4:30 PM Frankfurt – The European indexes traded sideways and the IMF raised the prospect of recession in the euro zone to 80%. German Chancellor Angela Merkel faces widespread protests in Athens. The ECB President Draghi estimated weak economic activity in the euro zone.
The euro zone finance ministers met in Luxembourg yesterday to discuss the region’s escalating debt crisis and the European Stability Mechanism was put in place with maximum lending capacity of €500 billion.
Ministers discussed the financial and economic conditions of Greece, Spain, Cyprus and Portugal.
The troika has decided to extend its deadline for Greece to fulfill its austerity pledges, however, Greek Finance Minister Yiannis Stournaras said Greece needs another two years to meet its budget targets at an estimated cost of €12 billion.
German Chancellor Angela Merkel urged Greece to stay within the euro zone during her first visit to Athens after the financial crisis erupted amidst widespread protests by labor unions.
The European Central Bank President Mario Draghi said that economic activity in the euro area contracted in the second quarter. He said that average inflation in the euro area was 2.7% in September, reflecting indirect taxes and high energy prices. He also estimated inflation to decline below 2% in 2013.
He also told the European Parliament in Brussels that despite the weak economic conditions in the Southern Europe there is no alternative to austerity despite the elevated risks for deeper economic recession.
The International Monetary Fund revised global growth estimate for 2012 and 2013 on increased risk and deterioration in prospects.
The IMF’s forecast for global growth was marked down to 3.3% this year and a still sluggish 3.6% in 2013.
The Washington based fund lowered the forecast for the euro zone gross domestic product to shrink 0.4% this year and expand 0.2% in 2013 and said that the chance of recession in the region is above 80%.
Separately, the International Monetary Fund estimates that Spain may miss its deficit targets this year and next, according to a report published today.
The lender estimates the Spanish budget balance will show a deficit of 7% of gross domestic product in 2012 and 5.7% of GDP in 2013.
In Paris trading, the CAC-40 Index declined 3.72 or 0.1% to 3,402.73 and in Frankfurt the DAX Index edged lower 30.32 or 0.4% to 7,261.61.
The yields on Spain’s benchmark 10-year rose five basis points to 5.77%. Italian 10-year yields rose one basis point to 5.09%.
Barclays to Acquire ING Direct UK
Barclays Bank PLC agreed to acquire the deposits, mortgages and business assets of ING Direct UK.
Under the terms of the transaction, Barclays will acquire a deposit book with balances of £10.9 billion and a mortgage book with outstanding balances of £5.6 billion. The transaction is expected to be accretive to return on equity immediately.