Debt & Financial Crisis: Live From All Over The World

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12.00 Looking ahead to the US market opening, the futures are showing that Wall Street will open higher:

The FTSE 100 is expected to rise 0.7pc to 11,641 points, and the S&P 500 to climb 0.8pc.

11.50 Oh dear – an indication that you have produced something which makes your audience feel truly dismal is when people make the Radiohead comparison…

It’s not true, but it could be – the Chancellor’s Autumn Statement will be recorded as the lyrics to the notoriously unhappy Radiohead’s new album – to be titled “Six More Years of Pain.”

11.40 Even the seemingly unstoppable China is having to help out its banks as global growth prospects weaken.

The country is cutting the amount of cash banks have to hold in reserve by 0.5 percentage points, the first time the amount has been reduced since 2008.

The reserve ratio will come down from December 5. The level stands at a record 21.5pc for the biggest banks.

China’s inflation is easing and its exports increased by the smallest amount in almost two years last month, a consequence of the slowdown in Europe.

11.25 So what exactly can/will the International Monetary Fund do for the eurozone?

At the G20 meeting only a month ago, the US, China and other nations made it clear that Europe is rich enough to solve its own problems, and that they wouldn’t be shelling out extra to the IMF to save such developed economies.

Last night, eurozone finance ministers agreed on the details of the proposal to use the €250bn left in the EFSF bail-out fund to insure the first 20-30pc of bonds issued by countries haveing difficulty seling debt and also to set up co-investments with foreign investors.

Jean-Claude Juncker, chairman of the so-called “Eurogroup” – the 17 eurozone finance ministers, then said the group want the IMF to match and support the new bail-out fund.

We also agreed to rapidly explore an increase of the resources of the IMF through bilateral loans, following the mandate from the G20 Cannes summit, so that the IMF could adequately match the new firepower of the EFSF and cooperate even more closely.

Dutch finance minister Jan Kees de Jager was even more definite. He said:

We will have to look at the IMF which can also make available additional funds for the emergency fund. I think countries in Europe and outside of Europe should be prepared to give more money to the IMF.

But just because the eurozone wishes it, doesn’t mean it’s going to happen…

10.40 Apologies for only now getting back to one of the main stories affecting markets today (see 07.10 post for early take):

Standard & Poor’s has downgraded the credit rating of many of the world’s biggest banks, including Royal Bank of Scotland, Barclays and HSBC.

Barclays’ rating was reduced to A+ from AA–; Royal Bank of Scotland had its rating lowered to A– from A and HSBC saw its rating lowered to AA– from AA. All are investment grade ratings.

In the US, the giants Goldman Sachs, Citigroup and Bank of America also all had their ratings cut.

S&P said it made the cut after changing its criteria earlier this month to include new considerations, including the likelihood that a government would provide state aid to banks as it did during the financial crisis of late 2008.

10.15 Oh yes! It’s here again – the “XX days to save the euro” headline.

This time, it’s 10 days – according to EU Commissioner for Economic and Monetary Affairs, Olli Rehn. He says:

We are now entering the critical period of 10 days to complete and conclude the crisis response of the European Union.

What’s happening in 10 days time? EU leaders are meet on December 9 – but Germany has already ruled out agreeing to joint euro-area bonds at the meeting, and the ECB has also ruled itself out of aiding Italy and Spain.

So this new focus on the IMF better bear fruit or Mr Rehn will have to hope for divine intervention.

10.00 Bruno Waterfield, our manin Brussels, explains why finance ministers are suddenly so keen to talk about the IMF rescuing the eurozone – and why they seem to have given up on the EFSF bail-out fund:

Key to the retreat was a confidential European Commission report on Italy combined with the realisation that the eurozone’s bailout fund will only be half as big as originally promised, about €625bn rather than €1.2 trillion.

The Commission report warned that without extra austerity efforts and backstops from the euro area, Italy could go bankrupt.

The leaked paper, seen by The Daily Telegraph, warns that a spike in Italian borrowing rates comes as the “sovereign debt crisis has moved from the periphery to Italy and other core euro area countries”.

“Persistently high interest rates increase the risk of a self-fulfilling ‘run’ from Italy’s sovereign debt,” the document says.

“A liquidity crisis could then turn into a solvency crisis whose repercussions for other large euro area countries would be very acute given their exposure to the Italian economy.”

09.50 It’s good news for some – the latest unemployment figures from Germany show the country’s jobless rate actually fell in November, and by more than expected.

The unemployment rate fell to 6.9pc from 7pc in October, with 20,000 fewer people out of work.

It must be music to the ears of the unemployed of Spain and Greece…

09.25 Quite a few bits of news about Italy’s finances are coming through – reports late last night said the country had held preliminary talks with the International Monetary Fund about some kind of financial support as its borrowing costs rocket.

Sources told Reuters that the new Italian PM Mario Monti is unlikely to make any formal request for help before he presents a new budget to the cabinet next week.

“Discussions are currently around a €400bn contingency package. Italy has not filed a request but things are building in that direction,” the source told Reuters.

However officials at the Bank of Italy and the Italian Treasury said no request for financial assistance had been made.

Italy’s Treasury also said today it is introducing a new system of auctions to manage liquidity in the money markets, with up to two auctions a day.

What does it mean I hear you cry? Some Italian commentators say this is just a formalising of changes agreed at least a year ago, which were designed to increase the amount the Bank of Italy earned on money it holds for banks, others saying it’s a new way of raising money.

09.20 European markets are now all trading lower, with the unlikely rally of the last few days grinding to a halt. It was hard to see what was driving the gains earlier this week, when the economic picture has really not got much sunnier…

The FTSE 100 is off 0.5pc at 5,310 points, while the CAC fell 0.7pc in Paris and the German DAX shed 0.9pc.

09.00 Benedict Brogan brings us a bit more of the political fallout from yesterday’s Autumn Statement

Shadow Chancellor Ed Balls was judged to have given a good performance responding to Osborne in the House of Commons yesterday. But it’s hard for him to shake off his past. Benedict writes:

On Sky News, Mr Osborne was even more outspoken – on Ed Balls, he said that “bringing him back to run the economy would be like bringing Fred Goodwin back to run the banks”.

Later, on Today, he said that Labour “could have done more to prepare us in the good times”. He said that “frankly, whoever was in Government would be making the same sorts of choices” .

08.45 More UK economics to look out for todat – the Institute for Fiscal Studies will give its verdict on the Chancellor’s calculations at 13.00 today.

Daily Telegraph City Editor Richard Fletcher says:

It is unlikely to be pretty: the think tank questioned yesterday just how deliverable the extra £15bn of cuts in 2016/17 were.

08.40 It’s not going to help consumer confidence, but Telegraph commentator Jeremy Warner has outlined why yesterday’s Autumn Statement makes clear that Britain has many more lean years to struggle through.

Everyone knew, when Lehman Brothers went bust three years ago, that we were facing an almighty economic adjustment; it is only now becoming clear just how long that adjustment will take.

New forecasts contained in the Office for Budget Responsibility’s assessment of the Autumn Statement paint a grim picture of relative economic decline and ballooning debt.

It’s now going to take six years to eliminate the structural deficit, two years longer than originally forecast, and even then, cash spending on public services will be higher at the end of the period than at the beginning.

08.25 Quite unsurprisingly, UK consumers are gloomy about the future – and they were surveyed before yesterday’s cuts to growth.

The latest consumer confidence survey from GfK NOP showed that sentiment improved very slightly in November, edging up to -31 from -32 the month before.

However -32 was the lowest level since the depths of the recession in 2009, so confidence is still at a very low ebb, amid rising unemployment and high inflation putting a squeeze on spending.

08.15 There’s no doubt that the timing of yesterday’s Autumn Statement and the grim news it contained for many public sector workers on pay was not ideal.

Today, an estimated two million public sector workers are out on strike about changes to their pensions, and yesterday’s announcement that wage rises are going to be held at 1pc once a pay freeze ends in 2013 is not likely to make them any happier.

The Chancellor has accused the striking workers are damaging the economy. In yesterday’s statement to the commons, he asked:

I would once again ask the unions why they are damaging our economy at a time like this – and putting jobs at risk.

08.05 The London markets are now open and falling:

The FTSE 100 slid 56 points, or 1.1pc, to 5,281 points shortly after opening.

07.40 The front and business pages of this morning’s papers are all filled with the Chancellor’s Autumn Statement:

07.30 The eurozone finance ministers may have dropped the “big bazooka” bail-out plan, but they did manage to agree that Greece should get the €8bn (£6.8bn) it needs to stem an immediate cash crisis.

Yes, that is the same €8bn that Greece has apparently been in dire need of since the summer holidays – it now has it in time for Christmas…

However the finance ministers group kicked more difficult issues – such as whether countries should cede some control over their finances to a central European authority – to the EU leaders who meet next week (December 9).

My colleague Louise Armistead reports:

The eurozone finance ministers, who met ahead of a full EU finance ministers’ summit today, acknowledged the €440bn (£376bn) fund would not win support to leverage it up to €1 trillion.

Its capacity would be betwen €500bn and €700bn instead – a total that is unlikely to be big enough to rescue Spain and Italy.

07.20 The Chancellor George Osborne is in Brussels for today’s finance ministers’ meeting, but he has been speaking on TV and radio to try and spell out how the Government will tackle to slow growth and high borrowing unveiled in yesterday’s Autumn Statement.

On BBC Radio 5 this morning, he took umbrage at the suggestion the economy is shrinking:

The economy is growing but not as much as we would like.

He did admit the country faces tough challenges, and iinsisted that Britain was “getting ahead of the curve” compared with other European nations.

“We took emergency action ahead of time” and as a result will be better able to “weather the storm”, he said adding that he did not think people foresaw that the eurozone would plunge into crisis in the way it has.

07.10 Asian markets have fallen this morning, after European finance ministers failed to come up with measures to make the eurozone bail-out fund big enough to tackle the region’s debt crisis, and S&P cut the credit ratings of US and UK banks.

Japan’s Nikkei dropped 0.5pc to 8,434.61, Hong Kong’s Hang Seng lost 1.9pc and Australia’s S&P/ASX 200 rose 0.4pc.

Sentiment was dented after a meeting in Brussels of finance ministers from the 17 countries that use the euro ended without an announcement on plans to contain the debt crisis that is threatening to shatter the currency union.

Ratings downgrades for many of the world’s largest banks also drove investors to the sidelines, analysts said. Standard & Poor’s on Tuesday lowered its credit ratings for 37 financial companies, including Bank of America, Citigroup and HSBC.

Dickie Wong, executive director of research at Kingston Securities in Hong Kong, said:

The downgrade is affecting local stock market sentiment. I believe it gives pressure on the international banking sector, and some local banks will probably be down quite a bit today.


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