And with that it’s time to close the blog for the week.
Next week sees – among other things – a two day meeting of European finance ministers to discuss the size of the bailout fund, UK fourth quarter GDP figures, Germany’s IFO index which measures business sentiment, Eurozone inflation data, and bond auctions from Spain and Italy.
Until then, goodnight, and thanks as usual for all the comments.
The European Central Bank’s two rounds of providing cheap loans (aka LTRO) is widely credited with calming down the bond markets.
But a third round of three-year cheap funding could be off the agenda. Speaking in Spain – whose bonds have beeb coming back under pressure – one of the ECB’s six executive board members, Jose Manuel Gonzalez-Paramo, said the bank was not thinking in detail about how to unwind its support measures, but had no plans for LTRO 3. According to Reuters:
“The ECB always thinks about the exit strategy when it introduces any non-conventional measures…We are still looking at the effects of the three-year auctions, the details of an exit strategy are not being looked at,” Gonzalez-Paramo told reporters.
He also said the central bank was watching the rise in raw material prices closely to see what effect they may have on inflation in the euro zone.
“It is one of the risks to the upside so we are looking at the rise in raw material prices closely. But inflation expectations in the medium-term remain anchored.”
Europe’s markets have closed and, by some miracle, they have mainly edged into positive territory at virtually the last minute.
Despite all the worries about the global economy and renewed fears about Spain, Portugal and Italy, the FTSE 100 has finished today 9.24 points higher at 5854.89. A mini-revival on Wall Street has helped, with the Dow Jones Industrial Average currently up 23 points despite worse than expected new home sales.
But the FTSE 100 has still fallen 1.86% since Monday, its worst week since the week ending 16 December 2011 when it lost 2.55%.
Elsewhere Germany’s Dax is up 0.21% on the day, France’s Cac is up 0.11% but – perhaps tellingly – Spain’s Ibex is off 0.86%.
Well this should make all the difference. US president Barack Obama has promised Greece it can count on Washington’s support (the Bundesbank’s support would probably be more helpful, but still.)
Speaking at a White House ceremony marking the country’s March 25 Independence Day Obama said:
Nearly 200 years after the Greek people won their war to return democracy to their homeland and become a sovereign state we reaffirm the warm friendship and solidarity that will guide our work together in the years ahead.
But, as Helena Smith reports, these words have done little to douse fears in Athens that anti-austerity protestors will hijack parades marking the anniversary this weekend. She has more details of the plans to keep order during the celebratory parades:
Authorities have mounted an unprecedented security campaign ordering 7,000 police onto the streets and cutting off access to the area surrounding the parliament. Some 40 units of riot police have been seconded to the capital from the countryside with the police presence being especially beefed up in Syntagma Square.
MPs openly admit that with popular anger over spending cuts and tax increases at an all time high they fear being attacked. In recent months, politicians including the country’s head of state, Carolos Papoulias, have been heckled and insulted in public. In one of his last public appearances as finance minister, Evangelos Venizelos had yoghurt thrown at him – the Greek equivalent of pieing – by an enraged pensioner. Others have been physically taunted and, in one case, badly beaten up with the result that none are willing to circulate in public without armed guards.
“Naturally I fear becoming a target, it’s not pleasant and no politician wants to be in that position,” Christos Protopappas, a former trade unionist cum socialist Pasok MP told a Greek radio station today. “People have made sacrifices, they have had their pensions cut and they are rightly angry. But while protest is one thing, violence and thuggery is another.”
The police union itself up in arms about cuts (many officers say the can no longer even afford the fuel to run police vehicles) has vehemently objected to the “unprecedented measures.”
“It’s not possible for national anniversaries to be celebrated with the imposition of police measures,” it said. “This is not our mission. Social problems and the anger of an entire population cannot be dealt with by suppression.”
The European Central Bank has given the eurozone’s central banks the ability to refuse to accept as collateral bonds underwritten by governments in the EU and IMF bailout programmes.
The move, as Reuters explains it, is to partly assuage the Bundesbank, which was concerned that recent ECB moves to make it easier for banks to access its funding had gone too far. The ECB had loosened the rules so banks could offer a wider range of assets, including government-backed bonds from bailed-out banks. Now central banks will not be obliged to accept them.
Reuters is reporting it could be extended until April 4, while Athens newspaper Kathimerini pointed out that general meetings of the bondholders are not scheduled to take place until 27 March.
The paper also says that thousands of police will be deployed in Athens and other major cities on Sunday to try and maintain order during a military parade being held to mark Greece’s Independence Day.
Amid all the excitement of Kim’s nomination, I’ve neglected to record the only significant data of the day – new US house sales. And the news is that they fell 1.6% to a seasonally adjusted 313,000-unit annual rate although prices jumped to their highest level in eight months. Also on the positive side sales for November and December were revised up a bit.
“It’s indicative of a housing market that is still quite weak,” said Neil Dutta, economist at Bank of America Merrill Lynch in New York.
With that I’m handing over to my colleague Nick Fletcher.
A ground breaking meeting took place in Berlin yesterday between German chancellor Angela Merkel and European trade unionists, with talks being dominated by the head of Greece’s biggest private sector workers’ union.
Today Ioannis Panagopoulos, who presides over the General Confederation of Greek Labour, GSEE, had some revealing things to say reports Helena Smith in Athens.
The chancellor, he told various media channels this morning, was “exceptionally polite but also very determined and immovable in her views.”
The Greek trade unionist revelled in the opportunity of being able to give Merkel an unedited account of what living in recession-hit Greece is really like, telling her “in no uncertain terms” that the growth through austerity policies currently being pursued were not only counter-productive but slowly killing the Greek economy.
The European Central Bank, he said, had to play a more active role in boosting development and employment. For the first time since record keeping began there are more people out of work than employed in Greece with joblessness among the young exceeding 50%, according to figures released this month.
Panagopoulos also raised the issue of tiny Greece’s defence expenditure in the wake of revelations that Athens is Berlin’s biggest military export market on the continent of Europe (even if the debt-stricken country’s defence budget has been steadily cut over the course of the past decade).
Making his way back to the Greek capital he told me: “She was quite put out when I raised the matter of spending on defence. It was the only time that she got irritated saying “we never asked you [Greece] to spend 6% of your GDP on defence. When I told her this could stop if Europe guaranteed security along our borders with Turkey the reaction was “you are both Nato members, we are not going to get involved.”
The talks lasted just over an hour Panagopoulos said. But before wrapping up Merkel turned to the Greek trade unionist and asked if “it would be safe” for her to visit Athens. “I told her that there might be protests because German media, like Bild, have done so much to poison the climate but that of course it was safe. And she seemed to understand and laughed. She seems to want to visit Athens,” he said.
And, we add, why not? It would be a perfect opportunity to have a snap taken on the Acropolis ahead of the next German election in late 2013 under the banner headline “how I saved this monument from becoming a ruin.”
this link proves beyond doubt that he is a man of many talents.Back to the nomination of Jim Kim and
an interesting blogpost by Megan Greene of Roubini Global Economics has been sent to me by your usual host, my colleague Graeme Wearden, which argues that the eurocrisis feels quiet because we’re in the centre of the hurricane, with much more turmoil to come.On more conventional euro matters,
The current lull does not indicate that the Eurozone is in the clear, but rather it is simply in the eye of the storm, and more drama inevitably awaits.
Greene reckons Portugal won’t be allowed back into the bond markets; the LTRO has created a dangerous negative feedback loop, where one country/company defaulting will trigger a cascade; the firewall won’t be big enough [a danger we’ve already mentioned this morning]; and political instability in Greece or Italy could sink the whole ship anyway.
Jim Kim, as we can call him, is well qualified in terms of his understanding of development issues although he’s not thought to have any economics background at all.
Having said that this Korean-born son of a dentist who was brought up in Iowa has done just about everything else. According to his biog on the Dartmouth College site, he’s taught anthropology, social analysis, social medicine and global health in a career that blazed a trail through American academia.
In a shock move, Obama nominates candidate for World bank president who actually has a clue
— Richard Adams (@RichardA) March 23, 2012
Support coming in Jim Yong Kim from other potential candidates.
Jim Kim is a superb nominee for WB. I support him 100%. I thank all who supported me and know they’ll be very pleased with today’s news
— Jeffrey D. Sachs (@JeffDSachs) March 23, 2012
It’s expected that the World Bank will announce its shortlist of three candidates for the top job next week and then begin interviews. The deadline for nominations is today.
The job has always gone to the US nominee so but Jim Yong Kim’s name was not expected, leaving the field more open than usual and perhaps leaving the possibility that a non-American such as Nigerian finance minister Ngozi Okonjo-Iwela could get the nod.
Obama’s nomination for the World Bank, Jim Yong Kim, looks like being very controversial.
A doctor who trained at Harvard Medical School, he is currently president of the US Ivy League institution Dartmouth College having made his name promoting health care in developing countries.
But he isn’t the heavyweight political or economic figure many thought was needed for the jobs such as Hillary Clinton or Jeffrey Sachs. And his tenure at Dartmouth has been marred by a string of controversies, including allegedly failing to publish the annual budget and installing a $30,000 coffee machine in his private office.
We’ll be bringing you more on this story as soon as possible, as people on the telly say….
Bit of breaking news on the blog. Barack Obama has nominated Jim Yong Kim, president of Dartmouth College to head the World Bank. More shortly…
next Friday’s Ecofin meeting in Denmark. As we said earlier (and I’m indebted to our Europe editor Ian Traynor for that entry), the question of how big the euro rescue fund should be will dominate the meeting but there will probably be a compromise to take the fund a bit higher than the €500bn limit the Germans would like and the near-€1 trillion bazooka everyone else wants.The focus the eurozone story is increasingly going to zoom in on
Reuters reports that it has seen a document in Brussels which sets out the options. These are exactly along the lines that we reported earlier but worth reiterating:
Option 1: The EFSF and ESM are combined to create a €940bn fund, minus the money already dished out to Greece, Portugal and Ireland and leaving a fund of €740bn. The Commission hopes such a show of strength would then encourage the US and CHina to stump up more money to the IMF to bolster the rescue effort.
Option 2: Allow the EFSF and ESM to operate independently of one another until the EFSF is wound down next year. That would also equate to a joint-lending capacity of 740 billion euros but only until the EFSF is closed.
Option 3: Disband the EFSF ahead of 2013, making the ESM responsible for all lending, leaving a total lending capacity of €500bn.
An EU diplomat told Reuters: “The question is what Germany might want in return to agreeing to a bigger firewall, be it more austerity from member states, or a German in one of the top posts soon to be vacant in the EU.”
John Hooper, our Rome correspondent, has been looking at the controversy around Italy’s new employment laws, which form the centrepiece of Mario Monti’s government’s programme for boosting its moribund economy. John writes:
The reforms went to cabinet this morning but there is already evidence it faces a tense and difficult journey to the statute book.
Ministers continue to insist that the lady – in this case, Elsa Fornero, the welfare minister and architect of the reform – is not for turning. But the bill is now in a form that allows it to be modified in parliament where the centre-left leader, Pier Luigi Bersani, has already said he wants to see changes.
Bersani is one of the government’s political sponsors. But the pressure on him was stepped up overnight when the second of Italy’s three main trade union federations, the Catholic-inspired CISL, shifted its position and said new rules making it easier to fire workers went too far. At the same time, the Catholic bishops’ conference has pointedly noted that employees are not “merchandise”.
This morning, in an attempt to bolster the position of Italy’s ‘technocratic’ government, president Giorgio Napolitano said he did not expect an “avalanche” of dismissals as a result of the proposed law. An ex-Communist, his views on the subject carry a special weight.
Employment security has a sad history of sparking deadly violence in Italy. Advisers on labour market reform to two previous governments were assassinated.
Earlier this week, a demonstrator was photographed wearing a tee-shirt with the slogan “Fornero for the cemetery” . And the news web site Lo Spiffero reported that when the minister went shopping in Turin last weekend, she had an escort of six bodyguards plus four Carabinieri patrol officers to block off the street where she bought herself a pair of shoes.
As was the case for the swap for bonds governed by Greek law earlier this month the deadline will officially end at 8PM GMT.
“This is the first I’ve heard of it [an extension]. I don’t think that is going to be the case,” said a well-briefed government source.
But the merry go round that is the great Athenian rumour mill is nonetheless swirling with talk that the deadline will be extended – if only because there are more than ten Greek bonds governed by foreign law and in each case holders will require a different quorum to decide whether to take up the offer, or not.
“There is a lot of speculation this morning that it will de prolonged if only for that reason,” said another well-placed insider. The public offering was meant to gets off the ground Monday.
Private sector participation in the first round of the debt restructuring hit 85.8 % – a take-up rate that rose to above 97 % when the Greek government activated collective action clauses, or CACS, to force recalcitrant bond holders to participate in the bond exchange.
bradfudbantam and Self have pointed out that the share prices are wrong on our website. All I can say is that, without wishing to sound like a recorded announcement on BT or Virgin, our technical experts are aware of the problem and are trying to fix it.A couple of readers, including
What I can tell you is that the FTSE100 is now down a bit — 8 points to be precise — after the initial excitement caused by BT’s pension deal.
Bond Vigilantes who aren’t convinced that all is well in the eurozone. Regulators still need to be convinced that the Greek bailout has solved the eurozone crisis.It’s not just
My colleague Jill Treanor points out that the latest evidence of comes from the Financial Policy Committee, the new regulatory body set up inside the Bank of England to look after systemic risk.
The minutes of its latest meeting, published today, calls on banks to raise their levels of capital “as early as feasible”. While watchers of the FPC may feel they have heard this refrain before – as recently as the end of last year when the FPC called on banks to reduce dividends and bonuses if their capital levels were not strong enough, the current message it tougher. This time the FPC is calling on banks to raise capital from external sources – shareholders or bondholders or whatever.
The FPC noted that banks had been managing to tap bond markets, despite the crisis in the eurozone. The report says:
The committee agreed, however, that conditions remained fragile. While the ECB’s operations had alleviated some of the immediate tensions, questions remained about the indebtedness and competitiveness of some European countries. Banks with large exposures to those countries where risks of persistent low economic growth and potential credit defaults remained high should be particularly alert to the need to build capital.
The Committee had recommended in November that, given the exceptionally threatening environment, if earnings were insufficient to build capital levels further, banks should limit distributions and give serious consideration to raising external capital in the coming months. Following this recommendation, the FSA had discussed with the largest UK banks how best they might build capital in the short term. Some progress had been made by the banks in meeting the Committee’s recommendation. In 2011, variable remuneration paid in the form of cash had fallen in four of the five largest UK banks that had reported and by 17% in total at those banks. Aggregate nominal capital at the three largest UK banks that did not have a significant element of public ownership had increased by over £1.5 billion in the second half of 2011.
Nevertheless, the Committee remained concerned that capital was not yet at levels that would ensure resilience in the face of the prospective risks. It therefore agreed on the need for banks to continue to restrain cash distributions, including via share buybacks. But the scope to build capital through this route was limited. It therefore advised banks to raise external capital as early as feasible.
In other words, there’s a storm coming…..
Yields on benchmark 10-year Spanish bonds are still up today — they’re currently running at 5.482%, arise of 0.043 points — and the spread with German bunds has climbed to 358 basis points, the highest level since January.
There’s also this scary tweet from the Bond Vigilantes which suggests that things might be hotting up again, crisis-wise.
Markets already betting heavily on next Greek default – yields on new PSI Greek bonds 3% higher, prices have plunged from ?25 to below 20
— Bond Vigilantes (@bondvigilantes) March 23, 2012
This just in from our man in Brussels Ian Traynor.
Jürgen Stark, pillar of the German monetarist orthodoxy who quit as the ECB’s chief economist in protest at handling of euro crisis, says Draghi’s policy of quantitative easing or flooding EU banks with cheap three-year loans, will end in tears. The more common view is that if anything has saved the euro, it is Draghi’s policy.
The trillion euros doled out in two months can’t be absorbed quickly enough by the banks, Stark warns in an interview with Germany’s business paper, Handelsblatt.
“Historically we know that every particularly strong expansion of the central bank’s balance sheet leads to inflation in the medium term.”
He demands an ECB exit strategy from the liquidity policy, echoing demands from Bundesbank boss Jens Weidmann.
Today is the deadline for participation by holders of Greek bonds covered by foreign law in the bond swap. There are suggestions that it could be extended again. Surprise, surprise.
Italian retail sales have come in better than expected, rebounding by 0.7% in January from December. In December, sales were down 0.8%.
Finally some good news. Bank of England policy maker Martin Weale reckons the British economy probably grew in the first three months of this year and will escape a double dip. In an interview with the Bath Chronicle, he also said he expected normal economic growth to resume over the medium term – although that doesn’t ncessarily mean we’ll make up lost ground, he was quick to add.
In the first quarter of htis year things have been better than I’d anticipated. I think it’s more likely than not that growth will be positive.
Looking ahead, we’ll have quite a bit of disruption to the data because first we have the Diamond Jubilee, then the Olympics. The numbers, I’m sure, will jump around and it will be difficult to know what to make of them until we have a more stable picture late this year, and maybe not until the first quarter of next year.
Over the medium term I do expect what I’d call normal economic growth to be resumed, but normal economic growth is very different to making up the ground we’ve lost over the past four years.
Senor de Guindos’s intervention also gives us the opportunity to use this amazing picture, below, from the EU summit earlier this month. Of course, Juncker was only joking wasn’t he? I mean he doesn’t really want to strangle the finance minister of the country whose rickety banks could potentially destroy the euro, does he? But please feel free to suggest some caption bubbles.
Spain’s bond yields are up very slightly this morning after their spike yesterday and the finance minister Luis de Guindos has popped up in Singapore to tell us that his country is fully committed to meeting its deficit targets.
“We are fully committed with the targets,” he told reporters on a trip to Asia, according to Reuters, referring to Spain’s commitment to reduce its budget deficit to 5.3% of GDP this year and 3% next year.
This follows alarm in Brussels and elsewhere earlier this month after prime minister Mariano Rajoy said that Spain would relax its targets.
De Guindos said today that any comparisons with Greece were “total nonsense” as the new Spanish government had, in its three months in office, slashed costs and passed key labour market reforms that were key to creating jobs and helping firms become more productive.
“This is a very important reform that the markets will have to assess positively,” he said of the labour measures that were passed last month.
With concern building about the waning effect of the LTROs, there’s going to be a lot of talk about the meeting in Copenhagen this time next week of EU finance ministers – known as Ecofin – and at the same time eurozone finance ministers.
It’s not strictly speaking a summit but seems set to be a crucial gathering because on the agenda is deciding how big the eurozone rescue fund should be. The European Commission wants to combine the eurozone’s temporary bailout fund, the European Financial Stability Facility, the devilishly acronymed EFSF, with the future permanent fund which comes into existence this year – the European Stability Mechanism, or ESM for short – bringing the total to €940bn.
Basically, the Germans don’t want to do this. The furthest they will go is to temporarily merge both till next year when EFSF expires, giving a year at around €750bn then back down to €500bn. Everyone else is worried that won’t be enough to calm the markets now that Mario Draghi has told everyone not to expect any more cheap loans.
despite this blog’s pessimism, but it’s still on course for its worst week of 2012. Germany’s Dax and France’s Cac are also up slightly.The FTSE100 is now up nearly 19 points, or 0.33% at 5864,
Having said that fear was returning to the markets, what I meant was that there’s a wider feeling that lack of growth will rein in the optimism that has characterised the markets so far this year. Here’s Gary Jenkins of Swordfish:
The worst is over…” according to ECB President Mario Draghi so I guess we can all breathe a big sigh of relief and learn how to stop worrying and love the bonds…Of course Mr Draghi has to make such comments because if he was quoted as being overly negative then it could all become self-fulfilling.
The fact is though that Portuguese and Spanish bond yields are back to where they were before the injection of close to €1tn into the system via LTROs and the European economic data is worse than expected. To be fair Italian bond yields have improved significantly recently but that trend may well come to a halt if concerns start to mount about the debt sustainability of Portugal and Spain.
With all the emphasis on the impact of weak economic data on sovereigns it might be easy to overlook the potential impact upon corporate credit quality. Whilst corporates have been a shining beacon of hope over the last few years partly thanks to the action they took at the start of the crisis if the weak economic data becomes a trend then at some stage the credit quality indicators will deteriorate and the safe haven status may be impacted. That said if the data is still disappointing by the time we get to the 3rd quarter then we might well be looking at further stimulus packages…
The FTSE100 in London has opened up slightly, at 5854 points, a rise of 0.15%, helped by BT’s announcement that it has reached a deal with its pension trustees over the deficit.
But the tone of the morning commenst from our usual battery of City commentators is on the cautious side. As Michael Hewson of CMC Markets puts it:
Yesterday’s disappointing economic data from France and Germany saw concerns about growth in Europe push back near to the top of the agenda as 10-year bond yields in Italy and Spain started to edge back higher again, above the 5% level, bringing the recent rise in equity markets to a shuddering halt. This has raised concerns that the recent good run in equity markets could be over and we could be heading back down again.
With Belgium, the Netherlands, Italy, Portugal, Greece and now Ireland in recession, concerns about the ability of Europe to prevent a contagion effect are beginning to resonate once more in Brussels, ahead of next week’s European finance ministers meeting in Copenhagen.
Michael also mentions that pressure is now growing on Germany to agree to creating a bigger firewall around the euro at next week’s meeting of finance ministers in Copenhagen. but more on that shortly.
Good morning and welcome to the eurozone crisis live blog.
After a couple of quieter weeks there are signs that fear is creeping back into the system. Thursday’s surveys of manufacturing across the eurozone have given everyone the heebie jeebies, it would seem, with the Nikkei index in Japan experiencing its worst day for two months overnight.
And a front page story in the FT flags up the threat of rising borrowing costs in Spain where poor growth forecasts pushed 10-year bond yields up to 5.53%. The report also suggested that one of the reasons for was that the positive effects of the ECB’s cheap loans to banks over the past few months – so-called longer term refinancing operations, or LTROs – were wearing off.
Marc Chandler, currency strategist at Brown Brothers Harriman, noted Italian 10-year yields have fallen 180 basis points so far this year while Spain’s have risen by 39bp.
“That is after two LTROs,” he said. “That definitely concerns me. When the bonds rally it helps the banks’ balance sheets. But when yields start rising it hurts the banks even more. It is a vicious circle.”