Tag Archive: European sovereign debt crisis


Euro sculpture outside of the ECB headquarters in Frankfurt 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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Whether it will do anything to cheer up Europe’s real economy is much less clear”

image of Stephanie Flanders Stephanie Flanders Economics editor

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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Brazil's Finance Minister Guido Mantega Guido Mantega wants eurozone nations to put forward more of their own funds

Brazil has said that developing nations would be happy to provide more money to ease the eurozone’s debt crisis, in return for more power within the International Monetary Fund (IMF).

The comments were made by Brazilian Finance Minister Guido Mantega as he met with his opposite numbers at a G20 meeting in Mexico.

He also called on eurozone countries to contribute more of their own funds.

This position was echoed by UK Chancellor George Osborne.

Mr Mantega said: “Emerging countries will only help under two conditions; first that they strengthen their firewall and second for the IMF [voting rights] reform be implemented.

“I see most countries sharing a similar opinion that the Europeans have to strengthen their firewall.”

Mr Mantega, and other G20 finance ministers, want eurozone nations to put more funds into the European Stability Mechanism, the fund set up to bail out nations struggling with their sovereign debt.

‘Colour of money’

German Finance Minister Wolfgang Schaeuble said eurozone nations would look next month at increasing the size of the ESM.

Mr Osborne, speaking to Sky News, said the UK was waiting for this to happen.

“We are prepared to consider [increasing] IMF resources but only once we see colour of eurozone money and we have not seen this,” he said.

“While at this G20 conference there are a lot of things to discuss, I don’t think you’re going to see any extra resources committed here because eurozone countries have not committed additional resources themselves, and I think that quid pro quo will be clearly established here in Mexico City.”

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

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.

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Analysis

image of Chris Morris 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.

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.

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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”

image of Gavin Hewitt Gavin Hewitt BBC Europe editor

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.

Christine Lagarde Christine Lagarde said austerity was only one of the measures needed to overcome the debt crisis

Inappropriate spending cuts could “strangle” growth prospects, the head of the IMF has warned.

Austerity programmes must be tailored to each economy, Christine Lagarde said, and not be “across the board”.

The International Monetary Fund has been one of those stressing the need for countries to cut their debts, but some fear this could hit growth.

The correct response to the eurozone debt crisis has been a major debate at World Economic Forum in Davos.

“We are not suggesting there should be fiscal consolidation across the board,” Ms Lagarde stressed.

“Some countries have to go full-speed ahead to do this fiscal consolidation, but other countries have space and room. They should explore what to do… in order to help themselves.

“It has to be tailor-made.”

One of those expressing concerns about the possible implications of fiscal consolidation at the gathering at the Swiss ski resort was US Treasury Secretary Tim Geithner.

He told the annual meeting of political and business leaders on Friday that there was a risk of a recessionary “cycle” from austerity measures.

“There is a risk that every disappointment in growth will be met with an austerity that will feed the decline, and that is a cycle you have to arrest to solve financial crises,” Mr Geithner said.

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George Soros has warned that Europe is likely to face a “lost decade”

‘Progress’

Crisis-hit countries such as Greece and Spain are implementing deep government spending cuts and raising taxes in order to try to bring down their deficits.

“For parts of Europe for a long time, there will be no alternative to very substantial adjustment in budget deficits,” Mr Geithner said.

He is one of a number of leaders who have said this week that the deficit-cutting measures have been an important step in addressing the eurozone debt crisis.

Ms Lagarde echoed those on Saturday: “There is work under way. There is progress, as we see it,”

But some see these policies as potentially very damaging. Financier George Soros told the BBC that the fiscal cuts, which Germany supports, could even lead to a “lost decade” of economic stagnation in Europe.

“This German insistence on austerity could destroy the European Union,” he said. “This is reality, this is the harsh reality that we need to face.

“It is not written in stone, the future is not predetermined. We determine the future, so it would be well within the possibilities of the authorities to change it.”

A document, reportedly leaked to the Financial Times, has suggested that Germany could be asking for Greece to do more, including giving up the financial control of its tax and spending decisions to an administrator appointed by Brussels.

Firewall

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For the first time in a while leaders meeting here don’t seem to be stalked by the fear that the eurozone might blow up”

image of Stephanie Flanders Stephanie Flanders Economics editor, BBC News, Davos

Austerity is only one part of the solution, Christine Lagarde said.

She, and others on the panel, stressed the importance of reinforcing what is being referred to as the “firewall”, a much-expanded rescue fund made up of funds pledged by eurozone members.

“It is critical that the eurozone members actually develop a clear, simple, firewall that can operate both to limit the contagion and to provide this sort of act of trust in the eurozone so that the financing needs of that zone can actually be met,” she said.

The IMF managing director also spoke of the hundreds of billions of dollars of extra funds she wants to raise to support any crisis-hit countries, especially if a economic downturn takes hold.

Holding up her designer handbag she said: “I am here with my little bag to collect a bit of money.”

“There will be needs in the eurozone, no doubt about it, but in central and eastern Europe there will be needs as well. And in other countries including in low income countries, including in middle income countries, there will be needs. Short term for some, long term for others.”

The UK has been one of those resistant to pledging extra funds for the IMF to help eurozone countries, but there have been indications in recent days that its stance is softening.

“I think there is a case for increasing IMF resources and I think that will also be a way of demonstrating that the world wants to help… solve the world’s problems,” UK Chancellor George Osborne told the Davos audience.

But, like his US counterpart Tim Geither, he said any additional help would be conditional upon Eurozone countries demonstrating they were doing all they could do help fellow members.

“There aren’t going to be further contributions to the IMF from other G20 countries, including Britain, unless we see the colour of their money, and I think that’s a reasonable request.”

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Insider’s guide: Why business leaders go to Davos

Debt deal

For the first time in a while, leaders meeting in Davos don’t seem to be stalked by the fear that the eurozone might blow up, the BBC’s economics editor Stephanie Flanders reports.

But many of the sessions have been discussing what still needs to be done.

“The fact that we’re still, at the beginning of 2012, talking about Greece – again – is a sign that this problem has not been dealt with,” George Osborne said.

“The danger here is that the tail wags the dog throughout this crisis. In other words, the inability to deal with specific problems with the periphery causes shock waves across the whole European economy and the world economy,” he added.

Talks reconvened on Saturday between the Greek government and representatives of its private creditors, including banks and hedge funds.

It is hoped that a deal to renegotiate the country’s debt can be concluded before a meeting of the European Council on Monday. An agreement is a precondition for receiving further bailout funds from European authorities and the IMF.

“Concluding the deal that will lead to a more sustainable situation in Greece, I think actually is fundamental to stability in the Eurozone,” Mr Osborne said.

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Davos 2012

IMF forecast IMF chief Christine Lagarde has warned of a ‘1930s moment’

The world’s economy is “deeply into the danger zone” because of risks from the eurozone, the International Monetary Fund (IMF) has said.

The IMF predicts the global economy will grow by 3.25% in 2012, down from an earlier forecast of 4%.

The growth forecast for the UK economy has been cut to 0.6% from 1.6%.

But the eurozone is set for a “mild recession” in 2012, with GDP expected to shrink by 0.5%, compared with a previous forecast of 1.1% growth.

Growth estimates have been reduced for the main eurozone countries, including Germany, which is widely seen as the powerhouse of the region.

Germany is forecast to grow 0.3% in 2012, down from the 1.3% originally predicted in September.

France is expected to show 0.2% growth in 2012, down from 1.4%.

However, the IMF stands by its 1.8% growth prediction for the US, based on recent strong domestic data on jobs and manufacturing.

Risk of ‘spillovers’

Emerging markets, such as central and eastern Europe and Asia, could also be hit by the eurozone crisis.

The IMF said: “While these markets have been quite resilient to shocks and developments in major economies in the past year, recent indicators have weakened significantly and the general business climate has deteriorated.”

The IMF said Europe’s most pressing challenge was to restore confidence and put an end to the crisis in the euro area.

It added that world economies needed “decisive and consistent policy action” to improve the current financial environment.

“There are three requirements for a more resilient recovery: sustained but gradual adjustment, ample liquidity and easy monetary policy, mainly in advanced economies, and restored confidence in policymakers’ ability to act.”

Separately, EU economic affairs commissioner Olli Rehn said he expected a “moderate recession” across Europe in the first half of this year.

On Monday, IMF chief Christine Lagarde warned the global economy could fall into an economic spiral reminiscent of the 1930s unless action was taken on the eurozone crisis.

In its update to its September report, the IMF warned that the “United States and other advanced economies are susceptible to spillovers from a potential intensification of the eurozone crisis”.

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Global Economy

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