Debt crisis: as it happened - August 9, 2012 (2024)

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18.37 Before we wrap up today's Debt Crisis Live, let's take a look at the final results from our highly-scientific poll (see 13.37) asking whether you think that five years on from the start of the credit crisis, are we any nearer a solution?

Just over 61pc of respondents thought that no, things will be just as bad - if not worse - in another five years. Around 33pc thought that yes, we are nearer a solution because the crisis will become so bad leaders will have to act.

A more optimistic 5pc thought that we are nearer a solution because governments, banks and businesses are taking the right steps.

With that, we're shutting the live blog for today. Thanks very much for reading and commenting.

17.37 As a slight aside from the debt crisis, Sky News is reporting that Sir David Walker is to be named the new chairman of Barclays tomorrow. A former Bank of England executive director, Sir David was also chairman of Morgan Stanley. We'll bring you more news on that as and when we have it.

17.26 As we mentioned at 08.22, the French constitutional court is meeting today to decide if adopting the European fiscal pact requires an amendment to France's constitution.

Reuters reports that the court's council - made up of 12 career jurists and former politicians - has been deep in debate and is expected to give its verdict around midnight.

If the council rules against president Francois Hollande - who wants to avoid writing a fiscal rule into the constitution - and decides the pact requires a constitutional amendment, that could delay ratification of the pact by several weeks.

17.02 Germany's main opposition, the Social Democrats, have upped the ante, saying that Chancellor Angela Merkel must assume greater risks to avert a breakup of the single currency.

Bloomberg has a report on an interview the SPD floor leader, Frank-Walter Steinmeier, gave to the Rheinische Post newspaper.

He raised the pressure on Mrs Merkel to agree to more burden-sharing to stem the euro crisis, claiming that Mrs Merkel, while rejecting euro-region bond sales, fails to say that Germany is already exposed to losses from the debt crisis through the European Central Bank’s bond purchases:

The government should finally be honest about it to the people. If we want to prevent the breakup of the euro zone, it won’t be without risks for Germany.

16.42 Earlier this afternoon, the Telegraph's Ambrose Evans-Pritchard blogged on a note from Nomura, with the Japanese bank mulling a British exit from the EU - or a BRIXIT. Ambrose writes:

Events could accelerate as soon as this autumn if eurozone woes force the Government to commit to a firm date for a BRIXIT referendum.

"The effect a looser relationship with the EU would have on the UK economy in general and on the financial services sector in the UK in particular is not clear at this time, even though British eurosceptics argue that being freed from EU regulation would be a booster. However, the prospect is, in our view, bound to raise concerns – indeed, is doing so already in the City."

The core point is that the eurozone may have to take drastic steps in integration (fiscal union, etc) to save the euro, making it nigh impossible for a fully sovereign state to remain part of the Project.

In other words, it is not so much Britain leaving the EU as the EU leaving the treaty-based club of sovereign states it was supposed to be.

Don't forget that you can read some of Ambrose's news and views from the last five years of the financial crisis here.

16.34 Economists polled by Reuters reckon Spain will apply for a European bailout within months. In their latest survey, economists said there was a median 68pc chance of a full sovereign bailout, involving the EU's official rescue funds, before the end of the year. June's poll showed 35 out of 59 economists thought that was "likely" or "very likely".

Also, the poll suggested Spain's economy will contract 1.6pc this year and then 1.1pc in 2013 - the latter forecast representing a sharp downgrade from the 0.7pc decline in June's survey.

15.40 In another sign of the pain Greece is currently enduring, doctors working for the country's National Organisation for Health Care Provision have threatened the Health Ministry with legal action if they don't receive money they claim is owed to them by August 20.

Bloomberg reports there are claims that the organisation hasn't paid its doctors for medical procedures since the start of this year or for medical visits since March, which corresponds to €230m.

The Pan-Hellenic Pharmaceutical Association, which represents Greece’s 12,000 pharmacies, said its members will decide on August 25 whether to hold a nationwide strike and to no longer supply drugs prescribed by the organisation without payment in cash.

15.02 Reuters has some more detail on that interview with Christian Noyer, the European Central Bank governing council member, that we mentioned at 11.33.

As well as saying that "there is no plan to prepare for the exit of any country from the eurozone", he added that the ECB should be ready to intervene decisively in bond markets very soon.

He ruled out action on the primary debt market - which would be akin to monetary financing of governments' deficits - but said intervention in the secondary market was "perfectly possible".

He said:

There is no divergence between the French, Germans and the Commission on this. They all say the same thing: we are not opposed to ECB intervention to correct market anomalies.

14.32 At 11.23, we mentioned that Jim Reid from Deutsche Bank had been casting back over the events of the last five years. He also looked at how a variety of asset classes have performed since that "fateful day" when the crisis hit five years ago and here's a chart illustrating his findings:

14.26 Kerry Group, the Irish food business behind 'Cheestrings' and Richmond sausages, has said that it could cope with a potential break-up of the euro. Chief executive Stan McCarthy said:

We view it as something that we would be able to manage our way through. It wouldn’t be detrimental to our business. From an organization perspective, we have sat down on a regular basis in terms of reviewing how that might impact our business. It wouldn’t be wise at this point in time to make serious changes in the event of a total unknown. It might make Ireland more competitive but equally so imports into Ireland would become fairly expensive.

13.59 A couple of bits of data out of America this afternoon. While Britain's trade deficit jumped to a record in June, America's trade deficit narrowed more than forecast in the same month as a sharp drop in crude oil prices helped cut the country's import bill. The gap shrank 11pc to $42.9bn, the smallest since December 2010, from $48bn in May

Meanwhile, claims for jobless benefits in America unexpectedly dropped last week, falling by 6,000 to 361,000.

13.48 Bloomberg has this tale of a meeting of Mario Monti's cabinet in Italy, where politicians apparently had "lengthy" discussions on a possible request for the eurozone's bailout funds to buy its bonds.

When asked in an interview whether Italy would make a request in September, Education Minister Francesco Profumo, said:

We still have some time to discuss it; we will see what the conditions will be. We have a profound understanding and I believe we have the instruments to take decisions.

Bloomberg writes:

Italy does not need a Greek-style bailout because the public accounts are in order, Profumo said. Still, a request for bond buying by the euro-region’s rescue founds would require Italy to agree to conditions before the purchases could begin. Profumo said the government is confident that the euro-region allies would accept the measures already adopted by the government and not require additional austerity.

“In our case, the memorandum of understanding wouldn’t anticipate additional elements,” Profumo said, referring to the agreement Italy would need to sign in return for the bond buying.

13.37 Seeing as it's the fifth birthday of the financial crisis today, we're asking you - via this poll - whether you think we're any nearer a solution:

Also, a few of you are posting your thoughts on the last five years in the comments thread. Thanks very much for those and keep them coming.

13.06 The Organisation for Economic Co-operation and Development has published its latest report, which indicates that most of the major world economies are slowing, with Britain the only country to see tentative signs of a pick-up.

The Paris-based think tank said individual indicators for Japan and the United States "show signs of a fading growth momentum". But the OECD - which uses a "composite leading indicator", providing a measure of future economic activity - said that Britain had seen a rise in the June CLI to 99.9 from 99.8, suggesting a tentative improvement.

Here's their chart showing that slight pick-up in the UK:

12.39 From debt crisis to food crisis. The UN's food agency has warned today that the world could face a food crisis like that of 2007/08 if countries restruct exports on concerns about a drought-fuelled grain price rally.

In its latest update, the Food and Agriculture Organisation said its food price index climbed 6pc last month, after three months of decline, driven by a surge in grain and sugar prices.

Anxieties over extreme hot and dry weather in the US Midwest sent corn and soybean prices to record highs last month, driving overall food prices higher.

Grain markets have also been boosted recently by speculation that Black Sea grain producers, particularly Russia, might impose export restrictions after a drought there hit crops.

The FAO's senior economist and grain analyst Abdolreza Abbassian told Reuters:

There is an expectation that this time around we will not pursue bad policies and intervene in the market by restrictions, and if that doesn't happen we will not see such a serious situation as 2007/08. But if those policies get repeated, anything is possible.

Back in 2007/08, a mix of high oil prices, growing use of biofuels, bad weathe, soaring grain futures markets and restrictive export policies pushed up prices of food, sparking violent protests in countries such as Egypt and Haiti.

12.20 Ratings agency Fitch has carried out its quarterly survey of investors and found that the majority of them reckon banks will need a repeat of the European Central Bank's €1trn long-term refinancing operations.

Just over half of respondents believe fundamental credit conditions for banks will deteriorate and 82pc say that banks will need another LTRO within two years.

Fitch added that it is also "in the 2013/14 camp":

We don't project that another LTRO will be needed this year but many banks in southern Europe have become dependent on ECB facilities as their only real source of wholesale funding. If they are unable to de-lever in time, they will likely need some assistance to be able to pay back their LTRO take up.

Back in 2007, the Telegraph's International Business Editor wrote that "the risk for Britain – as property buckles – is a twin banking and fiscal squeeze" and a year later, he wrote "if the storm is peaking in the US, it has hardly begun in Europe". Indeed.

11.37 Via Twitter, here's Katie Martin of Dow Jones' take on Christian Noyer's comments:

11.33 Christian Noyer, a governing council member of the European Central Bank, has said that "there is no plan to prepare for the exit of any country from the eurozone".

Reuters has kindly translated an interview he gave with France's Le Point magazine in which he said:

An exit of Greece from the euro zone is not something which we envisage. There is no plan to prepare for the exit of any country from the euro zone.

He added that the bank was determined to bring down excessive risk premiums for member states in bond markets and should be ready to act very soon:

Don't have any doubt about the determination of the governing council and its capacity to act within the terms of its mandate.

Our operations will be of sufficient size to have a strong impact on the markets. We should be ready to intervene very soon, prioritizing short-term debt markets.

But he notes that the central bank could not substitute for political action by member states, which needed to press ahead with reforms to reduce their debts and market their economies more competitive.

11.23 The fifth anniversary of the financial crisis has prompted musings in the City on the last half-decade. Jim Reid at Deutsche Bank writes:

It's hard to believe that its 5 years ago today that the financial world started to appreciate the magnitude of the problems that would be the soundtrack to our lives over the last 5 years. The real warning signs of trouble occurred 6 months earlier with the precipitous drops in the sub-prime indices however the global ramifications were first arguably felt on August 9th 2007 as BNP Paribas stopped withdrawals from 3 of its investment funds as it couldn't value their holdings following the subprime fallout.

Mr Reid adds:

Overall one would have to say that for many commodities and most fixed income assets, it's been a pretty good 5-year crisis. For equities the safer markets have held up well considering all that has happened (albeit well below long-term returns) but those markets with 'issues' have had a pretty poor 5 years. Given all that's gone on over this period it's fair to say that returns have been pretty good if you've been in the right areas.

11.14 As we mentioned at 08.37, today marks the fifth anniversary of the financial crisis. The Telegraph's Damian Reece comments that much has changed since the credit crisis, but a lack of confidence remains:

Most companies have survived, many are thriving, while some remain on the brink. Cash is now coming back to investors in dividends, boosting returns, although for real progress to be made, companies should be investing a lot more of that cash instead. The fact they’re not reflects a major element that hasn’t improved over five years – and that’s a lack of confidence.

On the day the world changed back in 2007 this column wrote: “Business is all about confidence. When it’s there in abundance economies grow, wealth is created and employment expands. When confidence dissipates so does growth, economies go into reverse and people lose their jobs. We are witnessing the start of that second phase as confidence starts to leak out of markets, hissing out of the widening cracks in the financial system and into the ether.”

Until that improves, progress will be painfully slow. Sir Mervyn said on Wednesday that recovery requires patience. But patience is running thin.

10.53 Still with Greece, unemployment in the crisis-hit country rose to 23.1pc in May from 22.6pc the previous month. More than half - 54.9pc - of those aged 15 to 24 are out of work. Five years ago, 22.8pc of 15-24 year olds were unemployed.

10.46 Greece's deputy finance minister, Christos Staikouras, has said this morning that the country expects to get its next slice of international aid immediately after lenders give their final verdict in the middle of September on progress made under its bailout programme.

Cash-strapped Greece could run out of money within weeks if it does not receive its next aid instalment. As the Telegraph reported on 24 July, Greece could run out of cash by August 20.

To cover this month's cash squeeze, Greece plans to issue additional treasury bills, enabling it to access up to an extra €4bn of funds.

Greece is behind its targets agreed as conditions of the €130bn bailout deal. Mr Staikouras said that the troika of ECB, EU and IMF inspectors would return to Athens in early September and complete their review of Greece's progress by the end of the month; if that review is positive, that will pave the way for the next tranche of aid.

He told Greek television:

If that happens and the process is completed by September 14 - this is the framework we're working within, that's what we've agreed to - then obviously the tranche, if the review is positive as we expect it to be, will come immediately after.

10.30 Here's what the pound is looking like against the dollar this morning. It has managed to tick back up, holding onto strong gains made yesterday when the Bank of England played down the possibility of an interest rate cut.

And the euro against the dollar. Europe's single currency is waning as optimism about action to address the debt crisis recedes:

10.23 On the markets this morning, the FTSE 100 is virtually flat at 5846 as is France's CAC at 6949. A rally earlier this morning - prompted by figures from China showing a drop in industrial production growth in June to 9.2pc, spurring hopes of further stimulus - has now faded.

Chris Beauchamp, markets analyst at IG Index, commented:

Even a raft of Chinese data seems to be unable to provoke much of a reaction in markets at present. After several days of quiet, traders had plenty of economic news from the world's second-largest economy to digest. Industrial production was weaker, while consumer price growth slowed, giving Beijing more room to boost stimulus to help revive the flagging economy. Normally, the prospect of stimulus in China gets investors fairly excited, but today the reaction has been more muted.

09.59 Commenting on those trade deficit figures - which will not be music to the ears of leaders hoping for an export-led recovery - Alan Clarke at Scotiabank said:

Very hard to take anything positive from this data, it's a big downward surprise. Oil was one of the biggest drivers in the decline in exports, but even stripping erratic elements out, it's still bad.

Against the backdrop where our main trading partners, Germany and continental Europe, are very weak, this is no surprise, and the scope for improvement anytime soon is limited.

Probably won't move markets, quite backward looking, telling us about Q2, which we know about, already pretty depressed about growth.

09.54 Amid all that ECB bulletin excitement, numbers were published on the UK's latest trade deficit. In June, Britain's total goods and services trade deficit hit a record high following a sharp drop - 7.4pc - in goods exports.

The Office for National Statistics said the June trade deficit widened from £2.718bn to £4.308bn, the largest since records began in 1997.

This was driven by a bigger-than-expected widening in the goods trade deficit, which grew to £10.119bn from £8.364bn.

09.41 Still with the ECB bulletin, it contains a quarterly survey of professional forecasters, who retain their estimate of 2.3pc inflation this year. For next year, they expect annual price gains to average 1.7pc, a decrease from the 1.8pc previously estimated. In the longer term, the inflation forecast remained at 2pc.

09.24 As the ECB cut its growth forecasts for this year and next (see 09.10), the bank cautioned that in the longer term, it expects the eurozone economy to recover only very gradually:

Looking beyond the short term, the Governing Council expects the euro area economy to recover only very gradually, with growth momentum being further dampened by a number of factors. In particular, tensions in some euro area sovereign debt markets and their impact on financing conditions, the process of balance sheet adjustment in the financial and non-financial sectors and high unemployment are expected to weigh on the underlying growth momentum, which is also affected by the ongoing global slowdown.

09.21 Echoing Mario Draghi's comments last week, the ECB's bulletin suggests that the bank may intervene in bond markets in tandem with Europe's bailout funds if nations commit to improving their economies and fiscal positions. The central bank said it "may undertake outright open market operations of a size adequate to reach its objective", adding:

The adherence of governments to their commitments and the fulfilment by the European Financial Stability Facility/European Stability Mechanism of their role are necessary conditions.

09.13 Here's some detail from what the ECB said in its August bulletin:

The risks surrounding the economic outlook for the euro area continue to be on the downside.

They relate, in particular, to the tensions in several euro area financial markets and their potential spillover to the euro area real economy. Downside risks also relate to possible renewed increases in energy prices over the medium term."

Inflation expectations for the euro area economy continue to be firmly anchored in line with the Governing Council's aim of maintaining inflation rates below, but close to, 2 percent over the medium term.

09.10 That report from the ECB is now out. The bank has cut its growth forecasts for this year and next, predicting a 0.3pc contraction this year - slightly worse than the 0.2pc contraction expected last quarter - and for 2013, they anticipate growth of 0.6pc, down from a previous estimate of 1pc.

08.44 Also this morning, we're expecting the European Central Bank's monthly report, which is expected to reiterate ECB president, Mario Draghi's, comments at last week's press conference. There, he suggested that the bank was working on further non-standard measures to support the euro.

As you'll no doubt recall, though, Mr Draghi's comments were deemed too vague and markets crumbled. Although the ECB opened the door to a blitz of bond purchases, it could only come once Europe's leaders activated their own rescue machinery.

08.37 Here's a happy anniversary for you. Five years ago today, the financial crisis really got going and - still on a French theme - it was BNP Paribas that kicked things off on 9 August 2007 when it said investors would not be able to take money out of two of its funds because it cannot value the assets in them due to a "complete evaporation of liquidity".

Telegraph Finance has compiled this slideshow charting the key events of the last five years.

08.22 Today, the French constitutional court is meeting to decide if adopting the European fiscal pact requires an amendment to France's constitution. It is thought that the court could deliver its verdict late in the evening today or early tomorrow. Earlier this week, jurists told Reuters that the verdict was too close to call.

Signed in March, the fiscal pact must be ratified by 12 of the 17 eurozone nations before it can come into force in January.

Francois Hollande, the French president, wants to avoid writing a fiscal rule into the constitution and instead hopes to pass a powerful form of law through parliament that will hold ministers to the EU budget targets.

If the Council, France's highest constitutional body and made up of a mixture of career jurists and former politicians, rules against him and decides the pact requires a constitutional amendment, that could delay ratification by several weeks.

08.17 In a quick recap of other news yesterday, Otmar Issing, one of the founding fathers of the euro and a former European Central Bank chief economist, has said that some states may be forced out of the eurozone in the long term, but Germany would be better off staying in.

In his book How We Save The Euro And Strengthen Europe, which was published this week and is written as a dialogue between the German economist and a journalist, Issing said a euro collapse would have severe consequences.

Everything speaks in favour of saving the euro area. How many countries will be able to be part of it in the long term remains to be see.

08.02 The big news yesterday came from the Bank of England: Mervyn King urged us to have "patience" as the economic recovery will take some time yet, and cut the growth forecast for the year to 0pc - stagnation. Meanwhile, Fitch affirmed Germany at AAA, outlook stable.

08.00 Good morning and welcome back to our live coverage of the European debt crisis.