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Eurozone crisis live: Greek leader signs austerity pledge, as president gives up salary

• Reuters: EU may delay bailout
Eurozone shinks by 0.3%
Analyst predicts euro recession
Italian economy shrinks by 0.7%
President gives up €400k salary
Today’s agenda

1.35pm: According to Reuters, Germany, Finland and the Netherlands are leading the push to delay Greece’s bailout until April, even though the country must repay €14.5bn of maturing debt in March.

Their plan is for Greece to finalise its debt negotiation deal with its creditors (the Private Sector Involvement), which will trim €100bn off its debt pile. That would provide the resources to deal with March’s debt repayment.

Of course, private creditors might be less willing to take a haircut on their bonds if Europe hasn’t stumped up its portion of the deal. In that instance, the whole package would have to be rolled over to April – and the rest of the eurozone might pick up the bill in March.

Reuters explained:

This would mean we have to pay the €14.5bn on March 20, which would be a total waste,” said the euro zone source, who took part in discussions among deputy heads of euro zone finance ministries on Tuesday.

1.18pm: Just in – Reuters is reporting that European Officials are considering delaying Greece’s second bailout until April, after the general election.

Here’s the story, by Luke Baker and Jan Strupczewski

Euro zone finance officials are examining ways of delaying parts or even all of the second bailout programme for Greece while still avoiding a disorderly default, several EU sources said on Wednesday.

Delays could possibly last until after the country holds elections expected in April, they said.

While most of the elements of the package, which will total 130 billion euros, are in place, euro zone finance ministers are not satisfied that Greece’s political leaders are sufficiently committed to the deal, which requires Athens to make further spending cuts and introduce deeply unpopular labour reforms.

The euro has plunged by around a cent against the dollar on this report — hitting .306.

1.04pm: Greece is also caught up in another gripping international issue – the growing tensions between the West and Iran.

Iran has announced today that it has stopped oil exports to six EU counties — Netherlands, Greece, France, Portugal, Spain and Italy.

This is a tit-for-tat move in response to the EU’s decision to stop importing crude from Iran from July this year, because of concerns that Iran is developing a nuclear bomb.

Greece’s energy suppliers have moved swiftly to deny speculation that Greece’s oil tanks could run dry. It’s largest refiner, Hellenic Petroleum, insisted that it can find fresh supplies.

The EC says it has 120 days worth of oil on tap, so local shortages could probably be addressed.

Greece’s power situation is rather interesting, though. It can’t currently import electricity from Bulgaria because coal deliveries to some Bulgarian power stations were halted in the bad weather.

And, according to local reports, there are fears of gas shortages too – again, due to inclement weather.

natural gas company also on alert as shortages reported along supply network because of recent bad weather in #greece

— Diane Shugart (@dianalizia) February 15, 2012

12.47pm: Here’s the key line from the letter which New Democracy’s Antonis Samaras has signed and dispached to the Troika:

If Nea Demokratia wins the next election in Greece, we will remain committed to the Program’s objectives, targets and key policies as described in the MoU/MEFP.

(MoU = memorandum of understanding, MEFP = Memorandum of Economic and Financial Policies).

12.34pm: Reuters is snapping that New Democracy has released a statement officially confirming that Samaras has signed the austerity pledge (as Helena reported at 11.21am).

12.14pm: Greece’s president is giving up his salary, worth around €400,000 per year, in a sign of solidarity with the country’s citizens.

Karolos Papoulias’s decision came as he met with finance minister Evangelos Venizelos in Athens this lunchtime. Papoulias asked to be relieved of his salary “as a symbolic gesture when the Greek people were being called to make such sacrfices.”

Helena Smith explains:

Although the post is mostly ceremonial, Greek presidents are paid in the range of €400,000 a year – more than the salary of US president Barack Obama.

We believe this is the first time in the country’s history that a president has given up his salary.

11.52am: Europe’s patience may be wearing thin but as we noted earlier (11.18am) so is Greece.

Evangelos Venizelos, the finance minister, was in particularly bullish mood when he emerged from talks with the country’s head of state president Karolos Papoulias. Here’s his full quotes (via Helena Smith):

Our country is waging a battle of survival within the euro zone – a battle of social conhesion and national dignity. However we are in a peculiar situation becase we continually have new terms, new conditions. This is because, manifestly, there are now forces within Europe that are playing with fire because they believe the [loan agreement] will not be implemented … and who consequently have prepared and want Greece out of the euro zone.

This has to be understood here in Greece by all political and social forces. We have to rally so as not to give anyone the excuse or alibi to enforce such a scenaro, a frightening scenario not only for Greece but for the world economy.

Venizelos added that he told president Papoulias that Greece must choose between “unpleasant and even more unpleasant solutions.”

11.21am: Antonis Samaras – the leader of the centre-right New Democracy party – has committed himself in writing to the reform programme. That, of course, is one of the key demands from Greece’s intenational lenders.

However, he still wants the measures to be changed, to put more emphasis on economic growth

Helena Smith, our correspondent in Athens, can confirm that the letter, written in English, has just been translated into Greek. It is about to be sent to the country’s troika of creditors, the EU, ECB and IMF.

One of Samaras’s top advisers told Helena:

The letter has just gone. We have no problem expressing committment to a stabilisation progam. We are all for eliminating the deficit, controlling the debt and going on with the privatisation program things that right from the beginning we proposed.

It [the letter] makes very clear that we have full respect for the long-term objectives, targets and key policies of the programme.

However….. the adviser revealed that New Democracy still wants the plan tweaked.

We also said we should modify the plan to allow for prompt [economic] recovery. We don’t want to make recovery a top priority but we insist that it becomes an additional priority, that it be be applied in tandem with other policies to allow the economy to breath. Is this such an irrational, stubborn view when the [rescue] plan to date clearly hasn’t worked?”

As the programme currently stands, the adviser said, it was a “recipe for failure” plunging Greece into ever deeper recession:

It’s not because the objectives are wrong. From the beginning we agreed with them. But there is a missing ingredient.

After two years of austerity the country’s overall debt had jumped from 115% of GDP to 166% of GDP. That is proof that the programme had failed, argues New Democracy, which is widely tipped to win upcoming elections in April.

Samaras’s adviser continued:

Even if it was perfectly implemented the numbers didn’t add up. We are not saying that we are against austerity but we have to change the mix and allow for recovery.

We are feeling a little embarassed that again and again they want us to show our committment to the plan. When we say prioritize recovery we mean we want to discuss it with them, not do anything unilaterally. Even if they allowed us to do whatever we wanted to do we would still stick to the programme.

11.18am: Exciting developments in Athens — Greece’s finance minister has blasted Europe for “playing with fire” over his country’s future.

Evangelos Venizelos insisted that Greece will have solved the few outstanding issues in time for this afternoon’s conference call:

Venizelos told reporters that:

There are only a few remaining issues, which will be fully clarified by the time of the Eurogroup conference call at 6pm Greek time (4pm GMT).

According to Reuters, Venizelos said certain EU countries were now trying to shove Greece out of the eurozone altogether [an issue we touched on at 8.38am).

Sounds like Athens is preparing to face Brussels down….

11.11am: Larry Elliott, our economics editor, is attending the Bank of England press conference on the quarterly inflation report. Here’s Larry’s early take:

Mervyn King is happy to see inflation fall but still gloomy about outlook for UK. He says there are challenging times but expects slow recovery this year.

The Bank does not expect a double dip recession, but warns that the path of recovery will be slow and uncertain. That “zigzag” pattern of growth suggests there may be further quarters of negative growth.

King warns that a painful adjustment is still, and there are no easy answers. But the governor believes that the UK moving in the right direction, so is slightly less gloomy than previously.

While the biggest threat to UK is still crisis in the eurozone, other upside risks include the danger of an oil shock from Iran.

On inflation, the Bank raised its forecast for CPI in the medium-term (in two year’s time) to around 1.8%. That’s closer to its 2% target than previously.

You can see the full report here.

10.55am: Mervyn King, Bank of England governor, went on to warn that the eurozone crisis remains the biggest threat to the UK economy.

He predicted (at today’s Bank press conference) that it will be the top item on the agenda when the G20 meets in Mexico, but admitted that there is not much that anyone can do about a future eurozone disaster until it happens.

10.44am: Sir Mervyn King, governor of the Bank of England, has confirmed that Britain has drawn up contingency plans for a Greek default.

At a press conference to discuss the Bank of England’s new quarterly inflation report, King refused to go into details, telling reporters:

As you would expect, the government and the Bank together have been discussing a range of policy options and devising contingency plans.

The governor also warned that Britain’s GDP growth, and contraction, will probably fluctuate in 2012 due to the effect of the Jubilee Holiday (marking Queen Elizabeth’s 60 years on the throne).

So there’ll be two QE2′s on the governor’s agenda this year…..

King also warned savers not to expect interest rates to rise anytime soon. Raising borrowing costs would be a huge mistake, he argued:

It would turn a gradual recovery into a recession, with higher unemployment, and would cut the value of assets on which savers depend.

10.25am: Is the eurozone heading into recession? Howard Archer, economist at IHS Global Insight fears so. Here’s his response to this morning’s GDP data:

The Eurozone stuck one foot back through the recession door in the fourth quarter of 2011.

Despite some recent improved Eurozone surveys and evidence that Germany is returning to growth, we doubt that the Eurozone will be able to avoid further contraction in the first quarter and very possibly the second as well in the face of tighter credit conditions, a further tightening in fiscal policy in many countries, the ongoing pressures facing consumers (high and rising unemployment, and still squeezed purchasing power) and limited global growth.

Meanwhile, the Eurozone sovereign debt crisis is likely to continue to weigh down on confidence and fuel uncertainty, thereby holding back business investment.

10.17am: This table of quarterly GDP shows how the eurozone slowed during 2011, and finally began to contract.

Q1 2011: +0.8%
Q2 2011: +0.2%
Q3 2011: +0.1%
Q4 2011: – 0.3%

Previously, the eurozone economy had not contracted since the second quarter of 2009.

10.02am: It’s official – the eurozone shrank in the last three months of 2011, by 0.3%.

Eurostat also reported that the eurozone economy grew by just 0.7% during 2011 as a whole, as the debt crisis took hold.

There are some alarming differences between different members of the Eurozone, with Italy and the Netherlands now officially back in recession.

Here’s a summary of today’s data:

Germany – GDP fell by 0.2% in Q4
France – GDP grew by 0.2% in Q4
Italy – GDP fell by 0.7% in Q4.
The Netherlands – GDP fell by 0.7% in Q4.
Portugal – GDP fell by 1.3% in Q4

9.38am: UK unemployment data is out, showing another rise in the number of people out of work and claiming benefits.

The claimant count rose by 6,900 in January to 1.605 million, the highest level since January 2010.

The wide ILO measure found that the number of people officially unemployed was 2.671 million in the three months to December, up from 2.622 million in the previous quarter (but lower than the total in the three months to November).

Vicky Redwood of Capital Economics said the key point is that unemployment is still rising, and is likely to rise “much further” in the months ahead.

Another blow to the UK government? My colleague Andrew Sparrow will be tracking all the political reaction to the unemployment data in his Politics Live blog today.

9.25am: Reuters is reporting that Antonis Samaras will sign the letter promising to enforce Greece’s austerity measures.

It quotes a New Democracy source who said “the letter will be dispatched within the day”.

In time for tonight’s eurozone finance ministers meeting?

This may reassure German finance minister Wolfgang Schäuble, who told German radio this morning that he was very alarmed about whether Greek politicians would stick to the cutbacks.

Schäuble said:

When you look at the internal political discussions in Greece and the opinion polls, then you have to ask who will really guarantee after the elections – and I find that very alarming – that Greece continues to stand by what we are now agreeing with Greece.

Schäuble also pointed the finger at Athens political establishment for the country’s economic woes:

I am also not yet sure that all political parties in Greece are aware of their responsibility for the difficult situation their country is in.

9.12am: The Netherlands has also fallen back into recession. Like Italy, it shrank by 0.7% in the last three months of 2011, following a 0.4% contraction in Q3.

9.03am: Breaking — Italy has tumbled back into recession.

Italian GDP fell by 0.7% in the last quarter of 2011 , even worse than the 0.5% contraction expected by City analysts. It follows a 0.2% decline in the third quarter, so Italy has now been shrinking for six months.

8.52am: Profits at French bank BNP Paribas have been hit by the eurozone crisis. It reported this morning that net earnings halved in the last quarter of 2011, partly due to writedowns on its Greek bonds.

BNP Paribas has cut the value of its Greek sovereign bonds by 70% – in line with the haircut that will probably be taken by Athens’ creditors.

But at €765m, its earnings were better than City analysts had expected. There’s a good write-up on Businessweek.

8.38am: Today’s UK newspapers are in broad agreement – Greece is heading towards default, with Europe’s patience over its second bailout now all but exhausted.

As my colleagues Ian Traynor and Helena Smith wrote:

Among policymakers, there is a mounting sense of resignation that Greece is unable to meet its side of the bargain to facilitate the bailout, as well as a growing confidence that the eurozone is now in a much stronger position to weather a Greek default than when the crisis erupted two years ago….

…European exasperation has been fuelled by the consistent failure of Greek leaders to supply details on how a €325m funding gap is to be closed and by the same politicians, particularly the centre-right leader, Antonis Samaras, refusing to guarantee in writing that the deal cannot be revised following elections in April.

The Financial Times reports that there are divisions at the heart of Europe over whether to simply allow Greece to default:

A group of eurozone governments, particularly those that retain triple-A credit ratings, has lost faith Greece will ever deliver its end of the bargain. Hardline officials in Germany, the Netherlands and Finland are increasingly urging a Greek default.

“We are getting closer to default,” said a senior eurozone official. “Germany, Finland and the Netherlands are losing patience.”

In the Daily Telegraph, Ambrose Evans-Pritchard warned that the EU is forcing a “final catharsis” on Greece:

The country appears to be in a self-feeding downward spiral that is playing havoc with budget targets, leaving Greece with a Sisyphean task of ever deeper cuts.

8.16am: Just in from Italy — it is cutting its order for F-35 strike fighters by 40 planes, out of an original pledge to buy 130 of the jets.

As we flagged up yesterday, this is part of Mario Monti’s attempts to repair Italy’s budgets and maintain the confidence of the financial markets.

Defence minister Giampaolo Di Paola said the move was “coherent with our need to reduce spending”.

This makes Italy the latest in a series of countries to cut their orders for the next-generation, air-to-ground, radar-evading fighter plane. The Pentagon has trimmed its own order three times. In the new age of austerity, such expensive military hardware becomes harder to justify.

8.09am: German GDP fell by 0.2% in the last three months of 2011, according to its Federal Statistics body this morning.

Trade and private consumption both fell during the quarter, which might dent claims that Germany is immune from the eurozone crisis. However, the data was still slightly better than analysts had expected.

Christian Schulz of Berenberg Bank blamed the eurocrisis for hurting the German economy – retail sales and industrial production both suffered.

Arnd Schäfer of WestLB suggested that German consumers had cut back last November when the debt crisis was raging (that was the month in which the prime ministers of Greece and Italy were both replaced).

Economists are generally confident, though, that Germany will return to growth in this quarter – thus avoiding a technical recession.

8.02am: The surprising news this morning is that the French economy grew by 0.2% in the last three months of 2011, defying predictions that it would shrink by 0.2%. The figures have been warmly welcomed by finance minister Francois Baroin, who declared:

Each of the three main components of the economy — foreign trade, household consumption and investment — had a positive contribution in the last quarter of 2011.

This strengthens the government’s forecast for 0.5% percent (growth) this year.

Speaking of France, it appears that Nicolas Sarkozy has joined Twitter this morning, using @nicolassarkozy. Interesting timing – he’s expected to kick off his re-election bid tonight.

7.52am: There’s a busy morning ahead — with eurozone GDP, UK unemployment and the Bank of England’s quarterly inflation report all coming up. Here’s the agenda

Italian GDP for Q4 2011 – 9am GMT
UK unemployment data – 9.30am GMT
Eurozone GDP for Q4 2011 – 10am GMT / 11am CET
BoE quarterly inflation report – 10.30am
Eurozone finance ministers conference call – 5pm GMT

7.45am: Good morning, and welcome to our rolling coverage of the eurozone debt crisis.

Coming up today – economic data that will show whether the eurozone economy is now officially contracting. Data from Germany and France has already been released in the last hour – showing that the German economy shrank, but French GDP surprisingly increased.

Greece will still dominate today, even though eurogroup finance ministers have cancelled their planned meeting for this evening. Instead, they will just discuss the situation on the phone.

The meeting was ditched because Greece has not yet found the missing €325m in spending cuts, and Antonis Samaras of the New Democracy party has not signed a letter promising to implement the reforms. Will he sign today?

And even if he does, will that be enough?

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