Fiscal policy

Peter Spiegel

Portuguese prime minister Pedro Passos Coelho arriving at Monday's EU summit in Brussels

As financial markets watch with nervous anticipation the outcome of the tense negotiations over Greece’s debt restructuring, there is clear evidence that bond investors believe Portugal could be next, despite repeated insistence by European leaders that Greece is “an exceptional and unique case” – a stance reiterated at Monday’s summit.

Portugal’s benchmark 10-year bonds were over 17.3 per cent this week, though things have eased off a bit today. Those are levels seen only by Greece and are a sign the markets don’t believe Lisbon will be able to return to the private markets when its bailout ends next year. Default, the thinking goes, then becomes inevitable.

But are Greece and Portugal really comparable? Portugal certainly shares more problems with Greece (slow growth, uncompetitive economy) than with Ireland and Spain (housing bubbles, bank collapses). But unlike Greece, where talk of an inevitable default was the topic of whispered gossip in Brussels’ corridors from almost the moment of its first €110bn bailout, there is no such buzz about Portugal.

More concretely, the latest report by the European Commission on the €78bn Portuguese bail-out, published just a couple weeks ago, paints a much different picture for Lisbon than for Athens. An in-depth look at the largely overlooked report after the jump… Read more

Peter Spiegel

Obama shakes hands with Treasury chief Geithner after his State of the Union address.

The news overnight focused on President Barack Obama’s annual State of the Union address. For the Brussels crowd, the most interesting thing in the speech may have been what was not in the speech: Europe.

Despite the ongoing eurozone crisis, and the increasingly deep involvement of senior US officials like Treasury secretary Timothy Geithner in crisis management, Obama did not mention Europe’s economic problems once. In fact, his only reference to the continent at all was a line that military alliances in Europe (and Asia) were “as strong as ever”, and putting “Berlin” in a list of global capitals where governments are “eager to work with us”.

Obama’s Republican adversaries have not done much more than that in their frequent televised debates, despite growing concern in Washington that a crisis-induced collapse of Europe’s economy could have a severe impact on the US economy in the midst of this year’s presidential campaign. Read more

Peter Spiegel

Hungary's Viktor Orban, left, with José Manuel Barroso during an EU summit earlier this year.

Perhaps because it is not in the eurozone, the recent turbulence in Hungary has not gotten a huge amount of attention internationally. But Budapest and Brussels are currently on a collision course that could have significant consequences for the region’s economic stability.

At issue is whether the European Union and the International Monetary Fund will provide financial assistance to Hungary at a time the florint is in free-fall and the government’s borrowing costs are skyrocketing, with 10-year bond yields now above 9 per cent, well above levels where Ireland, Greece and Portugal were forced into bail-outs. Standard & Poor’s downgraded Hungarian bonds Wednesday evening, citing the unpredictability of prime minister Viktor Orban’s economic policies – including his attempt to assert more control over Hungary’s central bank.

In a letter to Orban sent this week by José Manuel Barroso, the European Commission president, and obtained by the FT, Barroso drives a hard bargain. Not only does he “strongly advise” Orban to withdraw the proposed laws governing the central bank, but he makes clear that any assistance will come with tough conditions.

Excerpts after the jump. Read more

Peter Spiegel

Belgian strikers demonstrate in Brussels earlier this month to protest new austerity measures.

Herman Van Rompuy, the European Council president, announced overnight (via his now customary way of communicating to the press: Twitter) that he will hold a previously-unscheduled summit of all 27 presidents and prime ministers on January 30.

The gathering is expected to deal with the new intergovernmental treaty to enshrine tough budget rules that leaders hope will be completed by the end of the month — though with a huge amount of eurozone debt coming due in January, the gathering could yet transform into another crisis summit. Diplomats say its likely to start around lunchtime.

[blackbirdpie url="https://twitter.com/#!/euHvR/status/149194091232624641"]

One slight problem with that, however. Belgian media is reporting this morning that local unions have announced an event of their own for January 30: a general strike to protest new austerity measures announced by the just-formed government of prime minister Elio Di Rupo. Their ire is focused on proposed changes in pension laws that would force delays in early retirement. Read more

Peter Spiegel

Uwe Corsepius, EU Council's secretary general

UPDATE: According to a British official, the UK has today been invited to participate in the treaty negotiations, a significant shift that will allow London to weigh in on some of the most sensitive issues to be discussed, including whether EU institutions will enforce the new pact.

Senior officials from European national finance ministries chatted last night in the first informal negotiations on the highly-touted new intergovernmental treaty to govern the region’s economic policy, though diplomats say little substance was discussed.

Ahead of the talks, however, Uwe Corsepius, the new secretary general of the European Council, sent out a four-page letter to negotiators in an attempt to set a roadmap for how the talks will proceed – and we at Brussels Blog got our mitts on it.

Significantly, Corsepius writes that he wants negotiations completed by the end of January “so as to allow the signature of the agreement at the beginning of March”. Officials said this is why a new informal EU summit is tentatively scheduled for early February. A first draft of the treaty text could be done by tomorrow, or early next week at the latest. Read more

Peter Spiegel

Finland's Jyrki Katainen, France's Nicolas Sarkozy, Germany's Angela Merkel and EU Commission's José Manuel Barroso at last week's summit.

This morning, we are fronting our newspaper with a story led by fellow Brussels Blogger Joshua Chaffin about the growing problems in multiple European capitals — not just London — with the nascent  economic convergence treaty agreed to at last week’s summit.

That story was written with a lot of help from our network of correspondents across Europe, and given space constraints in the dead-tree version of our report, we weren’t able to go into all the detailed accounts we got from our FT colleagues. Here on the blog, we thought we’d provide a more in-depth taste of the potential hiccups ahead. Read more

Nicolas Sarkozy and Angela Merkel prior to their meeting at the Elysee Palace on Monday. Photo: Remy de la Mauvinere/AP 

Nicolas Sarkozy and Angela Merkel before their meeting at the Elysee palace on Monday. Photo: Remy de la Mauvinere/AP

Welcome back to our live coverage of the eurozone crisis. By Esther Bintliff on the world news desk in London, with contributions from FT correspondents around the world.

This post should update automatically every few minutes, but it may take longer on mobile devices. All times are GMT.

16.15: One of the areas where Angela Merkel appears to have backed down is around the role of the European Court of Justice, reports Joshua Chaffin, our correspondent in Brussels:

Ms Merkel had wanted the ECJ – the European Union’s highest court – to become the ultimate enforcer of new budget rules for the eurozone countries.

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For the unfortunate diplomats locked in the Justus Lipsius council building all of Friday and into Saturday morning, the European Union’s 2012 budget negotiations were an arduous affair. Upon emerging, one groggy diplomat lamented “an evening I can never get back.”

But to the union at large, the remarkable thing about the talks was how easily they went down.

For those who missed the news early Saturday morning, representatives from the EU’s 27 member states, the European parliament and the European commission agreed on a 2.02 per cent increase in next year’s budget, bringing it to €129bn.

That was well below the 5.23 per cent sought by MEPs, and the 4.9 per cent recommended by the commission. Read more

Peter Spiegel

German chancellor Angela Merkel during a press conference Thursday

Our friends and rivals over at The Daily Telegraph have gotten their hands on an interesting document from the German government detailing its proposals for EU treaty change, and have helpfully posted it online (with an English translation by the Open Europe think thank).

Although the Telegraph focuses on its implications for Britain, there is a significant amount of detail on how Berlin would like to change eurozone economic governance, including yet another stab at enshrining bondholder “haircuts” in the EU treaties.

For those who haven’t followed the debate closely, there is now a closed-door fight going on about whether Greece really will be the only country that sees its bondholders pushed into losses – as the eurozone’s leaders have repeatedly insisted in their summit conclusions – or whether the bloc’s new €500bn rescue fund, which could come into place as early as next year, should allow for organised defaults.

Although almost all EU institutions – including the European Commission and European Central Bank – want to make explicit Greece was a one-off, the German paper makes clear they want to keep the door open. Read more

A tram passes the euro sign sculpture in front of the European Central Bank ( ECB) in Frankfurt, Germany. Photographer: Hannelore Foerster/Bloomberg

Welcome to our continuing coverage of the eurozone crisis. All times are London time. By Tom Burgis and John Aglionby on the news desk in London, with contributions from FT correspondents around the world. This post should update automatically ever few minutes, but it may take longer on mobile devices.

The turmoil in the eurozone has taken a troubling turn in recent days, with anxiety spreading from Europe’s periphery to its “core” countries. Even as Italy’s Mario Monti readies his economic agenda to be presented today, investors are looking at France, the Netherlands and Austria with increasing unease and wondering whether the ECB might yet ride to the rescue. Over in Greece, today is the anniversiary of 1973′s mass student protests – with demonstrators once more planning to take to the streets. And the bond markets are showing ever more strain, with today’s Spanish bond auction likely to test sentiment still further. We’ll bring you all the latest as it happens.

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Mario Monti arrives to unveil his new government at the Quirinale Palace in Rome. Photo: Alberto Pizzoli/AFP/Getty Images 

Mario Monti arrives to unveil his new government at the Quirinale Palace in Rome. Photo: Alberto Pizzoli/AFP/Getty Images

 

Welcome back to the FT’s rolling coverage of the eurozone crisis. By Esther Bintliff and John Aglionby on the world news desk, with contributions from correspondents around the world. All times are GMT.

This post will update automatically every few minutes but could take longer on mobile devices.

Europe’s two new technocratic prime ministers should consolidate their respective grips on power today. Lucas Papademos, in Greece, is expected to win a confidence vote in parliament, while Mario Monti, his Italian counterpart, announces his new cabinet. Eyes will not be far from the markets either, following yesterday’s bruising ride.

 

12.52: Here’s the full list of the new Italian cabinet, courtesy of our reporter Giulia Segreti who is at the Quirinale palace in Rome:

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Mario Monti, Italian prime minister designate – Image Getty

Welcome back to the FT’s live coverage of the eurozone crisis and the global fallout. By John Aglionby and Esther Bintliff in London with contributions from correspondents around the world. All times are GMT.

This post should update every few minutes but might take longer on mobile devices.

Are calm waters finally visible on the horizon of the eurozone? Perhaps – for now. Mario Monti’s first full day as Italian prime minister designate will be marked by a bond auction and his efforts to form a government. A confidence debate starts in Greece on Lucas Papademos’s government. And German chancellor Angela Merkel holds her Christian Democratic Union party annual conference in Leipzig.

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Euro drachma

Josh Chaffin’s piece from the FT’s analysis page: Christos Chanos sits in a conference room at his family’s sun umbrella business in Athens and ponders one of the most pressing questions confronting his crisis-hit nation: should Greece leave the euro?

The head of a company founded by his grandfather in the ancient market stalls of the Monastiraki neighbourhood, he has first-hand experience weathering the destabilising effects of a debt crisis that has held Greece in its grip for nearly two years.

He understands the argument that reintroducing the drachma – which Greece swapped for the euro in 2001 – would enable the country to lower its costs and regain competitiveness. But, like many others, he is reluctant to go down that road. “If you ask me if we never should have entered, I could have a long discussion,” says Mr Chanos. “But at this point, I think it would be a huge distraction. What would happen the day after?”

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A screen in Hong Kong displaying the Hang Seng index’s turbulent day today. Image AP

Welcome back to the FT’s coverage of the eurozone crisis and its global fallout. Curated by John Aglionby, Tom Burgis and Orla Ryan on the news desk in London and with contributions from correspondents around the world. All times are GMT.

This post should update every few minutes, but could take longer on mobile devices.

Market reaction to events in Italy shows that the crisis is now truly global. Markets are looking for more clarity from Rome on timings, particularly of the austerity vote. Meanwhile the saga of finding a new Greek prime minister rumbles on.

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Silvio Berlusconi – shutting one’s eyes won’t make the problems go away. Image AFP/Getty

Welcome back to the FT’s coverage of the eurozone crisis. Curated by John Aglionby, Tom Burgis and David Crouch on the news desk in London, with contributions from correspondents around the world. All times are GMT.

Greece really is expected to get a new prime minister today – 48 hours later than expected. Italy, well who knows what’s going to happen there as the EU inspectors arrive to comb through the nation’s finances and bond yields surge … And policymakers and financiers are becoming increasingly concerned about the impact of the crisis on global liquidity levels.

The posts will update automatically every few minutes but could take longer on mobile devices.

 

11.31: Dinmore of the FT, his ear to the ground in Rome, says Italy’s out-of-control bond yields are focusing minds.

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Welcome back to the FT’s live coverage of the eurozone crisis. Run by John Aglionby, Tom Burgis and Orla Ryan on the news desk in London, with contributions from correspondents around the world. All times are GMT.

This post should update every few minutes, although it could take longer on mobile devices.

How high will Italian bond yields have to go before Silvio Berlusconi decides he can no longer survive as prime minister? Or for his immensely loyal supporters to finally desert him? Will Greece get a new prime minister today? If so, who will accept the Herculean challenge of running the country?

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Peter Spiegel

Silvio Berlusconi, the Italian prime minister, at last week's G20 summit in Cannes

At the European Commission’s regular mid-day press briefing today, Amadeu Altafaj-Tardio, the spokesman for economic issues, said the Commission’s Italian monitoring team is expected to arrive this week. After agreement Friday in Cannes, the International Monetary Fund will be sending its own team at the end of the month. Read more

Silvio Berlusconi

Welcome to the FT’s live blog on the eurozone crisis. Curated by Orla Ryan and John Aglionby on the world news desk with contributions from correspondents around the world. In Italy, doubts have emerged that Silvio Berlusconi can remain in power as the country’s borrowing costs continues to rise. Greece is expected to name a new leader after its two largest political parties late on Sunday decided to form a government of national unity. George Papandreou will stand down as prime minister.

This post should update automatically every few minutes, although it may take longer on mobile devices.

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George Papandreou Photo: AFP/Getty

Welcome to the FT’s live blog on the eurozone crisis.

Curated by John Aglionby and Orla Ryan on the world news desk with contributions from correspondents around the world. This post will update every few minutes though it may take longer on a mobile device.

George Papandreou, the Greek prime minister, caused a major surprise on Monday night and re-opened the eurozone sovereign debt crisis when he announced a public referendum to approve the second bail-out thrashed out last week by European leaders. Public opinion polls show a majority of Greeks oppose the bail-out. The PM will hold an emergency cabinet meeting at 4pm UK time on Tuesday. Parliamentary debate on the proposal starts in Athens on Wednesday.

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Peter Spiegel

Anti-austerity protesters in Athens hold up a Greek flag that says "not for sale" on Friday.

Thanks to some help from the European Commission, we have a bit more clarity on where European leaders will be spending the new €130bn in Greek bail-out aid. But the new data we received makes all the more clear that a huge amount is dependant on the still-to-be negotiated details of the 50 per cent Greek bondholder haircut deal, which may not be completed until the end of the year.

Just to remind readers where the confusion lies, of the €130bn in new funding, only €30bn was officially earmarked in last week’s summit communiqué – and that money will go for “sweeteners” to current bondholders so they’ll participate in a bond-swap programme. If they are going to take a 50 per cent cut in the face value of their bonds, they insisted on getting something else in return, and this was the price.

Of the remaining €100bn, fully €30bn will go to bank recapitalisations, not then €20bn we assumed last week. Although EU banking authorities have called for €30bn in new capital for Greek banks, officials tell us this is in addition to the €10bn provided in the first €110bn Greek bail-out.

Which leaves us with only €70bn to actually run the Greek government for the next three years. How did European authorities come to this number? That requires even more detective work, after the jump. Read more