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Eurozone crisis live: Italy back in recession as Greece default fears grow

Italian economy shrinks by 0.7%
German GDP falls 0.2% in last quarter…
… but France expands by 0.2%
Today’s agenda

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.

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 2012.

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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