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Eurozone crisis live: Angela Merkel "suggests Greece holds euro referendum" Eurozone crisis live: Angela Merkel 'suggests Greece holds euro referendum'
(39 minutes later)
8.40pm: Our Greece correspondent Helena Smith has just worked the phones and says there is a view in Athens that Angela Merkel's suggestion may have been "lost in translation."
A high-level source told Helena:
My explanation after calling the prime minister's office is that Mrs Merkel may have said the election was like a referendum and the president may have misunderstood.
Because the details of the conversation were released by the president's office it is very difficult to verify but there is a feeling it was lost in translation.
So maybe it's not a farce, maybe it's a romcom.
From Greece, Theodora Oikonomides kindly reminds me that President Karolos Papoulias is a fluent German speaker. It seems that the full picture will only become clear if/when the transcript of the call is released...
8.19pm: Whatever the truth of the situation, Germany and Greece risk an embarrassing diplomatic spat over the claim that Angela Merkel proposed a euro membership referendum.
Many Greek citizens are already weary of the meddling in their elections from outside, so Merkel's apparent interjection is not going to help. For the rest of us, it reinforces the feeling that Europe still hasn't got a grip on the crisis.
So, Greece is denying a denial by Merkel that she suggested Greece hold a referendum, which it is doing anyway
— Chris Adams (@ChrisAdamsMKTS) May 18, 2012
Our European editor, Ian Traynor, also dispairs:
#euro greece and germany #headlesschickens
— Ian Traynor (@traynorbrussels) May 18, 2012
One can only imagine what Barack Obama will make of it at the G8 summit. Makes Washington look like a model of democratic efficiency (until the debt ceiling talks come round again, anyway).
7.58pm: This is turning into something of a farce.7.58pm: This is turning into something of a farce.
According to reports from Athens, the Greek government is now rejecting Berlin's denial, insisting that Merkel did suggest running a referendum alongside the June 17 vote.....According to reports from Athens, the Greek government is now rejecting Berlin's denial, insisting that Merkel did suggest running a referendum alongside the June 17 vote.....
7.21pm BST: The German government has now denied that Angela Merkel suggested that Greece should hold a referendum.7.21pm BST: The German government has now denied that Angela Merkel suggested that Greece should hold a referendum.
Reuters is quoting a German government spokesman that:Reuters is quoting a German government spokesman that:
This is false and we completely dismiss this.This is false and we completely dismiss this.
But as reported at 6.26pm, the statement from the Greek prime minister is pretty clear. It says that: "She [Merkel] also conveyed to the President of the Republic thoughts about the holding of a referendum parallel to the elections on the question of whether the Greek citizens wish to remain in the eurozone."But as reported at 6.26pm, the statement from the Greek prime minister is pretty clear. It says that: "She [Merkel] also conveyed to the President of the Republic thoughts about the holding of a referendum parallel to the elections on the question of whether the Greek citizens wish to remain in the eurozone."
So what exactly were Merkel's thoughts on the idea of a euro referendum, which wasn't being discussed until this evening....So what exactly were Merkel's thoughts on the idea of a euro referendum, which wasn't being discussed until this evening....
7.10pm BST: There's been a rapid backlash in Greece to the news that Angela Merkel had proposed that Greece should hold a referendum on its euro membership.7.10pm BST: There's been a rapid backlash in Greece to the news that Angela Merkel had proposed that Greece should hold a referendum on its euro membership.
Alexis Tsipras, head of the Syriza coalition, reacted quickly, saying Merkel had grown used to treating Greece "like a protectorate". He blamed the leaders of the mainstream political parties for encouraging this attiture.Alexis Tsipras, head of the Syriza coalition, reacted quickly, saying Merkel had grown used to treating Greece "like a protectorate". He blamed the leaders of the mainstream political parties for encouraging this attiture.
Tsipras (rising a wave of popularity by arguing that Greece's austerity package must stop), added that the June 17 elections will allow the Greek people to end their "austerity, subordination and indignity" in favour of "progressive developments across Europe".Tsipras (rising a wave of popularity by arguing that Greece's austerity package must stop), added that the June 17 elections will allow the Greek people to end their "austerity, subordination and indignity" in favour of "progressive developments across Europe".
You can see Tsipras's full statement here, on RadioBubble.You can see Tsipras's full statement here, on RadioBubble.
Antonis Samaras, the head of the conservative New Democracy party, also rejected the suggestion of a referendum, but for different reasons. Samaras said:Antonis Samaras, the head of the conservative New Democracy party, also rejected the suggestion of a referendum, but for different reasons. Samaras said:
The Greek people don't need a referendum to prove they're pro-euro.The Greek people don't need a referendum to prove they're pro-euro.
And Pasok MP Eva Kaili has also rejected Merkel's suggestion, telling Business Insider that the referendum:And Pasok MP Eva Kaili has also rejected Merkel's suggestion, telling Business Insider that the referendum:
won't and can't happen. It is ironic and it is blackmail.won't and can't happen. It is ironic and it is blackmail.
Efthimia Efthimiou, financial journalist at Capital.gr, suggests that Merkel would have been aware that Greece's current coalition government lacked the authority to call a referendum, but wanted to ensure that the June 17 election was seen as a vote on Greece's future in the eurozone.Efthimia Efthimiou, financial journalist at Capital.gr, suggests that Merkel would have been aware that Greece's current coalition government lacked the authority to call a referendum, but wanted to ensure that the June 17 election was seen as a vote on Greece's future in the eurozone.
6.45pm BST: Angela Merkel's jaw-dropping suggestion that Greece should hold a referendum on its membership of the eurozone (as the Athens government stated at 6.26pm) comes exactly 190 days after former prime minister George Papandreou resigned, after enraging European leaders including the German chancellor by suggesting the Greek people should vote on the terms of their second bailout.6.45pm BST: Angela Merkel's jaw-dropping suggestion that Greece should hold a referendum on its membership of the eurozone (as the Athens government stated at 6.26pm) comes exactly 190 days after former prime minister George Papandreou resigned, after enraging European leaders including the German chancellor by suggesting the Greek people should vote on the terms of their second bailout.
6.26pm BST: The Greek government has released a statement, confirming that Angela Merkel suggested to president Karolos Papoulias that Greece should hold a referendum on its membership of the eurozone.6.26pm BST: The Greek government has released a statement, confirming that Angela Merkel suggested to president Karolos Papoulias that Greece should hold a referendum on its membership of the eurozone.
The idea was then rejected by interim prime minister Panagiotis Pikramenos, as his caretaker administration simply does not have the authority to call a referendum.The idea was then rejected by interim prime minister Panagiotis Pikramenos, as his caretaker administration simply does not have the authority to call a referendum.
It's here, in Greek. Here's a translation of the key section in English, via Diane Shugart, who does a brilliant job of reporting Greek events on Twitter.It's here, in Greek. Here's a translation of the key section in English, via Diane Shugart, who does a brilliant job of reporting Greek events on Twitter.

Mrs Merkel reiterated the EU's support for Greece's efforts to overcome the crisis. She also mentioned that the EU intended to examine bolstering of policies aimed at growth and combatting unemployment in the European area. The issue of growth is, in any case, the basic issue that will occupy the extraordinary EU summit on May 23 in Brussels.
Mrs Merkel reiterated the EU's support for Greece's efforts to overcome the crisis. She also mentioned that the EU intended to examine bolstering of policies aimed at growth and combatting unemployment in the European area. The issue of growth is, in any case, the basic issue that will occupy the extraordinary EU summit on May 23 in Brussels.
She also conveyed to the President of the Republic thoughts about the holding of a referendum parallel to the elections on the question of whether the Greek citizens wish to remain in the eurozone. It is evident nonetheless that the issue is beyond the scope of the caretaker government.She also conveyed to the President of the Republic thoughts about the holding of a referendum parallel to the elections on the question of whether the Greek citizens wish to remain in the eurozone. It is evident nonetheless that the issue is beyond the scope of the caretaker government.
6.15pm BST: Some remarkable late breaking news in Greece – national TV are reporting that Angela Merkel, the German chancellor, told Greek president Karolos Papoulias today that Greece should hold a referendum on its membership of the eurozone, alongside the election of June 17.6.15pm BST: Some remarkable late breaking news in Greece – national TV are reporting that Angela Merkel, the German chancellor, told Greek president Karolos Papoulias today that Greece should hold a referendum on its membership of the eurozone, alongside the election of June 17.
We knew that Merkel and Papoulias had spoken by phone earlier today (see 10.55am), but this is an unexpected development....We knew that Merkel and Papoulias had spoken by phone earlier today (see 10.55am), but this is an unexpected development....
More to follow!More to follow!
6.10pm BST: An update on the situation at Santander UK following the one-notch Moody's downgrade last night, from my colleague Jill Treanor:6.10pm BST: An update on the situation at Santander UK following the one-notch Moody's downgrade last night, from my colleague Jill Treanor:
Steve Pateman, head of Santander UK's high street banking operations, says that today, since the blanket news coverage of its one-notch credit downgrade, there has been " a modest increase in outflows in our retail business of around £200m, but this is less than 0.2 % of our retail deposits, and is no cause for concern".Steve Pateman, head of Santander UK's high street banking operations, says that today, since the blanket news coverage of its one-notch credit downgrade, there has been " a modest increase in outflows in our retail business of around £200m, but this is less than 0.2 % of our retail deposits, and is no cause for concern".
He points out that the bank is getting in £500m weekly into its ISAs and has a £35bn liquidity buffer. He also points out: "We have no exposure to Greece. We are fundamentally a very simple bank that lends to UK businesses and
households," said Pateman.		He points out that the bank is getting in £500m weekly into its ISAs and has a £35bn liquidity buffer. He also points out: "We have no exposure to Greece. We are fundamentally a very simple bank that lends to UK businesses and
households," said Pateman.
"People have lost sight of the fact that this a one notch downgrade", he added, and keeps the bank in the same rating status as other UK banks."People have lost sight of the fact that this a one notch downgrade", he added, and keeps the bank in the same rating status as other UK banks.
The UK money is ringfenced from the Spanish parent. One way for it to flow back is through a dividend is one way - the last one was paid in the first half of 2011 - and is only done so if the board of the UK business wants to pay a dividend and if the Financial Services Authority approves.The UK money is ringfenced from the Spanish parent. One way for it to flow back is through a dividend is one way - the last one was paid in the first half of 2011 - and is only done so if the board of the UK business wants to pay a dividend and if the Financial Services Authority approves.
5.40pm BST: European Parliament president Martin Schulz has visited Greece today. In a speech given in Athens, the German social democrat spoke plainly about the pain suffered by ordinary Greeks, before insisting that austerity could not be avoided.5.40pm BST: European Parliament president Martin Schulz has visited Greece today. In a speech given in Athens, the German social democrat spoke plainly about the pain suffered by ordinary Greeks, before insisting that austerity could not be avoided.
Here's the details of Schulz's speech:Here's the details of Schulz's speech:
I understand your despair. I understand your resignation .I understand your anger.I understand your despair. I understand your resignation .I understand your anger.
European solidarity demands that we stand by each other. The citizens of Greece are not to blame for the current situation, and yet are having to bear the main burden of it.....European solidarity demands that we stand by each other. The citizens of Greece are not to blame for the current situation, and yet are having to bear the main burden of it.....
but, the first hard truth is this: austerity measures and structural reforms can not be circumvented. No EU country will release the next instalment of the EUR €130bn rescue package unless the next Greek government adheres to the commitments that have already been made.but, the first hard truth is this: austerity measures and structural reforms can not be circumvented. No EU country will release the next instalment of the EUR €130bn rescue package unless the next Greek government adheres to the commitments that have already been made.
If Greece wants the Troika to keep its promise to pay the next instalment, which Greece needs by the end of June at the latest, Greece must also keep its promisesIf Greece wants the Troika to keep its promise to pay the next instalment, which Greece needs by the end of June at the latest, Greece must also keep its promises
Trust is founded in the reliability of both partners. If the next Greek government does not keep the promises that have already been made and adhere to the agreements that have already been reached, many people in neighbouring countries will have the impression that Greece does not keep its word.Trust is founded in the reliability of both partners. If the next Greek government does not keep the promises that have already been made and adhere to the agreements that have already been reached, many people in neighbouring countries will have the impression that Greece does not keep its word.
If you give up now, the next instalment of the bailout will not be paid. What that means is that the Greek State will have no more money in future to pay salaries, to pay pensions, to pay unemployment benefit, to keep the schools and hospitals going.If you give up now, the next instalment of the bailout will not be paid. What that means is that the Greek State will have no more money in future to pay salaries, to pay pensions, to pay unemployment benefit, to keep the schools and hospitals going.
People who say that all you have to do is not pay anything back are failing to mention that Greece would then receive no more credit, either from banks or from countries. Those who say we don't accept the memorandum, but we will stay in the euro zone, nourish a fake hope.People who say that all you have to do is not pay anything back are failing to mention that Greece would then receive no more credit, either from banks or from countries. Those who say we don't accept the memorandum, but we will stay in the euro zone, nourish a fake hope.
The people who say that Greece need not abide by the agreements are failing to say that that can lead to only one thing, Greece's departure from the eurozone.The people who say that Greece need not abide by the agreements are failing to say that that can lead to only one thing, Greece's departure from the eurozone.
So, it's the same argument as European officials have been making for weeks, but with a more 'human' tone at the start to try and sweeten the austerity pill.So, it's the same argument as European officials have been making for weeks, but with a more 'human' tone at the start to try and sweeten the austerity pill.
And despite Brussels officials insisting that they remain impartial and will accept the result of June's election, Schulz's comments must be read as a call to back parties who accept the current financial programme deal, and not to vote for the Syriza coalition. Political impartiality is being stretched... And despite Brussels officials insisting that they remain impartial and will accept the result of June's election, Schulz's comments must be read as a call to back parties who accept the current financial programme deal, and not to vote for the Syriza coalition. Political impartiality is being stretched...
And, as regular reader James Wilkins points out:And, as regular reader James Wilkins points out:

If Martin Schulz manages to scare Greek voters into voting for New Democraty or Pasok so that they can form the next government I doubt it will last long because additional austerity measures are planned in addition to the ones already in place.
If Martin Schulz manages to scare Greek voters into voting for New Democraty or Pasok so that they can form the next government I doubt it will last long because additional austerity measures are planned in addition to the ones already in place.
I am fairly sure that NO government will be able to carry them out.I am fairly sure that NO government will be able to carry them out.
Agreeing the details of those new cutbacks/tax rises will be an early challenge for the next government.Agreeing the details of those new cutbacks/tax rises will be an early challenge for the next government.
5.15pm BST: Fitch has just followed up on last night's Greek downgrade, by cutting its ratings on the country's banks to CCC as well. They, like Greece itself until yesterday, has been rated at B-.5.15pm BST: Fitch has just followed up on last night's Greek downgrade, by cutting its ratings on the country's banks to CCC as well. They, like Greece itself until yesterday, has been rated at B-.
Inevitable, really, given last night's move (it's unusual for a bank to have a higher credit rating than its sovereign).Inevitable, really, given last night's move (it's unusual for a bank to have a higher credit rating than its sovereign).
Here's the rationale:Here's the rationale:
In the event that the new general elections scheduled for 17 June fail to produce a government with a mandate to continue with the EU-IMF programme of fiscal austerity and structural reform, an exit of Greece from EMU would be probable and/or this could be followed by a withdrawal of international support to Greek banks.In the event that the new general elections scheduled for 17 June fail to produce a government with a mandate to continue with the EU-IMF programme of fiscal austerity and structural reform, an exit of Greece from EMU would be probable and/or this could be followed by a withdrawal of international support to Greek banks.
A Greek exit would likely result in widespread default on private sector as well as sovereign euro-denominated obligations.A Greek exit would likely result in widespread default on private sector as well as sovereign euro-denominated obligations.
4.43pm BST: European stock markets have closed, and it's another day of losses as the eurozone crisis rumbles on.4.43pm BST: European stock markets have closed, and it's another day of losses as the eurozone crisis rumbles on.
In London, the FTSE 100 shed 70 points, led by the banks and the miners. The crisis has wiped £79.76bn off the blue-chip index in the last week.In London, the FTSE 100 shed 70 points, led by the banks and the miners. The crisis has wiped £79.76bn off the blue-chip index in the last week.
Somewhat ironically, the only one of the Big Five European indices to rise today was Spain, which shrugged off Moody's decision to downgrade its banks last night.Somewhat ironically, the only one of the Big Five European indices to rise today was Spain, which shrugged off Moody's decision to downgrade its banks last night.
Here's the closing scores in Europe:Here's the closing scores in Europe:
FTSE 100: down 70 points, or 1.33%, at 5267
German DAX: down 37 points, or 0.6%, at 6271
French CAC: down 3.99 points, or 0.13% at 3008.
FTSE MIB: down 40 points, or 0.3%, at 13048
Spain's IBEX: up 28 points, or 0.4%, at 6566.		FTSE 100: down 70 points, or 1.33%, at 5267
German DAX: down 37 points, or 0.6%, at 6271
French CAC: down 3.99 points, or 0.13% at 3008.
FTSE MIB: down 40 points, or 0.3%, at 13048
Spain's IBEX: up 28 points, or 0.4%, at 6566.
In London, Chris Beauchamp of IG Index dragged his eyes away from the Facebook IPO to comment:In London, Chris Beauchamp of IG Index dragged his eyes away from the Facebook IPO to comment:

Bulls will doubtless be glad to put this week behind them, having had to endure a wave of selling that has its origins in Europe. A modest attempt to recover during the afternoon was sparked by news that the Spanish government was hiring advisers to assist with bank rescue plans, and this helped Spanish and Italian markets to push into positive territory. However, the effect of this soon faded and the selling began anew as US markets opened.
Bulls will doubtless be glad to put this week behind them, having had to endure a wave of selling that has its origins in Europe. A modest attempt to recover during the afternoon was sparked by news that the Spanish government was hiring advisers to assist with bank rescue plans, and this helped Spanish and Italian markets to push into positive territory. However, the effect of this soon faded and the selling began anew as US markets opened.
The story remains identical to that seen throughout the week, namely a Greek exit from the euro and the possible repercussions.The story remains identical to that seen throughout the week, namely a Greek exit from the euro and the possible repercussions.
4.17pm BST: Britain would suffer a deep slump, perhaps as severe as the recession that began in 2008, if Greece left the euro - the chair of the Office for Budget Responsibility, Robert Chote, has said.4.17pm BST: Britain would suffer a deep slump, perhaps as severe as the recession that began in 2008, if Greece left the euro - the chair of the Office for Budget Responsibility, Robert Chote, has said.
In an interview with my colleague Andrew Sparrow, Chote was clear that a Grexit would be a severe blow to the UK economy, destroying economic activity that would be extremely hard to rebuild.In an interview with my colleague Andrew Sparrow, Chote was clear that a Grexit would be a severe blow to the UK economy, destroying economic activity that would be extremely hard to rebuild.
Chote, who approves the forecasts on which Britain's budget's are based, said:Chote, who approves the forecasts on which Britain's budget's are based, said:
The concern is that you end up with an outcome in the eurozone that creates the same sort of structural difficulties in the financial system and in the economy that we saw in the past recession, and that that has consquences both for hitting economic activity in the economy, but also its underlying potential.The concern is that you end up with an outcome in the eurozone that creates the same sort of structural difficulties in the financial system and in the economy that we saw in the past recession, and that that has consquences both for hitting economic activity in the economy, but also its underlying potential.
And it's the latter which has particular difficulties for the fiscal position, because it means not just that the economy weakens and then strengthens again – ie, it goes into a hole and comes out – but that you go down and you never quite get back up to where you started.And it's the latter which has particular difficulties for the fiscal position, because it means not just that the economy weakens and then strengthens again – ie, it goes into a hole and comes out – but that you go down and you never quite get back up to where you started.
Although Chote's speaking about the UK, the implications for other economies would also be severe. More here.Although Chote's speaking about the UK, the implications for other economies would also be severe. More here.
3.57pm BST: Interesting development at the Bank of England this afternoon – monetary policy committee member Adam Posen will not take a second term on the MPC, and is rejoining Washington's Peterson Institute as director.3.57pm BST: Interesting development at the Bank of England this afternoon – monetary policy committee member Adam Posen will not take a second term on the MPC, and is rejoining Washington's Peterson Institute as director.
Posen has been the most ardent supporter of quantitative easing, until a month ago when he surprisingly stopped voting for more electronic money to be created. With Posen not taking a second term, this means a vacancy on the MPC -- and perhaps less chance of the Bank launching QE3....Posen has been the most ardent supporter of quantitative easing, until a month ago when he surprisingly stopped voting for more electronic money to be created. With Posen not taking a second term, this means a vacancy on the MPC -- and perhaps less chance of the Bank launching QE3....
3.53pm BST: Stephen Harper, prime minister of Canada, is planning to use this weekend's G8 summit to bang some European heads together.3.53pm BST: Stephen Harper, prime minister of Canada, is planning to use this weekend's G8 summit to bang some European heads together.
Having watched the eurozone crisis rumble on for the past few years, Harper now appears determined to take a tough line during the talks in Maryland.Having watched the eurozone crisis rumble on for the past few years, Harper now appears determined to take a tough line during the talks in Maryland.
Andrew MacDougall, Harper's director of communications, told reporters in Ottowa that:Andrew MacDougall, Harper's director of communications, told reporters in Ottowa that:
The prime minister is of the opinion that this (the eurozone financial crisis) is the problem that needs to be talked about now, and I think it's good timing that we have this opportunity with some of the principals around a table.The prime minister is of the opinion that this (the eurozone financial crisis) is the problem that needs to be talked about now, and I think it's good timing that we have this opportunity with some of the principals around a table.
It seems like we've been discussing this issue for many a summit....It seems like we've been discussing this issue for many a summit....
Tough action needs to be taken...We need to get on top of this.Tough action needs to be taken...We need to get on top of this.
In the 1990s Canada, of course, pulled off an 'expansionary fiscal contraction' that conservatives often point to today. It cut public spending sharply, and still saw decent economic growth. Critics, though, argue that it's wrong to expct Europe to manage the same trick - as the world economy is in much worse shape today, and there's less margin for any new monetary easing (as policy is so loose already)...In the 1990s Canada, of course, pulled off an 'expansionary fiscal contraction' that conservatives often point to today. It cut public spending sharply, and still saw decent economic growth. Critics, though, argue that it's wrong to expct Europe to manage the same trick - as the world economy is in much worse shape today, and there's less margin for any new monetary easing (as policy is so loose already)...
3.32pm BST: On Wall Street, the Dow Jones industrial average has failed to claw much of yesterday's losses, despite the excitement of the Facebook IPO.3.32pm BST: On Wall Street, the Dow Jones industrial average has failed to claw much of yesterday's losses, despite the excitement of the Facebook IPO.
The Dow is up just 17 points at 12459, a gain of 0.13%. In London, the eurocrisis continues to weigh on shares with tthe FTSE 100 down 63 points at 5275.The Dow is up just 17 points at 12459, a gain of 0.13%. In London, the eurocrisis continues to weigh on shares with tthe FTSE 100 down 63 points at 5275.
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.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.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:Or, as he put it:
If the Germans want to sell washing machines to Greece then they have to pay for the single currency.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.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...please @AthensNewsEUtell us that @mayoroflondon Boris Johnson made the German washing machine quip... in fluent ancient Greek...
— Faisal Islam (@faisalislam) May 18, 2012— 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).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.The commission is not working on the basis of a Greek exit scenario.
We are working to keep Greece in the euro.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.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.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.		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.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.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: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".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.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.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.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.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'.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.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.: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…#Blockupy #Frankfurt twitter.com/LauraStevensWS…
— Laura Stevens (@LauraStevensWSJ) May 18, 2012— Laura Stevens (@LauraStevensWSJ) May 18, 2012
#Blockupy #Frankfurt twitter.com/LauraStevensWS…#Blockupy #Frankfurt twitter.com/LauraStevensWS…
— Laura Stevens (@LauraStevensWSJ) May 18, 2012— 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.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: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.
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.		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)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.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 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."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....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....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....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.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....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).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.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.#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— 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.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%.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.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.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— 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".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.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...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: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.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.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).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: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.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).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.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.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%.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.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.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.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.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: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.
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.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 1994.9.13am: 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.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.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: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.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.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: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....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.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.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: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 marketsRegarding 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.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.
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.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: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.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.		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.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)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%.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%.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'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.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.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.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.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.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.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.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.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.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."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.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%.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:Ben Kwong, Hong Kong-based chief operating officer at KGI Asia, called it straight:
It's really bad....It's really bad....
Fears of a Greek exit from the euro zone and the negative consequences from that are prevailing.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.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.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 newsThe world is bereft of good news
7.35am: Good morning, and welcome to our rolling coverage of the eurozone financial crisis.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.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.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.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.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.