BusinessDesk: Papandreou calls off referendum, Draghi cuts ECB rate

BusinessDesk: Papandreou calls off referendum, Draghi cuts ECB rate

Stocks on Wall Street and in Europe rose after an unexpected interest rate cut by the European Central Bank. Meanwhile, Greek leader George Papandreou bowed to pressure by Germany and France to shelve plans for a referendum on the latest bailout package for the beleaguered country.

Papandreou called off his plan to hold a referendum on Greece’s new loan deal with the European Union, the New York Times reported. The Greek prime minister made his comments in an address to his party’s central committee on Thursday evening.

“The question was never about the referendum but about whether or not we are prepared to approve the decisions on October 26,” Papandreou said, referring to the EU debt deal, the Times reported. “What is at stake is our position in the EU.”

Investors welcomed the news on a day they already applauded a surprise reduction of borrowing costs in the euro zone.

In his first act as president of the European Central Bank Mario Draghi cut the benchmark interest rate to 1.25 percent from 1.5 percent showing that he prioritises reviving a faltering economy as the euro zone’s fiscal crisis drags on. The cut was a unanimous decision by the central bank's 23-member Governing Council, Draghi said.

In Europe, the Stoxx 600 Index ended the day with a 2.1 percent gain, recovering from losses earlier in the session.

In afternoon trading in New York, the Dow Jones Industrial Average advanced 1.36 percent, the Standard & Poor's 500 Index climbed 1.31 percent and the Nasdaq Composite Index rose 1.51 percent.

"Right now the market just reacts to whatever rumour and whim is out there, going back and forth. What is Greece going to do? What is Germany going to do? What is Merkel saying, what is the meeting doing?" Cliff Draughn, chief investment officer at Excelsia Investment Advisors, told Reuters.

"Sooner or later Europe will solve the problem. There is going to be some pain in between, but they will solve the problem," Draughn said.

Gains on equity markets lowered the appeal of US Treasuries. Yields on 10-year notes climbed seven basis points to 2.06 percent while those on 30-year bonds rose eight basis points to 3.10 percent in early afternoon trading in New York, according to Bloomberg.

“We’re seeing pressure on the long end because of positive developments out of Greece and the ECB cut provided a boost of the equity markets,” Dan Mulholland, a Treasury trader in New York at RBC Capital Markets, told Bloomberg News.

“With the market already trading at lower yields than it should be based on fear that the European situation could escalate even worse, we’re seeing pressure on the long end. We also have supply next week,” Mulholland said.

For now, the euro benefitted from the cautious optimism, strengthening 0.8 percent to US$1.3850 in New York afternoon trading. It had dropped as much as 0.7 percent earlier in the day.

Even so, gains will likely be limited as there are plenty of economic and fiscal hurdles ahead, analysts said.

The ECB’s Draghi today also signalled expectations that the region’s economy will get worse before it gets better.

"What we are observing now is ... slow growth heading toward a mild recession by year-end," Draghi told a news conference, according to Reuters. "A significant downward revision to forecasts and projections for average real GDP growth in 2012 [is] very likely."

(BusinessDesk)

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

6 Comments

Comment Filter

Highlight new comments in the last hr(s).

Super Mario Squid, doesn't even know the mandate of the ECB.  It has one mandate, inflation.  Merkle will be very Merkle.

 The Greek PM is all over the place like booze on the pavement

Look to the decline across Europe...recession is certain...ability to finance bloated debts become critical for Italy, France, Ireland, Spain and Portugal....forget Greece it's stuffed for all money for the next 100 years. Iceland had the chance and took it to say "get stuffed"

The ECB is trying to 'do a Bollard' with cheaper credit but it will not work. The markets have lost faith in the ECB and the BoE and the EU. Only idiots are buying the IOUs. The euro is toast.

Inflation is well above the 3%  and set to stay there. The game is all about stealing from savers over time. Debasement to eat away the debt mountain and save the pollies and bankers from their own stupidity.

Meanwhile across the Atlantic the liars are lining up to beat Barry out of the Whitehouse and rule over a nation that is tens of trillions in debt and rushing to catch up with Greece. The police states are bashing those who protest.

Across the Pacific we have Beijing turning up the spin to hide their own property and credit farce.

And last but closer to home across the Tasman we can see a property bubble going down fast and set to take many with it.

The RWC spin is over and the chch rebuild that will save us from ourselves has not started and probably never will....the houses go on rotting...BE keeps borrowing...Goofy promises to borrow more...commodity prices are sliding down the slope....the Rena windfall comes with globs of oil attached....the pollies are expecting some idiot to give them a fat salary rise...and the savings are being debased by the RBNZ.

 

"Sooner or later Europe will solve the problem. There is going to be some pain in between, but they will solve the problem," Draughn said.

"It is difficult to get a man to understand something when his salary depends upon his not understanding it." - Upton Sinclair

The silly thing is, Europe could have worked toward a market union and done it without the euro. Once the pollies pushed that snowball of lies down the slope it got the better of most of them, which wasn't that difficult.

We would have 'Mark' and 'Frank' fighting it out with 'Lira' and 'Peso' and be all the better for it.

Where did they go?

The chinese will rescue the euro but there will be a price to pay.Access to infrastructure,and technology will be the price paid.So suddenly airports and sea ports will be owned by the chinese along with technology that they have been denied  previously.

                WE AIN'TSEEN NOTHING YET

Your access to our unique content is free - always has been. But ad revenues are diving so we need your direct support.

Become a supporter

Thanks, I'm already a supporter.