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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Greece and eurozone agree to resume bailout talks; Unilever shares fall after Kraft walks – as it happened

Greek finance minister Euclid Tsakalotos in conversation with commissioner Pierre Moscovici at today’s Eurogroup meeting
Greek finance minister Euclid Tsakalotos in conversation with commissioner Pierre Moscovici at today’s Eurogroup meeting Photograph: Isopix/REX/Shutterstock

Closing summary: Greece agrees to discuss fresh measures

That’s all for today. Time for a quick wrap-up.

Officials representing Greece’s creditors are heading back to Athens after the two sides agreed to discuss new economic reforms.

The two sides will draw up fresh tax measures, pension changes and labour market reforms.

Eurogroup president Jeroen Dijsselbloem says the aim is to move away from austerity and towards structural reforms, and growth-friendly measures to help Greece’s recovery.

He told reporters in Brussels that:

There will be a change in the policy mix,moving perhaps away from austerity and putting more emphasis on reform.”

The plan could break the deadlock which has prevented Greece receiving its next tranche of aid. But there’s no guarantee that agreement will be reached, or that Greece’s parliament will approve it.

Dijsselbloem cautioned that it could take some time to agree fresh measures. And while Athens doesn’t face any major debt repayments until the summer, the eurogroup hopes for a deal quickly for “stability reasons and confidence reasons.”

Greek bonds are rallying tonight, on hopes that the country will avoid another episode in its long-running debt crisis.

In other news...

Unilever has suffered its worst day on the stock market since 2008, after Kraft Heinz abandoned its takeover ambitions. Shares ended the day down 6.5%.

Shareholders said that Kraft hasn’t offered enough to sway them, while the UK government denied putting its oar in.

French government bonds have come under renewed pressure after new polls showed far-right Marine Le Pen gaining support. The gap between France and Germany’s borrowing costs is at its widest level since 2012.

British factories have reported a jump in new orders...and warned that they plan to hike prices.

Thanks for reading and commenting. GW

The IMF has issued a cautious statement, welcoming Greece’s commitment to satisfying its creditors...but warning that there’s no guarantee of an agreement on new measures.

Dublin MEP Nessa Childers isn’t convinced:

<sound of can bouncing down the road>

Q: Given that Greece and the institutions must agree new measures, and the government must legislate them, when can we realistically expect Greece to get its next bailout payment?

There’s still a lot of work to do, and a lot of issues to discuss and calibrate, so I want to temper expectations, Dijsselbloem says.

There is no need for a disbursement in March, April or May, he insists. I hope we won’t need all that time - we will have a discussion in the eurogroup once a staff level agreement is agreed.

If we do it in March, we’ll do it in March.... If not, we’ll do it later. We’ll do it well in time.

Q: Do you think Greece and the institutions will agree a package that persuades the International Monetary Fund to join the bailout, and will you provide the next tranche of bailout funds if not?

Dijsselbloem says the IMF wants to see Greece’s economy recovering, and see that its debts are sustainable.

So we must get these reforms agreed. The aim is to show that they will help support Greece’s recovery and make its debt sustainable [then the IMF is more likely to come on board].

Dijsselbloem says he can’t put a figure on today’s agreement, as some measures are still being discussed. But what has been agreed is “to the liking of the IMF” he adds.

Dijsselbloem: I can't promise an end to austerity

Q: Does today’s agreement mean the end of austerity in Greece?....

Jeroen Dijsselbloem slaps this idea down straight away! I’m a finance minister, he says, I can never promise the end of austerity, as finance ministers must maintain a tight budget and ensure it is sustainable.

Greece’s budget is in a much better state than a few years ago, so we are now looking at structural reforms to support the recovery. So there is clearly now a shift from austerity to structural reforms, he reiterates....

There’s some relief in the bond market:

Q: Must the Greek government legislate any fresh measures before the mission teams will return?

No, Dijsselbloem replies, the institutions will now return to Athens. They will talk to the Greek authorities about the specifics of tax reforms, pension reforms, the labour markets, etc.

Once the two sides have reached an agreement, those measures will have to be legislated before Greece gets its next tranche of bailout funds, though.

Q: The Greek government has just told us that they won’t take one euro of extra austerity, so how can they stick to today’s agreement?

Dijsselbloem says that both sides are looking to change the focus of the Greek bailout programme, away from austerity and towards structural reforms.

Those reforms could create ‘fiscal space’, which Greece could then use to fund growth-enhancing measures.

Onto questions...

Q: Who gave ground today to allow the teams from Greece’s creditors to return to Athens?

Dijsselbloem explains that both sides have agreed to resume talks on various reforms, including the labour market -- and issues like collective wage bargaining.

If a staff level agreement can be reached, then there can be political agreement...and then creditors can also look at the issue of “medium term debt relief” for Greece.

Commissioner Pierre Moscovici tells the press conference in Brussels that both sides are committed to reaching an agreement on new fiscal measures.

Today’s agreement is an important step, he insists.

Some instant reaction to the Greek breakthrough, starting with Slovakia’s finance minister:

Here’s AP’s Derek Gatopoulos:

Teneo Intelligence’s Wolf Piccoli isn’t too impressed:

Greece and creditors agree to work on new reforms

It’s Official! Greece’s creditors are heading back to the capital, to discuss a new package of measures to ensure it is keeping up with its bailout requirements.

Eurogroup president Jeroen Dijsselbloem says that enough progress has been made for officials to return to Athens “in the very short term”.

They will work with the Greek authorities on a new package of reforms, including tax reforms and labour market regulation.

The policy mix will change - away from austerity, and with a stronger emphasis on deeper reforms, Dijsselbloem adds.

Once the package has been agreed, the Eurogroup will then consider whether it is sufficient to unlock Greece’s next bailout payment.

Dijsselbloem adds that there is no liquidity issue with Greece, but there is a sense of urgency to get a breakthrough before confidence is affected.

Eurogroup press conference begins

And we’re off....

Eurogroup president Jeroen Dijsselbloem starts by apologising for the early finish of today’s meeting, and jokes that many reporters will consequently miss this press conference.

He says that the eurozone economy continues to improve, with growth picking up and unemployment falling.

Greece’s government is claiming victory, arguing that today’s agreement won’t mean additional austerity.....

The latest from Brussels....

Our Athens correspondent Helena Smith has the details of today’s deal -- Athens is agreeing to legislate for further fiscal reforms that might kick in, if required, in 2019.

Greek bonds are rallying

Greek bond yields are rising in value, following these reports that a deal has been hammered out to allow creditors to return to Athens for fresh talks.

In a rare and unexpected development, today’s Eurogroup meeting has ended ahead of schedule!

Hopefully we’ll hear what’s been agreed soon.....

German MEP Markus Ferber has fired a warning shot at Athens, by issuing a statement urging the Greek government to step up the implementation of its bailout programme.

Ferber says:

“I expect a clear signal by the Eurogroup today. It is not the time for new compromises, new concessions or even debt relief. We have seen a lot of this in the past and preciously little has changed. Now it is time for the Greek government to deliver. There is a very long to-do list for the Greek government to start working on. Otherwise, the money supply must be shut off.

Upping the pressure is first of all a question of credibility, but would also send the signal to the International Monetary Fund that the Eurogroup means business and wants the IMF to stay on board.”

While we wait for a press conference in Brussels, here’s some photos from today’s Eurogroup meeting:

Greek finance minister Euclid Tsakalotos (centre) talks with Italy’s Pier Carlo Padoan (left) and EU commissioner Pierre Moscovici (right).
Greek finance minister Euclid Tsakalotos (centre) talks with Italy’s Pier Carlo Padoan (left) and EU commissioner Pierre Moscovici (right). Photograph: John Thys/AFP/Getty Images
German Finance Minister Wolfgang Schauble (centre) also chatted with Padoan, and Luxembourg’s Pierre Gramegna (left).
German Finance Minister Wolfgang Schauble (centre) also chatted with Padoan, and Luxembourg’s Pierre Gramegna (left). Photograph: Olivier Hoslet/EPA
The President of the European Central Bank Mario Draghi (centre).
The President of the European Central Bank Mario Draghi (centre) checking his smartphone. Photograph: Olivier Hoslet/EPA
As Eurogroup president, Jeroen Dijsselbloem gets to ring the bell...
As Eurogroup president, Jeroen Dijsselbloem gets to ring the bell... Photograph: John Thys/AFP/Getty Images

Further confirmation of a mini-breakthrough in Brussels:

Greek journalist Ioannis Antypas has also heard that Greece and its lenders have made enough progress to allow talks to resume in Athens:

Greek insiders: 'convergence of views' over bailout

A Greek national flag.

Well-placed sources in Athens in contact with officials in Brussels are reporting that there has been a “convergence of views” - enough to allow auditors to return to the Greek capital and continue the bailout review.

But senior members in the ruling leftwing Syriza party are insisting that whatever compromise is found will have to be “honourable” so that it is endorsed by the party’s central committee and parliamentary group.

Senior cadres and MEPs are not ruling out political turbulence with some MPS standing down in protest over the additional measures creditors say Greece will have to implement for the review to be wrapped up.

“The previous government should have been left to do the dirty work which Syriza was later asked to do,” Syriza MEP Stelios Koulouglou told the Guardian, adding:

“Whatever will be agreed will be a bad deal which [prime minister Alexis] Tsipras will have to sell to Syriza and to the Greek public.”

You can (usually) rely on European Commissioner Pierre Moscovici to take an optimistic view of events....

Eurogroup president: There's no Greek crisis

Here we go! Eurogroup president Jeroen Dijsselbloem has arrived at today’s meeting.

Dijsselbloem tells the assembled press pack that ministers will discuss whether to sent their officials back to Athens to resume negotiations over the bailout programme. He says that he wants to conclude the review soon, but the issues are complex.

Dijsselbloem also argues that there’s no urgency to hand Greece more money (its next debt repayments are in July).

That’s another hint that we probably won’t get a breakthrough today.

AFP’s Danny Kemp has more details:

Germany’s Wolfgang Schauble has told reporters outside today’s Eurogroup meeting that he doesn’t expect a breakthrough over Greece’s bailout today.

But he’s still confident that the two sides will agree what further reforms Athens must take, in time.

Slovakia’s finance minister, Peter Kažimír, has warned against allowing Greece’s bailout problems to overshadow this year’s elections in France, Germany and the Netherlands.

But he’s also not willing to wave through debt relief for Athens, just to get the issue out of the headlines.

Here’s the details, hot off Twitter.

Eurozone finance ministers are arriving in Brussels for this afternoon’s Eurogroup meeting.

Bloomberg reports that Germany’s Wolfgang Schäuble has been talking about Britain’s exit from the EU:

Maybe he’s seen today’s story in the Guardian, about how European politicians are unhappy with Britain’s approach to negotiations:

French bonds hit by election jitters

Bon Dieu! French government bonds are suffering a nasty selloff as Marine Le Pen wins more support ahead of this spring’s presidential elections.

New opinion polls show the Front National candidate would win 42% of the vote if she faced centrist Emmanuel Macron in a two-way run-off for the presidency, and 44% against right-winger Francois Fillon.

This indicates that the gap is narrowing, raising the chances that the nationalist, anti-euro Le Pen wins power.

So the gap between French and German borrowing costs is now at its widest since summer 2012, as eurozone break-up fears ripple through the markets again.

UK government: we weren't involved in Kraft's decision

British Prime Minister Theresa May.

Over in Downing Street, Theresa May’s spokesman has insisted that she didn’t influence Kraft’s decision to withdraw its offer for Unilever.

Asked about the deal at the regular lobby briefing, he said:

“I think the issue of the withdrawal from the Unilever deal by Kraft is an issue you should put to Kraft. Number 10 wasn’t involved in it.

“The simple fact is that the bid has been withdrawn so I don’t have a view on a bid that doesn’t exist.”

It emerged over the weekend that May had instructed officials to look into the deal, and the PM will probably be relieved that the deal has gone away. With Brexit negotiations starting soon, the government doesn’t also want a row over the future of one of Britain’s major employers, whose products are used by millions of people each day.

Updated

Germany is also downplaying expectations ahead of today’s Eurogroup meeting on Greece:

Greek insider: A breakthrough today would be a miracle

Over in Greece, officials are warning that it will require a miracle for a breakthrough to be reached at the Eurogoup of euro area finance ministers this afternoon.

With the exception of Eurogroup head, Jeroen Dijsselbloem, who is pushing for a solution before Dutch elections next month, there is almost no one who believes much more than the “framework of an agreement” can be reached today.

One insider tells us:

“We are really looking towards the German chancellor’s meeting with [IMF chief Christine] Lagarde on Wednesday,”.

With EU commission president Jean-Claude Juncker also attending the talks in Berlin, the hope was that a “political solution” could be clinched to break the impasse, he said, adding.

“Bar a miracle there won’t be a solution today.”

Athens is interpreting emollient remarks by Germany’s hardline finance minister Wolfgang Schäuble, last night, as a good sign. In an interview with ARD television, Schäuble rejected accusations that his preference was for Greece to leave the euro.

“I never made any [’Grexit’] threats...I’m confident that Greece is on the right path.”

Negotiations will continue “until the moment the Eurogroup starts,” Greek officials say.

But in the meantime, nervous investors are selling Greek two-year debt - sending the interest rate on the bonds up to an eight-month high...

UK manufacturing picks up pace, but price rises are coming

The production line at the Rolls-Royce factory in Derby.

Just in: UK factories are enjoying a surge in demand, driving order books to their highest level in two years.

That’s according to the CBI’s monthly healthcheck, which suggests that British manufacturing continues to shrug off the shock of last summer’s Brexit vote.

Some 27% of businesses reported total orders to be above normal and 19% said orders were below normal, giving a balance of +8%, the highest since February 2015.

But...the survey also found that the weak pound is driving up import costs. Around 38% of companies now expect to raise prices and 6% expecting to cut prices, giving a balance of +32% - the highest since April 2011.

The pound has begun the week on the front foot, gaining half a cent against the US dollar to 1.246.

But it’s still almost 10% weaker than 12 months ago, when David Cameron announced the date of the EU referendum.

The cost of insuring Unilever’s debt against default has also dropped sharply today.

That shows that bondholders are relieved that the threat of a Kraft Heinz takeover has faded away.

Unilever’s bonds had suffered a big selloff on Friday, on fears that the company might be downgraded if the deal went through. The company has a much better credit rating than its US rival (A1, five notches higher than Kraft’s Baa3).

Heads-up: Eurogroup chief Jeroen Dijsselbloem will speak to the press around 1.45pm GMT. Expect a few questions about the Greek bailout (see opening post for details).

Michael Hewson of CMC Markets has also noted that Unilever’s shares are still higher than before Kraft Heinz’s bid became public.

That suggests City investors are expecting further action, even though Kraft Heinz has now sloped off.

While this bid appears to have fallen at the first fence it undoubtedly keeps the focus on a sector that could see further consolidation.

Bloomberg’s Paul Dobson also sounds sceptical that this story is really over.

The slump in the pound since the Brexit vote has made British firms an attractive asset.

But Mike Grayer, partner and head of corporate finance at accountancy firm Menzies LLP, reckons that big UK firms can repel overseas suiters if they want.

“There has been some speculation about whether the takeover offer by Kraft Heinz was motivated by the weak value of the pound but in my opinion this is unlikely to be the case. The continued buoyancy of UK equity markets is negating the effect of the dollar / pound exchange rate and is likely to keep opportunistic multinationals at bay. It is more likely that this proposed deal was motivated by a straightforward desire to consolidate and drive economies of scale.

“While UK plc is well placed to fight off unwanted takeover attention from overseas, SMEs may wish to take advantage of the exit opportunities that current market conditions are generating.”

Updated

Unsurprisingly, Unilever is dragging the London stock market back this morning.

The FTSE 100 has dipped into the red, down 2 points, despite Royal Bank of Scotland surging by 6% to its highest level since the EU referendum. RBS shareholders are cheering a government plan to spare it selling off 300 branches.

Unilever isn’t the only company having a bad morning in the City.

Bovis Homes, the housebuilder, has also slumped by over 7% this morning after it set aside £7m to fix problems with newly built homes.

The move follows a storm of complaints from angry customers whose houses weren’t up to scratch, due to ropey tiling, shoddy plumbing or dodgy kitchen fitting.

Acting CEO Earl Sibley says fixing customers’ homes is an “absolute operational priority”; he’s already been touring Bovis properties to apologise to customers. More here:

Unilever’s CEO, Paul Polman, is known for earnest lectures about the importance of ethics and responsible capitalism, but he’s proved that he can also roll his sleeves when required.

Reuters’ Kate Holton explains:

Backed by Warren Buffett and the private equity firm 3G, Kraft had wanted to buy Unilever to build a global consumer goods giant but its offer was flatly rejected on Friday by the maker of Lipton tea and Dove soap.

According to people familiar with the matter, Kraft had not expected to encounter the resistance it received from Unilever Chief Executive Paul Polman, who dismissed the offer as having no financial or strategic merit.

Unilever’s market capitalisation has now dropped back to £106bn, having hit a record high of £114bn on Friday.

One for City chartists out there....

Unilever’s shares are now on track for their worst day in over 13 years, Reuters says.

They’ve slumped to around £35 per share, down from £38 on Friday evening.

That’s bad news for investors who piled into the stock after Kraft revealed its approach, worth £40 per share, around noon on Friday.

Unilever’s share price
Unilever’s share price Photograph: Unilever's share price

But even so....they’re still rather higher than last Thursday - when you could get a Unilever share for £33.50.

Bloomberg reporter Thomas Buckley suspects Warren Buffett didn’t fancy a bruising hostile takeover battle for Unilever:

The political backlash against Kraft Heinz’ approach for Unilever also helped to doom the bid.

Former business secretary Vince Cable let the charge. He urged prime minister Theresa May to block the approach, and deliver on her pledge to fight predatory takeovers.

Kathleen Brooks of City Index believes this was a significant factor:

We expect the chief reason to drop the bid was concern about the political atmosphere in Britain, which is currently against foreigners making bids for “national treasures”, even half-Dutch ones like Unilever.

George Salmon, equity analyst at Hargreaves Lansdown, reckons the bid collapsed because that Warren Buffet (Kraft Heinz’s biggest shareholder) wouldn’t put his hand deeper into his pocket.

Salmon says:

“After the news broke that Kraft were in the frame for a takeover on Friday, Unilever’s initial reaction was frosty to say the least. However, Kraft was clearly hopeful of working towards a deal.

With the shares settling around half way between a realistic second offer price and where they traded before the news broke, the deal going through was far from a formality. However, it is still surprising to see it shelved just one business day after the initial news broke.

The deal was set to top £100bn, so the size premium would always have been a consideration- especially since Warren Buffett, one of the biggest names behind the bid, hardly has a reputation for paying anything other than the price he sees fit.

What exactly happened in this whirlwind of a story is yet to be fully revealed, but it looks like Unilever isn’t just playing hard to get. It was always going to be a difficult pitch to convince shareholders to relinquish their grip on Unilever, given the expectations for the company to keep churning out resilient growth in the years to come.”

Louise Kernohan of AAM

Why did Kraft Heinz walk away so fast?

One reason is that it simply wasn’t offering enough for Unilever.

Louise Kernohan of Aberdeen Asset Management (a Unilever shareholder) told Bloomberg TV that Kraft Heinz’s approach was a big surprise, but she didn’t think it would work.

Kraft Heinz was only offering to pay around 18% above Unilever’s market value - that’s not enough to tempt long-term shareholders who are looking for “double-digit returns in perpetuity”, Kernohan explained.

Updated

Unilever shares dive

Unilever’s company logo.

A weekend is a long time in dealmaking.

Shares in Unilever have plunged by over 7% at the start of trading, after Kraft Heinz announced that it was abandoning its attempts to merge with its Anglo Dutch rival.

That wipes out some, but not all, of the 13.5% surge on Friday after Kraft Heinz revealed it had approached Unilever with an offer worth £115bn.

Bloomberg TV

Some investors had expected a classic takeover battle, potentially leading to the creation of a packaged foods and household items titan.

But instead Kraft Heinz has thrown in the towel with surprising speed, following a rather negative reaction to its approach (Unilever insisted that the offer, at £40 per share, was far too low).

The two sides now say that “hold each other in high regard”, in a joint statement confirming the approach is toast.

It appears that Kraft Heinz has received an unexpectedly cool response from Unilever shareholders, who agreed that the proposal lacked merit.

The US company may also have been spooked by the political reaction, with some politicians remembering its takeover of chocolate firm Cadbury in 2010.

The collapse of talks will reassure workers, as unions had feared hefty job cuts if the two companies had joined forces.

I’ll pull together more reaction now....

Updated

The agenda: Eurozone finance ministers to discuss Greek bailout

Greek Finance Minister Euclid Tsakalotos (left) and Eurogroup President Jeroen Dijsselbloem, who will discuss the state of play in Greece today
Greek Finance Minister Euclid Tsakalotos (left) and Eurogroup President Jeroen Dijsselbloem, who will discuss the state of play in Greece today Photograph: Francois Lenoir/Reuters

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

Coming up today....

Greece’s bailout woes are back on the agenda today, as Eurozone finance ministers are head to Brussels for a crunch meeting.

The Eurogroup will hope to make progress towards breaking the deadlock between Athens and her creditors, who can’t agree what measures Greece must take to hit its bailout targets.

A few weeks ago, there had been hopes of a big breakthrough at this meeting, that would unlock €7bn of aid loans. But this now seems highly unlikely, meaning Greece’s problems will now overshadow elections in the Netherlands and France this spring.

If Greece doesn’t get this €7bn by July, it may be unable to repay loans to the European Central Bank - triggering another debt crisis, and possibly even a fourth rescue package.

As Nick Kounis of ABN Amro Bank puts it:

“Delays in completing the review raise the risk of another bailout being needed.”

The situation looks pretty murky right now. For months, the two sides have been split over tax rises, labour market reforms and pensions.

And overshadowing everything is the International Monetary Fund, which insists that Greece needs substantial debt relief. Greece wants the IMF to stop demanding pension reforms. Germany insists that the IMF takes part in the Greek bailout - but doesn’t accept that Athens needs debt relief. And round and round we go.....

The Eurogroup meeting starts around 1pm GMT, with a press conference scheduled for 5.30pm GMT.

We’ll also be watching Unilever closely, after Kraft Heinz dramatically abandoned its attempts to merge with its rival last night.

In the City, housebuilding chain Bovis Homes are reporting results. They don’t look great at first glance, with profits down 3% amid rising customers complaints over build quality.

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