Eurozone crisis live: Greek credit default swaps 'pay out $2.5bn' - 19 March 2012
Eurozone crisis Euro Greece Business European Central Bank International Monetary Fund (IMF) Christine Lagarde Portugal World news Bonds Pimco Business
Graeme Wearden www.theguardian.com
CDS auction fixes scale of losses for insurance providers, as Portugal plays down claims it will need a second bailout
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the Guardian
I think we're finished for the day above the line (don't let that stop

the vigorous debate below the line).

Here's a closing summary:

Portugal has played down claims from bond trading giant Pimco

that it will need a second bailout. Finance minister Vitor

Gaspar said this afternoon that the Lisbon government hopes

to sell 18-month bonds quite soon. He was speaking after Mohamed

El-Erian of Pimco claimed that Portugal will not be able to return to

the financial markets as planned.

Greece's creditors are due to receive $2.5bn in insurance

payments, following the country's debt restructuring. A

credit default swap auction that Greek bonds are worth 21.5% of their face value.

In Greece, Evangelos Venizelos has tendered his resignation as

finance minister, to lead the Pasok party into the next

election. Venizelos replaced his old rival George Papandreou,

amid scenes of optimism at Pasok HQ, and some sniping

by rival faction.

Protests against Greece's austerity plan continued, with

seamen launching a 48-hour strike. The move, which could

leave Greek islands without important supplies, came after the

country's prime minister claimed that a

'silent majority' support its economic programme.

Italy's economic situation worsened. Industrial

orders fell by 7.4% in January.

Thanks, as ever, for reading and commenting. Good night!

Portugal's finance minister Vitor Gaspar is in the US at the moment and continues to play down fears the country needs a second bailout, despite what Pimco thinks.

He has reportedly maintained that Portugal was a different case to Greece, saying the Greek issue with its private bondholders was unique. Italy's progress with its reforms was helping Portugal, he believed, and he maintained optimism about Europe's prospects, with deeper and better integration.

European stock markets have closed for the day. The three largest indices all closed fractionally lower, but smaller markets posted gains. Here's a round-up:

FTSE 100: -4 points at 5961, down 0.07%

Germany's DAX: -6.75 points at 7151, down 0.09%

France's CAC: - 16 points at 3578, down 0.46%

Spain's IBEX: up 1.2%

Italy's FTSE MIB: up 0.3%

Portugal's PSI20: up 0.8%

So, not exactly a hummdinger. David Jones of IG Index called it a fairly uninspiring start to the week, adding:

It is a case of same old same old when it comes to stock markets at the moment – there is very little day to day volatility but the bias remains to the upside, so we could well see a slow grind that finally breaches the 6000 level on the FSTE over the next few days.

Events in Greece are moving with their customary speed. Our correspondent Helena Smith reports that senior officials are now telling her that Evangelos Venizelos will remain finance minister at least until tomorrow (despite officially resigning today!)

Ahead of tonight's cabinet meeting [which was due to start at 4pm GMT], negotiations were ongoing as to who will replace him.

"A decision will be taken tomorrow," the government spokesman Pandelis Kapsis told Helena as he prepared to go into the meeting. "It may well be combined with another minister moving [from his post] so we will announce it altogether." This would suggest that Lucas Papademos, at least, is not going to take on the position.

"Unless he [Venizelos] is replaced he has, according to the constitution, to remain in the post," Kapsis added.

Kapsis said the issue of opneing up "closed professions" -- seen as vital by foreign lenders to make Greece's closed economy more competitive -- would be discussed at a cabinet meeting Wedensday. In his annual report today, Central Bank governor Giorgos Provopoulos said the step was absolutely "essential" to kickstarting the moribund economy which he predicted would contract for a fifth straight year at 4.5% (see 2.41pm for more)

Portuguese finance minister Vitor Gaspar has denied that his country will need a second bailout, as Pimco's Mohamed El-Erian claimed this morning.

Gaspar (who is due to address the Peterson Institute in Washington shortly) said this afternoon that Portugal is planning to hold an auction of 18-month bills "before long", adding that it does not intend to seek additional help "on our own account" (that's via Dow Jones newswires).

The final results of today's Greek credit default swap auction are in! Greece's old bonds have been valued at 21.5% of their face value, following its debt restructuring.

That means that CDS contracts should pay out 78.5 cents in the euro.

The total net value of CDS contracts on Greek debt comes to around $3.2bn, which means (I think) that the banks who issued that debt must pay out around $2.5bn to those who took out the insurance.

Credit default swaps are meant to protect against losses on bonds -- so today's auction has effectively found that Greek bond with a face value of €1m would only be worth €215,000. So, if the investor had also taken out €1m of Greek debt insurance through a CDS, s/he should receive €785,000 to cover the loss on the bond.

Or as Markit (which conducted the auction) explained:

Market participants who bought protection against a Hellenic Republic default will receive the face value of their bonds in exchange for a payment of 21.5% of face value to protection sellers.

Full details of the auction are here, and I attempted to explain how it worked at 10.23am.

UPDATE: Reuters has also calculated that the auction means CDS contracts will pay out around $2.5bn.

Europe's bailout vehicle has priced its first ever sale of 20-year bonds at a slightly lower price than first planned – news that sent the euro back into positive territory for the day.

The European Financial Stability Facility announced that the 2032 bond has been priced at 115 basis points (or 1.15 percentage points) above the price of the underlying government bonds (known as the 'mid-swap'). That works out as a yield of 3.96%.

City investors had been guided to expect as 120 basis point spread, so were encouraged that the EFSF could offer slightly less and still attract interest....

.... whuch was enough to send the euro up to $1.323 vs the dollar, from a low of $1.324 this morning. (Not a desperately significant move, but if we're going to call the lows we'd better call the highs too, eh IfigEusLannuon?)

Greece's central bank has warned that the country's economy will shrink by 4.5% this year, and another 0.5% in 2013.

In its annual report, the Bank of Greece also said that Greece cannot afford any slippage as it implements its economic programme. Only strict implementation of the plan will deliver success, it claimed.

In a statement issued a few minutes ago, the Bank said:

The success of the programme will hinge critically on its consistent implementation. Serious difficulties and problems obviously exist and need to be addressed. The bottom line, however, is that the goals are feasible and the programme can succeed.

The Bank predicted that Greek unemployment will remain above 19% this year. It also estimated that by the end of 2012 the Greek economy will have regained two-thirds to three-quarters of the cumulative competitiveness loss recorded during 2001-2009 [that's due to falling wages].

The full statement is here.

The big question now in Greece is who will replace Venizelos at the helm of the finance ministry.

The state-controlled NET TV channel is reporting that a decision will be "finally made" at a cabinet meeting which will assemble at 6pm local time (4pm GMT) and which Venizelos will attend "for a last time" as finance minister (even though he has formally resigned from the post).

From Athens, Helena Smith reports that rumour is rife that Greece's technocrat prime minister Lucas Papademos, a macro-economist by profession and former vice president of the European Central Bank, may take on the role (as Mario Montio does in Italy).

However, Papademos already has his work cut out overseeing the raft of reforms Athens must pass in exchange for rescue loans before parliament is dissolved in early April.

Helens adds:

Other contenders are the deputy finance minister Filippos Sachinides and Papademos' close friend and academic, Interior Minister Tassos Yannitsis.

Ahead of general elections, Venizelos insisted today that: "Our priority is to tell the truth to the Greek people."

Telling them that there was any other option – apart from swallowing the bitter pill of further austerity and growth-enhancing structural reforms – "were just easy words," he said.

Pasok's focus would be exclusively on preparing the party for the national poll, cadres said with Venizelos establishing a 50-strong committee to oversee how best the "country's only progressive centre left force" can regain some of the ground it has lost navigating Greece's worst economic crisis in decades.

"With his focus on economic crisis management and meeting the demands of our creditors, Pasok under Papandreou neglected communicating matters of importance in the political and social arena," said the former deputy minister of infrastructure, transport and networks, Spyros Vougias, who like Venizelos hails from the northern city of Thessaloniki.

Seperately, government spokesman Pandelis Kapsis said today that the date of the next election will be announced next week.

With opinion surveys show a huge shift in support away from the main parties, there are, as we reported earlier, concerns that no single political force will win an absolutely majority forcing the creation of a coalition government at a time of great economic and social instability in Greece.

Today's bond market prices rather support Mohamed El-Erian's claim (see 8.23am) that Portugal will require additional help once its current aid package runs out.

The yield (effectively the interest rate on the bond) on Portuguese 10-year bonds is almost triple the Italian equivalent. It's also much higher than Ireland's 10-year yield – suggesting that the financial markets have more faith in Dublin's ability to bring its finances into line than Lisbon's.

Here's a round-up of 10-year bond yields (all data via Tradeweb):

• Portugal: 13.755%

• Ireland: 6.97%

• Italy: 4.831%

• Spain: 5.2%

• UK: 2.43%

• Germany: 2.03%

Italy and Spain's bond yields have fallen this year, partly thanks to the European Central Bank's two liquidity injections (in which €1trn was loaned to European banks on generous terms).

Portugal, though, has not felt the benefits. That's a sign that investors are pricing in some form of debt restructuring

It's all heating up in Greece again.

The hardline KKE communist party's leader, Aleka Papariga, has announced that she will address a mass rally outside parliament at 6:30PM local time tomorrow (4.30pm GMT) - when the 300-seat House begins discussing and voting through the €130bn loan agreement.

The demonstration will be one of scores organised across Greece (Helena Smith reports).

KKE's official statement attacked Greece's leaders for imposing harsh austerity measures on the country:

They are turning the working class and ordinary people back to the middle ages in the name of capitalist profits and the salvation of its mechanisms [banks].

They are loading unbelievable trouble and poverty on people and condemning the children of workers to unemployment or jobs with €400 [per month] all in the name of saving capitalism ... close your ears to these different saviours.

As Helena points out, KKE (like the striking seamen) are excluded from the "great silent majority" that Lucas Papademos claimed support Greece's economic programme. The party just released a curt announcement in response to prime minister Lucas Papademos' FT interview, asking:

"Since people agree, albeit silently with the barbaric policies of the coalition government, then why are you blackmailing them, threatening them and terrorising them?"

A photo of Evangelos Venizelos resigning as Greece's finance minister just arrived in our system....

...so here it is. Pictured with prime minister Lucas Papademos in his official residence, the Maximos Mansion.

More in from Helena Smith who confirms that Evangelos Venizelos is about to be officially handed the reins of the Pasok socialist party by outgoing president George Papandreou whose father, of course, founded the party out of PAK, a resistance movement set up to fight military dictatorship in Greece.

There's a climate of euphoria at the party's downtown Athens headquarters where cadres are speaking of a "new start." The 3PM (1pm GMT) ceremony is the moment that Evangelos Venizelos has been waiting for FOR YEARS. Readers will recall that rather like Tony Blair and Gordon Brown, there is little love lost between the two politicians. "He hates his [Papandreou's] guts," said one Venizelos aide.

A source close to Papandreou said: "George is very angry, with himself, with the party, with people who can't see that he tried to save the country. He never thought it would come to this, where he would have to step aside for a man he loathes."

Let's see if the two mens' body language gives anything away ….

The Greek seaman 48-hour strike that began today (see 11.24am) has raised fears of supply shortages on islands which are readying this week for the arrival of the season's first tourists.

Helena Smith, our Athens correspondent, reports that development minister Anna Diamantopoulou was apoplectic after spenting the weekend in abortive talks with unions representing the seamen. Diamantopoulou is not ruling out forcing seamen back to work.

One source told Helena that:

We hope their sense of national responsibility will prevail.

In Crete, where agricultural produce is already mounting in ports, furious local officials and farmers have been busy denouncing the strike and have called on the government to take "immediate action".

Helena explains:

At such a critical time tourism is very much seen as the lifeline for cash-strapped Greeks and there will be little patience for those impeding it.

Sunday's Proto Thema newspaper lead its business section with a report that German tourist numbers were on track to decrease by 50% this year (the equivalent of around 1 million people). Germans usually top the league tables of arrivals in tourist-dependent Greece.

"They are really scared and are living in a climate of hysteria against Greece. Amongst those cancelling holidays are people who are afraid they might fall victim to being beaten up by Greeks as soon as it is discovered where they come from," said the paper quoting the owner of a small German travel agency attending last weeks International Tourism Expo in Berlin.

"There are others who have expressed the fear that Greek waiters serving them in some taverna might even spit in their food," said the German travel agency proprietor.

Readers will recall that last month protestors burned a German flag outside parliament as politicians debated belt-tightening measures demanded by Berlin and other EU states in return for aid.

Word from Athens that Evangelos Venizelos, the new leader of Pasok, is planning to meet with his predecessor George Papandreou at 1pm GMT (or 3pm local time).

We'd love to be there too (but, alas). Venizelos's accession comes nearly four and a half years after he was defeated by Papandreou in a leadership race. Pasok then won power in the general election of 2009, but the escalating crisis meant that in June 2011 Papandreou was forced to dismiss his finance minister and appoint Venizelos.

The two men worked side-by-side for just three months, until Papandreou's declaration that the Greek people should be offered a referendum over the terms of its second aid package prompted an international row that ended his premiership, and saw Lucas Papademos installed as interim PM.

George Papandreou whose father, of course, founded the party out of PAK, a resistance movement set up to fight military dictatorship in Greece.

Something to watch out for later today, and in the next couple of weeks. The European Financial Stability Facility (the EU's bailout vehicle) is pricing an auction €4.5bn of 20-year bonds, that will take place later this month.

This is the longest length security that the EFSF has ever auctioned , and should be a good test of long-term investor confidence.

When Lucas Papademos spoke of the 'silent majority' of Greeks who support the country's economic programme he was probably not thinking of the country's seamen, who launched rolling 48-hour strikes today.

This phboto shows workers guarding the hatch of a ship in the port of Piraeus. Ships and ferries are moored at ports across the country because of the protests, which was called by the Greek seamen's federation PNO. It wants pension cuts to be reversed, among other demands (PNO's full statement is here, as a PDF, in Greek).

According to reports, services to and from hundreds of Greek islands are severely hit by the industrial action.

The first stage of the auction to set Greek credit default swaps (and thus the level of payments to CDS holders) has just finished.

It set the value of Greece's debt at 21.75 cents in the euro. As explained at 10.23am, a second round of bidding will now take place to finalise the payout.

A price of 21.75 cents/€ would leave companies who sold CDS insurance having to pay 78.25 cents for every euro of cover sold.

Update: You can see the results here.

Just in -- Evangelos Venizelos has formally resigned as Greece's finance minister, clearing the way to run for the office of prime minister in the upcoming general election.

Venizelos made the announcement after meeting with president Karolos Papoulias this morning, telling reporters he had given the orders in the Greek Treasury for the last time:

We have elections ahead and I had this morning the opportunity in a farewell meeting at the finance ministry to give my last instructions.

Venizelos won the Pasok leadership ballot with 97% of the vote (well, he was the only candidate). Pasok, though, will not manage such a landslide when Greeks cast their votes in last April or May. The most recent polling shows that Pasok's support has dropped to just 11%, behind New Democracy with 25% of the vote, and ahead of a swarm of smaller parties.

An Irish Cabinet minister has given the strongest hint yet that the Republic's referendum on the EU fiscal pact will take place early this summer.

This referendum must be held because the Irish Attorney General ruled last month that Irish sovereignty is directly affected by the changes in the pact. It is another hurdle for Europe to clear.

Henry McDonald, our Ireland correspondent, reports:

Joan Burton, the Labour Party Minister for Social Protection, said late May or early June are the possible dates for the vote as Ireland goes to the polls for the third time in just over 5 years to help shape Europe's future.

Burton took time out from a St.Patrick's weekend visit to New York to lay out the Fine Gael-Labour coalition's options on the referendum.

And she said the government in Dublin wanted to avoid holding a vote when the Irish university entrance exams - the Leaving Certificate - are underway; Ireland's opening games in the European Championships begin in Poland and a major international Catholic conference, the Eucharistic Congress is being held in the Irish capital. Burton said "that the referendum doesn't have to be held until late October at the latest, but there is a general agreement that it would be better to do it in the early summer."

And here are the key quotes from Burton:

If citizens in Ireland vote for the treaty, they are voting to maintain Ireland's full status in terms of being a full active participant in the eurozone.....

...[it]gives access to the cushion of the European stability mechanism as we exit in an orderly way from the arrangements with the Troika and IMF.

The credit default swap (CDS) auction to determine insurance payouts to investors who protected themselves against a Greek default is taking place this morning.

The procedure is quite interesting, if a little complicated. Basically, traders are invited to bid for a Greek bond, thus determining its actual value compared to its face value. The bidding take place in two stages -- the results of the initial bidding should be announced at 11am GMT, with a second round taking places between 1:30pm-2:00pm. Should events proceed as planned, we should get a final settlement price around 3:30pm.

That price will then be used to work out the level of payment to those holding Greek CDS contracts. Reportedly, there are around $3.2bn of CDS contracts outstanding -- not enough to cause mayhem in the financial markets.

As ever, FT Alphaville has a good explanation.

Lucas Papademos's call for extra measures to stimulate that Greek economy (see 9.55am) reminds me that Francois Hollande, the socialist candidate for the French presidency, has demanded that the European Central Bank is given a new mandate for growth.

Bloomberg has the story, reporting that Hollande told fellow left-wing policians that the ECB's recent liquidity injections should be just the start:

The bank "has bolstered its intervention and that's a laudable change," Hollande said, according to the text of the speech. "It should also go further in playing its role as lender of last resort. I know that this position isn't shared everywhere in Europe but we don't rule out changing the mandate" of the ECB, he added.

As TheThistle points out in the comments below, Greek prime minister Lucas Papademos has given an interview to the Financial Times today, in which he says the country is "over halfway to recovery".

The full story's here (behind the FT paywall). They've also uploaded the full transcript (ditto), which I've read, and seen that Papademos makes some rather interesting points.

Early in the interview, he said Greece's current economic programme should be complemented with new policy measures to "support economic activity and employment over the short and medium term".

He said three factors have harmed the Greek economy in recent years:

First, there have been implementation gaps, particularly with regard to the growth-enhancing reforms. Second, the external environment turned out worse than initially expected. Third, a major factor has been the reduced confidence and the increased uncertainty over the past year-and-a-half.

Papademos was also asked to comment on the idea that Greece will need a third rescue package. He appeared to concede that this is a possibility:

Well, I think this simply reflects the fact that one cannot predict with precision the exact time when the country can regain access to the markets. It may happen in three years, it may happen over a longer period of time.

If by 2015 market access is not possible then it may be necessary to rely more on official funding.

Papademos also argued that "a large silent majority" of the Greek people appreciate the fiscal discipline needed to be a member of the eurozone, and believe that it will be easier to rebalance their economy within the euro than outside.

Finally, he refused to speculate on the suggestion that he might remain as prime minister after the upcoming general election, or become finance minister. Papademos was billed as a temporary appointment when he was chosen as technocratic PM last November. But if the election delivers a deeply divided parliament, though, a unity candidate could be needed.

Italy's industrial sector suffered a dramatic drop in orders in January, data released at 9am GMT showed.

Italian industrial orders fell by -7.4% on a month-on-month basis in January, much worse than the 3.2% decline pencilled in by economists.

This comes on top of recent data showing that Italian industrial output had dropped by 2.5% in January. Today's fall in orders suggests output in future months could also disappoint.

The euro has dropped back this morning, as Mohamed El-Erian's prediction that Portugal will need a second bailout are digested.

The single currency fell nearly half a cent against the US dollar to $1.314, and also lost a third of a penny against sterling to 82.99p.

Peter O'Flanagan of Clear Currency, a foreign exchance broker, said El-Erian's comments had:

...shifted risk sentiment and is weighing particularly on the euro.

Gary Jenkins of Swordfish Research argue, though, that the financial markets could cope with a second Portuguese rescue package, if needed, but...

if Italy were to do the same thing then it would probably spell the end of the Eurozone as we know it.

The main event on the agenda today is the auction to determine payouts to investors who held insurance against a Greek default (I'll blog more about this shortly). Portugal's finance minister is also due to speak this afternoon in America - Mohamed El-Erian's comments could come up....

There's not too much on the economic calendar, but a few bond autions are scheduled.

Here's the agenda:

• IMF visit to China/India: all day

• Italian industrial orders/sales for January: 9am GMT

• Eurozone construction output for January: 10am GMT

• Greek CDS auction: begins at 11am, concluded at 3.30pm

• Vitor Gaspar, Portuguese minister of finance, addresses the Peterson Institute: 4.30pm GMT / 12.30pm EST

Bond auctions: The Netherlands, Slovakia, France, Lithuania, Italy....

As promised, here's more details of Evangelos Venizelos's election as the president of the socialist Pasok party (via Helena Smith in Athens).

As thousands of Pasok members filed into polling stations to endorse the bullish politician – who was the sole candidate - Venizelos pronounced the start of a "new era" for a party whose popularity has plummeted navigating Greece's financial crisis.

"This is the beginning of Pasok's quest to find its soul again," said the 55 year-old law professor who replaces former prime minister George Papandreou.

With general elections due to take place as early as 29 April, Venizelos' selection as leader of what has traditionally been the country's biggest leftist force is seen as key to political stability. In an economic climate that has become increasingly explosive, polls have shown other leftist groups and extremists gaining ground ahead of the national vote.

The finance minister, who is expected to resign from the post on Monday, is among Athens' most talented politicians, whose handling of the €206bn (£171bn) bond swap - the success of which surprised even the cynics - has won widespread plaudits.

"It's astonishing that a French-trained law professor who was not a typical expert in economics did so well negotiating what is one of the biggest financial experiments in modern global history," said Theodore Pelagidis, professor of economic analysis at Piraeus university.

"Because he is so mentally sharp he was able in record time to familiarise himself with exotic financial tools and procedures."

Helena's full story is here.

The latest polling data shows that Pasok, which had won the last general election, is on track to lose much of its support when Greeks head to the polls.

Several smaller parties are taking support away from the two traditional players – Pasok and the right-wing New Democracy – suggesting that a coalition government (not always a recipe for stability) is very likely.

Mohamed El-Erian's warning that Portugal will need a second financial aid package is attracting plenty of attention this morning.

As we reported last night, the Pimco CEO was asked by Der Spiegel whether the Portuguese government will need to seek additional support, replying:

Yes, unfortunately that will be the case.

El-Erian went on to predict that the creation of this (hypothetical) second package would be as difficult as the negotiations over Greece's aid deal, telling the German news magazine that:

there will be a big debate about how to split the burden between the EU, creditors, the IMF and the European Central Bank. And then financial markets will become nervous because they are worried about private sector participation.

El-Erian's comments will not be welcomed in Brussels, where officials have repeatedly insisted that Greece is a special case. But the Daily Telegraph argues this morning that market faith in the EU has been 'shattered' by the Greek debacle.

Looking at the bond markets, Portuguese debt has fallen slightly in value this morning, pushing up the yield on its 10-year bonds to 13.7%. That level of interest rate indicates that the country is still locked out of the international money markets. Officially, Lisbon hopes to borrow from international investors in 2013 – for that to happen, its bond yields will need to drop closer to, say, 7%.

Good morning, and welcome to our rolling coverage of the eurozone financial crisis.

Today, Portugal is in the spotlight after bond trading giant Pimco claimed it will need a second bailout. Pimco chief executive Mohamed El-Erian warned on Sunday that "unfortunately" Lisbon will be forced to seek fresh aid rather than return to the financial markets as planned.

The state of the world economy is also in focus as the International Monetary Fund visits India. Christine Lagarde, head of the IMF, has called on China to reform and warned that developed countries need to strengthen their financial systems. She had earlier cautioned against taking too much comfort from recent developments.

There are political developments in Greece, where Evangelos Venizelos has assumed the leadership of the Pasok party, after a hectic eight-month stint as finance minister. Venizeloz declared that a "new era" has begun in Greek politics. We'll have a full report on his accession shortly.

The final stage of Greece's debt restructuring will play out today, when an auction is held to determine the payouts for investors holding insurance against a Greek default.

Greece should also receive the first tranche of its second aid deal, worth €5.9bn, today.