6.50pm: What a busy day! Here’s a closing summary of the main events in the eurozone crisis.
The International Monetary has warned today that the Bank of England should ease UK monetary policy now, to head off a damaging downturn. The IMF also said (follow the action from 10am) that the British government may need to launch a new fiscal stimulus if the economy does not recover strongly enough from the downturn. Speaking in London, Christine Lagarde said the government had done well to bolster Britain’s economic credability, but pointed to weak growth and high unemployment as proof that the economy needs more help.
The OECD warned that the eurozone threatened the global economy. Slashing its forecast for eurozone growth to -0.2% in 2012, it added that it expects a sharp contraction in Southern Europe this year, balanced by growth in the North. Austerity, it warned, could create a vicious circle.
Alexis Tsipras, took his campaign to rewrite Greece’s austerity plan to Germany. Flying in from Paris, the Syriza leader told journalists in Berlin that he hoped to save the euro, warning that Europe could face another war if leaders refused to change their approach on austerity. He also urged Germans to visit his country for a holiday.
Back in Greece… Other political leaders attacked Tsipras for his criticism of French president Hollande, as the election campaign rumbled on. Pharmacists warned of a growing shortage of medicines, and tonight supporters of left-wing parties held a march.
Battle lines were drawn ahead of tomorrow’s EU summit:
Germany and the Netherlands both said they opposed the early introduction of eurobonds, as France is expected to push for tomorrow. Austria had already dismissed France’s plans as “nonsense”.
In the UK: inflation fell more than expected, with CPI dropping to 3%. The underlying picture painted by April’s public finances also disappointed analysts.
Stock markets rallied. The FTSE 100 closed 98 points higher, and the Italian market rose by 3.4%.
In other news…. Japan’s credit rating was slashed by Fitch, Vodafone warned it was suffering from the eurozone crisis, Italy started paying longstanding debt to cash-starved companies, Spain saw its borrowing costs jump, and Germany agreed to sell bonds with a coupon of 0%.
Tomorrow will be a big day, as EU leaders gather in Brussels. I’ll be back early tomorrow morning to cover the main action. Until then, goodnight!
6.43pm: Interesting news from Greece, via financial journalist Efthimia Efthimiou. Alexis Tsipras’s Syriza party (a coalition of several left-wing parties), has submitted a “founding statement” to Greece’s Supreme Court that defines itself as a single party.
That’s important, because it indicates that Syriza would qualify for the 50-seat bonus that is awarded to the party that wins the most votes in a Greek election.
#Greece2012 (re Syriza) This means now it can get the bonus of 50 seats if it comes in first party in June elections
— Efthimia Efthimiou (@EfiEfthimiou) May 22, 2012
The UK Treasury building in London, which saw disappointing tax receipts last month. Photograph: Oli Scarff/Getty Images
6.09pm: Before we go…. the UK public finance figures for April were released this morning, and promply shunted out of the spotlight by Christine Lagarde’s appearance in London.
But we shouldn’t neglect them completely. The top-line number showed that Britain posted a public sector net surplus in April of £16.5bn
. But before anyone celebrates, that includes the one-off impact of absorbing the Royal Mail’s pension fund. Without that, the underlying net borrowing figure in April came in at £11.5bn compared with £9.1bn in April last year.
Howard Archer of IHS Global Insight said the data showed the UK economy was weakening, with tax receipts were disappointing overall in April. Vicky Redwood, an economist at Capital Economics, said the underlying net borrowing figure was “pretty nasty”.
This, along with the better-than-expected drop in inflation, may add weight to Lagarde’s call for a monetary stimulus today, and maybe a fiscal one tomorrow….
— Mehran Khalili (@mkhalili) May 22, 2012
Mehran reckons that more than 1,000 people are taking part.
Alexis Tsipras speaks to journalists after attending a press conference with leading members of Die Linke German left-wing political party on May 22, 2012 in Berlin, Germany. Photograph: Sean Gallup/Getty Images
The leader of Greece’s radical left coalition, Alexis Tsipras today appealed to Germans to show solidarity towards the embattled, debt-ridden Greeks, telling them that his country’s economic woes were those of a whole continent.
On the Berlin leg of a charm offensive to win over European politicians the 37-year old whose Syriza coalition has a good chance of securing victory at a repeat election on 17 June, stressed that he wanted to work with the Germans to “find a solution to our joint problem”.
Following on from a visit to Paris yesterday, Tsipras today met like-minded, anti-capitalist far-Left politicians in Berlin, whose government’s trenchant views on the Eurozone debt crisis were he said, part of the problem.
“It would be helpful if we focussed on this as a geographical problem facing the whole of Europe rather than concentrating on one country and looking to destroy a nation of peoples,” he said.
He said he wanted to “deliver a message of friendship, of hope,” adding “I want to appeal to your sense of solidarity and … to persuade the Germans that we’re not trying to blackmail you.”
The political turmoil facing Europe “affects you too,” he said, adding that the crisis was the result of a politics that had “largely failed” and needed to be stopped.
Kate’s full story is now online here
will be online later, and will be in the Guardian print edition tomorrow.
5.26pm: Europe’s financial markets rallied strongly today, especially in Italy, recovering more of last week’s losses.
This reflects optimism that something will be achieved when EU leaders meet in Brussels tomorrow, and a growing feeling that Greece’s position in the eurozone is more secure (at least in the short term) than it appeared a few days ago.
Here are the closing prices:
FTSE 100: up 98 points at 5403, + 1.86%
German DAX: up 104 points at 6435, + 1.65%
French CAC: up 56 points at 3084, + 1.88%
Spanish IBEX: up 137 points at 6661, + 2.1%
Italian FTSE MIB: up 443 points at 13456, + 3.4%
5.16pm: A sad story from Greece tonight, where chemists are warning that there is now a “severe shortages” of medicines.
Constantine Lourantos, president of the Pharmaceutical Association of Attica, warned that medications for cancer and heart problems are running low. He accused the Greek government of owing €1bn to the country’s pharmacists (previous reports had put the debt at €540m).
On Wednesday, pharmacies across the country will be closed for a 24 hour strike, while pharmacists hold a protest rally. This coincides with a change of policy — from tomorrow, patients will no longer get drugs on credit. Instead, they must pay up front and get a reimbursement from the National Organization for Healthcare Provision (EOPYY). As FT Alphaville pointed out last week, that’s a big problem for people who don’t have the money.
4.28pm: Germany is going to do something quite remarkable tomorrow, it’s going to auction some debt with an official rate of return of zero.
The Bundesbank will offer €5bn of 2-year debt (Schatz, in the bond market jargon) with a coupon of 0%. This reflects the popularity of German debt, which has meant investors have been prepared to accept almost no profit in exchange for somewhere safe for their money.
Now, they are being offered bonds that will not make scheduled interest payment at all – just the face value of the bond in two years time. This doesn’t necessarily mean, though, that Germany will borrow ‘for free’ (see below)
Marc Ostwald, strategist at Monument Securities, said the move was a sign that the financial markets no longer function properly, saying:
If this is not a signal of complete financial market dislocation, nothing is!
Ostwald added that the eurozone crisis is forcing ‘real money investors’ to quit paper assets in favour of physical assets (gold bullion, land, commodities). He argued:
This spells major trouble for the financial sector, which they will increasingly leave to fall on its own sword, and for governments, as this is a tacit recognition that not only does money have no inherent value as we all know, BUT ALSO that money no longer even represent a proxy for the value of goods.
Sanjay Joshi, head of fixed income at London & Capital, told CNBC that he believes the €5bn debt will still be popular, as investors seek to shelter their capital before Greek elections next month.
(We often mention bond yields here, rather than coupons. The coupon on a bond is the official, regular, interest payment that the issuer hands over during the lifetime of the bond. The yield, though, measures the rate of return on the bond. That can be different than the coupon when the bond is sold, if investors pay either more or less than the face value of the security (this could happen if there was such high demand that investors would offer more than the face value; or if there was low demand, so the issuer accepted less than the face value (which it must repay when the bond matures).
Yields then fluctuate in the secondary bond market as bonds are traded between investors, falling when the value of the bond rises, and rising when traders price in more risk.
So, we’ll have to see how the auction proceeds tomorrow, to find out what yield the Bundestag sells the debt at….)
4.24pm: Here’s some video footage of George Osborne and Christine Lagarde in London today.
Lagarde has also given an interview to ITV News, in which she said the Greek election of 17 June is “more complicated” than a straight referendum on its membership of the eurozone. She explained:
What I see as encouraging is 1) that the Greek population apparently wants to stay in the Eurozone 2) that the political leaders of Europe want to keep Greece within the Euro. There is one missing component here. Which is that it has a price for the participation in the Eurozone.
That price is improved productivity of the workforce; its structural reforms; it is fiscal consolidation when a country runs at such a high deficit; it is at some stage, a return to the financial markets to finance its debts. And those measures have to be taken.
4.10pm: Meanwhile, our correspondent Helena Smith says Alexis Tsipras has been the butt of some vivid criticism today in Greece, for his perceived put down of French president Francois Hollande in Paris yesterday.
Before flying to Brussels to attend a meeting of the European Peoples’ party on the sidelines of tomorrow’s EU summit conservative leader Antonis Samaras blasted Tsipras for what he described as “his arrogance and naivety.”
“Only a naive and dangerous [person] would attack a politician whose views are so obviously in favour of our homeland,” said Samaras. “He [Tsipras] has proved, yet again, how arrogant he is and how dangerous he is for the interests of the country which he is threatening with international isolation at such a critical hour.”
Regular readers will recall that addressing reporters in Paris on Monday the far-leftist reminded the French president that “he will soon have to answer crucial questions. He will mainly have to answer whether all he said before the elections is valid after the elections because the French people sent Mr Sarkozy on vacation to Morocco not so he could be replaced by someone who will implement the same policy.”
Tsipras is believed to have been piqued that Hollande refused to see him. The French president reportedly declined talks with the Syriza leader citing protocol. He will be even more piqued today….
…First thing this morning, Evangelos Venizelos the Greek socialist leader who had openly supported Hollande’s election, was among the first visitors to the French Elysee. At a 40-minute meeting called unexpectedly by Hollande, the former finance minister briefed the French president on the state of the Greek economy and enforcement of reforms in return for the country’s latest €130 bn rescue package from the EU and IMF.
Venizelos also emphasised the missed targets and mistakes that had been made in the course of debt-stricken Greece’s huge fiscal adjustment. Aides said he didn’t miss the opportunity to give a bleak assessment of the despair and desperation many Greeks now feel after two and a half years of austerity.
Following the talks Venizelos also lashed out at Tsipras for his remarks, saying on Twitter: “You don’t negotiate insulting foreign leaders and moreoever [insulting them] in their own countries.”
Panagiotis Pikramenos called ministers together to discuss strategies ahead of tomorrow’s crucial EU summit.
Helena Smith reports:
The meeting, the first since Pikramenos, a high court judge was sworn into office last week, will be attended by all 16 cabinet members plus the prime minister’s predecessor Lucas Papademos.
Papademos is expected to update the cabinet about the Greek economy and the issues that are likely to be discussed in Brussels. “The [interim] PM is a high court judge and basically clueless about such issues. He will be representing the country at a critical time and it is vital that he is informed,” said one former Papademos aide.
Pikrammenos will have to do some quick learning: today the OECD predicted that the recession-plagued Greek economy would keep shrinking until well into 2013 – a contraction that is likely to obstruct the pace of long-overdue structural reforms.
Lucas Papademos, a former vice president of the European Central Bank, left office saying it would be a “catastrophe” if Greece exited the eurozone. Greeks, he said, had not endured the austerity measures imposed over the past two years “for an empty shirt.”
3.29pm: Alexis Tsipras wound up his press conference in Berlin by warning that Europe could be dragged into another military conflict if the economic crisis really deteriorates:
#Tsipras: we need to learn from history or face prospect of another world war. Dialogue is key to progress. Press conf ends after 1 hr
— Kate Connolly (@connollyberlin) May 22, 2012
And while Tsipras was talking in Berlin, one of his economic advisers was telling Joel Hills of Sky News that Syriza would not seek to withdraw Greece from the eurozone without a referendum (and, of course, it’s current position is that Greece should remain in the euro, but with a ‘better’ financial programme)
Economic advisor for Syriza has just told me that his party will not take Greece out of the Euro without a referendum.
— Joel Hills (@joelhillssky) May 22, 2012
Another picture of Alexis Tsipras (centre), with Klaus Ernst (l), and Gregor Gysi of the German Left party. Photograph: Ferdinand Ostrop/AP
3.22pm: In Berlin, Alexis Tsipras appealed to the citizens of Germany to “show solidarity” with Greece by visiting the country for a holiday (this follows reports that tourism from Germany has tumbled, in the face of anti-German sentiment and the occasional bout of flag-burning)
Kate Connolly reports that Tsipras told the press conference that Greece was “our joint problem”, and that Europe needed to work together to find a solution that worked.
He added that Syriza has “a plan to deal with catastrophe if EU loses patience with us”, adding that such a disaster could be avoided (presumably if Europe accepted that Greece’s austerity plan needs to be revised).
Alexis Tsipras, center, the leader of Greece’s anti-austerity Syriza coalition, arrives for a press conference with leaders of Germany’s Left Party Klaus Ernst, left, and Gregor Gysi in Berlin, Germany, Tuesday, May 22, 2012. Photograph: Ferdinand Ostrop/AP
3.11pm: In Berlin, Alexis Tsipras has been holding a press conference to outline his position on Greece’s future.
The Syriza leader was in typically punchy form as he appeared alongside two senior members of the German Left Party.
He began by insisting that his party did not want to destroy Europe — instead, it supported Europe strongly, while existing European leaders are guilty of an “anti-European policy” through their insistance on damaging austerity.
From Berlin, my colleague Kate Connolly reports that Tspiras said voting for Syriza was actually a chance to save the euro, not destroy it. If elected, he would pave the way for ‘more stability’ across the single currency…
#Tsipras: if election on 17 June ends in victory of my party it’ll lay ground for more stability in Eurozone, not the end of Euro
— Kate Connolly (@connollyberlin) May 22, 2012
Kate also reports that Gregor Gysi of the Linke party. who appeared alongside Tsipras, labelled chancellor Merkel as a “scientist” who must admit that “her experiment” with Europe’s banks has failed.
2.53pm: Germany and the Netherlands are heading for a collision course with France over eurobonds at tomorrow’s meeting in Brussels.
Dutch finance minister Jan Kees de Jager told Dutch TV station RTL 7 this afternnoon that his government were not adamantly opposed to collective borrowing in principle, but believed it could only be introduced once Europe has made a lot of progress towards full fiscal union.
De Jager said:
In the very long term it may be a final chapter of a successful integration. That has always been the Dutch standpoint but it is not a solution to this crisis.
In the short-term, he said, weaker European countries need to enforce fiscal consolidation thus bringing down their bond yields.
It would now be a perverse incentive for countries which are in trouble to not reform and not cut spending because it wouldtake away the interest rate pressure.
The German government has also been briefing journalists that Berlin remains opposed to eurobonds. Via AP:
A senior German official stressed that despite the pressure from some other European countries, Merkel’s government has not eased its opposition to eurobonds.
“You can wake me up in the middle of the night, at 3 a.m., and then I will tell you what our position is also at 5 a.m., it doesn’t matter. We think that eurobonds are not the right path for many reasons and in our opinion they cannot be part of a growth strategy,” said the official, who briefed reporters on condition of anonymity in line with government policy.
2.44pm: Europe’s stock markets continue to show healthy gains today. The FTSE 100 is up 64 points at 5371, a gain of 1.25%, and other indices are showing similar gains.
On Wall Street, though, there’s no rally at all, with the Dow Jones up a mighty 1 point at 12503.
2.18pm: The Ernst & Young ITEM Club has welcomed the Christine Lagarde’s recommendation that UK interest rates should be cut.
Andrew Goodwin, its senior economic advisor, said:
Cutting interest rates from 0.5% would certainly be a good place to start – the Fed’s target range is 0-0.25% and we have always said that ours should be the same. It won’t be the solution on its own, but would certainly send out the right signal.
Goodwin is less convinced that yet more quantitative easing would work (another proposal from the IMF today). Instead, he favours more spending on infrastructure projects, such as high-speed broadband networks, the smart grid and the revival of projects for Carbon Capture at power stations, or new nuclear plants.
BMW’s Leipzig factory. Photograph: Werner Huthmacher/Artur/View Pictures
2.13pm: Europe needs a new industrial policy to help it out of the financial crisis and back to sustainable growth.
That’s the view of Paul Everitt, chief executive of the Society of Motor Manufacturers and Traders (representing the UK auto industry), who argues today that Europe must now rethink its approach to industry.
The growing opposition to austerity, rising unemployment and recession should prompt a change — “Europe must be a manufacturer of products, not just a provider of ideas and services”, he argues.
Writing for Nucleus, the UK-based think tank, Everitt says:
It is important for everyone to recognise that public finances will remain under intense pressure for years to come, so our priority must be the smarter use of the resources we have, rather than a struggle for more. A smarter and more targeted approach will require some tough choices and a more disciplined approach. If we are successful public funds can be used to unlock and leverage significant private sector investment.
In practice, Everitt argues, that means more investment in R&D, a new programme to train young people, and no more red tape. More here.
1.55pm: Here’s economics editor Larry Elliott’s take on this morning’s announcement from the IMF:
Britain needs a plan B. That was the stark message from the International Monetary Fund on Tuesday as it announced the findings of its checkup on the UK economy.
The Washington-based Fund says growth is weak, unemployment too high and the risks are clearly weighted to the downside. Extra stimulus, it says, is needed and needed now.
So, game and set and match to the shadow chancellor, Ed Balls, who has been warning George Osborne for the past 18 months that the government’s austerity package is too much, too soon for an economy as enfeebled as Britain’s at a time when its major trading partner, Europe, is involved in a life-or-death struggle to save the single currency?
Well, not quite…
1.48pm: An illustration of how Europe’s financial crisis is hitting multinationals: Vodafone has warned that the eurozone crisis will hit revenues and lopped £4bn from the value of its businesses in southern europe.
Factoring in a devaluation of the euro against the pound, Vodafone said service revenues next year were likely to be lower than previously forecast, my colleague Juliette Garside reports.
1.25pm: Fitch Ratings held a well-attended conference on global banking conference today – Jill Treanor was there, and reports:
It is impossible to talk about banks without sovereigns and Douglas Renwick, senior director of the sovereigns group, produced a chart showing what is happening to deposits in the most troubled eurozone countries. It shows that deposits in Greece were 12% from June 2011 until March – before the election which has sparked a wave of speculation that Greece will leave the Europe.
Here’s the graph in question.
Renwick points out, thought, that unlike the market pressure which forced the UK out of the ERM in 1992, Greece cannot be ejected in the same way because of the “life support” which is being provided by the ECB.
He is also a supporter of UK austerity measures – Fitch currently has the UK on a negative outlook but the agency reckons the country could keep its triple A rating if it can stick to its cuts to public debts.
His colleague James Longsdon, managing director of financial institutions group, reckons that there will be a need for a third LTRO by the ECB. The €1tn of three year loans currently pumped into the system amount to just 3% of European banking assets. “The LTRO is one of the reasons we haven’t more bank downgrades if I’m honest,” he said.
If Greece does exit the eurozone, a large stimulus – “larger than before” – will be required. “If it is needed it will be given. The authorities have no appetite for a bank default”. Longsdon was also upbeat about getting off such central bank support – pointing out that both Royal Bank of Scotland and Lloyds Banking Group, which both received cheap funding from the Bank of England
during the 2008 crisis, had been “rehabilitated” and paid back all those loans. [That’s not to say, of course, that the taxpayer is any closer to getting its £65bn share stakes back.] He described Lloyds and RBS as “living proof” that “effective central bank” intervention can work.
12.45pm: Developments in Italy today — the government has caved in to pressure from its business leaders and agreed to start repaying some of its longstanding bills.
Mario Montu annouced that the Italian public sector will repay between €20bn and €30bn of outstanding obligations to companies, after a long campaign by firms who have warned they are being driven into the ground because the Italian state refuses to cough up.
Good news, then. Except that the total Italian government debt to companies is estimated at €70bn, so today’s announcement is just a start.
12.22pm: Alexis Tsipras, the new star of the Greek left, has arrived in Berlin from Paris, our correspondent Kate Connolly reports.
There is significant interest in the Syriza leader, who may yet hold Europe’s future in his hands. He’s due to meet with members of Germany’s own far-left wing groups at around 2pm BST.
Alexis Tsipras is on the lookout for new “comrades for his revolution”, says the conservative Die Welt, which calls him ‘Greece’s Che Guevara’ in a slightly mocking tone. Is he the man who has the ability to unhinge Europe, asks Boris Kalnoky.
While he may be in Berlin to rub shoulders with die Linke, a party descended from the old party of the East German state police, the Stasi, that is now waning in the polls, his visit has a significance beyond who he will be seen shaking hands with. He will surely make Gregor Gysi and Oskar Lafontaine, the party’s grey leaders, look even greyer – and give younger members of the party the sense that the far left in Europe, under the leadership of the youthful and charismatic Tsipras, has a future after all.
Merkel will not see him. Tsipras has tried to paint that as something of a snub, and has also suggested that it was Merkel who dissuaded Hollande from meeting him yesterday – but it is of little surprise, seeing as he is not in power. She gave the same treatment to Obama. And Hollande. But any meeting between them in future will be difficult, with Tsipras having nicknamed her ‘Madame Merkel’, which suggests to Greeks a dominatrix from Athens’ red light district, and accusing her of treating Greece as if it were “a protectorate,” a reference to Nazi Germany, which will not make relations between them any easier.
Die Welt describes Tsipras as the man who “will either make Greece ungovernable…or will end up governing it”. Kate explains that his visit will make Germany face the anger of the Greek people who feel that Merkel has treated them cruelly by insisting on a harsh austerity programme:
Until now the wrath of the Greeks has been kept a safe distance from them. They might have stopped booking holidays there (bookings are apparently down 50% for 2012, largely due to German tourists who are staying away for fear that they might encounter local anger…given that Merkel is widely blamed in Greece for the painful austerity measures imposed in return for international aid,” says Spiegel) but they have not been made to feel the gravity of Greece’s problems first hand.
Tsipras will try to ram home the severity of them when he holds a press conference with Gysi and Lafontaine at around 2pm UK time (3pm CEST) which has been entitled: “Greece reminds us: Austerity programmes are not a way out of the crisis”.
Meanwhile ahead of Tsipras’ visit Wolfgang Schäuble, Germany’s finance minister, has delivered stark warnings to the Greeks in a newspaper interview with the Athens newspaper Kathimerini, urging them to think carefully before they vote again in just under a month’s time.
Greek politicians he said, must explain to their voters that the EU wants to help Greece, but there’s no such thing as help without conditions attached, and that when they vote, they are voting for more than just a party, rather also on the future direction for Greece.
Tokyo’s business district.
12.12pm: Elsewhere in the global debt crisis, Japan has seen its credit rating slashed by Fitch today.
The credit rating agency warned that Japan’s huge, and rising, national debt, was a serious threat to its credit worthiness, as it cut its long-term foreign currency rating to A+, from AA.
Fitch’s Andrew Colquhoun said Japan’s debt pile would swell to 239% of GDP by the end of 2012, much worse than any other major economy, and questioned Tokyo’s commitrment to dealing with it, adding:
The country’s fiscal consolidation plan looks leisurely relative even to other fiscally-challenged high-income countries, and implementation is subject to political risk.
Japan has avoided a serious debt crisis, until now, because much of its sovereign bonds are snapped up by domestic buyers — which allowed its debts to swell so high.
12.02pm: Here’s a full update on the situation in Greece ahead of next month’s elections, from our correspondent Helena Smith.
She reports that the political scene in Greece has changed dramatically over the 16 days since the last election, as shown by Greek politics’s oldest enemies – the liberal leader Dora Bakoyiannis and conservative New Democracy head Antonis Samaras – kissing and made up in the name of forging “a patriotic pro-European front” (see 8.44am)
Everyone agrees that the May 6th ballot was dominated by a single debate: whether Greeks backed, or didn’t back, the excoriating terms of the €130bn EU-IMF bailout [widely referred to as the memorandum] propping up the moribund Greek economy.
But this time round anger over the memorandum has been replaced, squarely, by fear over the return of the drachma – embodied by Tsipras despite the young politician’s insistence even in Paris yesterday that he is “pro euro” and “pro monetary union.”
With the fear factor now dominating the agenda – and reinforced to large degree by the recent intervention of David Cameron and other foreign leaders – the “pro European, pro-memorandum” front appears to be gaining the upper hand. Away from the hero’s welcome that Tsipras has received in Europe, in Athens at least he has also been perceived to be making a series of strategic mistakes.
Contradictory statements on economic policies by senior cadres in his Syriza party have not gone down well. Nor have his own less than diplomatic remarks in Paris regarding the new French president Francois Hollande’s ability to remain faithful to the growth policies he has long advocated.
“With the change of agenda there is a new dilemma dominating the debate, namely one of the euro versus the drachma,” says Spiros Rizopoulos a prominent Athens-based political and corporate communications strategist.
“There has been a mental leap which might not necessarily be true but Tsipras is increasingly being associated with [fears of the return of] the drachma. He and senior Syriza cadres are making one mistake after another,” added Rizopoulos, who like many analysts pointed out that the party’s internal divisions and “various factions and fractions” were also to blame for the alliance’s lack of ability to always sound coherent on economic matters.
Commentators also argue that Tsipras must move swiftly to the centre if he is to maintain his momentum. Helena points to the latest polling:
On Sunday a Public Issue poll conducted for the Greek newspaper Kathimerini showed New Democracy catching up with 24% of the vote compared to Syriza’s 28 %. Both parties had won 18.85% and 16.78% at the last election.
The socialist Pasok, which won 13.18% on May 6, was shown garnering 15% compare to 8% for the anti-austerity conservative Independent Greeks and 7% for the pro-European Democratic Left.
Interestingly, ratings for the communist KKE party fell to 5% (from the 8.48% it gained on May 6) while the neo- Nazi Golden Dawn was seen as clinching 4.5 % compared to the 6.97% it had won at the last election.
11.50am: Here’s a quick summary of what happened at the International Monetary Fund’s briefing in London this morning.
The IMF has warned that the UK government should consider a new fiscal stimulus plan, if the British economy does not recover.Should growth remain below target, new fiscal easing measures should be considered — including temporary tax cuts and more infrastructure spending.
Christine Lagarde, head of the IMF, said that economic growth was currently too low, while unemployment (especially among young people) was too high.
The IMF also urged the Bank of England to stimulate the economy through another round of quantitative easing, and to also consider fresh interest rate cuts.
The IMF also congratulated the UK government on its progress in dealing with the crisis, but argued that Britain’s current record low interest rates gave it the opportunity to borrow more today. As the FT puts it, Britain “should prepare for Plan B” (although Lagarde didn’t put the issue such political terms).
11.36am: Christine Lagarde was also quizzed about the situation in the eurozone, at this morning’s briefing in London.
She was more conciliatory than certain other politicans we could mention, saying that the IMF would negotiate with whoever wins Greece’s elections on 17 June, and that he hopes that whoever forms the next Greek government will engage in “constructive dialogue” to implement the plans.
She cautioned, though, that the IMF’s decisions have to be based on clear rules. So still no suggestion that international authorities have been persuaded by Alexis Tsipras’s call for Greece’s financial programme to be rewritten.
The key points with regard to a new fiscal stimulus are number 12:
“There is scope within the current overall fiscal stance to improve the quality of fiscal adjustment to support growth”
and number 13:
Fiscal easing and further use of the government’s balance sheet should be considered if downside risks materialize and the recovery fails to take off. In particular, if growth does not build momentum and is significantly below forecasts even after substantial additional monetary stimulus and further credit easing measures, planned fiscal adjustment would need to be reconsidered
They show that Osborne did not respond to the IMF’s argument that a new fiscal stimulus could be required, but instead focused on the recommendation for the Bank of England to cut rates or create more electronic money now….and on the crisis in Europe.
The IMF identifies setbacks in the euro area as the key risk to the UK’s economic prospects and financial stability.
In the UK, we have a flexible exchange rate and independent monetary policy, which allows us to ease the process of fiscal adjustment with a lower exchange rate and supportive monetary policy. The IMF has advice for the Bank of England on that today.
But in the eurozone, indebted countries have to deal with high budget deficits without that support.
Behind the scenes, Treasury officials are also briefing that the IMF has not made a dramatic change in position, and still supports the government’s plans.
No 11: “IMF position is same as last year – back plan A and only consider loosening if growth significantly lower than forecast”
— Faisal Islam (@faisalislam) May 22, 2012
10.58am: The IMF’s call for the Bank of England to launch more monetary policy easing (see 10.35am) comes at a very interesting time. Tomorrow, the minutes of the last meeting of the Bank’s monetary policy committee will be released, showing whether any members of the MPC voted for more quantitative easing (last month one member did, and eight did not).
In the longer term, it comes amid speculation over Sir Mervyn King’s successor. The message from Christine Lagarde is that the IMF wants to see a governor prepared to ease monetary policy when needed.
An ambush on Threadneedle Street, by the IMF and the Treasury? The Wall Street Journal’s Simon Nixon suspects as much:
I suspect Lagarde comments on BOE bank funding coordinated with her friend George. HMT exerting max pressure BOE ahead of new Guvnor appt.
— Simon Nixon (@Simon_Nixon) May 22, 2012
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. And that could well include tax cuts to give demand a push.
IMF: govt should consider temporary tax cuts if growth weakens – give example of a temporary VAT cut or cut in Nat Insurance.
— Stephanie Flanders (@BBCStephanie) May 22, 2012
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.
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 programme 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 significantly weaker than forecast, the pace of 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.
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.
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!
A bond trader in Spain.Photograph: Sergio Perez/Reuters
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.
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…
* – 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%).
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.
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.
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.
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.
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.
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…
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.”
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….
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:
• 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.
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%
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.
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.
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.
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.
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 does have previous form on speaking out of turn – last week shemanaged to upset Germany by suggesting that Greece could be thrown out of the European Union.
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.
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 …