Spain

Eurozone crisis live: Spanish corruption scandal rumbles on as euro economy ‘turns corner’

By:
Published February 5, 2013, in Forex News

Allegations of secret payments to Spanish politicians have brought the eurozone crisis back into focus this week. El Pais newspaper’s latest on anti-corruption probe. PMI data suggests euro-zone is healing, but December retail sales disappoint…


Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Spanish corruption scandal rumbles on as euro economy ‘turns corner’” was written by Graeme Wearden, for guardian.co.uk on Tuesday 5th February 2013 15.24 UTC

3.23pm GMT

Goodwill hunting

Here’s an interesting graph that shows how large US companies have been running up more and more goodwill (the amount they pay in an acquisition above and beyond the face value of the company). It’s doubled, on a per-share basis, over the last decade:

What does that mean? One possibility is that this goodwill, currently sitting as an asset on the company’s balance sheet, is going to be written off in the years ahead.

Analyst Louise Cooper, of Cooper City, explains:

What this chart then tells us is that in the boom years, many companies over paid for acquisitions and that they are going to have to reappraise the values of those assets. In reality, more write-downs to come, following the example of the mining sector, hurting profits.

Cooper dubs this practice as “skinny dipping” – chasing easy profits available in the boom times rather than building solid companies. That was fuelled by central bankers’ collective failure to “take away the punch bowl just as the party gets going” (Warren Buffett)

Central bankers did not follow this advice and are now trying to medicate the aftermath with hospital strength QE painkillers. But significantly their actions are not masking the underlying hangover which is gaining momentum…

There is more painful exposure to come.

Perils of skinny-dipping after a night on the punch (Louise assures me!)

Updated at 3.24pm GMT

1.56pm GMT

Ex-PP treasurer to be questioned tomorrow

The former treasurer of Spain’s ruling People’s Party (PP), Luis Barcenas, is to be questioned by the country’s anti-corruption prosecutor tomorrow, over the allegations of illicit payments, according to reports from Madrid.

This follows the news that the prosecutor was stepping up the investigation (see opening post).

Barcenas who is accused of running a secret accounting system, was mobbed by reporters in Madrid this morning — seeking his views on the scandal.

The anti-corruption prosecutor may be harder to shake off….

Especially as El Pais says it has handed over all the so-called “secret papers” which appear to show the names of party officials and money they received.

Spanish prime minister Mariano Rajoy, though, has repeatedly insisted that the allegations are false.

Updated at 2.10pm GMT

1.26pm GMT

UK stands firm over EU budget

The UK government has hit back at François Hollande over the EU budget, after the French president criticised countries who want to cut spending and also keep their remit (see 11.27am).

A spokesman for David Cameron told lobby hacks in Westminster today that:

We are working with a number of our allies, who all believe that spending needs to come down further…

If it doesn’t budge, then a deal isn’t going to be do-able.

The next chance of a deal is the summit which begins on Thursday afternoon…..

12.22pm GMT

Markets bounce back

In the financial markets, shares have clawed back some of Monday’s losses. Spanish government bonds are also recovering.

Here’s the latest:

FTSE 100: up 43 points at 6290, + 0.7%

German DAX: up 13 points at 7651, + 0.17%

French CAC: up 37 points at 3697, + 1%

Spanish IBEX: up 154 points at 8074, + 2%

FTSE MIB: up 227 points at 16766, + 1.3%

And Spanish 10-year bond yields are down 5 basis points, or 0.06 percentage points, at 5.4%.

Traders are encouraged by this morning’s economic data, suggesting the eurozone and UK are in better shape than expected.

Alastair McCaig, market analyst at IG, commented:

Following yesterday’s broadly disappointing news flow, European markets are showing some real resilience….

Fears over Spanish political corruption and the destabilising effect it will have on its government debt, along with the pre-election soundbites coming from Italian prime minister hopeful Silvio Berlusconi, continue to hang over the eurozone. European markets however are predominantly up this morning, confirming the popularity of equity markets for investors and traders alike.

11.27am GMT

Hollande jabs at Cameron over EU budget

French president François Hollande has thrown down the gauntlet to the UK prime minister, David Cameron, in a speech at the European Parliament today.

In his first speech as French leader to the European Parliament in Strasbourg, Hollande appeared to take a pop at Britain ahead of this week’s EU summit – where leaders will again try to agree a seven-year budget.

Hollande declared that:

there are those who want to see cuts, others possibly the same, who want guarantees on their own rebate.

And there are some who don’t want the Common Agricultural Policy changed too much (although might have to swallow some cuts).

Hollande insisted that leaders must make progress on the budget, saying that “our political credibility is at stake” otherwise. He also called for a new ‘exchange rate policy” to protect the euro from “irrational swings”.

As he put it:

Europe… is leaving the euro vulnerable to irrational movements in one direction or the other.

That’s one problem with floating currencies, of course – made worse when you’re talking about a single currency covering 17 divergent nations. As Alice Ross of the FT points out:

Here are some more highlights of the Hollande speech via our Europe editor, Ian Traynor:

Updated at 1.01pm GMT

10.27am GMT

Eurozone retail sales drop

Just when the eurozone was looking a little healthier (see this morning’s PMI data), the latest retail sales data comes along…

Eurozone retail sales fell by 0.8% in December on a month-on-month basis, meaning takings were 3.4% lower than a year earlier. A less festive Christmas for many Europeans, as recession, austerity and unemployment bites.

Howard Archer of IHS Global Insight said the data was “very disappointing”, adding:

Furthermore, Eurozone retail sales volumes plunged 1.6% quarter-on-quarter in the fourth quarter of 2012, which reinforces suspicion that consumer spending contracted appreciably over the quarter and contributed to a third successive decline in Eurozone GDP.

10.15am GMT

Over in the UK parliament, the chief executive and chairman of Barclays are being grilled by the Treasury Committee — live stream here.

Committee chairman Andrew Tyrie has been giving chairman Sir David Walker a tough time over issues such as fixed pay and bonuses. The session started well, Tyrie waving Barclay’s submission to the committee – liberally smeared with black redactions.

Walker conceded that the Barclays board will give “more explicit and deliberate attention” to issues of conduct in future.

Later, Jenkins (who waived his bonus last week) told the committee that too many bad things have occurred at Barclays in the past. His goal is to stop those bad things happening and encourage more virtuous behaviour in future, he explained.

In other news, Barclays has set aside another £1bn to cover the cost of misselling products to its customers.

Updated at 10.20am GMT

9.49am GMT

Surprise expansion for UK service sector

Some good news for the UK – Britain’s service sector grew in January, suggesting the dreaded triple-dip could be avoided.

Markit (yup, them again) just reported that the UK Services PMI rose to 51.5 last month (showing it expanded), up from December’s mildly contractionary 49.5.

It’s early days, but it suggests chancellor George Osborne may avoid presiding over another recessionary period.

Markit’s Chris Williamson said today’s data “greatly reduces” the chances of GDP falling in this quarter. He added that the results would have been even better without the snow which briefly brought Britain to its knees last month.

The pound has jumped on the back of the data too:

Updated at 10.13am GMT

9.33am GMT

And this graph from Markit shows how eurozone PMI data (the blue line) has recovered in recent months:

9.26am GMT

Here’s the winners and losers in today’s PMI data from Markit

Ireland: 54.9 2-month high – solid growth
Germany: 54.4 19-month high – solid growth
Spain: 46.5 19-month high – a slower contraction

Italy: 45.4 2-month low – a deeper contraction
France: 42.7 46-month low – the sharpest contraction since the euro crisis began

Updated at 12.02pm GMT

9.12am GMT

PMI data suggests eurozone is healing

Just in – new survey data suggests that the eurozone’s bruised economy has turned a corner.

Marki’s Eurozone Composite PMI, which measures business activity across thousands of companies, hit a 10-month high of 48.6 In January, up from 47.2 in December

Markit reported that businesses were more optimistic about the future. However there are sharp differences between countries.

Reuters has the early details:

While still signalling a contraction as the index has been below the 50 mark that signifies growth since February last year, it has risen consistently in the last three readings.

Private industry makes up nearly two-thirds of the euro zone’s economy and worryingly for policymakers, the data showed a widening chasm between Germany – Europe’s largest economy – and France, the bloc’s second biggest.

Chris Williamson, chief economist at Markit, said the eurozone is showing “clear signs of healing”, having entered recession last year,

However, there were stark differences between Germany and France: Markit’s composite German PMI chalked up its biggest one-month rise since August 2009, soaring to its highest since June 2011. But in neighbouring France it plummeted to its lowest in nearly four years.

At 43.6, France’s services PMI was even below readings from Spain and Italy.

More to follow

Updated at 10.07am GMT

9.01am GMT

El País: Anti-corruption prosecutor hard at work in Spain

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

The unfolding corruption allegations in Spain continue to dominate the agenda, after helping send European stock markets sliding yesterday.

El País, which broke the story last week, reports this morning that Spain’s anti-corruption prosecutor is holding a wide-ranging investigation into claims that senior members of the ruling People’s party, including prime minister Mariano Rajoy, received secret, illegal payments over many years.

The prosecutor, it says, is comparing the PP’s last 13 years of public accounts with the ‘secret accounting system’, which El Pais claims was created by treasurer Luis Bárcenas.

According to El País the investigation will consider whether any individuals, or the PP, committed tax fraud by not declaring secret payments, and whether limits on political donations were breached.

The full story is online here in Spanish (or there’s a Google translation into English here)

With Rajoy insisting yesterday the allegations are untrue, the scandal could loom over the eurozone for some time.

The financial markets are calmer this morning. But there’s plenty of chatter about how the eurozone crisis has returned – if indeed it ever went away.

I’ll be tracking the latest developments in Spain, and beyond, including the latest service sector data for many European countries – and a speech by French president François Hollande.

Updated at 10.05am GMT

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USA 

Eurozone crisis live: Spanish corruption scandal and Italian election spook markets

By:
Published February 4, 2013, in Forex News

European shares fall sharply. Mariano Rajoy hit by corrupt payment allegations. Spanish bond yields keep rising amid protests in Madrid. The prospect of a hung parliament pushed Italian 10-year bonds up by 10 basis points this morning to 4.42%…


Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Spanish corruption scandal and Italian election spook markets” was written by Graeme Wearden, for guardian.co.uk on Monday 4th February 2013 15.52 UTC

3.48pm GMT

Meanwhile, Italian banking shares are being pummeled as traders get nervous at the sight of a resurgent Silvio Berlusconi, and the prospect of a hung parliament (see 11.03am):

From the Milan stock market, @lemasabachthani has the details:

(MPS is Banca Monte dei Paschi di Siena, whose own scandal could escalate this week)

3.33pm GMT

Angela Merkel’s expression of support for Mariano Rajoy isn’t too surprising – anything else would have caused more upheaval and alarm in the eurozone, after all.

The BBC’s Gavin Hewitt describes her vote of confidence as ‘guarded’:

3.25pm GMT

And here’s the key quote from Angela Merkel, when asked whether the Spanish corruption scandal had damaged confidence in Mariano Rajoy:

We have a relation of full trust in the Spanish government… I have the impression that the whole Spanish government is working to drive down unemployment, to push through structural reforms.

(with thanks to Reuters’ Berlin bureau)

3.21pm GMT

Merkel offers support to under-fire Rajoy

The key line from this press conference (see 3.05pm onwards) is that Angela Merkel says she has confidence in the Spanish government, and in Mariano Rajoy’s economic reforms.

Here’s some reaction:

And a few other talking points:

3.10pm GMT

As expected, the first question from the press pack in Berlin was related to the corruption allegations that have struck Mariano Rajoy and his People’s Party:

The Spanish PM was unbowed, saying that his government remains strong and will overcome the accusations made against it.

Rajoy also confirmed that PP are considering legal action against those who leaked the data, which appeared to show payments to senior officials.

Updated at 3.12pm GMT

3.05pm GMT

Merkel-Rajoy press conference under way

The Angela Merkel-Mariano Rajoy press conference has kicked off in Berlin.

The German chancellor spoke first, saying the two leaders had agreed they must show “solidarity” as fellow members of the eurozone, while also continuing with fiscal consolidation.

She pledged to co-operate with Rajoy to improve youth employment in Spain, where 60% of young people are out of work.

Rajoy then spoke, running through all the reforms that his government are making. He also pledged to announce new measures to stimulate growth later this month.

(ps there’s also a Spanish TV feed here)

Updated at 3.52pm GMT

2.46pm GMT

People’s Party to sue over corruption allegations

We now have confirmation that Spain’s People’s Party is planning legal action over the allegations that senior party members, including PM Mariano Rajoy, have been receiving secret payments:

From Madrid, Martin Roberts reports:

Spain’s governing People’s Party (PP) has just said it will take legal action against whoever has leaked documents published last Thursday that purported to show Prime Minister Mariano Rajoy receiving €250,000 that had been hidden from tax authorities.

“All those who may have attributed, leaked and published,” the documents — allegedly drawn up by two former PP treasurers — may be subject to the action, third-ranking PP member Carlos Floriano told a news conference called before Rajoy is due to speak to the media alongside Angela Merkel after a summit in Berlin.

Rajoy denied the allegations in a televised speech on Saturday, but did not take questions. On Sunday, opposition Socialist leader Alfredo Pérez Rubalcaba called for Rajoy to resign, which the premier has ruled out.

Also on Sunday, opinion polls showed the PP’s popularity had tumbled from when they won power in November 2011 to within a whisker of the Socialists, although neither party would be able to command anything like a majority.

Fed up with record unemployment, an economic crisis with no signs of ending after five years and now fresh reports of corruption almost daily, Spanish voters have increasingly turned to small parties or the streets. Police helicopters buzzed central Madrid rooftops for three nights in a row after Thursday’s allegations as protestors rallied outside PP headquarters.

See 8.40am for photos of yesterday’s protests.

2.43pm GMT

Watch the Rajoy-Merkel press conference

Mariano Rajoy and Angela Merkel are due to hold a press conference in Berlin in a few minutes – it should be streamed here.

2.05pm GMT

Spain and Italy send European shares sliding

Europe’s stock markets are in full-blown retreat now, as the Spanish corruption scandal (see 8.06am) and the prospect of a hung parliament in Italy alarms traders.

The Spanish and Italian markets are suffering the most, with the other major markets also falling back. Not a reason to panic – some ‘correction’ was inevitable given the recent gains. But certainly a sign of jitters (when seen alongside with the jump in Spanish and Italian bond yields today).

FTSE 100: down 72 points at 6274, – 1.1%

Italian FTSE MIB: down 482 points at 16836, – 2.8%

Spanish IBEX: down 181 points at 8047, – 2.2%

German DAX: down 120 points at 7712, – 1.5%

French CAC: down 58 points at 3715, -1.5%

It rather appears that traders got carried away with the optimism last month, when the FTSE 100 jumped 6.4% in its best January since 1989.

As Nick Xanders, who heads European equity strategy at BTIG, put it to Reuters:

There are a lot of risks out there and, given where the market is, I don’t think a lot of it is priced into the market. So I am definitely more on the cautious side.

And Gemma Godfrey, head of investment strategy at Brooks Macdonald agrees:

Updated at 2.18pm GMT

1.01pm GMT

Dow Jones Newswires is reporting that Spain’s Popular Party has begun legal action over the corruption allegations made against the party:

More as we get it….

12.30pm GMT

Rajoy meets Merkel

Under fire at home, and now under an umbrella — Mariano Rajoy has landed in Germany for talks with chancellor Angela Merkel.

The two leaders exchanged a friendly greeting, before inspecting a military honour guard in a rainy Berlin.

We’re expecting a press conference at 2.45pm GMT, or 3.45pm local time (but this may change…)

Updated at 12.55pm GMT

12.08pm GMT

Draghi’s Dashboard

This is rather neat — Reuters have pulled together charts of the indicators which ECB president Mario Draghi uses to monitor the eurozone economy:

Online here, it tracks sovereign borrowing costs, the cost of insuring those bonds,stock market volatility, bank deposit levels, claims and liabilities in the Target 2 payment system, and that size of the ECB’s own balance sheet:

11.36am GMT

Spanish bond yields keep rising

The sell-off of Spain’s sovereign debt continues this morning. The yield (or interest rate) on its 10-year bonds has now hit 5.43% – up 20 basis points today.

That’s the highest level seen in the markets since mid-December, suggesting the Spanish corruption allegations are hitting market confidence.

11.13am GMT

Sony Kapoor of the ReDefine think tank comments:

11.03am GMT

In Italy – the eurozone’s other hotbed of political uncertainty – the gloves are off and the bond yields are up.

The prospect of a hung parliament, and a move away from the reforms implemented by Mario Monti’s government, pushed Italian 10-year bonds up by 10 basis points this morning to 4.42%.

This follows Silvio Berlusconi’s pledge yesterday to abolish Italy’s unpopular property tax, and even refund the money paid since prime minister Monti introduced it in 2011. Terribly generous of him, eh?

My colleague LIzzy Davies reported from Rome last night:

In a speech aimed at winning over the large number of undecided voters, the billionaire media mogul cast himself once again as a friend of the people who would break with the agenda of the technocrat prime minister, Mario Monti.

The centrepiece of a series of measures announced in Milan was a promise not only to abolish the loathed property tax but also to refund payments made in 2012 – costing the treasury an estimated €4bn (£3.5bn).

Monti was swift to dismiss Berlusconi’s speech, saying the former PM “has never kept any of his promises”. Still, the offer of a tax cut will probably win Berlusconi’s party more votes than it costs him, which could make the election (on 24-25 February) even tighter.

As Rabobank’s Jane Foley commented:

There has been a rise in speculation that the Italian election scheduled for the end of this month could bring a hung parliament. This would threaten the progress of further budgetary reform.

Interesting times….

Updated at 12.53pm GMT

10.27am GMT

Irish housebuilding gloom

Grim economic data from Ireland – the number of new houses built in the Republic hit a record low in 2012.

From Dublin, Henry McDonald reports:

The Irish Construction Industry Federation has revealed that fewer than 8,500 new homes were built last year, which is 14,000 less than the previous low, since records began in 1970.

And there seems little hope of an upturn in the industy that suffered most from the Celtic Tiger crash with the Federation warning that there may even be few houses built in 2013.

Banks and their reluctance to lend to first time buyers are being singled out as one of main reasons why the slump in house building appears to be going from bad to worse. The CIF says that banks – including those rescused with billions of Irish and European taxpayers money – should keep their promise to provide more credit to potential house buyers.

CIF direct Hubert Fitzpatrick told RTE’s Morning Ireland programme today that according to a recent report by Economic and Social Research Institute Ireland neeeds to build between 15,000 to 20,000 to meet the demands of the country’s growing population.

Updated at 12.53pm GMT

10.01am GMT

In the markets…

Europe’s main share indices this morning, led by Italy as the general election approaches (of which more shortly)

FTSE 100: down 18 points at 6328, – 0.29%

Spanish IBEX: down 29 points at 8200, -0.4%

Italian FTSE MIB: down 230 points at 17091, -1.3%

German DAX: down 7 points at 7827, – 0.1%

French CAC: down 5 points at 3768, – 0.13%

After rising strongly in January, traders are becoming edgier as political tensions rise in the eurozone again. Matt Basi, a senior sales trader at CMC Markets, says:

After impressive recent gains European equities cooled in early trade this morning as political uncertainty in Italy and Spain put a bid under peripheral Eurozone treasury yields.

After the euphoria of Friday’s breach of 14,000 in the Dow, sighs of resignation abound on trading desks around the city as investors are once again forced to contemplate the uneven political landscape.

Updated at 10.03am GMT

9.39am GMT

Spanish jobless total rises again

The latest unemployment data confirms the Spanish economy continued to decline at the start of 2013.

The jobless total rose by 132,000 people, or 2.7% in January, according to the country’s labour ministry, pushing the total officially out of work to 4.98 million, a new record. That figure does not include the approximately 1 million not officially registered as out of work.

This graph from El Mundo shows how the jobless total has risen steadily since the end of the summer holiday season, when many temporary contracts end.

Updated at 9.48am GMT

8.59am GMT

Euro drops back

In the currency markets, the euro has dropped almost half a cent against the US dollar to $1.3597. That follows a warning from the French finance minister, Pierre Moscovici, that the single currency has become too strong.

Updated at 9.04am GMT

8.50am GMT

Mariano Rajoy is to meet the German chancellor, Angela Merkel, in Berlin today.

Officially the pair will discuss measures to stimulate growth in the eurozone, but journalists will be keen to raise the corruption scandal in a press conference this afternoon.

Updated at 9.05am GMT

8.40am GMT

Protests in Madrid

Public anger over corruption allegations in Spain spilled on to the streets of Madrid last night, with protesters calling for the Spanish prime minister to step down.

Here’s a selection of photos from the scene:

A small number of demonstrators formed a protest camp in Puerta del Sol Square:

Updated at 9.07am GMT

8.19am GMT

Spain’s borrowing costs rise

Spain’s borrowing costs are rising in early trading, as the City reacts to the weekend’s developments.

The yield (or interest rate) on Spanish 10-year bonds has risen to 5.34%, from 5.21% on Friday. That suggests traders are warier of Spanish debt, as they watch the political crisis in Madrid.

8.06am GMT

Spanish PM Rajoy urged to resign

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

The political crisis in Spain is deepening following allegations that a number of senior officials in the ruling People’s Party received secret payments from a so-called slush fund.

Prime minister Mariano Rajoy now faces calls to resign, following claims that he and other senor officials had received secret payments over almost two decades.

Rajoy, who is accused of receiving around €25k of kickbacks a year, insisted on Saturday that his party was innocent. He pledged:

I have never received nor distributed undeclared money.

But the denial did not ease the pressures created by the allegations – made by El Pais last week. Last night, opposition leader Alfredo Pérez Rubalcaba called for Rajoy’s resignation, telling reporters:

Rajoy should give up his role as the head of government. He cannot tackle the very difficult situation confronting Spain.

Rajoy clearly hopes to ride out the scandal. He has promised to publish full details of his income and assets in an effort to calm the storm.

But his position is shakier than a week ago. Public anger over the allegations is exacerbated by the deepening Spanish recession and record jobless levels – at a time when the PM is pushing through an unpopular €60bn austerity package.

Just when the financial markets were relaxed about Spain, and its ability to keep funding itself, up pops a political crisis….

I’ll be tracking the latest developments in Spain, and beyond, though the day…

Updated at 2.45pm GMT

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Eurozone crisis live: US GDP in surprise fall, after Spain’s recession deepens

By:
Published January 30, 2013, in Forex News

US GDP unexpectedly drops by 0.1% q/a in the final quarter of last year after growing by 3.1% q/a in the third quarter. Is it just a temporary setback? Spanish GDP also registers a larger decline by 0.7% in Q4. Spanish Prime Minister promises stimulus…


Powered by Guardian.co.ukThis article titled “Eurozone crisis live: US GDP in surprise fall, after Spain’s recession deepens” was written by Graeme Wearden, for guardian.co.uk on Wednesday 30th January 2013 15.50 UTC

3.50pm GMT

Here’s Dominic Rushe, our Wall Street correspondent, on the surprise drop in US GDP in the last quarter:

The US economic recovery juddered to a halt in the final months of 2012 as government slashed defense spending, businesses cut back, and Washington fought over the fiscal cliff budget crisis.

The nation’s gross domestic product (GDP) shrank for the first time in three and a half years during the fourth quarter, dropping at an annual rate of 0.1%, the Commerce Department said Wednesday. It was the US’s worst economic performance since October 2009, and came as economists had been expecting mild growth of around 1%.

More here.

3.27pm GMT

Photos: Riot police clash with protesters in Athens

I’ve now got hold of some photos from Athens, where union members broke into the office of the labor minister, and were then ejected by riot police.

According to those at the scene, the riot police used tear gas to force the demonstrators out of the building.

It also appears that at least one protestor was hurt – he’s shown lying on the ground being helped by another union member.

As explained at 11.22am, around 30 members of the communist-affiliated PAME union invaded Yiannis Vroutsis’s office after the minister made comments about “clientelism in the social security sector”

Updated at 3.48pm GMT

2.39pm GMT

And Wall Street opens all-but flat, with the Dow Jones up a bold 1.6 points in early trading….

2.33pm GMT

Inman: Look at the positives

It’s possible to put a positive spin on the dire-looking US GDP figure, says our economics correspondent Phillip Inman:

From the figures we can see that businesses, caught with an excess of stock in their warehouses in the third quarter, cut back on orders in the final three months of the year, slicing 1.27 percentage points from fourth-quarter GDP growth.

Excluding the cut in inventories, the economy grew at a healthier 1.1%.
Also, consumer and business spending were up, and household disposable incomes increased. Consumer spending, which accounts for more than two-thirds of economic activity, rose at a 2.2% , accelerating from the previous quarter’s 1.6% growth rate.

And as Reuters points out:

Business investment rebounded after its first drop in 1.5 years in the prior quarter. The housing market was another bright spot. Residential construction grew at a 15.3 percent rate after notching a 13.5 percent growth pace in the third quarter. Homebuilding added to growth last year for the first time since 2005.

Updated at 2.39pm GMT

2.18pm GMT

CEBR: US GDP just a setback

Tim Ohlenburg, senior economist at the Centre for Economics and Business Research, agrees that today’s unexpected fall in US GDP isn’t a disaster.

He called the 0.1% drop in output (annualised) a “manageable setback”, following a strong third quarter:

Falls in public spending at the national and local levels as well as a drop in export revenue driven by the Eurozone crisis were the main culprits. Despite a rise in household consumption, de-stocking by businesses pushed output into negative territory for the quarter after a strong inventory build-up in the previous three months.

With US house prices rising, the US economy appears to have started 2013 well. However, concerns remain:

Business and consumer confidence have dropped amid the fiscal stand-off between Democrats and Republicans. Uncertainty around the effects of fiscal consolidation are weighing on domestic demand already, evident in slowing retail sales and trade growth. Public spending cuts will add to the mix, suggesting that the year ahead is going to see limited growth.

2.09pm GMT

US GDP: Experts say ‘don’t panic’

After the immediate shock, the early reaction to the 0.1% drop in annualised US GDP is that it’s not as bad as it sounds. Not exactly great, but not a reason to panic.

Here’s an early round-up:

Updated at 2.10pm GMT

1.59pm GMT

US GDP – the details

The surprise fall in US GDP in the last quarter was due to several factors

1) a 5.7% drop in exports

2) a 6.6% decline in government spending, which included a 22.2% fall in defense spending

3) a big drop in private inventories, which knocked 1.3% off GDP

But more encouragingly, consumer spending rose by 2.2% and business investment was 8.8% higher. That doesn’t suggest a country in serious trouble….

1.40pm GMT

US GDP in shock (small) decline

And now a real shock – the US economy shrank in the last three months of 2012.

Annualised GDP* fell by 0.1%, much worse than analyst expectations of a 1.0% rise. This is the first time that US GDP has fallen since the second quarter of 2009.

More to follow.

* so on a quarter-on-quarter basis output was around 0.025% lower.

1.36pm GMT

Upbeat comments from the Portuguese prime minister, Pedro Passos Coelho, today. He told reporters in Lisbon that Portugal’s recession will slow this year, meaning a return to growth in 2014.

Passos Coelho said:

All forecasts point in one direction, that in 2014 the Portuguese economy will recover in terms of growth and that throughout 2013 a turnaround in the recessive trend will occur.

The key for Portugal’s economic future is whether it exits its IMF-led bailout and returns to the markets in 2014…

Updated at 1.57pm GMT

1.27pm GMT

US jobs data beats forecasts

Another day, and another piece of decent economic news from America. 192,000 private sector jobs were created across the US economy in January, according to the ADP index.

That’s more than economists expected, and suggests the US economy is growing well now that the fiscal cliff debacle is over.

12.40pm GMT

Poor GDP data hints at deficit miss for Spain

Here’s Tim Kirkham, director of risk advisory services at currency specialist HiFX, on the deepening Spanish recession:

Spain has been in the headlines since the beginning of the eurozone crisis. It suffers from record high unemployment, negative growth and a significant deficit shock could be just around the corner, which may reignite fears about the country’s fiscal situation and increase the risk of a ratings downgrade in the near term.

The release of the preliminary 2012 budget-deficit figures on February 22nd will be key. Spanish officials have already paved the way for slippage, as they did in 2011, so we can pretty much count on a bigger number than the 7.3% of GDP (including 1 percentage point for bank recapitalisation) the government estimated in November.

Updated at 12.41pm GMT

12.09pm GMT

Over in Brussels, David Cameron‘s plan for a referendum on Britain’s membership of the EU has been blasted by Hungary’s prime minister, Viktor Orban.

Orban called the pending in-out vote “the most dangerous thing I can imagine”. My colleague Ian Traynor was there, and reports:

Being criticised by Orban might irk Cameron – given the criticism of the Hungarian leader’s attempts to interfere with its central bank.

11.47am GMT

Italy gets another bond auction away

Italy has successfully auctioned 10-year government bonds at the lowest borrowing costs since October 2010.

The Italian treasury sold €3.5bn of 10-year bonds at average yields of 4.17%, down from 4.48% in December.

It also sold another €3bn of five-year bonds at yields of 2.94% (down from 3.26% last time) – meaning it hit the top of its target of raising €4.5bn to £6.5bn.

As Nicholas Spiro of Spiro Sovereign Strategy points out, Italian bond auctions are now routine, when once they were quite exciting:

Just over three weeks to go to a critical parliamentary election, and Italy’s government bond market shows no signs of nervousness. Quite the opposite – it’s increasingly resilient to domestic political and economic risks.

While demand at today’s auction was not particularly impressive, the Treasury still managed to get all its debt out the door at cheaper rates, reflecting the dramatic improvement in sentiment towards the eurozone periphery in the face of severe economic weakness.

Spiro adds, though, that next month’s general election could shake this cosy consensus:

If the outcome of the election is a deeply fragmented parliament, which is increasingly likely, the prospects for a stable, reform-minded and harmonious coalition government are slim.

11.22am GMT

Reports from Athens that 30 members of the communist-affiliated PAME union briefly invaded the office of employment minister Yiannis Vroutsis, before being evicted:

Via Kathimerini:

The unionists were protesting comments made by the minister on Tuesday regarding clientelism in the social security sector.

Riot police forces subsequently raided the ministry and removed the unionists.

No photos yet…..

11.01am GMT

Markets calm…

European stock markets are mostly treading water this morning, with no sign that the deepening Spanish recession is alarming the City.

FTSE 100: up 7 points at 6346, + 0.11%

German DAX: down 13 points at 7835, -0.17%

French CAC: down 4 points at 3781, -0.1%

Spanish IBEX: up 1 point at 8644, +0.02%

Traders say this could be the new normal…

Italy’s FTSE MIB is the big faller, though, down 344 points or 1.9% at 17548. That follows a shock profit warning from Italian oil services firm Saipem, which slashed earnings forecast by 80% last night.

Updated at 11.03am GMT

10.49am GMT

Nowotny optimistic for Germany and Austria

While Spain’s recession deepens, the head of Austria’s central bank has suggested that he may revise up his forecasts for Austrian and German growth this year.

Ewald Nowotny, who also serves on the European Central Bank’s governing council, said there were signs for optimism.

The confidence indicators such as the Ifo index that we are receiving show an upwards trend – admittedly, one must soberly say, with low growth rates as a whole.

And asked whether he saw ‘positive contagion’* flowing to the real economy from the financial markets, Nowotny replied:

To a certain, careful extent.

* – Mario Draghi coined this phrase at the ECB’s last monthly press conference

10.37am GMT

In better news, economic confidence across the eurozone rose in January, for the third month in a row.

The European commission found the confidence in all sectors rose, with consumers and the construction industry making the biggest gains. The top-line reading rose to 89.2, from 87.8 in December (I don’t have regional breakdowns, though).

Updated at 10.55am GMT

10.21am GMT

Spain’s PM pledges new stimulus package

Spain’s prime minister, Mariano Rajoy, has told MPs in Madrid that he will soon announce fresh measures to stimulate the deteriorating Spanish economy.

Reuters has the details:

Rajoy told Spain’s parliament that the measures would include help to entrepreneurs.

Tax breaks for young entrepreneurs are among a series of measures Spain’s government could announce in February, Reuters reported earlier this week.

Rajoy’s government has vowed, however, to stick to plans for budget cuts as it tries to slash a gaping deficit.

As mentioned yesterday, Olli Rehn has hinted that Spain’s fiscal targets for 2013 (to cut its deficit to 4.5% of GDP) could be relaxed. That could give Rajoy the wriggle room needed for a stimulus package…

Updated at 10.44am GMT

9.02am GMT

Analysts at UBS fear that Spanish GDP will keep falling through 2013:

9.01am GMT

The deepening Spanish recession hasn’t hit optimism in Europe’s financial markets.

The euro has hit $1.35 against the US dollar for the first time since December 2011. with traders seemingly happy to ignore the poor data coming out of Madrid:

8.38am GMT

This graph shows how Spain’s economy struggled out of recession in 2010, only to slide back last year:

8.29am GMT

The official statement

You can read the official announcement that Spain’s GDP fell by 0.7% in the last three months here, on the Instituto Nacional de Estadistica website.

It explained:

This result was basically caused by a more negative contribution in the domestic demand, which was compensated partially by a positive contribution of the external demand.

8.15am GMT

This morning’s poor GDP data comes just a day after we learned that Spanish retail sales had tumbled by over 10% in December (details here).

As my colleague Giles Tremlett wrote from Madrid:

With sales tax hikes biting, unemployment growing and many workers and pensioners watching the real values of their income fall, Spaniards kept their wallets tightly closed, helping to produce a 10.7% fall in sales in December compared with the same month in 2011.

And last week we learned that Spanish youth unemployment was now 60%.

Updated at 8.16am GMT

8.01am GMT

Spanish economy shrinks again

Good morning, and welcome to our rolling coverage of the latest economic and financial news across the eurozone and beyond, and other key developments.

Just in: the Spanish recession has deepened in the last three months, and by more than economists or Spain’s own central bank had expected.

Data just released showed that Spanish GDP fell by 0.7% in the last three months of 2012. We were expecting a 0.6% decline in economic output.

That means the country’s economy was 1.8% smaller than a year ago in the last quarter, as the country’s austerity package and the wider eurozone crisis hits output and consumer demand.

This follows a 0.3% contraction in the third quarter of 2012, and a 0.4% drop in the second quarter.

More to follow….

Updated at 8.18am GMT

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Eurozone crisis live: Spanish retail sales slump, US consumer confidence takes a knock

By:
Published January 29, 2013, in Forex News

Spanish retail sales down 10.7% in December. The Conference Board’s measure of US consumer confidence drops to 58.6 in January from 66.7, knocked by taxes and spats. Greek finance minister sees recovery. Euro hits 13-month high vs US dollar…


Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Spanish retail sales slump, as US consumer confidence takes a knock” was written by Graeme Wearden, for guardian.co.uk on Tuesday 29th January 2013 14.58 UTC

3.30pm GMT

Payroll tax blamed for withering US consumer confidence

Here’s Capital Economics on this afternoon’s surprise slide in US consumer confidence (see 3.10pm):

The drop in the Conference Board measure of US consumer confidence to 58.6 in January, from 66.7, appears to have been driven by the recent payroll tax increase.

In contrast, equity prices have soared to multi-year highs, jobless claims have fallen to a five-year low and most of the fiscal cliff was averted. Nevertheless, the 2% payroll tax increase apparently dampened overall confidence as households saw a hit to their pay packets.

The 8.1 points drop in the headline index was driven by a drop in both the current conditions index, from 64.6 to 57.3, and the expectations sub-index, from 68.1 to 59.5. The latter is now consistent with a stagnation in consumption growth in the first quarter. Looking forward, confidence and consumer spending should improve as the year goes on.

3.10pm GMT

US consumer confidence in shock drop

Just in, confidence among America’s consumers has fallen alarmingly this month, following the clashes and deadlock on Capitol Hill over the country’s finances.

US consumer confidence came in at 58.6 (as measured by the Conference Board), down from 66.7 in December. That’s the lowest reading since November 2011.

One possible cause is that workers’ take-home pay fell in January because a temporary cut in social security payments has now expired (details here).

Another option is that consumers were spooked by the sight of their elected representatives squabbling over the debt ceiling.

Updated at 3.21pm GMT

2.57pm GMT

The euro continues to rally in the currency markets. It just hit a new 13-month high against the US dollar of $1.3490.

It’s now gained more than 11% since last summer, as this graph shows.

Another sign that the situation in the markets is changing (see 12.22pm for more on the Great Rotation).

Currency analysts are cautious, though, about the euro’s recent strengthening. at a time when the eurozone has fallen into recession. Jeremy Cook of World First commented:

Updated at 2.58pm GMT

2.25pm GMT

Fischer heads for port two years early

Stanley Fischer will step down as Bank of Israel governor at the end of June.

The plan, announced by the central bank, means Fischer’s term will end two years earlier than expected. The 69-year-old will outline his reasons at a press conference on Wednesday.

It means there are two central bank governorships up for grabs, while Ben Bernanke’s term at the Federal Reserve ends in 12 months, so get those CVs polished!

Updated at 3.20pm GMT

1.59pm GMT

Mapped: See Ireland’s legacy of derelict properties

Since the Celtic Tiger crashed the level of empty buildings in the Irish capital has soared.

Now, a new map has been created today which locates all of the major derelict properties and businesses in Dublin – all of them monuments to the Republic’s property market collapse.

  • Vacant sites=blue flags,
  • boarded up houses=green flag,
  • closed commercial=red flag,
  • closed commercial ground floor=yellow flag,
  • closed institutional or publicly owned=purple flag,
  • Unclassified= blue pin
  • Derelict properties list=red pin

Henry McDonald explains:

Property prices in the city fell dramatically by 56 per cent since its peak during the boom year of 2006.

The map also reveals the historic class divide in Dublin between the north and south sides of the river Liffey.

A majority of the empty houses, apartment complexes, shops and so on are found on the poorer north side of the river.

Visually, the city centre is almost obscured by the clusters of vacant property abandoned due to the recession.

1.43pm GMT

Peugeot job cuts thwarted, for now…

Over in France Peugeot’s attempts to cut thousands of jobs have been blocked, temporarily at least, by a court ruling.

Judges in Paris ordered that the car-maker suspends its plan to restructure its French operations, including closing a factory in the Parisian suburb of Aulnay, with the loss of 8,000 jobs.

Unions argued that Peugeot had failed to consult properly with other workers who would be affected by Aulnay’s closure, and the Paris Appeal Court agreed,

The ruling comes as France reels from the news that its labour minister had described the country as “totally bankrupt”.

Michel Sapin told radio listeners yesterday that:

There is a state but it is a totally bankrupt state.

That is why we had to put a deficit reduction plan in place, and nothing should make us turn away from that objective.

Government officials have been scrambling to unpick the damage, with finance minister Moscovici insisting that the fiscal situation was merely “worrying’”, while Sapin himself insisted he was merely describing the situation under Nicolas Sarkozy….

Meanwhile, the city of Dijon has just sold off half of its municipal wine cellar to raise fund to support its social welfare bill.

As socialist mayor François Rebsamen put it:

We have overall a good budget this year, but the social action spending of the city just keeps going up. There are more and more of our co-citizens who are appealing for social aid.

More on the FT

Updated at 3.14pm GMT

12.22pm GMT

Chart: The Great Rotation

This might be of interest — Bank of America Merrill Lynch has released research predicting the areas of finance that might do well this year, after suffering during the heights of the crisis.

Summarised in this handy chart, it suggests a significant shift this year (assuming the current optimism continues, and is validated by events):

11.58am GMT

S&P raises Austria’s outlook

Another signal that the crisis is easing – Standard & Poor’s has raised the outlook on Austria’s AA+ credit rating to stable, from negative.

The move comes 12 months after S&P downgraded Austria’s AAA rating, and warned a further cut was possible.

Updated at 12.10pm GMT

11.33am GMT

Martin Koehring of The Economist Intelligence Unit isn’t convinced by the Greek finance minister’s claim that the risk of leaving the eurozone has almost vanished (see 9.23am for details)

Greece can take heart from ongoing rebalancing in its external accounts (the current account deficit has fallen dramatically since 2008, but mostly because of a collapse in imports), and a marked improvement in budget performance. But Grexit risk is not dead: political instability remains high amid ongoing risks of social unrest and an early election. And domestic opposition to the reform agenda will remain strong, especially if the economy does not turn around significantly, which we do not expect to happen before 2015.

Koehring also isn’t convinced by Yannis Stournaras’s argument that the Athens government has turned the economy around:

From its pre-crisis peak in the third quarter of 2007 to its latest trough in the third quarter of 2012, the Greek economy contracted by more than 19%. After five years of depression, we expect the economy to contract further in 2013-14. Domestic demand in particular remains extremely weak amid ongoing fiscal austerity and rising unemployment, which has suppressed household disposable incomes.

Updated at 12.04pm GMT

10.41am GMT

MPs hear perils of QE

Over in the UK, MPs are quizzing pensions experts about the Bank of England’s quantitative-easing (QE) programme.

Mark Hyde-Harrison of the National Association of Pension Funds warned parliament the decision to buy £375bn of UK government bonds with newly created electronic money had pummeled the pension industry.

He said QE had pushed up the deficits across defined benefit schemes by about £90bn. That is because the value of gilts has risen (as the Bank was there as a willing buyer) driving down the yield (or rate of return) for holding them.

That, he explained, meant pension funds looked weaker (as measured by the current rules) as the assets they retain are less lucrative.

Even pension funds that do not own gilts are affected, because gilt yields are used as the rate to discount future pension fund liabilities, which therefore rise when yields get suppressed (my colleague Jo Moulds points out)

Hyde-Harrison added:

The argument we have is not particularly with quantitative easing, it’s more about the way that once that £90bn deficit has been created, the regulations require companies to fill it.

We don’t believe we’re flexible enough to cope with the environment we are now in.

According to Hyde-Harrison, companies are having to contribute to their schemes (and not invest elsewhere) which negates the impact of QE.

Dr Ros Altmann, pensions expert and director-general of the Saga Group, was also critical of the impact of QE. She said that such loose monetary policy has backfired by devaluing pensioners’ income and making them less willing to spend:

Altmann added:

Quantitative easing and ultra-low interest rates have hampered the spending power of those in the economy who were not over-indebted and who would otherwise have spent money.

Updated at 1.38pm GMT

10.16am GMT

Carpetright has had a fright in the eurozone, suffering a double-digit fall in the three countries where it operates over the past 13 weeks.

This took the shine off the UK flooring company’s 3.2% rise in domestic sales, as my colleague Nick Fletcher explains:

The European business – Netherlands, Belgium and the Republic of Ireland – was rather more threadbare than the UK, down 11.5%. The weak spot was the Netherlands, with good performances elsewhere.

Chief executive Darren Shapland said: “Our focus in the Netherlands is on protecting profit in what remains a very weak consumer environment.”

The Netherlands, of course, is suffering a recession, while its government implements an unpopular austerity package. Weak carpet sales suggest consumers are hunkering down.

The Dutch housing market is in retreat, with prices falling 7% in 2012 and sales down by a similar amount.

Updated at 11.21am GMT

9.50am GMT

German consumer confidence growing

In other economic news, German consumer confidence has risen for the first time in four months, indicating that the eurozone’s largest economy expects a stronger year. No relief in France, however.

The research firm GfK said German consumers were “more confident again” having watched the recent stock market rally:

Currently there are few negative reports relating to the sovereign debt crisis in the press so Germans are once again focusing on the generally pleasing domestic state of affairs.

GfK revised up its reading of German consumer sentiment to 5.7 on its index, from 5.6, and reported a further rise to 5.8 this month.

In France consumer sentiment remained unchanged. The country’s statistics body reported overall confidence at 86 in January (100 is average), the same as December 2012.

Updated at 10.29am GMT

9.23am GMT

Greek finance minister: Recovery begins soon

Greece’s finance minister has declared there’s almost no chance of the country leaving the eurozone, and the recovery will begin at the end of this year.

In an interview with the BBC broadcast overnight, Yannis Stournaras said the economic position was tough, with further wage and pensions cuts hitting Greeks this year.

However, there was “much more optimism” in the markets that the worst was over. Asked if the fear of Greece leaving the euro had vanished, Stournaras said:

The probability of this happening is very, very small. We have managed to turn the economy around, yes. So I’m very optimistic that we have avoided the risk of Grexit.

Stournaras also predicted the Greek economy would end its long slump this year, with recovery beginning in the final quarter.

I feel absolutely sure, 100%, that this is the last year of the Greek recession.

As for Britain’s future in the European Union, Stournaras warned:

Britain belongs to Europe politically, financially….. All in all, I believe it would be a grave mistake if Britain decides to get out of Europe.

He rejected the idea that Britain could reshape its relationship with the EU, warning that every other country would also want a new deal, heralding ‘the end of Europe’….

Full interview here.

Updated at 10.27am GMT

8.47am GMT

An unmerry Christmas in Spain

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

First up, the latest economic news from Spain shows that many families suffered serious belt-tightening in the Christmas season.

Spanish retail sales tumbled by 10.7% year-on-year last month – worse than the 7.8% decline recorded in November, and close to the all-time record fall of 11% recorded in September.

Retail sales in Spain have fallen for 30 successive months, and accelerated since PM Mariano Rajoy implemented austerity measures intended to bring its budget into line. But with Spain’s recession accelerating, Brussels officials may realise a change is needed.

Olli Rehn, the EU’s economic and monetary affairs commissioner, hinted as much last night. He told reporters in Madrid:

If there has been a serious deterioration in the economy, we can propose an extension of a country’s adjustment path…

That’s what we did last year in the case of Spain.

Spain is understood to have flunked its target of cutting its deficit to 6.3% of GDP in 2012, which makes it much harder to hit 2013′s goal of 4.5%. Rehn may be making the groundwork for another relaxation.

Last week’s appalling jobless data – showing 60% of young Spanish people out of work – even sent alarm bells ringing at Davos last week, with Angela Merkel calling for help from businesses to reverse the trend.

Rajoy, too, may recognise that fiscal consolidation alone isn’t the answer. His officials have leaked news that next month’s state of the nation speech will include measures to stimulate growth such as tax breaks for young entrepreneurs.

As usual, we’ll be tracking the latest developments in the world of economics and finances through the day….

Updated at 9.20am GMT

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Eurozone crisis live: Spanish recession deepens, German unemployment rises

By:
Published October 30, 2012, in Forex News

Spain’s GDP falls by 0.3% in last quarter. German jobless total rises. Italian bond auction success. Portuguese prime minister tells parliament that it is essential that Portugal avoids a second bailout. Concerns that Cyprus could run out of money…


Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Spanish recession deepens, German unemployment rises” was written by Graeme Wearden, for guardian.co.uk on Tuesday 30th October 2012 12.43 UTC

12.27pm:

Portuguese PM appeals for unity

Over in Lisbon, the Portuguese prime minister has urged his political opponents to work with him and help the country survive the eurozone crisis.

Pedro Passos Coelho told parliament that it was essential that Portugal avoids a second bailout, and argued that only a “general reform” of the state would help it return to the financial markets and to growth.

That means politicians from across the spectrum working together, and with unions and employers, said Passos Coelho, who has been buffeted by public anger over his austerity plans.

Here’s the key quote:

Our problem is not just budgetary. There is a consensus in the country that we need to have a general reform of the state if we want to solve the crisis

Passos Coelho was speaking during the opening of the debate on the 2013 State budget, which includes a tough package of tax rises and spending cutbacks.

12.03pm:

There is concern that Cyprus could run out of money to pay public workers salaries in December if it cannot agree a bailout deal with the International Monetary Fund soon.

Reuters has the details, in a story headlined: Dithering Cyprus may have problems meeting December payroll: paper

Cyprus may have difficulty paying public sector salaries in December unless a bailout deal is clinched and cleared by mid-November, a newspaper reported on Tuesday.

Citing confidential minutes of a meeting in parliament, the Politis daily quoted Finance Minister Vassos Shiarly telling politicians he was worried Cyprus would be “butchered” if international lenders treated it in isolation from other euro zone states in need of financing.

Meeting December’s payroll commitments was contingent on the goodwill of bankers, he was quoted as saying.

Troika officials have been negotiating in Nicosea for several weeks, but there is strong opposition against some of the austerity measures and labour market reforms being proposed.

11.37am:

Schäuble cheers Dublin

Over in Ireland, government ministers are in cheerier mood than their Spanish counterparts after a visit from Germany’s finance minister, Wolfgang Schäuble, yesterday

From Dublin, Henry McDonald reports:

Before he left the Republic on Monday night the second most powerful man in the German cabinet delighted his Irish hosts by predicting that unlike other EU nations Ireland will not need a second bail out to keep the country’s public services and finances running.

“I have every confidence that Ireland is on track,” Schäuble remarked beside the Irish finance minister Michael Noonan and the minister in charge of public expenditure, Brendan Howlin.

Henry continues:

Schäuble insisted, drawing on recent IMF and EU reports, that the Republic would not need another multi-billion euro bailout.

He also again held out hope that the Europe might help ease the burden of Irish banking debts accepting that “Ireland is a special case.”

The positive noises emitting from a German Finance Minister about Ireland’s ability to get back into the international markets to borrow has not however lifted the doom and gloom particularly over domestic demand, which remains in the doldrums and may take yet another major hit with the imposition of cuts to social welfare and increased taxes in the forthcoming December budget.

Busy chap, Schäuble. Having met with France’s finance minister in Berlin this morning (see 9.45am), he is due at Oxford University later today to deliver a talk called “Europe – Still a Common Vision?”

11.21am:

Eurozone economic sentiments keeps falling…

Confidence in the euro economy among eurozone companies has slipped to a 38-month low this month, data released this morning showed.

Economic sentiment fell in most countries including Germany (where unemployment is rising – see 9.12am). It did, however, rise slightly in Italy and Spain.

Howard Archer of IHS Global Insight commented:

Eurozone economic sentiment sank further to a 38-month in October as it continued to be hit by ongoing major concerns about the current Eurozone economic situation and outlook.

10.48am:

Reaction to Italy’s decent debt auction

The head of Italy’s Debt Management Agency has welcomed the result of today’s bond auction (see 10.32am), saying the sale went “very well”.

Jeremy Cook, chief economist at World First, believes the auction shows investors aren’t worried by Silvio Berlusconi’s threat to withdraw his party’s support from Mario Monti’s administration.

Nick Spiro of Spiro Sovereign Strategy agreed, saying the promise of unlimited bond purchases by the ECB was helping Italy:

Markets are taking the heightened political risk in Italy in their stride. For the time being, Mr Berlusconi’s tirades against the Monti government are seen as little more than background noise.

Annalisa Piazza of Newedge said there had been “good demand” for the five-year and 10-year bonds on sale.

And Elisabeth Afseth of Investec argued that Italian politicians will be forced to address the scale of the challenges facing the country:

There is a realisation that the situation is fairly serious and might have to be dealt with rather than playing internal politics too much.

10.32am:

Italian borrowing costs hit 17-month low

Silvio Berlusconi’s threat to bring down the Italian government did not deter investors from buying Italy’s debt at its auction of five and ten-year bonds this morning.

The Italian Treasury raised a total of €7bn, at its lowest borrowing costs since May 2011.

It sold €4bn of five-year bonds at average yields of 3.8%, down from 4.09% last month…. and €3bn of 10-year bonds at average yields of 4.92%, down from 5.24% in September.

Reaction to follow!

10.14am:

Axe swung at UBS

In the world of banking, UBS announced this morning that it is cutting 10,000 jobs.

The Swiss bank is aiming to save 3.4bn Swiss francs (£2.66bn) though a wide-ranging restructuring that will see its investment banking division shaken up and its fixed-income operations wound down, as UBS focuses on wealth management.

Reuters is calling the move “one of the biggest bonfires of finance jobs since the implosion of Lehman Brothers in 2008″.

City insiders report that UBS employees affected by the cull received the news in a pretty blunt fashion – their office passes were apparently deactivated….

The FT’s Alice Ross confirms that the mood is bleak inside the UBS offices today:

9.45am:

France pushes for debt mutualisation

France’s finance minister has called for the introduction of some kind of debt mutualisation in the eurozone, but also admitted that the idea of full-blown eurobonds is not acceptable to the German government today.

Speaking in Berlin this morning, finance minister Pierre Moscovici said:

We are not talking any more about Eurobonds. I know it is a red line here in Germany, for some, the present government among them.

What I mean is that we need to address together the debt issue, and this must be backed by all 17 members of the euro zone, in order to pool some short-term sovereign funding instruments to build a first step towards some kind of mutualisation of the debt.

Germany’s position is that debt mutualisation is not acceptable until there is closer economic and fiscal union within the euro region (otherwise, how can taxpayers in one country be expected to guarantee the debts of another?).

Moscovici also played down concerns over Britain’s future in the European Union, saying that the UK has always been a ‘special case’.

Here’s some other highlights, via Bloomberg’s Linda Yueh:

German finance minister Wolfgang Schäuble also spoke alongside Moscovici, and said he did not want to lose Britain from the EU.

9.29am:

Estefania Ponte, an economist at Madrid-based broker Cortal Consors, supports our theory that the Spanish GDP data paints too rosy a picture (see 8.32):

Ponte said (via Reuters):

[The 0.3% contraction] does not mean the economy is doing better, but only shows the families have brought forward purchases ahead of the VAT hike.

9.12am:

Germany unemployment data released

The German unemployment total has risen, as the core of the eurozone feels the impact of the crisis.

On a seasonally adjusted basis, the number of jobless people in Germany rose by 20,000 in October, to 2.937m. That takes the unemployment rate to 6.9% – matching September’s rate (which was revised higher this morning).

In a statement, the Labour ministry said that the German labour market was “in good shape”, despite economic challenges.

Certainly in better shape than Spain, where one in four people are out of work.

Germany’s jobless rate is also stronger than the US (7.8%) and the UK (7.9%).

8.56am:

The Agenda

Today’s Spanish GDP data marks the start of a busy day.

Here’s what’s on the agenda:

• ECB president Mario Draghi speaking in Frankfurt: this morning
• German unemployment: from 8.55am GMT
• Italian debt auction: from 9am GMT / 10am CET
• Eurozone consumer confidence: 10am GMT
• Mario Monti at World Economic Forum in Rome: all day
• US consumer confidence: 2pm GMT / 8am EST

8.45am:

Analysis on Spain from Megan Greene

Megan Greene, eurozone crisis expert at Roubini Global Economics, says Spain is in a very troubling position.

She predicts that Mariano Rajoy, Spain’s prime minister, will request financial help within weeks, and is not convinced by the new ‘bad bank’ set up to handle the toxic debts in the Spanish banking system.

Here’s her analysis of today’s economic data (see 08.06 onwards)

Spain’s GDP in Q3 came out very mildly less negative than expected (0.3% contraction vs expected 0.4%), but this hardly offsets a slew of worrisome indicators coming out of Spain recently: unemployment recently exceeded 25%, the regional bailout fund has essentially run out of cash, the new bad bank looks very similar to NAMA in Ireland (which most would claim was a disaster) and the nexus between banks and the sovereign will not be broken until the ECB is in place as an effective SSM [banking regulator] (presumably sometime in late 2013, though it could be later).

(We covered the details of the bad bank at the end of yesterday’s blog.)

Greene continues:

Without economic growth Spain’s external and public debt positions are completely unsustainable. I expect Spain will be pushed into requesting official support by the end of this year.

8.32am:

Why Spanish GDP was better than feared

The reason today’s Spanish GDP fall was less bad than expected (-0.3% not -0.4%) may be that Spaniards brought forward some spending to avoid this autumn’s tax rise (such as the VAT rise).

From Madrid, my colleague Giles Tremlett explains:

The 0.3% drop in GDP hides a surge in consumer spending provoked by a sales tax hike introduced in September.

Consumers bought big ticket items, like cars, before prices went up. Analysts believe this means that some of the pain expected in the third quarter has simply been deferred until the last quarter.

The latest IMF report on Spain forecast a 1.3% drop in GDP during 2013, so there is no suggestion that its recession is bottoming out.

8.19am:

GDP down, but inflation up

Spanish inflation data was also released at 8am GMT, and showed that the cost of living is rising in Spain.

Despite the recession, the consumer prices index rose to 3.5% year-on-year in October, from 3.4% the previous month. The CPI rise includes the impact of a hike in VAT in September, from 18% to 21% as part of Madrid’s austerity package.

8.14am:

The only good thing we can say about this morning’s Spanish economic data is that the 0.3% decline in GDP in the last three months is slightly better than the 0.4% decline penciled in by economists.

But the data still shows an economy steadily shrinking.

Q3 2012: -0.3%

Q2 2012: -0.4%

Q1 2012: -0.4%

Q4 2011: -0.3%

8.06am:

Spanish recession continues as GDP falls 0.3%

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

Just in: Spain’s economic downturn has deepened further.

The National Statistics Institute just reported that Spanish GDP fell by 0.3% in the third quarter of 2012.

On a year-on-year basis, Spain’s economy is now 1.6% smaller than at te end of the third quarter of 2011.

It’s the latest economic blow to hit Spain in recent days. Retail sales tumbled by a jaw-dropping 10.6% year-on-year in September (see yesterday’s blog), while unemployment hit 25% in the third quarter of 2012 (see last Friday).

Spain’s economy has now been shrinking for 12 months, and the recession is likely to continue for many more months – as the government’s €60bn austerity package takes its toll.

Analysis and reaction to follow…

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Eurozone crisis live: Spanish unemployment hits record high as US GDP beats forecast

By:
Published October 26, 2012, in Forex News

Spanish jobless rate rises over 25% as German consumer confidence hits 5-year high. Greece given until Sunday to agree on austerity measures. The U.S. economy grows more than expected by 2.0% in the third quarter of the year…


Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Spanish unemployment hits record high as US GDP beats forecast” was written by Graeme Wearden, for guardian.co.uk on Friday 26th October 2012 12.54 UTC

1.54pm:

US GDP reactions:

Here’s some early reaction to, and instant analysis of, the stronger-than-expected US GDP (see 13.31 onwards) from Twitter:

1.50pm:

Europe’s financial markets have rallied since the US GDP data was released. The major indexes are now mostly flat, having been down this morning (see 9.45am).

The 2.0% annualised rise in GDP was driven by an increase in spending by consumers and the US government.

However, it would have been higher without the drought which struck the US this summer – and knocked 0.4% off GDP growth.

1.31pm:

US GDP RELEASED

Breaking: The US economy grew by 2% on an annualised basis in the third quarter of 2012.

That’s a stronger performance than expected, and much better than the annualised 1.3% recorded in Q2 2012.

It means American economic output rose by 0.5% between July and September, compared with April-June.

More to follow!

1.13pm:

UK Parliament to debate withdrawal from the EU

The House of Commons is about to consider a bill that would bring the United Kingdom’s membership of the European Union to an end.

The European Communities Act 1972 (Repeal) Bill has been introduced by Douglas Carswell (independently-minded Conservative MP, scourge of fiat money, no fan of the civil service either).

It will be streamed on the Parliamentary web site, and is due to start very soon.

At the risk of ruining the surprise, the bill is unlikely to get much further (few Private Member’s Bills make it onto the statute book). It will be interesting to see how much support Carswell can muster though, at a time when the drive for closer European integration appears to be nudging the UK closer to the exit….

1.00pm:

A German MP has dented the détente between Berlin and Dublin by claiming that Ireland cannot have the retrospective bank recapitalisation deal it is seeking unless it agrees to a new financial programme.

Norbert Barthle declared that Ireland would have to sign to a new agreement with the Troika, with new conditions, before it could tap the European Stability Mechanism to recapitalise its banks.

That rather goes against Angela Merkel’s comments on Sunday night that Ireland was a ‘special case’ (having taken its toxic bank debts onto the public books before Europe had agreed its new bailout powers).

The Irish Times has more details of the comments from Barthle, who is the spokesman for German Chancellor Angela Merkel’s CDU group in the Bundestag.

Barthle’s views been swiftly rebutted by Ireland’s foreign minister, Eamon Gilmore. He pointed out that Ireland is focused on returning to the financial markets, not signing up to more austerity:

12.34pm:

US GDP preview….

In one hour’s time, we’ll discover how the US economy performed in the third quarter of this year.

Economists predict growth picked up pace in Q3, at an annualised rate of 1.8% to 1.9% (so almost 0.5% on a quarterly basis).

With no deal on the fiscal cliff, and no shortage of disappointing earnings from American firms in recent days, the GDP data is eagerly awaited.

Ilya Spivak, Currency Strategist at DailyFX, says a strong performance could calm nerves in the markets:

Third-quarter US GDP figures may help countervail negativity however….

The pickup may stoke hopes that firming growth in the world’s top economy is becoming better able to offset sluggish performance in Asia and a recession in Europe.

12.16pm:

Anti-austerity protests in Valencia

A protest against the Spanish government’s austerity programme has been taking place in Valencia this morning.

It was led by civil servants angered by the €60bn package of tax rises and spending cuts announced by Mariano Rajoy, Spain’s prime minister.

Here are some photos from the demos:

11.37am:

Bankia execs must hand back bonuses

Now here’s a clawback – 72 senior bankers at Spain’s Bankia have been ordered to repay bonuses which were ‘earned’ in 2011.

Our correspondent in Madrid, Giles Tremlett, reports:

Bankia is to tell them to return the money in response to a petition from the European commission, which says they should not have been awarded bonuses just weeks before the bank admitted it needed €23bn in bailout money.

“We have received the instruction via the Bank of Spain and, effectively, those people will have to return their bonuses,” a spokeswoman said.

Despite Bankia’s lurch into nationalisation this summer, most of the executives are still employed at the bank – making it easier to recoup the money.

11.18am:

More reaction to Spain’s jobless crisis

Here’s more reaction to today’s Spanish unemployment data, and the wider crisis in Spain’s economy (via Bloomberg)

Justin Knight, a European rate strategist at UBS AG in London:

Unemployment is one part of a multifaceted problem in Spain….

The recession is looking very bad and it looks like it will be worse than forecast. This is a Spanish problem as much as it is a problem of the euro; Spain’s public and private sector net external debt is the same size as Greece’s.

Ricardo Santos, an economist at BNP Paribas SA in London:

The situation is serious…There is still room for a deterioration in unemployment. Activity is weak and the government will reduce jobs as there are strict targets to adjust the number of public-sector temporary workers, especially in health and education.

The only glimmer of hope in today’s bleak figures was a small drop in youth unemployment, from 53% to 52% during the quarter.

But at 25.02%, the overall rate is desperately high by historic standards, as well as being a Spanish record:

10.36am:

Fans of Greek deadlines will be keen to know that Athens has been given until Sunday night to achieve full agreement on its €13.5bn austerity package.

Kathimerini has the details:

The three-day extension it got in order to get maximum backing within the three-party coalition will be necessary as minor partner Democratic Left insists on an improvement in the terms concerning labor reforms that it staunchly opposes.

The Euro Working Group (EWG) of eurozone finance ministry officials will convene again on Monday to discuss whatever conclusions Athens has come to and prepare the blueprint that the Eurogroup of euro area finance ministers may discuss on Wednesday through a video conference that sources from Brussels say is likely to take place in order to discuss Greece.

10.06am:

Southern Spain suffers most

Our Madrid correspondent, Giles Tremlett, flags up that Spain’s jobs crisis is particularly acute in the south of the country.

Giles writes:

Today’s third quarter unemployment figures in Spain are terrible enough, confirming that one in four Spaniards are now out of work. But the figures for some southern provinces are even more shocking.

Jaen, in Andalucia, for example, now has 39 percent unemployment – nearly four out of ten workers. In fact Andalucia, the country’s most populous region which stretches from Huelva in the west to Almeria in the east, has an unemployment rate of 35 percent.

Of Spain’s seventeen regions, two more – the Canary Islands and western Extremadura – also have one in three people out of work.

Full details are here (pdf).

10.00am:

Gloom from Italy, where manufacturing business confidence has fallen unexpectedly.

The Italian statistics body reported that business confidence dipped to 87.6 on its index, worse than analysts had forecast and a disappointing reversal after rising in September to 88.

Firms reported that their order books were shrinking, at a time when Europe is sliding into recession.

9.45am:

Over in Asia, most of the main indices fell today after Apple released weaker-than-expected financial results last night, and Amazon also disappointed.

Here’s the damage:

Japan’s Nikkei 225: down 122 points at 8,933, – 1.35%

Hong Kong Hang Seng: down 264 points at 21,546, – 1.21%

China’s Shanghai Composite Index: down 36 points at 2,066, -1.69%

Europe’s markets are following suit too, led by Spain.

FTSE 100: down 33 points at 5772. -0.57%

German DAX: down 46 points at 7153, -0.65%

French CAC: down 28 points at 3383

Spanish IBEX: down 94 points at 7685, – 1.23%

Italian FTSE MIB: down 154 points at 15376, – 0.98%

9.05am:

One alarming element of today’s rise in Spanish unemployment (see 8.13 onwards) is that most of the country’s latest austerity package hasn’t kicked in yet.

With Spain’s likely to keep shrinking through 2013, today’s record high of 25% could be broken.

Silvio Peruzzo, economist at Nomura in London, warned (vie Reuters):

There is a debate over the optimistic growth outlook for next year by the government, which is given little credibility.

Weaker growth than expected, coupled with austerity, could easily see unemployment hit 26 percent next year.

8.52am:

Here’s Independent economist Shaun Richards on the Spanish jobless crisis:

8.49am:

El Pais has a great graph showing how Spain’s unemployment has risen, on its site this morning:

El Pais also has the regional breakdown of today’s jobless data, and reports that the highest increases were seen in Andalusia (61,300), Valencia (26,500) and Murcia (20,600).

More here.

8.37am:

German consumer confidence at five-year high

While Spain’s jobless rate is at its highest in at least 36 years, the picture in Germany is rather rosier.

German consumer confidence has hit its highest level since the financial crisis began.

This is based on the monthly consumer sentiment index compiled by GfK, which rose unexpectedly to 6.3, up from 6.1 a month ago. That shows Germans are more upbeat about November’s prospects than for any month since October 2007 – when the credit crunch began.

Those surveyed are also more willing to spend than a month ago, and also more bullish about their income expectations.

Galling news for those in the periphery. But it could be good news generally, if German consumers can help drag the eurozone forwards.

ING economist Carsten Brzeski commented:

8.29am:

Labour reforms and recession blamed for Spanish jobless rise

The news that the Spanish unemployment rate has hit 25% in the last three months highlights the steady deterioration in Spain’s economy, which has been shrinking all year.

An extra 85,000 joined the ranks of the unemployed in the last quarter, taking the total to 5,778,100.

The data was released by the Ministry of Labour and Immigration at 8am BST (9am CEST). The jobless crisis in Spain rivals Greece’s own slump in employment.

Today’s rise may be partly due to the government’s labour reforms.

Here’s Reuters early take:

Spain’s unemployment rate rose to 25 percent in the third quarter, a new record high, official data showed on Friday as a labour reform making it easier to dismiss workers and steep recession left even more out of a job.

The data is separate to the monthly readings from Eurostat – which pegged the Spanish jobless rate at 25.1% in August.

It’s the highest rate since at least 1976:

8.13am:

Spanish jobless rate hits 25%

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

We start with some breaking news – Spanish unemployment has hit a new record high.

Government figures just released showed that the jobless rate jumped to 25% in the third quarter of 2012, up from 24.6% in the second three months of the year.

More to follow …

Also coming up today …

For the second day running, the big news will probably come outside Europe. It’s America’s turn to release the first estimate of economic activity for the last three months.

After the UK beat forecasts on Thursday and slid gracefully out of recession, the US third-quarter GDP is eagerly awaited. Not least with the presidential election just 11 days away… 

Concerns over the state of the US economy have been growing in recent days, with a swathe of global giants missing forecasts. This trend continues last night, with both Apple and Amazon failing to shine:

• Wall Street not impressed by iPad numbers – The Guardian

• Apple And Amazon Earnings Disappoint – Sky News

Back on home turf, we face another day of negotiations between the Greek government and the troika. The junior coalition partner, Democratic Left, continues to oppose parts of the €13.5bn austerity package that Greece must agree in return for aid.

As finance minister Yannis Stournaras said last night:

The only obstacle to an agreement is the Democratic Left’s stance… I hope that eventually they will agree.

We’ll be tracking events in Athens through the day, and also covering all the reaction and analysis when the US GDP data is released this afternoon (at 1.30pm BST).

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Eurozone crisis live: Relief as Spain avoids being downgraded on eve of EU summit

By:
Published October 17, 2012, in Forex News

Spain dodges downgrade bullet. Moody’s statement. Bond yields tumble. U.K. unemployment falls by 50,000 in the three months to August, pushing down the jobless rate to 7.9%, from 8.1%, with 2.53 million people out of work…


Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Relief as Spain avoids being downgraded on eve of EU summit” was written by Graeme Wearden and Nick Fletcher, for guardian.co.uk on Wednesday 17th October 2012 14.28 UTC

3.21pm:

News website zerohedge has a nice line on the current state of Spain.

3.26pm:

Lawyer and doctors protest Greek austerity measures

Back in Greece, striking doctors, lawyers and state researchers have been protesting en masse over the latest EU-IMF mandated austerity measures.

Prominent Athenian attorney Yiannis Vlachos told our correspondent Helena Smith that the projected cuts

condemn Greek lawyers to unemployment and will ultimately cut off the ability of ordinary Greeks to have recourse to justice. They are totally unfair and it is our democratic right to oppose them which we will do.

3.03pm:

Take the eurocrisis/personal finance test

Would your finances get you kicked out of the Eurozone?

We’ve launched a online quiz today, ahead of tomorrow’s EU summit, that lets you measure your financial strength (or otherwise).

It’s rather jolly.

For the record, I came out as Finland.

Over at the FT, though, finances look a little less shaky (so I know who’ll be getting the beers in next time…)

I’m heading off now (next stop, the back row of the auditorium for this year’s Wincott Lecture), so my colleague Nick Fletcher will see us home. Thanks. GW

2.54pm:

Eurozone is the elephant in the room: Tyrie

Andrew Tyrie MP has called the eurozone crisis the “elephant in the room”
and one of the reasons that banks are having difficulty restoring their balance sheets (my colleague Jill Treanor reports)

The conservative MP who chairs the Treasury select committee told the
British Bankers Association today that he had been busy reading the IMF world economic outlook and decided it was very gloomy.

Jill adds:

And even more gloomily, Willem Buiter of Citigroup has declared that there is “no capital (banks) can hold” against a total break up of the eurozone.

Not much to cheer about then.

2.12pm:

Back to Athens, where our Helena Smith has found an interesting nugget about Greece’s bailout payments in the latest document released by the Athens government.

In an informal document produced late on Tuesday, the finance ministry insisted that it expected the country to receive its next installment of bailout funds – at €31.5bn crucial to recapitalizing banks and vitalizing the liquidity-starved Greek economy — by next month.

She writes:

“We expect the entire installment sometime around the middle of November. The [troika’s] debt sustainability report is expected before the American elections. There are ways to ensure sustainability. The most important parameter is the suppositions we make about the Greek economy’s development,” declared the document which said a compromise solution had even been found over the controversial issue of predicting what next year’s recession would be with both sides settling on 4.2 %.

“It is for the finance ministry to see to it that the next installment comes to Greece. That means that by definition we have the first say in these negotiations.”

But despite the insistence that the breakdown in talks earlier on Tuesday has now been repaired, there are few who are convinced, Helena adds.

Many MPs in the three parties backing the conservative-led coalition have said, openly, that they will not endorse recession-inducing measures that will take Greece back decades when they eventually are put to parliament for a vote.

The main opposition Syriza party blasted Antonis Samaras’ fragile coalition for of simply going through the motions of negotiating austerity measures that will “annihilate the Greek people”, adding:

Greek society has yet again today watched another theatrical performance given in particularly dramatic tones.

1.38pm:

IMF urging Italy to seek help?

IMF chief economist Olivier Blanchard’s comments to Italian paper Il Corriere della Sera (see 9.30am) are being taken as a signal that the Fund wants Italy to seek financial help.

As I mentioned earlier, Blanchard argued that it was essential to devise “a plan for the two countries of the periphery”. That, some commentators believe, is a clear signal to Italy to join Spain in seeking help from the EU to draw a line under the euro crisis.

Here’s some analysis on Blanchard’s comments from our economics correspondent Phillip Inman:

The controversial IMF adviser, who recently upset Germany and the UK by announcing that austerity hurt economic growth by more than previously thought, said it was crucial to have a funding plan for both countries.

Without a line of credit to Rome from the EU and the IMF, the fear is that Italy will face the same investor backlash as that suffered by Spain. Mario Monti is adamant Italy is in a stronger position, but what is interesting is that Blanchard disagrees.

At the IMF’s annual meetings in Tokyo last week it was obvious that European leaders were being beaten up verbally behind closed doors over their handling of the Greek/Spain bailout debacle. If Italy becomes another domino after a Spanish bailout the anger could be uncontainable (to use a word adopted by Bank of England deputy Paul Tucker in relation to another banking crisis).

Monti has been keeping a rather low profile recently — letting Mariano Rajoy ‘enjoy’ the spotlight instead. But if Spain does seek help, attention may switch back to Italy.

1.32pm:

Check out our awesome eurocrisis timeline

It’s three years this week since the eurozone crisis began.

On 19 October 2009, the new Greek government admitted that it had discovered a black hole in Greece’s finances and that its deficit would be twice as big as feared.

That was the first rumblings of serious trouble in the eurozone. Since then we have seen three bailouts, umpteen politicians driven from office, public protests, stock market plunges (and rallies), nail-biting deadlines, dramatic (and occasionally turgid) Summits. And we’re only 36 months in.

My colleagues Nick Mead and Garry Blight have built a frankly awesome interactive timeline that lets you relive the drama — Eurozone crisis: three years of pain. [CLICK HERE]

And don’t just take my word for it:

1.04pm:

Germany lowers economic forecasts

As was rumoured yesterday, the German government has lowered its forecast for economic growth in 2013 to 1% of GDP, from 1.6% previously.

Despite the downgrade, the Berlin government is still bullish – blaming the downgrade on the eurozone crisis and weakness in emerging markets.

Economy Minister Philipp Rösler said:

Germany is navigating stormy waters because of the European sovereign debt crisis and an economic weakening in emerging nations in Asia and Latin America.

And added:

We are still talking about 1% growth [for 2013], so there’s no talk about a crisis for Germany.

A solid defense from Rösler there — something the German football team would have benefitted from last night….

12.49pm:

The graph above shows how both Spanish and Italian sovereign debt has recovered since the wild days of July. Both country’s 10-year bond yields have now dropped to their lowest level since this spring.

12.12pm:

Spanish debt insurance costs fall

Another positive signal for Spain: the cost of insuring its debt has dropped sharply today to the lowest point since July 2011.

Markit reported that the cost of a five-year Spanish credit default swap fell 39 basis points to 283bp.

11.59am:

Greek finance minister still optimistic

Over to Greece where our correspondent Helena Smith has the latest on the on-off talks over the bumper, €13.5bn package of budget cuts and structural reforms that are key to the euro zone’s weakest link receiving further rescue funds.

Helena writes:

After yet another round of marathon talks, the Greek finance minister Yiannis Stournaras emerged well after midnight Tuesday to douse speculation (fueled earlier in the day by labour ministry officials) that negotiations with envoys representing the country’s “troika” of creditors were badly off-track.

In pointed remarks clearly aimed at inter-governmental critics, the Oxford-trained economist said the finance ministry was in charge of negotiations with the EU, ECB and IMF.

Stournaras said:

“The finance ministry, which is the guardian of the economy’s stability, is not going to stop suggesting compromise solutions to all the problems that arise, even those that concern other ministries.

I remain optimistic that things will develop well.

The “open issues” that remained would be resolved in the coming days following an initiative by prime minister Antonis Samaras to personally tackle the thorny issue of labour market reforms:

In the coming days Yiannis Vroutsis [the labour minister] will propose solutions to the issues that have come up.

Finance ministry officials said further negotiations would be conducted via email with the troika whose mission chiefs leave Athens today. “They may well return although it may not be required,” the officials said. HS

11.42am:

Euro still bouyant

The euro continues to rally on the back of Moody’s decision not to downgrade Spain – it just hit a new one-month high of €1.313.

11.23am:

Portuguese bond auction goes smoothly

Portugal held a pretty successful auction of short-term debt this morning.

The third European country to be bailed out since the crisis began saw a sharp fall in some yields, as its re-integration into the markets continues.

Here’s the details.

• €1.85bn of 3, 6 and 12-month bonds sold, vs maximum target of €2bn

• Three-month bond yields fell to 1.366%, vs 2.16% last time

• Six-month bond yields rose to 1.839%, vs 1.7% last time

• Twelve-month bond yields fell to 2.1%, vs 3.5% last time

So despite the growing tension in Portugal over the government’s austerity programme, its credit worthiness appears to be improving.

But Nick Spiro, bond expert at Spiro Sovereign Strategy, warns that Portugal is at a “a critical juncture”:

For the time being, waning political support for the government’s austerity policies is not putting upward pressure on yields. Portuguese paper is benefiting from the “Draghi effect” which continues to outweigh concerns about political and social stability in Portugal.

However, it’s clear that the consensus surrounding the need for more austerity is unravelling and poses a serious threat to the bail-out agreement.

10.52am:

Berlin: no Troika report on Greece this week

Some more interesting line out of Berlin — Reuters’ “senior German official” has said that Spain would have to accept conditions in return for an aid programme, and that the Troika would have to decide “how far conditionality goes”.

Said official also said he didn’t expect an interim report on Greece from the Troika – hardly surprising, after talks between the two sides broke down last night.

10.46am:

A “senior German official” has told Reuters that Angela Merkel and her team will seek a “decisive step forwards” on economic co-operation at the EU Summit which begins tomorrow.

However a decision on banking union is NOT expected.

And the unnamed official also defended Berlin’s refusal to allow early recapitalisation of European banks through the ESM, saying that it is “clear” that the agreement made in June states that this cannot happen until ‘effective’ banking supervision is in place.

This is exactly what François Hollande is banging on about in today’s interview when he urges Berlin to stop trying to reverse June’s decisions. The problem is that the two sides disagree fundamentally about what was agreed almost four months ago — Southern states thought they had a breakthrough deal that breaks the vicious link between banks and sovereign states. Germany has been trying to unpick this ever since….

10.17am:

HOLLANDE CHALLENGES MERKEL OVER EURO CRISIS

French president Francois Hollande has warned that tensions between France and Germany risk destroying efforts to resolve the euro crisis.

In this exclusive interview, Hollande said it was vital that Angela Merkel stopped trying to reverse the important decisions taken at the last summit in June, and accused the German chancellor of being too preoccupied with domestic politics.

Ratcheting up the pressure ahead of tomorrow’s Summit in Brussels, Hollande also said he would fight German attempts to create a federalised eurozone.

The full piece by m’learned colleagues Angelique Chrisafis and Ian Traynor is essential reading ahead of tomorrow’s Summit: Hollande fires warning shot at Merkel over austerity on eve of EU summit

9.43am:

UK UNEMPLOYMENT FALLS

Good news: UK unemployment has fallen.

The ILO labour force measure, released a few minutes ago, shows a 50,000 drop in the number of people out of work in the three months to August. This pushed down the jobless rate to 7.9%, from 8.1%, with 2.53m people out of work.

Youth unemployment is down by 62,000 to around 957,000.

The more timely claimant count also dropped, by 4,000 in September.

The number of people IN work hit a record high, of 29.59m.

Average pay also crept higher, up 1.7% compared to a year ago. That’s an improvement, but still fails to match inflation (which came in at 2.2% yesterday).

9.36am:

BANK OF ENGLAND MINUTES

No major dissent at the Bank of England this month.

Minutes of the last MPC meeting were just released, and show that the committee voted 9-0 to leave its quantitative easing programme unchanged, and to leave interest rates at 0.5%.

But MPC members did disagree over whether more QE would be particularly effective. Here’s the key quote:

Some members felt that there was still considerable scope for asset purchases to provide further stimulus. Other members, while acknowledging that asset purchases had the scope to lower long-term yields further, questioned the magnitude of the impact that lower long-term yields on corporate debt and equity would have on the broader economy at the present juncture.

The minutes are online here

9.30am:

IMF: EUROZONE IS ALMOST THERE…..

Olivier Blanchard, chief economist of the International Monetary Fund, has declared that the eurozone has almost put all the necessary measures in place to tackle Spain and Italy’s debt problems.

Almost.

In an interview with Italian newspaper daily Il Corriere della Sera, Blanchard said:

In the short-term it would be crucial to have a plan for the two countries of the periphery…This would include not only an ongoing process of adjustment inside the countries but also a guarantee they can fund themselves. This would be conditional on them sticking to
their commitments.

We are almost there but not quite at that point yet.

(Quotes via Reuters)

Blanchard added that the IMF would only contribute to a Spanish bailout if it was happy with the terms of the accompanying programme. But given its recent admission that austerity is more damaging than thought, might the IMF insist on less onerous conditions?….

8.58am:

ANALYST REACTION

Here’s some more analyst reaction to Moody’s decision not to downgrade Spain (see 7.40am onwards).

Mike van Dulken, Head of Research at Accendo Markets

A nagging doubt may have been erased, but it’s unlikely to mean a Spanish bailout is any nearer, hence equities halting [the FTSE 100 is now flat].

Does PM Rajoy need to ask for help? Market implied borrowing costs are already lower after ECB pledge to help, the possibility of an ESM credit line request being enough to see ECB act and now last night’s Moody’s news. Major resistance still ahead. Another EU summit looms.

Investec:

A couple of week’s back Moody’s said it saw potentially larger losses for Spanish banks under its stressed scenario, compared to the independent analysis underlying the capital requirements called for in September.

Yesterday’s statement said the negative outlook reflected that risks to the baseline scenario were high and skewed to the downside and it again warned that if the Spanish government was to lose, or very likely to lose access to private capital markets then a potential multi-notch downgrade would follow.

The confirmation of Spain’s rating reduces the likelihood of the average rating going in to sub-investment grade territory and the consequent elimination from IG indices. Funny to think it was triple-A rated just over 2 years ago.

—————-

And on a lighter note:

8.35am:

THE AGENDA

Here’s what’s coming up in the financial world today, including two interesting releases in the UK

• UK unemployment data: 9.30am BST

• Minutes of the last Bank of England QE/rate-setting meeting: 9.30am BST

• Eurozone construction data for August: 10am BST/11am CEST

• Germany announces new economic forecasts: 11am BST/noon CEST

• Portugal auctions short-term bonds: morning

• New US housing data: 1.30pm BST / 8.30am EST

8.21am:

Spanish stock market rallies

Moody’s decision to affirm Spain’s credit rating has sparked a rally on the Spanish stock market, where the IBEX is up 1.5% in early trading.

Much less action on other European markets, with the FTSE 100 up just 6 points, and the German DAX effectively flat.

8.10am:

SPANISH AND ITALIAN YIELDS PLUNGE

Spanish sovereign debt have strengthened dramatically this morning on the back of Moody’s decision, driving down the yields* on its bonds to their lowest level in months.

Italian bonds are also staging a strong recovery.

The Spanish 10-year yields has dropped by a whopping 23 basis points to 5.57% – its lowest level since April, as this graph shows:

* – for new readers, yields measure the rate of return on a bond, so indicate the cost of borowing

Italy’s 10-year bonds are down 10 basis points at 4.83%.

Shorter dated bonds are also rallying. The yield on Spain’s 2-year debt is down 16 basis point at 3.01%.

The reaction shows just how much nervousness there’s been in the financial markets over the threat of a downgrade from Moody’s.

7.58am:

Here’s some early reaction to Moody’s decision:

7.56am:

Downgrade still an option

A Moody’s senior analyst has warned that Spain will be cut to junk status if it loses access to the financial markets and is forced into a full-scale bailout.

Kathrin Muehlbronner told Reuters that:

A full program along those lines where basically the official sector provides exclusively the funding for all your requirements, that in our view is not compatible with an investment grade, and that would apply in all the cases.

So a precautionary credit line from the European Stability Mechanism (Spain’s preferred option), would be OK – if that drove borrowing costs down and maintained Spain’s access to the markets.

7.45am:

WHY MOODY’S DIDN”T DOWNGRADE

In a nutshell – Moody’s has concluded that Spain and the eurozone are doing JUST ENOUGH to ensure that Madrid can keep borrowing and financing its debts.

Moody’s full statement on Spain is online here: Moody’s confirms Spain’s government bond rating at Baa3/(P)P-3, assigns negative outlook.

Here’s the summary:

Moody’s believes that the combination of euro area and ECB support and the Spanish government’s own efforts should allow the government to maintain capital market access at reasonable rates, providing it with the time it needs to stabilise public debt over the next few years.

It added, though, that the threat of a debt restructuring or default will hang over Spain for years:

In Moody’s view, the maintenance of market access is critical because the risk that some form of burden-sharing will be imposed on bondholders is material for those countries that rely entirely or to a very large extent on official-sector funding for an extended period of time.

7.40am:

MOODY’S DOESN’T DOWNGRADE SPAIN

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

The big news this morning is that Spain has not been downgraded to junk status.

After months of deliberations, ratings agency Moody’s has decided to affirm Spain at Baa3 — the lowest ‘investment grade’ rating — with a negative outlook.

The decision is a rare piece of good news for Mariano Rajoy’s government as it continues to inch towards a request for financial aid.

Moody’s said three “positive developments” were behind its decision.1) the European Central Bank’s decision to buy unlimited bonds of a country in distress (if it signs up for an aid programme), 2) the fact Spain is pushing on with economic reforms, 3) progress on restructuring Spain’s banking sector.

The news has already sent the euro to a one-month high against the US dollar, above $1.31.

We’ll be tracking all the reaction to Moody’s decision this morning.

Also coming up…a Portuguese bond sale, new economic forecasts from Germany, and fresh UK unemployment data (full agenda to follow). And it’s the final day before the EU Summit begins in Brussels.

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Eurozone crisis live: German politicians back ‘bailout lite’ for Spain

By:
Published October 16, 2012, in Forex News

Two German lawmakers support Spanish precautionary credit line. Spanish officials reckon IMF would not demand tough austerity and predict big share rally if suitable bailout agreed. UK inflation at lowest since November 2009…


Powered by Guardian.co.ukThis article titled “Eurozone crisis live: German politicians back ‘bailout lite’ for Spain” was written by Graeme Wearden (until 1.45pm) and Nick Fletcher (now), for guardian.co.uk on Tuesday 16th October 2012 13.40 UTC

2.36pm:

Wall Street opens higher

Back in the US, industrial production rose slightly ahead of forecasts in September, up 0.4% compared to expectations of a 0.2% rise.

But August’s figure was revised down from a 1.2% fall to a 1.4% decline.

With the earlier inflation figures, as well as the eurozone optimism, Wall Street has opened higher, in line with forecasts. The Dow Jones Industrial Average is up 56 points in early trading.

2.13pm:

How will the proposed eurozone banking union affect non-members of the single currency like the UK?

In a new report, the Open Europe think tank says it runs the risk of fragmenting the single market, and suggests a separate voting system for euro members and non-members, with a right of veto:

Proposals for a eurozone banking union, currently being negotiated, could in future make it virtually impossible for the UK and other non-euro countries to block financial rules written by and for the eurozone, in turn fragmenting the single market. This would not be in the interest of most EU member states – or the City of London.

In order to safeguard the single market, Open Europe proposes a revised voting system within the European Banking Authority, which would see eurozone members and non-eurozone members voting separately – with both groups having to endorse a proposal before it can be implemented. In turn, this could act as a template for how to reconcile further eurozone integration with the interests of all 27 member states, as the banking union develops.

Open Europe Director Mats Persson said: “The UK Government is absolutely right to seek protection against the 17 eurozone members starting to write the rules for all 27 countries. A space simply has to be created in the EU for countries that do not intend to join the euro. The UK has leverage in these talks, including a veto over part of the banking union proposals.”

The full document is here. (PDF)

2.06pm:

US inflation edges up in September

Over in the US, inflation rose by slightly more than expected in September.

The headline consumer price index added 0.6%, compared to forecasts of 0.5%, with energy prices soaring 4.5%. Year on year the headline figure climbed 2%. Annalisa Piazza at Newedge Strategy said:

Energy inflation explain most of the upswing. On the other hand, food prices were up by a modest 0.1%, with no residual effects of the summer drought. The housing component came in at 0.3% month on month, led by higher utilities prices. Elsewhere, we see no major inflationary pressures in the pipeline.

Looking ahead, US inflation is unlikely to accelerate much from the current level as the slack in the economy remains one of the key factors putting a lid on rising prices.

None of this seems to have unsettled the markets unduly, with the Dow Jones Industrial Average forecast to open 58 points higher. The focus seems to be on the eurozone, and the prospect of Spain’s financial troubles being resolved. (Well that and Citigroup…)

1.29pm:

Germany signals support for Spanish precautionary credit line

Important developments on the Spanish bailout this lunchtime: Two influential German politicians have indicated that they would support Spain if it applied for a “precautionary credit line” from the European Stability Mechanism, eurozone’s new bailout fund.


Michael Meister, a deputy caucus leader of Chancellor Angela Merkel’s Christian Democratic bloc, and Norbert Barthle, her party’s budget spokesman, have both said today that Germany is open to the idea.

Barthle told Bloomberg that a precautionary credit line “would be a possible move,

And Meister said:

We’d have to look at any application that Spain made, whether for a precautionary credit or a full program. The applicant will have to decide.

But one thing is clear: Whatever is requested, it won’t be without conditions.”

This follows last night’s briefing in Madrid, where government officials said the government was considering applying for a credit line from the IMF, and then not using it (as its borrowing costs would have eased anyway).

Germany has previously appeared opposed to a precautionary credit line, with finance minister Wolfgang Schäuble arguing last week that struggling countries must cut their debts, not borrow more.

News of Meistger and Barthle’s comments sent the euro rallying to $1.305 against the US dollar, and pushed shares higher across Europe.

Spain’s IBEX is now 2.5% higher at 7874, up 198 points.

Confusingly, several different credit lines are on offer to Spain, with different conditions – as this blogpost explains…..

….and I’m now handing over to Nick Fletcher…. GW

1.24pm:

Latest word from Greece

Back to Greece, where there is concern that Greece is running out of money fast – giving prime minister Antonis Samaras little room for maneuver.

From Athens, Helena Smith writes:

Following yet another round of marathon talks last night finance ministry officials said the negotiations “will conclude when the Euro group [of finance ministers] gives the ‘ok’”.

This could mean one of two things: “Either an agreement will be made at an emergency euro group meeting at the end of October or the next scheduled euro group meeting in November.”

Samaras will meet his junior coalition partners at 5pm local time (3pm BST) in what is being billed as a last-ditch effort to ease the tensions ahead of Thursday’s crucial EU summit. Kouvellis and socialist Pasok leader Evangelos Venizelos, however, do not appear in any mood for compromise with aides close to both accusing the troika of “over-stepping the mark.”

A clearly piqued Venizelos reminded lenders that Greece was “not a third world country” to be punished in the midst of its pone of its worst recessions in modern times.

Last night’s talks were certainly draining — Keep Talking Greece reports that one attendee, the general secretary for public finances, actually fainted.

1.02pm:

Shake-up at Citi as Vikram Pandit departs

Another newsflash from Wall Street — Vikram Pandit has just stepped down as chief executive of Citigroup, in an unexpected move. COO John Havens is also leaving.

The news has knocked almost 2% off Citi’s share price in the pre-market…

12.59pm:

Goldman Sachs smashes forecasts

In the corporate world, Goldman Sachs has shrugged off the economic slowdown and burst back into profit.

The Wall Street titan posted a net profit of $1.5bn for the last three months, or $2.85 a share; a year ago it made a loss of 84 cents per share. City analysts had expected a profit of $2.12 per share.

The CEO, Lloyd Blankfein, said Goldman had achieved a “generally solid” performance, given the “still challenging economic environment”, adding:

We continue to be disciplined in managing our operations and capital, while effectively serving our clients’ needs.

The focus on these priorities will serve our shareholders and the firm well over the longer term.

Crisis over …

12.49pm:

Spanish bailout talk pushes shares up

Time for a lunchtime roundup from the financial markets, where shares have rallied on the back of the latest guidance from Spain about a bailout request (see 8.59am and 10.55am for the full story).

FTSE 100: up 35 points at 5841, + 0.6%

German DAX: up 51 points at 7312 + 0.7%

French CAC: up 20 points at 0.6%

Spanish IBEX: up 98 points at 7777, + 1.3%

Italy’s FTSE MIB: up 77 points at 15667, + 0.5%

With the EU summit starting on Thursday morning, traders are awaiting developments.

12.17pm:

Greek talks paused as creditors brief Lagarde

Over to Greece, where our correspondent, Helena Smith, says there is mounting discord over the demands being made of the debt-stricken country by its international creditors.

Both sides are trying to conclude negotiations over reforms and austerity measures that have been set as the condition of further aid, but the situation looks rather unpromising.

Helena writes:

In a sign of how fraught the negotiations have become, the marathon talks were disrupted earlier when the labour minister, Yiannis Vroutsis, refused to bow to further demands from inspectors representing Greece’s “troika” of creditors at the EU, ECB and IMF.

According to the state-run new channel NET, the negotiations will resume at 3pm local time (1pm BST) after Poul Thomsen, the IMF’s mission chief, has spoken to the Washington-based fund’s managing director, Christine Lagarde.

Thomsen, who heads the body’s European department, reportedly told Vroutsis that the talks would have to be put on hold so he could brief Lagarde.

Helena adds that the renewed pressure from the troika for €13.5bn of spending cuts and labour market reforms have “clearly heightened tensions”.

Infuriated officials, including Fotis Kouvellis, who heads the Democratic Left, one of the three parties supporting Athens’s conservative-led coalition, are now openly complaining that the troika is making unrealistic demands “raising issues that were never on the table” as the countdown to the finishing line approaches.

“At five to 12, literally, they are toughening their negotiating stance, pulling out all these aces,” said one insider.

12.03pm:

The decline in Greece’s banking sector mapped

Here’s an interesting graph showing the situation in the Greek banking sector today, via Yiannis Mouzakis

The top left graph shows household deposits on a year-on-year basis, with a heavy fall since the start of 2009

The top right graph shows the supply of credit to corporations, consumers, and new mortgage applicants, all down since the start of 2009.

The bottom left graph shows the total value of provisions for bad loans (which have been accelerating since 2010).

And the bottom right graph shows bad loans provisions as a percentage of total credit.

Yiannis has uploaded a larger version here.

11.39am:

Greek auction results

Greece sold €1.625bn of three-month bonds without any trouble this morning, with the average yield on the debt dipping to 4.24%, from 4.31% last time. That’s the lowest level since May, but still a high price to pay to borrow until January.

In contrast, Belgium sold three-month bills at an average yield of -0.1% this morning.

11.19am:

Germany revises GDP forecasts

Germany’s Bild newspaper reports that the Berlin government is raising its forecast for economic growth this year, to +0.8% of GDP, from +0.7%.

German GDP increased by 0.5% in the first quarter of 2012, and 0.3% in the second quarter, so the upward revision suggests the economy will avoid contracting.

However, Bild reckons the forecast for growth in 2013 will be cut, to +1.0% from +1.6%.

10.55am:

SPAIN BELIEVES BAILOUT REQUEST WOULD SEND SHARES SOARING

Spanish officials believe a bailout request would spark euphoria in the markets, with Madrid’s stock market shooting up by some 15% the next day and 1.5 percentage points immediately knocked off Spain’s borrowing costs.

That would bring the yield on 10-year bonds down to a manageable 4% and, by some estimates, save Spain €9bn a year (or almost 1% of GDP).

That’s another key line out of last night’s briefing with international media in Spain (see 8.59am). Our Spain correspondent, Giles Tremlett, explains:

More importantly, a senior Madrid official insisted, Spain’s request – and its acceptance by the finance ministers of the eurozone – would finally signal to markets that the euro was irreversible.

In an ideal scenario, Spain would not even take any money from the credit line offered to it in the soft bailout. The credit line might turn out to be “virtual”, the senior official said, and simply act as a trigger for European Central Bank (ECB) intervention to push borrowing costs down. That would allow Spain to continue funding its deficit and debt on the markets instead.

A bailout request might even mean the ECB would not need to buy any Spanish debt, the official said, if markets responded by automatically lowering bond yields to a level that did not require support.

If the scenario is that rosy, why not ask for the bailout immediately? Officials claim the fear is of a “no” to the request, led by Germany. That would provoke immediate disaster, they insisted, with the euro dead by the next morning.

By that argument, however, Germany’s hand could easily be forced. But the senior official insisted Spain did not want to take risks with “an atomic bomb”.

Giles adds that the suspicion still remains that political calculations are a major player – with Spain wanting to wait until after this Sunday’s regional elections in Galicia.

And, as we flagged up earlier, Spain also hopes the IMF would be involved in setting the bailout conditions, leading to its deficit targets and austerity being eased.

As Giles explains:

Spain, in short, is still haggling so that it can avoid the death spiral suffered by bailed-out eurozone countries such as neighbouring Portugal. “I think the EU is realising that it has made a mistake in previous programmes,” the official said.

10.34am:

Doing the rounds: Moody’s Spanish downgrade rumour

There’s some chatter in the City that the rating agency Moody’s has warned the Spanish government it is downgrading its credit rating.

Nothing official yet. Moody’s has previously said it will make a decision on the Spain’s credit rating in October, having put the country on negative watch last summer.

Countries are usually given 24 hours’ notice of a downgrade (so they have time to prepare statements criticising the decision).

10.30am:

GKN hit by car slowdown

The UK engineering firm GKN has added to the gloom in the European car industry, saying conditions have deteriorated in recent weeks.

The company warned shareholders this morning that:

Macroeconomic conditions have deteriorated in recent weeks, and some softening in order books is now evident, particularly regarding European automotive and industrial markets.

The news came as the City was already digesting this morning’s 10% slump in European car sales last month (see our opening post), and sent GKN’s shares down 4%. My colleague Nick Fletcher has more details. here.

10.16am:

More data: the German ZEW index (which tracks sentiment among investors in Europe’s largest economy) has risen this month, by more than expected – to -11.5, from -18.2 last month.

The ZEW index also reports that risks to the German economy have “diminished” in recent weeks.

10.06am:

Eurozone inflation flat

Eurozone inflation was unchanged last month, after two months of increases.

The eurozone consumer prices index came in at 2.6%, in line with August’s reading [**corrected**)

10.03am:

Spanish bond auction results

Spain just pulled off a decent bond auction, selling even more debt than expected, at lower borrowing costs.

Here are the details:

• €4.86bn of 12- and 18-month bills sold in total

• Average yield on the 12-month bills fell to 2.823%, from 2.835%

• Average yield on the 18-month bills fell to 3.022%, from 3.072%

• The bid-to-cover ratio on the 18-month bills was 3.0 (meaning Spain could have sold three times as much debt), down from 3.6

• The bid-to-cover ratio on the 12-month bills was 2.7, up from 2.0

9.48am:

One more thought on inflation

The news that the UK Retail Price Index dropped to 2.6% last month, from 2.9% in August, is good news for UK companies, but less welcome for benefits claimants: September's RPI figure is used to set increases in business rates, and benefits.

9.40am:

Utility bills push inflation down – for now …

Last month's drop in UK inflation was mainly thanks to falling utility bills, according to the Office for National Statistics. Good news for consumers, until you remember that British Gas and Npower have just announced plans to raise prices.

Anyway, the UK government has welcomed the news.

"More than halved"...but still above the 2% target.

9.33am:

UK inflation falls

Just in: UK inflation fell back last month to its lowest level in almost three years.

The Consumer Prices Index dropped to 2.2% in September, from 2.5% in August. That's the smallest increase in the cost of living since November 2009 – but still slightly above the Bank of England's target

The Retail Price Index (which includes housing costs), came in at 2.6%.

9.28am:

REACTION TO SPANISH BAILOUT BRIEFING

One interesting line that emerged last night is that Madrid is considering asking for a credit line from the European Stability Mechanism but then not using it, relying instead on its borrowing costs dropping once the ECB has begun aggressively buying its debt.

An official called it a "virtual credit line". Sounds like a clever idea, but Roubini's Megan Greene is unconvinced it is plausible.

Robin Bew, chief economist & editorial director of the Economist's intelligence unit, points out that a request would still be politically damaging for Mariano Rajoy, Spain's prime minister.

9.23am:

Euro rises on Spanish bailout news

The euro has risen above the $1.30 mark this morning, on the back of the news that Spain has outlined how financial assistance might work (see 8.59am).

9.15am:

S&P downgrades Spanish banks

Also on Spain, Standard & Poor's has cut the credit ratings on a swath of banks, including Santander and Banco Bilbao. That follows its decision to cut Spain's credit rating late late week. Bloomberg has the full rundown.

S&P also left Santander with a negative outlook, just a few days after it pulled out of a deal to buy more than 300 UK branches from Royal Bank of Scotland. Economist Shaun Richards sees a connection:

8.59am:

SPAIN EXPLAINS 'SOFT' BAILOUT PLAN

Spain has moved closer to making a request for financial help, after briefing international press about its plans for a potential bailout.

Our Madrid correspondent, Giles Tremlett, was at last night's briefing with senior officials at Spain's finance ministry, where they explained the country's possible path to a “soft” bailout.

Giles writes:

Those holding their breath for a Spanish bailout can keep the air in for at least another week, according to the senior finance ministry officials I spoke to last night. A decision is not that imminent, not least because of the fall in Spain's borrowing costs already caused by the ECB's announcement that it will back 'soft bailouts' with bond-buying to keep those costs from rising

Spain's many reasons for foot-dragging – which officials claim have more to do with making sure Germany and others will back the bailout than with domestic regional elections – also involve the IMF, whose influence they are welcoming.

The IMF's involvement, a senior official said, was more significant than the actual credit line that Spain would have to request in order to trigger the ECB's bond-buying – with officials convinced that the credit line itself would not have to be used, as the ECB's intervention would mean that Spain could then cheaply fund itself on the markets.

Why welcome the IMF, which is often painted as the beast that squeezes the life out of bailed-out countries? Because it is now showing greater realism than deficit hawks in Brussels, Berlin and Frankfurt about the impact of excessive austerity. In simple terms, the IMF may help ease the deficit targets.

'The IMF says that the important thing is the [reform] measures you take, more so than the deficit,’ one official said.

The Wall Street Journal was also at the briefing. Here’s its take: Spain outlines bailout path.

And the Financial Times’s story is here: Spain prepares to make rescue request.

8.37am:

THE AGENDA

It’s a big day for economic news, with new figures on the cost of living being released in the UK, Europe and America. There’s also the closely watched German ZEW survey and new Eurozone trade figures.

Here is the agenda:

• UK inflation data for September: 9.30am BST

• Eurozone inflation data for September: 10am BST/11am CEST

• German ZEW survey of investor confidence: 10am BST/11am CEST

• Eurozone trade data for August: 10am BST/11am CEST

• US inflation data for September: 1.30pm BST/8.30am CEST

In the bond markets, Spain and Greece are both holding auctions of short-term debt this morning.

8.25am:

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

We’re kicking off with some dire economic news: European car sales have taken a nasty tumble as the recession continues to hit consumers hard.

Sales of new cars across the EU were down 10.8% last month compared with September 2011, with around 100, 000 fewer vehicles being bought. That’s the 12th consecutive monthly drop, and the biggest fall in almost two years.

Some big-name manufacturers suffered a really dreadful month, particularly Renault, whose sales plunged 32% year on year. Renault is already locked in a battle with unions over a plan to cut thousands of jobs.

Volkswagen’s sales fell 13.8% year on year, Ford lost 15%, and Opel’s were down 16%.

The data, from the European Automobile Manufacturers’ Association, also shows how economic demand is slumping in Spain. The situation in Germany is worsening, too.

Spain: sales down 37% year on year

Italy: down 26%

France: down 18%

Germany: down 11%

A bad start to the day for Europe, as the countdown to Thursday’s EU summit continues …

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Eurozone crisis live: Hopes of imminent Greek cuts deal dashed

By:
Published October 15, 2012, in Forex News

Greece finance minister: deal before Thursday unlikely. Germany and Sweden disagree over Grexit. Crunch EU summit on Thursday. Greek bonds rally. Markets cheer today’s rumors of upcoming Spanish bailout in November…


Powered by Guardian.co.ukThis article titled “Eurozone crisis live: Hopes of imminent Greek cuts deal dashed” was written by Graeme Wearden, for guardian.co.uk on Monday 15th October 2012 16.00 UTC

4.55pm:

Panama eyes up the euro (yes, really)

Perhaps the oddest story of the day: Panama is considering introducing the euro as legal tender.

The president of Panama, Ricardo Martinelli, told journalists in Berlin today that he was keen to give the euro legal parity with the US dollar in Panama’s financial system.

Martinelli told a joint news conference with Angela Merkel:

In Panama the currency in free circulation is the American dollar and I told the chancellor we are looking for ways for the euro to become another currency of legal circulation and to be accepted in the Panamanian market.

(quotes via Reuters)

A vote of confidence for the euro from one of Latin America’s fastest-growing countries.

4.38pm:

Lisbon protests expected tonight

Big demonstrations are expected in Portugal tonight after the details of the country’s 2013 budget are released.

As Giles explained at 13.06, the Lisbon government is preparing its toughest austerity measures yet. Some details are hitting the wires now, and the journalist José Miguel Sardo has the highlights:

The prime minister, Pedro Passos Coelho, said today that he would not be knocked off course by a bad showing in regional elections last weekend. He told his party:

Despite the bad moments the party is going through in national terms, regional elections will certainly not compromise the national strategy.

4.20pm:

Today’s Athens protests

In Athens, the daily round of anti-austerity protests has continued.

Today’s demonstrations included a delegation of metal workers from a factory in Thessaloniki, Greece’s second-largest city, demonstrating outside the labour ministry in Athens.

The men are urging the government to help them after their factory was abandoned by its owners in May 2011, leaving them without pay ever since. A rolling staff of employees have been working on site ever since to keep it operational. Details here.

4.06pm:

Angela Merkel’s austerity tour continues

Angela Merkel is planning to make her first ever visit to Portugal on 12 November.

Merkel is expected to meet the president, Aníbal Cavaco Silva, and the prime minister, Pedro Passos Coelho, during her trip. The Portuguese news agency Lusa said today that Merkel would also attend an investors’ conference in Lisbon, alongside a delegation of business leaders.

That mirrors the format of her flying visit to Athens last week, in which Merkel squeezed two meetings, a press conference and a hob-nobbing of enterprise chiefs into six hours.

3.29pm:

Greek finance minister downbeat over deadline

Hopes that Greece would reach a deal with the troika in time for the EU summit on Thursday have been dashed by the country’s finance minister, Yannis Stournaras.

Interviewed in Athens today, Stournaras said it was unlikely that agreement on the €13.5bn cuts programme would be reached this week.

He said:

It is difficult to reach an agreement by the EU summit.

Stournaras, who has been locked in negotiations with troika officials for weeks, explained that the two sides still needed to find ways to deliver debt sustainability and address the “financing gap” in Greece’s budget.

He added:

Negotiations are progressing but there are a lot of issues still open. Structural and fiscal measures will be determined just before or just after the summit.

This means that an emergency meeting of the eurogroup may be needed to sort out Greece’s finances, Stournaras concluded.

What’s astonishing about this is that the prime minister, Antonis Samaras, confidently told the Greek newspaper Kathimerini over the weekend that he was confident that a deal over the €13.5bn package would come by Thursday. Here’s the interview.

2.29pm:

Greek politicians from across the spectrum are attending today’s IHS investment forum (see 14.11 post).

Giorgos Stathakis, who is responsible for economic affairs for the main opposition Syriza party, told the conference that Greece needed €60bn in fresh investment funds to turn the economy around.

Helena Smith adds:

Stathakis also warned that the wage cuts being demanded by Greece’s troika (from an average of €1,500 per month before the crisis to €980 and now €750) amount to “the wrong policy at the wrong time”.

Greece’s minister of development, competitiveness and infrastructure, Kostis Hatzidakis, is also there. He told attendees that an agreement on the €13.5bn package of budget cuts was key to ensuring Greece’s place in the eurozone and “ending all these scenarios about Grexit”.

2.11pm:

Megan Greene puts Grexit at 90%

A conference called the Greece Investment Forum “moving forward” is taking place in Athens today, organised by the International Herald Tribune.

Talk of a possible Greek exit from the eurozone is dominating the conference, as our correspondent Helena Smith reports:

I just spoke to Megan Greene of the Roubini group who puts the probability of Greece leaving the eurozone by the end of 2013 at 90%, up from 85%, by end of 2013.

Her latest prognostication is based not so much on disaster scenarios but likelihood that the EU will not come up with a fiscal pact that would ensure Greece’s place in the bloc, following the announcement of the ECB’s bond buyback scheme.

“The pressure has been reduced to come up with a full solution,” Meg told me. “Fiscal union is now less likely,” she said adding that she was in the “weird position of hoping that I am professionally wrong.”

Greene is one of the brightest commentators on the crisis, so the odds that she’s wrong are not great …

She’s also a dab hand with a Twitter pic:

1.54pm:

Here’s our Madrid correspondent, Giles Tremlett, on the latest deadlock in Spain:

As uncertainty overshadows the future of the eurozone again, Spain has so far failed to answer the key question of why it is postponing what many see as an inevitable bailout request.

El País reports that Spain wants the European Central Bank to first pledge that it will intervene in the markets to peg the spread on bond yields compared to Germany (meaning how much higher the interest charged on money loaned to Spain would be) at two percentage points.

That would halve the difference and save Spain some €12bn a year in debt servicing. Yields on 10-year bonds fell to their lowest for six months at the end of last week, though they are rising again today and are at a growth-draining 5.72%

Another possible reason for holding out remains regional elections in Galicia and the Basque country, which are to be held on Sunday.

1.44pm:

US retail sales beats forecasts

The latest US consumer spending data is out, and it is better than expected.

Retail sales rose by 1.1% in September, beating forecasts of a 0.8% rise. August’s number was also revised higher, to +1.0% (from 0.8% originally).

There was a 4.5% increase in sales of electronics/appliances – probably down to the launch of Apple’s iPhone 5.

1.06pm:

Portugal prepares toughest budget yet

Important developments in Lisbon, where Portugal’s government has just finished a cabinet meeting at which it has agreed the toughest budget seen so far.

The latest round of cutbacks come as Portugal struggles to meet deficit targets set by the troika of the European Union, the International Monetary Fund and the European Central Bank.

Giles Tremlett reports that the budget will be made public this afternoon – reports vary from 5pm to 6pm local time – but leaks suggest massive tax rises for the middle classes.

Several thousand protesters were expected to gather outside the parliament building in Lisbon as the details of the budget were made public.

The head of Banco BIC Portugues, the former government minister Mira Amaral, has said he expects “major tax hikes on the middle class and, also, higher taxes on business and savings”.

Portuguese newspapers have calculated the hikes, according to documents leaked last week, will be equivalent to around one month’s salary.

12.39pm:

Wealth tax row hits Irish government

Over in Ireland, cracks are emerging within both governing parties in the Irish coalition over the Republic’s forthcoming budget in December.

Henry McDonald reports from Dublin:

Leftwing Labour TDs and a member of the European parliament urged the government today to impose a new 48% income tax on those who earn more than €100,000 a year and a Robin-Hood-style bankers’ tax on financial transactions.

The Dublin Labour TDs Patrick Nulty and Tommy Brougham joined the MEP Nessa Childers in arguing that €25bn had been sucked out of the Irish economy through cuts and taxes on ordinary workers.

Commenting on the proposals Patrick Nulty TD said:

Since 2008 €25bn has been sucked out of the economy through cuts and taxes on ordinary people. This cannot continue and it is time to tax wealth in Ireland.

A model for a wealth tax already exists in France. If this was applied in Ireland even Minister Noonan has admitted it could raise up €500m per annum. Such an approach would not only ensure the very wealthy in our society make some contribution to dealing with the deficit but would also demonstrate that tax justice must underpin economic policy in Ireland.

Tommy Broughan TD said:

It is absolutely vital that those who have most pay most. In opposition the Labour party called for the introduction of a new higher third rate of tax on incomes over €100,000.

This would raise €365m a year which could be used to prevent vicious cuts in health and education. The Labour party must demand that this budget brings in extra revenue without destroying the domestic economy.

But the dominant party in the coalition, Fine Gael, faced calls from backbenchers to carry out deeper cuts in the Irish public sector.

Eight Fine Gael TDs challenged Enda Kenny’s administration to reform the Croke Park agreement – a controversial accord between government and Irish public sector trade unions that has bought industrial peace at the price of protecting salaries and pensions in the state sectors from any cuts.

They said there should be no more incremental wage increases for top civil servants which would cost the country an extra €170m. They also criticised the coalition for failing to cut back on special allowances, grants and so on for public servants that cost the state €1.5bn (HMcD).

12.08pm:

Just in: the Nobel prize for economics has been awarded to Alvin E Roth and Lloyd S Shapley “for the theory of stable allocations and the practice of market design”.

Full reaction and analysis in our other live blog, here.

11.17am:

New setbacks over Greek cuts deal

Over in Greece negotiations aimed at finally sealing a bumper €13.5bn package of budget cuts ahead of this week’s EU summit are resuming today.

But as our correspondent Helena Smith reports, in the final sprint to the finishing line setbacks have also emerged.

Helena writes:

The upcoming summit has clearly focused minds with Greek finance ministry sources saying they foresee the marathon talks being concluded by Tuesday PM.

“We are focused solely on wrapping up this package in order to get the next installment [of rescue funds],” said one official. But as the exhaustive negotiations enter the last stretch snags have also appeared with high-level Greek officials describing as “unspeakable” the pressure now being exerted on them by envoys representing the country’s troika of creditors at the EU, ECB and IMF.

Demands that Greece sack 15,000 civil servants by the end of the year and further reduce labour costs, including severance pay, prompted the administrative reform minister to walk out of the talks on Sunday, reportedly declaring: “I will do what I think is right.”

The talks, which had lasted more than seven hours, are aimed at closing a package of cuts worth €13.5bn that would be spread out over four years – in line with Greece’s demand that its grueling fiscal adjustment programme be extended by two years through to 2016. Insiders say disagreement over the depths of Greece’s runaway recession have obstructed progress, with troika officials predicting that the economy will contract by more than 4% for a sixth year in a row in 2013, thus increasing the need for deeper budget cuts.

11.07am:

Nobel economics prize awarded soon….

In an hour’s time, the Nobel memorial prize in economic sciences will be awarded. My colleague Julia Kollewe is liveblogging all the action here: Nobel prize for economics: follow the announcement live

European economists are not, alas, dominating the list of favourites. Frontrunners include Robert Shiller, Kenneth Rogoff, Carmen Reinhart and Paul Romer (all based in America).

10.46am:

Chris Beauchamp, market analyst at IG, says there is “guarded optimism” in Europe’s financial markets today (with the main indices still up this morning).

That’s partly due to a drop in Chinese inflation over the weekend (which increases the chances of China launching a new stimulus package).

Otherwise it’s a question of waiting for Madrid to make its move, Beauchamp says:

Speculation regarding the Spanish bailout continues to churn, with ‘next month’ being the current aiming point. Like ‘tomorrow’, ‘next month’ never comes, and in reality Madrid is still looking to put off the dreadful day for as long as it can.

10.35am:

Here’s a graph showing how 10-year Greek bonds have rallied in value in recent months (via fund manager and general financial whiz @pawelmorski).

As explained in the previous post, they are now at their highest level since they were issued in March, as part of Greece’s second financial aid package.

It all fits with the theory that a Greek default is much less likely in the short-term (something Citi admitted last Friday when they cut their odds on a Grexit from 90% to 60%, and pushed the likely date forwards to the first half of 2014).

10.22am:

Greek bonds strengthen in value

Some relief for Greece this morning: the yield (in effect the interest rate) on its 10-year bonds has dropped to its lowest level since the country’s debt restructuring in March this year.

At 17.5%, the 10-year bonds are still deep in “speculative territory”, reflecting fears that Greece might default on its debt mountain. But today’s drop in yields is a reassuring signal, and means the debt is being valued more highly in the bond markets today.

It follows Wolfgang’s Schäuble’s prediction that Greece will not default, the Reuters report predicting a Spain/Cyprus/Greece rescue package in November, and ongoing chatter that central banks such as the ECB might offer Athens support by restructuring the Greek debt they hold, or waive the interest payments.

10.06am:

Foreign investors increased their exposure to Italian debt in June, but they remain much warier than a year ago.

New data from Italy’s treasury show that overseas investors held €675bn of Italian sovereign debt in June, up from €669bn in May.

A year ago, though, they held €827bn, before fears that Italy would be dragged into a bailout sparked a sell-off in its debt – driving its bond yields up, and Silvio Berlusconi out of office.

9.56am:

REHN ON SPAIN AND GREECE

Olli Rehn, European commissioner for economic and monetary affairs and the euro, has been discussing the eurozone crisis this morning.

And his comments do suggest that many of the key issues will not be resolved until next month.

Rehn said Europe hoped to conclude aid talks with Greece “by mid-November”, and revealed that policymakers were considering giving Greece more time to achieve its financial reforms.

On Spain, Rehn said the Spanish government was “open to considering a bailout request” (which we rather knew already).

Rehn is in Singapore today for the Asia-Europe finance ministers’ meeting. Speaking to the Bangkok Post, Rehn also argued that “the worst is over for the euro debt crisis”, adding:

The European Central Bank has also shown willingness to take unconventional measures to avert a banking crisis.

9.39am:

Markets update

European stock markets have opened higher this morning, following a report that a Spanish bailout request will come in November.

• FTSE 100: up 18 points at 5811, + 0.3%

• German DAX: up 49 points at 7278, +0.6%

• French CAC: up 30 points at 3419, + 0.9%

• Spain’s IBEX: up 56 points at 7708, + 0.75%

• Italy’s FTSE MIB: up 120 points at 15632, + 0.8%

Spread-betters had been predicting that concerns over the global economy would push shares lower. But traders have taken encouragement from a Reuters report that a Spanish bailout would come in November, alongside a financial package for Cyprus and a new deal for Greece.

Here’s a flavour:

We’re moving, we’re taking steps, we’re preparing it, things will crystallise in November,’ said a senior official who is directly involved in talks about a potential Spanish aid.

Asked to clarify if this meant an aid request was expected in November, he said: ‘I am confident this will happen then, in November.’

We’ve written recently about rumours that Angela Merkel would much rather wrap Greece, Spain and Cyprus into a single package, rather than brave the Bundestag three times. Sounds like she might get her way …

9.09am:

EU SUMMIT EXPLAINED

This week’s EU summit will be a classic battle over the key issues at the heart of Europe – fiscal discipline and the exchange of national sovereignty for closer union.

Our Europe editor, Ian Traynor, predicts another Franco-German tussle, with the French president, François Hollande, charged with leading the fight against Germany’s austerity drive.

In this new must-read preview, Ian writes:

It may be a maddeningly slow process. But it all adds up to a seismic shift in the politics of Europe, the way power is wielded and policy-making discharged. There are multiple factors and dynamics involved: east versus west, north versus south, big versus small, EU institutions versus national governments. But in the end, the latest European dispensation will probably be settled by the big three – which in essence may mean the Germans are up, the French are down, and the Brits are out.

Ian also explains the three issues at the heart of the summit:

The first is to make the European Central Bank the supervisor of the eurozone’s banks. The other two, unveiled last week by the EU’s fixer-in-chief, Herman Van Rompuy of Belgium, who chairs the summits, are to bind national eurozone governments into annual “contracts” committing them to structural reforms of their labour markets, welfare and pension systems.

The corollary to this, the third item, is to establish a modest, federal eurozone “budget” (quite distinct from the EU budget). It is modelled on the way Germany redistributes funds among its federal states, and would be used to cushion the impact of the reforms deemed necessary by the “contracts”.

So Finland’s concerns over a eurozone budget (see 8.54am) are pretty significant.

More from Ian here.

8.46am:

FINLAND WARY OF EUROZONE BUDGET

Over the weekend, Finland threw a spanner into the EU machinery ahead of Thursday’s summit by criticising plans for a new budget for the eurozone.

Jyrki Katainen, the Finnish prime minister, questioned whether it was sensible to make a eurozone budget separate from the seven-year fiscal framework of the 27-member EU.

Reuters has the story:

Jyrki Katainen said Finland, known for its tough stance towards many euro crisis measures, has many concerns about the budget plan.

“At first a philosophical question – is it right to separate the integration of euro states and non-euro states? Secondly, what would it mean to EU budget, would the money come from there,” Katainen said in a radio interview with YLE.

A eurozone budget could centralise tax and spending decisions within the single currency union, and would be another step towards fiscal convergence. But, as Katainen flags up, it would draw another line between the “Ins” and the “Outs” within Europe – leaving the 10 countries who haven’t embraced the euro further away from the core.

8.45am:

THE AGENDA

The award of the Nobel prize for economics* is the most exciting event on today’s agenda. Could Europe make it a double, after Friday’s controversial award of the peace prize? Unlikely – most of the front-runners are American, but you never know.

There’s little economic news due in Europe, but the latest US retail sales data could move the markets.

• Nobel memorial prize in economic sciences awarded: noon BST

• European commission president José Manuel Barroso speaks at European parliament: from 9am BST / 10am CEST

• Latest Italian government debt figures: 9.30am BST / 10.30am CEST

• US retail sales: 1.30pm BST / 8.30am CEST

• French debt sale: 2pm BST / 3pm CEST

* Actually called the Sveriges Riksbank prize in economic sciences in memory of Alfred Nobel (as you all already knew)

8.15am:

Speculation over Greece ahead of crunch summit

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

Tension is building ahead of this week’s European Union summit. Government leaders from across the EU will gather in Brussels on Thursday for two days of negotiations. Up for discussion – banking union, a single EU budget, the Greek financial programme and the possible Spanish bailout.

One of the key issues is whether Greece can cling on within the eurozone, with speculation swirling over a possible Grexit again …

The Swedish finance minister, Anders Borg, caused a stir over the weekend when he declared that Greece would probably quit the euro within six months.

Borg argued that:

It’s most probable that they will leave … We shouldn’t rule out this happening in the next half-year.

Perhaps more controversially, Borg argued that this wouldn’t alarm the financial markets much, as:

… in practice everyone already understands which way the wind is blowing.

This prompted a rebuttal from Wolfgang Schäuble. Germany’s pro-austerity finance minister declared yesterday that Greece would not default on its debts, and cautioned that there would be major panic if it did quit the euro:

Speaking in Singapore, Schäuble said:

I think it will not happen that there will be a state bankrupt in Greece.

Greece has to take a lot of very serious reforms and this will harm. Everyone is trusting that the Greek government is doing what is necessary.

But Greece’s future will remain unclear until it has agreed a package of cuts with its Troika of lenders, and secured its aid tranche.

As we reported on Friday, frenzied and furious talks are taking place in Brussels now over how to patch up the country’s finances, with internal estimates showing that Athens is seriously overshooting its debt targets.

Faced with all this speculation, Greece’s prime minister has declared that his government will reach a deal with the Troika by Thursday.

Antonis Samaras declared that Greece faces its “final hurdle”, in an interview with the Kathimerini newspaper. He said two things would have happened before the summit begins:

First we will have fully completed the agreement on the fiscal and structural prior actions for the disbursement.

And secondly, Europe and the IMF will likely have overcome their different estimates about how the debt sustainability will be assured.

So it could be quite a lively week …

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Published via the Guardian News Feed plugin for WordPress.

Eurozone crisis live: IMF chief economist sees years of turmoil ahead

By:
Published October 3, 2012, in Forex News

Olivier Blanchard from the IMF says that recovery from 2008 will take at least a decade. Portugal expected to announce fresh austerity today. Analysts see Spanish bailout soon. Fresh talks in Greece. Gloom in Ireland…


Powered by Guardian.co.ukThis article titled “Eurozone crisis live: IMF chief economist sees years of turmoil ahead” was written by Graeme Wearden, for guardian.co.uk on Wednesday 3rd October 2012 14.19 UTC

3.19pm:

Reports are surfacing in Greece that the troika’s long-awaited review of the debt-stricken economy may not be released for another four to six weeks. In other words, after the US Presidential Election

Officials have told Helena Smith that while they cannot confirm such reports they cannot rule them out either.

Helena reports:

In what would be a nightmare scenario for Greece, speculation is growing that foreign lenders are planning to delay their long-awaited assessment into whether the country’s debt mountain is manageable. From Athens’ standpoint the report is vital because it is key to releasing €31.5bn in aid – rescue funds that have been put on hold since June.

Without the cash installment Greece will be unable to pay salaries and pensions and be forced to default on its debt with euro exit almost certainly following suit. “I have just heard reports about the possibility of a delay and am waiting for the EU and IMF to deny them,” said Dimitris Hadzisokratous, head of economic policy for the Democratic Left, one of three parties participating in the governing coalition.

“There are circles, by which I mean the IMF, who are pressing for a delay until after the US election in November,” he told me. “I cannot confirm that it will happen but it is possible. We need to move on. We want to conclude these negotiations [over Greece’s latest €13.5bn austerity package] and begin focusing on development and growth.”

Rumour has been rife for some time that the US election was going to force a delay in Greece (Barack Obama not keen about the eurozone crisis flaring up the White House race is over). But there was a flood of denials after Reuters ran a story two weeks ago saying a delay was likely

Helena continues:

Hadzisokratous, a leading member of the Democratic Left, described the situation as “being very difficult” and conceded that negotiations had reached an impasse which he hoped could be resolved “at a political level.”

“We cannot accept more cuts to wages and pensions as the troika are demanding,” he said. “It is simply not acceptable and there is a danger of the country reaching a total impasse which will increase tensions on the ground and within our institutions.”

The report was initially expected to be released before next Monday’s euro group meeting of finance ministers. Differences inside the troika about the precise extent of Greece’s debt problems are also to blame for the slippage. “The differences are making headway more difficult,” said the leftist. “The IMF is insistent that we look at the debt problem first and the EU takes the approach of “lets move on and then look at the debt problem’,” he said. “Every time we make some progress another demand is made by the IMF which has made the whole [negotiation] process more difficult.”

Hadzisokratous said his party would press conservative prime minister Antonis Samaras to send the controversial package of spending cuts – on which further aid also depends – to parliament for ratification after the upcoming EU summit on October 18. “It will be much easier to pass after the summit when agreement has hopefully been reached on extending the fiscal adjustment programme,” he said. Athens says a two–year extension to the program is essential to ease the impact of the draconian package of austerity measures.

2.17pm:

Portugal pulls off debt swap

Just a reminder that we’re expecting new austerity measures to be announced in Portugal in around 90 minutes time (4pm BST).

As outlined at 8.22am, finance minister Vitor Gaspar must make new cutbacks having the government bowed to public anger and reversed the decision to hit workers with a 7% cut in take-home pay.

Had they not ditched the plan, Portugal’s government would probably have collapsed.

The Portuguese government did have some good news this morning – it pulled off a bond exchange that should make it easier to reenter the international lending markets in 2013.

Investors agreed to swap €3.75bn worth of bonds which mature in 2013 for new ones that won’t be repaid until 2015. This cuts the amount of debt which matures in September 2013 from €9.7bn to just under €6bn.

Handy, if there are fears that you might need a second bailout.

The FT explains the debt swap deal well here.

1.58pm:

That Cypriat-Troika row explained….

More details of Cyprus president Demetris Christofias‘s refusal to accept the terms of the bailout being offered by the IMF (see 12.15pm).

The Cypriot leader, a veteran communist, says openly that he does not want the Mediterranean island to meet the same fate as Greece.

Our Athens correspondent Helena Smith explains:

In an official visit to Athens yesterday, Cyprus’ president Demetris Christofias made clear that he did not want his country to suffer the same fate as recession-hit Greece. Speaking to reporters at the presidential palace, where he met head of state Carolos Papoulias on Tuesday, the Cypriot leader joked that “we’ve seen what has happened to you and we don’t want [to suffer] the same.”

Helena adds that the Cyprus government is holding crunch talks tonight:

After months of stalling, the Christofias government will convene in Nicosia tonight to finalise counter-proposals to the terms of a financial assistance programme already made by the EU and IMF.

Local media reports suggest the government’s proposals will be much more lenient than those already put forward by officials representing the international lenders. Leaked documents have indicated that the troika (EU/ECB and IMF) are demanding as much as €1 bn in savings between 2012 and 2015 with the government paring back the public sector considerably. The Cypriot finance minister is expected to propose that the cuts exceed no more than €800 million.

With the island’s exposure to Greek banks widely blamed for its poor finances, the Cypriot government is now in talks with Athens over how to disengage the banks’ Greek operations from a bailout – an issue that Christofias also raised during talks with Greek prime minister Antonis Samaras.

Insiders think it is “very likely” that Cyprus, will turn to Russia for help – a move that will not help the island’s reputation for ‘trustworthiness” at a time when it is also holding the rotating EU presidency.
Christofias, who is a fluent Russian speaker and lived in Moscow for years, has repeatedly said that all options are open. The Cypriot government has also signalled that the island may ask for an extension in the repayment of the €2.5bn loan it received from Russia in December. Under the initial loan agreement Nicosia was to repay the loan by mid 2016 but officials say they will ask for loan repayments to be extended to 2020.

1.28pm:

An update on the IMF warning that the recovery from the financial crisis of 2008 will take at least a decade (see 10.53am).

This graph, issued by the UK Department for Business, Innovation and Skills in August, shows how countries have struggled to achieve real economic growth since the collapse of Lehman Brothers in 2008.

12.44pm:

Motorbike protests in Athens

Protests watch: Greek municipal workers in Greece held a demonstration on motorbikes today, in the latest show of anger against the country’s austerity programme.

The protests, organised by the POE-OTA union, also saw blockades and protests at landfills in Greece.

Photos from the scene:

12.15pm:

Cyprus plays hardball over bailout terms

Important developments regarding Cyprus. Its president, Demetris
Christofias, has declared that he has no intention of accepting international help on the terms offered by the IMF.

Speaking to Greek state broadcaster NET, Christofias revealed that he was pushing back against the troika (officials from the IMF, the European Central Bank and the EU). He is refusing to agree to their demands for privatisations.

Christofias told NET:

We aren’t just saying ‘no’ to them…We are givingthem counterproposals.

The comments are being taken as a sign that Christofias might turn to Russia to solve Cyprus’s debt crisis (its stricken banks need hefty recapitalisation).

11.48am:

Another blow for Ireland.

On top of today’s hike in mortgage rates (see 11.07am) the Republic’s unemployment remains stubbornly high (Henry McDonald flags up).

The country’s Central Statistics Office has just released figures showing the jobless rate at 14.8% in September. Only 400 people left the dole queues according to the CSO.

Meanwhile the Irish League of Credit Unions has reported today that loans are down by almost ten per cent in the Republic and 1.5 per cent in Northern Ireland.

The drop was due to a “severe lack of demand and continued restrictions on lending”, the ILCU said – another sign of the fear helping to severely curb consumption in the Irish economy.

11.07am:

Irish interest rate hike

There is more pain for Irish home owners, and consumers in general, today as one of the state rescued banks in the Republic today announced it was hiking its mortgage rate up to 4%.

From Dublin, Henry McDonald reports:

Allied Irish Bank’s 0.5% rise means another €30 will be added onto the monthly repayments of ever €100,000 borrowed. Up to 70,000 mortgage holders are likely to be caught in this latest rise in mortgage rates.

AIB which operates in Northern Ireland as the First Trust Bank is almost wholly owned by the state and has received up to €21 billion from the taxpayer.

Almost one in ten holders of the bank’s residential mortgages in Ireland is three months or more behind in their payments. The AIB and the other state rescued banks are among the most loathed institutions among the general populace.

AIB’s chief executive David Duffy said the bank is “acutely” aware of the financial impact that any increase will have on its customers, but that the move is needed to transform its operating base.

Consumer spending and demand along with the country’s shattered construction industry remains in a deep slump in Ireland.

10.53am:

IMF chief economist: recovery will take a decade….

The IMF’s chief economist has warned that the recovery from the financial crisis that struck in 2008 will take at least a decade.

Olivier Blanchard fears that the eurozone crisis, Japan and America’s own debt problems, and the slowdown in China mean that the world economy will not be in good shape until 2018. At the earliest.

The comments were made in this interview with Hungarian
website Portfolio.hu (published today, but conducted last month).

Blanchard was (rightly) gloomy about global prospects. Here are the key quotes (via Reuters):

It’s not yet a lost decade… But it will surely take at least a
decade from the beginning of the crisis for the world economy to get back to decent shape.

Japan is facing a very difficult fiscal adjustment too, one which will take decades to solve. China has probably taken care of its asset boom but has slower growth than before, but we do not forecast any really hard landing.

Blanchard also insisted that there was no risk of hyperinflation in Europe, despite the massive expansion of central bank balance sheets. Higher inflation in Germany, though, would be beneficial:

A somewhat higher inflation rate in Germany should simply be seen as a necessary and desirable, relative price adjustment.

Won’t go down well in Berlin.

10.21am:

GREEK-TROIKA TALKS: LATEST NEWS

Over in Greece, marathon negotiations are now underway as officials work feverishly to bridge differences over the bumper €13.5bn package of spending cuts international creditors are demanding in return for further rescue loans.

Helena Smith, our Athens correspondent, writes:

Two days after attempts at sealing the austerity package ended in deadlock — with lenders flatly rejecting some €3bn in cuts proposed by Greece’s ruling coalition — both sides are back busily pouring over balance sheets.

In the wake of what were widely described as “difficult” talks at the labour ministry on Tuesday, envoys representing the country’s “troika” of creditors at the EU, ECB and IMF have today moved their focus to the ministry of Development, the government’s most powerful portfolio overseeing energy, transport, infrastructure works and investment.

Kostis Hadzidakis, the development minister, is expected to spend “a good chunk” of his day with the troika following renewed pressure that the crisis-hit country not only make controversial cuts but forge ahead with structural reforms that have fallen by the wayside because of political paralysis spawned by double elections earlier this year.

The reforms, which come under Hadzidakis’ remit, range from opening up “closed-shop” professors – a long-standing demand that Greece was meant to have applied more than a year ago – deregulating the goods, services and energy markets, merging health insurance providers and setting up a new body to oversee state procurements. “It’s all part of the troika suddenly raising the bar,” said one official. “They’ve decided, it seems, to put everything on the table.”

Analysts say lenders appear to be have taken a “shock and awe” approach to the talks, insisting on reforms as well as cuts before approving the next tranche of aid the Greek economy so desperately needs to keep afloat. “There is a feeling that everything should be put on the table and tackled now that the government is relatively fresh,” said one official. “But a lot of the demands are bordering on the absurd.”

Greek government officials fear that if pushed too far the demands could be counter-productive. The troika, which also wants to see more civil servants fired, is determined to further slash pensions, pay packets and benefits if the conservative-led alliance cannot come up with convincing evidence that up to €1.5bn can be shaved from operational costs of ministries overseeing health, defense and local authorities. “They are insisting on the minimum wage and pensions being reduced, totally ignoring the climate we live in here,” another insider told me.

Greek media reports this morning said the envoys wanted the government to pile on a further €2bn in spending cuts to next year’s budget “pushing austerity to the limits”

“In total Greek citizens will be asked to endure almost €10bn of the entire €13.5bn [package of cuts] in one year,” Ta Nea wrote. “This is moving in exactly the opposite direction to the extension the government is aiming for in order to lessen the impact of the austerity.” Regular readers will recall that prime minister Antonis Samaras has said he will raise the issue of extracting a two-year extension of the country’s fiscal and structural reform program at the EU summit on October 18.

But despite the evident tensions, Athens’ governing alliance is keen to play down the friction. Although there now appears to be little hope that the package will be clinched by the next euro group meeting on October 8, the Greek Finance minister Yiannis Stournaras says he still hopes the cuts can be agreed by the EU summit. “There is no negotiation on a political level,” he said downplaying reports that exasperated by the troika’s tactics Samaras was now focusing solely on resolving disagreement over the package with his EU counterparts. “Negotiations are only happening] with the troika,” he said.

10.05am:

Spanish Bond Yields Stable…..

Despite the uncertainty over its bailout request, Spanish bonds remain steady this morning. The 10-year bond is trading at a yield of 5.75%, comfortably below the 6% mark that usually gets us excited.

That reflects the belief that Spain will cave in and go for the bailout sooner or later (probably sooner).

Or as Dow Jones’ ever-pithy Katie Martin put it:

9.59am:

UK service sector data

Britain’s’ service sector performed worse than expected in September, but it still managed to expand.

The UK Service PMI came in at 52.2, down from August’s 53.7, closer to the 50-point stagnation mark.

9.34am:

Economists say this morning’s weak service sector PMI (see 9.29am) is further proof that the eurozone is in recession.

The eurozone could have contracted by as much as 0.4% in the last three months, following the news that its service sector shrank at its fastest pace in 38 months.

Howard Archer of IHS Global Insight said the data was “very disappointing and worrying”.

It reinforces belief that the Eurozone suffered further GDP contraction in the third quarter (we anticipate a drop of 0.3-0.4% quarter-on-quarter).

This would put the Eurozone in recession in all senses of the word and the prospects for a return to growth in the fourth quarter currently look far from bright given still markedly contracting incoming new business.

9.29am:

EUROZONE SERVICE SECTOR SHRINKS AT FASTEST RATE IN 3 YEARS

The eurozone’s service sector suffered a poor September, making a double-dip recession even more likely.

The overall eurozone service sector PMI slid to 46.1, from 47.2 in August, its worst showing in more than three years. (any number below 50=contraction)

France was among the worst performers; its service PMI tumbled to 45.0, from 49.2 in August.

Germany’s service sector also shrunk again, with a PMI of 49.7. That’s up from August’s 48.3, but dashes hopes of a return to growth.

9.00am:

ANALYSTS: SPANISH BAILOUT MUST BE CLOSE

City analysts are not convinced by Mariano Rajoy‘s insistence last night that a bailout request is not imminent.

Gary Jenkins of Swordfish Research argues that Spain’s borrowing requirements mean a request for help must come soon.

Everything was going so well and then Mr Rajoy said “No.” The question was whether a bail out request was imminent. European markets had of course closed so we will get a better idea of what the market thinks today but then again does anyone really care what Mr Rajoy says anymore?

A bailout request may not be “imminent” but then again that may depend upon your definition of the word (actually, it doesn’t, as the definition is normally given as “likely to happen soon”, so more pertinent would be your definition of the word “soon” – I think I’ll leave it there…) as the most likely outcome is that a bailout request will be made before the end of this month, and certainly before the end of the year

Here’s why; The Spanish government has confirmed that they need to borrow some €207bn from the market in 2013. Now if they were to announce that they were not going to ask for a bailout just how likely are they to be able to borrow that amount of money? Not very is the answer. And if you need to borrow €20bn at the end of this month why not do it after a bailout request when yields will probably be a fair bit lower than they would otherwise be?

Elisabeth Afseth of Investec points out that Spain has a bond auction due tomorrow. That includes the kind of short-term debt that the European Central Bank would buy if Spain took a bailout.

Despite growing speculation that Spain were preparing to make a formal request for aid, when questioned on the issue yesterday Spanish Prime Minister Rajoy commented that any such request was not imminent, ensuring the ongoing saga will continue. They auction between €3-4bn across three lines tomorrow – 2, 3 and 5 year maturities, with the two shorter dated notes that will fall within the OMT window likely to continue to be in demand, despite the Prime Ministers denials.

8.35am:

THE AGENDA

Coming up….

* Service sector PMIs for the rest of the eurozone: by 9am BST

* UK service sector PMI: 9.30am BST

* Eurozone retail sales: 10am BST

* Portugal announces fresh austerity: 4pm BST

8.31am:

Breaking news: the decline in Spain’s service sector deepened sharply last month.

Spanish service sector PMI (a measure of activity in the sector), slid to 40.2 from 44 in August. That signals a deeper decline (the 50-point mark equals stagnation), and may mean the Spanish recession is even worse than feared.

8.18am:

THE DAY AHEAD

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

It looks like an Iberian day.

Portugal is braced for details of new austerity measures, which will be announced by finance minister Vitor Gaspar this afternoon (probably at 4pm BST).

Gaspar is expected to announce cutbacks, to address a budget shortfall following its u-turn on a hugely unpopular decision to hike social security taxes.

Having bowed to the will of the people, the Lisbon government must now find the money elsewhere. That could include an income tax hike, and increases to capital gains and asset taxes.

Meanwhile, Spain’s decision to keep resisting a bailout has disappointed the financial markets. As we reported last night, prime minister Mariano Rajoy insisted last night that a bailout was not imminent.

But how long can Madrid hang on for?….

In Greece, negotiations with the Troika will resume (again….) We’ll be watching to see what new measures are being forced on Athens in return for its financial aid.

It’s also another big day for economic surveys, with monthly Service Sector data from around the globe released. They should shed light on the state of the world economy.

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