Posts tagged "EC"

Google offers concessions to European commission

Search engine understood to be offering to label search results which point to one of its own properties

After nearly a year of negotiation, Google has submitted a package of concessions to the European commission to head off an antitrust investigation that has ground on for two and a half years.

The search company is understood to be offering to label results where its own properties, such as YouTube or Google Shopping, appear in listings when people perform searches, in a response to the principal complaint from the EC’s antitrust division.

But the move is unlikely to pacify companies that originally complained to the EC. They have complained that Google artificially boosts its own properties and penalises rivals.

The proposals from Google will now undergo “market testing” with complainants, including the British “vertical search” company Foundem, which was one of the first companies in Europe to raise concerns .

Last month a coalition of 11 European companies, including Foundem, wrote to Joaquin Almunia, the EC competition commissioner, urging him to raise a formal “statement of objections” to Google’s behaviour. “Google’s search manipulation practices lay waste to entire classes of competitors in every sector where Google chooses to deploy them,” the companies said in the letter.

Almunia has always said he would prefer a negotiated settlement with Google rather than a long court case.

The EC wrote to Google in May 2012 saying it had concerns about the way that Google displayed its own “vertical search” services; its “scraping” of content from third-party sites to display in search results; exclusivity agreements for search adverts on third-party sites; and lack of portability of ad campaigns.

Google chairman Eric Schmidt subsequently denied that the company was violating European antitrust laws. But Google made changes to its scraping of content in what was seen as the first move to mollify the EC, which could impose fines of up to 10% of the company’s global turnover.

Birmingham ‘disappointed’ by challenge to broadband plans

BT and Virgin media want to annul EC backing for city council’s broadband scheme

Is there life after politics? | The conversation

Tony Blair is busy brokering multi-billion pound mergers. But what of other ex-ministers? Edwina Currie and Jacqui Smith discuss what to do after Westminster

When she left parliament Edwina Currie embarked on a new career as a writer – and has a second volume of diaries out next week. Former home secretary Jacqui Smith lost her Redditch seat two years ago and is still adjusting. So what’s an ex-politician to do? They talk to Susanna Rustin.

Susanna Rustin: What do you make of the old saw that all political careers end in failure?

Edwina Currie: It was Enoch Powell and I think he got it absolutely right. Either you’ve achieved your goals, in which case there’s nothing left. Or you leave feeling there’s something you wanted to do that you now won’t be able to.

Jacqui Smith: It was pretty obvious that I was going to lose my seat, but I decided to fight it. In some ways I feel a bit hard done by because unless there are people willing to stand in seats where they’re going to lose, you’re not going to have a democracy. My kids thought it was hilarious that for a considerable period there was a headline on the BBC website that said “big losers” with a picture of me underneath it.

EC: At least you had your photo on the website. Of the 200 who lost our seats in 1997, think of all those whom nobody has heard of since.

SR: Tony Blair has been criticised this week for brokering a deal with the Qatari prime minister. Is this a suitable job for a former prime minister?

JS: Tony hasn’t been able to win whatever he’s done. It’s difficult now people become leaders younger. If you’re 50-odd when you finish being prime minister, you’re not going to put your feet up. Tony’s done a good job of a combining public service with earning a living.

EC: I can think of one recent prime minister whose reputation has improved since he left office, and he spends most of his time watching cricket.

SR: Has your Westminster career, including your affair with John Major, supplied material for your writing?

EC: Inevitably! When I lost my seat I knew that by the time we got back into power I would be a pensioner, so chasing a seat was going to be a hiding to nothing. Being an opposition backbencher is a rough life, and something I didn’t contemplate, but I needed to earn a living. And one of the safest ways of earning a living is by your pen.

SR: At crucial moments in your careers did you think “this is one for the memoirs”?

JS: I didn’t do that, nor did I – and sometimes I’ve kicked myself since – keep diaries. Nor did I sit at the cabinet table and make notes of interesting things that were happening. It used to drive me up the wall when people did that. But I don’t think you’re thinking ahead when you’re in the middle of these things – you’re too busy.

EC: I found it was cathartic after big meetings or rows with Margaret [Thatcher] when I was in the thick of it, to sit down afterwards and write. If I did that, I had a record, yes, but I’d also work out what I thought.

SR: Did you consider going back to teaching, Jacqui?

JS: It crossed my mind, but it would have been difficult with my profile. So then you think, I’m 13 years older than when I was last in the jobs market, what do I do? In my experience, it takes a long time.

SR: Do you miss politics?

EC: I’m involved as much as I want to be, which is quite a lot in Derbyshire. I do a bit of national stuff and some mentoring of candidates. One or two are ministers now. We’re thrilled to bits and feel like they’re our children. Other than that, I can say what the heck I like. There’s a freedom about being a real person and not a politician.

JS: I think Tony Benn said he was leaving parliament to be more involved in politics. The fact that you are not in Westminster doesn’t mean you stop campaigning. I don’t miss parliament. By the end, the shine had gone. But I loved being a minister, it’s exciting and such an honour, and I miss that.

EC: When you’re a minister you have power, you can make things happen.

SR: Is there anyone you admire for what they have done post-Westminster?

EC: On my side, they all went off to run banks, and I’m not sure we should be proud of that.

JS: I admire some of those who removed themselves completely from public life. Sometimes I wonder about myself and the radio and other things. Is it that I am not willing to let go of having a public voice? Even though people might not take any notice of what you say, they do listen when you’re in government. Sometimes I wonder if I am hankering after that influence.

SR: If we ever get an elected House of Lords then more politicians will be forced to find another way to make a living. Would that be good for politics?

EC: What are there, 826 of them these days? All friends of prime ministers one way or another. It’s a disgrace. It should be reformed and substantially elected.

JS: Neither Edwina nor I are in the Lords. Most people who leave parliament don’t go into the Lords, they go off and find other jobs, and are more or less successful in doing it. There is some interesting research about what happens to MPs after parliament and I feel reasonably lucky. People suffer depression and all sorts of problems.

SR: What have been the high and low points for you since leaving parliament?

EC: My husband is sitting opposite, mouthing “me”. He’s been the high point – getting married again and having a new life. Low point: worrying about money and not having a regular monthly income. It takes a strong personality to wriggle through and come up smiling.

JS: A low point has been feeling frustrated about things happening in my former constituency. One of the good things about being an MP is you can pick up a phone and expect somebody to listen. High point: when I stepped down as home secretary, my son, who was about 10, said: “Does that mean when we go on holiday you won’t be on the phone the whole time?” When kids say things like that, you realise what your political life has meant for your relationship with them. So without doubt, the high point has been being with him as he goes into his teenage years and being able to enjoy the door-slamming, and the fun moments.

• Edwina Currie’s Diaries Volume II: 1992-97 is published by Biteback Publishing next week. Jacqui Smith’s book about home secretaries will be out next year.

Sinking feeling as Thomson ignores calls over closed hotel swimming pool

I chose my Tunisian hotel because it had an indoor swimming pool. Now the pool is closed – and Thomson doesn’t want to know

I booked my Tunisian holiday with Thomson specifically because the hotel had an indoor pool. I then discovered that the pool complex was being rebuilt and wouldn’t be ready until 1 November, over a month after my stay.

Since June I have emailed and telephoned Thomson repeatedly, but emails have not been replied to and promised call-backs never received. Eventually, in August, I received an email stating that the pool would be open for my visit in late September, even though the hotel’s guest relations manager confirmed on a TripAdvisor review in July that the opening date is November. All I want is for Thompson to reduce my full-board booking to half board since the holiday is not what I paid for, but they insist I must pay a £50 administration fee to do this. Since the holiday will not be as described, I do not feel I should have to pay a penalty. EC, Choppington, Northumberland

The hotel reservations manager confirmed to me that the pool will be completed on 1 November, yet Thomson claims it was not made aware of this “delayed” reopening until 24 August, nine days after my call to Tunisia and over a week after I got in touch with the Thomson press office. The company eventually telephoned you with this “discovery” on 29 August, two months to the day since you first raised the issue.

It’s offered affected guests a free taxi service to a hotel with an indoor pool five minutes drive away. Despite the inconvenience, no one is to receive compensation, but the company has finally agreed to reduce your booking to half board without charging the administration fee. As for the inexcusable delay in responding to your messages, the “social media team” who eventually contacted you, apologises but declares you’ll have to address any complaint to the “programme change team” on a premium rate phone number. However, you’re now happy with the settlement and say you’re finally able to look forward to your holiday.

Mark King is away.

You can email Anna Tims at your.problems@observer.co.uk or write to Anna Tims, Your Problems, The Observer, Kings Place, 90 York Way, London N1 9GU. Please include a phone number and an address.

Eurozone crisis live: EC presses Spain and France as investors dash for safety – as it happened

• EC warns of risk of financial disintegration
• Spain told to reform taxation…
• …France given a warning
• Banking union and eurobonds recommended
• ECB denies blocking Bankia plan
• Spanish bond yields above 6.6%

6.15pm: Time to stop the blog, after quite an eventful day in which the EC issued report cards on the eurozone, and investors scrambled for safety in the face of the ongoing crisis.

Here’s a closing summary:

The European Commission has warned that the eurozone faces ‘disintegration’ unless it takes swift steps to address the crisis. In its latest report on the economic health of the region, the EC called for closer banking ties, for the European firewall to directly recapitalise struggling banks, and for joint borrowing to be introduced. The EC also warned that the economic climate was troubling.

Spain were offered a lifeline by the EC. Olli Rehn, the EU’s economics affairs commissioner, said Madrid could be given until 2014 to bring its deficit down to 3% — if it presented a convincing budget that would bring its economy onto a sustainable path. The EC also expressed concerns over the Spanish budget plans, and warned France that it must do more or miss its own deficit targets.

It was another bad day on the stock markets. Shares fell across Europe, with the Spanish IBEX hitting a new nine-year low. The FTSE 100 closed 93 points lower. Amid the dash for safety, the euro fell below $1.24 against the dollar, while the yields on German, UK and US debt all fell again.

Peripheral countries suffered, amid fears that the crisis could drag them down. Italy’s 10-year bond yield rose over 6% after a worrying debt auction saw investors demand higher borrowing rates, while Spain’s 10-year yield climbed towards 6.7%

Ireland prepared to go to the polls on Thursday in its referendum on the EU fiscal treaty. While No campaigners portrayed the Treaty as a bloodthirsty shark, prime minister Enda Kenny warned that borrowing costs would leap unless the treaty was approved.

In other developments…. the European Central Bank denied blocking a proposal to recapitalise Spain’s Bankia with sovereign bonds, new opinion poll data from Greece was published, and Paul Krugman attacked the UK’s budget plans.

Thanks all — and Good Night.

5.42pm: Tomorrow will be an interesting day, with Ireland heading to the polls for its referendum on the EU fiscal treaty.

Ahead of the vote, the Irish prime minister has warned that a No vote would treble the cost of international borrowing to keep running the Republic’s public services and state jobs.

Henry McDonald reports from Dublin:

Enda Kenny insisted that borrowing costs for the state would be three times higher than today if the electorate rejects the EU treaty aimed at controlling national budgets.

Meanwhile his deputy prime minister Eamon Gilmore stressed that there would be no Lisbon Treaty style second vote if this current EU reform programme is rejected in today’s referendum. Sinn Fein and other parties dispute this claim arguing that a No vote would strengthen Ireland’s hand in going back to the EU for a better deal.

“Countries that ratify this have access to the ESM (European Stability Mechanism), countries that don’t won’t and the difference between 3% and 7% or even eight or 9% is enormous in the context of availability of funding, were that ever to be necessary,” Kenny said.

5.17pm: Unemployment in France has hit its highest level since September 1999, after the 12 monthly rise in a row.

Reuters reports that the number of registered jobseekers in mainland France rose by 4,500 to 2.89 million in April, up 0.1% from March. This is the first jobless data to be released since Francois Hollande took office. There’s more info here.

5.09pm: European stock markets suffered another dire day, with Spain’s stock market hitting a new nine-year low.

Here’s the damage:

FTSE 100: down 93 points at 5297, – 1.74%
DAX: down 116 points at 6280, -1.81%
CAC: down 69 points at 3015, – 2.24%
IBEX: down 161 points at 6090, -2.58%
FTSE MIB: down 234 points at 12872, – 1.79%

4.40pm: Crumbs, the yield on German two-year bunds just fell to ZERO in the bond market.

In other words, German debt is so highly prized that investors are prepared to pay so much that they get no return on the investment (other than somewere secure for their money). Capital preservation over income growth.
But as eurozone CPI was last recorded at 2.6% year-on-year, buying and holding German debt will not keep pace with inflation.

The broader message is that there is a rush into ‘safe haven’ bonds, and away from risky ones. This has been described as a “dumbbell trap“, with divergent economies clustering at one extreme or the other. A very bad thing for a single currency – how can monetary or fiscal policy be set for the benefit of both sides? How do you favour one side without unbalancing the whole thing? How to you persuade one side to act in the other side’s best interest?

Sony Kapoor of Re-Define has written a good piece on the “dumbbell trap” here. He explains that:

As things stand now, market panic about Italy & Spain, drives investors, wealth and talent towards Germany reinforcing the already massive divide between Spain, which is facing record high levels of unemployment and Germany which faces record low unemployment. For now, the crisis feels abstract in Germany & the flight to safety simply reinforces the perspective that many Germans hold that they are doing something right and if markets are panicking about Italy it can be resolved if only the Italians did more of what the Germans do.

This means that Germany has the ability to help the crisis countries in the Eurozone, but the dumbbell effect reduces its willingness to do so.

4.01pm: Two new opinion polls have been published in Greece today, ahead of the crucial June 17 elections.

I’ve only got the information off the newswires, alas, but here goes…

One poll, by Pulse, put New Democracy and Syriza neck-and-neck on 24.5%.

The other, by VPRC, put Syriza ahead on 30% followed by New Democracy with 26.5%, then Pasok on 12.5%.

Greek polling data can be tricky to interpret, as it can be unclear how ‘don’t-knows’ and abstentions have been handled. But it appears that these polls, which both show support for the ‘anti-bailout’ Syriza party holding up well, are the trigger that sent the euro falling.

3.47pm: More drama in the financial markets — the euro has dropped through the $1.24 mark, which is a new low since July 2010.

The renewed dash for safety sent the price of American debt rallying again, driving the yield on 10-year US Treasuries to a new 60-year low of 1.644% (going back 60 years, I believe).

There’s so much demand for German debt that the two-year bund was yielding just 0.005% this afternoon.

3.17pm: Over in Ireland, the battle between the Yes and No camp ahead of tomorrow’s referendum was in full swing today.

Opponents of the fiscal compact took inspiration from the classic Spielberg film Jaws to create this poster:

It hit the streets with less than 24 hours to before the Republic goes to the polls to ratify or reject the EU fiscal treaty.

Supporters of the treaty have also been busy, enlisting some famous Irish sport stars. International striker Niall Quinn and Ireland and Lions fly-half Ronan O’Gara appeared in papers today in pro-yes ads.

2.53pm: The euro is also plumbing new 22-month lows, and just touched $1.2408 against the US dollar.

2.38pm: The financial markets have resumed their downward spiral, as a brief burst of optimism that followed the publication of the EC’s proposals for closer banking ties burned out.

Shares on Wall Street have opened sharply lower, and in London the FTSE 100 is threatning to post a triple-digit loss.

Realism set in after reports hit the wires that Germany was not about to end its long-standing opposiition to refinancing banks using the European Stability Mechanism (as the EC proposes). And here’s the result:

Dow Jones: down 122 points at 12458, – 0.97%
FTSE 100: down 88 points at 5302, -1.65%
German DAX: down 85 points at 6311, -1.33%
French CAC: down 54 at 3030, – 1.75%
Spanish IBEX: down 119 points at 6132, – 1.9%

2.25pm: A quick heads-up – at 3pm BST, Comment Is Free is holding an online Q&A on the Greek crisis.

Professor Costas Lapavitsas, Professor Costas Douzinas and the journalist Aris Chatzistefanou will answer your questions as Greece heads towards crucial elections next month. You can get your questions in the queue from NOW..

2.02pm: Great question from Matina Stevis of the Wall Street Journal and Dow Jones — will other countries such as Ireland and Greece be given more time to lower their deficits and get their economies on track, as is being offered to Spain today.

Rehn responds that he doesn’t accept that Spain is being given leniency, insisting that the EC is simply considering “fiscal space and macroeconomic conditions”. Namely, that Spain is the only country in the eurozone which the EC’s expects to suffer negative growth in 2012 and 2013 (detail here)

Rehn added that:

For me this is a sound and sensible economic policy.

Hmmm. We don’t remember Greece being given much leeway when it repeatedly missed its fiscal targets after its first bailout (although that did pave the way to the second aid deal).

Anyway, the press conference has now ended.

2.00pm: Olli Rehn was asked whether he believes any parts of the Greek financial programme could be renegotiated following next month’s election (with some parties arguing for the Greek Memorandum to be tweaked, and others promising to tear it up).

Rehn defends the terms of the Greek programme, saying it “aims to bring Greece back to recovery and growth”. He doesn’t indicate that it can be alterered, saying:

We see that is a pact of solidarity between the rest of the eurozone, the other 16 states, on one hand and the greek parliament and people on the other.

From our point of view, it is important that all parties in this solidarity pact stick to their commitments.

1.27pm: Breaking news – Olli Rehn has said that the EC is prepared to extend Spain’s deadline for bringing its budget deficit into line by a year.

To qualify, Spain must present a solid budget plan for deficit reduction in 2013-2014, If it can do that, Madrid will be given until 2014 to bring its deficit down to 3% of GDP.

This must be good news for Spain – given its rising bond yields today (see 11.32am). Worth remembering that the EC has also warned that Mariano Rajoy’s government needs to make more ambitious plans, and impose more indirect taxes

Reh, vice-president of the EC in charge of Economic and Monetary Affairs, announced the change of approach as he outlined the details of the EC’s new assessment of the European economy (as covered from 12.03pm onwards)

1.17pm: José Manuel Barroso appeared to take a pop at Austria, when asked about the concerns of countries who would pick up the bill for rescuing the eurozone.

Barroso pointed out that certain EU countries have done very well out of the single currency union, and should remember that when asked to contribute to it. As he put it:

Austria is probably the one country that has gained most through the enlargement of the Europan Union. Other countries have not benefitted as much as Germany and Austria.

Barroso added that Germany is the biggest net contributer to the EU, and that he is always keen to thank Germany and all net contributers for their efforts.

Austrias has taken as tough a line as any eurozone country on Greece. Two weeks ago, finance minister Maria Fekter was criticised for saying that Greece could be forced out of the EU by its financial crisis.

1.04pm: José Manuel Barroso began his press conference to outline today’s report on the European economy (see 12.03pm onwards) by expressing sympathy to the victims of yesterday’s earthquake in Italy.

Moving to economic issues, Barroso argued that Europe is moving in the right direction on public finances, and also moving towards “greater integration in the euro area”.

Barroso stuck to broad-brush issues (I think Olli Rehn will do the detail shortly), insisting that the euro had delivered benefits, and wasn’t the cause of this crisis – on the grounds that countries who aren’t in the euro have also been caught up in the financial turmoil.

12.54pm: The EC’s press release outlining the details of today’s reports on the European economy (with links to the details) is online here.

It explains that the EC has just one recommendation to Greece, Ireland and Portugal: to “implement the measures agreed under their programme.”

12.50pm: Our Madrid correspondent Giles Tremlett has digested today’s report card on Spain, which includes a warning that Spanish banks may need to make more provisions against bad debts.

Here’s Giles’s rapid analysis:

The Commission recognises that Spain has made a considerable progress in restructuring its financial sector. “The policy response in this area has been ambitious compared to earlier measures and is in line with the Council recommendation,” it says.

But it adds the following. “The worsening of the macroeconomic outlook might require an increase in provisions, which would have an impact on the profitability of the banking system.

In addition, given the risk of bank funding stress, further strengthening of the capital base of banks may be required. It is therefore of paramount importance that the banking sector be sufficiently capitalised and that the on-going restructuring continues.”

Spain’s banks have already been ordered to set aside €82bn euros against toxic real estate over the past three months alone.

Mariano Rajoy’s reformist, conservative government gets rapped over the knuckles on taxes, with the commission wanting fewer direct tax hikes and more indirect taxes. In other words, it wants lower business and income taxes and higher VAT.

“Measures adopted by Spain in this area are not in line with the recommendation,” says the commission.

“Direct tax increases lead to a higher tax burden on labour and capital, which is considered to be particularly detrimental for growth,” it says. “Other tax increases which are considered to be less detrimental for growth, i.e. further increases in indirect taxation, have been explicitly excluded by the government.”

Spain gets a good report card from the European Union on pension reforms, having pushed reitrement ages up, but is told that its poor growth neutralizes part of the reform and, so, leaves the pension system in danger in the longer term.

“Overall, the reforms adopted so far are ambitious compared to earlier measures and represent a significant step in the right direction,” the commission says.

“However, the worsening of Spain’s economic outlook is limiting the impact of the reforms on the projected increase in age-related public expenditure, which is still expected to remain higher than the EU average by 2060,”it adds. “Indeed, Spain appears now to be at medium risk with regard to the sustainability of public finances in the long -term.”

12.38pm: José Manuel Barroso, president of the European Commission, is presenting the details of today’s report now.

You can see it live here.

Olli Rehn, the European Union’s monetary affairs chief, is expected to speak afterwards.

12.32pm: The EC also had stern words for Spain’s economic situation, accusing Mariano Rajoy’s government of simply not going far enough.

The commission’s Spanish report card included the line that:

The policy plans submitted by Spain are relevant, but in some areas they lack sufficient ambition to address the challenges.

It called for more ambition on issues such as banking regulation, administrative reform, labour market changes, growth and competitiveness.

12.27pm: Today’s EC report on economic strategy gives Francois Hollande a clear warning that France needs to do more to bring its deficit down.

The EC calls budgetary consolidation “one of the main policy challenges” for the new government in Paris, as it gets down to work.

France’s deficit is expected to come in around 4.4% of GDP this year, and only fall slightly in 2013 — leaving it some way above the EC’s target of 3%. The EC warns that France risks losing the confidence of the financial markets, saying:

The high level of public debt poses a threat to the sustainability of public finances, and the recent rise in bond spreads suggests that markets are concerned about the country’s fiscal position.

The commission also said Hollande must specify new measures necessary to ensure that “the excessive deficit is corrected by 2013.”

12.15pm: The key message within the 1,000 pages of reports issued by the European Commission is that the eurozone risks imploding unless it uses the tools at its disposal to calm the crisis.

From Brussels, our Europe editor Ian Traynor reports:

The eurozone is confronted with the prospect of “financial disintegration” and should use its new bailout fund to recapitalise distressed banks directly while embarking on a transnational banking union, the European commission said today.

Delivering more than 1,000 pages of diagnosis and policy prescriptions on the dire condition of the European economy and how to try to end almost three years of euro crisis, the commission also talked up the merits of eurobonds or pooling of eurozone debt, a proposal gaining in traction but strongly resisted for now by the biggest economy, Germany.

Ian’s full story is online here.

12.11pm: The stock markets staged something of a recovery after the EU report was released. From a 104 point loss at 11.59am, the FTSE is now down just 60 points.

The proposal for closer banking ties across the eurozone, and particularly the idea that the European Stability Mechanism could be used to repair bank balance sheets, has been welcomed by the City — on hopes that Spain’s battered financial sector could be helped in this way.

But this reaction may be premature – the EC recommending something is not the same as Europe’s wealthier agreeing to it, and paying for it.

12.07pm: The EC’s assessment of the Europe’s economy is pretty bleak, in its new report on the region (see 12.03pm for the topline):

The economic situation in the euro area deteriorated significantly over the last year. After contracting at the end of 2011 euro area GDP stabilised at the beginning of 2012. The loss of confidence due to the intensifying sovereign debt crisis, the oil price increases and the decelerating of world output growth have been weighing on growth.

While the risk of acute problems in the banking system has been eased by prompt policy action at the end of 2011, economic prospects remain sluggish.

The report also warns that the crisis could escalate, reigniting the “vicious feedback loop between the financial sector and the real economy”.

12.03pm: The European Commission’s report cards have just been released They’re packed with warning and recommendations, and there are some stern warnings for France over its budget deficit.

Here are some top-line recommendations:

The EC is recommending that the eurozone should move to a banking union. It also offers support for “joint debt issuance” (such as eurobonds?) saying it would help the eurozone through the crisis.

The EC is also recommending that stricken banks could be recapitalised through the eurozone’s bailout fund. That would be a BIG help to Spain.

On France, the EC is warning that it could miss its deficit targets for 2013 unless it takes “additional steps”.

More to follow!

11.47am: Manufacturers and retailers across the eurozone grew more pessimistic about the state of the economy this month, according to data released this morning.

The European Commission’s economic sentiment index slipped by 2.3 points in the 17-nation euro zone to 90.6 — that’s the lowest level recorded since October 2009.

More details here.

11.32am: Spanish 10-year bond yields have kept rising this morning above the 6.7% mark, edging closer to the 7% point which prompted Greece, Ireland and Portugal to take a bailout*.

According to data from Bloomberg, this puts the yield around the levels seen last November [update: it's not quite clear if this counts as a new euro-era high - we may have to see where it closes tonight].

This graph shows Spanish 10-year bond yield over the last year (but alasdoesn’t show today’s spike to above 6.7%, sorry).

* – Italy, though, breached the 7% mark last November and survived.

11.15am: With 45 minutes to go until the official EU progress reports are released (details here), Sony Kapoor of the Re-Define think tank has come up with his own report cards for a few members of the Euro class of 2012.

#EC report card: #Greece – Incorrigible #Portugal – Hard worker but.. #Spain – Problem Child #Germany – Star pupil but class bully #France -

— Sony Kapoor (@SonyKapoor) May 30, 2012

Any suggestions for others? Britain could easily get “Lacks Team Spirit”.

10.45am: The European Central Bank has issued a flat denial that it rejected Spain’s initial plan to recapitalise Bankia with sovereign bonds.

Here’s the official statement:

Contrary to media reports published today, the European Central Bank (ECB) has not been consulted and has not expressed a position on plans by the Spanish authorities to recapitalise a major Spanish bank.

The ECB stands ready to give advice on the development of such plans.

This is in response to the Financial Times front page story that the ECB had ‘bluntly rejected’ the scheme (as I blogged at 8.07am, it had more than a whiff of sovereign debt monetisation).

At the same time, Spain’s economy minister Luis De Guindos has announced that Bankia will be recapitalised through bonds issued by the Spanish bank rescue fund. So the original proposal appears to have been dropped (but the ECB insists they aren’t responsible…).

10.36am: This morning’s worrying Italian bond auction (see 10.20am) is another signal that the crisis is worsening, and that the problems in Spain and Greece are having a knock-on effect on Italy.

As Nicholas Spiro of Spiro Sovereign Strategy commented:

While things are going from bad to worse in Spain, the uncertainty surrounding Greece’s membership of the eurozone is weighing heavily on sentiment.

At the end of the day, Italy is the market that matters most in the single currency area. It is all the more worrying, then, that it is the country that is the least shielded by the eurozone’s financial “firewall”.

Alessandro Giansanti of ING told Reuters:

Yields and spreads are back to January levels, and the indication are the market is going back to the danger zone.

10.30am: There are reports in Spain today that the European Comission will today recommend that euro zone ministers give Spain one more year to meet its three percent deficit target for 2013.

Madrid correspondent Giles Tremlett has the details:

El País is reporting that Spain will be allowed to chop the budget more gradually, reaching three percent in 2014. Even then, the task is massive. Last year’s deficit was 8.9 percent. That means taking out an average of two percent of GDP from the deficit each year, rather than three percent.

In return, Brussels is recommending that Spain hikes sales tax, pays less to the unemployed, speeds up plans for later retirement and creates an independent budget watchdog.

Many commentators had considered the three percent target for 2013 impossible, despite government insistence that it would make it. But is it realistic to give Spain just one more year, or will it need more than that as it sinks back into recession and struggles with 24 percent unemployment?

El Pais has printed a draft (in Spanish) of the recommendations that Brussels is set to release today. It will be interesting to see if there are any changes.

10.20am: Bad news for Italy – its borrowing costs have risen sharply at an auction of €5.73bn of long-term government debt today

In today’s auction, Italy sold 10-year Italian bonds at an average yield of 6.03%, up from 5.84% at the last auction of this type. Demand for the debt also fell, with the bid-to-cover ratio coming in at 1.4 (vs 1.8 last time).

It also sold five-year bonds at yields of 5.66%, sharply up from 4.86% in April.

The news has sent its bond yields surging in the secondary bond market, to levels not seen since January (6.12% as I type).

Stock markets are also falling further, with the FTSE 100 now down 76 points at 5314.

10.14am: Amid the dash for safety this morning, the yield on UK 10-year gilts has fallen to a new record low of 1.709%.

German yields have also been hitting fresh record highs, as happens on an almost daily basis. It’s 10-year bund is yielding just 1.318%.

9.56am: Spain’s cental bank governor has admitted that the country’s tax receipts could fall below target.

Speaking in Madrid, Miguel Ángel Fernández Ordóñez also warned that goverment spending migtht be higher than anticipated. That would result in Spain’s budget deficit coming in above the levels agreed with the EU.

Ordóñez, who surprisingly announced last night that he will leave his post in June, a month early, recommended raising VAT this year, rather than in 2013 as planned.

9.31am: An update on the progress reports which the European Commission will release today, showing how the 27 members of the EU are performing.

The information will be released at noon BST, and European leaders including Olli Rehn will then brief the media in Brussels. Our Europe editor, Ian Traynor, is there.

The reports are a significant step towards closer fiscal ties within the EU. They will contain details of budgetary moves, structural changes and growth measures that the EU believes each country should take.

Brussels’ aim is that members who are scored badly in the ‘report cards’ could be forced to improve their performance, or be fined. New laws on budgetary discipline that were introduced at the start of this year gives Olli Rehn the power to ultimately impose fines of up to 0.2% of GDP on eurozone countries.

The New York Times points out that Brussels is struggling to keep pace with the eurozone crisis:

Between the adoption of the new budget enforcement rules last autumn and this incremental step, governments in Greece, Italy and France have fallen or been voted out of office. And Spain’s banking and debt crises are growing worse by the day

And AFP suggests that the Commission’s approach to France will show how serious it is about enforcing budget discipline:

The power to hit governments in the pocket is arguably the key tangible to arise from the two-year debt crisis, as the European Union tries to take active control of potential problems across the single market.

9.14am: Spanish bond yields continue to climb this morning, with the 10-year yields now above 6.6% (data via Tradeweb).

This graph shows how Spanish yields are climbing towards the levels seen during last November, before the European Central Bank began buying debt issued by both Spain and Italy.

Higher yields indicate that Spain would have to pay dearly when it issues new debt, at a time when its borrowing costs are already a concern. As Peter O’Flanagan of Clear Currency pointed out:

The Spanish economy is five times the size of Greece which makes many think the struggling nation is too big to bail out.

9.02am: More pain for Spain (sorry). The cost of insuring its debts against collapse has hit a new record high in the last few minutes.

The Spanish credit default swap jumped to 579 basis points this morning, a gain of 21 points.

In practice, that means it would cost €579,000 per year to insure €10m worth of Spanish bonds. A chunky rise in CDS prices generally means investors are pricing in a higher risk of default or debt restructuring.

8.52am: Paul Krugman, the Nobel-prize winning economist and Keynesian supporter, has weighed in on the Irish referendum over the EU fiscal compact, saying he would vote no.

Speaking on the Today Programme on Radio 4, Krugman argued that Ireland could send a “helpful message” to Brussels by rejecting the proposal for closer fiscal ties across the eurozone, when they vote tomorrow.

Krugman also attacked the UK government’s austerity policy as “deeply destructive”, claiming austerity could drive Britain into a depression. Full story here

Last night, Krugnam criticised George Osborne’s approach to the crisis, arguing that the Britsh government should become play the role of ‘spender of last resort’.

In a speech at the London School of Economics, Krugman said increased government spending and ‘exotic’ monetary policy was the best way to ride out the crisis:

If you want to worry about debt and deficits, fine, but this is the time, to quote St. Augustine, to say ‘Oh Lord, make me chaste and continent, but not yet.’”

8.43am: Italian government debt is also being hit this morning, which has pushed the yield on its 10-year bonds up above the 6% mark.

As this graph shows, Italian yields have been creeping higher since May, but we’re still away from the 7% levels seen last November before the collapse of Silvio Berlusconi’s government.

8.31am: Alarming signals in the bond markets for Spain this morning, where the yield on its 10-year debt has risen to 6.55%.

That’s closer to the 7% ‘danger zone’ where countries have lost the confidence of investors. It’s also pushes the ‘spread’ between Spanish and German 10-year bond yields to a new record high of 5.17 percentage points.

The Spanish-German spread is rather significant — if it doesn’t drop soon, then clearing houses (who handle bond sales) could raise their margin requirements, making it more expensive to trade Spanish bonds

With stock markets and the euro also falling (see previous posts), the crisis appears to be entering another dangerous phase today:

The #Eurocrisis is now coming to a head now. Only this time, a fudge won’t work

— Sony Kapoor (@SonyKapoor) May 30, 2012

Eurozone fudge? Doesn’t sound terribly healthy.

8.28am: The euro continued to fall in early trading — slipping to a new 22-month low of $1.24523 against the US dollar.

8.12am: European stock markets have fallen across the board in early trading, as investors grow ever more worried over the Spanish banking crisis.

In London the FTSE 100 has fallen 55 points to 5336, down just over 1%, with every blued chip share losing value. The German, French and Italian markets are down by similar amounts.

In Spain, the IBEX has shed another 2.1%, on top of yesterday’s losses which sent it to a new nine-year low. Bankia’s shares were badly hit again, tumbling by 15%.

Traders fear that the eurozone crisis is heading close to the the point of no return, warned Andrew Taylor of GFT Markets:

With Spain’s banking system on the brink of collapse, trader’s nerves are being tested as there is there is no short term foreseeable solution.

Whilst the ECB sit on the sidelines it seems Spain is just going through the motions.

8.07am: So why did the European Central Bank yesterday reject Spain’s cunning scheme to recapitalise troubled savings bank Bankia using its own bonds?

It appears that the ECB told Madrid that European rules outlawed the plan (under which Bankia would have cashed those bonds in at the ECB as collateral, in return for cash).

As the Financial Times reports this morning:

The ECB told Madrid that a proper capital injection was needed for Bankia and its plans were in danger of breaching an EU ban on “monetary financing,” or central bank funding of governments, according to two European officials.

But where else can Spain get the money from? The capital markets aren’t exactly desperate to lend to the country, with bond yields already close to the ‘danger zone…..

“This is like a game of poker now,” one government adviser told the FT, “and I don’t think Spain is bluffing”.

The ban on monetary finance is a cornerstone of conventional central bank thinking — governments rescue banks, not the other way around. But the sovereign debt crisis now so severe that some economists, such as Robin Bew of The Economist Intelligence Unit, believe monetisation of national debts may soon be the only way forward.

#ECB rebuffs #Spain recap of Bankia via indirect monetisation. Significant as monetisation may be only effective policy option in zone soon

— Robin Bew (@RobinBew) May 30, 2012

Incidentally, the ECB bought up billions of euros of Spanish and Italian sovereign bonds through its Securities Market Programme (SMP) a few months back, so you could argue that its already pushing the bounds of non-monetisation.

8.00am: Good morning and welcome to our rolling coverage of the eurozone financial crisis.

Coming up today — the European commission will release new report cards on the budget plans of the 27 members of the EU. These progress reports are eagerly anticipated, as they will probably contain copious pages of recommendations from the commission on how countries can stay on the right path (or struggle back to it). We’re expecting them to be released at 11am BST (noon Brussels time).

Spain’s report will be particularly interesting, at a time when its banking crisis continues to blaze. With no clear plan for recapitalising Bankia, speculation over the help needed by the banking industry, and a central bank governor quitting his job early, the pressure on Madrid is unrelenting.

Also coming up, new eurozone economic confidence data will be released, and Italy is holding its third bond auction of the week.

Eurozone crisis live: EC report cards calls for more effort from Spain and France

• EC warns of risk of financial disintegration

• …and gives France a warning
• Banking union and eurobonds recommended
• ECB denies blocking Bankia plan
• European markets fall, Bankia down 15%
• Spanish bond yields above 6.6%

1.27pm: Breaking news – Olli Rehn has said that the EC is prepared to extend Spain’s deadline for bringing its budget deficit into line by a year.

To qualify, Spain must present a solid budget plan for deficit reduction in 2013-2014, If it can do that, Madrid will be given until 2014 to bring its deficit down to 3% of GDP.

This must be good news for Spain – given its rising bond yields today (see 11.32am). Worth remembering that the EC has also warned that Mariano Rajoy’s government needs to make more ambitious plans, and impose more indirect taxes

Reh, vice-president of the EC in charge of Economic and Monetary Affairs, announced the change of approach as he outlined the details of the EC’s new assessment of the European economy (as covered from 12.03pm onwards)

1.17pm: José Manuel Barroso appeared to take a pop at Austria, when asked about the concerns of countries who would pick up the bill for rescuing the eurozone.

Barroso pointed out that certain EU countries have done very well out of the single currency union, and should remember that when asked to contribute to it. As he put it:

Austria is probably the one country that has gained most through the enlargement of the Europan Union. Other countries have not benefitted as much as Germany and Austria.

Barroso added that Germany is the biggest net contributer to the EU, and that he is always keen to thank Germany and all net contributers for their efforts.

Austrias has taken as tough a line as any eurozone country on Greece. Two weeks ago, finance minister Maria Fekter was criticised for saying that Greece could be forced out of the EU by its financial crisis.

1.04pm: José Manuel Barroso began his press conference to outline today’s report on the European economy (see 12.03pm onwards) by expressing sympathy to the victims of yesterday’s earthquake in Italy.

Moving to economic issues, Barroso argued that Europe is moving in the right direction on public finances, and also moving towards “greater integration in the euro area”.

Barroso stuck to broad-brush issues (I think Olli Rehn will do the detail shortly), insisting that the euro had delivered benefits, and wasn’t the cause of this crisis – on the grounds that countries who aren’t in the euro have also been caught up in the financial turmoil.

12.54pm: The EC’s press release outlining the details of today’s reports on the European economy (with links to the details) is online here.

It explains that the EC has just one recommendation to Greece, Ireland and Portugal: to “implement the measures agreed under their programme.”

12.50pm: Our Madrid correspondent Giles Tremlett has digested today’s report card on Spain, which includes a warning that Spanish banks may need to make more provisions against bad debts.

Here’s Giles’s rapid analysis:

The Commission recognises that Spain has made a considerable progress in restructuring its financial sector. “The policy response in this area has been ambitious compared to earlier measures and is in line with the Council recommendation,” it says.

But it adds the following. “The worsening of the macroeconomic outlook might require an increase in provisions, which would have an impact on the profitability of the banking system.

In addition, given the risk of bank funding stress, further strengthening of the capital base of banks may be required. It is therefore of paramount importance that the banking sector be sufficiently capitalised and that the on-going restructuring continues.”

Spain’s banks have already been ordered to set aside €82bn euros against toxic real estate over the past three months alone.

Mariano Rajoy’s reformist, conservative government gets rapped over the knuckles on taxes, with the commission wanting fewer direct tax hikes and more indirect taxes. In other words, it wants lower business and income taxes and higher VAT.

“Measures adopted by Spain in this area are not in line with the recommendation,” says the commission.

“Direct tax increases lead to a higher tax burden on labour and capital, which is considered to be particularly detrimental for growth,” it says. “Other tax increases which are considered to be less detrimental for growth, i.e. further increases in indirect taxation, have been explicitly excluded by the government.”

Spain gets a good report card from the European Union on pension reforms, having pushed reitrement ages up, but is told that its poor growth neutralizes part of the reform and, so, leaves the pension system in danger in the longer term.

“Overall, the reforms adopted so far are ambitious compared to earlier measures and represent a significant step in the right direction,” the commission says.

“However, the worsening of Spain’s economic outlook is limiting the impact of the reforms on the projected increase in age-related public expenditure, which is still expected to remain higher than the EU average by 2060,”it adds. “Indeed, Spain appears now to be at medium risk with regard to the sustainability of public finances in the long -term.”

12.38pm: José Manuel Barroso, president of the European Commission, is presenting the details of today’s report now.

You can see it live here.

Olli Rehn, the European Union’s monetary affairs chief, is expected to speak afterwards.

12.32pm: The EC also had stern words for Spain’s economic situation, accusing Mariano Rajoy’s government of simply not going far enough.

The commission’s Spanish report card included the line that:

The policy plans submitted by Spain are relevant, but in some areas they lack sufficient ambition to address the challenges.

It called for more ambition on issues such as banking regulation, administrative reform, labour market changes, growth and competitiveness.

12.27pm: Today’s EC report on economic strategy gives Francois Hollande a clear warning that France needs to do more to bring its deficit down.

The EC calls budgetary consolidation “one of the main policy challenges” for the new government in Paris, as it gets down to work.

France’s deficit is expected to come in around 4.4% of GDP this year, and only fall slightly in 2013 — leaving it some way above the EC’s target of 3%. The EC warns that France risks losing the confidence of the financial markets, saying:

The high level of public debt poses a threat to the sustainability of public finances, and the recent rise in bond spreads suggests that markets are concerned about the country’s fiscal position.

The commission also said Hollande must specify new measures necessary to ensure that “the excessive deficit is corrected by 2013.”

12.15pm: The key message within the 1,000 pages of reports issued by the European Commission is that the eurozone risks imploding unless it uses the tools at its disposal to calm the crisis.

From Brussels, our Europe editor Ian Traynor reports:

The eurozone is confronted with the prospect of “financial disintegration” and should use its new bailout fund to recapitalise distressed banks directly while embarking on a transnational banking union, the European commission said today.

Delivering more than 1,000 pages of diagnosis and policy prescriptions on the dire condition of the European economy and how to try to end almost three years of euro crisis, the commission also talked up the merits of eurobonds or pooling of eurozone debt, a proposal gaining in traction but strongly resisted for now by the biggest economy, Germany.

Ian’s full story is online here.

12.11pm: The stock markets staged something of a recovery after the EU report was released. From a 104 point loss at 11.59am, the FTSE is now down just 60 points.

The proposal for closer banking ties across the eurozone, and particularly the idea that the European Stability Mechanism could be used to repair bank balance sheets, has been welcomed by the City — on hopes that Spain’s battered financial sector could be helped in this way.

But this reaction may be premature – the EC recommending something is not the same as Europe’s wealthier agreeing to it, and paying for it.

12.07pm: The EC’s assessment of the Europe’s economy is pretty bleak, in its new report on the region (see 12.03pm for the topline):

The economic situation in the euro area deteriorated significantly over the last year. After contracting at the end of 2011 euro area GDP stabilised at the beginning of 2012. The loss of confidence due to the intensifying sovereign debt crisis, the oil price increases and the decelerating of world output growth have been weighing on growth.

While the risk of acute problems in the banking system has been eased by prompt policy action at the end of 2011, economic prospects remain sluggish.

The report also warns that the crisis could escalate, reigniting the “vicious feedback loop between the financial sector and the real economy”.

12.03pm: The European Commission’s report cards have just been released They’re packed with warning and recommendations, and there are some stern warnings for France over its budget deficit.

Here are some top-line recommendations:

The EC is recommending that the eurozone should move to a banking union. It also offers support for “joint debt issuance” (such as eurobonds?) saying it would help the eurozone through the crisis.

The EC is also recommending that stricken banks could be recapitalised through the eurozone’s bailout fund. That would be a BIG help to Spain.

On France, the EC is warning that it could miss its deficit targets for 2013 unless it takes “additional steps”.

More to follow!

11.47am: Manufacturers and retailers across the eurozone grew more pessimistic about the state of the economy this month, according to data released this morning.

The European Commission’s economic sentiment index slipped by 2.3 points in the 17-nation euro zone to 90.6 — that’s the lowest level recorded since October 2009.

More details here.

11.32am: Spanish 10-year bond yields have kept rising this morning above the 6.7% mark, edging closer to the 7% point which prompted Greece, Ireland and Portugal to take a bailout*.

According to data from Bloomberg, this puts the yield around the levels seen last November [update: it's not quite clear if this counts as a new euro-era high - we may have to see where it closes tonight].

This graph shows Spanish 10-year bond yield over the last year (but alasdoesn’t show today’s spike to above 6.7%, sorry).

* – Italy, though, breached the 7% mark last November and survived.

11.15am: With 45 minutes to go until the official EU progress reports are released (details here), Sony Kapoor of the Re-Define think tank has come up with his own report cards for a few members of the Euro class of 2012.

#EC report card: #Greece – Incorrigible #Portugal – Hard worker but.. #Spain – Problem Child #Germany – Star pupil but class bully #France -

— Sony Kapoor (@SonyKapoor) May 30, 2012

Any suggestions for others? Britain could easily get “Lacks Team Spirit”.

10.45am: The European Central Bank has issued a flat denial that it rejected Spain’s initial plan to recapitalise Bankia with sovereign bonds.

Here’s the official statement:

Contrary to media reports published today, the European Central Bank (ECB) has not been consulted and has not expressed a position on plans by the Spanish authorities to recapitalise a major Spanish bank.

The ECB stands ready to give advice on the development of such plans.

This is in response to the Financial Times front page story that the ECB had ‘bluntly rejected’ the scheme (as I blogged at 8.07am, it had more than a whiff of sovereign debt monetisation).

At the same time, Spain’s economy minister Luis De Guindos has announced that Bankia will be recapitalised through bonds issued by the Spanish bank rescue fund. So the original proposal appears to have been dropped (but the ECB insists they aren’t responsible…).

10.36am: This morning’s worrying Italian bond auction (see 10.20am) is another signal that the crisis is worsening, and that the problems in Spain and Greece are having a knock-on effect on Italy.

As Nicholas Spiro of Spiro Sovereign Strategy commented:

While things are going from bad to worse in Spain, the uncertainty surrounding Greece’s membership of the eurozone is weighing heavily on sentiment.

At the end of the day, Italy is the market that matters most in the single currency area. It is all the more worrying, then, that it is the country that is the least shielded by the eurozone’s financial “firewall”.

Alessandro Giansanti of ING told Reuters:

Yields and spreads are back to January levels, and the indication are the market is going back to the danger zone.

10.30am: There are reports in Spain today that the European Comission will today recommend that euro zone ministers give Spain one more year to meet its three percent deficit target for 2013.

Madrid correspondent Giles Tremlett has the details:

El País is reporting that Spain will be allowed to chop the budget more gradually, reaching three percent in 2014. Even then, the task is massive. Last year’s deficit was 8.9 percent. That means taking out an average of two percent of GDP from the deficit each year, rather than three percent.

In return, Brussels is recommending that Spain hikes sales tax, pays less to the unemployed, speeds up plans for later retirement and creates an independent budget watchdog.

Many commentators had considered the three percent target for 2013 impossible, despite government insistence that it would make it. But is it realistic to give Spain just one more year, or will it need more than that as it sinks back into recession and struggles with 24 percent unemployment?

El Pais has printed a draft (in Spanish) of the recommendations that Brussels is set to release today. It will be interesting to see if there are any changes.

10.20am: Bad news for Italy – its borrowing costs have risen sharply at an auction of €5.73bn of long-term government debt today

In today’s auction, Italy sold 10-year Italian bonds at an average yield of 6.03%, up from 5.84% at the last auction of this type. Demand for the debt also fell, with the bid-to-cover ratio coming in at 1.4 (vs 1.8 last time).

It also sold five-year bonds at yields of 5.66%, sharply up from 4.86% in April.

The news has sent its bond yields surging in the secondary bond market, to levels not seen since January (6.12% as I type).

Stock markets are also falling further, with the FTSE 100 now down 76 points at 5314.

10.14am: Amid the dash for safety this morning, the yield on UK 10-year gilts has fallen to a new record low of 1.709%.

German yields have also been hitting fresh record highs, as happens on an almost daily basis. It’s 10-year bund is yielding just 1.318%.

9.56am: Spain’s cental bank governor has admitted that the country’s tax receipts could fall below target.

Speaking in Madrid, Miguel Ángel Fernández Ordóñez also warned that goverment spending migtht be higher than anticipated. That would result in Spain’s budget deficit coming in above the levels agreed with the EU.

Ordóñez, who surprisingly announced last night that he will leave his post in June, a month early, recommended raising VAT this year, rather than in 2013 as planned.

9.31am: An update on the progress reports which the European Commission will release today, showing how the 27 members of the EU are performing.

The information will be released at noon BST, and European leaders including Olli Rehn will then brief the media in Brussels. Our Europe editor, Ian Traynor, is there.

The reports are a significant step towards closer fiscal ties within the EU. They will contain details of budgetary moves, structural changes and growth measures that the EU believes each country should take.

Brussels’ aim is that members who are scored badly in the ‘report cards’ could be forced to improve their performance, or be fined. New laws on budgetary discipline that were introduced at the start of this year gives Olli Rehn the power to ultimately impose fines of up to 0.2% of GDP on eurozone countries.

The New York Times points out that Brussels is struggling to keep pace with the eurozone crisis:

Between the adoption of the new budget enforcement rules last autumn and this incremental step, governments in Greece, Italy and France have fallen or been voted out of office. And Spain’s banking and debt crises are growing worse by the day

And AFP suggests that the Commission’s approach to France will show how serious it is about enforcing budget discipline:

The power to hit governments in the pocket is arguably the key tangible to arise from the two-year debt crisis, as the European Union tries to take active control of potential problems across the single market.

9.14am: Spanish bond yields continue to climb this morning, with the 10-year yields now above 6.6% (data via Tradeweb).

This graph shows how Spanish yields are climbing towards the levels seen during last November, before the European Central Bank began buying debt issued by both Spain and Italy.

Higher yields indicate that Spain would have to pay dearly when it issues new debt, at a time when its borrowing costs are already a concern. As Peter O’Flanagan of Clear Currency pointed out:

The Spanish economy is five times the size of Greece which makes many think the struggling nation is too big to bail out.

9.02am: More pain for Spain (sorry). The cost of insuring its debts against collapse has hit a new record high in the last few minutes.

The Spanish credit default swap jumped to 579 basis points this morning, a gain of 21 points.

In practice, that means it would cost €579,000 per year to insure €10m worth of Spanish bonds. A chunky rise in CDS prices generally means investors are pricing in a higher risk of default or debt restructuring.

8.52am: Paul Krugman, the Nobel-prize winning economist and Keynesian supporter, has weighed in on the Irish referendum over the EU fiscal compact, saying he would vote no.

Speaking on the Today Programme on Radio 4, Krugman argued that Ireland could send a “helpful message” to Brussels by rejecting the proposal for closer fiscal ties across the eurozone, when they vote tomorrow.

Krugman also attacked the UK government’s austerity policy as “deeply destructive”, claiming austerity could drive Britain into a depression. Full story here

Last night, Krugnam criticised George Osborne’s approach to the crisis, arguing that the Britsh government should become play the role of ‘spender of last resort’.

In a speech at the London School of Economics, Krugman said increased government spending and ‘exotic’ monetary policy was the best way to rise out the crisis:

If you want to worry about debt and deficits, fine, but this is the time, to quote St. Augustine, to say ‘Oh Lord, make me chaste and continent, but not yet.’”

8.43am: Italian government debt is also being hit this morning, which has pushed the yield on its 10-year bonds up above the 6% mark.

As this graph shows, Italian yields have been creeping higher since May, but we’re still away from the 7% levels seen last November before the collapse of Silvio Berlusconi’s government.

8.31am: Alarming signals in the bond markets for Spain this morning, where the yield on its 10-year debt has risen to 6.55%.

That’s closer to the 7% ‘danger zone’ where countries have lost the confidence of investors. It’s also pushes the ‘spread’ between Spanish and German 10-year bond yields to a new record high of 5.17 percentage points.

The Spanish-German spread is rather significant — if it doesn’t drop soon, then clearing houses (who handle bond sales) could raise their margin requirements, making it more expensive to trade Spanish bonds

With stock markets and the euro also falling (see previous posts), the crisis appears to be entering another dangerous phase today:

The #Eurocrisis is now coming to a head now. Only this time, a fudge won’t work

— Sony Kapoor (@SonyKapoor) May 30, 2012

Eurozone fudge? Doesn’t sound terribly healthy.

8.28am: The euro continued to fall in early trading — slipping to a new 22-month low of $1.24523 against the US dollar.

8.12am: European stock markets have fallen across the board in early trading, as investors grow ever more worried over the Spanish banking crisis.

In London the FTSE 100 has fallen 55 points to 5336, down just over 1%, with every blued chip share losing value. The German, French and Italian markets are down by similar amounts.

In Spain, the IBEX has shed another 2.1%, on top of yesterday’s losses which sent it to a new nine-year low. Bankia’s shares were badly hit again, tumbling by 15%.

Traders fear that the eurozone crisis is heading close to the the point of no return, warned Andrew Taylor of GFT Markets:

With Spain’s banking system on the brink of collapse, trader’s nerves are being tested as there is there is no short term foreseeable solution.

Whilst the ECB sit on the sidelines it seems Spain is just going through the motions.

8.07am: So why did the European Central Bank yesterday reject Spain’s cunning scheme to recapitalise troubled savings bank Bankia using its own bonds?

It appears that the ECB told Madrid that European rules outlawed the plan (under which Bankia would have cashed those bonds in at the ECB as collateral, in return for cash).

As the Financial Times reports this morning:

The ECB told Madrid that a proper capital injection was needed for Bankia and its plans were in danger of breaching an EU ban on “monetary financing,” or central bank funding of governments, according to two European officials.

But where else can Spain get the money from? The capital markets aren’t exactly desperate to lend to the country, with bond yields already close to the ‘danger zone…..

“This is like a game of poker now,” one government adviser told the FT, “and I don’t think Spain is bluffing”.

The ban on monetary finance is a cornerstone of conventional central bank thinking — governments rescue banks, not the other way around. But the sovereign debt crisis now so severe that some economists, such as Robin Bew of The Economist Intelligence Unit, believe monetisation of national debts may soon be the only way forward.

#ECB rebuffs #Spain recap of Bankia via indirect monetisation. Significant as monetisation may be only effective policy option in zone soon

— Robin Bew (@RobinBew) May 30, 2012

Incidentally, the ECB bought up billions of euros of Spanish and Italian sovereign bonds through its Securities Market Programme (SMP) a few months back, so you could argue that its already pushing the bounds of non-monetisation.

8.00am: Good morning and welcome to our rolling coverage of the eurozone financial crisis.

Coming up today — the European commission will release new report cards on the budget plans of the 27 members of the EU. These progress reports are eagerly anticipated, as they will probably contain copious pages of recommendations from the commission on how countries can stay on the right path (or struggle back to it). We’re expecting them to be released at 11am BST (noon Brussels time).

Spain’s report will be particularly interesting, at a time when its banking crisis continues to blaze. With no clear plan for recapitalising Bankia, speculation over the help needed by the banking industry, and a central bank governor quitting his job early, the pressure on Madrid is unrelenting.

Also coming up, new eurozone economic confidence data will be released, and Italy is holding its third bond auction of the week.

Eurozone crisis live: EC denies working on secret Greek exit plan

• EC: We want to keep Greece in eurozone, not out
• Trade commissioner: contingency plans are in place
• FTSE 100 hits new low for 2012
• Asian shares fall sharply
• Wolfgang Schäuble sees 12-24 months of turmoil
• Spain hit by bank downgrades

2.58pm BST: Missed this yesterday. Boris Johnson, Mayor of London, has reportedly given his backing to Greece while visiting Athens for yesterday’s Olympic flame ceremony, as only Boris can.

Athens News reports that Johnson told them that Greece should take solace from the fact that there’s no mechanism to eject a country from the eurozone, and that Germany must accept the price of saving the euro.

Or, as he put it:

If the Germans want to sell washing machines to Greece then they have to pay for the single currency.

You could argue that the underlying trade imbalances in the eurozone would be eased if the Greeks sold washing machines to the Germans. But, I guess Boris is more of a classics man than an economist.

please @AthensNewsEUtell us that @mayoroflondon Boris Johnson made the German washing machine quip… in fluent ancient Greek…

— Faisal Islam (@faisalislam) May 18, 2012

2.32pm BST: Just spoke to José Manuel Barroso’s spokesman, Simon O’Connor, who insists that Europe has not drawn up a emergency contingency plan for Greece today (despite various reports on this line today).

The commission is not working on the basis of a Greek exit scenario.

We are working to keep Greece in the euro.

The commission doesn’t want to be drawn officially on the comments made this morning by trade commissioner Karel De Gucht (see 10.15am), that the ECB and EC have ‘contingency plans’ to avoid a ‘domino effect’ from a Greek default. De Gucht’s comments are getting plenty of attention today, though.

It sounds as if Olli Rehn, the European Commission’s top economics official, has given Channel 4 News a similar line, in an interview being broadcast tonight.

Update:
As I blogged earlier, we’d long assumed that Europe was making some contingency plans for a Grexit (Mervyn King, Bank of England governor, has been clear that the UK authorities have been planning for such scenarios for a while). So, while there may not a full-blown contingency plan signed off and in place in Brussels, it would be more worrying (deeply irresponsible, really) if Rehn, Barroso, et al hadn’t put some work into the issue — given the proximity of the June 17 election in Greece.

1.45pm BST: The Irish economy continues to take a hit from its own debt laden, crisis stricken banking sector.

Bank of Ireland – one of the banks rescued in the international bail out – has announced today it is axing 1,000 jobs – 250 more posts than they had projected earlier this year.

From Dublin, Henry McDonald reports:

Chief executive Richie Boucher said that as the bank restructures “the overall number of people which we need to employ will regrettably reduce”.

However, the Irish Banking Officials Association – the trade union for bank workers in the Republic – welcomed the fact that all the job losses will voluntary redundancies.

While jobs continue to be lost in the banking sector there have been further glimmers of hope in the export-drive hi-tech sector in Ireland, with computer giant IBM revealed today that it hopes to create up to 300 new jobs at its Irish headquarters in west Dublin.

Speaking of Ireland, Henry flags up latest polling shows that the Labour party, the junior coalition partner, has fallen behind Sinn Fein in the latest opinion poll on the state of Ireland’s parties in today’s Irish Independent. Sinn Fein has 17 per cent support while Irish Labour are down to 15 per cent. The poll comes 24 hours after an opinion survey on Irish attitudes towards the EU fiscal treaty. Significantly up to 35% of the Irish electorate remains undecided on how to vote at the end of this month.

The results of the referendum will be known in a fortnight; a no vote could add to further de-stabilisation of the eurozone.

1.24pm BST: Anticapitalist campaigners have been demonstrating in Frankfurt today, as part of a protest called ‘Blockupy’.

According to local reports, police have begun removing people from outside a skyscraper that houses Goldman Sachs’ German operation. Some roads have been closed, and Reuters says 40 people have been detained.

The police presence appears quite high, given the small number of peaceful protesters, as these photos from The Wall Street Journal’s Laura Stevens show (there are more pics on her Twitter feed.:

#Blockupy #Frankfurt twitter.com/LauraStevensWS…

— Laura Stevens (@LauraStevensWSJ) May 18, 2012

#Blockupy #Frankfurt twitter.com/LauraStevensWS…

— Laura Stevens (@LauraStevensWSJ) May 18, 2012

Demonstrators have been protesting against Europe’s austerity programmes, and against the way the financial system operates. German banks have said their operations have not been affected by Blockupy.

1.13pm BST: Here’s some market commentary from David Jones of IG Index, confirming the grim mood in the City today:

With around 250 points gone on the FTSE 100 since last week, the 2012 uptrend that held for so long finally appears to have broken. The ugly prospect of bank runs appears to be spreading over Europe, rumours having hit Spanish banks yesterday to complement those heard about Greece earlier in the week.

As with so many things, it doesn’t matter if it’s actually true, since markets have worried about this for so long that the merest hint of capital flight raises investors’ hackles. Bond yields are on the march, and shares in London are
taking heavy losses once again.

12.47pm BST: Here’s more details of the European Commission’s official denial that it’s working on contingency plans for a Greek exit (via Market News)

The European Commission is not working on any contingency plans should Greece leave the Eurozone, a spokesperson for the Commission said on Friday.

“We completely deny that we are working on any such emergency plans” the spokesperson told MNI.

“We are concentrating all our efforts on supporting Greece and keeping it in the Eurozone. That is the scenario we are working on,” the spokesperson said.

Have been trying to speak to the Commission on this myself….

As reported at 10.15am EU trade commissioner Karel De Gucht appeared to tell Belgian newspaper De Standaard that contingency plans were well underway. Unfortunately, the online version of this article only includes part of the interview, so it’s tricky to know exactly what was said….

Open Europe, the think tank, says De Gucht has previous form on letting ‘the cat out of the bag’ on such issues….

12.27pm BST: In a volatile session, European stock markets have clawed their way back, amid ongoing chatter in the markets that a short-selling ban might be reintroduced. The FTSE 100 is still in the red (down 30 points at 5309), but other markets are a little higher.

Short-selling bans are usually brought in during times of crisis. They do tend to provide some short-term support for share prices, but don’t fix underlying problems….

12.04pm BST: The European Commission has now denied that is has been working on an exit plan for Greece, after trade commissioner Karel De Gucht told a Dutch newspaper that contingency plans had been drawn up (see 10.15am).

European Commission spokesman Olivier Bailly has said that the EC “denies firmly” that any such exit scenario is being worked on, and that the Commission still wants Greece in the eurozone. There is no secret Grexit plan, Bailly insisted.

#Barroso and #Rehn have been saying for 2 years that #EC wants #Greece to stay in #€. This remains TRUE! NO PLAN from #EC for #GREXIT.

— olivier bailly (@ECspokesOlivier) May 18, 2012

11.07am BST: While European stock markets have suffered again, there has been another surge of money into AAA-rated government bonds.

With investors desperate to find a safe home for their money, German bonds hit their highest levels ever. This pushed the yield (the measure of interest rate) on 10-year bunds down to a new alltime low of just 1.396% in early trading (Tradeweb date, via the Reuters terminal). UK 10-year gilts also strengthened, pushing down the yield to 1.81%.

Such record low yields suggest both countries will be able to borrow at very low rates at the present time. Economists, though, see record low yields as a sign of stagnation. Dr Gerard Lyons of Standard Chartered pointed out that a similar pattern was seen in Japan during its financial crisis 20 years ago.

During the lost decade in Japan a key sign of market throwing in the towel on the economy was when yields fell sharply – as now in Europe.

— Gerard Lyons(@DrGerardLyons) May 18, 2012

Lyons was on sharp form on the BBC this morning too, describing the tension between Greece and the rest of Europe as a poker game, in which “instead of both sides playing Aces at the last minute they will produce Jokers”.

10.55am: German chancellor Angela Merkel made a telephone call to the Greek president Karolos Papoulias this morning, to discuss the crisis.

A German government spokesman has just confirmed the call, explaining that Merkel “expressed the German government’s wish for a functioning government in Greece”. According to Greek TV, Papoulias will now brief caretaker PM Pikramenos on the discussion, so more details might come out later…

Seperately, a spokeswoman for the finance ministry has been quizzed about this morning’s report (see 10.15am) that the ECB has been working on contingency plans in case Greece leaves the eurozone. No details emerged, but she did say that:

Our citizens expect us to be prepared for every eventuality.

10.15am: EU trade commissioner Karel De Gucht has confirmed that the European Commission and the European Central Bank are working on an emergency scenario in case Greece should leave the euro zone.

While we’d rather assumed that contingency work was underway, I’m not aware of an official stating it before (shout out if you know better).

De Gucht made the comments in an interview with Belgian newspaper De Standaard, arguing that a ‘domino effect’ from a Greek exit could be contained:

Both within the European Central Bank and the European Commission, services that are working on emergency scenarios in case Greece doesn’t make it.

De Gucht declined to give details, and added that he still expects Greece to remain in the euro (quotes via Reuters’ Brussels office).

9.49am: In the financial markets, the FTSE 100 remains sharply lower, down 53 points at 5285, at its lowest point since 30 November.

This moves the UK blue-chip index deeper into ‘corrrection’ territory, from its recent high of 5965 in mid-March.

The German DAX and French CAC markets are also still in the red, both down around 0.6%.

But surprisingly, the Spanish stock market is actually up. Led by Bankia, whose shares have surged by 28% this morning. Quite a turnaround, following yesterday’s rumours of a bank run. Other financial stocks are also now up, despite Moody’s volley of downgrades last night.

That follows a report that Goldman Sachs has been hired to value Bankia – which could prelude a break-up.

UPDATE: A couple of City types have also mentioned a rumour that Spain might impose a ban on short selling (selling stocks which you don’t actually own). Nothing official though.

9.35am: The crisis in the Spanish banking sector comes nearly four years after Santander was playing a ‘white knight’ role during the UK’s own banking crisis.

Our banking expert Jill Treanor comments:

Interesting times for Santander UK. This was the bank that the Labour government turned to during the 2008 crisis to take on Bradford & Bingley savers. It also bought Alliance and Leicester just before the crash.

Now, unrelated to last nigh’s downgrade, its attempts at a stock market flotation – earmarked for two years ago – are now pushed back until at least next year. Even so, it still has a strong rating and has not been downgraded as much as the overall group.

9.13am: The proportion of bad debts sitting on the books of Spanish banks has risen to its highest level since August 1994.

Bank of Spain data showed that the bad loans rate across the Spanish banking sector rose to 8.37% in March. The number of loans falling into arrears increased by €1.6bn to €148bn.

That underlines the thinking behind Moodys’ downgrades last night – Spain’s banking sector is stuffed full of loans that turned sour once the property market crashed.

Those bad debts could grow significantly if the Spanish economy deteriorates, making it even harder for the Madrid government to recapitalise its banks and put them on a sound footing. As Nicholas Spiro of Spiro Sovereign Strategy points out:

Spanish bank restructuring is a moving target: the deeper the downturn, the bigger the scope for a further deterioration in asset quality.

8.55am: France’s new prime minister had stern words for European leaders this morning for their failure to help Greece through the financial crisis.

Jean-Marc Ayrault, a former German teacher, added his voice to the chorus calling for a new growth agenda. Ayrault urged Brussels to put spare structural funds to work to help the Greek economy return to growth:

We waited too long before helping Greece. This has been going on for two years now and only gets worse….

Tough talk, but not exactly unfair.

8.36am: German finance minister Wolfgang Schäuble said on Friday that the market turmoil surrounding the euro zone crisis could last another two years.

Speaking on France’s Europe 1 radio after Asian markets had tumbled, Schäuble said:

Regarding the crisis of confidence in the euro … in 12 to 24 months we will see a calming of the financial markets

And that, it seems, is Schäuble being optimistic. He also appeared to warn Greek voters not to trust parties who promise to renegotiate Greece’s financial progamme.

It’s up to Greek politicians to explain the reality to their people and not make false promises.
We want Greece to stay in the euro but meet its commitments and that’s a decision that’s up to the Greeks.

8.27am: Santander UK, which was downgraded one notch by Moody’s last, is stressing this morning that the downgrade won’t affect its business.

A spokesman said:

The change to Moody’s credit rating of Santander UK plc has no impact on our businesses in the UK or our plans for future growth. Santander UK plc is an autonomous subsidiary of the Santander Group, with more than 90% of its total assets held in the UK and a Eurozone sovereign exposure of less than 1% of assets.

Santander UK is a key player in the British financial sector, having acquired Alliance & Leicester, Abbey National and Bradford and
Bingley. It now has a higher credit rating than its parent company, following Banco Santander’s three-notch drubbing.

8.10am: European stock markets have fallen at the start of trading, with Spain’s IBEX showing the steepest losses.

The IBEX shed 128 points, or 2%, at the start of trading, hitting a new nine-year low of 6409 points. That follows Moody’s downgrading much of the Spanish banking sector last night (see 7.49am)

In London, the FTSE 100 is down 50 points at 5289, a new low for the year. Just four shares have risen, while mining companies and banks are leading the fallers. Rio Tinto, Xstrata, Lloyds Banking Group and Barclays are all down at least 2.5%.

It’s a similar tale across Europe, with the Italian FTSE MIB down 1.5% and the French and German markets dropping around 1%.

There’s a really downbeat mood in the City this morning. As Clive Duckitt, director at Fyshe Horton Finney, commented:

There seems little respite from the gloomy news that has engulfed equity markets in recent weeks.

7.56am: Risk aversion has driven the US dollar up this morning, as traders look to put their money somewhere safe.

This has pushed the euro down to a new four-month low of $1.2649 against the US dollar.

It has also pushed the oil price to its lowest level of the year, with a barrel of Brent crude dropping $1 to $106.40. That might actually bring some relief to the global economy, as high fuel and energy prices have been blamed for pushing up inflation.

7.49am: Moody’s decision to downgrade much of Spain’s banking sector last night has put country’s financial problems under even more scrutiny.

Some downgrades had been anticipated, but the scale of the move is still quite dramatic – with 16 banks downgraded in total and some, including the giant Santander, by three notches.

Moody’s blamed the weak Spanish economy (currently in recession), and the Madrid government’s reduced ability to support troubled lenders, given its own problems.

Amidst the ongoing euro area debt crisis, the Spanish government’s rising budget deficit and the renewed recession, sovereign creditworthiness has declined.

Spain’s banking sector was also reeling from reports, officially denied, that worried customers were pulling deposits out of Bankia.

As analysts at Investec comment, “It’s not going to go down in history as a great day for Spanish banks.”

7.38am: Asian markets were hit hard overnight by fears over the health of the Spanish banking sector, and the looming threat of a eurozone break-up.

In Tokyo, the Nikkei fell by 2.99% at 8611.31, its lowest level since January. The index has now fallen for seven weeks in a row — its worst performance since 2001. Hong Kong’s Hang Seng index is down -2.69%.

Ben Kwong, Hong Kong-based chief operating officer at KGI Asia, called it straight:

It’s really bad….

Fears of a Greek exit from the euro zone and the negative consequences from that are prevailing.

Australian stocks were also hit overnight, particulaly banks and miners (with National Australia Bank falling 4.23%, and Rio Tinto down 5%). Warnings that China’s economic growth might be lower than expected this year also hit sentiment.

Chris Weston, institutional trader at IG, was also in bleak mood, predicting a “dark and tiresome open” in European markets.

The world is bereft of good news

7.35am: Good morning, and welcome to our rolling coverage of the eurozone financial crisis.

Not that there’s much ‘good’ about this morning. The escalating crisis having sparked heavy losses in Asian stock markets overnight, and another sell-off expected in Europe today.

There are two factors behind the sell-off: Fitch downgrading Greece yesterday evening on concerns that it might soon leave the eurozone and default, and Moody’s decision to downgrade 16 Spanish banks.

Those two developments capture the essence of the crisis today – Greece pushed to the brink of euro exit by austerity, a long recession and an huge debt mountain, and Spain battling to avoid the same fate. We’ll be watching both countries today.

World leaders are gathering in the US for the G8 summit, facing the growing threat of a global downturn. Barack Obama is expected to demand that Europe bows to pressure at home and abroad with new policies to boost growth.

Pre-Qualification for Printing and Supply of Text Books DFiD

21371-2012: B-Brussels: study to support the preparation of the review of the Council Directive 2008/114/EC on the ‘identification and designation of European critical infrastructures (ECI) and the assessment of the need to improve their protection’

21371-2012: B-Brussels: study to support the preparation of the review of the Council Directive 2008/114/EC on the ‘identification and designation of European critical infrastructures (ECI) and the assessment of the need to improve their protection’
Publication date: 21-01-2012 | Deadline: | Document: Contract award

http://ted.europa.eu/udl?uri=TED:NOTICE:21371-2012:TEXT:EN:HTML

Eurozone crisis live: IMF warns of catastrophe as EC rebukes S&P over downgrades

• Meeeting between Merkel, Sarkozy and Monti delayed by ‘internal’ French issue
• Greek PM rules out return to drachma….
• …as unions plan more strikes.
• Moody’s ‘still assessing’ France’s credit rating
• What do you think about S&P’s downgrades?
• Today’s agenda
• Live-blogging now: @GraemeWearden

12.41pm: One of the International Monetary Fund’s top official has warned that the world economy could be dragged into catastrophe unless Europe gets its act together.

IMF First Deputy Managing Director David Lipton told an audience in Asia that the stakes are incredibly high:

Europe could be swept into a downward spiral of collapsing confidence, stagnant growth, and fewer jobs.

And in today’s interconnected global economy, no country and no region would be immune from that catastrophe. This is especially true for Asia.

The comments came after UK chancellor George Osborne appeared to plead for world governments to give the IMF more support.

Osborne told the Asia Financial Forum that leaders have a responsibility to “to ensure the IMF has the resources it needs to promote the global economic stability from which we all benefit”.

Osborne himself hinted last week that the UK could be persuaded to lend more to the IMF if the rest of the G20 agreed. That, though, would herald a battle with eurosceptic MPs – many on his own side.

12.35pm: If you want further evidence that fiscal austerity crushes growth, look at Ireland.

Davy, the Dublin-based asset management group, has predicted that the Republic’s GDP will only grow by 0.4% this year and 1.4% in 2013. This is a downgrade by Davy which had initially projected Irish GDP to grow by 1.7 per cent in 2012.

Henry McDonald, our Ireland correspondent, has more details:

Even exports, one of Ireland’s success stories in the recession, is expected to slow from 4.5% last year to only 2.8% in 2012, according to Davy. The company also predicts that that employment will fall this year by 0.4%

Crucially in terms of the eurozone crisis Davy said it does not expect Ireland to hit the targets set out for the budget deficit in 2012 and 2013.

It said the main reason for its revisions downward was the deterioration in consumer and investor confidence in the euro zone.

The organisation has revised down its forecast for consumer spending growth to a 1.7% decline in 2012 before a 0.5% expansion next year.

In addition, investment spending is expected to fall by 0.2% in 2012 and to rise by 4.4% in 2013.

Goodbody stockbrokers last week also downgraded its 2012 GDP forecast to 0.7% from 1.2%.

12.24pm: Divyang Shah, senior strategist at the International Financing Review, captures the essence of S&P’s concerns about Europe.

He writes that the current Eurozone rescue plan boils down to a belief that:

In order to solve the crisis, all that is needed is for peripheral countries to undertake fiscal austerity, and all that is needed to prevent a future crisis is for measures to be in place to prevent fiscal proficiency (the fiscal compact).

A comprehensive recue plan would include measures to address differences in economic competitiveness across the eurozone. Austerity, though, appears to be making that gulf even wider.

You can read more here.

11.57am: By criticising Standard & Poor’s for last Friday’s glut of downgrades (see 11.35am), the EC is ignoring the advice of the Liberal Democrat alliance within the European Parliament.

Guy Verhofstadt, president of the ALDE Group, is disappointed that no European leader has actually grasped S&P’s argument – that they are fixated with austerity and failing to develop a comprehensive response to the crisis.

Verhofstadt said:

Whatever one may think about the role of rating agencies in this crisis, it is clear that not a single European leader has heeded the S&P motivation for their downgrade.

They describe a monumental failure both in actually recognising the reasons for the eurozone crisis and in the ability to find adequate solutions.

I am no fan of rating agencies, but it does seem clear that they are simply describing the lack of political courage and leadership required to find a solution. They should not take all the blame for their sharp and critical assessment of the politicians’ failures. Rather European politicians should read the assessments and start putting their recommendations into effect.

11.35am: The European commission has rebuked Standard & Poor’s for daring to downgrade nine eurozone countries on Friday night.

EC spokesman Olivier Bailly told reporters in Brussels that the timing of the decision was “odd”, and claimed that S&P didn’t understand Europe’s rescue plan, because:

The idea expressed by the ratings agency that Europe is pursuing a strategy based on a pillar of fiscal austerity alone is a serious misperception.

[that follows S&P's warning that austerity on its own is potentially self-defeating, as it destroys growth and makes debt problems worse.]

Bailly continued:

We take note indeed of what Standard & Poor’s decided last Friday, but we believe… that it is inconsistent on substance and it’s really odd as far as the timing is concerned.

Bailly also told the press conference that there was “no indication” that the EFSF bailout fund’s credit rating could be downgraded.

Indication or not – France’s downgrade makes it highly likely, unless Germany increases its own guarantees (something Wolfgang Schäuble ruled out this morningsee 8.28am)

11.10am: News is breaking that the Italian-German-French summit that was scheduled for this Friday has just been postponed, until the end of February.

The surprise delay is being blamed on an ‘internal French political issue’ that prevents Nicolas Sarkozy from attending…..

The 20 January summit was billed as a chance for Sarkozy and Angela Merkel to agree the terms of the new EU fiscal compact with Mario Monti, ahead of the full European summit at the end of this month.

The cancellation may raise fears that the new fiscal rules will not be finalised in time.

11.07am: Mario Monti, Italy’s prime minister, has commented on the two-notch downgrade inflicted on Italy by Standard & Poor’s.

Monti insisted that his government of technocrats was taking “very positive” actions to address Italy’s troubled economy.

Somewhat curiously, he also said that it was important to “reduce the differences” between the eurozone and Great Britain. Not, one trusts, by dragging the UK into the mire….

Monti was speaking after meeting EU president Herman Van Rompuy today.

Van Rompuy also spoke to the media, and declared that Europe urgently needs an “anti-recession” strategy.

10.35am: The Economist Intelligence Unit isn’t convinced by the Greek prime minister’s claim that Greece will avoid a return to the drachma.

Charles Jenkins, economist at EIU, said the EU had blundered badly by leaving Greece to haggle with its creditors without their support. This left Athens with only one negotiating weapon – the threat of default.

The mismanagement of this issue is making it more likely that Greece will default in a disorderly way and be forced out of the euro.

Jenkins is also concerned that Papademos has been badly distracted by these negotiations since being parachuted in as Greece’s technocratic prime minister last November.

The Greek government has little time left to put in place credible fiscal and economic reforms before the forthcoming election likely by April and has been diverted by the fruitless negotiations on private sector involvement (PSI).

10.17am: Moody’s, one of S&P’s main rivals, has just announced that it will give its own verdict on France’s credit worthiness by the end of March.

At present Moody’s rates France as AAA with a stable outlook – which is now somewhat at odds with S&Ps view of AA+ with a negative outlook. Moody’s told the City this morning that it is ‘still assessing’ its rating, and will make a decision by the end of Q1 2012.

Moody’s said that:

France’s AAA rating could come under pressure if its debt/GDP ratio continue to rise and if the euro debt crisis worsens.

A second downgrade would be a major blow to Nicolas Sarkozy. Moody’s won’t act straight away, though – typically, an agency would lower a country’s outlook to ‘negative’, then put it on ‘Creditwatch’ before finally cutting the rating.

France is currently rated AAA with negative outlook with Fitch (the third member of the Big Three) – so Moody’s is currently taking the most optimistic view of France.

10.14am: Slovakia has shrugged off the impact of being downgraded by S&P – it successfully sold €294m of 12-month debt this morning, or twice as much as it had targeted.

The yield (or interest rate) on the bonds also fell slightly, to 1.96% from 2% last time.

9.58am: One interesting snippet of credit rating news from outside the eurozone — Fitch has just lowered its outlook on Russia from Positive to Stable.

That means there’s much less chance of Russia being upgraded from BBB anytime soon.

Fitch said that the global economic outlook has worsened, while political uncertainty in Russia has increased. That means there’s more risk of investors pulling their money out of Russia, and less chance of a robust fiscal stimulus package if the economy hits crisis.

9.45am: Britain is likely to retain its own AAA rating “for now”. That’s the verdict of Citigroup this morning, who clearly don’t agree with the German politician who argued on Friday that if France is downgraded, the UK should also be cut.

Despite running a larger deficit and national debt than France, the UK is obviously less directly vulnerable to the eurozone crisis than our friends over the channel. Britain also has the advantage of control over its currency — Sir Mervyn King and the MPC can ease monetary policy as much as they see fit, and buy up huge quantities of government debt through QE too.

9.21am: Greek workers are planning to mark the return of international inspectors to Athens tomorrow, by going on strike.

Helena Smith, our correspondent in Athens, has the details:

Militant communist-backed labour unionists are bracing for strike action in Greece tomorrow. It will be the first major industrial action of the new year and is well-timed: come dawn the first team of inspectors from the EU, IMF and ECB will have descended on Athens and they’re not in the best of moods.

Book checking in the coming weeks will intensify as they evaluate whether Greece, under its new interim coalition government, has gone beyond “talk talk” and is actually walking the walk in terms of finally enacting economic and structural reforms.

We’re also expecting tough negotiations between Greece’s business owners and workers’ unions when they meet on Wednesday to discuss possibly freezing pay and lowering the minimum wage. All part of the drive to make the Greek economy “more competitive”…

9.05am: Greece’s prime minister has insisted that the country will not be forced out of the euro and back to the drachma.

Lucas Papademos told CNBC that quitting the eurozone “is really not an option”. The unelected leader also claimed that negotiations with Greece’s creditors are going well:

Our objective is to complete the two processes and also to fulfill our commitments that have been made in the past … and we are confident that we’re going to achieve this.

But, but… talks over the Private Sector Involvement broke up on Friday without agreement, with the banks’ negotiators demanding a suspension and admitting that progress was disappointing.

Not according to Papademos, who argues that the ‘little pause’ in talks (they should restart on Wednesday) doesn’t matter, as Greece and its creditors are still hammering out a deal.

Some further reflection is necessary on how to put all the elements together. So as you know, there is a little pause in these discussions. But I’m confident that they will continue and we will reach an agreement that is mutually acceptable in time.

Time, though, is running out. Greece has got to agree a debt reduction deal with its creditors soon, so it can get its next aid tranche by March (when it must repay €14bn of maturing debt).

Papademos may not want to go back to the drachma – but if the PSI talks go sour, he may not have a choice….

8.43am: The amount of money being stashed overnight with the European Central Bank has hit yet another record high this morning – and is approaching half a trillion euros.

The ECB reported this morning that it accepted€493.2bn in overnight deposits from European banks on Friday evening. The amount being borrowed through its overnight loan facility also increased, to €2.38bn (from almost €1.5bn).

The overnight deposits figure has been hitting record levels in recent weeks, ever since the ECB pumped almost €500bn of cheap loans into the system. So what does this mean?

Some analysts say it is a clear sign of stress in the financial sector – with banks choosing to leave their assets with the ECB at a very low rate of return rather than lending them.

ECB head Mario Draghi has rubbished suggestions that the ECB’s plans have backfired. Last week, he insisted that the banks who took advantage of the cheap loan splurge are “by and large” not the same banks who are now depositing their funds with the ECB overnight.

Either way, €493.2bn is a lot of money to be switching between commercial banks and the ECB’s electronic vault.

8.28am: Germany’s finance minister took to the airwaves this morning to insist that Europe’s bailout fund will not be thwarted by S&P.

Wolfgang Schäuble told German radio channel Deutschlandfunk that Germany will not be forced to increase its guarantees to the European Financial Stability Facility (EFSF), to make up for France’s downgrade.

Schäuble insisted that Germany’s current pledge of €211bn will be quite sufficient, because:

The heads of government and states have decided to get the …permanent European Stability Mechanism (ESM) to supercede the EFSF already this year…

For the job that the EFSF has in coming months, the sum of guarantees is easily sufficient.

S&P stated on Friday night that the EFSF could still keep its own AAA rating if other countries increased their guarantees to make up for France’s loss of firepower [France and Germany are the two major backers of the EFSF, which raises funds for countries frozen out of the markets].

Schäuble appears to be suggesting that Germany won’t cough up – so an EFSF downgrade could soon follow…..

8.18am: Europe’s financial markets are open, and there’s no sign of panic.

In fact, the FTSE 100 has broken into positive territory (up 4 points at 5641).

Other markets are stuck in the red, though, with the Spanish IBEX down almost 1% in early trading and the French CAC losing 0.5%.

Nothing to get alarmed by, though. That reflects the fact that the S&P ratings cuts were expected.

As Stan Shamu of IG Markets commented this morning:

These downgrades should not have come as much of a surprise. In retrospect we may look back on them as the most flagged and blatantly obvious downgrades in history.

8.08am: It’s not a particularly busy day for economic news, but the bond markets should be busy. The highlight is probably an auction from France – will the AAA downgrade push up its borrowing costs?

Here’s today’s agenda:

• Italian inflation data for December – 9am GMT (10am CET)
• Italian government debt for November – 10am GMT (11am CET)

• France auctions up to €8.7bn of short-term debt. 1.50pm GMT
• Netherlands auctions three and six-month bills. From 10am GMT
• Slovakia auctions €2bn of 12-month bills. From 10am GMT

+ George Osborne visiting Hong Kong
+ Wall Street is closed for Martin Luther King day

7.54am: What do you think about Standard & Poor’s decision to downgrade nine eurozone countries?

Economic affairs commissioner Olli Rehn was quick to criticise, calling the move “inconsistent” at a time when the eurozone was taking “decisive action” to tackle the debt crisis.

Portugal also took badly to being relegated to Junk status, saying it “disagrees with S&P’s assessment”.

So is it simply a case of shooting the messenger? Or are ratings agencies simply taking on too much power? Should we even be worried about S&P’s views?

Here’s a reminder of the nine countries downgraded by S&P:

France: Downgraded by one notch, from AAA to AA+. Negative Outlook.
Austria: Downgraded by one notch, from AAA to AA+. Negative Outlook.
Malta: Downgraded by one notch, from A to A-. Negative Outlook.
Slovenia: Downgraded by one notch, from AA- to A+. Negative Outlook
Slovak Republic: Downgraded by one notch, from A+ to A. Stable Outlook

Cyprus: Downgraded by two notches, from BBB to BB+. Negative Outlook
Italy: Downgraded by two notches, from A to BBB+. Negative Outlook
Portugal: Downgraded by two notches, from BBB- to BB. Negative Outlook
Spain: Downgraded by two notches, from AA- to A. Negative Outlook.

7.45am: Good morning, and welcome to another day of rolling coverage of the eurozone financial crisis.

Two issues dominate the agenda today – Greece, following the breakdown in debt reduction negotations, and the aftermath of last Friday’s mass downgrades by Standard & Poor’s.

The situation in Greece worsens by the day. Talks between the Greek government and private lenders over a plan to reduce Greece’s debt by $130bn are now frozen until Wednesday. But the political pressure will continue to build on Lucas Papademos’s government, with speculation over a disorderly default growing.

Traders and analysts will also be reacting to the loss of France and Austria’s triple-A ratings, and the seven other downgrades announced by S&P after the markets closed last week. We don’t expect a major panic – the French downgrade was a real non-surprise – but will be tracking all the reaction.

There’s also a few debt auctions to look forward to. And, in the UK, warnings that the British economy is falling back into recession.