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Eurozone crisis live: EC calls for more effort from Spain and France Eurozone crisis live: EC calls for more effort from Spain and France
(40 minutes later)
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.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.		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?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: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.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.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.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...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%.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%.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.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 2010.3.47pm: 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 record low of 1.644% (going back 60 years, I believe). 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.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.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: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.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.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.2.53pm: 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.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.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: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%		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.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..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.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 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:Rehn added that:
For me this is a sound and sensible economic policy.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.		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).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: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.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.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.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.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 taxesThis 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)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.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: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.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.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.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.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".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.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.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."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.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: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.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.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."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.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.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."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.""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.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."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.""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.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.You can see it live here.
Olli Rehn, the European Union's monetary affairs chief, is expected to speak afterwards.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.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 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.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.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.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.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: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 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."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.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: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.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.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.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.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.		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):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.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.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".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.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: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 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.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".On France, the EC is warning that it could miss its deficit targets for 2013 unless it takes "additional steps".
More to follow!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.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.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.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*.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].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).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.* - 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 2012.11.15am: 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 -#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— Sony Kapoor (@SonyKapoor) May 30, 2012
Any suggestions for others? Britain could easily get "Lacks Team Spirit".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.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: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.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.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).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...).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.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: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.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".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: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.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 2013.10.30am: 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: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.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.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?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.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 today10.20am: 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).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.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).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.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%.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%.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.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.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.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.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 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.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.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: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 dayBetween 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:
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.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).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.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: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.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.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.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.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.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.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 hereKrugman 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'.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: 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.'"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.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.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%.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.
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 bondsThe 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: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 workThe #Eurocrisis is now coming to a head now. Only this time, a fudge won't work
— Sony Kapoor (@SonyKapoor) May 30, 2012— Sony Kapoor (@SonyKapoor) May 30, 2012
Eurozone fudge? Doesn't sound terribly healthy.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.8.28am: 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%.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.