Debt crisis: as it happened

Debt crisis: as it happened - October 24, 2012


Telegraph, 24 October 2012

ECB President Mario Draghi has defended his bond-buying plan to ease the eurozone's debt crisis, telling German lawmakers that bond purchases won’t fuel inflation, jeopardize the bank’s independence or put taxpayer money at risk.


17.13 To conclude, it looks as though no extension has been agreed for Greece to meet its deficit targets. ECB President Mario Draghi drew a largely positive response from German lawmakers at a speech in the Bundestag during which he defended his bond-buying plans, and David Cameron may have landed himself in hot water over tomorrow's GDP figures.

For all the latest developments you can follow them here and we'll be back in the morning with the next installment of Debt Crisis Live.

Thank you for following and have a good evening.

17.06 A final statement on this Greece have they/haven't they got an extension.

European Union spokesman Simon O’Connor said today Greece has made progress in its discussions with international creditors as negotiations continue on Greece’s next aid installment, Bloomberg reports.

O’Connor said in an e-mailed statement: "Substantial progress has been made in talks with the Greek government, but a few outstanding issues remain before a staff-level agreement can be concluded."

16.55 That's it for markets in Europe for today and they are all up, an improvement on the collective drop yesterday.

The FTSE 100 in London closed up 0.12pc, while the CAC in Paris was up 0.59pc. In Berlin the DAX closed up 0.27pc, and in Spain the IBEX closed up 0.57pc.

16.35 So the ONS will release the figures for growth in the UK in the third quarter and they are expected to reveal that Brtiain's double-dip recession has ended.

But did David Cameron actually break the law during PMQs today when he said there was "good news" to come in the economy?

Well the Telegraph's online political editor Rosa Prince is reporting that the prime minister is facing an official investigation after appearing to drop a hint about market-sensitive growth figures not published until tomorrow. She reports:

During Prime Minister's Question Time, Mr Cameron triggered speculation that he was referring to tomorrow's GDP figures when he predicted told MPs there was "good news" to come on the economy.

The ONS furnished Downing Street with those statistics at 9.30am this morning, and Mr Cameron is among a small group of senior politicians and officials who would have been entitled to view them.

No 10 refused to say whether or not the Prime Minister had taken up his option of seeing the figures in advance.

As the data is market-sensitive, those who have advance sight are under a strict obligation not to disclose their content.

A spokesman for the UK Statstics Authority said it had received several queries about the appropriateness of the Prime Minister's words, adding: "We are going to look into it."

15.42 Some potentially good news for Britain? It would appear that David Cameron has got an ally in his plan to veto the EU budget.

Bruno Waterfield, the Telegraph’s Brussels correspondent, has reported that the EU budget revolt grows as Dutch join Britain in veto threat.

He reports:

Jan Kees de Jager, the Dutch finance minister, told his country's parliament that the Netherlands "would dig in its heels" to stop an above-inflation EU budget for 2013 and a demand for an 11 per cent rise in European spending between 2014 to 2020.

"This is unacceptable to us, and we will fight tooth and nail against it," he said last night. "It is incomprehensible." Mr De Jager attacked the European Commission and MEPs for demanding an "unbelievable" seven per cent rise in spending next year despite a request from governments that EU expenditure is reduced to reflect painful austerity and reductions in national budgets.

Earlier today (see 12.25) Downing Street said that the inflation-busting rise in EU spending approved by MEPs yesterday is "completely unacceptable".

15.35 Mario Draghi has given a brief press conference with Norbert Lammert, president of the Bundestag. Nothing very new to report: Draghi said he assured German lawmakers that the bond buying programme was in compliance with the ECB's mandate and said he couldn't comment on the Greek bailout extension reports that have been flying around today.

Mr Lammert said Draghi's talk had "enhanced understanding and trust" between the European central bank and the German parliament.

15.15 The eurozone's most vulnerable economies are expected to face a much tougher 2013 than predicted just three months ago, according to a Reuters poll.

Forty-nine economists polled this week cut their 2013 forecast for Greece, Portugal and Spain, with Spain's economy predicted to shrink 1.5pc - three times more than projected by the government. Economists expect a 3pc contraction next year in Greece, and a 1.5pc contraction in Portugal.

14.58 It would appear Germany is now saying that an extension has not been granted. Reuters is now reporting that a German finance ministry spokesman has said that eurozone finance ministers have not yet received a report from Greece's international lenders and therefore has not yet decided on whether to grant Greece more time to meet its targets. The spokesman said:

The sole basis for the euro group's (euro zone finance ministers) decision over the second Greek programme is the troika report. We don't have this yet.

14.53 Hold your horses, apparently Greece is now saying that it does NOT have an extension. Just through on the wire from Reuters:

Greece's government is still trying to win additional concessions from foreign lenders on an austerity plan even though the bulk of negotiations have been completed, Finance Minister Yannis Stournaras told parliament on Wednesday.

"To a great extent, the negotiations have been completed," Stournaras said. "But even now, we are trying for improvements."

Barely two hours ago (see 12.32) Mr Stournaras was quoted as telling lawmakers: “Today, we obtained the extension.”

14.48 The US markets are now open and it's a mixed bag.

The Dow Jones is up 0.2pc in early trading, while the Nasdaq is up 0.5pc.

But it's the S&P 500 that has had a bad start to the day, falling 1.4pc.

14.36 Clearly not everyone was impressed with Draghi's speech as this tweet, which was sent during his speech by Bloomberg's ECB correspondent, shows.


14.11 You can read the full text of Mario Draghi's opening statement at Germany's Bundestag on the ECB website. We should find out later this afternoon how German parliamentarians reacted when Draghi delivers a public statement.

14.10 Draghi also explained in his speech why the ECB decided it had to intervene:

There was an element of fear in markets’ assessments that governments, acting alone, could not remove. Markets were not prepared to wait for the positive effects of reforms to emerge.

In our view, to restore the proper transmission of monetary policy, those unfounded fears about the future of the euro area had to be removed. And the only way to do so was to establish a fully credible backstop against disaster scenarios."

ECB President Draghi and German Bundestag President Lammert arrive to speak to German law makers in Berlin earlier today.

14.03 More from Draghi in Berlin. He said that the ECB's new measures (OMT) have helped to ensureprice stability in the eurzone but has placed emphasis on the role of the governments of the 17 nations in the bloc, demanding "continuing action". He said:

It is governments that must set right their public finances. It is governments that must reform their economies. And it is governments that must work together effectively to establish an institutional architecture for the euro area that best serves its citizens.

We are already moving in the right direction. Across the euro area, deficits are being cut. Competitiveness is being improved. Imbalances are closing. And governments are working seriously to complete economic and monetary union.

It is important that Europe's leaders stay on course. In doing so, they will be able to unlock fully the enormous potential of the euro to improve living standards and carry forward the project of European integration.

13.46 The European Central Bank’s President Mario Draghi has been speaking in Berlin today.

He told German lawmakers that bond purchases won’t fuel inflation, jeopardize the bank’s independence or put taxpayer money at risk.

Outright Monetary Transactions “are not in contradiction to our mandate: in fact, they are essential for ensuring we can continue to achieve it,” he said in a closed-door session of three committees of the German, according to a text provided by the ECB.

“In our assessment, the greater risk to price stability is currently falling prices in some euro area countries,” he added.

He added that the OMT would not lead to "disguised financing of governments.....OMTs will not compromise the independence of the ECB".

13.25 More from Greece's finance minister Yannis Stournaras, who said Greece wants to cut its debt by reducing the interest and extending the maturities of its bailout loans. He told lawmakers:

A debt haircut happens in two ways. The first is to lower the nominal value. If you do that unilaterally, nobody will ever lend you money again.

The second way, which produces exactly the same result in terms of net present value, is to lower the interest and extend the repayment schedule. That is what we are asking for today."

13.12 More protestors in Athens today. This time bank employees protest outside the Greek parliament during a 24-hour bank employees strike over austerity measures in Athens, courtesy of AP.

13.03 Lunchtime update on markets which are all up but nothing to write home about.

The FTSE 100 is up 0.1pc, the CAC is up 0.4pc and the DAX and IBEX are both up 0.3pc.

12.58 Greece has now confirmed that it has received an extension to meet its deficit targets under a €130bn bailout.

The country’s finance minister Yiannis Stournaras told lawmakers: “Today, we obtained the extension.”

Greece has been seeking a two-year extension to its fiscal adjustment programme in order to soften the impact of a new round of austerity measures it is about to take under pressure from its EU and IMF lenders.

12.38 Meanwhile, Italy's Prime Minister Mario Monti said the country's EU partners should "relax" about Italy's upcoming parliamentary elections, expected in April, because the next government will respect previous commitments.

"I thank everyone for the attention, which is sometimes even devoted to me personally with 2013 in mind, but please relax," Mr Monti said at a press conference.

Mr Monti said last month he would be willing to serve again as prime minister after the vote if the result is unclear.

12.32 BREAKING Reuters reports that Greek finance minister Yannis Stournaras said Greece has got an extension to meet its bailout targets.

12.25 Back to the UK where Downing Steet has said that the inflation-busting rise in EU spending approved by MEPs yesterday is "completely unacceptable", the Press Association is reporting.

The European Parliament backed a 6.8pc rise in EU spending for 2013 and an overall increase of at least 5pc in the EU's long-term 2014/20 budget, both of which are due to be agreed before the end of the year.

Mr Cameron's official spokesman told a regular media briefing in Westminster today:

We think European budgets need to reflect the context, which is that countries across Europe are having to take some very tough decisions on public spending.

I think we look at that proposal from the European Parliament and it is just completely unacceptable.

British MEPs joined forces to fight the budget plans in yesterday's vote, but were outnumbered by five to one in a Strasbourg vote endorsing European Commission demands for more cash to fund EU policies.

The proposal must be approved by the European Council before coming into effect.

12.18 Greece has confirmed that it has finalised an austerity package after lenders made additional concessions on labour reforms, after Reuters got hold of a draft copy earlier today (09.57). It will tell a Euro Working Group meeting on Thursday.

Greece finance minister Yannis Stournaras said the government plans to submit two bills on austerity cuts and labour reforms to parliament next week. The government has not confirmed they have been given a two year extension to reach their budget targets, as mentioned in the Reuters draft deal.

12.07 The day wouldn't be complete on the Debt Crisis Live blog without a protest, and here we have one in Athens.

This time round supporters from the Independent Greeks party wave the national flag during a protest outside a debt collection agency in the Athens district of Tauros. They are protesting the collection agencies' pursuit of owed debts from Greeks who are suffering economic hardship during the financial crisis, according to AP.

11.54 A bit of reaction to those dismal eurozone PMI figures (see 09.45). Martin van Vliet, senior economist at ING said:

October's decline in the eurozone composite PMI is an unpleasant surprise and reinforces concerns that the economic downturn in the region may be deepening.

All in all, today's PMI figures indicate that the eurozone economy remains firmly stuck in recession. As such, they raise further question marks over the effectiveness of the European policy of fiscal-frontloading.

11.30 Anna Leach, CBI Head of Economic Analysis, said:

Domestic and overseas demand have both slipped unexpectedly this quarter, while output growth has tailed off. Sentiment regarding business conditions has also fallen back, particularly for exports. UK companies are increasingly concerned by political and economic conditions abroad, whether it is ongoing weakness and uncertainty in the Eurozone or the approaching fiscal cliff in the US."

She added that "underlying conditions seem relatively stable", citing rising employment and steady expectations for output and orders.

11.15 Manufacturing orders in the UK fell in the three months to October, while output was flat, the CBI have said. In a report, the business organisation said:

Of the 395 manufacturers responding to the latest CBI quarterly Industrial Trends Survey, 25% said output rose, while 28% said it fell. The resulting balance of -3% is the lowest since October 2009 (-8%), and disappointed expectations of growth (+11%).]

However, over the next three months, manufacturers do expect a moderate recovery in output, with a balance of +12%, which, if realised, would be the strongest growth since the three months to January 2011.

The volume of total orders fell unexpectedly over the last three months, with both domestic orders (-10%) and export orders (-17%) dropping below their long-run averages (balances of -7% and -8% respectively)."

The monthly figures show CBI's total order book balance dropped to -23 this month from -8 in September, the lowest level since December 2011.

11.04 To add to the glum news we've been faced with this morning, the latest German Ifo survey shows German business confidence unexpectedly fell to the lowest in more than two years in October.

The economic research institute in Munich said its business climate index, based on a survey of 7,000 executives, dropped to 100.0 from 101.4 in September. That’s the sixth straight decline and the lowest reading since February 2010.

10.31 It has been widely reported that a problem in Greece is the lack of tax paid by its workers. Well by the look of this tweet the Greek taxman may be chasing the wrong people.


10.22 Government debt in the eurozone has hit a record high and is up to 90pc at the end of the second quarter, according to Eurostat, up from 88.2pc at the end of the first quarter.

Greece had the highest ratio of debt to GDP at the end of the second quarter at 150.3pc, followed by Italy at 126.1pc and Portugal at 117.5pc.

The lowest was in Estonia at 7.3pc, Bulgaria at 16.5pc and Luxembourg at 20.9pc.


10.09 Comment on the Greece draft deal from Peter Spiegel, Brussels bureau chief of the Financial Times:


10.02 It is important to point out that these points (see 09.57) on Greece are not official and come from a draft report seen by Reuters. But if confirmed they will no doubt stoke anger in the Greeks who have been protesting against the austerity measures being imposed by the country's international lenders, that they feel are too tough.

Also, in a meeting of the coalition leaders yesterday Democratic Left, a junior partner in the Greek government coalition, said it will not support the labour market reforms demanded by the country's foreign lenders.

Following the meeting yesterday with prime minister Antonis Samara and Pasok chief Evangelos Venizelos, Democratic Left leader Fotis Kouvelis said:

The unacceptable demands by the troika will not yield any fiscal benefit, they will only lead to further rise in unemployment.

Police stand behind burning Molotov cocktails in Athens during a 24-hour general strike

09.57 Over to Greece where Reuters has got its hands on the draft deal between the debt-laden nation and its international lenders, which outlines plans to further cut wages and pensions, but, if implemented, would also give Athens more time to meet its budget targets.

The main points of the agreement are:

Two-year extension to reach budget targets

Greece will get two more years, until 2016, to generate a primary budget surplus - which excludes debt servicing - of 4.5 percent of GDP

Public Sector

Greece will cut €6.3bn in public sector wages and pension cuts. Cuts worth about €9.2bn would be enforced by 2013.

At least 2,000 civil servants would be put on a one-year notice of dismal with reduced wages until the end of 2012.

At least a further 6,250 would enter the same programme every three months during 2013, starting from end-February.


The mandatory retirement age will increase by two years to 67. Pension incomes above 1,000 euros a month will be cut.

Labour market

Severance payments are to be reduced and capped. Other allowances, such as automatic wage increases that kick in with seniority, are to be abolished.

The labour minister said late on Tuesday, however, that the lenders had backed down on insisting that the automatic wage hikes should be scrapped.


Selected tax credits and allowances are to be abolished. Taxation of the self-employed and farmers will be harmonised with the regime for corporate taxes. A flat capital gains tax rate will be introduced to replace the banding system in force at present.


Recapitalization of Greek banks to be completed by end-April 2013.

Other reforms

Some labour, transport and sanitary regulations will be repealed to lower costs for retail businesses.

New laws will make it easier for retailers to import fuel with a view to reducing fuel prices.

Further liberalisation planned of regulated professions such as dock workers, accountants, lawyers and tourist guides.

09.52 Following October's disappointing Eurozone PMI figures markets in Europe are now all down:

The FTSE 100 is down 0.1pc in London, while the CAC in Paris is down 0.2pc and the DAX in Germany is down 0.4pc. The IBEX in Spain is down 0.5pc.

09.45 Commenting on the Eurozone PMI data, based on Markit polls of around 5,000 businesses across the 17-nation bloc, chief economist at Markit Chris Williamson said:

It's very disappointing, it's a depressing scenario as things are getting worse.

We are more downbeat than the official data. The PMIs are running at levels in the third quarter and start of the fourth quarter historically consistent with GDP falling at about 0.6 percent."

09.35 European Central Bank President Mario Draghi faces a two-hour grilling in Germany's lower house of Parliament today as he tries to win over public opinion for a bond-buying plan designed to prop up wobbling euro states such as Spain and Italy.

He plans a closed-door meeting in Germany's Bundestag with members of the budget, finance and European affairs committees and is scheduled to make a public statement afterward.

09.13 Here is the Eurozone PMI chart:


09.05 Just in: Flash Eurozone PMI Composite Output Index has fallen to a 40-month low of 45.8, down from 46.1 in September. Readings below 50 indicate contraction.

09.00 Commenting on the Flash Germany PMI data, Markit senior economist Tim Moore said:

Germany’s private sector suffered a disappointing lack of momentum in October, reversing the signs of a step in the right direction during the previous month.

Within the manufacturing industry, particular weakness was found in the automobiles sector amid softer exports to southern Europe... At the same time, relatively subdued investment spending in Asia was reported to have weighed on capital goods exports.

Worries about future demand and space capacity in turn contributed to the first back-to-back monthly contraction of German private sector employment since the beginning of 2010."

08.54 Weaker-than-expected German PMI data released this morning has caused the euro to drop against the dollar. German PMI Manufacturing fell to 45.7 points in October from 47.4 points in September, against expectations of a rise to 48 points.

The euro fell 0.15 percent to $1.2965 on trading platform EBS, from $1.2993 before the data was released.

08.40 Looking at Spain, which didn't have a great day yesterday with Moody's downgrading five of its regions, Ambrose Evans Pritchard has reported that The EU-IMF Troika in charge of Spain's €60bn (£48bn) bank rescue is to demand much tougher action by the country's authorities to clean up toxic debts.

He said this riskied a clash that could deter Madrid from requesting a full sovereign bail-out. He reports:

BNM Mare Nostrum, and other mid-tier "Group 2" banks such as Popular, Caja 3, and Liberbank, have little chance of tapping the markets to cover most of their capital deficits, according to Troika officials.

They are also losing patience with the glacial pace of cuts at Bankia and other nationalised lenders such as Catalunya-Caixa and Banco Valencia, according to the Spanish newspaper El Confidencial.

Brussels fears a repeat of the fiasco at Bankia, which had to be rescued just weeks after its recapitalisation plans had been approved. "We have had too many bad experiences with financial restructuring in Spain to be sure the plans will work this time," said one official.

A shop-keeper cries while looking at the window of her shop, broken by protesters in downtown Barcelona during the Spanish general strike.

08.30 Markets are up in Europe in early trading this morning after big drops yesterday.

The FTSE 100 is up 0.1pc in London, while the CAC in Paris is up 0.6pc and the DAX in Germany and the IBEX in Spain are both up 0.5pc.

08.20 Staying in the UK, it appears the country has dropped a place in the World Bank’s business-friendly global rankings.

Britain slipped from sixth in the world to seventh as Norway moved up a position in the annual survey on the ease of doing business, which looks at 185 countries’ tax and regulatory regimes.

Although the Chancellor’s cut in corporation tax was praised, Britain fell from 18th to 19th in the survey’s key start-up sub-category. It is now easier to set up a business in Madagascar than the UK.

08.10 Sir Mervyn King, the governor of the Bank of England has warned that the British economy will not recover until the banks own up to their bad debts and are recapitalised again. Philip Aldrick reports

Raising the prospect of rights issues or even another taxpayer bail-out for the state-backed lenders Royal Bank of Scotland and Lloyds Banking Group, Sir Mervyn King said UK banks have “insufficient capital” to protect against undeclared losses on their books.

He also ruled out suggestions that the Bank should try to boost growth by simply giving the public cash or cancelling the government debt it has bought through quantitative easing (QE).

Sir Mervyn admitted there were limits to QE, but did not rule out further money printing at the November Monetary Policy Committee meeting

Warning that the next generation may have to live with the consequences of past excesses “for a long time to come”, he said Britain’s banks needed to drop the “pretence” that their debts will be repaid.

08.03 Good morning and welcome to Wednesday's Debt Crisis Live.