As fears of a possible Greek default continue to sway financial markets, time is running short for policymakers to agree a solution to the eurozone crisis. The FT will be running live coverage of the latest developments here on our foreign affairs blog, The World.
All times are London time. Curated by Esther Bintliff, assistant Europe news editor in London, with contributions from FT correspondents around the world.
19.30: We’re wrapping up the blog for today, but we’ll be back on Tuesday to cover the latest developments from Greece – where a parliamentary vote is due to take place on the unpopular new property tax – and Germany, where the Greek prime minister is due to meet with chancellor Angela Merkel. In the meantime, please follow the rest of our coverage at ft.com/world
19.18: There was a teensy bit of good news today – or not so bad news. German business confidence, as measured by the Munich-based Ifo institute, fell in September – but by far less than in August. That counts as a positive in these turbulent times…
19.10: The European Central Bank is likely to significantly extend its provision of liquidity to banks next week as it seeks to counter the escalating eurozone debt crisis, reports Ralph Atkins, our Frankfurt bureau chief. But he says it’s still an open question whether the ECB will cut official interest rates as well.
18.55: Donal O’Mahony, global strategist at Davy Capital Markets, points out that the “current convulsions in global markets and economies offer some depressing comparisons to the events of 2008″:
“Once again, nerves are being shredded by the perception of bank solvency and liquidity risks, albeit this time with balance-sheet concerns more focussed on “toxic” sovereign than credit exposures… Once again, the spectre of another calamitous debt default now hangs heavily in the air.”
O’Mahony argues that while the eurozone’s crisis resolution efforts have thus far been hampered by “deep ideological conflicts”, a “more decisive policy approach may finally prevail”, given the dangerously high stakes: namely, the “entire fate of the single currency ideal hanging in the balance”.
18.40: Moves to save the euro have come and gone but it now looks like policymakers recognise the urgency of addressing the problems underlying the eurozone structure. In this video, Lex’s Vincent Boland and Nikki Tait discuss what needs to be done and whether we’ve reached a turning point.
18.05: Erik F. Nielsen, UniCredit’s global chief economist, offers a little
bit of solace in his “take-aways” from the IMF’s annual meeting in Washington this weekend. While he admits the mood of investors at the talks went from “bad to worse to near-desperation”, he believes the market has “panicked beyond” what is necessary. Here’s an excerpt from his note:
“Investors’ concerns about Greece are two-fold, namely the long-held conviction among most that they’ll end up defaulting on their debt, and a shorter term concern about the implementation of the PSI [private sector involvement]. On the former, recent months have certainly made me increase my probability of it happening, but I continue to think the probability is well below what is priced in. It’s all about political will in Greece and in Europe, and while the Greek political scene has turned more complicated, the German scene has turned decisively more pro-European.
On the PSI, while policymakers insisted on full implementation of the July 21 agreements, there are still a lot of unresolved issues out there which may force some revisions. For example, with the rally in the price of collateral, who’ll carry that cost? This is an issue, but I very much doubt that revisions here – while unfortunate – will be a game changer.”
17.45: Public transport workers have been on strike today in Athens. Our reporter in the Greek capital, Dimitris Kontogiannis, has been in touch to say more transport strikes are planned for this week. Bus drivers are due to begin a 48-hour strike tomorrow, while taxi drivers will strike on Wednesday and Thursday.
17.20: The BBC has a nice flow chart illustrating the possible outcomes for Greece at this stage. None of them are particularly good – according to the BBC, the possibilities range from a ‘pyrrhic victory‘ (Greece forces its lenders to write off most of its debts, but that then probably bankrupts Greek banks) to ‘depression’, ‘moral hazard‘, ‘political turmoil’, and, most ominous of all, ‘global meltdown’. Well at least we know what’s at stake…
17.10: It’s been a volatile day in the markets. US futures and European markets reversed heavy early losses and moved sharply into the black, only to partially relapse again. Here’s Jamie Chisholm, the FT’s global markets commentator:
“Suffice to say the overall mood remains extremely fragile, as bulls hope for a eurozone resolution and bears bet on a messy Greek default.”
Read Jamie’s latest global markets overview here.
17.00: Writing for the FT’s A-List, Raghuram Rajan, a professor of finance at the University of Chicago’s Booth School, bemoans the lack of consensus from policymakers on the crisis, and calls on the International Monetary Fund to start taking the lead, rather than playing second fiddle to eurozone leaders.
“The eurozone should suppress any wounded pride, and not only acknowledge that it needs help but also provide quickly what it has already promised. The rest of the world should pitch in recognising that, unresolved, the crisis will spare no one…”
16.50: The New York Times’ Paul Krugman was not feeling hopeful in his column yesterday, as its title – “Eurozone death trip” – might suggest. It’s worth a read though. His concern is that a strategy of imposing harsh fiscal austerity on debtor countries won’t work in an environment of Europe-wide recession – and yet he sees “no sign at all that European policy elites are ready to rethink their hard-money-and-austerity dogma”. Hat-tip @sarahlaitner
16.20: An increasingly familiar feature of the eurozone crisis in recent months has been the occurrence of a nailbiting day (often stretching late into the night) when the world waits to see whether there is still enough political will and international support for Greece to help the country avoid default. These episodes usually involve one of the below:
- a prolonged conference call between Greece and its lenders – the International Monetary Fund, the European Central Bank, and the European Commission – in which Greece has to prove it is serious about reform
- a meeting between eurozone finance ministers (the eurogroup) to discuss whether Greece has made enough progress to receive further aid
- a vote in either Greece itself, or another eurozone country’s parliament, on whether to accept the latest bailout
In good news for the adrenalin-junkies out there, it looks like another day/night of Greece-fuelled worry is almost guaranteed sometime in October. According to Bloomberg, Joerg Asmussen – Germany’s deputy finance minister – says a decision won’t be made on whether Greece can receive its next tranche of aid until after the next eurogroup meeting on October 3rd. Given that Greece will start to run out of cash in mid-October, that is cutting it very fine.
Bloomberg: “This disbursement will not take place before the mission finishes its review and it will not take place if the mission is not convinced by the measures taken and implemented by Greece,” Asmussen said in a speech prepared for delivery in Washington at a KfW Group event. “Given the delay in the troika’s mission, I do not see that the upcoming Eurogroup on Oct. 3 will decide on the sixth tranche.”
15.25: Currency analysts at Brown Brothers Harriman in a note today expressed scepticism that policymakers were about to unveil a “grand solution” to the eurozone crisis:
“While there appears to be considerable external pressure on European policy makers to finds ways to mitigate the crisis following this weekend’s meeting in Washington, we continue to believe that the chance of policymakers erecting a grand solution is limited.”
BBH points out that policymakers are “unlikely to take decisive action to “top-up” the EFSF until all eurozone governments have ratified the changes agreed on at the July meeting”. While there are three parliamentary votes due on that measure this week (Finland on Wednesday, Germany on Thursday and Austria on Friday), many other eurozone members have yet to set the date for their vote.
15.00: A number of media reports set markets buzzing this morning with speculation that a “large and ambitious eurozone rescue plan is taking shape”. That particular description comes from a BBC news article, which goes on to say that the deal:
“is expected to involve a 50% write-down of Greece’s massive government debt, the BBC’s business editor Robert Peston says”
Peston himself was keen not to overplay the story, however, as a tweet he sent this morning suggests:
Now, Reuters has a story quoting “eurozone officials” who say that the media talk is “highly premature”.
Reuters: “There is no change to the framework we are working on,” said a euro zone official who is involved in decision-making on financial assistance to Greece, Ireland and Portugal.
“All this talk of a specific haircut for Greece or an enlargement of the EFSF, it is all just speculation. We are not working along those lines,” said the official.
14.45: Greece’s finance minister, Evangelos Venizelos, earlier dismissed reports that he had discussed the possibility of an orderly default with the IMF’s Christine Lagarde and the head of the European Central Bank, Jean-Claude Trichet, over the weekend.
In an emailed statement from the Greek finance ministry, Venizelos said:
“We have reached a point where there are reports about what has been said in a closed door meeting with the participation of only Mrs. Lagarde, Mr. Trichet and myself…
What is absolutely sure is that there hasn’t been and couldn’t have been any discussion about the so-called scenario of an orderly default.”
13.45: Take a deep breath: it’s set to be a big week for the eurozone. Expectations are running high that global leaders could announce new measures to help resolve the region’s sovereign debt crisis, even though discussions over the weekend at the IMF’s annual meeting in Washington apparently failed to bring any immediate consensus on the issue.
On Tuesday, Greece’s prime minister, George Papandreou, will meet with the German chancellor Angela Merkel in Berlin, while at the same time the Greek parliament will discuss – and perhaps vote on – his government’s deeply unpopular new property tax. On Wednesday, the Finnish parliament is due to vote on whether to approve new powers for the eurozone’s bailout fund (the snappily-named European Financial Stability Facility – or EFSF), while a vote on the same issue will take place in Germany on Thursday. We’ll be looking at the potential significance of those votes later. In the meantime, here’s some background reading:
- Eurozone debt crisis jargon-buster: from haircuts to the ‘European Stability Mechanism’, we decode the buzzwords and the bombast…
- Chain reaction: Chris Giles, our economics editor, explores what would happen if (whisper it) Greece does default. FYI, this comes with a lovely interactive graphic to play with
- Eurozone on brink of recession: adding to the worries of policymakers, the latest data shows the economic backdrop is worsening
- Martin Wolf explains why, for the eurozone, breaking up is so hard to do
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