Rupert Neate

Data for April shows contraction in Germany’s business activity, with prospects for service sector ‘increasingly gloomy’. The services purchasing managers index fell to 49.6 last month from 50.9 in March– the first contraction since November…

 


Powered by Guardian.co.ukThis article titled “Eurozone recession set to deepen as private sector shrinks for 15th month” was written by Rupert Neate, for The Guardian on Monday 6th May 2013 13.53 UTC

The eurozone's private sector shrank for the 15th consecutive month in April – suggesting the single currency area will fall deeper into recession.

Germany, the powerhouse of the eurozone, also suffered a contraction in business activity during the month, which could send a worrying signal for the rest of the bloc.

An official indication of eurozone GDP is due next week and on Monday the president of the European Central Bank, Mario Draghi, stressed that the policymakers would be ready to cut rates again after taking a quarter of a percentage point off the benchmark rate to a record low of 0.5% last week.

"We stand ready to act again," Draghi said in remarks that knocked the euro lower. Wall Street, meanwhile, remained close to last week's record highs.

Tim Moore, a senior economist at Markit, said prospects for Germany's service sector were increasingly gloomy. "A renewed slide in services output during April, alongside falling manufacturing production, raises the risk that the German economy will fail to expand over the second quarter," he said.

Data gauging the level of activity across thousands of companies and regarded as a good indicator of general economic conditions came in below the crucial level of 50, which separates contraction from expansion. At 46.9 in April, Markit's eurozone composite purchasing manager's index (PMI) was an improvement on initial readings of 46.5 and March's output of 46.5 but it has been below 50 for more than a year.

Germany's PMI, which measures growth in manufacturing and services and accounts for more than two-third's of Germany's GDP, fell to 49.2.

Germany's economy performed well during the first two years of the eurozone crisis, but growth slowed last year as it was knocked by the slowdown in China. The services sector fell to 49.6 last month from 50.9 in March – the first contraction since November. Germany's wobble is likely to drag the whole of the eurozone deeper into recession, Markit warned. "The eurozone's economic downturn is likely to have gathered momentum again in the second quarter," Chris Williamson, its chief economist, said. "The PMI is broadly consistent with GDP falling at a quarterly rate of 0.4%-0.5% in April."

Howard Archer, chief UK and European economist at IHS Global Insight, said: "The latest data and survey evidence fuel concern that the eurozone is headed for further GDP contraction in the second quarter after highly likely suffering a sixth successive quarter of contraction in the first quarter of 2013."

The European commission last week warned that it expects the eurozone's GDP to shrink by 0.4% in 2013, an increase on the 0.3% it had previously forecast. The recovery pencilled in for 2014 will also be slower than expected and the unemployment crisis in the eurozone will persist, the commission said in its spring forecasts.

ECB executive board member Benoît Cœuré had also indicated that the central bank would be ready to cut interest rates further if the economic outlook in the euro area worsens. "It's a historic low and we'll cut again if indicators confirm the situation is deteriorating," Cœuré said in an interview with France Inter radio station on Monday.

Williamson said it was difficult to believe that a mere 25 basis point cut from an already low level will have "a material impact on an economy that is contracting so sharply".

In further gloomy news, a separate EU report published on Monday showed retail sales across the eurozone dropped 0.1% in March following a 0.2% fall in February.

There were also fears that the service sector is slashing prices to drum up business. Official figures released last week showed prices across the region rose 1.2% in April – well below the central bank's 2% target – while unemployment hit a new high of 12.1%.

An index that measures sentiment in the eurozone improved, but illustrated concerns about Germany. "While investors' assessments of the economy for the eurozone are stabilising, those for Germany are clouding a little, albeit at a significantly higher level," research group Sentix said.

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USA 

Bank of England leaves interest rates and QE unchanged. ECB chooses to leave rates unchanged. Bank of Japan delivers “shock and awe” decision, launching ‘new phase of monetary easing’. UK services sector records its best figures in 7 months…

 


Powered by Guardian.co.ukThis article titled “Eurozone crisis live: No change on rates or QE from Bank of England” was written by Rupert Neate and Dan Milmo, for theguardian.com on Thursday 4th April 2013 17.06 UTC

6.06pm BST

FTSE 100 falls to the lowest since March

Shares across Europe ended the day down sharply after the ECB failed to unleash any fresh economic stimulus. The pan-European FTSEurofirst 300 closed 1.1% lower at 1,180.65 points.

The FTSE 100 closed down 76.16 points, or 1.2%, to 6,344.12 points – the lowest finish since 4 March. Germany's Dax closed down 0.7%, France's Cac is down 0.47%.

And with that we'll wrap up the blog, and see you again tomorrow.

5.51pm BST

US unemployment claims rise to 385,000

Over in the US, American unemployment claims have hit a four-month high – up 28,000 to 385,000 – the Labor Department said.

It was the third straight week of gains in claims and confounded economists' expectations for a drop to 350,000.

Coming on the heels of data on Wednesday showing private employers added the fewest jobs in five months in March, the report implied some weakening in job growth after hiring accelerated in February.

The four-week moving average for new claims, a better measure of labor market trends, rose 11,250 to 354,250.

More details here.

Updated at 6.06pm BST

5.10pm BST

German, French and Austrian bond yields fall on fear of ECB rate cut

German bond yields have dropped to an 8-month low following Draghi's dovish comments that suggest a ECB rate cut is likely soon. The German 10-year yields fell four basis points, or 0.04 percentage point, to 1.24% the lowest since August.

French and Austrian 10-year yields fell to records as Draghi said monetary policy will “remain accommodative for as long as needed” to boost growth. Spanish and Italian bonds pared gains as the ECB president said the central bank won’t immediately implement measures to ease funding strains for smaller companies.

3.37pm BST

Euro and dollar surge against the yen

FX watch. The euro has now risen to a session high against the dollar, reversing a previous slide to a four-and-a-half month low. The Euro was trading at .2880 just after 3pm, a 0.2% rise on the day.

The euro and the dollar have both risen by more than 3% against the yen, following the Bank of Japan's announcement of massive monetary easing. The dollar reached a session peak of 95.91 yen, a 3.1% rise over the day. The euro rose 3.2% to 123.36 yen, having hit as high as 123.47 yen. It is currently the biggest one day euro-yen rise since March 2011.

Updated at 4.26pm BST

3.29pm BST

Economist predicts ECB rate cut soon

Howard Archer, Chief European & UK Economist at IHS Global Insight, reckons Draghi's dovish comments suggest an interest rate cut is looking even more probable and is likely to be sooner rather than later.

While the ECB made no policy changes at its April meeting, the overall tone of its statement and Mr. Draghi’s comments were markedly more dovish and an interest rate cut from 0.75% to 0.50% now looks highly likely. Indeed, it is very possible that the ECB could trim interest rates to 0.50% as soon as its May policy meeting.

Significantly, ECB President Mario Draghi revealed that there had been “extensive” discussion on interest rates. Furthermore, he reported that the decision to keep interest rates at 0.75% was by consensus, so not unanimous.

We suspect that likely ongoing disappointing Eurozone economic news will continue to push the ECB towards cutting interest rates, and likely sooner rather than later. We expect a cut from 0.75% to 0.50% in the second quarter, and consider a move as soon as May as highly possible.

Not only does further Eurozone GDP contraction now seem highly probable in the first quarter, but prospects for the second quarter are looking increasingly worrying. With Eurozone consumer price inflation down at a 31-month low of 1.7% in March, wage growth generally weak and most inflationary measures currently muted, the ECB has ample scope to cut interest rates.

Updated at 4.24pm BST

2.50pm BST

Draghi: Cyprus bailout is not a template for other rescues

Draghi stressed that the Cyprus bailout, which involved losses imposed on richer bank depositors, was not a template for future rescues.

"Cyprus is no template. I am absolutely sure that the chairman of the eurogroup has been misunderstood [he had previously been interrupted as having suggested that].

The press conference has finished.

2.23pm BST

Cyprus growth forecasts: varied

While we're talking Cyprus look at the range of forecasts on how long it will take for the Island's economy to recover

Comparison of Cyrpus growth forecasts (%GDP)
Comparison of Cyrpus growth forecasts (%GDP). Source: OpenEurope Photograph: OpenEurope

Updated at 2.24pm BST

2.14pm BST

Draghi: Leaving the Euro won’t help Cyprus

Draghi says Cyprus leaving the Eurozone won't make any difference to its economy. 

What was wrong with Cyprus' economy doesn't stop if they are outside of the Euro.

And he added that there are big risks attached to leaving the single currency.

2.02pm BST

Euro drops further on Draghi’s dovish comments

The Euro is falling fast. It's now dropped to a four-month low against the dollar on Draghi's dovish comments.

1.58pm BST

Draghi says Cyprus was

Draghi says Cyprus officials were "not smart" in proposing a levy on ordinary savers with less than €100,000 in Cypriot banks.

The ECB had presented a proposal where no levy on insured depositors was foreseen. And let me also tell you this was almost exactly the same as all of the other proposals by the (European) Commission, the IMF – the exactly the same picture.

Then we started a prolonged negotiation with the Cyprus… with the parties present at the meeting, the outcome of which was what you saw – namely a levy on uninsured depositors.That was not smart, to say the least, and it was quickly corrected the day after in the Eurogroup conference.

ECB President Mario Draghi
ECB President Mario Draghi Photograph: OLIVIER HOSLET/EPA

Updated at 2.09pm BST

1.53pm BST

The ECB have released the full text of Draghi's statement.

Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. HICP inflation rates have declined further, as anticipated, and price developments over the medium term should remain contained. Monetary and loan dynamics remain subdued. Inflation expectations for the euro area continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. At the same time, weak economic activity has extended into the early part of the year and a gradual recovery is projected for the second half of this year, subject to downside risks.

You can read the whole thing here.

1.44pm BST

Euro falls as Draghi speaks

Draghi's lack of optimism is not going down to well with FX traders.

Updated at 1.46pm BST

1.39pm BST

Draghi: Eurozone recovery to start in second-half of 2013

Draghi says the Eurozone should start to recover in the second-half of the year, subject to "downside risks".

Updated at 1.40pm BST

1.31pm BST

Draghi press conference

European Central Bank President Mario Draghi is about to start his press conference. You can watch it live here. (There's some lovely hold music…)

Updated at 1.32pm BST

12.46pm BST

ECB leaves interest rate unchanged

The ECB has left the benchmark interest rate unchanged at 0.75%, as expected.

12.05pm BST

Pound up slightly on rates held decision

Sterling has risen slightly from .5054 to .5066 on the bank of the Bank's decision to leave rates unchanged.

The Bank made no statement on the MPC's decision to hold rates.

12.01pm BST

Bank of England leaves interest rate and QE unchanged

The Bank of England has left interest rate unchanged at 0.5% and QE unchanged at £375bn.

Updated at 12.02pm BST

11.57am BST

Greece sells its London counsul official residence for £23.3m

And over to Greece where our correspondent Helena Smith says the debt-stricken country’s privatisation drive has been energized by news of the sale of four diplomatic missions abroad – including the counsul's official residence in Holland Park for £23.3m

She writes:

The quest to reduce Greece’s monumental debt mountain received a much-needed boost this morning with the announcement that four high-end properties, including the London home of the Greek consul, had fetched far more under the hammer than initially expected.

In a surprise announcement, the Hellenic Republic Asset Development Fund (TAIPED) overseeing the country’s privatization drive, said the diplomatic missions had raised 41.1 million euro – 27.7 higher than the initial valuation of the properties.

The consul’s home, a 10,000 ft double-fronted Victorian townhouse in London’s fashionable Holland Park district sold for 23.3 million pounds (27.462 eur0). When Greek authorities announced the sale in September, under international pressure to reign in revenues, UK real estate agents had valued the residence at 20 million pounds.

TAIPED said other sales included diplomatic buildings in Nicosia, Brussels and Belgrade with respective price tags of 8.3 million euro, 3.24 million euro and 2.075 million.

Officials said the proceeds would be handed over to the country’s creditors at the EU, ECB and IMF. “After all the delays in our privatisation programme this has to be good news,” one insider said.

The Greek Consulate at Holland Park, London. Undergoing extensive renovation.
The Greek Consulate in Holland Park undergoing extensive renovation last year. Photograph: Sarah Lee

Savills, which sold the Grade II-listed property 9 bedroom town house, described it as: "An incredible opportunity to modernise a wonderful Grade II listed detached Italianate Villa on the most desirable southern leg of the street. The property benefits from a 136' x 49' garden backing directly onto the park."

Click here for a pdf of the brochure. It's nice, but the garden looks like could do with some work.

More details from Unmodernised

To all you millionaires out there, this is one for those of you with tens of millions* at your disposal, rather than the mere several million that you may have been thinking would suffice. Certainly at the business end of the unmodernised property market, this ‘Grade II listed detached Italianate Villa’ is certainly spot-on in terms of location.

The next thing to worry about is the works involved to convert the property from it’s former use as an annexe to the Greek Embassy. We reckon you’d probably be looking at around £600 per square foot on all your refurb costs (yes, that’s a renovation budget of +/- £5.25m). It’s endowed with a superb garden, and there’s probably potential to extend beyond the current 8700 sq ft.

Updated at 12.35pm BST

11.52am BST

Centre-left challenge in Italy

Over in Italy the centre-left Mayor of Florence Matteo Renzi has called for a government coalition with former premier Silvio Berlusconi or new elections in June. It is a clear challenge to Italian center-left leader Pier Luigi Bersani.

More from Reuters

Bersani won a majority in the lower house but not the Senate in February elections, leaving his center-left group unable to govern alone. He failed last week in efforts to forge a viable majority in parliament after his overtures to the anti-establishment 5-Star Movement were rebuffed.

Renzi, 38, who lost to Bersani last December in a vote to be the center-left election candidate, gave interviews to several Italian newspapers saying he was ready to be a candidate in new leadership primaries.

Renzi had previously hesitated to challenge Bersani, a former communist politician who threw away a 10-point opinion poll lead in the February 24-25 election which left Italy in political deadlock.

But in recent days he has become increasingly outspoken in attacking Bersani's line that a "grand coalition" alliance with scandal-plagued center-right leader Berlusconi is unthinkable.

And Gazzetta del Sud

"We are going through a political-institutional period in which time is being wasted, while the world is asking us to run twice as fast" said Renzi, who is expected to challenge to lead the centre left if Italy returns to the polls later this year after losing the last primary to the head of his Democratic Party (PD), Pier Luigi Bersani. Italian President Giorgio Napolitano at the weekend asked a group of 10 'wise men' to try to break the stalemate by producing a government programme capable of winning cross-party support.

11.11am BST

French bond auction

France posted a dire set of services PMIs for March today, coming in at 41.3 and further underlining the country's economic divergence from Germany. Nonetheless, France sold nearly €7bn worth of sovereign debt this morning – at the upper echelons of expectations. According to Adam Parry at International Financing Review:

Once again, the French primary dealers did their usual efficient job of placing auction paper with domestic accounts, ensuring a solid set of results despite those awful PMI numbers.

Updated at 11.13am BST

11.02am BST

Bank of Japan and Spanish bond auction impact

The Bank of Japan announcement has not shifted the dial for western investors, and neither has the successful Spanish bond auction. The pan-European FTSEurofirst 300 index was up slightly – slightly – at 1,193 points and France's CAC index is up 0.75% with Spain's Ibex the best performer, up 1.4%. The FTSE is down slightly and it is safe to say that excitement over the imminent Bank of England and European Central Bank statements is not building.

10.38am BST

Yen falls in wake of Bank of Japan statement

The early indications are that the Bank of Japan's announcement of a massive increase in quantitative easing has had the desired effect of pushing down the yen against the dollar. The phrase chō endaka – or "super-strong yen" – is a common refrain among Japanese manufacturers who have been forced to base their operations abroad in a bid to stay competitive.

The dollar rose more than 2.5% to 95.69 yen this morning and analysts expect it to rise further against the Japanese currency. Lee Hardman, currency economist at BTMU, said:

The BoJ has set in play a very aggressive expansion of monetary policy and it's very likely dollar/yen will continue to rise.

Updated at 11.14am BST

10.23am BST

Hopes rise that triple-dip will be ducked

Here's Heather Stewart's take on the UK services PMI data for March, which could strengthen the arm of hawks on the Bank of England's monetary policy committee, who fear that further quantitative easing could stoke inflation.

10.15am BST

Spanish bond sale reaction

Nicholas Spiro at Spiro Sovereign Strategy argues that Spain's "remarkable" performance in the bond markets indicates that investors are no longer concerned about the threat to the eurozone's fourth largest economy.

Spanish debt, and Italian paper for that matter, continues to confound the sceptics. One can no longer attribute the resilience of Spain's debt market to the ECB's bond-buying programme alone, whose credibility and effectiveness are increasingly in doubt. For the time being, investors are simply no longer sufficiently concerned about Spain to force a sharp and sustained sell-off. The result of this morning's auction, with the Treasury getting all its debt out the door (and then some) and a further dip in yields, underscores markets' muted reaction to the harsh treatment meted out to private creditors in Cyprus.

Updated at 11.14am BST

10.07am BST

Spanish bond auction

Reuters is reporting that Spain sold more sovereign debt than it expected at a bond auction today, getting away €4.3bn of bonds compared with the anticipated €3bn to €4bn. The yields – or interest rate payments – were at similar levels to recent auctions.

Updated at 10.07am BST

9.59am BST

Eurozone facing sixth successive fall in GDP

There is less optimism, however, about the eurozone's performance in the first quarter of the year. Howard Archer at IHS Global Insight says the contraction in eurozone services in March indicates that the area suffered a sixth successive quarter of GDP contraction in the first quarter of 2013. This is bad news for UK exports, and therefore the British economy as a whole.

Looking ahead to the European Central Bank interest rate announcement this afternoon, Archer adds:

Despite mounting signs that the already weak eurozone economic situation is deteriorating anew and muted inflationary pressures, the ECB still seems unlikely to cut interest rates from 0.75% to 0.50% at today’s April policy meeting.
 
The ECB currently seems 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.

Updated at 11.14am BST

9.53am BST

Will the UK avoid a triple-dip?

ING Bank says the services PMI, the strongest since August, increases the chances of the UK avoiding its third recession in less than five years, also described as a "triple-dip" downturn.

Nonetheless, ING's James Knightley argues that it will be close, thanks to the chilling effect of the recent weather:

[The PMI data] supports the evidence seen in the broader British Chambers of Commerce survey earlier this week, that the UK did post modest growth in the quarter. Consequently, this will further diminish the probability of any policy change at today’s Bank of England MPC meeting. Nonetheless, we are concerned that bad weather in January and March could impact on the GDP calculations so we still think it will be 50:50 on whether the UK does indeed post a positive 1Q13 GDP number on 25 April.

Updated at 11.14am BST

9.46am BST

Looking ahead to the BoE and ECB decisions

Here are a couple of previews of today's big bank announcements from RAN Squawk, on the Bank of England at noon and, soon after, the European Central Bank. Analysts appear to believe that the doves will again be in the minority on Threadneedle Street, with just three out of 37 contacted by RAN Squawk estimating a £25bn increase in quantitative easing to £400bn.

9.40am BST

Services data indicates growth in Q1

Markit, the data company that compiles the PMIs, says that the UK services data points to economic growth of 0.1% in the first three months of 2013. So the UK will just about squeak past the threat of a triple-dip recession after the economy contracted by 0.3% in the final quarter of last year.

Chris Williamson, chief economist at Markit, said:

The government and Bank of England will breathe sighs of relief in seeing signs of a gathering upturn in the service sector during March, which looks set to have helped the UK avoid a triple-dip recession by the narrowest of margins.

A caveat: Markit's survey does not include the public sector or retailers and focuses on areas such as transport and communication, business services and entertainment.

Updated at 11.15am BST

9.32am BST

UK services sector grows

Good news for the UK economy: Britain's services sector recorded its strongest expansion in seven months in March. This indicates that the UK will have escaped a triple dip recession, and George Osborne a horde of rampaging back benchers.

The Markit/CIPS purchasing managers' index for the service sector – three-quarters of the UK economy – climbed to 52.4 in March compared with 51.8 in February. Anything above 50 denotes growth, and good news for the growth engine of the UK economy.

9.28am BST

And Anatole Kaletsky's take…

9.27am BST

More on Japan

Here is the FT's take on the Bank of Japan announcement.

9.20am BST

European services contract

The PMI for the European services sector in March is out and it is poor. Markit's Eurozone services PMI, which surveys thousands of companies from restaurants to banks, showed a fall from 47.9 in February to 46.4 in March. Anything below the 50 threshold denotes contraction and this index has been below that level for all but one of the last 20 months. France's data in particular was worrying, falling to 41.9 compared with 43.1 in February.

Chris Williamson, chief economist at Markit, said the Cypriot crisis had yet to register on the eurozone economy.

The recession is deepening once again as businesses report that they have become increasingly worried about the region's debt crisis and political instability. The unresolved election in Italy was commonly cited as a key factor clouding the economic outlook in March, and the botched bail-out of Cyprus could well filter through to a further worsening of business sentiment across the region in April.

9.13am BST

Traders expect ECB to leave rates unchanged

The futures market for German sovereign debt is indicating that the ECB will keep its key interest rate at a record low of 0.75%, but will give some positive hints about hints of monetary policy easing in the future. One trader told Reuters: "Given where yields are, the risk is for the market to be disappointed if [ECB President mario Draghi] is not as dovish [as the market expects]."

The so-called "Draghi put", when the ECB boss said last year that he would do whatever it takes to save the euro, has played a key role in calming the markets. So Draghi is expected to keep up the interventionist rhetoric.

Updated at 9.13am BST

9.02am BST

Japan: the next crisis?

This morning's announcement by the Bank of Japan is a significant development. It will boost the economy in the short-term but it has long-term implications for a gross national debt burden that, at more than 200% of GDP, is too big.

An article on this subject appeared in the Atlantic Monthly a few months ago. It is worth reading because it implies that the BoJ can't just start the quantitative easing pump without fixing wider problems in its economy. An ageing population, and therefore a shrinking tax base, will not be able to pay off the debt.

Bank of Japan governor Haruhiko Kuroda
New Bank of Japan governor Haruhiko Kuroda (centre) and other officials at Kuroda’s first policy board meeting today. Photograph: Jiji Press/AFP/Getty Images

Updated at 9.12am BST

8.51am BST

Spanish bond sale

Spain is expecting to get away a €4bn bond sale with little difficulty today, because lower-rated sovereign debt has not been knocked heavily by events in Cyprus. Spanish 10-year bonds are trading with a yield – or interest rate – of around 4.9% this morning, well below the 7% that would have Mario Draghi and the bailout doctors running over the hill to Madrid.

Mathias van der Jeugt, a rate strategist at KCB, says investors remain reassured by Draghi's promise last year to do whatever it takes to save the euro.

The amount is quite low so it is easy to digest for investors … [and] the Draghi put remains effective.

Elsewhere, France plans to sell €6bn-€7bn of bonds this afternoon. France also has issues over growth but its main problem at the moment is the Cahuzac scandal. As one of our correspondents described it yesterday: "Think of the Huhne scandal and multiply it by 1,000%."

8.35am BST

Bank of Japan in radical change of direction

The UK economy may be stuck in a rut, but spare a thought for Japan after more than two "lost decades" of stagnant growth. This morning the Bank of Japan, under pressure from the new Prime Minister Shinzo Abe, rather uncharacteristically brought out its bazooka. Read about it here. European stock markets have barely flickered, perhaps because they are used to central bank activism.

8.31am BST

Spain’s services sector shrinks again

Perhaps this will quell that positive start for the Spanish stock market: Spain's services sector has shrunk for the 21st successive month in March. Markit's Purchasing Managers' Index of services companies stood at 45.3, up slightly from February but still below the 50+ level that indicates growth.

Markit's Andrew Harker said there were "no real signs" of encouragement for the services sector. He added:

A number of firms envisage economic conditions to start improving towards the end of 2013m but it seems that in the near-term companies will have to continue operating in a worsening economic environment.

Spain's economy entered its second recession since 2009 at the end of 2011, as the repercussions of a burst property bubble continue to rock the economy. The services sector – which accounts for just under half of GDP – has suffered the collateral damage as families rein in spending on restaurants and holidays. The UK is no different.

8.22am BST

Greek business leader warns on Cyprus

The first, and most obvious, signs of wider repercussions to the Cypriot crisis.

Updated at 8.22am BST

8.20am BST

Markets off to a quiet start

Judging by investors' reactions this morning, there is not much hope of the Bank of England and European Central bank taking a leaf out of the book of Abenomics.

The FTSE is down 10 points at 6410 while its blue-chip counterparts are barely up. France's CAC 40 is up 0.4%, Spain's Ibex has risen 0.8% and Germany's Dax is up 0.4%.

8.13am BST

Ireland’s services sector slows

The first of the services PMI figures are out, from Ireland. They show that the country's services sector expanded at a slower pace in March, but at least the number is in positive territory. It slipped from 53.6 in February to 52.3 in March. Philip O'Sullivan, chief economist at NCB stockbrokers, said:

The key positive from this morning's report is the continued strength in new export business.

That Irish export boom – much of it thanks to non-Irish companies based in Ireland – is making finance ministers across Europe, including Mr Osborne, peruse Ireland's corporate tax rate of 12.5% and wonder whether it is worth copying.

7.55am BST

UK on the hook for Cyprus

What price economic stability? It seems a snip at €45m (£38.2m) but that's the price to the UK taxpayer that the Telegraph is putting on the €1bn bailout of Cyprus by the International Monetary Fund. The cost of letting Cyprus go under would have been greater though.

7.48am BST

Good morning

Good morning everyone and welcome to today’s eurozone blog. The main events today are interest rate and quantitative easing decisions at the Bank of England and European Central Bank, as well as services data from the UK and major eurozone economies.

The outgoing governor of the BoE, Mervyn King, has swung behind further QE – injecting money into the economy by acquiring sovereign debt off institutions – but he is in a minority on the Bank’s monetary policy committee.

There is also mild expectation that the latest phase of the eurozone crisis in Cyprus will persuade the ECB under Mario Draghi to cut interest rates from 0.75% – where they have been since July 2012. Either way, both banks will do well to match the Bank of Japan for impact. This morning it
confirmed radical changes to its approach, including the adoption of a
substantial quantitative easing programme. The BoJ is trying to blow two
decades of deflation out of the water.

Back in Europe, there is a wave of purchasing managers index [PMI]
data for the services industries in March. PMIs are culled from surveys of private sector companies, including indicators such as new orders and production. A reading of more than 50 indicates expansion and the data for the UK is viewed as a crucial factor in determining whether we avoid a triple dip recession or not. Services account for three-quarters of our economy.

Updated at 7.56am BST

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EU leaders draft federal plan to save the eurozone ahead of crucial summit, Moody’s downgrades 28 Spanish banks, and Cyprus becomes fifth eurozone country to need a bailout…



Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Markets cautious as politicians manoeuvre ahead of crucial summit” was written by Rupert Neate and Nick Fletcher, for guardian.co.uk on Tuesday 26th June 2012 16.39 UTC

5.54pm: It’s been another mixed day on the markets, with rumour and counter rumour ahead of the EU summit on Thursday and Friday.

A downgrade of 28 Spanish banks and talk of the country’s sovereign debt getting another cut by Moody’s helped push Spanish yields higher again, although still below the 7% level reached last week. Stock markets came off their worst levels despite some reported resistance to the EU’s draft federal plan to save the euro.

The FTSE 100 closed down 3.69 points at 5446.96, while Germany’s Dax was up 0.07%. France’s Cac slipped 0.3% but Italy’s FTSE MIB fell 1.11% and Spain’s Ibex 1.44% after German chancellor Angela Merkel supposedly said Europe would not have shared total liability for debt as long as she lives.

Eurozone finance ministers are expected to hold a conference call tomorrow to discuss Spain and Cyprus’s requests for financial help, and there will inevitably be a lot more posturing ahead of the summit.

So with that to look forward too, it’s time to close up for the night. Thanks for all the comments and we’ll be back tomorrow.

5.42pm: News from John Hooper in Rome to calm everyone’s nerves as the summit approaches …

As the Guardian reported a couple of days ago Silvio Berlusconi has been making noises about returning to government. Well, today he was reported to have added some clarification. The 75 year-old TV magnate was said to have told a meeting of his party’s MPs that he didn’t necessarily see himself as the next prime minister.

But he would be happy to serve in a future government as finance minister …

5.39pm: More on the resignation of deputy maritime affairs minister Giorgos Vernikos. Helena Smith in Athens writes:

It’s definitely NOT a good day for Antonis Samaras, who though at this early stage of his Greek premiership could be described as beleageured. After accepting the resignation of Vasillis Rapanos, his first choice for finance minister, the conservative leader has been forced to accept the resignation of Giorgos Vernikos, the deputy maritime minister.

Greece’s state-run news channel ERT is reporting that Vernikos announced the decision to step down following relevations – made initially by the main opposition far left Syriza party – of his ties with an offshore company in the Marshall isles. Under Greek law such ties are prohibited and in the new climate of post crisis Greece it would seem are being upheld.

5.17pm: Aside from the various Merkel and Monti comments ahead of the EU summit – which seem to follow the pattern of being made and then downplayed – there is a more positive tale doing the rounds.

According to Reuters and Bloomberg German sources are suggesting that the rules surrounding the forthcoming ESM bailout fund could be changed, allowing it to direct aid directly to national bank rescue funds. On top of that, the eurozone is apparently considering taking away preferred creditor status from the ESM.

That last point is important. One reason investors have been less than enthusiastic about, say, the Spanish bank bailout is that if the funds come from the ESM, they would rank higher than existing sovereign debt. That has helped push Spanish yields up and the price of its bonds down, since why would anyone invest if existing bonds rank lower in the pecking order.

A change to that seniority could prove a positive point for the markets, the euro and sovereign debt.

5.01pm: The Italian press are reporting that prime minister Mario Monti has threatened to quit unless eurobonds are introduced [report in Italian]. Germany’s Angela Merkel is of course dead set against eurobonds…(see the reported comments on shared liability at 4.13).

Earlier Monti told the Italian parliament that the forthcoming summit would not just rubber stamp pre-prepared documents, but needed to work towards a growth plan and “mechanisms to help control market tensions.”

4.23pm: But now comes the backtracking.

4.13pm: Markets are getting spooked again, and here’s one reason. According to Reuters, German chancellor Angela Merkely has said at a coalition party meeting that Europe will not have shared total liability for debt as long as she lives.

So is this a torpedo aimed at the earlier EU draft talking about turning the eurozone into a fully fledged political union within a decade?

Whether or not this is the case, the Spanish and Italian stock markets don’t like it – they are both down more than 1% now.

4.02pm: But don’t worry. The eurozone finance ministers are apparently due to hold another teleconference tomorrow ahead of the summit on Thursday and Friday. So that’s all right then.

4.01pm: Some nasty rumours about Spain, notably that Moody’s may soon cut the country’s credit rating to junk after last week’s downgrade.

As a reminder, Moody’s said when it cut the rating to Baa3 that the country was on review for another reduction. The agency has just reduced the ratings of 28 Spanish banks, and the cost of insurance against a default among Spain’s biggest banks is currently climbing again. A Bloomberg story quotes one analysts saying there was likely to be another downgrade of Spain’s sovereign debt within weeks.

All this – along with high yields Spain paid in its short dated bond auction today – has had a predictable effect on ten year yields. Michael Hewson at CMC Markets said:

Spain had to pay 2.36% for three month money, well above the previous 0.85% in May. Italy’s borrowing costs also rose at a two year auction today paying 4.71%, above the previous 4.04%.

Whispers in the market that Spain could well be cut to “junk” by Moody’s have seen Spanish yields once again edge back towards the 7% level, pushing above 6.8% again.

3.51pm: Being the world’s oldest bank and the producer of your own Chianti is no protection against the current financial crisis.

Italy’s Banca Monte dei Paschi, founded in 1472, is to receive a €2bn state bailout in the form of special bonds, to help plug a capital gap of between €1.3bn and €1.7bn. The new support brings the total level of state aid for the bank to €3.9bn. Here’s a Reuters piece looking at how such an institution ran into its present difficulties.

3.36pm: Meanwhile here’s a bit more about one Greek minister who must be expected to stay around for at least a little while, given he has only just been appointed.

According to our Athens correspondent Helena Smith, the new finance minister Yiannis Stournaras has strong views on liberalising the closed shop Greek economy. Helena says:

In many ways Stournaras is a replica of Vasillis Rapanos, who was forced to quit the job and may well have recommended the Oxford-educated Stournaras in his stead. A strong believer in reform, Stournaras is of the firm conviction that Greece’s myriad closed shop professions must be opened up immediately, along with the market, if the debt-choked country is to regain its competitiveness.

“He has very strong opinions on the need for reform and opening up the market,” said Pandelis Kapsis, a prominent political commentator and former government spokesman.

“In many ways he has exactly the same profile as Rapanos, both were top economic advisers to [former prime minister Costas Simitis] both headed banks, although in Stournaras’ case it was the commercial Emporiki Bank, were are university professors. In short both are excellent choices for the post.”

And an interesting fact:

3.29pm: The disruption of Greece’s new government continues, if current suggestions are true:

3.27pm: Yet more weak data from the US, on both the manufacturing and confidence front.

The Richmond Fed manufacturing index fell by 3 points in June compared to a 4 point rise in May. On top of that US consumer confidence fell for the fourth month in a row, down to 62 from 64.4 in the previous month. Analysts had expected the index to come in at around 63.5. Rob Carnell at ING Bank said:

US Consumer confidence has come in much weaker than consensus estimates. Together with a more downbeat Richmond Fed index, today’s data adds to the sense that the current run of soft US data is not just a temporary aberration, but something a bit more material. Not good news for risk assets.

Last week investors were betting that signs of weakness could prompt the US Federal Reserve to take aggressive measures to boost the world’s largest economy, up to and including further quantitative easing. In the event, the Fed merely increased its bond buying programme. But it left the way clear for further action if things deteriorated, and today’s data is certainly not showing any signs of improvement.

The news has done little to help the US market, with the Dow Jones industrial average currently down nearly 10 points.

2.39pm: It looks like Herman Van Rompuy, president of the European Council, significantly watered down plans to re-shape the Eurozone. The 7-page draft document released by the EC earlier today is significantly less ambitious than a 10-page version leaked to some media earlier this week.

The FT(£) says:

Herman Van Rompuy, president of the European Council, on Tuesday published a significantly scaled-back version of the highly anticipated plan for the future of the eurozone to be debated at a summit meeting this week.
The seven-page plan, which calls for progress towards commonly issued eurozone bonds and the eventual establishment of central EU treasury, is less ambitious and less detailed than earlier drafts, including a 10-page version circulated as recently as Monday.
That proposed giving EU institutions the power to rewrite national budgets and urged eurozone leaders to use their €500bn rescue fund to recapitalise European banks.
While earlier drafts of the report also contained detailed short-term measures that could be taken to address the current market upheaval, the draft published by Mr Van Rompuy on the website of the European Council contains far fewer details and suggests no timetable for implementation.

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

1.52pm: Finally we know who will be representing Greece at the Eu Summit on Thursday and Friday.

1.25pm: A much better profile by Reuters reveals that Stournaras, who was part of a team that negotiated Greece’s entry to the euro, has been dubbed “Mr Euro” in Greece.

Greece’s new conservative-led government scrambled to make a quick decision on the post after their first choice, banker Vassilis Rapanos, quit on Monday on the advice of doctors after spending four days in hospital suffering dizziness and abdominal pains.

His sudden resignation threw the government into confusion at a time when it faces the daunting task of trying to persuade sceptical international lenders to ease the harsh terms of a bailout that has enraged the population.

“Prime Minister Antonis Samaras has decided to name Athens University economics professor … Yannis Stournaras as finance minister,” Samaras’s office said in a statement. Party officials said the three Greek coalition leaders had quickly agreed on Samaras’s choice of Stournaras, 55, who is nicknamed “Mr Euro” in Greece.

1.09pm: Athens News has done a profile of Yannis Stournaras. It’s not hugely revelatory, but it does remind us that 55-year-old economist has written for the Guardian.

12.51pm: The Greek government has put out a statement on its new finance minister:

Prime Minister Antonis Samaras has decided to name Athens University economics professor and Director of (economic think-tank) IOBE Yannis Stournaras as Finance Minister.

Stournaras replaces Vassilis Rapanos, who resigned yesterday due to ill health less than a week after being appointed to the post.

12.29pm: Bloomberg’s Linda Yueh has tweeted the new Greek finance minister’s name:

Stournaras is an economics professor at Athens University and director of the economic thinktank IOBE.

12.05pm: More from Mervyn King.

In the last six weeks… I am very struck by how much has changed since we produced our May Inflation Report. I am pessimistic [about the eurozone outlook]. I am particularly concerned because over two years now we have seen the situation in the euro area get worse and the problem being pushed down the road.

11.48am: More details from European Commission President José Manuel Barroso’s press conference in Brussels.

11.36am: Some news in from Greece where our correspondent Helena Smith says while the quest for a new finance minister is ongoing, officials are promising that the holder of the post will be named today.

In the wake of the resignation of Vasillis Rapanos, it’s all steam ahead to find a new finance minister and, say, officials “as soon as possible.” Highlighting the urgency of the need for a replacement, prime minister Antonis Samaras, though still recovering from an emergency eye operation himself, met with senior aides at his home until late into the night to discuss the matter.
As head of a three party coalition whose junior partners are from the left, the conservative leader is keen to appoint a non-political figure to the post – the most crucial position in the Greek cabinet. “We will have a new finance minister,” the government spokesman Simos Kedikoglou said this morning adding that he expected his name (no women are being considered) to be announced “within the day.”
On the merry-go-round that is the great Athens rumour mill, the hum is that the new finance minister will be a banker or an economics professor who, like Rapanos, is well-briefed on the parlous state of the debt-choked country’s public finances. One name being considered is the Oxford-trained economist Yiannis Sournaras a choice that is known to be supported by the socialist Pasok party.
The minister is likely to be announced after a meeting that will take place at Samaras’ home at 7:30 PM Greek time between the prime minister and the leaders of his administration’s junior partners.
Rapanos, who has long suffered from frail health and is believed to have told Samaras of his intention to step down shortly after his fainting fit last Friday, may well stay on to give behind the scenes advice. The former head of the National Bank of Greece, who was released from the hospital in the last hour, will go down as the first minister to resign before even formally being sworn in. Although government officials are putting on a brave face, it is clear the high drama has cast a shadow over the new administration in the run up to Thursday’s critical EU summit.
Samaras’ inability to return to active duty has meant that the coalition, which controls 179 seats in the 300-member Greek parliament, will face further delays before it receives a vote of confidence after a parliamentary debate on its policy program as Greece’s constitution dictates.
The unexpected set-backs have meant that a visit by the inspectors from Athens’ troika of creditors at the EU, ECB and IMF has also been put on hold. Without their assessment of the state of Greek finances, EU mandarins have said it will be impossible to decide what the next steps will be in the Greek debt drama – and whether Athens should be given its next injection of cash or not.
Following weeks of political uncertainty in the wake of the country’s inconclusive election in May, reforms are “way off target” EU policymakers say.
After much to do, it has finally been decided that the country’s head of state president Carolos Papoulias will attend the forthcoming summit in place of Samaras who is under strict doctors’ orders to restrict his movement until next Monday at the earliest.

11.16am: The Spanish bank bailout will spark a firesale of the state’s stakes in the nation’s top businesses, according to this nice story from Reuters.

[It will end] a cosy culture of corporate-banking links and prompting a wider shake-up in ownership of the company landscape.
Spain formally requested euro zone rescue loans to recapitalise debt-laden former savings banks on Monday, but those who receive funds will be subject to European Union state-aid rules that include selling equity assets.
With the price of such assets languishing as the euro zone’s financial crisis drags on, that will involve the likely fire sale of big chunks of Spain’s corporate titans, including telecoms leader Telefonica, oil major Repsol and power firm Iberdrola.
UBS estimates 22 billion euros ($28 billion) of Spanish stakes could be up for sale, most of which is in the hands of savings banks. This represents as much as 9 percent of the capitalisation of the country’s blue-chip index.

10.59am: The results of Italy’s bond auction are also in. Two-year paper sold at 4.712% – the highest since December.

10.32am: Mervyn King has started speaking in front of the Treasury Select Committee. Heare are some key quotes. My colleague Phillip Inman will have a full story up shortly.

Monetary policy still does work by injecting more money into the economy

[British banks have] all been pre-positioning large amounts of collateral under the discount window facility and we welcome that.

There is nothing in principle against cutting bank rate further if that turns out to be necessary.

10.21am: Some expert comment on the dire public sector finances from Olann Kerrison, head of product management at the foreign exchange specialists Moneycorp:

Plan A, it would appear, is kaput. The spike in public sector borrowing, to £17.9bn in May, is a body blow to the Chancellor and the coalition government’s handling of the economy.
There is often a dip in tax revenues in May, following the end of the tax year, but this doesn’t hide the fact that borrowing is significantly higher than in May 2011 when it was just £15.2bn.
The simple fact of the matter is that tax revenues are down — and borrowing up — because the economy is weak. Unfortunately, there is every chance the economy will weaken further in the months ahead as the Eurozone unravels.
Domestic demand is weak, and so is demand from overseas, especially from the Eurozone. This is decimating tax revenues and forcing the Government to borrow more.
The Labour spin machine will be all over these numbers, reiterating that austerity doesn’t work.

10.15am: Ian Traynor has written a full story on the European leaders radical plan to reshape the eurozone.

[They] plan to turn the 17 countries of the eurozone into a full-fledged political federation within a decade in an attempt to placate the financial markets by demonstrating a political will to save the single currency in the medium-term.
The incendiary proposals for a banking, fiscal, and economic unions resulting in a “political union” are to be debated at an EU summit on Thursday and Friday. Following two bad-tempered meetings of European leaders in Mexico and Rome over the past week, the Brussels summit looks likely to see major clashes over the future of Europe as well as the immediate crisis surrounding sovereign debt, bad banks, and the euro’s survival.

You can read the whole of the report here.

10.06am: The results of Spain’s bond auction are out. Spain sold €3.0bn of short-term debt – but it came at price: the highest rates since November.
The yield on 3-month bonds was 2.362%, up massively from 0.846% last month. Six months bonds sold on a yield of 3.237% up from 1.737%.

9.53am: The ONS said public sector debt as a percentage of GDP (excluding financial interventions) now stands at 65% – the third highest on record.

9.41am: UK public borrowing figures for May are much higher than expected. The ONS said public sector net borrowing (excluding public sector interventions) came in at £17.9bn compared to £15.2bn last year.

9.11am: More details are coming through about the meeting between finance ministers of Germany, France, Italy and Spain in Paris later today.

“We want to work with Germany,” Moscovici told France Info radio, asked about the pressure on President Francois Hollande and German Chancellor Angela Merkel to reach an agreement on ways to curb the spiralling eurozone crisis.

“Tomorrow there is a meeting, which will be very important, between Francois Hollande and Angela Merkel and this evening I will receive the finance ministers: Mr. Schaeuble from Germany, Mr. Monti or Mr. Grilli of Italy and Mr. de Guindos of Spain along with the European Commissioner,” Moscovici said.

“We are in an active phase of preparation of this summit.”

Hollande wants measures like mutualised debt and joint bank deposit guarantees to be worked on at the same time as moves towards deeper fiscal integration, while Merkel, wants an accord on closer integration before any other steps are taken.

9.10am: We’ve got quite a busy day ahead of us, here’s a selection of the key events (all times are BST):

9:30am: Spanish and Italian bond auctions.
9:30am: Spain’s finance minister is up before parliament to explain the bailout.
9:30am: Public sector net borrowing figures for May are expected to have reached £16-16.5bn, compared with £15bn in May last year.
10:00am: Mervyn King is speaking in front of a Treasury select committee.
• Unspecified time: The finance ministers of Germany, France, Spain and Italy are meeting in advance of the EU summit on Thursday and Friday.

8.30am: The Greek English language paper Kathimerini reckons it knows who’s going to replace Vassilis Rapanos as finance minister.

Let’s hope the new guy lasts longer than Rapanos, who resigned yesterday due to ill health less than a week after being appointed to the post.

The Guardian’s Europe editor, Ian Traynor, has got hold of a copy of the gang of four’s master plan for the future of Europe and the Euro.

Ian says the seven-page document from the four presidents – Herman Van Rompuy of the European Council, Mario Draghi of ECB, Jose Manuel Barroso of the European commission, and Jean-Claude Juncker of 17-country Eurogroup – details a 10-year plan based on 4 “building blocks” – banking union, fiscal union, economic union, political union.

Ian’s writing up a full story now, but in the meantime, he’s posted the key points on Twitter.

8.05am: The BBC’s Gavin Hewitt reckons the finance ministers of the power players – Germany, Spain, Italy and France – are going to get down to business a couple of days early.

8.01am: As all eyes turn towards the Europe Union summit on Thursday and Friday, the FT claims to have seen a draft report which could give the EU sweeping powers to rewrite national budgets for eurozone countries that breach debt and deficit rules.

The proposals are part of an ambitious plan to turn the eurozone into a closer fiscal union, giving Brussels more powers to serve like a finance ministry for all 17 members of the currency union. They are contained in a report to be presented at the summit, which will also outline plans for a banking union and political union.

Read the full FT story here (£)

7.41am: Good morning and welcome back to our coverage of another day of high drama in Europe.

Last night Moody’s hit Spain, again. This time the rating agency downgraded 28 of the country’s banks. Moody’s latest salvo came just hours after the Spanish government finally formally asked for help from its European neighbours in cleaning up its stricken banking sector. It hasn’t said how much dosh it wants, but did stress that stressed that the €62bn top figure provided last week by two independent auditors of Spain’s banking system would cover against a severe downturn in the next three years – suggesting their request may not go much higher than that.

The world is also still reeling from the news that Cyprus has joined the unhappy club to ask for a bailout. To recap, that’s Greece, Ireland, Portugal, Spain and Cyprus – quite the Club Med special. Who’s going to be next, do you reckon?

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