Tuesday, March 27, 2012

Eurozone fears cause drop in UK takeovers

Debt crisis causes 14% fall in number of takeovers and mergers, but average size of deal rises 41%, report reveals

The drop in the number of takeovers was driven by fears over the future of the eurozone, the report says. Photograph: Oli Scarff/Getty Images

The turmoil sparked by the eurozone debt crisis has caused a 14% fall in the number of takeovers and mergers in the UK, a report has revealed.

The declining number of deals in the first quarter of 2012 compared with the previous three months was driven by fears over the future of the eurozone as Greece threatened default, Ernst & Young's M&A Tracker said.

The same trend was echoed on a global scale, with the number of deals down 24%. However, in the UK a 41% rise in the average size of the deals to $264m (£167m) meant their total value rose 20%, beating the global picture where average transaction values only increased slightly.

Jon Hughes, transaction advisory services leader at Ernst & Young, said: "The market uncertainty of late last year has clearly impacted transaction activity in the first quarter of 2012.

"That said, the small upswing in average deal values could indicate an increase in confidence amongst buyers, who, whilst still cautious about undertaking transactions, are more willing to push through larger deals."

The proportion of deals in the UK financed by cash rose to 91% from 88% previously, driven by an increase in the number of companies sitting on large surpluses. Globally, 55% of deals were financed by cash.

Hughes said: "Globally, the historically low cost of debt and improving equity markets have driven funding towards external sources of finance.

"This reflects an increasing confidence about access to capital markets for transactions.

"In contrast, deals in the UK have been, on the whole, financed by well-rated companies utilising their healthy cash piles to fund 100% cash payment transactions."

Ben Bernanke warns jobs recovery may be 'out of sync' with economic picture

Federal Reserve chairman says number of people working and total hours worked are still significantly below pre-crisis peaks

Ben Bernanke said he was concerned by the number of Americans who have been unemployed for more than six months. Photograph: Alex Wong/Getty Images

Federal Reserve chairman Ben Bernanke has warned that the recovery in the job market remained fragile – but said he believed cyclical, not structural, problems were to blame.

The US economy has added an average 245,000 jobs over the past three months, and the number of people applying for initial unemployment benefits slipped to a four-year low last week.

The recovery has been seen as a major boost to president Barack Obama's re-election campaign. But Bernanke warned there may be trouble ahead.

"We have seen some positive signs on the jobs front recently, including a pick-up in monthly payroll gains and a notable decline in the unemployment rate. That is good news. At the same time, some key questions are unresolved," Bernanke said in a speech to the National Association for Business Economics on Monday.

He said the recent positive jobs numbers seemed "somewhat out of sync" with the overall pace of economic expansion, and that a close look revealed some worrying trends.

The number of people working and total hours worked are still significantly below pre-crisis peaks, said Bernanke. He said he was particularly concerned by the large number of people who have been unemployed for more than six months.

"Notwithstanding these welcome recent signs, the job market remains quite weak relative to historical norms," he said. "After nearly two years of job gains, private payroll employment remains more than 5 million jobs below its previous peak."

The share of people unemployed for more than six months has been higher than 40% since December 2009, he said. "By way of comparison, the share of unemployment that was long term in nature never exceeded 25% or so in the severe 1981-82 recession," said Bernanke.

Even though the unemployment rate has been falling, it was still roughly 3% above its average over the 20 years preceding the recession, he said. "Moreover, a significant portion of the improvement in the labor market has reflected a decline in lay-offs rather than an increase in hiring," said Bernanke.

The Fed chairman said he believed in part that the recent bounce back in the jobs market may have been the "flip side of the fear-driven lay-offs that occurred during the worst part of the recession."

Worried employers sacked too many workers going into the recession and have now started hiring back employees to cope with demand, Bernanke said.

But he said he was not convinced that the high rates of unemployment were caused by structural factors, including the shift of jobs from people to technology and US skill shortages.

While structural changes are important in the long-term, Bernanke said he believs they have played only a "modest" part in the recent increase in long-term unemployment.

If he is wrong, said Bernanke "it will become even more important to take the steps needed to ensure that workers are able to obtain the skills needed to meet the demands of our rapidly changing economy."

Greece's cut-price potato movement shows Greeks chipping in

Greeks are pulling together and forging innovative new social and economic models to help those hit hardest by the debt crisis

Jon Henley finds some Greeks moving beyond anger Link to this video

Spyros Gkelis, a smart and hard-working biology lecturer from Thessaloniki, saw it like this. "If someone shoves you," he said, "you know, like really pushes you, hard, in the street, so it hurts, your first reaction is to lash out. Strike back. But if that doesn't achieve anything, if they keep pushing, and it keeps hurting, you think again. Try something else. Work out some way of dealing with it."

In their fifth year of recession, with 21% of the workforce jobless, salaries slashed, one in 11 people in greater Athens using soup kitchens and half the country's most prescribed medicines now in short supply, that is what more and more Greeks are doing. Faced with a half-broken state, and systems and structures only making things worse, people are doing things differently.

In a clearing on a hillside above the second city, Elisabet Tsitsopoulou found herself buying five 25kg sacks of potatoes, for herself and her neighbours, from the back of a lorry. She paid €0.25 a kilo, against the 60-70 cents she would pay in the shops. The farmer she bought from, Apostolos Kasapis, was equally happy: he got his money straight away, rather than having to wait up to a year – or forever – for a middleman's cheque.

"It benefits everyone," said Christos Kamenides, professor of agricultural marketing at Thessaloniki University, of the producer-to-consumer system he has helped perfect. The potato movement was launched last month and is spreading across Greece, incorporating other staples such as onions, rice, flour, olives and – at the last count – more than 4,000 Easter lambs. Town halls announce a sale; locals say how much they'll buy; farmers show up with it in 25-tonne trucks. Everyone's happy.

With many Greeks now taking home 30% less than before the crisis, but prices of plenty of products still impossibly high, the movement is a clever and, for many, vital way to cut costs that is of practical help to both parties to the transaction. There is anecdotal evidence, too, that supermarket prices are starting to fall, certainly on direct sale days, in response to it.

In several parts of the country, small volunteer shops are setting up, often on the initiative of local councils, selling produce at barely more than cost price – the margin is marked on the pack – in member-only schemes, to avoid tax and legal problems. Kamenides is developing a broader scheme along these lines. His "unified co-operative" will unite producers and consumers and may eventually serve as an economic model for buying and selling essential foodstuffs.

A couple of hours south, in the port of Volos, an alternative economic model is already up and running. More than 800 townsfolk have signed up for a local currency scheme called TEMs. Teachers, doctors, babysitters, a bookkeeper, farmers and smallholders, a decorator, hairdresser, seamstress and a lawyer are among the members. In the past couple of weeks Theodoros Mavridis, a local electrician, has not had to pay a euro for his eggs, tsipourou (the local brandy), fruit, olives, olive oil, jam, soap, and help in filling out his tax return.

Maria Choupis, a founder member, said up to 15 such networks are active. Members transfer units into and out of each others' accounts online. To ensure the currency works hard, these can hold a limit of 1,200 TEMs, and cannot be more than €300 overdrawn. For Bernhardt Koppold, an alternative therapist, the scheme is easier and more direct but also "a way of showing practical solidarity". Choupis agrees it's "as much social as economic". That's a point that recurs frequently. There is, among many Greeks, still intense anger at what they are living through, as well as almost complete disillusionment with politicians, not to say politics. But in Choupis's words, many are "moving beyond anger": instead of lashing out, coming together.

In Volos, a waiter in the taverna by the ferry terminal, told me that "in the years of cheap money and easy credit, we just lost sight of what matters, you know? It's sad that it's taken a crisis to do it, but we're rediscovering our values."

People are helping each other in small, informal ways. Teachers and parents' associations "come together, gather food and discreetly arrange to allocate it to families in the school who are suffering", said Victoria Pakrete, an Athens teacher who herself volunteers in a soup kitchen. Marie Le Du said that in the northern Athens suburb where her mother lives, women from the local Orthodox church "work in pairs. They visit two or three families that are 'their' families, drop in for a coffee and a chat to catch up – and discreetly hand over a parcel of donated food, as part of the visit, to preserve the family's dignity."

Others are more organised. Reveka Papadopoulos, head of Médecins Sans Frontières Greece, said that in the past year she had seen "some really encouraging, exciting things. People are seeing the power of organising themselves, of helping themselves, and each other. It's wonderful to see … it keeps you going."

So in Thessaloniki, the National Theatre of Northern Greece is about to launch a season of plays by Genet, Pinter, Albee and Greek authors under the banner Social Theatreshop.

Theatregoers will pay for their tickets with food, which the theatre's 300 staff – actors, technicians, administrators, all working on the project for free – are distributing among charities and welfare groups in the city.

"We are, everyone knows it, in a very bad situation," said the deputy artistic director, Giannis Rigas. "We thought, we have to do something for people who now have so little money that they are going hungry. But this isn't charity, it's a fair exchange: food for theatre. A couple of tins of soup, or a packet of pasta, for a ticket. And it's also a way to put the theatre back where it belongs, in the community."

Across town, on the redecorated first floor of a battered building owned by a trades union association, more than 80 doctors and dentists volunteer their time at the social medical centre, opened late last year to treat illegal immigrants with no access to free healthcare.

In fact, 70% of the patients seen by the GPs and specialists at the centre until 9pm each night are Greek citizens who can no longer afford health insurance.

"If you're not earning, you no longer have easy access to care," said Sofie Georgiadou, a dentist who volunteers one evening a fortnight. "I never imagined I would one day find myself working somewhere like this, in Greece."

It doesn't, in some instances, take much to change things. In Athens, Xenia Papastavrou, fed up with the quantities of perfectly good bread going to waste in restaurants and bakeries when welfare groups were spending money elsewhere to buy it, has founded a network called Boroume that, via its website, now puts 70 commercial food donors – including Greece's largest bakery chain and 25 Athens hotels – in contact with 400 welfare groups, from elderly people's homes and orphanages to drop-in centres for the homeless and municipal soup kitchens. Similarly Silia Vitoratou, a statistician, joined with friends in December to set up Tutorpool, whose site now puts 500 volunteer tutors in contact with pupils who need their help. It is a fact of Greek life that most schoolchildren, especially those hoping to go to university, will at some stage need after-school tutoring; many parents can no longer afford the private tuition centres that for decades have met that demand.

Tutorpool is helping Vassilis Xanthopoulos, 11, who is dyslexic and has had extra private tuition since he was very young.

"Last year, we had to stop," said Harris, his father. "My business has practically collapsed, and my wife is earning half what she used to. It was €450 a month we no longer had. Vassilis started falling behind almost instantly. Tutorpool really saved us."

Warming as they are, though, such initiatives can't save everyone. Korina Hatzinikolaou is a developmental psychologist at the Athens Institute of Children's Health, which co-ordinates Greece's child healthcare provision.

Her salary has been cut by a third and hasn't been paid since December; she and her two small sons have had to move back in with her mother.

More alarmingly, the institute itself can no longer make ends meet and is threatened with closure; Greece's national neo-natal screening programme, among others the institute runs, is now at risk.

"There are limits to what ordinary people can do," Hatzinakolaou said.

"We can do much, but we cannot run a health system. At some point, a state has to say, 'You know what? This really matters. Let's all do it, together. Let's make it a priority.' But here in Greece, the social state is collapsing. I am really not sure how it will end."
Greece on the breadline

Jon Henley spent a week blogging his way through Greece, hearing the human stories behind the European debt crisis in a country that has been left reeling. Each report in the Greece on the Breadline series was accompanied by hundreds of online comments, as readers shared very similar experiences across the country.

Many called for projects such as the "potato movement" to be extended to other parts of the country, while soppan updated us on the progress of Boroume, the scheme to make better use of leftover food from restaurants. "From what I've seen of their website Boroume has started a Patras branch, and as far as I know local bakeries were already giving away leftovers to illegal immigrants, which as you know is a major problem in our town."

After the report on tutors giving free lessons, MonaLisa4Ever and others shared links to free education resources: "But a system that is deprived of resources (school libraries, computer labs, modern buildings, play spaces, etc) can only depend so much on the creative potential of the teachers ... The system is starved." Readers involved in the projects featured in the series came online to explain more – from vzlalsj, a physician working in a Greek hospital on HIV and malaria levels, to KaterinaK, the leadership coach offering free lessons to the unemployed.

While some were concerned about the effect reports on the crisis might have on the tourism industry, many gave thanks for showing how ordinary Greeks are tackling social problems.

A new solidarity among citizens is a source of support and hope, readers like Nirema said: "What helps maintain my optimism: when I last visited Athens ... the three times I made it to the [non-mainstream] theatre, it was packed. Bookshops in central Athens were also quite busy ... Then I saw the burnt-down neoclassical cinema, and the human remains of the day sleeping on the pavement, and a few angry faces venting their anger on buildings ... Still, the fact that people huddle together in theatres and read books, trying to make sense and hopefully rectify all this, feels [sic] me with hope."

Ben Bernanke's promise to support economic recovery boosts US markets

Federal Reserve chairman warns that US job market remains fragile and says Fed is prepared to step in to help recovery

The Dow Jones closed up 160 points after his comments on Monday and continued to rise early Tuesday. Photograph: Andrew Burton/Getty Images

US stock markets have been boosted after Federal Reserve chairman Ben Bernanke said low interest rates are still needed to support the fragile recovery in the job market.

Despite a decline in home prices and consumer confidence, the US markets continued to hold their rally early on Tuesday as investors cheered a Bernanke speech in which he emphasised the Fed's determination to continue supporting the recovery.

At a a speech to the National Association for Business Economics on Monday, Bernanke warned that the job market remained fragile, despite official reports showing consistent improvement in recent months.

The US economy has added an average 245,000 jobs over the past three months, and the number of people applying for initial unemployment benefits slipped to a four-year low last week.

The recovery has been seen as a major boost to president Barack Obama's re-election campaign. But Bernanke warned there may be trouble ahead, and said the Fed was prepared to step in to help the recovery.

"We have seen some positive signs on the jobs front recently, including a pick-up in monthly payroll gains and a notable decline in the unemployment rate. That is good news. At the same time, some key questions are unresolved," Bernanke said.

"Further significant improvements in the unemployment rate," he said, "will likely require a more rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies."

The Dow Jones industrial average closed up 160 points after his comments on Monday and continued to rise early Tuesday.

The rally continued despite figures that showed US home prices fell in January from a month earlier. The average home price is now back to early 2003 levels, according to Standard & Poor's Case-Shiller home-price index.

A widely watched measure of consumer confidence also fell. The Conference Board index of consumer attitudes fell to 70.2 in March from 71.6 the month before.

Overall, Bernanke painted a somewhat gloomy picture of the recovery in the US jobs market. He said the recent positive jobs numbers seemed "somewhat out of sync" with the overall pace of economic expansion, and that a close look revealed some worrying trends.

The number of people working and total hours worked are still significantly below pre-crisis peaks, said Bernanke. He said he was particularly concerned by the large number of people who have been unemployed for more than six months.

"Notwithstanding these welcome recent signs, the job market remains quite weak relative to historical norms," he said. "After nearly two years of job gains, private payroll employment remains more than 5 million jobs below its previous peak."

What's your take on the US job market? Is the recovery really here or are we headed for another downturn? Whether your unemployed, recently employed or have had a job for a while, we want to hear from you in our latest people's panel.

'Mission impossible' for Spain's PM – another €40bn in cuts

People's party supporters wave flags as Mariano Rajoy arrives at a campaign rally in Seville. Expected election victory in Andalucia on Sunday will be followed by further austerity. Photograph: Marcelo Del Pozo/Reuters

Spain's prime minister, Mariano Rajoy, faces the toughest week of his three months in office as he is forced to announce up to €40bn (£33.45bn) in spending cuts and taxes in a budget on 30 March, the day after a general strike.

As Rajoy's conservative People's party looked set for victory in key regional elections in southern Andalucia on Sunday, other European leaders and the markets were signalling Spain as now being the biggest single threat to the stability of the eurozone.

A win in Andalucia would give Rajoy unprecedented control over troublesome regional governments whose inability to reduce deficits has helped to put Spain centre-stage in the eurozone crisis. Asturias, a much smaller northern region, was also voting.

Rajoy was recently forced to backtrack by fellow EU leaders who refused to accept the deficit target of 5.8% of GDP Spain set unilaterally for this year. They told him to cut to 5.3%.

The EU economic affairs commissioner, Olli Rehn, has blamed attempts by Spain, the eurozone's fourth largest economy and a more potent threat than bailed-out Greece, Portugal or Ireland, to ease up on deficit-cutting for renewed pressure on sovereign debt.

"Because there was a perception Spain was relaxing its fiscal targets for this year, there has already been a market reaction of several dozen basis points on yields of Spanish bonds," he told reporters. "That shows how fragile the situation still is. To return to sustainable growth, it is a necessary condition to ensure sustainability of public finances."

Spanish economists described the deficit target as "mission impossible" for a country sinking back into recession and with 24% unemployment. They have warned of devastating consequences if Rajoy, who has already imposed cuts and tax increases worth €15bn, is obliged to find a further €40bn over nine months.

A vicious spiral of recession, unemployment and falling tax revenues threatens to double the real cost of a superficial annual adjustment of €32bn.

"This is mission impossible," said LSE professor Luis Garicano in a blog posting with Jesús Fernández-Villaverde of the University of Pennsylvania. They estimated the total real adjustment needed this year to cope with falling revenue at between €53bn-€64bn. That is twice the €30bn "Save Italy" plan announced by prime minister Mario Monti in December.

Angel Laborda of the Funcas think tank puts the total adjustment at €55bn euros in a 1.7% recession.

Observers believe Rajoy has delayed revealing the latest dramatic round of cuts and tax increases until after the elections. It is unclear where the axe will fall. His government has signalled that pension payments, unemployment benefits and sales tax are all untouchable – though it has retracted quickly on other pledges. There were rumours of increases in company taxes and electricity tariffs and sweeping cuts in public investment.

A general strike on 29 March will test how the Spanish feel about Rajoy's handling of an economy laden with private debt and fallout after a housing bubble burst.

On Saturday Monti accused Spain of turning the clock back on a eurozone debt crisis that had seemed to be easing. Spanish 10-year bond yields are now higher than their Italian equivalents. "It (Spain) certainly made profound reform of the labour market but it did not pay the same attention to public finances," he told Italian business leaders. "This is causing us big concern because their yields are rising and it wouldn't take much to recreate trends that could spread to us through contagion."

Monti later softened his line, saying he had every confidence in Spain and Rajoy.

Citibank's chief economist, Willem Buiter, told Bloomberg radio that Spain was now the country that most worried him. "It's really moved to the wrong side of the spectrum and is now at greater risk of sovereign restructuring than ever before," he said.

Eurozone crisis live: Merkel says Greek exit would be huge mistake - 27 March

CDU candidate in the Saarland elections Annegret Kramp-Karrenbauer (L) and chancellor Angela Merkel. Photograph: John Macdougall/AFP/Getty Images

5.40pm: Looking ahead to tomorrow, there's plenty of economic data out...

• UK - final reading of GDP for Q4, current account for Q4
• France - detailed GDP for Q4
• Germany - preliminary CPI for March
• Italy - business confidence for March
• euro zone - money supply for February.

In the afternoon, ECB vice president Vitor Constancio will give a speech and there are planned strikes for transport workers in Athens. And with that, it's time to close the blog. Once again, thanks for all the comments, and we'll be back tomorrow.
Live blog - market down

5.17pm: Quick round up of the markets. The French and German indices were dragged down by oil stocks, after French company Total said it might take six months to stop a massive gas leak at a platform in the North Sea. More on that here.

The French CAC finished the day down by almost 1%, while the German Dax was 0.33% lower. The FTSE closed down 0.6%.

The Euro has been up and down against the dollar today but traders said there was little news to drive it in any one particular direction. Daragh Maher, currency strategist at HSBC, said

    We finished more or less where we started. Yesterday we had events. Today is more like a consolidation in the market.

5.08pm: As bad as things are in Greece, the sovereign debt crisis has not brought everything to a grinding halt. The Greek Olympic committee is saying that its leg of the 2012 Olympic torch relay will still go ahead despite near empty public coffers. Helena Smith in Athens reports:

    International sponsors appear to have come to the rescue of not only the Olympic torch lighting ceremony – a theatrical affair involving 'nymphs' dressed in ancient garb in ancient Olympia – but the torch relay which will see the flame being carried through 40 towns and cities across Greece.

    With just over 100 days before the opening of the London games on July 27, Greek organizers confirmed that an array of international conglomerates had agreed to pick up the bill for the 1,800-mile journey the flame will make before it is put on a London-bound plane. The lighting ceremony takes place May 10.

    "It's going to be as good a torch relay as any other," said a member of the Hellenic Olympic Committee (HOC), "although, yes, it would have been very difficult without sponsors and private individuals stepping in."

    Earlier this week, HOC head Spyros Kapralos, vowed there would be no letting up of the torch relay on Greek soil. "It's going all around the country … to remind all our fellow countrymen of the importance of the torch, the importance of the Olympic Games, that everything started from here."

    But, he added, it was "essential" to remind Greeks that they would not be picking up the bill. "The costs will be covered by sponsorships, the participation of local communities and individuals," he said.

OECD calls on eurozone finance ministers to take decisive action

Organisation for Economic Co-operation and Development's secretary general, Angel Gurría, says current level of funding is insufficient to restore market confidence

OECD secretary general Angel Gurria calls for decisive action on the eurozone crisis. Photograph: Francois Lenoir/REUTERS

The struggling eurozone needs the "mother of all firewalls" to provide the breathing space from its debt crisis needed to revive growth, the west's leading economic thinktank said on Tuesday.

In its annual health check on the 17-nation single currency area, the Organisation for Economic Co-operation and Development said decisive action was needed by finance ministers when they meet later this week.

The OECD's secretary general, Angel Gurría, said the current level of funding was insufficient to restore market confidence, still fragile despite the second Greek bailout finalised earlier this month. He called for a €1tn (£835bn) war chest to contain the sovereign debt crisis, noting: "Europe is stalling. It needs to get out of first gear and make growth the number one priority."

The OECD warned that the debt crisis was having a knock-on impact on the UK and that the 27-nation European Union faced a tough future. "Longer-term prospects are for growth to be weaker than over the past twenty years, influenced by population ageing and sluggish productivity gains."

Gurría said important advances had been made by governments in Spain, Portugal, Italy and Greece but the challenges remained daunting.

"Weak financial conditions, fiscal consolidation and economic adjustment are restricting demand in the short term before the long-term benefits on stability and growth are felt," Gurría said. "Decisive action to restore confidence and support demand is needed now."

Greek officials said the country was likely to hold a snap election on 6 Mayas it must implement more austerity cuts in exchange for its €130bn bailout agreed this month. Meanwhile Ireland is to hold a referendum on the EU's new fiscal treaty on 31 May, the government said on Tuesday – which will probably be the only popular vote on plans for stricter budget discipline.

The Paris-based OECD said the eurozone would slow to a virtual standstill this year, noting that there was a risk that austerity programmes and bank deleveraging would hit growth before the benefits of stronger public finances and economic reforms materialised. "High-risk spreads and self-fulfilling expectations could lead to unsustainable debt dynamics. There is a risk of global spillovers from these developments. This calls for both short-term action and long-term reforms."

The survey said economic, fiscal and financial imbalances in the area had led to weak banks, high unemployment and low growth. It urged an ambitious programme of reforms in product and labour markets, tax systems and education to rebalance economies, restore competitiveness, boost growth and bring down stubbornly high levels of unemployment, particularly among the young.