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| Eurozone crisis live: IMF warns UK may need fiscal stimulus | |
| (40 minutes later) | |
| 10.39am: These are the key quotes from Christine Lagarde on the UK economy: | |
| The quality of fiscal adjustment can be improved to provide support for growth, and this includes budget neutral shifts towards more infrastructure spendings and measures to shield the poor. | |
| In other words, the UK government could adjust its current economic programme today, without altering the pace at which it is lowering the deficit. | |
| If the economy turns out to be significantly weaker than forecast, fiscal easing should be considered. | |
| Ie, Osborne's Plan A may have to be torn up if the UK economy does not recovery strongly enough from its double-dip recession. | |
| 10.35am: On monetary policy, Christine Lagarde reiterated that the Bank of England should do more now to protect and stimulate the UK economy. | |
What we are saying now is that more tools can be used.... in terms of quantitative easing. | |
| We also believe there is room in interest rates that could be used as well. | |
| That is a clear shot at Sir Mervyn King and the rest of the Bank of England's monetary policy committee, which has left UK interest rates at their record low of 0.5% for more than three years, and recently stopped its quantitative easing programme at £325bn. | |
| 10.26am: The UK government should take advantage of its record low borrowing costs to stimulate the British economy, if growth continues to disappoint, says IMF chief Christine Lagarde. | |
| As her press conference in London continues (see 10.02am onwards), Lagarde argued that extra borrowing could needed to avoid a recessionary spiral. | |
| She argued that the UK government should use its current "extremely favourable financing costs" to provide new financing for small businesses and households. | |
| Important to note that Lagarde is not criticising George Osborne's performance to date. Indeed, she reiterated that the UK would not be in a position today to consider such as fiscal stimulus, if the UK deficit was higher. | |
| Lagarde said: | |
| The UK authorities' policy approach has reinforced credibility at a time of intensified global uncertainty. | |
| Lagarde added that she "shivers" when she considers what would happen if the UK's record deficits of a couple of years ago were in place today. | |
| 10.11am: Christine Lagarde, managing director of the IMF, has stated that the British government should ease the pace of its austerity progaramme if the UK economic recovery fails to take off. | |
| Announcing the conclusions of the IMF's review of the UK economy, Lagarde said that the need for fiscal consolidation needs to be balanced against the danger of several years of lost growth. | |
| In a frank assessment of the UK, Lagarde said: | |
| Growth is too slow and unemployment, including youth unemployment, is too high. Policies to bolster to demand before low growth becomes entrenched are needed. | |
| Should things deteriorate, the government's current plan (George Osborne's Plan A) may need to be revised, Lagarde said, stating: | |
| If the economy turns out to be signifciantly weaker than forecast, the pace fiscal consolidation should be eased...and fiscal stimulus should be considered. | |
| Lagarde did also give the UK government credit for its approach to Britain's budget deficit, saying its policy approach had "reinforced credibility at a time of global uncertainty." | |
| But she was clear that action should be taken to avoid low growth becoming entrenched in the UK. | |
| 10.08am: Chancellor George Osborne and Christine Lagarde are holding a press conference in London now, to discuss the final stage of the IMF's review of the UK economy. | 10.08am: Chancellor George Osborne and Christine Lagarde are holding a press conference in London now, to discuss the final stage of the IMF's review of the UK economy. |
| Osborne speaks first, saying he welcomes the fall in UK inflation this morning. He went on to warn that the eurozone crisis has now reached a "critical point", telling a press conference that: | |
| The eurozone needs to stand behind their currency or risk Greece exit, with all the dangers that holds. | The eurozone needs to stand behind their currency or risk Greece exit, with all the dangers that holds. |
| Osborne added that while Britain hopes for the best, we prepare for something worse... | Osborne added that while Britain hopes for the best, we prepare for something worse... |
| 10.02am: Breaking news -- the International Monetary Fund has called on the Bank of England to launch more quantitative easing or cut interest rates to stimulate economic growth. | |
| In its latest assessment of Britain, the IMF also warned that there are large dangers to the UK economy, mainly from the escalation of the euro crisis. | |
| More to follow! | |
| 9.52am: Spain has seen its borrowing costs rise again, an auction of €2.5bn of short-term debt this morning. | 9.52am: Spain has seen its borrowing costs rise again, an auction of €2.5bn of short-term debt this morning. |
| The Spanish Treasury sold €1.5bn of three-month bills, at an average yield* of 0.846% – up from 0.63% at an auction last month. The yield on €1bn of six-month bills also rose to 1.737%, from 1.58% last month. | The Spanish Treasury sold €1.5bn of three-month bills, at an average yield* of 0.846% – up from 0.63% at an auction last month. The yield on €1bn of six-month bills also rose to 1.737%, from 1.58% last month. |
| Rising yields is a sign that investors are pricing Spanish debt as more risky. More reassuringly, though, Spain received bids for over €10bn of debt, so was able to sell the full amount on offer. | Rising yields is a sign that investors are pricing Spanish debt as more risky. More reassuringly, though, Spain received bids for over €10bn of debt, so was able to sell the full amount on offer. |
| Reaction to follow... | Reaction to follow... |
| * - effectively the interest rate that Spain will pay to bond buyers | * - effectively the interest rate that Spain will pay to bond buyers |
| 9.33am: Quick bit of UK economic data -- the Consumer Prices Index came in at 3% for April, lower than expected (and sharply down on March's 3.5%). | 9.33am: Quick bit of UK economic data -- the Consumer Prices Index came in at 3% for April, lower than expected (and sharply down on March's 3.5%). |
| That's the lowest CPI since February 2010, which means that Sir Mervyn King will not have to write another letter to the chancellor explaining why the cost of living is racing well ahead of target. | That's the lowest CPI since February 2010, which means that Sir Mervyn King will not have to write another letter to the chancellor explaining why the cost of living is racing well ahead of target. |
| The Retail Price Index, though, only fell back a little, to 3.5% year-on-year. | The Retail Price Index, though, only fell back a little, to 3.5% year-on-year. |
| 9.27am: The OECD also slashed its forecast for the eurozone economy in 2012 this morning to a contraction of 0.1%, from growth of 0.2%. | 9.27am: The OECD also slashed its forecast for the eurozone economy in 2012 this morning to a contraction of 0.1%, from growth of 0.2%. |
| Within that forecast, the OECD expects Europe's two-speed economy to continue, with peripheral countries in the south suffering deep recessions. | Within that forecast, the OECD expects Europe's two-speed economy to continue, with peripheral countries in the south suffering deep recessions. |
| OECD chief economist Pier Carlo Padoan told Reuters: | OECD chief economist Pier Carlo Padoan told Reuters: |
| We also see flat growth in the euro area which hides important differences, with northern countries growing and southern countries in recession. | We also see flat growth in the euro area which hides important differences, with northern countries growing and southern countries in recession. |
| 9.19am: The spiraling eurozone crisis - and the region's focus on austerity - risks blowing the world's economic crisis off course, the Organisation for Economic Co-operation and Development has just warned in its latest assessment of the global economy. | 9.19am: The spiraling eurozone crisis - and the region's focus on austerity - risks blowing the world's economic crisis off course, the Organisation for Economic Co-operation and Development has just warned in its latest assessment of the global economy. |
| In an important intervention, the OECD signal to Germany that it should drop its resistance to new measures to ease the crisis, or risk dragging the global economy back into a repeat of the recent downturn. | In an important intervention, the OECD signal to Germany that it should drop its resistance to new measures to ease the crisis, or risk dragging the global economy back into a repeat of the recent downturn. |
| Pier Carlo Padoan, the OECD's chief economist, said: | Pier Carlo Padoan, the OECD's chief economist, said: |
| The risk is increasing of a vicious circle, involving high and rising sovereign indebtedness, weak banking systems, excessive fiscal consolidation and lower growth. | The risk is increasing of a vicious circle, involving high and rising sovereign indebtedness, weak banking systems, excessive fiscal consolidation and lower growth. |
It added that further easing was possible in Europe -- pointing out that the euro area could move toward common euro bonds, and that its firewall could be used to directly recapitalise banks. | It added that further easing was possible in Europe -- pointing out that the euro area could move toward common euro bonds, and that its firewall could be used to directly recapitalise banks. |
| More to follow... | More to follow... |
| 8.44am: In Greece, the news last night that a small splinter party has teamed up with the mainstream New Democracy party is getting plenty of attention. | 8.44am: In Greece, the news last night that a small splinter party has teamed up with the mainstream New Democracy party is getting plenty of attention. |
| As Kathimerini explains, ND's Antonis Samaras and Dora Bakoyannis (head of the liberal Democratic Alliance) plan to create a "a patriotic, pro-European front", that would focus on staying in the eurozone while "resisting and changing the course of things." | As Kathimerini explains, ND's Antonis Samaras and Dora Bakoyannis (head of the liberal Democratic Alliance) plan to create a "a patriotic, pro-European front", that would focus on staying in the eurozone while "resisting and changing the course of things." |
| It's a clear response to the popularity of Syriza, and their charismatic leader Alexis Tsipras. Today he is heading to Berlin to meet the leaders of Germany's Left Party, Gregor Gysi and Klaus Ernst, after yesterday's meeting in Paris. | It's a clear response to the popularity of Syriza, and their charismatic leader Alexis Tsipras. Today he is heading to Berlin to meet the leaders of Germany's Left Party, Gregor Gysi and Klaus Ernst, after yesterday's meeting in Paris. |
| We'll have more on Tsipras shortly.... | We'll have more on Tsipras shortly.... |
| 8.32am: Another event this morning - George Osborne and Christine Lagarde are meeting in London. A press conference is scheduled, so we should get an update from the International Monetary Fund chief on the state of the crisis. | 8.32am: Another event this morning - George Osborne and Christine Lagarde are meeting in London. A press conference is scheduled, so we should get an update from the International Monetary Fund chief on the state of the crisis. |
| Here's the full agenda: | Here's the full agenda: |
| • OECD economic outlook data: 9am BST • UK inflation data for April: 9.30am BST • UK public finances for April: 9.30am BST • Lagarde + Osborne press conference: from 10am BST • Eurozone consumer confidence for May: 3pm BST / 4pm CEST | • OECD economic outlook data: 9am BST • UK inflation data for April: 9.30am BST • UK public finances for April: 9.30am BST • Lagarde + Osborne press conference: from 10am BST • Eurozone consumer confidence for May: 3pm BST / 4pm CEST |
| Spain, Hungary and the Netherlands are holding bond auctions too – the Spanish sale could be interesting, given the state of the crisis. | Spain, Hungary and the Netherlands are holding bond auctions too – the Spanish sale could be interesting, given the state of the crisis. |
| 8.12am: European markets are rallying in early trading, on hopes of progress in Brussels tomorrow -- and speculation that China will take steps to keep its economy growing briskly. | 8.12am: European markets are rallying in early trading, on hopes of progress in Brussels tomorrow -- and speculation that China will take steps to keep its economy growing briskly. |
| FTSE 100: up 54 points at 5358, + 1% German DAX: up 57 points at 6388 + 0.9% French CAC: up 28 points at 3050, up 0.9% Spanish IBEX: up 49 points at 6564, + 0.6% Italian FTSE MIB: up 175 points at 13188, up 1.37% | FTSE 100: up 54 points at 5358, + 1% German DAX: up 57 points at 6388 + 0.9% French CAC: up 28 points at 3050, up 0.9% Spanish IBEX: up 49 points at 6564, + 0.6% Italian FTSE MIB: up 175 points at 13188, up 1.37% |
| Andrew Taylor of GFT warned that the merry mood could soon turn sour: | Andrew Taylor of GFT warned that the merry mood could soon turn sour: |
| Optimism that the EU summit will produce results (haven't they learnt!) and comments that 'China will make growth a priority' have also added to positive market sentiment. | Optimism that the EU summit will produce results (haven't they learnt!) and comments that 'China will make growth a priority' have also added to positive market sentiment. |
| Traders need to be wary of the uplifting tone that surrounds the Summit and China as it is merely talk at this stage with no real action plan for either. | Traders need to be wary of the uplifting tone that surrounds the Summit and China as it is merely talk at this stage with no real action plan for either. |
| 8.02am: Evidence that the eurozone crisis is casting a shadow the global financial markets: Temasek Holdings, Singapore's sovereign wealth fund, has predicted that "markets may be entering a period of stress in the next 12 to 24 months due to the eurozone crisis". More here. | 8.02am: Evidence that the eurozone crisis is casting a shadow the global financial markets: Temasek Holdings, Singapore's sovereign wealth fund, has predicted that "markets may be entering a period of stress in the next 12 to 24 months due to the eurozone crisis". More here. |
| German finance minister Wolfgang Schäuble made a similar comment last week, saying the crisis will last another two years. | German finance minister Wolfgang Schäuble made a similar comment last week, saying the crisis will last another two years. |
| 7.59am: Austria's finance minister has launched an outspoken attack on the new president of France ahead of tomorrow's summit. | 7.59am: Austria's finance minister has launched an outspoken attack on the new president of France ahead of tomorrow's summit. |
| Maria Fekter claimed that François Hollande's proposals, including the introduction of eurobonds, were "nonsense", and would push Europe deeper into the debt crisis. Fekter told Austrian newspaper Oberoesterreichische Nachrichten that: | Maria Fekter claimed that François Hollande's proposals, including the introduction of eurobonds, were "nonsense", and would push Europe deeper into the debt crisis. Fekter told Austrian newspaper Oberoesterreichische Nachrichten that: |
| Growth financed by debt? Those are the recipes from the day before yesterday. | Growth financed by debt? Those are the recipes from the day before yesterday. |
| The arguments that France's new president François Hollande is putting forward again are nonsense and got us into this whole mess in the first place. | The arguments that France's new president François Hollande is putting forward again are nonsense and got us into this whole mess in the first place. |
| Fekter's comments do chime with the concerns of some Germans, who fear that Hollande is planning to make them pay for the French banking sector's heavy exposure to Greece (where SocGen and Credit Agricole both own subsidies). | Fekter's comments do chime with the concerns of some Germans, who fear that Hollande is planning to make them pay for the French banking sector's heavy exposure to Greece (where SocGen and Credit Agricole both own subsidies). |
| Fekter does have previous form on speaking out of turn - last week she managed to upset Germany by suggesting that Greece could be thrown out of the European Union. | Fekter does have previous form on speaking out of turn - last week she managed to upset Germany by suggesting that Greece could be thrown out of the European Union. |
| 7.45am: Good morning, and welcome to our rolling coverage of the eurozone financial crisis. | 7.45am: Good morning, and welcome to our rolling coverage of the eurozone financial crisis. |
| There's just one day to go before European leaders meet in Brussels for an informal summit on growth. It's shaping up to be quite an event – with France pushing for radical new measures, and Germany resisting firmly (as reported last night). | There's just one day to go before European leaders meet in Brussels for an informal summit on growth. It's shaping up to be quite an event – with France pushing for radical new measures, and Germany resisting firmly (as reported last night). |
| Adding to the drama, Alexis Tsipras of Syriza will be holding talks in Berlin today, following Monday's visit to Paris – where he warned that a "wind of change" was blowing towards Europe, and that Greece's pain would soon be felt by other countries unless leaders change course. | Adding to the drama, Alexis Tsipras of Syriza will be holding talks in Berlin today, following Monday's visit to Paris – where he warned that a "wind of change" was blowing towards Europe, and that Greece's pain would soon be felt by other countries unless leaders change course. |
| On the economic front, we have UK inflation and public finance data this morning, and eurozone consumer confidence data this afternoon. | On the economic front, we have UK inflation and public finance data this morning, and eurozone consumer confidence data this afternoon. |
| Financial markets are expected to open higher, on optimism that progress will be made at tomorrow's summit. So often, hopes have swiftly been dashed. But maybe this time it's different ... | Financial markets are expected to open higher, on optimism that progress will be made at tomorrow's summit. So often, hopes have swiftly been dashed. But maybe this time it's different ... |