Welcome to our live coverage of the eurozone crisis, by Esther Bintliff and John Aglionby on the world news desk in London with contributions from correspondents from around the world. All times are London time.
Hopes for the unveiling of a “comprehensive plan” to resolve the eurozone crisis at this weekend’s summit of European leaders have been squashed this afternoon. “No agreements” will be made, officials told the FT, until a second summit, which will probably take place on Wednesday.
19.50: We’re wrapping up today’s rolling blog but many thanks for reading (and for all the comments). You can continue to follow our coverage at FT.com, and of course find us on twitter @ftworldnews
19.44: Confirmed – Silvio Berlusconi has nominated Ignazio Visco to succeed Mario Draghi as governor of Italy’s central bank (see our 19.05 update). The move will have interesting political implications for Berlusconi, as Guy Dinmore, our Rome correspondent, reports:
“The surprise nomination of Mr Visco, currently number three at the central bank, was confirmed by senior government sources on Thursday night and followed 24 hours of intense drama, with Italy’s prime minister twice changing his mind under pressure from the Bank of Italy and cabinet ministers.
A day earlier Mr Berlusconi had fixed on Lorenzo Bini-Smaghi, currently an executive board member of the European Central Bank. But after intense pressure from the Bank of Italy which had insisted on an insider, Mr Berlusconi gave the nod to Fabrizio Saccomanni, 68-year-old director general of the bank.
But only hours later, Mr Berlusconi – possibly acting under pressure from Giulio Tremonti, finance minister – told Giorgio Napolitano, the president who has the final say in the matter, that he would nominate Mr Visco, deputy director general, instead.
This leaves Mr Berlusconi contemplating a seriously uncomfortable showdown this weekend with Nicolas Sarkozy, president of France, who has publicly demanded the departure of Mr Bini-Smaghi from the ECB board to make way for a French candidate.”
Full story on ft.com soon.
19.22: The Greek parliament has given final approval to the latest austerity bill, which includes pay and staff cuts in the civil service, and pension cuts and tax hikes. The bill passed by 154 votes to 144.
19.05: Over to Italy, where ANSA newswire is reporting that Silvio Berlusconi has unexpectedly nominated Ignazio Visco to succeed Mario Draghi as the governor of the Bank of Italy.
Mr Visco (pictured right) has been deputy director general of the central bank since 9 January 2007.
The nomination – if true – is a big surprise since it was widely expected (including by us) that Lorenzo Bini Smaghi, a member of the European Central Bank executive board, would be named for the post. The background: Mr Berlusconi had been caught in a three-way struggle between Nicolas Sarkozy of France, the Bank of Italy and Giulio Tremonti, finance minister, over the nomination, with the long delays in deciding on a name costing Italy on debt markets, which saw the issue as another example of paralysis within the Italian government.
More on this story as we get it.
18.20: Nicolas Sarkozy’s office confirms that a second EU summit will have to take place. Here’s the statement translated (via Google translate) into English (apologies for any grammatical errors), and then in the original French below:
“The President and German Chancellor spoke today by telephone to prepare the European dates in the coming days.
The President and the Chancellor have agreed to provide a comprehensive and ambitious global response to the current crisis in the euro area.
This response will include the following:
- The operational implementation of new forms of intervention EFSF.
- A plan to strengthen the capital of European banks.
- The implementation of the economic governance of the euro area and the strengthening of economic integration.
For a lasting solution to the situation in Greece, the Greek authorities will have to make ambitious commitments to address the situation of their economies as part of a new program. Based on the report of the troika and the analysis of debt sustainability Greece, France and Germany call for immediately undertake negotiations with the private sector to reach an agreement for strengthening sustainability.
The President and the Chancellor will meet Saturday night in Brussels ahead of the European Council summit in the euro area on Sunday. France and Germany have agreed that all elements of this ambitious and comprehensive response will be discussed in depth at the summit on Sunday in order to be finally adopted by the Heads of State and Government at a second meeting no later than Wednesday.”
COMMUNIQUÉ FRANCO-ALLEMAND
Le président de la République et la chancelière allemande se sont entretenus ce jour par téléphone pour préparer les échéances européennes de ces prochains jours.
Le président et la chancelière ont marqué leur accord complet pour apporter une réponse globale et ambitieuse à la crise que traverse actuellement la zone euro.
Cette réponse comportera notamment les éléments suivants :
- la mise en œuvre opérationnelle des nouvelles modalités d’intervention du FESF.
- Un plan de renforcement du capital des banques européennes.
- La mise en place de la gouvernance économique de la zone euro et le renforcement de l’intégration économique.
En vue d’une solution durable à la situation de la Grèce, les autorités grecques devront prendre des engagements ambitieux pour redresser la situation de leur économie dans le cadre d’un nouveau programme. Sur la base du rapport de la troïka et de l’analyse de la soutenabilité de la dette grecque, la France et l’Allemagne demandent que les négociations s’engagent immédiatement avec le secteur privé pour trouver un accord permettant de renforcer cette soutenabilité.
Le président de la République et la chancelière se retrouveront samedi soir à Bruxelles en amont du Conseil européen et du sommet de la zone euro de dimanche.
La France et l’Allemagne sont convenues que l’ensemble des éléments de cette réponse globale et ambitieuse sera examiné de manière approfondie lors du sommet de dimanche pour pouvoir être adopté définitivement par les chefs d’Etat et de gouvernement lors d’une deuxième rencontre au plus tard mercredi.
18.10: Economist Megan Greene comments on the news of a second EU summit:
17.37: BREAKING – European leaders will be forced to hold a second summit, perhaps as early as Wednesday, because of the dispute between France and Germany on key parts of the eurozone rescue plan, report Peter Spiegel, our Brussels bureau chief, and Gerrit Wiesmann, Berlin correspondent:
“Senior European officials said the second summit has been forced, in part, because of a delay in getting final numbers on Greece’s debt levels from the so-called “troika” of international lenders, who have encountered disagreements over whether Athens can continue to meet its debt obligations.
But the main hindrance has been the inability of Angela Merkel, the German chancellor, to get a mandate from the Bundestag to move forward with plans to increase the firepower of the €440bn eurozone rescue fund.
“There will be no agreements,” said one senior German official. “This will now happen Wednesday at the earliest.”
Asked why EU leaders were still holding the summit, the official said: “That’s a good question. Sarkozy wants one.”
Another senior European official insisted that Sunday’s summit will still come up with decisions on the crisis, but said the last-minute timing of the troika analysis, which is needed to strike a deal with Greek bondholders over a new “haircut” deal, meant Ms Merkel could not get consent of her parliament.
“Merkel doesn’t have enough time to run it by the Bundestag,” the second official said.
Although the follow-on summit has not been finalised, the second official confirmed Wednesday was the most likely date.
17.31: Bloomberg reports: Angela Merkel has cancelled a planned speech to parliament in Berlin tomorrow because of a deadlock over proposals to leverage the European Financial Stability Facility to give it more firepower, three German lawmakers said.
“It’s a disappointing development but without any concrete proposal for increasing the efficiency of the fund the chancellor can’t present a complete set of proposals tomorrow,” Norbert Barthle the ranking member of Merkel’s Christian Democratic Union party on parliament’s budget committee, told reporters. Other lawmakers confirming cancelation of Merkel’s speech were opposition members Carsten Schneider and Priska Hinz.
17.25: US stocks have been spooked by signs that the eurozone’s ‘comprehensive’ plan to resolve the crisis could yet be derailed by disagreement between Germany and France. The Dow Jones industrial average was down 65 points, or 0.6 per cent, at 11,439 at 12midday Eastern time, while the S&P 500 fell 7, or 0.6 per cent, to 1,202.
17.15: An update from Joshua Chaffin, our Brussels correspondent:
“I’ve just returned from a pre-summit briefing in Brussels that did little to dispel the gathering sense of despair that this weekend’s festivities will not yield the sort of decisive breakthrough Eurozone leaders were talking up just days ago.
A European official involved in the preparations for the summit radiated calm, and suggested that the gap between Paris and Berlin was not as wide as it has been portrayed in the press.
Nonetheless, he acknowledged that much of the work was running behind schedule, and that – as a result – it was likely that a lot of the technical details would have to be “fleshed out” after the summit. In other words, the Eurozone is facing the prospect of another meeting that delivers statements and pledges without the hard numbers and commitments that financial markets are demanding.
Another problem he acknowledged was the need for Angela Merkel, the German chancellor, to clear details with the Bundestag before she can commit to any agreements to boost the Eurozone’s temporary €440bn rescue fund. That obligation – thanks to a ruling last month by Germany’s constitutional court – suggests that there is precious little time to close a deal on the fund, known as the European Financial Stability Facility.
“This is indeed an element we are aware of,” the official said, but argued that German organisation and a sense of urgency would still carry the day.
17.11: One person died during the anti-austerity protests in Athens today (see 16.20 update). Clashes that took place were not just between riot police and demonstrators, but also between rival groups of protesters – in particular a group of about 200 hooded youths threw stones and molotov cocktails at members of the Communist Party of Greece-backed PAME labor union.
Protesters stand amid tear gas as a petrol bomb explodes in Athens. Photo: Thanassis Stavrakis, AP
Pro-communist union protesters run as they clash with other demonstrators in Athens. Photo: Louisa Gouliamaki, AFP/Getty Images
Communist protesters clash with black-clad youths near the Parliament building in Athens. Photo: Yiorgos Karahalis, Reuters
16.37: Another update from Gerrit Wiesmann, our Berlin correspondent:
Finance minister Wolfgang Schäuble left the budget committee after just over two hours, looking visibly annoyed. He brushed past journalists asking for comment. Asked whether the EU summit had been called off, he answered that the foreign ministry was responsible for organising summits. “Anything that I say can, if I’m unlucky, only be mis-interpreted,” he said.
That all sounds very promising then…
16.20: A 53-year-old construction worker has died of a heart attack after violent clashes broke out during today’s demonstrations in Greece, reports Kerin Hope, our Athens correspondent.
“The man was taken to hospital during this afternoon’s skirmishes involving riot police, masked extremists and members of the communist-led Pame union, according to an official at the Evangelismos clinic in central Athens.
The official said more than 30 protestors were being treated, mainly for burns caused by petrol bombs.
About 40,000 people are still outside parliament waiting for the final vote on a new austerity package that will bring fresh cuts in wages and pensions. They are expected to stay well into the evening as the roll-call vote is not due to start until 7.30pm.”
16.12: This from Gerrit Wiesmann in Berlin:
“The Bundestag’s budget committee has been grilling finance minister Wolfgang Schäuble since shortly after 3pm. While lawmakers are said to be largely satisfied with details about the EFSF’s four new instruments, agreed by EU leaders in July, deep doubts remain about making the rescue fund more effective.
One member of the budget committee said the atmosphere in the closed-door session was tense. One opposition parliamentarian was said to have said that the government would simply ignore parliamentary worries about leveraging the EFSF once it got to the summit – a suggestion that annoyed Mr Schäuble.”
16.05: Kerin Hope, our Athens correspondent, has confirmed that one person has died after clashes in the Greek capital today. More on this soon.
16.00: In a sign of the confusion reigning in Berlin today, Angela Merkel, the chancellor, was forced to cancel a meeting with the education ministers of all 16 German federal states, after they had been summoned to the German capital for an “education summit,” reports Quentin Peel:
“After the ministers had been waiting for more than an hour, the chancellor was spotted sitting in her official car nearby, deep in conversation on her mobile phone. When photographers approached to get a picture, the car drove off. Shortly afterwards, the chancellor’s office announced that her attendance at the summit had been cancelled.
Earlier, Wolfgang Schaeuble, finance minister, suddenly announced at barely 30 minutes notice that he was going to attend a press conference being held by fellow cabinet member, Philipp Roesler, the economy minister, ostensibly to announce the government’s autumn economic forecast. Mr Schaeuble used the occasion to reveal a last-minute agreement in the government on tax reform – something that has been hotly disputed for more than a year.
The truth is that the size of the tax cut involved – between €6-7bn from January 2013 – will do nothing to revive the country’s flagging growth rate in 2012, now forecast by Mr Roesler to drop to one per cent next year, after 2.9 per cent in the current year.
But the tax reform deal matters in domestic political terms: it has been a subject of prolonged disagreement between Mr Roesler’s Free Democratic party and the majority Christian Democratic Union of Mr Schaeuble and Ms Merkel. But no-one seems to have told the third party in the coalition – the Bavaria-based Christian Social Union. A party statement said there was “no coalition agreement” on the matter.”
15.55: There were reports earlier today that the postponement of this weekend’s EU summit had not been ruled out by Germany – a rumour that weighed on stock markets and the euro – although Reuters subsequently said a senior EU source denied a postponement was planned. Here’s an update from Gerrit Wiesmann, our Berlin correspondent:
A Senior German lawmaker says the question of cancelling the EU summit will arise if French and German government representatives can’t tonight reach agreement on giving EFSF more fire power.
He says he doesn’t know of any explicit threats yet issued in this direction. But he stresses talks between Germans and French are very tough: “The French are still keen to let EFSF the spend central bank money, and the Germans just keep saying no.”
Publicly, German parliamentarians are more upbeat. Norbert Barthle, a budget-policy expert in Chancellor Angela Merkel’s Christian Democratic Union says there is still hope to reach an agreement on making the EFSF more effective before Sunday’s gathering of EU leaders. “Talks are ongoing and (…) if they continue like this should render a good result.”
But whether Christian Democrats and Free Democrats give their coalition government a mandate to formally agree new instruments for the EFSF remains open.
Mr Barthle said: “I cannot yet say” when asked whether coalition lawmakers in the budget committee would give Ms Merkel the mandate she needed to sign off on four instruments agreed in summer, and possibly also a leveraging of the EFSF.
He said details of four of the EFSF’s new instruments “were on the right lines”, giving him hope that an agreement about increasing the firepower of the EFSF could also be found. Should parliament decide to vote on a government mandate for the Brussels summit, all parliamentary party groups would meet to discuss the issue before ceding the final official vote to the budget committee.
15.30: An update on events so far (aside from today’s other main news story):
- the full report by the so-called ‘troika’ – the European Commission, the International Monetary Fund, and the European Central Bank – warns that the second bail-out plan for Greece (agreed just three months ago) is no longer adequate to keep Athens afloat
- there is as yet no sign of agreement between Germany and France on the issue of how to increase the firepower of the EFSF (the eurozone rescue fund)
- it has emerged that distressed European Union banks that tap national governments or the region’s €440bn rescue fund for capital will be subject to state-aid penalties, involving compulsory restructuring or – in the worst case – orderly wind-downs
- stock markets and the euro continue to be roiled by the eurozone crisis, and the uncertainty surrounding this weekend’s summit
- there are worries in Berlin, where officials say it’s possible that Germany’s coalition government will fail to give Angela Merkel the mandate she needs to approve the leveraging of the EFSF (the eurozone rescue fund) at this weekend’s crucial EU summit – see our 14.29 update
- in Athens, the second reading of the latest austerity bill is underway in parliament (last night, lawmakers approved the bill in a preliminary vote by 154 votes to 141)
- outside parliament, Greek anti-austerity protests continued for a second day, descending into violence after some hooded youths attacked the union-led protest and broke through to the police lines. The police responded with tear gas and the youths were driven back
- Germany has cut its growth forecast for next year to 1 per cent, down from a previous 1.8 per cent – see our 12.54 update
14.47: Along with the EU summit conclusions we reported on earlier, summit organisers this morning sent out a copy of the communiqué for the summit of 17 eurozone heads of government to national capitals – and the FT has obtained a copy. Peter Spiegel, Brussels bureau chief, reports:
Like the EU summit communiqué, much is left to be decided. There are placeholders for decisions on Greece, bank recapitalisation, and reforms of the eurozone’s €440bn rescue fund.
But it does provide some clues as to what’s to come.
First, in a bracketed section – brackets are always an indication of something that hasn’t been firmly agreed yet – the communiqué hails “specific commitments made by Italy and Spain”, a indication summiteers are expecting something more from Rome and Madrid.
In addition, there appears to be some hope that many of the big decisions will be made – or at least choices narrowed – on Friday and Saturday when European finance ministers gather in Brussels. For instance, the new Greek haircut plan is “to be prepared by the eurogroup”, which is the committee of eurozone finance ministers that meets Friday night.
There are also two pages on new measures to more closely integrate eurozone fiscal policies and a call for another round of proposals, including the possibility of changes to the EU treaties.
The communiqué calls on Herman Van Rompuy, the European Council president, to work with José Manuel Barroso, president of the European Commission, and Jean-Claude Juncker, the eurogroup head, to come up a report on how to move forward:
“An interim report will be presented in December 2011 so as to agree on first orientations. A full report, including a roadmap on how to implement those measure, will be finalised by [March/June] 2012, in full respect of the prerogatives of the institutions. This report will indicate any issues that require treaty change pursuant to Article 48 of the TEU [Treaty of European Union].”
As for the new measures to be taken at the summit, there is an annex listing ten “measures to improve the governance of the Euro area” – the most interesting of which is the creation of a Brussels-based president of the Euro Working Group, currently an ad-hoc organisation of senior finance ministry officials of the 17 euro members. The leading candidate is clearly Vittorio Grilli, the Italian treasury chief who currently chairs a similar existing group for all 27 EU members, called the Economic and Finance Committee.
It also commits to strengthening “existing administrative structures”, including Van Rompuy’s and Grilli’s staffs, “to provide adequate support” for Van Rompuy and Juncker, who will have added responsibilities in the new organisation. Van Rompuy, for instance, will now chair summits of eurozone heads of government at least twice a year, the draft states.
14.29: An update from Gerrit Wiesmann, our correspondent in Berlin, who says it’s possible that Germany’s coalition government will fail to give Angela Merkel the mandate she needs to approve the leveraging of the EFSF (the eurozone rescue fund) at this weekend’s crucial EU summit:
With Germany and France at loggerheads over new measures to fight the euro crisis, lawmakers in Chancellor Angela Merkel’s coalition say it is not clear whether they will be able to give her the parliamentary greenlight she requires to agree giving the €440bn European Financial Stability Facility more firepower at this weekend’s EU summit in Brussels.
“That’s the big question we hope to answer this afternoon,” said a senior coalition lawmaker ahead of a budget committee question-and-answer session with finance minister Wolfgang Schäuble. “If we don’t give the government a mandate, it will be able to negotiate but not finally and fornmally agree to anything. It’ll have to come back to us.”
The government overnight circulated details of the EFSF’s new toolbox, which will allow it to recapitalise banks, buy sovereign bonds, and give countries under speculative attack precautionary loans. But because of ongoing talks between governments it could not tell lawmakers how the EFSF would be leveraged – or “made more effective” in Berlin-speak.
The issue now being debated among coalition MPs and government officials is whether the budget committee will allow the government at least to sign off on the EFSF’s four new instruments – or whether to deny Ms Merkel any mandate to agree anything until the governments can supply clear and binding suggestions for increasing the EFSF’s punch.
14.08: AP reports that Greek finance minister Evangelos Venizelos has made an impassioned appeal to Socialist and opposition lawmakers today, warning that failure to approve the latest austerity measures would be disastrous.
“If the law is not approved, including every single article it contains – particularly those that (Greece’s creditors) and eurozone members regard a symbolic and political necessity – there is no need for me even to go to the eurogroup meeting on Friday, or the prime minister to Sunday’s summit,“ he said.
13.40: Update on clashes outside the Greek parliament from Kerin Hope, the FT’s Athens correspondent:
Union protesters run way from a fire bomb hurled towards them by other demonstrators in Athens. Photo by AP
Some hooded youths attacked the union-led protest and broke through to the police lines. The police responded with tear gas and the youths were driven back. The protest leaders, speaking through megaphones, urged people not to be intimidated by the youths and remain in front of the parliament until the austerity bill vote has taken place. The mood is deteriorating but the protesters are not going anywhere. As for the youths, they appear to have gone to ground, perhaps to regroup.
13.20: Peter Spiegel’s fine tooth comb has found the following key quote from the troika report:
“There is no doubt that Greece is undergoing a recession that is deeper and longer than expected in the previous quarterly report. The deterioration in the labour market, with employment falling much faster than expected, uncertainties of political and financial nature, and social unrest and industrial action have weighed on supply and on domestic demand.”
13.15: In other news, reports suggest Muammer Gaddafi, the deposed Libyan leader, has been captured – and possibly injured or even killed. Follow FT coverage of the story here.
13.12: An update from FT Markets. The bonds of the EFSF – the eurozone’s rescue fund – have sold off sharply amid worries over its future role, and doubts about France, the second largest guarantor of its debt:
The European Financial Stability Facility, which has launched three bonds since it was created last year, have seen its bonds come under pressure as policy-makers prepare to discuss reforms to its structure this weekend and fresh worries emerge over France’s triple A credit rating.
13.08: Peter Spiegel, our Brussels bureau chief, has obtained a copy of the troika report. He reports that the second bail-out plan for Greece is considered “no longer adequate” by the country’s international lenders:
“Greece should get its next €8bn in international aid, but the country’s economic outlook is deteriorating so rapidly that the second bail-out plan, agreed just three months ago, is no longer adequate to keep Athens afloat, international lenders have determined.
The findings are part of a highly-anticipated report by the so-called “troika” of Greek lenders – the European Commission, International Monetary Fund, and European Central Bank – and sent to eurozone countries this morning.
According to the findings, European Commission monitors believe the next aid tranche should be paid “as soon as possible” following concessions by Athens to get its fiscal reform and privatisation programmes back on track.
But the report paints a dire picture of the path ahead, saying Greece’s “debt dynamics remain extremely worrying”.
“When compared with the outlook of a few months ago, the debt sustainability has effectively deteriorated given the delays in the recovery, in fiscal consolidation and in the privatisation plan, as well as the perspective of bank recapitalisation,” the report finds.
The report does not, however, state how big the new fiscal gap has become. Although such figures are usually included in troika reports, European officials said the formal debt sustainability analysis has not yet been completed, though it will be done by the time finance ministers meet in Brussels on Friday.”
13.00: An update from Kerin Hope, our Athens correspondent. A clause-by-clause debate on Greece’s latest austerity package is continuing in parliament even as an anti-cuts rally takes place in Syntagma Square.
Riot policemen rest in front of parliament during an anti-austerity rally in Athens on October 20. Photo: Yiorgos Karahalis, Reuters
Kerin Hope: “Prime minister George Papandreou has spent his morning working the phones in a bid to keep rebellious socialist lawmakers on board.
The “multi-bill”, chockful of tax increases and spending cuts, passed its first reading without difficulty on Tuesday night. All 154 socialist deputies in the 300-member house voted in favour.
This afternoon’s final vote had been seen as another cliffhanger with four socialists, led by the heavyweight former labour minister Louka Katseli, threatening to oppose article 37 – a key reform that suspends collective wage bargaining at sectoral level in the private sector, opening the way for struggling companies to agree wage reductions directly with their employees.
Mr Papandreou reportedly told waverers that if they failed to back the bill, Greece would lose its next €8bn tranche of international funding.
That would raise the possibility of a disorderly default as early as next month – along with forced elections at which the socialists would be booted out of power in ignominious fashion.
The first sign that Mr Papandreou had managed to persuade the dissidents came when Vasso Papandreou, one of the government’s toughest critics, backed the bill. (She is not related to the premier).
The former development minister told the house: “I have a problem with my conscience in voting for this legislation, but I couldn’t handle the responsibility of the loan tranche not being paid.”
12.54: Germany has cut its growth forecast for next year to 1 per cent, down from a previous 1.8 per cent. The news came at a press conference hosted by economy minister Philipp Roesler, and finance minister Wolfgang Schäuble.
Quentin Peel, our Berlin bureau chief, says the announcement brings the government forecasts into line with what many analysts were already predicting. Mr Roesler also announced a deal on a small tax break – but Quentin cautions that the reform is not expected to do much to stimulate the economy. More on that to come.
12.35: Andrew Garthwaite, strategist at Credit Suisse, has published a note on the “Grand Deal of Europe”, and its rewards and risks. He suggests any deal would have to sort out three main issues:
- the ring-fencing of the rest of Europe
- the recapitalization of banks
- the solvency of Greece
Andrew Garthwaite: “In a perfect world, [the deal] would also address the most critical issue (growth). The first three look likely to be resolved over the next weeks—but we struggle to see the Euro-area returning to growth quickly (even if there are announcements related to EIB infrastructure spending). Bottom line we think a re-leveraged EFSF of €1.5trn–2trn is required—and that would be enough if growth returns (and thus the leverage calculations get no worse) and fiscal commitments are maintained.”
12.25: German Finance Minister Wolfgang Schäuble has been giving a press conference. According to Bloomberg, he said there should be “no doubt” that Germany rejects leveraging the European Financial Stability Facility’s firepower by giving it access to European Central Bank refinancing. This is the key issue over which the eurozone negotiations have stumbled, as Nicolas Sarkozy told French lawmakers yesterday – France is sticking to its proposal to turn the EFSF into a bank, backed by the ECB, while Germany and the ECB are adamantly opposed. Will they find a halfway point?
12.09: Reuters has news of the long-awaited troika report on Greece:
REUTERS: The European Union and IMF’s “troika” mission to Greece recommends paying out a sixth aid tranche as soon as possible despite finding “extremely worrying” government debt dynamics, according to a draft of its long-awaited report obtained by Reuters on Thursday.
The draft said Greece’s economic downturn was substantially stronger than expected and mid-term growth forecasts might need revising downwards, but additional government measures on income and spending would allow Greece to reach its deficit targets in 2012, though not in 2011.
“The (joint European Union/European Central Bank/International Monetary Fund) Commission services recommend the sixth disbursement to Greece to take place as soon as possible: as soon as the agreed prior actions on fiscal consolidation, privatisation and labour market reform, which were announced by the government, have been legislated,” the draft report said.
11.55: The birth of baby Sarkozy last night reminds us of course that the push of life waits for no-one, not even the president of France. As Hugh Carnegy, our Paris bureau chief, comments:
Even by his own hyperactive standards it has been quite a hectic 24 hours for Nicolas Sarkozy.
His dash to Frankfurt last night meant he missed the birth of his daughter – but he went straight back to the Paris maternity clinic to visit Carla Bruni, his wife, and the new arrival when he returned late in the evening. He was back at the clinic this morning before setting off on a scheduled visit to Mayenne in central France, where he was given lots of gifts for the baby – as yet unnamed (the president has three sons from his two earlier marriages; Ms Bruni also has a son from an earlier partnership). He told the locals of “our profound joy”, declaring that mother and child were doing very well.
It looks like producing a eurozone rescue plan on Sunday will be a much more difficult birth. The Elysee palace, which has studiously refused to say anything public about the first ever child born to a president while in office, was being equally coy today about the tortuous negotiations with Germany and the other eurozone players. But at least Mr Sarkozy is spared the internal political difficulties faced by Angela Merkel – as described by Quentin below.
He has plenty of concerns about how the financial markets will react – and the potential risks to France’s triple A rating upon which so much hangs for France’s public finances. But he has a comfortable majority in the National Assembly, a disciplined government and a well-oiled, highly centralised administration which the Elysee commands. If and when a deal emerges, Mr Sarkozy will not have to worry about his ability to deliver.
11.34: Analysts at Barclays Capital Research have come up with a list of commitments they expect to come out of this weekend’s summit of European leaders. Here’s a few of the most interesting announcements they’re hoping for:
- A clear timetable with deadlines for European banks to undergo new stress tests and to raise additional capital if required
- Details of plans to move towards a “leveraging” of the bulk of the EFSF’s remaining resources
- Additional public funds for Greece, and private sector debt relief that goes beyond what was agreed on July 21
- A commitment by heads of government to revise the EU treaty for euro area countries
11.20: The euro has perked up on the back of a Reuters report detailing the terms under which the European Financial Stability Facility (EFSF) would be able to purchase sovereign bonds on the secondary market. This from Michael Hunter, our London markets reporter:
11.10: If past form is anything to go by, this weekend’s eurozone summit promises to be a rollercoaster of protracted meetings, gossipy coffee breaks, long dinners between European leaders, media leaks, and the occasional release of a coded press statement in need of deciphering. In this video, the Lex Column’s Vincent Boland and Nikki Tait discuss three problems facing Europe’s leaders right now and why a credible outcome is essential.
.jpg)
10.55: Quentin Peel, our Berlin bureau chief, describes the situation in the German Bundestag as “fluid, if not confused”.
The members of parliament insist that they be given details of the proposals for the summit, in order to give Angela Merkel a green light to negotiate. But so far they have only seen the “guidelines” for the European Financial Stability Facility, without any details of proposals to leverage the fund’s €440bn into something more substantial.
They have not yet received the troika report on Greece, which is another key element.
The budget committee is due to meet this afternoon, and Wolfgang Schäuble, finance minister, is due to give evidence “sometime between 2 and 4″, according to a parliamentary official. But the finance ministry has sent the committee a letter, admitting that there are still differences over ways of leveraging the EFSF – although the ministry does not use the word “leveraging”, it talks about “the possibility of increasing the efficiency” of the fund.
The original plan was for the Bundestag budget committee to reconvene – possibly on Saturday – to consider the proposals.
Parliamentarians say if there is no detail on leveraging proposals, they may not meet to give Ms Merkel her green light, which would mean “she won’t be able to do a deal”, according to one official.
As for the EFSF guidelines, they are only in English, so the finance ministry is doing a frantic unofficial translation for the benefit of the parliamentarians. They hope to have it by midday.
10.45: Ralph Atkins, the FT’s ECB correspondent, has just posted on the FT’s Money Supply blog about the gatecrashing of Jean-Claude Trichet’s farewell party in Frankfurt by Mr Sarkozy.
“As the farewell ceremony drew to a close, Mr Trichet – along with Angela Merkel, German chancellor and Mario Draghi, the new ECB president – headed for two hours of emergency talks on the latest eurozone rescue plan in a backroom in the grandiose 19th century opera house.
The result was much muttering among the 1,500 or so attendees about Mr Sarkozy’s apparent rudeness and how Mr Trichet’s goodbye party had been hijacked. After the afternoon’s formal speeches, Mr Trichet was due to listen to a selection of Italian and Italian-inspired music played by Bologna’s Orchestra Mozart, conducted by Claudio Abbado. In the event, he missed the pre-concert reception and could only enjoy the music after the intermission. Mr Draghi had to take his place.
An unforgivable slight? I don’t think so. My hunch is that Mr Trichet would have enjoyed the drama.”
10.30: Update from Kerin Hope, the FT’s Athens correspondent, who has been checking out the mood on the streets of the Greek capital.
There’s a big demonstration around Parliament, led by PAME, the communiest-led union. There’s a lot of mournful music being played – people are grieving for the expected pasisng of the austerity law. But there’s also a lot of anger around. One hotel sign has been defaced with the words: ‘We don’t want to live like slaves’.
The streets are disgusting – I’ve never seen Athens like it – because the street cleaners are also on strike. The streets are strewn with marble, glass and other debris from yesterday’s protests. The taste of tear gas from yesterday still hangs in the air. None has been fired yet today.
Many more shops and offices are open today than yesterday. As one woman told me: ‘We can’t afford the luxury of striking two days in a row.’
The Athenian ladies-who-lunch are conspicuous by their absence. They’ve been replaced instead by tougher looking women in denim jackets. One woman is handing out surgical masks on a street corner.
The overall atmosphere is a sense of waiting for something to happen. If I were in the government I’d be worried, although PAME is doing its best to try and keep the situation peaceful.
Meanwhile, in parliament, the debate on the second reading of the austerity law has begun. The vote is not expected until after European markets close but the current expectation is that it will pass.
10.15: Gerrit Wiesmann, FT correspondent in Berlin, has seen an EU document saying that distressed European Union banks which tap national governments or the region’s €440bn rescue fund for new capital will have agree to restructure or even undertake an orderly winding-down.
In a draft of guidelines for the operation of the enhanced European Financial Stability Facility (EFSF), EU governments declare “planned restructuring/resolution of financial institutions [...] the sine qua non condition” for assistance.
The condition – consistent with EU state-aid rules applied throughout the crisis – could discourage banks from seeking public assistance and spur them to shrink their balance sheets instead, raising the danger of a credit crunch.
Attempting to close one can of worms could well be opening another…
10.10: More from Peter Spiegel in Brussels. Of all the EU leaders who huddled last night in Frankfurt, the first one out this morning talking about the need for a deal is José Manuel Barroso, president of the European Commission, who was testifying to the European Parliament’s budget committee.
Amidst market concerns that Sunday’s summit will deliver less than anticipated, Barroso made an impassioned plea to get at least one element done: expanding the firepower of the eurozone’s €440bn bail-out fund, the European Financial Stability Facility.
Mr Barroso said:
“All these elements are important and the political decisions should be taken by Sunday, even if some implementation measures may follow. But if there is one aspect without which all the others will lack credibility this is indeed the need to reinforce the euro zone’s firewalls. We have been proposing the leveraging of the EFSF. I hope this will be agreed on Sunday. I am encouraged by the work going on. I think a very positive outcome on Sunday is possible, provided there is political will and a sense of compromise from all participants. Europe needs this effort of compromise and we are in a situation where this compromise can be reached around a more ambitious Europe. I am confident we will do it”.
Whether this is an attempt of Barroso to light a fire under leaders still in disagreement or a sign that a deal is soon at hand remains to be seen.
10.00: Perhaps not unsurprisingly the world and his wife are publishing analysis on the eurozone crisis ahead of the summit. The latest one to come across our desks is from Stephen King, HSBC’s chief economist. To highlight the scale of the task facing European leaders over the next four days, Mr King writes:
“Keeping the Eurozone together will involve huge financial resources and considerable ingenuity. The alternative would be worse. We argue that a break-up of the euro would be a disaster and in a worst-case scenario could trigger another Great Depression.”
He continues:
As Jean-Claude Juncker, the prime minister of Luxembourg and an important player on the European stage, put it: “We all know what to do but we don’t know how to get reelected once we have done it.”
9.40: Richard Milne, the FT’s Capital Markets Editor, has just written a story detailing a hot-off-the-press proposal from the French Bank BNP Paribas, that the eurozone rescue fund should issue credit default swaps to investors buying new government debt from Italy and Spain.
The suggestion is a rival to a plan by Allianz and Deutsche Bank that the European financial stability facility should insure investors against the first losses in case of a default.
Richard writes that BNP’s plan is that the EFSF should write credit default swaps – a form of protection in the case of a default – for investors who have participated in Italian and Spanish auctions.
“The timing of the proposal is controversial, coming in the same week as the European Union agreed to make permanent its ban on so-called naked CDS, the practice of buying the insurance as a straight bet rather than using it to reduce risk on other underlying positions.
BNP executives acknowledge it is a tough sell but believe there are substantial difficulties with the Allianz plan. The latter would see the EFSF offer guarantees to cover the first 20-25 per cent in losses for the likes of Spain and Italy and potentially as much as 40 per cent for Greece, Ireland and Portugal.
People close to BNP argue that the Allianz proposal is too complicated for government bond investors to accept easily and could even lead to rising yields for Italy and Spain if traditional bondholders are put off.
They contend instead that by writing default protection the EFSF could dampen speculative activity while providing liquidity around auctions. They also say that as the volumes in CDS markets are much lower than in bond markets but the two are highly correlated it should be possible to move yields for relatively little money.”
9.30: Sort-of-hot-news alert: Peter Spiegel, the FT’s super-sleuth Brussels bureau chief has acquired a copy of the draft summit communiqué that was circulated late last night by aides to Herman Van Rompuy, who as president of the European Council will chair Sunday’s summit.
Let’s just call it a work in progress.
Peter says the only reference to any of the big three issues to be decided – a Greek haircut, bank recapitalisation, increasing the firepower of the €440bn rescue fund – is a note that the details will be filled in later.
The bulk of the draft is four pages on the need for economic growth. But most of the seven conclusions are re-stating the need to implement measures already backed by European Union leaders: the single market act, reducing the administrative burden on companies, facilitating e-commerce, etc.
Although foreign policy has fallen off the Brussels agenda, the communiqué does contain language on Iran and Syria – though even that is largely an endorsement of decisions already taken by EU foreign ministers. The statement on Syria is quite strong, however:
“The creation of the Syrian National Council is a positive step forward. It remains gravely concerned about the current situation in Syria and stresses its strong support to the Syrian people as they express their legitimate aspirations for a life in freedom and dignity. It condemns in the strongest terms the ongoing brutal repression led by the Syrian regime against its population as well as the widespread human rights violations. President Assad must step aside to allow a political transition to take place in Syria. The EU has decided to place restrictive measures aimed at those responsible for or associated with the violent repression and those who support or benefit from the regime, not at the civilian population. The European Council urges all members of the UN Security Council to assume their responsibilities in relation to the situation in Syria.”
9.25: Update from Chris Adams, on the markets desk. Fear has replaced disappointment. And it’s only 9.25 in the morning….
9.20: Christopher Adams, the FT’s markets editor, says his focus today will be on the following – note the use of the word “disappointment”:
“We’ll be watching outcome of French and Spanish debt auctions as gauge of investor appetite. Markets starting to price in summit disappointment. Premium investors demand to hold French debt over that of Germany at a new euro-era record. Still, at least there’s a new baby at the Elysee.”
9.10: Meanwhile Greece is gearing up for the second day of a 48-hour geneal strike, called to coincide with parliament debating the latest austerity package. Some violence occurred yesterday but most of the 100,000+ people who took to the streets to protest at the escalating cuts were peaceful. Kerin Hope, the FT’s Athens correspondent, quotes Nikos Tsios, a newspaper seller on why this stirke is raising the ante on previous industrial action.
“This is the most serious strike in years because private businesses are takeing part. My situation is getting desperate, people aren’t even buying cigarettes like they used to.”
8.55: Sony Kapoor, managing director of Re-Define, an Economic think tank, has just published a report explaining the “near impossible challenge of meeting the sky-high market expectations while operating within severe financial, political and time constraints, all of their own making”.
“They owe it to Europe to pull a rabbit out of the hat now.
None of the short-term fixes or longer-term structural plans would be credible without a step-improvement in the fractious politics of the Euro area. Good economics has repeatedly fallen victim to bad politics. Economic policy is only as credible as the politics behind it. Making difficult but binding political commitments would signal a seriousness that has been missing thus far.”
Mr Kapoor does not spare the Euorpean Central Bank from criticism. He writes that it:
“must stop playing a high-stakes game of chicken with leaders and increase support for sovereigns. This will provide countries the economic space to enact structural changes.”
So what price a deal at the weekend then….?
8.45: The markets clearly believe much work needs to be done before European leaders can congratulate themselves on securing a eurozone-saving deal. Jamie Chisholm, the FT’s global markets commentator writes that “growth-focused assets are floundering as markets continue to be roiled by the eurozone fiscal crisis”.
The FTSE All World equity index is down 0.7 per cent and commodities are sliding, while perceived havens such as the US dollar and Treasuries are in demand. US stock futures point to a 0.2 per cent fall for Wall Street later in the session.
8.40: First item of business today for Nicolas Sarkozy, the French president, was to visit (see photo above) his wife Carla Bruni and newly-born daughter Dalia, at a Paris clinic. Mr Sarkozy had abandoned his wife’s bedside yesterday to fly to Frankfurt for emergency talks with Angela Merkel, the German chancellor, and other leaders. They appear to have failed to have resolved their differences.
For views and opinions on the European Union from Peter Spiegel, Joshua Chaffin, Alex Barker and Stanley Pignal, follow the 