Without the absolute constraint of the second part of the mandate, the first part doesn?t have any disciplinary effect. Every year, the Government could simply delay its plans for fiscal consolidation for a further year.
[...] But it may well be that he attempts to fudge it, by for instance piling more of the consolidation into the next parliament. He must resist this temptation at all costs. The mandate was there to keep him on a frankly not terribly challenging straight and narrow.
[..] If the Chancellor has to cut spending further than planned over the next three years, so be it ? it?s what?s needed for the economy?s long term health anyway.
16.36 ECB board member Joerg Asmussen said the risks to the central bank?s economic forecasts remain on the downside:
The financial market system remains fragile [...] The risks surrounding our economic outlook are clearly tilted to the downside.
?I want to stress there is no time to rest," he added. "It is up first and foremost for governments to do their homework at the national level and the EU level."
16.03 EU press conference: round 2 has started. Watch it live here.
14.59 Be careful what you wish for...
Germany has accepted Mario Draghi's offer (see 09.34) to come to Berlin and explain the ECB's measures to stem the euro crisis - including its bond-buying plan.
The Bundestag's Budget Committee has invited Mr Draghi to testify at a date yet to be set, Beate Hasenjaeger, the panel?s chief of staff, told Bloomberg.
13.55 Meanwhile, Spain will present a new list of reforms to Brussels by the end of the month, according to the country's economy minister.
In a strong hint that a formal request for aid isn't far away, Luis de Guindos told reporters "We will adopt a new set of reforms to boost growth [...] It will be in line with the recommendations of the European Commission".
Madrid has so far resisted austerity conditions that go beyond the EU policy recommendations it is already implementing. Earlier this week, PM Mariano Rajoy insisted that he will not accept outside conditions over a possible bail-out.
Cypriot Finance Minister Vassos Shiarly and Spanish Minister of Economy Luis de Guindos (R) speak in Cyprus on Friday (Photo: AFP).
13.05 Euro-area finance ministers have praised Portugal's commitment to cutting its deficit, and said that its original ?78bn bail-out remained "adequate" for the country's financing needs. In a statement, they said:
As far as fiscal consolidation is concerned, the Eurogroup takes note that the authorities have continued to rein in expenditure, but have experienced revenue shortfalls resulting from the fast rebalancing of the economy from domestic demand towards exports, which are characterised by a lower tax intensity. In addition, the social security budget came under pressure due to a stronger than expected increase in unemployment and lower social security contributions. On this basis and after having been reassured of the authorities resolve to continue implementing the programme, the Eurogroup welcomes that an agreement between the authorities and the Troika on revised fiscal targets has been reached. The deficit is expected to fall below 3% of GDP in 2014. The public debt to GDP ratio will peak below 124%, remains sustainable, and will be on a firm downward trajectory after 2014.
The Eurogroup will decide if Portugal will receive its next bail-out tranche by October 8.
12.25 Greek finance minister Yannis Stournaras has also told reporters that the possibility of the country getting more breathing space to meet its budget targets is "on the table".
12.05 The leaders take one more question before ending the press conference to conduct "serious business [...] that means lunch," says Mr Juncker.
12.00 Mario Draghi - who has so far remained silent, is asked his first question. Mr Draghi says that he has seen the "first signs of more normal working [in the markets] but we still have a long way to go."
He reminds the press room that all bond buying "needs conditionality - strict and effective conditionality."
11.59 Ms Lagarde says that Greece "has already produced a huge effort, but will have to continue to do so." She adds:
There are various ways to adjust. Time is one, and that needs to be considered as an option.
11.55 Luxembourg PM Jean-Claude Juncker says that he doesn't think the troika report on Greece will be available until October. "I don?t have the intention to wait until November," he says, "but from a realistic point of view, it will not be possible to take a decision until the first half of October."
Eurogroup Chairman Jean-Claude Juncker (R), International Monetary Fund (IMF) managing director Christine Lagarde (L), and ECB president Mario Draghi address a news conference in Cyprus on Friday (Photo: EPA).
11.49 Europe's economic A Team are holding a press conference in Cyprus following their meeting this morning.
IMF managing director Christine Lagarde says that the fund welcomes the ECB's decision to create a new bond buying plan.
On talk of granting Greece an extension on implementing its austerity measures, she says it is too early to comment "because we are taking stock of what has been done". "Timing" and "implementation" are both worth considering, she says. "I would not regard one component without the others."
11.20 Europe could become stuck in an economic "quagmire" that sees it suffer the same fate as Japan, according to Gordon Brown.
Writing in a Reuters blog, the former prime minister said that Mario Draghi and the ECB had acted "in the nick of time" to defuse "the market chaos of both a Greek and Spanish crisis". But added:
So far so good - but it is not far enough.
The net effect of the intervention is to halt contagion, not to end the recession; to stop disintegration, rather than start a recovery that would reverse Europe's downturn. In the week after the market euphoria at the Bank's decision, private investors, worried about who is first to be repaid in a crisis, are not rushing to return and the ECB still has to address the moral hazard it has created by appearing to guarantee 'last resort' funding to countries still likely to go off track. They will now find it difficult to refuse a country support or to push them into an IMF programme.
Far more worryingly, France is likely to join half of Europe in a double-dip recession. Without European leaders following on with a swift and vigorous effort to seize the initiative to grow their economies, Europe will continue to struggle. Unemployment rates of ten per cent and over appear to be the new normal and the West will continue to drag the entire world economy, including China, down.
[...] As German growth starts to sink to the levels of France, the UK and the euro area, the sense is growing that we are stuck in stagnation for years to come; quagmire is the word that comes to mind.
So the loans offered last week by central bankers will be no more than a band-aid unless followed by a growth plan from the politicians.
10.56 Eurogroup finance ministers have also been discussing the idea of giving Athens "more time" to meet its debt targets.
Austria's finance minister Maria Fekter said ?we will give them the time they need for that but probably not more money?.
The news comes a day after suggestions that Greece would need a third bail-out.
10.36 it looks like eurozone finance ministers have been having fun in Cyprus this morning:
Clockwise from top left: Eurogroup president Jean-Claude Juncker (L) and Irish Finance minister Michael Noonan; French Finance Minister Pierre Moscovici (R) and Spanish counterpart Luis de Guindos; Greek finance minister Ioannis Stournaras (R), EU commissioner for Economic and Monetary Affairs Olli Rehn and IMF Managing Director Christine Lagarde; Mario Draghi (R) with German finance minister Wolfgang Schuble, bottom, ECB board member Jorg Asmussen, and Ms Lagarde.
10.28 Howard Archer at IHS Global Insight comments on today's inflation data:
While the ECB won?t be pleased with the rise back up to 2.6% in Eurozone consumer price inflation in August, the bank will be reassured to see that the increase was driven by a sharp move back up in energy prices and that core inflation actually moderated.
Indeed, the underlying inflationary environment is far from alarming given extended weak economic activity, widespread low capacity utilization and generally muted wage growth amid high and rising Eurozone unemployment. Significantly, latest survey evidence indicates that companies? pricing expectations remain muted.
10.16 Euro-area inflation climbed to an annual rate of 2.6pc in August, from 2.4pc in July, according to Eurostat.
Here's how inflation rates compare across the eurozone. It's worth noting that Germany has the second lowest in the 17-nation bloc:
August's inflation figure confirms Eurostat's flash estimate last month.
09.59 The Bank of Spain data also showed that Spanish banks' net borrowing from the ECB hit a new record of ?388.7bn in August, from ?375.5bn in July.
09.51 Spanish public debt rose to 75.9pc of GDP in the second quarter, from 72.9pc in Q1, according to Bank of Spain data.
Spain's regional debt burden is now 14.2pc of national output (v.13.8pc), with all 18 of the country's autonomous regions seeing their debt to GDP ratios rise in the three months to June. Catalonia is still the country's most indebted region, with debt at 22pc (v.21.2pc) of its regional GDP.
09.38 Mr Draghi defended the ECB's plans, and said that "not taking action would be much more risky". He said:
Overall, we have the risks under control. Not to act would be much more risky. The financial markets need to know that the euro is irreversible.
09.34 Mario Draghi is ready to explain his policies to German MPs if invited to parliament. The ECB president told Germany daily Sueddeutsche Zeitung that an invitation to the Bundestag would be a "good opportunity to explain what we?re doing? and allay German concerns over the threat of inflation.
Mr Draghi also responded to an attack by German MP Alexander Dobrindt, who last month branded Mr Draghi a "counterfeiter" for launching the ECB's bond buying programme.
"I think Mr Dobrindt will change his mind when he sees the results," said Mr Draghi. "Fund managers are putting their money back into Europe, which is good for the economy."
09.16 Spanish and Italian borrowing costs are flat this morning. Italian 10-year yields are still trading below 5pc, at 4.963pc, while the Spanish equivalent is trading at 5.570pc.
In Asia, the Hang Seng index in Hong Kong closed up 2.8pc at 20,611.22, while Japan's Nikkei 225 closed up 1.8pc at 9,159.39.
09.03 On Wednesday, Michel Barnier, the EU's commissioner for internal markets and services, said it would not be a "serious approach" to expect the ECB to supervise all banks by early next year. Instead, the supervisor would "go and look at certain aspects of a given bank which may pose a risk," with the biggest banks monitored on a regular basis.
However, as Bruno highlighted on Thursday, the paper argues that limiting the banking union could lead to "gaming behaviour and other distortions":
...seeking to limit the banking union merely to the largest banks, or cross border banks could lead to gaming behaviour and other distortions. There is also ample precedent to suggest that it is not only the largest banks that may cause systemic instability. The examples of the Spanish Cajas and German Landesbanks illustrate the fact that small and medium-sized banks may in aggregate pose significant risks to Euro area financial stability, and medium sized institutions may do so individually in times of stress.
Mr Barnier said on Wednesday that he hoped a supervisor for all eurozone banks will be up and running by mid-2014.
08.46 Bruno has also obtained a confidential paper written by UK Treasury officials that will form the basis for George Osborne's talks in Cyprus today on ECB supervision and banking union (you can read his original story here).
The paper addresses a wide range of issues, from the Bank of England's role to the very important question of whose job it would be to appear on TV in the event of a major crisis. You can read the document in full here (click on the link below to see a larger version):
Eurozone Banking Union
08.39 Our Brussels correspondent Bruno Waterfield highlights the dilemma that Spain faces:
France, heavily exposed to southern European banking risk, is pushing it hard to take a bailout, along with the politically toxic conditions that are attached.
Italy too is seeking the safety of persuading Spain to take a bailout, insulating Rome from risk.
Germany, its eyes on the purse strings and public hostility to more bailouts, is pulling the other way.
Berlin is not convinced that throwing more cheap credit at Spain's burst asset bubble is the answer and knows that the Spanish bailout with open the doors for northern European taxpayers to become directly exposed to bad banks, starting with the Cajas.
08.32 Meanwhile, Wolfgang Schaeuble, Germany's economy minister, has said that concerns about the country's "unlimited" exposure to the eurozone's permanent bail-out fund and ECB bond buying plan are unfounded. Mr Schaeuble said that he had "confidence in the ECB".
08.02 James Nixon at at Societe Generale predicts Spain will miss its deficit target this year, and highlights the burden that Madrid has put on the country's autonomous regions, which will have to find nearly three-quarters of this year?s cuts:
Spain?s two-year bond yield has fallen back below 3%, raising hopes within the government that perhaps the mere threat of ECB intervention will be enough to ensure Spain?s continued market access. We remain sceptical and believe the government may be on course to miss this year?s fiscal targets. Similar to last year, the biggest overshot of these targets is likely to come from the regions, but this simply reflects the inelastic nature of their expenditures and the central government?s unrealistic attempts to foist the bulk of the fiscal adjustment onto the shoulders of the autonomous regions. This looks set to backfire once the full extent of the regions? borrowing needs becomes apparent, and may still force the government to seek a rescue facility. However, we believe the Spanish government has enough incentive to postpone such a decision until after the regional elections in Galicia and the Basque Country on 21 October.
07.52 As for Spain, its economy minister is remaining tight-lipped this morning. Luis de Guindos told reporters that although today's talks would focus on the finers of the ECB's bond buying programme, they would not look specifically at Spain. Well, of course not. He said:
The fundamental question here is to establish the conditions under which there could be an intervention of the ECB on the secondary market. I believe that's what we will do today, although it will be in a generic way and not directly in relation to Spain.
Spain's Economy Minister Luis de Guindos reacts to the media before an informal meeting of eurozone finance ministers in Cyprus on Friday (Photo: AP).
07.42 Across the Atlantic, the focus has been on Spain this morning, as eurozone finance ministers gather in Cyprus to discuss the country's aid requirements.
Irish finance minister Michael Noonan called on Spain to "set out their position" on ECB aid, while Dutch finance minister Jan Kees de Jager said the country should "show markets its commitment and determination to reform".
07.39 Ben Bernanke pulled out all the stops yesterday, announcing that the Federal Reserve in America would print $40bn a month until the country's job market improves "substantially". Richard Blackden reports:
However, the Fed's action drew criticism from some quarters of the Republican party, who argue that QE has proved ineffective and is debasing the dollar.
"Open-ended purchases of mortgage-backed securities will politicise the Fed and add substantially to its balance sheet risks, but it will not help our economy's long-term growth prospects," said Bob Corker, a Republican Senator from Tennessee.
Charles Schumer, a Democratic Senator for New York, hit back, arguing that the Fed was only "fulfilling its obligation" to help bring down the unemployment rate.
Federal Reserve Board chariman Ben Bernanke speaks during a news conference on Thursday in Washington (Photo: Getty).
07.35 Good morning and welcome back to our live coverage of the eurozone debt crisis.
Debt crisis live: archive
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