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Welcome back to the FT’s live coverage of the eurozone crisis. By Tom Burgis and John Aglionby on the news desk in London, with contributions from correspondents around the world. All times are GMT.
One issue dominates the agenda for today and tomorrow’s summit of the Group of 20 leading economies: the fate of the eurozone amid the turmoil in Greece.
This post should update automatically every few minutes, although it may take longer on mobile devices.
19.30: And what will tomorrow bring? Who knows. It’s day two of the G20 summit, the confidence vote in the Greek parliament and the US non-farm payrolls (monthly unemployment data) are announced.
Thanks for all your comments and tweets today – especially the song suggestions! For further updates from the late-night meetings in Cannes follow ft.com
Goodnight.
19.25: And as for the markets, they’ve been volatile but Jamie Chisholm, the FT’s global markets commentator, writes they are rallying as “investors switch between fear and hope regarding the financial and political stability of the eurozone”.
19.20: Before we wrap up, here’s a summary of events in Athens.
Evangelos Venizelos, the Greek finance minister, puts the first cat among the pigeons by saying he is no fan of the referendum idea.
It then appears that George Papandreou is about to resign as PM. But he doesn’t and summons his ministers.
Scared by what might happen if the referendum goes ahead and Greeks vote against the bail-out or in favour of leaving the eurozone, the opposition conservatives reverse their opposition to the bail-out.
This gives Papandreou the “consensus” he has been seeking, meaning he can drop the referendum plan. He does not resign.
19.10: Hugh Carnegy has sent from Cannes the key quotes from Mr Sarkozy’s press conference – a good summary of the day’s developments at the first day of the G20 summit. But reading between the lines, it’s clear officials will be burning a lot of midnight oil tonight to come up with anything concrete.
On Global growth:
“We worked a lot on the economic situation today… a very serious work and there was a great deal of willingness to work against the contraction in growth which is a worry not just for the developed world but for the entire world…Everybody showed their willingness to better coordinate economic policy.On the Eurozone:
I won’t hide from you that a lot of the discussion was on the eurozone…we showed that Europe’s will is to go very quickly to implement the EFSF (rescue fund). We are talking (on the EFSF) with European countries, with European institutions and also with other institutions such as the IMF and other countries, such as the US. There are other partners who would be willing and able to help the eurozone and put out a message of confidence.We are in the process of talks which we hope will culminate in decisions. (The intention is) to come up with something that is credible, ambitious and fast. I can tell you that viewpoints are coming together between Europeans and between Europeans and their partners.
Greece:
This is the most serious crisis. We needed to find a solution and that solution involves clear speaking, open-minded but firm: the euro brings with it obligations… there is solidarity as long as everyone sticks to the rules and this was our reminder yesterday and I am pleased to see there are sufficient responsible politicians in Greece who have understood that message and who have been able to see the national priorities.
I don’t want to get into domestic political discussions in Greece but the leader of the opposition party made a statement today that he was supporting the October 27 (rescue) plan. That is a very important element and I salute that stance because it was very courageous and responsible.
We have said clearly that we wish Greece to stay in the euro but of course the precondition for that is that they want to do so.
Italy:
I want to express my confidence in the Italian economy. The issue is not around the content of the proposed (reform and fiscal) package but whether that package can be implemented and that’s where we need to work a bit more. We are now working together with the Italian authorities to look at that more closely.
Financial transaction tax:
I’m certain that it is technically possible…it would be very imp to have it financially because of the crisis and I think morally it is something we can’t overlook in our search for solutions.
It is clear not everyone agrees on this. We noted with great satisfaction that Brazil and Argentina, their presidents were together in favour of such a tax. These discussions will continue to try to build a consensus with a group of leader countries in this particular area.
19.00: Chris Giles reports from Cannes that officials have said leaders of the “Frankfurt group” – France, Germany, European Union officials and the IMF – would be joined by Barack Obama, US president, for a further crisis meeting, since they did not have sufficient time in the morning to complete discussions on the best way to resolve the eurozone crisis.
Sleep? Who needs it?
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18.45: It seems Greece has no upper limit for its daily drama level. Kerin Hope reports from Athens that Greek analysts aren’t holding out much hope for a deal between socialists and conservatives on some form of national unity government after Antonis Samaras, the conservative leader, blasted the premier in his opening speech of the confidence debate.
Samaras, who took a call from George Papandreou a few hours earlier, told the house that he asked for his resignation in order to set up a technocrat administration with a limited mandate “to take the country to elections within six weeks”.
That would send the message to European Union leaders that Greece was serious about getting out of its political quagmire.
But Papandreou was having none of it, according to Samaras. “I told him he should resign and facilitate developments. He didn’t say anything. But he’s not resigning, he seems determined to cling to his chair.”
At the end of his speech, the conservative benches emptied as the opposition leader led a ritual departure from the chamber – the traditional Greek way of demonstrating a rift between party leaders.
It also made for a well-timed dinner break.
18.15: There’s a very good post from John McDermott, of the FT’s alphaville team, giving more details of the Italian endgame, report by Citigroup’s Matt King we posted on at 12.42. King says an Italian crisis is:
“…increasingly probable, and would do much to expose the inadequacies of the bailout mechanism as a whole”.
18.00: European Commission president José Manuel Barroso and European Council president Herman Van Rompuy have issued a joint statement on the day’s events at the G20 summit. On Greece they say the following:
The Euro area stands ready to continue to support Greece, but Greece needs to stick to the agreed package of 26-27 October and in particular to continue with the implementation of the EU/IMF programme. This needs to be crystal clear. We want Greece to remain in the Euro.
Given the dramatic domestic political and social situation, national and political unity in Greece is essential so that the hope of a better future can be given to the Greek people. We trust their sense of responsibility.
The full implementation of the 26-27 October package and the support of the G20 will enable us to overcome the current turmoil.
17.45: Josh Chaffin, FT correspondent in Brussels has done a great Q&A on how Greece might leave the eurozone. the four-word summary is: “Easier said than done”.
How would Greece legally exit the eurozone?
This might require a good lawyer. Extensive as they are, the European Union treaties do not actually provide for a country leaving the eurozone. (Until now, it was taken for granted that the traffic would all be headed in only one direction).
The treaties do include a sort of emergency clause that allows the European commission, the EU’s executive arm, to make proposals to deal with extraordinary events that are a threat to the single currency. So it could probably use this as a basis to draft a Greek exit, if necessary. As with all EU matters, the process would not be immediate. The other 26 member states would have to unanimously approve, as well as the European Parliament.
Thanks to a clause in the Lisbon treaty, which came into force in 2009, Greece could take a more radical approach and opt to leave the EU altogether. (This clause was added at the behest of the UK, to prove to its eurosceptic voters that the bloc was not a straightjacket that could never be removed). In this case, Greece would require only majority approval from other member states.
But, on top of all the other acrimony, its departure would result in potentially fraught negotiations over its EU payments. Greece, for example, receives tens-of-billions of euros in development funds while its farmers harvest bumper crops of agricultural subsidies. The fate of these payments, which are programmed over several years, and other EU accounts could take some time to sort out. There would also be the question of whether a non-EU Greece would still want to maintain links to the single market, as Norway and Switzerland do.
What about the banks?
One of the gravest challenges of introducing a new Drachma would be preventing a run on Greece’s banks. As soon as customers sensed such a move was in the works, they would almost certainly attempt to drain their euro accounts and move them to safer ground, such as Germany. As the crisis has worsened, Greek banks have already experienced an outflow of deposits. Changing currencies would almost certainly force the government to impose emergency capital controls to prevent a full-fledged bank run.
What would happen to euro-denominated contracts?
This would be another headache of Olympic proportions. All domestic contracts – from property leases to employment contracts – would probably have to be amended to reflect the change from euros to the new currency. Far more contentious would be cross-border contracts. Companies selling goods to Greece would insist that they continue to be paid in euros while Greeks would probably try to pay in the new currency or at reduced rates. Much litigation would ensue.
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17.34: On the expansion of the eurozone rescue fund, the EFSF, Mr Sarkozy says it’s important to create something “quick, ambitious and credible” but doesn’t give any details.
17.30: Understatement of the day. Mr Sarkozy describes Mr Papandreou’s tactics as “interesting”.
17.25: Nicolas Sarkozy is giving a press conference in Cannes. He’s unequivocal about how serious he thinks the eurozone crisis is:
“If the euro explodes, Europe would explode. It’s the guarantee of peace in a continent where there were terrible wars.”
17.10: While Mr Papandreou rambled in his speech to the ruling PASOK MPs, finance minister Evangelos Venizelos was more concise and much clearer. He said
- the next tranche of aid from the EU/ECB/IMF troika was needed before December 15
- the government should be categorical in ruling out any sort of referendum on the bail-out or Greece’s membership of the eurozone.
- the new bail-out should be approved by 180 of the 300-member parliament.
Will he get his way?
16.59: A quick re-cap on how the Greek developments have unfolded.
- Last week, Europe’s leaders approve a new €130bn bail-out for Greece, which foresees a 50 per cent loss for holders of Greek debt, as well as other measures designed to stem the eurozone’s sovereign debt crisis
- There is much rejoicing in the markets, despite warnings from the wise that the lack of details in the deal is ominous
- Then, on Monday, George Papandreou, Greece’s prime minister, drops a bombshell: he will offer Greeks a referendum on the new rescue package
- There is much anguish in markets
- On Wednesday, Angela Merkel and Nicolas Sarkozy summon Papandreou to Cannes on the eve of the G20 summit
to hang him by the thumbs until he bucklesfor crisis talks - Merkozy emerge to warn that Greece will receive no more bail-out cash until it decides what it wants
- Meanwhile, it emerges that the plan is to hold a referendum not merely on the bail-out but on Greece’s very membership of the single currency
- Thursday dawns with news that Evangelos Venizelos, the Greek finance minister, is no fan of the referendum idea
- Zero hour in Athens as Papandreou, on the brink of resignation, summons his ministers
- There is much confusion in the markets
- As the enormity of what might befall Greece should it not receive any more rescue cash and, perhaps, be flung from the euro, becomes clearer, the opposition conservatives reverse their opposition to the bail-out
- This gives Papandreou the “consensus” he has been seeking, meaning he can drop the referendum plan. He does not resign
- Papandreou heads to parliament to address his MPs, where tomorrow he still faces a confidence vote
16.37: The G20 leaders have massed for their set-piece photo. Sarkozy’s gesture hardly fills one with confidence…
16.28: All the focus is still on Athens but over in Cannes the G20 rolls on, stirring debate. War on Want, a radical British charity that has spent decades campaigning against poverty, has chimed in. John Hilary, its executive director, says in a statement aimed at G20 leaders:
“From Wall Street to St Paul’s, from the streets of Athens to Tahrir Square, a growing movement is calling for an end to the economic system based on financial bubbles and corporate greed. If David Cameron and the G20 leaders want to remain relevant in the 21st century, they should drop their obsession with free markets and listen to their citizens.”
16.15: Mr Papandreou has been addressing his party’s MPs for almost an hour now. He’s definitely not resigning, stressing instead that what was at stake over the last few days was the nation’s membership of the eurozone. It’s still unclear what the result of the confidence vote is going to be tomorrow though. There’s still plenty of time for much water to flow under many bridges before then.
16.05: Back to the ECB’s decision to cut rates. James Wilson, FT correspondent in Frankfurt, has some reaction from German banks – which remember are some of those with the biggest holdings of eurozone sovereign debt:
The country’s main commercial banking association, representing banks including Deutsche Bank and Commerzbank, calls the cut surprising but understandable. Still, it says debt spreads, not interest rates, remain the the main problem for peripheral countries. “The rate cut will only have a limited effect,” the association says.
15.45: Over in Athens, the narrative of today’s developments is becoming clearer. According to the prime minister’s comments to his cabinet, the key turning point appears to have been when Antonis Samaras, the conservative opposition leader, said today that he would be willing to back the new bail-out agreement in order to ensure Greece stays in the euro. The conservatives opposed Greece’s previous bail-out on the grounds that harsh austerity would deepen the country’s recession and leave banks without liquidity to fund investment. Kerin Hope has more from the text of Papandreou’s address to minister at their emergency meeting earlier:
“There is no need for a referendum following the conservative opposition’s switch of its position and willingness to back the October 26 package.”
“We must hail the fact that [the main opposition party] New Democracy will vote for the new bail-out agreement.”
“We had a dilemma: consensus or a referendum … Failure to back the package would mean the beginning of our departure from the euro. But if we have consensus, then we don’t need a referendum.”
15.40: It seems Papandreou’s comments were those he delivered to his cabinet, rather than coming from his speech to parliament slated for later today.
15.22: Back in Athens, George Papandreou’s office has circulated the text of his forthcoming speech and the translation is coming out bit by bit. Reuters quotes the text as:
“I will be glad even if we don’t go to a referendum, which was never a purpose in itself. I’m glad that all this discussion has at least brought a lot of people back to their senses.”
“I will talk to [opposition leader Antonis] Samaras so that we examine the next steps on the basis of a wider consensus.”
15.08: As if there had not been enough gloomy portents for bonds today, the makers of the Bond films have just announced the title of the next one: Skyfall
14.56:Ralph Atkins, the FT’s man at the ECB, has drawn breath and reviews Draghi’s debut:
“Mario Draghi’s performance was very different in style to that of his predecessor, Jean-Claude Trichet, if not in substance. His answers were business like, and without any theatrics. His main points were:
- The quarter percentage point cut in interest rates was justified with a ‘mild recession looming by the end of the year, which would dampen down price pressures
- There were no clues about whether further cuts would follow
- European Union treaties do not allow a country to leave the eurozone – whatever Angela Merkel or Nicolas Sarkozy might say
- The ECB is not there to be ‘lender of last resort’ to governments. Its job is price stability. So it is up to governments to sort out the eurozone crisis
- Governments should not rely on ‘external’ help. In other words, Silvio Berlusconi cannot assume the ECB will simply continue buying Italian bonds indefinitely
By giving briefer answers than Mr Trichet, Mr Draghi covered more territory – and was still able to leave promptly to catch his flight to Cannes. He even managed to ask a journalist a question (about whether the ECB acting as lender of last resort would help keep the eurozone together) although he gave no time for an answer.”
14.49: The FT’s Kerin Hope in Athens confirms that the Greek referendum plan has been scrapped. She spoke to a senior member of the governing Socialists. But much uncertainty remains: the confidence vote still looms, for one thing…
14.44: UNCONFIRMED BREAKING NEWS Further to Kerin Hope’s update of on the brinkmanship in Athens (14.05), the Associated Press is quoting unnamed “officials close to Greek prime minister” as saying the Greek referendum has been scrapped.
14.31: Apropos the 14.05 entry, a little afternoon light relief. What song title best encapsulates the current state of Greece and/or the eurozone? Answers please in the comments section or on Twitter @ftworldnews
14.28: Claire Jones reports Mr Draghi is adamant that there will be no haircuts on eurozone sovereign debt other than Greece’s. He says the Greek situation is “exceptional and unique” and that he is confident that Ireland, for instance, can comply with EU/ IMF program: “One has no reason to doubt the commitment of the [Irish] government.”
The press conference has now ended.
14.20: Claire Jones reports that Mr Draghi says the rate cut has “nothing in common” with whether ECB will buy more Italian and Spanish debt.
14.15: Claire Jones says that Mr Draghi insists the ECB’s balance sheet is “not at risk”.
There have been lots of questions on eurozone exit. All he says is: “It’s not in the treaty”.
14.12: Claire Jones’s take so far on Super Mario’s performance:
Mr Draghi is doing well so far. He seems very relaxed, which is not an easy task considering the room is crammed with far more journalists and photographers than usual.
Vitor Constancio, vice chair, says in both substance and style, the new ECB president is similar to his predecessor. Quite.
14.08: Back to Draghi. Claire Jones says Mr Draghi turns the tables on our own Ralph Atkins and asks him whether he thinks the ECB should be lender of last resort for eurozone governments. Before Ralph has a chance to answer, Mr Draghi says he thinks not. He says maintaining price stability is the ECB’s remit. Sounds familiar. As does his response to whether there will be a cut in December: “We never pre-commit.”
He also says that bond purchases are “temporary, limited and justified by monetary policy considerations”.
14.05: Back to Greece and Mr Papandreou’s game of: “Should I stay or should I go now?” Kerin Hope reports that it’s a game of see-saw at Greece’s cabinet meeting – from which some ministers are briefing their favourite journalists by SMS, defying the premier’s attempts to impose a news blackout.
The latest: Papandreou had been preparing to stand down but reversed his decision when he got into the cabinet room.
He’s offered to withdraw the referendum proposal and hold the vote of confidence as planned on Friday but on the new €130bn bail-out not the referendum. If Pasok lawmakers back him – and they surely will, argue the FT’s sources, since they don’t want to go into an election they are bound to lose, according to opinion polls – it will be business as usual on Monday.
If Papandreou gets this through cabinet, he will take it to the Pasok parliamentary group at 5pm today (3pm GMT) before the this evening’s next session of the confidence debate.
Let’s see.
14.00: Back to Draghi. Claire Jones says he expects a “mild recession” by the end of the year. When asked whether the ECB governing council has been discussing the climb in Italian yields? Not really, Mr Draghi replies, adding that responsibility for financial stability lies with national economic policies.
13.55: Back to the Greek crisis. Stanley Pignal reports from the European Commission’s daily briefing that it’s increasingly clear that the EU is sailing into completely uncharted waters:
A spokeswoman said the situation was “fluid” and that all would be answered by the EU leaders themselves in an upcoming press conference — which was cancelled shortly afterwards.
One thing the Commission did say, however, is that there is no clean way to leave the eurozone. “The treaties do not foresee an exit from the eurozone without exiting the European Union,” said a spokeswoman for the Commission.
This chimes with a legal brief from the ECB, which has been circulating in Brussels circles in recent days. http://www.ecb.int/pub/pdf/scplps/ecblwp10.pdf
13.54: Claire Jones says Draghi calls for Eurozone countries to implement structural reforms asap, especially those for labour markets.
No change from his predecessor there, then. In fact, the style of the statement is very similar to those delivered by Mr Trichet.
13.52: Claire Jones reports that Draghi says the decision to cut rates was unanimous.
Significant that he had the support of the Bundesbank and Mr Stark, the executive board’s German national.
13.48: More from Claire Jones on Draghi:
Mr Draghi says inflation “should remain in line with price stability over policy relevant time horizon”. Prices and wages should moderate on the back of weak growth next year.
13.42: From Claire Jones following Draghi’s press con:
Unsurprisingly, Mr Draghi is gloomy on the outlook for growth. He says downside risks “have materialised” due to the sovereign debt crisis, and are now spilling over into real economy. Growth next year “very likely” to be lower on the back of weak global outlook and tensions from sovereign debt crisis. Also cites possibility of “disorderly correction” of global imbalances.
13.38: Chris Adams, FT markets editor, tweets:
13.33: Mario Draghi has just started his first press conference as ECB chief. Ralph Atkins reports frm the room that it is “packed far more than normal. 170 journalists attending, many Italian”.
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13.20: Here are some market analyst reactions to the ECB move.
BarCap’s Julian Callow :
New ECB President Draghi is setting a new pattern for policy adjustments, since a rate cut at today’s meeting had not been signalled by officials. That said, in our view monetary easing is strongly warranted at this stage, given increasing signs from business confidence reports that suggest that euro area GDP will contract in Q4, along with signs (such as from the PMI price indices) of some abatement of inflation pressures.
We hope to learn more about whether today’s decision is something of a compromise, and of the division of opinion on the Council, at the Press Conference. At the current stage, ahead of the Press Conference, we would expect that there is still a good opportunity to proceed with a further 25bp cut in interest rates at the Dec. 8th meeting.
Howard Archer – chief European and US economist at IHS Global Insight:
The move also suggests that Mario Draghi will not be afraid to make bold decisions as there had been suspicion that he may be reluctant to see an interest rate cut at his first meeting in case this made him appear soft on inflation given that the Eurozone consumer price inflation is currently well above target at 3.0% in October.
13.08: BREAKING NEWS FROM ATHENS: Kerin Hope reports:
A senior Socialist tells the FT that Mr Papandreou is poised to resign as PM and open the way for a government of national untiy to be formed in cooperation with the main opposition conservative party, New Democracy. Its mandate would be to approve the new €130bn bail-0out package and take the country to elections in three-to-six months.
Mr Papandreou appears to be fighting to retain the leadership of his Pan-Hellenic Socialist Movement and stay on long enough to take the party into the election. But he faces a strong challenge from Evangelos Venizelos, his finance minister and frontrunner to be his successor, and other cabinet members who want to see a fresh face leading the election campaign.
13.02: Nouriel Roubini has tweeted his reaction to the ECB move:
13.00: ECB rate cut thoughts from Claire Jones of the FT’s Money Supply team:
As Gavyn Davies writes, what’s more important than rate cuts is how willing the central bank is to buy more Italian and Spanish debt, perhaps in far greater quantities than they have been already. Still, the fact that the ECB’s governing council recognises the need to take action should provide some succour to markets.
12.56: Instant market reaction to the ECB rate cut from the FT’s Michael Hunter: Dax 30 now up 3.3% in Frankfurt; Cac 40 up 2.2% in Paris. Euro falls 0.2% to $1.3728. Italian and Spanish indices also trade higher
12.55: Ralph Atkins, the FT’s ECB correspondent, writes that the rate cut “follows mounting evidence that the eurozone was heading into recession, with its economic outlook darkened by the uncertainty over the future of Greece”.
It marked an unexpectedly bold start to the ECB presidency of Mr Draghi, the former Italian central bank governor, who took over from Jean-Claude Trichet only on Tuesday.
Financial market attention will now focus on any clues from Mr Draghi at a press conference in Frankfurt this afternoon on whether the ECB will also expand its government bond purchase programme. Since August, the ECB has spend €100bn buying largely Italian and Spanish bonds – but the latest twists in the crisis over Greece on Thursday sent Italian bond yields sharply higher.
12.45: Breaking News from the ECB – it has lowered its benchmark rate by 25 basis points to 1.25 per cent.
12.42: Bond markets are becoming increasingly exercised by the widening spreads of some eurozone nations (read Italy). Here’s the latest analysis from Citi:
We are also quite close to the point beyond which other sovereigns have found it very difficult to return, when yields breach 6%. This is partly because feedback loops kick in and additional widening could easily accelerate.
For example, if spreads of 450bp on 10-year governments are exceeded for five consecutive business days, LCH haircut requirements for banks borrowing against Italian collateral will rise by 15%. If banks liquidate their [Italian sovereign bond] holdings, this will simply exacerbate the problem. If instead they choose to seek funding at the ECB (for example, if they are running short of collateral), publicity around different countries’ banks’ usage of ECB facilities seems likely to lead to more selling in both the banks and the countries concerned.
This is part of the reason why when Portuguese spreads breached this point, not only did the sovereign yield quite rapidly back up further, eventually breaching 10%, but the rating agencies followed up with sovereign and bank downgrades for good measure. Admittedly this was all part of Portugal’s losing access to markets and applying for a bail-out, but we see no reason why the feedback loops should operate any differently for Italy.
12.10: Speculation is rampant that when Papandreou meets the president he’s going to offer to step down and ask for a coalition government to be formed.
But the FT’s Kerin Hope in Athens says, after speaking to a senior member of the ruling Socialist party, that there have been such rumours before – that he would step down in favour of a national unity government. But that didn’t happen.
The situation is more fragile now but this rumour still has to be confirmed. As of 10 minutes ago it appeared the cabinet meeting had still not started. Papandreou’s aides are not picking up their phones.
12.05: Kerin Hope reports from Athens that the cabinet meeting is going to be a fiery gathering.
According to insiders, some ministers are planning to demand Papandreou’s resignation and the appointment of a national unity government under Lucas Papademos, the respected former vice-president of the European Central Bank, to push through key pieces of fiscal and structural reform required under the latest bail-out package.
The national unity government would step down after a few months and an early general election would follow.
But there’s one big hitch: it’s unclear whether Mr Papademos, a mild-mannered central banker who has steered clear of involvement in politics throughout his career, would accept.
He has served as an unofficial adviser to he government during the debt crisis but left Athens during the summer for an academic job in the US. He told the FT at the time that he wasn’t interested in a Greek ministerial chair.
12.00: Reuters is quoting Greece’s state TV as saying that Papandreou will meet the country’s president after the cabinet meeting. It did not provide any further details.
11.55: Peter Spiegel has another read-out from the pre-summit meeting of European leaders in Cannes (see photo above).
An aide to Barroso informed the assembled press corps that the meeting has broken up a couple of times, but they are now back locked in talks and may be so until the summit officially starts at 1pm local time. With Berlusconi and Zapatero in the room, it’s possible the pressure’s on both leaders to win over market sentiment. But it now looks like the Barroso-Van Rompuy press conference will be cancelled, so we’ll have to find out later today what the group dealt with. One leader is not in the room, however: Sarkozy is now formally greeting summitteers with all the pomp and circumstance expected of a gathering of the world’s most powerful heads of government.
11.50: For an hour or two this afternoon Mario Drahgi, the new head of the European Central Bank, will divert attention away from Cannes when he holds his first press conference in his new job after holding his first rate-setting meeting. The FT’s Alice Ross has tweeted that there’s little consensus on what the ECB is going to do. The announcement on eurozone rates is due at 12.45pm GMT and the press conference starts 45 minutes later. Claire Jones of the FT’s Money Supply team will be taking over this blog for the press conference.
11.28: Over to markets and the critical numbers: the spread of Italian 10-year bond yields over German bunds. To be clear, this gap – between the interest rate the market demands to lend to Berlin, the eurozone’s safest economy, and the rate for Italy, the biggest victim of extreme unease so far – is perhaps the best barometer of how the investors are reading developments in Europe.
The spread has repeatedly broken 450 basis points in recent days, setting new record highs since the adoption of the euro. The other critical number is the Italian yield itself, where 6.5 per cent is the red line at which other European countries – Greece, Ireland, Portugal – were forced to seek a bail-out because the massive extra costs of refinancing at that level were impossible to meet.
The FT’s Guy Dinmore in Rome has been watching the undulations today:
“The uncertainty knocked markets at the outset with yields on Italy’s benchmark 10-year bond leaping to 6.4 per cent from 6.18 per cent before easing on reports of renewed bond purchases by the European Central bank. The yield gap over German bunds widened to 462 percentage points before falling to 450.”
11.19: Greece, of course, is not the only European government in danger of vanishing down its own rifts. The crisis has toppled Irish and Portuguese governments, costs a Slovakian one its majority and appears to have done the same to the Dutch administration. (More on this and European public opinion from Quentin peel in today’s FT). Over in Rome, Guy Dinmore of the FT, has been gauging reaction after the Berlusconi government failed to reach an agreement on economic reforms last night:
“The much-loved daily cartoon by Giannelli in Corriere della Sera says it all. Silvio Berlusconi arrives in Cannes carrying his prime minister’s chair with Merkel, Sarkozy and Barroso looking on, under the caption ‘The Europeans don’t trust Berlusconi. Berlusconi doesn’t trust the Italians.
Meanwhile, Il Giornale, a Milan daily owned by the Berlusconi family, gets to the guts of it with the front-page headline ‘The Night of the Traitors’, describing a ‘dozen’ dissident MPs in and close to Berlusconi’s People of Liberty party who signed a letter which, according to the newspaper, called on the prime minister to resign.
Opposition sources tell the FT that actually six have signed but six more are preparing to. If correct then the centre-right coalition is at risk of losing its slim majority in the lower house. A text of the letter published in Corriere della Sera is rather more ambiguous, however, calling on Berlusconi to implement quickly his promises of reform and ‘to open a new political phase and a new government’. It does not specifically call for his resignation.
The news follows yet another fight between Mr Berlusconi and Giulio Tremonti, finance minister, that resulted in the failure of the cabinet to agree last night on a decree that would pass quickly into law — with the signature of the head of state — reform measures that Berlusconi pledged last week to the EU summit in Brussels. Instead, the cabinet agreed to present a ‘maxi-amendment’ to existing legislation in parliament that would incorporate some of those measures. That process could take weeks or even a couple of months.
The official cabinet statement did not release details of what the maxi-amendment could contain but newspapers said it included sales and leasing of state assets, liberalisation of professions, tax incentives for infrastructure projects, and privatisation of local services such as refuse collection. Il Sole 24 Ore, Italy’s main business daily, called it a ‘mini-plan’ and said Berlusconi was going to Cannes ‘with (almost) empty hands’.”
11.11: Are you trading eurozone bonds today? Taking to the streets in Nice? Cannes you come up with the day’s winning pun / elaborate metaphor based on a Greek myth, tragedy etc? We are very keen to hear from you in the comments section below as events unfold.
AmericanInvestor comments:
“Even if Greece were to agree to what Merkel and Sarkozy want, there are few people on this side of the Atlantic who think that the plan announced by the EU leaders is anywhere sufficient to save the Eurozone.”
11.04: Yes we Cannes? Peter Spiegel has an update on the US president’s engagements today:
“Obama only arrived in Cannes this morning, but is working his way through Europe’s big hitters. After meeting Sarkozy at the summit centre, the US president wandered over to the Carlton hotel for a face-to-face with Angela Merkel. According to the White House pool report, Obama hailed Merkel, saying the US had ‘high esteem” for her ‘and her leadership’. But he reiterated that ‘we’re gonna have to resolve the situation in Europe’.
Merkel spoke in German, and the White House press pool was ushered out before the translation. When reporters complained, Obama joked: All American reporters speak German, but…’”
10.55: Over to Berlin, where the FT’s Gerrit Wiesmann, reports that the Greek enthusiasm for plebiscites might be infectious…
Containing the spread of investors’ risk-aversion from Greece to other members of the eurozone has been one of the main aims of rescue efforts to date. But the Greek prime minister’s intention to hold a referendum has again raised the prospect of contagion – in more ways than one, it appears today. Germany’s leading tabloid newspaper, Bild Zeitung, this morning issued a front-page call to ‘Take the Euro away from the Greeks.’ But more ominously for chancellor Angela Merkel, the newspaper reserved its skyline – the most prominent portion atop the front page – for the demand: ‘Mrs Merkel, we want a referendum, too!’
Explaining how it caught the referendum bug, Bild wrote: ‘We’ve had enough! We’re guaranteeing hundreds of billions of euros to save those bankrupt Greeks – and now they’re going to hold a referendum to decide whether they’re going to make any savings. Now we want a referendum, too: no more billions for Greece, Greece out of the euro!’
10.50: All smiles so far this morning at the Cannes summit but teh FT’s Hugh Carnegy reports that the French presidential temper frayed after last night’s meeting with George Papandreou:
“At one point Mr Sarkozy’s frustration almost boiled over under questioning from a journalist from Liberation, a leftist French newspaper which strongly backs the socialist opposition. ‘Do you believe that Madame Merkel and I … are doing what we are doing out of pleasure? If we are on the front line, it’s because we have to be. It is our duty. It is not exactly a nice position to be in, you know, in these times, but it is necessary.”
10.31: Back to Cannes to consider the weight of what European leaders said last night after their crunch meeting with the Greek PM. Chris Giles, the FT’s economics editor, who has decamped to Cannes to cover the G20 summit, says:
“Exchange rate risk is back in the eurozone. Last night Angela Merkel, Nicolas Sarkozy and George Papandreou, the leaders of Germany, France and Greece crossed an important line in the eurozone crisis. They all began to talk openly Greece leaving the euro – previously a taboo subject.
If a referendum were to take place in December and resulted in a ‘no’ vote, everyone accepted Greece would have to leave the euro. Were Greece to leave the single currency, a euro in a Greek bank would not be worth the same as one in a German bank. So anyone wanting to protect their money now has an incentive to hold ‘German euros’ rather than ‘Greek euros’.
Once there is a difference between euros held in one country rather than another, the chances of bank runs across the eurozone rise dramatically. Welcome to exchange rate risk in the eurozone. This is a distinction that was never supposed to happen within the single currency area and is a very serious development.”
10.25: Further to the uptick in stocks (see 10.23), the FT’s Michael Hunter says:
“Some dealers are saying risk resurrection is in response to Papandreou looking like a lame duck … but there is a lot of uncertainty about whether such a bounce will last, since his demise could trigger an election. Nonetheless, the lifting of the threat of a referendum would be positive for markets.”
10.40: Beyond the gilded halls of the conference centre, Avaaz, a campaign group, has launched a petition against what it says is the domination of the G20 summit by corporate interests (by contrast, police are keeping protesters at more than arm’s length, down the road in Nice). They’re aiming to get 500,000 signatures. At last count, 190,135 people had signed.
10.23: In London, Michael Hunter on the FT markets desk reports that the markets appear to be turning: the Dax, Germnay’s benchmark index, is up 2 per cent, the FTSE up 0.7 per cent. Not clear yet what’s driving the shift in mood and whether it will be sustained.
10.12: More from Peter Spiegel in Cannes:
“According to the White House pool report, Obama and Sarkozy kicked off their meeting flanked by aids, including treasury secretary Tim Geithner on the American side and finance minister Francois Baroin and prime minister Alain Jupeé on the French side, and Obama made the requisite reference to what Cannes is best known for: its annual film festival. ‘I was hoping to come and see some movies,’ said Obama.”
10.07: The next big meeting of the day — the eurozone heads of government, plus the chiefs of the IMF and the EU institutions — has begun, reports the FT’s Peter Spiegel in Cannes. If anything can be read from the seating chart, consider this: on one side of the table were Sarkozy and Merkel. On the other, Berlusconi (who, of course, failed last night to get his cabinet to agree a promised package of economic reforms)
10.04: The FT’s Hugh Carnegy in Cannes has more comments from the French and American leaders:
“Mr Obama made no bones about the eurozone crisis dominating the G20. With more than a hint of faint praise he said: ‘The European Union has made some important steps towards a comprehensive solution.’
He went on: ‘But here at the G20 were are going to have to flesh out details of how the (eurozone rescue plan) will be fully and decisively implemented.’
Mr Sarkozy said the current situation was ‘very charged’, with the G20 leaders preoccupied by the crisis over Greece. They would be working in ‘solidrity with the US’ to achieve ‘a common analysis of the way to put the world back on the path to growth and stability’.”
09.49: Back in Cannes, Barack Obama has just given a press conference alongside Nicolas Sarkozy after their one-to-one pre-summit meeting. The US president said:
“The United States will continue to be a partner with the Europeans to resolve these challenges.”
And lest we forget, the eurozone crisis is hardly the only thorny issue in the global in-tray. Obama chose drew attention Iran‘s alleged ambitions to build a nuclear weapon:
“President Sarkozy and I agree on the need to maintain the unprecedented international pressure on Iran to meet its obligations.”
He also congratulated Sarkozy and his wife, Carla Bruni, on the birth of their daughter Giulia. Sarkozy even managed a smile when Obama revealed:
“I’m confident that Giulia inherited her mother’s looks rather than her father’s.”
For his part, Sarkozy, who dined with his Chinese counterpart Hu Jintao last night, stressed Europe’s desire for American support in its hour of need:
“We need the solidarity and the leadership of the United States of America.”
09.36: Over to Athens, where PM George Papandreou is to hold a crunch cabinet meeting at 10am London time. Already today his finance minister has turned on his referendum plans (see 08.37), and a legislator from his party has withdrawn support ahead of tomorrow’s confidence vote, trimming his majority to one. Defeat in that vote would probably trigger snap elections.
Tony Barber, FT Europe Editor on the ground in Athens, has been examining the stick with which key European leaders last night beat their Greek confrère:
“The Franco-German threat at Cannes not to pay ‘one more cent’ in financial aid to Greece, until it decides in a referendum whether or not it wants to stay in the eurozone, sounds mightily impressive. But is there less to this threat than meets the eye? Greece’s next bond redemption, worth €1.17bn, does not fall due until December 19.
So if the Greek government were to hold a referendum on December 4, as Angela Merkel and Nicolas Sarkozy insist, and Greek voters say Yes, there is still time for international creditors to turn the aid tap back on before the December 19 bond repayment.
Of course, there may not be a referendum at all if the Greek government falls in Friday’s parliamentary confidence vote. But is the ruling Pasok socialist party really going to commit ritual suicide?”
09.27: Back to Cannes, where the FT’s Peter Spiegel is watching the mighty arrive:
“Although the formal G20 summit events don’t get under way until 1pm in Cannes, the pre-summit meetings are starting now. Host Nicolas Sarkozy arrived at the conference centre at 9:30am, shaking hands with local voters on his way in, and a meeting with his American counterpart Barack Obama is his first meeting of the day.
Christine Lagarde, Sarkozy’s former finance minister now the head of the IMF, rolled up shortly after Sarkozy’s arrival, and then came the massive American limousine and its attendant motorcade. Obama was greeted by Sarkozy at the entry and shook a few hands before heading into the building. The French president’s meeting with Obama will be followed by his holding another impromptu meeting of European leaders — the four members of the eurozone who are here (Sarkozy plus Italy’s Berlusconi, Germany’s Merkel and Spain’s Zapatero) as well as Lagarde and the heads of the major EU institutions. We’re expecting a press conference by the EU’s two presidents, José Manuel Barroso and Herman Van Rompuy, after that meeting.”
09.21: If it’s umbrellas in Cannes (see 08.43), it’s tin hats again in the markets. The FTSE Eurofirst 300 opened with a 1.6 per cent fall, following another weak start to the global trading day as the FTSE Asia-Pacific excluding Japan (where there’s a public holiday) dropped 2 per cent.
Jamie Chisholm, the FT’s Global Markets Commentator, reports;
“Growth-focused assets are under pressure as investors once again fret about the financial and political stability of the eurozone after Greece’s plan for an austerity referendum left receipt of its latest rescue package in doubt.”
Read the full global markets overview
08.43: Umbrellas all round in Cannes, reports the FT’s Peter Spiegel:
08.37: This morning’s big news is that the Greek prime minister’s plan for an in-or-out referendum on Greece’s membership of the euro has been openly challenged by his own finance minister and deputy PM, Evangelos Venizelos. In a written statement after he arrived back in Athens after last night’s crunch talks in Cannes with other eurozone leaders, Venizelos said:
“Greece’s position within the euro area is a historic conquest of the country that cannot be put in doubt … If we want to protect the country we must, under conditions of national unity and political seriousness and consensus, implement without any delay the decision of [the EU summit of] October 26. Now, as soon as possible … Internal political balances and the future of individuals and political parties of this country is not what matters. What matters is to save and recover the country through the only doable process which is included in the decision of October 26.”
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