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| Eurozone crisis live: European Central Bank under pressure to act | Eurozone crisis live: European Central Bank under pressure to act |
| (40 minutes later) | |
| 9.31am: The UK construction sector kept expanding in May, but the growth did fall... and business confidence hit its lowest level since last October. | |
| Data just released by Markit showed that the UK Construction PMI came in at 54.4 in May, down on April's 55.8, but still well above the 50-point mark that separates growth from contraction. | |
| 9.26am: George Papaconstantinou, former Greek finance minister has warned today that Greeks face a choice between difficulty and catastrophe. | |
| Interviewed by Bloomberg TV this morning, Papaconstantinou argued that it was a serious mistake to think that Greece could exit the euro in an orderly fashion. | |
| Papaconstantinou (who negotiated the original Greek bailout in 2010 and was replaced by Evangelos Venizelos in June 2011), listed five things that need to be achieved to maintain stability in the eurozone: the fiscal pact; a new eurozone growth strategy; a common banking union; eurobonds; and closer political union. | |
| Otherwise, he suggested, the eurozone could fall, arguing that "the whole construct will be jeopardized" if one country is allowed to fall out of the ciurrency union. | |
| 8.51am: Our Madrid correspondent Giles Tremlett has this analysis of Spain's negotiating position, following Mariano Rajoy's call yesterday for greater fiscal and banking union: | |
| Spain's position, as I understand it, is that it is too big to fail – while the poorly-constructed euro if the source of its problems, and greater European union the only solution. | |
| If Spain falls, the argument goes, then the euro will go down as well because there is not enough money at the IMF and in the European rescue funds to bail out the euro zone's fourth biggest economy – and, anyway, Italy would be just behind it. That means a full country bailout - similar to those in Portugal, Ireland and Greece - is not an option. | |
| Decisions must be taken quickly, with the two weeks after the Greek elections key. Spain can hold on, but needs significant moves by European leaders by the end of June. | |
| As markets now see that the euro zone is not viable in its current format, the only solution to Spain's problems – and the only way to keep the euro alive – is a promise of fiscal and banking union, while Europe's leaders must make it absolutely clear that they will not let the euro fall. The promise should immediately relieve much of the pressure on Spain's sovereign debt. | |
| The question of how to raise money for those Spanish banks that need further state aid (including the €19bn Bankia has asked for, but has not yet been formally granted) does not have to be answered yet. Much, anyway, will change over the coming weeks. | |
| All this means giving up a share of sovereignty. That is no problem for Spaniards, who are fervently pro-European - though they know others will not be so easy to convince. Some sort of basic agreement, however, would be needed by or at the EU summit meeting at the end of the month. | |
| The Maastricht process could be taken as an example. This would mean fixing a final objective, the intermediate steps and the qualifying conditions for the new union. That would allow the process to be spread out over time but with clear markers along the way to indicate that it is on track. The hope is that markets will relax as soon as they see that the path forward is clear. The European Central Bank could step in temporarily to provide liquidity if needed. Europe, in short, must either double the bet on the euro, or abandon it. It must do this soon. Spain is counting on the rest of Europe deciding that the euro is worth it and, so, doubling the bet. | |
| 8.34am: Last night Warren Buffett added his voice to those calling for closer integration in Europe, with one of his trademark eyecatching quotes. | 8.34am: Last night Warren Buffett added his voice to those calling for closer integration in Europe, with one of his trademark eyecatching quotes. |
| The 'Sage of Omaha' told the Economic Club of Washington that the eurozone cannot keep operating a common currency without running common fiscal policy or "culture" alongside it. Or, as he put it: | The 'Sage of Omaha' told the Economic Club of Washington that the eurozone cannot keep operating a common currency without running common fiscal policy or "culture" alongside it. Or, as he put it: |
| It can't be half slave and half free....European leaders need to resolve some of the union's weaknesses. | It can't be half slave and half free....European leaders need to resolve some of the union's weaknesses. |
| Critics of fiscal union, of course, are unhappy that they will surrender freedom by signing up to rules under which Brussels has the power to query their budgets or impose fines for excessive deficits. | |
| Buffett also argued that the US will avoid a recession in the near term, unless the crisis in Europe "spills over in a big way" (more details here) | Buffett also argued that the US will avoid a recession in the near term, unless the crisis in Europe "spills over in a big way" (more details here) |
| 8.18am: Spanish industrial output fell sharply in April, data just released has shown, in further proof that the country's economy is deteriorating. | 8.18am: Spanish industrial output fell sharply in April, data just released has shown, in further proof that the country's economy is deteriorating. |
| Output dropped by 8.3% in April on a seasonally adjusted basis. Production of consumer durable goods slumped by 16%, while output of capital goods (such as heavy machinery) tumbled by 14.9%. | Output dropped by 8.3% in April on a seasonally adjusted basis. Production of consumer durable goods slumped by 16%, while output of capital goods (such as heavy machinery) tumbled by 14.9%. |
| 8.12am: European stock markets have opened higher, with traders pushing share prices up in London as the City gets back to work after the Diamond Jubilee. | 8.12am: European stock markets have opened higher, with traders pushing share prices up in London as the City gets back to work after the Diamond Jubilee. |
| FTSE 100: up 43 points at 5304, + 0.87% German DAX: up 55 points at 6024, + 0.88% French CAC: up 21 points at 3007, + 0.7% Spanish IBEX: up 31 points at 6297, + 0.5% Italian FTSE MIB: up 69 points at 13043, + 0.5% | FTSE 100: up 43 points at 5304, + 0.87% German DAX: up 55 points at 6024, + 0.88% French CAC: up 21 points at 3007, + 0.7% Spanish IBEX: up 31 points at 6297, + 0.5% Italian FTSE MIB: up 69 points at 13043, + 0.5% |
| Andrew Taylor, strategist at GFT Markets, said there was a 'groundswell' of optimism that eurozone leaders could be jolted into taking new steps. | Andrew Taylor, strategist at GFT Markets, said there was a 'groundswell' of optimism that eurozone leaders could be jolted into taking new steps. |
| Most of it centres on calls to actions from most notably the Spanish treasury and G7 financial chiefs. Their demand for immediate response to Spain's escalating funding issue and the EU debt crisis as a whole seems to have pricked the ears of traders globally. | Most of it centres on calls to actions from most notably the Spanish treasury and G7 financial chiefs. Their demand for immediate response to Spain's escalating funding issue and the EU debt crisis as a whole seems to have pricked the ears of traders globally. |
| However, like the numerous times before, it is really a matter of when will they stop talking about what is needed and instead action what is needed. | However, like the numerous times before, it is really a matter of when will they stop talking about what is needed and instead action what is needed. |
| 8.06am: City analysts are divided over whether the European Central Bank will cut interest rates today, although a clear majority expect No Change. | 8.06am: City analysts are divided over whether the European Central Bank will cut interest rates today, although a clear majority expect No Change. |
| Out of 60 economists surveyed, 48 forecast that interest rates will remain at 1%, while 11 predicted a cut to 0.75%. One bold forecaster plumped for a 50 basis point cut, to 0.5%. Unlikely. | Out of 60 economists surveyed, 48 forecast that interest rates will remain at 1%, while 11 predicted a cut to 0.75%. One bold forecaster plumped for a 50 basis point cut, to 0.5%. Unlikely. |
| The ECB's position in recent months has been that national governments need to use the 'window of opportunity' created by initiatives such as the €1trn of cheap loans recently handed to banks through its Long Term Refinancing Operations. So Mario Draghi is more likely to signal that rate cuts may be close. | The ECB's position in recent months has been that national governments need to use the 'window of opportunity' created by initiatives such as the €1trn of cheap loans recently handed to banks through its Long Term Refinancing Operations. So Mario Draghi is more likely to signal that rate cuts may be close. |
| 7.54am: Another interesting developmoent overnight - Australia's economy posted surprisingly strong economic growth in the first quarter of 2012, defying predictions that the eurozone crisis would dent demand. | 7.54am: Another interesting developmoent overnight - Australia's economy posted surprisingly strong economic growth in the first quarter of 2012, defying predictions that the eurozone crisis would dent demand. |
| Australian GDP rose by 1.3% in Q1 2012, more than twice the 0.6% pencilled in by economists. As Michael Blythe, chief economist at Commonwealth Bank of Australia, put it: | Australian GDP rose by 1.3% in Q1 2012, more than twice the 0.6% pencilled in by economists. As Michael Blythe, chief economist at Commonwealth Bank of Australia, put it: |
| Rumours of the economy's death have been totally exaggerated....It does tell you we had a decent amount of momentum in the run-up to the latest round of the European woes, and it's not a bad place to be in. | Rumours of the economy's death have been totally exaggerated....It does tell you we had a decent amount of momentum in the run-up to the latest round of the European woes, and it's not a bad place to be in. |
| 7.50am: Overnight, Moody's cut its rating on six German and three Austrian banks, blaming the impact of the eurozone crisis. | 7.50am: Overnight, Moody's cut its rating on six German and three Austrian banks, blaming the impact of the eurozone crisis. |
| The downgrades follow Moody's ongoing review of Europe's banking sector, and are generally less severe than its recent downgrades of Spain's banks (with most of the banks only being cut by one notch). | The downgrades follow Moody's ongoing review of Europe's banking sector, and are generally less severe than its recent downgrades of Spain's banks (with most of the banks only being cut by one notch). |
| Moody's warned that German lenders could see their assets shrink in value if the euro zone crisis deepens, saying: | Moody's warned that German lenders could see their assets shrink in value if the euro zone crisis deepens, saying: |
Today's rating actions are driven by the increased risk of further shocks emanating from the euro area debt crisis. | Today's rating actions are driven by the increased risk of further shocks emanating from the euro area debt crisis. |
| We have more details here. | We have more details here. |
| 7.45am: Good morning, and welcome to our rolling coverage of the eurozone financial crisis. | 7.45am: Good morning, and welcome to our rolling coverage of the eurozone financial crisis. |
| Fears over Spain continue to dominate the eurocrisis, after its prime minister yesterday pleaded for help to recapitalise its banks and warned that Spain is in a situation of "extreme difficulty". | Fears over Spain continue to dominate the eurocrisis, after its prime minister yesterday pleaded for help to recapitalise its banks and warned that Spain is in a situation of "extreme difficulty". |
| With Germany refusing to allow Spain's banks to be bailed out without a formal request from the Spanish government, and Madrid opposed to such a move, there is still deadlock at the heart of the eurozone crisis. | With Germany refusing to allow Spain's banks to be bailed out without a formal request from the Spanish government, and Madrid opposed to such a move, there is still deadlock at the heart of the eurozone crisis. |
| The main event today is the monthly meeting of the European Central Bank. The ECB is unlikely to cut interest rates (although you never know …), but it could announce some other ways to stimulate the eurozone economy. Either way, Mario Draghi's press conference this afternoon will be closely watched. | The main event today is the monthly meeting of the European Central Bank. The ECB is unlikely to cut interest rates (although you never know …), but it could announce some other ways to stimulate the eurozone economy. Either way, Mario Draghi's press conference this afternoon will be closely watched. |
| There's plenty of economic news this morning too, including a second estimate of eurozone GDP for the first quarter of 2012 (the first reading came in at 0% change), and data from the UK construction sector. | There's plenty of economic news this morning too, including a second estimate of eurozone GDP for the first quarter of 2012 (the first reading came in at 0% change), and data from the UK construction sector. |
| In the City, traders return to work after the Diamond Jubilee weekend. Shares are expected to rise, on hopes that world leaders may make progress in solving the crisis when they gather for the G20 Summit in Mexico later this month. | In the City, traders return to work after the Diamond Jubilee weekend. Shares are expected to rise, on hopes that world leaders may make progress in solving the crisis when they gather for the G20 Summit in Mexico later this month. |
| Here's today's agenda: | Here's today's agenda: |
| • Spanish industrial production: 8am BST / 9am CEST • UK construction PMI: 9.30am BST • First revision of eurozone GDP: 10am BST / 11am CEST • German industrial production: 11am BST / noon CEST • European Central Bank decision on monetary policy: 12.45pm BST / 1.45pm CEST • European Central Bank press conference: 1.30pm BST / 2.30pm CEST | • Spanish industrial production: 8am BST / 9am CEST • UK construction PMI: 9.30am BST • First revision of eurozone GDP: 10am BST / 11am CEST • German industrial production: 11am BST / noon CEST • European Central Bank decision on monetary policy: 12.45pm BST / 1.45pm CEST • European Central Bank press conference: 1.30pm BST / 2.30pm CEST |