Greek Finance Minister Yannis Stournaras has said the country may need a third bailout but would not accept new austerity measures.
Yannis Stournaras said: “If there is need for further support to Greece, it will be in the order of about 10 billion euros [$13.4 billion], or much smaller than the previous programmes.”
Greece has already received two bailouts totalling about 240 billion euros.
Meanwhile, Cerman Chancellor Angela Merkel has warned about writing down any more Greek debt.
She said a so-called haircut of Greek debt would be bad for the stability of the eurozone, which has seen a return in investor confidence after years of worrying about the future of the single currency following bailouts of several nations – most recently, Cyprus.
“I am expressly warning against a haircut,” Angela Merkel said.
Greek Finance Minister Yannis Stournaras has said the country may need a third bailout but would not accept new austerity measures
“It could trigger a domino effect of uncertainty with the result that the readiness of private investors to invest in the eurozone again falls to nothing.”
Angela Merkel’s comments come after Germany’s finance minister, Wolfgang Schaeuble, said – for the first time – earlier this month that Greece will need another bailout to plug a forthcoming funding gap.
The issue of bailouts is a sensitive one in Germany, where Angela Merkel faces elections for a third term on September 22.
Many Germans feel they have already contributed enough to European bailouts.
The International Monetary Fund (IMF) last month estimated Greece would need around 11 billion euros in 2014-15.
On Sunday, Yannis Stournaras told Greek newspaper Proto Thema that any further bailout would be smaller than the previous two.
But he also warned that Greece would not accept any more forced spending cuts from its partners.
“We are not talking about a new bailout but an economic support package without new [austerity] terms… until 2016, the targets – our obligations – have been set and other measures or targets cannot be required.”
The Greek economy has shrunk further than any other in Europe, with bailout money only released on condition that the government imposes cuts and implements restructuring.
It comes after most of the 18-member eurozone countries came out of recession earlier this year.
Greece’s troika of lenders – the European Commission, the European Central Bank and the IMF – will review the aid programme in the autumn.
The OECD has revised its growth forecasts for the eurozone and called on the European Central Bank to consider doing more to boost growth.
The organization says the eurozone will shrink by 0.6% this year, widening the gap between it and faster-growing economies such as the US and Japan.
Meanwhile, the European Commission has given France two more years to complete its austerity programme.
France fell back into recession in the first three months of the year.
Spain, Poland, Portugal, the Netherlands and Slovenia have also been given more time to complete fiscal tightening.
The move suggests a shift away from a focus on austerity in Europe.
In its twice-yearly Economic Outlook, the OECD said prolonged economic weakness in Europe could damage the global economy.
The OECD, which represents 34 advanced economies, forecast average growth across its members of 1.2% this year and 2.3% in 2014.
It painted a troubled picture of the eurozone economy. The forecast of a 0.6% contraction in GDP is down markedly from the 0.1% contraction forecast just six months ago.
It said eurozone unemployment would continue to rise from its current rate of 12%, stabilizing in 2014.
The OECD has revised its growth forecasts for the eurozone and called on the European Central Bank to consider doing more to boost growth
It blamed continuing austerity measures, weak confidence and tight credit conditions. It hinted that the European Central Bank (ECB) might want to expand quantitative easing (QE) as a measure to encourage stronger growth.
It warned the continuing weakness in Europe “could evolve into stagnation, with negative implications for the global economy”.
The US and Japan have seen a greater focus on stimulus measures compared with Europe, where austerity measures have taken precedence.
Japan is forecast to grow relatively strongly this year, adding 1.6% to its GDP on the back of extraordinary economic stimulus measures introduced by the government this year.
But the OECD said there was considerable uncertainty over whether that recovery would continue into 2014, when the government is expected to cut spending.
In the US, where growth of nearly 2% is forecast for this year, the OECD said quantitative easing measures might need to be “gradually reduced”.
China is not included in the OECD club, but the organization expects its annual growth to be about 8% over the next two years.
The OECD’s chief economist, Pier Paolo Padoan, told Reuters that the eurozone remained the dominant area of concern.
“Europe is in a dire situation,” he told the news agency.
“We think that the eurozone could consider more aggressive options. We could call it a eurozone-style QE.”
Thousands of protesters, led by trade unionists, have rallied in Rome against the policies of Italy’s new coalition government.
Wielding red flags and placards, they urged the centre-left prime minister, Enrico Letta, to scrap austerity measures and focus on job creation.
Public trust in his fragile coalition with the centre-right is dropping, opinion polls suggest.
Italy is experiencing its longest recession in more than 40 years.
National debt is now about 127% of annual economic output, second only to Greece in the eurozone.
Unemployment is at a record high of 11.5% – 38% for the under-25s.
Before taking office, Enrico Letta vowed to make job creation his priority, but critics are unhappy that he has focused on property tax reform.
The issues of social justice and poverty came up when German Chancellor Angela Merkel had talks with the new Pope, Francis, at the Vatican on Saturday.
Organized by the metalworkers’ union FIOM and the CGIL union, Saturday’s peaceful march and rally drew supporters from across Italy. The turnout was unclear but 50,000 people had been expected to attend.
“We ask the government to change [former Prime Minister Mario] Monti’s and [former Prime Minister Mario Silvio] Berlusconi’s politics,” said Maurizio Landini, leader of the FIOM.
“If they don’t change, as the country asked for with its vote, we are going nowhere.”
A controversial poster depicted Chancellor Angela Merkel, who is seen as typifying austerity
One of the protesters, Enzo Bernardis, told Reuters news agency: “We hope that this government will finally start listening to us because we are losing our patience.”
Soon after being appointed, Enrico Letta met other eurozone leaders to convey growing public unrest over austerity measures in Italy.
But the new prime minister has to maintain a delicate balance between the policies of his own supporters and those of the centre-right, led by Silvio Berlusconi.
Italy’s coalition was only formed after two months of post-election deadlock.
Among the demonstrators in Rome were radical leftists.
A controversial poster depicted Chancellor Angela Merkel, who is seen as typifying austerity, in mock-Nazi uniform.
On Thursday, Pope Francis said in a speech that the global economic crisis had made life worse for millions in rich and poor countries.
Speaking after her private meeting with the pontiff, Angela Merkel told reporters: “Crises have blown up because the rules of the social market have not been observed…
“It is true that economies are there to serve people and that has by no means always been the case in recent years.”
Angela Merkel said she and Pope Francis had spoken mainly about globalization, the European Union and the role of Europe in the world.
“Pope Francis made it clear that we need a strong, fair Europe and I found the message very encouraging,” she added.
While she is not a Catholic herself, Angela Merkel, the daughter of a Lutheran minister, leads a party with a strong Catholic component.
Portugal plans to cut 30,000 civil service jobs and to raise the retirement age by one year to 66 as it tries to meet the terms of a bailout.
PM Pedro Passos Coelho said civil servants would also be required to work 40 hours a week instead of 35.
The proposals, which would be applied mostly from next year, would save 4.8 billion euros over three years, the prime minister said.
Austerity measures have proved deeply unpopular and have triggered large protests.
“With these measures, our European partners cannot doubt our commitment” to the bailout, Pedro Passos Coelho said in an address to the nation late on Friday.
Portugal’s PM Pedro Passos Coelho announced new austerity measures from next year that would save 4.8 billion euros over three years
“To hesitate now would harm the credibility that we have already won back,” he added.
Portugal received a 78 billion euro bailout from the EU, the European Central Bank (ECB) and the IMF in 2011.
Unemployment stands at nearly 18% – a record high – and the economy is expected to shrink for a third consecutive year in 2013.
Last month, the Portuguese Constitutional Court struck down more than 1 billion euros ($1.3 billion) of proposed cuts, which included the suspension of holiday bonuses for public sector workers and pensioners.
That forced the centre-right government to look elsewhere for savings – though it has ruled out raising taxes.
“We will not raise taxes to correct the budgetary problem resulting from the Constitutional Court’s decision,” Pedro Passos Coelho said.
“The way must be through the structural reduction of public spending.”
Portugal’s main Socialist opposition party has accused Pedro Passos Coelho of inflicting excessive austerity on Portugal in pursuit of an ideologically driven programme.
Italy’s parliamentary elections have ended in stalemate and the possibility of a hung parliament.
With all domestic votes counted, Pier Luigi Bersani’s centre-left bloc has narrowly beaten ex-PM Silvio Berlusconi in the lower house but has failed to secure a majority in the Senate.
Control of both houses is needed to govern and a Berlusconi official said the election was “too close to call”.
A protest movement led by comedian Beppe Grillo won a quarter of the vote.
Meanwhile a bloc led by current Prime Minister Mario Monti came a poor fourth, with about 10%.
The outcome of the election, which comes amid a deep recession and tough austerity measures, was so close that the margin of victory given in interior ministry figures was less than 1% in both houses of parliament.
“It is clear to everyone that a very delicate situation is emerging for the country,” said centre-left leader Pier Luigi Bersani as the last of the votes were being counted.
Angelino Alfano, secretary of former PM Silvio Berlusconi’s People of Freedom party, said the result was “extraordinary”, and he urged the interior ministry to wait before declaring a final result.
The interior ministry figures were not official, he argued, and were “inevitably subject to a margin of error”.
With returns from all polling stations processed, the interior ministry figures gave Pier Luigi Bersani’s centre-left bloc 29.54% of the vote for the lower house (Chamber of Deputies), barely ahead of the 29.18% polled by Silvio Berlusconi’s bloc.
Angelino Alfano said the result was “too close to call” given the tight margin between the two blocs.
Votes cast outside Italy are still to be collected.
Pier Luigi Bersani also won the national vote for the Senate, but was unable to secure the 158 seats required for a majority.
As bonus seats are distributed in the upper house according to regional votes, Silvio Berlusconi’s centre-right bloc was expected to emerge with a higher number of seats.
Italy’s parliamentary elections have ended in stalemate and the possibility of a hung parliament
Silvio Berlusconi was heading for victory in three of the four big regions – Lombardy in the north, Campania in the centre, and Sicily in the south.
Initial exit polls on Monday afternoon gave Pier Luigi Bersani’s bloc a clear victory, prompting the Milan stock market to soar by nearly 4%.
But as the close result became clear the markets fell back. In New York, the Dow Jones Industrial Average fell 1.55% and Asian markets lost between 0.7% and 2.2%.
The apparent split between left and right in the eurozone’s third largest economy is likely to cause great anxiety among leaders in other EU member states.
A period of horse-trading will now follow, and the leading blocs will try in turn to form a coalition.
But, with the electorate apparently so divided, many believe a second election will have to follow in a few months.
Silvio Berlusconi, 76, left office in November 2011, facing claims of economic mismanagement as the eurozone struggled to contain Italy’s debt crisis.
Italians have had more than a year of technocratic government under Mario Monti. But his attempts to reduce spending caused widespread public resentment and his decision to head a centrist list in the parliamentary elections attracted little more than 10% of the vote.
“Some supposed we’d get a slightly better result but I am very satisfied, we are very satisfied,” he said.
In a surge in support, Beppe Grillo’s anti-austerity Five Star Movement attracted 25.54% of the vote.
Correspondents say this was an extraordinary success for the Genoese comic, whose tours around the country throughout the election campaign – hurling insults against a discredited political class – resulted in his party performing well in both chambers.
“We’ve started a war of generations,” Beppe Grillo said in an audio statement on his website which taunted the leaders of the mainstream parties.
“They are all losers, they’ve been there for 25 to 30 years and they’ve led this country to catastrophe.”
As the extent of his success became clear on Monday night, Beppe Grillo’s supporters in his home town of Genoa celebrated early into Tuesday morning.
Prime Minister Mariano Rajoy has strongly denied Spanish media claims that he and other members of the governing Popular Party received secret payments.
“I have never received nor distributed undeclared money,” Mariano Rajoy said, stressing that he would not resign.
El Pais newspaper published photographs of ledgers showing payments to Popular Party figures on Thursday.
It said Mariano Rajoy had collected 25,200 euros ($34,000) a year between 1997 and 2008.
Mariano Rajoy and his party were elected by a landslide in November 2011 on a promise to reduce the high public deficit.
Addressing the PP national executive meeting in an extraordinary session to discuss the El Pais allegations in Madrid, Mariano Rajoy said: “It is not true that we received cash that we hid from tax officials.”
He added he would publish on the party’s website full details of his income and assets.
PM Mariano Rajoy has strongly denied Spanish media claims that he and other members of the governing Popular Party received secret payments
As Mariano Rajoy spoke, several hundred demonstrators gathered outside the party headquarters shouting “thieves” and “resign”.
El Pais said the photographs it had published were of ledgers kept by former treasurers Luis Barcenas and Alvaro Lapuerta between 1990 and 2009.
Money was allegedly paid by firms via Luis Barcenas, who stepped down in 2009 and is currently under investigation for money-laundering.
Investigators recently revealed that Luis Barcenas held a Swiss bank account which at one point held as much as 22 million euros ($30 million).
Until 2007, Spanish political parties were allowed to receive anonymous donations.
Spaniards have been asked to accept painful austerity measures as the government battles to avoid an international bailout. Meanwhile, the unemployment rate has reached a record 26%.
The allegations raise ethical questions about the Popular Party’s dealings during the period of Spain’s building boom, when politicians granted large numbers of development contracts.
The party has denied making any “systematic payment to certain people of money other than their monthly wages”.
Greek parliament has narrowly backed a fresh round of austerity measures, despite violent protests across the country.
The austerity package aimed at securing the next round of bailout funds was passed with 153 MPs in favor – a majority of just three.
The 13.5 billion-euro ($17.3 billion) bill includes tax rises and pension cuts.
Earlier, riot police fired tear gas towards protesters when they were attacked with petrol bombs in Athens.
Prime Minister Antonis Samaras warned before the vote late on Wednesday that without the bailout Greece would run out of money this month and face “catastrophe”.
The austerity package – Greece’s fourth in three years – is meant to close the nation’s budget deficit, lower its huge debt burden and make its economy more competitive.
MPs must now pass a revised budget on Sunday before eurozone finance ministers meet next week to approve 31.5 billion euros in fresh loans from the European Union (EU) and the International Monetary Fund (IMF) that Greece needs to avoid imminent bankruptcy.
But the level of resistance on the streets is a reminder that implementing the latest tough measures will be extraordinarily difficult.
The crucial vote was held after a lengthy debate in the 300-strong parliament.
Greek parliament has narrowly backed a fresh round of austerity measures, despite violent protests across the country
Immediately after the bill was adopted, co-governing New Democracy and Pasok parties expelled seven lawmakers from their ranks for failing to back the package.
The adopted plan includes a two-year increase in the retirement age from the current average of 65, as well as salary cuts and labor market reforms, including cuts to holiday benefits, notice periods and severance pay.
Workers fear this will just make it easier and cheaper for them to be fired at a time when unemployment has already soared to 25% and a five-year recession means there are few job prospects.
“Many of these measures are fair and should have been taken years ago, without anyone asking us to,” Antonis Samaras said.
“Others are unfair – cutting wages and salaries – and there is no point in dressing this up as something else,” the prime minister said, adding that Greece was, nevertheless, obliged to take the measures.
Antonis Samaras has said that without this money, which will be used largely to recapitalize the country’s banks, the country will be bankrupt by 15 November.
Earlier on Wednesday, tens of thousands of protesters held a rally in Syntagma Square – outside the parliament building in the heart of the capital.
The protesters chanted: “People – don’t bow your heads!”
Some in the crowd held giant flags of Greece, Portugal, Italy and Spain – four of the eurozone’s most heavily-indebted states.
The riot police – who sealed off parliament – later fired tear gas after the demonstrators attacked them with petrol bombs and flares.
Protests also took place in other big cities across Greece.
The Greek unions were staging what they described as the “mother of all strikes” – a 48-hour walkout which culminated on Wednesday.
The third major strike in just two months brought public transport to a halt and shut schools, banks and government buildings.
Measures in austerity package
Retirement age up from 65 to 67
A further round of pension cuts, of 5-15%
Salary cuts, notably for police officers, soldiers, firefighters, professors, judges, justice officials; minimum wage also reduced
Holiday benefits cut
35% cut to severance pay
Redundancy notice reduced from six to four months.
Latest official figures show that unemployment in Greece hit a record 25.1% in July, with the level among young people reaching 54.2%.
Greece’s statistical authority said 1.26 million Greeks were jobless in July, with more than 1,000 jobs lost every day over the past year.
With austerity cuts continuing and Greece likely to enter another year of recession, the level may rise further.
The worst-affected 15-24 age group, however, includes those in education.
According to Greece’s statistics agency the total unemployment rate rose from 24.8% in June. In July 2008, a year before Greece’s financial crisis broke, there were about 364,000 registered unemployed.
“This is a very dramatic result of the recession,” said Angelos Tsakanikas, head of research at Greece’s IOBE economic research foundation. He did not expect employment to pick up for at least a year.
The Greek economy is surviving on international bailouts, but Athens has been forced to impose tough austerity measures in return for the money.
Finance Minister Yiannis Stournaras will hold talks on Thursday evening with representatives of the European Union, International Monetary Fund and European Central Bank about signing off the release of more funds.
There was some evidence on Thursday that the government’s strategy is working on one front, at least. Finance Ministry figures showed that the deficit-cutting effort is on track despite lower-than-anticipated revenues.
The ministry figures showed that the January-September deficit was 12.64 billion euros, lower than the 13.5 billion-euro target.
Ratings agency Standard & Poor’s has downgraded Spain’s credit rating, highlighting a deepening recession and mounting pressure on Madrid’s finances.
S&P cut Spanish debt from BBB+ to BBB-, one level above junk status, and warned of possible further downgrades.
Spain is struggling with high debt levels and the highest rate of unemployment in the eurozone.
Madrid has introduced drastic spending cuts and tax rises, but many think it will have no option but seek a bailout.
“The downgrade reflects our view of mounting risk to Spain’s public finances, due to rising economic and political pressures,” S&P said.
“The deepening economic recession is limiting the Spanish government’s policy options.”
Last month, the government unveiled its latest budget designed to make savings of around 13 billion euros ($16.7 billion) next year, by cutting public sector wages, education, health and social services.
The cuts were the latest in a series of austerity measures that have sparked angry protests across Spain.
Despite the cuts, tax rises, labor market and pension reforms, the Spanish government has said the country’s overall debt levels will rise next year to more than 90% of total economic output.
The country’s borrowing costs have remained high for months, leading many analysts to argue it is only a matter of time before Madrid is forced to ask its eurozone partners for financial assistance.
However, last week, Spanish Economy Minister Luis de Guindos denied his country would be asking for help.
Chancellor Angela Merkel has pledged Germany’s continuing support to Greece, during her first visit to Athens since the eurozone crisis erupted nearly three years ago.
Angela Merkel said Greece had made good progress in dealing with its vast debt but that it was on a “difficult path”.
Thousands of people who blame Germany for forcing painful austerity measures on Greece are protesting in Athens.
Police have used teargas and stun grenades against demonstrators.
Correspondents say this highly symbolic visit is a show of support for Greece’s continued membership of the eurozone.
It comes as Greece prepares to pass new cuts of 13 billion euros ($17 billion) to qualify for more bailout cash, a policy that has sparked growing unrest.
While Germany has contributed the most money to the bailout, its chancellor is held responsible by many for demanding that Greece make swingeing cuts in exchange for the financing it has received.
Angela Merkel was met by Greek Prime Minister Antonis Samaras on arrival in Athens.
At a news conference after talks with Antonis Samaras and business leaders, Angela Merkel said the pace of reform in Greece had recently “picked up considerably” and that the country had “a good bit of the path” behind it.
“Much has been achieved but much needs to be done and Germany and Greece will continue to co-operate very closely together in this respect,” she said.
Angela Merkel acknowledged that there were “many people suffering in Greece” as a result of the financial crisis and austerity measures, but that the difficult path was necessary to ensure future generations could live in prosperity
Antonis Samaras said their meeting had been “dominated by frankness, mutual understanding, solidarity, a spirit of collaboration and a feeling that we can overcome the Greek problem, and obviously, the European problems alike”.
He said Greece was “determined to fulfill its obligations and overcome this crisis” and was determined to stay in the eurozone.
“The Greek people are bleeding right now, but they are determined to win the battle of competitiveness.”
Angela Merkel’s visit was a “token of proof” of the progress Greece has made, he said.
Athens is said to be carrying out its biggest security operation in a decade, with some 7,000 police on duty.
Protests have been banned for the day in much of central Athens, and within a 100 m radius of the route Angela Merkel’s motorcade will travel.
However, outside the lockdown zone, thousands of people gathered, some carrying banners with slogans such as “No to the Fourth Reich”.
A three-hour strike was also called for the early afternoon.
The crowds have largely been peaceful, though some protesters threw bottles, masonry and rocks towards police lines.
The situation in central Syntagma Square turned nasty, with police firing teargas and stun grenades against grounds of protesters.
Dozens of people have been detained.
Christina Vassilopoulou, a 37-year-old teacher taking part in the unrest, said she objected to “the decisions taken at European meetings where Merkel manipulates the participants”.
“I have a doctorate and I make 900 euros a month, 400 less than before. We have children that go hungry and most of the parents are unemployed,” she told AFP news agency.
Vana Koronaiou, a shop owner selling German-made handbags near Syntagma Square, told AFP Angela Merkel’s visit “pours oil on the fire”.
“If she wanted to help, she should have done it sooner,” she said.
But some Athens citizens were upbeat about the visit.
Constantinos Siathas told Associated Press: “I think most people, at least those who think and don’t act based on feelings or utopian ideas, are pleased and are expecting a lot from Angela Merkel’s visit.”
Earlier, a spokesperson for the leftist Syriza party, Yiannis Bournos, said people were “frustrated and enraged because they clearly understand that Mrs. Merkel’s visit is just a theatre play for the political support of a collapsing coalition”.
The trip is a gamble, chaos on the streets would only underline for the German public that Greece is a lost cause.
But the visit – Angela Merkel’s first to Greece in five years – is sending a symbolic message that she wants Greece to stay in the eurozone.
Speaking on Monday, Jean-Claude Juncker, chairman of the Eurogroup finance ministers of the eurozone, raised the pressure on Greece, calling on the government to demonstrate it could implement planned reforms “by 18 October at the latest” to qualify for the next bailout installment of 31.5 billion euros.
He was speaking as the eurozone’s new permanent fund to bail out struggling economies and banks was formally launched at the finance ministers’ meeting.
Meanwhile, the International Monetary Fund said on Monday that the global economic recovery was weakening, with government policies having failed to restore confidence.
It added that the risk of further deterioration in the economic outlook was “considerable” and had increased.
Spain will set out today its austerity budget for 2013, against a backdrop of a deteriorating economy and 25% unemployment rate.
Madrid is expected to outline 39 billion euros ($50 billion) worth of savings, tax rises, and structural reforms.
It comes amid further protests this week, and growing expectations that Spain will seek a bailout from its eurozone partners.
On Friday, results of a stress test on Spain’s banks are due to be released.
The Spanish stock exchange’s Ibex index held steady in morning trading on Thursday, having lost 3.9% the previous day.
Other European stock markets experienced modest rebounds of about 0.5%.
Spain will set out today its austerity budget for 2013
Stocks fell sharply on Wednesday, as markets were rattled by violent protests in Madrid and Athens, as well as a statement from the Spanish central bank that the country’s economy had continued to shrink in the third quarter of the year.
However, the more optimistic sentiment was boosted on Thursday when the Greek finance minister, Yannis Stournaras, said that a “basic agreement” had been reached with lenders on the austerity measures required for the release of Greece’s next tranche of bailout money.
On the bond markets, the Spanish government’s long-term cost of borrowing stabilized in early trading, at an implied interest rate of just over 6% for 10-year debt.
The 10-year rate had risen by a quarter percentage point on Wednesday, as lenders’ fears over the government’s ability to repay its debts, or stay within the euro, resurfaced.
However, it seems investors are losing patience.
Spain will hope that Thursday’s austerity measures will mean fewer economic conditions if it asks for a second bailout.
Prime Minister Mariano Rajoy fuelled expectations that Spain would ask for a bailout when he told the Wall Street Journal on Wednesday that if borrowing costs were “too high for too long”, then “I can assure you 100% that I would ask for this bailout”.
The economic situation remains grim, with comments from the central bank on Wednesday indicating that the country’s recession deepened in the last three months.
“Available data for the third quarter of the year suggest output continued to fall at a significant pace, in an environment in which financial tension remained at very high levels,” the Bank of Spain said in a monthly report.
Last week, Spain’s second biggest bank, BBVA, estimated that up to another 60 billion euros ($78 billion) will be needed to bail out the banking sector.
About 20 billion euros has already been allocated to troubled banks.
Spain, the eurozone’s fourth largest economy, fell back into recession in the last quarter of 2011, the second recession since the bursting of the country’s property bubble.
But with a shrinking economy and unrest in the country, reducing the deficit via further austerity measures may prove a difficult task for the government.
The government has predicted a budget deficit this year of about 6.3%, but many analysts estimate it will be nearer 7% or higher.
The basic outline for the budget has been known since July, but not exactly where the cuts and savings will come from.
There has been speculation that the budget could include such measures as taxes on shares transactions, “green taxes” on emissions or eliminating tax breaks, and even possibly ending inflation-linked pensions.
Madrid has already said that it wants to claw back a total of more than 150 billion euros between 2012 and 2014: 62 billion euros this year, 39 billion euros in 2013, and 50 billion euros in 2014.
But many analysts remain skeptical that this will be enough to resolve Spain’s economic woes.
Despite the public anger, PM Mariano Rajoy said sacrifices were necessary.
“We know what we have to do, and since we know it, we’re doing it,” he said in a speech in New York.
“We also know this entails a lot of sacrifices distributed… evenly throughout the Spanish society,” he said.
But Boris Schlossberg, managing director at New York-based BK Asset, said: “Spain is in a vicious cycle, because austerity is hurting economic activity and revenues, which causes greater fiscal gaps.”
“People are starting to realize this, and the political will to absorb these sacrifices is diminishing by the hour,” he said.
Spain’s economy continued to shrink at a “significant rate” in the third quarter, the Bank of Spain has said.
Spain is currently in a deepening recession, with the unemployment rate at its highest level since the 1970s.
Economy Minister Luis de Guindos said on Saturday he expected the economy to contract by about 0.4% in the July-to-September quarter.
Bank of Spain has announced that the country’s economy continued to shrink at a significant rate in the third quarter
European markets were trading lower, with concerns about Spain adding to fears over global growth.
Spain’s Ibex index was down 2.3%, while markets in London, Paris and Frankfurt were down more than 1%.
Spain’s borrowing costs also rose, with the yield on 10-year Spanish bonds traded on international markets rising to 5.94% from 5.67%.
The Bank of Spain said in a monthly report: “Available data for the third quarter of the year suggests that GDP kept falling at a significant rate, in a context of high financial tensions.”
The government has introduced highly unpopular spending cuts and tax rises as it attempts to reduce the country’s deficit.
It will present details of an emergency budget and further austerity measures on Thursday.
Separately, French bank Societe Generale said that it had further cut its exposure to Spanish sovereign debt, to 400 million euros ($515 million) by the end of August, from 700 million euros at the end of June.
Greek Prime Minister, Antonis Samaras, has called for more time to implement tough spending cuts and reforms, ahead of talks on its bailout.
Antonis Samaras told German daily Bild that Greece needed “breathing space”.
He will meet Jean-Claude Juncker, the head of the Eurogroup of finance ministers later, and the French and German leaders later this week.
At issue is whether Greece has done enough to receive its next 31.5 billion-euro bailout payment.
Failure to unlock the funds could lead to Greece defaulting on its vast public debt and possibly leaving the euro.
Greek Prime Minister, Antonis Samaras, has called for more time to implement tough spending cuts and reforms, ahead of talks on its bailout
Antonis Samaras is under pressure to show Greece can fulfill its commitment of 11.5 billion euros in public spending cuts within two years in order to qualify for the money.
At the talks with Jean-Claude Juncker, he is expected to float the idea of Greece being given a two-year extension to the deadline.
He will argue that Greece has lost time because of elections this year, and that it should be allowed to move more gradually in order to ease the economic pain felt by the Greek people.
“Let me be very explicit: we demand no additional money. We stand by our commitments,” Antonis Samaras told German tabloid Bild in an interview published on Wednesday.
“But we have to kick-start growth in order to cut our deficit. All that we want is a little <<breathing space>> to revive the economy quickly and raise state income.”
However, a government source says Antonis Samaras will not press the issue too hard, fearing it might cause bad blood with the group of lenders that monitors Greece’s bailout.
Yannis Varoufakis, professor of economics at the University of Athens, said Antonis Samaras was “profoundly, deeply and sadly wrong. Greece does not need more breathing space. It is not breathing at all.”
He said the solution Europe had implemented to tackle Greece’s insolvency crisis was a “very silly one” – providing gigantic loans “on condition of austerity measures that would shrink the national income from which that huge loan would have to be repaid”, requiring yet more loans and more austerity.
Antonis Samaras goes on to meet German Chancellor Angela Merkel on Friday, and French President Francois Hollande on Saturday.
The “troika” – the European Union, the European Central Bank and the International Monetary Fund (IMF) – is expected to report on Greece’s progress next month.
Eurozone leaders have so far resisted any move to soften the bailout conditions.
Especially in Germany, the eurozone’s richest country, the government is under pressure not to make any more concessions.
On Monday, German Foreign Minister Guido Westerwelle insisted Athens must press ahead with the terms already agreed.
The heavily-indebted country has received two massive EU and IMF bailouts – one for 130 billion euros this March and one for 100 billion euros in May 2010 – to allow it to continue payments on its vast public debt and stay in the eurozone.
Cuts in public spending, benefits, pensions and public sector salaries imposed as a result of both loans have led to severe economic hardship, and Greece remains mired in recession.
Romanians are voting in a referendum on whether to impeach President Traian Basescu.
Traian Basescu has already been suspended by parliament in a series of moves that have caused alarm among Romania’s EU partners because of the speed of the process.
The government accuses Traian Basescu of exceeding his authority and of meddling in government affairs.
Traian Basescu denies the accusations and has urged a boycott of Sunday’s referendum.
Romanians are voting in a referendum on whether to impeach President Traian Basescu
Under a new Romanian law backed by Traian Basescu’s Liberal Democrat Party (PDL), more than half of the electorate will have to vote to make the result valid.
The referendum is one of the fiercest political clashes in Romania since the return of democracy in 1990.
The result is hard to predict but will have long-term repercussions for Romania’s political and economic stability.
The row has paralyzed political decision-making in Romania at a time when it is finalizing agreements on an IMF-backed aid package.
Traian Basescu’s popularity has slumped since he backed tough austerity measures demanded by Romania’s international lenders and also because he backed corrupted members of PDL.
According to the latest polls, about 65% of the electorate wants to remove Traian Basescu. However, analysts say the government will struggle to achieve the required turnout.
Traian Basescu had initially urged Romanians to come to referendum and vote “no” to what he called “a coup”, but later asked his supporters to boycott the vote altogether, a stance also adopted by the new opposition (PDL). However, Traian Basescu will vote today even he urged people to boycott the referendum.
If he is impeached, a presidential election must be held within three months.
Earlier this month, European Council President Herman Van Rompuy voiced “deep concerns” about the political crisis in Romania “with regard to the rule of law and the independence of the judiciary”.
Romania and neighboring Bulgaria joined the EU in 2007, but Brussels has put both countries under special monitoring because of concerns about judicial independence, corruption and political influence in state institutions.
Spain’s Prime Minister Mariano Rajoy has begun addressing parliament, setting out a new raft of austerity measures aimed at balancing the budget.
His speech comes as hundreds of Spanish miners arrived in Madrid to protest against government cuts to subsidies.
Mariano Rajoy is expected to unveil a rise in VAT as well as cuts to social security and unemployment benefits.
The measures are in return for a eurozone bank bailout and an extension to Spain’s deficit reduction targets.
Eurozone finance ministers have agreed to provide 30 billion Euros for Spain’s troubled banks by the end of the month and to give Madrid an extra year – until 2014 – to hit its budget targets.
Mariano Rajoy told parliament that the measures he was announcing had to be adopted without delay.
Spain’s Prime Minister Mariano Rajoy has begun addressing parliament, setting out a new raft of austerity measures aimed at balancing the budget
“The excesses of the past are being paid for right now,” he said, adding that Spaniards had never before experienced such a recession.
Without a cut in Spain’s budget deficit, public services would be put at risk.
The door had been opened to a new EU model, he said, and the summit agreements had committed everyone equally.
Analysts say European leaders want to see a credible Spanish plan for viability and deficit reduction.
Mariano Rajoy warned on Saturday that further austerity was on its way, in a country with unemployment running at more than 24% and rising street protests over drastic spending cuts.
On Monday, budget minister Cristobal Montoro warned of an impending VAT rise, telling a business forum: “If VAT was paid by more of those who are supposed to pay, it would not have to be raised by so much.”
Most of the miners arriving in Madrid late on Tuesday had walked hundreds of miles since 22 June from northern Spain where protests outside coal mines have resulted in clashes with police.
They were greeted by thousands of supporters as they marched on Gran Via in the centre of the Spanish capital.
A second mass rally of miners is due to take place on Wednesday and unions hope it will draw at least 25,000 people.
The miners are angry at plans to slash coal industry subsidies from 301 million Euros last year to 111 million Euros this year.
Unions say the cuts threaten 30,000 jobs and could destroy their industry.
The Spanish government argues that it pays disproportionately high subsidies to a small and unprofitable part of the economy.
Overnight the miners streamed down Madrid’s streets with their helmet lamps shining in the dark.
Crowds lined the streets, chanting support.
“We didn’t expect such a big welcome,” said Roberto Quintas, a miner of 22 years from Villablino near Leon.
“The fact that people are coming into the street and mobilising is a good sign.”
Manuel Cinoceda, a retired miner from the Aragon region, added: “The fight is for something just, we are just coming to claim what is ours.”
Spain’s 30 billion-euro bank bailout will be the first installment of a package worth up to 100 billion Euros agreed in June.
Eurozone ministers must get approval from their own parliaments and hope to make the payment by the end of July.
Romanian MPs have voted with a large majority to impeach the country’s president, Traian Basescu.
President Traian Basescu faced allegations of encroaching on the prime minister’s role and violating citizens’ rights.
Traian Basescu has been suspended and a national poll on his impeachment will be organized most probably on July 29th.
A total of 256 members of parliament of 432 voted in favour of the move against Traian Basescu, according to an official count.
The impeachment will only take effect if approved in the referendum.
The president is in conflict with Prime Minister Victor Ponta, who is the co-leader of the Social Liberal Union (USL), which has a majority in parliament.
The European Commission voiced concern about the political turmoil on Friday. Romania joined the EU in 2007 but Brussels has demanded more reforms to stamp out official corruption.
Romanian MPs have voted with a large majority to impeach the country's president, Traian Basescu
PM Victor Ponta, who came to power in May, says President Traian Basescu has too much influence over Romania’s Constitutional Court, which is due to consider new impeachment legislation.
Yesterday, USL asked parliament to hold an extraordinary meeting to suspend Traian Basescu.
Victor Ponta himself is currently under pressure to resign over allegations of plagiarism regarding a doctoral thesis he wrote.
President Traian Basescu has accused him of trying to impeach him as a way of taking control of state institutions.
The president has suffered a slump in his popularity since pushing through tough austerity measures demanded by international lenders in 2010.
The political rivalry has stalled decision-making processes in Romania at a time when it is finalizing agreements on an IMF-backed aid package for its economy.
The European Commission says it is “concerned about current developments in Romania, especially regarding actions that appear to reduce the effective powers of independent institutions like the Constitutional Court”.
“The rule of law, the democratic checks and balances and the independence of the judiciary are cornerstones of European democracy… Government policy and political action must respect these principles and values.”
World leaders have welcomed the narrow election victory of Greece’s broadly pro-bailout New Democracy party and urged Athens to form a cabinet quickly.
The eurozone group said reforms were Greece’s “best guarantee” to overcome tough economic and social challenges.
The US stressed that it was in everyone’s interests “for Greece to remain in the euro area”.
The Syriza party, which rejected the bailout terms and came a close second, said it would lead the opposition.
With more than 99% of votes counted, interior ministry results put New Democracy on 29.7% of the vote (129 seats), Syriza on 26.9% (71) and the socialist Pasok on 12.3% (33). There are 300 seats in parliament.
Greek voters went to the polls on Sunday following May’s inconclusive elections.
New Democracy leader Antonis Samaras said Greeks had chosen to stay in the euro and called for a “national salvation government”.
Syriza’s leader Alexis Tsipras said his party would not take part in the government, and would instead become a powerful anti-austerity voice in the opposition.
The vote was watched around the world, amid fears that a Greek exit from the euro could spread contagion to other eurozone members and deepen the turmoil in the global economy.
New Democracy leader Antonis Samaras said Greeks had chosen to stay in the euro and called for a "national salvation government"
Tough austerity measures were attached to the two international bailouts awarded to Greece, an initial package worth 110 billion Euros ($138 billion) in 2010, then a follow-up last year worth 130 bn euros.
Stock markets responded positively to Sunday’s results, with share prices up in Asian trading.
In a statement on behalf of the 17 eurozone finance ministers, Luxembourg Prime Minister Jean-Paul Juncker said that “continued fiscal and structural reforms are Greece’s best guarantee to overcome the current economic and social challenges and for a more prosperous future of Greece in the euro area”.
In a joint statement, European Commission President Jose Manuel Barroso and European Council President Herman Van Rompuy also hailed the result, and expressed hope that a government would be formed quickly.
German Chancellor Angela Merkel telephoned Antonis Samaras to congratulate him on his victory.
A German government statement said she had “stated that she would work on the basis that Greece will meet its European commitments”.
Antonis Samaras said that the Greek people had voted to stay in the eurozone.
“There is no time to waste,” he said.
“A national salvation government must bring economic growth and reassure Greeks the worst is over.”
He added: “There will be no more adventures. Greece’s place in Europe will not be put in doubt,” promising that Athens would “honor its obligations.”
It appears Antonis Samaras wants to press ahead with spending cuts demanded by the country’s international creditors.
European leaders have warned that if the new Greek government rejects the bailout, the country could be forced to abandon the single currency.
New Democracy should be able to build a majority coalition with the socialist Pasok, benefiting from a rule which gives the leading party 50 extra seats in the 300-seat chamber.
However, coalition talks may not be easy.
In addition to Syriza’s showing, four other parties which oppose or want a radical overhaul of the bailout look set to take between 60 and 70 seats. They include the far-right Golden Dawn, which has about 7% of the vote.
New Democracy and Pasok have said they will keep the bailout in a renegotiated form.
The leader of Pasok, Evangelos Venizelos, proposed a broad four-party coalition including New Democracy, Pasok, the Democratic Left and Syriza.
“No decision can be taken without this national unity,” he said.
Parties in Greece are making their last pitch for votes ahead of a repeat election on Sunday seen as crucial to the debt-laden country’s future in the eurozone.
New Democracy, the pro-bailout conservative party which narrowly led at the ballot last month, is due to hold its last big campaign rally.
Syriza, the anti-bailout bloc which surged to second place in May, held its final rally in Athens on Thursday.
Unofficial opinion polls suggest a fall in support for anti-bailout parties.
Under Greek election law, official opinion polls are banned in the two weeks before the election.
Tough austerity measures were attached to the two international bailouts awarded to Greece, an initial package worth 110 billion Euros ($138 billion) in 2010, then a follow-up last year worth 130 billion Euros.
While five of the seven main political groups reject the last bailout, only one – the Communists – wants the country to abandon the euro.
Syriza, the anti-bailout bloc which surged to second place in May, held its final rally in Athens on Thursday
Germany, which has the eurozone’s most powerful economy, insists Greece, like other member-states which have received international bailouts, must abide by the austerity conditions.
German Bundesbank (central bank) chief Jens Weidmann repeated the warning on Friday, adding that the eurozone could not allow any country to “blackmail” it with the threat of financial contagion.
At Thursday’s rally, Syriza leader Alexis Tspiras renewed his pledge to tear up the bailout conditions, which involve drastic spending cuts, tax rises, and labor market and pension reforms.
“The memorandum of bankruptcy will belong to the past on Monday,” he told supporters in Omonia Square.
“Brussels expect us, we are coming on Monday to negotiate over people’s rights, to cancel the bailout.”
He pointed to the huge bank loan package deal between the EU and Spain on Sunday, arguing a bailout was possible without the kind of drastic cuts demanded of Greece.
“Spain negotiated and succeeded in taking financial support without a fiscal consolidation package, despite the lenders’ threats and blackmail,” Alexis Tsipras said.
Interviewed by Spanish daily El Pais, Jens Weidmann called for the eurozone to impose broad conditions on Spain over its loan package, worth up to 100 billion Euros.
He warned that Greece, but also the Irish Republic and Portugal, had been given the impression that this was a “rescue with no conditionality outside the financial system” and this was “already eroding the commitment to the terms of the existing programmes”.
“But foot-dragging on addressing the structural problems will perpetuate the crisis, and the market reaction reflects this concern,” Germany’s top banker said.
On Friday evening, New Democracy leader Antonis Samaras is expected to address his supporters in the capital’s Syntagma Square, near the Greek parliament.
Antonis Samaras, who wants to ease the bailout conditions, has accused anti-bailout parties of “playing poker” with Greece.
“There is the path of responsibility, in which you are clear about what you want, and we say we want the euro and re-negotiation [of the bailout],” he said, quoted by Reuters news agency.
George Soros warns European leaders they have a “three-month window” to save the euro.
The billionaire investor said he believed Greece would elect a government willing to abide by loan conditions imposed by the EU in this month’s elections.
But George Soros said the German economy would begin in weaken in the autumn, making it much harder for Chancellor Angela Merkel to provide further support.
He said leaders did not understand “the nature of the crisis”.
George Soros also said that while European leaders were focusing on debt levels, the crisis was “more of a banking problem and a problem of competitiveness”.
George Soros warns European leaders they have a "three-month window" to save the euro
For this reason, he said they had “applied the wrong remedy”.
“You cannot reduce the debt burden by shrinking the economy, only by growing your way out of it,” George Soros added.
George Soros, speaking at a conference in Italy, was referring to the drastic austerity measures that have been implemented across Europe, measures that are now being questioned by a growing number of politicians and commentators.
Without policies to boost growth, which would enable governments to raise revenue to pay down debt, George Soros said time was running out for the euro.
“I expect the Greek public will be sufficiently frightened by the prospect of expulsion from the EU that it will give a narrow majority of seats to a coalition that is ready to abide by the current [bailout] agreement,” he said.
However, this would provide only temporary respite, he warned, as the German public becomes less willing to continue bailing out its weaker European neighbors.
“The crisis is likely to come to a climax in the [autumn]. By that time, the German economy will also be weakening, so that Chancellor Merkel will find it even more difficult than today to persuade the German public to accept any additional European responsibilities.
European stock markets had a shaky start on Friday as concern continued over Greece and Spain.
Spain’s main share index fell more than 2% before recovering, while shares in London fell by as much as 1%.
Confidence in European banks was undermined by ratings agency Moody’s, which cut the credit ratings of 16 Spanish banks late on Thursday.
It also cut the debt rating on Santander UK, a subsidiary of the Spanish banking giant.
However, shares in Santander reversed early losses to trade 3% higher, and Bankia shares jumped 9% following Thursday’s 14% slump.
Moody’s said there were several reasons behind the downgrade, including Spain’s slide back into recession, the financial challenges facing the Spanish government and bad loans in the property industry.
But Moody’s also recognized that banks had made progress in improving their financial situation, and noted the European Central Bank was providing support.
The proportion of loans that have gone bad at Spanish banks hit a record 8.37% in March.
That was according to figures from the Bank of Spain on Friday.
European stock markets had a shaky start on Friday as concern continued over Greece and Spain
Despite rising bad debts and downgrades, and reports of large withdrawals from troubled banking group Bankia, the Spanish government does not expect a run on the country’s banks.
Spanish Treasury Minister, Inigo Fernadez de Mesa, said: “This is a scenario I do not contemplate. The Spanish banks have plenty of liquidity. They have been funded through the central government for the next two years, so there is no problem of liquidity at all in Spain.”
Nevertheless, some investors moved money into German bonds, which are seen as low-risk investments. That drove the yield on 10-year German bonds down to 1.399% on Friday, a record low.
Confidence has also been knocked by the political crisis in Greece, where politicians are preparing for the second election in six weeks.
It is possible that the election on 17 June will result in a government that would refuse to implement the austerity measures that Greece’s last remaining international creditors are insisting on.
Speculation is increasing that Greece may have to leave the eurozone
The challenges facing Greece and Spain will be under discussion this weekend at the Group of Eight (G8) summit at the US Presidential retreat Camp David in Maryland.
President Barack Obama will host leaders from Britain, France, Germany, Italy, Russia, Japan, Canada, and the European Union.
“The G8 meeting in Camp David today and tomorrow will be used to pressure Eurozone politicians to take immediate and decisive action to stop contagion ripping the region apart,” said the Dutch bank Rabobank in a research note on Friday.
“Whether the meeting will bring any signs that eurozone politicians may be willing to allow Greek to exit the system remains to be seen, but this type of rhetoric would likely have to be pre-empted by policies designed to limit contagion tightening its grip on Spain,” the note said.
In Asia, stock markets registered heavy losses. Tokyo’s Nikkei average fell 3%, the biggest one day fall since last August.
Asian markets were also hit by losses in New York, where the Dow Jones closed more than 1% lower.
Investors were discouraged by two weak reports on the US economy.
“There is no resolution to the [European] problem yet, and we also we had very disappointing US data, so overall, it’s negative and further denting market sentiment,” said Frances Cheung, a senior strategist, at Credit Agricole CIB in Hong Kong.
In Asia, banking shares were hurt after the chief executive of ANZ said volatile market conditions meant that Australian banks were not lending to each other.
The wholesale lending markets are an important source of funds for banks.
“Right now, markets are closed again, and this is what happens in this sort of situation,” said ANZ chief executive Mike Smith.
Euro fell against the dollar and the pound on Monday following French and Greek election results, which cast doubt on European austerity plans.
Pro-bailout parties in Greece performed poorly, while Francois Hollande won the French presidency, promising to focus more on growth.
The euro fell as low as $1.295, its lowest since January, and dropped to three-year lows against the pound.
The main European stock markets fell early on before recovering.
In Germany, the DAX fell by more than 2%, but by mid-afternoon was only down by 0.1%.
In Paris, the CAC 40 recovered to trade up by 0.7%.
Athens shares fell by as much as 8.3%. In London, markets were closed for a bank holiday.
Euro fell against the dollar and the pound on Monday following French and Greek election results, which cast doubt on European austerity plans
In New York, the Dow Jones opened down by 0.3%.
The interest rates on some government debt has also gone up, indicating a fall in investor confidence. The yield in the secondary markets for Greek 10-year bonds has gone up from 20% to 22.2%.
Asian markets also fell, with the Nikkei in Tokyo dropping 2.8%. South Korea’s KOSPI shed 1.8% and Hong Kong’s Hang Seng dropped 2.4%.
In Greece, the socialist Pasok party saw an unexpectedly poor result, while Syriza, which has opposed austerity measures, had a strong performance.
The result has cast doubt on whether the country’s policies that currently include large spending cuts, tax increases and state job losses, can continue.
“The knee-jerk reaction was a little strong, but there’s chaos in Greece, and [politicians] being against the deal that was already agreed upon is almost like progress being set back a year and a half,” said Scott Freeze, president of StreetOne Financial.
While the French result was expected, there is still concern about whether Francois Hollande will be able to work as closely with German Chancellor Angela Merkel as his predecessor Nicolas Sarkozy did.
The two were the driving force behind the eurozone’s fiscal compact.
Francois Hollande stood on a platform of promoting growth rather than concentrating on austerity.
“The global financial markets aren’t thrilled by the idea that France and Greece have voted for governments less willing to work with the Germans on a consistent approach to addressing their fiscal deficits,” said Dick Green at Briefing.com.
During the campaign, Francois Hollande pledged to renegotiate the fiscal pact in which European countries agreed to strict controls on their budgets.
But following his victory, and the defeat of the governing coalition parties in Greece, Angel Merkel said that the deal was “not up for grabs”.
“It is a matter of principle in Europe that following elections, be they in small or large countries, we do not renegotiate what’s already been agreed,” she said.
“Otherwise we could not work together in Europe.”
The ratings agency Standard and Poor’s, which downgraded France from its triple-A rating in January said the election result would have no immediate impact on its credit status.
“We will analyze the policy choices of France’s president elect and the new government, taking into account the outcome of the parliamentary elections in June,” the agency said.
“The chances are that the next move is going to be down. The chances are it’s going to be slightly earlier than it would have been otherwise, but the agencies themselves will have a measured response,” said Georg Grodski, head of credit research at Legal and General.
“There is still hope that Mr. Hollande will tone down some of his rhetoric and accept that you can’t fix an economic problem by living on other people’s money.”