Posts tagged "Germany"

Vince Cable: no need for UK to panic over Greek crisis

Business secretary says creation of financial firewalls means crisis should not spread to other countries, including UK

The business secretary, Vince Cable, has warned Britain not to panic over a possible Greek exit from the euro, saying there is no reason why the crisis should spread to other countries.

His comments came as David Cameron prepared to use a keynote address to business leaders in Manchester to give his starkest warning yet on the plight of the euro. The prime minister will say that unless urgent action is taken there will be a breakup, but he will do whatever is possible to keep Britain safe in perilous times.

The former Tory chancellor Norman Lamont warned on BBC Radio 4′s Today programme: “I think we’re going to have a situation where an exit is inevitable.” He suggested the eurozone would have “to tell Greece to leave”.

Lamont said the crisis was profoundly destabilising: “The most damaging thing I think is this corrosive effect on confidence. We hear all the time demands for more growth – growth above all depends on individuals, and individuals will only grow their business if there is confidence.”

Cable told Today: “We need to get the risks in perspective.

“There clearly are risks to the UK. Greece itself is a small country, it’s only 2% of the European economy. The risks arise if the crisis were spread to other, weaker countries in southern Europe, but there is no reason why that should happen. They are in the process of creating firewalls to prevent the financial crisis spreading and we hope that they do.

“What we can do is to make sure that the UK is a well-run economy, and that’s combining an approach to growth and job creation – and that’s what we’re doing on Merseyside this morning – with maintaining proper discipline over our finances.”

Asked how Britain could prepare, Cable stressed that the UK had no direct influence over events in the eurozone as it was not a member.

“I don’t think there’s any reason whatever why in the UK we should be panicking or taking an excessively negative view,” he said.

Cameron’s message comes only a day after the chancellor, George Osborne, said speculation about the eurozone was damaging the European economy.

Cameron and Osborne now believe that with the failure of the Greeks to form a government, a direct warning has to be given to the eurozone leaders about the scale of the threat, and the need for urgent action.

Treasury sources say they have been arguing for a year for the introduction of eurobonds, as well as a looser monetary policy: “Without that, Germany is simply asking too much of the periphery countries who do not have the benefit of our independent monetary policy and flexible exchange rate.”

Cameron will underline the message at meetings with François Hollande, the French president, and the German chancellor, Angela Merkel, at a G8 summit in Washington this weekend.

In his speech in Manchester, the Tory leader will say: “Either Europe has a committed, stable, successful eurozone with an effective firewall, well-capitalised and regulated banks, a system of fiscal burden sharing, and supportive monetary policy across the eurozone, or we are in uncharted territory, which carries huge risks for everybody.

“But be in no doubt: whichever path is chosen, I am prepared to do whatever is necessary to protect this country and secure our economy and financial system.”

Alistair Darling, who as chancellor helped stop a run on the British banks in 2008, said the crisis in Greece was reminiscent of the run on Northern Rock, and that would look insignificant in comparison with a Europe-wide crisis.

“The banks in too many parts of Europe were not cleared out in the way we and the Americans did in 2008 – so when you get all this turbulence it just adds to a lethal cocktail.”

Sounding exasperated and worried about the unfolding crisis, Darling said: “The clear message that is being sent is surely now [that] they need to start thinking of a solution that is actually going to work, more than people expect.

“The big risk is when the money comes out [and] the banks don’t actually physically have the stuff to hand over, you get cash machines going off, the doors closing and you do get blind panic.”

He described the fiscal pact signed by EU member states as madness, since “it locks countries on the edge into a downward spiral like the Treaty of Versailles at the end of the first world war with the result that their economies shrink and the debts go up. This is just daft.

“Whatever they do, they have got to do it quickly, and do more than people expect, or else the situation will get worse. The warning signs are there – that is what should strike fear into the hearts of every finance minister in Europe.”

Cameron will insist that, domestically, he is not going to change course on deficit reduction despite calls from the business sector for some stimulus.

With polls showing support for the government’s economic policy receding, he will promise to take the right course and “not to dodge responsibility for dealing with a debt crisis but to lead our country through this to better times”.

Trying to give some sense of hope, he will say: “We are well on the way in this journey. Since we took office two years ago, we have cut the last government’s deficit by more than a quarter.”

Pointing to Wednesday’s news of rising employment Cameron will say: “Now more than ever this is the time to stand firm. Let me be clear: we are moving in the right direction– not rushing the task, but judging it carefully. And that is why we must resist dangerous voices calling on us to retreat.”

Promising not to return to the “something for nothing” economics that got Britain into its original mess, he will say: “We cannot blow the budget on more spending and more debt. It would squander all the progress we’ve made in these last two, tough years. It would mean more austerity, for even longer. It would risk our future. It’s not an alternative policy, it’s a cop-out.”

But Ed Balls, the shadow chancellor, hammered home his argument that the domestic recession had not been caused by Europe, but by decisions taken by the chancellor in 2010.

“Rather than being a commentator idly speculating about the breakup of the eurozone – which is irresponsible – he ought to have been out there for the past year arguing with Germany for Germany to do the right thing to get the single currency to work.”

Huge risk of euro breakup if EU fails to act – David Cameron

Germany asking too much of other nations, says Treasury, as Darling describes existing fiscal pact as madness

David Cameron will issue his starkest warning yet on the plight of the euro on Thursday, saying unless urgent action is taken there will be a breakup, adding he will do whatever possible to keep Britain safe in perilous times.

Cameron’s stark message comes only a day after the chancellor, George Osborne, had said open speculation about the eurozone was itself damaging the European economy.

Cameron and Osborne now believe that with the failure of the Greeks to form a government, a direct warning has to be given to the eurozone leaders about the scale of the threat, and the need for urgent action.

Treasury sources say they have been arguing for the introduction of eurobonds for a year, as well as a looser monetary policy: “Without that, Germany is simply asking too much of the periphery countries who do not have the benefit of our independent monetary policy and flexible exchange rate.”

Cameron will underline the message at meetings with François Hollande, the new French president, and the German chancellor Angela Merkel at a G8 summit in Washington this weekend.

In a speech in Manchester before flying to the US, he will say: “Either Europe has a committed, stable, successful eurozone with an effective firewall, well capitalised and regulated banks, a system of fiscal burden sharing, and supportive monetary policy across the eurozone, or we are in uncharted territory which carries huge risks for everybody.

“But be in no doubt: whichever path is chosen, I am prepared to do whatever is necessary to protect this country and secure our economy and financial system.”

Alistair Darling, former chancellor and the man who helped stop a run on the British banks in 2008, said the crisis in Greece was now reminiscent of the run on Northern Rock, and that would look small beer in comparison with a Europe-wide crisis.

“The banks in too many parts of Europe were not cleared out in the way we and the Americans did in 2008 – so when you get all this turbulence it just adds to a lethal cocktail.”

Sounding exasperated and deeply worried about the unfolding crisis, Darling said: “The clear message that is being sent is surely now [that] they need to start thinking of a solution that is actually going to work, more than people expect.”

“The big risk is when the money comes out [and] the banks don’t actually physically have the stuff to hand over, you get cash machines going off, the doors closing and you do get blind panic.”

He described the fiscal pact signed by EU member states as madness, since “it locks countries on the edge into a downward spiral like the Treaty of Versailles at the end of the first world war with the result that their economies shrink and the debts go up. This is just daft .

“Whatever they do, they have got to do it quickly, and do more than people expect, or else the situation will get worse.The warning signs are there – that is what should strike fear into the hearts of every finance minister in Europe.”

Cameron in the domestic passage of his speech will insist he is not going to change course on deficit reduction despite the calls from business for some sort of stimulus.

Despite polls showing support for government economic policy receding, he will promise that he will take the right course and “not to dodge responsibility for dealing with a debt crisis but to lead our country through this to better times”.

Trying to give some sense of light at the end of the tunnel he will say: “We are well on the way in this journey. Since we took office two years ago, we have cut the last government’s deficit by more than a quarter.

Pointing to Wednesday’s news of rising employment he will say: “Now more than ever this is the time to stand firm. Let me be clear: we are moving in the right direction -– not rushing the task, but judging it carefully. And that is why we must resist dangerous voices calling on us to retreat.”

Promising not to return to the something for nothing economics that got Britain into its original mess he will say: “We cannot blow the budget on more spending and more debt. It would squander all the progress we’ve made in these last two, tough years. It would mean more austerity, for even longer. It would risk our future.

“It’s not an alternative policy, it’s a cop-out.”

But Ed Balls, the shadow chancellor, hammered home his argument that the domestic recession had not been caused by Europe, but by decisions taken by the chancellor in 2010.

“Rather than being a commentator idly speculating about the break-up of the eurozone – which is irresponsible – he ought to have been out there for the past year arguing with Germany for Germany to do the right thing to get the single currency to work.”

Greece faces stark election choice – in or out of the euro

Collapse of coalition talks plunges eurozone into fresh turmoil as EU policymakers work on plans for post-Greek single currency

Europe is facing a month of political and economic upheaval after the failure of nine days of coalition talks in Greece prompted fears on Tuesday that a fresh election in the crisis-torn country would herald the start of the breakup of the single currency.

In what was being seen in the financial markets as an “in or out” referendum on membership of the 17-nation eurozone, party leaders in Athens called a second poll next month once it became clear that they were unable to piece together a national unity government to manage Greece’s biggest crisis in modern times.

Karolos Papoulias, the president of Greece, finally admitted defeat in his attempts to form a government and the date of the new election – either 10 June or 17 June – will be announced on Wednesday.

The collapse of talks sent tremors through financial markets and prompted warnings from Germany’s finance minister, Wolfgang Schäuble, that Greece would have to stick to its hardline austerity programme in order to continue to receive the bailout cash needed to pay government salaries and support troubled banks.

Europe’s policymakers are now actively working on plans to minimise the fallout from a possible Greek departure from the single currency after an election in which the anti-austerity Syriza party is expected to increase its support. Christine Lagarde, managing director of the International Monetary Fund, said she wanted Greece to stay in the euro but said the IMF had to be “technically prepared for anything”.

News of the political impasse in Athens put paid to a modest rally in European markets on Tuesday caused by the surprise news that growth of 0.5% in Germany spared the eurozone collectively from the double-dip recession suffered by Britain.Growth in the monetary union area ground to a halt in the first three months of 2012, although the picture would have looked less rosy had statisticians in Europe followed the UK tradition of adjusting data for the extra working day in a leap year.

David Owen, economist at Jefferies, said that in Germany alone the leap-year effect would added 0.4 percentage points to growth over a full year.

Official figures released on Tuesday showed that Italy’s economy had shrunk by 1.3% over the past year, Spain had contracted by 0.4% and Greece by 6.2%. The length and depth of the slump in Greece – which has seen a 20% drop in output in the past four years – has led to the growing popularity for parties of left and right opposed to the terms of the €130bn bailout package agreed earlier this year.

No group won enough votes, however, to have a working majority in Athens’s 300-seat parliament and parties that backed the terms of the bailout lost support.

The euro fell to its lowest in three and a half years against the pound on the foreign exchanges, while concern that a Greek exit from the single currency would have a domino effect pushed shares in Spain to their lowest in nine years. The interest rates paid by the Italian and Spanish governments for their 10-year borrowing were both above the key 6% level as concerns grew that the eurozone’s third and fourth biggest economies might need bailouts from the IMF and the European Union.

A caretaker government will replace the outgoing left-right coalition, led by the technocrat banker Lucas Papademos, as the nation prepares for another round of election campaigning.

Attributing the breakdown to “petty party interests”, Evangelos Venizelos, who heads the socialist Pasok, said he hoped the next decision of Greek voters would be more mature. “Unfortunately the country is being led again to elections … under very bad conditions,” he said. “The country can find its way again,” the politician insisted, before urging citizens to read the minutes of the two-hour-long talks. “Let’s choose to go towards the better. In God’s name, let it not be worse.”

Like its longtime rival New Democracy, Pasok was pummelled in the 6 May election, a ballot that will be remembered for reconfiguring Greece’s political map.

Athens is not only dependent on rescue funds from its “troika” of creditors – the European Union, the European Central Bank and the International Monetary Fund – that rushed to prop up its ailing economy in May 2010. It is also running out of money fast.

With an €18bn cash injection for the banking system put on hold, a senior official in the outgoing government admitted there were concerns over whether Greece could “make it” until the next election.

“It is a real issue,” he told the Guardian. “The economy is in very bad shape. “The banks have no money. There is no liquidity. It is vital that this cash injection is released by the EFSF [the EU's emergency rescue fund].”

Jonathan Loynes, chief European economist at Capital Economics, said: “There is now a considerable danger 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.”

Greece’s eurozone partners are likely to spend the next few weeks ratcheting up the pressure on the country’s voters to back parties prepared to stick to the spending cuts, wage reductions, tax increases and privatisation included in the austerity programme. But the economist Nouriel Roubini said he expected Syriza, which wants to “tear up the barbaric accord” to emerge victorious, leading eventually to default and exit from the euro.

Chris Beauchamp, market analyst at IG Index, said: “The reality now is that there will be elections in mid-June, and at present the anti-bailout, leftwing Syriza party is poised to win a majority.

“If it does, it is pledged to abandon most austerity measures, which would result in the halting of bailout payments and likely result in the exit of Greece from the euro. After two years, this event now seems inevitable, barring some major turnaround in the Greek political climate.”

For Greece – and Europe – the true calamity is to delay exiting the euro | Simon Jenkins

Europe’s rulers must finally bow to market reality. Only the Grexit can end this nightmare

A looming black cloud is hurtling forwards over the European horizon. It is called economic nemesis, driven to a fury by a quarter century of the naivety and greed of most of the continent’s rulers. In Berlin and Brussels this week the high priests and wizards of euro-finance gazed at the cloud in horror, muttering imprecations: it was “unacceptable … unthinkable … unmentionable”. The cloud took no notice and raced on.

Newspaper financial pages nowadays read like satirical spoofs. No one has a clue what is happening so analysts play with words. Would a Greek exit from the euro be a catastrophe or a calamity, or is that what happens without an exit? Is unimaginable worse than abhorrent, is contagion worse than wildfire, is apocalypse worse than Armageddon?

Markets indulge in no such fantasies. Money talks straight. Computers are already being fed “Grexit” algorithms, and modelling a disintegrated euro. Default swaps are in place. Spanish and Italian debts are being devalued de facto through soaring yields. Politicians panic, but money merely adjusts.

Meanwhile, everyone waits. Even as the currency-shackles around Europe’s economy buckle and snap, those supposedly managing it are in denial. It is three years since currency stabilisation was supposedly created, and two years since EU finance ministers pledged “determined and co-ordinated action” to keep Greece in the eurozone. The ministers met again on Monday to moan over their spells and to stick pins in Germany for its meanness. They were unable to grasp the decision required of them, whether to engineer an orderly Greek exit or go beyond that and reorder the euro to create a more economically sensible inner currency. They lacked the necessary political legitimacy. The eurozone is a state without a government.

A weakness of financial regulators is that they must lie. Central bankers and treasuries must swear they mean no devaluation or default until they suddenly do mean it. Each time they lie, they damage their credit for next time. However, even as they lie, they have to be trusted to control events behind the scenes.

At present there is no such trust. It has been clear for years that Greece’s political economy cannot manage the cost of euro membership. Debts and subsidies cannot cover its bills any longer. It cannot indefinitely fail to repay money that it should never have borrowed and banks should never have lent. Greeks would become the indentured slaves of Europe in perpetuity. A healthy economy needs some concept of bankruptcy. The message from Greece’s democracy this week is to default and take the consequences.

These days only fools voluntarily leave money in Greek banks. An estimated £28bn in euro notes is said to be hidden in Greek mattresses, awaiting release into the economy via a devalued currency. There will be no recovery until this happens. The bullet must be bitten. Banks must go on holiday and come under state control, while debts are redenominated in drachmas. Lenders, savers and importers will take a mighty haircut. Many of the wrong people will suffer. But that is what happens when a country lives on tick.

Only then can this nightmare begin to end. Only with the decks cleared of debt can Greece, like Iceland and Argentina before it, start rebuilding its economy at a realistic rate of exchange. One thing only is certain. A year on, Greece will be on the mend and everyone will wonder why exit took so long, and why anyone believed the fools who said it would be an inconceivable calamity.

The delay in acknowledging this reality is the true calamity. Already the bears are gathering round Spain and Italy, not because their economies are like the Greek one but because markets can read election results as well as they can read riots. The austerities required to bring all the eurozone economies into cost equilibrium with Germany are breaking the back of democracy, and it is Greece that is distracting attention from remedies.

Voters everywhere are punishing governments for repressing demand. What cannot be raised in taxes is borrowed, sending sovereign debt back into the stratosphere. For three years finance ministers have gone cap in hand to Germany, pleading for various forms of bailout. The recent election in the German state of North Rhine-Westphalia indicates beyond doubt that such bailing out will not continue.

To its besotted acolytes, the euro was to be the final icing on the cake of political union. It was an exquisitely crafted currency that would enable German efficiency to permeate the continent and usher in a dawn of prosperity and contentment. Sceptics said it would merely enable Germany to swamp lesser economies and wipe their exports from the map.

For a while, Germany knew it was on to a good thing and cross-subsidised (and lent) to cover the gap, much as the British Treasury sustains the UK’s poorer regions. But a continent is not a nation. It has diverse loyalties and obligations. Sooner or later the subsidies and the lending would stop. That day is now. The sceptics were right.

If Europe’s finance ministers contrived a Greek exit, they would at least have a marginally more plausible euro than now. They could hurl more money at the firewalls round Spanish and Italian debt. They could prop up banks by printing euros. Given the present demand famine and resulting unemployment, this would hardly be inflationary. Contagion might be stemmed and some disciplines sustained on backsliding economies.

This would work only for a while. The sort of fiscal union dreamed of by Germany and its allies in Brussels would soon be rejected by Spanish voters, and eventually by Portuguese, Irish and French ones. Every few years there would be another Greece, and another punishing, debilitating combat between Europe’s rulers and market reality. These are wars that markets always win. Why keep fighting them?

The peoples of Europe are made of crooked timber. They have always fought back against hubristic rulers seeking undue authority over their affairs. While the old Common Market knew its limitations, the euro was a step too far. It required a degree of union that Europe has never tolerated, from the Holy Roman Empire through Napoleon to the Third Reich. It always ends in tears. Kipling remarked after one such conflict: “We have had no end of a lesson; it will do us no end of good.” Today’s lesson has yet to be learned.

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Eurozone avoids double-dip recession as Germany makes up for losses

Unexpectedly strong performance by Europe’s biggest economy helps compensate for weaker output in Greece, Italy and Spain

The crisis-hit eurozone avoided a double-dip recession by the narrowest of margins in the first three months of 2012 as an unexpectedly strong performance by Germany compensated for plunging activity in countries wilting from tough austerity programmes.

Underlining the two-speed nature of the 17-nation single currency area, the 0.5% expansion in Europe’s biggest economy helped to compensate for weaker output in Greece, Italy and Spain.

Growth in the eurozone stagnated in the first quarter of 2012 following the 0.3% decline recorded in the final three months of 2011 – just avoiding the two successive quarters of falling output that would have officially signalled a double-dip recession.

Analysts warned, however, that the respite could be short-lived, with the latest flare-up in Europe’s long-running sovereign debt crisis likely to damage growth prospects for the rest of the year.

Figures released in European capitals on Tuesday showed that Germany – which accounts for 27% of eurozone GDP – bounced back from a 0.2% drop in output in late 2011, while France followed growth of just 0.1% with a quarter of stagnation in early 2012. In the year to the end of March 2012, Germany grew by 1.2% and France by 0.3%.

Other countries to post quarterly growth included Finland (1.3%), Austria (0.2%), Belgium (0.3%) and Slovakia (0.8%).

But tough austerity measures took their toll on Italy, where the 0.8% quarterly drop in output was the third in a row; Spain, which saw activity decline by 0.3% for a second quarter; and Greece, which reported that the economy was 6.2% smaller at the end of the first quarter of 2012 than a year earlier.

The Netherlands also posted a third consecutive quarter of negative growth, with activity down by 0.2% in the first quarter of 2012.

Overall, the eurozone economies have shown no growth in the past year, while the 27-nation European Union has seen output increase by just 0.1%.

Chris Williamson, economist at Markit, said the outcome had been slightly better than the forward-looking surveys of business activity had indicated. “However, the better outcome largely reflected a surprisingly strong GDP gain in Germany, and the rest of the region is clearly struggling, with marked downturns taking place in the periphery. The business surveys also suggest these downturns gathered momentum at the start of the second quarter.”

Williamson added: “The diverse economic trends across the region highlight the policy dilemma at the European Central Bank, where downturns in the periphery suggest more stimulus is required, but such stimulus would risk stoking inflation in stronger-performing Germany.

“However, given the signs of weakness spreading from the periphery to Germany in recent months, the likelihood is the German economy may soon also succumb to weak consumer and business confidence, resulting in a more even picture of economic weakness across the region in the summer.

“Germany is still likely to remain the best performer, but that may not necessarily mean it will not also see a contraction of GDP in the second quarter.”

With UK trade figures on Tuesday showing exports to Europe down by £800m in May, the chancellor, George Osborne, said: “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.”

Ed Balls MP, Labour’s shadow chancellor, said: “With Germany, France and the eurozone as a whole avoiding recession, it’s now clear that Britain’s double-dip recession was made in Downing Street by David Cameron and George Osborne’s failed economic policies.

“In the 18 months since George Osborne’s spending review, Britain has been outperformed by most European countries. And without exports to Europe and the rest of the world Britain would have been in recession a year ago. The chancellor has now run out of excuses for why his reckless and unfair policies have failed.”

At least Hollande and Merkel agree on one thing – a financial transaction tax

Cameron believes a Tobin tax would hurt the City – but France and Germany are under pressure to finance a eurozone boost

Supporters of a financial transaction tax have a strong ally in the new French president, François Hollande, who wants to recycle the revenue raised from the so-called Tobin tax into growth-enhancing investment projects. On this, if little else, he may have the backing of Angela Merkel, but not of David Cameron, who believes the City would be damaged by the proposed levy.

Opponents of the FTT say it would raise the cost of doing business and would hinder rather than stimulate growth. It would cost more for firms to do currency deals and so make exports dearer, and it would push up interest rates, leading to lower investment. A lower level of transactions would mean that the yield from an FTT would be lower than expected. What’s more, it would be subject to considerable tax avoidance.

Brussels believes it would be nigh-on impossible to avoid paying an FTT but its attempts to quantify the tax’s impact do appear to suggest there would be a hit to growth, albeit a modest one. Initial work by the European commission showed that on the assumption of 1.5% annual growth and a 0.1% FTT on shares and 0.01% on derivatives, GDP would be 0.53% lower by 2050. More specifically, GDP would be 81.4% above today’s level without an FTT and 80.9% with one.

The commission has now refined its model to take into account the fact that many firms – particularly small and medium sized companies – don’t rely on the financial markets to fund investment, but raise funds from retained earnings or banks instead. Once this is taken into account, the growth hit is reduced to 0.2% in total by 2050.

What, though, if the tax raised by an FTT – €57bn a year according to some estimates – were to be pumped back into the economy? This is a course of action, dubbed balanced-budget growth, in which policymakers leave overall tax and spending levels unchanged but seek to move resources from low growth to high growth sectors of the economy. The International Monetary Fund champions this approach, as does the Social Market Foundation.

According to the commission, using the resources raised by an FTT for investment, either at a national or European level, would boost growth rather than detract from it. Again, the numbers are quite small: overall GDP would be between 0.2%-0.4% higher by 2050. Lobbyists for the FTT, however, say this underestimates the growth potential of the tax, as the likely reduction in high-frequency trading would lead to greater financial stability and thus a more favourable climate for sustained growth.

Cameron thinks financial stability can be achieved in other ways, through the bank levy and by beefing up the watchdog powers of the Bank of England. He sees an FTT as a Trojan horse, designed to curb the City. The mood, though, is different in France and Germany, under pressure to boost the eurozone and, even more importantly, to find ways of financing it.

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Ellesmere Port Vauxhall factory and 2,100 jobs ‘to be saved’

Vince Cable and GM’s vice chairman to visit Ellesmere Port as carmaker prepares to reveal production plans for new Astra

General Motors has signalled that the Ellesmere Port factory in north-west England will be saved, along with 2,100 jobs, after the head of the carmaker’s European arm revealed production plans for the new Vauxhall Astra.

The business secretary, Vince Cable, and Steve Girsky, GM’s vice chairman, have been pencilled in to visit Ellesmere Port on Thursday as the manufacturer prepares to confirm the creation of hundreds more jobs at the plant.

The head of Opel/Vauxhall, GM’s European business, all but confirmed that the Wirral site will stay open after telling thousands of workers in Germany that in future production of the Astra would be concentrated on just two plants instead of three. “In light of expected demand it only makes economic sense to have two plants,” said Karl-Heinz Stracke, effectively signalling the end of production of the Astra in Germany. “If we have these two works running on a three-shift system the production costs for the next Astra generation will be able to be considerably reduced from what they are today”.

Stracke declined to name the two plants but briefings are already under way at Ellesmere Port. Unite union shop stewards have agreed to put the proposals to workers this week in a series of mass meetings. The plans include a pay deal for workers at the site. They are also likely to involve the closure of GM’s Bochum plant in Germany with the loss of 3,200 jobs. Production of the new Astra will be shared with a factory in Gliwice, Poland.

Under the plan adopted by GM, the next generation Vauxhall Astra will be built at the plant from 2015 and the number of daily work shifts will rise from two to three. According to once source, up to 700 extra jobs could be created by the move, which will raise production capacity to more than 200,000 units per year – deemed a viable level for a modern car factory. The new plan for Ellesmere Port is also expected to include funding from Cable’s Department for Business, Innovation and Skills, with the programme likely to require new apprentices and component companies. As well as the 2,100 Vauxhall workers at Ellesmere Port the site also houses a further 700 employed by suppliers.

Doubts over Ellesmere Port’s future emerged at the beginning of the year, when a delegation of GM executives warned UK politicians and trade union officials that severe cost cuts would be needed across its Opel/Vauxhall European arm. The warnings sparked intense lobbying from Unite and Cable, who also visited GM’s chief executive, Dan Akerson, in the US. Speaking in March, Cable said: “The UK has a very, very good case and we have made a strong pitch to them.”

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Eurozone crisis live: Markets slide as Greek euro exit looms

Chances of Greece leaving the eurozone are growing, as political leaders gather for last-ditch coalition talks in Athens

8.05am: European stock markets have fallen sharply at the start of trading,

In London, the FTSE 100 has shed 70 points, or 1.2%, to 5503. Every share has lost ground, with banking stock and miners leading the fallers.

Trading screens across Europe are flashing red, with the main indices losing between 1.2% and 1.5%.

The growing prospect of a disorderly Greek default is alarming investors, explained Michael Hewson of CMC Markets, who commented:

Markets continue to feel the pressure and the stakes continue to rise as what was declared unthinkable a year ago or so now, starts to permeate mainstream thinking in Europe.

Political developments in Germany were also alarming traders, with Angela Merkel suffering electoral losses in North Rhineland Westphalia (details here). Hewson added:

These defeats could weaken her hand in trying to pass the fiscal compact through parliament at a time when her insistence on fiscal discipline or austerity comes under attack from around Europe.

7.55am: The eurozone crisis will be dominated today by talks in Athens and Brussels, while new industrial production data will show the state of the eurozone economy. Spain and Italy must also test investor confidence with bond sales.

Here’s the agenda:

• Eurogroup finance ministers meet in Brussels: from 12.30pm BST / 1.30pm CEST
• Coalition talks resume in Athens: 5.30pm BST / 7.30pm Athens

• Spain sell €2bn-€3bn of 12 and 18-month bonds: from 9.30am BST
• Italy sells €3.5bn-5.25bn of bonds: from 10am BST
• Germany sells €4bn of 6-month bonds

7.45am: Good morning, and welcome to our rolling coverage of the eurozone debt crisis.

It’s the start of a crucial week. The political crisis in Greece has intensified over the weekend, after attempts to form a unity coalition floundered. Leaders are due to meet again today, but without leftist coalition Syriza — which yesterday refused to join a multi-party government that would stick to Greece’s austerity plans.

If a coalition can’t be formed (as appears likely), Greece heads for new elections in a few weeks.

The talk in the financial markets today is that a Greek exit from the eurozone is now a question of when, rather than if. The prospect of a disorderly default is likely to hit markets again today.

The political vacuum in Greece will dominate the agenda in Brussels later today, where finance ministers from across the eurogroup are meeting.

EU leaders set for showdown on fate of euro as crisis deepens

Angela Merkel and François Hollande to have first face-to-face talks in Berlin after eurozone finance ministers meet in Brussels

Europe is braced for a crucial 48 hours of high-stakes summitry likely to decide whether Germany and France can strike a grand bargain aimed at dispelling growing pessimism over the chances of the single currency surviving in its current form.

While eurozone finance ministers are to meet on Mondayin Brussels, apparently at a loss over how to respond to political paralysis in Greece and a worsening crisis in Spain, all eyes are on François Hollande, the new French leader, who is to go to Berlin for his first face-to-face meeting with the German chancellor, Angela Merkel, as soon as he is sworn in as president on Tuesday .

Hollande, Europe’s new champion of growth policies, lines up against Merkel, the dominant cheerleader of austerity as the solution to the crisis. The German leader, increasingly isolated if inherently strong in the European contest, suffered a big setback on Sunday night, with her Christian Democrats slumping to a crushing defeat in an election in the big German state of North-Rhine Westphalia, according to German TV exit polls.

Against a background of intense volatility, Europe was pulled in opposing directions by voters, protests, and political paralysis at the weekend, deepening uncertainty over its future shape and gnawing away at the prospects for the euro’s survival as a 17-country union.

Ed Balls, the shadow chancellor, and the former EU commissioner Lord Mandelson claim that the coalition government must commit with other European governments to a new growth strategy if the eurozone is to survive.

In a joint article for the Guardian, Balls and Mandelson call for a “new political settlement” across the continent to achieve growth.

The large protests and minor clashes in Spain, political gridlock in Greece, the crucial regional election in Germany, and rising hostility to the EU in the Netherlands have all contributed to an air of crisis supplanting more than two years of financial panic and bitter argument over how to rescue the euro.

Hollande goes to Berlin on Tuesday with the psychological advantage, buttressed by a strong new mandate that has shifted the terms of European politics. After a string of setbacks among her political allies at home and in the EU, Merkel was weakened by the spectacular defeat in Dusseldorf.

The state election, involving almost one in four of German voters, was seen as a bellwether. Elections in North-Rhine Westphalia are often a gauge of the future of German national politics. The opposition Social Democrats and Greens were on the brink of securing an absolute majority, according to the TV projections, with Merkel’s CDU said to have dropped between eight and nine points on two years ago and four points below what the opinion polls had predicted.

After the French Socialists’ presidential election triumph, the victory for Germany’s Social Democrats – projected to be up four points from 34.5 – will be seen as a further fillip for the European centre-left.

Eurozone finance ministers are to meet in Brussels today to ponder their options, but are unlikely to decide very much, given the political imponderables and the unresolved splits between German-led belt-tighteners and French-led proponents of growth policies as the answer to Europe’s travails.

Tens of thousands of Spanish people took to the streets to protest at soaring unemployment in a country where anyone under 25 is now more likely to be out of than in work. The fourth attempt in less than a week to form a government in Greece looked destined for failure, signalling weeks of instability before fresh elections likely to strengthen the hard left, which rejects the terms of Greece’s €240bn bailout and the restructuring of much of its national debt.

Opinion polls in the Netherlands, meanwhile, for the first time showed the hard left, anti-European Socialist party as the strongest single party ahead of early elections in September in which Europe looks like being the central issue.

While the pressure from Spain, Greece, and France pointed towards a relaxation of cost-cutting austerity, the signals from Germany went in the opposite direction. The CDU’s worst postwar performance in North-Rhine Westphalia, while weakening Merkel, is unlikely to cause her to abandon her tough line on a new fiscal pact for the eurozone and her arguments that Europe’s debt crisis cannot be fixed by piling up more debt.

The cover of Monday’s influential news weekly, Der Spiegel, declares “Adieu Greece”, arguing that it is time to kick the country out of the euro. Almost four in five Germans believed Greece should forfeit its bailout cash if it did not comply with the stringent eurozone terms, according to a poll in the bestselling tabloid Bildzeitung.

Against this background, Merkel is unlikely to expose herself to charges that she is going soft on the euro. More quietly, however, the government in Berlin and the German central bank have signalled over the past week that they favour tolerating greater inflation and higher wage increases in Germany in order to spur domestic demand and effect a partial rebalancing of the chronically imbalanced EU economy.Data being released tomorrow will confirm that the EU is in recession, registering contraction of gross domestic product for the last two quarters. The figures are expected to show very slight growth in Germany while the French economy stagnated.

We agree about Europe | Ed Balls and Peter Mandelson

The eurozone needs to survive and succeed, and Britain must be part of the debate about its future

The coming months are critical for the future of Europe. Jobs and business investment – in Britain and across the euro area – depend on Europe’s leaders choosing the right course.

The risk is that Europe gets locked into a false choice between growth and deficit reduction. The truth is that we need the right combination of both – action now to get Europe’s economies growing and creating jobs, tough medium-term action to get public finances back into shape and a long-term strategy for increasing the continent’s productivity and skills base.

It is true that the two of us disagreed on the case for British membership of the single currency. We agree, however, that the single currency needs to survive and succeed – and we are worried that Europe has so far identified only half the solution. There is a real danger that binding countries into ever larger cuts and tax rises to meet the new structural deficit and debt targets will become self-defeating, economically and politically.

A collective strategy that is choking off demand is compounding Europe’s problems – just as it has done in Britain, where our economic recovery has stalled. Investors are now worrying that the policy mix has become unbalanced, to the detriment of economic recovery. We need a new strategy that permits a more sustainable approach to debt reduction through growth and long-term fiscal responsibility.

Growth needs the demand that comes with reviving confidence. Many European companies and consumers are struggling under a heavy burden of debt and deleveraging. But many also lack the confidence to spend and invest, because they see an uncertain future.

Countries cannot duck tough decisions on tax and spending, but nor can they ignore the vital need for economic growth if deficits are to be brought down successfully and in a fair way. That is why Europe now urgently needs a plan for growth.

At the heart of Europe’s problems is the fact that the eurozone does not have the institutions or political machinery to project confidence in its own future. So, first, it needs a new political settlement.

It needs a European central bank that is willing explicitly to stand in the way of sovereign contagion from the periphery. It needs an active European stability mechanism that can meaningfully support short-term sovereign liquidity and the recapitalising of the European banking system. And it needs a system of collective economic decision-making among eurozone countries that ensures everyone plays by the rules. That is why we have both argued that some form of greater fiscal union is now inevitable.

But those rules need to recognise that Germany’s persistent current account surplus undermines the currency bloc as much as Greece’s debts and political stalemate or Spain’s current account deficit. And it needs a clear acceptance by Germany that it faces a period of above-eurozone-average wage rises and inflation in order to fix the imbalance. This means challenging a basic view of the eurozone in Germany, but the German finance minister, Wolfgang Schäuble, is already recognising this must happen.

Second, Europe needs to boost public investment in the demand that will help to drive growth, as the European commission is now urging. A serious capital lift for the European Investment Bank is desirable, to help to provide fresh sources of infrastructure investment, as are infrastructure bonds, which help to counter a failing private appetite for large-scale project finance. Unused structural funds must also be recycled into new programmes, and into investment projects that help the weaker eurozone states to connect better with the large markets of northern Europe.

Third, in the longer term, growth will depend on structural reforms, so that struggling eurozone countries become more competitive. Europe needs to raise economic participation rates, make it easier for businesses to grow and take on workers, improving competition in some product markets, and improve its skills base.

These reforms were set out in the Europe 2020 plan. They need to be genuinely owned by European governments who – like the best and most innovative of the American states – should be watching and learning from each other in testing new approaches and defining best practice.

And Britain’s role and place in this process? It should be at the centre, bringing its own experience in banking reform and labour and product market reform to the table, irrespective of the fact that it is not in the eurozone. The reality is that there is no bad outcome for the eurozone that is not a bad outcome for Britain. So this is a perilous time for the British government to be increasingly isolated and politically disengaged.

Britain should be influencing the debate on the future of Europe, not locked out of the room where the big decisions will inevitably be taken on issues that directly affect our economic interests. We would not simply be doing our European neighbours a favour by making the case for sustainable growth and playing our part in a revived European economy. We would be securing our own economic future.

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