US jobless claims

Debt sustainability analysis which leaked last night shows that Cyprus’s contribution to its own financing package has risen from €7bn to €13bn. Unemployment rate in Greece reaches 27.2%. US jobless claims fall by 42,000 to 346,000…


Powered by article titled “Eurozone crisis: Alarm as Cyprus rescue bill swells to €23bn – as it happened” was written by Graeme Wearden, for on Thursday 11th April 2013 17.21 UTC

6.47pm BST

Closing summary

Tomorrow, finance ministers will hold their next meeting in Dublin. On the agenda — Cyprus's fiscal reform programme, the situation in Portugal, and whether to agree to extend the existing Portuguese and Irish rescue loans.

But that's all for today.

Here's a very brief closing summary.

The cost of Cyprus's financial rescue package has swelled to €23bn, documents disclosed last night have shown.

The extra cost, around €6bn, will fall on Cyprus itself, whose contribution has risen to €13bn (details at 8.46am)

The report predicts that the Cypriot economy will contract by over 12% in 2013 and 2014. Many bloggers (9.16am onwards) and City analysts (see 1.59pm) believe the forecasts are too optimistic.

Olli Rehn admitted tonight that the Commission cannot be sure how sharply Cyprus will contract (see 6.21pm)

Cyprus's government has denied that it will be forced to sell its gold reserves, although the report does state that Nicosia will raise €400m through a gold sale (see 1.23pm).

There are fears tonight that Portugal may need extra help from its lenders. Leaked documents, and analysis from Open Europe, both point to problems with funding that could prevent its return to the markets (see 4.03pm).

Mario Draghi has written to Cyprus's president, warning him not to fire central bank governor Panicos Demetriades (see 3.35pm onwards).

Eurogroup president Jeroem Dijsselbloem has predicted that finance ministers will agree to extend Portugal and Ireland's bailout loans tomorrow (see 2.43pm)

And in Athens, the Greek government has warned Germany that the long-standing issue of war reparations will not be forgotten…. (see 12.03pm)

We'll be back tomorrow – until then, thanks and goodnight!

6.21pm BST

Rehn: Hard to say how much Cyprus will contract

Just in – Olli Rehn, European Commissioner for monetary union, has given an interview to the Wall Street Journal / Dow Jones in which he admits that the full scale of Cyprus's recession is hard to calculate.

Their ace Matina Stevis has reported the key points on Twitter:

We've reported several times today that City experts don't believe Cyprus's economic targets are realistic (for example).

Rehn is also pushing for decisions on European banking union to be taken soon.

6.00pm BST

On a lighter note, the Central Bank of Ireland has accidentally minted 10,000 €10 coins honouring Irish writer James Joyce with an mistake in them.

The coins unfortunately include an extra word in a key quote from Ulysses:

Joyce wrote: "Ineluctable modality of the visible: at least that if no more, thought through my eyes. Signatures of all things I am here to read."

But alas the word 'that' has been added to the second line:

A view of a limited addition James Joyce collector coin issued by the Central Bank of Ireland. PRESS ASSOCIATION Photo. Issue date: Thursday April 11, 2013.
Photograph: Jason Clarke/PA

Our Dublin correspondent, Henry McDonald, has written the full story here. Bit of an embarrassment for the Bank of Ireland (although probably not enough to get the governor sacked — perhaps Mario Draghi will write another letter just in case…..).

And speaking of quotes… Danny Gabay, of City consultancy Fathom, has mischievously reminded us of a quote from Draghi's predecessor, Jean-Claude Trichet, when Cyprus entered the single currency in 2008:

For a small, open economy like Cyprus, euro adoption provides protection from international financial turmoil which often has a disproportionate impact on smaller economies.

Up to a point….

Updated at 6.21pm BST

4.36pm BST

Draghi’s letter received

Cyprus' government spokesman has confirmed that the ECB president's letter had landed in Nicosia, reports Helena Smith 

"We can confirm receipt of the letter," the spokesman Christos Stylianides said. He also had a retort for Draghi. "There is no issue for the government because its position has, and is, well-known regarding the autonomy of institutions," he added. "One thing is political handling [of an issue] and quite another the technocratic handling of an issue." 

4.03pm BST

Will Portugal need a second bailout?

Two interesting articles about Portugal to flag up – both warning that it is likely to need more financial help soon.

1) On at the Financial Times, Peter Spiegel is clasping another leaked document – showing that a second bailout is likely.

Peter writes:

Although the document doesn’t address it directly, it makes clear that Portugal will have a very hard time avoiding a second bailout, since its financing needs in 2014 and 2015 – its first years after bailout funding runs out in July 2014 – will be substantially higher than they were during the pre-crisis period.

2) Open Europe, the think tank, also believes Portugal needs more help.

It's new research paper (pfd) outlines how the Portuguese economy is deteriorating sharply. This could mean that Portugal taps the ECB's new bond-buying scheme, the Outright Monetary Transactions plan.

Here's Open Europe's analysis of Portugal's problems:

  • Domestic demand, government spending and investment are contracting sharply, leaving the country heavily reliant on uncertain export growth to drive the economy.
  • By cutting wages and costs at home (internal devaluation), Portugal has in recent years improved its level of competitiveness in the eurozone relative to Germany. However, this trend actually started to reverse sharply in 2012, meaning that the divergence between countries such as Portugal and Germany has begun growing again – exactly the sort of imbalance the eurozone is seeking to close.
  • In its austerity efforts, Portugal is now coming up against serious political and constitutional limits. For the second time, the country’s constitutional court has ruled against public sector wage cuts – a key plank in the country’s EU-mandated austerity plan – while the previous political consensus in the parliament for austerity has evaporated.
  • In combination, it will be increasingly difficult for Portugal to sell austerity at home and consequently to negotiate its bailout terms with creditor countries abroad.
  • Portugal may well need some further financial assistance before long. It is unlikely to take the form of a full second bailout, but could involve use of the ECB’s OMT bond-buying programme, assuming Portugal can return to the markets fully beforehand (even briefly).

3.49pm BST

Mario Draghi’s letter

Ta Nea has uploaded a copy of Mario Draghi's letter to the Cyprus president – click here to see it in Greek – in which the ECB chief warns against dismissing central bank head Panicos Demetriades.

As reported in our previous post, it reminds Nicos Anastasiades that a central bank governor cannot be dismissed unless he can no longer fulfill his duties or if he is guilty of serious misconduct.

Updated at 3.52pm BST

3.35pm BST

Draghi warns against firing Cyprus’s central bank governor – report

Mario Draghi, president of the European Central Bank (ECB), speaks during a news conference at the bank's headquarters on April 4, 2013 in Frankfurt, Germany.
Mario Draghi, president of the European Central Bank (ECB), has reportedly written to Cyprus’s president warning against dismissing his central bank governor. Photograph: Imago/Barcroft Media

As if Cyprus’ problems weren’t big enough, the island’s president also appears to face mounting criticism from European Central Bank Mario Draghi over his treatment of the governor of the central bank of Cyprus, reports Helena Smith, our correspondent in Athens.

She writes:

The ECB president Mario Draghi has reportedly taken the unusual step of reading the riot act to Cypriot president Nikos Anastasiades following mounting pressure on the island’s central bank governor to resign.

In a withering letter, Draghi warned the embattled leader that firing Panicos Demetriades over his handling of Cyprus’ worsening crisis would go against European Union law with which, he said, local legislation had to be “compatible.”

“As you know any decision to remove a governor from his duties is subject to judicial investigation by the Europe Union court,” he wrote adding that a central bank governor could only be sacked if he was found to be incapable of conducting his duty or judged guilty of serious misconduct.

The measures, he reminded Anastasiades, had been put in place to guarantee the independence of central bank governorship.

Draghi's letter was first reported by Ta Nea, Grece's leading daily, this afternoon – here's the story.

Helena adds:

Demetriades, who was appointed by former president Demetris Christofias, a veteran communist, has faced furious criticism over his role in the collapse of the island’s second largest lender, Laiki, and enforced losses depositors with over 100,00 euro at Laiki and the Bank of Cyprus will be forced to shoulder. Anastasiades says the central bank should have restructured Laiki after it was nationalized last year. The governor, who insists that the stringent terms of Cyprus’ bailout was a “political decision,” now faces criminal charges when a parliamentary investigation commences next week.

Draghi wrote the letter after the Cypriot leader sacked Demetriades’ deputy, Spyros Stavrinakis, earlier this week, Ta Nea said.

I just called the ECB, but alas they won't comment on the letter, or confirm that it was sent.

The ECB statute, though, is pretty clear that central bank governors can't be fired on whim. Here's the key section:


14.2. The statutes of the national central banks shall, in particular, provide that the term of office of a Governor of a national central bank shall be no less than five years.

A Governor may be relieved from office only if he no longer fulfils the conditions required for the performance of his duties or if he has been guilty of serious misconduct. A decision to this effect may be referred to the Court of Justice by the Governor concerned or the Governing Council on grounds of infringement of these Treaties or of any rule of law relating to their application.

Such proceedings shall be instituted within two months of the publication of the decision or of its notification to the plaintiff or, in the absence thereof, of the day on which it came to the knowledge of the latter, as the case may be.


Updated at 3.36pm BST

2.43pm BST

Dijsselbloem: Ireland and Portugal should get loan help

Jeroen Dijsselbloem, the Dutch finance minister who leads the eurogroup of finance ministers (not without incident, either) has predicted that Ireland and Portugal will be granted extensions to their bailout loans on Friday.

Dijsselbloem is in Cork ahead of a two-day meeting of finance ministers that starts tomorrow. He told a press conference this afternoon that the eurogroup will probably decided to grant Ireland and Portugal seven more years to repay their loans from the European Union.

Dijsselbloem said:

The intention is very positive.

I hope that we will be able to finalise that tomorrow

(quotes via Reuters)

Extending the loans will lower the repayment burden, making it easier for both countries to return to the financial markets. But there are particular concerns over Portugal today, and whether it will soon need more help…. (more to follow)

1.59pm BST

Two City analysts have added to fears that Cyprus won't be able to hit the fiscal forecasts drawn up in its bailout plan.

Christoph Weil of Commerzbank reckoned that the country could get close to the growth figures"if everything goes according to plan", but warns that everything probably won't.

In particular, Weil suspects that Cyprus will not return to growth in 2015, when it is expected to grow by 1.1%.

AP's Juergen Baetz reports:

"If there are any problems and there are significant downside risks then it could be much worse, and a combined contraction of 20% is within the range of the possible," Weil said….

"The country must go through a painful and wide-ranging restructuring of its economy, with half of its banking sector evaporating, I think it will take at least three years for the economy to bottom out."

Jonathan Loynes of Capital Economics also believes the economic projections contain "a considerable degree of optimism":

This could force Cyprus to undertake further fiscal tightening to meet its borrowing targets and casting doubt over the sustainability of the bail-out.

Juergen's full story is online here: Cyprus bailout swells to billion

1.23pm BST

Cyprus: gold sale is not certain

Officials in Cyprus are playing down the prospect that the country will be forced to sell a chunk of its gold reserves

Government spokesman Christos Stylianides confirmed in the last few minutes that a gold sale is an option for financing the bailout. The responsibility, though, remains with Cyprus's central bank.

Stylianides also confirmed that the Cyprus financing package has risen to €23bn.

The Cyprus central bank had already denied this morning that the country's gold reserves would be sold.

Here's what the document outlining Cyprus's financing needs states:

It is envisaged to use the allocation of future central bank profits of approximately [EUR 0.4bn], subject to the principle of central bank independence and provided such profit allocation is in line with CBC rules and does not undermine the CBC duties under the Treaties and the Statute. 

Details of Cyprus gold sale
Photograph: EC

Cyprus is estimated to have around 13.9 tonnes of gold, and would have to sell over 10 tonnes, at today's prices, to raise €400m.

Adrian Ash, head of research at BullionVault, reckons it would the biggest bullion sale by a Eurozone central bank since France sold 17.4 tonnes in the first half of 2009, and would set a precedent.

Ash added:

What's interesting for Cyprus now is the EC's wording in the proposal. Advising Cyprus to sell off "excess" gold could be seen to point to the very heavy share of gold in the central bank's currency reserves – a massive 62%.

Yes, that's pretty much in line with the Eurozone as a whole (when you include the ECB's holdings), but it also suggests an attempt to get around the legal block on financing state deficits by selling central-bank assets via some or other "target" level for gold as a percentage of reserves.

12.40pm BST

In Athens, the government is holding fresh talks with top officials from the Troika today.

Here's a photo of IMF mission chief Poul Thomsen arriving for another meeting with Greek finance minister Yannis Stournaras:

International Monetary Fund (IMF) mission chief Poul Thomsen, center,  arrives for a meeting between Greek Finance Minister Yannis Stournaras and the debt inspectors from the European Central Bank, European Commission and International Monetary Fund, known as the troika, in Athens, Thursday, April 11, 2013.
Photograph: Petros Giannakouris/AP

Negotiations between the two sides have been grinding on for days. They are still trying to reach an agreement on overhauling the Greek civil services. The Troika is reportedly pushing for 7,000 officials to be laid off this year, rising to 20,000 by the end of 2014. Athens is refusing to accept this – thus the ongoing talks….

12.03pm BST

Greece chides Germany over war reparations issue

The question of whether Germany owes Greece billions of euros of unpaid reparations following the second world war has flared up today.

Greek foreign minister Dimitris Avramopoulos has hit back after Germany's finance minister, Wolfgang Schäuble, suggested that Greece should drop the issue and focus on reforming its economy.

Avramopoulos insisted that the matter was still important to Athens, and would be resolved in the courts (the full statement is below).

Some background:

This issue of German war reparations has been a running sore in Greece since the financial crisis began.

As well as the thousands of Greek lives lost and destruction of infrastructure, the Bank of Greece also made loans to the occupying forces during the 1941-1944 Axis occupation.

Some historians have claimed that compensation was never paid. And their voices have become louder since the first Greek bailout, and the demands placed on the country by the eurozone.

And now….

A new report, commissioned by the Greek government, had reportedly found compelling evidence that Germany is liable for large sums (one earlier estimate puts the bill at €162bn). It was put together by a group of researchers who ploughed through masses of official documents, dating back decades. (here's a report in To Vima).

Asked about the issue this week, Schäuble flatly rejected the suggestion that Germany could, let alone would, pay such compensation today.

Schäuble  apparently told a German newspaper (details here) that:

Greece has achieved a lot, but still had a long way to go.

[Greeks] should not lose their direction. Regarding the claims for reparations, I see no hope because this matter was cleared up a while ago.

This prompted today's rare official comment on the issue, with Avramopoulos declaring:

The reforms being carried out in Greece bear no relation – and can bear no relation – to the issue of German reparations.

What’s more, German reparations are an issue that the Greek state has been raising for many years now.

Whether this case has been resolved or not is determined by international justice, given that, by its nature, this issue concerns international law and the international justice organs.

Greece is not ‘losing its focus’ on the reform policy, despite the great sacrifices the Greek people are shouldering.

It seems certain that the issue will get more attention once the official report is published later this year.

10.50am BST

Greek jobless rate hits another record high

In Greece, the unemployment rate has risen to a new record high — as its long recession continues to scar the country's workforce.

The jobless rate is now 27.2%, data for January from the Hellenic Statistical Authority showed. That's double the eurozone average of 12% recorded in February (Greece's data lags a month behind).

Greece's jobless rate is the worst in the eurozone, behind Spain (26.3%) and Portugal (17.5%).

The full data is online here.

This graph shows how the jobless rate has risen steadily, although there was a welcome blip last December (when the rate dropped to 25.7%)

Greece's jobless rate, to Jabuary 2013

The data also shows that 31.4% of women are out of work in Greece, compared to 23.9% of men.

And the youth jobless crisis is as awful as ever – with 59.3% of 15-24 year olds out of work.

10.42am BST

Where to read the reports

Just a reminder.

The Cyprus debt sustainability analysis, which includes the economic forecasts and various measures being taken under the bailout, is online here: Assessment of the public debt sustainability of Cyprus

And the financial details of the package, explaining how it has risen to €23bn, is online here: Assessment of the actual or potential financing needs of Cyprus.

(those documents are hosted by the FT, after first reaching Reuters and Dow Jones last night)

Updated at 11.05am BST

10.18am BST

How to make a catastrophe out of a crisis

It's easy to be critical of the European authorities over the Cyprus bailout plan (see this morning's earlier posts). But the finger of responsibility must also be pointed at Nicosia, and the fateful decision to impose a levy on all savers.

Although abandoned, this move created genuine alarm among Cypriots when it was announced as part of Bailout Plan A on 16 March.

We then had a week of political deadlock after MPs sensational rejected the plan, cunning plans including for a National Solidarity Fund which went nowhere, before president Nicos Anastasiades accepted the current programme after a dramatic meeting in Brussels (liveblogged here).

A better plan originally would surely have kept the bill below its current €23bn (although perhaps the original €17bn target was always too optimistic).

Blame all round. To quote Pawelmorski again:

The Cyprus negotiations started with a high-risk gamble – that depositors would bear part of the pain of restructuring; unfortunately, the Cypriot parliament then tried to bluff the Troika whilst declaring loudly that they didn’t have any cards at all, and a catastrophe was duly created.

10.04am BST

Pawel Morski on ‘lies’ and lessons in the Cyprus plan

Another great blog post on Cyprus, from fund manager @pawelmorski:

Cyprus: Of Course It’s A Template

It's a comprehensive take-down of the calculations within the Debt Sustainability Analysis.

These economic forecasts are dismissed as "worse than literally laughable":

Cyprus economic forecasts
Photograph: EC

Can exports really fall by just 5%, with a ravaged banking industry and the introduction of capital controls? Won't the losses suffered by wealthy depositors have a rather larger impact on spending (measures by consumption)?

The wealth effect wiping deposit worth 60% of GDP will apparently barely register on consumption – the Troika must think the deposits are all Russian. Compare with Iceland (50% drop in investment) or Latvia (40%), the former boosted by devaluation the latter by an intact financial system….

These projections cross the line from wild optimism into contemptuously half-hearted fable. This table is a bare-faced lie.

Another experienced voice warning that Cyprus's adjustment programme may go off the rails…..

Morski also makes an important point about the lessons we can learn from Cyprus as a model for the future.

Eurozone officials clearly moving to a system where taxpayers pay the price of rescuing banks to one where investors and large depositors do.

For a non-Template, the Cyprus solution drops some cracking clues as to EU priorities. At present, the capital structure is equity, subordinated debt, then senior debt and depositors together.

The new hierarchy will be: equity, sub debt, senior debt, uninsured depositors, and then at the top of the mountain as the floodwaters rise, voters insured depositors (remember that while a very big chunk of deposits are uninsured, almost all depositors are) the ECB and the Eurosystem…

There are good arguments for shifting the burden of bank rescues onto those who directly and deliberately benefit in the good times. There is also a powerful case that Europe's banks aren't strong enough, or investors confident enough, to make the shift now….

More here: Cyprus: Of Course It’s A Template

(PS: If you're on Twitter you really should be following @pawelmorski – especially if you enjoy a good scrap)

Updated at 10.11am BST

9.36am BST

Yiannis Mouzakis: Cyprus likely to miss its fiscal targets

From Cyprus, blogger Yiannis Mouzakis also fears that the targets outlined in the debt sustainability analysis are too optimistic.

This is the key chart, predicting how Cyprus's debt as a percentage of GDP (the crucial measure of debt sustainability in the Troika's book), will rise and then fall through its bailout programme.

Cyprus programe: debt/GDP forecast
Projections for Cyprus’s debt/GDP until 2020. Photograph: /EC

The grey area shows the areas of uncertainty – depending if the bailout programme goes better than expected, or worse.

Greece has been a textbook example of over-optimistic forecasts, which were missed, leading to extra austerity, leading to lower growth, leading to missed targets.

Yiannis fears a repeat, given the Troika's track record:

With a policy mix that has consistently surprised negatively on growth in every country that is either in a program or simply is forced to follow the Commission’s diktat, fiscal targets that are repeatedly missed even from the most compliant of countries like Portugal, and overall DSAs from the troika that are the definition of revision, the adverse scenario in the DSA of Cyprus is the one that is most likely to materialise.

More here: Another sorry debt sustainability analysis

9.16am BST

Joseph Cotterill: If you didn’t laugh you’d cry

Over on FT Alphaville Joseph Cotterill has crunched through the debt sustainability analysis, and is pretty alarmed:

The amount Cyprus had to find from depositors went up by €5bn in the nine or so days between the initial stupid idea and the deal they all eventually reached. Cyprus is a (roughly) €18bn economy. If you didn’t laugh you’d cry.

Joseph has concluded that the sums are seriously unconvincing, and driven by the need to keep the total bill for international lenders at €10bn:

Does the whole DSA read like an attempt to squeeze everything below this limit rather than set the numbers to what would be sustainable, even if they come out higher? Why yes it does.

He's also drilled into one particular detail: that Cyprus is expected to roll over up to €1bn of domestic law long-term debt, through a "voluntary sovereign bond exchange" covering bonds maturing in 2013-15.

It's a messy situation – but he reckons it could see eurozone heading for its second sovereign debt restructuring (after Greece, of course).

More here: The eurozone’s second sovereign restructuring?

Updated at 9.16am BST

8.46am BST

Cyprus debt sustainability report: Cyprus to supply €13bn

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

The scale of the crisis in Cyprus has been exposed by the official report into the country's debt sustainability assessment, which leaked on Wednesday afternoon [covered in yesterday's blog].

The total rescue package has jumped to €23bn, from €17bn, and it won't be a surprise that it's Cyprus, not its international lenders, filling the gap.

Thanks to the documents [posted online last night by the FT's invaluable Peter Spiegel], you can see that Cyprus is now expected to contribute €13bn to the financing of the adjustment programme. When the deal was first agreed, it was €7bn.

Here's how it breaks down:

1) €10.6bn from restructuring the banking sector (the resolution of Laiki Bank, and "bailing-in" junior debt and uninsured deposits in the Bank of Cyprus)

2) €600m from raising corporation tax, taxes on capital income, and increasing the bank levy on deposits raised by banks and credit institutions

3) €400m through selling some of Cyprus's gold reserves

4) €1.4bn through privatisations.

Cyprus is also expected to haggle a lower interest rate on its loan from the Russian Federation. And roll over some of its own bonds (of which more shortly….)

The unexpected jump in the refinancing package underlines quite how botched the original bailout was, and the scale of the damage caused to Cyprus during those mad March days.

Cyprus is expected to suffer a dire double-digit slump — contracting by 8.7% this year and another 3.9% in 2014. This chart explains:

Cyprus GDP - from DSA April 2013
Photograph: EC

But it could be much worse — as the debt sustainability analysis itself warns:

There is a non-negligible risk of a cycle of household and corporate defaults propagating through the economy, leading to further banking sector losses, worsening of labour market conditions, stronger than expected fall in house price and a prolonged loss of business and consumer confidence.

All factors we've seen played out in other eurozone bailouts since the crisis began. 

And if these forecasts are too optimistic, it's Cyprus who will be dipping back into its pocket. The DPA again:

In the event of underperformance of revenues or higher social spending needs, the Cypriot government has committed to stand ready to take additional measures to preserve the programme objectives, including by reducing discretionary spending, taking into account adverse macroeconomic effects.

A strategy that worked so well in Greece…

The DPA is also pretty blunt about the changes wrought on the Cypriot financial sector. The Cyprus-domestic banking sector used to represent 550% of the country's GDP. Not any more….

As a result of these actions the Cypriot banking sector has been downsized immediately and significantly to [350]% of GDP.

And the conclusion of the Debt Sustainability Analysis could send shivers through Nicosia:

A number of downside and upside risks to the debt projections may impact on the actual debt trajectory. Although difficult to quantify, downside risks appear dominant.

There's some good analysis of the reports already this morning (which I'll link to next). But take a look yourself:

Assessment of the public debt sustainability of Cyprus

Assessment of the actual or potential financing needs of Cyprus

(with another nod to the FT).

I'll also be tracking other events in the eurozone and beyond through the day….

Updated at 9.08am BST © Guardian News & Media Limited 2010

Published via the Guardian News Feed plugin for WordPress.


In the broadcast today: EUR and JPY Outlook ahead of Events in Italy and Japan. Ahead of tomorrow’s gathering of the Italian parliament and the Japanese upper house vote on the new Bank of Japan Governor, we examine the potential impact of these events on the EUR and the JPY and explore the outlook for the two currency majors, we analyze the bullish trend in the USD/JPY currency pair, we continue to monitor the range in the EUR/USD pair, we note the strengthening of the GBP vs USD, we highlight the market’s reaction to the statement by an ECB council member, the Swiss National Bank and the Reserve Bank of New Zealand Interest Rate Announcements, the Australian Employment report, the Japanese Industrial Production, and the U.S. Jobless Claims, we discuss new forecasts from Bank of New York-Mellon and UBS, and prepare for the trading session ahead.

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European leaders meet to discuss growth vs austerity. Greek unemployment hits new high. Troika leaves Greece without agreement. A day before the Italian parliament meets, an ECB council member says the bank should be ready to activate OMT program…

Powered by article titled “Eurozone crisis live: Protesters gather at EU summit on growth” was written by Josephine Moulds, for on Thursday 14th March 2013 14.50 UTC

2.50pm GMT

ECB should be ready to activate OMT

The European Central Bank should be ready to pull make good on its promise to buy government bonds of crisis-hit countries, if certain conditions are fulfilled, an ECB governing council member said today.

Klaas Knot said:

I don’t want to speculate on any specific case. But it is clear that if certain circumstances are fulfilled, then the ECB should be ready for activation.

Another ECB governing council member Panicos Demetriades told Reuters earlier today that Ireland’s issuance of its first long-term bond since the bailout was an important step towards qualifying for help from the programme.

2.33pm GMT

Lagarde to join Eurogroup meeting on Cyprus

IMF chief Christine Lagarde will take part in the Eurogroup meeeting of eurozone finance ministers tomorrow (see 8.55am), according to a Reuters headline.

This is particularly interesting as the IMF is keen to push its line on Cyprus, that depositors in Cypriot banks should bear some of the cost of any bailout. (see 8.56am)

Updated at 2.34pm GMT

2.10pm GMT

Meanwhile, the protestors outside are growing in number, despite the snow.

Reuters estimates that around 10,000 people took part in a demonstration on outside the EC headquarters on the first day of the EU summit.

2.04pm GMT

Here come the pictures of the leaders arriving for the EU summit. A pick of the best…

1.53pm GMT

Draft conclusions from EU summit focus on growth

While Germany might be keen to push the austerity line at the EU summit, it seems the draft conclusions, at least, appear to be very focused on growth.

The stagnation of economic activity forecast for 2013 and the unacceptably high levels of unemployment emphasise how crucial it is to accelerate efforts to support growth as a matter of priority.

Particular priority must be given to supporting youth employment and promoting growth and competitiveness.

1.43pm GMT

German finance minister confident about Italy

The German finance minister is now speaking. Wolfgang Schaüble says he is very confident Italy will build a government capable of acting. He says Italy under prime minister Mario Monti has made great progress.

He also says there is no reason to be depressed on the economic outlook. Then he comes out with the (now rather predictable line) that the “crisis is not over”.

1.37pm GMT

More protests in Greece

Over in Greece, hundreds of students have been blocking up the education ministry today to protest against the shake-up of the university system.

The Greek government plans to reduce the number of higher education departments in the new academic year, in a bid to save funds as the country grapples with its worst financial crisis in decades.

1.27pm GMT

Italy to ask for more flexibility over budget deficit

And so it begins. Italian prime minister Mario Monti has said he will ask his EU partners to grant Italy more flexibility in its budget deficit objectives to help efforts to boost its stagnant economy.

Speaking on the way into the EU summit, he said:

Reasonable margins for flexilbility have been introduced and we will ask to be able to avail ourselves of these margins.

12.45pm GMT

US jobless claims fall unexpectedly last week

Another positive sign for the US employment market has come with better than expected jobless claims figures.

Weekly initial claims unexpectedly fell 10,000 to 332,000, the third straight week of declines. Economists polled by Reuters had expected a rise to around 350,000.

11.55am GMT

Markets up on yesterday’s upbeat US data

Quick look at the markets, which are buoyant, after cheery US retail sales figures out yesterday drove optimism that the global economic outlook is improving. (Clearly traders have chosen to ignore the rather more pessimistic data out of Europe today).

UK FTSE 100: up 0.35%, or 23 points, at 6505

France CAC 40: up 0.54%

Germany DAX: up 0.69%

Spain IBEX: up 1.33%

Italy FTSE MIB: up 1.35%

11.45am GMT

Austerity: ‘NO’… Solidarity: ‘YES’!

Here’s a picture of the vast banner protestors have erected outside the EC headquarters, for the two-day European summit that starts today.

Updated at 11.56am GMT

11.41am GMT

Eurozone unemployment “worrying” – economist

Eurozone employment numbers (see 10.40am) are “disappointing and worrying” says Howard Archer of IHS Global Insight.

While Eurozone economic activity seemed to bottom out last October and business confidence has trended up in recent months, neither appears strong enough to prevent further rises in Eurozone unemployment for some time to come – although the situation will vary markedly between countries.

Meanwhile, the increased drop in Eurozone employment in the fourth quarter of 2012 maintains belief that consumer spending will remain generally muted in the near term at least, especially as consumers are also facing muted wage growth and tighter fiscal policy in many countries.

11.03am GMT

Troika leaves Greece without agreement

The troika – of the EU, the ECB and the IMF – leave Greece today without a resolution over civil service job cuts.

After extending their trip by several days, Greece’s international lenders said they would return to the country in April to finish their review.

The troika said in a statement that Greece was making significant progress in reforms required to receive the next tranche of emergency loans, but some issues remain and Athens needs time to complete the work.

ekathimerini reports:

Talks between Prime Minister Antonis Samaras and troika officials lasted for a couple of hours on Wednesday night but no conclusion was reached on matters including the reduction of civil servant numbers and a payment plan for firms and individuals who owe social security contributions.

Despite the apparent impasse in the discussions, Finance Minister Yannis Stournaras insisted that the two sides were edging toward a deal and that Greece’s next loan tranche of €2.8bn was not in danger.

10.40am GMT

Eurozone employment drops

Eurozone employment, meanwhile, dropped by 0.3% in the fourth quarter compared with the third, as the stagnant economy failed to generate new jobs despite the Christmas shopping season.

Of the eurozone’s major economies, only Germany managed an increase in employment, while the job rate in Spain dropped 1.4%.

Marie Diron of accountancy firm Ernst & Young offered this gloomy assessment of the European jobs market:

A further rise in unemployment int he short term, and only a slow decline from 2014 is likely to be an impediment to growth. Even with recovery, the number of people out of work across Europe will remain stubbornly high. By the end of 2017, we estimate the unemployment rate will remain above 11%.

10.17am GMT

Greek unemployment hits new high

Meanwhile, the ECB’s confidence of a turnaround this year (see 9.47am) looks a little misplaced in the light of Greek jobless figures out this morning.

Unemployment in Greece hit 26% in the fourth quarter of last year, up from 24.8% in the third.

The highest unemployment rate is recorded among people aged between 15 and 24, at 57.8%.

There are also deeply worrying figures on long-term unemployment.

The statistics agency Elstat said the percentage of people that have been looking for a job for more than one year has reached 65.3%.

Updated at 10.22am GMT

10.08am GMT

Healthy demand at special Spanish bond auction

Spain’s borrowing costs have come down again at a special debt auction. The country sold €803m of longer-dated debt, with healthy demand for the government bonds on offer.

The Treasury sold €134m of 2029 bonds at a yield of 5.22%, compared with 5.78% at the last sale in February. 

Yields were 5.434% and 5.432% respectively on the 2040 and 2041 bonds, lower than at the previous sales.

Lyn Graham-Taylor at Rabobank said:

It looks like a decent set of auction results. Much lower yields than when these bonds were last auctioned, which is not surprising given the continued compression of Spanish yields.

The size was roughly as anticipated and obviously it was always going to go well given that it looks like this was a request from primary dealers, a reverse inquiry and to an extent a chance for the Tesoro to dip their toe at the longer end again.

In the secondary market, the yields on Spanish 10-year debt are still ahead of Italy’s but only just. Bond investors are growing increasingly nervous about the political deadlock in Italy and so are selling bonds, driving prices down and yields higher.

Meanwhile, Spain’s fortunes are seen to be improving.

The yield – effectively the interest rate – on Spanish 10-year debt is currently at 4.853%.

The yield on Italian 10-year debt is 4.682%.

For further explanation of how the bond market works, see our eurozone crisis glossary.

9.47am GMT

ECB will not cut rates – ECB board member

The European Central Bank does not need to change interest rates at this stage, ECB governing council member Ewald Nowotny said this morning, despite recent exhortations from the IMF that it should do exactly that.

Nowotny said that growth momentum in the eurozone was set to pick up this year and that the bank needed to wait to see the positive impact of structural reforms.

President [Mario] Draghi has said that while we have generally unsatisfactory economic developments in Europe now we assume that growth forces will improve in the course of 2013. So this is why we are watching developments. It would not be appropriate to take interest rate policy steps.

Massive improvements have begun here. One has to give the improvements time to take effect.

The ECB said in its monthly bulletin that the eurozone is expected to recover gradually later this year, although that could be hampered if governments fail to implement structural reforms.

9.35am GMT

European court brands Spanish mortgage laws illegal

Sticking with Spain, the European Court of Justice has today ruled that the country’s mortgage laws are “abusive” and “illegal”.

(Thanks to DonJuan for flagging this up in the comments below.)

At present, banks can demand full payment for the outstanding mortgage if a homeowner fails to pay just one monthly installment. This has resulted in a wave of people losing their homes.

The Christian Science Monitor reports:

Eviction proceedings have soared since 2007 to some 450,000, according to the most recent court data, although that includes all types of properties. The number of those ending in evictions increased by nearly 135 percent in 2012 from the year before, pointing toward worsening trends.

El Pais reports this morning that the European court ruling will be directly applicable from today and in current lawsuits.

[Typo corrected - thank you for flagging it up.]

Updated at 2.19pm GMT

9.11am GMT

Spanish retail sales better but still bad

[Clarification: Sorry it was not very clear before.]

Spanish retail sales dropped 10.2% in the year to January. The Spanish statistics office says this is adjusted for “calendar and seasonal effects”, i.e. each month’s statistics will take into account seasonal effects and the differing number of working days from year to year.

That compares with expectations of an 11.1% decline, and an annual decline of 11.4% in December (revised down from -10.7%).

Spain’s annual retail sales figures have shown a decline for the past 31 months. However, in January, they ticked up by 0.9% compared with the previous month.

Updated at 11.18am GMT

9.06am GMT

Spain to tap debt markets

Over to Spain, which is looking to cash in on a recent rally in its bonds with an unscheduled debt auction today. It is likely to sell €1bn-€2bn of debt and we should get the results through in about half an hour. Watch this space.

8.56am GMT

Cyprus bailout talks crucial to next stage of crisis

This Eurogroup meeting (see 8.55am) will be the first time all 17 finance ministers debate the subject and deep divisions remain over how to manage a bailout of the tiny island.

Peter Spiegel of the FT reports:

Differences continue to centre on how fast Cyprus should get its debt down to a manageable level. Without a cut in the €17bn cost, Cypriot sovereign debt will reach 145 per cent of gross domestic product, by far the highest in the eurozone except for Greece.

Advocates of a more radical plan – which would include a big restructuring of the crippled Cypriot banking sector, which needs about €10bn in new capital – want Nicosia’s sovereign debt cut to 100 per cent of GDP by 2016, the end of the three-year bailout. Others are urging a more gradual path, which would get Cyprus to 100 per cent by 2020.

The International Monetary Fund has been leading the charge for tougher action and has received strong backing from a German-led group of northern eurozone countries.

Part of the IMF plan is to force losses on depositors in Cypriot banks to finance the €10bn bank rescue. This is seen as popular in countries (such as Germany), which are concerned Cypriot banks are nests for Russian mobsters to launder their money.

But the EC and the Cypriot government are worried it would spark bank runs in Cyprus, which could spread to the likes of Spain.

As debt guru Lee Buchheit noted, the way policymakers handle the Cyprus bailout is crucial to the next stage of the crisis. He told me:

The world will watch what they do in Cyprus and view it as an expression of their current thinking.

In one sense, the fact that Cyprus is small arguably allows them to experiment a bit more. But the world will watch it and see Spain.

More of that interview here.

8.55am GMT

Cyprus not on summit agenda

Meanwhile, German finance minister Wolfgang Schaüble was very clear that a bailout of Cyprus was not on the agenda for the summit.

Some would like that this question will be discussed at the EU summit. This is not on the agenda of the EU summit and also not its responsibility.

A German official did, however, admit that it was likely to be discussed on the sidelines.

Separately, the Eurogroup of eurozone finance ministers will meet on Friday to discuss the thorny issue of a bailout for the tiny island, as announced by the group’s new head on Twitter.

[Correction: Apologies, Friday is definitely tomorrow, not today]

Updated at 10.07am GMT

8.25am GMT

German finances “envy of the world”, says German minister

Germany, meanwhile, is starting to look like the smug man of Europe, with claims that its finances are the “envy of the world”.

Europe’s largest economy yesterday revealed budget plans that show net new borrowing falling to €6.4bn next year, while the structural deficit will drop to zero. Economy minister Philipp Roesler said:

With all modesty, this is a result of historic proportions.

The lesson from the sovereign debt crisis is that solid finances are essential. Thanks to this approach Germany is in the vanguard in Europe. Our success with a policy of growth-oriented consolidation is the envy of the world.

(One can only imagine what he would have said if he weren’t being modest.)

It is thought the plans were rushed through ahead of the EU summit, so Germany could lead by example. The FT reports:

Wolfgang Schäuble, German finance minister, said on Wednesday that his budget for 2014, involving spending cuts of more than €5bn to trim the total below €300bn, was “a strong signal for Europe”.

He described the 2014 spending plan as “growth-friendly consolidation”, intended to prove to the rest of the eurozone that “consistent sustainable budgeting and growth are not mutually exclusive”.

It is thought that there is already some disagreement over how much to emphasize austerity in the final conclusions of the summit. FT reporters write:

According to a draft seen by the Financial Times, the conclusions call for “short-term targeted measures to boost growth and jobs” – a line that has come under criticism from a German-led group of northern eurozone countries.

All in all, today’s summit is likely to see some lively debate.

8.07am GMT

Tensions rise between France and Germany

The summit is also likely to reveal the growing tensions between Germany and France, the eurozone’s two largest economies.

French president François Hollande said earlier this week that he would not be able to cut the public deficit to the EU limit of 3% of GDP this year, and that it was more likely to come in at 3.7%, as a result of the country’s troubled economy.

German finance minister Wolfgang Schaüble, however, has since said that he was “sure that France would, like us, respect the rules” on the public deficit.

7.59am GMT

Growth not just austerity

With unemployment across the eurozone at record highs and Italy still reeling from the anti-austerity vote at its recent elections, EU politicians will be keen to show they are focussing on growth and not just belt-tightening.

One EU official told AP:

If there is no growth for 10 years then you can’t pay back your debt … there is not much room for manoeuvre.

As is the way with these things, a draft of the summit conclusions is already circulating. AP reports:

[The draft] says that with no upturn this year and “unacceptably high levels of unemployment”, it is critical to support growth “as a matter of priority”.

Stabilising public finances must be done through “growth-friendly fiscal consolidation”, it adds.

“Hiding in this language is the idea that you can stretch the time (to meet deficit targets) a bit … while those in a stronger position can increase expenditure,” another EU official said.

Updated at 8.00am GMT

7.40am GMT

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

EU leaders gather in Brussels today for a two-day summit in an attempt to negotiate the difficult balance between austerity and growth.

Already, the protestors are gathering and have strung huge banners outside the EU headquarters proclaiming “Austerity Pact, No! Solidarity Pact, Yes!” (We’ll try and get pictures of that, as soon as we can.)

Eurozone finance ministers, meanwhile, will meet tonight after the summit closes to discuss a Cyprus bailout.

We’ll have all the news on that and other economic developments around the world as the day goes on. © Guardian News & Media Limited 2010

Published via the Guardian News Feed plugin for WordPress.

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

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

3.00pm GMT

2.51pm GMT

It’s over

And that’s the end of the press conference.

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

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

2.47pm GMT

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

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

2.45pm GMT

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

2.42pm GMT

Draghi: negative interest rates would have serious consequences.

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

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

2.39pm GMT

2.36pm GMT

Is the ECB worried that the euro is too high?

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

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

2.34pm GMT

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

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

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

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

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

Updated at 2.48pm GMT

2.26pm GMT

Tweet of the day:

2.23pm GMT

On Cyprus…..

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

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

2.20pm GMT

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

Apparently not.

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

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

2.16pm GMT

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

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

2.12pm GMT

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

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

2.10pm GMT

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

2.04pm GMT

Draghi: It’s Angst of the Week time

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

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

Each week we have an angst.

citing recent fears over the Long Term Refinancing Operations loans.

New angst, every week or two.

And usually the fears are misplaced.

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

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

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

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

Updated at 2.05pm GMT

1.56pm GMT

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

Thus, no rate cut today.

1.55pm GMT

ECB considered rate cut

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

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

1.52pm GMT

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

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

1.50pm GMT

Read Draghi’s statement in full

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

1.49pm GMT

Question: what about Italy?

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

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

Markets understand that we live in a democracy….

adding that democracy and elections are very precious to everyone.

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

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

1.45pm GMT

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

1.44pm GMT

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

1.43pm GMT

Here are the ECB’s new inflation forecasts,

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

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

1.40pm GMT

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

1.39pm GMT

ECB cuts growth forecasts

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

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

1.37pm GMT

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

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

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

1.34pm GMT

Draghi’s statement

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

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

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

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

1.32pm GMT

And we’re off.

1.30pm GMT

ECB press conference starting now

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

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

1.25pm GMT

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

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

12.50pm GMT

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

12.49pm GMT

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

* – money left with the ECB by commercial banks.

Updated at 12.49pm GMT

12.48pm GMT

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

12.45pm GMT

ECB: no change

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

No other shocks either.

Updated at 12.46pm GMT

12.44pm GMT

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

12.31pm GMT

Cameron defending economic policies

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

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

Andrew reports:

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

As the independent Office for Budget Responsibility has made clear…

…growth has been depressed by the financial crisis…

…the problems in the Eurozone…

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

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

In fact, quite the opposite.

Tackling the deficit is the first essential step for growth.

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

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

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

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

More here.

Updated at 12.40pm GMT

12.26pm GMT

Early reaction

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

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

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

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

Capital Economics suspects we’ll see more QE soon:

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

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

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

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

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

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

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

12.17pm GMT

Just to clarify the situation with quantitative easing.

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

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

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

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

Updated at 12.42pm GMT

12.08pm GMT

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

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

Updated at 12.42pm GMT

12.04pm GMT

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

Updated at 12.05pm GMT

12.01pm GMT

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

Updated at 12.06pm GMT

12.00pm GMT

Bank of England: No change

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

Interest rates remain at their record low of 0.5%

More to follow!

11.40am GMT

S&P raises Portugal’s rating outlook

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

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

Here’s S&P’s logic:

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

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

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

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

Updated at 11.40am GMT

11.29am GMT

Greek unemployment rate falls

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

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

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

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

Updated at 12.33pm GMT

11.17am GMT

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

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

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

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

Updated at 12.01pm GMT

11.09am GMT

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

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

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

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

Edwards also touches on the Italian election:

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

Buy Italy!

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

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

10.35am GMT

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

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

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

10.12am GMT

French finance minister issues austerity warning

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

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

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

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

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

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

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

Updated at 10.23am GMT

9.51am GMT

Pound down

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

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

9.35am GMT

FT: New powers for Mark Carney

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

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

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

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

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

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

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

Updated at 9.50am GMT

9.09am GMT

Rate expectations (2)

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

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

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

Updated at 9.50am GMT

9.02am GMT

Rate expectations (1)

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

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

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

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

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

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

8.28am GMT

A busy day for central bankers

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

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

Both meetings promise to be really rather interesting.

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

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

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

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

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

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

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


Bank of England rate/QE decision: noon GMT

European Central Bank rate decision: 12.45pm GMT

European Central Bank press conference: 1.30pm GMT


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

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

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