The European Central Bank (ECB) has decided to keep eurozone interest rates unchanged at 0.75% for the eighth month in a row.
Read more from the original source: ECB keeps rates unchanged at 0.75%
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The European Central Bank (ECB) has decided to keep eurozone interest rates unchanged at 0.75% for the eighth month in a row.
Read more from the original source: ECB keeps rates unchanged at 0.75%
PARIS — A French official says the European Central Bank is shirking its responsibilities toward Europe’s unemployed and should do more to weaken the euro to help exports.
Industrial Recovery Minister Arnaud Montebourg’s comments go against a custom that politicians not meddle in the ECB’s work.
Montebourg told Europe 1 radio Sunday: “It’s not dealing with growth. It’s not taking care of the unemployed. It’s not taking care of the European people. And it has a duty to do so.”
The rest is here: French Minister: ECB Must Do More for Jobless
The European Central Bank (ECB) has left eurozone interest rates unchanged at 0.75%, as had been widely expected.
Continue reading here: VIDEO: ECB holds interest rates at 0.75%
European leaders seal agreement to put the European Central Bank in supervisory authority over financial institutions in the single currency area
European leaders were expected to push ahead with plans for winding up or shoring up weak eurozone banks on Thursday night, hours after sealing agreement to put the European Central Bank in supervisory authority over financial institutions in the single currency area.
In what was being hailed as one of the most important and systemic responses in three years of battling to save the currency, finance ministers early on Thursday embarked on the first stage of a eurozone “banking union”, burying acute Franco-German differences to establish the first single banking supervisor.
A two-day summit which opened on Thursday sought to build on the momentum, discussing calls for new legislation on eurozone banks’ “resolution” to be drafted by next year.
But more ambitious schemes, drawn up by the summit chair, president Herman Van Rompuy, to move towards a eurozone fiscal and political federation were watered down and delayed amid strong German resistance to any pooling of risk and costs among the currency’s 17 countries.
A draft communique on the summit’s decisions said that a “single resolution authority will be required, with the necessary powers to ensure that any bank can be resolved with the appropriate tools.”
The European commission, according to the draft, was told to draw up legislation for dealing with weak banks over the next year and the law should come into force in 2014. There was also talk of a common eurozone deposit guarantee scheme, the third plank in the banking union scheme, safeguarding people’s savings anywhere in the single currency area.
The Germans are balking at that notion, however, and are also wary of pooling responsibility for weak banks in other countries as the common scheme would see German banks being taxed to pay for bad banks elsewhere.
“Common bank resolution is difficult for them,” said a senior diplomat, adding that the Dutch and the Finns, hawkish allies of the Germans on the euro crisis, were also reluctant to take on “mutualisation” of risk in the eurozone.
Berlin has told Brussels to steer clear of tabling proposals on eurozone risk-sharing and cost-sharing before chancellor Angela Merkel contests an election for a third term next September.
The proposed banks resolution regime is supposed to help cut the invidious link between failing banks and weak sovereigns that is seen as having contributed hugely to the sovereign debt crisis in countries such as Spain and Ireland.
“The single most important integrative step for the eurozone in 2013 is going to be the work to create a common resolution authority,” said Mujtaba Rahman, European analyst at Eurasia Group.
Under the single supervisory regime agreed on Thursday by finance ministers, though still to be finalised in talks with the European parliament, the ECB in Frankfurt is put in authority over up to 200 of the eurozone’s 6,000 banks initially. A German campaign to restrict the scope of the supervisor won over French resistance.
After more than 14 hours of fractious negotiations, the ministers agreed on the single supervisor as the first stage of a more comprehensive banking union. The next two stages may turn out to be more difficult to realise because of German-led reluctance to bow to the mutualisation of risk involved. But without them, it will also be difficult to see the new regime being effective, officials and diplomats say.
The idea was first proposed in June when France, Italy, and Spain exploited the euro drama to hijack Germany into agreeing that the eurozone’s bailout fund could be used to recapitalise directly ailing banks, say in Spain.
The Germans were arm-twisted into agreeing, but insisted the recapitalisation could only take place if eurozone banks were placed under ECB authority. Within hours of that huge concession, the Germans got cold feet and have been rowing back ever since, seeking to delay the bank supervisor and restrict its powers and scope.
It will be another 15 months before the new regime starts operating properly. Germany’s finance minister, Wolfgang Schäuble, ascribed the time needed to the ECB, stressing that Mario Draghi, the ECB president, wanted a year to get the new system up and running.
The UK chancellor, George Osborne, whose key aim from outside the eurozone was to safeguard the UK financial sector against ECB and eurozone interference by being automatically outvoted on rule changes, standards-setting, and regulation, claimed he got a good deal for Britain.
“The safeguards we have secured protect Britain’s interests and the integrity of the European single market,” said Osborne. “We’ve always said a banking union was a necessary part of a more stable single currency for the eurozone, but also that single market for the whole of the European Union must be safeguarded. The agreement Britain has secured does that.”
Despite the progress on common bank regulation, the summit shaped up to be a humiliation for Van Rompuy at the hands of the Germans. His earlier proposals for eurobonds have been scrapped and demands last week for a eurozone “fiscal capacity” or special budget and insurance scheme were also dropped, although the draft still talked of a eurozone “shock absorption capacity.” Van Rompuy’s first draft communique for the summit, envisaging a three-stage process towards a more complete monetary union, has had to be comprehensively rewritten while his proposals were belittled as a “useful input” rather than as the “basis” for the debate.
Merkel did not rule out supplying “financial incentives” for eurozone countries pledging to undertake structural reforms of their economies, policed by Brussels. But she added: “This should not be misunderstood. This can’t be used as a pretext for delivering new sources of money. That’s not on for Germany.”
The leaders also disbursed more than €34bn in bailout funds to Greece, six months after it was due, while postponing a decision on a bailout for Cyprus until next month.
Europe divided over German proposals for a ‘super commissioner’ who could punish nations with large deficits
Fresh tensions emerged between Germany and southern Europe as Spain and Italy criticised Berlin’s proposals for a European Union “super commissioner” with powers to police national budgets and punish those with large deficits.
“This is an idea, that considered on its own, I personally don’t like,” said Spanish prime minister Mariano Rajoy after meeting his Italian counterpart Mario Monti in Madrid.Monti claimed not to have read a Der Spiegel interview in which European Central Bank (ECB) president Mario Draghi threw his weight behind the super-commissioner idea, but nevertheless recalled that, in 2003, Germany has been one of the first countries to break EU deficit rules. “It doesn’t sound very good,” he added. “Markets could take this as a sign that current instruments do not work.”
Both prime ministers claimed their recession-hit countries did not currently need a soft bailout that would allow the ECB to start buying bonds to bring down borrowing rates, though Rajoy was prepared to admit a request might come eventually. “The instrument is there and any country can ask for it if it finds it necessary. And I will do just that,” he said. “When I believe that it is in the interests of Spain to ask for it, I will ask for it,” he said.
Monti said Italy did not need the bailout, but said it was important that at least one country use the eurozone’s new soft bailout mechanism in order to prove to markets that the ECB was serious about defending the euro.
“It is of paramount importance that the instrument is put to work, that it does not remain theoretical,” Monti said, in what seemed to be a reference to Spain.
The plan relates to the ECB purchasing a government’s bonds, which results in a lowering of that country’s borrowing rates in the bond markets.
The size of Spain’s economic downturn was underscored by the prices at which a new “bad bank”, to be set up as part of a eurozone rescue of Spanish banks, will forcibly buy toxic real estate assets from bailed-out banks.
The “bad bank”, known as Sareb, will take between €45bn and €90bn of real estate with discounts on book value varying from 80% to 32%, according to the Bank of Spain.
The minimum discount will still be above the market fall in Spanish real estate prices, which have so far dropped 25% from their peak.
But Italy also appeared to be running into fresh difficulties after former prime minister Silvio Berlusconi, sentenced to prison for tax fraud last week, threatened to withdraw support for Monti’s government over the weekend.
As Italy’s bond yields began to rise yesterday, Monti refused to speculate on whether this was a sign of market fear that Berlusconi would carry out his threat.
“You can ask that question to the political parties, and to the markets, but not to me,” he said, claiming his duty was merely to keep governing Italy until the spring.
The European Parliament rejects a nominee to the European Central Bank’s executive board because the ECB’s top managers are all male.
Go here to read the rest: Euro MPs snub bank in gender row
Christmas is no longer cancelled in Dublin, Lisbon and Athens – even Madrid could celebrate
In the austerity wracked eurozone, the cash machine is about to start spewing money. Yes, we’ve heard the promises of ending the crisis before. But this time, something, at least, is happening.
Christmas is no longer cancelled in Dublin, Lisbon and Athens. Even Madrid could celebrate should its procrastinating PM Mariano Rajoy put his hands out to catch some of the falling euro notes.
Not only has the European Central Bank (ECB) said it will supply unlimited loans to replace debts held in private hands, the German chancellor, Angela Merkel, has joined in.
Why has she changed her mind? Several reasons.
1. The economic situation is getting worse. Austerity is driving the countries worst affected by high debt levels further into recession.
2. Social unrest is tearing at the fabric of Portugal and Greece.
3. Regional separatism is gaining ground in Spain.
4. In Ireland, emigration and a prolonged banking crisis is crippling the economy.
5. And Merkel has established an unassailable position in German public life, allowing her to marginalise hardline MPs and the previously influential Guido Westerwelle, her free market, austerity-loving coalition partner and foreign minister.
Merkel has told the Irish, Greeks, Portugese and Spanish, don’t worry what austerity does to your economy and the short-term hit to growth. Keep with the programme and you’ll get all the money/loans you need.
In the last couple of days Antonis Samaras, the Greek PM, has assured his own MPs that the money promised for November by the country’s lending “troika” – the EU, the International Monetary Fund and the ECB – will arrive on time.
It’s just as well, given that the Greek finance ministry reported on Monday that its annual deficit is rising again and the overall debt pile jumped. The prospect of restricting the mountain of loans to 120% of GDP by 2020 now looks fanciful.
Enda Kenny has likewise told his parliament that Merkel agrees Ireland is a special case. And consequently, desperately needed funds for the banking sector will find their way from ECB headquarters in Brussels and Frankfurt to Dublin, probably never to return, except in some de-valued form in 50 years.
Spain was nervous about asking for a bailout in case Germany inflicted all manner of extra austerity measures on its weak economy. A recession this year and next is already in prospect so deeper cuts would be particularly unwelcome.
The nerves are still jangling in Madrid, as an effective vote for independence in the Basque country looks like being replicated next month in the more politically significant region of Catalonia.
Yet Rajoy, like the other leaders, has had all the reassurances he needs that he will need only to pursue existing spending cuts to open Brussels’ fighting fund.
So can this policy become a platform for lasting prosperity? Unfortunately, the omens are not good.
Merkel is also demanding closer regulatory and fiscal ties as a price for the loans, which is throwing up all kinds of problems. Not least that some aspects of regulation cover the 27 members of the EU, while others only affect the eurozone 17.
Yet even if there is a way to gain the agreement of Britain and Sweden to rules made largely for the eurozone, there is still the issue of social unrest.
It seems implausible that leaders in the peripheral countries can mask their financial problems with more and bigger loans from Brussels and the ECB. With an exchange rate dictated by the German economy, these countries face years struggling to export their way out of recession. Their main problem is that the debts left over from the crisis are too big. Without debt forgiveness in some form, the Merkel sticking plaster will peel away while the wound remains unhealed.
Report warns that Britain’s safe haven status for global investors will not last and that non-euro countries are being complacent
Britain’s status as a safe haven for global investors is temporary and funds will return to their home markets when the eurozone recovers, IMF officials have warned.
Capital flight from Spanish and Italian banks has increased demand for UK government bonds as a safe haven asset but demand is forecast to fall when these countries recover, increasing the Treasury’s borrowing costs.
The warning came as the IMF said in its six-monthly report on global financial stability that volatile stock markets and the dramatic flight of capital out of Spain and Italy are signals that the world economy is less stable than six months ago.
The US and Japan could also see government borrowing costs rise should investors switch funds back to the eurozone or panic about their lack of action in bringing down annual government spending deficits.
Officials expressed concern governments that have enjoyed safe haven status have become complacent in recent months, with low borrowing costs taking away the urgency for policymakers to make significant reforms.
The IMF said eurozone policymakers have made strides to give money markets some certainty but it has proved inadequate and encouraged flights of money from the periphery to northern Europe and countries outside the currency union.
Capital flight from Spanish banks totalled €296bn in the year to June 2012, which equalled 27% of the country’s 2011 GDP. Italian banks also haemorrhaged funds: more than €235bn left Italy’s banks to be deposited in northern European financial institutions and banks outside the eurozone, including UK banks.
A scheme put forward by the European Central Bank (ECB) to buy government bonds known as outright monetary transactions (OMTs) has so far failed to entice eurozone governments, especially Spain, which is fearful of the conditions attached to the lending scheme.
Spain has already rejected a bailout offered under a parallel scheme put together by Brussels, the European Stability Mechanism, saying it was unnecessary.
The authors of the report, Peter Dattels and Mathew Jones, said confidence in politicians had waned as each economic initiative failed to unite policymakers.
The reports authors also pointed out that Europe’s banks, unlike their American counterparts, are still struggling to lend.
Dattels said banks remained underfunded and under pressure from a range of concerns, including continued speculation that one or more countries will pull out of the euro.
“Despite significant and continuing efforts of European policymakers, which have been essential in addressing investors’ biggest fears, the principal risk remains the euro area crisis,” they said.
“Incremental policymaking has been insufficient to fully allay market tensions despite the recent market rally since the end of July.”
They said problems in the US and Japan could be tackled over the next few years while it was a priority to agree a way forward for the eurozone in the next months.
A gulf between rich and poorer nations inside the eurozone was making the situation worse. Even with moves to closer co-operation between eurozone countries, banks in the periphery could be forced to reduced their lending by as much as €2.8tn, higher than the previous estimate of €2.6tn in April. A do-nothing policy would lead to a reduction in lending of €4.5tn.
The Washington-based organisation has warned before that the world economy is under threat from an unstable financial system all the time eurozone leaders fail to agree terms for bailouts and monetary easing.
ECB boss Mario Draghi has garnered praise for his efforts to protect weaker eurozone countries in case they come under attack from nervous investors. Spain, Italy and Portugal have enjoyed lower interest rates as a result of the ECB’s actions that cut borrowing costs. These moves have helped stave off a run on the currency.
But Draghi has come under constant fire from politicians in Germany, Finland and Holland for creating unlimited rescue funds that could, they believe, rebound on the ECB.
This week the German finance minister, Wolfgang Schaeuble, said he believed Spain would survive with rescue funds from Brussels, contradicting most investor groups and City analysts who believe Spain can only survive if it accepts support from the EU.
The IMF’s global stability report argues that badly indebted countries need more support to alleviate the pressure from investors and create an environment that fosters confidence and growth.
It says that while decisions are delayed the assets held by banks come under question and shareholders flee to hold safer assets.
Banks in the eurozone periphery are known to hold billions of euros of bad debts that have yet to be recognised on their balance sheets.
UK, French and German banks are also vulnerable to a downturn in the eurozone through their shareholdings and joint ventures with local banks in the periphery.
The European Central Bank (ECB) maintains its benchmark interest rate at the record low of 0.75%.
Read more: Eurozone interest rates unchanged
Sources reveal Mariano Rajoy plans to save €4bn a year as part of strategy to pre-empt eurozone’s conditions for help
Spain crept closer to a bailout as the government leaked plans to cut pension spending and senior bankers and business leaders called for the prime minister, Mariano Rajoy, not to postpone his decision too long.
Spain will cut up to €4bn (£3.2bn) of spending a year by freezing pensions and forcing workers to retire later, sources close to the government told Reuters.
The leak on Friday was part of a strategy by Rajoy’s government to hurriedly put into place as many as possible of the changes that eurozone countries might demand before signing a bailout agreement with them. A new set of proposals will be announced next week, along with the budget for 2013.
Rajoy’s centre-right government hopes this will allow Spain to sign a deal with fewer conditions imposed by Brussels, making the bailout easier to digest for ordinary Spaniards who are fed up with government austerity measures and soaring unemployment.
Greece, which is negotiating with the troika of the EU, European Central Bank (ECB) and International Monetary Fund (IMF), played down speculation that negotiations over its second bailout would be delayed until after the US elections.
Officials said talks were continuing and the Greek parliament would be given a full list of spending cuts and tax rises by next week.
Concerns that the €11.5bn of savings in Greece will be rejected by parliament were heightened this week when several senior ministers warned they would resign if plans for 50,000 public sector job cuts are included in the austerity package.
International bondholders, which have loaned peripheral eurozone countries hundreds of billions of euros, fear that delays over negotiations in Athens and Madrid will cause greater political instability and undermine efforts to reduce debts and push through changes.
On Thursday the head of one of Spain’s biggest banks, BBVA boss Francisco González, called on the government to ask for the bailout as soon as possible.
The ECB announcement that it would buy bonds to drive down borrowing costs in Spain or any other country that agreed a bailout with the eurozone’s rescue fund has already lowered bond yields, allowing Spain to continue financing itself on the markets – but at relatively high interest rates.
That has given Rajoy’s government breathing space and some observers now expect him to wait for a bailout until after 21 October elections in the northern regions of Galicia and the Basque country.
Others believe he will act before the ratings agency Moody’s decides this month whether to downgrade Spain’s debt to junk status.
The head of Spain’s employers’ federation, Juan Rosell, also called for the government to act, but asked it to negotiate carefully and unhurriedly to make sure conditions were not stifling for the economy.
His organisation has already warned that Spain’s economy, which is set to shrink 1.7% this year, will suffer the same sort of decline in 2013. As a double-dip recession drags on, unemployment will rise from 25% to 26.5%, it says.
The government reportedly hopes that it can reduce the impact of a bailout even further by asking eurozone countries to allow it to draw on a €100bn rescue package set aside for Spain’s ailing banks.
The banks may take only half of that sum and the terms agreed with the European Financial Stability Facility allow for Spain to ask for whatever money is left to be used for something else. Terms might be agreed quickly and could allow the ECB to start buying Spanish bonds on the secondary market.