Debt crisis: live

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13.56 Guess who's back... Olli Rehn is back! The EU's economy commissioner said that the EU executive expects Spain to take fresh measures to curb public spending this year, including radical job-market reforms.

With Spain's 2011 public deficit "likely to be 8pc instead of 6pc" of GDP, Rehn said more needs to be done to ensure Madrid meets a 2013 deadline to meet the EU threshold of 3pc.

Rehn said that "it is regrettable that the fiscal deficit has been exceeded by Spain apparently rather substantially, mainly because of excessive spending by the regional governments" of powerful, semi-autonomous regions like Catalonia or the Basque Country. "We expect that Spain will take further measures."

13.54 Here's a cheeky picture that our man in Brussels, Bruno Waterfield, has tweeted:

13.46 Over to the US, where Charles Evans from the Federal Reserve Bank of Chicago, is doing nothing for American confidence. He is saying that the US economy still needs "substantial" Fed support and that the central bank should be willing to tolerate higher inflation.

Thanks for that.

13.43 More on that story that European leaders have dropped plans to alter the rules of the single market as part of a new fiscal compact, in a move that signals a significant victory for Britain.

Louise Armitstead reports that the draft document has also narrowed the role of European Union institutions, particularly the European Court of Justice, in supervising the new fiscal compact.

Revised Draft 11012012

13.31 That press conference hasn't done much for the markets.

FTSE 100 -0.6pc

CAC -0.2pc

DAX -0.3pc

IBEX -0.6pc

MIB +0.3pc

13.22 That's it from Merkel and Monti. They seem to agree (obviously) that a united Europe is the way forward, but there are division with regards to an EU Financial Transaction Tax.

13.20 Back to Merkel: She says there has been no agreement in the EU over the Financial Transaction Tax (FTT). She says the German Government agrees on the will to introduce FTT in EU.

13.19 Great quote from Monti: "In 1980 Professor Tobin told me that the Tobin Tax is like the Loch Ness Monster, it appears and disappears continuously."

13.15 Here's Monti: There will be a broad package of liberalisation reforms in coming days.

And Monti has hit the UK where it hurts by saying that a Financial Transaction Tax would make sense.

13.06 Merkel chiming in with soundbites: "In politics you can never talk about the 'last reform' - the world changes constantly and we all have to adapt... We will need more Europe in future, not less."

Merkel: "EU will grow further with new EU members... Europe's population and economic clout on the global scale is shrinking. If we want to stay wealthy we must become more competitive.. a united Europe is to Germany's advantage."

12.59 Back to Monti: Germany and Italy share an interest in boosting growth in the eurozone. He says he discussed with Merkel the need for a stronger, better single market.

He says there needs to be an orderly reduction of interest rates and further EU integration.

"I hope the financial markets will acknowledge the efforts being made by Italy," he says.

12.56 Now Merkel: EFSF leveraging more difficult than thought, ECB to advise. She says Germany would be prepared to pay more into the ESM at the start in order to send a message to the markets.

She adds that the EU budget already provides a facility for growth through the structural and cohesian funds.

12.55 Still with Monti, who says further austerity measures in Italy aim at economic growth.

12.54 Mario Monti now speaking. He says German discipline is the best recipe to overcome the European debt crisis. He adds that Italians broadly backed "very tough" measures and that Italy is no longer a threat.

12.47 Merkel says one of the first tasks this year is to determine the second pact for Greece. She says a Greek debt swap was discussed.

She says that France, Italy and Germany will meet on January 20.

12.45 "Merkonti" press conference under way. Merkel says there is a good chance of fiscal compact agreement on January 30. She praises the Italian government for taking fast, important measures.

Has she heard Monti's call this morning for the EU to recognise Italy's efforts in dealing with the debt crisis?

12.38 In case you're wondering, the Merkel/Monti press conference is yet to start.

12.37 David Cameron has said in Prime Minister's Questions that the UK's position on EU veto "will not change".

12.32 Further to our posting at 9.40 on the EU fiscal treaty, Open Europe believes that this draft looks to be much more in line with the UK?s demands and suggests that the UK still has some negotiating power or some allies willing to argue a similar line.

Open Europe director Mats Persson said:

This latest draft marks a provisional victory for Cameron and Clegg ? the references to the single market are gone and the role of the EU institutions watered down. The fact that the changes line up closely with UK objectives suggests that the Government may have more allies than has often been portrayed. The strengthened commitment to incorporate these new rules into the EU Treaties within the next five years sets the stage for another round of EU negotiations involving the UK, potentially another source of leverage for the Government in the future. At the same time, however, the narrower role for the EU institutions in enforcing the rules for eurozone countries that run large debts may be seen by markets as a weakness reminiscent of the original Stability & Growth Pact.

12.18 Update on the markets:

FTSE 100 -0.7pc

CAC -0.7pc

DAX -0.8pc

IBEX -1pc

MIB -0.2pc

12.08 Back to Greece. The country's budget deficit is expected to hit 9.6pc of economic output in 2011, about half a percentage point above target, the development minister acknowledged.

Michalis Chryssochoidis said that an increase in the use of European Union structural development funds had contributed to lowering government overspending from 10.6pc of GDP in 2010.

12.04 Sky's Ed Conway:

11.55 Angela Merkel and Mario Monti are due to hold a press conference in Berlin in five minutes. We'll have the latest here.

11.53 Olli Rehn, vice-president of the European Commission, has given some damning quotes on Greece:

Greece was accepted to the eurozone in 2001 partly based on false stastical information, but that is past. Greece did not reveal the truth of its economic and fiscal situation. But Greece is a member of the euro and it will be a member of the euro.

Rehn adds that there is still a chance of resolving the European debt crisis but wise and bold decisions are needed. He predicts there will be 17 eurozone members at the end of this year.

11.45 The yield on German one-year bonds is now 0.000pc.

11.35 BREAKING NEWS...

Spain to raise ?86bn via bond sales in 2012. This gross figure is nearly ?10bn less than the ?95.6bn raised by issuing sovereign debt in 2011, said the Treasury.

11.32 US Treasury Secretary Timothy Geithner has said he was ?encouraged? by what he heard about China?s economic growth after meeting senior officials in Beijing. ?We?ve had some encouraging signs of strength and resilience in the United States recently, and I leave Beijing encouraged? about the trajectory of China?s economic growth, he said.

Premier Wen Jiabao said:

Somehow I always believe that when it comes to China and the United States, dialogue works better than confrontation and cooperation works better than containment. And in terms of our economic and political relationship, I believe cooperation benefits both while confrontation harms both.

11.26 Ratings agency Fitch has said that the ECB should ramp up its buying of eurozone debt to support Italy and prevent a "cataclysmic" euro collapse.

Meanwhile, German finance minister Wolfgang Schaeuble has rejected euro bonds as long as there are no rules in place to enforce coordinated economic policies.

11.24 The European Union executive has proposed to slap new sanctions on crisis-hit Hungary for failing to act to reduce its deficit in line with agreed targets.

^{The Hungarian parliament}

The European Commission said in a statement that the government in Budapest had taken "no effective action" to get its deficit back within the EU's 3pc of GDP threshold.

Meanwhile, the economy of Croatia, set to join the European Union in 2013, will likely shrink 0.2pc this year, the central bank has said.

It added that the downturn will reflect "notably lower growth in external demand ... expected low growth in EU members as well as structural weaknesses of Croatia's economy".

11.17 Alan Clarke of Scotiabank has calculated that EDF's 5pc cut in gas prices will reduce inflation by 0.0045pc! Hurrah!

11.12 Following up our Little Chef line at 07.13, the restaurant chain has confirmed it is cutting up to 600 jobs and will close 67 branches.

10.56 Barclays has claimed that skyscrapers have an "unhealthy" link with impending financial collapse.

Researchers pointed to the fact the world's first skyscraper, New York's Equitable Life building, was finished in 1873 during a five-year recession, while the Empire State Building coincided with the Great Depression

Not good news for the ECB, which is building its own high-rise structure.

Could there be a worse portent than this?

10.45 BREAKING NEWS...

UK sells ?3bn of 10-year bonds for yield of 2.085pc. Bid to cover 2.15.

10.42 The gulf between rich and poor and a simultanous surge in the youth population and that of retirees are among the factors threatening to sow the "seeds of dystopia", the World Economic Forum (WEF) warned in its Global Risks 2012 report.

It also states that social upheaval and vulnerability to further economic shocks and risk were undermining the progress of globalization.

It cited severe income disparity, chronic fiscal imbalances, rising greenhouse gas emissions, the growing threat from cyber attacks and a crisis in water supplies as the key danger factors.

Lee Howell, the WEF managing director responsible for the report, said:

For the first time in generations, many people no longer believe that their children will grow up to enjoy a higher standard of living than theirs.

10.36 BREAKING NEWS...

Germany sells five-year debt at auction below 1pc for the first time. Average yield 0.9pc, bid/cover 2.8.

Jeremy Cook, chief economist at foreign exchange company World First, said:

This news comes a couple of hours after the initial estimate of German GDP for Q4 last year was revealed as 'roughly' -0.25pc, a number which could be revised lower. This represents bad news for the entire eurozone. If Germany?s not growing, nobody will be.

10.33 Michel Barnier, the EU?s financial services chief, said that he will make proposals in ?the next few weeks? on measures to cope with failing banks.

Mr Barnier says he will also present rules this year on so-called shadow banking, which he decribed as a ?major issue?.

10.15 Update on the markets:

FTSE 100 is flat, CAC up 0.6pc, DAX up 0.2pc, IBEX is flat, MIB up 0.9pc.

10.07 The breaking news is coming thick and fast now! UKFI has announced that its chairman, Sir David Cooksey, is to step down. CEO Robin Budenberg to become chairman, Jim O'Neil to become CEO.

Parting words from Sir David. He says selling off RBS and Lloyds will "inevitably take longer than originally expected".

10.06 Italian PM Mario Monti and German Chancellor Angela Merkel are holiding a press conference at noon GMT. We'll have the latest here.

10.04 The Danish central bank has published its stress list... and it shows one bank is in dire need of capital immediately.

Contagion?

10.01 Meanwhile, over at the BBC, Robert Peston believes the City of London will become an offshore currency market for China.

This would be seen as a further step on the road to towards relaxation of China's strict controls of the value of its currency and on flows of capital. The RMB would be on its way to becoming a proper globally traded currency, commensurate with China's status as the world's second biggest economy. But for the UK, there would be a boost both to business and jobs in the City and to the prestige and reputation of London as a global financial centre.

10.00 I always like a list, and HSBC has come up with a good one. The top 50 world economies in 2050:

1) China 2) US 3) India 4) Japan 5) German 6) UK 7) Brazil 8) Mexico 9) France 10) Canada

09.46 Further to our Repsol line at 07.57, Spain's biggest oil firm has sold 5pc of its shares for ?1.36bn to private investors.

09.43 Meanwhile, over in Greece, an EU official has admitted that the country will probably need more money than agreed in October. EU leaders are to meet on January 30 to discuss a ?30bn payout.

09.40 A new EU fiscal treaty is set to include an escape clause that allows the suspension of a balanced-budget rule during a period of economic downturn or other exceptional event, according to a draft of the document obtained by Reuters.

The document reads:

Temporary deviation from the medium-term objective will only be allowed in cases of [an] unusual event outside the control of the contracting party with a major impact on the financial position of the general government or in periods of severe economic downturn for the euro area, the EU or the concerned contracting party.

Loopholes already?!

09.32 UK's trade deficit in goods and services was ?2.6bn in November, up from ?1.9bn in October.

09.14 Italian public debt fell to 2.7pc in the third quarter. Italy approved three austerity budgets last year in an effort to drive down its giant public debt, which has rattled financial markets and pushed the eurozone's third largest economy to the brink of bankruptcy.

Meanwhile, here is Spain's manufacturing PMI (it's down 7pc):

Roubini's verdict: "Charts look like a free fall"

09.07 Top economist Nouriel Roubini has said that eurozone data suggest begninning of a double-dip recession. He adds that austerity measures will make conditions worse and the EU could break up in three to five years.

Roubini says India is facing several challenges and that GDP growth may disappoint with expansion of 7pc.

09.01 With most university students returning to education this month, we have compiled a picture gallery of the best and worst paid graduate jobs.

08.23 European stock markets are open. FTSE 100 down 0.1pc, DAX down 0.1pc and France's CAC down 0.2pc.

08.17 The ECB deposit facility has hit another overnight record of ?485.9bn.

What happened to lending to businesses?!

08.09 BREAKING NEWS...

German economy grew by 3pc in 2011, strongest since 2006. But Q4 GDP is adjusted to -0.25pc.

Spanish industrial output in November falls by 7pc, more than 5.4pc expected.

07.57 Shares in Repsol, the Spanish oil and gas company, have been suspended from the Madrid stock exchange after the company said it is looking to selll a 5pc stake.

07.50 Bank of Japan Governor Masaaki Shirakawa has said there are limits to what monetary policy can achieve and governments must implement ?necessary? reforms to aid the global economy, as he gave a speech at the London School of Economics.

Providing liquidity as ?a lender of last resort? is, in essence, a policy to ?buy time'. It is essential that the necessary structural reforms take place while time is being bought, as the time that we can buy becomes progressively more expensive.

07.35 More home news. State-owned lenders RBS and Lloyds Banking Group have given contracts to eight lobbying and public affairs companies despite a Government ban on other publicy-funded organisations spending money to influence legislation.

RBS paid six public affairs businesses last year as well as employing its own full-time team of lobbyists, while Lloyds used the services of two companies, according to the Independent.

07.31 What do you want first, the good news or the bad news? Ok, let's start with good:

Energy company EDF has cut its gas prices by 5pc (yay).

Bad news:

Asda has raised petrol and diesel prices by 1p per litre - the first unleaded rise for eight months (boo).

07.30 The Telegraph's Jeremy Warner has written a great piece on how Labour are failing to appear apologetic for its handling of the economy while in power.

The problem Miliband's got is that there is no monopoly on alternatives to government largesse as a way of tackling social unfairness. Cracking down on executive pay? The Coalition can do that. Getting tough on bankers? The Coalition is already being tougher than Labour ever dared. Incentives for apprenticeships? If they might work, the Government will no doubt do it. Stripped of its public spending clothes, Labour looks enfeebled. Capitalism?s crisis of trust has ironically become very much Labour?s problem, too.

07.23 Asian markets are still open. Japan's Nikkei is up 0.3pc, the Hang Seng is up 0.5pc, the Shanghai Composite is down 0.4pc, and the Kospi is down 0.4pc.

07.13 Quick bit of corporate news. Sainsbury's sales up 2.1pc over Christmas, but that figure includes VAT and is over 14 weeks. Chief executive Justin King says it's their best ever festive period.

Little Chef is reportedly shutting 70 restaurants, according to The Sun.

Supergroup sales are up 5.8pc and Greggs has also done well.

06.58 The Telegraph's Business section today is leading with a story that UK banks are being left vulnerable by the Bank of England and politicians.

The Bank's refusal to contemplate new support programmes for UK banks has left them with "few or no backstops", according to UBS analysts.

UBS analysts warned the lack of an emergency scheme from the central bank to support the banking system in the event of a new crisis had already led to rapidly rising funding costs for lenders. Government attempts to make British banks safer are also panned in the UBS report, with the increased cost of funding and the collapse in the share prices of major lenders cited as "clear signs of distress" among the UK's largest banks.

06.55 In the major Western markets today, the FTSE 100 is expected to open down 0.4pc, while the Dow Jones Industrial Average is set to open down 0.1pc.

06.50 The big news this morning is that Italian PM Mario Monti has said that the European Union must recognise Italy's efforts in fighting the sovereign debt crisis or risk the third-largest eurozone economy falling into the hands of anti-EU populists. Monti said:

I cannot be successful with my policies if the policies of the EU do not change. If that doesn't happen, Italy - which has always been a pro-European country - could flee into the hands of populists.

Elsewhere, the Government yesterday sold bonds at a negative interest rate as investors effectively paid to lend money to the UK. For only the second time ever, the Treasury sold government bonds - known as gilts - that will pay returns below the level of inflation.

Treasury sources highlighted the UK gilt sale as a sign of market confidence in the Coalition government. But independent economists warned that extremely low bond yields also signal market pessimism about the world economy, the eurozone crisis and the likely return on other investments.

06.46 Quick look at the newspaper front pages this morning:

06.40 However, the picture for UK banks is less reassuring - UBS analysts said Britain's lenders have been left vulnerable by decisions made by the Bank of England and our politicians.

Harry Wilson reports:

The Bank's refusal to contemplate new support programmes for UK banks has left them with "few or no backstops", according to UBS analysts.

Their doubts over the Bank's policy comes as questions are raised about the central bank's fitness to take on new powers of oversight for the financial system.

The accountability of the Bank has become a major political issue. Senior politicians, including Andrew Tyrie, chairman of the Treasury Select Committee, have said that moves to hand it responsibility for regulating Britain's largest banks must be balanced by increased public scrutiny of its actions.

06.35 European markets had a positive day yesterday, after Fitch assured investors that France's AAA rating was likely to be safe in 2012. Angela Monaghan reports:

The FTSE 100 rose 1.5pc, or 84.44 to 5,696.7 after investors were reassured by the ratings agency that Europe's second largest economy was not at front-line risk of contagion from the ongoing eurozone debt crisis.

"In the absence of important shocks that could be linked to a strong worsening of the situation in the eurozone, Fitch does not foresee modifying its negative outlook [on France] before 2013," a spokesman said.

The CAC 40 in Paris closed up 2.66pc at 3,210.79, while the DAX in Frankfurt rose 2.42pc to 6,162.98.

06.30 Good morning and welcome back to live coverage of the debt crisis.

Debt crisis live: archive

Source: http://telegraph.feedsportal.com/c/32726/f/568300/s/1bb566ac/l/0L0Stelegraph0O0Cfinance0Cdebt0Ecrisis0Elive0C90A0A63650CDebt0Ecrisis0Elive0Bhtml/story01.htm

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