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| Eurozone crisis live: Italy debt warning ahead of summit | Eurozone crisis live: Italy debt warning ahead of summit |
| (40 minutes later) | |
| 9.55am: Our man in Brussels, Ian Traynor, says the real story will be the eurozone lunch summit tomorrow after the main summit ends, when we get the Monti-Merkel clash over short-term market relief action. Monti wants some kind of automatic trigger on secondary market bond purchases when spreads go too wide, provided said country is not behaving badly. Doubt he'll get it, but... | |
| Ian adds from Brussels: | |
| Berlin stuck to a hard line on the euro this morning hours before chancellor Angela Merkel arrives in Brussels to fend off pleas for help from much of Europe. "All eyes are on Germany," she said yesterday. | |
| Briefing from Berlin, senior government officials dismissed concerns about the rising costs of borrowing for Spain and Italy as "exaggerated panic-mongering." They criticised a 10-year eurozone federation blueprint being discussed this evening as imbalanced, too much emphasis on pooling liability in the eurozone and not enough attention paid to fiscal discipline and democratic legitimacy. There was scant sign of any concessions to Mario Monti, the Italian prime minister who is pleading for help in the bond markets to cut the cost of borrowing. | |
| The eurozone could only use the instruments already established, the bailout funds – European Stability Mechanism and European Financial Stability Facility – according to the rules and with the usual very tight strings attached – conditionality. You can't change the rules for each possible bailout every time something new happens, the Germans stressed. | |
| There was little sign of any breakthrough last night in Paris where Merkel had dinner with President Francois Hollande. One thing that was certainly discussed was when Hollande would get Merkel's fiscal pact ratified (the Germans do it tomorrow). Asked about this, a senior German said you will have to ask the French. Playing with a ratification delay may give Hollande a little leverage as Merkel is keen to get the pact up and running. Otherwise Hollande's armoury looks rather bare in the contest with Berlin. | |
| All the signs are that the Germans are absolutely in no mood for turning, but Brussels is awash with rumour that Merkel might turn a blind eye to a move by Mario Draghi (Italian) at the European Central Bank to intervene on the secondary markets to buy up Italian bonds. If this is to happen, it will be at lunch tomorrow following the end of the EU summit when Draghi joins eurozone leaders for a separate session. Tomorrow's lunch looks like being the crunch bit of the two-day summit. | |
| 9.53am: Belatedly, here is today's agenda. All times are BST. | |
| • Italian debt auctions between 10am and 10.30am • US GDP figures for the first quarter at 1.30pm • EU leaders summit in Brussels begins at 2pm | |
| 9.50am: Italy's employers lobby group Confindustria has slashed its growth forecasts for this year and next, and once again warned that the economy - the eurozone's third largest - had fallen into an "abyss". | |
| The group now estimates the Italian economy will shrink by 2.4% this year, rather than the 1.6% decline forecast in December. Next year, it is set to contract by 0.3%, compared with a previous prediction of 0.6% growth. | |
| Luca Paolazzi, head of Confindustria's research unit, said: | |
| It seems to me we're in the abyss. We're not in a war, but the economic damage caused so far is equivalent to a conflict and the most vital and valuable parts of the Italian system have been hit: manufacturing industry and the young generations. | |
| 9.36am: The detail of the UK GDP figures reveals how much pressure most people are under: they are dipping into their savings to pay for food and utility bills. The household saving ratio has tumbled to the lowest level in a year, at 6.4%. Take-home pay, adjusted for inflation, is down by 0.9%. | |
| 9.30am: Britain's economy shrank by 0.3% between January and March, leaving the nation in its second recession in four years, the Office for National Statistics has just confirmed. But the contraction in the fourth quarter was worse than previously estimated, at 0.4% rather than 0.3%. This means the double dip recession is deeper than people thought. | |
| 9.26am: Spanish 10-year government bond yields are back above 7%. And the Italian equivalent is also up, at 6.28%. Italy will be holding bond auctions again today, with the €3bn 10-year auction expected to receive special scrutiny. | |
| 9.04am: Stock markets have turned negative: the FTSE is down 40 points at 5483, a 0.7% drop. Germany's Dax has lost 20 points, or 0.3%, to 6208, while France's CAC has shed more than 14 points, or 0.5%, to 3048. Spain's Ibex is off nearly 50 points, or 0.7%, at 6617 and Italy's FTSE MiB has tumbled 145 points to 13158, a 1% fall. | 9.04am: Stock markets have turned negative: the FTSE is down 40 points at 5483, a 0.7% drop. Germany's Dax has lost 20 points, or 0.3%, to 6208, while France's CAC has shed more than 14 points, or 0.5%, to 3048. Spain's Ibex is off nearly 50 points, or 0.7%, at 6617 and Italy's FTSE MiB has tumbled 145 points to 13158, a 1% fall. |
| 8.38am: In a jab at the Italian and Spanish leaders who have warned their countries' rising borrowing costs are unsustainable, the German government source warns against "exaggerated panic mongering" over the surge in interest rates on Spanish and Italian government debt. | 8.38am: In a jab at the Italian and Spanish leaders who have warned their countries' rising borrowing costs are unsustainable, the German government source warns against "exaggerated panic mongering" over the surge in interest rates on Spanish and Italian government debt. |
| 8.28am: More from the German government source, who expresses scepticism that a new instrument can be developed to tackle Italy's problems. The source reiterates that it's up to the governments themselves to decide whether, when and how to use the available instruments. | 8.28am: More from the German government source, who expresses scepticism that a new instrument can be developed to tackle Italy's problems. The source reiterates that it's up to the governments themselves to decide whether, when and how to use the available instruments. |
| Seeking to dampen pre-summit expectations, the source also says that "the question of progress towards a fiscal union cannot be resolved in one day". He reiterates Germany's opposition to using bailout funds to recapitalise banks while supervisory controls remain at the national level. | Seeking to dampen pre-summit expectations, the source also says that "the question of progress towards a fiscal union cannot be resolved in one day". He reiterates Germany's opposition to using bailout funds to recapitalise banks while supervisory controls remain at the national level. |
| 8.19am: A German government source is briefing journalists. Reuters reports him as saying that with the EFSF and ESM bailout funds, the EU already has all the necessary instruments at its disposal to deal with the crisis. The source also highlights the need to come up with precise, quick, appropriate help and a reform programme for Spain. | 8.19am: A German government source is briefing journalists. Reuters reports him as saying that with the EFSF and ESM bailout funds, the EU already has all the necessary instruments at its disposal to deal with the crisis. The source also highlights the need to come up with precise, quick, appropriate help and a reform programme for Spain. |
| 8.13am: Stock markets are more or less flat now. The consensus view seems to be that because expectations for the EU summit are so low, we could easily get a positive surprise if anything gets done. | 8.13am: Stock markets are more or less flat now. The consensus view seems to be that because expectations for the EU summit are so low, we could easily get a positive surprise if anything gets done. |
| Markus Huber at ETX Capital says: | Markus Huber at ETX Capital says: |
| European equities are trading slightly higher this morning receiving a modest boost from growing expectations that the ECB might be lowering interest rates next week in light of an ongoing worsening economic situation across Europe especially with also Germany, Europe's biggest economy starting to show pronounced weakness in economic activity as some of their main trading partners outside Europe, like China and USA are struggling themselves with the fallout of the European financial crisis. | European equities are trading slightly higher this morning receiving a modest boost from growing expectations that the ECB might be lowering interest rates next week in light of an ongoing worsening economic situation across Europe especially with also Germany, Europe's biggest economy starting to show pronounced weakness in economic activity as some of their main trading partners outside Europe, like China and USA are struggling themselves with the fallout of the European financial crisis. |
| Besides the approval of some growth measures already indirectly agreed on last week during a meeting in Rome between Merkel, Hollande, Monti and Rajoy it seems to be the case that barely anybody is expecting the EU summit to yield any substantial progress in regard to issuing Eurobonds and bringing down periphery interest rates to more sustainable levels. Therefore with expectations are already very low and a disappointing outcome likely similar to how it has been most times during countless meetings during the past couple of years, some speculate that there is plenty of room for a positive surprise. | Besides the approval of some growth measures already indirectly agreed on last week during a meeting in Rome between Merkel, Hollande, Monti and Rajoy it seems to be the case that barely anybody is expecting the EU summit to yield any substantial progress in regard to issuing Eurobonds and bringing down periphery interest rates to more sustainable levels. Therefore with expectations are already very low and a disappointing outcome likely similar to how it has been most times during countless meetings during the past couple of years, some speculate that there is plenty of room for a positive surprise. |
| 8.11am: Over here in the UK, the row over Barclays' bid to manipulate interest rates is gathering pace. The bank's boss, Bob Diamond, finds himself under mounting pressure to resign in the wake of the Libor scandal. The bank was fined £290m for its "serious, widespread" role in trying to manipulate the price of key interest rates that affect the cost of borrowing for millions of customers around the world. More here. | 8.11am: Over here in the UK, the row over Barclays' bid to manipulate interest rates is gathering pace. The bank's boss, Bob Diamond, finds himself under mounting pressure to resign in the wake of the Libor scandal. The bank was fined £290m for its "serious, widespread" role in trying to manipulate the price of key interest rates that affect the cost of borrowing for millions of customers around the world. More here. |
| 8.03am: European shares are tentatively edging higher, as expected, but it ain't much of a rally. The FTSE in London is about 7 points ahead at 5531, a 0.1% gain. Germany's Dax and France's CAC are also up 0.1% while Spain's Ibex is flat and Italy's FTSE MiB has added 0.3% in the first few minutes of trading. | 8.03am: European shares are tentatively edging higher, as expected, but it ain't much of a rally. The FTSE in London is about 7 points ahead at 5531, a 0.1% gain. Germany's Dax and France's CAC are also up 0.1% while Spain's Ibex is flat and Italy's FTSE MiB has added 0.3% in the first few minutes of trading. |
| 7.52am: On the corporate front, National Express's Spanish bus division is doing well despite the eurozone crisis. The company also said this morning that it's getting back money owed by Spanish municipal authorities. Transport revenues at the Spanish bus business, Alsa, climbed 5% in the last six months on a year ago, with intercity coach revenues up 3% while urban bus revenues were 6% ahead. | 7.52am: On the corporate front, National Express's Spanish bus division is doing well despite the eurozone crisis. The company also said this morning that it's getting back money owed by Spanish municipal authorities. Transport revenues at the Spanish bus business, Alsa, climbed 5% in the last six months on a year ago, with intercity coach revenues up 3% while urban bus revenues were 6% ahead. |
| National Express said: | National Express said: |
| Alsa's performance has continued to be resilient... we continue to manage outstanding receivable balances from Spanish state bodies effectively, whilst also benefiting from the central government scheme to clear the backlog of municipal debts. By the end of May, state receivables had reduced by €12m since the end of 2011 to less than €45m. | Alsa's performance has continued to be resilient... we continue to manage outstanding receivable balances from Spanish state bodies effectively, whilst also benefiting from the central government scheme to clear the backlog of municipal debts. By the end of May, state receivables had reduced by €12m since the end of 2011 to less than €45m. |
| 7.48am: Stock markets are expected to open slightly higher. GFT Markets sees the FTSE up 12 points to 5535; the DAX up 2pts to 6230 and the CAC up 10pts to 3073 on yesterday's close. | 7.48am: Stock markets are expected to open slightly higher. GFT Markets sees the FTSE up 12 points to 5535; the DAX up 2pts to 6230 and the CAC up 10pts to 3073 on yesterday's close. |
| Andrew Taylor at GFT says: | Andrew Taylor at GFT says: |
| The European session should kick off the day on a positive note albeit with many participants willing to remain on the sidelines waiting for a clear outcome to this much anticipated risk event. There will be a raft of high end data being released from Europe and US today which will add to its edginess, and with the current low liquidity levels, moves will be swift and exaggerated. | The European session should kick off the day on a positive note albeit with many participants willing to remain on the sidelines waiting for a clear outcome to this much anticipated risk event. There will be a raft of high end data being released from Europe and US today which will add to its edginess, and with the current low liquidity levels, moves will be swift and exaggerated. |
| 7.40am: Here's a link to the EU summit agenda (click on Provisional agenda on the European Council page). Gary Jenkins of Swordfish Research says: | 7.40am: Here's a link to the EU summit agenda (click on Provisional agenda on the European Council page). Gary Jenkins of Swordfish Research says: |
| So we come to yet another summit where the whole world waits on anxiously to see if Europe can make any progress to resolve its crisis. We face the mother of all binary outcomes. The good news is that this time around expectations are very low; the bad news is that the main players seem to be diametrically opposed when it comes to a strategy for ending the crisis. | So we come to yet another summit where the whole world waits on anxiously to see if Europe can make any progress to resolve its crisis. We face the mother of all binary outcomes. The good news is that this time around expectations are very low; the bad news is that the main players seem to be diametrically opposed when it comes to a strategy for ending the crisis. |
| In a statement to Germany's lower house of parliament Ms Merkel repeated many of the comments that she made earlier in the week regarding the fact that Eurobonds etc. are unconstitutional in Germany and are also economically wrong and counterproductive. She added that "There can only be joint liability when adequate oversight is ensured…our work must convince those who have lost confidence in the eurozone, not by self-deception and sham solutions but by fighting the causes of the crisis." | In a statement to Germany's lower house of parliament Ms Merkel repeated many of the comments that she made earlier in the week regarding the fact that Eurobonds etc. are unconstitutional in Germany and are also economically wrong and counterproductive. She added that "There can only be joint liability when adequate oversight is ensured…our work must convince those who have lost confidence in the eurozone, not by self-deception and sham solutions but by fighting the causes of the crisis." |
| Comments from other senior German officials repeated this mantra and it is clear that if the rest of the Eurozone does want mutualisation of debt then they must pay for it via a loss of sovereignty. Germany wants a fiscal union to be organised properly with controls and checks in place before they accept responsibility for everyone else's debts. Of course the obvious problem with this approach is that there may not be time to organise a fiscal union and perhaps more pertinently they do not have a mandate to do so. | Comments from other senior German officials repeated this mantra and it is clear that if the rest of the Eurozone does want mutualisation of debt then they must pay for it via a loss of sovereignty. Germany wants a fiscal union to be organised properly with controls and checks in place before they accept responsibility for everyone else's debts. Of course the obvious problem with this approach is that there may not be time to organise a fiscal union and perhaps more pertinently they do not have a mandate to do so. |
| The uncertainty that would be caused by referendums across Europe would probably lead to a withdrawal of funding from the likes of Spain at the first sight of any opinion poll suggesting that a country was going to veto the plan. Thus just to give themselves the opportunity to put such a scheme to the test they would have to be some form of further financial co-operation in the interim period. One problem is that politicians are only prepared to accede sovereignty when all other options have been exhausted, and then it's too late. | The uncertainty that would be caused by referendums across Europe would probably lead to a withdrawal of funding from the likes of Spain at the first sight of any opinion poll suggesting that a country was going to veto the plan. Thus just to give themselves the opportunity to put such a scheme to the test they would have to be some form of further financial co-operation in the interim period. One problem is that politicians are only prepared to accede sovereignty when all other options have been exhausted, and then it's too late. |
| 7.14am: Good morning and welcome back to our rolling coverage of the eurozone debt crisis and world economy. In Brussels, the long-awaited two-day summit of European leaders begins at 2pm BST today. It will be preceded by a German chancellery background briefing at 8am, and pre-summit meetings by the EU socialist, conservative and liberal leaders, according to news service RAN Squawk. | 7.14am: Good morning and welcome back to our rolling coverage of the eurozone debt crisis and world economy. In Brussels, the long-awaited two-day summit of European leaders begins at 2pm BST today. It will be preceded by a German chancellery background briefing at 8am, and pre-summit meetings by the EU socialist, conservative and liberal leaders, according to news service RAN Squawk. |
| Italy's prime minister, Mario Monti, has warned of potential disaster if Europe's leaders don't club together and find a way to keep interest rates on Italy's debt down. | |
| If Italians lose hope, this could unleash "political forces which say 'let European integration, let the euro, let this or that large country go to hell', which would be a disaster for the whole of the European Union," Monti said. | If Italians lose hope, this could unleash "political forces which say 'let European integration, let the euro, let this or that large country go to hell', which would be a disaster for the whole of the European Union," Monti said. |
| In another stark warning, his Spanish counterpart, Mariano Rajoy, reiterated yesterday that the EU must use all available instruments as "we can't fund ourselves at the prices we are paying for very long". | In another stark warning, his Spanish counterpart, Mariano Rajoy, reiterated yesterday that the EU must use all available instruments as "we can't fund ourselves at the prices we are paying for very long". |
| Italian borrowing costs surged yesterday after German chancellor Angela Merkel once again ruled out jointly guaranteed eurozone debt. The yield on the 10-year government bond rose to 6.226% this morning, while the Spanish equivalent is once again approaching 7%, climbing to 6.961% this morning. | Italian borrowing costs surged yesterday after German chancellor Angela Merkel once again ruled out jointly guaranteed eurozone debt. The yield on the 10-year government bond rose to 6.226% this morning, while the Spanish equivalent is once again approaching 7%, climbing to 6.961% this morning. |