Josephine Moulds

GDP figures show the eurozone lurched deeper into recession in the fourth quarter of 2012, when even the German economy contracted more than expected. ECB Vice President says that the ECB is technically ready for negative deposit rates if needed…



Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Germany drives region deeper into recession” was written by Josephine Moulds and Nick Fletcher, for guardian.co.uk on Thursday 14th February 2013 12.06 UTC

3.16pm GMT

US weekly jobless claims fall more than expected

The number of Americans filing jobless claims fell by more than expected last week, another sign of an improving employment market.

US jobless claims dropped 27,000 to 341,000, compared to expectations of around 360,000. Annalisa Piazza at Newedge Strategy said:

The outcome is stronger than anticipated and it marks the second lowest level of claims since early December. That said, claims have been very volatile since the beginning of the year, mainly on the back of seasonal adjustment quirks. The pattern of weekly claims in early 2013 reminds of the volatility seen in 2008. As such, we wouldn’t read to much out of weekly swings. If anything, the moving average of the past 4 week readings has remained stable at around 350,000 in the past four weeks after running at around 365,000 between December and early January.

Such a profile of slowly declining claims is consistent with the ongoing progress in the US labour market. That said, the improvement remains rather slow and we don’t anticipate any major decline in the unemployment rate any time soon as the slack in the economy remains very ample.

1.17pm GMT

John Major backs referendum on Europe

Former UK prime minister Sir John Major has been giving a major speech on a Europe referendum, drawing on his own bitter experience leading a party ripped apart by divisions over Europe.

He starts by saying he’s neither eurosceptic nor europhile, but goes on to sound distinctly europhile.

We sell more to North Rhine Westphalia than to India and more to France and Germany than to the whole of the Commonwealth.

He backs Cameron’s decision to go to a referendum, saying a vote would put the extremes of opinion on Europe to the sidelines. He says:

Unless we reengage in a national debate, things are just going to get worse. There are lots of people who feel the Europe out there is not the Europe they voted for. I don’t think you are going to get rid of that.

Major also tells David Cameron to ignore MPs “with Conservative heads and UKIP hearts” who cannot be placated with anything less than UK withdrawal. But says he is right to seek renegotiation of powers. Some more key quotes from the speech…

The status quo [in the EU] should be changed and can be… with goodwill and tolerance.

It is not anti-European to fight for the British national interest but we shouldn’t overestimate what can be achieved…

If Britain was seen to be in the [EU] driving seat it would revolutionise public opinion.

He warns that an EU without Britain could move in the direction of protectionism.

He ends by saying the Conservatives should not do a deal with UKIP but should seek to win back the votes of those who are “using UKIP as an output for their frustration, sometimes as a dustbin vote”.

12.06pm GMT

UK may not lose AAA rating

The UK may not get its triple A credit rating downgraded after all, but a host of eurozone countries could see their ratings cut. That is what Moritz Kraemer, managing director of European sovereign ratings at Standard & Poor’s has reportedly been saying:

Updated at 12.11pm GMT

11.41am GMT

The EU formally launched its Robin Hood tax this morning, saying it was a first step to applying the levy across all 27 member states.

It is hoped that the financial transactions tax – which will come in next January – will raise up to €35bn annually. It is designed to make banks pay for taxpayer help they received during the crisis.

The plan was requested by 11 countries, who represent two-thirds of EU economic output. The bloc’s 16 other members, including the UK, refused to back a proposal to introduce the levy across the EU.

EU tax commissioner Algirdas Semeta said:

It lays the final paving stone on the road towards a common FTT in the EU.

10.47am GMT

G20 head Russia seeks strong opposition to fx intervention

Meanwhile, Bloomberg is reporting that Russia, as head of the G20, is seeking specific language against currency market intervention. We’ll have more on that as it comes in.

The ECB’s (remarkably busy) vice president, Vitor Constâncio, was warning against ratcheting up the rhetoric about ‘currency wars’ again this morning. He said:

We have to be cautious in my view not to build up the rhetoric about currency wars, because if we build up the rhetoric the danger is there that something worse can happen.

Updated at 10.52am GMT

10.43am GMT

A graph to show the ‘recovery’ since 2008 in various nations, courtesy of Markit. (Bigger version if you click on the twitpic link) …

10.37am GMT

But the economists say this could be the low point for the eurozone economy. (How many times have we heard that?)

Here’s Howard Archer of IHS Global Insight:

GDP contraction of 0.6% in the fourth quarter of 2012 was deeper than expected and brought a dismal end to a very difficult year for the Eurozone. However, the signs are that Eurozone economic activity bottomed out around last October and it is very possible that GDP could stop contracting in the first quarter of 2013 with the overall economic environment significantly helped by the ECB’s Outright Monetary Transactions program.

Nevertheless, even modest overall growth for the Eurozone could well remain elusive for some time to come with ongoing contraction in Spain and Italy set to weigh down on the Eurozone’s performance through 2013. France also faces a difficult year. Germany, however, should see a clear return to growth in the first quarter.

10.33am GMT

The eurozone economy has now been contracting for three consecutive quarters, following zero growth in the first quarter of last year. That makes it the first full year in which no quarter produced growth, extending back to 1995. 

The fourth quarter saw the rate of decline speed up dramatically with output falling by 0.6%, compared with a 0.1% drop in the third quarter.

The worst performer was Portugal, with output dropping by a staggering 1.8%. This is apparently the eurozone’s poster child for austerity; a country that has followed instructions from its international lenders to the letter, pushing its population to the very edge.

Updated at 10.39am GMT

10.23am GMT

Markets sent lower on worse-than-expected eurozone GDP

The news sent the markets lower, with the UK FTSE 100 currently trading down 0.5%. The French and German share indices have also turned negative, while the euro fell 0.8% to $1.3335.

10.19am GMT

Taking a closer look at the eurozone GDP figures. GDP fell in the fourth quarter of last year at its fastest rate since 2009.

The news rather questions the insistence from policymakers that the eurozone has turned a corner.

It also does a remarkable job of making Britain’s performance look good, as noted by Sky’s Ed Conway.

10.14am GMT

Greek unemployment hits new high

Greek unemployment figures tell a similar story, with the jobless rate hitting a new high of 27% in November, from a revised 26.6% in October. That’s more than double the eruozone’s average rate of 11.7% in November.

Updated at 10.41am GMT

10.10am GMT

Portugal, Greece and Cyprus mired in crippling recessions

And for the really bad news…

Portugal’s economy shrank 1.8% in the fourth quarter, compared with a 0.9% decline in the third.

That was a much sharper decline than expected (economists were forecasting a 1% drop) and shows a country struggling under the weight of a biting austerity regime demanded by Portugal’s international lenders.

Greek GDP was 6% lower in the fourth quarter from the previous year (no quarterly figures given).

And Cyprus’ economy shrank 1%, compared with a 0.7% decline in the third quarter.

Updated at 10.14am GMT

10.01am GMT

Eurozone sinks deeper into recession

Eurozone GDP dropped 0.6% in the fourth quarter of 2012. That’s worse than forecasts for a 0.4% decline and only adds to the gloom this morning, with data showing Germany, France, Netherlands and Italy all contracting.

9.59am GMT

Waiting for the eurozone GDP numbers…

9.48am GMT

Ahead of the eurozone GDP figures, out in 15 minutes, here’s Capital Economis on the numbers we have already seen. Jonathan Loynes writes:

The country GDP data released so far this morning provides a pretty bleak picture of the state of the eurozone economy at the end of last year. Both the German and French economies suffered bigger than expected quarterly falls in GDP of 0.6% and 0.3% respectively. The Netherlands saw a 0.2% fall and we already knew that the Spanish economy contracted by 0.7%.

We don’t have full details at this stage but the German statistics office says that exports and investment dropped “markedly” in Q4, while the French figures also showed a drop in exports. This will no doubt fuel fears over the economy’s vulnerability to the strong euro. Of course, survey indicators have pointed to an improvement in the early months of this year. But for now at least they are not strong enough to suggest that the eurozone has pulled out of recession.

9.44am GMT

Greek protestors stage sit-in at finance ministry

More protests over in Greece, with anti-austerity demonstrators staging a sit-in at the office of the Greek finance ministry’s general secretary, according to local reports. ekathimerini writes:

The demonstrators, described as members of SYRIZA’s youth organization, were protesting controversial comments made by Giorgos Mergos earlier this week.

On Tuesday Mergos suggested that Greece’s basic salary was too high. He later said his comments were misinterpreted.

“The only answer to those who are planning to impose new measures designed to impoverish workers and young people is collective and defiant struggles to overturn the government and the memorandums,” the protesters said in a statement.

Riot police have been sent to the scene, the reports said.

Finance Minister Yannis Stournaras on Wednesday insisted that there are no plans to reduce the minimum wage.

Updated at 10.01am GMT

9.20am GMT

Markets unfazed by gloomy GDP

But the markets appear to be relatively unfazed by all this news. Gary Jenkins of Swordfish Research noted this morning that GDP data is, of course, backward-looking and therefore unlikely to influence the market.

For the record, he says that unemployment data is the crucial piece of information to keep an eye on.

  • UK FTSE 100: down 0.1%, or 6 points, at 6353
  • France CAC 40: up 0.2%
  • Germany DAX: up 0.1%
  • Spain IBEX: down 0.3%
  • Italy FTSE MIB: up 0.1%

9.08am GMT

Italy slides deeper into recession

Adding to this morning’s gloomy economic news, Italian GDP has also dropped more than expected.

Italy’s economy shrank by 0.9% in the fourth quarter, showing the eurozone’s third biggest economy remains stuck in recession ahead of elections later this month. That compares with forecasts for a 0.6% decline, and third-quarter figures of a 0.2% fall.

Italy has now been in recession since mid-2011, its longest slump since 1993. The economy has been battered both by the crisis and austerity measures imposed by prime minister Mario Monti’s outgoing government.

All three contenders for the upcoming elections are now promising to cut taxes to try and kick start growth.

Updated at 10.00am GMT

9.00am GMT

Today’s agenda

So, for a quick look at the agenda for the rest of today. The G20 finance ministers will be arriving in Moscow for their two-day meeting, which starts tomorrow.

  • Italy Q4 GDP: 9am
  • ECB monthly report: 9am
  • Eurozone Q4 GDP: 10am
  • EU to propose financial transactions tax: 11am
  • US weekly jobless claims: 1.30pm

In the debt markets, the UK is selling £4bn of 2018 gilts.

8.52am GMT

As Optymystic points out (in the comments below), that kind of opposition may not be such a bad thing.

‘Wall Street and US businesses have attacked a proposed eurozone financial transaction tax’… We’ll take that as a compelling argument in favour then.

8.38am GMT

Opposition grows to Robin Hood tax

Meanwhile, the European commission is preparing to unveil its so-called Robin Hood tax today.

This is the international levy on financial trades to be collected by the eurozone’s biggest economies, which aims to raise an estimated €30bn-€35bn a year. But it faces fierce opposition from the US, as well as the UK and Luxembourg, which rejected the tax.

The FT’s Alex Barker and James Politi report:

Wall Street and US businesses have attacked a proposed eurozone financial transaction tax, claiming it overreaches borders, flouts international treaties and “breaks the bonds that bind our global economy”.

This tax blueprint, first reported in the Financial Times, includes tough anti-avoidance measures that would catch some trades executed in New York, London, or Hong Kong – even when no eurozone entity is buying or selling the product.

While the commission is confident the plan is legally sound, the long arm of the levy has raised the hackles of big investment banks, as well as the UK and Luxembourg, which rejected such an EU-wide tax.

If France, Germany and nine other states press ahead with a tax based on the commission’s expansive proposal, it is likely to be challenged by some EU governments and big financial groups, according to several diplomats and lawyers.

Updated at 9.14am GMT

8.27am GMT

So, all in all, a happy Valentines Day.

Updated at 9.07am GMT

8.26am GMT

Japan remains mired in recession

Overnight, data out of Japan also disappointed. The world’s third largest economy shrank 0.1% in the fourth quarter, leaving the country mired in recession and crushing hopes of a modest rebound. 

The Bank of Japan refrained from further stimulus this morning, which may have been a reaction to all the talk of currency wars this week. Japan has been accused of aiming to drive down the value of the yen (to help boost exports) with its ambitious programme of monetary easing.

Governor Masaaki Shirakawa, aimed to answer those critics this morning, saying the central bank’s policy is not directly targeting currency moves.

The Bank of Japan is conducting monetary policy to achieve stability in Japan’s economy. It will continue to do so and I will explain this to the G20 nations.

8.03am GMT

French GDP worse than expected

French GDP figures are also in and also worse than expected. Europe’s second largest economy contracted by 0.3% in the fourth quarter, compared with forecasts of a 0.2% decline.

The economy inched up in the third quarter by 0.1%. France is now flirting with recession – defined as two consecutive quarters of contraction.

Downward revisions to first and second quarter GDP show the economy contracted 0.1% in each period (rather than initial estimates that it remained stagnant), meaning the country has already suffered one bout of recession over the past year.

7.40am GMT

German GDP slips on exports

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

This morning all eyes are on eurozone GDP, which is expected to show the region dropping deeper into recession in the final quarter of 2012.

We’ve already had figures out from Germany, which show the economy contracted more than feared, as exports declined. German GDP dropped 0.6% in the fourth quarter, compared with expectations of a 0.5% decline.

That is a big swing from the 0.2% growth the German economy recorded in the third quarter. And it is the deepest contraction since the height of the global financial crisis in 2009. The German statistics office said:

Comparatively weak foreign trade was the decisive factor for the decline in the economic performance at the end of the year: in the final quarter 2012 exports of goods declined significantly more than imports of goods.

But analysts remained relatively upbeat about the outlook for Europe’s largest economy. Carsten Brzeski of ING said:

With increased uncertainty stemming from the euro crisis and the global economy cooling in the second half of the year, the German economy has finally lost its invincibility. Looking ahead, however, there is increasing evidence that the economy should pick up speed again very quickly.

Updated at 9.05am GMT

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USA 

G7 will not target exchange rates, but is concerned about the recent yen moves. Yen weakening to be discussed at the G20 meeting this weekend. Mariano Rajoy says Spain will return to growth in 2013. UK inflation sticks at 2.7% in January…



Powered by Guardian.co.ukThis article titled “Eurozone crisis live: G7 warns of currency war risks” was written by Josephine Moulds and Nick Fletcher, for guardian.co.uk on Tuesday 12th February 2013 12.46 UTC

2.08pm GMT

G7 concerned about yen movement, says official

The earlier G7 statement on currencies was apparently misinterpreted, and was designed to express concern about the Japanese yen. That’s what a G7 official is saying, according to various wires.

We reported on the concerns about a currency war earlier.

Updated at 2.11pm GMT

1.56pm GMT

France unlikely to meet 2013 deficit target, says state auditor

France has very little chance of meeting its target of cutting its deficit to 3% of output this year, according to the country’s state audit body.

The court of auditors – not part of the government – called on the EU to clarify how it would deal with member states if they did overshoot their budget target.

France has promised to cut its nominal deficit to 3% from 4.5% in 2012, but a deteriorating economy has meant the target has seemed increasingly unlikely to be achieved.

Updated at 2.21pm GMT

12.46pm GMT

Meanwhile, Germany’s deputy finance minister has told DJ/FX Trader that they expect Ireland to exit its bailout programme at the end of this year, and Portugal could could follow it.

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

Updated at 1.48pm GMT

12.42pm GMT

There is a feeling that the G7 is protesting too much about the currency wars.

12.41pm GMT

No exchange rate problem in Europe

The EU finance chiefs and European policymakers have emerged from their meeting and are being grabbed by reporters on their way out.

A few lines coming through.

German finance minister Wolfgang Schaüble says we have no exchange rate problem in Europe “yet”. He says there were intense money-laundering talks with Cyprus. He adds:

The crisis is not over, we’re on a good track.

Spanish finance minister Luis de Guindos says the Ecofin meeting did not discuss losses to Cypriot savers. He says the rise in the value of the euro shows investor confidence.

While the vice-president of the European commission, Olli Rehn, says the EC is not working on any sovereign debt restructuring plan for Cyprus. Asked if depostiors in Cyprus could lose money, he says:

We are working on a solution for Cyprus that would ensure its financial stability and debt sustainability.

Updated at 12.42pm GMT

12.25pm GMT

UK inflation report preview

Looking ahead to the Bank of England’s inflation report out tomorrow, which will be scoured for clues that the central bank intends to carry out more stimulus in the coming months.

Howard Archer of IHS Global Insight says:

We suspect that the February Inflation Report will leave the door open to more QE. Once again the Bank of England will likely have the dismal task of raising its consumer price inflation forecasts and cutting its GDP growth projections. This has been the depressing trend for some considerable time now.

With economic activity likely to remain fragile and limited, we believe that the Bank of England will eventually decide to give the economy a further helping hand with another £50 billion of QE. This could well happen in the second quarter, or it may come soon [after] Mark Carney takes over as Bank of England Governor in July.

Updated at 12.28pm GMT

12.19pm GMT

Finmeccanica chief executive arrested

Over to Italy, where the police have arrested the chief executive of the country’s biggest defense and aerospace group, Finmeccanica, which owns the part-British helicopter group AgustaWestland. The Wall Street Journal reports:

[Giuseppe] Orsi is under investigation in a bribery case related to the €560 million ($750 million) sale of 12 helicopters by a Finmeccanica division to India in 2010, according to Finmeccanica and the prosecutor in the case. Mr. Orsi hasn’t been charged.

Mr. Orsi has over the past months repeatedly denied making any bribes.

The company Finmeccanica and its helicopter division, AgustaWestland, are also themselves under investigation in the case, according to the company and the prosecutor. Both companies have denied wrongdoing.

12.06pm GMT

No sign of a currency war – economist

Here’s Christian Schulz of Berenberg Bank on the G7 currencies statement:

The statement shows that the G7 are united and continue to cooperate. No sign of a currency war. Despite criticism from some such as Germany’s Bundesbank, the G7 do not seem to be too worried by the Japanese move to increase their inflation target and more aggressive easing.

In particular the eurozone and the ECB, which have recently borne the brunt of the adjustment, seem unphased by the euro at $1.35 and ¥126. More ECB action than the very modest verbal intervention by ECB president Draghi to slow the appreciation remains unlikely.

He says it looks like it would take a lot for the countries to intervene in the currency markets.

The G7 would only cooperate and potentially intervene in case of abrupt exchange rate movements, which could hurt the economy. This might address French concerns a bit by slowing further appreciation of the euro. However, the threshold for interventions seems to be high, as the 25% depreciation of the Japanese yen against the euro since July has not triggered one.

11.51am GMT

Spain and Italy borrowing costs rise

Italy and Spain have both issued short-term debt today and it seems political instability in both countries has driven borrowing costs higher.

Spain sold €5.6bn of short-term debt, with higher borrowing costs on its 12-month bills. The average yield on the 12-month debt came in at 1.548%, up from 1.472% in January.

Reuters said the rise in yields showed the corruption scandal within the ruling People’s party and an economy mired in recession is starting to weigh on investor appetite.

Italy, meanwhile, secured an average yield of 1.09% on its 12-month debt, up from 0.86% last month, but still way below last year’s peak of 3.97%.

It is thought that traders are reacting to political tensions ahead of the elections this month.

Updated at 11.57am GMT

11.27am GMT

UK pay falls behind inflation

The team on the Guardian’s datablog has plotted how pay has fallen behind inflation in the UK, squeezing household budgets. They write:

Living standards have been falling consistently over the past twelve months, as inflation has run well above the rate of pay increases, which the latest labour market data showed averaging at less than 2%.

11.20am GMT

UK inflation beyond Bank of England’s control – economist

So for a bit more reaction to the UK’s 2.7% rate of inflation. Labour have predictably gone for the “out-of-touch government” line.

Shadow treasury minister Cathy Jamieson said:

This out of touch Government has got its priorities all wrong. Instead of giving a £3 billion tax cut to the very richest George Osborne should be acting to kick-start our economy and help people on modest incomes who are feeling the squeeze.

While Chris Williamson of Markit says the factors driving inflation higher are largely beyond the control of the Bank of England.

Looking into the detail of the January inflation data, the main upward pressures came from an 8.5% jump in alcohol and tobacco prices, a 19.7% leap in education costs due to the rise in tuition fees, a 3.5% increase in utility prices and a 4.2% upturn in food prices. All of these are sources of inflation which are not related to (or affected by) central bank policy. They are either “administered prices”, reflecting changes in government policy and taxation, or are prices set globally, as in the case of oil and many food commodity prices.

Weak demand is meanwhile keeping price pressures low elsewhere in the economy – as is illustrated by a mere 0.2% year-on-year increase in clothing prices, which dropped 5.4% in January, and a modest 0.8% rise in prices for household goods, which fell 2.3% during the month. There is little that can therefore be done to bring inflation down further for the goods and services that are typically influenced by domestic monetary policy, as these prices are already falling.

He expects the Bank of England to turn a blind eye to the causes of higher inflation and instead push on with demand-boosting stimulus to help revive the economy.

But, he says, policy will probably be kept on hold (and the quantitative easing programme maintained at current levels) until a clear picture emerges of how the country has fared in the first quarter.

Updated at 11.35am GMT

11.10am GMT

OECD urges global tax avoidance clampdown

Meanwhile, an OECD announcement has been rather overshadowed by the G7 currency statement.

The Paris-based thinktank has called for a clampdown on tax avoidance by large multinational companies. Reuters reports:

A sweeping overhaul of international corporate tax rules is urgently needed to stop savvy big companies escaping the payment of billions of euros to cash-strapped governments, the OECD said on Tuesday.

Governments face growing demands from voters to force big companies with extensive international business to pay more tax in wake of mounting evidence that many use differences between different countries’ rules to reduce their tax bill.

Updated at 11.36am GMT

11.06am GMT

Hopes that G20 will echo G7 commitment to floating exchange rates

Currencies will be on the agenda again at the G20 meeting in Moscow later this week, and there are hopes they will issue a similar statement.

ECB vice-president Vitor Constancio told Reuters today that they too should reaffirm their commitment to floating exchange rates.

We, of course, want that everyone else respects those principles.

Asked what he expected to come out of the G20 meeting, he said:

I expect that these principles will be reaffirmed, pure and simple.

But there is some scepticism that any agreement could be reached at the larger group of 20. Channel 4′s economics editor says:

Constancio also said there was no currency war going on at the moment.

10.44am GMT

The G7 comprises the US, UK, France, Germany, Italy, Canada, and crucially Japan. But traders say the statement did not go far enough to calm the brewing currency wars.

10.35am GMT

Heated currency rhetoric prompted G7 statement

There is growing concern about the potential for currency wars, as countries fight to remain competitive in the global market.

The problem arises when individual countries undertake measures to stimulate their economies – like the huge quantitative easing programme in the US – that devalues their currency, making their exports look cheaper on the international markets.

But, while the US Federal Reserve and the Bank of Japan are rapidly printing money, the ECB is reining in its stimulus, with banks paying back some of the cheap money it doled out last year.

That could drive the euro even higher, which is the last thing the eurozone economy needs right now.

French finance minister Pierre Moscovici yesterday warned of the effect a rising euro could have on European growth. But he was rebuffed by German officials, who promptly said that exchange rates should not be manipulated.

The heated rhetoric has obviously got some people worried, prompting the G7 statement today. Reuters has a good backgrounder here.

Updated at 10.37am GMT

10.12am GMT

Rajoy says ‘business as usual’

Mariano Rajoy’s message was one of business as usual, reports our correspondent in Madrid, Giles Tremlett, who is at the Economist conference, where the Spanish prime minister was speaking.

He writes:

A characteristically bland appearance by Mariano Rajoy at The Economist conference in Madrid this morning did not produce startling headlines but did show that the Spanish PM is forthrightly intent on continuing with both austerity and reforms.

The word corruption, which is what most worries Spaniards after unemployment and recession, did not pass his lips – and he did not accept that the two party system in Spain has become a problem, increasing corruption levels and damaging the country’s reputation elsewhere.

He continues to insist that Spain will grow again towards the end of the year or next year. He clearly is not interested in changing the constitution either to allow Catalonia a right to self-determination or to change the system of political parties and the way it operates.

More reforms will come this year to further reduce the size of the public administration and to turn Spain itself into a single market, getting rid of barriers erected by regional governments.

The overall message was one of business as usual in government – Rajoy’s priority is the economy and other matters appear to be simple distractions.

Updated at 10.34am GMT

10.08am GMT

The G7 says it will consult closely with regards to actions in foreign exchange markets. It reaffirms that fiscal and monetary policies oriented towards domestic objectives and countries will not target exchange rates.

The (rather brief) statement in full:

We, the G7 Ministers and Governors, reaffirm our longstanding commitment to market determined exchange rates and to consult closely in regard to actions in foreign exchange markets. We reaffirm that our fiscal and monetary policies have been and will remain oriented towards meeting our respective domestic objectives using domestic instruments, and that we will not target exchange rates. We are agreed that excessive volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability. We will continue to consult closely on exchange markets and cooperate as appropriate.

10.04am GMT

G7 will not target exchange rates

As leaked, the G7 has reaffirmed its commitment to exchange rates set by the market. It says:

Disorderly movements in exchange rates have adverse implications for stability.

9.58am GMT

UK inflation will hit 3% this year

Britons will continue to suffer rapidly rising prices for some time, according to the experts. Our economics editor, Larry Elliott, reports:

The Bank of England is predicting that it will be up to two years before annual price increases fall back to the Government’s 2% target.

Jeremy Cook, chief economist at foreign exchange company World First said: “While this figure suggests that inflation has stabilised within the target range we expect this to be the last reading for a while that sees CPI below the 3.0% level. While the Bank of England’s asset purchase programme isn’t in itself inflationary, the devaluation of sterling is. Our largest import through 2013, because of the Bank’s monetary policy, will be inflation.

“Home-grown price pressures are also increasing with transport, food and utilities boosting upwards in the latter part of 2012; this will continue to erode wage value through 2013, hurting consumer confidence and limiting spending.”

But the government argued that it was not all bad. A Treasury spokesman said:

Inflation is down by almost a half from its peak of 5.2 per cent. The government has taken continued action to help with the cost of living, by announcing a further increase in the tax-free personal allowance and freezing fuel duty for more than two years.

Updated at 10.13am GMT

9.53am GMT

The statement on currencies, we are expecting in eight minutes, will reaffirm that G7 members will not target exchange rates, Dow Jones reports, citing and EU source.

Updated at 10.13am GMT

9.50am GMT

UK inflation will stay above 2% target – economist

UK inflation is likely to stay above the Bank of England’s 2% target for a while yet, says Capital Economics.

Vicky Redwood writes:

Inflation held at 2.7% for the fourth month in a row in January (in line with the consensus forecast) and is likely to rise a bit further before falling later this year.

Given the clues in last week’s MPC statement, it looks like tomorrow’s Inflation Report will show inflation projected to be above its target for most of the next two years, partly reflecting the inflationary impact of sterling’s recent fall. Nonetheless, the Committee has already said that it is prepared to “look through” the increase.

Indeed, if the economy continues to struggle, above-target inflation should not be a barrier to further stimulus. What’s more, we still expect inflation to fall back towards the end of this year as underlying price pressures fade further.

The main factor keeping inflation high was, apparently, alcohol, where prices recovered after the Christmas sales.

9.33am GMT

UK inflation sticks at 2.7%

In the UK, inflation remains stubbornly high at 2.7%. Although that was slightly better than forecasts of a rise to 2.8%.

The wider measure of retail prices came in slightly higher than expected at 3.3%.

We’ll have all the reaction to that news, as it comes in.

9.24am GMT

G7 to make statement on currencies

Having said that the meeting of the 27 European finance ministers may not be that dramatic, it seems there will be a statement on currencies.

Reuters is reporting that the G7 will publish a statement on currencies at 10am, citing a source at the Ecofin meeting of the finance chiefs.

9.19am GMT

There’s nervousness in the markets ahead of the UK inflation figures (due out in 10 minutes). The pound has fallen to a six-month low against the dollar and slipped against the euro, with investors reportedly anxious about the bleak outlook for the UK economy.

Updated at 10.14am GMT

9.13am GMT

And that is that. Unsurprisingly, there were no questions allowed from the floor. But we’ll have plenty more from Spain during the day, when ECB chief Mario Draghi comes to town.

9.11am GMT

Draghi’s OMT decision was correct – Rajoy

Rajoy says Draghi’s decision to announce the OMT bond-buying programme was correct. The pair meet later in the day to discuss it further. Spain is not yet eligible for ECB help in bringing its borrowing costs down because it is not part of a bailout programme.

He concludes:

I promised not to raise taxes. I have not kept my promises, but I think I have carried out my duties.

Updated at 9.21am GMT

9.02am GMT

Asked about the financing of political parties, Rajoy says that it is not so much a problem with the regulations but with compliance with the regulations. Still, he confirms that there will be an announcement with regards to improvements in this area in the coming days.

Updated at 11.33am GMT

8.53am GMT

Catalonia will not separate from Spain – Rajoy

Rajoy insists that Catalonia will remain part of Spain.

Updated at 9.26am GMT

8.46am GMT

Rajoy says doubts over Spain’s public finances have been removed, and the focus for Spain is now on growth.

Updated at 10.15am GMT

8.36am GMT

The Economist is asking whether the Spanish people have lost faith in their two main parties.

Rajoy gives a very long answer. He says Spain is lucky in that it does not have extremist parties.

It is true that there are lots of things that can improve. But Spain is a country with a free press.

8.30am GMT

Spanish PM predicts economy will grow by end of 2013

Rajoy says Spain’s economy will return to growth in the latter part of 2013 and in 2014.

Updated at 9.26am GMT

8.24am GMT

Spanish PM Mariano Rajoy has started his speech at the Economist conference, but so far it’s all about the Spanish economy. You can watch him live here. We’ll wait and see if the Economist questions him on the secret payments scandal.

The magazine last week printed a scathing critique of Rajoy, calling for a public inquiry into the scandal. It wrote:

The problem facing Spain is that the only people who can clean up this mess are those who created it. Alongside a proper inquiry, Mr Rajoy should start cross-party talks to reform the party system. Otherwise both he and his traditional opponents may drown in a wave of angry populism.

Updated at 10.15am GMT

7.57am GMT

Banks should pay to wind down rivals – ECB

Banks should pay to wind down their failing rivals, but sometimes taxpayer money will be needed in this process, ECB vice-president Vitor Constancio said this morning.

Reuters reports:

There may be a need for “temporary use of public money when, for example, a bridge bank needs to be created” Cosntancio told a bank regulation conference in Helsinki.

The contribution of public money should be in the form “of credit lines that need to be repaid later on”.

He added that banks should be the first line of funding for any bank resolution schemes.

Updated at 10.16am GMT

7.51am GMT

Moody’s cuts growth outlook for G8

Also overnight, rival ratings agency Moody’s cut its outlook for the world’s advanced economies, even as risks to the global economic recovery appear to be diminishing.

It now forecasts real GDP growth for the G8 will be around 1.4% in 2013, 0.2 percentage points lower than its previous forecast in November, reflecting recent weak data.

Despite this revised outlook, Moody’s said factors that may have derailed economic growth have abated following a relative period of calm in global financial markets, with the US steering clear of the fiscal cliff, and the eurozone debt crisis continuing to ease.

7.47am GMT

S&P upgrades Ireland to ‘stable’

There was good news for Ireland overnight, when ratings agency Standard & Poor’s joined Fitch in lifting the country’s sovereign debt rating outlook to stable, after Dublin struck a bank debt deal that improved its chances of exiting its bailout programme by the end of 2013.

Ireland has been subject to biting austerity but looks like it could be on the road to recovery, with economic indicators starting to point the right way. Yesterday, data showed consumer confidence in the country (measured ahead of the bank deal) surged in January from 49.8 to 64.2.

Updated at 7.48am GMT

7.40am GMT

Cyprus banks checked for money laundering before bailout

Eurozone finance ministers yesterday came to what looked like a compromise over Cyprus, with a private company dispatched to look into claims of money laundering on the island before it gets any European aid.

My colleague Phillip Inman reports in today’s paper:

European finance ministers have insisted that Cyprus allows private investigators to check the island’s banks for breaches of money-laundering rules ahead of a €17bn (£14.5bn) rescue deal.

The Eurogroup said investigators would be despatched in a matter of days to the capital Nicosia and will report back to its next meeting in March.

The move follows allegations that Russian oligarchs have deposited billions of roubles in illegal funds in the island’s banks. It was agreed by Cyprus’s government despite concerns that the country is rapidly running out of cash.

Jeroen Dijsselbloem, the Dutch finance minister and head of the Eurogroup, which is comprised of the 17 eurozone members, said the investigation was a precondition for any discussion of the terms of a bailout.

“We have agreed a private firm needs to get involved and we have agreed we need a report in March,” he said.

7.34am GMT

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

Spanish prime minister Mariano Rajoy could face his first public grilling this morning, since the scandal enveloping his ruling PP party broke.

Then, later in the day, ECB chief Mario Draghi will speak in Spain’s parliament to discuss the bond-buying programme.

Over in Brussels, the finance chiefs of all 27 EU member states meet this morning but the agenda (for once) is light and nothing conclusive is expected to come of it.

Back in the UK, the ONS will issue key inflation numbers, although markets will await tomorrow’s quarterly inflation report from the Bank of England for clues over where monetary policy is headed.

Updated at 8.14am GMT

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Finance chiefs to discuss aid package for Cyprus at the Eurogroup meeting starting today. French industrial production falls. Monti slams Berlusconi for impossible promises ahead of the election. Pope quits due to ill-health. Berlusconi claims lead in the polls…



Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Cyprus bailout edges closer” was written by Josephine Moulds and Simon Neville, for guardian.co.uk on Monday 11th February 2013 16.29 UTC

4.19pm GMT

ECB boss pours cold water over euro valuation

The euro has settled from recent 15-month highs as the EBC’s Jens Weidmann said discussions about an overvaluation of the euro are a diversion of politicians’ task to sort out their economies.

Taking a swipe at France’s President Hollande, who suggested political interference to control the exchange rate, Weidmann said:

The Eurosystem [of eurozone central banks] cannot solve the crisis.

Only governments can solve these problems, the central banks cannot. In this respect the discussion about a supposed overvaluation of the euro’s exchange rate simply deviates from the real challenges.

The euro hit $1.371/€1 at the start of the month. After his comments it cooled off to $1.342/€1.

Updated at 4.29pm GMT

3.59pm GMT

Latvia takes a step closer to joining euro

Latvia said GDP grew 1.3% in the fourth quarter of 2012, down from 1.7% for the 3rd quarter.

The country took an EU/IMF bailout in 2009, paying it off in late 2011 following a series of deep austerity cuts. But strong exports to Germany and other Baltic countries has seen the country bounce back with forecast growth on 3.8% next year.

PM Valdis Dombrovskis said he will formally ask EU officials to assess whether the country can join the single currency in 2014, despite public opposition in the country.

3.47pm GMT

Agreeing with Cameron, Miliband says more must be done to reduce agriculture spending from the EU budget.

Agriculture subsidies accounted for:

46% of total budget EU in 1997

33% in 2010

31% in 2013

Cameron said this will reduce to 27% by 2020, because it is only 1% of European industry.

3.43pm GMT

Brief statement from Cameron. Now Labour leader Ed Miliband is giving his response. He too praises the pope.

You can watch the statements on the parliament website here

Updated at 4.01pm GMT

3.42pm GMT

Cameron reports on EU council meeting

Cameron is telling MPs how he managed to negotiate the overall budget down, but admits UK payments will continue to rise, just “not as fast as they could have,” he says.

Also calls on more reforms, particularly on the CAP.

He added: “We now expect our EU contributions to fall as a percentage of gross national income.”

Updated at 4.01pm GMT

3.34pm GMT

Staying at Westminster, the prime minister, David Cameron, is about to make a statement on his meeting at the European council last week.

Updated at 4.00pm GMT

3.19pm GMT

RBS bosses start answering questions from politicians

Over in the Grimond room at the Houses of Parliament, RBS boss Stephen Hester is getting ready for his appearance in front of the banking commission.

While he waits, a warmup act of executives are answering questions.

John Hourican, former chief executive officer of Markets & International Banking (he resigned over the Libor scandal), Peter Nielsen, chief executive officer of Markets, RBS Group, and Johnny Cameron, former chairman of Global Banking and Markets, RBS Group, are eating lots of humble pie.

Updated at 4.00pm GMT

2.52pm GMT

And with that I will pass the blog over to my colleague Simon Neville. Thanks for all your comments.

2.50pm GMT

Berlusconi claims lead in the polls

More from former Italian prime minister Silvio Berlusconi, who said today that he was sure his centre-right coalition had taken the lead in the runup to the elections later this month. Berlusconi said on the radio:

I believe that we have overtaken [the centre-left Democratic Party]… they are now behind us.

Berlusconi also said he had made a “major screwup” when he countersigned the nomination that made outgoing premier Mario Monti a life senator.

And finally… Berlusconi was forced to defend some wildly inappropriate remarks he made to a young female factory worker in Veneto over the weekend, saying that they had been taken “out of context”.

On Sunday, Berlusconi asked a solar power technician during a company visit if she made house calls, if she “comes to homes” and how many times she is willing “to come”.

Updated at 2.59pm GMT

2.31pm GMT

Proposed changes to Greek labour law threaten coalition

Over in Greece, proposed changes to labour law that would make it harder for unions to call strikes has threatened unity in the coalition government.

ekathimerini reports:

Two of the three coalition partners, PASOK and Democratic Left, voiced objections following a report in Sunday’s To Vima newspaper that suggested Labor Minister Yiannis Vroutsis of New Democracy wants to make changes that would require strikes to need the support of the majority of union members, while giving management the right to enforce a lockout if employees do not return to work.

The Greek government recently forced striking civil servants back to work with a controversial mobilisation order.

Updated at 2.57pm GMT

1.55pm GMT

But – as FT Alphaville reporter Joseph Cotterill points out – Cyprus law may not be powerful enough to block the bail-in plan.

1.46pm GMT

Cyprus says bail-in possibility ‘grossly exaggerated’

Cyprus will not impose losses on depositors in its banks, the country’s finance minister has said, after a report in the FT about a plan that would force losses on uninsured depositors in Cypriot banks, as well as investors in the country’s sovereign debt (see 9.15am).

Such a deal would be impossible under Cyprus law and the country’s constitution, Vassos Shiarly said on the way into the Eurogroup meeting of finance ministers.

I would say that the bail-in of depositors is a grossly exaggerated possibility, unlikely to happen, we will not accept it under any circumstances and I don’t think it creates any way forward.

His comments come after the European commission dismissed the report, which claimed the commission had drafted a document that proposed bailing-in non-domestic depositors as an option to tackle the country’s financial troubles.

Dow Jones reports:

The spokesman [for the EC] declined to respond to questions about whether other institutions were pushing for these options, and said he wouldn’t comment on the existence of the document mentioned in the report.

Updated at 2.56pm GMT

1.10pm GMT

More Greek protests – against education/health cuts

Another week, another round of protests in Greece. Today students are marching in the country’s second largest city, Thessaloniki, protesting against education reforms shutting down schools.

While in Athens, Keep Talking Greece reports that several hundred protesters gathered outside the health ministry, demanding an appointment with the minister.

Updated at 2.22pm GMT

12.17pm GMT

Irish consumer confidence jumps

Over to Ireland, where consumer confidence jumped to a five-month high in January.

The KBC Bank Ireland/ERSI sentiment index rose to 64.2 in January v 49.8 in December – its largest ever monthly rise.

That was even before the government struck a vital deal with the European Central Bank over legacy bank debt last Thursday.

The index fell to a 12-month low in December after the Irish government announced more tax hikes and spending cuts, as part of the austerity drive demanded by Ireland’s international lenders.

Austin Hughes, economist at KBC said the sharp swings in the survey are a sign that consumers remain unsure about the health of the economy and are nervous about their household finances.

Updated at 12.58pm GMT

12.12pm GMT

Speaking on his way into the Eurogroup meeting, French finance minister Pierre Moscovici said:

We will have a debate about exchange rates. The euro has appreciated strongly in recent months… for positive reasons, because confidence is coming back in the eurozone.

We should have – I have insisted this debate takes place – a coordinated approach between us that will allow for us to argue for exchange rate stability, especially within the G20.

I think that we must, at the international level, argue for a coordinated approach that will allow us to have a stable exchange rate and this this exchange rate reflects the fundamentals of our economies so that expectations of economic agents are anchored… Exchange rates should not be subject to moods or speculation.

12.03pm GMT

France’s finance minister Pierre Moscovici says the eurozone needs closer co-ordination on exchange rate policy, Reuters reports, adding that he will discuss the issue today at the Eurogroup meeting.

The eurozone’s finance ministers are gathering in Brussels for a meeting at 1.30pm, with a farewell dinner for former chairman of the group Jean-Claude Juncker, later tonight.

Updated at 12.57pm GMT

11.29am GMT

Where is Britain in the global pole vault competition?

My colleague Paul Owen will have all the developments on the pope’s resignation on our swiftly-assembled live blog.

Meanwhile, in other, non pope-related news, the TUC has created a graphic that shows just how badly Britain is doing in the global economy.

TUC senior policy officer @DuncanWeldon writes:

The most straight forward way to measure our progress in the global race is to look at growth. The info-graphic above compares our performance to those of the other major economies in the G7 group since the Budget of June 2010.

As can be seen when compared to our international peers our growth performance is nothing to get excited about. If there is a global race we seem to be losing it.

Updated at 11.45am GMT

11.15am GMT

Plenty of Pope-related hilarity on Twitter…

Updated at 11.18am GMT

11.12am GMT

Pope quitting due to ill health

The pope says in a statement that his strength is no longer adequate to continue in office, due to his advanced age. He says he is “fully aware of the gravity of this gesture”.

A Vatican spokesman says the new pontiff should be in place by Easter. The papacy will apparently be vacant until a successor is chosen.

This is not entirely unexpected, according to a report published on the Washington Post website last year. The pope is approaching his 86th birthday and there has been persistent speculation about his declining health.

Alessandro Speciale of the Religion News Service wrote last April:

The German-born pope has appeared tired and fatigued in recent months and admitted at a morning Mass to being in “the final leg of the path of my life.” But on Sunday, he signaled his resolve to carry on with his duties as leader of the world’s 1.2 billion Catholics, asking the faithful to pray that he have the “strength” to “fulfill his mission.”

Last October, Benedict started using a movable platform to carry him down the central aisle in St. Peter’s Basilica, and he leaned on a cane before boarding the plane for a recent weeklong trip to Cuba and Mexico. He his now the sixth-oldest pope since at least the 1400s; the oldest, Pope Leo XIII, died in 1903 at age 93.

Updated at 11.24am GMT

11.02am GMT

Hats off to the Telegraph’s Kate Day, who reckons this resignation is almost unprecedented.

Wikipedia says that papal resignation was to end the Western Schism, which had reached the point where there were three claimants to the papal throne.

Bloomberg is reporting that the current pope is quitting due to ill health, so no great scandal on the horizon then.

Updated at 11.13am GMT

10.57am GMT

The news appears to be coming from Italian news agency ANSA, which says the pope will announce his resignation on 28 February.

For the record, the pope’s last tweet was as follows.

A coded message of some kind?

Updated at 11.13am GMT

10.54am GMT

Reports coming in that the pope has resigned, prompting lots of people in the office to ask:

Can you resign if you’re a pope?

More on that as it comes in.

Updated at 11.13am GMT

10.45am GMT

Italian populist could cause election chaos

Back to Italy and the man who could throw the country into turmoil after the elections of 24 and 25 February. And no, it’s not Silvio Berlusconi.

Our correspondent in Rome, John Hooper reports in today’s paper on the rise of Italian populist Beppe Grillo. He writes:

After fading in the polls, Grillo’s Five Star Movement (M5S) is surging back, its cause boosted by the scandal at Italy’s third-biggest bank, Monte dei Paschidi Siena (MPS). Since MPS was always beholden to the left, the scandal proves to many Italians what Grillo has always claimed – that Italy’s politicians are all the same and, in a phrase he used several times at his rally, should be mandati a casa – sent packing.

In response, the mainstream leaders had called him all sorts of names: “populist”, “demagogue”, “megalomaniac”, he told the crowd before inviting them to do the same. “One . . . two . . . three . . .” “POP-U-LIST-A”, the crowd roared back. It was a neat way of dodging the most pertinent criticism of his movement.

Hooper says that if the M5S’s support grows at the same pace as in recent weeks, it could be in a position to stop both left and right from wielding a majority. That would panic the markets and could trigger a new eurozone crisis, he says, as Grillo has ruled out any coalition with the established parties.

Updated at 10.57am GMT

10.26am GMT

China overtakes US in global trade

China has surpassed the US as the world’s biggest trading nation, Bloomberg reports, pulling together some intriguing trade stats from both countries.

US imports and exports of goods last year totalled $3.82 trillion, the US commerce department said last week. While China’s customs administration reported last month that the country’s trade in goods in 2012 amounted to $3.87 trillion. Bloomberg reports:

China’s growing influence in global commerce threatens to disrupt regional trading blocs as it becomes the most important commercial partner for some countries. Germany may export twice as much to China by the end of the decade as it does to France, estimated Goldman Sachs’s Jim O’Neill.

“For so many countries around the world, China is becoming rapidly the most important bilateral trade partner,” O’Neill, chairman of Goldman Sachs’s asset management division and the economist who bound Brazil to Russia, India and China to form the BRIC investing strategy, said in a telephone interview. “At this kind of pace by the end of the decade many European countries will be doing more individual trade with China than with bilateral partners in Europe.”

Updated at 10.30am GMT

10.06am GMT

How much money does Cyprus need?

There are conflicting reports over the potential size of any bank recapitalisation for Cyprus.

Reports suggest Pimco – which is carrying out a review of Cypriot banks – thinks the country’s financial system will need €10bn to stay afloat. But the Cypriot government argues that it should be no higher than €8bn. That would reduce the potential €17bn bill for a full bailout.

No figure has yet been confirmed and this month the Cypriot central bank said the amount needed by the banks would not be made public until the bailout deal was agreed with international lenders.

According to the confidential memorandum prepared ahead of Monday’s meeting of eurozone finance ministers, which the FT cited this morning, a full bailout is still expected to cost €16.7bn.

9.28am GMT

ECB board member predicts Cyprus aid package by April

Whatever its form, an aid package for Cyprus should be ready by the end of next month, ECB executive board member Joerg Asmussen said in an interview published this morning. Asmussen told German business daily Handelsblatt (in German):

I expect the aid programme for Cyprus will be in place by the end of March.

He added that German politicians should not try and delay a decision on Cyprus until after the German elections in September.

There must be no doubt about this: if Cyprus gets no external help, it will slide into default.

9.15am GMT

Cyprus could face bail-in

Back to Cyprus and the news that policymakers are preparing a radical rescue for the island nation.

The FT reports this morning that one of the options on the table for Cyprus is a so-called ‘bail-in’, which would force losses on uninsured depositors in Cypriot banks, as well as investors in the country’s sovereign debt.

Peter Spiegel in Brussels and Quentin Peel in Berlin write:

The proposal for a “bail-in” of investors and depositors, and drastic shrinking of the Cypriot banking sector, is one of three options put forward as alternatives to a full-scale bailout. The ministers are trying to agree a rescue plan by March, to follow the presidential elections in Cyprus later this month.

The new plan has not been endorsed by its authors in the European Commission or by individual eurozone members. The memo warns that “the risks associated with this option are significant”, including a renewed danger of contagion in eurozone financial markets, and premature collapse in the Cypriot banking sector.

9.09am GMT

Monti slams Berlusconi for ‘impossible promises’

Over to Italy, where Berlusconi continues to make waves ahead of the elections on 24-25 February.

Over the weekend, outgoing prime minister Mario Monti accused Berlusconi of trying to buy votes with impossible promises. Among other things, Berlusconi says he will reduce spending by two percentage points a year to finance tax cuts.

He has promised to pay back, in cash, an unpopular housing tax levied by Monti. He also appeared to promise to create 4 million new jobs last week but was forced to withdraw the claim the same day.

Berlusconi has edged up in the polls and is currently within around five points of the leading centre-left Democratic Party (PD), led by Pier Luigi Bersani.

Although the PD is expected to win a solid lower house majority, it may need a deal with Monti’s centrists to gain the control of the Senate.

Meanwhile, the Daily Telegraph reports that Berlusconi’s girlfriend has vanished from his side in recent weeks, apparently the victim of voters’ disapproval. Tom Kington writes:

Francesca Pascale, 27, appeared regularly at the former prime minister’s side at the start of his electoral campaign.

However her absence since December has prompted media speculation that she has been cast aside after surveys carried out by Mr Berlusconi revealed Italians did not approve of his decision to date a woman nearly five decades younger than him.

Miss Pascale was reportedly encouraged to dress more soberly and took speech classes to ready herself for the role of first lady, but her image was damaged when old footage reappeared of her dancing in a bikini on a local TV show in Naples, where she worked as a showgirl, sucking provocatively on an ice lolly.

Updated at 10.26am GMT

8.46am GMT

Policy divide widens between France and Germany

This widening gulf between the economic fortunes of France and Germany has led to a growing policy divide, which is hobbling the region’s core partnership, Reuters reported over the weekend. Mark John wrote:

Berlin rejected President Francois Hollande’s call on Tuesday to set a mid-term target for the euro, a move he hoped would bring the single currency down to a level that would make it easier for French industry to sell its goods abroad.

Three days later, German Chancellor Angela Merkel joined forces with Britain’s David Cameron at a Brussels summit to push through the first ever cut in the 27-nation’s budget, taking an axe to spending on infrastructure projects backed by Paris.

“Is it the budget I would have liked if it was just up to me? No. But the problem with Europe is that there are others involved,” a resigned Hollande told reporters after all-night talks secured a deal on EU funding from 2014-2020.

Both Hollande and Merkel have insisted that the Franco-German motor is still driving EU integration 50 years after the friendship pact between the former World War Two foes.

But while they say achievements such as last year’s deal on EU banking supervision show that Paris and Berlin can still overcome their differences to forge compromises, the French voice is increasingly struggling to make itself heard.

8.42am GMT

French industrial production falls

There was more bad news for France this morning, with industrial production falling 0.1% in December. 

That came down from a 0.5% increase in November, although it was not as bad as analysts feared, with forecasts for a 0.2% decline.

There is an ever-widening gulf between France, Europe’s second largest economy, and Germany, the region’s biggest. Our economics editor Larry Elliott fears France could join list of eurozone casualties in a fresh crisis.

The longer term trends in industrial production look even worse, with output dropping 1.8% over the quarter, and 3.1% compared with the final quarter of 2011.

The decline in manufacturing output in the last quarter of 2012 was even sharper, falling 2.5% from the third quarter and 3.9% on the year.

8.21am GMT

Today’s agenda

So for a quick look at what else is happening today…

  • France industrial output for December: 7.45am
  • Spain house transactions for December: 8am
  • Eurogroup meets in Brussels: 1.30pm
  • RBS chiefs face grilling from MPs: 4.30pm

In the debt markets, Germany will auction €4bn of six-month debt and France is issuing €7.6bn of three to 12-month debt.

8.14am GMT

Eurogroup to discuss Cyprus

Also on the agenda is the possible bailout of Cyprus, a week before the island nation’s presidential elections.

Cypriots go to the polls on 17 February to elect a new president for a five-year term, with a runoff on 24 February if the first round does not produce a winner with an outright majority.

The winner will have to negotiate a bailout for the tiny economy, heavily exposed to the Greek debt crisis.

Polls out over the weekend suggested Cyprus’s rightwing opposition leader had widened his lead over his two main challengers, as voters looked for a fresh pair of hands to revive their struggling economy.

Just to recap…

  • Cyprus is seeking a bailout of around €17bn, including at least €10bn to recapitalise its banking sector.
  • Negotiations initially stalled over the issue of economic reforms and privatisations, required by the troika but rejected by outgoing Communist president Dimitris Christofias.
  • German MPs have also voiced concerns that a bailout would benefit money-launderers who allegedly hold huge sums in Cypriot banks.
  • German finance minister Wolfgang Schäuble also raised doubts about the “systemic relevance” of the island economy. If the country’s economic failure is not considered to pose a threat to the region as a whole, it does not qualify for a bailout.

But reports have suggested Germany may be willing to abandon its opposition to a bailout, under pressure from the European commission and other eurozone countries.

Updated at 10.22am GMT

7.48am GMT

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

Today Dutch finance minister Jeroen Dijsselbloem takes the reins at the Eurogroup meeting of eurozone finance ministers.

Dijsselbloem takes over from Jean-Claude Juncker of Luxembourg just as an apparent improvement in fortunes for the region has posed a whole new problem: a strong euro dampening the economy.

The French finance minister, Pierre Moscovici, will be at pains to suggest that the rise in the euro is not helping his country’s struggling economy. But he will face opposition from Germany, which last week said the rate of the euro appears appropriate for the moment.

Updated at 10.19am GMT

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Carney questioned by MPs, while EU leaders head to Brussels for another bout of negotiations on the trillion-euro budget at the EU Summit. The European Central Bank and the Bank of England kept their benchmark rates at record-low levels today…



Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Incoming governor Mark Carney signals Bank shakeup” was written by Josephine Moulds, for guardian.co.uk on Thursday 7th February 2013 15.03 UTC

3.03pm GMT

Meanwhile, the EU leaders are arriving for the summit, where they will discuss the trillion-euro budget.

Updated at 3.03pm GMT

2.54pm GMT

But, while Draghi remained tight-lipped on Ireland, we should get some detail from Taoiseach Enda Kenny when he address the Dail before 3pm to outline the deal the Coalition has secured from Europe on Ireland’s bank debt.

Henry McDonald reports:

At present the cost of Anglo Irish Bank’s debts is around €28 billion to the Irish taxpayer.
One source in Dublin has said there will be “no road blocks” from the European Central Bank to prevent the liquidation of the Anglo Irish Bank now renamed the IBRC.
This coming deal is the one Kenny and his government have staked their reputation in terms of managing the Irish economy out of crisis.

2.51pm GMT

So what have the markets made of noises coming out of both the Bank of England and the ECB? UK shares fell after incoming bank governor Mark Carney dashed hopes that he would ease monetary policy when he takes charge. But European shares are higher, as Draghi signals the ECB will maintain its accomodative policy.

UK FTSE 100: down 0.34%

France CAC 40: up 0.13%

Germany DAX: up 0.91%

Spain IBEX: up 1%

Italy FTSE MIB: up 0.94%

2.36pm GMT

Draghi finishes by batting away yet another question about Ireland. He says the efforts of the Irish government on the financial policy front was what was important to re-establish the credibility of Ireland in the international markets.

Someone helpfully reminds Draghi not to forget his glasses as he heads out of the room for another month.

2.31pm GMT

Draghi says Bundesbank chief Weidmann is absolutely right about being worried about central bank independence, it is a compliment to credibility.

2.29pm GMT

Draghi says the decision not to change interest rates was unanimous.

Of course there were hints and discussions on how to improve financial conditions but that’s it.

2.24pm GMT

More Draghi… he says the ECB is convinced its policies are compatible with price stability and job creation.

We foresee a gradual recovery in the second part of this year.

Weak demand could explain subdued credit levels. We continue trying everything we can to resume credit flows.

2.20pm GMT

Now he’s talking about the single supervisory mechanism for EU banks.

We can’t afford separate banking regulation, we need to converge on one rule for the euro area, maybe the EU.

The legal act on the SSM has not been approved yet. The consultation with the EU parliament is still in progress.

He says there is a lot of support for the SSM.

2.14pm GMT

He is also defending his role as head of Italy’s central bank in the supervision Banca Monte deiPaschi di Siena. He says he does not want to take sides in the upcoming Italian elections but…

You should discount much of what you hear and read as part of the noise elections produce.

2.09pm GMT

Draghi is asked yet again about the Irish promissory note swap.

We do not want to enter into details of the swap.

He says, acknowledging, at least that there is some kind of swap.

2.04pm GMT

Carney to review UK’s economic policy regime

Mark Carney, the Canadian head-hunted by George Osborne to run the Bank of England, has told MPs he expects to undertake a thorough review of the UK’s economic policy regime when he arrives at Threadneedle Street in July, writes Heather Stewart.

Appearing before the cross-party Treasury select committee, Carney, who is currently the governor of the Bank of Canada, praised the process of five-yearly reviews of how inflation-targeting works in Canada — and conceded that he had discussed with the chancellor the possibility of altering the framework.
“The flexible inflation-targeting framework should remain broadly in place, but details need to be reviewed and could be changed,” he told MPs. In more than 40 pages of written evidence submitted to the committee, he characterised his conclusion on whether to ditch the current framework as: “the bar for change is very high but review and debate can be positive”.
Carney appeared to back away from one idea he mooted in a speech in December – that the current inflation target could be replaced by a so-called “nominal GDP” target, which could force the Bank to do more to kick-start growth. But he insisted to MPs that more could be done under the current framework, which he called “flexible inflation targeting”, to stimulate the moribund economy, including offering so-called “guidance” to reassure investors that the monetary policy committee would not tighten policy until the economy has fully recovered.
The Federal Reserve has promised that it will continue with the emergency policy of quantitative easing, until the unemployment rate has fallen to 6.5% of below.

1.59pm GMT

Draghi has batted away questions about the liquidation Anglo Irish Bank, referring everyone back to the Irish government.

Reuters sources are saying his comments signal ECB approval of the move.

Updated at 2.00pm GMT

1.57pm GMT

In answer to a question about when the recovery would take place, Draghi – seemingly amused – said it was too hard to answer exactly what time that would happen.

On the euro, he was asked about the recent rise in the single currency, and whether that posed a risk to stability. He said the appreciation reflected growing signs of the return of confidence in the euro.

By and large, he said, the nominal and real exchange rate was at or about the long term average. He did say the bank would continue to closely monitor market developments.

There have been growing concerns that the strength of the euro could jeopardise any recovery.

1.50pm GMT

Merkel says EU budget positions are still quite far apart

Meanwhile we are getting some early comments ahead of the EU summit.

German chancellor Angela Merkel is quoted as saying the positions on the EU budget are still quite far apart and it is not possible to say whether there will be an agreement.

1.45pm GMT

European inflation was 2% in January, down from 2.2% in November and December, and should fall below 2% in the coming months, says Draghi.

1.43pm GMT

Draghi says economic weakness in the euro area will continue in the early part of the year but later in 2013 economic activity should start to recover. This will be helped by better external demand, easier financial market conditions and monetary policy.

There is a stabilisation of business and consumer confidence.

He emphasises several times the ECB’s “accomodative” monetary policy stance.

Updated at 1.47pm GMT

1.39pm GMT

Draghi press conference starts

Draghi has now started and the press conference can be followed here.

1.38pm GMT

Anything Mark Carney can do, Mario Draghi can do too. He is late for the ECB’s press conference.

1.35pm GMT

US weekly jobless claims fall

Meanwhile in the US, weekly jobless claims came in at 366,000, down on the previous week’s revised 371,000 and with the trend figure near a five year low.

Analysts had been expecting a slightly larger fall, to around 360,000

1.29pm GMT

Carney is asked about banks shrinking their balance sheets, and the negative effect that has on their lending to small businesses.

He says there are other ways of shrinking the balance sheet, such as through higher retained earnings or shrinking balance sheets outside the UK.

1.25pm GMT

Soros says euro problems could break up EU

Back with the euro, and financier George Soros has said in an interview there was a real danger it could break up the European Union.

Open Europe has the detail here but among other things, the man credited with making billions out of betting against the pound, compared the single currency to the Soviet Union. He said:

I am terribly concerned about the euro potentially destroying the EU. There is a real danger that the solution to the financial problem creates a really profound political problem.

Germany needs to realise that the policy it imposes on the euro area – the austerity programme – is counter-productive. It cannot actually succeed. At the moment they [the south] is being pushed – unwittingly, not with bad intentions, but the effect is that they are being pushed into a long lasting depression and that is what is happening to Europe. And it may last more than a decade, in fact it could become permanent, until the pain is so big that eventually there may be a rebellion, a rejection of the EU, and that would then be the destruction of the EU, which is a terribly heavy price to maintain to preserve the euro, which is meant to be just a servant of the EU.

And here is the Soviet Union quote. Asked whether the euro would survive, he said:

It could last quite a long time, the same way as the Soviet Union, which was a very bad arrangement, lasted for 70 years. However, I think that eventually, it is bound to break up the European Union. The longer it will take, and it may take generations, those will be lost in terms of political freedom and economic prosperity. The solution is to me a terrible tragedy for the EU. And it’s happening to the most developed open society in the world. To me it’s a terrible tragedy. It doesn’t have villains, because I don’t think that Germany is doing it with bad intentions but it’s happening out of a lack of understanding of very complex problems.

Updated at 1.32pm GMT

1.11pm GMT

My colleague Heather Stewart has just pointed out two rather sobering charts in Carney’s written evidence to the Treasury Select Committee.

The first shows how reliant the UK still is on slow-growing advanced economies, with some 66% of exports in 2011, going to these markets, and just 12.9% going to the emerging markets.

The second chart is a stark depiction of the UK’s desperate performance in exports in general.

1.02pm GMT

And here’s Neil Prothero of the Economist Intelligence Unit with a helpful summing up of Carney’s appearance at the TSC, so far.

Irrespective of who heads the Bank of England, ultra-loose monetary policy in the UK will persist in some form for a long time to come, given the structural weakness of the economy and because the government views it as a necessary counterbalance to its protracted fiscal austerity programme.

Some changes to the inflation-targeting policy framework are, however, likely to be considered once Mark Carney succeeds Mervyn King as governor in July, since the Canadian appears to hold a more optimistic view than Mr King that there is more that monetary policy can do to stimulate the economy at the “zero lower bound” (when nominal policy rates are close to 0%).

Initially, this is likely to focus on adopting a more flexible inflation-targeting framework, which could include providing more “forward guidance” on the future path of monetary policy (for example, an explicit commitment that rates would remain at 0.5% for a stated duration) and/or threshold rules similar to those recently adopted by the US Federal Reserve.

A major shake-up of the Bank’s remit in the near term, such as a move to target nominal GDP or earnings, seems unlikely, but could still occur over time. Events could well force Mr Carney’s hand, should traditional monetary policy tools (including QE) continue to disappoint and the UK economy continues to stagnate.”

12.56pm GMT

Right, Carney’s back in the hotseat. We’ll be keeping one eye on that, as well as covering the ECB press conference at 1.30pm.

12.53pm GMT

Here’s Capital Economics on the messages coming from the Bank of England and its incoming governor Mark Carney today.

Not only did the Monetary Policy Committee (MPC) leave policy on hold again today, but in his testimony to the Treasury Committee, Governor-to-be Mark Carney sounded less keen than before on a change in the monetary framework. Nonetheless, he was keen at least to review whether it needs changing, leaving the door open to a shake-up at the Bank of England when he arrives in July.

12.45pm GMT

And… the ECB has also left rates on hold at 0.75%. We’ll have more from the European Central Bank at Mario Draghi’s press conference at 1.30pm.

12.41pm GMT

And the TSC is breaking but only for five minutes. You look a fit man, says Tyrie.

12.40pm GMT

Carney is asked about helicopter money, see 8.58am.

I cannot envision any circumstance where I would support [helicopter money].

He says there is flexibility in existing tools available to the Bank of England.

12.37pm GMT

Really? It seems this is only the first half of the Carney hearing and we are merely approaching a break in proceedings. That’s quite a marathon for Carney’s first appearance in front of the Treasury Select Committee.

Still, he’s retained his calm so far and seems to have charmed the MPs.

12.28pm GMT

It’s no wonder the pound doesn’t know which way it’s going. On the one hand, the Bank of England is saying it stands ready to provide additional monetary stimulus if required. Economists at Newedge note:

This suggests more QE is possible in May if recovery stalls and/or eurozone/US risks come back.

On the other hand, incoming bank chief Carney is saying returns from QE diminish as the scale of the programme is increased.

12.23pm GMT

Just a reminder, RBS chairman Sir Philip Hampton is in the Guardian building and ready to answer readers’ questions about the £390m fine the bank is paying to settle allegations it rigged Libor.

The webchat will take place from 12.30pm. Post your questions for the RBS chairman in the comments section here

12.20pm GMT

Carney says that evidence from Bank of Canada suggests that returns have declined from the QE programme, as the scale of it has expanded.

Updated at 12.24pm GMT

12.13pm GMT

Those comments from the Bank of England appear to have hit sterling, which is now only up 0.25% on the day at $1.57.

12.12pm GMT

More from the Bank of England, which has unusually issued a statement with its interest rate decision. (Could this be the start of a more open central bank, preparing for Carney’s entry?)

It says it is appropriate to look beyond the fact that inflation is currently running above target, as removing stimulus would risk derailing the recovery.

Updated at 12.12pm GMT

12.08pm GMT

Back to Carney, who says he does not expect to say much about fiscal policy and he does not expect the government to speak about monetary policy.

Carney refutes the FT story this morning, which suggests Osborne has been putting pressure on the Bank of England over growth. He says he is not meeting with the chancellor this week.

12.05pm GMT

The Bank of England says inflation is likely to rise further in the near term and remain above 2% for the next two years.

UK economic output appears to be broadly flat. Business surveys point to muted growth in near term.

12.02pm GMT

And the Bank of England has left rates and the quantitative easing programme unchanged. No great surprise there.

The bank says it sees a slow and sustained recovery in the economy, but says the risks are to the downside (ie it’s more likely that things turn out worse than forecasts, not better).

Updated at 12.04pm GMT

12.01pm GMT

John Mann has come up with some good questions (at last). He is pushing Carney on his use of the word ‘flexible’ when talking about inflation targeting. He says the talk of flexibility is a new notion in the UK and asks whether this gives politicians scope to put pressure on the Bank of England. Carney says:

There is no question about my independence as governor of the Bank of England. There is a governance structure that has been put in place, there is an absolutely clear structure.

He says the bank will be given a remit and will execute against that remit.

No political influence will come to bear on the execution of that remit.

11.56am GMT

Overall feeling is that Carney has not been as revolutionary as some had hoped/feared.

11.55am GMT

Six minutes and counting until the Bank of England announces its decision from the most recent monetary policy committee meeting. Will it try and steal the limelight from Carney by announcing a change to monetary policy?

Unlikely.

11.53am GMT

Carney is asked if the Bank of England should be questioing its own remit – ie asking whether the inflation target is the right target. Carney says:

The bank is very well informed on not just the conduct and the effectiveness of the current remit. The bank can play a role in informing that debate.

If the bank were invited to question its remit, it is reasonable to respond.

Active questioning of that remit can make it less effective.

Once a remit is given then the bank’s job is to execute against that.

11.49am GMT

Nominal GDP targeting can be useful in the exceptional circumstances that the UK finds itself in, says Carney. That means it is entirely appropriate for the UK to consider it. But he says,

My inclination is that flexible inflation targeting – potentially deployed in a slightly different way – would remain superior [to nominal GDP targeting].

Updated at 11.49am GMT

11.47am GMT

Carney says he is “far from convinced” that the bank should move to nominal GDP targeting, but says it is a valid part of the debate if one is looking at a framework.

Updated at 11.57am GMT

11.45am GMT

Carney confirms he has spoken to chancellor George Osborne about the merits of changing the BoE’s remit. He says:

My view is that the best framework remains flexbile inflation targeting.

But he says there are advantages to nominal GDP targeting, which could allow for higher inflation in case of a slump.

Did his flexibility over this key question help him get the job? asks C4 News’ economics editor.

11.42am GMT

Carney says if more stimulus is required when he is in office he will do his best to persuade other MPC members.

11.36am GMT

But it is not entirely clear that is his focus. His spoken comments seem to be pointing the other way.

He says the current state of the UK economy and the labour market merit considerable monetary stimulus for a considerable period of time.

That may require new tools…

It is the responsibility of the BOE to review the tools it uses and if need be for stimulus to devise new instruments.

Updated at 11.41am GMT

11.34am GMT

The pound has surged on the back of Mark Carney’s remarks, driven by suggestions in his written evidence that the central bank must exit ‘unconventional monetary policy’.

Sterling rose 0.5% on the day to $1.575.

11.29am GMT

More from our banking editor Jill Treanor, on what Carney said on the banks:

On competition in banking he thinks more needs to be done. He points out there is direct relationship between banking concentration and financial stability. Some countries (Canada, Australia) with concentrated systems proved more stable during the crisis. Others (the UK, Netherlands and Switzerland) did not.

“It is clear that concentration makes instability more costly” as the two largest lenders – Lloyds and RBS – account for 45 per cent of the total stock of lending. And both were bailed out.

Opening up the market to new competition means that barriers to entry – essentially getting authorisation from the Prudential Regulation Authority – need to be eased and that some banks will need to fail.

“With a deposit guarantee scheme and a resolution regime in place, banks, particularly smaller ones, will be able to fail without threatening the stability of the banking system as a whole. It follows that the prudential requirements on new entrants can, and should, be lighter than they have been in the past, although some minimum standards must of course be maintained.

“The PRA is therefore reforming its authorisation requirements for banks in ways that reduce barriers to entry. We all need to recognise and accept that, under this regime, new entrants to the banking market may, from time to time, fail, but that this the flipside of a market that is truly open to competition”.

11.27am GMT

My colleague Jill Treanor writes:

Carney’s written evidence covers ending too big too fail in the
banking sector. “Restoring capitalism to the capitalists” – ie
avoiding taxpayer bailouts – “discipline” in the system will increase and systemic risk reduced.

He puts much hope in new mechanisms being designed by the Financial Stability Board. “Some countries need to legislate, not merely propose,” he says.

In times of crisis he makes clear that much hinges on the relationship between the governor and the chancellor. “Effective crisis management cannot, however, be legislated. It requires contingency planning during ‘peacetime’, decisiveness if ‘war’ breaks out and, more than anything else, a good working relationship between the Bank and HM Treasury, and
ultimately between Governor and Chancellor. That will be the focus of my efforts”.

11.25am GMT

And another snippet from Carney’s written evidence. Asked whether he would consider wading into foreign exchange rates to affect the value of the pound, Carney pointed out that the MPC has that right, as part of its remit, and he would recommend exercising it in an “extreme scenario”.

11.24am GMT

Carney says bank could committ to lower rates for fixed periods

He is asked about comments he has made that communications from the central bank can help manage market expectations.

He says the view in the Bank of Canada is that in normal times policy guidance is not very helpful. It would not move market expectations.

But, he says, when the Bank of Canada had got interest rates as low as they could go, it had to consider other policy choices.

We felt we could use communication to provide the extra stimulus. It sent a message there was going to be stimulus for a set amount of time, so that people could plan and put in place if they were going to buy a house or renovate. They had time to act on this. Everybody knew about this commitment in Canada. And it had an effect.

It was a conditional commitment. In part because of the response [to the communication], we ended up raising interest rates sooner than we had said. Made the outlook conditional on inflation.

Looking at the UK, he says, there is a valid discussion to be had about the potential use of this tool.

Updated at 11.30am GMT

11.18am GMT

Is the UK’s inflation target too flexible, Carney is asked.

He says the nature of the question reinforces the point. There should be a shared understanding of the flexibility that is there. Over what period does the bank need to get back to the inflation target?

In these exceptional economic circumstances, with inflation above target, it would be useful to have a shared understanding of what is the optimal timeline to return [to the target] and why. There is merit to considering the Fed-style threshold-based guidance.

Does one make that [threshold] time-contingent, or state-contingent, [i.e.] is it around a specific economic variable?

11.15am GMT

Asked about quantitative easing… should the bank have a wider consideration of the full effects of QE? Carney says yes. He’s looking forward to contributing to the TSC’s review of QE.

There are distributional consequences of QE. All monetary policy has distributional consequences. The response to those is [someone else's job].

He says the central bank’s 12 meetings a year “verges on too many”.

11.09am GMT

Carney reiterates that he is ready for internal Bank of England members to disagree with him, and he is prepared to be outvoted.

I would like to be on the right side more often than not. I fully imagine during the course of my term I will be outvoted.

11.07am GMT

The key issue, says Carney, is the time period over which inflation must return to the 2% target.

Updated at 11.08am GMT

11.06am GMT

Carney says flexible inflation targeting is the most successful monetary framework in existence but debate should be encouraged.

The flexible inflation-targeting framework should remain broadly in place, but details need to be reviewed and could be changed.

11.05am GMT

Can we turn to monetary policy, says Tyrie, finally. Is the UK’s monetary framework – ie flexible inflation targeting – the right one, he asks. Carney:

In Canada we review our framework every five years. We have found that is an effective process. It ensures shared understanding about the ‘flexible’ word in ‘flexible inflation targeting’

In an exceptional envrionment, it is important to ensure there is buy-in to the current framework.

He says the bar to change the framework is set very high.

Updated at 11.05am GMT

10.57am GMT

Carney says others should decide if reform of the Court of the Bank of England is needed:

I hesitate as a foreigner coming in and suggesting changes to the longer traditions of the [Bank of England]. Others should make those judgments rather than me.

Updated at 10.57am GMT

10.55am GMT

Mark Carney tells MPs he won’t be an “emperor” when he’s in charge at the Bank of England.

10.54am GMT

My colleague Jill Treanor is ploughing through Mark Carney’s written evidence, which runs to 45 pages. She writes:

On the key issue of monetary policy where he caused a storm in December by suggesting banks might need to ditch inflation targets and use nominal GDP targets instead.

He says he has not “made an assessment of the merits of altering the monetary policy framework in the UK” but then goes on to a lengthy explanation on what he did in Canada which reviews its target every five years and he suggests that
it should be “debated periodically” here in the light of “current
extraordinary circumstances”

He talks about the need for the Bank to “enhance its forecasting, building on the recent Stockton review to make forecasts more accurate, transparent and better integrated with policy analysis”.

And crucially he also spells out the need to “design, implement and ultimately exit from unconventional monetary policy measures in a manner that reinforces public confidence.”

He backs the proposals by Sir John Vickers’ independent commission on banking to erect ringfences around retail and investment banks. “The implicit state subsidy for banks needs to be removed,” he said.

The Chancellor had originally wanted a governor who would serve an eight year term and justifies his decision to only agree to do it for five years.

“A five-year term is the right managerial timeline to re-launch the Bank of England with its broader responsibilities, and to develop considerable talent, undertake targeted external recruitment, and build a succession plan.

“Over the five years, we can establish the full potential of the new institutional structure, which combines monetary policy, macroprudential and microprudential regulation.” And
by 2018, when his terms end, the Vickers proposals will be in place, he argues.

Finally, from a personal perspective, there are two considerations. By the end of five years he will have been a bank boss for over a decade – “there are limits to these highly rewarding but ultimately punishing jobs”. Plus it suits the ages of his children.

And a bit of wishful thinking from Carney, who writes: “More
generally, I would like to achieve an exit in 2018 that is less
newsworthy than my entrance. That can be achieved if:

  • the Bank’s existing functions are reaffirmed;
  • its new functions are embedded and understood;
  • a strong leadership team is in place;
  • the credibility of, and trust in, the institution are entrenched;

and

  • there is increased recognition that while the Bank of England’s actions provide the cornerstones of British prosperity—price and financial stability—these are necessary but not sufficient conditions for growth”

More on that, as it comes in…

Updated at 11.01am GMT

10.48am GMT

He admits that the central bank is not infallible:

The Bank of England will make mistakes, all institutions make mistakes.

10.47am GMT

Carney says, given that the bank is being given extra responsibilities, that means he will have to reconfirm or adjust vision for the institution.

Says that will be his job for the first six months of his tenure.

Updated at 10.49am GMT

10.45am GMT

Some analysis of Carney’s comments coming in. Annalisa Piazza of Newedge Strategy:

Some of Carney’s comments suggest that he favours some changes in the Bank of England’s policy framework. Nevertheless, we rule out that changes will be abrupt as he sounds very keen on maintaining confidence in the institution’s credibility.

Peter Dixon, Commerzbank:

Much of it is really suggesting what central bankers around the world have already talked about, in other words price stability is the main thing to focus on. One thing people talked about ahead of the hearing was his views on nominal GDP targeting, and he says well yes it’s an option in the vent that interest rates need a bit more traction, so he’s not ruling anything out or ruling anything in.

10.35am GMT

Slightly odd line of questioning from one MP, asking Carney to define various pieces of jargon. Carney says:

Capital ratio is a ratio of the equity in an institution relative to the assets. Unwinding QE is to return the balance sheet of the Bank of England to its historic level.

Tyrie says he gets full marks, prompting a rare laugh from the packed-out room.

Updated at 10.37am GMT

10.31am GMT

Carney on his own management style:

As governor i will from time to time be in the minority. That is ‘fine’. My job is to ensure all views are heard.

It will not always be possible to have consensus on the Bank of Engalnd’s MPC and FPC.

Updated at 10.31am GMT

10.28am GMT

Tyrie notes that in the written evidence Carney talks about his management style, suggesting consensus is key. Is that in contrast to Mervyn King, he asks.

Carney says King has always been ‘consensual’ in committees he has taken part in.

10.26am GMT

Carney says inequality and persistent unemployment can be a factor in monetary policy.

He expresses real concern about long term unemployment and suggests aggressive monetary policy should be used to counter it.

Updated at 10.33am GMT

10.25am GMT

Some headlines from the written evidence…

Carney: BOE Could Intervene On Exchange Rate In Extreme Scenario

Carney: BOE Will Need To Design Exit From Unconventional Policies

10.23am GMT

He’s asked whether he would extend his term if he feels he hasn’t achieved his goals. He says ‘no’ in a very long and convoluted manner. His daughter doesn’t get a mention, although I’m sure that’s one reason. Instead he says clarity is crucial, so it’s wrong to put a question mark over what is currently a finite timeline.

10.20am GMT

Carney tries to put a line under questions about his pay…

My pay and pension is equivalent to the pay and pension of the current governor. The housing allowance relates to the fact that I am moving from one of the cheapest capitals to one of the most expensive capitals.

I would add further that the combination of the two is broadly equivalent to the pay and pension of the outgoing CEO of the FSA.

10.17am GMT

Carney’s being asked about his £250,000 housing allowance. He says it is pretty normal to equalise living standards from where he is coming to where he arrives.

And justifies it by saying he’s moving from one of the least expensive housing markets to one of the most expensive.

Updated at 10.19am GMT

10.16am GMT

Tyrie describes it as “a novelty, at least”, the fact that Carney says timing and location of his daughters’ education was crucial in his decision about taking this job.

10.15am GMT

Here’s the link to Mark Carney’s written evidence to the Treasury Select Committee. There’s a whopping 45 pages of it, but my colleague Jill Treanor is scouring it for any intriguing details. More shortly…

10.13am GMT

Carney is asked why he changed his mind over the governor job. He says he originally said no due to concerns about moving his children between schools.

Andrew Tyrie on the committee clarifies that he’s more interested in why he then changed his mind.

Carney is stumbling a bit, but says the possibility of reducing the governor’s term to five years was decisive because of his eldest daughter’s schooling needs.

Updated at 10.15am GMT

10.06am GMT

Do bank governors on £1m a year take the tube? Maybe Carney got caught out by problems on the underground this morning.

10.04am GMT

Still no sign of the Bank of England’s incoming chief over at the Treasury Select Committee. Although the live stream has started here. Looks like a full turnout from the MPs at least.

10.02am GMT

UK industrial output climbs

UK trade and industrial production figures are also in. Industrial output rose more than expected in December, although oil field shutdowns drove the biggest quarterly fall since early 2009.

Manufacturing output climbed 1.6%, after a fall of 0.3% in November

Separate data from the Office for National Statistics showed that Britain’s goods trade deficit narrowed in December.

Peter Dixon of Commerzbank said:

The key point is manufacturing output is still 1.5% lower than it was a year ago, so although it was a good month in December, the trend clearly has not been very friendly over the last 12 months. Hopefully we will get a little more strength in the course of 2013 as the eurozone crisis begins to normalise, but obviously it’s going to be a slow haul for the manufacturing sector.

9.53am GMT

Spain’s borrowing costs rise on political uncertainty

Just in, Spain has sold €4.61bn worth of bonds compared with a target of €3.5bn-€4.5bn.

Borrowing costs rose, with the maximum yield on the March 2015 bond at 2.889% compared with 2.587% on January 10.

That is no doubt a reaction to the growing political instability in Spain, following allegations of corruption in the ruling PP party.

9.49am GMT

Back to Carney, it will also be intriguing to see how the Canadian reacts to the typically aggressive questioning of the Treasury Select Committee…

9.46am GMT

IMF chief hails liquidation of Anglo Irish Bank

Before we head over to the Thatcher Room for the Treasury Select Committee, there are some better economic signs from Dublin. My colleague Henry McDonald reports:

Liquidating the Anglo Irish Bank can only improve Ireland’s economic situation, the former deputy chief of the International Monetary Fund said this morning.

Last night both houses of the Irish Parliament rushed through legislation to close down the now nationalised bank that almost bankrupted the Republic.

It meant that Ireland will avoid having to pay a punitive IOU to Anglo Irish Bank bondholders of more than €3bn at the end of next month. That debt will now be spread over into a long term government bond.

Speaking on RTE’s Morning Ireland, former IMF deputy director Donal Donovan said it would reduce the amount the government had to find every year to pay back the the debt.

“By reducing the €3.1bn principal repayment, pushing it out, we are doing two things: first of all we’re reducing the amount the government has to find every year to borrow from the markets in order to come up with this €3.1bn – it’s not going to be zero, but it’ll be likely to be much less,” Mr Donovan said.

“Second, by pushing it out, we are giving the opportunity for the country to grow and for recovery to take place, so that when we do start to repay this down the road, the cost is not going to be so great. That’s not a trivial thing.”

The move requires approval from the European Central Bank, which may be endorsed in Frankfurt later today.

The historic Anglo Irish Bank debt had been costing Irish taxpayers €3.1bn each year.

Although 800 jobs are at risk as a result of liquidating Anglo which was renamed under state control the IBRC Irish government sources said many of these posts could be saved by re-directing towards the National Assets Management Agency – the body which is in charge of toxic, debt ridden assets banks owned and later had to hand over to the Irish state.

Updated at 9.50am GMT

9.39am GMT

It will be interesting to see how the MPs treat Mark Carney at his first Treasury Select Committee hearing in about a quarter of an hour from now.

The Bank of Canada’s appointment was warmly received when it was announced last year. But, Simon Nixon argues in the Wall Street Journal, that “some of the Carney gloss is coming off”. He writes:

It is fair to say that in the two months since his appointment, some of the gloss has come off Mr. Carney’s reputation—and that some of this damage is self-inflicted.

First, he notes that Carney’s decision to seek a pay package worth more than £1m, will make his job harder as it risks reinforcing the perception that he is a globe-trotting hired gun with no deep commitment to the UK. That will only inflame hostility towards him if and when the central bank is forced to take unpopular decisions.

But, writes Nixon, the governor-elect has also made his life more difficult by questioning the Bank of England’s prized inflation target.

The more puzzling self-inflicted wound was Mr. Carney’s decision to float the idea that the BOE might drop its inflation target in favor of a nominal GDP target. This piece of kite-flying, which appears to have been coordinated with the Treasury, has been almost universally dismissed by market economists and fellow central bankers.

Adam Posen, a former U.K. rate-setter with a reputation as a “dove” who consistently played down inflation concerns and favored greater central-bank stimulus, told Parliament last month that abandoning the inflation target would be a “grievous error” that would raise unnecessary concerns over the U.K.’s commitment to sound money. Another former U.K. rate-setter and arch-dove, David Blanchflower, has pointed out that even if nominal-GDP targeting was a good idea in theory, it is a bad idea in practice because nominal GDP is hard to measure and prone to large revisions.

Updated at 9.51am GMT

9.17am GMT

Merkel in Paris ahead of budget talks

Back to the EU budget talks, which will be discussed late into the night tonight, with no decision expected until tomorrow morning at the very earliest.

It seems German Chancellor Angela Merkel was preparing the ground last night, with a trip to Paris where she tried to strike a deal with French President François Hollande ahead of the talks (while taking in the football).

My colleague Ian Traynor writes:

 A senior German official said the differences between [France and Germany] were slight and they expected to agree on a “common direction” for EU spending.

Hollande said on Tuesday his bottom line was €960bn for the 2014-2020 period, a figure which coincides with Berlin’s marker of 1% of EU GDP. That figure refers to “commitments” in EU parlance, meaning legally binding budget pledges for EU projects.

Britain, meanwhile, is pushing for a lower figure. Ian Traynor dissects the different countries’ positions in an excellent preview here.

Updated at 9.40am GMT

8.58am GMT

Looking ahead to Mark Carney’s appearance before MPs this morning, Ed Conway of Sky notes the growing political influence on central bankers around the world.

He says this could, in turn, raise the prospect of so called ‘helicopter money’. This refers to pure money financing of the deficit. For example, the government may send every family in the country a one-off ‘bonus’ of £1,000, directly financed by money created by the Bank of England.

Carney is unlikely to broach such a controversial topic in his hearing this morning, but it will be interesting to see whether he refers to expanding the central bank’s arsenal in tackling crises.

Updated at 9.46am GMT

8.41am GMT

Quiz RBS chairman on Libor: live at 12.30pm

Also on the Guardian website today, the chairman of Royal Bank of Scotland will be appearing live to answer readers’ questions about the £390m fine the bank is paying to settle allegations it rigged Libor. The webchat will take place from 12.30pm GMT on 7 February.

Post your questions for the RBS chairman in the comments section here

Updated at 9.43am GMT

8.32am GMT

Where does your money go?

As the EU leaders gear up for the budget talks, we look at how much each individual European citizen ‘gives to’ or ‘takes from’ the European project.

Flick through our budget interactive: to find out where your money goes. How much do French farmers benefit from you personally? What about a Polish justice project? Calculate your own contributions to European initiatives in different countries.

Updated at 8.43am GMT

8.21am GMT

Then we’ve got decisions from both the Bank of England and European Central Bank, following their monthly meetings to discuss interest rates and any stimulus measures.

The Bank of England is likely to hold rates steady and any decision on expanding the quantitative easing programme will be left until after the latest inflation report, which is out next week.

The bank might, however, announce what it plans to do with proceeds of £6.1bn of gilts maturing early next month,

The ECB is also expected to retain the status quo. But all eyes will be on Mario Draghi when he gives a press conference at 1.30pm. Questions will likely focus on the strength of the euro and what, if anything, he intends to do about it.

Updated at 9.45am GMT

8.06am GMT

BoE’s Carney faces MPs

But first up, we’ve got the central bankers. At 9.45 this morning, we’ll be hearing from Mark Carney, incoming chief of the Bank of England, when he faces a panel of MPs at the Treasury Select Committee. We will be live-blogging the hearing, which you can also watch online.

Among other things, the MPs are likely to ask Carney whether he thinks the central bank should be doing more to drive the UK economy. His response either way could move the markets, as investors anticipate a new regime at Threadneedle Street.

Carney has made references to targeting nominal GDP, rather than inflation, which could allow for higher inflation during a slump. Markets will be looking to see whether he expands on that theme, but he is likely to keep details to a minimum before he takes the reins in June.

Updated at 9.01am GMT

7.35am GMT

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

EU leaders will be heading to Brussels today for what is likely to be another gruelling summit to discuss the region’s trillion-euro budget. The talks will pit Britain against France, after French president François Hollande singled out the UK as the biggest obstacle to a breakthrough agreement.

This week’s summit follows a failed first attempt to reach a deal on the budget in November, with the British arguing for further reductions of at least €30bn (£26bn) on the overall package of €973bn proposed by Herman Van Rompuy, the summit chair.

My colleague Ian Traynor reports:

European leaders are inching towards a deal on the EU’s new seven-year trillion-euro budget that should allow David Cameron to argue he has succeeded in forcing a real cut in Brussels spending.

The figures, exploiting a big gap between pledged spending and a more accurate estimate of what probably will be spent, will be fiercely contested at a two-day summit opening on Thursday in Brussels. The signals on Wednesday evening, however, were that two separate sets of spending forecasts would be confected enabling the main players to claim victory from very different positions.

EU leaders failed to agree on the new seven-year budget in November and a fresh failure over the next few days is likely to throw EU medium-term spending plans into acute disarray

We’ll have his full preview up online shortly.

Updated at 8.03am GMT

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Eurozone unemployment stuck stubbornly at 11.7% in December. US non-farm payrolls rose 157K in January, while the unemployment rate edged higher to 7.9%, following a revised 196,000 advance in the prior month and a 247,000 surge in November…



Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Unemployment woes continue in euro area” was written by Josephine Moulds, for guardian.co.uk on Friday 1st February 2013 14.32 UTC

2.30pm GMT

More from Joe Weisenthal of Business Insider, who gives a pithy summing-up of the US jobs report:

One of the big concerns that the market faces is this idea that the Fed might tighten prematurely.

But the unemployment rate is one of the primary datapoints the Fed uses to determine appropriate monetary policy, and unemployment ticked higher.

So we got a fine current number, great backward revisions, and no improvement in unemployment, putting no pressure on the Fed.

Updated at 2.30pm GMT

2.27pm GMT

US job creation still weak compared with previos recessions

Back to the US and a troubling chart, which compares the trajectory of job losses and recoveries in various recession since WWII.

Thanks to Bill McBride at Calculated Risk.

Updated at 2.32pm GMT

2.21pm GMT

Greece sells bit of Corfu

Back to the eurozone, after that flurry of excitement over US data. It seems Greece has sold a portion of Corfu to US private equity fund NCH Capital for a whopping €23m.

The deal is part of a wider plan to sell off assets in order to pay down the stricken country’s huge debt pile. Athens has raised about €2bn since 2010 and is targeting proceeds of about €11bn by the end of 2016.

For its money, NCH Capital will get the rights to 490,000 square metres of land in Kassiopi Corfu for 99 years. Greece’s privatisation agency said the group intends to spend €75m to develop the land for tourism, creating hundreds of jobs.

2.09pm GMT

US jobs data suggest it’s not at risk of recession – analyst

Here’s Chris Williamson on the US non-farm payrolls.

A solid gain in US employment provides welcome reassurance that the US economy is healthier than the surprise fall in fourth quarter GDP indicated and is not at risk of a renewed recession. However, policymakers will no doubt remain unimpressed at the pace of the job market recovery, suggesting there is no end is in sight for Fed stimulus.

2.06pm GMT

US factory sector expands

Now for the US manufacturing PMI, which is definitely good news.

US manufacturing grew in January at its fastest pace in nine months and looks likely to drive economic growth in the first three months of this year.

Markit said US manufacturing PMI rose to 55.8 in January from 54 in December.

Chris Williamson of Markit said:

[This] suggests the underlying health of the industrial sector continues to improve and rising production will help the economy return to growth in the first quarter, providing there are no set-backs in coming months.

2.02pm GMT

A pretty chart to display the US jobs data from David Yanofsky on Quartz. Follow the link for interactive data.

1.58pm GMT

As one fund manager notes, the jobs data is probably pretty good news for the stock markets, as they point to a relatively healthy economy but isn’t so strong that the Fed considers halting its quantitative easing programme.

But it’s bad news for the man on the street.

1.54pm GMT

Market reaction to the US jobs data has been confusing, as Trend Macrolytics strategist Lorcan Roche Kelly notes.

1.53pm GMT

Key revisions to previous months’ non-farm data

Crucially, the report made significant upward revisions to November and December’s data.

November was revised from +161,000 to +247,000.

December was revised from +155,000 to +196,000.

Joe Wiesenthal of Business Insider writes:

These both have turned out to be impressive months.

That means that right in the teeth of the Fiscal Cliff fight, amid all of the “uncertainty”, employment was much hotter than expected.

The uncertainty myth is nonsense.

1.49pm GMT

A quick look at the foreign exchange markets, where the dollar extended its losses against the euro following the weaker-than-expected jobs data.

The euro moved from $1.3636 before the release of the data, to trade as high as $1.3658 afterwards.

1.46pm GMT

My colleague Dominic Rushe, out in the US, reports:

The US has now added jobs for 28 months in a row but the pace of job creation remains historically weak compared to recoveries after other recessions.

The news comes amid fresh signals of the fragility of the US’s economic recovery. On Wednesday the Commerce Department announced that the US’s economic recovery went into reverse in the final quarter of 2012. US gross domestic product declined 0.1% on an annual basis at the end of 2012, dragged down by the largest cuts in defense spending since the end of the Vietnam war and by businesses cutting back on inventories. GDP had risen 3.1% in the previous quarter.

On Thursday the Labor Department reported a surge in the number of people filing first time claims for unemployment benefits. Initial jobless claims increased by 38,000 to 368,000 in the week ending January 26. It was the largest rise since the spike that followed Hurricane Sandy. The number remained below 400,000, the level at which most economists argue the jobs market is worsening.

Deep government spending cuts, agreed as part of the fiscal cliff debate, are set to start on March 1. The military’s budget will be cut by 7.3% this year and discretionary government programmes by 5%. Both are likely to have an impact on the jobs market in coming months.

Economists said Washington’s deadlock over the fiscal cliff had impacted the GDP figure as businesses scaled back.

1.41pm GMT

Taking a look at all the key figures from the US January jobs report:

  • Change in nonfarm payrolls: +157,000 vs. expectations of +165,000 (+155K in December)
  • Change in private payrolls: +166,000 vs. expectations of +168,000 (+168K in December)
  • Change in manufacturing payrolls: +4,000 vs. expectations of +10,000 (+25K in December)
  • Unemployment rate: 7.9% vs. expectations of 7.8% (7.8% in December)
  • Average hourly earnings: +0.2% vs. expectations of+0.1 percent month-over-month, +2.1 percent year-over-year, in line with expectations (versus +0.3 percent and +2.1 percent in December)

1.37pm GMT

1.36pm GMT

Some immediate reaction from Twitter…

1.31pm GMT

US non-farm payrolls +157,000

US non-farm payrolls have come in at +157,000 and unemployment has ticked up to 7.9%.

That is below expectations of 165,000, while the 7.9% figure will be a nasty surprise for the vast majority expecting joblessness to stick at 7.8%. We’ll have all the reaction here, as it comes in.

Updated at 1.33pm GMT

1.02pm GMT

Rajoy to speak on tax allegations tomorrow

Spanish prime minister Mariano Rajoy will speak on Saturday about the allegations the ruling PP party ran a double-accounting system to evade tax.

At a weekly news conference deputy prime minister Soraya Saenz said Rajoy’s conduct had always been exemplary, reports Reuters.

But the accusations have sparked protests against alleged tax cheating. (see 9.55)

Updated at 1.02pm GMT

12.20pm GMT

US non-farm payrolls preview

So the big-news this afternoon is the employment data out of the US, in the form of the non-farm payrolls.

This measures the monthly change in employment, excluding the farm sector and is considered the most comprehensive measure of job creation in the US.

The US jobs data is particularly significant as it appears to be driving Federal Reserve policy at the moment.

Matthew Boesler of Business Insider reports:

The Fed has stated that it will not consider raising benchmark interest rates until the unemployment rate drops to 6.5 percent. Most don’t expect this until 2015 or 2016.

On the other hand, the Fed could end quantitative easing much sooner. FOMC members have said an unemployment rate around 7 percent by the end of 2013 may be sufficient to halt bond purchases.

He provides a round-up of consensus forecasts, as follows.

  • Change in nonfarm payrolls: +165,000 (versus +155K in December), with estimates ranging from 115,000 to 230,000
  • Change in private payrolls: +168,000 (versus +168K in December)
  • Change in manufacturing payrolls: +10,000 (versus +25K in December)
  • Unemployment rate: 7.8 percent (versus 7.8 percent in December)
  • Average hourly earnings: +0.1 percent month-over-month, +2.1 percent year-over-year (versus +0.3 percent and +2.1 percent in December)

11.51am GMT

Analysts unfazed by low LTRO repayment number

Here’s Marc Ostwald of Monument Securities on the LTRO repayments.

I am very unsurprised, it never appeared likely to me that banks would take a piecemeal approach, but rather register for repayment on the first date, with the rest being “drips and drabs” until the first repayment date for the €530bn second tranche on February 22nd.

11.44am GMT

LTRO repayments lower than forecast

Today saw the second announcement from the ECB about the early repayment of money it lent at super cheap rates at the height of the crisis.

Bond market followers will remember last week saw the announcement that a whopping €137bn would be repaid, beating most market expectations. But this week the number fell short of forecasts of €20bn, coming in at just €3.5bn. 

Gary Jenkins of Swordfish Research said the number itself did not mean a great deal and the estimates even less.

Most economic forecasts are based upon prior history and data that in some way influences the figure you are estimating. The LTRO payback has no real history, there is no data we can look at that has an influence on it, so it’s just people guessing.

The euro fell on the news from $1.3667 to $1.3640.

11.06am GMT

Greek unions call general strike for February 20

Over to Greece, where the unions have called for a general strike on February 20 to protest against austerity measures.

In what seems like a never-ending cycle of walk-outs in different sectors, Greek seaman continued their 48-hour strike today, keeping ferries docked at ports across the country.

Updated at 11.07am GMT

10.57am GMT

Unemployment still at record high in eurozone

But Capital Economics remains downbeat about the unemployment figures.

Data published today showed that eurozone unemployment rose by 16,000 in December. While this was the smallest rise since April 2011, it still left the unemployment rate at a record high of 11.7%.

Despite the recent rises in the survey-based measures of business activity and sentiment, note the surveys of firms’ employment intentions have shown few signs of improvement and suggest that further falls in employment are likely.

10.50am GMT

Eurozone data could open door to ECB rate cut – economist

Here’s Howard Archer on the economic data out of the eurozone this morning.

By recent eurozone standards it has been a relatively encouraging day for economic news with unemployment rising at a much reduced rate in December and the purchasing managers reporting manufacturing activity contracted at the slowest rate for 11 months in January.

Meanwhile, Eurozone consumer price inflation moderated to a 26-month low of 2% in January, which will help consumers’ purchasing power. It will also give the ECB increased scope to lower interest rates should Eurozone economic activity fail to pick up over the coming months.

The ECB appeared to shut the door to any near-term interest rate cut at its January meeting, as it was encouraged by recent improved financial markets and some better Eurozone surveys. Further improved survey evidence for January reinforces already strong belief that the ECB will sit tight at its 7 February policy meeting.

However, if the euro continues to rise and starts to threaten Eurozone recovery prospects, the ECB may have to re-think its plans and an interest rate cut could re-appear on the agenda

10.31am GMT

Taking a break from the economic data, it seems the Netherlands has nationalised SNS Reaal at a cost of €3.7bn, after a private rescue of the a bank and insurance group collapsed.

Thomas Escritt and Anthony Deutsch of Reuters report:

Another state rescue of a financial group will lead to a worsening in the Dutch budget deficit this year – which is already forecast to exceed European Union targets – and is likely to prompt a public outcry given the billions of euros of budget cuts and austerity measures in recent years.

It is also a sign of how many European banks, five years on from the height of the global financial crisis, are struggling to turn a corner amid weak economies and tougher regulations. French bank Credit Agricole announced over $5 billion of charges on Friday, a day after Deutsche Bank also unveiled big writedowns.

The Dutch government paid out nearly 40 billion euros to rescue the domestic financial sector in 2008 when it provided capital injections for ING, Aegon and SNS Reaal, as well as nationalising ABN AMRO.

SNS Reaal, the fourth-biggest financial institution in the Netherlands with about 134 billion euros in assets last year, was hit by losses at its property unit and has been trying for months to sell assets and secure additional funding.

The emergency bailout was necessary after SNS Reaal failed to meet a Jan. 31 deadline to come up with a rescue, Finance Minister Jeroen Dijsselbloem told a press conference.

10.26am GMT

Eurozone inflation eases to 2%

Inflation in the eurozone, meanwhile, fell more than expected in January, as companies slashed prices in a bid to draw in cash-strapped customers.

Consumer price inflation in the euro area fell to an annual rate of 2% in January. That puts it near the ECB’s target of close to, but below 2%, and gives the central bank room to cut rates again to drive the economy.

10.26am GMT

Youth unemployment crisis continues

Youth unemployment remained a major issue in the EU with only Germany and Austria recording jobless rates among young people of less than 10%.

In December 2012, the youth unemployment rate was 23.4% in the EU and 24.0% in the eurozone. That compares with 22.2% and 21.7% respectively in December 2011.

10.15am GMT

Eurozone unemployment steady at 11.7%

The eurozone unemployment figures are not, in fact, as bad as expected. But the jobless rate across the region remained stubbornly high at 11.7% in December.

The official data from Eurostat showed the rate in the wider EU was 10.7%.

Huge disparities between the members of the euro persist, with the lowest unemployment rates in Austria (4.3%), Germany and Luxembourg (both 5.3%) and the Netherlands (5.8%). While Greece (26.8% in October 2012) and Spain (26.1%) remain mired in a job market crisis.

Updated at 10.17am GMT

9.55am GMT

Spain protests against ruling party after tax allegations

There were protests in Spain last night, after allegations in El País that the ruling PP party ran a double-accounting system to evade tax.

Although the PP denied the allegations forcefully, the Spanish people remained unconvinced and hundreds gathered at the headquarters of the PP in Madrid to show their disgust that those who are now busy hiking taxes and cutting spending are alleged tax cheats.

9.42am GMT

UK factory sector grows modestly

Abandoning the eurozone briefly, the UK’s manufacturing sector grew modestly in January and output powered ahead at its fastest pace since September 2011.

The Markit/CIPS PMI inched down to 50.8 from a downwardly revised 51.2 in December, just short of forecasts for a reading of 51.

The data will provide some solace to chancellor George Osborne, who faced heavy criticism last month after data showed the economy shrank in the final three months of 2012. If it shrinks again in the first three months of this year, the UK will fall into its third recession in four years.

But manufacturing only accounts for 10% of the British economy and Markit said the impact of these figures on first quarter GDP would be limited.

Rob Dobson of Markit said:

The survey will do little to assuage fears of a triple-dip recession unless accompanied by an improvement in the services sector. A small gain in employment suggests that firms are less focused on cost reduction amid signs of improved order books, which should lead to further production growth in February.

Sterling’s weakness, plus indications of firmer demand in key export markets such as the eurozone, notably Germany, and emerging markets such as China should also help lift sales in coming months.

9.33am GMT

The growing gulf between France and Germany is particularly stark when you look at Markit’s output index.

9.26am GMT

Eurozone manufacutring turns a corner

And for the overall eurozone manufacturing PMI, the data shows factories in the region had their best month in nearly a year in January. The news prompted analysts to herald a turnaround in the currency bloc’s fortunes.

The PMI rose to an 11-month high of 47.9 from December’s 46.1, while the output index rose to a 10-month high of 48.7. Overall it suggests the downturn in manufacturing has passed its nadir.

Howard Archer of IHS Global Insight said:

The January manufacturing PMI adds to the mounting evidence that eurozone economic activity turned the corner late in 2012, although a further modest decline in manufacturing output remains possible in the first quarter of 2013 after an apparent sharp drop in production in the fourth quarter of 2012.

Manufacturers appear to be benefiting increasingly from a sustained easing of sovereign debt tensions (underpinned by the establishment of the European Central Bank’s Outright Monetary Transactions programme) reducing uncertainty and lifting business confidence. If this continues, businesses should become increasingly more prepared to place manufacturing orders that have been delayed or cancelled. It may also start to foster a pick-up in business investment.

9.22am GMT

Back to Rome, where our correspondent John Hooper says market complacency over the Italian elections could be misplaced.

The markets seem to take it as a given that Silvio Berlusconi cannot win the Italian general election campaign on February 24-25. Earlier this week, the government auctioned the latest batch of bonds at the lowest rates in more than two years.

The universal assumption seems to be that the centre-left, led by Pier Luigi Bersani, will top the poll and that, even if he fails to
get an outright majority in the upper house (where the system allows for a hung chamber), well there’s always good old Mario Monti with whom to form a coalition.

In fact, says the common investor wisdom, that would be even better. Monti could be finance minister (even though he has said that he won’t join any future government except as prime minister) and apply business-friendly liberal policies (even though Bersani’s coalition partner, Nichi Vendola, is dead against them).

Well, today, for the first time since the start of the Italian
election campaign, a poll was published showing Berlusconi’s alliance is less than five percentage points behind the centre-left. The man whose hesitancy and backsliding took the eurozone to the brink of disaster is on a roll.

As recently as January 13, the same pollster showed the gap between the two main coalitions was almost 12 points. If he were to continue to catch up at this rate over the rest of the campaign, by my calculations, he’d win by a comfortable 4% margin. That is still unlikely, but the odds on a near-tie are shortening (well, everywhere but in the markets).

What has made the difference? Whatever his faults as a steward of Italy’s debt-laden economy, Berlusconi is a campaigner of genius.

But the biggest factor seems to have been the scandal involving Italy’s biggest ‘red’ bank, Monte dei Paschi di Siena.
It may not help Berlusconi directly, but it does send disillusioned voters into the arms of the Five Star Movement, fronted by the ex-comedian Beppe Grillo whose central message is that all the traditional parties are the same – and equally corrupt. The effect can be seen here.

9.10am GMT

Greek manufacturing mired in three-and-a-half year slump

It was a very different story from Greece, where the factory sector remained mired in its more than three-year slump.

The Markit PMI for Greek manufacturing – which accounts for 15% of the economy – ticked up to 41.7 in January from 41.4 in December.

The fall in new orders came close to the worst reading in the survey’s history, which dates back to 1999.

Phil Smith at Markit said:

A new year failed to bring any evidence that Greece’s manufacturing sector might be heading for a recovery. January data suggested the downturn may worsen before it eases.

9.05am GMT

German PMI points to GDP growth

In a sign of the growing disparity between the eurozone’s two largest economies, data out of Germany suggests its economy is picking up again, after shrinking in the last quarter of 2012.

The German manufacturing PMI rose to 49.8 in January, from 46 the previous month. So the sector contracted very slightly but output and new business grew.

Tim Moore at Markit said:

Germany’s manufacturing sector saw a huge turnaround in momentum at the start of the year. A return to growth in manufacturing production is perhaps the strongest signal yet that Germany’s economy has already swung back into expansion after the fourth quarter drop in GDP.

9.00am GMT

French manufacturing slump deepens

But France’s data is dire. The French manufacturing PMI dropped to a four-month low of 42.9 in January, down from 44.6 in December.

New orders fell at the fastest pace since March 2009, when much of the world was mired in recession.

Jack Kennedy of Markit said:

The fact that new orders fell at the sharpest rate for nearly four years is a particularly concerning development and suggests further steep falls in output are likely as we progress throughout the first quarter. Confidence seems to have evaporated in the face of an increasingly uncertain economic environment, leading manufacturers to make sharper cuts to employment, purchasing and input stocks.

Manufacturing accounts fora botu 11% of France’s economy and has long been its weakest spot.

The data will fuel fears that France is set to be the eurozone’s next big casualty. As our economics editor Larry Elliott noted in this morning’s paper:

Should the eurozone crisis flare up again over the coming months, there is a real risk that its second biggest economy will be added to the list of countries where the public finances are deemed unsustainable.

8.53am GMT

Italian manufacturing sector improving

Over to Italy, where the factory sector continued to contract but again, at a slower pace. It was, in fact, its slowest pace since last March.

The Markit/ADACI PMI rose for the second month to 47.8 in January from 46.7 in December.

8.37am GMT

Swiss manufacutring grows on weaker franc

Back to the manufacturing, and now to the Swiss. Reuters reports:

Swiss manufacturing grew for the first time in 17 months in January, suggesting companies were benefitting from a fall in the franc’s value against the euro as hopes rise that the eurozone can ride out its debt crisis.

The Swiss PMI rose to a seasonally adjusted 52.5 points in January, from a revised 49.2 in December last year.

8.29am GMT

And for a brief respite from the manufacturing figures, there are troubling signs in Italy that Berlusconi is gaining in the polls just three weeks ahead of the elections.

We’ll have more on that shortly.

8.26am GMT

Spanish factory sector weak but could be worse

And over to Spain, where the news is (predictably) bleak but there are signs of improvement since December.

Spanish manufacturing activity declined for the 21st month in a row in January, but at the slowest pace since June 2011 thanks to a boost in overseas business.

The PMI came in at 46.1, still languishing below the 50 mark that separates growth from contraction but a significant improvement from December’s reading of 44.6.

Andrew Harker of Markit said:

The PMI data suggest that growth remains some way off, with the turning of the new year having provided little respite for firms.

New orders fell for the 21st consecutive month but at a slower pace. Markit said this reflected a surge in exports, while the domestic market continued to flounder. Harker again:

Higher exports are the one bright spot for the sector currently, but the recent rises have been insufficient to support a wider expansion.

8.13am GMT

Irish manufacturing shows sluggish growth

So to Ireland’s PMI, which showed growth in its manufacturing sector slipped to a nine-month low in January, as new orders contracted for the first time in a year.

Just to recap, the purchasing managers’ index summarises the opinions of purchasing managers in the sector, who gauge future demand and adjust orders for materials accordingly.

The Irish economy has been doing better since its bailout from the EU, IMF and ECB, but the recovery remains fragile.

The NCB manufacturing PMI dropped to 50.3 in January from 51.4 in December last year.

Philip O’Sullivan at NCB Stockbrokers said:

While output remains in postivie territory and new export orders grew for a foruth successive month, other areas showed signs of weakness. Tying it all together… today’s release points to a sluggish start to 2013.

8.06am GMT

US extends debt ceiling… again

It seems it’s not only European policymakers who like to kick the can down the road. Last night, the US senate passed a bill to extend the debt ceiling by three months to May 19th.

AA Stocks Financial News reports:

The US Senate gave its green light to holding the country’s debt ceiling unchanged temporarily and the bill will be endorsed by President Barack Obama. The approval meant the US government can avert default at least for a short while.

The Senate agreed to keep the debt ceiling unchanged at US$16.4 trillion for three more months through May 19, which will enable the government to continue borrowing money for spending.

8.01am GMT

China’s factory sector looks ‘shaky’

There were some mixed messages out of China overnight.

Government data showed its vast factory sector grew slower-than-expected in January.

The official purchasing managers’ index came in at 50.4, down from December’s 50.6 and short of forecasts for a nine-month high of 50.9. The reading is also edging closer to the 50 mark that separates contraction from expansion.

But, the HSBC PMI, which is also closely-watched, rose to a two-year high of 52.3.

Overall, the data suggests China’s vast factory sector managed only a weak rebound at the start of the year, as feeble foreign demand dragged on sales. Alistair Thornton at IHS Global Insight in Beijing said:

January’s PMI does raise some red flags about the state of the economy. Things look a little shaky.

8.01am GMT

Today’s agenda…

… is full.

  • China manufacturing PMI (January): 1am
  • Ireland manufacturing PMI (January): 6.58am
  • Spain manufacturing PMI (January): 8.13am
  • Switzerland manufacturing PMI (January): 8.30am
  • Italy manufacturing PMI (January): 8.43am
  • France manufacturing PMI (January): 8.48am
  • Germany manufacturing PMI (January): 8.53am
  • Eurozone manufacturing PMI (January): 8.58am
  • Greece manufacturing PMI (January): 8.58am
  • Italy unemployment (December): 9am
  • UK manufacturing PMI (January): 9.28am
  • Eurozone CPI (January): 10am
  • Eurozone unemployment (December): 10am
  • US non-farm payrolls (January): 1.30pm
  • US manufacturing PMI (January): 1.58pm
  • US ISM manufacturing (January): 3pm

7.40am GMT

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

We are going to be deluged with data today, giving us an idea of the state of the manufacturing sector in Europe, and the unemployment situation in the eurozone and the US.

Fears are that the jobless crisis in the currency bloc will worsen, while the US jobs market is expected to stay roughly the same.

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Economists warn that the continued rise in public borrowing has put Britain’s triple-A rating under threat. Global jobless to hit record 200m this year. Bank of Japan introduces inflation target of 2% and promises open ended QE to start in January 2014…



Powered by Guardian.co.ukThis article titled “UK credit rating under threat as borrowing rises again – eurozone crisis live” was written by Josephine Moulds and Nick Fletcher, for guardian.co.uk on Tuesday 22nd January 2013 15.19 UTC

3.15pm GMT

Spanish bond success eases pressure for bailout request

Spain’s successful 10-year bond (see below) eases the pressure on the country to seek a bailout. Annalisa Piazza at Newedge Strategy said:

After yesterday’s Eurogroup meeting (that somehow remained supportive on Spain) and cross-country spreads remaining under control since the start of the year, we have seen increasing speculation that Spain could possibly be able to avoid the request of a credit line to the ESM.

We still see risks for Spain in the coming months as a deeper than expected recession in 2013 would completely offset the positive effects of the fiscal consolidation process.

However, the request for aid doesn’t seem to be so imminent as expected.

Updated at 3.19pm GMT

3.07pm GMT

US existing home sales fall unexpectedly

Away from Europe, a blip in the US housing market recovery. Existing home sales unexpectedly fell by 1% in December to an annual rate of 4.94m units.

This was below the 5.1m forecast, as many Americans decided not to put their houses on the market since they were worth less than the value of their mortgage.

But despite that, the December figure was still the highest rate of sales since November 2009.

Updated at 3.11pm GMT

2.57pm GMT

EU ministers will again be tackling the thorny issue of its budget next month, according to the president of the European Council.

2.50pm GMT

Looks like things could have been stirred up by this morning’s spate of market rumours, which included speculation about the resignation of the Bundesbank head – swiftly denied as “utter garbage” – and a possible profit warning from Deutsche Bank.

Updated at 2.50pm GMT

2.15pm GMT

Confidence boost for Spain after wildly successful bond sale

And sticking with the debt markets, there has been a huge amount of demand for a new 10-year Spanish government bond.

Spain’s economy minister Luis de Guindos said demand was unprecedented, with investors putting in orders for a total of €24bn bonds; while bank desks said demand reached around €17bn.

In the end, Spain reduced the interest rate it was willing to pay on the bonds because of the huge flood of demand. But still it chose only to sell €7bn of bonds to leave appetite in the market.

Spain sold the bond via a syndicate of banks, rather than a public auction. This shows a renewed confidence from the country, as it gets to set price in a syndicated bond, rather than taking whatever price investors offer in an auction.

Final pricing of the bond was a spread of midswaps plus 365bp. That’s around 0.1% higher than current yields on Spanish 10-year bonds in the secondary market.

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

Updated at 2.45pm GMT

1.50pm GMT

Ireland could apply for ECB support in bond market

Back to Brussels, where Irish finance minister Michael Noonan has said Ireland could apply for support from the European Central Bank’s bond-buying programme – the outright monetary transactions – but only after it has completed two-longer-term bond issues.

There is no inhibition on Ireland applying for OMT, but we would need to be fully back in the market first.

European commissioner Olli Rehn said the EC was working on a series of options to help Ireland and Portugal return to the markets and that the OMT was one possibility.

1.41pm GMT

Germany and France to propose deeper economic union

Meanwhile, German chancellor Angela Merkel and French president Francois Hollande have given a joint press conference in Berlin, where they said they would put forward proposals for a deeper economic and monetary union later this year. Merkel said:

France and Germany together want, by May, to put forward proposals – in preparation for the June European Council – for the stabilisation and deepending of the economic and monetary union. It is about a deeper cooperation in economic policy with the goal of social security, employment, growth and financial stability.

Updated at 1.45pm GMT

1.32pm GMT

Already the reaction the approval of the financial transaction tax (see below) is coming in.

Predictably the UK business group the CBI bemoans the move to levy trading at banks and calls for it to be limited to the eurozone countries.

Matthew Fell of the CBI said:

The UK government is right to reject a Financial Transaction Tax as damaging for jobs and growth. It is disappointing that eurozone economies are pursuing the FTT, whose costs ultimately fall on consumers and businesses, and will be a drag on the eurozone recovery. This tax must not impinge on non-participating member states by including extra-territorial reach into financial services activity conducted in the UK. As the UK’s largest single trading partner, a healthy European economy is in everyone’s interests so we urge participating member states to reconsider this tax.

But Danish MEP and Green economic affairs spokesperson said the European Commission must quickly follow up with a detailed proposal, so that the scheme can be implemented as soon as possible.

The Greens call on the Commission to present an ambitious proposal. It should cover not only shares but also bonds and derivatives, and there should be no exemption for pension funds. The FTT should also include provisions on an ‘issuance principle’, whereby financial institutions located outside of the participating states would also be obliged to pay the FTT if they traded securities originally issued within the EU. This will also make it more attractive for other member states outside the initial 11 to join.

1.28pm GMT

European finance ministers approved the financial transaction tax, despite fierce opposition from business groups. My colleague Phillip Inman reports (in a story soon to be up online):

EU finance ministers gave their approval at a meeting in Brussels, allowing 11 states to pursue a levy on financial transactions. The UK abstained in the vote alongside Luxembourg and the Czech Republic.

Eleven countries won the EU’s backing for a financial transaction tax (FTT), with Germany, France, Italy and Spain adding their names to eurozone neighbours Austria, Portugal, Belgium, Estonia, Greece, Slovakia and Slovenia.

The levy, which could raise as much as €35bn euros a year for the 11 countries according to one EU official, is held up as a way to restrict the exuberance of investment banks in times of economic growth.

A tax would raise the costs of individual trades, many of which economists suspect are carried out by banks to extract commission and fees from fund managers that handle large scale pension fund assets.

Opinion is divided over whether banks would continue to trade at current levels and pay the tax or cut back on the number of trades, potentially saving pension schemes millions of pounds.
Algirdas Semeta, the European commissioner in charge of tax policy, said: “This is a major milestone in tax history.”

12.32pm GMT

EU gives go ahead for Robin Hood tax

As expected, the EU finance ministers have given the go-ahead for the financial transactions tax – the so-called Robin Hood tax – for 11 eurozone countries including Germany and France.

12.06pm GMT

Lunchtime round-up

So, for a quick lunchtime round-up…

The UK’s triple-A rating is under threat as borrowing continues to rise, warn economists (see 10.28am)

The global jobless total will hit 202m this year, says the ILO (see 8.09am and onwards)

The Bank of Japan has introduced an inflation target, under pressure from the new prime minister (see 9.13am and more here)

Economic sentiment in Germany has hit a two-and-a-half year high (see 10.13am)

12.00pm GMT

Greek government threatens striking metro workers

Over to Greece, where the government has indicated that it could force striking metro staff back to work, as their prolonged walkout causes traffic chaos. Our correspondent Helena Smith reports:

With metro workers digging in their heels six days after they walked off the job, Greece’s governing coalition issued its strongest warning yet saying “there are limits” to strike action.

The walkout – the longest since the inauguration of the urban transit network in the 90s – has caused gridlock in the capital, prompting fury among Greeks. The front-page headline in today’s Ta Nea encapsulates rising passions: “1.5 million hostages on the roads of Athens” it said of the worsening traffic chaos.

Workers are protesting against collective work agreements in the civil service that the EU and IMF have demanded in exchange for emergency aid. But state-run TV channel NET insisted today that only “a minority” of the metro’s 1,300-strong staff were behind the action.

Quoting government sources, it said the government would not back down and showed the development and transport minister Kostis Hadzidakis saying: “I’m afraid the ways things are developing there is no respect for rules or limits …
what we are seeing is a minority who is threatening and a majority who are paying [the price].”

Hinting that staff would be forced to go back to work under court order, the normally mild-mannered politician warned “this will be brought under control”.

Despite courts determining their action to be “illegal and abusive”, unionists vowed to continue the strike saying their action was as much motivated by disagreement over economic reforms as the “acute heart attacks” two co-workers had suffered as a result of the transport minister’s threats.

11.50am GMT

UK manufacturing could be past its worst – economist

Back in the UK, the CBI industrial trends survey was a mixed bag. Orders (particularly export orders) fell in January but expectations for near-term output and employment improved.

Howard Archer at IHS Global Insight said:

 The overall impression is that the manufacturing sector may be past the worst after a pretty torrid 2012, but it still has its work cut out to return to sustainable growth in the face of ongoing challenging domestic and international conditions.

Signs that eurozone activity may have bottomed out around October and the recent appreciable easing of the region’s sovereign debt tensions does offer some hope for UK manufacturing exports. In addition, sterling’s recent retreat, particularly against the euro, will be largely welcomed by UK manufacturers as it should boost their competitiveness.

Taking a look at the actual numbers, the total order book balance fell back to -20% in January from -12% in December, driven by a sharp drop in export orders.

Despite that, the balance of manufacturers expecting to increase their output over the next three months climbed to 8% in January from zero in December and -9% in November.

Updated at 11.50am GMT

11.42am GMT

EU finance chiefs likely to approve Robin Hood tax

As the pictures come in from the meeting of the 27 EU finance ministers, it’s worth looking at the so-called Robin Hood tax that they have been talking about this morning.

This is the proposed levy on trading, known as the financial transactions tax, that Britain has so vehemently opposed. But reports suggest the 27 EU finance ministers will today approve it for the eurozone. Austrian Finance Minister Maria Fekter said before the meeting:

I expect that we will receive this authorisation today. This is the precondition for setting such a cooperation into motion.

We already know that Britain will abstain from the vote and Reuters is reporting that other countries have expressed concern about the impact on states that do not join the scheme.

Trading in London – Europe’s biggest financial centre – for example, will be affected, as the levy can be imposed regardless of where the transaction takes place if either the buyer or seller is based in one of the countries imposing the tax.

Updated at 11.58am GMT

11.10am GMT

Irish politicians welcome delay to EU loan repayment

But Ireland’s politicians were sounding a more positive note this morning, after the EU gave the country more time to repay its loans. Our correspondent Henry McDonald reports:

Irish finance minister Michael Noonan has said that the EU’s decision to give the Republic more time to repay its loans will boost confidence in the global markets.

Welcoming today’s decision in Brussels to extend the maturity of the rescue loans to Ireland and potentially lowering cost of the multi-billion euro bailout for Dublin, Noonan said: “We’re not talking about hundreds of millions, we’re talking about savings of a certain amount of billions. We’d have to quantify that when the work is done on it. We’re not talking about huge amounts of money, we’re talking about a significant amount.”

Noonan’s Cabinet colleague, the deputy prime minister Eamon Gilmore, however warned that “time is running out” for Ireland to get a deal on its banking debt from the country’s European partners.

The Republic is due to pay a crippling €3.1bn for the cost of rescuing the bank that nearly bankrupted the country – the Anglo Irish Bank.

Noonan, Gilmore and the taoiseach Enda Kenny have themselves banked their reputations on persuading the rest of the EU to shoulder some of the burden of the cost of rescuing Anglo. “We are now at a critical stage of the discussions with the [European Central Bank] on the promissory note,” said Gilmore. The ‘promissory note’ is Ireland’s IOU to Europe in respect to that part of the emergency loans that rescued Irish banks.

11.03am GMT

Over in Ireland, meanwhile, there are clear signs of the country’s ongoing unemployment problem. Simona Zudyte reports:

Seven days after staff denied it was shutting, the HMV store on Dublin’s Grafton Street confirms it is closing its doors for the last time. Even on Ireland’s premier shopping thoroughfare, here are signs of Ireland’s inability to curb its increasing unemployment, which is close to 15%.

10.56am GMT

Back in the UK, Labour have pounced on the poor public finance data (see 9.44am) as evidence that chancellor George Osborne’s Plan A is not working. Labour’s shadow chief secretary to the Treasury, Rachel Reeves, said:

David Cameron and George Osborne’s … failure on jobs and growth means they are now failing on the one test they set themselves – to get the deficit and debt down.
Borrowing is rising and is over £7bn higher than at the same point last year. And this is borrowing to pay for economic failure as a flat-lining economy and rising long-term unemployment have sent the welfare bill soaring and tax revenues have been revised down.
By squeezing families and businesses too hard, choking off the recovery and so pushing borrowing up not down, the government’s economic policies have badly backfired. But David Cameron and George Osborne have decided that millions of working families will pay the price with further cuts to tax credits and benefits while millionaires get a tax cut.

10.51am GMT

Cyprus could derail progress in eurozone – ECB’s Asmussen

Meanwhile, ECB board member Joerg Asmussen has said that problems in Cyprus could derail the fragile recovery in the eurozone. He said to Reuters:

Disorderly developments in Cyprus could undermine progress made in 2012 in stabilising the euro area. Cyprus could well be systemic for the rest of the euro area despite its size.

Cyprus’s economy represents just 0.2% of eurozone GDP and some states say it is not systemically relevant and therefore is not in need of a bailout. Asmussen clearly disagrees.

Under normal circumstances one would expect the direct impact of a default to be limited, and it’s obvious that without assistance [Cyprus] will default.

At the same time we should recognise that the situation is not normal. Even though the promise of the OMT and other important decisions have calmed the markets, this siutation is still fragile.

Updated at 10.52am GMT

10.28am GMT

UK to lose triple-A rating, say economists

Britain will lose its triple-A rating this year, says Rob Wood at Berenberg Bank, after public finance data showed chancellor George Osborne’s attempts to cut the deficit are failing. (see 9.44am)

The fiscal position is likely to drift further off course as the UK veers towards a triple-drip recession. There is only so long that the Chancellor’s combination of smoke and mirrors and optimistic growth assumptions can disguise the problem. The UK will probably lose its AAA credit rating this year with at least one rating agency.

James Knightley at ING notes that tax receipts are down, as the economy continues to flat-line and austerity fails.

The disappointment has come from the tax side mainly, with income tax revenues, corporation tax revenues and VAT revenues all down on the same period for financial year 2011/12. This highlights the weak state of the UK economy and the fact that austerity measures are failing to generate the improvement in government finances that were hoped for.

He too asks, how long can the UK can hold onto its AAA status?

With the US and France having been downgraded by one ratings agency in the past couple of years, another disappointing UK borrowing number and a widely expected contraction in 4Q12 GDP on Friday will intensify the threat of the UK suffering the same fate.

Howard Archer of IHS Global Insight says a downgrade would be humiliating for Osborne but would not have a great impact on the economy.

The loss of the UK’s AAA rating would clearly be seen as an embarrassment for the government given the emphasis it has frequently placed in the past on keeping the AAA rating. Indeed, Chancellor George Osborne made it a key focus for the UK’s fiscal austerity prioritization as soon as the government came to power in the summer of 2010.

However, we suspect that the loss of the AAA rating would have only limited negative impact for the UK economy. There are so few countries left now with a AAA rating, that to lose it would not be the stigma or major threat to market confidence that it would have been say a couple of years ago.

Updated at 10.28am GMT

10.13am GMT

Investor sentiment in Germany hits two-and-a-half year high

Germany’s confidence survey looks good, showing analyst and investor sentiment in the country rose sharply in January to hit its highest level since May 2010.

The ZEW index hit 31.5 for January, compared with 6.9 in December, and smashing through analyst forecasts of a reading of 12.

The report said sentiment had improved as the uncertainty over Europe had diminished. But the economic situation of important trade partners for Germany was still considered to be weak.

Overall economic perspectives for Germany over the next six months have brightened. And this boost in sentiment could soon result in companies investing more.

9.44am GMT

UK public borrowing rises as spending outstrips income

Back to the UK, where public finances continue to look pretty bad. The government borrowed (slightly) more than expected in December and spending grew faster than income.

So chancellor George Osborne continues to fail in his attempt to bring the budget deficit down.

Public sector net borrowing (excluding the impact of bank bailouts) – the government’s preferred measure – rose last month to 15.4bn, compared with 14.8bn in December 2011. Government receipts rose 3.6% on the year, while spending grew by 5.4%.

We’ll have reaction to those figures coming in shortly.

9.29am GMT

Weidmann resigning rumour DENIED

Apologies, it appears the rumour that Jens Weidmann was quitting as governor of the German central bank was unfounded. The Bundesbank press office has denied it fairly robustly. A press officer said:

This is totally utterly nonsense. I don’t know why you believe all these things on Twitter. He is right now in the weekly board meeting of the Bundesbank. He really enjoys his job.

Updated at 11.58am GMT

9.25am GMT

Rumours fly that Bundesbank’s Jens Weidmann could resign

While this is very much rumour and speculation at this stage, financial broker Abshire-Smith says there is talk in the market that the Bundesbank’s Jens Weidmann could step down.

That would be huge news for the eurozone, where Weidmann is often the only dissenting voice.

Updated at 9.33am GMT

9.18am GMT

The moves by the Japanese government to influence the Bank of Japan will trouble central bankers around the world. Jens Weidmann, governor of Germany’s Bundesbank yesterday warned of the dangers of bringing politics into central bank decisions (see 7.55am).

9.13am GMT

Bank of Japan introduces inflation target of 2%

Also overnight, the Bank of Japan has bowed to pressure from new prime minister Shinzo Abe and agreed to introduce an inflation target of 2%, in a bid to boost the economy.

In a joint statement with the government, the Bank of Japan said it would aim for a 2% annual increase in the nation’s consumer price index and take additional steps for monetary easing to achieve that goal, including “open-ended” central bank asset purchases similar to the strategy followed by the US Federal Reserve.

Japan’s economy has been plagued with debilitating deflation since the late 1990s – an all-round fall in prices, profit and incomes. But the promise of monetary easing has already weakened the yen, in a boon to the competitiveness of exporters, which make up much of Japan’s growth.

8.39am GMT

ILO urges governments to ease austerity

Having laid bare the jobless crisis around the world (see below), the ILO urged governments to ease austerity, which it said has made the global economic crisis much worse.

Austerity measures and uncoordinated attempts to promote
competitiveness in several European countries have increased the risk of a deflationary spiral of lower wages, weaker consumption and faltering global demand. In light of the global jobs and consumption deficit, countries should adapt the pace of their fiscal consolidation to the underlying strength of the economy and recognise that short-term stimulus may be needed to grow out of debt burdens.

Updated at 11.55am GMT

8.27am GMT

The true extent of the unemployment crisis is masked by a growing number of people dropping out of the jobs market altogether, the ILO said in its relentlessly gloomy report (see posts below).

That problem is particularly severe in the European Union, it said, where long-term unemployment and a weak economic outlook has discouraged people from looking for jobs.

Looking ahead, the ILO said, the global number of unemployed is expected to rise further to almost 211m over the next five years.

8.20am GMT

Global youth unemployment hits 12.6%

Youth unemployment, which is more than 50% in Spain and Greece, is a particular concern, the ILO said.

Globally, the youth unemployment rate – which had already increased to 12.6 per cent in 2012 – is expected to increase to 12.9 per cent by 2017.

The crisis has dramatically diminished the labour market prospects for young people, as many experience long-term unemployment right from the start of their labour market entry, a situation that was never observed during earlier cyclical downturns.

Some 35% of all young unemployed people have been out of a job for six months or longer in advanced economies, up from 28.5% per cent in 2007. It said:

Such long spells of unemployment and discouragement early on in a person’s career also damage long-term prospects, as professional and social skills erode and valuable on-the-job experience is not built up.

In Europe, this problem is particularly severe and the ILO estimates that 12.7% of all young Europeans are neither employed nor in education or training (almost 2 percentage points higher than at the start of the crisis).

Updated at 11.53am GMT

8.09am GMT

Recession in Europe pushes global jobless to 202m this year

The global jobless total will rise to a record 202m this year, says the UN’s jobs watchdog, the International Labour Organisation.

In a report released overnight, the ILO said there were some 197m people without a job in 2012. While almost 40m people had dropped out of the jobs market altogether as job prospects proved unattainable. The jobless total will rise by 5.1m this year and another 3m next, it predicts.

It says the recession in the eurozone has spilled over globally, primarily because of a decline in international trade.

Entering 2013, the crisis in the Euro area constitutes the single biggest risk to global employment trends for the year ahead. The financial crisis in the Euro area, brought on by a combination of banking sector distress and protracted financial and household deleveraging, coupled with high levels of sovereign debt and unsustainably high government bond yields in some countries, has emerged as a disruptive and destabilizing force not only in the Euro area itself, but also for the global economy as a whole.

And, in very strong language for such a report, the ILO lays the blame for the crisis squarely at the feet of ‘indecisive’ policymakers.

Incoherence between monetary and fiscal policies adopted in different countries and a piecemeal approach to financial sector and sovereign debt problems, in particular in the Euro area, have led to uncertainty weighing on the global outlook. Investment has not yet recovered to pre-crisis levels in many countries.

The indecision of policy-makers in several countries has led to uncertainty about future conditions and reinforced corporate tendencies to increase cash holdings or pay dividends rather than expand capacity and hire new workers.

Updated at 11.52am GMT

7.55am GMT

Bundesbank warns of currency war risk

Germany’s central banker Jens Weidmann has warned of the risk of currency wars as exchange rates become ever more politicised, writes the FT this morning.

Michael Steen in Frankfurt reports:

The erosion of central bank independence around the world threatens to unleash a round of competitive exchange rate devaluations, which leading economies have so far avoided during the financial crisis, the president of Germany’s Bundesbank warned on Monday.

Jens Weidmann, whose institution’s own fierce independence from political influence was the model for the European Central Bank when it was founded, said Stephen King, the chief economist at HSBC, was “perhaps right” in forecasting an end to the era of central bank independence.

“It is already possible to observe alarming infringements, for example in Hungary or in Japan, where the new government is massively involving itself in the affairs of the central bank, is emphatically demanding an even more aggressive monetary policy and is threatening an end to central bank autonomy,” Mr Weidmann said in a speech in Frankfurt.

“Whether intended or not, one consequence could be the increased politicisation of the exchange rate,” he said, according to a text of his speech provided by the Bundesbank. “Until now the international monetary system got through the crisis without competitive devaluations and I hope very much it stays that way.”

7.45am GMT

Today’s agenda

Merkel and Hollande will today be attending an event to commemorate the 50th anniversary of the Elysée Treaty, which normalised relations between Germany and France after the second world war. Also , the finance ministers of the 27 EU member states meet in Brussels this morning.

  • EU 27 finance ministers meet: 8am
  • UK public finances (December): 9.30am
  • Germany ZEW survey (January): 10am
  • CBI trends (January): 11am
  • Google, La Stampa, La7 briefing on Italian elections: 11am
  • Merkel, Hollande and EU’s Schulz at Elysee treaty event: 1.15pm
  • ECB’s Nowotny in discussion in Vienna: 4pm
  • ECB’s Draghi speaks in Frankfurt: 6pm
  • Bank of England’s King speaks at CBI Northern Ireland dinner: 7.45pm

Updated at 11.49am GMT

7.35am GMT

Good morning and welcome to our rolling coverage of the eurozone crisis. Overnight the International Labour Organisation put out a sobering report on global unemployment, which it expects to reach record highs this year. More on that shortly.

Later today we’ve got public finances data out for the UK, and an economic confidence survey in Germany. We’ll have details of those and all the latest developments in the eurozone and beyond, throughout the day.

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Dutch finance minister Jeroen Dijsselbloem is expected to be named next head of the Eurogroup in the last meeting of the eurozone finance ministers chaired by Chairman Jean Claude Juncker. British membership of the EU could be put at risk…



Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Finance chiefs vote in new leader as Juncker bows out” was written by Josephine Moulds and Nick Fletcher, for guardian.co.uk on Monday 21st January 2013 15.57 UTC

3.50pm GMT

We’d mentioned that there could be trouble over any proposals for direct bank recapitalisations by the European Stability Mechanism. The Germans for one are not keen on bailing out banks directly. Now comes this:

3.47pm GMT

We’re starting to get some pictures through of ministers arriving at the Eurogroup meeting.

First off, almost inevitably, is the man of the moment, the soon to be inaugurated new head of the Eurogroup,

Here’s a link to video of some of the arrivals.

Updated at 3.57pm GMT

3.30pm GMT

Dijsselbloem wants to focus on longer term, not continually firefighting

Dutch finance minister Jeroen Dijsselbloem wants to move away from firefighting one crisis after another if (when) he becomes head of the Eurogroup.

In a letter to eurozone colleagues he said he wanted to concentrate on longer term policies. Reuters reports:

Dijsselbloem said he would push to be invited to meetings of finance ministers and central bankers from the world’s 20 biggest economies, the G20.

The Dutch minister, who only took his national post three months ago, said the euro zone should continue with reforms and fiscal consolidation that have pleased investors.

“We now need to keep the momentum going, to ensure we retain the confidence we managed to regain in a lasting manner,” he said. “Our focus needs to shift from crisis management to delivering and implementing sound medium-term policies.”

He also reportedly confirmed Cyprus will be discussed today and next month, but as we have previously reported, there is no expectation the country will receive a bailout until at least March.

Updated at 3.43pm GMT

2.46pm GMT

Back to Italian finance minister Grilli, who has told the European parliament’s Committee on Economic and Monetary Affairs that Italy will not need any budget cuts this year.

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

Updated at 3.15pm GMT

2.41pm GMT

Eurogroup storm brewing over bank recaps

Meanwhile, the French finance minister Pierre Moscovici has said direct bank recapitalisations by the European Stability Mechanism must be a priority.

That should make the Eurogroup meeting interesting, at least. Germany, for one, is very wary of bailing out eurozone banks directly.

2.35pm GMT

Italy will grow by more than 1% from 2014

Italian finance minister Vittorio Grilli says confidence is growing in the eurozone.

Speaking to the the Committee on Economic and Monetary Affairs at the European parliament, Grilli says Italian GDP growth will be more than 1% from 2014. The Italian economy shrank by 2.4% in 2012, he says.

The finance minister, who will be going to the Eurogroup meeting later today, also says reforms are politically and socially difficult.

Updated at 2.44pm GMT

2.16pm GMT

Juncker’s successor must have “very big ears”

Jean Claude Juncker, outgoing chair of the Eurogroup, was on fine form as he prepared to chair his final meeting of the eurozone finance chiefs.

After eight years in the job, Juncker said his successor “must have big ears”. Not sure if that rules out the only candidate Jeroen Dijsselbloem, whose luxurious head of hair rather covers up his ears.

His point was serious though, he said in an interview with Swiss newspaper Neue Zuercher Zeitung that his successor must have a feel for the problems of all of the countries in the currency bloc.

One piece of advice I would give him is that he must have particularly big ears. Even though it is existentially necessary, it is not enough to very seriously consider the statements of larger euro countries. One must also have a feeling for the very diverse sensitivities of all euro member states.

Juncker reiterated the fact that no decision would be made on Cyprus today, and the country would not get a bailout until March.

And, if Twitter is to be believed (which in this case we think it is), he had a whimsical parting note for the Eurogroup.

Updated at 2.18pm GMT

12.17pm GMT

Valencian government acquires Valencia football club

More from Spain, where our correspondent Giles Tremlett reports that the crisis-hit regional government of Valencia has become the proud owners of a football club. He writes:

The corruption-hit regional government of Valencia has long been held up as one of the worst examples of an overstretched Spanish administration unable to control its own finances after wasting money on white elephants like the famously unused new airport at Castellón.

Now the cash-strapped region has added first division football club Valencia C.F. to its list of publicly owned entities.

With local health and education services hit by austerity programmes, the region’s takeover of Valencia has provoked fury. But it became inevitable after the club defaulted on an €86m loan that had been given to it after the regional government offered to stand as guarantor.

Providing guarantees for the club’s loans was just one of the populist measures carried out by a government that has long been run by Spanish prime minister Mariano Rajoy’s People’s party (PP). Nor was it the only club to benefit. It already part owns two local second division clubs, Elche and Hercules, that also failed to pay back loans.

Valencia is one of the four (out of 17) Spanish regions thought to have doubled the government-imposed budget deficit target of 1.5% of regional GDP last year, according to the Fedea think tank. It is also one of the most indebted, owing about 25% of local GDP according to the Bank of Spain.

It was the first region to ask for bailout money from central government in July when it requested €2.5bn to help it get through 2012. It is expected to ask for more money this year.

Amongst other measures designed to reduce its deficit, the region has pledged to sell off the myriad of public companies it owns. Valencia football club – until recently seen as one of the few teams able to challenge Barcelona and Real Madrid – is now one of them.

The region’s ownership of the club got off to a bad start last night when Real Madrid demolished Valencia 5-0 in the La Liga match in Estadio Mestalla.

Updated at 12.57pm GMT

12.14pm GMT

FT not backing Berlusconi – editor

The Financial Times is NOT backing Berlusconi in the upcoming Italian elections, according to a tweet from the paper’s editor.

Barber was forced to put the tweet out after a column from Wolfgang Münchau saying the current prime minister was not the right man to lead Italy. To be fair to Münchau, he does not then come out in favour of Berlusconi, but you can see where the confusion springs from. Münchau writes:

On the right, the alliance of Mr Berlusconi and the Northern League has been behind in the polls but is making advances. So far, the former prime minister has had a good campaign. He has delivered an anti-austerity message that has struck a chord with a disillusioned electorate. He also keeps criticising Germany for its reluctance to accept a eurozone bond and to allow the ECB to buy Italian bonds unconditionally.

You could interpret this as [the following] stance: insist on symmetrical adjustment or get out.

But, crucially, he goes on to say:

We know Mr Berlusconi only too well, however. He was a prime minister for long enough to have shaped such a debate much earlier. To become credible, he must produce a clear strategy that maps out the choices in detail. All we have now are television soundbites.

Where the FT stands on the Italian elections is not yet clear. But we can be pretty sure it is not behind the colourful character that is Berlusconi.

Updated at 12.33pm GMT

11.59am GMT

Cameron to give speech on Europe on Wednesday

And we’ve got confirmation that David Cameron’s speech on Europe will take place in London on Wednesday morning. Just to recap, Cameron delayed the speech on Friday, after abandoning a trip to the Netherlands to deal with the Algerian hostage crisis.

The prime minister had been due to warn his fellow European leaders that British membership of the EU could be put at risk unless its membership terms are changed. We already have an idea of what he is going to say, as some of the speech was leaked last week. So we can expect the following quotes:

If we don’t address these challenges, the danger is that Europe will fail and the British people will drift towards the exit. There is a growing frustration that the EU is seen as something that is done to people rather than acting on their behalf. And this is being intensified by the very solutions required to resolve the economic problems.

People are increasingly frustrated that decisions taken further and further away from them mean their living standards are slashed through enforced austerity or their taxes are used to bail out governments on the other side of the continent.

11.42am GMT

Iceland’s finance minister wants to adopt euro

Iceland needs to join the euro for an economic boost, says the country’s finance minister. Katrin Juliusdottir said to Reuters:

We need to be a member. We would be a sovereign nation working with other sovereign nations on our future, working together to raise the standard of living.

She said a referendum on joining the EU could be held as early as the autumn of 2014. Charles Duxbury reports:

Iceland applied to join the EU at the height of a financial crisis that struck after the country’s three main banks failed holding assets of nine times Iceland’s economic output. But as the situation on the North Atlantic island has stabilized, enthusiasm among its 320,000 residents about Europe has waned.

Opposition parties say joining the EU would mean giving up too much control over important domestic matters such as the vital fishing industry, which accounts for 40% of the country’s exports. Ms. Juliusdottir disagrees.

The news has prompted some raised eyebrows on Twitter.

11.27am GMT

Fake Portuguese economist unmasked

And to some lighter news out of Portugal, where a fake economist duped the nation for months. Our correspondent Giles Tremlett reports:

Artur Baptista da Silva had become one of the most authoritative voices on Portuguese television, using his experience as an economist and United Nations consultant to explain why so much austerity was bad for the bailed-out country’s economy.

But now it turns out that the 61-year-old economist who explained so seriously – and clearly – the damage being inflicted on the country by the austerity measures demanded by the troika of lenders (EU, IMF and ECB) was a conman with at least two jail terms behind him.

The fake economist earnestly debated with journalists and other experts on television shows, claiming that the European Union has become a farce.

Baptista da Silva became so popular that he was invited to talk to the socialist party’s summer school and some of the country’s most prestigious debating societies. He claimed to have been a professor at a now defunct US university and to have worked with the World Bank.

“He said what people wanted to hear,” explained Antonio Costa, editor of the Diario Economico newspaper. That may explain why fans have now launched Facebook groups supporting him, including one called “I worked at the United Nations with Baptista da Silva.”

11.22am GMT

Sterling at 10-month low against euro

It’s worth watching the pound this weak, ahead of GDP data, which many expect to show the UK economy shrank in the last three months of 2012.

Sterling hit a 10-month low against the euro last night as traders got ready for the economic releases out this week, including public sector borrowing tomorrow, Bank of England minutes on Wednesday and, of course, GDP on Friday.

Andy Scott at foreign currency exchange brokers HiFX said:

Sterling appears to have fallen firmly out of favour in recent months as an alternative to the Euro with investors clearly a lot less fearful of the Eurozone’s risks. Talk of a break up or countries exiting the Euro has all but ceased and Spanish and Italian borrowing costs have dropped dramatically to levels seen as sustainable.

With the [UK] government struggling to meet their deficit reduction target and the economy failing to maintain any growth, the economic situation remains a huge concern and this is manifesting itself in a weaker pound. With the potential for credit ratings downgrades and more quantitative easing from the Bank of England with the economy faltering, it’s unlikely there’ll be a resurgence of buying interest in the Pound any time soon.

Updated at 12.45pm GMT

10.51am GMT

Meanwhile, there’s more protests in Greece. Ekathimerini reports that farmers in Thessaly, in the centre of the country, have launched protests against the government’s new tax law and policy on agricultural subsidies.

Farmers began parking their tractors in town squares from Sunday and are demanding a meeting Agricultural Development Minister Athanasios Tsaftaris.

10.41am GMT

Ireland set to grow by 1.8% this year

Some brighter news out of Dublin from our correspondent Henry McDonald. He writes:

Ireland’s version of the CBI has predicted Irish economic growth of 1.8% this year, which is slightly ahead of the Dublin government’s own forecast.

IBEC notes that the Irish economy grew by 1.2% in 2011 making it the second fastest growing EU economy albeit in a sluggish eurozone.

The employers’ organisation believes there will be a slight increased in consumer demand at home in 2013. IBEC said that if Taoiseach Enda Kenny secures a deal on Irish IOU’s on its bank debts – the socalled Promissory Notes – that this might boost confidence and help the flagging domestic economy.

Six out of ten Irish employers in an IBEC survey of firms report that they will again free pay to 2012 levels as they try to regain competitiveness. However, IBEC in its forecast sees no dramatic drop in Irish unemployment rates this year with nearly 15% of the workforce still on the dole.

10.32am GMT

Latest news on the pronunciation of Dijsselbloem. In the comments below, ProEurope suggests we say “die-sell-bloom”, rather than “day-sell-bloom”. While a Dutch Guardian reader says:

As close as I can: daai-sol-bloom or dy-sol-bloom. The Dutch ‘ij’ sound hangs between ‘y’ as in ‘why’ and ‘phonetically’ ‘aai’.

Updated at 12.39pm GMT

10.20am GMT

Bomb blast in Athens prompts fears of escalating violence

Over to Greece, where our correspondent Helena Smith says fears of political violence are mounting following Sunday’s unprecedented bomb attack on the country’s biggest commercial center – a mall in the centre of Athens. She writes:

The attack on the Athens mall has unnerved government officials with many expressing fears of a dangerous escalation in political violence, as the crisis-hit country endures a sixth straight year of recession.

For the first time in the history of terrorist attacks, the perpetrators chose to target a popular shopping centre, planting a bomb in a newspaper stand on the first floor of the mall.

A warning call to two local media outlets barely 50 minutes before the blast triggered a panic-stricken evacuation of the building but police, who are now examining CCTV cameras, confirmed that two security guards were lightly injured in the attack.

Some 280 people – including many children – were on the premises at the time. “We are seeing a very worrying escalation of violence,” said Pireaus University International terrorism expert Mary Bossi, drawing attention to the recent spate of attacks on journalists and the central headquarters of the ruling New Democracy party that have been blamed on far-left militant groups.

“They [assailants] have clearly overcome their own fear to take ever higher risks … there is no longer a differentiation between innocent victims and targets. It’s all about targets,” she told SKAI TV this morning. “From now on, bigger and perhaps more painful attacks should be expected.”

Meanwhile, Helena says that the bomb blast has prompted the US State department to issue an immediate travel advisory warning US citizens to be on the alert, in a blow to tourism, which remains Greece’s biggest foreign currency earner.

In a sign of the growing edginess, Athens’ law courts were also evacuated this morning after authorities received a warning call that an explosive device had been placed on the premises. The threat proved to be a farce.

No group has yet claimed responsibility for Sunday’s explosion although police believe from CCTV footage as many as four people planted the device.

But the brazen nature of the attack – it was the first time in years that a bomb, rather than a gas canister, has been used – has spurred fears among counter-terrorism officials that Greece’s ongoing debt crisis has spawned a new generation of terrorists deeply opposed to unpopular austerity reforms and bent on hijacking the country’s political stability. The public order ministry described the explosion as a “strike against democracy.”

Although condemned by the entire political spectrum there are others on both the left and right who claim the renewed political violence “benefits” the government in diverting attention from unpopular reforms that include mammoth pay and pension cuts, increases in tax and utility prices and the mass sale of state assets.

Updated at 12.34pm GMT

10.01am GMT

Also out today, we’re expecting the UK government to confirm when and where David Cameron will make his long-awaited speech on Europe. 

Yesterday, foreign secretary William Hague said the prime minister will deliver his speech in the next few days but that the exact date and location would be confirmed on Monday. More on that as it comes in.

Updated at 10.05am GMT

9.47am GMT

Eurogroup to mull over new money laundering inquiry in Cyprus

The other major sticking point for Cyprus (see below) is concern among German MPs that a bailout would benefit money-launderers, who allegedly hold huge sums in Cypriot banks.

Der Spiegel reported yesterday (in German) that the German finance minister, Wolfgang Schäuble, and several of his European peers aimed to carry out a further examination into potential money laundering in Cyprus, without giving the source of the information.

The evaluation, which would examine whether international regulations on fighting money laundering have been applied, would be separate from the report on the country’s banking system commissioned by the troika. This will all be discussed at today’s meeting of the Eurogroup.

The Cypriot president, Dimitris Christofias, has previously said accusations of money laundering do not stand up to any kind of scrutiny and no evidence had been provided to validate the claims.

Updated at 9.54am GMT

9.40am GMT

Cyprus on the agenda for Eurogroup

As well as discussing their new chief, the Eurogroup of eurozone finance leaders will also be looking at Cyrpus when they meet at 4pm today. But nobody is expecting any decisions over a bailout for the stricken country.

Just to recap…

  • Cyprus is seeking a bailout of around €17bn, including at least €10bn to recapitalise its banking sector.
  • The negotiations over Cyprus’s bailout request have stalled over the issue of economic reforms and privatisations.
  • The ‘Troika’ of international lenders (the IMF, the EU and the European Central Bank) insist that Cyprus must sell stakes in some state assets in return for help. That has been rejected by outgoing communist president Dimitris Christofias.

The Eurogroup said ahead of its meeting that any decision over a bailout for Cyprus will wait until after the departure of Christofias, who will not be running in elections scheduled for February 17.

Updated at 9.51am GMT

8.46am GMT

Monty Python-fan Dijsselbloem prepares to take the stage

So, Jeroen Dijsselbloem looks like the man for the top job at Eurogroup. Even in the Netherlands he is relatively unknown, but reporters are scraping together profiles on him before his expected appointment this afternoon. (For reference his name is apparently pronounced ‘day-sell-bloom’.)

Reuters says the Dutchman was known as a “radical leftist” in the 2000s and impressed Brussels with a conciliatory, determined and austere personal style. However, Agence France Presse has him as “a slightly stuffy bridge builder”.

“A staggering strategist,” according to Dutch financial daily the Financieele Dagblad, Dijsselbloem is also, says the centre-left De Volkskrant, “a little stuffy and as loyal as a guide dog.”

Protestant daily Trouw describes the curly haired minister with a slightly pinched face as “a likeable man behind a mask of rigidity.”

All reports point to his relative lack of experience in power as, at 46, Dijsselbloem will have served just 11 weeks as a minister. He appeared to acknowledge this on Friday, when he thanked Eurogroup head Jean-Claude Juncker for “all the advice he has given me as a newcomer to this financial world”.

And crucially, we learned from AFP’s report that Dijsselbloem is a fan of British comedy series Monty Python’s Flying Circus, which can only be a good thing for a man about to immerse himself in the eurozone crisis.

Updated at 9.51am GMT

8.41am GMT

Looking ahead to the Eurogroup today, who will succeed Jean Claude-Juncker to lead the eurozone finance ministers (hopefully out of a crisis)?

There were doubts raised last week over whether the group would vote in Dutch finance minister Jeroen Dijsselbloem, after his French counterpart, Pierre Moscovici, said he needed to know more about the Dutchman’s agenda and suggested the appointment might not be made before February.

But those concerns appeared to be quashed over the weekend when Moscovici acknowledged on French TV for the first time that the Dutchman was set to be anointed on Monday.

Moscovici had been touted as a possible candidate for the job, but he sought to downplay those reports in the same interview.

It won’t be me. I was never a candidate for this post. It will in all likelihood be Mr Dijsselbloem. That should be endorsed tomorrow.

France did appear to be the only (mildly) dissenting voice, as Dijsselbloem has already won the backing of Germany as well as current chair, Juncker, to take the helm.

Updated at 9.46am GMT

8.16am GMT

Greece to enjoy six-month holiday from new austerity measures

Greece will face a six-month let up from the troika, according to Greek newspaper website ekathimerini.

The European Commission, European Central Bank and International Monetary Fund have agreed to a six-month moratorium where they will not ask for any new austerity measures from Greece, the reporters say, citing an unnamed high-ranking official at the Greek finance ministry. They write:

The aim of the troika is to give the Greek government a chance to implement a raft of measures and structural reforms committed to in exchange for continued rescue funding, while also attempting to ensure that Greece and its debt problems do not become a pre-election issue in Germany, which is gearing up for polls in September.

Updated at 9.44am GMT

8.07am GMT

Germany producer prices ease

Sticking with Germany, we’ll take a quick look at those producer prices, which eased in December.

Producer prices fell 0.3% in December, compared with expectations of no change.

Lower prices at Germany’s factory gates should help limit consumer prices, which rose on average 2% last year. That will be welcomed by the European Central Bank, which is hoping to limit inflation across the eurozone at just below 2% over the medium term.

8.01am GMT

Merkel’s party loses key seat in ‘swing state’

Over the weekend, the German chancellor, Angela Merkel, suffered a stinging defeat, as the centre-left Social Democrats and Greens won a crucial regional election by a single seat.

Our correspondent in Berlin, Kate Connolly reported:

The ruling centre-right coalition government of Angela Merkel was dealt a blow by voters in a critical regional election on Sunday after the centre-left opposition secured a wafer-thin victory, setting the scene for a tension-filled national election in the autumn when everything will be up for grabs.

The outcome is a crucial one for Merkel, coming as it does just months before her CDU-FDP alliance will be put to the test in September when she will seek a third term in office at national elections.

Merkel’s Christian Democrats party (CDU) was convinced it was on the verge of victory in Lower Saxony, a major agricultural and industrial region that Reuters describes as “Germany’s closest approximation to a swing state”.

The result gave the centre-left a majority in the upper house of Germany’s parliament, meaning the opposition can block major legislation from Merkel’s government and initiate laws themselves.

While it was a crushing blow for Merkel, she remains the strong favourite to win a third term in federal elections this year.

Updated at 9.42am GMT

7.51am GMT

Today’s agenda

It’s a holiday in the US for Martin Luther King day so all eyes are on Europe. Over here, the finance ministers aren’t meeting until 4pm. This morning, we’ve already had some house price data out of the UK and producer prices from Germany.

  • UK Rightmove house price survey (January): 00.01am
  • Germany producer prices (December): 7am
  • Switzerland money supply (December): 8am
  • Switzerland industrial production (Q3): 8.15am
  • Bundesbank monthly report: 11am
  • Italian finance minister speaks to EU parliament: 2pm
  • Bank of Greece produces 2012 annual report: 3.20pm
  • Eurogroup meets in Brussels: 4pm

7.41am GMT

Good morning and welcome to our rolling coverage of the eurozone crisis. Today will see Jean Claude Juncker chair his last meeting of the eurozone finance chiefs, where they are expected to vote in the Dutch finance minister Jeroen Dijsselbloem as his successor.

Dijsselbloem, who is seen as the only candidate for the job, will lay out his plans for the Eurogroup and, failing any big surprises, will be voted in to head up the next meeting in February.

Also on the agenda is the thorny issue of Cyprus (more on that later) and recapitalisations of eurozone banks.

Updated at 9.41am GMT

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Athens votes to investigate George Papaconstantinou for allegedly tampering with ‘Lagarde list’ of potential tax evaders. Eurogroup to name new head at the meeting on Monday. Poor retail sales in December point to triple dip recession in the UK economy…



Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Greece to probe ex-finance minister over tax scandal” was written by Josephine Moulds and Nick Fletcher, for guardian.co.uk on Friday 18th January 2013 16.06 UTC

4.02pm GMT

IMF says Greece faces funding gap of up to €9,5bn for 2015.16

Despite fairly upbeat comments on Greece earlier from Christine Lagarde, there are rather more mixed noises now from the IMF.

The IMF has estimated that Greece faces a funding gap of €5.5bn to €9.5bn for 2015 and 2016, the first time it has put a figure on the country’s financing needs beyond 2014. This contrasts with the EU, which estimated the amount at the lower end of that range at €5.6bn. Here’s the latest IMF report on the country.

IMF mission chief for Greece Poul Thomsen said the fund had received promises from its European partners that they would continue to support Greece “even if they are not concrete about it.”

According to Reuters Thomsen said there was renewed interest in Greece from investors but challenges remained. The Greek government was determined to deal with tax evasion but so far the IMF had not seen any significant impact on tax collections.

There were also reports the IMF wants haircuts on bilateral Greek loans from Europe, meaning another loss which could put investors off.

Thomsen also said the Greek economy was becoming more competitive, while the IMF reported put out some new GDP estimates for the country:

Updated at 4.06pm GMT

3.49pm GMT

And still with Cyprus, Moody’s had downgraded the country’s covered bonds to CAA1.

Updated at 3.50pm GMT

3.35pm GMT

Greek debt write down “a mistake” says Cyprus minister

Cyprus finance minister Vassos Shiarly said the island had formally requested a five year extension from Russia to repay a €2.5bn loan due in 2016.

In an interview with Reuters he also said the private sector writedown of Greek debt in early 2012 was a mistake because of the upheaval it caused in the eurozone.

Cyprus is waiting for its own bailout, and Shiarly said he did not rule out privatisations if that was needed to seal the deal. He said:

The Greek [debt writedown] was a gift to Greece. We are not asking for a gift. We are asking for understanding, and a loan on fair terms so we can overcome these financial difficulties we are facing at the moment.

The island’s banks were hit by the write-down of Greek debt, leading to it asking for financial help from the EU and IMF in June last year.

3.26pm GMT

Berlusconi gains ground in opinion polls

Back with Italy, and former prime minister Silvio Berlusconi is narrowing the gap in opinion polls.

Pier Luigi Bersani’s centre-left coalition is still leading the way, but Berlusconi is now 6 percentage points behind, a 4 percentage point improvement on a week ago. As Reuters points out:

Berlusconi extended his surge in Italy‘s opinion polls on Friday, increasing prospects that the centre-left Democratic Party now leading the race will have to seek a pact with Mario Monti’s centrist bloc.

3.15pm GMT

Well, well…

3.08pm GMT

US consumer confidence hits lowest level since December 2011

US consumer sentiment fell for the second month running, to reach its lowest level since December 2011.

The Thomson Reuters/University of Michigan index came in at 71.3 for January, down from 72.9 the previous month and below estimates of around 75. The recent fiscal cliff standoff seemed to do much of the damage to confidence, the survey indicated.

Michael Woolfolk at BNY Mellon in New York told Reuters:

It’s a January figure, therefore it’s more important than those from other months because we are curious to know what the impact on consumers will be from the hike in the social security tax.

That is undoubtedly going to hit discretionary spending. So this may be a signal of things to come.

Annalisa Piazza at Newedge Strategy was more positive:

[The] survey doesn’t seem to be justified by fundamentals. Some uncertainties with regards to the future outlook remain but we suspect part of the decline in household confidence will be corrected in the coming weeks as the moderate recovery story is still valid.

The Dow Jones Industrial Average has not really been moved by the report, currently up around 4 points or so.

2.40pm GMT

Papaconstantinou calls for opportunity to clear his name

Former finance minister George Papaconstantinou has issued a statement following parliament’s decision to investigate him for his handling of the infamous Lagarde list. Helena Smith writes:

Papaconstantinou’s reaction has been swift and to the point. In a sign of the defense he is likely to take, the ex-economics chief said he was “at the disposal” of the special parliamentary committee which, as of Monday, will begin probing allegations that he not only doctored the list, deleting the names of relatives, but failed to pursue tax evaders.

“The only thing that I want is to be given the opportunity to clear my name from the gross fabrication against me,” he said, “and for accountability to be attributed where it should be.”

Wading into the furore over the list which bears her name, Christine Lagarde who has been busy speaking with a number of Greek media outlets this week, told MEGA TV that at Papaconstantinou’s request she handed him the list because he seemed determined “to pursue every avenue” in the battle against tax evasion.

“Not enough has been done,” she said turning to the subject of tax avoidance. “When we look at revenue it is not on target,” she added, exhorting the government to get serious about rooting out tax dodgers if it wanted to receive further finance assistance from the IMF. “I have a long-standing affection for your country,” she said predicting that if Greece continued to enforce reforms it would balance its books this year and see growth in 2014.

1.30pm GMT

France will not grow unless eurozone does – French finance minister

Now French finance minister Pierre Moscovici is speaking (although not in Paris, he’s in Dublin).

France will be unable to return to growth unless the euro area pulls out of recession he says. The eurozone is in better shape and there are no doubts about its future existence, he adds.

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

Updated at 2.17pm GMT

1.11pm GMT

Bank refinancing by ECB will be key in 2013

[Apologies for the repetition, my colleague Nick Fletcher kindly covered this for the first time while I was at lunch - JM]

Over to Paris, where European Central Bank board member Benoit Coure has been speaking at an economic forum.

Banks will continue to need recourse to European Central Bank refinancing this year despite a stabilisaiton of the crisis, he said.

He also ECB decisions were not the key element in solving the crisis, but rather governments carrying out reforms.

The resolution of the eurozone crisis does not mainly depend on regulatory decisions nor decisions taken by the ECB. It depends mainly on the will and commitment of states to reform their economies, on the one hand, and on the other, to improve the functioning of the eurozone, which is to say the institutions that allow it to be more resilient to shocks like those we’ve seen since 2007.

Updated at 1.57pm GMT

12.55pm GMT

Depressing news from Greece (which, RobertSchuman, I would say is worse than gloomy or miserable, but less economics-related), where reports have surfaced that a tree Plato apparently sat under has been chopped down for firewood. Christina Flora writes on the blog Greek Reporter:

Greeks, desperate to find fuel to stay warm because they can’t afford heating oil that has been hit with big tax increases, have been taking to the woods and even city parks to cut down trees and now authorities said someone has felled the olive tree under which Plato sat in ancient times.

Police said they believe at least two people cut down the famous tree because it was massive and heavy. Some residents of the area reportedly said that homeless people cut the tree, while others allege that a group of gypsies did it.

Plato’s Olive Tree, was said to be a remnant of the grove within which Plato’s Academy was situated, which would make it approximately 2,400 years old.

Our correspondent in Greece, Helena Smith, wrote about the rise of illegal logging back in November last year.

Updated at 1.51pm GMT

12.36pm GMT

Italian growth forecast cut

The Bank of Italy has cut its economic forecast for the country.

It now expects a drop of 1% for 2013, compared to a previous forecast of a 0.2% decline,l made three months ago. The concensus forecast had been for a fall of 0.9%. It said the international environment had worsened and credit conditions were still restrictive.

The Bank expects a recovery in the second half, paving the way for growth to resume in 2014. Not good news for whoever does come out on top in the forthcoming elections.

12.27pm GMT

Banks will continue to need access to European Central Bank funding despite an easing of the debt crisis, said one of its board members.

Speaking at a conference in Paris, Benoit Coeure said, according to Reuters:

Refinancing at the central bank will remain an important factor of security throughout 2013.

He added that a resolution of the crisis did not hinge on ECB decisions, but on reforms by the states.

Updated at 12.29pm GMT

12.04pm GMT

Over to Greece, where the decision to investigate former finance minister George Papaconstantinou has been met with thinly veiled disgust, says Helena Smith our correspondent in Athens. She writes:

Far from bringing the much touted “catharsis” that Greece’s political elite had promised, parliament’s handling of the notorious Lagarde list has exacerbated the widespread distrust Greeks have in their institutions.

Hopes had been high that after three years of ruthless austerity, the “little man” would finally see the establishment assume a modicum of responsibility for the country’s economic mess. The tally of suspected tax evaders – well-heeled Greeks who had chosen to squirrel their hoards away in the Geneva branch of HSBC – highlighted the inequities of the debt crisis precisely because successive governments had failed to act on it.

For many, the so-called Lagarde list amplified, in the most egregious way, an indisputable fact: that while low-income Greeks and pensioners have paid a heavy price for the crisis, the rich have got off scot-free.

After yesterday’s marathon 16-hour debate, it is the high drama that marked the debate, and the way the vote was conducted, that has left a bitter taste. “It was pure theatre that, at this stage, society has no tolerance for,” Spyros Soumelidis, who edits the daily newspaper Greece Tomorrow, told the state-run TV channel NET. Ordinary Greeks might not have been convinced by Papaconstantinou’s line of defence – not least his claims that it would have been “idiotic” to delete the names of relatives from data.

But after last night’s parliamentary antics, many believe he is being made the fall-guy by a fragile government determined to save its own skin by orchestrating a vote that spared Papconstantinou’s successor, the socialist Pasok leader, Evangelos Venizelos, from also being investigated.

Opposition saw an inquiry of Venizelos as imperative, as he also failed to act on the list. “In parliament yesterday, the government majority won [along with] the cover-up of the scandalous handling of the Lagarde list,” said Dimitris Papadimoulis, parliamentary representative of the radical left main opposition Syriza party.

“But society lost and it lost overwhelmingly,” he said. The chance to get to the bottom of tax evasion – the single biggest drain on the debt-choked Greek economy – had been lost. And with it a real catharsis, or clean-up, of Greece’s corrupt political scene.

Updated at 12.46pm GMT

11.32am GMT

David Cameron’s no-show in Amsterdam (see 7.52am) has prompted plenty of reaction, none better than the poem by reader ratherbered, in the comments below.

So
Farewell
Then
David Cameron
You so nearly
Scored
A great own goal
But
Just before the ball
Came across
The ref
Abandoned the match
Now today your coach says
Cameron has a badly
Twisted tongue
And is out for the rest
Of the season

Apologies to E.J.Thribb (17)

Great stuff. Thank you!

11.16am GMT

More from Germany’s finance minister, Wolfgang Schauble, who said there is no plan to boost the European Stability Mechanism bailout fund for a direct recapitalisation of eurozone banks.

11.10am GMT

Bank of Engalnd must keep open mind on new stimulus tools

The Bank of England must keep an open mind on new and unorthodox stimulus tools, said the newest member of the Bank of England’s monetary policy committee, Ian McCafferty.

McCafferty appears to have broken his own embargo, appearing on Bloomberg TV to talk about his first speech in the job which, according to the press release, was…

NOT FOR RELEASE BEFORE 12:00 HRS (GMT) ON FRIDAY 18 JANUARY 2013.

Ah well, we’ll have a full story on the speech online shortly, but not before 12pm.

Updated at 1.54pm GMT

11.02am GMT

Eurogroup to name new chief on Monday

Back to the race to the head of the Eurogroup. Germany’s finance minister, Wolfgang Schauble, who has long supported Jeroen Dijsslebloem for the post, said this morning that the group would decide on its new leader on Monday.

There will not, however, be a decision on Cyprus aid on Monday, he said.

10.42am GMT

Lagarde says no new austerity measures required in Greece

IMF chief Christine Lagarde says the Greek economy should grow next year, and the stricken country will be able to return to international debt markets by 2016.

In an interview with Kathimerini’s editor-in-chief Alexis Papachelas on Skai TV’s New Files, she said that no new austerity measures would be required if structural reforms are implemented.

Our analysis is that if the structural reforms are conducted and therefore if there is a proper transmission of the salary cost reduction into prices, no additional cost reduction or pension reduction will be needed.

If, however, the structural reforms were not to take place, if the closed professions were to maintain their privilege, if the multiple licenses, bureaucratic hurdles and impediments to growth were to stay, then we would face another situation where the fiscal deficit needs to be tackled and therefore more cuts would be needed.

Updated at 10.44am GMT

10.17am GMT

Sterling falls on UK retail sales data

Back to the UK and the tumbling pound. Sterling fell on the gloomy retail sales data, to hit an eight-week low against the dollar.

Independent economist Shaun Richards asked earlier this week if this would be the year the pound collapses. His conclusions (pre-today’s data)…

If you look at the UK economy in isolation it is easy to argue that the pounds value should fall. The catch is when you ask against what exactly?

He asked again on Twitter today, if everyone was now down on the £ as a result of retail sales. Some early responses…

Updated at 10.24am GMT

10.13am GMT

Spain brews up its own tax scandal

With the ongoing tax scandal in Greece, it seems Spain now has one brewing of its own. Our correspondent in Madrid, Giles Tremlett, writes:

Spain’s prime minister Mariano Rajoy was in ebullient form in an interview with the Financial Times this week, proclaiming that: “The second half of 2013 is when we will start to see a recovery, and it will come through very clearly in 2014.”

But now he has a full-grown domestic political crisis on his hands – with El Mundo newspaper (paywall) revealing that, as recently as 2009, his party was part-paying salaries to senior officials in black money. A €22m Swiss account controlled by former party treasurer Luis Barcenas is at the centre of the scandal.

As austerity bites, taxes rise and services are cut, Spaniards will want to know – if the allegations are true – why Rajoy’s party felt it did not have to pay taxes and why it was allowed to happen while the prime minister was party boss.

For the moment, party officials deny wrongdoing. But Rajoy’s biggest rival in the party, Esperanza Aguire, has already come out fighting, calling it a “grave institutional crisis”. “The courts should act, interrogating whoever needs to be questioned and whoever falls must fall. And quickly.” Could she be talking about Rajoy?

9.53am GMT

My colleague Larry Elliot has the following take on retail sales, up online shortly. He writes:

Britain’s retailers endured a tough Christmas with the volume of retail sales falling by 0.1% in the busiest shopping month of the year, the office for national statistics said.

High street and online spending in the three months to December – a better guide to the underlying trend – fell by 0.6%, a weak performance that will intensify City speculation that the economy contracted in the last quarter of 2012. Supermarkets, department stores and stores selling household goods all struggled, but discounting appeared to help clothing and footwear outlets.

Although some stores reported a last-minute rush to the shops in the days before Christmas, the ONS data suggests that hard-pressed consumers kept a tight rein on their spending. The official figures cover the period up until December 29.

Only strong sales of petrol following a fall in pump prices prevented a bigger monthly decline, the ONS said. Excluding fuel there was a 0.3% reduction in retail sales in December.

9.47am GMT

The strong performance of internet sales is, of course, at least part of the reason that Britain’s high streets are undergoing such dramatic change.

HMV, Comet, Jessops and Blockbuster all cited the influence of the internet in their demise.

9.44am GMT

Analysts downbeat on UK retail sales

Early reaction to the UK retail sales (see below), is pretty downbeat. Vicky Redwood at Capital Economics say the figures point to Britain’s economy shrinking in the fourth quarter. If we haven’t said it enough times already, that puts Britain on the road to an unprecedented triple-dip recession.

Anyway, Redwood said:

Sales in Q4 as a whole were down by 0.6% – yet another bit of evidence that the economy probably contracted at the end of last year. Online sales were unsurprisingly the strongest performing sector. Clothing did ok too. But food, department store and household goods sales all dropped.

At least the “sales” period at the start of January has reportedly been reasonably strong. And growth of the retail sales deflator in December was broadly steady – supporting other evidence that retailers held back from any panicked price discounting and so preserved their margins. Nonetheless, with consumers’ real pay still falling, demand on the high street is unlikely to improve in the foreseeable future.

9.39am GMT

UK retail sales miss forecasts

And there are some miserable retail sales figures out of the UK. The Office for National Statistics said retail sales (excluding fuel) dropped 0.3% in December, compared with expectations of a 0.1% increase.

That annual increase of 1.1% was the weakest since 1998. Household goods suffered the biggest decline on the month, with sales dropping 3% from November. Over the year, clothing and footwear was the worst performer (if you ignore fuel), with sales down by 3.5%.

Internet sales were still rising though, with 10.6% of all purchases in December made online rather than in the shops. That’s 1.2% higher than December 2011.

Updated at 9.45am GMT

9.28am GMT

Bad loans increase in Spain

Over to Spain, where there’s gloomy news out of the central bank. Bad loans in the stricken country rose to 11.4% in November – a new high – from 11.2% in October. The Bank of Spain said loans that fell into arrears rose to €191.6bn in November.

9.14am GMT

David Cameron may have postponed his speech (see 7.52am) but he can’t escape the thorny subject of Europe. Last night, US president Barack Obama brought it up again.

During a conversation about the Algeria hostage crisis, Obama told the prime minister that he “values a strong UK in a strong European Union”.

9.03am GMT

Athens could see more one-day metro strikes

Greeks are struggling to get to work in Athens again today, as the metro workers host a second day of strikes in protest against government plans to cut wages.

Now ekathimerini is reporting that metro employees are mulling the possibility of carrying out rolling 24-hour strikes.

Speaking to Skai TV, the head of the SELMA union of metro workers, Manthos Tsakos, said that the option of a long-term strike is being examined by employees.

8.35am GMT

Dijsselbloem to present Eurogroup roadmap

There’s more jostling for position over the upcoming vacancy as head of the group of eurozone finance ministers.

Dutch finance minister Jeroen Dijsselbloem, who is seen as the frontrunner for the Eurogroup job, will present his road map for the eurozone at a meeting of finance chiefs on January 21, according to reports.

Luxembourg prime minister Jean-Claude Juncker, how currently heads up the group, told Germany’s DPA news agency that Dijsselbloem will explain “how he intends to craft the itinerary for the next few years.” Juncker said:

There’s a desire, and this desire is understandable, that the upcoming Eurogroup chief submit a program. I did that in January 2010.

As reader northland noted yesterday, French finance minister Pierre Moscovici has raised concerns about the process used to find the new Eurogroup head.

Frankfurter Allgemeine Zeitung reported yesterday that Moscovici had criticized Dijsselbloem for not having outlined his vision for economic and financial policies, and said a decision on the position would not be made until February.

8.22am GMT

China bounces back in fourth quarter

Also overnight, China released mixed GDP data. On the one hand, it showed the economy sliding to its slowest growth in 13 years. On the other hand, growth picked up in the final quarter, fuelling hopes that the world’s second largest economy is emerging from the slump. 

The boost was driven by state investment in infrastructure projects and efforts to get consumers and companies to spend.

Government figures showed growth picked up to 7.9% in the final three months of 2012, from 7.4% in the previous quarter. For the full year, China recorded growth of 7.8% (which sounds pretty healthy, compared with predictions that the UK economy was flat last year).

Dariusz Kowalczyk, an economist at Crédit Agricole in Hong Kong, said the growth data “was the best we could have wished for”.

There have been fears that China would suffer a sharp slowdown, as global turmoil, feeble domestic demand and a weak property market weighed on growth. But Kowalczyk said these figures suggested China had comfortably escaped a so-called hard landing.

8.06am GMT

In case you’re wondering what’s happened to my colleague Graeme Wearden, he has turned his attention to the snow blanketing parts of the UK, on the Guardian’s live blog of transport disruptions and general weather-inspired chaos.

It will, at least, put him in the mood for Davos, where he will be live-blogging direct from the World Economic Forum next week.

Updated at 8.29am GMT

8.04am GMT

Today’s agenda

Otherwise, this morning we’ve got retail sales figures out of the UK and there are some speeches to watch out for later in the day.

  • Italy industrial figures for November: 9am
  • UK retail sales for December: 9.30am
  • Merkel and EU parliament president Schulz meet in Berlin: 9.30am
  • ECB’s Coeure speaks in Paris: 11am
  • Bank of England’s McCafferty speaks in London: 12pm
  • Berlusconi appears on Canale 5: 8.10pm

In the debt markets, the UK will sell £2.5bn of Treasury bills.

7.52am GMT

Cameron postpones speech on Europe

The other big story this morning is David Cameron’s decision to delay his statement on Britain’s future in the European Union after abandoning a trip to the Netherlands to deal with the Algerian hostage crisis.

My colleagues Nicholas Watt and Juliette Jowit report:

Downing Street indicated that the prime minister would deliver his speech, in which he planned to warn that Britain could “drift towards the exit” unless powers are handed back from the EU, once the hostage crisis had ended. The postponement was announced shortly before the prime minister was due to fly to meet the Dutch prime minister, Mark Rutte, before his speech in Amsterdam…

Cameron had been due to warn his fellow European leaders that British membership of the EU could be put at risk unless its membership terms are changed. “If we don’t address these challenges, the danger is that Europe will fail and the British people will drift towards the exit,” Cameron was due to say in the speech to an audience of business leaders in Amsterdam.

“There is a growing frustration that the EU is seen as something that is done to people rather than acting on their behalf. And this is being intensified by the very solutions required to resolve the economic problems.

“People are increasingly frustrated that decisions taken further and further away from them mean their living standards are slashed through enforced austerity or their taxes are used to bail out governments on the other side of the continent.”

Updated at 7.52am GMT

7.45am GMT

Good morning and welcome to our rolling coverage of the eurozone crisis. Greek politicians were busy last night as they discussed whether to investigate four former ministers for their handling of the explosive ‘Lagarde list’ of potential tax evaders.

It was a long night and the parliamentarians finally voted at 2am to investigate former finance minister George Papaconstantinou, who was expelled from the socialist PASOK party after names of three of his relatives were deleted from the list.

In a relief for the government, the politicians voted against a motion to investigate socialist chief Evangelos Venizelos, who is one of three coalition members. Former prime ministers Lucas Papademos, a technocrat, and George Papandreou, a Socialist, also escaped an inquiry.

Christine Lagarde handed the list of about 2,000 Greeks with money stashed in Switzerland to Athens in 2010, when she was French finance minister. But its existence only became publicly known in September last year.

Since then, the scandal has preoccupied Greece, where tax evasion is a major factor in the country’s financial crisis. There is already a huge distrust in politicians, made worse by revelations that the list was misplaced, locked away in a cabinet, copied and tampered with.

We’ll have all the reaction to the vote today, including the latest developments in the eurozone and beyond.

Updated at 8.36am GMT

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The IMF said Greece was moving in the right direction as it unfroze the next tranche of aid to the stricken country. US jobless claims dropped to a five-year low of 335,000, compared with expectations of 369,000, while housing starts had their best year since 2008…



Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Relief as Greece secures IMF cash” was written by Josephine Moulds, for guardian.co.uk on Thursday 17th January 2013 14.30 UTC

2.30pm GMT

Open Europe is running an interesting blog post, asking ‘Do Ed Miliband and David Cameron actually agree on Europe’?

Miliband appeared on Radio 4′s Today Programme this morning, calling for a “more flexible Europe”.

Why do I say that? Because we will have some countries in the euro, Britain’s not going to be joining the euro, won’t be joining the euro if I’m Prime Minister, and therefore by the nature of it, we’re going to have some countries that are in the euro and some countries that are out. That makes, what I would call, a more flexible European Union.

Open Europe notes that this is almost exactly what Cameron says. The pair also agree on the need for a referendum if there is a transfer of powers to the EU, and the need to repatriate powers.

In fact, Open Europe says, the only difference in policy that Miliband can point to is his view on the European Arrest Warrant. Milliband thinks it is good, Cameron does not. It writes:

Even here, from the Government’s point of view, the real question is reform of the EAW and the jurisdiction of the [European Court of Justice] post 2014, and whether to opt back into this particular measure.

It concludes:

This a country far more united on the need for anew relationship within the EU than the politicians would dare to admit.

2.01pm GMT

Markets cheered by US data

To the markets, which were cheered by the upbeat data out of the US (see 1.55pm). Futures are suggesting a 68 point rise on the Dow Jones when it opens at 2.30pm.

UK FTSE 100: up 0.41%, or 25 points, at 6129 points

Germany DAX: up 0.6%

France CAC 40: up 1.08%

Spain IBEX: up 0.89%

Italy FTSE MIB: up 1.28%

1.55pm GMT

US data boosts confidence

There’s some cheery news out of the US, where jobless claims dropped last week and housebuilding rose in December.

The number of Americans filing new claims for unemployment benefits dropped to a five-year low, to 335,000, compared with expectations of 369,000.

Separately, housing starts climbed 12.1% in December to a 954,000 annual rate, the best year for the industry since 2008.

Frank Lesh, futures analyst and broker at Futurepath Trading, said:

The housing data was great and so were these jobless claims. Both of them said ‘buy more equities’. We are going to keep going up until some of these problems surface and it stops us, if they do. At this point you just don’t know how [negotiations over the next 'fiscal cliff' are] going to turn out, but do you just sit on the sidelines and wait? No! It’s great news and it should take the markets higher.

1.41pm GMT

Athens metro workers to strike again on Friday

Over to Greece, where Athens metro workers say they will extend today’s strike over pay and will not work tomorrow. The union leader Antonis Stamatopoulos told Skai radio:

People will need to suffer now, but we will earn their eternal gratitude after this government has been thrown out.

Updated at 2.01pm GMT

1.29pm GMT

Lunchtime round-up

And for a quick lunchtime round-up…

The Greek finance minister, Yiannis Stournaras, says it is too early to declare victory, after the IMF waved through its next tranche of aid. (9.37am)

Portugal, whose bailout programme ends next year, could return to the debt markets in the coming days, according to a Portuguese newspaper. (9.18am)

The Italian PM, Mario Monti, has struck an anti-Berlusconi pact with the frontrunner in the forthcoming elections, Pier Luigi Bersani, says La Repubblica. (8.41am)

The European Council president, Herman Van Rompuy, calls the end of the crisis, saying the worst is behind us. (10.09am, 11.38am)

EU leaders will resume budget talks in February. (11.09am)

Updated at 1.31pm GMT

1.22pm GMT

Portuguese PM: plans to issue long-term debt his year

Sticking with Portugal, the prime minister, Pedro Passos Coelho, says the country hopes to carry out long-term bond issues this year, as envisaged in the bailout agreement. Speaking in Paris, he said:

Our objective this year is to return to the [bond] market. We are seeking to carry out long-term [debt] issues and hope to gain the necessary support from our partners to do that.

Updated at 1.31pm GMT

12.28pm GMT

The Portuguese government has reacted to reports that it could return to the debt markets in February (see 9.18am). Reuters reports:

Portugal government says authorised debt agency IGCP to issue public debt and early loans redemption.

It says the IGCP can act to take advantage of market opportunities after improvement in sentiment. The country is doing all it can to return to the market as soon as possible. But it says there is no set schedule.

12.02pm GMT

Greek former finance minister to speak out on ‘Lagarde list’

Over to Greece again, where our correspondent Helena Smith says the country will be hanging on the words of the former finance minister George Papaconstantinou when he addresses parliament today. She writes:

The speech is being eagerly awaited – with TV stations saying they will break into their programme schedules to air it – as Papaconstantinou is the central figure in the ever deepening scandal over the “Lagarde list”, the tally of suspected tax evaders that Papaconstantinou was handed by Christine Lagarde when she was French finance minister in 2010.

With the 300-seat House preparing to vote on whether to launch a criminal investigation into Papaconstantinou’s alleged mishandling of the list – he stands accused of not only failing to act on the list but actively deleting the names of three of his relatives on it – many are keen to hear what he will say.

This is the first time the LSE-trained economist will speak publicly on the matter. “He is in a difficult position but we have seen a lot of things and we have to assume innocence,” said Nikos Bistis, a lawmaker with the Democratic Left, one of three parties supporting prime minister Antonis Samaras’ conservative-led coalition.

Lagarde, now head of the IMF, said in an interview with SKAI TV last night that Papaconstantinou had asked her for the list of wealthy Greeks with banks accounts at the Geneva branch of HSBC with a view to investigating whether they had declared the deposits. Many of the account holders are believed to have stashed the deposits abroad in a bid to dodge taxes.

Updated at 12.12pm GMT

11.56am GMT

Meanwhile, investors are still paying the UK to keep their money. Today’s auction of gilts due in 2029 resulted in a yield of -0.37%, compared with -0.025% in August last year.

11.38am GMT

Van Rompuy says the crisis is over (we can all go home)

Back to Van Rompuy, the EC president, who has released the text of his speech to the European Economic and Social Committee (in French). He said:

2013 started on a hopeful note. The signs point to the fact that the worst is well and truly behind us… For the first time in months, financial stability is back.

But he warned that it would still take time for that to have any real impact on the economy.

While this rediscovered stability is vital for a recovery, the reality is that we need time for it to have any concrete effect on the economy and employment. There is always a delay between the return of stability and a return to growth. There is a further delay on top of that, between the return to growth and an improvement in the employment situation.

He welcomed the banking union and efforts to explore greater economic and budgetary union. But he said:

We must never forget the social dimension of our economic policies. Stability is a means, but not an end in itself. Our entire approach must be social in its nature.

No doubt there is a more upbeat haiku in the offing. Any suggestions? For inspiration, here is Van Rompuy’s rather gloomy offering in November last year, titled Autumn end November:

The night has fallen

The bare branches can be seen

Even more lonely.

Updated at 12.11pm GMT

11.09am GMT

EU officials to resume budget talks in February

European Union leaders will resume battle over the region’s long-term budget at a summit in Brussels on 7-8 February, Reuters reports.

Last time they met, in November, the leaders failed to come to an agreement over the budget worth nearly €1,000bn, which covers spending for 2014-2020. One EU official told Reuters:

The intention is to pick up the discussions where they have been suspended last time.

Updated at 11.15am GMT

11.03am GMT

Germany warns against inflation

Germany is warning against Europe printing money to find its way out of the crisis. The Germany finance minister, Wolfgang Schäuble, says:

Inflation is the greatest social injustice.

He says the bailout fund, the European Stability Mechanism, should only provide direct help for banks as a last resort. Looking further afield, Schäuble says he is “quite worried” about the new Japanese government’s policy of flooding market with yet more liquidity.

He sounds a cautiously optimistic note on the crisis, however, saying we’re not over the hill but we are on the right path.

Updated at 11.16am GMT

10.35am GMT

Construction data out of the eurozone would appear to show a brightening picture, though it’s still pretty bleak.

Construction output dropped by 0.4% in November. Previous estimates suggested output dropped by 1.6% in October, but that has been revised to “no change”.

Updated at 11.16am GMT

10.19am GMT

Economic weakness to continue this year, says ECB

And the European Central Bank remains downbeat in its monthly health check of the eurozone. It expects economic weakness in the eurozone to continue this year.

In particular, necessary balance sheet adjustments in financial and non-financial sectors and persistent uncertainty will continue to weigh on economic activity.

There is a light at the end of the tunnel. Later in the year, the ECB says, economic activity should gradually recover.

In particular, the accommodative monetary policy stance, together with significantly improved financial market confidence and reduced fragmentation, should work its way through to the economy, and global demand should strengthen. In order to sustain confidence, it is essential for governments to reduce further both fiscal and structural imbalances and to proceed with financial sector restructuring.

But there are still significant risks that things will go worse than planned. Particularly if governments are slow to implement reforms, it writes.

The risks surrounding the economic outlook for the euro area remain on the downside. They are mainly related to slow implementation of structural reforms in the euro area, geopolitical issues and imbalances in major industrialised countries. These factors have the potential to dampen sentiment for longer than currently assumed and delay further the recovery of private investment, employment and consumption.

10.12am GMT

But tensions in the eurozone remain. Someone in Athens took a novel approach to expressing their hatred for the German chancellor with an imaginatively named Wi-Fi network.

Updated at 10.51am GMT

10.09am GMT

The worst is behind us, says Herman Van Rompuy

The worst is well and truly behind us, says Herman Van Rompuy, president of the European Council (and haiku fan), this morning.

Speaking at the European Economic and Social Committee, he says the European Union is at a turning point today.

Citizens to be more than ever in the center… We must never lose sight of the social dimension of our economic policies.

9.54am GMT

Spain’s borrowing costs ease at key bond auctions

The results of Spain’s bond auctions are coming in and borrowing costs are coming down.

The average yield (essentially the interest rate) on the 2041 bond was 5.696% this morning, compared with 5.893% on 13 December.

The average yield on the 2018 bond was 3.77%, vs 3.988% on 10 January.

The average yield on the 2015 bond was 2.713% vs 3.358% on 13 December.

In the secondary market – where traders buy and sell bonds that have already been issued – the yield on Spain’s 10-year government bond is creeping down towards 5%. Tradeweb currently has it at 5.039%.

Updated at 10.12am GMT

9.37am GMT

Greek finance minister says too early to declare victory

It is too early to declare victory, says the Greek finance minister, Yiannis Stournaras, after the IMF waved through the stricken country’s next aid payment.

In an interview with Reuters, Stournaras said the country must resist internal political pressure to slow economic reforms in a year that will dictate whether it avoids bankruptcy.

What scares me is the big pressure from society, media and parliamentary deputies from all parties to ease the programme. We must resist… it’s too early to declare victory.

He ruled out another debt buyback and said there was no discussion of a haircut of Greece’s debts to its eurozone partners. He said debt reduction could come in other ways such as cutting interest rates.

Under the heading ‘Good News’, Reuters reports that Greece expects to meet this year’s target of making €2.6bn through privatisation. The country may also need less than the €50bn set aside for bank recapitalisaitons, as a result of a wave of mergers between banks.

Updated at 9.53am GMT

9.18am GMT

Portugal set to tap debt markets

And it looks like Portugal might be about to return to the debt markets, sooner than expected. 

The country – which has imposed stinging austerity in exchange for a bailout from the troika – is planning to issue five-year bonds in the coming days, according to Diario Economico.

António Costa reports that the government has decided to tap the debt markets before the end of February, following a successful sale of Treasury bills on Wednesday, citing unnamed sources. The final decision will depend on the outcome of a roadshow in the US this week, the Eurogroup’s meeting Monday and the 2012 budget execution report next Wednesday.

Portugal – whose bailout expires in 2014 – was expected to return to markets in September 2013 when it is due to repay some €5.8bn of debt.

This week the Portuguese government published new tax rules that further cut the income of workers and pensioners, prompting fresh protests from a normally mild-mannered population.

Updated at 9.51am GMT

8.41am GMT

Monti and Bersani make deal

Over in Italy, there are reports that the prime minister, Mario Monti, and Pier Luigi Bersani, the frontrunner in next month’s elections, have reached an “anti-Berlusconi deal” for the campaign and a possible post-election alliance.

La Repubblica reports (in Italian) that the pair have identified the former leader Silvio Berlusconi as their opponent and will try to direct their campaign towards a common goal: an alliance between progressives and moderates following the election.

Updated at 9.50am GMT

8.31am GMT

EU’s Rehn calls for French reforms

France needs wide-ranging structural reforms, says the EU vice-president Olli Rehn.

Rehn says France may need to take more steps to curb its deficit. The country’s unemployment problem also needs specific attention, he says. France had an unemployment rate of 10.5% in November last year, compared with the UK’s 7.8%.

Rehn also says France has serious external imbalances, which will raise eyebrows. (Thanks to Bloomberg for the headlines).

Updated at 9.47am GMT

8.13am GMT

Today’s agenda

Spain holds a series of bond auctions today, where it is expecting strong demand and sharply lower yields. The ECB also publishes its monthly report this morning and the IMF chief Christine Lagarde will be talking in Washington later.

  • Swiss producer and import prices for December: 8.15am
  • ECB monthly report: 9am
  • EU’s Herman Van Rompuy speaks: 9am
  • Bank of England’s Tucker speaks: 9am
  • Eurozone construction output for November: 10am
  • US housing starts for December: 1.30pm
  • US weekly jobless claims: 1.30pm
  • Germany’s Angela Merkel attends an election rally: 4pm
  • IMF’s Lagarde holds a news conference: 4pm

In the debt markets, Spain will sell up to €4.5bn of bonds due in 2015, 2018 and 2041. The UK is selling £1bn of index-linked gilts due in 2029 and France is selling up to €8bn of bonds due in 2015, 2017 and 2018.

Updated at 9.46am GMT

8.08am GMT

Good morning and welcome to our rolling coverage of the eurozone crisis. The IMF agreed to pay the next tranche of bailout aid to the Greek government last night, averting a catastrophic default and securing the country’s survival in the eurozone.

The €3.24bn instalment had been frozen as the IMF considered Athens’ economic reforms. Christine Lagarde, the IMF chief, said yesterday that Greece had made progress but urged it to do more to boost productivity.

Meanwhile, Sweden has joined the chorus of voices urging David Cameron to keep Britain at the centre of the European Union. Cameron is due to give a speech on Friday, outlining plans to renegotiate the UK membership of Europe and put it to a referendum.

Last night the Swedish finance minister, Anders Borg, said he was concerned that the European project was becoming less popular in the UK.

We would not like to see the UK sliding away from the European Union. For Europe, for Sweden, for the UK it is a key interest to keep Britain’s perspective in the European Union.

Like Britain, Sweden belongs to the European Union but has not adopted the euro.

Updated at 9.45am GMT

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Sluggish industrial performance and shrinking manufacturing output renew fears of triple-dip recession in the UK. Demand for goods has been hammered by economic uncertainty and punishing austerity, while exports have been hit by the eurozone crisis…



Powered by Guardian.co.ukThis article titled “UK industrial production growth weaker than forecast” was written by Josephine Moulds, for guardian.co.uk on Friday 11th January 2013 10.51 UTC

UK industry posted sluggish growth in November, renewing fears that the economy shrank in the final quarter and pushing Britain towards an unprecedented triple-dip recession.

Manufacturing output dropped 0.3% in November, after a fall of 1.3% in October, according to the Office for National Statistics.

The wider reading of industrial output – also including output from the energy and mining sectors – grew by 0.3% following a sharp decline in October, which was revised down further on Friday to -0.9%. November’s figures were boosted by an 11.3% jump in oil and gas output – the biggest increase since 1968 – after maintenance of the Buzzard North Sea oil field was completed.

But both manufacturing and industrial production missed expectations, with analysts hoping for rises of 0.5% and 0.8% respectively.

Demand for goods in the UK has been hammered by economic uncertainty, below-inflation wage growth and punishing austerity, while exports have been hit by the ongoing eurozone crisis.

Britain emerged from recession in the third quarter of last year and there were tentative hopes the economy could continue to grow in the last three months of 2012. But a series of gloomy releases – including weak trade data and downbeat purchasing managers’ surveys – have fuelled fears of a contraction in the final quarter. If output continues to fall in the first quarter of this year, the UK will fall into its third recession in four years.

Separate figures out from the ONS on Friday only added to concerns, as construction output dropped 3.4% in November.

Howard Archer of IHS Global Insight said: “Hopes the economy avoided a renewed GDP dip in the fourth quarter of 2012 took another significant blow as industrial production could only manage a small rebound in November following sharp drops over the previous two months, while construction output suffered a marked relapse following October’s surge.”

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