Mariano Rajoy pleaded for an urgent “defence of the euro project” yesterday as Madrid was close to being locked out of international markets by “astronomical” borrowing costs. The prime minister of Spain called for European leaders to publicly back the so-called ‘sinner states’ amid fears that contagion from Greece could trigger a highly-anticipated Spanish banking crisis and then a bail-out. Mr Rajoy told state television there was “a serious risk we will not be able to borrow – or borrow at astronomical prices” unless they succeeded in bringing down the debt levels and regaining market confidence. “All these measures are to get out of the hole we find ourselves in,” he said, according to The Telegraph.
Homeowners will be hit by fresh increases in mortgage rates as the storm in the Eurozone hammers Britain’s financial system. The Bank of England has warned of an extended squeeze on household incomes, saying that the worsening Eurozone crisis had made it more expensive for banks to raise money and that UK borrowers could suffer from higher interest rates as a result. In extraordinarily blunt words, Sir Mervyn King, the Bank Governor, said that Britain had been forced to put in place contingency plans as the Eurozone was showing signs of “tearing itself apart”. His stark outlook came as recriminations flew across Europe, with David Cameron discarding normal diplomacy to concede for the first time that the Eurozone could well splinter, The Times reports.
The rupee hit a record low against the dollar yesterday, as India’s Finance Minister warned that austerity would be needed to reduce widening fiscal and current account deficits. “We are going to issue some austerity measures,” Pranab Mukherjee told parliament, shortly before the rupee slipped to 54.52 per dollar, its weakest level on record. “The Indian growth story has not ended,” he added. “I have confidence in India’s workers, farmers, in its political system.” The rupee has shed more than 20% of its value against the dollar over the past 12 months, compounding the challenges faced by Asia’s third-biggest economy by pushing up the cost of imported essentials, particularly oil, according to The Times.
General Motors will deliver a significant economic boost to the UK on Thursday by announcing that it is keeping its Ellesmere Port factory and saving 2,100 jobs – if workers vote in favour of a new pay deal. Workers at the Vauxhall plant in Merseyside voted on Wednesday on proposals to change their working conditions, which are thought to include round-the-clock manufacturing, weekend working, and more staff. If the proposals are passed then GM is scheduled to hold a press conference this morning to confirm that it will pour millions of pounds of new investment into the plant and end months of uncertainty about its future. There have been major fears that the Ellesmere Port plant could close because GM is looking to cut capacity in Europe to stem years of losses, The Telegraph says.
Prudential may move its head office out of Europe because of new rules on how much cash it must hold in reserve, the insurer warned yesterday, as it unveiled a better-than-expected 9% rise in first-quarter sales.The London-based group is concerned the regime, known as Solvency II, could make its American business less competitive than local rivals, because it would have to hold more capital reserves to comply with the European directive. Prudential chief executive Tidjane Thiam said that, if the group did not win concessions, it would possibly move to Asia, where new business profits soared 22% to £260m in the first quarter, The Scotsman reports.
Greek citizens are withdrawing deposits from domestic banks at an increasing rate as fears grow that the country faces a rapid devaluation if it leaves the Eurozone. Investors pulled out €700m from Greek banks on Monday, and the same figure again yesterday. President Karolos Papoulias told political leaders that ‘fear that could develop into panic’ at the ailing country’s banks, weeks before the fresh elections which could spell the nation’s exit from the single currency. Greeks have been gradually withdrawing their savings over the past two years as the country’s financial crisis deepened, either sending the money abroad or keeping it in their homes, The Daily Mail says.