Mario Draghi

The European Central Bank cuts borrowing costs from 0.75% to 0.5%. Experts predict that more unconventional ECB easing could come in the months ahead. Italian PM wants action on jobs. Germany drags eurozone manufacturing output down…


Powered by article titled “Mario Draghi urges no let-up in austerity reforms after eurozone rate cut – as it happened” was written by Graeme Wearden, for on Thursday 2nd May 2013 11.45 UTC

6.09pm BST

Closing summary

That's all for today, as Mario Draghi and crew head back to Frankfurt after a lively, and significant, meeting in Bratislava.

As my colleague Heather Stewart writes:

The European Central Bank has delivered an emergency quarter-point cut in interest rates but its president Mario Draghi cautioned governments in the recession-hit eurozone against "unravelling" their austerity policies .

The ECB's governing council announced the first cut in borrowing costs since July 2012, reducing interest rates to a record low of 0.5%.The bank's policy meeting in Bratislava made its decision against a backdrop of weak economic data including unemployment across the 17 member countries of the single currency hitting a record high of more than 12%

The euro fell more than 1% against the dollar to .304 in the wake of Draghi's comments. The ECB president also suggested that the ECB would consider imposing a negative interest rate on deposits held at the central bank, to prevent banks parking money at the ECB instead of lending it out to firms. The ECB's deposit rate already stands at zero.

Explaining the bank's decision to cut rates in his regular press conference, Draghi pointed out that GDP across the eurozone has now declined for five consecutive quarters, and, "weak economic sentiment has extended into spring of this year".

However, Draghi urged policymakers to keep faith with austerity amid a fierce debate in Europe about whether crisis-hit countries should be allowed to ease up on their drastic deficit-reduction plans.

"In order to bring debt ratios back on a downward path, euro area countries should not unravel their efforts to reduce government budget deficits and continue, where needed, to take legislative action or otherwise promptly implement structural reforms, in such a way as to mutually reinforce fiscal sustainability and economic growth potential," he said.

European Central Bank (ECB) President Mario Draghi (2ndR) arrives for a press conference following the Governing Council Meeting of European Central Bank (ECB) on May 2, 2013  in Bratislava. AFP PHOTO/SAMUEL KUBANISAMUEL KUBANI/AFP/Getty Images HORIZONTAL
Photograph: SAMUEL KUBANI/AFP/Getty Images

Heather's full story is online here.

And you can follow full highlights of the press conference from 1.30pm

In other news…

The Italian prime minister, Enrico Letta, has called for more action on youth unemployment (see 12pm)

Eurozone manufacturing output has fallen again, driven by a drop in production in Germany (see 9.31am)..

But Germany's slump has slowed (see 9.45am).

And in Germany, the Neo-Nazi Golden Dawn party was blocked from using Syntagma Square for its 'Greeks only' food handouts (see 10.27am).

I'll be back tomorrow for another day of rolling eurozone developments, and the excitement of the monthly US jobs data. Until then, thank you and goodnight!

5.53pm BST

In the markets

European sovereign bonds have rallied pretty strongly today, pushing down bond yields deeper into 'safe haven' territory.

Here's a selection of 10-year bond yields:

• Germany: 1.16%

• France: 1.65%

• UK: 1.62%

• Italy: 3.76%

• Spain 4.03%

• Greece: 10.2% (having dipped below 10% earlier)

I wonder if these low bond yields were on Mario Draghi's mind earlier today, when he urged eurozone governments not to abandon their fiscal plans. Will such low borrowing costs embolden leaders in Italy and Madrid to push back harder against Brussels this summer?

Europe's stock markets finished the day in mixed mood, although there's a decent little rally on Wall Street this afternoon.

FTSE 100: up 9 points at 6460, + 0.15%

German DAX: up 48 points at 7961, + 0.6%

French CAC: up 2 points at 3858, + 0.05%

Spanish IBEX: down 12 points at 8406, -0.15%

Italian FTSE MIB: down 19 points at 16748, – 0.12%

And on Wall Street, the Dow Jones is currently up 111 points at 14812, +0.78%, after General Motors and other big companies announced higher profits.

Trader Damian Bagarozza, left, and specialist David Haubner work on the floor of the New York Stock Exchange Thursday, May 2, 2013. Stocks are opening higher on Wall Street, a day after the market's biggest fall in two weeks, after General Motors and other big companies announced higher profits.
Trader Damian Bagarozza, left, and specialist David Haubner work on the floor of the New York Stock Exchange Thursday, May 2, 2013. Photograph: Richard Drew/AP

5.02pm BST

Forgot to mention this earlier, but the ECB announced this afternoon that it is prepared to accept Cyprus's sovereign debt as collateral in its refinancing operations (the statement is here).

That is part of Cyprus's 'rehabilitation' now that its bailout programme has been agreed. Pawel Swidlicki of Open Europe, though, suspects trouble:

4.52pm BST

Michael Hewson: negative rate talk hit euro

Here's Michael Hewson of CMC Markets on the ECB rate decision, and press conference:

The admission that the governing council was keeping an open mind on negative deposit rates, in spite of the risks, was not expected… and precipitated a sharp sell-off in the euro currency, and a little bit of choppiness in equity markets.

Any expectation of some non-standard measures to help kick start lending to small businesses was left disappointed with only a nod to a continued discussion about any conclusions as to how to help SME lending.

 While Draghi expressed his concerns about the weak economic outlook, he was keen to impress on other EU countries that they should continue to press on with the currently agreed reform programs in remarks clearly aimed at the governments in France and Italy.

Updated at 4.56pm BST

4.28pm BST

The euro continues to slide, now down 1% or 1.3 cents against the US dollar at .304.

4.14pm BST

Greek bonds have rallied – and here’s why

Greek bonds have risen in value today to the point where its 10-year bond yields dipped below the 10% mark this afternoon.

Quite a recovery – given these bonds were trading at yields around 30% last June, even after Greece wrote of a substantial chunk of its debts (the vertical line last March):

Greek 10-year bond yields, to May 2013
Photograph: Thomson Reuters

The recovery reflects the perception that Greece is no longer at risk of plunging out of the eurozone anytime soon (the chatter these days is about Cyprus, Italy or even Germany quitting – for one reason or another).

And some analysts do see encouraging signs in the Greek economy. The economy is still contracting, but after five years of recession there is hope that GDP will start growing in 2014. At some point, the theory goes, the fiscal rebalancing (with its painful wage and benefit reductions and tough cuts to government spending) must translate into a more competitive economy. Even within the single currency.

As covered at 9.45am, the slump in Greece's factory sector slowed down last month. And yesterday, it began its privatisation programme by selling a €652m stake in a betting firm. That's not as much as Athens had hoped – but it's a start…..

Updated at 4.33pm BST

3.19pm BST

Mario Draghi has been signing the new €5 note for a group of young people, all born since the euro was created, while the European anthem rang out.

Draghi was in ebullient mood, calling euro notes:

 …the most visible and tangible symbol of European integration, used from one end of the continent to the other.

Just don't try taking too many out of Cyprus at once.

Draghi added:

The children who are here today are growing up in a continent of peace. They belong to the “euro generation” – they have only known one currency.

And the Telegraph's Bruno Waterfield kindly provides a photo:

3.05pm BST

Mario Draghi's suggestion that the ECB could charge banks who want to leave money with it has sent traders dashing into French and Belgian government bonds:

2.50pm BST

Tweet of the week

The ECB is now showing off its new €5 notes… but Charles Forelle of the WSJ would rather hear Draghi answer a question on Cyprus's capital controls:

Updated at 2.51pm BST

2.47pm BST

Press conference ends

The press conference is over with NO mention of the situation in Cyprus — no questions about the fiasco of its original bailout, or the ongoing capital controls, unprecedented in the (short) history of the eurozone.

2.44pm BST

Draghi: we’re frustrated about unemployment too

The final question harks back to Pope Francis's tweet about how unemployment is caused by a "self-centred mindset bent on profit at any cost" (see 12.16pm). Is the ECB frustrated that joblessness in the eurozone is at record highs?

"We are frustrated, yes", says Mario Draghi, who explains that the ECB has to work its powers through the financial system

We can't just throw money out of helicoptors. We have to go via the banking system.

Updated at 3.36pm BST

2.39pm BST

The traditional question from Ireland, on whether there's any progress on its push to restructure its promissary notes, is met with the traditional answer – no.

2.38pm BST

Draghi: We have not fallen out with Germany

Draghi denies that the ECB and Germany have clashed, following Angela Merkel's recent comments that eurozone interest rates would be rather higher if they were aimed at the German economy.

ECB independence is dear to all, and especially, I would say, to German citizens

The ECB president points out that every member of the eurozone has its own business cycle:

They are not synchronous and they differ very much across the euro area. So the monetary policy measures which can benefit in some may not benefit in others.

One of the challenges of running a single currency….

2.33pm BST

Draghi gives a bit more details on how the ECB will help small firms get credit — another of the decisions taken today.

Dubbed the ABS programme, the ECB's governing council has:

"decided to start consultations with other European institutions on initiatives to promote a functioning market for asset-backed securities collateralised by loans to non-financial corporations.

But, but… didn't the practice of bundling loans into new securities that were then sold on to other banks actually help to cause the crisis, asks one journalist?

Draghi denies that the ECB would be encouraging banks to make dodgy loans. Instead, he suggests that lending conditions are actually improving, as the rejection rate for small firms seeking loans is dropping.

2.21pm BST

50 basis-point cut was on the table

Economist Frederik Ducrozet sums up Draghi's comments about whether there was unanimous support for today's decisions:

That's another reason the euro has fallen, of course.

Updated at 2.22pm BST

2.19pm BST

Euro falls

The euro took a dive against the US dollar following Mario Draghi's comments about the possibility of negative eurozone interest rates for commercial banks (see 2.15pm).

It has dropped more than a cent to as low as .308.

2.15pm BST

Draghi doesn’t rule out negative interest rates

Crumbs – Mario Draghi suggests that Europe could implement negative interest rates. Not for the man in the street, but for banks who want to lodge money with it.

The ECB's deposit facility rate was left at 0.0% today. But asked whether it could be cut further, Draghi says that the ECB has an "open mind". It would have unintended consequences, he says, but nothing that the ECB couldn't deal with.

(there's a great blog post on negative interest rates here, by Frances Coppola – The strange world of negative interest rates).

2.08pm BST

Draghi has given a strong hint that today's decision to cut interest rates was not unanimous.

He tells the press conference that:

There was a very strong pervading consensus towards an interest rate cut, within that the consensus was towards a 25-bais point cut.

2.06pm BST

Draghi's comments about taxes in Europe being too high has caused a stir:

2.04pm BST

Draghi: On growth vs austerity

Michael Steen of the FT
Photograph: ECB

Michael Steen of the Financial Times asks Draghi whether today's decision is "too little too late", given the weak state of the eurozone economy,

Draghi denies the charge, claiming that the ECB has been "extraordinarily accomodative". He points to rising stock markets and falling bond yields as signs that the ECB has been making decent progress.

Steen also asks Draghi to elaborate on his comments about how governments should not "unravel" their progress on deficit reduction (see 1.48pm). Is this his contribution to the growth-vs-austerity debate?

Draghi responds by reminding us of how the crisis began — with governments with deficit/GDP ratios which were too high, which meant they were losing the confidnce fo the financial markets.

We tackled those tail risks, Draghi insists (pointing to his OMT programme which could be used to buy peripheral government debt if needed). We are only "left with the memory" of those days of dangerous bond yields.

And there is no question that fiscal consolidation is contractionary in the short term, Draghi says. "Taxes were already too high in some countries", so obviously raising them higher would hit demand.

And countries need credibility, he continues — so they should not abandon the progress they have made in reducing their deficits and making structural reforms.

In Summary: Draghi is arguing that countries cannot simply abandon their plans for deficit reduction and embark on a borrowing spree to fuel growth.

1.54pm BST

Onto the Q&A — and the honour of the first question goes to a local journalist, who asks if Mario Draghi could imagine rates being cut below their new record low.

Draghi doesn't give a terribly straight answer in English – but explains that the ECB is watching the data, and "stands ready to act" if needed.

He also points to the ECB's decision to maintain its refinancing operations until July 2014 — we shouldn't underestimate the importance of this commitment, he claims.

1.48pm BST

Draghi: don’t unravel progress on government borrowing

Draghi's final prepared remarks focus on government deficits — he says it is crucial that eurozone governments do not "unravel" the progress made in reducing their borrowing needs.

That sounds like an intervention into the ongoing austerity-vs-growth row.

Draghi is arguing that governments must focus on structural reforms, to ensure long-term growth.

Updated at 1.49pm BST

1.46pm BST

Mario Draghi
Mario Draghi Photograph: /ECB

Draghi is rattling through the ECB's official statement – it'll be online in a few minutes.

The section on economic outlook is worth flagging up now:

Overall labour market conditions remain weak … weak economic sentiment has extended into the string of this year … euro area export growth should benefit from a recovcery in global demand … the improvements in financial markets since last summer should work their way through to the real economy… euro are economic activity should stabilise and recover gradually in the second half of the year. The risks … continued to be on the downside.

(grabbed from Reuters)

1.43pm BST

As expected, Draghi also reminds governments that they need to take advantage of the current stable markets and make structural reforms (this is one of his favourite themes)

1.42pm BST

Thirdly, the ECB has decided to begin discussions on how more support can be given to smaller firms through collateralising SME loans

(hopefully we should get more details on this in the Q&A)

1.41pm BST

The ECB is closely monitoring money market conditions, Draghi says, and has decided to continue its "main refinancing operations" until at least July 2014.

Updated at 1.41pm BST

1.37pm BST

Draghi says that today's interest rate cut should help the eurozone economy recover "later in the year".

1.36pm BST

Draghi begins by pointing to the weakness of the eurozone economy.

He says that the monetary and loan environment remains subdued, and that weak economic sentiment has extended into the spring.

Monetary policy will be accomodative for as long as needed, he add.

1.35pm BST

The ECB press conference begins with Mario Draghi telling reporters that a number of decisions have been taken, including new decision on credit availability.

He also revealed that European Commissioner Olli Rehn attended today's meeting,

1.34pm BST

The ECB press conference is underway

ECB press conference
Photograph: ECB

1.29pm BST

Watch the ECB press conference

You can watch the ECB press conference on this webcast (although it's a little slow to load right now).

It's also been transmitted live on Bloomberg TV.

1.26pm BST

Alice Ross, the FT's currency correspondent, points out that Draghi's views on inflation will be interesting:

The consumer prices index fell sharply to 1.2% last month, from 1.7%. In the ECB's world, price stability means an inflation rate close to, but below, 2%.

Alice has also summarised the immediate reaction to the rate cut over on the FT's site (registration required).

1.21pm BST

David Brown, of New View Economics, suggests today's rate cut is more symbolic than of real practical help:

The ECB rate cut is no surprise as it was well flagged by Draghi at last month's meeting. Is it enough? No. The marginal effect of the cut is very limited, but at least it should have some symbolic rallying effect on economic confidence.

1.20pm BST

My colleague Heather Stewart writes:

Mario Draghi, president of the European Central Bank, has delivered an emergency quarter-point cut in interest rates in a bid to kickstart the recession-hit eurozone economy.

After holding its policy meeting in Bratislava on Thursday, the ECB's governing council announced that it would reduce interest rates by a quarter-point, to 0.5%. It is the first cut since July 2012, shortly before Draghi promised to do "whatever it takes" to save the single currency and calmed markets in what became known as the "Draghi put".

Heather's full news story is here: Eurozone interest rates cut to 0.5%

1.15pm BST

Howard Archer of IHS Global Insight agrees that the ECB's big challenge now is to get credit flowing to small firms in the eurozone:

It seems unlikely that the ECB will take interest rates any lower than 0.50%, so attention is likely to increasingly focus on how the ECB can help facilitate getting more credit through to smaller and medium-sized companies in countries where they are finding it hard to get bank credit.

1.12pm BST

Lorcan Roche Kelly, Trend Macrolytics's chief Europe strategist, makes a very good point (as usual): 

Cutting the European Central Bank's marginal lending facility rate*from 1.5% to 1% could reduce the cost of taking emergency liquidity assistance from the ECB.

* – what the ECB charges banks to borrow from it

1.08pm BST

What will Draghi say?

Now attention turns to the ECB's press conference in Bratislava in 30 minutes time.

Sony Kapoor of the Redefine thinktank hopes president Mario Draghi will announce extra stimulus measures (such as the extra borrowing help for small firms explained at 11.22am)

Draghi, though, is also fond of reminding politicians that monetary policy can only do so much:

12.58pm BST

Key event

The ECB rate cut was generally expected (and well-flagged), as you'll know if you're been reading the blog this morning.

With eurozone inflation falling to 1.2%, well below the target of just under 2%, the governing council had every reason to cut rates to stimulate demand in the face of a pretty rubbish economic outlook.

There's no dramatic reaction in the financial markets. After an early wobble, the euro has actually risen slightly to .32.

12.50pm BST

As well as cutting its main refinancing rate from 0.75% to 0.5%, the ECB voted to leave its deposit rate (what it charged banks to leave cash with it) at 0.0%.

The marginal lending facility (what it costs banks to borrow from the ECB) is also cut to 1%, down from 1.5%.

Updated at 12.52pm BST

12.45pm BST


The European Central Bank has voted to cut interest rates by 0.25% to 0.5%.

More to follow!

12.40pm BST

Just five minutes to go until the ECB announces its monetary policy decisions, following today's meeting in Bratislava.

The financial markets are pretty calm — the euro is down 0.18 cents at .316. And the FTSE 100 is down 10 points at 6441.

12.25pm BST

City pundits and analysts are speculating about what the ECB might announce this afternoon.

Here's a couple of sensible suggestions:

And a couple of more frivolous ideas for what the ECB might call a new scheme to help small firms:

Updated at 12.26pm BST

12.16pm BST

The Pope tweets:

Yesterday Pope Francis spoke about the unemployment crisis during his weekly address in St Peter's Square (more details here).

Updated at 12.21pm BST

12.00pm BST

Letta: Youth unemployment crisis must be tackled

Enrico Letta and Jose Manuel Barroso hold a press conference in Brussels, Belgium.
Enrico Letta and Jose Manuel Barroso hold a press conference in Brussels, Belgium. Photograph: Isopix/Rex Features

Italy's new prime minister, Enrico Letta, rounded off his mini-tour of Europe this morning by calling for new measures to address eurozone youth unemployment.

On a visit to Brussels, Letta said politicians and officials need to make progress on the issue at next month's EU summit:

We would ask above all that the fight against youth unemployment should be the most important, most concrete message to come out of the June European Council.

The eurozone youth jobless rate hit a new record high of 24% last month, fuelling fears about a lost generation and social unrest.

Updated at 12.32pm BST

11.22am BST

What might the ECB do?

The ECB's governing council faces a tricky dilemma today. There are plenty of reasons to ease monetary policy (this morning's weak manufacturing data is just the latest), which is why a rate cut is pencilled in.

But that alone will not a) cheer the markets, and b) (more importantly) provide much of a stimulatory boost to the eurozone.

Firms who are struggling to stay afloat in Italy or Spain, for example, are not suddenly going to take out expansionary loans on the back of a quarter-point rate cut. And banks with unrecognised bad debts in the vault aren't going to suddenly stop hoarding capital either.

As Carsten Brzeski, senior economist at ING, puts it:

Data released since the April rate-setting meeting have provided further evidence that more monetary action could be needed in the euro zone…

But as long as the transmission mechanism is not working, a rate cut could simply go up in smoke.

Which is why several City anaysts believe Draghi may announce new measures to help small firms who do want to borrow.

Other options in the toolkit include full-blown quantitative easing (don't get your hopes up) or 'verbal' intervention — basically Draghi telling us all how long he thinks rates might stay at current levels.

It is worth remembering that Draghi has already stabilised the eurozone and dragged down peripheral bond yields in his tenure as ECB president. That recovery, though, has still not made its way to the streets, homes and offices of the euro area,

Kit Juckes of Société Générale sums it up (typically) well:

The bottom line on the ECB today is that the real world is a different place from the fantasy world of markets. And the ECB has done a far, far better job of curing the market world than the real one.

That is to say, we have a steady currency, tight spreads, low yields, and equity markets that are up on the year. Now, Mario, you need to tackle the real world's woes of recession, impending deflation, and catastrophic unemployment. And that is far, far harder…

Re-Define's Sony Kapoor agrees that a rate cut is not enough:

While Marc Ostwald of Monument Securities reckons the ECB will leave rates unchanged, as it hasn't finished preparing the unconventional measures it wants to deploy alongside it:

The rationale is simple…a rate cut will do nothing to help the distressed peripheral economies (or indeed Germany), given the monetary transmission mechanism remains severely impaired…as such the ECB needs to find some further 'unconventional measures' to try and enhance the efficacy of a refi rate cut, and comments from various ECB officials (above all Constancio and Asmussen) last week made it clear that the process of coming up with such measures is by no means complete.

10.54am BST

France has sold €4bn of 10-year debt at a record low yield of 1.81%, as the bond market bubble continues to drive borrowing costs lower.

Traders bid for twice as much debt as Paris had on offer – which helped to drive down the bond's interest rate to its all-time low.

The French economy may be struggling, but that isn't deterring investors who are hungry for yield (especially as Central Banks maintain such loose monetary policy).

10.27am BST

Clampdown on Golden Dawn’s food handouts in Athens

Away from economic data….the mayor of Athens has declared a victory for democracy after banning the neo-Nazi Golden Dawn party from handing out free food in Syntagma Square.

Golden Dawn was barred from using Syntagma for its regular food handouts to the needy today. Mayor Giorgos Kaminis took the decision amid growing alarm over its "Greeks only" policy – in line with its virulent anti-immigrant views.

Kaminis told Skai TV.

Syntagma Square will never be used again by anyone to hand out goods,

This square belongs to the city’s residents. Only the municipality can decide how it is used.

Greece's Kathimerini reports that riot police blocked Golden Dawn from accessing Syntagma this morning. Instead, the party apparently distributed its food at its own headquarters.

Golden Dawn's food handouts have helped to build the party's popularity among Greeks suffering through its lengthening recession. 

It is vowing to continue the food handouts: As Helena Smith wrote last night:

Pledging to defy a ban by the capital's mayor, the extremists said they would go ahead with the handout of traditional Orthodox Easter fare, including lamb and eggs, to Greeks afflicted by draconian austerity.

"It is food that is aimed for the thousands of Greek families blighted by the genocidal policies of the memorandum," said the party, referring to the loan agreement Athens has signed with international creditors to keep the debt-crippled country afloat.

The neo-fascist organisation said the event was aimed solely at those Greeks who could not afford to enjoy Easter because of budget cuts and record levels of unemployment.

"Priority will be given to families with three or more children," it said in a statement. "We remind the mayor that in Greece we still have a democracy."

9.55am BST

Heartening news from Britain's construction sector: it clawed its way back towards growth in April, with a monthly PMI of 49.4 (up from 47.2). Construction has been dragging UK GDP down in recent months — at this rate, it might actually help the UK grow this quarter….

9.45am BST

Greek manufacturing slump is slowing

Greek manufacturing PMI to April 2013
Photograph: Markit

Amid the gloom of Europe's strinking manufacturing base, Greece's factory sector actually posted its best monthly data in 21 months.

At 45, Greece's manufacturing PMI still showed a contraction, but it's a significantly better result than March's 42.1. Markits report showed a smaller fall in new orders than previously, and a slowdown in the rate at which firms cut jobs.

Greece won't have turned the corner until new orders start to rise and firms begin rehiring. Markit warned that the sector will still drag on the Greek economy for several months. But it could be a glimmer of hope….

9.31am BST

German manufacturing output stumbles…

Eurozone manufacturing PMI, to April 2013
Photograph: Markit

Europe's economic downturn has worsened, with manufacturing output sliding to a four-month low in April.

The decline was mainly due to shrinking activity in Germany. But while Europe's biggest economy had a worryingly weak month, there were encouraging signs in Greece (more to follow).

Markit's final manufacturing PMI survey for the eurozone came in at 46.7, which is a slightly more painful contraction than March's 46.8.

Here are the key numbers:

Germany: 48.1, down from March's 49 [anything below 50=shrinking output]

France: 44.4, up from March's 44.0

Italy: 45.5, up from 44.5

Spain: 44.7, up from 44.2

Greece: 45.0, up from 42.1

9.05am BST

OECD takes red pen to Italian forecasts

The OECD has given Italian prime minister Enrico Letta a reminder of the challenge he faces, by slashing its economic projections for Italy.

It cut its forecast for Italy 2013 GDP to -1.5% from 1.0% (in line with the IMF's latest projection).

The OECD also hiked Italy 2013 Debt/GDP Forecast To 131.5% from 130.4%, and its 2014 prediction to 134.2% From 132.2%.

Reminder: Greece's austerity package is designed to drag its debt/GDP ratio down to 120% by 2020 — seen by the IMF as a key measure of debt sustainability.

8.47am BST

Spanish manufacturing output slides again

Spain's manufacturing sector has now been shrinking for two years, according to a new survey showing the Spanish downturn continued last month.

Markit's monthly manufacturing PMI (a measure of activity across the sector) came in at 44.7; slightly better than March's 44.2, but still showing a steep decline.

Markit's Andrew Harker warned that there was "nothing in the survey" to suggest an end to the slump.

Another signal to the ECB that economic activity in the periphery is shrinking.

8.30am BST

Guy Johnson, Bloomberg's man in Bratislava, reports that president Draghi has been whisked in for the meeting:

8.28am BST

The euro has dropped a little this morning, as a rate cut looks increasingly likely (but not everyone believes the ECB governing council will do it) – currently down 0.2% at .315.

Many European traders are catching up after yesterday's May Day holiday:

Updated at 8.28am BST

8.14am BST

All eyes on the European Central Bank

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

Mario Draghi, president of the European Central Bank, takes centre-stage again today as the ECB gathers for its monthly meeting.

With the eurozone economy shrinking, inflation dropping and unemployment at record highs, there's a strong expectation that the ECB will heed the danger signs and cut eurozone interest rates – trimming the main refinancing rate from 0.75% to 0.5%.

But some economists are hoping for more decisive action from Draghi — such as new measures to stimulate bank lending to Europe's small businesses.

The ECB has decamped to Slovakia, Bratislava for today's meeting. We get the decision at 12.45 BST, but followed by the closely-watched press conference at 1.30pm BST.

We shouldn't pretend that a small cut in interest rates will cure the patient, though.

As Jennifer McKeown of Capital Economics points out:

The possible announcement of policies to stimulate bank lending, particularly to SMEs and in the region’s periphery, might be more helpful.

But even this would leave the ECB lagging behind other central banks.

So, we'll see. I'll be watching the events in Bratislata, along with other developments around the eurozone and beyond…. © Guardian News & Media Limited 2010

Published via the Guardian News Feed plugin for WordPress.


Draghi says “we considered a rate cut”. ECB press conference highlights. Pound rallies after Bank of England’s MPC votes against more QE. Bank of Japan rejects a call to start open-ended asset purchases immediately. US jobless claims drop…

Powered by article titled “Eurozone crisis live: Bank of England and ECB leave rates unchanged” was written by Graeme Wearden, for on Thursday 7th March 2013 15.00 UTC

3.00pm GMT

2.51pm GMT

It’s over

And that’s the end of the press conference.

The euro has gained almost one and a half cents against the US dollar, to $1.313.

Against the pound, the euro is up 0.7p at 87.04p – so one pound is worth €1.148.

2.47pm GMT

Draghi is also asked is he worried that Italy, his native land, will leave the path of austerity. Or even the single currency?

The ECB president won’t speculate over the election results, but is adamant that the country must stick to the path of structural reforms.

2.45pm GMT

Channel 4′s Faisal Islam suggests Draghi was looking at Spain when he spoke about youth unemployment a few minutes ago:

2.42pm GMT

Draghi: negative interest rates would have serious consequences.

A question about negative interest rates – did the European Central Bank consider cutting its deposit rate (levied on the deposits held by commercial banks at the ECB) below its current rate of 0.0%

Draghi replies: We’ve looked at the idea of a negative deposit rate, but unintended consequences could be serious. We’d be in uncharted waters.

2.39pm GMT

2.36pm GMT

Is the ECB worried that the euro is too high?

Draghi won’t be lured into firing a salvo in the currency wars – pointing out that the G8 released a statement last month in which they pledged not to talk down their currencies.

I won’t be the first person to break it, he says.

2.34pm GMT

Draghi: we’re still working on the legal side of OMT

Michael Steen of the Financial Times just stepped into the lion’s den.

He explains to Draghi that, contrary to what the ECB president has said during the press conference, we do not all understand how the Outright Monetary Transactions programme would work in practice.

All we’re seen, says Steen, is a 440-word statement released last summer. It’s not clear whether a country needs to still have access to the borrowing markets, for example, to sign up to OMT (at which point the ECB would start buying their bonds).

Draghi replies that countries “should be on the market by themselves”, but even admits that the ECB is “still working” on the legal documentation.

Updated at 2.48pm GMT

2.26pm GMT

Tweet of the day:

2.23pm GMT

On Cyprus…..

Asked about Cyprus’s bailout (still not agreed), Draghi warns that while Cyprus is small, the systemic risk is poses is not.

He adds that it is important that Cyprus accepts “international oversight” over how effectively its anti money-laundering legislation has been implemented in practice.

2.20pm GMT

A question about the slow march towards a single eurozone banking supervisor (at the ECB). Is Draghi worried that the pace is too slow?

Apparently not.

Progress in building the single supervisory mechanism (SSM) is continuing, says Draghi, adding that:

People underestimate amount of political capital that European leaders have invested in the euro.

2.16pm GMT

Draghi is asked about the recent nationalisation of Dutch bank SNS Reaal after it was unable to find private investors.

Isn’t that a reason for angst? Draghi says No:

2.12pm GMT

Next question – is the ECB worried that recent optimism over the crisis has pushed stock markets too high, which could lead to a crash?

Draghi replies that it is “very hard to say” whether stock prices are correct, but suggests that the rally is driven by hopes that the situation in the world economy is improving.

2.10pm GMT

Mario Draghi’s “Angst of the Week” joke (which didn’t actually split any sides in Frankfurt) has split opinion:

2.04pm GMT

Draghi: It’s Angst of the Week time

Draghi is asked about reports that the European Central Bank might quit the Troika (the group made up of the ECB, the IMF and the EU).

He starts with a joke — telling the press conference that:

Each week we have an angst.

citing recent fears over the Long Term Refinancing Operations loans.

New angst, every week or two.

And usually the fears are misplaced.

My suggestion to you is that, once you get gossip from friendly fire…. come and check with us before you write something that doesn’t exist.

Draghi goes on to point out that the ECB, like the IMF, predeced the Troika – which was created to tackle the ‘emergency’ in Europe.

We believe the ECB has some added value, and competence, in its sector, which it can provide to the Troika, Draghi says.

And he ends by insisting that the ECB remains free of political interference.

Updated at 2.05pm GMT

1.56pm GMT

Draghi continues to explain that the ECB sees weak consumption, weak demand, and high unemployment, but in the medium term “we see the start of a recovery.”

Thus, no rate cut today.

1.55pm GMT

ECB considered rate cut

INTERESTING: Draghi tells the room that the ECB governing council considered cutting rates.

Asked about the weakness in the eurozone economy, the ECB president explains that the possibility of a rate cut was discussed. but the “prevailing consensus” was to leave borrowing costs unchanged.

1.52pm GMT

On his OMT bond-buying programme: Draghi also says that it is there if a eurozone country decides it needs more help.

The rules are what they are… the ball is in the governments’ hands

1.50pm GMT

Read Draghi’s statement in full

Mario Draghi’s opening statement is now online here: Introductory statement to the press conference

1.49pm GMT

Question: what about Italy?

QUESTION TIME: and the first inquiry is based on the Italian election.

Draghi responds that markets have calmed down after their initial wobble, and have recognised that elections are a regular feature of the European landscape (he suggests that around 34 elections take place over a four-year cycle).

Markets understand that we live in a democracy….

adding that democracy and elections are very precious to everyone.

Draghi also suggests that much of the fiscal adjustment in Italy will continue, regardless of the election.

And he cracks a rather good joke – that the markets were less impacted by the Italian results than the journalists in the room (and beyond!)

1.45pm GMT

Draghi ends by repeating his line that European leaders must take decisive action to mend the imbalances in the region – and cites youth unemployment as a top priority.

1.44pm GMT

Draghi says inflation risks are broadly balanced, with the risk of higher inflation (perhaps from oil prices) balanced by the downside risk of weaker economic growth.

1.43pm GMT

Here are the ECB’s new inflation forecasts,

2013: between 1.2% and 2% (from 1.1% to 2.1%)

2014: between 0.6% to 2.0% (from 0.6% to 2.2%)

1.40pm GMT

The ECB has also cut its growth forecast for 2014, to between 0.0% to 2.0% (down from +0.2% to +2.2% back in December).

1.39pm GMT

ECB cuts growth forecasts

The ECB has revised down its economic forecasts, Draghi confirms.

It now expects eurozone GDP in 2013 to shrink, by between -0.1% and -0.9% (from a previous range of +0.3% to -0.9%). So no hope that the region will avoid contracting through during the year.

1.37pm GMT

Draghi repeats his line that it is “essential” for governments to implement structural reforms.

He also points to evidence that banks have repaid around €200bn to the ECB, by repaying their LTRO loans (made just over a year ago when the ECB pumped more liquidity into the euro economy)

Our monetary policy stance remains firmly accommodative, Draghi states. So no plans to tighten yet.

1.34pm GMT

Draghi’s statement

Mario Draghi starts by confirming that the ECB voted to leave interest rates unchanged at 0.75%.

He cited the latest inflation data, and evidence that inflation expectations remain firmly anchored.

However, there is also evidence that the ‘economic weakness’ (ie the recesssion) has extended into early 2013

Adjustments in the public and private sector will continue to weigh on the economy, he adds — but Draghi still sees a recovery later this year.

1.32pm GMT

And we’re off.

1.30pm GMT

ECB press conference starting now

You can watch the European Central Bank press conference streamed live on its website, just click here.

Among other issues, Mario Draghi should release the ECB’s latest economic forecasts….

1.25pm GMT

Incidentally, Portugal has warmly welcomed S&P’s decision to raise its rating outlook from negative to stable (see 11.40am), calling it “excellent”.

It’s a change to see rating agencies getting some love….

12.50pm GMT

And across the City traders, economists, and pundits race to grab some lunch before Mario Draghi’s press conference at 1.30pm GMT, or 2.30pm local time.

12.49pm GMT

As well as leaving the main refinancing rate unchanged at 0.75%, the ECB will continue to charge commercial banks a ‘marginal lending rate’ of 1.5%, and also pay zero interest on its deposit facility*.

* – money left with the ECB by commercial banks.

Updated at 12.49pm GMT

12.48pm GMT

The euro has risen a smidgen – to $1.3036, on the back of that news (reflecting the small chance of a rate cut).

12.45pm GMT

ECB: no change

The European Central Bank has voted to leave its benchmark interest rate unchanged, at 0.75%.

No other shocks either.

Updated at 12.46pm GMT

12.44pm GMT

The euro has been rising today – can the ECB rate decision (due in one minute) change it?…

12.31pm GMT

Cameron defending economic policies

UK prime minister David Cameron is giving a major speech on the British economy now. My colleague Andrew Sparrow has been live-blogging it here: Politics live blog.

He’s been defending his economic strategy, and criticising calls for him to relax his deficit reduction targets:

Andrew reports:

Cameron says there is no choice between tackling debts and promoting growth.

As the independent Office for Budget Responsibility has made clear…

…growth has been depressed by the financial crisis…

…the problems in the Eurozone…

…and a 60% rise in oil prices between August 2010 and April 2011.

They are absolutely clear that the deficit reduction plan is not responsible.

In fact, quite the opposite.

Tackling the deficit is the first essential step for growth.

And if we don’t do it, we’ll end up facing even greater austerity.

Moody’s rating agency says “the UK’s creditworthiness remains extremely high”…

…thanks in part to a “strong track record” of dealing with our debts and our “political will”.

But they also make it absolutely clear that they could downgrade the UK’s credit rating further in the event of “reduced political commitment to fiscal consolidation

More here.

Updated at 12.40pm GMT

12.26pm GMT

Early reaction

Here’s some early reaction to the Bank of England’s decision to leave interest rates at 0.5%, and the quantitative easing programme at £375bn.

Stephen Gifford, CBI Director of Economics. reckons the vote on QE was very close:

A combination of mixed economic data and the MPC’s recent tilt in a more dovish direction, is likely to have made this decision a close call.

With only a modest pick-up in growth expected, the possibility of further QE will remain a live issue.

Capital Economics suspects we’ll see more QE soon:

We expect that it will not take much to swing a majority of members in support of more stimulus in the near future

Howard Archer of IHS Global Insight believes the Bank is feeling the pressure to do more to help the UK economy.

We expect the Bank of England to deliver one £25bn portion of QE in the second quarter (taking the stock up to £400 billion) with another £25bn portion (taking the stock up to £425 billion) occurring shortly after Mark Carney takes over as Bank of England Governor in July.

It is also evident that the Bank of England is looking for other ways of helping the economy, particularly in trying to get more working capital through to smaller companies. Further measures seem highly likely in this area.

Jeremy Cook, chief economist at foreign exchange company, World First, reckons the Bank might now wait for Mr Carney.

“Data coming out of the UK has not got materially worse since the most recent decision, but the relative weakness of the Funding for Lending Scheme had prompted many to forecast that the BOE would ‘pull the lever’.

However, I think the Bank will now hold on policy until Mark Carney takes the reins of the MPC in July…”

12.17pm GMT

Just to clarify the situation with quantitative easing.

• The Bank of England has already created £375bn of “new” electronic money, in a programme dating back four years.

• This money (known as the asset purchase scheme) has been used to buy British government bonds from UK banks.

• The funds, the Bank of England says, should then flow into the wider economy through increased lending, stimulating economic growth. Critics question whether that actually happens in practice – but it has certainly helped push down UK borrowing costs.

• The MPC could have decided to increase the programme again, most likely in a £25bn slug of new money.

Updated at 12.42pm GMT

12.08pm GMT

The minutes of today’s meeting will be released on Wednesday 20 March, which by delicious timing is also Budget Day.

That’s when get the details of the voting, and find out how many doves pushed for more QE.

Updated at 12.42pm GMT

12.04pm GMT

The pound has jumped by half a cent, to $1.505, while UK gilts are falling in value. That’s pushed the yield on 10-year gilts up to 1.98%, from 1.95% this morning.

Updated at 12.05pm GMT

12.01pm GMT

There’s no further statement from the Bank of England – but you can see the decision itself here: Bank of England maintains Bank Rate at 0.5% and the size of the Asset Purchase Programme at £375 billion

Updated at 12.06pm GMT

12.00pm GMT

Bank of England: No change

BREAKING: The Bank of England has voted to leave its quantitative easing budget unchanged at £375bn.

Interest rates remain at their record low of 0.5%

More to follow!

11.40am GMT

S&P raises Portugal’s rating outlook

Standard & Poor’s has just revised UP its outlook on Portugal, from negative to stable.

It issued the vote of confidence after concluding that Portugal is likely to persuade its lenders to give it more time to pay its bailout loans.

Here’s S&P’s logic:

• We expect Portugal’s official European lenders to lengthen the maturity profiles of their loans to Portugal. In our view, this should reduce Portugal’s public sector refinancing risks.

• We also expect the “Troika” to adjust Portugal’s fiscal consolidation path to allow for weaker-than-previously-assumed economic performance. In our opinion, this makes Portugal’s adjustment process more sustainable, both economically and socially, and reduces the risk that it will not comply with the program.

• We are therefore revising our outlook on the rating on Portugal to stable from negative.

This leaves Portugal with a junk rating of BB, though (two notches below investment grade).

Updated at 11.40am GMT

11.29am GMT

Greek unemployment rate falls

Greece’s unemployment rate has actually fallen, for the first time since its economic downturn began five years ago.

In what could be a much-needed encouraging sign, the country’s jobless rate dropped to 26.4% in December, from 26.6% in November.

It appears that Greek companies may have been encouraged to take on more workers as the long saga of Greece €34bn aid tranche was finally resolved at the end of 2012.

It’s only a glimmer of hope, at best – Greece still has the highest jobless rate in the eurozone (ahead of Spain’s 26.2%), and it’s economy is still shrinking.

Updated at 12.33pm GMT

11.17am GMT

Berlusconi sentenced to jail (but not jailed) over wiretap charges

Speaking of Silvio Berlusconi … he’s just been sentenced to a year’s imprisonment following a trial for leaking the contents of a wiretapped phone call to his brother’s newspaper.

Berlusconi had denied pushing Il Giornale to publish the transcript of the call to damage a political opponent, but the court has just issued its ruling.

However, the handcuffs are not coming out. Berlusconi can’t actually be jailed until the appeal’s process has been concluded – so this doesn’t appear to have a major impact on the political situation in Italy.

Updated at 12.01pm GMT

11.09am GMT

Albert Edwards, the notoriously bearish City analyst, isn’t impressed to see the Dow Jones industrial average at record levels – and reckons it means trouble ahead:

In a new note sent to his Société Générale clients, Edwards said:

As the Dow surges to all time highs it feels eerily similar to the prior mid-2007 peak. Exactly the same jitters abound of a bond bear market and true to form Ben Bernanke is making the same complacent comments.

(mind you, Edwards was predicting a 70% stock market tumble in July 2011, and that forecast remains unfilled)

Edwards also touches on the Italian election:

I believe the electorate were right to reject further austerity. There will be more such electoral revulsion on the way, but for Italy it doesn’t really matter anyway. They can remove the horse-hair shirt forced on them by the ECB/Germany/European Commission and these dreary architects of depression can be told to take a very large running jump.

Buy Italy!

We’ve explained before that the motives behind Beppe Grillo’s rase were more complex than a simple austerity backlash, but it’s true that Silvio Berlusconi’s popularity was swelled by his airy promises to cut taxes.

Edwards also produces a graph of on and off-balance sheet liabilities to illustrate that Italy’s debt problems as less alarming then other countries. Such as the UK:

10.35am GMT

Reassuring news for Spain – it successfully sold €5bn of bonds at auction this morning, its maximum target.

It also paid lower borrowing costs, with investors accepting yields of 4.917% on Spanish 10-year debt, down from 5.2% in February.

It suggests calm is returning to the bond markets after the excitement caused by the Italian election.

10.12am GMT

French finance minister issues austerity warning

France’s finance minister has warned of a social crisis and a surge in popularity for extremist political groups unless Europe ends its focus on austerity and fiscal cuts.

Speaking in Brussels this morning, Pierre Moscovici said continuing on the current course would ultimately “nourish a social crisis that leads to populism”. His solution – “more Europe” – with closer ties between its members to help each other back to growth.

He argued that the “existential” eurozone crisis is over (ie, the risk of the euro breaking up), but a crisis remains with the single currency region.

Moscovici conceded that countries couldn’t simply ignore their debt levels, saying that national debts were “a challenge for any country” regardless of their situation. But he argued that measures such as eurobonds, and a new fund to tackle Europe’s jobless crisis, would be a much better approach.

France isn’t expected to hit the EU’s target of a deficit no bigger than 3% of GDP this year. But with French unemployment over 10%, the view in Paris is that growth is more important then debt levels.

Moscovici was speaking at a conference called Failed austerity in Europe – the way out (so I don’t expect he was heckled!).

My former colleague David Gow is attending the event, and tweeted the main highlights:

Updated at 10.23am GMT

9.51am GMT

Pound down

The pound is weakening this morning, dropping below the $1.50 mark (seen a test of the nation’s economic virility) again.

Traders say sterling is being pushed down by speculation that the Bank of England will announce more QE, as well as the FT’s report that its mandate will be widened (see 9.35am)

9.35am GMT

FT: New powers for Mark Carney

The Bank of England could be about receive sweeping new powers to help drive the UK out of its economic stagnation.

The Financial Times has splashed on the news that the new Bank of England governor will be given a new brief, to help stimulate growth in the UK.

It claims that George Osborne will announce a new era of looser monetary policy in the budget in two weeks time, by changing the Bank’s mandate.

This could mean a new inflation target (currently 2%), or asking the Bank to also target unemployment (as the US Federal Reserve now does).

Another option is to get the Bank to target nominal GDP (the cash value of the economy). Carney himself hinted last December that it could make more sense to get central banks to push for economic growth rather than just encouraging a low-inflation environment (in which growth would bloom).

The story goes on to say that Treasury officials are “discussing proposals” – so it’s not clear that Osborne has made his mind up (and, to be fair, the “dual mandate” issue has been kicked around in economics circles for some time).

Something for the MPC to get their teeth into this morning as they discuss the state of the UK economy.

Updated at 9.50am GMT

9.09am GMT

Rate expectations (2)

With the eurozone recession continuing, some members of the European Central Bank may be pushing for a rate cut in Frankfurt today. Most economists expect them to be outvoted, though.

Just  four out of 76 economists polled by Reuters reckons we’ll see a cut today, with 22 expecting borrowing costs to be cut from their current level of 0.75% at some stage.

Eurozone inflation has fallen to 1.8%, which is bang in line with the ECB’s target of just below the 2% mark.

Updated at 9.50am GMT

9.02am GMT

Rate expectations (1)

City economists are split over whether the Bank of England will take the plunge and increase its QE budget by another £25bn, to £400bn.

A Reuters roll last week found that 40% of economists expected an increase, but since then there’s been growing speculation of action. So it’s too close to call.

Michael Saunders of Citigroup is in the ‘more QE’ camp:

A majority of the MPC have reached the point where they agree that the economy needs more stimulus…Now they have to agree on how to do it.

The MPC does appear to be divided over the way forward, though. Last month deputy governor Paul Tucker caused a storm by discussing imposing ‘negative interest rates’ on commercial banks to force them to lend – an idea swiftly shot down by colleague Charlie Bean.

This gives the impression of two camps in the Bank – one who thinks the existing levers of monetary policy are sufficient, and one which believes more radical action is needed.

8.28am GMT

A busy day for central bankers

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

It’s a big day for central banking, with the Bank of England and the European Central Bank holding their monthly meetings to debate monetary policy and set interest rates.

Both meetings promise to be really rather interesting.

In the Bank of England’s case, there’s a real chance that the Monetary Policy Committee (MPC) will vote to pump another dose of electronic money into the system through its quantitative easing programme.

Last month the MPC was split 6-3 over QE – so can the three doves (which including governor Sir Mervyn King) persuade at least two more colleagues over to their perch?

The ECB isn’t expected to cut its interest rates (but, as with the BoE, you never know).

The excitement could come Mario Draghi holds his press conference this afternoon. Expect a grilling on the situation in Italy — where the political deadlock has raised questions over the effectiveness of Draghi’s pledge to buy unlimited government bonds if a country seeks help.

How, reporters in Frankfurt will doubtless ask, could the ECB take the risk of loading itself up with, par exemple, Italian debt when a maverick like Beppe Grillo is calling the shots? Not to mention Silvio Berlusconi….

That Outright Monetary Transactions (OMT) programme isn’t full-blown QE, but it’s the best weapon in the ECB’s locker to control, tame and fix the crisis.

Draghi’s comments will also be scrutinised for signs that the ECB might cut interest rates in the coming months — which would bring some relief to struggling firms and households across the eurozone.


Bank of England rate/QE decision: noon GMT

European Central Bank rate decision: 12.45pm GMT

European Central Bank press conference: 1.30pm GMT


We’ll also be tracking other events across the eurozone and the wider economy. That will include the situation in Greece, where Troika officials continue their latest visit to Athens to check the country’s progress against its bailout targets.

Updated at 8.37am GMT © Guardian News & Media Limited 2010

Published via the Guardian News Feed plugin for WordPress.

Riot officers striking demonstrators at Madrid protests. Large demonstrations taking place in Spain today. Reports of baton charge in Madrid. ECB President Mario Draghi speaks in Berlin. S&P warns of deep euro-zone recession…

Powered by article titled “Eurozone crisis live: Riot police clash with anti-austerity protestors in Madrid” was written by Graeme Wearden (until 19.30pm) and Ben Quinn (now), for on Tuesday 25th September 2012 18.32 UTC


The demonstrations in Spain are continuing, so my colleague Ben Quinn is going to take over the liveblog and report the latest developments for a while.

If you’re just joining us, here’s a quick summary of the days events’

Tens of thousands of people are taking part in protests in Madrid. The demonstrations, organised by the Spanish indignados group, have been help to protest against the country’s austerity measures and to call for new elections in Spain.

After a peaceful start (see 17.13), there have been clashes between riot police and some demonstrators, which included officers using batons on the crowds (see 19.15 and 18.30).

In other news across the eurozone, ECB president Mario Draghi called on European leaders to take decisive steps to ease the crisis (see 14.39 onwards) and there are reports tonight that the IMF might withhold its aid payments for Greece until the issue of debt restructuring is resolved (see 17.52). The prospect of a third Greek aid package looms over Europe, and is a big political headache for Angela Merkel (see 12.17pm).

Thanks all, GW


Here’s a photo from Madrid showing a policeman striking a protestor:

This photo shows another protestor knocked to the ground:

While this third photo appears to show a demonstrator being held in a headlock by a riot police officer:


Back to Spain and Associated Press is reporting that the police did indeed use batons on some of the thousands of people protesting in Madrid tonight.

AP reports that the riot police (numbering around 1,300), managed to coral most of the protestors away from the Madrid parliament.

From Madrid, their reporters (Alan Clendenning and Ciaran Giles) report:

 Police used batons to push back some protesters at the front of the march as tempers flared.

The demonstration, organized with an “Occupy Congress” slogan, drew protesters weary of nine straight months of painful measures imposed by Prime Minister Mariano Rajoy.

Thousands of angry marchers yelled toward parliament, 250 meters (yards) away, “Get out!, Get out! They don’t represent us! Fire them!”
“The only solution is that we should put everyone in Parliament out on the street so they know what it’s like,” said one of the protestors, civil servant Maria Pilar Lopez.

Lopez and others are calling for fresh elections, claiming the government’s hard-hitting austerity measures are proof that the ruling Popular Party misled voters to get elected last November.

While Rajoy has said he has no plans to cut pensions for Spaniards, Lopez fears her retirement age could be raised from 65 to as much as 70. Three of her seven nieces and nephews have been laid off since Rajoy took office, and she said the prospect of them finding jobs “is very bleak.”


More news from Greek TV, via our own Helena Smith in Athens.

Mega TV on its flagship 8 PM news show is reporting “it is very likely” a second euro group meeting of finance ministers will be held in October to resolve the twin issues:

1) disbursing Greece’s next €31.5bn tranche of aid, and

2) agreeing to the extension of the country fiscal consolidation program.

Meanwhile, Greece’s head of state president Carolos Papoulias has spoken out, yet again, about the controversial cuts being asked of the Greek people.

Helena Smith says he made the remarks meeting the country’s top military brass today.

I know that you have a problem with these cuts .. we have talked about that,” the octogenerian told military chiefs of staff. “You are part of [the nation of] Greek people and the Greek people at this time are really suffering.

The president’s comments prompted the defence minister, who was also attending the ceremony, to add: “But we know these cuts have to happen because we have another war, this time an economic war [to deal with].


More photos from Madrid via twitter.

This one shows a man who’s appears to have taken a blow to the head during the protests:


Latest reports from Madrid say that the Spanish police have baton-charged protestors.

I didn’t see it on the live feed, but there was a shot of ambulance workers preparing a stretcher.


If you’re interested in the protests in Spain tonight, this livestream page is carrying live coverage (embedded below):


Interesting developments in Helsinki tonight, where three hard-line finance ministers may have thrown Europe’s bid to strengthen its weakest banks.

Luke Baker of Reuters has the story:

Germany, the Netherlands and Finland issued a joint declaration on Tuesday that appeared to unravel much of what was agreed at the last European summit in June, when EU leaders paved the way for the direct recapitalization of problem banks.

In a statement issued after a meeting of their finance ministers in Helsinki, the three AAA-rated countries set out the terms under which they would be willing to allow the euro zone’s permanent rescue fund, the ESM, to recapitalise at-risk banks.

But the statement made a sharp distinction between future banking problems and “legacy” difficulties – essentially saying that highly indebted banks in Spain, Ireland and Greece will remain the responsibility of those countries’ governments.

That is likely to frustrate Spain and Ireland in particular, as both had interpreted the June summit as implying that a way would be found to break the debilitating link between their indebted banks and the debts of the government.

More here


“IMF may withhold Greek aid funds until debt restructured”

Meanwhile, our Athens correspondent Helena Smith has got in touch to shed light on this evening’s Skai News report that the International Monetary Fund might suspend payments to Greece (see 17.00)

Turns out that the popular television channel has based its report on an interview with a senior IMF official in Washington. Suggesting it has legs…

Helena writes:

According to the Greek television station, the IMF is “not only examining” but may even already have slapped a veto on further rescue funds being given to near-bankrupt Greece if its debt mountain isn’t restructured first.

The channel’s Washington-based correspondent Thanos Dimades says the reduction of Greece’s debt load to 120% of GDP by 2020 is of “definitive importance” for the fund. That would tally with earlier reports that the body is angling for another write-down of the country’s debt, this time in the official sector.

A senior IMF official on the fund’s administrative board is quoted as telling the news channel: “The role of the fund is the temporary provision of liquidity, not the role of being the indefinite lender.”

Skai cites the IMF official as also predicting that the fund will withdraw from giving “financial support to Greece within 2013” – maintaining a technical advisory role instead for as long as the country remains locked out of international markets.


Back to Madrid, and there appears to be a very sizeable turnout at this evening’s demonstrations:

There’s live coverage from Madrid here,


Greek News: the Skai news channel is reporting that the IMF is considering withholding the next aid payment due to Greece until decisions have been made about restructuring its debt.

It’s not clear where the story has come from… but it’s being seen as an attempt to ratchet up the pressure on Greece, ahead of tomorrow’s general strike:

We’ll have more on this shortly….


Here’s another photo from Madrid, showing large numbers of protesters near to the parliament:



Protesters are out in force in Madrid now, ahead of the march on the country’s parliament organised by the indignados. And the police are ready, with barricades blocking the roads leading to the parliament building.

I’ve pulled together a few photos from the scene:

Here, protesters congregate close to Spain’s parliament ahead of the demonstration:

The demonstration has been called to oppose the government’s fiscal plans, and to call for new elections in Spain (which is sinking deep into recession).

Here, demonstrators carrying banners sit waiting for the demo to begin:

Mariano Rajoy’s unpopularity is clear:

And here’s the Indignados in action:

Pictures from Madrid are also circulating on Twitter (with the hashtag #25S ), including this snap showing large numbers of people at one site:


The European Central Bank have now helpfully uploaded the full text of Mario Draghi’s speech in Berlin today: it’s here.

So what did we learn?

Draghi seemed to have a dual message. One: the eurozone crisis is not over, and euro politicians should take advantage of the current lull to take big decisions.

Key quote:

Our measures can only build a bridge towards a more stable future. It must be completed with decisive measures by governments to address fundamental challenges and complete the euro area’s institutional architecture. They are currently making progress in this direction. The key challenge going forward is to ensure that the immediate upturn strengthens rather than weakens this commitment.

That reflects fears that Spain is resisting applying for help because its bond yields have recovered.

Draghi’s second message was directed firmly at Germany. Europe’s largest economy may have genuine, heartfelt concerns over the way that the ECB is handling the crisis, but it should remember just how much it has gained from the euro – and how much it can benefit in future.

Key quote:

As has long been recognised in this country, low inflation and stable exchange rates ensure a level playing field on which German firms can prosper. They can compete based on their sophistication and innovativeness, without unfair distortions. At the same time, being part of a large and stable currency area provides a buffer against external shocks. This will only become more essential in an ever globalising world.

These factors have led to real economic benefits for Germany. Its intra-euro area trade increased from around 25% of GDP in 1999 to almost 40% of GDP in 2010, while its extra-euro area trade increase by more than 20 percentage points in the same period. Almost 65% of foreign direct investment in Germany now comes from the euro area – and more than one and a half million jobs depend on that investment.

In other words, a stable euro area supports a strong German economy. And a stable euro area is the objective of the all the measures that I have just described.

Draghi had a final message – he can create the conditions for politicians to deliver that stability, but he can’t do it all on his own.


Our image system has roared back into life, so here are some pictures of Mario Draghi in Berlin (highlights of the speech start at 14.39):

Draghi arriving at the annual meeting of the BDI (Federation of German Industries):

And here’s Draghi in action:


And finally, Mario Draghi insists that there is no going back on the European single currency, saying:

The euro is irreversible.


Mario Draghi goes on to urge euro area governments to make deep structural reforms to boost competitiveness, and to throw their weight behind the efforts to build closer fiscal union in the euro area.

He also repeats a point which he made three weeks ago when he announced the ECB’s new bond-buying initiative, that the plan has ‘two legs’:

You need intervention, but you also need conditionality

In other words, the ECB will offer a commitment to buy your bonds, Mr Rajoy and Mr Monti, but we’ll need pledges of economic reform in return.


Draghi offers Germany an olive branch

Interesting…. Mario Draghi has acknowledged Germany’s central banks concerns over the ECB’s bond-buying programme, telling his audience in Berlin that he has “enormous respect” for the Bundesbank, adding that:

many of the Bundesbank’s concerns are shared by the ECB’s governing council.

In the event, Bundesbank chief Jens Weidmann stood alone this month when the rest of the governing council approved Draghi’s plan.

Draghi is arguing, though, that protecting the eurozone is in Germany’s interest just as much as Spain or Italy. A stable, secure euro is in everyone’s interests.

Draghi’s arguably dead right, but German concerns over inflationary pressures and debt monetisation means his message may not be too well received:



In Berlin, Mario Draghi has begun giving a speech about the situation in the eurozone.

The ECB chief (visiting Germany for talks with Angela Merkel) begins by warning that Europe faces “challenging times”, but that he “firmly believes” that there are reasons to be positive….if policymakers persevere with their efforts.

He moves onto the ECB’s bond-buying programme (unpopular with some in Germany), saying that the Outright Monetary Transactions programme can only be a bridge to help the eurozone along, adding:

It must be complemented by measures from governments.

But Draghi also reiterates that it is right for the ECB to act to bring down the borrowing costs of weaker members of the eurozone, saying the current divergent borrowing costs reflect “unfounded fears about the euro area”.


Gordon and Sarah Brown have rung the Wall Street opening bell, and the Dow Jones has opened…..higher. Up 30 points at 13587 points. So anyone suggesting the Curse of Gordon would strike has been thwarted.


Demonstrators gather in Madrid

In Madrid, thousands of demonstrators and hundreds of police officers are lining up ahead of this afternoon’s protests against the Spanish government.

The demonstrators had been planning to surround the Madrid parliament as part of their ongoing opposition to Mariano Rajoy’s government and its austerity programme.

But the word from Madrid is that police (not in riot gear) have cut off the main routes to the Congress with two lines of metal barricades. There are reported to be riot police vans at the scene and a helicopter hovering overhead

AP reports:

In Madrid’s Plaza de Neptuno square about 100 metres (yards) from the Congress, dozens of demonstrators began to assemble in front of the barricades several hours ahead of the main rally.

“Today is a key day to attack the state system and the politicians,” said 23-year-old engineering student Jose Luis Sanchez, who travelled from the northern city of Burgos to take part.

About another 200 demonstrators gathered opposite the city’s Atocha railway station watched by police. They chanted: “Rescue democracy,” or “This is not a crisis, it’s a swindle.”



Greek finance minister Yannis Stournaras has claimed that giving Greece a two-year grace period to hit its fiscal targets would cost €13bn-€15bn. That’s lower than some previous estimates, and Stournaras reckoned it could be managed through increased borrowing and extending the maturities on bonds held by the ECB (an issue discussed at 11.19am).

Secondly, the ongoing haggling over Greece’s package of nearly €12bn of cuts drags on. But government officials are expressing optimism that after weeks of foot-dragging the negotiations could finally be wrapped up in the coming days.

From Athens, Helena Smith writes:

Aides to the Greek prime minister Antonis Samaras say it is vital negotiations over the cuts are concluded in the coming days.

“They have to be otherwise we will miss the train,” said one senior aide.

Finance ministry officials predict the controversial austerity package will be sealed by the time the three leaders supporting the conservative-led coalition meet this week. The politicians are expected to give the cuts their blessing at this rendezvous either late Wednesday or Thursday.

Earlier today, the socialist Pasok leader, Evangelos Venizelos, who is in the government but has repeatedly expressed misgivings over the measures, said his hope was that the cuts would be the last for Greeks. Since the crisis erupted in Athens in late 2009 ordinary Greeks, hit by successive rounds of cuts and tax increases, have seen their purchasing power drop dramatically.

“The measures that have to be taken are painful but we want to believe that they will be the last and we are making every effort in that direction,” Venizelos said.

Once endorsed by the leader the austerity package will go to parliament to be voted on by the 300-member house. That is not expected to happen until high-level troika official representing creditors at the EU, ECB and IMF, return to Athens after leaving attempts to fund an outstanding €2bn amount to lower-level technical teams in Athens. “They will likely return at the weekend which means by mid-week next week, the package should go to parliament. That is our hope.

Everything has to be finalised before the euro group meeting on October 8,” said one source at the finance ministry.

Helena adds that unions and anti-bailout forces in Greece are readying for Wednesday’s general strike when the country is expected to be brought to a standstill by stoppages in the public and private sector.

University professors, who will also be affected by the new round of cuts, will be protesting at 6pm local time (4pm BST) on Tuesday outside Athens’ ornate university building.

The academics, who will be joined by staff at the Union of Greek Researchers and technical institutes, are expected to march on the finance ministry which they will then encircle before holding a vigil.

“These cuts, combined with further cuts in operational grants … make it extremely difficult, not to say impossible, for institutes of higher education to continue functioning,” they said in a letter addressed to the ministers of finance and development.


In Italy, a resignation and a Berlusconi interview

Political developments in Italy today: the governor of the Lazio region has quit amid a scandal over the alleged misuse of public funds.

Renata Polverini, an ally of Silvio Berlusconi, resigned following allegations that taxpayers’ funds had been diverted to pay for cars, holidays and expensive dinners.

The affair is a blow to Berlusconi’s Freedom People party, analysts reckon, ahead of next year’s election, and could also undermine the public view of politicians in Italy.

And bang on cue, Berlusconi himself has reappeared on the public eye with an attack on his successor, Mario Monti, and a pop at Germany

In an interview with the Huffington Post’s new Italian operation, Berlusconi criticised Monti for raising taxes, claiming that the technocratic leader had been taken hostage by leftwingers.

Berlusconi argued that Monti had “started out well … but unfortunately just at the moment when both austerity and growth were needed, the left conditioned Monti’s government.”

Germany, he added, needed to learn that austerity without growth risked “the end of the single currency and the destruction of Europe”"


Fresh evidence that Greece’s economy is spiralling downhill: almost one in three shops in the central shopping district of Athens are now closed.

A survey conducted by the National Confederation of Hellenic Commerce (ESEE) found that 1,850 business premises are now closed, out of a total of 6,532. That works out at 31%, up from 24% a year ago.


Analysis: Another Greek debt writedown looming?

We’ve had some interesting, if slightly foggy, developments on Greece today.

1) Christine Lagarde’s comments last night on the need to tackle the country’s debt problem are being taken as a signal that Athens must restructure its debts (see 10.31am)

2) The reports in the German press today that Greece may face a €30bn budget shortfall (over what timescale is unclear)

3) The suggestion from Greek deputy finance minister Christos Staikouras that Greece faces a future funding gap that could be closed by the ECB rolling over some Greek bonds (see 11.19am)

It all suggests that pressure is growing for another official debt writedown for Greece – and that ‘s a major political headache for Angela Merkel.

Our Europe editor, Ian Traynor, explains:

This is tough one for Merkel and the Germans. On no account does she want to have to go back to parliament to try to secure a third bailout. But it’s also increasingly clear she’s determined to avoid a Grexit.

There has been lots of speculation that this could change after the US elections in November but more pertinently perhaps, Merkel does not want to go down as the chancellor who presided over any kind of euro break-up.

She is said not to want to risk any country being forced to quit the euro before running for re-election a year from now. It is even said in Berlin that she’d rather lose that third-term race than see Greece go.


Heads-up: Gordon Brown, former UK prime minister, and his wife, Sarah, are scheduled to ring the New York Stock Exchange opening bell this afternoon (2.30pm BST).

The Browns get the honour to mark the launch of Education First, a UN initiative designed to put education on the top of the development agenda. Details here.

Hopefully Gordon will do a better job than culture secretary Jeremy Hunt managed with his Olympics bell in July.


Fighting talk from Germany’s Wolfgang Schäuble this lunchtime in Finland.

Asked about the crisis during a visit to Helsinki, Schäuble told reporters that defending the euro “is worth any effort”.


S&P forecasts bleak times ahead for Europe

Credit rating agency Standard & Poor’s has cut its forecasts for the eurozone economies, warning that the region will suffer a deeper recession than feared.

S&P now expects eurozone GDP to shrink by 0.8% this year, compared with 0.7% previously. It also slashed its forecast for next year from +0.3% to zero.

S&P is particularly downbeat about Spain, predicting a 1.4% contraction in 2013 (from -0.6% previously).

The forecasts were included in a research paper called New Recession In The Eurozone.

In it, Jean-Michel Six, S&P’s chief economist for Europe, the Middle East, and Africa, warned:

Recent economic indicators continue to paint a bleak picture for Europe. The data are confirming our view that the region is entering a new period of recession, after three quarters of negative or flat growth since the final quarter of 2010. But prospects continue to vary from country to country.

In particular, we forecast another year of very weak growth in 2013 in France and the UK, and further declines in output in Italy and Spain.

As well as bringing more pain to Europe’s population, weaker growth (or recession) means governments will probably miss their fiscal targets….


Greek minister suggests rolling over debt held by ECB

A document drawn up by the Greek government has proposed rolling over the Greek bonds held by the European Central Bank to help cover a looming funding gap.

In a written parliamentary answer, released on Tuesday and published by Reuters, deputy finance minister Christos Staikouras concedes that Greece will not hit the targets set under its second bailout. Extending the maturity of the bonds held by the ECB would help to plug this financial problem.

Staikouras said:

With a view to covering the financing gap, and given that the
eurosystem is holding €28bn of Greek bonds maturing in 2013-2016, the possibility of rolling over the maturities will be examined.

Staikouras also suggests that Greece may need to borrow more from the financial markets than previously planned.

Much of the ECB’s stockpile of Greek bonds was bought at a discount to the face value, suggesting that it should accept some form of writedown. That’s a tricky area legally – the ECB cannot monetise a government’s debt. So any changes to bond terms would need to be done without violating the Lisbon Treaty.


Merkel on the crisis

Angela Merkel spoke about the eurozone crisis in Berlin a short while ago, but restricted herself to fairly uncontroversial statements.

The German chancellor told a meeting of the Federation of Germany
Industries that euro countries must win back the confidence of the financial markets again. She also ruled out an early deal on bank recapitalisation, saying that Germany won’t accept that until proper banking supervision powers are in place.

Here are Merkel’s key quotes (via Reuters):

There is a lack of confidence in financial markets that some eurozone states can pay back their debts in the long term. The world wonders how competitive eurozone countries are.

Merkel added that Germany’s overall budget deficit is likely to be around 0.9% of GDP this year.


Athens officials expect further debt restructuring

Over to Greece where our correspondent Helena Smith says IMF chief Christine Lagarde’s comments last night (see 8.15am) are also being interpreted as the Washington-based Fund ratcheting up the pressure on EU governments to finally consent to a haircut of the country’s debt-load.

Helena writes:

Greek officials, starting with the finance minister Yiannis Stournaras, have long let it be known that behind the IMF’s hardened stance towards the country – blamed for the failure to resolve the issue of funding consensus on the package of spending cuts Athens must implement in return for further aid – lies another agenda: getting the official sector to agree to another write-down of Greece’s debt mountain.

Lagarde’s comments late Monday are further proof of that agenda, officials said today.

“The IMF simply doesn’t believe that in the long run Greece’s debt load is sustainable,” said one. “Lagarde is making that ever more apparent insisting that the [fiscal and structural reform] programme is so off track it will be practically impossible to plug the ‘financing gap’ that has emerged.”

The current EU-IMF rescue programme foresees Athens’ debt mountain being reduced from its current 166% to 120% by 2020. But EU diplomats in Athens concur that three months after private sector investors agreed to accept massive losses in the value of their Greek bond holdings, the IMF managing director seems to be moving firmly in the direction of another ‘haircut.’

“It’s off-limits as a discussion among EU governments but that is clearly what the IMF is pushing for,” one diplomat averred, adding that in Monday’s address to the Peterson Institute for International Economics in Washington, Lagarde had said: “The Greek debt will have to be addressed as part of the equation.”

Greek insiders reiterated this morning that the IMF’s “unrealistic demands” – that the government agrees to further cuts in wages and pensions, measures it would never be able to implement in an increasingly explosive environment – are all part of the strategy of making the case for an official write-down. Ironically, Greek officials and economists are the first to say that a public sector haircut of Greek debt is exactly what the country needs. “Nobody wants to talk about it ahead of a German election,” said one former high-level government minister referring to next year’s autumn poll. “But Greece can’t be rescued without it.”

Incidentally, the German newspapers are reporting today that the Troika will conclude that Greece needs to make a further €30bn of savings, debt restructuring or defaults (details on FT Alphaville).

That would certainly explain why Lagarde has been talking about ‘dealing’ with the Greek debts.


Yields rise at Spanish auction

Spain paid higher borrowing costs at an auction of short-term debt this morning.

It sold €1.4bn of three-month bills, at average yields (interest rate) of 1.203%, up from 0.946% at the last auction of this type.

It also sold €2.6bn of six-month bills at a yield of 2.213%, up from 2.026% previously.

The important issue for Madrid is to keep selling its debt, but the higher yields reinforce the fear that the financial markets are getting more nervous about Spain …

UPDATE: Nick Spiro of Spiro Sovereign Strategy says investors are nervous because they are still “none the wiser” about Spain’s plans:

Investor nervousness about Spain is rising and is now showing up in slightly higher yields at debt auctions – even sales of short-dated paper which have benefited most from the ECB’s conditional pledge to purchase unlimited amounts of short-term debt.

However the Treasury once again met its target. Demand for Spanish paper is holding up not because of an improvement in sentiment towards Spain, but because of an improvement in the credibility of an interim ECB-backed fiscal backstop for Spain.


Euro drops back

The euro dropped below $1.29 in early trading, following the news that lawyers are investigating the legality of the European Central Bank’s bond-buying programme (see 8.32am) and Christine Lagarde‘s warning on Greece (see 8.15am)

Rabobank’s Jane Foley reports that the euro has been one of the weakest major currencies in the last week, as summer optimism over the eurozone has withered.

She adds:

Lagarde’s comments… add weight to fairly rife suspicions regarding the ability of the country to hit its current budget targets in the allotted time.

At present Germany seems to be in no mood to tolerate a watering down of Greek’s targets meaning that sooner or later another showdown with Greece looks to be on the cards.


Italian consumer confidence boost

Some good economic news: Italian consumer confidence data came in slightly higher than expected this month, at 86.2 vs August’s 86.0.


Madrid Protests Later Today

Big demonstrations are expected in Madrid today, as protesters march on the parliament.

Around 1,300 police officers have been mobilised ahead of the demonstration by the radical indignados. They plan to surround the parliament building in protest against the government’s handling of the economic crisis.

The group are calling for new elections, arguing that Mariano Rajoy misled the people in last year’s general election by not admitting the scale of the austerity measures he would implement.


Bild: Lawyers checking ECB bond-buying plan

There’s an interesting story in the German tabloid Bild today: apparently the Bundesbank and the European Central Bank have engaged lawyers to crawl over the fine print of the ECB’s new bond-buying programme.

Bild reckons the Outright Monetary Transaction programme could soon be referred to the European Court of Justice, so the ECB and Bundesbank want to legally “arm” themselves ahead of a possible legal fight.

Mario Draghi has repeatedly insisted that OMT falls within the ECB’s mandate (on the grounds that excessively high bond yields are thwarting the effective transmission of monetary policy).


There’s a lot of interest this morning in Monday evening’s warning from Christine Lagarde about Greece’s debts.

The head of the International Monetary Fund told an event in Washington that macroeconomic problems and delays in implementing Greece’s privatisation programme had created a “financing gap”, which “have to be addressed” as part of the wider drive to repair the country’s battered economy.

As we reported last night, Lagarde’s comments could show that the IMF is prepared to give Greece more time to implement its cuts programme:

Christine Lagarde, the Fund’s managing director, said the Washington-based institution was “prepared to be flexible” and said both growth and austerity were needed to put an end to a crisis which will next month again force the IMF to cut its global growth forecasts.

The Wall Street Journal reckons the IMF chief could be signalling that eurozone states, and central banks, may have to take a hit on their Greek debts:

Lagarde’s comments are being taken by some as a public, albeit oblique, acknowledgment by the fund that a restructuring of the Greek debt held by euro governments may be what is necessary to put Greece’s program back on track.

AFP focuses on the implication that the cuts programme which Greek officials have been working on for months will not be enough:

Lagarde said that the €11.5 ($15bn) in more spending cuts and revenues increases demanded by Greece’s rescue lenders, including the IMF, might not be enough to get the massive rescue and reform operation back on the rails.



Here’s what we’re expecting to happen today:

Angela Merkel and Mario Draghi appear at an event organised by the BDI Federation of German Industry in Berlin: 9am BST/10am CEST

Spain auctions 3 and 6-month bonds: from 9am BST

Italian debt auction: 10am BST

Paul Fisher, Bank of England policymaker, speaks in London: 10.30am

Merkel and Draghi meet to discuss monetary union: 12.30pm BST/1.30pm CEST

US consumer confidence data: 3pm BST/10am EST


Coming up….

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

Coming up today… two of the key players in the crisis are meeting in Germany today to discuss the state of the European monetary union.

Mario Draghi and Angela Merkel will hold private talks at the Chancellery, and are also due to attend a German industrial conference. The meeting comes as speculation swirls over the next steps in the crisis – with Spain yet to seek financial help and Greece still trying to reach its cuts targets.

We’ll be watching events in Berlin, Madrid and Athens as usual.

Also on the schedule…. Spain and Italy are holding bond auctions today, the Bank of England’s’ Paul Fisher is giving a speech in London, and we get new US consumer confidence data this afternoon (which will show how the world’s largest economy is faring…) © Guardian News & Media Limited 2010

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Global stock markets and euro rise after ECB president Mario Draghi’s ambitious plan to keep the eurozone together. U.S. unemployment rate declines but job creation disappoints, raising the odds of additional easing by the Fed…

Powered by article titled “Draghi’s eurozone rescue plan continues to boost shares and euro” was written by Julia Kollewe and Graeme Wearden, for The Guardian on Friday 7th September 2012 17.22 UTC

European Central Bank president Mario Draghi’s rescue plan for the eurozone brought cheer to financial markets for a second day, while pressure built on Portugal, which was expected to announce further austerity measures.

The Italian stock market added 2.1%, while the Dax closed up 0.7% and Spain’s Ibex, France’s CAC and the FTSE 100 in London all finished the day 0.3% higher after “Super Mario’s” ambitious plan announced on Thursday to keep the eurozone together by sanctioning “unlimited” bond buying by the ECB.

Asian markets also staged a strong rally, with Japan’s Nikkei index posting its biggest gain in five months, of 2.2%.

The euro rose against the dollar, climbing near the $1.28 level for the first time in three months.

Spanish and Italian borrowing costs declined sharply, with the yield, or effective interest rate, on Spanish 10-year debt dropping 0.4 percentage points to 5.6% – the first time it has been below 6% since May. Six weeks ago it had surged to 7.6%, deep in the danger zone where borrowing costs become unsustainable, and at the start of this week it was still around 7%. The Italian equivalent fell a quarter of a point to 5% – in late July before Draghi’s commitment to “do whatever it takes” to preserve the euro it was at 6.75%. The cost of insuring Spanish debt also tumbled.

The 10-year Portuguese yield was down 0.4 points to its lowest level since March 2011. Although as high as 8.1%, that compared with 18% in February.

The Dow Jones industrial average hovered between gain and loss after the US Labour Department said the US had added just 96,000 new jobs in August, far below expectations. The Dow hit its highest level since December 2007 on Thursday, but the jobs report focused investors on the US’s own problems.

The pound got a fillip from the weak US jobs data, climbing to above $1.6 for the first time since mid-May. Surprisingly strong industrial production data also brought some cheer to Britain. Factory production in Germany was also stronger than expected, rising by 1.3% in July.

The Federal Reserve meets next week and economists speculated that the poor jobs figures will add further pressure on the central bank to act. Chairman Ben Bernanke indicated in a speech last week that he was concerned about the slowing pace of the US recovery and the still high unemployment rate.

The Portuguese prime minister, Pedro Passos Coelho, was expected to set out fresh austerity measures last night in a televised address billed as a “declaration to the country”. Measures such as a VAT rise, cuts to the public sector payroll, or new tax measures were expected.

Spain gave no hints on when it might make a formal bailout request to trigger the bond-buying programme. Deputy prime minister Soraya Sáenz de Santamaría said the plan would be discussed at next week’s meeting of European finance and economy ministers in Cyprus.

“While markets are currently happy that the ECB’s bond purchase scheme stands ready to be activated, getting the Spanish and Italian governments to agree to programmes is likely to be fraught with difficulties,” said Grant Lewis at Daiwa Capital Markets. “Indeed, the positive market reaction makes their activation less likely by taking the pressure off the Spanish and Italian governments. So, it may well require a significant deterioration in market sentiment once again to ultimately trigger the programmes that lead to ECB purchases.”

German chancellor Angela Merkel expressed support for the ECB over the creation of the bond-buying programme, and said the central bank was right to insist on conditions in return for any assistance provided through the scheme. Meanwhile, the Bundesbank, Germany’s central bank, refused to back the plan, and it did not go down well in parts of the German media. Top-selling tabloid Bild led the way, warning that the ECB’s “blank cheque” could make the euro “kaputt”.

Handelsblatt criticised “the democratic deficit of the euro rescuers” and linked the ECB’s latest action to next Wednesday’s ruling by Germany’s Constitutional Court on the legality of the eurozone’s new bailout mechanism and budget rules. This is another crunch day in the euro – a rejection of the European Stability Mechanism and the fiscal pact would plunge the eurozone into fresh turmoil. A Reuters poll of 20 top lawyers found unanimous agreement that the court will throw out the request for a temporary injunction to halt the ESM and the pact. However, 12 of those questioned also expect the court to insist that German liability has to be limited. © Guardian News & Media Limited 2010

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ECB Mario Draghi announced the details of the central bank’s bond-buying program. ‘Almost unanimous’ vote overrides German fear of inflation. Countries benefiting must enter bailout programs. Eurozone growth forecast downgraded…

Powered by article titled “Eurozone crisis: ECB introduces unlimited bond-buying programme” was written by Josephine Moulds, for on Thursday 6th September 2012 13.48 UTC

Mario Draghi, the president of the European Central Bank, has pushed through a controversial scheme to save the euro, trampling over German opposition.

At the same time, the ECB said that the economic outlook for the eurozone had deteriorated. It now expects the eurozone economy to shrink by 0.4% in 2012 and grow by 0.5% in 2013, while inflation rises to 2.6%.

Draghi said the vote to start buying the bonds of crisis-hit states in unlimited amounts, in an attempt to bring governments’ borrowing costs down, was “almost unanimous”, with one exception.

The scheme has faced furious opposition from German central bank chief Jens Weidmann, who argues that it is tantamount to printing money in order to pay off a country’s debt, which is expressly forbidden by the ECB’s mandate. He also fears the measures will fuel inflation, ease the pressure on overspending governments to get their finances in order and erode the ECB’s independence.

Ranvir Singh, chief executive of market analysts RANsquawk, said: “Even by the inscrutable standards of Mario Draghi, the ECB president’s speech revealed little of huge tectonic pressure that has built up under the eurozone’s surface. To fly in the face of Germany’s wishes will not have been easy. For the Bundesbank, keeping inflation in check is an article of faith. Its president has made no secret of the fact that he regards the ECB plan to buy the debt of the eurozone’s weaker members as the road to perdition.”

Draghi said the buying-up of bonds, which will be known as outright monetary transactions (OMTs), would be unlimited and that countries benefiting from the scheme would need to submit to certain conditions. The ECB would seek the involvement of the IMF to design and monitor such programmes. Governments to benefit from the OMT would also have to be attached to a programme with one of the eurozone bailout funds. Draghi said the ECB would stop buying a country’s bonds if it failed to comply with the bailout programme.

The ECB said it would buy bonds with a residual maturity of one to three years. That means it can buy bonds with a longer maturity, as long as they only have three years remaining until they are paid back.

As expected, the ECB said the bond-buying programme would be “sterilised”. This means the central bank will not increase the money supply as a result of the bond purchases; instead it will take the equivalent amount of money out from other parts of the system. © Guardian News & Media Limited 2010

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European Central Bank president Mario Draghi announced the details of a bond-buying program to bring down borrowing costs. Here is a list of 10 essential terms that traders need to know before the ECB plan is activated…

Powered by article titled “ECB bond-buying: 10 essential terms” was written by Josephine Moulds, for on Thursday 6th September 2012 11.45 UTC

European Central Bank president Mario Draghi is expected to announce the details of a bond-buying programme to help keep down borrowing costs of crisis-hit countries later on Thursday. Leaks suggest it will involve unlimited purchases of government debt that will be “sterilised” to assuage concerns about printing money.

The bond-buying scheme is rumoured to be called the “outright monetary transactions”, with a shorthand title of OMT.


The life of a bond, at the end of which it will be repaid in full. A bond’s maturity can be as short as a year to as long as 100 years.


This refers to how likely you are to be repaid if a bond issuer goes bankrupt. Bondholders with seniority over others will be paid back before other bondholders. There was some concern that the ECB would demand seniority over other bondholders when it undertook the bond-buying scheme, but leaks now suggest otherwise.


Was the ECB governing council united in backing Thursday’s decision, or was there opposition? Bundesbank head Jens Weidmann has spoken out against a bond-buying programme before – is he now onside? Was the ECB split over interest rate levels, or were the decisions unanimous? Draghi’s answer to these questions (which will surely come up) could be crucial.

Pari passu

A Latin phrase meaning “equal footing”. In the bond markets, this means bondholders will be treated the same if a bond issuer goes bankrupt. Any purchases the ECB makes as part of its bond-buying programme are expected to be pari passu with other bondholders.

Collateral requirements

The ECB asks banks for collateral in return for taking out cheap loans. If they relax collateral requirements, they can accept a wider range of assets as collateral from banks. They have already relaxed these requirements, and can now accept everything from bundles of car loans to mortgage-backed securities.


This is the way the ECB would keep the Germans happy, by imposing conditions on receiving assistance from the ECB; so, if the ECB helps keep a country’s borrowing costs low by buying up its bonds, that country may have to agree to some strict austerity. Without conditionality it would be easier for the ECB to unilaterally intervene.

Convertibility risk

This refers to the risk that you will buy bonds denominated in euros but could ultimately be paid back in lire or drachma (or deutschmarks) if the country taking out the debt leaves the eurozone before the end of the bond’s life.

Unlimited intervention

Exactly what it says on the tin. Expectations are that the ECB will not put a limit on its bond buying. This is seen to be an improvement on the previous bond-buying programme, which was limited in size and therefore lacked credibility in the markets. If other traders do not believe the ECB has the firepower (or inclination) to buy enough bonds to bring down yields, they may continue to bet on them rising.


This makes sure the money supply does not increase as a result of the bond-buying programme. When the ECB buys bonds, it is injecting liquidity into the financial system, effectively creating new money. To counteract that, the ECB has in the past followed bond purchases by subsequently draining an equal amount of liquidity from the system. It does this at the weekly deposit tender by increasing the rates it will pay commercial banks to deposit money with the ECB. The idea is that this will encourage banks to deposit more money with the ECB, thereby taking it out of the system.

Yield cap

Rumour had it that the ECB would set a yield cap on certain countries’ government bonds. This would mean if the yield looked like it would break through that level, the ECB would start buying bonds to push prices higher and bring yields back down. © Guardian News & Media Limited 2010

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Mario Draghi expected to announce plan to buy unlimited quantities of government debt from troubled eurozone members. German Chancellor Angela Merkel tells lawmakers she opposes unlimited European Central Bank bond purchases…

Powered by article titled “Euro rises on report of ECB plan to buy unlimited debt” was written by Larry Elliott, economics editor, for on Wednesday 5th September 2012 14.19 UTC

The euro rose on the foreign exchanges on Wednesday after the Bloomberg financial news service reported that the European Central Bank was preparing to announce plans to buy unlimited quantities of government debt from troubled members of the single currency.

Quoting central bank officials, the agency said the ECB was ready to take action to bring down the interest rates on borrowing paid by countries such as Italy and Spain. Full details of the blueprint are likely to be disclosed by Mario Draghi, the ECB president, on Thursday after a meeting of the central bank’s governing council.

According to the Bloomberg, the ECB plans to “sterilise” its bond-buying by removing money from elsewhere in the eurozone economy such as by selling bonds or restricting the money supply. This could ease fears that action to help the weaker members of the 17-nation bloc will lead to an explosion in the money supply.

The ECB is likely to concentrate on buying short-term debt – bonds that mature within three years – in the hope that it will provide breathing space until longer-term measures are in place.

Germany has been critical of Draghi’s plan to “do whatever it takes” to prevent a breakup of the single currency, but Bloomberg said the ECB expected the proposals to be adopted despite the misgivings of Angela Merkel and the president of the Bundesbank, Jens Weidmann.

Some analysts have been expecting Draghi to set a target level for bond yields of eurozone countries, but this is not thought to form part of the proposal.

The euro rose by half a cent after the apparent leak of the Draghi plan, although some analysts remained cautious. “I think the market saw the word ‘unlimited’ and jumped before realising that the ECB would not expand its balance sheet as it would sterilise all its purchases and thus this was not the kind of aggressive monetary expansion that FX traders were looking for,” said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York.

“Net takeaway is that if this is sterilised it will probably not be enough to keep the bond vigilantes at bay. Furthermore, the backing away from any specific yield targets is exactly the lack of clarity that the FX market will not like.” © Guardian News & Media Limited 2010

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Mario Draghi seeks to reassure over future of euro, but financial markets are left disappointed with the lack of action today, Bank of England maintains the benchmark rate and the size of its Asset Purchases Program unchanged, Risk-off trading session ahead of the U.S. Non-Farm Payrolls tomorrow…

Powered by article titled “ECB ‘willing to buy bonds of weaker EU nations’ says Draghi” was written by Larry Elliott, Economics editor, for on Thursday 2nd August 2012 13.58 UTC

Mario Draghi pledged that the European Central Bank would buy up the bonds of the weaker members of the 17-nation single currency, as he sought to make good on his pledge to do “whatever it takes” to safeguard the future of monetary union.

The ECB’s president said the governing council of the central bank would also consider other exceptional – but non-specified – steps to ease pressures that have led to speculation about a break-up of the euro.

In a press conference following an ECB council meeting, billed as one of the most crucial since the creation of monetary union in 1999, Draghi provided more details on how to bring down bond yields, as promised in a speech in London last week.

He said: “The governing council, within its mandate to maintain price stability over the medium term and in observance of its independence in determining monetary policy, may undertake outright open market operations of a size adequate to reach its objective.”

This was seen by markets as a sign that Draghi will reactivate the ECB’s Securities Market Programme, under which the bank buys up government bonds from financial institutions.

Private bond holders have voiced fears that a big bond-buying spree by the ECB would potentially leave them suffering bigger losses in the event of any sovereign default, because the Frankfurt-based central bank has insisted in the past that it will not take a “haircut” on its bond holdings. Draghi said these concerns would be addressed.

In addition, he said: “The governing council may consider undertaking further non-standard monetary policy measures according to what is required to repair monetary policy transmission.”

The ECB will also think about providing fresh cheap funds for European banks, following two injections of liquidity through long-term refinancing operations in December 2011 and February 2012. Relaxation of collateral rules for banks will be discussed next month.

Financial markets were left confused by Draghi’s comments. An initial rally in the euro against the US dollar quickly petered out, while in the bond markets yields of Spanish and Italian bonds moved higher after falling initially. Shares also moved erratically – having been about 45 points higher as the ECB president started speaking, the FTSE 100 later reversed that to show a 50-point loss on the day, a fall of almost 1%, as analysts were at odds about whether the ECB president would be able convert his tough talk into action.

Jason Gaywood, director at currency specialist HiFX, said: “Markets were disappointed today as the ECB fell short of taking action to rescue Spain. Instead, Mario Draghi merely stated that the euro is irreversible.”

Jeremy Cook, chief economist at foreign exchange company, World First, said: “The most important thing about the ECB press conference is the statement about the fact that they may undertake outright open market operations, ie buying of peripheral debt to reduce yield pressures, which were described as unacceptable.

“This is almost what the markets wanted, but the emphasis is on the fact that things ‘might happen’. The fact that they will have to discuss ‘modalities’ and ‘seniority’ suggests that they know what they want to do, but they’re really not sure how to do it.”

But Nick Parsons, head of strategy at National Australia Bank, said: “I think he means it. He has said he will intervene in unlimited size.

“The bazooka has yet to be fired, but Draghi hinted at its design this afternoon.” © Guardian News & Media Limited 2010

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ECB will do ‘whatever it takes’ to preserve the currency said the European Central Bank President Mario Draghi easing market concerns about the escalating EU debt crisis after Draghi appeared to signal that the central bank is prepared to act to calm the bond markets…

Powered by article titled “Euro is irreversible, declares European Central Bank president Mario Draghi” was written by Josephine Moulds, for on Thursday 26th July 2012 13.48 UTC

Mario Draghi, president of the European Central Bank, said on Thursday the euro was “irreversible” and promised to do everything within his power to save it.

Speaking at the UK government’s Global Investment Conference in London, Draghi said: “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.”

The news sent the euro up 1% against the dollar, to $1.2315, and it also gained against other major currencies. Spanish and Italian borrowing costs eased, after Draghi appeared to signal that the ECB was prepared to act to calm the bond markets.

“If government borrowing premia hurt monetary policy transmission, they are in our mandate,” he said.

The yield on Spanish 10-year debt dipped to a whisker above 7%, at 7.009%, while Italian 10-year yields fell to 6.1%.

Draghi said the eurozone was much stronger than people acknowledged and progress over the last six months had been remarkable. “The last summit was a real success as it was the first time that all the leaders of 27 countries, including the UK, said the only way out of this crisis is to have more Europe. This means that much more of what is national sovereignty is going to be exercised at supranational level.”

Draghi was sharing the stage with Sir Mervyn King, governor of the Bank of England, who took the opportunity to deflect blame for the financial crisis from the banking sector. “Of course there was bad behaviour,” he said. “But this was a crisis which emanated from major mistakes in macroeconomic policy around the world, and fundamentally the inability to successfully co-ordinate macroeconomic policy so that globally you wouldn’t get the imbalances, the capital flows, that created the difficulties in the banking system.”

The day kicks off two weeks of investment summits aimed at attracting more foreign investment into the UK and promoting British business. Based in Lancaster House, the summit is taking place within earshot of the beach volleyball at Horse Guards Parade and aims to take advantage of the influx of foreign dignitaries for the Games.

The event offers some respite for trade minister Lord Green, who is under pressure because of his role as chief executive and then chairman at HSBC when the bank laundered money for Mexican drug barons and possibly even terrorists.

Green welcomed delegates to the conference and exchanged a warm handshake with King, among others. Green was promoting the UK as a great place to do business, alongside Lord Sassoon, commercial secretary to the Treasury, in a change to the schedule. He had been due to share the podium with Stuart Gulliver, current chief executive of HSBC, but Gulliver withdrew from the conference after the money laundering revelations. © Guardian News & Media Limited 2010

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European Central Bank president Mario Draghi calls on Europe’s leaders to resolve situation as governing council rejects reducing rates or boosting liquidity…

Powered by article titled “ECB dashes market hopes of fresh eurozone emergency measures” was written by Heather Stewart, for on Wednesday 6th June 2012 13.28 UTC

Mario Draghi, president of the European Central Bank, has dashed investors’ hopes of fresh emergency measures to contain the crisis in the euro area, leaving borrowing costs across the 17 member countries unchanged.

Explaining at his regular press conference in Frankfurt why the ECB’s governing council had decided against reducing rates from their current level of 1%, or unleashing a new wave of cut-price loans for struggling banks, Draghi suggested it was now up to Europe’s leaders to resolve the situation.

“Some of these problems in the euro area have nothing to do with monetary policy,” he said. “I don’t think it would be appropriate for monetary policy to fill other institutions’ lack of action.”

Stock markets on both sides of the Atlantic had bounced in anticipation of ECB action; but share prices began falling as Draghi spoke.

Draghi initially insisted the decision to leave rates on hold had been taken through “consensus”; but admitted in response to a later question that, “a few members would have preferred to have a rate cut today,” sparking hopes that the ECB could decide to reduce borrowing costs at its next meeting, in July.

He said the ECB’s Long Term Refinancing Operation (LTRO), which offered €1tn (£805bn) worth of three-year loans to banks in December and February, in exchange for collateral, had helped to resolve some of the tensions in financial markets, but the key problem now is no longer liquidity.

Summarising the ECB’s expectations for the next 12 months, Draghi said, “we continue to expect the euro area economy to recover gradually” – though he also admitted that “economic growth in the euro area remains weak, with heightened uncertainty weighing on confidence and sentiment”.

The ECB is forecasting growth across the euro area for this year to be between -0.5% and 0.3%; and for next year, between zero and 2%.

However, Draghi said this outlook was “subject to increased downside risks, relating in particular to a further increase in tensions in several euro area financial markets and the potential for spillover to the real euro area economy”.

Spain is currently the focus of financial markets’ anxiety, after Madrid admitted it does not have the resources to rescue its stricken banking sector without external help.

Asked whether the eurozone’s bailout fund, the EFSF, should be allowed to help Spanish banks directly – an idea the Germans have been reluctant to sanction – Draghi said: “Any decision about the EFSF should be based on realistic assessment of the need for recapitalisation of the banks and the money available to the government without the need to ask for external support.” © Guardian News & Media Limited 2010

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