Looking back at Greece, the next question is: who will become caretaker prime minister for the few weeks until new elections are held?
The decision will be taken tomorrow at another meeting at the presidential palace, starting at 1pm Greek time (11am BST). The front-runner appears to be Panagiotis Pikrammenos, the head of Greece’s Council of State ( the supreme administrative court of Greece).
A remarkable newsflash on Reuters — François Hollande’s plane has apparently been hit by lightning on route to Berlin to meet with Angela Merkel, and is returning to Paris (attributed to a presidential source).
Update: The new president of France has been swapped onto a second plane, and is even now winging his way to meet Angela Merkel. Our Paris correspondent, Angelique Chrisafis, reports that he now won’t arrive until 8.30pm local time.
#Hollande has taken off again for Berlin in another plane, after first was hit by lightning
— Angelique Chrisafis (@achrisafis) May 15, 2012
European stock markets have closed for the day, and there’s bad news wherever we look.
Spain is the leading casualty from today’s developments in Greece. Its main stock index, the IBEX, fell 1.8% to 6700 points. That’s its lowest level in nine years. Spanish sovereign debt also fell in value, pushing up the yield (effectively the interest rate) on its 10-year bonds to 6.36%.
Italian 10-year bond yields also rose, hitting 6.02%.
Policymakers generally see 7% as the point where yields have become unsustainable — that was one trigger that forced Silvio Berlusconi out of office six months ago.
The Italian stock index, the FTSE MIB, slid by 2.6%, making it the biggest of the major fallers. In London, the FTSE 100 finished 0.5% lower at 5437, with Germany’s DAX losing 0.8% and the French CAC ending 0.6% lower.
The Athens market shed 3.6% to close
Joshua Raymond of City Index said traders now accept that Greece could soon leave the euro, despite European leaders rejecting the idea:
Whilst EU finance ministers attempt to brush off speculation that Greece may in fact end up leaving the Euro as propaganda and nonsense, the market reaction affirms the fact that this is a scenario investors are now beginning to believe will soon be a reality.
The euro’s sharp fall this afternoon has seen it hit a new three-and-a-half year low against sterling.
The pound is now trading at €1.2563, which means one euro is worth 79.6p.
Christine Lagarde, head of the International Monetary Fund, has just been speaking about today’s collapse of Greek government talks, which will lead to fresh elections within a few weeks
Conceding that the situation is extremely serious, Lagarde said that she hopes Greece will not leave the euro, but admitted:
We have to be technically prepared for anything.
Showing a talent for understatement, Lagarde said a Greek exit from the eurozoen would be “quite messy”, and the full implications were difficult to calculate.
Lagarde went on to urge the European Central Bank to do more to stimulate the stalling Eurozone economy, saying that the ECB had “room to manoeuvre” on interest rates.
Eurozone interest rates are currently pegged at 1%, compared to 0.5% in the UK. Inflationary pressures had prevented a cut, but perhaps the ECB will feel it must now prioritise economic stability over price stability…..
IMF’s Lagarde says the IMF “hopes” Greece doesn’t leave the Euro; says the ECB has room to maneuver on lowering key rates.
Despite the political vacuum in Greece, its government has decided today to pay €435m to investors who hold bonds that matured today.
These bonds are part of €6.4bn of outstanding debt held by traders who refused to take part in the bond swap this year, which reduced Greece’s national debt by €100bn.
In a statement, Greece’s Ministry of Finance said it had “weighed carefully all relevant factors and implications” before deciding to pay the bonds. It’s a controversial move — handing over cash to foreign bondholders when Greece’s financial position is so precarious.
James Campbell, partner at international law firm Pillsbury, argues that Greece was in a terribly difficult position. Had it not paid the €435m, it would have defaulted. But by paying up today, it faces the risk of legal action from bond-holders who did take a haircut (losing 70% of the value of their bonds).
That Greece has paid may not be the end of the affair. We can see significant protests from those bondholders who agreed to previous debt restructuring on the basis that Greece said that there was no money available to do anything else. Lawsuits may follow if previous “co-operative” bondholders view this as a misrepresentation.
Furthermore, Greece’s decision to pay will be seen as a victory for the hold-out bondholders which will embolden them. In March the press widely reported that funds were buying up bonds issued by Hellenic Railways and guaranteed by the state. Like the bonds repaid today, those bonds are governed by English law and the proposed restructuring of them was not successful. These bonds are up next for repayment and we will be monitoring developments with interest. Greece may only have deferred the pain for another day.
Just what Greece needs right now, a legal battle with international investors….
The eurozone crisis continues to bubble away in Italy, where construction firms are today threatening to sue the Italian authorities unless they are paid on time.
Tom Kington reports:
Since the downturn began in 2008, 7,750 firms have gone under, with the loss of 380,000 jobs, the building sector association president said on Tuesday.
But while the recession is crippling the business, the late paying government is making matters worse, he said, with companies now waiting from nine months to two years to be paid for public contracts.
Ten days after asking firms to send in their unpaid bills, the association has totalled one billion euros and claims the final tally for the industry will be 19 billion.
“Ministers have talked of offering government bond instead of cash, but we need liquidity,” said an association spokeswoman. “So we are proposing the banks offer to pay with the government then repaying the banks.”
The next bad news for the sector arrives this summer with the introduction of a dreaded new property tax to replace the one scrapped by Silvio Berlusconi in 2008 which could prompt a fall in house prices by year end.
City analysts are warning that Greece could soon face bankruptcy, if its international partners withhold payments under its aid plan.
Jonathan Loynes, chief European economist at Capital Economics, said:
There is now a considerable danger that Greece simply runs out of money next month – that it can’t pay wages, can’t run public transport, can’t maintain infrastructure and that the country just descends into complete chaos.
Now Antonis Samaras, whose right-wing New Democracy Party came first in the election nine days ago (but with under 19% of the vote) is speaking.
Samaras began by warning that Greece is living through its most critical and difficult times since 1974 (the year when the military dictatorship was otherthrown). He then blamed “a wall of arrogance” for thwarting efforts to avoid new elections, in what looks like an attack on the parties who have campaigned against Greece’s financial programme.
Those elections, he added, were a clash between Europeanism and “opportunistic adventurism”.
It also appears, though, that Samaras acknowledged that Greece’s bailout conditions need to change, stating:
Europe now understands that austerity without development is not the way ago. Once I was the sole person saying this.
German finance minister Wolfgang Schäuble has become the first foreign politican to comment on the collapse of today’s last-ditch talks. He insisted that little had changed, and that Greece must stick to the terms of its aid package.
Schäuble (in Brussels for today’s meeting of fellow finance ministers) said:
If Greece….wants to stay in the euro then they have to accept the conditions.
Schäuble added that Europe needs a Greek government that is able to make decisions.
failing to agree a deal, Italians have been raging against credit rating agency Moody’s for downgrading 26 Italian banks last night.While Greece’s politicians were
From Rome, Tom Kington reports:
Italians have never liked being judged by ratings agencies and Pierferdinando Casini – leader of the centrist UDC party –proved no exception on Tuesday when he called Moody’s decision “a criminal plan against Italy and Europe”.
Casini – one of three key party leaders backing Mario Monti’s technical government — was echoing the outrage of Italy’s banking association, which called the move “an aggression against Italy, its companies, families and citizens.”
Italy’s business association Confindustria called the move “an attack on Italy”, while the country’s anti trust chief said the use of ratings should be restricted and Luigi Abete, chairman of BNL, called for the decision to be viewed “with a huge pinch of salt.”
The banking association made the point that Moody’s had cited the negative impact of Mario Monti’s austerity measures on the economy as a reason for the downgrades after previously calling for those measures to be introduced.
The furious reaction follows the opening of a probe by Italian magistrates last year into Moody’s, Standard & Poor’s and Fitch for possible market rigging. Showing they meant business, investigators last August duly raided the Milan offices of Moody’s and Standard & Poor’s.
This graph shows how the euro tumbled against the US dollar as soon as currency traders learned that the talks in Athens had failed.
It hit a low of $1.2754, which is the euro’s weakest point since mid-January. (corrected, we had a garbled number earlier)
More quotes are flying in from Athens.
Fotis Kouvellis, head of the small Demcoratic Left party, said:
The country is heading towards elections. The talks were fruitless. No progress was made to avoid taking the country to elections again.
We’ve already heard from Evangelos Venizelos (see 2.12pm). Antonis Samaras of the New Democracy party is expected to speak soon.
Nouriel Roubini, the economics professor known as “Dr Doom”, has swiftly predicted that new elections will be won by Syriza (the Coalition for the Radical Left which opposes Greece’s austerity programme), and that this will lead to Greece leaving the eurozone.
Roubini argues that it would be impossible for Syriza to agree with Greece’s Troika of lenders:
New Greek election will lead to victory of Syriza and collision course with Troika that will lead to default and exit
— Nouriel Roubini (@Nouriel) May 15, 2012
That may be a little premature. The latest opinion polling has shown that Alexis Tsipras’s Syriza party has gained support since the last election (in which it came second behind New Democracy). But a second ballot would be fought in a different environment, and could be a clearer referendum on Greece’s future in the eurozone.
Shares on the Athens stock market tumbled as soon as the news broke. The main index has now fallen by 5.2%, with bank shares losing around 10%.
Markets are in retreat across Europe, with the German DAX falling by 1.4%, the French CAC down 1.1%, and the FTSE 100 losing 0.6%.
Pasok leader Evangelos Venizelos spoke to the press after the talks over the formation of a unity government broke up in the past few minutes.
Venizelos, the former finance minister, said he would fight for Greece to find its way forward. Confirming that Greece must hold fresh elections, Venizelos said he hoped for a “mature decision” this time, adding:
in God’s name let’s not go to the worse.
Helena Smith watched Venizelos speak, and reports that he appeared “furious”, and blamed the breakdown of the talks on “arrogance, petty party politics and opportunism”
The next step is that political leaders must reconvene at the Athens presidential palace tomorrow at 1pm local time (11am BST) to agree a “service government” to run the country in the short term.
Breaking news from Greece — the last-ditch talks over a unity government have ended, seemingly without agreement.
Panos Kammenos, leader of the Independent Greeks party, has just told reporters that the talks have failed.
Update: A spokesman for the Greek president has confirmed that a deal could not be reached, and that new elections must now be called.
The news has sent the euro tumbling to a new four-month low of $1.2786 against the dollar. Shares are also falling across Europe…. More to follow
Out in Ireland, a leading businessman has warned that the country would risk crashing out of the euro if it rejected the new stability pact in an upcoming referendum.
Ireland correspondent Henry McDonald reports:
Sean O’Driscoll, chairman of the Glen Dimplex manufacturing group, said proponents of a no vote on 31 May were being “disingenuous” in claiming the republic could remain in the euro even if the electorate rejected the EU fiscal treaty.
Speaking at the British Irish Parliamentary Assembly in Dublin, O’Driscoll, whose company exports 30% of its household appliances to the UK, said exit from the euro was inevitable if Ireland said no to the new rules on EU states’ budgets.
“There is only one vote, and it’s a yes vote,” he said. “It is very interesting that those who are advocating a no vote will not then come out and say whether or not Ireland should leave the euro.
While other business leaders agree with O’Driscoll, opponents of the pact argue that it will lead to yet more austerity being piled on the Irish people. More details here.
It’s that time of the day when European finance ministers start opining on the Greek crisis.
Sweden’s finance minister Anders Borg has told reporters in Brussels that we are now “very close to the end of the road regarding Greece”, and that Greece must “seriously consider” if wants to remain in the eurozone (quotes via Dow Jones).
Sweden, of course, isn’t actually in the eurozone, but it is still exposed to the crisis. The IMF warned today that subdued exports are likely to reduce output this year, mainly due to the weak European economy.
My colleague Nick Mead has created an interactive map showing how Europe’s economies have fared over the last year, including today’s GDP data.
see 12.12pm), it’s worth checking out the views of Greece’s former prime minister, Costas Simitis, today.While negotiations over the “government of personalities” begin in Athens (
The man who oversaw the country’s entry into the euro zone in 2001 has been making some interesting comments about the crisis today. Helena Smith has the details:
Addressing a forum in Beijing, the 75-year-old politician said Greece’s exit from the common currency would be a “catastrophe.”
“The idea of coming back to the drachma is an idea that cannot function,” Simitis, whose first foreign language is German, said in slightly idiosyncratic English.
The former socialist leader insisted that speculation of a euro exit was a “discussion without sense” and said, more than anything else, he believed it was really about political parties “trying to renegotiate the conditions [of rescue fund handouts] with the European Union.”
Withdrawal from the common currency was irrational, he said, because it would require banks to shut for a period of “at least three months” while printing of a new currency was carried out and preparations were made.
“Having the banks close for three months – that’s nonsense,” he said. “If they close more than three days there will be a bank run.”
But if this is all about bargaining over measures that have clearly been rejected by majority vote (nearly 70% backed “anti-bailout” parties in the May 6th elections), then Greece is also playing a dangerous game.
Alexis Tsipra, whose Syriza party has benefited most from anti-austerity sentiment, was warned by his mentor, the veteran leftist Alekos Alavanos this week, that rejection of Athens’ loan agreement with creditors would also mean leaving the 17-nation bloc. Tsipras has said the controversial accord should be “torn up.”
“The left must warn the people responsibly. Not only by telling them that the road away from the bailout is also the road that leads to exiting the euro,” Alavanos wrote in an opinion piece on the news website tometopo.gr “But also that it will be particularly painful. But with prospects.”
My colleague Giles Tremlett gets in touch from Madrid with an update on the latest developments in Spain, another key part of the eurozone crisis:
While Spanish banks dominate the headlines, this is also a key week for sorting out what markets see as the country’s other major headache (barring, of course, massive unemployment and recession) – which are the budgets of the regional governments.
Spain missed its 6% deficit target spectacularly last year, hitting 8.5% instead. This is precisely because of the regions – which run health and education and, so, do much of Spain’s public spending. The two biggest regions, Catalonia and Andalucia are presenting budget plans today.
Catalonia has just announced the privatisation of motorways and water companies, as well as a fire sale of public property. Andalucia is expected to cut civil service pay.
On Thursday all the regions meet with budget minister Cristobal Montoro to have their budgets approved (or not).
The talks between the Greek president and five political leaders over the formation of a national unity government to lead Greece forwards and end the mounting political uncertainty engulfing the country have just begun.
Helena Smith reports that five leaders have just been ushered into the presidential palace. Television channels have broadcast footage of them sitting around an oval table with president Carolos Papoulias at the head.
As on Sunday, there are again strained smiles although this time mixed with an air of gravity amid heightened concerns over Greece’s place in the the euro zone.
The five leaders are New Democracy’s Antonis Samaras, Syriza’s Alexis Tsipras, Pasok’s Evangelos Venizelos, Independent Greeks’ Panos Kammenos, and Democratic Left’s Fotis Kouvelis.
They must consider Papoulias’s proposal that a government of technocrats or respected personalities should be formed, after repeated negotiations for a coalition government have failed.
Here’s another picture from the break-up of the austerity protests in Athens (see also 11.55am).
It appears that police in Greece have broken up a small protest against austerity in Syntagma Square, the site near the Athens parliament.
Pictures from the scene show officers forcibly detaining protesters, before taking some away in a police van.
Greek newspaper Kathimerini reports on its website that around 25 people from “Spain, Italy, Ireland, France and Greece” had pitched tents in the square yesterday, and that 16 people were arrested.
Finance ministers have been arriving in Brussels for today’s meeting.
Here’s what George Osborne said to the press pack:
This is a time of considerable uncertainty in the eurozone economies and that uncertainty is undermining the entire European recovery.
I think we are reaching a point where we have got to make a decision to see the eurozone stand behind their currency.
A very important part of that, of course, is strengthening the entire European banking system, and that is what we intend to do today.
European finance ministers are expected to reach a deal on core capital requirements for the region’s banks today.
The news that the eurozone has avoided recession is politically tricky for the UK government, which has repeatedly blamed Britain’s economic woes on the problems over the English Channel.
Just last night, chancellor George Osborne warned that the eurozone crisis was affecting the wider economy, saying in Brussels that:
The euro zone crisis is having a real impact on growth across the European continent, including Britain….
The British recovery has been damaged over the last two years not by Britain getting a grip on its public finances but by uncertainty in the euro zone.
So it’s somewhat embarrassing to now find that the Eurozone managed to avoid contracting in the last three months, while the UK shrank by 0.2% (although, in the spirit of balance, many business leaders reckon that reading was too negative).
Ed Balls, Labour’s shadow chancellor, has already argued that today’s GDP data shows the UK’s double-dip was caused by domestic policy.
After all George Osborne’s bluster, Germany & France avoid recession -confirming the UK does have a recession made in Downing Street
— Ed Balls (@edballsmp) May 15, 2012
Spain (anothe country in recession) is increasingly sending out SOS messages to its eurozone partners.
My colleague Giles Tremlett reports from Madrid:
Finance minister Luis de Guindos has today suggested the European Central Bank should help with the two valuations of total bank assets that Spain’s government is to commission from independent valuers. Fellow eurozone ministers are pressing for Spain to complete the valuations quickly, but the task is huge. De Guindos says they will try to get it done in two months.
Spain’s conservative People’s party government, ideologically aligned with Angela Merkel, went into the eurogroup meeting claiming it is doing all it can to sort out banks and deficit-spending, while pushing ahead with key labour market and budget reforms.
If that is not enough to stop bond yields soaring (and yesterday they reached their highest level since the nerve-shattering month of November, with the interest on ten year bonds closing at over 6.2 percent), then the eurozone must react as a whole, De Guindos said. “What we need now is cooperation from the eurozone and a joint reply,” (to market pressures) he said.
Mads Koefoed of Saxobank
Germany is leading the bloc, but this doesn’t mean we will have a strong rebound, austerity is not going away and southern European economies are really struggling.
We are looking at stagnation to very mild growth in the year to come.
Howard Archer of IHS Global Insight
The Eurozone has struggled for any growth at all since the first quarter of 2011.
While it is welcome news that the Eurozone avoided recession, its performance is hardly something to celebrate as GDP was only flat year-on-year in the first quarter of 2012. Furthermore, generally weaker latest data and, particularly, survey evidence suggests that renewed GDP contraction is very much on the menu for the second quarter.
Jennifer McKeown of Capital Markets
The region remains heavily reliant on Germany, where activity rose by a better-than-expected 0.5 percent, thanks mainly to strong net trade.
Looking ahead, the situation will only get worse as the periphery remains mired in recession and German exports falter.
Ranvir Singh, chief executive of RANsquawk
At the top of the pile are the Germans, quietly assured of the power and reliability of their export-driven economy.
In the middle sits France, which is heading the other way but has so far just teetered on the edge of recession. Modest growth at the end of 2011 turned slipped into stagnation in the first three months of this year.
[But]With recessions battering Spain, Greece and Portugal, the Eurozone as a whole was pegged back to stagnation in the first quarter of 2012.
Portugal’s economy has also continued to shrink, but at a slower rate.
The third member of the eurozone to seek a bailout saw its GDP fall by 0.1% in the first three months of 2012, a much shallower decline than the 1.3% slump seen in Q4 2011.
New GDP data from Greece was also just released, and shows that its long, deep recession continued.
On a year-on-year basis, Greek GDP fell by 6.2% in the first three months of 2012.
That’s a year-on-year figure, rather than the quarter-on-quarter data reported by other countries this morning. But it’s still indicates a savage fall in activity. Economists have calculated that the Greek economy will have shrunk by 20% between 2008 and 2012.
Breaking news – the eurozone has avoided recession, with GDP remaining flat in the first three months of 2012.
Data just released showed that the economic growth across the 17-member single currency union was 0%, defying economist predictions of a 0.2% contraction (following the 0.3% decline reported in the previous quarter).
On a year-on-year basis, the eurozone economy also posted flat growth.
We shouldn’t get carried away – stagnation will not solve the eurozone’s economic problems. But it’s still a small relief.
Today’s talks over the formation of a ‘technocratic government’ in Greece appear doomed to fail, even before they begin.
From Athens, our correspondent Helena Smith reports that Greece’s feuding party chiefs are trading blows, in a sign that the political paralysis is not easing. Helena writes:
In a new twist to the escalating drama engulfing Athens, political party leaders are back at it again: firing salvos of venom at each other and, above all, pouring cold water on the latest possible exit route out of the crisis by forming a government of “personalities.”
The technocrat solution was tountamount to “the defeat of politics,” said Fotis Kouvellis who heads the small Democrat Left party.
“I told the President … that a government formed by technocrats and personalities means the defeat of politics. I expressed that I am against it.”
Greece’s head of state Carolos Papoulias was reported this morning as telling leaders that their differences where “insignificant” compared with their “duty towards the country.”
The president, who proposed that personalities man a new government in what is being seen as the VERY LAST attempt to plug Greece’s power vacuum, meets political leaders at 2 PM local time (noon GMT). With the exception of Aleka Papariga, the communist party chief and Nikos Michaloliakos, who heads the neo-fascist Chyrsi Avgi party, the heads of every single party catapulted into parliament in the inconclusive May 6 elections will be there including Left Coalition leader Alexis Tsipras who refused to attend yesterday’s talks.
But the president’s pleas appear to have had no impact.
Hopes of a solution being reached with the help of Panos Kammenos, a former conservative MP who now heads the vehemently anti-austerity breakaway Independent Greeks party were also dashed today. With 33 seats in the 300-member parliament, Kammenos, in effect, could have held the key to a solution. Cooperation with the centre right New Democracy and centre left Socialist Pasok would have given the new ‘national unity’ government a comfortable 182 seats in the House.
But this morning Kammenos, a blustering right-wing populist, said he would not attend a separate one-hour meeting with Papoulias prior to the talks following the “provocative” distribution of a highly sensitive document attributed to his party. The paper, which had been circulated by the presidential office to party leaders, said Independent Greeks would support a unity government if it were a matter of “national urgency.” Independent Greeks, which has described the EU-IMF imposed austerity and structural reform program as a form of “foreign occupation” reportedly also said it would accept to participate in such a coalition if given the portfolio of the defense ministry.
Speaking to Skai radio this morning, Kammenos said: “This document is not mine, it has never been submitted by Independent Greeks, it is not stamped, nor does it have a protocol number. I did not give it to the president.
With Greece’s euro zone member ship on the line and the stakes so high, the infighting has left many aghast. “I really don’t see how there is any way out apart from going to fresh elections,” Nikos Evangelatos, a veteran observer of the political scene, told a local radio station. “At least elections will give everyone [the parties] the chance to air their views.”
Many Greek citizens sound weary of the ongoing saga, with Diane Shugart questioning the its democratic legitimacy on Twitter:
good morning from the cradle of democracy–government by the people appointed by a few people for the people
— Diane Shugart (@dianalizia) May 15, 2012
There’s quite a lot of interest this morning in comments made last night by Jean-Claude Juncker, the chairman of the eurogroup of finance ministers.
Asked whether the eurogroup has considered the chances of Greece exiting the euro at yesterday’s talks, Juncker responded that such talk was “propaganda and nonsense”.
The exit of Greece out of the euro was not the subject of our debate today. Absolutely no one, absolutely no one, argued in that sense….
But the Greek public, the Greek citizens, have to know that we agreed on a programme and this programme has to be implemented.
Hmmm. If Juncker is being completely honest, that’s actually rather worrying. The idea of Greece leaving the euro isn’t just a media contruct — many economist believe it may be inevitable.
However, Juncker’s comments have been well-received in Athens, our Greece correspondent Helena Smith informs me:
Radio stations commentators have been quoting Juncker as saying: “I don’t envisage, not even for one second, Greece leaving. ” Many have sounded “quite relieved.”
Italy’s recession is getting worse — with news breaking that GDP shrank by 0.8% in the first quarter of 2012.
That’s worse than expected, and much worse than other data this morning (such as Germany’s 0.5% expansion and France’s flat performance). Italy has now been shrinking for the past nine months.
The biggest drop in quarterly GDP in three years comes just hours after rating agency Moody’s downgraded 26 Italian banks.
Over in Greece, reports are coming in that the Athens government will repay a €450m bond which matures today. There had been speculation that the country might have withheld the money, which is due to investors who refused to take part in this year’s debt swap, which would have added another level of uncertainty to the crisis.
The recession in the Netherlands has continued, with data just released showing that the Dutch economy shrank by 0.2% in the first three months of 2012.
That’s the third quarterly contraction in a row, at a time when the Netherlands faces political uncertainty following the collapse of its government last month.
And outside the eurozone, Hungary has suffered its first fall in GDP since 2009, with a 0.7% drop in output in Q1 2012.
Other data has been more optimistic this morning, with Austria growing by 0.2% in the first three months of 2012.
FTSE 100: up 27 points, or 0.4%, at 5487
German DAX: up 45 points, or 0.7%, at 6497
French CAC: up 26 points, or 0.8%, at 3084
Spanish IBEX: up 41 points, or 0.6%, at 6852
Italilan FTSE MIB: up 88 points, or 0.6%, at 13744.
This morning’s GDP data from France and Germany adds another twist to Angela Merkel and François Hollande’s meeting today. A stagnating French economy could reinforce Hollande’s case for a new growth pact, while Merkel’s domestic audience may feel that their economy is performing quite well as things stand.
Our Europe editor Ian Traynor has predicted that Hollande faces a baptism of fire when he arrives in Germany fresh from his inauguration:
If the Frenchman has the advantage of freshness to the German’s slightly jaded air, the underlying reality is of German strength and relative French weakness. The crisis of the past two years has laid bare the myth that the traditional Franco-German relationship at the EU’s core is a partnership of equals.
“France has much less clout in the EU than Germany. The financial crisis and the euro crisis have highlighted the vulnerabilities of the French economy: its waning competitiveness,” wrote Charles Grant, director of the Centre for European Reform.
Merkel may be weakened at home as a result of the North-Rhine Westphalia defeat and increasingly isolated internationally for her euro policies which are also under fire from Washington and the International Monetary Fund.
But she remains personally popular in Germany and by far the most powerful EU leader. She has no intention of reopening her eurozone fiscal pact, which Hollande has consistently criticised. But the new French leader also looks likely to make a difference.
After years of Merkel and Sarkozy cutting deals in private and then presenting faits accomplis to the rest of Europe, Hollande will be less open to doing Berlin’s bidding.
Germany’s economy roared back to growth in the first three months of 2012, according to data released this morning.
Germany GDP increased by 0.5% between January and March, recovering from the 0.2% contraction in the final three months of 2011. Much better than the 0.1% expansion pencilled in by City economists.
Net exports were the main driver of growth quarter-to-quarter, another indication that Germany has not been badly hit by the eurozone crisis.
So, no double-dip in Europe’s powerhouse economy. But also a sign that the eurozone’s two-speed economy may be getting worse (data released last month showed that Spain is in recession, and more data will be released this morning).
Jeremy Cook, chief economist at World First, argues that the data shows the impossibility of setting monetary policy across such divergent economies:
German GDP of 0.5% further emphasises the fact that a strong Europe is impossible with a strong Germany
— World First (@World_First) May 15, 2012
The news that the French economy stagnated in the first three months of 2012 underlines the challenge faced by new president François Hollande.
Paris-based national statistics office Insee reported this morning that French GDP was unchanged compared with the fourth quarter (when it expanded by a meagre 0.1%).
Hollande could take comfort in the fact that the French economy isn’t actually suffering an Anglo-Saxon double-dip recession. But looking into the figures, it was flattered by an increase in government spending, while business investment fell by 0.7% (which could hit growth down the line).
Economists warn that the French economy is on a slippery path, making it hard for Hollande to reduce the deficit without crushing growth. As Societe Generale economist Michel Martinez put it (via Bloomberg):
The new government faces a high-wire act.
A hardening budget stance will only make things more difficult in the months ahead….Too heavy tax increases could cause growth to falter.
Coming up…. in Greece, another round of last-ditch, make-or-break talks will take place in Athens today, nine days after the general election. President Karolos Papoulias will propose setting up a ‘government of technocrats’, after the leaders of the main political parties failed to form a coalition.
The Greek crisis will also dominate a meeting of EU finance ministers in Brussels today. After Monday’s heavy falls on world stock markets, leaders are under relentless pressure to solve the crisis.
Economically it’s a big day, with eurozone GDP for Q1 2012 being released. We’ve already had data from France (which stagnated with 0% change to GDP), and Germany (which smashed forecasts with a 0.5% rise). More on these shortly…..
And on the political front, François Hollande is being sworn in as France’s new president, and will immediately fly to Germany to meet with Angela Merkel to discuss the crisis.