Eurozone Crisis Live Blog: Headlines Turn Negative, Markets Wait For ECB

14/12/2011 08:05 | Updated 12 February 2012

The International Monetary Fund (IMF) gave a bleak forecast for Greek growth on Tuesday, adding more miserable economic news to markets already overburdened with concerns. The country's recession should see its economy shrink a full 6% next year, the IMF said.

Last week's figures for deposits at the European Central Bank (ECB) show that banks are increasingly holding cash at the institution, and taking advantage of its emergency lending facility - a sign that fear over future shocks has led to a nascent credit crunch.

Stocks saw large swings across the day, with the French CAC-40 and the German DAX ending down 0.35% and 0.19%, respectively, although volumes were low, suggesting that investors are keeping their powder dry until they get more clarity on how - or whether - the shorter term elements of the eurozone crisis plan will be implemented.

The euro, despite its resilience over the past year, fell to an 11-month low.

As they have been for months, investors' eyes are fixed on the ECB, which is due to meet on Thursday. Any indication that the institution's president, Mario Draghi, has changed its position and stands ready to print money and ease the building shortage of credit in the eurozone would more than likely drive a big rally.

Headlines on Wednesday morning that non-eurozone signatories to Friday's treaty are concerned over gaps in the plan, and over the legalities of its implementation, are unlikely to calm the markets in the meantime.

Follow our liveblog below to keep up-to-date with the action.


19/12/2011 17:25 GMT

<strong>Spain's Incoming Prime Minister Offers Details On Economic Reform</strong>

Mariano Rajoy, who will be sworn in as prime minister of Spain on Wednesday, has lain out some of the measures his government intends to take to address Spain's looming budget deficit.

Rajoy told members of Parliament Monday that his government will pass a provisional 2012 budget by the end of December, according to the Financial Times.

Under Rajoy's plan, public sector hiring is expected to drop off sharply, and all forms of public spending except pensions will be vulnerable to cuts, the FT reports. The proposed budget aims to reduce Spain's deficit by €16.5 billion, according to BBC News.

Spain has an unemployment rate of nearly 23 percent, the highest of any developed economy. Rajoy told Parliament that measures to reform the labor market would be devised by the end of March.

14/12/2011 22:12 GMT

Fitch Downgrades Five Major European Banks

The credit ratings agency Fitch Ratings just downgraded five major European banks and banking groups: Credit Agricole in France, Rabobank Group in the Netherlands, Danske Bank in Denmark, OP Pohjola Group in Finland, and Banque Federative du Credit Mutuel in France.

From the press release:

The downgrades reflect the broader phenomenon of stronger headwinds facing the banking industry as a whole. Exposure to troubled Eurozone countries through their subsidiaries was a direct consideration in the downgrades of Danske Bank and Credit Agricole. For the other banks, however, Fitch considers the Eurozone crisis is also having negative indirect consequences. Capital markets, in particular interbank markets, are not functioning effectively, and, along with more global factors, the crisis is driving economic slowdown.

--Bonnie Kavoussi

14/12/2011 21:18 GMT

Protesters Ramp Up Across Europe

Fast-growing populist parties across Europe are ramping up their protests against ruling governments in response to last week's European summit deal to implement stricter rules to prevent European countries from spending more than allowed, according to The Financial Times.

From The Financial Times:

The trend made its most high-profile intrusion yet in Italy on Wednesday, when senators from the anti-EU Northern League heckled and jeered Mario Monti, the technocratic prime minister, as he was presenting his austerity programme.

The Northern League outburst came as populist leaders in Finland, Hungary and the Netherlands have also renewed attacks on government leaders. Several denounced a proposed intergovernmental treaty agreed at the summit on Friday, which would strictly limit spending in signatory countries.

14/12/2011 21:09 GMT

Germany Paves Way For A Bank Bailout

German Chancellor Angela Merkel's cabinet agreed on Wednesday to reinstate Germany's state bailout fund, paving the way for Commerzbank, Germany's second largest bank, to receive a government rescue, according to The Financial Times.

From The Financial Times:

Officials in Berlin are privately sceptical that Commerzbank can keep to its pledge to shore up its capital without using more state funds. The bank received more than €18bn of aid during the financial crisis and remains 25 per cent state-owned.

Commerzbank was one of the biggest losers when the European Banking Authority this month published updated results of stress tests of European banks along with orders to plug any capital needs. Commerzbank, which owns €13bn of the peripheral eurozone debt at the heart of the continent’s fiscal crisis, saw its capital gap balloon from €2.9bn to €5.3bn because of the debt exposure.

--Bonnie Kavoussi

14/12/2011 18:52 GMT

Major French Bank Announces 2,350 Job Cuts

Credit Agricole, France's third largest bank, announced on Wednesday that it would slash 2,350 jobs and not give stockholders a 2011 dividend, according to The Financial Times.

The bank also plans to deleverage its activities, cut bank its consumer finance unit, and desert operations in 21 countries, according to the FT.

European banks provide substantial financing to emerging economies in Latin America and Asia, according to some economists, so the retrenching of European banks is likely to be a double-whammy for the American economy: both by tightening credit in the United States and by hurting demand for American exports as businesses in emerging economies have trouble finding financing.

--Bonnie Kavoussi

14/12/2011 17:37 GMT

European Stocks, Italian Bonds And The Euro Get Hammered

European markets have taken something of a battering today, with all the major indices posting substantial losses. The euro fell to an 11-month low and Italy saw its 5-year bond yields rise to a euro-era high at an auction in the morning.

At the root of much of the turnaround in sentiment is renewed opposition to the use of the European Central Bank's "bazooka" to buy up European debt, or to inject money into the International Monetary Fund (IMF) for the same purpose.

The German DAX and French CAC-40 fell 1.6% and 3%, respectively, while the FTSE-100 was down more than 2% on a combination of domestic and European economic worries.

--Peter Guest

14/12/2011 17:27 GMT

Merkel Says UK 'Still An Important Partner' For EU

Angela Merkel has said that she regrets that the UK is not involved in the newly negotiated treaty within the EU, but has reiterated that Britain remains an important partner to the EU and to Germany.

Speaking in the Bundestag, the German chancellor said it was regrettable that Britain was not part of the process, agreed in frantic talks last week, that pledged to create enforceable fiscal rules within the eurozone and to move towards greater economic integration.

But she added: "I have no doubt that in the future Britain will also be an important partner in the European Union.

"Britain is not only an important partner in foreign and security affairs. Britain is a partner in many other areas - in competitiveness, in the internal market, in trade, in [fighting] climate change."

The UK is the only country out of the 27 EU member states that is not part of a plan to better integrate the union's economies. Prime Minister David Cameron's decision to pull out of talks led to fears that Britain could become isolated from the EU, its largest trading partner.

--Peter Guest

14/12/2011 17:16 GMT

German Economy To Stagnate In 2012: Report

Germany, Europe's largest economy, will not be immune from the economic downturn plaguing Europe. The University of Munich's Ifo Institute forecasts that the German economy will grow just 0.4 percent next year -- much less than the 2.3 percent growth originally forecast in June, according to Dow Jones Newswires.

"The debt crisis is slowing down the German economy," the Ifo Institute said in the report.

--Bonnie Kavoussi

14/12/2011 16:47 GMT

German Coalition Party In Disarray

The leader of Germany's liberal Free Democratic party unexpectedly resigned on Wednesday, highlighting the disorganization of the party, a junior partner in Angela Merkel's ruling coalition, as it struggles to define its eurozone policies, according to The Financial Times.

Christian Lindner, the party's chief manager, resigned without giving a clear explanation.

From The Financial Times:

The resignation confirms the perception of the FDP as a party without clear leadership or direction, undermining the coherence of the Merkel government and making all forms of decision-making in the coalition more complicated.

--Bonnie Kavoussi

14/12/2011 16:19 GMT

ECB Needs To Guarantee Maturing European Debt: John Paulson

The European Central Bank needs to guarantee the maturing government debt of countries such as Italy and Spain so that their borrowing costs can fall back to a sustainable rate of about 4 percent, hedge fund manager John Paulson wrote in an op-ed in The Financial Times on Wednesday. Paulson is known for earning more than $15 billion for his firm by betting heavily against the housing market before the housing bubble burst.

In return, the ECB could collect a one percent annual guarantee fee, and it most likely never would have to act on the guarantee, so it would not cause inflation, Paulson wrote.

From the op-ed:

The benefits to this programme are many: it would immediately stabilise the sovereign credit market, it would not expand the ECB’s balance sheet, it would not cause inflation, it would keep interest costs low, and negate the need for the ECB to buy debt in the primary or secondary market. Since Italy and Spain are facing liquidity, not solvency issues, the guarantee would probably never be used, and the ECB would collect fees for its service.

--Bonnie Kavoussi

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