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| Eurozone crisis live: Spain under pressure as EU publishes report cards | Eurozone crisis live: Spain under pressure as EU publishes report cards |
| (40 minutes later) | |
| 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. | |
| 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 abover 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 entering another dangerous phase: | |
| 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. | 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 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: | 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. | 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. | 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? | 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). | 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: | 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. | 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..... | 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". | "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. | 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 | #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 | — 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. | 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. | 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). | 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. | 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. | Also coming up, new eurozone economic confidence data will be released, and Italy is holding its third bond auction of the week. |