Merkel warns eurozone is very fragile as EC cuts growth forecasts -- business live

Over in Greece, senior officials are admitting that far from being erased, corruption - widely seen as the root cause of the nation’s lack of competitiveness - is still rampant. Helena Smith reports from Athens:

It was the affliction that, more than any, was meant to have been eradicated with the enforcement of reforms demanded in return for bailout funds. But attending the opening of new offices for the country’s recently appointed anti-corruption czar today, the deputy prime minister Evangelos Venizelos announced that the scourge was not only alive, it was still pervasive at the highest echelons of power in Greece.

“There is corruption, organized and extensive [corruption] …. which resides in power, in the public administration and the state sector, and the private sector,” he admitted adding that the creation of a post dedicated to crushing the practice was a landmark event. “It will be a new, exceptionally ambitious and, I want to hope, effective institution that is further confirmation of of our faith in the campaign against corruption.”

Greece’s troika of creditors had hoped that the scourge – widely blamed for holding the country back and deterring international investors – would be effectively tackled as Athens overhauled its economic system. Instead, new rules appear to have only incited Greeks to have come up with new ways to circumvent them - even newly appointed tax officials are now on the take.

The lack of punishment meted out to crooked officials (only one government minister has been imprisoned for accepting kickbacks) is believed to have played a major role in keeping the practice alive.

And some commentary on the supposed Draghi disputes. Christopher Vecchio, currency analyst at DailyFX said:

While we weren’t expecting a Fed-styled, sovereign QE program from the ECB this week, the rumours emerging today are nothing short of astounding. Reports have surfaced that ECB President Mario Draghi faces a small scale mutiny, with many national central banks feeling that they’ve been left out of the loop for determining monetary policy. This is important because there could be up to 10 policymakers (of the 24 reps) that would vote against a sovereign QE.

Even as recent economic data has slowed its rate of erosion, the spectre of additional stimulus from the ECB has remained as a heavy burden for the euro. Traders have piled into euro short positions in recent weeks, and now there is the second largest short position among speculators since July 2012 – the week before euro/dollar bottomed at $1.2041. If a Fed-styled QE program is now seen as even more unlikely given president Draghi’s recently revealed unpopularity, we must not discount the potential of a euro short covering rally around the ECB rate decision on Thursday and the US non-farm payrolls report on Friday.

More from the Reuters story on Mario Draghi, and there is some interesting colour in the tale:

At times, Draghi has appeared to pay little attention to national governors’ comments in the monthly rate-setting meeting after chief economist Peter Praet and board member Benoit Coeure report on the economic situation and financial markets.

“He sits there with these three mobile phones in front of him and sometimes he’s sending text messages or going out to make or take phone calls,” one source usually in the room said. On at least one occasion, a national governor has skipped his turn to speak because Draghi was not present.

“This has got a bit better. He’s paying a bit more attention now,” the source said.

And apparently German chancellor Angela Merkel tried to mend bridges between Draghi and Bundesbank chief Jens Weidmann. Their relations hit a low point in October after the German publicly criticised ECB policy, but Merkel privately urged both to mend their relationship:

After her intervention, Draghi and Weidmann met last week to try to clear the air but they did not resolve all their policy differences, the source said.

Merkel’s office declined comment on her reported meeting with Draghi, and neither the ECB nor the Bundesbank would comment on whether Draghi and Weidmann met last week.

And to catch up some earlier news, Chinese e-commerce business Alibaba has reported a better than expected 54% rise in revenues for the three months to the end of September.

The company, which floated in September and is now worth more than Facebook at nearly $250bn, said net profit grew 16% to $1.1bn. But after a rise in share based compensation costs, profits fell 39% to $494m. Nor would the company give guidance for future earnings.

Alibaba’s shares have added around 2.5% following the figures, its first since the flotation.

In the corporate world, Rolls-Royce has just announced 2,600 job cuts and the departure of its finance director. My colleague Rupert Neate writes:

Rolls-Royce has announced it is cutting 2,600 jobs – mostly in its aerospace division – within the next 18 months as well as the sudden departure of its finance director.

The company, which employs 24,800 workers in Britain out of 55,200 worldwide, said technological changes had enabled it to “increase output and improve efficiency”.

The job cuts come three weeks after the company issued a major profit warning, which wiped £2bn off its market value. The company said that finance director Mark Morris had decided to leave the company after 27 years.

Full story here:

Rolls-Royce to axe 2,600 jobs

Back with the US trade figures, and overseas weakness rather than dollar strength is more likely to be responsible for the dip in exports, said Rob Carnell at ING Bank. He said:

The US trade deficit slipped back a bit wider in September – following months where the trend has been for narrowing. This was not a petroleum story - the ex-petroleum deficit widened from $26.863bn to $29.028bn, more or less the same move as the total deficit ($39.991bn in August out to $43.032bn in September). This could strip off 0.2 percentage points from the 3.5% advance third quarter GDP release, assuming no offsetting moves from other aspects of the GDP release.

The wider deficit was mainly the result of weak exports, not strong imports, and most of this occurred on the goods side, not services. It is possible that the dollar’s strength has already begun to weigh on exports, but in our view, overseas economic weakness is a far more plausible explanation for the export dip. This back-step in the trade data may take the shine off the dollar for a short while, though the underlying story for dollar strength remains intact, and is likely to be bolstered by data out later in the week, including, importantly, non-farm payrolls on Friday.

Over in Dublin’, “Desperate Housewives’ actress Eva Longoria has declined to endorse Hilary Clinton as the Democrats next Presidential candidate.

Henry McDonald explains:

Longoria was one of the star speakers at today’s Web Summit in Dublin where she shared a stage with Jemima Khan.

Khan asked if her if she would back Hilary Clinton for the presidency given that she had supported her husband and then President Obama.

“It’s far too early, I am supporting the President now,”

Enda Kenny has also appeared on CNBC, and claimed that the closure of the notorious double-Irish tax loophole* in 2020 won’t hurt the economy.

* - It allows companies to base themselves in Ireland, and then also move much taxable revenue to an Irish-registered firm operating in a tax haven

Back in Dublin, prime minister Enda Kenny has arrived at the Web Summit and will be (remotely) ringing the opening bell of the Nasdaq exchange later.

Nicholas Ebisch, currency analyst at Caxton FX, says the EC has now recognised that its economic growth situation is worsening -- something investors realised some time ago....

This news today has not affected the currency markets much, as euro weakness has already been priced into the market. The dovish rhetoric from the ECB over the last month or two has lowered expectations for the Eurozone, so this news of a downgrade have not lead to significant selling.

Jubilation that Ireland will be the fastest growing member of the EU this year was tempered by an embarrassing glitch on day one of the Web Summit in Dublin’s RDS conference centre (preview here)

Henry McDonald reports that:

The event’s free wi fi system is not up to speed and many participants are complaining they cannot get on line.

Web Summit founder co-founder Paddy Cosgrove admits “it’s incredibly disappointing” and has put the blame on the RDS for the wi fi breakdown.

On a brighter and bigger note there will be some relief in Government buildings in Dublin over the news from Brussels this morning regarding Ireland’s growth prospects.

The EU has predicted Irish growth will be the highest in Europe this year at 4.6%, which will come as some relief to Enda Kenny (due to attend the Web Summit tomorrow) and his ministers after the battering they have been taking lately over the imposition of water charges.

Today’s EC Autumn Forecast is quite gloomy about Germany, whose growth forecast in 2015 has been almost halved, from 2% to 1.1%.

The EC is concerned that private investment has slowed - one reason that growth went into reverse this spring.

The EC says:

“Geopolitical tension and concerns about economic developments in important trading partners may have triggered a wait-and-see attitude among firms,”

“However, as domestic and external demand pick up, geopolitical and other external uncertainty decreases and favourable financing conditions hold, corporate investment should resume its recovery in 2015.”

Is Europe’s €300bn investment plan really big enough to stimulate growth in the region?

Commissioner Katainen says that politicians must ask why private firms are not prepared to invest in Europe -- reforming their economies might make them more attractive.

I won’t say that this €300bn plan it will change the world, Katainen adds, but it is part of the story.

And that’s the end of the press conference.

Another fine question -- what lessons can we learn from the fact that Finland, one of the main supporters of eurozone austerity, is now expected to grow very slowly next year?

Katainen (Finland’s prime minister during the crisis) defends the decisions of the past.

Looking back a few years - who would have lent money to the countries at risk if they had not committed to reducing their borrowing?

Those who say the budget consolidation was wrong -- who do they think would have lent to those countries?

Today, though, Europe’s overall budget plans are broadly balanced, he argues.

How can we trust these new forecasts, given the previous ones were wrong?

Excellent question.

Commissioner Katainen looks slightly irked about having to defend the forecasts of his predecessors, but he insists that they are drawn up by experts.

And these new projections are “more or less in line” with forecasts from the OECD and the IMF.

But still, all these forecast have been “more or less wrong” in the past, he concedes.

Nobody really knows if these new ones are any better. It is up to us and member states to make changes to these forecasts, hopefully positive ones, he adds.

Moscovici is a bit kinder to the Brussels’ numbercrunchers - saying he thinks these forecasts are accurate.

Pierre Moscovici says he is planning to visit Greece soon, probably before the next meeting of eurozone finance ministers in early December.

That eurogroup meeting could be a significant moment in the crisis - ministers might agree a new precautionary credit line for Athens, to kick in when its bailout ends next year.

Commissioner Katainen adds that he’s also hoping to visit Greece too -- perhaps we could go together, Pierre?

Commissioners Katainen and Moscovici argue that there is enough flexibility in the eurozone rules for struggling countries.

Next question -- Can Germany still be a growth engine for the eurozone?

Commissioner Katainen says that Germany can still play a significant role in stimulating the European economy.

However, we can’t just rely on one growth engine. We need several.

Pierre Moscovici says the recent European elections show that the public can lose faith in the European project:

A Spanish reporter points out that the EC has also cut its growth forecast for Spain next year, from 2.1% to 1.7%.

Moscovici concludes his statement in Brussels by insisting there is no ‘magic bullet’. Governments must work closely together, and their first priority is to boost investment and kick start growth.

Commissioner Moscovici explains that France and Italy will only see very modest recoveries next year.

France will suffer from a ‘subdued pace’ of private consumption, and contracting investment.

In Italy, growth won’t return until early next year.

The EC has also slashed its growth forecast for this year, to just 0.8%

Katainen says that the UK will probably grow at 3.1% this year, or almost four times faster than the eurozone average of 0.8%.

Ireland will be the fastest-growing member of the EU, he adds, at 4.6%.

European commissioner Jyrki Katainen is explaining today’s autumn forecasts now.

He says eurozone growth forecasts were revised down due to the weakening European economy, and the impact of geopolitical crises (such as Ukraine, I imagine).

But he remains confident that growth will pick up, citing the impact of easier monetary conditions in the eurozone.

“Looking ahead we can see a gradual recovery”

Despite the slowing growth in UK construction, sub-contractors managed to drive up their hourly pay rates at a “near-record” pace, according to CIPS.

That underlines that bricklayers, electricians, plasterers et al are in strong demand.

Earlier today, the boss of housebuilder Persimmon, Jeff Fairburn, warned that a lack of tradesmen holding back housebuilding.

He told Reuters:

“With the volume increases we’ve been achieving, it’s naturally putting a strain on the trades that are available.”

“The turnover ... is very quick and we’re struggling to put more stock on the ground.”

David Noble, CEO at the Chartered Institute of Procurement & Supply, points out that UK builders still face a challenge getting new supplies -- a sign of robust demand.

“This month the construction sector maintained an impressive growth trajectory and true grit with continuing strong levels of new business, albeit at a slower pace.

“Though it appears that the euphoria of the last few months is now settling down to a slightly more modest level of expansion, delivery times continue to lengthen and suppliers of raw materials are in high demand, making the completion of construction projects more challenging and showing how the number of available suppliers has not yet reached pre-recession levels.

And on a long-term view, Britain’s construction sector is still enjoying one of its best periods in years (the higher the PMI, the stronger the growth)

The Geek shall inherit the Irish earth this week with the opening of one of the biggest tech-summits on the planet in the Republic’s capital, as Henry McDonald reports from Dublin:

Some of the biggest players in the technology world will be at the Web Summit in Dublin this morning with more than 18,000 visitors from 109 countries attending.

Among those mingling with the hi-tech industry will be U2’s Bono, ‘Desperate Housewives’ star Eva Longoria and Rio Ferdinand.

The Republic’s tourism body Failte Ireland estimate that the influx of techno-entrepreneurs, inventors and investors will generate €79 million in advertising revenue alone for the country as well as an injection of millions in hotel bookings with 13,000 rooms booked across 87 venues in Dublin.

A number of new foreign investments into the Irish hi-tech sector are expected to be announced this week at the summit by Taoiseach Enda Kenny.

Such is the importance Ireland’s Industrial Development Authority is placing in the three day conference at Dublin’s RDS conference centre that it has recalled its international representatives from its offices in New York, Silicon Valley, Frankfurt and London for the event.

The IDA and the Irish government will be hoping that the proposed end of tax incentives for hi-tech giants such as the controversial “double Irish” scheme will not put off fresh investors establishing the Republic as their European beach heads.

The unseasonably warm UK autumn hasn’t hurt discount fashion chain Primark, unlike some of its more upmarket rivals.

Primark’s sales and profits are up around 10% in the last six weeks, according to the boss of its parent company, AB Foods.

George Weston told Reuters that:

“I’m really not concerned (by the weather) and we haven’t had to delay or cancel any orders,”

“Yes, there’s been an (weather) effect, but ... every year you get unseasonal weather at some point.”

Last week, Next warned that its profits have suffered from the rare sight of a hot, glowing object in the autumn skies over Britain. Tomorrow we find out how Marks & Spencer fared....

There’s a new sheriff in town. Well, in Europe’s banking sector, anyway.

The European Central Bank has just taken “supervisory responsibility” for banks in the euro area, following last month’s stress tests and asset quality reviews.

It plans to “rebuild trust and bolsters the safety and soundness of the banking system”, according to its new website.