Angela Merkel

Nov. 24, 2017 (Tempus Inc.) - The greenback has been unable to shrug off its turkey-induced malaise this morning, falling versus most of its major peers. The Bloomberg Dollar Spot Index is set for its third weekly loss, its longest losing streak since July. The Index is down 1.6% so far in the month of November.

There is no major data set for release today. We expect trading conditions to be light and likely boring, especially when European traders head out for the weekend.


The Euro looks to build on its gains from yesterday’s session. The common currency received a boost following strong German GDP yesterday which showed the economy expanded 0.8% in the third quarter.

The good news continued for Europe’s largest economy. A separate report showed that business optimism climbed to a record high. In addition, the largest German opposition party indicated it is willing to form and back an administration led by Angela Merkel.

The Euro is at its strongest level in 6 weeks versus the U.S. dollar.


The British pound was modestly stronger against the U.S. dollar, mostly on greenback weakness. News was light out of the United Kingdom, but a comment by a Bank of England official has been creating headlines. Silvano Tenreyro reiterated recent BoE sentiment by saying that two more interest rate hikes will probably be needed to get inflation back to target.

However, Brexit will be the real determinant of where policy goes next. The comments again highlight how the central bank is being hamstrung from political uncertainty.


Nov. 22, 2017 (Tempus Inc.) –  The U.S. Dollar remains quiet ahead of the Thanksgiving holiday, even after the release of Durable Goods Orders.


The figures surprised as the indicator was expected to show a 0.3% expansion, instead contracting by (-1.2%). When transportation costs are excluded, a 0.4% increase was registered, but this still fell below expectations of 0.5% for October.

The saving grace may be the revision of September’s numbers where the expansion was thought of being at 0.7%, but came in upgraded at 1.1% Overall; this piece of data has lacked consistency over the year and may not be as influential as we close the year.

The FOMC Minutes are scheduled for 2PM, but we see little if any reaction as the Fed’s move towards hiking is very much determined and priced-in. Tempus will be closed Thursday in observance of Thanksgiving and will be open again on Friday.


The Euro continues to swim in relatively calm waters after Monday’s half-percent decline based on worries in German political stability. At the moment, Chancellor Angela Merkel would not refuse to have another snap election in order to gain seats and have an easier time forming an alliance.

However, headlines overnight saw the prospect of another vote as worrisome, but welcomed the idea of forming a “grand coalition” with the Social Democrats, a party usually aligned with Merkel’s goals, but that suffered bigly on election day and blamed her platform for the failure. We shall see if downside risks manifest themselves into further depreciation, but for now Euro is not paying any heavy tolls.


The Pound’s recent gains have been subdued slightly due to concerns over Brexit and its symptoms affecting the economic outlook. Later today, the Chancellor of the Exchequer, Philip Hammond, will present a new budget and his remarks may provide guidance the state of affairs. PM Theresa May is just hoping that the EU embraces new talks and the idea of being paid an agreed final bill amount.

Orders in the UK are up to their best level in 30 years per a survey by the Confederation of British Industry. This mix of good economic data and bad news on the Brexit front are likely to dominate the Sterling environment for what’s left of the year and beyond.


Mrs. Merkel wins 41.5% of the vote but fell short of an overall majority. A coalition with the SPD seems the most probable outcome. European markets in the red. Merkel press conference in Berlin- highlights. How Merkel stormed to victory…


Powered by article titled “Markets fall as Merkel faces ‘difficult’ coalition talks – live” was written by Graeme Wearden, for on Monday 23rd September 2013 15.21 UTC

Here’s CMC Markets’ Michael Hewson with an update from the City (pretty much reinforcing what I posted at 4pm)

While we now know that Angela Merkel won the German elections over the weekend, such are the idiosyncrasies of the German electoral system that it could well be another two months before we have any idea as to what form the new government will take.

Mrs Merkel may have won 41.5% of the vote but she fell short of an overall majority and it seems likely that a coalition with the SPD seems the most probable outcome.

This could well be complicated as they are more sympathetic to the idea of a banking union, something that Mrs Merkel has been reluctant to countenance, and any disagreements are likely to complicate the decision making process at a time when key decisions are needed with respect to Greece, and the ESM in the coming months.

We’ve also seen some residual softness in European markets as a result of comments last week from St. Louis Fed President James Bullard about the possibility of an October taper as well as concerns over political deadlock surrounding the raising of the debt ceiling and this has translated into further weakness despite some encouraging PMI data from China, while French and German PMI’s were somewhat mixed.

Apologies – our comments system seems to be broken. Hopefully a temporary problem — it’s being looked into.

Markets fall

The prospect of lengthy coalition negotiations in Germany has helped to push European stock markets down, with the major indices all in the red.

The German DAX has fallen almost 0.5%, while the Spanish market is off around 0.8%

Here’s the details:

Not major falls, of course. But at the same time, there is no relief rally at all. Markets don’t like uncertainty, and paradoxically Merkel’s success – and the failure of the Free Democrats to get into the Bundestag — has created doubts over Germany’s next government.

Shares are also down because of confusion over US monetary policy, after the Federal Reserve chose not to start slowing its huge asset-purchasing scheme last week. Last Friday, St Louis Federal Reserve President James Bullard suggested ‘tapering’ could begin as soon as October if economic data was strong enough.

Other analysts reckon it might not happen until 2014….


JP Morgan: Coalition talks will take some time

Angela Merkel faces a “difficult few weeks” as she attempts to pull together a new administration, warns JP Morgan.

They reckon there’s a 70% chance of a Grand Coalition between the Christian Democrats and the Social Democrats, and a 25% chance of a deal between the CDU and the Greens. They’re not totally discounting the idea that CDU might govern alone, although without a Bundestag majority that would be a bold move.

JP Morgan said:

The process will take some time…

The reality is that the SPD’s willingness to engage or not with the CDU will be crucial. By early next week we should have more of a sense of the approach they are likely to take. For now, Gabriel and Steinbruck are playing down the chances of a deal in the near-term.

They also suggest that Wolfgang Schauble is likely to remain as finance minister:

It is too early to tell precisely what the trade-offs will be in the formation of a new coalition. However, the Chancellor will be in a much stronger position to demand that she keep the finance ministry than we would have expected a week ago. Continuity looks significantly more likely than it once did.

This might not please readers in countries hit hard by the eurozone debt crisis, where Schauble is blamed for Europe’s austerity push.

Here’s the full research note


Draghi also surprised the markets by telling MEPs that the ECB is ready to offer the banking sector more help by launching a third round of ultra-cheap loans (or long term refinancing operation) if necessary.

That has knocked the euro down to $1.3485, a fall of around one third of a US cent.


Draghi: too early to discuss another Greek bailout

Back at the European parliament, Mairo Draghi has been asked about whether Greece needs a third bailout.

He replied that it’s “premature to ask this”, as the European side of the readjustment for Greece runs until the end of 2014.

In our view it’s too early to discuss a follow-up programme now, or an extension of the current one.

Any decision on further aid would also depend on whether Greece can return to the financial markets by the end of next year, he added.

Earlier, Draghi appeared to defend the ECB’s role in the Troika — telling MEPs that while it provided help and advice, the Eurogroup (eurozone finance ministers) takes the decisions. In the long term, Draghi added, the ECB doesn’t see itself as part of the troika.

This prompted committee chair Sharon Bowles to joke: “The Eurogroup may or may not accept advice.”

MEP Sylvie Goulard wasn’t impressed, comparing the Eurogroup to a group of children who’ve generated a mess – it can be hard to know which one is really to blame .


Reuters has filed a full story about how Angela Merkel won cheers from the press pack in Berlin, by joking about how she decided what to wear today (as mentioned at 12.55pm)

Relishing a thumping election victory for her conservatives in Germany’s Sunday election, a smiling Angela Merkel said on Monday that conjecture about looming coalition talks presented her with a dilemma on what to wear.

With speculation swirling about her coalition options – which Germans tend to describe in terms of party colours – a relaxed-looking Merkel told reporters how she had tried to choose a neutral colour for the news conference.

“This morning I stood in front of my wardrobe and I thought red is no good, bright green is no good, blue was yesterday, what are you going to do?” said Merkel, who wore a dark jacket with a blue-green hue.”I decided for something very neutral,” she chuckled, raising a cheer and applause from reporters.

The Social Democrats (SPD), with whom she seems most likely to share power, have red as their colour while green represents the Greens who may offer Merkel another coalition option. Her own conservatives’ colour is black.


Back to the German elections…and the Open Europe thinktank has published a handy guide to the Key Players To Watch in the coalition discussions.

As I’ve suggested already today, the process could be slow …

Little progress is expected before the end of the week, with the SPD holding a small party conference on Friday where it will determine its strategy for the negotiations.

Open Europe suggests the Social Democratic Party chairman Sigmar Gabriel could become vice-chancellor if a grand coalition between the CDU and SPD is agreed, or he might get the defence or labour brief.

The SPD’s leader in the Bundestag, Frank-Walter Steinmeier, is likely to become foreign minister.

But what if the Greens form a coalition with CDU? It’s already in flux, with several senior players offering their resignations today after the party’s vote share fell to 8.4%, from 10.7%.

Open Europe explains:

The party’s chief whip, Volcker Beck, has already announced his resignation while the double party chairmanship, Claudia Roth and Cem Özdemir, offered their resignation this morning.

Both lead candidates, Katrin Göring-Eckar and Jürgen Trittin, seem to be dedicated to stay even though internal party pressure is increasing on the latter. Finally, the leader of the Green parliamentary group, Renate Künast, would need to be considered among the key players in a potential coalition with the CDU/CSU. What ministerial posts they could or would push for is unclear, but one would assume environmental and energy related posts would be top of the list

More here: As focus shifts to German coalition negotiations, who are the key players to watch? 


Heads-up: Mario Draghi is testifying at the European parliament’s committee on economic and monetary affairs (livestream here)

He’s starting by reading out a statement, largely reiterating what the ECB said at its monthly meeting at the start of this month.

inflation is still subdued, credit conditions are still poor, the eurozone economy remains weak (although now recovering) …


America’s manufacturing sector is expanding at a slower pace this month, according to data released a few minutes ago.

Markit’s “flash” manufacturing PMI came in at a three-month low of 52.8 – mirroring the slower growth reported in Germany and France this morning.


Protests over closure of Greek police service

There have been extraordinary scenes in Greece this morning, where police officers held a symbolic funeral for the municipal police service that’s being closed as part of the government’s austerity cuts.

Our Athens correspondent, Helena Smith, reports that municipal policemen and other public sector workers took to the streets to protest job dismissals today.

She writes:

At the start of a second week of intense industrial action in the public sector, Greek municipal police took drama to another level this morning, holding a mock funeral in the centre of Athens to protest internationally mandated cuts that have marked the death of the sector.

Hundreds of black clad protestors marched solemnly behind a hearse carrying a coffin before opening the casket outside the administrative reform ministry and dumping uniforms once worn by municipal police into it.

The images, captured on TV, appeared to take even hardened program presenters by surprise.

Under pressure from its troika of creditors at the EU, ECB and IMF, the government announced the disbandment of the force two months ago saying staff would be redeployed into a mobility scheme on reduced pay.

Protestors denounced the scheme as a euphemism for jobs cuts in a nation which, with about 1.4 million out of work, has already been hit by explosive levels of unemployment.

“A lot of us have no one working in our families. This is insane,” said one protestor standing outside the reform ministry, the government department in charge of implementing public sector cuts.

Meanwhile teachers, who have also thrown their weight behind a second week of strikes, demonstrated outside the education ministry where they have draped banners denouncing the dismissals and promising to “overturn” the deeply unpopular policies.

These protests could escalate tomorrow when ADEDY, the civil servants union, begins another 48-hour work stoppage.

All this comes as the Troika continue to conduct their audit of the Greek finances (see 8.57am)


Interesting … Social Democrats’ chairman, Sigmar Gabriel, has declared that there’s “nothing automatic” about forming a coalition with the Christian Democrats.

The comments come after Angela Merkel told reporters that she’d contacted Gabriel to begin coalition talks with the SPD (see 12.44pm for the details).

Here’s the Reuters newflash:


The SPD’s losing candidate for the chancellorship, Peer Steinbrück, has also insisted that the ball is in Merkel’s court. He added that the issue of eurozone banking union (where Merkel’s government has taken a slow approach), must be part of any coalition talks.


Merkel also expressed “sincere respect” to the Irish people for what’s been achieved since the financial crisis struck. Prime minister Enda Kenny has shown a passionate commitment to reforms, she added.

When not slapping down impudent questions about her fashion sense, Angela Merkel also reiterated that her commitment to tough reforms in other parts of Europe has not weakened.

Asked about the Irish bailout, chancellor Merkel said Ireland was an example of a country where conditions are improving (it exited recession last week).

Its progress, though, was based on people recognising the mistakes of the past:

Chancellor Merkel caused much amusement among the press pack in Berlin when she was asked if there was any symbolism in her outfit at today’s press conference.

Does the choice of a blue-greenish teal jacket suggest an imminent coalition alliance with the Greens?

Not at all, insists Merkel (already famous for her wide range of coloured jackets). She jokes that she stood at the wardrobe this morning, thinking:

Red doesn’t go, green doesn’t go, blue was yesterday.

So she chose a “neutral” colour instead.


Angela Merkel appears to be on top form at her post-victory press conference – neatly avoiding a question from one hack about whether Europe needs a Marshall plan to stimulate a recovery.


Ok, here’s the key quotes from Angela Merkel about her coalition plans (via Reuters’ Berlin office)

We conservatives have a clear mandate to form a government and Germany needs a stable government, so we will carry out this mandate

We are, of course, open for talks and I have already had initial contact with the SPD chairman* who said the SPD must first hold a meeting of its leaders on Friday.

* That’s Sigmar Gabriel (rather than Peer Steinbruck, who was the SPD challenger for the chancellorship). 


Merkel says she wants to study the reasons for the rise in support for the eurosceptic Alternative for Germany party, but won’t change CDU policy on Europe in response.


Merkel: Europe must become more competitive

The election result is a strong vote for a united Europe, says Angela Merkel as her post-victory press conference continues.

The chancellor also underlines that there will be no let-up in Europe’s economic strategy. We are not at the end of the reform process in Europe, she declares. Europe must become more competitive.

Merkel also indicates that her CDU-CSU party will not govern alone, saying wants a “stable” government to run Germany for the next four years.

Merkel press conference highlights

Angela Merkel had told reporters that she has opened coalition talks, by making her first contact with the chairman of the Social Democrats (who came second to the CDU with 192 seats).

This does not exclude talks with other parties, she adds (such as the Greens, who came third with 63 seats, I imagine).

On Europe, she says that Germany’s current policy is “integration friendly”, and she sees no need to change it.

More to follow …


ECB president Mario Draghi has flown to Brussels today for an appearance at the European parliament.

Chiara De Felice, ANSA’s EU correspondent, reports that Draghi’s first priority was to catch up with the latest Italian sports news. Suggests he’s not worried about the German election.

Heads-up: Angela Merkel is giving a press conference now. Let’s see what she says about coalition plans…..


Spain’s tourism industry has notched up its busiest August ever, offering hope to one of the eurozone’s most hard-pressed members.

A record 8.3 million holidaymakers from abroad visited Spain last month, a 7.1% increase on the same month last year. It appears that this was partly owing to people avoiding unrest in Egypt and Turkey.

Total visitor numbers are up 4.5% this year, suggesting Spain’s on track to beat 2012′s record number of visitors.

The number of French visitors jumped by 9% to 1.8 million. while Russian tourist numbers jumped by 30% to 1.1 million (according to Reuters).

As the image above shows, Angela Merkel’s election dominated the Spanish papers today.


Video: Inside the campaign headquarters

This video clip, from the Wall Street Journal, shows the scene at Germany’s various party headquarters last night as the election results came in.

There’s a wide spectrum of emotion – from jubilation at CDU HQ to open-mouthed shock at the Free Democrats bash.


Peter Schaffrik, an analyst at RBC Capital Markets, explains that the stock markets are subdued today because it could take weeks to agree a new German coalition.

He warned:

The formation of a government is not straightforward at all.

If finding a new government takes too long, markets might get jumpy as regards the stability of the German government, particularly with key European issues coming up for a negotiation.

The Bundesbank has predicted this morning that the German economy is on track for further growth in the months ahead, although the pace of expansion may have faltered this quarter.

Germany’s central bank said growth in the third quarter of 2013 would not match the previous three months, but still sounded fairly upbeat in its new monthly report. Here’s a flavour:

A noticeable improvement in expectations for production and exports as well as a slow increase in incoming orders point to growth in coming months

The extraordinarily good consumer sentiment continues, supported by slowing inflation and an overall good situation on the labour market.


Merkel’s win: what the analysts say

Here’s some more analyst reaction to the German election results (see 9.49am for Saxo’s early take).

Jonathan Pryor of Investec Corporate Treasury:

 The significance for the euro of Merkel being re-elected is that currency markets are generally quite precious when it comes to political change so a third term for Merkel is likely to be euro positive.

The fact that her party will also be forced to enter into a coalition should be received well by markets considering that it’s likely, left to their own devices, the Conservative party would yield a firm austerity first view to the peripheral member states.

 Steven Englander of Citigroup:

This is a vote in favour of Merkel rather than a vote in favour of big changes

It’s most likely Merkel will govern in a grand coalition with the Social Democrats, so that’s a slight euro positive because the government would be somewhat more friendly to the peripheral nations in the currency bloc.


Chancellor Merkel’s CDU/CSU won about 42% of the vote in the federal elections, according to the latest estimates, but a poor showing by the FDP means a CDU/CSU/SPD “grand” coalition of the largest parties looks the most likely outcome, providing limited near-term implications for markets …

We do not expect much change from Merkel’s current stance and continued support for weaker euro area member states. The relatively strong showing of the euro-critical AfD, however, is likely to limit the room for any new financial concessions from the next German government.

Kit Juckes of Société Générale:

Angela Merkel won a resounding endorsement of her policies from the German voters, with the highest share of votes for the CDU since 1990, but she didn’t win enough to avoid a painful period of coalition-building and uncertainty.

The outcome leaves markets somewhat in limbo.

Monex Capital Markets:

Critically, the future shape of Germany’s government will dictate how the eurozone works through its problems. Anything that is seen to deviate too far from the harsh austerity measures of recent years could inject a degree of fear, not just in Europe but in markets worldwide.

And here’s some more media reaction:


Forgot to mention earlier, but China’s manufacturing activity has hit its highest level since March, bolstering hopes that its economy is performing well this month.

China’s manufacturing activity hits six-month high.


Although Alternative For Germany (AfD) didn’t quite hit the major 5% mark to win Bundestag seats, the eurosceptic party still made a pretty decent impact in the election.

In the Financial Times, Peter Spiegel reckons AfD could still influence Angela Merkel’s thinking over Europe:

The future of AfD

Although it failed to reach the 5 per cent threshold to get into the Bundestag – it ended up with 4.696 per cent of the vote – the anti-euro Alternative for Germany party (known by its German initials AfD) surprised many in Brussels by getting as close as it did.

It was once conventional wisdom that no anti-Europe party could attract significant support in Germany, but if AfD is able to use this result as a base to grow, it could force Ms Merkel to keep an eye over her shoulder as she gets into bed with the SPD. Exit polls show that AfD drew most heavily from disaffected FDP voters, assuaging some of the fears within the CDU that they would pull voters away from them.

But if the AfD emerges as the alternative conservative force in Germany amid the rubble of the FDP, that could shape the way Ms Merkel approaches Brussels.

More here: What does the German result mean for the EU?

Interestingly, AfD appears to have won support from across the political spectrum. This chart, via Alberto Nardelli, shows how it won 330,000 from the Free Democrats (helping to drive them out of the Bundestag) and 230,000 from the Green party:

Market update

The news that eurozone private sector output hit a 27-month high this month has pushed stock markets a little higher this morning (see above), led by the French CAC.

The euro is flat at $1.314 to the US dollar.

There’s still no real relief that Angela Merkel secured such a strong result, particularly as we don’t know whether she’ll hammer out a credible coalition.

John Hardy, head of FX Strategy at Saxo Bank, suggests that a Grand Coalition with the SPD might lead to further tensions over eurozone strategy, and prevent rapid progress on issues like banking union and closer political ties.

Hardy writes:

Germany’s election was good for Angela Merkel, but leaves Europe and the euro in extreme state of uncertainty. Merkel’s landslide victory comes with a twist as much of her party’s strength was due to voters abandoning ship from the coalition partner FDP. Thus, the election result leaves Merkel in need of forming an awkward coalition with either the SPD or the Greens.

The storyline goes that one of these coalitions will be more “EU friendly” as the parties to the left tend to lean toward more generosity toward the EU project than Merkel. But even a “grand coalition” with the SPD if likely to be anything but grand and the greater risk from here is that Germany’s leadership in Europe risks being as weak as Merkel’s victory in the elections was strong. That’s at least in part because every EU-related decision in Germany will be a nervous exercise in calculating the effects of domestic politics within an uncomfortable coalition.

From here, Merkel is likely to try to continue the approach that has brought her relative success so far, making small concessions here and there, such as a small third bailout in Greece, to stem the risk that any individual crisis triggers a wider contagion. What we won’t see is a new overall vision for Europe. The on-going Big Question for Europe is the fundamental tension that will tear Europe apart if it is not eventually addressed: the single currency and single central bank within a multiple-sovereign union.

The EU is a house without a foundation, and such a house can’t stand forever. And a new Merkel-led coalition will not put Germany on a path toward building that foundation, it will merely see Germany continuing to send out the repairmen to plaster over the cracks that are appearing in the walls as the house continues to destabilize.

Francesco Papadia, who used to run market operations for the European Central Bank, believes the German election results could be good news for the eurozone.

He tweets that Angel Merkel will no longer be ‘captive’ to right-wing views, should she form a grand coalition with the Social Democrats:

Graph: Eurozone recovery gathers pace

Here’s the graph showing how Europe’s private sector is growing at its fastest pace in 27 months (see previous post):

Markit says it shows the eurozone recovery is ‘gathering pace’ – with both services sector and manufacturing firms reporting a rise in activity:

• Flash Eurozone Services PMI Activity Index at 52.1 (50.7 in August). 27-month high. 

• Flash Eurozone Manufacturing PMI(3) at 51.1 

The revival is being driven by Germany, where activity is growing at its fastest rate since the start of this year (details)

although Markit also believes the wider eurozone private sector continues to grow this month:

And Europe’s jobs crisis continues, with another small fall in manufacturing employment. The full report is here.

Eurozone business activity at highest since June 2011

Just in: business activity in the eurozone is growing at its fastest rate in over two years, due to a surge in new orders.

That’s according to data provider Markit, which reports that its composite purchasing managers index has jumped to its highest level since June 2011. It hit 52.1 this month, up from August’s 51.5 (anything over 50=growth).

This follows the better than expected data from France (8.25am) and Germany (see 8.39am) this morning, which showed a service sector revival.

Chris Williamson, chief economist at Markit, says the data is very encouraging:

These surveys show a real underlying swell of improvement. It’s all looking very positive.

More to follow….


While Germany was gripped by election fever, the Greek government was beginning a new round of talks with its lenders.

Troika officials are in Athens to assess whether Greece’s financial aid programe is on track. Overshadowing the talks is the question of whether Greece will get a third bailout in 2014.

The Wall Street Journal has a good take:

After a meeting lasting almost four hours with senior officials from the European commission, the International Monetary Fund and the European Central Bank– known locally as the troika – and the Greek finance minister, Yannis Stournaras, a senior finance ministry official said initial discussions focused on a broad range of issues including the execution of the 2013 budget.

‘We will continue to work through the week,’ said the official.

While the negotiations represent the latest round in the regular quarterly inspection visits that have accompanied Greece’s almost four-year-long debt crisis – and will decide on whether to unlock the country’s next aid tranche of €1bn ($1.35bn) – new budget and growth data also show Greece may be turning a corner.

Senior officials in Athens have spoken of gradually exiting the draconian austerity program tied to the bailouts, but they also warn that the turnaround has yet to be felt by the average Greek, and that extremism in the country is rising.

More here: Greece, Creditors Begin Talks on New Bailout

Meanwhile, Greek journalist Kostas Karkagiannis sums up the mood:


Here’s a nice montage of how German newspapers are reporting Angela Merkel’s success, via the invaluable Electionista


The key point from this morning’s French and German economic data could be that manufacturing output in both countries was weaker than expected.

Here’s some instant reaction:

German private sector picks up speed

German service sector companies, like the country’s chancellor, are enjoying a pretty successful September. Activity has reached its highest levels since the start of this year.

The monthly ‘flash’ survey of purchasing managers, just released, showed firms in Europe’s largest economy reporting stronger growth this month. This pushed the German PMI up to 53.8, up from August’s 53.5, and the best reading since January.

As in France (see last post) the service sector led the way:

• Flash Germany Services Activity Index at 54.4 (52.8 in August), 7-month high.

• Flash Germany Manufacturing PMI(3) at 51.3 (51.8 in August), 2-month low.

It indicates that Germany’s economy is continuing to expand this quarter, despite problems elsewhere in the euro area. A key factor in Angela Merkel’s victory last night.

Tim Moore, senior economist at Markit, suggested Germany could pull weaker neighbours forwards:

Germany’s economy remained firmly in recovery mode during September, and its strengthening performance should continue to reverberate across the euro area. Positive signs from the German economy are a crucial factor underpinning global business confidence at present, especially while some momentum has been lost across emerging markets.

German manufacturing and services output both rose again on the back of improved new business levels during September.

French private sector returns to growth

Encouraging economic news from France this morning – its private sector has returned to growth this month for the first time since February 2012.

The monthly ‘flash’ PMI (a survey of purchasing managers across the country) came in at a 19-month high 50.2 – up from August’s 48.8. That’s the first time it’s been above the 50-mark, which indicates growth, since the early months of last year.

(reminder, we get German PMI data in a few minutes)

Markit, which conducts the research, said French industry appears to have stabilised this month thanks to its service sector, where growth was a 20-month high. However, manufacturing output did fall slightly (to 49.5, worse than expected).

Jack Kennedy, senior economist at Markit, explained:

The latest Flash PMI data point to stabilising business conditions in France during September. A return to expansion for the service sector counterbalanced a weaker manufacturing performance, but new business trends were broadly flat across both sectors.

Employment also moved closer to stabilisation, which should help the economy remain on a firmer footing.


European markets open

As expected, there’s no sign of a Merkel rally in Europe’s stock markets after her historic election win over night.

In Frankfurt, the DAX index is up a measly 0.1%, as is the French CAC in Paris. In London, the FTSE fell 8 points at 6592.

Traders may be waiting to see how the coalition negotiations progress, and there’s talk that Merkel might struggle to strike a deal with the Social Democrats.

Via FT Alphaville:

As JP Morgan’s Alex White said, ‘One can hardly escape the fact that Merkel’s coalition partners in her last two terms lost double digit shares of the vote.’

Merkel’s win also means that the eurozone crisis may flare up again this autumn, as Mike van Dulken, Head of Research at Accendo Markets, points out:

With the election behind us, prepare for revival of discussions on tough eurozone issues put on hold for the summer.

Gary Jenkins of Swordfish Research agrees:


Angela Merkel’s election success made the front page of the Guardian today:

Here’s our full story of the German election: Merkel secures third election win

And if you missed the action, my colleague Mark Rice-Oxley live-blogged it all here: Germany election results – live updates


Our Europe editor, Ian Traynor, writes that Angela Merkel’s triumph is her reward for protecting German’s from the effects of the euro crisis:

Her victory demonstrates the gulf between Germany and the rest of the EU and the eurozone, although it is not clear what impact her third term will have on the direction of the crisis.

Merkel’s second term coincided exactly with the euro crisis. As she was forming her coalition with the Free Democrats (FDP) in October 2009, Greece went belly-up, prompting deep doubts about the euro and the survival of the EU.

She has been resented and criticised across Europe for her crisis management and responses. Berlin became alarmed at the resurrection of the “ugly German” stereotype in neighbouring countries. But German voters have voiced their approval.

More here: Angela Merkel’s election win is reward for weathering the euro crisis at home

Angela smashes her rivals

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

What a triumph for Angela Merkel, eh? Germany’s chancellor stormed to a third term last night, leading the Christian Democrats to their best election result in two decades. The CDU-CSU alliance have scooped 311 seats out of 630, just five seats short of an overall majority.

At one stage last night it looked like Merkel might win enough seats to govern alone. Instead, she will now start coalition talks with her rival parties — but not her old partners, the Free Democrats, who have been dramatically ousted from the Bundestag after failing to win 5% of the vote.

That 5% threshold proved a stretch too far for the new eurosceptic force in German politics, Alternative für Deutschland, on an impressive debut performance.

Forming a coalition with one of her left-wing rival could be tricky for Merkel, who admitted last night that “Maybe we won’t find anyone who wants to do anything with us”.

A grand coalition with the SPD (192 votes) is a possibility — but could take some time to hammer out (as in 2005, when coalition talks took two months).

The SDP could demand some serious concessions from Merkel, including possibly new finance minister.

As Reuters sums up:

During the campaign, the center-left party argued for a minimum wage and higher taxes on the wealthy — both opposed by Merkel. The party could also demand the finance ministry, pushing out respected 71-year-old incumbent Wolfgang Schaeuble.

Don’t expect a decision imminently, though.

And this uncertainty over Germany’s next government means there will be no relief rally in Europe’s financial markets, where the euro has inched a little higher this morning to €1.354.

The German DAX might rise a few points this morning , but other markets are expect to fall (the FTSE is being called down 15 points by IG).

From the City, Michael Hewson writes:

The likely outcome [for Merkel] looks set to be a grand coalition with the SPD. In any event her old coalition partners the FDP appear to have missed out badly, with the new euro sceptic party Alternative for Deutschland, the AfD, doing particularly well, coming in as it did from a standing start.

Whatever the look of any government that is formed, and this might take several days, one of the key factors that did come out of the campaign was the increasing opposition of a rising number of German voters to further bailouts of what they perceive as fiscally irresponsible peripheral European economies. Any new government that chooses to ignore this rising scepticism in subsequent months is likely to come unstuck at the ballot box in any new state or European elections.

And speaking of bailouts, Greece’s “Troika” of lenders returned to the country yesterday to start a new assessment of its financial programme. New public sector strikes have been called for later this week — putting more pressure on the Athens government.

We also get new survey data this morning which will show how Germany and France’s manufacturing and service sectors are performing this month.

I’ll be tracking all the action through the day as usual….

Updated © Guardian News & Media Limited 2010

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It is time for the European Central Bank to show its independence and act in the interests of all eurozone citizens– not just Angela Merkel’s, writes The Guardian’s economics editor Larry Elliott.  A different approach is needed to save the eurozone…


Powered by article titled “European Central Bank must heed eurozone warning signs” was written by Larry Elliott, economics editor, for The Guardian on Tuesday 30th April 2013 12.57 UTC

The warning signs are flashing red for the eurozone. Inflation is plunging, unemployment is rising and activity is weakening across the board. Unless Europe wants to become the next Japan, mired in permanent deflation and depression, action is needed now.

Stage one of the process should be a cut in interest rates from the European Central Bank (ECB) when it meets in Bratislava on Thursday. The latest inflation figures show the annual increase in the cost of living across the 17-nation single-currency area fell from 1.7% to 1.2%, its lowest in three years and well below the ECB's 2% ceiling. Even Jens Weidmann, the ultra-hawkish president of Germany's Bundesbank, would be hard pressed to say there is a threat to price stability.

It's not hard to see why inflationary pressure is abating: the eurozone economy has been flat on its back for the past 18 months. Unemployment rose by 62,000 in March, taking the eurozone jobless rate to yet another record high of 12.1%. Spain and Greece remain the weak spots, but even in Germany labour market conditions are becoming more difficult. Across the eurozone, almost one in four young people are out of work.

Why is unemployment rising? Again, you don't have to be John Maynard Keynes to figure it out. Europe's banking system is bust, there is a shortage of credit, real incomes are under pressure and the deficiency of demand is being exacerbated by austerity overkill. Retail sales figures from Greece show that in February spending was more than 14% lower than a year earlier.

The malaise is spreading from the eurozone's periphery to its core. It will be mid-May before the official growth data for the first quarter of 2013 is published, but the early evidence from Spain, where GDP fell by 0.5%, is not encouraging. Judging by the grim forward-looking surveys of business and consumer confidence, the second quarter will suffer more of the same.

Monetary policy works only with a lag, so whatever the ECB does on Thursday will be too late to prevent the recession deepening. Angela Merkel has made it clear that she does not want to see a cut in the cost of borrowing, but it is time for the ECB to show its independence and act in the interests of all eurozone citizens, not just the one seeking re-election in the German polls this autumn.

In itself, a quarter-point cut in interest rates to 0.5% would do little to revive demand, ease the credit crunch or create jobs. Instead, it should be part of a three-pronged approach to boost growth. The cut in rates should be accompanied by an ECB announcement that it is willing to embrace the unconventional methods deployed by the Federal Reserve, the Bank of England and Japan to underpin activity. It should also be the catalyst for a less aggressive approach to cutting budget deficits, with countries given more time to bring their deficits below the eurozone ceiling of 3% of GDP.

For the past three years, macroeconomic policy in the eurozone has been run on sadomasochistic principles: that only regular doses of pain will ensure countries stick to strict reform programmes.

The upshot of this policy is clear for all to see. Businesses that are starved of credit are mothballing investment and cutting their workforce. Weaker growth means higher-than-expected budget deficits. Permanent austerity has bred social dislocation and political extremism. A different approach is needed to save the eurozone from catastrophe – starting on Thursday. © Guardian News & Media Limited 2010

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Frankfurt professor’s concerns echo recent alarms being sounded across Europe over Berlin’s stance on EU fiscal policy. A leaked policy paper from France was redolent with fear of and hostility to Merkel and her prescriptions in the euro crisis…


Powered by article titled “German role in steering euro crisis could lead to disaster, warns expert” was written by Ian Traynor in Leuven, for on Sunday 28th April 2013 14.37 UTC

One of Germany's most influential political thinkers has delivered a stark warning that its post-second world war liberal democracy cannot be taken for granted and its dominant role in managing Europe's debt crisis could lead to disaster.

Jürgen Habermas, the Frankfurt professor whose political thinking has helped shape Germany over the past 50 years, called for the EU to be turned into a supranational democracy and the eurozone to become a fully fledged political union, while lambasting the "technocratic" handling of the crisis by Brussels and European leaders.

In his first big speech on the euro crisis, delivered at Leuven University, east of Brussels, Habermas called for a revival of Europe's doomed constitutional ambitions, arguing that the disconnect between what needed to be done in economic policy and what was deemed to be politically feasible for voters was one of the biggest perils facing the continent. "Postponing democracy is rather a dangerous move," he said.

At 83, Habermas has long been revered as a guru and mentor to the post-1968 generation of centre-left German politicians. He is a champion of a democratically underpinned European federation, and has reserved some of his most trenchant criticism for Berlin's role in the three-year crisis.

"The German government holds the key to the fate of the European Union in its hands. The main question is whether Germany is not only in a position to take the initiative, but also whether it could have an interest in doing so," he said.

"The leadership role that falls to Germany today is not only awakening historical ghosts all around us, but also tempts us to choose a unilateral national course or even to succumb to power fantasies of a 'German Europe'.

Euro coins and banknotes
Habermas says the EU elite’s response to the currency crisis has been to construct a technocracy without democratic roots. Photograph: Reuters

"We Germans should have learned from the catastrophes of the first half of the 20th century that it is in our national interest to avoid permanently the dilemma of a semi-hegemonic status that can hardly hold up without sliding into conflicts."

Habermas's wakeup call came at the end of a week of similar alarms being sounded on both sides of the country's borders. The Polish prime minister, Donald Tusk, in the presence of the German chancellor, Angela Merkel, in Berlin last week, said there were worries about German domination of the EU "everywhere, without exception".

A leaked draft policy paper from France's governing socialist party on Friday was redolent with fear of and hostility to Merkel and her policy prescriptions in the euro crisis.

Habermas demanded a sea change in German policy, away from insisting on "stabilising" the budgets of vulnerable eurozone countries by slashing social security systems and public services, to a policy of "solidarity" entailing common eurozone liability, mutualised debt, and euro bonds.

He located Germany's traditional EU enthusiasm in the post-Nazi quest for international rehabilitation through reconciliation with France and driving European unification processes, all occurring under the protection and promotion of the US in cold-war western Europe until the Soviet collapse in 1989.

Habermas said: "The German population at large could develop a liberal self-understanding for the first time. This arduous transformation of a political mentality cannot be taken for granted … Germany not only has an interest in a policy of solidarity, it has even a corresponding normative obligation … What is required is a co-operative effort from a shared political perspective to promote growth and competitiveness in the eurozone as a whole."

Such an effort would require Germany and several other countries to accept short- and medium-term redistribution in its long-term interest, he added, "a classic example of solidarity".

The structural imbalances between the economies of greatly divergent eurozone countries at the root of the crisis were certain to worsen under the policies being pursued, Habermas argued, because governments were making decisions "exclusively from [their] own national perspective. Until now, the German government has clung steadfastly to this dogma".

He said the EU elite's response to the crisis had been to construct a "technocracy without democratic roots", trapping Europe in a dilemma of legitimacy and accountability, between "the economic policies required to preserve the euro and, on the other, the political steps to closer integration. The steps that are necessary are unpopular and meet with spontaneous popular resistance". © Guardian News & Media Limited 2010

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European PMI index contracts again- what do the economists say? German service sector shrinks; Chinese manufacturing output at nine-month low; France heads into recession; U.S. jobless claims inch higher…


Powered by article titled “Eurozone crisis live: Another recession looms as private sector keeps shrinking” was written by Graeme Wearden, for on Thursday 23rd August 2012 06.52 UTC


Another word on Antonis Samaras’s interview with Le Monde (see 11.44am): there’s a bit of excitement swirling that Samaras has apparently discussed Greece generating money from some of its uninhabited islands.

The quotes don’t appear in the section of the interview which Le Monde has uploaded. However, Associated Press has got hold of the full interview, and reports that Samaras said that:

as long as this doesn’t pose problems for national security, some of these isles could have a commercial use.

That, though, doesn’t mean Athens is looking to sell them all to the first millionaire who shows up. Samaras added;

This is not, in any way, about selling them off for cheap, but about transforming unused terrain into capital that could generate revenue, at a fair price.

As The Journal explains here, some German politicians argued two years ago that Greece should look to profit from the thousands of islands that make up the country. That was very unpopular with Greek citizens, though, so Samaras will need to treat carefully…..


Good news is in short supply so far today, particularly from Germany, where car maker Opel has said employees will work reduced hours at two of its German factories, to address lower demand for vehicles.

The division, part of General Motors. said that it had reached a deal with unions and its employee councils. Staff at two factories, at Ruesselsheim and Kaiserslautern, will work reduced hours on 20 days through the end of the year.


The news that Germany’s economy weakened this month (see 8.38am) may make it harder for Angela Merkel to make concessions to help address the eurozone crisis, economists fear.

Commenting on this morning’s data which showed Germany’s private sector shrank at the fastest pace in over three years, ING economist Carsten Brzeski said:

For German Chancellor Merkel, today’s growth numbers are not as comfortable as they might look as they complicate the next steps in the euro crisis.

Economists are forecasting that Germany’s GDP will shrink in the current quarter, which could make the German people even less receptive to the idea of bailing out Southern Europe.

On the other hand… it might also concentrate minds on the damage being caused by the crisis, and the potential for further immense economic chaos if the euro disintegrated….


QE helps the rich the most

This might interest/enrage UK readers: the Bank of England has released a report into the impact of its quantitative easing programme. It admits that the richest 5% of households benefited most from the creation of hundreds of bilions of pounds of electronic money, while young people and the poorest gained the least.

Economics editor Larry Elliott has the story here.

And here’s some reaction from Twitter:


Greece’s prime minister, Antonis Samaras, has told Le Monde that social unrest could spread across Europe if Greece were to crash out of the euro.

Samaras told the French newspaper that Greece can still be saved if European politicians “do our job”, and criticised those who claim that a Greek exit from the euro would be manageable.

Samaras said:

A “Grexit”, as it is called, would be devastating for Greece and detrimental to Europe. This would result in a further reduction of 70% of our standard of living – it has already decreased by 35% – by the combined action of a devaluation and inflation. No society can address this impact. No democracy there could survive.

Social upheaval could become very contagious in other European countries. Add, of course, the reaction of financial markets to be anticipating the release of other European countries, causing a domino effect.

Samarasalso repeated the line he gave to German tabloid Bild, that Greece just needs “air” to help it recover. More here.


No Olympic boost for UK high street

Bad news for the UK economy: high street retailers have reported that sales fell this month, and fear that the next three months will be tougher.

The monthly CBI distributive trades survey found that 27% of retailers reported an increase in their volume of sales compared to a year ago, while 31% said they had seen a fall. Allowing for rounding, that works out as a “net balance” of –3.

Somewhat optimistically, the CBI describes this as “broadly in line with expectations of +3%”. Clearly it’s worse (and also, Reuters reckons economists were expecting +15).

Most worryingly, business sentiment has weakened more than at any time since February 2009.

Judith McKenna, chair of the CBI distributive trades panel and Asda’s chief operating officer, said hopes of an Olympic bounce have been dashed.

Although this summer’s events created a mood of celebration across the nation, these figures would suggest this positivity did not extend to the high street.


Norway’s economy continues to defy the general malaise in Europe. Its economy grew by 1.2% in the second quarter of 2012, or 1% if oil revenue was excluded.

That beats all the major countries in the European Union (which shrank by 0.2% during the quarter).

Being outside the EU is not holding Norway back. This graph shows how its economy emerged from recession at the start of 2010, and has posted strong growth since:


In the bond markets, Spanish government debt has weakened this morning.

The yield* on Spain’s 10-year bonds has risen to 6.432%, up 11 basis points overnight. That’s still some way below the “danger zone”; but it means the spread between Spanish and German bond yields has widened again.

German-Spanish spreads had been closing in recent days, thanks to speculation that the European Central Bank will act to lower Spain’s borrowing costs. Today, though, there is plenty of worry that the ECB might disappoint.

Jane Foley of Rabobank commented:

The recession in Spain and the impact of slower growth in Europe on countries as far afield as China and Japan (which have recently posted poor export data) provide a good argument for the ECB to underpin the current better tone of the market.

However, clearly there are risks; the ECB may insist on more action from politicians before acting.

*- in general terms, the yield is the interest rate on the bond, so a measure of how much it would cost a country to borrow


City economists agree that this morning’s PMI data shows the eurozone is in recession (although we won’t know for sure for a couple of months).

Having shrunk by 0.2% between April and June, the news that private sector output fell again in August indicates the contraction continued in the current quarter.

Here’s a round-up of reaction (via Reuters):

Julien Manceaux of ING:

The composite PMI still indicates a contraction of activity in the euro zone as a whole. In our view, this confirms that the decline in euro zone GDP in the second quarter is likely to be the first leg of a technical recession.

Jeavon Lolay of Lloyds Banking Group:

In terms of where they are this is consistent with contraction in euro area GDP.

You could argue it was slightly better than expected but there isn’t
much to add. It could have been gloomier.

Annalisa Piazza of Newedge Strategy:

Our survey-based GDP forecast continues to point to a -0.3-0.4 percent q/q decline in euro zone GDP in Q3. However, a less gloomy scenario might emerge, should business confidence and activity stabilized in the coming months.

There was one bit of good-ish news this morning; updated GDP data confirmed that Germany grew by 0.3% in Q2 2012.


Europe’s private sector has shrunk again in August, for the seventh month in a row, driven by this morning’s weak performance from Germany (see 8.38am).

The Eurozone PMI composite output index, which measures activity in services and manufacturing firms across the euro region, hit 46.6 this month. Any number below 50 means a contraction.

The figure is slightly better than July’s 46.5, suggesting the euro economy shrank very slightly less this month. But the data confirms fears that the eurozone has dropped into recession.

Rob Dobson, senior economist at Markit said:

Taken together, the July and August readings would historically be consistent with GDP falling by around 0.5%-0.6% quarter-on-quarter, so it would take a substantial bounce in September to change this outlook.

The downturn is still led by the manufacturing sector, despite its pace of contraction easing a little this month. The service sector is also not out the woods, as business activity declined at an accelerated pace.

While eurozone manufacturing showed some improvement (45.3, up from 44 in July) was a little better than expected, service sector output was worse (47.5, down from 47.9).

This graph shows how the PMI data often closely tracks GDP. That backs up Rob Dobson’s point about the eurozone sliding into recession (it shrank by 0.2% in the second quarter of 2012).


Schäuble: Time will not solve Greece’s problems

Wolfgang Schäuble, Germany’s finance minister, has warned this morning that Greece’s problems will not be solved by granting it more time to hit its targets.

Schäuble just spoke to Germany’s SWR radio, and declared:

More time is not a solution to the problems

… adding that the two-year extension being sought by Greek prime minister Antonis Samaras would certainly mean “more money”.

Schäuble also argued that the eurozone had reached the limits of what is economically viable with its aid to Greek, a signal to Athens that it must deliver on what has been agreed.

In the City, Elisabeth Afseth of Investec is also unconvinced by Samaras’s argument that more time would not necessarily mean more money. She writes:

With its European partners reluctant to ‘throw money into a bottomless pit’ Samaras’ insistence that Greece requires no more money is supposed to reassure. It is blatantly obvious though that running a higher deficit for longer will involve additional debt, it may be recouped in the long run by stronger growth, but there will be extra money required initially.

Greek officials have been saying a 2 year extension will require at least €20bn of extra funding, but the plan is for this to be found though using IMF funds earlier than planned and through maturity extensions.



Germany’s private sector has suffered its weakest monthly performance in three years, data just released by Markit showed.

A worse-than-expected performance from its service sector is to blame, with output contracting (the German services PMI fell to 48.3, from 50.1).

Manufacturing output also shrank again, but at a slower pace (with a PMI of 45.1 versus 43 last month).

The overall picture is of an economy suffering from the crisis in the eurozone periphery.

Tim Moore, senior economist at Markit said:

The German economy is sailing into greater headwinds as the third quarter progresses, with PMI readings slipping deeper into territory normally associated with GDP contractions.

Outside of the 2008/09 downturn, the German composite index hasn’t been this low for this long since the time of the 2003 recession.


This is perhaps the most alarming fact in this morning’s Chinese manufacturing data (see 8.02am): stocks of finished goods jumped at their fastest rate since the survey began in 2004.

This graph shows how Chinese factories have been left with more and more unsold products since the start of the year:

With new orders falling, concern is growing that Chinese manufacturers will be left with more and more products that they can’t sell into a slowing global economy.

The Financial Times reported earlier this week that stocks of clothes, shoes, electrical goods, cars and even houses are growing to “Himalayan levels”, adding:

Over the past week, the country’s main retailers descended into a price war. It began when online retailer vowed that it would sell home appliances at a zero profit margin.

The commodities sector is also dealing with a huge inventory overhang, most graphically in the piles of coal that have built up at ports across the country.

More here.


The French private sector continued to shrink last month, data just released showed. But there are also reasons for optimism.

The composite French PMI came in at 48.9, showing that private sector output fell again. But this is an improvement on July’s 47.9, and the best figure in six months.

French manufacturing output continued to fall, as the long-running contraction in its factory sector rolled on. The PMI of 46.2 shows that output still fell, but at a less steep rate than July.

Jack Kennedy, senior economist at Markit (who compiled the report), said the data showed that France might finally slide into recession this quarter after nine months of stagnation:

While France just avoided a fall in GDP during the second quarter of 2012, according to the first official estimate, PMI data currently suggest contraction is on the cards for Q3.

Moreover, the continued declines in employment shown by the latest flash PMI data point to rising jobless levels, which would further weaken demand.


Key event

This morning’s weak manufacturing data could prompt China to launch a new stimulus package, economists believe.

HSBC, whose data shows that output dropped to a nine-month low, said the Beijing government should ease monetary policy. Otherwise, the world’s second largest economy could be knocked off course.

HSBC chief economist for China, Qu Hongbin, said:

Chinese producers are still struggling with strong global headwinds.

To achieve the stated policy goal of stabilizing growth and the jobs market, Beijing must step up policy easing to lift infrastructure investment in the coming months.

The data comes a day after some very poor trade data from Japan, which showed a slump in exports to the European Union.

Getting a clear picture of the state of the Chinese economy is tricky, but there are suggestions that some factory bosses are laying off workers or shutting down altogether.


Good morning, and welcome to our rolling coverage of the eurozone crisis.

Coming up today: fresh economic data showing the state of the European economy will be released this morning. The monthly PMI surveys are expected to show that activity in the eurozone services and manufacturing sectors fell again in August.

With eurozone GDP having shrunk in the second quarter of 2012, the data should show whether the situation has worsened.

Disappointing manufacturing data from China has already been released this morning. Output hit its lowest level since last November.

The Chinese Purchasing Managers’ Index (PMI) dropped to 47.8, compared with a final reading of 49.3 in July, according to HSBC. Any number below 50 indicates that manufacturing activity is contracting.

Here’s what’s coming next:

• French PMI for Manufacturing, and for Services 8am BST

• German PMI for Manufacturing, and for Services 8.30am BST

• Eurozone PMI for Manufacturing, and for Services 9.00am BST

The overall eurozone composite PMI is also released at 9am, which will show how the region’s private sector performed. Economists believe it will show another contraction, but will it be worse than last month’s 46.5?

We’ll also be tracking the latest developments across the eurozone, as usual.

One key event today: Angela Merkel and François Hollande will meet in Berlin tonight to discuss the situation in Greece, and Athens’ request for a delay to its financial programme. But as reported last night, it appears that the Greek government must wait until at least mid September for an answer. © Guardian News & Media Limited 2010

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Powered by article titled “Eurozone crisis live: Greece to request more time to implement austerity” was written by Graeme Wearden, for on Wednesday 15th August 2012 06.55 UTC


Greece’s immediate future in the eurozone will be determined next month, when the Troika publishes its report into Greece’s performance against the terms of its aid package.

As Yannis Koutsomitis points out on Twitter, we don’t know for certain what that report will say:

Ten days ago, the Troika left Greece with encouraging words for its government’s efforts to cut spending and bring the deficit under control.

However, given the delays caused by the rerun general election in June, it seems very likely that Greece will be behind schedule on some of the Troika’s measurements.

Philipp Rösler, German economy minister, struck a hard line last month, saying:

What’s emerging is that Greece will probably not be able to fulfil its conditions. If Greece doesn’t fulfil those conditions, then there can be no more payments.

But it ain’t necessarily so. Back on August 1, Christine Lagarde gave Greece fresh hope by pledging to stand by the country through thick and thin.

Lagarde, the managing director of the IMF, told reporters in Washington:

The IMF never leaves the negotiation table….We are in Greece at the moment … and we are engaged in dialogue with the Greek authorities.

(thanks to Nick Panayotopoulos for reminding me about Lagarde comments. Nick, like Yannis, is a well-informed expert on the crisis)


Three interesting pieces of economic data out of the US.

1) The Empire State index, which measures manufacturing output in the New York region, fell into negative territory for the first time since last October. At -5.9 in August (following +7.4 in July), it suggests conditions have worsened. However..

2) Industrial production across the US rose by 0.6% during July, slightly better than expected.

3) Foreign buyers cut their exposure to US debt in June. A net total of €32.4bn of Treasury debt (issued by the US government) was bought during the month, down from $45.9n in May. China remained the biggest buyer.

There was a bigger drop in demand for US corporate debt – cutting their total exposure by $22bn.


Greek officials are briefing that Antonis Samaras will certainly broach the issue of an extension to Greece’s financial programme when he meets Angela Merkel, Francois Hollande, and Jean-Claude Juncker next week.

But they also say that this will not be a formal, official request for budget targets to be relaxed. More a gentle inquiry.

One government spokesman told Reuters:

The matter of extension is already being debated in Greece and abroad. Its official submission is a different matter.

He added that “Our key priority is to regain our credibility by showing our determination” to hit reform the Greek economy. That commitment, though, has already been tested by the ongoing struggle to find €11.5bn of budget cuts.


Megan Greene, eurocrisis expert at Roubini Global Economics, is concerned that Greece’s decision to informally freeze government spending could backfire (see 8.49am for details):

She also fears that Antonis Samaras will struggle to persuade the rest of the eurozone that Greece’s fiscal targets should be relaxed, calling it:

A very hard sell for the Greek government.

Germany’s position is that the Greek Memorandum of Understanding is fine as it stands.

And even if Samaras can get Berlin and Paris onside, it also has to persuade its Troika of lenders. The International Monetary Fund might refuse to accept a restructuring, on the grounds that other countries would demand similar treatment.

For example, Greene predicts that it would be very hard for the Troika to resist pressure from Dublin to restructure Ireland’s promissory notes (which were agreed under painfully high interest rates at the height of the crisis).

The Troika, she points out, made its opposition to any relaxation clear soon after June’s election.

Another hurdle for Samaras to clear…


Greek prime minister Antonis Samaras is expected to present his case for Greece’s financial programme to be relaxed next Friday, August 24, to Angela Merkel in Berlin (see 7.53am for details of his proposal)

He is then due in Paris the next day for talks with Francois Hollande.

Samaras was due to warm up for his Merkel meeting by hosting Luxembourg prime minister, Jean-Claude Juncker, in Athens on Wednesday, August 22.


The euro has weakened slightly against other currencies, and just dropped through the $1.23 mark (down half a cent at $1.228) (correction: some euro symbols crept in there briefly)

Jeremy Cook, chief economist at World First, blames a general mood of unease in the foreign exchange markets today:

market boredom = uncertainty = bearishness = today’s market


Jane Foley, Rabobank’s currency expert, reckons eurozone leaders may agree to Greece’s request for its austerity targets to be relaxed, given the deeply troubled state of its economy.

However, Germany remains the big obstacle.

Foley told clients this morning:

In view of the very significant recessionary conditions it is easy to understand why Greece wants to cut only 1.5% from its budget deficit target each year rather than 2.5%.

What is less clear at the moment is the reaction of key eurozone politicians. There have been signs of exasperation from some German politicians with respect to Greece’s fiscal outlook. In this context a two year extension to the plan may appear to be acceptable.


A thought on this morning’s UK unemployment data. At 8.0%, Britain has a significantly lower jobless rate than the eurozone (11.2%), or America (8.3%). Yet it’s the only one in recession.

Is the data faulty, or is Britain rewriting the usual rules?

Howard Archer of IHS Global Insight suggests three possibilities:

Either the economy is doing appreciably better than the national accounts data show, the labour market is doing significantly worse than the hard data show, or productivity has genuinely weakened sharply.

The jury is currently very much out as to what the actual answer is but it could very well be a combination of all three.

Another theory doing the rounds this week is that UK firms have resisted laying staff, off in case the economy recovers, but could be forced into cutting headcount if the situation gets much worse.

This graph, from Scott Barber of Reuters, shows how UK productivity per worker is pretty low in historical terms:


Surprise fall in UK unemployment rate

UK unemployment has fallen, data just released showed, in a rare boost for the government.

The number of people out of work in the three months to June fell by 46,000 to 2.564m, which pulls Britain’s unemployment rate down to 8.0%.

The more recent claimant count, which measures the number of people claiming jobless benefits in July, dropped by 5,900 last month. Economists had expected a rise of 6,000.

Most of the improvement came in London, according to the Office for National Statistics. That’s shows that the “Happy and Glorious” Olympic Games had an effect on the labour markets.


Bank of England minutes released

Just in, the Bank of England voted 9-0 to leave UK interest rates unchanged at 0.5% at its meeting this month.

The Monetary Policy Committee also voted 9-0 to leave its quantitative easing programme at £375bn (although some members of the committee came close to voting for yet more QE).

Update. The minutes also include this warning about the eurozone crisis:

The global economy had continued to slow and very substantial risks remained in the euro area. These could, if they crystallised, have a considerable impact on the stability of the global banking system and on economic activity in the United Kingdom.

Even if a disorderly outcome were avoided, it was probable that the continuing threat of such an event would weigh on domestic economic activity for some time to come.

You can see the minute here (pdf)


This is Juan Manuel Sanchez Gordillo, a member of the regional parliament for the United Left party in Andalucia, who has won fame in Spain for his role in Robin-Hood style raids on supermarkets.

Activists have visited a number of supermarkets in Andalucia, filling up trolleys with food before scooting through the exits without paying. They say the move is a response to the harsh downturn in the region, where one in three people are unemployed.

Seven people have been arrested since the practice began.

Sanchez Gordillo has become the public face of the robberies, as Reuters reports this morning;

“There are people who don’t have enough to eat. In the 21st century, this is an absolute disgrace,” he told Reuters this week in an interview in the Atocha train station in Madrid, tugging on his graying Fidel Castro-style beard.

Sanchez Gordillo says he wants to draw attention to the human face of Spain’s economic mess – poverty levels have risen by over 15 percent since 2007, a quarter of workers are jobless and tens of thousands have been evicted from their homes.

But not everyone is impressed. As government spokesman Alfonso Alonso put it:

You can’t be Robin Hood and the Sheriff of Nottingham.

Reuters interview with Sanchez Gordillo has just gone online here.


Nice piece by Greek newspaper Kathimerini this morning, explaining how Greece’s government has imposed an effective, unofficial, spending moratorium. That means a freeze on any outgoings except public sector salaries and pensions.

The move is meant to tide Greece over until it receives its next tranche of aid this autumn. Athens has already spent several billion euros less than planned, but unpaid bills are still mounting up:

From ekathimerini:

According to Finance Ministry data, the total expenditure on investment and operating expenses in the January-July period should have been at least 4.4 billion euros more than it actually was. At the same time, debts to suppliers since the beginning of the year have risen 15.4 percent, or 887 million, and have come to total some 6.6 billion euros.


After gently rallying for several days, European stock markets have taken a dip this morning.

FTSE 100: down 30 points at 5834, – 0.5%

DAX: down 22 points at 6951, – 0.33%

CAC: down 13 points at 3436, – 0.4%

Traders seem to have lost faith that central bankers might unleash another stimulus package soon – on the grounds that yesterday’s US economic data was better than expected.

Chris Weston of IG Index explains:

Where a renewed asset-purchase programme by the Federal Reserve was consensus two weeks ago, this view is probably 50/50 today and we feel there is certainly scope to for the Fed to stay put for now and wait until after the November US elections and into 2013.

It’s so quiet in the City at present, with trading volumes at their lowest levels in many years. Talking to traders, they reckon most people are sitting tight in preparation for a dramatic September.


The Greek government document obtained by the FT (see 7.53am), states that a two-year delay to its current reform plan would cost €20bn That might be optimistic – there were reports last month that such a delay would actually require between €30bn and €40bn of fresh funding (due to the deterioration in Greece’s budgets in recent months).

More here.

If true, that larger figure might well need some contribution from Greece’s eurozone partners (something which Samaras’s current plan avoids).


Elisabeth Afseth, analyst at Investec, believes that the Greek government probably has a solid case for requesting a delay to its austerity plan, but predicts opposition from Germany.

She writes:

The arguments for a delay may be sound, but patience is running very thin after serious delays to the first programme and renegotiations are coming less than 6 months into the second bailout.

Wouldn’t be surprised if we see some German politicians expressing an opinion on the proposal over the next few days, though serious discussions will come in September when the troika returns to Athens.


Good morning, and welcome to our rolling coverage of the eurozone crisis.

Greek prime minister Antonis Samaras will formally ask for the terms of the county’s aid package to be relaxed next week, the Financial Times is reporting this morning.

The FT has got hold of a document outlining Samaras‘ plans for his meetings next week with Angela Merkel and François Hollande. This shows that Samaras will insist that Greece can only recover if the pace of reform is slowed.

The proposal includes spreading cuts over the next four years (not two as currently planned), and a less pacey approach to cutting the Greek deficit (lowering it by 1.5 percentage points, not 2.5 points as under the plan agreed earlier this year.

Such a plan would be costly, though, as the FT outlines:

According to the document, Greece would need additional funding of €20bn to support the budget as the annual deficit reduction in 2013-2014 would be smaller than planned. However, Athens is proposing to find the money without seeking help from eurozone partners.

Funds would be raised from an existing IMF loan, issues of treasury bills and, Greece hopes, a postponement in the start of repayments of its first EU-IMF loan from 2016 until 2020, when it is due to begin paying back its second bailout loan.

We’ve known for a long time that the Greek government wants to relax the terms of its austerity plan; but how will Merkel and Hollande react? Several German politicians have already signaled their opposition to cutting Greece any more slack, so Samaras could face a chilly reception in Berlin next week…

We’ll be tracking reaction to this story through the day.

Also coming up: the latest UK unemployment data is released at 9.30am, along with the minutes of the Bank of England’s latest meeting. © Guardian News & Media Limited 2010

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Calls for ‘banking union’ to save euro after Paris and Brussels support Spain’s plea for EU rescue of its beleaguered banks

Powered by article titled “Germany weighs up federal Europe plan to end debt crisis” was written by Ian Traynor in Brussels and Giles Tremlett in Madrid, for The Guardian on Monday 4th June 2012 21.09 UTC

Europe’s leaders appear to be edging towards an ambitious and controversial new blueprint for a federalised eurozone after Paris and Brussels threw their weight behind Spain’s pleas for an EU rescue of its beleaguered banks.

At the start of three weeks likely to be crucial to the survival of the euro, the new French government and the European commission voiced strong backing for a new eurozone “banking union” to save the single currency.

The plan could see vast national debt and banking liabilities pooled – and then backed by the financial strength of Germany – in return for eurozone governments surrendering sovereignty over their budgets and fiscal policies to a central eurozone authority.

Spain’s banking crisis, together with extreme volatility in Greece ahead of the rerun general election on 17 June and the French parliamentary poll on the same day, are compounding the febrile atmosphere and worrying the markets.

A “gang of four” – the European council president, the commission chief, the president of the European Central Bank and the head of the eurogroup of 17 finance ministers – has been charged with drafting the proposals for a deeper eurozone fiscal union, to be presented to an EU summit at the end of the month.

“You can’t demand eurobonds but not be prepared for the next step in European integration,” Germany’s chancellor, Angela Merkel, said at the weekend. “We won’t be able to create a successful currency like that and no one outside will lend us money any more.”

Pierre Moscovici, the new French finance minister, said eurozone bailout funds should be used to inject cash into collapsing banks. Such direct payments are impossible under existing rules. Moscovici added that France wants the summit to set up a eurozone banking union, which would take on responsibility for propping up failing banks and guarantee depositors’ savings across the 17 countries.

The commission and France are piling pressure on Germany to line up behind the proposal, which Merkel would need to take to her parliament for agreement. Renewed focus on Merkel came as she endured some of the strongest criticism yet seen during the 30-month crisis for the way she has handled the euro turbulence.

Joschka Fischer, the former German foreign minister, warned that his country was at risk of destroying itself and Europe for the third time in a century, and gave Merkel just a few months to change course and save the currency. In an article published on Monday, he wrote: “Germany destroyed itself – and the European order – twice in the 20th century. It would be both tragic and ironic if a restored Germany, by peaceful means and with the best of intentions, brought about the ruin of the European order a third time.”

At a meeting in Berlin on Monday night, José Manuel Barroso, the European commission president, was expected to press Merkel on the issue of bank rescues, which has turned critical because of Spain’s banking emergency.

Spain’s prime minister, Mariano Rajoy, is reluctant to request a full-scale EU bailout because it would come with draconian and humiliating terms. He has the support of Olli Rehn, the European commissioner for monetary affairs. “It is important to consider this alternative of direct bank recapitalisation,” said Rehn, “to break the link between the sovereigns and the banks.”

Under existing rules for the bailout fund, money may go only to governments that can request a state rescue and then use the cash to shore up their distressed banks. The vast bulk of the Irish bailout has gone directly to the country’s ailing banks.

On his debut visit to Brussels, Moscovici called for a change in those rules: “We are in favour of this banking union,” he said. “It’s a fundamental issue for which proposals are on the table.”

Spain’s most senior banker, Emilio Botin, boss of Santander, called on Europe’s rescue funds to help out. He said four of Spain’s banks needed €40bn (£32bn) of new capital “and that will be enough”. Botin’s figures reportedly include €19bn that the Spanish government has already pledged to pump into stricken lender Bankia – cash that Spain does not have.

Botin’s assessment is at odds with banking analysts, who estimate that Spain’s banks need up to €100bn. Santander, which operates a ringfenced banking business in the UK, is not among those judged to need fresh capital. However, it is likely that if new direct bank support were approved for Spain, Ireland and Portugal might request similar treatment.

In a speech in Italy at the weekend, the financier George Soros warned that Merkel had no more than three months to fix the euro, but outlined the prospect of a grim new eurozone controlled by Berlin.

“The likelihood is that the euro will survive because a breakup would be devastating not only for the periphery but also for Germany,” he said. “Germany is likely to do what is necessary to preserve the euro – but nothing more.

“That would result in a eurozone dominated by Germany in which the divergence between the creditor and debtor countries would continue to widen and the periphery would turn into permanently depressed areas in need of constant transfer of payments … it would be a German empire with the periphery as the hinterland.”

The proposals being drafted for the summit are certain to feature calls for a form of eurobond whereby Germany and other smaller creditor countries guarantee the debts of the struggling member states.

The blueprint, not yet finalised, has been played down by the European commission. “There is no masterplan,” said a spokeswoman, Pia Ahrenkilde-Hansen. The notion was also rubbished in Berlin on Monday – but not ruled out. “We are talking about several years and certainly not a solution that we are thinking about in the current problematic situation,” said Merkel’s spokesman.

In return for yielding to the pressure to pay to save the euro, Berlin will insist on major steps towards a eurozone federation or political union with budgetary, fiscal, and scrutiny powers vested in Brussels and in the European Court of Justice, meaning vast transfers of sovereignty from member states.

The Portuguese government said three of its leading banks would receive capital injections of €5.8bn, using funds provided under the country’s €78bn state bailout.

The banks included Portugal’s largest, Millennium, as well as BPI and state-owned Caixa Geral de Depositos. Only one of the country’s major banks, Banco Espirito Santo, is surviving without state funding. © Guardian News & Media Limited 2010

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