Around the horn in Europe - The Telegraph live blog edition....
Following a series of eurozone's policy responses, it is important to strengthen IMF funding and pave the way for ensuring an end to the crisis not only for the euro zone but also for Japan and Asian countries.I am grateful for Japan's leadership and strong commitment to multilateralism, and I call on the broader fund membership to follow Japan's lead.
Policy makers under pressure can get preoccupied with the fixation of the moment. For the eurozone, that idée fixe has been "the firewall". How big is big enough? Who contributes and how?
The eurozone has itself agreed some increase in the size of its bailout funds, but it is still too small to accommodate even a Spanish rescue let alone an Italian one, and it is certainly smaller than the IMF, the US and the UK were hoping for.The reformist project of my government has deserved the support of European and international institutions, whose mission is to oversee policies that solve the crisis with realism and decisiveness: exactly what we are doing in Spain.
07.15 Japan has pledged $60bn in loans to the IMF - the first nation outside of the EU to inject cash into the eurozone crisis firepower fund. Finance Minister Jun Azumi said that the announcement would be made formally at a G20 meeting later this week:
Following a series of eurozone's policy responses, it is important to strengthen IMF funding and pave the way for ensuring an end to the crisis not only for the euro zone but also for Japan and Asian countries.IMF boss Christine Lagarde commented:
I am grateful for Japan's leadership and strong commitment to multilateralism, and I call on the broader fund membership to follow Japan's lead.07.11 Robert Zoellick, the outgoing head of the World Bank, has written a piece for the Financial Times this morning, claiming that Europe is "distracted by endless talk of firewalls":
Policy makers under pressure can get preoccupied with the fixation of the moment. For the eurozone, that idée fixe has been "the firewall". How big is big enough? Who contributes and how?Instead of quarrelling over firewalls, Europeans should add just a fraction - say €10bn - to the capital of the European Investment Bank. Under current conditions the EIB may actually have to reduce lending. Instead, the EIB could use more capital to borrow and then invest to support structural reforms, showing Spaniards and Italians that their sacrifices will draw productive investments.
Firewalls have their purpose. But this debate risks becoming a distraction. Europeans and their partners need to keep their eye on the strategic Schwerpunkt: helping Italy and Spain with growth and the politics of fiscal consolidation and structural reforms that will boost business, competition and jobs.
06.49 Meanwhile, The Daily Telegraph's Jeremy Warner believes the IMF still hasn't grasped the severity of the euro crisis:
The eurozone has itself agreed some increase in the size of its bailout funds, but it is still too small to accommodate even a Spanish rescue let alone an Italian one, and it is certainly smaller than the IMF, the US and the UK were hoping for.That, in turn, makes it harder for the IMF to raise the $600bn of additional funding it was originally demanding to create a wider, international firewall that would supplement the European one. At Davos this year, the talk was of a bailout fund - eurozone and IMF combined - with potential firepower of $2 trillion or more. Only a firewall of this magnitude, it was said, would backstop Spain and Italy against further speculative attack. These hopes now looks like pie in the sky.
06.46 Back in Europe, Madrid is plotting to strip Spain's regions of their powers in a radical bid to convince global investors that the nation can control its finances.
Prime minister Mariano Rajoy has said no one should doubt Spain'scommitment to the euro, and that it deserved support from the rest of the world for the measures it had taken, including a budget last month that the finance minister described as its 'most austere' in democratic history.
The reformist project of my government has deserved the support of European and international institutions, whose mission is to oversee policies that solve the crisis with realism and decisiveness: exactly what we are doing in Spain.and also items from The Guardian liveblog.....
http://www.guardian.co.uk/business/2012/apr/17/eurozone-crisis-japan-firewall-imf
The results of Spain's debt auction are out -- borrowing costs have almost doubled, but it has managed to sell the full target of bonds that were on offer.
http://www.guardian.co.uk/business/2012/apr/17/eurozone-crisis-japan-firewall-imf
Another encouraging development -- Greece just successfully sold €1.625bn of three-month bonds at an average yield of 4.2% (compared with 4.25% at the last auction of this kind).
The euro has hit a new high for the day against the US dollar ($1.3172) after German business confidence rose unexpectedly.
The ZEW Institute's monthly survey (a closely watched measure of sentiment in the EU's largest economy), rose to 23.4 from 22.3 (defying expectations that it would fall).
The business leaders interviewed by ZEW reckoned that economic conditions had stabilised, with most predicting 'further positive developments' in the next six months. Many were also bracing for higher inflation.
Several downside risks were cited - including the danger of an economic slowdown in Germany's trading partners; elevated oil prices; and the general debt crisis.
Eurozone inflation data has just been released, showing that the consumer prices index was 2.7% in March, up from an initial estimate of 2.6% (so unchanged from February).
In the bond market, Spanish sovereign debt is strengthening in value after this morning's bond auction (see 9.40am for the details). That's pushed the yield on the 10-year bond further below 6%.
The results of Spain's debt auction are out -- borrowing costs have almost doubled, but it has managed to sell slightly more debt than it was aiming for.
The results of Spain's debt auction are out -- borrowing costs have almost doubled, but it has managed to sell the full target of bonds that were on offer.
Spain just reported that it sold €2.09bn of 12-month bills at an average yield (the interest rate which investors will receive) of 2.623%, up from 1.418% at the previous auction of this type.
It also sold €1.09bn of 18-month bonds, at an average rate of 3.11%, up from 1.711% last time.
The latest UK inflation data is out, and it shows that the rising cost of living accelerated last month.
The consumer prices index (CPI) rose to 3.5% year-on-year in March (from 3.4% last month). The Office for National Statistics said the biggest upward pressure on inflation came from higher food and clothing costs.
Nicolas Sarkozy has repeated his call for the European Central Bank to be given more responsibility for economic growth across the eurozone.
Speaking on French radio station Inter, president Sarkozy insisted that Europe should disuss the ECB's role -- despite Germany's deep reluctance for such a debate. However, he also argued that such a move could come without EU treaties being renegotiated.
Here's the key quotes (via Reuters):
It is not possible that the ECB does not participate in suporting growth, like all the central banks in the world... It is wrong to say that just because the ECB is independent, we do not have the right to talk.
Sarkozy first called for the ECB's mandate to be changed last weekend. The euro crisis is a key issus in the French presidential election.
The first round of voting takes place this weekend, and the latest polling puts Sarkozy level with Francois Hollande.
The first round of voting takes place this weekend, and the latest polling puts Sarkozy level with Francois Hollande.
As WienVanRock points out in the comments below, there is an irony in Japan providing $60bn in new loans to address the European debt crisis, when it is already deeply indebted itself.
At $10trillion and rising, Japan's national debt is already around twice its GDP. And unlike several European countries, it no longer boasts a triple-A credit rating (last August, Moody's cut it to Aa3, the fourth highestr rating).
With most Japanese debt bought by its own companies and funds, the credit rating isn't a major issue. But the recent rise in the cost of insuring Japanese debt against default suggests some investors are concerned about its long-term prospects.
As WienVanRock puts it:
We are heading from one big financial crisis into another soon enough. Japan is sitting on a pile of trouble just simmering like a mad volcano.
Shares in Spanish oil and gas company Repsol tumbled by 8%, following the news last night that its Argentinian division, YPF, could be nationalised by the Buenos Aires government.
Japan's move has been welcomed in the financial markets, where the euro is currently trading around the $1.31 mark (having briefly fallen below $1.30 yesterday).Elisabeth Afseth of Investec says it is clearly good news, and is also encouraged by the suggestion (see 7.36am) that China could follow suit.Afseth said:
Japan's early commitment may accelerate other G20 countries decisions, though the US is unlikely to change its mind.
And Europe can do with a stronger firewall. Spanish yields widened again yesterday, the 10 year was 8bps wider and at 6.04% closed above the psychologically important 6% level for the first time in 4 months. The 5 year CDS spread closed at a record high of 510bps.Japanese finance minister Jun Azumi has also hinted that China might provide more support for the IMF. According to Reuters, Azumi told the press conference in Tokyo that he had consulted with Chinese vice premier Wang Qishan yesterday, and found "no gap" between the two countries on IMF funding.China is understood to want more influence within the IMF in return for extra funding (under the current quote scheme, China only has 3.81% of total voting power)
And Europe can do with a stronger firewall. Spanish yields widened again yesterday, the 10 year was 8bps wider and at 6.04% closed above the psychologically important 6% level for the first time in 4 months. The 5 year CDS spread closed at a record high of 510bps.
http://euobserver.com/19/115901 - - Germany and Denmark tell sark to pipe down
BRUSSELS - Germany has rejected Nicolas Sarkozy's idea to change the rules of the European Central Bank (ECB) bank if he gets re-elected as French president.
“The German position on the ECB and its role – independent of encouragement and assistance from politics – is known, also in Paris, and has been unchanged for a long time,” German government spokesman Steffen Seibert told a press conference in Berlin on Monday (16 April).
He added that Berlin agrees with Paris on the need to boost growth and employment in Europe, but suggested this was not a task for the eurozone central bank.
On Sunday, Sarkozy said that if re-elected in May, he would push for a revamp of the rules governing the Frankfurt-based bank to support growth more actively. Currently the bank's task is limited to price stability.
But his comments were downplayed by some of his own aides who told Le Monde anonymously that the "candidate" Sarkozy has the "liberty" to talk about issues he cannot as a president.
Germany's Angela Merkel, Sarkozy and Italy's Mario Monti last November agreed to no longer talk publicly about the role of the bank amid fears that the institution would be perceived as being under political influence.
But Sarkozy on Sunday said "we cannot have taboo subjects". His comments came as he trails the Socialist contender Francois Hollande in polls. Hollande's campaign has been focussed on growth measures.
Another aide to the French president told Reuters that Sarkozy knew he would have "no chance" of getting the ECB's mandate changed to include provisions for supporting growth.
"What we want is for there to be a dialogue between the economic government (of Europe) and the ECB on all important issues and in particular exchange rate policy," the aide said.
But the Danish minister of economy, who is chairing the meetings of EU finance chiefs on Monday, said all this talk was counter-productive.
"I think that the European Central Bank could only act when politicians stop talking about what the central bank should do," Margrethe Vestager told an audience in Copenhagen.
"It is very important that the Central Bank is independent in handling monetary policy, and when Merkel and Sarkozy backed off the Central Bank, then it started to act, and to make sure that the equity was more available than it had been. And I think that the reason why we are in a more stable situation now is very much due to the fact that there is an active monetary policy by the ECB," she said.
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