At a G20 summit in Mexico in two days the EU will plead for increased IMF contributions by non-euro countries to help shore up a Eurozone ‘financial firewall’ seen as vital to protecting Spain and Italy from Greek debt contagion. The IMF will refuse to make extra cash available to the EU and will threaten to pull the plug on its contribution to Tuesday’s â‚¬130bn bailout of Greece unless the Eurozone creates a â‚¬750bn fund, a move opposed by Germany. In the wake of this week’s deal to prevent a Greek default, Olli Rehn, the EU’s economic and monetary affairs commissioner, insisted that a plan to merge two Eurozone bailout funds was vital over the next 10 days, The Telegraph says.
Vitol, the world’s largest independent oil trader, gave the stark warning about the risk of a record price spike after unveiling its annual results. Ian Taylor, Vitol chief executive, said the likelihood of an Israeli air strike on Iran had increased and was likely to push oil prices to $150 a barrel. ‘I used to think this would never happen but everyone you speak to says the Israelis will have a go at striking at Iranian nuclear sites,’ he said to The Telegraph. ‘The day that happens, you have to believe the Iranians throw a few mines in the Strait of Hormuz and for a few hours at least, or maybe more, I cannot see a scenario where prices would not be at that sort of level [$150 a barrel].’
Greece was last night braced for a further wave of protests after Eurozone leaders struck a bail-out deal for the indebted nation that will bring a new round of painful spending cuts and public sector job losses. The Greek cabinet assembled to discuss how to implement a series of austerity measures. Ministers were given a copy of the rescue program and told within the coming week they must sign up to 79 measures being demanded by the ‘troika’ of the European Central Bank, the International Monetary Fund and the European Commission. The reforms will then have to be endorsed by parliament before troika representatives return to Athens in March, The Daily Mail says.
Pensioners have not been hit as hard as they claim by quantitative easing (QE) and should accept that they must bear the burden of the downturn alongside working households, according to the Bank of England’s deputy Governor Charlie Bean. The comments by Mr Bean to the Scottish Council for Development and Industry are likely to inflame pensioner groups, who have argued that QE is eroding their incomes. Ros Altmann, director-general of Saga Group, said on Tuesday: ‘QE has permanently impoverished more than 1m pensioners, and thousands more annuity purchasers will receive reduced pensions every week.’ Mr Bean acknowledged that pensioner incomes have been hurt by the impact of QE, but claimed that the Bank’s Â£325bn money-printing policy has lifted the asset value of their portfolios and helped secure the economic recovery, The Telegraph reports.
Labour’s tax-cutting proposals are unaffordable and would undermine investors’ confidence in Britain, the head of the CBI said yesterday. John Cridland slammed Ed Balls’s Budget suggestions, saying that his call for a reduction in VAT or income tax failed the affordability test Â— especially since Moody’s put Britain’s credit rating on a negative outlook. Mr Cridland also turned his fire on the Government, arguing that anti-business rhetoric from within the coalition was damaging efforts to boost economic activity. Parts of the Government ‘don’t seem to get the fact that the growth narrative is priority one, two and three’, he said Â— although he declined to name specific ministers, writes The Times.
Lloyds and Royal Bank of Scotland, the banks bailed out by the government at the height of the financial crisis, will this week reveal combined losses of at least Â£4bn. The deficit will revive fears that taxpayers will have to wait several more years before recouping their Â£66bn investment. Britain’s continuing economic slump, coupled with the Eurozone debt crisis, have hammered both banks and killed off hopes of a speedy return to the private sector. Royal Bank of Scotland is expected to reveal losses of Â£1bn to Â£2bn when it publishes its annual results on Thursday. Lloyds Banking Group is forecast to have recorded a deficit of about Â£3.5bn because of a big hit from the mis-selling of payment protection insurance, and huge new writedowns on loans made by HBOS before the two banks merged. A slump in the share price of both banks last year means the government is now nursing a paper loss of more than Â£30bn. Public accounting rules excludes the paper losses from showing up anywhere on the government’s books, according to The Times.
The government’s coffers received their biggest monthly boost for four years, figures for January show. The public sector received Â£7.75bn more than it paid out, helped by an uptick in tax and repayment of debts by local authorities. The figures were better than expected, and raised hopes that Chancellor George Osborne could cut taxes in the Budget. Rowena Crawford, research economist at the Institute for Fiscal Studies, said: ‘The worsening economic outlook seen over the last year has increased pressure for a temporary fiscal stimulus package…lower-than- expected borrowing this year may give the Chancellor scope for such a policy.’ But the Treasury tried to damp down hopes of any big giveaway. A source said: ‘The deficit plan…is keeping interest rates at record lows for families and businesses and helping to support the recovery.’ It now seems certain that the government will beat its target for borrowing for the full financial year. Capital economics forecast that borrowing for 2011/12 could be as low as Â£117m, The Daily mail reports.