Greece's attempts to reach a deal with its Troika of lenders are locked in deadlock, making a deal before Thursday's summit very unlikely. Photograph: Dimitri Messinis/AP Photograph: Dimitri Messinis/AP
Greece's attempts to reach a deal with its Troika of lenders are locked in deadlock, making a deal before Thursday's summit very unlikely. Photograph: Dimitri Messinis/AP Photograph: Dimitri Messinis/AP
Here's a brief closing summary of the main developments:
Hopes of an early deal between the Greek government and the troika have been dashed. Government officials fear that MPs may not vote on the package until mid-November -- suggesting there's very little chance of a breakthrough by Thursday's summit meeting. See 17.15.
Portugal has agreed a tough budget for 2013. Finance minister Vitor Gaspar said there was no alternative to further cuts, as crowds massed outside the Lisbon parliament. See 19.04
Tension has mounted ahead of Thursday's EU summit. Finland is pushing back against plans for a eurozone budget, while experts fear another Franco-German battle over austerity. See 9.25am
Ireland's coalition government has been hit by a row over a wealth tax. Support is growing for a Robin Hood tax, and a 48% top rate of income tax. See 12.39pm
The Nobel prize for economics was won by two Americans - Lloyd Shapley and Alvin Roth. See 12.08
I"ll be back early tomorrow. Thank you, and goodnight!
Greek prime minister Antonis Samaras is giving a speech in Athens now, on the crisis.
He began by declaring that the worst is over for Greece -- a questionable claim, given the latest reports of delays in its negotiations with the Troika (see 17.15), and generally took an upbeat tone.
The speech was light on specifics -- with Samaras saying only that Greece would receive its next aid tranche (the €31.5bn package) "soon".
Italian journalist Fabrizio Goria has tweeted the best points of the speech:
Greek PM Samaras says Greece will soon get the next bailout tranche
Portugal's finance minister, Vitor Gaspar, has defended the country's new 2013 budget, warning that there is no alternative but further austerity.
First the quotes:
Gaspar said it would be "incomprehensible" for Lisbon to attempt to renegotiate the terms of its bailout, just when it's regaining credibility in the financial markets. Such a move would create a "dictatorship of debt", he claimed.
Here's a key quote:
Putting this budget in jeopardy would compromise the adjustment programme.
There is no margin for error...asking for more time would lead us to a dictatorship of debt and to failure.
Portuguese bond have rallied in value in recent weeks, with its 10-year bonds now yielding just 7.9%. So Gaspar is right that Portugal has clawed back the confidence of investors. However it is more questionable whether the bond market would panic if it tried to ease its austerity package.
Now, the details of the budget. Much of it emerged a couple of weeks ago, when the Portuguese government announced the austerity measures it would take to keep the bailout programme on track.
The 2013 budget deficit will be 4.5% of GDP
The Portuguese economy is expected to shrink by 1% in 2013
Total austerity measures = 3.2% of GDP
Average income tax rate will rise to 11.8%
Total tax brackets will fall to 5, from 8 (pushing many people into higher brackets)
Legendary fund manager George Soros has criticised eurozone leaders for creating a "nightmare" situation that is heading towards a depression, during an event in New York today.
Soros (who beat the Bank of England on Black Wednesday in September 1992) also warned that Germany is not doing enough to stop the crisis (a familiar theme recently).
Reuters has the quotes:
The euro crisis "is a nightmare" that is pushing the European Union into a "lasting depression," fund manager George Soros said on Monday.
The crisis "is having tremendous impact in the state of affairs, it is pushing the EU into a lasting depression, and it is entirely self-created," Soros, Chairman of Soros Fund Management, said at a luncheon hosted by the National Association for Business Economics.
Looks like Soros is still speaking now - here are a couple more newsflashes:
FUND MANAGER GEORGE SOROS SAYS MINIMAL ACTION BY GERMANY WILL NOT BE ENOUGH TO HELP DEBTOR EURO-ZONE NATIONS RECOVER
SOROS SAYS FUNDAMENTAL FLAWED ASSUMPTION IN EUROPE CRISIS IS THAT GOVERNMENTS ARE 'RISKLESS'
He has also warned that there is a real danger that the euro crisis will destroy the European Union....
This photo shows a somewhat drained EC director Matthias Mors arriving at the Finance Ministry in Athens today, for yet another meeting with Yannis Stournaras.
And here's IMF mission chief Poul Thomsen arriving:
If Greek MPs don't vote on the measures agreed with the Troika until mid-November (as now looks likely - see 17.15), that risks clashing with the autumn protest season in Athens.
BREAKING NEWS in from Athens, where our correspondent Helena Smith learned that it is now very unlikely that Greece will vote on the bumper package of measures creditors have set as a condition for further aid until mid-November.
Helena says officials are now openly saying it is highly improbable that the €13.5bn package of EU-IMF mandated budget cuts will be put to parliament before next month.
As one official put it:
We are in the last stretch but these are very difficult negotiations, after all they’ve been going on for the past four months.
Don't we know it. Helena continues:
With what the state-run TV channel NET called “open fronts” on all the main issues – starting with liberalizing the labour market -- it is now being considered optimistic if the package is approved and ratified before the next euro group meeting of finance ministers on November 12.
For the first time since assuming the post, the eternally energetic finance minister Yiannis Stournaras, looked unusually downbeat as he emerged from talks with prime minister Antonis Samaras and attributed the set back to the “tremendous amount of work” that the negotiations entail.
Samaras’ office announced that the leader would meet his junior coalition partners for talks tomorrow ahead of Thursday’s EU summit, Helena concludes.
So you can forget any lingering hopes you had of a deal being reached in time for Thursday's EU summit.
The grinding deadlock is driving many Greek citizens to despair. Regular reader James Wilkins writes from Thessaloniki:
If Stournaras cannot manage to negotiate a sustainable solution for Greek debt maybe, just possibly, perhaps, he will resign and the government will fall? He is not a professional politician and has a reputation to look after.... unlike Greek politicians.
This would bring a quick end to the story that is getting on everybody’s nerves.
Perhaps the oddest story of the day: Panama is considering introducing the euro as legal tender.
Photograph: Michael Sohn/AP Photograph: Michael Sohn/AP
The president of Panama, Ricardo Martinelli, told journalists in Berlin today that he was keen to give the euro legal parity with the US dollar in Panama's financial system.
Martinelli told a joint news conference with Angela Merkel:
In Panama the currency in free circulation is the American dollar and I told the chancellor we are looking for ways for the euro to become another currency of legal circulation and to be accepted in the Panamanian market.
(quotes via Reuters)
A vote of confidence for the euro from one of Latin America's fastest-growing countries.
Big demonstrations are expected in Portugal tonight after the details of the country's 2013 budget are released.
As Giles explained at 13.06, the Lisbon government is preparing its toughest austerity measures yet. Some details are hitting the wires now, and the journalist José Miguel Sardo has the highlights:
#Portugal State Budget for 2013 to be presented at 19h00CET. Cuts in pensions 407mlln. +Revenue tax: 2,8 blln. +Tax on consumption 100 mlln
The prime minister, Pedro Passos Coelho, said today that he would not be knocked off course by a bad showing in regional elections last weekend. He told his party:
Despite the bad moments the party is going through in national terms, regional elections will certainly not compromise the national strategy.
In Athens, the daily round of anti-austerity protests has continued.
Today's demonstrations included a delegation of metal workers from a factory in Thessaloniki, Greece's second-largest city, demonstrating outside the labour ministry in Athens.
The men are urging the government to help them after their factory was abandoned by its owners in May 2011, leaving them without pay ever since. A rolling staff of employees have been working on site ever since to keep it operational. Details here.
A worker raises a loudspeaker during an anti-austerity rally outside the labour ministry in Athens. Photograph: Yorgos Karahalis/Reuters Photograph: YORGOS KARAHALIS/REUTERS
Angela Merkel is planning to make her first ever visit to Portugal on 12 November.
Merkel is expected to meet the president, Aníbal Cavaco Silva, and the prime minister, Pedro Passos Coelho, during her trip. The Portuguese news agency Lusa said today that Merkel would also attend an investors' conference in Lisbon, alongside a delegation of business leaders.
That mirrors the format of her flying visit to Athens last week, in which Merkel squeezed two meetings, a press conference and a hob-nobbing of enterprise chiefs into six hours.
Yannis Stournaras arriving at the finance ministry for a meeting with Greece's international debt inspectors in Athens. Photograph: Kostas Tsironis/AP Photograph: KOSTAS TSIRONIS/AP
Hopes that Greece would reach a deal with the troika in time for the EU summit on Thursday have been dashed by the country's finance minister, Yannis Stournaras.
Interviewed in Athens today, Stournaras said it was unlikely that agreement on the €13.5bn cuts programme would be reached this week.
He said:
It is difficult to reach an agreement by the EU summit.
Stournaras, who has been locked in negotiations with troika officials for weeks, explained that the two sides still needed to find ways to deliver debt sustainability and address the "financing gap" in Greece's budget.
He added:
Negotiations are progressing but there are a lot of issues still open. Structural and fiscal measures will be determined just before or just after the summit.
This means that an emergency meeting of the eurogroup may be needed to sort out Greece's finances, Stournaras concluded.
What's astonishing about this is that the prime minister, Antonis Samaras, confidently told the Greek newspaper Kathimerini over the weekend that he was confident that a deal over the €13.5bn package would come by Thursday. Here's the interview.
Greek politicians from across the spectrum are attending today's IHS investment forum (see 14.11 post).
Giorgos Stathakis, who is responsible for economic affairs for the main opposition Syriza party, told the conference that Greece needed €60bn in fresh investment funds to turn the economy around.
Helena Smith adds:
Stathakis also warned that the wage cuts being demanded by Greece's troika (from an average of €1,500 per month before the crisis to €980 and now €750) amount to "the wrong policy at the wrong time".
Greece's minister of development, competitiveness and infrastructure, Kostis Hatzidakis, is also there. He told attendees that an agreement on the €13.5bn package of budget cuts was key to ensuring Greece's place in the eurozone and "ending all these scenarios about Grexit".
A conference called the Greece Investment Forum "moving forward" is taking place in Athens today, organised by the International Herald Tribune.
Talk of a possible Greek exit from the eurozone is dominating the conference, as our correspondent Helena Smith reports:
I just spoke to Megan Greene of the Roubini group who puts the probability of Greece leaving the eurozone by the end of 2013 at 90%, up from 85%.
Her latest prognostication is based not so much on disaster scenarios but likelihood that the EU will not come up with a fiscal pact that would ensure Greece's place in the bloc, following the announcement of the ECB's bond buyback scheme.
"The pressure has been reduced to come up with a full solution," Meg told me. "Fiscal union is now less likely," she said adding that she was in the "weird position of hoping that I am professionally wrong."
Greene is one of the brightest commentators on the crisis, so the odds that she's wrong are not great …
Here's our Madrid correspondent, Giles Tremlett, on the latest deadlock in Spain:
As uncertainty overshadows the future of the eurozone again, Spain has so far failed to answer the key question of why it is postponing what many see as an inevitable bailout request.
El País reports that Spain wants the European Central Bank to first pledge that it will intervene in the markets to peg the spread on bond yields compared to Germany (meaning how much higher the interest charged on money loaned to Spain would be) at two percentage points.
That would halve the difference and save Spain some €12bn a year in debt servicing. Yields on 10-year bonds fell to their lowest for six months at the end of last week, though they are rising again today and are at a growth-draining 5.72%
Another possible reason for holding out remains regional elections in Galicia and the Basque country, which are to be held on Sunday.
Important developments in Lisbon, where Portugal's government has just finished a cabinet meeting at which it has agreed the toughest budget seen so far.
The latest round of cutbacks come as Portugal struggles to meet deficit targets set by the troika of the European Union, the International Monetary Fund and the European Central Bank.
Giles Tremlett reports that the budget will be made public this afternoon – reports vary from 5pm to 6pm local time – but leaks suggest massive tax rises for the middle classes.
Several thousand protesters were expected to gather outside the parliament building in Lisbon as the details of the budget were made public.
The head of Banco BIC Portugues, the former government minister Mira Amaral, has said he expects “major tax hikes on the middle class and, also, higher taxes on business and savings”.
Portuguese newspapers have calculated the hikes, according to documents leaked last week, will be equivalent to around one month's salary.
Over in Ireland, cracks are emerging within both governing parties in the Irish coalition over the Republic's forthcoming budget in December.
Henry McDonald reports from Dublin:
Leftwing Labour TDs and a member of the European parliament urged the government today to impose a new 48% income tax on those who earn more than €100,000 a year and a Robin-Hood-style bankers' tax on financial transactions.
The Dublin Labour TDs Patrick Nulty and Tommy Brougham joined the MEP Nessa Childers in arguing that €25bn had been sucked out of the Irish economy through cuts and taxes on ordinary workers.
Commenting on the proposals Patrick Nulty TD said:
Since 2008 €25bn has been sucked out of the economy through cuts and taxes on ordinary people. This cannot continue and it is time to tax wealth in Ireland.
A model for a wealth tax already exists in France. If this was applied in Ireland even Minister Noonan has admitted it could raise up €500m per annum. Such an approach would not only ensure the very wealthy in our society make some contribution to dealing with the deficit but would also demonstrate that tax justice must underpin economic policy in Ireland.
Tommy Broughan TD said:
It is absolutely vital that those who have most pay most. In opposition the Labour party called for the introduction of a new higher third rate of tax on incomes over €100,000.
This would raise €365m a year which could be used to prevent vicious cuts in health and education. The Labour party must demand that this budget brings in extra revenue without destroying the domestic economy.
But the dominant party in the coalition, Fine Gael, faced calls from backbenchers to carry out deeper cuts in the Irish public sector.
Eight Fine Gael TDs challenged Enda Kenny's administration to reform the Croke Park agreement – a controversial accord between government and Irish public sector trade unions that has bought industrial peace at the price of protecting salaries and pensions in the state sectors from any cuts.
They said there should be no more incremental wage increases for top civil servants which would cost the country an extra €170m. They also criticised the coalition for failing to cut back on special allowances, grants and so on for public servants that cost the state €1.5bn (HMcD).
Just in: the Nobel prize for economics has been awarded to Alvin E Roth and Lloyd S Shapley"for the theory of stable allocations and the practice of market design".
Lightning illuminates the ancient Parthenon temple atop the Acropolis hill in Athens last night. Photograph: Dimitri Messinis/AP Photograph: Dimitri Messinis/AP
Over in Greece negotiations aimed at finally sealing a bumper €13.5bn package of budget cuts ahead of this week’s EU summit are resuming today.
But as our correspondent Helena Smith reports, in the final sprint to the finishing line setbacks have also emerged.
Helena writes:
The upcoming summit has clearly focused minds with Greek finance ministry sources saying they foresee the marathon talks being concluded by Tuesday PM.
“We are focused solely on wrapping up this package in order to get the next installment [of rescue funds],” said one official. But as the exhaustive negotiations enter the last stretch snags have also appeared with high-level Greek officials describing as “unspeakable” the pressure now being exerted on them by envoys representing the country’s troika of creditors at the EU, ECB and IMF.
Demands that Greece sack 15,000 civil servants by the end of the year and further reduce labour costs, including severance pay, prompted the administrative reform minister to walk out of the talks on Sunday, reportedly declaring: “I will do what I think is right.”
The talks, which had lasted more than seven hours, are aimed at closing a package of cuts worth €13.5bn that would be spread out over four years – in line with Greece’s demand that its grueling fiscal adjustment programme be extended by two years through to 2016. Insiders say disagreement over the depths of Greece’s runaway recession have obstructed progress, with troika officials predicting that the economy will contract by more than 4% for a sixth year in a row in 2013, thus increasing the need for deeper budget cuts.
European economists are not, alas, dominating the list of favourites. Frontrunners include Robert Shiller, Kenneth Rogoff, Carmen Reinhart and Paul Romer (all based in America).
Chris Beauchamp, market analyst at IG, says there is "guarded optimism" in Europe's financial markets today (with the main indices still up this morning).
That's partly due to a drop in Chinese inflation over the weekend (which increases the chances of China launching a new stimulus package).
Otherwise it's a question of waiting for Madrid to make its move, Beauchamp says:
Speculation regarding the Spanish bailout continues to churn, with ‘next month’ being the current aiming point. Like ‘tomorrow’, ‘next month’ never comes, and in reality Madrid is still looking to put off the dreadful day for as long as it can.
Here's a graph showing how 10-year Greek bonds have rallied in value in recent months (via fund manager and general financial whiz @pawelmorski).
Greek 10-year bond yields, from March to 15 October. Photograph: Bloomberg Photograph: /Bloomberg
As explained in the previous post, they are now at their highest level since they were issued in March, as part of Greece's second financial aid package.
It all fits with the theory that a Greek default is much less likely in the short-term (something Citi admitted last Friday when they cut their odds on a Grexit from 90% to 60%, and pushed the likely date forwards to the first half of 2014).
Some relief for Greece this morning: the yield (in effect the interest rate) on its 10-year bonds has dropped to its lowest level since the country's debt restructuring in March this year.
At 17.5%, the 10-year bonds are still deep in "speculative territory", reflecting fears that Greece might default on its debt mountain. But today's drop in yields is a reassuring signal, and means the debt is being valued more highly in the bond markets today.
It follows Wolfgang's Schäuble's prediction that Greece will not default, the Reuters report predicting a Spain/Cyprus/Greece rescue package in November, and ongoing chatter that central banks such as the ECB might offer Athens support by restructuring the Greek debt they hold, or waive the interest payments.
Foreign investors increased their exposure to Italian debt in June, but they remain much warier than a year ago.
New data from Italy's treasury show that overseas investors held €675bn of Italian sovereign debt in June, up from €669bn in May.
A year ago, though, they held €827bn, before fears that Italy would be dragged into a bailout sparked a sell-off in its debt – driving its bond yields up, and Silvio Berlusconi out of office.
Olli Rehn, European commissioner for economic and monetary affairs and the euro, has been discussing the eurozone crisis this morning.
And his comments do suggest that many of the key issues will not be resolved until next month.
Rehn said Europe hoped to conclude aid talks with Greece "by mid-November", and revealed that policymakers were considering giving Greece more time to achieve its financial reforms.
On Spain, Rehn said the Spanish government was "open to considering a bailout request" (which we rather knew already).
Rehn is in Singapore today for the Asia-Europe finance ministers' meeting. Speaking to the Bangkok Post, Rehn also argued that "the worst is over for the euro debt crisis", adding:
The European Central Bank has also shown willingness to take unconventional measures to avert a banking crisis.
European stock markets have opened higher this morning, following a report that a Spanish bailout request will come in November.
FTSE 100: up 18 points at 5811, + 0.3%
German DAX: up 49 points at 7278, +0.6%
French CAC: up 30 points at 3419, + 0.9%
Spain's IBEX: up 56 points at 7708, + 0.75%
Italy's FTSE MIB: up 120 points at 15632, + 0.8%
Spread-betters had been predicting that concerns over the global economy would push shares lower. But traders have taken encouragement from a Reuters report that a Spanish bailout would come in November, alongside a financial package for Cyprus and a new deal for Greece.
Here's a flavour:
We're moving, we're taking steps, we're preparing it, things will crystallise in November,' said a senior official who is directly involved in talks about a potential Spanish aid.
Asked to clarify if this meant an aid request was expected in November, he said: 'I am confident this will happen then, in November.'
We've written recently about rumours that Angela Merkel would much rather wrap Greece, Spain and Cyprus into a single package, rather than brave the Bundestag three times. Sounds like she might get her way …
No pressure … France's president, François Hollande, will lead the line against Germany at this week's EU summit. Photograph: staff/Reuters Photograph: STAFF/REUTERS
This week's EU summit will be a classic battle over the key issues at the heart of Europe – fiscal discipline and the exchange of national sovereignty for closer union.
Our Europe editor, Ian Traynor, predicts another Franco-German tussle, with the French president, François Hollande, charged with leading the fight against Germany's austerity drive.
It may be a maddeningly slow process. But it all adds up to a seismic shift in the politics of Europe, the way power is wielded and policy-making discharged. There are multiple factors and dynamics involved: east versus west, north versus south, big versus small, EU institutions versus national governments. But in the end, the latest European dispensation will probably be settled by the big three – which in essence may mean the Germans are up, the French are down, and the Brits are out.
Ian also explains the three issues at the heart of the summit:
The first is to make the European Central Bank the supervisor of the eurozone's banks. The other two, unveiled last week by the EU's fixer-in-chief, Herman Van Rompuy of Belgium, who chairs the summits, are to bind national eurozone governments into annual "contracts" committing them to structural reforms of their labour markets, welfare and pension systems.
The corollary to this, the third item, is to establish a modest, federal eurozone "budget" (quite distinct from the EU budget). It is modelled on the way Germany redistributes funds among its federal states, and would be used to cushion the impact of the reforms deemed necessary by the "contracts".
So Finland's concerns over a eurozone budget (see 8.54am) are pretty significant.
Over the weekend, Finland threw a spanner into the EU machinery ahead of Thursday's summit by criticising plans for a new budget for the eurozone.
Jyrki Katainen, the Finnish prime minister, questioned whether it was sensible to make a eurozone budget separate from the seven-year fiscal framework of the 27-member EU.
Reuters has the story:
Jyrki Katainen said Finland, known for its tough stance towards many euro crisis measures, has many concerns about the budget plan.
"At first a philosophical question – is it right to separate the integration of euro states and non-euro states? Secondly, what would it mean to EU budget, would the money come from there," Katainen said in a radio interview with YLE.
A eurozone budget could centralise tax and spending decisions within the single currency union, and would be another step towards fiscal convergence. But, as Katainen flags up, it would draw another line between the "Ins" and the "Outs" within Europe – leaving the 10 countries who haven't embraced the euro further away from the core.
The award of the Nobel prize for economics* is the most exciting event on today's agenda. Could Europe make it a double, after Friday's controversial award of the peace prize? Unlikely – most of the front-runners are American, but you never know.
There's little economic news due in Europe, but the latest US retail sales data could move the markets.
Nobel memorial prize in economic sciences awarded: noon BST
European commission president José Manuel Barroso speaks at European parliament: from 9am BST / 10am CEST
Latest Italian government debt figures: 9.30am BST / 10.30am CEST
US retail sales: 1.30pm BST / 8.30am CEST
French debt sale: 2pm BST / 3pm CEST
* Actually called theSveriges Riksbank prize in economic sciences in memory of Alfred Nobel (as you all already knew)
Sweden's finance minister Anders Borg (left) and his German counterpart Wolfgang Schäuble disagree over Greece's future in the eurozone. Photograph: Yves Herman/Reuters Photograph: YVES HERMAN/REUTERS
Tension is building ahead of this week's European Union summit. Government leaders from across the EU will gather in Brussels on Thursday for two days of negotiations. Up for discussion – banking union, a single EU budget, the Greek financial programme and the possible Spanish bailout.
One of the key issues is whether Greece can cling on within the eurozone, with speculation swirling over a possible Grexit again …
The Swedish finance minister, Anders Borg, caused a stir over the weekend when he declared that Greece would probably quit the euro within six months.
It’s most probable that they will leave … We shouldn’t rule out this happening in the next half-year.
Perhaps more controversially, Borg argued that this wouldn't alarm the financial markets much, as:
… in practice everyone already understands which way the wind is blowing.
This prompted a rebuttal from Wolfgang Schäuble. Germany's pro-austerity finance minister declared yesterday that Greece would not default on its debts, and cautioned that there would be major panic if it did quit the euro:
Speaking in Singapore, Schäuble said:
I think it will not happen that there will be a state bankrupt in Greece.
Greece has to take a lot of very serious reforms and this will harm. Everyone is trusting that the Greek government is doing what is necessary.
But Greece's future will remain unclear until it has agreed a package of cuts with its Troika of lenders, and secured its aid tranche.
As we reported on Friday, frenzied and furious talks are taking place in Brussels now over how to patch up the country's finances, with internal estimates showing that Athens is seriously overshooting its debt targets.
Faced with all this speculation, Greece's prime minister has declared that his government will reach a deal with the Troika by Thursday.
Antonis Samaras declared that Greece faces its "final hurdle", in an interview with the Kathimerini newspaper. He said two things would have happened before the summit begins:
First we will have fully completed the agreement on the fiscal and structural prior actions for the disbursement.
And secondly, Europe and the IMF will likely have overcome their different estimates about how the debt sustainability will be assured.
Comments (…)
Sign in or create your Guardian account to join the discussion