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Richemont chairman Johann Rupert to take 'grey gap... Billionaire 62-year-old to take 12 months off from Cartier and Montblanc luxury goods groupRichemont's chairman and founder Johann Rupert is to take a year off from September, leaving management of the...

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Italian political tensions cause market jitters

Category : Business

Eurozone crisis threatens to flare up again as outgoing Italian prime minister Mario Monti holds talks with centrist politicians

The eurozone crisis threatened to flare up again on Thursday as outgoing Italian prime minister Mario Monti held talks with centrist politicians over the agenda for reform which he published on Christmas Eve.

Some analysts believe Monti could assemble a coalition for next February’s general election, setting up a battle with his predecessor Silvio Berlusconi.

The Vatican’s newspaper, Osservatore Romano, offered support for Monti, saying his message was “an appeal to recover the higher and more noble sense of politics that is … to take care of the common good”.

But Berlusconi attacked Monti’s performance, saying on Rai 1′s Unomattina TV programme that pressure from European countries, particularly Germany, had “crushed” Monti’s technocratic administration. The head of Italy’s centre-right People of Liberty party also attempted to woo the Italian public by pledging to abolish a property tax introduced since he left office.

Jens Weidmann, the president of Germany’s Bundesbank, warned Italian politicians that the country could not afford to stray from the reform path taken by Monti during his 13 months in power. Weidmann told the business news magazine Wirtschaftswoche that any deviation would be “disastrous”.

“Italy suffers from low growth, low productivity and lack of innovation. But under the Monti government Italy has set ambitious goals for reform in order to regain the confidence of investors, and had success with it,” said Weidmann.

He said eurozone leaders “must not underestimate the distance ahead” before the region’s debt crisis is resolved.

German finance minister Wolfgang Schäuble was more upbeat. “I think the worst is behind us,”he said, arguing that European leaders had realised during 2012 that they must push on with economic reforms to maintain competitiveness.

With Germany also heading to the polls next year, Schäuble claimed conditions in Europe’s largest economy were “better than expected”.

In Spain, though, small shareholders who invested in Bankia when it floated in 2011 were warned that their stakes would be virtually wiped out when the bank is recapitalised. Spain’s bank rescue fund has calculated that Bankia, which was riddled with toxic property debts, has a negative value of €4.2bn. New capital is expected from the EU, possibly on Friday, but the price will be borne by an estimated 350,000 domestic investors.

The news came as Spanish healthcare workers held more protests on Thursday against plans to privatise some hospitals and health centres in the latest signal of opposition to Spain’s austerity programme.

The tensions in Europe, combined with the ongoing fiscal cliff deadlock in Washington, made for a jittery day for those City workers who returned to their desks after the Christmas break. After initially rallying, the FTSE 100 fell back to end the day unchanged as traders grew more nervous about the situation in America.

An early sell-off in New York wiped 100 points off the Dow Jones at one stage, and came after Japan’s Nikkei closed at its highest level in 21 months. Japanese investors were encouraged by a pledge from the country’s new government to battle deflation and kickstart the economy through new stimulus measures.

In the foreign exchange markets, the pound fell to a two-month low against a basket of currencies. Traders said fears over the UK economy were hitting sterling.

The euro: rebuilding Rome in a day | Editorial

Category : Business

At last a eurozone summit has identified the central problem of the crisis: not one of feckless Latin spending but feckless banks

Rather like that bottle of milk lying on your doorstep today, eurozone bailouts have a short shelf life. The ill-tempered deal hatched in the small hours of Friday morning in Brussels may, however, have stumbled across a longer-life formula. Not because of the recipe, which is still to be haggled over – if anyone in Spain thinks that Germany has just written a blank cheque for its insolvent banks, they should think again. But because of one political fact that shone through Angela Merkel’s multiple concessions: faced with a binary choice of walking away from monetary union and letting it collapse or doing something to hold it together, if enough pressure is put on her, she will stick with the euro.

The impetus for the deal came from an unusual source. Not from a French socialist with an anti-austerity mandate but from an Italian technocrat and a Spanish conservative who have already wielded the knife. Merkel was told if she did not do something to stop the high interest rates on Italian bonds, or to ease Madrid’s borrowing costs, which were teetering on the edge of the affordable, both Italy and Spain would block the modest growth package the summit intended to announce. Mario Monti did not need the new terms of the bailout he and Mariano Rajoy forced Germany to agree to – that money would be injected directly into the banks with no corresponding increase in national debt; that private creditors would enjoy the same status as the bailout fund in the event of debt rescheduling; that Italy and Spain would get the money without having to impose new austerity conditions. What Monti needed was a change in direction. As he put it, the eurozone’s “mental block” had been broken. Thus the first line of the summit’s statement starts from a new premise – affirming the need to break the vicious circle between banking and sovereign debt. It has taken long enough for the penny to drop but at last a eurozone summit has identified the problem at the heart of the crisis: not one of feckless Latin spending but feckless banks. These banks no longer need provisional liquidity. They are insolvent and need serious amounts of hard cash.

Merkel may have lost this battle, as the German press only too quickly pointed out, but she almost certainly has not lost the war. If the rulebook has yet to be written about establishing a new banking union, a supervisory authority for the eurozone, the Germans will make sure they will write it. Every change to the European Stability Mechanism (ESM) will have to go through the Bundestag and parliament is not the final hurdle. Ratification requires approval by the constitutional court, which may yet in the wake of the summit be bombarded by petitions from politicians. The court could yet decide the transfer of powers are such that it requires a change in the constitution and Germany’s first national post-war referendum. There are no shortage of political opportunities there for Merkel to row back on the broad commitments given in a summit gone bad for her.

Quite apart from her long war, there is no shortage of questions to be asked about the finer detail. The markets may have responded, but is there enough in the kitty for a Spanish bailout? Almost certainly not. The Spanish property market is still in collapse, as are the value of their bank loans. Nothing in the bailout addresses the Spanish economy. The property market may not recover for a decade; if so, the banks will continue to be sick, and Europe’s fourth-largest economy will languish. But there is another country affected by the deal: ours. Not being a euro-member, Britain left Brussels early. David Cameron has made it clear he will be less a player than a heckler in these summits. But however remote, the possibility of a European banking union – with the City as a spivvy, low-regulation zone left exposed outside its limits – should be one that gives him and the rest of us pause.

Germany rules out pooling of eurozone debt

Category : Business

Angela Merkel made it clear she will not yield to pressure for the common issuance of eurozone debt in the form of eurobonds

Germany has flatly ruled out any pooling of eurozone debt in response to the single currency crisis, seeming to set the scene for clashes at an EU summit which looks unlikely to take any big decisions to quickly stabilise the euro.

Chancellor Angela Merkel sharply criticised a seven-page blueprint from four senior EU leaders opening the way to a eurozone political federation and made it clear she would not yield to intense pressure to move towards the common issuance of eurozone debt in the form of eurobonds to lower the cost of borrowing for vulnerable countries such as Spain and Italy.

Merkel’s tough stance appeared to open up the prospects for a clash with Mario Monti, the increasingly beleaguered Italian prime minister, who is trying to restructure Italy’s creaking economy but is impotent in the face of the financial markets raising the price he pays to borrow. Italy was forced to pay 2.96% to sell six-month bills, up from 2.1% a month ago. Its benchmark 10-year yield was up slightly at 6.22% and faces a key test with an auction of €5.5bn of five and 10-year bonds.

There were no signs of any concessions from Merkel either towards President Francois Hollande of France who will use the summit to proclaim he has forced the EU or the eurozone to adopt policies shifting the emphasis from austerity and spending cuts to a growth and jobs agenda.

The summit is likely to agree a “growth pact” nominally dedicating €130 bn to foster jobs creation and infrastructure projects.

But the scheme is essentially an exercise in repackaging already agreed measures or re-directing already committed EU funds.

Merkel told parliament in Berlin, before going off to Paris to see Hollande, that she would not allow “Germany to be overstretched” by bankrolling borrowing to save the euro.

Unusually, she predicted “controversial discussions” at the two-day summit, signalling that she was ready for a row.

“I fear that at [the summit] there will again be far too much talk about all possible ideas for common liability and far too little about better controls and structural measures,” said Merkel. Eurobonds, eurobills, or a debt redemption fund — all ways of pooling eurozone debt liability — were illegal and anyway counter-productive, Merkel declared.

On Tuesday Herman Van Rompuy, the president of the European Council who chairs the summits, unveiled an ambitious blueprint for the building of a eurozone political union within a decade, entailing the surrender of considerable powers to Brussels by national capitals.

Merkel attacked the plan as again being too keen on pooling liability with not enough emphasis on fiscal discipline. Senior French officials said, by contrast, that Hollande was “at ease” with the blueprint which was “balanced.”

“The Germans say it is a French report. The French say it is a German report,” said a senior EU official involved in the summit preparations. “The truth is it’s somewhere in-between.”

EU and French officials agreed that the two-day summit is the most important in years, probably since the 1990s, but it could end in a stalemate that rattles the markets and increases the pressure on the euro from Monday.

There was talk in Brussels of coming up with short-term measures to relieve the market pressure on Spain and Italy.

The leaders are likely to take the first steps towards establishing an EU or eurozone banking union, with the aim of setting up common systems for winding up bad banks, recapitalising them, and standing behind savers’ deposits under the overall authority of the European Central Bank in Frankfurt. Britain wants nothing to do with it and there are certain to be conflicts in the months ahead as the Cameron government seeks to quarantine the City from the new regime’s remit.

But the banking union proposal is hugely complex. The devil is in the detail. While many of the governments say they support it, they will be at odds over its scope and powers.

A third of EU countries also look likely to press ahead with moves to launch a levy on financial transactions or Tobin tax. The tax is strongly supported by Hollande and by Austria. Merkel said that the Germans had signed up nine countries in support, the number required for so-called “enhanced cooperation” policies under the Lisbon Treaty.

Critics say introducing the tax in only nine countries will distort the market and trigger an exodus of financial institutions to other places. Adherents say you have to start somewhere and more will join later.

Eurozone crisis: Italy next in line for a bailout?

Category : Business

The options are running out for Mario Monti as Italy’s deep-seated economic problems continue to restrict growth

As the spotlight of investors’ attention swings from Greece to Spain, the mood in Italy has been one of increasingly nervous apprehension.

The euro debt crisis, as the financial daily Il Sole 24 Ore noted last week, has come to resemble Agatha Christie’s novel Ten Little Indians. And Italians are only too aware that, with the possible exception of the Cypriots, they are next in line after the Spanish.

“We’re in a better position than the Spanish inasmuch as our banks do not have the same exposure to bad property loans,” said Pietro Reichlin, professor of economics at the Luiss University in Rome. But, he added, the balance sheets of Italian banks – like those of so many in the eurozone – are also heavy with government bonds whose prices have been steadily eroded as the yield on Italian sovereign debt has risen.

This yield has been on an upward trend since March. Though Italian bond yields are now significantly lower than their Spanish equivalents – more than 1.2 percentage points – the benchmark rate on Tuesday was still uncomfortably high at around 5.8%.

This reflected a number of overlapping concerns. The biggest being that Italy’s economy has become incapable of sustained, significant growth.

It has been at a virtual standstill since the start of the 2000s. In the first quarter of 2012, it shrank 1.4% year on year and last month, the OECD forecast that between 2012 and 2017 Italy’s GDP would grow by an average of only 0.5% per annum, the lowest rate among more than 40 countries for which it made forecasts.

Since coming to office last November, Mario Monti and his non-party ministers have worked hard to improve the situation. They have increased the retirement age and passed a bill to cut red tape.

Last week, the cabinet finally approved a package of measures intended to boost growth. But it turned out to be not only much-delayed but much-reduced. There were some fiscal incentives for companies hiring new employees, tax breaks for home improvements and a measure to boost offshore drilling.

But it was scarcely a bill that would transform the economy and highlighted the fact that the government’s has little room for manoeuvre. Committed to eliminating the budget deficit by the end of next year, it just does not have the cash to fund, for example, big new infrastructure projects like an eternally proposed (and eternally postponed) bridge over the Straits of Messina.

What the crisis has highlighted, moreover, is that Italy’s growth potential is to a worrying degree restricted by deep-seated problems that have more to do with society than the economy. They include widespread corruption, an educational system that is turning out fewer graduates than almost any in Europe, courts that fail to offer investors judicial security and a deeply-ingrained view that women should not return to work after they become mothers.

Without growth, however, Italy will be in no position to start paying down its vast public debt, which is expected to top €2 trillion (£1.6 trillion) this year. As Reichlin notes, a stagnant economy also adds to the pressure on banks by increasing the danger of default by companies to which they have lent.

The danger of political instability is a separate problem. Monti’s government currently enjoys the backing of both Italy’s main parties, the Freedom People (PdL), founded by Silvio Berlusconi, and the centre-left Democratic Party (PD).

But they ceded power on the implicit understanding that Monti and his ministers would impose the sort of reforms that they have shown themselves incapable of passing for more than a decade. As that has become increasingly clear to voters, support for mainstream politicians has fallen drastically, allowing the Five Star Movement, founded by a comedian, Beppe Grillo, to become the country’s third-biggest – or, according to some polls, second-biggest – party.

Monti’s mandate runs out next spring. What happens after that is anybody’s guess.

Politicians braced for backlash as Europe turns against austerity

Category : Business

Voters sick of endless belt-tightening are threatening a backlash that could sweep their political leaders from power if they do not listen to the growing chorus for change

At the end of last month, 5,000 people marched through Dublin to protest against the imposition of a €100 (£80) household tax that the Irish government was already struggling to collect from voters sick of austerity measures imposed on a stagnating economy.

It was a small demonstration by the standards of some that have taken place across Europe in recent months – in places such as Syntagma Square in Athens, or in Spanish cities during the general strike that took place just before the Dublin protest – but numbers on the streets are not everything these days.

As polls in Ireland revealed last week, support for the coalition government’s policies is collapsing, while backing for Sinn Féin – which is calling for a “no” vote in next month’s referendum on the EU fiscal compact that would bind member states other than the UK, which opted out, to budget deficits of 3% or less in perpetuity – has propelled it into the rank of Ireland’s second most popular party after Fine Gael. Whether there will still be a fiscal compact to vote on, when the Irish go to the polls, is a moot point. The likely winner of the second round of the French presidential elections next Sunday, the Socialist, François Hollande – who some polls put nine points ahead of the incumbent, Nicolas Sarkozy – has said he would revise the deal.

In recent days, the Dutch coalition government has been brought down by the departure of Geert Wilders’s far-right Freedom party, which was unwilling to sign up to a budget in line with the EU’s belt-tightening package, even though the Dutch government has been one of the most aggressively in favour of imposing harsh austerity measures on members such as Greece and Portugal. Indeed, opinion polls in the Netherlands suggest that if elections – set for September – took place today, parties opposing the austerity regime might, both to the left and far right, win up to a third of seats.

While some analysts have pointed to Hollande’s emergence as the leader of a pan-European anti-austerity movement, others believe that something more complex is occurring – a “game-changing moment” in Europe in which individual electorates are emboldened to push back and debate new strategies by events they see taking place in other countries. What is being demanded by voters, as European debt has continued to balloon along with unemployment, even as growth has evaporated, is nothing less than a “Plan B” – an alternative to the dominant anti-austerity drive. Significantly, for the first time those calls are gaining real traction.

“The one thing you notice,” says Eoin O’Malley, a politics lecturer at Dublin City University researching reactions to the European crisis, “is how the push back in one country [against austerity] is influencing politics elsewhere. You see Hollande’s comments in France and the fall of the Dutch government influencing how voters here see the Irish referendum on the fiscal compact and believing increasingly they can say no. If you ask me now, I would bet that a no vote was more likely than it was last week.”

In just a few weeks, the long-running European debt catastrophe that has stumbled from summit to bailout to the fall of governments has been transformed into a far more corrosive crisis of legitimacy that is increasingly pitting electorates against the established political castes. From London to Madrid, from the EU’s northern core to its periphery, voters have begun to resist policies tightly predicated on targets and deadlines for reducing debt to satisfy the markets and ratings agencies that have no means for encouraging growth.

While in London and Berlin politicians and officials have stuck to the script – that there is no Plan B – elsewhere the past few weeks have seen increasing signs that senior EU and government officials are rapidly waking up to the risks posed to the EU by the new public mood of resistance. This has seen politics return to reassert itself in a crisis that has for long been dominated by economic considerations and has led to the fall of five European governments so far.

Last Wednesday, the Wall Street Journal quoted unnamed officials tentatively suggesting that a debate had begun on whether to soften the 2009 targets for reducing debt to 3% of GDP by 2013. “The debate is not to be excluded,” the paper quoted one EU official as saying, “but it could give a signal that we are easing up at a time when we are struggling to show that we can keep the system.”

By Friday, that debate – initiated by Hollande – had been taken up in unexpected places. Mario Monti, the technocratic prime minister of Italy installed precisely to pursue an austerity regime, became the latest leader to criticise a policy focused only on cutting. “If there is no demand, growth will not materialise. All the reforms we are putting in place now are deflationary,” he said.

Last Thursday, the president of the European Council, Herman Van Rompuy, said that growth needed to be pushed to the front of the debate, although he later cautioned: “There are no magic formulas.” He was responding to the European Central Bank’s Mario Draghi, who on Wednesday told the European parliament’s economic and monetary affairs committee that a fiscal compact needed to be followed by a “growth compact”.

It is a debate that has been accompanied by loud and febrile commentary from economists and analysts in the media, who have become emboldened to declare Europe’s much-heralded bailout, less than two months old, stillborn.

In the New York Times last week, Nobel prizewinning economist Paul Krugman – long at the forefront of criticising austerity measures – denounced the failed “zombie economic policies” of Europe’s (and America’s) “austerians”.

In the Financial Times, José Ignacio Torreblanca, of the European Council on Foreign Relations, reflecting a growing view even within the conservative Spanish administration of Mariano Rajoy, whose government’s credit rating was on Friday downgraded a second time, announced: “Time to say ‘basta’ to the nonsense of austerity.”

None of which is what Germany and its chancellor, Angela Merkel, want to hear before a key vote in May in the German parliament that would not only approve the fiscal compact, but even more importantly, the European Stability Mechanism – the region’s new emergency bailout fund. Other events on the horizon include elections in Greece and the French legislative elections in June, all of which threaten to turn a growing anti-austerity moment, underpinned by rising populism, into a major crisis.

If there is one place, however, where the anti-austerity backlash is not being felt, it is in Germany, where the prescription from politicians and central bankers for Europe’s problem cases remains largely unchanged. It was reiterated in comments to the New York Times last week by Jens Weidmann, president of the Bundesbank and formerly a top adviser to Merkel, who warned that agreements previously made must be respected, even at the loss of some “national sovereignty”. Ulrike Guérot, a colleague of Torreblanca and senior research fellow and representative for Germany on the European Council on Foreign Relations, explains: “It is different for the German government. It can still withstand the wider sense of political crisis because there is no unemployment at 50%, as there is in Spain, and no rising political populism.”

Despite that, she believes that outside Germany “a game change is coming” that Merkel will not be able to ignore. While Guérot believes that the rapid change in the tone of the debate may cause a moment of political crisis for Europe, she also argues that the imminent ending of “Merkozy” – the lockstep relationship between France and Germany embodied in Merkel and Sarkozy that has driven European economic and political policy – may be a good thing. “What is happening is serious. François Hollande seems to be emerging as a leader of a pan-European anti-austerity movement.”

Guérot believes that the “symbiotic relationship” of Sarkozy and Merkel as the driving engine for EU policy may have contributed in large measure to the feeling by many countries and electorates that they were being excluded from the debate. “There is an advantage to the end of the Merkel-Sarkozy relationship in that it will open up room for new disputes, new ideas and new debate.” Not least, she adds, over a necessary realignment in the relationship between democracy in the EU and the influence of the markets. “We are not talking growth versus austerity. The debate is over what kind of growth we need.” And, she adds, over whether the targets in the fiscal compact are too tight. “We can’t just save. We need to invest. The world isn’t going to end if the 3% target is missed by a few points next year.”

While some argue that a full-blown political crisis in Europe that leads to a rejection of the German-led austerity measures might force a crisis in Germany over Europe, Guérot believes that the most likely outcome is a renegotiation. “Merkel is a survivor and pragmatic. And I think Hollande knows that he will need an accommodation, too. If this fiscal compact falls – if there is a second version – it will have to be faced.”

While analysts such as Guérot might be relaxed about such an outcome, for those politicians at the heart of the growing storm the stakes could not be higher. On Friday, in Dublin, it was the turn of Ireland’s deputy prime minister Eamon Gilmore, whose Labour party has been crucified in opinion polls for its support for austerity, to use apocalyptic language, warning that Ireland would not have access to any alternative funding if next month’s fiscal treaty is rejected.

The real question is whether Ireland’s – or Europe’s – voters, after years of pain, still have the stomach for this message.

Eurozone crisis live: Bundesbank chief criticises firewall plans

Category : Business

UK Q4 GDP fell by -0.3% in Q4 2011
Mario Monti claims eurozone crisis “nearly over”
City experts don’t believe crisis has run its course
Bundesbank head says “Wall of Money” won’t work
• Spanish workers strike in Guernica
Today’s agenda

5.44pm: And with that it’s time to close the blog for another day.

It’s been a relatively – relatively – quiet day but things are likely to pick up over the next couple of sessions. Tomorrow sees – among other things – German unemployment, eurozone confidence figure and US GDP. And of course, a Spanish national strike ahead of Friday’s budget.

And on Friday we get the Spanish budget, and the meeting of EU finance ministers to discuss the size of the firewall, which Bloomberg is saying could reach €940bn in the short term.

Until then goodnight and as usual, thanks for all the comments.

5.32pm: It seems Bloomberg has a copy of a draft ahead of Friday’s EU meeting relating to – yes – the size of the proposed firewall.

Despite the head of the Bundesbank saying a “Wall of Money” would not help matters, it seems the EU governments are to discuss a one-year increase in the bailout to €940bn at their meeting in Copenhagen.

That includes the €500bn European Stability Mechanism running alongside €200bn committed by the existing temporary fund. On top of that they would allow the temporary fund – the EFSF – to tap its unused €240bn until the middle of next year. The details come from a draft statement written for finance ministers and dated 23 March, says Bloomberg.

4.58pm: European markets have closed, and its a downbeat day as we head towards the end of the quarter.

As Spain prepares to strike tomorrow and EU finance ministers meet on Friday to discuss the size of the firewall – with differing views on how much is necessary – investors are getting edgy again. Signs of a bumpy recovery in the US has not helped, and the surge that followed US Federal Reserve chairman Ben Bernanke’s hints of further help for the economy seems a long way away (it was Monday in fact).

So the FTSE 100 has fallen for the second day running, closing 60.56 points lower at 5808.99, its lowest level for three weeks. Germany’s Dax is down 1.13% while France’s Cac is off 1.14%. On Wall Street the Dow Jones Industrial Average is currently more than 100 points – 0.7% – lower.

4.49pm: It’s not easy implementing an austerity drive, even for those most vociferous about doing it.

The Dutch goverment said its negotiations about budget cuts had ended after apparently reaching an impasse. That follows three weeks of talks, so far. A spokeswoman said:

The talks have ended earlier today. The negotiations are going through a difficult phase. Tomorrow morning at 1000 the discussions will continue.

The country’s deficit is forecast to be 4.6% of GDP without further cuts. That means it would miss the 3% target demanded by EU rules.

Let’s not forget the Netherlands took a tough tone on the eurozone stragglers such as Greece to get their finances sorted out.

4.27pm: The EU may have denied that Spain will seek bailout help, particularly for its banks, but the idea has not done much to ease worries the country’s financial situation could worsen.

The national strike in Spain tomorrow and a budget on Friday means the country is now well and truly in the spotlight. Kathleen Brooks, research director at Forex.com, said:

What we know so far is that the budget isn’t finished yet. Insiders have leaked that there won’t be any rises in consumption tax and public sector wages won’t fall.

Spain looks increasingly vulnerable; it has to deal with a weak financial sector at the same time as the regions are likely to need federal support (we should hear more about this in the budget). Add in the fact that Spanish banks boosted their purchases of Spanish sovereign debt this month and it’s easy to see how dysfunctional Spain’s economy has become.

It’s a pivotal week for Spain. It is garnering all of the negative attention and the spread between Spanish and German bond yields relative to Portuguese and German bond yields has actually been deteriorating.

3.43pm: The German government is keen to introduce legislation on the new fiscal discipline pact for the European Union by the summer, despite opposition parties calling for a delay.

The pact would impose strict rules across 25 EU countries, but Reuters reports the social democrats and greens want to add growth boosting policies to help the eurozone strugglers. They want any parliamentary vote delayed until September – when the French are expected to endorse the pact depending on the outcome of April’s election. But Angela Merkel’s centre-right coalition wants ratification in June, at the same time as the new European Stabililty Mechanism.

Before all that of course, we have the key decision on the total size of the bailout fund – the ESM combined with the current European Financial Stability Facility.

3.02pm: Wall Street is off to an uncertain start, with the Dow Jones Industrial Average down around 6 points in early trading.

US durable goods orders – that is, long lasting factory goods such as cars and fridges – rose less than expected in February, which has taken the shine off things. They climbed 2.2% compared to a 3.6% fall in January and below a 3% rise forecast by economists. Aircraft orders rose sharply, with Boeing reporting 237 orders in February, up from 150 in January.

The slightly disappointing figure suggests the improvement in the US economy is a halting one at best, hence the market’s lack of enthusiasm. The FTSE 100 is currently 18 points lower while the French and German indices are off nearly 0.5%.

2.26pm: With Wall Street about to open, I’m going to hand this over to my colleague Nick Fletcher. Cheers all….

1.49pm: The head of the Bundesbank, Jens Weidmann, has criticised Europe’s efforts to build a new firewall to contain the eurozone crisis.

Speaking in London, Weidmann said that a larger rescue fund would not solve Europe’s problems, and might even make the crisis worse. Weidmann told an audience at Chatham House that:

Just like the ‘Tower of Babel,’ the ‘Wall of Money’ will never reach heaven.

If we continue to make it higher and higher, we will, in fact, run into more worldly constraints.

Weidmann’s position is rather at odds with the views of other leaders, such as Mario Monti, who argue that the larger the rescue fund, the smaller the chance you’ll have to use it. That argument has failed to convince many in Germany – who would have to provide more funding than any other country.

And, of course, the whole issues of the firewall (will it be €740bn, €1trn?….) should be resolved by the end of the week.

Weidmann also dismissed warnings that austerity cuts are counterproductive, and will drive weaker members of the eurozone deep into recession. Instead, Germany’s top central banker insisted that countries with large current account deficits and excessive public debt must bring in structural reforms and cut spending.

He claimed that the dangers of austerity were “being exaggerated,” adding:

in any case, there is little alternative.

1.13pm: Spanish automobile workers in Guernica, in the Basque region of Spain, downed tools today ahead of the general strike that will grip the country tomorrow.

Employees at a factory operated by Rinder are holding a one-day strike in protest at plans to shut the factory by the end of 2012 and outsource the work overseas. They are also angry about Spain’s new labour reforms, whcih they say will make it cheaper to lay them off.

The banner reads: “Don’t Close Rinder”

1.00pm: Just in, German inflation fell in March to 2.3% (on an annual, harmonised basis), down from 2.5% in February.

12.10pm: Missed this earlier — but still worth flagging up. Greece’s quiet bank run continued last month, with private sector deposits in Greek banks declining by 2.7%, following a 3% drop in January.

Tha takes the total value of private deposits in Greek banks down to €170.1bn, the lowest in over five years and 30% below their peak of December 2009.

The steady decline in deposite is partly due to worried citizens removing their savings in case the Greek banking sector should collapse, or even leaving the country altogether. But it also reflects that fact that people have been using their savings to keep afloat, following rising unemployment and wage cuts.

11.45am: In Brussels, EU officials have denied claims that Spain may have to seek financial help.

European Commission spokesman Amadeu Altafaj has just told a press conference that media reports that Spain may seek bailout aid are “completely without foundation”.

Altafaj added that the private sector should be able meet most of the cost of recapitalising Spain’s banks. As we flagged up at 9.23am, analysts fear that the Spanish government will be unable to pick up the bill.

For background, there were reports in a number of Spanish newspapers yesterday that the EU was putting pressure on the Madrid government to accept aid. These claims were rebutted by commissioner Olli Rehn last night.

11.22am: Moving to the Greek countryside from the city, though (see last post) is no picnic.

This picture shows 56-year-old farmer George Andrianakis, and goat, at his farm in the village of Stafania in the Peloponesse area of Greece. As he told Reuters, profits at the farm (which includes orange and olive trees, sheep and goats) are down by over 50% this year while costs are almost 30% higher.

11.11am: News in from Athens, where our correspondent Helena Smith says newspapers and television channels this morning all reporting that young Greeks hit hard by the financial crisis are fleeing from the cities to the countryside.

Some commentators are describing it as a mass exodus. Helena writes:

It’s official: Greece is undergoing a mass internal migration as a result of the economic crisis that has engulfed the nation since December 2009.

After years of being spurned for the bright lights of big cities, rural areas are making a comeback as unprecedented numbers of unemployed young Greeks move en masse to the countryside encouraged by government stipends to cultivate tracts of land that have been left untended for years. A survey conducted at the behest of the Agricultural Development Ministry by the polling firm Kapa Research found that more than 1.5 million Greeks were considering relocating to rural areas with one in five already having made the move. Around 75 % were under the age of 44 – the group worst hit by joblessness in a nation where more are now out of work than employed.

A €60bn state-funded program offering plots of land at cheap rates to would-be farmers had been snapped up, said the agriculture minister Costas Skandalides, announcing the findings. The survey showed that the vast majority were willing to earn less for a better quality of life. “More than one million Greeks, most with university and even post graduate degrees, are rejecting prototypes to go back to their roots convinced that it will lead to a better quality of life even if there are less trappings,” he averred. “We are witnessing a profound shift in Greek society and lifestyles the extent to which we have yet to grasp.”

In the northern Greek city of Thessaloniki, more than 4,000 trained agronomists have rushed to sign up to an initiate that has seen the town’s main university rent out plots of land for cultivation at affordable prices. “I will go and grow rice and cotton,” Alexandra Terzidou, one of the graduates, told Skai news. “It’s a great opportunity.”

Prior to the research academics had poured over anecdotal evidence of the migration but had been unable to pin point just how big it was.

11.03am: Ireland’s economy continues to be buffeted by the government’s austerity programme. Data just released showed that retail sales fell by 0.3% month-on-month in February, and are 1.9% lower than a year ago.

UPDATE: Conall Mac Coille, chief economist at Dublin stock broking firm Davy, says that the decline is partly due to a recent rise in VAT, which had already sent retail sales tumbling by 4.1% in January compared with December.

10.54am: Back to the eurozone crisis! Where Italy has conducted another successful bond auction.

The Italian treasury sold six-month bonds at an average yield of just 1.119%, which is the lowest borrowing cost since September 2010.

10.45am: My colleague Katie Allen has written a full story about the UK GDP data here….

10.34am: Ed Balls, shadow chancellor, says this morning’s GDP data is “very worrying news”, and shows that the UK economy has effectively flatlined since the government’s spending review of October 2010.

Balls said:

At the start of 2012 our economy should be doing more than just recovering the lost output at the end of last year. Months and years of flatlining or slow growth will make it harder to get the deficit down and cause long-term damage to our economy.

There have to be tough decisions on tax, spending and pay, but raising taxes and cutting spending too far and too fast has backfired. We need a real plan for jobs and growth, like Labour’s five point plan, to get our economy moving again and get Britain back to work. That is how we will get our deficit down in a fairer, better way.

10.16am: This graph shows how UK GDP fell sharply, then rose again, and then dipped back, since the financial crisis began:

The lighter blue bars show the first estimate of GDP, typically issued less than a month after the quarter has ended. The final revision (such as today’s data) includes more information and is thus more accurate.

9.54am: Here’s some early reaction to this morning’s GDP data from City analysts:

Jonathan Portes, director of the National Institute of Economic and Social Research (NIESR):

We knew the last three months of last year were pretty bad, and today’s figures show they were slightly worse than we thought.

There has clearly been some pick-up in the early months of this year…but it does emphasise what a bad year 2011 was for the UK economy.

Vicky Redwood of Capital Economics

The slight downward revision to GDP in Q4 is disappointing, although of course this is fairly old news now and it looks as though the economy recovered somewhat in the first quarter.

Jeremy Cook, chief economist at World First foreign exchange

Growth has been revised lower on services numbers and this means that we must be slightly more circumspect when looking at Q1, given increases in energy prices and the likely dampening effect that this will have on household spending.

Even though this figure has been revised lower, we do however believe that we can now attribute this to being a slight blip. Business surveys such as the recent Purchasing Manager surveys have shown that Q1 should be growing at around a 0.3/0.4% pace, although we would like to see more in the form of business investment, which fell in Q4 by 3.3%. Hopefully the recent Budget will give that a prod in the right direction.

The UK growth profile looks to continue to “bump along the bottom” in 2012 with no single quarter expected by us to print over 0.5%.

9.48am: Here’s the details of this morning’s UK GDP data for the final three months of 2011.

Services sector output: fell by 0.1% quarter-on-quarter,
Industrial production: fell by 1.3% q/q (inc. a 0.7% drop in manufacturing output)
Construction industry: fell by 0.2% q/q

Consumer spending rose by 0.4% q/q
Exports grew by 1.6% q/q
Households’ real disposable income fell 0.2% q/q.

This all added up to a 0.3% decline in overall GDP.

9.42am: The most startling fact in this morning’s UK GDP data is that household disposable income fell by 1.2% during 2011.

According to the Office for National Statistics, that’s the biggest annual decline since 1977.

With the UK economy managing only meagre growth through the last year (GDP grow by just 0.7% during the 12 months), it underlines the weak position of the UK, even though it is likely to dodge a double-dip recession.

9.38am: The pound has fallen almost half a cent against the US dollar following the news that the UK econony contracted by 0.3% in the last quarter. It just hit a low of $1.5904.

Sterling also hit a two-week low against the euro, to €1.191. That means one euro is worth 83.96p.

9.30am: Breaking news — the UK economy shrank by 0.3% in the last three months of 2011, not 0.2% as previously estimated.

Announcing the downward revision, the Office for National Statistics said that transport, communication, business services and financial sectors all performed worse than originally thought.

9.23am: Right on cue, Citigroup has undermined Monti’s claim that worst of the eurozone crisis is behind us, by predicting that Spain may need international help by the end of 2012.

In a research note published this morning, Citi warned that Spain could only avoid a bailout through “more radical measures” than are currently on the table. It warned that the Spanish government may lack the financial resources to recapitalise its banks.

Spain’s banks reportedly hold €2.4 trillion of debts on their books, leaving them extremely exposed to losses following the collapse of the country’s property sector in recent years.

9.05am: Italian business confidence figures released in the last few minutes show that firms across Italy are slightly more optimistic about the future.

ISTAT’s business morale index inched up to 92.1 in March, up from February’s two-year low of 91.7. Encouraging, but still a rather low figure that doesn’t really back up Mario Monti’s claim that the crisis is ‘almost over’….

8.55am: EU president Herman Van Rompuy ‏has announced over Twitter that Europe will take a final decision on the size of its firewall by the end of this week:

A decision on the adequacy of the #EFSF / #ESM firewall will be taken by the end of the week. #seoul

— Herman Van Rompuy (@euHvR) March 28, 2012

The firewall is the top item for discussion at the meeting of eurozone finance ministers, which begin on Friday.

8.48am: Just breaking on the news wires — Dutch finance minister Jan Kees de Jager has declined to comment on rumours that he threatend to resign if his government failed to cut its budget deficit to 3% of GDP in 2013 (as demanded under the new Fiscal Pact).

Developing….

8.31am: Mario Monti’s claim that the euro crisis is almost over (see 8.17am) has been swiftly challenged in the City.

Elisabeth Afseth of Investec pointed out that Italian bond yields hit their highest level of the month yesterday, with the 10-year ending 9 basis points higher at 5.11%. It’s risen a little higher this morning, too.

Afseth added that speculation that Portugal will need a second package of financial help will intensify through 2012, despite German finance minister Wolfgang Schäuble stating yesterday that no further bailouts would be needed within the next three months. She said:

Schäuble is most likely to be right in his prediction of no bailout in next 3 months, but that doesn’t give me much confidence that the crisis is over.

Chris Adams, the Financial Times’s Markets Editor, said he was concerned that Monti’s comments suggest EU leaders have become dangerously relaxed.

A dollop of soothing balm from the ECB and Italy’s Monti declares eurozone crisis “almost over”. All I see is rising danger of complacency.

— Chris Adams (@ChrisAdamsMKTS) March 28, 2012

That ‘soothing balm’ was the European Central Bank’s offer of around €1 trillion in cheap loans, the ‘Long Term Refinancing Operation’. LTRO, though, can only offer temporary relief to the eurozone. And indeed, there are fears that the ECB has simply stored up more problems for the future (by encouraging banks to take on too much risky sovereign debt, for example).

8.17am: Mario Monti struck an upbeat tone in Japan today, telling an audience in Tokyo that:

The euro zone has gone through a huge crisis.

I believe that this crisis is now almost over.

Monti cited the agreement of Greece’s second aid package, the austerity budget being drawn up in Spain, and his own work in Italy since taking power in November.

Interestingly, Monti also pointed the finger of blame at Berlin and Paris for helping to create the crisis. He said Germany and France’s failure to stick to the original fiscal rules had set a dangerously bad example to other countries.

AFP has the quotes from Monti:

The story goes back to 2003 (and) the still almost infant life of the euro…It was in fact Germany and France that were loose concerning the public deficits and debts.

As readers may remember, neither country faced any sanctions for breaking the terms of the original Stability and Growth Pact (which said countries should not run deficits above 3%). And thus, the seeds for future excess deficits were sowed. As Monti put it:

Of course if the father and mother of the eurozone are violating the rules, you could not expect .. (countries such as) Greece to be compliant.

8.09am: We’ve already had one piece of economic data this morning — Paris’s national statistics office has confirmed that the French economy grew by 0.2% in the final three months of 2011.

That means that France defied the wider economic gloom in Europe. The eurozone economy shrank by 0.3% during that quarter, with even Germany contracting (by 0.2%).

8.07am: Here’s today’s agenda.

The most significant economic data today may be the latest German inflation figures. Economists expect a small fall, to 2.3% this month from 2.5% in February *on a harmonised basis* . The UK GDP data will also be closely watched in the City.

Mario Monti in Japan – all day
Italian Business Confidence for March: 9am BST / 10am CET
UK GDP for Q4 2011 (final reading): 9.30am BST
German consumer prices index for March: 1pm BST / 2pm CET
US durable goods orders for February – 1.30 BST / 8.30am EST

In the bond markets, the Italian government is looking to sell €8.5bn of six-month bills.

8.00am: Good morning all, and welcome to our rolling coverage of the eurozone crisis

… a crisis that has almost run its course, according to a decidedly upbeat Mario Monti. Earlier this morning, the Italian prime minister told an audience in Tokyo that the eurozone’s worst problems were now behind it.

According to local reports, Monti also pinned some of the blame for the euro’s woes on Germany and France – we’ll have full details shortly.

Monti’s comments come just hours after the OECD warned that Europe needs “the mother of all firewalls” to contain the debt crisis.

Elsewhere, Spain remains under the cosh as its government pushes on with a tough austerity budget, due on Friday.

And in the UK, final GDP data will show whether the economy did shrink by 0.2% in the last three months of 2011.

‘Mission impossible’ for Spain’s PM – another €40bn in cuts

Category : Business

Mariano Rajoy expected to win Andalucia regional elections, then order further austerity measures

Spain’s prime minister, Mariano Rajoy, faces the toughest week of his three months in office as he is forced to announce up to €40bn (£33.45bn) in spending cuts and taxes in a budget on 30 March, the day after a general strike.

As Rajoy’s conservative People’s party looked set for victory in key regional elections in southern Andalucia on Sunday, other European leaders and the markets were signalling Spain as now being the biggest single threat to the stability of the eurozone.

A win in Andalucia would give Rajoy unprecedented control over troublesome regional governments whose inability to reduce deficits has helped to put Spain centre-stage in the eurozone crisis. Asturias, a much smaller northern region, was also voting.

Rajoy was recently forced to backtrack by fellow EU leaders who refused to accept the deficit target of 5.8% of GDP Spain set unilaterally for this year. They told him to cut to 5.3%.

The EU economic affairs commissioner, Olli Rehn, has blamed attempts by Spain, the eurozone’s fourth largest economy and a more potent threat than bailed-out Greece, Portugal or Ireland, to ease up on deficit-cutting for renewed pressure on sovereign debt.

“Because there was a perception Spain was relaxing its fiscal targets for this year, there has already been a market reaction of several dozen basis points on yields of Spanish bonds,” he told reporters. “That shows how fragile the situation still is. To return to sustainable growth, it is a necessary condition to ensure sustainability of public finances.”

Spanish economists described the deficit target as “mission impossible” for a country sinking back into recession and with 24% unemployment. They have warned of devastating consequences if Rajoy, who has already imposed cuts and tax increases worth €15bn, is obliged to find a further €40bn over nine months.

A vicious spiral of recession, unemployment and falling tax revenues threatens to double the real cost of a superficial annual adjustment of €32bn.

“This is mission impossible,” said LSE professor Luis Garicano in a blog posting with Jesús Fernández-Villaverde of the University of Pennsylvania. They estimated the total real adjustment needed this year to cope with falling revenue at between €53bn-€64bn. That is twice the €30bn “Save Italy” plan announced by prime minister Mario Monti in December.

Angel Laborda of the Funcas think tank puts the total adjustment at €55bn euros in a 1.7% recession.

Observers believe Rajoy has delayed revealing the latest dramatic round of cuts and tax increases until after the elections. It is unclear where the axe will fall. His government has signalled that pension payments, unemployment benefits and sales tax are all untouchable – though it has retracted quickly on other pledges. There were rumours of increases in company taxes and electricity tariffs and sweeping cuts in public investment.

A general strike on 29 March will test how the Spanish feel about Rajoy’s handling of an economy laden with private debt and fallout after a housing bubble burst.

On Saturday Monti accused Spain of turning the clock back on a eurozone debt crisis that had seemed to be easing. Spanish 10-year bond yields are now higher than their Italian equivalents. “It (Spain) certainly made profound reform of the labour market but it did not pay the same attention to public finances,” he told Italian business leaders. “This is causing us big concern because their yields are rising and it wouldn’t take much to recreate trends that could spread to us through contagion.”

Monti later softened his line, saying he had every confidence in Spain and Rajoy.

Citibank’s chief economist, Willem Buiter, told Bloomberg radio that Spain was now the country that most worried him. “It’s really moved to the wrong side of the spectrum and is now at greater risk of sovereign restructuring than ever before,” he said.

Eurozone crisis live: Geithner urges Europe’s weathiest countries to do more

Category : Business

Tim Geithner: Wealthy EU members must help weakest
• IMF: Prices could spike 30% if Iranian situation deteriorates
Italy’s PM holds negotiations over labour reform
Greek seamen call off strike
• Public sector workers strike in Germany
Today’s agenda

4.49pm: European markets have now closed, so time for quick round-up.

And it’s a mainly risk-off day following worries about Chinese growth, or rather the lack of it, fuelled by comments from mining giant BHP Billiton about a slowdown in demand for iron ore from the country, a big consumer of commodities.

So the FTSE 100 has closed 69.70 points lower at 5891.41. Germany’s Dax is down 1.39% and France’s Cac is off 1.36%. Across the Atlantic the Dow Jones Industrial Average is currently 71 points lower, or 0.5%.

3.55pm: Developments in Italy, where the government has annnounced that it will hold a confidence vote tomorrow to push through proposals to deregulate its services sector.

The move is designed to thwart senators from adding new amendments to the plan. It shouldn’t pose any problems – as Mario Monti commands a large majority.

3.17pm: US Treasury secretary Tim Geithner just urged Europe’s wealthier members to help those members of the Eurozone who are implementing tough economic reforms.

In his ongoing testimony to the House Financial Services Committee (see also 2.44pm) Geithner said the reforms being implemented by some European countries (such as Greece) would damage economic growth in the short term, therefore:

Those countries who can do more to support them, should do that.

Answering a question about Greece, Geithner said that Europe’s weaker members had made three mistakes:

One: Greece, almost uniquely, let her government get too big, too generous, and borrowed too much money.

Secondly, he said, without economic reforms it is too difficult to set up a successful new firm in these countries. “It’s very hard to start a business against Germany,” he said.

and thirdly:

Europe’s financial system became much larger, much more leveraged and much riskier, even than the US financial sector.

3.06pm: Protesters are gathering in Syntagma Square in Athens ahead of the protests organised by KKE, the Communist party of Greece.

Our own Helena Smith is there, and reports that hoardings and billboards have been erected with slogans including “no to the loan agreement. Out of the EU. People’s Power”.

Another banner reads: “No to the barbaric measures. Wipe out the debt”.

The Athens parliament is expected to start debating Greece’s second aid package at 6pm local time, or 4pm GMT.

2.44pm: US treasury secretary Tim Geithner just declared that America is “far ahead of Europe” in the race to recover from the financial crisis, and dismissed Christine Lagarde’s call for extra funds.

Giving his testimony to the House Financial Services Committee in Washington, Geithner said that he “doesn’t see a case for asking IMF shareholders to boost resources in order to help Europe”.

He also confirmed that Barack Obama cannot increase the US’s contribution to the International Monetary Fund without the approval of Congress (where Lagarde’s call for $500bn of extra funding has found little support).

Geithner told the committee that the eurozone debt crisis has already caused significant damage to the US, and the global economy. He also warned that Europe’s governments must not impose auterity too quickly, as we reported this morning (see 9.49am for highlights from his prepared statement)

You can watch the testimony live here.

2.21pm: Just in – the Greek seamen’s union had voted to end the strike action that has been disrupting ferries across the country.

That follows today’s negotiations (see 1.47pm). It’s not clear whether the government offered any concessions, but on paper it looks like good news for Greece.

UPDATE: The latest word from Greece is that the strike will formally end at 6am Wednesday (with thanks to reader @Finisterre67).

2.00pm: Evangelos Venizelos, Greece’s departing finance minister, has addressed the parliamentary group of PASOK, his first speech to the socialist party since replacing George Papandreou at its helm on Sunday.

“Greeks wants stability and security,” Venizelos told his MPs, saying that ahead of general elections Greece “as of today will enter an especially criticial” phase.

“It is very important that we tell the truth to the Greek people,” he continued, in a speech officially kicking off the electoral campaign

With Pasok’s support down badly in the polls, Venizelos admitted that the party must rebuild from scratch, but also praised his MPs for their “heroic” stance in supporting deeply unpopular fiscal policies demanded by foreign lenders in return for keeping the country’s economy afloat.

“Pasok, the big progressive democratic party has more strengh than anyone may think,” he said.

1.47pm: The talks between striking Greek seamen and the country’s development and labour ministries (see 11.31am) have just wrapped up but not, we can report, on the best of notes. Emerging from the negotiations members of the seamens union, PNO, said they would now hold talks to decide future action.

One PNO official told the state-controlled TV news channel NET:

We are categorically opposed to the policies being pursued by the government at the behest of the troika [the EU, ECB and IMF]…We are very opposed to these measures. That is all we are willing to say.

Giorgos Bakakis, representing farmers on Crete, told NET that agricultural producers were conducting their own negotiations to try and persuade the striking seamen to allow perishable goods to be transported from the island by cargo ship once “every two days.”

The head of the Greek Industrialists Association (SEV) Dimitris Daskalopoulos is also causing waves after weighing into the dispute today. Among his incendiary comments he accused PNO of “not caring if the country sinks” by pressing ahead with the action at a time when all Greeks were being asked to make sacrifices.

Daskalopoulos added that Greece’s upcoming general election (to take place either April 29th or May 6th) amounted to a national referendum in which voters would be asked to chose between backing parties that accepted policies that kept Greece in or out of Europe.

“The choice will be between Europe or chaos,” he said.

1.34pm: With the official start of spring upon us tomorrow, this is the week that Greek tourism traditionally kicks off.

And, as we reported yesterday, if Greece didn’t have enough troubles the debt crisis appears also to be having a catastrophic effect on the tourism-dependent economy with German travel companies reporting a vast drop in bookings. Latest figures show that German arrivals are down by 50 % according to officials at the Greek tourism ministry.

Which is why, says Helena Smith, the Association of Greek Tourism Enterprises, otherwise known as SETE, has welcomed an ad campaign launched today by six of Germany’s major tour operators under the slogan “For true friends, it is trust that counts.” In the advert, the tour operators pledge their support for the country saying:

Greece remains one of the most important tourism destinations for German tourists. We are convinced by its beauty and value …. We are supporting Greeks and we will keep on supporting Greece as an attractive and open destination.

Among the travel firms backing the initiative are TUI, 1-2 Fly, Thomas Cook, Neckermann Reisen, ITS and Jahn Reisen. Together, they handle around twothirds of inbound tourism from Germany.

SETE said the campaign is meant to reassure Germans that they will not face any “problems” in Greece, following recent anti-German outbursts by demonstrators protesting austerity in Athens.

Normally German tourists top the league tables of arrivals in Greece followed by British visitors who this year have also dropped off largely because of the 2012 London Olympic Games. But many fearing the backlash of anger over Berlin-dictated belt-tightening are this year staying away (apparently one million Germans have cancelled package holidays to date).

Andreas Andreadis, who heads SETE, said he saw the print ad campaign as being tountamount to a “vote of confidence” in Greece where earnings from tourism account for almost 20% of GDP.

“Reverse action against the negative trend towards Greek tourism has begun,” he said.

1.09pm: In Italy, Mario Monti’s government has begun informal talks with unions over his controversial proposed changes to Italian labour laws (see 8.21am for the details)

The formal meeting with union leaders are scheduled to begin at 3pm local time, but Reuters reports that Monti has already met with the leftwing CGIL union, as well as the “more moderate” (their words) CISL and UIL unions.

The government’s labour minister, Elsa Fornero, is also holding seperate techical talks on welfare measures and job contracts.

Fornero is the Italian minister who famously wept last December while trying to explain the details of Italy’s €30bn austerity package.

She was pretty resolute last night, though, telling Italian TV that she was prepared to overhaul Italy’s employment laws without the support of the unions, if necessary. She said:

We can’t keep going ahead and having endless discussion.

At the centre of Monti’s proposed changes is Article 18 of the labour laws. It effectively forces employers to rehire any worker that a labor court rules was fired without just cause, and pay compensation.

Strong employment laws are an important part of any economy, you might argue. Critics of Article 18, though, say it is unfair on employers — and also younger workers, who are not offered fulltime contracts for this reason.

12.37pm: Readers may remember that today, March 20, was the Red Letter day for Greece — as €14.5bn of debt had to be repaid. One deadline which Athens and Brussels couldn’t dodge, as failure to repay would have triggered a disorderly default.

Instead, of course, Greece persuaded its private creditors to swap old bonds for new long-dated securities. This meant it qualified for its second aid package. And with nice timing, Athens just received the first installment of this aid package from the IMF, totalling €1.6bn. That’s on top of the €5.9bn handed over by the European Financial Stability Facility on Monday.

But as Helena Smith writes from Athens, the debt restructuring agreed two weeks ago did not cover all of Greece’s bonds:

It emerges that Greece will have to repay €4.66 bn to the European Central bank and other European central banks, plus €200 million in interest, for three-year bonds that expire today according to finance ministry sources.

So €7.5bn comes into Greece’s coffers, and €4.66bn promptly flows straight out again back to Europe’s central banks. That reinforces the point that only a small amount of Greece’s aid package is actually going to help the country rebuild.

12.06pm: Greece isn’t the only member of the eurozone suffering transport strikes (see last post) — Germany has also been hit by industrial action today over a pay deal.

This picture shows subway trains parked up in a depot in Frankfurt early this morning, in the latest phase of an ongoing wage dispute called by the Verdi union. It is seeking a 6.5% increase this year for 2 million federal and municipal government employees. Last week, it rejected a 3.3 percent increase over two years.

Negotiations are due to restart on March 28, and Verdi increased the pressure today by threatening to call a full-blown strike ballot if the German government doesn’t agree.

11.31am: News in from Athens, where development minister Anna Diamantopoulou has begun crucial talks with representatives of the Panhellenic Seamen’s Union [PNO].

As we reported earlier, ferries and cargo ships have been impounded in ports for a second day as striking seamen press on with their pledge to conduct rolling 48-hour strikes.

Helena Smith reports that pressure is mounting on the seamen from several quarters to abandon their action:

Local mayors on islands fearing food shortages, farmers who say their produce is already beginning to rot on docksides and panic-stricken tourism officials have all weighed in.

On Crete there is mounting fury that if the rolling, 48-hour walk-outs continue, millions of euros worth of perishable produce, mainly fruit and other crops, will be destroyed. The island’s regional governor Stavros Arnoutakis has penned a furious missive to ministers heading the ministries of finance and public order calling for the strike to be resolved “immediately.” Each day of industrial action is tountamount to €15m of damage inflicted on local agriculturalists, he says.

“The PNO strike, as you know, has cut off all of ‘island Greece’ because of the illegal blockade of the country’s major ports. Crete’s producers, who have suffered the biggest damage – around 15 million euro for every day of the blockade – respect the demands and the strike of the PNO but they are against the occupation of ports,” the letter opined. “The economic consequences are catastrophic: perishable products, which can yield valuable exchange at a time of economic crisis are being destroyed … and we are losing important markets abroad. Producers and the island’s various sectors are determined to protect their hard work and produce.”

The minister of labour Giorgos Koutromanis is also participating in the talks, Helena reports:

Seamen, who are protesting cuts in pensions and other benefits, say they are also determined to re-instate collective wage agreements as of 2012. The agreements, described by unionists as a hard earned right, are one of the casualties of the latest round of belt-tightening agreed by the government in exchange for a second round of rescue funds this time worth €130 bn in addition to the country’s mass debt restructuring.

Even if the talks end soon – and farmers on islands like Crete have given the government until tomorrow to come up with a solution – representatives of the seamens’ union they will hold their own meeting to decide what to do next.

“The seamen may be right but one man’s justice cannot be another’s injustice,” said Dora Bakoyannis, the former foreign minister and head of the breakaway Democratic Alliance party. “It is urgent that this is resolved. Farmers on Crete are really hurting,” said the politician who hails from the island herself.

11.15am: Orders at British factories have fallen by more than expected this month, the CBI reported this morning. It’s monthly industrial orders index came in at -8, a deterioration from -6 in February. That’s better than the long-term average, though, which economists say should mean that manufacturing activity expanded this quarter — and thus the UK should avoid a double-dip recession.

10.57am: Christine Lagarde has issued a warning this morning that an oil shock could plunge the global economy into fresh disarray.

Speaking in New Delhi, the International Monetary Fund’s managing director said that the Europe’s debt crisis was now less acute, but oil had the capacity to spark a new crisis, if tensions over Iran escalated.

Lagarde predicted that global crude oil prices could rise by 20% to 30%, if Iranian supplies were significantly disrupted.

A barrel of Brent crude costs $124 per barrel today. On Lagarde’s calculations, that price would rise above $160/barrel – a new record high – if the Iranian situation deteriorated.

Lagarde is attending a seminar called “China-India: Sustaining High Quality Growth”. Earlier today, she had told the audience that “we are further away from the abyss than we were three months ago,”. She welcomed Europe’s efforts to tame the crisis, such as the new fiscal pact, adding:

Crisis was a major agent of change but you don’t want to have to go there.

India’s finance minister, Pranab Mukherjee, met with Lagarde earlier today. According to the IMF boss, the two “particularly discussed” the eurozone.

10.39am: A heads-up for later. Greece’s communist party is planning to hold protests in Syntagma Square, outside the Athens parliament, this afternoon (starting at 6.30pm local time, or 4.30pm GMT), to coincide with a vote on Greece’s new fiscal programme.

According to local reports, protest rallies are also being organized in Thessaloniki and other cities around Greece.

The protests are unlikely to prevent the Greek parliament giving its approval for Greece’s second financial aid deal, as Lucas Papademos’s government has a large majority.

10.18am: European stock markets have fallen back today, as fears over the Chinese economy override lingering relief that Greece’s second aid deal was agreed.

In the City, the FTSE 100 is down 61 points at 5899, down 1.04%.
The French CAC is down 39 points at 3538, down 1.09%
The German DAX is down 77 points at 7076, down 1.08%

As my colleague Josephine Moulds explains here, mining giant BHP Billiton warned this morning that Chinese demand from iron ore is “flattening’, suggesting that China’s economic growth may be weaker than expected.

9.59am: Sticking with Spain, new data this morning has shows that bad debts have risen to their highest level since 1994.

The Bank of Spain reported that in January 7.91% of loans held by banks are at least three months overdue for repayment, or slightly over €140bn in total. Before the financial crisis, just 1% of loans on the books of Spanish banks were ‘bad’.

The data also showed that overall credit in Spain fell by 3.2% in January, compared with the previous year, suggesting that banks are hoarding cash and building up their capital reserves.

9.54am: Spain’s borrowing costs have fallen again, continuing the recent trend of successful debt auctions.

It sold €3.6bn of 12-month bills at an average yield (the interest rate on the debt) of 1.418%, down from 1.899%, plus €1.45bn of 18-month bills at a yield of 1.711%, down from 2.3%.

9.49am: Later today, US treasury secretary Tim Geithner will urge EU leaders to resist imposing tough austerity measures as they attempt to break free of the European debt crisis.

Geithner will deliver his warning to the US House Financial Service committee when he testifies at 2pm GMT. His prepared remarks show that he will predict that the next few years will be tough, and even harder if European leaders cut too deeply in response to disappointing economic data.

Here are the key quotes from Geithner’s prepared remarks:

Economic growth is likely to be weak for some time. The path of fiscal consolidation should be gradual with a multiyear phase-in of reforms

If every time economic growth disappoints, governments are forced to cut spending or raise taxes immediately to make up for the impact of weaker growth on deficits, this would risk a self-reinforcing negative spiral of growth-killing austerity.

For these economic reforms to work, policymakers in the Euro area will have to be careful to calibrate the mix of financial support and the pace of fiscal consolidation.

Several EU leaders have recently called for a greater focus on growth, rather than an all-out push for fiscal consolidation. Yesterday, Greece’s Lucas Papademos told the Financial Times that new stimulus measures should be added to the country’s existing economic programme. And Spanish PM Mariano Rajoy has already forced the EU to agree that Spain will aim for a less challenging deficit target this year.

America’s economy is now growing much faster than the Eurozone’s, so Geithner may feel he can offer advice across the Atlantic from a position of strength.

But that growth is partly due to the Federal Reserve’s various monetary easing programmes, which outpace the ECB’s own moves and must, at some stage, be unwound. The US is also putting off its own fiscal cutbacks until after the upcoming presidential election. This year, it will post a deficit around $1.2 trillion.

Of course, as a ‘proper’ monetary union, America has two advantages over Europe’s poorer regions. Complete control of its currency (and the ability to print as much as it wants, regardless of the inflationary consequences), and full fiscal transfers within the union, allowing richer states to subsidise poorer ones.

9.32am: Just in – UK inflation fell again last month, but not as fast as economists had expected.

The consumer prices index came in at 3.4% (on an annual basis) in Febuary, down from 3.6% in January. The City was expecting CPI to drop back to 3.3% (Reuters’ poll) but today’s number is still the lowest annual level since November 2010.

On a month-on-month basis, prices rose by 0.6% in February, compared with January.

The retail prices index came in at 3.7% on an annual basis, down from 3.9% the previous month, but again higher than economists’ predictions of 3.5%.

The Office for National Statistics said that the main downward drivers were housing, recreation and transport costs, while alcohol and tobacco were the main upward drivers.

My colleagues on the economics desk will have the full story shortly.

8.54am: European Union leaders have been accused of “moral decay” for delaying Greece’s debt restructuring by two years while they strengthened their banking sector.

Carl Weinberg, founder and chief economist at High Frequency Economics, claimed in a report that Greece’s first bailout was deliberately limited, because EU banks were not in a position to swallow losses.

Weinberg asked, rhetorically:

Why wasn’t Greece allowed to restructure its debt two years ago, before its economy contracted by 15 percent, and before it was necessary to impose a haircut on private sector borrowers, destabilize the government and the economy, illegally implement retroactive collective action clauses, and trigger credit default swaps….

It was inconvenient for the banks, that is why.

Do we agree?

It’s certainly true that Greece’s initial financial package, agreed in May 2010, wasn’t wide-ranging enough (thus the need for the second deal). But Weinberg’s claim that the likes of Angela Merkel and Nicolas Sarkozy deliberately “put a few million Greek citizens through the wringer” is open to debate….

8.43am: In Greece, ferry services remain disrupted today as the Panhellenic Seamen’s Union (PNO) continue their 48-hour strike – despite pleas from Greek farmers who say they will suffer badly from the disruption.

As we reported yesterday, PNO workers down tools (and anchors) in protest at cuts to pensions, and changes to collective labor contracts. With boats stuck in harbours until at least tomorrow morning, many of Greece’s islands are cut off.

Development minister Anna Diamantopoulou is due to meet with representatives of the Panhellenic Seamen’s Union (PNO) later today. She blasted the disruption yesterday, saying:

Every blow against agricultural production, against tourism, against the islands, against the national economy, is a blow against the unemployed Greek, the pensioner, the worker.

8.21am: Mario Monti has enjoyed a decent spell as Italy’s prime minister since replacing Silvio Berlusconi four months ago. Austerity measures have been passed, borrowing costs have fallen, and EU leaders and economist have both cheered his performance.

Today’s talks with unions, though, could unseat Monti’s efforts to reform Italy’s labour markets. Reuters claims that the price of failure could be:

mass strikes and ructions within Monti’s left-right parliamentary coalition.

But what is Monti trying to achieve? One of his key goals is to reform Article 18 of Italy’s employment law, which gives workers strong protection against being dismissed.

Critics of the law claim it prevents employees from dismissing workers who simply fail to perform. Union leaders, though, fear indiscriminate job losses if Article 18 is changed.

Luigi Angeletti, the leader of the UIL union, has said that the Italian government must water down its demands, saying:

An agreement is very possible…..All that must be done is to change the hard line.

More details here.

8.10am: Today’s agenda includes two pieces of UK economic data, and an appearance by US treasury secretary Tim Geithner this afternoon to doscuss “the state of the international financial system”.

UK inflation data for February: 9.30am GMT
UK CBI industrial trends for March: 11am GMT
US Treasury secretary Tim Geithner testifies to the House Financial Services committee: 2pm GMT / 10am EST
Mario Monti meets with Italian union leaders: from 2.30pm GMT / 3.30pm CET

In the debt markets, Greece will action 13-week bills, Spain will sell 12 and 18-month bonds, and Italy will auction four-year bonds.

8.00am: Good morning, and welcome to our rolling coverage of the eurozone debt crisis.

Europe’s two technocratic prime ministers will be busy today. In Rome, Mario Monti is holding crunch talks with unions over his proposals to reform Italy’s economy.

Meanwhile, Greece is moving closer to an election footing as Lucas Papademos’s government completes its last few tasks. That list includes the selection of a new finance minister, following Evangelos Venizelos’s resignation yesterday.

Greece is also gripped by the strike action that the country’s seamen began yesterday – ministers are due to hold talks with their union in an attempt to end the disruption.

We’re also expecting protests outside the Athens parliament this evening as the final pieces of legislation covering its new economic programme are approved by MPs.

And in the UK, the latest inflation data will be closely watched ahead of tomorrow’s Budget.

Eurozone crisis live: Geithner urges Europe’s weathiest countries to do more

Category : Business

Tim Geithner: Wealthy EU members must help weakest
• IMF: Prices could spike 30% if Iranian situation deteriorates
Italy’s PM holds negotiations over labour reform
Greek seamen call off strike
• Public sector workers strike in Germany
Today’s agenda

4.49pm: European markets have now closed, so time for quick round-up.

And it’s a mainly risk-off day following worries about Chinese growth, or rather the lack of it, fuelled by comments from mining giant BHP Billiton about a slowdown in demand for iron ore from the country, a big consumer of commodities.

So the FTSE 100 has closed 69.70 points lower at 5891.41. Germany’s Dax is down 1.39% and France’s Cac is off 1.36%. Across the Atlantic the Dow Jones Industrial Average is currently 71 points lower, or 0.5%.

3.55pm: Developments in Italy, where the government has annnounced that it will hold a confidence vote tomorrow to push through proposals to deregulate its services sector.

The move is designed to thwart senators from adding new amendments to the plan. It shouldn’t pose any problems – as Mario Monti commands a large majority.

3.17pm: US Treasury secretary Tim Geithner just urged Europe’s wealthier members to help those members of the Eurozone who are implementing tough economic reforms.

In his ongoing testimony to the House Financial Services Committee (see also 2.44pm) Geithner said the reforms being implemented by some European countries (such as Greece) would damage economic growth in the short term, therefore:

Those countries who can do more to support them, should do that.

Answering a question about Greece, Geithner said that Europe’s weaker members had made three mistakes:

One: Greece, almost uniquely, let her government get too big, too generous, and borrowed too much money.

Secondly, he said, without economic reforms it is too difficult to set up a successful new firm in these countries. “It’s very hard to start a business against Germany,” he said.

and thirdly:

Europe’s financial system became much larger, much more leveraged and much riskier, even than the US financial sector.

3.06pm: Protesters are gathering in Syntagma Square in Athens ahead of the protests organised by KKE, the Communist party of Greece.

Our own Helena Smith is there, and reports that hoardings and billboards have been erected with slogans including “no to the loan agreement. Out of the EU. People’s Power”.

Another banner reads: “No to the barbaric measures. Wipe out the debt”.

The Athens parliament is expected to start debating Greece’s second aid package at 6pm local time, or 4pm GMT.

2.44pm: US treasury secretary Tim Geithner just declared that America is “far ahead of Europe” in the race to recover from the financial crisis, and dismissed Christine Lagarde’s call for extra funds.

Giving his testimony to the House Financial Services Committee in Washington, Geithner said that he “doesn’t see a case for asking IMF shareholders to boost resources in order to help Europe”.

He also confirmed that Barack Obama cannot increase the US’s contribution to the International Monetary Fund without the approval of Congress (where Lagarde’s call for $500bn of extra funding has found little support).

Geithner told the committee that the eurozone debt crisis has already caused significant damage to the US, and the global economy. He also warned that Europe’s governments must not impose auterity too quickly, as we reported this morning (see 9.49am for highlights from his prepared statement)

You can watch the testimony live here.

2.21pm: Just in – the Greek seamen’s union had voted to end the strike action that has been disrupting ferries across the country.

That follows today’s negotiations (see 1.47pm). It’s not clear whether the government offered any concessions, but on paper it looks like good news for Greece.

UPDATE: The latest word from Greece is that the strike will formally end at 6am Wednesday (with thanks to reader @Finisterre67).

2.00pm: Evangelos Venizelos, Greece’s departing finance minister, has addressed the parliamentary group of PASOK, his first speech to the socialist party since replacing George Papandreou at its helm on Sunday.

“Greeks wants stability and security,” Venizelos told his MPs, saying that ahead of general elections Greece “as of today will enter an especially criticial” phase.

“It is very important that we tell the truth to the Greek people,” he continued, in a speech officially kicking off the electoral campaign

With Pasok’s support down badly in the polls, Venizelos admitted that the party must rebuild from scratch, but also praised his MPs for their “heroic” stance in supporting deeply unpopular fiscal policies demanded by foreign lenders in return for keeping the country’s economy afloat.

“Pasok, the big progressive democratic party has more strengh than anyone may think,” he said.

1.47pm: The talks between striking Greek seamen and the country’s development and labour ministries (see 11.31am) have just wrapped up but not, we can report, on the best of notes. Emerging from the negotiations members of the seamens union, PNO, said they would now hold talks to decide future action.

One PNO official told the state-controlled TV news channel NET:

We are categorically opposed to the policies being pursued by the government at the behest of the troika [the EU, ECB and IMF]…We are very opposed to these measures. That is all we are willing to say.

Giorgos Bakakis, representing farmers on Crete, told NET that agricultural producers were conducting their own negotiations to try and persuade the striking seamen to allow perishable goods to be transported from the island by cargo ship once “every two days.”

The head of the Greek Industrialists Association (SEV) Dimitris Daskalopoulos is also causing waves after weighing into the dispute today. Among his incendiary comments he accused PNO of “not caring if the country sinks” by pressing ahead with the action at a time when all Greeks were being asked to make sacrifices.

Daskalopoulos added that Greece’s upcoming general election (to take place either April 29th or May 6th) amounted to a national referendum in which voters would be asked to chose between backing parties that accepted policies that kept Greece in or out of Europe.

“The choice will be between Europe or chaos,” he said.

1.34pm: With the official start of spring upon us tomorrow, this is the week that Greek tourism traditionally kicks off.

And, as we reported yesterday, if Greece didn’t have enough troubles the debt crisis appears also to be having a catastrophic effect on the tourism-dependent economy with German travel companies reporting a vast drop in bookings. Latest figures show that German arrivals are down by 50 % according to officials at the Greek tourism ministry.

Which is why, says Helena Smith, the Association of Greek Tourism Enterprises, otherwise known as SETE, has welcomed an ad campaign launched today by six of Germany’s major tour operators under the slogan “For true friends, it is trust that counts.” In the advert, the tour operators pledge their support for the country saying:

Greece remains one of the most important tourism destinations for German tourists. We are convinced by its beauty and value …. We are supporting Greeks and we will keep on supporting Greece as an attractive and open destination.

Among the travel firms backing the initiative are TUI, 1-2 Fly, Thomas Cook, Neckermann Reisen, ITS and Jahn Reisen. Together, they handle around twothirds of inbound tourism from Germany.

SETE said the campaign is meant to reassure Germans that they will not face any “problems” in Greece, following recent anti-German outbursts by demonstrators protesting austerity in Athens.

Normally German tourists top the league tables of arrivals in Greece followed by British visitors who this year have also dropped off largely because of the 2012 London Olympic Games. But many fearing the backlash of anger over Berlin-dictated belt-tightening are this year staying away (apparently one million Germans have cancelled package holidays to date).

Andreas Andreadis, who heads SETE, said he saw the print ad campaign as being tountamount to a “vote of confidence” in Greece where earnings from tourism account for almost 20% of GDP.

“Reverse action against the negative trend towards Greek tourism has begun,” he said.

1.09pm: In Italy, Mario Monti’s government has begun informal talks with unions over his controversial proposed changes to Italian labour laws (see 8.21am for the details)

The formal meeting with union leaders are scheduled to begin at 3pm local time, but Reuters reports that Monti has already met with the leftwing CGIL union, as well as the “more moderate” (their words) CISL and UIL unions.

The government’s labour minister, Elsa Fornero, is also holding seperate techical talks on welfare measures and job contracts.

Fornero is the Italian minister who famously wept last December while trying to explain the details of Italy’s €30bn austerity package.

She was pretty resolute last night, though, telling Italian TV that she was prepared to overhaul Italy’s employment laws without the support of the unions, if necessary. She said:

We can’t keep going ahead and having endless discussion.

At the centre of Monti’s proposed changes is Article 18 of the labour laws. It effectively forces employers to rehire any worker that a labor court rules was fired without just cause, and pay compensation.

Strong employment laws are an important part of any economy, you might argue. Critics of Article 18, though, say it is unfair on employers — and also younger workers, who are not offered fulltime contracts for this reason.

12.37pm: Readers may remember that today, March 20, was the Red Letter day for Greece — as €14.5bn of debt had to be repaid. One deadline which Athens and Brussels couldn’t dodge, as failure to repay would have triggered a disorderly default.

Instead, of course, Greece persuaded its private creditors to swap old bonds for new long-dated securities. This meant it qualified for its second aid package. And with nice timing, Athens just received the first installment of this aid package from the IMF, totalling €1.6bn. That’s on top of the €5.9bn handed over by the European Financial Stability Facility on Monday.

But as Helena Smith writes from Athens, the debt restructuring agreed two weeks ago did not cover all of Greece’s bonds:

It emerges that Greece will have to repay €4.66 bn to the European Central bank and other European central banks, plus €200 million in interest, for three-year bonds that expire today according to finance ministry sources.

So €7.5bn comes into Greece’s coffers, and €4.66bn promptly flows straight out again back to Europe’s central banks. That reinforces the point that only a small amount of Greece’s aid package is actually going to help the country rebuild.

12.06pm: Greece isn’t the only member of the eurozone suffering transport strikes (see last post) — Germany has also been hit by industrial action today over a pay deal.

This picture shows subway trains parked up in a depot in Frankfurt early this morning, in the latest phase of an ongoing wage dispute called by the Verdi union. It is seeking a 6.5% increase this year for 2 million federal and municipal government employees. Last week, it rejected a 3.3 percent increase over two years.

Negotiations are due to restart on March 28, and Verdi increased the pressure today by threatening to call a full-blown strike ballot if the German government doesn’t agree.

11.31am: News in from Athens, where development minister Anna Diamantopoulou has begun crucial talks with representatives of the Panhellenic Seamen’s Union [PNO].

As we reported earlier, ferries and cargo ships have been impounded in ports for a second day as striking seamen press on with their pledge to conduct rolling 48-hour strikes.

Helena Smith reports that pressure is mounting on the seamen from several quarters to abandon their action:

Local mayors on islands fearing food shortages, farmers who say their produce is already beginning to rot on docksides and panic-stricken tourism officials have all weighed in.

On Crete there is mounting fury that if the rolling, 48-hour walk-outs continue, millions of euros worth of perishable produce, mainly fruit and other crops, will be destroyed. The island’s regional governor Stavros Arnoutakis has penned a furious missive to ministers heading the ministries of finance and public order calling for the strike to be resolved “immediately.” Each day of industrial action is tountamount to €15m of damage inflicted on local agriculturalists, he says.

“The PNO strike, as you know, has cut off all of ‘island Greece’ because of the illegal blockade of the country’s major ports. Crete’s producers, who have suffered the biggest damage – around 15 million euro for every day of the blockade – respect the demands and the strike of the PNO but they are against the occupation of ports,” the letter opined. “The economic consequences are catastrophic: perishable products, which can yield valuable exchange at a time of economic crisis are being destroyed … and we are losing important markets abroad. Producers and the island’s various sectors are determined to protect their hard work and produce.”

The minister of labour Giorgos Koutromanis is also participating in the talks, Helena reports:

Seamen, who are protesting cuts in pensions and other benefits, say they are also determined to re-instate collective wage agreements as of 2012. The agreements, described by unionists as a hard earned right, are one of the casualties of the latest round of belt-tightening agreed by the government in exchange for a second round of rescue funds this time worth €130 bn in addition to the country’s mass debt restructuring.

Even if the talks end soon – and farmers on islands like Crete have given the government until tomorrow to come up with a solution – representatives of the seamens’ union they will hold their own meeting to decide what to do next.

“The seamen may be right but one man’s justice cannot be another’s injustice,” said Dora Bakoyannis, the former foreign minister and head of the breakaway Democratic Alliance party. “It is urgent that this is resolved. Farmers on Crete are really hurting,” said the politician who hails from the island herself.

11.15am: Orders at British factories have fallen by more than expected this month, the CBI reported this morning. It’s monthly industrial orders index came in at -8, a deterioration from -6 in February. That’s better than the long-term average, though, which economists say should mean that manufacturing activity expanded this quarter — and thus the UK should avoid a double-dip recession.

10.57am: Christine Lagarde has issued a warning this morning that an oil shock could plunge the global economy into fresh disarray.

Speaking in New Delhi, the International Monetary Fund’s managing director said that the Europe’s debt crisis was now less acute, but oil had the capacity to spark a new crisis, if tensions over Iran escalated.

Lagarde predicted that global crude oil prices could rise by 20% to 30%, if Iranian supplies were significantly disrupted.

A barrel of Brent crude costs $124 per barrel today. On Lagarde’s calculations, that price would rise above $160/barrel – a new record high – if the Iranian situation deteriorated.

Lagarde is attending a seminar called “China-India: Sustaining High Quality Growth”. Earlier today, she had told the audience that “we are further away from the abyss than we were three months ago,”. She welcomed Europe’s efforts to tame the crisis, such as the new fiscal pact, adding:

Crisis was a major agent of change but you don’t want to have to go there.

India’s finance minister, Pranab Mukherjee, met with Lagarde earlier today. According to the IMF boss, the two “particularly discussed” the eurozone.

10.39am: A heads-up for later. Greece’s communist party is planning to hold protests in Syntagma Square, outside the Athens parliament, this afternoon (starting at 6.30pm local time, or 4.30pm GMT), to coincide with a vote on Greece’s new fiscal programme.

According to local reports, protest rallies are also being organized in Thessaloniki and other cities around Greece.

The protests are unlikely to prevent the Greek parliament giving its approval for Greece’s second financial aid deal, as Lucas Papademos’s government has a large majority.

10.18am: European stock markets have fallen back today, as fears over the Chinese economy override lingering relief that Greece’s second aid deal was agreed.

In the City, the FTSE 100 is down 61 points at 5899, down 1.04%.
The French CAC is down 39 points at 3538, down 1.09%
The German DAX is down 77 points at 7076, down 1.08%

As my colleague Josephine Moulds explains here, mining giant BHP Billiton warned this morning that Chinese demand from iron ore is “flattening’, suggesting that China’s economic growth may be weaker than expected.

9.59am: Sticking with Spain, new data this morning has shows that bad debts have risen to their highest level since 1994.

The Bank of Spain reported that in January 7.91% of loans held by banks are at least three months overdue for repayment, or slightly over €140bn in total. Before the financial crisis, just 1% of loans on the books of Spanish banks were ‘bad’.

The data also showed that overall credit in Spain fell by 3.2% in January, compared with the previous year, suggesting that banks are hoarding cash and building up their capital reserves.

9.54am: Spain’s borrowing costs have fallen again, continuing the recent trend of successful debt auctions.

It sold €3.6bn of 12-month bills at an average yield (the interest rate on the debt) of 1.418%, down from 1.899%, plus €1.45bn of 18-month bills at a yield of 1.711%, down from 2.3%.

9.49am: Later today, US treasury secretary Tim Geithner will urge EU leaders to resist imposing tough austerity measures as they attempt to break free of the European debt crisis.

Geithner will deliver his warning to the US House Financial Service committee when he testifies at 2pm GMT. His prepared remarks show that he will predict that the next few years will be tough, and even harder if European leaders cut too deeply in response to disappointing economic data.

Here are the key quotes from Geithner’s prepared remarks:

Economic growth is likely to be weak for some time. The path of fiscal consolidation should be gradual with a multiyear phase-in of reforms

If every time economic growth disappoints, governments are forced to cut spending or raise taxes immediately to make up for the impact of weaker growth on deficits, this would risk a self-reinforcing negative spiral of growth-killing austerity.

For these economic reforms to work, policymakers in the Euro area will have to be careful to calibrate the mix of financial support and the pace of fiscal consolidation.

Several EU leaders have recently called for a greater focus on growth, rather than an all-out push for fiscal consolidation. Yesterday, Greece’s Lucas Papademos told the Financial Times that new stimulus measures should be added to the country’s existing economic programme. And Spanish PM Mariano Rajoy has already forced the EU to agree that Spain will aim for a less challenging deficit target this year.

America’s economy is now growing much faster than the Eurozone’s, so Geithner may feel he can offer advice across the Atlantic from a position of strength.

But that growth is partly due to the Federal Reserve’s various monetary easing programmes, which outpace the ECB’s own moves and must, at some stage, be unwound. The US is also putting off its own fiscal cutbacks until after the upcoming presidential election. This year, it will post a deficit around $1.2 trillion.

Of course, as a ‘proper’ monetary union, America has two advantages over Europe’s poorer regions. Complete control of its currency (and the ability to print as much as it wants, regardless of the inflationary consequences), and full fiscal transfers within the union, allowing richer states to subsidise poorer ones.

9.32am: Just in – UK inflation fell again last month, but not as fast as economists had expected.

The consumer prices index came in at 3.4% (on an annual basis) in Febuary, down from 3.6% in January. The City was expecting CPI to drop back to 3.3% (Reuters’ poll) but today’s number is still the lowest annual level since November 2010.

On a month-on-month basis, prices rose by 0.6% in February, compared with January.

The retail prices index came in at 3.7% on an annual basis, down from 3.9% the previous month, but again higher than economists’ predictions of 3.5%.

The Office for National Statistics said that the main downward drivers were housing, recreation and transport costs, while alcohol and tobacco were the main upward drivers.

My colleagues on the economics desk will have the full story shortly.

8.54am: European Union leaders have been accused of “moral decay” for delaying Greece’s debt restructuring by two years while they strengthened their banking sector.

Carl Weinberg, founder and chief economist at High Frequency Economics, claimed in a report that Greece’s first bailout was deliberately limited, because EU banks were not in a position to swallow losses.

Weinberg asked, rhetorically:

Why wasn’t Greece allowed to restructure its debt two years ago, before its economy contracted by 15 percent, and before it was necessary to impose a haircut on private sector borrowers, destabilize the government and the economy, illegally implement retroactive collective action clauses, and trigger credit default swaps….

It was inconvenient for the banks, that is why.

Do we agree?

It’s certainly true that Greece’s initial financial package, agreed in May 2010, wasn’t wide-ranging enough (thus the need for the second deal). But Weinberg’s claim that the likes of Angela Merkel and Nicolas Sarkozy deliberately “put a few million Greek citizens through the wringer” is open to debate….

8.43am: In Greece, ferry services remain disrupted today as the Panhellenic Seamen’s Union (PNO) continue their 48-hour strike – despite pleas from Greek farmers who say they will suffer badly from the disruption.

As we reported yesterday, PNO workers down tools (and anchors) in protest at cuts to pensions, and changes to collective labor contracts. With boats stuck in harbours until at least tomorrow morning, many of Greece’s islands are cut off.

Development minister Anna Diamantopoulou is due to meet with representatives of the Panhellenic Seamen’s Union (PNO) later today. She blasted the disruption yesterday, saying:

Every blow against agricultural production, against tourism, against the islands, against the national economy, is a blow against the unemployed Greek, the pensioner, the worker.

8.21am: Mario Monti has enjoyed a decent spell as Italy’s prime minister since replacing Silvio Berlusconi four months ago. Austerity measures have been passed, borrowing costs have fallen, and EU leaders and economist have both cheered his performance.

Today’s talks with unions, though, could unseat Monti’s efforts to reform Italy’s labour markets. Reuters claims that the price of failure could be:

mass strikes and ructions within Monti’s left-right parliamentary coalition.

But what is Monti trying to achieve? One of his key goals is to reform Article 18 of Italy’s employment law, which gives workers strong protection against being dismissed.

Critics of the law claim it prevents employees from dismissing workers who simply fail to perform. Union leaders, though, fear indiscriminate job losses if Article 18 is changed.

Luigi Angeletti, the leader of the UIL union, has said that the Italian government must water down its demands, saying:

An agreement is very possible…..All that must be done is to change the hard line.

More details here.

8.10am: Today’s agenda includes two pieces of UK economic data, and an appearance by US treasury secretary Tim Geithner this afternoon to doscuss “the state of the international financial system”.

UK inflation data for February: 9.30am GMT
UK CBI industrial trends for March: 11am GMT
US Treasury secretary Tim Geithner testifies to the House Financial Services committee: 2pm GMT / 10am EST
Mario Monti meets with Italian union leaders: from 2.30pm GMT / 3.30pm CET

In the debt markets, Greece will action 13-week bills, Spain will sell 12 and 18-month bonds, and Italy will auction four-year bonds.

8.00am: Good morning, and welcome to our rolling coverage of the eurozone debt crisis.

Europe’s two technocratic prime ministers will be busy today. In Rome, Mario Monti is holding crunch talks with unions over his proposals to reform Italy’s economy.

Meanwhile, Greece is moving closer to an election footing as Lucas Papademos’s government completes its last few tasks. That list includes the selection of a new finance minister, following Evangelos Venizelos’s resignation yesterday.

Greece is also gripped by the strike action that the country’s seamen began yesterday – ministers are due to hold talks with their union in an attempt to end the disruption.

We’re also expecting protests outside the Athens parliament this evening as the final pieces of legislation covering its new economic programme are approved by MPs.

And in the UK, the latest inflation data will be closely watched ahead of tomorrow’s Budget.