Eurozone tells members to make contingency plans for “Grexit”

Euro zone officials have told members of the currency area to prepare contingency plans in case Greece quits the bloc, an eventuality which Germany‘s central bank said would be testing but “manageable”.

Three officials told Reuters the instruction was agreed on Monday during a teleconference of the Eurogroup Working Group (EWG) – experts who work for the bloc’s finance ministers.

“The EWG agreed that each euro zone country should prepare a contingency plan, individually, for the potential consequences of a Greek exit from the euro,” said one euro zone official.

The news comes at a highly sensitive time, just before EU leaders gather to try to breathe life into their struggling economies at a summit over dinner on Wednesday.

Although minds will be focused by the prospect of Greece leaving the currency area, now called “Grexit” and something EU leaders say they want to avoid, disagreements over a plan for mutual euro zone bond issuance and other measures to alleviate two years of debt turmoil have already been laid bare.

In its monthly report, Germany’s Bundesbank said the situation in Greece was “extremely worrying” and it was jeopardizing any further financial aid by threatening not to implement reforms agreed as part of its two bailouts.

It said a euro exit would pose “considerable but manageable” challenges for its European partners, raising pressure on Athens to keep its painful economic reforms on track.

Greek officials have said that without outside funds, the country will run out of money within two months.

For the first time in more than two years of debt-crisis meetings, the leaders of France and Germany have not huddled beforehand to agree positions, marking a significant shift in the Franco-German axis which has traditionally driven European policymaking.

Instead, new French President Francois Hollande met Spanish Prime Minister Mariano Rajoy in Paris to discuss policy, before the pair travelled to Brussels for the 1800 GMT summit.

Despite fears Greeks could open the departure door if they vote for anti-bailout parties at a June 17 election, Spain, where the economy is in recession and the banking system is in need of restructuring, is at the frontline of the crisis, with concerns growing that it too could need bailing out.

After meeting Hollande, Rajoy said he had no intention of seeking outside aid for Spain’s banks.

Hollande’s election victory has significantly changed the terms of the debate in Europe, with his call for greater emphasis on growth rather than debt-cutting now a rallying cry for other leaders.

That has set up a showdown with German Chancellor Angela Merkel, who supports growth but whose primary objective is budget austerity and structural reform.

At his first EU summit, Hollande has chosen to make a stand on euro bonds – the idea of mutual sing euro zone debt – despite consistent German opposition to an idea that has been hotly debated for more than two years.

He will have support from Italian Prime Minister Mario Monti and European Commission President Jose Manuel Barroso, among others. But Merkel shows no sign of dropping her objections to the proposal, which she has said can only be discussed once there is much closer fiscal union in Europe.

The Netherlands, Finland and some smaller euro zone member states support her.

“Introducing euro bonds is the equivalent of ringing the bell for a happy hour so the inebriated can postpone their hangover indefinitely,” one EU diplomat said.

NO MAJOR DECISIONS

No decisions will be made at Wednesday’s summit, which is intended to promote ideas on jobs and growth ahead of another meeting at the end of June.

But it is clear the debate will be intense, not just over euro bonds but over how to rescue European banks and whether to give more time to struggling euro zone countries to meet their budget deficit goals.

Officials tried to play down any prospect of a rift.

“This shouldn’t be a tense discussion because it’s a broad debate about propositions that are on the table. We are not there to negotiate or take decisions,” a French presidential adviser said. “Germany today is not firmly against euro bonds forever, and that’s what makes a discussion possible.”

Having rallied on Tuesday, European stocks dropped 2.3 percent as investors priced in a lack of dramatic policy intervention. The euro tumbled against the dollar to its lowest since August 2010 and Spanish and Italian borrowing costs climbed.

A German two-year debt auction gave a stark illustration of how money is dashing for safe havens. Investors snapped up the 4.5 billion euros of paper on offer even though it came with a zero coupon – offering no return at all.

As well as exploring ways of resolving the debt crisis that has torn the economies of Greece, Portugal and Ireland apart, the leaders will assess how to stabilize their banking systems.

Spain is a particular concern, with a number of its banks laden with bad debts from a property boom that turned to bust and still has some way to go before it touches bottom.

One proposal on the table is for the euro zone’s rescue funds to be allowed to recapitalize banks directly, rather than having to lend to countries for on-lending to the banks.

But that is another idea with which Germany is uncomfortable, even though Merkel said on Tuesday a way should be found to dismantle banks across borders, a possible nod to a pan-euro-zone bank restructuring scheme.

“The top priority is injecting liquidity into the European financial system to ensure that European banks, all European banks, can be consolidated,” Hollande told a joint news conference with Rajoy in Paris.

SEARCH FOR GROWTH

With the euro zone registering no growth in the first quarter of the year and threatening to slip back into recession, the formal summit agenda is jobs and growth, with policymakers touting three ideas they hope will provide near-term stimulus:

- ‘Project bonds’ backed by the EU budget to finance infrastructure projects alongside private sector investment.

- Doubling the paid-in capital of the European Investment Bank, the EU’s co-financing arm, to a little over 20 billion euros.

- Redirecting structural funds which tend to flow to poorer countries, to other areas where it might reap more immediate growth rewards.

Even if all three proposals were to be activated quickly economists and analysts say they will not provide a sufficient shot in the arm to the euro zone and wider EU economy.

“The hard truth is that there are no magic solutions to solving this crisis. We will all have to keep our spending in check, pay off our debts and swiftly introduce healthy reforms. This is what will kickstart growth,” Dutch Prime Minister Mark Rutte said.

World leaders watch the game … David Cameron, Barack Obama, Angela Merkel and José Manuel Barroso

World leaders watch the game … David Cameron, Barack Obama, Angela Merkel and José Manuel Barroso UEFA Champions League CHELSEA FC 4-3 BAYERN MUNICH

 

Cost of Greek exit from euro put at $1tn

The British government is making urgent preparations to cope with the fallout of a possible Greek exit from the single currency, after the governor of the Bank of England, Sir Mervyn King, warned that Europewas “tearing itself apart”.

Reports from Athens that massive sums of money were being spirited out of the country intensified concern in London about the impact of a splintering of the eurozone on a UK economy that is stuck in double-dip recession. One estimate put the cost to the eurozone of Greece making a disorderly exit from the currency at $1tn, 5% of output.

Officials in the United States are also nervously watching the growing crisis: Barack Obama on Wednesday described it as a “headwind” that could threaten the fragile American recovery.

In a speech in Manchester before flying to the United States for a summit of G8 leaders, the British prime minister, David Cameron, will say the eurozone “either has to make up or it is looking at a potential breakup”, adding that the choice for Europe’s leaders cannot be long delayed.

“Either Europe has a committed, stable, successful eurozone with an effective firewall, well capitalised and regulated banks, a system of fiscal burden sharing, and supportive monetary policy across the eurozone, or we are in uncharted territory which carries huge risks for everybody.

“Whichever path is chosen, I am prepared to do whatever is necessary to protect this country and secure our economy and financial system.”

Officials from the Bank, the Treasury and the Financial Services Authority are drawing up plans in the expectation that a Greek departure from monetary union – increasingly seen as inevitable by financial markets – could be as damaging to the global economy as the collapse of Lehman Brothers in September 2008.

With a second election in Greece called for 17 June, King dropped a strong hint that the Bank would take fresh steps to stimulate growth if policymakers in Europe failed to deal with the sovereign debt crisis.

“We have been through a big global financial crisis, the biggest downturn in world output since the 1930s, the biggest banking crisis in this country’s history, the biggest fiscal deficit in our peacetime history and our biggest trading partner, the euro area, is tearing itself apart without any obvious solution,” he said.

Doug McWilliams, of the Centre for Economic and Business Research, said a planned breakup of the single currency would cost 2% of eurozone GDP ($300bn) but a disorderly collapse would result in a 5% drop in output, a $1tn loss. “The end of the euro in its current form is a certainty,” he added.

Alistair Darling, who was Chancellor of the Exchequer under the former Labour administration, said: “This has the seeds of something disastrous. It is madness. If it spreads to bigger countries, this could be really disastrous for Europe. It could consign us to years of stagnation.”

Capital flight from Greece has increased since it became clear that a coalition government could not be formed after the election earlier this month. The Greek president, Karolos Papoulias, said citizens were withdrawing their money amid “great fear that could develop into panic” at the risk of a debt default and exit from the euro area, according to minutes of their meetings posted on the presidency’s website. In little more than a week following the election on 6 May, €3bn was withdrawn from bank accounts. The central bank reported that €800m was taken out in a single day earlier this week.

The head of the International Institute of Finance banking lobby, Charles Dallara, said money was leaving Greece at a growing pace due to political uncertainty. “There has been a pickup of deposit flight from Greece, but I think that is stabilisable once you get a new government in place, if that government reaffirms its intention to remain in the eurozone.” The damage to the rest of Europe if Greece were to leave the euro would be “somewhere between catastrophic and armageddon”, he said.

The Spanish prime minister, Mariano Rajoy, told parliament that his country faced trouble financing itself as borrowing costs shoot up to “astronomic” levels. The Irish finance minister, Michael Noonan, said Dublin’s plan to return to capital markets in late 2013 might not be achievable because of the uncertainty.

The first meeting between French president François Hollande and German chancellor Angela Merkel helped to calm nerves in the markets at one stage, with suggestions that Berlin might be amenable to initiatives to boost growth in Greece and the other austerity-stricken nations of the eurozone.

But the jittery mood was underlined by a fall in European shares and the single currency late in the day amid reports that the European Central Bank was cutting off its funding lifeline to Greek banks that had failed to amass enough capital to protect them from future losses.

The ECB later said it expected the Greek central bank to use part of the €130bn bailout from the EU and IMF to ensure that the country’s banks were safeguarded from collapse, and that they would receive additional help from Frankfurt only once this had happened. Already delayed by the political uncertainty in Greece, €18bn is now expected to be released to recapitalise the banks.

Sony Kapoor, of the Brussels-based Re-Define thinktank, said: “The high-stakes game of chicken between Greek and other EU politicians must end now. Those saying that a Greek exit from the eurozone will not be a big deal either don’t know what they are talking about, or have some ulterior motives. The social, political and economic damage to the EU from a Greek exit is potentially incalculable.”

At the G8 summit, which starts on Friday, Obama will press Merkel tolean more towards a growth package for Europe, instead of pressing so hard for the austerity measures that were rejected by Greek voters.

But foreign affairs analysts said that Obama’s leverage with the European leaders is minimal. Although the US has the economic muscle to help Europe out of its mess, the Obama administration has taken the strategic decision not to become involved directly.

Instead, Obama is to use the Camp David summit for some quiet diplomacy, hoping to sway Merkel to endorse some immediate actions to help growth.

King, speaking at the publication of the Bank of England’s quarterly inflation report, said growth in Britain was weaker and inflation higher than Threadneedle Street had expected three months ago. It would take until 2014 for output to return to where it was in 2008, when Britain’s deepest post-war recession began.

“What is so depressing about it is that this is a rerun of the debates in 2007/08 – these are not liquidity problems, they are solvency problems,” King said. “Imbalances between countries in the euro area have created creditors and debtors and at some point the credit losses will need to be recognised and absorbed and shared around,” he said.

“Until that is done, there will not be a resolution. That is why just kicking the can down the road is not an answer. The European Central Bank has performed heroically in trying to buy time but that time hasn’t been used to put in place fundamental underlying solutions.”

Rebekah Brooks to be charged with perverting the course of justice

Rebekah Brooks, the former chief executive of News International, is to be charged over allegations that she tried to conceal evidence from detectives investigating phone hacking and alleged bribes to public officials.

Brooks, one of the most high-profile figures in the newspaper industry,will be charged later on Tuesday with three counts of conspiracy to pervert the course of justice in July last year at the height of the police investigation, the Crown Prosecution Service (CPS) announced.

She is accused of conspiring with others, including her husband, Charlie Brooks, the racehorse trainer and friend of the prime minister, and her personal assistant, to conceal material from detectives.

Brooks and her husband were informed of the charging decision – the first since the start of the Operation Weeting phone-hacking investigation last January – when they answered their bail at a police station in London on Tuesday morning.

They are among six individuals from News International, along with the company’s head of security, Mark Hanna, to be charged over allegations that they removed material, documents and computers to hide them from officers investigating phone hacking. The charge carries a maximum penalty of life, although the average term served in prison is 10 months.

In a statement, Brooks and her husband – who are both close to David Cameron – condemned the decision made by senior lawyers and overseen by Keir Starmer QC, the director of public prosecutions.

“We deplore this weak and unjust decision after the further unprecedented posturing of the CPS,” the statement said. “We will respond later today after our return from the police station.”

The Crown Prosecution Service chose to announce the charges against Brooks, her husband and four others, in a televised statement in the interests of “transparency and accountability”.

Brooks is accused in one charge of conspiring with her PA, Cheryl Carter, to “remove seven boxes of material from the archives of News International”.

In a separate charge she is accused of conspiring with her husband, Hanna, her chauffeur and a security consultant to conceal “documents and computers” from the investigating detectives. All the offences are alleged to have taken place in July last year.

Alison Levitt QC, Starmer’s principal legal adviser, said the decision to charge six of the seven individuals arrested over the allegations came after prosecutors applied the two-stage test they are required to when making charging decisions.

“I have concluded that in relation to all suspects except the seventh there is sufficient evidence for there to be a realistic prospect of conviction,” she said.

“I then considered the second stage of the test and I have concluded that a prosecution is required in the public interest in relation to each of the other six.”

Levitt said the televised statement had been made in “the interests of transparency and accountability to explain the decisions reached in respect of allegations that Rebekah Brooks conspired with her husband, Charles Brooks, and others to pervert the course of justice”.

She said detectives handed prosecutors a file of evidence on 27 March this year in relation to seven suspects: Brooks, her husband, Hanna, Carter, Paul Edwards who was Brooks’s chauffeur employed by News International, and Daryl Jorsling, who provided security for Brooks, supplied by News international.

The seventh suspect – who has not been named – also provided security. But Levitt said no charges were to be laid against him.

Brooks is charged on count one that between 6 July and 19 July 2011 she conspired with Charles Brooks, Carter, Hanna, Edwards, Jorsling and persons unknown to conceal material from officers of the Metropolitan Police Service.

On count two she is charged with Carter between 6 July and 9 July 2011 of conspiring together to permanently remove seven boxes of material from the archive of News International. In the third count Brooks is charged with her husband, Hanna, Edwards and Jorsling and persons unknown of conspiring together between 15 July and 19 July 2011 to conceal documents, computers and other electronic equipment from officers of the Metropolitan Police Service.

Carter, in a statement issued through her solicitor, said she “vigorously denies” the charges.

All the allegations relate to the police investigation into allegations of phone hacking and corruption of public officials in relation to the News of the World and the Sun newspapers, Levitt said.

Brooks and her husband had travelled to London from their home in Oxfordshire to answer their bail following their arrest in March on suspicion of perverting the course of justice. They were informed of the decision at that meeting. They will attend Westminster magistrates court along with the four others at a date to be fixed.

The couple and the other four alleged conspirators become the first to be charged as a result of the new Scotland Yard investigation into phone hacking, which began in January last year. The inquiry is one of three linked investigations for which the Yard has budgeted £40m for until 2015.

Carter was the first to be arrested on suspicion of perverting the course of justice in January. Two months later the other suspects were arrested.

The news of charges comes as Scotland Yard announced on Tuesday that two further individuals had been arrested in connection with alleged bribery of public officials.

A 50-year-old man who works for HM Revenue and Customs and a 43-year-old woman from the same address were arrested by officers from Operation Eleveden, the Met police operation investigating alleged bribery of public officials. The man was arrested on suspicion of misconduct in a public office and the woman on suspicion of aiding and abetting the offence.

Brooks was a high-flyer at News International. At 31, she became News of the World editor and three years later, in 2003, was given the editorship of the Sun.

She was appointed chief executive of News International in 2009 before quitting in July 2011.

Days later she was arrested over alleged phone hacking and corruption offences, for which she remains on bail without charge.

She was arrested again in March in connection with the separate allegation of perverting the course of justice along with her husband and others.

Mr Brooks has been a columnist for the Daily Telegraph as well as writing a novel entitled Citizen.

Prosecutors are still considering four files of evidence – relating to at least 20 suspects – and involving allegations of phone hacking, alleged bribery of public officials and misconduct in a public office from the linked inquiries.

Starmer said he was facing “very difficult and sensitive decisions” as he predicted last month more cases were coming his way.

Police launched Operation Weeting, the inquiry devoted specifically to phone hacking, after receiving “significant new information” from News International on 26 January last year.

Operation Elveden was launched months later following allegations that News International journalists made illegal payments to police officers.

Officers also launched three related operations: the Sasha inquiry into allegations of perverting the course of justice; Kilo, an inquiry into police leaks; and Tuleta, the investigation into computer-related offences, as the inquiry escalated.

News International did not immediately make a statement, but confirmed that it still employed Hanna and Edwards.

A spokesman for Rebekah Brooks said she and her husband were still with police, and that the couple were likely to release a further statement on Tuesday afternoon.

European leaders and financial markets braced for Greece exit from euro

Financial markets are hastily making preparations for a Greek exit from the euro after a day of political and economic turmoil ended withEurope‘s policy elite admitting for the first time that it may prove impossible to keep the single currency intact.

With attempts in Athens to form a government after last week’s election looking increasingly doomed, European leaders abandoned their taboo on talking about the possibility that Greece might have to leave the euro.

Shares, oil, and the euro were all sold heavily on Monday in anticipation that anti-austerity parties would garner support in a second Greek election likely to be held next month, bringing the row between Greece and its European creditors to a climax.

Critical talks are scheduled to continue in Athens between all party leaders, although President Karolos Papoulias’s decision to prolong the negotiations came despite widespread signs the talks were heading towards collapse. He has until Thursday, when the Greek parliament reconvenes, to broker a deal.

The British chancellor, George Osborne warned that the prospect of Greece crashing out of the euro was damaging economies across Europe.

Uncertainty over the future of struggling eurozone nations was having a “real impact” on growth, he said.

Speaking in Brussels, where he is attending talks over the crisis, Osborne criticised the “open speculation” by some eurozone members.

“The eurozone crisis is very serious and it’s having a real impact on economic growth across the European continent, including in Britain, and it’s the uncertainty that’s causing the damage,” he said.

“Of course countries have got to make difficult decisions about their public finances. We know that in Britain.

“But it’s the open speculation from some members of the eurozone about the future of some countries in the eurozone which I think is doing real damage across the whole European economy.”

Amid claims in the markets that politicians in Athens were playing a dangerous game of bluff, a potential schism in the monetary union saw borrowing costs for Spain and Italy rise over fears that contagion could spread from Greece through southern Europe. The City’s FTSE 100 Index lost almost 2% of its value, dropping more than 100 points, and there were big falls in share prices in Paris, Frankfurt, Madrid and Athens.

Chris Towner, director of FX advisory services at currency traders HiFX, said: “The Greeks seem to be playing a game of chicken here, first of all putting party politics above sovereign interests and secondly in the bigger picture questioning whether the European Central Bank are bluffing when it comes to not offering them bailout money if they fail to form a government.”

On Monday night city firms were making sure their computer-trading systems could cope with the return of the drachma, and were predicting that a “grey market” in a new Greek currency could be operating within the next few days.

But despite the market turmoil and the anti-austerity mood reflected in the elections in Greece and France, finance ministers meeting in Brussels insisted there could be no softening of the tough conditions that Athens agreed to last year in return for a $130bn rescue package financed by the EU and the IMF. The talks openly discussed the likelihood of Greece quitting or being kicked out of the euro, while also differing over whether Greece would also need to leave the EU.

Maria Fekter, the gaffe-prone Austrian finance minister, said there was no basis in EU law for a country leaving the single currency, but noted that the Lisbon Treaty included provision for a country departing from the EU.

Chancellor Angela Merkel of Germany, by contrast, stressed that Greece would “always” be in the EU, a statement interpreted as meaning it might not always be in the euro.

Following suggestions from Jean-Claude Juncker, the Luxembourg prime minister and eurogroup chairman, that Greece’s debt reduction timetable should be relaxed, the Germans made clear that no such loosening could be permitted.

With central bankers across the eurozone openly discussing the pros and cons of a Greek departure, it appeared that the terms of the debate had shifted towards accepting the inevitability of a Greek exit. Talk of the impact of a return to the drachma was predominant, split between those who believed the fallout from an outright Greek default could be contained and those who thought that the knock-on effect, particularly in Spain, would shift the euro crisis into an entirely new dimension.

“The contagion risk would be far, far smaller than one and a half years ago,” said the Dutch finance minister, Jan Kees de Jager, of the effect of a Greek exit. Others predicted the result would be “catastrophe”.

The debate focused on the financial and banking impact of a country leaving the single currency, with little emphasis being given to the political, social, security or foreign policy implications.

The European Commission said: “We want Greece to stay in the euro.” But it emphasised that Athens could only accomplish that by living up to the terms of the bailout bargain with the eurozone.

Markets are braced for figures due out on Tuesday to show that the eurozone is officially in a double dip recession, and fear that the events of the past few days will intensify the slump.

On Monday investors were seeking out safe havens, including German bonds and the pound, as they sold eurozone assets. The boss of PKO Bank Polski predicted that Europe was hurtling towards its Lehman moment, with Portugal, Spain, and Italy being dragged into the slipstream of a Greek exit.

Stephen Lewis, economist at Monument Securities, said: “It may well be that eurozone leaders would raise the threat of Greece being obliged to leave the eurozone if it fails to comply with bailout terms, so as to sway Greek voters to support pro-bailout parties. But if this threat were to be credible, the EU would have to start elaborating measures to facilitate Greece’s departure from the eurozone well before the election took place. Otherwise, Greek voters would assume eurozone leaders were bluffing.”

Rebekah Brooks (NewsCorp) Leveson inquiry: Jeremy Hunt with ‘hacking advice’ email

The embattled culture secretary, Jeremy Hunt, came under renewed pressure when the former News International chief executive Rebekah Brooks disclosed an email appearing to show he had sought the company’s advice over how Downing Street should respond to the mounting phone-hacking scandal.

The email, which also suggests Hunt sought to avoid a public inquiry into phone hacking, emerged on another day of extraordinary disclosures about the intimacy between Rupert Murdoch’s company and government ministers.

The email from News Corporation lobbyist Frédéric Michel written in June 2011 told Brooks that Hunt was poised to make an “extremely helpful” statement about the company’s proposed acquisition of BSkyB, saying the takeover would be approved regardless of phone-hacking allegations.

Michel warned her, days before the Guardian revealed that murdered teenager Milly Dowler’s voicemail had been targeted by the News of the World, that “JH [Jeremy Hunt] is now starting to looking into phone-hacking/practices more thoroughly” andhe “has asked me to advise him privately in the coming weeks and guide his and No 10′s positioning”.

A culture department spokesperson said on Friday: “Jeremy Hunt will respond to this when he gives his evidence to the Leveson inquiry in due course. He is confident his evidence will vindicate the position that he has behaved with integrity on every issue.”

During five hours of testimony, Brooks revealed she dined with George Osborne on 13 December 2010, when she discussed Ofcom’s initial objections to News Corp’s £8bn bid. The objections had been sent in a confidential “issues letter” by the media regulator to her company three days before. Following a short discussion, the then News International boss reported to James Murdoch the next day that Osborne had expressed “total bafflement”.

In a steely and at times tetchy performance, Brooks said her lobbying of the chancellor had been “entirely appropriate” because she was “reflecting the opposite view to the view he had heard by that stage from pretty much every member of the anti-Sky bid alliance”.

But Robert Jay QC, counsel to the inquiry, said the email demonstrated it was “obvious that he was supportive of your bid, wasn’t he”, a suggestion Brooks rejected. The disclosures about her conversations with the chancellor will increase the likelihood that he will be called to appear before the inquiry. Of eight ministers who have submitted statements to Leveson, he is the only one not to have been asked to appear.

Though less damaging than some in Downing Street had feared, Brooks’ testimony also proved embarrassing for David Cameron. She revealed the prime minister signed texts “DC” or sometimes “LOL” – until she explained that the phrase meant “laugh out loud”, not “lots of love”.

She said she typically texted Cameron once a week, and twice a week during the 2010 election campaign, dismissing reports that he sometimes texted her up to 12 times a day as “preposterous” .

Brooks said any email correspondence between her and politicians was held by News International. She had only copies of emails and texts that were on her BlackBerry during six weeks in June and July 2011, but a single message from Cameron had been “compressed” and could not now be read.

Brooks confirmed she had socialised with Cameron at least twice within four days in Oxfordshire over Christmas 2010, towards the end of a year in which they had already met at least five times. The first contact of the festive season was a dinner at her house on 23 December, when there was a conversation about the BSkyB bid. The second was a previously undisclosed “mulled wine, mince pie” party organised by her sister-in-law on Boxing Day, at which she was unsure if she had spoken to Cameron or his wife, Samantha, although “my sister-in-law tells me they were definitely there”.

Although Brooks has been arrested in connection with phone-hacking and bribery investigations and on suspicion of perverting the course of justice, the inquiry heard she had discussed the growing hacking allegations with Cameron at some point during 2010.

She said the prime minister – who at that point was still employing former News of the World editor Andy Coulson – had asked her for an update. “I think it had been on the news that day, and I think I explained the story behind the news. No secret information, no privileged information, just a general update,” Brooks said. The disclosure will add to the pressure on Cameron to explain why he failed to challenge Coulson about the hacking allegations against him at any time after the Guardian broke the story in July 2009.

However, the most serious evidence to emerge regarded Hunt, whose fate has been hanging in the balance since Rupert Murdoch provided 163 pages of News Corp emails to the Leveson inquiry, which suggested that Michel had obtained a large amount of information about the progress of ministerial approval of the BSkyB bid. Finding a fresh email from Michel that had eluded Murdoch’s legal team last month, Brooks showed that she had been told Hunt would approve the long-delayed takeover because he believed “phone hacking has nothing to do with the media plurality issues”. Michel told Brooks the sought-after approval would happen later, in the last week of June 2011.

The accuracy of Michel’s predictions in his email was borne out in Hunt’s statement to parliament on 30 June, essentially approving News Corp’s bid for Sky. Hunt told MPs that “while the phone-hacking allegations are very serious they were not material to my consideration”. The News Corp bid was only derailed the following month following the public outcry after the Milly Dowler hacking revelation and the closure of the News of the World.

A spokesperson for the culture department said: “It has already been made clear that when Fred Michel has claimed in emails to be speaking to Jeremy Hunt that was not the case.”

Michel had said his repeated references to Hunt and “JH” referred to information obtained from his special adviser, Adam Smith. Smith resigned last month after Hunt said he had strayed beyond his remit.

Brooks was also questioned in detail about the Sun’s publication of a story revealing that Gordon Brown’s son had cystic fibrosis. She claimed she would not have run the story without the Browns’ consent, but the couple later issued a statement contradicting her account. It said: “The idea that we would have volunteered our permission or were happy that a story about our son’s health was about to enter the public domain is untrue.”

TNK-BP may join Rosneft in Arctic quest

BP could win a second chance to work in the oil-rich waters of the Russian Arctic, months after the collapse of its strategic partnership with the state-run Russian oil company Rosneft.

TNK-BP, BP’s 50-50 Russian joint venture, said it had been invited by Rosneft to participate in exploration projects in the Arctic, and had responded positively. Any deal that emerges could give BP indirect exposure to an area thought to contain billions of barrels of oil and gas.

 TNK-BP was one of four private companies approached by Rosneft. The others were Lukoil, Surgutneftegaz and Bashneft. At a press conference on Saturday, Igor Sechin, Russia’s deputy prime minister in charge of the energy sector, said Rosneft had set up working groups with two of them – TNK-BP and Lukoil – to weigh up options.

Though the details are yet to be worked out, analysts expect any agreement to involve the creation of a joint venture in which TNK-BP would be a minority partner, with a 33.3 per cent stake, and Rosneft would continue to own the licence. In addition, it was likely that TNK-BP would be expected to cover all exploration costs.

Such partnerships would allow private Russian oil companies access to areas that until now have been the exclusive preserve of state energy groups. Under current rules, only companies with 50 per cent state ownership are allowed to develop the Russian continental shelf. Only Rosneft and the state gas champion Gazprom meet those requirements.

However, Russian officials have come to realise that without foreign expertise and billions of dollars of private capital, the country will struggle to exploit its vast offshore resources and maintain its position as the world’s largest oil producer. In recognition of that fact, Rosneft has in the last three weeks signed big exploration deals with three western companies – ExxonMobil, ENI of Italy and Norway’s Statoil.

BP had signed a similar agreement with Rosneft last year, but it collapsed over objections from its partners in TNK-BP, a group of Russian billionaires called Alfa-Access-Renova. They claimed the alliance breached their shareholder pact with BP granting TNK-BP the right of first refusal on any new venture in Russia or Ukraine – a claim BP denies – and have taken the British oil group to international arbitration over the issue.

Chris Einchcomb, TNK-BP senior vice-president for exploration and appraisal, said TNK-BP already operated onshore in the Russian Arctic, in Yamal and east Siberia, and “through our international shareholder, BP, we hope to tap into an even wider base of experience and knowledge for such potential projects”.

BP declined to comment as it had neither seen the letter of invitation from Rosneft nor presented plans for activities in the Arctic to shareholders.

Rupert Murdoch ‘not fit’ to lead major international company, MPs conclude

Select committee also says James Murdoch showed ‘wilful ignorance’ of extent of phone hacking at News of the World

Rupert Murdoch is “not a fit person” to exercise stewardship of a major international company, a committee of MPs has concluded, in a report highly critical of the mogul and his son James’s role in the News of the World phone-hacking affair.

The Commons culture, media and sport select committee also concluded that James Murdoch showed “wilful ignorance” of the extent of phone hacking during 2009 and 2010 – in a highly charged document that saw MPs split on party lines as regards the two Murdochs.

Labour MPs and the sole Liberal Democrat on the committee, Adrian Sanders, voted together in a bloc of six against the five Conservatives to insert the criticisms of Rupert Murdoch and toughen up the remarks about his son James. But the MPs were united in their criticism of other former News International employees.

The cross-party group of MPs said that Les Hinton, the former executive chairman of News International, was “complicit” in a cover-up at the newspaper group, and that Colin Myler, former editor of the News of the World, and the paper’s ex-head of legal, Tom Crone, deliberately withheld crucial information and answered questions falsely. All three were accused of misleading parliament by the culture select committee.

Rupert Murdoch, the document said, “did not take steps to become fully informed about phone hacking” and “turned a blind eye and exhibited wilful blindness to what was going on in his companies and publications”.

The committee concluded that the culture of the company’s newspapers“permeated from the top” and “speaks volumes about the lack of effective corporate governance at News Corporation and News International”.

That prompted the MPs’ report to say: “We conclude, therefore, that Rupert Murdoch is not a fit person to exercise the stewardship of major international company.”

James Murdoch is described as exhibiting a “lack of curiosity … wilful ignorance even” at the time of the negotiations surrounding the 2008 Gordon Taylor phone-hacking settlement and into 2009 and 2010. The younger son of Rupert Murdoch is criticised for failing to appreciate the significance of the News of the World hacking when the “for Neville” email first became public in 2009 and during subsequent investigations by parliament in February 2010 and a New York Times report in September 2010.

“We would add to these admissions that as the head of a journalistic enterprise, we are astonished that James Murdoch did not seek more information or ask to see the evidence and counsel’s opinion when he was briefed by Tom Crone and Colin Myler on the Gordon Taylor case,” the select committee said.

Even if James Murdoch did not appreciate the significance of the £700,000 Taylor payout, the committee concluded it was “simply astonishing” that he did not realise that the “one ‘rogue reporter’ line was untrue” until late 2010, after a previous inquiry by the culture select committee which ran during 2009 and reported in February 2010.

According to minutes published by the committee, the MPs were almost unanimous in their criticism of Hinton, Myler and Crone.

Rebekah Brooks, the former News of the World editor and News International boss, was largely spared from the MPs’ criticism. The report said that it would not draw conclusions on evidence to the committee about Milly Dowler, the murdered schoolgirl whose voicemail messages were hacked by the News of the World in 2002, because of an ongoing police investigation into Brooks.

However, the MPs said that Brooks must take responsibility for “the culture which permitted” unethical newsgathering methods over Dowler in 2002. The MPs said: “The attempts by the News of the World to get a scoop on Milly Dowler led to a considerable amount of police resource being redirected to the pursuit of false leads.”

Brooks is on police bail after being arrested as part of Scotland Yard’s investigation into phone hacking on 17 July 2011 and, separately, on suspicion of conspiracy to pervert the course of justice along with her husband, Charlie, on 13 March this year. Brooks denies knowledge of or involvement in phone hacking or other illegal activities.

The culture select committee charged Hinton with being “complicit” in a cover-up of wrongdoing at Rupert Murdoch’s media empire.

MPs said that Myler and Crone deliberately withheld crucial information and answered falsely questions put by the committee.

The executives demonstrated contempt for parliament “in the most blatant fashion”, the MPs said, in what they described as a corporate attempt to mislead the committee about the true extent of phone hacking at the News of the World.

The MPs said that Hinton, executive chairman of News International until December 2007, had “inexcusably” mislead the committee over his role in authorising the £243,000 payout to Clive Goodman, the former royal editor convicted of phone hacking in January that year.

“We consider, therefore, that Les Hinton was complicit in the cover-up at News International, which included making misleading statements and giving a misleading picture to the committee,” the MPs said.

Crone and Myler were accused of deliberately misleading the MPs on the culture select committee in 2009 and again in 2011 about their alleged knowledge that phone hacking went beyond a single “rogue reporter” at the now-closed Sunday tabloid.

“Both Tom Crone and Colin Myler deliberately avoided disclosing crucial information to the committee and, when asked to do, answered questions falsely,” the MPs said in the report.

All three executives now face the prospect of being called to apologise before parliament, in a constitutional move that has not been used for almost half a century.

The report could prove especially problematic for Myler, who is only five months into his editorship at the New York Daily Post.

The select committee said it would table a Commons motion asking parliament to endorse its conclusions about misleading evidence.

News Corp said in a statement: “News Corporation is carefully reviewing the select committee’s report and will respond shortly. The company fully acknowledges significant wrongdoing at News of the World and apologises to everyone whose privacy was invaded.”

Former BBC chief attacks Jeremy Hunt over ties to Murdochs; Sir Michael Lyons says culture secretary was ‘far too close’ to News Corporation

Sir Michael Lyons, a former chairman of the BBC Trust, has launched a devastating personal attack on Jeremy Hunt over his relationship with the Murdoch empire, putting fresh pressure on the prime minister to launch an inquiry into the actions of his culture secretary.

In an outspoken intervention, Lyons, who as head of the BBC Trust worked with Hunt until last year, revealed he had long harboured concerns that the cabinet minister was “far too close” to News Corporation. He poured scorn on the minister’s claim that his special adviser, Adam Smith, who resigned last week, had acted in any way without the knowledge of the minister during the proposed BSkyBtakeover by News Corp.

In comments likely to raise fresh concerns that Hunt has lost the trust of the wider media industry, Lyons said he did not doubt that there were texts and email messages that connected the culture secretary to his special adviser’s alleged collusion with News Corp, at a time when Hunt was supposed to be acting as an impartial judge on the deal.

The prime minister insisted on Saturday there would not be a separate investigation into whether emails and messages between Hunt’s office and News Corp provided evidence that the ministerial code had been broken until the minister had given evidence in front of Lord Justice Leveson in about three weeks.

But Lyons, who led the BBC Trust until last May, told the Observer that the culture secretary’s explanation of the messages seen by the Leveson inquiry had been “extraordinary”. He said: “I have to honestly say that I was surprised [by the revelations] given how much he [Hunt] laboured the quasi-judicial nature of his job, but I wasn’t surprised in as much as Jeremy had a very individual way of acting as a minister.

“The notion that seems to have somehow developed that poor Adam Smith might possibly have done this without licence is extraordinary, quite extraordinary. I spoke to Jeremy and Adam Smith in the period immediately after the election and in particular over the runup to the extraordinary accelerated licence-fee negotiations and there is no doubt in my mind that Adam Smith did nothing without Jeremy knowing about it and condoning it. Secondly, that if there is documentary evidence linking Adam, you can be sure that there are texts and phone messages connecting Jeremy because he is not a hands-off minister.

“I don’t think he had a very high regard for his civil servants or a strong belief that a minister needed to be particularly bounded by the contribution that the civil servants might make. So he did things very personally.”

Lyons added: “A special adviser is trusted in these discussions because they are the direct emissary of the secretary of state and that is what they have historically been used for.”

Aides to the culture secretary said the Department for Culture, Media and Sport was going through his phone records and personal email account searching for messages relating to BSkyB, and had found nothing suggesting wrongdoing.

But Downing Street insisted that it would not risk pre-empting the Leveson inquiry by launching an investigation into whether the ministerial code had been broken. Instead, the prime minister’s spokesman said an inquiry would only be triggered after Hunt had given his evidence to Leveson if there were grounds to do so. Cameron was standing firm despite Leveson making it clear on Friday evening that he would not be the arbiter of Hunt’s probity and amid growing calls for the matter to be referred to the prime minister’s adviser on the ministerial code, Sir Alex Allan.

However, concerns about Hunt’s conduct are growing. Shadow chancellor Ed Balls accused the culture secretary of misleading parliament for claiming to have been transparent on the BSkyB deal while failing to disclose Smith’s communications.

And while Lyons said he did not think it would be “helpful” for him to share his thoughts on whether Hunt should resign, he added that it appeared the minister had paid “scant regard” to the obligations of his office.

He said: “The best I can do is to share my window on that piece of history and to say that I do believe that we are in a healthier environment but it does seem to me that ministers are properly bounded by certain conventions by what they should do and how they should do it and whether they should expose their office to any risk of compromise. A succession of ministers have paid scant regard to those conventions and it is about time it was tightened up.”

Lyons, who was chairman at the BBC Trust for four years, including the latest negotiations over the licence fee, added: “We were concerned to avoid what Jeremy Hunt wanted to do, which was a scale and scope review of the BBC, which would have had the secretary of state actually judging how big the BBC is and what things it should do. And part of our concern about that was that we thought he was far too close to Sky.”

In other revelations likely to increase pressure on Hunt, the Observer has learned:

■ The culture secretary previously “alarmed” senior figures outside the Department for Culture, Media and Sport with his tendency to carry out discussions through text messages, which are not open to public scrutiny nor covered by the Freedom of Information Act.

■ Lobbyists for the coalition of media companies who were campaigning against the BSkyB takeover were banned by Hunt’s officials from attending the only meeting arranged between the culture secretary and the deal’s critics while Smith was secretly in contact with News Corp lobbyist Frédéric Michel.

■ The government’s green paper on media regulation, due to be published shortly, has been shelved to avoid embarrassment as the scandal over Hunt’s conduct unravels.

■ Along with the prime minister and Hunt, it is understood five other cabinet ministers have been called to give evidence to Leveson: the deputy prime minister Nick Clegg, home secretary Theresa May, justice secretary Ken Clarke, business secretary Vince Cable and education secretary Michael Gove.

Writing in the Observer, Lord Puttnam, a former chair of the committee which scrutinised Labour’s communications bill, says: “It is now clear that the extent of the secretary of state’s prior dealings with the Murdoch empire in opposition and then in government were such as to make it totally inappropriate for him to have been handed political responsibility for oversight of News Corporation’s bid for the whole of BSkyB.

“”He [Hunt] now finds himself branded as having behaved, not impartially, but more like a dodgy ref, who not only demonstrates bias on the pitch, but ducks into the dressing room at half-time to offer advice.”

Rupert Murdoch apologises, and says there was a ‘cover-up’ at the NoTW

Leveson inquiry hears News Corp boss admit phone-hacking affair at the tabloid had left a ‘serious blot’ on his reputation

Rupert Murdoch offered his most complete apology yet for his shortcomings in the News of the World phone-hacking scandal, admitting the affair was a “serious blot on my reputation” and that he had been “misinformed and shielded” from what was going on at the paper.

In moments of contrition before the Leveson inquiry, the 81-year-old media mogul also said he believed there had been a “cover-up” at the tabloid – and while he panicked amid the furore following the Milly Dowler hacking revelations last summer, he said he wished he had closed the controversial title “years before”.

News Corporation‘s chief executive told a packed courtroom that “I also have to say that I failed” – but insisted that he personally did not know about the true scale of phone hacking until late 2010 and indicated he believed that subordinates such as Colin Myler, the former News of the World editor, and the title’s chief lawyer Tom Crone, kept him in the dark.

Murdoch’s three-and-a-half-hour Leveson appearance on Thursday capped a dramatic day of revelations and fallout stemming from three successive days of evidence given to the inquiry into press standards by the owner of the Sun and Times and his son James. The culture secretary, Jeremy Hunt, remained under intense pressure, after his permanent secretary, Jonathan Stephens, declined on 10 occasions to confirm the minister’s version of his role in the BSkyB affair in front of a select committee.

Stephens, Hunt’s most senior civil servant, told the public accounts committee that he would neither confirm nor deny his alleged role in allowing Adam Smith, Hunt’s special adviser, to speak to James Murdoch’s chief lobbyist, Frédéric Michel. Eventually, the DCMS issued a statement saying Stephens was “content” with the role of the special adviser, who resigned on Wednesday after a slew of emails and text messages showed he had been in close contact with News Corp as the Murdoch company sought Hunt’s approval for the purchase of BSkyB.

It emerged that Ofcom, the communications regulator, had stepped up its investigation into whether News Corp’s 39.1% stake in BSkyB made the satellite broadcaster a “fit and proper” owner of a broadcasting licence. The regulator asked News Corp to provide it with private documents relating to the phone-hacking litigation in which the media company is embroiled, in an investigation that could end with Sky losing the right to air programmes.

Murdoch said that he blamed “one or two” people at the News of the World, adding “there’s no question in my mind that maybe even the editor [Colin Myler], but certainly beyond that someone took charge of a cover-up”. Later he said that the cover-up came from “a friend of the journalists, drinking pal … a clever lawyer”. Former News of the World lawyer, Tom Crone, later issued a statement saying that Murdoch’s statement was a “shameful lie”. tempering the attacks on former colleagues was the admission that hacking was “against the law, quite apart from the ethical side. It was totally wrong, and I regret it and I’ve said it’s going to be a blot on my reputation for the rest of my life.”

He insisted that he had played personally no part in any cover-up. “There was no attempt either at my level or several levels below to cover it up. We set up inquiry after inquiry, we employed legal firm after legal firm. Perhaps we relied too much on the conclusions of the police. Our response was far too defensive and worse, disrespectful of parliament.”

He had paid insufficient attention to the News of the World down the years, preferring the Sun, and said he had wished he closed the Sunday title before last July: “I’ll say it succinctly: I panicked, but I’m glad I did. And I’m sorry I didn’t close it years before and put a Sun on Sunday in. I tell you what held us back: News of the World readers. Only half of them read the Sun. Only a quarter, regular.”

Tom Watson, the Labour MP who helped uncover the hacking scandal, said Murdoch’s apologies represented a development. “He was an unreliable witness and showed little contrition by pointing the finger at many of his former executives. But at least he admitted for the first time that there had been a cover-up.”

Murdoch’s periodic expressions of regret represented the most significant exchanges on the second day of his testimony, but the contrition was also coloured with sideswipes against rivals, former colleagues, and politicians, including Gordon Brown who he insisted had tried to threaten him in a 2009 phone call, even though the former PM insists the conversation never took place. Rupert Murdoch said that he stood by “every word” of his account of the phone call, in which he said that Brown and pledged to “declare war” on News Corp.

The inquiry also released an exchange of letters between Murdoch and Brown, written just a month before the 2010 general election, which show Brown complaining about the Sun’s coverage of the Afghan war, and the newspaper proprietor defending the title’s stance at a time when the tabloid was in full throated support of the Conservatives.

Gordon Brown’s first letter, dated 5 April, said the two had “spoken … some time ago” and that he thought the two had “agreed on the importance of the war against the Taliban in Afghanistan and just as we agreed on the importance of supporting our forces in the war in Iraq, we were at one over the imperative of supporting our military forces in Afghanistan.” Murdoch’s reply, dated four days later, said that while the Sun continued to support the war itself, “our criticism has been on the mission’s management”.

Murdoch’s company also rewrote a document submitted to Leveson that had suggested that David Cameron had met the News Corp boss on at least three occasions that had not been listed by No 10. News Corp resubmitted the list after the prime minister’s office said it could find no evidence of any of meetings on 25 March 2010, 22 July 2010 and 16 March 2011, which Murdoch had originally declared.