Plan to enlarge the European Financial Stability Mechanism is approved by the Finnish Parliament
Europe "faces the biggest challenge in its history"
Divisions in the eurozone over the terms of Greece's second bailout package hit bank shares
EC backs Robin Hood tax
See today's upcoming events in the agenda
3.31pm: Without much to report from the frontline of saving Europe from collapse, can I suggest reading what James Mackintosh, investment editor of the Financial Times, had to say on the idea of a Financial Transaction Tax, in February of last year.
He was not very keen at all on the idea, his best point being that, if a transaction tax is introduced globally, who gets the cash?
Would the $200bn be available to the UK? Surely it would be divided between the whole world? Would Britain get half on the grounds that the City dominates foreign exchange, the biggest international market? No. How much would it get?The point being of course that there is a fair bit of politics to navigate before we can all agree on an FTT to magic away the Eurozone's debts.
3.00pm: Hello everyone. It falls to me again to tell you first of all what stock markets on the other side of the Atlantic make of today's events.
The answer seems to be that there is some modest optimism. The Dow Jones is up just under 1%, while the S&P 500 is up 0.2%.
2.32pm: With Wall Street trading just beginning, it's time to hand this blog over to Alex Hawkes.....
2.25pm: As usual, there's a fine debate running in the comments section below. Here's a few choice examples (with thanks to my colleague Hannah Waldram)
Regular reader and commenter zerozero makes a good point about the market reaction to events, and the way we report it:
The market goes up on the headlines (talk of agreement) and down on the facts (there's no agreement).Usually, by the time we get around to 'talking down the market', it's already tumbled! But yes, at times of crisis (another overused phrase, sorry) reporting the market reaction can be tricky. My baseline position is that the City sees a global downturn as a serious risk, especially if Europe fails to get its act together by November, so any serious FTSE swings should be seen in that context.
It is peculiar how the press worry about talking down the market, but are less concerned about talking it up, even though there may be losses made from both. The ideology of the market is that the market has solutions, so believes in itself, and this is the default for the bourgeois press, even though it must twist its texts into contortions to perform this service.
But it's not a crystal ball - more like a clump of tealeaves
If the Greek people really don't want to pay these debts and would rather default, what right does their democratically elected government have to ignore such strong feeling?There has been talk of George Papandreou is planning to bring in referendums so the public can express their views on the austerity cutbacks democratically. This sparked a rumour of a public vote on leaving the eurozone - but this was denied.
And Hyperzeitgeist argues:
Until the banks can own up to the true state of their financial exposure there can be no effective resolution.There may be more clarity from the banking sector about their sovereign debt losses once it's clear what level of haircut will be imposed on sovereign debt from Greece (and possibly other eurozone countries too)
We're seeing some developments on that today - Credit Agricole just announced plans to cut its overall debt by 50bn by the end of 2012. More here.
1.59pm: My colleague Paddy Allen has put together a fine interactive (click here) showing which countries have approved the expansion of the European Financial Stability Facility, and which have still to vote.
We'll be updating it over the next few days.
1.40pm: Time for a round-up of events so far today:
Finland has approved the European rescue plan hammered out in July
EC President Jos้ Manuel Barroso: "The European Union faces the biggest challenge in its history"
The EC also brought forward legislation to implement a transactional tax
...But Britain isn't keen.
Also, durable goods data released in the US at 1.30pm has hit the markets. News that orders for 'long-lasting US manufactured goods fell 0.1% in August has helped to send the FTSE 100 down 32 points (to 5261).
12.45pm: The proposed draft law for a financial transaction tax (FTT) announced by the European Commission this morning has been hailed by supporters as a breakthrough moment, but the UK government gave it a decidedly lukewarm reception.
First the welcomes.
Nicolas Mombrial, Oxfam International's EU policy advisor, was pleased to see the FTT moving near to reality. However, Oxfam does not want the EC to simply keep the cash to itself:
A significant part of the revenues should be used as Bill Gates suggested, to help poor countries facing chilling reductions in aid, trade, and investment - not just shore up the EU budget.David Hillman, spokesperson for the Robin Hood Tax campaign, made a similar point:
An FTT is not a 'Robin Hood Tax' unless clear commitments are made to use the revenues for tackling climate change, and poverty at home and abroad.
David Cameron needs to end the UK's isolation and put himself on the side of public opinion by supporting these international efforts. And Arlene McCarthy MEP, Labour spokesperson in the European Parliament, said the EC's move was a "crucial first step" in the journey towards an international Robin Hood Tax. She urged the UK government to look into the issue seriously:
But money raised shouldn't just plug a fiscal hole in Europe - leaders should listen to Bill Gates and ensure money goes to poor people at home and abroad hit by the economic crisis.
Not so fast though, says the UK Treasury, which continues to insist that it won't get involved unless there's a global deal. A spokesman told Reuters:
The British government should give these proposals proper consideration and not dismiss them out of hand just to please City suits.
We need to look at the detail and ensure that any proposals represent a good deal for Britain, given its dominance in financial services. But I welcome the Commission's proposal as a starting point in the debate.
The proposals can't be pushed through without British agreement, so let's engage in the process and try to find a way in which the financial sector can pay its fair share towards the cost of the economic crisis.
One practical issue, of course, being that America isn't particularly keen on a Robin Hood tax either. And without a G20 agreement, the threat of City firms decamping offshore appears to be the Treasury's main fear. There's no technical reason why a tiny levy couldn't be imposed on financial transactions, is there?...
The Government will continue to engage with its international partners on Financial Transaction Taxes and has no objection to them in principle. But any financial transaction tax would have to apply globally and there are a number of practical issues that need to be
12.10pm: Hot news from Helsinki - the Finland parliament has approved the plan to expand the European Financial Stability Facility.
Despite opposition among the Finnish people to bailing out out Europe's weaker members, 103 MPs voted in favour of handing the EFSF new powers, including the ability to give 'precautionary loans' to countries in trouble and to buy up sovereign debt.
66 opposed the plan, while 30 members were absent.
With Finland now in the Yes camp, the spotlight moves to Germany's own vote on the EFSF on Thursday.
Worth remembering that these votes are to approve the plan agreed on 21 July, rather than the recent suggestion that the package should be enlarged to 2 trillion.
11.55am: Has America woken up to the full extend of Europe's debt woes? This Bloomberg graphic, showing the Dow Jones index versus the German Dax, suggests not.
As Louise Cooper of BGC Partners (who kindly sent us the graph, via a colleague) explains, the two markets have tracked each other closely since equities started to rally from their low point after the collapse of Lehman Brothers. Since July, though, the Dax (in red) has fallen but the Dow (in White) has not.
More from Louise:
11.42am: Just in - the European Commission has announced that the IMF/EU/ECB Troika has "decided to return to Greece".
Having lived in America a couple of times I realise that it can be quite an insular country - news programmes can give little attention to the rest of the world. However my recent appearances on CNBC USA have highlighted to me that Americans are focusing on their own economic and fiscal problems (and who can blame them as they are pretty large).
So Broker Paul and I had a chat about this and he came up with the chart below. It looks at the performance of the German DAX (red line) versus the Dow Jones in the US (white line). It shows that the US stock market has held up significantly better than the DAX (and other equity markets in Europe) as the Eurozone crisis has unfolded.
In broker Paul's words it's almost as if the American think "Euro crisis, what crisis, doesn't affect us?" But if the Eurozone does implode, then America, its economy and its banking system will be significantly affected.
In a brief statement, the EC said that the Troika will arrive in Athens on Thursday (not today as previously thought). An extra meeting of the Eurogroup has also been called, to discuss the Greek situation and decide whether to hand over the 8bn tranche of aid which Greece need to avoid bankruptcy.
Even though we've been heading for days that the Troika will head back to Athens, this has sparked a little rally - sending the euro up nearly a cent against the dollar to $1.3689.
This seems a little excessive. Or, as Business Insider put it:
It's all kind of weak sauce from a substance perspective, but we suppose the good thing is that it means everyone is still moving.The FTSE 100 is now effectively flat today. One City expert predicted this morning that the markets are poised to either dive (if the Greek bailout collapses), or surge (if a massive monetary stimulus package is put together).
And Gary Jenkins of Evolution Securities reckons that "hope and despair" replaced "greed and fear" in the markets yesterday, when the FTSE 100 surged 4% on the back of, well, not much.
Very large gains being made in various equities on the back of hope that the EU not only now realise the seriousness of the situation but also have the tools and political will to do something about it.10.57am: An auction of German government debt appears to have stumbled - but it's hard to say whether this is good news or bad news.
Germany had hoped to sell 6bn of five-year federal bonds this morning, but only received orders for slightly over 5.1bn. That's a technical fail, although the German Finance Agency has described the result as "sufficient".
Looking at the detail of the auction, the average yield (the interest rate on the bonds) was just 1.22%. The previous auction of such bonds had a yield of around 2.1%.
The dash away from risk has driven down German borrowing costs, as investors prioritised safety over higher returns. If bond traders are now baulking at such low rates of return, that could be an encouraging sign.....
Stock markets have recovered since the auction results were announced, with the FTSE 100 up a mighty three points (!) - having fallen by over 50 points earlier.
10.34am: The financial crisis is now escalating to a point that banks should be allowed to run down their capital reserves to keep the UK economy running.
That's the view of the Bank of England's Financial Policy Committee. Minutes of the FPC's last meeting, released this morning, show that it advised banks that they should consider not strengthening their balance sheets, and instead stimulate lending to ward off a second credit crunch.
The FPC has previously been encouraging UK banks to build up capital levels further, given the risks to the economic and financial environment. Recent events though, make such a move harder - and less welcome. As the FPC explained:
At the present time, some actions taken to raise capital or liquidity ratios could potentially worsen the feedback loop between the financial sector and the wider economy and so should be avoided.My colleagues Jill Treanor and Heather Stewart have the full story here.
Moreover, the committee recognised that, in the event that severe risks crystallised, it would be natural for banks' capital and liquidity ratios to be run down to ensure that lending to the non-financial economy was not impaired.
10.01am: The divisions opening up within Europe are well covered in today's newspapers - here's a quick round-up.
The Guardian: Merkel tries to rally support for Greece and euro ahead of crucial EFSF vote:
German negotiators are at loggerheads with their French counterparts over pledges to quadruple the eurozone's 440bn (ฃ382bn) bailout fund ahead of a crucial vote in the Bundestag on Thursday that could decide the fate of the currency zone.The Financial Times: Fear and loathing in the eurozone (registration):
Attempts by Berlin to write off up to 50% of Greek debts as part of a wider rescue package faced stiff opposition from France, which is concerned many of its banks would need to find extra funds to cope with the resulting losses (writes Helen Pidd).
The financial crisis that broke upon the world in August 2007 has entered a new and, in crucial respects, more dangerous phase. A positive feedback loop between banks and weak sovereigns is emerging, with a potentially calamitous effect on the eurozone and the global economy: the eurozone is no island. What makes this process particularly frightening is that weaker sovereigns are unable to cope on their own, while the eurozone has nobody in charge. The eurozone may lack the capacity to address the crisis (writes Martin Wolf)The Times: Merkel slaps down Obama over euro crisis stance (ฃ):
Transatlantic tensions over the financial crisis deepened today after Germany hit back at President Obama for criticising Europe's leaders and suggested that the Americans stick to solving their own problems. Angela Merkel, the German Chancellor who faces a critical parliamentary vote over the eurozone bail-out on Thursday, rebuffed Mr Obama and his administration for its calls on Europe to reflate its economy to avert recession (writes Charles Bremner)The Wall Street Journal: Germany Faces Tricky Bailout Vote:
Gaining approval for July's agreement is proving thorny enough for Ms. Merkel.9.45am: The European Commission has also formally announced legislation to bring a Robin Hood tax into law. The move that will be welcomed by campaigners, but could trigger a clash with the UK and America.
In a closed-door meeting of her conservative alliance of Christian Democrats and Christian Social Union in the Reichstag on Tuesday, 11 conservative lawmakers voted against the bill to overhaul the EFSF. Two lawmakers abstained. Across the hall at the meeting of the pro-business Free Democrats, the coalition's junior partner, lawmakers debated the issue but didn't take a new straw poll. FDP officials said after the meeting that little had changed since the prior vote in early September, when two FDP lawmakers opposed the bill and four abstained (write William Boston and Bernd Radowitz)
EC President Jose Manuel Barroso, during his State of the Union speech in Strasbourg, said the financial sector should now repay some of its debts to the rest of the world, which helped it through the depths of the financial crash three years ago.
Today, the Commission adopted a proposal for theA so-called Tobin Tax would involve a tiny levy being imposed every time a financial transaction, such as buying or selling stocks, currencies or bonds, took place.
Financial Transaction Tax.
In the last three years, member states have granted aid and provided guarantees of 4.6 trillion to the financial sector. It is time for the financial sector to make a contribution back to society.
George Osborne has argued against such a transaction tax, arguing that it would simply drive City firms abroad. But with Bill Gates throwing his support behind the plan last week, the campaign appears to be gathering speed again.
According to the co-founder of Microsoft, up to $48bn could be raised each year if a Robin Hood tax was bought in across the G20.
9.27am: EC President Jos้ Manuel Barroso also rallied against the eurozone countries who are now threatening to backtrack on the plans hammered out in July.
Rather than unpicking the deal, Europe needs to shift up a gear, Barroso said during his State of the Union speech:
9.15am: "The European Union faces the biggest challenge in its history", Commission president Jos้ Manuel Barroso has just warned, in a speech in which he repeated his call for eurozone members to help each other by issuing joint debt.
The European Financial Stability Facility (EFSF) must immediately be made both stronger and more flexible. This is what the Commission proposed already in January. This is what heads of state and government of the Euro area agreed upon on July 21. Only then will it be able to deploy precautionary intervention, intervene to support the recapitalisation of banks, intervene in the secondary markets to help avoid contagion."
Once the EFSF is ratified, we should make the most efficient use of its financial envelope. The Commission is working on options to this end.
Giving the State of the Union speech in Strasbourg, Barroso told the European parliament that the eurozone needed closer integration, otherwise it would fall apart. He warned MEPs that Europe faces "a crisis of confidence", on top of the social and economic problems that are gripping the region.
It was an illusion to think that we could have a common currency and a single market with national approaches to economic and budgetary policy.Once this has been agreed, Barroso argued, issuing joint debt will be seen as "a natural and advantageous step for all". He told the parliament that the Commission will present
In the coming weeks, the Commission will present a proposal for a single, coherent
framework to deepen economic coordination and integration, in particular in the euro area. This will be done in a way that ensures the compatibility between the euro area and the European Union as a whole.
options for such "Stability Bonds" in the coming weeks:
On condition that such euro bonds will be "Stability Bonds...bonds that are designed in a way that rewards those who play by the rules, and deters those who don't...This is a rather controversial point - Germany, for one, remains firmly opposed to the idea of common European bonds.
Some of these options can be implemented within the current (EU) Treaty, whereas
fully fledged 'euro bonds' would require Treaty change.
Barroso did not explain how "stability bonds" would differ from full-blown "Eurobonds", but commission officials has been arguing that each country should only be allowed to borrow up to 60% of their annual economic output via eurobonds (should they be implemented).
8.40am: Here's a rundown of the key events today:
The IMF/EU/ECB Troika return to Athens - this morning
Bank of England's Financial Policy Committee issues update on the safety of the financial sector - 9.30am BST
Germany auctions 6bn of five-year bonds - this morning
Finland votes on the plan to enlarge the European Financial Stability Facility - 2pm local time (noon BST)
US durable goods orders for September are released - 8.30am EST (1.30pm BST)
Federal Reserve chair Ben Bernanke speaks on emerging markets - 5pm EST (10pm BST)
The US Department of Agriculture is also releasing the "quarterly hog and pig inventory", at 7pm EST/4pm BST - not an economic stat we usually follow, but in these uncertain times.....
8.25am: The biggest faller in London, though, is Man Group - the hedge fund manager. Its shares have slumped nearly 17% after it reported that its total assets under management has slumped by $6bn since June.
The cause? The market turmoil - which apparently isn't as good for hedge funds as you may have thought.
Man blamed investor redemptions and negative returns for the 8% drop in its total asset base. The rate of redemptions (where investors basically ask for their money back), rose sharply in September, Man said.
Peter Clarke, chief executive of Man, warned that "the suppressed investor appetite" will probably continue for the rest of the year, admitting that:
The extreme volatility of markets in recent months has created challenging performance conditions across asset classesMan also suffered from the rush for safe havens. The recent strengthening of the US dollar wiped $1.9bn off the value of its euro and Australian dollar funds.
8.13am: As predicted, bank shares have been hit by the divisions over Greece's second bailout. HSBC, Barclays, Lloyds Banking Group and Royal Bank of Scotland have all lost ground, falling by up to 2%.
The FTSE 100 though, is bearing up well, down just 3 points at 5290. No panic sell of here (yet, anyway).
French banks have also been hit, with Soci้t้ G้n้rale falling over 3% at the start of trading.
7.46am: European markets are expected to open lower this morning, as Tuesday's optimism is replaced by uncertainty and doubts.
Here's the latest view from the City, via Joshua Raymond of City Index:
City Index is currently calling the FTSE 100 to open lower by around 1.1% at the 5240 level as investors lock in their gains and evaluate what the likely EU rescue package could look like after a notable disparency of views amongst European fiscal leaders and officials.7.41am: More details on the split over the Greek bailout - the Financial Times reckons that more than a third of eurozone countries now want the banking sector to take heftier losses on the Greek government bonds they hold.
The speculation early this week and over the weekend over the types of measures being looked at by the EU and ECB to help contain the financial and debt crisis engulfing Europe, such as a leveraged top up of the EFSF, has notably seen complete reversal and denials in the last twenty four hours.
As such, investors are becoming increasingly confused as to exactly what the final rescue package, if any, is likely to look like when the G20 meets in Cannes in early November.
On one side, the German and Dutch governments - calling for private creditors to take more pain. On the other, the French and the European Central Bank. The split threatens to unravel the 109bn bailout agreed on 21 July - before many parliaments have even voted on the plan.
The full story is here (registration required), and here's a flavour:
As many as seven of the bloc's 17 members arguing for private creditors to swallow a bigger writedown on their Greek bond holdings, according to senior European officials.The threat of more severe haircuts on Greek debt could spook the markets, and give bank shares another pummelling.
While hardliners in Germany and the Netherlands are leading the calls for more losses to be imposed on the private sector, France and the European Central Bank are fiercely resisting any such move.
"In Germany, there are the hardliners and there are the moderates," said one senior European official. "This is the hardliners' stance."
7.30am: Morning all. It's another busy day in the ongoing European debt crisis.
Reports of a split in the eurozone over Greece's second bailout have raised fears that the 109bn package agreed in late July may need to be renegotiated - at a time when the country is already on a knife-edge waiting for the next slice of its original bailout.
The Troika* are returning to Athens later today to assess whether Greece is meeting the terms of that first rescue deal - we'll be watching for developments there.
And it's the turn of Finland to vote on the plan to expand the European Financial Stability Facility. The Finns have taken a hardline on the rescue deal, demanding collateral in return for their support. If they reject the package, Europe really will be in trouble.
* The International Monetary Fund, the European Central Bank and the European Union
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