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Graeme Wearden (until 1.45) and Nick Fletcher

Greece close to bailout funds after austerity vote, but IMF warns on debt - as it happened

Greece’s Prime Minister Alexis Tsipras, right, and Finance Minister Euclid Tsakalotos at last night’s parliamentary vote.
Greece’s Prime Minister Alexis Tsipras, right, and Finance Minister Euclid Tsakalotos at last night’s parliamentary vote. Photograph: Yorgos Karahalis/AP

Here’s our report on the IMF’s Greek comments ahead of Tuesday’s Eurogroup meeting. Larry Elliott writes:

The International Monetary Fund called for “upfront” and “unconditional” debt relief for Greece as it warned that without immediate action the financial plight of the recession-ravaged country would deteriorate dramatically over the coming decades.

In a strongly-worded assessment, the Fund said that there was no prospect of Greece meeting the draconian terms of its current bail-out plan and that debt interest payments on the soaring national debt would eat up 60% of the budget by 2060 in the absence of debt forgiveness.

The debt sustainability analysis by the Washington-based IMF said Greece should have longer to pay, have the interest rate on its loans fixed at 1.5%, and that its creditors should make debt relief automatic once the bail out programme ends in 2018.

“The implementation of debt relief should be completed by the end of the program period”, the IMF said. “Providing an upfront unconditional component to debt relief is critical to provide a strong and credible signal to markets about the commitment of official creditors to ensuring debt sustainability, which in itself could contribute to lowering market financing costs. An upfront component can also help garner more ownership for reforms.”

The hard-hitting nature of the report makes it clear to the EU that the IMF will not be prepared to put its own money into the €86bn bail out unless Germany and other eurozone countries ease their hardline stance towards Greece.

On that note it’s time to close for the evening. Thanks for all your comments, and we’ll be back tomorrow.

Here’s a link to the IMF report:

European markets end lower

Despite the prospect of Greece finally receiving much needed bailout cash, most European markets have ended the day lower, with commodity stocks on the slide again. An imminent rise in US interest rates was one of the factors, helping lift the dollar and hitting metal and oil prices.

But Greece was an exception, with the Athens market up 1.5% and ten year bond yields falling to six month low. The final scores showed:

  • The FTSE 100 finished down 19.89 points or 0.32% to 6136.43
  • Germany’s Dax dropped 0.74% to 9842.29
  • France’s Cac closed down 0.66% at 4325.10
  • Italy’s FTSE MIB fell 2.74% to 17,325.08
  • Spain’s Ibex ended 0.65% lower at 8714.0
  • In Greece, the Athens market added 1.5% to 649.10

On Wall Street, the Dow Jones Industrial Average is currently virtually unchanged, up just 6 points.

More from the IMF staff report on Greece:

In all key policy areas—fiscal, financial sector stability, labor, product and service markets—the authorities’ current policy plans fall well short of what would be required to achieve their ambitious fiscal and growth targets. Consequently, staff believes that a realignment of assumptions with the evident political and social constraints on the pace and scope of adjustment is needed, and it has revised the DSA assumptions for the primary balance and growth.

It has cut its primary surplus estimate from 3.5% of GDP to 1.5% and its long term growth assumption to 1.25%:

[The primary surplus] target would in staff’s view be within the realm of what is plausible, although it remains ambitious in as much as it requires the fiscal adjustment to be underpinned by much stronger support for reforms and much stronger resolve by policy making institutions, in Greece and at the European level, than currently evident.

Two more US Federal Reserve members have added to the recent chorus suggesting a possible rate rise in June or July.

San Francisco Fed president John Williams indicated a rise would not be delayed much longer, despite risks such as the possibility of the UK voting to leave the European Union. Williams told reporters (quotes from Reuters):

[Brexit is] a factor in the decision for June obviously because you have an event right after, and we can obviously hold off until July if we wanted.

But of course we could also make a decision to raise rates at a meeting and if later on economic conditions for the US change, we can always move interest rates back down.

Earlier St Louis Fed president James Bullard said keeping rates too low for too long could cause financial instability in future. Jasper Lawler, market analyst at CMC Markets, said:

The Fed’s Bullard and Williams reiterated the new more hawkish stance of the Fed, though data showing a bigger than expected fall in manufacturing activity didn’t support their calls.

IMF says current Greek policy falls short

Greece’s current policy plans fall well short of what is needed to achieve fiscal and growth targets, according to the International Monetary Fund.

In a staff report ahead of Tuesday’s Eurogroup meeting, the IMF said Greece needs a substantial reprofiling of the terms of its European loans, and debt relief must be unconditional.

But revised targets for economic growth and its primary budget surplus could meet the criteria for receiving IMF support, it said.

Updated

Eurozone consumer confidence rises

Even before the growing signs that Greece may finally receive its long awaited bailout funds, eurozone consumer confidence improved for the second month in a row.

The May figure came in at -7.0 compared to -9.3 the previous month and better than the -9.0 which had been expected, according to the European Commission.

In the European Union as a whole, consumer sentiment rose by 1.1 points to -5.7.

Consumer sentiment index
Consumer sentiment index Photograph: European Commission

Updated

Here’s something for the Fed to ponder as it wonders when to raise rates. The Markit provisional manufacturing PMI for May has fallen from a final 50.8 in April to 50.5. Analysts had been expecting a figure of 51.

This is the worst level for more than six years.

Updated

Wall Street edges higher

Stock markets continue to drift, with Wall Street opening marginally higher while European shares slip back.

The Dow Jones Industrial Average is currently up just 10 points as investors hold fire ahead of further clues as to whether the US Federal Reserve will raise interest rates next month.

Meanwhile the FTSE 100 has dipped 0.27% while Germany’s Dax is down 0.6% and France’s Cac is 0.8% lower.

But in Greece, the Athens market continues to benefit from hopes that Tuesday’s Eurogroup meeting will release much needed bailout funds, following the weekend’s parliamentary vote approving the latest package of austerity measures. It is currently up 1.76% while bond yields continue to fall.

Greek ten year bond yields fall
Greek ten year bond yields fall Photograph: Reuters

Ten year Greek bond yields have dropped around 28 basis points to 7.34%, a six month low. Two year yields are down 100 basis points to 8.51%.

The cost of insuring Greek debt against default in terms of five year credit default swaps has fallen to a six month low.

Updated

Here’s a reminder of the breakdown of Greek debt, from the Financial Times:

Updated

Putin to visit Athens this week

Russia’s President Vladimir Putin.

Last summer, European officials worried that Greece might break off ties with Europe in favour of a new arrangement with Russia.

So they might be interested to hear that Russian President Vladimir Putin is paying a visit to the Hellenic Republic on May 27-28. (Friday and Saturday).

The Kremlin’s press service reports that:

“[Putin] will meet Prokopis Pavlopoulos, the president of the Hellenic Republic, andPrime Minister Alexis Tsipras.

The summit talks are expected to dwell on key issues of bilateral trade, economic and investment interaction, including the implementation of joint energy and transport projects.”

Those joint energy projects could includes a landmark €2bn gas deal which the two countries outlined last July – days before the third Greek bailout was agreed.

Tass, the Russian newswire, says the president’s upcoming visit will also pay “special attention” to cultural and humanitarian cooperation, while Putin and the Greek leaders will exchange views on urgent international and regional problems.

AFP’s Danny Kemp reckons eurozone finance ministers may take notice....

Updated

Here’s the mood on the streets of Athens today after MPs approved the latest package of austerity measures:

And they’ve got a point. Last night’s “omnibus bill” includes:

  • Raising VAT to 24%, from 23%
  • Increasing fuel consumption tax
  • A special tax on cigarettes, tobacco and electronic cigarettes
  • A new levy on craft beer
  • A new tax on imported coffee
  • Consumption taxes on fuel and natural gas use
  • A new overnight accommodation tax for hotels.

Some measures are implemented in July; others don’t kick in until 2017.

Jubilee Debt Campaign: Greece needs serious debt relief

Campaigners are concerned that the plans for Greek debt relief are far too modest.

Eurozone finance ministers are due to discuss the issue tomorrow, and consider whether to extend the grace period on Greece’s bonds and give Athens more time to repay.

That’s part of the pledge made when the current bailout was agreed last summer.

There are also reports that the eurozone could buy up €14bn of Greek bonds held by the IMF, to get around the Fund’s concerns over Greece’s debt sustainability (the FT has a good take)

But the Jubilee Debt Campaign argues that much more dramatic action is needed. Otherwise, according to the eurogroup’s own forecasts, Greece’s debt repayments will hit 30% of government revenue in 2019, fall to 20% in the early 2020s, then rising back over 30% after 2040.

Instead, they believe Greece should get the same kind of deal that Germany got in the 1950s, which pegged its debt servicing costs at less than 4% of government income.

Greek debt repayment forecasts

Sarah-Jayne Clifton, Director of the Jubilee Debt Campaign said:

“Greece needs a reduction in debt payments now to help tackle the humanitarian crisis in the country. A significant amount of debt needs to be cancelled, not just rescheduled, if the Greek economy is going to have the breathing space it needs to recover.

And the costs of cancelling the debt should be recovered from the real beneficiaries of bailout loans, including the German, French and British banks that lent recklessly to Greece in the first place.”

Despite today’s rally, Greek debt is still pretty risky:

Here’s some other developments across business this morning:

Angela Merkel and Alexis Tsipras have held their meeting in Istanbul:

Back in the markets, money is pouring into short-dated Greek bonds.

The yield on Greece’s two-year debt has fallen to 8.5%, down from 9.5% on Friday night.

Such a big drop in borrowing costs shows that traders are expecting Greece’s bailout tranche to be signed off in Brussels tomorrow.

Turkish President Recep Tayyip Erdogan, left, talks with Secretary General of the United Nations Ban Ki-moon, right, German Chancellor Angela Merkel, second right, and Greek Prime Minister Alexis Tsipras at the Humanitarian Summit 2016 in Istanbul this morning.
Turkish President Recep Tayyip Erdogan, left, talks with Secretary General of the United Nations Ban Ki-moon, right, German Chancellor Angela Merkel, second right, and Greek Prime Minister Alexis Tsipras at the Humanitarian Summit 2016 in Istanbul today. Photograph: Kayhan Özer/AP

Greek media are reporting that prime minister Tsipras will meet with German chancellor Angela Merkel shortly, in Istanbul.

Both leaders are in the Turkish capital for a major international summit on the refugee crisis, that will consider how to improve the international humanitarian aid system.

Turkish leader Recep Tayyip Erdogan, who is hosting the summit, is calling on European countries to take more Syrian refugees.

Writing in the Guardian today, Erdogan argues Turkey is doing more than its fair share:

Having adopted an open-door policy towards Syrian refugees in 2011, we now host nearly 3 million Syrian nationals from diverse ethnic, religious and sectarian backgrounds.

In the past five years Turkey has allocated $10bn to provide Syrian refugees with free healthcare, education and housing. At a time when the international community failed the Syrian people – 600,000 of whom have lost their lives in the civil war, with 13 million forced from their homes – Turkey, along with the rest of Syria’s neighbours, was left to deal with the conflict’s consequences. As the Syrian civil war enters its sixth year, we are calling on the world to create a fair mechanism for sharing the burden.

But some aid agencies doubt whether the summit will yield any real progress; with Médecins Sans Frontières calling it a “fig-leaf” for international failures. More here.

European Commission Commissioner Pierre Moscovici.

EU Economic Affairs commissioner Pierre Moscovici has welcomed Greece’s decision to approve further austerity measures last night, despite public opposition.

The AFP newswire has the details:

“A key step has been taken... towards the conclusion of the first stage of the Greek programme,” Moscovici said in Paris, a day after Greek lawmakers voted in favour of spending cuts and tax hikes.

Eurozone finance ministers are set to discuss easing Greece’s debt burden and disbursing the next round of funds at a closely-watched Eurogroup meeting in Brussels on Tuesday.

“I hope and wish for an agreement at the Eurogroup meeting,” he told a news conference.

Bloomberg: Greece to get €11bn aid tranche tomorow

Bloomberg are reporting that eurozone finance ministers are planning to hand Greece €11bn of bailout funds tomorrow.

That’s according to a draft version of tomorrow’s eurogroup statement, seen by the newswire:

Greek banks are among the best-performing shares in Athens this morning:

Top risers on Greece’s stock market
Top risers on Greece’s stock market Photograph: Thomson Reuters

Greek bonds rally on bailout deal hopes

The Athens Stock Exchange.
The Athens Stock Exchange. Photograph: Petros Giannakouris/AP

Greek government bonds have hit their highest level in six months, after MPs approved last night’s austerity package.

The yield, or interest rate, on Greek 10-year debt has fallen to 7.4%, from 7.2% on Friday night. As this chart shows, that’s the lowest since last November:

Greek 10-year bond yields over the last year
Greek 10-year bond yields over the last year Photograph: Thomson Reuters

Yields fall when bond prices rises, so traders are prepared to pay a higher price for Greek debt today.

And the cost of insuring those bonds against default has also dropped this morning, following the news that the package of tax rises and economic reforms has been agreed.

That suggests investors are confident that eurozone finance ministers will sign off on its bailout review on Tuesday, unlocking fresh bailout loans for Greece.

The Greek stock market is also rallying. The main ASE index has jumped 1% in early trading, defying the selloff in other markets.

Analysts at RBC Capital Markets expect the Eurogroup to agree to release bailout funds tomorrow, allowing Greece to “meet forthcoming debt repayments and clear arrears which have built up as the review has dragged on.”

This slowdown in Eurozone growth rather undermines critics of the European Central Bank’s stimulus measures.

So suggests Carsten Brzeski of Dutch bank ING:

Eurozone private sector growth hits 16-month low

Ouch. Growth across Europe’s private sector has slowed to a sixteen-month low.

The eurozone composite PMI calculated by Markit, just released, has inched down to 52.9 from 53.0 in April.

That’s surprising, given the decent numbers from France and Germany this morning. But it appears that other areas of the eurozone struggled:

Eurozone PMI

Eurozone firms reported the smallest rise in new business since January 2015, even though many cut prices to encourage sales.

Happily, though, employment levels did rise.

But Chris Williamson, chief economist at Markit, warns that Europe’s recovery appears to be slowing:

“There are signs of improving life in the ‘core’ countries of France and Germany, led mainly by their service sectors, as manufacturing continued to struggle. However, elsewhere the rate of expansion slowed to its weakest for almost one-and-a-half years.

“The survey therefore paints a picture of a region stuck in a low-growth phase, managing to eke out frustratingly modest output and employment gains despite various ECB stimulus ‘bazookas’, a competitive exchange rate and households benefitting from falling prices.”

Updated

Stock markets hit by G7 inaction

Europe’s stock markets are suffering a dose of Monday morning blues.

The main indices are all down, amid disappointment that global finance ministers didn’t take any decisive action at their G7 meeting over the weekend.

London’s FTSE has shed 23 points, or 0.4%, while there are bigger losses in France and Germany. And in Italy, the stock market has shed 2.8%, led by banking stocks.

Europe's main stock markets today

Tony Cross of Trustnet Direct explains:

The weekend’s G7 meeting wrapped up with a lack of consensus and this appears to be very much setting the pace right now.

Finance ministers did debate the risks facing the global economy, but didn’t agree any new stimulus packages.

Perhaps they were too busy wondering why Japanese central bank chief Haruhiko Kurodo decided to pat George Osborne on the bottom....

Updated

German firms report faster growth

May is also looking like a good month for German companies.

Markit reports that growth across Germany’s private sector has hit a three-month high.

Its ‘composite PMI’, which tracks output across the German economy, has jumped to 54.7, up from 53.6 in April (any reading over 50 shows expansion).

French private sector growth hits seven-month high

Tree in blossom frame the Eiffel Tower on a sunny spring day in Paris.

Good news from France....its private sector is growing at the fastest rate in seven months.

Markit, the data firm, reports that new business has picked up, encouraging French firms to take on more staff.

This pushed up the French composite index up to 51.1 for May, from 50.2 in April. That’s the highest level since last October - shortly before the Paris terrorism attacks.

The service sector led the way, with companies reporting faster growth. The factory sector lagged behind, but at least it contracted at a slower rate:

  • Flash France Services Activity Index climbs to 51.8 (50.6 in April), 7-month
  • Flash France Manufacturing PMI rises to 48.3 (48.0 in April), 2-month high

Fred Ducrozet, economist at Swiss bank Pictet, says it’s a good performance:

Updated

Last night’s vote wasn’t without incident. One government MP, Vassiliki Katrivanou, refused to back parts of the package, saying Greece’s lenders were taking too much control.

Katrivanou has now resigned, meaning she can be replaced as an MP - leaving Tsipras’s narrow majority of 155 MPs, out of 300, intact.

Photos: Greece's austerity vote

Greek Prime Minister Alexis Tsipras addressing MPs last night
Greek PM Alexis Tsipras addressing MPs last night Photograph: Michalis Karagiannis/Reuters

Greek prime minister Alexis Tsipras cut a defiant figure at last night’s vote.

He told MPs that this latest package of austerity is the last one:

“Greeks have already paid a lot, but this is probably the first time that the possibility of these sacrifices being the last is so evident....

Tsipras also gave eurozone finance ministers a dig in the ribs to sign off Greece’s bailout funds at Tuesday’s meeting.

“European leaders will receive a message tonight, that Greece fulfils its obligations. Tomorrow, the other side must also take responsibility.”

But outside the parliament, protesters demonstrated against the package of tax rises and reforms:

Protesters shout slogans during a demonstration against a new package of tax hikes and reforms in front of the parliament building in Athens, Greece, May 22, 2016. REUTERS/Michalis Karagiannis
Supporters of the communist-affiliated union PAME chant slogans during an anti-austerity rally in Athens, Sunday, May 22, 2016.

One demonstrator, 60-year old businessman Panayiotis Kehris, told Reuters:

“It’s a disaster! We will cut down on everything, from food to driving.”

The agenda: Greece approves latest austerity measures

Good morning, and welcome to our rolling coverage of the financial markets, the world economy, the eurozone and business.

Greece is on the brink of receiving a much-needed dose of bailout, after its parliament agreed to the latest batch of austerity measure to be piled on its already weakened economy.

Last night MPs in Athens approved the package, which includes €1.8bn in tax increases, VAT hiked from 23% to 24%, and a new privatization fund.

That should be enough to allow eurozone finance ministers to sign off much-needed bailout payment to Greece when they meet in Brussels tomorrow.

That would ease fears of another summer of Greek drama, with Athens struggling to meet debt repayments. It should also trigger more detailed discussions about debt relief.

But as our correspondent Helena Smith reports, these latest restrictions on Greece are the toughest yet:

The belt-tightening legislation, outlined in a 7,500-page omnibus bill, includes measures that range from the taxation of coffee and luxury goods to the creation of a new privatisation fund in charge of real estate assets for the next 99 years. Under the stewardship of EU officials, the body will oversee the sale of about 71,500 pieces of prime public property in what will amount to collateral for the €250bn in bailout loans Greece has received since 2010.

“They are with the exception of the Acropolis selling everything under the sun,” said Anna Asimakopoulou, the shadow minister for development and competitiveness. “We are giving up everything.”

But some big problems remain, including whether the International Monetary Fund will take the plunge and support Greece’s current bailout. Germany demands the IMF’s involvement, but balks at the Fund’s key demand – substantial debt relief for Athens.

We’ll be tracking all the reaction to last night’s vote, and the build-up to tomorrow’s eurogroup meeting.

Also coming up today...

On the economic front, data firm Markit is releasing its latest PMI reports, showing how the eurozone’s factory sectors are faring this month. We also get the latest measure of consumer morale across the euroarea.

  • 8am: Flash French manufacturing PMI for May
  • 8.30am: Flash German manufacturing PMI for May
  • 9am: Flash eurozone manufacturing PMI for May
  • 3pm: Eurozone consumer confidence for May.

The markets? They look rather quiet this morning, with IG calling the FTSE 100 index up just 4 points.

And on the corporate front, budget airline Ryanair is reporting results. It has just posted profits to €1.242bn for the last financial year -- a 43% jump, but not enough

Updated

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