? 53-year-old construction worker dies in Athens
? Greek parliament approves latest austerity package
? Markets nervous ahead of weekend EU summit
? Spanish and French bond auctions 'go ok'
? UK retail sales stronger than expected
? Today's agenda
? Blogging now: Graeme Wearden
A saddening, dramatic day is over. Here's a round-up of the key events.
? Dimitris Kotsaridis, a 53-year-old construction worker, has died during a second-day of violent clashes in Greece
? Communist and anarchist groups clashed, while riot police used stun grenades to clear the streets
? The Greek parliament has approved the latest austerity package, although one ruling MP broke ranks
? European leaders will hold a second summit next week, admitting they won't reach a deal this weekend
? Troika warns that Greek economy will shrink 15% between 2009 and 2012
Thanks for reading, especially those who commented below. We're particularly grateful for information from the ground in Greece, so keep it coming please. Goodnight all.
Wall Street has just closed for the day, with little change on the main indices as traders nervously watch events in Europe.
The Dow Jones ended 35 points higher at 11541 (up just 0.3%).
The latest word from Greece is that at least 74 people were taken to hospital today after being injured during the protests. Dimitris Kotsaridis remains the only fatality.
One of the MPs who supported the package warned parliament that he is struggling to support the scale of the austerity that is being heaped on Greece.
Veteran MP Vasso Papandreou warned that Greece is on the verge of imploding, a fear widely shared by people we've spoken to on the ground.
Papandreou (no relation of PM George Papandreou), said that:
Enough is enough, society is despairing, the country is collapsing.
I will vote in favour [of the measures] but this is the last time. I am struggling with my conscience.
The decision to call a second summit next week has disappointed investors, who had already pushed the FTSE 100 down 65 points by the close of trading.
Italian debt has been hit, with the yield on the country's 10-year bonds jumping to a high of 6.03% this afternoon. The 6% mark is generally seen as the start of the 'danger zone' where countries risk losing the faith of the financial markets.
David Jones of IG Index said the City is concerned that France & Germany's leaders cannot agree on what form the latest rescue should take:
It would be fair to say that markets have a 'once bitten, twice shy' attitude to these weekend meetings based on recent let-downs. The hope is that by next week we will have a better idea of how the European debt crisis will be tackled ? but until these plans are known, it is difficult to see any significant headway for equities.
The risk for disappointment remains high if the meeting's outcome is simply further procrastination.
George Papandreou's Socialist government has won the vote on the austerity package, despite Louka Katseli's rebellion.
A total of 154 MPs voted to give final approval to the package, with 144 opposing it.
Louka Katseli, a former labour minister, went through on her threat to vote against the changes to unemployment law.
Reuters reports that she will now be expelled from the socialist party.
The Greek government is inching ahead. 125 MPs have voted yes, versus 118 who voted no.
First to 151 wins.
You can track the progress of the Greek vote live, here. So far, it's very tight - with 48 MPs voting yes and 52 voting no.
The Greek parliament has started voting on the government's austerity package.
This could be close. George Papandreou's government controls just 154 seats in Greece's 300-member assembly.
One government MP has already threatened to oppose parts of the package. Louka Katseli, a former labour minister, said she would vote down a provision in the legislation curtailing collective bargaining rights for workers.
The Financial Times says that Angela Merkel simply ran out of time to get a deal that satisfied her MPs, after the Troika report warned today that Greece's economy was in worse shape than feared:
"There will be no agreements," said one senior German official. "This will now happen Wednesday at the earliest."
Asked why EU leaders were still holding the summit, the official said: "That's a good question. Sarkozy wants one."
Another senior European official insisted that Sunday's summit would still come up with decisions on the crisis, but said the last-minute timing of the troika analysis, which is needed to strike a deal with Greek bondholders over a new "haircut" deal, meant Ms Merkel could not get consent of her parliament.
"Merkel doesn't have enough time to run it by the Bundestag," the second official said.
In another development - German Chancellor Angela Merkel has cancelled a planned speech to parliament in Berlin tomorrow. Bloomberg has more from Berlin:
German Chancellor Angela Merkel has canceled a planned speech to parliament in Berlin tomorrow because of a deadlock over proposals to leverage the European Financial Stability Facility to give it more firepower, three German lawmakers said.
"It's a disappointing development but without any concrete proposal for increasing the efficiency of the fund the chancellor can't present a complete set of proposals tomorrow," Norbert Barthle the ranking member of Merkel's Christian Democratic Union party on parliament's budget committee, told reporters.
It's official, a second EU summit will be held next week.
A statement just issued by Nicolas Sarkozy's office says that this weekend's gathering will go ahead, but leaders will meet again within the next few days to finally agree the details of a "comprehensive and ambitious global response" to the crisis.
Here's the key statement (roughly translated via the magic of Google):
For a lasting solution to the situation in Greece, the Greek authorities will have to make ambitious commitments to address the situation of their economies as part of a new program. Based on the report of the troika and the analysis of debt sustainability Greece, France and Germany call for immediately undertake negotiations with the private sector to reach an agreement for strengthening sustainability.
The President and the Chancellor will meet Saturday night in Brussels ahead of the European Council summit in the euro area on Sunday.
France and Germany have agreed that all elements of this ambitious and comprehensive response will be discussed in depth at the summit on Sunday in order to be finally adopted by the Heads of State and Government at a second meeting later than Wednesday.
Demonstrations have been continuing in other parts of Greece today, fortunately with no fatalities.
Reader Gina Ware, who lives on the island of Syros, has posted a large collection of photos on Flickr. They show peaceful scenes of people marching, both yesterday and today, in protest at the austerity package being voted on tonight.
This picture shows a banner with the slogan: "We are not afraid of anything, we are free".
The wider eurozone crisis continues to play out, ahead of this weekend's EU summit.
There had been rumours earlier today that the summit would be cancelled, but David Gow reports that the event is definitely on.
Well-placed EU sources insist that divergences between France and Germany are being "exaggerated".
Separately, Reuters is just reporting that the two countries are considering holding an "extra" summit next week, where the details of the private sector involvement in a second Greek bailout could be discussed in more detail.
I'm grateful to reader Kizbot for flagging up a very good gallery of photos from today's protests, over on the Naftemporiki newspaper's website.
The pictures show scenes of the riot police facing off against protesters, some of whom are wearing gas masks and carrying sticks. They also show some of the tens of thousands of marchers, not taking part in the violence. Definitely worth a look.
The man who has died is now being named in Athens as Dimitris Kotsaridis, a construction worker and communist party unionist.
As our previous blog post should have made clear, the precise details of his death are still not clear.
Confusion is deepening around the death of the man in Athens. The hospital is now officially saying that he was not injured when he was brought to the hospital and died from natural causes.
Eyewitnesses are claiming that the man, a trade unionist, collapsed after being tear gassed by police in Syntagma Square.
Separately, the BBC is reporting that one trade union member was attacked by a group of other demonstrators, but it is not clear whether there is a link.
Doctors at Evangelismos Hospital are now confirming that a 53-year-old construction worker attending today's protest outside the 300-seat Parliament has died.
Helena Smith in Athens has the details:
It is not clear whether he died as a result of head wounds or a heart attack but what is known is that he was hit by a rock. Some 40 others were also rushed to the hospital with injuries some with very bad burn wounds to their feet.
This is the worst violence that Athens has seen in decades and has shocked MPS currently debating the package of deeply controversial EU/IMF dictated reforms inside the parliament. Fierce street fighting continues with squads of riot police in helmets and gas masks slugging it out with groups of rock-throwing youths who have set up make-shift barricades on the boulevards that run off Sytagma Square.
The fatality has cast a shadow over the vote and added to the explosive mood in Athens.
The reported death of a 53-year old protester has cast a dark shadow over Athens.
Parliament deputy speaker Anastasios Kourakis announced the death during a debate on the new bill ahead of a final vote later Thursday.
There had been fears of fatalities, following the deaths of three bank workers during another general strike in May 2010.
We must emphasise that it is not certain at this stage how the man died.
Greek media are now reporting that a man has died in Athens after being injured during today's protests.
Skai News says a 53-year-old construction worker died of a heart attack after he was hit by a rock.
More details as we get it.
This picture, taken from an internet Greek TV feed, shows the clouds of teargas and smoke covering Athens.
Greek TV is now showing lines of Greek police guarding the Athens parliament, with groups of demonstrators standing peacefully.
In other parts of the city, though, running battles appear to still be taking place between rival protesters. Some of the piles of rubbish littering Athens have been set ablaze. As Associated Press reports:
Violent rioters attacked peaceful demonstrators with firebombs and stones on Thursday as tens of thousands turned out in Athens to decry unpopular new austerity measures demanded by creditors to keep Greece afloat.
The demands have enraged ordinary Greeks. Communist party supporters taking part in the Thursday's rally set up a cordon in front of parliament to prevent hard-liners from starting fights with police.
But they came under repeated attacks by hundreds of masked protesters in motorcycle helmets who threw gasoline bombs and chunks of marble into the crowd. Fights broke out as the Communist party supporters retaliated. Chaos ensued as protesters and masked youths armed with clubs charged each other, and riot police fired volleys of tear gas to separate the two sides.
Stavros Flegas, a doctor, has told Greek TV station Skai that about 30 people had been treated for injuries and breathing problems since the morning.
Estimates of the number of people on the streets varies. Associated Press say "more than 50,000", while Sky reckoned there were at least 10,000 people outside the Greek parliament - many trying to prevent MPs getting into the chamber to vote on the latest austerity packages tonight.
The word from Athens is that, following violent clashes between rival groups of protesters (anarchists and communist party unionists), the streets are calmer.
There has again been heavy use of teargas and stun grenades, with the 'boom' of explosions echoing around the city, according to reports from the scene.
Theodora Oikonomides (who we interviewed yesterday) says ambulances have been arriving to pick up some of the wounded.
Afternoon all. Quick peek at the financial markets first. Wall Street has just opened for trading -- despite the gloomy news coming out of Europe today, the Dow Jones is up 27 points at 11,531.
Darker picture in London, though. The FTSE 100 is down almost 1%, losing 50 points to 5399.
With rumours circulating that the weekend summit might be delayed, swiftly followed by denials from Brussels officials, the City isn't too sure what to make of the current crisis.
I, Julia Kollewe, am signing off and will leave you in the capable hands of my colleague Graeme Wearden for the Wall Street open. Many thanks for all your comments today and good-bye.
The German government does not rule out the possibility of postponing the EU summit planned for Sunday, according to the conservative German newspaper Die Welt. Citing sources from both Angela Merkel's centre-right coalition as well as her government, it said the deadlocked Franco-German talks on the leveraging of the eurozone bailout fund were the reason for the possible delay. The summit has already been postponed from 17 October. The euro fell against the dollar on the report.
More on the troika report from David Gow in Brussels.
Greece, we all knew, will get its next ?8bn signed off by eurozone finance ministers tomorrow, bringing the total bailout so far to ?73bn. But the 106-page Troika report, prepared by the European commission with the ECB (it says, ignoring the IMF), paints a pretty horrific picture of the Greek economy which, it says, will contract by 15% from 2009 to 2012. Surprise surprise, therefore, "government debt dynamics remain extremely worrying," even though the July 21 decisions this year, including private sector involvement (PSI), have lowered substantially the Greek government's financing needs "for a decade,"it says.
Now comes the big bazooka of a warning: "However, in a scenario in which policy implementation going forward is weak, this should not suffice for the debt dynamics to be described as sustainable." But the report does not (yet) enumerate the new gross debt ratio - or the higher level of PSI required. This will be sent to the eurogroup of finance ministers tonight for their talks tomorrow.It was more than 140% of GDP at the end of last year and reports suggest it now stands at 180% - clearly unsustainable.
The report spells out that the peak level depends on the PSI..."However, the debt ratio will remain at very high levels fir many years and would be vulnerable to adverse shocks. When compared with the outlook of a few months ago, the debt sustainability has effectively deteriorated, given delays in the recovery, in fiscal consolidation and in the privatisation plan as well as the perspective of bank recapitalisations."
So: what's happened in the past six months or so? After a little spurt in the first quarter, economic activity for the first six months contracted by 6%. "Demand contracted on account of fiscal consolidation, the deterioration in the labour market, uncertainties regarding political and financial prospects, social unrest and industrial action as well as a deceleration in activity both within Europe and worldwide." So the economic recovery will be delayed and, after a 5.5% contraction this year, we'll see a further one of 2.75% in 2012. Modest growth will resume in 2013. Over to you, George.
The Austrian finance minister has waded into the debate over how much new capital European banks need. Maria Fekter said the figure was not as high as some had expected: "It's about ?100bn that is needed for recapitalisation."
Ireland's government has indicated that it would sticks to its pledge not to raise income tax or cut social welfare rates next year after talks with the troika of lenders (IMF, EU and ECB). "There is nothing in our discussion that would cause us to move from commitments we made," said finance minister Michael Noonan. He added that the troika had concluded that the country is on track and "Ireland is making substantial progress in all the key areas".
Here is the latest from Helena Smith in Athens. Sounds a bit like the street fighting during the Weimar Republic...
Just back from the barricades where fierce hand-to-hand fighting has broken out between self-styled black-clad anarchists and communist party unionists. Scores are believed to have been injured in the clashes which erupted in front of the posh Grande Bretagne hotel. For hours an eerie calm has prevailed as tens of thousands have protested outside the parliament many representing unions ranging from garbage collectors to transport workers, taxi drivers and seamen - just some of the sectors who say they are being "picked out and punished" by the austerity measures dictated under the terms of Greece's ?110bn EU/IMF bailout.
Demonstrators thronging Syntagma Square are forced to pick their way through the detritus of destroyed bus stops, shop windows, smashed marble and burned rubbish that lines the streets in the wake of the clashes that erupted late yesterday. Almost to a man protesters say that the violence is the work of undercover policemen who start throwing petrol bombs and rocks at police so that the authorities have an excuse to strike back with tear gas and disperse the crowds. But these latest clashes highlight the extreme tensions caused by the economic crisis in a country that really does feel as if it is on the verge of a nervous breakdown.
As expected, Germany has sharply lowered its growth forecast for next year to 1% from 1.8% in response to the uncertainty in financial markets. Economy minister Philipp R�sler said despite the slowdown, the country is not headed for recession. He noted that unemployment is at a record low and order books are full.
More from my colleague David Gow in Brussels:
The draft eurozone summit statement (to be issued after Sunday's talks) is circulating and it confirms that a lot of agreement still has to be reached on the three core issues: private sector involvement in Greek debt (increased haircuts), bank recapitalisation and, above all, "increasing the efficiency of the EFSF". The first and last of these will be the hot topic at tomorrow's eurogroup meeting starting at 1400CET while the middle one (banks) is on the agenda for the ecofin meeting on Saturday morning (attended by George Osborne and the other nine "outs").
These sections are left pretty well blank or in brackets, including the agreement to give the Greeks their sixth bailout tranche worth ?8bn and the prospect of a new EU-IMF programme with Athens to be concluded by the end of November. It's also worth noting the reaffirmation of "our unequivocal commitment" that PSI "is and will continue to an exceptional solition applying only to Greece as its unique condition requires a unique solution." And there's talk of the other eurozone countries reaffirming their "inflexible determination" to abide by sustainable fiscal conditions etc.
There are these gaps but it is clear that Herman Van Rompuy, European Council president and proposed eurogroup president too, wants a full-scale political deal on Sunday - in tome for Monday's market openings. "The crisis, however, is far from over, as shown by the volatility of sovereign and corporate debt markets. Further action is needed to restore confidence. That is why today we agree on additional measures reflecting our strong determination to do whatever is required to overcome the present difficulties," the draft communique says.
And the statement indicates that eurozone countries are discussing plans for national budgets to be based on growth forecasts produced independently from government (the OBR model) and, in case of consistent upward bias, governments will be forced to use European commission forecasts. And, yes, the commission and eurozone partners will be empowered to impose changes on budgets if countries are too far out of line regarding their deficits.
As we try to get more on that Troika report into Greece (several news agencies are picking up the same story, but there seems to be little more detail immediately available), one thing worth noting is that the German finance minister has said there is no agreement on EFSF leverage.
This, of course, is the idea that ?440bn could become ?2tn if the fund could borrow from the ECB, or just guarantee the first 20% of losses or some other way of doing it.
Reuters is saying Wolfgang Sch�uble saying there is no agreement as yet.
European states are still at odds on the question of leveraging up the European Financial Stability Facility (EFSF) but Germany will oppose any European Central Bank involvement, German finance minister Wolfgang Sch�uble said on Thursday.
He also told reporters that the German contribution to the EFSF would be no higher than the ?211bn in guarantees already agreed.
Newsflash: The Troika draft report on Greece says the country's economic downturn is substantially worse than forecast, Reuters is reporting.
Mid-term growth forecasts may need to be revised downwards, and the sixth aid tranche should be paid as soon as possible.
On a lighter note, Louise Cooper, markets analyst at BGC Partners, has some musings on "Sarko's Women".
Reportedly Nicolas Sarkozy asked Carla Bruni to marry him within two hours of their meeting. Well he didn't hang around long after the birth of their daughter yesterday. He was off to Germany to meet with his political partner, Angela Merkel, but not much came out of this rushed romance. Little agreement on how to solve the crisis, let alone plans for the greater fiscal union.I am still surprised quite how strong equity markets are, given the potential for disappointment from this weekend's deadline. Almost everyone I speak to is sceptical that much will be achieved and yet the FTSE is holding on to most of the big gains from the begining of the month where it rallied over 10% in a couple of weeks. Financial markets are not normally known for their patience and yet for the time being, they are giving our political leaders and central bankers that most precious of commodities, time. How long this will continue is anyone's guess. However I would say that the smallest event can cause everyone to head for the exit and predicting what event will cause panic is almost impossible.
For anyone who thinks China is going to ride to Europe's rescue by handing over a load of cash, Cooper recommends watching the Channel 4 interview with Jin Liqun, the boss of China's sovereign wealth fund, CIC.
The man who holds the purse strings for a fund that has $100bn to invest in overseas equities was pretty criticial of the European work ethic and highlighted that the Chinese "work like crazy". He says it is "very important for outsiders to see a clear, credible and well thought out programme" to sort out Europe's problems (well we are some way from that) and that the "Eurozone members demonstrate solidarity". From this comment, it is pretty clear that China wants Germany to buy the first round and then China may pay for the second.
Markets have also taken hope from the release of a document on guidelines for the eurozone bailout fund. The fund would be able to buy bonds in the secondary market if a eurozone country requests it, Reuters reported. The euro rallied as high as $1.3838 and the FTSE is now down just 26 points.
The Spanish and French bond auctions have gone reasonably well this morning. Spain sold ?3.91bn of government bonds in its first auction since Moody's cut the country's sovereign rating by two notches on Tuesday. France sold ?7.49bn of fixed coupon bond and is due to sell inflation-linked debt later, only days after Moody's warned its top credit rating could be under threat.
Lyn Graham-Taylor, rate strategist at Rabobank, said about the auctions:
They went ok especially given that Germany has been slightly struggling covering its own auctions... It might be a combination of domestic demand and maybe some people might be slightly hunting for yield and thinking there might be a solution to the crisis and ultimately the biggest solution would benefit Spain, Italy and France and the biggest loser will be Germany. Debt burden shifting to Germany is probably one of the reasons they've been struggling with their auctions.
Alessandro Giansanti, strategist at ING in Amsterdam said about the French auction:
It was quite strong. I don't see any spillover at the auction from the Moody's news. That's a positive because it will not affect the ability of the country to issue bonds, not even with the steep increase in the financing cost.
Marc Ostwald, strategist at Monument Securities in London, said:
All things considered, it's gone pretty well. It doesn't change anything, but all in all Spain will be pretty happy with that.
Last night's farewell gala in Frankfurt for ECB president Jean-Claude Trichet, who steps down at the end of the month, was a lavish affair by all accounts. The two-hour event at Frankfurt's historic Alte Oper concert hall, interspersed with musical interludes, was attended by a number of political dignitaries such as former French president Valery Giscard d'Estaing and former German chancellor Helmut Schmidt who fell over themselves to praise Trichet as a great European.
Schmidt, wheeled onto the stage in a wheelchair, used the opportunity to lash out at the "dramatic inability of the EU's political bodies to curb the dangerous turbulence and uncertainty". Only the ECB directorate, under Trichet's leadership, he said, had proved effective and able to act.
"The constant talk of a 'euro crisis' is mere chatter on the part of politicians and journalists," Schmidt said. "In truth, we have a crisis in the ability to act of the EU's political bodies. This inability to act is a much bigger danger for the future of Europe than the over-indebtedness of individual eurozone countries."
Trichet, who turns 69 in December, will hand over to Italy's Mario Draghi on 31 October. The farewell gala began with a short film spanning the Frenchman's eight-year reign and ended with a concert by the Mozart Orchestra under its founder and chief conductor, the legendary Italian maestro Claudio Abbado.
Chris Williamson, chief economist at Markit, was quick to pour cold water on any hopes that the surprise 0.6% rise in UK retail sales signalled a turnaround on the high street. He reckons Christmas will be a tough one for retailers.
A quick look at the data for previous months is enough to erode any hopes of a recovery on the high street. Spending over the summer months was revised down, meaning we are seeing an even weaker trend in spending than previously thought. On a three-month-on-three month basis, sales were down 0.2% in September, which is a rate of decline identical to that seen in July and August (August had previously been estimated at +0.3%).
With unemployment at 8.1% and set to rise further, the cost of living increasing at the fastest rate for 20 years and household confidence bruised by worries about the economic outlook at home and abroad, retail sales will inevitably be under pressure in coming months. Retailers are facing a challenging lead up to Christmas and the festive season may be one of the toughest yet that we've seen in recent memory.
Our man in Brussels David Gow has just sent us this:
The pace of briefing and counter-briefing ahead of this weekend's myriad meetings to try and reach a "comprehensive" deal to resolve the eurozone/sovereign debt crisis has picked up remarkably. But it certainly seems to be the case that the European Banking Authority's revision of its stress tests for around 60 to 70 "systemic" banks has come up with a figure of around ?90bn - including a positive gain of ?10bn on some sovereign debt marked to market. Sources in the know compare this wryly with the ?200bn "plucked out of the air" by Christine Lagarde, IMF managing director, last month. And, yes, British banks are unaffected as their capital requirements have already been set very high. The EBA has set a 9% capital ratio under what one wag calls Basel 2.5 and given banks six to nine months to comply.
Meanwhile, confirmation comes that the putative size of the enhanced bailout fund, the EFSF, and of the revised "haircuts" on Greek debt depends entirely on to whom one talks. What was true one day may be untrue the next (as this correspondent knows via impeccable sources). Thus, the idea of turning the EFSF into an insurer had a huge amount of traction earlier this week but may now have run out of puff - and the "leveraged" amount could be anything between ?1trn and ?2trn compared with the current ?440bn. And the haircuts? Probably 30%, according to one seasoned European diplomat, who admits he hasn't a clue, really. This, my friends, is how the EU works.
British retail sales numbers just out - much better than expected and the first bit of good news retailers have had for some time. Sales volumes climbed 0.6% last month from August. There was a surprise increase in back-to-school sales of laptops while video games were also strong due to several big launches. However clothes sales tumbled 2.1% on a year ago, the biggest annual fall since April 2008. You can see a breakdown of the figures here on the Office for National Statistics website.
Germany will nearly halve its growth forecast for next year when it releases updated projections on Thursday, AFP reported, citing government sources.
The government will slash its forecast to 1% for 2012 from 1.8% projected in April. This would bring Berlin more into line with its leading economic institutes, which last week cut their growth forecast to 0.8%.
In a research note published on Wednesday, ING analyst Carsten Brzeski said: "The debt crisis has finally reached the German economy. Strong fundamentals, however, should prevent the economy from falling off a cliff."
He argued that the crisis had helped Germany to an extent, though, by pushing down the value of the euro, making exports cheaper.
"With Italy and France starting to falter, Germany is also feeling the pain. Fortunately, this is not 2008 and the economy should not collapse. Economic fundamentals are simply too sound. However, the eurozone's economic superman may finally have its kryptonite."
So what is happening today?
? UK retail sales at 9.30am - no change expected
? Germany set to downgrade its growth forecast
? Spanish and French bond auctions
? Greek vote on austerity measures tonight
? FSA chairman Adair Turner gives speech at Mansion House tonight
My colleague Helena Smith in Athens has the latest on the Greek situation.
In what promises to be a dramatic day here in Athens passions are building up around the Greek parliament where thousands of militant communist party unionists have been gathering since the early morning in a bid to blockade the building hours ahead of tonight's crucial article-by-article vote on the latest package of austerity measures to be demanded of debt-stricken Greece. Hurly burly scenes, lots of shouting amid widespread anticipation that today is going to be much worse than protests yesterday.
Copper and gold led a commodities plunge as the escalating eurozone debt crisis spooked investors. Gold dropped as much as 2% to $1,608.40. The euro lost more than half a percent to a session low of $1.3673, after EU sources told Reuters that the IMF is at odds with the EU and the European Central Bank on the sustainability of Greek debt and wants a clearer picture before releasing the next tranche of bailout money.
On top of the Franco-German deadlock over the EFSF, the mood in markets has been dampened by a Financial Times article predicting that Europe's grand plan to strengthen its banking system is likely to fall far short of market expectations. It says the European Banking Authority is likely to recommend ?70-90bn of additional capital for European banks, significantly less than IMF estimates of ?200bn.
Ratification of minimum capital adequacy requirements for European banks is expected to be part of this weekend's summit of European leaders. These requirements will be largely determined by a new round of EBA stress tests, which this time is to focus on sovereign bond haircuts.
However, according to the FT, the EBA's calculations are expected to include positive impacts on capital positions from holdings of sovereigns which are trading at a premium to par (Bunds and Gilts). This is a key difference between the EBA and IMF's recapitalisation estimates.
On this basis, the recapitalisation requirements for UK banks are expected to be limited, said analysts at Oriel Securities.
As long as the debt crisis doesn't spread, it should have a limited impact on European insurers, credit ratings agency Moody's reckons. In a report published on Thursday, it says that "most rated European insurers could sustain a potential further weakening in the creditworthiness of the Irish and Portuguese sovereigns as well as higher-than-expected losses on Greek sovereign debt. However, the credit profiles and ratings of many European insurers would be affected in the adverse scenario of Spain and Italy experiencing a significant credit deterioration as a result of a widening of the EU sovereign debt crisis."
There is not a single riser on the FTSE at the moment. Losses are led by the miners - Kazakhmys, Xstrata, Eurasian and Rio Tinto. Banking stocks are also suffering again.
Justin Urquhart Stewart of Seven Investment Management told Reuters:
With the mood they're in at the moment, markets, won't even believe anything that is decided [at the EU summit]. People trying to establish a theme here will find it very difficult - they should just ignore it until the politicians make up their minds.
More on the Greek vote. The austerity bill won initial approval with a majority vote in parliament on Wednesday, and lawmakers now vote on the details. The measures include the suspension of 30,000 public servants on reduced pay and the suspension of collective labour contracts, and have angered even deputies from the governing Socialist party.
Britain's bluechip index has tumbled almost 80 points to 5370 after the open, a 1.46% fall. European markets are also down between 1.2% (Spain and France) and 1.6% (Italy).
Here is some early morning analysis from Gary Jenkins, head of fixed income at Evolution Securities:
As we approach the EU's self-imposed deadline for agreement on a comprehensive solution it is apparent that they are in full "expectations management" mode. No agreement seems to have been reached in Berlin last night going by comments following an emergency meeting of the main leaders involved in the crisis including IMF's Lagarde, ECB President Trichet and ECB President to be Draghi, leader of the EU finance ministers Juncker, EU President van Rompuy, Germany's Merkel and France's Sarkozy as well as the French and German finance ministers.
France and Germany disagree over the ECB's involvement in the plan, with France wanting the ECB to use its balance sheet to boost EFSF funds and for the EFSF to have a banking licence. Germany seems to favour the EFSF providing first loss guarantees to boost the funds. The French approach would increase the EFSF's available funds, which overcomes one of the key weaknesses, but then it also increases the exposure of the guarantors and unless guarantees are increased the EFSF's rating must be at risk due to the leverage. If guarantees are increased some of the guarantors' may face rating pressure from the higher contingent liabilities. Ratings may have to be sacrificed if they want to solve the crisis. No point being AAA and going down with the ship?
Markets are nervous ahead of a key European leaders' summit on Sunday. French president Nicolas Sarkozy flew to Frankfurt last night for emergency talks with Angela Merkel, the German chancellor, to try and overcome differences over how to increase the firepower of the eurozone bailout fund. Germany wants to turn the fund into an insurer and offer first-loss guarantees to holders of government bonds issued by countries which get into financial trouble. But Sarkozy, under pressure to save France's AAA credit rating, wants to turn the EFSF into a bank.
The trip underlined the scale of the crisis as it came while Sarkozy's wife Carla Bruni gave birth to their first child. The French president flew back to Paris after his talks with Merkel to see his newborn daughter. It doesn't look like any agreement on the EFSF was reached last night. Maybe he should have stayed with Carla...
Athens saw dramatic scenes on Wednesday when riots broke out during a protest march by more than 100,000 people, on the first day of a 48-hour general strike. Greek lawmakers vote on the latest round of austerity measures on Thursday, which are needed to secure more international bailout money.
Wall Street saw a late sell-off on Wednesday, with the Dow Jones closing down 72 points, or 0.6%, at 11504. Asian markets were bathed in red - the Nikkei in Tokyo lost nearly 1% while the Hang Seng in Hong Kong tumbled 2.75%.
. Good morning. Britain's FTSE 100 index is seen opening lower, giving back all the gains made on Wednesday when it climbed 40 points to 5450. Spreadbetters are calling it 54-60 points down, a fall of up to 1.1%, while Germany's Dax and France's CAC are expected to open between 1.6% and 1.7% lower.
Source: http://www.guardian.co.uk/business/blog/2011/oct/20/eu-crisis-emergency-talks
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