Welcome to our continuing 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.
19.20: We’re wrapping up the live blog now but we’ll be back tomorrow for more fun and games – including, notably, the European Central Bank’s rate announcement and the swansong press conference of Jean-Claude Trichet. In the meantime, do follow us on twitter – we’re @ftworldnews – and of course at ft.com
19.15: How does one go about recapitalising a continent’s banks? Patrick Jenkins, the FT’s banking editor, and Gerrit Weismann, correspondent in Berlin, have put their heads together and come up with a very nice Q&A, which tells you how big the hole is, how recapitalisation might happen and what type of capital will be raised:
Consensus is now building in the markets that a European form of the Troubled Assets Relief Programme, or Tarp, that underpinned mandatory US bank recapitalisations in the wake of the 2008 crisis, is the best way to restore confidence…
19.10: Here’s the story that will be on the front page of the FT tomorrow. European Union finance ministers have asked the bloc’s leading bank regulator to test the strength of Europe’s banks on the assumption of a big writedown on Greek sovereign debt. As the crack reporting team of Alex Barker, Peter Spiegel, Gerrit Wiesmann and Hugh Carnegy explain, the move is a “tacit admission that the European Banking Authority’s two previous rounds of bank stress tests were not sufficiently robust”.
“According to senior officials involved in the process, the EBA has been instructed to provide a country-by-country breakdown of how much new capital banks would need in the event that Greece’s bonds were written down.
The officials insisted the move was not an indication that EU leaders were preparing for a Greek default. Instead, they said it was a precautionary measure intended to inform rapidly-accelerating negotiations on EU-wide bank recapitalisations.”
19.00: Ireland should be allowed to tap the eurozone’s financial rescue fund to cut the cost of its bank bail-out and boost its chances of becoming Europe’s recovery success story, Ireland’s deputy prime minister has told the FT. Eamon Gilmore told Jamie Smyth:
“The banking problems of one country are connected to the banking health of another country… There is an interconnectedness there. In terms of the Irish situation, I think the gain for Europe is that Ireland is now the best prospect of a recovery story.”
Full story here.
18.55: How will the downgrade of Italy’s credit rating by Moody’s last night affect Berlusconi? Guy Dinmore, the FT’s correspondent in Rome, reports that while Moody’s downgrade had been widely anticipated and discounted on the markets, the lack of faith by US ratings agencies in the centre-right coalition is fuelling talk of the end of the Berlusconi era.
18.43: Alan Beattie, our international economy editor and all-round IMF expert, has blogged on today’s developments. From which:
“Ouch. The International Monetary Fund can’t be happy (and, rumours have it, are seriously unhappy) with the suggestion and then rapid retraction from the head of its Europe department that it could intervene to buy sovereign bonds – presumably Italian and Spanish – to help the eurozone debt crisis… but a couple of other things Mr Borges said, or were reported as saying, were more interesting:
- €100-€200bn is probably enough to recapitalise EU banks. Previously the IMF hadn’t given a number, saying only that the sovereign debt hit to balance sheets by itself was probably €200bn-€300bn – an estimate that got it into all sorts of hot water with the eurozone authorities.
- Confirming what I have written before – that the IMF isn’t that bothered how big a writedown the banks holding Greek sovereign debt will have to take, as long as the eurozone is there to fill the rest of the financing gap. Of course, as Mr Borges points out, that just means the rescue package will have to be a lot bigger, and people inside the fund (not Mr Borges) have suggested to me it might be double the original estimate of €109bn. Better get leveraging that EFSF, then.”
18.11: Update from Chris Adams, FT markets editor:
17.50: The EU’s plan for some kind of co-ordinated bank recapitalisation has dominated discussion today, with analysts wondering feverishly how it might work, the IMF getting into line behind the proposal, the Lex column warning that any scheme will need to be really, really big, and Angela Merkel saying Germany is in favour. But Germany’s best frenemy France doesn’t seem quite so happy, reports Hugh Carnegy:
“Paris, despite being in the throes of rescuing Dexia, the failing Franco-Belgian bank, is clearly uncomfortable with accelerating talk of bank recapitalisation, continuing to insist that France did not need to recapitalise its major banks, which have large exposures to heavily-indebted countries and which have been the focus of fierce market speculation in recent months.
“For sure the French position is that French banks do not need more capital than they have decided to accumulate by 2013,” said one official. The top three French banks, BNP Paribas, Société Générale and Credit Agricole, have committed to reach minimum core capital levels set under the Basel III regulatory regime by 2013, six years before the official deadline.
Paris accepted the consensus view that eurozone banks in general needed more capital and more quickly than previously planned, but the scale, schedule and instruments had yet to be agreed, the official said. France favours any recapitalisation being administered through the European Financial Stability Facility, set up under the second Greek bail-out plan agreed in July, rather than by individual states. “The response, if it must be made, will be European, it will be collective, it will not be French,” finance minister François Baroin told RTL radio.
Any state recapitalisation of its own banks could threaten France’s vital triple A sovereign rating, which underpins its own fiscal retrenchment plan and its ability to help anchor the eurozone’s crisis measures. It is an important political symbol for President Nicolas Sarkozy, who faces re-election next year. French ministers insisted on Wednesday that the guarantees it promised to prop up Dexia did not jeopardise the triple A rating, arguing that Dexia was a “special case” which did not have implications for the other banks.”
17.40: What’s up with Dexia? This interactive graphic explains – by illustrating the Franco-Belgian bank’s net exposure to the sovereign debt of Greece, Italy, Ireland, Portugal and Spain.
17.25: José Manuel Barroso, the president of the European Commission, met with chancellor Angela Merkel today. A copy of his statement following the meeting is now online – from which we learn that the European Commission will push for a global financial transaction tax at the next G20 summit:
“Just last week we adopted a very important proposal for a Financial Transaction Tax, and I know how well this was received in Germany. But we do not want to stop here, and the Chancellor and I agree the time is right to create new momentum globally: at the G20 summit in Cannes we will also press for a global Financial Transaction Tax.”
17.10: The Lex Column has published a note on European bank capital, warning that unless the EU can offer some kind of “bazooka”, any recapitalisation scheme will be no better than “previous EU sticking-plaster reforms”:
“Imagine the worst-case scenario, then assume an even-worse case. Only then might Europe produce a number for bank recapitalisation that can restore market confidence.”
So what might the number be?
“JPMorgan analysts reckon in a worst-case, severe recession scenario, €230bn in new capital is needed to meet Basel III capital requirements, assuming a 60 per cent debt writedown on Greece, 40 per cent on Ireland and Portugal and 20 per cent on Italy and Spain, and that banks withhold dividends.
Nomura suggests banks would need to plug a hole closer to €400bn if governments’ Basel III gold-plating is factored in, as well as applying a 21 per cent loss – as already agreed for Greece – to the debt of Ireland, Portugal, Spain and Italy. This must be closer to the truth.
Assume aggressive writedowns of 60 per cent, and that rises to €675bn.”
16.55: The Frankfurt stock exchange building has been evacuated after Deutsche Boerse received a bomb threat, reports Reuters.
Reuters: The stock exchange operator received the threat via a phone call at around 1630 local time and the evacuation was completed shortly after 1700, a police spokesman said.
16.52: Phew, it’s been a busy day. Here’s an update of events so far:
- The FT’s report that EU finance ministers are working on a plan to support the region’s banks has given a boost to European equity markets and helped lessen risk aversion in the bond markets
- Angela Merkel said Germany was prepared to recapitalise its banking sector and was willing to discuss a European Union-wide plan to shore up the region’s teetering financial sector as soon as the next EU summit in two weeks
- Better-than-expected data from the US gave a lift to the S&P 500 in New York, which added 0.5 per cent. A report from ADP, the payroll processor, showed 91,000 private sector jobs were added in September
- A 24-hour strike is underway in Greece, with public sector workers from Greece’s ports, trains, ferries and the state electricity company, walking out in protest at the government’s drastic austerity measures
- Thousands of demonstrators marched in Athens, some clashing with riot police (see our 14.50 update for photos)
- The International Monetary Fund released its economic outlook for Europe, predicting that growth in the region would slow from 2.4 percent in 2010 to 2.3 percent in 2011, and to just 1.8 percent in 2012
- The IMF also urged recapitalisation of European banks, saying: “More comprehensive actions toward restructuring and front-loaded strengthening of banks’ capital buffers are needed…”
- The Office of National Statistics revealed that the UK economy grew by a weaker than expected 0.1 per cent in the second quarter
16.15: Have you ever had that sinking feeling in your stomach when you realise you’ve said something without quite thinking through all the implications? Earlier, we commented on how chatty Antonio Borges was being (he’s the head of the IMF’s European department, who’s been supplying us and other news outlets with headlines all day.) In particular, there was some excitement when Mr Borges said that the IMF could buy Spanish or Italian bonds alongside the eurozone rescue fund (the EFSF) if needed (see our 14.20 update).
Well, now the IMF’s media relations team has put out a press release, effectively rolling back on some of what Mr Borges said earlier. Here’s the statement:
Mr. Antonio Borges, Director of the International Monetary Fund’s European Department, issued the following statement today in Brussels after remarks at the launch of the Fund’s latest European Regional Outlook report:
“Let me be clear about some earlier comments I made. The Fund can only lend its resources to countries, and cannot use these resources to intervene in bond markets directly. We are lending to several European countries that have asked us for support. We do not have any additional requests for support from European members and we are not contemplating any market involvement with the EFSF.
“Any alternative lending modalities to what we do now would require a different legal structure and the use of a different source of financing. We have not discussed these issues with our membership.”
15.40: Ireland’s finance minister Michael Noonan has told parliament that the euro currency is “as solid as a rock”, according to Reuters.
“The issue is who is in and who is out and can everyone stay in and that is what the debate is about,” Mr Noonan said. ”It is also true to say that it suits Ireland to have the euro weakening at present because our main customer countries are dollar countries and sterling countries.”
Chris Adams, FT markets editor, comments:
15.28: We’ve got more detail from Peter Spiegel, Brussels bureau chief, on those bank recapitalisation comments from Angela Merkel:
The German chancellor said Berlin was prepared to recapitalise its banking sector and was prepared to discuss a European Union-wide plan to shore up the region’s teetering financial sector as soon as the next EU summit in two weeks.
Speaking in Brussels after meetings with José Manuel Barroso, the European Commission president, Ms Merkel declined to support a specific plan to aid banks, saying it should be left to technical experts. But she urged leaders to coordinate their efforts.
“I think it is right if we have a joint approach to all of this,” Ms Merkel said. “Germany is prepared to move to recapitalisation. We need criteria. We’re under the pressure of time and I think we need to take a decision quickly.”
Asked if she supported views within the International Monetary Fund for a forced, across-the-board recapitalisation of all European banks, Ms Merkel demurred, saying only she hoped Washington and Europe worked together.
“What’s important here is that America and Europe are in proper communication, because that’s how we’re going to get the results we need, rather than just directing critical remarks at each other,” she said.
Also, THIS IS WHAT HAPPENS IF YOU DON’T BEHAVE, EUROZONE:
Angela Merkel addresses a news conference in Brussels. Photo: Reuters
15.22: This from Chris Adams, FT markets editor, tweeting a link to today’s Markets Insight column:
15.10: Time for a markets update. Jamie Chisholm, FT global markets commentator, says in his latest update that European bourses are enjoying an upbeat session as investors welcome news that EU finance ministers are examining ways of co-ordinating recapitalisations of the region’s beleaguered banks. The FTSE Eurofirst 300 is up 2 per cent, while highly-rated sovereign debt is losing ground as traders turn away from perceived havens. The yield on US 10-year benchmarks is up 3 basis points to 1.85 per cent and equivalent Bunds up 7 basis points to 1.79 per cent.
15.04: Angela Merkel says Germany is ready to join a move to recapitalise banks if necessary, reports our Brussels bureau chief Peter Spiegel.
The German chancellor, who has been speaking to reporters in Brussels, said “We’re under the pressure of time”, adding that the EU should be prepared to discuss recapitalisation at the October 17 summit.
14.50: There are some quite dramatic photos coming out of Athens, showing clashes between protesters and riot police:
Masked protesters throw stones at police during a demonstration in Athens. Photo: Reuters
A policeman uses his baton against a photographer who was on assignment for AFP during a demonstration in Syntagma Square. Photo: Reuters
Riot police beat up a protester in Syntagma Square, Athens. Photo: Reuters
14.35: On the prospects for the UK economy – following today’s news that it grew by a weaker than expected 0.1 per cent in the second quarter – Paul Mason of the BBC tweets:
14.20: Interesting - Antonio Borges, European head of the International Monetary Fund, said today that the IMF could buy Spanish or Italian bonds alongside the eurozone rescue fund (the EFSF) if needed. According to Reuters, Mr Borges told a news conference:
“Maybe even the IMF could invest alongside the European Financial Stability Facility (EFSF). We would certainly be ready to play that role… Any investment we would make in Spain or Italy would be based on full confidence that these countries are on the right track — that they are solvent and they are taking all the measures they should”.
Asked about the possible timing of such action, Mr Borges said:
“We are first waiting for the ratification of the EFSF and then for some clarity on how they want to move ahead. We are offering to be cooperative and work alongside them if necessary, as soon as possible, but these things do take time.
“The most important thing, in our view, is that as soon as the authorities know how to use the EFSF, if that is clearly communicated to the market, it can have a very important stabilising effect.”
14.10: The Dutch are clearly not happy at the course being taken by Mr Yardeni’s “ship of fools” (see 13.45). Matt Steinglass, the FT’s Amsterdam correspondent, says that the governing centre-right Liberals want countries that receive aid from the European emergency fund to temporarily lose their voting rights in the European Commission. He writes:
The Dutch, along with the Germans, have pushed strenuously throughout the eurozone crisis for strict conditions to be imposed on countries that get aid from the EFSF (rescue fund), but this is among the most aggressive demands the Dutch have made yet.
The call came during debate today in the Dutch parliament over approving new powers for the EFSF negotiated as part of the July 21 eurozone rescue package. Parliament will likely vote on the EFSF measures on Thursday.
Liberal MP Mark Harbers, who represents the party on financial policy in parliament, said the move was necessary to prevent countries from backtracking on promised reforms after they receive EFSF support.
“We want to avoid at all costs the possibility that countries may go back and renegotiate their reform commitments three or four years down the line, if they don’t feel like carrying them out anymore,” he said.
Mr Harbers said the six AAA-rated European countries who backstop the emergency fund’s credit rating, including the Netherlands, are a minority in the eurozone. Peripheral countries might win a vote to loosen restrictions after receiving aid, he said.
13.45: Following our Shakespeare competition earlier in the week, it’s time for another foray into the world of literary metaphor, courtesy of former Fed staffer Ed Yardeni, now of Yardeni Research. Ed has traditionally been one of the market’s biggest bulls. Now even he seems to have turned bearish…
The ship of fools is an allegory that has long been a fixture in western literature and art. It depicts a vessel packed with clueless passengers who are so obsessed with themselves that they don’t realize that their ship has no pilot and is either on a cruise to nowhere or sinking. That certainly describes what is happening in Europe. Here’s the latest:
(1) Greek workers aren’t on board. Hundreds of thousands of Greeks walked off their jobs for 24 hours yesterday at airports, schools, hospitals, and tourist sites to protest the government’s latest austerity measures, including reducing the number of public workers, raising property taxes, and cutting pensions and wages.
(2) Greece is a rowboat compared to the Italian and Spanish ocean liners. However, the ECB has kept these huge European debtors out of the limelight by purchasing Italian and Spanish government bonds since early August. Nevertheless, that didn’t stop Moody’s from cutting Italy’s credit rating on Tuesday afternoon for the first time in almost two decades. The action comes after S&P downgraded Italy on September 20 for the first time in five years.
(3) German Chancellor Angela Merkel doesn’t want to steer the ship. Late on Monday, she said in a speech to members of her Christian Democratic Union that she remains opposed to the issuance of euro bonds. Her finance minister has also opposed leveraging the EFSF. They are opposed to schemes that will reduce the AAA credit rating of Germany. In her speech, the Chancellor also stated that she opposes a 50% haircut on Greek debt: “If we tell a country ‘We cancel half of your debt,’ that’s a great deal. Then the next guy will immediately show up and say he wants the same.”
Anyone got any other suggestions?
13.25: How’s Ireland doing in its implementation of its bail-out programme? Pretty well according to the headline-maker of the day, Antonio Borges of the IMF.
Reuters quotes him telling Ireland’s national broadcaster RTE:
“We are not recommending they go a lot further, a steady implementation of the measures is exactly right.”
13.25: A not irrelevant diversion across the Atlantic – US private sector employers added 91,000 jobs in September. A survey by Reuters had forecast the ADP National Employment Report would show a gain of 75,000 jobs.
13.20: Lunchtime markets update from Jamie Chisholm:
“European bourses are enjoying an upbeat session as investors welcome news that European Union finance ministers are examining ways of co-ordinating recapitalisations of the region’s beleaguered banks.
And reports that the International Monetary Fund is prepared to create a special purpose vehicle for buying Italian and Spanish paper, are also helping sentiment – though the two nations’ bond yields are little changed and remain at elevated levels.
The FTSE Eurofirst 300 is up 2.2 per cent, with the banking sub-index bouncing 2.7 per cent. Stocks are getting a lift from Wall Street’s strong rally into the close on Tuesday, helping the FTSE All-World advance 0.8 per cent.”
13.15: Here’s a dramatic photo of one Athenian who was in the wrong place at the wrong time. A group of leftist protesters reportedly tried to lynch him while accusing him of being a fascist during a protest in Athens’ Syntagma (Constitution) square.
12.55: This from Hugh Carnegy, our Paris bureau chief:
Top French ministers and officials were prominent on the airwaves this morning seeking to calm fears about repercussions from the plight of Dexia, the collapsing Franco-Belgian bank, particularly suggestions that state guarantees promised to prop up Dexia would undermine France’s treasured Triple A sovereign credit rating.
France is desperate to hold on to its top level rating, which underpins its own fiscal retrenchment plans, its ability to anchor eurozone bail-out schemes – and, arguably, the re-election prospects of President Nicolas Sarkozy.
Christian Noyer, governor of the Bank of France, dismissed such fears as “excessive and inaccurate”. He added: “(France and Belgium) will not guarantee more than they have guaranteed for several years.”
François Baroin, finance minister, chimed in, saying the rescue plan, which he said would likely be announced tomorrow, “will not add to the debt of the French state because, according to Eurostat, guarantees to financial establishments are not integrated into the public debt.”
He went on: “(France and Belgium) will do largely the same thing: we will guarantee the protection of deposits for individuals, essentially in Belgium, and we will guarantee the continuity of the activities of local authorities for financing their investments.”
12.50: In Athens, riot police have fired teargas at a group of hooded youths near the finance ministry. Kerin Hope, our correspondent in Greece, says the protesters were throwing chunks of marble that they had prised off building facades.
“There were also scuffles outside parliament as protesters tried to break through a police barricade. But compared with last June’s riots the mood among protesters outside parliament seemed almost relaxed. The Genop-DEH union representing workers at the electricity company – the country’s largest employer – took a leading role, beating drums and chanting “No transfers, No sackings.”
Stelios, a sub-station manager from central Greece, who declined to give his second name, said: “We’re expecting that management will try to cut allowances and overtime but we’re prepared – we’ve blacked out the country before.”
Some protestors held up group pictures of the socialist government – which celebrates its second anniversary in power today – and shouted: “Sack them, not us.”
12.35: Mike Hunter, FT markets reporter, points out that while the EU’s examination of ways to support banks has boosted the markets, the news also raises the stakes for politicians to get it right:
Any failure from the region’s policymakers to deliver will have dire consequences – and even bearing in mind the received market-wisdom that action will follow, many analysts remain in cautious mood, and concerned about the deeper problems faced by the currency bloc.
Gary Jenkins, head of fixed income at Evolution Securities, wrote to the bank’s clients this morning:
“The recapitalisation of banks is a fine idea, but if the politicians could solve the sovereign crisis that would go a long way to solving the banking crisis. Recapitalising the banks would be positive and it would no doubt help risk assets in the short term. But it would not solve the sovereign problems and thus unless the EU is happy to just keep buying Italian bonds (via the ECB / EFSF) then at some stage the market will focus on the sovereigns rather than the banks.”
12.29: The FT’s Lex Column has this to say about today’s market rally:
“Lex has argued that a “Euro-Tarp” would be a good idea. But this rebound initially seems to be about traders in need of an excuse to rally; details of the re-capitalisation scheme do not yet exist, and any solution to the problem must deal with investors’ worries about the securities currently contained in banks’ capital buffers – government bonds from countries like Italy and Spain.”
Full note to follow later…
12.23: The FT banking team’s weekly podcast is now available for your listening pleasure, and it includes discussion of the challenges facing Dexia, the Franco-Belgian bank with significant exposure to Greek, Italian and other troubled eurozone sovereign debt.
12.10: So if the EU is looking at supporting the banks, what kind of actions are they considering? In a note today, Simon Samuels at Barclays Capital Research says there are three “key questions” to be answered:
1. How much? This depends on what stress scenario we run. In our 15 September report, Thinking the Thinkable, we applied a 50% SGIIP sovereign haircut plus a 1 in 30 year recession and said recap size would be EUR230bn (to recap to 6% Core Tier 1), rising to EUR340bn (recap to 8%). But to emphasise, within this is a 50% haircut assumption on Italy and Spain, events that (presumably) the EU would consider extreme and hence might not be prepared to incorporate into any calculation.
2. Who pays? The sovereign crisis means we think its important that such a large recap burden does not fall on individual countries but is spread across Europe, making EFSF one option; otherwise, the result could be simply damaging the weak sovereigns further. For example, a EUR230bn recap equates to just 2% of Eurozone GDP – yet if left to each country this could be a problem; for example, the Spanish “bit” is 11% of Spanish GDP if left to their own resources. But that is not to say that it will be co-ordinated – the FT today reports German Finance Minister Schauble as saying Germany is prepared to recap its own banks if need be, so we may be looking at a national solution. At this stage, it is not clear.
3. In what form is the capital? Our view is that some non-equity form (e.g., but not just, preference shares) makes most sense since the real market that this addresses is the debt market where issuance volumess have dried up. So as long as it is loss-absorbing ahead of the senior bondholders – such as pref shares – then that strikes us as good enough. Also, we see a small risk that since this capital is being given for an event said to be unlikely to happen (sovereign default of Italy and Spain), then there is a risk that giving it in equity form might scare market into thinking that it is a sign of impending default.
12.06: With risk aversion in retreat, Mike Hunter says the three day rally for German government debt – seen as the safest sovereign bet in the eurozone– has come to an end:
“Bund futures are down 67 ticks and yields, which move in the opposite direction to prices, are up 7.4 basis points to 1.795 per cent. Clearly, traders are pricing-in an announcement of co-ordinated action from the EU, taking on more risk and moving away from havens.”
12.02: An update from Mike Hunter, markets reporter in London:
French banks are leading Europe’s rebound, with any co-ordinated action to recapitalise eurozone lenders especially welcome news for those Paris-listed lenders so significantly exposed to Greece. Credit Agricole is the top stock on the CAC 40, up 9.5 per cent at €5.2.
Overall, the Paris benchmark is up 3.1 per cent at 2,939.76, while the pan-European FTSE Eurofirst 300 is 2.2 per cent higher at 907.66.
12.00: There have been clashes between demonstrators and police in Athens, where 24-hour strikes are taking place against the government’s austerity measures. According to Bloomberg, Greek police used tear gas to disperse a group of hooded protesters attacking police with pieces of marble and plastic bottles.
11.50: The FT’s story last night, revealing that the EU is examining ways to co-ordinate recapitalisations of banks, is still providing cheer in the markets. Here’s Chris Adams, FT markets editor:
11.40: Last night Moody’s followed in the steps of fellow ratings agency Standard & Poor’s and downgraded Italy’s credit rating. Is the move justified? Over on Alphaville, our colleague Neil Hume quotes the chief economist of Unicredit, Erik F Nielsen:
“Italy surely has a number of problems, but I fail to understand why the market continues to underestimate fundamentals and policy measures which have already been taken in Rome…”
Read the full post on Alphaville.
11.25: Everything you might want to know about the European Financial Stability Facility (EFSF) is helpfully presented in this Q&A by Peter Spiegel, our Brussels bureau chief. Ok, maybe not *everything* you might want to know (for instance, he doesn’t explain why Europe had to choose such a tongue-twister of a name for its rescue fund) but there is a lot of useful info – from “Why is it taking so long to finalise new powers for the EFSF?” to “Will the EFSF get the firepower it needs?”
11.10: Kerin Hope, our Athens correspondent, is about to head out of the office to go and talk to protesters taking part in a 24-hour strike against the government’s harsh austerity measures. In the meantime, she asks whether Greece has finally produced some credible statistics:
“The long-suffering team at Elstat, the independent statistical agency set up last year under a former senior IMF official, missed a series of European Union deadlines last week after being locked out of their offices by union protesters.
They have just announced revised output figures for the years between 2005 and 2010.
Interestingly, last year’s recession was shallower than reported with gross domestic product shrinking by just 3.5 per cent compared with the EU-IMF estimate of 4.5 per cent.
“The revision is mainly due to a smaller decline of consumption of households and non-profit institutions serving households, a larger decline in imports and larger increase in exports” than earlier reported, Elstat says.
But the overall contraction in the economy since Greece fell into recession is actually not much different. Instead of growing by 1 per cent in 2008 as reported, output shrank by 0.2 per cent. In 2009, the contraction amounted to 3.2 per cent rather than 2.0 per cent.
Both the 2008 and 2009 figures were put together by number-crunchers from the then-state statistics service, then “went for a massage” at the finance ministry, according to one former government statistician.”
11.00: More on that IMF report from Josh Chaffin, FT Brussels correspondent:
“A retrenchment by skittish European banks is contributing to a broader economic slowdown, the International Monetary Fund has warned, as it urged governments to undertake a rapid recapitalisation of the financial sector.
Antonio Borges, the IMF’s Europe director, warned that a failure to address a lack of confidence in the continent’s banks could lead to a credit crunch at a time when the economy is already decelerating. “We have to restore confidence quickly. The best way to do that is to have a capital increase rather quickly,” Mr Borges said.
He issued his plea as IMF forecasts revealed a sharp slowdown in economic activity across Europe since the second quarter of the year. The IMF attributed the slowdown in part to a growing nervousness on the part of investors, brought on by the uncertainty of the eurozone debt crisis.
“Many investors have become far more risk averse than they were before,” Mr Borges said, adding that a recession was “something that cannot be ruled out.”
10.51: On the day of British Prime Minister David Cameron’s speech at his party conference, some rather unwelcome news – the UK economy grew by a weaker than expected 0.1 per cent in the second quarter. Sarah O’Connor, FT economics correspondent, reports:
“The UK economic recovery this year has been weaker than previously thought and the recession was deeper than thought, according to official statistics that come as monetary policymakers mull whether to inject more money into the economy.The economy only grew by 0.1 per cent between April and June, according to the Office of National Statistics, lower than its previous estimate of 0.2 per cent. Growth for the previous quarter was also revised down by 0.1 per cent. Although bumpy, overall gross domestic product has essentially not grown for nine months.Alan Clarke at Scotia Capital pointed out that the Bank of England had been expecting this year’s growth to be revised up rather than down. “This is a big blow to the Bank’s growth projection,” he said. “At the margins it does boost the case for an earlier restart of quantitative easing.”
10.38: The IMF’s report on Europe, poetically entitled “Navigating Stormy Waters”, does have some practical suggestions for action – including the need to strengthen banks (something which, as the FT revealed last night, is already being examined by EU finance ministers):
“Implementation of the July 21 EU summit decisions should be accelerated. More comprehensive actions toward restructuring and front-loaded strengthening of banks’ capital buffers are also needed, as uncertainties surrounding bank balance sheets continue to rattle investors. Ideally, capital should be raised through private solutions including crossborder consolidations. In the absence of these measures, supervisors will have to make the case either for injecting public funds into weak banks— which will be difficult in an environment of fiscal consolidation—or closing them down. Ending the intertwining of sovereign and bank balance sheets stresses ultimately requires a European Resolution Authority, backed by a common deposit guarantee and resolution fund.”
10.25: The IMF’s economic outlook for Europe is out. The report suggests that growth for all of Europe will slow from 2.4 percent in 2010 to 2.3 percent in 2011, and further to 1.8 percent in 2012. And that’s not all:
“Given persistent tensions in euro area sovereign markets and global weaknesses, downside risks remain particularly acute. Renewed concerns about policy slippages in program countries or lack of commitment to continued support of program countries at the euro area level could amplify the shockwaves seen during the 2011 summer throughout the euro area with adverse repercussions regionally and globally.”
10.10: Other highlights today include the International Monetary Fund releasing its European economic outlook (optimists look away) and – later this afternoon – Angela Merkel, the German Chancellor, visiting Brussels to meet with José Manuel Barroso, the European Commission president.
10.05: Kerin Hope, the FT’s Athens correspondent says Stathis Anestis, the spokesman for the Adedy, the civil service union, has described the looming 150,000 job cuts by 2014 as “a barbaric new policy that will only make the recession longer”.
Kerin says Evangelos Venizelos, the Greek finance minister, defended the cuts , saying opinion polls showed a majority of Greeks believe the public sector is overstaffed and inefficient.
9.50: And there are dark clouds in the skies of south-east Europe. Or, to put it another way, hundreds of thousands of Greeks are on strike (again) for 24 hours inprotest at the governnment’s austerity measures. Even the Acropolis has fallen victim to the strike. Today’s action is the first time this year that Athens International Airport will be shut for the whole day.
9.45: Yup, your eyes are not deceiving you. The FTSE, in line with all major equity markets, is heading upwards today. The markets turned an hour before the close in New York yesterday after the FT reported that EU foreign ministers are plotting ways to support the region’s banks.
And the positive sentiment has not been kyboshed by Moody’s decision to downgrade Italy’s sovereign rating three notches (the first time it’s downgraded Italy since 1993) to A2. This was mostly because the move was “just” bringing Moody’s rating into line with S&P’s.
However, as Jamie Chisholm, the FT’s global markets commentators, points out, it would be “trite” to say the mood is one of “universal calm optimism”.
“Pockets of stress clearly remain. Months of extreme volatility on worrying over the eurozone sovereign debt crisis and concerns about the global economic outlook have rendered confidence a delicate commodity.”
For views and opinions on the European Union from Peter Spiegel, Joshua Chaffin, Alex Barker and Stanley Pignal, follow the 