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Eurozone crisis live: EU summit optimism tested by record unemployment

Eurozone unemployment hits new high
Investec: More Summit bickering
The key points from Monday’s summit
Today’s agenda

11.21am: The latest Greek retail sales data shows that consumer spending continued to take a dive late last year.

Sales by volume fell 8.9% year-on-year in November (details here), continuing a steady decline though 2011.

Platon Monokroussos, economist at Eurobank, told Reuters the data showed that private spending continued to contract as Greeks hunkered down in the face of the recession, adding that:

Increasing unemployment and austerity are likely to continue weighing on disposable incomes and consumer demand in the first months of 2012.

10.44am: Here’s a video clip of David Cameron explaining why he refused to join the fiscal compact, but dropped his opposition to the European court of justice being allowed to police the new rules.

Cameron said it was in Britain’s national interest for eurozone countries to “get on and sort out the mess that is the euro”. He also promised to take “appropriate action” if the new fiscal compact trampled on the single market.

Tory backbenchers aren’t placated, though. Mark Reckless MP told Sky News in the last few minutes that Cameron should hold an “in/out” referendum on Britain’s membership of the European Union.

Reckless also claimed that the European court of justice couldn’t be trusted to enforce the new fiscal rules.

10.29am: News in from Athens where Helena Smith, our correspondent, says Greeks have woken up to the first signs of a faint glimmer of hope.

Greek media are reporting that the long-awaited bond swap between Greece and its private sector creditors will almost certainly be concluded this week and, as one commentator enthused: “on very favourable terms for Greece. The interest rate, we are hearing, on the [new] bonds could be as low as 3%. This is very good news for our country and all of those who have so painstakingly worked on this deal.”

Lucas Papademos, who heads Athens’ interim coalition government, told Greeks at a post-midnight press conference in Brussels, that “everything will, and must, be finished by the end of the week,” referring to the bond swap, known formally as the Private Sector Involvement (PSI), and ongoing negotiations over a second bailout agreement for the country with visiting representatives from the EU, IMF and ECB officially known as the “troika”. That has also brought a sense of relief – not least because every Greek now versed in the minutiae of economics, is acutely aware that both are aimed at making Greece’s €350bn mountain of debt sustatinable.

In a nation as proud as Greece, the mass selling daily, Ta Nea, has highlighted the nascent sense of optimism with the headline “The No’s [Nein] killed the commissioner,” referring to the disapproval engendered by a German proposal that an EU commissioner, with veto powers over the Greek
budget, be installed in Athens.

For once the austerity weary nation feels it has won a battle on the frontline of its great economic war.

10.12am: Unemployment data for the whole eurozone has been released, and show that the jobless rate has hit its highest level since the euro was created, at 10.4%.

The number of jobless across the eurozone rose by 20,000 in December, taking the total up to 16.469 million, the eighth successive monthly rise.

Howard Archer of IHS Global Insight warned that the pattern is likely to continue:

Most labour markets are suffering, particularly in Greece, Portugal, Italy and Spain. And French unemployment is moving up worryingly appreciably.

As reported at 9.18am, German unemployment has dropped to its lowest rate in 20 years, while peripheral countries such as Italy are suffering rising unemployment.

9.51am: There’s an interesting tale on the front page of the Financial Times this morning, predicting that the European Central Bank may pump another trillion euros of cheap loans into the banking sector next month.

According to the FT, the €489bn of three-year loans made in December (which are credited with restoring market confidence and pushing down most bond yields), is just the start. Another auction is scheduled for 29 February, and euro banks could ask for twice as much.

“They could do another €1tn easily in February,” said one senior banker. “It could be way more than that if things get worse in the markets.”

€1tn in extra loans would certainly be a worrying sign, suggesting that the European financial system has hit a very sticky patch. A Reuters poll yesterday predicted that the ECB would lend around €325bn.

9.44am: More City reaction, this time from Paul Donovan of Swiss bank UBS. Donovan, like Investec’s Elisabeth Afseth, feels the summit made little progress (that’s via journalist Olly Barratt)

UBS’s Paul Donovan: ‘In line with most euro summits the details will be worked out later.’

— Olly Barratt (@ollybarratt) January 31, 2012

9.33am: David Cameron will make a statement to the House of Commons at 3.30pm today about yesterday’s EU summit.

As my colleague Andrew Sparrow points out in his Politics Live blog, the prime minister “has got some explaining to do” after dropping his objections to the eurozone countries using EU institutions to police their new fiscal union.

Conservative eurosceptics MPs are likely to give their leader a rough ride.

The Daily Mail has already put the boot in – comparing Cameron to John Major – and claiming that he was “sent like a naughty schoolboy to the back of the class” in the family photo….

…. and they may have a point. Cameron is the distant figure on the back row, far right (so to speak).

9.18am: Germany’s unemployment rate has fallen to a new post-unification low. But over in Italy, the unemployment rate has hit its highest level in at least eight years.

Data released in the last few minutes showed that the number of people out of work in Germany fell by a seasonally adjusted 34,000 to 2.85 million in January, a new 20-year low. That cuts the German unemployment rate to 6.7%.

Over the Alps, though, Italy’s unemployment rate has jumped to 8.9%, the highest since national statistics body Istat began tracking the data in January 2004.

This shouldn’t be a surprise. We’ve seen plenty of economic data recently showing that German business leaders are still quite optimistic about prospects in 2012, while consumer spending is holding up OK. In Italy, though, austerity measures are now kicking in and companies are already making cutbacks.

As Bloomberg points out:

Fiat SpA, Italy’s biggest manufacturer, shut down its Termini Imerese factory at the end of last year as part of a plan to reduce costs and improve productivity in Italy as sales in the country slump. The Turin-based company agreed with unions to pay about €21m to support early retirement for about 640 workers.

There was one crumb of comfort in the Italian data – the jobless rate for 15-24 year olds dropped to 31% in December from 31.2% in November.

9.08am: Eurozone countries will be barred from receiving financial help from the European Stability Mechanism unless they have already endorsed the fiscal compact. That is meant to encourage leaders to sign up quickly.

City analyst Gary Jenkins of Swordfish Research finds it somewhat ironic, though:

We may have the novel situation where countries are being provided with monies to not only pay for the normal running of government but also their fines for fiscal indiscipline.

8.59am: Elisabeth Afseth, analyst at Investec, despairs at the failure of European leaders to achieve more yesterday.

Afseth argued that rather than showing “common purpose and direction”, EU leaders treated us to another display of discord. Germany’s aborted proposal to impose a European commissioner on Greece, and France’s determination to launch a financial transaction tax on its own, left Europe looking fragmented. What a shame, she added, that they didn’t achieve real progress by agreeing to enlarge the ESM.

In a research note, Afseth wrote:

What we got yesterday – we got more bickering at the sideline, agreement on a largely irrelevant treaty while the issue of the size of the ESM/EFSF was left till March. They could have used the opportunity to boost the size of the rescue fund now, building on the more positive market sentiment of late and in the process increased the chance of getting additional support from the IMF.

I guess it could be described as a consistent approach to the crisis; a German focus on austerity and no agreement on anything else.

8.34am: If you’re catching up on events in Brussels yesterday, here are the key points from the summit:

25 countries endorsed the fiscal pact. They agreed to enshrine balanced budget legislation into their national law, with annual structural deficits capped at 0.5% of GDP. Transgressors face penalties of 0.1% of GDP, with fines being added to Europe’s bailout fund, the European Stability Mechanism (ESM). The UK and the Czech Republic declined to sign.

The new Treaty on Stability, Coordination and Governance (SCG) will come into force once it has been passed by the parliaments of at least 12 countries that use the euro.

• Euro area leaders confirmed that they will reassess whether the ESM, and its forerunner the European Financial Stability Facility (EFSF), have sufficient resource. They still plan to bring the ESM into force in July 2012.

EU leaders agreed to a new drive to stimulate growth and create employment across the region, particularly for young people. Unused development funds will be used to create jobs. They also vowed to help small and medium enterprises to get access to credit, and to use the Single Market as a key driver for Europe’s economic growth.

• Leaders also opposed the suggestion that a ‘commissioner’ should be installed in Greece to ovesee its budget decisions. French president Nicolas Sarkozy warned that this would be undemocratic, as “the recovery process in Greece can only be enacted by the Greeks themselves.”

8.13am: European stock markets have opened higher this morning, but British banks are still under pressure.

The FTSE 100 has risen 48 points to 5719 (up 0.8%). with traders saying there is some relief that progress was made in Brussels yesterday, and optimism over the Greek debt talks.

ARM Holdings (+6) and BSkyB (+2.9%) are leading the risers, after posting decent results this morning. But Lloyds (-2.7%), RBS (-1.2%) and Barclays (-0.5%) are among the biggest fallers though, defying a recovery in other European financial stocks.

Across Europe, Italy’s FTSE MIB is 1.1% higher, Germany DAX is up 0.7% and the French CAC gained 1%.

7.55am: On the economic front, the latest jobless statistics will show the state of the employment markets in Germany and Italy. There’s also a couple of debt auctions to watch out for. Here’s an agenda:

• German unemployment data for January – 9am GMT / 10am CET
• Italian unemployment data for December – 9am GMT / 10am CET
• Eurozone unemployment data for December – 9am GMT / 10am CET
• Belgium auctions short-term debt – 10am GMT
• Hungary auctions short-term debt – morning….

+ Talks continue in Greece over its debt restructuring

7.45am: Good morning all, and welcome to another day of rolling coverage of the eurozone crisis.

Today we’ll be digesting the impact of yesterday’s EU summit. The fiscal compact is agreed (although the UK and Czech Republic are both refusing to sign up), and leaders have agreed that the European Stability Mechanism will come into effect from July.

We’ll be finding out whether economists, City analysts and political experts believe the decisions taken in Brussels will help Europe tackle the crisis. What do you think?…

…And how much trouble is David Cameron in with his eurosceptic backbenchers, having agreed that the European court of justice can police the fiscal compact?

As usual, we’ll be tracking events in Greece (where talks between the government and its creditors are still continuing), and Portugal. © 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