 likes growth and doesn’t like recessions.

8.28am GMT

Spanish price inflation eases

Spanish inflation eased in January, according to data from the national statistics agency.

CPI rose 2.7% in January, compared with the same month last year, down from 2.9% in December; while the EU-harmonised annual price inflation came in at 2.8%, compared with 3% in December.

8.24am GMT

Portugal eyes full return to bond markets

There’s also some better news out of Portugal, despite the dire GDP figures out yesterday, which showed its economy shrinking by 1.8% in the fourth quarter of 2012. The FT reported last night:

Portugal’s debt agency is confident that the country is poised to regain full access to bond market funding in the next few months and exit its bailout programme, despite its heavy debts and recession-plagued economy.

“I expect we will have full market access in the next few months,” João Moreira Rato, chief executive and chairman of IGCP, the Portuguese treasury and government debt agency, told the Financial Times.

“We are very close to it,” he added. “It looks like everything is moving in the right direction.”

As independent economist Shaun Richards notes, this demonstrates how far removed the financial markets are from reality. He noted the dire economic problems that have been inflicted on Portugal as a result of austerity in his blog yesterday.

Updated at 8.57am GMT

8.19am GMT

Weidmann says ECB won’t target euro

Ahead of the meeting, Germany’s central bank governor Jens Weidmann spoke to Bloomberg. And, of course, the subject of currencies came up.

Weidmann said the euro was not seriously overvalued, and that the ECB would not cut rates just to weaken the euro.

He said ECB chief Mario Draghi was not trying to talk down the euro at the recent press conference. Sticking with the ECB, he said the central bank may be forced to show its hand on the outright monetary transactions bond-buying programme.

He too sees a gradual recovery in the second half.

On Ireland, he said the recent deal to switch a costly promissory note, used to pay for the rescue of failed Anglo Irish Bank, into less expensive sovereign bonds, could breach the ban on monetary state financing.

Finally, he said rumours of his resignation were greatly exaggerated. Keen readers of the blog may remember Twitter erupted with news of Weidmann’s imminent departure last month, only for the Bundesbank to deny it within minutes.

Bloomberg is running both a full story and some key quotes from the interview.

8.01am GMT

G20 currency statement won’t name Japan

Earlier this week, the G7 issued a joint statement reaffirming its “longstanding commitment to market determined exchange rates”. But this show of unity was quickly undermined by off-the-record briefings critical of Japan.

It is thought that G20 hosts Russia would like to echo the thrust of the G7 text when they issue their communique on Saturday, but there will no doubt be substantial wrangling over the wording today and tomorrow.

Russian finance minister Anton Siluanov said yesterday:

The G-20 countries have always held the position that currency policy should be based on market conditions.

Russia has already said that Japan will not be singled out in the text. Siluanov’s deputy, Sergei Storchak – who is Russia’s G20 representative or ‘sherpa’ as they are known – told reporters:

There will be no specific mention of Japan – we are all in the same boat.

7.53am GMT

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

Today the finance ministers and bank governors of the Group of 20 nations will start their two day meeting in Moscow in an attempt to reach a common stance on currency manipulation.

Japan will be under pressure for its expansive policies that have driven down the value of the yen.

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