Markets fall on eurozone worries

19 September 2011 Last updated at 21:06 GMT Oil markets are concerned that economic weakness in Europe could affect demand for crude World share markets have fallen, and oil and the euro are also down, on fresh worries about a Greek default.

The Dow Jones index closed 0.9% down, the FTSE 100 ended 2% lower, and France's Cac and Germany's Dax sank about 3%.

Brent crude fell $2.5 to $109.61 a barrel on concerns that a slowing world economy will cut demand for oil.

The falls came after a weekend meeting of European officials ended without a deal on ways to tackle the debt crisis.

"The market is bracing itself for the worst possible outcome, which is a disorderly Greek default," said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London.

In addition to Brent's fall, US crude was down $2.34 to $85.62 a barrel.

Oil analyst Jonathan Barratt of Commodity Broking Services said the eurozone concern was hitting demand.

"Look at what's happening in Europe. People are beginning to see that it is taking a lot longer than anticipated to resolve the issue," he said.

"Longer uncertainty means the demand outlook for oil remains weak."

On Sunday, Greek Prime Minister George Papandreou chaired cabinet crisis talks, a day after cancelling a trip to the US amid growing fears over the debt crisis in the country.

The talks focused on new austerity measures to enable Greece to secure the country's next bailout loan.

Without the next loan Greece will not be able to meet its debt payments next month.

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French banks feel eurozone pain

14 September 2011 Last updated at 19:13 GMT Two of the top three banks in France had their ratings cut Credit rating agency Moody's has downgraded two French banks after reviewing their exposure to Greek debt.

Credit Agricole was cut from Aa1 to Aa2 and Societe Generale from Aa2 to Aa3.

A third bank, BNP Paribas, was kept on review for a possible downgrade.

German Chancellor Angela Merkel, French President Nicolas Sarkozy, and Greek Prime Minister George Papandreou later moved to ease market concerns over Greece by saying it was an "integral" member of the eurozone.

Meanwhile, the European Commission president, Jose Manuel Barroso, said he would put forward a proposal for the 17 eurozone governments to jointly guarantee their debts, via so-called eurobonds.

Stressed markets

Moody's said it was also planning to extend its review of all three banks "to consider the implications of the persistent fragility in the bank financing markets, given the banks' continued reliance on wholesale funding".

This further review could result in an additional one-notch downgrade, the agency warned.

The markets for short-term cash lending between European banks have become increasingly stressed in recent days, while share prices in European banks have fallen sharply.

Credit Agricole and Societe Generale have seen their share prices fall by about two-thirds since February, while BNP has fallen by more than half.

By late Monday afternoon trading, shares in Societe Generale had dropped a further 10%, eventually recovering some losses to end down 2.9%.

BNP Paribas finished 3.9% lower, while Credit Agricole rose 1.2%.

Both BNP Paribas and Societe Generale have issued statements in recent days to clarify the extent of their exposure to Greece and other troubled eurozone economies.

Moody's backed the two banks, saying they both had enough capital to provide "an adequate cushion to support its Greek, Portuguese and Irish exposures".

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Fairly or not, these banks have been viewed as indulging in more creative accounting than other banks”

End Quote Robert Peston Business editor, BBC News SocGen has a total exposure to Greek government and commercial debts equal to 6.6bn euros, and BNP Paribas has 8.5bn euros, according to their disclosures to the European Banking Authority - both much lower than Credit Agricole's total of 27bn euros.

Nonetheless, Moody's still decided to downgrade Societe Generale, as it felt the bank no longer benefited from a higher level of French government support than its two rivals.

'Small downgrade'

All three banks' ratings have been on review since 15 June, and Moody's decision had been widely anticipated by the markets.

French central bank head Christian Noyer welcomed the downgrade decision as "relatively good news".

Continue reading the main story "French banks have an excellent rating, the same level as other major European banks - HSBC, Barclays, Deutsche Bank, Credit Suisse," he said.

"It's a very small downgrade, and Moody's had a higher rating than the other agencies so it's just put them on the same level or slightly better than the others."

However, the downgrade is likely to put further pressure on the banks, as many investors limit how much they are willing to lend to them or invest in their shares based on their credit ratings.

Credit Agricole said that it had decided to extend a guarantee to its investment banking subsidiary in response to the rating review.

Meanwhile, BNP Paribas joined Societe Generale in announcing large asset sales in order to reduce its total exposures.

The bank said on Wednesday that it would sell 70bn euros of assets, or 10% of the bank's entire balance sheet, with a focus on its dollar-denominated loans.

On Tuesday, BNP denied a report in the Wall Street Journal claiming the bank was no longer able to borrow in dollars.

Meanwhile, the European Central Bank confirmed that two unnamed eurozone banks have asked for it to provide $575m of short-term dollar loans - the first time the emergency facility has been used since 17 August.

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Eurozone 'coming to a standstill'

15 September 2011 Last updated at 10:41 GMT The EU Commissioner for Economic Affairs, Olli Rehn says he expects 'a virtual standstill'

The European Commission has predicted that economic growth in the eurozone will come "to a virtual standstill" in the second half of 2011.

It halved its forecast for July to September to growth of just 0.2%, while the forecast for the last three months of the year is down from 0.4% to 0.1%.

The commission blamed financial market problems over the summer as well as weakening demand from outside Europe.

But it remained confident that there would not be a return to recession.

"Recoveries from financial crises are often slow and bumpy. Moreover, the EU economy is affected by a more difficult external environment, while domestic demand remains subdued," EU Economic Affairs Commissioner Olli Rehn said at a news conference to unveil the report.

"The sovereign debt crisis has worsened, and the financial market turmoil is set to dampen the real economy."

'Integral part'

The report predicted that member states having to cut back on their spending to reduce their debt would also hit growth.

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It is not clear why investors should be so thrilled by such an anodyne statement. It didn't say anything that had not been said before - indeed, the words from the French and German side didn't do much more than confirm that Greece was part of the eurozone”

End Quote Stephanie Flanders Economics editor, BBC News One of the countries currently cutting back its spending is Greece, which reiterated on Wednesday that it was determined to meet all the deficit reduction plans it has agreed to in exchange for its two bailouts.

There were supportive comments from eurozone leaders towards Greece on Wednesday, which boosted the stock markets on Thursday.

Eurozone leaders said Greece was an "integral" part of the eurozone.

Greece is set to receive the next loan from its initial EU and International Monetary Fund bailout later this month, but it will get this only if inspectors from the EU, European Central Bank and IMF agree that it is keeping up with its spending cut targets.

There have been concerns that they may rule that Greece has fallen behind. Without this month's loan, Greece will not be able to meet its debt payments by the middle of next month.

BBC correspondents in Athens, Berlin and Paris describe differing perspectives on the crisis

The commission said that inflation would fall back faster than had been expected, because commodity price rises had slowed more than predicted.

Also on Thursday, official figures from Eurostat showed that inflation in the eurozone stood at an annual rate of 2.5% in August, unchanged from July's figure.

The inflation figure for the whole of the EU was 2.9% in August, also unchanged from July.

The commission predicted that those would also be the inflation figures for the whole of 2011.

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Eurozone leaders reassure Greece

14 September 2011 Last updated at 20:25 GMT George Papandreou spoke with Nicolas Sarkozy and Angela Merkel by telephone The leaders of Greece, France and Germany have said that Greece is an "integral" part of the eurozone.

It follows a telephone call between Greek Prime Minister George Papandreou, French President Nicolas Sarkozy and German Chancellor Angela Merkel.

Greece also reiterated that it is determined to meet all the deficit reductions plans it agreed to in exchange for its two bailouts.

Concerns continue that Greece will default on its debt.

The comments are aimed at calming markets that have seen turbulent trading in recent weeks over fears surrounding Greece's finances.

This has also increased speculation that Greece may have to leave the 17-nation single currency zone.

Greek government spokesman Elias Mossialos said: "In the face of the extensive rumours of the last few days, it was stressed by all that Greece is an integral part of the eurozone."

Ms Merkel and Mr Sarkozy said in a joint statement: "Putting into place commitments of the (bailout) programme is essential for the Greek economy to return to a path of lasting and balanced growth."

The European Union and the International Monetary Fund agreed in May of last year to give Greece 110bn euros ($151bn; £96bn) in emergency loans, which it is still receiving in tranches.

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[Greeece sticking to its targets] is the precondition for the payment fo future tranches of the program”

End Quote Spokesman for Angela Merkel It was then agreed in July of this year that Greece would gain a second bailout fund of 109bn euros, but this still has to be ratified by the parliaments of a number of eurozone member states.

Greece is set to receieve the next loan from its initial bailout later this month, but it will only get this if inspectors from the European Union, European Central Bank and International Monetary Fund agree that it is keeping up with its spending cut targets.

There are some fears that they may rule that Greece has fallen behind. Without this month's loan, Greece will not be able to meet its debt payments by the middle of next month.

A spokesman for Ms Merkel said: "[Greeece sticking to its targets] is the precondition for the payment fo future tranches of the program."

Eurobond proposal

The talks between Ms Merkel, Mr Papandreou and Mr Sarkozy came after EU president Jose Manuel Barroso said he would urge the eurozone nations to issue joint bonds as a means to tackle the debt crisis.

Under so-called eurobonds, member states would be able to borrow money collectively.

The idea is that this would strengthen the positions of the more indebted nations such as Greece and Portugal as it would allow them to borrow more cheaply.

However, Germany has repeatedly expressed its opposition to the idea.

Because Germany is the strongest economy in the eurozone, it can attract buyers to its existing government bonds with much lower interest rates, so it has much to lose from eurobonds being introduced.

Also on Wednesday, credit rating agency Moody's downgraded two French banks after reviewing their exposure to Greek debt.

Credit Agricole was cut from Aa1 to Aa2 and Societe Generale from Aa2 to Aa3.

A third bank, BNP Paribas, was kept on review for a possible downgrade.

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Eurozone inflation slows in July

29 July 2011 Last updated at 10:26 GMT Some economists now think the ECB will leave interest rates unchanged at 1.5% for the rest of 2011 Eurozone inflation unexpectedly slowed in July to 2.5%, raising questions about when the European Central Bank (ECB) might raise interest rates again.

The preliminary estimate is down from 2.7% in June, according to the European Union statistics office Eurostat.

The July reading comes as a surprise after data earlier this week suggested inflation in Germany, Europe's largest economy, edged up to 2.4%.

The ECB has raised rates twice so far this year to try to control inflation.

The central bank wants to keep inflation below 2%.

'Compelling case'

No change had been expected in the inflation rate in July.

It is not clear what drove the decline, as Eurostat's initial estimate does not give a breakdown of the numbers - that is only released with the final estimate.

Economists said that the chance of the ECB raising rates from the current 1.5% before the end of the year now appeared less likely.

"While a further interest rate hike in the fourth quarter is clearly very possible, we suspect that slowing eurozone growth and recurrent sovereign debt problems will present an increasingly compelling case for the ECB to hold off from further monetary policy tightening this year," said Howard Archer from IHS Global Insight.

"We also anticipate that the case for further ECB action in 2011 will be diluted by mounting evidence that the second-round inflationary effects from higher energy and commodity prices are being contained.

"We currently expect the ECB to keep interest rates at 1.5% through the rest of 2011, then lift them gradually further to 2.25% by the end of 2012."

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