Euro zone crisis |

Euro zone crisis

  • If #Cyrpus imposes capital controls, is it opening itself to legal challenge? @GuntramWolff @alexapostolides
  • Now the hierarchy of creditors is clear, what next after Cyprus bailout? via @reuters
  • Reuters Economics editor Mike Peacock says the capital control measures aimed at preventing a Northern Rock style run on the banks could be anything but temporary. Here's his take on Cyprus and other events taking place in the Euro Zone today.

    With its banks due to reopen tomorrow, Cyprus will complete capital control measures to prevent a bank run. The government insists they will be a temporary measure but history suggests otherwise. [In Iceland] controls are still in place five years after its financial meltdown. Admittedly, Cyprus does not have its own currency so it doesn’t face it disappearing through the floor in the way Reykjavik would but it still gives food for thought...

    Is it even legal under EU treaties? And could it lead to Cypriot euros being valued differently to those elsewhere in the currency bloc? The chapter on capital and payments in the EU Treaty prohibits restrictions both on the movement of capital and on payments between European member states, and 'third countries'. But a subsequent article allows countries "to lay down procedures for the declaration of capital movements for purposes of administrative or statistical information, or to take measures which are justified on grounds of public policy or public security".

    That probably allows sufficient room, legally, and any challenge could take months or years but the problem of a de facto parallel currency could create further problems for an already stricken economy and much of the foreign money the euro zone would like to target has probably disappeared from Cyprus already . Any way round, it’s another first for the EU and euro zone so we’re in uncharted waters.

    Italy will sell up to seven billion euros of fixed-rate 5- and 10-year bonds at a regular auction. Already this week it has shifted six-month paper at the lowest yield since January while two-year borrowing costs were little changed in a separate sale. There is little sign of progress in forming a government. New elections now seem highly likely, the only question is whether they are delayed while an interim technocrat government holds the fort for a while.

    What with Cyprus and Italy, Spain – which late last year was the frontline of the euro crisis – has completely dropped off the radar. It is no nearer seeking a bailout but neither is its economy improving. Today we get plenty of evidence on the latter to pull together – retail sales, inflation, current account and public deficit figures are all due. It seems implausible that Madrid will get anywhere near meeting its deficit target this year. The question is whether that spooks the bond market.

    Safe haven German Bund futures are edging up again but European stock futures are also pointing up so something will have to give. The debt market is fixated on Cyprus, stocks looking more to Wall Street’s upbeat performance yesterday after some robust U.S. data.
  • Meanwhile, in Italy...

    Man with key to Italy crisis has only weeks left in job

    The chaos and uncertainty following Italy's parliamentary election last month is compounded by the imminent retirement of the one man who has any chance of solving the crisis, President Giorgio Napolitano.

    A wave of support for the populist 5-Star Movement produced an electoral earthquake in the Feb 24-25 poll, shaking the traditional political system to its foundations and creating an enormous headache for the head of state, who combines figurehead functions with the key power of appointing governments.

    The outcome has created a perfect impasse, with none of the three biggest parliamentary groups capable of governing alone and fiercely at loggerheads with each other - not just over a ruling coalition, but over who should succeed Napolitano.

    Despite cries of alarm from both business bosses and trade unions over an economy drifting deeper into trouble, the parties have been unable to agree on anything and are already into campaign mode for another vote which could come within months.

    "There is no time left. We are very close to the end," said employers' leader Giorgio Squinzi, saying businesses were desperate, soaring unemployment was tragic and the euro zone's third largest economy needed a stable, effective government.

    At stake are not just Italy's fortunes but, potentially, the wider euro project, as Rome grapples with massive public debts.

    Read the rest of Barry Moody's story here
  • Euro zone sentiment reverses from recent gains, raising recovery concern

    Ethan Bilby reports on market reaction to recent events in the euro zone:

    Confidence in the euro zone's economy worsened in March, falling after four straight months of gains and suggesting a hard route out of recession, European Commission data showed on Wednesday.

    Economic sentiment in the 17 countries using the euro decreased by a worse-than-expected 1.1 points to 90.0. Economists polled by Reuters had expected a decline to 90.4.

    "The crisis atmosphere is back, uncertainty is back, and it also shows that the euro zone is still a long way out of the recession," said Carsten Brzeski, an economist at ING.

    "With these numbers we're heading toward another contraction in the first quarter," he said.

    Analysts said the survey may be the first to show some of the impact of the Cypriot crisis on business confidence across the euro zone, although the study makes no specific reference to the fallout from the chaotic bailout that began following a meeting of euro zone finance ministers on March 15-16.

    Italy's inconclusive election last month, which has failed to yield a government, also weighed on sentiment, economists said.

    "There have been new uncertainties due to the situation in Italy, now Cyprus probably doesn't help," said JP Morgan Chase's Greg Fuzesi, noting that the situation is preventing the data from improving quickly.

    The decline in confidence put a halt to a sentiment recovery that had begun in November last year, undermined by a much more negative outlook from manufacturers, who had been helping Europe's economy through exports.

    The euro zone's measure of the business cycle also reflected this, posting a fall in March of 0.14 points to -0.86.

    Factories worsened their evaluation of their past performance and export order books, with the European Commission saying they had "declined markedly".

    Services also broke a trend of rising confidence since October, with managers of everything from health clinics to theatres lowering their expectations for consumer demand.

    One bright spot in the Commission's data was the relatively stable consumer confidence, which increased 0.1 points, due to higher expectations by consumers of their possibilities for employment.
  • Spanish deficit, retail figures deepen economic gloom

    Paul Day in Madrid writes:

    Spain revised up its public deficit for 2012 on Wednesday, piling pressure on the government to scale down its budget ambitions for 2013 as data suggested economic recovery was a distant prospect.

    Treasury Secretary Marta Fernandez Curras said the fiscal gap was 6.98 percent last year rather than the 6.7 percent announced previously - and excluding the billions of euros Spain borrowed to recapitalise its ailing banks.

    Spain moved away from centre stage in the euro zone debt crisis at the end of 2012, with renewed appetite for the country's debt among investors backstopped by a European Central Bank bond-buying promise.

    But that demand could wane if market concerns the savings levy imposed under Cyprus' bailout might set a precedent are not assuaged, or if Spain continues to show no signs of getting a grip on its finances or healing its shrinking economy,.

    That turnaround seems even more distant following Wednesday's news on the deficit, as well as data showing retail sales fell 8.0 percent year-on-year in February, reflecting the impact of an unemployment rate that has pushed beyond 25 percent.

    "We continue to have a fairly negative short-term view on the Spanish outlook and we're expecting GDP to fall 2.2 percent this year and by 2.1 percent next year, considering continued falling consumption," said Guillaume Menuet, analyst at Citi.

    Spain is widely expected to cut its growth forecast and widen its deficit prediction for 2013 in April, and implement a new series of structural reforms and spending cuts by June to win breathing space from the European Union on its public finances.
  • Europe pushes for a deep ovehaul of broadband networks via @reuters
  • Cyprus to limit cash, credit-card use abroad - report

    Matt Robinson and Laura Noonan in Nicosia report:

    Cyprus is to impose a ban on cashing cheques and limit the amount of cash that can be taken out of the country under a series of measures to avert a run on its s crippled banks, a Greek newspaper reported on Wednesday.

    The Kathimerini newspaper, citing a government decree, said the measures would remain in force for seven days after the banks re-open on Thursday.

    Cypriots who want to transfer money overseas will have to prove that the transactions meet strict rules laid out by the government.

    To allow trade to continue, Cypriot businesses can pay for imports if they provide authorities with the necessary documentation.

    The use of credit and debit cards overseas is restricted, and individuals travelling abroad can take a maximum of 3,000 euros on each trip.

    Funds deposited with banks for a fixed period of time cannot be withdrawn early.

    Officials at the Cypriot central bank and finance ministry told Reuters that the newspaper report was based on draft proposals and a final version had yet to be adopted.

    Final proposals were expected to be published later on Wednesday, a day before the banks reopen for the first time in 12 days.
  • Il contagio: Italian bonds yields jump after weak demand at latest debt sale
  • Tensions in Cyprus over bailout underscore pitfalls ahead
  • 1. Draft #Cyprus capital controls are internally inconsistent. They last 7 days but limit transfers to students to €10,000/quarter.
  • 2 Draft €Cyprus controls also limit card transaction to €5k/MONTH and cash transfer to €3k/TRIP. How many months and trips in 7 days?
  • 3 If the actual #Cyprus controls go out like this, nobody will believe they'll only last 7 days
  • 4 Draft #Cyprus controls also won't stop a bank run. There's nothing stopping somebody going into a bank and asking for €100,000 in cash
  • 5 How dumb can you get? You impose controls that will undermine confidence, are internally inconsistent and won't even do the job #cyprus
  • 7 Trade transfers >€200k need individual approval by authorities. Again depends on liquidity. Again lots of discretion. Hope no bribes
  • Silver spoon: Wells Fargo paid board member's son $1.4 million last year
  • Hack to old lady: "are you tying to get money out?" Old lady to hack: "it's none of your business." #cyprus #dignity

    — Matina Stevis (@MatinaStevis) March 28, 2013

  • Depositors wait outside a Laiki Bank branch shortly before it opened in Nicosia March 28, 2013. Banks in Cyprus opened their doors on Thursday for the first time in almost two weeks, with tight controls on transactions to prevent a run on deposits after the island was forced to accept a stringent EU rescue package to avert bankruptcy. REUTERS/Yannis Behrakis

  • But also remember that electronic transfers abroad are controlled @WhelanKarl
  • Helicopter Mario: ECB flew five billion euros to Cyprus late Wednesday - paper
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