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Eurozone crisis live: Barroso salutes Greece’s courage as markets fall

European Commission president calls for bailout to be agreed
Portugal’s unemployment rate hits 14%
• Spat between Greece and Germany alarms the City
Why stock markets could soon wobble
Moody’s may downgrade 114 European banks
Broken traffic lights unmended in Athens

3.20pm: This won’t please Christine Lagarde. A senior US official has rejected the idea of increasing contributions to the International Monetary Fund, and inisted that Europe has got the resources to fix the crisis.

Lael Brainard, Treasury undersecretary, told the Senate banking committee in Washington that Europe needs to do more to address the risks of the crisis.

In wrritten testimony, Brainard said:

The challenge Europe faces is within the capacity of the Europeans to manage and the administration has been clear with our international partners that we are not seeking additional funding for the IMF (International Monetary Fund).

More IMF resources “cannot substitute for a strong and credible European
firewall and response,” Brainard added.

Lagarde launched a pitch for an extra 0bn of funding a month ago. But there has been little support yet – the UK said that it might take part within a G20 package, but that would need parliamentary approval.

2.59pm: If you’re interested in the machinations of debt negotiations (and I know many of you are), you must check out this piece on Reuters:

Default experts: the Greek sovereign debt gods

It explains what happens when countries default, and points out that the process is really rather murky. As professor Emilios Avgouleas of the University of Edinburgh says:

(It’s a) chaotic structure (for a) process that is one of life and death for whole nations.

The history of modern debt renegotiations can be traced back to 1907 and the second Hague Convention, which outlawed countries from waging war on each other over unpaid loans (The Limitation of Employment of Force for Recovery of Contract Debts).

Before that, countries would turn to their armed forces, as an insolvent Mexico learned in 1861. It defaulted, and then was invaded by France.

2.13pm: The president of the European Commission has offered Greece an olive branch today, praising the “courage” that they have shown in recent months.

Jose Manuel Barroso struck a concilliatory tone in the European Parliament today. Rather than lambast Athens, he urged European leaders to accept Greece’s undertakings, and give it the second bailout.

Barroso told MEPs that:

I would like to salute the courage of the Greek government and the Greek people in these very demanding, challenging times.

And I would hope that the member states, the members of the European Union will accept the commitments given by Greece.

There was no suggestion from Barroso that Europe would be better off without Greece, or by postponing the bailout.

The comments after Holland’s Jan Kees de Jager became the first finance minister to break cover and officially call for the bailout to be delayed. In an interview with Dutch newspaper Financieele Dagblad, De Jager argued that Europe should wait until Greece has held a general election, then it knows exactly who it is dealing with:

It would be preferable to wait until after the elections. They we could negotiate the commitments with the new government.

1.39pm: Encouraging economic news from America – the latest unemployment data shows that the number of new people signing on for unemployment benefit has fallen to its lowest level in almost four years.

Initial jobless claims (a closely watched piece of economic data) fell by 13,000 last week to 348,000. This is the third weekly drop in a row, and will encourage optimism that the US economic recovery is gathering pace.

Stark contrast with Portugal, whose unemployment rate hit 14% today. While America was pursuing a stimulus package that delivered 0.6% GDP growth in the last quarter, Lisbon was cutting back.

1.17pm: A UK foreign office minister has called for a solution to the Greek crisis that does not end up “utterly destroying” the country.

Conservative peer Lord Howell of Guildford made the comments as the House of Lords began a debate on the eurozone debt crisis.

Lord Howell told Britain’s upper house of parliament that the crisis was having a “chilling effect” on the global economy. Opening the debate, he said:

It is in Britain’s clear immediate interest to see our neighbours’ problems sorted out, notably the present eurozone tangles.

“Tangles” may be something of a British understatement…. He continued:

These are having a chilling effect not just on the eurozone, but also on our own economy and on the global economy, including even the great new markets of the emerging world on which we increasingly depend.

Quotes via the Press Association.

Lord Howell also called for a bonfire of red tape across the European Union to bost competitiveness. That’s a theme that David Cameron explored at the last EU summit.

12.35pm: The euro has continued to lose ground today, hitting a new three-week low against the US dollar of .2975 in the last few minutes.

European stock markets have failed to claw back their early losses, with the FTSE 100 down 46 points at 5845.

Stock markets on both sides of the Atlantic have rallied strongly in the past few months. The FTSE 100, for instance, only broke through the 5,000 mark in October.

However, share volumes have been surprisingly low. This graph:

…shows the number of shares changing hands on the S&P 500, going back to 2000. According to Louise Cooper of BGC Partners, the recent drop in volumes is a sign that stock markets may soon take a nasty tumble.

She tells clients today that:

The chart showing the volume traded in FTSE 100 shares looks very similar to that above, with a huge drop off in volumes in 2012 and less than a quarter of the volumes traded since pre-crisis. Both the DAX and CAC have also experienced light trading year to date suggesting little conviction to the rally.

Volatility in the US and European equity markets has fallen a long way since the fearful times of Autumn last year, but has been increasing recently, suggesting concern is coming back.

So what is the conclusion? I think there is a real chance now that Greece does suffer a hard and messy default and that financial markets could suffer a serious wobble if it occurs.

11.55am: Last Sunday’s riots continue to cause chaos in Athens, Helena Smith reports:

It turns out that practically every single traffic light in central Athens was destroyed in the orgy of violence that erupted during parliament’s dramatic vote on the loan deal.

Some 200 traffic wardens have been rushed down town to bring order to the roads . But four days later traffic chaos still reigns supreme. Apparently, the cash-strapped transport ministry doesn’t have the funds to replace the lights.

Here’s a picture of Athens commuters standing around one vandalised traffic light, on Tuesday.

11.35am: Portugal continues to be buffetted from two sides today – its economy is weakening as austerity takes hold, and economists fear that it will be dragged deeper into the crisis by Greece.

First the economics: The Portuguese unemployment rate jumped to 14% in the last three months of 2011, up from 12.4% in the previous three months. That’s the highest rate since the 1980s.

Portugal is less than a year into a three-year fiscal restructuring plan agreed with the IMFG/EU/ECB Troika, which includes tax rises for most workers, and salary and bonus cuts for civil servants. In return, Portugal gets a €78bn bailout.

This has already helped to cut economic growth – data this week showed GDP fell by 1.3% in the final three months of 2011.

That brings us onto the Greek connection. Martin Koehring, economist with The Economist Intelligence Unit, argues today that:

Although the risk of contagion from Greece to the rest of the euro zone has indeed fallen during the past year (for example, thanks to ECB intervention, banks’ own deleveraging policies, progress in Italy and Ireland) there are still major risks. Allowing Greece to default would still cause major losses among European banks and could raise fears among investors that Portugal could be next, thus raising the need for further bail-outs for Portugal, and potentially the other highly indebted countries too. Allowing Greece to exit the euro could have even more dramatic consequences

It’s worth remembering that Portugal has been hitting the targets set by the troika. But its bonds are trading at such distressed levels that it is hard to believe it could return to the international markets soon.

11.16am: The prospect of an enhanced troika presence in Athens – to ensure implementation of reforms – is also stoking uproar in Greece today.

Public anger against the International Monetary Fund, the EU and the European Central Bank is already high. Helena Smith points out that the Troika officials have been unable to leave their own hotel – the Hilton – via the front door for the last month because of the mass of diehard leftists who daily protest outside.

If more Troika representives appear in Athens, tensions could escalate further:

“My great fear is that they are turning Greece into a communist state,” said the far-right Karatzaferis newspaper, referring to the rise and rise of the left on the back of the opposition whipped up over EU/IMF policies. “I worry about what will happen after elections in April.”

11.05am: In Greece today, finance minister Evangelos Venizelos is attempting to rally support for the controversial rescue package from political leaders.

Venizelos is insisting that this support is “absolutely vital” if EU leaders are to be persuaded that Greece is actually capable of enforcing the cost-cutting laid out in the draconian package.

It’s a big ask, warns Helena Smith, our Athens correspondent. With the exception of George Papandreou, the socialist Pasok leader and Antonis Samaras the conservative New Democracy leader – the coalition government’s main supporters – opposition to this latest round of austerity is at an all-time high.

Helena reports:

Bracing himself, Venizelos began by meeting Dora Bakoyiannis, the former foreign minister who heads the small centrist Democratic Alliance party and is also a supporter of the measures.

“The message from Greece must be clear. The corrective changes will happen. Greece is determined to stay in the eurozone,” Bakoyiannis said. “We expect Europe to show respect to the Greek people and at the same time assure that sacrifices will not go lost.”

But his subsequent meeting with Georgios Karatzaferis, head of the populist Laos and the government’s junior party is unlikely to be as easy. Karatzaferis lambasted the loan agreement this morning as being “essentially unenforceable.”

10.51am: The cost of insuring European government debt against default has risen this morning, as investors calculated that there was a greater risk that the euro crisis will end messily.

Italian five-year credit default swaps [a contract that pays out if a government debt defaults] rose 26 basis points on the day to 445 bps, according to data from Markit. This means it costs €445,000 per year to insure €10 million of Italian debt into default.

The equivalent Spanish CDS rose by 25 bps this morning, to 428 bps.

10.31am: A curious development on Greece. The Secretary General of NATO, Anders Fogh Rasmussen, has claimed that the military alliance’s ‘Smart Defense’ strategy can help it rebuild its economy.

Rasmussen made his interjection today on a visit to Athens to mark the 60th anniversary of Greece joining NATO. He claimed, on Twitter, that NATO’s new strategy – which includes new technologies such as advanced drones, satellite observation capabilities and battlefield surveillance – could help struggling nations.

#SmartDefence will help create right conditions for #Greece economic revival and prosperity. Something I and all Allies wish for all Greeks

— AndersFogh Rasmussen (@AndersFoghR) February 16, 2012

Rasmussen’s visit to Athens is controversial though. Protests are already taking place in the city against NATO.

UPDATE: The protests, organised by the Greek Pame communist party, are calling for Greece to quit Nato altogether. They caused road chaos earlier blocking a central boulevard in the capital to protest against Rasmussen’s visit [so not, as I earlier suggested, related to Greece's opposition to Macedonia joining the alliance].

10.13am: Despite the eurozone break-up fears, France and Spain both pulled off successful bond auctions this morning.

But there’s a caveat – European banks are still awash with funds following the €500bn of emergency cheap-three year loans last December. The European Central Bank poised to pour a few hundred billion euros of fresh liquidity into the markets later this month, so banks have every incentive to keep mopping up eurozone government bonds.

Anyway, the results. France sold €8.45bn of debt at lower costs, which should please Nicolas Sarkozy as he kicks off his re-election campaign. The yield (effectively the interest rate) on two-year bonds fell to 0.89% down from 1.05% in January.

Spain sold €4.07bn of bonds, of ranging maturies, and most sold for a better price (and thus a lower yield rate) than at the previous auction.

Lyn Graham-Taylor, a strategist at Rabobank, told Reuters that France and Spain should be relieved by the good results in the current crisis:

Despite this negative news over the past few days on Greece, you’re still seeing these strong auctions.

9.51am: The mood in the City has certainly darkened this week when it comes to Greece. For weeks, experts have argued that the €130bn would eventually be sorted – despite the ongoing problems – because the consequences of failure were so severe.

Today, though, the penny/euro/drachma has dropped that – by accident or design – a new panic and a disorderly Greek default is an immediate risk.

Joshua Raymond of City Index warned that the financial markets’ trust in Europe is being chipped away:

We are getting to the point now whereby investors are starting to lose trust in much of what is said from EU officials in Europe. The disparity of views and rhetoric out of Greece, Germany and broader Europe are in direct contradictions to each other and this is making the situation so much harder to read for investors.

Elisabeth Afseth of Investec remains hopeful:

It still looks as if Greece will stay in the euro, but the terms of support have become increasingly tough as trust in Greece’s ability to implement reforms has faded. The French-German escrow account suggestion looks the likely outcome, and it will avoid a disorderly default, but it does need Greek approval.

Two analysts reached for football analogues, with Eurointelligence commenting:

We are in extra time here, and the penalty shootout is fast approaching.

And Gary Jenkins of Swordfish Research pointing to the breakdown in relations between Berlin and Athens:

The relationship between the EU and Greece is starting to resemble that of the one between Manchester City and Carlos Tevez, although there is probably more money at stake in the latter…

9.28am: Despite the eurozone crisis, Italy managed to achieve trade surplus with the rest of the world in December. A surge in exports meant it posted a stronger performance than a year ago.

Italy exported €31.4bn during the the month, but only imported €29.9bn. A year ago, it had sold goods with €29.7bn, while €32bn worth came into the country.

Chasing some analysis

9.11am: News in from Athens. Our correspondent Helena Smith reports that finance minister Evangelos Venizelos has blasted those Greek politicians who back the debt-stricken country’s exit from the euro zone.

Speaking after last night’s eurogroup conference call, Venizelos launched an attack on the communist and hard-left parties who believe Greece should abandon the euro. He said:

Those who support a euro exit, that is to say the bankruptcy solution, are not being of any help to the country. They don’t understand that with their blind reaction [to the prospect of yet more austerity measures in return for the aid] they are endangering wages, pensions and the standard of living.

Venizelos said the three-hour teleconference call with euro zone finance ministers focused as much on “the political and social situation” in Greece as on economic issues.

His counterparts, though, wanted to know as much about ”what Greeks want” and whether implementation of the hard-hitting rescue program would be feasible after general elections in April.

8.35am: It’s a relatively quiet day on the news agenda:

• European Central Bank publishes its monthly report for February – 9am GMT / 10am CET
• Italian trade balance for December – 9am GMT / 10am CET
• US weekly jobless data+housing starts – 1.30pm GMT / 8.30am EST

France, Spain and Hungary will all attempt to auction government debt this morning.

8.19am: Another cause of unease this morning – Moody’s has warned that it may cut the credit ratings of 114 banks across Europe.

The rating agency announced the move following its actions on nine European countries earlier this week. It said that ratings could be lowered because of:

(i) the adverse and prolonged impact of the euro area crisis, which makes
the operating environment very difficult for European banks;
(ii) the deteriorating creditworthiness of euro area sovereigns
(iii) the substantial challenges faced by banks and securities firms with significant capital market activities.

Moody’s indicated that UBS, Credit Suisse and Morgan Stanley could all potentially be downgraded by up to 3 notches.

The move could remind European leaders that the region’s banking sector is not well-positioned to copy with a disorderly Greek default. As Michael Hewson of CMC Markets points out:

There will be no winners or losers in this particular little saga as Europe gives the impression of gearing up to cut Greece loose, unless they subjugate to demands for new measures to sate various new concerns.

This dangerous game has all the potential to blow up in their faces.

8.13am: In the currency markets, the euro slid nearly a cent against the dollar to as low as .2995 in early trading today.

8.03am: Shares have fallen across Europe at the start of trading, driven down by jitters over the eurozone.

The FTSE 100 fell 50 points, or 0.86%, to 5841. There are steeper losses in other markets – Germany’s DAX fell 1.3%, the Spanish IBEX dropped by 1.4%.

Chris Weston of IG explained that traders were spooked by the Greek president’s attack on Germany yesterday (he slammed Wolfgang Schäuble for insulting Greece):

There seems to be a war of words building between Germany and Greece, with tensions mounting when the market would clearly like to see officials singing with one voice.

Mr Papoulias’ comments seemed to make reference to World War II, which can’t help tensions in any way

7.54am: Last night’s conference call between euro finance leaders yielded four important developments.

1) Greece and the Eurogroup have collectively found €325m of outstanding saving cuts
2) The Eurogroup will decide on Monday 20 February whether Greece has met the terms of its second, €130bn, rescue deal
3) Some Europeam ministers reportedly written commitments from Greece’s smaller parties
4) There are rumours that Greece would not receive its bailout unless a senior presence from the Troika was installed in Athens.

Parts 3) and 4) aren’t spelled out in the statement released last night – it merely hints at the need for ” specific mechanisms to strengthen the surveillance of programme implementation and to ensure that priority is given to debt servicing”.

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

It’s a nervy day too, following the escalation in tensions between Greece and Germany on Wednesday. Evangelos Venizelos’s claim that some countries are trying to loosen Greece’s grip on its euro status has heightened fears that the country’s second bailout may collapse.

Stock markets in Asia have already posted losses, the euro has dipped below the .30 point in early trading, and City analysts expect losses in London too.

Eurogroup ministers decided last night to make a final decision on Greece’s rescue package on Monday – we’ll be tracking the reaction to the decisions taken on that conference call.

And will yesterday’s rumour that the bailout could be delayed until April, or split up, gather pace?…..

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