Slovakia approves EU rescue plan – live

• Slovakia votes in favour of EFSF expansion • US and European stock markets slide , after Asian markets jump overnight • Italy to hold vote of confidence on Friday • Today’s agenda • Lunchtime roundup • Blogging now: Graeme Wearden 5.32pm: The EFSF has said that it “stands ready to implement new activity”, once every member of the Eurozone has confirmed its expansion. The plan to enlarge the EFSF was agreed in July, after European leaders met to agree a new rescue plan for Greece. As well as being given €440bn of firepower, the EFSF would also be allowed to extend credit to countries who hit trouble, and make loans to cover bank recapitalisations. There’s a decent explainer here , showing how it differs from America’s TARP plan. 5.29pm: Robert Fico , chairman of the left-wing Smer-Social Democracy party, has said he is “satisfied” that the fund has been approved. “Slovakia is back on the map of Europe,” said Fico, a former prime minister who was replaced by Radicova last summer. Before the vote, finance minister Ivan Miklos warned MPs that it was now “necessary that Parliament approves” the bill. 5.07pm: Associated Press report that the Slovak MPs took just 30 minutes to discuss and approve the EFSF expansion. On Tuesday, the debate began at 1pm local time and we didn’t get a vote until 10pm . 4.49pm: Although the Yes vote is good news for Europe, it’s clear that expanding the EFSF to €440bn will not be enough to solve the debt crisis. At best, it’s a temporary fix – which would break if a large EU country needed rescuing. Here’s what Lutz Karpowitz, an analyst at Commerzbank AG in Frankfurt, had to say (with thanks to Bloomberg): The second vote in Slovakia will pave the way for the EFSF, however, that does not constitute a solution. The EFSF would still be too small to support countries like Italy or Spain should the necessity arise. The recent recovery of the euro seems to have gone rather far considering the news flow. In the reader comments below, stomachtrouble suggests that Silvio Berlusconi may struggle to win tomorrow’s vote of confidence : Yesterday Napolitano (the President) effectively gave Berlusconi a dressing down for not coming up a with a plausible budgetary plan – the government lost an important technical vote; curiously Tremonti was late for it. Fini, ostensibly Berlusconi’s rival, was then dispatched from the Chamber of Deputies to brief Napolitano. Milan Borse is a mess today. Business sentiment is against Berlusconi, and increasingly the Northern League is seen as an acute embarrassment. Looking at the Milan stock market, the main index fell by 3.7% today. That’s a much bigger fall than other European bourses. Not encouraging. 4.27pm: Slovakia’s decision to approve the expansion of the European financial stability facility will be a relief to European leaders. It has come earlier than expected – frankly, I’d expected a vote on Friday. So how can a parliament soundly reject a bill on Tuesday night, only to confidently approve it on Thursday afternoon? The key lies in the complicated coalition government politics of Slovakia….. Prime Minister Iveta Radicova led a four-party coalition. One junior partner, the SaS, refused to support the enlarged Euro bailout fund. So, Radicova attempted to drive the bill through by making it a vote-of confidence….. ….but the SaS didn’t blink. Instead, it walked out of parliament on Tuesday, which meant Radicova couldn’t muster the votes she needed. Now, though, the Smes opposition party has voted in favour of expanding the fund [having, understandably enough, refused to express confidence in the coalition government]. 4.19pm: Slovakia MPs voted in favour of the EFSF by a large majority. • 114 voted for the EFSF • 30 against • 3 abstained and a further three were absent This means that every member of the Eurozone has now ratified the plan to expand the EFSF to €440bn and grant it new powers. 4.16pm: Just hearing from Bratislava that the Slovakian parliament has approved the ratification of the European financial stability facility (having rejected it two nights ago). Full details coming in now…. 3.55pm: My colleague in Brussels, David Gow , has been asking EU officials the burning question — how much money may need to be injected into Europe’s banking sector? Here’s his thoughts (in full, but they’re worth it) So, how much capital might Europe’s banks need as a “temporary buffer” until they get back to the normal business of lending to create growth and jobs as they put it in Brussels? The BBC’s Robert Peston, rummaging through the runes at the EBA, comes up with €200bn . The Frankfurter Allgemeine Zeitung (FAZ) says the 55 biggest banks would require €150bn if the EBA sets the capital ratio at 9%. Senior EU officials, at one of those briefings that didn’t take place, refuse to put a number on it but insist that “it won’t be that large” or “it’s manageable.” The €150bn number is said to be closer to the likely outcome. There’s a clear sense that the EU institutions have been dragged into this by the markets. “We have to put in place the appropriate backstops because the markets simply don’t believe our numbers,” it was said today. “We’re deliberately over-shooting.” An EU official – someone pretty high up in the Berlaymont hierarchy – says the banks raised €55bn in fresh capital in the first four months of this year, they’re cleaning up their balance-sheets, disposing of assets, and, well, if they are forced to meet temporarily higher capital requirements they can do so without recourse to national governments, let alone the EFSF. Either way: all will be revealed soon, with the EBA number-crunching exercise – based on updated figures and asset prices reflecting market values – due to be finished “within the coming days,” and the EU/eurozone summits due to sign off on detailed plans for, say, the 60 biggest banks by the weekend after next. And the banks willl be given three to six months to implement the plans. In Berlin Josef Ackermann, Deutsche Bank boss, joins the chorus of bankers railing against the plan, saying it will only increase states’ budget deficits. Deutsche, Germany’s biggest bank, is said to require €9bn in fresh capital under the EBA’s likely scheme but Ackermann, so good at his job he’s being replaced by two other people, says it doesn’t need to go cap in hand to Schäuble or Merkel. “We anticipated that the banks would scream,” that official said. “And if we thought this proposal would damage the economy we wouldn’t be doping it, would we.” Oh, and don’t say “leveraging” the EFSF any more. It’s “optimisation of resources”. Leveraging is a toxic word, redolent of what caused the last financial crisis. And that doesn’t mean turning it into a bank, or a CDO, or something complicated or even dodgy. It will be “plain vanilla- whatever it is. 3.40pm: The UK government is fond of pointing to the record low interest rates on British debt as a reason for sticking to the current fiscal consolidation plan. Today, 10-year gilts yield just 2.55% – much lower than Spain (5.2%), Belgium (4.2%) and France (2.9%). As David Cameron told MPs yesterday: “We mustn’t abandon the plan that has given us record low interest rates.” Paul Krugman (winner of the Nobel Memorial Prize in Economic Sciences), is claiming today that Cameron is puling a fast one. On his blog , he writes: British rates are low for the same reason US rates are low — not as a reward for fiscal virtue, but because everyone know expects the economy to stay depressed, and policy rates near zero, for years to come. I’d add that if you want to give credit to Cameron’s policies for the recent fall in British rates, you’d have to ask why US rates have fallen even more. Anyone disagree? 3.22pm: Could Italy thrown the European debt crisis into yet more confusion? There’s a possibility that its government could collapse by the end of the week, as Silvio Berlusconi has called a vote of confidence tomorrow. Berlusconi took the step after months of allegations over his private life (M’Lud), and claims that he has mismanaged the Italian economy for many years. In an impassioned address to parliament earlier today, Berlusconi accused left-wing opposition MPs of “obsessively” pushing for his resignation (isn’t that what oppositions are supposed to do). He also claimed that only he could save Italy from the threat of a bailout: A government crisis now would be a victory for those who want to see (Italy) fall into decline, catastrophe and the kind of speculation we have seen for months in Europe and Italy. Looking at the bond market, Italian government debt has fallen in value today. That’s pushed up the yield on its ten-year bonds to 5.8%. Above 6%, and Italy has a problem…. 3.02pm: Afternoon all. It’s not a particularly cheery day on the financial markets. On Wall Street, shares are falling in early trading. In London, the FTSE 100 has now shed 1% (down 58 points at 5382). That’s not a major move for the Footsie, but within it some stocks have dipped sharply. Mining giants Antofagasta and Kazakhmys have lost 6%, driven down by fears over the global economy (following news of China’s shrinking trade gap ). Financial stocks are also suffering, with Barclays and Lloyds Banking Group both losing around 5%. Market reporter Nick Fletcher tells me that JP Morgan’s mixed financial results (released at 1.30pm our time), and Fitch’s decision to downgrade the UK banking sector, are both weighing on the sector. 2.45pm: I’m handing this blog over now to my colleague Graeme Wearden…. 2.23pm: A twitter spat between Sky News business editor Mark Kleinman and Lord Sugar spiced up the airwaves a few minutes ago. Sugar accused the Skyman of getting his facts in a twist and provoking a massive, and unnecessary sell-off in bank shares. Kleinman said his story was the same all day and was vindicated when the Fitch downgrade came through. Sugar posted: SKY said rating agency Fitch to announce possible downgrade of UK banks today and then corrected it. Result caused some banks to drop 3% Only for Kleinman to riposte @Lord_Sugar Afraid you’ve got facts wrong: no correction of our story about Fitch and the UK banks. It has just been confirmed. 2.06pm: Lloyds Banking Group and Royal Bank of Scotland moved further away from their previously much coveted, pre credit crunch, AAA status after ratings agency Fitch confirmed the two banks would be downgraded. RBS and Lloyds were slapped with an A rating after Fitch said the insurance offered by the UK government had weakened and would cost more to fund. Fitch follows a similar move by Moody’s, which cited the same reasons for downgrading the banks. Overall UK banks are in a better condition than many of their continental rivals after a strict regime of asset sales and cuts to risky operations. Massive write-downs on bad loans have also helped UK banks to shed many of the bad loans built up during the boom. But they remain vulnerable to the domino effect of failing banks inside the eurozone. Fitch said that while government support remained in place “the potential for the provision of extraordinary support for senior bank creditors is relatively less certain than before”. Barclays also suffered. Fitch said the high street bank was well-run but was vulnerable to upsets from its investment banking arm Barclays Capital. It said: “Global trading and universal banks have business models that are particularly sensitive to market sentiment and confidence, that are complex and exposed to greater volatility.” 1.37pm: lunchtime roundup: • There is a sense that EU leaders are talking more and in increasingly definite terms about solutions to the debt crisis and market traders are eyeing the situation warily. • Markets are going sideways and slightly lower, but not really giving up the gains of the last week. However the tone from the Bank of England’s Charlie Bean and Martin Weale was decidedly downbeat yesterday and will weigh heavily for some time on investor sentiment and add to the gloom. • The ratings agency Fitch is planning to downgrade UK banks, according to reports • Exports improved, and the trade balance narrowed in August, but gains earlier this year in selling to China and other emerging markets appears to have reversed. • See today’s agenda 1.13pm: Blackberry said a few minutes ago that its mobile phone network is approaching normal service levels in Europe, India, middle east and Africa.The all important north American market is another matter and appears to still be suffering radio silence. Blackberry jokes have made little headway since the company suffered its weekend meltdown, which is understandable when one of the best lols follows the question “What did one BlackBerry user say to another BlackBerry user? Nothing!” Any better suggestions gratefully received. 1.00pm: JPMorgan Chase is managing to keep its head above water. But the second-largest US bank needed a $1.9bn accounting gain to beat analysts expectations. Third-quarter net income fell to $4.26bn from $4.42bn in the same period a year earlier and $5.43bn in the second quarter. JPMorgan would have reported a loss for its investment bank without the change in liabilities, that some analysts termed a debt-valuation adjustment. Boss Jamie Dimon, 55, was quick to point out the investment banking business was hit with a 13% decline in revenue from the prior quarter. He said the accounting gain was an artificial boost and “does not relate to the underlying operations of the company,” Shares in JPMorgan fell to $32.60 from $33.20 on the New York Stock Exchange yesterday. Bloomberg pointed out the shares are down 22% this year. 12.12pm: @zerozero is right to say EU politicians don’t know which way to turn and have decided to talk their way through the problem. I disagree with those who argue weakness is the reason. The divided nature of European politics means there is not much give and take from taxpayer groups, especially those who can lay claim to a majority of savings assets in their bank accounts, pensions and property portfolios. The over 55s are a majority of voters and politicians represent their interests. Woe betide a politician who argues for policies that jeopardise asset values. 11.47am: Joshua Raymond, chief market strategist at City Index believes the FTSE is now trading 44 points down on the day after the poor China data. Mining stocks are the big losers. It is the Chinese trade data that is the key drag and headline affecting trading today. Investor concerns regarding a slowdown in Chinese growth and underlying demand for metals has grown in the market turbulence since August and today’s data has emphasised those fears. Chinese exports grew by 17.1% last month compared to a year earlier, slowing from Augusts’ growth of 24.5%, whilst import growth also slowed to 20.9% from 30.2%, creating a trade surplus of $14.5bn last month. As a result we have seen investors use the Chinese data to lock in their profits after a very strong weeks’ trade in mining companies that has seen the FTSE 350 mining sector rally 20%. Anglo American and Antofagasta shares lost 3% on the back of the profit taking. We could see further investor reaction in mining firms tomorrow morning too with the latest release of Chinese inflation data. Concerns over slowing growth in China is being exacerbated this year by the hawkish monetary policies adopted by the Chinese authorities to reign in spiralling inflation and so investors will use Fridays inflation data to better gauge likely next steps for Chinese monetary policy. 11.40am: Sky business editor Mark Kleinman reckons Fitch is poised to follow Moody’s and downgrade the credit worthiness of UK banks. As with Moody’s, the downgrade is based on a weaker covenant from the UK government, though the idea that having saved all our banks in 2008 we will let them go next time seems for the birds. 11.16am: Italy’s bond auction was supported by the European Central Bank, which stepped in after the sale was complete to mop up unwanted bonds. The Italian treasury wanted to sell €6.5bn of bonds but found it could shift only €6.2bn and at a premium 5.87% yield for 10-year bonds. The yield, which determines the effective interest rate, was the highest the ECB has paid for Italian debt since it became a buyer in August, according to Reuters. Last month a major sale of Italian debt found very few buyers. It was the worst auction for more than 10 years in terms of the number of bidders. Silvio Berlusconi has been telling everyone he will survive a confidence vote later today and Rome’s budget will break-even in 2013. We’ll see. 11.07am: Inflation in Europe’s largest economy – that’s Germany – accelerated to the fastest in three years in September, led by energy costs. At 2.9% it hardly registers as inflation in UK terms, but Germany is different. It is hard to credit that the grandchildren and great grandchildren of those who lived through the hyper-inflation of the 1920s hold on to the paranoia of their forebears and won’t let go. Why did the European Central Bank last week keep its benchmark interest rate at 1.5% when any sane central bank would have cut to 1% or less given the state of the entire eurozone economy? Why, because it is dominated by German anti-inflation thinking. Even the departure of two prominent German central bankers from the ECB board in recent months is unlikely to change the tone of debate in Frankfurt. 10.24am: Squandido makes an excellent point. Why should Portugal et al accept a write down on Greek debt and not enjoy the same privilege for themselves. After all, they are basket cases as well. There are so many commentators who call for eurocrats to get out their heavy artillery, a big bazooka is often referenced, to blast the problem. Kick out Greece. Make it default. Make private investors pay. But they need to recognise that every way Brussels turns, there is another problem to confront. FT man Wolfgang Munchau made this point yesterday. 10.09am: UK Trade figures are in. They provide a more positive picture than expected after the deficit on seasonally adjusted trade in goods and services fell to £1.9bn in August from £2.3bn in July. The seasonally adjusted trade in goods fell to £7.8bn while the surplus in services pushed up to £5.9bn. The main reason for the smaller deficit is an increase in exports – up 1.3% on the previous month – that outstripped a small rise in imports – up 0.3%. Good to see we are enjoying the Irish crisis with a huge jump in goods sold to the Republic. China and Netherlands also bought more of our stuff, while the Germans, French and Americans bought less. The good news notwithstanding, there is a problem with trade figures these days because they can disguise more than they reveal now that multinationals export from one subsidiary to another not to sell goods, but to dodge local taxes and benefit from state subsidies. Also, Tesco is a big exporter to Ireland, but that just means shifting stock around from UK distribution centres to stores in Dublin, etc. Is that what we really mean by trade? 9.25am: Here’s the agenda for today … • All eyes will be on JPMorgan’s Q3 results. The results are expected at 12pm London time and boss Jamie Dimon’s words will be scrutinised for signs of gloom/optimism. • On the data front, Germany’s CPI, UK’s trade balance, and Spain’s business confidence are some of the notable data releases in Europe. • In the US we have trade balance on top of the usual weekly jobless claims. • Italy’s cabinet gets together today in the wake of their defeat in Parliament earlier this week. Berlusconi may seek a vote of confidence, though that requires the approval of the president to move ahead. • In London, the great and the good of the business world will be meeting at the annual CBI dinner. New boss John Cridland will speak and is expected to chastise the government for failing to support growth. London mayor Boris Johnson is the keynote and should trumpet the Olympics/Crossrail and all the many and various projects started by his predecessor or the previous government. • And London is gearing up for a weekend of banker bashing as the Occupy London Stock Exchange protest gets under way. Protesters inspired by the Occupy Wall Street movement in the US are planning on establishing a tent city in London’s financial district. What will Boris make of that? • Chancellor George Osborne is keeping his head down as usual, probably paying more attention to the Liam Fox affair than the economy. Tomorrow he arrives in Paris for a G20 finance ministers meeting that is due to stagger into Saturday evening. Another weekend at No11 ruined. 8.59am: A groggy squint at a fuzzy Reuters screen led us to value the Italian bond sale today at €8bn when an eagle-eyed reader cannyinvestor points out it is worth €6.5bn. Still worth watching. 8.45am: Barclays Capital asks why Brussels’ bank recapitalisation plans are so vague. In a note titled “Euro banks need a A Recap Or A ‘Pre Cap’?: … or why are banks raising capital?” it says the reasons to horde more capital are unclear. Recap or precap?: Is it because capital ratios are too low today – i.e. a recapitalisation – or is it a “pre cap”, giving banks enough capital to manage the (remote) future risk of financial calamity from a default in the world’s third largest bond market, Italy? So are today’s capital ratios sufficient?: On a Basel (ie, RWA) basis European banks capital ratios are the same/stronger than US banks, suggesting little obvious need for recapitalisation. However, they are much weaker on a (non risk weighted) nominal basis, which may now be informing policy makers’ views. We may be witnessing the further undermining of RWAs in Europe as the key balance sheet measure. The recap vs precap debate matters: If its a traditional recap to reflect low nominal leverage ratios, then its most likely going to be in the form of pure equity, which could see investors significantly diluted and – for parts of the sector – be a de facto nationalisation. If current capital ratios are seen as sufficient, however, then really it’s a “pre cap”, that could see capital in non equity/contingent forms that are loss absorbing, thus helping funding markets heal. That could partially or fully protect existing shareholders. 8.41am: Oh, and here’s a report from Athens by the Guardian’s Helena Smith, who is wary of declaring the EU/Greek crisis over, especially as workers remain unhappy and willing to make life difficult for George Papandreou’s struggling coalition. Shock and awe calls for shock and awe – or so say Greece’s powerful unions who this morning stepped up strikes, walk-outs and work stoppages ahead of parliament voting on a new round of austerity measures demanded in exchange for aid by international creditors. With lighting speed protesting civil servants, transport employees, refinery workers, tax collectors, customs officials, hospital staff, archaeologists and school teachers have brought large parts of the country to a standstill. Militant unions at GENOP DEH, representing employees at the cash-strapped nation’s Public Power Corporation, have added to rising tensions ahead of the vote by taking over the company’s account department in a determined bid to prevent it from printing bills that would include a hugely unpopular property tax. We are not going to be part of this government’s strategy to take everything away from us, our hard-earned rights, our dignity, our livelihood,” said Nikos Fotopoulos who heads the union. “This is war.” The reforms – which are expected to be voted through Athens 300-seat house ahead of the October 23 EU summit – have stirred outrage among increasingly disgruntled members of prime minister George Papandreou’s ruling socialist Pasok party. A repeat of the fiery protests that accompanied passage of reforms in July could be in the offing. 8.39am: Anyone wanting to take something positive from recent EU announcements was most likely dismayed by EU commission president José Manuel Barroso’s latest speech. He added to investor fears after he outlined a truly nonsensical solution to the debt crisis, which involves banks recapitalising themselves from their own resources. This means scrapping dividends and bonuses until such time as they, the banks, have reached a pre-determined level of reserves. Barroso is one of many EU officials who appears to believe there is free money lying around that can be used to rescue the eurozone project. Basically he’s asking investors to pay, which has a strong moral argument behind it, but ignores the nature of mobile capital. The tax on financial transactions, the so-called Robin Hood tax, is another idea Barroso has championed, precisely because it appears to be free money, painlessly extracted from “the Financial System”. The fact that any tax is paid by someone – in this case investors – who can choose to flee for another part of the world is lost on Barroso. The FT says banks will respond by selling off bits of themselves to raise capital rather than scrap dividends and bonuses or ask shareholders for more funds. 8.23am: The FTSE is down more than 20 points , joining other European markets in a wait and see mode. There is a general sell-off in London, with some notable exceptions – those being Royal Bank of Scotland, Lloyds Banking Group, advertising group WPP, Tesco and ITV. 7.46am: There is a warm breeze blowing from the east. Asian markets, buoyed by the sightly improved mood in Europe, continued their recent rally. Japan’s Nikkei rose to a four week high on hopes that the Dexia bank rescue deal earlier in the week and renewed resolve among EU politicians will prevent a eurozone collapse. Shares in Sony and other major Japanese manufacturers, hammered last month on fears of a global downturn, led the rally. Cameron Peacock, market analyst at IG Markets, said in an early morning note that Hong Kong’s Hang Seng was the region’s best performer, higher by 1.3%, while the Nikkei 225 rose 1.2% to 8,839. He said: “With US markets enjoying another night of solid gains it is not surprising to see that strength playing out across the local market. Gains for the day are relatively broad based and once again being led by the cyclical materials, industrial and energy sectors. The financial sector is also enjoying a modest advance, with losses limited to the consumer staples, utilities and information technology sectors.” China’s trade balance closed last month, which is a double edged sword, as ever. It is an indication of global slowdown, but also pleases the US, which has threatened a trade war without strong action from prime minister Wen Jaibao’s. Looks like a lack of demand for Chinese goods may have delayed that particular day of reckoning. In Europe, the eagerly awaited Slovakian vote on the eurozone’s EFSF bailout looks like being delayed until tomorrow, but the picture is still uncertain, so more on that later. An €8bn auction of Italian debt was also making traders wary. A poor response from investors will add to the problems already facing Silvio Berlusconi’s administration. The FTSE is expected to follow Asia and continue its recent surge, though futures markets predict continental exchanges will fall back, with Germany’s Dax futures down 0.4% and the Paris CAC down 0.3%. Stock markets Financial crisis European debt crisis Phillip Inman Graeme Wearden guardian.co.uk

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