Nick Fletcher

Following Ireland’s exit from the bailout, ECB boss Mario Draghi seems to be trying to pour cold water on the optimism. Situation in the second-largest economy in the euro-area worsens with French firms suffering. France looks like the ‘sick man of Europe’…

 


Powered by Guardian.co.ukThis article titled “Draghi warns EU on banking supervision — business live” was written by Graeme Weardenand Nick Fletcher, for theguardian.com on Monday 16th December 2013 16.24 UTC

Coming up in the UK tomorrow morning, the latest inflation data are expected to show price rises steadied last month but still outstripped wage growth. My colleague Katie Allen writes:

The consumer price index measure of inflation is expected to hold at 2.2% in November according to the consensus forecast in a Reuters poll. But some economists see the rate dropping to 2% while others have pencilled in a rise to 2.5%. Inflation has been above average annual earnings growth for several years now and the latest official figures put pay growth at 0.8%.

The RPI rate in tomorrow’s data from the Office for National Statistics – a measure often used for setting pay and pensions – is forecast to edge up to 2.7% from 2.6% in October.

Jonathan Loynes and Jack Allen at the thinktank Capital Economics say tomorrow’s data could show CPI at the Bank of England’s government-set target of 2% for the first time since November 2009. They comment: “Admittedly, petrol prices will probably make a larger contribution to inflation than in October. While they fell by about 1% m/m last month, they dropped by nearly 2% in November 2012.

“Nonetheless, food inflation should ease in November. Both global agricultural commodity prices and domestic food producer prices have been falling this year. And the British Retail Consortium’s timelier measure of food shop price inflation fell from 2.7% to 2.3% in November.

“In addition, although the two largest energy companies, British Gas and SSE, raised their prices on 15th and 23rd November respectively, these are unlikely to affect November’s CPI reading. Index Day – the day of the month on which the ONS chooses to collect prices – always falls on either the second or third Tuesday of the month. The ONS does not say which day until after the release, but given the pattern of previous Index Days, we reckon the ONS recorded prices on 12th November, before the energy companies raised their prices.

Meanwhile Portugal says it has passed the latest review by the troika of lenders:

Over in Greece, intense efforts are underway to wrap up negotiations with mission heads representing the country’s troika of creditors. Our correspondent in Athens Helena Smith reports.

With debt-stricken Greece’s next tranche of international aid resting on the talks, finance minister Yannis Stournaras said it was the government’s aim to conclude negotiations before tomorrow’s crucial euro group meeting. But the omens do not look good.

In unusually terse statements made before the onset of a fourth round of talks focusing on the thorny issue of bank repossession of homes, the development minister Kostis Hadzidakis insisted that Athens’ fragile coalition government would simply not adopt measures “at any price.”

“It is our intention to reach an agreement … but it is obvious that we are not going to agree at any price. The government cannot go back [on its promises] and accept whatever it is offered,” he said adding that under the terms offered by creditors at the EU, ECB and IMF, vulnerable Greeks would lose their homes. “It is easy to agree but afterwards you have to handle the social consequences,” he told Skai radio. The talks, which began at 4:30 PM local time, are being billed as “the very last” effort to find consensus on the potentially explosive issue.

After Ireland’s exit from the bailout this weekend, ECB boss Mario Draghi seems to be trying to pour cold water on the optimism. From his appearance at the European Parliament:

Back with Draghi:

Updated

Following the fifth and final review of Spain’s financial sector, the troika of the ECB, European Commission and IMF have welcomed signs of stabilisation at the country’s banks while warning more needs to be done:

Spain has pulled back from severe problems in some parts of its banking sector, thanks to its reform and policy actions, with the support of the euro area and broader European initiatives.

Spanish financial markets have further stabilised. Following the drop in sovereign bond yields, and the rise in share prices, financing conditions for large parts of the economy have improved, even if financing conditions for SMEs remain more challenging.

Nevertheless, the broader economic environment has continued to weigh on the banking sector, even if that impact has recently been receding. The private sector needs to reduce its debt stocks going forward, as heavy debt burdens continue to weigh on lending to the private economy.

Supervisors and policy makers have to continue to monitor closely the operation and stability of the banking sector. Continued in-depth diagnostics of the shock resilience and solvency of the Spanish banking sector remain vital. This is also important in order to ensure a proper preparation of the pending assessment of banks’ balance sheets by the ECB and EBA in the run up to the start of the Single Supervisory Mechanism.

The recent encouraging macroeconomic developments bear witness of advancement in the process of adjustment of the Spanish economy and corroborate the expectation of a gradual recovery in activity and of an approaching end to employment destruction.

The economic situation remains however subject to risks as imbalances continue to be worked out. Respecting fully the agreed fiscal consolidation targets – so as to reverse the rise in government debt – and completing the reform agenda remain imperative to return the economy on a sustainable growth path.

Following progress during 2013, the policy momentum needs to be maintained to finalise ongoing and planned reforms – amongst which are the delayed law on professional services and associations, reforms of public administration, further strengthening of labour market policies, eliminating the electricity tariff deficit and the forthcoming review of the tax system – and to ensure effective implementation of all reforms.

Full report here.

Updated

The protests in Ukraine have put pressure on the country’s credit rating, according to Fitch. The agency said:

The duration and scale of anti-government protests in Ukraine has put additional pressure on the country’s credit profile. The longer the standoff goes on, the greater the risk that political uncertainty will raise demand for foreign currency, cause inward investment to dry up, or trigger capital flight, causing additional reserve losses and increasing the risk of disorderly currency moves.
Developments over the weekend suggest the crisis is some way from resolution as the opposition hardens demands for a change of government. Between 150,000 and 200,000 protestors gathered in Kiev, according to press reports.
Even if the immediate crisis were defused and protests ended, political uncertainty would persist. The government would still be likely to find it hard to resolve the diplomatic challenge of building closer relations with the EU while placating Russia.

Full report here:

Ukraine Protests Increase Pressure on Credit Profile

And here’s ECB president Draghi on any trimming by the US Federal Reserve of its $85bn a month bond buying programme:

Markets jump as Fed fears ease and US deals enthuse investors

After days in the doldrums, markets are moving sharply higher. Investors have been selling shares in recent dayks amid concerns the US Federal Reserve could start turning off the money taps as early as this week’s meeting.

Strong US economic data – including industrial output today – has made that more likely, as has the signs of political agreement about the US budget. But on the whole, observers still think, in the main, the Fed will wait until next year.

So with a spate of acquisitions, including Avago Technologies paying $6.6bn for LSI Corporation, shares are back in favour for the moment. The Dow Jones Industrial Average is currently nearly 1% or 156 points higher, helping to pull the FTSE 100 to its highest levels of the day, up more than 1.3%.

Back to the news that Lloyds of London has appointed its first female boss, and my colleague Jill Treanor has the full story:

Forty years after the first woman entered the Lloyd’s of London dealing floor as a broker, the 325-year-old insurance market has named its first female boss.

The company is to be run by 30-year industry veteran Inga Beale from January. Currently the chief executive of Canopius, a Lloyd’s managing agent thought to be the subject of a takeover bid, Beale will replace Richard Ward who surprised the industry by resigning in the summer.

More here:

Lloyd’s of London appoints first female chief executive in 325-year history

Draghi is strking a dovish tone, according to Annalisa Piazza at Newedge Strategy:

The ECB’s Draghi comments in front of the EU Parliament strike a rather dovish tone on the current state of the EMU economy. Indicators signal that the EMYU recovery is set to grow at a modest pace in Q4 and the ECB is ready to act if needed. The effects of past policy easing will be clear only with a certain delay. In the meanwhile, the ECB is fully aware of downside risks on inflation.

And it seems more MEPs have now turned up to hear Draghi:

Draghi warned:

We should not create a Single Resolution Mechanism that is single in name only. In this respect, I am concerned that decision-making may become overly complex and financing arrangements may not be adequate. I trust that the European Parliament, together with the Council, will succeed in creating a true Banking Union.

Draghi also discussed the Single Supervisory Mechanism, and there would be stress tests for sovereign bonds as part of the process:

An important element of our preparations is the comprehensive assessment, which comprises a supervisory risk assessment, an asset quality review and a stress test performed in cooperation with the European Banking Authority (EBA).

…The process for the selection of asset portfolios to be reviewed for the asset quality review was initiated in November, based on specific data collections. Furthermore, we expect to announce the key parameters of the stress test exercise together with the EBA towards the beginning of next year.

In this context, let me explain again the treatment of sovereign bonds: The Asset Quality Review is a valuation exercise where we will apply the current regulatory framework. It is not for us to change this framework – this is a global discussion, and the Basel Committee is the right forum for it. That said, we will of course “stress” a wide range of assets as part of the stress tests: Sovereign bonds will be among them.

On interest rates and other measures, Draghi said:

Our forward guidance still remains in place: we continue to expect ECB key interest rates to remain at present or lower levels for an extended period of time. Thus, monetary policy will remain accommodative for as long as necessary.

Adjusting interest rates is not always sufficient to maintain price stability. In this crisis, interest rate cuts have been transmitted more slowly and unevenly across euro area countries due to the fragmentation of financial markets. To address this problem, we adopted in recent years a series of non-standard measures. The purpose of these was – and remains – a more effective transmission of the ECB’s interest rate cuts, so that our monetary policy can reach companies and households throughout the euro area.

This was also the purpose of our decision in November to continue conducting all our refinancing operations as fixed rate tender procedures with full allotment at least until July 2015. Thus, we have helped to alleviate funding concerns of banks, which are still hesitant to lend to households and firms.

Two years ago, we provided funding support to euro area banks through two Long Term Refinancing Operations with a maturity of three years each. As the funding situation of banks has improved significantly since then, banks have this year opted to repay about 40% of the initially outstanding amount. Accordingly, excess liquidity in overnight money markets has been gradually receding. We are monitoring the potential impact of these developments on our monetary policy stance. We are ready to consider all available instruments.

Over in Europe, ECB president Mario Draghi is speaking at the European parliament. here are the Reuters snaps:

16-Dec-2013 14:10 – DRAGHI – UNDERLYING PRICE PRESSURES ARE SUBDUED

16-Dec-2013 14:10 – DRAGHI – SEE MODEST GROWTH IN Q4

16-Dec-2013 14:11 – DRAGHI – ACCOMMODATIVE ECB MON POL STANCE WILL SUPPORT RECOVERY

16-Dec-2013 14:12 – DRAGHI – GROWTH RISKS ARE ON DOWNSIDE

16-Dec-2013 14:14 – DRAGHI – GOVERNING COUNCIL EXPECTS KEY ECB INTEREST RATES TO REMAIN AT PRESENT OR LOWER LEVELS FOR EXTENDED PERIOD

16-Dec-2013 14:17 – DRAGHI – MONITOR MONEY MARKET CONDITIONS CLOSELY, READY TO CONSIDER ALL AVAILABLE INSTRUMENTS

16-Dec-2013 14:18 – DRAGHI – WE ARE FULLY AWARE OF DOWNWARD RISK THAT PROTRACTED PERIOD OF LOW INFLATION ENTAILS

16-Dec-2013 14:19 – DRAGHI – SEE NO RISKS OF FINANCIAL IMBALANCES RELATED TO LOW INTEREST RATE ENVIRONMENT

16-Dec-2013 14:21 – DRAGHI – SOVEREIGN BONDS WILL BE TREATED RISK-FREE IN AQR, WILL BE STRESSED IN EBA STRESS TESTS

16-Dec-2013 14:22 – DRAGHI -CONCERNED THAT SRM DECISION MAKING MAY BECOME OVERLY COMPLEX, FINANCING ARRANGEMENTS MAY NOT BE ADEQUATE

Updated

Back in the world of economics, US factory output has slowed a little this month, mirroring the news from China overnight (see 8.02am post).

Markit’s monthly flash measure of American manufacturers came in at 54.4, down from 54.47 in November. That indicates that US firms (manufacturers and service firms) still grew, but at a slightly slower rate.

The employment measures showed that firms hired new staff at the fastest rate in nine months, and Markit reckons that this quarter is turning into the best three months for US factories this year.

And separate data from the Federal Reserve backs this point up — it just reported a 1.1% jump in industrial output in November.

On that note, I’m handing over to my colleague Nick Fletcher.

Updated

Inga Beale’s appointment as boss of Lloyd’s of London will go a small way to closing the gender gap at the top of the City. But there’s still some way to go.

Currently there are just three women running FTSE 100 companies — Angela Ahrendts at Burberry; Carolyn McCall at EasyJet, and Alison Cooper at Imperial Tobacco. Moya Greene will become the fourth when Royal Mail enters the index on Wednesday night.

Lloyd’s of London isn’t a listed company, so Beale won’t join the quartet.

The total will rise to five when BT executive Liv Garfield moves to run Severn Trent — but, with Ahrendts joining Apple next year, the total could soon drop back to four.

Concern has been growing recently that the City is still a tilted playing field. A survey last week found that a man who starts his career with a FTSE 100 company is four and a half times more likely to reach the executive committee than his female counterpart (the Financial Times has more details).

The UK has a target of 25% female representation across corporate boards by 2015 — currently the figure is 19%, up from 12.5% in 2010. So there appears to be progress…. except that women who do reach senior positions are in jobs that are traditionally lower paid.

Updated

How times change…. Inga Beale is appointed as Lloyd’s first woman CEO just 40 years after the London insurance market welcomed its first ever female broker into the ranks.

Liliana Archibald was a pioneer in 1973 when she became the first ever Lloyds broker, after Lloyd’s decided to move with the times. She now gets a space in the Historic Heroes section of Lloyd’s website, which explains:

At that time, Lloyd’s made a decision to accept women as Names. Archibald applied and in 1973 was accepted.

She told Lloyd’s List, ‘I did not break down the barriers; they were broken down for me by the members of Lloyd’s in a very charming way.’

Updated

Lloyd’s of London appoints first female CEO

Lloyd’s of London has appointed its first ever female chief executive.

Inga Beale will succeed Richard Ward in January. She currently runs Canopius Group, the Lloyd’s-based insurance and reinsurance group.

There had been many whispers in the City in recent days that Beale was in line for the top job at Lloyds, making her the first women to lead the insurance market in its 325-year history.

Beale has worked in insurance for three decades — beginning her career in insurance as an underwriter with Prudential. She’s also previously worked as Global Chief Underwriting Officer of Zurich Insurance, and as Group CEO of Converium Ltd.

John Nelson, Chairman of Lloyd’s, said:

I am absolutely delighted that we have appointed Inga as Chief Executive. She has 30 years’ experience in the insurance industry.

Her CEO experience, underwriting background, international experience and operational skills, together with her knowledge of the Lloyd’s market, make Inga the ideal Chief Executive for Lloyd’s. I very much look forward to working with her.

In the statement just published, Beale said Lloyd’s has “an extraordinary opportunity to increase its footprint and to cement its position as the global hub for specialist insurance and reinsurance”.

Back in June, she argued that more diverse boardrooms could deliver stronger results. Beale explained: 

I think the business is run differently if you have women around the decision making table and that’s why it’s good to have diversity, not just on the gender side.

Different people approach things differently and provide alternative views – diverse boards help companies make better decisions, which affect the bottom line.

It’s been a good few days for gender equality in the corporate world, with Mary Barra being appointed to lead General Motors last week.

Updated

The Eurozone’s trade surplus almost doubled year-on-year in October — but a fall in imports, rather than a surge of exports, is the main factor.

Eurostat reports that the eurozone’s posted a trade surplus of €17.2bn with the rest of the world in October, up from €9.6bn in October 2012..

The trade surplus was also much larger on a month-on-month basis, up from €10.9bn in September.

That sounds encouraging, but a peek at the data confirms that the flow of goods into the eurozone has stumbled since the eurozone crisis began.

Seasonally adjusted imports fell by 1.2% in October compared with September, while exports rose by 0.2%.

So far this year, exports are up 1% to €1.578trn, while imports are down 3% at €1.455trn. The resulting trade surplus, of almost €123bn, is double last year’s €57.4bn.

The data also underlined today’s theme — the divergence between Germany and France.

So far this year, the largest surplus has been recorded in Germany (+€148.3bn in January-September 2013), followed by the Netherlands (+€40.5bn), Ireland (+€28.5bn), Italy (+19.6bn), Belgium (€11.6bn) and the Czech Republic (+€10.6bn).

The biggest deficit was registered in France (-€57.5bn) , followed by the United Kingdom (-€55.1bn), Greece (-€14.5bn) and Spain (-€11.6bn).

Updated

Troubled insurance firm RSA is the biggest faller on the FTSE 100 this morning, shedding almost 3%.

Trader fear RSA’s recent problems — three profits warning, and the resignation of its CEO — could hit its credit rating.

RSA Insurance drops another 3% on credit rating fears

Updated

In the City, power firm Aggreko is leading the FTSE 100 risers after announcing decent results — and a deal to supply temporary power for the World Cup and Commonwealth Games in 2014.

That’s sent its shares up 6% (clawing back losses suffered last week).

Aggreko wins World Cup and Commonwealth Games power contracts

The euro has risen this morning, up 0.2% to $1.3765 against the US dollar. That reflects Markit’s view that today’s PMI data doesn’t make fresh stimulus from the European Central Bank more likely.

There’s also edginess ahead of the Federal Reserve’s meeting on Wednesday -when it might start to ease back on its $85bn/month bond-buying programme

Peter O’Flanagan of Clear Currency reckons the Fed won’t taper this week:

 Although there are continued signs of improvement in the US economy we feel the Fed may well look for one more month of strong data before they announce the scaling back of their QE program.

That being said we think this decision will be down to the wire.

European market: morning update

It’s a positive start to the week in Europe’s stock markets.

The Spanish and Italian markets are the best performers, following the news that private firms in the periphery are enjoying their best month since April 2011, according to Markit

  • FTSE 100: up 32 points at 6,472, + 0.5%
  • German DAX: up 45 points at 9,052, +0.5%
  • French CAC: up 16 points at 4,076, + 0.4%
  • Spanish IBEX: up 141 points at 9,414, + 1.5%
  • Italian FTSE MIB: up 253 points at 18,089, +1.4%

Howard Archer of IHS sums up the good news in today’s data…..

Some relatively decent news for Eurozone recovery prospects with the December purchasing managers surveys indicating that overall Eurozone manufacturing and services output expanded for a sixth month running and at the fastest rate since September.

Furthermore new orders picked up in December to the highest level since mid-2011, thereby lifting hopes that Eurozone activity can pick up at the start of 2014.

… and the bad:

However, there was pretty dire news on France where overall manufacturing and services activity contracted for a second month running in December and at the fastest rate for seven months following on from GDP contraction of 0.1% quarter-on-quarter in the third quarter.

This suggests that there is a very real danger that France is slipping back into shallow recession and reinforces concern about France’s underlying competitiveness.

France lags behind as eurozone recovery picks up

Activity across the Eurozone private sector has risen this month as the single currency area ends the year with ‘fragile’ growth, according to Markit’s new data published this morning.

It found that output in peripheral eurozone countries picked up in December.

With Germany already reporting solid growth this morning (see here), France looks increasingly like the ‘sick man of Europe’ as its firms struggle.

Markit’s Eurozone PMI Composite Output Index — which measures activity at thousands of firms across the eurozone — rose to 52.1 in December, up from 51.7 in November. That’s a ‘flash’ estimate, of course, but it suggests stronger growth in most parts of the euro area – not just Germany.

December is turning into a good month for eurozone manufacturers, with output rising for the sixth successive month. The rate of increase was the highest since April 2011 .

Service sector growth was more modest, though, with the rate of expansion hitting a four-month low (but there was still growth)

But as this graph shows, France was the laggard – with its service and manufacturing firms reporting a drop in activity (see 8.23am for details).

Chris Williamson, chief economist at Markit, said the data suggested the eurozone will grow modestly this quarter, by 0.2%. He fears that France could fall back into recession though, as the gap between the eurozone’s two biggest countries gets bigger .

Williamson explained:

The rise in the PMI after two successive monthly falls is a big relief and puts the recovery back on track. The upturn means that, over the final quarter, businesses saw the strongest growth since the first half of 2011, and have now enjoyed two consecutive quarters of growth.”

On the downside, the PMI is signalling a mere 0.2% expansion of GDP in the fourth quarter, suggesting the recovery remains both weak and fragile.

The upturn is also uneven. Growth is concentrated in manufacturing, where rising exports have helped push growth of the sector to the fastest for two-and- a-half years, while weak domestic demand led to a further slowing in service sector growth.

However, it‟s the unbalanced nature of the upturn among member states that is the most worrying. France looks increasingly like the new “sick man of Europe‟, as a second successive monthly contraction may translate into another quarterly decline in GDP, pushing the country back into a technical recession. In contrast, the December survey data round off a solid quarter of growth in Germany, in which GDP looks set to rise by 0.5%.

There‟s little here to suggest that euro area policymakers need to increase their stimulus, but on the other hand the sluggish nature of the upturn adds to the sense that policy will remain ultra- accommodative for quite some time.

And here’s some reaction to the news that growth in Germany manufacturing sector is currently running at a 30-month high….

Tim Moore, senior economist at Markit:

 Manufacturing achieved a particularly strong end to the year, with improving new order flows and renewed job creation also providing encouragement that the sector has gained momentum since the autumn.

Growth of new work was the fastest for over two-and- a-half years while stocks of finished goods were depleted at an accelerated pace.

Quite a contrast with France, where firms reported that orders are falling (see 8.23am)

Now over to Germany…..

Germany’s private sector is leaving France in the dust, Markit reports, led by its manufacturers.

Private sector output in the eurozone’s largest economy is growing steadily this month, for the eighth month in a row.

German factories saw output growth accelerate, pushing the manufacturing PMI up to a 30-month high of 54.2, up from 52.7 in November.

Service sector firms expanded at a slower pace than in November, but growth was still solid. The Service sector PMI was 54.0, down from 55.7.

This meant the composite German private sector PMI fell slightly to 55.2 in December, down slightly on November’s 55.4 — but still indicating healthy expansion.

That suggests Germany’s economy will grow this quarter.

Credit Agricole’s Frederik Ducrozet points out that other French economic surveys have been less pessimistic than the PMI readings…

And this graph shows how recent PMI data has been more negative than the official growth data:

Updated

French PMI: Instant reaction

Here’s how experts are reacting to the news of France’s weakening private sector:

Markit chief economist Chris Williamson said the drop in French private sector activity suggests that France’s GDP will shrink by about 0.1% in the current quarter.

That would follow the 0.1% contraction in July-September — putting France back into recession (defined as two consecutive quarters of negative growth)

Williamson added:

The pipeline of work that companies have to deal with is drying up and we’ll get to a stage where, if that doesn’t turn around, there will be increased job losses.

French private sector keeps shrinking

France could be sliding into a double-dip recession, as its private sector activity continues to fall this month.

Data provider Markit reports that the rate of decline in French private sector output accelerated during December. It recorded the biggest contraction in output in seven months.

That suggesting that France’s economy is still shrinking, as manufacturers and service sector struggle to win new contracts.

The Markit Flash France Composite Output Index, slipped to 47.0, from 48.0 in November — that’s the second month in a row that it’s been below 50 points (which signals a drop in activity).

In a report shy of good news, Markit found that new orders are decreasing in the French private sector, meaning companies are relying on existing work to keep busy.

 Backlogs of work fell solidly and at the sharpest pace in eight months, it said. Staffing levels also continued to decline during December, as firms shed staff.

Andrew Harker, Senior Economist at Markit, said the readings “paint a worrying picture on the health of the French economy.

The return to contraction in November has been followed up with a sharper reduction in December, with falling new business at the heart of this as clients were reportedly reluctant to commit to new contracts.

Firms will hope that such reticence ends in the new year as they seek to avoid another protracted downturn.

Details to follow….

Chinese factory growth slows

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

The last full working week of 2013 (in these parts, anyway) begins with the news that growth in China’s factory sector has slowed this month, for the third month in a row.

It’s that stage in the month when data provider Markit produces its ‘flash’ estimates of activity in key economies, based on interviews with purchasing managers (We get data from France and Germany this morning too).

And China’s PMI has fallen to 50.5 for December, from November’s 50.8, with firms reporting that output growth slowed. That’s closer to the 50-point mark that splits expansion from contraction.

It may suggest the global economy is ending the year on a weaker note. As well as slowing output growth, firms also reported a drop in employment. On a happier note, new orders have picked up.

The news sent China’s stock market sliding to a four-week low, with the Shanghai Composite Index shedding 1.6%.

That’s set the tone for an edgy start to the week, as global investors await the US Federal Reserve’s monthly meeting on Wednesday night (where the Fed might take the plunge and slow the pace of its stimulus programme).

Also on the agenda– the implications of Germany’s new government, after the CDU and the SPD formally formed a coalition over the weekend.

And I’ll be keeping an eye on Greece, where the government and the Troika are continuing to hold talks over its bailout programme…..

Updated

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USA 

Polling data shows that Sunday’s German elections will be close, and could determine eurozone economic policy for the next stage of the crisis. Tight fight expected. Latest polling shows election is neck-and-neck. Grand coalition probably the most likely option…

 


Powered by Guardian.co.ukThis article titled “Markets await German elections; India surprises with interest rate rise – live” was written by Graeme Wearden (earlier) and Nick Fletcher (now), for theguardian.com on Friday 20th September 2013 16.11 UTC

Here’s some Friday night ratings action:

On Malta Fitch said:

There has been significant fiscal slippage. Malta’s general government deficit was 3.3% of GDP in 2012, well above both the government’s target (2.2%) and Fitch’s September 2012 forecast (2.6% of GDP). This slippage has carried over to 2013, when Fitch forecasts a deficit of 3.6% of GDP, compared with 2.7% in the original 2013 budget. The European Commission has re-opened the excessive deficit procedure (EDP) against Malta, with the deadline for correcting the excessive deficit set for 2014. In its previous rating review (September 2012), Fitch identified material fiscal slippage in 2012 as a negative rating trigger.

And on Croatia being cut to junk:

Croatia’s fiscal outlook has deteriorated since Fitch’s previous sovereign rating review in November 2012. The agency has revised up its forecast for this year’s general government deficit to 4.7% in 2013 from 3.9%, while general government debt/GDP is now expected to peak at 66% of GDP in 2016, up from our previous forecast of 62%.

A structurally weak growth outlook has impaired the prospects for fiscal consolidation and the attainment of public debt sustainability.

A look at the possible problems facing Angela Merkel should she win the German election this weekend, courtesy of the Wall Street Journal. A taster below with the full story here:

Angela Merkel has become Europe’s most popular leader by telling Germans they don’t need to change, and by shielding them from much of Europe’s debt-crisis pain at the same time.

But as Ms. Merkel heads into a likely third term as Germany’s chancellor, there are increasing calls from the business community, which she has counted among her most loyal supporters, and others for her to move more quickly to confront simmering domestic problems that they worry will eventually endanger German prosperity.

The time to fix the problems—energy costs, worn-out roads and gaps in education among them—is now, they say, while the economy is healthy.

In the corporate world, Vodafone has received clearance from the European Commission for its takeover of Kabel Deutschland, and with that final hurdle passed, the deal is expected to be completed on 14 October.

Eurozone consumer confidence rose to a two year high in September, according to new figures from the European Commission, but is still in negative territory.

The index rose to -14.9 from -15.6 in August, compared to expectations of a figure of around -15. The news that strong German and French growth had helped pull the eurozone out of recession clearly helped sentiment, although the recovery remains fragile, as evidenced by Italy cutting its growth forecasts earlier today. Annalisa Piazza at Newedge Strategy said:

Consumer confidence is expected to have supported by the relative good news on the development of the EMU economy (that has finally emerged from a 6-quarter recession). News that the ECB is willing to maintain the current accommodative policy might have also played a role as households see reduced risks to their disposable income in the future. On the other hand, the still high unemployment rate and geopolitical uncertainties are likely to have put a lid on a more pronounced uptick in September.

Dow Jones opens lower after Fed taper comments

Wall Street has opened lower, not surprisingly given Fed official James Bullard’s comments that tapering might begin in October. The Fed gave markets at boost following Wednesday’s surprise decision by the US central bank to maintain its $85bn a month bond buying programme.

But after Bullard’s hint, the Dow Jones Industrial Average is down 22 points or 0.14% in early trading. However the Nasdaq had edged higher, up 0.15%, helped by a near 3% rise in Apple shares on the day queues form for the tech giant’s latest iPhones.

More German polling figures, showing the SPD and AfD edging up:

Updated

Across the Atlantic, observers are still trying to get their heads around Ben Bernanke’s decision on Wednesday not to start scaling back the US Federal Reserve’s $85bn a month bond buying programme.

Most economists had expected a move to wean the markets off the quantitative easing fix this month, but Bernanke pointed to the US economy still being too fragile.

But today Fed official James Bullard suggested to Bloomberg that the so-called tapering might now start in October. So we have all the “will-they-won’t-they” speculation to look forward to for another few weeks yet.

Updated

Budget airline Ryanair has promised to mend its ways, after being rebuked about its “abrupt” culture by shareholders today.

Reuters writes:

Ryanair, Europe’s biggest budget airline, has promised to transform its “abrupt culture” in a bid to win customers from costlier rivals, admitting for the first time that a reputation for treating its passengers badly might have become a problem.

The Irish firm, this week voted the worst of the 100 biggest brands serving the British market by readers of consumer magazine Which?, said on Friday it would become more lenient on fining customers over bag sizes and overhaul the way it communicates.

“We should try to eliminate things that unnecessarily piss people off,” chief executive Michael O’Leary told the company’s annual general meeting, after several shareholders complained about the impact of customer service on sales.

That’s the spirit.

More here: Ryanair must stop ‘unnecessarily pissing people off’, says O’Leary

And on that note, I’m going to fly home. Nick Fletcher has the controls. Thanks for reading and commenting.

Maybe see you online on Sunday night for the election excitement? Our foreign team will be all over it, and I’ll be on Twitter as @graemewearden as usual.

Updated

Forsa: German election is neck-and-neck

New polling data from Germany has just been released, showing that Sunday’s election is neck-and-neck with neither side on track for a clear majority.

The poll from Forsa found that the current CDU/CSU-FDP coalition would win 45% of the vote, as would their main rivals. Another key point, the eurosceptics Alternative For Germany would not hit the 5% threshold.

  • CDU/CSU 40%.
  • SPD 26%. 
  • Greens 10%.
  • LINKE 9%. 
  • FDP 5%
  • AfD 4%
  • Pirates 2%

I didn’t mention earlier, but the SDP has ruled out forming a government with the more left-wing Linke party, given its views on foreign affairs and its opposition to NATO. That could change in the heat of coalition talks, of course.

Today’s UK public finance figures mean George Osborne is on track to hit his fiscal targets for this year.

My colleague Katie Allen explains all:

A drop in government spending helped cut Britain’s borrowing last month, prompting economists to forecast that the chancellor is on track to meet his fiscal target for this year.

Borrowing for the last financial year as a whole was also revised down slightly by the Office for National Statistics as it published data on the public finances.

As mentioned earlier, Britain ran a deficit of £13.2bn in August – smaller than last year’s £14.4bn.

Katie continues:

The government’s progress on cutting Britain’s deficit – the gap between the government’s income and spending – was described as “painfully slow” by one business group. But analysts said the public finances appeared to be on an improving trend.

More here: Osborne on track to meet fiscal target as UK public borrowing falls

In the City, the Foxton’s estate agent chain continues to enjoy a stellar first day on the stock market. Its shares are up 20% this morning, at 277p from the 230p it floated at.

The FT says it shows “a recovery in both share offerings and the residential property market in the UK”.

Joshua Raymond, chief marketing strategist of Cityindex.co.uk, calls it a “hugely impressive” debut, and deliciously timed, too.

With London house prices shooting in the midst of a pricing bubble thanks in part to the Help to Buy Scheme, investors are trying to gain exposure to firms that directly benefit from this and as such the Foxtons IPO could not have been better timed in terms of its attractiveness.

Or as one fund manager puts it:

Updated

Thanks to BigBlue80 for flagging up the polling data which suggests Angela Merkel’s current CDU-CSU/FDP coalition would not get enough votes to return to power.

In the past, the most reliable of the large pollsters was the Institut für Demoskopie (IfD) Allensbach

They predict the following:
CDU/CSU 39,0%
SPD 26,0%
Grüne 11,0%
Linke 9,0%
FDP 6,0%
AfD 3,5%
Piraten 2,0%
Sonstige 3,5%

I.e. 45% for the current CDU/FDP coalition and 46% for the three major left parties.
It’s quite certain that Merkel stays chancellor although I would not completely discount the option of a SPD-Left-Green coalition. Which sounds like change but would mainly lead to too much instability to get anything done.

AfD might only influence politics in the sense that Merkel will have to watch her right-flank in the next few years. While these one-trick ponies usually don’t last long, they would have 4 years to embarass Germany abroad.

Updated

Speaking of eurosceptics….

Italy cuts growth targets

The Italian government has bowed to the inevitable today, tearing up its growth targets and admitting that its budget deficit is heading over target.

Enrico Letta’s government cut its forecast for 2013 to a contraction of -1.7%, down from -1.3% before. In 2014, it expects growth of 1%, down from 1.3%.

Both forecasts remain more optimistic than the IMF’s own targets — the Fund expects a 1.8% contraction in 2013 and a 0.7% expansion in 2014.

That difference could matter — on Letta’s calculations, the Italian deficit is on track to hit 3.1% this year. That’s over the EU’s target, and econony minister Fabrizio Saccomanni told reporters that it will be “corrected quickly”.

Sounds like the EU are putting pressure over the deficit too:

Saccomanni also predicted that Italy’s two-year recession will end soon, with GDP flat this quarter and then rising in the last three months of this year.

Updated

Tony Connelly, Europe Editor for RTE News, reports that the eurosceptic Alternative für Deutschland party are in good spirits ahead of Sunday’s election.

Party loyalists are confident they’ll win enough support to claim seats in the Bundestag. They’re also looking ahead to next year’s European elections.

Emma Tunney, an intern with Open Europe, attended one of Angela Merkel’s campaign rallies this week, and writes that Europe was only raised late in the chancellor’s speech:

Here her stance was clear – Germany must hold the course. Germany’s continued commitment to help its friends is necessary, that said she was quick to add that Germany had every right to expect those receiving assistance make meaningful changes to their financial systems.

Her assertion of a CDU rejection of the possibility of mutualizing European debt was well received, and was perhaps the most definitive statement on what we could expect should she become Chancellor once again.

Parish notice: my colleagues on the foreign desk have been tracking the twists and turns of the German general election in their own blog: German Elections Blog 2013.

Updated

From Berlin, my colleague Philip Oltermann flags up that the unfolding story of how US intelligence have been accessing Europe’s electronic communications was raised by Peer Steinbrück yesterday,

The NSA affair became a German election issue on Thursday when Social Democrat candidate Peer Steinbrück accused Angela Merkel of “negligent” treatment of the issue.

He said the revelations of US internet surveillance represented a “far-reaching interference with our basic democratic rights and personal self-determination”, and that Merkel had failed to “protect German citizens’ freedoms and interests”.

More here: Peer Steinbrück accuses Angela Merkel of negligence over NSA revelations

Electionista has crunched the recent polling data and concluded that Angela Merkel’s CDU-CSU/FDP coalition has just a 50.5% chance of winning a majority on Sunday:

On that point….

Updated

AP: Tight fight in Germany

Here AP’s latest dispatch from the German political frontline. It explains how the Free Democrat party are battling to hit the crucial 5% mark to get into the Bundestag.

Chancellor Angela Merkel’s conservatives and her struggling coalition partners were fighting over votes Friday in the final stretch of campaigning for Germany’s election as polls pointed to a tight outcome.

Merkel is heavily favored to emerge from Sunday’s election with a third term, but her hopes of continuing the current coalition of her conservatives and the pro-market Free Democrats are in the balance.

A ZDF television poll conducted Wednesday and Thursday showed a statistically insignificant one-point lead for the alliance over the combined opposition in line with other recent surveys showing a dead heat.

The Free Democrats are pushing hard for Merkel supporters’ votes after being ejected from Bavaria’s state legislature in a regional vote last weekend. In national polls, they’re hovering around the 5 percent support needed to keep their seats in Parliament.

Merkel and her conservative Union bloc are pushing back, saying they have no votes to give away. If the coalition loses its majority, the likeliest outcome would be a “grand coalition” between Merkel’s party and the center-left Social Democrats and the conservatives want to be as strong as possible.

“I would advise us all in the final hours before the election to fight our political opponents and not argue over each other’s votes,” Bavarian governor Horst Seehofer, who led Merkel’s conservative bloc to victory there, told the daily Die Welt.

The Free Democrats have “potential of well over 5 percent,” he was quoted as saying. They won nearly 15% at the last election.

“I think it’s a very strange understanding of democracy when the impression is raised that citizens’ votes belong to the chancellor,” the Free Democrats’ general secretary, Patrick Doering, shot back on n-tv television.

ZDF’s poll of 1,369 people gave Merkel’s conservatives 40 percent support and the Free Democrats 5.5%. Challenger Peer Steinbrueck’s Social Democrats polled 27%, their Green allies 9% and the hard-line Left Party with which the center-left parties say they won’t work 8.5%.

The poll showed a new anti-euro party, Alternative for Germany, at 4% not enough to win parliamentary seats. It gave a margin of error of plus or minus up to three percentage points.

But do note the caveat from earlier – some analysts think AfD are doing better than that…..

Looking back at the German election… here’s a handy graphic showing how last night’s polling data would translate into seats in the Bundestag:

The CDU’s 266 seats,plus the FDP’s 37, would give the current coalition a small majority –which could make for some tight votes on future eurozone policy.

Updated

On a lighter note, there’s a correction in the Financial Times today that deserves a wide audience (with many thanks to Luke Baker of Reuters)

Updated

Britain’s public finances were a little better than expected in August. The monthly deficit came in at £13.157bn, compared with estimates of around £13.3bn. Government revenues rose by 1.4%, and spending dipped by 2.2%.

So far this year, the UK had borrowed £46.8bn to balance the books, compared to £50.5bn for the first eight months of 2012. More to follow.

Updated

Corporate news

In the UK business world, the Office for Fair Trading has launched an investigation into possible price fixing on sports bras.

More here: OFT probes sports bra price fixing

And everyone’s favourite (?!) estate agent, Foxtons, has launched on the London stock market. Floated at 230p a share (valuing the firm at nearly £650m), its shares have leapt to 280p. Even London house prices aren’t going up that fast.

More here: Foxtons share price soars on debut

Adidas profits warning pushes DAX down

European stock markets are mostly lower today, but there’s not much afoot.

The initial rally sparked by the Federal Reserve’s decision on Wednesday not to taper its stimulus package has worn off, and traders appear to be hunkering down ahead of the German election.

The German stock market has been pulled down by a profit warning from Adidas last night.

Adidas blamed adverse currency effects, a distribution problem in Russia and poor trading at its golf business.

• FTSE 100: down 6 points at 6618, down 0.1%

German DAX: down 9 points at 8681, down 0.12%

French CAC: down 5 points at 4200,-0.12%

Italian FTSE MIB: down 1 point at 18056, – 0.01%

Spanish IBEX: up 11 points at 9,165, +0.13%

Updated

Here’s some early reaction to India’s surprise interest rate decision, which I’ve taken from Reuters.

Anjali Verma, chief economist at PhillipCapital:

Hiking the repo rate was unexpected. The governor is clearly worried about inflation. He is saying the improved international conditions will take care of the current account deficit funding and his focus will shift to fiscal deficit and inflation, which were taking a backseat.

Anubhuti Sahay, economist at Standard Chartered:

The statement clearly has a strong hawkish bias as it states that with a relatively more stable exchange rate, monetary policy formulation will be determined once again by internal determinants viz inflation and fiscal deficit.

Abheek Barua, chief economist at HDFC Bank:

The long-term signal is that the RBI is still concerned with inflation.

Easing short end of the curve, which it has done by cutting the MSF (marginal standing facility), reducing CRR requirements and etc. is a strong pro-growth signal. I think it (MSF) might be reduced even further.

India battles inflation with surprise rate hike

India’s new central bank governor Raghuram Rajan made a splashy debut in the monetary policy world this morning.

The Reserve Bank of India surprised the markets by announcing a quarter-point rise in India’s headline interest rate, from 7.25% to 7.5%.

However, the RBI also announced that it will unwind some of the “exceptional measures” put in place to support the Indian Rupee, after it slumped to record lows against the US dollar this summer.

Rajan’s message with today’s rate hike is that the RBI will make fighting India’s inflation problem its top priority. The cost of living is rising at 6.1% in India.

As Rajan put it in today’s statement:

Bringing down inflation to more tolerable levels warrants raising the repo rate by 25 basis points immediately.

The RBI raised rates despite recognising that the Indian economy is weakening, with “continuing sluggishness in industrial activity and service.”

Clearly, Rajan is showing that he’s taking price stability as his mantra. The minutes point out that that the RBI has struggled with this in the past:

What is equally worrisome is that inflation at the retail level, measured by the CPI, has been high for a number of years, entrenching inflation expectations at elevated levels and eroding consumer and business confidence. Although better prospects of a robust kharif harvest will lead to some moderation in CPI inflation, there is no room for complacency.

A rate hike usually pushes currencies up. However, the rupee promptly dived as the news hit the wires, as traders realised that the RBI was also cutting some of the exceptional measures introduced to support its currency. The rupee fell from 61.7 to the dollar to as low as 62.55.

Stocks also fell on the Indian stock market — with the Sensex sliding over 2.1% so far today.

* – for the record, the RBI trimmed its marginal standing facility rate by 75 basis points from 10.25 to 9.5 per cent, and cut the minimum proportion of the cash reserve ratio that banks must maintain at the RBI from 99 per cent to 95 per cent.

Updated

Interest in the German election extends to the Asian markets, reports IG’s man in Melbourne, Chris Weston.

There’s no panic, but investors are calculating how the result will affect eurozone crisis policy. He writes:

The market sees the election really going one of two ways; either the status quo is resumed (i.e. CDU, CSU and FDP remain in power) or perhaps a grand coalition with the SPD party is put together after a short period of negotiations.

Given the SPD’s previous positive stance on backing a redemption fund, backed by Eurobonds, if they did help govern in future we could see a spike in EUR/USD on the prospect of a more euro-friendly government in place. On the other hand if the AfD (right wing, anti-euro party) get over 5% of votes and thus gain representation in parliament, we could see EUR and US futures gap lower on Monday.

Eurozone concerns have had limited influence on price action of late, but the prospect of having the AfD party having representation in parliament could have implications on eurozone policy going forward. The first thing that springs to mind is Greece.

We know the Greeks have a funding problem; the IMF talked openly about it July; highlighting a €4.4bn funding gap in its current program for 2014 and €6.5bn in 2015.

Given all new loans have to be fully agreed on in the Bundestag (German lower house of parliament); AfD representation in parliament could cause disruptions and uncertainty here.

Updated

On the campaign trail….

Angela Merkel and Peer Steinbrück, the SPD’s candidate for the chancellorship, held election rallies last night in a late drive to win votes before Sunday’s election (see opening post)

Both politicians attracted a healthy turnout of supporters, as these photos show:

Updated

German election looms

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

Germany’s general election has loomed over the eurozone for most of 2013. Finally, it’s all-but upon us.

Germans head to the polls on Sunday in a crunch poll that will determine how Europe’s largest countryeconomy is governed for the next four years. There’s no doubt that Angela Merkel’s CDU-CSU party will win the most votes. But there’s real uncertainty over whether her coalition with the Free Democrats can be repeated, or whether we’ll see a grand coalition with left-leaning rivals.

Poll after poll this week have confirmed that it’s just too close to call (do make your predictions in the comments).

The latest survey, released last night by FGW, suggested that Merkel’s coalition would just win enough votes to take power again.

It put CDU at 40%, the Social Democrats at 27%, FDP at 5.5%, Linke at 8.5%, the Greens at 9%, and then the eurosceptic Alternative for Deutscheland at 4% (not enough to win seats).

So, that’s the CDU-FDP on 45.5%, and other major parties at 44.5%.

The key factor is that a party needs 5% of votes to actually get into the Bundestag. And the whisper in Germany (and in the comments section of this blog this week) is the AfD might be doing better than the pollsters believe.

If AfD clear the 5% mark, as some polls have suggested, then German politics will be dramatically shaken up.

Here’s what some respected euro journalists have been tweeting:

So, the eyes of Europe could be on Germany this weekend, and for sometime after if it’s an unclear result.

Traders in the City are already watching with interest, as CMC’s Michael Hewson writes:

It still remains uncertain as to what the electoral maths will be with respect to any new coalition government.

A rising Eurosceptic movement in Germany could well complicate things significantly after a poll by German newspaper Bild showed that the AfD party could well be on course for more than 5% of the vote in the election this weekend.

A move above this threshold would mean that the party would gain seats in the Bundestag and as such would mean that they would have much greater influence over policy as well as make the likelihood of a less stable coalition a real possibility as neither the CDU, or the SPD would have enough votes to form a government with any prospective coalition partners.

I’ll be tracking events through the day as usual. We’ve already had one piece of interesting news outside Europe — India’s central bank has surprised the markets by raising interest rates. More on that shortly…. 

Updated

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FTSE 100 finished 53.25 points higher at 6583.99, a near four week high, helped by Chinese industrial production hitting a 17 month high in August and signs of a possible compromise to defuse the prospect of an imminent US attack on Syria…

 


Powered by Guardian.co.ukThis article titled “FTSE hits four week high as Syrian tensions ease, but GlaxoSmithKline falls on competition fears” was written by Nick Fletcher, for theguardian.com on Tuesday 10th September 2013 16.01 UTC

Leading shares moved higher on more good economic data from China and hopes of a resolution to the Syrian dispute.

But GlaxoSmithKline missed out on the gains, falling 41.5p to 1598.5p on the prospective arrival of generic copies of its lung treatment Advair in the US, after draft guidance from regulators set out requirements for competitors.

Savvas Neophytou at Panmure Gordon said Glaxo’s prospects were still dependent on Advair, which accounted for around 18% of revenues and 25% of profits. He said:

Following the investigation on selling practices in China and the failed trial on cancer candidate MAGE-A3 last week, the group’s risk profile is increased with news overnight that the FDA had published draft guidance for the development of substitutable generic copies of combination inhaled drugs. This may result in increased competition to Glaxo’s biggest selling product Advair. In recent years, the risk of a directly substitutable generic in the US had subsided, with a number of draft recommendations withdrawn. To boot, GSK’s management has been more confident in dismissing the risk as relatively low probability.

Clearly generics will have to still undertake some sort of clinical trial (the length of which is yet to be determined) and that is onerous in the case of many generic manufacturers. Thus, in a worst case scenario, more competitors may enter the market but this is unlikely to become an 80%-90% discount generic market which is often the case when multiple generics are launched in pharmaceutical markets.

He kept his buy recommendation and £18.50 target:

Although not the cheapest, the company has been through the majority of its patent expiries, big liability settlements and boasts a strong balance sheet and very little M&A risk. With shareholder returns remaining strong, we remain buyers.

Reckitt Benckiser rose 81p to £44.45 despite a sell note from Liberum on worries about competition for its suboxone heroin substitute. Liberum said:

Orexo’s Zubsolv tablets, competition for Reckitt’s Suboxone film, will start retailing on September 16 with list prices as much as 25% below the price of Suboxone. We think consensus is wrong to assume no impact on Suboxone film earnings by 2014.

Overall the FTSE 100 finished 53.25 points higher at 6583.99, a near four week high, helped by Chinese industrial production hitting a 17 month high in August and signs of a possible compromise to defuse the prospect of an imminent US attack on Syria. The other major concern troubling the market – when the US Federal Reserve might end its bond buying programme – could become clearer after next week’s Fed meeting.

Airlines benefited from the relaxation of Syrian tensions, as the oil price dipped. British Airways owner International Airlines Group climbed 14.3p to 319.8p while easyJet jumped 81p to £13.58.

A fall in precious metal prices – a traditional haven in times of worry – saw Randgold Resources lose 225p to £46.89 and Mexican miner Fresnillo fall 44p to £12.25.

But Glencore Xstrata added 7.45p to 328o.75p after revealing higher than expected cost savings from its recent merger.

Glencore finally completed its $46bn takeover of Xstrata four months ago and promised last year the deal would provide $500m of synergies, partly through selling Xstrata’s minerals and metals through Glencore’s marketing outlets. In a presentation to the City, the company said the savings would be quadrupled to $2bn. Not only will it cut costs, it will shelve risky projects and reduce capital expenditure.

Elsewhere Whitbread dropped 78p to £31.38 after investors took profits following signs of a slowdown at its Costa Coffee chain.

BG continued to slide after Monday’s production warning which accompanied a City presentation. Its shares fell another 12p to £12.05, and Neill Morton at Investec said:

This interesting seminar essentially expanded on themes set out in BG’s recent strategy presentation in May. As such, there was little to change our earnings forecasts. Unfortunately, the ‘new news’ on the day was the production warning for 2014 (Egypt, Norway, US) with possible knock-on effects into 2015. We lower our earnings forecasts by around 4% and expect BG’s latest warning to cast a cloud over near-term share price performance.

Among the mid-caps fund management group Ashmore was 19.3p better at 382.2p after full year profits rose 6% to a better than expected £257.6m. Chip designer Imagination Technologies rose 14.9p to 302p ahead of the launch of the new Apple iPhone while larger rival Arm added 23.5p to 941p.

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Fears that the central bank money taps could be turned off gripped the markets and sent them sharply lower. Germany’s Schäuble defends ECB. Angela Merkel also supportive. Background to the case. Swiss: social tensions could inflame crisis again…

 


Powered by Guardian.co.ukThis article titled “Eurozone crisis as it happened: German court holds crucial hearing into ECB’s bond-buying programme” was written by Graeme Wearden (until 2.30pm) and Nick Fletcher (now), for theguardian.com on Tuesday 11th June 2013 16.39 UTC

5.53pm BST

Weidmann testimony ends

And that wraps up Bundesbank President Jens Weidmann's testimony for the day. Once more Open Europe has helpfully outlined what they see as the main points, along with a bit of commentary:

• [Weidmann] warned that ECB OMT blurs the line between monetary and fiscal policy – this makes it more difficult to achieve price stability and spreads solvency risks amongst eurozone countries but without using any parliamentary/democratic approval

• Pushed for a narrow interpretation of a central bank's primary mandate, complete focus on price stability

• Suggested that the OMT does represent potential losses for taxpayers, since if the ECB took on significant amounts of risky debt it may face a large loss which it cannot absorb and require aid from member states

• Argued that even secondary market purchases can overturn the force of market discipline and undermine fiscal autonomy

• Issued a warning over the interpretation of the real risk premiums for bonds, which he suggested was very subjective and dependent on future policies

• Weidmann did accept that the inflation outlook in the eurozone fits with price stability at the moment but still expressed serious concern about comprising the ECB’s focus on this.

It’s seems to us that, of the two sides, Weidmann had the tougher case to make. Ultimately, as much of the above shows, he is forced to consider hypothetical scenarios and potential worst cases. These are undoubtedly risks that should be highlighted but it does leave one feeling that his argument is slightly less clear cut than Asmussen’s.

Having heard the key testimony of both sides, we still expect the court to side with the ECB but with some caveats (although how strict they will be is very much up in the air). Of course, this could still develop more tomorrow. 

And on that note we are ending our own proceedings until tomorrow. Thanks for all the comments, and we'll be back in the morning.

5.39pm BST

European markets under pressure

Fears that the central bank money taps could be turned off gripped the markets and sent them sharply lower. The Bank of Japan set the trend by keeping monetary policy on hold, and later came trader talk that the US Federal Reserve might use next week's scheduled meeting to begin the process of easing off its bond buying programme. With unrest in Turkey, the Greek privatisation failure and the German court hearing, investors were in a pessimistic mood:

• The FTSE 100 finished 60.37 points or 0.94% lower at 6340.08

• Germany's Dax dropped 1.03% to 8222.46

• France's Cac closed 1.39% lower at 3810.56

• Italy's FTSE MIB lost 1.63% at 16,286

• Spain's Ibex slid 1.68% to 8089.3

Meanwhile the Dow Jones Industrial Average is off its worst levels, down just 20 points or 0.12%.

5.34pm BST

5.19pm BST

Latvia: soon to be the newest member of the eurozone

Latvia was hit hard by the financial crisis, but has made a remarkable recovery without bailouts or riots. Now, despite worries about the future of the eurozone, the country is set to become the latest member of the single currency. Ian Traynor reports in full here but below is a flavour:

In the centre of Riga, a copper figure of Latvia's mythical maiden soars skyward holding three golden stars. Nicknamed Milda, she stands at the top of the Freedom Monument, symbolising the Baltic country's hard-won liberty and independence.

From next January Milda will become a more familiar face across Europe when her likeness is stamped on to €1 and €2 coins to mark Latvia becoming the 18th member of a single currency zone which may, or may not, be emerging from a three-year period of fighting for its life.

For Greeks or Portuguese, the euro may have seemed like a prison in recent years. But for Latvia, or at least for its government and elite, the maiden-faced currency will symbolise freedom and independence, reinforcing the vulnerable small country's integration in the west and another big step in liberating itself from its historical tormentor, Russia.

5.14pm BST

More from Weidmann:

4.36pm BST

Weidmann begins testimony

Bundesbank chief Jens Weidmann – who is likely to argue that ECB boss Mario Draghi's intervention was illegal – is up now at the constitutional court in Karlsruhe and starts by saying price stability is the ECB's core mandate.

He is telling the court he sees a risk the OMT programme could slow eurozone reform efforts and reduce the ECB's credibility.

While admitting the OMT was successful in lowering bond yields, he said it could have long term consequences and could lead to a weakening of fiscal consolidation.

And here's his full statement (in German).

Updated at 5.26pm BST

4.20pm BST

Summary of Asmussen’s testimony

Asmussen has now finished and Open Europe has handily summed up the key points of his testimony:

• The OMT will have the ability to sell bonds as well as buy them, and it will not take them off the market permanently, unlike its forerunner the SMP (in fact Asmussen repeatedly highlighted the differences between the two)

• the OMT is pari passu (equal to) other creditors

• the OMT seeks only to reduce unwarranted interest rate spikes and is not aimed at harmonising financing conditions of member states

• the ECB would react if a country were to try to game the system by converting all its bond issues to a short maturity (of up to three years), but that in any case markets themselves would "see through and deny" such attempts

• the only risks associated with the programme stem from countries operating "un-sound" policies, but that those states that fail to comply with the OMT's conditionality could be faced with the prospect of having to leave the eurozone.

He also said that he would welcome the ECB publishing minutes of its meetings.

Updated at 4.25pm BST

4.01pm BST

Amussen said markets would see through, and deny, any attempts by countries to change 10 year debt to 3 year debt to benefit from the OMT (courtesy Open Europe)

3.46pm BST

And here's a key point, with Asmussen attempting to deal with a major criticism of the bond buying plan:

Asmussen also says he does not expect a debt haircut for any eurozone country.

Here's the full text of his statement to the court.

Updated at 3.48pm BST

3.42pm BST

More from Asmussen, as he distinguishes between the OMT and the ECB's earlier Securities Markets Programme (SMP):

3.26pm BST

Asmussen defends ECB measures at German court

Jörg Asmussen, Germany's representative on the European Central Bank's governing council, is up at the constitutional court again.

He is defending the OMT – its Outright Monetary Transactions or bond buying programme – saying it was the right decision for price stability in the eurozone. He said the ECB measures were necessary, effective and within its legal remit.

He added that the bond buying scheme needed to be unlimited to show the ECB was serious about defending price stablity. The OMT would only suffer losses if states were to default.

But the ECB does not want to, and is not allowed to, substitute actions by democratically-elected governments. The ECB just wanted to prevent a eurozone break-up. He said:

Only a currency whose existence is not in doubt can be a stable currency.

Quote courtesy Reuters.

And he continues:

So to recap – the OMT programme is unlimited and had to be, but is at the same time limited because it is focused on shorter maturity bonds…

Updated at 3.38pm BST

3.10pm BST

Greece to close public broadcaster ERT, say reports

Back in Greece, and the government is said to be planning to close down public broadcaster ERT and re-open it with fewer staff. According to Kathimerini:

Sources said that Prime Minister Antonis Samaras has already taken the decision to pull the plug on the broadcaster in its current form and the government has started drawing up the relevant legislation.

ERT currently employees 2,800 people. It is not clear how many employees will remain but sources indicated it would be a fraction of those in work at the moment.

Updated at 4.11pm BST

2.56pm BST

In case you're wondering, it seems a bit becalmed in Karlsruhe at the moment.

Although…..

Updated at 2.56pm BST

2.48pm BST

Wall Street opens lower

In common with other global markets, Wall Street is also taking a bit of a tanking.

The Dow Jones Industrial Average is down 126 points or 0.84%, with some putting two and two together and suggesting the US Federal Reserve may unveil plans to start unwinding its stimulus package at its scheduled meeting next week.

This could well just be traders trying to find a concrete explanation for the day's sell-off, of course.

Updated at 2.48pm BST

2.37pm BST

It's early days, but Süddeutsche Zeitung's Ulrich Schaefer reckons that the German Constitutional will not impose new restrictions on the OMT programme:

Still all to play for though, with the Bundesbank's Jens Weidmann still to outline his concerns. (and with that, I'm handing over to my colleague Nick Fletcher….)

2.19pm BST

The German court should be back at work, after a lunch break, according to the FT's Michael Steen who's at Karlsruhe.

Updated at 2.38pm BST

2.18pm BST

Is the ECB hiding something?

Back to the court hearing in Karlsruhe. Jorg Asmussen's statement that the ECB hasn't seen the need to publish the legal framework for OMT (see 12.49pm) has caused some concern.

OpenEurope, the think tank, asks whether the ECB is being deliberately obstructive, commenting:

It does beg the question: what are they trying to hide? Maybe nothing, but at the very least it seems they are trying to have the best of both worlds.

By refusing to reveal the exact terms and conditions, the ECB can try to address German concerns over the extent of the OMT (as we have seen them doing in the run up to this case) while also being able to continuously reassure markets that the scheme is in fact "unlimited".

Such a balancing act is tough to pull off and may add to confusion if it breaks down.

(that's from their own coverage of the court hearing)

Asmussen assured the judges that the ECB would publish the legal framework before admitting a country to the programme. However, that suggests that the OMT framework might be released just as a eurozone country dashes for the protection of the ECB, as it loses the confidence of the markets. Not ideal….

2.17pm BST

South Africa is feeling the force of today's sell-off. The Rand has fallen by 1% to a four-year low against the US dollar, and shares are also lower, as Steve Collins of London & Capital Asset Management flags up:

1.56pm BST

Central bank fears send shares and bonds falling

Traders work at their desks in front of the DAX board at the Frankfurt stock exchange June 11, 2013.
Traders at the Frankfurt stock exchange today. Photograph: STRINGER/GERMANY/REUTERS

There's a lot of pretty wild moves in the financial markets today. Europe's stock markets are hitting new lows, with the FTSE 100 now down 100 points (-1.55%) and deeper losses in Spain and Italy, both down over 2.5%.

Southern European government debt also continues to be pummelled, driving up Spain, Italy, Portugal and Greece's bond yields through the trading session (details below)

And in the currency markets the yen has surged by 2% against the US dollar — seemingly as traders seek a safe haven for their money (Dow Jones's Katie Martin explains why here). That's raising new fears that Japan's stimulus package will unravel because Abenomics depends, in part, on a weaker currency helping exports.

So what's going on? It's a confusing picture, but traders keep pointing to concerns that the world's central banks will ease their monetary stimulus packages soon.

The Bank of Japan's decision early this morning to leave policy unchanged, and raise its economic forecasts, makes the City suspect that the days of ultra-loose monetary policy could be numbered.

So, investors are pulling money out of riskier assets, with emerging markets feeling the full force of the sell-off.

The German court hearing (highlights from 10.28am) is also casting a shadow over the markets, even though a verdict isn't expected for several weeks, and the Judges are unlikely to block OMT.

Brenda Kelly, senior market strategist at IG, explains:

Despite the continued aggressive monetary easing from the Bank of Japan, the failure to adapt additional stimulus measures to help ease volatility in debt markets has caused European markets fall into the red in early trade.

In Europe, the two-day court hearing in Germany’s constitutional court is catching the attention of all market participants. Adding to the uncertainty, the legitimacy of the ECB president’s Outright Monetary Transactions programme is being called into question, given that Mr Draghi has been credited with saving the day and helping to drive down peripheral bond yields with his now famous ‘everything it takes’ statement. The fear that German support for the ECB could waver is also serving to unwind much of the confidence and is contributing to the risk-off mode.

The selloff is particularly stark in Greece, where the main index has tumbled 5%. There's clear alarm over its privatisation programme, despite prime minister Samaras's attempt to calm the situation today (see 12.12pm).

Stock market prices, 1.30pm June 11
Stock market prices, 1.30pm today. Photograph: /Thomson Reuters

And here's the key bond yields:

• Greek 10-year bond yield: 10.64%, up 104 basis points (1.04%)

• Portuguese 10-year bond yield: 6.67%, up 42 basis points

• Spanish 10-year bond yield: 4.76%, up 17 basis points

• Italian 10-year bond yield: 4.46%, up 18 basis points

But it's not just 'peripheral' debt that's been hit. UK, US and German bonds are also falling in value, pushing up their yields and contributing to the sense of unease.

As Miller Tabak, the Wall Street firm, warned clients this morning:

Stocks across [Europe] are taking a shellacking to the tune of around 2% as rising German bund yields prompt accelerated losses for government bonds around the periphery

Yields on Spanish and Italian debt are rising to the highest in six weeks. The loss of last week’s lows for equity markets is all too much to bear in most cases and the resilient tone appears to have been snapped like a twig.

Via Business Insider.

Viktor Nossek, head of research at Boost ETP, told Reuters that investors were also taking profits as the summer lull looms.

Over on Wall Street, traders expect the Dow to fall when trading begins at 2.30pm BST.

1.05pm BST

Photos: the German court hearing

A few photos from today's Constitutional Court hearing have arrived:

The President of the German Constitutional Court (Bundesverfassungsgericht) Andreas Vosskuhle (5th L) with other judges of the second senate opens a hearing at the court in Karlsruhe, June 11, 2013.
The President of the German Constitutional Court Andreas Vosskuhle (5th left) opening today’s hearing. Photograph: RALF STOCKHOFF/REUTERS

Here's a snap of the two Germans who are taking opposing sides at the hearing:

Bundesbank chief Jens Weidmann and ECB Board member Joerg Asmussen (R) wait for the start of the hearing at the Constitutional Court in Karlsruhe, June 11, 2013.
Bundesbank chief Jens Weidmann (left) and ECB Board member Jörg Asmussen (right) waiting for the hearing to begin. Photograph: POOL/REUTERS
ECB Board member Joerg Asmussen looks out from a window before the start of the hearing at the Constitutional Court in Karlsruhe, June 11, 2013.
Jörg Asmussen looks out from a window before the start of the hearing. Photograph: RALF STOCKHOFF/REUTERS

Updated at 1.05pm BST

12.50pm BST

Asmussen added that the ECB could agree on making bond purchases under OMT "very quickly", if a country asked for help.

12.49pm BST

Asmussen takes the stand

Jörg Asmussen, Germany's representative on the European Central Bank's governing council, is now giving evidence to the German constitutional court in Karlsruhe.

Asmussen is telling judges that the ECB hasn't yet seen the need to publish the legal text surrounding OMT, but would certainly do so before allowing any country to join the programme.

The legal framework behind OMT is something of a mystery. A few months back, Mario Draghi revealed that it was still a work in progress. Last week, though, he suggested it was all-but ready for publication.

12.12pm BST

Greek Prime Minister Antonis Samaras (R) and Luxembourg's Prime Minister Jean-Claude Juncker (L) address journalists during a joint press conference in Athens.
Greek Prime Minister Antonis Samaras (right) and Luxembourg’s prime minister Jean-Claude Juncker at a joint press conference in Athens today. Photograph: ORESTIS PANAGIOTOU/EPA

Over in Greece, prime minister Antonis Samaras has promised that his government will not bring in additional austerity measures following the shock collapse of the privatisation of gas company DEPA yesterday.

At a press conference with former eurogroup president and curent Luxembourg PM Jean-Claude Juncker, Samaras said that Greece's plans for asset sales remain on track.

New cutbacks will not be needed to cover the loss of revenue from DEPA, Samaras pledged, saying:

The plans for privatizations will continue. Whatever problems arise will be overcome.

Claims that new measures will be required are absurdities.

Intruigingly, Samaras blamed the collapse fo the deal on reasons "beyond" Greece. Insiders have suggested that Russia's Gazprom walked way because it believed the European Union would not allow it to buy DEPA.

The issue was also raised in Brussels at the European Commission's midday press briefing, where spokesman Simon O'Connor said the EC wants Greece to put DEPA back on the auction block quickly.

The outcome of the privatisation process of the gas sector in Greece is very important from the point of view of revenues and the impact on the reform of the energy sector.

In this context the privatisation of DEPA should resume as soon as possible…The design and execution of the privatisation programme is the responsibility of the Greek authorities.

More details here

Meanwhile, Greece's Kathimerini flags up that Juncker is to receive Greece's highest honor, the Grand Cross of Order of the Redeemer.

Samaras even referred to him as “one of us” as he completed his two-day visit to Athens. Juncker chaired the eurogroup of euro finance ministers until the end of last year, during which time Greece received two bailouts.

11.44am BST

The legal challenge to the ECB's bond-buying programme has been brought by a group of Germans, including conservative lawmaker Peter Gauweiler, a team of professors, a citizens organization and Germany's Left Party.

They all argue that OMT is illegal because under German law only the national parliament can decide how taxpayer money is spent. This is rejected by the ECB, which is represented by Jorg Asmussen.

His fellow German, Bundesbank president Jens Weidmann, will explain its concerns. Both men are expected to give evidence later today….

11.32am BST

Wolfgang Schäuble went on to tell German's top judges court that they should respect the independence of the European Central bank:

11.07am BST

Schäuble defends ECB

Germany's finance minister Wolfgang Schäuble has defended the ECB's bond-buying programme as the German constitutional court's eagerly awaited hearing got into full swing.

Schäuble told judges in Karlsruhe that he is confident that the ECB is acting within its mandate by offering to buy "unlimited" quantities of peripheral bonds from countries who also agree to a reform programme.

He said:

The German government sees no signs that the measures taken by the ECB so far violate its mandate.

Schäuble also warned judges that rejection of the OMT could lead to Germany leaving the eurozone, with "unforeseeable' consequences. He also said he didn't believe the ECB's measures fell within the remit of the German courts.

However, as the FT's Michael Steen flags up, Schäuble did add one reservation – as OMT hasn't actually been deployed yet, so he's only working off Mario Draghi's statements.

Schäuble's support is significant, as the German Bundesbank is one of the parties arguing against the OMT. Its head, Jens Weidmann, believes the programme is tantamount to the financing of governments by the central bank.

Updated at 11.55am BST

11.03am BST

UK factory revival stumbles, says ONS

In the UK, the latest industrial production data has shown that Britain's manufacturing revival stumbled in April.

Factory output fell by 0.2% during the month, the first decline in three months.

It dents hopes that industrial growth will help rebalance the UK economy, explains our economics editor Larry Elliott:

The ONS said falls in transport equipment, wood and paper products and metals were the main factors behind the monthly drop but added that in the three months to April – a better guide to the underlying trend – output was 0.5% higher than in the three months ending in January 2013.

Industrial output, which also includes energy use, rose slightly. Here's Larry's full story: UK manufacturing revival halts in April

10.46am BST

Angela Merkel, the German chancellor, has offered support to the ECB this morning over the Constitutional Court hearing:

10.28am BST

German court begins case into OMT

The German Constitutional Court has begun its hearing into the European Central Bank's government bond-buying programme, over in Karlsruhe.

Constitutional Court president Andreas Vosskuhle kicked proceedings off by explaining that he and his fellow judges would not be swayed by the positive impact that that Outright Monetary Transaction (OMT) programme had on the financial markets.

In his opening statement, Vosskuhle said the Court would simply consider the legality of OMT: 

It plays no role in the assessment of the constitutionality of the legal rules and measures that are being looked at whether they were successful in the broadest sense.

The Bundesbank, which brought the case, claims OMT breaks German law by financing other European states, a charge the ECB denies.

10.02am BST

Finland slashes growth forecasts as eurocrisis hits

Gloom from Finland this morning, where the central bank has slashed its growth forecasts for this year.

The Bank of Finland now predicts its economy will shrink by 0.8% this year, having previously expected growth of 0.4%. It also more than halved its 2014 growth forecast, to 0.7% from 1.5%, as the eurozone recession hits Finnish companies hard.

Bank of Finland Governor Erkki Liikanen said Europe's downturm made it harder for Finland's economy to rebalance:

The Finnish economy has faced two major changes at the same time: the restructuring of (its)… industry and the recession in the wake of the financial crisis.

The BoF's warning comes after Finland officially fell into recession, having suffered a 0.1% drop in GDP in the first three months of 2013.

It said the debt crisis was calmer than last year, but had not been eliminated (echoing Switzerland's own warning this morning – see 8.16am):

The risk of a renewed exacerbation of the (international) financial and debt crisis has not disappeared, but the probability is less.

Liikanen warned that "the outlook for the immediate years ahead remains poor", as Finland's economy isn't competitive enough. Public debt levels are rising and the situation will deteriorate without tax rises or spending cuts.

Finnish GDP forecasts
The Bank of Finland’s new forecasts

Finland's economy isn't expected to return to its pre-crisis size by 2015, and Liikanen's message was blunt -

With exports fading, overall demand has been reliant on domestic demand, particularly with household consumption rising.

With income development across the economy as a whole weak due to the problems with exports, domestic demand has increasingly been funded with debt: both household and general government expenditure have been higher than income.

The current account has gone into deficit, meaning the entire
economy is accumulating net debt.

This despite Finland being the only member of the eurozone that is still rated AAA/stable by the three largest rating agencies.

Updated at 10.12am BST

9.42am BST

This chart, from Norwegian trader Financial Acrobat suggests fund managers became rather more jittery about holding high yield (ie riskier) assets towards the end of last month:

9.24am BST

Greek and Portuguese bonds wilt

The sell-off in peripheral debt has hit Greek and Portuguese government bonds hard this morning, driving up their yields (the effective interest rate on the debt). 

Spanish and Italian bonds are also down.

Here's the damage:

• Greek 10-year bond yield: 10.35%, up 75 basis points (0.75%)

• Portuguese 10-year bond yield: 6.6%, up 37 basis points

• Spanish 10-year bond yield: 4.67%, up 8 basis points

• Italian 10-year bond yield: 4.34%, up 6 basis points

Traders are mainly blaming fears that the days of ultra-loose monetary policy may be over, especially those who had hoped for yet more easing from the Bank of Japan.

Mike van Dulken, head of research at Accendo Markets, explained:

Japan’s BoJ was the overnight disappointment, electing to sit on its hands rather than expand intervention as markets had been hoping.

9.02am BST

Markets fall

Stock markets, June 11 early trading
World stock markets, in early trading in Europe. Photograph: Thomson Reuters

There's a gloomy mood in the financial markets this morning as shares and bonds both fall.

The main European indices are all in the red this morning, following a 1.45% drop on the Japan's Nikkei overnight after the Bank of Japan left monetary policy unchanged. There's also a big selloff in eurozone peripheral debt.

A few factors are being blamed – including this morning's clashes in Turkey (where riot police moved in to clear Taksim Square), and the German court hearing.

But as Jeremy Cook of World First explains, the "ongoing deterioration" in the emerging markets is the main theme.

Emerging market debt has been a great investment through the beginning of the year, and was set to remain so as long as the global glut of cheap money continued from the world’s central banks.

However, the past few weeks have seen investors become concerned that the Fed will ‘taper’ their asset purchase plan soon, the Bank of Japan may have already failed in its attempt to support the Japanese economy and the ECB’s ‘whatever it takes’ mentality has fallen by the wayside.

Bond yields to follow

8.40am BST

German court puts OMT on trial

The President of the German Constitutional Court (Bundesverfassungsgericht ) Andreas Vosskuhle (4th R) with the other judges of the second senate as he announces a ruling at the court in Karlsruhe September 12, 2012.
The German Constitutional Court, last September. Photograph: KAI PFAFFENBACH/REUTERS

The German constitutional court will start its hearing on the legality of the European Central bank's bond buying programme at 11am local time (10am BST).

It pits the Bundesbank against the ECB, and thus Germany's top central banker, Jens Weidmann, against the country's man at the ECB, Jörg Asmussen.

At issue, whether Mario Draghi's pledge to buy unlimited amounts of bonds issued by a eurozone country that signs up for stringent economic reforms is legal.

Ian Traynor, our Europe editor, has explained the issues here: German court considers legality of ECB intervention policy:

It is not clear what the German court, which is not expected to rule finally on the dispute until after general elections in September, can do to stop the ECB as it does not have jurisdiction over the non-German institution.

Although it is not viewed as likely, the court would be able to tie the hands of the German government and the Bundesbank or curb its involvement in the ECB policy. Or it could send the dispute to the European court of justice.

The promise of OMT has helped to push down Italy and Spain's borrowing costs – even without a single bond being bought (as Draghi proudly declared at last week's ECB press conference). So the court's decision really matters.

As Stan Shamu of IG put it:

It is important for the OMT backstop to remain available in order to keep confidence steady.

8.16am BST

Swiss: social tensions could fuel euro crisis

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

First up: the Swiss government has warned that the eurozone recession remains the biggest single threat to its economy, in its latest assessment of its economy.

Economists at the State Secretariat for Economics (SECO) pointed to the "profound economic and structural problems of the euro area", cautioning:

The largest economic risk is still the debt crisis in the euro area…

The weak euro zone economy continues to act a brake on the global economy.

While they conceded that progress had been made in recent months, the Swiss clearly don't share Francois Hollande's upbeat assessment that the eurozone crisis is over.

SECO argues that Europe's financial crisis "cannot be regarded as addressed" because countries in southern Europe are still "relatively far from a significant economic improvement".

SECO also pointed to the risk that "growing social tensions and political disagreement" could inflame the debt crisis again and spark another panic in the financial markets. This could put also fresh upward pressure on the Swiss Franc – which is currently pegged against the euro to prevent it rising too high.

Despite Europe's woes, the Swiss government is pinning its hopes on exports to North America and Asia. SOCA raised its growth forecasts for this year to 1.4%, from 1.3% – while predicting the eurozone will shrink by 0.7%.

SOCA's full statement is here.

What else is coming up today? The main event will probably be the start of the German constitutional court's two-day hearing into the legality of the ECB's new bond-buying programme, the Outright Monetary Transaction scheme.

The Court may not issue a ruling until the autumn, and will probably give its approval to OMT (although may add conditions). Still, we'll be watching events in Karlsruhe, along with other developments though the day as usual…..

Updated at 8.20am BST

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Britain’s top companies lose £36bn in value as stock markets react to US warnings on QE and drop in Chinese manufacturing. Ben Bernanke, chairman of the Federal Reserve, hinted on Wednesday about a possible easing of its $85bn-a-month bond-buying programme, in a testimony to Congress…

 


Powered by Guardian.co.ukThis article titled “Stock markets lose nerve on fears of end to quantitative easing” was written by Nick Fletcher, for The Guardian on Thursday 23rd May 2013 18.13 UTC

A day after the FTSE 100 came within 90 points of its December 1999 all-time high, the index slumped 143 points yesterday to 6696, wiping £36bn off the value of Britain's top companies.

The 2.1% fall was the index's worst in one day since it lost just over 2.5% a year ago to the day, on fears that Greece could leave the eurozone. But after its recent strong surge this latest fall in the blue-chip index merely wipes out the gains made since last Friday.

Stock markets around the world tumbled from their recent highs as investors took fright at weak Chinese manufacturing data and signs that the US Federal Reserve might end its bond-buying programme sooner than expected.

Markets have been buoyed in recent months by the various measures taken by central banks to stimulate the global economy by flooding it with cash. Measures include printing money, buying up mortgage-backed bonds and keeping interest rates at historic lows. Much of the recent economic data indicated the policy was having the desired effect, while the long-running eurozone crisis seemed to have entered a period of relative calm.

But analysts have been warning that any signs the money taps were about to be turned off or that the global economy was not recovering as expected would be taken badly by the markets.

Thursday's rout began with comments late on Wednesday from the Federal Reserve suggesting that America could end its quantitative easing, or QE, programme in the near future, and accelerated after a Chinese survey showed factory activity had fallen for the first time in seven months in May. The Nikkei 225 dropped more than 7% overnight on Wednesday to 14,483, its biggest one-day fall for two years. However, analysts pointed out that the Japanese index had almost doubled in value since November, so was still well ahead for the year.

European stock markets fell, with Germany's Dax and France's Cac both closing around 2.1% lower, while Italy's FTSE MIB fell 3% and Spain's Ibex was down 1.4%.

On Wall Street the Dow Jones industrial average, which had reached an all-time high this week, fell sharply when trading opened on Thursdaybefore staging a recovery. By lunchtime the US index was down just 15 points following stronger than expected weekly jobless claims and home sales.

Rupert Osborne, futures dealer at City broker IG, said: "The stronger home sales and jobless claims … fit with the idea that the US economy is approaching a point where a reduction in stimulus is appropriate. This neatly illustrates the irony of the position; traders across the world are openly hoping for poor US data since this keeps the Fed involved."

Ben Bernanke, chairman of the Federal Reserve, had hinted on Wednesday about a possible easing of its bn-a-month bond-buying programme, in a testimony to Congress. These comments were later compounded by the minutes of the Fed's last policy-making meeting, which showed that some members thought such a move could come as soon as June, much earlier than any analysts had been expecting.

Michael Hewson, senior market analyst at financial spread-betting company CMC Markets UK, said: "There was an expectation after Bernanke's testimony on Capitol Hill that the latest Fed minutes wouldn't add too much to overall market expectations around the prospects for further easing against expectations of possible tapering.

"The release of the latest Fed minutes completely changed that dynamic with a single line, 'a number of participants express a willingness to reduce QE in June'.

"The disappointing Chinese manufacturing data gave markets the extra nudge over the edge that was needed and persuaded investors with money in the game to cash in."

In China the HSBC purchasing managers index fell to 49.6 points in May, from 50.4 the previous month. Any level below 50 produced by the survey of industry indicates a contracting sector. China is a major consumer of commodities, so the signs of a slowdown in the country put metal prices under pressure, with copper down more than 3%. Oil prices also slid lower, Brent crude falling nearly 1% to 2 a barrel.

But gold and silver edged higher as investors searched out safer assets amid the sell-off.

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The outlook may be opimistic but the Greek unemployment picture remains dire. EU car sales rise for first time in 19 months. Spanish bad loans rise. Italian government to reform property tax. US consumer sentiment index rose to its highest level in six years, up from 76.4 in April to 83.7 so far this month…

 


Powered by Guardian.co.ukThis article titled “Eurozone crisis as it happened: Greece on track to exit slump next year, says Troika” was written by Graeme Wearden and Nick Fletcher, for theguardian.com on Friday 17th May 2013 17.08 UTC

6.08pm BST

IMF report on Cyprus leads to new anti-austerity row

Crisis-hit Cyprus could be headed for a much worse recession than initially anticipated when international creditors agreed to prop up its economy, the IMF has announced in a 47-page report released today. Helena Smith writes:

Forecasting that the island’s output will shrink by at least 9% in 2013 (and perhaps even more) the IMF said Cyprus faced “unusually high” macro-economic risks if it did not adhere to the stringent terms of the €13bn bailout it has signed with the EU, ECB and IMF.

"Should these risks materialize, additional financing measures may be needed to preserve debt sustainability," it said, predicting that the tiny nation’s debt load would hit 126% of gross domestic product in 2015 before falling to 105% of GDP by 2020. 

Despite having already agreed to draconian belt-tightening measures – including highly controversial capital capitals – it was likely that Nicosia would be required to further slash GDP by 4.7% a year (the equivalent of €900m worth of budget cuts) over 2015 to 2018 to secure the island’s long-term primary budget surplus, said the IMF.

With the ink on the loan agreement barely dry, the report has unleashed fury among politicians on the island with the anti-austerity main opposition Akel party not only slamming the bailout deal but questioning if the government had read it before it signed up to the agreement. 

Akel cadres say the IMF assessment will embolden those now openly asking if it would not be better for the beleaguered island to exit the eurozone than apply such tough conditions.

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

6.01pm BST

Here's the full statement on the EFSF payments to Greece.

As IfigEusLannuon rightly points out below the payments are loans not aid and have to be paid back.

5.39pm BST

Slovenia debt cut by Fitch

Slovenia has seen its debt rating cut by Fitch, the agency has just announced.

Last month Moody's reduced its rating on the country to junk, from Ba1 to Baa2.

Now Fitch has cut from A- to BBB+ with a negative outlook. It said the economic outlook had deteriorated and it now forecast a 2% decline in GDP in 2013. It predicts a 0.3% decline in 2014, leaving it as only one of two eurozone countries to contract.

The agency said its estimates of the cost of bank recapitalisation were higher than official forecasts. It estimated the sector needed an injection of €2.8bn, with €2bn needed for the three largest banks. This is more than double the official estimate.

5.27pm BST

European shares on the rise again

European car sale figures and the positive US consumer sentiment data have combined to keep markets moving higher.

• The FTSE 100 finished 35.26 points higher at 6723.06

• Germany's Dax rose 28.13 points to 8398.00

• France's Cac climbed 22.20 points to 4001.27

• Italy's FTSE MIB added 60.6 points to 17,604.61

• Spain's Ibex was up 40.1 points at 8582.4

• The Athens market added 1.62% to 1152.6

And in the US, the Dow Jones Industrial Average is currently around 60 points or 0.,4% higher.

4.14pm BST

Still with Greece, the ESFS bailout fund has said the country will receive €4.2bn of the next tranche of €7.2bn aid.

That takes the total aid so far to €120bn. The next payment will be made in June.

3.42pm BST

Tensions grow after ejection of Golden Dawn MP

More on this morning's ejection of a far-right MP from the Greek parliament, which has sent political tensions soaring. Helena Smith writes:

Predictably, the extreme right Golden Dawn party was quick to roll out an announcement following the removal of its MP, Panayiotis Iliopoulos, from the 300-seat House.

Railing against the “filthy slanderous attack of the entire media against Golden Dawn” it denied than any of its MPs had shouted “Heil Hitler” during the heated exchange in the chamber, [see earlier post].

“The controversial and provocative phrase was uttered by Syriza’s MP from Zakynthos, Stavros Kontonis,” it insisted. “We demand from the parrots of the system who have linked Golden Dawn with this particular phrase to revoke [their stance] immediately, otherwise they will suffer the legal effects [that come with] dissemination of false news and slanderous defamation.”

Video of Greek parliamentary session

Hours later, minutes taken during the session revealed the offending phrase had been uttered not by the neo-Nazi party’s spokesman, Christos Pappas, as initially believed, but Christos Panztas, an MP with the far-left Syriza, the country’s main opposition party. Pappas was the focus of another parliamentary furore earlier this week when it was exposed that he had openly praised the Fuhrer in a piece written for Golden Dawn’s magazine years ago.

The incident does not bode well – even if this is not the first time a Golden Dawn MP has caused commotion in the House. With the party now able to take the moral high-ground, many worry the episode could stoke further the flames of support for the far right group shown in the latest poll to be published today as firmly entrenching its position as Greece’s third major party with 11.5%t.

On Thursday. Thessaloniki mayor Yiannis Boutaris said Golden Dawn’s presence in parliament was “a disgrace.” “Golden Dawn should not be in the parliament. This party is a disgrace for Greek society. The fact that this party is third is indicative of the abjection of Greek society.”

Updated at 3.42pm BST

3.01pm BST

US consumer sentiment at six year high

There's an upbeat mood in the US, to judge from the latest consumer survey.

The Thomson Reuters/University of Michigan's sentiment index rose to its highest level for six years, up from 76.4 in April to 83.7 so far this month. That was higher than the forecast of around 78.

Consumers were more positive about their personal finances than at any time since 2007, especially among households in the top third of income levels. Annalisa Piazza at Newedge Strategy said:

Today's outcome was somehow at odds with the recent news on the development of the US economy that depicted a rather mixed picture, with solid retail sales versus sluggish business confidence indicators. If anything, consumer confidence might have been supported by lower gasoline prices that implicitly prop up buying conditions for US households. That said, we suspect US households continue to remain sceptical on the development of future activity as headwinds to growth remain well alive.

The news has helped lift the Dow Jones Industrial Average by more than 50 points in early trading.

Updated at 3.03pm BST

2.46pm BST

EC report into Greece

Greece is on track to emerge from its economic slump next year, its lenders predicted today.

The European Commission's latest report into Greece, published today (you can download it here), argued that Athens is making significant progress under its bailout deal.

Following its latest visit to Greece, Troika officials remain convinced that the Greek economy will start growing in 2014, with a GDP increase of 0.6% next year.

The top-line of the report is quite upbeat about a country that has suffered deeply since the crisis began:

Public finances are steadily improving, the banking sector recapitalisation has reached an advanced stage and important structural reforms are being implemented, although further major efforts are needed to fully
deliver the delayed public administration reform and to make the new semi-autonomous revenue administration effective in the fight against tax evasion.

But the Troika also cautioned that the fiscal outlook beyond 2014 "remains inherently uncertain", as further austerity measures will be needed to hit future targets:

The fiscal outlook depends to a large extent on progress in strengthening the tax and social security revenue administrations. Within the current macroeconomic framework, the gaps are currently estimated at about 1.7% of GDP in 2015 and 2.1% of GDP in 2016. The task of filling the gap in 2015-16 will be taken up in the context of the 2014 budget
negotiations in the fall.

The report also predicted that Greek wage costs will be driven down by another 7% this year, following a 4.2% drop in compensation per employee last year. That will mean Greece will "regain its 1995 labour cost competitiveness position relative to the Euro area" in 2014.

Greek labour costs, Troika assessment
Greek labour costs, Troika assessment Photograph: /EC

The Troika also remains concerned about Greece's banks, saying they continue to face "the consequences of the recession and the inability of some borrowers to service their debt obligations".

And on unemployment, the picture is pretty bleak, with the jobless rate expected to remain over 20% in three years time.

The number of dismissals still remains high and the overall labour market is likely to remain weak until GDP begins to recover.

Hence, the annual unemployment rate is projected to peak at 27.0% in 2013. Once the recovery gains traction, especially the frontloading of wage adjustments is projected to give rise to a relatively rapid and sustainable decline in unemployment to 26.0% in 2014 and to 21.0% in 2016.

And on that note, I'm handing over to my colleague Nick Fletcher for the rest of the day (easing back into things). Thanks all, and best wishes for the weekend. GW

Updated at 3.00pm BST

2.19pm BST

Europe's contruction industry suffered another poor month in March, with output falling by 1.7% month-on-month across the eurozone (and 1.1% across the EU).

Eurozone construction data, to March 2013
Eurozone construction data, to March 2013 Photograph: /Eurostat

The largest decreases were seen in Portugal (-10.7%), the Czech Republic (-7.6%) and Slovakia (-5.0%), with the highest increases in Romania (+2.8%) and Spain (+2.4%).

New data was only available for 14 members of the EU: production fell in ten countries, and only rose in four.

1.53pm BST

An invitation

Would you be interested in meeting your fellow contributors – along with the journalists who run the blog?

The Guardian’s news community team are hosting a meet-up event at the Guardian’s offices at Kings Place in London on 5th June. The setup will be informal – with drinks and nibbles and a chance to get to know other top contributors followed by a Q&A with the Guardian liveblogging team.

If you're interested in attending, please email james.walsh@guardian.co.uk.

1.39pm BST

As it's quiet, here's a couple of interesting posts that caught the eye this morning….

Reuters' James Saft has written a nice piece about how quantitative easing may be backfiring, by encouraging investors to hold more cash rather than riskier assets.

The thinking behind QE rests partly on the assumption that buying up government bonds will drive interest rates down and entice investors to tilt their holdings towards riskier investments like stocks. That in turn is supposed to goose investment and consumption.

Unfortunately, that assumption may be running afoul of, or fouling up, the way in which most investors construct their portfolios.

Saft is riffing off this research note published earlier this week Toby Nangle, fund manager at Threadneedle Investments. In it, Nangle explained how investors would usually buy government bonds as a handy hedge against riskier holdings in shares. QE, though, has driven prices so high that the strategy doesn't work:

By bidding yields on government bonds down to current levels, monetary policymakers have largely extinguished government bonds as an effective portfolio hedge.

Elsewhere, fund manager/blogger @pawelmorski has rattled out another interesting piece, pinning the blame for Europe's recent economic misery on its banks, rather than government austerity: It Is That Simple: Europe’s Problem is the Banks.

US/EU bank lending
US/EU bank lending Photograph: /@pawelmorski

These two series are a long way from directly comparable but they’re close enough that the divergence is interesting. US firms are borrowing again, European ones aren’t. This looks like a clear-cut job for monetary policy.

Timely, given the news this morning that Spain's bad bank debts are rising (see 9.07am).

12.58pm BST

Mersch: eurozone governments must make tough choices

Yves Mersch, ECB executive board member, has given a speech in London today on the future of the eurozone, and the mistakes that led to the current crisis.

It's an interesting insight into current thinking in the ECB, Mersch talks about the importance of getting banking union agreed, but also focuses on the need for 'structural' change within Europe.

On how the crisis began, Mersch explained:

The euro area has been facing insufficiencies on several fronts, all at the same time. Let me be blunt: it has had governance shortcomings, stretched states, fragile banks, shrinking economies, sinking confidence in institutions and doubts about its integrity. Each of these difficulties has exacerbated the others; it has been a vicious circle. The crisis did not originate in the euro area, nor is it limited to it. But inside the euro area it has inflicted severe losses and pain, particularly on the younger generation

Mersch also fleshed out the challenge facing national governments:

In most of the stressed euro area countries this still requires tough choices across the generations and over time: e.g. education versus pension entitlements, infrastructure versus healthcare, research and development versus defence, and so on.

Strengthening of tax administrations and treasury systems, expenditure control, privatisation will also be crucial. Reducing the costs of bureaucracy will matter more than ever across the euro area.

There are varying needs for true innovation clusters à-la-Silicon Valley, as well as investments in scientific and technical education, research and development, encouragement of “angel investments”, and grassroots and sustainable banking.

Labour markets need to become inclusive and fair in every country, while encouraging labour mobility, in particular in a monetary union. Greater competitiveness and sustainable growth of the whole euro area will then follow.

This has been a regular theme at Mario Draghi's press conferences too. Critics, though, argue that it's hard for leaders in, say, Italy or Spain to push through structural reforms at the same time as chasing demanding deficit-reduction targets.

Mersch's speech is online here, resolutely titled: “Built to Last”: The New Euro Area Framework

12.23pm BST

Italy to reform property tax

The Italian government has agreed to reform the unpopular IMU housing tax, a key demand from coalition partner, the People of Liberty party.

Prime minister Enrico Letta told a press conference that payments will be suspended in June, adding:

We are setting a time until August 31 within which the government and its supporting majority will reform IMU.

Letta added that the cost of reforming IMU would come "100%" from spending cuts.

IMU was introduced by former technocratic leader Mario Monti, and proved deeply unpopular. Silvio Berlusconi's election campaign earlier this year focused on his promise to abolish it. Getting rid of it altogether would cost €8bn.

Letta also announced a new €1bn fund to help unemployed people get back to work.

Opinion poll data today showed falling support for Italy's new coalition government of centre-left, centre-right and centrist parties. Letta only enjoyed 43% support when he was sworn in under a month ago, but has now lost nine percentage points.

Updated at 12.30pm BST

11.51am BST

In the UK, a Bank of England monetary policymaker has declared that the British economy may be inching back to recovery.

Martin Weale told an audience in Birmingham:

No one can be certain but it is possible that the near-stagnation of the past three years is being replaced by a move to modest growth.

Weale also argued that the BoE's monetary policy committee should resist acting like "inflation nutters", and use its new, more flexible mandate on inflation targeting wisely:

The correct thing for policymakers to do would be to accept a modest degree of entrenchment of raised inflation expectations as a price worth paying for a smoother output path.

The full speech is online here: and includes this handy graph showing how UK wage growth has stuttered to a near-standstill (just 0 .8% year-on-year)

UK wage growth levels
UK wage growth levels Photograph: /BoE/ONS

Weale's speech also includes a reference to a lecture given by some chap called Mark Carney….

11.10am BST

Shares in several Europe's carmakers have risen today, following the news this morning that sales rose year-on-year in April.

Peugeot Citroen is leading the risers, up 6% (despite reporting a 10% drop in its own sales during the month).

Automobile share prices, May 17th
Photograph: Thomson Reuters

10.43am BST

Exciting scenes in the Greek parliament this morning, where a Golden Dawn MP was thrown out of the chamber amid a stream of cursing.

Panayiotis Iliopoulos was shown the door after claiming that opposition party leader Alexis Tsipras was working on a "souped-up question" for prime minister Antonis Samaras. The PM, Iliopoulos claimed, was "sleeping the sleep of the just" (he's actually on a trip to China).

Kathimerini has the details:

Pulled up,,,for using derogatory language, Iliopoulos went further, condemning fellow MPs as "wretched sell-outs" and "goats". He was removed from the House, cursing all the while, witnesses said.

Also in Friday's session, a request by former prime minister and socialist PASOK deputy George Papandreou to be granted leave so he can attend a conference abroad prompted hoots of laughter from Golden Dawn MPs in attendance.

Updated at 11.22am BST

10.04am BST

Speaking of Spanish banks… DonJuan points out below that the former boss of Caja Madrid was remanded in custody last night and relieved of his passport.

Miguel Blesa is being investigated over "alleged irregularities" in the lender's 0m purchase of the City National Bank of Florida in 2008.

El PaIs's story has more details:

Caja Madrid took control of City National Bank of Florida in 2008 after paying 618 million euros for 83 percent of the US lender in a deal approved unanimously by the Spanish bank’s board of directors in order to “strengthen” its presence in America.

The Bank of Spain noted that as well as excessive investment in the US lender the purchase was carried out in such a way as to “elude the obligatory control of the tax and economy authorities in Madrid.”

Caja Madrid is one of the firms that were merged to form Bankia, with ill-fated results.

Updated at 10.36am BST

9.37am BST

Spain’s ‘extend and pretend’ strategy

The rise in Spain's bad loans in March follows a drop earlier this year, when Spanish banks transferred some toxic assets to the country's new Bad Bank.

Analysts fear that Spain's banking sector is still refusing to face reality by admitting that other loans won't be repaid.This is the “delay and pray” strategy, where credit is extended even though the borrower is highly unlikely to repay the money.

The FT did a good piece on the issue yesterday. In it, Santiago López, a Madrid-based bank analyst at Exane BNP Paribas, explained:

Some of the clients that have been restructured will eventually be able to pay back their debts. In many other cases the proverbial can has just been kicked down the road and we believe that banks will need significantly higher provisions to deal with restructured loans.

9.07am BST

Spanish bad loan data

The bad loans festering in Spain's financial sector swelled again in March, data just released by its central bank shows.

A total of €163.3bn of loans are now 'non-performing", the Bank of Spain reported. That pushes the bad loan ratio up to 10.47%, from 10.39% a month.

8.45am BST

The broader picture for Europe's car industry remains pretty tough this year — even if April's encouraging data does show that the sales decline is bottoming out.

Major manufacturers have suffered big losses in the region, and many assembly lines are running below full capacity. Last month alone, Ford reported that its European losses had tripled, while Volkswagen reported a 38% drop in earnings.

It's a long, long way back to the heady pre-crash days – if, indeed, such conditions can be repeated.

As Stephen Odell, head of Ford's European Operations, told the WSJ in an article published yesterday:

We are hopeful that we can see signs of troughing or plateauing during the course of this year but I'm not sure that we have seen it yet.

Updated at 8.46am BST

8.27am BST

The rise in new car registrations last month shows consumers are more optimistic about economic prospects, argues Gian Primo Quagliano, the head of automotive research company CSP in Bologna, Italy.

Quagliano told Bloomberg that recent talk of European leaders easing off on austerity in favour of growth-friendly measures is also helping:

The recovery of sales in Germany is positive and may be an indication that consumers are getting back into the market on signs that austerity in Europe may be close to an end

When the car market changes direction, the reason is never just related to technical calendar effects.

More here.

8.04am BST

Euro car sales post first increase since September 2011

Good morning, and welcome to our rolling coverage coverage of the Eurozone financial crisis, and other interesting developments across the global economy.

And for once, we can start with some encouraging economic news — European car sales have risen, breaking a downward trend that dates back to the end of September 2011.

Purchases of new cars across the European Union in April were 1.7% higher than a year ago, data from the European Automobile Manufacturers Association (ACEA) released this morning showed.

Rising demand from Germany (+3.8%), the UK (+14.8%) and — perhaps most surprisingly — Spain (+10.8%) led the way.

These graphs, comparing monthly sales to the previous year, shows how the long downturn has finally been broken.

European car sales to April 2013
Photograph: ACEA

ACEA's full report is here (pdf)

We need to be cautious about hanging out the bunting, though. There are three reasons to be cautious:

• There were another two working days in April 2013 – more opportunity to nip down to the showroom or haggle a credit agreement with the bank

• Demand for new cars continued sliding in two key economies at the heart of the crisis – France (-5.3%) and Italy (-10.8%).

• This small rally in April doesn't wipe away the disappointment of January, February and March. New car registrations over the first four months of the year are 7.1% lower than in 2012.

And as ACEA put it:

In absolute figures, it is the third lowest level of new registrations for a month of April.

Still, it's nice to start the blog with some upbeat data, especially from a sector that's been badly dented by Europe's economic troubles.

Reaction to follow…

Coming up today, the main political developments could some in Italy, where Enrico Letta's cabinet is meeting to discuss measures to revive its economy.

On the economics front, we have fresh eurozone construction data at 10am BST.

And in finance, the European Central Bank will release an update on how much money has been repaid by banks who borrowed from its huge liquidity injections (the LTRO programme).

I'll be tracking all the latest developments as usual.

Updated at 9.02am BST

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EC denies u-turn on austerity. Euro-zone Composite PMI registers another month of contraction. Alarm as German service and manufacturing sectors both contract, but French PMI better. US new home sales rise less than expected…

 


Powered by Guardian.co.ukThis article titled “Germany’s private sector shrinks as eurozone decline continues – as it happened” was written by Graeme Wearden and Nick Fletcher, for theguardian.com on Tuesday 23rd April 2013 11.47 UTC

5.50pm BST

Spain’s Rajoy hints at further tax rises

Spanish prime minister Mariano Rajoy has opened the way to further tax rises and spending cuts, Reuters has reported.

The country will publish updated economic forecasts and a new programme of reforms on Friday and Rajoy said in a press conference:

We will not announce spending cuts like those we put out last year although we will likely need to review some entries in the budget.

We don't want to increase value added tax or income tax this year, but we also depend on the growth rate and the deficit-cutting path for the next years.

He also wants to introduce measures to promote growth.

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

5.32pm BST

European markets close sharply higher

It's been a buoyant day for European stock markets, with traders pointing to a number of factors for the gains. For a start, the poor manufacturing data, particularly from Germany, encouraged the belief that the European Central Bank could cut interest rates, possibly as soon as next week.

EC president Jose Manuel Barroso's comments that austerity may have reached the limits of public acceptance - albeit running into a dispute about what he actuallly meant – also encouraged investors.

On top of that came some good corporate results from the likes of chipmaker Arm in the UK and Netflix in the US. So here's the scores on the doors:

• The FTSE 100 finished 125.50 points or 2% higher at 6406.12, its biggest one day rise since 2 January

• Germany's Dax jumped 2.41%

• France's Cac climbed 3.58%

• Italy's FTSE MIB added 2.93%

• Spain's Ibex closed up 3.26%

Meanwhile the Dow Jones Industrial Average is currently up just over 1%.

The prospect of an ECB cut sent the euro as low as .2971, with the currency currently down 0.44% at .3009. Spanish bond yields dipped to their lowest level since November 2012, encouraged by a positive treasury bill auction. Hopes of a resolution to the impasse since the Italian elections helped push the country's yields below 4% to 3.937% at the moment.

Updated at 5.42pm BST

5.17pm BST

Italy edges closer to new prime minister

Italy could potentially have a new government in place by the weekend if president Giorgio Napolitano's talks aimed at naming a prime minister succeed.

But while there is some optimism a new government can be formed quickly, there may still be stumbling blocks. The favourite at the moment to step in and head a coalition government of the rival centre-left and centre-right parties is former prime minister Giuliano Amato.

But the Northern League party said it would not be in any government headed by Amato or technocrat Mario Monti.

And Silvio Berlusconi's centre-right People of Freedo party said it had no objections to another potential candidate for prime minister, Matteo Renzi, the centre-left mayor of Florence. However Reuters reported that Renzi had played down the possibility:
It's the hypothesis which is most surprising and least probable, I don't think it's on the table.

Former Italian prime minister Giuliano Amato who is one of the two favorites to lead the new Italian government. Photograph: Laura Lezza/Getty Images
Former Italian prime minister Giuliano Amato who is one of the two favorites to lead the new Italian government. Photograph: Laura Lezza/Getty Images
..and his rival, the mayor of Florence, Matteo Renzi (centre). Photograph:  EPA/Massimo Percossi
..and his potential rival, the mayor of Florence, Matteo Renzi (centre). Photograph: EPA/Massimo Percossi

4.00pm BST

Spanish economy continues shrinking

Spain's economy shrank by 0.5% in the first three months of the year, continuing the country's recession.

The Bank of Spain blamed the fall on a drop in consumer spending, which was down 0.8% in the quarter. The Bank has forecast the economy will contract by 1.5% this year before returning to growth in late 2014.

As reported earlier, Spain successfully sold €3bn worth of short-term debt at lower yields.

3.10pm BST

Positive US housing figures help lift Wall Street

Some reasonable housing data from the US but more downbeat manufacturing figures.

First, sales of new single family homes rose 1.5% in March to 417,000 after a 7.6% drop in the previous month. This was a little short of forecasts of a rise to 420,000. But sales were up 18.5% year on year, a good indication of how the housing market has been recovering. Annalisa Piazza at Newedge Strategy said:

In a nutshell, the US housing market remains on a moderate upward trend, also supported by falling mortgage rates and less restrictive credit conditions.

But following a worse than expected US purchasing managers index earlier , the Richmond Federal Reserve index showed a contraction in April, down 6 compared to a rise of 3 in March.

None of this has prevented stock markets – in the UK, Europe and the US – from roaring away. In Europe it seems to be the so-bad-it's-good syndrome, with poor figures (from Germany in particular) prompting talk of an interest rate cut from the ECB.

Wall Street has been lifted by a number of reasonable corporate results, including Netflix and Travelers, as well as the housing data.

Updated at 4.04pm BST

2.36pm BST

Italy faces risks to forecasts says central bank official

Italy faces risks to its economic growth forecasts, an official from the country's cental bank has said.

Reuters is reporting Daniele Franco as saying that there were downside risks to the forecasts of a 1.3% decline in GDP in 2013 and a 1.3% rise in 2014.

He added that any new government – which we are still waiting for of course – must avoid any doubts over whether it would respect the 3% of GDP deficit limit.

Meanwhile there is this comment from Eurogroup head Jeroen Dijsselbloem:

Updated at 2.39pm BST

2.06pm BST

US manufacturing shows sluggish growth

US manufacturing grew in April at its slowest pace for six months, with the lates PMI survey coming in below expectations.

The Markit report showed the purchasing managers index fell to 52 from 54.6 in March, less than the forecast 54. It indicates that US manufacturing may be losing its momentum as consumers worry about tax hikes and government spending cuts.

2.00pm BST

Bank of England’s McCafferty positive on UK economy

Meanwhile the newest member of the Bank of England's monetary policy committee has been sounding an optimistic note on the UK economy.

Growth will pick up pace this year, according to Ian McCafferty, who has sought to play down fears the country has slipped into an unprecedented triple-dip recession. My colleague Katie Allen writes:

McCafferty said improving credit conditions, a brighter international outlook and his expectations of a recovery in business investment all made him “hopeful for the UK economy through 2013 and into 2014”.

“Overall, I am hopeful for a modest pickup in growth as some of the negative factors that have made the last couple of years so difficult start to fade, and as levels of confidence, so badly battered by the impact of the euro crisis, start to heal,” he said in a speech at the Coventry and Warwickshire Chamber of Commerce.

Speaking ahead of official GDP data due on Thursday that is expected to show the UK has just escaped a triple-dip recession, McCafferty’s comments gave George Osborne a much needed boost after a difficult 10 days during which he was warned by the IMF’s chief economist, Olivier Blanchard, that he was “playing with fire” by sticking to his strategy of public sector cuts.

1.32pm BST

Germany’s Barthle hits out at Barroso austerity comments

The Barroso comments continue to stir things up. German politician Norbert Barthle has apparently condemned the reported comments from EC president José Manuel Barroso saying Europe's austerity programme had reached the limits of public acceptance:

Updated at 1.37pm BST

1.20pm BST

ECB rate cut talk lifts eurozone government debt

Growing talk of a rate cut by the European Central Bank, perhaps as early as next week, continues to lift eurozone debt.

With Germany's private sector shrinking for the first time in five months, the country's bund futures are moving higher and the 10-year yield is down nearly 1 basis point at 1.215%.

But peripheral debt is also performing well, with Italian yields down 12.5 basis points and Spanish yields 21 basis points lower. The hope of a resolution to the political uncertainty since the inconclusive Italian election was a factor, while in Spain an auction of three-month bonds attracted demand.

Updated at 3.12pm BST

12.47pm BST

Silvio Berlusconi is holding a healthy lead in the Italian opinion polls, according to new data released as president Giorgio Napolitano begins coalition talks.

One poll has Berlusconi's People of Freedom party ahead by 8%.

Alberto Nardelli, Italian political expert, tweets the details:

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

Updated at 1.05pm BST

12.30pm BST

EC denies austerity u-turn

A row is brewing in Brussels after the European Commission denied that president José Manuel Barroso pulled a u-turn yesterday when he said that Europe's austerity programme had reached the limits of public acceptance.

The EC has released a full transcript of the comments, made at a think tank event in Brussels. Austerity and growth debate: What President Barroso actually said at the Brussels Think Tank Dialogue.

They confirm that Barroso did state that the current approach to deleveraging Europe's 'unsustainable' debts was nearing its limits: (as we reported yesterday here).

Barroso said:

So while this policy is fundamentally right, I think it has reached its limits in many aspects, because a policy to be successful not only has to be properly designed. It has to have the minimum of political and social support.

And when asked to clarify by our Europe editor, Ian Traynor, Barroso stated that Europe's programme of deficit reduction had to be "complemented by a stronger emphasis on growth and growth measures in the shorter term:

We have been saying this, but we should say it louder and clearer. If not, even if the policy of correction of the deficit is basically correct, we can always discuss the fine-tuning, the rhythm or the pace, but that will not be sustainable politically and socially.

That's pretty clear, thanks.

So, fast-forward to Brussels where an EU spokesman has also just told the assembled Press Pack that Barroso hasn't changed his position:

Really? Ian, for one, isn't convinced:

Neither is the WSJ's Matina Stevis (who moderated Barroso's session). She also argues that backtracking is an blunder:

And Re-Define's Sony Kapoor speculates that Barroso's comment may not have pleased the German government:

11.42am BST

Analysts see little relief for Europe

The continuing fall in Eurozone output this month (see 9.19am) led by Germany's shrinking private sector seconomy, shows that there's no improvement in Europe's woes.

Analysts believe an ECB interest rate cut looks likely, but that probably won't be enough to turn the situation around.

Here's the latest reaction:

Carsten Brzeski of ING:

The eurozone’s economic engine is stuttering…

The weather and, much more important, disappointing Chinese activity, are still having a stranglehold over the German economy.

Kit Juckes of Société Générale:

At the margin, it is good news that we saw the divergence between Germany and France partially unwound, with German data coming out soft.

But the underlying story is that one of the best indicators of what is happening to growth suggests a mild depression continues, getting neither better, nor worse.

There will be debate about whether the ECB will cut rates further, though I doubt that would make any economic difference (except to the very front end of the Euro curve). But the ECB won't be tightening for a very, very long time indeed! Peripheral bond markets continue to rally and that in turn means FX models don't point to any great danger to the Euro, though I still think a weaker currency is needed, and inevitable if I am patient enough.

Richard Driver of Caxton FX:

This is yet more lacklustre data from the eurozone; the pace of contraction in France may be slowing but Germany is the one we are all interested in and the picture there looks very bleak indeed. The chances of a German and pan-European bounce back in Q2 are looking pretty remote right now. 

If the ECB don’t respond by cutting interest rates next month then you have to wonder how bad things have to get before they do bite the bullet. This should keep the euro under the cosh in the coming weeks.

11.20am BST

Cyprus finance minister: we’ll get bailout approved

Cypriot Finance Minister Harris Georgiades speaks to Reuters in an interview in Nicosia April 22, 2013.
Cypriot finance minister, Harris Georgiades, last night. Photograph: ANDREAS MANOLIS/Reuters

Cyprus's finance minister has attempted to calm fears over its bailout by insisting that MPs are certain to approve the deal when it comes to a vote in the coming days.

In an interview with Reuters, finance minister Harris Georgiades argued that the Nicosia parliament has already taken most of the difficult decisions (such as restructuring its banking sector and raising corporation tax)

Georgiades said:

I think parliament will acknowledge there is no alternative at this point.

We don't have a date for this vote yet – except that it is not expected before this Friday.

Georgiades suggested that the current restrictions on cash withdrawals and movement of capital could be eased within a few months.

Asked whether measures would be eased in two, or six months, Georgiades said: "Definitely not six months. I am optimistic we shall be able to proceed much sooner

Georgiades added that Cyprus was in no rush to start selling its gold reserves to raise €400m towards its reform plan, calling the sale:

…not even the most important, or the issue of the greatest magnitude.

Perhaps they're waiting until the gold price has recovered (it's down 0.5% today at ,413 per ounce)

Reuters' full interview is here: Gold sale not a priority – Cyprus finance minister

Updated at 11.20am BST

10.14am BST

In the markets…

German sovereign debt has risen in value this morning, pushing down the yield on its 10-year bonds to a new record low:

The German stock market has fallen 0.4% as traders avoid risk and digest the news that Germany's private sector is contracting.

In France, though, the main market is up 1% on relief that its downturn has eased.

Here's a round-up:

German DAX: down 24 points at 7453, – 0.3%

FTSE 100: up 30 points at 6,311, up 0.5%

French CAC: up 37 points at 3687, +1%

Spanish IBEX: up 84 points at 8112, +1%

Italian FTSE MIB: up 101 at 16123, +0.6%

10.02am BST

UK deficit falls by £300m

Britain managed to slice £300m off its budget deficit last year, according to the latest Public Finances figures.

The Office for National Statistics reported that the Public Sector Net Borrowing requirement (when various one-off items and financial interventions are excluded) came in at £120.6bn for the 2012-13 financial year.

That's a small improvement on the £120.9bn in the previous year.

Last year's deficit was equal to 5.57% of GDP, according to the ONS's figures. The UK's total national debt rose to £1.1858trn, or 75.4% of GDP (when the cost of financial sector interventions is ignored).

City economists aren't terribly impressed:

Howard Archer of IHS:

Some modestly good news for the Chancellor as the public deficit for 2012/13 came in marginally below the 2011/12 outturn and slightly less than the OBR had estimated in the budget.

Mind you the rate of improvement in 2012/13 makes a snail look fast, but at least the Chancellor can say the finances moved in the right direction!

9.47am BST

Here's more reaction to today's PMI data:

9.43am BST

Sweden’s unemployment rate rises

Sweden's jobless rate has jumped,in another signal that the European economy is struggling.

The unemployment rate in Sweden rose to 8.8% in March, up from 8.5% the previous month. Young people bore the brunt of the labour market, with the unemployment rate for people aged 15-24 rising to 28.1%, from 25.15 a year ago.

Statistics Sweden said this was due to an increase in the number of full-time students who are now full-time student job seekers, unable to find employment.

At 8.8%, Sweden's overall unemployment rate is rather lower than the 12% recorded in the eurozone last month.

9.31am BST

ECB rate cut spied

Economist Howard Archer of IHS reckons that the ECB is likely to cut interest rates, perhaps as early as next week, following today's data:

The ECB indicated at its April policy meeting that it is increasingly open to taking interest rates down from 0.75% to 0.50%, and latest comments by senior ECB policymakers indicate that that an interest rate cut could well occur if Eurozone economic activity continues to disappoint.

The April purchasing managers surveys certainly seem to fit the bill for an ECB interest rate cut and we believe there is a strong chance that the ECB will act as soon as its 2 May meeting. If the ECB does hold fire on interest rates at its May meeting next week, this looks increasingly likely to be only delaying the inevitable.

Hard to believe a quarter-point rate cut would really bring much cheer to the eurozone, though.

9.19am BST

Eurozone’s private sector shrinks again as Germany suffers

Germany has been dragged deeper into Europe's economic crisis, as the eurozone's private sector continues to contract at the same rate as in March.

That's the broad message from today's PMI data, with France's better-than-expected performance overshadowed by the deterioration in Germany.

Here's Markit's overall PMI data (combining the data from France and Germany).

Eurozone service sector PMI: 46.6, up from March's 46.4

Eurozone manufacturing PMI: 46.5, down from March's 46.8

Eurozone composite PMI: 46.5, marching March's 46.5.

Eurozone flash PMI vs GDP, to April 2013
Photograph: Markit

As Markit explained, the region's two largest member states are showing "divergent trends".

While France saw the rates of decline in both business activity and new business ease sharply to the slowest for four and eight months respectively, Germany saw both activity and new business fall at the steepest rates for six months.

The drop in German activity was also notable in being the first since last November.

Elsewhere across the region output fell at the slowest rate for three months in April, though the rate of loss of new business remained marked.

And in further gloom, firms cut payroll numbers (ie, the number of people they employ) for the 16th month in a row.

8.59am BST

Euro slides as traders anticipate ECB action

The euro has fallen since Germany's poor PMI data hit the wires, down amost one cent against the US dollar at .298.

The European Central Bank may respond with an early cut in interest rates, as Owen Callan of Danske Bank Markets explains:

8.56am BST

Key event

This graph from Markit, of Geman PMI data versus economic growth, shows why today's weak data (see 8.38am) could herald a contraction in GDP this quarter.

German PMI vs GDP, to April 2013
Photograph: Markit

8.45am BST

Germany hit by crisis in Southern Europe

Tim Moore, senior economist at Markit, warned that Germany's private sector has been weaking in recent months – leading to today's surprise fall in output (see 8.38am).

The data suggests the German economy could shrink this quarter, Moore explained. He added that German industry is clearly suffering from the crisis in the eurozone periphery:

Weaker demand was attributed to subdued business confidence across the euro area, with clients cutting spending amid concerns about the economic outlook for southern Europe.

In the manufacturing sector, there were also reports that destocking efforts had led to reduced production requirements.

Updated at 8.45am BST

8.38am BST

Surprise contraction in German private sector

Germany's private sector is shrinking for the first time since last November, with its services and manufacturing sectors both reporting much weaker than expected PMI data.

Both readings came in below the 50-point mark — showing a contraction in Europe's largest economy.

German service sector PMI: 49.2, down from March's 50.9.

German manufacturing PMI: 47.9, down from March's 49.

German composite PMI: 48.8, down from 50.6 in March

That is rather alarming news for Angela Merkel's government… More to follow.

that'

8.30am BST

China’s weak PMIs hits Shanghai shares

The weak Chinese PMI data released overnight sent shares sliding, with the Shanghai composite index closing 2.6% lower.

The data has reinforced fears that the Chinese economy is slowing.

CNBC has the full details: here's a flavour:

China's flash HSBC PMI fell to a two-month low of 50.5 in April from 51.6 in March – compared with expectations for a fall to 51.5. A reading above 50 indicates expanding activity and one below 50 signals contraction.

"It's a big miss. Confidence in the outlook for China has really diminished, particularly after first quarter growth data," said Tim Condon, head of research for Asia at ING. "People are now reforming their views on economy. The new view is that growth will be stagnant," he added.

Updated at 11.30am BST

8.22am BST

France's private sector has suffered a bruising two years now, as this graph from today's PMI data shows:

French PMI vs GDP, April 2013
Photograph: Markit

The French business people interviewed by Markit were more optimistic than in March, predicting a "modest expansion of activity" over the next 12 months:

Panellists expressed hope that market conditions will improve, although there remained concerns over the generally poor economic climate.

The full release is here (pdf)

Updated at 8.22am BST

8.14am BST

Europe's stock markets have opened a little higher on the back of the French PMI data (FTSE 100 is up 10 points). There's relief that the downturn in Europe's second-largest economy isn't worse.

But as Re-Define's Sony Kapoor points out, France's private sector is still shrinking:

Updated at 8.15am BST

8.07am BST

French PMI better than expected

Just in: France's manufacturing and service sectors are still shrinking — but the pace of the downturn is slowing.

French manufacturing PMI: 44.4 in April, up from 44.0 in March. An eight-month high.

French services PMI: 44.1, up from 41.3 in March. A four-month high.

Markit chief economist Chris Williamson told Reuters that the worst may be over for French firms:

They're seeing obviously very weak demand and thinking it can't get any worse, surely it will get better… Policymakers won't allow a further collapse.

Updated at 8.18am BST

7.58am BST

How PMI surveys work

A quick explainer of how the PMI data is calculated, and what it shows:

• Markit, the financial data firm, interviews purchasing managers across the private sector to find if their business conditions are better, worse, or the same than last month.

• That information is used to generate the PMI for each sector.

• A PMI of 50 means the sector was flat — anything higher shows growth, while a PMI below 50 indicates that economic activity fell.

And this month, economists predict that the overall composite eurozone PMI (combining services and manufacturing) will come in at 46.5, the same as March. That would mean Europe's private sector is continuing to contract.

7.48am BST

PMI data to show state of Europe’s economy

Workers assembling air conditioners at a factory of Gree Electric Appliances in Wuhan in central China's Hubei province 18 April 2013.
Workers assembling air conditioners at a factory of Gree Electric Appliances in the Hubei province of central China – Chinese PMI data this morning was weaker than expected. Photograph: SHEPHERD ZHOU

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

It's a big day for data. Purchasing Managers Index reports from across the eurozone will show how manufacturers and service sector companies are performing this month.

Economists expect the PMIs to confirm that the eurozone's private sector is still shrinking, as many European countries struggle to come out of recession

That would put more pressure on the European Central Bank to cut interest rates, or even consider more unconventional measures.

The data will also provide fresh fodder for the raging debate on whether the eurozone should slow the pace of its austerity programme. As we reported yesterday, even EC president José Manuel Barroso is now hinting at a change of approach….

We get French PMIs shortly, at around 8am BST. Germany's data comes 30 minutes later, followed by the figure for the whole eurozone at 9am BST (10am CET).

China has already reported its PMIs for April, and they were rather lower than expected. The Chinese flash HSBC PMI fell to a two-month low of 50.5 in April from 51.6 in March. That has knocked stock markets in Asia overnight (more to follow).

Also coming up today… Italy's president, Giorgio Napolitano, will hold meetings in an effort to form a new government. And UK public finances (at 9.30am BST) will show how Britain is faring.

We'll be tracking all that, and other developments across the eurozone and beyond….

Updated at 7.50am BST

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Gold hits levels last seen in April 2011. 3.5% fall to $1,410 following 5.8% fall on Friday. China GDP at 7.7% versus 8% expectations. Industrial production 8.9% against expected 10.1%. Brent crude hits nine-month low. US housing data disappoints…

 


Powered by Guardian.co.ukThis article titled “Eurozone crisis as it happened: Gold slumps to a two-year low as China data disappoints” was written by Simon Neville and Nick Fletcher, for theguardian.com on Monday 15th April 2013 13.34 UTC

5.27pm BST

European markets fall as gold tumbles

With gold on the slide again – thanks to disappointing Chinese growth and fears of countries flooding the market by selling their reserves to boost their finances – stock markets were also under pressure. Michael Hewson, senior market analyst at CMC Markets UK, said:

Anyone hoping for a quiet start to the week in the lead up to this week’s G20 and IMF meetings got a rude awakening as European markets dropped sharply on the open in the wake of disappointing Chinese economic data which showed that economic growth for the first quarter only came in at 7.7%, well below expectations of a rise to 8%.

Mining stocks and commodity prices have got absolutely battered with gold prices falling though a key technical support level and silver prices also doing the same thing.

But by the close, many European markets had come off their worst levels:

• The FTSE 100 finished down 40.79 points at 6343.60, a 0.64% fall

• Germany's Dax dropped 0.41%

• France's Cac closed 0.5% lower

• Italy's FTSE MIB lost 0.96%

• Spain's Ibex fell 0.33%

• The Athens market dipped 0.11%

And with downbeat US manufacturing and housing data, the Dow Jones Industrial Average is currently down around 120 points.

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

5.23pm BST

Recently appointed Cypriot finance minister Haris Georgiades insists there is no anti-EU feeling in the country despite criticisms of the bailout terms.

In an interview with the Financial Times he said there was frustration at the remedy offered, but also a realisation that the problems were self-inflicted rather than coming from outsiders.

Cyprus's finance minister Haris Georgiades.  Photograph:  AFP/Getty Images/Yiannis Kourtoglou
Cyprus’s finance minister Haris Georgiades. Photograph: AFP/Getty Images/Yiannis Kourtoglou

Updated at 5.24pm BST

3.38pm BST

Portugal’s banks unlikely to need more capital says banking head

Portuguese banks may not need extra capital despite what a leading ratings agency suggested, according to the head of the country's Banking Association.

Moody's warned last week the country's banks might need an extra €8bn as non-performing loans had risen more than expected.

But Fernando Faria de Oliveira told Reuters that "nothing points to those figures" and at the moment there was no need for more capital. He said:

I respect Moody's but I don't believe we will need to raise such [an] amount of capital at all. We are confident about the solidity of Portuguese banks.

3.26pm BST

US housing data disappoints

The latest US data has added to the gloom engendered by disappointing Chinese growth figures and the continuing pressure on the gold price.

Following worst than expected New York manufacturing figures comes a downbeat US housing survey. The National Association of Home Builders/Wells Fargo index fell to 42 in April from 44 in March, the third dip in a row. Analysts had been expecting a small rise to 45. Builders reported increasing costs of materials and worries about the supply chain.

With that, the Dow Jones Industrial Average has added to opening losses and is now down nearly 100 points or around 0.7%.

3.15pm BST

More from Draghi:

3.09pm BST

There is not much new in Draghi's comments, according to Annalisa Piazza at Newedge Strategy:

In a nutshell, Draghi hasn't added much to what suggested in early April. The ECB is widely aware with problems with SMEs but it looks like it has no "magic wand" to solve the lack of transmission. Comments by Draghi suggest that some step in the direction of repairing SMEs lack of competitiveness have been made but it's not just the ECB policy that can work its way through the economy.

ECB president Mario Draghi addresses students at the University of Amsterdam. Photograph: AP/Peter Dejong
ECB president Mario Draghi addresses students at the University of Amsterdam. Photograph: AP/Peter Dejong

2.34pm BST

ECB Draghi speech in full

The European Central Bank has published a full copy of President Mario Draghi's speech. After a whimsical journey through Amsterdam's history and the crisis of 1763, he gave a stark warning:

In providing liquidity to our banking counterparties, we cannot and do not want to subsidise banks that are failing. Our liquidity support is not and should not be equity support. Likewise, in pricing out break-up risk in sovereign debt securities, we cannot and do not want to subsidise governments.

He added:

Unlike economies with a single fiscal authority or with a fully-fledged federal structure, the euro area comprises multiple sovereign states. The debt of each of these states has different liquidity and risk characteristics. In such a set-up there is no uncontroversial way to define the term structure of the risk-free rate. As a matter of fact, this means that there is no univocal measure of the term premium for the euro area as a whole.

The banking sector and the financial market of the euro area has become fragmented. This is harmful as the euro area is a bank-based economy. Around three quarters of firms’ financing comes from banks. So if banks in some countries will not lend at reasonable interest rates, the consequences for the euro area economy are severe.

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

Updated at 3.10pm BST

2.23pm BST

More from Draghi's Amsterdam speech.

He says financial sector fragmentation in the eurozone has been receding but problems in the euro area's economic landscape still "loom large".

Mario Draghi met De Nederlandsche Bank President Klaas Knot (2nd L), Dutch PM Mark Rutte (centre L) and Eurogroup President Jeroen Dijsselbloem (2nd R) in The Hague today. Photograph: REUTERS
Mario Draghi met De Nederlandsche Bank President Klaas Knot (2nd L), Dutch PM Mark Rutte (centre L) and Eurogroup President Jeroen Dijsselbloem (2nd R) in The Hague today. Photograph: REUTERS

2.16pm BST

Draghi speech in Amsterdam – failing banks should not be supported

Over at the University of Amsterdam, ECB president, Mario Draghi, is giving a speech.

He said:

We do not want to support banks that are failing

Suggesting he has moved away from his position of unlimited funding to bolster struggling markets.

Here are tweets coming from the room

1.57pm BST

EU officials to give upbeat assessment to G20

EU officials are expected to tell the G20 finance ministers in Washington this week:

The euro area has made further progress in the implementation of its comprehensive crisis-response strategy.

With a

mild recovery setting in toward mid-2013 and strengthening in the second half of 2013 and in 2014.

That's according to Bloomberg who have seen a draft statement left over from a similar meeting in Dublin last Friday.

1.37pm BST

New York manufacturing data released

The pace of growth in manufacturing in New York state – an early indicator for the rest of the country – slowed more than expected.

The New York Federal Reserve's "Empire State" general business conditions index fell to 3.05, from 9.24 in Larch, short of forecasts of 7.

New orders dropped to 2.2 from 8.18, inventories improved to -4.55 from -5.68.

11.37am BST

Wealth tax to pay for EU bailouts?

The Telegraph has reported comments from Professor Peter Bofinger, an adviser to Angela Merkel, that he made in Der Spiegel.

In it, he suggests the rich in struggling eurozone countries, such as Spain and Italy, should face new property taxes instead of any future raids on depositors savings, as in Cyprus.

He told the German magazine:

The resourceful rich just move their money to banks in northern Europe and avoid paying.

Instead of taxing cash, European Union governments should in future target property and other, less mobile assets, he said.

For example, over the next 10 years, the rich should give up a portion of their assets.

The argument goes that the taxes should be used to fund future bailouts rather than relying on cash injections from the Troika. However, Merkel has yet to endorse the ideas put forward by Bofinger.

11.18am BST

10.54am BST

Eurozone trade surplus boost

The eurozone's trade surplus grew in February, but the positive balance was helped by lower demand for imports rather than export growth.

The trade surplus with €10.4bn in February, unadjusted, beating expectations of €3bn, and up from a €1.3bn surplus in February last year.

Eurozone exports were down 1.1% year-on-year in February, while imports were down by 7.1% year-on-year.
 
Seasonally-adjusted data show the trade surplus improved to €12bn in February, after dipping to €8.7bn in January from €10bn in December.

Howard Archer at IHS Global Insight said:

The eurozone is likely to have needed all the help it could get from net trade in the first quarter of 2013 as it looks highly likely that domestic demand contracted overall.
The eurozone will be fervently hoping that global growth improves as 2013 proceeds, thereby boosting exports and facilitating the single currency area’s exit from recession.

10.26am BST

Greek heart attacks increase

A new major study in Greece has found that heart attacks have increased during the economic crisis, giving an insight into the effects beyond monetary ones.

Open Democracy, which reports the findings, said heart attacks increased 29% after the crisis hit, compared with before, with women suffering hardest hit – up 39%. The researchers point out the unemployment rate for women is higher than men

Dr Emannouil Makaris, presenting his findings at a research talk at the American College of Cardiology’s annual meeting, said

Greek women have a higher unemployment rate than men, they are responsible for child care, and they also work outside the home – a formula for stress.

Unemployment is a stressful event and stress is connected with heart disease, but other issues also come with financial difficulties. In these times a lot of people do not have money to buy medications or go to their primary care doctor. The cost to society is high.

10.14am BST

Silver getting hit

10.11am BST

Sticking with gold, Pawelmorski has written an excellent blog post on the precious metal.

Here's an extract:

Gold – unlike bank deposits, equity or bonds, or even banknotes – it’s separate from the real economy; it’s what you invest in when you want to take a breather from what’s happening in the real economy. That’s actually only a sensible thing to do in pretty extreme circumstances. Gold returns are utterly crushed by equity markets in the long term – to a really astonishing degree for those economies where we have continuous equity markets. Compared with shares in pre-revolutionary China or pre-war Poland, gold returns look pretty good. Gold is less an index of how confident we are that our leaders a) want to b) know how to do the right thing as it is an index of how sure we are that they won’t completely and utterly screw the pooch.

So what can go wrong?

I’m sick of hearing about hyperinflation. The case for gold often starts off with a chart of narrow money or the Central Bank balance sheet, and skips over the (dead-in-the-water) dynamics of broad money. Economists like to use the parable of “helicopter money” (banknotes thrown from a helicopter), and sadly some people appear to be scanning the skies for scrip-dispensing helicopters. What’s actually happened is that the helicopter pilot suffered some nasty losses on US subprime debt and Greek Government bonds and is hoarding the new money, so it’s not having a lot of inflationary impact.

If inflation is always and everywhere a monetary phenomenon, hyperinflation is a political one. Without the political conditions – usually an-even-more-than-normally unpopular and illegitimate government – usually the harder choices do in fact get taken. Argentina and Russia (and Jamaica for that matter) defaulted on debt in local currency debt that they could print rather than face hyperinflationary consequences. Argentina and Iceland both imposed capital controls for similar reasons.

10.04am BST

10.01am BST

Gold reaction

So what has caused gold to fall 3% today, after a 5.3% fall on Friday?

Hitting a two-year low, gold, along with other commodities, have slumped.

Usually gold is invested in to hedge against inflation. Some bearish analysts have warning the past that it would be a good bet because of the fears of hyperinflation.

However, these haven't panned out.

Michael van Dulken at Accendo Markets said:

Gold took another leg down from its Friday weakness, although off its worst levels of 25 (2-year lows). Having decisively broken 18-month lows of 20 on Friday, this level could well revert to resistance on any rally attempt. Broker bearishness (optimistic on economic growth), uncertainty over duration of US Fed’s QE3 (again optimism on econ growth), ETF outflows and fears of Eurozone nations selling the metal to pay for bailouts all spooking markets.

A reminder – Cyprus said on Friday it would try and sell €400m-worth of its gold, leading to fears that other countries could turn to a gold selloff to fund its needs.

As RANSquawk points out, poor GDP numbers from China will temper inflation (as well as knock other commodity prices).

While, bad retail figures from the US last week, and a more determined effort by the eurozone to keep an eye on inflation means the need to hedge with gold looks less important by the day.

Joe Weisenthal wrote over at Business Insider:

So the collapse in gold is not about gold, but about vindication for a large corpus of belief and economic research, which has largely panned out. It's great that our economic elites know what they're talking about, and have the tools at their disposal to address crises without creating some new catastrophe.

Things aren't great in the economy, but the collapse/hyperinflation fears haven't panned out, and the decline in gold is a manifestation of that.

8.44am BST

Troika statement on Greek deal

The Troika group of lenders – the European Commission, ECB and IMF – have put out a statement on the agreement reached with Greece this morning.

You can read the statement in its entirety here, but in short, it's very much steady-as-she-goes missive.

The mission and the authorities agreed that the economic outlook is largely unchanged from the previous review, with continued prospects for a gradual return to growth in 2014, supported by inflation well below the euro area average and improved wage flexibility, which are helping to restore the competitiveness of the Greek economy.

It says debt reduction has been achieved, more autonomy has been given to tax collectors, tax evasion and corruption has been tackled.

It added:

The mission also discussed with the authorities progress in strengthening the social safety net, including through targeted employment and training programmes supported by the EU, pilot programmes to extend unemployment benefits and provide minimum income support, a programme to provide access to primary health care for the uninsured, and a scheme to reduce the financial burden on indebted low-income households which have been severely affected by the crisis.

8.22am BST

Greece/Troika meetings

Over in Athens, the Greek government has been meeting with the Troika group of lenders.

Finance minister Yiannis Stournaras told waiting reporters that a deal has been reacted on a review of the country's austerity programme, adding that the Cyprus crisis will not change Greece's macro-economic situation.

Finally, he revealed the cuts have seen a primary budget surplus this year, which will be used to pay down public debt.

8.17am BST

Gold to April 2011 levels

Spot gold prices continue to fall, hitting ,450 an ounce, the lowest level in two years.

8.12am BST

Mining companies down

Bang on time, the FTSE 100's biggest fallers on opening are all mining companies, reacting to the Chinese data and commodity price falls.

Randgold (down -4.9%), Fresnillo (down 3.8%), Polymetal (down 3.2%), Evraz (down 3.2%), Rio Tinito (down 3%), ENRC (down 2.1%), Anglo American (down 1.9%), Antofagasta (down 1.9%), BHP Billiton (down 1.6%) and Xstrata (down 1.6%)

8.06am BST

Key Chinese data disappoints

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

After the excitement of Friday's finance ministers get-together in Dublin and Cameron and Merkel's weekend together, today is slightly quieter, but we wait to see if the tumbles in commodities continue. Gold fell to an 18-month low, with oil and silver both down too.

Overnight, disappointing numbers came out of China, with Q1 GDP at 7.7% missing expectations of 8% and down from 7.9% last time.

Industrial production in March fell from 9.9% to 8.9%, missing expectations of 10.1%.

However, retail sales remained strong at 12.4%, up from 12.3% in February.

Meanwhile, in Venezuela, results of the country's general election are through, but political uncertainly in the oil-rich country could also have an impact on commodities.

We will be keeping an eye on all the reaction to the results and any other events to break throughout the day.

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

 


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

5.47pm BST

Cyprus government hails new bailout terms

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

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


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

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

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

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

5.15pm BST

European markets close lower

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

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

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

• Germany's Dax was down 0.87%

• France's Cac closed 1.32% lower

• Italy's FTSE MIB lost 2.28%

• Spain's Ibex ended 1.81% lower

• Portugal's PSI 20 dropped 3.54%

• The Athens market fell 2.16%

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

4.26pm BST

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

Updated at 4.27pm BST

4.05pm BST

Portuguese market down 4%

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

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

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

3.39pm BST

Portugal opposition calls for removal of

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

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

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

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

Updated at 4.13pm BST

3.25pm BST

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

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

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

3.20pm BST

Greek business head calls for rethink on bailout terms

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

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

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

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

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

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

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

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

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

Updated at 3.21pm BST

3.03pm BST

US services index slightly worse than forecast

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

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

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

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

Updated at 3.10pm BST

2.57pm BST

Austrian court rejects challenge to ESM bailout fund

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

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

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

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

2.44pm BST

Quick look at the markets…

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

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

2.40pm BST

UK mortgage avaiability increases

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

My colleague Hilary Osborne writes:

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

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

Leo Ringer, CBI head of financial services, said:

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

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

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

2.16pm BST

Cypriot bank workers to strike on Thursday

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

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

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

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

Updated at 3.05pm BST

1.44pm BST

Eurozone crisis hits development funds

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

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

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

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

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

1.41pm BST

US jobs report disappoints

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

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

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

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

1.32pm BST

Italian treasury slashes growth forecasts

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

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

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

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

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

1.23pm BST

Cyprus finance minister toes the line

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

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

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

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

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

12.05pm BST

German five-year borrowing costs fall

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

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

Reuters reports:

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

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

11.58am BST

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

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

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

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

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

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

11.44am BST

Rajoy says Spain will see benefits of sacrifices next year

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

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

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

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

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

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

11.28am BST

Italy to vote for new president on April 18

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

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

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

11.23am BST

Bank of England could boost QE tomorrow – economist

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

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

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

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

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

11.01am BST

ECB and Bank of England preview

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

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

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

Here's Howard Archer of IHS Global Insight:

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

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

10.52am BST

Eurozone inflation eases but price of core goods and services up

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

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

Capital Economics said:

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

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

10.35am BST

Tax on Cypriot savers to double under bailout plan

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

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

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

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

Lagarde said:

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

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

9.54am BST

Some instant reaction from Twitter…

9.51am BST

UK construction could weigh on first quarter GDP

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

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

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

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

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

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

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

9.41am BST

New Cypriot finance minister sworn in

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

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

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

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

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

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

Charlie Charalambous at AFP reports:

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

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

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

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

9.10am BST

French far-right could benefit from political scandals

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

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

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

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

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

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

8.52am BST

Mosocvici denies covering up Cahuzac scandal

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

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

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

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

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

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

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

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

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


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

8.31am BST

Passos Coelho under fire for unpopular austerity

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

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

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

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

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

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

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

8.10am BST

Today’s agenda

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

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

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

8.08am BST

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

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

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

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

Published via the Guardian News Feed plugin for WordPress.

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

 


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

6.04pm BST

European markets close on a high note

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

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

• Germany's Dax added 1.91%

• France's Cac closed 1.98% higher

• Italy's FTSE MIB ended up 1.4%

• Spain's Ibex added 1.65%

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

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

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

Updated at 6.09pm BST

6.03pm BST

Osborne confirms Laika UK account transfers

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

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

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

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

Updated at 6.08pm BST

5.46pm BST

Samaras hopeful ahead of troika visit to Greece

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

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

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

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

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

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

Updated at 9.20am BST

5.26pm BST

ECB’s Coeure warns on currency wars

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

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

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

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

Updated at 5.47pm BST

5.10pm BST

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

Updated at 5.44pm BST

4.23pm BST

Former French minister reportedly admits to foreign bank account

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

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

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

Updated at 4.34pm BST

3.30pm BST

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

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

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

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

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

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

Updated at 3.42pm BST

3.02pm BST

IMF to close Latvian office

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

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

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

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

2.32pm BST

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

And on the reshuffle:

Updated at 2.33pm BST

2.26pm BST

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

2.25pm BST

Markets buoyant across Europe

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

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

France CAC 40: up 1%

Germany DAX: up 1.1%

Spain IBEX: up 0.8%

Italy FTSE MIB: up 0.7%

Updated at 2.28pm BST

1.58pm BST

Georgiades takes over as Cypriot finance minister

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

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

Updated at 2.23pm BST

1.50pm BST

Cypriot cabinet reshuffle expected today – ekathimerini

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

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

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

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

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

Updated at 2.22pm BST

1.29pm BST

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

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

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

Updated at 1.59pm BST

1.20pm BST

Cypriot finance minister resigns

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

More on that as it comes in …

Updated at 1.34pm BST

1.17pm BST

Cyprus concludes talks with lenders

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

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

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

Under the terms of the deal …

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

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

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

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

Updated at 1.34pm BST

12.00pm BST

Italian wise men meet to try to break deadlock

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

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

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

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

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

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

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

Updated at 1.05pm BST

11.47am BST

No significant outflow of funds from Slovenia, says central banker

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

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

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

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

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

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

Updated at 1.06pm BST

11.27am BST

Eurozone unemployment up 2.1% since crisis began

Another gloomy fact of the day.

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

10.56am BST

Spain seeks more time to cut deficit

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

Julien Toyer reports:

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

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

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

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

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

Updated at 1.12pm BST

10.43am BST

Eurozone youth unemployment continues to rise

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

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

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

10.32am BST

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

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

Updated at 1.31pm BST

10.18am BST

Poor UK factory data raises chance of more QE

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

Christian Schulz of Berenberg Bank writes:

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

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

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

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

10.14am BST

Eurozone unemployment hits new high

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

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

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

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

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

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

Updated at 1.41pm BST

10.04am BST

Eurozone lending declines

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

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

Updated at 1.42pm BST

9.47am BST

Cyprus to ease capital controls

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

Reuters reports:

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

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

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


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

Updated at 1.48pm BST

9.36am BST

UK factory data worse than expected

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

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

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

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

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

Updated at 1.53pm BST

9.27am BST

Cyprus share index drops after two-week hiatus

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

Updated at 1.54pm BST

9.26am BST

Slump in eurozone manufacturing could prompt ECB to cut rates

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

Here's Howard Archer of IHS Global Insight:

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

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

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

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

Updated at 2.06pm BST

9.21am BST

French factory slump continues

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

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

Jack Kennedy at Markit said:

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

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

Updated at 2.07pm BST

9.16am BST

German manufacturing contracts

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

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

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

Tim Moore at Markit said:

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

Updated at 2.08pm BST

9.03am BST

Italian factory sector continues to slide

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

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

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

Updated at 2.09pm BST

8.50am BST

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

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

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

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

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

Updated at 2.10pm BST

8.38am BST

Swiss manufacturing in surprise contraction

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

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

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

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

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

Next up Italy, and hopes are not high.

Updated at 2.11pm BST

8.33am BST

Spanish manufacutring contraction accelerates

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

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

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

Markit economist Andrew Harker said:

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

8.27am BST

Irish manufacturing contracts for first time in over a year

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

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

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

Updated at 2.12pm BST

8.22am BST

Cyprus wins deadline extension

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

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

Updated at 2.14pm BST

8.20am BST

Laiki’s UK customers escape Cypriot savings levy

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

My colleague Jill Treanor reports:

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

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

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

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


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

Updated at 2.16pm BST

8.16am BST

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

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

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

Updated at 2.16pm BST

8.10am BST

Anastasiades denies family member exported funds

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

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

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

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

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

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

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

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

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

Updated at 2.20pm BST

7.50am BST

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

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

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

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