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A new EU summit is getting under way in Brussels with issues of jobs and growth expected to dominate its agenda.
The eurozone as a whole has been in recession for more than a year and unemployment is now just under 12%.
France and some other countries want more flexibility in the budget targets set by the EU Commission, as austerity has provoked widespread protests.
France and Spain, hit hard by the debt crisis, expect to miss their budget deficit targets this year.
But Germany’s Chancellor Angela Merkel remains determined to keep Europe focused on budget discipline, to prevent any resurgence of market jitters about eurozone stability.
Cyprus, whose major banks are crippled by debts, wants to secure an international bailout of up to 17 billion euros ($22 billion). There is unlikely to be a deal on that at the Brussels summit, as EU finance ministers are still working on the details.
A eurozone summit will follow the main EU summit late on Thursday. Foreign policy issues, including relations with Russia, will be the focus on Friday.
Proposals to deepen eurozone integration will dominate an EU summit in June. The first “building block” of that will be a banking union, which will give the European Central Bank (ECB) far-reaching supervisory powers.
A new EU summit is getting under way in Brussels with issues of jobs and growth expected to dominate its agenda
There is a big debate in the EU about whether austerity is making the prospects for recovery worse.
The debate has been given new impetus by last month’s Italian election, where an anti-austerity protest movement led by the comedian Beppe Grillo performed very strongly.
This is expected to be the last EU summit for outgoing Italian PM Mario Monti, an unelected technocrat who had firm backing from Brussels but got just 10% in the election.
Some economists argue that in current circumstances austerity can actually make government borrowing rise, partly because of the impact that declining production has on tax revenue and welfare spending.
There is a drive in the EU to pursue tax evaders, including some big corporations who exploit the complexity of commercial law to reduce their tax bill.
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Eurozone unemployment rate rose to a new record high in January, official figures show.
The jobless rate in the 17 countries that use the euro rose to 11.9% in January from 11.8% in December, the statistics agency Eurostat said.
The highest rate was 27% in Greece, although the most recent figure there was from November, while the lowest rate was 4.9% in Austria.
Eurostat also said eurozone inflation had fallen to 1.8% in February.
The inflation figure was the lowest for two years, putting it in line with the European Central Bank’s (ECB) inflation target of below, but close to 2%.
The jobless rate in the 17 countries that use the euro rose to 11.9 percent in January 2013 from 11.8 percent in December 2012
Analysts said that the high unemployment and low figure for inflation would make it more likely that the ECB would cut its interest rates later in the year from the current rate of 0.75%.
“All the data is supporting a rate cut, which we see in the second quarter,” said Sarah Hewin from Standard Chartered.
“They could move as early as next week, but there’s an element of the ECB wanting to keep its powder dry as we enter an uncertain political situation with Italy and the Cypriot debt question has to be resolved.”
The highest unemployment rates among countries that have reported their January figures were 26.2% in Spain and 17.6% in Portugal.
Unemployment in the 27 countries that make up the European Union rose to 10.8% in January from 10.7% the previous month.
The European Commission has said Spain, France and Portugal have failed to cut overspending to agreed targets.
Spain’s government deficit was 10.2% of the country’s economic output in 2012, well above the agreed 6.3% target, and will stay far above target into 2014.
Meanwhile, the Commission joined other major international organizations in admitting that the eurozone economy would contract in 2013.
It is forecast to shrink 0.3%, making the governments’ task even harder.
Previously, the Commission had expected the 17 economies in the eurozone would collectively enjoy 0.1% positive growth this year.
Delivering its winter forecast, Commission Vice-President Olli Rehn said that the eurozone was nonetheless expected to rebound in the last three months of this year, registering 0.7% growth in the fourth quarter.
The Commission is concerned about a “surprise” fall in Portugal’s economy, which fell 3.2% in 2012 and is forecast to contract by another 1.9% in 2013.
The European Commission joined other major international organizations in admitting that the eurozone economy would contract in 2013
Most economic forecasters have been revising down their European growth estimates, after the global economic recovery showed signs of faltering in the final quarter of 2012.
For example, in January the International Monetary Fund (IMF) said it expected the eurozone to fall into “mild recession” in 2013, having previously predicted growth.
It also predicted that the UK would grow 1% in 2013, compared with the 1.1% previously forecast.
The World Bank also revised down its global growth forecasts earlier in January.
But European Central Bank (ECB) president Mario Draghi believes the eurozone will begin recovering in the second half of this year.
And this week, Germany’s Bundesbank said Europe’s biggest economy would avoid recession and return to growth in the first quarter of 2013, after shrinking 0.6% in the last three months of 2012.
It expects Germany to continue growing throughout 2013.
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Germany’s economy grew by 0.7 percent in 2012, a sharp slowdown on the previous year
Germany’s economy grew by 0.7% in 2012, a sharp slowdown on the previous year, preliminary figures show.
The figure was well below the 3% growth seen in 2011 and suggests the economy contracted in the fourth quarter.
“In 2012, the German economy proved to be resistant in a difficult economic environment and withstood the European recession,” the federal statistics office Destatis said.
Some analysts believe the German economy will enter recession itself.
Destatis said economic activity “slowed down considerably” in the second half of the year, and particularly in the final quarter.
“The full-year growth figure [of 0.7%] implies a contraction of around half a percentage point in the fourth quarter,” the office’s top statistician Norbert Raeth said.
Last month, Germany’s central bank, the Bundesbank, cut its growth forecast for this year to 0.4% and warned that the economy may have contracted in the final three months of 2012, and may do so again in first quarter of 2013.
The eurozone economy as a whole is already in recession, having contracted in both in the third and fourth quarters of last year.
For 2012 as a whole, Destatis said foreign trade was “very robust”, with exports up 4.1% on 2011. Imports grew by 2.3%. The positive trade balance was “once again the main driving force for economic growth in Germany”.
Household expenditure increased by 0.8%, while government spending was up 1%.
The figures also showed that while the service sector of the economy expanded, industry and construction contracted.
Destatis will publish official fourth-quarter growth figures on February 14.
Eurozone unemployment rate hit a new all-time high of 11.8% in November, official figures have shown.
This is a slight rise on 11.7% for the 17-nation region in October. The rate for the European Union as a whole in November was unchanged at 10.7%.
Spain, which is mired in deep recession, again recorded the highest unemployment rate, coming in at 26.6%.
More than 26 million people are now unemployed across the EU.
For the eurozone, the number of people without work reached 18.8 million said Eurostat, the official European statistics agency said.
Greece had the second-highest unemployment rate in November, at 20%.
The youth unemployment rate was 24.4% in the eurozone, and 23.7% in the wider European Union. Youth unemployment – among people under 25 – was highest in Greece (57.6%), followed by Spain (56.5%).
Overall unemployment was lowest in Austria (4.5%), Luxembourg (5.1%) and Germany (5.4%).
Eurozone unemployment rate hit a new all-time high of 11.8 percent in November 2012
The eurozone and wider European Union economies are struggling with recession as government measures to reduce sovereign debt levels have impacted on economic growth.
However, European Commission President Jose Manuel Barroso said on Monday that he believed the worst was over.
Jose Manuel Barroso said the turning point was last September’s promise from the European Central Bank to buy unlimited amounts of eurozone states’ debts.
But in the view of the UK’s Institute of Directors, whose members rely on demand from trading partners in the eurozone, this “has bought time, but that is all it has done”.
“It is clear that the economic implosion of several member states continues at a troubling pace,” said the business group’s chief economist Graeme Leach.
“The headline figures spell bad news, but that is compounded by the political and human impact of terrifying levels of youth unemployment in Spain, Greece and Italy.
“This saga is far from over, whatever President Barroso may believe, and it seems it is set to get worse in 2013.”
Rabobank economist Jan Foley said the rise in unemployment was “the other side of austerity or structural reform.”
“There is a very worrying picture painted by these numbers, and governments do need to wonder if they need more pro-growth strategies in the next few years,” she said.
The record low for the eurozone unemployment rate was 7.2%, which was recorded in February 2008, before the financial crisis that first gripped the banking sector spread to the real economy.
The historic low for the eurozone youth unemployment rate was 15% in March 2008.
Standard and Poor’s has raised the credit rating of Greece’s sovereign debt by six levels, praising the “strong determination” of fellow European countries to help it stay in the eurozone.
S&P has increased Greece’s rating from “selective default” to “B-minus”.
The rating agency also praised the continuing efforts by Greece’s government to cut its spending.
Greece is currently receiving the second of two bailouts.
Last week, Greece started to receive the latest tranche of the bailout funds from the European Union and International Monetary Fund.
They agreed to release 49.1 billion euros ($57 billion) after continuing austerity work by Greece, and a buyback of some of its debt.
A total of 240 billion euros has been earmarked for Greece from the two bailout loans.
So far, Greece has received nearly 149 billion euros ($191 billion) from the eurozone and the International Monetary Fund, out of that 240billion euros.
S&P said in its statement: “The upgrade reflects our view of the strong determination of European Economic and Monetary Union (eurozone) member states to preserve Greek membership in the eurozone.
“The outlook on the long-term rating is stable, balancing our view of the government’s commitment to a fiscal and structural adjustment against the economic and political challenges of doing so.”
Greece had to seek the bailouts to meet its debt repayments after years of overspending meant it could not keep up with its debt obligations.
The negative market opinion of Greece’s situation only worsened its position, as it pushed up the yield, or level of interest, that the country had to offer on the sale of its new government bonds, in order to attract buyers.
European finance ministers have reached a deal on rules for supervising eurozone banks, ahead of a new EU summit.
Around 200 of the biggest banks will come under the direct oversight of the European Central Bank, which will act as chief supervisor of eurozone banks.
The agreement – a key step towards banking union – will be put before European leaders later on Thursday.
New rules on prudent banking are seen as vital to bolster the euro, as bank failures triggered the financial crash.
The measures are also aimed at preventing banking failures ending up on the books of eurozone governments.
“We have reached the main points to establish a European banking supervisor that should take on its work in 2014,” said German Finance Minister Wolfgang Schaeuble, after 14 hours of talks ended shortly before dawn on Thursday.
“Piece by piece, brick by brick, the banking union will be built on this first fundamental step today,” said EU Commissioner Michel Barnier.
German Chancellor Angela Merkel welcomed the agreement, telling the Bundestag (lower house of parliament) that Germany’s “core demands” had been secured.
“It cannot be praised too highly.”
She has previously warned against rushing into banking union out of concern that Germany would face further financial demands.
Significantly, a large number of French banks will be supervised by the ECB but rather few institutions in Germany will, because of its fragmented banking industry.
European Commission President Jose Manuel Barroso hailed the deal as “a crucial and very substantive step towards completion of the banking union”.
UK Chancellor George Osborne said the aim of protecting the interests of EU states not signing up to the banking union “has been achieved”.
Under the deal, banks with more than 30 billion euros ($39 billion) in assets will be placed under the oversight of the European Central Bank.
The ECB would also be able to intervene with smaller lenders and borrowers at the first sign of trouble.
Europe’s finance ministers have taken another major step towards closer integration, with a significant transfer of authority from national governments to the ECB.
The EU had already agreed that the ECB would act as chief supervisor of eurozone banks.
But the deal gives the ECB powers to close down eurozone banks that do not follow rules. It also paves the way for the EU’s main rescue fund to come to the direct aid of struggling banks.
It represents the first stage of a banking union – known as a Single Supervisory Mechanism (SSM) – which EU leaders believe can be put in place without having to change EU treaties.
But there have been some legal doubts about the subsequent stages – a joint deposit guarantee scheme and a joint resolution mechanism for winding up broken banks.
The UK, which is not in the eurozone, will not be joining the banking union but has won some protection against being marginalized when key decisions are taken.
The UK and Denmark both have formal opt-outs from the euro.
The other EU states still outside the euro are committed to joining, and can sign up to the banking union in the meantime, although Sweden and the Czech Republic have made clear they will not.
For months, the scope of the ECB’s supervisory powers was the subject of strained negotiations.
France and Germany had been unable to agree the threshold at which the ECB would intervene – with Germany arguing that many of its regional banks were too small to warrant ECB attention.
While the European Central Bank will be responsible for the overall running of the SSM, it will be in close co-operation with the supervisory authorities of member states and the EU-wide European Banking Authority, which creates banking rules across all 27 member states.
The summit’s chairman, European Council President Herman Van Rompuy, will try to get a commitment to launch the SSM in January 2014 at the latest. His vision for far-reaching eurozone integration is set out in a report, which will be the focus of the discussions among EU leaders in Brussels on Thursday.
While banking union is the immediate focus, the report also proposes “contractual” arrangements between eurozone governments and the Commission, to prevent governments delaying, or reneging on, important economic reforms.
EU leaders are likely to avoid any measures that could trigger treaty change before the European elections in mid-2014, because treaty change is nearly always a thorny issue for the EU. It took seven years for the EU to adopt the Lisbon Treaty.
There is strong opposition in Germany and other richer eurozone nations to any further taxpayer-funded bailouts of indebted banks and governments.
Germany’s Constitutional Court has already flexed its legal muscles over eurozone integration.
Eurozone unemployment rate hit a new record high in October, while consumer price rises slowed sharply.
The jobless rate in the recessionary euro area rose to 11.7%. Inflation fell from 2.5% to 2.2% in November.
The data came as European Central Bank President Mario Draghi warned the euro would not emerge from its crisis until the second half of next year.
Government spending cuts would continue to hurt growth in the short-term, Mario Draghi said.
The unemployment rate continued its steady rise, reaching 11.7% in October, up from 11.6% the month before and 10.4% a year ago.
A further 173,000 were out of work across the single currency area, bringing the total to 18.7 million.
The respective fortunes of northern and southern Europe diverged further. In Spain, the jobless rate rose to 26.2% from 25.8% the previous month, and in Italy it rose to 11.1% from 10.8%.
In contrast, unemployment in Germany held steady at 5.4% of the labor force, while in Austria it fell from 4.4% to just 4.3%.
Data earlier this month showed that the eurozone had returned to a shallow recession in the three months to September, shrinking 0.1% during the quarter, following a 0.2% contraction the previous quarter.
The less competitive southern European economies, such as Spain and Italy – where governments have had to push through hefty spending cuts to get their borrowing under control, and crisis-struck banks have been cutting back their lending – have been in recession for over a year.
But the economies of Germany and France have also begun to weaken. Growth in the eurozone’s two biggest economies came in at a disappointing 0.2%.
And more recent data suggests that both core eurozone economies have continued to skirt recession during the autumn.
Retail sales in Germany shrank 2.8% in October versus the previous month, down 0.8% from a year earlier, according to data released on Friday. Analysts had expected the country to record unchanged or moderately growing sales.
Meanwhile, separate data showed consumer spending in France shrank 0.2% in October versus the previous month, with spending on cars and other durable goods hardest hit.
The sharp slowdown in the eurozone’s consumer price index, to 2.2% in November, is also symptomatic of the weakness of spending.
However, the inflation data may also open the door to further measures by the ECB to boost the economy, as the index fell much closer to the central bank’s 2% target rate.
“We have not yet emerged from the crisis,” said Mario Draghi, speaking on pan-European radio.
“The recovery of the eurozone will certainly begin in the second half of 2013.
“It’s true that the budgetary consolidation entails a short-term contraction of economic activity, but this budgetary consolidation is inevitable.”
Despite Mario Draghi’s warning, and the generally poor state of the eurozone economy, markets have begun to take a far more sanguine view of the single currency’s future.
Italy’s implicit cost of borrowing in the financial markets has fallen to its lowest level in two years, dropping to an implied interest rate of about 4.5% for 10-year debt.
Spain is able to borrow from markets at a 10-year rate of about 5.5% – far below the 7%-8% rate being demanded over the summer.
Mario Draghi conceded that the announcement of the ECB’s willingness to buy up potentially unlimited amounts of government debt had boosted market confidence, even though no eurozone government had actually taken up the ECB’s offer yet.
However, borrowing costs in southern Europe still remain elevated compared with France and especially Germany. Berlin is currently able to borrow for 10 years at 1.37%, close to an all-time low.
“For now, what the ECB has done is to stop the bleeding,” said Stephen Gallo at RBS.
“The central bank needs to close the gap in loan borrowing costs between the periphery and the core.”
However, Stephen Gallo said in his view the only way to do this was for the eurozone to move ahead with its “banking union” – which includes putting all eurozone banks under a common regulator, and creating a pan-eurozone scheme for guaranteeing bank accounts.
He was echoing the view of Christine Lagarde, head of the International Monetary Fund, who on Friday said that creating a single deposit guarantee system should be Europe’s top priority, more important than getting government budgets under control.
Fears over a possible government default or exit from the eurozone have made it much harder for Spanish and Italian banks to borrow, and put them at risk of a sudden exodus of depositors. This in turn has undermined the banks’ role in supporting their respective national economies.
EU budget summit held in Brussels has ended without agreement on the 27-strong union’s next seven-year budget.
Another meeting will have to be called to sort out the difficulties but it is unclear how differences will be resolved.
European Council chief Herman Van Rompuy said he was confident a deal would be reached early next year.
Hours of talks failed to bridge big gaps between richer countries and those which rely most on EU funding.
The UK said current EU spending levels must be frozen.
The EU’s divisions are very clear and have become even more stark at a time of economic crisis.
Herman Van Rompuy had reshuffled the allocations in his original proposed budget during the summit, but he kept in place a spending ceiling of 973 billion euros ($1.2 trillion).
With the eurozone’s dominant states, Germany and France, unable to agree on the budget, UK Prime Minister David Cameron had warned against “unaffordable spending”.
The failure to decide on a budget came just days after the finance ministers of the 17 eurozone states failed to agree on conditions for releasing a new tranche of bailout money to Greece, raising questions about the union’s decision-making process.
Herman Van Rompuy’s budget had been unacceptable to a number of other countries, not just Britain, David Cameron told reporters.
“Together, we had a very clear message: <<We are not going to be tough on budgets at home just to come here and sign up to big increases in European spending>>,” he said.
“We haven’t got the deal we wanted but we’ve stopped what would have been an unacceptable deal,” he added.
“And in European terms I think that goes down as progress.”
EU budget summit held in Brussels has ended without agreement on the 27-strong union’s next seven-year budget
German Chancellor Angela Merkel said she was sympathetic towards David Cameron’s view – but no more than she was to all countries involved in the discussion.
“The discussions, both the bilateral discussions and the common discussion, have shown us that there is sufficient potential for an agreement,” she added.
French President Francois Hollande said the summit had made “progress”.
“There were no threats, no ultimatums,” he told reporters.
“Angela Merkel and I both agreed that it would be better to take some time out because we want there to be an agreement.”
Without naming the UK, he also said it was time the system of budget rebates was reconsidered.
“It is a paradox, because some net contributors [EU countries that pay in more than they get back] get some of the money back even though they are in a situation where they are wealthy enough for them not to get this money back,” Francois Hollande said.
Lithuanian President Dalia Grybauskaite remarked that the atmosphere at the summit had been “surprisingly good because the divergence in opinions was so large that there was nothing to argue about”.
European Commission chief Jose Manuel Barroso said the talks had failed owing to “important differences of opinion – especially in overall size of the budget”.
The Commission, which drafts EU laws, had originally called for a budget of 1.025 trillion euros.
Its position was supported by the European Parliament and many countries which are net beneficiaries, including Poland, Hungary and Spain.
While most EU members supported some increase in the budget, several, mostly the big net contributors, argued it was unacceptable at a time of austerity.
Germany, the UK, France and Italy are the biggest net contributors to the budget, which amounts to about 1% of the EU’s overall GDP.
Herman Van Rompuy’s revised budget would have softened the blow to the two main areas of spending: development in the EU’s poorer regions, and agriculture.
Instead, there would have been greater cuts to energy, transport, broadband and the EU’s foreign service.
His proposal, put to leaders on Thursday evening, would have made no change to the level of administrative costs – something the UK might have found unacceptable.
Speaking after the summit, Herman Van Rompuy said: “My feeling is that we can go further… It has to be balanced and well prepared, not in the mood of improvisation, because we are touching upon jobs, we are touching upon sensitive issues.”
Failure to agree on the budget by the end of next year would mean rolling over the 2013 budget into 2014 on a month-by-month basis, putting some long-term projects at risk.
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Eurozone unemployment rate hit to a new high of 18.49 million in September, the EU statistics agency has said.
The number of people out of work rose by 146,000, pushing the unemployment rate up to 11.6%. This compares with 10.3% a year earlier.
The highest unemployment rate was recorded in Spain, where 25.8% of the workforce is out of a job, and the lowest of 4.4% was recorded in Austria.
In Spain and Greece, more than half the workforce aged under 25 has no job.
The lowest youth unemployment rate of 8% was recorded in Germany, where 5.4% of the overall workforce is out of work.
The eurozone as a whole is struggling to generate the economic growth needed to stimulate employment. Its economy shrank by 0.2% between April and June, with Italy and Spain stuck in recession and France registering no growth for the past three quarters.
The notable exception is the German economy, Europe’s biggest, which grew by 0.3% in the second quarter.
Growth there is expected to slow when preliminary figures for eurozone GDP between August and October will be published on 15 November.
Across the wider 27-nation European Union, unemployment rose by 169,000 to 25.75 million people, Eurostat said, with the unemployment rate rising slightly to 10.6%.
September unemployment rates
• Spain: 25.8%
• Portugal: 15.7%
• Italy: 10.8%
• France: 10.8%
• Germany: 5.4%
• Eurozone: 11.6%
• US: 7.8%
• Japan: 4.2%
Source: Eurostat
A new survey suggests that business activity in the eurozone contracted at its fastest pace in almost three-and-a-half years in October.
The Markit Flash Eurozone Purchasing Managers’ (PMI) Composite Output Index fell to 45.8, from 46.1 in September. A figure below 50 indicates contraction.
The reading is consistent with a quarterly rate of economic contraction in the bloc of 0.5%, Markit said.
Firms also continued to cut employment, but at a slightly slower rate.
The figures represent an initial estimate based on 85% of the normal number of monthly responses, and so are likely to be revised slightly.
Earlier, PMI figures collected by HSBC bank showed that manufacturing activity in China in October slowed at a slower pace than in previous months. The country’s PMI hit 49.1, up from 47.9 in September and the highest level in three months.
The rate of decline in the services sector eased in the eurozone, to 46.2 from 46.1 in September, but in manufacturing the rate accelerated, to 45.3 from 46.1.
Despite the easing in services, optimism in the sector deteriorated, suggesting employment would be cut further, Markit said.
Europe’s industrial powerhouse, Germany, saw output contract faster, with car exports particularly weak. France, the eurozone’s second largest economy, saw a “steep contraction” in overall business activity.
“The eurozone has slid further into decline at the start of the fourth quarter,” said Markit’s chief economist Chris Williamson.
“Official data have showed surprising resilience over the summer compared to the survey data, but the underlying business climate has clearly deteriorated markedly in recent months.
“While GDP may decline only modestly in the third quarter, a steeper fall looks to be on the cards for the fourth quarter.”
The eurozone economy contracted by 0.2% between April and June, having recorded no growth in the first quarter.
Many economists expect official figures, released in the middle of November, to show a further contraction between July and September, pushing the bloc back into recession.
“October’s decline in the eurozone composite PMI is an unpleasant surprise and reinforces concern that the economic downturn in the region may be deepening and widening,” said Martin van Vliet at ING.
Eurozone economies are struggling as governments focus on reducing debt levels following the financial crisis by cutting spending and increasing taxes, measures that are undermining growth.
German chancellor Angela Merkel has called for the EU to be given the power to veto member states’ budgets, as leaders meet in Brussels for a summit.
Angela Merkel said the EU economics commissioner should be given clear rights to intervene when national budgets violated the bloc’s rules.
But French President Francois Hollande said the summit must keep focused on plans for a banking union.
Francois Hollande wants action to revive growth, while Germany stresses budget discipline.
“The topic of this summit is not the fiscal union but the banking union, so the only decision that will be taken is to set up a banking union by the end of the year and especially the banking supervision. The other topic is not on the agenda,” Francois Hollande said.
The banking union plan is fraught with legal complications, as it would give more powers to the European Central Bank (ECB) and possibly weaken those of national regulators. There is speculation that it could lead to treaty changes – something that has caused big headaches for the EU in the past.
The aim is to agree first on joint banking supervision, with the ECB playing the lead role. But the UK – the EU’s main financial centre – wants safeguards to protect the powers of the Bank of England.
The UK and some of the other nine non-euro states are also concerned about voting rights in the proposed banking union.
France and Germany differ over the timetable for such a union, with Berlin advocating caution.
Germany is also at odds with the European Commission over the scope of the proposed ECB supervision. Under the plan, all 6,000 banks in the 17-nation eurozone would be included, but Germany wants it limited to the biggest, “systemic” banks.
As the summit got under way its chairman, European Council President Herman Van Rompuy, invited all 27 leaders to attend the Nobel Peace Prize ceremony in Norway. The EU was awarded the prize last week.
“To mark this joyful occasion I hope all EU Heads of State or Government will be able to join celebrations in Oslo in December,” he said on Twitter.
But Greece, the eurozone state worst hit by the debt crisis, was gripped by another 24-hour general strike on Thursday, with at least 20,000 protesters thronging central Athens, amid clashes between demonstrators and police.
Addressing the German parliament in Berlin on Thursday morning, Angela Merkel said the EU should have “real rights to intervene in national budgets” that breached the limits of the EU’s growth and stability pact.
The EU’s economics commissioner, she suggested, should have the authority to send a budget back to a national parliament.
Unfortunately, Angela Merkel said, some EU member states were not ready for such a step.
“I am astonished that, no sooner does someone make a progressive proposal… the cry immediately comes that this won’t work, Germany is isolated, we can’t do it,” she added.
“This is not how we build a credible Europe.”
On the banking union Angela Merkel has repeatedly stressed that “quality must trump speed”.
Prime Minister Fredrik Reinfeldt of Sweden, one of the 10 EU countries outside the euro, echoed her stance, saying “there are a lot of questions that need to be answered legally” and “it’s better to get things right than to rush things”.
The idea is that the ECB would be able to intervene early on to prevent a systemically dangerous accumulation of debt on a bank’s balance sheets.
Once the legal framework is in place the new permanent rescue fund, the European Stability Mechanism (ESM), will be able to recapitalize struggling banks directly, without adding to a country’s sovereign debt pile.
The prize is a system that avoids huge taxpayer-funded bailouts like those arranged for Greece, the Republic of Ireland and Portugal.
The summit is taking place amid calmer European stock markets than at previous meetings and with less immediate concern over the debt crises in Spain and Greece, analysts say.
UK Prime Minister David Cameron made it clear that improving the EU single market was his priority at the summit.
He said that in the “global race” there was a risk of the EU falling behind.
The EU single market “still isn’t finished, in digital, in services, in energy, and that is the agenda I’ll be pushing very hard at this council”, he said.
Later Finland’s Europe Minister, Alex Stubb, said the UK was looking increasingly isolated and the summit appeared to be “26 plus one”.
“I think Britain is right now, voluntarily, by its own will, putting itself in the margins,” he told Reuters news agency.
“It’s almost as if the boat is pulling away and one of our best friends is somehow saying ‘bye bye’ and there’s not really that much we can do about it.”
Banking union – Brussels’ 3-stage plan
• Single supervisory mechanism (SSM)
• Joint resolution scheme to wind down failing banks
• Joint deposit guarantee scheme
Ratings agency Standard & Poor’s has downgraded Spain’s credit rating, highlighting a deepening recession and mounting pressure on Madrid’s finances.
S&P cut Spanish debt from BBB+ to BBB-, one level above junk status, and warned of possible further downgrades.
Spain is struggling with high debt levels and the highest rate of unemployment in the eurozone.
Madrid has introduced drastic spending cuts and tax rises, but many think it will have no option but seek a bailout.
“The downgrade reflects our view of mounting risk to Spain’s public finances, due to rising economic and political pressures,” S&P said.
“The deepening economic recession is limiting the Spanish government’s policy options.”
Last month, the government unveiled its latest budget designed to make savings of around 13 billion euros ($16.7 billion) next year, by cutting public sector wages, education, health and social services.
The cuts were the latest in a series of austerity measures that have sparked angry protests across Spain.
Despite the cuts, tax rises, labor market and pension reforms, the Spanish government has said the country’s overall debt levels will rise next year to more than 90% of total economic output.
The country’s borrowing costs have remained high for months, leading many analysts to argue it is only a matter of time before Madrid is forced to ask its eurozone partners for financial assistance.
However, last week, Spanish Economy Minister Luis de Guindos denied his country would be asking for help.
“Spain does not need a bailout at all,” he said.
The number of unemployed people in France has topped 3 million for the first time since 1999, according to latest labor ministry figures.
August’s jobless total rose by 23,900 to 3.011 million, a 9% increase on a year earlier, marking the 16th consecutive monthly rise.
Speaking before the data was officially announced, Labour Minister Michel Sapin said: “It’s bad. It’s clearly bad.”
However, the government blamed the previous regime of Nicolas Sarkozy.
The number of unemployed people in France has topped 3 million for the first time since 1999
“These three million unemployed embody the failure of economic and social policies undertaken during the last few years,” the labor ministry said in a statement.
“In the face of this difficult report, the government is determined to implement as soon as possible reforms,” it said.
The news will, however, add pressure on President Francois Hollande, who came to power on a promise to revive the economy.
He won power in May, pledging to revive the eurozone’s second largest economy, tackle rising unemployment, and reverse industrial decline. However his approval rating is now at it lowest since he assumed power, pollsters say.
Since May, major companies have announced thousands of layoffs, including carmaker Peugeot, drugmaker Sanofi, airline Air France-KLM, and retailer Carrefour.
Analysts warned that the unemployment situation could worsen.
Mathieu Plane, economist at the French Economic Observatory, told the Reuters news agency: “There are almost one million more unemployed people compared with early 2008 and we can’t yet say that we have reached the peak.”
The French economy has posted three consecutive quarters of zero growth, and forward-looking data suggests it may continue to flatline.
“Confidence is weak both with companies and, even more so, with households. It’s not really surprising given the economy has fallen in recession and the private sector is facing the biggest tax hike in decades,” Bruno Cavalier, analyst at Oddo Securities, wrote in a research note.
The 2013 budget, due to go before the cabinet on Friday, is expected to contain more than 30bn euros in budget savings, and fresh tax rises.
The government has forecast 0.3% growth for the year, and has so far kept its 2013 target at 1.2%, which many economists now consider unrealistic.
France’s central bank this month predicted that the economy would contract by 0.1% in the third quarter after flatlining for the first half of the year.
Amid the gloom, French consumer confidence slipped two points in September from the previous month, the national statistics office said on Wednesday.
EU Commission President Jose Manuel Barroso has called for the EU to evolve into a “federation of nation-states”.
Addressing the EU parliament in Strasbourg, Jose Manuel Barroso said such a move was necessary to combat the continent’s economic crisis.
He said he believed Greece would be able to stay in the eurozone if it stood by its commitments.
Jose Manuel Barroso also set out plans for a single supervisory mechanism for all banks in the eurozone.
He called the plans a “quantum leap… the stepping stone to the banking union”.
EU Commission President Jose Manuel Barroso has called for the EU to evolve into a federation of nation-states
The European Central Bank would get much greater powers of oversight and regulation of Europe’s 6,000 banks under the plan.
Jose Manuel Barroso said he was not calling for a “superstate”, but rather “a democratic federation of nation states that can tackle our common problems, through the sharing of sovereignty”.
“Creating this federation… will ultimately require a new treaty,” he said.
The inability of governments thus far to respond effectively to economic developments was “fuelling populism and extremism in Europe and also elsewhere”, he added.
The banking union would be a big first step in the creation of closer union within the eurozone.
There will be opposition to the plans – the German government, for example, says far fewer banks should be involved.
Britain does not want to take part but supports the idea of a single supervisor for the eurozone, as long as it does not affect the integrity of the wider EU single market.
Asian stock markets have risen, joining a global rally, after European Central Bank’s president, Mario Draghi, unveiled a plan targeted at easing the region’s debt crisis.
The ECB said it would buy bonds of the bloc’s debt-ridden nations in a bid to bring down their borrowing costs.
The implied borrowing costs for Spain and Italy fell after the announcement.
Japan’s Nikkei 225 index rose 2.2%, Korea’s Kospi gained 2.6% and Hong Kong’s Hang Seng added 2.4%.
Asian stock markets have risen after ECB unveiled a plan targeted at easing the region's debt crisis
“We think this is a credible plan to addressing the issue, and while there are still political hurdles, we expect those will be addressed,” said Alec Young, global equity strategist at S&P Equity Research.
The borrowing costs for some of the eurozone’s larger economies, such as Spain and Italy, had risen to levels considered unsustainable earlier this year.
That led to concerns that these nations would no longer be able to borrow money from international investors and, therefore, would not be able to repay their debts, further escalating the region’s debt crisis.
Many investors feared such developments would not only hurt the eurozone’s growth, but could also derail the global economic recovery.
That would have had a knock-on effect on Asia’s export-dependent economies, which rely heavily on global demand.
However, the ECB’s announcement, and the drop in borrowing costs of Spain and Italy thereafter, has helped allay those fears.
Markets in the US rose, with the Dow Jones index hitting it highest level in almost five years.
In Europe, Germany’s Dax index closed 2.9% higher, while France’s Cac 40 jumped 3% and the UK’s FTSE 100 rose 2.1%.
“The markets were looking for a strong decisive action and a commitment from the central bank that they are ready to act if any issues blow up in the region’s bigger economies,” said Justin Harper of IG Markets.
“Last night they got that.”
The ECB announcement also provided a boost to the euro currency, which rose against the US dollar and the Japanese yen.
The euro was trading at $1.263 in Asian trading. It also rallied against the Japanese currency to 99.63 yen.
Analysts said that the ECB’s plan had boosted investor morale and that they were more confident of investing in riskier assets.
“The ECB’s actions afford time, allowing risk appetite to stage a comeback, for now,” said Vincent Chaigneau, a strategist at Societe Generale.
However, they warned that while the ECB’s plan had helped allay market fears, the crisis was far from over.
“Mr. Draghi has won a battle, but cannot win the euro area crisis war by himself,” Vincent Chaigneau said.
“The hardest task of all – getting governments to drop posturing in return for leadership and deep reforms – still awaits us.”
European Central Bank’s president, Mario Draghi, has unveiled details of a new bond-buying plan aimed at easing the eurozone’s debt crisis.
Mario Draghi said the scheme would provide a “fully effective backstop” and that the euro was “irreversible”.
The ECB aims to cut the borrowing costs of debt-burdened eurozone members by buying their bonds.
Ahead of the announcement, the central bank kept the benchmark eurozone interest rate unchanged at 0.75%.
Mario Draghi said the ECB would engage in outright monetary transactions (OMTs) to address “severe distortions” in government bond markets based on “unfounded fears”.
He insisted that the ECB was “strictly within our mandate” of maintaining financial stability, but reiterated the need for governments to continue with their deficit reduction plans and labor market reforms.
He added that the ECB’s actions came in response to eurozone economic contraction in 2012, with continued weakness likely to continue into 2013.
The ECB expects the eurozone economy to shrink by 0.4% in 2012 and grow by 0.5% in 2013, with inflation rising to 2.6%.
European Central Bank’s president, Mario Draghi, has unveiled details of a new bond-buying plan aimed at easing the eurozone's debt crisis
OMTs will only be carried out in conjunction with European Financial Stability Facility or European Stability Mechanism programmes, he said.
In other words, countries will still have to request a bailout before the OMTs are triggered.
The maturities of the bonds being purchased would be between one and three years and there would be no limits on the size of bond purchases, he added.
The ECB will ask the International Monetary Fund to help it monitor country compliance with its conditions.
Responding to the plans, Peter Westaway, chief economist for Europe at asset manager Vanguard, said: “This is just the good news that was priced by the markets, and it has now been confirmed.
“There is a long-term question of whether this will be enough to meet the long-term financing needs of Italy, and that probably remains.”
European stock markets reacted positively to the announcement, with the FTSE 100 surging 2.1%; the German Dax, 2.91%; the French Cac 40 index, 3.06%; and the Spanish IBEX, 4.91% at the close.
Bank shares in particular rose sharply on the news, with French banks Credit Agricole and Societe Generale up 8.44% and 7.76% respectively, while in Germany, Deutsche Bank rose 7.06% and Commerzbank, 5.25%. In London, Lloyds Banking Group rose 6.69%.
However, the euro fell back against the dollar to $1.2571 following its high of $1.265 reached before the ECB announcement.
While Mario Draghi was announcing the ECB’s plans, German Chancellor Angela Merkel was meeting Spanish Prime Minister Mariano Rajoy for talks on the eurozone crisis.
In a joint news conference afterwards, Angela Merkel said: “We have to restore confidence in the euro as a whole, so that the international markets have confidence that member countries will fulfil their commitments.”
Mariano Rajoy said: “We want to dispel any doubts on the markets about the continuity of the euro.”
Jens Weidmann, president of Germany’s Bundesbank, remains vigorously opposed to the ECB’s plan, concerned that member states could become hooked on central bank aid and failed to reform their economies sufficiently.
But the majority of the 23 ECB council members support the plan.
And the Organization for Economic Co-operation and Development (OECD) added its support for the ECB bond-buying plan on Thursday, as it warned that the eurozone crisis posed the greatest risk to the global economy.
It is calling for more action from central banks to prevent a break-up of the eurozone.
“Concerns about the possibility of exit from the euro area are pushing up [government bond] yields, which in turn reinforces break-up fears,” the OECD said in its global economic outlook.
“It is crucial to stem these exit fears. This could be achieved by the ECB undertaking bond market intervention to keep spreads within ranges justified by fundamentals.”
Mario Draghi is hoping that ECB intervention in the bond markets will help reduce the borrowing costs of debt-laden countries such as Spain and Italy and lessen the likelihood of them needing to ask for a full sovereign bailout, an eventuality that could bankrupt the eurozone and cause the collapse of the euro.
Spain, which has already asked for 100 billion euros in state aid to help its debt-stricken banks, is currently paying yields of 6.42% on its 10-year bonds, while Italy’s 10-year bond yields are 5.51%, below the critical 7% figure thought likely to trigger a sovereign bailout request.
Outright Monetary Transactions (OMTs)
The term used for the European Central Bank’s programme of buying government bonds with maturities of between one and three years with the aim of reducing a specific country’s borrowing costs. OMTs are only triggered if a country has applied to the European Financial Stability Facility or European Stability Mechanism for financial assistance and are conditional on a government putting in place financial reforms approved by eurozone financial authorities and monitored by the International Monetary Fund.
A closely-watched survey suggests that the eurozone’s economy is set to contract by 0.5%-0.6% in the July to September quarter, tipping it into its second recession in three years.
The Markit Flash Eurozone PMI Composite Output Index, which measures new orders in manufacturing and services, was 46.6 in August, compared with 46.5 in July.
A score below 50 indicates contraction.
Output declined in both the manufacturing and services sectors, Markit said in a statement.
This is the seventh consecutive month of contraction in the eurozone’s private sector.
The Markit Flash Eurozone PMI Composite Output Index, which measures new orders in manufacturing and services, was 46.6 in August, compared with 46.5 in July
Rob Dobson, senior economist at Markit said: “The August Markit Eurozone Flash PMI reinforces the prevailing view of the economy dropping back into recession during the third quarter of 2012.
“Taken together, the July and August readings would historically be consistent with GDP falling by around 0.5%-0.6% quarter-on-quarter, so it would take a substantial bounce in September to change this outlook.”
The eurozone’s economy was contracted by 0.2% in the second quarter of the year. A recession is generally defined as two consecutive quarters of negative growth.
Julien Manceaux, senior economist at ING, said: “The composite PMI still indicates a contraction of activity in the eurozone as a whole.
“In our view, this confirms that the decline in eurozone GDP [gross domestic product] in the second quarter is likely to be the first leg of a technical recession.”
Even Germany, the eurozone’s strongest economy, showed an accelerating decline in output, with its Composite Output Index falling to a 38-month low of 47.0, down from 47.5 in July.
German blue-chip companies ThyssenKrupp and Opel are reducing working hours because of weaker demand, while Bosch has announced it is negotiating reduced working hours with its workforce.
The findings contrast with more positive news relating to Germany’s public finances, which were back in the black for the first six months of the year, according to Destatis, the country’s federal statistics office.
Germany’s public accounts showed a surplus of 8.3 billion euros, about 0.6% of gross domestic product, thanks largely to record low unemployment figures.
But Germany’s second quarter economic growth of 0.3%, down from 0.5% in the first quarter, could fall further if Markit’s surveys prove accurate.
In France, decline in output slowed, with the composite PMI output index rising to a six-month high of 48.9.
However, some analysts saw glimmers of hope in the Markit figures.
Marie Diron, senior economic adviser to the Ernst & Young Eurozone Forecast body, said the data showed “signs of stabilization” in the eurozone economy and “supports our view that, while probably shrinking further, the eurozone economy is not falling off a cliff”.
She added: “The manufacturing surveys for both Germany and France showed better results for the manufacturing sector than last month.”
Earlier, the HSBC PMI survey for manufacturing in China indicated that activity in the sector fell to a nine-month low in August.
The PMI index was 47.8 this month, compared with a final reading of 49.3 in July.
Some analysts said the data indicated that the Chinese government’s efforts to boost the economy had not boosted firms’ confidence.
Meanwhile, the PMI measure for US manufacturing indicated that the sector saw a slight improvement this month, with the index rising to 51.9 from 51.4 in July.
Markit said that despite the increase – the first for five months – weak export markets meant overseas demand for US goods was subdued.
The economy of the eurozone shrank 0.2% in the three months from April to June compared with the previous quarter.
The figures from Eurostat covering the 17 countries that use the euro followed zero growth in the previous quarter.
Europe’s biggest economy, Germany, grew by 0.3% in the second quarter, helped by exports and domestic consumption.
France announced its economy had recorded zero growth in the period, which was better than had been expected.
The French economy had also posted zero growth in the previous two quarters.
GDP measures the total amount of goods and services produced by an economy.
The economy of the eurozone shrank 0.2 percent in the three months from April to June compared with the previous quarter
“Germany has asserted itself thanks to growing exports to countries outside the eurozone,” said Christian Schulz at Berenberg Bank.
“It’s hardly a surprise that consumption has increased due to low unemployment, rising wages and a low rate of inflation.”
The economies of the 27 members of the EU also contracted by 0.2%.
Among the eurozone’s biggest contractions, Portugal’s GDP shrank 1.2%, Cyprus recorded a 0.8% contraction and Italy was down 0.7%.
Comparable figures from Ireland and Greece are not yet available.
On Monday, Greece released GDP figures that showed its economy contracted by 6.2% in the second quarter, compared with the same period a year earlier, but did not provide figures for the quarter compared with the previous quarter.
The first quarter’s zero growth means the eurozone is still not in recession on the generally accepted definition of two consecutive quarters of negative growth, but the outlook for the rest of the year is gloomy.
“What we see is a vicious circle of budget cuts, high interest rates in the periphery and sovereign debt rising,” said Aline Schuiling at ABN Amro.
“Policymakers are moving very slowly. We expect another contraction in Q3.”
Greece, Spain, Italy, Cyprus and Portugal, all of which are receiving assistance from European bailout funds, are in recession.
“Overall, the story of a resilient core and a floundering periphery continues,” said Azad Zangana at Schroders.
“The resilience of the core economies is likely to be tested in the coming quarters, with leading indicators suggesting slowing order books and falling business confidence.”
An example of the leading indicators was the ZEW index of investor sentiment in Germany, which has declined for the fourth consecutive month to its lowest level this year.
German economy grew by 0.3% in the second quarter of 2012, helped by exports and domestic consumption.
Earlier, France announced its economy had recorded zero growth in the period, which was better than had been expected.
The French economy had also posted zero growth in the previous two quarters.
Official gross domestic product (GDP) figures from the whole of the eurozone are due out from the statistics agency Eurostat later in the day.
German economy grew by 0.3 percent in the second quarter of 2012, helped by exports and domestic consumption
GDP measures the total amount of goods and services produced by an economy.
German growth was slower than the 0.5% recorded for the first three months of the year, but is still expected to be one of the strongest figures for the eurozone.
“Germany has asserted itself thanks to growing exports to countries outside the eurozone,” said Christian Schulz at Berenberg Bank.
“It’s hardly a surprise that consumption has increased due to low unemployment, rising wages and a low rate of inflation.”
Despite growth in Europe’s largest economy, GDP for the whole eurozone is expected to have shrunk.
“We do not think that Germany on its own can keep the entire eurozone afloat,” said Aline Schuiling at ABN Amro.
“Despite the positive growth number for Germany, we expect total eurozone GDP to have contracted by around 0.4% as severe fiscal austerity is pulling most economies into recession.”
Italian newspaper Il Giornale, owned by former Prime Minister Silvio Berlusconi, has caused controversy by printing a front page headline which said “Fourth Reich” above a picture of German chancellor Angela Merkel.
The picture in Il Giornale also showed Chancellor Angela Merkel raising her right arm in salute, a gesture associated with the Nazi salute used by Hitler’s followers.
The article, which was published on Friday, has heightened a bitter war of words between Italy and Germany over the handling of the ongoing Euro crisis.
The angry article attacked tough talking Chancellor Angela Merkel saying that her intransigence had brought “us and Europe to its knees” adding that “Italy is no longer in Europe but in the Fourth Reich.”
It went on to say: “In the First Reich, Germany also wanted the title Emperor of Rome and in the next two they used their own means again against the states of Europe, two world wars and millions of dead, obviously this was not enough to quieten German egomania.
“Once again it has surfaced but this time not with the use of cannon, this time it’s the Euro.
“The Germans believe it’s theirs and we have to submit, surrender, hand ourselves over to the new Kaiser Angela Merkel who wants to rule in our own house.”
Il Giornale, owned by former Prime Minister Silvio Berlusconi, has caused controversy by printing a front page headline which said “Fourth Reich” above a picture of German chancellor Angela Merkel
It is not the first time that Il Giornale has been at the centre of controversy with Germany – two months ago after Italy beat Germany in the Euro 2012 semi final they printed a picture of Chancellor Angela Merkel below the headline: “Ciao, ciao culona” which translates as “Bye bye lard arse.”
Last year it was alleged that Silvio Berlusconi, who stepped down as prime minister last November, had been taped calling the German leader “culona” although he has insisted they had a good working relationship and are still in touch – claims which have been denied in Berlin.
Germany has been at loggerheads with Italy over the handling of the ongoing Eurozone crisis and accusing Rome of not doing enough to get its finances in order to resolve the single currency problem which has been dragging on for two years.
Newspapers in Germany have repeatedly attacked the southern European economies of Greece, Spain and Italy for their poor performances and bail outs offered to them.
Il Giornale has repeatedly accused current Italian technocrat prime minister Mario Monti, of not doing enough to stand up to Germany, comparing him to Neville Chamberlain who famously declared in 1938 he had “secured peace in our time” after holding talks with Nazi dictator Adolf Hitler only for war to break out the following year.
In an interview with Germany weekly news magazine Der Spiegel, Mario Monti called on Chancellor Angela Merkel to show greater flexibility on how the European Union tackles the eurozone crisis and suggested there could be a backlash if this does not occur.
Chancellor Angela Merkel has repeatedly argued that the only way to restore confidence in the under-fire single currency in the long term is for eurozone countries to show budget discipline and concede sovereignty to achieve greater fiscal integration.
But Mario Monti said that “more flexibility” had to be given to eurozone countries who are trying to put their economic houses in order for Italy’s current policy of rigor and tough economic reforms to “have a future”.
He added that he had told Chancellor Angela Merkel he was very worried about “the growing resentment in the Italian parliament against Europe, against the euro and against the Germans”.
Mario Monti also added that leaders should not let themselves be tied down by the domestic agendas of their national parliaments in EU negotiations and said: “If governments let themselves be bound completely by the decisions of their parliaments without maintaining their own scope for negotiation, Europe is more likely to break up than it is to see closer integration.”
But within hours of the interview Chancellor Angela Merkel and German MPs hit back at Mario Monti.
Georg Streiter, a spokesman for the German leader, said: “The chancellor’s opinion is that we in Germany have always done well with the right balance between parliamentary support and the participation of parliament.”
While Foreign Minister Guido Westerwelle, said: “Parliamentary checks on European policy are beyond any debate. We need to strengthen, not weaken, democratic legitimization in Europe.”
Mario Monti is due to meet Chancellor Angela Merkel later this month in Berlin to again discuss the Eurozone crisis and today markets were positive as the spread between German and Italian bonds dropped.
European Commission President Jose Manuel Barroso is heading to Athens for talks on Thursday amid concern over whether Greece has done enough to get its next tranche of bailout loans.
It is his first visit for three years and he is expected to say the EU wants Greece to stay in the eurozone.
But there will be tough talking behind the scenes, analysts say.
Greece’s international lenders are also in Athens in an attempt to get deficit cutting measures “back on track”.
After months of political deadlock and two general elections earlier this year, Greece is struggling to meet the economic targets it has accepted as a condition of its bailouts.
Jose Manuel Barroso is heading to Athens for talks on Thursday amid concern over whether Greece has done enough to get its next tranche of bailout loans
Inspectors from the EU and the IMF are trying to work out whether or not Greece has done enough to receive its next tranche of loan money.
The European Commission says the country’s financing needs will be met in August, but a decision on further payments will have to be made in early September.
Without sufficient progress, it may not receive the final part of its bailout worth 31.5 billion Euros ($38 billion).
Earlier in the week, Prime Minister Antonis Samaras said Greece would suffer a much deeper recession than thought this year.
He expects the economy to shrink by 7%, greater than the 5% forecast by the crisis-hit country’s central bank.
Antonis Samaras said Greece would not return to growth until 2014.
He is expected to ask for more time to repay its loans.
Jose Manuel Barroso’s visit is overdue as Greeks often complain about European political leaders who spend plenty of time talking about them, and not much talking to them.
The Commission president is unlikely to be out and about shaking hands, but at least he will be in Athens to speak directly to the Greek people.
Jose Manuel Barroso’s spokesman said the purpose of his visit was “to meet Antonis Samaras and discuss the overall economic situation in Europe and in particular in Greece”.
He said it was “a regular meeting” and that the preparation for the talks had been “under discussion for some time”.
Italian and Spanish 10-year bond yields have been rising ahead of a summit of eurozone finance ministers on Monday.
The yield on Spanish 10-year bonds, which are taken as a strong indicator of the interest rate the government would have to pay to borrow money, rose above 7%, while Italian bond yields rose to 6.1%.
Yields above 7% are considered to be unsustainable in the long term.
Details of the bailout of Spain’s banks are expected from eurozone ministers.
Their meeting will continue on Tuesday.
The high yields on Spanish and Italian bonds were in contrast to the rates at a short-term German bond auction on Monday.
Italian and Spanish 10-year bond yields have been rising ahead of a summit of eurozone finance ministers on Monday
The yield on six-month German bonds fell to a record low of -0.03%, meaning that investors were paying the German government to lend money to them.
It is the second time that German bond yields have been negative. The auction was oversubscribed, despite the negative yield.
Investors have been flocking to German debt as a safe haven from the problems elsewhere in the eurozone.
Eurozone officials have been reported as warning that not too many quick decisions should be expected from the finance ministers’ meeting, which is supposed to add detail to the agreements from the eurozone leaders’ summit on 29 June.
The communiqué from that summit said it expected the finance ministers “to implement these decisions by 9 July”, although many analysts say that now looks optimistic.
Leaders have already agreed to lend Spain’s banks up to 100 billion Euros ($123 billion) and independent audits have said that they will need up to 62 billion Euros.
The finance ministers are likely to confirm the size of the bailout and which conditions will be applied to the loans, both for the banks and the government.
Among the key agreements from the 29 June summit were moves towards banking union with the European Central Bank (ECB) acting as a supervisor and allowing European bailout funds to buy bonds to try to reduce countries’ borrowing costs.
But since the summit, there have been signs that Finland and the Netherlands would oppose the use of bailout funds in this way.
There is expected to be discussion of the new Greek government’s policies. At the end of a three-day debate, the Greek government, as expected, won a vote of confidence on Sunday.
Another area of discussion for the eurozone finance ministers will be choosing a new leader.
Jean-Claude Juncker has been co-ordinating the Eurogroup of finance ministers since 2005. His term of office ends on 17 July, but it may be extended.
Also on Monday, ECB president Mario Draghi will be appearing before the European Parliament’s Committee on Economic and Monetary Affairs to give his views on the state of the currency bloc’s economy.
The New York Times: Rising Borrowing Costs Put Pressure on European Finance Ministers
The European Central Bank (ECB) has announced it reduces its key interest rate from 1% to 0.75%, a record low for the eurozone.
The move comes as the eurozone economy continues to be weak.
The ECB also cut its deposit rate, from 0.25% to zero.
A cut in the ECB’s deposit rate is designed to stimulate lending between banks, as funds placed with commercial banks overnight are currently receiving 0.3% in interest.
Surveys released earlier this week indicated that the eurozone’s service sector had continued to shrink in June and that business confidence had fallen.
The ECB’s president, Mario Draghi said the eurozone was likely to show little or no growth in the second quarter of the year, but should recover somewhat by the end of the year.
The European Central Bank reduces its key interest rate from 1 percent to 0.75 percent, a record low for the eurozone
Mario Draghi, said the eurozone economy faced risks, but that inflation did not appear to be a threat: “Inflation rate pressure…has been dampened. At the same time, economic growth in the euro area continues to remain weak, with heightened uncertainty weighing on confidence and sentiment.”
At a media conference following the announcement of the decision he was asked it the situation was as bad as in 2008, to which he replied: “Definitiely not. We are not there at all.”
The rate cuts come despite an inflation rate running above the 2% target for the single-currency zone.
But the rate has been sliding recently and is expected to fall to an average of 1.6% next year.
An interest rate below inflation is meant to discourage saving and promote investment, as the interest rate does not keep pace with inflation, meaning the value of the money on deposit is eroded.
The interest rate cut is the third since Mario Draghi became ECB president late last year.
Mario Draghi said the decision on rates was unanimous.
The polls have opened this morning in Greece for crucial elections which could determine the country’s future in the eurozone.
The main contenders, the right-wing New Democracy and left-wing Syriza, are at odds over whether broadly to stick with the tough EU bailout deal, or reject it and boost social spending.
Opinion polls are banned for two weeks before voting but unofficial polls say the result is too close to call.
EU leaders say if Greece rejects the bailout, it may have to leave the euro.
The poll, the second in six weeks, was called after a vote on 6 May proved inconclusive.
Sunday’s vote is being watched around the world, amid fears that a Greek exit from the euro could spread contagion to other eurozone members and send turmoil throughout the global economy.
Tough austerity measures were attached to the two international bailouts awarded to Greece, an initial package worth 110 billion Euros ($138 billion) in 2010, then a follow-up last year worth 130 billion Euros.
Many Greeks are unhappy with the conditions attached to deals which have been keeping Greece from bankruptcy and all but one of the parties standing for election have promised some degree of renegotiation of the terms.
The polls have opened this morning in Greece for crucial elections which could determine the country's future in the eurozone
In remarks quoted by the Reuters news agency a few hours before polls opened, the head of the Organization for Economic Co-operation and Development Angel Gurria suggested that the next Greek government should be given a chance to revisit the bailout conditions.
“If that is the condition presented for Greece to stay [in the eurozone] and then move on, I would say it is probably something that should be attempted,” he was quoted as saying.
But Germany, which has the eurozone’s most powerful economy, insists Greece, like other member states which have received international bailouts, must abide by the austerity conditions.
On the eve of the vote, Chancellor Angela Merkel said: “It is extremely important that tomorrow’s Greek elections lead to a result in which those who form the government say, ‘Yes, we want to keep to our commitments.'”
Like Angel Gurria, the German chancellor and several other European leaders will be attending the G20 summit in the Mexican resort of Los Cabos on Monday, which is set to be dominated by the eurozone crisis and the aftermath of the election.
The head of New Democracy, Antonis Samaras, told supporters on Friday that he would lead the country out of the financial crisis, while staying in the eurozone.
He broadly accepts Greece’s international bailout, but says he will renegotiate the terms of the agreement to seek a better deal for Greeks.
“We will exit the crisis; we will not exit the euro. We will not let anyone take us out of Europe,” Antonis Samaras said.
The youthful head of Syriza, Alexis Tsipras, rejects the bailout, but wants Greece to stay in the eurozone, saying a bailout is possible without the kind of drastic cuts demanded of Greece.
“Brussels expect us, we are coming on Monday to negotiate over people’s rights, to cancel the bailout,” he told a final rally on Thursday.
Greeks were celebrating hours before the polls opened, after their national football team qualified for the quarter finals of Euro 2012 with a surprise 1-0 win over Russia.
“We are proud that we gave the people back home some joy and a break from their problems – even for a short while,” striker Georgios Samaras said.
The Kathimerini website noted that Greeks had few reasons to feel national pride at the moment, but sport had provided them with plenty of it. The victory could lead to a quarter-final tie against Germany.
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