Euro Zone Debt Crisis

Euro Zone Debt Crisis

IT Thu, Nov 10

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  • 09:20
    Good morning, and welcome to our live coverage of the euro zone debt crisis. Eoin Burke-Kennedy here with today's main events.

    The political and economic crisis besetting the euro zone appears to have moved into a new phase with reports that Germany and France are now examining a radical overhaul of the euro zone rulebook, prompting speculation that some members states [Greece, Italy, Portugal, Spain and Ireland] may be kicked out.

    Italian borrowing costs remain above the 7 per cent threshold today after hitting a euro area high of 7.48 per cent yesterday.There are also worrying signs that French and Spanish bonds are coming under renewed pressure.

    Meanwhile, stocks across Europe have tumbled again with the three main bourses opening in negative territory: FTSE 100 5,419.35 (-41), Dax 5,813 (-15) Cac 40 3,069 (-5).
  • 09:47
    While the Italian bond yields hover beneath yesterday's high, another worrying developmemt is the renewed pressure on Spanish borrowing costs. The yield on Spain's 10-year debt increased to 5.9 per cent, another euro area high.

    Meanwhile, the head of the IMF today called for political clarity in efforts to tackle the debt crisis that has gripped Italy. "No one exactly understands who is going to come out as the leader. That confusion is particularly conducive to volatility," Lagarde told a news conference in Beijing.
  • 09:54
    Damian Mac Con Uladh The latest from Athens: a meeting of three party leaders and Greek president Karolos Papoulias has been underway since 8.15 Irish time. On the fourth day in the search for a new prime minister, the expectations are that Lucas Papademos, a former Greek and European central banker, will take over from George Papandreou.
  • 09:57
    As Damien has just updated, Greek politicians are holding a fourth day of talks to form a unity government amid speculation that the country may be about to leave the euro. The collapse late yesterday of a deal on naming the house speaker as prime minister has revived the chances of former European Central Bank vice president Lucas Papademos heading the coalition, sources said.
  • 10:05
    EU economics commissioner Olli Rehn has just delivered a grim forecast for growth across the euro zone next year. He said growth across the euro area will slow sharply next year as weak confidence undermines investment and consumption and tighter fiscal policies reduce domestic demand. “Growth has stalled in Europe, and there is a risk of a new recession.”

    In its twice-yearly economic forecasts for euro area, the EU executive said it expected economic growth in the 17 countries to slow to 0.5 per cent in 2012 from an expected 1.5 per cent this year.
  • 10:18
    More is emerging this morning on the two-speed euro zone idea. According to EU sources, French and German officials have held talks on a two-speed Europe with a smaller, more tightly integrated euro zone and a looser outer circle.

    However, officials say discussions still in "the realms of the theoretical" and were focused on how to protect the euro zone from breaking up via tighter common policies which some members may by unable or unwilling to live with. A German government spokesman said today that Berlin was not pursuing the idea of a smaller euro zone.
  • 10:23
    Back in Athens, we're hearing that former European Central Bank vice president Lucas Papademos has just arrived at the presidential mansion where talks on forming a new unity government are continuing. Speculation is rife that the former central banker is the preferred candidate  to rescue the country from fiscal disaster.
  • 10:26
    Lucas Papademos: Is this the man for Greece?
    Lucas Papademos: Is this the man for Greece?
  • 10:49
    Italy has managed to sell €5 billion of short-term bonds in a key test to Rome's ability to fund itself. The one-year bills were sold at an average yield of 6.087 per cent.

    European stock markets have recovered some ground after yesterday's heavy sell-off. Germany's Dax is trading up 48 points at 5,877.88 while France's Cac 40 is up 15 points at 3,090. However, London's FTSE is down 19 at 5,441. Dublin's Iseq is up 9.6 points at 2,671.
  • 11:16
    It really is a perfect storm in Europe right now. Coming on the back of government meltdowns in Italy and Greece and a huge surge in borrowing costs, we now have a drastic reduction in growth forecasts for the euro area as a whole coupled with France and Germany talking openly of a two-speed euro. Where will it all end?

    Markets have, however, turned positive today on speculation that technocrats [Monti and Papademos] may take over in Italy and Greece.
  • 11:20
    Niall Homan If a two tier Europe was to evolve would there then be two ECB rates?
  • 11:22
    Christine Lagarde, the head of the International Monetary Fund, today demanded progress over Italy's political vacuum.
    Christine Lagarde, the head of the International Monetary Fund, today demanded progress over Italy's political vacuum.
  • 11:51
    A modest improvement in sentiment on the back of speculation that former European commissioner Mario Monti may replace Berlusconi at the helm has stopped Italy's borrowing costs from deteriorating further. But the question is for how long?

    "The micro view is supportive, but this makes no difference to the macro view of Italian rates trending sharply higher," says Credit Agricole rate strategist Peter Chatwell. "The pressure is still on for policymakers to take aggressive action to increase confidence and stop the market breaking down further."

    The next market test comes on Monday when Italy plans to sell €3 billion of five-year government bonds.
  • 12:23
    The Bank of England has left its key interest rate unchanged at 0.5 per cent, a record low, despite an escalation in the euro zone crisis. The central bank indicated it had restarted its quantitative easing programme last month with a plan to buy a further £75 billion of government bonds over the next four months.
  • 12:26
    News just in. A new Greek government led by former ECB vice-president Lucas Papademos is to be sworn in this afternoon, according to sources. Papademos was summoned to the presidential mansion earlier today as talks between outgoing prime minister George Papandreou and Antonis Samaras, leader of the opposition New Democracy party, entered a fourth day. The markets have their man in Athens, it seems.
  • 12:37
    technopolitics How many of the Italian short-term bonds were sold to Italian banks?
  • 13:16
    France's finance minister Francois Baroin has extended a short-selling ban on ten financial stocks for three months. The ban, in place since August, may be lifted sooner if market conditions permit according to a statement from the finance ministry. The restrictions cover shares of French lenders including Credit Agricole and Societe Generale.
  • 13:17
    Lucas Papademos, who was named the head of a new Greek interim government today, said Greece's membership of the euro area was a factor for stability and growth. "I am convinced that the country's membership of the euro area means a guarantee for monetary stability," the 64-year-old told reporters in Athens.

    Papademos will lead Greece until general elections are held in three months time, probably February 19th, under an agreement reached today between Papandreou and main opposition party leader Antonis Samaras. The new cabinet will be sworn in at 2pm tomorrow (12 Irish time) contrary to earlier reports.
  • 13:34
    The new Greek leader with a 5,000 drachma note back in 1998.
    The new Greek leader with a 5,000 drachma note back in 1998.
  • 13:44
    Europe can only escape its debt crisis in a lasting way by furthering integration, European Central Bank policymaker Juergen Stark has said. While real economic data remains better in Europe than in other advanced economies, the debt crisis has become a crisis of political leadership in the countries of its periphery, he said.

    Stark added that the euro zone will have an average 120 percent debt to gross domestic product ratio in 2020 if public debt is not tackled.

    Of course what Stark hasn't said is that an expanded role for the ECB as a lender of last resort would probably negate the need for further integration.
  • 13:58
    Just who is Lucas Papademos? Described as a cautious, quietly spoken technocrat, Papademos was instrumental in bringing Greece into the single currency in the first place.

    Here’s a brief bio:  Born in Athens in 1947, Papademos attended the Massachusetts Institute of Technology (MIT), where he earned a bachelors degree in physics in 1970, a masters degree in electrical engineering in 1972, and a PhD in economics in 1978.

    He taught economics at Columbia University from 1975 to 1984, and at the University of Athens from 1988 to 1993. Papademos was senior economist at the Federal Reserve Bank of Boston in 1980, and joined the Bank of Greece (BoG), Greece's central bank, in 1985 as chief economist, rising to deputy governor in 1993 and taking over as governor in 1999.
  • 14:14
    Luxembourg prime minister Jean-Claude Juncker, who leads the group of euro-area finance ministers, says he would not like Europe to divide into different regions. Italy has to implement the measures it has committed to, he told reporters in Lisbon today. Meanwhile, a French government official has said there are no plans to shrink the 17-nation euro region, denying an earlier Reuters report. Speculation about such a step is ridiculous, said the official.
  • 14:31
    New US claims for unemployment benefits fell last week to their lowest since early April and the trade deficit unexpectedly shrank in September, Labor Department figures show. The US labour market is still a long way from recovering from the deep 2007-2009 recession, but analysts said the data at least reinforced the view that the healing process was continuing.
  • 14:31
    Finbar I think it's interesting that Mr Stark blames the crisis on a failure of leadership IN THE PERIPHERY. It's quite clear that a gross failure of leadership in "core" countries and in the ECB itself has taken a tractable problem and blown it into an existential crisis.
  • 14:33
    The European Central Bank's Governing Council is not holding crisis meetings today or tomorrow, according to Bundesbank spokesman Michael Best. Best was responding to speculation about an emergency ECB meeting.

    File under he would say that.
  • 15:35
    The yield on ten year French bond has jumped up 19 basis points to 3.41 per cent, the highest level since July. The recovery rally in European markets seems to be petering out on rumours that some of the smaller rating agencies may be putting France on watch for a downgrade.

    On equity markets Dublin's Iseq is marginally up, London's FTSE 100 has fallen 0.28 per cent, and the Dow Jones is up 0.7 per cent in early trade in New York.
  • 16:09
    The European Central Bank cannot intervene much more aggressively to tackle the euro zone debt crisis, three ECB policymakers have said, pressing national governments to act instead.

    The ECB is under growing pressure from world leaders to do more to address the crisis Dutch central bank President Klaas Knot, a member of the ECB's 23-member policymaking Governing Council, led fresh ECB resistance.

    "We have gone pretty far in what we can do but there is not much more that can be expected from us," Knot told the Dutch parliament. "It is now up to the governments ... to make sure the doubts about sustainability, about repayment of individual government debt are removed as quickly as possible."
  • 16:28
    Italian prime minister Silvio Berlusconi will meet with European Union president Herman Van Rompuy tomorrow in Rome. The meeting will take place at 8:30 pm at Berlusconi's office.
  • 17:06
    European stocks closed in negative territoryu, erasing earlier gains, as a surge in French borrowing costs added to concern the debt crisis is spreading. The benchmark Stoxx Europe 600 Index lost 0.5 percent to close at 235.22. It was up as much as 0.8 percent after Italy met its target for the sale of Treasury bills auction and the European Central Bank was said to be buying the nation's bonds, driving down yields.
  • 17:10
    As if you didn't have reason enough reasons to question the judgement of ratings agencies Standard & Poors has said that a "technical error" caused it to put out a message that France's AAA credit rating had been downgraded.

    "As a result of a technical error, a message was automatically disseminated today to some subscribers of S&P's Global Credit Portal suggesting that France's credit rating had been changed. This is not the case," the statement read. With attention now turning to France that's really not what was needed.
  • 17:48
    Ruadhán Mac Cormaic (@RuadhanIT), our correspondent in Paris, tweeted earlier: "Spread on French v German bonds at new records today. Economist Jacques Attali (fmr Mitterrand advisor) says Paris has 'de facto' lost AAA"
  • 17:53
    In Italy it seems increasingly likely that respected former European Commissioner Mario Monti will step in to replace Silvio Berlusconi as prime minister and head up a government of national unity. Politicians in Italy think Monti could be in office as soon as Sunday to start pushing through the tough austerity programme that Europe is looking for.
  • 17:58
    The markets now seem to have Austria in their sights. The yield on its 10-year debt rose for the third time in four days, reaching the highest in more than three months. Austrian 10-year yields rose 27 basis points, or 0.27 percentage point, to 3.34 per cent.

    The markets are concerned that Austria could be next for a ratings downgrade. Yesterday Standard & Poors suggested Austria may not be able to provide enough capital to its banks' units in eastern Europe, if they resort to state aid. "It is essentially down to the well-documented exposures of the Austrian banking system to central and eastern Europe, Greece and Italy," said Marc Ostwald, a fixed-income strategist at Monument Securities.
  • 18:20
    We're wrapping up for a night but before we go here's a quick summary of today's main events:
    * Italian PM Silvio Berlusconi reverses his election call, with former European Commissioner Mario Monti seen as favourite to replace him
    * Ex-ECB vice president Lucas Papademos is the new Greek prime minister
    * ECB policymakers reject pressure to intervene more and push things back to the national governments
    * European Commission President Jose Manuel Barroso warns against creating any kind of twin speed European Union
    * Euro zone officials have said there are no plans for bailout of Italy