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16.41 Bruno Waterfield reminds us of an opinion poll in January that showed a referndum could be too close to call. The concern now is that public opinion could have swayed in the weeks since it was taken.
16.31 The Irish Times has the full text of Enda Kenny's statement to Parliament online.
I strongly believe that is very much in Ireland’s national interest that this treaty be approved, as doing so will build on the steady progress the country has made in the past year.
That progress has seen international and investor confidence in Ireland rising, leading to many new investments in our country – investments that are creating new jobs for our people.
In this referendum, the Irish people can confirm our commitment to responsible budgeting and, in doing so, ensure that the reckless economic mismanagement that drove our country to the brink of bankruptcy will not be repeated by any future Government.
16.25 More from Irish PM Enda Kenny, who told Parliament that he'll sign the fiscal compact treaty on Friday, but was warned by the Attorney General Maire Whelan that the country must hold a referendum.
I am very confident that, when the importance and merits of this treaty are communicated to the Irish people, they will endorse it emphatically by voting Yes to continued economic stability and recovery.
Gerry Adams, leader of Sinn Fein, has already vowed to lead an anti-treaty campaign.
16.11 A little clue as to the timing of the Irish referendum from our man in Brussels, Bruno Waterfield.
16.02 Time for a quick poll on that Irish announcement. If only a real referendum was that easy to organise...
15.50 As Garry White points out in a tweet, the euro has fallen against the dollar since Enda Kenny's announcement that Ireland will hold a referendum on tighter budget rules across the EU. It's bounced back from the initial shock slightly, and is now hovering around $1.3413.
15.20 It's just been announced by Irish PM Enda Kenny that the country will have a referendum on Europe's new fiscal compact. The country joined 24 other EU states last month and agreed on a pact for stricter budget discipline.
The Irish people will be asked for their authorisation in a referendum to rafify the european stability treaty.
15.18 Germany's finance minister Wolfgang Schaeuble said it'd be regrettable if a country decided to leave the eurozone but that its partners would be forced to accept it.
If a country were to decide to leave them, it's something we would regret but which it would be necessary to accept in accordance with these principles.
15.08 Separate data showed that orders for US durable goods dived in January after three months of gains, led by a slump in commercial aircraft orders, shows new government data.
New durable goods orders fell 4pc from January to $206.1bn, the Commerce Department reported.
14.58 Neil Dutta, an economist at Bank of America Merrill Lynch, said:
It's pretty clear that the consensus continues to under-estimate the decline in home prices. The December number is probably looking a little better than the numbers for the coming year.
Foreclosures are going to increase in this year. That's going put pressure on home prices and consumer spending and household balance sheet.
14.54 Markets weren't helped by a report that showed house prices in 19 of the 20 cities monitored by the S&P/Case Shiller index fell in December 2011.
Prices in the 20 cities dropped 4pc year on year, bigger than the forecast drop of 3.6pc.
David Blitzer, managing director of S&P Indices, said:
Seventeen of the cities have seen monthly declines for at least three consecutive months. In addition to both monthly composites, 10 of the cities saw home prices fall by more than 1.0% during the month of December. The pick-up in the economy has simply not been strong enough to keep home prices stabilized. If anything it looks like we might have reentered a period of decline as we begin 2012.
Around 12.5pc of US homeowners are currently behind on their mortgage payments.
14.42 US markets have opened broadly flat. The Dow Jones industrial average is currently trading at 12,978.56, while the broader S&P 500 is up 0.07pc at 1,368.53.
14.29 Meanwhile, Ambrose Evans-Pritchard has posted a blog on China, Argentina, and the mystery of the 'middle income trap':
In the early 20th century Argentina and Australia were twin economies trading similar goods in the informal British Empire. Half a century later, the Australians were five times as rich. Shows what good governance can do.
When I was in Dalian in September I heard China’s software king, Lee Kaifu, warn that the economic prize will elude the country unless it cleans up its intellectual property laws. Firms are already going off-shore to protect their inventions, and the best entrepreneurs are already moving to states with a commercial rule of law, he said.
14.18 French presidential front-runner François Hollande has said the country's top earners should pay 75pc of their income in tax. According to the BBC, he told French prime time TV:
Above €1m [£847,000], the tax rate should be 75pc because it's not possible to have that level of income.
He added that the 75pc rate was "a patriotic act". Nicolas Sarkozy, who introduced a "tax shield" in August 2007 that capped tax at 50pc, was quick to jump on Mr Hollande's comments. He retweeted this from French journalist Jean-Michel Aphatie:
13.40 Inflation in Germany accelerated in February, with consumer prices up 2.3pc on an annual basis. This compares with Bloomberg estimates of a 2.1pc rise.
Prices were pushed higher by a rise in energy costs, statistics released by Destatis showed.
13.00 The IMF, ECB and EU have also just released a statement on Portugal. In short, "The program is on track, but challenges remain."
Policies are generally being implemented as planned and economic adjustment is underway. In particular, the large fiscal correction in 2011 and the strong 2012 budget have bolstered the credibility of Portugal’s front-loaded fiscal consolidation strategy. Financial sector reforms and deleveraging efforts are advancing, while steps are taken to ensure that credit needs of companies with sound growth prospects are met. Reforms to increase competitiveness, growth, and jobs have also progressed, although many reforms still await full implementation. The broad political and social consensus that is underpinning the program is a key asset.
Looking ahead, the Portuguese economy will continue to face headwinds. In 2012, trading partner import growth is expected to weaken further, while domestic demand adjusts, and unemployment and bankruptcies are rising. As a result, GDP in 2012 is expected to decline by 3¼ percent, following a fall of 1½ percent in 2011. In 2013, a slow recovery should take hold, mainly supported by private investment and exports. External adjustment is proceeding.
12.57 Some reaction to Portugal passing its third troika review from Richard Driver at Caxton FX:
The market’s response has been fairly muted but it is definitely relieving news from Portugal.
Portugal is clearly next on the market’s ‘hit list’ and this next tranche is essential for eurozone confidence in the short-term. It staves off fears that Portugal is destined to follow the same path as Greece.
Portugal is making the right noises in ruling out the need for further aid but the market is very much in wait and see mode now, the cynics will say they’ve heard it all before.
Ireland has shown that aggressive reforms can actually work and return countries to competitiveness, so there is a precedent to follow there.
It will be interesting to see if tomorrow’s 3-year LTRO from the ECB relieves some of the pressure on Portuguese bond yields. Portuguese yields actually increased since mid-December’s LTRO and you’d assume they will be left out in the cold this time, which is a major concern.
12.46 Last week, business and trade union leaders called on the government to renegotiate the terms of its bailout in order to ease the impact of austerity measures on the country. Ministers have repeatedly denied that Portugal wants to follow in the footsteps of Greece and restructure its debt.
12.30 Back to Portugal, where the country's finance minister Vitor Gaspar has declared that Portugal is not seeking more rescue funds, or more time to pay back its loans. He told reporters:
We will not ask for more time or money [...] there will be no signal coming from the government other than meeting the terms of the programme.
Portuguese finance minister Vitor Gaspar speaks during a press conference at the finance ministry in Lisbon on Tuesday (Photo: EPA)
12.22 SocGen also provides a simple but handy illustration of CDS exposure in selected eurozone countries relative to the total size of their bond market. As you can see, exposure is quite small in relative terms:
Indicative protection levels in Italy, Spain, Greece, Portugal and Ireland relative to the outstanding bond market (Photo: SocGen, sourced from its Cross Asset Research, the Depository Trust & Clearing Corporation, and Bloomberg data)
12.16 Analysts have been clear that it is the CDS trigger (and whether insurance will be paid out on a default) and not what the ratings agencies have to say that markets really care about.
There is currently $3.2bn of CDS on Greece outstanding. So should they be worried? Lauren Rosborough at Societe Generale explains why she expects a high participation in the debt swap, and a low risk of contagion:
The importance of this number [€3.2bn] is how small it is relative to the value of Greece’s outstanding bonds (€206bio eligible for the PSI, according to official sources). Thus, there is a high incentive for private investors to engage in the PSI (as the majority are not hedged by CDS’), arguably reducing market and contagion risk. The size of net exposure to outstanding bonds for Spain, Italy, and Portugal are also very small suggesting that contagion risk from here is similarly limited (although such a comparison is indicative at best, as parameters are unknown given that these countries are not in bond swap discussions). Moreover, a selective default in Greece looks increasingly well planned out, reducing any potential ‘surprise’ factor.
11.48 Just to be clear, it's not the ratings agencies that officially decide if a default has occured. That's the job of the International Swaps and Derivatives Association (ISDA).
Last night my colleague Matthew Sparkes reported that the ISDA had been asked whether or not the Greek debt swap constituted a default, in light of Greece's retroactive insertion of collective-action clauses (CACs) that will force losses on all private holders of Greek debt as long as a majority (two-thirds) agree.
The ISDA said it will debate whether to debate the question (I kid you not) - and decide whether it will give an answer on Wednesday.
Generally [...] the inclusion of a CAC would not, in and of itself, be expected to trigger a Credit Event. On the other hand, the use of such a clause to effect a reduction in coupon or principal or one of the other events set out in the definition of the Restructuring Credit Event could trigger if the other requirements of the Restructuring Credit Event were met (for example decline in creditworthiness), as its effect would be to bind all holders of the relevant debt.
11.30 Following Standard and Poor's downgrade of Greece last night to "selective default," (see 7.17 onwards) credit default swaps (CDSs) - which insure bondholders against default (in theory - more on this in a second), have remained steady this morning.
Greek CDS ticked up 1.5 to 73.5 upfront this morning. This means that protection on £10m of debt over five years now costs an initial £7.35m, plus £100,000 a year.
11.17 Unemployment will rise to 14.5pc in 2012, he adds, up from the current rate of 13.6pc (according to Eurostat). The EC report last week said that "Greece, Portugal and Spain accounted for 95pc of the rise in unemployment in the EU since late 2010."
11.11 Mr Gaspar also said he expects the economy to contract by 3.3pc in 2012, in line with new forecasts published by the EC last week.
Portugal's finance minister Vitor Gaspar has announced that the country has passed its third financial healthcheck by the "troika" officials from the EU, the ECB and the IMF.
This paves the way for the release of its next, €14.6bn tranche of bailout funds.
10.51 Commenting on the auction, Marc Ostwald at Monument Securities said:
The cover as ever not overwhelming but on net slightly better than in January, and more importantly the full target volume of EUR 6.25 Bln was achieved.
[...] Given that the cover was not really out of line with previous sales, it would be tenuous to argue that tomorrow's 3-yr LTRO gave a boost to the sale.
As a general point, the BTP curve remains very steep, and thus offers Italian Banks and Fund Managers very attractive carry; one wonders, when the central bank liquidity "music stops", whether most Govt curves will have to be this steep! Equally Italy and the Eurozone are by no means out of the woods yet, so this is again a battle won in a long ongoing war.
10.45 On the eve of the announcement of the ECB's second long term refinancing operation (LTRO), Italy's long-term borrowing costs have fallen to their lowest levels since August.
The country sold €6.25bn of five and ten year bonds in two separate auctions this morning. Yields on 10-year debt fell to 5.5pc from 6.08pc at the last auction in January. There were 1.4 bidders per bond on offer, compared with 1.42 bidders at the last auction.
The Treasury also sold new five-year bonds at an average yields of 4.19pc (compared with 5.39pc in January), the lowest since May.
The highs and lows of Italy (chart shows yields on 10 year debt from August to February 28). Italy's 10-year borrowing costs rose as high as 7.5pc in November, before easing back (Photo: Bloomberg).
10.35 If you'd like to put your questions on how the markets have been moving recently to Jeremy Batstone-Carr, chief economist at Charles Stanley, then don't forget that you can join the Telegraph's live market webchat today at noon.
10.33 Let's take a closer look at how the FTSE 100 in London has fared this morning. Here's Rachel Cooper with more:
Whitbread, owner of Premier Inns and Costa Coffee, was among the worst performers on the benchmark index after it revealed a slowdown in sales growth.
Britain's biggest hotel operator said like-for-like sales at Premier Inn fell 0.9pc in the fourth quarter, having been up 2.6pc in the third quarter. But sales at Costa Coffee grew 6.2pc, compared to 3.8pc growth in the previous quarter. Overall, group sales rose 1.8pc, compared to 2.4pc in the third quarter.
Although sales had slowed, helping push Whitbread's shares down 1.9pc, Whitbread said it would meet forecasts for full-year profit.
10.15 Eurozone economic confidence has picked up for the second consecutive month, according to a survey by the European Commission.
Its economic sentiment indicator (ESI) came in at 94.4 in February, compared with forecasts of 94, according to a Bloomberg poll. The EU-wide figure was 93.9 (against a long-run average of 100). In a statement, the EC said:
Among the largest EU Member States Poland reported the biggest increase in sentiment, followed by France, the Netherlands and Italy, while the ESI improved only marginally in the UK and remained broadly unchanged in Germany and Spain. The ESI is above its long-term average only in Germany.
10.02 Germany's highest court has ruled that a nine-member committee set up to approve quick decisions taken by the eurozone's temporary bailout fund was "in large part" unconstitutional.
The Federal Constitutional Court said the committee only has a mandate to decide on European Financial Stability Facility (EFSF) purchases of government bonds on the secondary market.
For background to today's ruling, take a look at this blog by think-tank Open Europe.
09.52 Former German chancellor Helmut Kohl appeals for a "united Europe" in German newspaper Bild this morning, a day after the paper ran the headline: "Billions for Greeks. STOP!" on its front page. He writes:
The current debate in Europe and the crisis-ridden situation in Greece may now not cause us to lose the goal of a united Europe from the eyes or even questioned and put back away. The opposite is true: We must use the crisis as an opportunity. We need - right now - more and not less Europe.
The front page of yesterday's Bild
09.41 According to AFP, part of the EU summit, which starts on Thursday, has been cancelled. More from the newswire:
Leaders of the 17 euro states had been due to discuss boosting their debt defences over lunch on Friday, the second day of an EU summit.
However, a senior official told AFP that the session had been cancelled amid uncertainty over Germany's willingness to raise its contribution and after G20 countries delayed a decision on a related IMF funding increase until April.
The source said it was unclear early on Tuesday whether the issue would be tackled instead by eurozone finance ministers when they open the two-day Brussels gathering for talks on Greece on Thursday afternoon, or whether the debate would be put back altogether.
09.30 European Commission President José Manuel Barroso has replied to a letter from UK Prime Minister David Cameron and ten other European leaders' calling for the EU's economic policies to become more growth-focused ahead of this week's EU summit in Brussels. He writes:
We have agreed on an ambitious and comprehensive growth and jobs strategy: Europe 2020. Our common ownership of it needs to be more visible to our citizens. They need to know that the EU has a clear strategy for building a better future and that all Member States are working in the same direction. There should be no artificial separation between EU and national growth policies, they reinforce each other. The crisis is having a severe social impact in some Member States and is causing anxiety right across the EU. As well as taking active measures to boost employment and to help the most vulnerable, we need to provide a sense of direction and hope. Otherwise we will not be able to count on the social acceptability of the important measures that need to be taken.
Here is the letter in full (click the link to view a larger version):
09.02 Greed is not good. That's the new mantra of actor Michael Douglas, who played ruthless financier Gordon Gekko in the movie Wall Street.
Mr Douglas stars in a one minute film as part of an FBI campaign to root out criminal behaviour and prevent securities fraud and insider trading. As Mr Douglas puts it, "If a deal looks too good to be true, it probably is."
08.45 Meanwhile, Ireland, which has become the eurozone's poster child for implementing austerity, was given another gold star yesterday, as the IMF approved its latest €3.2bn (£2.7bn) bailout tranche last night.
David Lipton, IMF first deputy managing director, said:
The Irish authorities have continued strong implementation of their program despite deteriorating external conditions, meeting 2011 fiscal targets with a margin and advancing structural reforms to support growth and job creation. After three years of contraction, Ireland’s growth is estimated at almost 1 percent in 2011, with exports leading the current account into surplus. Ireland’s bond spreads have declined significantly in recent months, although they remain relatively high.
08.37 Portugal will present the results of its latest financial health check by the "troika" officials from the EU, the ECB and the IMF later today. The troika is expected to approve Portugal's next tranche of its €78bn bailout agreed last year.
Finance Minister Vitor Gaspar is expected to hold a news conference at 11am UK time to present the findings.
08.30 A quick look at the markets. The FTSE 100 in London opened up 0.16pc at 5,925.18, while the CAC 40 in Paris was up 0.2pc at 3,448.56 and Frankfurt's DAX 30 rose 0.24pc to 6,886.38.
08.25 Dozens of police have also moved in to clear protesters' tents from the steps of St Paul’s Cathedral in London. Follow live coverage of the eviction here.
Protesters at the Occupy camp at St Pauls Cathedral are evicted (Photo: PA)
08.17 Here are some of the other business stories making the headlines today:
Banks, bank bonuses, and banker salaries are all on the front page this morning. Top of the list? Barclays, and its use of two "highly-abusive" schemes to avoid paying tax.
08.11 Yesterday also saw German politicians approve the €130bn Greek bail-out. However, the Bundestag remained unconvinced by Angela Merkel’s warning that abandoning Greece would be “incalculable and therefore irresponsible”.
Louise Armitstead reports:
The Bundestag voted through the rescue funds with a large majority. But Ms Merkel was shown tough political and public opposition to any more support, just a day after the G20 demanded German backing for the eurozone firewalls.
Standard & Poor’s said it had put the European Financial Stability Facility (EFSF), the “big bazooka” tasked with raising the bail-out funds, on negative outlook. The rating agency said the fund’s profile was weaker since some of its guarantor countries were stripped of their AAA ratings.
Angela Merkel, Germany's chancellor, casts her vote on the Greek bailout fund, in the lower-house of the German Parliament in Berlin, Germany, on Monday (Photo: Bloomberg).
07.59 Banks will hope to use the combination of emergency liquidity assistance offered by central banks and these "EFSF buybacks" (the eurozone's interim bailout fund) outlined below to sidestep any funding issues.
Rival ratings agency Fitch has already said it will likely follow S&P and downgrade Greece to "restricted default" (oh, semantics) once the debt-swap has been completed.
Both agencies will reassess Greece's rating once the new, longer dated bonds have been issued.
07.40 In fact, the ECB has just issued this statement:
The Governing Council of the European Central Bank (ECB) has decided to temporarily suspend the eligibility of marketable debt instruments issued or fully guaranteed by the Hellenic Republic for use as collateral in Eurosystem monetary policy operations. This decision takes into account the rating of the Hellenic Republic as a result of the launch of the private sector involvement offer.
At the same time, the Governing Council decided that the liquidity needs of affected Eurosystem counterparties can be satisfied by the relevant national central banks, in line with relevant Eurosystem arrangements (emergency liquidity assistance).
Marketable debt instruments issued or fully guaranteed by the Hellenic Republic will become in principle eligible upon activation of the collateral enhancement scheme agreed by the Heads of State or Government of the euro area on 21 July 2011, and confirmed on 26 October 2011, together with a number of other measures aimed at assisting Greece in its adjustment programme. This is expected to take place by mid-March 2012.
07.38 Under normal circumstances, if a country is classified as in "default" by the ratings agencies, this poses questions over whether the European Central Bank (ECB) can accept Greek bonds as collateral in order to loan money back to banks. This in turn raises funding concerns for the banks.
07.34 While Jean-Claude Juncker, President of the Eurogroup, said:
This or possible similar rating decisions by credit rating agencies have been duly anticipated and taken into account in the planning of the PSI operation.
More specifically, following the Eurogroup meeting of 20 February 2012, euro area Member States are in the process of carrying out the relevant national procedures that allow i.a. the provision by the EFSF of a buy back scheme (collateral enhancement) allowing for the eligibility of marketable instruments issued or guaranteed by the Greek Government for use as collateral in Eurosystem monetary policy operations for the period of the SD ratings. I look forward to a high participation of private creditors in the PSI operation and takes note of S&P’s intention to upgrade the lower ratings following the settlement of the bond exchange.
07.32 The downgrade prompted the Greek finance ministry to issue this statement:
This move was pre-announced and all its consequences have been anticipated, planned for and addressed by the relevant decision of the European Council and the Eurogroup. The downgrade has no impact in the Greek banking sector as its liquidity effect has been addressed by the Bank of Greece, and consequently by the EFSF.
07.17 Those ratings agencies do enjoy their late night downgrades. Last night Standard & Poor's (S&P) cut Greece to "SD", meaning that it believes the country has undergone a selective default. The agency cited Greece's retroactive insertion of collective-action clauses (CACs) to its debt as the reason for the move.
Under our criteria, the definition of restructuring includes exchange offers featuring the issuance of new debt with less-favorable terms than those of the original issue without what we view to be adequate offsetting compensation. Such less-favorable terms could include a reduced principal amount, extended maturities, a lower coupon, a different payment currency, different legal characteristics that affect debt service, or effective subordination.
07.15 Good morning and welcome back to our live coverage of the eurozone debt crisis.