Debt crisis: as it happened

July 25th, 2012

FAKE NEWS for the Zionist agenda

18.43 As we mentioned at 12.47, Germany economy minister Philipp
Rösler has received heavy criticism after saying
that he was “very sceptical” that European leaders will be able to
rescue Greece. Bloomberg reports that that even Greek prime
minister, Antonis Samaras, took a swipe, although he did not refer to
Mr Rösler by name. Mr Samaras told politicians in Athens today that foreign
officials who question his country’s ability to stay in the eurozone are “irresponsible”:

Of course, there are some foreign officials, who every so often come out
and assume that Greece won’t make it. I consider them — I say openly and
publicly — to be those who undermine the national effort. We are doing what
we can to keep the country upright and they do whatever they can to ensure
our failure.

18.13 Sony Kapoor of think tank, Re-Define, has published
a piece to make you squirm. He draws a parallel between Spain’s
economic predicament and a torture device from the Middle Ages, known as the
Spanish donkey, which “consisted of a wedge on which the victim was
seated with weights tied to his or her legs so that with enough weight, the
wedge could even slice though the victim’s entire body”. He
writes:

Arguably, the Spanish economy now sits atop such a wedge weighed down by
deep austerity measures and unprecedented unemployment on the one side and
by large unknown losses in the banking system brought about by a real-estate
bubble that has burst on the other.

What is worse is that these two aspects weighing the economy down reinforce
each other in a manner that is clearly not understood that well by EU policy
makers. The Spanish economy today is at a point where every bit of
austerity, measured in percentage points of GDP, leads to a reduction in
demand that is even larger. So a 1% cut in government spending is likely to
lead to a fall in GDP that is larger than 1%.

This is because the uncertainty over the future of Spain and the fact that
tomorrow, at this point, looks worse than today mean that neither consumers
nor businesses are spending so a reduction in government spending translates
directly into lost demand in the economy. What’s worse is that the
expectation of falling GDP that accompanies such austerity means that both
consumers and firms will make further cutbacks to their consumption and
investment plans.

17.56 After meeting with his German counterpart today (see 16.49), Spain’s
economy minister is apparently due to meet his French peer, Pierre
Moscovici, in Paris tomorrow.

17.24 Troika representatives have barely been in Greece for five
minutes, but already it looks like their report will not make for happy
reading. Reuters has a tale suggesting that Greece is unlikely to
be able to pay what it owes and further debt restructuring is likely to
be necessary. It cites EU officials saying that Greece would be found to be
way off track by EU and International Monetary Fund officials who have been
assessing the country:

Inspectors from the European Commission, the ECB and the IMF – together
known as the troika – returned to Athens on Tuesday and will complete their
debt-sustainability analysis next month, but the sources said the
conclusions were already becoming clear.

It means Greece’s official-sector creditors – the ECB and euro zone
governments – will have to restructure some of the estimated €200bn euros of
Greek government debt they own if Athens is to be put back on a sustainable
footing.

But there is no willingness among member states or the ECB to take such
dramatic action at this stage.

“Greece is hugely off track,” one of the officials told Reuters,
speaking on condition of anonymity because of the sensitivity of the issue. “The
debt-sustainability analysis will be pretty terrible.”

16.59 It’s not just Spanish yields on the rise – the ten-year yields
rose 12.1 basis points to 7.5pc this afternoon – but Italian yields
too. On the ten-year bond, yields jumped 24.9 basis points to 6.541pc.
Nicholas Spiro of Spiro Sovereign Strategy writes:

The dramatic price action in Spain’s bond market in the past few trading
sessions is worrying enough. But what’s even more alarming in our view is
the rapid sell-off in Italy’s debt market.

While yields on 2-year Spanish paper have risen by some 85 basis points
since the crisis in Spain escalated last Friday, their Italian equivalents
have risen by more than 100 basis points. Today alone, yields on 2-year
Italian bonds have increased by some 40 basis points, compared with 10 basis
points for its Spanish equivalent at time of writing.

…

The failure to shore up Spain is wreaking havoc with Italy’s bond market.
Fears that Spain’s request for a bail-out would make Italy more vulnerable
are being borne out.

Yet if a partial bail-out of Spain is able to cause this much damage to
Italy’s bond market, the impact of a full-fledged rescue of the Spanish
sovereign doesn’t bear thinking about.

The problem is that there’s still not enough money in the eurozone’s rescue
kitty to deal with Spain and Italy. Were the EFSF/ESM to be called upon to
intervene in the secondary bond markets, investor anxiety would, if
anything, increase due to concerns about insufficient firepower.

16.49 Spain’s economy minister, Luis de Guindos, is meeting his
German counterpart, Wolfgang Schaeuble, today. The Financial Times reports
that the talks are being downplayed and are not expected to produce any new
initiatives on tackling the eurozone crisis. Here’s more
from the Pink ‘Un (£):

An official at Spain’s ministry of economy said the informal ministerial
meeting in Berlin was arranged before the sharp sell-off in Spanish debt at
the end of last week. It is one of a series held by the two ministers
throughout the crisis.

No precise time has been announced for the talks, to be held “at the end of
the day” in the German finance ministry, and the two ministers have agreed
simply to issue a written statement when they finish.

16.34 Luxembourg’s finance minister, Luc Frieden, has said that
the eurozone is ready to act to help Spain as the country’s borrowing costs
soar. Speaking in an interview with Bloomberg, he said that while no
work is being done for a bailout of the Spanish government, policy makers in
the euro area must be prepared to move quickly:

In such difficult times as we are in, one has to follow the situation on a
permanent, daily basis and be ready to act at any moment. The political
decisions in the case of Spain and also of Greece have been taken to be able
to act fast. That’s what is important especially now in the summer months.

16.01 Centre-left Social Democratic Party MPs in Germany have called
for the resignation of economy minister Philipp Rösler following
his comments last weekend on Greece (see 12.47):

If your German is better than mine, Die
Welt has the full story online.

15.37 Earlier, at 11.17, we mentioned that Jose Manuel Barroso,
the head of the European Commission, will join his debt inspectors in Greece
on Thursday. This is the first time that he will have visited Greece since
the beginning of the crisis. Alejandro Ulzurrun de Asanza y Munoz, a
commission spokesman, said:

The purpose of the meeting is to meet Mr Samaras and discusss the overall
economic situation in Europe and in particular in Greece

Though it will be Mr Barroso’s first visit to Athens since June 2009, the
spokesman insisted it was “a regular meeting” and that the
preparation for the talks had been “under discussion for some time.”

While Mr Barroso is visiting Greece, Angela Merkel has apparently not
set foot in Athens since 2007. Peter Spiegel of the Financial Times tweets:

15.03 Mr Monti’s remarks came as mayors from across Italy marched
in front of the Italian senate against planned austerity measures.

Andrea Marchi, mayor of Ostellato, told AFP: “We have
reached our limits”.

_{Rome’s Mayor Gianni Alemanno, right, delivers his speech as he gathers

with Mayors from across Italy to protest against spending cuts planned by

the Government, in Rome on Tuesday (Photo: AP).}

14.59 The Italian government is to oversee spending cuts in the
crisis hit region of Sicily. Following a meeting between PM Mario
Monti and Sicilian governor Raffaele Lombardo this morning, Mr
Monti said in a statement:

[We have agreed] a plan for financial recovery and reorganisation of the
regional public administration [that will be] constantly monitored by the
technical institutions of the national government.

14.37 Commenting on the data, Craig Dismuke, chief economic
strategist at Vining Sparks, said:

The slowdown in manufacturing is a concern. We are seeing the effect from
Europe is weighing on U.S. manufacturing, and manufacturing is one of the
few bright spots in this recovery. Now we are seeing it slow due to a
stronger dollar.

14.13 US manufacturing expanded at its slowest pace in almost two years
this month, according to Markit’s latest survey.

Markit’s
“flash” manufacturing purchasing managers index (PMI) for July
fell to 51.8 from 52.5 in June, representing the weakest expansion
since December 2010. Any reading above 50 indicates expansion.

Commenting on the flash PMI data, Chris Williamson, chief economist at
Markit said:

The U.S. manufacturing sector is clearly struggling under the pressure from
falling exports, which showed the first back-to-back monthly decline for
almost three years in July. Growth of production is slowing closer to
stagnation as a result, and rising levels of unsold stock may mean companies
seek to scale back production in coming months unless demand picks up again.

Reassuringly, domestic demand appears to be showing ongoing signs of
resilience, encouraging firms to take on more staff.

_{Manufacturing output increased in July, rising for the thirty-fourth

consecutive month. However, production rose only modestly, with the rate of

growth slowing for a fourth successive month to a 12-month low (Source:

Markit).}

13.30 Catalonia looks like it will be the third Spanish region
to seek support from the government. Andreu Mas-Colell, Catalonia’s
finance minister, told the BBC that the region would seek support. He
said:

The current situation is: Catalonia has no other bank than the government
of Spain. This is life — everybody knows the situation of the markets.

Business daily El Confidencial reported on Monday that Catalonia will
request €3.5bn from the Spanish government. Valencia has
already made a formal request for aid, while the head of Murcia’s
local government has also signalled that the region will seek help.

Firefighters have been battling wind-fuelled wildfire in the northeast region
that has killed four people.

_{People gather in a gym on Tuesday to escape fires that have ravaged the

region of Catalonia (Photo: AFP)}

13.12 Spain’s IBEX 35 index has dipped below the 6,000 mark. The index
has fallen 3pc today to 5,990.70. If it stays at this level, this will be
the first time it has closed below 6,000 since February 2003.

_{Spain’s IBEX index over the past 10 years (Source: Bloomberg)}

12.47 German economy minister Philipp
Rösler has received heavy criticism after saying that he was “very
sceptical” that European leaders will be able to rescue Greece. Der
Spiegel reports:

Fellow FDP member Michael Link, a state secretary in the Foreign Ministry
responsible for European policy, warned on Monday against making
self-fulfilling prophecies and said the German government’s position was
that no country should be pressured into leaving the euro zone.

“If it is possible to keep it together, we should do it,” he said
of the euro zone, speaking on the sidelines of an EU foreign ministers’
meeting in Brussels.

Jorgo Chatzimarkakis, a Greek-German member of the European Parliament for
the FDP, was less diplomatic. He said he was astonished by the “extent
of unprofessionalism” in Rösler’s comments.

“If Philipp Rösler (pictured below) in such a situation already gives
a thumbs down, I ask myself: what planet is he living on?”
Chatzimarkakis told the Saarbrücker Zeitung newspaper.

Gustav Horn, director of the union-aligned Macroeconomic Policy Institute
think tank, called Rösler’s comments “grossly reckless.”

Rösler had shown “that he unfortunately still hasn’t understood
the euro crisis,” Horn told business daily Handelsblatt.

12.25 The
€18bn fund being used to help struggling Spanish regions will
be “sufficient,” an EU spokesman has said. Antoine Colombani added:

We believe that the regional liquidity fund that has been implemented is
sufficient to tackle any difficulties the regions may have.

11.48 Ten year borrowing costs in Spain have just hit 7.6pc,
while the benchmark IBEX 35 stock index has fallen 2.6pc.

11.31 Lord Adair Turner, chairman of the Financial Services Authority,
has said he is “very concerned” about the Euro area’s sovereign debt crisis.

Speaking at a Bloomberg event in London, Lord Turner said that
the link between banks and state funding problems would have to be cut for
the currency bloc to survive.

11.17 Jose Manuel Barroso, the head of the European Commission, will
join his debt inspectors in Greece on Thursday. He will also meet Mr
Samaras for a jaw-jaw on Europe, according to a Commission spokesman.

11.12 Spain has refinanced nearly 70pc of its debt needs for 2012,
according to the country’s economy ministry. This will allow it to stick to
its “prudent strategy” at future auctions, it said in a statement.

11.01 Antonis Samaras, Greece’s new PM, has described the task
facing the Greek government as “Herculean”.

Speaking in parliament, he also said that the economy could contract by more
than 7pc this year, and would not return to growth before 2014.

Greece’s central bank had previously forecast that that economy would
shrink by around 5pc this year. The OECD has forecast a 5.3pc
contraction, while the European Commission sees a contraction of
4.7pc.

10.40 Spain has considered asking Brussels for a bridging loan to see
it through to the end of the year, according to reports.

Sources close to the government told elEconomista that Spain
would need a loan to avoid the “imminent financial collapse”
that awaits the country in October when it has to roll-over €28bn of debt.

The credit line would “buy time” for the country, the sources said,
and would provide breathing space while the eurozone’s permanent bail-out
pot, the European Stability Mechanism (ESM) was set up.

_{Spain has to roll-over some €28bn of debt this October (Source: Bloomberg)}

09.58 Nicholas Spiro at Spiro Sovereign Strategy comments on today’s
auction:

1. Back in March, T-bill auctions were a walk in the park for Spain’s
Treasury. Now even sales of short-term debt are a struggle. It was a given
that yields would rise today. The focus was on demand. All things
considered, the result is not so bad, especially since it’s auctions of
shorter-dated paper that Spain is counting on to retain market access. The
most important take-away from this auction is that Spain was able get all
its debt out the door. Still, in March Spain was able to issue 6-month debt
at a yield of under 1%. Now it’s paying 3.7%.

2. The Spanish yield curve is flattening, with the longer-end even starting
to invert, as panic sets in. New euro-era highs for yields on short-dated
paper are being set on a daily basis. Pretty much everything that could go
wrong in Spain is. The bank-focused bail-out is perceived as insufficient, a
funding squeeze in the regions is putting more pressure on Spain’s
creditworthiness, non-stop austerity is increasingly seen as self-defeating
and the recession is deepening. The question is no longer whether Spain can
persevere with its adjustment, but rather how much more its economy and
citizens can endure.

3. Price action at the shorter-end of the curve suggests that Spain is
heading for a full-fledged bail-out. Yet this raises more questions than
answers. Where will the loans come from? What kind of extra conditionality
would this entail? What are the risks for Italy given that its yields are
closely correlated with Spain’s?

09.52 To put this into perspective, Spain is now paying more to
service its debt over six months than Slovakia and the Czech
Republic pay to borrow over ten years.

09.47 Demand remained strong, with 3.02 bidders for every bond on offer
at the six month auction, compared with 2.82 previously.

09.43 The results of the Spanish bond auction are in. In short,
it managed to get the auction away, but at a high price.

The country sold €1.628bn of three month bills at average rates of 2.434pc,
and €1.42bn of six month debt at average yields of 3.691pc.

This compares with 2.362pc and 3.237pc at the last auction in June.

09.29 The ongoing downturn in the eurozone has driven the rate of job
losses to its highest level for two-and-a-half years, according to Markit’s
latest eurozone PMI survey.

Markit’s flash eurozone manufacturing PMI fell to a 37 month low of
44.1 in July, compared with 45.1 in June. This is well below the 50 level
that separates growth from contraction.

Services rose to a four month “high” of 47.6, which illustrates just
how bad things are.

Chris Williamson at Markit, said:

The downturn is being led by an increasingly severe slump in manufacturing,
where output is falling at a quarterly rate of around 1%.

Germany is now contracting at the steepest rate for three years, while the
rate of decline in the periphery is also among the highest seen since
mid-2009. The only sign of improvement was limited to the French services
sector, which is likely to be due to domestic business settling down again
after the general elections and could therefore prove temporary.

Companies across the region are cutting staff numbers at the fastest rate
for two-and-a-half years as the outlook darkens. Service providers are now
the gloomiest since March 2009, while manufacturers are slashing their
inventories of raw materials in the expectation of ongoing weak sales in
coming months.

_{French payroll numbers were cut at the fastest rate since December 2009,

Markit said.}

09.22 An interesting piece in today’s Financial
Times examines UKIP leader Nigel Farage’s viral following. As Mr
Farage highlights, UKIP has an ever growing fan base in crisis-hit Spain
and Greece:

In Finland, Timo Soini, an ex-MEP who shocked the eurozone last year when
he led his populist True Finns party to within a whisker of capturing the
largest share of the vote in national elections, regularly tunes into Mr
Farage on YouTube.

“It’s great stuff,” Mr Soini says. “He would make millions as a Fox News
presenter.”

A Spanish copy of a speech Mr Farage gave in November has racked up more
than 1.1m views. Italian, Greek and even Slovak versions routinely pull in
hundreds of thousands.

“The amount of hits my stuff gets in Spain and Greece is bloody
astonishing,” Mr Farage marvels as he puffs away at a cigarette in his
non-smoking office at the European parliament in Brussels. The room is
cluttered with papers and the odd champagne bottle. A coffin with a “euro”
sign is propped against a wall.

“It’s a whole community that’s just evolved,” he says of volunteers like Mr
Jedlicka. “If I wanted to do it myself, it would take a boiler room of 10
people.”

Here’s an example of one of Mr Farage’s speeches – posted with Spanish
subtitles under the title “Un Eurodiputado explota y dice la verdad”
– or “A MEP tells the truth”. It has been viewed more than one
million times:

09.20 So, will Spain need a full scale bail-out? Over 96pc of
you who voted yesterday think so, but
there’s still time to vote:

Will Spain need a full-scale bail-out?

09.03 After opening broadly flat, stock markets are heading south. The IBEX
35 in Madrid has fallen 1pc, while the FTSE Mib in Milan has
dropped 0.7pc.

London’s benchmark FTSE 100 index is flat, at 5,524.65.

09.00 I spoke too soon about falling borrowing costs in Europe. Ten
year yields in Spain are now at fresh euro-era highs of 7.569pc,
while Italian yields have just soared to 6.46pc.

08.56 Germany has avoided recession this year, after posting growth of
0.5pc in the first three months of the year.

The country will announce an inital estimate of GDP growth for the second
quarter next month.

08.48 Manufacturing production in Germany fell to a 37 month low
in July, according to a respected survey.

Markit’s
‘flash PMI’ for Germany’s manufacturing sector fell to 43.3, from 45
in June. Any reading below 50 reflects a contraction.

The country’s services sector also contracted slightly, with a reading of 49.7
(vs. 49.9). Tim Moore, senior economist at Markit, said that the data
pointed to a contraction in the German economy in the second quarter. He
said:

July’s survey highlights that German business conditions are far less
healthy than those seen during the first half of 2012, especially across the
manufacturing sector where new export orders fell at the fastest pace for
over three years. A solid overall drop in output during July represents the
worst start to any quarter since Q2 2009. Moreover, an accelerated decline
in new work means that the stage could well be set for a steeper drop in GDP
than the 0.2% fall recorded at the end of 2011.

_{Markit’s composite index measures Germany’s services and manufacturing

sectors (Source: Markit)}

08.38 Spanish borrowing costs over five years have risen above ten year
borrowing costs for the first time in more than ten years, according to Reuters
data. Commenting this morning, Craig Erlam, market analyst at
Alpari, said:

Spain’s access to the debt markets has also become more restricted since it
requested a bailout for its banks. Yields on 5 year debt reached euro-era
record highs in a recent auction, meaning the yield curve for Spanish debt
is flattening. This is what happened to Greece, Ireland and Portugal leading
up to their bailouts, suggesting a full Spanish bailout is near.

08.25 Jim O’Neill, the head of Goldman Sachs Asset management, has
called on the ECB to take more “radical steps” to address
the crisis. Speaking on Radio 4, he said that Spain and larger
neighbour Italy could be too big to save, and more central bank
action was required to avert a crisis that involved one of the eurozone’s
largest economies.

08.10 Spanish borrowing costs have eased slightly this morning. The
yield on benchmark 10-year debt has fallen by nearly 7 basis points to
7.327pc.

However, this is still
well above the 7pc level that forced smaller neighbours Greece,
Ireland and Portugal to go with their begging bowls to
Brussels for a bail-out.

Italy’s borrowing costs have also eased this morning, with yields on 10-year
debt currently at 6.238pc.

08.04 Spain will dip its toe back into the debt markets this
morning with an auction of three and six month debt.

The country paid average rates of 2.362pc and 3.237pc respectively at similar
auctions last month.

In the light of yesterday’s soaring borrowing costs, expect yields to rise
again. We’ll bring you the results just after 9.30am.

07.55 Commenting on the move by Moody’s, Luxembourg PM Jean-Claude
Juncker, who leads the group of eurozone finance ministers, said:

We take note of the rating decision of Moody’s which confirms the very
strong rating enjoyed by a number of euro- area member states, as supported
by the sound fundamentals which these and other euro-area countries continue
to enjoy. Against this background, we reiterate our strong commitment to
ensure the stability of the euro area as a whole.

07.48 The move by Moody’s adds to its warning in June that it could cut
Spain’s credit rating to “junk” within three months. Its
review will be published by the end of September.

07.46 In
a statement, Moody’s said:

All four sovereigns [including Finland, which had its rating affirmed on
Monday] are adversely affected by the following two euro-area-wide
developments:

1) The rising uncertainty regarding the outcome of the euro area debt
crisis given the current policy framework, and the increased susceptibility
to event risk stemming from the increased likelihood of Greece’s exit from
the euro area, including the broader impact that such an event would have on
euro area members, particularly Spain and Italy.

2) Even if such an event is avoided, there is an increasing likelihood that
greater collective support for other euro area sovereigns, most notably
Spain and Italy, will be required. Given the greater ability to absorb the
costs associated with this support, this burden will likely fall most
heavily on more highly rated member states if the euro area is to be
preserved in its current form.

07.45 Late on Monday night, Moody’s
changed its outlook on Germany, Luxembourg and the Netherlands to negative.
In layman’s terms, these countries could be downgraded within 18 months.

07.32 Yesterday saw chaos
in the markets, as the the FTSE 100 closed down 2.1pc, with
not a single riser in the benchmark index.

Spain’s IBEX closed down around 1.1pc, having lost some 5pc earlier in
the day. Other European bourses were all under heavy pressure.

Italy’s FTSE MIB fell 2.8pc after shedding as much as 4.5pc in the
morning, France’s CAC 40 fell 2.9pc and Germany’s DAX tumbled
3.2pc.

07.30 Good morning and welcome back to our live coverage of the
European debt crisis.

Debt crisis
live: archive