Eurozone unemployment rate rises in February

At 23.6%, Spain has the highest level of unemployment in

the eurozone

Unemployment across countries that use the euro edged higher in February to 10.8%.

That’s up from 10.7% in January and the highest level since the introduction of the single currency in 1999. Spain has the highest rate of 23.6%.

Meanwhile, a separate report confirmed that manufacturing activity in Europe shrank in February.

It is the eighth month in a row that the Purchasing Manager’s Index has been below 50, which indicates contraction.

‘Miserable March’

France was particularly weak, with manufacturing activity falling to the lowest level in almost three years.

“Eurozone manufacturers suffered a miserable March, with a renewed downturn in production wiping out marginal gains seen in the first two months of the year,” said Markit chief economist Chris Williamson.

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February unemployment rates

• Spain 23.6%
• Portugal 15.0%
• France 10.0%
• Italy 9.3%
• Germany 5.7%

“Manufacturing is therefore likely to have acted as a drag on economic growth in the eurozone in the first quarter, falling to a lesser extent than in the final quarter of last year but nevertheless failing to prevent the economy sliding back into recession,” he said.

Other economists agree that the euro area is probably in recession.

“It looks odds-on that eurozone GDP contracted again in the first quarter of 2012, thereby moving into recession,” said Howard Archer, chief European economist at IHS Global Insight.

“And the prospects for the second quarter of 2012 currently hardly look rosy.”

The slowdown is creating a tough environment for job seekers. Italy saw unemployment hit 9.3% in February, the highest level since the country started collecting monthly figures in 2004.

For those aged between 15 and 24 the rate was 31.9%.

Prime Minister Mario Monti is trying to push through reform of the labour market, which he says will boost employment.

The lowest unemployment rates among countries that use the euro are to be found in Austria (4.2%), the Netherlands (4.9%) and Germany (5.7%).

Confidence among European business leaders has been undermined by Europe’s debt crisis.

Finance ministers will hope that an agreement to increase the size of the eurozone’s rescue fund will help bolster sentiment.

They agreed to boost the joint lending power of the “firewall” from 500bn euros ($668bn; £416bn) to 800bn euros ($1.1tn; £667bn).

The firewall is the permanent mechanism to bail out troubled euro zone nations.

 

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Global Economy

• Spain unveils 27bn euros of cuts
• Q&A: Pain in Spain
• Spain ‘has to bite the bullet’
• What is the euro bailout fund?Watch

Burma and Aung San Suu Kyi set for key elections

The NLD is expected to enter parliament as the official opposition

Voters in Burma go to the polls shortly for by-elections that promise to be the most open contests in decades, with Aung San Suu Kyi among those standing.

Her National League for Democracy (NLD) is contesting all 45 seats, vacated when politicians joined the new, military-backed civilian government.

It is the first time Ms Suu Kyi is standing in an election herself.

It is also the first time international observers have been allowed to monitor elections in modern Burma.

The European Union looks set to ease some sanctions on the country if Sunday’s elections go smoothly.

Ms Aung San Suu Kyi spent a total of 15 years under house arrest after the military overturned her party’s landslide general election victory in 1990.

While only a fraction of seats are being decided, the NLD is expected to enter parliament as the official opposition.

With tens of thousands of people turning out to back Ms Aung San Suu Kyi and her fellow NLD candidates, the by-elections have taken on a huge significance, the BBC’s Rachel Harvey in Burma reports.

‘Not irreversible’

Election officials in Rangoon and other parts of the country have been making final checks at polling stations, ensuring ballot boxes and booths are ready.

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Burmese by-elections

• At least 45 seats are being contested by 176 candidates from 17 parties, with eight independents
• The Lower House has 440 seats (330 elected), the Upper House 224 seats (168 elected) and the regional assemblies 14, with 25% of the seats appointed by the military
• Aung San Suu Kyi is seeking a seat inKawhmu district south of Rangoon
• Her party, the National League for Democracy (NLD), is contesting all seats
• By-election fills vacancies of those elected in 2010 polls who became ministers and deputy ministers

“We’re preparing the election on 1 April to be free and fair,” election official Maung Maung Than told the Associated Press news agency. “We’ll make it free and fair, I believe this.”

Ms Suu Kyi is standing for a lower house seat in the Kawhmu Township constituency outside Rangoon.

She arrived there on Saturday in a convoy of NLD cars, plastered with party stickers.

Small groups of people gathered to welcome her, wearing NLD T-shirts and waving party banners and portraits, AFP news agency reports.

The NLD boycotted the 2010 general election on the grounds that election laws were unfair.

Earlier, Ms Suu Kyi described this year’s election campaign as not ”genuinely free and fair” but said she and her part did not regret taking part.

“Still we are determined to go forward because this is what our people want,” she said.

At the same time, she warned that Burma’s democratisation was “not irreversible”.

‘Exciting prospect’

A small number of representatives from the Association of South-East Asian Nations (Asean), along with the EU and US, have been invited to observe polling.

Aung San Suu Kyi is standing for a lower house seat in the Kawhmu Township outside Rangoon

More than 100 foreign journalists are believed to have received permission to cover the vote.

EU Trade Commissioner Karel De Gucht said political sanctions on Burma were mostly “aimed towards individuals” and could be eased when EU foreign ministers met in Brussels on 23 April.

The lifting of such sanctions could “even happen with immediate effect”, he told AFP on a visit to Phnom Penh, Cambodia.

“The European Union and also myself, I am excited by the prospect that finally, hopefully Myanmar citizens will get more freedom,” Mr De Gucht added.

“Political freedoms and economic freedoms always go together.”

 

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Burma: Battle for Democracy

• A vote of confidence in Burma
• Burma gives currency float detail
• Burma invites US and EU monitors
• Burma puts off Kachin by-election

ECB provides 530bn euros of cheap loans for banks

The ECB hopes the loans will ease the eurozone debt crisis

The European Central Bank (ECB) has provided a further 530bn euros ($713bn; £448bn) of low-interest loans to 800 banks across the European Union.

It is the second time the ECB has offered such three-year loans and comes after 489bn euros was lent in December.

The loans are aimed to help continue to ease the eurozone debt crisis, and help banks improve their liquidity.

They have also helped countries such as Italy, as some banks have used the bonds to buy government bonds.

‘Unprecedented expansion’

Although the ECB has not revealed which banks have taken part, UK lender HSBC confirmed to the BBC that it had borrowed about £350m.

Lloyds Banking Group also confirmed that it had drawn £11.4bn.

The markets appear to have welcomed the announcement, with banking shares rising strongly.

In Germany, shares in Commerzbank were up 3.6% while Deutsche Bank was 1.7% higher.

Credit Agricole saw the biggest gains in France, climbing 4.5%, followed by Societe Generale, which rose 2.3%.

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“Start Quote

Whether it will do anything to cheer up Europe’s real economy is much less clear”

Stephanie Flanders Economics editor

• Read more from Stephanie

In the UK, shares in Barclays were up 1.7%, while HSBC added 0.6%.

Commentators said that the amount of money lent, and the number of banks which had taken part, was in line with expectations.

Banking analyst Luca Cazzulani of Unicredit said: “This will increase the level of excess liquidity pretty sharply, which is ultimately positive or very positive for risk trades.

“Italian and Spanish bonds are likely to benefit from this and equity markets as well.”

BBC business editor Robert Peston said the central bank’s move represented “a massive, perhaps unprecedented, expansion of the ECB’s balance sheet”.

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Global Economy

• Greece debt cut: Who loses out?
• Europe struck by growth slowdown
• Germany: Reasons to be cheerful
• Q&A: Greek debt crisis

Irish to vote on EU fiscal treaty

Mr Kenny said it was in Ireland’s national interest that the treaty be approved

The Republic of Ireland is to hold a referendum on Europe’s new fiscal treaty, the Irish prime minister said.

Enda Kenny said it was in Ireland’s national interest that the treaty be approved and he was confident the referendum would be passed.

Last month, Mr Kenny joined 24 other EU states in agreeing the pact for stricter budget discipline.

The government had sought advice from the attorney general as to whether a referendum was necessary.

The cabinet was told on Tuesday that a referendum was required to ratify it.

“I strongly believe that it is very much in Ireland’s national interest that this treaty be approved, as doing so will build on the steady progress the country has made in the past year,” Mr Kenny told the Dail.

“Ratification of this treaty will be another important step in the rebuilding of both Ireland’s economy, and our international reputation.

“It gives the Irish people the opportunity to reaffirm Ireland’s commitment to membership of the Euro, which remains a fundamental pillar of our economic and jobs strategy.”

Deputy Prime Minister Eamonn Gilmore said the treaty was vital to Ireland’s national interests and would bring Ireland beyond “casino capitalism”.

Fianna Fail leader Micheal Martin welcomed the decision, he said people need to be engaged.

Sinn Fein leader Gerry Adams said there was a democratic imperative for the people to have their say.

Asked what David Cameron thought of the Irish plans for a referendum, the UK Prime Minister’s official spokesman said: “That is a matter for Ireland.

“As I understand it, it is a judgment they have made based on the constitution of that country and their assessment of it, so it is a matter for them.”

The spokesman said the referendum decision did not come as a surprise, as it had always been thought possible that Dublin might have to put the fiscal compact to a public vote.

Iran nuclear crisis: UN inspectors arrive in Iran

Chief IAEA inspector Herman Nackaerts said he hoped for “some concrete results” from the trip

Iran nuclear crisis

• Oil embargo impact
• Q&A: Nuclear issue
• Key nuclear sites
• Q&A: Sanctions

UN nuclear inspectors have arrived in Tehran for the second time in a month to discuss Iran’s nuclear programme.

Chief inspector Herman Nackaerts said his team’s “highest priority” was to clarify the “possible military dimensions” of the nuclear programme.

But he cautioned that progress “may take a while”.

Iran insists its uranium enrichment work is peaceful in purpose, but Western nations believe the programme is geared towards making weapons.

Tensions have risen over speculation that Israel may carry out a military strike on Iran’s nuclear facilities.

US National Security Adviser Tom Donilon arrived in Israel at the weekend for talks with Prime Minister Benjamin Netanyahu and other senior officials.

But the head of the US Joint Chiefs of Staff, General Martin Dempsey, warned on Sunday that it was still unclear whether Iran was at a stage to assemble a nuclear bomb.

“On that basis, I think it would be premature to exclusively decide that the time for a military option was upon us,” Gen Dempsey said.

‘New developments’

Last week Iranian President Mahmoud Ahmadinejad took part in an elaborate ceremony to unveil new developments in his country’s nuclear programme.

Tehran said it had used domestically-made nuclear fuel in a reactor for the first time, as well as developing faster, more efficient uranium enrichment centrifuges.

State TV showed the president inspecting the fuel rods as they were loaded into a reactor.

Iranian media showed President Ahmadinejad (at right) at a ceremony to unveil “new developments” in Tehran’s nuclear programme

The IAEA inspectors described their last visit, in January, as positive, and said Iran was “committed” to “resolving all outstanding issues”.

Mr Nackaerts said on Sunday that he hoped to have a “couple of good and constructive days in Tehran”.

“Importantly we hope for some concrete results from the trip. The highest priority remains of course the possible military dimensions of Iran’s nuclear programme, but we want to tackle all outstanding issues,” he said.

“This is of course a very complex issue that may take a while. But we hope it can be constructive”.

The inspectors’ evaluation of their visits may form part of the next written report on Iran’s nuclear programme, expected later in February.

Tehran says its nuclear activities are simply for electricity generation.

But last November, the IAEA said it had information suggesting Iran had carried out tests “relevant to the development of a nuclear explosive device”.

That information led to a decision by the US and the European Union to tighten sanctions against Iran, including measures targeting the country’s lucrative oil industry.

Iran said on Sunday it had halted oil sales to British and French companies, ahead of a European Union oil embargo set to begin on 1 July. Analysts say this gesture of retaliation is largely symbolic, as neither the UK nor France import a large proportion of their oil from Iran.

Shrink the eurozone to save it

Protesters march against austerity cuts Thursday in front of the Greek Parliament in Athens.

STORY HIGHLIGHTS

• Desmond Lachman: Europe’s leaders keep trying to prop up the euro currency union
• He says it will be impossible to preserve current zone in a time of austerity, no growth
• It would be smarter to create a new, smaller currency union of healthier nations, he says
• Lachman: Nations on the periphery would be able to devalue their own currencies

Editor’s note: Desmond Lachman, a resident fellow at the American Enterprise Institute, is a former deputy director of the International Monetary Fund’s Policy Development and Review Department.

(CNN) – With each passing day, Greece’s economic and political malaise deepens despite one massive International Monetary Fund-European Union bailout package after another to keep that country afloat. And with each passing day, as the Greek economy continues its downward spiral under the weight of externally imposed draconian budget austerity, there is the increased risk that a disorderly Greek euro exit could result in real contagion to the rest of the European periphery and especially to Italy, an otherwise solvent country.

This has to raise a basic question: Would not the European core countries be better served by proactively taking action now to form a smaller and more enduring currency union than the presenteurozone? And would such action not be preferable to continuing with the pretense that the euro can be preserved in its present form, which runs the real risk of a disorderly and costly unraveling of the common currency?

Sadly, the IMF and EU’s heroic, if quixotic, efforts to keep Greece afloat with a second 130 billion-euro bailout package that has now finally been agreed upon, are all too suggestive that European policymakers remain in denial that Greece will soon be forced to exit the euro.

This is all the more lamentable since there is virtually no prospect the IMF’s present prescription of further hair-shirt fiscal austerity within Greece’s euro straightjacket is going to be any more successful in stabilizing the Greek economy than was the application of the same policy prescription over the past two years.

One would have thought by now that the IMF and Europeans would have grasped how politically unsustainable is their Greek policy prescription, particularly considering that the Greek economy is now in a virtual state of collapse.

January’s European Summit also provides the strongest of evidence that European policymakers seem to have learned little from their unfortunate Greek experience. For rather than recognize that the internal and external imbalances of countries such as Greece, Portugal, Ireland and Spain have reached such large proportions that make it almost inevitable these countries will be forced both to default and to exit the euro, European policymakers are striving to preserve the euro very much unchanged in its present form.

They are doing so by proposing that all countries should adopt constitutional balanced budget amendments and sign up to legally binding budget-deficit reduction programs that are to be externally monitored. It is supposed that after several years, once the desired degree of deficit reduction is eventually attained, the present monetary union could move toward a full fiscal union that would provide the firmest of underpinnings to the existing currency union.

The fly in the ointment is that to reduce the large public-sector imbalances in the European periphery would require the early restoration of economic growth in those countries.

However, the severe public-sector belt-tightening across all euro-member countries (within the constraints of euro membership that precludes currency devaluation as a way to boost exports) is a sure recipe for a deep and prolonged European recession. And as Greece’s experience over the past 18 months would attest, a deepening economic recession puts deficit-reduction targets well out of reach, increases a country’s public-debt service burden and heightens political opposition to staying the austerity course.

The futility of excessive budget austerity in a fixed exchange rate system is especially the case when one considers the overall European economy is already showing signs of considerable weakness and when the envisaged degree of budget tightening is extraordinarily large. It is for example being proposed that Italy undertake budget cuts and revenue increases amounting to nearly 2 percentage points of gross domestic product a year in each of the next two years, while for Greece, Ireland, Portugal and Spain the proposed budget adjustment is more on the order of 3 percentage points of GDP a year in 2012 and 2013.

At the best of times, attempting to apply multiyear budget adjustment of such a large scale would run the risk of a prolonged and deep economic recession. However, these are not the best of times in Europe given a weak external economic environment and the likelihood of a European credit crunch over the next year as European banks sell assets and restrict credit in an attempt to strengthen their balance-sheet positions.

As if to underline the futility of severe budget tightening in a fixed exchange rate system, for the year ahead the IMF is forecasting a serious deepening in the European periphery’s recession. The most disturbing aspect of the IMF’s latest economic forecast is that Italy and Spain, Europe’s third- and fourth-largest economies, are both expected to shrink by around 2% in 2012. This is almost certain to cause large budget-deficit overruns in both of these countries and to raise questions anew in the markets about these two countries’ debt sustainability.

Against this background of a slow-motion European train wreck one has to wonder whether Germany, France and the other north European-member countries should not avail themselves of those provisions of the Lisbon Treaty that allow countries to exit the union voluntarily. Doing so in unison would afford them the opportunity to bind themselves in a new currency union with stronger underpinnings than the current currency union, including an early move to a true fiscal union that might involve the joint issuance of euro bonds.

A significant though not insurmountable legal obstacle to the formation of a new smaller currency union among the stronger northern European economies is posed by the existing Lisbon Treaty. While that treaty provides that while countries can exit the present currency union either individually or in unison, doing so would require them to leave the EU as well. For that reason, should the core countries decide to leave the currency union in unison they would also need to approve a parallel treaty rapidly, which would provide for the maintenance among themselves of the same present trade arrangements that they have within the EU. Such a course of pre-emptive action would certainly be preferable to a disorderly breakup of the current monetary union.

China ‘Bans’ Airlines From Joining EU Carbon Scheme

Analysts say there could be a protracted legal dispute, with the EU unlikely to give way.

China has “banned” all airlines in the country from joining the European Union’s Emissions Trading Scheme (ETS) aimed at cutting carbon emissions.

The authorities have also barred the airlines from increasing their fares or adding new charges for the scheme.

The ban comes just weeks after the China Air Transport Association said its members did not support the ETS.

The scheme, implemented from 1 January, levies a charge on flights in EU airspace based on carbon emissions.

‘Severe challenges’

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“Start Quote

They would be able to stop the Chinese airlines from flying to the EU, but that could see retaliatory action by China”

Siva Govindasamy Flightglobal

The scheme has come in for severe criticism not just from China but also from other countries such as the US and Canada.

China has claimed that the plan could cost Chinese airlines 95m euros ($124m, £79m) in extra annual costs.

Analysts said that given the global economic conditions and an uncertain outlook for the travel industry, airlines were wary of the scheme hurting their profits.

“The sector is already facing quite severe challenges,” Chris De Lavigne of Frost & Sullivan told the BBC.

“The airline industry as a whole has already been hit by high fuel costs in the past couple of years and no one wants additional cost factors coming in.”

According to EU estimates, the scheme will see the cost of air fares rise by between 2 and 12 euros per passenger.

‘Very tricky’

The move by the Chinese authorities is likely to complicate the issue as the EU will have to decide on what measures it will take from here on.

“It is going to be very tricky. You have to wait and see how the EU will react,” Siva Govindasamy of Flightglobal told the BBC.

“They would be able to stop the Chinese airlines from flying to the EU, but that could see retaliatory action by China which will not be good for either side,” he added.

Analysts said that given the differences between the various parties involved, the matter may have to be resolved by an international body.

“It could potentially end up on the desk of the World Trade Organization as the countries who are against it have said it is an unfair trade practice,” said Frost & Sullivan’s Mr Lavigne.

“Both sides have claimed that this is either fair or unfair, so it is very difficult to see how this is going to shape up.”

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Aerospace and Defence

• American Airlines cuts 13,000 jobs
• French close in on India jet deal
• Ryanair reports 14.9m euro profit
• A380 wings to have crack checks

Greece crisis talks over EU bailout to resume

Lucas Papademos (right) put on a brave face on Sunday, saying limited progress was achieved

Party leaders in Greece’s governing coalition are to resume crisis talks on new austerity measures.

The measures are in exchange for a 130bn-euro (£108bn; $171bn) EU bailout and a 100bn write-off of private sector debt. Athens needs the money by March to avoid a debt default.

Talks on Sunday between Greek PM Lucas Papademos and the leaders of three parties ended without agreement.

Meanwhile, the German and French leaders are due to hold talks in Paris.

Chancellor Angela Merkel and President Nicolas Sarkozy – who have worked closely on resolving the eurozone debt crisis – will take part in a joint Franco-German cabinet session in the French capital.

Investors reacted cautiously to the latest developments. The euro fell 0.7 cents, just over 0.5% against the dollar to 1.307 in early trading.

‘Unable to bear’

Many Greeks have been hit hard by austerity measures

Mr Papademos had hoped to reach a deal with the leaders by Sunday night – but the talks ended without agreement on the painful reforms demanded by the EU and also the International Monetary Fund (IMF).

“Political leaders should give a response in principle tomorrow [Monday] afternoon,” Socialist Party (Pasok) spokesman Panos Beglitis told Reuters news agency.

The leaders of the other two parties in the coalition said after the end of Sunday’s talks that they were still opposed to further austerity measures.

“I am not going to contribute to a revolution that will humiliate us and that will burn Europe”, said Giorgos Karatzaferis, leader of the far-right Laos party.

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A date is approaching, however, when – if there isn’t a deal – Greece faces bankruptcy. On 20 March Greece has to find 14bn euros (£12bn; $18bn) to service its debts. As things stand it does not have the funds.”

Gavin Hewitt BBC Europe editor

• The Greek Marathon

Antonis Samaras, leader of the conservative New Democracy party, said the country was “being asked for more austerity, which it is unable to bear,” AFP reports.

However, the BBC’s Mark Lowen in Athens reports that Mr Papademos’s office has put out a statement saying some agreement was reached on the reduction of public spending by 1.5% of GDP, and on bank recapitalisation.

But there was no deal on cuts to the minimum wage or to holiday bonuses, he said.

If there is no agreement, then Greece’s international loan will be blocked and the country would be staring default in the face – something that could send shockwaves through the global economy, our correspondent adds.

Athens faces loan repayments to private lenders of 14.4bn euros on 20 March.

Eurozone ministers had hoped to meet on Monday to finalise the bailout – Greece’s second – but that meeting had already been cancelled.

High stakes

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Analysis

Mark Lowen BBC News, Athens

Greeks have lived with austerity for much of the last two years and the country is now in its fifth straight year of recession. Unemployment is nudging 20%, businesses are closing and homelessness is increasing.

Two of the three party leaders in the coalition say they are still resistant to the new austerity measures. They fear that they could be stabbing themselves in the back just weeks before possible early elections in the spring.

The cost of failure would be extremely high. If Greece does not reach agreement on these EU and IMF proposals, it could be staring default in the face within weeks. That could send fresh shockwaves through the global economy.

EU officials have expressed frustration with Greece over delays in backing the terms of the latest rescue package.

Reforms that international lenders want to see include a lower minimum wage, the removal of a “13th and 14th month” extra salary which is paid to workers as an annual bonus, and the liberalisation of workplace regulations.

Opponents say that more cuts will worsen living conditions which have already been affected by two years of austerity measures.

Unless Greece promises to implement reforms, the eurozone ministers say Greece will not be able to go ahead with a plan to restructure its privately-held debt.

Greece has prepared a debt plan with private creditors to halve the value of Greek debt and in return receive new, 30-year bonds with an average interest rate of less than 4%.

The restructuring is to help cut Greek debt to 120% of GDP in 2020 from 160% now.

Continue reading the main story

Global Economy

• Why Greece won’t go away
• What caused the eurozone crisis?
• How will the euro crisis end?
• Crisis jargon buster

Greece holds crucial talks over EU bailout plan terms

Austerity measures have already hit the living standards of many Greeks

Greek PM Lucas Papademos is set to meet the party leaders of his coalition to try and win support for a proposed 130bn euros ($171bn; £108bn) EU rescue.

Mr Papademos wants their backing for reforms demanded by the IMF and EU as a condition of the bailout.

Eurozone ministers had hoped to meet on Monday to finalise the bailout, Greece’s second, but that meeting has now been cancelled.

The money must be in place by mid-March if Athens is to avoid a debt default.

It is hoped Mr Papademos can reach a deal with party chiefs by Sunday night.

“The moment is very crucial,” said finance minister Evangelos Venizelos on Saturday.

“Everything should be concluded by tomorrow [Sunday] night.”

Athens faces loan repayments to private lenders of 14.4bn euros ($19 billion) on 20 March.

The BBC’s Mark Lowen, in Athens, says Greece cannot afford to lose the bailout package and a lot now rides on these talks.

But, our correspondent says, that with potential elections in April, the parties in Mr Papademos’ coalition are wary about being seen to be associated with the austerity measures being demanded by the EU.

‘Great pressure’

EU officials have expressed frustration with Greece over delays in backing the terms of the latest rescue package, which is being put together by the European Union, the International Monetary Fund and the European Central Bank – the so-called “troika”.

“There is great impatience and great pressure not only from the three institutions that make up the troika but also from eurozone member states,” said Mr Venizelos, after what he described a “very difficult” conference call with his eurozone counterparts.

Reforms that international lenders want to see include a lower minimum wage, the removal of a “13th and 14th month” extra salary which is paid to workers as an annual bonus, and the liberalisation of workplace regulations.

Opponents say that more cuts will worsen living conditions which have already been affected by two years of austerity measures.

Unless Greece promises to implement reforms, the eurozone ministers say Greece will not be able to go ahead with a plan to restructure its privately-held debt.

Greece has prepared a debt plan with private creditors to halve the value of Greek debt and in return receive new, 30 year bonds with an average interest rate of less than 4%.

The restructuring is to help cut Greek debt to 120% of GDP in 2020 from 160% now.

Continue reading the main story

Global Economy

• Why Greece won’t go away
• What caused the eurozone crisis?
• How will the euro crisis end?
• Crisis jargon buster

Euro summit tension over debt crisis plan

UK PM David Cameron gets a warm greeting from German Chancellor Angela Merkel and a handshake from French President Nicolas Sarkozy

Continue reading the main story

Global Economy

• What caused the eurozone crisis?
• How will the euro crisis end?
• Crisis jargon buster
• Europe’s four big dilemmas

The EU’s 27 leaders are discussing how to create jobs and growth amid calls to go beyond enforcing budget discipline.

The EU has more than 23 million unemployed people and there are fears that wide-ranging budget cuts will harm enterprise and training.

The eurozone crisis is dominating the EU summit in Brussels, with debt-laden Greece still at risk of defaulting.

A budget treaty for the eurozone has been drafted. But Poland’s prime minister said it lacked ambition.

Donald Tusk said the new treaty – a “fiscal compact” – was “not entirely ambitious and not brave enough”.

Poland, like other new EU member states in the former communist bloc, is preparing to join the euro and feels it should be fully involved in eurozone meetings.

Continue reading the main story

Analysis

Chris Morris BBC News

The official summit agenda is growth and job creation, and it will be discussed in some detail. Unemployment will be perhaps the big issue in the French presidential election, and there are now more than five million people out of work in Spain – without reversing that trend the eurozone crisis isn’t going to ease.

Leaders will also try to finalise the text of the new fiscal treaty which all EU countries except Britain say they intend to sign.

Then there are the off-agenda items which always make an appearance on occasions like this.

Cometh the EU summit hour, cometh the Greeks… I’m sure they’d like to sit unnoticed in the corner for once, but Greece has developed an unwelcome habit of hogging summit headlines.

• Q&A: EU debt crisis deal
• Where the EU’s 27 stand
• Did Germany cause euro crisis?

Mr Tusk said he wanted to be “participating in the decision-making process, in terms of how this fiscal compact is executed”.

Currently the draft treaty says signatories will hold summits at least twice a year. The attendance of non-euro countries is left to the discretion of the summit president, with the words “will invite when appropriate and at least once a year”.

The head of the Liberal group in the European Parliament, Guy Verhofstadt, echoed Mr Tusk’s criticism, in a BBC interview. He said the treaty “says nothing on jobs, growth and [European] solidarity”.

All member states – apart from the UK – are expected to sign up to the fiscal compact.

The goal is much closer co-ordination of budget policy in the 17-nation eurozone.

As the summit got under way there were fresh fears that Portugal might need a second massive bailout, like Greece.

The yield (interest rate) demanded for Portuguese sovereign bonds rose above 16% – an unsustainable level.

Hard times

A general strike in Belgium reminded EU leaders of public discontent with austerity as they arrived for the summit. It paralysed most of the Brussels transport system and disrupted international trains and flights.

The leaders exchanged views on how best to tackle youth unemployment and support small and medium-sized enterprises (SMEs), many of which complain of excessive administrative costs imposed by Brussels.

Continue reading the main story

“Start Quote

In 2012, much more attention will be given to growth. Why? Because many countries are heading into recession just as austerity measures start to bite”

Gavin Hewitt BBC Europe editor

• Read more from Gavin

In a joint statement on economic growth they noted that cutting budget deficits was “not in itself sufficient”.

“We have to modernise our economies and strengthen our competitiveness to secure sustainable growth,” the statement said.

The EU will help to fund schemes to get young people into work or training in member states with the highest youth unemployment levels.

They pledged to speed up measures to develop the EU single market, including:

• agreement on a common EU patent system by July;
• better targeting of EU funds towards SMEs;
• national legislation to create a functioning single market in services and energy.

The European Commission says 82bn euros (£69bn; $107bn) of EU money is available for countries to spend on projects to boost jobs and growth.

Greek debt mountain

The Commission also says it is confident a deal will be reached within days to reduce Greece’s colossal debt burden. But Greece could still run out of money as early as mid-February.

Private investors are being asked to take a 50% “haircut” (loss) on their Greek bonds in a complex bond swap, with the aim of scaling back Greece’s debt to 120% of gross domestic product by 2020.

A deal is crucial for the EU and International Monetary Fund to grant a long-awaited 130bn-euro second bailout for Greece.

In an interview for the Wall Street Journal on Monday, German Finance Minister Wolfgang Schaeuble said only radical reforms in Greece could trigger the release of the funds.

“Unless Greece implements the necessary decisions and doesn’t just announce them… there’s no amount of money that can solve the problem,” he said.

The atmosphere remained tense at the weekend with a row over a leaked German proposal to put an EU budget commissioner with veto powers in charge of Greek taxes and spending.

Greece rejected the proposal outright, but its EU partners remain alarmed by its failure to meet tough fiscal targets.

At the summit German Chancellor Angela Merkel played down the idea of a special EU commissioner for Greece, calling it “a debate we should not be having”.

The EU is trying to put in place a bigger, more resistant “firewall” to prevent contagion spreading from Greece.

The eurozone plans to launch a 500bn-euro permanent bailout fund – the European Stability Mechanism (ESM) – in July, a year earlier than first planned. It is expected to get the final go-ahead at the summit. The UK will not contribute to it.

Italy alone needs to refinance more than 300bn euros of debt this year and there are many voices urging the European Central Bank to boost the firewall to at least 1tn euros.