http://www.telegraph.co.uk/finance/debt-crisis-live/9600394/Debt-crisis-SandP-downgrades-Spains-credit-rating-live.html
13.11 Mrs Merkel again. Speaking at a press conference with Hungary's prime minister, she said that Germany's planned tax cuts could stabilise domestic demand and help stimulate the European economy.
Germany's upper house of parliament in May rejected government plans to reduce taxes by about €6bn, which the opposition said would be irresponsible at a time of budget consolidation.
12.48 Angela Merkel's visit to Athens might have drawn protests, but it appears it might have provoked a change of heart amongst voters at home.
A Politbarometer survey for broadcaster ZDF showed that for the first time in more than a year, more Germans think Greece should stay in the eurozone than want it to leave. According to the poll, 46pc of those asked believed Greece should keep the euro compared with 31pc in August.
However, 45pc said they thought the country should quit the currency union due to its massive debt problems.
12.23 Just when Greece's economy was in need of boost, its biggest company has announced it is leaving the country. Drinks bottler Coca Cola Hellenic said today it will move to Switzerland and list is shares in London.
However, the material impact on Greece could be limited. Its Greek plants will continue operating and the company said the 5pc of its business that the Coke bottler has in Greece will be unaffected.
12.16 More from Bruno at 'The State of Europe' event. He writes:
János Martonyi, Hungarian foreign minister, told The Telegraph that he was concerned about the emergence of a “two tier” EU, with “parallel” structures set up for the benefit of the eurozone.
“Instinctively I am suspicious but first I should know what it is and no one knows,” he said.
“Maybe it will be the origin or stepping stone for a further institutional framework for the eurozone.”
Martonyi said that the eurozone was not static, at present it has 17 members but that would change in the medium term as the nine “pre-in” countries, including Hungary join.
“How can you develop a separate structure for an unidentified number of countries? In any case the pre-ins, of course, they have suspicions reservations, or concern about these kinds of specific institutions.”
11.59 On the topic of 'The State of Europe' debate, Bruno Waterfield has just sent this dispatch from the roundtable frontline:
The eurozone should have a budget to help protect members of the European Union’s single currency from economic shocks such as the financial crisis, Herman Van Rompuy has just said.
The president of the European Council will table a plan for a “euro-zone fiscal capacity” at a summit in Brussels next week.
The fund, separate from the EU budget, will be used for “stabilizing functions” in the euro zone, especially to counter “asymmetric shocks” to the economies of the 17 countries that share the European currency.
“The new idea of a fiscal capacity must not to be mixed up with the EU's multiannual budget,” he said, speaking at the Friends of Europe lobbyist event.
Mr Van Rompuy said the new European Monetary Fund is a “longer-term project” and did not put a figure on its budget.
The idea is controversial and is regarded as a first step to a “two tier” EU by giving the eurozone new institution and structures that are not open to others.
11.49 As we mentioned at 08.38, the great and the good of Europe are gathered for a roundtable today on 'The State of Europe'. Jose Manuel Barroso has been speaking and here are a few choice quotes from what he had to say:
Our European social model and our social market economy are precisely about combining economic dynamism with social fairness. This is not the model in many other parts of the world - this is the model we are committed to respect according to the treaties of the EU."
We have to keep fairness and solidarity at the heart of our actions. This is I believe the glue that holds our societies and our Union together. There are some who believe that because of the recent crisis the social model in Europe is dead. I do not agree. I do not agree because I can say and see that some of the most competitive economies in the world, they are in Europe and they combine high levels of social cohesion with a high commitment to social contracts and to a culture of social partnership.
I think one point is that we have to get rid of what I call old demons of Europe. Old demons of Europe are divisions of Europe. We have had division between East and West, now I think there is a risk of having a consolidation of division between North and South to a large extent based on prejudices, to a large extent made by myths and stereotypes that are not confirmed by the empirical evidence if you look at of course our societies in a longer period."
Fairness and equity mean that we must not leave behind those who are most hit by the crisis and that everybody must contribute to the effort. It means that we have to address urgently for instance the problem of youth employment.
We also need to look at the revenue side of the response, namely better and fairer taxation systems, to stop tax fraud and tax evasion, and to put in place a fair and ambitious Financial Transaction Tax.
11.27 Some more details from that Italian bond auction, which we mentioned at 10.31. While yields ticked up on the three-year bond, of which Italy sold €3.75bn, borrowing costs were lower on other bonds.
The Treasury raised:
€846m in bonds maturing in 2016 at 3.42pc compared with 6.47pc in December 2011
€711m in bonds due in 2018 at 4.06pc compared with 5.75pc in January
€693m in bonds due in 2025 at 5.24pc compared with 5.9pc in June.
11.08 Still with Spain, AFP reports that the country has vowed to defy predictions of a deep recession next year. S&P cited a deepening recession in the country when it sliced its credit rating.
S&P, which tips a drop in Spanish economic output of 1.4pc in 2013, criticised the government's "overly optimistic" budget forecast for a contraction of just 0.5pc.
But, Spanish secretary of state for the European Union, Inigo Mendez de Vigo, said:
What we want is to refute these forecasts through the action of the government. We believe that the state budget that we presented and that will be approved by parliament complies with the deficit targets we have to meet with the European Union.
AFP writes:
De Vigo defended a battery of economic reforms passed by Prime Minister Mariano Rajoy's right-leaning government, which has shaken up labour laws and forced banks to bolster balance sheets.
"We believe these are the measures that have to be taken at this time to move forward," the policymaker said.
"We will see if these forecasts become reality," he added. "We are going to fight so this reality does not come about."
10.31 S&P's downgrade of Spain has done nothing to help matters at today's Italian debt auction, where Italy's borrowing costs rose.
Italy sold €3.75bn of three-year bonds at 2.86pc, more than the 2.75pc at the last auction of the same securities on September 13.
Annalisa Piazza of Newedge Strategy said that demand was "robust" and that "today's auction is a sign that dealers are still willing to buy Italian paper as the country's fiscal progress seems to be on track".
10.13 More pain in Greece, where unemployment levels have reached a new record. The country's jobless rate rose for the fifth consecutive month in July, increasing to 25.1pc from 24.8pc in June, according to Greece's statistics service ELSTAT.
Greek unemployment is now running at double that of the eurozone average, which was 11.4pc in July.
09.08 Continuing today too are the IMF and World Bank meetings in Tokyo. There, Christine Lagarde, the IMF head, has called for decisive action from world leaders to end uncertainties in the global economythat are prolonging “terrifying and unacceptable” levels of unemployment.
Philip Aldrick, The Telegraph's Economics Editor, has more:
Rounding on Europe and the US in particular, the managing director of the International Monetary Fund said this week’s annual meetings in Tokyo needed to be marked by “courageous action on behalf of our members”.
Speaking just days after the IMF slashed its global growth forecasts for both this year and next, Ms Lagarde said the economic weakness was not just a result of “tail risks” such as a eurozone break-up but “the degree of uncertainty in many corners of the world – whether it is Europe or America”.
“It is deterring investors from investing and creating jobs,” she said. “We need action to lift the veil of uncertainty.”
08.46 Bruno is listening to José Manuel Barroso, president of the European Commission, at the 'State of Europe' roundtable. He tweets:
08.20 Standard & Poor's downgrade of Spain ratchets up the pressure on the crisis-hit country. As Ambrose Evans-Pritchard wrote yesterday, theInternational Monetary Fund has issued a veiled warning that Spanish bond spreads could surge to a record 7.5pc and push the country into a deeper crisis if premier Mariano Rajoy continues to drag his feet on a bail-out request :
The fund said sovereign debt woes were spilling into the broader Spanish economy, risking a “pernicious feedback loop” for private companies. The danger is another bout of capital flight combined with a “credit shock” as banks deleverage drastically to meet higher capital ratios.
Olivier Blanchard, the IMF’s chief economist, said Madrid was courting fate by trying to muddle through without a bail-out – and without the tough terms it would bring – now that borrowing costs had fallen on hopes of bond purchases by the European Central Bank.
http://www.zerohedge.com/news/2012-10-11/overnight-sentiment-short-squeezy
Overnight Sentiment: Short Squeezy
The overnight session started with broad weakness following last night's downgrade of Spain to BBB- by S&P, once again led by Egan Jones, due to fears that an outright junking by one or all rating agencies is on deck, now that the status quo means business and is hard pressed to advice Mariano Rajoy that the ECB will not be toyed with, and if need be the same tactics used to oust Silvio Berlusconi just under a year ago can be applied to Spain which is now proving very difficult to handle: all Spain needs to do to ensure at least a few more months of banker pay is to demand a bailout. And yet it remains unwilling to stick to the simple script so far. Sure enough, Spanish bond prices tumbled, as did the EURUSD. Yet sometime around 4 am Eastern, a levitation commenced across all risk assets, EURUSD, and US futures, with Spanish bonds retracing the entire earlier loss, showing that the ECB has now once again shot itself in the foot and that any attempt to recreate the same playbook as was used to remove Silvio, will be far more problematic when applied to Spain.
The primary catalyst for what is seen as a squeeze is the announcement that for the first time since September 2011, Spanish banks borrowed less from the ECB, with gross borrowings declining to EU399.9 billion, down from a record EU411.7 billion, which was to be expected in the aftermath of the earlier announced TARGET2 Spanish liability. That this decline is driven primarily by a plunge in the current account deficit as the local import industry shuts down (the export has been long gone) and with it more and more of the economy, is irrelevant. For now the flashing red headline is all that is needed to send the EURUSD nearly 80 pips from overnight lows, even more horrible economic news out of Greece notwithstanding (more on that shortly). All that matters for now is how long the short squeeze in a ultra low liquidity market will persist for.
The full overnight recap comes from Deutsche:
Asian equities are mostly lower in the overnight session not helped by a negative US lead yesterday. Bourses in China, Taiwan, and South Korea are down -0.2%, -1.7% and -1.0% respectively. Chinese equities are down for the first time in three days on weaker auto sales and new bank loan data. The Hang Seng (+0.2%) is the key outperformer overnight while the AUD ($1.0287) hit an 8-day high following a better-than-expected headline employment print. Credit indices are off the day’s wides with new issues remaining the key focus in Asia.
The EUR reached a low of 1.2826 after S&P’s Spanish rating downgrade but is now off those lows as we type at 1.2865. Elsewhere, the Bank of Korea expectedly cut its benchmark rate by 25bp to 2.75%. As mentioned above, the lack of any meaningful positive catalyst saw markets endured another risk-off session yesterday. The S&P 500 finished the day -0.62% lower, not helped by Alcoa’s downbeat outlook on demand and Chevron’s Q3 profit warning as it expects substantially lower earnings than Q2. US credit indices stood firm and were only moderately wider despite the broader market tone.
In Europe main bourses were lower across the board led by the weakness in Spain (IBEX -1.00%). Peripheral bond yields were little changed yesterday though. A joint press conference following the meeting of Monsieur Hollande and Rajoy revealed little news and shed no light as to whether Spain is edging closer to a bailout request. We had some firmer European data flow yesterday with French (+1.5% mom v -0.3% mom expected) and Italian (+1.7% mom v -0.5% mom expected) IP both rising more than market consensus in August.
Moving on to today, we have inflation reports across the euro area as well as trade data and initial jobless claims in the US. We also have a handful of Fed speakers over the next 24 hours including Raskin, Plosser and Bullard. Italy is also scheduled to sell up to EUR3.75bn in 2015 bonds and will also offer between EUR1.5-2.25bn in reopening its 2016, 2018 and 2025 bonds. The G7 finance ministers are also meeting in Tokyo today, the Spanish cabinet will meet at 9am (London time) later and Merkel will meet with EU’s Barroso in Berlin at 3pm (London time).
http://www.zerohedge.com/news/2012-10-11/collapse-continues-greek-unemployment-rises-35th-consecutive-month-passes-25
The Collapse Continues: Greek Unemployment Rises For 35th Consecutive Month, Passes 25%
When we reported on the 34th consecutive month of Greek unemployment increases, following the June number hitting a record high 24.4%, the only good news was that the May number had been revised higher from 23.1% to 23.5%, making the monthly jump seem just under 1%. Well, that revision was re-revised, with Greek Statistic Service ELSTAT reporting that the original 24.4% number has now been revised to 24.8%, meaning in June unemployment rose officially by 1.3%. That's in one month! ELSTAT also reported the July number, and at 25.1% (pre-revision higher next month), it just hit a new all time high, increasing for the 35th month in a row. More than one quarter of those eligible for work in Greece (not many), are working. THis means labor related taxes are now being levied on a record low percentage of the population. Indicatively, Greek unemployment at the end of 2011 was "only" 21.2%. It also means that in order to restore even a tiny iota of confidence, the Greek labor department needs to hire a BLS consultant or two, or least license an old version of the ARIMA goalseek software, to find a seasonally adjusted decimal comma in there somewhere, and report that the jobless rate is really only 2.5%, which would be on par in credibility with everything else out of Europe these days. Finally, our question is at what point does anyone finally admit the Greek situation is not only a depression but outright economic death and the merciful thing to do at this point is to just pull the plug?
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