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Eurozone crisis live: IMF launches $500bn fund-raising drive

• €1tn funding shortfall warning
• David Cameron lays out UK position
• Greek debt restructuring talks resume
• UK unemployment hits 17-year high
• Live-blogging now: Graeme Wearden
Today’s agenda

3.40pm: The euro is hanging on above the .28 mark against the dollar this afternoon, with the IMF’s plans giving the currency some support.

David Song, currency analyst at DailyFX, predicted that the euro will soon fall back, as events in Athens rumble on:

We maintain a bearish outlook for the EUR/USD as European policy makers struggle to stem the heightening risk for contagion.

3.25pm: Bill Gross, founder of bond trading giant Pimco, isn’t impressed by the IMF’s plans to swell its coffers by 0bn.

Gross tweeted that the plan, and the various central bank interventions, are fuelling the rally in gold, equities and bonds.

@Pimco: Gross: 500 bln proposl fr IMF. 2 trillion check writing reality fr centrl banks last 3 mons. Any wonder why stocks, gold, even bonds go up?

3.12pm: A depressing tale of austerity, job cuts and economic misery from our Ireland correspondent, Henry McDonald.

Henry reports that Northern Ireland’s finance minister Sammy Wilson has told trade unions in the province to “shut up” over fears about job losses, and criticised the union’s negative approach to the local economy.

On Tuesday the Irish Congress of Trade Unions claimed that 26,000 jobs could be lost in the Northern Ireland public sector as part of the Coalition’s cost cutting, austerity programme over the next five years.

But Wilson denounced these projections saying that the predictions undermined efforts to build confidence in the economy.

Speaking on Radio Ulster, the Democratic Unionist minister said: “If they haven’t anything positive to say, then they should shut up.”

Wilson added:

Instead of engaging in rhetoric which damages the economy, I have been working as finance minister to try and mitigate the impact of decisions made in Westminster. We have been doing the thing responsibly, not going out trying to make the situation worse as the trade unions have been.

This kind of negative talk about what might happen undermines all the good work people are doing across Northern Ireland.

At least no Westminster politicians have told union leaders to ‘shut it’ since George Osborne’s fiscal plan came into effect. Ed Miliband must be tempted, though, following recent developments…..

2.47pm: The news that the IMF is asking for 0bn of new funding came as talks restarted in Athens between the Greek government and representative of its creditors.

Prime minister Lucas Papademos and Charles Dallara, head of the Institute of Internation Finance (IIF), resumed five days after they were unexpectedly called off for both sides “to reflect” on the stakes at hand.

Senior government sources says “all the variables are being considered”. One official, briefed on the negotiations, told our correspondent Helena Smith that:

After a temporary pause during which the parties reflected on the specifics, coupons being the most visible aspect but not the only one, we are back [at the table].

For non bond-experts, the ‘coupon’ is effectively the interest payment on a loan, paid at regular intervals until a bond matures. Greece’s creditors has been unwilling to see their coupons cut too low.

Helena continues:

Hopes are high for the negotiations to be wrapped up in the coming days, possibly even as early as Friday but as Greek officials are at pains to point out, “we are dealing with something very sensisitve, very delicate.”

It turns out that Papademos, for years on the other side of the negotiating table when he was vice president of the European Central Bank, speaks to German Chancellor Angela Merkel and French president Nicholas Sarkozy “almost every day and sometimes several times a day” about the bond-swap deal.

Senior officials at the Greek finance ministry are also in Washington for talks with the IMF about the accord. If a deal isn’t clinched (and a lot of high stakes bargaining may stall progress yet), Greece has been told that a second package of rescue funds worth €130bn euro won’t be coming its way – short hand for saying that the country which has to redeem €14.5bn in maturing debt on March 20 will instead face the ugly prospect of a disorderly default with unforeseen results for the eurozone.

2.34pm: Just in, a statement from the International Monetary Fund:

Based on staff’s estimate of global potential financing needs of about trillion in the coming years, the Fund would aim to raise up to 0 billion in additional lending resources. This total includes the recent European commitment of about 0 billion in increased Fund resources.

At this preliminary stage, we are exploring options on funding and will have no further comment until the necessary consultations with the Fund’s membership have been completed.

2.29pm: David Cameron has asked about whether Britain would contribute more funding to the IMF.

The PM responded that Britain was a “founding member” and a “great supporter of the IMF”, and then pointed to last November’s Cannes summit. He said the UK had three requirements before it would raise its IMF contributions:

We believe the IMF should only lend to countries, not to currencies. We would only act in partnership with others…. and above all we want to see that the eurozone is standing behind its own currency.

2.24pm: Mario Monti and David Cameron are holding a joint press conference now, following talks in London.

Monti is telling the media that he and Cameron are in agreement about many aspects of Europe.

The Italian PM explained that “We fundamentally share the view with the British PM and the British government that Europe should first exploit the assets it has”, rather than bring in new powers.

Monti cited the existing single market as one of Europe’s great assets, and called for “more credible enforcement of the existing market rules.”

The press conference is live on Sky News now.

2.06pm: Time for a round-up.

The International Monetary Fund has begun discussions over a massive injection of fresh funding to address the financial crisis. The IMF is understood to be aiming to raise as much as 0bn from G20 countries and emerging nations including China, India, Brazil and Russia.

Britain could be asked to contribute as much as £19bn to the new fund. Downing Street officials say the UK will consider any proposal, but would want to see signs that Europe has taken firm steps to fix its problems first.

British borrowing costs hit a new record low this morning. The yield on UK 10-year gilts traded as low as 1.919%.

UK unemployment, though, rose to 2.68m. The number of days lost to strike action also jumped to its highest level since 1989.

Banks continued to hoard cash overnight at the European Central Bank. Overnight deposits at the ECB jumped to €528.2bn

1.38pm: The UK government has confirmed that it will insist that the eurozone does more to shore up the euro before it would agree to increase its IMF contributions:

As my colleague Patrick Wintour reports from Westminster:

The government has said it will demand improvements in European Union efforts to sort out its currency before it can agree to an imminent request from the International Monetary Fund for extra UK funds that is likely to reach as high as £19bn.

The £19bn figure is based on Britain’s current IMF quota, where it contributes 4.51% of all funding.

[by my maths, the UK contribution would be closer to £18bn -- probably depends exactly what exchange rate you use.]

As things stand, Britain has pledged €40bn to the IMF, but €30bn has already been committed. So anything above €10bn would need parliamentary approval.

Patrick confirms that there would probably be a backbench Tory rebellion, and explains that Labour coudl easily oppose it too:

Ed Balls, the shadow chancellor, has said Labour will vote against extra cash if there is no serious sign that the European Union, specifically through further interventions by the European Central Bank, is taking action to strengthen the euro. Balls would also like to see a shift in broader European economic policy so there is less emphasis on austerity and more on securing growth.

1.16pm: Further evidence that the eurozone saga is as much a banking as a sovereign debt crisis: Commerzbank, Germany’s second-largest bank, may need as much as €6bn fresh capital – and faces a downgrade from Moody’s rating agency.

My colleague David Gow explains:

Die Welt is reporting that Commerz – which until now faced raising €5.3bn “only” – is more exposed to any larger-than-planned “haircut” on Greek debt.

The bank is already 25% in state hands and is seeking desperate emergency measures to avoid outright nationalisation.

The story is also further proof that Germany is not and cannot remain aloof from the crisis elsewhere: it downgraded its growth forecast to a measly 0.7% this morning, with economy minister Philipp Roessler saying the economy now relies on domestic demand to keep going. German consumers to the rescue? Now there’s a change…

1.08pm: This Reuters story has some good detail about the IMF’s plans.

As well as up to 0bn of new funding….

The IMF also estimated there a trillion global financing gap over the next two years if global economic conditions worsened considerably.

The world’s largest economies need to roll over or repay an estimated .6tn this year – so a large funding gap is plausable, if the economic crisis deepens.

12.45pm: OK, the situation regarding the International Monetary Fund’s call for extra resources is becoming clearer (based on the various sources leaking across Europe).

The plan appears to be that the IMF to raise an extra 0bn to 0bn in funding, which would take its resources up from 5bn to almost trillion.

As we postulated earlier (10.49am) that includes the €150bn (2bn) already committed by the eurozone (and would also include €50bn from the rest of the EU (despite Britain declining to make its £25bn contribution last month)

Incidentally, Bloomberg has tweaked its original story (which suggested a tn boost). Getting just 0bn will be hard enough.

12.20pm: UK gilts hit a new record high in the last few minutes, as investors continues to flock into British debt.

The yield (or interest rate) on the 10-year UK bond dropped to an alltime low of 1.919%*.

Other “safe havens” have also seen their bond yields fall – with US 10-year Treasury bonds yielding 1.84% and German 10-year bunds just 1.79% (so George Osborne can’t repeat his line about UK borrowing costs falling below Germany’s).

* – that’s based on data from the Reuters terminal.

12.05pm: Germany and Portugal both enjoyed some success in the bond markets today.

Portugal sold almost €2.5bn of short-term bonds at an average yield (interest rate) of 4.985%, which is a drop from 5.9% from the previous auction (all the way back in April 2011, before it applied for financial support).

The results should be a relief in Lisbon, after Portugal’s credit rating was cut to junk last Friday.

Germany also saw its borrowing costs fall when it sold €3.44bn of two-year bonds. The yield dropped to just 0.17%, down from 0.29%.

However, the usual caution applies — the European Central Bank’s LTRO operation (almost €500bn of cheap loans), is meant to encourage banks to buy eurozone debt. Without that liquidity, yields would be somewhat higher.

11.56am: The question of IMF funding was raised at the daily ‘lobby briefing’ at parliament today (where the government takes questions from political journalists).

A Number 10 spokesperson told the briefing that George Osborne would put any “decent request” from the IMF for increased contributions to parliament.

That’s via my colleague Andrew Sparrow’s Politics Live blog, where he’ll be tracking all the key political developments today.

Could Osborne get a vote though parliament? Many of his own backbenchers are unhappy about putting more funds into Europe – saying the eurozone must fix its own problems. The Labour Party’s position on this will be crucial.

11.02am: You can see the full IMF quota list here. The largest supporters are the US (17.7%), Japan (6.5%), Germany (6.1%), the United Kingdom (4.51%) and France (4.51%) based on a somewhat dated calculation of the relative size of their economies).

This time, though, the IMF is thought to be planning to tap emerging nations — such as China, Brazil, Russia, and India.

That would get around America’s opposition to a funding increase. Except that any developing nation stumping up to rescue profligate Europe is going to expect something in return, such as more influence within the Fund. The days of watching Europe and America carve up the leadership of the IMF would have to end.

10.49am: Some quick thoughts on this morning’s ” trilion” IMF funding boost report.

This eye-catching figure may well includes the €150bn (2bn) which eurozone countries agreed in December to lend to the IMF (so it could lend it back to them).

At present, the IMF has around 5bn at its disposal to use in rescue packages (around half of its total resources). So even if it hopes to get the pot up to trillion (not a whole extra trillion dollars), the IMF’s members would still be asked for a bare minimum of around 0bn (corrected to fix basic maths blunder)

And that will not be an easy sell.

Last October, US Treasury secretary Tim Geithner said he opposed expanding the IMF’s firepower, saying that the body already has “very substantial resources that are uncommitted”.

Under the IMF’s quota system, the US would be asked to provide 17.7% of new funding.

Although the fund is expected to target developing nations such as China and Brazil, Christine Lagarde would still face an almighty struggle to get a funding increase through without America on side.

Last month, two US senators even threatened to bring in legislation to prevent the US increasing its contribution.

10.22am: Breaking news — the International Monetary Fund is reportedly planning a ” trillion boost” to its resources.

Bloomberg is quoting an unnamed official from “a Group of 20 nation”, who says the increased funding would be used to ‘save the eurozone’. However, any deal would not be agreed until the EU had agreed its new ‘fiscal compact’.

The report, released in the last couple of minutes, send the euro and shares rallying — despite this being a single report from an unnamed official.

Last night, of course, Christine Lagarde announced that the IMF was ready to start looking for more funding. She said:

I welcome the recognition of the importance of ensuring adequate Fund firepower to help defuse the current global economic weaknesses and regional challenges. To this end, Fund management and staff will explore options for increasing the Fund’s firepower, subject to adequate safeguards.

Whether the IMF’s members will be prepared to offer more funding, though, is unclear…

10.02am: The Czech central bank governor has just admitted that he is planning for the break-up of the eurozone, just in case.

Speaking in Vienna, Miroslav Singer said he was considering the possibility that the euro might survive the crisis, but insisted that the Czech Republic would not need a “big plan”. He said:

We are thinking about what can happen, but I don’t believe – given our capital and foreign trade position, that we need to have some big plan.

You could argue that it would be remiss of a central bank governor not to plan for the break-up of the eurozone, but I suspect his comments won’t go down too well in certain quarters.

Singer also predicted that Austria would achieve “growth of around zero this year” – clearly he comes from the ‘glass half-full’ school of economics.

9.45am: City analysts have been crunching through the UK unemployment data (see 9.34am). They’re surprised that the claimant count didn’t show a sharper rise in people signing on for work.

But if the month’s picture is murky, the long-term trend is clear – higher unemployment through this year as the economic struggles continues,.

As Howard Archer of IHS Global Insight put it:

The latest labour market data is mixed, but overall they largely portray a troubling jobs situation and further marked deterioration seems very much on the cards given weakened economic activity, low business confidence and a number of recent surveys pointing to companies scaling back their employment plans.

Here’s some more reaction (hat-tip Reuters):

Brian Hilliard of Société Générale:

It’s very surprising the claimant count has not only been revised down (for
November) but hardly risen at all. It seems inevitable that unemployment is going to rise quite strongly.

There is something strange going on and it’s a genuine puzzle why the count is so low.

Ross Walker of RBS:

Overall, there’s a slightly softer feel to these figures. The labour market is struggling and forward-looking indicators such as vacancies and hiring intentions suggest it’s going to be rocky in the first half of this year.

The fall in full-time employment is the key figure and you’ve got a bit of an offset from part-time workers, but the underlying trend just looks a little bit

And Joel Hills of Sky News has spotted an interesting statistic that shows how industrial unrest is growing:

@joelhillssky: 988,000 working days lost due to strike action in November – highest since 1989. A sign of things to come.

And with that, I’m handing the keyboard over to my colleague Graeme Wearden

9.34am: And here are the UK unemployment numbers, a mixed bag as usual. The number of people out of work rose 118,000 in the three months to November to 2.685 million, a 17-year high. The jobless rate rose to 8.4% of the workforce. But in December claimant counts rose by 1,200 – less than the 10,000 expected by economists.

9.08am: It’s not all about Greece, of course, and over in Hungary the prime minister, Viktor Orbán, is said to be willing to negotiate with the European Union in the dispute over new laws which the EU says breaches its treaties.

The battle between Brussels and Budapest intensified on Tuesday when the EU’s executive branch began legal proceedings to overturn the measures.

The German newspaper Bild quotes the Hungarian PM as saying his government is “open and ready to discuss all problems the EU commission brings to us on the basis of serious arguments”.

He said he was willing to accommodate demands made by the EU on the independence of Hungary’s central bank:

Now it is just a matter of whether the financial council should be increased. If the EU has problems with that, we will willingly accommodate the demands. Even if it is to the detriment of the central bank.

Hungary continues to seek aid from the EU and the International Monetary Fund.

8.28am: The relentless rise of overnight deposits at the ECB continues apace, with yet another new peak of €528.2bn, up from €502bn.

New records have been set almost daily in the weeks since the ECB pumped almost €500bn of cheap loans into the financial system in an attemp, so far unsuccessful, to avert a new credit crunch.

As my colleague Graeme Wearden pointed out on Tuesday, the European Central Bank has denied that the banks who took these loans are now simply lending the money back to the central bank. However, the data is a sign of unease in the financial system, with banks clearly happier to leave their excess capital in the ECB’s vaults (where it will attract a very low interest rate) rather than engaging in the risky activity of lending to each other or to the wider economy.

8.18am: Trading is under way in London equities and the FTSE 100 is currently trading around 22 points lower, or 0.4%, at 5671.

8.18am: According to the New York Times, Greek prime minister Lucas Papademos is considering legislation to force the country’s creditors to take losses on their holdings if no agreement can be reached.

In what the NYT called “a wide-ranging, 90-minute conversation” – his first with a newspaper since he came to office in November – Papademos also called on Greek politicians to pass the economic measures demanded by Greece’s foreign lenders in exchange for bailout aid, saying vested interests with political ties had helped to block the changes needed to revive the country’s rigid and moribund economy.

Papademos said that if Greece did not receive 100% participation in a program in which bondholders would voluntarily write down 0bn from Greece’s 0bn debt, the country would consider passing a law to require the holdouts to take losses.

“It is something that has to be considered in the light of expectations about the degree of the participation to be achieved,” he said.

“It cannot be excluded. It is contingent on the percentage.”

As we said earlier, it’s a game of brinkmanship.

8.01am: Garvey highlights the tricky issue of where the ECB, which holds about 18% of Greek government bonds, would sit in this scenario.

The European central bank “is very quiet on this front ,” says Garvey, “but watch this space carefully as any haircut on ECB holdings could have an adverse effect on their appetite for future SMP [the ECB's Securities Markets Programme] intervention. In our opinion the ECB should share in the haircut, but probably won’t due to likely negative implications for the SMP programme.”

7.52am: And Padhraic Garvey at ING points out that the 68% haircut is significantly above the 50% that was under consideration (and a multiple of the 21% haircut agreed as part of the very first restructuring deal). The deal would be “a huge hit” for investors, he says:

The big question is how this can be a truly voluntary deal. The size of the haircut under consideration makes free-riding the deal worth the risk, in the
hope that those bonds that don’t take part in the restructuring get redeemed at par (which must be the case if this deal is really voluntary).

The latest twist on this is the notion that if enough bond holders take part in the voluntary restructuring, then the legal conditions underlying the bond could be changed so that an effective collective action clause is triggered.

This would make the restructuring compulsory, and would end the free rider annoyance. It would then trigger CDS, as it would have to be classed as a credit event, which would make eminent sense given the size of the haircut, and in our opinion would not be a huge problem for the market with a
net notional €4bn outstanding.

7.43am: Here’s more, again from Bloomberg, on Fitch’s view of a likely Greek default.

“The country is insolvent and probably won’t be able to honor a bond payment in March, Fitch Ratings Managing Director Edward Parker said on Tuesday.

Greece is unlikely to be able to honour a 20 March bond payment of €14.5bn, according to Parker, and efforts to arrange a private sector deal on how to handle the country’s obligations would constitute a default, he said.”

7.40am: Some early reaction to reports of the Greek deal from Gary Jenkins at Swordfish.

Let’s start off with the Bloomberg report that Greece is close to a deal with regard to the PSI debt restructuring which will result in a write down of some 68%. Of course “close” does not mean ‘signed, sealed and delivered’ so I am sure we are all waiting for confirmation from the IIF and the Greek government before breathing a big sigh of relief.

The exact details of any agreement will also be very interesting to read and not only from a Greek debt perspective. The contagion aspect of this deal has not gone away and no doubt there are some investors who are concerned that if the economic situation in certain countries deteriorates then the Greek deal could be used as a template for others.

And if I was a Portuguese politician I might be looking at the large write off of Greek debt and thinking that I could do with some of that. Still, anything that reduces the risk of a Greek disorderly default has to be good news in the short term.

7.38am: Here’s today’s agenda:

• Greece’s debt talks resume

• Prime minister David Cameron meets Italian prime minister Mario Monti in London to discuss the eurozone crisis (3pm)

• Debts auctions from Portugal and Germany

• UK unemployment (9.30am)

• US producer price index and industrial production (1.30pm)

• Goldman Sachs fourth-quarter figures

7.37am: And there’s more gloom on the global economy, this time from the World Bank, which has slashed its growth forecasts and warned that the crisis in the eurozone will lead to a sharp slowdown in growth in rich and poor countries this year and could spiral into a rerun of the 2008-09 recession.

The Washington-based institution said the world had “entered a very difficult phase characterised by significant downside risks and fragility”. The bank lowered its forecast for global growth in 2012 from 3.4% to 2.5% but said governments should be preparing for a downturn as bad as that which followed the collapse of Lehman Brothers in 2008.

“An escalation of the crisis would spare no one,” said Andrew Burns, manager of global macroeconomics at the World Bank and the report’s author.

7.36am: In overnight news, a major shock stateside with the resignation of Jerry Yang, the 43-year-old co-founder of Yahoo. He has quit his position on the company’s board after 16 years, including his reign as chief executive between June 2007 and January 2009 – a reign that included disastrous decision – from Yahoo shareholders’ point of view – to reject a .6bn (£29.1bn) takeover offer from Microsoft in February 2008. Yahoo’s now worth around bn.

7.33am: Bloomberg quotes Bruce Richards, a hedge fund manager on the creditors’ committee:

“I’m highly confident the deal will get done,” said Richards, chief executive officer of New York-based Marathon Asset Management.

The optimism gave a lift to shares across Asia this morning but there are plenty of unanswered questions and the markets will believe it when they see it. Ratings agency Fitch has said that Greece is certain to default and that , even if a deal can be thrashed out, it may still be regarded as a default.

European equity markets are being called lower, with spreadbetter IG Index expecting the FTSE 100 to open around 20 points lower.

7.30am: Good morning and welcome to another day of our rolling coverage of the Eurozone debt crisis.

All eyes are on Greece today, where private holders of Greek bonds resume talks with the government on debt restructuring. The Institute of International Finance, which represents private creditors, will be thrashing out just how much of a hit – “haircut” – its members must take if the restructuring is to go through.

It’s a game of brinkmanship but there are suggestions this morning that a deal may be close. According to a Bloomberg report, the debt-laden nation is nearing a deal with private creditors that would give them cash and securities with a market value of about 32 cents per euro of government debt. © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds