Welcome to 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.
19.23: We’re winding up the rolling blog for today but thanks for reading, and do follow the rest of our coverage at ft.com/world. We’ll be back tomorrow to cover the crucial German parliamentary vote on expanding the EFSF (will Merkel preserve her absolute majority?) aswell as any other eurozone shenanigans…
19.21: Earlier we referred to some comments made by Angela Merkel in an interview with Greek TV late last night. Here’s the full story, from which:
Angela Merkel, German chancellor, has warned Greece that a €109bn rescue package, approved by the 17 eurozone leaders in July, may have to be reviewed if Athens fails to meet deficit reduction targets agreed with the European Union and International Monetary Fund.
The chancellor made the comments in an interview with Greek television, broadcast after she met George Papandreou, the Greek prime minister, in Berlin on Tuesday. It followed a closed meeting with German parliamentarians where Ms Merkel was said to have warned that she could “not exclude” the possibility of a Greek default.
19:00: Here’s a roundup of events in the eurozone today:
- José Manual Barroso, president of the European Commission, gave his annual State of the Union address in Strasbourg, in which he insisted Greece would remain a member of the euro, and formally approved proposals for a tax on financial transactions – a move that somewhat predictably sparked howls of outrage from business lobbying groups
- The UK government said it had no objections “in principle” to the tax, but said it “would have to apply globally and there are a number of practical issues that need to be worked through”
- The European Commission confirmed that the troika would return to Athens on Thursday (providing a small lift to markets), and said an additional ‘eurogroup meeting’ (where European finance ministers meet up) would be held in October to “consider the disbursement of the next tranche” of bailout money
- Finland voted to approve expanding the powers of the eurozone’s rescue fund, the EFSF, with 103 members of parliament voting for, 66 against and 30 absentees
- German inflation hit a 3-year high
- French president Nicolas Sarkozy pledged to keep to his target of reducing the country’s budget deficit to 3 per cent of gross domestic product in 2013
18.25: Taxi drivers have been protesting outside the Greek transport ministry today, during a 48-hour strike against the proposed liberalisation of their profession.
18.12: In Portugal, prime minister Pedro Passos Coelho told parliament today that his country would be “vulnerable” if another eurozone member defaulted.
“I don’t want any country to default but if this were to happen, it is evident… we would be vulnerable to an accident of this nature…
“If that were to happen, we cannot exclude that Portugal’s assistance plan would have to be reinforced.”
According to Reuters, Coelho said he did not expect any country to default but if it were to happen, he would expect the European Central Bank to provide liquidity to Portuguese and Irish banks.
“There are foreign risks and we can’t fail to take these risks into consideration,” he said. “These risks are today evident to a lot of people.”
18.00: Alan Beattie, our international economy editor, says a financial transaction tax that can’t be bypassed “makes perfect sense at least as a money-raising device” but notes that the EU’s proposed version “doesn’t look particularly workable”…
17.45: Satyajit Das, the author of Extreme Money: The Masters of the Universe and the Cult of Risk, has written a cutting criticism of the idea of leveraging the eurozone’s rescue fund.
“If, as Albert Einstein observed, insanity is “doing the same thing over and over again and expecting different results”, then one of the latest proposals for resolving the eurozone debt crisis requires psychiatric rather than financial assessment.”
Ouch.
17.20: France’s president Nicolas Sarkozy has told his cabinet that a target of reducing the country’s budget deficit to 3 per cent of gross domestic product in 2013 is “untouchable” and will be met “to the last euro”, reports Hugh Carnegy, our Paris bureau chief:
“The French government signalled it was willing to increase taxes on the rich as it outlined a tough 2012 budget intended to convince nervous financial markets of its determination to bring public finances under control…
The budget was a difficult balancing act for President Sarkozy. France’s fiscal stability is vital to retaining the country’s triple A rating, which in turn underpins its ability to support eurozone bail-out efforts. But the combination of weak growth and austerity threatens his bid for re-election next year.”
Full story here.
16.50: Angela Merkel was interviewed on Greek ERT Television late last night (the lady must have a lot of energy, given her busy day and dinner with George Papandreou beforehand). According to the Associated Press, she “hinted” that the second Greek bailout package might have to be renegotiated, saying:
“So we must now wait for what the troika finds out and what it tells us: do we have to renegotiate or do we not have to renegotiate?”
Last night, the FT reported that a split had emerged over the terms of the bail-out, with as many as seven of the bloc’s 17 members arguing that private creditors should swallow a bigger writedown – a change that would almost certainly involve renegotiating the July 21st bailout deal.
Meanwhile, Bild, the German tabloid, reported today that Ms Merkel told her coalition: “We are trying to avoid a Greek insolvency. But I cannot rule it out.”
All of which seems to suggest that Ms Merkel is taking a pragmatic view of how things might pan out, and is continuing to play hardball with Greece by underlining the fact that the troika’s verdict is far from certain.
16.15: German inflation has hit a three-year high this month, reports Ralph Atkins, our Frankfurt bureau chief:
“The figures indicate that eurozone price pressures have accelerated more than expected and will complicate the European Central Bank’s task ahead of its interest-rate setting meeting next week.
German annual inflation jumped to 2.8 per cent in September on a harmonised European basis, up from 2.5 per cent in August and the highest since September 2008, the country’s statistical office reported.
As a result, figures due on Friday could show eurozone inflation hit 2.7 per cent this month, economists said.”
16.00: Josh Chaffin, our Brussels correspondent, says that José Manuel Barroso, the European commission president, is going to push to streamline the eurozone’s €440bn rescue fund by proposing that the unanimous voting requirements that govern its use be eliminated:
If approved by the 17 governments that back the fund – known as the European financial stability facility – the changes that Mr Barroso is advocating could make it easier to deploy and faster to activate in times of crisis.
The EFSF’s limitations have come into focus as member states have struggled to win ratification for a revamp that their leaders agreed at a July summit in order to make the fund more flexible and increase its lending capacity.
Thus far, only six of 17 member states have completed ratification. Of particular irritation to many EU officials is the fact that Slovakia – one of the smallest eurozone members – has threatened to derail the entire process.
More broadly, European officials complain that the need for unanimity has deepened the scepticism in financial markets that the EU will be able to carry out the policies it has put forward to confront the crisis.
15.45: Last night, the Greek parliament approved a new property tax, a deeply unpopular austerity measure that is a keystone of the government’s latest attempt to satisfy its international lenders and avoid default. Theodore Pangalos, one of Greece’s deputy prime ministers (there are two, apparently), said in a TV interview today that he doesn’t have the cash to pay the tax, so he’s going to have to sell a property.
However, our sympathy for Mr Pangalos is somewhat lessened by the revelation that he owns “three apartments in Athens and another five elsewhere”… Here’s an extract from the Reuters story:
“I’ve already paid 10,000 euros in real estate tax and will pay another 7,500 euros,” Theodore Pangalos told Mega TV. “Because I don’t have 17,500 euros, I will have to sell one of the properties.”
Based on his wealth and income declaration in 2010, mandatory for members of parliament, Pangalos had income of more than 640,000 euros ($870,000) and property holdings that include three apartments in Athens, another five elsewhere and 11 land plots.
But the deputy prime minister was low on deposits with just over 17,000 euros in the bank. The average annual income in Greece is about 20,000 euros.
“I have real estate property which was inherited. Personally, I never bought anything,” Pangalos said. “I am trying to find a buyer, what else can I do.”
15.22: Angela Merkel faces a showdown in the German parliament tomorrow, where a majority vote on the eurozone rescue fund hangs in the balance. In this video, Quentin Peel, our chief Germany correspondent, talks to the FT’s Daniel Garrahan about whether Germany can provide the firepower for the European Financial Stability Fund to work.
15.00: The Lex Column has just published a note on the Tobin Tax issue. From which:
There is a reason why “Tobin taxes” have regularly been mooted, for four decades. In theory they can discourage speculation while promoting long-term behaviour. Such consummations are devoutly to be wished. But there is also a reason why true Tobin taxes have never happened. In practice, nobody has found a way to make them work…
14.45: Just in case any members or supporters of Britain’s Conservative party are worrying that the current dominant partner in the country’s ruling coalition might be considering taking the UK into the euro, you can rest easy. William Hague, the foreign secretary, has told the Spectator magazine that he stands by his 1998 comment that the euro was like a “burning building with no exits”.
He told the magazine that the single currency “will be writtten about for centuries as a kind of historical monument to collective folly”.
“Greeks, or Italians or Portuguese have to accept some very big changes in what happens in their country, even bigger than if they weren’t in the euro, and Germans will have to accept that they are going to subsidize those countries for a long time to come really, for the rest of their lifetimes.”
14.30: Gavyn Davies has blogged on the pros and cons of leveraging the EFSF, the eurozone rescue fund. This is one of the myriad ideas currently floating around the eurozone as a way of tackling the crisis. Gavyn’s view is that while it appears attractive it “could all go very wrong”.
“The use of Other People’ s Money is always appealing, which is why the option of leveraging the EFSF has been put on the table. But it is inescapable that upside and downside risks would both increase, as always happens when leverage is used. Germany still looks very reluctant to assume these risks.”
14.20: It’s budget day in France and details are starting to emerge. The government is promising that next year it will cut public spending for the first time since the second world war. This will be done partly but cutting some 30,400 public sector jobs – by not replacing one in two retirees. Other headlines include pledges to tax the rich and sugary drinks. If enacted and forecasts prove accurate, the deficit should be cut by some €15bn.
14.00: Our colleagues over on FT Alphaville have read and analysed a Greek rescue proposal by Roland Berger, the consultant firm. Their verdict?
“It’s a plan, it has lots of detail, but we’re not greatly convinced. It’s actually a sign, if anything, that the time for grand plans is over…”
Full analysis here.
13.35: John Authers and Jennifer Hughes from the FT’s Lex column discuss in this video whether a tobin tax would work in damping speculative trading, and whether it would do more economic harm than good.
13.15: Here’s another response to Barroso’s endorsement of a financial transaction tax this morning, this time from the CBI (the lobbying group for UK businesses):
Dr Neil Bentley, CBI Deputy Director-General: “The European Commission’s decision to press ahead with a Financial Transaction Tax is completely misguided at a time when it’s clear that Europe needs a relentless focus on growth. The Commission’s own official impact analysis shows that the proposed tax could dent long-run EU gross domestic product by more than €100 billion. The FTT is a crude instrument that would increase the cost of capital for businesses, hold back their growth potential and raise minimal revenue in return. It would be particularly damaging to the UK, as Europe’s leading financial centre, as it would divert activity to other financial hubs like New York or Hong Kong.”
Not everyone agrees with that view, however. Writing in today’s FT, columnist John Plender argues that long-term investors would benefit from such a tax, adding that a reduction in financial trading volumes might “be no bad thing”
The huge increase in bank balance sheets over the past two decades is primarily the result of the growth of trading between financial institutions, as opposed to lending to businesses and households.
He points out that Britain has had a financial transactions tax – stamp duty – in place since 1694:
“This has signally failed to prevent London’s ascendancy in international finance.”
13.05: An instructive view from Greece is on offer in this academic paper by Loukas Tsoukalis, professor of European integration at the University of Athens (thanks for the recommendation, @olafcramme). The entire essay is worth a read, but one early paragraph in particular gives a good domestic context to the current crisis:
“Greek politics is clientele politics par excellence: political parties distribute money and favours to voters/clients. Greece is, of course, not unique in this respect. But the problem grew bigger with time: the quality of the Greek political class steadily deteriorated, the ‘enrichissez-vous’ culture became dominant after many years of rapidly rising prosperity, while membership of the EU, and the euro in particular, came to be perceived as an all-protective umbrella against adversity, as well as a provider of free or cheap money, rather than an agent for reform.
The state became increasingly corrupt and dysfunctional, an instrument of parties in power and a victim of the clientele system which, if anything, grew stronger over the years. There was cheap money to spend. Organized interests and the forces of inertia in a basically conservative society that does not much like change combined to kill any attempt at structural reform…”
12.54: An update from Michael Hunter on our London markets team, who points out that the FTSE 100 rose 4.2 per cent yesterday – important context when considering today’s moves.
“The FTSE 100 is indeed down – by 17 points at 5,276.86, a loss of 0.3 per cent. But it is moving today in a relatively tight range – between a session high of 5,314.29 and a low of 5,234.40. Making such small losses, or any gain at all, is impressive after yesterday’s strong rally, which marked the FTSE 100′s best single session gain since May 2010.”
12.40: So the troika is due to return to Athens tomorrow. Alan Beattie, our international economy editor, explains why this matters:
The news that the “troika” – the EU, the ECB and the IMF – will be returning to Athens on Thursday is a pretty strong signal that the next tranche of the current rescue programme is going to be released – a small mercy for Greece, at least, even if the next version of the bail-out is mired in division and uncertainty.
Among the various other displays of poor coordination in the bail-out is the difference of style: the IMF tends to send its mission chief back to a borrower country only when the negotiations are pretty much done and the fund is ready to disburse the next tranche; the EU thinks substantive negotiations should be done in-country and generally wants to send its top officials in at an earlier stage.
Of course, it’s possible that the sequencing and signalling has now changed and we should read at lot less into the announcement of imminent return. It’s variety like that which keeps the Greece story from getting predictable.
12.20: Global stock markets are very volatile today. There was a serious wobble this morning, after traders were rattled by the news – revealed by the FT – that a split has emerged over the terms of Greece’s second €109bn bail-out. The report that as many as seven of the bloc’s 17 members want private creditors to swallow a bigger writedown on their Greek bond holdings sent the FTSE All-World index down 0.3 per cent. But investors then seemed to take heart from the confirmation that the troika of lenders to Greece will return to Athens tomorrow (see our 11.22 update). The FTSE 100 and the All-World nudged back into positive territory… but just for a while. They’re now back in the red. Keep up – if you can – at ft.com/markets
12.10: More on the Finnish vote: a total of 103 members of parliament voted for granting additional powers to the European Financial Stability Facility (EFSF), while 66 voted against it and 30 were absent.
12.08: Finland has voted to approve the expansion of the eurozone’s rescue fund, the EFSF. More details soon…
12.00: To tobin tax, or not to tobin tax… Any proposal for a tax on financial transactions can be relied upon to drum up strong reactions from left and right. Cue the “Conservative MEPs”, who have issued a press release following José Manuel Barroso’s speech this morning:
A planned European Union tax on financial transactions could prompt a hugely-damaging exodus of business and jobs from London, Conservative MEPs warned today…
Kay Swinburne, Conservative spokesman on economic and monetary affairs, said: “This is not an EU-wide tax but a tax on the City of London.”
She said that any European financial transaction tax (FTT) which included the United Kingdom but not the rest of the G-20 group of leading economic nations, would simply lead to a draining-away of business to other parts of the globe.
11.55: The European parliament has given its approval to the so-called “six pack”. It would be fun if this involved handing out a free set of beers to every European citizen, but it’s actually a sprawling package of new fiscal rules intended to tighten economic coordination among eurozone governments and prevent them from building up excessive debts. Our Brussels correspondent Josh Chaffin explains:
The approval of the so-called “six pack” legislation came nearly a year after the European commission, the European Union’s executive arm, proposed the new rules as a way to safeguard the bloc from future debt crises.
The commission had urged speedy adoption of the proposals in order to send a signal to financial markets of the EU’s commitment to toughening budget rules and addressing the underlying weaknesses that contributed to the crisis. Yet the drawn out debate instead provided further evidence of the slow pace of EU decision-making in an era of global financial markets that demand immediate results.
The centrepiece of the new legislation is the ability of Brussels to fine governments that refuse to correct excessive debts or budget deficits. Those sanctions are intended to toughen fiscal rules that had been flouted in the past.
We’ll post a link to the full story on the FT website asap.
11.38: More on that ‘additional’ Eurogroup meeting, which will be held in October, from a European Commission spokesman:
“I can confirm the Eurogroup will hold an additional meeting as soon as possible, still in October, to discuss the situation of Greece and consider the disbursement of the next tranche.”
11.22: The European Commission has confirmed that the troika of lenders to Greece – the IMF, the European Commission and the European Central Bank – will return to Athens on Thursday. This from Simon O’Connor, a European Commission spokesman:
11.10: Earlier this morning, José Manuel Barroso, president of the European Commission, used his state of the union address to give his formal support for a proposed tax on financial transactions, calling it a “matter of fairness”. This is not a new idea, of course, but one that gained fresh momentum in August when German chancellor Angela Merkel and French president Nicolas Sarkozy pledged to draw up a joint proposal for a transaction tax. If you’re interested in learning about the history of this kind of levy, check out Martin Sandbu’s explainer on “The Tobin Tax“.
10.59: Alexander Stubb, a Finnish politician who is minister for European affairs and foreign trade, comments on Barroso’s speech this morning:
If you’re on twitter, Mr Stubb is worth a follow, particularly as today is the Finnish vote on the expansion of the eurozone’s rescue fund (the EFSF). The issue has proved particularly divisive in Finland, where public opinion has turned progressively more eurosceptic with each fresh bail-out for Greece and other euro members.
10.40: Anyone concerned that they’re not feeling sufficiently gloomy after reading Ian Bremmer’s piece (see our 9.05 update), should turn to Martin Wolf’s latest article. The FT’s chief economics commentator stresses in no uncertain terms just how dark the clouds are over the eurozone, concluding:
“The eurozone has still to decide what it will be when it grows up. But first it needs to reach that state. The costs of a meltdown would be too grave to contemplate. The members simply have to prevent that. They have no sane alternative.”
10.30: Josh’s piece on Barroso’s speech is now online.
10.15: Gideon Rachman has posted for The World from Singapore, where he’s attending a conference. The view in the city state is that Europe is, unlike a few years ago, no longer irrelevant. The bad news, for Europeans, is that it’s for all the wrong reasons… The worse news is that China is almost certainly not going to ride to the rescue but keep its “rainy-day fund” to “splurge on domestic spending, if and when the country hits a domestic political or economic crisis”.
10.00: And some more from Josh:
“Many of these initiatives had been telegraphed in the days leading up to the speech – whether it was the determination to propose a financial transactions tax or the intention to expand the eurozone rescue fund.
“One thing that may reverberate in national capitals is Barroso’s determination that the commission play a leading role in fostering closer and deeper integration among the eurozone economies. Some member states want to oversee that process themselves through inter-governmental treaties that would create new institutions and effectively sideline the commission. But Barroso made clear in his remarks that he was determined to prevent that, and can count on the parliament’s support to preserve the community method.
“We need more than ever the independent authority of the Commission. Governments cannot do this by themselves. Nor can this be done by negotiations between governments,” he said, calling the commission ‘the guarantor of fairness’.”
9.55: Here are Josh Chaffin’s takeaway thoughts on Mr Barroso’s speech:
“Barroso made an appeal to European pride – and appeared to take a slight dig at the US, and the repeated warnings from Treasury Secretary Tim Geithner that the continent must get the debt crisis under control. “I feel aggrieved when I see people patronising us and telling us what to do,” Barroso said, urging member states to “show a bit more pride” and not to apologise.
“Barroso and other commission officials seem to have embraced Geithner’s suggestions to add more firepower to the EFSF, the eurzone’s €440bn bailout fund. But in private, there are plenty of people in the commission who believe that Washington’s impasse over the debt ceiling deserves a share of the blame for recent market turmoil.”
9.30: Here’s Mr Barroso’s full quote on the need “to complete our monetary union with an economic union”. How credible are these plans?
“It was an illusion to think that we could have a common currency and a single market with national approaches to economic and budgetary policy.“In the coming weeks, the Commission will … present a proposal for a single, coherent framework to deepen economic coordination and integration, in particular in the euro area. This will be done in a way that ensures the compatibility between the euro area and the European Union as a whole.”
9.20: More from Mr Barroso – on the need to do something in response to widespread accusations that the EU is moving at a handicapped snail’s pace in tackling the crisis.
“The pace of our joint endeavour cannot be dictated by the slowest. A member state has the right not to move. But not the right to block the moves of others. Our willingness to envisage Treaty change will reinforce the credibility of our decisions now.”
9.10: Alan Beattie, the FT’s international economy editor, has written a pithy post for The World on the International Monetary Fund’s views on whether more of the funding gap for the Greek bail-out should come from the private sector.
Alan concludes: “Its main concern is that it doesn’t end up filling the hole itself.”
“All of this is unfortunately consistent with the idea that the IMF is taking a back seat in the negotiations and is heavily concerned with getting its own money out in the medium-term and leaving the long-term problem to the Europeans.”
9.05: Our colleagues on the comment desk have just posted a piece by Ian Bremmer for the A-List saying that we shouldn’t listen to the doom and gloom merchants.
Despite the Greek parliament’s support last night for an unpopular new property tax, Europe’s divisions over the terms of any new bail-out give credence to talk of a looming euro exit. But such an exit would be terrible news for Greece, and equally terrible for the eurozone. The bottom line is this: Greece isn’t going anywhere.
9.00: Mr Barroso has also discussed one of his favourite themes – eurobonds.
“Once the euro area is fully equipped with the instruments necessary to ensure both integration and discipline, the issuance of joint debt will be seen as a natural and advantageous step for all.”
He admits, however, that some of the options for such “stability bonds” would require treaty change.
8.55: Mr Barroso argues for a financial transactions tax, saying: “It is time for the financial sector to make a contribution back to society.”
Joshua Chaffin, following the speech in Brussels for the FT, says:
“Barroso says the tax will raise around €55bn per year, but makes no mention of the long-term hit to economic growth, estimated by the commission at anywhere from 0.53 to 1.76 per cent of GDP.”
8.50: Mr Barroso has again stated the obvious, saying that forecasts point to a “strong slowdown” of the European economy.
“We do not have much room for a new fiscal stimulus,”
8.40: Mr Barroso, perhaps not unsurprisingly, calls for “more unification” in the European Union, claiming that without it there will be “more fragmentation”. He says:
“I think this is going to be a baptism of fire for a whole generation.”
8.30: Mr Barroso is unequivocal about Greece’s future in the eurozone and other members’ responsibilities:
“Greece is, and will remain, a member of the euro area. Greece must implement its commitments in full and on time. In turn, the other euro area members have pledged to support Greece and each other.”
8.15: Good morning. Or is it? Yes, the Greek parliament passed a new property tax on Tuesday and yes Angela Merkel, the German chancellor, appears to have averted a backbench revolt in her bid to get crisis measures through the Bundestag on Thursday. But there aren’t many other bright spots on the eurozone crisis horizon.
- The market rally of the last couple of days has ground to a halt.
- This is mainly because of fears that divisions within the eurozone are hampering efforts to reach a credible solution to the fiscal crisis.
- Greece has admitted that key elements of the latest austerity package demanded by international lenders won’t be presented to parliament for weeks.
- Private equity dealmakers are admitting that the crisis has dried up their market, with several big transactions collapsing or being delayed.
Eyes this morning are first turning to Brussels, where José Manual Barroso, the president of the European Commission, has just started his annual State of the Union address
For views and opinions on the European Union from Peter Spiegel, Joshua Chaffin, Alex Barker and Stanley Pignal, follow the 