Rolling blog: the eurozone crisis

Welcome to the second day of our rolling coverage of the eurozone crisis. All times are London time. Curated by Esther Bintliff and John Aglionby on the world news desk in London, with contributions from FT correspondents around the world.

20.00: We’re wrapping up the blog for today but we’ll be back bright and early tomorrow. In the meantime, you can follow the rest of our coverage at ft.com/world

19.52: BREAKING The FT’s Peter Spiegel and Quentin Peel report that a split has opened in the eurozone over the terms of Greece’s second €109bn bail-out with as many as seven of the bloc’s 17 members arguing for private creditors to swallow a bigger write-down on their Greek bond holdings, according to senior European officials.

The divisions have emerged amid mounting concerns that Athens’ funding needs are much bigger than estimated just two months ago. They threaten to unpick a painfully negotiated deal reached with private sector bond holders in July.

Full story here.

19.30: Here are the highlights from that press conference. Greek PM Papandreou said:

  • Greece will definitely fulfil its obligations
  • that it’s very important for European partners to signal their support for Greece
  • Greece aims to be without a primary deficit from 2012

Germany’s chancellor Merkel said:

  • Germany wants a strong Greece and will do everything necessary for that
  • She is confident that her centre-right coalition will get an own majority on the EFSF vote on Thursday

19.20: Ahead of their dinner tonight, German chancellor Angela Merkel and Greek prime minister George Papandreou have given a joint press conference. Here they are looking ever so slightly awkward.

Relax, guys - you look like you've got the weight of the world on your shoulders! Oh wait...

19.00: Joshua Chaffin, Brussels correspondent, is in Strasbourg ahead of a State of the Union address tomorrow by José Manuel Barroso, European Commission president. Here are his thoughts on what we can expect:

“The costs of a Greek debt default or exit from the eurozone would be devastating to Europe, and far outweigh any possible benefits in easing the continent’s debt crisis, Manuel Barroso, is expected to warn in a major address on Wednesday.

Mr Barroso is also expected to urge Eurozone leaders not only to increase the firepower of their €440bn rescue fund, but also to overhaul its voting rules so that it is easier to deploy. At present, the fund, known as the European financial stability facility, requires unanimity among its 17 member states before it can be put to use. Mr Barroso would prefer that be switched to some form of weighted majority along the lines of the International Monetary Fund.

In his second ever “state of the union” address, Mr Barroso is also expected to urge European leaders to consider undertaking the arduous process of another change to the European treaties, the EU official said. Doing so may be necessary, the commission believes, in order to set the terms for greater economic and fiscal integration among the eurozone countries, including the possible creation of common Eurobonds.”

18.45: Here’s the latest on the Greek parliamentary vote tonight from our reporter in Athens:

Dimitris Kontogiannis: The Greek parliament approved late on Tuesday an unpopular new property tax which should help pave the way for the disbursement of the next bailout tranche, and allow Greece to comply with the terms of the second bailout, handing the government a first victory in its latest belt-tightening campaign to avert default.

All 154 PASOK socialist parliamentarians and an independent minister voted in favour of the tax, which will be collected via household electricity bills, despite speculation earlier that some socialist lawmakers could choose to resign their seats or become independent rather than vote. 142 opposition deputies voted against the measure, while three abstained.

The state hopes to raise about €2.4 billion – or 1.1 percent of GDP – each year from the tax, which is viewed as a cornerstone of a new set of austerity measures announced last week to help achieve the fiscal deficit targets in 2011 and 2012.

18.35: Earlier we mentioned a claim by the Greek opposition party that an ink shortage was preventing tax invoices from being sent out. We don’t have confirmation of this yet from the Greek government, but just in case, one Greek tweeter has come up with an imaginative solution:

[blackbirdpie url="http://twitter.com/#!/IrateGreek/status/118740434859204608"]

18.33: The property tax has passed with 155 votes in favour, according to an early count, says Dimitris Kontogiannis, our reporter in Athens.

18.22: Enough Greek parliamentarians have voted in favour of the new property tax for the levy to be approved, our correspondent in Athens has confirmed. The vote is continuing.

18.20: Reuters bulletin:

GREEK PARLIAMENT REACHES APPROVAL THRESHOLD FOR PROPERTY TAX BILL WITH 151 VOTES IN 300-SEAT CHAMBER, VOTE CONTINUES

17.57: Voting has begun. The roll-call vote in parliament in Athens is being televised live on state-run Vouli TV, says Bloomberg.

17.55: Venizelos, Greek finance minister, has been speaking in parliament ahead of the vote on the new property tax. He said that approval of the proposed levy would go towards meeting targets in the 2011 and 2012 budgets.

17.45: Earlier, we mentioned that François Fillon, the French prime minister, had pledged to “step up the fight against speculative attacks against the eurozone” once Germany voted on the new eurozone rescue fund on Thursday. Hugh Carnegy, the FT’s Paris bureau chief, has sent us this update from the French capital:

Mr Fillon’s statement was one of the very few being made publicly in Paris ahead of the Bundestag vote. France does not want to rock the boat. In any case, the eurozone crisis has been overshadowed in the French media this week by domestic politics. The loss of its majority in the senate on Sunday by President Nicolas Sarkozy’s ruling UMP party has dominated, with many commentators seeing it as an ominous portent for his chances of re-election next year.

Today there was a national strike by teachers, protesting, amongst other issues, against budget-saving cuts in their numbers. The president himself has stayed aloof, letting it be known that his efforts are all being directed at the economic crisis. The government’s 2012 budget due out tomorrow will be aimed at reinforcing France’s commitment to bringing its budget deficit down to 3 per cent of GDP in 2013, a key element in defending France’s triple A rating and hence its ability to support further bail-out eurozone support measures and fend off market attacks on French banks.

17.30: The FTSE 100 index has today made its biggest advance since May 2010, up 4 per cent at 5,294.05, on hopes that eurozone policymakers will act decisively enough to prevent a disruptive Greek default.

17.12: While we wait for the results of the Greek vote on the property tax, here’s a nice illustration that attempts to get at the true dynamics behind the eurozone crisis, courtesy of Getty Images:

17.05: The Greek vote on the new property tax – which the government hopes could raise about €2bn a year - is about to take place. As our reporter Dimitris Kontogiannis wrote earlier today, the tax is expected to be approved, despite the objection of a number of deputies in the ruling socialist Pasok party.

17.00: Richard Milne, the FT’s capital markets editor, has some thoughts on today’s market rally:

“The topsy-turvy nature of markets currently is perhaps best summed up by the fact that BNP Paribas and Société Générale, the two French banks most hit by the eurozone turmoil, have seen their shares increase by a third in value in just three days. Both banks are up 14 per cent at the moment while Crédit Agricole, another large French lender, is up 13 per cent (its three-day gain is a mere 28 per cent).

“The broader indices are also celebrating – although one might ask what – with the CAC-40 in Paris up 5.4 per cent and the Dax 30 in Frankfurt gaining 5 per cent. They are the biggest gains for both since May 10 last year: the date of the first Greek bail-out.”

16.55: Slovenia has approved legislation to boost the powers of the eurozone rescue fund, the EFSF, reports AP. Woo hoo. Apparently the vote in the 90-member parliament on Tuesday was 49 for and four against. The ousting of the minority centre-left government last week had led some observers to worry that the bill might not pass, but it was approved with the help of opposition deputies, says Reuters.

NB: All 17 eurozone parliaments have to approve the EFSF’s new powers. The countries in which the issue is expected to be most contentious are:

  • Slovakia (vote due on October 11)
  • The Netherlands (debate on October 5/6, with vote expected soon after)
  • Finland (vote due tomorrow)
  • Germany (vote due on Thursday)

16.35: There seems to be a lot more optimism in the markets today, even though the causes for such optimism still seem, well, fairly scarce. Wall Street opened in positive territory, with the S&P 500 adding 2 per cent in the first few minutes of trading. Here’s our markets reporter in New York, Ajay Makan:

Sentiment was buoyed by positive comments from key investors such as Mohamed El-Erian, chief executive of bond fund Pimco, who said of IMF sponsored talks over the weekend: “What I learnt in Washington is that Europeans finally get it.”

Although some investors cautioned there was no sign of an imminent breakthrough in European negotiations, there was a sense of not wanting to be left behind if stocks continue to surge as talks progress.

16.22: François Fillon, the French prime minister, has pledged to “step up the fight against speculative attacks against the eurozone” once Germany has voted on the new eurozone rescue fund, says Reuters.

Speaking during a question and answer session in parliament today, Fillon said:

“Once this result is in, and we hope that it will be a positive result, we are going to make proposals to step up the fight against speculative attacks against the eurozone.

“We have a moral obligation to defend Europe, because Europe is our common future and to defend Europe we have to increase the financial credibility of our country”

What could these mysterious proposals be, we wonder? Answers on a postcard please – or in the comment section below.

16.08: Time for an update: here’s a quick recap of today’s events.

  • George Papandreou, the Greek prime minister, gave a speech in Berlin where he said he could “guarantee Greece will live up to all its commitments” and argued that the country deserves “respect” for its efforts so far
  • Evangelos Venizelos, Greek finance minister, confirmed that the troika’s senior negotiators are due to return to Athens this week, said that Greece will get its next batch of bailout loans in time to avoid default, and described the July 21st bailout deal as “the bible for Greece“…
  • Markets are up, up, up – in spite of a number of eurozone officials throwing cold water on the idea that they’ve been discussing a €2,000bn rescue fund
  • Chief among those cold-water throwers was Elena Salgado, Spain’s finance minister, who said: ”It is not on the table, nor has it been discussed
  • Greek bus drivers, metro workers, tax collectors and some finance ministry officials have gone on strike, while protestors clashed with police in central Athens
  • The Greek parliament looks set to approve the new property tax this evening, but in the meantime, a shortage of ink has stalled tax collection efforts, according to the conservative opposition party

15.25: Ralph Atkins, our Frankfurt bureau chief and resident expert on all things to do with the European Central Bank, has written on Money Supply about what the ECB thinks of the eurozone’s rescue fund. Or more precisely, what the ECB thinks of the EFSF having access to its liquidity…

15.16: An update from Dimitris Kontogiannis, our reporter in Athens. Apparently a large number of state-run companies failed to meet the government’s Monday deadline to provide a list of employees to be put in a “reserve labour pool”.

This “pool” is admittedly not a very nice place to be: once in it, employees receive a reduced wage for a year (up to 60 per cent of salary) and will then face dismissal unless they have found a government job elsewhere. Dimitris reports that some 61 firms out of 151 did not send the lists to the finance ministry, suggesting that yet again, implementation delays could undermine the Greek rescue plan.

14.50: Angela Merkel & the Greek Challenge. It sounds a bit like a potentially quite exciting Enid Blyton book. Sadly it’s not, but it is the subject of this excellent analysis on the German chancellor by our Berlin bureau chief, Quentin Peel. The piece explains how, for the past 10 days, Merkel has been engaged in a frantic round of campaigning to reassure her supporters of the need to pledge more German money to underpin future rescue programmes for eurozone members.

The Bundestag vote on Thursday is likely to pass by a big majority, thanks to the support of the opposition Social Democrats and Greens, but the big question is whether Merkel can preserve her own majority, in spite of a threatened rebellion by backbench supporters. And the key number is 19, says Quentin: if more than that abstain or vote against the plan, Merkel would lose her absolute “chancellor’s majority”, denting her prestige and undermining the stability of her centre-right government.

14.31: Meanwhile, back in Greece…

Tax office employees chant slogans against austerity outside the ministry of finance in Athens on Tuesday

Bus drivers and metro workers went on strike in Athens today to protest against the government’s harsh new austerity plan. Tax collectors and some finance ministry officials also began a 48-hour stoppage.

Protestors clash with police during a demonstration in Athens on Tuesday

14.15: On the EFSF issue, Schäuble said in today’s panel discussion that increasing the rescue fund would be a “silly idea”, that would mean some triple A states would lose their rating. However, according to Bloomberg, he did not rule out *changes* to the fund, saying that if the eurozone did “have to enhance the EFSF” it would be done in the “most efficient way.” Enhance…

14.10: German finance minister Schäuble, who is speaking at a conference today in Berlin, appears to be in fighting form.

Following President Obama’s comments last night that the eurozone crisis was “scaring the world” and that officials hadn’t acted quickly enough, Schäuble retorted:

“I don’t think that the problems of Europe are the only reason for the problems in the United States.”

Meanwhile, he’s also said some *things* about the European Commission and Tim Geithner, says Stephanie Flanders of the BBC:

[blackbirdpie url="http://twitter.com/#!/BBCStephanie/status/118671054456619009"]

13.50: Germany’s finance minister Wolfgang Schäuble (pictured right) apparently told the German cabinet on Tuesday that there were no plans to increase the volume of the European Financial Stability Facility (EFSF) rescue fund or Germany’s maximum contribution.

According to Reuters, chancellor Angela Merkel’s spokesman said Schäuble explained “that the EFSF will be given additional powers as agreed by European leaders on July 21 in Brussels, but it is not being expanded, the volume remains 440 billion euros, as does the upper limit for the German contribution at 211 billion euros”.

Peter Thal Larsen at Reuters’ Breaking Views points out that there’s a bigger question to answer:

[blackbirdpie url="http://twitter.com/#!/peter_tl/status/118668860076474369"]

 

13.30: You may have seen the number €2,000bn being bandied around in the last couple of days, as the putative size of a new, enlarged eurozone rescue fund (EFSF). A word of caution on that topic from Ben Hall, our Europe news editor:

A note on numbers: none of the competing proposals for boosting the firepower of the EFSF would increase its size to €2,000bn. The number is made up.

As Wolfgang Schäuble, Germany’s finance minister, made clear on Monday, eurozone governments are not going to increase their contributions to the Fund.

What officials are discussing is how to increase the impact of the EFSF. One of several proposals for leveraging the Fund would involve it guaranteeing losses on sovereign bonds up to, say, 20 per cent, rather than buying the bonds outright. That would imply that the €440bn EFSF would be able to “insure” five times the amount it would otherwise be able to buy – in other words some €2,000bn of sovereign debt. But as Peter Spiegel, our Brussels bureau chief, points out, after the Greek, Portuguese and Irish bailouts, the EFSF only has €250bn of usable credits left.

So until we know how exactly how the eurozone intends to leverage its rescue fund, we can only speculate about how “big” it will become.

 

13.15: Time for a lunchtime markets update. Jamie Chisholm, our global markets commentator, says the morning rally is showing little sign of faltering. The FTSE All-World index is up 2.1 per cent and supposed havens such as US Treasuries are under pressure.

12.58: In a bizarre twist, Greece’s conservative opposition party has claimed that even as the government prepares to vote on implementing a new tax, a number of existing taxes have not been collected, because – get this – a shortage of INK has prevented the computerised tax centre at the finance ministry from sending out claims to taxpayers over the last 10 days. Oh dear. NB: The finance ministry has not yet responded to the claim.

12.55: Our Athens reporter, Dimitris Kontogiannis, has set out the main details of the property tax the Greek parliament is due to vote on – and will probably approve – later today.

  • The new tax will apply, with a few exceptions, to all electricity-powered buildings
  • Those who refuse to pay will have their electricity cut off, according to the draft law
  • The government estimates the new tax could raise €2bn-€2.5bn a year, bringing the budget deficit closer to this year’s target of €17bn-€17.5bn, although others think it will raise a smaller amount
  • Householders may be forced to pay up to a maximum of €20 per square meter under the levy

12.45: So, you remember how earlier today the Greek finance minister said that the bailout deal agreed on July 21st is “the bible for Greece”? Our colleague Joseph Cotterill on FT Alphaville has posted something rather special which relates to that intriguing comment.

12.34: Henry Blodget over at Business Insider has got a fun take on some comments made by US treasury secretary Tim Geithner on ABC world news.

Apparently Geithner suggested eurozone ministers seemed to have finally got the message about the urgent need to take action:

“If you listen carefully to what they said this weekend, not just to us in private, but what they said publicly, they’re foreshadowing now the escalation that’s going to come. And we’d like them to get on with it.”

Blodget translates this into the following headline -

“GEITHNER: I’ve Finally Scared The Crap Out Of Europe, Huge Bailout Coming Soon”

HT @robertshrimsley

12.15: Our Berlin bureau chief, Quentin Peel, says the really important meeting today for Angela Merkel is *not* her dinner with George Papandreou – but rather, a discussion this afternoon with parliamentary backbenchers, ahead of Thursday’s crucial vote on approving new powers for the EFSF.

12.09: Reuters is flashing a bulletin:

GERMANY GOV’T SPOKESMAN SAYS FINANCE MINISTER TOLD CABINET EFSF VOLUME WILL NOT BE EXPANDED, VOLUME STANDS AS IT IS

12.08: Venizelos, the Greek finance minister, has declined to give any numbers for bondholder participation (PSI) in the Greek debt swap plan:

“I cannot give any figure publicly… I have said a number of times that the figures are optimistic and encouraging.”

11.45: Spain’s finance minister Elena Salgado (pictured right) has rebuffed speculation that discussions have taken place over increasing the scale of the European Financial Stability Facility (the eurozone’s rescue fund) to €2,000bn.

As our Madrid correspondent Miles Johnson reports, Salgado told Spanish TV:

“It is not on the table, nor has it been discussed.”

For some investors, those words are unwelcome. Many had hoped that rumours of a massive hike in the powers of the EFSF would be confirmed imminently, resolving fears of eurozone contagion for once and for all. Immediately after Salgado’s comments, the euro fell 0.35 per cent against the dollar to $1.3492.

Ian Stannard, head of European currency strategy at Morgan Stanley, told Reuters:

“Salgado poured cold water on the optimism that we saw first thing this morning.”

However. While it may be true that there have been no discussions yet about specific proposals, EU officials expect the debate to begin in earnest straight after the German parliament votes on Thursday to approve new tools for the rescue fund. Eurozone finance ministers are expected to discuss how to increase the firepower of the EFSF at a meeting in Brussels on Monday.

11.25: Papandreou has taken the opportunity to defend the image of Greece, which has become rather tarnished in some circles:

“I promise you we Greeks will soon fight our way back to growth and prosperity after this period of pain”

“We are determined, the Greek people are determined to make this a success… Whether I am re-elected or not is not my problem, my problem is to save the country.”

Although he also admits the roots of the crisis lay in bad leadership:

“We are not a poor country, we’re a country that has been governed badly.”

11.18: Here are some more excerpts from Papandreou’s speech in Berlin, where the Greek PM has been ratcheting up the rhetoric on the need for greater eurozone integration:

“The euro zone must now take bold steps toward fiscal integration to stabilize the monetary union. Let’s not let allow those who are betting against the euro to succeed…”

“Along with much tighter fiscal oversight, we must expand the EFSF (European Financial Stability Facility) and formulate permanent mechanisms for economic stability and solidarity.”

“European partners must stop blaming each other for collective and institutional failings and acknowledge that no European nation will thrive in isolation… We must stop blaming each other for our different weaknesses.”

11.13: While Greece’s finance minister was talking in Athens, his colleague George Papandreou, the prime minister, has been addressing the German industry federation in Berlin – where he is due to have dinner with Angela Merkel this evening (that’ll be a fun meal, don’t you think?). Mr Papandreou told the audience he could “guarantee Greece will live up to all its commitments” and argued that his country deserves “respect” for its efforts so far.

11.00: Venizelos says Greece will get its next batch of bailout loans in time to avoid default.

10.45: Evangelos Venizelos, the Greek finance minister, is holding a news conference. According to Reuters, he says that default scenarios are harmful for Greece; that the July 21st deal – in which EU leaders agreed to a new €109bn bailout – is “the bible” for Greece; and that Greece will send a letter to the troika detailing its political pledges. He has also confirmed that the troika’s senior negotiators are to return to Athens this week, and that talks will now focus on the measures needed in 2013 and 2014.

10.30: The property tax that is being voted on in the Greek parliament tonight has already proved contentious. Greece originally predicted it could raise about €2bn a year in 2011 and 2012, but eurozone ministers later lowered their estimates for how much revenue the tax would bring in, partly due to the vocal public protests made against the tax. Yesterday, the public sector union ADEDY, which represents about half a million Greek workers, called on politicians to vote against the levy.

“ADEDY calls lawmakers in tomorrow’s parliament vote to finally feel the despair and anxiety of millions of people and not vote for the excise tax on property,” the union said in a statement.

Despite the public anger over the measure, our reporter in Athens, Dimitris Kontogiannis, says the tax is expected to be passed tonight, since the ruling socialist PASOK party has 154 seats in the 300-seat parliament.

10.15: Our Brussels bureau chief Peter Spiegel has penned a comprehensive explainer on the choices now facing eurozone governments, and it’s well worth a read. He explains that with the window for resolving the eurozone’s sovereign debt crisis closing more quickly than anticipated, key decisions that could shape the future of Europe are being made at speed.

“Senior European officials hope that by the time of a summit of European Union leaders in October, they will have: put in place powers for the eurozone’s €440bn rescue fund; agreed on the need to expand the fund’s firepower; and presented plans for further economic integration. But policymakers still have to work out countless disagreements that could doom the process.”

9.50: The Berlin conference audience loved Mr Papandreou’s line that he was not forcing through tough austerity measures for political ends.

“Whether I am re-elected or not is not my problem. My problem is to save the country.”

Equity and commodity markets are bullish that the latest phase of the crisis appears to be passing, with major indicies rising.

9.45: Mr Papandreou has just finished speaking at a conference organised by the Federation of German Industry in Berlin. He insisted that Greece had the potential to emerge stronger from the crisis, but that it would take “years to make these major changes”.

But he warned that Greeks’ willingness to accept austerity should not be taken for granted:

“Many Greeks feel they have little left to give except a spirit, a spirit of change.”

“If people feel only punishment, this opportunity will become a lost cause”