Debt crisis: as it happened, April 4, 2012
The ECB has left interest rates unchanged at 1pc.
By Matthew Sparkes and Amy Wilson
Last Updated: 9:09PM BST 04/04/2012
Markets slide on concerns about eurozone as ECB head Draghi says debt crisis and oil prices pose downside risk to region, and Fed indicates less chance of more QE.
• Markets fall on fears for Spain and eurozone growth
• ECB leaves interest rates unchanged at 1pc
• Spanish borrowing costs rise at bond auction
• Services data suggests UK escaped double-dip recession
• Fed sees less chance of more QE, sends shares lower
21.10 That’s it from us tonight, we’ll be back with live coverage of the debt crisis first thing tomorrow morning.
21.05 US markets have closed down for the second day in a row:
The Dow Jones slipped 1pc to 13,074.75 points, while the S&P 500 also lost 1pc to close at 1,398.96.
20.45 US markets look set to close lower tonight, but the dollar has had a good day – the currency is at its highest level against the euro for three weeks.
The euro fell to $1.3139 in evening trading today, from $1.3217 late yesterday. The single currency had fallen as low as $1.3106 earlier today, its lowest point since March 16.
The euro was pushed down by concerns the eurozone crisis could blow up again, as Spain’s borrowing costs rose at a bond auction this morning.
20.25 More from Athens – around 1,500 protestors gathered in Syntagma Square, where parliament is located and where an elderly man shot himself today and left a note saying his decision was linked to the country’s financial disaster.
Some scuffling broke out and police used pepper spray to stop protestors throwing bottles of water at them.
It won’t be the last unhappy crowd we see in Syntagma Square as the Greek election approaches…
20.10 Italian Prime Minister Mario Monti is still whistling to keep his spirits up – he’s announced his jobs market reform bill tonight, the most controversial of all his austerity and economic reform measures.
He called the bill, which will go before parliament in the coming days, “historic” and said his aim was to end the “dualism” between well-protected employees in jobs and first-time applicants trying to break into the market, by making it easier to hire and fire staff. He said:
This is a turning point for the labour market
Now he just has to persuade the unions, who hate the changes with a passion – Italy’s largest union, Cgil, has pledged a general strike.
19.50 Worries about Portugal needing another bailout are mounting (see 09.32 post) – but the country has a temporary piece of good news tonight.
The IMF has approved the next €5.17bn loan installment for the country, part of the €27.6bn loan programme agreed with the country last May.
Nemat Shafik, IMF deputy managing director, said:
Good progress has been made on implementing policies under the program and early signs indicate that the required economic adjustment is taking place.
Given the difficult external and internal environment, strong program implementation remains essential to ensure program success, rebuild market confidence, and restore growth.
19.00 Louise Armitstead reports on Mario Draghi’s press conference after the ECB rate decision today, and his signals that the central bank is turning off the cheap money taps again, following the offer of cheap three-year loans (LTROs) earlier this year.
Mr Draghi said the jump in Spanish and Italian borrowing costs were a warning shot to Madrid and Rome. “Markets are asking these governments to deliver,” he said.
The comments reinforced the view that more help from the ECB should not be expected soon. Mr Draghi said the central bank’s long-term refinancing operation (LTRO), which has pumped €1 trillion of cheap loans into the economy, would take time to have a full impact.
He said talk of an “exit strategy”, as demanded by the president of Germany’s Bundesbank, was “premature”. However, hopes of another round of LTRO were deemed unlikely, particularly while German economists continue to warn about inflation and a potential credit bubble.
18.40 Bad news Part II for fans of quantitative easing.
After yesterday’s indications from the Fed that fewer members of the Federal Open Markets Committee (FOMC) thought another round of monetary stimulus would be needed as the US economy picks up, a leading official from the central bank has put the tin lid on it.
San Francisco Fed President John Williams said today:
The arguments for doing another dose of monetary stimulus aren’t nearly as strong. Relative to a few months ago, I think the downside risks to the US economy have lessened.
As recently as February, Mr Williams had said that more bond-buying could well be in the cards, Reuters reported. However he did say interest rates would be likely to need to stay close to zero until the end of 2014 to keep the recovery going.
Time to put the printing presses back in retirement…
18.25 A horrible thing has happened in Athens – a 77-year-old man has shot himself outside the country’s parliament in Syntagma Square, apparently in despair over his debts.
The suicide follows that of a pensioner in Italy yesterday, who threw herself off her balcony after her pension was cut.
While it would going far too far to blame the eurozone crisis for these debts, it does demonstrate that “austerity” is not an abstract concept.
Nick Squires reports from Italy:
The pensioner, from the town of Gela in Sicily, had recently had her pension cut from 800 euros a month and was reportedly struggling to make ends meet.
“The government is making us all poorer, apart from the wealthy, who they don’t touch, in contrast with us workers and small businessmen who are struggling with heavy debts,” said her son, Bruno Marsana.
Her death came a week after a 58-year-old businessman tried to commit suicide by setting himself alight while sitting in his car outside a tax office in Bologna in northern Italy.
17.45 It’s not just stock markets which are down today – the euro is at a three-week low against the dollar as concerns about another meltdown in the eurozone increase.
The single currency was trading down 0.8pc at $1.3124, and fell as low as $1.3105, the lowest since mid March.
The euro was also down 0.6pc against the pound, making a euro worth 82.69p.
17.10 Ambrose Evans-Pritchard, the Telegraph’s international business editor and all-round eurozone guru, spent last week in Germany and has posted his thoughts on how Germany views the state of the euro crisis and what it is likely to do next.
It won’t surprise regular readers of AEP to learn that he doesn’t agree with the German powers that be.. He writes:
If anything is clear in Berlin, it is that Germany’s elites think they have basically solved the crisis by pushing through debt relief for Greece, by imposing their Fiscal Compact on Europe, and by beefing up the firewall to €700bn (actually just €500bn).
They are on a different planet from City grunts at the coal face of global debt markets, who mostly suspect that Euroland’s cancer is in brief remission, and who know that Europe is going to pay a very high price for forcing banks, insurers, pension funds, and sovereign wealth funds to accept a 75pc haircut on €200bn of Greek debt – the biggest act of expropriation and theft in history. (The Norwegian Petroleum Fund has already declared war.)
The German elites seem to believe that a new cycle of global growth is safely under way after the nasty scare of the winter, and that the European Central Bank has done more than enough to shore up Club Med and the EMU banking system – too much, if anything, risking an inflationary surge (in their view, obviously, not mine).
Europe will remain in danger as long as Germany’s leadership class is packed with European true-believers. The Continent will be safe again only once Germany has rid itself of this ideological obsession and regained its rightful place as a proud, patriotic, sovereign state.
16.40 European markets are now closed, and it’s been a bad day at the office all over the Continent:
The FTSE 100 closed down 2.3pc at 5,703.77 points, while the DAX was down 3pc in Germany and the CAC lost 2.8pc in Paris.
In New York, the Dow Jones is also still trading down, off 1.1pc at 13,051 in lunchtime trading there.
There are a number of solid economic reasons for the markets to be down, but could there be a more prosaic reason, like the Easter holidays, for today’s drop? Will Hedden of IG Index tweets:
15.10 There seem to be a number of factors driving markets lower today – a reaction to yesterday’s indication by the Fed that another round of monetary stimulus, aka QE, is looking less likely, and increased concerns about a new blow-up in the eurozone, after Spain’s bond auction saw it pay more to borrow (see 10.02 post).
European Central Bank boss Mario Draghi‘s comments that the region’s economy is subject to downside risks because of commodity prices and the ongoing debt crisis is also weighing on sentiment.
14.48 Wall Street is opening lower, still reeling from the Fed signaling that more QE was unlikely.
The Dow Jones has fallen by 0.86pc, the S&P 500 has dropped 0.79pc and the Nasdaq slipped 0.9pc.
European markets are still down quite a bit, with the FTSE 100 down 1.6pc to 5,744 points, the CAC is down 1.9pc in Paris and the German DAX is off 1.9pc.
14.31 Britain’s services sector has posted stronger than expected growth, and some analysts are talking about the “green shoots of recovery”. But not Roger Bootle.
The Telegraph’s economics columnist and Wolfson prize nominee tells Robert Miller in the video below why a “blow-up” in the eurozone, “pathetic” growth rates and rising unemployment will continue to dent UK consumer confidence for some time yet.
14.14 US Treasury Secretary Timothy Geithner has also been talking this afternoon; he criticised Republicans for focusing on spending and tax cuts and not economic growth.
A growth strategy for the American economy requires more than promises to cut taxes and spending. We have to be willing to do things, not just cut things.
14.01 It’s too early for the ECB to stop its eurozone debt crisis measures, says Draghi:
Given the present conditions of output and unemployment, which is at historical high, any exit strategy talking for the time being is premature.
13.44 More from Mario Draghi:
Downside risks to the economic outlook prevail. Survey indicators for economic growth have broadly stabilised at low levels in the early months of 2012 and a moderate recovery in activity is expected in the course of the year.
The information that has become availabe since the beginning of March broadly confirms our previous assessment. Inflation rates are likely to stay above 2 percent in 2012 with upside risks remaining.
Over the policy relevant horizon we expect price developments to remain in line with price stability. Consistent with this picture the underlying pace of monetary expansion remains subdued.
13.42 Draghi says that the ECB will need time to tell what the full impact of three-year funding is.
13.38 Some more key points from Draghi:
•Eurozone inflation should fall below 2pc in 2013
• Upside inflation risks in near term from oil prices
• Tension in sovereign debt markets and high unemployment to dampen growth
13.36 Mario Draghi’s press conference has begun. He says that the ECB sees inflation upside risks prevailing in 2012.
13.13 Jonathan Loynes, chief European economist at Capital Economics, has written about what he believes Draghi will say at the upcoming conference:
He will presumably have to acknowledge that some of the market optimism which followed the LTROs in December and February appears to be wearing off, with Spanish 10 year bond yields moving decisively back above 5.5pc today and the euro dropping. However, he is likely to stress again that the LTROs were designed to prevent a credit crunch, not to support sovereign debt markets. Accordingly, while the ECB might be prepared to provide more liquidity support to banks if lending does not soon start to pick up, it is up to the region’s governments to address their deeper fiscal problems.
13.05 There will be a press conference with Mario Draghi at 1.30pm London time. Stay tuned for more.
12.58 The ECB has left eurozone borrowing costs at their historic low on the same day that service PMI data pointed towards a recession across the single currency area. Banks have now borrowed more than €1 trillion from the ECB at these rates, which, it is hoped, will be lent to businesses and help spark economic recovery.
12.47 And the ECB has left interest rates unchanged at 1pc…
12.11 It’s almost time to start talking about green shoots, writes Philip Aldrick:
So much for the dreaded double dip. If the keenly watched PMI is right, the economy expanded by 0.5pc in the three months to March – more than making up for the 0.3pc contraction in the final quarter of 2011. So much for last week’s warning from the Organisation for Economic Co-operation & Development that the UK shrank 0.1pc – plunging the country back into a technical recession for the first time since 2009. So has the UK moved from green-gilled to green shoots?
11.26 Manufacturing data from Germany shows that industrial orders were up just 0.3pc in February. Economists had expected a rise of over 1pc after a drop in January. Orders from outside the eurozone were 5pc higher, which compensated for a 1.4pc drop from inside Germany and a 3.2pc fall in demand from the single currency area.
11.12 David Cameron is now speaking on his Big Society bank – designed to fund good causes like playgroups and libraries:
Corporate social responsibility is not some add-on, it’s something that should flow through your whole business. If you invest in genuine training programs to get people back in work now you save on welfare bills later. But the trouble is that the whole ethos of Government is highly sceptical of spending upfront… that’s where I think businesses can come in.
Whatever the critics say, business does have a role to play. I think it’s absolutely essential that we grow our economy, but that we grow our society too.
10.58 John Redwood, MP for Wokingham, has written on the Wolfson Economics Prize on his personal blog this morning:
I read the five shortlisted entries for the Wolfson prize yesterday. The essay competition asked authors to assess how to manage the process if member states left the Euro. The media has decided to trivialise the whole topic by concentrating on a picture of a pizza drawn by a 10 year old.
Incidentally, our story on 11-year-old Jurre Hermans’s proposal can be found here. And Telegraph columnist/Wolfson Economics Prize short-listed entrant Roger Bootle writes on the same subject here.
10.30 At this point it’s worth an update on the rest of the European markets, which are being affected by a triptych of bad news: the US Fed announcing that further QE was unlikely, a probable eurozone recession highlighted by poor services data and an unsuccessful Spanish bond auction:
The FTSE 100 has lost 1.15pc, the DAX has slipped 1.76pc and the CAC is 1.3pc lower.
10.27 Spain’s IBEX index has slipped 0.64pc today, slumping to a four-month low of 7,778.1 on the back of that unsuccessful bond auction and services data that points to a eurozone recession. Spain itself saw an increase in its services PMI, but the sector is still contracting. This all leads financial reporter Fabrizio Goria to ask:
10.10 A gloomy graph on the eurozone here from Markit. It shows that the composite PMI, which includes the services data out this morning, has fallen into negative territory. Alongside that, it points out that GDP is now shrinking – placing the eurozone firmly into recession.
10.02 Bad news for Spain. It held a bond auction today, hoping to get away €3.5bn, but only found buyers for €2.59bn – and had to pay higher rates than in previous sales, at 5.338pc.
And more bad news: the cost of five-year credit default swaps (effectively an insurance policy against default) have risen 8bps to 445bps. That means that it would now cost $445,000 each year to insure $10m worth of five-year bonds.
09.51 Markit isn’t alone in predicting that the UK has escaped a double-dip recession. Howard Archer, from IHS Global Insight, said:
Given the dominant role of the services sector in the economy, the relatively upbeat purchasing managers’ survey for March provides a major lift to hopes that the economy saw clear growth in the first quarter.
We currently estimate GDP growth at around 0.3pc quarter-on-quarter in the first quarter, and the improved purchasing managers’ surveys mean that there is a chance that this could be on the pessimistic side.
The UK economy though is not yet out of the economic woods and dangers continue to lurk in the form of still squeezed consumers, tight fiscal policy and still serious problems in the Eurozone. Meanwhile, current elevated oil prices are a serious concern to growth prospects.
09.39 And the UK services PMI is now out: it beat expectations by rising to 55.3 from 53.8 in February. That’s the highest quarter since the second of 2010 and will boost optimism that the UK has managed to avoid a double-dip recession (as was predicted by the OECD last week). In fact, Markit, which compiles the data, suggests that the economy will actually have grown 0.5pc in Q1.
09.32 The rest of European needs to be ready to give more help to Portugal, Olli Rehn tolda Finnish television show:
From the European Union side, it would be wise to be prepared that some kind of bridge needs to be built when Portugal returns to the markets.
09.11 The German services PMI is now out: it fell to 52.1, from 52.8 in the previous month. Also out is the eurozone services PMI, which rose from 48.8 to 49.2, edging towards growth. That’s higher than expected – but probably not enough to have saved the eurozone from recession. Take a look at the graph below, and bear in mind that an index above 50 represents growth and below, contraction.
09.05 Jean-Claude Juncker has this morning demanded more discipline from EU officials after Austria’s finance minister leaked an “embryonic decision” from talks last week.
All I can do is make a permanent call for discipline of those involved … I am very much in favour of transparency but against loose talk. Sometimes we have market-relevant information, which if released early before a debate has been completed could lead to turbulence in the markets. This hurts people, including many ordinary people.
08.53 France next: the services PMI rose – just – from 50 to 50.1, taking it from stagnation to extremely slow growth.
08.45 Next up is Italy’s services PMI: it’s up from 44.1 in February to 44.3 in March. So, still contracting, but less quickly than previous. We’ll keep updating the graph below as new data comes in.
08.29 European markets are now open for the day, and as predicted (06.45) they’ve slipped slightly.
The FTSE 100 has fallen 0.37pc, the DAX has dropped 1.03pc and the CAC has lost 0.82pc.
08.15 Next up is Spain: the the Markit PMI for services rose to 46.3 in March, from 41.9 in February. So, still contracting, but less quickly. Coupled with poor manufacturing data released on Monday, it now looks increasingly likely that Spain has fallen back into recession.
07.55 We have a steady stream of services data due out this morning. First up is Ireland, which saw a fall in the NCB Purchasing Managers’ Index from 53.3 in February to 52.1 last month. Anything above 50 represents growth, so it’s still expanding, albeit at a slower pace. The PMI sub-index measuring staffing levels rose to 51.9 from 47.9 – emerging into growth, which is good news for unemployment levels.
07.49 As well as the ECB interest rate decision, there will also be a meeting today to decide on the Bank of England base rate. But the results will be secret until an official announcement tomorrow.
07.42 The ECB looks likely to hold interest rates at a record low of 1pc today and ignore criticism that its crisis measures risk stoking inflation. The bank has pumped over €1 trillion into the financial system with its LTRO lending.
The ECB believes it’s too early to stop the plan, and they’re not alone. Berenberg Bank’s Christian Schulz, a former ECB economist, said:
I think the situation is far too fragile for the ECB to meddle in exit strategies at the moment, especially if you look at Spain. It’s clear the downtrend in yields on sovereign bonds was triggered by the LTROs. If the ECB were to say ‘well, actually now we’re thinking about exiting this strategy’, that would cause concern over whether these low interest rates are sustainable. That’s why I think they’ll be extremely cautious.
07.19 So, what’s on the agenda for today? We have eurozone PMI data for services out soon, which will give a good indication as to how the recovery is going, and then retail sales data too. After that we have the ECB interest rate decision – it’s expected that they’ll hold firm at 1pc. Stay tuned.
06.45 European shares will likely fall for a second day today, tracking losses on Wall Street and in Asia overnight – Tokyo tumbled 2.29pc, Seoul slipped 1.5pc – after minutes from the US Fed’s March meeting suggested that more QE was increasingly unlikely.
Financial spreadbetters expect the FTSE 100 to slide 0.3pc on opening, while the DAX is predicted to drop 0.8pc and the CAC by 0.7pc.
06.20 Time for a quick look at this morning’s newspaper front pages: The Financial Times has gone with James Murdoch stepping down, as well as Ian Hannam resigning, while the 11-year-old boy who developed a plan for a euro break-up has made the front page of The Times.
06.15 Over in America yesterday, the Federal Reserve Open Markets Committee published the minutes of their latest meeting. They revealed that fewer FOMC members (equivalent to the Bank of England’s rate-setting MPC) thought more QE would be needed if the US economy starts to lose momentum, than felt that way in January.
The FOMC policymakers noted the signs of stronger growth in the US economy but said they remained cautious about a broad-based recovery, mentioning the still-high levels of unemployment and the possibility of risks from weaker growth in countries outside the US.
Some market-watchers also saw an indication that the FOMC is now slighlty less committed to keeping interest rates at a record low until the end of 2014, introducing a note of uncertainty.
Brian Jacobsen, chief fixed-income strategist at Wells Fargo Advantage Funds said:
The committee’s discussion was in line with my view that the Fed has a fairly high bar for implementing additional easing. That conclusion is what the markets are reacting to with the dollar strengthening, bonds down, stocks down and gold down a bit.
The Fed has a high bar for additional easing and investors should not really expect that the news flow will be conducive to the Fed putting in additional easing by the end of April or even June.
Robbert van Batenburg, head of global research at Louis Capital Markets said:
They are more on the fence now about keeping rates exceptionally low through at least late 2014. This is not what the market is looking for. It comes as a bit of surprise. The (stock) market is selling off here.
06.10 More from Lagarde:She believes a strong US economy and “strong US economic leadership” is neededfor the stability of the world economy:
Today, the world needs the IMF more than ever. Why? We can provide a circle of protection against global turbulence, and help members adjust to changing circumstances with minimal disruption.
But to do this effectively in today’s world, we need more resources. As I said earlier, now that the Europeans have moved first with their firewall, the time has come to increase our firepower.
The ratio of Fund quotas to world GDP is significantly lower today than in the past. Sixty years ago, it was as much as three to four times higher. We’ve a lot of ground to make up.
Together, the community can accomplish what the individual cannot, and everybody benefits. We should think of pooling our global resources in precisely these terms.
06.05 The big European news yesterday (apart from BSkyB chairman James Murdoch stepping down) was Christine Lagarde calling on the US to increase its funding to the IMF. Ms Lagarde said:
Americans might ask themselves: why should what happens in the rest of the world concern us? Don’t we have our own problems? The answer is simple: In today’s world, we cannot afford the luxury of staying in our own mental backyards.
If the European economy falters, the American recovery and American jobs would be in jeopardy. So America has a large stake in how Europe fare – and how the world fares.
06.00 Good morning and welcome back to our live coverage of the European debt crisis.
Debt crisis live: archive