20.03 Europe - excluding the UK - decided in December to give the EU more power in enforcing budgetary discipline in member states. Belgium seems to be one of the first nations to get a slap on the wrist.
The EC has rejected Belgium's 2012 budget as overly optimistic and is demanding it cut up to ?2bn more to avoid breaching the 3pc threshold.
In a letter sent yesterday to Belgian FM Steven Vanackere, the EU's Economic Affairs Commissioner Olli Rehn said his services "have come to the conclusion ... the deficit forecast for Belgium in 2012 should be updated to about 3.25 percent of GDP".
Belgium's new government should in consequence "in the coming days" agree to pare down the budget by about ?1.2bn to ?2bn, he said.
"This would allow us to conclude... that Belgium has undertaken the required fiscal effort," he said, calling on the country's new government to inform the Commission of its response "by the end of the week, latest by Monday morning."
19.26 Last year a competition was set up, offering a cash prize to the person who could devise the best way to handle a collapse of the euro. Jeremy Warner has thrown his hat into the ring. The Wolfson Economics Prize, which closes at the end of the month, will be awarded "to the person who is able to articulate how best to manage the orderly exit of one of more member states from the European Monetary Union".
For instance, if Greece were to leave, the euro would be split 97.5pc new euro and 2.5pc new drachmas. I may have been a bit mean in my assessment of Greece's share of eurozone GDP, but you get the picture.
18.53 We have more from Nicolas Sarkozy's press conference now, where he announced that France would not wait for the rest of Europe to introduce a financial transaction tax, but press ahead on its own as soon as possible:
When you buy a flat, in every country in the world you pay a tax. When you go into a supermarket for food, you pay a tax. When you conduct a financial transaction, you pay no tax. Who understands this? Who accepts it?
This is why France is campaigning for a financial tax. I'm saying this with the approval of the minister of finance.
18.12 Sarkozy's promise to bring in a financial transaction tax even if the rest of Europe doesn't follow has pleased David Hillman, spokesperson for the Robin Hood Tax campaign:
Good on the French for standing up to the might of the casino banking sector ? it's more than can be said of our own Government. The UK is blocking a tax that could raise billions, not for the Brussels coffers, but to keep teachers and nurses in jobs in the UK and to help those here and abroad hit hard by a financial crisis they did nothing to cause.
17.52 France will go it alone if it cannot convince its European partners to quickly impose a financial transaction tax, says President Nicolas Sarkozy.
We will put it in place because we believe in it.
The French leader spoke in Paris after talks with Italian Prime Minister Mario Monti. Earlier, both Italy and Germany had publicly urged EU members to agree a joint tax rather than impose one unilaterally.
17.45 Jeremy Warner has written a blog post this afternoon on protectionism. The received wisdom is that we've avoided it, but Jeremy argues that this is far from true.
This is indeed the received wisdom, but it is in fact very far from being the case. Protectionism isn't dead at all. It's merely been reincarnated in different form that circumvents the established rules.
17.20 Nicolas Sarkozy and Angela Merkel will travel to Italy on January 20, reports AFP. We'll bring you more on that as we get it.
17.13 US President Obama has said that the positive jobs data released earlier today - showing that 200,000 Americans found jobs in December - proves the economy is "moving in right direction". But he also warned that there was still more work to be done.
17.01 Time for the customary end-of-day markets graph...
16.50 The European markets have ended mixed, with weak eurozone economic data more than offseting a much better-than-expected US jobs report.
The FTSE 100 closed up 0.45pc, while the DAX fell 0.62pc and the CAC dropped 0.24pc.
16.19 The euro has slumped to a 16-month low against the US dollar, as upbeat jobless data from America contrasted sharply with the situation in the crisis-hit eurozone.
A short while ago the euro was worth just $1.2698, last seen on September 13, 2010.
15.52 If only it could be this simple:
15.36 David Cameron said this morning there had been "a massive reduction in the level of [bank] bonuses from three or four years ago, down by about ?5bn" (see 08.34)
Channel 4 has put this claim to the test in its latest FactCheck blog. Cathy Newman writes:
The Prime Minister?s remarks reflect research done by the Centre for Economics and Business Research (CEBR), which tracks remuneration for around 300,000 financial services workers in London using Office for National Statistics data.
The consultancy says bonuses hit an all-time high of ?11.5bn in 2007/08, while in the last financial year, payouts totalled ?6.7bn.
That is indeed ?down by about ?5bn?, as Mr Cameron said, and CEBR expects bonuses to fall again to ?4.1bn by the end of the current financial year.
Put the violin away though, because research also suggests that basic pay has risen as bonuses have fallen.
15.23 Follow our Brussels correspondent Bruno Waterfield on Twitter for the latest EU gossip.
15.14 Think-tank Open Europe has also seen a copy of the new draft EU treaty. Here are the parts it has focused on. Most surprising? A possible Cameron-Sarkozy alliance.
1) EU institutions are playing a large role: Despite David Cameron's on-going insistence that EU institutions would not play a role in enforcing the rules of the treaty, Article 8 does just that (see full post for description). If the final version sticks to this definition it would likely be a defeat for Cameron, with his decision to veto being seen to have stopped very little (although this is far from finalised). On a side note this also seems to be a loss for France, since it had previously opposed such a wide role for the ECJ. Could a Franco-British alliance be in the offing at the next round of discussions? Something to watch for.
2) Focus on the internal market: Article 1 stipulates that the signatories of the treaty will work towards "deeper integration in the internal market".
3) Incorporate the treaty into EU law after five years
Open Europe adds:
At least two out of these three points almost directly contradicts what the UK government would have wanted, while the third one could potentially go either way. This is still a draft and much can change, but at the moment it has put the UK onto the back foot.
15.00 In Europe, the FTSE 100 is trading up 0.7pc at 5662.74, while the CAC 40 in Paris is up slightly at 3,157.48 and the DAX 30 is down 0.36pc at 6,074.18.
14.52 Meanwhile US markets have opened - and they're down. Better-than-expected employment figures were not enough to offset eurozone woes.
14.40 More reaction following Fitch's downgrade of Hungary (see 13.25). Government spokesman Andras Giro-Szasz told a news conference on Friday:
The government considers the downgrade surprising because the forint's exchange rate improved 8 units versus the euro yesterday, and there has been a 70 point decline in the country's risk premium over the past 24 hours
Moreover, there have been numerous government statements which have made clear the government's intentions regarding the agreement with the IMF and the EU.
A demonstration takes place near the Opera House in Budapest, Hungary, this week (Photo: EPA)
14.18 Phew! After that bit of exuberance, let's turn quickly to Italy. Prime Minister Mario Monti told reporters after meeting French Prime Minister Francois Fillon in Paris that Italy was in favour of a financial transactions tax, but said it was important to have a unified position.
We need a European standpoint which we all work towards.
He said.
Earlier, German government spokesman Steffen Seibert told reporters:
We would like to see a global financial transaction tax but that is not possible at the present time. The German government would thus aim to introduce the financial transaction tax within the EU.
...while France has hinted that it could go it alone in an attempt to "set the example" for the rest of Europe (see 12.48).
14.04 For a closer look at the Fiscal Compact Draft, take a look at our larger version: Fiscal Compact Draft 2
13.47 Bruno continues:
Even worse, at German and French insistence, the new text also explicitly states that the new bloc will be taking decisions that relate to the EU?s single or internal market, on policy areas such as financial services.
The draft states (my emphasis): ?By this Treaty, the Contracting Parties, as Member States of the European Union, agree on a ?fiscal compact? and on a stronger coordination of economic policies, involving an enhanced governance to foster fiscal discipline and deeper integration in the internal market as well as stronger growth, enhanced competitiveness and social cohesion.?
At Germany?s command the European Commission, despite Britain?s protests that Brussels institutions will not be used to police the new treaty, will be involved in taking countries that breach the non-EU rules to the EU courts.
?The European Commission may, on behalf of Contracting Parties, bring an action for an alleged infringement of Title III before the Court of Justice of the European Union. The judgment of the Court of Justice of the European Union shall be binding,? says the draft.
Out in the cold? A new EU treaty explicitly states that the new 'euro-plus' bloc will be taking decisions that relate to the EU?s single or internal market.
13.45 Bruno delivers his verdict on the new draft. It seems David Cameron is in for a few more sleepless nights:
Germany and France have insisted on changes, to the original 16 December text, that clash with David Cameron?s promises that the new treaty will not override the EU or use its institutions to police a non-union pact.
Speaking this morning, the prime minister said: ?The new thing, whatever it is, can't do things that are the property of the EU. They [the signatories of the pact] shouldn't be doing things that are about the single market or about competitiveness, and we will be very clear that when it comes to that you cannot use the European institutions for those things because that would be wrong.?
But the new draft, issued by Herman Van Rompuy, the EU president last night (now called a treaty rather than an agreement at France?s demand) directly contradicts Mr Cameron?s position.
13.42 Our man in Brussels Bruno Waterfield has had an exclusive look at a new eurozone-plus treaty draft (click the link to see a larger version):
Fiscal Compact Draft 2
13.41 The unemployment rate in the US fell to 8.5pc in December - an almost three-year low. Hiring surged more than expected, just-released government data shows. The economy added 200,000 non-farm jobs last month, much higher than the average analyst estimate of 150,000.
Marcus Bullus, trading director at MB Capital, said:
That's one hell of a number. Such an impressive fall in both the number of jobless Americans and the unemployment rate will cheer everyone bar Republican spin doctors.
The Obama administration could be forgiven for showboating over this convincing evidence that America's economy is pulling away from Europe?s. This will certainly put a swagger in Tim Geithner's step in his next get-together with Merkozy.
From a market perspective, strong US data like this will add to optimism but nobody doubts the considerable downward pressure the Eurozone will continue to place on the global marketplace during 2012.
13.25 Fitch has downgraded Hungary by one notch to BB+ from BBB- to "junk" status.
In a statement, Fitch said:
The downgrade of Hungary's ratings reflects further deterioration in the country's fiscal and external financing environment and growth outlook, caused in part by further unorthodox economic policies which are undermining investor confidence and complicating the agreement of a new IMF/EU deal.
13.20 A quick lunchtime wrap of today's events.
? David Cameron has described 2012 as a "difficult year for the UK". In a BBC interview, Britain's PM said that there "is a rebalancing taking place" in the UK economy away from financial services and towards manufacturing.
? IMF chief Christine Lagarde told reporters on a visit to South Africa that the euro "is not likely to vanish or disappear in 2012" - although she conceded that this year would be no "walk in the park"
? Hungary continues to make Greece look good. The country's PM today insisted that he was eager to reach accord with the IMF, which has expressed concerns over constitutional changes that threaten the independence of Hungary's central bank.
? Italian banks are still in the dog house, although shares have regained much of their earlier losses. Unicredit is currently down 0.6pc on the day. Earlier, shares fell by 6pc.
? Elsewhere, oil prices are up, the euro is down, stock markets have edged back up while borrowing costs across Europe are increasing. A typical day then.
? And finally, David Cameron looks like James McAvoy or Data out of Star Trek. Well, according to assistant comment editor Tom Chivers anyway.
12.48 France will "set the example" by deciding on a financial transaction tax by the end of the month, an aide to Nicolas Sarkozy has said. Henri Guaino told BFMTV news:
There will be a decision on financial transaction taxes before the end of January as far as France is concerned [...] France will set the example on this issue.
It is better if Germany is involved [and] We will keep discussing it in the coming days and weeks, but France is ready to take the lead on this issue... and hopes it can bring others along.
12.22 Mats Persson, Director of think-tank Open Europe poses a timely question in a Telegraph blog:
Will the euro crack in 2012?
His answer? Probably no - though he adds that there's good, bad, and quite a bit of ugly to be had this year. Here's a bit of the ugly to whet your appetites pre-lunch:
? Widespread downgrades, including of the eurozone?s remaining Triple A countries, by credit rating agencies. Serious questions would be raised over the viability of the eurozone?s bailout funds as they rely on an ever thinner list of Triple A eurozone states, leaving the euro with little more than a paper tiger as a backstop.
? Spanish banks could hit the iceberg as households fail to pay their mortgages and the level of non-performing loans pile up. If it gets bad enough, the Spanish government wouldn't afford to recapitalise these banks on its own and must seek a potentially huge bailout from the EU/IMF.
? In addition to those in Spain, one or more banks in Italy or France could sink due to large exposure to weaker euro states - following a hard Greek default for example. As in Spain, there are doubts as to whether these governments could afford to bail out their banks without outside help.
12.01 Oil prices have ticked up again today, with brent crude futures for February rising 44 cents to $113.18.
It emerged today that a proposed EU embargo on Iranian imports could be delayed to shield the already fragile area from a possible sudden spike in prices.
Diplomats said that EU officials have proposed a "grace period" on existing contracts of up to 12 months.
Greece, which depends heavily on Iranian crude, is pushing for the longest delay, according to Reuters. One EU diplomat told the news agency:
There is a range of ideas from one month to one year with countries who are more dependent on Iranian oil pushing for more time.
Oil prices have been steadily rising amid rising tensions with Iran (Photo: Alamy)
11.45 More on Hungary (see 07.30). PM Viktor Orb?n has said that his government and the central bank want a fast deal with the IMF to secure a new refinancing deal.
The government and the central bank agreed that an agreement (with the IMF) as soon as possible is in the interests of the economy, we also see it this way. [...] Concluding the IMF talks is important for Hungary because if we have a safety net then we can concentrate all of our efforts into rekindling growth. This is an urgent task.
Mr Orb?n told reporters after a meeting.
11.39 You can view International Monetary Fund chief Christine Lagarde's comments from this morning here:
11.31 The euro also slipped against the dollar to $1.2783 following the news, although this is just off the session low. It is also trading down against sterling, at ?1.2120, as well as the Japanese yen.
11.20 Stock markets have slipped on the news, giving up much of their earlier gains.
The DAX 30 in Frankfurt is now trading flat, while London's FTSE 100 is up 0.15pc and the CAC 40 in Paris is up 0.43pc at 3,158.49. The FTSE Mib in Milan has slipped into the red, and is currently down 0.15pc at 14,744.59.
11.07 BREAKING
The eurozone's powerhouse economy is ailing.
German factory orders fell more than expected in November, down 4.3pc on an annual basis, and 4.8pc month-on-month - the biggest monthly decline in almost three years.
This is against expectations of a 1.2pc annual and 1.8pc monthly drop.
One word. Recession.
11.00 Italy must refinance around ?100bn of debt over the next quarter, while Spain must raise ?36bn in the bond markets over the same period.
10.47 Austria's borrowing costs are also on the rise, with benchmark yields up 7 basis points to 3.360pc. The country is one of Hungary's biggest creditors, with around $41.6bn of exposure.
10.34 The UK will hold three auctions of short term debt within the hour. Meanwhile, borrowing costs for Europe as a whole have ticked up this morning.
Yields on Italian benchmark 10-year bonds rose as high as 7.144pc this morning, according to Bloomberg data. Spanish borrowing costs on 10-year debt rose as high as 5.703pc, and are currently trading up 5 basis points, at 5.617pc.
10.28 Howard Archer, European economist at IHS Global Insight, sums up the gloom:
A further decline in overall business and consumer confidence to a 25-month low in December, a 0.8% drop in retail sales in November and a further 45,000 rise in the number of jobless keeping the unemployment rate up at a record 10.3% comprises a worrying set of data that fuel belief that the Eurozone suffered clear GDP contraction in the fourth quarter of 2011 and is in serious danger of enduring a further drop in the first quarter of 2012. Tighter fiscal policy, squeezed consumers, the seemingly never-ending Eurozone sovereign debt crisis, weakened global growth and financial market turmoil are taking a serious toll on economic activity across the Eurozone.
10.10 Eurostat figures also showed that unemployment in the eurozone remained at an all-time high of 10.3pc in November.
This means that more than 16.3m men and women were out of work.
Unemployment in Spain is close to 22pc (Photo: AFP)
10.05 BREAKING A raft of eurozone data has just served-up further gloom for the region.
Eurozone retail sales fell 0.8 pc in November from October, against forecasts of a 0.2pc fall, Eurostat, the official statistics agency said.
Separately, a European Commission survey showed that economic confidence in the eurozone fell again in December to 93.3, from 93.7 the previous month, and against a long-run average of 100.
09.53 Former deputy Labour leader John Prescott has chipped in a few suggestions, including:
And, showing he has a sense of humour, this is what he'd call his own biopic:
Read Tom Chivers' blog post for more, or join in on Twitter.
09.51 Following his appearance on Radio 4's Today programme, #cameronmovienames is trending on Twitter.
The PM was asked who would play him in a biopic of his life. He dodged the question, and Twitter was all too willing to fill in the blanks. A few examples of what the movie could be called:
09.24 More quotes from Christine Lagarde, courtesy of AFP, who has warned that global growth will be much less than the 4pc forecast in September. Speaking in South Africa, she said:
Will 2012 be the end of the euro? My answer is, I don't think so [...] The currency itself is not likely to vanish or disappear in 2012.
We should be prepared for a 2012 that will not be a walk in the park, that will not be an easy journey, but one of effort and focus (regarding) the European crisis and its resolution.
On Greece, she added:
Will Greece quit the euro zone in 2012? The euro partners have affirmed, reaffirmed their determination. We can only support that.
Careful choice of words there.
09.10 French and German banks are trading broadly flat this morning, while British banks are slightly up.
08.58 Here's what traders have been telling the FT's Christopher Adams on Unicredit:
08.57 Yesterday's mass bank sell-off has largely ceased. The exception being Italy.
Unicredit, which is having a torrid time raising money in a ?7.5bn cash call to investors, saw its shares fall nearly 6pc in early morning deals. Banca Popolare was the second-biggest faller in the FTSE Mib in Milan, down 2.4pc. The wider index is up 0.6pc at 14,851.12.
Struggling Italian lender UniCredit has warned investors to be ready for a break-up of the eurozone. (Photo: AP)
08.42 The CAC 40 in Paris is up 0.66pc at 3,165.65, while the DAX in Frankfurt has risen 0.4pc to 6,120.94.
08.40 Meanwhile, Europe's stock markets are open for business.
08.35 On price rises, Mr Cameron added:
Inflation has been stubbornly high and that had an effect on household income last year and so consumers felt particularly squeezed. Looking into 2012 one of the trends I hope to see happen is a fall in the level of inflation and so therefore households feeling under less pressure than they did in 2011.
He also rejected any idea of the single market being discussed by any group other than the full 27 members of the EU:
What we can't have is the single market being discussed outside the European Union, and we'll do everything possible to make sure that doesn't happen.
08.34 David Cameron has been speaking to Radio 4 this morning on bank bonuses and the economy.
Mr Cameron said he is still "not satisfied" with levels of top pay in the City, and that he wants to see the trend of falling bonuses (which fell ?5bn last year) continue.
He added that there "is a rebalancing taking place" in the UK economy away from excessive borrowing and a reliance on financial services towards a more export-led economy spearheaded by UK manufacturing.
He said 2012 would be "a difficult year, it's a testing year."
Mr Cameron said 2012 would be a "testing year"
08.20 And it seems banks are still unsure of what to do with all this cheap cash. Data from the ECB just released shows that overnight deposits at the central bank are at another high of ?455.3bn.
Eurozone banks borrowed the ECB cash in December at a rate of 1pc. Any cashed parked at the super-safe ECB overnight earns a rate of just 0.25pc. Risk is off the agenda so far in 2012.
08.05 The Governor of the Bank of France has also been speaking this morning.
Christian Noyer said on Friday that government debt sales were going better since the start of an European Central Bank (ECB) 3-year liquidity operation in which it offered cheap loans to the eurozone banks. Mr Noyer told French radio:
Since the ECB launched its big 3-year refinancing operation worth ?500bn, we have in reality state debt issuances which have gone very well.
07.59 International Monetary Fund chief Christine Lagarde has insisted that 2012 will not be "the end of the euro currency" despite the crisis in the eurozone.
Well that's comforting.
Ms Lagarde was speaking on a visit to South Africa, with the country's finance Minister Pravin Gordhan adding that more needed to be done about the global currency volatility triggered by the debt problems.
07.55 While the Economist warns that EU leaders should not make the "Berlusconi mistake" with Hungary:
European leaders should condemn Mr Orban?s anti-democratic behaviour loudly and clearly. Yet Hillary Clinton, the American secretary of state, has taken the lead in censuring him. The problem is that EU leaders, who nowadays hold summits almost every month, are often too chummy to be ready to criticise each other. Too few ever complained about Silvio Berlusconi?s grip on Italy?s broadcast media, for instance. More should follow the example of Alain Jupp?, the French foreign minister, who this week criticised Mr Orban?s power grab.
07.50 A must-read in today's Telegraph is Tibor Fischer's article on Mr Orb?n, who he describes as Hungary's "only politician". He recalls an encounter with the Hungarian PM two decades ago:
Suddenly, in the middle of the road, a Russian soldier appeared, waving a lantern in the internationally recognised signal for ?stop?. Hungary was still under Soviet military occupation then. Orb?n didn?t stop, he tried to summon up extra weight to put on the accelerator. The soldier dived into a hedge.
?What was all that about?? I asked.
?He wanted us to buy him some vodka.? The countryside, apparently, was full of Russians wandering around begging or selling military equipment for booze. Not only did Orb?n not slow down, he didn?t even think about slowing down. His attitude hasn?t changed much since then.
French newspaper le Monde has compared Mr Orb?n to far-right politician Jean-Marie Le Pen (Photo: le Monde)
07.45 Investors, meanwhile, are running scared.
A day after Hungary abandoned a bond swap auction, the government was forced to trim the size of another, short term debt auction of 45bn forints (?117m) to 35bn and pay rates of close to 10pc.
And you thought Greece was in a pickle.
07.30 Elsewhere, the tensions in Hungary continue. The EU and IMF have locked horns with Hungarian PM Viktor Orb?n over a change to the country's constitution which allows the government to appoint more deputy governors.
Critics say this will undermine the independence of its central bank, which raised interest rates to 7pc in December. The government wants to keep interest rates low in order to boost growth.
The EU and US have asked for the law to be scrapped.
Hungarian PM Viktor Orb?n (Photo: Getty)
07.24 Meanwhile, the euro fell to a 16-month low against the dollar of $1.2764 as concerns about the single currency's future continued. It also slipped to ?1.2120 against sterling.
Analysts said the euro would continue to slide until leaders reached accord on boosting the region's permanent bail-out fund. Daisuke Karakama, economist at Mizuho Bank in Tokyo, said:
Media reports have said that discussions at the Sarkozy-Merkel meeting will focus on the issue of enforcing budget discipline. But I don't think that's what the market is looking for [...] I hope we see the type of discussions that provide assurances on the effectiveness of the ESM.
The Shanghai Composite index ticked up 0.7pc to 2,163.39 on speculation that China's central bank will cut banks reserve-requirement ratios as early as today to boost small-business lending.
Th FTSE 100 in London is forecast to open flat.
07.21 The Telegraph business pages and the FT have both splashed with Shell's decision to close its final salary pension scheme, the last FTSE 100 company to do so:
Telegraph: Era over as Shell ends final-salary pensions / Pound benefits as euro dumped amid fears for banks
Financial Times (?): Shell ends an era with pensions decision
Guardian: Labour told to accept spending cuts to be credible
Times (?): Footsie's farewell to the final salary pension scheme
07.07 And Harry Wilson has more on those troubled European banks. UniCredit, one of Italy's biggest lenders, is raising capital through a rights issue - but had to warn the institutions taking up those rights that the euro may not be around in its present form forever.
"The departure or risk of departure from the euro by one or more eurozone countries and/or the abandonment of the euro as a currency could have major negative effects on both existing contractual relations and the fulfilment of obligations by the UniCredit Group," said the bank in the risk factors section of the document.
07.05 At last the euro is losing the strength which amazed some market watchers last year, as the single currency remained ata a high despite the economic turmoil in nations using it.
Louise Armitstead reports:
The concerns doused optimistic US economic data to push stockmarkets into the red for the second day in a row. Italy's MIB fell 3.7pc, Spain's Ibex 2.9pc, and France's CAC 1.5pc. In London the FTSE slid 0.8pc. The yield on Italy's 10-year bonds soared back over the 7pc bail-out level.
07.00 Good morning and welcome back to live coverage of the debt crisis.
Debt crisis live: archive
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